TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 923
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....e [earned AO suffers from jurisdictional error as the Ld. AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the Ld. Transfer Pricing officer ("TPO"/ "Ld. TPO") for computation of the arm's length price("ALP") as is Required under section 92CA(1 )of the Act. 3. The Ld. AO/ Ld. TPO has erred on facts and in law in enhancing the income of the eligible Assessee by Rs 9,42,35,339/- by holding that the international transactions do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 4. The order of the Learned AO/TPO is violative of the principles of natural justice and void ab-initio and needs to be cancelled in as much as the eligible assessee as not provided with the mandator, Show cause Notice or an opportunity of being heard as required under the provisions of Section 92C(3) of the Act; 5. The Ld AO/Ld. TPO has erred on facts and in law by disregarding multiple year/ prior years' ....
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.... Assessee; 11.1 Introducing Genesys International Corp. Ltd., in the final comparable set which comparable is functionally/qualitatively dissimilar to the appellant. 11.2 Introducing Infosys Ltd., in the final comparable set which comparable is functionally/qualitatively dissimilar to the appellant. 11.3 Introducing Larsen Et Toubro Infotech Ltd., in the final comparable set which comparable is functionally/qualitatively dissimilar to the appellant. 11.4 Introducing Spry Resources India Pvt. Ltd., in the final comparable set which comparable is functionally/qualitatively dissimilar to the appellant. 12. Without prejudice to the above, the learned TPO has erred on facts and in law by rejecting certain companies in the final comparable set which were functionally/ qualitatively similar to the Assessee and hence ought to have been included in the final list of comparables; 12.1 Excluding Akshay Software Technologies Ltd., from the final comparable set which comparable is functionally/qualitatively comparable to the Appellant on an erroneous conclusion that its Functions not clear. 12.2 Excluding Blue Star Infotech Limited from the final comparable set which compar....
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.... margin under software R&D segment to be 9.73%. Ld.TPO noted that, assessee in TP documentation considered 25 comparables with average margin of 12.79%. Assessee used TNMM as most appropriate method and OP/TC as PLI and arrived at the weighted average margin of 3 years data. Ld.TPO noted that assessee used earlier year data pertaining to FY 2009-10, 2010-11 besides the year ending on 2012 wherever available. 5. Ld.TPO objected use of multiple year data. Ld.TPO selected new set of 10 comparables which assessee objected on filters. Ld.TPO however finalised a set of comparables having average margin of 22.63%. Ld.TPO also used current year data for computing arm's length price of the transaction. SI. No. Name of the taxpayer OP/OC 1. Datamatics Global Services Ltd. 14.57% 2. Genesys International Corpn. Ltd. 30.09% 3. I C R A Techno Analytics Ltd. 17.24% 4. Infosys Ltd. 43.10% 5. Larsen & Toubro Infotech Ltd. 25.47% 6. Mindtree Ltd. 1501% 7. Persistent Systems Ltd. 27,23% 8. R S Software (India) Ltd. 15.34% 9. Sasken Communication Technologies Ltd. 12.13% 10. Spry Resources India Pvt, Ltd. 26,1S% Average 2 2.63% 6. Ld.TPO denied risk adjust....
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....computation of the arm's length price("ALP") as is Required under section 92CA(1 )of the Act." 13.1 He placed reliance upon decision of Hon'ble Supreme Court in case of NTPC Ltd vs CIT reported in 229 ITR 383 and Jute Corporation of India vs CIT reported in 53 taxman 85, submitted that comparables specified in additional grounds may be admitted. 13.2 Ld.CIT DR, opposed admission of additional ground. It was submitted that turnover filter was not alleged by assessee before DRP. 14. We have perused details relied upon by both sides 14.1 We have perused the directions of DRP in respect of these comparables and we note that argument advanced by assessee on turnover filter has been incorporated therein. Therefore we reject the argument of revenue that this issue was not raised before DRP. 14.2 Considering inadvertent mistake on behalf of assessee in raising these grounds before this Tribunal, we allow additional ground raised. Accordingly, we admit additional ground raised by assessee. 15. Assessee challenged inclusion of following comparables in Ground 11 for functional dissimilarity. In the Additional Ground these comparables have been challenged for having high turnover. ....
