TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 1507
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....te Resolution Panel (DRP) u/s 144C in so far it is against the assessee are unsustainable in law; requires to be set aside. Consequently, the additions based on such directions also requires to be set aside. 4. The DRP erred in not considering the relevant materials, evidences, data and relevant law. The directions issued are without application of mind. 5. That the Orders of AO / TPO and the Directions of the DRP violates the principles of judicial discipline as the binding nature of the orders of the higher appellate authorities have been totally ignored. 6. That the order of the AO / TPO / DRP and the directions given therein are bad in law and not as per law requires to be cancelled. That the assessment order dated 23.02.2022 is not in conformity with the directions of the DRP. 7. That the AO/TPO/DRP erred in not providing adequate and sufficient opportunity as required under law thus violating the principle of natural justice, hence on this ground alone the orders requires to be annulled. ISSUE OF TRANSFER PRICING 8. That the order of the Transfer Pricing Officer is without jurisdiction, against the law, facts, circumstances, natural justice, equity and all ot....
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....t proposed includes non AE transactions. c) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. d) The Learned AO / TPO / DRP erred in comparing the appellant's distribution margin with comparables which are not in the business of trading/distribution. e) The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier assessment years on this issue. f) The selection of the method by the Learned AO / TPO / DRP is not as per law. g) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) The Learned AO / TPO / DRP erred in not carrying out the adjustments as required under law as well as the facts. i) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 10B(3). j) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. k) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee 1. Frontline Electro Medic....
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....ia as required under law. g) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. h) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4)&(5) and 10CA(2) while selecting the criteria and filters. i) The learned AO/TPO/DRP erred in rejecting R & D expense more than 3% on turnover to eliminate companies engaged in R & D activities. j) The learned AO/TPO/DRP erred in applying the software development service income threshold of 75% to sales to select comparable companies. k) The learned AO/TPO/DRP erred in applying export turnover threshold of 75% to sales to select comparable companies. l) The learned AO/TPO/DRP erred in rejecting the comparable companies having ratio of employee cost to sales less than 25%. m) The learned AO/TPO/DRP erred in applying the Related party transactions threshold of 25% to revenues to select comparable companies. n) The learned AO/TPO/DRP erred in not applying the Turnover filter as per law. o) The Learned AO/TPO/DRP erred in not considering the companies E-Zest Solutions Ltd, Nintec Systems Ltd and Sasken Technologies Ltd as comparables rejecting the su....
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.... of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It would not have made any economic sense to facilitate such facility independently. Thus the payment of royalty enhances the commercial value for the business of the assessee. 3.1 The ld. A.R. in his written submissions has submitted that the ITAT vide its order for AY 2005-06 & 2006-07 in IT(TP)A 40/B/11 & 1647/B/13 dt.21.04.2017 in the light of the directions of the Tribunal for the AY's 2002-03 to 2004-05 has given specific direction which has not been followed by the lower authorities. Relevant portion extracted hereunder: ''18. Since the issue was already set aside to the file of the Assessing Officer for choosing the proper comparable therefore in view of the earlier year of this Tribunal, we set aside this issue to the record of the TPO/AO for reconsideration of the same in the light of the directions of the Tribunal for the Assessment years 2002-03 to ....
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....ble i.e. M/s. Advance Micronic Devices Ltd. In our opinion, the AO has to consider this royalty payment as an operating cost and has to verify whether the margin of assessee is higher than the margin declared by the comparable company i.e. M/s. Advance Micronic Devices Ltd. and decide accordingly. In view of this, the issue in dispute is set aside to the file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly.'' 3.3 The ld. A.R. further submitted that the Tribunal in assessee's own case for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 has followed the order for AY 2005-06 & AY 2006-07 in IT(TP)A 701 & 702/Bang/2021 dated 05.08.2021. 3.4 Recently, the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 has followed the order for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022. Relevant portion extracted hereunder: '' 6. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee's own case in assessment years 2005-06 & 2006-....
