AI Drafter 
TaxTMI 
TaxTMI 
2022 (2) TMI 1503
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....ment. 3. The Hon'ble DRP has erred in excluding uncontrolled comparables having turnover more that Rs. 200 crores in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin. 4. Whether the decision of Hon'ble DRP is within the purview of Sec. 144C of the IT Act. 5. For these and such other grounds that may be urged at the time of hearing." In assessee's appeal, the assessee has filed following grounds. "The grounds of appeal raised by the Appellant are without prejudice to one another. 1. That the order passed by the learned Deputy Commissioner of Income-tax, Circle 1, Bengaluru (`Assessing Officer' or `A0')/the learned Additional Commissioner of Income-tax (Transfer Pricing -2(2)), Bangalore (`Transfer Pricing Officer' or 'TP0') and the learned Dispute Resolution Panel (the `Panel'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. Corporate Tax related Matters (Other than Transfer Pricing) 2. The Learned AO erred in not accepting the Appellant's contentio....
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.... the Appellant to the Investment activity is without documentary evidence. 11. The AO ought to have granted TDS credit of a sum of Rs 66,094,921 as claimed by the Appellant as against a sum of Rs 65,488,691 as granted by the AO. 12. The Learned AO has erred in charging interest under section 234B and 234D of the Act 13. The Learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act disregarding the fact that all the adjustments carried out by the Learned AO are on account of difference on opinion in interpretation of various provisions of the Act and none of the adjustments are as a result of any wrong claim made by the Appellant or due to inaccurate particulars furnished by the Appellant. 14. The Learned DRP erred in not adjudicating the Grounds 12 and 13. Transfer Pricing Related 15. That the learned AO/TPO failed to follow the directions provided by the learned Panel and erred in: a) Issuing notice for Rectification under section 154 to reject a comparable company, which is otherwise accepted by the learned Panel, on the ground that it does not clear the export turnover filter > 75% of ....
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....pter X of the Income Tax Act, 1961 ['the Act'], had conducted Transfer Pricing study on its own. Transfer Pricing: 2. During the Transfer Pricing Proceedings, the Appellant had made submissions for exclusion of Companies that do not satisfy the test of comparability in respect of the Software Development ("IT") and IT enabled services ("ITeS") segment of the Appellant. However, the Dispute Resolution Panel ("DRP" or "the learned Panel") did not accept the Appellant's submissions for some comparables and for the remaining comparables the learned DRP excluded the comparables on the basis of turnover filter. 3. The above issue is specifically dealt by the Transfer Pricing Officer in his order dated January 30, 2015 and the DRP Directions dated December 17, 2015. Other Corporate Tax Matters - A. Additional Foreign Tax Credit Claim: 4. The Appellant has been filing its return of income in India and in all the other counties where a Permanent Establishment ("PE) / Branch is established as per the applicable local laws. The taxes paid by the P Es / Branch in those countries are claimed by way of Foreign Tax Credit by the Appellant i....
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....8,088 7. Consequent to additional income tax payout by the Appellant's German PE, the Appellant is entitled for additional Foreign Tax Credit of Rs 23,901,067 for AY 2011-12 relevant to FY 201011. The Computation of the Revised Foreign Tax Credit, Foreign Tax Credit claimed in Original Return of Income filed in India and the additional Foreign Tax Credit that the Appellant is entitled to, is enclosed in Exhibit A. B. Dividend Distribution Tax 8. The Appellant is engaged in the business of rendering Software Development Services to its Group companies and third parties. The Appellant is a wholly owned subsidiary of Robert Bosch GmbH, Germany (hereinafter referred to as "RB GmbH"). 9. During Assessment Year 2011-12, the Appellant declared final dividend of Rs 101,82,71,680 on 2 June 2010. The Appellant paid dividend distribution tax of Rs 16,91,22,198 on 9 June 2010 at the rate of 16.6088% by applying the provisions of section 115-0 of the Act. The rate of 16.6088% comprised of tax rate of 15% as per section 115-0 of the Act plus applicable surcharge at rate of 7.5% and education cess at the rate of 3%. The Appellant furnishes copy of Form 26AS....
