New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2017 (1) TMI 1215 - ITAT DELHI

2017 (1) TMI 1215 - ITAT DELHI - [2017] 54 ITR (Trib) 158 - Transfer pricing adjustment - ALP determination - grant of working capital adjustment - Held that:- Respectfully following the finding in the case of Mercer Consulting (India) Private Limited (2014 (7) TMI 715 - ITAT DELHI), we set aside the finding of the DRP on the issue in dispute and remit the matter to the file of the TPO/AO for examining the assessee’s claim for grant of working capital adjustment on merits and, thereafter, allow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n the process of development of software product, the entity carry out research and development activity, which results into generation of intellectual property rights, which is absent in case of a captive service provider. Accordingly, the segment in consideration is characterized at software development services. - The services rendered by the assessee are in respect of the support services for sale of software by the AE and the post sales support services are also in respect of the sale o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

egment of the assessee company. However, we do not agree with the contention of the assessee that the company segment of turnkey contract & service was functionally similar to the segment of the assessee under comparison. The segment of the company compared is turnkey contract and services. No information is available in respect of the turnkey contract executed by the company and, therefore, the result of turnkey contract and service segment are not comparable with the sales and post sale suppor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion of comparables having functions similarity to the segment of sales and post sales support and compute the adjustment accordingly as per law. Needless to mention that the assessee shall be provided sufficient opportunity of hearing. - ITA No. 6334/Del/2012 - Dated:- 20-1-2017 - SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : S/sh. G.C. Srivastava & Daksh Bhardwaj, Advocates For The Respondent : Sh. T.M. Shiva Kumar, CIT(DR) ORDER PER O.P. KANT, A. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

143(3) read with section 144C of the Income-tax Act, 1961 ( the Act ) after considering the adjustments proposed by the learned Transfer Pricing Officer ( TPO ) in his order passed under section 92CA(3) of the Act and subsequently confirmed by the Hon ble Dispute Resolution Panel ( DRP ). Each of the ground is referred to separately, which may kindly be considered independent of each other. That, on the facts and circumstances of the case and in law, 1. the AO/TPO has erred in making an addition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tax Rules, 1962 ( the Rules ), and modifying the same for the determination of the Arm s Length Price ("ALP ) of the Appellant s international transactions to hold that the same are not at arm s length. 3. The AO/ TPO has erred in: a) Using data for a single year instead of multiple year data; and (b) Determining the arm s length margins / prices using data pertaining only to financial Year ( FY ) 2007-08 which was not available to the Appellant at the time of complying with the Indian TP d .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nformation which was not available in the public domain and relying upon the same for comparability purposes. 7. The AO/TPO has erred by selecting certain companies (which are earning super normal profits) as comparable to the Appellant. 8. The AO/TPO has erred, by rejecting certain comparable companies identified by the Appellant using Turnover less INR 1 crore as a comparability criterion. 9. The AO/TPO has erred, by wrongly rejecting certain companies from and adding certain companies to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stments to account for differences in the risk profile of the Appellant vis-a-vis the comparables. 13. the AO/TPO has erred in not providing the benefit of the arm s length range as provided under proviso to Section 92C of Act for the purposes of computing the ALP under section 92F of the Act. 14. The DRP has erred in confirming the additions proposed by the learned AO and erred in rejecting the objection filed against the draft assessment order. The Appellant craves leave to add, amend, vary, o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ision of sales and post sales support services, software development services, professional and maintenance services to its Associated Enterprises (AEs) in the field of telecommunication network including voicemail systems, Billings and other related hardware etc. The assessee filed its return of income electronically on 30/09/2008 declaring loss of ₹ 6,44,33,875/-, which was further revised to loss of ₹ 7,28,17,072/- on 31/03/2010. The case of the assessee was selected for scrutiny .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lowing services were provided by the assessee to its AE: Particulars Sales and postsales support services Software development services Professional services Maintenance services Operating income 144,84,534 37,351,292 160,287,692 24,930,966 Operating cost 131,466,625 33,212,116 143,567,323 22,747,688 Operating profit 12,617,909 4,139,176 16,720,370 2,183,278 OP/TC 9.60% 12.46% 11.65% 9.60% 2.1 The TPO' aggregated the results of software development, professional and maintenance services into .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g this benchmark against the assessee s margin of 11.54 percent, worked out transfer pricing adjustment of ₹ 2,92,33,284/- under this segment. Sales and _Post-sales Support Services 2.1.2 The TPO rejected 3 companies which were selected by the Assessee and identified 5 companies and computed their average OP/OC at 26.70 percent, as against the assessee s margin of 9.60 percent on cost. By applying this benchmark, the TPO worked out the transfer pricing adjustment for this segment amounting .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

