9911796707
TMI Blog2020 (11) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... ets employed and risks assumed by the said companies are entirely different and incomparable to that of the Appellant : a) Infosys Limited b) Persistent Systems Limited c) Thirdware Solutions Limited d) Larsen & Toubro Infotech Limited. Ground No.2.10 Excluding the following companies even though they are functionally comparable to the Appellant and pass all the filters applied by the learned TPO in its order : a) Sasken Communication Technologies Limited b) Akshay Software Technologies Limited c) E-Zest Solutions Limited - Not pressed. d) Sankya Infotech Limited e) I2T2 India Limited f) Daffodil Software Limited - Not pressed. g) Kireeti Soft Technologies Limited h) Exiliant Technologies Pvt. Ltd. i) Celstream Technologies Limited j) Maveric Ssytems Limited k) Evoke Technologies Pvt. Ltd. - Not pressed. 2.12 Not providing an adjustment for the differences in working capital of the Appellant and the comparable companies." 3. The Brief facts of the case are that the assessee company is a subsidiary of ARM Limited UK engaged in Software Development Services and provides maintenance of service to ARM Limited, UK and ARM Inc, US and also sales and mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P in Software Development Services Segment referred at Para 16 as under : The TPO in the market support services segment has considered final set of comparables and determined PLI based on the comparables OP/OC @ 12.54%. The TPO has computed the ALP of both the software development segment and MSS segment at Para 20 of the order as under : The TPO has passed order under Section 92CA of the Act dt.25.10.2017. 5. The TPO has passed Rectification Order under Section 92CA(5) of the Act r.w. Rule 154 for rectifying the order dt.25.10.2017 and determined the computation in respect of Software Development Services segment at para 2.1 of rectification order as under : The TPO has passed order under Section 154 r.w.s. 94CA(5) Dt.31.10.2017, with summary of adjustments at para 3 as under : 6. The Draft assessment order was passed under Section 143(3) r.w.s.144C of the Act dt.23.12.2017 with TP Adjustments. The assessee has filed objections in Form 35A with DRP against the draft assessment order. The DRP after considering the objections and findings of the TPO has given certain directions to TPO in respect of comparables and partly allowed the objections and passed order under Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionally dissimilar and provides end to end business solutions like business consulting technology engineering and outsourcing services and no segmental details in respect of services are available and made investments and products to establish as a tradable IPO owner. Further the comparable owns significant brand value products and focus on brand building and incurred expenditure on R & D. The company owns 7 edge products / platforms and six other product based solutions. The company leverages on its premium banking solution and during the year the company merged with its wholly owned subsidiary Infosys Consulting India Limited. We found that the company was excluded from the final list of comparables in assessee's own case for the Assessment Year 2011-12 by the DRP and revenue has accepted. The learned Authorised Representative supported his arguments relying on the decisions in the case of CIT Vs. Agnity (India) Technologies Pvt. Ltd. (2013); CGI Systems and Management Ltd. Vs. ACIT (2015) 94 taxman.com The learned Authorised Representative also substantiated that for the Assessment Year 2014- 15, the co-ordinate Bench of the Tribunal in the case of LG Soft India Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in foreign currency to the extent of 57.13%. During the year the product engineering business service of the company was transferred to its subsidiary. The company segments are divided into service cluster, industrial cluster and telecom business. As per the Annual Report of the company, the company has a significant capital work-in-progress and the company has developmental products. The comparable was excluded from the final list of comparable in assessee's own case for the Assessment Year 2011-12 by the DRP and further the comparable company was excluded by the co-ordinate Bench of Delhi Tribunal in the case of Pitney Bowes Software India Pvt. Ltd. Vs. ACIT 101 Taxman.com 350. The learned Authorised Representative also relied on CGI Information Systems & Management Consultants (P) Ltd. Vs. ACIT (2018) 94 taxman.com 97 and DCIT Vs. Taxman India Pvt. Ltd. (2016) 74 Taxmann.com 88 (Del). We found that the co-ordinate Bench of Tribunal in M.P. No.95/Bang/2019 in IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 has dealt on the issue at page 2 para 4 as under : " 4. We heard Ld D.R and perused the record. We find merit in the miscellaneous petition filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , owns IP. During the year the company made acquisitions. The company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The learned Authorised Representative relied on decision of Tribunal in the case of CGI Information & Management Systems Pvt. Ltd. Vs. ACIT 94 Taxman.com 97 and PCIT Vs. Saxo India Pvt. Ltd. 74 taxmann.com 88 (Delhi). We relied on the decision of CGI Information Systems & Management Consultants Pvt. Ltd. (supra) at paras 28 to 30 as under : We rely on judicial decisions and facts in respect of comparable Persistent Systems Ltd. and direct the Assessing Officer to exclude from the final list of comparable for determination of ALP." We found there is a functional dissimilarity in comparison to assessee financial profile and accordingly, we direct the TPO to exclude the comparable from the final list for determination of ALP. iv) Third ware Solutions Ltd. - The company is not functionally comparable as it has different diversified activities, and derives income from software development, income from subscription contract and from sale of user licenses. Further, no segmental details are avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Akshay Software Technologies Ltd. - The company is functionally comparable as it has majority of the revenue is from of software related services. The TPO did not apply the on-site development filter and foreign branch expenses are not the same as on-site development of software. There is no difference in the business model adopted by the company and the assessee. The company was included as comparable in the decision of co-ordinate Bench in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT 115 taxmann.com 293 (Bang - Tribunal) at para 7(i) page 595 of Paper Book as under : " 7 (i) Akshay Software Ltd. which has a margin of 8.13%. The income from commission on sale of software license constitute meager 0.5% of total revenue and TPO has not applied transfer development filter. The said company was rejected by the TPO for the reason that the company is engaged in providing provisional services, procurement installation, employment support of ERP products. The DRP has rejected the comparable without applying the filter and there is no difference in the business model adopted by the company and the assessee. We on perusal of the Annual Report at Page 1373 of Paper Book, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opinion that the assessee company has customers in US and Europe area and the export revenue filter test has to be applied by the TPO. Accordingly we restore this issue to the file of TPO for fresh consideration." We found there is a functional comparability in respect of assessee's profile and accordingly, we direct the TPO to include the comparable in the final list for determination of ALP. (iii) I2T2 India Limited - The Company is functionally comparable and passes all the filters. The DRP erred in upholding the exclusion of the company without first putting the assessee to notice. There is no difference in the business model adopted by the company and the assessee. The company was included as comparable in the decision of co-ordinate Bench in the case of M/S LG Soft India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 Dt.28.05.2019 and in M.A. No.95/Bang/2019 Dt.27.09.2019 at para 3 page 705 of Paper Book as under : " 3. The assessee had sought inclusion of a comparable company named "I2T2 India Ltd." The tribunal has adjudicated the same in paragraphs 11 & 12 of the order. However, the name of company has been erroneously mentioned as "T2T2 India Ltd." Instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rejected the comparable as profit and loss account is not available in public domain and the learned Authorised Representative referred to page 1755 to 1786 of Paper Book where the details of profit and loss account and Annual Report of the company are filed. Since the financial statements are available, we restore this issue to the file of the TPO to consider the financial statements, profit and loss account and Director's Report. Accordingly, we restore the comparable to the file of TPO for verification of the financial statements." We found there is a functional comparability in respect of assessee's profile and accordingly, we direct the TPO to include these two comparable companies in the final list for determination of ALP. (vii) Maveric Systems Ltd. - The company is functionally comparable as it has engaged in software testing and integral part of software development. The DRP erred in upholding the exclusion of the company on the ground that it incurred R&D exp of 6% of turnover, when no filter was applied by the TPO to exclude companies incurring R&D expenses. The company was included as comparable in the decision of co-ordinate Bench in the case of EMC Software an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putting the assessee on notice of the same is wholly erroneous and unsustainable. 36. We are of the view that the comparability of the company should be considered afresh by the TPO both on the export revenue filter and the filters applied by the DRP, because admittedly the assessee was not confronted by the DRP on the new filter it applied nor did it give a finding one way or the other on the export turnover filter." We found there is a functional comparability in respect of assessee's profile and accordingly we direct the TPO to include the comparable in the final list for determination of ALP. 10. The contention of the learned Authorized Representative that the Working Capital Adjustment has to be applied in the order to adjust the difference of working capital of the tested parties. The LdAR relied on the decision of the coordinate Bench in the case of Brocade Communications Systems (P) Ltd. Vs. DCIT in IT(TP)A No.79/Bang/2019 dt.19.06.2020, where the Tribunal has directed the TPO to allow the Working Capital Adjustment after verification of the assessee computation and provide opportunity to the assessee to represent the case referred at Para 40 to 46 of the order as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive service provider, the risks assumed by the Appellant are significantly low. The following chart sets out the levels of risk assumed by the assessee and its AE: Risk Appellant AE Market risk 0 4 Project Liability risk 1 3 R&D Risk 0 4 Credit risk 0 4 Foreign Exchange risk 2 2 Manpower risk 0 4 General business risk 2 2 Note: 0 indicates no responsibility, 1 indicates low risk, 2 indicates moderate risk, 3 indicates high risk, 4 indicates significant risk. Detailed submissions in this regard are placed at pages 249-266 of the paperbook. 45. Reliance in this regard was placed on the decision of the Hon'ble Delhi Bench of the Tribunal in the case of Honeywell Turbo Technologies (India) (P.) Ltd. v. DCIT (reported in [2017] 78 taxmann.com 342 (Pune - Trib.), wherein the Tribunal granted an adjustment to be granted for differences in risk assumed by the tested party and the comparable entities. 46. We are of the view that the question of allowing risk adjustment should be considered by the TPO afresh in the light of the submissions and after examining the computation of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
