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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI ANIL CHATURVEDI, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the assessment order dated 29-11-2013 passed u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2009-10.
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The brief facts of the case as emanating from records are : The assessee company is a subsidiary of MSC Software Corporation, USA. The assessee is providing software development services and testing services to its parent company. The assessee is also providing sales support services to its parent company which are primarily in the nature of marketing support and assistance to market MSC Group‟s products in India. The assessee is primarily a captive service provider and is remunerated on cost plus mark-up basis. During the period relevant to assessment year under appeal, the assessee entered into following international transactions with its Associated Enterprises (AEs). Sr. International transaction Amount (Rs.) Method selected No. for Benchmarking 1 Provision of software development 15,86,50,674 Transactional Net services to MSC US Margin Method („TNMM‟) 2 Provision of sales support services 71,37,437 TNMM to MSC US 3 Payment of management fees and 2,75,63,487 Cost Allocation communication expenses Arrangement 4 Reimbursement of expenses 2,56,27,582 Reimbursement of incurred by AEs on behalf of MSC expenses India 5 Recovery of expenses incurred by 1,37,76,456 Reimbursement of MSC India on behalf of AEs expenses
2.1 The assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method to benchmark its international transactions relating to software development services and sales support services. The TPO accepted TNMM applied by assessee to benchmark its international transactions. To establish ALP of Software Development Services, the assessee selected 11 companies as comparables with an arithmetic mean
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margin of 7.02% as against 6.72% Profit Level Indicator (PLI) of the assessee. The Transfer Pricing Officer (TPO) rejected some of the companies selected by assessee as comparable entities and introduced some new comparables. Further, the assessee had entered into cost allocation agreement with its AEs in respect of management fee and communication expenses. Consequently, Rs.2,75,63,487/- were allocated to the assessee towards management fees and communication expenses. The TPO rejected this method of allocation of cost and treated the Arm‟s Length Price (ALP) of Management Fee and Communication Expenses as Nil. The TPO finally made adjustment of Rs.2,75,63,487/- in respect of management fee and communication expenses.
2.2 On the basis of upward adjustment proposed by the TPO vide order dated 03-01-2013, the Assessing Officer passed draft assessment order on 06-02-2013. The assessee filed objections before the Dispute Resolution Panel (DRP) against inclusion/exclusion of comparables and determination of ALP of management support services at Nil. The DRP upheld the order of TPO rejecting the objections filed by assessee. Following the directions of DRP dated 12-11-2013 the Assessing Officer passed the impugned assessment order. Now, the assessee in appeal has assailed the findings of Assessing Officer. The assessee has raised as many as 19 grounds in the appeal.
Shri Rajendra Agiwal appearing on behalf of the assessee submitted at the outset that he would not be pressing ground Nos. 4, 5, 6 and 10. The remaining grounds to be adjudicated by the Tribunal are as under : “1. General ground challenging the transfer pricing adjustment of Rs.2,76,53,487
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Erred in making transfer pricing adjustment to the international transactions of the Appellant in connection with payment for expenses towards management fees and communication cost and not accepting the analysis undertaken by the Appellant to determine the arm's length price of aforesaid international transactions.
I. Ground of appeal in respect of transfer pricing adjustment relating to payment for management fees and communication cost 2. Adjustment on account of payment for management fees and communication cost Erred in making transfer pricing adjustment by disallowing genuine operating expenses incurred by the Appellant to the amount of INR 2,75,63,487 pertaining to payment towards management fees and communication cost and valuing aforementioned expenses as NIL by wrongly concluding that the Appellant has not proved the receipt of services and benefit derived. II. Without prejudice to the above, the Appellant wishes to raise the following grounds of appeal with respect to provision of software development services notwithstanding the fact that no adjustment has been made in respect of this segment in the final assessment order 3. Rejecting the transfer pricing documentation and not considering the comparability analysis as documented in the transfer pricing study report Erred in rejecting the transfer pricing documentation maintained by the Appellant and also not considering the data provided in the transfer pricing study report for benchmarking analysis. 4. Not pressed 5. Not pressed 6. Not pressed 7. Rejection of certain comparable companies identified by the Appellant in the transfer pricing study report Erred in rejecting certain comparable companies from the comparable set identified by the Appellant in respect of international transaction pertaining to provision of software development services. 8. Erroneous rejection of Goldstone Technologies Limited identified as comparable by the Appellant in the transfer pricing study report Erred in erroneously rejecting Goldstone Technologies Limited from the set of comparable companies identified by the Appellant in the transfer pricing study report.
