9911796707
TMI Blog2023 (3) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of Comparable - Since appellant falls under category of companies having turnover between Rs.200 crores to Rs.2000 crores, comparables different from it needs to be excluded. Also companies functionally dissimilar to that of the assessee. Lease payment on financial lease - assessee explained that it has claimed deduction towards lease payment on assets taken on lease whose life is short tenure in nature - The entire lease payment has been claimed as allowable expenditure in the computation of income and the assessee has followed the Accounting Standard -19-Leases issued by the ICAI - HELD THAT:- As we are of the opinion that similar issue came for consideration before this Tribunal in [ 2023 (2) TMI 1318 - ITAT BANGALORE] for the AY 2016-17 wherein held whatever be the position with regard to the books of account in compliance with AS-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f natural justice, hence on this ground alone the orders requires to be annulled. ISSUE OF TRANSFER PRICING 8. That the order of the Transfer Pricing Officer is without jurisdiction, against the law, facts, circumstances, natural justice, equity and all other known principles of law. 9. The learned DRP erred in overlooking the fact that the entire objections filed by the appellant have not been considered by the TPO before passing order u/s 92CA. 10. The appellant denies the tax liability on the alleged surplus arising on the computation of arms length price for the impugned assessment year. 11. (a) The Learned AO erred in bringing to tax a sum of Rs.330,59,95,369/- as outlined below in the table under section 92CA of the Act as per the communication/order of the Transfer Pricing Officer and the directions of DRP. Sl.No Description Amount 1 Arm s Length Price difference in the royalty paid Rs. 715,808,823/- 2 Arm s Length Price difference in distribution segment Rs. 1,744,326,236/- 3 Arm s Length Price difference in the Software services segment Rs. 845,860,310/- (b) The learned TPO/DRP erred in disregarding the use of multiple year data and ought to have accepted the use of contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der law. k) The AO/TPO/DRP erred in considering the following comparables overlooking/rejecting the objections made by the assessee 1. Frontline Electro Medical Ltd. 2. Schiller Healthcare India Pvt. Ltd. 3. Terumo India Pvt. Ltd. 4. Everest Instruments Pvt. Ltd. 5. Confident Sales India Pvt. Ltd. 6. Indifoss Analytical Pvt. Ltd. 7. Narang Medical Ltd. l) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee s own case for the years 2002 03 to 2004 05 and subsequent orders of the ITAT for other assessment years. m) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant s own case for earlier years and accepted by department on the same issue. n) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4) (5) and 10CA(2) while selecting the criteria and filters. o) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, etc., as required under law as well as the facts. p) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. q) The learned AO/TPO/DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Sasken Technologies Ltd as comparables rejecting the submissions made by the appellant. p) The Learned AO/TPO/DRP erred in considering the following companies as comparables rejecting the submissions / objections made by the appellant. 1. Rheal Software Pvt. Ltd. 2. Harbinger Systems Pvt Ltd 3. C G-V A K Software Exports Ltd. 4. Larsen Toubro Infotech Ltd. 5. Great Software Laboratory Pvt. Ltd. 6. Mindtree Ltd. 7. Persistent Systems Ltd. 8. Tata Elxsi Ltd. 9. Infobeans Technologies Ltd. 10. Aptus Software Labs Pvt. Ltd. 11. Nihilent Ltd. 12. OFS Technologies Ltd. 13. Cygnet InfotechPvt. Ltd. 14. Infosys Ltd. 15. Threesixty Logica Testing Services Pvt. Ltd. 16. Cybage Software Pvt. Ltd. 17. Consilient Technologies Pvt. Ltd. OTHER ISSUES/ADDITIONS/DISALLOWANCES 15. The Learned AO/DRP erred in disallowing deduction claimed of Lease payments on financial lease of Rs. 18,69,97,941/- under section 37 of the I T Act. 16. The Learned AO erred in not giving TDS credit amounting to Rs.1,37,88,075/- and no reasons or explanations have been given for denying the credit. ISSUE OF INTEREST U/S 234A, B C 17. The appellant denies the liabilities for interest u/s 234A, B C of the Act. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable is found in respect of royalty payment by the assessee then the TPO/AO may consider the royalty payment as part of the international transactions under trading segment and then determine the ALP by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. 