TaxTMI 
TaxTMI 
2023 (1) TMI 1356
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....y CBDT. 3. Without prejudice to the above, the impugned final assessment order is invalid and bad as the same was passed by the DCIT-6(1)(1) when the jurisdiction to pass the same vested with National E-Assessment Centre (NeAC)/ National Faceless Assessment Centre (NaFAC) and finally with the Assessment Unit under section 144B(1)(xxix) of the IT Act as substituted by Finance Act, 2022 with effect from 01.04.2022. 4. Without prejudice to the above, the impugned final assessment order being passed with the prior approval of the Range Head vide letter in F. No./Scr/Addl.CIT/R- 6(1)/21-22, is invalid and bad in law when such approval is not required to be obtained as per the provisions of the Act. 5. Without prejudice to the above, the impugned final assessment order passed by the DCIT-6(1)(1) is invalid and bad as there is no transfer of case from the NeAC/NaFAC/Assessment Unit to the DCIT-6(1)(1) in accordance with the provisions of section 144B(8) and the transfer of case, if any, under section 144B(8) has not been communicated to the Appellant. 6. Without prejudice to the above, the transfer of case, if any, from NeAC/NaFAC/Assessment Unit to the....
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....levant time. 10.3. Without prejudice to the above, the TPO's order is invalid and without jurisdiction as the reference made under section 92CA by the AO, Technical Unit on 23.06.2021 is barred by limitation under section 153(1) read with section 3(1)(a) of the TOLA Act read with the Notifications issued thereunder, thus rendering the impugned assessment order time barred. 10.4. Without prejudice to the above, the TPO's order is invalid and without jurisdiction as the reference made under section 92CA by the AO, Technical Unit on 23.06.2021 is bad when the TP proceedings initiated as a result of earlier reference on 14.05.2020 was pending and was not taken to its' logical end. 10.5. Without prejudice to the above, the TPO's order is invalid and bad in law as the same has been signed by a non-existent authority namely 'DC/ACIT, Transfer Pricing - 2(1)(1), Bangalore'. 10.6. The TPO has erred in computing the incorrect margins of the Appellant company and the comparable companies. 11. As regards the DRP directions dated 06.05.2022: 11.1. The Honourable DRP is not justified in failing to consider 21 companies....
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....nfoservices Pvt. Ltd., Intelligrape Software Pvt. Ltd., Ace Software exports Ltd., Enlighten Software Services Pvt. Ltd., Sagar soft India Ltd., CES Ltd. (segmental), 0 F S Technologies Ltd., and A S M Technologies Ltd., without any discussion whatsoever, selected by the Appellant vide the Fresh Study filed vide submissions dated 21.07.2021 vide response dated 21.07.2021, when the same meet the test of comparability. 12.5.4. The Lower Authorities have erred in rejecting CG-VAK Software & Exports Ltd. on the basis that the company is also earning revenue from ITeS Segment and that no segmental details are available, when the said company meets the test of comparability and without appreciating that the revenue from ITeS for FY 2017-18 is only 3.82% of the total revenue from operations. 12.5.5. The Lower Authorities are not justified in arbitrarily rejecting E-Zest Solutions Ltd. as a comparable without examining it's functionality contrary to proviso to Rule 108(5) of the IT Rules. 12.5.6. The Lower Authorities are not justified in arbitrarily rejecting the above company selected by the Appellant by adopting an illegal filter "Data not available in dat....
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....nfotech Ltd., Mindtree Ltd., Nihilent Ltd., Persistent Systems Ltd., Wipro Ltd., Tata Elxsi Ltd., Thirdware Solutions Ltd., Infosys Ltd. and Cybage Software Pvt. Ltd., selected by the TPO. 12.6.5. The Lower Authorities have erred in wrongly selecting Tech Mahindra Ltd., Larsen & Toubro Infotech Ltd., Great Software Laboratory Pvt. Ltd., Elveego Circuits Pvt. Ltd., Mindtree Ltd., Nihilent Ltd., Aptus Software Labs Pvt. Ltd., Persistent Systems Ltd., Threesixty Logica Testing Services Pvt. Ltd., Infosys Ltd. and Cybage Software Pvt. Ltd. as comparable companies when the same fail the test of comparability. \12.6.6. The Lower Authorities have erred in wrongly selecting Tech Mahindra Ltd., Larsen & Toubro Infotech Ltd., Great Software Laboratory Pvt. Ltd., Black Pepper Technologies Pvt. Ltd., Mindtree Ltd., Aptus Software Labs Pvt. Ltd., Wipro Ltd., Tata Elxsi Ltd., Thirdware Solutions Ltd. and Infosys Ltd. as comparable companies when the same are engaged in multiple activities and segment information is not available. 12.6.7. Without prejudice, the Lower Authorities have erred in wrongly selecting Exilant Technologies Pvt. Ltd. as a comparable company when the same ....