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Selecting certain additional companies as comparable for FY 2008-09 Erred in selecting certain additional companies as comparable to the Appellant in respect of international transaction relating to provision of software development services. 10. Not pressed 11. Incorrect computation of Profit Level Indicator ('PLI') of certain comparable companies
Erred in computing the PLI of certain comparable companies.
Incorrect computation in respect of relief for working capital adjustment
Erred in computing the relief for working capital adjustment in relation to international transactions pertaining to software development services.
Not granting adjustment for differences on account of functional and risk profile of comparable companies vis-a-vis the Appellant
Erred in comparing full-fledged risk bearing entities with the Appellant's captive operations without making any risk adjustment for differences between the functional and risk profile of comparable companies vis-a-vis the risk profile of the Appellant.
Applicability of +/-5% range
Erred in applying the amended proviso to section 92C(2) of the Act and accordingly, making the transfer pricing adjustment from the arm's length price without giving the benefit of the option available to the Appellant under erstwhile proviso to section 92C(2) of the Act of adopting as arm's length price, a price which varies by not more than 5 per cent from the arm's length price.
III. Grounds of appeal in respect of international transaction relating to provision of sales support services
Re-computation of voluntary transfer pricing adjustment in respect of sales support services of the Appellant (Without prejudice)
Erred in not re-computing the operating margin of the Appellant and the comparables for provision of sales support services and erred in not reducing the voluntary adjustment made in relation to international transaction pertaining to sales support services.
IV. Other grounds of appeal
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Levy of interest under section 234A of the Act on account of late furnishing of return of income
Erred in levying interest under section 234A of the Act without appreciating the fact that the Appellant had filed the return of income on 30 October 2009 (when the due date of filing the return of income in certain districts of Maharashtra was extended to 31 October 2009). 17. Levy of interest obligation under section 234B of the Act on account of additions made to the total income Erred in levying interest under section 234B of the Act to the extent addition is made to the total income of the Appellant on account of transfer pricing adjustments related matters without considering the fact that shortfall in advance tax resulted due to the additions to total income, which are unanticipated in nature. 18. Initiation of penalty proceedings under sec 271(1)(c) of the Act on account of additions made to the total income and voluntary adjustment made by the Appellant Erred in initiating penalty proceedings under section 271(1)(c) without considering the fact that transfer pricing adjustments has been made on account of difference of opinion, interpretation of provisions of law, etc and not due to concealment of or furnishing of inaccurate particulars of income. Further, the learned Assessing Officer also erred in initiating the penalty proceedings against the Appellant in respect of voluntary adjustment made to the total income.
Initiation of penalty proceedings under section 271BA of the Act
Erred in initiating the penalty proceedings against the Appellant under section 271BA of the Act without appreciating the fact that there was a reasonable cause which resulted in delay in filing of Form 3CEB.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law.”
3.1 In respect of ground Nos. 1 and 2 relating to management fees and communication cost adjustment, the ld. AR submitted that management fees and communication expenses are reimbursed to the parent company on the basis of mutual agreement entered into between the assessee and
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its AEs. In proceedings before the TPO the assessee had furnished the details of benefits derived by the assessee from such services, copies of invoice and debit notes to demonstrate the receipt of services from the AEs. However, the TPO in his order has stated that the assessee has failed to prove the receipt of services and benefit derived from such services with supporting evidence. The ld. AR further submitted that the assessee works on cost plus arrangement. Accordingly, the cost of management fees, communication/internet expenses etc. have been recovered by assessee with an agreed mark up. The ld. AR further submitted that similar adjustment was made in the assessment year 2008-09. The assessee carried the matter to the Tribunal in ITA No. 46/PUN/2013. The Tribunal remitted the issue back to the file of Assessing Officer/TPO for de novo adjudication.
