TaxTMI 
TaxTMI 
2023 (9) TMI 1771
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....onal transactions entered into by the assessee. 3. The assessee has raised the following grounds of appeal :- "GENERAL GROUND 1. The Orders passed by learned Assistant Commissioner of Income Tax, Circle - 1(1)(1), Bangalore (hereinafter referred as "AO" for brevity), learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) - 1(1)(1), Bangalore (hereinafter referred as "TPO" for brevity) and the Honourable DRP-1, Bengaluru ("AO", "TPO" and DRP collectively referred as "lower authorities" for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO TRANSFER PRICING - LEGAL ISSUES 2. The learned AO has erred in making a reference for the determination of the Arm's Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so. 3. The lower authorities have erred in passing the Order without demonstrating that the Appellant had any motive of tax evasion. GROUNDS RELATING TO TP AD,JUSTMENT IN SOFTWARE DEVELOPMENT SEGMENT 4. The learned AO has erred in making transfer pricing adjustment of Rs. 38,21,44,103/- towards internationa....
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....emium on this account. GROUNDS RELATING TO TP IN SALES AND MARKETING SUPPORT SERVICES SEGMENT 8. The learned AO has erred in making transfer pricing adjustment of Rs. 2,18,85,265/- towards Marketing Support Segment. 9. The learned DRP has erred in confirming the action of the TPO in: (i) Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant; (ii) Adopting inappropriate filters like one sided turnover filter, 25% RPT filter, etc. in the process of selecting comparables and not adopting appropriate filters like onsite revenue filter, etc and (iii) Selecting inappropriate comparables and selecting companies as comparables even though they are not comparable in terms of functions performed, assets utilized, risks assumed, size, one sided turnover, unusual business circumstances, high margin, etc. The lower income tax authorities have erred in adopting the following companies as comparables: ● Axience Consulting Pvt. Ltd ● Cheil India Pvt. Ltd. ● Dun & Bradstreet Information Services India Pvt. Ltd. ....
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.... Purchase consideration and the value of net assets acquired constitute an intangible asset; (iii) Not appreciating that Goodwill is a business asset and falls within the meaning of "other business or commercial right of similar nature" Explanation 3(b) to section 32 of the Act and is eligible for depreciation; and (iv) Not following the binding judicial precedents of Hon'ble Supreme Court. GROUND RELATING TO CLAIM OF DEPRECIATION ON GST CAPITALISED 15. The learned AO has erred in not allowing depreciation on GST related to capital assets purchased during the year under consideration despite clear directions of DRP to allow the depreciation. OTHER GROUND 16. The lower authorities have erred in levying interest of interest u/s 234B of Rs. 13,77,26,040/- and u/s 234D of Rs.8,440/ -. On the facts and circumstances of the case, interest u/s 234B and 234D of the Act is not leviable. The Appellant submits that each of the above grounds/ sub- grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any ti....
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.... incorporating the TP adjustment of Rs. 74,91,18,816. The AO also made addition of Rs.19,68,97,682 by disallowing the depreciation claimed on Goodwill arising out of merger. Aggrieved, the assessee filed its objections before DRP. Pursuant to the directions of the DRP, an order giving effect to DRP directions was passed by the TPO dated 22.07.2022 after considering 27 comparables for SWD segment and calculating median at 20 and for MSS segment there were 9 comparables and median calculated at 19.4. The notional interest on receivables from AE was revised to Rs.10,41,85,660 making total TP adjustment of Rs.50,82,15,028 as follows :- Name of the Segment Average margin TP Adjustment Software development segment 27 comparables with median of 20% Rs. 38,21,44,103 Marketing Support segment 9 comparables with median of 19.42% Rs. 2,18,85,265 Notional Interest on Trade Receivables Interest rate at SBI short term rate Rs.10,41,85,660 Total Rs.50,82,15,028 7. Subsequently the AO passed the final assessment order dated 31.07.2022 incorporating the TP adjustment as per TP OGE to DRP directions and corporate tax addition of Rs.19,68,97,7....
