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2016 (7) TMI 445 - ITAT BANGALORE

2016 (7) TMI 445 - ITAT BANGALORE - TMI - Transfer pricing adjustment - selection of comparable - Held that:- Nine companies are to be excluded from the list of twenty comparables and these nine companies are M/s Aztec Software Ltd., 2) Geometric Software Ltd.(Seg.) 3) M/s iGate Global Solutions Ltd.,(Seg.) 4) M/s Kals Info Systems Ltd., 5) M/s Persistent Systems Ltd., 6) M/s Tata Elxsi Ltd.,(Seg.) 7) M/s Accel Transmatics Ltd (Seg.) 8) M/s Megasoft Ltd and 9) M/s Flextronics Software Systems Lt .....

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called for and for the limited purpose of checking the working of average PLI of the 11 comparables, we restore the mater back to the file of AO. - Decided in favour of assessee for statistical purposes. - Deduction u/s 10A computation - Held that:- The total turnover is sum total of export turnover and domestic turnover and therefore, as a consequence, if an amount is excluded from export turnover, the total turnover also goes down by the same amount. See CIT Vs M/s Tata Elxsi Ltd., reporte .....

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as raised the following grounds; "The grounds mentioned herein are without prejudice to one another. Transfer Pricing Related 1. That the order of the learned Income Tax Officer, Ward 11(2), Bangalore ('Assessing Officer or 'AO') to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That the learned AO and the learned Dispute Resolution Panel ('Panel') erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned .....

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ed risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned TPO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transactions of the Appellant. 4. That the learned AO and the learned Panel erred both in facts and law in confirming the action of the learned TPO of making an adjustment to the transfer price of the Appellant by ₹ 1,03, .....

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ngs. 4.2. Disregarding application of multiple year/ prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2005-06) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing the TP documentation, and in doing so have grossly erred in: 4.2.1. interpreting the requirement of 'contemporaneous data in the Rules to necessarily imply current year/ .....

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e differing asset base and risk profile, and also rejection of other potentially comparable companies. 4,4. Concluding that the amended proviso to section 92C(2) of the Act under Finance (No 2) Act. 2009, would be applicable for Assessment Year 2006-07 and in not appreciating that even if the arms' length price falls outside the 5% tolerance band the and statement would have to be reckoned after allowing the benefit of +/- 5% variation as provided in proviso to Section 920(2) of the Act. whi .....

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10A of the Act in treating internet access charges as 'expenditure attributable to the delivery of software outside India. under Explanation 2(iv) to section 10A of the Act. 8. That the learned AO erred while computing deduction under section 10A of the Act in treating expenditure in foreign currency as 'expenses incurred in foreign exchange in providing technical services outside India' under Explanation 2(iv) to section 10A of the Act. 9. That the learned AO erred while computing d .....

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s of ₹ 25,47,030/- and expenditure in foreign currency of ₹ 4,14,863/- from the total turnover in computing deduction under section 10A of the Act. 12. That the learned AO erred in consequently levying interest under section 234B of the Act. 13. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. The assessee has also raised the following additional .....

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irector of Income - tax (Transfer Pricing) - IV (Transfer Pricing Officer' or TPO') and thereby erred in not appreciating that the Appellant had prepared the TP documentation bona fide and in good faith and conducted the comparable analysis based on the detailed Functional Asset and Risk analysis performed with due diligence and the data available at the time of conducting the comparability analysis. 3.That the learned AO and the learned Panel erred in ignoring the limited risk nature of .....

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that the international transactions do not satisfy the arm's length principle envisaged under the Act and in doing so grossly erred in: 4.1. Upholding the act of the learned TPO of collecting selective information of the companies by exercising power granted to him under section 133(6) of the Act, that was not available to the Appellant in the public domain and relying on the same for comparability purposes in denial of natural justice to be observed in the assessment proceedings. It was su .....

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some comparables. 4. Now, we discuss and decide each and every comparables on the basis of chart as under; 1. For M/s Aztec Software & Technology Services Ltd., it was submitted by the ld. AR of the assessee that this comparable should be rejected since RPT is in excess of 15% and it is in fact 17.78% in the present case. In this regard, our attention as drawn to page no.188 of the TPO's order where the TPO has noted down percentage of RPT over sales in respect of all the 20 comparables .....

