AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (4) TMI 913
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....lowing grounds: 1. On the facts and in the circumstances of die case and in law, the learned Transfer Pricing Officer ("learned TPO) and consequently the learned AO on the directions of die Hon'ble Dispute Resolution Panel ("DRP") has erred in computing the arm's length price of international transaction and confirming the adjustment of Rs. 2,05,78,185 to the appellant's total income based on the provisions of Chapter X of the Act and therefore, to die extent of additions/disallowances made by die learned AO, die order of die learned AO is bad in law and needs to be annulled. 2. No motive to avoid tax avoid tax as it is a STPl Unit 2.1 On facts and in die circumstances of die case and in law, the appellant is a STPI unit registered widi die Software Technology Parks of India claiming tax holiday under section 10A of die Act, hence diere is no motive to avoid tax. 2.2 On facts and in the circumstances of die case and in law, appellant has no motive to avoid tax as it is an STPI Unit entided to Income-tax holiday under section IDA of die Act and therefore transfer pricing provisions under Chapter X of the Act ought not to be invoked. ....
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....xclusive & without prejudice to each other." 2. Brief facts of the case are that the assessee company is engaged in the business of software development and services. The assessee filed its return of income for assessment year 2011-12 on 27-09-2011 declaring total income at Rs.1,08,180/-. The assessee also claimed deduction u/s 10A of Rs.1,56,66,131/- from Software Technology Park of India (STPI) unit. The assessee, while filing return of income, furnished report u/s 3CEB. In the report u/s 3CEB, the assessee reported international transaction about software development and support services to its associated enterprises (AE). Consequent upon reporting international transaction, the assessing officer made reference to transfer pricing officer (TPO), for computation of arm's length price (ALP). The TPO, while considering the ALP determined by assessee with regard to the international transaction with its two associate enterprises (AEs), noted that the assessee provided software development and support services fee, Varian Medical Service System International AG, and Varian Medical System Inc. USA of Rs.10.49 crores each. The assessee benchmarked its transaction by selecting transa....
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....1,04,95,997 4. Accordingly the TPO suggested adjustment of Rs.2.13 crores with regards to both the transaction reported by assessee with its AE. The TPO vide its order dated 31.03.2015 rectified his order and suggested adjustment was revised to Rs. 2,49,64,384/- in place of Rs. 2,13,96,384/-. On receipt of report of TPO, the AO passed the draft assessment order. The draft assessment order was served upon the assessee on 12-03-2015. The assessee exercised its option for filing objection before Dispute Resolution Panel (DRP). The DRP, vide its direction dated 14-12-2015 directed to exclude e-Zest Solution and Sankya Infotech Ltd from the list of comparables and with regard to correctness of PLI (OP/OC) of comparables directed to take correct PLI of comparable. Accordingly, as per the direction of DRP the computation of arms lengths price adjustment was worked out at Rs. 2,05,78,185/- in the final assessment order dated 27.01.2016 passed under section 143(3) rws 144C(13). Aggrieved by the additions / adjustments on ALP with regard to the transaction with its AE, the assessee filed this appeal before us. 5. We have heard the submission of Ld.AR of the assessee and the Ld. DR for ....
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....f Wipro Technology Services Ltd 8. The Ld.AR submits that Wipro Technology Services Ltd is engaged in rendering infrastructure services, application development and maintenance services of Citi group. Wipro Technology Services Ltd entered into an agreement with Citi group Inc. for acquiring of Citi group interest in Citi Technology Services Ltd. This company has signed most service agreement with Citi group Inc. for delivery of technology, infrastructure services and application development and maintenance of service for a period of six years. This company is managing to earn more than the industry average and has a very difficult risk profile and, therefore, is not comparable with the assessee which is capital service provider. This comparable was excluded by Tribunal in following cases:- • Saxo India Private Ltd vs ACIT - ITA No.6148/Del/2015, • Pr.CIT Delhi vs Saxo India Private Ltd - ITA No.682/2016 C.M. Appl.3574-35746/2016 Delhi High Court, • Aithent Technologies Pvt. Ltd - ITA No.1286/Del/2017, • Mobileum (India) Pvt Ltd (Formerly known as Roamware India Pvt Ltd- IT(TP)A 945 & 2047Mum/2016, • Aithent Technol....
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....le is not comparable with the assessee. This comparable was rejected by Delhi High Court and Delhi Tribunal in following cases:- • Alcatel Lucent India Ltd vs DCIT ITANo. 6856/Del/2015 • Pr CIT vs Alcatel Lucent India Ltd ITA 515/2017 HIGH COURT OF DELHI • Aircom International India Pvt Ltd vs DCIT ITA No.6856/Del/2015 For exclusion of Sasken Communication Technologies Ltd 11. The Ld.AR submits that this company is engaged in advertising business and provides telecommunications software services and solution to network equipment manufacturers, mobile terminal, hardware design, IC design services and IT infrastructure. This comparable owned IPs. Turnover of this company is Rs. 349 Crore, which more than 19 times of assessee's turnover which is only Rs. 20 Crore. It has high turnover comparable to assessee. This comparable was rejected by Tribunal and Delhi High Court in the following cases:- • Alcatel Lucent India Ltd vs DCIT ITANo. 6856/Del/2015 • Pr CIT vs Alcatel Lucent India Ltd ITA 515/2017 HIGH COURT OF DELHI • Aithent Technologies Pvt. Ltd - ITA No.1286/Del/2017 • ST.Ericcso....
