TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 962
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....to the total income and assessing the total income of the Appellant for the captioned AY at INR 46,39,27,300. TRANSFER PRICING ISSUES: 2:0 Transfer Pricing Adjustment of INR 2,70,56,964 in relation to the international transaction of Provision of Information Technology (IT) services ["IT services"]: 2:1 The Id. AO/TPO/DRP have erred on the facts of the case and in law in making an upward adjustment of INR 2,70,56,964 to the total income of the Appellant by holding that the international transaction relating to IT services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 2:2. The Id. AO/TPO/ DRP erred in facts of the case and in law in disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing (TP) study report maintained as per section 920 of the Income Tax Act, 1961 ('the Act') read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') and thereby erred in rejecting the TP documentation maintained by the Appellant. 2:3. The AO/ TPO / DRP have erred in rejecting the economic analysis and methodical search process u....
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....Ltd. ii. Qualitykiosk Technologies Pvt Ltd. iii. Inteq Software Pvt Ltd. iv. Kcube Consultancy Services Pvt Ltd. v. Rheal Software Ltd. vi. Sasken Technologies Ltd. vii. Happiest Minds Technologies Pvt Ltd - Seg. viii. Clover Infotech Private Limited. ix. Bhilwara Infotechnology Ltd (Software & IT related services). x. CES Ltd. (IT Services) 2:15. The Ld. AO/TPO/DRP erred on facts in arriving at a new set of comparable companies by adding following companies which have an entirely different functionally and risk profile and are not comparable to the Appellant with respect to provision of IT services : i. Robosoft Technologies Ltd. ii. Daffodil Software Pvt Ltd. iii. Larsen & Toubro Infotech Ltd. iv. Great Software Laboratory Pvt. Ltd. v. Sagarsoft (India) Ltd. vi. Virinchi Ltd. vii. Mindtree Ltd. viii. Nihilent Ltd. ix. Wipro Ltd. x. Infosys Ltd. xi. Cybage Software Pvt. Ltd. 2:16. Without prejudice to the above contentions, the learned AO/TPO/DRP have erred in incorrectly computing net cost plus margins of companies selected as comparable for the purpose of provision of IT services. 2:17. The AO/TPO/DRP erred in law and in facts of the....
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....P adjustment of Rs. 4,96,40,670/- towards provision of Software Development Services [in short "SDS"]. 3.2. The Assessing Officer has passed Draft Assessment Order u/sec. 144C(1) of the Income Tax Act, 1961 on 26.09.2023 and proposed TP adjustment of Rs. 4,96,40,670/- as proposed by the TPO in terms of order u/sec. 92CA(3) of the Income Tax Act, 1961. Aggrieved by the Draft Assessment Order, the appellant-company has filed it's objections before the DRP-1, Bengaluru. The DRP- 1, Bengaluru vide it's Directions dated 14.06.2024 issued u/sec. 144C(5) of the Income Tax Act, 1961, retained 18 comparables with 35th percentile at 18.65% and 65th percentile at 22.87% with Median of 20.01%. Pursuant to the Directions of the DRP, the Assessing Officer has passed the Final Assessment Order u/sec. 143(3) r.w.s.144C(13) r.w.s.144B of the Income Tax Act, 1961 vide order dated 19.07.2024 and made TP adjustment of Rs. 2,70,56,964/- towards international transactions of the assessee with it's AEs in Software Development Segment. 4. Aggrieved by the Final Assessment Order passed by the Assessing Officer, the appellant-company is now in appeal before the Tribunal. 5. CA, Ketan K. Ved, Learned Coun....
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.... Act, 1961. Therefore, he submitted that, there is no merit in the arguments of the assessee and thus, the reasons given by the DRP to include Infosys Limited should be upheld. 7. We have heard both the parties, perused the material on record and the orders of the authorities below. The appellant-company is a captive service provider to it's AEs on cost plus basis as per the agreement entered into by it with it's AEs. The appellant-company provides software development services to it's AEs on cost plus basis, whereas, Infosys Limited being a giant software developer provides software development services to multi- dimensional industries including banks, manufacturing etc. Further, Infosys Limited is having huge brand value which is definitely impacts the operating margins of any company. Further, the Company has incurred substantial expenditure for marketing and R & D, whereas, the said expenditure is absent in the case of the appellant-company. Therefore, in our considered view, Infosys Limited cannot be a good comparable to the appellant-company which is engaged in software development services to it's AEs on cost plus basis. Further, Infosys Limited has been considered to be no....
