9911796707
TMI Blog2021 (12) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the TPO / DRP / Assessing Officer in so far as they are against the appellant, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies itself to be assessed on a total income of Rs. 10,50,75,429/- as against income of Rs. 6,77,58,220/- as declared by the appellant. 3. a) The addition of Rs. 3,64,26,460/- being adjustment under section 92CA of the Act towards Software development services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. b) The addition of Rs. 8,90,749/- being adjustment under section 92CA of the Act towards IT Enabled Services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. 4. The authorities below erred in selecting the following functionally dissimilar companies as comparables for Software Development Services segment under the facts and circumstances of the case: • C G - VAK Software & Exports Ltd. • Larsen & Toubro Infotech Ltd. • Mindtree Ltd.(Seg) • Persistent Systems Ltd. (Seg) • Tech Mahindra Ltd. (Seg) 5. The authorities belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer pricing documents. The orders of TPO, AO and DRP are bad in law as the orders are hit by the doctrine of impossibility of performance on the facts of the case e) Rejecting companies having different financial year ending. f) Rejecting companies with export sales less than 75% of the total sales. g) Rejecting companies with service income less than 75% of the total income. h) Rejecting companies that have employee cost less than 25% of the sales. i) Applying related party filter at 2.5% of sales. 12. a) The order of the assessment is bad in law as the mandatory conditions to invoke the jurisdiction under section 92CA of the Act did not exist, or having not been complied with and consequently the order of the assessing officer is bad in law for want of requisite jurisdiction. b) The assessing officer erred in not providing the copy of the approval granted by the Commissioner which is in violation of the settled principles of natural justice and thus the order of assessment needs to be set aside. 13. The authorities below failed to understand the spirit and intent of Rule 10B(1)(e)(ii) as per which even if one of the comparables selected by the appellant satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re (India) Ltd. 16.36% 4 Goldstone Technologies Ltd. 11.29% 5 Sasken Communication Technologies Ltd. 16.72% 6 R Systems International Ltd. 7.62% 7 Mindtree Ltd. 14.37% 8 Evoke Technologies P. Ltd. 10.84% 9 Thirdware Solutions Ltd. 18.06% 5.1 The comparables selected by assessee under ITeS segment are as under: 6. Ld.TPO did not approve the selection criteria of comparables by assessee. The Ld.TPO on his own identified companies as comparable with the Assessee company and worked out the average arithmetic mean of their profit margins as follows: Name of the taxpayer OP/OC 1 CG-VAK Software Exports Ltd 20.45% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen & Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 18.19% 5 Persistent Systems Ltd. 28.27% 6 R S Software (India) Pvt Ltd 17.41% 7 Tech Mahindra Ltd (Seg) 18.72% Unadjusted average margin 20.90% The Ld.TPO proposed the adjustment to ALP being shortfall at Rs. 2,98,47,287/- under SWD segment. 6.1 The final set of comparables selected by the Ld.TPO under ITeS services segment are as under: S.No. Company Name PLI(OP/OC) 1 Acropetal Technologies Ltd. 24.16% 2 Microgenetic System ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonably required. SPI India provides software development services to various sectors like retail, financial services, healthcare etc. The services performed by SPI India can be discussed broadly inter alia under the following heads. Application Management: SPI India provides services to customers in the areas of application software maintenance, production support (including on-call) and enhancement services in various software and hardware platforms. The company also enters into contracts for maintenance of application software projects. During the course of maintenance the following activities are commonly undertaken: (a) problem reporting (b) problem resolution (c) solution distribution and (d) proactive defect prevention. SPI India uses its proprietary Enterprise Project management system - spiProject to capture and track problems and their resolutions. SPI India provides continuous phone support to all software maintenance projects. Other methods of communication available include video and data conferencing facilities to ensure prompt communication. Enterprise Solution: SPI India offers enterprise solutions and services to its customers. The range of the solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealthcare systems with assistance from companies in-house information technology division. Under medical coding segment assessee assists U.S. Healthcare Medical Billing Companies and medical providers to obtain proper reimbursement due for their services. Assets employed: It has been submitted that assessee owns routine assets like computer equipment, network equipment, software and applications. It is also been submitted that assessee does not own any nonroutine valuable intangible assets. Risks assumed: It has been submitted that assessee acted merely as sub contractor of services and therefore it bears limited contract risk as compared to SPI LLC. Assessee however assumes substantial foreign currency fluctuation risk, as it deals with customers in various countries. As assessee works on an assured markup on all cost incurred towards rendering services and there is no price risk bone by assessee. Thus assessee has been concluded to be not assuming any unique or extraordinary risk in course of providing IT enabled services. Based upon above FAR analysis of assessee, we shall consider comparables alleged by assessee for exclusion/inclusion. Summary Based on the above, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a nonjurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 IT(TP)A No.2490/Bang/2017 