TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 1442
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....4D of the Act. 2. Other grounds are general in nature or premature in nature. 3. The assessee is engaged in providing software development services (SWD) and telephonic support services (ITES) to its overseas associated enterprises. 4. We shall first take up the transfer pricing adjustment made in respect of software development segment. The assessee adopted TNMM method as most appropriate method and OP/OC, as Profit level indicator (PLI). The assessee had selected 8 comparable companies with arithmetic mean of 12.42%. The PLI of the assessee was 10.03%. Accordingly, it was contended that the transaction with it's A.E. are at arm's length. The TPO however, rejected the transfer pricing study of the assessee and selected following 10 comparable companies. Sl.No. Name of the Company Mark-up on Total costs (WC-unadj) (in %) 1 Datamatics Global Services Ltd. 14.57 2 Genesys International Corpn. Ltd. 30.09 3 ICRA Techno Analytics Ltd. 17.24 4 Infosys Ltd. 43.10 5 Larsen & Toubro Infotech Ltd. 25.47 6 Mindtree Ltd. 15.01 7 Persistent Systems Ltd. 27.20 8 RS Software (India) Ltd. 15.34 9 Sasken Communication Technologies Ltd. 12.15 10 Spry Resource....
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....he TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case. (b) Larsen &Tourbro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P.) Ltd. v. Asstt. CIT [2016] 67 taxmann.com 155 (Delhi - Trib.). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L & T Infotech Ltd., was a software product company and segmental i....
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....d related services. Pagc-38 of the Annual report 2012 containing the above description was brought to the notice of the TPO, Attention of the TPO was invited to the directors report to the shareholders at page ii of the annual report 2012, wherein the Directors have informed the shareholders that the company continued in its journey, to be innovators and leaders in the fields of location based services related geoplatforms and advanced survey techniques. There is no segmental reporting because it is stated in the annual report that this company is only in one segment viz., GIS based services and therefore there is no requirement of segmental reporting. It was also submitted that this company owns substantial intangibles equivalent to 10.42% of its total turnover. 32. The TPO however has regarded this company as a comparable company by observing that this company develops software for mapping and geospatial services and operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession of the company are only the GIS database which is only depreciation. It does not add significant value to the company. ....
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....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." 7. In respect of ICRA Techno Analytics Ltd, it is the submission of the Ld A.R that this company was excluded in AY 2011-12 in the case of Applied Materials India P Ltd (supra) by holding that it is providing various types of services and segmental information thereof is not available. He invited our attention to the annual report of this company pertaining to the year relevant to AY 2012-13 and submitted that, in the year under consideration also, the facts are identical. Accordingly, he sought exclusion of this company. 8 We heard Ld D.R and have gone through the Annual Report of this company. It is stated in page 44 of the Annual report (Runn....
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.... Ld A.R to be excluded is M/s Spry Resources P Ltd. It is the submission of the assessee that this company is engaged in the development of software products and outsourcing activities. The segmental details are also not available. It was further submitted that this company is engaged in rendering onsite activities. Accordingly he sought for exclusion of this company. 10. We have heard Ld D.R and gone through the Annual Report of this company. The Revenue recognition policy given under Significant Accounting policies (Page 2790 of paper book) states that the assessee is recognizing revenue from software consultancy and also from sale of products. This company is possessing inventories also, which is shown in Note no. 18 (page 2787 of paper book). The revenue from operations, however, consists of Income from software development. Hence it is not clear as to whether this company has sold any of its inventories or not during the year under consideration. We notice that the TPO has not examined the aspects relating to software products. We notice that in the case of CGI information systems & Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has been taken as a com....
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....ng and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Prepress BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbour rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology i....
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.... or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO." Following the same, we restore this comparable to the file of AO/TPO for examining it afresh. 13. M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd., were excluded by the co-ordinate bench in the case of CGI Information Systems & Management Consultants P Ltd (supra) 44-46. The coordinate bench had followed the decision rendered by another co-ordinate bench in the caseof Baxter (I) (P) Ltd vs. A.CIT (2017)(85 taxmann.com 285 (Delhi-Trib.). The relevant observations made by the co-ordinate bench in the case of CGI Information systems & management consultants P Ltd (supra) are extracted below:- "44. The learned counsel for the Assessee submitted before us that 3 out of the 5 companies which the Assessee seeks to exclude from the list of comparable co....
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....n the comparability of the aforesaid company. The Delhi ITAT in the case of BT e-service (India) Ltd vs. ITO (ITA No.6690/Del/2016 for AY 2012-13 order dated 19-6-2018 considered the comparability of this company and came to the conclusion that this company was carrying out medical transcription, medical billing and coding whereas the Assessee was a captive service provider. The Tribunal followed its own ruling in the same assessee's case in AY 201112 in ITA No.99/Del/2016 reported in (2017) 87 taxmann.com 251 (Del) in BT e-serve (India) P Ltd vs. ITO giving identical reasons for excluding BNR Udyog Limited from the list of comparable companies in the field of companies rendering ITES such as the Assessee. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO." Respectfully following the above said decision of coordinate bench, we direct exclusion of M/s BNR Udyog Ltd from the list of comparable companies. 15. The assessee seeks inclusion of M/s Informed Technologies India Ltd. In the case of CGI Information systems & management consultants P Ltd (supra), the above said company was direc....