TMI Blog2016 (10) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer for verification Non-deduction of tax under Section 40(a)(ia) - disallowance of provision for legal and professional charges and trade charges - Held that:- As the assessee has not pointed out any error or illegality in the orders of the authorities below. Further no contrary fact has been brought to our notice to show that the finding of the Assessing Officer is perverse or illegal or not tenable. Accordingly in the absence of any facts or submissions to substantiate the claim of the assessee, we do not find any error or illegality in the orders of the authorities below Short grant of credit for advance tax - Held that:- The assessee has pointed out that the advance tax is ₹ 77 lakhs whereas the Assessing Officer has granted the credit on account of advance tax only to the extent of ₹ 72,19,408 for the assessment year under consideration. Since this is purely a matter of verification of facts and therefore no dispute of decision is involved. Accordingly, we direct the Assessing Officer to verify the correct advance tax available for credit and then consider the plea of the assessee for granting of credit for advance tax. - IT (TP) Appeal No. 1318 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployee cost levels, fails TPO's own filters, significant related party transactions, brand value, high turnover differences etc. 7. The Honourable DRP/learned AO have erred in law and on facts in upholding the TPO's action of not making a downward adjustment to the ALP, considering the risk differentials between the Appellant and the comparable companies; 8. The Honorable DRP and the learned AO/TPO erred in rejecting certain companies selected in the transfer pricing study of the Appellant based on incorrect reasons. 9. The Honorable DRP and the learned AO/TPO erred in law and on facts in upholding the arm's length margin arrived at by the learned TPO by not considering the benefit of the 5 percent tolerance range allowed under the Act and the Rules. 10. The Honourable DRP has erred in law and on facts in upholding the AO's action of disallowing a sum of ₹ 7,255,396, representing foreign exchange fluctuation loss incurred by the Appellant during the FY 2007-08,based on incorrect reasons including on the grounds that the same is capital in nature. 11. The Honourable DRP has erred in law and on facts in upholding the AO's action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount received 1 Software development services 28,00,68,145 2 Advance towards services 18,65,755 3 Cross charges 2,31,47,182 4 Reimbursement of expenses 13,95,229 5. The only dispute of TP Adjustment in the present appeal of the assessee is regarding software development services segment wherein the TPO selected 20 comparables as under : Sl. No. Name of the company OP/TC % 1 Avani Cincom Technologies 25.62 2 Bodhtree Consulting Ltd 18.72 3 Celestial Biolabs 87.94 4 e-zest Solutions Ltd 29.81 5 Flextronics(Aricent) 7.86 6 iGate Global solution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Quintegra Solutions Ltd. 11 Softsol India Ltd. 12 Tata Elxsi Ltd. 13 Wipro Ltd. 7. The ld. AR of the assessee has submitted the comparability of all these 13 companies have been examined by the co-ordinate bench of this Tribunal vide order dt.26.6.2015 in the case of Broadcom Communications Technologies (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 1587 (Bang.) of 2012] and therefore these 13 companies are functionally not comparable with the assessee. 8. On the other hand, the ld. DR has submitted that out of these comparable companies challenged by the assessee, 2 comparables namely Bodhtree Consulting Ltd. Lucid Software Ltd. were also part of the set of comparables for the Assessment Year 2006-07. The ld. DR has submitted that in assessee's own case for the Assessment Year 2006-07, the Tribunal vide its order dt.20.2.2015 in Tektronix Engg. Devt. India (P.) Ltd. v. Dy. CIT [2015] 56 taxmann.com 223/69 SOT 1 (URO) (Bang. - Trib.) has not disturbed these two companies as the comparability of these companies was not challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09. 5.3 Per contra, the learned Departmental Representative supported the order of the TPO in including this company as a comparable. 5.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that a co-ordinate bench of this Tribunal on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 had held that this company be omitted from the set of comparables as it was functionally dis-similar from a company which only provides software development services to its AEs, like the assessee in the case on hand. At paras 7.6.1 and 7.6.2 of its order, the co-ordinate bench held as under :- 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct oriented company into software consulting, web services integration, data management, data clearing services, etc. 6.1.2 Before us, the learned Authorised Representative placed reliance on the decision of a co-ordinate bench of this Tribunal in the case of NXP Semi-Conductors India P. Ltd. (supra) for A.Y.2008-09 and the decision of the Mumbai Bench of the ITAT in the case of Nethawk Networks India Pvt. Ltd. (supra) for A.Y. 2008-09 wherein Bodhtree Consulting Ltd., was excluded from the list of comparable companies on account of being functionally different from a provider software development services to its AE as it has software products and a hybrid service business model. 6.2 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company in the list of comparable companies. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements relied upon by the assessee. We find that this company; i.e. Bodhtree Consulting Ltd. has been excluded from the list of comparables for providers software development services in the judicial decisions cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further investigation to ascertain the reasons for unusually high profit and in order to establish whether the entities with such high profits can be taken as comparable or not. In the light of the aforesaid decision of the Special Bench and in view of the admitted position that the assessee follows Fixed Price Project model where revenues from software development is recognized based on software developed and billed to clients, there is a possibility of the expenditure in relation to the revenue being booked in the earlier year. The results of Bodhtree from FY 2003 to 2008 excluding FY 2007 as given by the learned counsel for the assessee were also perused. Perusal of the same shows, that there has been a consistent change in the operating margins. The chart filed by the assessee in this regard is given as an annexure to this order. It appears to us that the revenue recognition method followed by the assessee is the reason for the drastic variation in the profit margins of this company. In the given circumstances, we are of the view that it would be safe to exclude Bodhtree Consulting from the final list of comparables chosen by the assessee. We hold and direct accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies to the facts and circumstances of the case on hand, which is for Assessment Year 2008-09. In this view of the matter, following the above decision of the co-ordinate bench of the Tribunal, we direct the TPO to include this company form the set of comparable companies to be applied to the assessee. It is ordered accordingly. 6.3.2 In view of the above mentioned decision of the co-ordinate bench of this Tribunal in the case of NXP Semi-Conductors India P. Ltd. (supra) for A.Y.2008-09. We direct the Assessing Officer/TPO to omit this company from the set of comparables to be applied to the assessee. 7. Celestial Biolabs Ltd. (S. No. 3 in the chart) 7.1 The comparable was selected by the TPO as a comparable inspite of the assessee's objection to its inclusion in the list of comparables for the reason that it is functionally different form the assessee and as it fails the employee cost filter. 7.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable as this company is into bio-informatics, software product/services and in this context placed reliance on the decision of the co-ordinate bench of this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No. 845/Bang/2011 and Triology E-Business Software India Pvt. Ltd. in ITA No. 1054/Bang/2011, we hold that this company ought to be omitted form the list of comparables. The A.O./TPO are accordingly directed. 7.4.2 Following the above decision of the co-ordinate bench of this Tribunal on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand. 8. e-Zest Solutions Ltd. (S. No. 4 in the chart) 8.1 This company was selected by the TPO as a comparable inspite of the assessee's objections to its inclusion as a comparable on the ground that it was functionally different from the assessee. The TPO rejected the assessee's objections on the ground that as per the information received under Section 133( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O./TPO is accordingly directed. 8.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand. 9. Infosys Technologies Ltd. (S. No. 7 in the chart). 9.1 This company was selected as a comparable by the TPO in spite of the assessee's objections to its inclusion as a comparable on the grounds of its scale of operations and brand attributable profit margins. The TPO, however, brushed aside the assessee's objections on the ground that turnover and brand aspects were not materially relevant in the software development services segment. 9.2 Before us, the learned Authorised Representative contended that this company ought to be omitted from the list of comparables as it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case on hand. 10. KALS Information Systems Ltd. (S. No. 8 in chart). 10.1 This is a comparable selected by the TPO inspite of the assessee's objections to its inclusion in the list of comparables on the grounds that it is functionally different and that the segment details were inconsistent with respect to software services revenue and software products revenue. The TPO, however, rejected the assessee's objections and included this company in the list of comparables by relying on the information received in reply to notice under Section 133(6) of the Act. 10.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables as it is functionally different, being into software products, whereas the assessee in the case on hand is merely into provision of software development services. It was submitted that the rejection of this company as a comparable to providers of software development services has been upheld by a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra). 10.3 Per contra, the learned Departmental Representative supported the TPO's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. Lucid Software Ltd. (S. No. 10 in chart) 11.1 This company was selected as a comparable by the TPO. Before the DRP, the assessee objected to the inclusion of this company in the list of comparables but the DRP retained this company as a comparable on the ground that it is a pure software development services provider and does not have any revenue's by way of sale of products/licenses. 11.2 Before us also, the assessee objected to the inclusion of this company as a comparable on the grounds that it is into software product development and is therefore functionally different from the assessee in the case on hand. In this context, the learned Authorised Representative submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has omitted this company form the list of comparables on the ground that it is into development of software products and therefore is functionally different from provider of software development services. 11.3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company as a comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude this company from the list of comparables in the case on hand. 12. Persistent Systems Ltd. (S. No. 12 in chart). 