9911796707
TMI Blog2014 (12) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... a comparable – Held that:- The assessee is justified in seeking exclusion of Avani Cincom Technologies Ltd. from the final list of comparables - the order of the TPO brings out that the concern is engaged in providing State of Art Technology solution and services to organizations in different verticals like Travel, Insurance, Financial services, Healthcare, Law, Transportation and others - The factum of the concern being engaged in development of products and sale thereof apart from being engaged in software development services is not denied - in such a situation, only the segment relating to development of software services, which can be said to be similar to the assessee, can only be considered for the purposes of comparability analysis - The segmental data is not available and it would be inappropriate to consider the financial results of the concern as a whole for the purposes of carrying out comparability analysis vis-à-vis the tested transactions – the company is liable to be excluded from the list of comparables. Inclusion of SIP Technologies and Export Ltd. - Financial data of the concern which has been considered does not correspond to the financial year of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ) dated 26.11.2010, which is in conformity with the directions given by the Dispute Resolution Panel, Pune (in short the DRP ) dated 30.09.2010. 2. In brief, background of the dispute can be summarized as follows. The appellant-assessee before us is branch office of a foreign company, M/s Sungard Trading Systems of USA (STS), which is one of the subsidiaries of Sungard Data Systems Inc (in short SDS ). SDS is a global leader in integrated IT and e-processing solutions for the financial services sector. The assessee before us carries out software development services for the subsidiaries of SDS, USA which include development of software and components of software products developed as per the requirements of the Sungard group entities. For the assessment year under consideration, assessee filed its return of income declaring a total income of ₹ 49,44,080/-. On account of the assessee having undertaken international transactions with its associated enterprises abroad by way of software development services, the Assessing Officer made a reference to the Transfer Pricing Officer (in short TPO ) u/s 92CA(1) of the Act for determination of the arm's length price of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arm's length price. 4. Based on the order of the TPO dated 28.10.2009, the Assessing Officer proposed a draft assessment order u/s 143(3) r.w.s. 144C of the Act on 23.12.2009 proposing to compute assessee s total income by including a sum of ₹ 4,17,52,924/- on account of adjustment to international transaction for the purposes of determining its arm's length price. The assessee raised objections to the draft assessment order by approaching the Dispute Resolution Panel (in short DRP ). The DRP vide order dated 30.09.2010 disposed-off the objections filed by the assessee company. As against an adjustment of ₹ 4,17,52,924/- proposed by the TPO, the DRP directed the Assessing Officer to work out the total income of the international transaction by making an adjustment of ₹ 3,80,98,474/-. In coming to such conclusion, the DRP considered a set of 9 comparable concerns, as against 8 considered by the TPO. The arithmetic mean of the final set of 9 comparable concerns was determined at 26.78% and the working capital adjustment was determined by the DRP at 1.23% as against 1.68% determined by the TPO. Accordingly, the adjusted arithmetic mean of the final set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect and we are unable to uphold the stand of the Revenue. The discussion made by the TPO in para 6.5.2 of his order on the impugned issue shows that he has considered a filter 25% of the RPTs for the purpose of excluding a concern from the list of comparables. While applying the said filter in the case of Compucon Software Ltd. he has aggregated the receipts for services rendered and the payments made for services received and thereafter he has divided the total figure by the total turnover of the assessee. Quite clearly, the numerator considered by the TPO comprises of receipts for services rendered as also the payments made for services received meaning thereby that sales as well as expenses having a component of RPTs are included, whereas the denominator comprised of only the sales component. Ostensibly, the aforesaid formula would give a distorted picture of the ratio of RPTs to the total transactions. If total expenses incurred by the assessee by way of payments to associated enterprises is divided by the total expenses incurred, the ratio of RPTs to the total transactions exceed 25%, as per the working made by the assessee. In view of the aforesaid incorrect approach of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-rule (4) of rule 10D of the Rules prescribes that the information and documents to be kept and maintained should be contemporaneous and exist latest by the specified date referred to in section 92F(iv) of the Act, which in the present case is the due date of filing of the return u/s 139(1) of the Act. On this basis, it is sought to be canvassed that the financial data to be used for carrying out the comparability analysis should be based on a data available on the date when the assessee carried out its Transfer Pricing Study or at least latest by the date of filing