. Digest Of 2000 Important Judgments On Transfer Pricing, International Tax And Domestic Tax (Jan To Dec 2017) – Articles

Digest Of 2000 Important Judgments On Transfer Pricing, International Tax And Domestic Tax (Jan To Dec 2017)

Sunil-Lala

Advocate Sunil Moti Lala, assisted by CA Tushar Hathiramani, has prepared a compilation of 2000 important judgments on transfer pricing (1,200 cases), International Tax (109 cases) and Domestic Tax (691 cases) reported in the period from January to December 2017. The author has meticulously and systematically classified the judgments into various categories to enable ease of reference. The appeal numbers in most cases have been provided so as to enable the judgements to be retrieved from the website of the respective Court or Tribunal. A PDF copy of the digest is available for download. The digest will prove invaluable to all practitioners of taxation law.

The Digest comprises of all the important judgements dealing with transfer pricing, international taxes and domestic taxation laws. A brief head note is given for each case. The Digests for the earlier periods are available here

I. Transfer Pricing

a. International transactions/ Specified Domestic Transaction / Associated Enterprise

International transactions / Specified Domestic Transaction

1. The Tribunal, relied on the decision of the co-ordinate bench in the case of the assessee for the earlier year and held that AMP expenditure could not be held to be an international transaction on the basis of probable incidental benefit to the AE absent an agreement for sharing AMP expenditure. It held that the Revenue had to show that there existed an agreement or arrangement or understanding between the assessee and its AE whereby the assessee was obliged to spend excessively on AMP in order to promote the brand of the AE in absence of which the impugned transaction could not be considered as an international transaction under section 92B of the Act.

Thomas Cook (India) Ltd v DCIT – TS-63-ITAT-2017 (Mum) – TP – ITA No.383/Mum/2016

2. The Tribunal, relying on the provisions of section 92B which provides that even an arrangement, understanding or an action in concert having a bearing on the profit income, losses or assets of the enterprises would qualify as international transaction, held that the sharing of cost between Nike India (assessee) and its AE in respect of contract with BCCI for promotion and brand building of Nike was an international transaction noting that the assessee had incurred the expenditure for the promotion of brand Nike since the agreement between brands in the territory enhanced the brand value of NIKE which belonged to the AE of the assessee. In respect of other local AMP expenses the tribunal held that such expenditure cannot be regarded as an independent international transaction as there was no agreement or arrangement in writing or otherwise with the AE.

Nike India Pvt Ltd – TS-1034-ITAT-2016 (Bang)- TP – I.T.{T.P) A. No.232/Bang/2014

3. The Court considering assessee’s reliance on Maruti Suzuki HC ruling and other judgments which were not available before TPO, remitted to the file of the TPO the issue relating to existence of international transaction of AMP expenses for fresh consideration

Bacardi India Pvt Ltd-TS-1052-ITAT-2016 (Del)-TP- I.T.A. No. 1197/Del/2016

4. The Court relying on the decision in Sony Ericsson Mobile Communications India Pvt. Ltd [TS-543-HC-2016(DEL)-TP] (wherein it was held that unilateral incurring of AMP expenses does not constitute an international transaction and benefit to AE is incidental only) remitted the AMP issue for comprehensive decision by Tribunal on whether AMP expenditure with regard to the assessee’s outbound travel business constituted an international transaction for AY 2009-10 and AY 2010-11 on ground that the Tribunal should have first decided whether in the circumstances of the case, the nature of the AMP reported could lead to the conclusion that there was an international transaction. The Court noting that the LG Electronics [TS-11-ITAT-2013(Del)-TP] Ruling approving the Bright Line Test had been overruled by the Delhi HC in the case of Sony Ericsson Mobile Communications India Pvt Ltd, it further held that every endeavour should not be made to conclude that all transactions reporting AMPs were to be treated as international transactions, the facts of each case would have to be examined for some deliberations. Accordingly, it directed the tribunal to decide whether the reporting of the AMP in regard to the outbound business constituted and international transaction.

LE Passage to India Tour & Travels (p) Ltd & ANR – (2017) 98 CCH 009 (Del) – ITA 368/2016, 369/2016

5. The Tribunal upheld the applicability of provisions of Chapter X on the international transactions entered into by assessee (engaged in production & telecasting of Common Wealth Games 2010) viz. services received from its AE, reimbursement of expenses paid to its AE, availing of equipment on hire and inter-company receivable from its AE. It rejected the assessee’s plea that Chapter X provisions were inapplicable to these transactions as no deduction for expenses were claimed as expenses as it followed the cash system of accounting and therefore there was no impact of these transactions on its profit, losses, income or expenses. It concluded that the assessee’s transactions with its AEs relating to availing of services, reimbursement of services, availing equipment on hire and Inter-company receivables fell within the categories of “provision of services”, “lease of tangible assets” and “borrowing / lending of money” u/s 92B(1) and that the condition of ‘bearing on profit, income and loss’ of the assessee only applies to the last category of transactions i.e. “Other transactions”. It observed that if the contention of the assessee was to be accepted, then under the cash accounting system, income on interest free advances to AEs would never get recognised any point. It distinguished the following cases relied upon by the assessee viz. Bombay High Court decision in Vodafone India Services Private Limited [TS-308-HC-2014(BOM)-TP]  as well as coordinate bench decisions in Bharti Airtel  [TS-76-ITAT-2014(DEL)-TP] and Topsgrup Electronic Systems  [TS-61-ITAT-2016(Mum)-TP], noting that those cases dealt with transactions falling in "other transaction category" to which condition of impact on profit, Income, loss or assets was relevant.

SIS Live vs. ACIT – TS-149-ITAT-2017(DEL)-TP ITA No.1313/Del/2015 dated 13.02.2017

6. The Tribunal, relying on the decision in assessee’s own case (wherein considering Bombay HC ruling in Vodafone, it was held that transaction of purchase of shares of AE cannot be regarded as international transaction and cannot be subject matter of investigation u/s 92), held that the when the transaction of purchase of shares was held to be outside the purview of the provisions of Sec.92 of the Act, the excess price paid for acquiring shares could not be treated as a deemed loan and an international transaction. Accordingly, it held that the transaction in question was on capital account and determination of ALP in respect of such transactions was outside the purview of Chapter X of the Act and deleted the TP-adjustment in respect of purchase of shares by assessee from its AEs.

TCG Lifesciences Pvt. Ltd (Formerly “TCG Lifesciences Ltd") vs. DCIT- [TS-921-ITAT-2017(Kol)-TP]- I.T.A No. 121/Kol/2016 & 647/Kol/2017 dated 17.11.2017

7. The Tribunal deleted the TP-adjustment for assessee engaged in R&D activities for Honda products in India) for AY 2006-07 and 2007-08. It noted that the TPO had found that assessee was customizing Honda Technology used in 4 & 2 wheelers to suit the requirement of Indian Customer, but benefit of such customized technology earned by the Parent Company from Indian subsidiaries was not shared with the assessee, and thus proposed adjustment. The Tribunal observed that Delhi HC in assessee’s own case for AY 2005-06 had restored the matter back to ITAT after categorically mentioning that assessee was not into Core R&D activity. It held that since the Hon’ble High Court for Assessment Year 2005-06 had clearly concluded that the assessee had not carried out any research and development activity, the same could not be taken into account for rendering services as per international transactions. Thus, the Tribunal concluded that the assessee company had not carried out any international transaction. Regarding working capital adjustment notes that HC decision was not available before the TPO and DRP and thus restored the matter to AO/TPO to verify the same

Honda R & D (India) Pvt. Ltd vs. DCIT-TS-1006-ITAT-2017(DEL)-TP – I.T.A .No. 4800/DEL/2010 dated 03.11.2017

8. The Tribunal quashed the reference made by the AO to the TPO under Section 92CA as well as the consequential order passed by the TPO / DRP noting that the transaction in question was that of payment of directors remuneration (transaction under Section 40A(2)(b) which fell under the specified domestic provisions) and held that since transactions under Section 40A(2)(b) of the Act were omitted from the SDT provisions by Finance Act, 2017, the transaction, though pertaining to AY 2013-14 would also no longer fall under the definition of Specified domestic transactions. It held that once the clause was omitted by a subsequent amendment, it would be deemed that the clause was never on the statute. Accordingly, it remitted the assessee’s claim of expenditure back to the file of the AO for verification under the normal provisions of the Act.

Texport Overseas Pvt ltd v DCI – TS-1032-ITAT-2017 (Bang) – TP – IT(TP)A No.1722/Bang/2017

Associated Enterprise

9. The Tribunal held that in the case of public sector companies, even if all or majority of the shareholdings are by the union or state governments, these companies for that reason alone cannot be said to be associated enterprises for the purpose of section 92A. Circular No. 9/76 dated 19-5-1976 issued by the Ministry of Corporate Affiars clarified that for the purpose of section 370 of Companies Act 2013, Companies will not be deemed to be under the same management as the President or the Governor does not hold shares and exercises or controls voting rights as an individual in Govt. Companies. The scope of section 370 (1B), in the Companies Act in force at that point of time, was with respect to the expression ‘individual’ as against ‘person’ in the present case, but then the same position, for the detailed reasons set out above, holds good in the present context, i.e. in the context of ‘person’, as well. If all public sector undertakings were to be treated as Associated Enterprise, the inter se transactions between all the public sector undertakings would be subject to arm’s length price determination-something which was seemingly quite incongruous and contrary to the scheme of the transfer pricing legislation. Therefore, PSUs cannot be said to be associated enterprises.

Hazira LNG Private Limited – TS-1027-ITAT-2016 (Ahd) – TP – I.T.A .No. 6856/DEL/2015

10. The Tribunal, relying on the decision in the case of Keihin Panalfa –(381 ITR 407) [wherein it was held that for the purpose of transfer pricing adjustment, the transaction of the assessee with Associated Enterprise outside the country alone had to be taken into consideration and the domestic transaction unless it was a Specified Domestic Transaction, could not be a basis for making any adjustment], reversed DRP’s order making entity level adjustment. It held that TP-adjustment has to be made only in respect of transactions with AE after comparing the transaction made by similarly placed company in uncontrolled transaction with non-AEs.

Yongsan Automotive India Pvt. Ltd. vs. ACIT-TS-1046-ITAT-2017(CHNY)-TP /ITA No.357/Mds/2017 dated 16.11.2017

11. The Court relying on the decisions in Orchid Pharma and Page Industries, held that assessee (an Indian partnership firm) and the Belgian entity (shares of which were held by partners’ brother and relatives) were not associated enterprises (AEs), as the conditions of section 92A(2) are not fulfilled. The Court, applying the provisions of section 92A(2), held that mere fact of participation of one enterprise in management or control or capital of other enterprise would not make them AEs. While a certain degree of control may actually be exercised by these enterprises over each other, due to relationships of the persons owning these enterprises, that itself was not sufficient to hold the relationship between the two enterprises as ‘associated enterprises’.

Veer Gems TS-7-ITAT-2017 (Ahd)-TP – ITA No.1514/Ahd/2012

12. The Tribunal upheld CIT(A)’s order considering 3 companies namely Multitrade Overseas INC, Harris Freeman & Co. LP and Southern Tea LLC as associate enterprise of the assessee, since all the three companies were being controlled and managed by the same shareholders and persons and therefore the condition provided under section 92A(2)b, 92A(2)(j) & 92A(2)(h) were satisfied.

General Commodities Ltd -[TS-1061-ITAT-2016(Bang)-TP – I.T.{T.P} A. Nos.1824 & 1825/Bang/2013

13. The Tribunal upheld the order of the TPO and held that the assessee, engaged in manufacture and selling of generic injectable drugs) had an AE relationship with 2 entities viz. Apotex Corp and Apotex Inc US under section 92A(2)(i) since 20 percent of the assessee’s sales were to these 2 entities. It agreed with the ruling of the co-ordinate bench in Orchard Pharma viz. that the term ‘influence’ used in Section 92A(2)(i) means dominant influence leading to de facto control and held that a person who purchased more than 1/5th of the total sales of the assessee would have a distinctly dominant influence on the pricing and could exercise de facto control and therefore was to be considered as an AE.

Hospira Healthcare India Pvt Ltd – TS-147-ITAT-2017 (CHNY) – TP dated 28.02.2017 – I.T.A. No. 821/Mds/2016

14. The Tribunal relying on the decision in assessee’s own case for earlier year [TS-1034-ITAT-2016 (Bang)-TP] held that the sharing of cost between (assessee) Nike India and its AE in respect of contract with BCCI for promotion and brand building of Nike was an international transaction. Noting that the assessee incurred the expenditure for the promotion of brand Nike and the agreement between assessee and AE acknowledged that BCCI Agreement would provide suitable benefit for Nike brands in the territory, it held that the payment of 50% of the cost paid to the BCCI borne by the AE of the assessee was under conscious understanding and agreement between the parties to promote and enhance the brand value of NIKE which belonged to the AE of the assessee, which was within the ambit of the definition of international transaction u/s 92B which provides that even an arrangement, understanding or an action in concert having a bearing on the profit income, losses or assets of the enterprises would qualify as international transaction. Accordingly, it remitted the issue to the file of AO/TPO for the limited purpose of determination of ALP.

Nike India Private Limited vs DCIT-TS-647-ITAT-2017(Bang)-TP-ITA no. 1338/bang/2011 and 1181/bang/2012 dated 04.08.2017

15. The Court upheld the order of the Tribunal and held that for determining whether two parties are Associated enterprises, the conditions laid down in both Section 92A(1) and 92A(2) were to be fulfilled. It held that Section 92A(1) broadly states that two enterprises would be AEs if they have common management, capital or control, but 92A(2) provides practical illustrations to determine whether Section 92A(1) is satisfied. Accordingly, it held that the assessee and a concern from which is purchased rough diamonds viz. Blue Gems were not AEs despite the fact that the two entities were being controlled by the same family or four brothers and their close relatives as none of the conditions provided in Section 92A(2) were satisfied.

Pr.CIT vs. Veer Gems – TS-545-HC-2017(GUJ)-TP – TAX APPEAL NO. 338 of 2017 dated 20.06.2017

Pr. CIT vs. Veer Gems – TS-557-HC-2017(GUJ)-TP – TAX APPEAL NO. 339 of 2017 dated 20.06.2017

16. The Tribunal, relying on the decision in the case of Siro Clinpharm wherein it was held that amendment to Sec 92B was not retrospective at least to the extent pertaining to issuance of corporate guarantee, set aside CIT’s revision order u/s 263 treating AO’s order as erroneous & prejudicial to Revenue’s interest as no TP-adjustment was made in respect of corporate guarantee extended by assessee to subsidiary/AE for AY 2010-11. Noting assessee’s submission that corporate guarantee to an associate company was brought within the ambit of international transaction vide Finance Act 2012 (w.r.e.f. April 1, 2012). judicial precedents had held that such corporate guarantee was not an international transaction. Further, Form 3CEB was revised from April 1, 2013 (to cover transactions in the nature of guarantee) and assessee had already filed its tax return on October 8, 2010 (followed by revised return filed on March 30, 2012) for relevant AY 2010-11 i.e. before the amendment was made and before the new Form 3CEB had come into existence. Therefore, it held that when the amendment was brought in by the Finance Act, 2012 and when the Rules were notified on 10th June 2013, the assessee cannot be expected to have reported this transaction as international transaction prior to that. Accordingly, it held that there was no error in the order of the AO causing prejudice to the Revenue.

EIH Ltd vs CIT-TS-609-ITAT-2017(KOL)-TP-ITA No. 530/kol/2015 dated 09.06.2017

17. The Tribunal ruling in favour of the assessee, held that the TP provisions under Chapter X of the Act were not applicable to the assessee’s sale and purchase transactions with 2 concerns (viz. Durian Industries and General Woods). In noted that Durian Industries was an Indian Tax Resident incorporated under the Companies Act, 1956 and therefore the transactions with it would not be an international transaction u/s 92B as the section postulates at least one non-resident. In respect of General Woods, the AO sought to treat it as an AE on three counts, – (i) two shareholders of the assessee were also directors/shareholders in General Woods u/s 92A(2)(j), (ii) THE Shareholders were involved in fixing prices of transactions between assessee & General Woods u/s/ 92A(2)(i) (iii) the total purchases made by assessee form both the entities (Durian and Gneral Woods) exceeded 90% of total purchases. The Tribunal held / observed that i) 92A(2)(j) was not applicable as the TPO failed to demonstrate how the test mentioned in the said section was satisfied ii) Section 92A(2)(i) did not apply as the shareholders determined the purchase and selling prices for and on behalf of the assessee only and not for General Woods and iii) section 92A(2)(h) did not permit aggregation of purchases from different parties for the purpose of testing the limit of 90% prescribed. Accordingly, it held that the lower authorities had erred in considering transactions with Durian and General Woods as international transactions and deleted the TP adjustment.

Elder Exim Pvt Ltd vs DCIT-TS-689-ITAT-2017(Mum)-TP-ITA No.5385/Mum/2014, (A.Y. 2008-09) ITA No.2744/Mum/2014, (A.Y. 2009-10) ITA No.5386/Mum/2014, (A.Y. 2010-11) dated 16.08.2017

18. The Court dismissed Revenue’s appeal against Tribunal order holding that assessee and India Gems & Beads were not associated enterprises u/s 92A. The Tribunal had rejected Revenue’s contentions that since Smt. Anupama Singh who was sole shareholder of India Gems & Beads Inc. was wife of brother of director in assessee, they were relatives for the purpose of adjustment under ALP and held that referring to the provisions of section 92 and definition provided u/s 2(41), it was abundantly clear that Smt Anupama Singh was not a relative of the director of the assessee company. Accordingly, it held that the transaction between the assessee and India Gems & Beads Inc., USA could not be treated as an international transaction. The Court, held that as sister in law is not associated not relative under the income tax act, the provision of section 92A(2)(m) had been wrongly interpreted by the AO and accordingly upheld Tribunal’s order.

CIT vs Jaipur Silver Jewels P Ltd-TS-854-HC-2017(RAJ)-TP D.B. Income Tax Appeal No. 600 / 2011 dated 26.2017

b. Most Appropriate Method

Comparable Uncontrolled Price Method

19. The Tribunal allowed the appeal of the assessee and upheld the application of CUP as the Most appropriate method for benchmarking the medical transcription services, as against TNMM proposed by the TPO who rejected the CUP method on the ground that the assessee was also involved in development of software for the purpose of medical transcription and therefore the entire activity of the assessee was to be aggregated and benchmarked under TNMM. The Tribunal relying on the decision of the co-ordinate bench in Ckar Systems Pvt Ltd (TS-694-ITAT-2012 (Hyd) – TP), wherein the application of CUP was upheld as the most appropriate method. Therefore, it held that CUP was to be adopted for analyzing the ALP of medical transcription transactions and TNMM for the software development services, for which no objection was raised by the assessee. Accordingly, it remitted the matter to the AO / TPO to redo the benchmarking exercise on the basis of the CUP method.

iMedX Information Services Pvt Ltd v ITO – TS-36-ITAT-2017 (Hyd) – TP – ITA No 577/Hyd/2016

20. The Tribunal upheld TNMM over CUP for benchmarking software development services rendered to AEs during AY 2008-09 on the ground that assessee (specializing in providing quality and customized IT solutions to several entities in the marketing, Financial Services and Insurance (BFSI) domain) had not provided the total volume of transactions of related parties (both onsite and offshore) for applying CUP method. Further, it held that since assessee’s transactions with Citi Group (used as a comparable in CUP method) fell in the same class although software features may not have been identical, TNMM was more appropriate than CUP.

Polaris Consulting & Services Ltd -TS-2-ITAT-2017(CHNY)-TP – IT(TP)A No.1324/Mum/2014

21. Where the assessee had applied CUP method on the basis of the gross margin earned from availing similar services from third parties but the TPO rejected CUP Method on the ground that assessee had failed to justify similarities between services availed from AEs and non-AEs, and applied TNMM on entity level which was upheld by the CIT(A),the Tribunal remitted transfer pricing issues related to benchmarking of freight & forwarding services availed by the assessee from its AEs during AY 2009-10 for fresh adjudication on the ground that CIT(A) had not adjudicated issues related to application of most appropriate method (MAM).

Will Loesch India Private Limited – TS-4-ITAT-2017(Mum)-TP – ITA No.6761/Mum/2014

22. Where the assessee’s AE had sub-contracted work to the assessee on back to back basis on the price received from the customer i.e. Gas Authority of India Ltd. (GAIL), the Tribunal held that since the transaction between the GAIL and the AE, was an independent and uncontrolled transaction. It was an appropriate CUP for benchmarking of provision of project management services to AEs.

Tractebel Engineering Pvt Ltd vs DCIT- TS-958-ITAT-2017(DEL)-TP – ITA No. 1078/Del/2014 dated 23.11.2017

23. The Tribunal upheld the application of the CUP method adopted by the assessee in benchmarking its transactions in relation to provision of medical transcription services by relying on the decision of the Tribunal in ACIT v Ckar Systems Pvt Ltd as the assessee in that case was in the same line of business as the assessee in the instant case. It rejected the TPOs rejection of the CUP method and adoption of TNMM whereby he aggregated the medical transcription services with the software development services. Consequently, the Tribunal remitted the matter to the AO / TPO for redoing the benchmarking exercise afresh on the basis of CUP method.

iMedX Information Services Pvt Ltd v ITO – TS-36-ITAT-2017 (Hyd) – TP ITA No. 577/Hyd/2016 ITA No.617/Hyd/2016 dated 18.01.2017

24. Where the assessee, a cigarette manufacturer, had benchmarked its transaction of paymentfor purchase of tobacco leaf paid to its AE under CUP by comparing the AE price with third party quotes and the TPO out rightly rejected the quote and applied TNMM by selecting two comparables and making an upward addition of Rs.12.46 crore, the Tribunal held that the TPO erred in applying TNMM as the comparable companies were not functionally comparable, the cost figures of the comparables taken by the TPO did not match with their financials, the TPO had erred in considering the total costs of the assessee without restricting it to the AE related costs. Also, since the TPO had not examined the contentions of the assessee on the application of the CUP method, it remitted the matter to the TPO for fresh consideration.

JT International (India) vs DCIT – TS-107-ITAT-2017 (Hyd) – TP I.T.A. No. 422/HYD/2014 dated 17.02.2017

25. Where during the assessment proceedings, the assessee had adopted the CPM as the MAM and the TPO had proposed an upward adjustment by rejecting the adjustments claimed by the assessee to the cost and sale price of unrelated party transactions and subsequently, during the appellate proceedings, the assessee proposed to change the MAM to CUP due to availability of data not previously available, which was accepted by the CIT(A), the Tribunal dismissed the appeal of the Revenue and held that if at the time of TPO study, details were not available with the assessee to apply the CUP method, there was no restriction on the assessee for re-computing ALP by applying CUP, if during the course of assessment / appellate proceedings, the relevant data came in its possession of the assessee.

ACIT v Sudarshan Chemical Industries Ltd – TS-1078-ITAT-2016 (Pun) – TP ITA No.1313/Del/2015 dated 25.11.2016

26. The Tribunal held that the TPO was incorrect in rejecting the assessee’s TP study and making an independent search of comparable transactions under CUP to benchmark the export of freeze dried shrimps by the assessee to its AE as the comparable selected by the TPO (based on which he made an upward addition) was an AE of the assessee as well as they had a common shareholder, holding more than 25 percent share capital. It held that transactions between two AEs could not be used as a CUP for benchmarking the assessee’s transaction as the same would not be ‘uncontolled’. It accepted the assessee’s contention that the transaction should have been benchmarked under TNMM and remitted the issue to the file of the TPO for computation of ALP under TNMM.

HIC ABF Special Foods P Ltd v ACIT -TS-100-ITAT-2017 (Coch) – TP – /I.T.A. No. 115 ? / Coch/2016 dated 07.02.2017

27. The Tribunal, following co-ordinate bench’s ruling in assessee’s own case for AY 2008-09 which had in-turn relied on its findings for AY 2007-08 upheld TPO’s adoption of internal CUP over assessee’s TNMM for benchmarking export of finished goods to AE.

Henkel Adhesives Technologies India Pvt. Ltd vs DCIT-TS-988-ITAT-2017(PUN)-TP dated 24.11.2017

28. The Tribunal remitted the benchmarking of the royalty and fees for technical services transactions undertaken by the assessee back to the TPO for fresh adjudication. It noted that the assessee had benchmarked the said transactions on an aggregate basis which was rejected by the TPO who sought to apply CUP to benchmark the transactions on a standalone basis. However, it observed that as per the CUP method the price of the international transaction was to be benchmarked but the TPO had benchmarked the same by comparing the ratio of royalty / FTS to sales of the comparables which did not satisfy the mandate of CUP. It noted that the Delhi High Court in Gruner India Pvt Ltd – TS-1049-HC-2016 (Del) – TP did not approve of TNMM for benchmarking such transactions and had remitted the issue of aggregation v segregation back to the file of the TPO in view of the decisions of Sony Ericsson and Magneti Marelli. Accordingly, it also remitted the issue back to the TPO.

TS Tech Sun India Pvt Ltd – TS-1030-ITAT-2017 (Del) – TP – ITA No.1943/Del/2017 dated 13.12.2017

29. The assessee had purchased raw materials from its AE during AY 2012-13 and adopted the CUP method as the most appropriate method by considering the purchase price (of the said raw material) of the AE. It filed the invoice relating to its purchase from AE and the back to back invoice copies relating to AE purchasing from third party as comparable. However, TPO rejected CUP method used by assessee on the basis that assessee had not given any evidence to support the applicability of CUP method and adopted TNMM as MAM, which was upheld by the DRP. On appeal, the Tribunal held that assessee had not substantiated that the AE had not derived any benefit or mark up on the price charged by the vendor for supply of material to it (AE). It held that unless the assessee filed full details of financial statement to show that the assessee’s  AE had not derived any benefit, it was not possible to apply the CUP method.” Thus, it remitted the issue regarding application of CUP vs. TNMM back to AO to see whether AE derived any benefit or mark up on the price charged by its vendor for supply of raw materials to assessee’s AE, which it had sold to assessee.

Enfinity Solar Solutions Pvt. Ltd. vs. ACIT – TS-301-ITAT-2017(CHNY)-TP – I.T.A.No.208/Mds./2017 – 03-04-2017

30. The assessee was engaged in the business of rendering software development services to its Associated Enterprises (AEs) and non AEs and adopted the internal CUP to justify the price of its international transactions, which was rejected by the TPO, who adopted TNMM and selected 13 external comparables, 6 of which were rejected by the DRP as they had turnover in excess of Rs. 200 crore. Noting that the AO had not complied with the DRP’s direction for exclusion of the 6 comparable and that neither the TPO nor DRP had assigned any reason as to why CUP was not most appropriate method. The Tribunal remitted the matter back to AO for de novo consideration of assessee’s submissions after affording assessee due opportunity of being heard.

KMG Infotech Ltd. Vs DCIT – TS-312-ITAT-2017(Bang)-TP – IT(TP)A No.286/Bang/2016 dated 04/04/2017

31. The Tribunal, following the decision of the coordinate bench in assessee’s own case for AY 2011-12 accepted assessee’s adoption of CUP method over TNMM for benchmarking medical transcription services for AY 2012-13. It noted that the Tribunal for the earlier AY had accepted assessee’s reliance on the decision in the case of Ckar Systems Pvt. Ltd [TS-694-ITAT-2012(HYD)-TP] and had upheld the adoption of CUP method as the most appropriate method as assessee and Ckar were in the same line of business i.e. medical transcription services. The Tribunal in the case of Ckar Systems had held that if the comparables considered by assessee were not connected either to the assessee or its holding company, and all information/data relating to its transactions were available, the TPO was not justified in rejecting the computation of ALP made by the assessee by applying CUP method. Noting that there was no factual difference between earlier year and this year, it held that review of the earlier year order was not within the purview of the Tribunal.

iMedX Information Services Private Limited vs DCIT -TS-457-ITAT-2017(HYD)-TP-ITA No. 1716/hyd/2016 dated 28.04.2017

32. Noting that the services rendered by the assessee to AE were the same as those rendered by AE to independent enterprises, the Tribunal upheld the deletion of TP-adjustment in respect of back to back software development services rendered by the assessee to US-AE which were benchmarked by the assessee using services rendered by AE to independent customers as comparable under CUP. Rejecting Revenue’s contention that there was difference in FAR between assessee and AE, it held that since the transaction was exactly the same, there could not be any occasion for the FAR of the transaction to be different. Further, it also disagreed with TPO’s contention that where a more reliable method viz TNMM was available, then there was no need to adopt CUP especially when reliable data of the comparable cases were not available for ascertaining the man hourly charges for identical or near identical services in an uncontrolled transaction or by an independent enterprise. It observed that the distinction drawn by the TPO on the basis of FAR of the enterprise rather than the transaction was not tenable and perfect CUP inputs were available in the form of back to back transactions.

DCIT vs Calance Software Pvt Ltd-TS-451-ITAT-2017(DEL)-TP- ITA No.5023/Del/2012 dated 04.04.2017

33. The Tribunal upheld CIT(A)’s order deleting TP-adjustment on account of international transaction of royalty payment by assessee to its AE for AY 2011-12. The assessee had adopted TNMM as MAM with operating profit margin as the profit level indicator. The TPO rejected TNMM as MAM and made an adjustment to the arm’s length by applying CUP method. The TPO contended that the assessee had not been able to justify the payment of royalty during the year on the sale of offset ink as well as gravure ink and thus made an adjustment as per the provisions of section 92CA of the Act. CIT(A) relying on the Tribunals decision in the assessee’s own case for AY 2007-08 and 2008-09 had held that products manufactured by assessee were developed from continuous technology support provided by AE and therefore deleted the royalty adjustment. The Tribunal held that the cost benefit test worked out by TPO was not based on proper appreciation of facts and thus held that the choice of CUP method was unjustified.

ACIT vs Sakata Inx (India) Ltd-TS-505-ITAT-2017(JPR)-TP-ITA No 1035/JP/2016 dated 24.04.2017

34. The assessee provided two types of broking services to related as well as unrelated parties viz., Delivery Verses payment (DVP) and direct custodian settlement (DCS) and benchmarked these international transactions using TNMM as MAM. Since an internal CUP was available, the TPO rejected TNMM and applied CUP. However, it rejected assessee’s contention that it had incurred lower cost in providing broking services to related parties than to unrelated parties and accordingly adjustment for additional cost incurred in transaction with unrelated parties was to be allowed to the assessee. The CIT(A) observed that there were substantial differences between the functions undertaken and risks assumed by assessee while providing broking to related and unrelated parties, the TPO ought to have granted adjustment sought by the assessee for additional cost incurred for unrelated parties and accordingly deleted the adjustment. Tribunal upheld the order of CIT(A). The Court observed that CIT(A) and Tribunal had rightly accepted the accepted the differences in functions performed and the risk undertaken by the assessee w.r.t the transaction between related and unrelated parties and accordingly it held that where the rates charged by the assessee to related parties and unrelated parties were not the same, CUP method could be used after making adjustments to the rate charged by the assessee to related and unrelated parties.

J P Morgan India Pvt Ltd-TS-568-HC-2017(BOM)-TP-ITA No 1599 of 2014 dated 07.07.2017

35. Assessee’s group company had acquired controlling interest in HS Penta (engaged in manufacture of automotive cylinders) and post the acquisition transferred the business to the assessee so as to take advantage of lower costs and bigger markets in India.  The TPO adopting WDV as the CUP sought to reduce the ALP value of assets purchased and rejected the contention of the assessee that since production commenced immediately, the impact of purchase of assets was factored into the operating profits.  The Tribunal rejected both contentions and held that WDV was not reflective of fair market value and that capital costs could not be imputed with reference to profits.  Noting that at the time of purchase of controlling interest of HS Penta, the assessee’s group company had valued the shares of HS Penta, which was based on the value of the assets and liabilities, it held that the value of assets therein would be an appropriate CUP since the acquisition was an independent uncontrolled transaction and that there was hardly any time lag between the acquisition and subsequent transfer to India.  Accordingly, it remitted the matter to the AO for fresh determination based on such valuation.

Interpump Hydraulics Pvt Ltd – TS-621-ITAT-2017 (CHNY)) – TP-ITA no. 459/mds/2017 dated 30.06.2017

36. Where the assessee had adopted quotation prices of various companies as CUP for benchmarking its import/export transactions with the AE and the TPO/AO rejected it on the ground that such quotations were subject to negotiation and could not be regarded as comparable uncontrolled transaction, the Tribunal relying on the decision of the Gujarat High Court in the case of Adani Wilmer [363 ITR 338] held that in terms of Rule 10D(3), price publications could be adopted if the same were authentic and reliable. However, noting that this judgment was not available at the time when CIT(A) passed the impugned order; the Tribunal restored the matter back to AO/TPO for fresh decision and directed the assessee to establish that the quotations which were taken for CUP were authentic and reliable and if so to take CUP as the MAM, else adopt TNMM as the MAM and decide the issue afresh.

British Engines (India) Pvt. Ltd vs. DCIT-TS-915-ITAT-2017(bang)-TP IT(TP)A No.340/Bang/2014 dated 27.10.2017

Cost Plus Method

37. Tribunal upheld CIT(A) order deleting TP-adjustments in respect of export of manufactured steel items to its AE and receipt of commission from AE. In respect of export transaction, the TPO had applied CUP method over assessee’s cost plus method(CPM) on the basis of small sales made by assessee of similar components, which was rejected by CIT(A). Noting that the TPO had accepted CPM in the subsequent AYs 2008-09 to 2010-11, the Tribunal held that there was no merit in the order of TPO applying CUP method to benchmark the international transaction and accordingly, upheld the order of CIT(A). Further, in respect of commission, the TPO had applied internal rate of return for benchmarking, however, CIT(A) had upheld assessee’s CUP method. Relying on the decision in the assessee’s own case for AYs 2006-07 to 2010-11, wherein the TPO had applied CUP method from AYs 2006-07 to 2010-11, the Tribunal upheld CIT(A)’s order deleting TP adjustment for the same.

DCIT vs Thyssenkrupp Electrical Steel India Pvt Ltd-TS-567-ITAT-2017(PUN)-TP-ITA No. 2005/PUN/2014 dated 06.04.2017

38. Where the TPO made an adjustment by adopting the Cost Plus method as the most appropriate method (as opposed to TNMM adopted by the assessee) to benchmark the assessee’s international transaction viz. sale of formulations & hospital products by the assessee to its Kenya based AE back to AO for AY 2004-05, noting that the Tribunal in the prior assessment years had remitted the issue back to the CIT(A), the Tribunal remitted the issue to the file of AO for fresh adjudication.  It further held that even though the Tribunal had remanded ALP-issue to CIT(A) in preceding years, it was the Assessing Officer who needed to re-adjudicate to avoid multiplicity of proceedings before the assessing authority and the CIT(A)

Cadila Pharmaceuticals Ltd. vs. DCIT-TS-715-ITAT-2017(AHD)-TP-ITA No. 1117/ahd/2012 & 848/ahd/2016 dated 11.09.2017

Resale Price Method

39. The Tribunal rejected the application of the CUP method as the MAM adopted by the assessee in relation to its international transaction viz. import of crystal and crystal components from its AEs by adopting the sales made by it to its group companies as an internal comparable, observing that the import transactions consisted of two things viz. Crystal goods and Crystal components which were aggregated and shown as one international transaction but the sale transactions used as comparable only pertained to Crystal components. It held that functional similarity was a sine qua non for adopting CUP method and if the goods in the international transactions do not exactly match with the goods in comparable uncontrolled transactions then the method was inapplicable. Therefore, it upheld the TPO’s rejection of the CUP method.

As regards, the application of TNMM, as adopted by the TPO, it held that the same was incorrect noting that the TPO had taken Swarovski Korea and Swarovski Singapore as comparable when these parties were AEs of the assessee itself and could not be considered as comparable uncontrolled transactions. It also held that the balance 19 companies selected by the TPO were not good comparables being foreign companies operating in different lines of business and that the computation of PLI was also faulted as the TPO had averaged the PLI of comparables by taking gross margins in the case of few companies and net margins in the case of the balance. Accordingly, it rejected the application of TNMM as well. Referring to Rule 10B(1)(b), the Tribunal observed that RPM was the MAM as it was applicable where a property was purchased from an AE and resold as such without any value addition and the assessee in the instant case sold the Crystal components imported from its AEs without any value addition. It accordingly remitted the matter to the TPO to benchmark the transactions as per RPM.

