9911796707
TMI Blog2016 (10) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the decision of the coordinate bench of this Tribunal in assessee s own case for AY 2007-08 [ 2014 (4) TMI 285 - ITAT HYDERABAD] as per segmental financials the margin in respect of transactions with AEs is 39.26% as against margin of 6.30% in respect of non AE transactions. Therefore, when segmental details have been furnished by the assessee the TPO should have considered them properly instead of rejecting them with broad and sweeping allegations. It seems, the TPO has not properly allocated the segmental expenditures. If the bad debts etc. are not related to AE transactions they cannot be considered as part of operating cost for determining ALP of the transactions with AE. Similarly, reimbursement on cost to cost basis also cannot be included in the operating cost. Since the issue in the current AY is identical to that of AY 2007-08, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. Addition of corporate guarantee - HELD THAT:- As decided in assessee own case since the issue in the present case is identical to the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranches in the following countries: Singapore - Four Soft Pte Ltd. Further FSL India indirectly controls branch in Australia through Four Soft Demark A/s B.V. and in Belgium through Four Soft UK Ltd. 3.2 Business Profile of the company: Four Soft Ltd. (FSL), the taxpayer, is an enterprise solutions company that develops innovative software products and provides IT consultancy services for the logistics and supply chain management marketplace. The group operates across the globe with development centers in India, Australia, Denmark, England, Singapore, Netherlands, Japan and United States. The group also has sales and support offices located across Asia, Australia, Europe and North America. The taxpayer company is registered under the Software Technology Parks of India Scheme and is claiming tax holiday benefit in respect of the profits earned by it from the software development services. Following are the revenue streams of FSL India: A. License Revenue from Software product development and sales: B. Software services revenue from Consultancy and Maintenance Services: FSL India with the subsidiaries FSL India provides off shore services to Four Soft subsidiari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h resulted in selection of inappropriate comparables and rejection of companies that are appropriate comparables. He, therefore, rejected the TP document and an independent analysis has been made by aggregating all the transactions under TNMM. 3.8 The final comparables selected by Transfer Pricing Officer (TPO) with OP to OC are as under: Sl. No. Name of the company Operating margin in percentage 1. Avani Cimcon Technologies Ltd. 21.65 2. Bodhtree Consulting Ltd. 19.14 3. Celestial Biolabs Ltd. 87.94 4. e-Zest Solutions Ltd. 28.95 5. Flexitronics Software Systems Ltd. (Aricent) (seg.) 8.07 6. iGate Global Solutions Ltd. 13.90 7. Infosys Technologies Ltd. 40.41 8. Kals Information Systems Ltd. (seg.) 41.94 9. LGS Global Ltd. 26.64 10. Mindtree Ltd. (seg.) 17.51 11. Persistent Systems Ltd. 27.23 12. Quintegra Solutions Ltd. 21.74 13. R Systems International Ltd. (seg.) 15.30 14. RS software (India) Ltd. 6.46 15. Sasken Communication Technologies Ltd. (seg.) 13.44 16. Softsol India Ltd. 42.15 17. Tata Elxsi Ltd. (seg.) 18.97 18. Thirdware Solutions Ltd. 18.01 19. Wipro Ltd. (seg.) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees given to AEs, the DRP upheld the action of TPO with regard to determination of ALP of commission on corporate guarantee. Therefore, there is no change in the TP adjustment made by the TPO. 7. In view of the above, the total shortfall being adjustment u/s 92CA as per the directions of the DRP is as under: 1. Shortfall being adjustment in respect of software Development services 9,48,05,292 2. Shortfall being adjustment in respect of Commission of corporate guarantee 2,51,79,350 12,09,84,042 8. The AO computed the total income of the assessee as under: Income from business (-) 56,13,871 Add: Addition as per TP adjustment 12,09,84,642 Income from business 11,53,70,771 Add: Income from other sources 29,88,743 Total income Rs., 11,83,59,514 9. Aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal: TRANSFER PRICING MATTERS - Relating to determination of Arm's Length Price (" ALP ") in respect of provision of software services to Associated Enterprises (" AEs") Based on the facts 'and circumstances of the case and in