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Parexel International (India) P. Limited. Versus The ACIT Circle-16 (2) Hyderabad

Transfer pricing adjustment - comparable selection - Held that:- E infochips Bangalore Ltd - this company cannot be selected as comparable company for TP analysis. First of all, this company is engaged in both software development as well as ITES. Assessee being only captive service provider, the above company cannot be considered as comparable on functional basis. Not only that, as pointed out, segmental information pertaining to the above company is not available. As seen from the TP orders, d .....

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pany cannot be chosen as a comparable company in Assessee’s case in this assessment year - Kals Information Systems Ltd - Since no segmental data is available, considering the software development services as a segment by TPO cannot be considered as segmental data, unless the services rendered by that company are similar to the services rendered by Assessee. In view of this, we are of the opinion that this company cannot be selected as comparable. AO is directed to exclude the same. - L .....

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of the I.T. Act, consequent to the directions given by DRP vide its order dated 31.10.2014. The issue in the appeal is with reference to the transfer pricing adjustment made by the AO/TPO. 2. Even though assessee raised as many as 8 grounds on various issues, the Ld. Counsel restricted his argument to ground No.4 on four comparable companies only, which are incidentally considered and rejected in the case of Pegasystems Worldwide India P. Ltd., Hyderabad vs. The ACIT, Circle 16(2), Hyderabad in .....

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provision of services and all are clubbed and adopted TNMM as Most Appropriate Method (MAM). TPO did not dispute the method. The profit level indicator OP/cost ratio for above services was at 15.29%. Assessee in its T.P. study, based on 16 comparables justified the ALP as the PLI of 16 comparables was at 13.18%. TPO rejected the T.P. document as it suffers from defects such as selection of inappropriate comparables, rejection of companies that are appropriate etc., TPO made independent analysis .....

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dition of ₹ 1,44,48,369. Assessee is objecting to the same mainly on inclusion of 4 comparables in ITES segment. 5. The final comparables after DRP order, as selected by TPO are as under : Sl. No. Name of the Comparable Company OP/TC as per TPO (post WC adj.) 1. Avani Cimcom Technologies Ltd., 2.53 2. CAT Technologies Ltd., 7.03 3. Comp-U-Learn Technologies India Ltd., 14.29 4. Evoke Technologies 19.27 5. E-Zest Solutions Ltd., 21.32 6. Kuliza Technologies Ltd., 24.65 7. Mindtree Ltd., (se .....

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s Information Systems Ltd., 3. Tata Elxsi Ltd., (seg.) 4. L & T Infotech Ltd., 7. It was fairly admitted that these four companies were analysed in the case of Pegasystems Worldwide India P. Ltd., Hyderabad vs. ACIT, Circle 16(2), Hyderabad in ITA.No.1758/Hyd/2014 dated 16.10.2015 for the same assessment year by the Coordinate Bench at Hyderabad and excluded them by stating as under : E infochips Bangalore Ltd., : 8. This company is selected by TPO even though Assessee objected to the same ( .....

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did not accept Assessee s documents by referring to the schedules like research and development, inventories, sales and other incomes. He also reported that company in the notes to the accounts has stated that it is engaged in the development and maintenance of computer software. The production and sales of software cannot be expressed in any generic unit. Thus, TPO rejected Assessee s objections and retained it as a comparable. DRP also agreed with TPO. 8.1. It was contended that AO relied on .....

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ed that segmental information was not available. On the argument that the said company is providing both software development and IT enabled services Ld. Counsel placed the disclosures in annual report of FY. 2008-09 and annual report of FY. 2009-10 to submit that the company is primarily engaged in software development and IT enabled services and has reported both of them as one segment. Therefore, company is not comparable with Assessees on functional analysis. It was further submitted that co .....

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e was rejected on the basis of lack of segmental information. Assessee relied on para 10 of the Co-ordinate Bench order, which is as under: Para 10 - With respect to E-Infochip Bangalore Ltd., we find that in the annual accounts of the company, with respect to the segment information it is stated that the company is primarily engaged in software development and I.T enabled services which is considered the only reportable business segment as per Accounting Standard AS-17 segment reporting prescri .....

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o submit that Assessee is a comparable company with that of Assessee. 8.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable company for TP analysis. First of all, this company is engaged in both software development as well as ITES. Assessee being only captive service provider, the above company cannot be considered as comparable on functional basis. Not only that, as pointed out, se .....

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l details and comparable company having diversified activities, we are of the opinion that this company cannot be chosen as a comparable company in Assessee s case in this assessment year. We are also aware of the decision of the Co-ordinate Bench given in earlier assessment year on the reason that segmental reporting was not available. Be that as it may, since the said company is functionally different from Assessee s activities and in the absence of segmental information, we direct AO/TPO to e .....

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provider. Further, extracting page No. 22 of the annual report of the company, TPO opined that the segmental information indicates that revenue is shown to have been earned from application software and training. Accordingly, he rejected Assessee s objections and included as the comparable company. DRP confirmed the same. 10.1. Assessee s main objection before us is on functionality of the comparable company. As seen from the annual report of 2008-09 and 2009-10 and comparative statement placed .....

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company was rejected in earlier year on functional analysis by ITAT in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 where in it was held that company is engaged in development of software products. Since its annual report states the same facts in this assessment year also, we are of the opinion that the company cannot be selected as a comparable as it was engaged in development of software and software products. Accordingly, Assessee s objections are accepted and AO is directed .....

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nd 1978/Hyd/2011) and other cases as stated by TPO in page 41 of his order. However, TPO did not agree with the objections stating that the company has two segments including software development services and revenue from software development services is ₹ 33,649 Crores out of total turnover of ₹ 37,637 Crores, which is at 89.52%. This signified the fact that company is predominantly into software development services. TPO rejected the objections of Assessee so as DRP. 12.1. It was t .....

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y can be computed is also not available. Moreover, the company itself has indicated that it cannot be compared with any other software service company because of its complex nature. Similar view was taken by many of the Co-ordinate Benches in earlier years that Tata Elxsi Ltd., cannot be selected as comparable company. Consistent with the above view, we are of the opinion that a company like Tata Elxsi Ltd., which has complex activities and segmental information of which is not available cannot .....

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ered by Assessee. In view of this, we are of the opinion that this company cannot be selected as comparable. AO is directed to exclude the same. L & T Infotech Ltd: 14. Assessee has objected before TPO that the department in earlier years is rejecting this comparable as it has revenue from software services and products and segmental information was not available. Further, company did not respond to the notice issued u/s. 133(6) and challenged the said notice before the Hon'ble Bombay Hi .....

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, but DRP rejected.. 14.1. It was the submission of the Ld. Counsel that DRP at Hyderabad in the case of M/s. Sumtotal Systems India Pvt. Ltd., [PAN: AABCC9379C] for the same assessment year has excluded the same by stating as under: We have gone through the submissions of the Assessee, International Transactions involved, TP documentation of the Assessee, the most appropriate method adopted by TPO after rejecting the TP documentation of the Assessee, the filters used by TPO and also verified th .....

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ls etc., this panel is of the view that the following comparables selected by TPO should be excluded from the list of final comparables chosen by TPO in the ALP computation. i) Infosys Technologies Ltd., ii) L&T Infotech Ltd., We direct TPO to exclude the above referred comparables from the list of final comparables chosen by TPO in the ALP computation and recompute the ALP accordingly . 14.2. It was the submission that once DRP has accepted the objections of Assessee whereas in Assessee s c .....

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