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TMI Blog2020 (9) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... are liable to be quashed. 2. The learned AO has erred in making a reference to TPO for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. The DRP has erred in confirming the action of the Assessing officer. 3. The lower authorities have erred in: a. Making transfer pricing adjustment of Rs. 1,65,61,543/-; b. Passing the orders without demonstrating that the Appellant had motive of tax evasion and not appreciating that no addition can be made under Chapter X as Transfer pricing adjustment under Chapter X is not included in the definition of 'income' uls 2(24) or under Chapter IV of the IT Act, 1961. The orders passed by the lower authorities are therefore bad in law and liable to be quashed. GROUNDS RELATING TO COMPUTATION OF ALP 4. The lower income tax authorities have erred in: a. Rejecting comparables selected by the Appellant and Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant; b. Adopting inappropriate filters like 25% RPT filter, one sided turnover filter, etc. in the process of selecting comparables; c. Adop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated Enterprise and Non- Associated Enterprise segment on the basis of revenue, which is not appropriate in the fact and circumstances of the case. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly." Brief facts of the case are as under: 2. Assessee is a private limited company and filed its return of income for year under consideration declaring total income at 'nil'. The case was selected for scrutiny and notices under section 143(2) and 142(1) of the Act was issued, in response to which, representative of assessee appeared before Ld.AO and submitted details as called for. On perusal of information furnished by assessee, Ld.AO observed that assessee had international transaction with its associated enterprise exceeding Rs. 15 crores, and accordingly, case was referred to Transfer Pricing officer. On receipt of referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t gross margin of 19.23% under CPM computed by assessee in TP documentation report. 10 new comparables identified by Ld.TPO were as under: SN Name of the taxpayer OP/OC 1 Datamatics Global Services Ltd. 14.57% 2 Genesys International Corpn. Ltd. 30.09% 3 C R A Tech no Analytics Ltd. 17.24% 4 Infosys Ltd. 43.10% 5 Larsen & Toubro Infotech Ltd. 25.47% 6 Mindtree Ltd. 15.01% 7 Persistent Systems Ltd. 27.47% 8 R S Software (India) Ltd. 12.15% 9 Sasken Communication Technologies Ltd. Spry Resources India Pvt. Ltd. 26.18% 10 Average 22.63% 6. Ld.TPO thus computed proposed adjustment being shortfall under section 92CA at Rs. 1,65,61,543. 7. Ld. AO while passing draft assessment order, further made addition in the hands of assessee amounting to Rs. 11,25,151/- being employees contribution to PF, that was deposited belatedly after specified due date. These payments were treated as income in the hands of assessee, in terms of provisions of section 2 (24) (x) read with section 36 (1) (va) of the Act. 8. Aggrieved by proposed additions, assessee filed objections before DRP. 9. DRP upheld comparables selected by Ld.TPO and rejected challenge in respect of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant prays accordingly." 16. Referring to revised grounds of appeal filed by assessee, Ld.AR submitted that, Ground No. 1-3,5 are general in nature and therefore do not require adjudication 17.1 Ground No.4 is in respect of comparables y selected by Ld.TPO. Many sub grounds have been raised on this issue by assessee. However, Ld.AR submitted that if, sub ground (c) is considered on functionality, the other grounds would be academic in nature. Ld.AR Submitted that assessee seeks exclusion of 4 comparables in sub ground (c) being: Genesis International Corporation Ltd Infosys Ltd Larsen and Toubro Infotech Ltd Persistent Systems Ltd 17.2 It has been submitted by Ld.AR that these comparables have been considered by coordinate bench of this Tribunal in case of CGI Information Systems and management consultants Pvt.Ltd vs ACIT reported in (2018) 94 taxmann.com 97 for assessment year 2012-13. It is also submitted that, functional profile of assessee is same as that of assessee in CGI Information Systems and Management Consultants Private Ltd., in as much, as the said company was also involved in providing software development services to its AE. It has been submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s merely accepted with the reasoning of the IPO and therefore the issue of exclusion of these companies should be directed to be examined afresh by the DRP. 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P.) Ltd. (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the Assessee in the case of Agilis Information Technologies India (P.) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi). The discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his order. The Assessee objected to inclusion of this company in the list of comparable companies for the reason that this company is functionally different and owns intangible assets which are peculiar only when the Assessee owns software products. The objections of the Assessee are contained in its letter dated 22.12.2015 addressed to the TPO and in annexure-B to the said letter. The relevant portion of the objection is at pages 711-713 of the Assessee's paper book. According to the Assessee this company is engaged in providing Geographical Information Services comprising of Photogrammetry, Remote Sensing, Cartography, Data Conversion, state of the art terrestrial and 3D geocontent including location based and other computer based related services. Pagc-38 of the Annual report 2012 containing the above description was brought to the notice of the TPO, Attention of the TPO was invited to the directors report to the shareholders at page ii of the annual report 2012, wherein the Directors have informed the shareholders that the company continued in its journey, to be innovators and leaders in the fields of location based services related geoplatforms and advanced survey techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly one line of business viz., GIS based services there is no need to give any segmental results. In the circumstances, we are of the view that there is no basis for the TPO to conclude that this company is predominantly into software-development services. The presence of intangible assets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not be significant. Rule 10B(2) of the Income Tax Rules, 1962 (Rules) specifically provides that for the purposes of sub-rule (1) of Rule 10B, the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, assessee filed revised statement of cost allocation, however, the same was not considered by Ld.TPO/DRP, for the reason that, basis of such allocation was not submitted/explained by assessee. In the interest of Justice we deem it appropriate to remand the issue to DRP for verifying the same. Assessee is directed to file all necessary documents to substantiate the basis of such allocation in ascertaining margin of assesse in respect of international transaction undertaken by assessee with its associated enterprise. DRP shall then pass a reasoned order by granting proper opportunity of being heard to assessee in accordance with law. Accordingly, additional ground no.9 raised by assessee stands allowed for statistical purposes. 19. Ground No.6 is in respect of disallowance of employee contribution to PF belatedly paid amounting to Rs. 11,25,151/-. 19.1 Ld. A.R. submitted that, authorities below did not consider various decision of Hon'ble Supreme Court and jurisdictional High Court on this issue. He submitted that, DRP relied on CBDT Circular No. 22 of 2015 dated 17/12/2015 wherein it is noted that, decision of (Hon'ble Supreme Court) in case of CIT vs Alomg Extrusion Ltd; repo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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