Swarovski India Pvt Ltd v ACIT – TS-94-ITAT-2017 (Del) – TP – ITA No.5621/Del/2014 dated 10.02.2017

Swarovski India Pvt Ltd v ACIT – TS-91-ITAT-2017 (Del) – TP – ITA No.5622/Del/2014 & ITA No.5497/Del/2014 dated 10.02.2017

40. The Tribunal, relying on ITAT decisions in Mattel Toys  [TS-159-ITAT-2013(Mum)-TP], Luxottica India Eyeware  [TS-375-ITAT-2014(DEL)-TP], (which was upheld by jurisdictional HC [TS-532-HC-2015(DEL)-TP]), and OSI Systems [TS-396-ITAT-2015(HYD)-TP] applied the Resale Price Method (RPM) as the most appropriate method (MAM) in case of assessee engaged in reselling liquor, perfumes, confectionary, tobacco etc. in the duty free shops set up at Delhi Airport. It held that where there was no dispute on the fact that the assessee was purchasing finished products from the AEs for the purpose of reselling to unrelated parties without any value addition, under normal circumstances, the most appropriate method to bench mark the arm’s length price of such transaction in terms of 10B was the RPM and that the TPO was not justified in rejecting the RPM method and applying TNMM on the ground that the gross profit margin computation of comparables was not produced by assessee. It concluded that the TPO should have made an effort to bench mark the transaction under RPM instead of rejecting it on flimsy grounds and straight away proceeding to apply TNMM. Accordingly, it directed AO/TPO to examine assessee’s benchmarking under RPM in an objective way, leaving it open to the AO/TPO to call for necessary / relevant information relating to gross profit margin of comparables from assessee, or to independently proceed for selection of comparables under RPM after obtaining the information.

Airport Retail P. Ltd. (formerly known as Alpha Future Airport Retail P. Ltd.) vs JCIT – TS-118-ITAT-2017(Mum)-TP – ITA no. 158/Mum./2014 & ITA no. 1762/Mum./2014 dated 17.01.2017

41. For benchmarking assessee-distributor’s international transaction of purchase of finished cosmetic goods for AYs 2009-10 to 2011-12 Modi Care Ltd had been selected as a standalone comparable under Resale Price Method (RPM). Referring to Rule 10B(1)(b), the Tribunal stated that though product comparability was less decisive while using RPM (as opposed to CUP method), wherever the gross margins were demonstrated to be impacted either with incomparable activities; functions; accounting practices; product dissimilarities; etc. necessary adjustments ought to be made. Accordingly, noting that Modi Care Ltd had advertising spend, franchisee income, different product mix, different accounting policies and Revenue recognition policies, higher discounts and rebates, etc, the Tribunal directed the TPO to look into claim of adjustments required to be made to consider Modi Care Ltd.

Oriflame India Pvt. Ltd vs. ACIT- TS-236-ITAT-2017(DEL)-TP- I.T.A .No.-960/Del/2014, 184/Del/2016 & 271/Del/2016 dated 24.03.2017

42. The Tribunal held that Resale Price Method (RPM) was the Most Appropriate Method (MAM) for benchmarking international transactions in case of assessee performing distribution functions in respect of earth moving equipment for AY 2008-09. Relying on provisions of Rule 10B(1)(b), OECD Guidelines as well as decision of the Tribunal in Mattel Toys  [TS-159-ITAT-2013(Mum)-TP], it observed that under RPM, focus was more on similar nature of properties / services rather than similarity of products. Noting that the assessee was performing the function of normal distributor and purchased goods were resold without any value addition, the Tribunal upheld the CIT(A) order’s accepting RPM as MAM. It opined that the TPO, while rejecting RPM and adopting TNMM as MAM, had merely relied on OECD Guidelines which highlighted strengths and weaknesses of RPM, without analyzing the actual facts of the case and the FAR analysis vis-a -vis the comparables. Further, it also upheld the CIT(A)’s rejection of comparable selected by TPO viz. ‘T&I Global Limited’ noting that it was engaged in manufacturing machinery and thus incomparable with assessee performing purely distribution function. Accordingly, it dismissed the Revenue’s appeal.

ACIT Vs Kobelco Construction Equipment India Limited – TS-299-ITAT-2017(DEL)-TP – ITA No.6401/Del/2012 dated 17.04.2017

43. The Tribunal held that the Resale Price Method (RPM) was the Most Appropriate Method (MAM) for benchmarking the transactions of the assessee, engaged in distribution of ‘medical equipment’ and ‘automotive equipment’ manufactured by its Japanese parent company in India as opposed to TNMM adopted by the TPO. Noting that the assessee was performing pure distribution function and was re-selling the finished goods manufactured by its AE without any value addition, the Tribunal accepted assessee’s RPM, relying on Rule 10B(1)(b) as well as decision of the Tribunal in Mattel Toys [TS-159-ITAT-2013(Mum)-TP]. It rejected TPO/DRP’s reasoning that assessee being a full-fledged/full-risk distributor performing a host of functions, RPM was not representative of the correct gross profit margin. It further held that the Revenue had also not brought any evidence on record to prove that the other comparables were not functionally comparable to the assessee. As regards Revenue’s objection regarding huge variation in gross profit margin of the two products distributed by assessee, the Tribunal directed the TPO to examine assessee’s submission that as per separate gross profit margin working for both items, assessee’s margin was higher than that of comparables.

Horiba India Pvt. Ltd. Vs DCIT – TS-300-ITAT-2017(DEL)-TP – ITA No.-6638/Del/2015

44. The Tribunal upheld TPO/DRP’s adoption of Berry Ratio (Gross Profit / Value Added Expenses) [any other method] for benchmarking assessee’s import of goods from AE for resale in India for AY 2010-11 as against the RPM adopted by the assessee. It noted that TPO rejected RPM on the basis that assessee had not purchased all materials from AE but 50% of the materials such as battery and other related materials were purchased from the domestic market / independent enterprises. Rejecting assessee’s submission that there was no purchase from the domestic market as it was contrary to findings of lower authorities, it rejected the assessee’s reliance on the decisions of the Tribunal in Mattel Toys India [TS-159-ITAT-2013(Mum)-TP], Frigoglass India [TS-112-ITAT-2014(DEL)-TP] and Tupperwear India [TS-284-ITAT-2014(DEL)-TP] as it was not the case of the assessee that it had purchased all its materials from its A.E. Accordingly, it confirmed the application of Berry Ratio.

Socomec Innovative Power Solutions Pvt. Ltd. vs. DCIT – TS-359-ITAT-2017(CHNY)-TP – I.T.A.Nos.617/Mds./2015 dated 26-04-2017

45. The Tribunal held that where the assessee was engaged in purchase of finished goods from its AE without any value additions, the most appropriate method for benchmarking the international transactions was the Resale price method. It held that the TPOs reasoning to adopt TNMM i.e that comparability could be compromised under TNMM which provides for broad comparability as opposed to higher degree of similarity under the other methods was invalid.

ACIT vs Akzo Nobel Car Refinishes India Pvt. Ltd-TS-661-2017(DEL)-TP-ITA No. 1925/del/2011 and ITA No. 6482/del/2012 dated 04.08.2017

46. Where assessee bought products from AE and resold them without further processing, the Tribunal, relying on the decision in the case of Tektronix India P Ltd [ITA No. 1334/bang/2010 dated 31st October 2012], held that RPM was the most appropriate method. It also relied on the case of Frigoglass India Pvt. Ltd. [TS-112-ITAT-2014(DEL)-TP] and Bose Corporation India Pvt. Ltd which upheld Resale Price Method as the most appropriate method in case of a distributor. This view was further fortified by OSI Systems Pvt. Ltd ruling wherein all the aforementioned rulings were considered before deciding in favour of RPM in case of distribution activity. The Tribunal opined that it was a settled position in law that in case of distribution activity, there could not be any value addition to the product in question, even when selling and marketing expenses were borne by assessee. Noting that Revenue did not dispute that assessee was into distribution activity, it held that in such cases, Resale Price Method was the most appropriate method and accordingly reversed the decision given by the TPO/DRP of using TNMM as the most appropriate method for the transaction under consideration.

Fresenius Kabi India Private Limited vs DCIT-TS-625-ITAT-2017(PUN)-TP-ITA No.235/pun/2013 dated 16.06.2017

47. The Tribunal, following co-ordinate bench ruling in assessee’s case for 3 years, remitted ALP-determination of assessee’s international transaction of purchase of finished cosmetic goods under Resale Price method (RPM). Noting that the assessee was engaged in trading of goods without any value addition and the assessee had been consistently applying RPM as MAM which had been accepted by Tribunal in the preceding years, the Tribunal rejected assessee’s argument to switch over from RPM to TNMM. Further, relying on the decision in the case of Keihin Penalfa Ltd [TS-474-HC-2015(DEL)-TP] it admitted assessee’s additional grounds and held that TP adjustment should be limited to the international transactions alone and accordingly directed the AO/TPO to determine the ALP of the international transaction after providing a reasonable opportunity of being heard to the assessee.

Oriflame India Pvt ltd vs ACIT-TS-673-ITAT-2017(DEL)-TP-ITA No.328/Del/2017 dated 13.06.2017

48. Where in the set aside proceedings for AY 2007-08 the TPO had accepted RPM as MAM and the coordinate bench in assessee’s case for AY 2007-08 had remitted the issue of rejection of RPM as MAM to the file of AO, the Tribunal dismissed appeal and upheld the DRP order directing the AO/TPO to consider RPM over TPO’s TNMM for benchmarking assessee’s international transaction of purchase and sale of food supplements and healthcare products for AY 2009-10.

DCIT vs Tianjin Tianshi India Pvt Ltd-TS-837-ITAT-2017(DEL)-TP dated 13.10.2017

49. Where the assessee had applied RPM as the most appropriate method for benchmarking its international transactions but the TPO rejected it and adopted TNMM as the MAM, the Court held that mere disagreement between the assessee and Revenue or amongst the Revenue authorities vis-à-vis application of a method for determining ALP would not constitute a question of law unless the aggrieved party is able to demonstrate that application of a certain method had led to distortion or prejudice. Further, noting that the TPO in subsequent year had accepted RPM as the MAM, it dismissed Revenue’s appeal.

Pr.CIT vs McCain Foods India Pvt Ltd-TS-885-HC-2017(DEL)-TP- ITA No. 965/2017 dated 13.11.2017

50. Where the assessee purchased goods from AEs and sold them to third parties in India without any further processing or value addition, the Tribunal reiterating the settled position in law that when there is no value addition by assessee, RPM should be adopted as MAM, accepted assessee’s adoption of RPM as MAM as against TNMM adopted by TPO. Further, noting that the factual position was similar to that of AY 2012-13 wherein the TPO accepted the application of RPM as the MAM, the Tribunal following the principle of consistency, directed the TPO to carry out a fresh comparability analysis for selecting comparable companies under RPM.

Avnet India Pvt. Ltd vs DCIT-TS-982-ITAT-2017(Bang)-TP dated 29.11.2017

Transactional Net Margin Method

51. The Tribunal deleted the TP addition in the case of the assessee, engaged in the business of manufacture and sale of tea and held that the functions assets and risks of the two segments in which the assessee operated viz. private sales and auction sales, were incomparable as in the private sales the assessee was a mere facilitator assuming minimal risks and in the auction sales it performed significant functions and bore all associated risks. Thus, it rejected the approach of the TPO in aggregating all the AE related transactions of the assessee viz. AE related private and AE related auction sales and comparing it with the margin of Non-AE auction sales. Accordingly, since the benchmarking adopted by the assessee at first i.e. entity level comparison with other comparable companies engaged in the tea business, was at ALP, the Tribunal deleted the adjustment made by the TPO.

Tata Global Beverages Ltd v DCIT – TS-48-ITAT-2017 (Kol) – TP I.T.A No.511/Kol/2010 I.T.A No.2105/Kol/2010 dated 03.02.2017

52. The Tribunal, relying on its own order in the assesse’s own case for a prior AY, rejected the CUP applied by the assesseewhile benchmarking its international transactions of ‘export of polyester films’ to AE’s in UK and US by comparing it with Non-AE transactions in Asia, Africa Middle East etc. It held that CUP could not be applied due to difference in geography and other economical factors associated with AEs in a developed market (US and UK) vis-a-vis Non-AEs in developing markets(Asia, Africa, Middle-East etc) and therefore rejected the assessee’s approach of benchmarking AE transactions based on price charged to Non-AE customers in India as well as TPO’s approach of comparing the same with average Non-AE price on exports to countries in Asia, Latin America. Thus, it held that TNMM was the most appropriate method and remitted matter to TPO for carrying out benchmarking analysis under TNMM.

Garware Polyester Ltd v DCIT – TS-34-ITAT-2017 (Mum) – TP – I.T.A. No. 6169/Mum/2011 I.T.A. No. 6541/Mum/2011 dated 18.01.2017

53. The Tribunal rejected TPO’s selection of external TNMM as the most appropriate method (MAM) for benchmarking of assessee’s international transaction of sale of tea to AEs and directed the adoption of internal CPM as MAM. The Tribunal, noting that the assessee had adopted internal CPM for export of tea and export of PP Bags and PP Geo frabric while adopting internal TNMM for export of packaging material and other transactions which was accepted by TPO for AY 2007-08 to 2010-11, held that the TPO erred in taking a different stand in the year under appeal in spite of the similar facts prevailing in the current year when compared to the earlier years and accordingly allowed assessee’s appeal.

Madhu Jayanti International Ltd vs. DCIT-TS-1069-ITAT-2017(Kol)-TP I.T.A No. 214/Kol/2016 dated 01.12.2017

54. The Tribunal held that where the TPO had adopted TNMM as the most appropriate method and the assessee had rendered similar services to both the AEs and non-AEs, and the non-AE transactions satisfied the internal TNMM, the Assessing Officer ought to have considered them for determining ALP. Accordingly, it remitted the issue back to the file of AO and consider internal TNMM where services rendered by the assessee were similar to both AEs and non-AEs.

Satyam Venture Engg. Services (P) Ltd vs Dy.CIT-TS-1072-ITAT-2017(Hyd)-TP ITA No. 1464/Hyd/2014 dated 29.12.2017

55. The Tribunal rejected the TPO’s CUP as well as assessee’s TNMM for benchmarking assessee’s international transaction i.e. manufacture and sale of drugs to AEs in contract manufacturing segment for AY 2012-13 and set aside Rs. 55 Cr TP-adjustment remitting the issue back to TPO for fresh consideration.

It held that the data used by the TPO under CUP (retail prices of products in CIMS database) was not appropriate as (i) such data related to different year (FY 2015-16), (ii) there was a lack of details of the products sold by assessee and comparable products used for benchmarking (iii) the TPO only considered one price despite wide fluctuation in the prices charged for the same product by different manufacturers (iv) that the CIMS data related to full-fledged manufacturers as against the assessee which was a contract manufacturer. Further it noted that the TPO had scaled down the retail prices arrived at from the CIMS data using a factor of 39.6% in order to arrive at ex-factory price, taking assistance from the pricing policy of Organization of Pharmaceutical Producers, whereas such policy was only applicable to prices charged for products sold in India whereas assessee exported products to its foreign AEs. Accordingly, it held that the CUP method as applied by the TPO was not appropriate.

It also rejected the assessee’s benchmarking under TNMM, noting significant difference in sales price charged to different AEs for similar product despite cost of production being more or less similar and held that the 4 comparables selected by the assessee could not be selected as comparable as they were full-fledged manufacturers whereas the assessee was engaged in contract manufacturing. Accordingly, it remitted the issue to the file of the TPO for the purpose of carrying out a fresh benchmarking exercise under TNMM by selecting comparables engaged in contract manufacturing.

Tevapharm India Pvt. Ltd vs Addl CIT – TS-151-ITAT-2017 (Del) – TP ITA No.6707/Del/2016 dated 06.03.2017

56. The Tribunal allowed assessee’s appeal and directed the TPO to consider assessee’s claim for application of internal TNMM for benchmarking its AE transactions, noting that the TPO had applied external TNMM which was upheld by DRP, rejecting Internal TNMM without considering that the assessee had substantial transactions with unrelated parties and that the OP/OC of its transactions with AE was in the range of 17.93% and 20.35% as against 9.76% for transactions with unrelated parties, thereby warranting no TP-adjustment. Accordingly, it restored the issue to the file of TPO for fresh consideration.

Xchanging Solutions Ltd vs DCIT – TS-87-ITAT-2017(Bang)-TP – IT (TP) A No.1385 (Bang) 2011 dated 11-01-2017

57. Where the assessee had purchased cotton bales from various factories in India and sold the same to its Associated Enterprises (AEs) as well as to Non-AEs in the domestic market and the TPO had applied internal TNMM to benchmark the international transaction as opposed to the external TNMM adopted by the assessee (wherein the assessee had selected 2 comparable transactions) and made an addition of Rs. 10.8 crore as the margin from AE transactions was -11.91 percent as opposed to the 4.32 percent earned from Non-AE transactions, the Tribunal held that held that since it was an undisputed fact that an internal uncontrolled comparable price was available in the assessee’s case, preference was to be given to Internal TNMM as the comparison was more reliable. It dismissed the submission of the assessee that it had entered into forward contract for purchase of cotton bale from domestic market and sale to AE at pre-determined price but due to default on the part of the vendors, it had to purchase cotton bales from local market as per the prevailing market to supply to AE at lower rates agreed between the parties as per the forward contract and that the loss suffered on account of default of forward purchase contract was extraordinary in nature. It observed that the concept of a forward contract was to hedge the future price fluctuations on the basis of a pre-agreed price when parties were dealing independently without any mutual interest and since the assessee had entered into forward contract with its AE, it held that the such agreement did not serve the very purpose of entering into a forward contract because a loss to either of the party would not be a gain to the other party. Further, it held that that even if assessee had purchased cotton bales from market at a higher price, the sale price to the AE at a lower rate and that too lower than the sale price to the non-AE clearly manifested the internal arrangements of the related party to supply the cotton bales to the AE at a price which was lower than the purchase price of the assessee.  Accordingly, it upheld the TPO’s addition.

Dhanya Agroindustrial Pvt. Ltd. Vs DCIT – TS-168-ITAT-2017(Bang)-TP- I.T.(T.P) A. No.161/Bang/2016 dated 08.03.2017

58. Where, for the purpose of benchmarking the international transactions of the assessee viz. export of internal combustion (‘IC’) engines by the assessee to its AEs, the TPO applied internal TNMM by taking the transactions with domestic parties as comparable, to which the assessee objected stating that there could be no comparison between IC engines sold in domestic market and those exported by assessee outside India due to functional differences in the products sold under both segments and also due to variance in the gross margins between the 2 segments, the Tribunal relying on its decision for a prior year held that since the assessee failed to demonstrate material variation in the margins of each product type its plea that the two were functionally different could not be accepted. It also observed that unless the assessee demonstrated, with relevant facts, as to why it earned lower profits while exporting to AEs, the assessee’s argument on this ground could not be considered. Further, it held that comparing of gross margins as done by the TPO was not envisaged under the IT Rules and that net profit of controlled transactions had to be compared with net profit of uncontrolled transactions. Accordingly, it directed the AO to re-compute the adjustment based on differences in the net profit margins between sales to AEs and sales in domestic market.

Cummins India Limited vs. DCIT – TS-165-ITAT-2017(PUN)-TP – ITA No.115/PUN/2011 dated 03.03.2017

59. The Tribunal, relying on its order for the earlier year [TS-650-ITAT-2015 (Mum) – TP], remitted the issue of benchmarking the export of finished goods by the assessee to its AEs to the file of the AO /TPO, since the CIT(A) failed to follow the mechanism laid down in the TP provisions to determine ALP. It also accepted the assessee’s grievance that for benchmarking the export transactions, the TPO ought to have used TNMM as the most appropriate method as opposed to CUP. Accordingly, it directed the AO / TPO to conduct a fresh analysis under the TNMM method.

ACIT v Strides Acrolabs Ltd – TS-294-ITAT-2017(Mum)-TP – /I.T.A. No.6528/Mum/2010 dated 31/03/2017

60. The Tribunal rejected assessee’s use of internal TNMM for benchmarking its international transactions in its CAT manufacturing segment (employing modern technology of the assessee’s group) with the non-CAT manufacturing segment (comprising of products of erstwhile Hindustan Motors which had been acquired by it in 2011) as the two segments were not comparable due to differences in technology, marketing / R&D efforts, brand, procurement process and risk profile used in the two segments. It noted the findings of the TPO that i). the Non-CAT category used the old technology whereas the CAT category used the modern technology of Caterpillar Group, and even the types of machines used in both the categories were different with different specifications ii) the Non CAT segment had pre-existing marketing arrangements while CAT was a well-known global brand iii) the products manufactured in Non-CAT segment previously belonging to Hindustan Motors did not have the same brand value as the products in the CAT segment and therefore the Non-CAT segment had higher risks iv) materials were procured locally for Non-CAT, whereas for the CAT segment the raw materials were imported, and held that the two segments could not be considered as internal comparables. Accordingly, it confirmed the addition made by the TPO adopting external TNMM.

Caterpillar India Pvt. Ltd vs. ACIT – TS-302-ITAT-2017(CHNY)-TP – ITA 204 & 365/12 dated 05.04.2017

61. Assessee received a sum of Rs. 79.35 crores as proceeds against the export/sale of TV programmes and films to its AE i.e. ATL and benchmarked the international transaction by applying Transaction Net Margin Method (TNMM), with Profit Level Indicator (PLI) of operating profit/operating cost (OP/OC) which was determined at 56.36%.  Since the margin of selected comparables was 0.13%, assessee claimed its transaction to be at arm’s length price. The TPO rejected TNMM and selected Resale Price Method (RPM) as most appropriate method (MAM). Selecting ATL as the tested party he attributed 90% of its gross profits to assessee and made consequent adjustment. The Tribunal, noting that the transactions of ATL were with its 100% subsidiaries Zee TV-USA and Asia TV-UK, it held that since the comparable transactions adopted by the TPO were not between unrelated parties and hence could not be considered as uncontrolled transactions. It held that Rule 10B(1)(b)(i) provides that price under RPM refers to the price at which the property purchased by the enterprise from an AE is re-sold or provided to an ‘unrelated enterprise’ or in other words an independent entity and since the comparable transactions adopted by the TPO were with related enterprises, it held that the action of the TPO in selecting RPM as MAM was wholly inappropriate and wrong. Accordingly, it deleted the TP addition.

Zee Entertainment Enterprises Ltd vs ACIT -TS-382-ITAT-2017(Mum)-TP ITA No.3406/Mum/2014 dated 05.05.2017

62. The Tribunal following the co-ordinate bench ruling in assessee’s own case in AY 2006-07 & 2008-09 upheld the DRP’s order accepting assessee’s selection of TNMM as MAM over TPO’s selection of CUP method for benchmarking imports and exports from AE for AY 2010-11. It held that once net margin of assessee was higher than the net margins of its comparable, all international transactions of assessee were at ALP. Accordingly, it dismissed the Revenue’s appeal.

Amphenol Interconnect (I) Pvt Ltd vs DCIT- TS-393-ITAT-2017(PUN)-TP ITA No.477/PUN/2015 dated 12.05.2017

63. The Tribunal set aside DRP’s order rejecting internal TNMM as most appropriate method for benchmarking import/export transactions of assessee engaged in the manufacture of studded jewellery for AY 2011-12. It held that the TPO/DRP had arrived at hollow and unsubstantiated observations without any concrete material or irrefutable reasoning for rejecting assessee’s segmental accounts. It further rejected DRP’s conclusion regarding difference in FAR of Non-AE segment pertaining to the local sales in India and held that the assessee itself had specifically categorized and earmarked such Non-AE segment pertaining to local sales in India as ‘uncomparable’ and had conducted the analysis based on the Non – AE segment pertaining to export sales.

S.B.&T Designs Ltd vs ACIT [TS-404-ITAT-2017(MUM)-TP- ITA No. 5189/MUM/2015 dated 03.05.2017

64. The Tribunal relying on the decision of the coordinate bench in the assesse’s own case for AY 2006-07 [TS-915-ITAT-2016(BANG)-TP] and noting that that the TPO had applied TNMM in respect of sale of spare parts for the assessee in the earlier assessment year held that TNMM as selected by the assessee was the MAM as against Cost Plus Method adopted by TPO for AY 2008-09. Further, it directed AO/TPO to consider the working capital adjustment claimed by the assessee and held that when the issue of MAM had been decided in favour of the assessee then the issue of working capital was required to be reconsidered. However, it rejected assessee’s plea for grant of risk adjustment as assessee had not furnished the computation and working of the risk adjustment by giving requisite details of level of risk and computation of quantification of risk adjustment for assessee vis-à-vis comparables.

GE BE Pvt Ltd vs DCIT -TS -373-ITAT-2017(Bang)-TP- – I.T.(T.P) A. No.1291/Bang/2012 dated 13.04.2017

65. The assessee had benchmarked its international transactions in the call centre segment adopting CUP as the most appropriate method. However, it had also conducted a supplementary analysis under TNMM. The TPO accepted the CUP method but benchmarked the transaction using the average rate charged by the assessee for 9 months as opposed to 12 months since the comparable company only had 9 months data. Noting that the rate charged by the assessee for 9 months ( USD 1.63) was less than the CUP rate of USD 1.83, the TPO made an adjustment of Rs. 2.30 crore. The TPO rejected the assessee’s plea that the difference in rate was due to the difference in credit period granted by the assessee vis-à-vis the comparable which required adjustment in respect of the rate of both the assessee as well as the comparable and held that as per Rule 10B no adjustment could be made to the value of international transactions of the assessee under CUP. CIT(A) upheld the adjustment. The Tribunal held that the price charged by the assessee from April, 2003 to March, 2004 (12 months) had to be taken into consideration for benchmarking its international transactions and opined that where the appropriate data was not available at the relevant point of time CUP could not be used. It further held that the MAM in the case of ITES services, ought to have been TNMM instead of CUP method as it encompasses the minor variation and also provides for suitable adjustment. Accordingly, it remitted the issue to TPO for fresh consideration and determination adopting TNMM as the Most appropriate method.

Dell International Services India Pvt Ltd vs ACIT [TS-443-ITAT-2017(Bang)-TP] – I.T.{T.P} A. No.699/Bang/2009 dated 21.04.2017

66. The Tribunal deleted TP adjustment of Rs. 612.03 crores in respect of sale of Pantoprazole tablets by assessee (Indian Pharma company engaged in manufacturing of bulk drugs as well as formulation products) to AE (SPG BVI). The TPO/CIT(A) had rejected TNMM adopted by assessee on the ground that the assessee was not merely a contract manufacturer but performed substantial functions and accordingly applied PSM on the basis that respective functions between assessee and AE could not be distinctly ascertained. Noting that the assessee performed only one simple function of manufacturing the tablets without providing any other significant unique contribution, the Tribunal held that as per OECD guidelines the profit split method was not appropriate for benchmarking. Further, it held that the conditions for applicability of PSM i.e. transfer of unique intangibles & interrelated multiple transactions were both missing in present case. Accordingly, it deleted the TP-adjustment.

Sun Pharmaceuticals Industries ltd vs ACIT-TS-596-ITAT-2017(Ahd)-TP-ITA No.3297 & 3420/AHD/2014 dated 16.06.2017

67. Where the assessee had adopted the CUP method to benchmark its purchase and sale transactions from its AEs and the trade discount granted to the AE on account of prepayment (which was accepted by the TPO / DRP) and had also applied TNMM to corroborate the same, which was rejected by the TPO / DRP and the assessee appealed before Tribunal challenging the said rejection, the Tribunal held that once CUP was applied as the MAM it was irrational for the assessee to choose to apply TNMM to substantiate the benchmarking of the transactions. Accordingly, it dismissed the appeal of the assessee challenging the rejection of TNMM.

Cargill Foods India Limited vs ACIT-TS-541-ITAT-2017(PUN)-TP-ITA No. 1557/PUN/2011 dated 21.04.2017

68. The Court, allowing assessee’s appeal, reversed Tribunal order remitting ALP determination in respect of assessee’s import of raw materials, components and semi-finished goods in manufacturing segment (class I transactions) and also for assessee’s class II transactions in respect of import of finished goods in trading segment. It held that on a plain reading of the order of CIT(A), it was apparent that it agreed that transactions both in class I and Class II segments had to be benchmarked by applying TNMM and therefore it was factually incorrect on part of the Tribunal to observe the contrary.  Referring to a compilation of the orders passed by TPO for subsequent AYs 2007-08 to 2010-11, the Court held that there was factually no change in the classification or the nature of international transactions undertaken or the functional profile of the Assessee and thus rejected Revenue’s contention that the Court should proceed on the assumption that assessee had changed his business profile and functions. Further, it held that in the absence of any change in assessee’s business profile there was no need to uphold the Tribunal order remitting the matter to the TPO / AO or Tribunal for a fresh consideration as remitting the matter back would be a sheer waste of time, serving no purpose. Accordingly, it set aside the order of Tribunal and affirmed the order of CIT(A).

Rayban Sun Optics India Ltd vs CIT-TS-597-HC-2017(DEL)-TP-ITA NO. 889/2016 & CM APPL. 45967/2016 dated 11.07.2017

69. The assessee provided sales support services and liaisoning services to its AEs with regard to the exports and imports of the commodities from its AE to / from India and benchmarked the international transaction adopting TNMM as MAM, which was rejected by TPO and recharacterized the service and commission activities of the assessee as trading segment. On appeal, the Tribunal observed that  in assessee’s own case for AY 2007-08 and 2008-09 had ruled on identical issues which were decided in favour of assessee. ITAT deleted the adjustment relying on Li & Fung HC ruling [TS-346-HC-2013(DEL)-TP]. In that case, it was held that computation of the operating profit margin by increasing the cost of the sales leads to an arbitrary adjustment of assessee’s income and that such alteration resides plainly outside the Rules and the provisions of the Act. ITAT upheld assessee’s international transactions computed by using TNMM as MAM and Berry Ratio as PLI. The High Court dismissed Revenue’s appeal on the ground that no substantial question of law arose. Accordingly, the Revenue filed a SLP before the Apex Court which was admitted.

Pr. CIT vs Mitsui and India Pvt Ltd-TS-602-SC-2017-TP-ITA No. 788/2016 dated 28.02.2017

70. The Tribunal observing that the international transaction of imports from AE had a direct bearing on the export of goods to AE as the price of exports to AE was impacted by import price, held that when the transactions were multiple and inter-related then if a particular transaction out of the composite transactions could not be tested under CUP then it was not proper to apply separate methods for determining the ALP for each of the transaction. Further, noting that TPO had first applied TNMM on assessee’s entire turnover to propose TP-adjustment on import transaction which was subsequently set-off against adjustment on export transaction (determined based on internal-CUP), it upheld CIT(A)’s adoption of TNMM for benchmarking assessee’s import and export transactions and dismissed the Revenue’s appeal.

ACIT vs Gates India (P) Ltd-TS-649-ITAT-2017(DEL)-TP-ITA No. 75/del/2011 dated 31.07.2017

71. Noting that the domestic transaction with non-AE was entirely different (including geographical difference) from the international transaction, the Tribunal rejected internal TNMM adopted by assessee to benchmark provision of telecommunication networking services to AE for AYs 2009-10 to 2011-12 and held that entity level results comprising of international transactions and domestic transactions could not be considered for the purpose of testing the price of the international transactions. Further, it held that CUP was the most appropriate method since, prior to assessee’s incorporation, AE was availing networking services directly from Tata Communications but post incorporation, assessee became the lease holder of the network owned by Tata Communications & started raising bills to AE.

Cable & Wireless Networks India Pvt. Ltd vs. DCIT-TS-616-ITAT-2017(Bang)-TP-IT(TP)A no. 1549/bang/2014, 401 and 402/bang/2017 dated 12.07.2017

72. The Tribunal, allowed Revenue’s appeal and held that the assessee was not justified in benchmarking the purchase price of raw materials acquired from its AE under CUP by comparing the price charged by the AE to independent third parties in Europe as the market conditions of Europe and India were not similar and had different regulatory norms for pollution caused by automobiles. Accordingly, it upheld AO/TPO’s approach of adopting TNMM and benchmarking the profit margins with the other comparables in India having similar market conditions.

DCIT vs Ecocat India Pvt Ltd-TS-722-ITAT-2017(DEL)-TP-ITA No. 847/Del/2012 dated 15.09.2017

73. The Tribunal, noting assessee’s submission that once TNMM at entity level was applied and accepted by TPO and the items of expenditure formed part of the operating expenditure, no separate adjustment on account of specific items of expense was required, remitted the TP-adjustment in respect of selling commission and network charges paid by assessee to its AE to the file of AO directing it to delete the TP adjustment on account of these two items if it formed part of operating expenditure.

Mphasis Ltd vs. Addl. CIT-TS-745-ITAT-2017(bang)-TP-ITA No. 242/bang/2014 dated 09.08.2017

74. Noting that the department had accepted TNMM as the most appropriate method in the subsequent year for benchmarking the assessee’s international transaction of provision of software services to its AE and the facts prevalent in the impugned & subsequent year were the same, the Tribunal upheld the order of the CIT(A)/DRP accepting assessee’s adoption of TNMM over TPO’s adoption of PSM as the most appropriate method and accordingly dismissed Revenue’s appeal.

DCIT vs Target Sourcing Services India Pvt Ltd-TS-720-ITAT-2017(DEL)-TP-ITA.No.457/Del./2014 dated 13.09.2017

75. Where the assessee claimed that it had bought raw materials as per AE’s pre-determined price list which it contended that was used for selling to third party buyers also but could not establish that the same price list was applicable for third party exports with evidence, the Tribunal rejected adoption of CUP method as MAM for benchmarking inter alia import of raw material/consumables/machinery by assessee and held that TPO was justified in adopting TNMM as MAM. It rejected assessee’s contention that u/s 92F(ii), ALP could be worked out on the basis of price applied or proposed to be applied and held that rule 10B(1) provided for price charged or paid and not for proposed price and since the assessee was unable to substantiate its claim that the same list was used for third party buyers also, it dismissed the assessee’s appeal.

Yazaki India Limited (Formerly Known as Tata Yazaki AutoComp Ltd) vs. ACIT-TS-774-ITAT-2017(PUN)-TP ITA No.886/PUN/2014 dated 11.09.2017

76. Where the TPO for the succeeding assessment years viz. AY 2010-11 and AY 2012-13 had accepted TNMM as the most appropriate method to benchmark the assessee’s international transaction but sought to apply the Cost Plus Method in the relevant year, the Tribunal held that since the TPO had accepted TNMM in the subsequent years, TNMM ought to have been accepted in the relevant year as well. Accordingly, it remitted the issue to the file of the TPO to benchmark the transactions applying TNMM for AY 2006-07.

GE BE P Ltd v DCIT-TS-803-ITAT-2017(bang)-TP- IT (TP) A No.1143 (Bang) 2011 dated 28.09.2017

77. The Court affirmed Tribunal’s acceptance of assessee’s TNMM over TPO’s RPM as MAM for benchmarking international transaction in case of assessee (engaged in the travel and tourism business) i.e. customer handling and data management services for AY 2005-06 and held that the difference of opinion as to the appropriateness of one or the other methods, could not per se be a ground for interference unless the appropriateness of the method was shown to be contrary to the Rules especially Rules 10B and 10C. Accordingly, it held that no question of law arose and dismissed Revenue’s appeal.

Pr. CIT vs. Makemy Trip India Pvt Ltd vs. ACIT-TS-871-HC-2017(DEL)-TP ITA 881/2017 dated 07.11.2017

78. The Apex Court dismissed the SLP filed by the Revenue against order of the High Court wherein it was held that where TNMM had been accepted as the most appropriate method to benchmark all of the assessee’s transactions i.e import of raw materials, sub-assemblies and components, payment of royalty, payment of software and purchase of fixed assets barring the payment of technical fee, adoption of a different method viz., CUP would lead to chaos in benchmarking as it could lead to adoption of more than 2 methods for determination of ALP within a single year.

DCIT vs Magnetti Marelli Powertrain India Pvt Ltd-TS-860-SC-2017-TP SLP No. 15244/2017 dated

79. The assessee had entered into a Services Agreement dated April 1, 2010 with its AE (Gamesa Corporation Technologies SA) for availing certain services (legal, administrative, human resources, finance, business development etc). The assessee adopted TNMM as the MAM consequent to which the transaction was at ALP. However, the TPO adopted CUP as MAM and determined the ALP of the impugned transaction at NIL and made addition of the entire amount paid by the assessee for the aforesaid transaction. The Tribunal, relying on the decision in the case of Magneti Marelli and Air Liquid Engineering held that where the assessee had adopted TNMM for benchmarking its profits, adoption of CUP solely for evaluating management fee would be detrimental to the interest of revenue and assessee. Further, relying on the decision in the case of Merck Ltd [TS-143-ITAT-2016(Mum)-TP, it rejected TPO’s determination of NIL ALP on the ground that the assessee had substantiated underlying benefit as well as rendition of service. Accordingly, it allowed assessee’s appeal.