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....name of the AE in the applicable jurisdiction. The trademark is used in packaging, advertising, instruction book and other literature relating to the product. The trademark and the trade name of the GE company helps WGE add credibility and without the trademark and trade name of the GE company the products sold by WGE will be a generic product which will neither command the price it is currently sold at nor have any buyers in the highly technology driven precision industry and also in gaining demand for its product. Therefore, as Wipro GE uses the 'GE' trademark and tradename which is owned by GE Company, Wipro GE is able to sell its products in the Indian market and meet the growing demand in the medical equipment industry. The Assessee also submits that, the Assessee is able to sell its products because of the GE brand associated with the products. The customer places its order with the Assessee and the Assessee in turn places the orders with the AEs to meet the customers demand. The prices are negotiated between the Assessee and the customers and the prices are market driven. The distribution of medical equipment along with its service component will help the Assessee in....
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....ing proceedings, aggregation of related transactions is permissible, -yet there is no rule that all related and unrelated transactions can be combined and shown at ALP under TNNM entity level." 4.5 The ld. TPO observed that in the case of Sony Ericson Mobile Communication India Pvt. Ltd. it has been held that 'it would not be proper and appropriate to apply the TNMM method in case of Indian assessed is engaged in manufacturing activities and distribution and marketing of imported and manufactured products as interconnected transactions. Import of raw material for manufacture would possibly be an independent transaction viz., marketing and distribution activities or functions. 'A careful perusal of the judgment of the Hon'ble jurisdictional High Court divulges that though a number of closely linked transactions can be aggregated, but, the transactions which are not closely related to each other would require determination in a segregated manner. 4.6 Further, the ld. TPO observed that the Punjab &..Haryana High Court in knorr-Bremse India Pvt. Ltd. held that "It further laid down emphatically tit: 'the contention that as the services and goods are utilized by th....
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.... decisive to consider such separate transactions as a single transaction. 5. The ld. DRP confirmed the findings of the ld. TPO. Against this assessee is in appeal before us. 6. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee's own case in assessment years 2005-06 & 2006-07 in ITA Nos.701&701/Bang/2021 dated 5.8.2021, wherein held as under: 3. Ground No.5 & 6 are with regard to TP adjustment of Rs.1,74,04,730/- towards royalty payment. 3.1 This issue was considered by this Tribunal on earlier occasion in assessee's own case and this Tribunal in IT(TP)A No.40/Bang/2011 for the assessment 2005- 2006 2and the Tribunal vide order dated 21.4.2017 set aside this issue to the file of AO/TPO for fresh consideration, of which the TPO/AO sustained addition of Rs.1,74,04,730/-. Against this assessee is in appeal before us. 3.2 The assessee has paid royalty of Rs.1,74,04,730/-. Royalty has been paid having regard to the support services by the Group company. The assessee is in the business of advanced diagnostic equipm....
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....e royalty transaction also. 4.6 The R&D expenses of the comparable & royalty over net sale is considered as per the annual report for the current year is: Sl No Company name R&D Exp Royalty/ trademark Net sale Margin over sale 1 Advanced Micronic Devices Ltd. 0 0 2684.75 lakhs 0% Average 0% The computation of ALP of the royalty payment is made using CUP/CUT method using the above-mentioned comparable as follows:'' 3.5 From the above, it can be seen that the AO has chosen M/s Advanced Micronic Devices Ltd as a comparable which has not incurred any royalty payment as the company has no trademark licensed to it. Due to lack of comparable transaction, ex-facie the company cannot be considered as a comparable with the assessee. The adoption of CUP method is also not as per law in the absence of comparable transaction. Hence in the impugned case, there is no comparable identified as required in law by the TPO. In the absence of comparable transaction, the Tribunal has held as extracted supra that the royalty payment be considered as operating cost in the trading segment. The TPO has adopted M/s Advanced Micronic Devices Ltd as a comp....
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....he file of AO/TPO for the limited purpose for comparison of margins with the comparable company and decide accordingly. 4. Next ground No.8 is with regard to sustaining addition of Rs.2,42,33,641/- u/s 37 of the Act by holding that it was wholly and exclusively incurred for the purpose of business. Facts of this case are that this issue has been set aside by the Tribunal vide order cited (supra) for reconsideration by the AO/TPO. On set aside assessment the addition has been sustained by AO. Since the assessee has not substantiated those expenses as incurred wholly and exclusively for the purpose of business. Hence, the assessee once again in appeal before us. 4.1. The Ld. A.R. submitted that the impugned issue was set aside by the Tribunal in IT(TP)A 40/B/11 dt.21.04.2017 to the AO for reconsideration and adjudication. The AO vide his notice dt.11.11.2019 sought details of dealer commission. The assessee vide replies dt.27.11.2019 & 11.12.2019 submitted the party wise details of provision and payments along with the details of deduction of TDS and prayed that the same should be allowed as business expenditure. However, rejecting the details and information provided and the p....