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.... AY 2016-17 in IT(TP)A Nos. 238/Bang/2021 (para 10.7 on pg2548 of Paper Book IV-Case law Compilation), wherein it was held that RPT > 15% of sales is an appropriate filter. Following other decisions are also relied upon: ⮚ Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 (Para 22 at Pg 2133 of PB III of Case Law Compilation) ⮚ ANSR Global Corporation (P.) Ltd vs ACIT [2022] 139 taxmann.com 283 (Bangalore - Trib.) for AY 2016-17 (Para 17 at Pg 2359 of Paper Book III-Case law Compilation) ⮚ Autodesk India (P.) Ltd. [2018] 96 taxmann.com 263 (Bangalore - Trib.) 7. Therefore, based on above the Appellant submits that the RPT filter of 15% over sales should be applied on an aggregate basis." 11.1 The ld. DR relied on the orders of the lower authorities and submitted that the RPT filter should be taken at 25%. He referred to the DRP order at para 2.6.7 and submitted that for adopting 25% RPT filter, the ld. TPO has given the reasons. 11.2 Considering the rival submissions, we note that in assessee's own case for AY 2016-17 & 2017-18 in IT(TP)A No.238/Bang/2021 & 262....
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....judgment for applying the RPT filter rate." 11.3 Following the above decision of the Tribunal in assessee's own case for the AYs 2016-17 & 2017-18, the AO/TPO is directed to calculate the RPT filter as per para 10.6 & 10.7 of the said order extracted above. Ground No.5(iii) - Margin Computation of the Appellant 12. The ld. AR has filed written synopsis on this issue as follows :- 8. The learned TPO has modified segmental results of the Appellant without giving any reasons or opportunity of hearing. The learned TPO identified the difference between total expenses as per P&L and operating expenses as per TP study as Rs.2.22 crores and allocated the same to both the segments on the basis of turnover of segments (Pg 209-210 of Appeal papers). Due to this, the TPO has considered IND AS adjustment towards interest free deposit (prepaid expenses) and Interest on TDS/Service Tax as operating in nature, while computing operating margins of the Appellant. 9. In this regard, the Appellant submits that interest on TDS is disallowed in the tax computation and is not connected with the rendering of services to the associated enterprises. Therefore, it should be tre....
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.... TPO as non-operating income. During the course of hearing, the ld. AR did not dispute the directions of the DRP. Therefore, we therefore uphold the order of DRP on this issue. Ground No.5(iv) 14. The assessee seeks exclusion of the following companies :- (i) Larsen & Toubro Infotech Ltd. (ii) Aptus Software Labs Pvt. Ltd. (iii) Elveego Circuits Pvt. Ltd. (iv) Mindtree Ltd. (v) Acewin Agritek Ltd. (vi) Persistent Systems Ltd. (vii) Tata Elxsi Ltd. (viii) Infobeans Technologies Ltd. (ix) Wipro Ltd. (x) Nihilent Ltd. (xi) Infosys Ltd. (xii) Threesixty Logica Testing Services Pvt. Ltd. (xiii) Cybage Software Pvt. Ltd. 14.1 The exclusion of Black Pepper Technologies Pvt. Ltd. was not pressed. 14.2 The ld. AR made the following submissions with regard to three companies viz., Larsen & Toubro Ltd., Persistent Systems Ltd. & Infosys Ltd.as under :- Larsen & Toubro Ltd. 15. The ld. AR submitted that this company is functionally different as it is engaged in diversified business activities like infrastructure management services, digital consultation, data a....
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....any engaged in diversified business activities including software products and not a pure software development company. The Company has global brand image and owns intangible assets worth Rs.130 crores. There is vast difference between the profile of Infosys and the Appellant. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (69.19%), FY 2016-17 (67.01%) & FY 2015-16 (67.44%). Thus, different business model when compared to Appellant. It was further submitted that in assessee's own case for AYs 2016-17 & 2017-18 (supra), this company was excluded by this Tribunal. He also relied on the following decisions :- ● M/s. Huawei Technologies India Pvt. Ltd. vs ACIT, Bengaluru (TS-855-ITAT-2022 Bang-TP) for AY 2018-19 ● M/s. Yahoo Software Development India Pvt. Ltd. in IT(TP)A No. 178/Bang/2022 for AY 2017-18 17.1 The ld. DR relied on the orders of the lower authorities and vehemently argued that the assessee is a software development company and the ld. DRP has examined the issue in detail and observed from the financial statements that Cybage Software Ltd. is similar with the assessee's functional profile. He also submitt....
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....pplicable to the Assessee in the present case also. The learned DR submitted that the DRP in its directions has merely accepted with the reasoning of the TPO and therefore the issue of exclusion of these companies should be directed to be examined afresh by the DRP. 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd., (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of the Assessee and that of the Assessee in the case of Agilis Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of ....