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....td. [Formerly known as 0 F S Technologies Ltd.] (computed incorrect margin of 24.51% as against the correct margin of 21.34%) 12.8. The Lower Authorities have erred in not allowing risk adjustment considering that the Appellant works in a risk free environment as compared to the comparables. 12.9. The Lower Authorities have erred in not allowing adjustment towards marketing functions considering that the Appellant being a captive service provider does not carry out any marketing functions as compared to the other companies. 12.10. Without prejudice to the above the Lower Authorities have erred in incorrectly computing the margins of the companies selected by them. 13. The Learned Assessing Officer is not right in law and on facts in levying interest under section 234B. 14. Without prejudice to the above, the Learned Assessing Officer is not justified in levying the aforesaid interest under section 234B, when the impugned disallowance is not tenable." 2. Brief facts of the case are as under: 2.1 The assessee is a wholly owned subsidiary of Sprinklr US. The assessee provides software development services including coding, documentati....
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.... 10.27% 12 65th percentile 15.76% Median 14.82% The Ld.TPO recomputed margin of the assessee at 0.65% by treating foreign exchange fluctuation as operating in nature. The Ld.TPO applied various filters and shortlisted the following comparables with a median of 20.19% being the median, thereby computed the shortfall at Rs. 40,11,42,253/- as proposed adjustment. SI. No. Company Name F.Year wise OP/OC (%) Wt. Average 2015-16 2016-17 2017-18 1 Infomile Technologies Ltd. 9.86 11.06 8.64 9.69 2 Harbinger Systems Pvt. Ltd. 12.69 12.80 9.46 11.65 3 Exilant Technologies Pvt. Ltd. 25.82 17.27 8.50 17.17 4 Tech Mahindra Ltd. 17.5 18.06 20.03 18.57 5 Larsen & Toubro Infotech Ltd. 20.78 19.21 17.14 18.94 6 Great Software Laboratory Pvt. Ltd. 17.88 , 23.87 I 17.31 19.73 7 Elveego Circuits Pvt. Ltd. 8.3 40.17 6.75 20.19 8 Black Pepper Technologies Pvt. Ltd. 9.63 13.84 24 83 20.62 9 Mindtree Ltd. 26.11 20.12 18.41 21.21 10 Aptus Software Labs Pvt. Ltd. 27.67 24.83 15.16 2....
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....the stand taken by the TPO that is ESOP is nothing but the cost incurred by the employees of the company. As we already discussed that the employee's cost constitute the major cost of any software development company, thus, the view adopted by the TPO to consider the ESOP cost as operating cost is absolutely correct and accordingly, we reject the contention of the taxpayer in this regard. Further, the TPO is also right' in stating that ESOP is nothing but the perquisite in the hands of the employees and hence the tax deduction at the source should have been made by the taxpayer." 2.9. On receipt of the DRP directions, the Ld.AO passed the impugned order by making addition in the hands of assessee at Rs. 70,01,89,706/-. Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal. 3. At the outset, the Ld.AR submitted that Ground nos.1& 2 are general in nature and therefore do not require adjudication. 4. The Ld.AR submitted that, in Ground no.3, the assessee is raising legal issue regarding the validity of the assessment order passed by the assessment unit. He submitted that, the jurisdiction to pass the assessment vested with Nationa....
