TaxTMI 
TaxTMI 
2023 (3) TMI 597
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....e group companies apart from rendering shared support services to them. Assessee has got three segments, namely, software distribution, software development (including IT services) and shared services. For the assessment year 2017-18, they have filed the return of income on 30/11/2017 declaring a total income of Rs. 40,80,53,420/- under normal provisions of the Act and Rs. 47,43,51,566/- under 115JB of the Act. 3. In view of the international transactions entered into by the assessee with Associate Enterprises (AEs), the determination of the Arms Length Price ("ALP") of the international transactions was referred to the Ld. Transfer Pricing Officer (Ld. TPO). Ld. TPO by order dated 29/01/2021 suggested certain adjustments in respect of the provision of software development services, allocation of management fee, provision of ITeS, interest on receivables, related IT services and purchase of assets and liabilities taken over and goodwill. Learned Assessing Officer, pursuant thereto passed draft assessment order on 31/03/2021 under section 143(3) of the Act making addition of Rs. 26,53,85,887/- on account of the international transactions and assessed the income of the assessee at R....
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....ent Ltd., Wipro Ltd., Gwynniebee India Pvt. Limited, Exilant Technologies Pvt. Ltd., Aptus Software Labs Pvt. Ltd., Cygnet Infotech Private Limited, Pagetraffic Web-Tech Pvt. Ltd., Gislen Software Pvt. Ltd., and also rejected the entities Evoke Technologies Private Ltd. and Sasken Technologies Limited from the list of comparables. Assessee is challenging the inclusion and exclusion. 7. It is the submission on behalf of the assessee that none of the entities that are retained in the list of comparables is in fact comparable to the assessee on account of either scale of operations or nature of functions performed. Learned AR submitted that as a matter of fact, in assessee's own case for earlier years, seven of these entities, namely, Infosys Limited, Larsen & Toubro Infotech Limited, Tata Elxsi Limited (seg), Persistent Systems Limited, Mindtree Ltd, Cybage Software Private Limited and E-Info Chips Pvt. Ltd, were found to be non-comparable. He submitted that if such entities which were found to be non-comparable with the assessee in the earlier years, are excluded from the list of comparables then the margins of the assessee and the comparables will be within the acceptable range an....
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...., observations of the Ld. TPO are that R&D expenditure is not a reason for higher profit margins and it is not a ground to exclude the entity from the list of comparables. Lastly, Ld. TPO contended that the sales turnover of a company in the IT industry has no impact on the margins earned. Ld. DRP considered the contentions of the assessee and rejected such contentions in the same lines as that of the Ld. TPO. 11. During the course of arguments it is brought to our notice that the turnover of Infosys Ltd., is Rs. 59,289 Crores whereas the turnover of the assessee is only Rs. 119.70 Crores. It is further submitted that for the assessment years 2014-15, 2015-16 and 2016-17 the Co-ordinate Benches of this Tribunal considered the issue in depth and found that Infosys Ltd., is not at all a good comparable to the assessee. 12. The second entity pleaded to be excluded from the list of comparables is Larsen & Toubro Infotech Limited. Before the Ld. TPO, apart from bringing it to the notice of the Ld. TPO that this company was excluded from the list of comparables in assessee's own case for the assessment years 2014-15, 2015-16 and 2016-17, assessee objected inclusion of this from the lis....
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....the TPO to verify and adopt the figures as per the annual report and uphold the selection of Tata Elxsi as a comparable. 14. As far as Persistent Systems Limited is concerned, before the Ld. TPO, assessee raised objections for its inclusion in the list of comparables basing on fails related party transactions filter as applied by the TPO, functionally not comparable, product company and diversified activities, lack of segmental data, significant research and development expenses, presence of intangibles, excluded in assessee's own case itself, non-contemporaneous data and peculiar economic circumstances. Ld. TPO, brushed aside the contentions of assessee and while referring to the annual report of Persistent Systems Limited, observed that the ratio of related party income to operating income in case of Persistent Systems Limited is 24.42% and ratio of related party expense to operating expense is 12.37% and concluded that the said company perfectly qualifies related party filters. Ld. TPO also observed that the annual report mentions products at several places, but at most of the places, it refers to product development services being offered for its clients. It has few products o....