Siemens Gamesa Renewable Power Pvt Ltd vs DCIT-TS-927-ITAT-2017(CHNY)-TP-ITA No.1420 and 376/mds/2017 dated 13.11.2017

80. The assessee providing software development services to its AEs benchmarked its transactions under TNMM which was rejected by the TPO who selected CUP as the MAM and adopted the average industry hourly rates as comparable and made an addition. The CIT(A) struck down the application of CUP as the MAM and proceeding under TNMM, selected a list of comparables as adopted in the case of Sun Microsystems India P. Ltd. for the same AY which led to partial relief to the assessee. The Tribunal held that TP comparability analysis has to be carried out for each taxpayer, for each assessment year to decide the Most Appropriate Method to be adopted, the filters to be applied and the comparable companies to be selected and therefore held that it was not appropriate for the CIT(A) to merely quote a particular judicial pronouncement in order to decide the MAM to be adopted or to cite another to decide the final set of comparable companies. Noting that the functions of the assessee (software development) and that of the taxpayer in the decision relied on by the CIT(A) (ITES) differed, it remitted the entire TP issue to the file of the TPO for fresh adjudication. Further, it held that the TPO erred in selecting CUP as the MAM as the TPO failed to provide any reasoning as to why the TNMM adopted by the assessee was incorrect.

Infineon Technologies India Private Limited vs ACIT-TS-899-ITAT-2017(Bang)-TP dated 03.11.2017

81. The Tribunal allowed the assessee’s appeal and held that the TNMM and not CUP method (originally selected by assessee) was the most appropriate method for benchmarking the sale of engineering goods to AE in view of differences in products, market conditions, geographical features etc. It held that the requirement of law was that the most appropriate method suitable for determining ALP was to be adopted irrespective of the fact that the assessee had originally selected the CUP method in its transfer pricing study.

Euroflex Transmission (India) Pvt. Ltd vs ACIT-TS-928-ITAT-2017(HYD)-TP dated 24.10.2017

Revenue / Profit Split Method

82. The assessee followed Revenue split method as prescribed by the Group’s Global Transfer Pricing Policy for benchmarking the provision of investment banking services to AE and computed its share as at 0.56% of the total investment banking division revenue. The TPO/CIT(A) rejected the method on the basis that Revenue split method was unacceptable in Indian jurisprudence and applied TNMM on entity level to arrive at TP adjustment of Rs. 33.10 crore. The Tribunal, observing that the assessee could not make effective representations before the lower authorities due to extraordinary situation faced by the assessee owing to collapse of the Lehman group, accepted the assessee’s prayer for another opportunity to present necessary evidences and to justify its adoption of Revenue split method by placing reliance on Rule 10AB (other method for determination of ALP). Accordingly, it remitted the matter to the file of the AO/TPO for denovo assessment proceeding in the interest of justice.

Lehman Brothers Securities Pvt Ltd vs DCIT-TS-999-ITAT-2017(Mum)-TP- I.T.A. No.4574/Mum/2012 dated 12.12.2017

Any Other Method

83. Where the assessee (specialised in scientific and technical journals) paid a sum to its AE towards cost contribution for costs incurred by a Swiss based fellow subsidiary, the allocation of which was based on the number of articles and subscriptions of the assessee and the same was benchmarked under ‘any other method’ which was brought into force during the impugned AY, as opposed to TNMM adopted by the AO (and also used in prior years by the assessee), the Court held that the Tribunal erred in holding that the assessee had not satisfied the onus of justifying the change in method and in remitting the matter back to the file of the TPO for reverification and held that the Tribunal should have determined the applicability of the other method itself. Accordingly, it remitted the matter to the Tribunal for adjudication.

Springer (India) Pvt Ltd v ACIT – TS-1062-HC-2017 (Del) – TP – ITA 1148/2017 dated 15.12.2017

Others

84. The Tribunal remitted the determination of ALP in respect of payments for technology support services, back end service charges, shared cost for co-located premises and loan processing fees by assessee engaged in the business of hire purchase and auto loans to the file of AO/TPO for fresh consideration. Relying on the decision in the case of Festo Control Private Limited [150 ITD 305], it rejected TPO’s determination of ALP as nil under the CUP method and held that if CUP method is considered as MAM, the value could not be ‘nil’. The assessee had for the purpose of benchmarking its international transaction relied on the principle that none of the methods for the purpose of computation of arm’s length price as per the Act were applicable in the assessee’s case and having regard to the economic and commercial factors, the payments were at arm’s length. Relying on the decision in the case of Carraro India Ltd [120 TTJ 77], it rejected the assessee’s contention that international transactions were at arm’s length since they were accepted to be arm’s length in the previous and succeeding AYs and held that since they were accepted to be at arm’s length in one year, it is carried at arm’s length in other assessment years as well. Noting that the assessee had done no exercise or documentation for benchmarking the international transactions as per the provisions of section 92D of the Act, it relied on the SB ruling in the case of Aztec Software and held that the onus was on the assessee to provide details for determination of MAM for international transactions. Accordingly, it remitted the issue back to TPO and directed the assessee to furnish all material and information/documents required to be maintained as per Rule 10D to the TPO determined the ALP afresh.

Citicorp Maruti Finance Ltd vs DCIT-TS-500-ITAT-2017(DEL)-TP-ITA No.4634/del/2010 dated 11.05.2017

85. The Tribunal, upheld the DRP order permitting assessee’s use of separate methods to benchmark sale of spares and component transaction after bifurcating it into 3 categories based on their applications for AY 2010-11. Noting that bifurcated category (A) represented sale of spare parts to third party as well as AEs for vehicles made by assessee, category (B) represented sourcing of components required sourcing by overseas AE for the manufacture of 2 or 3 wheelers, and category (C) represented sourcing by overseas AE for the manufacture of 4 wheelers. It distinguished category (A) from (B) and (C) relying on Tribunal’s ruling in assessee’s own case in AY 2006-07 wherein it was held that the nature of transactions in category (A) effectuated by the assessee to its AE abroad as well as third party distributors involve supply of servicing spares and are purely in the realm of after-sale distribution resulting in higher margins while category (B) and (C) transactions were are akin to logistics support service providers.

DCIT vs. Piaggio Vehicles Pvt. Ltd-TS-953-ITAT-2017(PUN)-TP ITA No.573/PUN/2015 dated 24.11.2017

c. Comparability– Inter and Intra Industry

Engineering Services / Consultancy services

86. The Tribunal rejected assessee’s contention for use of multiple year data for benchmarking engineering design services for AY-2006-07 on the ground that the mix of initial and later stage project would remain the same in all years except for first few years of operations. The assessee had justified use of multiple year data stating that engineering projects are divided into 2 phases i.e (i) Basic engineering (initial phase) and, (ii) detail and production engineering phase (later) phase and this resulted in profit fluctuation as less number of man hours were required in initial phase as compared to the later phase of the project. Further, the Tribunal observed that since the assessee had not provided bifurcation as to hours spent on initial stage project and later stage project, it could not be held that the different phases of the projects had an overall impact on the profitability from year to year.

Flour Daniel India Pvt Ltd – TS-20-ITAT-2017-(Del)-TP – ITA No. 5493/Del/2010

87. The Tribunal held that in Transfer Pricing proceedings, a company performing similar functions could not be rejected as a comparable on the ground that it had higher proportion of material cost in total operating cost. It further held that a company rendering consultancy services in the field of Marine infrastructure, Industrial infrastructure, renewable energy etc. could be accepted as comparable on account of functional similarity with the assessee rendering engineering services in various industries such as oil and gas, environment, infrastructure and marine terminal.

Saipem India Project Ltd – [2017] 77 taxmann.com 17 (Chennai – Trib.) – IT APPEAL NO. 401 (MDS.) OF 2016

88. The Tribunal held that the assessee engaged in providing application engineering services was comparable to Ace Software Exports Ltd considering that the company was held to be functionally comparable to the assessee in the preceding year and that the Revenue had failed to show change in functionality in the present year and that its operating margins did not reflect it to be persistently loss making concern.

It dismissed the contention of the assessee for the exclusion of

Vardan Projects Ltd on ground of higher margins of 96.33%, stating that assessee had failed to prove that there was any functional dissimilarity between the assessee and the said company or that the high profit margins did not reflect the normal business condition.

Honeywell Turbo Technologies (India) Pvt. Ltd – TS-84-ITAT-2017(PUN)-TP ITA No.2584/PUN/2012 dated 10.02.2017

ITES Sector / Software Development Services

89. The Tribunal held that the software development segment of the assessee was not comparable to the following companies viz. a). Avani Cimcon Technologies Ltd as it was a software product company having IP and not providing software development services and therefore not functionally comparable to the assessee, b). Celestial Labs Ltd as it was a software product company engaged in development of software products in the diverse filed of bio informatics and also it owned intangibles and undertook R&D activities, c). Infosys Ltd as it was a market leader, engaged in diverse activities including software products and also it owned intangibles and had high brand value d). Kals Information Systems Ltd as it was engaged both in software services and software products e). Wipro Ltd as the company was engaged in both software development and software development services and also it owned intangibles and undertook R&D unlike the assessee.

Comverse Network Systems India v ACIT – TS-33-ITAT-2017 (Del) – TP – ITA No. 6334/Del/2012

90. The Tribunal held that the assessee, engaged in the business of software services was not comparable to a). Exensys Software Solutions Ltd as the company had undertaken an extraordinary event (amalgamation) during the year under review, b). Thirdware Solution as the company was engaged in trading and development of software products hence functionally different c). Foursoft as it was engaged in developing innovative software products and providing consultancy services without segmental details d). Flextronics as it was an end to end provider of communication products, services and solutions and incurred significant R&D expenses e). Compulink as the company provided a wide range of services and did not have segmental results f). Sankhya and Geomertic Software Solutions as they were functionally not comparable and g). Infosys and Satyam Computer Services by following the decision of Intoto Software India Ltd and Textron Global Technology Centre P Ltd.

Ad CIT v CA India Technologies Pvt Ltd – TS-39-ITAT-2017 (Mum) – TP – ITA No.17/Mum/2012

91. The Tribunal relying on Delhi HC’s decision in Chryscapital Investment Advisors admitted assessee’s additional ground for inclusion of two companies (i.e CG-VAK and Microgenetics Systems Ltd engaged in the business of rendering IT enabled services) in the list of comparables for benchmarking provision of IT enabled services provided by assessee to its AEs during AY 2009-10. It remitted the entire issue to AO/TPO for examining inclusion or otherwise of two comparables in accordance with the settled principles of comparability and also directed the assessee to justify before AO/TPO as to why these companies were not included in its TP study report originally and to demonstrate comparability of FAR of these comparables.

Vaildor Capital India Pvt Ltd – TS-1050-ITAT-2016- (Del)-TP- ITA No. 1979/Del./2014

92. The Court upheld the order of the Tribunal wherein two companies viz. Nucleus Netsoft & GIS (India) Ltd and Vishal Information Technologies Ltd were excluded on the ground that a substantial part (more than 40 percent) of their business was outsourced and therefore not functionally comparable to the assessee.

IHG IT Services (India) Pvt Ltd – TS-968-HC-2016 (P&H) – TP – ITA-264-2016 (O&M

93. The Tribunal held that in case of assessee-company rendering software development services to its AE, (a).a company engaged in animation services,(b).a company developing its own software products,(c).a company having abnormal growth rate,(d).a company rendering KPO services, (e) a company involved in research activities could not be accepted as comparables while determining ALP. Incase of the assessee-company rendering IT enabled services (ITES) to its AE, a company in whose case extraordinary event of amalgamation took place, a company having related party transactions in excess of 15 per cent of total sales and a company providing data analytics, operations, management and audit services, could not be accepted as comparables while determining ALP.

Tesco Hindustan Service Centre (P.) Ltd – (2017) 77 taxmann.com 48 (Bangalore – Trib.) – IT (TP) APPEAL NO. 1285 (BANG.) OF 2011

94. The Tribunal excluded 8 comparables on the grounds of functional dissimilarity with the assessee (engaged in the business of rendering software development services) following decision in case of LSI Technologies India Pvt Ltd [TS-296-ITAT-2015(Bang)-TP] whose functional profile was similar to that of the assessee and 2 comparables viz. Flextronics Software Ltd and Persistent Systems Ltd (on account of non-availability of segmental results and amalgamation in the year of comparability) relying on Agnity India [TS-573-ITAT-2016(Del)-TP].

NovellSoftware Development (Ind.) Pvt Ltd – TS-1044-ITAT-2016(Bang)-TP – IT (TP) A No. 1483 (Bang) 2010

95. The Tribunal directed exclusion of 8 companies from the final list of comparables while benchmarking software development services rendered by the assessee to its AEs during AY 2009-10 by following the decision in McAfee Software (India) Pvt Ltd [TS-136-ITAT-2016(Bang)] on the grounds of high turnover. Further, It also excluded Bodhtree Consulting (engaged in providing open & end to end web solutions, software consultancy, design & development of software using latest technology) as functionally dissimilar to assessee rendering pure software development services.

Metric Stream Infotech -TS-1065-ITAT-2016(Bang)-TP- IT(TP)A 216/Bang/14

96. The Tribunal rejected the assessee’s ground for adoption of internal TNMM for benchmarking routine low end ITeS services to AEs during AY 2011-12 on the ground that assessee’s non-AE business had been sold during the year, therefore comparison for same period was not available. However, it accepted the ground for exclusion of 3 comparables viz. Accentia Technologies (engaged in diversified activity of medical transcription), Acropetal Technologies Ltd (engaged in providing engineering design services and information technology services (KPO)) and Infosys BPO Ltd (functionally different as it is a market leader, enjoying goodwill and huge brand value with huge economies of scale) on the ground of functional dissimilarity following decisions in assessee’s own cases for earlier years.

e4e Business Solutions India Pvt Ltd – TS-13-ITAT-2017(Bang)-TP – I.T (TP).A No.1397/Bang/2016

97. Where the Assessee was engaged in the business of software development and providing IT enables services, the Tribunal accepted assessee’s contention to exclude 3 comparables in the software development segment viz Infosys Technologies Ltd (giant risk taking company with huge intangibles), KALS Information System Ltd (engaged in executing end to end software development projects through entire value chain of software development cycle) and Tata Elxsi Ltd (engaged in providing integrated hardware and package software solutions) and 3 comparables in the ITeS segment viz. Coral Hub Ltd (outsources its work), Triton Corporation Ltd (financial irregularities committed by directors) and Maple eSolutions Ltd (financial irregularities) on the ground of functional dissimilarity, outsourcing of work, turnover of intangibles, unreliable financials, etc. Further, it observed that while computing working capital adjustment for software development services and ITeS, TPO had considered sundry debtors, creditors, inventory at consolidated entity level and held that TPO should have taken relevant standalone balances only and remitted the matter for deciding afresh by providing an opportunity of being heard to the assessee.

Ut Starcom Inc (India Branch) – TS-1063-ITAT-2016(DEL)-TP – ITA No.5848/Del./2011

98. The Tribunal upheld CIT(A)’s exclusion of Mold Tech Technologies Ltd from the list of comparables for benchmarking IT enabled services (ITeS) rendered by the assessee to its AEs on the ground that the company was having extraordinary profits in ITeS segment (213% in present AY) and was not functionally similar as it was dealing in engineering design and detailing services, website design services etc.

Evaluesserve.com Pvt Ltd – TS-1060-ITAT-2016(DEL)-TP – I.T.A. No. 5270/Del/2012

99. The Tribunal upheld the exclusion of Onward Technologies Limited as comparable for benchmarking design engineering and IT enabled services (ITeS), on the ground that it could be considered as a consistent loss making company for AY 2010-11. It noted that a company is considered to be a loss-making company if it has incurred losses in three consecutive financial years including relevant financial year. Since, the said company had suffered losses in FYs 2007-08, 2008-09 and 2009-10, it was held to be loss making company.

Carraro Technologies India Pvt Ltd -TS-1058-ITAT-2016(PUN)-TP – ITA No. 2189/PN/2013

100. The Tribunal rejected assessee’s plea for exclusion of 2 comparables on grounds of extraordinary event and functional dissimilarity while benchmarking provision of KPO/Engineering services/IT enabled services (ITeS) to AEs during AY 2011-12. It held that winding up of dormant subsidiary of Eclerx Services was not an extraordinary event having impact on operating results, also, retained Crossdomain Solutions since the assessee’s objections that the said company was functionally dissimilar was based on website info and not annual report.

Hyundai Motor India Engineering Private Limited – TS-1057-ITAT-2016(HYD)-TP – ITA No 128/Hyd/2016

101. The Tribunal rejected assessee’s use of data relating to past 2 years in case of comparables due to assessee’s failure to give a valid reason in light of provisions of section 10B(4). The Tribunal further, allowed assessee’s ground for exclusion of 9 comparables on grounds of functional dissimilarity as engaged in software product development, failed 25% employee cost filter and KPO services and 8 comparables on applying Rs 1200 cr Turnover filter relying on the ground that the guidance note of ICAI on Transfer Pricing states that a transaction entered into by a Rs.1000 crores company cannot be compared with the transaction entered into by a Rs.10 crores company. It also remitted to the file of the TPO the comparability of one company for verification of extraordinary events by way of amalgamation during the year.

Polaris Consulting & Services Ltd -TS-2-ITAT-2017(CHNY)-TP

102. The Tribunal following precedent excluded 5 comparables on grounds of functional dissimilarity, ownership of intangibles, extraordinary event during the year affecting profitability and non-availability of segmental data. Further, it also remitted to the file of the TPO the calculation of working capital adjustment considering assessee’s claim about incorrect average receivables adopted by the TPO.

BA Continuum India Private Limited -TS-1023-ITAT-2016(HYD)-TP – I.T.A. No. 1143/HYD/2014

103. The Tribunal held that the assessee, engaged in the business of providing ITES, including data processing and call centre services in the insurance and financial sectors to its AEs could not be compared to:

AY 2009-10

Accentia Technologies Ltd as the said company was engaged in providing health care management services

Eclerx Services Ltd as it was providing high end and complex KPO Services

It remanded the comparibility of Infosys BPO and Cosmis Global to the file of the TPO noting that the assessee had not raised an additional ground for exclusion of the said companies and that the only objection that was raised before the CIT(A) was that of turnover filter.

AY 2008-09

It further held that the assessee could not be compared to the following companies:

Acropetal Technologies Ltd, Asit C Mehta Financial Services, Cosmic Global LTd, Datamatics Financial Services Ltd, I Services India Pvt Ltd, Jindal IntellicomPvt Ltd, Mold Tek Technologies Ltd and R Systems Interantional Ltd as the said companies did not satisfy the lower turnover filter of 1/10th times of the assessee’s turnover

Accentia Technologies Ltd as it had undergone an abnormal activity during the year (viz. acquisition of other Indian and foreign companies)

Crossdomain Solutions Ltd as the company was engaged in the business of providing re-engineered payroll services and product development

Eclerx Services Ltd as it was providing high end and complex KPO Services

Genesys International Corporation as it was providing specialized services requiring highly skilled employees

WIPRO Ltd as it owned substantial intellectual property and had high brand value

AXA Business Services Pvt Ltd – TS-1032-ITAT-2016 (Bang) – TP – I.T. (T.P) A. No.334/Bang/2013, I.T. (T.P) A. No.484/Bang/2013 & IT. (T.P) A. No.965/Bang/2014 dated 29.11.2016

104. The Tribunal held that the assessee, engaged in software development services could not be compared to:

Kals Information Ltd & Persistent Systems Ltd as the said companies derived revenue from software services and software products and did not have segmental bifurcation

Tata Elxsi Ltd &AccelTransmatic Ltd as the said companies were functionally dissimilar

Bodhtree Consulting Ltd as the company suffered drastic variations in the profit margins.

Valtech India Systems Pvt Ltd v DCIT – TS-70-ITAT-2017 (Bang) – TP – I.T. (T.P) A. No.1496/Bang/2010 dated 13.01.2017

105. The Tribunal held that the assessee engaged in providing software development services could not be compared to Infosys Ltd, Larsen & Toubro Infotech Ltd, Mindtree Ltd, Persistent Systems Ltd, Spry Resources having turnover Rs. 33083 crores, Rs. 23685533 crores, 12558 crores, 8427.4 and Rs. 37074498 crores respectively as they failed the turnover filter of 10 times the assessee’s turnover of Rs. 51.99 crores.

Further, it remitted the comparability of Genesys International Corpn. Ltd to the file of the DRP in the absence of availability of annual report or a ruling pertaining to the relevant AY.

Mindteck (India) Ltd vs DCIT- [TS-533-ITAT-2017(Bang)-TP]- IT(TP)A No.1834/B/16 dated 24.03.2017

106. Where the assessee had contested comparability of the 8 companies citing various reasons like functional dissimilarity, loss making comparables, failing employee cost filter, significant RPT etc, the Tribunal reiterating the principles of comparability, economic adjustments, RPT, current year vs. multiple year data, segmentation vs. aggregation etc. by relying on various landmark judicial precedents, remitted the comparability of 8 comparables to the file of AO/TPO for fresh adjudication as the factual matrix had to be tested in respect of all the comparables.

MWH India Pvt. Ltd vs. DCIT-TS-951-ITAT-2017(Mum)-TP ITA No. 792/MUM/2013 dated 27.10.2017

107. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Bodhtree Consulting Ltd as it was engaged in the business of software product and providing end to end web solutions software consultancy and design and development of software using latest technology.

Infosys Technologies Ltd as it owned significant intangible and had huge revenues from software products and the segmental details were not available.

Persistent Software Ltd as it was engaged in product designing services and into software product development which was not functionally comparable with software developer assessee.

Tata Elxsi Ltd as it was engaged in business of software development services which comprised of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment and the segmental breakup was not available.

Sonata Software Ltd as it had an RPT filter of 33.39% and therefore failed the 15% RPT filter applied by TPO.

Sterling Commerce Solutions India Private Ltd vs. DCIT-TS-969-ITAT-2017(Bang)-TP IT(TP)A No.309/Bang/2014 dated 27.10.2017

108. The Tribunal held that the assessee engaged in the business of providing software development and marketing support services to its AE could not be compared to:

Accentia technologies Ltd as it was engaged in providing services in the areas of Transcription, Coding, Billing, and Collections. Further, it had Offshore Development Centers (ODCs) in different cities of the country and 3000 trained professionals as compared to the 12 of the assessee and therefore was not comparable to the assessee.

Crossdomain Solutions Pvt Ltd as it was an insurance KPO company and payroll KPO which were high end KPO services.

Infosys BPO Limited as it had carried out re-organization of its subsidiaries and engaged in transferring shares, liquidation of entities and merge. Further, its turnover was 55 times of assessee’s turnover.

UT Starcom Inc. vs. DDIT-TS-976-ITAT-2017(DEL)-TP ITA No.1829/Del./2014 dated 25.11.2017

109. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:

Accentia Technologies Ltd as it was engaged in providing services of medical transcription, was not at all comparable to the back-office support services provided by the assessee.

Jeevan Softtech ltd as it was engaged in medical writing, clinical data management, biostatistics and other services and therefore functionally dissimilar to the assessee.

Fortune Infotech Ltd as it had its own unique web based software through which it provided services to its customers and therefore could not be compared to the assessee.

In respect of the Software segment, it excluded Infosys Ltd as it had a huge brand value, intangibles.

Principal Global Services Pvt. Ltd vs. DCIT-TS-970-ITAT-2017(PUN)-TP ITA No.323/PUN/2015 dated 29.11.2017

110. The Tribunal remitted the following comparables to the file of TPO for fresh consideration in respect of assessee engaged in providing software development services:

Larsen and Turbo as the issue of insufficient segmental details, lack of clarity on whether the cost of bought out items of sale related to services/products, and the nature of sub-contracting expenses incurred by the company had not been examined by lower authorities,

Persistent Systems Ltd, as the Annual Report that the company stated that it was into software products, services, and innovation and no analysis of the operational segments was done by the lower authorities to compute margin of one segment only.

Microsoft Research Lab India Pvt. Ltd. vs. DCIT-TS-994-ITAT-2017(Bang)-TP dated 03.11.2017

111. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Acropetal Technologies Ltd as it was engaged in provision of high end healthcare services and developed & owned intellectual property providing it a substantial competitive advantage to this company, leading to higher profitability.

Infosys Ltd as it was a giant company with high risk profile and therefore could not be compared to the assessee a captive service provider.

Larsen and Turbo Infotech Ltd as it was engaged in software development services and software products and segmental details were not available.

Mindtree Limited as it was undertaking R&D activity and owned IPRs.

Further, it remitted Sonata Software Limited to the file of TPO to verify whether company earned 100% of its revenue from export of software development and related services.

Agilis Information Technologies International Pvt. Ltd. (Now known as Infogix International Pvt. Ltd.) vs. ACIT -TS- 995-ITAT-2017(DEL)-TP dated 15.11.2017

112. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Ltd as it had huge brand, turnover and was a leading product in the banking industry. Further, it was engaged in significant R&D.

Further, it remitted Bodhtree Consulting Ltd to the file of TPO directing it to establish how the difference in accounting policy wherein it recognized revenue when software was developed and billed from assessee’s cost plus model impacted the profitability. It also remitted Sonata Software Ltd to the file of TPO directing it to verify the RPT percentage and exclude it if the RPT is more than 25%.

Freescale Semiconductor India Pvt. Ltd vs DCIT-983-ITAT-2017(DEL)-TP – ITA No. 2589/Del/2015 dated 07.12.2017

113. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Flextronics Software Ltd, Satyam Computer Services Ltd and Infosys Technologies Ltd as they had a turnover of more than 200 crores.

Sankhya Infotech Ltd as it was engaged in providing software development services as well as software products and did not have segmental results and therefore could not be compared to the assessee.

Further, it remitted Bodhtree Consulting Ltd to verify the RPT % and exclude it if it was more than 15%.

Dell International Services India Private Ltd vs DCIT-TS-965-ITAT-2017(Bang)-TP IT(TP)A Nos. 85 & 1026/B/14, 1838/B/13 & CO No.21/B/16 dated 13.10.2017

114. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Technologies Ltd as it owned significant intangibles and had huge revenue from software products and the breakup of revenue from services and products was not available.

KALS Information System Ltd as it was also engaged in software products and was not purely software development provider and adequate segmental results were not available.

Persistent System Ltd as it was engaged in the business of product development, software product document and product design and no segmental details were available.

Celestial Biolabs Ltd as it was engaged in the clinical research and manufacture of bio-products business and therefore functionally dissimilar.

Avani Cimcon Technologies Ltd as it was also engaged software development and sale of software products and no segmental details were available.

E-Zest Solutions Ltd as it was engaged in providing product development services and high end technical services which were under category of KPO services.

Wipro Ltd as it owned intellectual property in the form of registered patents and was a full fledged risk bearing company and owned proprietary software.

Tata Elxsi Ltd Flextronics Software Systems Ltd as they were engaged in providing development services and high end KPO services

Infinera India Pvt Ltd vs ITO-TS- 980-ITAT-2017(Bang)-TP- IT(TP)A No.1096/Bang/2011 dated 27.10.2017

115. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Technologies Ltd as it owned significant intangibles and earned huge revenues from software products and breakup of revenue from software services and software products was not available.

KALS Information Systems Ltd as it was engaged in developing software products.

Persistent Systems Ltd as it was engaged in product development and product design services and segmental details were not available.

Quintegra Solutions Ltd as it was engaged in business of proprietary software products.

Tata Elxsi Ltd as it was engaged in product designing services and not purely software development services.

Thirdware Solutions as it was engaged in product development and earned revenue from sale of licenses and subscription, however, segmental details were not available.

Wipro Ltd as it was engaged in software development services and product development and segmental details were unavailable.

Lucid software Ltd as it was engaged in development of software products.

DCIT vs Verisign Services India Pvt Ltd-TS- 1081-ITAT-2017(Bang)-TP dated 25.10.2017 – I.T.(T.P) A. No.1230/Bang/2013

116. The Court upheld the exclusion of the following companies in the case of assessee engaged in software development, specifically in healthcare claims adjudication and bio-pharmaceutical services:

E-Infochips and Infinite Data Systems as they were engaged in providing high end technology driven services and therefore were entirely different from assessee’s software development services.

Accentia Technologies as it operated in multiple locations throughout the globe in healthcare receivable cycle management and also into legal process outsourcing and high -end software service delivery and therefore functionally dissimilar to the assessee.

TCS E-serve ltd and TCS E-Serve International Ltd as it had high brand value and drew profitability upward and therefore could not be compared to the assessee.

Further, regarding comparability of I-Gate Global Solutions, considering Tribunal’s observations that the company’s functioning was similar to that of the assessee, the Court framed question of law as to whether the Tribunal erred in holding that I-Gate Global solutions Limited underwent significant change in its profitability in view of the amalgamation undergone, having regard to the report and materials on record and the circumstances of the present case.

CSR Technology (India) Pvt. Ltd vs ACIT-TS-1071-ITAT-2017(DEL)-TP – ITA No.1895/Del./2017dated 14.12.2017

117. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Limited as it was giant risk-taking company, owing intangibles was engaged in development and sale of software products for which segmental details were unavailable.

Zylog Systems Limited as it was engaged in providing onsite services, specialized in providing software products and solutions and earned revenue from consulting, licensing fee, as well as from software products and solutions and therefore functionally dissimilar to the assessee.

Persistent Systems & Solutions Ltd. as it was dealing in software products in outsourcing of software product development.

E-Zest Solutions Ltd as it was engaged in providing diverse services like BPO, product engineering, software product development and KPO.

Acropetal Technologies Ltd. as it was engaged in IP led product development, engineering design services, healthcare services.

Alcatel-Lucent India Ltd vs. ACIT-TS-1005-ITAT-2017(DEL)-TP-I.T.A .No. 1112/DEL/2017 (A.Y 2012-13) & S. A No. 142/Del/2017 dated 03.11.2017

118. The Tribunal held that the assessee engaged in the business of providing IT enabled services to its AE could not be compared to:

Eclerx Services Ltd as it was engaged in providing high end KPO services and there was an extra-ordinary event of amalgamation impacting its profits.

Infosys BPO Ltd as it had acquired 100% voting interest in another entity which was a strategic sourcing and category management service provider having an impact on its profits. Further, it was a giant company having huge brand value and intangibles.

TCS E-serve Ltd as it was engaged in providing financial services to help its customers achieve their business objectives by providing innovative best in class services. Further, its operations included delivering core business processing services, analytics and insights (KPO) and support services for both data and voice process.

It remitted Excel Infoways Ltd. to the file of TPO to verify the details provided by the comparable u/s 133(6) vis-à-vis the financial details. Further, it also remitted CG-VAK Software exports Ltd, Datamatics Services Ltd and Calibre Point Solutions Ltd to the file of TPO for verification of its compatibility with the assessee.

Exevo India Pvt. Ltd (Now MA KS Solutions (India Pvt. Ltd) vs. DCIT-TS-1007-ITAT-2017(DEL)-TP I.T.A. No.20/Del/2017 dated 30.11.2017

119. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Coral Hubs Ltd as it had a different accounting period i.e comprising of 15 months and therefore could not be taken as a comparable.

Further, it included Cades Digitech Private Limited as it was into engineering design services and considered it comparable to the assessee.

DCIT vs. Applied Micro Circuits India Pvt. Ltd-TS-1013-ITAT-2017(PUN)-TP ITA No.1250/PUN/2015 dated 24.11.2017

120. The Tribunal held that the assessee engaged in the business of providing data processing/ITES to its AE could not be compared to:

Accentia Technologies Ltd as it was engaged in providing KPO services, operating in the healthcare industry, and owning proprietary software products such as instacare, instascribe, instaweb.

TCS E-serve Ltd as it had significant intangibles and had substantially increased operating profits post acquisition.

Infosys BPO Ltd as it was engaged in high end integrated services and therefore was functionally dissimilar to the assessee.

Omniglobe Information Technologies (India) Pvt. Ltd vs. ITO-TS-1025-ITAT-2017(DEL)-TP ITA No.1003/Del/2016 dated 06.11.2017

121. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Bodhtree Consulting Limited as it was engaged in providing open and end-to-end web solutions, software consultancy and design and development of software solutions using latest technology and therefore not comparable to the assessee.

Further, it restored Tata Elxsi and Infosys BPO to the file of TPO to verify the functional similarity vis a vis the assessee.

Narus Networks Pvt. Ltd vs. DCIT-TS-1047-ITAT-2017(bang)-TP-i.T. (T.P) A. No.1631/Bang/2014 dated 23.11.2017

122. The Tribunal held that the assessee engaged in providing back office support services to its AE could not be compared to Accentia Technologies Ltd as it had an extraordinary event of merger during the year which impacted it profits. Further, it remitted the R Systems International Ltd Infosys BPO, TCS E-serve ltd to the file of TPO to examine the functional comparability afresh.

Outsource Partners International Pvt. Ltd. vs. DCIT-TS-1021-ITAT-2017(Bang)-TP ITA No.443/Bang/2016 2011-12dated 31.10.2017

123. The Tribunal held that the assessee engaged in the business of providing business process outsourcing services to its AE could not be compared to:

Accentia Technologies Ltd as it had an extraordinary event of amalgamation during the year leading to a growth of 150% in the relevant year compared to the previous year showing that it had an impact on the company’s profitability.

Eclerx Limited as it was engaged in providing KPO services and had 1500 domain specialized employees.

Maple Esolutions Ltd as its directors were under serious indictment for fraud.

DCIT vs. Everest Business Advisory India (P) Ltd vs DCIT-TS-1038-ITAT-2017(DEL)-TP ITA No.41/Del./2013 dated 15.12.2017

124. The Tribunal held that the assessee engaged in the business of providing ITES services to its AE could not be compared to:

Caliber Business Solutions Ltd as it had a different financial year ending than the assessee.

Datamatics Financial Services Ltd as it was engaged in the business of registration and share transfer work and ITES, but there was no segmental information available in the Annual report of the company.

ICRA Techno Analytics Ltd as it was engaged in various high end functions but no segmental details were available.

Infosys BPO Limited as it was engaged in a variety of verticals like Banking, Communication, Media and Entertainment, Manufacturing, Retail and Energy, had diversified activities, IPRs and tremendous brand value.

Further, it remitted the Accentia and TCS E-Serve to the file of TPO to determine the functionally comparability vis-à-vis the assessee.

e4e Business Solutions India Pvt. Ltd. vs. ITO-TS-977-ITAT-2017(bang)-TP IT(TP)A No.451/Bang/2017 dated 03.11.2017

125. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Limited as it was earning revenue from both software services and products and was also the owner of various brands earning huge amount on account of brand.

Persistent Systems Ltd as it was into product development and was also deriving income from product sales as well as royalty and segmental information was not available.

Tektronix (India) P Ltd (Formerly Tektronix Engineering Development (India) P. Ltd) vs. ITO-TS-964-ITAT-2017(DEL)-TP I.T(TP)A No.293/Bang/2014 dated 27.10.2017

126. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

Accel Transmatics Limited as it was engaged in engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore functionally dissimilar to the assessee.

Avani Cimcon Technologies Limited as it was engaged in the business of software products and earned unusually high profit margin and therefore could not be compared to the assessee.

Celestial Labs Limited as it was engaged in clinical research and manufacture of software products and therefore functionally incomparable to the assessee.

KALS Infosystems Ltd as it was engaged in development of software products as well as providing training and thus functionally dissimilar to the assessee.

Infosys Technologies Limited as it had significant intangibles and huge revenue from software products with no segmental breakup.

Ishir Infotech Limited as it had outsourced its main activity and therefore had a different business model than the assessee.

Lucid Software Ltd as it was engaged in the development of software products and therefore functionally dissimilar to the assessee.

Wipro Limited and Tata Elxsi Ltd as it owned intellectual property and significant R&D activity, brand value.

E-Zest Solutions Limited as it was engaged in rendering product development and high end technical services which were in the nature of KPO services.

Persistent Systems Ltd as it was engaged in software development and software products and no segmental details were available.

Quintegra Solutions Limited as it was engaged in developing proprietary software products and owning intangibles.

Yodlee Infotech Pvt. Ltd vs DCIT-TS- 1077-ITAR-2017(Bang)-TP IT(TP) No. 1138/Bang/2011 dated 15.12.2017

127. The Tribunal considering assessee’s submission that DRP’s order was very cryptic as he included Bodhtree consulting by only stating that the TPO made elaborate discussion regarding the comparability of entities engaged in providing software development services with entities engaged in development of software products, remitted the comparability of Bodhtree Consulting to the file of DRP for fresh consideration.

