TaxTMI 
TaxTMI 
2023 (7) TMI 1143
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....ound vide letter dated 01.11.2021) are directed against the Transfer Pricing Addition of INR 622,35,39,483/- Ground No. 19 & 20 pertain to disallowance of deduction under Section 10A/10AA of the Act claimed by the Appellant in respect of receipts of INR 190,37,22,853/- under Intellectual Property Services Agreement, dated 16/10/2006, Ground No. 21 pertains to levy of interest under Section 234B of the Act, Ground No. 22 pertains to initiation of penalty proceedings under Section 271(1)(c) of the Act, and Ground No. 24 (which has also been raised as additional ground vide letter, dated 01.11.2021), pertains to the claim for deduction for education cess raised by the Appellant for the first time before the Tribunal. 3. The relevant facts in brief leading to the filing of the present appeal are that the Appellant is an Indian company engaged in providing IT Services, BPO Services and Consulting services. The Appellant also has several units located in the Software Technology Parks of India (STP) and Special Economic Zones (SEZ) in respect of which the Appellant is eligible to claim deduction under Section 10A/10AA of the Act. 3.1. For the Assessment Year 2011-12, the Appellant filed....
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....sed earlier. In response, the Appellant filed reply/submissions, dated 27/01/2015. 3.4. After taking into consideration the reply/submissions filed by the Appellant, the TPO came up with final set of 9 comparables. Adopting the Transaction Net Margin Method (TNMM) as the most appropriate method with Operating Profits (OP)/Operating Cost (OC) as the Profit Level Indicator (PLI), the TPO determined the mean margin at 25.72%, and vide, order dated 29/01/2015, passed under Section 92CA(3) of the Act, the TPO proposed a transfer pricing adjustment of INR 622,35,39,483/- in relation to IT Services Segment. 3.5. The Assessing Officer passed Draft Assessment Order, dated 25/03/2015, under Section 143(3) read with Section 144C of the Act proposing transfer pricing addition of INR 622,35,39,483/-. In addition the Assessing Officer also proposed to restrict the deduction claimed by the Appellant under Section 10A/10AA of the Act to INR 979,91,12,697/- [i.e. INR 1004,74,24,373/- less INR 24,83,11,676/-]. 3.6. The Appellant filed objections against the Draft Assessment Order, dated 25/03/2015 before the DRP. Vide order dated 02/12/2015, passed under Section 144C(5) of the Act the DRP dispose....
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....segmental data. On perusal of the judgment of the Hon'ble Delhi High Court in the case of Microsoft India (R&D) Private Ltd. Vs. Deputy Commissioner of Income Tax: ITA No. 247/2019 [dated 04.01.2021, for Assessment Year 2011-12], relied upon by the Learned Authorised Representative for Appellant, we find that the Hon'ble Delhi High Court had accepted identical contention of the assessee in that case holding as under: "6. The reasoning of the learned ITAT for excluding the three comparables, as mentioned in the impugned order is as extracted hereinbelow: "xx xx (iii) Persistent Systems Ltd. 41. Though this company was included by the assessee in its list of comparables, the same has still been challenged before us. The ld. AR contended that this company was erroneously included in the list of comparables as it is also a product company which is apparent from the Annual report of this company. 42. The ld. DR raised a preliminary objection to the effect that once a company has been considered by the assessee as comparable in its TP documentation and the same has been accepted by the TPO, the same cannot be challenged in the further appellate proceedings. He relied on the imp....