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 14. In the light of the aforesaid decision of the Tribunal, comparables sought for exclusion in Ground No.4 raised by the assessee is allowed. Accordingly this ground stands allowed partly. Ground No. 5 15. Assessee seeks inclusion of only 2 comparables being, Akshay Software Technologies Ltd. and Evoke Technologies Pvt. Ltd. It has been submitted that, the Ld.TPO and DRP accepted this comparable in the final list in previous years, however for the year under consideration the same has been excluded. Ld.AR placed reliance on coordinate bench of this Tribunal in case of M/s NXP India Pvt Ltd. vs DCIT in IT(TP)A No. 692 & 2861/B/2017 for assessment year 2012-13 and 2013-14 for Akshay Software Technologies Ltd. In case of Evoke Technologies, Ld.AR submitted that the Ld.TPO excluded this company as it reported loss from a discontinued business dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g/2018 for A.Y: 2013-14 by order dated 29.04.2019 has considered following comparables as under: "Hartron Communications Ltd. Further the learned AR emphasized that this comparable company is also engaged in real estate activity. The learned AR referred to page 1344 and 1350 of the paper book 2 and emphasized the entry into real estate business. The learned AR made submissions on the trading of shares of this company and relied on the observations of the Auditors. We found that the Chennai Bench of Tribunal in the case of M/s.Cameron Manufacturing India Pvt. Ltd. vs. DCIT in ITA No.336/Chny/2018 dated 16/10/2018 has observed at para 7 which read as under: "7. Ground No.2.3: M/s. Hartron Communications as the comparable company:- The Ld.AR submitted before us that M/s. Hartron Communications had diversified operations amongst which many relates to activities that are not similar to the activity of the assessee company. Further it was submitted that the company M/s. Hartron Communication's profit from BPO business both export and domestic for the current year is 18.43 crores while as for the previous year the profit was 3.81 crores which shows an increase of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated cost (Capgemini Outsourcing 8,35,22,704 Professional and consultancy (Capgemini 1,04,21,158 Professional and consultancy (Capgemini 73,99,408 EDP Expenses (Capgemini India Pvt. 6,07,22,526 Service fees (Capgemini Outsourcing Services 14,87,17,789 Service fees (Others) 1,42,30,206 Training charges (Capgemini Universite) 1,70,02,732 Reimbursement of expenditure (Capgemini 27,17,661 Reimbursement of expenditure (Others) 15,89,465 41,07,56,814 Total RPT 4,24,96,19,244 Total revenue from operations 5,16,22,18,012 RPT % 82.32% Whereas the RPT is 82% which does not satisfy the assessee's profile and above and it is functional different and accordingly, we direct TPO for exclusion of M/s.Capegemini Business Services from the list of comparables for determining the ALP. Similarly, the learned AR submitted for exclusion of M/s.Infosys BPO stating that this company cannot be comparable considering the brand value, functional dissimilarity and the company's turnover is Rs.1831.36 crores which is 10 times more than turnover filter and works as under: 1. The company earns revenue from provision of high end ITES in the nature of both KPO Et BPO, whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paper book 2. Further similar exclusion considered by the co-ordinate bench of the Tribunal in the case of e4e Business Solutions India Pvt. Ltd., vs. Deputy Commissioner of Income-tax in IT(TP)A No.1845/Bang/2013 dated 10/11/2015. We find there is strength in the arguments of the learned AR duly supported with evidence on segmental details and functional dissimilarities. The Infosys BPO was dealt by the co- ordinate bench in above case for the assessment year 2009- 10 at page 21 at para. 11.3(ii) which reads as under: ii) We have considered the rival submissions as well as relevant material on record. We note that in para 16.2.15 of the Annual Report of this company, it has been reported that there was amalgamation w.e.f 1/4/2008. The relevant part of the information provided in the Annual Report reads as under: Amalgamation of PAN Financial Services India Private Limited The Board of Directors in their meeting held on October 6. 2008. approved, subject to the approval of the Honorable High Courts of Karnataka and Chennai, a Scheme of amalgamation ("the Scheme") to amalgamate PAN Financial Services India Private Limited (-PAN Financial"), a wholly owned su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen as a comparable to functional profile of the assessee company. Accordingly, we are of the substantive opinion that Infosys BPO Ltd., be excluded and direct the AO/TPO to exclude this company from the list of comparables for calculating adjustment of the ALP." We rely on factual aspect and judicial decision and direct the TPO to exclude M/s.Infosys BPO for determination of ALP." 18.1 In the light of above decision, we direct the Ld.AO to exclude Hartron Communications Ltd. (seg), Capgemini Business Services (I) Pvt. Ltd. and Infosys BPO Ltd., from the final set of comparables. 18.2 In case of Microland Ltd. and Tech Mahindra, Ld.AR relied on following decision on Autodesk India Pvt. Ltd. vs. DCIT reported in (2018) 96 taxmann.com 263, wherein comparables having turnover more than 200 crores have not been regarded as comparables with companies having turnover less than 200 crores. Admittedly these companies have turnover more than 200 crores. The Ld.CIT.DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides based on records placed before us. The Ld.AR submitted that this Tribunal has, considered various aspects of appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 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 (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 (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 (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 5-8-2011. The decisions rendered by the ITAT Mumbai Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
