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2024 (12) TMI 688
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....he following grounds of appeal: Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned AO, learned Transfer Pricing Officer ('learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') grossly erred in determining an adjustment of INR 8,94,68,757/with respect to the international transaction rendered by the Appellant u/s 92CA of the Act. 2. Provision of Information Technology Services/Software Services 3.1.1. The learned TPO/ learned AO/ Hon'ble DRP erred in not appreciating that the Appellant is engaged in provision of Information Technology Suppofi/ Software support services and instead erred in stating that the Appellant is engaged in provision of Information Technology enabled services (ITeS)/ Business Process Outsourcing (BPO) services without providing any cogent reasons. 3.1 .2. The learned TPO/ learned AO/ Hon'ble DRP erred in selecting comparable companies engaged in BPO/ ITeS without taking cognizance to the fact that the Appellant is engaged in rendering Information Technology Support/Software support services. 3.1.3. ....
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.... 3.1.13. Without prejudice to the above, the learned AO/ learned TPO/ Hon'ble DRP ought to have accepted the below mentioned additional comparable companies that were submitted following the search methodology of the learned TPO during the show-cause proceedings, as comparable to the Appellant: * Ace Software Export Ltd. * Batch Master Software Private Ltd. * Indianic Infotech Ltd. * Orangescape Technologies Ltd. * Athena Global Technologies Ltd. * Minvesta Infotech Ltd. * E-Zest Solutions Ltd, * Kals Information System Ltd. * Inteq Software Private Ltd. * Net Access (India) Ltd. * PCS Technology Ltd. * Fourth Dimension Solutions Ltd. 3.1.14. The learned AO/ learned TPO/ Hon'ble DRP ought to have rejected the following companies from the final set of comparables to the Appellant as they did not satisfy the comparability criteria: * Infosys B P M Services Pvt. Ltd. * Manipal Digital Systems Pvt. Ltd. * Domex E Data Pvt Ltd. * Vitae International Accounting Services Pvt Ltd. * Inteq B P O Services Pvt. Ltd. ....
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....with the Rules, despite the Ld. TPO not following the provisions prescribed in clause (a) of the sub-rule (l) of Rule 10B of the Rules for determining the ALP in relation to an international transaction under CUP. 4.6, The learned AO/ learned TPO/ Hon'ble DRP erred in ignoring the evidences submitted by the Appellant towards the payments made for the cost contribution charges to its AE and thereby concluding that the Appellant has not derived any benefits. 4.7. The learned AO/ learned TPO/ Hon'ble DRP erred in not giving cognizance to the fact that an identical issue in the Appellant's own case for earlier assessment years was ruled in favor of the Appellant by the Hon'ble Tribunal. 5. Interest under section 234C of the Act The learned AO erred in computing interest under section 234C of the Act which is consequential in nature. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessa....
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....e Assessing Officer passed a final assessment order dated 20.07.2022 in which the aggregate TP adjustment was reworked to Rs. 8,94,68,757/-. 2.4 Aggrieved by the final assessment order, the Assessee has preferred the present appeal before us. 3. The ld. A.R. has submitted the transfer pricing adjustment as follows: Details of the Assessee's International Transactions Particulars Amount in Rs. Outcome of TP Order Purchase of raw materials 81,13,57,454/- Accepted to be at arm's length Sale of finished goods 107,49,76,654/- Accepted to be at arm's length Provision of services 13,89,421/- Accepted to be at arm's length Payment of cost contribution charges 6,34,89,757/- Adjustment of Rs. 6,34,89,757/- Provision of IT support services 29,88,81,042/- Adjustment of Rs. 3,09,18,000/- Recovery of expenses from AE 1,82,08,071/- Accepted to be at arm's length Reimbursement of expenses to AE 14,76,075/- Accepted to be at arm's length Balance of trade receivables 28,14,36,526/- Accepted to be at arm's length Balance of advance received 36,42,066/- Accepted to be at arm's length Balance of ....
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..... Name of the company Average unadjusted margin (in %) 1. CG-VAK Software & Exports 8.40 2. DCIS Dot Com Solutions India Pvt. Ltd. 3.90 3. EC Info Systems India Pvt. Ltd. 43.43 4. Evoke Technologies Pvt. Ltd. 4.89 5. Harbinger Systems Pvt. Ltd. 7.41 6. Isummation Technologies Pvt. Ltd. 3.69 7. OFS Technologies Ltd. 25.01 8. Orion India Systems Pvt. Ltd. 21.59 9. R Systems International Ltd. (seg.) 21.32 10. Rheal Software Ltd. -4.40 11. Sagarsoft (India) Ltd. 17.41 12. Sasken Technologies Ltd. (seg.) 9.54 13. Sure IT Solutions India Pvt. Ltd. 16.21 35th Percentile 7.41 Median 9.54 65th Percentile 17.41 NOTE: The TPO rejected all comparables selected by the Assessee. 3.6 Filters applied by the TPO: Step Description Companies rendering Information technology enabled services selected 1. Use of current year (FY 2017-18) data where available. 2. Companies having different financial year ending i.e., not 31.03.2018 or data that does not fall within 12-month period i.e. 01.04.2017 to 31.03....
