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2015 (2) TMI 944 - AT - Income TaxTransfer Pricing Adjustment - selection of comparable - Held that:- For exclusion of Kals Information System Ltd. the said concern is engaged in development and sale of software product, etc., which is distinct from the software development services rendered by the assessee to its associated enterprise. Thus, we are inclined to uphold the plea of the assessee that the M/s Kals Information System Ltd. (applications software segment) is functionally incomparable to the assessee. - Decided in favour of assessee. For exclusion of M/s. FCS Software Solutions Limited the application support services and infrastructure management services, which constitute 11% and 15% respectively of the total income, are IT enabled services and not linked to the software development services. Once the segment of application support and infrastructure management services are removed along with the exclusion of E-learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. - Decided in favour of assessee. For inclusion of CG-VAK Software Systems Limited (Software Services Segment) the said concern cannot be excluded merely because of incurrence of loss in this year, especially when the said loss has not been established to be an abnormal business condition and more so in the context that the said concern is not denied to be functionally comparable to the assessee. Therefore, on this aspect, we uphold the plea of the assessee for including the said concern in the final set of comparables in order to determine the arm's length price of the international transaction. - Decided in favour of assessee. For inclusion of M/s. Thinksoft Global Services Limited The argument being set up by the lower authorities that the ‘Verification’ and ‘Validation’ are steps to test the efficiency of the software, but not a part of software development, in our view is a hairsplitting argument, which is not justified in the context of the present comparability analysis. Ostensibly, ‘Verification’ and ‘Validation’ are broadly speaking, a part and parcel of the process of software development. Therefore, on this aspect, we are unable to uphold the action of lower authorities in excluding the said concern from the final set of comparables. - Decided in favour of assessee. For exclusion of M/s. Maars Software International Limited TPO justifiably excluded the said concern because it is only the information available in public domain, which can be the basis to effectuate comparable analysis. The assertions in the Directors report, which do not find any contradiction in the other financial statements accompanying such Directors report, have to be relied upon. Thus, on this point itself, we find no merit in the plea of the assessee for including the said concern in the final set of comparables. - Decided in favour of revenue. For exclusion of Akshy Software Technologies Limited TPO was justified in excluding Akshy Software Technologies Limited from the final set of comparables as the business model of the assessee i.e. provision of off-shore services to its associated enterprise stands on a different footing than the on-site services being rendered by Akshy Software Technologies Limited. The assertions of the assessee that its arrangement with associated enterprise does not rule out provision of on-site services does not distract from the fact that the tested transactions undertaken by the assessee involve off-shore rendering of services, which is incomparable to the on-site services being rendered by Akshy Software Technologies Limited to its clients abroad. - Decided in favour of revenue. For exclusion of M/s. R.S. Software (India) Limited the said concern was predominantly an on-site service provider and therefore, it was excludible. Secondly, the TPO also correctly observed that the said concern was engaged in research and development work as mentioned in its Annual accounts. We hereby affirm the stand of the TPO in rejecting M/s. R.S. Software (India) Limited from the final set of comparables.- Decided in favour of revenue. Exclusion of comparable applying a Turnover filter - while in the show-cause notice the TPO had proposed to consider Persistent Systems Ltd., Mindtree Ltd. (IT Services), Larsen & Turbo Infotech Ltd. and Sasken Communication Technologies Ltd. (Telecom Services Segment) as comparables whereas in the subsequent order passed u/s 92CA(3) the TPO has excluded the same by applying a Turnover filter, whereby the concerns with sales/turnover in excess of ₹ 200 crores have been excluded - Held that:- In the present case it is axiomatic that so far as the issue of the adoption of Turnover filter of ₹ 200 crores to exclude the aforesaid four concerns in concerned, the same has been adopted by the TPO without giving the assessee any opportunity of being heard and therefore in our view the matter ought to be remanded back to the AO/TPO for consideration afresh. - Decided in favour of assessee for statical purposes.
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