TaxTMI 
TaxTMI 
2026 (8) TMI 1332
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....e Dispute Resolution Panel ('DRP') erred on facts and in law in making an addition of Rs. 11,97,15,774 and Rs. 6,34,82,242 to the international transactions of provision of data processing and software services respectively of the Appellant based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act'). 1.2. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in disregarding the various submissions made by the Appellant without providing any cogent reasons thereof and also erroneously rejected the benchmarking analysis and comparable companies selected by the Appellant without appreciating the fact that such selection was based on contemporaneous data and the transfer pricing study report prepared and maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules'). Inclusion of comparable for Data Processing & Support services segment: 1.3.1 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in applying the filter of diminishing revenue and persistent loss as well as different financial year ending and re....
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....law in not allowing appropriate adjustments to the comparables as was compulsorily required to be done in accordance with the provisions of Rule 10B(1)(e) (iii) of the Rules, to account for difference between international transactions and the alleged comparable uncontrolled transactions selected by the learned AO/ΤΡΟ. 1.8. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in arbitrarily rejecting the without prejudice contention of the Appellant of computing the margin of alleged comparable companies based on multiple year financial data. 1.9. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in not appreciating the fact that there was no intention whatsoever on the part of the Appellant to shift profits outside India. 1.10. The learned AO/TPO under the directions of the Hon'ble DRP erred in being inconsistent in its approach of computation of margins of the assessee and the alleged comparable companies by not considering the revised margins submitted by the assessee based on similar income/expenses considered as operating by the assessee as was used by the ....
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.... which bills were not received stood reversed in the subsequent year, as the entire year-end provision of Rs. 66,71,400 was reversed at the beginning of the subsequent year and accordingly was considered in computing income of the subsequent year. 2.3.4. The learned AO erred on facts and in law in disallowing the said item without giving any opportunity to the Appellant to explain the position. The Appellant therefore prays that the addition in relation to repairs and maintenance expenses made by the learned AO while giving effect to the order of the Hon'ble DRP be deleted. Ground 3 - Deduction for repairs and maintenance cost - alternate to ground no. 2 3.1. Without prejudice to Ground 2 above, the learned AO erred on fact and in law in not allowing further deduction under section 10A/ 10B of the Act from the total income computed by him, particularly on account of the disallowance of Rs. 29,47,184, referred to in ground 2 above. 3.2. Without prejudice to 3.1 above, the relief should be granted in assessment year 2010-2011 wherein the Company has reversed provision of Rs. 66,71,400 and offered the same for tax. The Appellan....
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....withdraw all or any of the grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law. Additional Grounds (Raised vide letter dated 16 November 2022) Transfer pricing order passed by Additional Commissioner of Income-tax (Transfer Pricing) - 1(3), Mumbai is beyond jurisdiction 1. The order under section 92CA(3) of the Act passed by the Additional Commissioner of Income-Tax (Transfer Pricing) -1(5), Mumbai is without jurisdiction and bad in law since Additional Commissioner of Income-Tax (Transfer Pricing) cannot be a TPO as per section 92CA of the Act for the year under consideration; 2. The Ld. AO erred in a passing draft assessment order in the case of the Appellant in lieu of the final assessment order given that the Appellant does not fall within the definition of "eligible assessee" as per Section 144C of the Act as the transfer pricing order is invalid and thus entire assessment is bad in law as provisions of section 144C(1) of the Act are not applicable to the Appellant, Final assessment order passed is time barred ....
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....td which was accepted by the appellant in the transfer pricing study as a comparable company in respect of the Data Processing and Support Services Segment. Rejection of comparable for Data processing & support services segment: 1.4.1 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in considering the following comparable companies in respect of Data Processing and Support Segment without taking into consideration the differences in the functions performed, assets employed and risks undertaken between the Appellant and the alleged comparables: * E4e Healthcare Solutions Ltd (Nittany Outsourcing Services Pvt Ltd) * Infosys BPO Ltd * ICRA Online Ltd * Cosmic Global Ltd Rejection of comparable for Software support services segment: 1.4.2 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in considering the following comparable companies in respect of Software Support Services Segment without taking into consideration the differences in the functions performed, assets employed and risks undertaken between the Appellant and the alleged com....