3.2 The ld. A.R. alleged that in the impugned year the TPO has neither found a comparable nor has considered royalty as part of international transaction in the trading segment. Thus without adhering to the orders of ITAT in assessee s own case the TPO made the Royalty adjustment in para 23.6 of the TP order extracted as under:- 23.6 Regarding the taxpayer s contention that the TPO has to follow a proper benchmarking and the ALP of Royalty cannot be held as NIL, it is stated that, the DRP in its order for the AY 2014-15, in the taxpayer s own case has held that when the taxpayer is not eligible to pay Royalty itself, then to find a comparable as per the taxpayers contention becomes superfluous. Hence the entire amount of Rs.71,58,08,823/- is treated as adjustment u/s 92CA of the Income Tax Act 1961. The TPO in the second round of proceedings for AY 2005-06 2006-07 did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view was taken in assessee s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 6.2 In view of the above decisions, taking a consistent view, we allow the ground taken by the assessee. 3.5 In view of the above, the ld. A.R. requested that the orders of the Tribunal for AY 2005-06 AY 2006-07 in IT(TP)A 701 702/Bang/2021 dated 05.08.2021, for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022 and AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 be followed for the impugned year as well. 4. The ld. D.R. relied on the orders of the lower authorities. 5. We have heard both the parties and perused the materials available on record. After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in assessee s own case in assessment year 2016-17 in ITA No.285/Bang/2021 dated 3.2.2.23, wherein held as under:- Ground No.12: 4. The ground raised in ground No.12 is as follows: 12) i) The Learned AO / TPO / DRP erred in making adjustment towards the royalty for use of technology amounting Rs.20,27,37,762/- without determining the comparable transaction in the public domain as prescribed under the Act and Rules. ii) The Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al pricing in the domestic market. 4.2 The TPO observed that the arguments of the assessee are fallacious for the following reasons. As per the TP study report and the submissions made by the assessee, WGE identifies the customers and forecasts the demands of the customers for the products of the AEs in Indian Market. Most of the goods imported from the AEs are delivered directly to the customers. This basically means that the customer is ordering for the equipment knowing very well that it is a GE product. Moreover, once the order is placed with the AE, WGE places the order on behalf of the customer and that too for a GE product. Everyone involved knows very well what they are negotiating for. Moreover, when GE sells the product to the customer, it would have already included in its price the cost of the trademark and the trade name. Additionally, the trademark is owned by a different entity and whereas the trademark royalty is paid to a different entity. 4.3 In view of this, the assessee s contentions were rejected by the TPO. The TPO observed that the same issue was debated at length in the previous assessment year also. Since the facts and circumstances of the case has not chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the TNMM is acceptable. Merely because the purchase of each item and the acceptance of each service is a component leading to the manufacture/production of the final product sold or service provided by the assessee, it does not follow that they are not independent transactions for the sale of goods or provision of services. When 'we consider more than one separate transaction under the combined umbrella of TNMM on an entity level, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one international transaction may be usurped by the income from the other international transaction giving higher income on transacted value. That is the reason for which the legislature has provided for determining the ALP of each international transaction separately, from the others. As the international transactions of payment of royalty and fees for technical services are separate transactions and not closely linked with the other transactions with which the assessee has merged them, we cannot permit such merger or aggregation for the purpose of the determining their ALP on entity level under TNMM. 4.7 The ld. TPO observed that although clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant monitoring through the network of satellites. The advantage of such a system is that it allows remote monitoring besides remote maintenance. The assessee is a beneficiary of such facility. It would have cost hundreds of millions of dollars to have an own exclusive facility besides the assessee also does not have such technology to put up the facility. It would not have made any economic sense to facilitate such facility independently. Thus, the payment of royalty enhances the commercial value for the business of the assessee. 