3.2 In respect of ground Nos. 7 and 8 relating to rejection of Goldstone Technologies Limited as comparable the ld. AR submitted that the TPO excluded the said company from the list of comparables on the ground that it is a loss making company. The DRP upheld the findings of TPO in mechanical manner without properly appreciating the facts of the case. The ld. AR pointed that the operating margin of Goldstone Technologies Limited before working capital adjustment is 4.23% and after granting working capital adjustment the same is -10.88%. The TPO accepted the said company as comparable in assessment year 2008-09. The Tribunal in catena of judgment has held that loss making company should be rejected from the list of comparables only if it is having persistent losses. However, there is nothing on record to show that Goldstone Technologies Limited has suffered loss in three consecutive financial years including the financial year corresponding to the financial year relevant to the
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assessment year under appeal. The ld. AR further submitted that there is no dispute with respect to similarity of functions of both the companies. The Goldstone Technologies Limited also qualifies all the filters applied by the TPO for selection of a comparable during the assessment year 2009-10. The ld. AR prayed for inclusion of said company in the final list of comparables.
3.3 In respect of ground No. 9 relating to exclusion of certain companies introduced by the TPO in the final list of comparables. The ld. AR submitted that the TPO included : i. Thirdware Solution Ltd. ii. Kals Information Technology System Ltd. iii. Bodhtree Consulting Ltd. in the final list of comparables. Thirdware Solution Ltd. is functionally different. The said company is providing comprehensive Application Implementation and Application Management Support Services. It offers services in implementation of high end ERP implementation to various business verticals viz. automotive, industrial electronics, life science, banking and financial services, etc. To support his contentions the ld. AR draws support from the decision of Tribunal in the case of Approva Systems Pvt. Ltd. Vs. CIT(A)-IT/TP, Pune in ITA No. 1788/PN/2013 for assessment year 2009-10 decided on 13-01-2015.
In respect of Kals Information Technology System Ltd. the ld. AR submitted that the said company has been rejected as comparable by the Tribunal in assessee‟s own case for assessment year 2008-09 on account of functional disparity. The ld. AR further pointed that the Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. PTC
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Software (I) Pvt. Ltd. in Income Tax Appeal No. 732 of 2014 decided on 26- 09-2016 has held that Kals Information Systems Ltd. is functionally different from the company engaged in IT services. The ld. AR pointed that Kals Information Systems Ltd. is engaged in development of software and software products. A perusal of financial statement of Kals Information Systems Ltd. at page 414 of the paper book would show that there is a inventory of products developed by the company. The Website of Kals Information Systems Ltd. clearly mentions that the company is developing following products : Shine; Docuflo; Dac4Cast; CMSS; Aldon; Virtual Insure; and La Vision
The ld. AR further pointed that the said company is super profit making company. The operating margin of company is 41.91%. Therefore, Kals Information Systems Ltd. is not a good comparable entity and has to be rejected.
In respect of Bodhtree Consulting Ltd. the ld. AR submitted that the said company has been rejected as comparable by the Tribunal in assessee‟s own case in assessment year 2008-09 on account of functional differences. The said company is engaged in providing open and end-to- end web solutions. An examination of the annual report of the company would show that there is only one segment i.e. software development. A visit to the Website of the company reveal that the company is into product
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engineering, provision of analytics and cloud computing services. Thus, Bodhtree Consulting Ltd. is engaged in software development products as well as providing ITES. The financial statement of company does not give breakup of revenue of these two segments. The ld. AR further pointed that the company has abnormal growth of 67% over previous year on account of launch of new product „MIDAS‟. Thus, on account of abnormal event the said company is liable to excluded from the list of comparables.
3.4 In respect of ground No. 11 the ld. AR submitted that the TPO has wrongly computed PLI of certain comparable companies. The ld. AR pointed that the TPO has wrongly computed PLI of CG-VAK Software & Exports Ltd. (Segmental), Goldstone Technologies Limited and Kals Information Technology System Ltd. The ld. AR prayed for directions to TPO/Assessing Officer for recomputation of PLI. The ld. AR further pointed that the assessee had filed application u/s. 154 for rectification of mistake in computation of PLI. However, the said application has not been disposed off by the Assessing Officer till date.
3.5 In respect of ground No. 12 the ld. AR pointed that the TPO/Assessing Officer has wrongly computed working capital adjustment in respect of international transactions. The assessee has filed application u/s. 154 of the Act for rectification of mistake. However, the said application of the assessee has not been disposed of by the TPO till date.