Sonus Networks India Pvt Ltd vs DCIT-TS-1076-ITAT-2017(Bang)-TP ( IT(TP) A No. 193/Bang/2014 dated 01.12.2017 )

128. The Tribunal held that the assessee engaged in providing software development services for AY 2006-07 could not be compared to:-

Aztech Software Ltd, Geometric ltd (seg.) and Megasoft Ltd (seg) having RPT of 17.78%, 19.34% and 17.08% respectively as it failed the RPT filter of 15% applied by TPO. Further, Megasoft was engaged in the business of which was functionally dissimilar to the assessee.

iGate Global Solutions Ltd (seg), Infosys Ltd, Mindtree Consulting Ltd, Persistent Systems Ltd, Sasken Communication Ltd, Tata Elxsi ltd and Flextronics Software Ltd having turnover of Rs, 527.91 crores, Rs. 9028, Rs. 448.79 crores, Rs. 209.18 crores, Rs. 240.03 crores, Rs. 188.81 crores and 595.12 crores respectively as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 16.97 crores.

Lucid Software Ltd having turnover of Rs. 1.02 crores as it failed the turnover filter of 1/10th of assessee’s turnover of Rs.16.97 crores

KALS Info Systems Ltd as it was engaged in the business of sale of products and training which was functionally dissimilar to the assessee.

Further, for AY 2007-08, the Tribunal held that the assessee could not be compare to:

Geometric Ltd and Ishir Infotech ltd having RPT of 19.98% and 21.97% as it failed the RPT filter of 15% applied by TPO.

Flextronics SW Systems Ltd, IGate Global Solutions Ltd, Infosys Tech Ltd, Mindtree Ltd, Persistent Systems Ltd, Sasken Commn. Tech Ltd, Tata Elxsi ltd having turnover ofRs. 848.66 cr, Rs. 747.27 cr, 13149 cr, 590.35 cr, 293.75 cr, 343.57 cr, 262.58 cr and 9616 cr respectively could not be compared to the assessee having turnover of Rs.22.06 crores as it failed the turnover filter of 10 times the assessee’s turnover.

KALS Information Systems Ltd, Lucid Software Ltd and Megasoft Solutions Ltd having turnover of Rs, 2 crores, 1.70 crores and 1.85 crores could not be compared to the assessee as it failed the turnover filter of 1/10th of assessee’s turnover of Rs. 22.06 crores.

Accel Transmatics Ltd as it was engaged in providing services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation.

Avani Cimcon Technologies Ltd as it was engaged in the business of software development and development of software products and segmental details were unavailable.

Celestial Labs ltd as it was engaged in clinical research and manufacture of bio products and other products and thus functionally dissimilar to the assessee.

E-zest Solutions as it was engaged in the business of rendering product development services and high end technical services (KPO services) and thus functionally different from the assessee.

Helios Matheson Information Tech. Ltd as it was engaged in the business of application software and thus functionally dissimilar to the assessee.

Thidware solutions Ltd as it was engaged in the business of product development and earned revenue from sale of licenses and subscription.

Quintegra Solutions Ltd as it was engaged in the business of developing proprietary software products and owned intangibles.

Aspect Technology Centre India Pvt. Ltd vs ITO-TS-518-ITAT-2017(Bang)-TP-IT(TP)A No. 1252(bang)2011 and IT(TP)A no.1391(bang) dated 02.05.2017

129. The Tribunal held that assessee engaged in the business of IT Support services segment could not be compared to:

Bodhtree Consulting Ltd, Eclerx Services Ltd and Moldtek Technologies ltd as the said companies were engaged in KPO services therefore functionally dissimilar to the assessee.

Infosys BPO Ltd and Wipro ltd as they had huge brand value and therefore could not be compared to the assessee.

Informed Technologies India Ltd and Caliber Pint Business Solutions Ltd as they had an RPT to sales ratio of 15.93% and 15.44% which failed the 15% RPT filter adopted by TPO.

Triton Corporation Ltd and Maple Esolutions ltd as the promoters of the two companies were involved in fraud for earlier years and therefore the financial results could not be relied on.

Iservices India Pvt ltd and Apex Advanced Tech Pvt Ltd as they were engaged in the business of providing data creation services and therefore functionally dissimilar to the assessee.

In respect of Software segment, it held that the assessee could not be compared to:

Accel Transmatic Ltd as it was engaged in design, development and manufacture of multifunction management system and ticket vending system as well as providing training in                    hardware and networking, enterprise system management and software services for 2D/3D animations and therefore functionally dissimilar to the assessee.

Avani Cimcon tech Ltd as it was engaged in business of software products and therefore functionally dissimilar to the assessee.

Celestial Labs ltd as it was engaged in clinical research and manufacture of software products and therefore functionally dissimilar to the assessee.

KALS Information Systems ltd as it was engaged in development of software products as well as providing training and therefore not functionally comparable to the assessee.

E-Zest Solutions ltd as it was product development and high end KPO technical services.

Thirdware Solutions Ltd and Persistent Systems ltd as they were engaged in software product development and therefore functionally dissimilar to the assessee.

Helios & Matheson Information Technology Ltd as it was engaged in development and sale of software products.

Infosys Technologies Ltd as it owned significant intangibles and had huge revenues from software products with no segment break-up available.

Wipro Ltd as it owned intellectual property and therefore could not be compared to the assessee.

Tata Elxsi ltd as it had significant R&D activity, brand value and therefore could not be compared to the assessee.

Lucid Software Ltd as it was engaged in development of software products.

Flextronics Software Systems Ltd as it was engaged in software development services as well as software products and segmental details were unavailable.

Mphasis ltd vs ACIT-TS-562-ITAT-2017(BANG)-TP-ITA No. 14/bang/2012 dated 19.05.2017

130. The Tribunal remitted the selection of comparables for assessee being a captive software development company to the file of AO/TPO with the direction to apply 10 times turnover filter observing that 10 times turnover filter was a more just filter. Further, in view of the consistent view taken by the Tribunal that in normal circumstances, RPT tolerance range should not exceed 15%, it directed the TPO to apply 15% RPT filter instead of 25% applied by TPO.

Microchip Technology (India) Pvt Ltd vs ACIT- [TS-535-ITAT-2017(Bang)-TP]- IT(T.P) A No.1586/Bang/2012 dated 03.05.2017

131. The Tribunal held that the assessee engaged in providing software development services was not comparable to:-

KALS Information Systems Ltd as it was engaged in the business of consultancy, information provider and general insurance provider and thus functionally dissimilar to the assessee.

Bodhtree Consulting ltd as it was engaged in providing KPO services and therefore functionally dissimilar to the assessee.

Tata Elxsi Ltd as it was engaged in the business of providing KPO services

Persistent Systems Ltd as it was engaged in development of software products.

Sasken Communications Tech ltd as it owned IPR and also had branded products.

Akshay Sofware Technologies Limited as its turnover was only Rs. 12.23 crores therefore failing the turnover filter of 1/10th of assessee turnover of Rs. 239 crores.

Further, it remitted the comparability of L&T Infotech Limited to the AO/TPO with a direction to verify the RPT %.

DCIT vs ABB Global Services Pvt Ltd-TS-501-ITAT-2017(Bang)-TP-IT(TP)A No.49 and 97/B/2014 dated 05.05.2017

132. The Tribunal held that the assessee, engaged in providing software development services could not be compared to:

Avani Cimcon Technologies Ltd as it was engaged in development of software products and segmental details were not available.

Celestial Labs ltd as it was primarily engaged in clinical research and manufacture of bio and other products and therefore functionally dissimilar to the assessee.

KALS Information Systems ltd as it was engaged in the business of software product development and therefore functionally dissimilar to the assessee.

Accel Transmatic as it was engaged in providing ACCEL IT and ACCEL Animation services which was functionally dissimilar to the assessee.

Lucid Software Limited as it was engaged in the business of software development services and development of software products and segmental details were unavailable.

Infosys Technologies Ltd as it was an IT service giant and assumed all risks while the assessee assumed limited risk.

Wipro Ltd as it was a global IT company and 67% of its sales related to products which were sold at premium resulting in higher profitability.

Tata Elxsi Limited as it was engaged in the development of niche product and development services which was functionally dissimilar to the assessee.

E-Zest Solutions Ltd as it was engaged in rendering product development services and high end technical services which were basically KPO services.

Thirdware Solutions ltd as it earned revenue from sale of licenses and therefore was not comparable to the assessee.

Geometric Software Ltd having RPT 19.98% as it failed the RPT filter of 15% applied by TPO.

Ishir Infotech Limited having RPT 21.97% as it failed the RPT filter of 15% applied by TPO.

Helios & Matheson Information Technology ltd as it was engaged in the business of development and sale of software products and thus functionally dissimilar to the assessee.

Persistent System Ltd as it was engaged in the business of product development and product design services and segmental details were unavailable.

Tavant Technologies India Pvt Ltd vs DCIT-TS-488-ITAT-2017(Bang)-TP-IT(TP)A No.292/bang/2014 and 1592/bang/2012 dated 31.05.2017

133. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Foursoft Limited as it was engaged in the business of software products and thus functionally dissimilar to the assessee.

Thirdware Solution ltd as it failed the 75% revenue filter of ITeS segment applied by TPO.

Tata Elxsi Ltd as it was engaged in providing product design services and thus functionally dissimilar to the assessee.

Further, it included Flextronics ltd which was wrongly excluded by TPO as 85% of the revenue was earned from software development services.

JCIT vs Winphoria Networks India Pvt Ltd-TS-513-ITAT-2017(Bang)-TP dated 24.05.2017

134. The Tribunal held that the assessee engaged in the business of providing IT enabled services to its AE/overseas group company could not be compared to:-

Vishal Information Technologies Ltd as it outsourced majority of its work and thus had a completely different business model than the assessee.

Mold Tek Technologies Ltd as it was engaged in providing structural engineering services and during the year, it had also entered into an extraordinary transaction of amalgamation.

Accentia Technologies ltd as it had a different revenue model comprising of Medical transcription coding and software which was functionally dissimilar to the assessee. And segmental details were unavailable.

E-clerx Services Ltd as it was engaged in providing KPO services which was functionally dissimilar to the assessee.

Bodhtree Consulting Ltd as it was engaged in providing open and end to end web solutions, software consultancy, design and development of solution and segmental details were unavailable.

Informed Technologies India ltd as it had a high profit margin of 34.71% for AY 2007-08 compared to losses for earlier year and therefore had an abnormal business trend.

HCL Comnet Services Ltd as it followed a different accounting year compared to the assessee.

Infosys BPO Ltd as it was engaged in CRM, finance and accounting, knowledge services, order management and procurement and human resources for various vertical business undertaking and thus functionally dissimilar to the assesseee.

Wipro Ltd as the company’s revenue from ITeS segment was Rs 979 crores as compared to assessee’s 55.94 lacs.

American Express (India) Pvt Ltd vs DCIT-TS-551-ITAT-2017(del)-TP-dated 07.06.2017

135. The Tribunal held that the assessee engaged in the business of software development and testing services could not be compared to:-

Avani Cimcon technologies ltd as it was engaged in the business of software product development and thus functionally dissimilar to the assessee.

Celestial Labs ltd as it was engaged in the business of product development in the field of biotech and pharmaceuticals and therefore functionally dissimilar to the assessee.

E-Zest Solutions Ltd as it was rendering product development services and high-end services which would qualify as KPO services which were functionally dissimilar to the assessee.

Infosys Technologies ltd as it had a huge brand influence, ownership of IP, intangibles and huge revenues from software products.

KALS Information systems ltd was engaged in the business of development of software products as well as provision of training services. Further, the information obtained by the TPO u/s 133(6) was contrary to the annual report.

Persistent Systems ltd as it was engaged in product development and product design services and segmental data were not available.

Quintegra Solutions ltd as it was engaged in product engineering services which was functionally dissimilar to the software development service provided by the assessee. Further, it was engaged in proprietary software product and had substantial R&D activity resulting in creation of IPRs.

Tata Elxsi Ltd as it was engaged in product development and design services and not purely software development services.

Thirdware Solutions ltd as it derived revenue from sale of software products and was thus functionally dissimilar to the assessee.

Wipro Ltd as it owned IPR, intangibles and was engaged both in software development and sale of product without segmental bifurcation.

Lucid Software ltd was engaged in development of software products and thus was functionally dissimilar to the assessee.

DCIT vs Century Link Technologies India Pvt. Ltd- [TS-555-ITAT-2017(Bang)-TP]- IT(TP)A No. 292/8an9/2013 & CO No. 48/Bang/2016 dated 09.06.2017

136. The Tribunal held that the assessee engaged in the business of rendering software development services could not be compared to Infosys ltd as it was a giant company owning intangibles and had huge turnover.

Mercedes-Benz Research & Development India Private Limited(Formerly Daimler Chrysler Research & Technology India Pvt.Ltd vs ACIT-TS-529-ITAT-2017 dated 28.04.2017

137. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:-

Bodhtree Consulting Ltd as it was a software product company and therefore functionally dissimilar to the assessee.

Tata Elxsi Limited having turnover of Rs 378.43 crores as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

Infosys Technologies Limited having turnover of Rs. 20264crores as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

Persistent systems ltd having turnover of Rs. 519.69 crores as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

KALS Information Systems ltd having turnover of Rs. 2.14 crores as it failed turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

Sasken Communication technologies ltd having turnover of Rs. 405.31 crores as it failed turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

Zylog Systems Ltd having turnover of Rs. 734.80 crores as it failed turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores.

Mindtree Ltd having turnover of Rs. 793.22 crores as it failed turnover filter of 10 times the assessee’s turnover of Rs. 25.80 crores

Larsen & Toubro Infotech Ltd having turnover of Rs. 1950.8 crores turnover filter of 10 times the assessee’s turnover of Rs 25.80 crores.

ITO vs CSR India P ltd-TS-570-ITAT-2017(Bang)-TP-IT(TP)A.58 & 241 Bang/2014 dated 06.04.2017

138. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:-

Acropetal Technologies Ltd as it failed the Revenue filter of 75% applied by TPO.

E-Zest Solutions Ltd as it was engaged in providing KPO services which was functionally dissimilar to the assessee.

E-infochips ltd as it earned revenue from software development and software products and segmental details were unavailable.

Infosys Ltd as it had huge brand value, intangibles and thus not comparable to the assessee.

Persistent Systems Solutions Ltd as it was engaged in diversified activities like licensing of products, royalty on sale of products as well as income from maintenance of contract etc and therefore functionally dissimilar to the assessee.

Persistent Systems Ltd as it was engaged in diversified activities like licensing of products, royalty on sale of products as well as income from maintenance of contracts and thus functionally dissimilar to the assessee.

Sasken Communications Technologies ltd as it was engaged in software development and software products and segmental details were not available.

Akshay Software Technologies ltd as it was engaged in development of software and software products and segmental details were unavailable.

Further, it remitted the comparability of LGS Global ltd to the file of AO/TPO for fresh consideration since the information obtained u/s 133(6) was different from what was given in the annual report.

DCIT vs LSI India Research Pvt Ltd-TS-571-ITAT-2017(bang)-TP dated 16.06.2017

139. The Tribunal held that the assessee engaged in the business of software development and quality assurance programme working on cutting edge technology could not be compared to:

Bodhtree Consulting Ltd as it was engaged in development of software products and therefore functionally dissimilar to the assessee.

Tata Elxsi ltd as it was engaged in providing services such as embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment and therefore functionally dissimilar to the assessee.

Persistent systems ltd as it was engaged in product designing services and development of software products and thus functionally dissimilar to the assessee.

Infosys Tech. ltd as the company was a giant in the area of software and assumed all risks leading to higher profits whereas assessee was a captive unit and assumed only limited risk.

Further, it held that the assessee’s ITES segment could not be compared to:-

Infosys BPO ltd as the company had an extraordinary development of amalgamation during the year. Further, it was not engaged in direct activity of BPO but provided management services to BPO.

AOL Online India P Ltd-TS-583-ITAT-2017(Bang)-TP dated 09.06.2017

140. The Tribunal held that the assessee engaged in the business of providing software design and development services to its AE could not be compared to:

Acropetal Technologies ltd as its income from information technology services was Rs. 81.40 crores out of total income of Rs. 141. 65 crores which was less than the 75% revenue filter applied by TPO.

E-Infochips ltd as it was engaged in the business of providing software development services, hardware maintenance, information technology and consultancy services which was functionally dissimilar to the assessee. Further, sale of products constituted 15% of total revenue and segmental details were unavailable.

LGS Global Limited as it was engaged in providing software development services to financial and banking industry which was functionally dissimilar to the assessee.

CG-VAK Software & Exports Limited as it was engaged in providing software development services to financial and banking industry which was functionally dissimilar to the assessee.

ACIT vs. Marvell India Pvt. Ltd-TS-592-ITAT-2017(Bang)-TP-IT(TP)A No. 384/bang/2016 and 471/bang/2016 dated 28.06.2017

141. Where the assessee had initially decided not to contest the addition proposed in the assessment order, but subsequently filed an appeal considering the fact that not filing an appeal before the Tribunal would prejudice its tax related matters pending adjudication before different forums for other years, the Tribunal condoned a delay of 148 days in filing appeal by assessee and held that, the issue permeated through all the years and if on account of one year, the adverse finding for that year should not prejudice the assessee’s claim for other years. Further, noting that KALS information’s software development expenditure included software consumption from inventory, it held that since it had inventory, it earned revenue from products and therefore excluded the company from the comparables while benchmarking the international transaction of the assessee who was engaged in the business of software development services.

Aircom International (India) Pvt. Ltd vs. DCIT-TS-399-ITAT-2017(DEL)-TP-ITA No.4403/Del/2012 dated 19.05.2017

142. The Tribunal held that the assessee engaged in the business of developing software and exporting software services could not be compared to :

ICRA Techno Analytics Ltd as it was engaged in diversified activities of software development, consultancy, engineering services, web development and hosting and thus functionally dissimilar to the assessee.

Infosys Ltd as it had a huge brand value, owned intangible assets and was engaged in diversified activities.

Kals Information Systems Ltd as it had inventories in its balance sheet and was engaged in software products and therefore could not be compared with a pure software development service provider.

Persistent Systems Ltd as it was engaged in diversified activities, earned income from outsourcing product development and its segmental details were unavailable.

Sasken Communication Technologies as the company earned revenue from 3 segments-software services, software products and other services but segmental data and particularly operating margins were not available.

Tata Elxsi as it was engaged in diversified activities of product design and innovation and thus functionally dissimilar to the assessee.

Persistent Systems & Solutions ltd as it earned its entire revenue from sale of software services and products and thus functionally dissimilar to the assessee engaged in software development services.

Larsen & Toubro Ltd as it earned its entire revenue from software products and thus was functionally dissimilar to the assessee. Further, it had an RPT of 18.66% and failed the 15% RPT filter applied by TPO.

Further, noting that the DRP had suo motu applied a new onsite revenue filter while rejecting the comparable, the Tribunal held that the new filter should be adopted without any discrimination to all comparables and accordingly, it remanded the comparability of R S Software (India) Ltd to the file of TPO.

DCIT vs ACI Worldwide Solutions P. Ltd (formerly known as Visual Web Solutions P. Ltd-TS-614-ITAT-2017(Bang)-TP-IT(TP)A no 262/bang/2015 dated 26.06.2017

143. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

FCS Software Ltd as it was engaged in the business of software development and IT Consulting services and segmental results were unavailable.

Infosys Technologies ltd as it was a software giant and had huge turnover.

L&T Infotech as it was engaged in software products and had high turnover.

DCIT vs Exfo Electro Optical Engg India Pvt. Ltd-TS-648-ITAT-2017-ITA No. 1347/PUN/2015 dated 07.07.2017

144. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

E-Infochips Limited as it was engaged in the business of software development, hardware maintenance, information technology, consultancy and therefore was functionally dissimilar to the assessee.

Sasken Communications as it earned revenue both from software products and services as against the assessee who provided only software services.

E-zest Solution Limited as it was engaged in providing KPO services and therefore was functionally dissimilar to the assessee.

Acropetal Technologies Limited having revenue from ITES of 56% as it failed the 75% revenue filter applied by TPO.

L&T Infotech Limited as it failed the 15% RPT filter applied by TPO.

Persistent System & Solution ltd and Persistent Systems ltd as it was engaged in diversified activities and earned revenue from licensing of products, royalty on sale of products as well as income from maintenance contract and therefore was functionally dissimilar to the assessee.

Tata Elxsi ltd as it failed the 75% export filer applied by TPO.

Further, in respect of sales and marketing support services, it held that the assessee could not be compared to:

Asian Business Exhibition and Conferences limited as it was engaged in the organization of exhibitions and events as well as conducting conferences on behalf of the various clients for their various products and businesses vis-à-vis assessee which was a sales and marketing services to its AE.

ICC International Agencies Limited as it derived income from trading activity and also maintained inventories and therefore was functionally dissimilar to the assessee.

Electronic Imaging India Pvt. Ltd vs DCIT-TS-659-ITAT-2017(Bang)-TP-ITA No. 1506/BANG/2015 dated 14.06.2017

145. The Tribunal held that the assessee engaged in the business of providing information technology enabled service (ITeS) could not be compared to:

Accentia Technologies Limited as it was engaged in the business of providing high end medical transcription services & had substantial income from coding, therefore functionally dissimilar to the assessee.

Microland Limited as thus it failed the 75% revenue filter applied by TPO, as its revenue from ITeS segment was only 20% of the company’s total revenue.

E4e Healthcare Business Services Pvt Ltd as the company had an outstanding on account of forward contracts of USD 11.85 million and therefore the forward contract had influenced the margins of the company. Further, there was huge difference in the amount of bad debts written off in the earlier years in comparison to the year under consideration.

Further, it included Microgenetic Systems Limited as it satisfied the employee cost filter applied by TPO and accordingly directed the AO/TPO to include the comparable.

Capital One Services India Pvt Ltd vs DCIT-TS-629-ITAT-2017(Bang)-TP-IT(TP)A No. 276/bang/2016 dated 28.06.2017

146. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Infosys BPO Ltd as it was engaged in the business of providing end to end outsourcing service, provider and therefore was functionally dissimilar to the assessee.

Acropetal Technologies ltd as it was engaged in providing high end knowledge processing services and therefore functionally dissimilar to the assessee.

Further, it remanded the comparability of Accentia Technologies Ltd to the file of TPO with a direction to examine the master service agreement of the assessee with its AE and compare the functions performed by the assessee with that of the comparable.

Zyme Solutions P. Ltd vs ACIT-TS-633-ITAT-2017(Bang)-TP- IT(TP)A No. 85/bang/2016 dated 26.07.2017

147. The Court, relying on the decision in assessee’s own case for AY 2008-09 upheld the exclusion of Infosys Technologies ltd, KALS information Systems, Wipro ltd, Accentia technologies, Coral Hub and Eclerx Services and HCL Comnet Systems & Services on ground that (a) the companies were either functionally dissimilar to the assessee engaged in providing software development services (SDS), IT enabled services (ITES) and Market support services (MSS) or (b) the aforesaid companies had revenue from software products/KPO services for which no separate segments were available or (c) they owned branded/proprietary products or (d) their RPT to Sales exceeded the RPT filter of 15% applied by the TPO.

Pr. CIT Vs Avaya India Pvt. Ltd-TS-612-HC-2017(DEL)-TP-ITA no. 473/2017 dated 16.05.2017

148. The Tribunal held that Infosys BPO which had huge brand value, goodwill, huge economies of scale and wide geographical disposal of customers, could not be compared to the assessee,a captive service provider engaged in providing software development services. Further, it remitted the comparability of TCS Eserve, BNR Udyog Ltd and Jindal Intellicom ltd to the file of DRP to decide the issue of availability of segmental data after affording an adequate opportunity of being heard to the assessee.

Indegene Pvt. Ltd (formerly known as Indegene Life Systems Pvt. Ltd) vs ACIT-TS-645-ITAT-2017(Bang)-TP-IT(TP)A no. 591/B/17 dated 02.08.2017

149. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Infosys Ltd as it was giant in the area of development of software having high profits.

Tata Elxsi Ltd as it was engaged in the development of niche product and development services which was entirely different from pure software development company.

Further, it rejected assessee’s plea to exclude the following companies as comparables:

Aztec Software Systems ltd and Megasoft Ltd on the ground that they had RPT in excess of 15% i.e., 17.78% and 18% as it satisfied the 25% RPT filter applied by TPO. It held that the assessee had not brought any evidence or reasons on record justifying application of 15% filter as against 25% applied by TPO.

KALS Infosystems ltd as it earned 75% of revenue from software services and therefore the assessee’s contention that it was engaged in development of application software (software products) and training was not invalid.

Accel Transmatics ltd as it was engaged in both software products as well as software services and segmental details were clearly available contrary to assessee’s claims.

Synopsys (India) Pvt. Ltd vs ACIT-TS-641-ITAT-2017(Bang)-TP-ITA No. 1169/bang/2010 dated 07.07.2017

150. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

FCS Software Ltd as it had high turnover and it owned intangibles.

Infosys Technologies ltd as it was engaged in software products and had brand influence.

ACIT vs Synechron Technologies Pvt. Ltd-TS-646-ITAT-2017(PUN)-TP ITA No.536/PUN/2015 dated 16.06.2017

151. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Tata Elxsi Ltd as it was engaged in software development, product design services, innovative design engineering services and visual computing labs and therefore functionally dissimilar to the assessee.

Infosys Ltd as it was a giant company engaged in software development and software product, owned intangibles and had huge revenue from software products.

Persistent Systems as it was engaged in software products and services and segmental details were not available.

NMS Communications Pvt Ltd vs DCIT-TS-652-ITAT-2017(Bang)-TP-ITA No. 267/bang/2014 dated 14.07.2017

152. The Tribunal, in respect of assessee engaged in the business of software development, remitted the comparability of the following companies to the file of AO/TPO:

Flextronics Ltd, iGate Global Solutions ltd, Infosys Technologies ltd, Mindtree Ltd, Persistent Systems, Sasken Communication technologies ltd, Tata Elxsi ltd, Wipro ltd to decide whether turnover/size of the comparables affected their price/margins.

KALS Information Ltd to verify whether the company was engaged in the business of product development and earned income from training/brand name.

Further, it held that the assessee could not be compared to:

Celestial Biolabs ltd as it was not a pure software development company and was engaged in research and development.

Avani Cimcom Technologies ltd as it was engaged in software services and products and segmental details were unavailable.

Saksoft ltd as it had RPT of 16% which failed the 15% RPT filter applied by TPO.

ITO vs Radisys India P. Ltd-TS-662-ITAT-2017(Bang)-TP-IT(TP)A no. 615/bang/2013 dated 24.08.2017

153. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Avani Cincom Technologies as it was engaged in providing software development and consulting IT services and therefore functionally dissimilar to the assessee.

Bodhtree Consulting ltd as the revenue recognition policy followed by it was different from the assessee.

Infosys Technologies ltd as it was a giant company in terms of risk profile, number of employees and ownership of brand.

KALS Information Systems ltd as it was engaged in providing software development as well as training services and accordingly was functionally dissimilar to the assessee.

Persistent Systems Ltd as it was engaged in licensing of products.

Quintegra Solutions Ltd as it had copyrights of Rs. 2.71 crores which was used in its business which made it functionally dissimilar to the assessee.

Tata Elxsi as it was engaged in providing integrated hardware and packaged software solutions and innovation design and engineering solutions and therefore functionally dissimilar to the assessee.

Thirdware Solutions Ltd as the company earned income from export of software products from SEZ/STPI units apart from sale of license.

Wipro Ltd as it was operating as a full-fledged risk-taking entity and engaged in providing technology infrastructure services, testing services, package implementation and accordingly functionally dissimilar to the assessee.

Akshay Software Technologies ltd as it was engaged in sale of products and accordingly functionally dissimilar to the assessee.

Aircom International India Pvt. Ltd vs DyCIT (2017) 50 CCH 280 (DEL Trib.)-ITA no. 6402/del/2012 dated 02.08.2017

154. The Tribunal held that assessee engaged in the business of providing software development services could not be compared to:

Acropetal Technologies Ltd as the revenue from IT services was Rs. 81.40 crores i.e. less than 75% of the total revenue of Rs. 141.65 crores.

E-Infochips Ltd as it was engaged in the business of providing software development services and sale of software products and also held inventories. Further segmental details were unavailable.

Infosys ltd as it was engaged in the production of software products such as Finacle, I-smart etc and the company also incurred substantial expenditure on R&D, owned intangibles/patents and had tremendous brand value.

ICRA Techno Analytics Ltd as it was engaged in the business of providing software development, consultancy, licensing and sub-licensing, annual maintenance charges for software support and accordingly was functionally dissimilar to the assessee.

Zynga Game Network India Pvt Ltd vs. ACIT-TS-640-ITAT-2017(bang)-TP-IT(TP)A No. 360/bang//2016 dated 12.07.2017

155. The Tribunal remitted the comparability of the following companies while benchmarking the international transaction of the assessee engaged in the business of providing ITeS:

Vishal Information Technologies Ltd as the assessee had not objected for its exclusion before TPO/CIT(A).

Wipro BPO ltd as the CIT(A) had failed to comment on the functional dissimilarities raised by assessee.

Tricom India Ltd as though the assessee itself had selected the comparable, it had now sought its exclusion on the ground of functional dissimilarity, huge R&D activities and, abnormal growth and extraordinary events.

Global e-Business Operations Pvt. Ltd vs DCIT-TS-654-ITAT-2017(BANG)-TP-IT(TP)A no. 297/bang/2014 dated 26.07.2017

156. The Tribunal, while benchmarking the international transactions of the assessee i.e provision of software consulting services to its AE, allowed Revenue’s plea for inclusion of the following companies:

Exensys Software Solutions ltd, iGate Global Solutions and Flextronics ltd, L&T Infotech and Satyam Infotech ltd as they would not be excluded merely because they earned/suffered abnormal profits/abnormal losses.

Bodhtree Consulting ltd since it had only one segment of software development , therefore functionally comparable and could not be excluded merely on the ground of wide fluctuations in the margin.

DCIT vs. Oracle Solutions Services (India) Pvt. Ltd-TS-663-ITAT-2017(bang)-TP-IT(TP)A No. 880/bang/2013 dated 09.08.2017

157. The Tribunal held that the assessee engaged in the business of providing software design and development services could not be compared to:

Tata Elxsi Limited as the company was functionally dissimilar to the assessee as it was not engaged solely in the business of software development services but also embedded product design, industrial services and engineering services which was functionally dissimilar to the assessee.

Infosys Ltd as it was a product company owning significant inventory, intangibles and had earned brand related profits and thus was functionally dissimilar to the assessee.

JCIT vs Rambus Chip Technologies (India) Pvt Ltd-TS-635-ITAT-2017(Bang)-TP- IT(TP)A No. 1091/BANG/2016 dated 28.07.2017

158. The Tribunal excluded E-clerx services Ltd as a comparable while benchmarking the transactions of the assessee (provision of ITeS to its AE), noting that the business model of Eclerx was significantly different as it incurred more than 26% of the total employees and job work cost on outsourcing which was significantly different from the business model of the assessee.

Ariba India Pvt Ltd vs DCIT-TS-750-ITAT-2017(DEL)-TP-ITA No. 5201/del/2012 dated 25.09.2017

159. The Tribunal held that the assessee engaged in the business of providing ITeS and Software development services to its AE could not be compared to:

Microgenetics Systems Ltd as it outsourced its business activity and therefore was functionally dissimilar to the assessee

Infosys BPO Ltd as it was a giant company having brand value, diversified activity and therefore functionally dissimilar to the assessee.

Eclerx Services Ltd as it was a part of the group of a large conglomerate and had huge turnover with global brands, operating on a large scale with lakhs of employees and therefore was functionally dissimilar to the assessee.

TCS E-serve Ltd as it provides technology services involving software testing, verification and validation of software at the time of implementation and data centre management and therefore functionally dissimilar to the services provided by the assessee.

Cosmic Global Ltd as it had a different working model as upto 41% of its expenses were incurred on sub-contracting which had a significant effect on margins.

Avineon India P Ltd vs DCIT-TS-679-ITAT-2017(HYD)-TP dated 07.07.2017

160. The Tribunal held that the assesse rendering software development services and Marketing support services to its AE could not be compared to

Avani Cincom Technologies as it was engaged in the business of providing consulting IT services and therefore functionally dissimilar to the assessee.

Bodhtree Consulting Ltd as it was engaged in providing end-to-end solutions and consultancy services and therefore was functionally dissimilar to the assessee. Further, it recognized revenue based on software developed and billed to clients as against assessee who recognized revenue over the contracted period of development on cost plus basis.

Infosys Technologies ltd as it was engaged in the business of providing services IT consulting and a giant un terms of risk profile, nature of services, number of employees, ownership of branded products and branded products and brand related profits etc vis-à-vis a captive unit providing software development services without any IP rights.

KALS Information Systems Ltd as the annual report of the company showed that it was engaged in the business of providing software development services and software products. Further, it was also engaged in providing training to software professionals online and therefore was functionally dissimilar to the assessee.

Persistent Systems ltd as the company had developed software Products in the area of identity management contractors and therefore was functionally dissimilar to the assessee.

Quintegra Solutions ltd as it was utilizing its own software for providing software development services whereas the assessee did not have any software to be used in rendering software development services.

Tata Elxsi as it offered integrated hardware and packaged software solutions which was functionally dissimilar to the assessee.

Thirdware Solutions ltd as it earned majority of the revenue from exports from SEZ/STPI units and sale of license making it incomparable to the assessee.

Wipro ltd as it was a full-fledged risk-taking entity and was engaged in providing technology infrastructure services, testing services, package implementation and had more than 82000 employees as well as its own R&D centre, making it functionally dissimilar to the assessee.

Akshay Software Technologies ltd as it was engaged in sale of products which was functionally dissimilar to the assessee.

Nihar Info Global ltd as it earned revenue from sale of products and therefore functionally dissimilar to the assessee.

VMF Softtech as it had outsourced its work and therefore functionally dissimilar to the assessee.

Aircom International (India) Pvt Ltd vs DCIT-TS-671-ITAT-2017(DEL)-TP-ITA No. 6402/del/2012 dated 02.08.2017

161. The Tribunal held that the assessee engaged in the business of providing IT enabled services/business processing services to its AE could not be compared to:

Infosys BPO Ltd as it had high brand value and turnover associated with the Infosys brand rendering it incomparable to the assessee.

Accentia Technologies Ltd as it had an extraordinary event of amalgamation with IQ group of companies which had an impact on the financial results of the company.

E-Clerx Services Ltd as it was engaged in KPO services and therefore was functionally dissimilar to the assessee.

Further, it remitted the comparability of Jeevan Softech Limited to the file of AO/TPO to work out its correct margins and include it in the list of comparables for benchmarking.

DCIT vs BNY Mellon International Operations (India) Pvt. Ltd-TS-769-ITAT-2017(PUN)-TP ITA No.303/PUN/2015 dated 27.09.2017

162. The Tribunal held that FCS Software India engaged in development of products & sale of products could not be compared to assessee engaged in software development services. Further, it observed that FCS Software was also engaged in imparting education to corporate companies and institutions of central and state government and accordingly, upheld CIT(A)’s exclusion of FCS on grounds of functional dissimilarity.

DCIT vs Barclays Technology Centre India Pvt Ltd-TS-770-ITAT-2017(PUN)-TP-ITA No. 1251 / PUN /2015 dated 29.09.2017

163. The Tribunal held that the assessee engaged in the business of providing software development and quality analysis services could not be compared to:

Infosys Ltd as it was a giant company having huge turnover, brand value, significant AMP expenditure and therefore was incomparable to the assessee.

KALS Info Systems Limited as it earned revenue from software services and software products for which segmental details were unavailable, rendering it functionally dissimilar to the assessee

Tata Elxsi Ltd as it was engaged in development of specialized/niche products and therefore functionally dissimilar to the assessee.

Mentor Graphics (India) Private Limited vs DCIT-TS-799-ITAT-2017(DEL)-TP ITA No. 2587/Del/2014 dated 27.09.2017

164. The Tribunal held that the assessee engaged in the business of providing software development services to its (AEs) could not be compared to:

Infosys Ltd as it was engaged in providing end to end solutions encompassing technical, consulting, design, development, reengineering, maintenance, systems integration and package evaluation and implementation.

KALS Info Systems Ltd as it was engaged in software development services and software products and segmental details were unavailable.

Tata Elxsi Ltd as it was engaged in niche product and development services and therefore functionally dissimilar to the assessee.

Accel Transmatics ltd as it was engaged in the services in the form of training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CADICAMIBPO and animation services for 2D and 3D animation.

Sykes Enterprises (India) Pvt Ltd vs ACIT-TS-798-ITAT-2017(BANG)-TP IT(TP)A No.1291/Bang/2010 dated 01.09.2017

165. The Tribunal allowed assessee’s appeal seeking exclusion of Wipro technologies as a comparable for benchmarking software development services for AY 2010-11. Relying on the decision in the case of Open Solutions and Saxo held that since Wipro had acquired all Citi Group interests by virtue of Master Services Agreement (MSA), it would make subsequent rendition of services by this company to Citi Group fall within the ambit of deemed international transaction and fail the RPT filter as entire revenue of this company would be on account of RPT rendering it incomparable to the assessee. Accordingly, it directed the exclusion of this company from the final list of comparables.