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.... of Income Tax Act. 8.2. He also referred to the financial of the assessee for the year under consideration at page 444 to 452. It was submitted that the assessee has not incurred the ESOP cost of Rs. 2,62,65,504/-. 8.3. The Ld. DR on the contrary relied on the observation of authorities below. 9. We have perused the submissions advanced by both sides in light of records placed before us. 9.1 We note that the Ld. AO/TPO has not considered the ESOP agreement between the employees and the AE. Unless the expenditure has been incurred by the assessee, it cannot form part of margin computation. What we understand from the submission of the assessee is that the assessee before us has only played the role of deducting the TDS on the discount the employees have received in the ESOP scheme of the AE. However this needs verification of the ESOP agreement. We therefore remand this issue back to the Ld. AO to verify the agreement and the ESOP scheme having regards to the financials of the assessee. The Ld. AO/TPO is directed to consider the issue in accordance with the view taken by this Tribunal in case of Radysis India vs. DCIT reported in (2022) 145 taxmann.com 294. According....
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....Services and other obligations of Sprinklr India set forth shall be made in US Dollars. * Sprinklr US shall own all right, title and interest including copyrights, intellectual property rights and other rights throughout the world relating to all Deliverables, any and all works of information and authorship assimilated and accumulated by CONTRACTOR during the term of this Agreement. We also note that, the Ld.TPO recorded the functions of the assessee by observing as under: "2.1 Sprinklr India was incorporated on 30th January, 2012 and is a wholly owned subsidiary of Sprinklr US. Sprinklr India provides software development services including coding, documentation, and quality assurance and testing of the software modules which are required to be developed as per the specifications discussed and provided by Sprinklr US's product management team who are responsible for contacting customers and understanding their requirements. Sprinklr India has two units - one in Gurgaon, where the development of the software is undertaken, and the other unit in Bengaluru, which handles all other functions such as quality control & assurance, monitoring, maintenance, adminis....
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.... The credit and collection risks arise when a firm supplies products or services to a customer in advance of the payment. In such a scenario the firm runs the risk that the customer will fail to make payment. As the AE directly transacts with the end customers, it bears the risks in relation to late or non-receipt of payments from customers. Sprinklr India renders software development services only to Sprinklr US and therefore does not bear significant credit and collection risks as compared to the risk that independent Indian third party service providers may bear in relation to receivables from customers. Service liability risk Service liability risk is borne by a company when its service offerings fail to perform at accepted or advertised standards and the company is required to compensate the customer or undertake defect resolution at its own cost. Sprinklr US transacts with final customers and therefore is responsible for any defective quality, etc. that could arise in connection with the product/solution. Sprinklr India provides services exclusively to Sprinklr US. Sprinklr India undertakes the software development service....
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....e with law, considering the turnover limit of Rs. 1 to 200 Crores. Accordingly, this ground raised by the assessee stands partly allowed 12. Grounds 12.6.1 to Grounds 12.6.3 are general in nature and do not require adjudication. 12.1. Ground no.12.6.4 raised by assessee seeking exclusion of certain comparables. The Ld.AR submitted that, following comparables do not fulfil the criteria of turnover filter of less than 200 crores and therefore deserves to be excluded. 1) Exilant Technologies Pvt. Ltd. -Rs. 332.51 Crs. 2) Tech Mahindra Ltd. -Rs. 23,661 Crs. 3) Larsen & Toubro Infotech Ltd. -Rs. 6,906.40Crs. 4) Mindtree Ltd. -Rs. 5,325 Crs. 5) Nihilent Ltd. -Rs. 280 Crs. 6) Persistent Systems Ltd. -Rs. 1,733Crs. 7) Wipro Ltd. -Rs. 44,710Crs. 8) Tata Elxsi Ltd. -Rs. 1,386Crs. 9) Thirdware Solutions Ltd. -Rs. 204.38 Crs. 10) Cybage Software Pvt. Ltd. -Rs. 737Crs. 11) Infosys Ltd. -Rs. 61,941Crs. 12.2. The Ld.AR submitted that consistently above comparables have been excluded for having turnover more than Rs. 200 Crs. For assessment year 2018-19. The Ld.AR relied on the decision o....
