TMI Blog2016 (12) TMI 1755X X X X Extracts X X X X X X X X Extracts X X X X ..... VIJAYARAGHAVAN, JUDICIAL MEMBER AND Inturi Rama Rao, ACCOUNTANT MEMBER For the Appellant : K.R. Vasudevan, Advocate For the Respondent : Smt. Neera Malhotra, CIT ORDER Smt. Asha Vijayaraghavan, Judicial Member This appeal by the assessee is directed against the order of Income-tax Officer, Ward No. 11(1), Bangalore dated 27/10/2011 and it pertains to the assessment year 2008-09. 2. The grounds of appeal received by the assessee are as follows. Transfer Pricing The Hon'ble DRP and the learned AO grossly erred in upholding the income adjustment proposed by the learned TPO in arriving at the Arm's Length Price (ALP) of the international transactions entered Into by the Appellant in respect to provision of software services. The Appellant is in appeal before the Hon'ble bench of the Income-tax Appellate Tribunal (hereinafter referred to its Hon'ble ITAT ) under section 253(l)(d) against the order passed by the learned AO in pursuance of the directions of the Hon'ble DRP A Software services - Transfer Pricing: The grounds mentioned hereinafter are with without prejudice to one another. 1. The learned DRP and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Wipro Limited as comparable companies even though the sales of Infosys and Wipro are driven based on brand developed by them, and doing so the learned DRP and learned AO have incorrectly applied the rationale provided in the jurisdictional Delhi Income-tax Appellate Tribunal (ITAT) ruling in Agnity India technologies India Pvt. Ltd. (reference: ITA No. 3856(Del)/2010). i. in upholding the actions of the learned TPO in accepting Tata Elxi Limited as a comparable company even though the company in its reply to the learned TPO under section 133(6) had mentioned that the company provides product design services, which is functionally not comparable to the assessee's business. j. in upholding the actions of the learned TPO in accepting companies engaged in the provision of software product development like Megasoft Limited, Flextronics Software Systems Limited, KALS Information Systems Limited, AvaniCimcon Technologies Limited. Lucid Software Limited, Ishirmfotech Limited, E-zest Solutions Limited, Persistent Systems Limited and R Systems International Limited which are functionally not comparable to the assessee's business. k. in upholding the actions of the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 92C(2) of the Act to the Appellant, while determining the arm's length price. 9. The Appellant craves to leave/ to add to/ to alter/ to amend/to rescind/ to modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing this appeal. II. Corporate tax Adjustments B. Computation of deduction under section 10A of the Act. The Hon'ble DRP and learned Assessing Officer has erred in re-computing the deduction under section 10A of the Act at ₹ 16,565,364 instead of ₹ 17,476,014. * The Hon'ble DRP and learned Assessing Officer has erred in not relying upon the decision of the Jurisdictional High Court of Karnataka in the case of CIT Vs Dell International Services India Private Limited and Others (ITA No. 70/2009) wherein it has been held that what is excluded from 'export turnover' must necessarily be excluded from 'total turnover'. C. Interest under section 234B 234D of the Act. The assessing officer has erred in levying interest under section 234B 234D of the Act which is consequential in nature. The appellant craves leave to add, alter and modify the above groundg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stems Ltd. (seg.) 30.55% 26.54% 13 LGS Global Ltd.(Lanco Global Solutions Ltd.) 15.75% 18.28% 14 Lucid Software Ltd. 19.37% 20.16% 15 Mediasoft Solutions 3.66% 4.62% 16 Mediasoft Ltd. 60.23% 54.53% 17 Mindtree Ltd. 16.90% 18.46% 18 Persistent Systems Ltd. 24.52% 26.56% 19 Quintegra Solutions Ltd. 12.56% 12.31% 20 RS Software (India) Ltd. 13.47% 16.23% 21 R Systems International Ltd. (seg) 15.75% 16.36% 22 Sasken Communications Technologies Ltd. (seg) 22.16% 24.21% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reject Functionally dissimilar Infineon Technologies India Pvt. Ltd. (supra) 4 Datamatics Ltd. Accept 5 E Zest Solutions Ltd. Reject Functionally dissimilar Infineon Technologies India Pvt. Ltd. (supra) 6 Flextronics Software Systems Ltd. (Segment) Reject 1. Functionally dissimilar 2. Upper limit of turnover filter Infineon Technologies India Pvt. Ltd. (supra) 7 Geometic Software Ltd. (Segment) Accept 8 Helios Matheson Information Technology Ltd., Reject 1. Functionally dissimilar 2. Abnormal Margin flucutation Infineon Technologies India Pvt. Ltd. (supra) 9 iGate Global Solutions (Segment) Accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Elxi Limited (Segment) Reject Functionally dissimilar Infineon Technologies India Pvt. Ltd. (supra) 25 Thirdware Solutions Ltd. Accept 26 Wipro Ltd. (seg) Reject 1. Functionally dissimilar; 2. Industry leader - large economics of scale; and 3. Presence of Intangibles Infineon Technologies India Pvt. Ltd. (supra) 8. We are in agreement to the request of Id. Counsel for the Assessee. The Assessee has relied on the decision of Infineon Technologies India (P.) Ltd. (supra), rejection of 15 comparables and has accepted 11 comparables selected by TPO. 9. The learned AO/DRP has erroneously rejected the following comparable companies. Sl.No. Companies excluded By TPO Ld.DRP's grounds For exclusion Appellant's arguments 1. Akshay Software Technologies Ltd. Predominantly Onsite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l judgments, wherein comparability economic adjustments are also mandated by the Tribunal. Sony India (P.) Ltd v. Dy. CIT [2008] 114 ITD 448 (Delhi) E-Gain Communication (P.) Ltd v. ITO [2009] 118 ITD 243/[2008] 23 SOT 385 (Pune) Mentor Ruling Motorola Solutions India (P.) Ltd v. Asstt. CIT [2014] 48 taxmann.com 248/[2015] 152 ITD 158 (Delhi - Trib.) 15. Further, in addition to the above rulings, the principle has also been upheld by the recent High Court ruling the case of Chryscapital Investment Advisors (India) (P.) Ltd. v. Dy. CIT [2015] 376 ITR 183/232 Taxman 20/56 taxmann.com 417 (Delhi), wherein the Hon'ble Court has held that appropriate adjustments should be carried out in situations where there are differences between the tested parties and comparables and in case such differences perceptible in the comparables cannot be eliminated on account of adjustments or otherwise, then such comparables have to be rejected. 16. We direct the TPO to work out appropriate risk adjustment. 17. The learned AO/DRP erred in not providing appropriate working capital adjustment The learned TPO determined the ALP for the international transactions with A.Es ..... X X X X Extracts X X X X X X X X Extracts X X X X
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