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2015 (5) TMI 303 - AT - Income TaxTransfer pricing adjustment - segment relating to the Provision of software services - wrong selection of comparable - Held that:- The point made out by the assessee for exclusion of KALS Information Systems Ltd. (Application Software Segment) is on a sound footing inasmuch as the said concern is functionally distinct from the activities of Provision of software services rendered by the assessee. Transworld Infotech Ltd. (earlier known as Sterling International Enterprises Ltd.) the data to be used in analyzing the comparability of an uncontrolled transaction with the international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Ostensibly, in the present situation, the financial data adopted of Transworld Infotech Ltd. does not relate to the financial year in which the international transactions in question have been carried out by the assessee. We, therefore, are in agreement with the submissions of the assessee that the said concern is excludible from the final set of comparables CSA (India) Ltd. (ESS Segment) functionally different as pointed out by the assessee vis-à-vis the R&D services segment of the said concern are germane and relevant to decide about the inclusion of the said concern for the comparability analysis. Therefore, we direct the lower authorities to exclude the margins relatable to the R&D services segment of the said concern and consider only the margin relatable to the IT services segment alone to benchmark assessee’s activity of Provision of software services to its associated enterprises. Determination of arm's length price with regard to the international transactions of Provision of back office support services - Held that:- the present case that the activities undertaken by Infosys BPO Ltd. cannot be qualitatively compared with the activities being carried out by the assessee in its back office support services segment. Undoubtedly, Infosys BPO Ltd. owns significant intangibles and eminent brand value whereas in the case of the assessee before us there is no such situation. The turnover achieved by Infosys BPO Ltd. is many times higher in comparison to the assessee; the said concern is a giant in comparison to the assessee. In our view, the presence of the aforesaid factors justify assessee’s assertion that the said concern be excluded from the list of comparables. Cosmic Global Ltd. is liable to the excluded from the final set of comparables having regard to the difference in the business model brought out by the assessee. M/s Omega Healthcare Management Services Pvt. Ltd. in the absence of any adverse finding that the activities of the said concern are not comparable to assessee’s activity of rendering back office support services to its associated enterprises, we deem it fit and proper to direct the lower authorities to include the said concern in the final set of comparables as was contended by the assessee in the course of the Transfer Pricing proceedings. M/s In House Productions Ltd. (Healthcare Division) he only reason advanced by the TPO to reject the said concern was his perception that the financial data of the said concern was not reliable. The perception of the TPO is based on the fact that a fire destroyed major portion of the account books of the concern. The point made out by the assessee is that the audited financial statements have not been adversely commented by the statutory auditors of the said concern with regard to the reliability of the data. The said stand of the assessee cannot be brushed aside lightly. On the other hand, the TPO has not advanced any credible basis which could demonstrate unreliability of the financial data. In our considered opinion, it would meet the ends of justice if the TPO is called upon to re-visit the controversy with regard to its inclusion. Galaxy Commercial Ltd. (BPO Segment) in the immediately preceding assessment year the said concern had a positive margin. Nevertheless, in order to examine as to whether it is a consistent loss-making or not, a trend over more than one year is required to be evaluated. For the said purpose, we deem it fit and proper to restore the matter back to the file of the TPO, who shall examine the financial results of the said concern for two years prior and subsequent to the assessment year under consideration so as to formulate a belief as to whether or not it is a consistently loss-making concern - Appeal of the assessee is partly allowed.
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