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....e as follows:- Sl. No. Citation Turnover of the tested party (Rs.) 1. Autodesk India (P.) Ltd. v. DCIT (2018) 96 taxmann.com 263 (Bang-Trib.) 2. Tavant Technologies India (P.) Ltd. v. DCIT (2020) 120 taxmann.com 122 (Bang-Trib.) 100,18,13,973 3. Micro Focus Software India (P.) Ltd. v. ACIT (2020) 113 taxmann.com 244 (Bang-Trib.) 154,06,39,918 4. Dell International Services India (P.) Ltd. v. DCIT (2018) 89 taxmann.com 44 (Bang-Trib) 109,98,69,000 5. Zynga Game Network India (P.) Ltd. v. DCIT (2020) 119 taxmann.com 403 (Bang-Trib) 109,99,71,917 6. Sami - Sabinsa Group Ltd. (TS-183-ITAT-2022 (Bang)-TP) 165,58,22,100 11. We have heard rival submissions and perused the material on record. At the outset, we notice that the TPO/DRP have erred in not applying the upper turnover filter to reject high turnover companies, while on the other hand, he has rejected companies with lower turnover of less than one (1) Crore. As per the Dun & Bradstreet classification of software industry, the companies could be classified under three major heads depending on the turnover of the company viz., (a) Less than Rs. 2....
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....267 34.21% 6 Jeevan scientific Technology Ltd. 1,721,400,000 1,00,86,52,592 70.66% 7 Infosys B PO Ltd. 11,291,147,909 9,57,73,24,546 17.89% 8. Jindal Intellicom (capitaline) 390,358,799 35,12,69,641 11.13% 9. Mindtree Ltd. (seg.) 5,653,000,000 5,10,39,05,999 10.76% 10 iGate Global Solutions Ltd. 11,845,540,000 9,47,11,65,000 25.07% He submitted that if such criterion is applied, then that would be the proper basis for excluding companies for the purpose of comparability based on turnover. 16. The ld. Counsel for the assessee, on the other hand, submitted that the Hon'ble High Court of Karnataka in the case of Acusis Software (I) P. Ltd. (supra) merely dismissed the appeal of assessee on the ground that no substantial question of law arises for consideration. In particular, he drew our attention to the following paragraphs of the judgment of Hon'ble High Court:- "14. The findings of the learned Tribunal as regards the comparable namely, Mercury Outsourcing Management Ltd., which too have been excluded by the Tribunal are quoted below for ready reference:- "(ii) M....
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.... He submitted that the question of law which the assessee sought to raise before the Hon'ble High Court was justification for excluding Mercury Outsourcing Management Ltd. as a comparable company. It is in that context that the aforesaid decision was rendered by the Hon'ble High Court. He pointed out that the Tribunal in excluding Mercury Outsourcing Management Ltd., had taken a view that its turnover was small compared to the assessee's turnover and therefore not comparable, even if the tolerance range of turnover of 10 times on both the sides of assessee's turnover is applied. There is no positive finding by the Tribunal that the company can be excluded for the purpose of comparability on the basis of turnover, only if the turnover is 10 times on both the sides of assessee's turnover. On the conclusions of the Tribunal, the Hon'ble High Court only held that it is reasonable and deserves to be accepted. In para 16, the Hon'ble High Court has clearly observed that the decisions rendered in other cases referred to by the ld. Counsel for the assessee would not render the findings of the Tribunal in the case before the High Court as negatory or perverse for....
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....nue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S. NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Process....
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....115 taxmann.com and 3DPLM Software Solutions Ltd. vs. DCIT reported in (2014) 42 taxmann.com 333. 12.4.1. The Ld.DR placed reliance on the observations of the authorities below. We have perused the submission advanced by both sides in light of records placed before us. 12.4.2. We note that the revenue recognition of this company is from consulting, design, implementation and support of Enterprise Application and Cloud Applications and other related serviced. It is noted that this company also earns revenue from sale of licence and subscription for software products. These details are available at page 614 of paper book in the Annual report of this company. The Present assessee before us is a captive service provider catering to the needs and at the direction its AE under the SWD segment. As there is no segmental details available, we cannot consider this company to be a good comparable as the entire revenue is catagorised under one head i.e., 'Revenue from Operation'. Even on RPT filter we note that this company has RPT of more that 25% which does fails the filter applied by the Ld.TPO. We therefore direct Thirdware Solutions Ltd., to be excluded from the final list. ....