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....ons and perused the materials available on record. The assessee claimed that it has paid a sum of Rs.2,42,33,641/- towards commission to dealers and according to the assessee, it is wholly and exclusively incurred for the purpose of business. Further, assessee submitted the list of payments made to various parties and also furnished the details of deductions of TDS at the time of payment of commission to various dealers. It was also noted that in the case of receipt of this commission by those parties, the department has accepted it. However, in the hands of assessee it was treated as not incurred by the assessee, which is incorrect. Further, the books of accounts of the assessee is not rejected by challenging the entries in the books of accounts. On this point also, we are of the opinion that the claim of assessee is to be allowed as genuine. Accordingly, we allow this ground of appeal taken by the assessee. 4.5 In the result, the appeal of the assessee in ITA No.701/Bang/2021 is partly allowed for statistical purposes. 6.1 Same view was taken in assessee's own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 6.2 In view of the above decisions, taking a c....
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....1,75,64,47,225/- Adjustment u/s 92CA Rs.1,74,43,26,236/- 6.1 The ld. A.R. submitted that the adjustment made by the TPO of Rs.1,74,43,26,236/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 20.04.2021. The appellant filed objections before DRP on 22.06.2021. The appellant filed its written submissions before DRP on 06.01.2022 emphasizing on the binding decisions of the tribunal in assessee's own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 25.01.2022 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) rws 144(B) of the Act dated 23.02.2022 retaining the TP adjustment in Equipment segment of Rs.174,43,26,236/- as per draft assessment order. 6.2 The ld. A.R. submitted that the AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee's own case for the years 2002-03 to 2004-05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases of Rs.875,98,....
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....by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also recomputed the gross margin of the assessee and again held that the adjustment is required to be made only in respect of purchases made from the AE and not on the entire transaction in the trading segment. There is no quarrel on this issue that the adjustment on account of transfer pricing can be made only in respect of the international transactions. In the case on hand, the international transactions in trading segment is confined only to the purchases made from the AE. Since there are other transactions of import and procurement from domestic market therefore the adjustment cannot be made by considering the entire trading segment of the assessee. Thus on principle, we do not find any error on these points however, the CIT (Appeals) has undertaken to recompute the margins of the comparable as well as assessee by considering the fresh material which was not available with the TP....
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.... the comparables chosen by the TPO, no adjustment is required in the trading segment. 6.9 The ld. A.R. submitted that the Tribunal in assessee's own case for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 (PB-II page 791 to 801, para 28 to 30) has dealt with this issue and the operative portion is extracted hereunder: ''30. We have heard both the parties and perused the materials available on record. The main grievance of the Ld. A.R. on this issue is that AO/TPO/DRP has not considered the earlier decision of Tribunal in A.Y. 2002-03 to 2004-05, 2005-06, 2006-07, as such order passed by the lower authorities is bad in law. The Judicial discipline requires consistency in its proceedings. The AO/TPO what criteria followed in earlier year for determining the ALP, the same to be followed in next assessment year unless and until there is a change in facts of the case. In the present case, the Ld. D.R. not brought on record any change in circumstances to deviate from earlier order of the Tribunal for the assessment year especially 2005-06 and 2006-07 in IT(TP)A No.40/Bang/2011 & 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for th....
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....us, the adjustment proposed includes non AE transactions. iii) The Learned AO / TPO / DRP erred in wrongly adopting the financial results of the assessee. iv) The Learned AO / TPO / DRP erred in comparing the appellant's distribution margin with comparables which are not in the business of trading/distribution. v) The Learned AO / TPO / DRP erred in not following their own orders passed for the earlier assessment years on this issue. vi) The selection of the method by the Learned AO / TPO / DRP is not as per law. vii) The Learned AO / TPO / DRP erred in not granting the variances deduction envisaged in the Act and Circular. viii) The Learned AO / TPO / DRP erred in not carrying out the adjustments as required under law as well as the facts. ix) The Learned AO/TPO/DRP have failed to identify a comparable in terms of Rule 1.013(3). x) The Learned AO/TPO/DRP erred in rejecting certain comparables on unsustainable and untenable grounds/reasons while considering comparables which failed to meet the filters /criteria as required under law. xii) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the ass....
