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2024 (6) TMI 1135
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....price received by the assessee from its Associated Enterprise. 3. The Ld. AO/ Ld. TPO and the Ld. DRP ought to have accepted the Profit margin of the assessee company (OP IOC) of 11.57 % as having complied with the arm's length principle. 4. The Ld. TPO / Ld. DRP erred in rejecting the Transfer Pricing Study prepared by the assessee company without giving any cogent reasons for such rejection. 5. The Ld. AO/ Ld TPO and the Ld. DRP are not justified in law in considering wrong comparables and consequently arriving at a median margin (ALP Margin) of 26.36 % as a ratio of OP/OC. TP Grounds on Exclusion of Comparables 6. The Ld. AO / Ld. TPO and the Ld. DRP erred in not accepting the assessee's contention of exclusion of following 10 companies on the grounds of functional dissimilarity, super profit and high turnover or on other filter etc. i. Rheal Software Pvt. Ltd. ii. Cigniti Technologies Ltd iii. Larsen & Toubro Infotech Ltd. (Segmental) iv. Tata Elxsi Ltd (Segmental) v. Inteq Software Pvt. Ltd. vi. Persistent Systems Ltd. vii. Infobeans Technologies Ltd vii....
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....e there is no intention to shift profits outside India and more so when the tax rates in USA where the AE is located, were higher than those prevailing in India. 16. Any other ground that may be urged at the time of hearing with the prior approval of the Hon'ble Tribunal. 2. Brief facts of the case are that the assessee is a software development company and the profile of the assessee was captured by the Transfer Pricing Officer (TPO) in the order at paragraph No. 2, which is as under: "2. Functional analysis of the taxpayer: M/s. Clinasia Labs Private Limited is engaged in providing global technology services and solutions specializing in clinical operations, clinical data management and IT solutions. The company has its head quarters and development facilities in India and serves a global customer base through its associate company Maxis IT in USA." 3. During the year under consideration, the assessee has entered into the following international transactions: Sl.No. Name of the AE International transactions Amount (in Rs. ) Method applied 1. Maxis IT Inc, USA Provision of software services 159494796 TNMM 2. ....
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.... 7. Feeling aggrieved, the assessee has filed appeal on the basis of the order of the TPO and the AO passed draft assessment order. Challenging the draft assessment order, the assessee has raised objections before the DRP and the DRP has issued directions rejecting the claim of the assessee. At the stage of the DRP, the assessee had also submitted that various comparables which were selected by the assessee were wrongly rejected by the TPO on the pretext that the annual returns are not available. The objections of the assessee were dealt with by the DRP at pg.2 of its directions. In that order, the DRP was not convinced by the objection raised by the assessee and ultimately passed the order. 8. Based on the directions of the DRP, AO has passed the final assessment order and in the final assessment order, the AO has proposed an addition (TP adjustment) of Rs. 2,49,90,091/- to the total income of the assessee and besides that the AO has also made the addition on account of outstanding receivables. Now, the assessee is in appeal before us for the grounds mentioned herein above. 9. Grounds No. 1 to 5 are general in nature and require no adjudication. With respect to Groun....
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.....5 23.67 3 Nihilent Ltd. 258.08 251.22 26.36 4 Cigniti Technologies Ltd. 206.09 204.49 19.15 5 Persistent Systems Ltd. 1542.27 1447.14 30.09 6 Aspire Systems (India) Pvt. Ltd. 233.05 230.81 33.74 7 Infosys Ltd. 57365 54034 38.31 8 Thirdware Solution Ltd. 227.55 221.37 39.41 9 Cybage Software Pvt. Ltd. 754.55 722.25 65.91 From the above 9 Companies, Cigniti Technologies Ltd is to be excluded based on the Ld. DRP order. However, the Ld. TPO/ AO have not excluded the same while passing the final assessment order and we request the Hon'ble ITAT to exclude all 9 companies based on upper turnover filter. Thus, the Assessee submits to apply the upper turnover filter for selecting the comparable companies for a captive service provider like the Assessee. Out of 12 Companies asked for exclusion the following 9 Companies are having Turnover > 200 Crores and the same are to be excluded from the final list of comparables selected by the Ld.TPO/Ld DRP. In this connection the Assessee Company would rely on the following case law: 3.2. The Hon'bl....