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.... in the list of comparables at the time of computing ALP, can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. Similar view has been upheld by the Hon'ble Delhi High Court in Xchanging Technology Services India Pvt Ltd [TS-446-HC-20l 6(DEL)-TP}. The Hon'ble Bombay High Court in Tata Power Solar Systems Ltd [TS-1007- HC-2016(BOM)-TP} and the Hon'ble Punjab & Haryana High Court in CIT Vs. Mercer Consulting (India) P. Ltd. (2017) 390 ITR 615 (P&H) have also approved similar view. In view of the foregoing discussion, we do not find any substance in the preliminary objection taken by the ld. DR. 44. Coming to the comparability or otherwise of this company, we find from its Profit & Loss Account that its income from' Sale of software services and products' stands at Rs.6, 101.27 millions. Product revenue is 7.2% of the total revenue. Thus, it is established that this company is engaged in rendering software development services as well as sale of software products. Even though the percentage of software products in the total revenue is less, yet, the same ceases to be comparable as there is no precise information about the cont....
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....TSL) 5.6. The inclusion of WTSL as a comparable has been challenged on behalf of the Appellant, inter alia, on the ground of significant related party transactions. 5.7. On perusal of the judgment of the Hon'ble Delhi High Court in the case of Microsoft India Ltd. Vs. Deputy Commissioner of Income Tax: ITA No. 247/2019 [dated 04.01.2021, for Assessment Year 2011-12], relied upon by the Learned Authorised Representative for Appellant, we find that the Hon'ble Delhi High Court had accepted identical contention of the assessee in that case holding as under: "6. The reasoning of the learned ITAT for excluding the three comparables, as mentioned in the impugned order is as extracted hereinbelow: " xx xx (iv) Wipro Technology Services Ltd. 45. The TPO proposed to include this company in the list of comparables despite the assessee's objection that it has more related party transactions. After going through the Annual report of this company, it is noticed that it was earlier Citi Technologies Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for delivery of technology Infrastructure Services and application development and maintenance services for....
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....with such third person becomes international transaction within the meaning of section 92B. Once there is a transaction between two associated enterprises, it ceases to be an 'uncontrolled transaction' and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). 47. Coming back to the facts of this company, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion i....
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....oduce Section 92B (2) of the Act: "Section 92B(2): A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise where the enterprise or the associated enterprise or both of them are non-residents irrespective of whether such other person is a non-resident or not." [Emphasis Supplied] 30. A perusal of the aforenoted provision shows that the transaction between an unrelated party and an enterprise would be deemed to be an international transaction if there was any prior agreement between the parties on the basis of which the transaction is being undertaken. There was indeed a prior agreement between Citi Group and the erstwhile Citi Technology Services for rendition of software services. After acquiring Citi Technology Services (now Wipro Technology Services) b....
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....order of deletion has been upheld by this Court in CashEdge India (supra) for the same AY 2010-11. Since, the Courts have consistently upheld the deletion of the said comparable on account of failing the Related Party Filter, we do not see any reason to interfere with the Tribunal's order of deletion of Wipro Technology Services Ltd. 32. xx xx 33. xx xx 34. xx xx" 9. Thus, the arguments advanced by the Revenue are not sustainable. Further, non-availability of segmental data, is a finding of fact, which is not disputed by the Revenue. Therefore, in our opinion, no question of law, much less a substantial question of law, arises in Revenue's appeal. Accordingly, the same is dismissed." (Emphasis Supplied) 5.8. On perusal of the above, it is clear that in the above case the Hon'ble Delhi High Court has upheld order of the Tribunal wherein it was held by the Tribunal that Wipro Technologies Services Limited/WTSL cannot be selected as a comparable on account of substantial related party transactions. 5.9. Further, we note that while dismissing the appeal of the Revenue the Hon'ble Delhi High Court had placed reliance on the prior judgment of the Hon'ble Delhi High Cour....