3.3 The Tribunal for AY 2005-06 and 2006-07 in IT(TP)A 40/B/11 1647/B/13 dt.21.04.2017 has set aside the issue of royalty to the file of the TPO/AO for reconsideration in the light of the directions of the Tribunal for the AY s 2002-03 to 2004-05. The Tribunal has dealt with the issue in para 16 to 18 of the order. Relevant portion is extracted as under: 18. Since the issue was already set aside to the file of the Assessing Officer for choosing the proper comparable therefore in view of the earlier year of this Tribunal, we set aside this issue to the record of the TPO/AO for reconsideration of the same in the light of the directions of the Tribunal for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g royalty as operating cost as against the margin of the comparable M/s Advanced Micronic Devices Ltd being 28.06%. Since the margin of the assessee is higher than that of the comparable, the transaction is at arm s length and consequently the addition requires to be deleted. 3.6. The Ld. D.R. submitted that there is no proof of any services having actually been rendered by the A.E. The facts of issue shows that the services, even if any, rendered by the A.E. were mere duplication of the functions being carried out by the tax payer on its own and independently. The assessee did not get any economic value from the alleged trade mark/trade name fee paid. The ALP of the so-called trade mark/trade name for charges so paid by the assessee was determined as nil and he prayed that the same to be confirmed. 3.7 We have heard the rival submissions and perused the materials available on record. In earlier occasion, assessee came in appeal before this Tribunal. The Tribunal remitted the issue with the directions in IT(TP)(A) No.40/Bang/2011 1647/Bang/203 dated 21.4.2017 as discussed in para 3.3 of this order. 3.8 On set aside assessment, the TPO repeated the same what he has done on earlier o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly interpreting the facts, submissions, method of accounting and the practice consistently followed by the assessee. The sales are booked by various dealers appointed by the assessee and commission is paid on the sales made by them, however, the actual payment is made upon realization of the sales proceeds and on fulfilling other concomitant services / obligations. At the time of booking sales, the quantification of commission to each dealer is uncertain in nature, hence the amount of dealer commission expense is not booked against particular dealer account, but carried in the books under Other Liabilities account. Once the dealer fulfils the conditions related to the sales, he becomes eligible to claim the commission. Then, the commission will be moved from Other liabilities account to respective dealer account, and paid immediately after deducting TDS on the same. This practice is followed consistently and TDS is deducted where ever applicable. Hence it is prayed that the dealer commission incurred be allowed in the interests of justice as the same has been wholly and exclusively incurred for the purposes of its business. 4.3. The Ld. D.R. submitted that Ld. DRP in his order ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro GE markets, distributes and services the complete range of GE s medical diagnostic imaging and therapy equipment in the Indian market. Based upon customer requirements, Wipro GE imports medical systems from other GE Healthcare global entities. Wipro GE also caters to the after sales market segment by way of supply of spare parts and service of equipment. Based on the functional analysis, Wipro GE is classified as a Distributor of medical products which provides after sales services on diagnostic and therapy equipment. Margin of the Appellant as computed by the TPO in the TP Order: Particulars Rs. Operating Revenue 22,45,27,33,074/- Operating Expenses 21,75,64,47,225/- Operating Profit 69,62,85,849/- OP/OR 3.10% OP/OC 3.20% Comparables selected by Appellant in TP report and their arithmetic mean: Sl. No. Name of the company Wt. Avg OP/OR ( %) 1 Trivitron Healthcare Pvt. Ltd -5.46 2 Suyog Diagnostics Ltd. -1.12 3 Frontline Electro Medical Ltd. 2.14 4 Hicks Thermometers (India) Ltd. 3.92 5 Iris Healthcare Technologies Pvt. Ltd. 4.38 6 A D S Diagnostic Ltd. 8.48 7 Schiller Healthcare India Pvt. Ltd. 32.70 35th Percentile 1.72% Median 4.37% 65th Percentile 4.56% Out of the 7 comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion is reproduced as under: Accordingly, he has held Resale Price Method as explained in Rule 10B(1)(b) will be the MAM since the trading segment involves purchases of goods which is resale. In my view resale price method offers a solution for the issue on hand. Accordingly TPO is directed to adopt resale price method of ALP determination. In doing so gross margin being the difference between the purchase price paid to AE and sale price realized offers a simple and reliable basis. Accordingly, TPO will do so. This decision takes care of the guidance offered in rule 10(c) of the rules. 