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....rejected this comparable by taking with it this company is consistent loss making company. We are further noted that before the DRP the assessee stated that this comparable is having profit in the current year at 7.14% and can be considered as a comparable. It was also stated that merely because a company is incurring losses, it would not lose its status as a comparable and that losses and incidental of business which is at par with the profit. However, the contention of assessee was not accepted by DRP by taking view that those companies with fluctuating margins are to be excluded. We have noted that the coordinate bench of Kolkata Tribunal in Nomura Structured Finance Services Pvt Ltd in ITA 284/Kol/2016 while considering the comparability of this comparable pass the following order: "11.2. CG -VAK Software and Exports Limited. The Ground No. 16 raised by the assessee is with regard to the comparable chosen by the assessee but rejected by the ld TPO in respect of CG-VAL Software and Exports Limited. The ld. TPO rejected this comparable stating that it is engaged into medical transcriptions which is different from the assessee and hence not functionally comparable. The ld....
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....asons for the losses in the case of this comparable company. If all these factors are considered and due adjustment can be given to the operating margins of this company, than the same should be considered as comparable company and added to the list of comparables for determining Arithmetic mean of profits of comparable companies. The TPO is directed to consider the comparability of this company afresh in the light of the aforesaid observations and also taking note of decision rendered on this aspect by Tribunals and Hon'ble High Courts if any. Both the parties before us fairly agreed that let similar direction be given for the year under consideration also. Accordingly, the Ground No. 16 raised by the assessee is remanded to the file of ld TPO with similar directions that were given for Asst Year 2010-11 by this tribunal. Accordingly, the Ground No. 16 raised by the assessee is allowed for statistical purposes." (* under line by us) 14. Considering the decision of tribunal that this comparable is not consistent loss making as it had made profit in the relevant assessment year, hence, we direct the TPO/AO to include this comparable in the final set of compa....
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....o say that the turnover filter is not a relevant filter. The only point we are trying to make is that it would be inappropriate to apply a particular filter with respect to a particular concern without applying it across the entire spectrum of the concerns which have been considered as comparable. Therefore, on this aspect of the matter, we do not deal any further. 9.3 So, however, the other pleas of the assessee to support exclusion of the said concern from the final set of comparables are quite justified. Notably, the said concern is also engaged in the production of software products such as 'Finacle', 'Flypp' and 'Infosys iSmart as is evident from the copy of the Annual Report of such concern, which has been placed in the Paper Book at pages 483 to 500. In fact, we find that the Transfer Pricing Officer has himself accepted the fact that the said concern is engaged in software products. Apart therefrom, it is quite well understood that Infosys has a brand image which is quite incomparable to the assessee before us, which is wholly acting as a captive service provider for its associated enterprises. In this view of the matter, it is quite evident tha....
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....private limited versus ACIT in ITA No. 6148/Delhi/2015, while examining the comparability of captive service provider with Wipro technology services Ltd, e Infochips Ltd, Sasken Communication Technology Ltd and Persistent system Ltd., passed the following order; "(i) E-Infochips Limited: 10.1 The Transfer Pricing Officer included this company in the list of comparables. On being called upon to explain as to why it should not be considered as a comparable, the assessee contended that there was functional dissimilarity inasmuch as this company was engaged in software development and IT enabled services and also Products. The Transfer Pricing Officer observed that the revenues of this company from Products was only 15% of total revenue and hence the same qualified to be eligible for comparison. The DRP did not allow any relief. 10.2 After considering the rival submissions and perusing the relevant material on record, we find that the Annual report of this company is available in the paper book with its Profit and loss account at page 1025. Schedule of Income indicates its operating revenue from software development, hardware maintenance, information technolo....
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....f software products to the total profit of the company. As no segmental information is available in respect of this company and the figures have been adopted by the TPO at entity level, we, therefore, order for the exclusion of this company from the list of comparables (vi) Sasken Communications Technologies Ltd. 15.1 The TPO included this company in the set of comparables despite the assessee's objection that it was functionally different and also had Product portfolio. 15.2 After considering the rival submissions, we find from page 58 of the TPO's order that he has recognized sale of software products to the tune of Rs.37 crore and odd. Though the break-up of revenue from software services and software products is available, but, the break-up of operating costs and net operating revenues from these two segments have not been given. It is further observed that the TPO has taken entity level figures for the purposes of making comparison. Since such entity level figures contain revenue from both software services and software products, as against the assessee only providing software services, we are disinclined to treat this company as comparable. ....
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....ment support and maintenance services was earned by Wipro Technology Services Ltd., from Citi Group Inc., by means of master service agreement entered into between Wipro Ltd., its parent company and Citi Group Inc., a third person. 16.4 We have noticed above from the language of Rule 10B(1)(e)(ii) that it is the net profit margin realized from a comparable uncontrolled transaction, which is considered for the purposes of benchmarking. The epitome of 'comparable uncontrolled transaction' is that the companies or transactions in order to fall within the ambit of sub-clause (ii) of rule 10B(1)(e), should be both comparable as well as uncontrolled. 'Uncontrolled transaction' has been defined in Rule 10A(a) to mean: 'a transaction between enterprises other than associated enterprises, whether resident or non-resident.' This shows that in order to be called as an uncontrolled transaction, it is sine qua non that the same should be between the enterprises other than the associated enterprises. Section 92B(2) provides that: 'A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-secti....