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....ntinue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the 1TAT 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 co-ordinate 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 Proc....
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.... (d) Aspire Systems (India) Pvt Ltd (e) Thirdware Solution Ltd. (f) Cybage Software Pvt Ltd. (g) Nihilent Ltd. (h) R S Software Ltd. ( for FY 2013-14. FY 2014-15) 5. The Learned TPO/Hon'ble DRP erred in including the operating income and operating expense of FY 2014-15 and FY 2013-14 in computing the weighted average margin for RS Software Ltd, even though the same fails the upper turnover limit of Rs. 200 crores for the above-mentioned years. 14. In view of the aforesaid decision, we hold that companies listed in Sl. No.(a) to (g) of Grd.No.4 raised by the Assessee whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies." 11. It was submitted that since the turnover of these companies is huge vis-à-vis the turnover of the assessee, which is meagre, these companies are to be excluded. Besides that, it was submitted that these companies are functionally dissimilar to the assessee company and have intangibles and brand segmental information that are not available. 12. Learned DR relied upon the orders of the authorities below. 13. We have he....
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....ms (CMS), Enterprise Mobility (EM), Big data (BDA) etc. Since no segmental margins are given for each of these segments the company is rejected. Software development segment actually encompasses diversified activities which are essential nature of programming and hence broadly similar for TNMM comparability purpose. A detailed this is provided in succeeding paragraphs. Further, the very fact that the company itself has taxpayer are not actually different business segments. Hence, no segmental are required. The objection is not acceptable." Thirdware Solution Ltd. The company's operation comprises of software development, implementation and support services. Taxpayer's objections * Functionally not comparable * Lack of segmental information * Functionally similar The company's operation comprises of software development, implementation and support services. NOTES FORMING PART OF STANDALONE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION Thirdware Solution Limited (the Company) is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. The ....
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....e co-ordinate bench in assessee's own case for AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company from the final list of comparables. Similar view has been taken in the case of Indeed India Operations (P.) Ltd. v. Deputy Commissioner of Income-tax [2022] 143 taxmann.com 212 (Hyderabad - Trib.) IT APPEAL NO. 254 (HYD.) OF 2021 AY 2016-17 Para 12 to 12.4 it has excluded Thirdware Solution Ltd from the list of comparables. Further in the case of GlobalLogic India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle - 10(1) [2022] 134 taxmann.com 35 (Delhi - Trib.) IT APPEAL NO. 868 (DELHI) OF 2021 AY 2016-17 the Hon'ble Tribunal held "40. The taxpayer sought exclusion of Thirdware on the ground that it is functionally dissimilar vis-à-vis the taxpayer. However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the ld. TPO/ld. DRP to retain this comparable. 41. Perusal of Notes - Additional Information and Profit & Loss account, available at page 570 of the annual reports paper book, shows that it has income earned from....
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....drawn to para 2.5.2 of DRP's order, which is as under: "2.5.2 Cigniti Technologies Limited ➢ Functionally dissimilar ➢ Owns software tools and software licenses ➢ Development of IP and accelerators ➢ Incurred brand promotion expense ➢ Fails FE/Sales filter 2.5.2.1 Having considered the submissions, we note that as per the information in the annual report, this company is engaged in software a testing service which is a recognized software services activity. Hence, it is functionally comparable to the assessee. The assessee also in its TP report has recognized software testing activity to be functionally comparable and accordingly selected this company. A diametrically opposite plea is taken before us. It was argued that the testing services rendered by this company are not functionally similar to the services rendered by the Assessee Company, and does not fall within the ambit of software service defined in the safe harbor rules. We note that the testing service also forms part of software development services and clearly fall within the ambit of "software development services" as per ....
