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2020 (12) TMI 928 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee's Software Development Services Business need to be deselected from final list. TDS u/s 194J - Disallowance u/s 40(a)(ia) - Leased line / date link charges - HELD THAT - As relying on case of Channel Guide India Limited Vs. ACIT 2012 (9) TMI 95 - ITAT MUMBAI and also the decision in the case of Gupshup Technology India (P) Ltd. 2017 (2) TMI 587 - ITAT MUMBAI these payments made for lease line charges were neither comes under professional services nor under technical services u/s 194J of the Act. - Decided in favour of assessee.
Issues Involved:
1. Addition on account of transfer pricing adjustment. 2. Disallowance of leased line/data link charges under section 40(a)(ia) of the Act on account of non-deduction of tax at source. 3. Initiation of penalty proceedings under section 271(1)(c) of the Act. Issue-wise Detailed Analysis: 1. Addition on Account of Transfer Pricing Adjustment: The assessee challenged the inclusion of certain companies by the Assessing Officer (AO)/Transfer Pricing Officer (TPO) in the final set of comparables. The Tribunal examined the comparability of these companies: a. VAMA Industrial Limited: The Tribunal noted that VAMA Industrial Limited's income from the software service segment mainly consisted of engineering services, which are functionally different from software development services. Additionally, the company failed the R&D expenses filter applied by the TPO, spending more than 3% on R&D. The Tribunal directed the AO/TPO to exclude this company from the list of comparables. b. Cybermate Infotek Limited: The Tribunal found that Cybermate Infotek Limited is a software product company, not engaged in software development services. The company's low ratio of employee cost to total operating cost (10.67%) indicated it was not comparable to the assessee's business, where this ratio was 74.95%. The Tribunal directed the AO/TPO to exclude this company from the list of comparables. c. Infobeans Systems India Private Limited: The Tribunal observed that Infobeans Systems India Private Limited underwent a demerger, an extraordinary event affecting its financial statements and profit margin. The Tribunal directed the AO/TPO to exclude this company from the list of comparables. d. Cybercom Datamatics Information Solutions Limited: The Tribunal noted that Cybercom Datamatics Information Solutions Limited is primarily engaged in providing technical and consulting services, not software development services. The Tribunal directed the AO/TPO to exclude this company from the list of comparables. The Tribunal remitted the matter back to the AO/TPO to exclude these companies and freshly determine the assessee’s Arms Length Price (A.L.P.). 2. Disallowance of Leased Line/Data Link Charges under Section 40(a)(ia) of the Act: The AO/TPO disallowed leased line/data link charges of ?2,77,754/- under section 40(a)(ia) due to non-deduction of tax at source. The Tribunal found that payments for leased line charges are not covered under section 194J of the Act, as they do not constitute technical or professional services. The Tribunal relied on the decisions in Channel Guide India Limited vs. ACIT and Gupshup Technology India (P) Ltd. vs. DCIT, which held that such payments do not fall under technical services and are not subject to TDS under section 194J. The Tribunal allowed the grounds of appeal of the assessee on this issue. 3. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act: The Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c) of the Act in the detailed analysis, as the primary focus was on the transfer pricing adjustment and the disallowance of leased line/data link charges. Conclusion: The Tribunal partly allowed the appeal of the assessee for statistical purposes, directing the AO/TPO to exclude certain companies from the list of comparables and to reconsider the disallowance of leased line/data link charges under section 40(a)(ia) of the Act.
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