TMI Blog2021 (7) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule, meaning thereby, they have not been included as assessee's own fixed assets. Hence the above said observation of Ld. DRP is against the facts. Benefit liable to be taxed u/s. 28(iv) of the Act need not always be revenue in nature. Suppose a businessman receives a Car on achieving the sales target, the value of Car is liable to be assessed u/s. 28(iv) of the Act, even though it constitutes capital asset in the hands of that businessman. If the right of ownership of the products/assets have been transferred to the assessee, then their value is liable to be assessed as benefit u/s. 28(iv) of the Act. On the other hand, if the right of ownership has been retained by the AE and they have been sent to the assessee for utilizing them in the work executed by the assessee for AE, then the value of assets cannot be assessed as benefit u/s. 28(iv) of the Act. We notice that these factual aspects have not been brought on record either by the assessee or by the AO, without which it would not be possible to determine about applicability of provisions of sec. 28(iv) - this issue requires fresh examination at the end of AO in the light of principles discussed supra. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The TPO did not accept the TP study of the assessee. He selected following 7 comparable companies whose average margin was 20.90%. After giving working capital adjustment of 1.69% the average margin was arrived at 19.21% by TPO. Accordingly, he made transfer pricing adjustment of ₹ 4.93 crores. The comparable selected by TPO are given below: Sl. No. Name of the company Mark-up on Total Costs (WC Unadjusted) (in %) Mark-up on Total Costs (WC adjusted) (in %) 1. CG-VAK Software Exports Ltd. 20.54 19.32 2. ICRA Techno Analytics Ltd. 17.10 12.25 3. Larsen and Toubro Infotech Ltd. 26.06 24.93 4. Mindtree Ltd. (seg.) 18.19 16.65 5. Persistent Systems Ltd. 28.27 26.28 6. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from that of a software development activity. 9. In the rejoinder, the Ld. A.R. submitted that it is true that the assessee had included M/s. CG-VAK Software Exports Ltd. as its own comparable. However, there is no bar that the assessee cannot challenge the same before the higher forums. In this regard, the Ld. A.R. placed his reliance on the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. M/s. Tata Power Solar Systems Ltd. (Income Tax Appeal No. 1120 of 2014 dated 16.12.2016). In the above said case, the Tribunal had held that merely because the assessee has included certain comparable companies in the list of comparable companies in its TP study, the same would not by itself estop a party from establishing that these companies are not comparable. In the above said case, the assessee had sought exclusion of two companies named M/s. Indo Wind `Energy Ltd. And BF Utilities Ltd. The observations made by Hon'ble Bombay High Court upholding the view taken by the Tribunal are extracted below:- (c) By the impugned order, the Tribunal allowed the Respondent Assessee's appeal. It held that merely because an Assessee has included M/s. Indowind En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two comparable companies. In any case, the claim of the assessee for inclusion/exclusion is covered by the decision rendered by the coordinate bench in the case of M/s. NXP India Pvt. Ltd. (supra). For the sake of convenience, we extract below the observations made by the co-ordinate bench in respect of the above said four companies in the case of M/s. NXP India Pvt. Ltd:- (A) COMPANIES SOUGHT TO BE EXCLUDED:- I. Larsen Toubro Infotech Limited 22. The learned AR relied on the order of the co-ordinate Bench in the case of Metric Steam Infotech (India) (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 1418 2735 (Bang.) of 2017, dated 27-2-2019], wherein the Tribunal held as under:-- 11. As far as L T Infotech Ltd. and Persistent Systems Ltd. are concerned, our attention was drawn to the decision of ITAT Hyderabad Bench in the case of M/s. EPAM Systems (I) P. Ltd. v. ACIT, ITA No. 2122/Hyd/2017 for AY 2013-14, order dated 20-11-2017. Vide para 12 of the decision, the Tribunal took the view that Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefore the profit margin in the software development s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld as under:-- 16. Having regard to the rival contentions and the material on record, we find that the assessee has raised its objections before 10 the TPO but he held that it is functionally similar. We have gone through the annual reports of CGVAK Software Exports Ltd. and find that the said company is having revenue from both software services and BPO services but there is no segmental data with regard to each of these transactions. Therefore, as held by the Coordinate Bench 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 ION Trading India (P.) Ltd. v. ITO [2016] 70 taxmann.com 349 (Delhi - Trib.), held as under:- 21. We have considered the submission of the Ld. 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 manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware Exports Ltd. We also direct inclusion of M/s. R. systems International Ltd. and M/s. Akshay Software Technologies Ltd. Accordingly, we direct the AO/TPO to redetermine the ALP of the transactions in terms of discussions made supra. 13. The next issue relates to the addition made u/s. 28(iv) of the Act. The AO noticed from the notes given under Fixed Asset Schedule of the Annual Report that the assessee has received tangible assets worth ₹ 12,65,000/- free of cost from its holding company (AE), i.e., ARM Limited, UK. The AO proposed to assess the above said amount as income of the assessee u/s. 28(iv) of the Act as it was a benefit received in exercise of profession. 14. The assessee submitted before the AO that it is providing contract design development services to its Holding company. Those services, inter alia, includes validation (testing), coding and verification of products developed by the holding company. On the basis of coding services provided by the assessee, the holding company produces products, which are required to be validated. Hence the holding company supplies sample products to the assessee company for testing and validation. The assets receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he products received by the assessee from its AE are products which are required to be validated, since they have been developed on the basis of services rendered by the assessee. He submitted that these products were supplied purely on commercial expediency and it does not result in any benefit to the assessee. The Ld. A.R. also submitted that the capital assets received are not in the nature of income and hence it cannot be treated as a trading receipt. The Ld. A.R. placed his reliance on the following case law for this proposition:- (a) Mahindra Mahindra Ltd. vs. CIT (2003)(128 Taxman 394)(Bom) (b) Logitronics (P) Ltd. vs. CIT (2011)(197 Taxman 394)(Delhi) 19. The Ld. D.R., on the contrary, supported the orders passed by Ld. DRP and the AO. 20. We heard rival contentions on this issue and perused the record. We notice that the Ld. DRP has observed that the assets received free of cost has been capitalized in the books of account. Accordingly, the Ld. DRP has held that the same is liable to be taxed u/s. 28(iv) of the Act. In fact, the assessee has shown the assets received free of cost as note under Fixed Assets Schedule, meaning thereby, they have not been i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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