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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, ACCOUNTAT MEMBER & SHRI PAVAN KUMAR GADALE&
M/s Symantec Software Vs. DCIT, Circle – 14(3)(2) Solutions Pvt Ltd Mumbai. Unit No. 1801, 18th Floor The Capital, Plot No. 70, G Block, BKC, Mumbai – 400051. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCV2624B Appellant .. Respondent Appellant by : Shri.Nikhil Tiwari.AR Respondent by : Shri.Rignesh Das.DR Date of Hearing 17.10.2022 Date of Pronouncement 29.11.2022 आदेश / O R D E R
PER PAVAN KUMAR GADALE, JM:
1. The Hon’ble Tribunal has passed MA No. 73 & 74/Mum/2021 in the common order of 1906/Mum/2017 dated 15.09.2017. The Ld. AR submitted that the Hon’ble Tribunal in the MA has considered the assessee’s
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 2 - submissions and directed the registry to post the case before the regular bench to adjudicate the other grounds of appeal observed at Page 3 Para 5 of the MA order as under:
Considered the rival submissions and material placed on record, we observe from the record that assessee has pressed Ground No. 3 and 4 expecting that once it gets the relief in Ground No. 3 and 4 the arithmetic mean of comparable companies will be within the range of 5% and there won’t be any necessity for arm’s length price adjustment in this case. Since the bench decided Ground No. 4 partially in favour of the assessee and that has necessitated the arm’s length price adjustment which is not in favour of the assessee. Now assessee seeks to make representation on the other grounds of appeal which was preferred not to press earlier. Considering the facts on record and for the sake of justice, in our considered view we deem it fit and proper to recall this appeal for the limited purpose of adjudication on the other grounds of appeal which assessee has not pressed. Therefore, we direct the Registry to post the case in due course before the regular bench to adjudicate on the other grounds of appeal which assessee has not pressed.
2. The other M.A.No. 74/Mum/2021 filed by the assessee are also on the similar prayer. Therefore, both
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 3 - the Miscellaneous Applications filed by the assessee are allowed.
At the time of hearing the Ld. AR submitted that as per the A.Y 2011-12 is concerned, the assessee is pressing only the exclusion of one comparable i.e Wipro Technologies Ltd which was included in the software development service segment by the revenue and grant of working capital adjustment.
On the first issue of exclusion of one comparable, the Ld.AR submitted that the assessee company is engaged in providing marketing support services, general and administrative services reported as technical services and software development services to its oversees entities. The assessee has filed the return of income on 29.11.2011 disclosing a total income of Rs. 9,95,45,172/- and also the assessee has filed the revised return of income on 28.03.2013 disclosing a total income of Rs. 9,95,45,172/-.Subsequently the AO has made reference to the TPO and the TPO found that the assessee has adopted TNMM method and the assessee has bench mark the international transaction
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 4 - pertaining to software development services and the PLI is OP/OC which is worked out to 5.81% and the assessee has selected ten comparables where the operating margin is 12% from software development service and weighted arithmetic mean margin of 10.98%. The AO has applied the filters and has rejected the comparables and has finally selected fresh comparables including Wipro Technologies Ltd and worked out the arithmetic mean of 22.72%. Further the DRP has not considered the assessee’s objections and it was included. Now the contention of the Ld. AR that the Wipro T Ltd has a turnover of Rs.31,0000 crores and whereas the assessee’s turnover is Just Rs. 11 crores. The Ld. AR emphasized on the facts and mentioned that it is functionally cannot be compared as turnover is on very higher side. The Ld. AR also referred to the submissions at page 928 to 1139 where the segmental information is not available and only consolidated information is part of the income. The Ld. AR also explained that out of the 10 comparables selected by the assessee, the AO has rejected six comparables and made addition of three comparables and considered seven comparables and the arithmetic
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 5 - mean where the PLI was worked out to 22.72%. Whereas the DRP has rejected the objections and accepted the Comparable M/s Wipro T Ltd, where the arithmetic mean margin was 29.4%. We also found that the Wipro T Ltd is not a functionally comparable and the TPO has applied the filters and which has segment of ITS and ITES. Whereas, the Ld.DR has relied on the observations of the DRP at Para 8 of the DRP order. We considering the financial statements, the functionality test and applying the turnover criteria where the turnover of Wipro is in thousands of crores and the assessee is Rs.11 crores. Therefore we consider that this cannot be a comparable included under software development segment and accordingly direct the TPO to exclude the comparable and recomputed the ALP.
