AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 642
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Income-tax Act, 1961 ('the Act'), on the grounds as set out herein: 1. The Ld. AO, while passing the order with the addition of INR 25,29,89,726 on account of transfer pricing issues, erred in law in disregarding the impact of the Ld. Dispute Resolution Panel's ('Ld. DRP') directions passed under section 144C and not complying with the terms of Section 144C (10) and 144C (13) of the Act, thereby, rendering the assessment proceeding vitiated and invalid in law. 2. Grounds relating to Transfer Pricing Adjustment-INR 25,29,89,726 Adjustment relating to international transaction pertaining to payment of royalty and service fee (subscription segment)-INR 14,35,88,058 2.1 Without prejudice, the Ld. AO [along with the Learned Transfer Pricing Officer ('Ld. TPO')] under the directions of the Ld. DRP erred on facts and in law, in determining the arm's length price for payment of royalty and service fees under subscription segment and thereby, making an adjustment of INR 14,35,88,058 to the taxable income of the Appellant. 2.2 Without prejudice, the Ld. DRP DRP/Ld. AO/ Ld. TPO erred on facts and in law in modifying the eco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the provisions of Rule 10B(2) of the Rules. 2.12 Without prejudice, the Ld. DRP/ Ld. AO/Ld. TPO erred in computing the incorrect net operating profit margin of comparables for arriving at the arm's length margin. 2.13 Without prejudice, the Ld. DRP/ Ld. AO/ Ld. TPO erred in law in not allowing relevant adjustments as per the provisions of Rule 10B(1) and Rule 10B(3). 2.14 Without prejudice, Ld. AO/ Ld. TPO erred in law in not granting and Ld. DRP in not adjudicating the claim of proportionate adjustment, thereby extending the quantum of transfer pricing adjustment to transactions with the non-associated enterprises also. Adjustment relating to international transactions pertaining to provision of software support services-INR 4,26,74,072 2.15 The Ld. AO (along with the Ld. TPO) under the directions of Ld. DRP erred on facts and in law, in determining the arm's length price for provision of software support services and thereby making an adjustment of INR 4,26,74,072 to the taxable income of the Appellant. 2.16 Without prejudice, the Ld. DRP DRP/ Ld. AO/Ld. TPO erred on facts and in law in modifying the economic analysis ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Red Hat group software products came with either an annual or multi-year service subscription that enables users of the Red Hat group products to avail various support services from Red Hat group. It was noted that the Red Hat group offers several types of such subscriptions with varying levels of support services and access to bug fixes and software updates. 2.4 The Ld.TPO noted that, the group provides various professional services such as training, consulting and engineering services. The assessee was involved distribution of Red Hat subscription and providing Red Hat products related training and consulting services to customers in Indian subcontinent it was also noted that, from 2011, assessee provided certain software development services and sales and marketing support services to Red Hat USA. From financial year 2013-14 onwards, the assessee started providing information technology enabled services(hereinafter referred to as ITeS) to Red Hat USA. 2.5 The Ld.TPO noted that, following were the international transactions of assessee with its AE's during the year under consideration: S.No. Nature of International Transaction Amount (in INR) Method used fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r which assessee is liable to pay royalty of 3% of its revenue from the segment to the AE. For the services rendered to the customers who has purchased subscriptions, the AE charges a service fee which is an amount equal to the entire revenue of the assessee from this segment reduced by 1.4% of the revenue. 2.8 The learner TPO observed that assessee has bifurcated the segment into 2 parts as under: A. Payment of royalty and service fee (subscription segment) B. Payment of royalty and service fees (service segment) A. Payment of royalty and service fee (subscription segment) 2.9 The Ld.TPO observed that, the assessee in its TP study benchmarked the transaction by using transactional net margin method (hereinafter referred to as TNMM) and profit level indicator (hereinafter referred to as PLI ) by using operating profits to operating revenue( hereinafter referred to as OP/OR) at 1.4%. It was noted by the Ld.TPO that the assessee used following 10 comparable with an adjusted range having median - 0.42% and unadjusted median of 0.16%. The assessee thus considered its transaction with AE to be at arms length. Sr.No Name of the company Weighted average....