TMI Blog2020 (11) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... eena Pillai, Judicial Member Assessee by: Shri Aliasgar Ramprewala, C.A Respondent by: Shri Muzaffar Hussain, CIT (DR) ORDER Beena Pillai, Present appeal has been filed by assessee against final assessment order dated 10/10/2017 passed under section 143(3) read with section 144C(13) of the Act, by Ld.DCIT Circle 1(1)(2) for assessment year 2013-14, on following grounds of appeal: 1. That the order of the learned of Deputy Commissioner of Income-tax, Circle - 1(1)(2), Bangalore ( learned Assessing Officer or learned AO ) pursuant to the directions of the Hon'ble Dispute Resolution Panel ( Hon'ble DRP ) to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That on the facts and circumstances of the case, the Hon'ble DRP erred in upholding the approach of the Deputy Commissioner of Incometax, Transfer Pricing -i(i)(i) ( learned TPO ) in not accepting the Transfer Pricing ( TP ) Study/economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rule, 1962 ( the Rules ), conducting a fresh economic analysis for the determination of the Arm's Leng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissimilarity, whereas this comparable company is functionally similar her should have been included. 10. That the Hon'ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including CG - VAK Software and Exports Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the correct operating margin is to be considered. ii. That the l-lon'ble DRP erred in upholding the approach of the learned TPO, in law and in fact by including ICRA Techno Analytics Limited, as a comparable whereas this company should have been excluded on ground of functional dissimilarity and it fails related party transactio] filter of 25% applied by the learned TPO. Additionally, without prejudice to the above contention, the learned TPO has earned in margin computation of the comparable, hence the crfr operating margin is to be considered. 12. That the Hon'ble DRP erred in upholding the approach of the learned TPO, in law and in facts by including Larsen Toubro Infotech Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in Appeal No.: 2979/Bang/2017 dated December 12, 2017. Transfer Pricing Related 1. On the facts and in the circumstances of the case and in law the learned Transfer Pricing Officer ('TPO') / the learned Deputy Commissioner of Income Tax, Circle 1(1)(2), Bangalore ('Assessing Officer' or 'AO') / the Dispute Resolution Panel, erred in not applying the turnover filter for selection of comparable companies for benchmarking the international transaction of Software Development Services and Information Technology Enabled Services rendered by the Appellant to its Associated Enterprises. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 3. Ld.AR submitted that failure to raise this ground at an earlier stage was not willful and that no new facts needs to be investigated upon in order to adjudicate these grounds. It has been submitted that by way of abundant caution assessee raises exclusion of certain comparables on turnover filter. He also submitted that in the event these comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undamental to the appeal and the nonadmission of the same would result in an incomplete appreciation and adjudication of the matter. Accordingly, the additional ground raised vide application dated 13/10/2020 stands admitted. 12. Ld.AR at the outset submitted that in the even certain comparables are considered for exclusion/inclusion under both the segments the other grounds becomes academic. 13. He submitted that, Ground Nos. 1-6, 9, 11 and 14 are not pressed by assessee. Accordingly, these Ground Nos. 1-6, 9, 11 and 14 are dismissed as not pressed. 14. Ld.AR submitted that, under SWD segment, assessee wish to argue upon following comparables for inclusion raised in Ground 7, 8 being; Akshay software technologies Ltd. Evoke Technologies Pvt. Ltd. 15. In Ground 10, 12, 13 assessee alleges following comparables for exclusion being: CG-VAK Software and Exports Ltd. Larsen and Toubro Infotech Pvt Ltd. Persistent Systems Ltd. 16. Ld.AR submitted that, in respect of ITeS services, assessee wishes to allege following comparables for exclusion raised in Ground 15-17. He submitted that these comparables are to be excluded on turnover filt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Goldstone Technologies Ltd. 10.96 5. Helios Matheson Information technology Ltd. 18.87 6. Mindtree Ltd. 15.02 7. R S Software (India) Ltd. 16.40 8. R Systems International Limited (segmental) 7.62 9. Sasken Communication Technologies Ltd. 18.39 Average Margin 13.48% ITeS Segment S.No. Comparables Margin 1. Caliber Point Business Solutions Ltd., 9.82 2. Cosmic Global Ltd. 25.41 3. e4e Healthcare Business Services Pvt. Ltd., 13.46 4. ICRA Techno Analytics Ltd., 19.59 5. Informed Technologies India Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : SOFTWARE DEVELOPMENT SERVICES Arm's Length Mean Margin on cost 20.90% Less: Working Capital Adjustment -1,38% (As per Annex. C) Adjusted margin 22.28% Operating Cost 2943,85,019 Arm's Length Price(ALP) 3599,74,001 122.28% of Operating Cost) Price Received 3361,42,260 Variation in Price 238,31,741 3% of price received 100,84,268 Shortfall being adjustment 238,31,741 ITES SEGMENT Arm's Length Mean Margin on cost 20.64% Less: Working Capital Adjustment -0.99% (As per Annex. D) Adjusted margin 21.63% Operating Cost 169,77,390 Arm's Length Price(ALP) 206,49,966 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bundled with the products are sold in the