3.6 In ground No. 13 of the appeal the assessee has impugned non- granting of risk adjustment on the premise that the assessee is a captive service provider. The ld. AR submitted that the risk adjustment was allowed to the assessee by the Tribunal on similar facts in assessment year
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2008-09 vide order dated 22-03-2017. The directions may be given to the authorities below to grant adjustment on similar lines.
3.7 In respect of ground No. 14 relating to allowing of ±5% benefit the ld. AR prayed for the same may be allowed, in accordance with law.
3.8 In respect of ground No. 15 relating to provision of sales support service the ld. AR submitted that the assessee selected 16 companies as comparables to benchmark international transaction. The PLI of the comparable companies was determined at 10.93% as against PLI of the assessee at (-) 66.86%. The assessee offered voluntary adjustment of Rs.1,67,51,820/- in the computation of income. The assessee while computing arithmetic mean of comparables at 10.93% used multiple year data. During assessment the TPO adopted single year data to benchmark the software development services segment. The TPO should have followed same approach to benchmark the transactions pertaining to sales support service segment. With the single year working capital adjusted margin of comparables, the TP adjustment would work out to Rs.1,47,49,025/-. Thus, the voluntary TP adjustment would be reduced by Rs.20,02,795/-. The TPO should have suo moto granted relief to the assessee by correctly working TP adjustment. To support his submissions the ld. AR placed reliance on CBDT Circular dated 11-04-1955.
The ld. AR further contended that the assessee had raised objection before the DRP. The DRP has failed to adjudicate this issue. A perusal of directions of DRP would show that this issue has not been dealt with while disposing of the objections filed by the assessee.
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3.9 In respect of ground No. 16 relating to charging of interest u/s. 234A of the Act is concerned the ld. AR pointed that the assessee filed return of income on 30-10-2009. The due date for filing return was extended by CBDT to 31-10-2009 in certain districts of Maharashtra. The authorities below have failed to take note of the extension granted by the CBDT in filing the return of income.
On the other hand Shri Sandeep Garg representing the Department vehemently supported the findings of DRP/Assessing Officer. The ld. DR strongly objected to the assessee‟s submissions against exclusion of Thirdware Solution Ltd., Kals Information Technology System Ltd. and Bodhtree Consulting Ltd. The ld. DR submitted that all the three companies are functionally same and are engaged in similar activities, as are carried out by the assessee. The ld. DR asserted that it would be very difficult to find pure software development company. Therefore, these companies have been rightly included by the TPO in final list of comparables. The finding of the Tribunal in respect of Thirdware Solution Ltd. in Approva Systems Pvt. Ltd. Vs. Commissioner of Income Tax (Appeals)-IT/TP, Pune (supra) is on surmises. The Tribunal has not properly appreciated the working of said company. The ld. DR thus, prayed for dismissing the appeal of assessee and confirming the assessment order.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered various documents and decisions on which reliance has been placed by the ld. AR during the course of his submissions.
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In respect of ground Nos. 1 and 2 of the appeal the assessee has assailed transfer pricing adjustment on account of management fees and communication cost. The ld. AR pointed that documentary evidence in the form of debit notes, invoice, mutual agreement between the assessee and AEs, etc. were furnished to the TPO. The TPO rejected the contentions of the assessee on the ground that the assessee has failed to prove services and the benefits derived from such services with supporting evidence. We find that in assessment year 2008-09 similar ground relating to payments for meeting expenditure, travel cost, stock cost, etc. were disallowed by the TPO. The Tribunal in appeal filed by assessee in ITA No. 46/PUN/2013 decided on 22-03-2017 remitted the issue back to the file of Assessing Officer/TPO to decide the issue afresh. One of the contentions of the assessee is that these costs have been recovered as arrangement for remuneration is cost plus mark-up. We find that the TPO as well as DRP has failed to take note of this fact. Thus, we are of considered view that this issue needs revisit to the file of TPO/Assessing Officer for reconsideration. The TPO/Assessing Officer shall grant reasonable opportunity of hearing to the assessee before deciding this issue afresh, in accordance with law. Accordingly, ground Nos. 1 and 2 raised in the appeal by the assessee are allowed for statistical purpose.
The ground No. 3 raised in the appeal is general in nature, hence, requires no adjudication.