6.3 The ld. A.R. stated that the said ruling by the ITAT has been accepted by the department and no further appeal has been made to the High Court. The Order giving effect to ITAT order passed by the TPO dt.09.07.2013 for AY 2002-03 to 2004-05 wherein the TPO accepted the margin computation/results of the assessee and deleted the TP adjustment. The issue stands concluded in this manner. The same is extracted hereunder: 6.4 The ld. A.R. submitted that similarly, the Tribunal in assessee s own case for the AY 2005-06 vide order dt.21.04.2017 in IT(TP)A 40/Bang/11 and 1647/Bang/2013 held that the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity in this process of recomputing the margins of the comparable as well as assessee. Accordingly in view of the above facts and circumstances of the case, we set aside this issue to the record of the TPO/A.O. to consider and verify relevant record and then determine the ALP in the light of our above observations. 6.6 He further submitted that the TPO for the AY 2005-06 while passing the order giving effect vide order dt.28.10.2019 has followed the direction of the ITAT of applying RPM method and restricting the adjustment only in respect of the international transactions and thus held that no adjustment was required. Relevant portion is extracted hereunder: 6.6 The ld. A.R. submitted that for AY 2006-07, similar computation considering RPM method, AE purchases and AMDL as comparable was made in line with the direction of ITAT for earlier years and the Learned CIT-A vide order dated 18.09.2013 deleted the TP adjustment in trading segment as the margin of the assessee was higher compared to that of the comparable. There has been no appeal by the department against the CIT-A order on this issue and thus stands concluded. Thus for the earlier years the lower authorities have foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 has followed the order for AY 2012-13 in IT(TP)A 703/Bang/2021 dated 07.10.2022. Relevant portion is extracted hereunder: 10. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in assessee s own case in assessment years 2012-13 in ITA No.703/Bang/2021 dated 7.10.2022, wherein held as under: 10.1 Same view was taken in assessee s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes. 6.11 In view of the above, the ld. A.R. submitted that since the facts and law are the same, on the parity of reasoning the TP adjustment in the trading segment is to be deleted. Alternatively, the direction given by the Tribunal for AY 2012-13 in IT(TP)A 703/Bang/2021 and AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 extracted supra may be followed for the impugned year as well. 7. The ld. D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 18)Narang Medical Ltd 19)Indifoss Analytical Pvt Ltd xiii) The Learned AO / TPO / DRP erred in failing to rely on decision of the ITAT in assessee's own case for the years 2002 - 03 to 2004 - 05 and subsequent orders of the ITAT for other assessment years. xiv) The Learned AO / TPO / DRP erred in adopting TNMM as the MAM ignoring the findings of ITAT in the appellant's own case for earlier years and accepted by department on the same issue. xv) The Learned AO/TPO/DRP have failed to apply the provisions of Rule 10B(4) ,(5) and 10CA(2) while selecting the criteria and filters. xvi) The Learned AO / TPO / DRP erred in not carrying out the adjustments like risk, working capital, et:c., as required under law as well as the facts. xvii) The learned AO/TPO/DRP erred in rejecting the price per unit adjustment carried out by the appellant xviii) The learned AO/TPO/DRP erred in rejecting the import duty adjustment carried out by the appellant. xix) The learned AO/TPO/DRP erred in not considering the after sales support service segment while determining operating margin of distribution segment. xxi) The learned AO/TPO/DRP erred in rejecting the corroborative analysis provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 35th Percentile 4.93 Median 6.79 65th Percentile 7.41 Computation of arm s length price by the TPO and the adjustment made: Operating Revenue (OR) Rs.1769,15,48,168/- Operating Cost (OC) Rs.1902,13,13,780/- Adjusted Arm s length Margin 6.79% of operating revenue Arm s Length Price (ALP) (100%-6.79% = 93.21%) of operating revenue Rs.1649,02,92,047/- Price Received Rs.1902,13,13,780/- Adjustment u/s 92CA Rs.253,10,21,733/- 