of the return u/s 139(1) of the Act. In our considered opinion, the plea of the appellant is quite misplaced inasmuch as rule 10D of the Rules merely seeks to require an assessee to maintain information and documents with respect to the international transactions carried out by it and in that context, it is prescribed in sub-rule (4) of rule 10D of the Rules that as far as possible , such information and documents should be contemporaneous and should exist latest by the date specified therein i.e. due date of filing of the return u/s 139(1) of the Act. So however, there is no embargo put either in the Act or in the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is justified in seeking exclusion of Avani Cincom Technologies Ltd. from the final list of comparables. In-fact, the order of the TPO especially para 6.5.2 brings out that the said concern is engaged in providing State of Art Technology solution and services to organizations in different verticals like Travel, Insurance, Financial services, Healthcare, Law, Transportation and others. The factum of the said concern being engaged in development of products and sale thereof apart from being engaged in software development services is not denied by the authorities below. Therefore, in such a situation, only the segment relating to development of software services, which can be said to be similar to the assessee, can only be considered for the purposes of comparability analysis. The segmental data in this regard is not available and therefore in our view it would be inappropriate to consider the financial results of the concern as a whole for the purposes of carrying out comparability analysis vis- -vis the tested transactions in the present case. Therefore, in our considered opinion, the said concern is liable to be excluded from the list of comparables and according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under consideration before us. It has been pointed out that Bindview India (P.) Ltd. (supra) is a company which is engaged in software development activities, which is akin to the activities being carried out by the assessee for its associated enterprises. Therefore, the said concern i.e. KALS Information Systems Ltd. is liable to be excluded from the final set of comparables. The learned CIT-DR has not disputed that the decision of the Tribunal in the case of Bindview India (P.) Ltd. (supra) covers the argument being setup by the assessee before us. 15. In this context, we have perused the decision of the Bindview India (P.) Ltd. (supra) which also is a concern engaged in rendering of software development services to its parent company abroad. In the context of benchmarking the services rendered by Bindview India (P.) Ltd. (supra), which is similar to the services being rendered in the instant case, the Tribunal observed that KALS Information Systems Ltd. was not a functionally comparable concern. The following discussion in the order of the Bindview India (P.) Ltd. (supra) is relevant :- 16. Another issue relating to selection of comparable by the TPO is regarding incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally different activities inasmuch as it is involved in providing software professionals to other software companies. At page 107 of the Paper Book a website extract of the said concern has been furnished to support the said plea. Second reason advanced is that the Annual Financial Report of the said concern is not available in the public domain and therefore the said concern ought to be excluded from the list of comparables inasmuch as on similar ground the TPO/DRP had rejected certain other concerns also. In the alternative, it is submitted that if the said concern is to be retained as a comparable, the margin should be worked-out on the basis of the Annual Report of the said concern available for the subsequent year ending 31.03.2007, which contains the previous year s figures i.e. for the year ending under consideration i.e. 31.03.2006. A copy of the Financial Report of the said concern for year ending 31.03.2007 has been placed in the Paper Book at pages 80-90. The learned counsel pointed out that if the margin based on the Previous year s figures appearing in Annual Report of March, 2007 is taken, it would be 19.59% as against the margin of 32.69% adopted by the TPO as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if assessee were to succeed on its plea for the exclusion of (i) Kals Information Systems Ltd.; (ii) Avani Cincom Technologies Ltd.; (iii) Compucon Software Ltd.; (iv) Transworld Infotech Ltd.; (v) SIP Technologies and Export Ltd.; and, (vi) Synetairos Technologies Ltd. from the final set of comparables, then the variation between the arm's length price determined and the stated value of the international transaction would fall within the +/- 5% and therefore in terms of section 92C(2) of the Act no adjustment would be required to be made. Since we have upheld the plea of the assessee for exclusion of (i) Kals Information Systems Ltd.; (ii) Avani Cincom Technologies Ltd.; (iii) Compucon Software Ltd.; (iv) Transworld Infotech Ltd.; (v) SIP Technologies and Export Ltd.; and, (vi) Synetairos Technologies Ltd. from the final set of comparables, the other Grounds of Appeal raised by the assessee in order to assail the addition of ₹ 3,80,98,474/- on account of transfer pricing adjustment are rendered academic and are not being adjudicated for the present. 23. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 30th September ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
