TMI Blog2021 (6) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... d is functionally comparable however not dealt with the argument of the assessee with respect to its transactions with Citigroup. In view of this, we find that there is controlled transaction in this company and therefore it cannot be included. We direct the learned AO/TPO to exclude the same. E Info chips Bangalore Ltd - AO tried to draw the support for deriving the conclusion that this company passes the employee cost filter by showing the profit and loss of financial year 2010 11 however, the learned assessing officer has not given the profit and loss account schedules for the year ended on 31st of March 2010 of this comparable. The learned departmental representative could not show us any reason that why this schedules of the profit and loss account are not provided to the assessee. Even the learned DRP as we have already held is silent on this aspect. When the complete information about the comparable is not available in a reasonable manner, it cannot be considered for the comparability analysis of an international transaction of the assessee by including it. For this reason only, we direct the learned transfer-pricing officer to exclude this comparable. Accordingly al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer ( TPO ) for computation of the arm s length price, as is required under section 92CA(1) of the Income Tax Act, 1961 ( Act ). 6. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ( DRP ) erred in making an addition of Rs. 59,675,189/- to the returned income of the Appellant by re-computing the arm s length price of the international transactions under section 92 of the Act. 7. That on the facts and circumstances of the case the Ld. TPO/AO/DRP erred in recomputing of the margins of Appellant i.e. tested party by considering retention bonus as an operating expense 8. That on the facts and circumstances of the case the Ld. TPO/AO/DRP erred in facts and in law to modify, based on his subjective grounds and presumptions, the comparability analysis conducted by the Assessee for determining the arm s length price. 9. That on the facts and circumstances of the case the Ld. TPO/AO/DRP erred in accepting comparable company suo-moto without providing the Appellant an opportunity of being heard. The said action is in complete violation of the fundamental principles of natural justice. 10. That on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has entered into an international transaction of provision of software development services of Rs. 883715413/- . The assessee benchmarked above transaction adopting Transactional Net Marginal Method [TNMM] as the most appropriate method adopting the profit level indicator of operating profit / operating cost selecting 11 comparables whose margin was 11.75% whereas the margin of the assessee was computed at 15.14% and thus it was submitted that the international transaction entered into by the assessee is at arms‟ length. 5. The Ld. Transfer Pricing Officer modified the comparable sets except 5 comparables of the assessee and further populated with the final comparables of 15 companies, after allowing the working capital adjustment, computed the margins of the comparables at 24.26% and thus an adjustment of Rs. 7,08,12,972/- was made. 6. Ld AO has also made some disallowances in the draft assessment order. Expenses of staff recruitment and training of Rs.19,52,123/- and Rs.19,73,244/- respectively and retention bonus of Rs.1,31,54,017/- claimed by the assessee were disturbed, the Assessing Officer held that these are the expenditure of capital nature and allowed only 1/5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and, therefore, it is not comparable. He submitted that this comparable was tested in assessee‟s own case for assessment year 2009-10 and it was directed to be excluded. With respect to exclusion of Wipro Technology Services Ltd., he submitted that this comparable is engaged in activity of providing programme management and third-party information securities adjustment services. It is also engaged in software quality management, quality assurance and business profits management services as well as technology infrastructure support. He further stated that this company provides service primarily to Citi Group Incorporation, which is related party of Wipro Ltd. and, therefore, it also fails on related party filter. He further relied on decision of DCIT Vs. Open Solution Software Service Pvt. Ltd. in ITA. 201 of 2018 of the Hon‟ble Delhi High Court and also the order of the co-ordinate bench in ITA. 7083 (Del) of 2014 for assessment year 2010-11 in the case of Pyramid IT Consultancy Pvt. Ltd. Vs. ACIT. With respect to E-Infochips Bangalore Ltd., he submitted that as per the size extract this company provides a varied range of services, which include software, form-wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly joined and on job training to existing