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9.30 5 Career Mosaic Pvt. Ltd. 24.07 6 Sarla Holdings Pvt. Ltd. 24.30 7 Merittrac Services Pvt. Ltd. 27.71 8 People Combine Educational Initiatives Pvt. Ltd. 32.02 35^th Percentile 18.06 Median 21.69 65^th Percentile 24.3 2.14 The Ld.TPO rejected the working capital adjustment to assessee. The Ld.TPO thus proposed an adjustment of Rs. 1,63,93,614/- being the shortfall in the revenue. C. Provision of Software Development Service 2.15 The Ld.TPO noted that pursuant to the integration of operations of Gluster India into Red Hat India, assessee entered into an agreement with the AE on 01/04/2012 for provision of software development services. It was noted that, the services were preliminary in connection with the products of the Red Hat USA pursuant to acquisition of Gluster. The assessee was remunerated for the services on cost +15% markup basis for the services rendered to the AE. 2.16 The Ld.TPO noted that the assessee computed its margin at 15% of the cost in the software development segment, by using TNMM as the most appropriate method. It selected following 16 comparables having median....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of ITeS Services 2.19 The Ld.TPO noted that pursuant to the merger of Red Hat Software Services Pvt. Ltd. into Red Hat India, the support service agreement with Red Hat USA and Red Hat Ireland for the provision of support services was assigned to the assessee. As per the agreement the support services provided by the assessee included support to customers in relation to the Red Hat subscriptions, including the Red Hat Linux. It was noted that, assessee was remunerated on cost +15% model for the services. The Ld.TPO noted that, used TNMM as most appropriate method and had earned a net cost plus margin of 17.92%. It was noted that assessee used following 14 comparables with unadjusted median of 9.01% and adjusted median of 4.75%. The assessee thus held its transaction with AE to be at arms length. Sr. No Name of the company Weighted average of operating profits on operating cost (%) Informed Technologles Limited -16.55% Sundaram Business Services Limited -2.19% Cosmic Global Ltd -1.62% Allsec Technologies Ltd 2.13% Cyfuture India Pvt Ltd 2.14% ISN Global Solutions Private Limit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the DRP directions, the Ld.AO passed the impugned order by making addition in the hands of the assessee amounting to Rs.28,97,91,152/-. Aggrieved by the order of the Ld.AR, assessee is on appeal before the Tribunal. 4. The Ld.AR submitted that there is a typo mistake repeated in Form 36. He submitted that inadvertently the date of impugned order is mentioned as 28/02/2021 instead of 28/02/2022. He submitted in lieu of this typo mistake the assessee was issued a defect memo by the registry. 4.1 On verification of record we found submissions of the Ld.AR to be correct. It is thus noted that the assessee has filed present appeal before this Tribunal is within the period of limitation. 5. Ld.AR submitted that, Ground No.1 is general in nature and do not require any adjudication. 6. Ground No.2.1-2.4 by the assessee seeking inclusion/exclusion of comparables under Payment of Royalty and Service fee (subscription segment). 6.1 The Ld.AR filed his arguments in the form of the detailed chart, where the comparables sought for inclusion and exclusion has been listed as under: The assessee is seeking inclusion of following compatibles 1. Sonata information techno....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... identifying potential customers for the group's subscriptions. d) Contracting with customers Red Hat India identifies customers and enters into contracts with them for sale of the subscriptions. Generally the contracts with customers are for 13 years. However, in case of Government contracts, the period of the contract ranges from 79 years. With respect to Government contracts, even though customer identification and approval for the subscriptions is undertaken by Red Hat India, the Company does not directly enter into contracts with the Government. Red Hat India sells the subscriptions to channel partners who have been awarded the contract by the Government. e) Pricing Red Hat India is responsible for setting the price of subscriptions sold to customers. The main factors impacting the price of subscription sold to customers in India are: • Competitive environment products: and The competitors are very aggressive while selling their • Price escalation - Since the contract is valid for an average period of 5-7 years, Red Hat India faces a challenge while pricing its subscriptions as it needs to factor the price escal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rices and volumes, all of which require careful management planning and execution Red Hat India is responsible for marketing the subscriptions to ensure that the targeted sales volume is achieved. However, Red Hat India does not bear any significant market risk as it earns an assured return/mark-up on its costs. However, it does bear minimum market risk to the extent that any reduction in the demand for Red Hat subscriptions would impact the overall business of Red Hat India. Red Hat US bears the market risk since its business would be affected by the reduction in sales of Red Hat India. b) Service liability/ warranty risk Service liability/ warranty risk is borne by