TaxTMI 
TaxTMI 
2024 (9) TMI 1802
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....the Dispute Resolution Panel ("DRP") under section 144C(5) and the order passed by the TPO under section 92CA(3) of the Act, to the extent prejudicial to the Appellant are not in accordance with the law and made in violation of the principle of equity and natural justice and are contrary to the fats and circumstances of the present case. 1.2 The AO/DRP/AO has erred in law and on facts in making transfer pricing adjustment to the international transactions of provision of software development and loans and advances granted to branches/subsidiaries outside India. Ground No. 2-Erroneous determination of transfer pricing adjustment when India entity earns more than consolidated global profits 2.1. The AO/DRP erred in making transfer Pricing adjustment when the profit margin earned by the India entity exceeds the profit margin of the group entity. Ground No. 3-Erroneous rejection of Internal Transactional Net Margin Method (Internal TNMM") 3.1. The TPO/DRP erred in rejecting the segmental margin prepared by the Assessee and in rejecting the Internal TNMM adopted by the Assessee. Ground No. 4 Erroneous computation of adjustment ....
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....e AO/DRP/TPO have erred in not granting working capital adjustment while computing the arm's length price/net margin of the comparable companies. 5.13 The AO/DRP/TPO have erred in law and on facts in considering the following companies in the Software development Segment (SWD) as comparable to the Appellant without appreciating that the said companies are not comparable to the Appellant due to multiple reasons including functionality, business model, onsite revenue, product sales, presence of brand and Intangibles led revenue, lack of segmental data, inadequate financial information, extraordinary events etc. 5.13.1 Aspire Systems India Private Limited 5.13.2 Larsen and Toubro Infotech Limited 5.13.3 Infobeans Technologies Limited 5.13.4 Persistence Systems Limited 5.13.5 Nihilent Technologies Limited 5.13.6 Inteq Software Private Limited 5.13.7 Infosys Limited 5.13.8 Thirdware Solutions Limited 5.13.9 Cybage Software Private Limited 5.14 The AO/DRP/TPO have erred in law and on facts in not including the following companies in the final list of comparable in the Software developme....
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....;9 - Erroneous levy of interest under section 234C of the Act 9.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in computing consequential interest under section 234C of the Act, where the same is levied on the returned income and not on the assessed income. Hence the interest under section 234C charged against the Appellant is erroneous. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal." 3. At the outset, we note that the issue raised by the assessee in ground Nos. 1 to 4 of its appeal and 5.1 to 5.5 and 5.7 to 5.12 and 5.15 were not pressed before us. Therefore, the issues raised in those grounds of appeal are hereby dismissed as not pressed. 4. The only issue raised by the assessee in ground Nos. 5.6 and 5.13 to 5.14 is that the learned DRP/TPO/AO erred in rejecting the TP study of the assessee by conducting fresh benchmarking and selecting fresh comparable including certain comparable which should be excluded. 5. The necessary facts as arising from the order of the auth....
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....res only. Therefore, the assessee company is a small size company and accordingly the comparable company should have turnover between Rs. 1 crore to Rs. 200 crores only. Accordingly, the comparable outside the said range of turnover should be excluded. There were 8 companies selected by the TPO having turnover exceeding Rs. 200 crores, hence these 7 companies should not be considered as comparable for working out the ALP of the assessee. In contending so, the ld. AR relied on the order of Bangalore ITAT in the case of Autodesk India private limited versus DCIT reported in 96 taxmann.com 263. Such lists of the comparable companies having turnover more than 200 crores with the associated enterprises is reproduced on page 12 of the synopsis of arguments of the assessee. 7.1 Regarding the exclusion of the margins of AY 2014-15 and 2015-16 with respect to comparable company namely M/s RS Software India Ltd., the learned AR for the assessee before us contended that the margins of AY 2014-15 and 2015- 16 of the impugned company should not be considered as the company had turnover in these years exceeding the sum of Rs. 200 crores. In holding so, the ld. AR relied on....
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....fore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of t....
