TMI Blog2018 (2) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... rce - Held that:- We direct the AO to verify the same and allow in accordance with law. - ITA No. 5872/Del/2011 And ITA No. 4180/Del/2014 - - - Dated:- 13-2-2018 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri G.S. Srivastava, Sr. Advocate Shri Suvinay K Dash, Advocate For The Department : Shri H.K. Choudhary, CIT(DR) ORDER PER AMIT SHUKLA, J.M. The aforesaid appeals have been filed by the assessee against final assessment order dated 28.10.2011, passed in pursuance of DRP directions dated 2nd August 2011 for the quantum of assessment passed u/s 144C/ 143(3) for assessment year 2007-08; and order dated 5.5.2014, passed by Ld. CIT (Appeals)-XX, New Delhi for the assessment year 2008-09. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 2. Before us the Ld. Counsel for the assessee Shri G.C. Srivastava submitted that assessee has filed revised grounds of appeal for the reason that, grounds of appeal relating to transfer pricing adjustment resulting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2006-07) data for comparable companies should be used. 4.4. Ignoring the limited risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the TPO that no adjustment on account of risk differential is required while determining the Arm s Length Price of the international transactions of the Appellant. 5. That the Panel failed to appreciate that the working capital adjustment done by the TPO was not correct and erred in not directing the AO/TPO to correctly compute the working capital adjustment in respect of software development services segment of the Appellant. 6. The AO and the Panel erred in not granting the benefit of lower range of +/-5% in determination of arm s length price. 7. That the AO has erred in considering the returned income of ₹ 8,82,21,970 in the order as against an amount of ₹ 8,75,60,355 as per the revised return of income filed by the Appellant. 8. That the AO erred in not granting the credit for tax deducted at source of ₹ 1,70,80,955, advance tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from FIL Group with India being the support centre. 4.3.31 System Configuration Development (SC D): The said activities consist of Version Management, Release Management and Environment Management. The said activity is primarily driven from FIL Group with India again playing a supporting role. 4.3.32 Testing: This comprises of creating test parameters and undertaking Performance Testing of the software developed. The testing activities is pre-dominantly undertaken in India by creating test processes, programs etc. 4.3.33 Quality Training: This activity constitutes undertaking Process Design, Audits, CMMi Consulting, Technical Training for the developers etc. 4.3.34 Maintenance Support: In this process, Bug fixes, Small Enhancements, Production Support, Database Administration are undertaken. The maintenance and support teams are largely based in India, whereas teams in UK act as backup. 4.3.35 Application Development: The activity consists of Analysis, Design, Development, and Testing. Business Process Operations - IT enabled Services 4.3.36 The business operations of FIL Group are spread in UK and India. The Indian unit undertakes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ISN PEP scheme. In all close to 400 instructions are processed and verified on a daily basis. For proper validation the updation is done by more than two people and in case of any mismatch a third person undertakes to scrutinize the application. As deals are required to be placed for investors on a daily basis the same are completed within the first half. b) Ongoing maintenance: This refers to updation of client details mainly change of address, beneficiary details, liquidation of portfolio etc. These activities are queued according to its priority and updated by the team. Certain verification queues are used for validation of the process. c) Post Processing: The filed applications are scanned on the India system and archived for future reference and usage. The same are spread across a couple of days for completion. 4.3.41 POFC (Product Operations Financial Control): The POFC activity was initiated during the current fiscal. The activities undertaken by India specifically include control, operations and unit reconciliation of unit between the fund network, asset Management Company and the customer, cash flow reconciliation of client accounts and settlement ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services, thereby making total adjustment of ₹ 91.58 crores. Finally, the assessee is challenging 8 comparables in the IT segment and 5 comparables in the ITeS comparables. The comparables contested by the assessee in IT segment are as under:- S. No. Name Margins 1. Infosys Technologies Ltd. 39.14% 2. Persistent Systems Ltd. 23.12% 3. Wipro Ltd. (seg) 34.39% 4. Avani Cimcon Technologies Ltd. 49.15% 5. Celestial Labs Ltd. 54.57% 6. Flextronics Software Systems Ltd. (Seg.) 25.09% 7. KALS Information Systems Ltd. (Seg) 23.45% 8. Megasoft Ltd. 51.59% Similarly for ITeS segment, comparables contested by the assessee are as under:- S. No. Nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITEs segment, Mr Srivastava submitted that Accentia Technologies Ltd., Infosys BPO Ltd. have been excluded by the Tribunal in the assessee s own case for the assessment year 2010- 11. Apart from that, he submitted that they are not only functioning dissimilar but also did not have segmental information for various functions and revenue streams and were having huge intangible brands. For the other comparables also, like Eclerx Services Ltd., he submitted that it was engaged in KPO services and hence functionally dissimilar; and in the case of Mold-Tek Technologies Limited, it was functionally dissimilar and there was a merger and de merger in this case during the year. Lastly, for Vishal Information Technologies Ltd. also he submitted that it is functionally dissimilar and fails RPT filter and also it s outsources its activities which itself goes to show that it has a difference business model. In support of these comparables he highlighted various decisions of the Tribunal, wherein these comparables have been rejected from the companies who are captive service providers and simply providing back office support of services. 8. On the other hand, Ld. CIT (DR) submitted in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Covered under MAP settlement 1. Fidelity Employer Services Company LLC, USA 2,148,806,297 Yes 2. Fidelity Investments Management (HK) Ltd. Hongkong 1,517,646,305 No 3. KVH Co. Ltd. Japan 78,363,455 No Total 3,744,816,057 11. Thus, here we have a situation where part of the same transaction both in IT segment as well as ITEs Segment margins of 15.70% and 14.68% have been accepted by the assessee and by the revenue authorities. Now for the same nature of transactions it would be very difficult to accept assessee s margin of 13% or that of the TPO who has applied higher margin. Accordingly, in wake of MAP settlement, we hold that for the Software Development Services (IT service) the profit margin for the assessment year 2007-08 should be taken as 15.70%; and for the 2008-09 it should be taken as 15.91%; whereas, in the ITeS segment the profit margin for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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