TaxTMI 
TaxTMI 
2018 (9) TMI 2133
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....45/Bang/2014 is M/S. LSI Technologies (India) Pvt. Ltd., was originally incorporated in India as Velio Communications India Pvt. Ltd. in October 2002 and was a subsidiary of Velio Communications international Inc., Cayman Islands, which was, in turn, a subsidiary of Velio Communications Inc., USA. Consequent to the acquisition of Velio Communications Inc., USA, by LSI Logic Corporation, California, the assessee changed its name to LSI Logic (India) Private Limited. Thereafter, the assessee was renamed as LSI Technologies India Private Limited. Consequent to. merger, with M/S. LSI Research (India) Pvt. Ltd., the assessee is known as LSI India Research & Development Pvt. Ltd. 4. IT(TP)A. No. 45/BANG/2014 : During the financial year 2008-09 relevant to the assessment year 2009-10, the assessee provided contract software development services to its Associated Enterprises. As per the provisions of Sec. 92 of the Income Tax Act, 1961 (Act), income from an international transaction has to determined having regard to the Arm's Length Price (ALP). The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred by the Assessing Officer suggested an addition to the tot....
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....reasons for the difference in the computation of OP/TC by the Assessee and the TPO. The Assessee had chosen 17 companies as comparable with that of the Assessee and arrived at Arithmetic mean of the profit margins of the 17 companies at 12.66%. Since the profit margin of the Assessee as computed by the Assessee was much more than the profit margin of the comparable companies, the Assessee claimed that the price charged by it in the International Transaction had to be regarded as at Arm's Length. 8. The TPO, to whom the question of determination of ALP was referred by the AO, accepted only two comparable companies chosen by the Assessee viz., Akshay Software Technologies Ltd. and RS Software (India) Pvt. Ltd. The TPO on his own search selected 9 more companies as comparable companies at arrived at arithmetic mean of profit margin of 11 companies and determined ALP and consequent addition to be made to the total income as follows:- Comparables selected by the TPO and their arithmetic mean: Sl. No. Comparables Selected by TPO NCP Margins as per TPO Order (%) (WC- Unadj) NCP Margins as per TPO Order (%) (WC Adj) 1 KALS Information Systems Ltd. 13.89 12....
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....CG-VAK Software and Exports Ltd., selected by the Appellant in its TP study, ought to be included as a comparable [Ground No. 6(d)]. (3) That the DRP erred in not directing exclusion of the following 7 companies which are not comparable to the Appellant [Ground No. 6(a)]: (i) KALS Information Systems Ltd. (ii) Bodhtree Consulting Ltd. (iii) Tata Elxsi Ltd, (iv) Sasken Communication Technologies Ltd. (v) Persistent Systems Ltd. (vi) L & Infotech Ltd. (vii) Infosys Technologies Ltd. (4) That the DRP erred in upholding the TPO's action in applying the filter of Related Party Transactions > 25% of sales which is against the reasonable limit of 15% as held by the Hon'ble Tribunal in the case of 24/7 Customer Com Private Limited [Ground No. 6(g)]. 13. The first issue to be considered is regarding computation of OP/TC as done by the TPO/DRP. In its TP Study, the assessee had computed its net margin as 15.69%. The TPO, however, recomputed its margin by: (i) Not considering other income of Rs. 2,96,90,469/- on account of liabilities no longer required written back as part of the operating in....
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....dated, 5-5-2017]. 16. For the sake of ready reference, we may quote the following observations of the Tribunal in the case of Akamai Technologies India (P). Ltd. (supra):- "10. Regarding ground No. 12, the Id. AR of assessee submitted that this issue should be decided in favour of the assessee in line with the Tribunal order on this issue in the Assessment Year 2006-07 in IT (TP) A No. 1227/Bang/2010 dated 11.08.2016 and he filed a copy of this Tribunal order and drawn our attention to Para No. 48 of this Tribunal order, At this juncture, it was pointed out by the bench that it has to be seen as to whether the gain is on the turnover of the present year of an earlier year. In reply, it was submitted that such details are riot readily available and therefore, the matter be restored back, to the file of AO for fresh decision with suitable directions. The" Id. DR of revenue also submitted that the matter may be restored back to the file of AO with suitable directions. 11. We have considered the rival submissions. We find that in Assessment Year 2006-07, the Tribunal order followed the tribunal order rendered in the case of Sap labs India Pvt. Ltd. as reported in I....
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.... and the segment for which ALP is being determined, the same should alone be considered as part of the operating revenue or loss. 17. The learned counsel for the Assessee pointed out that it is impossible to carry out such an exercise. The Assessee might be willing to carry out such an exercise but the same cannot be expected from the comparable companies who have to furnish the relevant data. He also pointed out that under rule 10B (3) of the criteria for comparability is the effect of profit on account of differences. Rule 10B(3) reads thus; "(3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such' transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. The learned counsel for the Assessee therefore submitted that profit arising from comparable transaction will not be materially affected b....