The ld. AR of the assessee has stated at the Bar that he is not pressing ground Nos. 4, 5, 6 and 10 of the appeal. Accordingly, the above grounds are dismissed as not pressed.
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In ground Nos. 7 and 8 of the appeal the assessee has assailed rejection of Goldstone Technologies Limited being a loss making entity. The ld. AR has drawn out attention to the computation of operating margin of the company at page 342 of the paper book. A perusal of the same shows that the operating margin of the company before working capital adjustment is 4.23%. The ld. AR has further pointed that the TPO has wrongly computed working capital adjustment of the said company. The assessee has filed application u/s. 154 for rectification of mistake and the said application has not been decided by the TPO/Assessing Officer till date.
It is a well settled proposition that only persistent loss making companies have to be excluded from the list of comparables. Nowhere it has been urged by the Revenue that the aforesaid company is functionally dissimilar or does not qualify the filters adopted by the TPO for selection of the comparables. We further observe that Goldstone Technologies Limited was selected as one of the comparables by the assessee in immediately preceding assessment years i.e. assessment year 2008-09. The TPO has not raised any objection to the inclusion of such company in the assessment year 2008-09. Thus, in view of the facts discussed above, we are of considered view that the Goldstone Technologies Limited deserves to be included in the list of comparables. Accordingly, the ground No. 8 raised in the appeal by assessee is allowed.
In ground No. 9 of the appeal the assessee has assailed inclusion of (a) Thirdware Solution Ltd., (b) Kals Information Technology System Ltd. and (c) Bodhtree Consulting Ltd. The assessee has assailed inclusion of above said companies on account of functional disparity.
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Thirdware Solution Ltd. - The ld. AR of the assessee pointed that Thirdware Solution Ltd. company is engaged in implementation of high end ERP solutions to various companies. The Co-ordinate Bench of the Tribunal in the case of Approva Systems Pvt. Ltd. (supra) has directed exclusion of Thirdware Solution Ltd. on account of abnormally high margins and being functionally different. The ld. AR pointed that Approva Systems Pvt. Ltd. (supra) and the assessee company are engaged in similar activities, therefore, the findings given by the Tribunal in Approva Systems Pvt. Ltd. (supra) would apply to the case of assessee company as well. We find merit in the submissions of the ld. AR of the assessee. The Co- ordinate Bench of the Tribunal in the case of Approva Systems Pvt. Ltd. (supra) rejected Thirdware Solution Ltd. for the following reasons : “29.1 We find from the details furnished by the assessee that the assessee is a software developer whereas Thirdware Solutions Ltd. is engaged in the business of sale-cum-licence of software which is available from the audited accounts, the details of which are as under : Schedule : Sales As on As on 31-03-2009 31-03-2008
Sale of Licence 22,237,588 3,916,427 Software Services 89,177,023 76,724,371 Export from SEZ unit 478,572,420 263,971,033 Export from STPI unit 162,900,630 168,863,049 Revenue from Subscription 16,433,714 9,293,874 770,321,376 522,768,754
Apart from the above the company is also having dividend income, interest income and profit on sale of investment as well as premium of software contract totalling to Rs.2,30,48,603/- which is as per Schedule-13 “other sources”. From the various decisions relied on by the Ld. Counsel for the assessee we find Thirdware Solutions Ltd. has been rejected on the ground that it is functionally dissimilar. The Hyderabad Bench of the Tribunal in the case of Intoto Software India Pvt. Ltd. Vs. ACIT and Viceversa in consolidated order dated 24-05-2013 for A.Y. 2005-06 and 2007-08 at para 26 of the order has observed as under : “26. As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no softrware products that the company invoiced during the relevant
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financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might have incurred expenditure towards the development of the software products.” 29.2 In various other decisions also Thirdware Solutions Ltd. has been rejected as a comparable on the ground that it is functionally dissimilar. We therefore find force in the submission of the Ld. Counsel for the assessee that Thirdware Solutions Ltd. should not be included as a comparable. We accordingly set-aside the order of the CIT(A) and direct the Assessing Officer to exclude the same from the list of comparables.”
No material has been brought to our notice by ld. DR to show that the activities of the assessee and Approva Systems Pvt. Ltd. (supra) are at variance. Thus, following the order of Co-ordinate Bench we direct the TPO to exclude Thirdware Solution Ltd. from the final list of comparables.
