9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (6) TMI 924 - AT - Income TaxTransfer pricing adjustment - selection of comparable - Held that - Avani Cincom Technologies Ltd., Celestial Biolabs Ltd. KALS Information Systems Ltd. Infosys Technologies Ltd. Wipro Ltd., Tata Elxsi Ltd. E-Zest Solutions Ltd. Thirdware Solutions Ltd. Lucid Software Ltd. Persistent Systems Ltd. Quintegra Solutions Ltd. and Softsol India Ltd. be excluded from the list of comparable as not functionally comparable to the assessee as assessee offers software development services to its AEs as relying on case of 3DPLM Software Solutions Ltd. v. Dy. CIT 2014 (12) TMI 612 - ITAT BANGALORE Risk Adjustment - Held that - As regards risk adjustment the TPO has not allowed any adjustment by observing that this has been considered and discussed in detail in the order for earlier years. We find that on similar facts different co-ordinate benches of this Tribunal in the case of Intellinet Technologies India (P.) Ltd. (2012 (6) TMI 237 - ITAT BANGALORE) and Bearing Point Business Consulting (P.) Ltd. (2014 (4) TMI 997 - ITAT BANGALORE ) have held that the TPO ought to have given risk adjustment to the margins of the comparables for bringing them on par with the assessee and remanded the issue back to the file of the TPO. Following the decisions in the aforementioned cases of the co-ordinate benches of this Tribunal (supra) we remand the issue of market risk adjustment to the file of the Assessing Officer/TPO for examining the issue in the light of the decisions cited. Reimbursement of Expenses not to be marked up - Held that - On examination the receipts are mere recovery of expenses without any service element then the same should not be added back to the cost base for the purpose of mark-up. Having so decided we are of the view that it would be in the fitness of things to remit the issue to the file of the Assessing Officer / TPO for detailed examination and verification of the said expenses as to whether it was incurred on behalf of the AE as was done in the earlier year. Provision for outstanding forward exchange contracts - Held that - Admittedly this issue has not been examined earlier by the TPO or the DRP. Since the DRP in the subsequent year has rendered a finding that the foreign exchange loss due to forward contracts is a non-operating expenditure while dealing with the order of the Assessing Officer we are of the view that it would be in the interest of equity and justice that this additional ground be admitted for adjudication and the issue be remitted back to the file of the Assessing Officer /T.P.O. for consideration in the light of the decision of the DRP in Assessment Year 2009-10 in this regard after affording the assessee adequate opportunity of being heard and make submissions required. Provision for loss on Mark to Market ( MTM ) Valuation of foreign exchange forward contracts - Held that - DRP in the assessee s own case in the subsequent year has allowed the expenses we are of the opinion that it will be in the fitness of things to remit this issue back to the DRP to examine the issue afresh by considering its findings in the subsequent year. Capital Expenditure-Disallowance of Software Expenses - Held that - In the proceedings before us the assessee has not brought on record any material to show that the expenses related to the current year are any different from that of the earlier year which claim of the assessee has been disallowed by the aforesaid order of the co-ordinate bench of this Tribunal in the assessee s own case for Assessment Year 2007-08 (supra). Therefore we uphold the decision of the Assessing Officer in disallowing the expenses on purchase of software additions and in allowing depreciation thereon at the rates applicable.
Issues Involved:
1. Transfer Pricing Adjustments 2. Risk Adjustment 3. Reimbursement of Expenses 4. Provision for Outstanding Forward Exchange Contracts 5. Capital Expenditure on Software Expenses Detailed Analysis: 1. Transfer Pricing Adjustments: The primary issue in this case revolves around the Transfer Pricing (TP) adjustments made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) determination of the Arm's Length Price (ALP) for the international transactions of software development services. The assessee contested the inclusion of certain companies as comparables by the TPO, arguing functional dissimilarities and other factors. - Avani Cincom Technologies Ltd.: The Tribunal found that this company was not functionally comparable to the assessee as it was involved in software products. The TPO's reliance on information obtained under section 133(6) without sharing it with the assessee was also criticized. The Tribunal directed the AO/TPO to omit this company from the list of comparables. - Celestial Biolabs Ltd.: This company was excluded as it was engaged in bio-informatics software products/services, making it functionally different from the assessee. The Tribunal noted that the TPO had not conducted an independent FAR analysis for the year under consideration. - KALS Information Systems Ltd.: The Tribunal held that this company, which was involved in software products and training services, was not comparable to the assessee. The absence of segmental details further supported its exclusion. - Infosys Technologies Ltd.: The Tribunal excluded Infosys due to its significant brand value, ownership of intellectual property rights, and substantial revenues from software products, making it functionally dissimilar to the assessee. - Wipro Ltd.: This company was excluded as it was engaged in both software and product development services, owned intangibles, and the TPO had used consolidated financial statements for comparability. - Tata Elxsi Ltd.: The Tribunal found this company to be predominantly engaged in product design services, making it functionally different from the assessee, and thus directed its exclusion. - E-Zest Solutions Ltd.: The Tribunal excluded this company as it was involved in high-end ITES and product development services, not comparable to software development services. - Thirdware Solutions Ltd.: This company was excluded due to its involvement in product development and trading in software, with no separate segmental profit and loss accounts for software development services. - Lucid Software Ltd.: The Tribunal excluded this company as it was engaged in software product development, making it functionally different from the assessee. - Persistent Systems Ltd.: This company was excluded due to its involvement in product development and design services, with no segmental details available. - Quintegra Solutions Ltd.: The Tribunal excluded this company due to its engagement in product engineering services, ownership of intangibles, and acquisitions during the year. - Softsol India Ltd.: This company was excluded as its Related Party Transactions (RPT) exceeded 15%, and it was functionally different from the assessee. 2. Risk Adjustment: The assessee argued for suitable adjustments towards differences in the risk profile between itself and the comparable companies. The Tribunal remanded the issue back to the AO/TPO for examination in light of previous Tribunal decisions, emphasizing the need for risk adjustments to account for disparities in risk profiles. 3. Reimbursement of Expenses: The assessee contended that reimbursements received from its Associated Enterprises (AEs) should not be added back to the cost base for the purposes of a mark-up. The Tribunal remitted the issue to the AO/TPO for detailed verification, following the decision in the assessee's own case for the previous year. 4. Provision for Outstanding Forward Exchange Contracts: The assessee argued that the provision for loss on forward exchange contracts was not notional or contingent but an actual loss. The Tribunal remitted the issue back to the DRP for examination, considering its findings in the subsequent year where the provision was allowed. 5. Capital Expenditure on Software Expenses: The assessee claimed that expenses on software were revenue in nature. The Tribunal upheld the AO's decision to treat these expenses as capital expenditure, following the decision in the assessee's own case for the previous year, and allowed depreciation at the applicable rates. Conclusion: The Tribunal's judgment addressed multiple issues related to transfer pricing adjustments, risk adjustments, reimbursement of expenses, provision for forward exchange contracts, and capital expenditure on software. The Tribunal directed the AO/TPO to exclude certain companies from the list of comparables, remanded issues for further examination, and upheld the AO's decision on software expenses. The appeal was partly allowed.
|
