TMI Blog2018 (11) TMI 1710X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Smt. P. Madhavi Devi, This is assessee s appeal against the final assessment order passed by the Assessing Officer u/s 143(3) r.w.s 92CA(3) and 144C(13) of the Income Tax Act, 1961 (the Act) dated 30.10.2017. 2. The assessee has raised the following revised grounds of appeal. Grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP') erred in upholding the action of the Ld. Assessing Officer CAO') / Ld. Transfer Pricing Officer CTPO') in determining a mark-up of 24.73% (after working capital adjustment) for provision of software development and consultancy services to its Associated Enterprise CAE'), thereby making an adjustment of ₹ 7,51,51,293 to the total income of the Appellant u/s 92CA of the Income-tax Act, 1961. 2. While doing so, the Ld. DRP /Ld. TPO /Ld. AO erred in: 2.1 rejecting the transfer pricing study which was maintained in good faith and with due diligence; 2.2 rejecting the search process followed by the Appellant and carrying out fresh comparability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Without prejudice to Ground 3, 4 5 the Ld. AO /TPO erred in giving effect to the directions of the DRP as regards the computation of the adjustment made on account of overdue receivables. 7. On the facts and in circumstances of the case and in law, the Ld. AO erred in levying interest u/s. 234B, 234 C and 234D of the Act. The grounds mentioned herein are without prejudice to one another. 3. In addition the above, the assessee has filed an application for admission of the following additional ground of appeal stating that during the Transfer Pricing proceedings, the Transfer Pricing Office (TPO) has applied Related Party Transaction (RTP) filter of more than 25% and the assessee is now seeking the application of RPT filter @ 15% instead of 25%. Additional Ground of appeal:- 8. On the facts and in the circumstances of the case and in law, the Hon ble Dispute Resolution Panel (DRP) erred in upholding the action of the Ld. A.O. / TPO in not excluding companies which had related party transactions exceeding the tolerance limit of 15% during the year under consideration. 4. It is further submitted that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee had also receivables of ₹ 29,88,38,386/- which was not reported by the assessee in Form 3CEB or in its TP document, though it was an international transaction. 8. The TPO observed that the assessee has conducted TP study and adopted TNMM as the most appropriate method and as against the assessee s margin of 13.93%, the assessee has arrived at the average margin of the comparables at 14.08% and therefore reported its transactions at ALP. The TPO, however, was not satisfied with the assessee s TP study and therefore, rejected the same and conducted independent analysis of the companies adopted by the assessee and has arrived at the final list of 9 comparable companies, whose average margin was 19.96%. Thereafter, after giving working capital adjustment of 0.28%, the TPO arrived at the ALP of 19.68% and proposed the adjustment accordingly. In accordance with the said proposal, the A.O. passed a draft assessment order against which the assessee raised its objections before the DRP. The DRP, however, confirmed the draft assessment order and in accordance therewith, the final assessment order has been passed, against which the assessee is in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India (P) Ltd vs. ACIT ITA No.444/Hyd/2017 (v) ITO vs. Intoto Software (India) (P.) Ltd - ITA No. 1921/Hyd/2014 (vi) Agilis Information Technologies International (P) Ltd vs. ITO ITA No.1063/Del/2016 (vii) Alcatel-Lucent India Ltd vs. DCIT ITA No.6856/Del/2015 11. Learned Departmental Representative, on the other hand, supported the orders of the authorities below and placed reliance upon the decision of the TPO at para 6.7 of his order in particular. 12. Having regard to the rival contentions and the material on record, we find that the assessee is into software development services, whereas Persistent Systems Limited is into both the software products, services and technology innovation; and the segmental details are not available. This is evident from the financials of Persistent Systems Limited and the report of the Director at page 918 of the paper book. At page 1039, it has been clearly mentioned that the Persistent Systems Limited is a global company specializing in software products, services and technology innovation. From the list of intangible assets at page 1051 of the paper book, we find that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year before us. Therefore, respectfully following the decision of the Coordinate Bench of the Tribunal and also the decision of the Hon ble Delhi High Court in the case of PCIT vs. Cashedge India P Ltd (supra), we hold that this company is not a comparable to the assessee-company and has to be excluded from the final list of comparables. A.O is directed accordingly. 14. The next company, which is sought to be excluded by the assessee is CGVAK Software Exports Ltd. According to the assessee, this company is engaged in OPD which is different from software development services and the company earns revenue from software services, software products as well as BPO services and that though the breakup of revenue between the software services and BPO are available, the break up of Operating Cost (OC) and the net profitability between them are not available. In support of the contention that the said company should be excluded in such circumstances, Learned Counsel for the Assessee relied upon the following decisions: (i) Agilis Information Technologies Intl. P. Ltd vs. ITO ITA No. 1063/Del/2016 (ii) PCIT vs. Saxo India (P) Ltd ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a was not available. The relevant para of Delhi High Court judgment is reproduced here under for ready reference: 10. On a comparison with the data available and made available, undoubtedly, the object of the statute is to pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology - shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to levy within its jurisdiction where international transactions are involved. This exercise does not compare with other income assessments where the methodology adopted in their domestic jurisdiction will differ . The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule 1 OB(l )(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that this issue is covered in favour of the assessee in the assessee s own case for the A.Y. 2012-13 wherein this Tribunal has held that no adjustment of interest on receivables is required as it has already been considered while computing the working capital adjustment. Having gone through the said decision, we find that vide para 9 of its order, the Tribunal has held as under: During the TP proceedings u/s 92CA of the Act, the TPO considered the above TP documentation and accepted that after allowing working capital adjustment (WCA in short), the price received by the assessee within + /- 5% of the average margin of the comparables and therefore, no adjustment was proposed. Thereafter, he proceeded to consider the receivables at the end of the year and noticing that a sum of ₹ 21,96,43,078/- has been received after a considerable delay, proposed to charge interest thereon. He accordingly charged interest @ 14.75% p.a on the outstanding receivables. This, in the opinion of the Counsel for the assessee, is not warranted as this already got factored in the working capital adjustment allowed by the TPO. We have gone through the TP study of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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