TaxTMI 
TaxTMI 
2025 (7) TMI 962
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....9;the Ld. AO') erred in making an addition of INR 2,70,56,964 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. ....
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....The Id. AO/TPO/DRP have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. DCIS Dot Com Solutions India Pvt 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. ....
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....the course of TP proceedings, the TPO after considering the relevant TP analysis documents submitted by the appellant-company, has rejected the TP documentation and has conducted a fresh TP study by applying certain filters. The TPO has selected final set of 18 comparables with 35th percentile at 19.41% and 65th percentile at 23.18% with Median of 21.43% and proposed TP 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.1....
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....of arguments of the Counsel for the Assessee that, Infosys Limited is functionally comparable to the appellant- company and it passed all filters applied by the TPO. Therefore, he submitted that, selective inclusion or exclusion of any comparable on the basis of certain events, gives distorted figures or defeat the very purpose of provisions of sec.92C of the of the Income Tax 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 Compan....
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....pectfully following the decision of Coordinate Bench of this Tribunal to which one of us (i.e. J.M.) is a signatory, we direct the exclusion of above mentioned companies from the final list of comparables. For the sake of ready reference, the relevant paragraphs from the order of this Tribunal are reproduced hereunder:- "9. We have heard the rival submissions and carefully perused the materials on record. From the paper book furnished by the assessee as well 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 consider....
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.... applications and software support and maintenance related services to M/s. Kony Group of Companies, we are of the view that M/s. E- infochips Limited cannot be considered as a comparable company because of the reasons stated hereinabove. (ii) Thirdware Solutions Limited: (a) As argued by the Ld. AR it is evident from the Annual Report (page No.235 of PB-II) that the company has derived revenue from sale of products amounting to Rs. 206.75 Crs. Further, there is no revenue from sale of services during the previous year. The assessee has also purchased stock amounting to Rs. 40.21 Crs. While as the assessee 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....
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....o the operation / services by the respective units only. Intangible assets internally developed by the company are capitalised at the total cost attributable towards the development of the product and is amortised on the straight- line method over its estimated useful life of three years, as perceived by the management." 10.1. In the case of the assessee company neither such expenses are incurred, or any intangibles are acquired during the relevant period. 11. Since the assessee company is primarily engaged in custom-built mobile applications and software support and maintenance related services to M/s. Kony Group of Companies, we are of the considered view that M/s. Third-ware Solutions Limited cannot be considered as a 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. ....
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....Section 212 of the Companies Act,1956 for the summary financial performance of our subsidiaries. The audited financial statements and related information of subsidiaries will be available on our website,www.infosys.com." Extraction from page 349 of PB-II 2.10.1 Investment in Lodestone Holding AG On October 22, 2012, Infosys acquired 100% of the outstanding share capital of Lodestone Holding AG, a global management consultancy firm headquartered in Zurich, Switzerland. The acquisition was executed through a share purchase agreement for an upfront cash consideration of Rs. 1,87 crore and a deferred consideration of up to Rs. 608 Cr. The deferred consideration is payable to the selling shareholders of Lodestone on the third anniversary of the acquisition date and is contingent upon their continued employment for a period of three years. The investment in Lodestone has been recorded at the acquisition cost and the deferred consideration is being recognized on 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 ....
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.... 56 - 215 178 117 Computer equipment ^(2)(3) 1,525 672 19 2,178 1,053 520 19 1,554 624 472 Furniture and fixtures ^(2) 518 161 - 679 345 96 - 441 238 173 Vehicles 10 3 - 13 5 2 - 7 6 5 8,001 2,381 21 10,361 3,576 1,086 20 4,642 5,719 4,425 Intangible assets : Intellectual Property Rights 59 - - 59 31 15 - 46 13 28 59 - - 59 31 15 - 46 13 28 Total 8,060 2,381 21 10,420 3,607 1,101 20 4,688 5,732 4,453 Previous year ^(4) 7,173 1,422 535 8,060 3,112 956 461 3,607 4,453 ^(1)Buildings include Rs. 250/- being the value of 5 shares of Rs. 50/- each in Mittal Towers Premises Co- operative Society Limited. ^(2)Includes certain assets provided on cancellable operating lease to Infosys BPO, a subsidiary. ^(3)Includes computer equipment having gross book value of Rs. 1 cror....
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....ity and quality of our services while enabling differentiation in client offerings. During fiscal year 2014, Inlosys Labs filed 79 unique patent applications in the United States Patent and Trademark Office(USPTO),the Indian Patent Office and other jurisdictions. On a standalone basis, our research and development expenses for fiscal years 2014, 2013 and 2012 were Rs. 873 crore Rs. 907 crore and Rs. 655 crore, respectively." Extraction from Page 311 of PB-II "Research and development expenditure The R&D centers of the Company (Finacle and Infosys Labs) located at Bangalore, Bhubaneswar, Chandigarh, Chennai, Pune, Hyderabad, Mysore and Thiruvananthapuram have been accorded approval for weighted deduction by the Department of Scientific and Industrial Research (DSIR) effective November 23, 2011. The eligible R&D revenue and capital expenditure on a standalone basis are Rs 261 crore and Nil respectively for the year ended March 31, 2014 and Rs. 247 crore and Rs. 3 crore respectively for the year ended March 31, 2013. On a standalone basis, the total R&D expenditure, including eligible R&D expenditure discussed above for fiscal years 2014 an....
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.... instant appeal have been dismissed as not pressed. 10. In the result, appeal of the Assessee is partly allowed. Order pronounced in the open Court on 03.07.2025. ============= Document 1 Disclosure of intangible assets [Table] -(1) Unless otherwise specified, all monetary values are in INR Classes of intangible assets [Axis] Sub classes of intangible assets [Axis] Company total intangible assets [Member] Internally generated and other than internally generated intangible assets [Member] Accumulated amortization and impairment [Member] Carrying amount accumulated amortization and impairment and gross carrying amount [Axis] Gross carrying amount [Member] Carrying amount [Member] 01/04/2013 to 31/03/2014 01/04/2012 to 31/03/2013 31/03/2012 01/04/2013 to 31/03/2014 01/04/2012 to 31/03/2013 01/04/2013 31/03/2014 Disclosure of intangible assets [Abstract] Disclosure of intangible assets [Lineltems] Reconciliation of changes in intangible assets [Abstract] Changes in intangible assets [Abstract] Additions to intangible assets [Abstract] Additions other than through business combinations intangible assets 57,65.627 72,01,901 57,....