Kals Information Technology System Ltd. and Bodhtree Consulting Ltd. - We find that Kals Information Technology System Ltd. and Bodhtree Consulting Ltd. were included in the list of comparables by the TPO in assessment year 2008-09 as well. The Tribunal directed to exclude these companies from the final list of comparables as they are functionally different. The relevant extract of the order of Tribunal dated 22-03-2017 dealing with this issue in assessee‟s own case for assessment year 2008-09 reads as under : “12. On perusal of record, we find that the concern Bodhtree Consulting Ltd. was considered by the TPO to be functionally comparable despite the submissions of assessee that it was functionally different, wherein the said concern was also engaged in software products. Since no segmental details were available and the concern Bodhtree Consulting Ltd. being software product development company as well as providing services, can the same be held to be functionally comparable with the assessee which is providing software development services to its associate enterprises. While benchmarking any international transactions undertaken by the assessee, endeavour should be made to compare the results shown by the assessee with such concerns which are functionally comparable. Where the margins of concerns picked up are from different segments of operation i.e. software development product as well as ITES services and in the absence of any segmental details available, then such concern cannot be treated as comparable. Another aspect is the year of operation being an exception year, wherein Bodhtree Consulting Ltd. had undertaken major business re- structuring i.e. hiring of e-paper business to another concern. We find that
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the Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra) had held that the said concern to be not comparable to the assessee therein, which was engaged in the business of software development services. Following the same we hold that Bodhtree Consulting Ltd. is to be excluded from the final set of comparables. xxxxxxxxxx xxxxxxxxxx 21. We find that the concern KALS Information Systems Ltd. is functionally not comparable to the assessee as it is engaged in software services as well as software products and has reported inventory and work in progress in annual report. Reference is made to pages 719 and 720 of the Paper Book. Even the website of KALS Information Systems Ltd. states that the company has developed two products i.e. Virtual Insure and La-Vision. Since the revenue breakup is not available, then the margins of said concern cannot be applied to benchmark the international transactions undertaken by the assessee of provision of software development services to its associate enterprises. Similar proposition has been laid down by the Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra). Further the Hon’ble Bombay High Court in the case of CIT Vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No.732 of 2014 judgement dated 26-09-2016 has held that Kals Information Systems Ltd. was engaged in Software products not comparable to concern providing software services. Applying the same, we hold that the said concern is to be excluded from the final list of comparables.”
Thus, following the order of Co-ordinate Bench in assessee‟s own case for assessment year 2008-09 we direct the TPO to exclude both the above said companies from the final list of comparables. Accordingly, ground No. 9 raised in the appeal by the assessee is allowed.
In respect of ground No. 11 the ld. AR of the assessee has submitted that there is error in computation of PLI of certain comparable companies viz. CG-VAK Software & Exports Ltd. (Segmental), Goldstone Technologies Limited and Kals Information Technology System Ltd. The ld. AR has further pointed that an application u/s. 154 of the Act has already been filed before the Assessing Officer for rectification of mistake however, the same has not been disposed of till date. In view of the fact that the assessee has already filed an application u/s. 154 for rectifying the
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errors/mistake in computation of PLI, we direct the TPO/Assessing Officer to dispose of the application filed by the assessee expeditiously. Accordingly, the ground No. 11 raised in the appeal is allowed for statistical purpose.
In respect of ground No. 12 of the appeal the ld. AR of the assessee has pointed that there are errors in computation of working capital adjustment in relation to international transactions. The assessee has purportedly filed application u/s. 154 for rectification of the mistake in computation of working capital adjustment. The Assessing Officer is directed to expeditiously dispose of the application of the assessee filed u/s. 154 of the Act. Accordingly, the ground No. 12 raised in the appeal is allowed for statistical purpose.
