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2019 (9) TMI 1200 - ITAT DELHITP Adjustment - adjustment to International transactions of ‘software development services’ and ‘marketing support services’ - comparable selection - HELD THAT:- Thirdware Solutions Ltd. - The perusal of the pages of the annual report cited by the learned counsel of the assessee, it is evident that the company has shown revenue only from sale of product and no segment data in respect of the software services is available in annual report of the company. In view of the facts, we hold that the Learned AO/TPO is not justified in including the company in the set of the comparables in the final assessment order passed. Larsen and Toubro Infotech Ltd - As function of the assessee is concerned, the word service and products have been used interchangeably and it cannot be ascertained from the part of the annual reports filed before us, that the company was engaged only in providing software services. In the circumstances, we feel it appropriate to restore the issue of deciding functional comparability to the learned AO/TPO with the direction to the assessee to file the complete annual report of the company. If required, the TPO may gather information u/s 133(6) of the Act form the company. He shall provide a copy of the information to the assessee also. Infobeans Technologies Ltd.-Margin 48.97% - Annual report has provided details of earning in foreign exchange, which mentioned that export of goods/services amounting to ₹ 32,96,59,883/- have been calculated on FOB basis. The Note - 20 of the annual report mention revenue from operations earned on sale of software (export) amounting to ₹ 32,96,59,883/-. Thus, in view of the Note 27, the quantum of export of the goods and export of the services cannot be ascertained and thus in view of no segmental data of export of the goods and export of the services available separately, we are of the opinion that the company cannot we selected as comparable at entity level. Accordingly, we direct the Ld. AO/TPO to exclude the company from the set of the comparables. Persistent Systems Ltd. - As forming part of the financial restatement of the company, under the head segmental information, it is mentioned that the company operates predominantly for providing software products, services and technology innovation covering full life-cycle of products to its customers. The segmental information, however, has been provided for the verticals in the field of ‘telecom and wireless’, ‘life science’ and ‘healthcare and infrastructure and systems’. No segmental data of software products and services are available in the annual report of the company. In the circumstances, we are of the opinion that the company cannot be selected as comparable at entity level in absence of any segmental data of software product and software services Mindtree Limited. - The various segments mentioned in the annual report comprises of manufacturing, BFSI, hi-tech, travel and transportation and others, but the assessee is primarily engaged in providing global software development in these areas. In the background to significant accounting policies, however, mention other services offered by the company which also include business process management, business technology consulting, cloud, digital businesses, independent testing, infrastructure management services, product engineering and SAP services. The company also own intellectual property rights as pointed out by the learned counsel as against no intellectual property rights owned by the assessee, and thus, assets of the company cannot be compared with the assessee. In view of functional dissimilarity as well as the difference in the assets owned by the company vis- a-vis the assessee, we direct the Learned AO/TPO to exclude the company from the set of the final comparables. Tata Elexi Ltd. - On perusal of the annual report of the company, we find that revenue from operations include sale of traded goods of ₹ 47 crore and revenue from rendering of the services comprises of product design (₹ 664 crore), graphic animation and gaming (₹ 18.43 crores) and system integration and support (₹ 42.39 crores). In our opinion, in absence of any segmental result of trading as well as services rendered, the company cannot be selected as comparable at entity level, accordingly, we direct the learned AO/TPO to exclude the company from the set of the comparables. Cigniti Technologies Ltd. - In view of extraordinary event during the year under consideration, we direct the Ld. AO/TPO to exclude the company from the set of the comparables. R. S. Software (India) Ltd. - We find that in case of on-site development and off-site developments services are rendered in different geographical locations. In case of on-site development, the company charge higher revenue from the customers in view of the expenses incurred in foreign currency and higher input costs on human resources, whereas in case of off-site development all expenses on human resources are incurred domestically and thus revenue or fee charge from the customer would be generally less than what would be charged in case of on-site customers. This business model difference makes difference in FAR analysis. As relying on MICROSOFT INDIA (R AND D) PVT. LTD. VERSUS DCIT, CIRCLE 16 (2) , NEW DELHI [2019 (1) TMI 1136 - ITAT DELHI] the company becomes functionally dissimilar to the assessee CAT Technologies Ltd. - Revenue receipts also include consultancy fee received and there is no separate segment for consultancy in the annual accounts of the company. In our opinion, in absence of any separate segmental date of software development services, the company cannot be treated as comparable at entity level Mavrick Systems Ltd. - In view of no documentary evidence filed in support of its claim of functional similarity, we reject the request of the learned counsel for sending the matter of examining comparability of the company back to the learned DRP. Treating of foreign exchange gain/loss as non-operating items by the learned DRP while determining the ALP of international transactions - HELD THAT:- We agree with the contention of the learned DR that there are no details, whether the foreign exchange gain/loss appearing in the annual reports of the comparable is related only to the revenue transactions. We also agree with the contention that the transaction of overseas purchase or sales in foreign currencies are booked in books of accounts in Indian rupees at relevant foreign exchange rate. So once, a transaction has been converted into Indian rupees, it becomes at par with other transaction, removing the effect of transaction made in other currency. Now, if subsequently, in the year under consideration or in subsequent year, the taxpayer gains or loss on account of those overseas transaction, such forex gain or loss is purely on account of subsequent financial forex market and should not impact the value of the overseas purchase or sale transaction for the purpose of comparability with the International transaction of the assessee - Decided against assessee. Risk Adjustment - HELD THAT:- As assessee admitted that no comparative data to account for any risk adjustment was either provided before the lower authorities or provided before the Tribunal and hence, it was not possible to work out the risk adjustment. Accordingly, the ground of the appeal was dismissed. Transfer pricing adjustment in relation to notional interest on outstanding receivables - HELD THAT:- On perusal of financial statements of the assessee placed on page 1 to 27 of the paper book, we find that assessee has not borrowed any money. We find that the Hon’ble Delhi High Court in the case of Bechtel India [2016 (9) TMI 196 - DELHI HIGH COURT] has observed that where the appellant is a debt free company, the question of receiving any interest in receivable did not arise. No adjustment on account of interest on outstanding receivable is warranted in the case of the assessee Reconciliation of the revenue/receipts corresponding to TDS statement in form No. 26AS and the receipt shown in TDS claimed by the assessee - HELD THAT:- This is a matter of verification, whether the amount represented in in Form No. 26A-S, is income of the assessee for the year under consideration or advance or otherwise. We, therefore, direct the assessee to produce all necessary documents in support of its claim that receipt are not income taxable in the year under consideration. The Assessing Officer may decide the issue in dispute in accordance with law. The ground of the appeal is accordingly allowed for statistical purposes Allowing TDS credit - HELD THAT:- The matter is only of verification at the level of the Assessing Officer, and accordingly, we direct the Assessing Officer to verify the claim of the assessee and decide the issue in accordance with law. The ground of the appeal is accordingly allowed for statistical purposes.
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