TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1425
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....of INR 73,75,47,110. Transfer pricing grounds 3. Ld. AO/TPO pursuant to the directions of the Hon'ble DRP, erred in making addition of INR 78,56,31,349 to total income of Appellant alleging that prices charged by the Appellant for software development services and IT enabled services rendered to its associated enterprises ("AEs") and outstanding receivables thereon were lower than the arm's length price ("ALP") determined by the learned TPO; 4. Ld. AO/TPO pursuant to the directions of the Hon'ble DRP erred, in law and facts, by not accepting economic analysis undertaken by Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"), and in conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transactions and holding that the Appellant's international transactions are not at arm's length; 5. Ld. AO/TPO pursuant to the directions of the Hon'ble DRP erred, in law and facts, by incorrectly applying the following quantitative and qualitative filters: a) Rejecting certain comparable companies for having different accounting year (i.e., compan....
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....echnologies Limited iii. Sasken Communications Technologies Limited iv. RS Software (India) Limited v. Jindal Intellicom Limited c) Rejecting companies additionally proposed by the Appellant during the assessment proceedings even though they are functionally comparable to the Appellant: i. Sybrant Technologies Private Limited ii. Akshay Software Technologies Limited iii. Isummation Technologies Private Limited iv. Celstream Technologies Private Limited 6.2 IT enabled services a. Accepting the following companies that cannot be considered as comparable to the Appellant in law and fact, on one or more basis: i. Infosys BPM Services Private Limited ii. Ultramarine and Pigments Limited iii. SPI Technologies India Private Limited iv. Manipal Digital Systems Private Limited v. Vitae International Accounting Services Private Limited vi. Datamatics Financial Services Limited vii. CES Limited b. Rejecting the following comparable companies selected by the Appellant in its TP documentation even though the companies are functionally comparable to the Appellant: i. Cosmic Global Limited ii. Allsec Technologies Limited iii. R System....
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....he final assessment order issued to the Appellant u/s 143(3) of the Act 12. Without prejudice to the above grounds the Ld. AO pursuant to the directions of the Hon'ble DRP erred in law and in fact, by arriving at the total income of INR 1,76,11,99,090 instead of INR 1,52,31,78,459 provided in the computation sheet accompanying the final assessment order issued to the Appellant u/s 143(3) of the Act for the AY 2017-18. Other grounds: 13. The Ld. AO has erred, in law and in facts, by levying interest of INR 8,15,66,025 under section 234B of the Act. 14. The Ld. AO has erred in initiating penalty proceedings under section 274 read with section 270A of the Act. The Appellant submits that each of above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. 2. The brief facts of the case are that the assessee filed return of income on 30.11.2017 declaring total income of Rs.73,88,46,030/-. The case....
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....P entered into a service agreement with Dell USA ALP with effect from 01.04.2014 to provide IT& ITES services at the markup- of 15%. During the year as per form No.3CEB, the following international transactions were undertaken by the assessee and method was adopted as under:- International Transactions Particulars Receivables/Received Payables/Paid Method Provision of software development services 7,33,02,03,300 TNMM Provision of IT enabled services 2,73,96,80,000 TNMM Trade receivables consider closely linked to the transaction of software development services 408817742 TNMM Trade receivables considered closely linked to the transaction of ITeS 13,62,72,580 TNMM Trade payables considered closely linked to software development services 10,01,29,080 TNMM Trade payables considered closely linked to ITeS 3,89,39,086 TNMM Unbilled revenue closely linked to software development services 2,07,61,78,788 TNMM Unbilled revenue closely linked to IT enabled services 33,16,46,532 TNMM Purchase to capital assets closely linked to transaction of software development services 5,91,715 ....
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....O issued show-cause notice to the taxpayer. The taxpayer furnished the reply against the show-cause notice on different dates. The assessee filed objections which were dully considered by the ld. TPO. The following companies were accepted by the ld.TPO from the taxpayer's selection for the SWD segment of the comparable companies. i. CG-VAK Software & Exports Ltd. ii.Haribinger Systems Pvt.Ltd. iii.Infomile Technologies Ltd. iv.Larsen & Toubro Infotech Ltd. v. R Systems International Ltd. vi. Tata Elxi Ltd. 5.2 The ld. TPO after considering the objections the following companies were finally selected as comparables and calculated the Median at 26.32%. SI No. Name of comparable company Weighted average unadjusted margin 1. Infomile Technologies Limited 10.43% 2. Harbinger Systems Pvt Ltd. 14.10% 3. CG- VAK Software & Exports Ltd 15.09% 4. Larsen & Toubro Infotech Ltd 21.14% 5. Great Software Laboratory Pvt Ltd. 21.24% 6. Mindtree Ltd. 24.17% 7. R Systems International Ltd. 24.40% 8. Persistent Systems Ltd. 26.17% 9. Tata Elxsi Ltd. 26.19% 10 Infobeans Technologies Ltd. 26.44% 11. Aptus Software Labs Pvt. Ltd 26.46% 12 Nihilent ....
