9911796707
TMI Blog2014 (12) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be included as comparable – also CIT v. Agnity India Technologies (P) Ltd [2013 (7) TMI 696 - DELHI HIGH COURT] Infosys Technologies Limited is directed to exclude from the list of comparable on account of its giant-ness which was decided on cumulative factors including risk profile, nature of service, turnover, ownership of brand, onsite versus offshore service, expenditure on R & D and advertisement etc. - Infosys Technologies Ltd cannot be held to be a comparable company to that of the assessee. Nucleus Netsoft & Gis India Limited – Functionally dissimilar - Software development services – Held that:- company is functionally dissimilar to that of the assessee on account of diversified operation - during the relevant financial year, Nucleus Netsoft&Gis India Ltd underwent restructuring exercise on account of amalgamation which impacted the financial statement of the company - since the assessee had neither raised any objection of Nucleus Netsoft&Gis India Ltd being included as comparable company before the TPO nor the DRP considered the assessee’s objection, thus, the matter is remitted back to the TPO. Grant of working capital adjustment – Held that:- The TPO had rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & 5 were accepted by the TPO at arm's length and no upward adjustment was made. With reference to the Software Development Services and IT enabled services, the assessee adopted transactional net margin method (TNMM) as a most appropriate method with operating profits to the total cost asits profit levelled indicator for Bench marking its transaction. The assessee applied various quantity filters for computing the comparability analysis for the aforesaid two segments and arrived at the following results:- No. of comparable Margin of assessee Margin of comparable Software development services 35 13% 11% IT enabled services 14 15% 9% 3.1 Based on the analysis adopted by the assessee, the pricing arrangement for each transaction with reference to Software Development Services and IT enabled services were sought to be established at arm's length 4. The TPO had, however, rejected the assessee's transfer pricing study and arrived at the following set of companies as comparable for benchmarking the assessee's international transaction of software development and IT enabled services with its AE: Software Development SI. No. Name of the Company Mark up on cost (%) 1. Transworl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 144C of the IT Act, the Assessing Officer has disallowed excess claim of depreciation on the Computer accessories by observing that the same may be allowed @ 15% and not @ 60%. The assessee has objected to this addition by submitting that this is not correct since the computer accessories are part and parcel of computers. In this issue the observation of the Assessing Officer appears to be correct hence we decline from interfering with the order of the Assessing Officer. 6.2 Based on the DRP's directions, final assessment order was passed on 26.10.2010. 7. Aggrieved by the Assessing Officer's order giving effect to DRP direction, the assessee is in appeal before us raising the following grounds:- "1. That on the facts and in the circumstances of the case, the learned ('Ld.') Addl. CIT (Assessing Officer or 'AO') / the Ld. Addl. CIT (Transfer Pricing) -1(3), New Delhi (Transfer Pricing Officer or TPO) and the Ld. Dispute Resolution Panel (the Panel) erred in making adjustment in arm's length price of the Appellant's international transactions with related parties by ₹ 46,97,49,400/- (pertaining to software development services ₹ 30,71,50,845/- and pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Panel erred in not allowing deduction under section 10A of the Act on disallowance of depreciation on computer of ₹ 14,90,216/-. 7. That the Ld. AO erred in charging interest under section 234B of the Act amounting to ₹ 9,24,29,654/-. 8. That the Ld. AO erred in charging interest under Section 234C of the Act. 9. That the Ld. AO erred on facts and in law in initiating the penalty proceedings against the Appellant under section 271(1) (c) of the Act." 7.1 However, in the course of argument before us, the ld. counsel for the assessee confined his arguments/submissions to Ground Nos. 4.3, 4.5, 5.1 & 5.2. We shall adjudicate the issuesground-wise as under:- Ground No.4.3 8. With reference to the above ground, the assessee is aggrieved by inclusion of Infosys Technologies Ltd in software development services segment and Nucleus Netsoft&Gis India Limited in ITES segment as comparable companies. We shall deal with these inclusions of those companies as under: Infosys Technologies Limited [Infosys]: 9. The TPO had included Infosys as comparable company for the reason that the assessee, apart from providing software and ITEs services, is also engaged in providing sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation, utilities and energy. Unlike the assessee, Infosys is extremely diversified and undertakes a wide range of services apart from software development. Since the revenue and profitability for software development cannot be ascertained from the data in the annual report, Infosys cannot be included as comparable. Moreover, Infosys had, during the FY 2005-06, earned almost 49.8 % of its software service income from onsite services as against the assessee which had earned its entire income from provision of services offshore. Naturally, onsite services command higher billable rates and, consequently, Infosys cannot be compared with the assessee which earns its entire income from offshore services. The Annual Report of Infosys further provides that the profits derived by it were predominantly due to 'brand profits' since it owns a substantial intangible assets valued at INR 69,552crores comprising brand value itself at INR 22,915 crores. Further, Infosys undertakes substantial research & development on its own account leading to creation of valuable non-routine IPRs.Moreover, the Hon'ble jurisdictional High Court in the case of CIT v. Agnity India Technologies (P) Ltd repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee raises the issue of not granting working capital adjustment by the TPO and DRP. The TPO denied the assessee's claim for working capital adjustment by observing as under: "8.11. The requisite information for making the working capital adjustment has not been furnished by the assessee in the case of the comparable. It is evident from above findings that the assessee has not furnished position of payables and receivables of these comparable at beginning and end of the year. The assessee has not made available bifurcation of trade creditors and non-trade creditors and trade debtors and creditors of the company pertaining to each segment. These findings clearly prove that quality of data as used by the assessee for working capital adjustment cannot be relied upon. The AR for the asssessee even failed to provide relatable documentation for comparability adjustment. As mentioned above in para 7.5 of this order that OERCD draft report stipulates quality of data and relatable documentation as essential requirements for comparability adjustment. However, in this case the AR for the assessee has failed to furnish above critical information needed for making reasonably accurate worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 1 and 2 respectively. Also the working capital adjusted mark up on cost of the 4 companies in the contract software development services segment and 5 companies in the IT enabled services segment, selected by the learned TPO for determining the arm's length margin is attached herewith as Exhibit 3 and 4 respectively. The said computation demonstrates that not only 'accurate and sufficient' data is indeed available, but, also that it has been applied in due accordance with the settled economic principles." [Source: P 71 & 72 of PB] 11.3. As mentioned earlier, the DRP had not elaborately considered the assessee's objection and since the assessee has contested the TPO's finding that no accurate and sufficient data was available to make reliable working capital adjustment, we deem it appropriate to restore this issue on the file of the TPO for de novo consideration. It is ordered accordingly. Ground Nos. 5.1, 5.2 & 5.3: 12. In the above grounds, the assessee has raised the issue of restricting the depreciation claim to 15% instead of 60% on computer peripheral/accessories. 12.1. We have heard the rival submissions and also perused the relevant materials on record. This issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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