TaxTMI 
TaxTMI 
TaxTMI 
2025 (3) TMI 1520
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.... filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer ("AO") under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") proposed a total transfer pricing adjustment of INR 9,90,90,367 vide order dated 28/10/2016, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 03/12/2016, under section 143(3) r.w. section 144C(1) of the Act after incorporating the transfer pricing adjustment proposed by the TPO. Since the assessee chose not to file the objections against the draft assessment order, the AO passed the final assessment order on 05/01/2017 under section 143(3) r.w. section 144C(3) of the Act, assessing the total income of the assessee at INR 21,55,52,940. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. 3. In this appeal, the assessee has raised the following grounds: - "The grounds hereinafter taken by the Appellant are without prejudice to one another: 1:0 On the fact....
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....s not fall within the 12 month period of 1 April 2012 to 31 March 2013. 2:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions. 2:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk. 2:11 The AO / TPO/ CIT (A) has erred in computation of margins of comparables i.e. Excel Infoways Limited and Iris Business Services Limited. 2:12 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. Caliber Point Business Solutions ii. Cosmic Global Limited iii. ICRA Techno Analytics Limited iv. Informed Technologies India Limited v. Tech Process Solutions 2:13 The AO / TPO / CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies: i. Accentia Technologies Limited ii. Genesys International Corporation Ltd iii. IRIS Business Services Limited iv. Excel Infoways Limited v. MPS Limited. vi. Omega Healthcare Management Services Pvt. Ltd. 3:0 Transfer Pricing Adjustment of Rs. 2,12,56,507 in r....
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.... by the Appellant in its transfer pricing study report. i. Akshay Software Technologies Limited ii. AvaniCimcon Technologies iii. E-zest Solution Limited iv. Helios & Matheson Technologies Limited v. Tata Elxsi Ltd. vi. Mindtree Ltd. vii. Persistent Systems & Solutions Ltd 3:13 The AO / TPO / CIT (A) 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. Aspire Systems (India) Private Limited ii. Cyber Infrastructure Pvt Ltd. iii. Infobeans Technologies Ltd. 4.0 Re: General 4:1 On the facts and circumstances of the case, and in law, the AO erred in initiating penalty proceedings under section 271(1)(c) r.w.s. 274 of the Act." 4. Ground No. 1, is general in nature, and therefore, the same needs no separate adjudication. 5. The issue arising in Ground No.2, raised in assessee's appeal, pertains to transfer pricing adjustment in relation to the international transaction pertaining to "Receipt from Production Services". 6. The brief facts of the case pertaining ....
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....e OPCs will be verified by the Production team of HERE India to confirm if the mapping jobs executed by the OPCs are as per the specifications and standards laid down by NAVTEQ." 7. For benchmarking the international transaction pertaining to "Receipt from Production Services", the assessee adopted the Transactional Net Margin Method ("TNMM") as the most appropriate method with the Profit Level Indicator ("PLI") of Operating Profit to operating Cost ("OP/OC"). By considering itself the tested party, the assessee identified seven comparable companies with a weighted average margin of 13.37%. As the assessee computed its own PLI at 15.42%, accordingly, it claimed that the international transaction pertaining to "Receipt from Production Services" is at arm's length price ("ALP"). 8. During the transfer pricing assessment proceedings, the TPO by applying additional filters rejected five comparable companies selected by the assessee, finding them to be not satisfying one or the other filter or being functionally not comparable to the assessee. The TPO also introduced five new comparable companies, i.e. Accentia Technologies Ltd., Excel Infoways Ltd., Genesys International Corporat....
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...., the assessee objected to the inclusion of this company as comparable on the basis that this company has low employee cost, diminishing revenue over the years and abnormal profits. Further, the assessee submitted that the company is engaged in IT and BPO services and the relevant segmental information of BPO services is not available. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services" on the basis that the TPO considered the relevant segmental information for margin working. The learned CIT(A) further held that employee's cost is not the filter applied by the TPO and a comparable cannot be rejected due to high profit. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 12. During the hearing, the learned AR reiterated the submissions made before the lower authorities and placed reliance upon the decisions of the coordinate bench of the Tribunal, wherein this company was excluded for benchmarking the international transaction pertaining to ITeS, inter alia, on the basi....
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.... inclusion of this company as comparable on the basis that this company is engaged in various activities without availability of relevant segmental information. The assessee further submitted that this company undertakes extensive R&D activity and is also engaged in developing cloud-based publishing platforms. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 16. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities and submitted that data digitalisation is the primary activity of this company and no R&D expenditure was incurred. 17. We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of MPS Ltd., as reproduced on page 736 of the paper book, we find that MPS Ltd. provides publis....
