TaxTMI 
TaxTMI 
2025 (6) TMI 2151
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....peal filed by the revenue, for which petition for condonation of delay along with reasons for delay has been filed. After considering the petition filed by the revenue and also hearing both the parties, we find that there is a reasonable cause for the revenue in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the revenue for adjudication. 3. The assessee has raised the following grounds of appeal in IT(TP)A No. : 17/CHNY/2024: 1. Procedural irregularity and violation of principles of natural justice. 1.1. The Learned Assessing Officer ("Ld. AO") has grievously erred, in law by making a reference to the Learned Transfer Pricing Officer ("Ld. TPO") after the original limitation period of 18 months. As per the first proviso to section 153( 1) of the Income-tax Act, 1961 (the "Act") no assessment shall be made by the Ld. AO after 18 months from the end of the relevant assessment year (for assessment years commencing on 1 April 2018). Since the Ld. AO has made a reference to the Ld. TPO (23 February 2021) after the original limitation perio....
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....e filters applied by the Appellant; which are arbitrary in nature and not in accordance with the law: a) Companies having accounting year different from financial year of Appellant b) Companies having less than 75% of export turnover c) Companies having employee cost to sales less than 50% of sales 3.3. The Ld. CIT (A) / Ld. TPO / Ld. AO have erred, in law and facts, by additionally considering certain erroneous quantitative/ qualitative filters; which are arbitrary in nature and not in accordance with the law including a filter which should be rejected based on a judicial precedent in the Appellant's own case. 3.4 The Ld. CIT (A) / Ld. TPO / Ld. AO have erred, in law and in facts, by rejecting the following companies selected by the Appellant in its transfer pricing documentation based on unreasonable comparability criteria: a) Jindal Intellicom Private Ltd. b) R Systems International c) Kcube Consultancy Services Private Ltd. d) SQS India BFSI Limited 3.5 The Ld. CIT (A) / Ld. TPO / Ld. AO have erred, in law and in facts, by additionally selecting/ accepting the following companies as co....
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.... Corporate tax grounds 4.1 Without prejudice to the arguments against the adjustment made, the Ld. AO has erroneously arrived at a tax demand of INR 2,08,84,437 as against a tax demand of INR 1,94,87,302 by not considering advance taxes already paid, taxes deducted at source, credit for minimum alternate tax paid earlier and by undertaking certain other errors. 5. Other Grounds: The Ld. AO erred in initiating penalty proceedings under section 270A of the Act. Further, the Ld. CIT (A) has erred in law and facts by dismissing the ground undertaken by the Appellant with regards to abeyance of penalty proceedings initiated by the Ld. Assessing Officer. Further, The Appellant craves leave to add, supplement, amend, delete or otherwise modify any of the grounds stated hereinabove before commencement of or at the time of hearing. The revenue has raised the following grounds of appeal in ITA No. : 1715/CHNY/2024: 1. The order of the learned CIT (A) is contrary to law, facts and circumstances of the case. 2. The learned CIT (A) erred in accepting the documents not corroborated by evidence and which had not stood the test of....
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....O then passed the final assessment order dated 23.11.2021 (digitally signed on 25.11.2021) u/s. 143(3) r.w.s. 144C(3) r.w.s. 144B of the Act along with the computation of income and notice of demand, incorporating the TP adjustments proposed by the AO as additions to the returned income of the assessee without making any further adjustments. Subsequent to the final assessment order, the assessee had filed a rectification petition u/s. 154 on 03.03.2022, given short credit for TDS and excess interest u/s. 234B of the Act, which is pending disposal. 9. Being aggrieved by the order of the AO, the assessee had filed an appeal with the Ld. Commissioner of Income- Tax (Appeals) ['CIT(A)']. 10. Pursuant to the submissions undertaken by the assessee, the Ld.CIT (A) partially accepted the contentions of the assessee and passed an order on 12.03.2024. Additionally, a corrigendum to order was also passed by the Ld. CIT (A) dated 15.05.2024. Subsequent to the order passed by the Ld.CIT(A), the assessee had filed a rectification petition u/s. 154 on 15.05.2024 on the erroneous initiation of penalty. The Ld.CIT (A) accepted the assessee's petition and passed a rectification order on 12.07.....