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.... 9.1 Based on the above finding of the ITAT, we are inclined to exclude the companies having turnover exceeding Rs. 200 crores as comparable while calculating the ALP for the transactions international transactions carried out by the assessee with the AE. As per the assessee the list of such companies having turnover exceeding Rs. 200 crore stands as under: (i) Larsen and Toubro Infotech (ii) Persistent System Ltd (iii) Nihilent Analytics (iv) Infosys Limited (v) Thirdware Solutions Ltd (vi) Aspire Systems India Pvt Ltd. (vii) Cybage Software Ltd. 9.2 Hence, we direct the TPO/AO to exclude the companies stated above from the list of comparable while calculating the ALP with respect to the international transaction carried out by the assessee if they are having turnover exceeding Rs. 200 crores after necessary verification. 9.3 Regarding the exclusion of the margins of AY 2014-15 and 2015-16 with respect to comparable company namely RS Software India Ltd., we find that this Tribunal in the case of In App Information Technologies India Private Limited in IT(TP)A No. 07/Coch/2021 vide order dated 24-....
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....hat the companies are not comparable with the assessee which is engaged in software development services on account of functionality differences. The relevant finding of the Tribunal reads as under: "Infobeans Technologies Ltd. (Infobeans) 49. The assessee sought exclusion of Infobeans on the ground that it is also functionally dissimilar being into providing business IT services (CAD) (application development and maintenance, Big Data, UX and UI, Automation engineering services, including product engineering and lifestyle solutions and business process management) in verticals of storage and virtualization, media and publishing, HR and Payroll and e-commerce. It is also providing software engineering services primarily in Custom Application Development (CAM), enterprise mobility and Big Data Analytics (BDA). 50. Perusal of financials available at page A303, A418 to A421, Infobeans shows that it is into diversified services but its segmental financials are not available without which it is difficult to compute the correct profit margin of the relevant segment. So Infobeans is also ordered to be excluded as a comparable being not a comparable to the assessee." ....
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....ged in software development services. Therefore, the same cannot be included in comparability analysis. 9.7 Regarding the inclusion of the companies, namely M/s Akshay Software Technology Ltd, M/s Evoke Technologies Pvt Ltd and M/s Maveric Systems Ltd as comparable, we note that the learned AR at the time of hearing before has not pressed the issue of inclusion of company namely M/s Akshay Software Technology Ltd and M/s Maveric Systems Ltd as comparable therefore we hereby dismiss the same as not pressed. 9.8 Now coming to the issue of inclusion of a company namely M/s Evoke Technologies Pvt Ltd as comparable, we note that the AO/TPO excluded the same for the reason that financial of one of the branches of impugned company was not audited. The learned AR before us claimed that the financials of the company M/s Evoke Technologies Pvt Ltd. were duly audited. As per the learned AR, a company which is functionally similar cannot be rejected as comparable merely for the reason that the financials of the branch are not audited unless some error and deficiency is pointed out. It was further contended that if the financial of one of branches situated outside India and its accounts a....
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....Evoke Technologies Ltd is allowed for statistical purposes. 32. Since the issue is similar, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only." 12.4 We observe that this company is functionally comparable to assessee company and accepted in earlier years as comparable as there is no change in nature of business and engaged in IT decision and development services. Therefore, following the decision of the co-ordinate bench in assessee's own case for AY 2014-15 cited supra, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only. 9.9 Therefore, in accordance with the above discussion, we hereby set aside the issue to the file of the AO/TPO to reconsider the comparability of the company namely M/s Evoke Technologies Pvt Ltd by taking the data of Indian branch. 9.10 In view of the above and after considering the facts in totality, we direct the authorities below to exclude the comparable and include the comparable in terms of the discussion stated above but after necessary verification as per the provision....
