TMI Blog2021 (9) TMI 1448X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjustments should be made to eliminate effect of any such differences. Accordingly we direct Ld. AO/TPO to grant working capital adjustment in accordance with law. - ITA No. 3399/Bang/2018 - - - Dated:- 28-9-2021 - Chandra Poojari, Member (A) And Beena Pillai, Member (J) For the Appellant : Padamchand Khincha, C.A. For the Respondents : Neera Malhotra, CIT (DR) ORDER PER BEENA PILLAI , JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 29/10/2018 passed by the Ld. ACIT circle 2(1)(2), Bangalore for assessment year 2014-15 on following grounds of appeal: Transfer pricing adjustment of INR 1,65,84,24,000 1. The Assessment Order dated 29 October 2018 (received on 31 October 2018), issued by the learned Joint Commissioner of Income-tax, Special Range - 2, Bangalore ( learned AO ), the Directions issued by the Hon'ble Dispute Resolution Panel ( Hon'ble DRP ) and the Order of the learned Transfer Pricing Officer ( learned TPO ) issued under Section 92CA of the Act are not in accordance with the law, made in violation of the principles of equity and natural justice and are contrary to the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the use of contemporaneous data, the Hon'ble DRP and the learned TPO have erred in not accepting the submission of the Appellant that at the time of preparation of TP Study the latest available data was considered for the comparability analysis. 5.3. The Hon'ble DRP and the learned TPO not appreciated the fact that if the proposed approach of using the margins of comparable companies during the FY 2013-14 is adopted, which was not available to the Appellant during the TP Study requirements, then it may lead to an anomaly that could never have been intended by the Legislature. 5.4. The Hon'ble DRP and the learned TPO have erred in not accepting the fact that current year data were not available in the public domain to calculate the margins of comparable companies at the time of preparation of TP Study. 6. Use of Different FY ending 6.1. The Hon'ble DRP and the learned AO/TPO have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2013 to 31 March 2014. 6.2. The Hon'ble DRP and the learned AO/TPO have failed to appreciate that disregarding companies that have a F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Technologies Limited and 12. Acropetal Technologies Limited. 11. Information gathered under Section 133(6) of the Act is inappropriate for the purposes of disturbing the TP Study undertaken by the Appellant 11.1. The Hon'ble DRP and the learned AO/TPO have erred in law and in facts by gathering information from various companies under section 133(6) of the Act, which were not available with the Appellant at the time of preparing its TP study. 11.2. The Hon'ble DRP and the learned AO/IPO have erred in law by relying upon the information not available in public domain while carrying out the benchmarking analysis under the Act. 11.3. The Hon'ble DRP and the learned AO/TPO have erred in law and on facts by misinterpreting the Organization for Economic Cooperation and Development ( OECD ) guidelines in the context of use of confidential information. The Hon'ble DRP and learned TPO have erred in law by adopting the comparables which were rejected by the Appellant on account of non-availability of adequate information in public domain. 12. Not granting of working capital adjustment and risk adjustment 12.1. The Hon'ble DRP and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial judgment about the application of arm's length principle which is tied to the business realities. 14.2. The Hon'ble DRP and the learned AU/TPO have erred in law and on facts, in making several observations and findings which are based on incorrect interpretation of law and contrary to facts of the case. 14.3. The Hon'ble DRP and the learned AO/TPO have erred by not carrying out the determination of ALP as required under section 92C of the Act read with rule 10U of the Rules. 15. Other matters a. The learned AO has erred in law in computing interest under section 234B of the Act at ₹ 30,25,19,250/- b. The learned AO has erred, in law and on facts, in initiating penalty proceedings under section 271(1)(c) of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal. Each of the above objections is independent and without prejudice to the other grounds preferred by the appellant. Brief facts of the case are as under: 2. The assessee is a company engaged in the business of software development, technical services and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.S.Software (India) Ltd. 24.23% 5. Sasken Communications Tech Ltd. 21.01% 6. R.S.Systems International Ltd. 13.58% Average margin 11.02% 2.3. The TPO issued show cause notice by rejecting the Transfer Pricing study of assessee under software development service segment. The Ld. TPO applied certain filters and finalised following 6 comparables with an average margin of 30.29%: SL NO. Comparables Margin 1 Infosys B P 0 Ltd. 27.43% 2 Microgenetic Systems Ltd. 18.06% 3 Microland Ltd. 20.07% 4 Eclerx Services Ltd. 70.26% 5 B N R Udyog Ltd. (Seg) 24.85% 6 Crossdomain Solutions Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentation support and maintenance. Assets owned: 2.15. The assessee do not own intangible assets except for tangible assets like computers office equipments furniture fixtures etc. Risk assumed: 2.16. Except for foreign exchange risk, assessee do not undertake any other risk in performing its activities for its AE's. 2.17. Assessee has been compensated on cost plus basis for all direct and indirect cost of operation. 