7.2 The adjustment made by the TPO of Rs.253,10,21,733/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 29.01.2021 emphasizing on the binding decisions of the Tribunal in assessee s own case for earlier years. Without appreciating the submissions of the assessee, the DRP passed its directions u/s 144C(5) on 11.02.2021 rejecting the grounds. The AO passed the final assessment order u/s 143(3) rws 144C(13) and 144C(13) rws 143(3A) 143(3B) of the Act dated 30.03.2021 retaining the TP adjustment in Equipment segment of Rs.253,10,21,733/- as per draft assessment order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tline Electro Medical Ltd 0.01 5 Kusum Electrical Inds Ltd 9.84 6 Softouch Hygiene Products Ltd 10.41 Arithmetical Mean 5.10 28.3 Out of the 6 comparables selected by the Assessee, the TPO accepted the 1 highlighted above, viz. Advanced Micronic Devices Ltd and rejected the other 5 comparables. 28.4 Final Comparables selected by TPO and their arithmetic mean: Sl No Company Name (OP/OR) (in%) 1 Maestors Medline Systems Ltd (seg) 29.57 2 Advanced Micronic Devices Ltd (seg) 7.29 Average 18.43 Computation of arm s length price by the TPO and the adjustment made: PLI Margin 18.43 OR 1388,87,76,432 ALP* 81.57% 1132,90,74,935 OC 1341,57,47,576 Shortfall 208,66,72,641 Value of International Transaction (to be benchmarked) 791,22,27,227 Percentage to Total Cost 43.80% Proportionate adjustment 91,39,62,617 28.5 The adjustment made by the TPO of Rs.91,39,62,617/- in the Distribution Segment has been adopted by the AO in the Draft assessment order u/s 143(3) rws 254 rws 144C(1) of the Act dated 30.12.2019. The assessee filed objections before DRP on 27.01.2020. The assessee filed its written submissions before DRP on 11.01.2021 emphasizing on the binding decisions of the Tribunal in assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case to be confined to the purchases made from AE. Relevant portion is extracted hereunder: 15. Having considered the rival submissions as well as the relevant material on record, we find that the TPO while computing the ALP has apparently taken the gross profit margin of the AMDL at entity level by assuming that the entire activity of AMDL is only trading in the medical equipments. So far as the issue of considering the segmental details of the comparable companies, on principle we do not find any error on this point as the comparability of the assessee's trading segment in medical equipment has to be determined by considering the same segment of the comparable companies in the same activity. Therefore if the comparable company is having more than one segment as considered by the CIT (Appeals) then only the trading segment of the said company has to be compared with the assessee. Further the CIT (Appeals) has also recomputed the gross margin of the assessee and again held that the adjustment is required to be made only in respect of purchases made from the AE and not on the entire transaction in the trading segment. There is no quarrel on this issue that the adjustment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving effect for both AY 2005-06 and AY 2012-13 on the same day 28.10.2019. Though TPO followed the specific direction of the ITAT for AY 2005- 06, the same was not followed for the AY 2012-13. Thus the TPO has been inconsistent in her own approach. The TPO is in error in not following the orders of the Tribunal in assessee s own case which is a binding precedent. The TPO has tried to take a contrary position on an issue which has been overwhelmingly settled in the earlier years. There being no change in fact or law it was imperative for the TPO to follow the same method of computation as done earlier. Not doing so amounts to violation of law as explained by Hon ble Madras High Court in L.G. Ramamurthi 110 ITR 453. Relevant portion extracted hereunder: Appeal(Tribunal) Precedent Tribunal coming to conclusion that gifts were sham In subsequent assessment year a differently constituted Tribunal came to a different conclusion, viz., gifts were real Tribunals is not right in taking an altogether different view in later year on same set of facts when there was no fresh material before it. 28.13 In the impugned year the AE purchases are Rs.541,23,20,773/- in the trading segment. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2006-07 in IT(TP)A No.40/Bang/2011 1647/Bang/2013 dated 21.4.2017 wherein the Tribunal followed the earlier order of the Tribunal for the AY 2002-03 and 2004-05, which has been reproduced in earlier para of this order. Being so, we direct the AO/TPO to pass fresh order in the light of above observation of the Tribunal in AY 2005-06 and 2006-07. Once the AO/TPO pass the order in conformity with earlier order of the Tribunal, other issue raised by the assessee with regard to comparables is infructuous. This ground of assessee is partly allowed for statistical purposes. 