9911796707
TMI Blog2022 (8) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparables. 3. Whether the DRP is correct in excluding on the basis of Turnover filter, while the comparable is qualifying all the qualitative and quantitative filters applied by the TPO. 4. In the facts and circumstances of the case the Id.DRP erred in holding that foreign exchange loss or gain is a part of operating expense or operating income and exclusion of depreciation from cost as the case may be, when the TPO has excluded this data from that of the comparables. 5. Whether the DRP is correct in foreign exchange fluctuation as operating in nature and exclusion of depreciation from cost while treating foreign exchange fluctuation and deprecation non-operating in nature as applied by the TPO. 6. Whether the Ld.DRP was right in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence requires seeking similar comparable companies. 7. For these and other grounds that may be urged upon, direction of the Dispute Resolution Panel may be reversed and that assessment order be restored. 8. The appellant craves leave to add, alter, amend or delete any other grounds on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions which was undertaken in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (`the Rules' for short). c) That the AO/ TPO erred in facts and in law in conducting fresh benchmarking analyses by substituting the Appellant's analyses with fresh benchmarking analyses on his own conjectures and surmises and, in doing so, determining new arm's length prices. Thus the Appellant prays that the fresh benchmarking analyses conducted by the AO/ TPO are liable to be set aside. The DRP erred in upholding the actions of the AO/ TPO d) That the AO/TPO has erred in law and the DRP further erred in confirming the action of the TPO in using data which was not available in the public domain at the time of conducting the transfer pricing study by the Appellant. e) That the AO/ TPO erred in law and the DM' further erred in confirming the non-application of multipleyear data while computing the margins of alleged comparable companies. f) That the AO/TPO grossly erred on facts in benchmarking the international transactions of the Appellant with services provided by companies operating as full-fledged entrepreneurs without considering the differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in excess of 75% of their total turnovers. The DRP further erred in confirming the same. e) That the AO/ TPO erred on facts and in law in arbitrarily rejecting companies having employee costs less than 25% of their total revenues, and the DRP further erred in confirming the same. f) That, without prejudice to the Appellant's contention that the AO/TPO ought not to have arbitrarily rejected those companies having employee costs less than 25% of their total revenues, the AO/TPO erred in rejecting CG Vak Software & Export Ltd. and LGS Global Limited on that ground despite the said companies having employee costs in excess of 25% of their total revenues. The DRP further erred in confirming the same. g) That the AO/TPO also erred on facts and in law in arbitrarily rejecting R Systems International Ltd. for having a different financial year ending (i.e. other than 31' March 2011), despite the said company being functionally comparable to the Appellant. The DRP further erred in confirming the same. h) That the AO/ TPO erred in rejecting Akshay Software Technologies Ltd., CG Vak Software & Export Ltd., LGS Global Ltd., Goldstone Technologies Ltd., Powersoft Global Soluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 75% of total operating revenue and inconsistently applying such a filter, without considering the specific segmental results. The DRP erred in confirming the same. f) That the AO/TPO grossly erred in rejecting Informed Technologies India Limited by applying the aforesaid filter despite the said company having ITeS revenue in excess of 75% of its total operating revenues. The DRP erred in confirming the same. g) That the AO/ TPO erred in including Accentia Technologies Ltd., Acropetal Technologies, ICRA Online Ltd., and Jeevan Scientific Technology Ltd. in the final list of comparables despite these companies being functionally dissimilar to the Appellant. The DRP also erred in confirming the same. h) The DRP has rejected Infosys BPO Ltd., Mindtree Ltd. and iGate Global Solutions Ltd. on application of upper turnover filter of INR 200 crores. However, the DRP has erred in tie 'not rejecting the said companies as being functionally dissimilar to the Appellant. 