TaxTMI 
TaxTMI 
2023 (7) TMI 1143
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....o. 23 (which has been raised as additional ground 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....
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....les in addition to the 6 additional comparables proposed 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 02/12/20....
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....llenged by the Appellant, inter alia, on the ground of non-availability of 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....
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....s 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 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 pr....
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....ction of provision for IT Services. Therefore, the finding returned by the DRP is factually incorrect. Wipro Technologies Services Limited (WTSL) 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 2....
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....prior agreement in relation to the relevant transaction between third person and the AE. If such an agreement exists, the third person is also considered as an AE and the transaction 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 ....
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....ubsequent rendition of services by this company to the Citi Group fall within the meaning of "deemed international transaction" as defined under section 92B(2) of the Act. At this juncture, it would be apposite to reproduce 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 transact....
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....hasis Supplied] 31. We also note that the aforesaid comparable has been deleted in the case of the sister company of the assessee herein. The sister company of the assessee also operates in the same business segment as the assessee. The 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 Service....
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....dopted as a comparable. On the other hand it has been contended by the Revenue that I-Gate operated only in one segment and therefore, segmental data is not required. Further, I-Gate is functionally comparable to the Appellant and passes through all the filters including minimum turnover filter 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....
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....nal dissimilarity and non-availability of segmental data. Per contra, the contention of the Revenue is that ITL was selected as a comparable by the Appellant itself and therefore, the Appellant turned around and seek exclusion of ITL as a comparable. 5.15. We find that in the case of Microsoft India (R&D) Private Ltd. Vs. Deputy Commissioner 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 Technologie....
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.... from software development services as well as software products and there is no separate profit available of the software development services, we are unable to countenance the comparability of this company as the assessee is not engaged in licensing of any software products. We, therefore, order to exclude Infosys Technologies Ltd. from the list of comparables. 41. - 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 dis....
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....n'ble Delhi High Court. The facts/contentions in the present case being identical, respectfully following the above judgment of the Hon'ble Delhi High Court, we hold that ITL cannot be accepted as functionally comparable with the Appellant in the present case. Accordingly, the Assessing Officer/TPO are directed to exclude Infosys Technology Ltd. from the final set of comparables and re-compute ALP as well as transfer 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 Limite....
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....a company, if the same is found to have been included on account of mistake as on facts, it is not comparable. The Transfer Pricing Mechanism requires comparability analysis to be done between like companies and controlled and un- controlled transactions. This comparison has to be done between like companies and requires carrying out of FAR analysis to find the same. Moreover, the Assessee's submission in arriving at the ALP is not final. It is for the TPO to examine and 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....
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....thing to prohibit it from claiming so, provided the company so originally reported as comparable is, in fact, not comparable. Simply because a company was wrongly chosen by the assessee as comparable, cannot tie its hands from contending before the Tribunal that such a company was wrongly considered as comparable which is, in fact, not. There is no qualitative difference between a situation where an assessee claims that a wrong company inadvertently included for the purpose of comparison should be excluded and the situation 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 th....
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....t of comparables and re-compute ALP as well as transfer pricing adjustment, if any, accordingly. 5.23. In view of paragraph 5.2, 5.5, 5.10, 5.13, 5.16 and 5.22 above, Ground No. 12, 13, 14, 15 and 23 raised by the Appellant are allowed and the balance grounds (i.e. Ground No. 2 to 11, 16, 17 and 18) are disposed off as being infructuous. 6. Ground No. 19 & 20 6.1. Ground No. 19 & 20 relates to challenge of disallowance of deduction claimed by the Appellant under Section 10A/10AA of the Act in respect of receipts of INR 190,37,22,853/- 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 As....
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....ns and perused materials on record. As could be seen from the facts on record, as per the terms of the IPSA agreement the assessee was required to provide certain services including content development and image development and web development. The Transfer Pricing Officer while examining the nature of services rendered under the IPSA agreement has classified it to be in the nature of ITES. While doing so, he has also referred to CBDT notification no.SO-890(E), dated 26th September 2010. A careful reading of the observations of the Transfer Pricing Officer in Para-15.2 of his order would clearly 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....