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....lter of INR 200 Crores. 5.12. We note that during the course of hearing, the Learned Authorised Representative for the Appellant relied upon the decision of Bangalore Bench of the Tribunal in the case of Goldman Sachs Services Pvt. Ltd. Vs. DCIT: [ITA No. 581/Bang/2016 & C.O. 21/Bang/2017, dated 12/09/2018, Assessment Year 2011-12]. The relevant extract of the aforesaid order reads as under: " ITeS Segment: 18. The Revenue vide ground Nos. 12 to 13 challenged the directions of the DRP, directing the A.O to exclude M/s iGate Global Solutions Ltd, from the list of comparables on the ground that segmental information is not available. 19. Ld. DR submitted that when the company had classified itself to be operating in one segment i.e provision of ITeS, then there is no reason to exclude this company from the list of comparables on the ground that segmental information is not available. 20. The Ld. AR for the assessee submitted that the DRP was right in rejecting M/s iGate Global Solutions Ltd from the list of comparables, as it is earning income from information technology services and information technology enabled services, and no segmental information is available. The AR f....
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....mmissioner of Income Tax [ITA No. 247/2019, dated 04.01.2021, Assessment Year 2011-12], the Hon'ble Delhi High Court has excluded ITL from the list of comparables holding that ITL was not comparable with the Assessee in that case as ITL was engaged in software product business; ITL had earned substantial revenues from product licensing; and the segmental data of the various segments in which ITL operated was not available for the Financial Year relevant to the Assessment Year 2011-12. The relevant extract of the aforesaid judgment reads as under: "5. The main and only plank of submissions advanced by Mr. Ruchir Bhatia, learned Senior Standing Counsel appearing on behalf of the Appellant- Revenue in ITA 357/2019 is that the learned ITAT has erred in excluding the three comparables from the list of comparables, which are: (i) Infosys Technologies Ltd., (ii) Persistent Systems Ltd. and (iii) Wipro Technology Services Ltd. He submits that Persistent Systems Ltd. was included by the Assessee itself in its list of comparables. Having considered the said entity as a comparable in its transfer pricing documentation, and then also accepted by the TPO, the Assessee would be precluded from ....
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.... - 47 xx xx" 7. We notice that insofar as Infosys Technology Limited and Persistent Systems Limited are concerned, the learned ITAT observed that while the profit of the aforesaid three comparables is derived from both software development services as well as software products, however there is no precise information about the contribution made from the income derived from the sale of software to the total income of the companies. Thus, in the absence of segmental information provided by the companies in respect of the software services, the aforesaid companies have been excluded from the list of the comparables. We do not find any perversity in the approach adopted by the learned ITAT which would call for our inference. The third comparable viz Wipro Technology Services Limited has been held to be disqualified under Rule 10B(1)(e)(ii), to become a comparable for uncontrolled transaction for the purposes of inclusion in the final list of comparables. The rationale for exclusion has been upheld by this court in Principal Commissioner of Income Tax-7 v. Open Solutions Software Services Pvt. Ltd. 8. At this juncture, we would like to note that this Court in Open Solutions (supra) ....
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....nsfer pricing adjustment, if any, accordingly. 5.17. Before parting we would like to observe that the DRP had rejected the objections of the Appellant to inclusion of ITL in the list of comparables, inter alia, on the ground that the Appellant had selected the ITL as being functionally comparable in the Transfer Pricing Study Report (TPSR). On perusal of the of the TPRS [Annexure 3 - Accept Reject Matrix for Software Development and BPO - Sl. No. 612 at page 318 of the paper-book] we find that the Appellant had rejected ITL as a comparable for benchmarking the international transaction of provision for IT Services. Therefore, the finding returned by the DRP is factually incorrect. Zylog Systems Limited 5.18. The Appellant has sought exclusion of Zylog Systems Limited on the ground that the company is engaged in the business of software development and sale of products; and the segmental information of various business segments is not available for use as a comparable for the IT Services Segment of the Appellant. Per Contra, the contention of the Revenue is that the Appellant had accepted Zylog Systems Limited as a comparable and had not objected to its inclusion before DRP. The ....
