9911796707
TMI Blog2016 (12) TMI 1755X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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 learned TPO grossly erred in law and facts of the case determining the ALP of the international transaction of the Appellant on account of provision of software services and proposing a transfer pricing adjustment of Rs. 18,601,980. 2. That on the facts and circumstances of the case, the learned DRP and the learned AO erred in upholding the rejection of Transfer Pricing ('TP') documentation by the learned TPO without appreciating the contentions, arguments, and evidentiary data put forward by the Appellant during the course of the proceedings before them, and in doing so have grossly erred: a. in upholding the rejection of comparability analysis carried in the TP documentation and conducting a fresh comparability analysis for determining the arm's length price by the learned TPO. b. in adopting the arm's length mark up to be 26.29% [working capital adjusted margin] in respect of international transactions of the Appellant. c. in uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 learned TPO in accepting Celestial Labs Limited as a comparable company even though it is a contract research company which also engaged in bio-informatics and hence functionally dissimilar to the assessee. 1. in upholding the actions of the learned TPO in accepting companies like Megasoft Limited. Flextronics Software Systems Limited and Helios & Matheson Information Technology Limited which have abnormal/fluctuating profit margins. In doing so the learned DRP and learned AO have disregarded the jurisdictional ITAT ruling in the case of SAP LABS India Pvt, Ltd. Vs. ACIT (reference ITA No. 398/Bang/2008) and E-Gain Communication Private Limited (reference: ITA No. 11685/PN/07 - Pune). m. in upholding the actions of the learned TPO in rejecting Thinksoft Global Services Limited by stating that it is not functionally comparable. n. in upholding the actions of the learned TPO in concluding that Maars Software International Limited is not functionally comparable without even co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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 during the course of the appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that the order of the Assessing Officer be set aside." 3. The facts in brief are as follows: Capco IT Services India Pvt. Ltd. ("Capco IT") is engaged in the business of rendering software development services to its Associated Enterprises ("AE"). Capco IT is remunerated on a cost plus basis for the services rendered. 4. The margins of Capco IT as compared by TPO are as follows: Particulars Amount (in INR) Operating income 12,58,41,547 Operating Costs 11,43,74,477 Operating Profit (Op. Income -Op. expenses) 1,14,67,070 Operating/Net margin (OP/TC) 10.02% 5. The Comparable companies selected by the TPO in the TP order are as follows: Sl. No. Company Name Unadjusted Margins FY 2006-07 Adjusted Margins FY 2006-07 1 Accel Transmatic Ltd. (seg) 21.11% 23.27% 2 Avani Cimcon Technologies Ltd. 52.59% 54.39% 3 Celestial Labs Ltd. 58.35% 57.49% 4 Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eon 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 10 Infosys Limited Reject 1. Functionally dissimilar; 2. Presence of Brand; 3. High Margins; and 4. Industry leader-larger economics of scale Infineon Technologies India Pvt. Ltd. (supra) 11 Ishir Infotech Ltd. Reject Functionally dissimilar Infineon Technologies India Pvt. Ltd. (supra) 12 KALS Information Systems Limited Reject Functionally dissimilar Infineon Technologies India Pvt. Ltd. (supra) 13 LGS Global Ltd. (Lanco Global Solutions Ltd.) Accept 14 Lucid Software Ltd. Reject Functionall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to its business operations. Further, the Appellant submitted that the significant business and entrepreneurial risks are borne by the AE as it owns all the valuable intellectual property rights (know-how, copyrights etc.) and other commercial or marketing intangibles (brand names, trademarks etc) related to the services being provided by the Appellant. Accordingly it was submitted that being a mere service provider, the Appellant does not own any interest in these intangibles and provides mere services based on the requirements of the AEs in return for a fixed mark-up on cost incurred in rendering of services. 13. It was further submitted that for the purpose of the Economic Analysis, the cost plus mark-up of the Appellant is compared against that of uncontrolled companies engaged in similar services and that such independent comparable uncontrolled companies, who operate under uncontrolled conditions, bear risks during the course of its operations including market risk, research and development risk, technology risk, credit risk, currency fluctuation risk, liquidity risk, default risk etc. As a result, the resultant profitability of such comparable uncontrolled companies i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aptec (India) (P.) Ltd. v. Asstt. CIT [2015] 57 taxmann.com 307, wherein it was held that there is no need for making any negative working capital adjustment assessee does not carry any working capital risk. The relevant extract of the aforementioned judgment is provided below: "11. In view of the above, we are of the opinion that assessee's being similar, there is no need for making any negative working capital adjustment when assessee dos not carry any capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the ITA.No.206/Hyd/2014 Adaptec (India) P. Ltd., Hyderabad." 19. In view of this, we direct the TPO not make negative working capital adjustment. 20. We direct the TPO to rework the PLI after incorporating our findings on the issues discussed herein above. 21. Corporate issues We find that Hon'ble DRP and AO have erred in recomputing, the deductions u/s 10A of the Act at Rs. 16, 563, 364 instead of Rs. 17,476,025. 22. Relying on the decision of Dell International Service India (P.) Ltd., [IT Appeal No. 70/2009] we direct the A.O. to re-work deduction u/s 10(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