a company when its products fail to perform at contractual standards and the company is required to correct defective product performance. Since Red Hat India sells the services directly to customers, the service liability risk is borne by Red Hat India. However, since the services are purchased by Red Hat India from Red Hat US, the service liability risk is passed on to Red Hat US. Thus, Red Hat US ultimately bear the service liability risk. c) Inventory risk ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Red Hat US Market risk Limited Yes Product liability risk Limited Yes Inventory risk No Yes Credit and collection risk No Yes Foreign exchange risk Yes No 4.1.4 Assets employed Key tangible assets employed by Red Hat India after depreciation (as on 31 March 2017) are as follows: Tangible Assets Amount (INR) Computer Hardware 20,22,75,102 Furniture and Fixtures 5,66,27,599 Leasehold Improvements 11,51,39,138 Office Equipment 2,90,94,728 Total 40,31,36,567 Tangible Assets Amount (INR) Softwar 4,15,134 Total 4,15,134 4.1.5 Entity characterization Based on the above, Red Hat India can be classified as a limited risk distributor in respect of the subscriptions sold to the clients." 6.4 Based on the above, we shall undertake the compatibility of the companies sought for inclusion/exclusion by the assessee. 7. At the outset the Ld.AR submitted that, Innovana Thinkable Ltd and K7 Computing Pvt Ltd has been excluded by coordinate of this Tribunal in assessee's own case for assessment year 2016- 17 being Red Hat India (P.) Ltd. vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt and equipments, owning no intangible assets, having no expenses on promotions and is not selling its product. So K7 is not a valid comparable vis-à-vis K7, hence ordered to be excluded. 7.1 Admittedly there are no factual differences in FAR of the assessee for the year under consideration vis-à-vis assessment year 2016-17. The Ld.DR has not brought anything on record to distinguish the above observations of the coordinate bench of this Tribunal is assessee's own case. Respectfully following the above view, we direct Innovana Thinkable Ltd and K7 Computing Pvt Ltd to be excluded from the final list. 8. Virtual Galaxy Infotech Private Limited: The Ld.AR submitted that, this company is functionally not similar, as the entire sale proceeds are from manufactured goods. It is submitted that, this company is engaged in manufacturing goods as per description of services in the annual report. It is also submitted that, this company deals in digital automatic data processing machine. 8.1 The Ld.AR submitted that, this comparable deals in software products, solutions and specialised software services which indicates that company provides highly technical propr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rejected this comparable only on the basis that it does not satisfy the turnover filter. It is noted at page B 26 of the paper book volume 2 that this company has total revenue from the operations at Rs.1,34,14,81,275/ -. During the year assessee has a turnover from subscription segment at Rs.119,55,70,873/ -. The turnover range of the assessee is 11,95,57,087 to 1195,57,08,730. Thus it is clear that this comparable satisfies the turnover filter. Accordingly we direct the Ld.AO/TPO to include this comparable in the finalist. Unisys software and holding industries Ltd., JMD ventures Ltd.,PS IT Infrastructure & Services Ltd., Advance Technologies 10. It is submitted that all these comparable were rejected by the Ld.TPO for being functionally not similar with that of assessee. It is also submitted that the Ld.AR challenged the search criteria for each of these comparable as not proper. However the Ld.AR submitted that all these comparable are trading in software and hardware products and the segmental revenue earned by these comparable are more than 80% and therefore is functionally similar with that of assessing. 10.1 On the contrary the Ld.DR relied on the orders passed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les, payables and inventory levels. 11.2 Differences in working capital may suggest differences in comparability and thus WCA could neutralize the effects of different trade terms and inventory levels. In the transfer pricing context, the tested party and comparables can have different working capital strategies and use different prices or generate different profits accordingly. Working capital adjustments are therefore an attempt to arrive at adjusted comparables as the basis of determining their profit level indicators or comparable uncontrolled prices. 11.3 The OECD's standard of comparability emphasis that if there are material differences between the controlled and uncontrolled transactions, adjustments should be made, provided the effect of such differences on prices or profits can be ascertained with sufficient accuracy to improve the reliability of the results. The OECD re-iterates that working capital adjustments should only be considered when the reliability of the comparables will be improved and reasonably accurate adjustments can be made. (See OECD 2017 Annex to Chapter III para 1) 11.4 In terms of Rule 10B(1)(e)(iii) of the I.T.Rules, the net margin arising i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable. uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the, international transaction [or the specified domestic transaction]; (f) ...... (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 in either....