before the DRP, New Delhi. In compliance to the direction of the DRP vide order dated 06/09/2012, the TPO recomputed the adjustment as under: 1. software development service ₹ 2, 74, 97, 397/- 2. sales and post sales support service ₹ 2, 24, 83, 680/- total ₹ 4, 99, 81, 078/- 2.4 After taking into account the adjustment to ALP, as directed by the DRP, the Assessing Officer passed the impugned order under section 144C read with section 143(3) of the Act on 23/10/2012. Aggrieved .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. As other grounds were not pressed before us, same are dismissed as infructuous. 3. First we take up the ground No. 11, wherein the assessee has challenged the finding of the AO/TPO in not allowing the working capital adjustment. The facts in respect of issue in dispute are that the assessee argued before the TPO that suitable adjustment on account of differences between the working capital intensities of the assessee viz-aviz comparables be allowed. The assessee filed computation of working ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ice sector to which the assessee relates. The authorities have given twofold reasoning for non-allowance of working capital adjustment;(a) nonmatching of working capital adjustment values with the financial (b) non-relevance of working capital adjustment to service industry. 3.1 Before us, the learned counsel of the assessee submitted that the claim of the TPO regarding non-matching of the working capital adjustment with financials was vague claim and was not substantiated by any remarks or obse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g was not at all tenable as held by several reasons of the Tribunal. In this connection he relied on the decision of the Tribunal Delhi bench in the case of Sun Life India service centre private limited (ITA No. 5799/Del/2014), wherein it is held that working capital adjustment is as much relevant to service industry as to manufacturers and traders. The Ld. counsel also relied on the decision of the Tribunal Delhi bench in the case of Mercer consulting (India) private limited in ITA No. 966/Del/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e. As far as finding of the TPO on the issue in dispute is concerned, we are agreed with the Ld. counsel of the assessee that if the TPO was agreed in principle for allowing the working capital adjustment, then he should not have denied the same merely on the ground of non-matching of working capital adjustment with financials. He could have allowed an opportunity to the assessee and get the financial corrected. Further, the DRP observed that the issue of working capital would be relevant when t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

deployed is actually making a difference to the margin earned by the assessee and the company and the assessee had not been able to demonstrate that difference in the working capital deployed was making difference in the margin earned by the assessee and the comparables and hence there was no case for working capital adjustment being allowed to the assessee. 3.2.1 We find that in the case of Sun Life India Service Centre Private Limited (supra), which is a case of service industry, the Tribunal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

high trade payables, a company benefits from a relatively longer period available to it for paying back to its suppliers, which reduces the interest cost and increases profits. In order to neutralize the difference on account of inventory, trade payables and trade receivables, it is of utmost importance to allow working capital adjustment for bringing the case of the assessee at par with the other otherwise functionally comparable entities. We, therefore, agree in principle with the grant of wor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

receivables, it would mean that is allowing its customers a relatively longer period to pay their amount which will result into higher interest cost and the resultant less profit. Similarly, by carrying high trade payables, a company benefits from a relatively longer period available to it to pay back its suppliers which lowers the interest cost and accelerates profits. To have a level playing field, it is sine qua non that the working capital adjustment should be carried out to bring two other .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

receivables/payables. Since the authorities below have rejected the assessee s contention for grant of working capital adjustment at the threshold, which in our considered opinion is not correct, we set aside the impugned order and remit the matter to the file of the TPO/AO for examining the assessee s claim for grant of working capital adjustment on merits and thereafter, allow the same, if it is available. Needless to say, the assessee will be allowed an adequate opportunity of hearing. 3.2.3 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