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....er requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. Margin of the assessee as computed by the TPO in the TP Order is as under:- Particulars Rs. Operating Revenue 2535,87,21,072/- Operating Expenses 2302,03,25,347/- Operating Profit 233,83,95,725/- OP/OR 9.22% OP/OC 10.16% Comparables selected by Appellant in TP report and their arithmetic mean: Sl. No. Name of the company Wt. Avg ( %) 1 Advanced Micronic Devices Ltd -103.43 2 Thakral Services (India) Ltd -11.98 3 Max Medical Services Ltd -3.56 4 Usart Technologies India Pvt Ltd -0.50 5 Zicom Electronic Security Systems Ltd 1.71 6 Ind-Agiv Commerce Ltd 3.51 7 Lyka Exports Ltd 9.38 8 Keith Electronics Pvt Ltd 9.25 Median 3.59% Out of the 8 comparables selected by the assessee, the TPO has rejected all of them. Final Comparables selected by TPO: Sl No Company Name ....
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....The TPO yet again has made the adjustment on domestic sales of Rs.1769,15,48,148/- which is not an international transaction. 8. The ld. A.R. requested to delete the TP adjustment in the trading segment by placing reliance on the order of the Tribunal in assessee's own case in IT(TP)A No.703/Bang/2021 dated 7.10.2022 for the assessment year 2012-13. 9. The ld. D.R. relied on the orders of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee's own case in assessment years 2012-13 in ITA No.703/Bang/2021 dated 7.10.2022, wherein held as under: "28. Wipro GE markets, distributes and services the complete range of GE's medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical p....
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....the Act dated 30.03.2021 retaining the TP adjustment in Equipment segment of Rs.91,39,62,617/- as per draft assessment order. 28.6 The AO/TPO/DRP has erred in not relying on decision of the CIT (A) / ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05, 2005-06, 2006-07 and subsequent orders of the ITAT for other assessment years. The direction of the ITAT to restrict the adjustment to the international transaction i.e, AE purchases has not been adhered to by the TPO. The TPO yet again as was made in the original proceeding has made the adjustment on domestic sales which is not an international transaction. 28.7 The TPO/DRP have adopted TNMM as the MAM to benchmark the transaction. It was submitted to the TPO/DRP that the Tribunal in ITA 810 to 812/Bang/2007 dated 16.05.2008 for the AY's 2002-03 to 2004-05 has held Resale Price Method as the MAM to benchmark the transaction. Relevant portion is reproduced as under: "Accordingly, he has held Resale Price Method as explained in Rule 10B(1)(b) will be the MAM since the trading segment involves purchases of goods which is resale. In my view resale price method offers a solution for the issue on hand. Accordingly TP....
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..... Since there are other transactions of import and procurement from domestic market therefore the adjustment cannot be made by considering the entire trading segment of the assessee. Thus on principle, we do not find any error on these points however, the CIT (Appeals) has undertaken to recompute the margins of the comparable as well as assessee by considering the fresh material which was not available with the TPO/A.O. which it is not permissible to the CIT (Appeals) to do this exercise of recomputation without giving an opportunity to the TPO/A.O. The proper course of action on the part of CIT (Appeals) would have been to ask the TPO/A.O. for remand report by considering all the relevant material. However, the CIT (Appeals) did not choose to issue any remand order but undertaken the entire exercise on his own. Thus it is clear that the TPO/A.O. was not given an opportunity in this process of recomputing the margins of the comparable as well as assessee. Accordingly in view of the above facts and circumstances of the case, we set aside this issue to the record of the TPO/A.O. to consider and verify relevant record and then determine the ALP in the light of our above observations.'....