5. Determination of arm's length price relating to Software Duplication and Re-Distribution Services a) That the AO/TPO erred in law and on facts in rejecting the Appellant's application of the Resale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 10B to account for, inter alia, the differences in (a) accounting practices; (b) marketing expenditures; (c) research and development expenditures; and (d) risk profiles to account for the differences between the Appellant and the comparable companies. b) That the AO/TPO grossly erred in law and on facts in arbitrarily applying upper caps to the working capital adjustments allowable to the Appellant while determining the arm's length prices of its international transactions without there being any legal basis or rationale for limiting the working capital adjustments to the said percentages, and thus erred in not granting the entire adjustments allowable under Rule 10B of the Rules to account for the differences in the working capital positions of the Appellant and of the comparable companies. c) That, despite the binding directions of the DRP, the AO / TPO grossly erred in law and on facts in not excluding the Appellant's cost of depreciation from its operating cost bases while determining the arm's length prices of its international transactions of provision of software development services and telecom support services, and thus erred in not complying with the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 143(1) of the Act and case was selected for scrutiny. Ld.AO observed that, assessee entered into international transaction with associated enterprises for more than Rs.15 crores, and therefore reference was made to Ld.TPO for determining arms length price of the international transaction. 2.2 Upon receipt of reference, the Ld.TPO called for economic details of international transaction in Form 3CEB. The Ld.TPO observed that, the assessee entered into following international transaction with its associated enterprises: Particulars Amount in Rs. Provision of software development services 115,84,60,432/- Provision of IT enabled services 7,52,73,455/- Software Duplication and Re-distribution 4,03,96,085 /- Reimbursement of expenses 8,61,778/- Recovery of services 2,71,58,603/- 2.3 Ld.TPO accepted arms length price, computed by assessee in respect of Software Duplication and Re-distribution (comprising purchase of software and royalty on sale of duplicated software). The only segment disputed by the Ld.TPO was in respect of Software Development Services and Provision of IT enabled serviced. It is observed that, for software development service segment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Ltd. 16.37 15.06 12 Sasken Communication Technologies Ltd. 24.13 23.33 13 Tata Elxsi Ltd. (seg) 20.91 17.78 AVERAGE MARGIN 24.82 22.25 IT enabled service segment Sl. No. Name of the Company Mark-up on Total Costs (WC-unadj) (in %) Mark-up on Total Costs (WC - adj) (in %) 1. Accentia Technologies Ltd. 28.99 25.50 2. Acropetal Technologies 26.86 22.15 3. Cosmic Global Ltd. 9.81 9.75 4. e4e Healthcare Business Services Pvt. Ltd. 12.38 13.22 5. ICRA Online Ltd. (seg) 34.21 32.32 6. Jeevan scientific technology Ltd. 70.66 70.60 7. Infosys BPO Ltd. 17.89 15.30 8. Jindal intellicom Ltd. 11.13 10.95 9. Mindtree Ltd. (seg) 10.76 8.18 10. iGate Global solutions Ltd. 25.07 23.82 AVERAGE MARGIN 24.77 23.18 2.7 The Ld.TPO, proposed adjustment in respect of the 2 segment is under: Particulars Proposed adjustment Software development service segment Rs.13,89,09,426/- IT enabled services meant Rs.90,93,681/- 2.8 Software Duplication and Re distribution(SDR) segment: The Ld.TPO though held that the transaction in SDR segment to be at arm's length, he subsequently passed an order under Section 154 of the Act dated 04.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l list of comparable to the SWD service segment are as follows: SI. No. Name of the Company Adjusted Margin 1. Acropetal Technologies Ltd. (seg) 71.68 2. e-Zest Solutions Ltd. 29.11 3. E-Infochips Ltd. 70.50 4. Evoke Technologies Pvt. Ltd. 11.07 5. ICRA Techno Analytics Ltd. 31.76 6. Persistent Systems and Solutions Ltd. Ltd. 25.67 7. R S Software (India) Ltd. 19.75 ARITHMETICAL MEAN 37.08 For IT enabled service segment: v. Turnover filter: The DRP directed exclusion of companies having turnover in excess of Rs. 200 crores. vi. Foreign exchange fluctuation: The DRP directed that the foreign exchange fluctuation ought to be treated as operating in nature while computing operating margins of the Assessee and the companies chosen as comparables. vii. Working capital adjustment: Despite the assessee's objections, the DRP upheld the WC adjustment determined by the TPO in the TP order, wherein the adjustment was restricted to 1.47% as against the actual adjustment of 1.59%. viii. Depreciation adjustment: The DRP, following its