trade receivables/debtors and inventories. Interest cost will be high if the trade receivable/debtors time cycle is large. Interest cost will be low if the company can pay its liabilities after a longer period. Holding of inventory has an interest cost and interest cost will be lower if inventory turnover is within a shorter period. The amount of trade debtors, trade creditors and inventories affects the overall results of a company. Working capital requirements affect the margins and costs beca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rovide the necessary data/details with computation of the working capital of the tested party and the comparables. 3.2.5 In view of above, respectfully following the finding in the case of Mercer Consulting (India) Private Limited (supra), we set aside the finding of the DRP on the issue in dispute and remit the matter to the file of the TPO/AO for examining the assessee s claim for grant of working capital adjustment on merits and, thereafter, allow the same, if it is available. The assessee sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sken Communication Technologies Ltd. 4.1.1 The TPO included 15 comparables to the above list of four comparables chosen by the assessee. The final list of comparables considered by the TPO is as under: 4.1.2 The grievance of the assessee is against the inclusion of following five companies in the final list of comparables selected by the TPO: (i) Awani Cimcon Technologies Ltd (ii) celestial labs Ltd (iii) Infosys Ltd (iv) KALS Information Systems Ltd(segmental) and (v) Wipro Ltd. 4.2 Before proc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the three segments (pertaining to software development services, professional services and maintenance services) as software development segment. The nature of service rendered by the Appellant are as under: Software development division: This division is engaged in preparing test cases for the various products of Comverse group. Further, the division also performs various tests on software developed by Comverse group. Professional services division: The professional services division is engaged .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on a cost-plus basis by its AE for such services and it carries out limited and routine functions and mitigated from all risks. Further, it does not own any intangible/technical knowhow of its own and relies solely upon training and know-how of its AE for provision of such services. 4.2.1 On the other hand, as far as characterization of the assessee for software development segment is concerned, the Ld. CIT(DR) submitted that software development and software product development are interchangea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y rights, which is absent in case of a captive service provider. Accordingly, the segment in consideration is characterized at software development services. 4.3 In view of the above discussion on profile of the assessee, now we re discussing rejecting or accepting of comparables chosen by the TPO and objected by the assessee: (1) AvaniCimcon Technologies Ltd 4.3.1 The TPO included this company on the ground that it was engaged into software development and consulting with major focus on the tra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssee due to following reasons: (i) that AvaniCimcon is functionally dissimilar to the assessee, as it was engaged in a wide array of services including development of software products and back-office support services and no separate segmental information is available. (ii) that from the profit and loss account of the said comparable, it is seen that it was engaged in sale of products and also in the rendering of the services. (iii) that in the decision of Sun Life India service centre private l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ware solutions (ITA No.1303/BAN/2012) (b)NXP semiconductors India private limited (ITA No. 1174/BAN/2011 4.3.3 On the other hand, the Ld. CIT(DR) relied on the finding of the TPO/AO. He further referred to page 173 of the assessee s paper book, Volume 2, which contains submission of the assessee before the DRP and submitted that before the DRP, only objection was raised in respect supplying information under 133(6) by the TPO and non-availability of the information in respect of the company in p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