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.... Tribunal in assessee's own case in ITA Nos. 113 & 509/Coch/2016 for the assessment years 2011-12 and 2012-13 wherein vide order dated 12/09/2018, it was held as under: "3.9 We have heard the rival submissions and perused the record. We find that a similar issue came up for our consideration in assessee own case in ITA No. 167/Coch/2015 dated 13/10/2015 wherein it was held as under: "9. We have heard the rival contention and perused the facts of the case. We are not in agreement with the submissions made by the Ld. AR. The Ld. AR has failed to bring on record any distinguishing feature between the present case and case of the assessee for the assessment year 2008-09. In the assessment year 2008-09, an identical issue came up for consideration before the ITAT, Cochin Bench in assessee's own case wherein the assessee had charged interest at the rate of 5% on the advances made to its AE Suntec Germany and charged no interest on the advances made to its AEs in USA and UK. The Bench in para 9.4 (extracted above) held that commercial expediency cannot be a ground for not charging interest on the advances given to Suntec US and Suntec UK and upheld the char....
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....the provisions of law. 18. On the other hand, the ld. DR raised no objection for restoring the issue to the file of the AO for fresh adjudication as per the provisions of law. 19. We have heard the rival contentions of both the parties and perused the materials available on record. Considering the facts stated above, we are inclined to hold that the issue on hand needs to be verified at the level of the AO and therefore in the interest of justice and fair play we are restoring the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the ground of appeal of the assessee is hereby by allowed for statistical purposes. 20. The issue raised by the assessee in ground No. 9 is that the AO has calculated the interest under the provisions of section 234C of the Act on the assessed income instead of return income. Accordingly, the ld. AR requested to give the appropriate direction to the AO for calculating the interest under section 234C of the Act as per the law. On the other hand, the ld. DR raised no objection if the direction is given to the AO for the calculation of the interest under section 234C of the Act on the return income. After hea....
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....- Erroneous computation of adjustment value on the total operating revenue of the Company 4.1 The AO/DRP erred in computation of adjustment value on the total operating revenue instead of international transaction value. Ground No. 5-Determination of arm's length price by the TPO in relation to the 'IT Services' 5.1. The AO/DRP erred on facts and in law in conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's TNMM analysis with fresh benchmarking analysis on his own conjectures and surmises. 5.2. The AO/DRP grossly erred on facts in benchmarking the transactions without considering the differences in the functions performed, assets employed, and risk undertaken by the Appellant vis- à-vis comparable companies; 5.3. The Learned AO/ TPO erred on facts in arbitrarily rejecting the following comparable companies selected by the Appellant in the transfer pricing documentation without considering the functional and risk analysis of the Appellant. a) Akshay Software Technologies Limited b) Evoke Technologies Private Limited c) Sasken Commun....
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....) Three sixty Logica Testing Services Pvt Ltd 1) Infosys Ltd 1) Cybage Software Pvt Ltd k) Consilient Technologies Pvt Ltd 5.10. The Learned AO/DRP erred in considering the following companies which operate under different business model with significant onsite activities; a) Larsen & Toubro Infotech Limited b) Mindtree Ltd c) Persistent Systems Limited d) Tata Elxsi Lad e) Nihilent Limited f) Infosys Limited 5.11. The Learned AO/TPO erred in not applying the turnover filter at the upper limit so as to reject high turnover companies (10 times turnover of the Company). a) Mindtree b) Larson & Toubro Infotech Lid c) Persistent Systems Ltd d) Tata Elxsi Ltd c) Infosys Ltd f) Cybage Software Pvt Ltd The following Companies ought to be rejected since it fails lower turnover filter computed at 1/10th of Assessee's turnover; a) OFS Technologies Ltd b) Kals Information System Pvt Ltd c) Rheal Software Pvt Ltd d) Informile Technologies Ltd e) Aptus Software Labs Pvt Ltd f) C....
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....case and in law, the learned AO/DRP has erred in making an addition under Section 14A of the Income Tax Act 1961 ('the Act') read with Rule 8D of the Income-tax Rules, 1962 ('the Rules'). 9.2. Based on the facts and circumstances of the case and in law, the learned AO/DRP has erred in holding that the disallowance u/s 14A is required to be computed in accordance with Rule 8D on the average of current and non-current investments at 1% amounting to INR 23,92,660 (1% of INR 23,92,65,986). 9.3. The learned AO/DRP has failed to consider the fact that the disallowance under section 14A of the Act is applicable only when the Assessee has earned exempt income. 9.4. The learned AO/DRP has erred in making an addition under section 14A of the Act in the computation of book profit under section 115JB of the Act. 9.5. Without prejudice to other objections and based on the facts and circumstances of the case in law, the amount of investments which could have yielded an exempt income is INR 2,36,49,990 as against INR 23,92,65,986 computed by the Learned AO. Ground No. 10-Erroneous adjustments made to the book profit computed under ....