12.1 This company was selected as a comparable by the TPO over-ruling the objections of the assessee that this company, being into development of software products engaged in product design and analytic services is functionally different from the assessee who is only a provider of software development services. The TPO rejected the assessee's objections on the ground that this company is mainly, a software development service company, and as per the details filed/obtained under Section 133(6) of the Act 96% of its revenues are from software development services. 12.2 Before us, the assessee objected to the inclusion of this company in the list of comparables on the ground that it is functionally different, being engaged in software designing and analytic services and is therefore not comparable to a provider of software development service provider, as is the assessee in the case on hand. The learned Authorised Representative submitted that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO rejected the assessee's objections holding that this company qualifies all the filters applied. 13.2 Before us, the assessee objected to the inclusion of this company as a comparable on the ground that it is functionally different as it is engaged in product engineering services and not in software development services. It was also submitted that this company was engaged in developing proprietary software products and has IPR's and is functionally different from a provider of software development services, as is the assessee in the case on hand. In support of its contentions, the assessee relied on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 where it was held that this company was to be omitted from the list of comparables. 13.3 Per contra, the learned Departmental Representative supported the orders of the authorities in including this company in the list of comparables. 13.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision relied on by the assessee. We find that the co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand. 14. Softsol India Ltd. (S. No. 17 in chart) 14.1 This company was selected as a comparable by the TPO inspite of the assessee's objections that it was functionally different and dis-similar from the assessee. The TPO rejected the assessee's objections on the ground that as per the company's reply to the information called for under Section 133(6) of the Act, the company has categorised itself as a pure software developer and therefore included this company as a comparable to the assessee in the case on hand who was also a provider of software development services. 14.2 Before us, the learned Authorised Representative submitted that this company ought to be excluded from the list of comparables as a co-ordinate bench of this Tribunal in its order in 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded as a comparable as it has related party transactions (RPT) of 18.3%; thereby failing the RPT filter of 15%. 14 3 Per contra, the learned Departmental Representative supported the order of the TPO in including this comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected in the Annual Report of the company and therefore it is not purely a provider of software development services like the assessee. The learned Authorised Representative also submitted that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) has held that this company is to be omitted from the list of comparables for providers of software development services, like the assessee in the case on hand. 15.3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the list of comparable companies. 15.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision relied on by the assessee. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables to a provider of software development holding as under at paras 13.4.1 and 13.4.2 of its order extracted hereunder :- 13.4.1 We have heard both parties and carefully perused and considered the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development, trading in software, giving licenses for use of software and that segmental details are not available. It was also submitted that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) in its order for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables for providers of software development services. 16.3 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company in the list of comparables. 16.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision relied upon. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 had held that since this company is engaged in product development and earns revenue from sale of licenses it is to be omitted from the list of comparables for software development services, holding as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record; including the judicial pronouncements cited and relied upon. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables for providers of software development services for the following reasons as laid out at paras 12.4.1 and 12.4.2 of its order which is extracted hereunder :- 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from 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% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whether this income is capital or revenue in nature. Finally the Assessing Officer made disallowance of ₹ 2,20,50,750 on account of foreign exchange loss by treating the same as capital loss. The details of the loss has been reproduced by the Assessing Officer in para 8.2 as under : 8.2 The Assessee Company has not been able to establish that the following : a. Advance to Holding Company ₹ 1,50,46,655. b. Advance from Holding Company ₹ 18,65,755 c. Export Earners Foreign Currency Account. ₹ 51,38,309 ₹ 2,20,50,715 13. Before us, the ld. AR has submitted that this is a revenue loss arising from foreign exchange fluctuation of receivables. He has referred to the details of the loss at pages 217 253 of the paper book and submitted that the advance to the holding company is pertaining to the payment made to the employees under Employees Stock Option Scheme which was receivable by the assessee from the holding company. Therefore it is a revenue expenditure and foreign exchange loss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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