directions in the assessee's case for AY 2010-11 and CIT(A) order for AY 2009-10, directed that the margins of the assessee as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the inputs received from Novell US to ensure that the deliveries are tied into the product release. * Based on the project plan developed, the product engineering team of Novell India performs specific functions which comprise of defining and designing the functional specifications for the project, identification of interfaces, functions, components, coding and bug fixing, code drop, unit test, integration and final system set. * The component developed is tested for quality and functionality with significant focus on real-life customer scenarios. * The final tests to determine the quality of a product developed before it is released into the market is performed by the product engineering tam of Novell India in coordination with Novell US. * Novell Us is responsible for the launch of the product developed. * Novell India also renders third level customer support wherein the product engineering team of Novell India renders technical support to the technical service team of Novell US. Novell US acts as the customer interface, though the support service could be provided by Novell India. * Novell India is responsible for providing both technical and user documents for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in selecting comparables of uncontrolled companies. He submitted that, this Tribunal in case of Genesis Integrating Systems India Pvt.Ltd., (supra) observed as under: "For the purpose of classification of companies on the basis of net sales or turnover, a reasonable classification has to be made. Dun & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, it is held that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study" 9.3 We have perused submissions advanced by both sides, in light of records placed before us. 9.4 It is observed that, the companies engaged in software development services selected by the Ld.TPO are engaged in software development services, but has not considered verticals/functional or service lines, in which the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as ensuring that future requirements can be addressed. The architecture step also addresses interfaces between the software system and other software products, as well as the underlying hardware or the host operating system. Thereafter, a design is reduced to code and where the code is to be written by two different engineers, they must work together and the testing of software falls on to the shoulders of software engineers. The next important task is documenting the internal design of software for the purpose of future maintenance and enhancement. A large percentage of software projects fail because the developers fail to realize that it does not matter how much time and planning a development team puts into creating a software if nobody in the organization ends up using it. Therefore, it is very important to have training classes for the most enthusiastic software users, shifting the training towards the neutral users intermixed with the avid supporters and finally incorporate the rest of the organization into adopting the new software. The next important step is the maintaining and enhancing software to cope with newly discovered problems or new requirements. This can ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 core to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce provider, which does not design/develop/sell software products and does not own any IP. 9.9 Therefore, respectfully following above decisions, we uphold exclusion of Tata Elxsi Ltd., Sasken Communication Technologies Ldt, Persistent Systems Ltd., L&T Infotech Ltd., and Infosys Ltd., by applying turnover filter under SWD Segment and for ITeS Segment, Infosys BPO Ltd., iGate Global Ltd., and Mindtree Ltd., by applying turnover filter, from final list. We therefore uphold exclusion of this comparable by Ld.AO. Accordingly Ground No.2-3 raised by revenue stands dismissed. 10. Ground No 4-5 raised by the revenue is against holding the foreign exchange loss or gain as part of operating expenditure and excluding depreciation cost. 10.1 The revenue is contending that the DRP erred in directing the Ld.AO/TPO to consider the foreign exchange fluctuation to be operating in nature. 