TMI Blog2022 (3) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tribunal, we direct the Ld.AO/TPO to grant the WCA on actuals Depreciation on Software cannot be disallowed due to non-deduction of TDS - HELD THAT:- We note that the Ld.CIT(A) given direction to the Ld.AO to verify the TDS payments and allow the payments, which has not been implemented, till date. We direct the Ld.AO to follow the directions of the CIT(A) in light of the principles laid down by decisions referred to herein above and to consider the claim of assessee in accordance with law. - ITA No. 3088/Bang/2018, ITA No. 3089/Bang/2018 - - - Dated:- 25-3-2022 - SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Assessee : Shri K.R. Vasudevan, Advocate For the Revenue : Shri Priyadarshi Mishra, Addl. CIT (DR) ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals filed by assessee against orders passed by Ld.CIT(A)-7, Bangalore dated 17.09.2018 for A.Y. 2011-12 and 18.09.2018 for A.Y. 2012-13 on following grounds of appeal. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. Grounds of appeal:- ITA No. 3088/Bang/2018 (A.Y. 2011-12) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment towards the risk difference between the Appellant vis- -vis the comparable companies. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. ITA No. 3089/Bang/2018 (A.Y. 2012-13): I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer (`learned AO'), learned Transfer Pricing Officer(`leamed TPO') and the Honourable Commissioner of Income Tax (Appeals) [ Hon'ble CIT(A) ] grossly erred in adjusting the transfer price by INR 2,37,82,190/- with respect to the international transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 ( the Act ). 2. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting the Transfer Pricing ( TP ) documentation maintained by the Appellant by invoking provisions of subsection (3) of section 92C of the Act. 3. The learned AO/ lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion before Your Honours: 11. The Ld. AO/ Ld. IPO/ Hon'ble CIT (A) have grossly erred in not rejecting the following companies from the final list of comparable companies: Acropetal Technologies Limited E-Infochips Limited ICRA Techno Analytics Limited Persistent Systems and Solutions Limited The above ground No. 11 is in continuation to Ground No. 7 raised in Form 36 and without prejudice to the other grounds of appeal preferred by the Appellant. A.Y. 2012-13: Based on the facts and circumstances of the case, Verifone India Technology Private Limited ( the Appellant ), respectfully submits the following additional grounds of appeal for admission before Your Honours: 6A. The Ld TPO/ Ld AO/ Hon'ble CIT(A) erred in not rejecting the following companies from the set of comparable companies proposed in the TP order: Infosys Ltd. Larsen Toubro Infotech Ltd. Mindtree Ltd. Persistent Systems Ltd. R S Software India Ltd. Sasken Communication Technologies Ltd. The said ground is in continuation to Ground No. 6 of the Form 36 wherein a general ground on application of upper turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Mindtree Ltd. 10.66% 9 Persistent Systems Solutions Ltd. 22.12% 10 Persistent Systems Ltd. 22.84% 11 R S Software India Ltd. 16.37% 12 Sasken Communication Technologies Ltd. 24.13% 13 Tata Elxsi Ltd. 20.91% AVERAGE 24.82% 3. The Ld.TPO restricted the working capital adjustment at 1.63%, however while computing the ALP, Ld.TPO took the Working Capital adjustment as (-) 1.48%. The Ld.TPO proposed an adjustment at Rs.2,73,72,480/-. On receipt of the order under section 92CA of the Act, the Ld.AO passed the draft assessment order confirming the addition as per the order under section 92 CA of the Act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 4. The assessee sought for exclusion of comparable companies on grounds of upper turnover filter. The Ld.CIT(A) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal functional requirement marked by Verifone Singapore. Assets: Human resources: Verifone India has the technological capabilities, physical assets and trained manpower to undertake the offshore software development work. Assets Employed: Assets might be clearly recognizable i.e. tangible (Plant Machinery, Equipment, Building, etc.) or they might be intangible assets (Intellectual Property, Brand Name, Trademarks, Technical Know, etc.). Verifone India employs routine tangible assets such as Plant Machinery, Furniture Fixtures, etc., for the purpose of its business. Verifone India does not own any intellectual property developed or obtained during the development of software to Verifone Singapore, since the entire technology rights for the software developed are owned by Verifone Singapore. Risk: Verifone India being just a Software development service center does not bear any of the risks undertaken by a full fledged developer. It is also noted that assessee undertakes limited manpower risk and Foreign currency risk. Based on the above, assessee has been characterized to be a capital service provider rendering software services t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Quark Systems P. Ltd, (supra) has held that if a company is otherwise not found to be comparable with the assessee then simply it is included in the list of comparables in the TP study would not be considered as estoppel for raising an objection by the assessee for exclusion of such company for the purpose of determination of ALP. We therefore accept the plea of the Assessee, for admission of exclusion of the aforesaid three companies. 