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that: • None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or • Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments." 3. In Paragraph 13 to 16 of the aforesaid OECD guidelines, need for working capital adjustment has been explained as follows: "13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts. It would need to borrow money to fund the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. The guidelines conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables. 11.7 We find that the Co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 2016-17 in Red Hat India (P.) Ltd. v. ACIT(supra) also granted working capital adjustment at well as proportional adjustment to the assessee in respect of difference in working capital levels between the comparable companies and the assessee. Based on the above discussions and respectfully following the decision of coordinate bench of this Tribunal in assessee's own case, we direct Ld.AO/TPO to grant WCA and any other proportionate adjustment that would materially affect the margin computation for the purposes of comparability analysis. The assessee is directed to furnish details with the Ld.AO/TPO for assisting the authorities to compute the adjustments. Accordingly Grounds 2.5 to 2.7 stands allowed for statistical purposes. 12. Grounds 2.8 to 2.11 by the assessee seeking inclusion/exclusion of comparables u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al customers and develops IT solutions for companies using Red Hat products and services. Further, for the GLS business, Red Hat India employs another team which is involved in building relationship with existing channel partners and also interacting with potential channel partners. c) Contracting with customers/ channel partners Red Hat India enters into contracts with customers/ channel partners for sale of services. With respect to GLS, Red Hat India enters into contracts with Red Hat Certified Training partners for sale of study material. However, for sale of the certification exam, Red Hat India enters into an arrangement directly with the students wanting to take the exam. In regard to GPS business, Red Hat India enters into direct contracts with the customers. d) Pricing Red Hat India is responsible for setting the price of services rendered to customers / channel partners. The pricing for the services of Red Hat India are as under: • GLS-Prices are fixed for the course content sold to Red Hat Certified Training partners and the certification exam fee charged from students through the Red Hat Certified Training partners: and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eting Yes Limited Sales Yes No Contracting with customers / channel partners Yes No Pricing Yes No Research and development No Yes Provision of services Yes No Distribution Yes No Quality control Yes No 4.2.3 Risk Analysis Briefly summarized below are some of the key risks faced by Red Hat India and Red Hat US in relation to the services segment of Red Hat India. a) Market risk Red Hat India is responsible for marketing the services to ensure that the targeted volume is achieved. However, Red Hat India does not bear any significant market risk as it earns an assured return/ mark-up on its costs. However, it does bear minimum market risk to the extent that any reduction in the demand for Red Hat services would impact the overall business of Red Hat India. b) Service liability risk Since Red Hat India sells services to customers, any liability arising on account of the services rendered is borne by Red Hat India. However, since Red Hat India earns an assured return/ mark-up on its costs, this risk is indirectly passed onto Red Hat US. c) Credit and colle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue from service segment is Rs. 35,07,70,817/- as against MT's turnover of Rs. 232.10 lakhs. When this comparable does not qualify Ld. TPO's own turnover filters it is not a valid comparable vis-à-vis assessee, hence, ordered to be excluded." A.2 On the contrary, the Ld.DR, relied on orders passed by authorities below. We have considered the submission of both sides in light of the records placed before us. A.3 In the present facts, for year under consideration, the turnover of this comparable is Rs.237.24 lakhs, whereas the assessee has turnover under this segment at Rs.7,55,81,437/-, which is less that assessee's turnover. A.4 Admittedly, there are no factual differences in FAR of the assessee for the year under consideration vis-à-vis assessment year 2016-17. The Ld.DR has not brought anything on record to distinguish the above observations of the coordinate bench of this Tribunal in assessee's own case. We therefore do not find any reason to uphold this comparable. Respectfully