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....entary/ Additional Grounds of Appeal: TP Grounds: 1. Referring the Grounds of Appeal originally filed by the Appellant in Form 36B on March 28, 2016, wherein the Appellant has pleaded in Ground no. 16 and 17, respectively: I. Ground 16: "That on the facts and circumstances of the case, the learned AO/TPO and the learned Panel erred in; a) Upholding the rejection of economic/comparability analysis of the Appellant in the TP documentation and accepting the economic/comparability analysis performed by the learned TPO in the TP Order b) Upholding rejection of comparable companies which passes the TPO's own test of comparability c) Upholding companies as comparable that are functionally different from the Appellant, and rejecting companies that are otherwise functionally comparable to the Appellant." Further, the learned AO/TPO and the learned Panel has erred in accepting the companies that are functionally not akin to the Appellant while performing the comparability analysis of the IT and ITeS services. The Appellant would like to plead for the exclusion of the following companies that are not functionally comparable to....
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....ng cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act is allowable as a deduction? 6. Having regards to the facts and in the circumstances of the case and in law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant deduction of Education Cess and Higher and Secondary Education Cess, being cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act. General Grounds: 7. The Appellant craves leave to add to, amend or alter the ground herein. 8. For these and other grounds that may be urged at the time of hearing, the appellant prays for appropriate relief." 2. We note that above admission of additional grounds is necessary for computing the correct income in the hands of assessee. It is also noted that no new facts are required to be looked into for adjudicating the same. These grounds are purely legal in nature. Therefore respectfully the decision of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 and Jute Corporation of India reported in 187 ITR 688, we admit the above ground. Accor....
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....44% 56.64% 4. Evoke Technologies Pvt Ltd. 8.11% 8.45% 5. ICRA Techno Analytics Ltd 24.83% 23.30% 6. Infosys Ltd 43.39% 43.95% 7. Larsen & Toubro Infotech Ltd 19.83% 20.34% 8. Mindtree Ltd-Seg 10.66% 9.70% 9. Persistent Systems & Solutions Ltd. 22.12% 21.65% 10. Persistent Systems Ltd. 22.84% 22.09% 11. R S Software (India) Ltd. 16.37% 16.68% 12. Sasken Communication Technologies Ltd. 24.13% 24.99% 13. Tata Elxsi Ltd (seg) 20.91% 19.42% Average 24.82% 24.29% ITES Segment Sl. no. Companies OP/TC (as per TPO) Pre WCA Post WCA 1. Accentia Technologies Ltd. 28.89% 28.53% 2. Acropetal Technologies Ltd. (seg: engineering design) 26.86% 25.19% 3. Cosmic Global Ltd. 9.81% 12.91% 4. e4e Healthcare Business Services Pvt Ltd. 12.38% 16.27% 5. ICRA Online Ltd. (seg) 34.21% 35.14% 6. Jeevan Scientific Technology Ltd.(seg) 70.66% 73.55% 7. Infosys BPO Ltd. 17.89% 18.32% 8. Jindal Intellicom Ltd. 11.13% 14.03% 9. Mindtree Ltd. (seg) 10.76% ....
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....lutions Ltd. ix) R.S. Software (I.) Ltd. Challenges exclusion of 3 comparables on application of turnover filter under ITES segment: (i) Infosys BPO (ii) Mindtree Ltd. (iii) iGate Global Solutions Ltd. Before we undertake the comparability analysis, it is sine qua non to understand the Functions performed Assets owned and Risks assumed by assessee under the two segments. Functions: SWD Segment: Robert Bosch India provides software development and application engineering services (herein after for the purposes of this report referred to as " software development") to Bosch Group operating as an independent contractor. The software designed, developed, amended, tested or modified is the property of Bosch Group and at no point in time, such ownership vests with Robert Bosch India either wholly or in part. Robert Bosch India receives compensation for the said services based on man month rates. In addition, Robert Bosch India also procured lab equipments and related accessories for software testing and simulation from AEs. Further, Robert Bosch India also provides IT enabled shared services to Bosch Group. The services of....