law, the learned Assessing Officer (" AO") I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot undertaking an objective comparative analysis and interalia rejecting the following comparable companies: a) Aditya Birla Minacs IT Services Ltd; b) Aditya Birla Minacs Technologies Ltd; c) CG-VAK Software Exports Ltd (Seg); d) Goldstone Technologies Ltd; e) Indium Software India Ltd; f) Thinksoft Global Services Ltd; g) Larsen & Toubro Infotech Ltd; h) V M F Softech Ltd. TP adjustment on transactions with Non-AEs 10. Determining the TP adjustment on the transactions with Non- AEs. Incorrect working capital adjustment 11. Computation of working capital adjustment by allocating the total receivables and payables of the Appellant to the international transactions with AE and making a negative working capital adjustment to the arithmetic mean margin of the comparables selected. Inclusion of certain amounts in operating cost 12. Including the following reimbursements by AEs (₹ 7,40,60,178) for payments transactions relating to provision of software services: • Payroll and related cost of deputed employees and other miscellaneous ₹ 6,79,17,541; and • Travel- ₹ 58,34,419; • Other miscellaneous - ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as selected eight comparables in which there is no segmental information available, which are as under: 1. Avani Cincom Technologies Ltd. 2. Bodhtree Consulting Ltd. (Seg.) 3. E-zest Solutions Ltd. 4. LGS Global Ltd. 5. Persistent Systems Ltd. 6. Softsol India Ltd. 7. Thirdware Solutions Ltd. 8. Kals Information Systems Ltd. When there is no segmental information available on the financial reports, it is difficult to determine the revenue from services and other revenues properly. It is hereby submitted that these comparable should be eliminated. Further, AR of the assessee submitted that apart from segmental information is not available, there are other aspects which also functionally different and the same also should be excluded from comparables. However, he submitted that assessee has no issue if the TPO adopts the above filter of 75% of revenue from software services to all the comparables by collecting the relevant information from the respective comparables u/s 133(6) of the Act. 11. Ld. DR relied on the orders of revenue authorities. 12. Considered the rival submissions and perused the material facts on record. As submitted by the ld. AR that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. 15. As regards the issue of corporate guarantee, we find that this issue is squarely covered by the decision of the coordinate bench in assessee's own case for AY 2007-08 (supra) wherein the coordinate bench has held as under: 25.2 Having considered the submissions of the parties, we are unable to accept the contention of the learned AR that corporate guarantee of the nature provided by the assessee will not come within the meaning of international transaction in terms with section 92B of the Act. It is not disputed that section 92B of the Act has been amended by the Finance Act, 2012 with the insertion of Explanation I (c) with retrospective effect from 01/04/2002. Explanation (i)(c) to section 92B, reads as under: " capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." 25.3 A reading of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AE followed the ratio laid down in case of Glenmark Pharmaceuticals Vs. ACIT (supra) and remitted the issue back to the TPO to decide the quantum of corporate guarantee rate by following the method adopted in case of Glenmark Pharmaceuticals (supra). 26. Since the issue in the present case is identical to the issue decided by the ITAT, Hyderabad Bench in case of Infotech Enterprises (supra), following the same, we also remit this issue to the file of the TPO to decide the quantum of corporate guarantee rates accordingly. If the assessee is able to bring on record any comparables with regard to corporate guarantee, the TPO may also consider the same while determining ALP of corporate guarantee. The TPO must provide a reasonable opportunity of being heard to the assessee before deciding the issue. This ground is allowed for statistical purposes. Since the issue in the current AY is identical to that of AY 2007-08, respectfully following the decision of the coordinate bench in that year, we remit the issue to the file of the TPO/AO to decide the issue following the directions given by the Tribunal in AY 2007-08. 16. In the result, appeal of the assessee is treated as partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