10.2 On the other hand, the Ld.AR submitted that it is one of the settled position that gains/loss arising from fluctuation of foreign exchange having nexus with the international transaction ought to be treated as being operating income and ought to be taken into consideration while computing the operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction if-- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." The learned counsel for the Assessee therefore submitted that profit arising from comparable transaction will not be materially affected by adopting the foreign exchange gain as reflected in the accounts of the comparable companies because the terms of credit are almost identical in the line of business of SWD Services and ITES. 39. We have considered the rival submissions and are of the view that the in the light of Rule 10B(3) of the Rules and the business cycle in the relevant business, the comparability will not be materially affected if the foreign exchange gain is considered as reflected in the accounts of the comparable companies as available in public domain. To this extent the decision rendered by the Bangalore Bench of ITAT in the case of Commonscope Networks (India) Pvt.Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation at page15 of paper book, Vol-1 has been encapsulated. She thus submitted that adjustment is to be made to eliminate difference between assessee and comparables. Placing reliance upon decision of this Tribunal as well as Pune Tribunal in Honeywell Technology solutions Lab Pvt.Ltd in ITA No. 1344/Bang/2011 and E-Gain Communications Pvt.Ltd vs ITO reported in (2008) 23 SOT 385, she submitted that Ld.CIT (A) rightly directed Ld.TPO to exclude depreciation from operating costs of assessee as well as comparables. Ld.CIT DR placed reliance upon orders passed by Ld.AO/TPO. 12. We have perused submissions advanced by both sides in the light of the records placed before us. It has been submitted by the Ld.AR that for assessment year 2005- 06 in assessee's own case when this issue was remanded by this Tribunal is Ld.TPO/AO had inter alia granted the adjustment on depreciation after taking into consideration the detailed working submitted by assessee. Placing reliance upon page 892-898 of paper book, it has been submitted that for year under consideration detailed working is already available before authorities below. Ld.CIT (A) observed as under: "14.5.(v) Depreciation Adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Ld.TPO. She submitted that the revenue from IT services as considered by the TPO is less than 75% of the total revenue of the company 57.47%. The Ld.AR submitted that this comparable is functionally not comparable to the assessee as on a perusal of the services offered under its information technology services segment, which was what was considered by the Ld.TPO, it is evident that services such as IT infrastructure management services and information life cycle management form a part thereof. In this regard, it is submitted that such services are akin to IT enabled services and thus given that there is no bifurcation of the revenue within the IT segment into IT and IT enabled services, the company ought to remain excluded from the list of comparables. A.2 In support she placed reliance on coordinate bench of this Tribunal in Applied Materials India Pvt. Ltd. v. ACIT reported in TS-815-ITAT-2016(Bang)-TP at paras 16.1 to 16.4 at pages 3132, Finastra Software Solutions (India) (P.) Ltd. v ACIT reported in (2018) 93 taxmann.com 460 at para 15 and Aspect Technology Center (I.) Pvt. Ltd. v. ITO by order dated 30/07/2020, passed by this Tribunal in IT(TP)A No.187/Bang/2016 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) Ltd. v. ACIT [[2018] 93 taxmann.com 460 (Bangalore - Trib.) at para 15 at page 1744]; Electronic Imaging India P. Ltd v. DCIT [(2017) 85 taxmann.com 124 (Bangalore-Trib) para 8 at pages 1725-1726] and IT(TP)A Nos.187 & 175/Bang/2016 Commscope Networks (I) Pvt. Ltd. v. ITO [TS-161-ITAT-2017(Bang)-TP at para 9 on pages 1639-1640] held that this company should be excluded from the list of comparable companies in the case of companies engaged in rendering SWD services such as the Assessee." A.6 Respectfully following the above view, we direct the Ld.AO/TPO to exclude this Comparable from the final list. B. e-Zest Solutions Ltd. B.1 The Ld.AR submitted that the company is engaged in end to end product development, including product design and development and is incomparable to the Assessee. Further, she also submitted that, it has significant inventory (nearly 15% of the income from its operations) which substantiates the Assessee's contention that it is a product development company, and thus incomparable to the Assessee which is engaged in rendering routine IT services. B.2 In addition, the Ld.AR submitted that, services rendered by E-Zest Solutions Ltd. are diverse such as prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f being heard to the Assessee." B.7 Respectfully following the above view, we remand the issue to the TPO for deciding the correctness