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....nment surrounding the Indian entity, assess their strategic position within the industry and target to achieve its corporate objective with guidance from the Bosch Group. * Finance, Accounting, Treasury and Legal Function: The management in Robert Bosch India is responsible for managing the finance, treasury, legal and accounting functions. In certain areas, wherever necessary, Robert Bosch India is guided by the Bosch Group. Robert Bosch India is also responsible for all local statutory compliance. * Human Resource Management Function: The HR function at Robert Bosch India is coordinated by its management, which is responsible for recruitment, development and training of the personnel including the emolument structure. In this respect, where appropriate, it is guided by Bosch Group policies. ITES: Assets Owned: Any business requires assets (tangible or intangible) for undertaking its operations. Bosch Group owns all the valuable intellectual property rights and other commercial or marketing intangibles and is involved in complex operations of developing proprietary technologies and marketing of the same. Robert Bosch India does not own any signific....
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.... Robert Bosch India operates on time and material based billing model and consequently bears a risk on account of under utilization of available personnel / resources. Characterisation: Based on the facts as presented in the above analysis of functions performed, assets employed and risks assumed by Robert Bosch India, it is possible to characterize Robert Bosch India as a routine software development and IT enabled service provider, which assumes routine risks associated with carrying out such business. Further, Robert Bosch India operates on Time and Material ("T&M") based billing model, consequently it has to account for certain risks such as Technology, Service liability, Price, Utilization, Credit Manpower and Foreign Exchange risks. Compensation for these risks is inherently built in the manmonth rate based billing model. 6.1. It is been submitted by both sides that the issue of applicability of turnover filter was considered by Coordinate Bench of this Tribunal in assessee's own case in IT(TP)A Nos. 1565 & 1575/Bang/2013 by order dated 01.09.2021 for Assessment Year 2008-09. Following are the comparables for which the revenue seeks inclusi....
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....ssee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal IT(TP)A Nos.52 & 97/Bang/2016 had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software....
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....identical issue has been restored to the file of Ld CIT(A) by the co-ordinate bench in the assessee's own case in AY 2009-10 in ITA no. 1688/Bang/2017 order dated 28-06-2021. For the sake of convenience, we extract below the discussions made by the co-ordinate bench in Assessment Year 2009-10:- "10. We heard the parties on this issue and perused the record. We notice that the issue whether the expenditure incurred in foreign currency is required to be excluded from the export turnover or not when the assessee is exporting only software, was examined by the coordinate bench in the assessee's own case in assessment year 2007-08 and the matter was restored to the file of the Ld. CIT(A) with the following observations: "16. We have considered the rival submissions. It is clear from the decision of the Hyderabad Bench of the ITAT that to exclude expenses incurred in foreign currency from the export turnover, the assessee should have obtained the benefit of section 10A on income from rendering technical services outside India. The admitted factual position in the present case is that the assessee is in the business of exporting computer software and therefore the expens....
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.... to his file for examining it afresh on similar lines." 4.3 Consistent with the view taken by the Tribunal in Asst. Year 2007-08 and 2009-10, we restore this issue to the file of Ld CIT(A) for examining it afresh. 4.4 The second ground relate to exclusion of telecommunication charges from export turnover and total turnover while computing deduction u/s 10A of the Act. The Ld CIT(A), after deciding the issue relating to "expenditure incurred in foreign currency" in favour of the assessee, has held that the telecommunication charges and expenditure incurred in foreign currency should be deducted both from export turnover and total turnover. In any case, it is now settled that the amount reduced from the export turnover has to be reduced from the total turnover also as held by Hon'ble Supreme Court in the case of HCL Technologies Ltd, (404 ITR 179)(SC). Accordingly, the decision rendered by Ld CIT(A) on this issue does not require interference." Respectfully following the above view, we remand this issue to the Ld.AO to compute the deduction u/s. 10A in accordance with the principles laid down by the Hon'ble Supreme Court in case of HCL Technologies Ltd. ....
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....s paid to new regular workmen employed by the assessee in the previous year, shall be allowed as deduction for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Therefore, if some workmen were employed for a period of less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such work men in the present year even if such workmen was employed in the preceding year for more than 300 days but in the present year, such workmen was not employed for 300 days or more. By the very same reasoning the fact that in the first year of employment the additional wages paid is not allowed deduction for the reason that the workmen did not work for 300 days or more but if the next two Assessment years, if he works for more than 300 days each, then the deduction u/s.80JJAA of the Act has to be allowed. It is not proper to say that if the deduction is refused in the first year of employment of the new employee then for the next two succeeding Assessment Years also, the benefit of deduction will not be available. Such an approach defeats the very purpose for which deduction u/s.80JJA....
