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TMI Blog2022 (3) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... t working capital should be allowed as per actuals. Respectfully following the view taken by coordinate bench of this Tribunal, we direct the Ld.AO/TPO to grant the WCA on actuals Depreciation on Software cannot be disallowed due to non-deduction of TDS - HELD THAT:- We note that the Ld.CIT(A) given direction to the Ld.AO to verify the TDS payments and allow the payments, which has not been implemented, till date. We direct the Ld.AO to follow the directions of the CIT(A) in light of the principles laid down by decisions referred to herein above and to consider the claim of assessee in accordance with law. X X X X Extracts X X X X X X X X Extracts X X X X ..... justment towards the risk difference between the Appellant vis-à-vis the comparable companies. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." ITA No. 3089/Bang/2018 (A.Y. 2012-13): "I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer (`learned AO'), learned Transfer Pricing Officer(`leamed TPO') and the Honourable Commissioner of Income Tax (Appeals) ["Hon'ble CIT(A)"] grossly erred in adjusting the transfer price by INR 2,37,82,190/- with respect to the international transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of subsection (3) of section 92C of the Act. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Honours: 11. The Ld. AO/ Ld. IPO/ Hon'ble CIT (A) have grossly erred in not rejecting the following companies from the final list of comparable companies: * Acropetal Technologies Limited * E-Infochips Limited * ICRA Techno Analytics Limited * Persistent Systems and Solutions Limited The above ground No. 11 is in continuation to Ground No. 7 raised in Form 36 and without prejudice to the other grounds of appeal preferred by the Appellant." A.Y. 2012-13: Based on the facts and circumstances of the case, Verifone India Technology Private Limited ("the Appellant"), respectfully submits the following additional grounds of appeal for admission before Your Honours: 6A. The Ld TPO/ Ld AO/ Hon'ble CIT(A) erred in not rejecting the following companies from the set of comparable companies proposed in the TP order: * Infosys Ltd. * Larsen & Toubro Infotech Ltd. * Mindtree Ltd. * Persistent Systems Ltd. * R S Software India Ltd. * Sasken Communication Technologies Ltd. The said ground is in continuation to Ground No. 6 of the Form 36 wherein a general ground on application of upper turnover filter has been taken and is without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the order under section 92 CA of the Act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 4. The assessee sought for exclusion of comparable companies on grounds of upper turnover filter. The Ld.CIT(A) rejected the exclusion of companies based on upper turnover filter. However, the Ld.CIT(A) excluded E-Zest Solutions Ltd., Infosys Ltd., Persistent Systems Ltd., Tata Elxsi Ltd. from the final list by relying on the decision of coordinat bench of this Tribunal in assessee's own case for AY. 2008-09. 5. The Ld.CIT(A) rejected the contentions of the assessee in respect of Larsen & Tubro Infotech Ltd., Mindtree Ltd., and Sasken Communication Technologies Ltd. Aggrieved by the of the Ld.CIT(A) the assessee is in appeal before this Tribunal. The Ld.AR at the outset submitted that assessee wish to argue in respect of following comparables in Ground no.7 for exclusion: * L & T Infotech Ltd. * Sasken Communication Technologies Ltd He submitted that assessee do not wish to argue in respect of Mindtree Ltd. 6. He submitted that assessee has raised Additional Grounds before the Hon'ble Tribunal for exclusion of the following four compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that assessee undertakes limited manpower risk and Foreign currency risk. Based on the above, assessee has been characterized to be a capital service provider rendering software services to Verifone Singapore and the remuneration is billed based on cost plus model as per the terms of the agreement entered into between both parties. Based on the above we shall not analyse the comparables sought for exclusion by assessee in Ground no. 7 and Additional Ground. 8. Ground No.7: Assessee is seeking exclusion of of only two comparables being, L& T Infotech Ltd and Sasken Communication Technologies Ltd. At the outset the Ld.AR submitted that coordinate bench of this Tribunal in the case of M/s. Fiber Link Software Pvt. Ltd. vs. ACIT in IT(TP)A No.239/Bang/2016 for the same assessment year A.Y 2011- 12, by order dated 03/03/2021 excluded following comparables from the final set of comparable. On the contrary, the Ld.Sr.DR though opposed the submission by the Ld.AR, could not controvert the categorical observations by coordinate bench of this Tribunal in the case of M/s. Fiber Link Software Pvt. Ltd.,(supra). We have perused the submissions advanced by both sides in light of record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Autodesk India Ltd. (supra) were identical. The tribunal held on the comparability of the aforesaid three companies as follows: "26. In ground No. 3(k), the assessee has prayed for exclusion of all 3 companies which were retained by the DRP in the impugned order. In this IT(TP)A.No.156 & 220/Bang/2016 Page 15 of 18 regard, the ld. counsel for the assessee has brought to our notice that Persistent Systems & Solutions Ltd. was regarded not comparable for the reason that it had diverse functions and segmental details were not available and that it was product company and that there was abnormal increase in turnover due to funding from holding company. These aspects were considered by the Tribunal in the case of Applied Materials (I) P. Ltd. (supra) and vide para 9.2.1 to 9.2.4, the Tribunal regarded this company as not comparable. Persistent Systems Ltd. was also considered as not comparable in the aforesaid order vide same paras referred to above for the reason that it was engaged in diverse activities and in the absence of segmental details, besides holding IPRs. 27. The other company is Sasken Communication Technologies Ltd. which was retained by the DRP. As far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunications Technologies Ltd. by observing as under: "11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software products and though the break-up of revenue from the two segments were available, but the break-up of Operating Cost and Net Operating revenue and segmental details were not available. …………………. 