argument of functional dissimilarity. 4.3.4 We have heard the rival submissions on the issue of inclusion/rejection of this comparable. We find that the for the assessment year under consideration i.e. AY 2008-09 , in the case of Sun Life India service centre private limited (supra) the comparable has been held to be a software product company having intellectual property rights or some of the products developed by it. The relevant finding of the Tribunal is reproduced as under: The Id. AR cont .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al order in Agnity India Technologies Pvt. Ltd. Vs. DCIT (ITA No.6485/Del/2012). Vide its order dated 20.9.2013, the tribunal considered the functional profile of this company by noticing it to be a Product company owning software products like Dxchange, Travel Solutions, Insurance Solutions, Customer Appreciation, etc. Similar view has been taken by the Mumbai Bench of the Tribunal in the case of Net Hawk Networks India Pvt. Ltd. Vs. ITO (ITA No.7633/N/2012). Vide its order dated 6 11.2013, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ving intellectual property rights over some of the products developed by it, can be compared with the assessee on an entity level. IT A No.5799/Del/2012. We, therefore, order for the elimination of this company from the list of comparables. 4.3.5 We don t agree with the contention of the learned CIT(DR) in not allowing the learned counsel to raise objection regarding functional dissimilarity. It is well within his right to raise such issue before the appellate authority. Further, we find that th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sed all the filters applied. The DRP upheld the action of the TPO. Before us, the ld. counsel submitted for rejection of the comparable due to following reasons: (i) that the Celestial lab functionality dissimilar to the assessee, as it is a product company engaged in the development of software and bio-informatics products. The company owns significant IPR, which it lets out on licence basis, and it is also engaged in undertaking significant research and development of product by incurring subs .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s company was engaged in developing software tools after enough research and development activity, and the tools so produced by it are intellectual property, it cannot be considered as comparable to the assessee which is also albeit in the software development, but doing it on contract basis without having any IP rights in the software developed by it. (iii) That in following decisions as well, the celestial labs was directed to be excluded for similar reasoning: • Bearing Point Business Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sion of the parties and perused the relevant material on record. On perusal of the Annual Report of the company available on page 423 to page 464 of the Annual Report compilation of the assessee, we find that the company was engaged in the field of IT/bio informatics, biotechnology and consultancy work and offered enterprise resource planning solutions, Data warehousing, business intelligence solutions and bio services like clinical data management, gene sequence analysis, molecular modeling, de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to be functionally similar to the software development segment of the assessee. In the case of Toluna India Private Limited (supra) also the Tribunal has observed in respect of the comparable company as under: Celestial Labs limited: 18.1. The TPO included this company in the list of comparables by observing that it was rendering mainly software development services. 18.2. After considering the rival submissions and perusing the relevant material on record, we find from the annual accounts of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed as comparable to the assessee which is, also albeit in software development, but is doing it on contract basis without having any I.P. rights in the software developed by it. It is further relevant to note that this company has been held to be not comparable by the Dispute Resolution Panel (DRP) in its ITA No.5645/Del/2011 23 Directions for a subsequent year, a copy of which is available on record. Thus this company can t be considered as functionally similar to that of the assessee. We, ther .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The ld. DRP confirmed the action. Before us, the Ld. counsel of the assessee submitted to exclude the company from the list of the comparables due to following reasons: (i) that the company is engaged in wide range of services from package evaluation and infrastructure management to development of software products. (ii) that the company does not have adequate segmentation of revenue between services and products, in addition to the fact that such services are widely varied and dissimilar to th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Limited for AY 2008-09( ITA No. 5799/Del/2012) , the company was rejected as a comparable to a captive service provider. (vi) that the finding of the Tribunal was also followed in following rulings: (a) Toluna India Private Ltd. (ITA No. 5645/DEL/2011) (b) 3DPLM Software Solutions (ITA No. 1303/BAN/2012) (c) Ciena India Private Ltd. (ITA No. 3324/DEL/2013) (d) NXP Semiconductors India Private Ltd. (ITA No. 1174/BAN/2011) (vii) that the exclusion of Infosys is sought not only on account of huge t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

national transaction, small variation can be tolerated. 4.3.13 We have heard the rival submissions of the parties and perused the relevant material on record. On perusal of the Annual Report of the company, which is available on pages 465 to 515 of the Annual Report compilation, we find that the company has revenue from software services as well as products and no segmental detail of revenue from software services and sale of software products is available, and thus the result of the comparable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nding of the Tribunal is reproduced as under: 19. Reverting to the facts of the instant case, we find that the assessee is only a captive unit rendering services to its AE alone without acquiring any intellectual property rights in the work done by it in the development of software. The Hon ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, owne .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch as the extant assessee is also a captive service provider with a limited number of employees at its disposal and also not owning any branded products with no expenditure on R&D etc. When we consider all the above factors in a holistic manner, there remains absolutely no doubt in our mind that Infosys Technologies Ltd. Is incomparable to the assessee company. Respectfully, following the judgment of the Hon ble jurisdictional High Court in Agnity India (supra), we hold that Infosys Technolo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the TPO. Before us, the learned counsel of the assessee referred to pages 719, 722, 723 and 726 of the Annual Report compilation and submitted that the segmental details, i.e., application software, which was selected with the TPO, also comprises of revenue from both activity of provision of services as well as sale of products and no separate information by bifurcating the revenues into software products and services was available. He further referred to schedules 16 of the Annual Report, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; Toluna India Private Ltd. (ITA No.5645/Del/2011) • NXP Semiconductors India Pvt. ltd. (ITA No. 1174/BAN/2011 • 3DPLM Software Solution (ITA No. 1303/BAN/2012) 4.3.16 On the other hand, the Ld. CIT(DR) relied on the order of the lower authorities. 4.3.17 We have heard the rival submissions of the parties and perused the relevant material on record. On perusal of the Annual Report of the comparable company, which is available on pages from 706 to 726 of the Annual Report compilation, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ue Recognition: the Company derives its revenues primarily from software services and software products. Revenue from time and material contract is recognized on the basis of software developed and billed in accordance with the terms of the contract. Revenue from the fixed price contract is recognized on the completion of milestones in contracts, under the percentage of completion method. Income from training is recognized on time proportion basis. 4.3.18 Further we find that in the case of Sun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