Agnity India Technologies Pvt Ltd vs DCIT-TS-778-ITAT-2017(DEL)-TP ITA No.955/Del./2015 dated 20.09.2017

166. The Tribunal held that the assessee engaged in providing software development services to its AEs could not be compared to:

ICRA Techno Analytics Ltd as it had an RPT of 20.94% and failed the 15% RPT filter applied by TPO.

Infosys ltd as it was engaged in providing end to end business solutions that leverage cutting edge technology. Further, it had huge brand value and intangibles as well as its high bargaining power rendering it incomaparable to the assessee.

KALS Information Systems Ltd as it was engaged in the business of software products and could therefore could not be compared to a pure software development service provider.

L&T Infotech as it earned 49% of its revenue from on-site software services and had an RPT of 18.66% failing the 15% RPT filter.

Persistent Systems Limited as was engaged in diversified activities and earning revenue from various activities including licensing of products, royalty on sale of products as well as income from maintenance contract, etc.

Sasken Communication Technology Ltd as it earned revenue from 3 segments and the segmental operating margins were not available.

Tata Elxsi Limited as it earned revenue from software development services as well as product and segmental data was not available.

Further, it remitted the comparability of Mindtree Ltd to the file of TPO/AO to consider the functional comparability vis-à-vis the assessee.

Softtek India Pvt Ltd vs. DCIT-TS-844-ITAT-2017-TP I.T. (T.P) A. No.396/Bang/2015 dated 31.08.2017

167. The Tribunal remitted the TP-issue relating to assessee’s international transactions viz., provision of software development services to its AE to the file of CIT(A) for fresh consideration. The TPO had rejected the assessee’s application of cost plus method (CPM) as most appropriate method assessee had failed to substantiate how the requirements for applying CPM had been fulfilled and applied TNMM as it was more tolerant to functional differences between enterprises. Noting that the assessee had not given any basis or detail regarding the comparables before the TPO for which he was left with no other alternative and considered TNMM as the most appropriate method to take care of functional differences, it remitted the matter to the file of CIT(A) for fresh adjudication.

DCIT vs. Vedaris Technology Pvt. Ltd-TS-768-ITAT-2017(DEL)-TP ITA No.166/Del/2011 dated 29.09.2017

168. The Tribunal held that the assessee engaged in the business of providing IT and ITes could not be compared to:

Accentia Technologies Ltd as it had an extraordinary event during the year and therefore was incomparable to the assessee.

E-clerx Services Ltd as it was engaged in providing complete business solutions in the nature of high end services and therefore was functionally dissimilar to the assessee.

Infosys BPO as it had benefit of market value as well as brand value and enjoyed benefits of scale and market leadership.

ACIT vs. Mindteck (India) Ltd-TS-784-ITAT-2017(Bang)-TP 426/Bang/2015 2010-11 dated 27.09.2017

169. The Tribunal held that the assessee engaged in the business of providing ITeS and Software development services to its AE could not be compared to:

Microgenetics Systems Ltd as it was incurring expenses for the purpose of outsourcing activity and therefore was functionally dissimilar to the assessee

Infosys BPO Ltd as it was a giant company having brand value, diversified activity and therefore was functionally dissimilar to the assessee.

TCS E-serve ltd as it provided technology services involving software testing, verification and validation of software at the time of implementation and data centre management

Cosmic Global ltd had a different working model and expenses upto 41% were on sub-contracting which had a significant effect on margins.

Avineon India P Ltd vs DCIT-TS-679-ITAT-2017(HYD)-TP dated 07.07.2017

170. The Tribunal held that the assessee engaged in providing software development services could not be compared to:

Avani Cimcon Technologies Ltd as it was engaged in providing software development services and software products and segmental details were unavailable.

Celestial Biolabs Ltd as it was engaged in product development in the field of biotech and pharmaceuticals rendering it functionally dissimilar to the assessee.

E-zest Solutions Ltd it was engaged in rendering product development and KPO services and therefore was functionally dissimilar to the assessee.

Infosys Technologies Ltd as it had substantial brand value, owned intellectual property right and was a market leader in software development activities.

KALS Information Systems Ltd as it was engaged in development of software products and also provision of training services rendering it functionally dissimilar to the assessee.

Lucid Software Ltd as it was engaged in software products and therefore could not be compared to the assessee.

Persistent Systems Ltd as it was engaged in product development and product design services and segmental details were unavailable.

Quintegra Solutions Ltd as it was engaged in product engineering services and therefore functionally dissimilar to the assessee.

Softsole India ltd as it had an RPT of 17.98% failing the 15% RPT filter applied by TPO.

Tata Elxsi Ltd as it was engaged in product designing services and not pure software development services rendering it functionally incomparable to the assessee.

Thirdware Solutions Ltd as it was engaged in software development services and earned revenue from sale of licenses and subscription and therefore was functionally dissimilar to the assessee.

Wipro Ltd as it owned IPR, intangibles and was also engaged in software development services and software products and segmental details were unavailable.

ABB Global Industries & Services Limited vs ACIT-TS-816-ITAT-2017(BANG)-TP IT(TP)A No.1612/Bang/2012 dated 24.08.2017

171. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Bodhtree Consulting ltd as it was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology and therefore was functionally dissimilar to the assessee.

Further, it remitted the comparability of FCS Software Solutions ltd and Thinksoft global services ltd to the file of TPO, directing it to examine the benefit of working capital adjustment and include it in the final list of comparables.

Ariba Technologies India Pvt. Vs ITO-TS-831-ITAT-2017(bang)-TP IT(TP)A No.1592/Bang/2014 dated 11.10.2017

172. The Tribunal held that assessee engaged in providing software development services could not be compared to:

Bodhtree Consulting Ltd as it had fluctuating margins and followed a different revenue recognition model i.e a fixed price model.

Infosys Technologies Ltd as its brand value was much higher than the brand value of the assessee company

Further, the Tribunal included the following as comparables :

TATA Elxsi Ltd as functions of both the assessee as well as of this company were broadly comparable. It opined that when TNMM is used as the MAM (Most Appropriate Method), the functions need not be identical and a broad similarity, would suffice for the purpose of selecting a comparable.

Persistent Systems Ltd. as it was functionally similar to the assessee

Larsen & Toubro Infotech Ltd., it rejected assessee’s plea for exclusion of the company on the ground that the related party transactions in the case of this company was more than 15% accepting Revenue’s contention that 25% RPT filter had been consistently applied by the Tribunal in various cases.

Tribunal remitted back to the file of AO, FCS Software Solutions &Think Soft Global Services Limited for the limited purpose of verification of the nature of core activity and availability of segmental data and Sasken Communication Technologies Ltd to AO for computation of margins.

CAE Simulation Technologies Pvt Ltd [TS-796-ITAT-2017(Bang)-TP] I.T(TP).A. NQ. l0Q/Bang/2()14 dated 01.09.2017

173. The Court dismissed Revenue’s appeal challenging ITAT’s exclusion of comparables for assessee providing software development services to AE for AY 2007-08. The Tribunal had relied on Hewlett Packard India Global Soft ruling (wherein identical set of comparables were considered) and opined that since the functional profile of the assessee was identical to that of Hewlett Packard India, no different conclusions on comparables could have been arrived at. The Court, noting that the Tribunal had extracted its previous ruling in Hewlett Packard India Global Soft which contained analysis of each of the 16 comparables that were subject matter of the present appeal, rejected the Revenue contention that without fresh determination as to the identical set of the comparable entities taken into account in Hewlett Packard India Global Soft, the Tribunal could not have ‘blindly’ followed its previous rule. It held that the Tribunal had clearly communicated and carried out a functional and factual analysis in the present case and therefore no substantial question of law arose.

Pr. CIT vs. ST Microelectronics Pvt. Ltd.-TS-850-HC-2017(DEL)-TP dated 30.10.2017

174. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Bodhtree Consulting Ltd as it was engaged in providing end to end web solutions, off shore data management, software consultancy and design and development of software using latest technology rendering it functionally dissimilar to the assessee.

Infosys Ltd as it was a giant company owing huge intangibles. Further, it earned income from software services as well as software products without adequate segmental results and was therefore functionally dissimilar to the assessee.

Celstream Technologies Pvt. Ltd vs. DCIT-TS-853-ITAT-2017 dated 29.07.2017

175. The Tribunal held that the assessee engaged in the business of providing software development services to its AEs could not be compared to:

Exensys Software Solutions Ltd as it had abnormal profits on account of extra ordinary event of amalgamation and non-availability of segmental results.

Thirdware Solutions Ltd as it was engaged in providing software development services as well as software products and segmental details were unavailable.

Sankhya Infotech Ltd as it was engaged in the business of development of software products and services and training, and segmental results were unavailable.

Bodhtree Consultancy Ltd as it had an RPT of 24.68% failing the 15% RPT filter applied by TPO.

Geometric Software Solutions Ltd as it was engaged in providing software development services as well as software products and segmental details were unavailable.

Foursoft Ltd as it was engaged in product development and ownership of products such as LS etrans and 4S elog and therefore was functionally dissimilar to the assessee.

SAP Labs India Private Ltd vs Addl.CIT-TS-855-ITAT-2017(bang)-TP dated 22.09.2017

176. The Tribunal held that the assessee engaged in the business of providing software development services to its AEs could not be compared to:

E-Infochips Bangalore Ltd as it was engaged in product and semiconductor engineering services having 500 products for key verticals like aerospace and defence, security and surveillance, consumer devises, medical devices, retail and e-commerce and software technology and it was a Member of Indian Electronics and Semiconductor Association (IESA).

Infinite Data Systems Pvt Ltd. as it was engaged in providing solutions that encompass technical consulting, design and development of software, maintenance, systems integration, implementation, testing and infrastructure management services.

Further, in respect of the ITES segment, it excluded TCS E-Serve International Ltd as it had volatile profit margin, super-normal growth of 173% in revenue and was an industry giant as against the assessee which was a captive service provider rendering back-end support services to its AE.

Stryker Global Technology Center Private Limited vs. DCIT-TS-863-ITAT-2017(DEL)-TP-ITA No.6866/Del./2014 dated 13.10.2017

177. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:

Eclerx Services Ltd as it was rendering different set of services such as data analytics, computer added simulations to global clients and therefore was functionally dissimilar to the assessee.

TCS e-Serve Ltd as it was involved in high end services like transaction processing, technical services involving software testing, verification and validation of software at the time of implementation and management activities rendering it functionally dissimilar to the assessee.

Further, it remitted the comparability of R Systems International Ltd to the file of TPO directing the assessee to provide relevant information and TPO to verify the same and if found appropriate include the same.

BT e-Serv (India) Pvt Ltd vs ITO-TS-949-ITAT-2017(DEL)-TP dated 30.10.2017

178. The Tribunal accepting Revenue’s plea, included Exencys Software Solutions, Flextronics Software Systems, iGate Global Solutions Ltd, Infosys Technologies Ltd (which were excluded by the CIT(A) on the ground that they did not satisfy the Turnover filter of Rs. 1-200 crores) and held that the a company cannot be excluded only on the ground of turnover filter. While the assessee conceded to the application of the Turnover filter during the hearing before the Tribunal and contested the exclusion of the comparables based on functionality, the Tribunal noting that the plea of the assessee had not been taken before the TPO dismissed the assessee’s contention.

ITO vs Infinera India Pvt Ltd-TS-866-ITAT-2017(Bang)-TP IT(TP)A No.599/Bang/2013 dated 13.10.2017

179. The Tribunal held that the assessee engaged in providing IT and ITES services to its AE could not be compared to:

Exensys Software Solutions Limited as it had an extraordinary event of amalgamation in the relevant year leading to increase in income.

Infosys Limited as it had a hybrid business model of supplying products and providing services to its customers

Thirdware Solutions Limited as it earned revenue from subscriptions and no segmental data was available between the product and service segment.

Vishal Technologies Limited as it outsourced most of its business and its employee cost was 25% of total cost vis-à-vis 1.36% of the assessee.

Wipro BPO Solutions Limited as it was a market leader and element of brand value was associated with it and therefore could not be compared with the assessee.

Maple E-Solutions Limited as its financial results were not reliable.

ACIT vs. Tata Consultancy Services Ltd. (formerly TCS Business Transformation Solutions Ltd.)-TS-842-ITAT-2017(MUM)-TP ITA No. 6648/Mum/2012 dated 18.10.2017

180. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:

Accentia Technologies Ltd as it was engaged in providing KPO services, was a product development company which held significant IPRs and its segmental information was not available.

Acropetal Technologies Ltd as it was engaged in providing high end engineering design services rendering it functionally dissimilar to the assessee.

Further, it remitted the comparability of i) Jeevan Scientific Technology Ltd to verify whether the income from BPO operations was less than 1 cr in which case the company was to be excluded, ii) Infosys BPO to examine the functional comparability and iii) ICRA Online Ltd for the limited purpose of computation of margin to the file of TPO.

Novo Nordisk India Pvt. Ltd vs. DCIT-TS-879-ITAT-2017 IT(TP)A No.247/Bang/2016 dated 31.08.2017

181. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Infosys Limited as it was a giant company in terms of risk profile, nature of services, number of employees, ownership of branded proprietary products, expenditure on R&D rendering it incomparable to the assessee.

Tata Elxsi as it was engaged in product design services, innovation design engineering services and visual computing labs and had specialized and niche domain of software products/ services and therefore was functionally dissimilar to the assessee.

Persistent Systems Ltd as it was dealing in software products and earned its income both from software services and products.

Thirdware Solutions Ltd as it earned revenue from subscription as well as sale of license rendering it functionally incomparable to the assessee.

NEC Technologies India Ltd (formerly known as NEC HCL Systems Technologies Ltd) vs DCIT-TS-887-ITAT-2017(DEL)-TP ITA No.1102/Del./2015 dated 27.10.2017

182. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

Bodhtree Consulting Ltd as it was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology and therefore functionally dissimilar to the assessee.

KALS Information Systems Ltd as it was providing services in the field of consultancy, information provider and general insurance sector rendering it functionally incomparable to the assessee.

Further, it included Thinksoft Global Services and FCS Software Solutions Ltd in the list of comparables as they were functionally similar to the assessee..

NI Systems (India) Pvt. Ltd vs. DCIT-TS-900-ITAT-2017(Bang)-TP-ITA No. 1337/bang/2014 dated 10.11.2017

183. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:

FCS Software Ltd as its revenue from software services comprised of 42% of the total revenue

Eclerx Services Limited as it was engaged in providing KPO services rendering it functionally dissimilar to the assessee.

Accentia Technologies Limited as it had extraordinary event of amalgamation/merger during the year which had an impact on its profits.

Infosys BPO Ltd as it was a giant company and deals with variety of functions and integrated services and was differentiated by huge brand value and scale of operation.

DCIT vs. PTC Software (India) Pvt. Ltd-TS-914-ITAT-2017(PUN)-TP- ITA No.572/PUN/2015 dated 27.10.2017

184. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Larsen and Turbo Infotech as it was engaged in the sale of products apart from rendering software development services and segmental details were unavailable

Persistent Systems as it was engaged in product development, product design and analysis services rendering it functionally dissimilar to the assessee.

Persistent Systems Solutions Ltd as its net profit for the relevant year increased by 247% and turnover increased by 184%.

Sasken Communication Technologies as it had significant intangibles in the form of sasken branded products and exceptional year of operation.

Wipro technologies as it was engaged in providing program management, third party data security, quality assurance and business process management services and that the company is a product company rendering it functionally dissimilar to the assessee.

Agilis Information Technologies Interntional Pvt. Ltd. (Now known as Infogix International Pvt. Ltd.) Vs ITO -TS-894-ITAT-2017(DEL)-TP-ITA No. 1063 / del / 2016 dated 13.11.2017

185. The Tribunal held that the assessee engaged in the business of providing software development services could not be compared to:

Bodhtree Consulting Ltd as it was engaged in the business of software products and was engaged in providing open & end to end web solutions software consultancy and design & development of software using latest technology and therefore was functionally dissimilar to the assessee.

Persistent Systems Ltd as it was engaged in product designing services and into software product development rendering it functionally dissimilar to the assessee.

L&T Infotech and Sasken Communications Technologies Limited as they had a turnover of more than 200 crores as compared to the assessee of Rs. 111.60 crores.

Infosys Ltd as it was a giant company in the area of software and it assumed all risks leading to higher profits rendering it incomparable to the assessee.

KALS Information systems Ltd as it was engaged in the development of software products and services and segmental details were unavailable.

Tata Elxsi Limited as it was engaged in providing embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment and therefore was functionally dissimilar to the assessee.

DyCIT vs Sterling Commerce Solutions India Pvt. Ltd.-TS-920-ITAT-2017(BANG)-TP- ITA No. 186/Bang/2014 dated 31.10.2017

186. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

KALS Information Systems as it was engaged in software development services and software products and segmental details were unavailable.

Bodhtree Consulting Co. as it was engaged in the business of software products and in providing open & end to end web solutions software consultancy and design & development of software using latest technology rendering it functionally dissimilar to the assessee.

Sling Media Pvt. Ltd vs Deputy Commissioner of Income Tax- TS-917-ITAT-2017(bang)-TP- ITA No 253/Bang/2014 dated 27.10.2017

British Marine PLC -India Branch [TS-908-ITAT-2017(Mum)-TP dated 27.10.2017

187. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

Sasken Communication Technologies Ltd, SQL Star International Ltd, Space Computer and Systems Ltd as it had a wage/sales ratio of 61.85%, 27.61% and 22.99% respectively and failed the 30% to 60% range of the employee cost filter applied by the TPO.

Avaya India Private Limited vs. DCIT-TS-944-ITAT-2017(Bang)-TP ITA No.1420/Del/2014 dated 30.11.2017

188. The Tribunal held that the assessee engaged in providing ITES services to its AE could not be compared to:

Accentia technologies Ltd as it was engaged in (i) Healthcare Receivables Cycle Management (HRCM) and (ii) development of software products for Business Processing Outsourcing (BPO) and segmental details were unavailable.

Cosmic Global Limited as it earned revenue from 3 segments Viz., medical transcription, translation services and accounts BPO segment and segmental details were unavailable. Further, it had an abnormal growth of 106%.

Eclerx Services Limited as it was a KPO providing data analytics and data process solutions to global enterprise clients and had significant intangibles to the tune of 7.24% and it was also engaged in providing sales and marketing support services to leading global manufacturing, retail, travel and leisure companies and therefore functionally dissimilar to the assessee.

NCS Pearson India Private Limited vs. ACIT-TS-868-ITAT-2017(DEL)-TP ITA No.2556/Del./2014 dated 25.10.2017

189. Where the Tribunal had while adjudicating comparables in respect of assesse engaged in the business of providing IT Enabled services to its AE excluded a) Eclerx on the ground that it provided high value financial services relating to consultancy business and solution testing and web content management and web analytics, (b) ICRA techno Analytics on the ground that it was engaged in processing and providing software development and consultancy and engineering services/web development services. (c) TCS E-serve as it had high brand value impacting its profitability and (d) Accentia Technologies Pvt Ltd as it was engaged providing in KPO services in the healthcare sector, the Court held that the Tribunal’s findings were reasonable and accordingly dismissed revenue’s appeal.

Pr.CIT vs B.C Management Services Pvt Ltd-TS-948-HC-2017(DEL)-TP-ITA no.1064/2017 and CM no. 43177/2017 dated 28.11.2017

190. Where the CIT(A) had while considering the remand report from the TPO in respect of assessee engaged in software development services excluded Infotech Enterprises Ltd and Subex Systems Ltd as it had substantially high proportion of related party transaction i.e 45.03% and 31.86% respectively, the Tribunal upheld that order of CIT(A) and dismissed Revenue’s appeal by holding that since the order of the CIT(A) was detailed and reasoned, there was no need to interfere with the same.

DCIT vs Transwitch India Pvt Ltd-TS-895-ITAT-2017(DEL)-TP – I.T.A .No. 4375/DEL/2011 dated 06.11.2017

191. The Tribunal held that the assessee engaged in the business of providing human resource related services, payroll processing services, training and performance system data entry to its AE could not be compared to:

TCS e-Serve Ltd as it had significant brand influence which affected the profitability.

Infosys BPO Ltd as it had brand value and incurred substantial selling and marketing expenditure. Further, there was an event of acquisition in the relevant year and therefore, it could not be compared to the assessee.

Excel Infoways ltd as there was contradiction in the facts or data sourced from annual report and as per information gathered u/s 133(6).

Baxter India Pvt Ltd vs ACIT-TS-694-ITAT-2017(DEL)-TP-ITA No. 6158/del/2016 dated 24.08.2017

192. Where the Revenue filed an appeal before the High Court after a delay of 430 days, the Court refused to condone the delay and dismissed its appeal against Tribunal’s order excluding ‘Coral Hub Ltd’, Infosys BPO and Wipro BPO from the list of comparables for ITeS provider. Following the decisions in the case of Rampgreen Solutions (P) Ltd [TS-387-HC-2015(DEL)-TP], Pentair Water India (P) Ltd [TS-566-HC-2015(BOM)-TP] and Agnity India Technologies Pvt. Ltd [TS-189-HC-2013(DEL)-TP] wherein exclusion of the comparables [Coral Hub (since its business model was based on outsourcing, Infosys BPO & Wipro BPO as it had huge turnover, economies of scale and brand value)] was upheld, it held that no substantial question of law arose and accordingly dismissed the department’s appeal.

Pr.CIT vs New River Software Services Pvt. Ltd-TS-672-HC-2017(DEL)-TP-ITA No. 924/2016 dated 22.08.2017

193. The Court dismissed Revenue’s appeal challenging Tribunal order on comparables selection dismissing Revenue’s contention that the Tribunal order was perverse and incomplete as it dealt with only one of the several grounds considered by DRP in support of its conclusion. It noted that the Tribunal had directed inclusion of one loss making comparable which was functionally similar to the assessee and exclusion of 2 comparables on ground of functional differences and had given detailed reasons in support of its conclusion. Further, it noted that the memorandum of appeal filed by Revenue and the questions of law raised for its consideration did not mention a specific plea that the Tribunal order was perverse and observed that the ground of perversity was not to be casually urged and was to be supported by a proper pleading which again has to be on the basis of a detailed study of the impugned order of the Tribunal pointing out to High Court in what manner the Tribunal’s conclusions can be said to be perverse, which was not done in the instant case. Accordingly, it held that no substantial question of law arose.

Pr.CIT vs Sojitz India Pvt Ltd-TS-704-HC-2017 (DEL)-TP-ITA No. 742/2017 dated 04.09.2017

194. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Bodhtree Consulting Limited as it was engaged in IT consulting and product engineering service and had a wide array of business activities like data warehousing and data management and therefore was functionally dissimilar to the assessee.

Infosys Technologies Ltd as it had mega operations and significant assets and brand value and full-fledged risk-taking company and therefore was not comparable to the assessee.

Further, it remitted the comparability of Sonata Software Limited and Gold Stone Technologies ltd to the file of TPO to determine the RPT percentage and segmental details.

Further, in respect of the ITES segment, the Tribunal held that assessee providing IT back office support services comprising of UNIX/windows administration and support, internal helpdesk services could not be compared to:

Accentia Technologies ltd as it was engaged in medical transcription, billing and collections, income from coding etc and segmental information for each stream was unavailable.

E-Clerx Services Ltd as it was engaged in providing KPO services and had outsourced substantial work to third parties.

Vishal Info Tech as it outsourcing charges of 90.57% which reflected that it had a different business model and it was also engaged in e-publishing services which was a KPO business model rendering it functionally dissimilar to the assessee.

Cadence Design Systems (India) Pvt Ltd vs DCIT-TS-716-ITAT-2017(DEL)-TP-ITA No. 2074/del/2014 dated 04.09.2017

195. The Tribunal held that the assessee a captive service provider engaged in the business of providing software research and development services to its AE could not be compared to:

E-Infochips Ltd as it earned revenue from software development, hardware maintenance, information technology and consultancy services and no segmental data was available.

Acropetal Technologies ltd as it failed the 75% Revenue filter applied by TPO as the income from software development services [Rs. 81. 40 cr out of rs. 141.65 cr] was only 57.46% of the total revenue.

Microsoft Research Lab India Pvt. Ltd vs. ACIT-TS-701-ITAT-2017(Bang)-TP-IT(TP)A no. 115/bang/2016 dated 16.08.2017

196. The Tribunal held that the assessee engaged in the business of providing ITeS services could not be compared to:

Accentia Technologies ltd as it was operating under Software as a service model (SAAS) model and had developed its own software product for BPO services and therefore was functionally dissimilar to the assessee.

Datamatics Financial as the export sale of 58.90% and failed the 75% export filter applied by TPO.

ICRA online Ltd as it was engaged in KPO services and therefore was functionally dissimilar to the assessee.

Infosys BPO Ltd as it was a giant company with the benefit of brand value and market leadership.

E-clerx Services Limited as it was engaged in providing data analysis, operating management, audits, reconciliation, metrics management and operating services and therefore was functionally dissimilar to the assesse.

Further, it remitted the comparability of Jeevan Scientific Technology Limited to verify the segmental details submitted by the assessee as the annual report of the company showed that its revenue/income comprised of various operations and activities which included BPO, ERP project implementation, corporate and student training and income from study centre and the assessee had contended that segmental details were available which were not accepted by TPO.

ITO vs Arctern Consulting (P) ltd-TS-717-ITAT-2017(bang)-TP-I.T. (T.P) A. No.195/Bang/2015 dated 11.08.2017

197. The Tribunal held that the assessee engaged in providing software development services could not be compared to Persistent Systems ltd as it was engaged in providing software development services as well as manufacture and sale of software products and therefore was functionally dissimilar to the assessee. Further, it included E-Zest Solutions ltd as it was engaged in providing development and design services, software product testing, maintenance and support and license management and the assessee had not provided any document to show that the comparable owned any intangible assets or had any inventory. It remitted the comparability of E-Infochips Bangalore ltd and Mindtree Limited to the file of AO to verify the functional comparability vis a vis the assessee and existence of peculiar circumstances respectively.

Conexant Systems Private Limited vs DCIT-TS-681-ITAT-2017(HYD)-TP-ITA No.264/Hyd/2015 dated 23.08.2017

198. The Tribunal held that the assessee engaged in the business of sale of user license of enterprise application to external parties, software development, software related services and back office services to its AE could not be compared to:

Accentia Technologies Limited as it was engaged in e-prescription and document management services which were KPO services which was functionally dissimilar to the assessee

Acropetal Technologies Limited as it was engaged in providing engineering design services and therefore was functionally dissimilar to the assessee.

eClerx Services Limited as it was engaged in providing KPO services and therefore was functionally dissimilar to the assessee.

TCS e-serve Limited as it was engaged in providing technical services comprising of software testing, verification and validation of software at the time of implementation and data centre service management activities which was functionally dissimilar to the assessee.

Infosys BPO Limited as it was a giant company with high risk profile and therefore could not be compared with the assessee having low risk profile.

Further, it included E4e Healthcare Business Services Private Limited to the final list of comparables as the assessee had no objection to the inclusion of this company provided the correct margin was taken and accordingly directed the AO to include this company the correct margin.

DCIT vs Infor (India) Private Limited-TS-682-ITAT-2017(Hyd)-TP-ITA.No.113/Hyd/2016 dated 07.07.2017

199. The Tribunal held the assessee engaged in the business of providing software development services to its AE could not be compared to:

Celestial Biolabs Ltd as it was engaged in providing clinical research and manufacture of bio products and other products rendering it functionally dissimilar to the assessee.

Avani Cimcon Technologies ltd as it was earning revenue from software products as well as services and its segmental details were unavailable.

ITO vs. Radisys India P Ltd-TS-747-ITAT-2017(bang)-TP-I.T(TP).A No.615/Bang/2013 dated 24.09.2017

200. The Tribunal held that assessee engaged in the business of providing IT related services could not be compared to:

Celestial Labs as it was engaged in providing pure software development services and R&D and therefore was functionally dissimilar to the assessee.

Avani Cimcon Technologies as it was earning revenue from software products along with IT services and its segmental details were unavailable.

Further, it remitted the comparability of Flextronics Ltd, iGate Global Solutions Ltd, Infosys Technologies Ltd, Mindtree Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd, Tata Elxsi Ltd, Wipro Ltd to the file of AO/TPO to verify whether the turnover or size of the said comparables affected their price/margins. It also remitted the comparability of KALS Information Ltd to the file of AO/TPO for computation of margin and to examine whether it was engaged in product development and earned income from training/brand name.

Radisys India P Ltd [TS-662-ITAT-2017(Bang)-TP-I.T(TP).A No.615/Bang/2013 Dated 24.08.2017

201. The Tribunal held that the assessee engaged in the business of software development services could not be compared to:

E-Infochips Limited as it earned revenue from software development, hardware maintenance, information technology, consultancy without adequate segmental data rendering it functionally dissimilar to the assessee.

Sasken Communication Technologies ltd as the company was engaged in providing software services and software products and segmental details were unavailable.

E-Zest Solution ltd as it was engaged in providing KPO services which was not functionally comparable to the assessee.

Acropetal Technologies ltd as its income from ITES was less than 75% of its total income failing the filter applied by TPO.

L&T Infotech Limited as it had an RPT of 18.66% and failed the 15% RPT filter applied by TPO.

Persistent System Solution ltd as it was engaged in providing licensing of products and earned income from maintenance contract and therefore was functionally dissimilar to the assessee.

Tata Elxsi Limited as its export revenue to total revenue was 73.30% which failed the 75% filter applied by TPO.

ICRA technology Analytics Limited as it was engaged in providing KPO services rendering it functionally dissimilar to the assessee.

Infosys Technologies Limited as it had huge brand value, intangibles and huge turnover and therefore could not be compared to the assessee.

Electronic Imaging India Pvt Ltd vs DCIT-TS-659-ITAT-2017(Bang)-TP-ITA No. 1506 / bang / 2015 dated 14.07.2017

202. The Tribunal held that the assessee a captive software development services provider could not be compared to:

ICRA Techno Analytics Ltd as it had an RPT of 20.94% and failed the 15% RPT filter applied by TPO.

Infosys Ltd as it had huge brand value, substantial intangible asset and bargaining power and there could not be compared to a captive service provider.

KALS Information Systems Ltd as it was engaged in the business of software products and had huge inventory rendering it functionally dissimilar to the assessee.

Persistent Systems Ltd as it was engaged in diversified activities and earned revenue from licensing of products, royalty on sale of products as well as income from maintenance contract.

Sasken Communication Technologies Ltd as it had 3 revenue segments viz., software services, software products and other services without adequate segmental details.

Tata Elxsi Ltd as it was engaged in providing diversified services like product design, innovation design services, visual computing labs rendering it incomparable to the assessee.

Further, in respect of sales and marketing segment, it held that the assessee could not be compared to:

HCCA Business Services Pvt. Ltd as it was engaged in providing payroll process services which was functionally dissimilar.

Killick Agencies & Marketing Ltd as it was acting as an agent for various foreign principals for sale of dredgers, dredging equipment, steerable rudder propulsions and other equipment and machineries rendering it functionally dissimilar to the assessee.

AMD India Pvt Ltd vs DCIT-TS-702-ITAT-2017(Bang)-TP-IT(TP)A No.242 & 204 / B / 15 dated 24.08.2017

203. The Tribunal held that assessee engaged in providing software development services to its AEs could not be compared to:

KALS Information Systems Limited as it was engaged in development of software products and services and therefore could not be compared to a pure software development service provider.

Bodhtree Consulting Limited as it was engaged in business of software products and providing open and end to end web solutions software consultancy and design and development of software rendering it functionally dissimilar to the assessee.

Tata Elxsi Limited as it was engaged in software development services comprising of embedded product design services, industrial design and engineering services and visual computing labs and system integration services and segmental details were unavailable.

Persistent Systems Limited as it was engaged in product designing and software product development. Further it had a research centre for development informatics, specially life time product, life cycle services, medical research, chemistry and computer science rendering it functionally dissimilar to the assesee.

Infosys Limited as it owned significant intangibles, brand influence and had huge revenue from software products.

Kodiak Networks India Pvt Ltd vs DCIT-TS-753-ITAT-2017(Bang)-TP-IT(TP)A No. 296 / bang / 2014 dated 08.09.2017

204. The Tribunal had excluded i) Infosys Technologies as it was a giant risk taking company with significant intangibles and assets, ii) KALS Information Systems as it derived income from software products and was also engaged in executing end to end project in the software development cycle in the Software development segment and iii) Vishal Information technology as it outsourced most of its work to vendors/service providers. The Court held that since the Tribunal had assigned clear reasons for exclusion and no substantial question of law arose. Accordingly, it dismissed the Revenue’s appeal.

CIT (International Taxation) vs Ut Starcom Inc (India Branch)-TS-758-HC-2017(DEL)-TP-ITA 767/2017 dated 25.09.2017

205. The Tribunal held that the assessee engaged in providing designing and development softwares to its AE could not be compared to:

KALS Information Systems ltd as it was engaged in product development and segmental details were unavailable.

Helios & Matheson Information Technology ltd as it was engaged in rendering ITES including BPO services, offshore delivery, project management services and therefore was functionally dissimilar to the assessee.

FCS Software Solution ltd as it was engaged in providing software development services and application support services and infrastructure management services and segmental details were unavailable.

Further, in respect of ITES services segment, it held that the assessee could not be compared to:

Accentia Technologies Ltd as it had an extraordinary event of merger/acquisition which had an impact on the financial results of the company.

Coral Hubs Ltd as it was engaged in providing diversified activities like custom application development services and ITES without adequate segmental data rendering it incomparable to the assessee.

PTC Software (India) Private Limited vs Dar ACIT-TS-746-ITAT-2017(PUN)-TP-ITA no. 2546/PUN/2012 dated 11.09.2017

206. The Tribunal held that the assessee engaged in the business of IT enabled services could not be compared to:

E-Clerx services ltd as it was engaged in providing KPO services and therefore was functionally dissimilar to the assessee.

Moldteck Technologies ltd as it was engaged in providing highly technical and specialized engineering services which was in the category of KPO and accordingly functionally dissimilar to the assessee.

Vishal Information Technologies ltd as it outsourced the work to third party vendors and therefore functionally dissimilar to the assessee.

Infosys BPO Ltd and Wipro ltd as they were giant companies, owning intangibles, brand value and therefore functionally dissimilar to the assessee.

Hinduja Ventures Limited (Formerly known as HTMT Ltd.) vs DCIT & others-TS-685-ITAT-2017(Mum)-TP-ITA 4503/Mum/2012 dated 14.07.2017

207. The Tribunal held that the assessee, engaged in providing software development services to its US based AE could not be compared to Kals Information Systems Ltd as the said company was engaged in development of software development products. It held that it was a well settled principle that software development companies could not be compared with companies engaged in development of software products.

DCIT v Sterling Commerce Solutions India Pvt Ltd – TS-86-ITAT-2017 (Bang) – TP – IT(TP)A No.439/Bang/2015 IT(TP)A No.546/Bang/2015 dated 20.01.2017

208. The Tribunal in the second round of litigation held that the assessee, engaged in the business of software development and provision of software services to its AEs could not be compared to Aftek Infosys Ltd as it had a different business model as compared to the assessee considering that the said company had Intellectual Property Rights whereas the assessee did not have any IPRs in its fixed assets.

Further, it held that where the DRP, in its directions had excluded 3 companies viz. Mphasis BFL LTd, Visual Soft Technologies Ltd and Blue Star Infotech Ltd, originally selected by the TPO, the AO was incorrect in considering the said 3 companies as comparable while giving effect to the DRP directions as it was not open for him to do so. Accordingly, it directed for the exclusion of these companies.

Philips India Ltd v DCIT – TS-67-ITAT-2017 (Kol) – TP – I.T.A No. 1068/Kol/2015 dated 8.02.2017

209. The Tribunal held that the assessee, engaged in providing contract software development services to its AE could not be compared to:

Infosys Technologies Ltd as it was a market leader in software development activities, had huge brand value, dealt in both software and software products owned substantial intangibles and incurred huge R&D expenses

Kals Information System Ltd & Persistent Systems Ltd as they were engaged in the development of software products

SaskenComm Technologies as it was engaged in both software development services and development of software products without segmental results.

It also accepted ICRA techno Analytics Ltd (seg), Larsen & Toubro Infotech Ltd, Mindtree Ltd (seg) and Thinksoft Global Services Ltd as comparable.

