TMI Blog2019 (1) TMI 1895X X X X Extracts X X X X X X X X Extracts X X X X ..... ., sale of products and sale of services but segmental profitability is not available in audited financial statements. Therefore, we direct Ld.TPO to exclude this company from comparables. E-Infochips Ltd since no segmental data of this company is available indicating operating profit from software development services, we order to exclude this company from the list of comparables. Wipro Technology Solutions Ltd disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this company from the list of comparables. Sasken Communication Technologies - As revenue generated from sale of software services/ products and other services are to the tune of ₹ 39,419.62 crores. Further it is observed from order of Ld.TPO that this company has been selected as a comparable only because it satisfies filter of applicability of 75% of its income from services. However on perusal of accounts, no segmental financials are available. Moreover in our considered opinion functionally itself this company is not comparable with that of assessee. Accordingly we direct thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in rendering e-learning and courseware content development services, to its holding company, Element K Rochester USA. It was observed that assessee entered into an agreement with its US company to provide variety of services, to be mutually agreedupon, and which may include but not to be limited to online course content development, software development and customer and technical call support. Assessee characterised itself to be IT service provider to its AE, which was rendered at an agreed cost plus markup basis. As value of international transaction exceeded ₹ 5 crores, case was referred to Ld.TPO. Upon receipt of reference, Ld.TPO called for various documents. 2.3 Ld.TPO observed that assessee had following international transaction with its AE. Sl.N Nature of Transaction Value Rs. Method Applied Result of Assessee 1 Provision of content development service 146,620,521 TNMM 15.00% 2 Purchase of online courseware/e -books for resale 494,589 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3% 7 iGate Global Solutions Ltd. 23.71% 8 Infosys Ltd. 43.53% 9 Kireeti Soft Technologies Ltd. 3.63% 10 Larsen Toubro Infotech Ltd. 18.40% 11 Mindtree Limited (Segment) 10.74% 12 Persistent Systems Solutions Ltd. (Merged) 22.12% 13 Persistent Systems Ltd. 23.08% 14 R S Software (India) Ltd. 16.20% 15 Sankhya Infotech Limited 26.20% 16 Sasken Communication Technologies Ltd. 24.36% 17 Tata Elxsi Ltd. (Segment) 13.00% 18 Thirdware Solutions 16.19% 19 Wipro Technologies Limited 54.42% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 Tata Elxsi Ltd. (Segment) 13.00% 17 Thirdware Solutions 16.19% 18 Wipro Technologies Limited 54.42% 19 Igate Global Solutions Ltd. 23.71% Average 23.37% 2.10 Based upon directions of DRP, Ld. AO passed the impugned final assessment order and made addition in the hands of assessee at ₹ 1,10,21,853/-. 2.11 Aggrieved by addition so made by Ld. AO, assessee is in appeal before us now. 2.12 At the outset, assessee only objects comparables, finally selected by Ld.TPO for purposes of determining ALP of international transaction. Ld.Counsel submitted that, assessee do not object re-characterisation of services as software development service provider by Ld.TPO. Ld.Counsel submitted that Ground No. 1-2, 2.1-2.6 3 - 4 are therefore not pressed. 2.13 Accordingly, Ground No. 1-2, 2.1-2.6 3 - 4 stands dismissed as not pressed. 3. Only issues raised by assessee in Ground No. 2.3-2.5, pertains to comparables w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the Indian entity also ensures that the printer adheres to the quality standards etc. provided by EK USA to the printer in this regard. However, in case of sale of courseware of courseware in the AsiaPac region (outside India), printing is the responsibility of the US entity. Invoicing/ Billing: EK India is responsible for billing and collecting the sales proceeds from its customers after sale of such courses in India. The Indian entity undertakes the necessary credit evaluations, reference checks, etc. before entering into customer contracts. However, in case of sale in AsiaPac region (other than India), invoicing, billing and collection etc. related activities are the responsibility of the US entity. Inventory Management: EK India is responsible for the inventory management function. The group follows the Print on demand model and thus does not maintain inventory/ stock of courseware. Further, EK India is responsible for ensuring print fulfillment and delivery of the books to the customers. Accordingly, in this category, for sale of courseware in India, EK India is responsible for undertaking all