following the view taken by this Tribunal in assessee's own case for AY 2016- 17, we direct this comparable to be excluded from the final list. B. Meritt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able in respect of revenue earned by providing training coaching/tutorial classes. If such segmental details are available and the filters applied by the Ld.TPO stand satisfied, then it is to be considered in the final list. C. Lakshya Educare Pvt. Ltd. It is submitted that, this company is engaged in business of conducting commercial training, coaching/tutorial classes and activities incidental thereto. As we have remitted Merritrac Services Pvt.Ltd., with certain directions to the Ld.AO/TPO, this comparable is also remitted with the direction to verify the segmental details in respect of the revenue earned by providing training/tutorial classes. If such segmental details are available and the filters applied by the Ld.AO/TPO stand satisfied, the same maybe retained in the final list. Accordingly we remit Merittrac Services Pvt.Ltd and Lakshya Educare Pvt. Ltd. back to the Ld.AO to verify as per the above directions. D. Sarala Holdings Pvt. Ltd. The Ld.AR submitted that, this company is engaged in providing education in school under the name "Pathways World School" situated at Gurugram Haryana. It is submitted that, the revenue earned by this company from educati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g reliance on the order giving effect to the decision of this Tribunal for A.Y. 2016-17 admitted that, this comparable is accepted by the Ld.AO/TPO in the remand report. He drew our attention at page A 914- A 916 of the paper book wherein the Ld.TPO accepted this comparable to be functionally similar with that of the assessee. We accordingly direct the Ld.AO/TPO to consider this comparable in the finalist. I. Aptech Ltd It is submitted that this company is functionally similar with that of assessee as it provide services in training, education services and testing service operations. I.1 It is noted that we have already remitted Merittrac Services Pvt.Ltd and Lakshya Educare Pvt. Ltd. back to the Ld.AO to verify as per the directions herein above. Respectfully following the same, we direct the Ld.AO/TPO to verify compatibility of Aptech Ltd., based on similar parameters and to consider it accordingly. Accordingly grounds 2.8 - 2.11 raised by the assessee stands partly allowed as indicated hereinabove. 13. Ground No 2.12 is raised by the assessee seeking correction of errors computation in margin of comparables that would remain to determine arms length margin o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Gluster. Red Hat India is remunerated for these services on a cost plus 15 percent mark-up basis. 4.3.2 Functions performed The critical functions performed by Red Hat India and Red Hat US in relation to this transaction are outlined below: • Sales and marketing function The sales and marketing function includes developing long / medium term marketing strategy. undertaking advertising campaigns, monitoring performance of the marketing activities, identifying potential clients, identifying new opportunities with existing clients and undertaking a broad level review of the same. Red Hat US entirely leads and manages the sales and marketing activities for its cloud / data storage services. • Solution Architecture The solution architecture function includes evaluation of client opportunities from a technical and financial standpoint, time-cost estimation for execution of the project, evaluating project viability. choosing appropriate delivery center, preparing of detailed plans and proposals, etc. The solution architecture is managed entirely by Red Hat US: • Negotiation and contracting with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enders software development services to its AEs. Further, it is compensated for all agreed costs with an appropriate mark-up. Therefore, Red Hat India does not bear any significant market risks for transactions with its AEs and all such risks are borne by the AEs. However, limited market risk is also borne by Red Hat India to the extent that any adverse market conditions impacting overall demand of the AE's business may also impact the volume of services availed by the AEs from Red Hat India. • Service liability risk Since the agreements with the end customers are entered into by the AEs, they are responsible for any service liability risks associated with the services rendered not meeting the expected standards Red Hat India does not bear any service liability risk so long as its services are in line with the standards agreed with its AES. • Foreign exchange risk Red Hat India invoices its AEs for the services in US dollars. Hence, the risk arising out of exchange rate fluctuations is debited to the profit and loss account of Red Hat India. Accordingly, Red Hat India bears the foreign exchange risk. • C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the assessee. So this comparable is remitted back to the Ld. TPO to decide afresh. Interglobe Technology Quotient Put. Ltd. (Interglobe) 41. The assessee sought