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....d AO has erred in charging interest of Rs. 1,49,70,496. The Appellant prays that the AO be directed to grant relief in respect of levy of interest under section 234B of the Act, in consequence to relief granted in respect of the aforesaid grounds of appeal. Ground 4 - Levy of interest under section 234D of the Act - The said ground is consequential in nature 4.1. On the facts and in the circumstances of the case, the learned AO has erred in charging interest of Rs. 2,01,958 under section 234D of the Act. The Appellant prays that the AO be directed to grant relief in respect of levy of interest under section 234D of the Act, in consequence to relief granted in respect of the abovementioned grounds of appeal. Ground 5 - Consequential reliefs 5.1. The Appellant prays that the AO be directed to grant all consequential reliefs arising out of reliefs from this appeal. 5.2. The Appellant craves leave to add to, alter, amend or withdraw all or any of the grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law. ....
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....at Rs. 6,00,91,689/-. The case was selected for scrutiny for both the years under consideration and notice u/s 142(1) was issued to the assessee calling for various details in respect of the assessment proceedings. In response to the statutory notice, assessee furnished requisite details as called for. The Ld. AO observed that assessee had entered into international transaction with its associated enterprise for both years that exceeded the threshold limit. 2.1 Accordingly, a reference was made to the Transfer Pricing Officer to determine the arm's-length price of the transaction for both years under consideration. Upon receipt of the reference, the Ld. TPO called upon assessee to furnish details of the international transaction in Form 3CEB. 2.2 The Ld. TPO observed that, Franklin Templeton Holdings Ltd Mauritius was 100% subsidiary of Templeton Asset Management Ltd Singapore. And that, Franklin Templeton Holdings Ltd Mauritius is the holding company of assessee in India. The Ld.TPO observed that, assessee is primarily engaged in providing back-office processing services and software development services to the group companies worldwide. 2.3 The details of international t....
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....articulars Wtd. Avg. Margin (%) 1 Akshay Software Technologies Limited 6.17% 2 Aztecsoft Limited 8.38% 3 Birla Technologies Ltd. -1.77% 4 CG Vak Software & Exports Limited 5.73% 5 Computech International Ltd. 1.94% 6 Helios & Matheson Information Technology Ltd. 28.52% 7 Infosys Technologies Ltd. 41.09% 8 LGS Global Ltd. (Lanco Global) 22.00% 9 Larsen & Toubro Infotech Limited 16.97% 10 Mindtree Ltd. 10.91% 11 PSI Data Systems Ltd. 2.94% 12 Persistent Systems Private Ltd. 26.40% 13 Powersoft Global Solutions Ltd. 19.26% 14 Prithvi Information Solutions Ltd. 7.03% 15 Quinnox Consultancy Services Ltd. 11.70% 16 Quintegra Solutions Ltd. 18.20% 17 R S Software (India) Ltd. 9.66% 18 R Systems International Ltd. 11.82% 19 Sagarsoft (India) Ltd. 13.49% 20 Sasken Communications Technologies Ltd. 15.90% 21 Sonata Software Limited 25.54% 22 Tata Elxi Ltd. 21.44% 23 Thirdware Solutions Ltd. 23.31% 24 Vama Industries Limited 8.35% Arithmetic Mean 14.79% Based ....
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....ee used transactional net margin method to compute the margin of the services rendered under Data Processing Service and Software Development Service Segment by using OP/OC as PLI. Data Processing Service Segment 6.1 The assessee thus computed its margin under Data Processing Service Segment at 12.48%. It was noted that assessee used following 12 comparables with an arithmetic average mean of 16.55%: SI. No. Name of the Company Wtd. Avg. 1 Cosmic Global Ltd. 26.55% 2 Aditya Birla Minacs Worldwide Ltd. (Formerly Transwork Information Services Ltd.) 9.32% 3 Datamatics Financial Services Ltd. -3.31% 5 ICRA Techno Analytics Ltd.- (segmental) 13.81% 6 R Systems International Ltd. (seg.) 10.70% 7 Caliber Point Business Solutions Ltd. 22.45% 8 Infosys BPO Ltd. 22.32% 9 Informed Technologies Ltd. 16.15% 10 Crossdomain Solutions Ltd. 28.59% 11 e4e Healthcare Solutions Ltd. (Nittany Outsourcing Services Pvt. Ltd.) 26.64% 12 Inhouse Productions Ltd. 8.82% Arithmetical Mean 16.55% Based on the above the assessee treated its margin under the Data Processing Servic....
