TaxTMI 
TaxTMI 
2022 (3) TMI 1507
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....arned AO'), learned Transfer Pricing Officer(learned TPO') and the Honourable Commissioner of Income Tax (Appeals) ["Hon'ble CIT(A)"] grossly erred in adjusting the transfer price by INR25,156,574/- with respect to the international transactionrendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of subsection (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting comparability analysis undertakenin the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price (`ALP') of the international transaction. 4. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in disregarding multiple year data and they ought to have accepted the use of....
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....ysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price (`ALP') of the international transaction. 4. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in disregarding multiple year data and they ought to have accepted the use of contemporaneous data due to nonavailability of current year data in the public domain at the time of preparing the documentation. 6. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not applying the upper limit for sales turnover filter while carrying out the benchmarking analysis. 7. The learned AO/ learned TPO/ Hon'ble CIT(A) has erred in restricting the working capital and not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies. 8. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not allowing appropriate ad....
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....Form 36 wherein a general ground on application of upper turnover filter has been taken and is without prejudice to the other grounds of appeal preferred by the Appellant." The Ld.DR did not object for the additional grounds being admitted. We note that the additional grounds are directly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. Considering the submissions and respectfully following the decisions of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, we admit the additional grounds raised by assessee for both years under consideration. 2. Brief facts of the case are as under: The assessee is a captive service provider, rendering Software Development Services to its parent company Verifone Singapore Pte. Ltd. Assessment Year 2011-12 During the year, the assessee reported the following international transactions: International transaction Value (INR) Technical Support Services 6,04,2....
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..... • Sasken Communication Technologies Ltd He submitted that assessee do not wish to argue in respect of Mindtree Ltd. 6. He submitted that assessee has raised Additional Grounds before the Hon'ble Tribunal for exclusion of the following four companies, on grounds of functional comparability: a) Acropetal Technologies Ltd. b) E-Infochips Ltd. c) ICRA Techno Analytics Ltd d) Persistent Systems & Solutions Ltd. The Ld.AR submitted that assessee wish to argue Ground no.9 relating to negative working capital adjustment. No other grounds have pressed for adjudication except the relief with regard to exclusion and inclusion of comparables raised in Ground no.7 and additional ground mentioned herein above. 7. Before we undertake the comparability analysis it is sine qua non to understand the FAR of assessee. Functions: Functions performed by Verifone India with respect to transactions with Verifone Singapore are : • Hire and train employees at Indian facilities to improvement of the general skill level and provide special training in specific domains as per the business need indicated from time to time by Veri....
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....r the same assessment year A.Y 2011- 12, by order dated 03/03/2021 excluded following comparables from the final set of comparable. On the contrary, the Ld.Sr.DR though opposed the submission by the Ld.AR, could not controvert the categorical observations by coordinate bench of this Tribunal in the case of M/s. Fiber Link Software Pvt. Ltd.,(supra). We have perused the submissions advanced by both sides in light of records placed before us. 9. We note that the coordinate bench of this Tribunal in the case of M/s.Fiber Link Software Pvt. Ltd. (supra), for the same assessment year A.Y 2011-12, excluded Persistent Systems & Solutions Ltd., and Sasken Communications Technologies Ltd. by observing as under: "7. We have considered the rival submissions. Even, if the assessee had included these three companies in the list of comparables as part of the TP study analysis, however, mere inclusion of the companies in the list of comparables does not operate as estoppel against the assessee, if on examination of the relevant facts it is found that these companies are functionally not comparable with that of assessee. Therefore, the selection of the companies by the assessee i....
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....s (I) P. Ltd. (supra) and vide para 9.2.1 to 9.2.4, the Tribunal regarded this company as not comparable. Persistent Systems Ltd. was also considered as not comparable in the aforesaid order vide same paras referred to above for the reason that it was engaged in diverse activities and in the absence of segmental details, besides holding IPRs. 27. The other company is Sasken Communication Technologies Ltd. which was retained by the DRP. As far as this company is concerned, the plea of the assessee is that this company is a software product company and segmental details between the software development services and software products is not available. Our attention was drawn to the decision of the Bangalore Bench of the Tri in the case of Applied Materials (I) P. Ltd. (supra) wherein in para 9.3.1 to 9.3.3 this Tribunal came to the conclusion that comparability of this company has to be decided afresh by the TPO after considering the facts as recorded in the decisions rendered by the Tribunal in the case of Electronics for Imaging India P. Ltd. (2017) 85 taxmann.com 124 (Bang.Trib.). We are of the view that similar directions would be appropriate in the present assessment yea....
