TMI Blog2021 (5) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... e final set of comparables. Infosys BPO Ltd. - It is pertinent to note that the functions of Infosys BPO Ltd. are different from the functions of the assessee company. Besides this, the brand value of Infosys BPO Ltd. enjoys the benefit of brand value of Infosys , one of world's leading companies. It has consistently spent substantial amount of money on brand building. There was an extraordinary financial events during Financial Year 2011-12 as it acquired 100% voting rights in Portland Group Pty. Limited (strategic sourcing category management services provider based in Sydney, Australia) and also invested in Mc Camish Systems LLC. All these factors determines that Infosys BPO Ltd. is not a good comparable. Therefore, we direct the TPO to exclude this comparable from the final set of comparables. Acropetal Technologies Ltd.- It is functionally different as the Healthcare Segment has been taken into account. The company is engaged in software development. It provides healthcare services which includes innovation, patient life cycle management, physician and clinical life cycle management, hospital administration management, drug discovery and disease life cycle managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Incorrect calculation of Proportionate Adjustment by the TPO - HELD THAT:- AR's submission during the hearing was that this transaction was reported as an international transaction only out of abundant caution. But, the related party transaction or AE transactions amounts to only ₹ 11,08,36,171/-. After perusal of the records, these facts have to be verified by the TPO/AO which was not done by the Revenue authorities. It appears that the Computer Sciences Corporation, USA and CSC Australia Pty Ltd., both are not associated enterprises of the assessee as set out by the provisions under Section 92A(1) or 92A(2) of the Income Tax Act, 1961. But the TPO ignored these facts and while computing the proportionate adjustment has considered the operating expenses for related party transaction as ₹ 24.01 crores, thereby, calculating the proportionate factor as 13.34%. Therefore, we remand back this issue to the file of the TPO/AO and after verifying the transactions between Computer Sciences Corporation, USA and CSC Australia Pty Ltd., the same should be taken cognizance as per the facts and provisions of Income Tax Act, 1961. Needless to say, the assessee be given opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and in doing so have grossly erred in: 2.1 not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. disregarding the Arm's Length Price ('ALP') determined by the Appellant in the Transfer Pricing ('TP') documentation maintained by it as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.3. disregarding approach adopted by the Appellant of using data of latest available year in TP documentation and holding that current year (i.e. FY 2011-12) data for comparable companies should be used, despite the fact that complete data for the FY 2011-12 was not available to the assessee in the public domain at the time of preparing documentation; 2.4. not taking business exigencies and commercial contractual limitations into consideration while evaluating related party transactions, especially in light of the fact that assessee is a Joint Venture Company, and would not have been allowed to have undertaken related party transactions at other than arm's length price 2.5. rejecting the comparable companies selected by the Appellant wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not considering ₹ 28.755.543 i.e. revenue accounted for during FY 2012-13 which actually pertains to FY 2011-12; 2.13.2. computing adjustment on transactions with Computer Science Corporation which is an unrelated entity, and which has been disclosed on abundant caution basis. 3. Disallowance of license fee and data service management charges paid to GE Capital Corporation. USA ('GECC')-₹ 10,90,21,322 3.1. That on the facts and circumstances of the case and in law, the Learned AO has erred in law and facts making the disallowance of ₹ 10,90,21,322 on account of license fee for use of Vision plus software and data service management charges paid to GECC, by regarding the same as capital expenditure. 3.2. That on the facts and circumstances of the case and in law, the learned AO has grossly erred in not following the decision of the Hon'ble Tribunal in Appellant's own case for ASSESSMENT YEAR 2007-08 and 2008-09 that has deleted the said disallowance by treating the payment of license fee paid for use of vision plus software and data service management charges as revenue expenditure and without appreciating that there has been n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. 3.9. Without prejudice to the above, the Learned Assessing Officer 3.9.1. erred in facts and in law in disallowing the entire amount without regarding the fact that the said sum was already disallowed by the Appellant under section 40(a)(i) of the Act while computing its total income as per the return of income, leading to double taxation of the self-same amount. 3.9.2. erred in not allowing depreciation @ 60% on the above payments applicable to computer software in accordance with the provisions of section 32 of the Act. 4. Short grant of prepaid taxes and erroneous levy of interest 4.1. That on the facts and in the circumstances of the case and in law, the Learned AO has erred in not granting the TDS credit to the extent of ₹ 4,40,63,648 as claimed by the Appellant in the revised return of income. 