TMI Blog2019 (3) TMI 1887X X X X Extracts X X X X X X X X Extracts X X X X ..... loyed wherever relevant are to be applied. From this perspective, the revenue s contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption that segmental data for relevant facts was available to determine the profitability of the concerned comparable. Persistent Systems and Solutions Ltd -For our detailed reasons given in the case of Persistent Systems and Solutions Ltd, this company is also directed to be excluded from the final list of comparables. Zylog Systems Ltd.n the absence of segmental data, we direct for exclusion of this company from the list of comparables. Addition towards Licence expenses - HELD THAT:- As the assessee raised invoices on certain customers in India including Idea Cellular Ltd. for upgradation of Aircom Tools. The invoice value has been shown as its income and the amount paid to its AE has been shown as Licence fee in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an `Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transaction for provisions of software development services and software deployment services and also proceeded to bench-mark the appellant s international transaction of provisions of intra-group services received from its AEs. 4. Pursuant to the rectification application, the TPO passed rectification order dated 19.09.2018 u/s 154 of the Act, whereby the TPO deleted the adjustment pertaining to software development services considering effect of tolerance range +/- 5%of the price received. 5. The subject matter of the present appeal relates to the transfer pricing addition confined to adjustment of ₹ 4.87 crores made to international transaction of software deployment services and intra group services. 6. Before proceeding further, let us understand the segmental accounts of the appellant which is as under: 7. The operating profit of the segments is as under: Software development Consultancy Product Delivery Software sublicencing Particulars Category 1 Category 2 Category 2A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement fee. In other words, if apportionment of ₹ 1,61,59,338/- is also accepted in the segment software deployment [product delivered], then, there is no question of making any adjustment in so far as intra group services is concerned. 9. Our view is fortified by the decision of the Hon'ble High Court of Delhi in Sony Ericsson Mobile Communication India Pvt. Ltd 374 ITR 118 and the relevant findings of the Hon'ble High Court read as under: (v) Where the Assessing Officer/TPO accepts the comparables adopted by the assessed, with or without making adjustments, as a bundled transaction, it would be illogical and improper to treat AMP expenses as a separate international transaction, for the simple reason that if the functions performed by the tested parties and the comparables match, with or without adjustments, AMP expenses are duly accounted for. It would be incongruous to accept the comparables and determine or accept the transfer price and still segregate AMP expenses as an international transaction. 10. In the light of the above, we will now consider the following comparables used by the TPO for making the upward adjustment in respect of software deplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement with Citigroup Inc. for acquiring all of Citigroup interest in the Company w.e.f. 21 January 2009. On 21 January 2009, Wipro signed a master service agreement (MSA) with Citigroup Inc. for the delivery of technology infrastructure services and application development and maintenance services for the period of six years. The MSA provides for the delivery of at least $500 million in service revenues over the period of the contract. After the acquisition by Wipro, the name of the Company was changed to Wipro Technology Services Limited ('WTS' or 'the Company') on 16 March 2009. 16.3. It is observed from the above contention reproduced in the TPO's order 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 the assessee, executed an agreement with Citi Group Inc., for acquiring Citi Technology Services Ltd., now called Wipro Technology Services Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for the delivery of technology Infrastructure Services and application development and maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also considered as an AE and the transaction with such third person becomes international transaction within the meaning of section 92B. Once there is a transaction between two associated enterprises, it ceases to be an 'uncontrolled transaction' and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). 16.5. Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned a revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. 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 uncont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dely off the mark. In our understanding of the law, the transfer pricing exercise in the profit and loss filter to be adopted invariably is premised upon accuracy as opposed to approximation with respect to operating cost and operating profits. It would not be out of place to mention here the observations of the Hon'ble High Court of Delhi in the case of Saxo India Limited [supra] which read as under: The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule 10B(l)(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue s contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee company cannot be compare with this company as there is not segmental data available. Besides, this there was extra-ordinary events occurred during the year as the company has acquired M/s. Brainhunter Inc., Canada. Thus, as held by this Tribunal in various decisions companies having extra-ordinary event has to be excluded. Therefore, we direct TPO to exclude this company from comparables. 26. Respectfully following the findings of the co-ordinate bench in the absence of segmental data, we direct for exclusion of htis company from the list of comparables. To avoid repetition, observations made by us highlighting the findings fo the Hon'ble Delhi High Court while considering the comparable Persistent Systems Solution Ltd are also applicable in toto here also. 27. Having excluded the aforementioned four comparables, we are of the opinion that the margin of profit of the segmental software deployment services would be at Arm s length. 28. This brings us now to the adjustment made towards intra group services. As mentioned elsewhere, the management fee of ₹ 3,57,03,763/- has been apportioned amongst the segments and one of the segment is software d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance charge. Pursuant to this Agreement, the assessee raised invoices on certain customers in India including Idea Cellular Ltd. for upgradation of Aircom Tools. Copies of some of the invoices have been placed on pages 779 to 783 of the paper book. The invoice value has been shown as its income and the amount paid to its AE has been shown as Licence fee in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an `Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45% of the invoice value was the obligation of the assessee ab initio without which it could not have procured the licnence of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. We, therefore, overturn the impugned order on this score and direct the deletion of addition of ₹ 67.52 lac made by the Assessing Officer. 30. Respectfully following the findings of the co-ordinate bench, this ground is also allowed. 31. In the result, the appeal of the assessee is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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