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.... 5 years, it has a bearing on the cash flow and is operating in nature. Basis the same, the Ld. CIT (A) has upheld the TPO's views and treated amortization of goodwill as an operating expense. (page 67 of the factual PB - CIT (A) order) 15. The ld.AR submitted that the amount recorded as goodwill in the books of accounts of the assessee is the excess consideration paid in relation to the assets purchased by way of the amalgamation. The difference in purchase value treated as goodwill cannot be identified to any specific characteristic or value generating intangible that can support the operations of the assessee in the future and is a result of the accounting treatment. Further, undertaking reorganization of business is not a regular activity of the assessee. Hence, the resultant goodwill is non-recurring and an extra-ordinary item of expenditure which is not incurred for the purpose of rendering the services to AEs, i.e., its operations. 16. Accordingly, the expenses under consideration are not common business expenditures (goodwill arising out of a merger) that any third-party comparable companies would have incurred in the course of its business. 17. Further, the ld.AR ....
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.... acquisition of any company or self-generated by the assessee by considering its intangible like technical know-how, trade mark, patent etc. Further, all assessees do not have goodwill in their books of account. because it arises only in very few instances as stated by us in earlier part of this order and thus, definitely it is in the nature of extraordinary item which cannot be considered as part of operating cost of the assessee. Further, it cannot be said that amortization of goodwill does having bearing on operations of the assessee. Therefore, we are of the considered view that the Assessing Officer has erred in considering amortization of goodwill as operating in nature for the purpose of computing margin of the assessee to determine arms' length price of international transactions." ● Hospira Healthcare India Pvt. Ltd [ITA No. 469/Chny/2017] (page 31 & 32 of the legal PB) "10.3 We have considered the rival arguments and perused the TP documents. We agree with assessee submission that amortization of goodwill is an abnormal item arising out of business acquisition and therefore not part of operating expenditure. The Ld. AO/TPO in A.Y 2011-12 h....
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....cepts from annual report and website) ● Insufficient segmental information - The company is engaged in high-end software engineering services and consultancy related activities. However, there is no segmental information in the financials that carves out profitability from software development services vis-à-vis high end software engineering services. (page 458 of the factual PB) ● Judicial precedence: ● AMD India Private Ltd [IT[TP]A No. 775/Bang/2022] (page 148 & 149 of legal PB) - Rejected basis functional comparability "18.2 We have considered the rival submissions and perused the material on record. We note from the financial statements placed at page 1830-1837 of PB that the company's overview is as under:- "Our company is leading playing in offering, Product engineering, Digital Transformation and Automation and DevOps for clients across the globe. With two state-of-the-art facilities in India, the CMMI level 3 certified company caters to Fortune 500 clients in USA, Germany and Middle East markets. The Company caters to a wide range of segments in the industry, including Healthcare, Compliance, Storag....
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....e of Rs. 8,00,53,350/- from it's AE. From this it is clear that this company is rendering services to non-AE customers also, whereas the assessee before us is a captive service provider only catering to the requirements of its AE. Under such circumstances we do not deem it fit to be considered in the final set of comparables. Accordingly, this comparable is directed to be excluded. ● M/s. Xchanging Solutions Ltd [IT(TP)A No. 292/Bang/2022] (page 264 to 267 of legal PB) ● HP PPS Services India Pvt Ltd [IT(TP)A No. 78/Bang/2021] (page 332 & 341 of legal PB) 25. Per contra the ld.DR relied on the orders of the AO and that of ld.CIT(A). 26. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. On perusal of the financials the company we note that it is engaged in the business activity involved in diversified unrelated activities such as high-end software engineering and consultancy services such as Product Engineering, Digital Transformation, Automation and DevOps. Apart from that the company is al....
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....per NIC Code No. 99831319 allotted, "other professional, technical and business services" and the turnover is Rs. 2800.62 crores during the year from the core activity of "other IT consultancy services". The comparable company is engaged in global business consulting and IT services solutions, the major revenue is received from South Africa... 17.3 Considering the above activity undertaken by Nihilent Ltd., it cannot be considered as a comparable with assessee company. Therefore, the AO/TPO is directed to exclude this company on the basis of functional dissimilarity." ● Genesys Telecom Labs India Pvt. Ltd [IT(TP)A No. : 38/CHNY/2024 (page 97 to 101 of legal PB) - Rejected basis turnover filter - facts similar to Assessee's case "4.. (A) In Ground No. 4 and its sub-grounds, assessee is seeking application of upper turnover filter and thereby praying for exclusion of following five companies from the list of comparables :- i) Larsen and Turbo Infotech Ltd., ii) Nihilent Ltd. iii) Mindtree Ltd. iv) Tata Elaxi Ltd. v) Cybage Software Pvt. Ltd. 6.2 We have hear....
