TMI Blog2019 (10) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO s own filter. Hence, it is directed that this comparable may be obliterated from the list of comparable. E-Zest Solutions Limited - We find that cloud computing has been the major source of revenue of this company, hence, functionally not comparable. In the assessee s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Sunguard Solutions India Pvt. Ltd. [ 2015 (7) TMI 1275 - ITAT BANGALORE] . Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Infosys Ltd. - In the assessee s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Nokia Siemens Networks India Pvt. Ltd [ 2018 (2) TMI 1783 - ITAT DELHI] - Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Larsen Toubro Infotech Ltd. - We find that the submissions of the ld. AR cannot be accepted as the assessee and the comparable, and the study of the TPO involves determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT DELHI] on the ground that this company is a subsidiary of Wipro Ltd, which has a considerable brand name, and further that the entire revenue during the year in this company is covered by a master service agreement entered into by breakthrough with CITI group services. R Systems Ltd - The comparability of an uncontrolled transaction can be analyzed only with the data relating to the financial year in which the international transaction has been entered into. As the assessee follows the accounting year ending 31st March, the comparables must also have the data relating to the financial year ending 31st March. Since, this data is not available, such companies cannot be accepted as comparables. Vama Industries Ltd. - As already held that the filter of less than 75% is to be excluded, this company does not pass the test of filter of service income laid down by the TPO. Hence, we hold that it is not an appropriate comparable for TP study. Allowance on account of risk adjustment - It was held in the case of EXL Servie.com India Pvt. Ltd.[ 2017 (8) TMI 225 - ITAT DELHI] TP risk adjustment is allowed only when the differences have pointed out and the authorities can pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at on facts and in law, the Hon ble DRP and Ld. TPO/AO failed to appreciate the business model and business realities of the Appellant and its Associated Enterprises ( AEs ) while conducting the transfer pricing analysis and adopted an entirely flawed approach to reach a conclusion that the Appellant is not compensated at arm s length for its Software Development Services Segment. 3. On the facts and in law, the Ld. TPO erred in not discharging his statutory onus to establish that any of the conditions specified in clause (a) to (d) of section 92C(3) of the Income Tax Act, 1961 ( Act ) have been satisfied before disregarding the arm s length price determined by the Appellant and proceeding to determine the arm s length price himself. 4. On the facts and in law, the Hon ble DRP and Ld. TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant without proper justification and conducting a fresh search using arbitrary filters for identifying companies comparable to the Appellant. 5. On the facts and in law, the Ld. TPO / AO and Hon ble DRP grossly erred in not accepting the comparable companies proposed by the Appellant, as the said comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payment of training expenses amounting to ₹ 4,28,377 out of the total reimbursement of ₹ 20,83,040 is liable to withholding tax provisions of S. 195(1) of the Act and failing to appreciate that payment of training expenses does not fall within the meaning of FIS under Article 12 of the India-Singapore tax treaty. B. Other Grounds 15. On the facts and in the circumstances of the case, the Ld. AO erred in levying interest under section 234B and 234D of the Act. 16. On the facts and in law, the Ld. AO and the Hon ble DRP erred on facts and in law in initiating penalty under section 271(1)(c) and 271AA of the Act. 3. G D India was incorporated in 2001 as 100 percent subsidiary of G D GmbH, with its corporate office located in Gurgaon. The company initially specialized in currency automation systems, later adding its business in the fields of telecommunications, electronic payment, transportation, health care and identification. G D has enjoyed business relations with India since, the 1990s and sold the first banknote processing systems to India on 1997. G D India holds significant market share in the currency automation equipment segment, the Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of the assessee in relation to providing Software Development Services and assembly of Sim cards are examined in TP study. The functions of the assessee and its AE and the functions of the assessee as submitted in the TP report are found to be in order. SOFTWARE DEVELOPMENT CHARGES: 5. The assessee has used TNMM as the method and Net Operating profit Margin based on Costs (NCP Margin) as the PLl. The assessee has arrived at a set of 12 companies with an average margin of 10.55%. The assessee has used multiple year data. The assessee's own margin is worked out to be 11.61% for Software Development Services. Based on the analysis, the assessee has concluded that its international transactions are at arm's length. SIM CARD DISTRIBUTION: 6. The assessee has used TNMM as the method and Net Operating Profit Margin based on Costs (NCP Margin) as the PLI. The assessee has arrived at a set of 04 companies with an average margin of 0.14%. The assessee has used multiple year data. The assessee's own margin is worked out to be (6.78%) for Sim Card Distribution Segment. Based on the analysis, the assessee has concluded that its international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Before us the assessee has taken objection of selection of the following comparables: Sl. No. Name of the company 1 Acropetal Technologies Limited 2 E-infochips Limited 3 E-Zest Solutions Limited 4 Infosys Ltd. 5 Larsen Toubro Infotech Ltd. 6 Persistent Systems and Solutions Ltd. 7 Persistent Systems Ltd. 8 Sasken Communication Technologies Ltd. 9 Wipro Technologies Services Limited 10 Zylog Systems Ltd. 10. Further, the assessee sought to include the following two comparables namely, 1. R. Systems Ltd. 2. Vama Industries Ltd. Acropetal