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....d. 16.30% 5 Persistent Systems Private Ltd. 29.47% 6 R S Software (India) Ltd. 10.29% 7 Sasken Communications Technologies Ltd. 19.42% 8 Tata Elxi Ltd* (Seg Software development & services) 17.13% 9 Thirdware Solutions Ltd. 28.87% 10 FCS Software Solutions Ltd 47.68% 11 Infosys Technologies Ltd 45.47% 12 KALS Information systems Limited* (Segmental: Application Software) 34.41% 13 Larsen and Toubro Infotech Ltd. 19.24% 14 Sonata Software Limited 35.99% 15 Wipro Ltd. 27.55% Arithmetic Mean 24.12% The Ld. TPO thus proposed an adjustment of Rs. 5,95,81,859/-. Aggrieved by the order of the Ld. AO the assessee is in appeal before the Tribunal. 7. At the outset, the Ld. AR submitted that assessee has filed an application for admission of additional grounds on 16.11.2022 raising following issues for both years under consideration: Transfer pricing order passed by Additional Commissioner of Income-tax (Transfer Pricing) - 1(3), Mumbai is beyond jurisdiction 1. The order under section 92CA(3) of the Act passed by the Additional Commissioner of Inco....
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....y, the applications dated 16/11/2022 for both the years under consideration are dismissed as not pressed. Assessment Year 2009-10 8. The Ld. AR submitted that Ground No.1 raised by the assessee is in respect of the comparables sought for exclusion and inclusion under the data processing service segment and software service segment. A. Data Processing Service Segment: The comparables sought for inclusion: * NIIT Smartserve Ltd. * KPIT Cummins Global Business Solutions Ltd. * Allsec Technologies Ltd * R-Systems International Ltd B. The comparables sought for exclusion: * Cosmic Global Ltd * e4e Healthcare Solutions Ltd. (Nittany outsourcing Services Pvt Ltd.) * Infosys BPO Ltd. * Caliber Point Business Solutions Ltd. C. Software Development Service Segment: The comparables sought for exclusion: * Bodhtree Consulting Ltd. * Infosys Technologies Ltd. * KALS Information Systems * Wipro Limited * Genesys International Corporation Ltd. 8.1 Before we undertake the comparability analysis, it is sine qua non to understand the functions perfo....
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....kind of people takes time. The delay in recruitment process leads to loss of revenue due to consequential delay in migration. Such risks are bone by FTIS. 4.2.4 Market risk Market risk arises due to uncertainty in the structure of the market, demand patterns and needs of the customers, costs, pricing etc. FTIS does not face significant market risks as it provides services to overseas FTI Group entities. 4.2.5 Credit risk Credit risk is the risk arising from non-payment of dues by customers. As the customers of FTIS are the overseas FTI Group entities, FTIS does not face any significant credit risk. 4.2.6 Currency risk Currency risk is the risk of any adverse fluctuation in exchange rates, which would eventually have a negative impact on the profitability. FTIS receives service fee from overseas FTI Group entities in foreign exchange but incurs expenses in Indian Rupees. Accordingly it bears normal foreign exchange currency risks. 4.2.7 Risk of disruption of infrastructure Outsourcing business models rely heavily on the internet/telecommunications infrastructure. Accordingly, FTIS faces the risk of a disruption ....
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....ort of the argument that a company which is functionally comparable may not be rejected merely because it is a loss making company unless it is persistently loss making: 1. Welspun Zucchi Textiles Ltd [ITA No. 1286 of 2014 (Bombay High Court)] [Refer page no B142 - B146 of the Legal Paper Book] 2. Goldman Sachs (India) Securities Pvt. Ltd. [ITA No. 2222/HC/Bom/2013 (Bombay HC)] [Refer page no B147 - B150 of the Legal Paper Book] 3. TPG Capital India (P.) Ltd. [2017] 79 taxmann.com 101 (Mumbai - Trib.) - Page 56 of the Supplementary Paperbook 4. Bobst India (P.) Ltd. [2015] 63 taxmann.com 339 (Pune - Trib.) - Para 5.4 - Page 64 to 65 of the Supplementary Paperbook 8.3 Similar was the argument advanced by the Ld. AR for NIIT Smartserve Ltd. He placed reliance on the annual report at page No.370 of the paper-book wherein the cost plus margin over 3 years of this comparable is stated to be as under: AY 2007-08: P/L: -25,700,000; NCP margin: -4.37% AY 2008-09: P/L: -36,400,000; NCP margin: -6.42% AY 2009-10: P/L: 12,466,667; NCP margin: 2.82% 8.4 In respect of Allsec Technologies Ltd. the Ld. AR submitted that this com....