company to be engaged in development of software and software products since its inception. This company consists of STPI unit engaged in development of software and software products Page of the paper book contains segmental information of this company which has been divided into two parts, namely, 'Application software segment and 'Training segment . It is the 'Application software segment of this company, which has been adopted by the TPO. The development of software and all soft .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e inherent characteristics of both. We, therefore, order for the removal of this company from the set of comparables. 4.3.19 In view of above, we are of the considered opinion that the segment of comparable company, compared with the assessee company is functionally dissimilar and accordingly, we direct the AO/TPO to exclude the above company from the list of comparables. (5.) WIPRO Ltd. 4.3.20 The TPO selected the company as comparable and the Ld. DRP also confirmed the action of the Assessing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s intangibles, which make it functionally dissimilar to the appellant. Further, the learned counsel also relied on the decision of the coordinate bench in the case of 3DPLM software solutions (ITA No. 1303/BAN/2012) for assessment year 2008- 09, wherein it is held that the company cannot be considered as comparable to a low-risk captive service provider assessee. The Ld. counsel also relied on the following decisions: • Toluna India Private Ltd. (ITA No.5645/Del/2011) • NXP Semiconduct .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on, that the revenue consist of sales and services and no separate segmental results for software development services are available. On perusal of the page 560 of the Annual Report compilation, we find that the company was engaged in research and development and activities having focus to strengthen the portfolio of Centre of Excellence (COE) and innovation projects and part of this focus, over 600 people were engaged. On perusal of page 561 of the Annual Report compilation, we find that the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bles. It is seen that this company is engaged both in software development and product development services. There is no information on segmental bifurcation of revenue form sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75 percent of total revenue filter adopted by him. Another major flow in the comparability analysis carried out by the TPO is that he adopted compa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ovider who does not own any such intangible an hence does not have any additional advantage in the market. A the assessee in the case on hand does not own any intangibles, following the afore said decision of co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pet Ltd (Supra), we hold hat this company cannot be considered as a comparable to the assessee. We therefore direct the Assessing Officer/TPO to omit this company form the set of comparable companies in the case on hand for the year u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

parables for sales and post sales support segment. The assessee chosen three comparables, which the TPO rejected and The TPO included following five comparable to the set of comparables for this segment: i. Alphageo India Ltd. ii. Mahindra Consulting Engineers Ltd. iii. Kirloskar Consultants Ltd. iv. Stup Consultants Private Ltd. v. Smac Limited. 5.1 In respect of profile and nature of the activities of the assessee in this segment, the Ld. counsel submitted as under: 37. As per TP documentation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rated on a cost-plus basis by its AE for such services and it carries out limited and routine functions and mitigated from all risks. Any intangible/technical know-how of its own and relies solely upon training and know-how of its AE for provision of such services. 5.2 The Ld. CIT(DR), on the other hand, referred to page -26 of the transfer pricing study and submitted that the sales and post sales support segment of the assessee was more of a technical in nature, which consisted software error a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

acterization of the segment of the assessee, however, we do not agree with the arguments of the Ld. CIT(DR). The services rendered by the assessee are in respect of the support services for sale of software by the AE and the post sales support services are also in respect of the sale of software by the AE. The bug fixing is also part of the post sales support services, which may be treated partly as a function of technical nature but same cannot be compared with consultancy provided in the field .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al similarity with the functional profile of the assessee. In the ruling of jurisdictional Hon ble Delhi High Court in the case of Rampgreen Solutions (ITA 102/2015) which though was rendered in the context of BPO Vs. KPO, had larger implications and the principles are relevant to this case as well because the services rendered by the appellant, even if technical, could not be taken at par with complex civil engineering, infrastructure and engineering consultancy services. 5.4.1 In respect of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