10.1 Same view was taken in assessee s own case in A.Y. 2012-13 in IT(TP)A No.703/Bang/2021 dated 7.10.2022. 10.2 In view of the above order of the Tribunal this ground is remitted to the file of AO/TPO on similar lines. This ground of appeal is partly allowed for statistical purposes. 8.1 In view of the above order of the Tribunal, the issue is remitted to AO/TPO on similar directions. The ground of appeal is partly allowed for statistical purposes. Ground No.14 (Software segment Rs.84,58,60,310/-):- 9. The ld. A.R. submitted that the assessee is engaged in providing software services and technology solutions to it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd 0.04 Fails export income filter and also functionally different. Hence rejected 14 Tata Elxsi Limited 25.16 Accepted Out of the 14 comparables selected by the appellant, the TPO accepted 8 comparables and rejected 6 other comparables. The final list of Comparables selected by TPO and their margins are as under: Sl No. Name of the comparable OP/OC (%) Weighted Average 1 Rheal Software Pvt. Ltd. -1.85 2 Kals Information Systems Ltd 3.62 3 Infomile Technologies Ltd . 10.43 4 Harbinger Systems Pvt Ltd 14.1 5 C G-V A K Software Exports Ltd. 15.09 6 Larsen Toubro Infotech Ltd. 21.14 7 Great Software Laboratory Pvt. Ltd. 21.24 8 Mindtree Ltd. 24.17 9 R Systems International Ltd. 24.4 10 Persistent Systems Ltd. 26.17 11 Tata Elxsi Ltd. 26.19 12 Infobeans Technologies Ltd. 26.44 13 Aptus Software Labs Pvt. Ltd. 26.46 14 Nihilent Ltd. 29.82 15 OFS Technologies Ltd. 29.93 16 Cygnet Infotech Pvt. Ltd. 30.19 17 Infosys Ltd. 39.5 18 Threesixty Logica Testing Services Pvt. Ltd. 41.94 19 Cybage Software Pvt. Ltd. 57.82 20 Consilient Technologies Pvt. Ltd. 65.14 35thPercentile 21.24 Median 26.18 65thPercentile 26.46 The Computation of arm s length price by the TPO and the adjustment mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sys Integrating System (India) Pvt Ltd. V. DCIT, ITA No.1231/Bang/2010 dt.05.08.2011 [152 TTJ 215/53 SOT 159] is the correct law on the application of turnover filter. In the case of Genisys the Tribunal has held that companies having turnover in the range of Rs.1crore to Rs.200 crores cannot be compared with companies having turnover above Rs.200 crores. The relevant observations of the Tribunal in the case of Fulcrum is extracted as hereunder: 7.3. We have given a careful consideration to the rival submissions. The Bangalore Bench of the ITAT had an occasion to deal with an identical issue in the case of DCIT Vs. M/s. Northern Operating Services (supra), wherein the Tribunal came to the conclusion that turnover was relevant criteria in choosing comparable companies and that a company, whose turnover is more than Rs. 200 Crores, cannot be compared with the company, whose turnover is less then Rs. 200 Crores. In Coming to the aforesaid conclusion, the Tribunal relied on the decision rendered by the ITAT, Bangalore Bench in the case of Autodesk India P. Ltd., Vs. DCIT (2018) [96 taxmann.com 263] (Bangalore-Trib) reviewing all the conflicting decisions on the point, and concluding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Relevant portion is extracted hereunder: 17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: 3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied business, this company cannot be a valid comparable vis -vis assessee, who is a low risk entity working on cost + markup model. Hence, Nihilent is ordered to be excluded as a comparable. Nihilent Ltd. 46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis- -vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis- -vis assessee which is a routine software develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-1515 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company. 5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this Tribunal in assessee's own case in ITA No. 2233/Hyd/2018, for AY 2014-15, directed the AO/TPO to exclude this company from the list of comparables for determining ALP by observing as under: 27. As regards Persistent Systems Ltd, the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions Integration); and iii.services (product engineering) b.There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The ld. A.R demonstrated through Annual Report at page 1804, as per the description of the business of this company that it is onsite service provider. Furthermore at page 1796 of the Annual Report this company is doing other computer related activities but nowhere software services are mentioned. On the other hand, the assessee is offsite provider and thus functionally different. We direct the A.O/T.P.O to exclude this company from the list of comparables. 