IDS Software Solutions India Pvt Ltd v ITO – TS-1072-ITAT-2016 (Bang) – TP IT(TP)A No.l541Bang/2015 dated 28.11.2016

210. The Tribunal held that the assessee, engaged in providing contract software development services to its AE could not be compared CelestrialBiolabs as the said company was engaged in the development of products in the field of bio technology and pharma and thus functionally dissimilar to the assessee.

DCIT v IDS Software Solutions India Pvt Ltd – TS-1085-ITAT-2016 – IT(TP)A No.214 IBang/20 14 IT(TP)A 179/Bang/2014 dated 16.12.2016

211. The Tribunal held that the assessee engaged in the business of providing ITES and Support Services could not be compared to Infosys BPO Ltd due to its high turnover, high brand value and presence of intangibles.

Further it rejected the assessee’s contentions and held that the following companies were to be included as comparable:

Aditya Birla Minacs Worldwide Ltd as the said company was functionally comparable and satisfied all filters chosen by the TPO

Accentia Technologies Ltd as the company, as contended by the assessee, was not engaged in software development and in fact was into ITES.

Cosmic Global Ltd as the company, as contended by the assessee, did not outsource majority of its services considering that the salaries and wages account for 21.31% of its expenses and no expenditure was shown towards outsourcing of work

It remanded the comparability of Eclerx Services as there was no finding on record enabling the Tribunal to determine whether the company was a KPO or ITES company. It held that if it was found to be a KPO company it ought to be excluded.

Control Component India Pvt Ltd v DCIT – TS-1043-ITAT-2016 (Bang)- TP – IT(P)A No.4/Bang/2014 dated 09.11.2016

212. The Tribunal held that the assessee, engaged in IT Enabled services to its group companies could not be compared with:

Accentia Technologies Ltd as it was engaged in high onsite operations in different geographic zones and had undertaken extra-ordinary events (merger), which resulted in higher profits

Asit C Mehta Financial Services as the said company had low employee costs

Bodhtree Consulting Ltd as it was engaged in software development

Eclerx Services Ltd as it was engaged in KPO services and reported extra-ordinarily high profits

Mold Tek Technologies as it was engaged in providing structural engineering consultancy services under the KPO division and reported supernormal profits

Vishal Information Technologies as it outsourced substantial work to third party vendors as a result of which it had low employee cost

HCL Comnet, Infosys BPO and Wipro Ltd as there were differences in the FAR profile and the companies had huge brand value and owned significant intangible assets.

TNS India Pvt Ltd v ACIT – TS-45-ITAT-2017 (Hyd) –TP I.T.A. No. 1927/HYD/2011 dated 06.01.2017

213. The Tribunal held that the assessee, engaged in providing data processing and IT enabled services could not be compared to:

Accentia Technologies Ltd as it had undergone extra-ordinary events during the year (merger / acquisition) and had had low employee cost

Asit C Mehta Financial Services Ltd as it was engaged in product development and outsourced a substantial portion of its work

Bodhtree Consulting Ltd as it owned intangibles, had fluctuating margins and was functionally different

Eclerx Services Ltd as it was engaged in providing KPO services

HCL Comnet Systems and Services Ltd as it was functionally different and followed the June year ending

Informed Technologies as it was functionally different and had abnormal growth

Infosys BPO Ltd as it was a market leader and provided diversified services

Maple eSolutions Ltd as it had unreliable financial results since its director was involved in fraud

Mold TekTechnolgoies as it was functionally different and had abnormal growth patterns

Spanco Ltd as it had low employee cost and was functionally different

Triton Corp Ltd as it had unreliable financial results since its Director was involved in fraud and also since it was functionally different and had undergone an extra-ordinary event (merger)

Vishal Information Technologies Ltd as it had low employee cost

Wipro Ltd as it was a market leader and owned intangibles

Global e-Business Operations P Ltd v DCIT -TS-35-ITAT-2017 (Bang) – TP – I.T(TP).A No.1092/Bang/2011 dated 16.01.2017

214. The Tribunal held that the assessee, engaged in the business of providing ITES to its AEs was not comparable to:

Accentia Technologies Ltd as it had undertaken an extra-ordinary event (amalgamation) during the year, owned substantial intangibles and provided medical transcription services, medical coding, billing and receivable management to the healthcare industry

TCS e-serve International Ltd as it was functionally dissimilar and the segmental information relating to ITES and software development services were unavailable and it also had substantial intangibles

TCS e-Serve Ltd as it was involved in transaction processing and technology services and owned huge intangibles

Exl Service.com (India) Pvt Ltd v DCIT – TS-104-ITAT-2017 (Del) – TP ITA No. 302/Del/2015 ITA No. 615/Del/2015 dated 03.01.2017

215. The Tribunal held that the assessee, a captive service provider engaged in the business of rendering software development services to its AEs could not be compared to:

Infosys Technologies as it owned intangible assets, had huge brand value and provided diversified services

L&T Infotech Ltd as it earned revenues from both software products as well as software development services and did not have any segmental information

ICRA Techno Analytics Ltd as it was engaged in diversified activities

Kals Information Systems Ltd as it was engaged in the software product business

Persistent Systems Ltd as it earned revenue from various activities including licencing of products and the segmental data was not available

Tata Elxsi Ltd as it was engaged in diversified activities

Sasken Communications Technologies Ltd as it earned revenue from 3 segments but the segmental margins were unavailable.

Cerner Healthcare Solutions P Ltd v ITO – TS-28-ITAT-2017 (Bang) – TP I.T(TP).A No.44/Bang/2015 I.T (TP).A No.69/Bang/2015 dated 16.01.2017

216. The Tribunla held that the assessee, engaged in the business of providing ITES services relating to back office operation to its AEs was not comparable to:

Eclerx Services Ltd as it was engaged in providing KPO / high end services involving specialized knowledge and domain expertise in the field of retail, manufacturing and financial services

Infosys BPO Ltd as it was a market leader, had huge brand value commanding premium pricing, owned substantial intangible assets and was engaged in the business of software products and software services

Vishal Information Technologies as it had a different business model considering it outsourced a substantial portion of its work

Wipro Ltd as it owned substantial IP on software products

Acropetal Technologies as it was engaged in high end KPO type design engineering activities which could not be equated with IT Services.

Further, it remitted the comparability of the following companies to the file of the TPO:

Accentia Technologies Ltd & Mold Tek Technologies Ltd to verify whether an extra-ordinary event had taken place in the ITES segment of the company

Genesys International Corp Ltd to verify the nature of services provided by the company

Crossdomain Solutions to verify the functional comparability of the company.

Siemens Technology & Services Pvt Ltd v ACIT – TS-1080-ITAT-2016 (Bang) – TP I.T.{T.P} A. No.1601/Bang/2012 dated 16.12.2016

217. The Tribunal held that the assessee providing IT enabled back office support services to its AE was not comparable to:

Accentia Technologies as it had undertaken extra-ordinary events (merger and demerger) during the year which impacted its financial results and also since there was a wide gap between employee costs of the company vis-à-vis the assessee

Bodthree Consulting Ltd as it was engaged in the business of software products and software services and did not have a segmental break-up

Eclerx Services Ltd as the company was engaged in KPO and high end services involving specialized knowledge and domain expertise in the field of retail, manufacturing and financial services

HCL Comnet Systems & Services Ltd as its RPT (18.72%) exceeded the 15 percent RPT filter applied by the assessee

Informed Technologies Ltd as its employee cost / sales ratio (21.77%) was less than the filter of 25 percent applied

Infosys BPO Ltd as it owned substantial intangible assets, undertook research development and carried on diverse business activities

Vishal Information Technologies Ltd as it was a KPO engaged in high end services requiring employees with advanced levels of skills and knowledge.

Wipro LTd as it was a giant entity with difference as regards risk profile, nature of services, ownership of IP rights etc.

H&S Software Development v ACIT – TS-31-ITAT-2017 (Del) – TP – ITA No.6455/Del./2012 – 18.01.2016

218. The Tribunal held that the assessee, engaged in providing software development services to its AE could not be compared to:

Bodhtree Consulting Ltd as it was functionally dissimilar to the assessee being engaged in the business of software product and provided open and end to end web solutions, offshore data management, software consultancy and design services

Infosys Technologies Ltd as it owned intangibles and derived income from both software services and products without any segmental reporting

Persistent Systems Ltd as it was engaged in software development services and products and also engaged in R&D activities and owned intangible assets

Larsen & Turbo Infotech LTd as it carried out various activities including both software development services as well as products, had a huge turnover in excess of 10 times that of the assessee and it also owned intangible assets

Broadcom India Research Pvt Ltd v DCIT – TS-1036-ITAT-2016 (Bang) – TP IT(TP)A No.621Bang/2014 IT(TP)A No.46 /Bang/2014 dated 03.11.2016

219. The Tribunal excluded the following companies from the list of comparables while benchmarking the international transactions of the assessee, engaged in providing software development services to its AEs:

Kals Information System Ltd as it was engaged in development and sale of software products

Thirdware Solutions Ltd as it was engaged in software development, trading of software licenses and training implementation activities and it earned supernormal profits.

Approva Systems Pvt Ltd v DCIT – TS-40-ITAT-2017 (Pun) – TP – ITA No.1921/PUN/2014 dated 25.01.2017

220. The Tribunal remitted the issue of comparability of the following companies vis-à-vis the assessee, engaged in the business of development of software and indenting sale of industrial software

Aztec Software & Technology Ltd to verify the export revenue to sales ratio of the company (the assessee had contended that the comparable was erroneously rejected by the TPO since its export to sales ratio was 89.44 percent which satisfied the filter of the TPO)

Larsen & Toubro Infotech Ltd to verify whether the assessee was correct in contending that the TPO had erroneously rejected the company on the basis of the RPT filter whereas the company’s RPT filter was 19.97% i.e. less than the 25% filter adopted by the TPO

SIP Technologies & Exports Ltd to verify whether the assessee’s contention that the TPO had wrongly excluded the company on the ground of extra-ordinary event, when the extra-ordinary event had taken place in prior years, was correct.

NXP Semi Conductors India P Ltd v DCIT – TS-1081-ITAT-2016 (Bang) – TP I.T(TP).A No.1560/Bang/2012 dated 25.01.2017

221. The Tribunal held that the international transactions of the assessee viz. provision of software research, development and support services could not be compared to

Infosys Ltd and FCS Software Ltd as the companies were product companies.

Kals Information Systems Ltd as the company was engaged in development and sale of software products

Thirdware Solutions Ltd as the company was engaged in software development, trading of software licenses and training implementation activities

Acropetal Technologies LTd as the company was engaged in design engineering activites

Further, it held that E-Zest Solutions Ltd, Evoke Technologies Ltd and E-Infochips Ltd, being functionally comparable ought to have been included.

TIBCO Software India Pvt Ltd – TS-49-ITAT-2017 (Pun) – TP – ITA No.276/PUN/2015 dated 31.01.2017

222. The Tribunal in the second round of litigation held that the assessee engaged in providing software development services could not be compared to:

Kals Info Systems Ltd as it was engaged in development of software products and training

AccelTransmatics as it was functionally different

As regards Megasoft ltd, the Tribunal directed the AO / TPO to consider only the software development services segment of the company for the purpose of benchmarking.

Yodlee Infotech Pvt Ltd – TS-1082-ITAT-2016 (Bang) – TP – I.T. (T.P) A. No.131/Bang/2016 dated 29.11.2016

223. The Tribunal excluded the following companies from the list of comparables while benchmarking the ITES and software development services rendered by the assessee:

Accentia Technologies Ltd as it acquired a new business during the year which impacted its financial results

Acropetal Technologies Ltd as it was functionally different and did not have adequate segmental results

Cosmis Global Ltd as the company earned only Rs.27.76 lakhs in the BPO segment and also incurred huge costs by way of translation charges which had an inbuilt margin included in the cost

Eclerx Services Ltd since the company was involved in a diverse nature of services without segmental data and more so since it was engaged in KPO services

Genesys International Corporation ltd as it was functionally different.

ADP Pvt Ltd v DCIT – TS-32-ITAT-2017 (Hyd) – TP ITA No. 191/Hyd/2014 ITA No. 134/Hyd/2014 dated 18.01.2017

224. The Tribunal held that the assessee, engaged in providing software development services could not be compared to:

E Infochips Bangalore Ltd as it was engaged in both software development as well as ITES and no segmental information was available

Persistent Systems Ltd as it had a high turnover of Rs.509 crore as against Rs.29.53 crore of the assessee and also since it was engaged in sale of software products

Further, it received the contention of the assessee and held that Comp-U-Learn Tech India Ltd was to be included as a comparable as its receipts were only from software development services and there was no sale of products, that the extra-ordinary events did not have an impact on the profitability of the company and more so since the company was accepted as comparable in many cases for the same AY i.e. 2010-11.

ITO v Intoto Software (India) Pvt Ltd – TS-42-ITAT-2017 (Hyd) – TP ITA No. 1921/Hyd/14 ITA No. 25/Hyd/15 dated 31.01.2017

225. The Tribunal allowed the appeal of the Revenue and held that the CIT(A) was incorrect in applying a RPT filter of 0% and a turnover filter of Rs. 1-200 crore. It remitted the matter to the CIT(A)directing him to apply the RPT filter of 15 percent and a turnover filter of 10 times the turnover of the assessee and pass fresh orders.

DCIT v Shipara Technologies Ltd – TS-1041-ITAT-2016 (Bang) – TP IT (TP) A No.591 (Bang) 2012 dated 03.11.2016

226. The Tribunal dismissed the appeal of the assessee wherein it sought the exclusion of Bodhtree consulting Ltd by relying on the decision of Infinera India Pvt Ltd and held that Infinera India was engaged in providing end to end web solutions, software consultancy as well as design and development of software whereas the assessee and Bodhtreewere engaged in mere software development services and therefore the reliance was misplaced. Further, it noted that Bodhtree had been accepted as comparable in the prior years as well for which the assessee had not raised any objection.

Narus Networks Pvt Ltd v DCIT – TS-55-ITAT-2017 (Bang) – TP IT(TP)A No.1631/Bang/2014 dated 31.01.2017

227. The Tribunal held that the assessee, a software development service provider, could not be compared to:

Infosys Technologies Ltd on account of the huge difference in turnover

Kals Information Systems Ltd as it was engaged in both software development service as well as products

Sasken Communication Technologies as it was engaged in both software development services as well as in products

Tata Elxsi Ltd as its software service segment contained income from product design, innovation design and engineering design

Persistent Systems Ltd as it was engaged in diversified activities including licensing of products, providing maintenance services and earning income by way of royalty on sale of products.

Target Corporation of India Pvt Ltd v DCIT – TS -1083-ITAT-2016 (Bang) – TP IT. (T.P) A. No.343/Bang/2015 dated 29.12.2016

228. The Tribunal directed exclusion of 9 companies viz. Aziec Software & Technology Ltd,

Infosys Technologies Ltd, Mindtree Consulting Ltd, Persistent Systems Ltd,

Sasken Communication Technologies Ltd, Tata Elxi Limited, Flextronics Software Systems Ltd, iGate Global Solutions Ltd and Lucid Software Ltd following the Tribunal ruling of Maxim India Integrated Circuit [TS-265-ITAT-2016(Bang)-TP],wherein the Tribunal had upheld turnover filter at certain number of times of assessee’s turnover as against fixed slab from Rs. 1 crore to Rs. 200 crore.

Further, it accepted assessee’s contention to exclude KALS Infosystem and AccelTransmatics as they were functional dissimilar as they were engaged in development of software products whereas the assessee was engaged in providing software development services.

IPASS India Pvt Ltd v ITO TS-1073-ITAT-2016 (Bang) – TP .IT(TP)A No. 1367 /Bang/2010 dated 29.11.2016

229. The Tribunal held that the assessee engaged in providing IT and IT Enabled Services to its AE could not be compared to:

Continental Controls Ltd as it failed to satisfy the turnover filter as its software segment turnover was only Rs.29 lakhs and also since it earned a huge profit of 222.22 percent

Tanla Solutions as it was engaged in product development, it had acquired two companies during the year which had an impact on its financial results

Geodesic Information Systems Ltd as over and above the software services it was engaged in product development and no segmental results of the company were available

Trident Infotech Corporation Ltd as its RPT to sales percent was 89.53 which far exceeded the filter applied

Ultramarine & Pigments since it did not satisfy the RPT filter and also since it was engaged in providing engineering services

Vishal Information Technologies Ltd as its asset base was Rs.2.54 crore as against Rs.10.93 crore of the assessee.

DCIT v PTC Software India Pvt Ltd – TS-1071-ITAT-2016 (Pun) – TP ITA No. 945/PN/2013 dated 14.12.2016

230. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

Sankhya Infotech Ltd as it was engaged in the development of software products and services and providing training for the transport and aviation industry

Visual Soft Technologies Ltd as it was engaged in substantial R & D activities, which entitled it to command premium return

Exensys Software Solutions Ltd as it was engaged in diversified operations visa-vis assessee

Thirdware Solutions Ltd as it was engaged in diversified activities such as sale and purchase of licenses, ERP, purchase of AMCs etc

Tata Elxsi Ltd as the company was engaged in development of niche product and development services

Flextronics Software Systems Ltd since it was engaged in development of software products and incurred R&D expenditure for development of such products

Satyam Computer Services Ltd since its data and information was unreliable owing to the financial scam

Infosys Technologies Ltd as it was engaged in diversified activities owned intangibles, had high turnover and brand value

Thomson Reuters India Services Pvt. Ltd. v ACIT – TS-1084-ITAT-2016 (Bang) – TP I.T.{T.P} A. No.1097/Bang/2011 I.T.(T.P} A. No.1115/Bang/2011 dated 09.12.2016

231. The Tribunal held that the assessee, engaged in providing IT enabled BPO services and receivable management services to its AEs could not be compared to:

Accentia Technologies Ltd as it had undertaken an extra-ordinary event during the year (merger) which impacted its profitability

Cosmic Global Ltd as it outsourced a substantial portion of its work and therefore had a different business model

Infosys BPO Ltd as it was engaged in providing high end integrated services, had a significantly large scale of operations and high brand value

R Systems International Ltd as it had a different financial year ending i.e. 31/12/2009 whereas assessee’s financial year ended on 31/3/2010

Aegis Ltd v DCIT – TS-66-ITAT-2017 (Mum) – TP ITA No.7694/Mum/2014 ITA No.1209/Mum/2015 dated 08.02.2017

232. The Tribunal held that the assessee operating as an offshore processing centre could not be compared to:

Accentia Technologies Ltd as it was engaged in healthcare management, it owned IPRs which facilitated premium pricing and it had undertaken an extra-ordinary event during the year (acquisition and amalgation) which impacted its profitability

Fortune Infotech Ltd as it was engaged in product development, owned IPRs and did not satisfy the RPT filter of 25 percent

ICRA Online Ltd as it was providing KPO Services including financial research and analysis.

Outsource Partners International P Ltd vs. DCIT – TS-57-ITAT-2017 (Bang) – TP I.T(TP).A No.337/Bang/2015 dated 06.02.2017

233. The Tribunal rejected the claim of the assessee for exclusion of Persistent Systems & Solutions on the ground of turnover and held that where the assessee had not applied a turnover filter itself it would not be justified in excluding one comparable based on turnover without applying the filter to all the comparable companies. However, considering that the said company was not only rendering software development services, but was also in sale of products and carried out R&D in life sciences, products lifecycle services, medical research, chemistry, bio-informatics, it held that the company was not functionally comparable to the assessee and therefore excluded it. Further it held that the assessee, providing software development services and global call centre services to its AE could not be compared to:

Sonata Software Ltd as it had related party transaction (RPTs) of more than 25% of its total revenue which did not satisfy the filter applied by the TPO himself

Igate Global Solutions Ltd as it operated in one single segment with respect to both product and services and was engaged in ITE Services

Bodhtree Consulting Ltd as it earned abnormally high margins which did not reflect a normal business condition.

Genesys International Corporation Ltdas it was a geospatial service and content provider, specializing in land based technologies

FCS Software Solutions Ltd as the company operated in diverse segments, including Infrastructure Management outsourcing centre for hardware requirements of its customers, imparting internet based E-learning and IT consulting services, and its segmental reporting was based on geographies and not as per different activities undertaken by it.

Further, it held that CG Vak Software and Exports Ltd was to be included as a comparable relying on the decision in Yodlee Infotech Pvt. Ltd wherein it was held that this company was a good comparable to benchmark software development services for same AY 2009-10.

Dialogic Networks India Pvt Ltd v DCIT – TS-2-ITAT-2017 (Mum) – TP IT(TP)A No.1324/Mum/2014 dated 31.01.2017

234. The Tribunal held that the ITES services provided by the assessee could not be compared to Wipro BPO Solutions Ltd as the said company owned substantial intangibles as well as huge goodwill and brand value.

Thomson Reuters India Services Pvt. Ltd. v ACIT – TS-1084-ITAT-2016 (Bang) – TP I.T.{T.P} A. No.1097/Bang/2011 I.T.(T.P} A. No.1115/Bang/2011 dated 09.12.2016

235. The Tribunal, pursuant to a miscellaneous petition filed by the assessee, adjudicated on the assessee’s ground relating to selection of comparables and held that:

AvaniTransmatic Ltd, Celestrial Labs Ltd, Infosys Technologies Ltd, Kals Information Systems Ltd, Lucid Software Ltd, Tata ElxsiLtd, Flextronics Software Systems Ltd and Wipro Ltd were to be excluded as comparable as they were not functionally comparable with the assessee in light of the decision of the Co-ordinate bench in NXP Semiconductors India Pvt Ltd.

Geometric Ltd and Ishir Infotech be rejected as their RPT was in excess of 15 percent.

Accordingly, it excluded 10 companies from the list of comparables.

Open Silicon Research PVt Ltd v ITO – TS-85-ITAT-2017 (Bang) – TP IT(TP)A No.1128IBang/2011) dated 09.01.2017

236. The Tribunal held that the assessee, engaged in providing software development services to its AEs could not be compared to:

AccelTransmatics Ltd as it had abnormally high growth rates, fluctuating margins, failed the 75 percent software revenue filter and was functionally different

AvaniCimcon Technologies Ltd, Celestial Labs Ltd, Ezest Solutions Ltd, Inshir Infotech Ltd, Kals Information Systems Ltd, Lucid Software Ltd, Persistent Systems Ltd & Tata Elxi Ltd as they were functionally dissimilar

Flextronics Software Systems Ltd as it did not satisfy the upper turnover filter

Helios & Matheson Information Technology Ltd as it had undergone abnormal fluctuations in margins and was functionally dissimilar

Infosys Ltd as it had a huge brand name, earned high margins, was functionally different and was the industry leader

Megasoft Ltd as it was functionally dissimilar and had abnormally high margins

Wipro Ltd as it owned substantial intangible assets and was an industry leader

As regards Akshay Software Technologies Ltd and VJIL Consulting Ltd, it held that the DRP erred in excluding the said companies on the ground of onsite services as the onsite filter was not a valid ground for exclusion.

CAPCO IT Services India Pvt. Ltd. vs. ITO – TS-1079-ITAT-2016 (Bang) – TP ITA No. 1340 lBang/2011 dated 09.12.2016

237. The Tribunal held that the Software Consultancy Services provided by the assessee could not be benchmarked with Persistent Systems Ltd, Wipro Technologies Ltd and Infosys Technologies Ltd as the assessee’s turnover in software segment was only Rs. 81 crore as against the turnover of Infosys Technologies and Persistent Systems was very huge (in excess of Rs. 200 crore)

As regards the BPO services provided by the assessee, it held that the following companies could not be considered as comparable:

Accentia Technologies Ltd as it operated in KPO segment

Acropetal Technologies Ltd as it was engaged in providing design engineering activities which was more akin to KPO

ITO vs. Systime Global Solutions Ltd – TS-54-ITAT-2017(PUN)-TP ITA No.336/PUN/2015 dated 31.01.2017

238. The Tribunal held that the assessee, engaged in providing IT enabled & marketing support services could not be compared to:

Genesys International Corporation Ltd as it was functionally different and had abnormally high profits

Accentia Technologies Limited as it had undertaken an extra ordinary event during the year viz. acquisition of IQ group of companies

Eclerx Services Ltd as the company had been excluded as comparable in the assessee’s own case for AY 2009-10 on account of functional difference.

Cummins Turbo Technologies Limited vs DCIT – TS-1094-ITAT-2016(PUN)-TP ITA No. 593/PUN/2015 dated 28.12.2016

239. The Tribunal held that Infosys, having a huge turnover as compared to the assessee could not be compared to the assessee, a limited risk software development service provider. Accordingly, it directed for the exclusion of the said comparable.

ACIT v Amberpoint Technology India Pvt Ltd – TS-124-ITAT-2017 (Pun) – TP ITA No.266/PUN/2012 ITA No.1862/PUN/2012 dated 15.02.2017

240. The Tribunal held that the following companies could not be included in the list of comparable companies while benchmarking the international transactions carried out by the assessee viz. provision of software development services to its AEs:

AvaniCincom Technologies, Celestial Biolabs Ltd, e-Zest Solutions Ltd, Infosys Ltd, Kals Information Systems Ltd, Persistent Systems Ltd, Tata Elxsi Ltd and Wirpo Ltd as they were functionally dissimilar as held in the decision of the Tribunal in Infineon Technologies India Pvt. Ltd. [TS-549-ITAT-2015(Bang)-TP]

Flextronics Software Systems Ltd, iGate Global Solutiosn Ltd, Sasken Communication Technologies Ltd as their turnover exceeded 10 times the turnover of the assessee.

Further, it held that Softsol India Ltd was incorrectly rejected as comparable by the CIT(A) on the ground that it did not satisfy the 15 percent RPT Filter as the RPT filter was not a water tight compartment and the RPT percentage of 15 to 20% had been accepted in many cases. Considering the fact that the RPT of the said company was 18.3% (within the range of 15-20%), it held that the said company was to be considered as a comparable.

ITO vs. Ketera Software India Pvt. Ltd TS-139-ITAT-2017(Bang)-TP IT(TP)A No.460/Bang/2013 dated 22.02.2017

241. The Tribunal held that the assessee, providing software development services to its AE could not be compared to:

Infosys Technolgies Limited as it incurred substantial R&D expenses, owned intangibles, had a higher risk profile, provided diversified services, owned proprietary products, earned more than half of its income from outsourcing activities, had huge brand value and had a large number of employees

Tata Consultancy Services Ltd as it was engaged in IT infrastructure services, engineering and industrial services, earned huge profits, sold equipment and software license, incurred substantial R&D expenses

Tata Elxsi limited as its software development services segment also included design and development of hardware

Thirdwave Solutions Lt as it earned revenue from various business segments such as sale of license, software services and subscription and lacked segmental details

St-Ericsson India Private Limited vs Addl CIT – TS-119-ITAT-2017(DEL)-TP ITA No.1672/Del./2014 dated 22.02.2017

242. The Tribunal held that the assessee, providing IT enabled Services to its AEs could not be compared to the following companies:

Cosmic Global as it outsourced a substantial portion of its activities as a result of which its employee cost was only 25 percent of its total cost.

Infosys BPO Ltd as it had a huge turnover of Rs. 850 crores which exceeded the turnover of the assessee by more than 10 times.

Observing that the assessee had itself selected Cosmic Global Ltd in its TP study, relying on the decision of the Special Bench in Quark Systems [TS-23-ITAT-2009(CHANDI)-TP] (which was upheld by P&H HC [TS-448-HC-2011(P & H)-TP]), the Tribunal held that the assessee could not be estopped from seeking exclusion of a comparable which was on its own list.

Visual Graphics Computing Services India Private Limited Vs ACIT – TS-129-ITAT-2017(CHNY)-TP /I.T.A. No.2340/Mds/2012 dated 10-02-2017

243. The Tribunal held that the assessee, engaged in the business of rendering I.T. enabled services to its AEs could not be compared to the following companies:

Mindtree Ltd (Seg), Sasken Technologies, Tata Elxsi, Zylog Systems and Persistent Systems Ltd as the turnover of these companies was more than 12 times of assessee’s turnover (Rs. 25 Crores) and they were functionally dissimilar

Comp-U-Learn Tech India Ltd as it was engaged in internet based solution, education and training, e-commerce solutions, software design/development, web designing/development

E-Zest Solutions Ltd &Kals Information Systems Ltd as they were engaged in product engineering services

Infosys Technologies Ltd & L&T Infotech Ltd as they earned super profits and had very high turnover

Wissen Infotech Private Limited vs. DCIT – TS-142-ITAT-2017(HYD)-TP ITA No.99/Hyd/2015 ITA No.311/Hyd/2015 dated 28.02.2017

244. The Tribunal held that the assessee, engaged in providing software development services could not be compared to:

Bodhtree Consulting Ltd as it was Functionally dissimilar

Celestial Labs as it was engaged in product development in the field of biotech and pharmaceuticals, and had R&D expenditure more than 3% of its sales

Persistent Systems Ltd as it was functionally dissimilar since it was engaged in software development and analytics services and did not have the required segmental data

Quintegra Solution Ltd as it was engaged in R&D activities, product engineering services and also owned IPR

Tata Elxsi Ltd as its software segment comprised activity of product designing services, it had significant intangible and R&D expenditure and also failed the onsite filter of more than 75%

Thirdware Solutions Ltd as it was engaged in the business of software development products as well as software development, it acquired intangible assets and derived revenue based on sales of licenses, and did not have any segmental data.

Wipro Ltd as it was an industry leader and owned IPR, and had also undertaken an amalgamation during the year.

Indus Networks Ltd as it outsourced its activities which was indicated by its very low employee cost

DCIT Vs Cypress Semiconductors Technology Pvt. Ltd. – TS-144-ITAT-2017(Bang)-TP] IT (TP) A No.463 (Bang) 2013 dated 07-02-2017

245. The Tribunal, noting that the assessee was rendering its IT enabled services i.e. legal data base and other administrative services, through highly skilled and professionally qualified lawyers, agreed with the contention of the Revenue that the assessee could not be regarded as providing simple BPO or low-end ITES.

With regard to benchmarking the international transactions of the assessee it held that:

R-Systems International Ltd, which had been rejected as a comparable on the ground that it had a different year ending (Calendar year as opposed to the financial year adopted by the assessee), was to be included as a comparable as it was possible to reasonably determine the financial results of the company for the relevant period with the information available in the public domain

Mircoland Ltd was incorrectly rejected as comparable by the TPO who contended that the assessee was precluded from considering a comparable at a later stage when the same was not considered earlier in its TP Study. It held that once the TPO has rejected most of the comparables and asked the assessee to furnish fresh comparables, then TPO is bound to consider the comparables as submitted by the assessee. It also rejected the contention of the Revenue that the company ought to have been excluded since it had incurred a loss during the year and held that loss incurred was in the normal course of business unless certain peculiar factors were pointed out, which was not done so by the Revenue.

Omega Healthcare Management Services Pvt Ltd as the financials of the company were now available in the public domain

Further, it held that Acropetal Technologies Ltd could not be considered as comparable to the assessee as it was engaged in providing a broad spectrum of services in the nature of software development under its ‘Engineering Design Services’ segment and also since it had undergone an extra-ordinary event (acquisition) which impacted its PLI.

Additionally, it remitted the issue of comparability of the following companies to the file of the TPO:

Accentia Technologies Ltd – for verifying the impact of the M&As undertaken by the said company on the trading results and profit margins of the company by comparing the same with earlier financial years and if no major impact was found then to include the said company as comparable

Eclerx Services Ltd to examine the outsourcing activities of the said company vis-à-vis that of the assessee with a direction to exclude the company if there was a substantial difference

Allsec Technologies to determine whether the loss incurred by the company was in the normal course of business or if it arose specifically due to the merger undertaken during the relevant year.

Jindal Intellicom Pvt Ltd to verify whether financials after 31st December 2008 were available and whether based on the data for next year, the turnover as well as proportionate margin could be worked out and if so to include the company as comparable.

Pangea3 & Legal Database Systems Pvt Ltd – TS-148-ITAT-2017 (Mum) – TP dated 06.03.2017

246. The Tribunal held that the assessee, engaged in providing software services could not be compared to:

Bodhtree Consultancy Ltd as it was functionally different since it was engaged in both software products and services, providing ITES Data activities, data management and data warehousing activities and its margins were fluctuating over a period of 3 years

CIP Technologies and Export Ltd as there was an abnormality of profits and losses as the 3 years average margin of the comparable included two years of losses

VMS Software Technology Ltd as it had a turnover of merely Rs.85 lakhs which was below the turnover filter of one crore applied by the TPO

FCS Software Solutions Ltd as it was functionally different, had fluctuating margins and did not have any segmental details

CAT Technologies Ltd as no relevant information of the said company had been provided.

GE Converteam EDC Pvt Ltd v ACIT – TS-98-ITAT-2017(CHNY)-TP] – I.T.A. No. 973/Mds/2014 dated 25.01.2017

247. The Tribunal held that the assessee, engaged providing software development and technical support services to its AE could not be compared to:

Acropetal Technologies Ltd as it was engaged in development of computer software

E-Zest Solutions Limited as it was engaged in product engineering services in the nature of High end knowledge process outsourcing and having expertise in emerging technologies cloud Saas, business Intelligence and mobility

Persistent Systems as it was engaged in software product development and product design services, it earned income from product licensing and did not have any segmental details

Sasken Communications Limited as it was engaged in multimedia products.

Symantec Software and Services India Private Limited vs. DCIT – TS-96-ITAT-2017(CHNY)-TP – I.T.A. No. 614/Mds/2016 dated 20.01.2017

248. The Tribunal dismissed the contention of the Revenue viz. that the assessee was a high end software development service provider and upheld the TPO’s characterization of the assessee as a captive service provider, who only worked based on the specifications provided by its AEs. It held that the contention of the Revenue had not been taken before lower authorities and therefore it could not be considered at this stage i.e. before the Tribunal. With regard to the benchmarking of international transactions of the assessee, it excluded the following companies as comparable:

Infosys Technologies Ltd it had substantial R&D, significant intangibles, high risk profile, owned proprietary products, providing onsite services, had a huge brand value and had a high number of employees vis-à-vis the employees of the assessee

Tata Consultancy Services as it was engaged in IT infrastructure services, ITES, engineering and BPO services, it sold equipment and software licenses and had a high risk profile

Tata Elxsi Ltd as it was functionally dissimilar as its software development services segment also included design and development of hardware

Thirdware Solutions Ltd as it earned revenue from various business segments such as sale of license, software services and subscription and did not have segmental data

Further, it held that SIP Technologies & Exports Ltd was to be considered as comparable as it passed both the employee cost filter and export revenue filter, It held that the mere fact that its turnover was low could not be the sole factor for its exclusion.

St-Ericsson India Private Limited vs Addl CIT – TS-119-ITAT-2017 (Del) – TP – ITA No.1672/Del./2014 dated 22.02.2017

249. The Tribunal held that the assessee, engaged in providing IT enabled services could not be compared to:

Fortune Infotech Ltd, ICRA Online Ltd and Sundaram Business Services Ltd as their RPT to Sales transactions was 25 percent, 19.6 percent and 29.44 percent, respectively i.e. in excess of the 15 percent filter applied

E-clerx Services Ltd. as it was engaged in providing complete business solutions in the nature of high end services

Infosys BPO Ltd as it has the benefit of market value as well as brand value, and also enjoys the benefits of scale and market leadership

Accentia Technologies Ltd, relying on Equant Solutions India Pvt. Ltd. [TS-28-ITAT-2016(DEL)-TP]and Interwoven Software Services (India) Pvt. Ltd.  [TS-723-ITAT-2016(Bang)-TP], wherein it was excluded as comparable as it was functionally dissimilar to a captive service provider

Acropetal Technologies Ltd. (Seg.), relying on Kodiak Networks (India) Pvt. Ltd. [TS-369-ITAT-2015(Bang)-TP], wherein it was excluded as comparable as it was functionally dissimilar to a captive service provider

DCIT vs. Tesco Hindustan Service Centre Pvt. Ltd – TS-80-ITAT-2017(Bang)-TP – I.T.(T.P} A. No.191/Bang/2015 dated 25.01.2017.

250. The Tribunal, following the decision of the co-ordinate bench in Airbus India Operations Pvt. Ltd [TS-446-ITAT-2014(Bang)-TP] excluded 2 companies viz. Infosys Technologies Ltd. and Bodhtree Consulting Ltd from the list of comparables for the purpose of benchmarking software development services provided by the assessee to its AEs during AY 2009-10, noting that the Revenue could not point out any difference in the facts vis-à-vis the said decision. As regards assessee’s plea for exclusion of ‘Thirdware Solutions Ltd’, it noted that segmental data of this company was available with respect to revenue from software services and therefore remanded the comparability of this company to TPO with direction to consider only relevant segmental data for the purpose of computing the margin of the company. 

