9911796707
TMI Blog2020 (8) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction" i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the Any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the aforesaid two international transaction of (i) rendering SWD services to the AE and (ii) rendering of MSS to the AE. We shall deal each of the international transactions separately. 3. As far as the provision of Software Development services are con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Cost Rs. 1,05,21,52,889/- Price Received Rs. 3,00,54,419/- Shortfall being adjustment u/s. 92CA Rs. 5,03,38,916/- Thus a sum of Rs. 5,03,38,916/- was added to the total income of the Assessee on account of determination of ALP for provision of SWD services by the Assessee to its AE. 6. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment to ALP was added to the total income of the Assessee by the AO. The Assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP, the Assessee has preferred appeal before the Tribunal. 7. At the time of hearing, the grounds that were pressed were grounds 5.1 to 5.4, 6.5 & 6.8, which read as under:- "5. Comparability Analysis and Determination of Arm's Length Price Ld. Panel and Ld. AO/TPO erred in computing a negative working capital adjustment on the margins of the comparable companies: 5.1 The Ld. TPO/ AO erred on facts and in law, in computing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without considering the turnover and size of the Appellant and comparables. The Ld. Panel also erred in confirming the same. ............ 6.8. The Ld. AO/ TPO erred on facts in wrongly computing the margins of the following companies identified as comparable by the TPO. The Ld. Panel also erred in confirming the same: i. CG-VAK Software Exports Limited; and ii. Persistent Systems Limited." 8. As far as ground No.5.2 is concerned, it is general ground with regard to different parameters for choosing a comparable based on functions performed, assets employed and risk undertaken. 9. Ground No.5.3 relates to the assessee's plea for exclusion of CG Vak Software Exports Ltd. as a comparable by the TPO which action was confirmed by the DRP. The grounds on which the assessee sought exclusion of this company as a comparable by the TPO was that it was functionally different in the sense that it was engaged in software product development and absence of segmental data. The TPO & DRP took the view that product development was part of software development services. 10. The ld. counsel for the assessee brought to our notice a decision of ITAT Bangalore in the case of NXP India P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Id. counsel for the assessee and have considered the argument of the ld. DR that the assessee is not producing any product, however, we find that CG-Vak Software and Exports Limited is not only into computer software but it is a product manufacturer too. Since assessee is not into product manufacturing and the segmental details cannot be bifurcated from the financial details, we find that the assessee and the CG-Vak Software and Exports Limited are not comparables. Therefore, we are inclined to uphold the orders of the authorities below in rejecting this company as a comparable. We direct accordingly. " 24.2 In our opinion, there is force in the argument of the learned AR. M/s. C G VAX Software & Exports Limited is not only engaged in the business of computer software development, but also engaged in product manufacturing process, whereas the present assessee is not in product manufacture activity. M/s. C G VAX Software & Exports Ltd. owns huge intangible assets and also engaged in outsourced product development. In view of the foregoing reasons, we hold that the said company cannot be considered for inclusion in the list of comparables. We, therefore, direct the TPO to excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt. Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 15. In the light of the aforesaid decision of the Tribunal, ground No.6.5 raised by the assessee is allowed. 16. Since the 3 companies referred to in ground 5.4 are excluded on the application of turnover filter, the assessee's plea for exclusion on the basis of other filers set out in ground 5.4 is not taken up for consideration. 17. We are of the view that ground 6.9 is academic in view of acceptance of the grounds that are pressed for adjudication by the assessee and hence dismissed as academic. 18. The other ground that remains for adjudication is ground 5.1. The grievance of the assessee is with regard to negative working capital adjustment carried out by the TPO which was confirmed by the DRP. It is the plea of the assessee that though the TPO has observed that the Assessee has a healthy margin, the TPO has erred in making an adjustment towards working capital and the DRP further erred in upholding the same. 19. It was submitted that Working capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts reliance on the Hon'ble Karnataka High Court decision in the case of Tata Elxsi Ltd & others reported in 349 ITR 98 and the Order passed by the Hon'ble Income Tax Appellate Tribunal in assesee's own case for the A.Y 2004-05, A.Y 2005-06 & A.Y 2006-07, for reducing the same from the Total turnover also. Since the Hon'ble Karnataka High Court decision is directly applicable to the assessee, the demand raised due to such 10A adjustment would be nullified by the CIT(A) and the MAT credit will fully be eligible for set off." 24. The submission made by the ld. counsel for the assessee on the above issue was that an amount of Rs. 3,08,86,381/- being MAT credit has been disallowed by the Respondent on the ground that the assessment proceedings for the assessment years 2009-10 to 2011-12 are pending before the CIT(A) for 10A exemption. In this regard, it is submitted that the Respondent has computed the exemption under Section 10A of the Act by reducing telecommunication, insurance and expenditure incurred in foreign currency from the export turnover only and not from the total turnover. The Appellant placing reliance on the decision of the Hon'ble High Court of Karnat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