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....ng the functional similarities, the Ld.TPO shall then consider this comparable if at all it fits into all the necessary criteria. We also note that, merely because this company is into software development, cannot be a reason to consider its inclusion. Needless to say that proper opportunity of being heard must be granted to assessee. B. Tech Mahindra Ltd. This company has been held to be not functional with that of assessee as its RPT filter is 33.84%. The Ld.AR submitted that, this comparable has been selected by the Ld.TPO, only for the reason that it is into software development. The Ld.AR further submitted that, this comparable is into sale of products as well as sale of services which is evident from page 574 of the paper book and it has a turnover of more than 1000 crores. It is submitted that this comparable fails the turnover filter and deserves to be excluded from the final list. B.1. The Ld.DR relied on the orders passed by authorities below. B.2. Admittedly, the turnover of this comparable is more than 200 crores. We have already considered and excluded comparables for failing the turnover filter by following the observations of Coordinate Bench of this T....
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.... E.1. The Ld.AR submitted that this company earns revenue for Information technology services and Software development services for which segmental details not available. He referred to Annexure 62 placed at page 607-608 of the paper book. E.2. On verification of the above pages we note that the, annexure is only Note No.18 forming part of the financial statement. No other details from the annual report has been filed in respect of this company. E.3. We therefore remand this company to the Ld.AO/TPO to consider the objections raised by the assessee against its inclusion and to consider the same in accordance with law. Accordingly this company is remanded to the Ld.AO for re adjudication. F. Aptus Software Labs Pvt.Ltd F.1. The Ld.AR submitted that this company earns revenue for Information technology services. He referred to Annexure 57 placed at page 591 of the paper book. F.1. On verification of the above pages we note that the, annexure is only NIC details. No other details from the annual report have been filed in respect of this company. F.2. We therefore remand this company to the Ld.AO/TPO to consider the objections raised by the assessee against its inc....
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....ly then the same could be computed. We are therefore of the view that in the event the assessee is able to file documents/evidences to establish the differences in the risk, the Ld.TPO may consider it and compute is accordance with law. Accordingly this ground raised by the assessee stands partly allowed for statistical purposes. 15. The Ld. AR did not argue Grounds 12.9.-12.10 and accordingly not adjudicated. 16. In Grounds 13-14, assessee is challenging the levy of interest under section 234B which is consequential. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 11th January, 2023. ============= Document 1 DR 20/10/2022 GOVT. OF INDIA आईडीà¤à¤Ÿà¥€ वेग ITAT Bengaluru 962 19 OCT 2022 आ. आ. (आईटीà¤à¤Ÿà¥€) CIT TATA 1/2/3 अपर से.आ. 12/3 Addl./JCI (TAT)-1/2/3 GOVERNMENT OF INDIA INCOME TAX DEPARTMENT OFFICE OF THE ASST. COMMISSIONER OF INCOME-TAX, Circle - 6(1)(1), Room No.238, 2nd Floor, BMTC Building, 80 Ft. Road, Koramangala, Bengaluru- 9....
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.... objection of the assessee is not tenable as the approval of the Range head is an internal routine matter and there is no direction given by the Range head to the JAO for passing the Final Assessment order as there was no relief given by the DRP in its directions u/s144C(5) of the Act which was passed on 06.05.2022 uploaded on 30-05-2022. As there was no relief given in the DRP order to the assessee there is no change in the Draft assessment order and final assessment order passed was passed u/s143(3) r.w.s. 144C(13) of the Act on 23.06.2022 assessing the income at Rs.70,02,73,850/-. 3.1.1 The Board from time to time has also issued procedure for handling of assessments by JAO's in respect of assessments transferred out of Faceless. Assessment u/s 144B(8) of the Act in order to have consistency with the unit concept- in faceless regime, the Range Head may compulsorily be involved in the finalisation of assessment of such cases transferred to JAO for which the provisions of section. 144A of the Act may suitably be invoked. Hence the Range head has been involved in the finalisation of the assessment . As th....