exclusion of Interglobe from the final set of comparable on the grounds that it fails TPO's employee cost filter with employee cost to revenue ratio of 6.68% and employee cost to total cost ratio of 11.91%. When the assessee has challenged filter applied by the Ld. TPO it has to be considered in the light of the financials of Interglobe by providing an opportunity of being heard to the assessee. This comparable is also remitted back to the Ld. TPO to decide afresh. Kelton Tech Solutions Ltd. (Kelton) 42. The assessee sought to exclude Kelton as a comparable on the ground that it fails the Ld. TPO's exports filter with export sales to total sales ratio of 46.43%. This plea was also taken before the Ld. DRP who have upheld the order passed by the Ld. TPO. 43. The Ld. TPO as well as the Ld. DRP have rejected this comparable on the ground that this is assessee's own comparable but we are of the considered view that since there is a no estopple against the statute the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pparent 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. Dun and Bradstreet Technologies & Data Services Put. Ltd. (Done & Bradstreet) 47. The assessee sought to exclude Dun & Bradstreet as a comparable on the ground that it is functionally dissimilar being into providing predictive analysis, software development and related technology services and solution and on the ground that this company earns abnormally high margin of 58.19% during the relevant year. This objection was raised by the assessee both before the Ld. TPO as well as Ld. DRP but they have rejected the contention of the assessee by simply recording that "the company is engaged in technology based solution and analytic sales, hence it is functionally similar and as such assessee's contention is rejected." 48. We have perused a transfer pricing study of the assessee available at page A305, A412 & A413 of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee's own case based on remand by this Tribunal in assessment in 2016-17, it would be more appropriate to follow assessee's own case rather than another assessee whose FAR analysis would be different with that of assessee. Accordingly, we direct inclusion of Aspire Systems (India) Pvt. Ltd., and Interglobe technology quotient Pvt. Ltd. And exclusion of Kiliton Tech Solutions Ltd., Dun & Bradstreet Technologies & Data Services Pvt.Ltd,, Nihilent Ltd., Nihilent Analytics Ltd., Infobeans Technologies Ltd., 17. Cybercom Datamatics Information Solutions Ltd Ld.AR submitted that this company is engaged in providing consultancy on information/Internet systems and surveyors of information services, perform development, testing implementation, migration of home grown and other applications, manufactures IT products and provides services, software and hardware products. The Ld.AR referred to page B 134 of the paper book, wherein the annual report of this comparable is placed that shows that, no segmental details are available in respect of the diversified business activities undertaken by this company. 17.1 It is submitted that this comparable was rejected by the DRP i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aining comparables. 22. Ground 2.20 raised by the assessee is towards non-granting of working capital and other proportionate adjustments for computing the margin of the comparables. 22.1 We have already considered the issue while deciding Grounds 2.6-2.7 hereinabove. Applying the same mutatis mutandis, we direct the Ld.AO/TPO to provide for working capital adjustment and other proportionate adjustments to iron out differences between the assessee & there comparables. Accordingly grounds 2.20 stands partly allowed for statistical purposes. 23. Grounds 2.15 to 2.18 by the assessee seeking inclusion/exclusion of comparables under Provision of IT enabled Service Segment. 23.1 The Ld.AR has filed his arguments in the form of the detailed chart, where the comparables sought for inclusion and exclusion has been listed as under: The assessee is also seeking exclusion of following compatibles 1. MPS Ltd 2. Tech Mahendra Business Services Ltd 23.2 Before we undertake the compatibility analysis, it is sine qua non to understand the functions performed, assets owned and risks assumed by the assessee under the segment. In the transfer pricing study report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rprise Messaging, Real time Grid ('MRG): Red Hat Enterprise MRG is a next-generation IT infrastructure incorporating Messaging. Realtime, and Grid functionality. It offers increased performance, reliability, interoperability, and faster computing for enterprise customers. • Red Hat Systems Management: It automates the Linux environment for customers and deploys IT applications anywhere, anytime. The Red Hat system management has the potential to boost up the IT systems and staff for customers. • Red Hat Network: It manages thousands of systems as easily as managing a single system. The distinct features are one-click provisioning, quick set-up, flexible implementation and simple interface. Red Hat Network makes Linux deployable, scalable and manageable • Red Hat Global Support Services: It is an around-the-clock around- the-world network of the most experienced, motivated and knowledgeable Linux and open source software support engineers. It allows customers to plan, deploy and scat with confidence that the systems have the resources behind them. Red Hat Group serves organisations that are increasingly looking to Linux and open source tech....