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....y the arm's length price calculated by the TPO and the proposed adjustment made as under Particulars Amount (INR) Arm's length median margin as per comparable set 24.37% Operating Cost (OC) 247,76,64,076 Arm's Length Price ('ALP') = 126.32% of OC 308,14,70,811 Price Received 286,58,48,390 Short fall being adjustment u/s. 92CA 21,56,22,421 8. The ld.TPO further observed that the assessee has not making any adjustment on outstanding receivables. During the course of proceedings, the assessee was asked to furnish invoice details of all the trade receivables from the AEs during the year and also asked for detail in particular format: Amount raised in invoice, date of invoice, date of receipt, delay in no. of days. However, the assessee failed to submit the required data in the format asked by the ld.TPO. In absence of detail as required by the ld.TPO, the ld.TPO calculated, using LIBOR-6 months+450 basis points on outstanding receivable which works out to 5.975% and made adjustment of Rs.94,21,347/-. Accordingly, he passed order on 29.01.2021. After receipt of the order from the ld.TPO, the AO passed order u/s. 144C on 23.04.2021 confirming the adjustment a....
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....% 4) Jindal Intellicom Ltd. 7.41% 5) iSNGlobal Solutions Pvt Limited 8.38% 6) Fuzen Software Pvt Ltd 15.93% 7) Microland Ltd 17.53% 8) Tech Mahindra Business Services Ltd. 22.37% 9)| Datamatics Business Solutions Ltd. 22.64% 10 Infosys BPM Services Ltd. 24.37% 11 Vitae International Accounting Services Pvt Ltd. 27.13% 12 Manipal Digital Systems Pvt Ltd. 27.32% 13 CES Ltd. 31.45% 14 Ultramarine & Pigment Ltd 34.41% 15 SPI Technologies India Pvt Ltd 36.95% 16 Inteq BPO Services Pvt Ltd. 39.51% 35th Percentile 15.93% Median 22.50% 65th Percentile 27.13% 11.1 The adjustment made post Hon'ble DRP directions as under: Particulars Amount (INR) Arm's length median margin as per comparable set 22.50% Operating Cost (OC) 247,76,64,076 Arm's Length Price ('ALP') = 122.50% of OC 303,51,38,493 Price Received 286,58,48,390 Short fall being adjustment u/s. 92CA 16,92,90, 103 11.2 Accordingly, the adjustment u/s. 92CA was restricted to Rs.16,92,90,103/- 11.3 After direction received from the ld. DRP, the AO/TPO in respect of for interest on outstanding receivable was calculated at Rs.1,09,74,490/-. Accordingly, the total a....
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....price, fixed time frame or on a time-and-material basis.(Page 2132 of PB-II-Part 2). On account that Infosys is engaged in sale of products it is clearly understood that the same is functionally different from Appellant which is engaged in rendering software development services to its AEs. 4. No segmental information Infosys has revenue from both software services and software products. Segment details are unavailable. Industry segments for the company are Financial Services (FS), Manufacturing (MFG), Energy, Utilities, Communication and Services (ECS), Retail, Consumer packaged goods and Logistics (RCL), enterprise in Hi-Tech (Hi-Tech) and Life Sciences, Health care and Insurance (HILIFE). The segment details are based on industry they service and geographical segments wise and not based on the nature of revenues/activities (business segments). The geographic segment is based on the business outsource from both on-site and offshore. (Page 2171 of PB-II-Part 2) 5. Brand Value Infosys brand is a key intangible asset of the company. It is observed that Infosys spent INR 276 crores in brand building and marketing exercise. (Page 2036 and 2162 of PB-II-Part 2). 6. Market L....
