TMI Blog2017 (5) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... to group entities. The assessee company filed its return of income for the AY 2012-13 on 30/11/2012 declaring an income of ₹ 9,56,13,570/-. The case was selected for scrutiny under CASS. A notice u/s 143(2) was issued and duly served on the assessee. In response to the notice, the AR 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 ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies. After applying certain filters, the assessee has short-listed 6 comparables to benchmark the contract software research and development services transaction with arithmetic mean PLI (OP/OC) computed at 10.82% as against the PLI of the assessee at 11%. Accordingly, it is stated that the SDS transactions are at arm's length. With regard to transactions mentioned at 2 to 7 above, the assessee has short-listed 9 comparables to benchmark the above mentioned transactions under TNMM with arithmetic mean PLI (OP/OC) computed at 9% as against the PLI of the taxpayer at 11.35%. With regard to purchase of fixed assets the taxpayer has selected CUP as MAM and held that the transaction is at arm's length. 2.4 Financial results for the AY 2012-13 are as under: Description Amount (Rs.) Operating Revenue 77,38,89,655 Operating Cost 70,11,00,469 Operating Profit 7,27,89,186 OP/OR (%) 10.38 OP/OC (%) 9.41 2.5 TPO noticed that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles 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 92CA 4,14,20,080 2.9 Accordingly, the TPO who passed an order u/s 92CA(3) of the Act on 29/01/2016, recommended adjustment of ₹ 4,14,20,080/-. The same was incorporated by the AO in the draft assessment order. Assessee preferred a petition before the Dispute Resolution Panel (DR) raising various objections. 3. The DRP vide order dated 31/10/2016 directed to exclude the following comparable companies selected by the TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 their own DRP directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) has 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pvt. Ltd., IITTA No. 233 of 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 segmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the list of comparable companies. 6. Ld. 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 discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, marketing support services, corporate IT etc., whereas the company Evoke 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 ₹ 30.36 crores whereas employee benefit expenses is ₹ 19.04 crores, which is equivalent to 63.36% of gross revenue. On top of that, we find that this company has incurred ₹ 2.11 crores on consultancy charges, which is equivalent to 7.02% of the total revenue. That means, this company has incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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