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.... In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software products and though the break-up of revenue from the two segments were available, but the break-up of Operating Cost and Net Operating revenue and segmental details were not available. ...................... 13. The Tribunal in the case of DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015 excluded the company, ICRA Techno Analytics Ltd., on the ground that it was engaged in engineering and consulting services, besides licensing and sub-licensing and no segmental information was available to compare the margins of SWD services segment. 14. The Mumbai Tribunal in the case of Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 held Infosys Ltd. to be not comparable for the reason that this company was engaged in manufacturing of software products and was a giant company assuming various risks. As far as Larsen & Toubro Infotech Ltd., is concerned, vide paragraph-8 page-16 of the order in the case of Electronics for imaging India Pvt. Ltd., (supra) this tribunal excluded this company on the ground of pres....
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....(Bangalore) wherein coordinate bench of this Tribunal held that working capital should be allowed as per actuals. Respectfully following the view taken by coordinate bench of this Tribunal, we direct the Ld.AO/TPO to grant the WCA on actuals Accordingly this ground raised by the assessee stands allowed. Assessment Year 2012-13 13. During the year under consideration, the assessee reported the following international transactions: International transaction Value (1NR) Technical Support Services 8,90,22,482/- R&D Services 28,22,35,169/- The Ld.TPO noted that assessee computed the margin at 14.91% by using OP/OC PLI. It used TNMM as the most appropriate method and used 7 comparables having average margin at 7.66%. It was thus submitted by the assessee that the transaction is at arms length. 14. The Ld.TPO rejected the TP study done by the assessee, and carried out analysis by adopting various filters. The Ld.TPO selected following set of comparables having average margin of 22.63%. Sl. No. Company Name (OP/OC) 1 Datamatics Global Services Ltd. 14.57% 2 Genesys International Corporation Ltd. 30.09% 3 ICRA Techno Analy....
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....ave been excluded by various decisions of this Tribunal. 18. Persistant Systems Ltd. The Ld.AR submitted that this company is functionally not similar to assessee as it is engaged in software products, services and technology innovation. The company focuses on next generation technology centred on four main themes- Cloud computing, Analytics, Social enterprise and Enterprise Mobility. Persistent also focuses on establishing a strong IP portfolio and the IP led business of the company saw a significant boost during the year under consideration due to two product acquisitions by its subsidiaries. Further, during the year under consideration, Persistent also concluded a contract to take over IBM's TNPM product road map, which would help the company strengthen its position in relation to the IP led business. The Ld.AR submitted that this company is engaged in product engineering services, platforms and solutions, IP and related business, which is functionally different from assessee's case and it has earned revenue from R&D activities. Persistent Systems Limited also owns intellectual properties. Further, segmental data is not available. It is also to be noted that Per....
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....e Bench followed the decision by coordinate bench in case of Metric Steam Infotech (India) (P.) Ltd. v. Dy. CIT in IT(TP)A No.1418 & 2735 (Bang.) of 2017, by order dated 27-2- 2019, wherein the Tribunal held as under:- "11. As far as L&T Infotech Ltd. and Persistent Systems Ltd. are concerned, our attention was drawn to the decision of ITAT Hyderabad Bench in the case of M/s. EPAM Systems (I) P. Ltd. v. ACIT, ITA No.2122/Hyd/2017 for AY 2013-14, order dated 20-11-2017. Vide para 12 of the decision, the Tribunal took the view that Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefore the profit margin in the software development services segment could not be compared with the assessee's profit margin. As far as L&T Infotech Ltd. is concerned, the Tribunal vide para 17 of the aforesaid order came to a similar conclusion to hold that L&T Infotech should not be regarded as a comparable company. In the light of judicial precedents which remain uncontroverted, we are of the view that the aforesaid two comparable companies should be excluded from the list of comparable companies. " It was also brough....
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....t states that the company was ranked among leading R&D service providers. Further, the annual report states that the expertise built up by the company through the R&D initiatives has been instrumental in winning some of the customers during the year. The company uses the expertise in the R&D team to provide technology consulting services to some of its customers. The company also owns significant intellectual property valued at Rs. 6.70,00,000/-Reliance in this regard is placed on the decision of this coordinate Tribunal in Applied Materials India Pvt. Ltd. v. DC1T by order dated 13.05.2020 passed by in IT(TP) A No. 2687/Bang/2017 In view of the above, the company cannot be taken as a comparable to the Appellant. The Ld.AR submitted that the turnover of the assessee company during the year was Rs. 94.5 crores and hence it falls under the category of companies having turnover in the range of One crore to 200 crores. However the turnover of the companies sought for exclusion is more than 200 crores. It is submitted by the Ld.AR that these comparables cannot be considered as good comparable companies. In support, the Ld.AR placed his reliance on the decision of by co-ordinate be....
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....where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The d....