9911796707
TMI Blog2018 (5) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred both on facts and in law in enhancing the income of appellant company without providing sufficient opportunity of being heard as provided in sub section (2) of section 251 of the Income tax Act, 1961 which is against the principal of natural justice. 2) The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in upholding the action of Ld Transfer Pricing officer in rejecting the quantitative and qualitative filters applied by the appellant company for the purpose of selecting comparables in its Transfer Pricing study and arbitrarily selecting the quantitative and qualitative filter for selecting comparables which were functionally different from the appellant company. 3) The learned commissioner of Income Tax (Appeal) has erred both on facts and in law in not correctly analyzing the characteristic of the functions performed, assets employed and risk assumed (herein after referred to as FAR analysis) while making exclusions out of final set of comparables for determining means of Arm's length price of comparables. 4) The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in rejecting the entitlement of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved, the assessee filed appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 3. In the grounds raised, the assessee has challenged Transfer Pricing Adjustment of Rs. 2,27,84,888/- sustained by the Ld. CIT(A). 3.1 The brief facts leading to the transfer pricing adjustment are that in its transfer pricing study the assessee claimed it to be a captive service provider and provided services of software development and information technology enabled services to its Associated Enterprises (AEs). The assessee reported international transaction as under: S. No. Nature of Transaction Method used by assessee Amount 1. Provision of Software Development and IT enabled Services TNMM 18,02,79,259 Total 18,02,79,259 3.2 For benchmarking the International transaction, the assessee chosen Transactional Net Margin Method (TNMM) as the most appropriate method, taking Operating Profit/Total Cost (OP/TC) as Profit Level Indicator (PLI) . The assessee selected 14 comparables and worked out arithmetic mean of the PLI of the comparables at 13.92% us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in cost (2,19,11,744) Less:- Assets W/o (25,48,738) Less:- Interest Expenses (Grouped under other expenses) (73,799) Total operating cost 13,93,90,892 Operating profit 1,89,76,623 OP/OC 13.61% 3.4 The Ld. TPO issued show cause proposing other comparables and after considering the submission of the assessee, he finally selected 12 comparables and worked out their operating margin excluding for exchange gain/loss. The average margin of the comparables was worked out it 29.52%. The list of comparables finally selected by the Ld. TPO is as under: Sl. No. Company Name OP/TC (W/o Fx) 1. Aricent Tech 25.76 2. Bodhtree Consul. 69.80 3. Cat Tech. 34.43 4. KPIT Infosys. 21.56 5. L & T Infortech 21.33 6. Mindtree 27.36 7. Persistent Sys 37.77 8. R S Software (I) 10.15 9. Tata Elxsi 16.88 10. Tech Mahindra 35.35 11. Thinksoft Global 16.56 12. Tirdware Sol 37.27 29.52 3.5 The Ld. TPO, computed adjustment of Rs. 2,21,71, 569/-as under: Operating Cost 13,93,90,892 OP/TC 29.52% Margin 4,11,48,192 Arm's Length Price 18,05,39,084 Price Charged by the assessee 15,83,67,515 ?Difference 2,21,71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the company are approximately 24%, which is less than the RPT filter of 25% applied by the Ld. TPO. He also submitted that amalgamation occurred in the earlier year and not in the year under consideration and, therefore, there is no extra ordinary event in the year under consideration affecting the margin of the company. 4.2 We have heard the rival submissions and perused the relevant material on record. On perusal of page 18 of the Annual Report of the company, we find that sales of the company consist of software product amounting to Rs. 127,38,34,261/- and software services of Rs. 11,50,88,79,710/-. Thus, it is evident that company is engaged in the sale of software products as well as sale of software services, but no separate segment result for software services are available and, thus, the company cannot be compared with the assessee at the entity level. In our opinion, the company is liable to be excluded only on this reason alone. Accordingly, we direct the Ld. AO/TPO to exclude this company from set of the comparables. Bodhtree Consulting Ltd. 5. The Ld. counsel submitted that the company was engaged in providing other solutions in addition to the softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only in the software development and, thus, it is functionally similar to the assessee company. On the issue of accounting entries of revenue recognition from the software development and consequent impact on profit margin of the company is concerned, we are of the opinion that this issue need verification by the Ld. TPO/AO and thus, we restore this matter to the file of Ld.TPO/AO for verification of impact of revenue recognition accounting entries on profit margin of the company and decide the comparability accordingly after providing due opportunity of being heard to the assessee. CAT Technologies Ltd. 6. The Ld. counsel submitted that the company was engaged in diversified business activities of information technology infrastructure, IT staffing services, 3-D animation, game development, Web development. H also referred to page 112 of the paper book, Volume II, and submitted that company was engaged in software development as well as consulting services and there being no separate segment of software development, the company is liable to be excluded from the set of comparables. He further submitted that company has been excluded by the Tribunal from the set of the comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8.2 We have heard the rival submission and used the relevant material on record. We have already excluded the company KPIT Cummins Infosystems Ltd. on the ground of RPT more than 25% i.e. a filter deployed by the Ld. TPO and, thus, to have the consistency in decision, we direct the Ld. TPO/AO to exclude the company M/s TechMahindra from the set of comparable. Thirdware Solutions Ltd 9. The Ld. counsel referred to page 297 of the paper-book and submitted that the company also sells software products and license along with export of services and, therefore, in absence of any segmental result for software development services, the company cannot be compared with the assessee at entity level. 9.1 The Ld. DR relied on the finding of the lower authorities. 9.2 We have heard the submission of the rival parties and perused relevant material on record. The detail of the sales of the company in the year under consideration are available on page 285 of the Paper Book, Volume II, which are reproduced as under: Schedule 12: Sales As on 31.03.09 As on 31.03.08 Total Sale of Licence 23,237,588 3,916,427 Software Services 89,177,023 76,724,371 Export from SEZ U ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
