Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI ‘I-2’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SUCHITRA KAMBLE
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the DRP -II, New Delhi dated 05.11.2014 framed u/s 144C(5) of the Income- tax Act, 1961 [hereinafter referred to as 'the Act' for short] pertaining to A.Y 2010-11.
2 2. The short grievance of the Revenue is that the DRP erred in directing to reduce/delete the addition/disallowance of Rs. 1,80,44,570/- on account of arm’s length price of international transaction related to provision of I.T. services.
At the very outset, the ld. AR pointed out that the grievance raised by the Revenue is neither here nor there as it is not coming out from the ground why the Revenue is aggrieved because the amount mentioned in the ground of appeal is not coming out anywhere from the order of the DRP.
Per contra, the ld. DR sought time for revising the ground of appeal.
We have given thoughtful consideration to the points raised by the ld. AR. We have carefully perused the order of the DRP. We find force in the contention of the ld. AR. The grievance of the Revenue is neither here nor there. However, in our considered opinion, if the Revenue is allowed to file a new ground of appeal after three years of filing of appeal, it would tantamount to increasing the period of limitation for filing the appeal. In our considered opinion, grounds are 3 allowed to be revised only when there is a typographical mistake. Grounds cannot be revised to change the entire subject matter of the appeal.
Be that as it may, the facts on record show that the assessee is in the business of providing sub-contracted software development and I.T. enabled services to its group companies. The assessee is organised into two segments viz., IT and ITES. The international transactions entered into by the assessee are as under:
Nature of international transaction Method Amount (In INR) selected Provision of Software Development TNMM 33,51,58,548 Services Provision of IT Enabled Services TNMM 40,02,92,121 Availing of services TNMM 3,04,87,786 Purchase of fixed assets TNMM 10,95,335 Payment of cost recharges CUP 63,26,746 Receipts of cost reimbursements TNMM 1,28,73,606
The TPO examined the provisions of I.T enabled services by comparables used by the assessee vis a vis the comparables used by the TPO himself and finally concluded by using the following comparables for this segment:
S. No. Company Name Adjusted OP/OC (%) 1 Accentia Technologies Ltd. 40.20 2 Cosmic Global Ltd. 20.29 3 e4e Healthcare 31.55 4 Fortune Infotech Ltd. 21.38 5 l-gate Global Ltd 24.09 6 Infosys B P O Ltd. 30.17 7 Jindal Intellicom Ltd. 14.95 8 Omega Healthcare 13.11 9 T C S E-Serve International 55.43 Ltd. 10 T C S E-Serve Ltd. 65.27 Average 31.81
Accordingly, the arm’s length of the international transaction related to provision of I.T. enables services was computed as under:
Operating Cost(A) 32,03,40,125 Arm’s Length Margin (%) 31.81% Margin (B) 10,19,00,194 Arm’s Length Price(A+B)=C 42,22,40,319 Price Charged by the assessee(D) 40,02,92,121
Proposed Adjustment 2,19,48,198
The TPO further examined the provision of software development services and after considering the comparables used by the assessee vis a vis the comparables used by the TPO himself, the following set of comparable were used by the TPO :
5 S. No. Adjusted Company Name OP/OC (%) OP/OC (%) 1 Akshay Software Technologies Ltd. -1.04 -0.42 2 Cat Technologies Ltd. 11.48 4.49 3 E-lnfochips Bangalore Ltd. 72.69 65.99 4 Evoke Technologies Pvt. Ltd. 19.02 19.67 5 E-Zest Solutions Ltd. 18.66 16.36 6 84.65 84.65 Infinite Data Systems Pvt. Ltd. 7 Infosys Ltd. 45.08 46.41 8 Kuliza Tech. 18.85 17.66 9 Larsen & Toubro Infotech Ltd. 20.48 20.97 10 LGS Global Ltd. 12.79 8.36 11 Maveric Systems Ltd. 16.17 15.68 15.46 12 Mindtree Ltd. 16.62 13 Persistent Systems Ltd. 30.50 28.80 Sasken Communication Technology Ltd. 14 17.54 18.87 15 Tata Elxsi Ltd. 19.82 17.98 16 Thinksoft Global Services Ltd. 17.35 14.55 17 Thirdware Solution Ltd 41.63 38.98 18 Wipro Technology Services Ltd. 70.60 70.60 29.96 28.06 Average
Accordingly, the arm’s length price of the international transaction related to provision of I.T. services was computed as under:
Total cost Rs. 29,02,24,261/- AR,’s length price at a margin of 28.06% Rs. 37,16,60,657/- Price received Rs. 33,51,58,550/- Proposed adjustment u/s 92CA Rs. 3,65,02,107/-
6 11. And finally the cumulative adjustments were determined as under:
Nature of ALP determined Difference ALP determined international by the assessee (INR) by TPO (INR) transaction (INR) Provision of IT 40,02,92,121 42,22,40,319 2,19,48,198 Enabled services 33,51,58,550 37,16,60,657 3,65,02,107 Provision of software development services Total adjustment u/s 92CA 5,84,50,305
Aggrieved by this, the assessee carried the matter before the DRP and strongly supported the comparables used by it. It was brought to the notice of the DRP that the working of the margins computed by the TPO was erroneous and furnished the table containing working of the margins of the comparables as under:
S. Company name Adjusted OP/OC 1 Accentia Technologies Limited 40.20 No. (%) 2 Cosmic Global Limited 20.29 3 e4e Healthcare 31.55 4 Fortune Infotech Limited 21.38 5 l-gate Global Limited 24.09 6 Infosys BPO Limited 30.17 7 Jindal Intellicom Limited 14.95 8 Omega Healthcare 13.11 9 T C S E-Serve International Limited 55.43 10. T C S E-Serve Limited 65.27 Average 31.64
7 13. After considering the facts and detailed submissions, the DRP observed as under:
“TPO has not given the details of the computation of the margins of these comparable used in the TP order. There are minor variations in the calculation. As per the TPO, the margin is arrived at 31.81%. Therefore, TPO is directed check the margins of the comparables given by the assessee and accept the correct margin for the determination of ALP.”
In the I.T. enables services segment, the DRP directed for exclusion of E-Infochips Bangalore Ltd and Infinite Data System Pvt. Ltd from the final set of comparables.
In our understanding of the facts, the grievance of the Revenue should have been related to the exclusion of these two comparables only.
In so far as E-Infochips Bangalore Ltd is concerned, this company is primarily engaged in software development and ITES. This company is a partner of choice of Fortune 500 companies for product innovation and hi-tech engineering consulting and has provided solutions to key
8 verticals like Aerospace & Defense, Consumer Electronics, energy and Utilities, healthcare, home, office and industrial automation, media and broadcast, medical devices, retail and e-commerce, security and surveillance, semiconductor, software/LSV and storage and computer covering every aspect of the product life- cycle. This company is also into Board designs. From a careful perusal of the profit of this company, we find that this company is equipped to carry out high-end technology driven services and product development which is not the Profile of the assessee. This company has been rightly excluded from the final set of comparables by the DRP. Hence no interference is called for.
Coming to Infinite Data Systems Private Limited, this company is wholly owned subsidiary of Infinite Computer Solutions [India] Limited and provides solutions that encompass technical consulting, design and development of software, maintenance systems integration, implementation, testing and infrastructure management services. This company’s revenue is primarily derived from technical support and infrastructure management services. We find that the DRP has considered the information available in public domain of this company as it does not have any website. The DRP observed that this company
9 has amalgamated with M/s Infinite Infosoft Services Private Limited and with Infinite Computer Solutions [India] Limited. The DRP further observed that it is not known which of the activities appearing on the website are in respect of the comparable M/s Infinite Date Systems Pvt Ltd. and which others pertain to other amalgamating companies. Further, this company is rendering technical consulting, design & development of software, maintenance, systems integration, implementation, testing and infrastructure management services. However, the assessee is rendering services like E-business & web, application services, mobile & PDA, business intelligence and reporting, systems integration, I.T. infrastructure, product related customer relationship management & telephony services. It can be safely concluded that the business profile of the Infinite Data Systems Private Limited does not match with that of the assessee. Therefore, the DRP has rightly excluded this company from the final set of comparables. No interference is called for.
Considering the facts of the case in totality, we do not find any reason to interfere with the findings of the DRP. Ground raised by the Revenue is dismissed.
In the result, the appeal filed by the Revenue in is dismissed.
Order pronounced in the open court on 20th August, 2018.