of choosing this company as a comparable company. Needless to say that proper opportunity of being heard will be granted to the assessee. C. E-Infochips Ltd. C.1 The Ld.AR submitted that this company is engaged in diverse activities such as software development, product development and the provision of IT enabled services for which no separate segmental information is available in its annual report. On the contrary, the diverse activities of software development and the IT enabled services are considered and reported together in one segment. Thus, in the absence of such segmental details, the company ought to be held as functionally not comparable to the assessee, which is a captive software development service provider. Further, the company also has significant inventory and intangibles in its books of account, unlike in the case of the assessee. Submissions in this regard are placed at pages 13301337 and 2005-2012 of the paperbook. C.2 The Ld.AR placed reliance on the decisions of coordinate bench of this Tribunal in Finastra Software Solution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the DRP, the company also has presence of inventory and is, therefore, incomparable to the Assessee. We also find that this Tribunal in Electronic Imaging India P. Ltd v. DCIT [(2017) 85 taxmann.com 124 (Bangalore-Trib) para 9 at pages 1726-1727]; Saxo India Pvt. Ltd. v. ACIT [2016] 67 taxmann.com 155 (Delhi - Trib.) (paras 10.1 and 10.2 at pages 1656-1657)] (which came to be upheld by the Hon'ble Delhi High Court); Finastra Software Solutions (India) (P.) Ltd. v. ACIT [[2018] 93 taxmann.com 460 (Bangalore - Trib.) at para 17 at page 1744]; Cypress Semi-conductor Technology India Pvt. Ltd. v. DCIT [IT(TP)A No.356/Bang/2016 at paras 19-20 at pages 1773-1775]; and Commscope Networks (I) Pvt. Ltd. v. ITO [TS-161-ITAT-2017(Bang)-TP at para 9 on pages 1639-1640] held that this company ought to be excluded from list of comparable companies in the case of companies rendering SWD services similar to that of the Assessee. Consequently, for the above reasons, the action of the DRP in directing the exclusion of E- Infochips Ltd. is upheld and the ground is dismissed." C.6 Respectfully following the above view, we direct the Ld.AO/TPO to exclude this Comparable from the final list. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment & hosting and revenue from all the activities are reported under one segment, without any segmental information regarding the same made available. Therefore, in the absence of segmental information, it cannot be ascertained whether the company passes all the filters applied by the TPO and therefore ought to stand excluded from the final list of comparables. We also find that this Tribunal in Applied Materials India Pvt. Ltd. v. ACIT [IT(TP)A Nos. 17 & 39/Bang/2016] at paras 17.1 to 17.2 at pages 1607-1609]; Finastra Software Solutions (India) (P.) Ltd. v. ACIT [[2018] 93 taxmann.com 460 (Bangalore - Trib.) at para 17 at page 1744]; and Electronics Imaging India P. Ltd v. DCIT [(2017) 85 taxmann.com 124 (Bangalore-Trib) para 10 at pages 1727] excluded this company from the list of comparables in the case of companies that were engaged in rendering SWD services similar to that of the Assessee. We therefore find no merit in Gr.No.7 raised by the revenue. D.6 Respectfully following the above view, we direct the Ld.AO/TPO to exclude this Comparable from the final list. E. Persistent Systems & Solutions Ltd. E.1 The Ld.AR submitted that the assessee seeks exclusion of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this company from the sale of software services and products and in the absence of segmental details, it cannot be considered as comparable with software services segment. We find that this company has shown the income from sale of software services and products to the tune of Rs.6.67 crores. We further note that as per Schedule 11, the entire revenue has been shown under one segment i.e., sale of software services and products. Therefore, no separate segment has been given in respect of software services. Accordingly, the composite data of revenue as well as margins of this company pertaining to the sale of software services and products cannot be considered as comparable with the software development services segment of the assessee. In view of the above facts and circumstances, we do not find any error or illegality in the directions of the DRPJ excluding this company from the list of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist of comparables in the case of the assessee and in the case of several other similarly placed assessees for many assessment years. In that view of the matter, it is submitted that LGS Global Ltd. ought to be included in the final list of comparables. 