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....tre Pvt. Ltd. in ITA No.288/Bang/2021 dated 30.6.2022 for AY 2016-17 and it was held to exclude the same. The relevant observations are as under :- "17.6 We have perused the submissions advanced by both sides in the light of records placed before us. 17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: "3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28....
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....s". 3.3 There is nothing on record brought by the Ld. CIT.DR in order to establish that these are comparable with assessee that is a captive service provider which functions at the strict supervision and instructions by the AE's. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration." 17.8 Before us, the Ld.AR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list." 11.9 Respectfully following the above decisions of the coordinate Bench of the Tribunal in assessee's own case for AY 2012-13 and SanDisk India Device Design Centre Pvt. Ltd. (AY 2016-17), we direct exclusion of these 3 companies i.e., Larsen & Toubro Ltd., Persist....
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....- "Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and innovation. Our service offerings include: Consulting: Nihilent partners with businesses in transforming their organizations with solutions using a holistic design-thinking led approach to problem solving. Our suite of consulting-led offerings include customer driven digital transformation, industry transformation and organizational change management services We have deep expertise and several person-years or experience in strategy alignment and execution, organizational design and process restricting, balanced scorecards, customer loyalty evaluation among others. Analytics : We help enterprises answer complex business questions of the day by getting them to make sense of all the data they have. Our leading-edge analytics solutions include predictive analytics techniques like fraud analytics, churn analytics, market basket analysis among others, data visualization and dashboards, and data enrichment and insight offerings including sentiment analysis, data abstraction, deep learning & artificial intelligence. Te....
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.... 700+ employees and high customer-focus has enabled it to grow blue-chip client base with high amount of repeat business." 19.3 On going through the above activity, the company is functionally different from the assessee. Further, we note from the financial statements that the revenue is generated from sale of services but not from sale of products. We therefore direct the AO/TO to exclude this company from the comparables. Cybage Software Pvt. Ltd 20. The ld. AR submitted that The Company is functionally different as it is engaged in diversified activities and deals with other computer related activities. The Company has abnormally high margin. Reliance is placed on assessee's own case for AY 2016-17 (supra) where this company was excluded on the ground of functional differences as it is rendering software services as well as developing software products. He also relied on the decision in Etisalat Software Solutions (P.) Ltd, 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 and submitted that since profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable. 20.1 The ld. DR relied on the orders of the lower authori....
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....AO/TPO is directed to verify the nature of activity of the company and the availability of segmental details and decide the inclusion in accordance with law." 20.3 We note further that in Textual Information "36" the company is engaged in Software Development Services. Since in the above judgement the issue has been remitted back to the AP/TPO, accordingly. Following the above decision, we remit this issue to the AO/TPO for verification in the same terms and the assessee is directed to furnish necessary documents to substantiate its claim. The decision relied by the ld. AR in assessee's own case for AY 2016-17 and decision in Etisalat Software Solutions (P.) Ltd (supra) for 2017-18 is not applicable in present facts of the case as discussed above. Aptus Software Labs Pvt. Ltd. 21. The ld. AR made the following submissions for exclusion of this company. Reasons for rejection Reference & case laws Functionally Different The Company is functionally different as it is engaged in rendering of Network operations center (NOC) 24X7 services, Cloud computing services, Infrastructure Management services and product engineering services. 1.....
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....tality of facts, we remit this issue to the AO/TPO for fresh consideration in the light of the submissions of the assessee and above decision in NTS Technologies Ltd. (supra). Elveego Circuits Pvt. Ltd. The ld. AR submitted the following reasons for exclusion of this company. Reasons for rejection Reference & case laws Functionally Different 1. The Company is functionally different as it is engaged in the business of electronics and semiconductor design services. 1. Relevant extract of website and submission at Pg 1398- 1400 of PB I & Relevant extracts of AR at Pg 1825, 1828 of PB II. 2. Reliance is placed on the following decision of Coordinate Bench, wherein Elveego is excluded on the ground that it is functionally different. ● NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru (TS-239 ITAT-2023 Bang-TP)for AY 2018-19(para 11.2 on page 2640of PB IV-Case law Compilation) ● Sprinklr India Pvt Ltd. vs DCIT, Circle 6(1)(1) Bengaluru (TS-25-ITAT-2023 Bang-TP) for AY 2018-19 (Para 12C at Pg 2732-2733 of PB IV of Case Law Compilation), 21.1 The ld. DR relied on the orders of lower authorities.....
