9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (5) TMI 97 - AT - Income TaxTP adjustment - international transaction of Provision of Software Development Services by the assessee to its Associated Enterprise (AE) - comparable selection - HELD THAT - Kals Information Technology Systems Ltd. (Seg.) was engaged in selling of software products which was different from activity undertaken by assessee in that case, namely, rendering of software service to its holding company, the same was held to be rightly excluded from the list of comparables. In view of the foregoing discussion, we order to exclude this company from the final list of comparables. Thirdware Solutions Ltd. - absence of the availability of any concrete information in respect of Software Services, we fail to comprehend as to how this company, also having software products in its portfolio, can be construed as comparable. The same is accordingly directed to be excluded. Acropetal Technologies Ltd. (Seg.) - this company cannot be considered as comparable as it is not only engaged in the business of Software products but is also providing on-site services, which make it distinguishable from the assessee company. We, therefore, order to exclude this company from the list of comparables. Companies providing on-site services cannot be considered as comparable. Direction of the DRP to include certain companies which were initially not included by the assessee in its list of comparables because the relevant financial data was not available - As in CIT Vs. Reuters India Pvt. Ltd. 2016 (5) TMI 796 - BOMBAY HIGH COURT has held that there can be no estoppel in pointing out the correct facts before the appellate authorities particularly when all facts are on record. No reason to interfere with the direction given by the DRP on this count in so far as the objection of the Revenue is concerned. The ld. DRP has simply directed to examine the comparability of these companies and did not, at the threshold, throw the assessee out simply on the reasoning that the relevant information was filed in respect of these companies only during the course of proceedings before the TPO. In view of the foregoing discussion, we are satisfied that the direction given by the DRP cannot be interfered. Infosys Technologies Ltd. cannot be treated as comparable with the assessee company as it is engaged in noteworthy R D activities apart from having significant intangible assets and exceptionally high turnover. Allocating unallocable expenses to each segment in proportion to segmental turnover to total turnover - HELD THAT - Unallocated expenses obviously comprise several items of distinct nature and hence there cannot be a uniform key of apportionment - apportioning common Rent expenditure on the basis of sales or gross revenue from such varied divisions, will give skewed results of segment profitability. Similarly, contribution of various segments to other items of expenses varies depending upon the nature of transaction, extent of capital employed and labour required etc. etc. So all common expenses cannot be apportioned in the universal ratio of sales or gross revenue from different segments, each having its own separate features and characteristics. One can logically make allocation depending upon the nature of expenses and appropriate allocation key. As the assessee is not aggrieved by the otherwise inclusion of such companies on the ground of allocation of unallocated expenses, we set aside the impugned order and direct the AO/TPO to allocate common unallocated expenses on the basis of relevant keys as the case may be after allowing an opportunity of hearing to the assessee. TDS u/s 195 - Disallowance u/s.40(a)(i) - payments made to Deere Company, USA towards Information System charges; Telecommunication charges; and also IT Software Licenses; Internet Access charges; and IT Support Services - assessee submitted that the assessee made payments pursuant to certain agreements, some of which were filed by him as additional evidence - HELD THAT - We set-aside the impugned order on the question of disallowance u/s.40(a)(i)/(ia) and remit the matter to the file of AO for deciding it afresh as per law in the light of additional evidence filed by the assessee. Needless to say, the assessee will be allowed reasonable opportunity of hearing.
Issues Involved:
1. Condonation of delay in filing the appeal by the Revenue. 2. Transfer pricing adjustment for "Provision of Software Development Services". 3. Inclusion/exclusion of specific companies as comparables in the transfer pricing analysis. 4. Allocation of unallocable expenses to segments. 5. Transfer pricing adjustment for "Design Engineering and Testing Services". 6. Transfer pricing adjustment for "Provision of Business Support Services". 7. Disallowance under section 40(a)(i) and 40(a)(ia) of the Income-tax Act for failure to deduct tax at source on certain payments. Detailed Analysis: 1. Condonation of Delay: The delay of one day in filing the appeal by the Revenue was condoned as the assessee did not object. 2. Transfer Pricing Adjustment for "Provision of Software Development Services": The assessee, an Indian company, provided Software Development Services to its AE, Deere & Company, USA. The AO made a reference to the TPO for determining the Arm’s Length Price (ALP) of the international transactions. The TPO selected 11 companies as comparables, but the DRP directed to exclude Infosys Technologies Ltd. and included 5 new companies, bringing the total to 15. The assessee contested the inclusion of three companies: Kals Information Technology Systems Ltd., Thirdware Solutions Ltd., and Acropetal Technologies Ltd. 3. Inclusion/Exclusion of Specific Companies as Comparables: - Kals Information Technology Systems Ltd.: Excluded as it was engaged in Software products and services, making it functionally different from the assessee. - Thirdware Solutions Ltd.: Excluded due to lack of clarity on whether it was engaged in Software products or services. - Acropetal Technologies Ltd.: Excluded as it provided on-site services and was also engaged in Software products, making it functionally different from the assessee. 4. Allocation of Unallocable Expenses to Segments: The DRP directed the AO to allocate unallocable expenses to each segment in proportion to segmental turnover to total turnover. The Tribunal agreed in principle but emphasized that allocation should be based on relevant keys depending on the nature of expenses. 5. Transfer Pricing Adjustment for "Design Engineering and Testing Services": The assessee's margin of 14.10% was compared with the ALP margin of 14.24%. The minor difference was within the permissible range, making the transfer pricing addition academic. The Tribunal dismissed the assessee's ground as academic. 6. Transfer Pricing Adjustment for "Provision of Business Support Services": The TPO included Asian Business Exhibition and Conference Ltd. as a comparable, but the DRP directed its exclusion, noting its functional dissimilarity. The Tribunal upheld the DRP's direction, agreeing that the company's activities were not comparable to the assessee's business support services. 7. Disallowance under Section 40(a)(i) and 40(a)(ia): The AO disallowed payments of ?24,88,60,369/- made to Deere & Company, USA, and ?75,48,813/- made in India due to failure to deduct tax at source, treating them as Royalty. The Tribunal set aside the disallowance and remitted the matter back to the AO for fresh consideration in light of additional evidence and previous Tribunal decisions favoring the assessee. Conclusion: The Tribunal partly allowed both appeals, providing detailed directions on the inclusion/exclusion of comparables, allocation of unallocable expenses, and remitting the disallowance issue back to the AO for fresh adjudication.
|