2.18. Based on the above be characterised to be a captive service provider that rendered services only to its associated enterprises. Ground No. 9.1 3. The assessee seeks exclusion of following 4 comparables: Infosys Ltd. Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. Thirdware solutions Ltd. 3.1. The Ld. AR submitted all these comparables have been considered by coordinate bench of this Tribunal for same assessment year in Goldman Sach Services Pvt. Ltd. Vs. JCIT reported in (2020) 115 Taxmann.com 286. The Ld. AR submitted that assessee before coordinate bench was also a captive service provider and was only catering to its AEs under software development service segment. He submitted that these comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this company. Ld. AR submitted that this company owns its own brand and have products and are engaged in trading activity. This company also has R D services and presence of huge intangibles and brands. On the contrary, Ld. CIT DR submitted that, this company should be remanded by following the view taken by coordinate bench of this Tribunal in case of CGI Information Systems and management consultants (P) Ltd. vs. DCIT reported in (2019) 101 Taxmann.com 294. We have perused submissions advanced by both sides in light of records placed before us. Ld. CIT DR placed reliance on decision of CGI Information Systems and management consultants (P) Ltd. vs. DCIT (supra), wherein this Tribunal observed and decided as under: 9. In respect of the applicability of this Tribunal order for exclusion of Larsen Toubro Infotech Ltd., this has been submitted by ld. AR of assessee in the chart submitted before us that on page No. 698 of Annual Report paper book, this company has debited an amount of ₹ 27,10,89,274/- as cost of bought-out items for resale. But this fact was not brought to the notice of the Tribunal in the case of Advice America Software Development C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overseas staff costs. At page 2022 of paper book Volume 5, it is clear that export revenue from software services amounts to ₹ 44,14,84,25,372/- out of gross income of ₹ 46,43,94,03,178/-. In view of the aforestated observations for year under consideration, the issue of comparability of this company should be examined by Ld. AO/TPO afresh. Accordingly, we set aside this comparable back to Ld. AO/TPO. 5.1.3. Persistent Systems Ltd., This comparable was included by Ld. TPO and opposed by assessee. Ld. AR submitted that this company is functionally different with that of assessee, as it is involved in providing complete product life cycle service to its clients. It has been submitted by Ld. AR that this company specializes in software products, services and technology innovations. He referred to the information furnished by this company under section 133(6), which is placed at page 3020 of paper book wherein this company is identified to be carrying out services in telecom to telecom and wireless clients, life science and health care, infrastructure and systems. On the contrary, Ld. CIT DR submitted that, this company should be remanded by following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for the reported segments. In profit and loss account at page 2431, it is observed that during the year under consideration, this company earned revenue from sale of products whereas, revenue from sale of services is shown to be at 'nil'. Ld. TPO while considering this comparable only considered footnote at page 2433, wherein bifurcations of revenue from sale of products has been given as; export of software services has been recorded to be at ₹ 20194.37, software services from local units amounting to ₹ 414.07, revenue from subscription and training amounting to ₹ 59.32 and sale of licenses amounting to ₹ 7.98. We therefore reject the contention of assessee that segmental details are not available in respect of this comparable. In our view Ld. TPO has considered the export of software service segment for purposes of comparability with that of assessee (refer computation of margin for this comparable at page 55 of order passed by Ld. TPO). Respectfully following decision of Hon'ble Delhi High Court in case of Steria India Ltd. vs. DCIT (supra) we do not find any infirmity in the view of authorities below in including this company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in paragraph 5(b) of Annexure to the auditors report has mentioned as under:- There are no transactions that are made enterprises exceeding ₹ 5 Lacs in respect of any part who is covered under section 301 of the Act during the financial year. Hence, in the absence of any specific information, there is merit in the contentions of the assessee that the above said company might not have had related party transactions during the year under consideration. Accordingly we do not agree with the reasoning given by Ld. DRP for excluding this company as a comparable. Accordingly we direct the Ld. AO/U.S. include this company. It is observed that DRP in present case objected for inclusion of this comparable because this company is operating in ITES industry. Annual report of this comparable has been placed at page 593 of paper book volume 2. It is observed functionally it is providing export of software and services. Annual report placed in paper book does not contain functions performed by this comparable in order to ascertain whether this company is rendering SWD services or not. We therefore, set aside this issue to Ld. AO/TPO for verification. Ld. AO/TPO sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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