TMI Blog2020 (11) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... At the time of hearing, the learned Authorized Representative submitted that effective grounds of appeal are Nos.2.9, 2.10 and 2.12 and other grounds of appeal are not pressed. Accordingly, except Ground of appeal Nos.2.9, 2.10 and 2.12, other grounds of appeal are treated as withdrawn and dismissed. The effective grounds of appeal are as under: Ground No.2.9 Including the following comparable companies even though the functions performed, assets 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services to its AEs in the F.Y. 2013-14 aggregating to Rs.1,75,17,80,711/-.The TPO has rejected the TP Study and selected the comparables and applied filters.The final set of comparables in Software Development Services Segment selected by TPO after analysis at para 14 of the order are as under : Further, the TPO has not granted Working Capital Adjustment and no risk adjustment and determined the PLI of the assessee OP/OC of comparables @ 29.40%.The TPO has computed the ALP 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t brand value, significant amount of IPR and brand value, and involved in R D activities and incurred significant expenditure. During the year the company has amalgamated its wholly owned subsidiary Infosys Consulting India Ltd. For the A.Y.2014-15, the company was excluded as comparable by the co-ordinate Bench of Tribunal in the case of M/S EMC Software and Services India Pvt. Ltd. Vs. JCIT in IT(TP)A No.833/Bang/2018 dt.18.12.2019 [115 taxmann.com 293 (Bang)] at para 6(i) as under : 6 (i) Infosys Limited : This company is functionally 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices business of the company was transferred to its subsidiary and has incurred expenses in foreign currency being 57.13% of its total expenditure. The company was excluded as comparable in the decision of co-ordinate Bench in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT (supra) at para 6(ii) at page 592 593 of Paper Book as under : 6 (ii) L T Infotech Limited : The company has a margin of 24.61% and has high brand value and is a market leader, high presence and the intangible income in proprietary products. Significant expenditure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary events and is engaged in R D activities and large scale of operations. The company was excluded as comparable in the decision of co-ordinate Bench in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT (supra) at para 6(iii) pages 593 of Paper Book as under : 6 (iii) Persistent Systems Ltd. : The company is functionally different as it is engaged in rendering IT services and in the development of software products without there being support segmental information and engaged in IP led solutions and undertakes significant R D activities, 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 direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Ltd. The comparable Thirdware Solutions Ltd. has to be excluded as it is predominant in activity and segmental details are not available. Accordingly we direct the TPO/A.O to exclude this comparable from the list of comparables for determining the ALP. We found there is a functional dissimilarity in respect of assessee's financial profile and accordingly ,we direct the TPO to exclude the comparable from the final list for determination of ALP. 9. The learned Authorized Representative argued for inclusion of 8 comparables as per Ground of appeal No.2.10. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment services and income from software products constitute a meager amount of total revenue shall not have any impact on the profitability of the company s software development segment. The learned Authorised Representative referred to the profit and loss account at page 1455 where the abridged statement profit and loss account was disclosed and as on 31.3.2014, the revenue from the operations of software products is Rs.309.17 lakhs and software services are Rs.3508.49 lakhs. The learned Authorised Representative emphasizing that there is no impact on the profits. We are of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. JCIT (supra) at paras 7 (vi) (vii) page 596 of Paper Book as under : 7 (vi) Excellent Technologies Pvt. Ltd. : The TPO has rejected this comparable as P L Account is not available in the public domain and the DRP has confirmed the observations. Before us, the learned Authorised Representative relied page 1677 of Paper Book disclosed the financial summary of business for the relevant year. As this information is available, we consider it proper to restore this comparable to the file of TPO for examination and verification. 7 (vii) Celstream Technologies Limited - The TPO and DRP has 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 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP that the company passes the filter and earned revenue from export of services comprising 96.53% of the total revenue, the DRP upheld the rejection of the company on an altogether new basis that the company is engaged in development of software and products, and that it had incurred substantial R D expenses to the tune of 5.9% of total operating revenue. 35. At the outset it was submitted that the company is functionally comparable and passes all the filters applied by the TPO. It was submitted that action of the DRP in upholding the exclusion of the company on an altogether new basis without first 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transaction with an uncontrolled transaction shall be judged with reference to inter alia the risks assumed by the parties to the transaction. Coupled with Rule 10B(3) of the Rules, it becomes clear that adjustment towards differences in risk assumed by the parties in contemplated in the statute itself. In this regard it was submitted that the TPO and the DRP erred in holding that no such adjustment was warranted as it was not demonstrated that there was a difference in the risks assumed by the tested party and the comparable companies. In this regard it was submitted that since the Appellant is a captive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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