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....ices". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 19. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities. 20. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of IRIS Business Services Ltd. for the year under consideration, forming part of the annual report paper book from pages 1-106, we find that this company is engaged in the business of supply of software and providing software related services. As per the profit and loss account, the revenue from sale of products is declared at INR 37,66,834 and the revenue from the sale of services is declared at INR 61,96,19,344. However, there is no further sub-classification of the revenue earned from various segments, which the company has recognised, as noted on page 86 of the paper book, i.e., the revenue from services rendered in connection with the advertisement and data conversion, sale of software/software licenses, subscription income, development or customi....
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....10,73,488 was earned from the transaction with related party. Thus, it is evident that this company fails the filter of RPT more than 25% of the operating revenue applied by the TPO. Accordingly, we direct the TPO/AO to exclude Omega Healthcare Management Services Pvt. Ltd. while benchmarking the international transaction pertaining to "Receipt from Production Services". 24. To sum up, we direct that the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to "Receipt from Production Services". Ground No.2 raised in assessee's appeal is decided accordingly. 25. The issue arising in Ground No.3, raised in assessee's appeal, pertains to transfer pricing adjustment in relation to the international transaction pertaining to "Receipt from Software Development Services". 26. The brief facts of the case pertaining to this issue, as emanating from the record, are: In its Transfer Pricing Study Report, the following functions have been stated to have been performed by the assessee in relation to the international transaction perta....
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....ber Infrastructure Pvt. Ltd., and Infobeans Technology Ltd. By rejecting the contentions raised by the assessee against the selection of new filters as well as the companies included/excluded, the TPO, vide order passed under section 92CA(3) of the Act, arrived at a set of following ten comparable companies for benchmarking the international transaction of "Receipt from Software Development Services": - Sr. No. Company Name Margins 1 Aspire Systems (India) Pvt. Ltd. 34.94 2 CG Vak software and export Itd 15.84 3 Cyber Infrastructure Pvt ltd 41.70 4 Infobeans Technology Ltd 30.04 5 RS Software (India) Ltd. 17.41 6 Thirdware Solution Ltd. 30.92 7 Sasken Communication Technology Ltd 10.21 8 Evoke Technologies Pvt Ltd 4.65 9 R Systems International Ltd. * 13.25 10 Goldstone Technologies Ltd 15.16 Arithmetic Mean 21.41 29. Since the average OP/TC of the aforesaid comparable companies selected by the TPO was 21.41%, therefore the TPO by applying the arm's length margin, inter-alia, proposed an upward adjustment of INR 2,12,56,507, in respect of international transaction pertaining to "Receipt from Software Development Services". 30. Durin....
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....to the aspire system India Ltd, this comparable was prayed for rejection by the assessee, this was rejected by the ITAT as per order dated 21 May 2018. In the miscellaneous application dated 27 May 2019 the ITAT recalled order to that extent for adjudication on comparability of this comparable. 017. The argument of the learned authorized representative is that this comparable company should be rejected for the reason that it is engaged in IT consulting and outsourced product development, which has over 20 years of experience in developing software products. The learned authorized representative also referred to various products of that company. Further, in the annual report it has made addition to its intangible assets, which were developed internally to show that it is developing products also. It was further contended that segmental details between product development and software services are not available. Further, the coordinate bench for the same year has already rejected companies, which are into outsourced product development. The assessee referred to the appellate order in case of aspire systems India private limited for assessment year 2009 - 10 dated 25/2/2015 wherein ....
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.... the profit and loss account the margin, income stream, nature of functions performed resulting into expenditure incurred are not known to the assessee. In such circumstances, this comparable company should be excluded from comparability analysis. We direct the learned transfer-pricing officer accordingly." 34. Therefore, respectfully following the decision of the coordinate bench of the Tribunal cited supra, we direct the TPO/AO to exclude Aspire Systems (India) Pvt. Ltd. while benchmarking the international transaction pertaining to "Receipt from Software Development Services". (b) Cyber Infrastructure Pvt. Ltd. 35. The next comparable challenged by the assessee is Cyber Infrastructure Pvt. Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is functionally comparable to the assessee. Before the learned CIT(A), the assessee challenged the inclusion of this company as a comparable on the basis that relevant segmental information for benchmarking analysis is not available for this company. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and held that th....