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....td vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015- 6474-6475 of Paperbook III) 6) Cypress Semiconductor Technology India Pvt Ltd [IT(TP)A No.2427/Bang/2019 for AY 2015-16](Page 6495-6497 of Paperbook III) 7) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-15](Page 6521-6522 of Paperbook III) 8) M/s. Hewlett Packard (India) Software Operation Pvt. Ltd.,[IT(TP)A 9) ARM embedded Technologies Private Limited [IT(TP)A No 3374/Bang/2018 for AY 2014-15](Page 6660-6661 of Paperbook III) 2. Larsen & Turbo Infotech Limited. 1. Functionally dissimilar The Company is engaged in provision of wide range of services to Banking, Financial services, Insurance, Media and Entertainment, Travel, Logistics and Healthcare sectors. (Page 3838 of PB-II-Part 4) L&T is engaged in providing a host of services and all these services are not comparable to Appellant's routine software development services.(Page 3767 of PB-II-Part 4) 2. Cost of Bought out items for resale The company is engaged in trading of goods which is apparent from its annual report.(Page 3817 of PB-II-Part 4) 3. No proper segmentation While L&T is engaged in host of serv....
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.... 6. Investment in technology absorption L&T has made great investment in technology absorption. It operates Centres of Excellence in emerging technologies such as Big Data, Analytics, Internet of Things, Cloud, User Experience etc. This has in turn helped the company in improving the productivity of the company. Also, the benefits are achieved in the form of product improvement, which indicates that the company is engaged in product development. (Page 3747&3748 of PB-IIPart 4) The company has also carried out extensive R&D in the areas of latest technologies such as machine learning, Internet of things, Big Data, Analytics, Mobility, Cloud, Next generation. User Experience, service automation, manufacturing execution systems, etc. During the FY2016-17 the company has incurred R&D expenditure amounting to INR 270 million. (Page 3748 of PB-II-Part 4) 7. Global presence The operations of L&T are spread across the globe and the same is validated by the corporate governance report in page 83 of the annual report for FY 2016-17. (Page 3685 &3762 of PB-II-Part 4) 8. Significant foreign expenditure In this regard, we wish to submit that L&T has incurred significant ....
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....y, product engineering and SAP services, which are not similar to the routine software development services provided by the Appellant. (Page 3536 of PBII- Part 4) Additionally, Mindtree is also engaged in rendered business transformation, digitalization, automation and integrated services to its customers. From page 21 of the annual report for FY 2016-17, it is observed that Mindtree was ranked in Top 20 IT-BPM employers in India. (Page 3442 of PB-II-Part 4) Mindtree is also engaged in product development activities, the same is evident from page55 of the annual report for FY 2016-17. (Page 3476 of PB-II-Part 4) 2. Insufficient segmental information In the presence of diversified activities as above, including Business Process Management related services, the company is structured into four reportable business segments based on the industry, for the purpose of disclosure in the annual report viz. . However, though the company provides a wide range of services and solutions the annual report of the company neither provides segmental break-up, nor provides the revenue break-up from the various activities undertaken. (Page 3533 of PB-II-Part 4) 3. Significant R&D activi....
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....t foreign expenditure In this regard, we wish to submit that Mindtree has incurred significant foreign expenditure which works out to 68.86%, 57.82% and 56% of total expenditure incurred for FY 2016-17,FY 2015-16 and FY 2014-15 respectively. Considering this, it is clearly evident that Mindtree has significant onsite activities outside India. Accordingly, given that the Appellant predominantly carries out its operations within India and does not incur any significant foreign expenses, it is evident that Mindtree follows a different operating model (which alsoimpacts the profitability) and hence, could not be compared with the Appellant.(Page 3479 of PB-II-Part 4). Given the above, we humbly wish to submit that Mindtree be excluded from final set of comparable companies. Judicial precedents relied upon: Functional comparability- 1)Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-18](Page 6268-6272 of Paperbook III) 2) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-17]Page 6426-6427 of Paperbook III) 3) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-16](Page 6448-6452 of ....
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....nd hence cannot be compared to the Appellant's activity profile. 2. Insufficient segmental information In this regard, while the segmental details are available in relation to the Services, Digital, Alliance and Accelerite (Products), however, the same are in relation to the consolidated financials and not standalone financials (relevant extracts reproduced below). Further, the Annual Report for FY 2015-16 and FY 2014-15 doesn't not provide details in terms of revenue derived from sale of services vis-à-vis products separately (even in the consolidated financials). Accordingly, the company should also be rejected on account of insufficient segmental information. (Page1892 of PB-IIPart 1) Page 205 of Annual Report FY 2016-17 Notes forming part of consolidated financial statements (Contd.) 31. Segment Information Operating segments are components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker, in deciding how to allocate resources and assessing performance. The Group's chief operating decision maker is the CEO and Managing Director. The Group reorganised itself into 4 b....