13. The Tribunal in the case of DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015 exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue to take a different view. Respectfully following the above view, we direct the Ld.AO/TPO to exclude excluded Acropetal Technologies Ltd., EInfochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems & Solutions Ltd. Accordingly additional ground raised by the assessee stands allowed. 12. Ground No. 9: Working Capital Adjustment We note that the Ld.TPO restricted the WCA to 1.63%, but in the computation of the TP Adjustment, the Ld.TPO took the working capital adjustment as -1.48%. It is settled principle that working capital adjustment cannot be restricted or can be negative. The assessee placed reliance on the decision in the case of Huawei Technologies India [2019] 101 taxmann.com 313 (Bangalore) wherein coordinate bench of this Tribunal held that working capital should be allowed as per actuals. Respectfully following the view taken by coordinate bench of this Tribunal, we direct the Ld.AO/TPO to grant the WCA on actuals Accordingly this ground raised by the assessee stands allowed. Assessment Year 2012-13 13. During the year under consideration, the assessee reported the following international transactions: International transaction Value (1NR) Technical Suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Persistent Systems Ltd. e) R S Software India Ltd. f) Sasken Communication Technologies Ltd. We have already elaborated on the FAR analysis of the assessee in the preceding paras. It is submitted that there is no change on the functions of the assessee for the year under consideration. Assessee has been catagorised to be a captive service provider who provides services to its AE only. Assessee is also compensated at Cost plus markup for the services rendered. He submitted that under identical circumstances these comparables have been excluded by various decisions of this Tribunal. 18. Persistant Systems Ltd. The Ld.AR submitted that this company is functionally not similar to assessee as it is engaged in software products, services and technology innovation. The company focuses on next generation technology centred on four main themes- Cloud computing, Analytics, Social enterprise and Enterprise Mobility. Persistent also focuses on establishing a strong IP portfolio and the IP led business of the company saw a significant boost during the year under consideration due to two product acquisitions by its subsidiaries. Further, during the year under consideration, Persistent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng engaged in product development and product design services) from the assessee in the case on hand which is rendering software development services. It is ordered accordingly. " Accordingly, we direct the Ld.TPO to exclude the said company from the list of comparables, with the similar directions given in the above order of the Tribunal (supra). 19. Larsen & Toubro Infotech Ltd The Ld.AR relied on the order of the co-ordinate Bench in the case of NXP India Pvt.Ltd reported in (2019) 116 taxmann.com 421, wherein the Bench followed the decision by coordinate bench in case of Metric Steam Infotech (India) (P.) Ltd. v. Dy. CIT in IT(TP)A No.1418 & 2735 (Bang.) of 2017, by order dated 27-2- 2019, wherein the Tribunal held as under:-- "11. As far as L&T Infotech Ltd. and Persistent Systems Ltd. are concerned, our attention was drawn to the decision of ITAT Hyderabad Bench in the case of M/s. EPAM Systems (I) P. Ltd. v. ACIT, ITA No.2122/Hyd/2017 for AY 2013-14, order dated 20-11-2017. Vide para 12 of the decision, the Tribunal took the view that Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits for the reason that such brand image would benefit the company only in the future years and thus could not be rejected for the current financial year. Further, the DRP rejected the contentions of the Appellant that the expenditure incurred toward R&D activity and high turnover earned by the company would also make it functionally dissimilar. It is also submitted that the company undertakes significant R & D activity and therefore it cannot be compared to the Appellant. The Annual report states that the company was ranked among leading R&D service providers. Further, the annual report states that the expertise built up by the company through the R&D initiatives has been instrumental in winning some of the customers during the year. The company uses the expertise in the R&D team to provide technology consulting services to some of its customers. The company also owns significant intellectual property valued at Rs. 6.70,00,000/-Reliance in this regard is placed on the decision of this coordinate Tribunal in Applied Materials India Pvt. Ltd. v. DC1T by order dated 13.05.2020 passed by in IT(TP) A No. 2687/Bang/2017 In view of the above, the company cannot be taken as a comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water IndiaPvt. Ltd. Tax Appeal No. 18 of 2015 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 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 rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover limit of Rs. 1000 crores alone is mentioned. In our opinion, this will not be very material, as the turnover filter of Rs. 200 crores has been applied in several cases by this Tribunal. The Assessee cannot be denied the right to seek its exclusion before the Tribunal and in this regard the learned counsel for Assessee has rightly placed reliance on the decision of the Special Bench of the Hon'ble Tribunal in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (CHD - Trib.) for the proposition that the Assessee cannot be precluded from seeking exclusion of a company selected by it in its TP study, when the company is otherwise not comparable to the Assessee. We therefore direct exclusion of the aforesaid 5 companies from the list of comparable companies." 22. Admittedly the turnover of Infosys Ltd., R S Software India Ltd., and Sasken Communication Technologies Ltd are more than 200 crores. Considering the assessee being a captive service provider, aforesaid three companies should be excluded from the list of comparable companies . Accordingly Ground no. 6 & Additional Ground no.6A stands allowed in favour of assessee. 23. Ground No.9: Depreciation on S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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