Intuit Technology Services Private Limited Vs CIT(A) – TS-140-ITAT-2017(Bang)-TP – IT(TP)A No.1665/Bang/20 14 dated 31.1.2017

251. The Tribunal held that the assessee engaged in providing software development services to its AEs could not be compared with:

Avani Cimcon Technologies Ltd as it earned revenue from software product sales apart from rendering of software services and no segmental data was available and also since it earned abnormally high profits during the relevant year which represented abnormal circumstances

Celestial Labs Ltd as it was mainly into clinical research and manufacture of bio- products and other pharma related activities and it also owned Intellectual property 

E-Zest Solutions Ltd as it rendered product development consulting and other high-end IT enabled services normally categorised as KPO-type services

Helios & Matheson Information Technology Ltd as it was functionally dis-similar

Infosys Technologies Ltd as it was functionally dis-similar, it owned significant intangibles, had huge revenue from software products, incurred substantial R&D and segmental details for its software services and software products were not available

Ishir Infotech Ltd as it out-sourced its work and therefore did not satisfy the 25% employee cost filter

Lucid Software Ltd as it was engaged in development of software in addition to software services as opposed to assessee who was only into software development services

KALS Information Systems Ltd as it was functionally dis-similar as it was engaged in developing software products as well as services

Persistent Systems Ltd as it engaged in product development and software designing and segmental details were not available.

Thirdware Solutions Ltd as it was engaged in product development, it earned revenue from sale of licenses and subscriptions in addition to software development services and segmental details for software development services and product development were not available

Wipro Ltd as it owned substantial IP and intangibles, was engaged in both software development and product development services and its segmental details were not available

R-Systems International as it followed a different financial year

Flexotronics Software Systems as its financial data was only for 9 month period and segment data reconciliation was not available.

ST Microelectronics Pvt. Ltd. vs. DCIT TS-82-ITAT-2017(Bang)-TP – IT(TP)A No.949IBang/2011 dated 06.01.2017

252. The Tribunal held that the assessee engaged in providing software development services and market support services to its AEs could not be compared to:

KALS Infosystems Ltd. as it was engaged in sale of software products apart from provision of software development services

Tata Elxsi Ltd as it was engaged in product development, undertook diverse activities such as industrial design, engineering design and visual computing and also carried out R&D resulting in IP

Accel Transmatics Ltd as it was engaged in provision of ACCEL Animation Services for 2D and 3D Animation etc. apart from software development service

Infosys Technologies Ltd on account of its huge Brand value, substantial IPs, diversified operations including product development and also since it engaged in R&D activity

Flextronics Software System Ltd as it was engaged in R&D and also acquires IP

Lucid Software Ltd as it was involved in development of software product apart from software development services and its segmental details were not available

Further, applying a turnover filter of 10 times the turnover of the assessee (Rs.19.39 crore), it also held that Flextronic Software Systems Ltd, having turnover of Rs. Rs.595.12 crores, ought to be excluded from the list of comparables.

Netscout Systems Software India Pvt. Ltd. (Formerly Network General Software India Pvt. Ltd.) vs DCIT – TS-185-ITAT-2017(Bang)-TP – I.T.{T.P} A. No.1479/Bang/2010 dated 15.02.2017

253. Where the Revenue by relying on the decision of Intoto Software India Pvt Ltd V ACIT [TS-141-ITAT-2013(HYD)-TP], contended that out of the 24 companies (selected by the TPO) excluded by the CIT(A) 8 companies (viz. E-Zest Solutions Ltd, Igate Global Solutions Ltd, Persistent Systems Ltd, Helios & Atheson Information, LGS Global Ltd, Quinteqra Solutions Ltd, RS Software India Ltd and Thirdware Software Solution Ltd) were not covered in the impugned decision and therefore were to be included and out of the above the assessee only argued for the exclusion of 4 of the companies relying on the decision Society General Global Solution Centre Pvt. Ltd [TS-323-ITAT-2016(Bang)-TP], the Tribunal remitted the comparability of all 8 comparables contested by Revenue to TPO for fresh consideration.

Xilinx India Technology Services Pvt. Ltd. Vs. DCIT -TS-225-ITAT-2017(HYD)-TP

– ITA No. 1051/Hyd/2014 dated 24.03.2017

254. The Tribunal, relying on the decision of the coordinate bench in Citrix Research & Development India Pvt. Ltd [TS-90-ITAT-2016(Bang)-TP] dismissed the appeal of the Revenue and upheld the order of the CIT(A) wherein Infosys Ltd had been excluded as a comparable. It observed that Infosys Ltd was a giant company, market leader, owned substantial intangibles, had substantial revenue from software products and had incurred huge expenditure on research and development and therefore could not be compared to the assessee, a captive service provider.

DCIT vs. Informatica Business Pvt. Ltd – TS-212-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1285/Bang/2014 dated : 17.03.2017.

255. The Tribunal held that the software development services provided by the assessee to its AEs could not be benchmarked with the following comparables:

KALS Information System Ltd as it was engaged in development of software products and was not a pure software development service provider

Bodhtree Consulting Ltd. as it provided end to end web solutions, off-shoring data management and data warehousing, it was more of a software product company and due to its different revenue recognition model whereby expense may have been booked in one year and revenue may have been recognized in earlier or subsequent year, it had fluctuating margins

Tata Elxsi Ltd as its software development and services segment constituted 3 sub-segments namely product design, engineering design and visual computing labs

Persistent Systems Ltd as it was engaged in product designing services and software product development.

Larsen & Toubro Infotech Ltd as it was a global IT service and solutions provider.

Sasken Communications Services Ltd as it owned products, IPRs etc.

Further, it held that insignificant ‘other income’ (interest, foreign exchange gain) could not affect the operating margins and therefore the comparability of an other-wise comparable company and thereby included F C S Software Solutions Ltd & Thinksoft Global Services Ltd as comparable.

Huawei Technologies India P. Ltd. Vs. ITO – TS-157-ITAT-2017(Bang)-TP – IT(TP) A No 265 / Bang / 2014 dated 17.02.2017

256. The Tribunal accepted assessee’s application of turnover filter at 10 times the assessee’s turnover noting that it was a relevant factor in the selection of comparables and accordingly excluded the following companies on the basis that their turnover was either more than Rs. 560 crores or less than Rs. 5.6 crores considering that assessee’s turnover was Rs. 56 crores.

(i) KALS Information System Ltd. (ii) Zylog System Ltd. (iii) Mindtree Limited (Seg.) (iv) L& T Infotech Ltd & (v) Infosys Limited.

It also held that the following companies could not be compared to:

Bodhtree Consulting Ltd as it was Software product company and not a software development services company

Tata Elxsi Ltd as it was engaged in different activities including embedded product design, industrial design, engineering services and visual computing laboratory and segmental details in respect of software services activity was not available.

Persistent Systems Ltd as it was engaged in product designing services and software product development

Evry India Pvt. Ltd vs DCIT – TS-76-ITAT-2017(Bang)-TP – LT. (T.P)A. No.l09/Bang/2014 dated 25.01.2017

257. The Tribunal held that the assessee, engaged in providing software development and consultancy services could not be compared to:

Bodhtree Consulting Ltd as it had undergone drastic fluctuations in profit margins due to revenue recognition method followed by the company

KALS Information Systems Ltd as the company was engaged in development of software products and was also excluded in the prior years

Sasken Communication Technology Ltd as based on the application of the 10 Times turnover filter, it would not satisfy the said filter considering that its turnover of the company was Rs.479 Crores in comparison to assessee’s turnover of Rs. 25.44 crores

Logix Microsystems Ltd. vs. DCIT – TS-181-ITAT-2017(Bang)-TP – IT. {T.P} A. No.280/Bang/2014 dated 22.02.2017.

258. The Tribunal held that the assessee, engaged in the business of software development was not functionally comparable to:

Bodhtree Consulting Ltd, KALS Information Systems Ltd & E-zest Solutions Ltd as they earned income from both software product development as well as ITES and had no segmental break-up

Akshay Software Technologies Ltd, Maars Software International Ltd & RS Software (India) Ltd as they were onsite services providers and the assessee was an offsite service provider

Quintegra Solutions Ltd as the company owned substantial intangibles

Further, it excluded Indium Software (India) Ltd as comparable as its export turnover was less than the 75 percent filter applied and S I P Technologies and Exports Ltd as the company had shown a loss of -33.20 percent.

Applying the turnover filter Rs. 1-200 crore, it directed the exclusion of Helios and Matheson Information Technology Ltd with a turnover of Rs. 213.39 crores on the ground of failing Rs.200cr turnover filter. 

Further, rejecting the contention of the assessee that E-Infochips Ltd was to be excluded as it was engaged in the sale of software products, the Tribunal noting that the turnover from software products was merely 4 percent of total turnover, directed for the inclusion of the said company.

MSC Software Corporation India Pvt. Ltd vs. ACIT – TS-226-ITAT-2017(PUN)-TP – ITA No.46/PUN/2013 dated 22.03.2017

259. The Tribunal held that the assessee, engaged in providing software development services to its AE could not be compared to:

Bodhtree Consulting Limited as it provided e-paper solutions, data cleansing software, website development and other customised software and had RPT transactions in excess of 25%.

Geometric Software Solutions Limited as it was a product based company and segmental details of its service income were not available

Tata Elxsi Limited due to the diverse nature of business it carried out and that its software development service segment also comprised 3 sub-services namely product design, design engineering and visual computing labs

Sankhya Infotech Ltd as engaged in the development of software products & services and training, for transport and aviation industry and segmental information was not available

Four Soft Ltd as it was Functionally dis-similar.

As regards the IT enabled services provided by the assessee, it held that it could not be compared to:

Vishal Information as it had a low employee cost of 1.25% of operating revenue as against IT/ITes industry average of 46.1%, it was engaged in call centre services and its operating margin at 50.68% could not be considered to be normal

Nucleus Netsoft& GIS Ltd as it had outsourced a considerable portion of its business,

Google India Pvt. Ltd. Vs. DCIT – TS-154-ITAT-2017(Bang)-TP – IT(TP)A No.1298/Bang/2013 dated 03.03.2017

260. The Tribunal held that Compucom Software and Sterling International Enterprise Ltd could not be compared to the assesee engaged in the business of software development as they failed to satisfy the RPT filter of 25 percent and had a different financial year ending, respectively.

Tieto Software Technologies LTD. vs. DCIT – TS-155-ITAT-2017(PUN)-TP – ITA No.986/PUN/2013 dated 03.03.2017

261. The Tribunal held that for the purpose of benchmarking the international transactions of the assessee, the following companies could not be considered as comparable:

KALS Information Systems Ltd. as it was in the field of consultancy, information provider and general insurance sector 

Bodhtree Consulting Ltd as it was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology

Tata Elxsi Ltd. (seg) as the company’s software development and services segment constituted three sub-segments i) product design services; ii) engineering design services and iii) visual computing labs and system integration services segment.

Persistent System Ltd as the company was in engaged in product designing services

Infosys Technologies Ltd as the company was a giant company in the area of software and it assumed all risks leading to higher profits.

Sasken Communication Tech Ltd being functionally dis-similar as it owned IPR and had branded products, and also since it had undergone significant restructuring during the year

Sandisk India Device Design Centre Pvt. Ltd. Vs. DCIT- TS-183-ITAT-2017(Bang)-TP – IT(TP)A No. 126IBang/20 14 dated 15.02.2017

262. The Tribunal dismissed the order of the CIT(A) wherein the CIT(A) had adopted 0% RPT filter noting that various benches of Tribunal had been accepting 15% RPT filter. Noting the contention of the assessee that if the 15% RPT filter was applied, various comparables rejected by CIT(A) would get reinstated and thereafter those comparables would have to be examined on other aspects such as functional similarity etc, it remitted the matter to the file of the CIT(A) for reconsideration.

Misys Software Solutions India Private Ltd vs DCIT – TS-81-ITAT-2017(Bang)-TP – IT (TP) A No.552 (Bang) 2012 dated 31.01.2017

263. The Tribunal held that the assessee, engaged in providing software development services to its AEs could not be compared to:

Infosys Tech. Ltd as it was a giant company in the area of development of software and it assumed higher risks leading to higher profits

Persistent Systems Ltd as it was engaged in product designing and software product development

Tata Elxsi Ltd as it was engaged in provision of product design, engineering design and  visual computing labs

Kals Information Systems Ltd. as it operated in the field of consultancy, information provider and general insurance sector

Bodhtree Consulting Ltd as it was engaged in the business of software product and end-to-end web solutions software consultancy

Noting the contentions of the assessee that Sasken Communications Services Ltd’s margin was incorrectly computed and that Larson & Toubro Infotech Ltd had a good volume of transactions relating to securities trading and that its margins were incorrectly computed, it held that the issue was to be remitted to the TPO for fresh consideration.

With regard to the assessee’s plea for inclusion of certain comparable companies it remitted the issue to the file of the AO / TPO to determine:

Whether Azlecsoft Ltd & Quintegra Solutions Ltd satisfied the 75 percent export earning filter

Whether CG-VAK Software and Exports Ltd was functionally comparable and if it would satisfy the 25 percent employee cost filter on inclusion of contribution to PF, gratuity etc were also included in cost

Whether Goldstone Technologies Ltd was functionally comparable to the assessee

Magma Design Automation India P. Ltd. Vs. DCIT – TS-141-ITAT-2017(Bang)-TP – I.T(TP).A No.1279/Bang/2014 dated 28.02.2017

264. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to the following companies:

Bodhtree Consulting Ltd as the company was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology.

Tata Elxsi Ltd. (Seg) as its software development and services segment constituted three sub-segments i) product design services; ii) engineering design services and iii) visual computing labs and system integration services segment

Persistent Systems Ltd as it was engaged in product designing services

Sasken Communications Technology Ltd as this company owned IPR, had branded products, and had undergone significant restructuring during the year.

Further it rejected the assessee’s claim for exclusion of Zylong Systems Ltd and Mindtree Ltd. (Seg.) on the ground that they did not satisfy the turnover filter of Rs. 2-200 Cr, holding that the correct turnover filter to be applied was more than of 10 times the turnover of the assessee (Rs.100 crore) and since the revised upper turnover filter was Rs.1,000 crore, these companies could not be excluded as their turnover fell within the said upper filter.

VMware Software India Pvt. Ltd. Vs DCITTS-71-ITAT-2017(Bang)-TP -LT. (T.P}A. No.1311/Bang/2014 dated 6.1.2017

265. The Tribunal dismissed the appeal of the Revenue and held that the following companies could not be included in the list of comparables for benchmarking the assessee’s software service transactions with its AE:

 Bodhtree Consulting Ltd as it was engaged in ITeS and software development while its segmental details were absent

Celestial Biolabs as the company was functionally different from that of software development company as it was engaged in clinical research and manufacture of other bio products (Reliance was placed on the decision of 3DPLM Software Solutions Ltd [TS-359-ITAT-2013(Bang)-TP]).

Lucid Software Ltd  as the company was engaged in product development rather than services (Reliance was placed on the decision of 3DPLM Software Solutions Ltd [TS-359-ITAT-2013(Bang)-TP])

Sunquest Information Systems India Pvt. Ltd vs. JCIT – TS-176-ITAT-2017(Bang)-TP – IT(TP)A No. 79/Bang/2013 dated 17 .03.2017

266. The Tribunal held that the following companies could not be compared to the assessee:

ICRA Techno Analytics Ltd and Larsen & Toubro Infotech Ltd as their RPT transactions exceeded the 15 percent filter applied

Acropetal Technologies Ltd. (Seg) as it failed the filter of 75% IT revenue applied by the TPO itself

e – Zest Solutions Ltd as it was engaged in KPO Services

Infosys Ltd as it had high brand value, intangibles and huge turnover

Persistent Systems & Solutions Ltd, Persistent Systems Ltd &

Sasken Communication Technologies Ltd as it was functionally dissimilar

Tata Elxsi Ltd as it failed the export revenue filter of 75%

E – Infochips Ltd as it had revenue from software products and segmental details unavailable

Commscope Networks (India) Private Ltd. (Earlier known as Airvana Networks (India) Private Ltd.) Vs ITO – TS-161-ITAT-2017(Bang)-TP – IT (TP) A No.166 (Bang) 2016 dated 22.02.2017

267. The Tribunal held that the assessee, engaged in providing software development services to its AEs could not be compared to:

Kals Information Systems Ltd as it was engaged in the development of software and sale of software products

ICRA Techno Analytics Ltd (seg) as its service segment comprises of various services such as software development, software consultancy, engineering services, web development, web hosting, etc and no further segmental results were available

Persistent Systems & Solutions Ltd as no segmental results were available

Further, rejecting the RPT filter of 0 percent adopted by the DRP and applying the filter of 15 percent, the Tribunal held that RS Software (India) Ltd and Thinksoft Global Services Ltd were now to be considered as comparable as they had RPT of 0.96 and 11.09 percent, respectively.

Further, following the decision of the co-ordinate bench in  Obopay Mobile Technolgy India P Ltd [TS-20-ITAT-2016(Bang)-TP], excluded 6 comparables Infosys Ltd (Rs. 21,140 crore), Larsen & Turbo Infotech Ltd (Rs. 1,777 crore), Mindtree Ltd (seg) (Rs. 698 crore), Persistent Systems Ltd (Rs. 504 crore), Sasken Communication Technologies(Rs. 402 crore) and Tata Elxsi Ltd (seg) (Rs. 376.37 crore) on the ground of turnover and size of the said comparables (as compared to the assessee’s turnover of Rs. 13.23 crores)

Logitech Engineering & Design India P. Ltd vs DCIT – TS-145-ITAT-2017(Bang)-TP – I.T(TP).A No.287/Bang/2015 & I.T(TP).A No.127/Bang/2015 dated 03.03.2017

 

268. The Tribunal held that the assessee engaged in the business of providing software development services and support services to its AEs could not be compared to:

Infosys Technologies Ltd as it was functionally dissimilar, it owned significant intangibles, earned huge revenues from software products and segmental break-up of the company was not available

KALS Information Systems Ltd as it was engaged in the development of software products and therefore not functionally comparable to the assessee

Tata Elxsi Ltd as it was engaged in in product designing services and not a pure software development service provider

Lucid Software Ltd as it was also into sale of software products and segmental break-up not available

Accel Transmatic Ltd as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation

Further, it rejected the plea of the assessee for exclusion of comparables having Related Party transactions more than 15 percent (as against the 25 percent filter adopted by the TPO) as it noted that the assessee had not contested application of RPT filter of 25% by the TPO. Further, it observed that Tribunals had been consistently upholding TPO’s decision to apply RPT filter in the range of 15% to 25%.

Citrix R&D India Pvt. Ltd vs. ITO – TS-242-ITAT-2017(Bang)-TP – IT(TP)A No.1373/Bang/2010 dated 24/03/2017

269. The Tribunal held that the assessee engaged in providing contract software development services to its AEs could not be compared to:

Celestial Labs Ltd as the company was engaged in clinical research and manufacture of bio products 

E-Zest Solutions Ltd as it rendered product development services and high end technical services under KPO category

Infosys Technologies Ltd as it owned significant intangible and had huge revenues from software products without any break-up of revenue from software services and software products is not available

Kals Information Systems Ltd (seg) as it was engaged in providing software development services and development of software products.

Lucid Software Ltd as the company is also involved in the development of software as compared to the assessee, which is only into software services

Wipro Ltd (seg) as this company was engaged both in software development and product development services and it owned intellectual property in the form of registered patents and several pending applications for grant of patents

Accel Transmatic Ltd (seg) as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation

Avani Cimcon Technologies Ltd as the company was also into development of software product.

Flextronics Software Systems Ltd (seg) as there was a clear contradiction between contents of annual report and information obtained u/s 133(6)

Helios & Matheson Information Technology Ltd as the application software segment of the said concern is not comparable to the assessee’s segment of IT services

Ishir Infotech Ltd it was out-sourcing its work and, therefore, had not satisfied the 25% employee cost filter and thus had to be excluded from the list of comparables.

Persistent Systems Ltd as this company was engaged in product development and product design services while the assessee was a software development services provider

Sasken Communication Technologies Ltd as the company owned IPR, had branded products and it had undergone significant restructuring during the year

Tata Elxsi Ltd (seg) as the company was predominantly engaged in product designing services and not purely software development services.

Thirdware Solutions Ltd as the company was engaged in product development and earned revenue from sale of licenses and subscription, without segmental results

Quintegra Solutions Ltd as it was engaged in in product engineering services, was developing proprietary software products and owned intangibles.

Thomson Reuters India Services P. Ltd (Formerly known as Thomson Corporation (International) P. Ltd) vs. Addl. CIT – TS-279-ITAT-2017(Bang)-TP – I.T (TP).A No.1206/Bang/2011 dated 06.04.2017

270. The Tribunal held that assesse engaged in the business of providing digital imaging services falling within the category of IT enabled Services (ITeS) to its AEs could not be compared to:

Accentia Technologies Ltd as an extraordinary event of merger and amalgamation took place during the year under consideration

Acropetal Technologies Ltd.(seg) as it was engaged in high end KPO type design engineering activities which cannot be equated with IT services

E-Clerx Services Ltd as it was a KPO mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field of retail, manufacturing  and financial services; therefore not comparable with the assessee.

ICRA Online Ltd as it was not functionally comparable

Infosys BPO as it was a market leader, had huge brand value commanding premium pricing, had geographically diverse customers, owned intangible assets and was engaged in the business of software product apart from proving software services.

Further, the Tribunal accepted the Revenue’s contention that an application of turnover band of Rs.1 to Rs.200 crores was bereft of any rationality as the application of this filter does not enable comparison of a company with Rs.200 crores with another company having a turnover of Rs.201 crores. Accordingly, it held that turnover could not be a relevant criteria in a service sector where fixed overheads were nominal and the cost of service was in direct proportion to the services rendered.

Scancafe Digital Solutions Pvt. Ltd. vs. ITO – TS-313-ITAT-2017(Bang)-TP – IT(TP)A Nos.502 & 450/Bang/2015 dated 12/04/2017

271. The Tribunal held that the assessee engaged in providing ITES to its AEs could not be compared to:

Bodhtree Consultancy Ltd as the company had only one segment viz. software development which cannot be compared to ITES segment. 

e-clerx Services Ltd as the company was engaged in providing data analysis and process solutions and recognized as expert in market financial services, retail and manufacturing.

Infosys Ltd as the company was deriving revenue from the software products, had huge intangible assets apart from the brand value and being a leader in the market

Mold-tek Technology Ltd. (Seg.) as the company was providing highly technical and specialized engineering services and was also is engaged in producing design, drawing and structural engineering drawings of 2D and 3D software and hence, could not be compared with the assessee.

Vishal Information Technology Ltd as the company outsourced a considerable portion of its business and thus fails employee cost filter

Wipro Limited as the company was functionally dissimilar because of brand value, significant investment in acquiring new business, innovation activities of various fields including technology innovation and also it as it was engaged in R&D activities 

Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, HCL Comnet Systems & Services Ltd and Informed Technologies India Ltd as its RPT transactions exceeded the 15 percent filter applied by the TPO.

Thomson Reuters India Services P. Ltd (Formerly known as Thomson Corporation (International) P. Ltd) vs. Addl. CIT – TS-279-ITAT-2017(Bang)-TP – I.T (TP).A No.1206/Bang/2011 dated 06.04.2017

 

272. The Tribunal held that the assessee engaged in providing software development services to its Associated Enterprises (AE) could not be compared to:

Bodhtree Consulting Ltd as it was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology whereas the assessee was engaged in rendering only software development services

Tata Elxsi Ltd as this company’s software development and services segment constituted three sub-segments i) product design services; ii) engineering design services and iii) visual computing labs and system integration services segment and therefore functionally dissimilar

Persistent Systems Ltd as the company was engaged in product designing services

Infosys Technologies Ltd as the company was a giant company in the area of software and it assumed all risks leading to higher profits, whereas assessee company was a captive unit of the parent company and assumed only a limited risk.

Broadcom Communications Technologies Pvt. Ltd. vs. DCIT – TS-298-ITAT-2017(Bang)-TP – I,T.{T.P} A. No.145/Bang/2014 dated 17.03.2017.

273. The Tribunal held that the assessee, a captive service provider engaged in rendering software development research and other related services to its parent company could not be compared to:

Infosys Ltd as the functional profile of the company was highly diversified and that it was full-fledged risk bearing entrepreneur having a turnover of above Rs. 21,000 crore and significant R&D, advertising expenses. Further, it held that the brand equity and intangibles of the company were more than Rs.1,00,000 crores which proved that the company derived substantial portion of its profits from its brand value and hence such a giant company could not be compared with the assessee which did not have any significant intangibles and is a risk mitigated entity.

Wipro Technology Services Ltd, noting that the said company was part of the Citi Group, rendering services to various entities of the Citi Group worldwide and was acquired on January 20, 2009 by ‘Wipro Ltd’ and that there was pre-arrangement between Citi group and Wipro Ltd. for providing business of at least $500 million over a period of 6 years after acquisition as a result of which, all the revenue received by the company from Citi Group on account of such prior agreement or pre- arrangement amounted to a deemed international transaction and therefore the company did not satisfy the RPT filter of 25 percent adopted by the TPO as all its revenue was from the Citi Group.

Persistent Systems Ltd as it was a leader in the world of outsource software product development and the break-up of income as to revenue from software services and products, both from exports and domestic was not available

Thirdware Solutions Ltd as it was engaged in various activities like sale of licenses, software services and revenues from subscription and there was no segmental data to work out the separate margin from software services.

Open Solutions Software Services Pvt. Ltd. vs. DCIT – TS-305-ITAT-2017(DEL)-TP – ITA No. 7078/Del/2014 dated 17.04.2017

274. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

ICRA Techno Analytics Ltd as its revenue stream consisted of software Development, consultancy, engineering services, web development and hosting and no segmental results were available

Infosys Technologies Ltd as it owned significant intangibles, earned Huge revenues from software products and there was no segment break-up of revenue from software services and software products

Kals Info Systems Ltd as it was engaged in providing software development services and development of software products

Tata Elxsi Ltd as it was engaged in product designing services and not purely software development services.

Further, it held that R S Software (India) Ltd was to be included as comparable and that the DRP erred in excluding the company on the basis that it was an onsite software development company as onsite revenue was not one of the filters adopted by TPO. It also held that Persistent Systems & Solutions Ltd was to be included as comparable and that the DRP had wrongly excluded the said company as comparable on the ground that no segmental information was available with regard to software services and software products as the said company was predominantly engaged in software development services and it derived income mainly from software services.

ACIT vs. Curam Software International P. Ltd – TS-244-ITAT-2017(Bang)-TP – IT(TP)A.499 & CO.136/Bang/2015 dated : 21.03.2017

275. The Tribunal held that the assessee engaged in providing core software service activities for its AE and independent customers, could not be compared to:

Celestial Biolabs since it was functionally dissimilar

Infosys Techologies Ltd since it was functionally dissimilar and owned significant intangibles and earned huge revenues from software products and no segmental information was available,

Kals information Systems Ltd(Seg) since it was engaged in developing software development products and was not purely a software development service provider

Tata Elxsi ltd(Seg) since it was engaged in product designing services and was not purely a software development services provider

Wipro Ltd (Seg) since it had revenue from both software and product development services and no segmental bifurcation was available and it owned intellectual property

E-Zest Solution ltd since it was engaged in rendering product developmental services and high end technical services which come under the category of KPO services

Persistent Systems Ltd since it was engaged in product development and product design services and segmental information was not available

Quintegra Solution Ltd since it was engaged in product engineering services and not purely providing software development services, it owned intangibles, had done substantial R&D activity and there was extraordinary event of acquisition

Thirdware Solution Ltd since it was engaged in product development and had earned revenue from sale of licences and subscription which is different from software developmental services and no segmental information was available

Lucid Software Ltd since it was engaged in development of software product

Bodhtree Consulting Ltd as the company was not engaged in software development services and no segmental information was available.

It however, rejected assessee’s contention for exclusion of LGS Global in absence of any evidence filed by the assessee for exclusion of the same. Further, where the TPO had included Avani Cincom Technologies as comparable on the basis of information obtained u/s 133(6), it remitted comparability to AO/TPO for fresh adjudication after making information obtained u/s 133(6) available to the assessee.

Trianz Holdings Pvt Ltd [TS-249-ITAT-2017(Bang)-TP]

276. The Tribunal, relying on the decisions in the case of Pentair Water India Pvt Ltd [TS-566-HC-2015(BOM)-TP]and Agilent Technologies (International) Pvt. Ltd. [TS-593-HC-2015(P & H)-TP], applied the turnover filter of 10 to 1/10 times the assessee’s turnover (Rs. 71.37 crore) and excluded Universal Print Systems Limited, Informed Technologies India Limited, Infosys BPO Limited, Microgenetic Systems, TCS-E Serve Ltd and BNR Udyog Limited as comparables while benchmarking the IT enabled back office services viz. contract administration, claim administration and technical reinsurance accounting provided by the assessee to its AE.

Swiss Re Global Business Solutions India Pvt Ltd [Formerly known as Swiss Re Shared Services (India) Pvt Ltd] vs DCIT – TS-307-ITAT-2017(Bang)-TP – IT(TP)A No. 2315/Bang/2016 dated 13.04.2017

277. The Tribunal held that the assessee, engaged in providing engineering design services to its AE could not be compared to Kitco Ltd, Water & Power Consultancy Services (India) Ltd and Engineers as the said companies were public sector companies working as per the governmental policies and social obligations and therefore, their risk profile and functions were distinct and dissimilar to a captive service provider i.e. the assessee.

Behr India Limited [TS-320-ITAT-2017(PUN)-TP] – ITA No. 566/PUN/2013 dated 21.04.2017

278. The Tribunal held that the assessee engaged in rendering software development services to its AE could not be compared to:

Bodhtree Consulting Ltd. as it was engaged in the business of software product and provided open and end to end web solutions, off shore data management, software consultancy and design and development of software using latest technology

Persistent Systems Ltd. as the company was engaged in  software development services and products and was also engaged in R&D activities and owned Intangibles. 

Infosys Ltd as it owned intangibles, had significant brand value and derived income from both software services and products without any segmental reporting.

Larsen & Toubro  Infotech Ltd. as the company was engaged in multi-faceted activities including both software development services and products and its turnover was more than 10 times the turnover of the assessee.

Broadcom India P. Ltd vs. DCIT – TS-243-ITAT-2017(Bang)-TP – LT (TP).A No.95/Bang/2014 dated : 17.03.2017

279. The Tribunal held that the assessee engaged in the business of providing contract software development services, back office support services, corporate IT support services and marketing support services to group entities could not be compared to:

Larsen & Toubro Infotech Ltd since the said company carried out a variety of activities and the relevant segmental results were not available

Persistent Systems Ltd. as it was engaged in providing outsourced software product development services and technology solutions to independent software vendors, it constantly invested in new IP solutions, derived significant revenue from export of software services and products and did not declare segmental results based on its services / products.

Electronic Arts Games (India) Pvt. Ltd vs. ACIT – TS-326-ITAT-2017(HYD)-TP – ITA No. 444/Hyd/2017 dated 28-04-2017

280. The Tribunal, relying on the decision of the Bombay HC in PTC Software (I) Pvt. Ltd [TS-788-HC-2016(BOM)-TP] held that Rolta India Ltd could not be accepted as a comparable while conducting the benchmarking exercise of the assesse (engaged in providing engineering design services) as its financial results pertained to a different accounting period.

Further, the Tribunal directed the AO to consider the segmental results of KLG Systems Ltd as against the entity level results of the said comparable. It held that the margins of comparable concerns which are functionally comparable are to be selected and applied and in case any concern is engaged in various activities, then the segmental details of the activity, which were functionally comparable to the assessee were to be applied in order to work out the margins of the said concern

Dover India Pvt. Ltd Vs ACIT – TS-318-ITAT-2017(PUN)-TP – ITA No.411/PUN/2014 dated 19.04.2017

281. The Tribunal held that the assesse rendering software development services and Marketing support services for AY 2011-12 could not be compared to

Acropetal Technologies Ltd as it was functionally different since it was engaged in both software services and product and segmental information between software services and software products was unavailable and also since it failed the employee cost filter of 9.8% of sale

E-Zest Solutions Ltd as it was engaged in KPO activity.

E-Inforchips Ltd as the company earned revenue from software products and segmental details were not available.

ICRA Techno Analytics Ltd as it was functionally dissimilar since it was engaged into software development, engineering services, web development & hosting, business analytics & BPO and had substantial RPT i.e. 22.37% of sales.

Infosys Technologies as it had huge brand value, intangibles and huge turnover.

Larsen & Toubro Infotech Ltd as the RPT exceeded 15% and it was engaged in sale of software products.

Tata Elxsi (Seg) as it was functionally dissimilar since its software development and services consisted of embedded product design, industrial design and visual computing labs and it failed the 75% export earning filter as it had an export revenue of 73.30%.

Persistent Systems & Solutions Ltd and Persistent Systems ltd on the ground that they were functionally dissimilar as there were engaged in diversified activities and earned revenue from various activities.

Sasken Communication Technologies as it was not functionally comparable due to lack of segmental data

Further, the Tribunal accepted inclusion of 3 companies on the following grounds

Evoke Technologies, Mindtree Ltd and RS Software (India) Ltd as the assessee did not specifically reject these comparables.

AMD India P Ltd vs ACIT [TS-362-ITAT-2017(Bang)-TP I.T (TP).A No.1487/Bang/2015 dated 06.04.2017

282. The Tribunal held that the following companies could not be considered as comparable while benchmarking the International transaction of the development and design services:

Accel Transmatic Ltd as the business activities were functionally different from that of the assessee it was engaged in design, development and manufacture of multi function kiosks queue management system, ticket vending system and services for 2D/3D animation.

Avani Cimcon technologies ltd was it was engaged in the business of software products as well as software services and segmental details were unavailable.

Celestial Labs Ltd as it was mainly engaged in clinical research and manufacture of software products.

KALS Information Systems Ltd as it was engaged in the business of development of software products as well as providing training, and thus functionally not comparable.

E-Zest Solutions as it was engaged in product development and high end technical services under the category of KPO services.

Helios & Matheson Information Technology Limited relying on coordinate bench ruling in the case of NXP Semiconductors India Pvt Ltd [TS-427-ITAT-2014(Bang)-TP] wherein it was held that it was functionally incomparable.

Ishir Infotech Limited as it outsourced its work and did not satisfy the 25% employee-cost filter.

Lucid Software Limited as it was engaged in the business of development of software products and was thus functionally incomparable.

Tata Elxsi Ltd as the company had significant R&D activity, brand value etc.

Thirdware Solutions Ltd as it was engaged in product development and earned revenue from selling licenses subscription and no segmental details were available.

Wipro Limited as it owned a large amount of intellectual property.

Infosys Technologies Ltd as it owned significant intangibles and had earned huge revenues from software products with no segmental breakup available.

Persistent Systems Ltd as it was engaged in product development and segmental details were unavailable.

FCG Software Services (India) Pvt Ltd [TS-409-ITAT-2017(Bang)-TP IT(TP)A No. 994 /bang/2011 dated 21.04.2017

283. The Tribunal allowed assessee’s plea for exclusion of 4 comparables while benchmarking the provision of software R&D services to AEs during AY 2012-13 and held that the assessee could not be compared to the following companies:

Infosys Limited, Larsen and Toubro Infotech Limited and Persistent Systems Limited on account of turnover filter. It held that the 3 companies failed the turnover filter of 1/10th and 10 times of assessee’s turnover i.e 18.45 crores as they had very high turnover i.e.31253 cr, 2960 cr and 810 cr respectively.

Genesys International Corporation Limited on the ground of functional dissimilarity as the company was engaged in development of cutting edge applications by developing state of the art GIS technologies and allied spatial data acquisition, processing and integration techniques to meet the demand of the consumers.

UEI Electronics Pvt. Ltd Vs DCIT [TS-274-ITAT-2017(Bang)-TP –IT(TP)A No.2005 (Bang)/2016 dated 10.03.2017

284. The Tribunal allowed assessee’s plea for exclusion of 3 comparables while benchmarking the provision of software development services to its AE for AY 2010-11 and held that the assessee could not be compared to the following companies:

E Infochips Bangalore Ltd as it was engaged in software development ITES and also derived income from consultancy charges and the segmental information was not available.

Sasken Communication Technologies Ltd as it was functionally dissimilar as it was also engaged in sale of products and no segmental details were available.

Infosys Technologies Ltd as it was functionally dissimilar as it was a giant company in the area of development of software and it assumed all risks leading to higher profits.

Broadcom Communications Technologies Pvt Ltd vs DCIT- TS-254-ITAT-2017(Bang)-TP – I.T.(TP) A. No. 145/bang/2014 dated 17.03.2017

285. The Tribunal held that the assessee engaged in the business of software development services and marketing support services could not be compared to

Foursoft Ltd as it was engaged in the sale of products and had substantial selling and marketing expenses and related party transactions greater than 0%

Geometric Software Solutions Co Ltd as it rendered services in the nature of design and engineering services, the related party transactions were greater than 0% and it owned intellectual property.