functions related to the marketing and distribution of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads to the development of non-routine intangibles. EK USA, on the other hand, develops/ owns significant intangibles like corporate logo/ trademarks, customer relationships and networks, library of products, copyrights, processes, platform, know-how, technical data, software, operating/ quality standards, etc. Moreover, the US entity has a rich experience of over 30 years. VI. Risks assumed The risk profile of EK India vis-a-vis its AEs is provided in Table below: 3.5 Based upon the above, assessee has been characterised as a value added distributor of printed courseware/e-books in India which assumes normal/significant risks associated with carrying out such marketing/distribution activities in India. 3.6 At the outset, Ld. Counsel submitted that Zylog systems Ltd., has been excluded by DRP and Infosys Technologies Ltd., has been excluded by coordinate bench of this Tribunal in assessee s own case for assessment year 2007-08 in ITA No. 431/del/2012 vide order dated 14/11/14 as well as for assessment year 2008-09 in ITA No. 6 to 77/del/2012 vide order dated 22/11/2017. 3.7 It has been submitted that this Tribunal while excluding Infosys Technologies Ltd., followed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally different from that of assessee and should have been excluded by Ld.TPO. The company is also engaged in two business segments, i.e., sale of products and sale of services but segmental profitability is not available in audited financial statements. Therefore, we direct Ld.TPO to exclude this company from comparables. 2. E-Infochips Ltd: Ld.TPO included this company in the list of comparables. Ld.Counsel contended that this company is functional dissimilar, in as much as it is engaged in software development and IT enabled services and also Products. Ld.TPO included this company into final list as it has 2 heads of income being income from software development and income from IT services which together amounts to 86% of total income of the company. Ld. TPO opined that segmental data, the other activities are of very small volume and integrally connected with functions of providing software services On the contrary, Ld.DR submitted that there is no related party transaction during the year under consideration. We have heard the rival submissions of both sides in the light of records placed before us. We find from Annual report of this company placed in paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any ) on 16 March 2009. It is observed from the above that, Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd., was held by Citi Corp. Banking Corporation, USA upto 20th January, 2009. Wipro Ltd., parent company of which executed agreement with Citi Group Inc., for acquiring Citi Technology Services Ltd., now called Wipro Technology Services Ltd. On 21.1.2009, Wipro Ltd. signed master agreement with Citi Group Inc., for the delivery of technology Infrastructure Services and application development and maintenance services for the period of six years, which also includes the year under consideration. This shows that income from software development support and maintenance services was earned by Wipro Technology Services Ltd., from Citi Group Inc., by means of master service agreement entered into between Wipro Ltd., its parent company and Citi Group Inc., a third person. It is observed that the issues raised by Ld. CIT DR in respect of comparability of this comparable has been dealt with by coordinate bench of Delhi tribunal in Saxo India Pvt.Ltd vs. ACIT (supra) as under: We have noticed above from the language of Rule 10B(1)(e)(ii) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds that the transaction of earning revenue from software development support and maintenance services by Wipro Technology Services Ltd., is an international transaction because of the application of section 92B(2) i.e., there exists a prior agreement in relation to such transaction between Citigroup Inc. (third person) and Wipro Ltd. (associated enterprise). In the light of this structure of transaction, it ceases to be uncontrolled transaction and, hence, Wipro Technology Services Ltd., disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this company from the list of comparables. Respectfully following the same we also direct removal of this company from the list of comparables. 4. Sasken Communication Technologies Ld.TPO included this company in final set of comparables. Ld.Counsel submitted that this company is engaged in sale of software products and offers IP led products in multimedia, and android software pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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