TMI Blog2022 (6) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas the RBI rate was determined to be six months LIBOR + 500 basis points - HELD THAT:- We note that the Ld.TPO has carried out fresh benchmarking analysis without following the principles laid down by Hon'ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT] We direct the Ld.TPO to follow the principles laid down by this Tribunal in case of Cotton Naturals (supra), having referred to the rate applied by the assessee being within threshold limit as per the RBI Circular No. 12/2015-16 dated 01/07/2015 on ECB. Accordingly, this ground raised by assessee stands allowed for statistical purposes. Recharacterising assessee as an agent under the marketing support service segment - HELD THAT:- TPO carried out recharacterisation of assessee without understanding the functions performed by the assessee under the marking support service segment. We are therefore of the opinion that this issue needs to be verified by the Ld.AO/TPO denovo. Assessee is directed to file all relevant information in support of its contention which shall be verified and considered by the Ld.AO/TPO in accordance with law. Needless to say that proper oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SanDisk India Device Design Centre Private Limited (The Appellant' or 'the Company' or 'SanDisk India') before making a reference to the Additional Commissioner of Income-tax, Transfer Pricing - 2(2) ['the Learned Transfer Pricing Officer' or 'the Ld. TPO']. 1.2. The Hon'ble Dispute Resolution Panel ('Hon'ble Panel') Hon'ble Panel erred in upholding the order of the NeAC , which is bad on facts and in law, and is in violation of the principles of natural justice. The NeAC has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. Accordingly, the order passed by the Ld. TPO/NeAC is without jurisdiction. 2. Fresh comparability/ benchmarking analysis is liable to be quashed 2.1. The Hon'ble Panel erred in upholding the order of the Ld. TPO/NeAC , wherein the Ld. TPO erred in arbitrarily rejecting the Transfer Pricing Documentation maintained by the Appellant as per the provisions of Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (The Rules'), on account of mere difference of interpretation in selection of filters, is without any basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 5.1.4. Infosys Limited. 6. Onsite filter 6.1. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in rejecting the Appellant's arguments on application of onsite filter to exclude the following companies in the software development services segment, that have significant onsite operations unlike the Appellant, which is an offshore service provider: 6.1.1. Larsen and Toubro Infotech Limited: 6.1.2. Nihilent Limited: 6.1.3. Thirdware Solution Limited; 6.1.4. Aspire Systems India Private Limited; and 6.1.5. Infosys Limited. 7. Data obtained under section 133(6) of the Act 7.1. The Hon'ble Panel erred in upholding the action of the Ld. TPO/ NeAC, where the data obtained under section 133(6) of the Act for Nihilent Limited, was not shared with the Appellant during the course of the transfer pricing proceedings and without appreciating the fact that no opportunity was provided to the Assessee for rebutting the said information. 7.2. NeAC The Hon'ble Panel erred in upholding the action of the Ld. TPO/ NeAC , wherein the Ld. TPO stated that the decision of selecting comparables were arrived at after appropriately communication to the Appellant, without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum of related party transactions and accepting Persistent Systems Limited and Aspire Systems (India) Private Limited as passing the related party transactions filter. 10.5. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding Goldstone Technologies Limited, on the basis that it fails persistent loss filter; 10.6. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding Akshay Software Technologies Limited, on the basis that it is not functionally comparable to the Appellant; 10.7. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in excluding R System International Limited, on the basis that it has different financial year ending, without considering its functional comparability; 10.8. The Hon'ble DRP erred in excluding E-Zest Solution Limited and Sybrant Technologies Limited, on the basis that the companies do not form part of the search process, without appreciating the fact that both the companies were forming part of the search process of the Ld. TPO. 11. Interest on External Commercial Borrowings 11.1. The Hon'ble DRP erred in upholding the action of the Ld. TPO/ NeAC in disregarding the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned TPO/ NeAC in accepting the following companies as functionally comparable to the Appellant. 