8. As far as the plea for exclusion of Persistents Systems Solutions Ltd., Persisten Systems Ltd., and Sasken Communication Technologies Ltd., is concerned,this Tribunal in the case of a software development service provider such as the Assessee for the very same AY 2011- 12 in the case of Autodesk India Ltd. Vs. ACIT in IT(TP) A.No.156 220/Bang/2016 by order dated 21.12.2018 held that these three companies are not comparable companies. It is pertinent to mention that the very same thirteen companies chosen in the case of the Assessee in this appeal and in the case of Autodesk India Ltd. (supra) were identical. The tribunal held on the comparability of the aforesaid three companies as follows: 26. In ground No. 3(k), the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is seeking exclusion of Acropetal Technologies Ltd., E-Infochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems Solutions Ltd. At the outset the Ld.AR submitted that coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra) in IT(TP)A No.52 97/Bang/2016 for the same assessment year A.Y 2011-12, by order dated 05/08/2020 excluded Acropetal Technologies Ltd., E-Infochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems Solutions Ltd. from the final set of comparable. On the contrary, the Ld.Sr.DR though opposed the submission by the Ld.AR, could not controvert the categorical observations by coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra). We have perused the submissions advanced by both sides in light of records placed before us. 11. We note that the coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra), for the same assessment year A.Y 2011-12, excluded Persistent Systems Solutions Ltd., and Sasken Communications Technologies Ltd. by observing as under: 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing (I) Pvt. Ltd. (supra). In para 8 of the order, this Tribunal held that Persistent Systems Solutions Ltd. was a company engaged in SWD services and products with no segmental details and excluded it. Similarly, Persistent Systems Ltd. was also excluded on the ground that it was engaged in diverse activities with no segmental break-up. As far as Sasken Communication Technologies Ltd. is concerned, this Tribunal in the case of Symantech Software Services (I) Pvt. Ltd. (supra) has excluded this company on the ground of functional IT(TP)A Nos.52 97/Bang/2016 dissimilarity viz., dealing with multimedia products and R D activities with no break-up of segmental information. 17. Following the aforesaid decisions, we direct exclusion of the aforesaid 3 comparable companies. The TPO is directed to compute the ALP of the international transaction in accordance with the directions given above in this order, after affording Assessee opportunity of being heard. There is nothing placed on record by the revenue to take a different view. Respectfully following the above view, we direct the Ld.AO/TPO to exclude excluded Acropetal Technologies Ltd., EInfochips Ltd., ICRA Techno An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S Software India Ltd. 15.34% 9 Sasken Communication Technologies Ltd. 12.15% 10 Spry Resources India Pvt. Ltd. 26.18% AVERAGE 22.63% 15. The Ld.TPO restricted the working capital adjustment at 0.36%, however while computing the ALP. The Ld.TPO proposed an adjustment at Rs.2,37,82,190/-. On receipt of the order under section 92CA of the Act, the Ld.AO passed the draft assessment order confirming the addition as per the order under section 92 CA of the Act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) did not allow any relief to the assessee on the grounds raised. Aggrieved by the order of the Ld.CIT(A), the assessee preferred appeal before this Tribunal. 16. It has been submitted by the Ld.AR that assessee seeks to address Ground 6 read with Additional Ground 6A and Ground 9 for the year under consideration. Based on the above submissions, we dismiss the remaining ground as not pressed. However liberty is granted to asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able by various orders of the Tribunal in the following case of NXP Semiconductor (P.) Ltd. (supra), the Tribunal observed as under:- 13.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision cited. We find that a co-ordinate bench of this Tribunal in the assessee's own case (supra) for Assessment Year 2008-09 has held that this company being engaged in product development and product design and analysis service is functionally different from a pure software service provider and therefore excluded it from the list of comparables for software development services; holding as under at para 17.3 of its order: 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Ltd., has incurred expenditure on cost of brought out items for resale at Rs.27,10,89,274 for which he drew our attention to the financial statement of Larsen Toubro Infotech Limited which is absent in the case of present assessee. He also submitted that it has huge intangible assets and brand value in software at Rs.143,61,95,196 and it has intangible asset in the form of business rights to the tune of Rs.153,42,45,196 as shown in the Fixed Assets as on 31.03.2013 of the annual reports. Being so, in our opinion, it cannot be compared with the assessee's case. The Ld.AR also relied on following decision in support, wherein case of a contract service provider like assessee this comparable was excluded: Applied Materials India Pvt. Ltd. v. DCIT by order dated 13.05.2020 in IT(TP) A No. 2687/Bang/2017 EMC Software and Services India Pvt. Ltd. v. JCIT (Order dated 18.12.2019 passed in IT(TP)A No. 3375/Bang/2018 for AY 2014-15), EPAM Systems India (P.) Ltd. v. ACIT [2018] 100 taxmann.com 335. Accordingly, we direct the Ld.TPO to exclude the same from the final list of comparables. 20. Mindtree Ltd. This company was objected to by the Appellant for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman.com 263. On the contrary, the Ld.CIT.DR relied on orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 21. We note that coordinate bench of this Tribunal for assessment year 2013-14 in case of Evolving Systems Network (I) Pvt.Ltd Vs.ACIT reported in (2021) 130 taxman.com212 held as under: 9. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of AutodeskIndia (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263 (Bang. - Trib). The Tribunal in this decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores upto 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores, the Tribunal held as follows: 17.7. We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chrysca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lis Processing Services (supra) and Capegemini IndiaPvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding coordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determin ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