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....tion in reducing an amount of Rs. 8,54,07,158/-, being foreign exchange gain, from its operating expenses i.e. by treating it as a non-operating item. Therefore respectfully following the decision of the ITAT Bangalore in the case of SAP Labs (supra), we hold that the foreign exchange gain or loss should be treated as operating in nature and that such gain or loss as reflected in the books of accounts of the Assessee for the relevant previous year should be adopted as the basis. We therefore hold that the foreign exchange gain of Rs. 8,54,07,158/- ought to either be included in the assessee's operating income or reduced from its operating costs, as it has done in its TP study. 20. As far as the issue whether write back of the liabilities no longer required to the extent of Rs. 2,96,90,469 are also to be regarded as operating in nature, it is not in dispute that the liabilities written back as no longer required were all relating to operating expenses which had been treated as an operating item in the years they were expected to have been incurred. Therefore, the write back of such liabilities ought to also be considered as an operating item in computation of the operating ma....
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....s company on the sole ground that the cost incurred by it on its employees during FY 2008-09 was less than 25% of its total revenue. It is an admitted position that for inclusion of companies as comparable company the employees cost incurred by a company should not be less than 25% of the revenue and this filter is regularly applied and accepted in Transfer Pricing Analysis in SWD services companies. 24. In this regard, it is seen that both before the TPO and the DRP [at pages 339-341 and 441-442 of the paperbook respectively] that the employee cost incurred by CG Vak is not separately disclosed in its financial statements, and that, instead, CG Vak includes the said sum under the heads 'Cost of Services - Domestic' and 'Cost of Services - International', with the result that the total cost incurred by the company on its employees is not available in the public domain. It is the plea of the learned counsel for the Assessee before us that in the absence of such information, it is not possible to accurately determine the percentage of the company's employee cost to its total revenue and, thus, it was submitted that there is no basis on which the said company co....
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.... decisions of this Hon'ble Tribunal in Autodesk India (P.) Ltd. (supra) (paras 5.1 - 5.3 at pages 8-11) and Infinera India P Ltd v. ITO (2016) 72 taxmann.com 68 (para 14(2) at page 6) wherein, in the cases of assessees similar to the Assessee herein, this Hon'ble Tribunal directed exclusion of the said company for the very same assessment year. Respectfully following the precedent on the issue rendered in relation to same AY 2009-10, we direct exclusion of this company from the list of comparable companies. (ii) KALS Information Systems Ltd.- The Assessee seeks rejection of KALS Information Systems Limited ('KALS' for short) on the ground that its business operations are functionally dissimilar to that of the Assessee in as much as this company is engaged in development of software products/product engineering and training services apart from provision of software services. However, no segmental details are available. As per its website, it is clearly engaged in providing software services and products such as Virtual Insure and La Vision. The learned counsel for the Assessee has also placed reliance on the decisions of this Hon'ble Tribunal in....
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....lly following the precedent on the issue rendered in relation to same AY 2009-10, we direct exclusion of this company from the list of comparable companies. (iv) Infosys Ltd. - It is the plea of the Assessee that this company is a giant in the area of development of software and having its own software products. It is engaged in research and development that has led to creation of intellectual property. Its brand value and ownership of intangibles have led to the company being consistently excluded as a comparable in the case of assessees similar to the Assessee. The company has a significantly high turnover of Rs. 20,264 crores, and is not at all comparable to the operations of the Assessee. The learned counsel for the Assessee has placed reliance on the decision of this Hon'ble Tribunal in Infinera India (P.) Ltd. (supra) (paras 16.1 and 17 at pages 8-9) wherein this Hon'ble Tribunal directed exclusion of the said company. Respectfully following the precedent on the issue rendered in relation to same AY 2009-10, we direct exclusion of this company from the list of comparable companies. (v) L&T Infotech Ltd. - The learned counsel for the....
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....) Persistent Systems Ltd. - The learned counsel for the Assessee submits that this company is engaged in Outsourced Product Development services for independent Software Vendors and enterprises. It offers complete product lifecycle services from end-to-end. It is mainly engaged in licensing of products and sale of products and no segmental information is available. The website of the company also mentions that the company is specialised in developing and distributing its own software products and technology innovation. The company also has substantial intangibles. In contrast, the Assessee is a captive software development service provider and provides services to its AEs based on requirement analysis and directions provided by the AEs. The Assessee does not undertake development or sale of software products and in turn does not own intangible assets. The said company is also being consistently excluded from the list of comparables in the case of other assessees similar to the Appellant. Reliance is placed on the decision of this Hon'ble Tribunal in Infinera India (P.) Ltd. (supra) (paras (4) and 16 at page 8). Respectfully following the precedent on the issue rendered....