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.... AO has factually and legally erred, in computing interest amounting to INR 2,85,52,138 under section 234B of the Act. 13.2. On the facts, and in the circumstances of the case and in law, the learned AO has failed to appreciate the fact that the consequential interest has arisen on account of erroneous additions made as mentioned above. 13.3. In view of the above, the Appellant prays that the learned AO be directed to delete the erroneous levy of interest under section 234B of the Act (being consequential in nature). Ground No. 14 - Erroneous computation of Interest under section 234C of the Act 14.1. Based on the facts and circumstances of the case and in law, the learned AO has factually and legally erred, in computing interest amounting to INR 11,13,121 under section 234C of the Act. 14.2. Based on the facts and circumstances of the case and in law, the learned AO has failed to appreciate the fact that the Company in its return of income had calculated and paid INR 10,81,608 on account of interest under section 234C of the Act on its returned income. 14.3. Based on the facts and circumstances of the case and in law, the ....
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....xt interconnected issue raised by the assessee in ground Nos. 5.8 to 5.13 is that the learned DRP/TPO/AO erred in conducting fresh benchmarking and selecting fresh comparable including certain comparable which should be excluded on account of difference in functionality, business model, intangibles, turnover filter etc. 29. The assessee has sought exclusion of comparable selected by the TPO on account of turnover filter i.e. turn over exceeding Rs. 200 crore and such comparable companies are detailed as under: (i) Larsen and Toubro Infotech (ii) Persistent System Ltd (iii) Nihilent Analytics (iv) Infosys Limited (v) Cybage Software Ltd (vi) Mindtree Ltd (vii) Tata Elxsi ltd 30. As far as issue of exclusion of comparable companies mentioned above is concern, we note that the identical issue was raised by the assessee in IT(TP)A No. 1/Coch/2021 for the assessment year 2016-17 which has been decided in favour of the assessee. Therefore, the findings given in IT(TP)A No. 1/Coch/2021 shall also be applicable for the assessment years 2017-18. The ground of appeal of the assessee for the A.Y. 2016-17 ....
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.... and added to the total income of the assessee. The AO further made addition to book profit by the amount of disallowance under section 14A of the Act in pursuance to the provision of explanation (f) to sub-section (2) to section 115JB of the Act. 37. On objection raised by the assessee, the learned DRP also confirmed the addition made by the AO. 38. Being aggrieved by the direction of learned DRP and the final assessment order, the assessee is in appeal before us. 39. The learned AR for the assessee before us contended that the assessee has not earned or claimed any exempted income in the year under dispute. Therefore, no disallowances either under section 14A or under explanation (f) to section 115JB(2) of the Act is required to made. 40. On the other hand, the learned DR before us vehemently supported the finding of the authorities below. 41. We have heard the rival contention of both the parties and perused the materials available on record. Admittedly, the assessee has not claimed any exempted income in the year under consideration. The question arises whether disallowance under section 14A of the Act can be made in the absence of exempted income earned/claimed ....
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.... 01/Coch/2021 shall also be applicable for the assessment year 2017-18. The appeal of the assessee for the A.Y. 2016-17 has been decided by us vide paragraph No. 19 of this order in favour of the assessee for statistical purpose. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment years 2017-18. Hence, the ground of appeal filed by the assessee is hereby allowed for statistical purposes. 44. The issue raised by the assessee in ground No. 11 is that the AO has not granted long-term capital loss for Rs. 34,19,385.00 ignoring the fact that there was no consideration received by the assessee on the transfer of shares of the subsidiary company due to the liquidation of subsidiary company. 45. The learned AR at the outset submitted that the AO has not considered the fact that there was no consideration received by the assessee on the transfer of shares and therefore the assessee has rightly claimed the long-term capital loss. At the time of hearing, the ld. AR submitted that the matter can be restored to the file of the AO for fresh adjudication as per the provisions of law.....