On the second disputed issue, the Ld. AR has submitted that the working capital adjustment has to be granted. Whereas the Ld. AR mentioned that the assessee has made submissions before the TPO on 20.11.2014 for working capital adjustments. The TPO has observed that the assessee has not considered this 1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 6 - adjustment in its transfer pricing report and the adjustments are in highly complex, intricate and the relevant economic analysis and the theory and acceptability of the methods used for such analysis. The assessee has not established the requirement of working capital adjustment specifically in the case of comparable company. The working capital adjustment explain the need while the assessee working out PLI by excluding the interest cost from operating cost and as well as comparable. Therefore the TPO is of the opinion that the assessee has not put forth the reasons for comparing the working capital adjustment. Whereas the contentions of the Ld. AR are that the working capital adjustment has to be given and referred to page 264 and 267 of the agreement at page 533 of the paper book,in the earlier year working capital adjustment was restored to the file of the AO and relied on the submissions and material papers. We found that the working capital adjustment need to be verified and examined and accordingly we fallow the precedence and restore this issue to the file of the Assseing officer to compute the adjustments.
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 7 - ITA No. 1906/Mum/2017 A.Y 2012-13.
At the time of hearing, the Ld. AR made submissions on the ground of appeal No. 2, the TPO has wrongly added in the two comparables (i) Indium Software India Ltd and (ii)Persistence Systems Ltd in arriving the margin and ALP. The assessee in the software development services has adopted 14 comparables and the PLI of the comparable worked out to 12.31% and weighted average arithmetic mean of 5.91%. Whereas the TPO has analyzed the comparable lists and finally has worked out the considering 7 comparables including the present comparable and worked out the arithmetic mean of 21.04% dealt at Para 9 of the order. Whereas the DRP has dealt on the facts at page 9 in respect of comparable and multiple transactions.
Further the DRP having considered this facts and objections in respect of Indium Software Ltd has observed and considered the assessee’s remarks and TPO arguments and find that the assessee company is 1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 8 - failing in RPT filter and rejected the assessee’s objections and upheld the action of the TPO in including the comparable. The Ld. AR referred to the facts and also page 1032 and page 1059 of paper book, where RPT is more than 25% and in particular at page 1061 and 1081 of the paper book. Therefore we found that the Ld. AR submissions in the course of hearing supported by the filters and find that the RPT filter is more than 25% and the sale of the transaction and related partly transactions and percentage of sales for F.Y 2010-11 and 2011-12 has worked out to 67.38% and 55.42% respectively. Since, the said comparable did not satisfy the related party transactions filter for FY 2010-11 and FY 2009-10 applied by the Appellant and the fact that financial data for FY 2011-12 was not available at the time of transfer pricing documentation for FY 2011-12, it was rejected as non-comparable to the software development services segment of the Appellant. Financials of Indium are incomplete, since they do not have details with regard to transactions undertaken with its related parties during FY 2011-12 and thus, all the comparability parameters could not be verified; The learned TPO has been inconsistent in 1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 9 - his approach by selecting Indium as comparable company in spite of the fact Indium is engaged in rendering in software testing services alike Maveric and Thinksoft. The TPO has been inconsistent in his approach by selecting Indium as comparable company in spite of the fact Indium has fluctuating operating margin alike Akshay Software and Thinksoft. Accordingly we direct the TPO to exclude the comparable applied on the basis RPT filter is more than 25% and allow this ground of appeal of the assessee.
7. The second comparable with respect to M/s persistence system Ltd. The Ld. AR emphasized at Para 11.3 page 57 of the TPO order, where the TPO has dealt with the facts. The Ld. AR also referred to the page 990 and 991 of the paper book with respect to revenue recognition and note 21. This is a product marketing company and the transaction of sale of system reflected at page 869 and for earlier year AY 2011-12 the Hon’ble Tribunal has considered these facts and dealt on the issue. Further the Ld. AR emphasized that there is a extraordinary item referred
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 10 - to page 991 of the paper book that there is an amalgamation of persistent systems and there is a extraordinary general meeting event. We considering the facts and there is an extraordinary general meeting and the amalgamation which cannot be disputed and find that the comparable company is engaged in the outsourced software development ('OPD') which is non- comparable to software development segment of the Asssessee.
8.Persistent system Ltd derives derives revenue from licensing of software products, product engineering and royalty and break-up of the same in revenue from software services is not available in its annual report for FY 2011-12; Persistent Systems has been rejected as non-comparable to software development services(SDS) in various judicial precedents as stated in the submission and FY 2011-12 was an exceptions year of operation for Persistent Systems Ltd, since Persistent Systems has acquired software marketing business of Open wave Systems Inc. Further the Persistent Systems fails to satisfy the turnover filter applied by the Appellant in the transfer pricing report.
1906/Mum/2017 M/s. Symantec Software Solutions Pvt Ltd., Mumbai. - 11 - Accordingly, we consider it appropriate to direct the TPO to exclude the comparable as there is an extraordinary event happened in the year as discussed above in computing the ALP and allow this ground of appeal
In the result, the appeals filed by the assessee are partly allowed.