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....ersistent has to be excluded from the final set of comparable. Judicial precedents relied upon: Functional comparability- 1)Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-18](Page 6268-6272 of Paperbook III) 2)SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17(Page 6306-6308 of Paperbook III) 3) ADP Pvt. Ltd Vs. DCIT [ITA Nos. 227 & 228 /H/2021 for AY 2016- 17](Page 6336-6338 of Paperbook III) 4) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-17](Page 6426-6427 of Paperbook III) 5) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-16](Page 6461-6469 of Paperbook III) 6) Cypress Semiconductor Technology India Pvt Ltd [IT(TP)A No.2427/Bang/2019 for AY 2015-16](Page 6499-6501of Paperbook III) 7) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-15](Page 6524-6525 of Paperbook III) 8) Optiva India Technologies Pvt. Ltd. [ITA No. 194/PUN/2021 for AY 2016-17]6548-6550 of Paperbook III) 9) M/s. Hewlett Packard (India) Software Operation Pvt. Ltd.,[IT(TP)A No.2866/Bang/2017 for AY 2013-14](P....
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....PB-IIPart 1) Judicial precedents relied upon: Functional comparability- 1) SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17](Page 6309-6310 of Paperbook III) 2) Red Hat India Private Limited [ITA No.1379/M/2021 for AY 2016- 17](Page 6746-6747 of Paperbook III) 3) Optiva India Technologies Pvt. Ltd. [ITA No. 194/PUN/2021 for AY 2016-17](Page 6554-6555 of Paperbook III) 4) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-16](Page 6469 of Paperbook III) 14. During the course of arguments the ld. AR did not argue on the Aptus Software Labs Private Limited & Tata Elxsi, therefore, whereas it was noted in his written synopsis and chart submitted, therefore are not to be considered for adjudication. 14.1 Further he submitted that for the Software Development segment the Infosys Limited, Larsen & Turbo Infotech Limited, Persistent Systems Ltd & Mindtree Limited are required to be excluded on various grounds and these companies are covered by the judgment of co-ordinate bench of the Hon'ble Tribunal in the case of Synamedia India Pvt. Ltd. vs DCIT Circle 6(1)(2) in IT(TP)A No. 350/Bang/2021 order dated....
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....ail and rejected the objections filed before them on various grounds. As per MGT return it has been classified as SWD companies and income tax return the assessee has itself classified under the head of SWD. The SWD functions may contains different works according to the business practice adopted. He also submitted that the Ld. DRP has disposed off the objections filed by the assessee after discussing in each point. He further submitted that in the audit report under t5he head of Revenue Recognition the companies have been classified as software development service and revenue is recognized on the basis of Percentage of completion method. 16. After hearing both the sides & perusing the entire materials on record, we note that the assessee company is engaged in Software Development Services as observed by us, noted supra. On perusal of written synopsis filed by the ld.AR of the assessee, he has contested for exclusion of the Infosys Ltd., Persistent Systems Ltd., Larsen & Toubro Infotech Ltd. & Mindtree Ltd. on different grounds and submitted that these four companies have been excluded on different grounds in the case of Synamedia India Pvt. Ltd., Vs. DCIT, Circle-6(1)(2) cited su....
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....he relevant extract from the show-cause notice is reproduced below for ease of reference: e) Companies who have more than 25% related parry transactions of the sales were excluded. Companies having related party transactions of more than 25% are proposed to be excluded. A threshold of 25% is being applied following the provisions of Section 92A(2)(a) which provides a limit of 26% of the equity capital carrying voting rights for treating an enterprise as Associated Enterprise. if the limit is reduced further it would only result in eliminating more and more companies, on the other hand if the limit is relaxed then companies with predominantly related party transactions would get included which would not represent uncontrolled transactions. Therefore, on a balancing note, 25% is a proper threshold limit for related party transactions. The companies having more than 25% related party transactions should therefore be rejected as comparables. The Hon'ble IT.AT has upheld the application of this filter by the TPO in its order in the case of M/s. Supporisoft India Pvt. Ltd for AY 2005-G6 in IT (TP)A 1372/B/11 & 20/2012 dated 28.03.2013 following its own decision in the case of M....