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....ference & case laws Functionally Different 1.The company is functionally different as it is engaged in IT consulting and implementation. Mindtree is engaged in diversified operations and Segmental information is not available in the AR. 2. The company has global brand and owns Intellectual Property and therefore, cannot be compared to captive service provider like Appellant. 1. Submission at Pg 1405- 1410 of PB I& Relevant extracts of AR at Pg 1864, 1869 1872-1873, 1881 of PB II. 2. Reliance is placed on following decision: ● Appellant's own case for AY 2017-18 in IT(TP)A No.s 238/Bang/2021 (para 40.27 & 40.28 on page 2645- 2646of PB IV-Case law Compilation) ● M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range - 7, Bengaluru IT(TP)A No. 178/Bang/2022 for AY 2017- 18(Para 5 at Page 2241 of PB-III-Case law compilation). Since, profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable. Substantial Onsite Operations 3. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (59.67%), FY 2016-17 (60.83%) & FY 2015 16 (52.70%). T....
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..... It has substantial revenue from Aquaculture. Whereas the Appellant is a captive software development service provider. 1. Relevant extract of website and submission at Pg 1416-1418 of PB I &Relevant extract of AR at Pg 1799- 1802 of PB II. 2. The Appellant relies on the following decisions of the Honourable ITAT wherein it was held that Acewin Agriteck Ltd is functionally different: ● M/s. NTS Technology Services Pvt Ltd. Vs DCIT, Bengaluru TS-239-ITAT 2023 Bang-TP for AY 18-19 (Para 11.5.5 on Page 2684 of PB IV-Case law Compilation) ● M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT 2022 Bang-TP-for AY 2017 18(Para 15 at Page 2179 of PB III-Case Compilation). 24.1 The ld. DR relied on the orders of lower authorities. 24.2 Considering the rival submissions, this company has been excluded in the case of NTS Technology Services Pvt Ltd (supra) by the coordinate Bench of the Tribunal and observed as under :- 11.5 Acewin Agritech Ltd. 11.5.1 The Ld.AR submitted that this company is engaged in software development and information technology outsourcing company, wherein the core business of this company is Enterprise Application ....
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....logy outsourcing company and therefore as the entire revenue is categorised under one single segment, it is not comparable with the captive service provider like that of assessee before us that renders its services on a cost plus model with its AE. We accordingly reject this comparable and direct the Ld.AO/TPO to exclude from the final list. " 24.3 Respectfully following the above decision, we direct the AO/TPO to exclude this company from the comparables list. Tata Elxsi Ltd. 25. The ld. AR referred to the following written submissions for exclusion of this company which is as under :- Reasons for rejection Reference & case laws Functionally Different 1. The Company is functionally different as it is engaged in Embedded product design, Industrial design, Visual Computing Labs, and Systems Integration. 2. The Company has global brand image and has paid brand fees of Rs. 417.48 lakhs to Tata Sons Limited for AY 2018-19. 3. There is vast difference between the profile of Tata Elxsi and the Appellant. 1. Submission at Pg 1428- 1436 of PB I& R....
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....e orders of lower authorities. 40.34 We have considered the rival submissions and perused the material on record. The ld. DRP has discussed the issue in detail. We hold that his company is functionally dissimilar following the decision of the coordinate Bench of the ITAT Hyderabad in the case of Infor (India) Pvt. Ltd. [2022] 143 taxmann.com 68 (Hyderabad - Trib.) noted supra. The AO/TPO is directed to exclude this company." 26.2 In view of the above, and since the facts are same as in the AY 2016-17, following the above decision, we direct the AO/TPO to exclude this company from the comparables. Wipro Ltd. 27. The ld. AR referred to the following written submissions for exclusion of this company which is as under :- Reasons for rejection Reference & case laws Substantial related party transactions 1. The Company has substantial RPT for FY2017-18 (15.97%)and thus fails RPT filter of 15%. 1. Submission at Pg 1422-1423 of PB I& Relevant extracts of AR at Pg 1935, 1942-1949of PB II(Computation of RPT is given at Pg 30 of the Note). Functionally Different 2. The Company is functionally different as it is not engaged in renderi....