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.... authorities in earlier years is hereunder: 28.14 In line with the treatment given to AY's 2002-03 to 2004-05, AY 2005- 06 & 2006-07 the margin of the assessee has been calculated at 50.11%. As mentioned supra, the TPO for the impugned year has considered M/s.Maestro Mediline Systems Ltd (seg) at a margin of 29.57% and M/s. Advanced Micronic Devices Ltd at a margin of 7.29%, thus average being 18.43%. It may be seen in all the earlier years that M/s. Advanced Micronic Devices Ltd (7.29%) has been consistently considered as a comparable and thus the margin of the assessee at 50.11% being higher than that of M/s. Advanced Micronic Devices Ltd, the adjustment requires to be deleted. 28.15 The assessee has objected to M/s. Maestro Mediline Systems Ltd (seg) being considered as a comparable on various grounds. Without going into the merits of the said company being considered as a comparable and assuming without admitting that M/s. Maestro Mediline Systems Ltd (seg) is considered as a comparable for this year, the margin of the comparables as arrived at by TPO is 18.43%. Thus, the margin of the assessee at 50.11% is more than the margin of the comparables calculated by the TPO at ....
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....care (GEHC), whereby Wipro GE provides software services. The software services are part of the GEHC Global Technology Operations. The services pertain to the development of software, which is vital in terms of the functionality of the medical products manufactured by GEHC. The services rendered are in the nature of coding to sub-system work and providing image solutions as well as IT service solutions including base support, business, product and infrastructure software across all technologies and home grown or purchased software. It also includes expertise in various technologies, implementation, monitoring and support of IT infrastructure and software solutions. Wipro GE also carries on operations by way of providing online support and developing support platforms. 9.2 The ld. A.R. further submitted that Wipro GE provides engineering services including value-engineering services for Wipro GE product design and solving Wipro GE global's customer related design problems and issues. The services are in the nature of providing engineering drawing/designs (both 2D and 3D models) by using software like CAD, CAM etc. Wipro GE does not create any engineering software but utilizes the e....
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....bsp; 65thPercentile 26.46 The Computation of arm's length price by the TPO and the adjustment made is as under: Particulars Rs. Arm's length price 9,54,94,40,875/- Price received 8,70,35,80,565/- Shortfall 84,58,60,310/- 9.3 The ld. A.R. submitted that the adjustment made by the TPO of Rs. 84,58,60,310/- in the Software Development Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C of the Act dated 20.04.2021. The appellant filed objections before DRP on 22.06.2021. The appellant filed its written submissions before DRP on 06.01.2022 seeking inclusion and exclusion of comparables interalia on various filters. The DRP passed its directions u/s 144C(5) on 25.01.2022 and directed exclusion of Kals Information Systems Ltd, Infomile Technologies Ltd. and R systems International Ltd. and inclusion of Axiscades Engineering Technologies Limited and Sagarsoft India Ltd as comparables. The AO passed the final assessment order u/s 143(3) rws 144C(13) rws 144B of the Act dated 23.02.2022 without giving effect to the directions of the DRP and retained the TP adjustment in Software Development segment at Rs.84,58,60,310 /- as per draft assessment ord....
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....IT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding that the application of turnover filter still holds good and has not been in any manner diluted by the decision of Hon'ble Karnataka High Court in the case of M/s. Acusis Software (I) Pvt. Ltd., Vs. ITO in ITA No. 223/2017, dt. 14-08-2018, following the relevant observations of the Tribunal, held as under:..'' 9.6 Applying the said decision, the companies having turnover less than Rs.200 crores and more than Rs.2000 crores should be eliminated from the list of comparables as the assessee's turnover is Rs.870.35crores. 9.7 The ld. A.R. submitted that the appellant is seeking exclusion of the following 15 comparables on account of turnover filter. Sl no Company name Turnover (in Crores) 1 Rheal Software Pvt Ltd 5.22 2 Kals Information Systems Pvt 2.95 3 Infomile Technologies Ltd. 2.23 4 Harbinger Systems Pvt. Ltd. 63.94 5 C G-V A K Software & Exports Ltd 11.62 6 Larsen & Toubro Infotech Ltd. 6182.9 7 Great Software Laboratory Pvt. Ltd. 132.98 8 Mindtree Ltd. 4752.6 9 InfoBeans Technologies Limited 67.46 10 Aptus ....