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....controlled transaction that is tested with reference to the controlled transaction but it is not possible to ignore the fact that pricing will have an effect on the margins obtained in a transaction. The argument that if pricing structure were to be considered as criteria, then it will have to be seen as to what is the pricing structure of all the comparable for various projects cannot be accepted because the TPO has not chosen any other onsite software service provider with a revenue composition of more than 75% from onsite software services as comparable. As rightly observed by the TPO, the pricing is different in onsite when compared to offshore operations. The further observations of the TPO that the reasons for the same lie in the fact that while in the case of OFFSHORE projects most of the costs are incurred in India; an ONSITE project has to be carried out abroad significantly increasing the employee cost and other costs. 65. The next objection of the Assessee is with regard to Assets employed. The companies, which predominantly generate revenues from onsite activity, do not have significant assets as most of the work is carried on the site of customer outside India. The ....
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....ess Solutions Ltd. The above companies were therefore rightly not considered as comparable by the TPO. We hold accordingly." 36. It is seen that the TPO in coming to the conclusion that the onsite revenue filter is not applicable has placed reliance on the decision of the ITAT Mumbai Bench in the case of Capegemini as quoted in para 16 in para 14 of the TPO's order, but that decision does not deal with a case of onsite revenue filter and the decision was rendered on the facts of its own case. 37. On the issue of RPT filter, we notice that the TPO in para 16 has accepted that the RPT filter should be @ 25%. In the case of Persistent Systems Ltd., the RPT is at 31.32% as extracted in the earlier part of this order and therefore this company should be excluded by application of RPT filter. In view of the above, we do not wish to go into other grounds on which this company is sought to be excluded viz., that it is a product company and there is no segmental data between product and services segment, presence of onsite activity and the impact of extra-ordinary event of acquisition during the relevant previous year. Therefore, this company is directed to be excluded from the li....
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....y event of merger with Infosys Consulting India Ltd. Segmental profit & loss account not available. Commands substantial brand value. 40. The DRP, however, has not thought it fit to exclude this company by observing that this company has substantial pre-dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R&D have all been brushed aside. In our view, the difference pointed out by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee. 41. The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:- "Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles. - Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue dur....
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....ect the AO/TPO for exclusion of Infosys Ltd., Persistent Systems Ltd., Larsen & Toubro Infotech Ltd. & Mindtree Ltd. from the final list of comparables. 17. In the case of two companies named Nihilent Technologies Private Limited & Infobeans Technologies Ltd the ld. AR of the assessee has relied on the judgments of the co-ordinate benches of the Tribunal cited supra, we noted from the judgment of SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17] placed at paper book page No. 6309-6310 the co-ordinate bench has directed to exclude these two companies . Since this judgment relates to the AY 2016-17 and case on hand relates for the AY 2017-18, therefore we think fit to send back to the file of the AO/TPO/DRP for the re-consideration in light of the above judgment for de-novo consideration and decide the issue as per law. In the result this ground No. 6.1(a) is partly allowed for statistical purpose. Ground No.6.(1)(b) and 6(1)(c) did not argued by the assessee, hence it is dismissed as not pressed. ITES Segment 18. Ground No.6. 2(a) - The assessee has challenged 7 companies for exclusion. Since he has not contested all the 7 companies, ....
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...."HIL"). From the above services, it is apparent that Infosys BPM is not comparable to the functions performed by the Appellant. The Annual Report of Infosys BPM for FY 2016-17 also mentions that it has wide array of services which it delivers to its clients. The extracts from the annual report for FY 2016-17 are reproduced below for your good self's easy reference: "The Company is committed to provide best-in-class services in both horizontal and vertical focus areas. Horizontal solutions comprise Sourcing and Procurement (S&P), Customer Service (CS), Finance and Accounting (F&A), Analytics (AT), Legal Process Outsourcing (LPO), Human Resources (HR), Sales and Fulfilment (S&F), Industry Solution (IS) and Digital Business Services (DBS), while Vertical (Industry) solutions include Financial Services and Insurance (FSI), Manufacturing (MFG), Energy & Utilities, Communication and Services (ECS), Retail, Consumer packaged goods and Logistics (RCL) and Life Sciences and Healthcare (LSH)." 3. Market Leader Infosys BPM is an established player in the BPO industry and also a market leader and is constantly ranked as the leading BPO companies in India by industrial bodies such as G....
