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TMI Blog2021 (2) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... And Beena Pillai , Member ( J ) For the Appellant : K. R. Vasudevan , Advocate For the Respondents : Priyadarshi Mishra , Addl. CIT ( DR ) ORDER Beena Pillai , Member ( J ) Present cross appeals has been filed by assessee as well as revenue against order dated 17/09/2018 passed by the Ld. CIT(A)-7, Bangalore, for assessment year 2010-11 on following grounds of appeal: ITA No. 3119/B/2018 "1. The order of the learned CIT(A) is opposed to facts of the case. 2. Whether on the facts and circumstances of the case, the CIT(A) was right in removing 4 comparable companies in software development segment viz. 1. Infosys Ltd., 2. Kals Information Systems Ltd., (seg) 3. Persistent Systems Ltd., and 4. Tata Elxsi Ltd., (seg) on grounds of functionally dissimilarity in software development segment? 3. Whether on the facts and circumstances of the case, the CIT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas? 4. Whether on the facts and circumstances of the case, the CIT(A) is right in trying to find out exact replica of the assessee for determining the Arm's length price based on such replica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The learned AO/learned TPO/Hon'ble CIT(A) has grossly erred in not rejecting the following companies from the list of comparable companies: • L & T Infotech Ltd. • Mindtree Ltd. • Sasken Communication Technologies Ltd. 8. The learned AO/learned TPO/Hon'ble CIT(A) erred in not allowing the benefit of applying the range of +1-5% in determining the arm's length price. 9. The learned AO/learned TPO/Hon'ble CIT(A) has erred in not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-à-vis independent comparable companies. 10. The learned AO/learned TPO/Hon'ble CIT(A) erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-à-vis the comparable companies. Corporate taxes 11. The learned AO/Hon'ble CIT(A) erred in disallowing software expenses amounting to INR 2,690,426 by erroneously considering the same as software purchase and therefore that the same was ought to have been capitalized while in reality the same were in the nature o software expenses incurred for professional services. Further even considering but not admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany that provides software development services to its parent company being Verifone Singapore. It filed its return of income for year under consideration on 29/09/2009 declaring total income of ₹ 67,321/- after claiming deduction under section 10B of the Act amounting to ₹ 30,036,723/-. 3. The Ld. AO noted that assessee for the year under consideration has entered into international transaction with its associated enterprise exceeding ₹ 15 crores and therefore the matter was referred to the Transfer Pricing officer for computing the arm's length price of the international transaction. 4. Upon receipt of the reference, Ld. TPO called upon assessee to file economic details of the international transaction in Form 3 CD. 5. The Ld. TPO noted that assessee entered into following international transaction: Sl no Type of transaction Amount (Rs) 1 R & D Services 19,19,57,973 2 Tech Support Services 3,81,89,551 Total 23,01,47,524 5.1. The Ld. TPO observed assessee carried out following functions as per TP document: "Verifone India Operations: Currently Verifone India is carrying out R & D Services as per requirement of Verifone Singapor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparables selected by assessee by applying following filters: S.N Filter for selection of companies Quantitative criterion 1. Companies which are in software business (Information Technology) 2. Rejected data for the year ended 31 March 2010 not available 3. Companies having a turnover of less than 1 Crore selected 4. Rejected companies having a turnover of more than INR 300 Crores 5. Rejected company with any unusual transactions during the test period 6. Rejected company with business activity cannot be ascertained 7. Rejected companies with no data available 8. Rejected companies with unusual transactions during the year of review 9. Selected companies with segmental data 7. Thereafter, the Ld. TPO applied following filters and selected following set of 11 comparables which included 8 new comparables and 3 comparables selected by assessee in the TP document: S No Filters used for Software development segment 1. Use of current year data 2. Companies whose software development income was less than ₹ 1 crore were excluded 3. Companies whose software development service is less than 75 percent of the total operating revenues were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionality. However upheld the other comparables. 12. In respect of deduction claimed under section 10B by assessee, the Ld. CIT(A) directed the Ld. AO to consider the claim in accordance with the ruling of Hon'ble Karnataka High Court in case of Tata Elxsi Ltd. reported in (2012) 349 ITR 98. As regards the software expenses disallowed amounting to ₹ 26,90,426/- it was submitted that TDS was deducted by assessee which the Ld. CIT(A) directed Ld. AO to verify the claim and allow the payment, if TDS is found to be deposited. 13. Aggrieved by the order of the Ld. CIT(A), assessee as well as revenue are in appeal before us. 14. At the outset the Ld. AR submitted that amongst the grounds raised by assessee, it wishes to argue Ground 6-7, 9 and the other grounds are not pressed. Accordingly we are adjudicating only ground No. 6, 7, 9 in assessee's appeal. 15. The Ld. AR submitted that Ground No. 6-7 are in respect of comparables retained by the Ld. CIT(A), without considering the fact that, these comparables are functionally not similar with that of assessee and also that they fail the turnover filter. The Ld. AR submitted that applying the upper limit for turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords placed before us. 20. Decision of coordinate bench of this Tribunal in case of Autodesk India Pvt. Ltd., vs DCIT reported in (2018) 96 Taxmann.com 263 has analysed every conflicting view and concluded that the law laid down in case of Genesis Integrating Systems India Pvt. Ltd. (supra) has to be followed. The relevant observations of this Tribunal are as under: "17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment the same was not granted. 26. Rule 10B(3) of the Income-tax Rules, 1962, supports the said action of the TPO in granting a working capital adjustment. In the following decisions rendered by coordinate bench of this Tribunal in case of, TNT India (P.) Ltd. reported in (2011) 10 Taxmann.com 169 (para 13), Bearing Point Business Consulting (P.) Ltd. reported in (2013) 33 Taxmann.com 92 (para 5.4) and Apigee Technologies (India) (P.) Ltd. reported in (2015) 63 Taxmann.com 129 (paras 17 to 19) it has been held that adjustment towards working capital differences between the assessee and the comparables should be considered and appropriate adjustment granted in arriving at the profit margins of comparable companies for the purpose of comparison. 27. Respectfully following the same, we direct the Ld. AO/TPO to grant working capital adjustment in actuals for determined in the profit margin of comparables. Accordingly this ground raised by assessee stands allowed for statistical purposes. 28. In respect of corporate tax issues raised by assessee being. 29. Ground No. 11-16 it has been submitted that the directions by the Ld. CIT(A) needs to be followed while considering the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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