TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 1324
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....ions of I.T.Act, 1961 and a book profit of Rs.25,7732,716/-. During the assessment proceedings u/s 143(3), AO observed that during the year under consideration, assessee had entered into international transactions with its Associated Enterprise (AE) and with regard to software development services it had entered into a transaction of Rs.104,14,41,828/-. Therefore, AO referred the determination of the ALP of the transaction to the TPO u/s 92CA of the Act. The TPO examined the TP report of the assessee and as per the audit statement of accounts for the FY 2013-14, the OP/OC of software development services was reported at 18.67% as against the margin of comparables selected by assessee at 13.63%. However, the TPO was not satisfied with the T.P. study of the assessee. Accordingly, he rejected the TP study of the assessee and conducted fresh search and selected 12 companies as comparable to assessee and arrived at the OP/OC of the companies at 34.32%. Thereafter the TPO did not allow the working capital adjustment claimed by assessee and proposed the adjustment of Rs.13,73,77,352/- u/s 92CA of the Act. Accordingly, draft assessment order was proposed by the AO against which the assesse....
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....omparable set which are comparable to the Appellant's functions, asset base and risk profile: * Akshay Software Technologies Limited; * Bells Softech Limited; * Locuz Enterprises Solutions Limited; * CSS Corp Private Limited; * Sasken Communications Technologies Limited - (Software service segment); * Maveric Systems Limited; * Sagarsoft (India) Limited; * Sankhya Infotech Limited; * Trianz I T & Cloud Solutions Private Limited; * Nucleus Software Exports Limited; * FCS Software Solutions Limited; * Evoke Technologies Private Limited; and * Covidh Technologies Limited; 6. On the facts and circumstances of the case and in law, Ld. DRP/TPO/Ld. AO has erred in not considering certain cost components as operating/non-operating for comparable companies and considering miscellaneous income as operating in nature; 7. On the facts and in the circumstances of the case and in law, Ld. AO / Ld. TPO/ Hon'ble DRP erred in: a. not granting working capital adjustment; and b. not granting risk adjustment. 8. The Appellant craves leave to add to, alter, omit or substitute any or all of the above grounds of appeal or produce further docum....
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.... was also into similar business of providing Software Development Services to it's AE, we also find that the TPO has taken the very same 12 companies as comparables in the case of Kony India Ltd. Since the relevant AY is also 2014-15, the facts and circumstances under which those companies have been held to be not comparable to M/s. Kony India Private Limited are also the same, the said decision is also applicable to the case before us. 6.1. In view of the same, respectfully 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-V....
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....nting 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 of PB-II that the company has not disclosed segmental details between software development services and products. The relevant portion is extracted hereinbelow 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 (Expo....
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....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 hereinabove. (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 hereinbelow: 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 Other Deposit Custom Deposit Deposit with M....
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....ary 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 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 whollyowned 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 d....
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.... 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 crore (net book value Nil) transferred from Infosys Consulting India Limited (Refer note 2.26). (4) During the years ended March 31, 2014 and March 31, 2013, certain assets which were old and not in use having gross book value of Nil and Rs. 521 crore respectively 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 o....
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....arch (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 and 2013 is as follows: In crore 2014 2013 Revenue expenditure 873 907 Capital expenditure - 6 Total 873 913 R&D expenditure / total revenue (%) 2.0% 2.5% (e) It is also apparent from page No.326 of PB-II that the company has incurred huge selling and marketing expenses of Rs. 2,390 Crs. Extraction from Page 326 of PB-II III Results of operations The function-wise classification of the Standalone Statement of Profit and Loss is as follows: in crore Year ended March 31 2014 % 2013 % Income from software services and products 44,341 100.0 36,765 100.0 Software development expenses 26,738 60.3 21,662 58.9 Gross profit 17,603 39.7 15,103 41.1 Selling and marketing expenses 2,390 5.4 1,8....
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....c and Industrial Research (DSIR) are as follows: For the year ended March 31, 2014 March 31, 2013 Capital 2.43 - Revenue 37.18 27.87 39.61 27.87 (a) Though the company's revenue flows from the three streams viz., products (IP Business), platforms (Solutions Integration) and services (Product Engineering), the main segments disclosed in the Annual Report are Telecom & Wireless, Life-sciences & Health care, and Infrastructure & systems. Thus, the segmental details in the annual report is absent. Extraction from Page 675 of PB-II "(m) Segment reporting (i) Identification of Segment The Company's operations predominantly relate to providing software products, services and technology innovation covering full life cycle of product to its customers. (ii) Allocation of income and direct expenses Income and direct expenses allocable to segments are classified based on items that we individually identifiable to that segment such as salaries and project related travel expenses. The remainder is considered as un-allocable expense and is charged against the total income. (i) Un allocated item Un allocated items include general corporat....