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....ng-TP), wherein Threesixty Logica has been rejected as it fails RPT filter. (Para 23 on pg 2762 of of PB-IV-Case law Compilation) Functionally Different 2. The Company is functionally different as it is engaged in rendering only "software testing services" which is not comparable to the "software development services" rendered by the Appellant. 3. The Company renders services such as Quality Assurance, Quality Engineering, Digital Innovation, Automated Solutions and Transformations. 1. Submission and website extracts at Pg 1451-1450 of PB I& Relevant extracts of AR at Pg 1920, 1923 of PB II. 2. The Appellant relies on the following decisions of the Honourable ITAT wherein, it was held that Threesixty Logica Testing Services Ltd is functionally different: M/s. NTS Technology Services Pvt Ltd. vs DCIT, Bengaluru (TS-239-ITAT 2023 Bang-TP) for AY 18-19 (Para 11.7.5 at Page 2689 of PB-IV-Case law Compilation) 28.1 The ld. DR relied on the orders of lower authorities. 28.2 Considering the rival submissions, we note this company has been excluded by the Tribunal in the case of NTS Technology Services Pvt Ltd (supra) observing as under :- ....
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.... 2. E-Zest Solutions Limited 3. Toxl Technologies Pvt. Ltd. 4. Rheal Software Ltd. 29.1 Before us, the ld. AR submitted that these above companies or functionally similar to the assessee's business and passes all the filers applied by the TPO therefore be included. The DRP did not consider the request made by the assessee during the proceedings before the DRP. Considering the rival submissions we remit this issue to the ld. TPO for examination a fresh and assessee is directed to furnish necessary documents in support of its claim, since the other issues are also remitted to TPO. Ground No. 5(v) is allowed for statistical purposes. 29.2 The other two companies i.e., Kals Information Systems Ltd. and Sankhya Infotech Ltd. were not pressed by the ld. AR. 30. Ground No.6: The ld. AR submitted that the TPO has wrongly computed the margin in the case of Harbinger Systems P. Ltd. and submitted that the TPO has given incorrect treatment of forex gain, bad debts, donation, etc. and submitted that the correct margin is 7.37% instead of 11.65%. Considering the submissions, we remit this issue to the TPO for calculation of the correct margin. Market S....
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....e, market research and business administration to corporate and non-corporates. Further the revenue from operations have been segmented under one heading at page 4540 without giving any segmental details. The only bifurcation of revenue in schedule 20 at page 4546 gives is service charges (local) and service charge (export). From the above it is clear that all the revenue earned by this company from consultancy and advisory charges in the field of market research, business administration and finance are clubbed together. The assessee before us is only providing marketing services to its AEs in respect of the presales activities as per the functions reproduced hereinabove which has not been disputed by the Ld. TPO as observed from para 10 of the 92CA order. The DRP included this comparable by observing that assessee also undertakes similar services in advertising, marketing, consulting in creating awareness of the product and therefore is functionally similar with the company. This observation of the DRP is contrary to the functions described at page 761 of the paper book carried out by assessee under the marketing support service segment. We therefore hold this comparable to be not....
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.... and incurs revenue from new and existing customers. The sales and marketing solutions offered by this company also include sale of data and related services. In our considered opinion, these functions cannot be compared with the limited services rendered by assessee to its AEs. We accordingly direct this comparable to be excluded. (iii) Pressman Advertising Ltd. It is submitted that the primary business activity of Pressman is providing advertising services, selling of space for advertisement in print media. It has earned revenue solely from advertising services (such as corporate advertising, brand advertising, financial advertising, social advertising, government advertising, media buying). This being the case, the company cannot be comparable to marketing support functions provided by the Assessee. Reliance in this regard is placed on the decisions of coordinate bench of this Tribunal in case of Radisys India Ltd. v. Dy. CIT [2022] 145 taxmann.com 294 (Bang. - Trib.) for the AY 2017- 18. The assessee therein was engaged in providing similar service as the assessee before us. This Tribunal directed exclusion of this company from the final list....
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....ave perused the submissions advanced by both sides in light of records placed before us. We note that this company is providing advertising services and the principle business activity has been described at page 4868 of the paper book in the annual report to be advertising and marketing communications. The revenue recognition by this company has been mentioned to be an advertising agency catering services to much number of clientele. We therefore do not find this comparable to be functionally similar with that of assessee who is a captive service provider. Accordingly, this comparable is directed to be excluded from the final list. (v) Majestic Research Services & Solutions Ltd. It is submitted that Majestic is engaged in market research services. It offers customer service evaluation, mobile analytics, eye tracking, agricultural research etc. It offers a suite of customized solutions that cater to business at various stages of product development or launch across the product life cycle. It offers a wide range of qualitative and quantitative research services. It is involved in high-end services like research services, data analytics, product dev....