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....gies Pvt. Ltd., From Note 2.29 on page 29 of the annual report of the company, it is noticed that the standalone financials reported for the year 2015-16 include revenue and net profit figures of one branch outside India also. The relevant portion of annual report is reproduced as below: Note 2.29 The Balance Sheet and Profit and Loss account include the unaudited financial statement of a Branch situated outside India, whose financial statements reflect liability of Rs. 4,75,78,953/- as at 31st March, 2016, revenue of Rs. 13,00,22,161 for the year ended as on date 31st March, 2016 and branch net loss of Rs. 27,33,756/- for the year ended 31st March, 2016. Since the financials include figures from an outside branch which are unaudited and hence not reliable. Hence the company is not acceptable as a comparable. 3. Sankhya Infotech Ltd., The taxpayer has not furnished the annual report and not demonstrated the passage of this comparable through all the filters of the TPO. Hence, rejected. 4. Harbinger Systems Pvt. Ltd., The taxpayer has not furnished the annual report and not demonstrated the passage of this comparable through all the filters of the TPO. Hen....
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....sessing Officer/TPO for considering afresh, subject to the assessee satisfies that the inclusion of these companies were sought by the assessee by filing the specific documents. 26. In the result, these grounds of the assessee are allowed for statistical purposes. Grounds No. 12 to 14 (grounds on trade receivables) 27. In this regard, the ld.AR submitted that the TPO had adopted interest rate for 11 months i.e., 7.5% on outstanding receivables as on 31st March, 2016. The DRP had upheld the findings of the TPO. 28. Ld.AR had submitted that in the cases of Paegasystems Worldwide India Pvt. Ltd., in ITA No. 1758/Hyd/2014 and in the case of Open Text Corporation India (P) Ltd., Vs. ITO (2021) 127 taxmann.com 399 (Hyd-Trib), the Tribunal had applied LIBOR basis. It was submitted that the similar view may be taken. 29. Per contra, the ld.DR relied upon the decision of the Tribunal in the cases of M/s Zeta Interactive Systems (India) Pvt. Ltd. For the AY 2011-12 in ITA No.1812/Hyd/ 2017 dated 07.06.2022, M/s. Satyam Ventures Engineering Services for the AY 2010-11 in ITA No.362/Hyd/2021 dated 28.06.2021 and M/s. Apache Footware India Pvt. Ltd. for the AY 2018-19 in ITA No.5....
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....re due beyond the credit period 60 days. In our view, the lower authorities have computed the Arm's Length Price and have mentioned that the same being international transaction, the same is required to be bench marked by considering the SBI short term deposit interest rate. 11. The above-said issue of delay in receivables is no more res integra. The co-ordinate Bench in the cases relied upon by the Revenue examined the issue and thereafter directed the TPO / Assessing Officer to apply rate of interest of 6% on outstanding receivable at the year end. The assessee had relied upon various judgements. All these judgments have been considered by the coordinate Bench and thereafter, the above said direction was issued by the Bench. 12. The reliance of the assessee on the decision of Hon'ble Delhi High Court in the case of PCIT Vs. Boeing India Pvt. Ltd., reported in 2022 (10) TMI 498 is of no use to the assessee as in the said judgement, the Hon'ble Delhi High Court in Para 15 had mentioned that the issue receivable is essentially a question of fact. As mentioned hereinabove, in the present case, there is a delay in receiving the outstanding of Rs. 62,38,68,941/- in re....
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....he T.P. Study and file the same before the TPO to show that the assessee's transactions with it's A.E. were at Arms Length however, nothing has been brought to our notice that the assessee has brought any comparable instance. In these circumstances, the TPO had applied the banking rate as applicable to short term loans. In our view, the same is required to be corrected and instead thereof, ALP is to be computed by adding notional interest @ 6% on the receivable. Considering the totality of facts and circumstances, in view of the decisions cited supra and in view of foregoing discussion, we dismiss the appeal of the assessee. Accordingly, the appeal of the assessee is dismissed." 14. Respectfully following our own decision, we direct the Assessing Officer to determine the ALP and compute the same by adding notional interest @ 6% on the receivable beyond a period of 60 days. Thus, ground nos. 5 to 10 are partly allowed." 31.2. However, while holding the outstanding trade receivables as international transactions, we have granted a credit period of 60 days in the case of Apache Footware India Pvt. Ltd. In the present case, the assessee could not file any evidence to prove ....