employees, which have otherwise been not disputed by the AO/DRP, recruitment of employees for efficient profit earning through a recruitment agency is recurring process and such expenditure cannot be avoided /deferred. At the same time, in the globalised set up, sudden upgradation of knowledge and skill of the IT engineers / technicians for providing IT Software Development Services particularly to foreign AE is also necessary for earning profit by a company. Moreover, when undisputedly there is no memorandum of understanding between the assessee company and its employees that the employee will work for specific period, as the attribution rate in software industry is highest, recruitment of employees and imparting of training to them cannot be considered as of enduring benefit. So, by following the law laid down by the Hon ble Calcutta High Court Hindustan Aluminium Corporation Ltd. vs. CIT (supra) and Hon ble jurisdictional High Court in CIT vs. Munjal Showa Ltd. we hereby decide ground no. 1 in favour of the assessee. Thus, the issue is squarely covered by the order of the Tribunal as there is no change in this Assessment Year as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in WIPRO LIMITED C/O WIPRO ENERGY IT SERVICES INDIA PRIVATE LIMITED (FORMERLY KNOWN AS, SAIC INDIA PRIVATE LIMITED) VERSUS DCIT CENTRAL CIRCLE-7 (1) , NEW DELHI ITA No. 1594/DEL/2014 dated April 11, 2018 and has excluded the same. There is no change in facts and FAR of assessee or comparable shown to us, therefore we following order of coordinate bench where in it has been held that :- 6. As regards to Additional Ground No. 1, the Ld. AR submitted that the comparable Mindtree Ltd. is not contested by the Ld. AR during the time of hearing. The Ld. AR submitted that the assessee is only contesting the exclusion of Thirdware Solutions Ltd. which is set out in Additional Ground No. 1. The Ld. AR further submitted that the same should have been taken into account by the TPO as well as DRP. The said company is not a proper comparable as it is the functionally different company. To support his contention, the Ld. AR submitted that the company i.e. Thirdware Solutions Ltd. is engaged in diverse activities and assets. From the annual report of the said company it can be seen that the sales and operating income show sale of license, software services, export of SEZ unit, export from S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another comparable argued by the assessee for exclusion is Wipro technology services Ltd. This comparable is included by the learned transfer-pricing officer at the time of analyzing the additional companies requested by the assessee to be included. The learned transfer-pricing officer included this comparable on his own without giving any show cause notice to the assessee. This is apparent from paragraph number 29 of the order of the learned TPO. For its inclusion, the learned transfer-pricing officer has given reasons in paragraph number 30. The learned TPO considered the argument for exclusion of the above company given by some other assessee‟s and not by the assessee before us. Therefore, it is apparent that above comparable is included by the learned transfer-pricing officer without giving any opportunity to the assessee. Before the learned dispute resolution panel assessee objected to the same stating that, it has a relationship of associated enterprise with the Citigroup. This is apparent from the note given by the learned transferpricing officer himself that on 16th of March 2009 this company i.e. Citigroup (CTS). Was acquired by Wipro. In view of this, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the expenses incurred for software development, administrative expenses and other income of this comparable. This fact was also pointed out before the learned transfer-pricing officer, as it is clear on reading of para number 19.1 of the order of the learned TPO. The assessee submitted before him that there is an incomplete data as schedule number 7 10 relating to the profit and loss account are missing in the audited financials of the company and thus the employee cost details et cetera are not available for the company to clear the employee cost filter. The learned assessing officer tried to draw the support for deriving the conclusion that this company passes the employee cost filter by showing the profit and loss of financial year 2010 11 however, the learned assessing officer has not given the profit and loss account schedules for the year ended on 31st of March 2010 of this comparable. The learned departmental representative could not show us any reason that why this schedules of the profit and loss account are not provided to the assessee. Even the learned DRP as we have already held is silent on this aspect. When the complete information about the comparable is not av ..... X X X X Extracts X X X X X X X X Extracts X X X X
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