In ground No. 13 the assessee has assailed non-granting of functional and risk adjustment. We find that in assessment year 2008-09 the Tribunal in ITA No. 46/PUN/2013 decided on 22-03-2017 in assessee‟s own case has allowed risk adjustment. The relevant extract of the observations of the Co-ordinate Bench on this issue are as under : “32. The ground of appeal No.9 raised by the assessee is against nonallowance of risk adjustment. 33. The assessee is captive service provider to its Associated Enterprises and claims to be risk free and hence desires risk adjustment in the margins of its finally selected comparables. We have already decided similar issue in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT in ITA No.2584/PUN/2012 order dated 10-02-2017 wherein it was held as under : “32. Under the TP provisions, where in the facts of the present case, the assessee is risk mitigating entity, wherein all the risks are taken care of by the associate enterprises, then adjustment on account of difference in the risk profile of comparable companies merits to be allowed while benchmarking the international transaction of assessee. The Bangalore Bench of Tribunal in the case of Philips Software Centre Pvt. Ltd. Vs. ACIT reported in 26 SOT 226 has upheld
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that the adjustment of risk to be computed as difference between the PLR and the risk free rate of turn. The assessee prepared a summary computation considering the aforesaid rule, which reads as under:- 33. Further, the Delhi Bench of Tribunal in the case of Sony India Pv t. Ltd. reported in 114 ITD 448 has allowed 20% risk adjustment considering the fact that it may not be possible to quantify risk adjustments. The assessee applying the said ratio in the case of Sony India Pvt. Ltd. (supra) has worked out the risk adjustment on the operating margins of comparables to be allowed when computed @ 20%.” 34. Following the said ratio, we direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee.”
Following the parity, we direct the Assessing Officer to grant risk adjustment to the assessee to iron out difference on this account with the comparables. Accordingly, ground No. 13 raised in the appeal is allowed.
In ground No. 14 the assessee has prayed for allowing benefit of ±5%. The Assessing Officer is directed to grant the benefit of ±5%, in accordance with law.
In ground No. 15 of the appeal the assessee has assailed re- computation of voluntary transfer pricing adjustment in respect of sales support services. The ld. AR pointed that the TPO and the Assessing Officer have not recomputed the operating margin of assessee and the comparables for the provision of sales support services and have erred in not reducing the voluntary adjustment made in relation to international transactions pertaining to sales support services. The ld. AR submitted that the assessee had taken objection before the DRP. To support his submissions the ld. AR referred to page 578 of the paper book where the assessee has raised objection against computation of voluntary transfer
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pricing adjustment qua sales support services. We find that the DRP is silent on the objections raised by the assessee qua provision of sales support services. Therefore, we deem it appropriate to remit this issue back to the file of DRP for deciding the objections raised by the assessee in respect of sales support services. Accordingly, the ground No. 15 raised in appeal is allowed for statistical purpose.
In ground No. 16 of the appeal, the assessee has assailed charging of interest u/s. 234A of the Act for late furnishing of return of income. The ld. AR of the assessee has pointed that the last date for filing return of income was extended to 31-10-2009 and the assessee filed return of income on 30-10-2009. Thus, there was no delay in filing of return of income. This fact requires verification. Accordingly, we remit this issue back to the file of Assessing Officer for ascertaining the last date for filing return of income. If the assessee has filed return of income within the extended period, the interest u/s. 234A is not to be charged. Accordingly, ground No. 16 is remitted back to Assessing Officer for limited purpose of verification and is thus allowed for statistical purpose.
In ground No. 17 the assessee has assailed charging of interest u/s. 234B of the Act. The charging of interest u/s. 234B is mandatory and consequential. Accordingly, ground No. 17 is dismissed.
In ground No. 18 the assessee has assailed initiation of penalty proceedings u/s. 271(1)(c) of the Act and in ground No. 19 the assessee has assailed initiation of penalty proceedings u/s. 271BA of the Act. Challenge to penalty proceedings u/s. 271(1)(c)/271BA in the assessment
21 ITA No. 379/PUN/2014, A.Y. 2009-10
proceedings is pre-mature. Accordingly, ground Nos. 18 and 19 are dismissed as pre-mature.
In the result, the appeal of assessee is partly allowed in the terms aforesaid.
Order pronounced on Thursday, the 31st day of May, 2018.
Sd/- Sd/- (अननऱ चतुवेदी / Anil Chaturvedi) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 31st May, 2018 RK आदेश की प्रनतलऱवऩ अग्रेवर्त / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The Dispute Resolution Panel, Pune 4. The DIT (IT/TP), Pune ववभागीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, 5. ऩुणे / DR, ITAT, “B” Bench, Pune. गार्ड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रनत // True Copy// आदेशानुसार / BY ORDER,
ननजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune