TaxTMI 
TaxTMI 
2023 (4) TMI 23
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....ical support services. The assessee filed the return of income for the assessment 2016-17 on 29.11.2016 declaring an income of Rs.8,72,45,650. The case was selected for scrutiny and accordingly a notice u/s.143(2) was duly served on the assessee. Since the assessee had international transactions, a reference was made to the Transfer Pricing Officer (TPO) for verify the Arms Length Price (ALP) of the international transactions the assessee is having with its Associated Enterprises (AEs). The TPO passed an order dated 29.10.2019, determining a TP adjustment of Rs. 6,76,79,662/- in respect of the SWD services segment. The Assessing Officer passed a draft assessment order dated 22.11.2019 by incorporating the above adjustment. Aggrieved, the Assessee filed its objections before the Dispute Resolution Panel ('DRP'). The DRP vide its directions dated 01.03.2021 rejected the objections of the Assessee. The Assessing Officer passed the final assessment order dated 07.04.2021 in which the TP adjustment originally made was sustained. Aggrieved, the Assessee has preferred the present appeal before this Hon'ble Tribunal. 3. The assessee has chosen Transaction Net Margin Method (TNMM) as the....
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.... Rs. 26.36% Arm's length price Rs. 75,28,17,058/- Price received Rs. 68,51,37,396/- Shortfall being adjustment u/s. 92CA Rs. 6,76,79,662/- 7. The assessee raised 5 ground and 2 additional grounds contending the TP adjustment. During the course of hearing the ld AR presented arguments with regard to the following ground - a) The TPO erred in selecting companies like R S Software (India) Ltd., Larsen & Toubro Infotech Ltd., Nihilent Ltd., Inteq Software Pvt. Ltd., Persistent Systems Ltd., Infobeans Technologies Ltd., Thirdware Solution Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd. and Cybage Software Pvt. Ltd. which ought to be excluded on account of the companies being functionally dissimilar to the Assessee. (Ground No. 4.6); b) The TPO erred in rejecting Akshay Software Technologies Ltd., Evoke Technologies Private Limited and Sagarsoft (India) Ltd. despite the companies being functionally similar to the Assessee and satisfying all the filters applied by the TPO and the DRP erred in upholding the same (Ground No. 4.7); Additional grounds c) The TPO while applying the turnover filter at the lower limit erred in not ap....
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.... of this Hon'ble Tribunal in Autodesk India (P) Ltd. V. DCIT (2018) 96 taxmann.com 263 (Bang Trib) and it was submitted that on application of the turnover filter on 1-200 crores, the following the companies would be excluded:- (a) Infosys Ltd. (b) Larsen & Toubro Infotech Ltd. (c) Persistent Systems Ltd. (d) Aspire Systems (India) Pvt Ltd. (e) Thirdware Solution Ltd. (f) Cybage Software Pvt Ltd. (g) Nihilent Ltd. 11. Reliance is also placed on the decisions of this Hon'ble Tribunal in the case of Razorpay Software Pvt. Ltd. (order dated 27.12.2021 passed in IT(TP)A No. 190/Bang/2021) and NTT Data FA Insurance Systems (India) Pvt. Ltd. v. DCIT (order dated 03.10.2022 in IT(TP)A No. 261/Bang/2021) wherein the said companies were excluded on application of the upper turnover filter. On other hand the ld. DR relied on the order of the lower authorities. 12. We heard the rival submissions and perused the material on record. The coordinate bench of the Tribunal in the case of Autodesk India Pvt.Ltd (supra), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the de....
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....sys 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 decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the H....
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....and 2014-15 had a turnover of Rs. 351.88 crores and 345.51 crores, and profit margin of 24.14% and 32.75%, respectively. However, during the FY 2015-16, the company realised a turnover of Rs. 171.41 crores, leading to loss of -2.09%. It is submitted that there is an apparent wide fluctuation in the margin of the company. The relevant details as computed by the TPO is provided hereunder: *figures in crores FY 2015-16 FY 2014-15 FY 2013-14 Operating revenue 171.41 345.50 351.89 Operating cost 175.07 260.26 283.47 Operating profit -3.66 85.24 68.42 OP/OC -2.09% 32.75% 24.14% 20. The reason for decline in margin is attributable to the strategic shift made by the company as it is making substantial investments in a) developing tools and platforms and b) sales and marketing to enhance its customer base. Further, there is a significant drop in revenue (51 percent) vis-à-vis the previous year. Further, the company recognizes that this shift has impact on the margin of the company. In view of the same, the company ought to be excluded. Presence of intangibles. 21. It....
