TMI Blog2020 (12) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer Pricing Officer ( learned TPO ) and the Honourable Dispute Resolution Panel ( Hon'ble DRP ) grossly erred in adjusting the transfer price by INR 3,55,53,274/- with respect to the international transactions rendered by the taxpayer u/s 92CA of the Income-tax Act, 1961. 2. The learned AU/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The learned AU/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters while determining the Arm's Length Price ( ALP ). 4. The learned AU/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying different financial year ending filter while selecting the comparable companies, thereby not considering the fact that the relevant data for the concerned financial year could be deduced from the corresponding financials 6. The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble DRP has erred in making the following errors in the computation of working capital adjustment: a. by not providing the basis of computation of margin of the Appellant b. in considering the wrong SBI PLR while computing the working capital adjustment 14. The Hon'ble DRP erred in directing the learned AO to consider forex gain or loss as operating in nature while computing the margin of the Appellant. 15. The learned AO/learned TPO/Hon'ble DRP erred in not allowing appropriate adjustment towards to the risk differential existing between the Appellant vis- -vis independent comparable companies. 16. The learned AO/learned TPO/Hon'ble DRP has erred in levying interest under section 234B of the Act. 17. The learned AO/learned TPO/Hon'ble DRP has erred in levying interest under section 234C of the Act. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. Brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.24% 4 Infosys Ltd. 43.10% 5 Larsen and Toubro Infotech Ltd. 25.47% 6 Mindtree Ltd. 15.01% 7 Persistent Systems Ltd. 27.20% 8 R. S. Software (India) Ltd. 15.34% 9 Sasken Communication Technologies Ltd. 12.15% 10 Spry Resources India Pvt. Ltd. 26.18% Average 22.63 % 7. Ld.TPO thus computed shortfall being, adjustment under section 92CA amounting to ₹ 3,55,53,274/-. 8. Aggrieved by proposed adjustment, assessee raised objections before DRP. DRP in para 2.9, 2.10, 2.11, 2.12, 2.15, 2.16 directed Ld.AO to exclude Datamatics Global Services Ltd, Genesis international Corporation Ltd, ICRA Techno analytics Ltd, Infosys Ltd, Sasken Communications Technologies Ltd, Spry Resources India Ltd., from final list of comparables. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the customer. Assets: 14.1. Assets owned by assessee are only computer equipments and accessories, furniture fixtures office equipments another leasehold improvements. It is also been noted that all intangible and non-routine assets are owned by the AE. Risks: 14.2. It has been noted in TP study that all major risks are undertaken by a except for the foreign exchange fluctuation risk since assessee earns its revenue in foreign exchange rates. TP documentation, thus characterises assessee is a captive service provider that assumes minimal risk associated with the business of providing software development services. This position has not been disputed by Ld.TPO 15. Based on above FAR analysis, we shall now analyse comparables alleged for exclusion and argued before us. Ld.AR submitted that 5 comparables alleged by assessee for exclusion have been considered by Coordinate bench of this Tribunal in case of AMD India Pvt. Ltd vs ITO reported in (2020) 114 taxmann.com 703. He submitted that, assessee therein, has also been characterised to be rendering contract software development services to its AE. It has also been stated that, functional profile of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessee and that of the Assessee in the case of Agilis TechnologiesIndia (P) Ltd., is identical in as much 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 (2013) 36 taxmann.com 289 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case. (b) Larsen Toubro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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. Page-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 base services related geo platforms and advanced survey techniques. There is no segmental reporting because it is stated in the annual report that this company is only in one segment viz., GIS based services and therefore there is no requirement of segmental reporting. It was also submitted that this company owns substantial intangibles equivalent to 10.42% of its total turnover. 32. The TPO however has regarded this company as a comparable company by observing that this company develops software for mapping and geospatial services and operates a few ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company should be excluded from the final list of comparable companies. We hold accordingly. 9. Respectfully following the decision of the Tribunal we hold that the aforesaid 4 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. 10. As far as the comparable company ICRA Techno Analytics Ltd., is concerned the said compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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