SONY INDIA SOFTWARE CENTRE PVT LTD,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6(1)(2), BANGALORE

The Ld. AO/ Transfer Pricing Officer ("TPO") erred in making an addition of INR 27,40,06.857 and INR 10,75,131 to the total income of the Appellant as adjustment in relation to the arm's length price of the software development services transaction entered into by the Appellant with its associated enterprises ("AEs") and outstanding receivables respectively; 3. The Ld. AO/ TPO have erred, by not accepting the economic analysis undertaken by Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules"), and by conducting a fresh economic analysis for the determination of ALP for the international transaction of software development services and holding that the said transaction is not at arm's length; 4. The Ld. AO/ TPO have erred, by rejecting the use of multiple year data by the assessee in determining the arm's length nature of the international transaction of software development services and by determining the arm's length margin/price using only FY 2012-13 data, including such data as was not available to the Appellant at the time of complying with the transfer pricing documentation requirements.

Without prejudice to the transfer pricing documentation maintained by the Appellant, the Ld. AO/ TPO have failed to appreciate that Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. are not functionally comparable to the Appellant, and therefore erred in considering the aforementioned companies as comparables.

Without prejudice to the transfer pricing documentation maintained by the Appellant, CG-VAK Software and Exports Limited, R S Software (India) Pvt. Ltd, and Mindtree Limited are liable to be rejected as not being functionally comparable to the Appellant, and hence should be duly excluded as comparables though the specific ground was not raised before the Ld. AO/ TPO in this regard.

The Ld. AO / TPO erred in rejecting Akshay Software Technologies Limited. Cat Technologies Limited. Cigniti Technologies Limited. Sasken Communication Technologies Limited and Lucid Software Limited as comparables by applying unreasonable comparability criteria.

The Ld. AO/ TPO erred in rejecting Helios & Matheson Information Technology Limited and R Systems International Limited (Segmental) as comparables by using 'Companies having different financial year ending (i.e. not March 31, 2013)/ financial data which does not fall within 12 month period i.e. 01-04-2012 to 31-03-2013' as a comparability criterion to reject comparables; IT(TP)A No. 1745/Bang/2017 Page 3 of 6 9. The Ld. AO/ TPO erred in rejecting Zyloq Systems Limited as comparable by using 'employee cost less than 25% of turnover' as a comparability criterion to reject comparables; 10. The Ld. AO/ TPO erred in rejecting Helios & Matheson Information Technology Limited and Evoke Technologies Limited as comparables by using 'Companies having export service income less than 75% of the sales' as a comparability criterion to reject comparables; 11. The Ld AO/ TPO have erred by accepting Larsen & Toubro Infotech Ltd and rejecting Akshay Software Technologies Limited as comparables by using information received on exercising powers under section 133(6) to accept/reject companies as comparables.

Without prejudice to grounds 5. 6 and 11 above, the Ld. AO/ TPO have erred by wrongly computing the operating margins of CG-VAK Software and Exports Limited. Larsen and Toubro Infotech Limited and Persistent Systems Limited: 13. The Ld. AO/ TPO have erred by disallowing the Working capital adjustment, lawfully made by the Appellant.

The Ld. AO/ TPO erred in testing the outstanding receivables from AEs as a separate international transaction without appreciating that the same is a closely linked transaction to the primary international transactions of software development services and support services and that the working capital adjustment takes into account the impact of the credit period extended.

The Ld AO/ TPO have erred in making an adjustment in relation to outstanding receivables by using the Comparable Uncontrolled Price ("CUP") method without performing any comparability analysis.

The Ld AO/ TPO have erred by not making suitable adjustments to account for the differences in the risk profile of the Assessee vis-a-vis that of the comparables.

The Ld. AO erred in levying interest under section 234B of the Act.

The Ld. AO erred, in initiating penalty proceedings u/s 271(1)(c) of the Act.

In the result, the assessee’s appeal for Assessment Year 2013-14 is dismissed as withdrawn.