9.15 Similarly, the ld. A.R. submitted that the Hyderabad Tribunal in the case of Infor (India) Pvt Ltd - IT(TP)A 198/Hyd/2021 dt.06.10.2021 has directed exclusion of Cybage Software. Relevant portion is extracted hereunder: 4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively. 9.16 The ld. A.R. submitted that the Tribunal in assessee's own case for AY 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. A.R. submitted the final list of comparables after considering the above arguments which are as hereunder: Sl. No Name of the Comparable company (OP/OC) before WC Adjustment 1 Axiscades Engineering Technologies Ltd 16.74% 2 Sagarsoft (India) Ltd. 3.22% 3 Sasken Technologies Ltd. 0.04% ARITHMETIC MEAN 6.67% 9.21 From the above it can be seen that assessee s margin for the SWD segment is 15% which is higher than the aforementioned adjusted margins of the comparable companies i.e, 6.67%. In view of the above submissions, the ld. A.R. submitted that the transaction is at arm s length and therefore the TP adjustment made requires to be deleted in the interest of justice. 10. We have heard the rival submissions and perused the materials available on record. The contention of the ld. A.R. is that assessee s margin is higher than the margins of the comparables and he drew our attention to the following chart: WIPRO GE HEALTHCARE PVT. LTD. ITA 291/B/2022; ASSESSMENT YEAR 2017-18 Assessee's Turnover - Rs. 870,35,80,565/- FINAL LIST OF COMPANIES SELECTED BY TPO AS COMPARABLE IN SOFTWARE SEGMENT (PAGE 69 OF TP ORDER, PB-I page 199) Assessee's. Sl. No. Name of company Comparable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Device Design Centre Pvt. Ltd - IT(TP)A 288/Bang/2021 dt.30.06.2022 PB-III, page 874 to 883, para 11.16 to 13.1 15 OFS Technologies Ltd TPO Assessee 4.59 29.93 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 16 Cygnet Infotech Pvt. Ltd. TPO 51.65 30.19 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 17 Infosys Ltd. TPO 59,840.00 39.50 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 18 ThreesixtyLogica Testing Services Pvt. Ltd. TPO 32.11 41.94 Fails turnover filter Fulcrum Fund Services (India) Pvt Ltd - IT(TP) A 2521/B/2017 dt.12.04.2019 PB-II, page 595, para 7.3.1 19 Cybage Software Pvt. Ltd. TPO 758.86 57.82 Functionally different and Abnormal High Margins Rejected by the Hon'ble ITAT in assessee's own case for AY 201617 in ITA 285/B/2021 vide order dated 03.02.2023 based on the decisions in Optiva India Technologies Pvt Ltd - ITA 194/Pun/2021 dt.21.07.2022 and Infor (India) Pvt PB-III, page 20 Consilient Technologies Pvt Ltd. TPO 4.15 65.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of accounts, the assessee has followed the Accounting Standard -19-Leases issued by the ICAI. The assessee has disallowed the sum of Rs.16.78 crores in the computation of income, the break-up of which is as under: 11.2 Interest on finance lease - Rs. 3,49,11,983 /- (debited as finance cost in note 2.28 of the financial statements) Depreciation on assets taken on finance lease - Rs. 13.29 crores (Rs.13.26 crores on Vehicles + Rs. 0.03 crores on Office Equipment debited in the books of accounts, note 2.1 Fixed Assets of the financial statements). Thus in total assessee has disallowed Rs.16.78 crores (Rs.3.49 crores +Rs.13.29 crores). As against such a disallowance it has claimed Rs. 18,69,97,941/- as allowable. 11.3 The ld. A.R. submitted that the disallowance made by the AO is unsustainable being double in nature. The difference in approach between the accounting of lease transaction and claim for lease rentals in the income tax assessment is consistent with the past years and the same has been accepted by the department. The ld. A.R. prayed that since the method of allowance of rent is a part of method of accounting consistently followed, no departure is called for unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue has been dealt by the ITAT in assessee's own case for AY 2016-17 in ITA 285/Bang/2021 dated 03.02.2023 in para 14 15. Relevant portion extracted hereunder: 15. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Texas Instruments (India) Pvt. Ltd. Vs. JCIT in ITA Nos.852 831/Bang/2017 dated 29.6.2022, , wherein held as under: --------- 15.1 In view of the above, taking a consistent view, we remit this issue to the file of AO/TPO on similar lines. This ground of appeal is partly allowed. 11.6 In view of the above, the ld. A.R. prayed that the disallowance u/s 37 of the Act Rs.18,69,97,941/- be deleted in the interest of justice. 12. The ld. D.R. relied on the orders of the lower authorities. 13. