TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 667
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....ng officer to determine the arms length price of such international transactions. On receipt of the reference, the Ld. TPO called for economic details of the international transaction between assessee and the AE. The details are as under: Particulars Amount in Rs. Receipt towards provision of software development support services Rs. 2,50,05,79,788/- Recovery of expenses Rs. 1,90,02,567/- Reimbursement of expenses Rs. 4,09,87,160/- OTHER TRANSACTIONS REFLECTED IN THE TP STUDY Other Payables Rs. 2,66,38,856/- Other Receivables Rs. 8,55,46,525/- Trade Receivables Rs. 56,29,06,887/- 2.3 The Ld. TPO noted that assessee had computed its margin at 15.02% by using OP/OC as the PLI. It was observed from the transfer pricing study that assessee had selected 12 comparables with median of 7.37% as under: Sl. No. Name of the company Weighted average (in %) 1. Evoke Technologies Pvt. Ltd. 4.77 2. Harbinger Systems Pvt. Ltd. 9.17 3. Three sixty Logica Testing Services Pvt. Ltd. 44.04 4. Maveric Systems Ltd. 0.37 5. CG-VAK Software and Exports Ltd. 8.65 6. OFS Technologies Ltd. 32.53 7. Isummation Technologies Ltd. 3.20 8. Rheal Software Ltd. 2.80 9.....
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.... Percentile Margin of comparables set 21.24% Adjustment required (if PLI<35th Percentile) Yes Median margin of comparable set 26.18% Arm's length price Rs. 2,77,44,28,363/- Price received Rs. 2,52,09,28,788/- Shortfall being adjustment u/s. 92CA Rs. 25,34,99,575/- 2.7 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 02.06.2021 incorporating the proposed TP adjustment. On receipt of the draft assessment order, the assessee filed objections before the DRP. The DRP accepted the contentions of assessee in respect of inclusion of Sagarsoft India Ltd. and Isummation Technologies Ltd. And directed the TPO to reconsider the margins of certain companies. 2.8 The DRP however rejected the submissions of the assessee in respect of exclusion of comparables sought by the assessee. Post the DRP directions, the Ld.AO following were the comparables that remained. Sl. No. Name of the Company 1. Kals Information Systems Ltd. 2. Rheal Software Pvt. Ltd. 3. Isummation Technologies Pvt. Ltd. 4. Sagarsoft India Pvt. Ltd. 5. Infomile Technologies Ltd. 6. Harbinger Systems Pvt. Ltd. 7. CG-VAK Software & Exports Ltd. 8. Larsen & Toubro ....
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....bs Pvt. Ltd., i) Nihilent Ltd., j) OFS Technologies Ltd., k) Cygnet Infotech Pvt. Ltd., l) Infosys Ltd., Cybage Software Pvt. Ltd., and m) Consilient Technologies Pvt. Ltd. 3.1 The Ld.AR submitted that from the above list, if following six comparables are considered for exclusion, the assessee would be within the acceptable margin. She however prayed that the remaining comparables may be left open with the liberty to argue in an appropriate circumstances. The six comparables that has been argued by the assessee are i) Larsen & Toubro Infotech Ltd. ii) R Systems International Ltd. iii) Persistent Systems Ltd. iv) Infobeans Technologies Ltd. v) Infosys Ltd. vi) Tata Elxsi Ltd. I. Larsen & Toubro Infotech Ltd.:- (a) The Ld.AR submitted that this company is engaged in functionally diversified activities including analytics, automation, blockchain, IoT, infrastructure management services, etc. which are not comparable to the services rendered by the assessee. It is also submitted that L&T is engaged in sale of products and licenses and segmental details as regards the same are not available. (b) The Ld.AR referring to page nos. 820, 833, 940 and 941 submitted t....
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....enting innovative technologies and incurred significant expenditure for this account, amounting to around Rs. 351 Crore during FY 2016-17. The Ld.AR thus submitted that the services rendered by the company are not functionally comparable to the routine SWD services rendered by the assessee. (b) The Ld.AR submitted that Infosys owns significant brand value and focuses on immense brand building. For this purpose, it incurs significant brand building expenses, which goes to help the company have a premium pricing for its services. The company owns non- routine intangibles which are different from the intangibles owned by the assessee. The company also invests in products which helped the company establish itself as a credible IP Owner. The company owns several Edge products/platforms and six other product-based solutions. (c) It is submitted that this company has significant activities based on onsite business model, generating around 54.2% of its revenue vide onsite location during FY 2016-17. (d) Relying on the following decisions of Coordinate Bench of this Tribunal, the Ld.AR submitted that this company has been consistently excluded for the above reasons. a) Arm Embedded Tec....