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.... rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- "5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in IT(TP)A No. 1673/Bang/2012. ................. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. ...... 17.8 Before us, the Ld.DR has not been able to place anything on record contrary to the above observ....
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....IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded....." 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon'ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set.'' 9.11 The ld. A.R. further submitted that the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decision in Sandisk has rejected Persistent Systems Ltd. and Nihilent Ltd as comparable....
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....not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions & Integration); and iii.services (product engineering) b.There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry" 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No.2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The rel....
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....cted hereunder: ''4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively.'' 9.16 The ld. A.R. submitted that the Tribunal in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decisions in Optiva and Infor has rejected Cybage Software Pvt Ltd as comparable. In consideration of the same, he requested that Cybage Software Pvt Ltd. be removed from the list of comparables for the impugned year as well. The assessee has sought for inclusion of the following companies: 9.17 Regarding the comparables Axiscades Engineering Technologies Ltd and Sagarsoft (India) Ltd., the DRP has directed the TPO to adopt these as comparables. However, the AO/TPO did not give effect to the same while passing the final assessment order. The DRP directions in this regard is extracted hereunder: Hence the ld. A.R. requested that the above two companies be included in the list of comparables. 9.18 Regarding Sasken Comm....
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....the materials available on record. The contention of the ld. A.R. is that assessee's margin is higher than the margins of the comparables and he drew our attention to the following chart: WIPRO GE HEALTHCARE PVT. LTD. ITA 291/B/2022; ASSESSMENT YEAR 2017-18 Assessee's Turnover - Rs. 870,35,80,565/- FINAL LIST OF COMPANIES SELECTED BY TPO AS COMPARABLE IN SOFTWARE SEGMENT (PAGE 69 OF TP ORDER, PB-I page 199) Assessee's. Sl. No. Name of company Comparable of Turnover (in crs) Operating Revenue OP/OC % Comparable margin Rejected as comparable On Grounds Rejected as comparable in Page/ Para 1 Rheal Software Pvt. Ltd. TPO & Assessee 5.22 -1.85% Fails turnover filter Fulcrum Fund Services (India) Pvt. Ltd. - 2521/B/2017 dt.12.04.2019 2 Kals Information Systems Ltd. TPO 2.95 3.62% Functionally different Rejected by the DRP on the dissmilarity but no effect given Fails turnover filter Fulcrum Fund Services (India) Pvt. 2521/B/2017 dt.12.04.2019 3 Infomile Technologies Ltd. TPO 2.23 10.43 No RPT Information Rejected by the DRP on the ground disclosure of RPT infor....
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.... (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 16 Cygnet Infotech Pvt. Ltd. TPO 51.65 30.19 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 17 Infosys Ltd. TPO 59,840.00 39.50 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 18 ThreesixtyLogica Testing Services Pvt. Ltd. TPO 32.11 41.94 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 19 Cybage Software Pvt. Ltd. TPO 758.86 57.82 Functionally different and Abnormal High Margins Rejected by the Hon'ble ITAT in assessee's own case for AY 201617 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decisions in Optiva India Technologies Pvt Ltd - ITA 194/Pun/2021 dt.21.07.2022 and Infor (India) Pvt PB-III, page 20 Consilient Technologies Pvt Ltd. TPO 4.15 65.14 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-....
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....he entire lease payment has been claimed as allowable expenditure in the computation of income. In the books of accounts, the assessee has followed the Accounting Standard -19-Leases issued by the ICAI. The assessee has disallowed the sum of Rs.16.78 crores in the computation of income, the break-up of which is as under: 11.2 Interest on finance lease - Rs. 3,49,11,983 /- (debited as finance cost in note 2.28 of the financial statements) Depreciation on assets taken on finance lease - Rs. 13.29 crores (Rs.13.26 crores on Vehicles + Rs. 0.03 crores on Office Equipment debited in the books of accounts, note 2.1 Fixed Assets of the financial statements). Thus in total assessee has disallowed Rs.16.78 crores (Rs.3.49 crores +Rs.13.29 crores). As against such a disallowance it has claimed Rs. 18,69,97,941/- as allowable. 11.3 The ld. A.R. submitted that the disallowance made by the AO is unsustainable being double in nature. The difference in approach between the accounting of lease transaction and claim for lease rentals in the income tax assessment is consistent with the past years and the same has been accepted by the department. The ld. A.R. prayed that since the method of allowa....
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....ion on account of lease rentals paid as it is a Revenue expenditure.'' 11.5 The ld. A.R. further submitted that the issue has been dealt by the ITAT in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 in para 14 & 15. Relevant portion extracted hereunder: ''15. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos.852 & 831/Bang/2017 dated 29.6.2022, , wherein held as under: --------- 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed.'' 11.6 In view of the above, the ld. A.R. prayed that the disallowance u/s 37 of the Act Rs.18,69,97,941/- be deleted in the interest of justice. 12. The ld. D.R. relied on the orders of the lower authorities. 13. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in ITA No.285/Bang/2021 dated 3.2.2023 for the AY 2016-17, wherein h....
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....Standard -19-Leases issued by the ICAI. The assesses has submitted before the ld. DRP that the amount of Rs.26,12,77,130/- consists of Rs.22,10,20,121/- towards principal repayment of lease and Rs.4,02,57,009/- towards interest paid on finance lease. The assessee has disallowed the sum of Rs.4,02,57,009/- paid towards interest on finance lease. The assessee is aggrieved as neither lease rental is allowed nor the payment of interest and depreciation on the assets, 14.3 The ld. DRP observed that the contention of the assessee is that the AO has not given sufficient time to file the details and the details are voluminous in nature. However, the assessee has not filed these details before the panel as well. If the assessee claims that it was not given sufficient time by the AO to file the voluminous details., it should have filed the details at least before the panel to substantiate it's argument. Nothing prevented the assessee from filing before the panel. As relevant details have not been filed before the ld DRP, the submission made by the assessee remained unsubstantiated. Although sufficient time has lapsed since filing of objection before the panel and the matter was heard ....
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....x withholding under the provisions of section 1941 of the Act." 40. As far as this ground is concerned, the material facts are that the assessee entered into a lease agreement with IBM Global Services India Pvt. Ltd., whereby it took certain equipment on lease. This agreement is dated 29.08.2005. A copy of the lease agreement is available on pages 181 to 189 of the assessee's PB. The assessee also entered into a lease agreement in respect of certain vehicles with GE Capital Transportation Financial Services Ltd. This agreement is dated 28.12.2004 , which is placed at page Nos.568 to 585 of the assessee's PB. Another lease agreement for vehicles dated 21.03.2007 was entered into by the assessee with GE Mani Financial Services Ltd., which is at pages 586 to 603 of the assessee's PB. Under this agreement also, the assessee took certain vehicles on lease. The assessee paid lease rentals amounting to Rs.2,30,59,332 towards lease rentals for lease of equipment and a sum of Rs.7,75,20,,788 towards lease of motor cars. 41. In view of Accounting Standards AS-19 issued under the Companies (Accounting Standards) Rules, 2006, the assessee in its books of accounts treated itself as the ow....
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....s decision in the case of ICDS Limited Vs CIT (350 ITR 527) wherein Hon'ble Supreme Court has held that in a leasing transaction, the lessor would be entitled to claim depreciation under section 32 of the Act on the leased assets and the lessee would be entitled to deduction with respect to the lease rentals. Given the above, the tax treatment of the assets taken on finance lease (both equipment and car lease) in the case of lessee was as summarised below. * The depreciation on the leased assets which are capitalised in the books is added back to the taxable income; * Interest component which is already debited in the books as finance charges is added back to the taxable income; * The entire monthly instalments (which includes the interest charges) is claimed as deduction from the taxable income; * Any profit / loss arising on account of disposal of the leased asset which is charged to the profit and loss account are to reduced / added back respectively to the taxable income. 43. In light of the above, the Assessee submitted that the Assessee has made the following adjustments (on account of the leased assets) to its net profits to arrive at its taxable profits:- ....
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.... of total income which is at page 52 of the assessee's PB that the assessee has added to the profit as per the P&L A/c the finance charges on lease and reduced lease rentals paid. Therefore, whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find that the AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. 47. In so far as the applicability of the provisions of section 40(a)(ia) of the Act is concerned, the Hon'ble High Court of Karnata....