13.5. Reliance is placed on coordinate bench of this Tribunal in case of Applied Materials India Pvt. Ltd. v. ACIT (supra) where, in the case of a similarly placed assessee, this Tibunal remanded the examination of the comparability of the company to the AO/TPO. 13.6. On the contrary, the Ld.DR relied on orders passed by the authorities below. 13.7. We have perused the submission advanced by both sides in light of records placed before us. 13.8. We note that the Ld.TPO/AO did not verify the annual report filed by assessee of this comparable. We deem in proper to remand this comparable to the Ld.AO/TPO to consider this comparable in the light of the annual report and the observations of this Tribunal in case of Applied Materials India Pvt. Ltd. v. ACIT (supra). Accordingly we remit this comparable to consider it afresh. 14.Ground No.4 (g): That the lower authorities erred in including Accentia Technologies Ltd, Acropetal Techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany ought to stand excluded. Submissions in this regard are placed at pages 1436-1441 and 2092-2096 of the paperbook. D. Jeevan Scientific Technology Ltd. - It is submitted that this company ought to be rejected from the list of comparables on for following reasons: The company fails TPO's own filter of Sales > 1 Crore: 24.1 Jeevan's service income from the BPO segment for the AY in question was Rs. 79 Lakh and the company therefore fails the Ld.TPO's own filter of sales greater that Rs. 1 crore, which was not appreciated by the DRP. The company fails TPO's own filter of service income > 75% of total operating revenue: D.1. The segmental income from the BPO segment of the company is 32% of its total operating revenue, therefore failing the filter of service income being greater than 75% of the total operating income. D.2. Functionally dissimilar: The company has classified its segment into 4 categories, one of them being BPO segment. However, the segmental details are unavailable and therefore it cannot be ascertained whether the services provided by the company in the BPO segment is same as that of the assessee. The mere fact that the segment has been classified as BPO d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abled services and the same are reported together as one segment. In the absence of segmental details made available, the company could not be treated as a comparable. The TPO, while choosing the company as a comparable, has selected its Engineering Design Segment ('EDS' for short) which is in the nature of high end IT enabled services which are in the nature of Knowledge Process outsourcing ("KPO"). The high end services provided by the company cannot be compared with the routine services provided by the Assessee. This Is a settled position and reliance can be placed on the decision of this Hon'ble Tribunal's in the case of Symphony Marketing Solutions India Pvt. Ltd.(ITA No. 1316/Bang/2012) where it was held that Acropetal cannot be considered as a comparable to assessees performing routine low end IT enabled services function. As far as exclusion of company Jeevan Scientific Technology Ltd., we find that this company was rejected by the DRP for the reason that it was engaged in diverse functions and the same were reported under one segment without segmental details regarding the same being made available. The DRP is right in excluding the company as without segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income which activities are akin to software development activity while the assessee is a mere provider of IT enabled services. The company has invested huge sums in the development of EMR software. Segmental details of its various activities are unavailable. The company further owns significant intangibles. This Tribunal in the case of Swiss Re Shared India Pvt. Ltd. v. ACIT [TS-598ITAT-2016(Bang)-TP at paras 9-20 on pages 7-21] where, in similar circumstances and for the same assessment year, this Hon'ble Tribunal directed the exclusion of this company from the list of comparables. Accentia Technologies Ltd. is, therefore, not comparable to the Assessee and was rightly rejected as a comparable. As far as iGate Global Solutions Ltd., is concerned, DRP rejected this company as comparable company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. It is seen that iGate is engaged in provision of varied services and no segmental breakup of the same is available in its Annual Report. Further, the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services segment. 