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in ITA No.285/Bang/2021 dated 3.2.2023 for the AY 2016-17, wherein held as under: 14. Ground No.15 of the assessee s appeal is reproduced as under: The Learned AO/DRP erred in disallowing deduction claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21/- towards principal repayment of lease and Rs.4,02,57,009/- towards interest paid on finance lease. The assessee has disallowed the sum of Rs.4,02,57,009/- paid towards interest on finance lease. The assessee is aggrieved as neither lease rental is allowed nor the payment of interest and depreciation on the assets, 14.3 The ld. DRP observed that the contention of the assessee is that the AO has not given sufficient time to file the details and the details are voluminous in nature. However, the assessee has not filed these details before the panel as well. If the assessee claims that it was not given sufficient time by the AO to file the voluminous details., it should have filed the details at least before the panel to substantiate it's argument. Nothing prevented the assessee from filing before the panel. As relevant details have not been filed before the ld DRP, the submission made by the assessee remained unsubstantiated. Although sufficient time has lapsed since filing of objection before the panel and the matter was heard several times by the ld. DRP, yet the assessee has filed nothing beyond written submission which remained unsubstantiated for want of supporting docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with IBM Global Services India Pvt. Ltd., whereby it took certain equipment on lease. This agreement is dated 29.08.2005. A copy of the lease agreement is available on pages 181 to 189 of the assessee s PB. The assessee also entered into a lease agreement in respect of certain vehicles with GE Capital Transportation Financial Services Ltd. This agreement is dated 28.12.2004 , which is placed at page Nos.568 to 585 of the assessee s PB. Another lease agreement for vehicles dated 21.03.2007 was entered into by the assessee with GE Mani Financial Services Ltd., which is at pages 586 to 603 of the assessee s PB. Under this agreement also, the assessee took certain vehicles on lease. The assessee paid lease rentals amounting to Rs.2,30,59,332 towards lease rentals for lease of equipment and a sum of Rs.7,75,20,,788 towards lease of motor cars. 41. In view of Accounting Standards AS-19 issued under the Companies (Accounting Standards) Rules, 2006, the assessee in its books of accounts treated itself as the owner of the asset and capitalized the value of the equipment as well as the vehicles in its books of accounts. Depreciation was computed and debited in the P L A/c. The following ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on the leased assets and the lessee would be entitled to deduction with respect to the lease rentals. Given the above, the tax treatment of the assets taken on finance lease (both equipment and car lease) in the case of lessee was as summarised below. The depreciation on the leased assets which are capitalised in the books is added back to the taxable income; Interest component which is already debited in the books as finance charges is added back to the taxable income; The entire monthly instalments (which includes the interest charges) is claimed as deduction from the taxable income; Any profit / loss arising on account of disposal of the leased asset which is charged to the profit and loss account are to reduced / added back respectively to the taxable income. 43. In light of the above, the Assessee submitted that the Assessee has made the following adjustments (on account of the leased assets) to its net profits to arrive at its taxable profits:- The depreciation on assets acquired under finance lease is added back to net profits; The finance charges of Rs 15,250,304 have been added back to the net profits; The profit of Rs 5,570,701 on account of the foreclosure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S-19; as far as computation of the total income for the purpose of the Act is concerned, the assessee has made claim only for deduction on account of lease rentals paid. There is no basis for the Revenue authorities to come to a conclusion that the assessee has adopted a colourable device with a view to gain tax advantage. In this regard, we find that the AO as well as the CIT(A) have quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. 47. In so far as the applicability of the provisions of section 40(a)(ia) of the Act is concerned, the Hon ble High Court of Karnataka in assessee s own case on an identical issue for Assessment Year 2008-09 in the decision reported in [2021] 127 taxmann.com 59 (Karnataka) held that neither provisions of 194I nor 194C of the Act are attracted to lease financing of motor vehicles and therefore there could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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