12.6.1. NGRT Systems Private Limited; 12.6.2. Bhatia Communications Retail (India) Limited; 12.6.3. Creative Peripherals Distribution Limited; 12.6.4. Prime Retail India Limited 12.6.5. Cyrix Infotech Private Limited 12.6.6. Khosla Electronics Private Limited 12.6.7. Zicom Electronic Security Systems Limited 12.6.8. Ample Technologies Private Limited 12.6.9. Advanced Telemedia Private Limited 12.7. Without prejudice to the contentions of the Appellant on the recharacterization, the Ld. TPO erred in not providing the relief for the incremental revenue of MSS (relating to share based compensation cost) already offered to tax by the Assessee. 13. Free of cost assets: 13.1. The Hon'ble Panel erred in upholding the action of the NeAC in treating the value of free of cost assets received by the Appellant as perquisites/ benefits arising to the Appellant under section 28(iv) of the Act and bringing the same to tax. 13.2. Without prejudice to the above, the Hon'ble Panel erred in not providing depreciation on the value of free of cost assets be imputed. Further, the Appellant prays th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs under section 271 of the Act. 22. Relief 22.1. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. 22.2. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal. 2. Brief facts of the case are as under: 2.1 Assessee is found to be engaged in the business of designing, developing and manufacturing data storage solutions in a variety of form factors using their flash memory, proprietary controller and firmware technologies. For year under consideration, assessee filed its return of income on 30.11.2016 declaring total income of Rs.60,43,93,000/-. The case was selected for scrutiny and statutory notices were issued to assessee. In response to the notices, assessee filed the relevant details as called for. The Ld.AO observed that assessee had entered into international transactions exceeding Rs. 15 crores. Accordingly, the case was referred to the transfer pricing officer. 2.2 On reference received by the Ld.TPO under 92CA, the Ld.TPO called upon assessee to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter applying various filters finalised the following 17 comparables with an average margin of 25.64%. S.No. Company Name Financial Year wise OP/OC (%) 2015-16 2014-15 2013-14 Average 1 Kals Information Systems Pvt. Ltd. 3.97% 5.77% 16.94% 8.60% 2 E-Zest Solutions Limited 7.65% 11.80% 14.88% 10.87% 3 Rheal Software Pvt. Ltd. 3.20% 2.76% 36.64% 14.50% 4 Sybrant Technologies Private Limited 16.10% 13.88% 15.26% 14.74% 5 Harbinger Systems Pvt. Limited 12.69% 17.18% No Data in Public Domain 15.06% 6 C G-V A K Software Exports Ltd. 19.60% 19.87% 13.81% 18.50% 7 R S Software (India) Ltd. -2.09% 32.75% 24.14% 20.87% 8 Larsen Toubro Infotech Ltd. 26.29% 24.22% 23.54% 24.83% 9 Orion India Systems Private Limited 26.08% 25.14% No Data in public domain 25.64% 10 Nihilent Ltd. 15.94% 29.19% 35.72% 26.36% 11 Inteq Software Pvt. Ltd. 7.53% 32.14% 45.00% 1 12 Persistent Systems Ltd. 26.92% 31.34% 35.64% 30.89% 13 lnfobeans Technologies Ltd. 34.98% 20.78% 41.95% 32.42% 14 Thirdware Solution Ltd. 23.89% 44.39% 44.68% 36.90% 15 Infosys Ltd. 38.22% 41.30% 36.28% 38.61% 16 Aspire Systems (India) Pvt. Ltd. 34.26% 47.56% 38.04% 39.28% 17 Cybage Software Pvt. Ltd. 62.90% 68.68% 68.82% 66.45% 35th Percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income as per return of income filed by the assessee. 2.19 Aggrieved by the final assessment order passed, assessee has filed present appeal before this Tribunal. 3. At the outset, the Ld.AR submitted that Ground nos. 1 and 4 are general in nature and do not require independent adjudication. 4. Ground nos. 5 7 is in respect of the comparables sought for exclusion by assessee under software development service segment. 5. Ground no. 8 is on not allowing the Working Capital Adjustment. 6. Ground no. 9 is on risk adjustment sought by assessee. At the outset, the Ld.AR submitted that assessee did not wish to press this issue and therefore the same is rejected. 7. Ground nos. 10.1 10.4 are connected with Ground nos. 5-7 and therefore need not be separately adjudicated. 8. Ground no. 10.5 is in respect of suo moto excluding Goldstone Technologies Ltd. by DRP. 9. Ground nos. 10.6 10.8 are not pressed by assessee and therefore are rejected. 10. Ground no. 11 is on the adjustment computed in respect of interest on ECB loans. 11. Ground no. 12 is in respect of recharacterising assessee as an agent under the marketing support services segment. 