TMI Blog2017 (4) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... llate authorities to entertain such a claim if all the facts are there on record. This has been so clarified by the Hon’ble Supreme Court itself in the case of Goetz India Ltd. (2006 (3) TMI 75 - SUPREME Court). Thus, we remit this matter back to the file of the AO to consider the assessee’s claim and if the claim is found admissible under the provisions of the law, then he shall allow the same after giving assessee opportunity to explain its case. - IN ITA No. 7078/Del/2014 - - - Dated:- 17-4-2017 - SRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Sh. Sachit Jolly, Adv. For The Respondent : Sh. T.M.Shiva Kumar, CIT(DR) ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeal has been filed by the assessee against final assessment order dated 25.11.2014, passed u/s 143(3) r.w.s. 144(13) of the Income Tax Act, 1961 (the Act), in pursuance of direction given by the Dispute Resolution Panel(DRP)-II, New Delhi u/s 144(5) vide order dated 29.10.2014 for the A.Y. 2010-2011. 2. The assessee is mainly aggrieved by transfer pricing adjustment of ₹ 3,59,52,769/- made on provision of software developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % Provision of software development, research and related services 38,40,88,682 34,33,39,424 4,07,49,258 11.87 To bench mark the said margin, the assessee in its transfer pricing study adopted transactional net margin method (TNMM) as the most appropriate method and PLI as OP/OC. The assessee selected 14 comparable companies in software development service segment whose arithmetic mean was arrived at 11.91% and hence it was declared that assessee s margins were at arm s length. When required by the TPO to furnish the updated margins of the comparables on the basis of current year data, the assessee submitted 12 comparable companies whose arithmetic mean was arrived at 7.83%. However, the Ld.TPO rejected the entire transfer pricing study of the assessee and after applying fresh filters undertook his own search of comparables and carried out fresh transfer pricing analysis. After detailed discussion and inviting assessee s objection, he shortlisted in as much as 21 comparables with arithmetic mean of 27.44% as against the PLI of 11.87%. Accordingly an adjustment of ₹ 5,49 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand the Ld. CIT D.R. strongly relied upon the order of the TPO as well as the DRP and submitted that Infosys Ltd. is too into software development, and, therefore, over all functional profile matches with the assessee. 5. After considering the rival submissions and on perusal of the impugned orders, we find that on FAR analysis, Infosys Ltd. cannot be held to be comparable with an entity like assessee which is a capitive service provider. As mentioned above the functional profile of Infosys Ltd is highly diversified like, right from product conceptualisation, core design, research development to marketing and sales of products, all are done by Infosys Ltd.; whereas no such function is carried out by the assessee. The Infosys Ltd is full fledged risk bearing entrepreneur whose turnover is more than ₹ 21,000 crores. This definitely has huge impact on FAR analysis, especially on asset side and risk analysis. For e.g., brand equity and intangibles of Infosys Ltd. are more than ₹ 1,00,000 crores which goes to show that this Company derives substantial portion of its profits from its brand value and hence such a giant company cannot be compared with the assessee whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of related party transactions. If such revenues are added then this comparable company fails the filter criteria of 25% of related party transactions (R.P.T.) as applied by TPO. In support reliance was placed by him on the decision of this Tribunal in the assessee s group company, i.e., Cash Edge India Pvt.Ltd. in ITA 64/Del/2015 order dated 23.9.2015 for the A.Y. 2010-11 and such an order has been confirmed by the Hon ble Delhi High Court vide order dated 4.5.2016. 6.1 On the other hand Ld. CIT D.R. strongly relied upon the finding of the AO and DRP that it is not an extra ordinary event and does not affect the profit margins of the comparable company. Moreover the Wipro Ltd. and Citi group are not related party transactions, and, therefore, after the Wipro Ltd. has acquired this company in the earlier year, it cannot be held that related party transaction filter would be applicable in the A.Y. 2010-11. 7. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as the material referred to and relied upon before us. One of the main ground for exclusion of this company is that it fails the criteria of 25% of RPT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was a prior agreement between the City group and City Technology Services Ltd. who were related party, that is, at that time the transaction was between two A.Es, hence related party transaction. Later on, when one of the A.E. was acquired by an unrelated party, i.e., Wipro Ltd., then also if any revenue is received from Citi Group on account of such prior agreement or pre- arrangement, then it is deemed to be an international transaction and once that is so then due to RPT filter this company would fail the test of such a filter, because admittedly entire revenue of this company is on account of RPT. Thus, we agree with the contentions of the Ld.Counsel that this company cannot be taken as a comparable for bench marking assessee s margin. (iii) Persistent Systems Ltd.:- 8. Before us the Ld.Counsel submitted that Persistent Systems Ltd. (PSL) is functionally dissimilar from the assessee, because this company is not only into software development services but also into software products like, Wave Relay(R), Android Kit, Integration Board Gen4, Quad Radio Router, Tracking Antenna System, Management Tools, Cloud Relay, Firefighting Kit etc. Moreover no segmental deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from a detailed report given at page 46 of the paper book. In absence of such segmental information it is very difficult to come to a conclusion as to whether the margin of this company also includes the sale of products. Moreover, as pointed out by ld. Counsel, commission paid to agents on sales is also indicative of the fact that there are sale of products. Thus, we find it very difficult to include such a comparable into the basket of comparables for bench marking the assessee s margin and, accordingly, we direct the TPO to exclude this comparable from the list of comparable companies. (iv) Thirdware Solutions Ltd.:- 10. Before us the Ld.Counsel submitted that this company is engaged in various kinds of activities like sale of licences, software services and revenues from subscription. Further there is no segmental data to work out the separate margin from software services. The schedule of income it can be gathered that sales is mainly from exports from SEZ and STPI units; revenue from subscription; sale of licences; and software services. Thus, such a comparable cannot be included in the comparability analysis. He further submitted that this comparable company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation of book profits under the provisions of section 115 JB of the Act filed during the course of assessment proceedings and declining to reverse the positive adjustments of provision for gratuity amounting to ₹ 17,18,466/- and provision for leave encashment amounting to ₹ 12,38,655/- made inadvertently in the original computation of book profit. 18. Without prejudice, the AO and DRP erred in not appreciating that the claims of provision for gratuity and provision for leave encashment are ascertained liabilities made on the basis of actuarial valuation. Further AO and DRP failed to appreciate that on the aforesaid relief had been granted to the appellant in earlier A.Ys on identical facts. 14. At the outset, the Ld.Counsel pointed out that the A.O. and the DRP has not accepted revised computation of book profit, only on the ground that the assessee has not filed any revised return of income for making such a claim. In coming to this conclusion the AO had strongly relied upon the decision of Hon ble Supreme Court in the case of Goetz India Ltd. vs. CIT reported in 284 ITR 323, however even the DRP has rejected the claim on same ground which is not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