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a subsidiary of Red Hat US, and is engaged in the business of trading of Red Hat products and providing learning and support services. Functions performed by Red Hat India Red Hat India and its resources are divided into the following groups depending on the nature of operations: • Global Support Services (Technical Support) (GSS); • In house support and maintenance of Red Hat's internal applications: • Customisation i.e. Localisation (UON) and Internalisation (USN); and • Miscellaneous Support, which includes Customer Support/ Facility Support/ Human Resources/ Administration Support Under the GSS, Red Hat India provides customer support and solutions to customer queries as part of every Red Hat US's software subscription. Red Hat India also provides additional services such as Technical Account Managers (TAMs) and Developer Support Packages. Red Hat India works on an offshore delivery model and there are no onsite projects during the period under review. Red Hat India provides IT enabled support to the worldwide customers of Red Hat US and Red Hat Ireland by handling the queries posted by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als of Red Hat Group: • Assisting in maintaining various administrative functioning tools used within Red Hat US; • Assisting in the upgrade/ redesign of the existing tools: and • Any other services as requested by Red Hat Group. General Management Functions The functions addressed below are common functions that are carried out by any business, irrespective of their size and type. These functions are drivers of every business and are indispensable in the economic environment. • Corporate Strategy Determination: Generally, all policies within Red Hat India are determined by its own management which continuously monitors the economic environment surrounding the Indian entity, assesses their strategic position within the industry and targets to achieve its corporate objective with guidance from Red Hat US. • Finance, Accounting, Treasury and Legal Function: The management in Red Hat India is responsible for managing the finance, treasury, legal and accounting functions. In certain areas, wherever necessary, Red Hat India is guided by Red Hat US. Red Hat India is also responsible for all local statutory....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver, it is possible that these costs may not be recovered if the R&D projects are not able to come to fruition. Red Hat Ireland also does not carry out any research and development in respect of new products and technologies. • Product/Service liability risk While providing its services, Red Hat India is required to adhere to the quality standards laid down by the AEs. However, Red Hat India has minimal exposure, because in case of rework, additional costs incurred, is factored in the service fee. The AEs are responsible for any claims that may arise due to the non-performance of products maintained or customized by them. They are responsible for managing these claims and all expenses incurred for mitigating this risk. • Manpower Risk Red Hat India is required to ensure that its obligations under the Support services Agreement are carried out by sufficient number of appropriately qualified, trained and experienced persons. Accordingly. Red Hat India maybe regarded as exposed to the manpower risk as its business is largely dependent on quality personnel. The AEs face indirect risk on account of manpower attrition faced by Red Hat ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al publishers through every stage of the author to reader publishing process. This company also provides digital first strategy for publishers across content production, enhancement and transformation, delivery and customer support and it is also engaged in research and development activities. 58. We have perused the annual report of MPS available at page A458- A460 of the paper book which shows the diversified functions being performed by MPS as contended by the assessee in the preceding para which are not comparable to the assessee who is a routine ITES service provider working on cost + model. 59. Moreover, the co-ordinate Bench of the Tribunal in the case of Credence Resource Management (P.) Ltd. v. Asstt. CIT [IT Appeal No. 133 (PUN) of 2021, dated 18-6-2021] held that the activities of MPS are akin to a IT service provider and not an ITES service provider. So we direct to exclude MPS from the final set of comparables. 24.3 On the contrary, the Ld.DR, relied on orders passed by authorities below. We have considered the submission of both sides in light of the records placed before us. 24.4 Admittedly, there are no factual differences in FAR of the as....