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....ional Faceless Assessment Centre (NFAC)- IT(TP)A No.397/Bang/2021- AY 2016-17 (Page 6819-6822 of Paperbook III) 3. Unisys India Private Ltd vs The DCIT Circle 7(1)(1)- M.P. No. 29/Bang/2022 in ITA No. 584/Bang/2019- AY 2012-13 (Page 6906 - 6907 of Paperbook III) 4. COWI India Pvt. Ltd. vs Income Tax officer, E-Assessment Centre, Circle-I, Gurgaon- ITA No. 443/Del/2021- AY 2016-17 (Page 6918 - 6919 of Paperbook III) 5. Infor (India) Private Limited vs DCIT CIrcle 2(1), Hyd - ITA-TP. No. 198/Hyd/2021- AY 2016-17 High-end KPO service uncomparable- 1. Rampgreen Solutions private Limited Vs Commissioner of Income tax(ITA 102/2015)(Page 6921-6966 Of Paperbook III) SPI Technologies India Pvt Ltd 1. Significant Intangibles SPI Technologies has significant intangible assets. It consists of internally generated intangible assets, those arising from business combinations and acquisitions. (Page 5351 to 5353 of PB II-Part 7) Further, the company's website also highlights the cutting-edge technology that it has developed and is being used in delivering of services to its customers. 2. Extra ordinary event The wholly owned subsidiary of SPI Technologies, Laser wo....
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....ion as the transaction disclosed at one place contradicts the transaction reported in another place. In selecting a comparable company for the purpose of testing the arm's length, the data of such company should be reliable. Given the above inconsistencies in reporting, the data of the company may not be reliable for comparison purposes. 4. Functionally not comparable SPI Technologies is engaged in the provision of database services including data processing& tabulation services, on-line information and data retrieval services, Electronic Data Interchange (EDI) service, web search portal content services, Code and protocol conversion services etc. Entire revenue of the company is derived from data processing, hosting & related activities. It primarily provides services in the typesetting business, including transformation of unedited manuscripts into final print-ready files, supply of structured data for electronic publishing and providing end-to-end project management services. The abovementioned services are not comparable to the support services provided by the Appellant and hence SPI Technologies shall be rejected as a comparable.(Page 5307 &5375 of PB-II-Part 7) Based....
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....reas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it has been mentioned that this comparable provides services that are different from routine back-office services. This noting itself makes this comparable not functionally similar with that of assessee. Accordingly, we direct this comparable to be excluded from finalist." 5.1 In view of the above order of the Tribunal, we are inclined to direct the AO/TPO to exclude Infosys BPO Ltd. from the list of comparables to determine the ALP. (c) SPI Technologies India Pvt. Ltd. Functionally dissimilar 11. We have heard the rival submissions and perused the materials available on record. The main contention of the Ld. A.R. is that TPO rejected the NPS Ltd. which is engaged in the business....
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....directed to TPO for the interest rate, opportunity cost should be considered i.e. SBI short term deposit rate on outstanding receivables. The assessee could not file the same. 22.1 The ld. AR of the assessee filed written synopsis which is as under Re: Ground No. 9 (9.1 to 9.4) in the appeal: The Appellant wishes to submit that the delayed / outstanding receivables should not be considered as a separate international transaction. Further, it is humbly submitted that determination of ALP in respect of delayed receivables from inter-company transactions is not required since ALP of inter-company transactions of provision of services has been already determined and no separate adjustment is necessary in this regard. Outstanding receivables cannot be treated as a separate international transaction The Appellant has provided Software Development services and IT enabled services to its AEs and amount outstanding as trade receivables merely represent the dues which are to be received by the Appellant against the services provided. As a business practice, the Appellant did not charge any interest on delayed realisation of invoice from AEs nor paid any interest on delayed payables.....
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....age receivable days computed for the comparable companies proposed by the Appellant, it was observed that the credit period extended by the Appellant is lesser than the comparable companies whose average came to 70 days. Without prejudice to our contentions that the comparable set considered by the learned TPO is incorrect, we did a similar analysis on the comparable set proposed by the learned TPO. It was observed that the average receivable days of the learned TPO's set came up to 72 days. On comparing the same with the Appellant's data, it was observed that the comparable companies are allowing higher credit days than the Appellant. Determination of ALP is based on uncontrolled (third-party) scenario The Appellant wishes to submit that it is engaged in provision of services to AE as well as non-AEs. The Appellant would like to draw your attention to the fact that the Appellant does not charge any interest from third party customers. Also, it does not pay any interest to its creditors (including the AE) hence no interest should be charged on intercompany receivables balance of the AE as well. Outstanding receivables from AEs cannot be re-characterised as loan advanced to....