4.2. That on the facts and in the circumstances of the case and in law, the Learned AO has erred in levying excess interest under section 234C of the Act. 4.3. That on the facts and in the circumstance of the case, the Appellant has filed a rectification application before the Learned AO on December 13, 2016 requesting rectification o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile the OP/TC of the assessee was 2.95%. The transactions were considered to be at arm's length on the basis of permissible range of 5%. The TPO vide order dated January 21, 2016 rejected the comparability analysis in respect to transaction of ITeS Services and conducted a fresh benchmarking study on the basis of additional/modified quantitative filters. The TPO arrived at a final list of 10 comparables out of which 3 comparables were chosen by the assessee and fresh 7 comparables were introduced by the TPO. Further, the TPO rejected the working capital and risk adjustment and recalculated the margin of the assessee. A summary of the transfer pricing adjustment carried out by the TPO is as follows: Transaction No. of comparables Arm s Length Margin Margin of the assessee Quantum of Addition (In INR) Transaction of ITes Services 10 28.34% 1.74% 6,38,80,109/- Proportionate Adjustment made by the TPO i.e. adjustment made only on the international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18] Pr. CIT v H S Software Development and Knowledge Management Centre Pvt. Ltd: [Delhi High Court in ITA No. 912/2017, Order dated January 3, 2018] Timex Group India Ltd. vs. DCIT: [2019] 102 taxmann.com 459(Del I TAT Inductis India Pvt. Ltd. Vs. ACIT (2019) 101 taxmann.com 110 (Del ITAT) 5.2. The Ld. DR relied upon the order of the TPO/AO and the DRP. 5.3. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the functions of Eclerx Services Limited are different than the functions of the assessee company. Besides this, significant expenditure on Advertising and marketing expenses were made by this comparable company and there is significant intangible assets owned by this company. There is no segmental details available of this company. All these factors determine that Eclerx Services Limited is not a good comparable. Therefore, we direct the TPO to exclude this comparable from the final set of comparables. 5.4. TCS-e-Serve Limited: The Ld. AR submitted that this comparable company is functionally different. TCS e-Serve is primarily engaged in the business of providing Business Proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess which comprises customer service outsourcing, finance and accounting, human resources outsourcing, legal process outsourcing, sales and fulfillment, sourcing and procurement outsourcing etc. Infosys BPO is engaged in the providing high-end integrated services by assisting its clients in improving their competitive positioning by managing their business processes in addition to providing increased value. The brand value of Infosys BPO Ltd. enjoys the benefit of brand value of Infosys , one of world's leading companies. It has consistently spent substantial amount of money on brand building. There was an extraordinary financial events during Financial Year 2011-12 as it acquired 100% voting rights in Portland Group Pty. Limited (strategic sourcing category management services provider based in Sydney, Australia) and also invested in Mc Camish Systems LLC. The Ld. AR relied upon the following decisions: Pr. CIT v Actis Global Services Pvt. Ltd.: [Delhi High Court in ITA No. 417/2016, Order dated August 5, 2016] Pr. CIT v. evalueserve (SEZ) Gurgaon Pvt. Ltd: [Delhi High Court in ITA No. 241/2018, Order dated February 26, 2018] Orange Business Services Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the three segments is not reliable. The Ld. AR relied upon the following decisions: Timex Group India Ltd. vs. DCIT: [2019] 102 taxmann.com 459(Del ITAT) Inductis India Pvt. Ltd. v. ACIT: [2019] 101 taxmann.com 110(Del ITAT). 5.11. The Ld. DR relied upon the order of the TPO/AO and the order of the DRP. 5.12. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that Acropetal Technologies Ltd. (Healthcare Segment) is functionally different as the Healthcare Segment has been taken into account. The company is engaged in software development. It provides healthcare services which includes innovation, patient life cycle management, physician and clinical life cycle management, hospital administration management, drug discovery and disease life cycle management. There is significant AMP expenses. Acropetal acquired two US based companies subsequent to which it will get into IP development by exploring the expertise and design skills available in the Silicon Valley. It has un-allocable expenditure. All these factors determine that Acropetal Technologies Ltd. is not a good comparable. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable having a financial year ending other than end-March can be reasonably extrapolated and used. Therefore, we direct the TPO/AO to verify this comparable and its functions as well as the principle laid down in the decision of the Hon'ble Delhi High Court and if found suitable, this comparable be included in the final list of the comparables. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. 6. Thus, Ground No. 2.1 to 2.12 are partly allowed for statistical purpose. 7. As regards to Ground No. 2.13.1 relating to incorrect computation of assessee's margin, the Ld. AR submitted that the TPO while computing the adjustment has wrongly considered the operating revenue of the assessee to be ₹ 1,83,11,04,381 instead of ₹ 1,85,87,78,312/-. The TPO while calculating the operating revenue did not consider the amount of ₹ 2,87,55,643/-. The TPO and the DRP completely disregarded the submissions made by the assessee in this regard. The Ld. AR submitted that the assessee (previously known as GE Capital Business Process Management Services Private Limited) rendered services worth ₹ 2,87,55,643/- to SB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has been recognized on account of services rendered to SBI despite having incurred a cost of ₹ 3.2 crore. These facts were totally ignored by the TPO/AO and therefore, in the interest of justice, we deem it proper to remand back this issue to the file of the TPO/AO for proper verification and adjudication as per the facts and law. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Hence, Ground No. 2.13.1 is partly allowed for statistical purpose. 10. As regards to Ground No. 2.13.2 relating to incorrect calculation of Proportionate Adjustment by the TPO, the Ld. AR submitted that the total related party transactions for the transaction of ITes Services, as per the TP Study, is ₹ 24,01,26,768/- which also includes ₹ 12,92,90,597/- which was paid by the Assessee to CSC Australia Pty Ltd. ( CSC Australia ), a third party for the receipt of data processing and related services pursuant to a Master Technology Services Agreement between GE Capital Corporation USA ( GECC ) and Computer Sciences Corporation ( CSC USA ) and was reported as an international transaction only out of abundant caution. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same also includes ₹ 12,92,90,597/- paid by the Assessee to CSC Australia Pty Ltd., a third party for the receipt of data processing and related services as per the Master Technology Services Agreement between GE Capital Corporation USA and Computer Sciences Corporation, USA as per the contentions of the Ld. AR. The Ld. AR's submission during the hearing was that this transaction was reported as an international transaction only out of abundant caution. But, the related party transaction or AE transactions amounts to only ₹ 11,08,36,171/-. After perusal of the records, these facts have to be verified by the TPO/AO which was not done by the Revenue authorities. It appears that the Computer Sciences Corporation, USA and CSC Australia Pty Ltd., both are not associated enterprises of the assessee as set out by the provisions under Section 92A(1) or 92A(2) of the Income Tax Act, 1961. But the TPO ignored these facts and while computing the proportionate adjustment has considered the operating expenses for related party transaction as ₹ 24.01 crores, thereby, calculating the proportionate factor as 13.34%. Therefore, we remand back this issue to the file of the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated October 5, 2017) and 2011-12 (ITA No. 4975/Del/2015, Order dated September 1, 2017). The Ld. AR further submitted that the Revenue has not filed any appeal before the Hon'ble Delhi High Court on this issue and, thus, the matter has attained finality. 15. The Ld. DR relied upon the order of the TPO/AO and the DRP. 16. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that this issue is covered by the order of the Tribunal in assessee's own case and there is no appeal filed by the Revenue before the Hon'ble High Court. The Tribunal in A.Y. 2007-08, 2008-09, 2010-11 and 2011-12 held as under: 7. We have considered the rival submissions, perused the orders of the authorizes below, material available on record and gone through the case laws cited by both the parties. From the above narration of facts, we find that the arguments advanced by both the parties rest on the vital question whether under the facts and circumstances of the case, the payment of license fee, connectivity charges and co-ordination charges amounting to ₹ 2,19,60,467/- made by the assessee to GECC(USA) under the end-us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ram in any manner whatsoever. Similarly, clause 5 and its sub-clauses give the right of termination of license agreement to either parties under various circumstances. It is worthwhile to note that in case of default, if any, committed by the assessee, the rights of assessee to use the software would stand terminated forthwith. Under clause 5.5, the assessee is required to deliver the licensed program back immediately to GECC(USA) after removing the same from its systems on termination of agreement. Clause 5.5 of the agreement reads as under: 5.5 Upon termination of this Agreement the right to use the Licensed Program shall end and GECBPMS shall, with immediate effect: (a) deliver to GECC the Licensed Program; and (b) purge all copies of the licensed program stored in any CPU or other storage medium or facility, which for any reason cannot be delivered to GECC. In addition, an officer of GECBPMS shall certify in writing to GECC that all proprietary material relating to the Licensed Program has been delivered to GECC or purged and that the use of the Licensed Program and any portion thereof has been discontinued. Under clause 3.1, the license agreement al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed for subsequent years after considering the same license agreement and various decisions of Hon'ble High courts and Supreme Court. It is also a matter of record that the assessee has returned its income for the relevant previous year at ₹ 152.88 crores whereas the amount expended towards use of routine application software is ₹ 2.19 crores which is 1.43%. This shows that implies that this software only is not the soul of assessee's business as argued by the ld. DR. In the case of southern Switchgear Ltd. (supra), the technical knowledge and information remained with the assessee even after termination of agreement which constituted enduring benefit to the assessee whereas in the present case, the software in question is an application software and after termination of license agreement, said software was to be delivered back to the licensor and the same cannot be made to use by the assessee in any manner. Similarly in the case of Jones Woodhead and Sons (India) (supra) relied on by the Assessing Officer is also distinguishable on facts inasmuch as in that case the agreement between the assessee and the foreign collaborator was in relation to setting up of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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