terpretations, distortion free 24 sensors and deploys the latest seismic data analysis with advanced interactive workstations. - It had a huge asset base of INR 705 crore (majority of which is seismic equipment), with substantial expenses on survey and drilling. - The Hon ble ITAT excluded in the case of Syngenta Biosciences Private Limited (ITA No 1083/MUM/2015) by holding that it is engaged in seismic research activity including 3D data seismic data acquisition Mahindra Consulting Engineers Li .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of Rolls Royce India Private Limited (ITA No. 6636/DEL/2015) and Emersons Process Management Power & Water Solutions India Private Limited (ITA No. 5343/DEL/2012) Kirloskar Consultants Limited: - It is engaged in engineering consultancy, project management services and architectural consultancy services Stup Consultants Private Limited Stup Consultants Private Ltd. - This company is engaged in civil engineering and architectural consultancy services, which are quite high-end and complex, a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bles having broad category of raw materials/products/economic activity and therefore cannot be allowed to question the comparable chosen by the TPO. He submitted that under the TNMM comparables having broad functional similarity should be accepted. 5.6 In the rejoinder, the ld Counsel submitted that the databases deployed for carrying out searches, though improved, have still not sufficiently matured. Accordingly, the appellant had used the afore-stated keywords to identify companies operating i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

frastructure consultancy, architecture and civil engineering) could not be compared to relatively less-complex services (such as installation, after-sales services). A product design engineer employed by Apple could not be said to perform similar functions and activity as an after-sales technician for Apple products. 5.7 We heard rival submissions of the parties and perused the relevant material on record. On perusal of the page 7, of the compilation of the annual reports, we find that M/s Alpha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the compilation of the annual reports, we find that M/s Mahindra consulting Engineers Ltd is engaged in infrastructure sector by providing consultancy services in the areas of special economic zone, water supply and sewerage, solid waste management, urban infrastructure, Agri and Horti infrastructure, social infrastructure, ports and harbours and offshore terminals, industrial infrastructure etc. On perusal of page 97 of the compilation of the Annual Report, we find that M/s Kirloskar consult .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ower plant for Public Sector Undertaking, Market Research for an Air Cargo Logistic Company, Consumer Research for a Nationalized Bank in Market Research Division. 3) Execution of 2 water based package has been undertaken for International Cargo Hub & total Water Supply System for four class B Municipal Council in the Environment Division. 4) Structural Engineering for large special purpose structures for a large irrigation project & River Bank Erosion Control for State Electricity Utili .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

profession of civil engineering and architectural consultancy. Further, on perusal of para-2 of the Annexure to the auditor s report, which is available on page 161 of the compilation of the Annual Report, we find that M/s. Semac Pvt. Ltd. was engaged in providing engineering consultancy services. 5.8 Thus, we find that the comparables chosen by the TPO are engaged in the functions altogether different from the functions in the nature of sales and post sales support services. The requirement of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the comparables included by the assessee and rejected by the TPO, the assessee challenged the action of the TPO in respect of company M/s Himachal Futuristic Communication Ltd. The company was selected as a comparable by the assessee but was rejected by the TPO on functional dissimilarity. 5.10 Before us, the Ld. counsel submitted that the company was engaged in activities similar to the assessee. He further submitted that in the immediately preceding year i.e. A Y 2007-08 the company was ch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t comparable to the assessee. Ld. CIT(DR) submitted that no segment report was available in the Annual Report of the company. He also referred to page 186 of the compilation of the Annual Report and submitted that revenue of the company was decreasing and it was incurring losses. He further referred to page 187 of the Annual Report compilation and submitted that losses of the company has resulted into erosion of 50% of its peak net worth during the immediately preceding four financial years and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Ld. counsel submitted that the company was engaged in manufacturing business as well as provision of sales and support services. He submitted that on page 212 of the compilation of the Annual Reports, the company had reported two segments, being (a) manufacturing equipment and (b) turnkey contract and services. He further submitted that for the purpose of comparability in transfer pricing study, it was the turnkey contract and service segment that was taken as comparable. It was also submit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 4.7.7 We have heard the rival submissions and perused the relevant material on record. We find that the assessee has compared the turnkey contract and service segment of the company with the sales and post sales support segment of the assessee company. However, we do not agree with the contention of the assessee that the company segment of turnkey contract & service was functionally similar to the segment of the assessee under comparison. The segment of the company compared is turnkey cont .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version