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....as the arguments advanced by the Ld.AR, we find merit in his contention because of the following reasons:- (i) E-Infochips Limited:- (a) As per the annual report of M/s. E-Infochips Limited for the period 1/4/2013 to 31/3/2014 (Page No.98 of the paper book-Volume-II) it is evident that the company is primarily engaged in software development, IT Enables Services and product-based company. Further, no segmental details are available in the Annual Report. While as the assessee's company's only activity is Captive Software Development Services. Extraction from page-98 of PB-II "The company is primarily engaged in Software Development and IT Enable Services and products which is considered the only reportable business segment as per Accounting Standard-AS 17 Segment Reporting prescribed in Companies Accounting standards notified under Section 211(3C) (Which continues to be applicable in terms of General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate affairs in respect of Section 133 of the companies Act, 1961." (b) The company also manufactures products such as electronic boards and printer circuits by importing raw materials and holding inventory, as ....
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....company is not engaged into any activity of producing physical goods. page No.235 of PB-II (b) It is also apparent that the company is receiving revenue from various streams and none of them were pertaining to software development services. As apparent from page 237 of PB-II, the company has received Revenue from training and subscription amounting to Rs. 59.32 lakhs and sale of licenses Rs. 7.98 lakhs. The assessee company is only engaged in ITES. Extraction from page no.237 of PB-II: (c) It is also apparent from page no. 217 of PB-II that the company has not disclosed segmental details between software development services and products. The relevant portion is extracted herein below for reference:- "34) Segment Reporting The company's cooperation comprises of software development, implementation and support services. Primary segmental reporting is based on geographical areas viz., Domestic = India (Products & Services) and International = Rest of the world (Exports- software services). In primary segment, revenue and all expenses, which relates to a particular geographical segment, are reported. Fixed Assets, Current Assets, Loans and Advances, Current Liabilities....
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....comparable company because of the reasons stated herein above. (i) M/s. Infobeans Technologies Limited: - (a) From the Annual Report Page No.276 of the PB-II it is apparent that the assessee has also been engaged in sale of goods along with rendering of services because the turnover is reported on export of goods / services calculated on FOB basis. (b) The company also has MODVAT deposits and sales tax deposit. (c) Therefore, the company is functionally dissimilar to the assessee company. (d) For reference the relevant portion of the Annual Report enclosed in paper book-II, page no.276 is extracted herein below: Note-27 EARNINGS IN FOREIGN EXCHANGE a. Export of goods / services calculated on F.O.B basis 329,659883 216,854,891 Total 329,659883 216,854,891 LONG TERM LOANS & ADVANCES Security Deposit - Secured considered Good Telephone Deposit 9,400 9,400 Other Deposit 9,153 3,500 Custom Deposit 10,000 10,000 Deposit with MPPKVVCL 140,850 73,150 Sales Tax Deposit (Kotak FDR) 10,000 - Deposit (M-VAT) 25,000 25,000 M.P.S.E.D.C. Ltd 10,121,460 - Total 10,325,863 121,050 ....
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....a proportionate basis over a period of three years from the date of acquisition. An amount of Rs. 228 Crore and Rs. 85 Cr representing the proportionate charge of the deferred consideration has been recognized as an expense during the years ended March 31, 2014 and March 31, 2013 respectively." Extraction from Page 357 of PB-II 2.26 Merger of Infosys Consulting India Limited The Honorable High Court of Karnataka sanctioned the scheme of amalgamation of Infosys Consulting India Limited (ICIL) with Infosys Limited with an effective date of August 23, 2013 and an appointed date of January 12, 2012 ICIL was a wholly-owned subsidiary of Infosys Limited and was engaged in software-related consultancy services. The merger of ICIL into Infosys Limited has been accounted for under pooling of interest method referred to in Accounting Standard 14. Accounting for Amalgamation (AS-14). All the assets and liabilities of ICIL on an after the appointed date and prior to the effective date have been transferred to Infosys Limited on a going concern basis. As ICIL was a wholly-owned subsidiary of Infosys Limited, no shares have been allotted to the shareholders upon the scheme becoming effec....
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....ctively In the case of assessee company there is no accretion of such kind of assets. (d) The company has spent huge amount on R & D Activities amounting to Rs. 261 Crs during the previous year and also have filed 79 patterns in its name as pointed by the Ld. AR and apparent from the PB-II, page No.304 and 311. Extraction from Page 304 of PB-II "Our research and development efforts focus on the twin goals of improving productivity and quality of our services, alongside working towards technology driven innovation and differentiation that will deliver greater value to our clients. At Infosys Labs, Service innovation is being achieved through enhanced automation, optimization, prevention and effective collaboration among described teams. Infosys Labs has established a set of service innovation groups focused on enhancing quality and productivity of six dominant Infosys services-Business Process Outsourcing; Infrastructure Management Services; Independent Validation Services; Application Development and Maintenance including Large Deals; Consulting and Systems Integration; and Modernization. These groups work on service platforms with a focus on automation, optimization, c....