market. It has been submitted in the TP analysis that assessee undertakes Ltd functions under this segment and is compensated on a cost plus basis. Business process outsourcing services: 29. Assessee provides BPO service to its AE, Cimnet LLC pursuant to agreement dated 01/11/2004. Under this segment services include back-office support and designing of printed circuit boards. Functions: 30. Functions performed by assessee under this segment include Quote Data Processing, front-and engineering , PreCAM and post-CAM services. It has been recorded in the trans-apprising study at page 420-421 that assessee is compensated at cost plus basis. Assets owned: 31. It has been submitted that assessee does not own any non-routine valuable intangibles. Risks assumed: 32. It has been submitted that assessee owns Ltd contract risk and foreign exchange risk as the invoices raised by assessee are on its AE and is remunerated in foreign currency. Categorisation: 33. Assessee has thus been concluded as less than ordinary risks in the course of providing services to its AE based upon the above analysis, we shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that the Income from software services was ₹ 19.83 crores. Now the dispute boils down to the nature of functions performed by this company. It is the responsibility of the assessee to show that both the assessee and the comparable company perform similar functions. Before us, the Ld A.R placed her reliance on the decision rendered by co-ordinate bench in order to contend that this company is comparable. However, TPO has issued notice u/s 133(6) of the Act to the above said company and collected the details of functions performed by it, wherein the nature of activities performed by this company is stated as providing professional services, procurement, installation, implementation and support maintenance of ERP products and services . It is pertinent to note that the above said information was given by M/s Akshay Software Technologies Ltd. However, we find that they are general description of the functions performed. Specific functional details have not been furnished. What is required to be found out is whether these functions fall under the category of Software development services , as in the case of the assessee company. Accordingly, we are of the view that this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that of assessee. CG-VAK Software and Exports Ltd. 47. Ld.AR submits that assessee seeks exclusion of this comparable for being functionally different with that of assessee. Ld.AR submitted that there are no segmental information is available in respect of this company. In support of his argument he placed reliance upon decision of coordinate bench of this tribunal in case of Tavant Technologies India Pvt.Ltd vs DCIT reported in (2020) 120 taxmann.com 122. 48. On the contrary Ld.Sr.DR placed reliance on orders passed by authorities below. 49. We have perused submissions advanced by both sides in light of records placed before us. 50. We note that there is nothing on record placed by revenue to show that Tavent technologies India Pvt Ltd (supra) is not a captive service provider. Assessee before us is also a captive service provider providing services only to its associated enterprise. We note that under similar circumstances Tribunal in case of Tavent technologies India Pvt Ltd (supra) observed as under: 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Tribunal in a number of cases (cited supra), we hold that this company cannot be taken as a comparable to the assessee-company. Accordingly, we direct the TPO to exclude this company from the final list of comparables. 24.1 Similarly, in the case of M/s. ION Trading India Private Limited v. ITO (ITA No. 1035/Del/2015 for the assessment year 2010-2011). The Tribunal vide its order dated 7-12-2015, held as under:- 21. We have considered the submission of the 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. CG VAK Software Exports Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing 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 nonjurisdiction High Court, even though the said decision is of a nonjurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. 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 Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54. Respectfully following the same, we also hold that turnover is a relevant criteria for considering comparables. Accordingly additional ground raised by assessee stands allowed. Assessee has alleged comparables for exclusion in Grounds 12-13 and 15-17 by applying turnover filter. We have upheld the turnover filter in that aforestated paragraphs, and that these comparables are admittedly more than 200 crores, we are of the opinion that they cannot be included in the final list for computing the arm s length margin. Accordingly grounds 12-13 and 15-17 stands allowed. Additional ground raised by assessee wide letter dated 13/10/2020 55. In respect of additional ground raised by assessee vide letter dated 13/10/2020, Ld.AR submitted that this issue stands squarely covered in favour of assessee by decision of orderable Rajasthan High Court in case of Chambal Fertilizers Chemicals Ltd. Vs. JCT in ITA No.52/2018 by order dated 31/07/2018. He submitted that s education says and secondary and higher education cess has been duly discharged by assessee while computing tax liability under normal provisions of income tax act. Placing reliance on following decisions Ld.A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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