9911796707
TMI Blog2017 (5) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... R of the assessee company appeared and furnished the information called for. 2.1 During the year under consideration, the assessee filed 3CEB report for the year under consideration wherein the international transactions involved were more than Rs. 15 crores, hence, the case was referred to the TPO to determine the arms' length price after obtaining the approval of the CIT - II, Hyd. 2.2 During the relevant PY, as per the 3CEB report/TP document, the international transactions of the assessee reflected as under: A.E. Nature of transaction Amount (Rs.) Electronic Arts Ltd. Purchase of fixed assets 20,71,242 Electronic Arts Inc. Contract software research and development services 57,18,55,399 Electronic Arts Inc. Corporate IT Services 3,82,62,985 Electronic Arts Inc. Back office support services. 7,83,75,725 Electronic Arts Asia Pacific Pte Ltd. Marketing support services 2,40,70,176 EA Swiss SARL Corporate IT support services 1,91,31,493 EA Swiss SARL Back office support services 4,18,90,474 EA Swiss SARL Reimbursement of expenses 11,50,988 2.2 The assessee has carried out the economic analysis and has summarized it as under: Nature of internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made by aggregating all the transactions under TNMM. 2.7 The final comparables selected by Transfer Pricing Officer (TPO) with OP to OC are as under: Sl.No. Name of the company OP/OC 1. Acropetal Technologies Ltd. (seg.) 19.17 2. Akshay Software Technologies Ltd. 9.87 3. CTIL 15.61 4. Evoke Technologies Ltd. 11.60 5. I Gate Global Solutions Ltd. 15.52 6. L&T Infotech Ltd. 24.34 7. Mindtree Ltd. (seg.) 16.21 8. Persistent Systems Ltd. 28.73 9. RS Software India Ltd. 15.41 10. Sasken Communication Technologies Ltd. 17.00 11. Zylog Systems Ltd. 30.37 12. Spry Resources India Pvt. Ltd. 35.98 13. Third ware Solutions Ltd. 31.08 270.90 20.84 2.8 After comparing the average margins of the comparables to the financials of the assessee, the TPO computed the adjusted arm's length margin as under: Description Amount Arm's Length Margin 20.05% Less: WCA 3.76% Adjusted Arm's Length Margin 16.29% Operation Cost (OC) 70,11,00,469 Adjusted Arm's Length Margin (%) (AALM) 16.29% Arm's Length Price = (100+AALM)*OC 81,53,09,735 Price Received (OR) 77,38,89,655 Adjustment u/s 92C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable companies identified by the Appellant in the transfer pricing report, despite of it meeting the test of comparability. 3.3. Selecting new companies while determining the ALP which were failing the test of comparability. 3.4. Rejecting / modifying the filters adopted by the Appellant and proposing additional filters while conducting a fresh benchmarking analysis during the course of the transfer pricing assessment proceedings. 3.5. Computing incorrect margin of the companies selected while determining the ALP. 3.6. Rejecting the adjustment for differences in working capital as claimed by the Appellant. 3.7. Rejecting the adjustment for differences in risk profile. 3.8. Ignoring the provisions of the Rule 10B(4) of the Income-tax Rules, 1962 ('Rules') which authorizes usage of multiple year data for the purpose of determination of the ALP under section 92F of the Act. 3.9. Failing to grant the benefit of +/-5 percent range as envisaged by the provisions of Section 92C(2) of the Act. 4. On the facts and circumstances of the case and in law, the learned DRP erred by adopting approach followed by the learned TPO despite of delivering contrary views in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held as under: 6. As regards the comparability of L&T InfoTech Ltd, this Tribunal in the above case of Virtusa India Pvt. Ltd has observed that the L&T InfoTech Ltd has no segmental data and therefore, was rejected by the TPO in earlier years on this ground. Therefore, the Tribunal has directed the exclusion of L&T InfoTech Ltd also from the final list of comparables in the case of Virtusa India (P) Ltd. For the sake of ready reference, Para 7 to 9 of the said are reproduced hereunder: "7. Coming to the Revenue's appeal against the directions of the DRP to exclude Infosys Technology Ltd., L & T InfoTech Ltd., and Tata Elxsi Ltd., from the final list of comparables, we find that the DRP has directed that these companies to be excluded on the ground of functional dissimilarity. The assessee has relied upon the decision of this Tribunal in assessee's own case for the A.Y. 2007-08 wherein the Tribunal has directed that Infosys Technology Ltd., be excluded from the list of comparables on account of functional dissimilarity and owning of significant intangibles and brand value. As regards L & T InfoTech Ltd. is concerned, this Tribunal has directed that L & T InfoTech Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014, High Court of Telengana and AP. 2. Alcatel Lucent India Ltd. Vs. DCIT, ITA No. 6856/Del/2015 3. Symantec Software and Services India Pvt. Ltd. Vs. DCIT, ITA No. 614/Mds/2016 2.2 Ld. DR relied on the orders of revenue authorities and further submitted that it is observed by DRP, this company has not charged the R&D expenses to P&L a/c. She also submitted that "IP" led businesses are similar to software services and also similar to the business carried on by the assessee. She submitted that the presence of IP's will not have any impact. 2.3 Considered the submissions of both the parties and perused the material facts on record. We find that the coordinate bench of ITAT Chennai Bench in the case of M/s Symantec Software and Services India Pvt. Ltd. (supra) held as under: "17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd. is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR raised ground No. 3.4 praying for inclusion of the company i.e. Evoke Technologies Pvt. Ltd. as the same is a comparable company to the assessee company as its profile is similar to the other companies retained by DRP. 7. The facts are, this company was selected by TPO after rejecting TP study of assessee. However, assessee objected to inclusion of this company as comparable company before the TPO by making a submission that this company is into provision of various other services including software development services. This company does not have segmental information in respect of all the services. However, TPO rejected the submissions of the assessee and included the same as comparable company. 8. Aggrieved with the decision of the TPO, assessee further objected to inclusion of this company before the DRP. Before the DRP the assessee submitted as under: * The company was rejected by the Assessee, while conducting a review of the companies due to non-availability of segmental information. * The learned TPO has observed that the information available on the company's website and in the management discussions cannot be relied upon for determining the comparability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Pvt. Ltd. is into software development services as per the declared financial statement as brought to our notice by the Ld. AR. However, we are not sure from where the assessee has got information that this company involves in oracle consultancy services, Microsoft consultancy services, java consultancy services, IT staffing solutions, etc., which were submitted before the DRP. These details were not declared anywhere in the financial report, which is available in the public domain. However, we find that in the P&L A/c declared by the assessee, revenue from operation is 77.36 crores whereas employee benefit expenses is declared as 42.61 crores, which is equivalent to 55% of the revenues, whereas, in the Evoke Technologies Pvt. Ltd., the revenue from operation declared in P&L A/c is Rs. 30.36 crores whereas employee benefit expenses is Rs. 19.04 crores, which is equivalent to 63.36% of gross revenue. On top of that, we find that this company has incurred Rs. 2.11 crores on consultancy charges, which is equivalent to 7.02% of the total revenue. That means, this company has incurred 70.38% on software development charges. Even on this count, this company cannot be includ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