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.... find out the companies listed as comparables which are, in fact comparable. The impugned order has on FAR analysis found that M/s. Indowind Energy Ltd. and B. F. Utilities Ltd. are not comparable. They are in a different area i.e. wind energy while the Respondent-Assessee is in the field of solar energy. (e) In the above view, question (a) as proposed does not give rise to any substantial question of law. Thus, not entertained." (Emphasis Supplied) 5.20. Further, we note that the Hon'ble Delhi High Court had, in the case of Microsoft India (R&D) Private Ltd. Vs. Deputy Commissioner of Income Tax: ITA No. 247/2019 [dated 04.01.2021, for Assessment Year 2011-12], rejected the contention of the Revenue that once a company has been considered as comparable in its Transfer Pricing Study Report and the same has been accepted by the TPO, inclusion of such company as a comparable cannot be challenged in the further appellate proceedings. The relevant extract of the aforesaid, judgment reads as under: "6. The reasoning of the learned ITAT for excluding the three comparables, as mentioned in the impugned order is as extracted hereinbelow: "xx xx (iii) Persistent Systems Ltd. 41. ....
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....in which the Revenue does not accept a particular company chosen by the assessee as comparable. The underlying object of the entire exercise is to determine the arm's length price of an international transaction. Simply because a company was wrongly considered by the assessee as comparable, cannot, act as a deterrent from challenging before the Tribunal the fact that this company is, in fact, not comparable. The Special Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB)1 has held that a company which was included by the assessee and also by the TPO in the list of comparables at the time of computing ALP, can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. Similar view has been upheld by the Hon'ble Delhi High Court in Xchanging Technology Services India Pvt Ltd [TS-446-HC-20l 6(DEL)-TP}. The Hon'ble Bombay High Court in Tata Power Solar Systems Ltd [TS-1007- HC-2016(BOM)-TP} and the Hon'ble Punjab & Haryana High Court in CIT Vs. Mercer Consulting (India) P. Ltd. (2017) 390 ITR 615 (P&H) have also approved similar view. In view of the foregoing discussion, we do not find any substance in the pre....
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..../- under Intellectual Property Services Agreement between Accenture Global Services, GmBH and the Appellant, dated 16/10/2006 (for short "IPSA"). 6.2. During the course of hearing, both sides agreed that identical issue came up for consideration before the Tribunal in appeal preferred by the Appellant herein for the Assessment Year 2009-10 (ITA No. 1671/Mum/2014). The Tribunal while deciding Ground No. 23 in that appeal granted relief to the Appellant by directing the Assessing Officer to compute deduction under Section 10A/10AA of the Act following the directions given by the Tribunal (for the Assessment Year 2008-09) and the DRP (for the Assessment Year 2013-14 and 2014-15) in assessee's own case. The relevant extract of the common order, dated 28/06/2019, passed by the Tribunal disposing off appeals for Assessment Year 2009-10 (ITA No. 1671/Mum/2014) and 2010- 11 (ITA No. 501/Mum/2015, dated 28/06/2019) read as under: "40. In ground no.23, the assessee has challenged disallowance of deduction claimed under section 10A / 10AA of the Act on income derived under the IPSA. 41. During the year under consideration, the assessee provided service under the IPSA from its units locat....
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....arly establish that by referring to the CBDT notification under consideration he has concluded that the income from IPSA agreement either has to be classified under software development or ITES. On further analysis, he has finally concluded that the services rendered are more akin to ITES. Accordingly, the Transfer Pricing Officer has proceeded to benchmark the revenue received from IPSA agreement as ITES. Thus, the contention of the Department that the Transfer Pricing Officer has not recorded any conclusive finding with regard to the nature of income from IPSA agreement is contrary to facts on record. In any case of the matter, when the Transfer Pricing Officer has classified the income received under IPSA agreement to be of the nature of ITES and has also benchmarked it as such, the Assessing Officer cannot take a contrary view by stating that it is not in the nature of ITES only for disallowing assessee's claim of deduction under section 10A of the Act. The Department cannot be permitted to take contrary view with regard to the nature of a particular item of income for its own advantage. Once, the income under the IPSA has been classified to be in the nature of ITES, assessee's....