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....d their exclusion. iii. All the other contention seeking exclusion and inclusion of companies came to be rejected. iv. The DRP rejected the contention of the Assessee that the payments made towards cost contribution charges were at arm's length. 3.10 List of companies post the DRP's Directions: On giving effect to the above directions issued by the DRP, the final list of comparables is as follows: Sl. No. Name of the Company Weighted average (in %) 1. Microland Ltd. 8.58 2. Datamatics Business Solutions Ltd. 13.41 3. Fuzen Software Pvt. Ltd. 15.75 4. Tech Mahindra Business Services Ltd. 18.85 5. Infosys B P M Services Pvt. Ltd. 20.95 6. Manipal Digital Systems 23.54 7. Domex E Data Pvt. Ltd. 26.34 8. Vitae Intrernational Accounting Services Pvt Ltd. 27.35 9. Inteq BPO Services Pvt. Ltd 39.15 10. Motif India Pvt Ltd 45.72 11. Eclerx Services Ltd. 46.85 12. MPS Ltd. 61.83 3.11 FINAL ASSESSMENT ORDER: Pursuant to the directions of the DRP, the AO passed a final assessment order, wherein the TP adjustment stood reduced to Rs. 2,59,79,000/-. ....
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....lowing division of activities: - Infrastructure and security: * Network operations. * Request and ticket management. * Helpdesk. * Database and operations management. * Security administration and management. * Access management. - Application management: * Application development. * Web services. * Enterprise resource planning (Oracle based). * Core development - this pertains to customization of existing applications. * Historical and legacy application support and system integration. - Data and digital technical services: * Supplier master clean up. * Data management. * Creation of standard reports. * All reports are generated/extracted from a particular application. 6.2 He further submitted that the above services rendered by the Assessee are not pure Information Technology Enabled services. It is submitted that Rule 10TA(e) of the Income-tax Rules, 1962 ("the Rules") defines information technology enabled services as the following business process outsourcing services provided mainly with the assistance or use of i....
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.... the functional profile of the Assessee that was documented in the TP report. & 2.4 Ground of objection No. 4: The TPO has erred in conducting a fresh search or comparable companies" 8.1 The ld. DRP clubbed all these grounds together and adjudicated as follows: "Having considered the submissions, we note that the TPO has rejected the TP study as the assessee had applied inappropriate filters and also failed to adopt appropriate filters for selection of comparables. The assessee has not applied the employee cost > 25% of total operating cost filter, the income from core service > 75% of sales filter, export service income >75% of sales filters and considering companies with different financial year ending (i.e., not March 31, 2018) while making the comparable analysis. In this regard, it is relevant to refer to Rule 10B(2) which reads: 10B (2) For the purposes of sub-rule (1), the comparability of an International transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely: - (a) the specific characteristics of the property transferred or services provided i....
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....e dataset for computation of weighted average, and, if the current year data indicates that the enterprise is not comparable for the current year, then the data relating to the earlier two years cannot be included in the data if the enterprise is comparable for the earlier two years. Thus, the comparability has to be necessarily determined with reference to the current year data. 2.3.4 The TPO has analysed in detail as to why the TP study of the assessee suffer from certain defects as discussed above aid adopted fresh search as per the law after giving opportunity of hearing by a issuing a detailed show cause notice. The show cause notice contained the.TP0 earmarks on the filers adopted by the taxpayer, filters applied by the TPO the search process adopted by the TPO, the accept / reject matrix of companies considered by the TPO and also the computation of operating margins. The notice also mentions the reason for the rejection of companies in each comparable company. The TPO has also provided the annual reports of the comparables to the taxpayer to file objections, if any. 2.1.5 As per the provisions of section 92C(3)(c) read with section 92CA, on the basis of ma....
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....rt aims at developing global HR strategy, policies and procedures, guidance for structuring the organization, recruitment support, global training and learning programmes etc. these policies held the Assessee in establishing a world class working culture in compliance with regional norms. The central finance function aims at ensuring the efficient budgeting, forecasting, monitoring and reporting the Group's financial performance and to provide support in connection with Tax and Treasury matters. The AE also support in strategy and continuous improvement initiative in the area of procurement, market research, supply chain, engineering, customer management, etc. 10.1 At the outset, the ld. A.R. submitted that this issue is covered in favour of the Assessee by the decisions of this Tribunal in the Assessee's own case for assessment year 2010-11 (Order dated 05.11.2015 passed by this Tribunal in IT(TP)A No. 228/Bang/2015 at paras 9, 22 to 24) and in Assessee's own case for assessment year 2011-12 in the directions dated 16.12.2015 passed by the DRP at page 3 of the DRP Directions. Therefore, he submitted that the adjustment made ought to be deleted. In any event, he submitted that: ....
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....ade ought to be deleted. 11. The ld. D.R. relied on the orders of lower authorities. 12. We have heard the rival submissions and perused the materials available on record. This issue came for consideration before this Tribunal in assessee's own case for the assessment year 2010-11 in IT(TP)A No.228/Bang/2015 dated 5.11.2015, wherein held as under: "22. We find that the Mumbai Bench of the Tribunal in the case of Dresser Rand India Pvt. Ltd. (ITA No.8753/Mum/2010) upheld the payment of cost contribution charges and deleted the additions made by the AO observing as follows: * It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what's not. * An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question assessee's wisdom in doing so. * Whether a particular expense on services received actually benefits an assessee in monetary terms or ....