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....year was Rs. 90.59 crores. He further submitted the assessee has also invested a sum of Rs. 15.00 crores in growth scheme and a sum of Rs. 20.26 crores in dividend reinvestment scheme. The assessee has made investments in six schemes only during the year under consideration and it has encashed investments made in the earlier years in four schemes. He submitted that the assessee has not really incurred any expenditure in earning the dividend income. On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 9.2 We heard the parties on this issue and perused the record. We notice that opening balance of investments stood at Rs. 25.59 crores in four schemes of mutual funds. During the year under consideration, the above investments have been realised. The assessee has made fresh investments in six schemes of mutual funds during this year, out of which three schemes fall under Growth/reinvestment schemes. Considering the less number of schemes, in our view, it may not be proper to apply Rule 8D mechanically. Accordingly, we are of the view that the disallowance may be estimated to meet the requirements of Sec. 14A of the Act. Accordingly, we estimate the disallowance....
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....ation cess is a tax and therefore it cannot be granted as deduction to the assessee by the virtue of the provisions of Section 40(a)(ii) of the Act. We find that assessee has raised the additional ground claiming deduction of education cess paid by the assessee on the total income as well as dividend distribution tax. On careful analysis, we find that the issue of deduction of education cess as an allowable deduction is covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in Sesa Goa Ltd. (supra) and therefore we direct the Ld.AO to consider the claim afresh. Accordingly, this all additional grounds raised by assessee stands remanded as per the directions hereinabove. Supplementary / Additional Ground: The assessee has raised supplementary grounds in support of Ground no. 16, wherein assessee is seeking exclusion of following comparables: SWD: Persistant Systems & Solutions Ltd. Persistant Systems Ltd. Sasken Communications Technologies Ltd ITEs: Ascentia Technologies Ltd Acropetal Technologies(Seg.Engineering design) Jeevan Scientific Technologies Ltd(Seg.) iGate Global Soltion....
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....mparables i.e. M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited and M/s. Mindtree Limited (Seg.). In appeal before us, assessee contents (through additional grounds) that the above comparables are to be excluded, because these comparables were included on inappropriate appreciation of facts during the TP Study. The coordinate Bench of Bangalore Tribunal in case of Aspect Technology Centre (India) Pvt. Ltd. (supra) and in the case of M/s. Swiss Re Shared Services India Pvt. Ltd. Vs. ACIT reported in 76 taxmann.com 22 had directed to exclude M/s. Acropetal Technologies Ltd. and Accentia Technologies Limited from the list of comparables as these companies were functionally different from ITES segment. Further, in light of jurisdictional Tribunal order in case of ITO Vs. Maxim India Integrated Circuits Design Pvt. Ltd. in ITA no. 28/Bang/2012 dt.13.03.2016, M/s. Mindtree Limited does not pass the turnover filter of Rs. 1 to 200 Crores as well as 10 times multiple. 12. The assessee is contending to exclude from the list of comparables M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited, ICRA Online Ltd. and Jeevan Scienti....
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....ncome being greater than 75% of total revenue, and the company suffers from huge fluctuations which indicate that certain peculiar circumstances influencing the profit margin of the company exist, for which appropriate adjustments cannot be made to balance the effect. It is submitted that the ERP implementation services are not in the nature of IT enabled services which were notified by CBDT vide Notification no. SO 890(E) dated 26.09.2000. If the BPO segment is considered, the company fails to satisfy the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BPO segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee. This Tribunal in the case of Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 in IT(TP)A no. 380/Bang/2016) directed the TPO to verify as to whether the TPO's filter of Sales > 1 Crore is satisfied by this company. In the present case, as can be seen from the annual report of the company the sale of the company in respect of the BPO segment amounts to only 79 lakhs, and therefore it fails the TPO's filter. As fa....
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....majority equity interest in Patni Computer Systems Ltd. rendering it incomparable due to it failing the TPO's own filter of having peculiar economic circumstances. In addition, the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 201011. For the reasons above, the company is not comparable to the Assessee and the DRP's findings on exclusion of iGate is right in law. As far as the company ICRA Online Ltd., is concerned, the DRP excluded this company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. In any event, this company is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO's own filter of export turnover in excess of 75% of total sales as the export turnover o....