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....jected the assessee's contentions and concluded that the company is engaged in the exporting software mainly on man hourly basis. Further the TPO held that revenues are directly proportional to the number of employees. So, there is no reason why bigger companies cannot be compared with the taxpayer as size does not matter in the above type of business model. (page 386 of the factual PB) 32. The Ld. CIT (A) rejected the assessee's contentions and stated that given TNMM method allows for flexibility in selection of comparable with broader comparability criterion and basis the detailed rebuttals provided by the TPO in the TP order, the comparable selected by the TPO are accepted. (page 61 of factual PB, para 4.7.3 - Page 14 of TPO's order) The ld.AR for the assessee submitted that the comparable company is: ● Functionally different - engaged in provision of product engineering services, transformational services, support services and provides diversified digital solutions. (page 474 of the factual PB) ● Earning super normal profits - Cybage is earning supernormal profits which is an aberration from the industry. The Company earns a weighted average ....
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....plied lower turnover filter by excluding companies having less than crore turnover. When the TPO has applied lower turnover filter ought to have applied upper turnover filter also. As per the Dun Bradstreet classification of software industry, the companies could be classified under three major heads depending on the turnover the company viz., a. Less than Rs. 200 crores categorized as small size companies b. Rs. 200 crores to Rs. 2,000 crores categorized as medium size companies. c. More than Rs. 2,000 crores categorized as large size. 6.4 In light of the aforesaid reasoning and the judicial pronouncements cited supra, since the turnover of the aforesaid five companies exceeds Rs. 200 crores, we direct the TPO to exclude the same from the comparable list. Therefore grounds Nos. 4, 4.1, 4.4, 4.5, 4.6 & 4.7 are partly allowed. It is ordered accordingly." ● Euronet Services India Pvt Ltd [IT(TP)A No. 962/Bang/2022] (page 638 and 639 of legal PB) 33. Per contra the ld.DR relied on the orders of the AO and that of ld.CIT(A). 34. We have heard the rival contentions perused the material avai....
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....the annual report of the company neither provides the segmental break-up, nor does it provide the revenue break-up from the various activities undertaken. (page 464 of the factual PB) ● Owns significant intangibles: The Company holds significant intangible assets in the form of patents and trademarks across various jurisdictions. As per the annual report of the company, it is currently maintaining over 20 different patent applications in various international jurisdictions. (page 465 and 466 of the factual PB) ● Upper turnover filter - The Company's turnover for the subject year is Rs. 125 crores approx. Given that the TPO had applied a lower turnover filter, an upper turnover filter is also to be applied. Accordingly, companies with turnover greater than Rs. 200 Crores are to be excluded from the comparable set. For the subject year, Exilant has a turnover more than Rs. 330 crores approx. and is to be rejected from the comparable set. (page 1253 of the annual report PB) ● Judicial precedence: ● Optiva India Technologies Pvt. Ltd. [ITA No. 194/PUN/2021] - (page 604 of legal PB) - Rejected basis function....
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....ized as small size companies b. Rs. 200 crores to Rs. 2,000 crores categorized as medium size companies. c. More than Rs. 2,000 crores categorized as large size. 6.4 In light of the aforesaid reasoning and the judicial pronouncements cited supra, since the turnover of the aforesaid five companies exceeds Rs. 200 crores, we direct the TPO to exclude the same from the comparable list. Therefore grounds Nos. 4, 4.1, 4.4, 4.5, 4.6 & 4.7 are partly allowed. It is ordered accordingly." ● Euronet Services India Pvt Ltd [IT(TP)A No. 962/Bang/2022] (page 638 and 639 of legal PB) 37. We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties. On perusal of the financials the company we note that it is engaged in broad spectrum of services, which include Software Development, Business IT services, application development and maintenance, business process management, business technology consulting, cloud and product engineering and holds significant intangible assets in the form of patent....
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....umstances of the case for AY 2018-19 as well. Accordingly, Ground no. 3.6 of the Assessee stands allowed." 39. The ld.DR submitted that the order of the Ld. CIT (A) was to be set aside and restored to the AO since a remand report was not obtained by the Ld. CIT (A) u/s. 46A(3) of IT Rules while accepting fresh submissions regarding the segmental approach adopted by the assessee. 40. Per contra the ld.AR submitted that the assessee referenced the submissions made before the TPO and Ld. CIT(A), which included the same segmental information and segmentation certificate: a) TP report wherein segmental data is captured (Page 876 of factual PB) b) Submission undertaken as a response to the SCN issued by the TPO (Page 550 of factual PB) c) Rectification application undertaken before the TPO (Page 365 of factual PB) d) Submission undertaken before the Ld. CIT (A) (page 97 of factual PB) 41. In the submission undertaken by the Assessee before the Ld. CIT (A) (Page 75 & 76 of factual PB), the Assessee only explained that the TPO had allowed the segmentation approach undertaken by the Assessee in a subsequent year, i.e., AY 2021-22, and that the sa....