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....Rules 1962 the data relevant for a time period for 2 preceding years is to be considered. In the present facts of these companies in one of the year comparables has declared profit. We also refer to the decision of Hon'ble Chandigarh Special Bench in case of DCIT Vs. Quark Systems Pvt. Ltd. reported in (2010) 132 TTJ 1, wherein it was held that consistently loss making entities cannot be solely rejected for the fact that they have incurred consistent losses. 8.6.4 Having regards to the ratio laid down therein and also considering the fact that one of the year amongst the 3 preceding years, these companies has earned profit, we do not uphold the action of the Ld. AO in rejecting these comparables. We thus, direct the Ld. AO/TPO to include KPIT Cummins Global Business Solutions Ltd., NIIT Smartserve Ltd. & Allsec Technologies Ltd. into the final list of comparables. R-Systems International Limited 8.7 This comparable was excluded by the Ld. TPO merely because it followed calendar year for its accounting purposes. The Ld. AR submitted that Hon'ble Mumbai Tribunal in case of Morgan Stanley Advantage Services Private Ltd. in ITA No. 626/Mum/2014 and decision by Hon'ble Delhi Tribu....
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....ions India Pvt. Ltd.) [ITA No. 626/MUM/2014 (Mumbai ITAT)] (Refer Page B33 - B48 of the Legal Paper book] 2. Thomson Reuters India Services Pvt Ltd [IT(TP)A No. 231 and 266/Bang/2014] dated 25 February 2025 (Mumbai ITAT) (Refer Para 43 to 45 Page 97 to 98 of the Supplementary Paperbook) 3. ICICI Bank Limited [2025] 180 taxmann.com 804 (Mumbai - Trib.) Refer page No. B338 to B356 of Legal paperbook - II) 9.1.3 On the contrary, the Ld. DR relied on the orders passed by the authorities below.We have considered the submissions of both sides and perused the material available on record. 9.1.4 From the perusal of the annual report of Cosmic Global Ltd for the financial year 2008-09, forming part of the paper book from pages 1310-1327, we find that the company has significant payment, i.e. Rs. 3,00,25,326/-, towards translation charges, which constitutes 57.31% of the total operating expenditure of Rs. 5,24,15,463. Thus, the above payment signifies that the company has an outsourcing model which is different from that of the assessee. 9.1.5 We find that the Hon'ble Jurisdictional High Court in PCIT v/s PTC Software India Private Limited, reported in (2019) 1....
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....sidered due to functional dissimilarities. We direct the Ld. AO/TPO to exclude E4e Healthcare Solutions Ltd. from the final list. 9.3 Infosys BPO Ltd. The Ld. AR submitted that this company is functionally not similar with that of the assessee as it is in the business of improving competitive positioning by managing the business of its clients. The Ld. AR submitted that such a giant company cannot be compared with a captive service provider like assessee which is only rendering data processing services to its AE. 9.3.1 The Ld. AR further submitted that this company has a huge turnover of Rs. 10,81,00,00,000/- as compared to Rs. 83,00,00,000/- earned by assessee under this segment. He submitted that this company also has a very high brand value and marketing expenses which substantially reveals that it is into sales and marketing activities and also is into brand building and advertisements. 9.3.2 The Ld. DR on the contrary relied on the orders passed by the authorities below. We have perused submissions advanced by both sides in the light of records placed before us. 9.3.3 It is noted that Ld. AR placed reliance on following comparables to support exclusion this c....