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....ents of the company. 26. It is submitted that the company earns revenue from software development services and service charges and the same is shown in the annual report of the company in a composite manner with no segmental profitability and therefore, it is submitted that the company is not comparable to a routine software development service provider. 27. Significant related party transactions: It was submitted that the company's related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded. 28. Wide fluctuation in the margin: The ld. AR submitted that the company's margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company's margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%. 29. It is submitted that the TPO has relied on the information received under Section 133(6) of the Income tax Act, 1961 ("the Act") for the assessment year 2015-16 on the ground that no response was received from the company to the notice issued under Section 133(6) of the Act for AY 2016-17. It is submitted that in the absence of response to....
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....company mentions that the company is earning 100% revenues from sale of software services, such services are in the nature of CAD,CMS etc., which are in the nature of KPO services. The above services rendered by the company are vastly different from the SWD services rendered by the Assessee, and therefore the company ought to be excluded as being functionally different. Further, the segmental details for these diverse services are not available and therefore the company cannot be selected as a comparable. 33. Significant intangible assets: It was submitted that during the FYs 2013-14 to 2015-16, the company owned intangible assets representing around 7% of the total fixed assets held by the company. 34. Expenses in foreign currency: The ld. AR stated that the annual report of the company at Note 33 under the head earnings in foreign currency shows export of goods/services calculated on F.O.B basis, which indicate that the Company has product sales as well. In the absence of segmental details, the company cannot be selected as a comparable. 35. Abnormal increase in revenue and fluctuation in margin: It was submitted that the revenue increased from Rs. 35 crores (FY 2014-15)....
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....y been directed to be excluded based on turnover filter. Hence we will now adjudicate the exclusion only these companies in Ground no.4.6. We notice that the coordinate bench in the case of NTT Data FA Insurance Systems (India) Pvt. Ltd (supra) have considered the exclusion of these three companies and held that - Infobeans Technologies Ltd 18. We have heard the rival submissions and perused the materials available on record. In our opinion, this comparable was considered by the Hyderabad Tribunal in the case of ADP Pvt. Ltd. in ITA No.227 & 228/Hyd/2021 dated 3.2.2022 at para 7 page 3678 to 3680 wherein held as under:- 7. "Infobeans Technologies Ltd.: The ld. AR of the assessee submitted that this company is functionally different for the following reasons: 1. It is engaged in diversified activities in the nature of custom application development, content management systems, enterprise mobility, big data analytics, 2. No change in the business as compared to last year 3. Leading provider of consulting technology & next generation service. 4. There is abnormal increase in percentage of revenue from 35.35 crore to 62.06 ....
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....nch of this Tribunal and on perusal of the financial statements of Infobeans Technologies Ltd., we observe that the company is functionally not comparable and no segmental details are available. Therefore, the coordinate bench did not consider this company as comparable in assessee's own case for AYs 2014-15 & 2015-16. Respectfully following the decision of the coordinate bench, we direct the AO/TPO to exclude this company from the final list of comparables." 18.1 Same view was taken by the Tribunal in the case of Global Logic India Pvt. Ltd. Vs. DCIT reported in (2022) 134 Taxmann.com 35 for the assessment year 2016-17. Respectfully following above judgement, we are inclined to direct the AO/TPO to exclude this company from the list of comparables. Inteq Software Pvt. Ltd 21. We have heard the rival submissions and perused the materials available on record. This comparable has considered in the case of Global Logic India Pvt. Ltd. Vs. DCIT (2022) 134 Taxmann.com 35 for the assessment year 2016-17, wherein held as under:- 46. "The taxpayer sought exclusion of Inteq again on account of functional dissimilarity being into providing outsourced produ....
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....sed loyalty in payments and merchant management in payments laboratory. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this company cannot be held to be functionally comparable with that of assessee which is a captive service provider that caters only to its AE. 24.1 In view of the above order of the Tribunal, we hold that this comparable to be excluded from the list of comparables as it is functionally not comparable with the assessee and directed accordingly. Since we allowed the ground taken by the assessee on the basis of functionality itself, other arguments of the assessee has been not considered. 39. Respectfully following the decision of the coordinate bench we direct AO/TPO to exclude R S Software (India) Ltd., Inteq Software Pvt. Ltd., and Infobeans Technologies Ltd. 40. Vide Ground No. 4.7, the Assessee is seeking the inc....
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....2022 passed in ITA Nos. 227&228/Hyd/2021). It is submitted that this company is consistently included in the final list of comparables in cases of similarly placed assessees, and therefore the company ought to be included. 47. We heard both parties. We notice that the coordinate bench in the case of Arm Embedded Technologies Pvt. Ltd (supra) has considered the issue of inclusion of Akshay and Evoke and held as under - We have perused the submissions of both sides in light of records placed before us. We note that this Tribunal in case of Prism Networks Pvt. Ltd.(supra) observed and held as under: 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study of the Assessee cannot be the basis not to consider the claim of the Assessee for inclusion of comparable companies. The TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstance....