TaxTMI 
TaxTMI 
2024 (7) TMI 948
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....was passed by Ld. AO on 16-11-2017 which was subjected to assessee's further objections before Ld. DRP. The assessee filed rectification before Ld. TPO which was rectified vide order dated 19-01-2018. Subsequent to final assessment order dated 13-08-2018, the assessee filed rectification u/s 154 which was disposed-off on 18-09-2018. Aggrieved, by confirmation of certain Corporate Tax Adjustments as well as Transfer Pricing (TP) adjustments in the final assessment order, the assessee is in further appeal before us. The grounds raised by the assessee read as under: 1. The lower authorities erred on facts and in law, in enhancing the returned income of the Appellant. 2. The lower authorities erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed. I. Corporate Tax Disallowance of payments to GTE-Overseas: 3. The lower authorities erred in law and on facts in law in disallowing the payments made to....
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....d to, rejection of transfer pricing study, application of filters, analysis of the functions carried out by the Appellant and those of the comparable companies, selection of comparable companies, computation of profit margins of the comparable companies, as well as usage of appropriate adjustments. Treatment of foreign exchange ('forex') gain: 12. The lower authorities, in facts and circumstances of the case and in law, have erred in treating the forex gain as a non-operating item for computing the operating margin of the Appellant. The lower authorities, in the facts and circumstances of the case and in law, have erred in adopting a differential treatment for forex gain and forex loss arising in the same year in respect of the similar transactions while computing the operating margin of the Appellant. 13. The lower authorities, in the facts and circumstances of the case and in law, have erred in changing their approach in the treatment for forex gain, for computing the operating margin of the Appellant, in comparison to the earlier AYs without any valid basis or reasoning. Comparable companies for IT segment: 14. The lower authorities have erred in law and on the....
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....iately been dealt with at appropriate places. The case was put up for clarification also which was duly responded to by both the sides. Having heard rival submissions, our adjudication would be as under. 3. The assessee being resident corporate assessee is wholly owned subsidiary of Verizone Singapore Pte. Ltd. The assessee is stated to be 100% export-oriented unit (EOU) and stated to be engaged in development and maintenance of software services for telecommunication operations and engaged in providing business support solutions for the Verizone group. It also provides non-IT services like global support services, voice and non-voice-based helpdesk services and supervisory support services. Thus, the assessee renders services mainly in two segments i.e., IT services and ITeS services. The IT services involves software development and maintenance of IT applications. The ITeS segment involves voice and non-voice-based services. For the same, the assessee has entered into Software development Services Agreement and non- information Technology services agreement with Verizone Data Services LLC, USA. The same is effective from 01.04.2012. Thus, the assessee is characterized as a capti....
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....t of the operating cost as per the definition of 'operating cost' as per the agreement. Accordingly, assessee's Net Cost Plus margins under IT segment was re-computed as 10.69% whereas under ITeS segment, the same were re-computed as 10.5%. 4.5 Proceeding further, the selection of comparable entities under both the segment was held to be not acceptable. Applying certain filters and after meeting assessee's objection with respect to exclusion / inclusion of comparable entities, Ld. TPO finalized three entities under IT segment which were having mean PLI of 25.21%. These entities include CG-VAK Software and Exports Ltd. (9.27%), RS Software (India) Ltd. (24.11%) and Thirdware Solutions Ltd. (42.24%). Applying the same, Ld. TPO proposed adjustment of Rs. 128.58 Crores under IT segment. 4.6 Similar adjustment was made under ITeS Segment and 6 entities were selected having PLI of 18.38% which led to another adjustment of Rs. 469.62 Lacs under this segment. 4.7 In other words, Ld. TPO proposed aggregate adjustments of Rs. 133.28 Crores in its order under both the segments. The findings with respect to each of the entities have been rendered in the order. The aggregate adjustments have....
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....at as per inter-company agreement, costs include forex losses. Therefore, there is no logic in giving separate treatment to forex gains arising out of same set of transactions. Under these circumstances, we would hold that forex gains are to be treated as part of operating income only. The corresponding grounds raised by the assessee stand allowed to that extent. 6. Comparable Entities under IT segment In this segment, the assessee seeks exclusion of comparable entity viz. M/s Thirdware Solutions Ltd. The assessee also seeks inclusion of M/s Akshay Software Technologies Ltd. 7. M/s Thirdware Solutions Ltd. 7.1 This entity was introduced by Ld. TPO during fresh search. The Ld. TPO rejected assessee's contention that this was a product company and had intangible assets. The assessee relied upon downloaded financials from the MCA Website. The Ld. TPO held that in the footnotes forming part of financials, the revenue from export of software services was stated to be Rs. 20192.37 Lacs for this year and Rs. 414.07 Lacs from software services from domestic segment. The intangibles were nothing but the software. Therefore, this comparable was retained by Ld. TPO. The Ld. DRP upheld the....
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....ench finds substance in the arguments of both the sides. The assessee seeks exclusion of this entity on functional difference whereas Ld. CIT-DR submits that this entity is having similar functional profile. To support the same the assessee relies on published Annual Statements whereas Ld. CIT-DR has brought on record the assessment details and other financial statements of this entity. To ensure fair adjudication of this entity and to bring correct facts on record, the bench deems it fit to remit the issue of exclusion / inclusion of this comparable entity to the file of Ld. AO / TPO with a direction to the assessee to substantiate its case. All the issues are kept open. The Ld. AO / TPO shall re-adjudicate this issue after affording reasonable opportunity of hearing to the assessee. The corresponding grounds raised by the assessee stand allowed for statistical purposes. 8. Akshay Software Technologies Ltd. 8.1 The Ld. TPO excluded this entity on the ground that this entity was functionally dissimilar as it was engaged in product development. The Ld. DRP confirmed the same against which the assessee is in further appeal before us. 8.2 The Ld. AR has submitted that the inference....
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.... management services. Further, this entity has different business model and has high turnover. This entity incurs brand building expenditure and own intangibles and has a different business model. Therefore, this entity should be excluded as per the decision of Bangalore Tribunal in Ocwen Financial Solutions P. Ltd. (108 Taxmann.com 306) as well as held in various other decisions. The Ld. CIT-DR submitted that this entity is functionally similar. 10.3 We find that the cited decision of Bangalore Tribunal is for ITeS segment and for same AY 2014-15. The bench observed that this entity provides services to both horizontal and vertical focus areas. Under both these areas, this entity offers a gamut of different and diversified services which cannot be compared with routine back office services provided by the assessee. This entity was also providing business process management services which are different from routine back office services. Further, this entity enjoyed significant brand value and own intangible assets which makes it distinguishable. Therefore, we accept the argument of Ld. AR and direct Ld. TPO to exclude this entity. 11. M/s BNR Udyog Ltd. (segment) 11.1 The Ld. TP....
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....tted that Annual Report of this entity is very much available and the same was furnished before Ld. DRP. It has further been submitted that this entity is functionally comparable and satisfies all the filters. Therefore, this entity should be included. 13.3 Considering the arguments of Ld. AR, we direct Ld. AO / TPO to consider inclusion of this entity after perusal of financial statements. The assessee is directed to provide the requisite details and data. 14. Disallowance u/s 40(a)(i) for want of TDS u/s 195 14.1 The assessee made certain contractual payment to another entity i.e., GTE-Overseas Corporation (GTC-OC) under Personnel Secondment Agreement dated 01.04.2008 which were claimed to be mere reimbursement in nature. Accordingly, no Tax was deducted at source (TDS) on the same which led Ld. AO to make disallowance u/s 40(a)(i). 14.2 It transpired that the assessee had sought ruling from Authority for Advance Ruling (AAR) for this transaction. The AAR ruled that the payment would be 'Fees for inclusive services' liable for TDS of 20%. The ruling was confirmed by Hon'ble High Court of Madras and this issue was before Hon'ble Supreme Court. Considering the same, Ld. DRP con....