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....mitted that assessee undertakes Ltd market risk and foreign exchange risk. Apart from that service liability risk, product risk and R&D risks are owned by the AE. 17. Based on the above we shall analyse the comparables alleged by assessee for exclusion as well as inclusion. (Ld.AR restricted his arguments to Ground 11 Additional Ground and Ground 12.4. We are therefore considering comparables alleged in these grounds. However, assessee is at liberty of raising other issues in appropriate years.) Ground No.11 and Additional Ground 18. These grounds are raised by assessee, challenging, inclusion of following comparables for functional/qualitative dissimilarities and excessive turnover. Infosys Ltd Larsen and Toubro Infotech Ltd Mindtree Ltd Persistent Systems Ltd RS Software India Ltd 18.1 At the outset Ld.AR submitted that these comparables have been excluded in assessee's own case for assessment year 2010-11 by this (Tribunal) in IT(TP)A No.192/Bang/2015 for having huge turnover. As we are considering these comparables on turnover limit criteria, functional dissimilarity becomes academic. 18.2 We note that this (Tribunal) has analysed these comparables on turn over files ....
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....decisions were referred to in this regard laying down identical proposition. We are not referring to those decisions as the decision of the Special Bench on this aspect would hold the field. Reference was also made to the OECD TP Guidelines, 2010 wherein it has been observed as follows:- "Size criteria in terms of Sales, Assets or Number of Employees: The size of the transaction in absolute value or in proportion to the activities of the parties might affect the relative competitive positions of the buyer and seller and therefore comparability." 12. The ICAI TP Guidelines note on this aspect lay down in para 15.4 that a transaction entered into by a Rs. 1,000 crore company cannot be compared with the transaction entered into by a Rs. 10 crore company. The two most obvious reasons are the size of the two companies and the relative economies of scale under which they operate. The fact that they operate in the same market may not make them comparable enterprises. The relevant extract is as follows [on Rule 10B(3)]: "Clause (i) lays down that if the differences are not material, the transactions would be comparable. These differences could either be with reference to the trans....
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....made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." 15. It was brought to our notice that the above proposition has also been followed by the Honourable Bangalore ITAT in the following cases: 1. M/s Kodiak Networks (India) Private Limited v. ACIT (ITA No.1413/Bang/2010) 2. M/s Genesis Microchip (I) Private Limited v. DCIT (ITA No.1254/Bang/20l0). 3. Electronic for Imaging India Private Limited (ITA No. 1171/Bang/2010). It was finally submitted that companies having turnover more than Rs. 200 crores ought to be rejected as not comparable with the Assessee. 16. The ld. DR, on the other hand pointed out that even the assessee in its own TP study has taken companies having turnover of more than RS. 200 crores as comparables. In these circumstances, it was submitted by him that the ....
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....between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price. (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that- (a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Office....
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....ms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financia....
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....y E-Business Software India (P.) Ltd. (supra), we uphold decision of the CIT(A), to exclude the aforesaid companies from the list of comparable companies on the basis of turnover and size. The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Besides the above, the Bangalore Benches of the Tribunal have being taking a consistent view as laid down in the aforesaid decision. We are therefore of the view that there is no merit in this appeal by the Revenue. Accordingly the same is dismissed." 18.2 We note that, before us assessee alleged exclusion RS software India Pvt. Ltd. for year under consideration, on turnover filter, as this company has huge turnover of 2472.08%. 18.3 Ld. CIT,DR relied on orders passed by authority below. 18.4 We note that international transaction for year under consideration and asst. year 2010-11 are similar. There is nothing on record placed by revenue that brings out any factual differences. Respectfully following above view, we direct Ld.AO/TPO to exclude all these comparables, for having excessive turnover. Accordingly Additional Grounds stands allowed. 19. Assessee challenged Genesis ....
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....nal transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said company should be excluded from the final list of comparable companies. We hold accordingly." 19.6 We note that this Tribunal expressed above observations for assessment year 2010-11 and 2012-13. Present year under consideration before us is assessment year 2012-13. 19.7 There is nothing on record brought by revenue to counter above observations of this Tribunal. Respectfully following the same, we direct Ld.AO/TPO to exclude all these comparable. Accordingly we direct Ld.AO/TPO to exclude this alleged comparables from final list. Accordingly, Ground 12.14 raised by assessee stands allowed. 20 . We now note that, out of 10 comparables finally selected ....