Technologies Limited: 11. During the arguments, the assessee has taken primary objection as to the comparable fails TPO s own employees cost filter of 20%. We have gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to more than 75% of the operating revenues have only to be considered for the ALP study as other segment may not materially affect the financial results of the company. While disputing the contention of the assessee that filter should be 50% instead of 75%, the TPO reiterated his stand holding that the search criterion is basically to search for companies which are mainly engaged in IT industry or whose significant activities or functions relate to IT industry. Hence, it is appropriate to apply the filter that the comparable company should have at least 75% of its revenue from IT industry. He further held that even the OECD guidelines says that functional analysis is to identify and to compare economically significant activities undertaken by the independent enterprises. Thus the filter of 75% revenues from IT industry is applied as this threshold would given independent companies whose economically significant activities pertain to IT industry and the revenues from other sources would not impact materially the profitability of the company at the enterprise level. The threshold applied by the taxpayer at 50% does not bring in comparables with IT industry as its significant activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal relying on the decision of Nokia Siemens Networks India Pvt. Ltd. Vs ACIT in ITA No. 333/Del/2013. Hence, keeping in view the decision of the earlier year, we direct that this comparable may be excluded from the list of comparables. Larsen Toubro Infotech Ltd. 19. It was argued by the ld. AR that this comparable is functionally different as it is engaged in software development and software products also. He also argued that owing to lack of segmental data, owing to insufficient segmental information and being earned more than 50% of the revenue from onsite operations, this cannot be taken as a comparable. He also relied on the decision of the Co-ordinate Bench of the Tribunal in the case of Alcatel Lucent India Ltd. Vs DCIT in ITA N. 6856/Del/2015 and Parexel International India Pvt. Ltd. Vs ACIT in ITA No.1918/Hyd/2014. We find in the case of Alcatel Lucent India Ltd., the Co-ordinate Bench has held that L T is functionally dissimilar to the functions of Alcatel Lucent. In the case of Parexel International India Pvt. Ltd., the Co-ordinate Bench held as under: It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the export of software development only. Functionally Infosys is on a different format whereas L T is similar. Keeping in view, the judgment of Hon ble Supreme Court in the case of Morgan Stanley and Company Inc. [292 ITR 416] regarding the functions and comparability thereof, we hold that this can be included an appropriate comparable. Persistent Systems and Solutions Ltd.: 21. It was argued by the ld. AR that this comparable is functionally different as it is engaged in software development and software products also. He also argued that owing to lack of segmental data, owing to insufficient segmental information, this cannot be taken as a comparable. Placed reliance on the judgment of Alcatel Lucent India Ltd. (supra) and Broadcom India Research Pvt. Ltd. in ITA No. 348/Bang/2015. We find as per the audited account, the company provides support in software development, consultancy and systems integration. Regarding the description of products of services, they are into information technology software services. In the assessee s own case for the assessment year 2008-09, this comparable has been excluded by the Co-ordinate Bench of the Tribunal. Hence, keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar companies took place then the even of merger itself cannot be taken a factor for exclusion of the said comparable. Accordingly, we direct the AO/TPO to verify this fact and accordingly decide the comparability of this company namely Accentia Technologies Ltd. 24. The comparable is a provider of Tele-communication Software Services to Mobile Terminal Vendors, and Solutions to Network equipment manufactures. The restructuring reserve account and the diminution value of investment do not necessarily adversely affect this to be a comparable. The profits, EBITDA margins, software services, network engineering services do not change perceptibly. The company has enquired R D charges on account of R D centre at IIT Madras and incurred expense of ₹ 8.94 lacs do not impact the profitability. Hence, we hold that this comparable may be included in the TP study. Wipro Technologies Services Limited: 25. It was argued that this cannot be a comparable owing to dissimilar functionality and significant RPT, lack of segmental data. In addition, it is holding software intangibles of ₹ 2.31 crores. The accumulated depreciation and amortization remained constant as at 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the assessee follows the accounting year ending 31st March, the comparables must also have the data relating to the financial year ending 31st March. Since, this data is not available, such companies cannot be accepted as comparables. Vama Industries Ltd.: 28. It was argued that this comparable may be included owing to availability of segmental data. The TPO rejected as the comparable fails the service income filter. Since, we have already held that the filter of less than 75% is to be excluded, this company does not pass the test of filter of service income laid down by the TPO. Hence, we hold that it is not an appropriate comparable for TP study. 29. Regarding the allowance on account of risk adjustment, the Assessing Officer did not accept the claim of the assessee. The DRP held that the assessee failed to substantiate the claim of risk. In the case of Ciena India (P) Ltd. 59 taxmann.com 92, the Co-ordinate Bench held that risk adjustment can be allowed provided the assessee places on record some appropriate material to demonstrate that risk undertaken by the comparable company were relatively more than it, warranting downward adjustment in their profit rates. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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