12. Ground no. 13.1 is not pressed by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires assets (tangible or intangible) without which it cannot carry out its activities. Intangibles play a significant role in the functioning of a business and are accordingly more important Intangible Assets SanDisk India does not own or develop significant intangible assets and it also does not undertake any significant design and development activities on its account that leads to development of non-routine intangibles. SanDisk India uses computer software to carry out its business activities. Tangible Assets SanDisk India employs necessary tangible assets required in respect of the above mentioned functions. Risks undertaken Entity characterisation SanDisk India only performs software development, ITeS and MSS activities and does not perform the key decision making functions including but not limited to market research, product ideation, process development, etc. All strategic decisions are undertaken by its AEs. AEs of SanDisk India assigns work to development centres, including the Company and is responsible for monitoring its activities, providing the management/ strategic oversight and directions. SanDisk India does not assume any risk associated with the activities it und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: 3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:- 5. The Ld A.R submitted that M/s Infosys Ltd, M/s Persistent Systems Ltd and M/s Thirdware Solutions Ltd have been excluded by the co-ordinate bench in the assessee's own case in AY 2008-09 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held that Larsen Toubro Infotech Ltd., is also not a comparable company because there were extraordinary events that occurred in the relevant previous year and that it possessed brand and intangibles and there was no segmental information of sub-contracting expenses . 3.3 There is nothing on record brought by the Ld.CIT.DR in order to establish that these are comparable with assessee that is a captive service provider which functions at the strict supervision and instructions by the AE s. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration. 17.8 Before us, the Ld.AR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list. 17.9 In respect of Nihilent Ltd., In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signs, cloud services etc. The annual financials of this company available at page A412 A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis- -vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded. Infobeans Technologies Ltd. (Infobeans) 49. The assessee sought exclusion of Infobeans on the ground that it is also functionally dissimilar being into providing business IT services (CAD) (application development and maintenance, Big Data, UX and UI, Automation engineering services, including product engineering and lifestyle solutions and business process management) in verticals of storage and virtualization, media and publishing, HR and Payroll and e-commerce. It is also providing software engineering services primarily in Custom Application Development (CA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e threshold limit as per the RBI and no adjustment is called for. Referring to the observations of Ld.TPO, the Ld.AR submitted that the TPO himself accepts that assessee has paid the interest to its AE between 4.5 and 4.8% whereas the RBI rate was determined to be six months LIBOR + 500 basis points. However, he submitted that the TPO determined the comparable loan transaction at 3.74%. 20.2 On the contrary, the Ld.DR submitted that the rate applied by the Ld.AO is to be upheld. 20.3 We have perused the submissions advanced by both sides in the light of records placed before us. 20.4 We note that the Ld.TPO has carried out fresh benchmarking analysis without following the principles laid down by Hon'ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd. reported in (2015) 55 taxmann.com 523. 20.5 We direct the Ld.TPO to follow the principles laid down by this Tribunal in case of Cotton Naturals (supra), having referred to the rate applied by the assessee being within threshold limit as per the RBI Circular No. 12/2015-16 dated 01/07/2015 on ECB. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 21. Ground no. 12 is in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were submitted before the authorities below which has not been considered. He has placed reliance on the observation of Coordinate Bench of this Tribunal in case of M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1646/Bang/2017 by order dated 13.04.2022 and in the case of Goldman Sachs Services Pvt. Ltd. vs. DCIT in IT(IT)A Nos. 362 to 369 338 to 345/Bang/2020 by order dated 29.04.2022. Identical issue has been considered at length. 23.1 On the contrary, the Ld.DR placed reliance on orders passed by authorities below. 23.2 We have perused the submissions advanced by both sides in the light of records placed before us. 23.3 We note that the evidences filed by assessee has not been considered by the revenue authorities. 23.4 We therefore remand this issue to the Ld.AO to consider the claim in accordance with the decision of Coordinate Bench of this Tribunal in the above referred cases M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. DCIT (supra) Goldman Sachs Services Pvt. Ltd. vs. DCIT(supra) having regard to the evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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