15.2.Ground No.5(c): That the lower authorities erred in conducting a fresh TP analysis in respect of the SDR services segment without sharing the methodology of the TPO's search process and the list of comparables and without granting sufficient opportunity of hearing to the Assessee It is submitted that the assessee purchases software products from its AE, duplicates and markets it in India. The Assessee has no right to modify or create any derivative works of the duplicated product, and thus there is no value addition made by the Assessee to the product. In the TP study maintained by the Assessee, for the purposes of benchmarking the above transaction, it applied, Resale Price Method ('RPM' for short) as the most appropriate method with Gross Profit Margin ('GPL' for short) as the PLI. 15.3. The Ld.TPO, in the order passed under Section 92CA of the Act, categorically held since on an independent search made by the Ld.TPO, the margin of the comparables selected by him was 7.42% on cost and 2.26% on sales, no adverse inference is drawn with regard to the transaction under this segment. However, subsequently, the TPO passed an order under Section 154 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Water Heating (P.) Ltd. ([2018] 97 taxmann.com 218 (Bangalore - Trib.) at paras 16-20; and (v) PCIT v. Matrix Cellular International Services (P.) Ltd. ([2018] 90 taxmann.com 54 (Delhi) at para 12) 15.7. It is submitted that in assessee's own case for the assessment years 2012-13 to 2014-15, the transaction in the SDR segment, was benchmarked by the assessee by applying RPM was accepted by the Ld.TPO to be at arm's length. It is submitted that the facts and circumstances involved in the above assessment years are similar to that of the present assessment year, and therefore no adjustment is warranted in the said segment. Reliance in this regard was placed on the decision of the Hon'ble Delhi Tribunal in the case of Topcon Sokkia India Pvt. Ltd. v. DCIT by order dated 29.02.2020 passed in ITA No. 8110/Del/2018. It is also submitted that, the revenue ought to adopt a consistent approach across assessment years, as laid down by the Hon'ble Supreme Court in the case of Radhasaomi Satsang v. CIT reported in 193 ITR 321. 15.8. Further the Ld.AR relied on placed on the decision of Hon'ble Mumbai Tribunal in the case of Bristol Myers Squibb India Private Limited v. DCIT by order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been done by the TPO. The Ld.TPO applied upper cap of 1.63% and 1.47% to the working capital adjustments to the SWD and ITE service segments respectively, without providing any legal basis or rationale. 16.2. The Ld.AR submitted that, working capital adjustment is one such adjustment which is to be applied in order to adjust for the differences between the working capital positions of the tested party and of the comparable. In this regard, she placed reliance on the decision of coordinate bench of this Tribunal in: (i) ARM Embedded Technologies Pvt.Ltd vs. ITO in IT(TP)A No.1369/Bang/2014, in paragraph 24-25 at pages 16-18. (ii) Brocade Communications Systems (P) Ltd. Vs. DCIT in IT(TP)A No.79/Bang/2019 dt.19.06.2020 in Para 40 to 46. 16.3. The Ld.AR submitted that, the working capital adjustment computed by the Ld.TPO is also erroneous, inasmuch as, the average receivables and payables are wrongly considered which also needs to be rectified. Placing reliance on Pages 2120-2121 of the paper book, the Ld.AR submitted that correct computation of average working capital of the assessee therein. 16.4. The Ld.CIT.DR on the contrary relied on the view taken by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pports the contention of the learned counsel for the Assessee. Hence it was submitted that the above action of the TPO and subsequent confirmation of the same by DRP is wholly erroneous and liable to set aside by this Hon'ble Tribunal. The learned DR relied on the order of the TPO/DRP. In the light of the decision cited by the learned counsel for the Assessee, we are of the view that the working capital adjustment has to be allowed on actual and there cannot be any cap that can be imposed in allowing adjustment to the margins of comparables or that of the tested party towards working capital adjustment. 36. The learned counsel for the Assessee also submitted that the working capital adjustment as computed by the TPO was also erroneous inasmuch as the average receivables and payables of the comparable companies are wrongly considered which ought to be rectified. The details regarding the average receivables and payables of the comparables are provided at page Nos. 512-514 of the paperbook. Therefore, the working capital adjustment ought to be allowed on actuals upon taking into consideration the correct value of receivables and payables. We are of the view that it would be app ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