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....d in providing digital solutions, analytical solutions (data analytics) which are not akin to the services rendered by the Assessee. It derives its income primarily from advertising, communication, publicity and merchandising and undertakes consultancy services and training. It is submitted that an advertising agency undertakes functions such as attracting clients who are advertisers, developing an advertising strategy, creation of advertisements by a creative team consisting of writers, designers and copy writers. They also undertake research activities to understand a client's market situation, competition, customers in the process of planning an advertisement campaign etc. Therefore, the aforementioned activities are not similar to the functions performed by the Assessee in the nature of product marketing, targeted campaign creation and management, public relations, customer and associate lead generation and distribution, etc. Further, it also uses a separate charging mechanism for services rendered by it to its customers, and revenue is recognised based on such charging mechanism (outsourcing in nature). The company has also entered into an agreement with its customers unde....
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.... HT Mobile Solutions Ltd TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers). 1.The financial data relating to the company is available in the public domain. 2.The company is functionally similar as it providing digital marketing services and enterprise solutions to brands and businesses. The company also provides services such as mobile marketing, social media marketing, advertising, mobile CRM and loyalty campaigns. 3.The company passes all filters applied by the TPO. (Relevant extract of AR at Pg 2059, 2057 2064 of PB II &submission at Pg 1513-1514 of PB I) Killick Agencies & Marketing Ltd. TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers). 1. The company is functionally similar as it is acting as agent for various foreign principals for sale of various equipments and offers after sales services. 2. The company passes all filters applied by the TPO.(Relevant....
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....by the assessee is substantially more than the comparable companies/ sector industry norms. The depreciation cost is around 4.07% which is higher than the average of 3 years of final comparables which is at 3.21%. He relied on the following decision in support of its contention: ● Appellant's own case for AY 2016-17 in IT(TP)A No.s 238/Bang/2021 & AY 2017-18 in IT(TP)A No.s 238/Bang/2021 ● PCIT v Novell Software Development India (P.) Ltd [2021] 126 taxmann.com 29 (Karnataka) - The Karnataka HC directed to exclude depreciation from operating cost. 34.1 In AY 2010-11, the ITAT in appellant's own case has upheld the direction of DRP to grant depreciation adjustment - 34.2 Considering the rival submissions, similar issue in assessee's own case for AY 2016-17 & 2017-18 (supra) was decided by coordinate Bench of the Tribunal as under ::- "17.4 In assessee's own case for AY 2010-11, [2015] 64 taxmann.com 468 (Hyd. - Trib.) the Hyderabad Tribunal on this issue held as under :- "9.3 As regards ground No. 4, Ld. AR submitted that depreciation adopted by assessee was at higher side due to the fact that the estimated life o....
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....profit margin in the open market. So also, in terms of Rule 10B(3), an uncontrolled transaction shall be considered comparable if none of the differences between the comparable companies and the controlled transaction are likely to materially affect the profit arising from such transactions in the open market or reasonably accurate adjustments can be made to eliminate the material effect of such differences. Since the respondent has a policy of charging a higher rate of depreciation as compared to the companies selected by the TPO, there is a definite impact on the net margins of the respondent as compared to the comparable companies. Thus, there is a need for making an adjustment to eliminate the differences in the accounting policies of the appellant and the comparable companies, in terms of the above Rules, especially given that in the bench marked international transaction is the sales by a captive service provider to its associated enterprises, on which depreciation would have no bearing and thus can be excluded altogether. 8. The Tribunal, by placing reliance on the Hyderabad Bench of the Tribunal in the case of MARKET RESEARCH TOOLS PVT. LTD. has held that the Dispu....
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....s decisions in Analog Devices India P. Ltd. v. DCIT [TS-816- ITAT-2016-Bang] and Intellinet Technologies India P. Ltd. v. /TO [TS-228-ITAT-2012(Bang)] where, in the cases of similar placed assessees, this Hon'ble Tribunal directed that a risk adjustment be granted. The Assessee has prayed for a direction to the TPO/AO to recompute the margins of the companies selected as comparables after taking into account the differences in the risks assumed by the Assessee and the said companies on the basis of the material that is and that may additionally be placed on record. 29. We find that the DRP has primarily rejected the plea of the Assessee in this regard on the ground that quantification of risk adjustment has not been given and in the absence of such quantification, the plea cannot be accepted. Besides the above, the DRP has also placed reliance on judicial pronouncements holding that risk adjustment cannot be allowed in the absence of proper and reliable computation of risk adjustment. We are in agreement with the conclusions of the DRP in this regard and find no grounds to interfere with its conclusions." 18.3 Respectfully following the above judgment, we remi....
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....e order of the lower authorities, we are of the view that the notional interest on receivable is an international transaction, therefore this argument of the assessee is rejected. The TPO has applied 6 months LIBOR + 300 basis points whereas the ld. DRP has directed for applying SBI fixed deposit rate. During the course of hearing, it was brought to the notice of both the parties that while calculating the notional interest on receivables, 6 months LIBOR + 300 basis points beyond the credit period shall be considered by the TPO for giving effect on this issue. 36.3 Following the above decision in assessee's own case (supra), we hold that notional interest on receivables is an international transaction. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the working capital adjustment (WCA) subsumes the outstanding receivables, no separate characterization is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate ....
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....aboratories Ltd [2020] 113 taxmann.com 6 (Hyderabad - Trib.)- Pg 2455of PB-III-Case law compilation ● Padmini Products (P.) Ltd vs DCIT, Circle 12(2), Bangalore [2020] 121 taxmann.com 237 (Karnataka)- Pg 2487-2488 of PB-III-Case law compilation ● Foodworld Supermarket vs DCIT, Circle-3(1)(1), Bangalore ITA Nos.2071, 2072, 2074 & 2075/Bang/2017 37.4 The Appellant relies on the decision of the Coordinate bench in the case of M/s. Altimetrik India Pvt. Ltd vs DCIT, Circle 1(1)(1), Bangalore (IT(TP)A No. 2511/Bang/2019)(Pg 2496 of PB-III- Case Law Compilation). It was held that the depreciation claimed by the assessee on goodwill acquired deserves to be allowed in accordance with law and the learned AO was directed to compute the depreciation. 37.5 The Appellant further submits that the Regional Director, Ministry of Corporate Affairs, South-East Region, Hyderabad represented by Registrar of Companies had filed a joint affidavit dated 28th October 2016 before the Hon'ble NCLT, stating that it had issued notice dated 16.08.2016 to the Income-tax department giving 15days time to offer comments/objections if any. In response to the said notice the D....
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.....Valuation was solely based on information given by management. The Valuer is an independent entity and free to consider the reliability and creditability of the information provided to him. He is free to make necessary modifications if required. Therefore, it is incorrect to say valuation is solely based on management's information(submissions at Pg 1610-1611of PB-I). 5. There is no justification in lieu of brand name to claim such high goodwill. The Appellant submits that valuation of goodwill was not based on brand name of the company but various other factors (submissions at Pg 1611-1612 of PB-I). 6. The valuation report does not separately delve upon the components of goodwill. The goodwill valuation is not justified separately. The Appellant submits that goodwill arising on amalgamation is anticipation of future income. The goodwill has been recognized as per the AS-14 issued by ICAI (submissions at Pg 1612-1613 of PB-I) 37.8 Further, with respect to DCF method of valuation of shares, the Appellant submits that there are three important inputs necessary. These are detailed below: 37.9 Step 1: Cash Flow Projections-The cash flows should reflect the best es....
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.... Development Corpn. [1997] 225 ITR 703 (SC) and CIT v. Woodward Governor India (P) Ltd. [2009] 312 ITR 254 (SC). 37.16 Considering the rival submissions, we note that the AO has not granted depreciation on goodwill. Since this is the third year of claim of depreciation on goodwill, in the first AY 2016-17 the AO has also not allowed depreciation on goodwill. The issue was dealt by this Tribunal in para 24 to 32.1. The relevant part of the findings is as under :- "32. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we note that, goodwill has arisen because of amalgamation scheme. The ld. AR submitted that assessee has recorded goodwill in the books of accounts on the difference between the net assets (total assets - liabilities) taken over by the assessee and consideration paid to the amalgamating company. The assessee claimed depreciation on the goodwill treating it as intangible asset. The AO and DRP did not accept the claim of depreciation on goodwill. During the course of hearing on different dates, both the parties argued extensively and filed written synopsis which are stated hereinabove. In the written ....