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TPO's order and it was pointed out that RPT percentage of this company is 19.34% and therefore, this company should also be excluded from the list of comparables for the same reason. Hence the AO/TPO is directed to exclude this company from the list of final comparables. 7. For the third comparable M/s iGate Global Solutions Ltd., (Seg.), it was submitted by the ld AR of the assessee that the assessee has not objected to the inclusion of this comparable. 8. For the fourth comparable M/s Info .....

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available on pages 868-874 of the case laws compendium. Respectfully following this Tribunal order, we hold that this company also cannot be considered as comparable because of its functional dissimilarity. 9. For the fifth comparable M/s Kals Info Systems Ltd., the argument of the ld. AR of the assessee is that this company is also functionally dissimilar because it derives its revenue primarily from software services and software products and segmental information was not available. In suppor .....

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company as comparable. We hold accordingly. 11. For the seventh comparable M/s Persistent Systems Ltd., ld. AR's argument was the same that this company is dissimilar because it derives revenue from its software products and segmental information was not available. In support of his contention, reliance was placed on Tribunal's order rendered in the case of 3DPLM Software Solutions Ltd. in IT(TP)A No.1303(Bang)/2012 (AY: 2008-09) (copy available on pages 151-153) of the case laws compen .....

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ions of the ld. AR of the assessee that this company cannot be considered as comparable for the reasons stated in the chart submitted by the ld. AR of the assessee that it derives its revenue from its software production and segmental information is not available. We hold that this company cannot be considered as comparable in the present case. 12. For eighth and ninth comparables M/s R Systems International Ltd.,(Seg.) and M/s Sasken Communications Ltd (Seg.), it was submitted by the ld. AR of .....

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lable on 741 of the case laws compendium. Reliance was also placed on another Tribunal's order rendered in the case of EMC Data Storage Systems (Ind.)Pvt. Ltd., Vs DCIT (IT(TP)A No.1274/Bang/2010 (AY: 2006-07) (copy available on pages 38-40 of the case laws compendium. Respectfully following these Tribunal orders, we hold that this company cannot be considered as comparable in the present case. 14. Regarding 11th to 15th comparables as per the chart, i.e. M/s Lucid software Ltd., M/s Mediaso .....

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should be excluded for this reason also that it is functionally dissimilar. In this regard, when we examine page 389 of the paper book containing page no.188of the TPO's order, we find that percentage of RPT to sales of this company is noted by the TPO at only14.46% which less than 15% as against the claim of the assessee that the RPT percentage of this company is 31%. Hence, on this account, we find no merit in the argument of the ld. AR of the assessee. Regarding his second contention that .....

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A No.1054/Bang/2012 or AY: 2007-08, this company cannot be considered as comparable. Respectfully following these two Tribunal orders, we hold that in the present case also, this company cannot be considered as comparable because of functional dissimilarity. 16. For seventeenth comparable M/s Synfosys Business Solutions Ltd., it was submitted by the ld. AR of the assessee that the assessee has no objection for selection of this company as a comparable. We hold accordingly. 17. For eighteenth com .....

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by the ld. AR that the assessee has no objection for considering this company as a comparable. We hold accordingly. 19. For twentieth and the last company considered by the TPO as comparable i.e. M/s Flextronics Software Systems Ltd., it is the contention of the learned AR of the assessee that this company is dissimilar and therefore, cannot be considered as comparable. 19.1 The specific objections are that this company is engaged in selling software products and incurring R&D expenses. It .....

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d is functionally dissimilar and by respectfully following the Tribunal order cited by the ld. AR of the assessee as noted above, we hold that this company cannot be considered as comparable in the present case. 20. As per the above discussion, we find that nine companies are to be excluded from the list of twenty comparables and these nine companies are M/s Aztec Software Ltd., 2) Geometric Software Ltd.(Seg.) 3) M/s iGate Global Solutions Ltd.,(Seg.) 4) M/s Kals Info Systems Ltd., 5) M/s Persi .....

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