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....um/2012 vide order dated 06.06.2019, wherein these comparables were excluded as functionally not similar to a captive services provider. It is also noted that based on decision, this Tribunal in the preceding assessment year excluded these comparables by observing as under: "In case of Infosys technologies Ltd., & Wipro Ltd., this Tribunal in case of Dun& Bradstreet Information Services India Pvt. Ltd., vs DCIT (supra) observed as under: 4.3 Infosys Technologies Limited It has been submitted by Ld, Sr. Counsel that this entity is not functionally comparable due to various factors viz. its size, turnover, brand value, scale of operations, diversified activities and owning of intangibles. Reliance has been placed on the following judicial pronouncements in support of exclusion of the same: - i) Telcordia Technologies India P. Ltd. [Mumbai Tribunal ITA No.7821/Mum/2011 AY 2007-08] ii) Sumtotal Systems India P. Ltd. [ITA No.1710/Hyd/2011 09/05/2014 AY 07-08] iii) Adaptec India Pvt. Ltd. [ITA No. 1801/Hyd/2009 31/01/2013 AY 2007-08] Upon perusal, we find force in the arguments of Ld. Sr. Counsel. The coordinate bench of Mumb....
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....bmitted that this company is a full-fledged entrepreneur and accordingly cannot be compared with a capital service provider like assessee. 10.2.1 On the contrary, the Ld. DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 10.2.2 Admittedly, this company is in the business of software product and was engaged in providing open and end-to-end web solutions software consultancy and design and development of software, using latest technologies. It is noted that these companies were excluded by coordinate Bench of this Tribunal for assessment year 2007-08 and 2008-09 (supra) on identical reasoning. 10.2.3 We do not find any factual similarity on the functions, assets and risk owned by this company viz-a-viz that of the assessee. Accordingly, Bodhtree cannot be considered fit to be included in the final list and the same is directed to be excluded from the final list. 11. KALS Information Systems The Ld. AR submitted that this company derives income from software services and products. It is submitted that there are no segmental details available in respect of the income that i....
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....repairs and maintenance. It was submitted that substantial portion of the provision being Rs. 53,27,329/- had in fact subsequently materialised as corresponding bills were received. The Ld. AR submitted that copies of these bills were submitted before the authorities below. 13.2 The Ld. AR submitted that the remaining portion of the provision against which no bills were received stood reversed in the subsequent year, as the year-end provision of Rs. 67,71,400/- was reversed at the beginning of the subsequent year and has been considered while computing income for the subsequent year. He submitted that all these details filed before the authorities below were not verified. 13.3 On the contrary, the Ld. DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 14. In respect of the disallowance made on payment made to Kone Elevators India Pvt. Ltd., the DRP directions was followed by the Ld. AO. We therefore, direct the Ld. AO/TPO to follow the directions as per the DRP in respect of this claim and to consider the claim of the assessee in accordance with law. 14.1 In respect of ....
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....Limited * Sasken Communication Technologies Ltd. 18.1 At the outset it is noted that following comparables has already been excluded in the preceding paras while considering identical issue for Assessment Year 2009-10 under Data Processing Service Segment: * Cosmic Global Ltd. * e4e Healthcare Solutions Ltd. * Infosys BPO Ltd. 18.2 It is noted that above comparables were excluded on identical facts and circumstances for Assessment Year 200910 in Para 9 to 9.1.6, 9.2 to 9.2.1 and 9.3 to 9.3.4 hereinabove. Nothing contrary has been brought on record by the authorities below. Respectfully following the observation therein on identical facts, these three comparables are directed to be excluded mutatis mutandis. 19. The assessee is seeking inclusion of R-Systems International Ltd. for the year under consideration. 19.1 At the outset the above comparables was included after considering various observations as recorded in Paras 8.7 to 8.8.1. Respectfully following the same, R-Systems International Ltd., is directed to be included in the final list mutatis mutandis. ICRA Online Ltd. 20. Insofar as ICRA Online Ltd is concerned, the....
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....intangible assets cannot be compared with a captive service provider. We draw support from the decision of Hon'ble Delhi High Court in case of Agnity India Technologies Ltd. Vs. ITO reported in (2015) 58taxmann.com167. It is also noted that these companies provide end to end business solutions that leverage cutting edge technologies, thereby enabling clients to enhance business performance. In view of the above, we do not find L&T Infotech Ltd. and Infosys Ltd. to be a fit comparable to the assessee. Accordingly, these comparables are directed to be excluded from final list. 24. Thirdware Solutions Ltd., and Sasken Communication Technologies Ltd., The assessee raised objection that these companies has revenue from software services, software products. It is submitted that Sasken has revenue from software services, software products and other services. For which segmental details are not available. 24.1 On the contrary, the Ld. DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides in light of records placed before us. It is noted that segmental details are not available in respect of SWD segment of these companie....