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....l remains software development itself and entire revenue from operations is derived from software development services, no need for segmental arise. Ld. TPO also referred the case of Capgemini of ITAT, Mumbai, wherein it was held that - the Sr.Counsel has also pointed out that the Infosys and Wipro have substantial revenue, 51.7% in case of Infosys, and 45.3% in case of Wipro from on-site work done overseas at the site of clients whereas the onsite work in the case of the assessee is just 5%. It has been pointed out that the employees if sent overseas have certain dead hours, which cannot be properly utilized as can be done in the home country. But, this argument as rightly pointed out by the Ld. CIT-DR does not support the case of higher margin in case of onsite work because dead hours would mean less output with the same employee cost, which would in fact reduce the margin. No material has also been placed before us to show that the margin in case of on-site work is higher. Basing on the same, Ld. TPO rejected Mindtree Ltd., as comparable. Ld. TPO also observed that the assessee has not stated as to how the approach of the assessee to the operating margin and that would there be ....
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.... Vs. DCIT (2013) 29 taxmann.com 310 (Bangalore Tribunal), Autodesk (India) Pvt. Ltd. Vs. DCIT in ITA No. 1108/Bang/2010, Yodlee Infotech Pvt. Ltd., Vs. ITO (2013) 31 taxmann.com 230 (ITAT, Bang). ITAT, Mumbai in the case of M/s. BP India Services Private Limited (ITA No. 4425/Mum/2010) did not reject companies having margin of 75.6% (Datamatics Technologies Limited) and 68.7% (Hinduja TMT Ltd) and in the case of Exxon Mobil, upheld selection of Alpha Geo India Ltd., having margin of 47.79% and Vimta Lab having margin of 57.68%. The Hon'ble Delhi High Court (TS173-HC-2015 (Delhi)-TP) in its verdict in the case of Chryscapital Investment Advisors (India) Private Limited (the appellant), emphasised functional analysis as the key comparability criterion, and inter alia held that - mere earning of high profits/losses could not be a reason to exclude a company as a comparable. In view of the above, Ld. DRP did not find merit in the plea of exclusion of certain companies on the ground of its high profit margin and uphold the selection of Cybage Software Private Limited as a comparable. 17. Insofar as E-Infochips Pvt. Ltd., is concerned, before the Ld. TPO, assessee raised objections ....
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....er dated 06/08/2019 in ITA Nos. 161 and 2307/Hyd/2018 vide paragraph No. 76, the Co-ordinate Bench excluded Infosys Limited, Larsen & Toubro Infotech Limited and Mind Tree Ltd., in the light of the findings of the Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies (P) Ltd., (2013) 36 taxmann.com 289 (Del). Vide paragraph No. 77 of the same order, Tata Elxsi Limited (seg) and Persistent Systems were deleted while following the view taken in assessee's own case for the assessment year 2007-08. E-Infochips Ltd., is excluded on the ground of super normal profits because, on this ground itself, Infosys Limited, Larsen & Toubro Infotech Limited and Mindtree Ltd., were excluded. 20. In the assessment year 2015-16, by order dated 19/10/2020 in ITA No. 1689/Hyd/2019, the Co-ordinate Bench excluded Infosys Limited, Larsen & Toubro Infotech Limited, Mindtree Ltd, Tata Elxsi Limited (seg), Persistent Systems Limited, and Cybage Software Private Limited on the ground that such entities were considered to be un-fit for comparison with the assessee in assessee's own case for the assessment years 2013-14 and 2014-15 and there was no change in the factual matrix of the c....
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....d AR is that there is a clause in the agreement about the credit period and, therefore, interest should be calculated only for the period subsequent to the period so prescribed. He submitted that in the agreement, 90 days period is prescribed and, therefore, the Revenue authorities cannot substitute their notions of collectability of interest in this period. He further submitted that this issue was considered by the Co-ordinate Bench of the Tribunal in assessee's case for the assessment years 2013-14 & 2014-15 and it was remanded to the file of learned Assessing Officer/ Ld. TPO with a direction to calculate the interest only on the period exceeding the credit period stipulated in the agreement and it there is no agreement as to such period of credit, then to consider the credit period of 90 days or the industry average credit period. There is no denial of this fact from the side of Revenue. 25. On this aspect, we are of the considered opinion that when the parties entered into an agreement in respect of the credit period to be allowed, the interest relatable to such allowable credit period will be subsumed into the price of the goods or services, which are subject to the ALP exam....