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TMI Blog2019 (12) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... and is in violation of the principles of natural justice. Without prejudice to the generality of the above, the order passed by the Ld.AO is bad in law insofar as the fact that the Ld. AO did not issue to the Appellant a show cause notice, as per proviso to section 92C(3) of the Act b) The Ld. AO has erred in law in making a reference to the learned Deputy Commissioner of Income Tax [Transfer Pricing (1)(2)(1)] ['Ld. TPO']. The Ld. Panel erred in upholding the actions of the Ld. AO/ TPO. c) The directions issued by the Ld. Panel did not take cognizance of the objections raised by the Appellant while issuing the directions under section 144C(5). d) The order passed by the Ld. AO is without jurisdiction, inter alia, in so far as it purports to give effect to invalid directions of the Ld. Panel. e) The directions issued by the Ld. Panel and the order passed by the Ld.AO is without jurisdiction, inter alia, in so far as it purports to give effect to an invalid order of the Ld. TPO 2 The Ld. Panel and Ld. AO/ Ld. TPO has erred in justifying the motive of shifting profits On the facts and in the circumstances of the case and in law, the Ld. Panel and Ld.AO / TPO erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than 3% (iii) rejecting companies with net fixed assets to sales of less than 2OO% (iv) rejecting companies with advertisement, marketing and distribution (AMD) expenses to sales less than 3% and Ld. Panel erred in upholding the actions of the Ld. AO / Ld. TPO h) The Ld. Panel grossly erred in upholding the rejecting of the positive net worth filter applied by the Appellant, when in fact, the Ld. TPO had accepted the application of the said filter i) The Ld. AO / ld. TPO erred in law in applying arbitrary filters as criterion for rejection of companies identified by the Appellant in the Transfer Pricing Study such as (i) Companies whose data for financial year ('FY') 2013-14 was not available (ii) Companies with different financial year ending (i.e., other than 31 March 2014) (iii) Companies with employee cost less than 75% of its total operating revenues (vi) companies who have export services income less than 75% of the sales (v) Companies with employee cost less than 25% of turnover (vi) Companies with persistent loss (Companies reporting loss for any 2 years out of last three years (vii) Companies having related party transactions greater than 25% of the sales. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c circumstance having an impact on the margin of the companies. The Ld. Panel erred in upholding the same 4 Comparability Analysis adopted by the Ld. TPO for determination of arm's length price for the Information Technology Enabled ('ITe') services segment a) The Ld. AO/ In. TPO erred in rejecting the value of international transaction of provision of Information Technology Enabled services, as recorded in the books of account, as the arm's length price. The Ld. Panel erred in upholding the same b) The Ld. AO/ Ld. TPO erred in determining a new arm's length price in substitution of the arm's length price determined by the Appellant. The Ld. Panel erred in upholding the same c) The Ld. AO/TPO, contrary to the provisions of the Act and rules made thereunder, erred in computing the arm's length price of the ITe service segment by adopting the operating cost and operating income of both the international transaction and the domestic transaction. The Ld. Panel erred in upholding the same d) The Ld. AO/TPO, while adopting the operating revenue earned by the ITe service segment of the Appellant, grossly erred in not taking into consideration the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee cost less than 25% of turnover (vi) companies with persistent ross (Companies reporting loss for any 2 years out of last three years (vii) companies having related party transactions greater than 25% of the sales The Ld. panel also erred in upholding the actions of the Ld. AO/ Ld. TPO k) The Ld. AO/ Ld. TPO erred in considering data obtained u/s 133(6) of the Act. The Ld. Panel erred in confirming the same l) The Ld. AO/ Ld. TPO erred in rejecting Jindal Intellicom limited despite being functionally comparable. The Ld. panel also erred in confirming the same m) The Ld. AO/ Ld. TPO erred in rejecting Tech Mahindra Business Services Limited, from its own search which is otherwise functionally comparable and passes all the filters applied in the transfer pricing order. The Ld. Panel also erred in confirming the same n) The Ld. AO/ Ld. TPO erred in rejecting Ace BPO Services Pvt. Ltd on the ground that RPT information was not available in public domain. The Ld. Panel also erred in confirming the same, and erred in failing to appreciate that the company is otherwise functionally comparable to the Appellant o) The Ld. AO/ Ld. TPO erred in rejecting Informed Technologi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Ld. TPO erred in law in not granting the benefits of proviso to section 92C(2) of the Income Tax Act, 1961 ('Act') available to the Appellant. The Ld. Panel erred in upholding the actions of the Ld. AO/ Ld. TPO. 8 The Ld. AO/Ld. TPO erred in law in erroneously not granting complete credit for advance tax and self-assessment tax paid by the Appellant, as claimed in the return of income 9 The Ld. AO/Ld. TPO erred in law in erroneously not granting credit for Minimum Alternate Tax (MAT), as claimed in the return of income under section 115JAA of the Act. 10 The Ld. AO/Ld. TPO erred in law in not granting consequential relief in the computation of interest under section 234B and 234C of the Act The Appellant craves leave to add to or alter, by deletion, substitution or otherowse, the above grounds of appeal, at any time before or during the hearing of the appeal. Relief a) The Appellant prays that the appeal be allowed b) The Appellant prays that directions be given to grant all such relief arising from the above grounds and also all relief consequential thereto. The Appellant further prays that the adjustment in relation to Transfer Pricing matters made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage OP/TC at 11.91%. After verification and examination of TP Document, the TPO found pertinent defects in the TP Study and finally the TPO has rejected the comparables selected by the assessee in TP Study and applied filters with criteria of current year data where the companies whose data for the F.Y. 2013-14 is excluded, the companies having different financial year ending falls within 12 months period for 1.4.2013 to 31.3.2014 were rejected. The companies whose income was less than Rs. 1 Crore were excluded and the companies were Software Development Services / ITES income is less than 75% were rejected. The companies who have more than 25% Related Party Transactions (RPT) of sales were excluded. The companies who have export sales for service less than 75% of sales are excluded and companies with Employees Cost less than 25% of turnover were excluded. The TPO applied the filters on the comparables selected by the assessee at pages 12 & 13 of the order in Software Development Services segment and were rejected. Similarly, the TPO has dealt on 11 comparables of selected by the assessee in ITES segment. Further the TPO rejected the comparables on applicationof filters and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by the learned Authorised Representative in Software Development Services segment. (i) Infosys Limited : This company is functionally dissimilar and provides end to end business solutions like business consulting technology engineering and outsourcing services and no segmental details in respect of services are available and made investments and products to establish as a tradable IPO owner. Further the comparable owns significant brand value products and focus on brand building and incurred expenditure on R & D. The company owns 7 edge products / platforms and six other product based solutions. The company leverages on its premium banking solution and during the year the company merged with its wholly owned subsidiary Infosys Consulting India Limited. We found that the company was excluded from the final list of comparables in assessee's own case for the Assessment Year 2011-12 by the DRP and revenue has accepted. The learned Authorised Representative supported his arguments relying on the decisions in the case of CIT Vs. Agnity (India) Technologies Pvt. Ltd. (2013); CGI Systems and Management Ltd. Vs. ACIT (2015) 94 taxman.com The learned Authorised Representative also sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 350. The learned Authorised Representative also relied on CGI Information Systems & Management Consultants (P) Ltd. Vs. ACIT (2018) 94 taxman.com 97 and DCIT Vs. Taxman India Pvt. Ltd. (2016) 74 Taxmann.com 88 (Del). We found that the co-ordinate Bench of Tribunal in M.P. No.95/Bang/2019 in IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 has dealt on the issue at page 2 para 4 as under : "4. We heard Ld D.R and perused the record. We find merit in the miscellaneous petition filed by the assessee. Accordingly following paragraph is inserted after paragraph 10 in the impugned order of the Tribunal, which will adjudicate the issue relating to "L & T Infotech Ltd":- "10A The assessee has sought exclusion of M/s L & T Infotech Ltd on the ground that there were extraordinary events during the year, it possesses brand and intangibles, it has not provided segmental information and it has got subcontracting expenses. The Ld A.R submitted that the above said company has been excluded by the co-ordinate bench in the case of Metric Stream Infotech P Ltd (IT(TP)A No.1418 & 2735/Bang/2017) relating to AY 2013-14 and also in the case of Electronics for Imaging India P Ltd (IT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year basis due to different revenue recognition model which the company has adopted. The above comparable was excluded in assessee's own case on functional dissimilarity in the Assessment Years 2005-06 and 2007-08 and learned Authorised Representative also relied on Lime Labs (India) Pvt. Ltd. Vs. ITO 101 Taxman.com 201 (Delhi Trib.). We found the co-ordinate Bench of the Tribunal in the case of LG Software India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 dt.28.05.2019 for the Assessment Year 2014-15 has excluded the comparable as observed at paras 8 & 8.1 at page 4 as under : "8. We also notice that in A.Y 2008-09, the co-ordinate bench has excluded M/s. Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s. Thirdware Solutions Ltd. is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in A.Y 2008- 09, we direct exclusion of M/s. Thirdware Solutions Ltd." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account was disclosed and as on 31.3.2014, the revenue from the operations of software products is Rs. 309.17 lakhs and software services are Rs. 3508.49 lakhs. The learned Authorised Representative emphasizing that there is no impact on the profits. We are of the opinion that the assessee company has customers in US and Europe area and the export revenue filter test has to be applied by the TPO. Accordingly we restore this issue to the file of TPO for fresh consideration. (iii) Maveric Systems Limited : This comparable was rejected by the TPO and it was sought for inclusion by the assessee and whereas TPO has rejected without any basis and was excluded on the ground that the company was engaged in R & D activity and expenditure is 6% of total turnover. Similarly, the DRP has upheld the exclusion of the company. The learned Authorised Representative submitted that company's functional profile is comparable and applied the TPO filters. Whereas the DRP has observed that the company has incurred substantial expenses to the tune of 6% of turnover towards R & D and the tolerable limit is 3%. We found the observations of the DRP are without any basis. Accordingly we resto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the financial statements. 8. The learned Authorised Representative made submissions in respect of exclusion of three comparables in the ITES segment and substantiated with chart and Paper Book. (i) Infosys BPO Limited - The comparable is functionally dissimilar as it is engaged in provision of Integrated IT and end to end business process, outsourcing solutions and has high brand value and also made significant investment creating intangibles and made several IPs. The comparable also engaged in cloud based services as e-dictionary. The learned Authorised Representative supported his stand relying on the decisions of CGI Information Systems & Management Consultants (P) Ltd. Vs. ACIT 94 taxman.com 97 and PCIT Vs. Saxo India P. Ltd. on the constitution. We found that the co-ordinate Bench of Tribunal in the case of Ocwen Financial Solutions Pvt. Ltd. Vs. JCIT (2019) 108 taxman.com 306 where at paras 7 to 7.41 and dealt on comparable Infosys BPO Ltd. at para 7.4.1 and held as under : We find the judicial decisions, applicable for the Assessment Year 2014-15 and based on the observations of the co-ordinate Bench, we consider the company Infosys BPO Limited comparable has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000." "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn-around-time for business critical processes." Source: http://www.cross-domain.com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. 19. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly." Also in the case of PCIT Vs. BNY Mellon International Operations (India) (P.) Ltd., 93 taxmann.com 363 (Bom) the Hon'ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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