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.... Network (India) Pvt. Ltd. vs. DCIT (supra), we note that L&T Infotech Ltd. was remanded to the Ld.TPO in the said decision by placing reliance on the decision of Goldman Sachs Pvt. Ltd. v. JCIT (Order dated 29.01.2020 passed in ITA No.3244/Bang/2018). (i) On perusal of the said decision, in case of Goldman Sachs Pvt. Ltd. v. JCIT (supra), we note that no argument in respect of letter of segmental details in case of L&T Infotech has been argued and therefore it has been remanded which was followed in case of Blue Coat Network (India) Pvt. Ltd. vs. DCIT (supra). In the present facts, the Ld.AR categorically took us to the annual reports wherein this revenue from operations at page 911 has been shown to be from software services and Note no. 26 at page 932 reveals that there is revenue generated by this company from sale of products. Further at page 916, the value of intangibles reveals the amount of products i.e. generated and owned by this company which is not the case in the present assessee. The present assessee is found to be a captive service provider who carries out software development services in accordance with the direction of its associated enterprises and is compensate....
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....any has prepared the financials for financial year ending on March 31 or if it could be reasonably extrapolated. We accordingly remand this comparable to the Ld.AO/TPO for reverification based on similar direction. IV. Persistent Systems Ltd. (a) It is submitted that Persistent is functionally dissimilar to the Appellant and hence cannot be considered as a comparable. The company is engaged in licensing and sale of products, technology innovation and also earns royalty income. However, segmental details as regards its diverse services are unavailable. Considering the same, it can be observed that Persistent is engaged in software product development unlike the Appellant which is a low-risk captive SWD service provider. Even going by the company's reply to the TPO's notice under Section 133(6) of the Act, the company is predominantly engaged in the business of providing outsourced product development services, which are vastly different from the services rendered by the Appellant. (b) The company undertakes significant R&D activities to develop technologies and intellectual property to differentiate themselves form the industry and has established 'Persistent Labs' to focus on R....
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....(India) Pvt. Ltd. v. ACIT by order dated 25.08.2022 passed in ITA-TP No. 228/Hyd/2022 for the assessment year 2017-18. We have perused the submissions advanced by both sides in the light of records placed before us. Admittedly this company is into research and development activities and has developed various product design, industrial design etc. It is also noted that though this company is into software development services, in the process has developed various products that has been sold and revenue has been generated from sale of products. The segmental details in respect of software services rendered and product sale is not available in the financials of this company. It is noted that Hon'ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. ACIT (supra) for similar reason has excluded this company from the final list. We therefore direct this comparable to be excluded from the final list as it is not comparable with a captive service provider like that of assessee. VI Infobeans Technologies Ltd. (a) It is submitted that Infobeans is functionally dissimilar to the Appellant. The company is engaged in providing software engineering services primarily in Custom appli....
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....ropriate circumstances as submitted by the Ld.AR. Accordingly, ground no. 1.5 raised by the assessee stands partly allowed. 4. Ground no. 1.6 is in respect of the following three comparables sought for inclusion. a) Maveric Systems Ltd. b) Evoke Technologies Pvt. Ltd. and c) Sasken Communication Technologies Ltd. 4.1 The Ld.AR relied on the following decisions. a) the decision of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) for AY 2016-17 b) the decision of the Hyderabad Bench of the Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 in ITA Nos. 227&228/Hyd/2021). 4.2 The Ld.TPO rejected the above companies for the reason that they are functionally not similar though they are alleged to have been rendering SWD services. The Ld.AR submitted that in following decisions of Coordinate Bench of this Tribunal, above comparables have been directed to be included. 4.3 We therefore remand Maveric Systems Ltd. and Evoke Technologies Pvt. Ltd. to be read judicated by the Ld.TPO based on the annual reports of these companies. The Ld.TPO is directed to verify the FAR analysis of....
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....ernational transaction. Further, it is humbly submitted that determination of ALP in respect of delayed receivables from inter-company transactions is not required since ALP of inter- company transactions of provision of services has been already determined and no separate adjustment is necessary in this regard. 6.3 The Ld.AR placed reliance on decision of Hon'ble Delhi Tribunal in Kusum Healthcare Pvt. Ltd vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon'ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. reported in (2017) 398 ITR 66, held that, no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Hon'ble Delhi Tribunal in case of Bechtel India vs DCIT reported in (2016) 66 taxman.com 6 which subsequently upheld by Hon'ble Delhi High Court vide order dated 21/07/16 in ITA No. 379/2016, also upheld by Hon'ble Supreme Court vide order dated 21/07/17, in CC No. 4956/2017. 6.4 It was submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered a....
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....lhi Bench in this case referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., reported in (2013) 215 Taxmann 108, which dealt with question of law: (c) `Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?' 3.5.6. She submitted that, while answering above question, Hon'ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon'ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under- charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transactio....