Sankya Infotech as it was engaged in the sale of products and had substantial selling and marketing expenses, extreme high profit company and owned intellectual property.

Sasken Network System on the ground that it had substantial selling and marketing expenses.

Sasken Communication Technologies Ltd as it was engaged in the sale of products and had substantial marketing and selling expenses.

Tata Elxsi Ltd as it rendered services in the nature of product and engineering and design services.

Flextronics Software Services Pvt Ltd as its profitability was extremely high and the related party transactions were greater than 0%.

Exclusion of Exensys Software Solutions Limited, Thirdware Solutions Limited and Bodhtree Consulting Limited was admitted by the Tribunal as additional ground by relying on the decision of Quark Systems India P Ltd [TS-448-HC-2011 (P&H)-TP and remitted the matter to the AO/TPO to decide on comparability.

Infineon Technologies India Pvt Ltd vs ACIT [TS-340-ITAT-2017(Bang)-TP – IT(TP)A No.657/Bang/20 11 dated 06.01.2017

286. The Tribunal held that the assessee, a captive service provider of ITES could not be compared to:

Accentia Technologies as an extraordinary event took place during the year under consideration

eClerx Services as it was a KPO mainly engaged in providing high-end KPO services

Goldman Sachs Service Pvt Ltd [TS-430-ITAT-2017(Bang)-TP] IT(TP)A No. 66IBang/2014

287. The Tribunal relying on the co-ordinate bench ruling in the case of Trilogy E-Business Software India Pvt ltd [TS-410-ITAT-2016(Bang)-TP] held that for AY 2008-09 the assessee engaged in providing software development to AE for AY 2008-09 could not be compared to

Avani Cincom Technologies Ltd as it was functionally dissimilar to software development service provider and segmental details were unavailable.

Bodhtree Consulting Ltd due to fluctuating margin and different functional profile.

Celestial Biolabs Ltd as it was engaged in product development in the field of biotech and pharmaceuticals which was functionally dissimilar to assessee.

KALS Information Systems Ltd as it was engaged in development of software products as well as provision of training services.

Infosys Technologies Limited as it owned significant intangibles and segmental breakup was unavailable.

Wipro Limited as it owned IPR and intangibles and engaged in both software development and sale of product without segmental bifurcation.

Tata Elxsi Ltd as it was engaged in product designing services.

E-Zest Solutions Ltd as it was engaged in rendering product development services and KPO services which is functionally dissimilar.

Third ware Solutions Ltd as it derived revenue from sale of software product licenses.

Lucid Software Ltd as it was engaged in development of software products.

Persistent Systems Ltd as it was engaged in product development and product design services and segmental data was not available.

Quintegra Solutions Limited as it was engaged in product engineering services.

Softsol India Ltd as its Related party transactions were greater than 15% limit applied

Verifone India Technology Private Limited vs DCIT TS-345-ITAT-2017(Bang)-TP-IT(TP)A No.1 Bang/2014 dated 24.03.2017

288. The Tribunal held that the assessee engaged in providing software development services to its AE for AY 2011-12 could not be compared to

E-Zest Solutions Ltd as it was engaged in the activity of KPO

Persistent Systems Ltd as it was engaged in diversified activities and earned revenue from various activities including licensing of products, royalty on sale of products as well as income from maintenance contract etc.

Sasken Communication Technologies Ltd as the company had a turnover of Rs 394cr and failed the turnover tolerance range of 10 times of assessee’s turnover.

Akshay Software Technology Ltd as it was engaged in both software services and products and lacked adequate segmental results.

Acropetal Technologies Ltd on the ground that it did not satisfy the filter of 75% of income from information technology, revenue applied by the TPO itself.

ICRA Techno Analytic Ltd relying on the decision in the case of Electronics for Imaging wherein it was held that this company was functionally incomparable with pure software development service provider as its service segment comprised of software development, software consultancy, engineering services, web development, web hosting for which segmental details were unavailable. Also, it had RPT greater than 15%.

Infosys Technologies Ltd as it failed the turnover tolerance range of 10 times of assessee’s turnover

L&T Infotech Ltd failed the turnover tolerance range of 10 times of assessee’s turnover. Further, it had RPT greater than 15%

Tata Elxsi Ltd on the ground that the export revenue of the company was less than 75% applied by the TPO

E-Infochips Limited due to absence of segmental data.

Mindtree Ltd as it failed the turnover tolerance range of 10 times of assessee’s turnover.

R S Software as it failed the turnover tolerance range of 10 times of assessee’s turnover.

Further, LGS Global Ltd was remitted to the file of the AO to verify relevant facts to ascertain the employee cost and then decide the functional comparability.

GT Nexus Software Pvt Ltd vs Dy.CIT -TS-335-ITAT-2017(BANG)-TP- I.T.A No.409/Bang/2016 dated 18.04.2017

289. The Tribunal relying on the decision of Cisco Systems India excluded 2 companies viz. Kals Information Systems ltd and Bodhtree Consulting Ltd from the list of comparables while benchmarking the international transactions i.e. provision of software development services to its AEs on the ground of functional dissimilarity noting that both Kals Information Sytems ltd and Bodhtree Consulting ltd were involved in software products.

Sonim Technologies (India) Pvt Ltd vs Dy CIT – TS-341-ITAT-2017(Bang)-TP- IT (TP) A No.2S2 (Bang) 2014 dated 24.03.2017

290. The Tribunal remitted TP-adjustment made in respect of tele-calling BPO services rendered by the assesse to AE for AY 2007-08 & 2008-09 on the ground that the TPO had committed certain factual errors in calculating operating costs by considering cost of whole business instead of cost relevant for international transactions and that he had selected filters/comparables irrelevant to the assessee. Further, ITAT excluded 6 comparables in respect of ITES rendered by the assessee to AE on the following grounds:

Infosys BPO Ltd as it was a giant company had a huge brand influence.

Genesys International Ltd as it was engaged in software development as well as geospatial services which involved the services relating to the relative position of things on the earth’s surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc.

Exlerx Services Limited as it was engaged in high end KPO services and segmental data was unavailable.

Cosmic Global Ltd as the revenue from BPO services was negligible i.e Rs 27.76 lakhs.

Acropetal Technologies Ltd as it was engaged in provision of high end engineering design services and sophisticated delivery system

Accentia Tech as acquisition of various companies, being an extraordinary event which had an impact on the profit.

Monster.com India Pvt Ltd vs DCIT [TS-247-ITAT-2017(HYD)-TP- 1762/H/11,1697/H/11,49/H/13, 69/H/13, 1333/H/14, 872/H/14, dated 15.05.2017

291. The Tribunal relying on the decision of the coordinate bench in the case of Thomson Reuters India Services Pvt. Ltd. [TS-1084-ITAT-2016(Bang)-TP] held that Vishal Information technology ltd was functionally dissimilar as it provided agency services by way of outsourcing to third party vendors and acted as an intermediary between final customer and vendor and directed the AO/TPO to re-adjudicate the issue relating to comparability of Vishal Information Technology Ltd. in respect of assessee’s IT enabled back office services for AY 2005-06. Further, it also upheld Revenue’s adoption of RPT filter of 15% rejecting CIT(A)’s 0% RPT filter noting that the Tribunal had, in a series of decisions, held that the tolerance range of RPT in normal circumstances was 15% and in extreme cases it could be extended upto 25%. Also, relying on the decision in the case of Wipro BPO Solution Ltd., directed TPO to apply turnover filter of 10 times of assessee’s turnover on both sides since it was a consistent view that the if turnover was within range of 1/10th of the turnover or upto 10 times, then the comparable was considered to be a good comparable. Accordingly, it remitted the issue to the file of the AO/TPO to carry out the search afresh pursuant to its directions.

Sykes Enterprises (India) Pvt Ltd [TS-410-ITAT-2017(Bang)-TP] – IT(TP)A No.1034//Bang/2011 dated 28.04.2017

292. The Tribunal excluded Alphageo (India) Ltd engaged in seismic data analysis and Celestial Lab engaged in development of tailor made software packages as comparable on the ground of functional dissimilarity.

Sabic Research and Technology Pvt Ltd TS-327-ITAT-2017(Ahd)-TP ITANo.1065 dated 01.05.2017

293. The Court, dismissed Revenue’s appeal challenging Tribunal’s exclusion of TCS E-Serve Limited from the list of comparables for benchmarking the provision of ITES by the assesse to its AE on the ground that the Tribunal relying on the decision in the case of Ameriprise India Pvt. Ltd [ITA No. 7014/del/2014] had excluded TCS E-Serve Limited as it was engaged in both transaction processing and technical services. It held that considering the profile of the assessee, (engaged only in BPO services) the size and scale of TCS’s operations made it an inapposite comparable vis-à-vis the assessee.

Pr. CIT vs Actis Global Service Pvt Ltd [TS-417-HC-2017(DEL)-TP- ITA No.94 of 2017 dated 15.05.2017

294. The Tribunal following the ruling in McAfee India excluded 3 companies viz. L&T Infotech Ltd (turnover of 2959.55 cr). Persistent Systems Ltd (turnover of 810.36 cr.) and Mindtree Ltd (Turnover of 1255.80cr) from the list of comparables while benchmarking the international transaction of the assesse engaged in the business of software development services as the said companies failed to satisfy the turnover filter of 10 times the assessee’s turnover i.e 38.07 cr.

Aptean Software India Pvt Ltd vs DCIT [TS-332-ITAT-2017(Bang)-TP- I.T(TP).A No.1826/Bang/2016 dated 15.05.2017

295. The Tribunal held that it excluded 5 comparables for ITes on the following grounds:

Accentia Technologies Ltd as it involved an extraordinary event of merger/demerger.

Coral Hub Ltd as it was engaged in e-publishing business and segmental details were not available.

Eclerx Services Ltd as it was engaged in providing KPO services.

Mold-Tek Solutions Ltd as it was engaged in providing engineering services and was classified as a KPO service provider.

Genesys International Corporation Limited as it was engaged in providing geographical information services and also carried out R&D services.

BA Continuum India Private Limited vs Addl CIT [TS-396-ITAT-2017(HYD)-TP-ITA- 1144/HYD/2014 dated 28.04.2017

296. With regard to the assessee engaged in providing data processing services to its AE, the Tribunal:

remitted back to the TPO/DRP to evaluate the profile of the comparable i.e. Accentia Technologies Ltd vis-à-vis the assessee by relying on the ruling in the case of Swiss Re Shared Services India Pvt Ltd [TS-598-ITAT-2016(BANG)-TP] wherein it was held that in the absence of any document showing the kind of service being rendered by the comparable company, it was difficult to compare the functions/profile.

Remanded to TPO to verify assessee’s claim that RPT of ICRA Online Ltd was 22.77% (i.e. >15%) and directed it to exclude it if it failed 15% threshold.

Rejected Jeevan Scientific Technology Ltd, Mindtree Ltd and iGate Solutions Ltd as comparable as they failed the 10 times turnover following the ruling in case of Mcfee Software India Pvt. Ltd [TS-136-ITAT-2016(BANG)-TP].

included two companies on the following grounds-Acropetal Technologies as the assessee itself had selected these companies and had neither challenged it. Infosys BPO as the assessee itself had selected these companies and had neither challenged it before DRP nor Tribunal.

Zyme Solutions Pvt Ltd TS-353-ITAT-2017(Bang)-TP – IT(TP)A No.85/Bang/2016 dated 28.04.2017

297. The Tribunal ruled on selection of companies for assessee engaged in design and development of software used in rendering the services to the shipping industry and rejected its appeal for exclusion of the following companies on the following grounds:

Mindtree (IT Services segment), L&T Infotech Ltd. And Persistent Systems Ltd. on the ground that even though the turnover of these 3 companies was more than Rs 800 cr compared to assessee’s turnover of Rs 22 cr, Rule 10B provided that, turnover and brand-value were not a criteria for selection of comparable. Further, it rejected assessee’s reliance on High Court decision in the case of Pentair Water India Pvt. Ltd [TS-566-HC-2015(BOM)-TP] since Pentair was engaged in manufacturing industry and volumes/turnover were relevant factors to meet huge capital investment and service charges, whereas assessee was engaged in service sector where cost of service was proportionate to services rendered.

Spry Resources Pvt. Ltd as the assessee failed to provide any functional dissimilarity, assets deployed and impact on margins and held that the company could not be excluded merely because it was engaged in Government projects.

Further, it held that the assessee could not be compared to:

Acropetal Technologies Ltd as it was engaged primarily in Engineering design services.

Kals Information Systems as it was functionally dissimilar and segmental data with regard to software products, training income, translation fee.

Goldstone Technologies Ltd. as it was functionally dissimilar and engaged only in IT segment and not in software development. As the assessee failed to rebut the DRP findings, Tribunal upheld exclusion of this company.

CG-VAK Software Systems Ltd as it was a persistent loss making company and accordingly could not be compared to the assessee. Reliance was placed on the decision in the case of Tibco Software India Pvt. Ltd.

Sankhya Infotech Ltd on the ground of functional dissimilarity, ownership of intangibles and lack of complete segmental data

Shipnet Software Solutions India Pvt Ltd vs DCIT-TS-427-ITAT-2017(CHNY)-TP-ITA No.3404/Mds/2016 dated 28.04.2017

298. The Tribunal ruled on selection of comparables for assessee providing ITES to AEs in the field of insurance on the following grounds

Tricom India Private Ltd was rejected as it had developed unique in-house software for providing specialized services.

Wipro BPO Solutions Ltd was rejected as it had the influence of ‘WIPRO’ brand and intangibles.

Fortune Infotech Ltd was rejected as it was functionally dissimilar was it used unique technology/technical knowhow and had developed its own software.

Vishal Information Technology ltd as it had outsourced its work.

Ultramarine & Pigments Ltd was rejected as it had abnormal trading results and was a super profit company.

Air Line Financial Support Services India Ltd was remitted back to TPO for reexamination and re-adjudication as the company was essentially a captive service provider.

Nucleus Netsoft & Gis India Ltd- remitted to the AO/TPO for re-examination and re-computation of the margin.

Swiss Re Shared Services (India) P Ltd vs DCIT-TS-352-ITAT-2017(Bang)-TP I.T(TP).A.No.1139/bang/2011 dated 03.05.2017

299. The Revenue filed an appeal challenging the order of the Tribunal on two grounds i.e. i) Whether Vishal Information Technology was rightly excluded on the ground of difference in business model and ii) whether the Tribunal was justified in holding that KPOs could not be compared to the BPO assessee. The Court, relying on the decision of the High Court in Rampgreen, dismissed the appeal of the Revenue stating that no substantial question of law arose therein and held that the Tribunal’s order did not suffer from any infirmity.

EXL Services.com India Pvt. Ltd TS-411-HC-2017(DEL)-TP- ITA 329/2017 dated 15.05.2017

300. The Tribunal held that the assessee engaged in the business of IT enabled services could not be compared to:-

Infosys BPO ltd. as it performed high end and integrated services and it had a huge brand value as a result of which it earned higher profits and was functionally dissimilar.

Accentia Technologies Ltd. as it was engaged in diversified KPO services in the areas of health-care cycle management, legal process outsourcing and high-end software delivery.

Further, it included Microland since both the assessee as well as Revenue had pleaded for inclusion of this comparable as it satisfied the forex to sales filter applied by the TPO.

Global e-business Operations Pvt. Ltd vs DCIT- TS-445-ITAT-2017(Bang)-TP- IT(SS)A No.172 and 147/bang/2015 dated 21.04.2017

301. The Tribunal held that the assessee engaged in the provision of ITES to its AE could not be compared to:-

Accentia Technologies Limited since an extraordinary event such as merger had taken place which had a significant impact on its profitability.

Eclerx Services Limited as it was engaged in providing high end KPO services involving specialized knowledge and domain expertise in its field.

DCIT vs Goldman Sachs Service Pvt Ltd – TS-430-ITAT-2017(Bang)-TP- IT(TP)A No.66/bang/2014 dated 05.04.2017

302. The Tribunal upheld DRP’s direction to exclude Infosys Technologies as a comparable while benchmarking the software development services provided by the assessee to the AE noting that it was a giant in the area of software development and had higher intangibles and goodwill and assumed all risks leading to higher profit which rendered it functionally dissimilar to the assessee. It relied on the decision in the case of NTT Data Global Delivery Services Ltd [TS-219-ITAT-2016(Bang)] wherein it was held that Infosys Technologies could not be compared to any other company as it had a huge brand influence.

ITO vs Symphony Marketing Solutions India – TS-370-ITAT-2017(BANG)-TP-IT(TP) Nos.233 and 809/bang/2015 dated 04.04.2017

303. The Tribunal held that the assessee engaged in the business of providing software development and application engineering services to its AE could not be compared to:-

I Power Solutions Ltd. as it was dissimilar to the assessee on account of difference in revenue recognition policy as it was based on completed contract method while the assessee followed proportionate completion method. Further there was also difference in terms of salary cost, foreign exchange earnings and comparability in term of size and operation

VMF Soft-tech Ltd having turnover of Rs. 2 cr. as it failed the turnover filter of 1/10th of the assessee’s turnover i.e. 135 Cr.

Xcel Vision Technologies Ltd. having turnover of Rs. 90 lakhs as it failed the turnover filter of 1/10th of assessee’s software segment turnover of Rs. 135cr.

DCIT vs Robert Bosch Engineering & Business Solutions Ltd-TS-444-ITAT-2017(Bang)-TP- dated 21.04.2017

304. The Tribunal upheld DRP’s exclusion of 6 companies having turnover more than Rs.200 crores while benchmarking software development services rendered by the assesse whose turnover was Rs 17.10 crores. It held that though Rs.200 crores turnover filter adopted by the DRP was not appropriate, even if the filter of 10 times of asssessee’s turnover was applied, the companies which had more than Rs.171 crores of turnover would be excluded i.e 10 times the assessee’s of 17.10 cr. Vis-à-vis the assesssee’s claim for risk adjustment, relying on the decision in the case of Zyme Solutions Pvt. Ltd [IT(TP)A No. 465/bang/2015 it held that where the assessee had not provided any computation for risk adjustment, the claim of the assessee was purely hypothetical in nature and accordingly set aside DRP directions allowing 1% risk adjustment.

ITO vs Solidcore Techsoft Systems (India) Pvt Ltd-TS-350-ITAT-2017(Bang)-TP- dated 28.04.2017

305. The Tribunal held that the assessee engaged in the business of providing software development services was not comparable to

Flextronics Limited (seg), iGate Global Solutions Ltd, Infosys Limited, L&T Infotech Limited, Satyam Computers Limited having Turnover 457.45 cr, 406 cr, 6859.70 cr, 562.45 cr, 3464.20 cr respectively could not be compared to the assessee engaged in the business of software development services as it failed the turnover filter of 10 times the assessee’s turnover of Rs.14.92 crores.

Orient Information Technology Limited as it was engaged in providing BPO services.

Bodhtree Consulting Limited as it was engaged in providing BPO services.

Geometric Software Solutions as its RPT to sales was 19.47% which did not satisfy the RPT filter of 15% applied by TPO.

Further, in light of the SB ruling in case of Maersk Global Centres (India)(P.) Ltd [TS-74-ITAT-2014(Mum)], which held that in respect of companies having abnormally high profits, it was necessary to ascertain whether the high profit was the result of some abnormal conditions prevailing in the relevant year, it remitted to the file of CIT(A) the comparability of Exensys Software Solutions Limited (70.68%), Thirdware Solutions Ltd (66.09%), to consider the comparability of the companies vis-à-vis the assesse.

DCIT vs Alliance Semiconductors India Pvt Ltd IT(TP)A No. 618(bang) 2013 dated 21.03.2017

306. The Tribunal relying on the decision in the case of Symphony Marketing [TS-915-ITAT-2016(Bang)-TP] held that the assessee engaged in the business of providing software development services could not be compared to:-

Infosys BPO as it was engaged in the business of providing BPO services and had huge brand value having significant influence on the pricing policy.

Wipro Limited (BPO division) as it owned substantial intellectual property on software products.

GE BE Pvt Ltd vs DCIT – TS- 915-ITAT-2016(Bang)-TP dated 13.04.2017

307. The Tribunal held that the assessee engaged in the business of providing ITE services could not be compared to:-

Infosys BPO Ltd having turnover of Rs 1312.42 crores as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 15.29 crores.

TCS E-serve ltd having turnover of Rs 1578.44 crores as it failed the turnover filter of 10 times the assessee’s turnover of Rs. 15.29 crores.

Further, it remitted the comparability of BNR Udyog Ltd and Universal Print Systems Ltd to the file of AO/TPO to examine the afresh functional dissimilarity since the assessee contended that the two companies were engaged in the business of Medical transcription services and BPO services respectively and the DRP order had not considered the above contention.

Misys Software Solutions (India) Pvt Ltd vs DCIT-TS-492-ITAT-2017(BANG)-TP-IT(TP)A No.1560 (bang) 2016 dated 12.05.2017

308. Tribunal held that the assessee engaged in the business of rendering software development and localization services to its AE could not be compared to:-

TCS E-serve Limited as it was engaged in the business of BPO services and also provided high end technology services such as software testing, verification and validation of software and did not maintain any segmental accounts also that it benefited from the use of TATA brand and

Wipro Technology Services Ltd as it was engaged in providing technology software solutions and diversified activities comprising software related support services, primary information technology software solutions, maintenance and technology support which was functionally dissimilar to the assessee and no segmental information was available.

Lionbridge Technologies Pvt Ltd vs CIT -TS -468-ITAT-2017(MUM)-TP- dated 17.05.2017

309. The Tribunal remitted the issue of whether Coral Hubs Ltd (formerly known as Vishal Information Technologies Ltd.) could be selected as comparable while benchmarking the international transactions of the assessee (as ITES provider) noting that that the said comparable outsourced major part of its work, incurring nominal employee cost as compared to assessee who incurred over 60% of its expenditure on salaries. Observing that the assessee placed reliance on the decision of the High Court in the case of Rampgreen Solutions Pvt. Ltd [TS-387-HC-2015(DEL)-TP] (wherein the comparable had been excluded), which was not available before the CIT(A) as it was subsequent to the date of passing the impugned order, it remitted the issue back to the file of AO to re-consider the inclusion/ exclusion of Coral Hubs in light of HC ruling.

Credit Pointe Services Pvt Ltd vs DCIT-TS-502-ITAT-2017(PUN)-TP dated 24.05.2017

310. The Tribunal held that the assessee, engaged in providing information technology related back office services to its AEs could not be compared to:

Accentia Technologies Ltd as the company was engaged in the business of medical prescription services which was functionally not comparable to the assessee.

Coral Hubs Ltd as the company had a very low employee cost of only 4.3% and had substantial vendor payments thereby outsourcing a large portion of its work.

Cross Domain Solutions Ltd as the company was engaged in providing KPO services and was functionally dissimilar to the assessee.

E4e Health Solutions as the company was engaged in the business of providing healthcare services which was a specialized of knowledge based services and thus functionally dissimilar to the assessee.

Ace Software Exports ltd as it was a loss-making company and also had an extra-ordinary event during the year i.e. it had restructured its business operations during the year.

R Systems International Ltd as it followed a different financial year. It relied on the decision in the case of PTC Software (I) Pvt. Ltd [TS-788-HC-2016(BOM)-TP] wherein it was held that the data to be used for comparability analysis should be of the same financial year in which the international transactions were entered into by the tested party.

Aditya Minacs Worldwide Ltd as it was engaged in providing KPO services.

Informed Technologies India Ltd as it was engaged in providing KPO services.

Vishay Components Pvt. Ltd vs. ACIT – TS-491-ITAT-2017(PUN)-TP – ITA No.341/PUN/2013 dated 31.05.2017

311. The Tribunal held that the assessee engaged in the business of software development services could not be compared to:-

Infosys BPO Ltd having turnover of Rs 33083 crores as it failed the turnover filter of 10 times the assessee’s turnover of software development segment i.e Rs.198.65 crores.

L&T Infotech Ltd having turnover of Rs 2959.55 crores as it failed the turnover filter of 10 times the assessee’s turnover of software development segment i.e Rs 198.65 crores.

Further, it remitted the comparability of Persistent Systems Ltd, Thinksoft Global Services and Evoke Technologies Pvt Ltd to the file of AO/TPO to examine afresh functional dissimilarity since the assessee contended that the three companies in the business of and the DRP order had not considered the above contention.

Misys Software Solutions (India) Pvt Ltd vs DCIT-TS-492-ITAT-2017(BANG)-TP-IT(TP)A No. 1560 (bang) 2016 dated 12.05.2017

312. The Tribunal held that the assesse engaged in the business of software development services could not be compared to:-

Virinchi Technologies Limited since as per the annual report, the company was engaged in R&D in software engineering technology and products. Further, the segmental data was unavailable.

Thirdware Solutions Limited since the company was engaged in diversified activities such as software design and consultancy, trading and development of software, subscription contracts, sale of user license for which no segmental details were available.

Gebbs Infotech Limited since the company provided software development services as well as BPO services and segmental operating margins were not available

WTI Advanced Technology since the company reported income from technical services rendered, CAD (computer aided design) convergent drawings and software services and segmental details were not available.

Transworld Infotech Limited as the company was engaged in software solutions and products as well as consultancy services and segmental details were unavailable.

Dell International Services India Pvt Ltd vs ACIT [TS-443-ITAT-2017(Bang)-TP] dated 21.04.2017

313. The Tribunal held that the assessee engaged in the business of providing software development services for administration of higher education institutions worldwide to its AEs could not be compared to

Infosys Technologies Limited since it had a very high turnover of Rs. 9028 crores and also had high brand value.

Bodhtree Consulting Limited as it had a RPT filter of 34.68% i.e, greater than 15% threshold applied by TPO.

Flextronics Software Systems Limited (seg) since it was engaged in software products and thus was functionally dissimilar with pure software development services provider.

Sankhya Infotech Limited since it was engaged in the business of development of software products and services as well as training and its segmental details were unavailable.

Foursoft Limited since its RPT filter was at 19.89% which was greater than 15% threshold applied by TPO.

Tata Elxsi Limited (seg) since it was engaged in the development of niche product and development services.

Satyam Computer Services Limited since the financial data was unreliable owing to fraudulent activities by Directors of the company.

Exensys Software Solutions Limited due to extraordinary event of amalgamation with Honlool India Ltd during the year and abnormal profits of more than 50%.

SunGard Solutions (India) (P.) Ltd vs ACIT [TS-351-ITAT-2017(BANG)-TP] dated 28.04.2017

314. The Tribunal held that the assessee engaged in the business of software development services could not be compared to:-

Infosys Limited having a turnover of Rs 21,140 cr as it failed the turnover filter of 10 times the assessee’s turnover i.e Rs 151.08 cr

KALS Information Systems Ltd having a turnover of Rs 2.16 cr as it failed the turnover filter of 1/10th times the assessee’s turnover.

L&T Infotech Ltd having a turnover of Rs 1776.76 cr as it failed the turnover filter of 10 times the assessee’s turnover.

Persistent Systems Limited as the company was engaged diversified activities and earned revenue from various activities including licensing of products, royalty on sale of products as well as income from maintenance contract, outsource product development and its segmental results were unavailable.

Tata Elxsi Limited as the company was engaged in diversified activities like product design services, innovation design, engineering services, visual computing labs etc. Further, it held that segmental details were unavailable.

Accentia Technologies Ltd. as the company was engaged in the business of medical coding and providing in KPO services and its segmental details were unavailable.

Icra Online Limited (seg.) as the company having 16% RPT failed the 15% RPT filter applied by the TPO.

Infosys BPO Ltd. as the company having a turnover of Rs 1126.63 cr failed the turnover filter of 10 times the assessee’s turnover of Rs 151.08 cr.

Further, it remitted the comparability of Nittani Outsourcing Services Ltd. to the TPO on the ground that the TPO had not initially selected the company as a comparable while issuing a show cause notice but without giving an opportunity to the assessee had included it in the final set of comparables. It also noted that the DRP had not entertained the assessee’s objection vis-à-vis the comparable. It accordingly set aside the issue to the file of the TPO for reconsideration of functional comparability.

Misys Software Solutions (India) Pvt. Ltd vs DCIT – TS-456-ITAT-2017(Bang)-TP dated 19.05.2017

315. The Tribunal held that the assessee engaged in the business of Software Development services could not be compared to:-

Bodhtree Consulting Ltd as it was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology and was thus functionally dissimilar to the assessee.

Tata Elxsi Limited as its software development segment constituted three sub-segments – product design services, engineering design services and visual computing labs and system integration services segment and no segmental breakup was available.

Persistent System Ltd as it was engaged in product designing services.

Infosys Technology Ltd as it was a giant company in the area of software and it assumed all risks leading to higher profits.

L&T Infotech Limited as it was engaged in multifaceted activities including both software development services and products and also owned intangibles.

Sasken Communication Technology Ltd as it earned revenue from 3 segments viz., software services, software products and other services for which segment wise operating margins and other relevant segmental data was unavailable.

Arcot R&D Software Pvt Ltd-TS-494-ITAT-2017(BANG)-TP-ITA No dated 17.03.2017

316. The Tribunal held that the assessee engaged in the business of providing software development services and ITeS to its AE could not be compared to:-

Infosys BPO ltd as it possessed high brand value and intangibles.

Accentia Technologies India ltd as the company had undergone an extra-ordinary event i.e. another company was amalgamated into the impugned company during the year and therefore the results of the company were incomparable due to such amalgamation.

Cosmic Global Ltd as it outsourced/sub contracted its work and was therefore functionally dissimilar.

E-clerx Services Ltd as it was providing high end services involving specialized knowledge and domain expertise.

Further, specifically vis-à-vis the software development services, it held that the assessee could not be compared to:-

Tata Elxsi Ltd as it was engaged in product designing service.

Persistent Systems Ltd as it was engaged in product development and product design services and segmental details were not available.

Infosys Technologies Ltd on the ground of brand attributable profit margin and huge turnover from software products for which segmental details were not available.

Altair Engineering India Pvt Ltd vs DCIT-TS-514-ITAT-2017(BANG)-TP dated 03.05.2017

317. The Tribunal held that the assessee engaged in the business of software development services could not be compared to:-

KALS Information Systems Ltd as the company having turnover of Rs. 2.14 crores failed the turnover filter of 1/10th of assessee’s turnover of Rs.69.07 crores.

Zylog Systems Ltd as the company having turnover of Rs failed the turnover filter of 10 times the assessee’s turnover of Rs. 69.07 crores

Mindtree Ltd as the company failed the turnover filter of 10 times the assessee’s turnover of Rs. 69.07 crores

Larsen & Toubro Infotech as the company failed the turnover filter of 10 times the assessee’s turnover of Rs. 69.07 crores

Infosys Ltd as the company having turnover of Rs. 20,264 crores failed the turnover filter of 10 times the assessee’s turnover of Rs. 69.07 crores

Bodhtree Consulting Ltd as the company engaged in the business of KPO services.

Tata Elxsi Ltd as the company was engaged in the business of KPO services.

Persistent Systems Ltd as the company was engaged in the business of software development services as well as product designing services.

Further, it remitted the comparability of Sasken Communications Technologies Ltd to the file of AO/TPO since the entire annual report was not available.

ITO vs Aris Global Software Private Ltd-TS-473-ITAT-2017(BANG)-TP-IT(TP)A No. 94 & 31/bang/2016 dated 28.04.2017

318. The Tribunal held that the assessee engaged in providing software development services to its AE could not be compared to:

KALS Information Systems Ltd as it was engaged in developing software products and not purely engaged in software development service provider.

Bodhtree Consulting Ltd as it was engaged in sale of software products and therefore could not be compared to the assessee.

Tata Elxsi Limited as it was engaged in software development services which comprised of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment and no segmental breakup was available.

Infosys Technologies Limited as it was engaged in development as well as sale of software products and therefore functionally dissimilar to the assessee.

Persistent Systems Ltd as it was engaged in software product development and product design services and therefore functionally dissimilar to the assessee.

Infosys BPO Ltd as it was a giant company with huge turnover and brand value.

TE Connectivity Global Shared Services India Pvt. Ltd vs. ITO-TS-1049-ITAT-2017(Bang)-TP I.T.(T.P) A. No.1280/Bang/2014 dated 13.12.2017

319. The Tribunal held that the assessee engaged in the business of providing ITES services to its AE could not be compared to:

Accentia Technologies Ltd as it was engaged in providing a gamut of services, had significant intangibles. Further, segmental details were unavailable.

Cosmic Global Limited as it had outsourced its main activity and the employee cost was less than 21.30%.

Fortune Infotech Limited as it was engaged in providing web application development including mobile applications, e-Commerce applications and SEO services, developing CMS based website using Drupal, Joomla, WordPress, e-Commerce Magento etc., offering onsite and offsite services to various clients and also into web designing services.

Igate Global Ltd as it had a turnover of Rs. 932.18 crores as compared to the assessee’s turnover i.e Rs. 76.91 crores.

Infosys BPO Limited as it was engaged in diversifying services like customer service outsourcing, finance and accounting, knowledge services, human resource outsourcing, legal process outsourcing, sales and fulfillment, sourcing and procurement outsourcing, banking and capital outsourcing, media outsourcing, energy outsourcing, retail, etc. Further, it had an exceptional year of operation as it had acquired McCamish Systems LLC to provide end to end services.

TCS E-serve International Limited as it was engaged in providing transaction processing and technical services which was functionally dissimilar to the assessee.

Satyam BPO Limited as the financials were not reliable due to fraud.

Further, It remitted R Systems International Limited to the file of TPO to examine its functionally similarity vis-à-vis the assessee.

Vertex Customer Services India Private Limited (now merged with Vertex Customer Management India Private Ltd) vs. DCIT-TS-1052-ITAT-2017(DEL)-TP dated 28.11.2017

320. The Tribunal noting that the services/ products and functions rendered by Cybermate Infotek Ltd (CIL) i.e providing Custom Built Software development, product development and IT services to customers in domestic and overseas locations were broadly similar to the assessee engaged in providing low end software development & localization services to its AE, upheld AO’s retention of CIL as a comparable as TNMM required only broad functional and product/services comparability which was satisfied in the present case.

Lionbridge Technologies Pvt. Ltd vs. ACIT-TS-984-ITAT-2017(Mum)-TP ITA No. 1291/MUM/2017 dated 07.11.2017

321. The Tribunal held that the assessee engaged in the business of providing software development services to its AE could not be compared to:

Tata Consultancy Ltd as it had earned income from information technology and consultancy services but segmental details were not available.

Wipro Ltd as it was a leading provider of IT service including business process outsourcing (BPO) and had other products such as IT products and customer care and segmental details were unavailable.

Adobe Systems India Pvt Ltd vs. JCIT-TS-1008-ITAT-2017(DEL)-TP ITA No.1163/Del/2014 dated 30.11.2017

322. The Tribunal held that the assessee engaged in online courseware development services to its AE could not be compared to:

Infosys Technologies Ltd as it was a giant company in terms of risk profile, nature of services, number of employees, ownership of its branded products and brand related profits, having huge turnover of as compared to assessee’s turnover (which was 1043 times of the turnover of the assessee). Further, it also noted that this company was also into software product and incurring huge amount of its R&D.

KALS Information Systems as it was engaged in imparting training on commercial basis of selling its software products and therefore was functionally dissimilar to the assessee.

Tata Elxsi Ltd as it was engaged in distinct activities like development of hardware and software for embedded products, such as multi-media and some other electronic etc. and it was also engaged into making some programmes developing technology and was having huge intellectual property.

Wipro Limited as it had significant investment in R&D for development of IP and products to the extent of 11% of the revenue. Further, it had huge turnover (Rs.11,955 crore), substantial intangible assets in the form of goodwill and there was no availability of standalone data for FY 2007-08.

Element K India Pvt. Ltd vs. ITO-TS-959-ITAT-2017(DEL)-TP ITA No.6277/Del./2012 dated 22.11.2017

323. The Tribunal held that the assessee engaged in the business of provision of finance/IT back office support services could not be compared to:

E-clerx Service Limited as it outsourced most of its services. Further, it provided services through two business units viz., financial services including consulting business analysis and solution testing and sales and marketing services which also included web content management & merchandising execution, web analytics which were high end KPO services and segmental details for the same were not available.

TCS E-serve Limited as it was a subsidiary of Tata Consultancy services limited having an inherent element of very high brand value associated with it. Further, it was engaged in rendering services broadly comprising of transaction processing and technical services including software testing, verification and validation for which no segmental bifurcation was available.

ICRA Technology Analytics Ltd as it was engaged in the business of software development and consultancy, engineering services, web development and providing business analytic and business process outsourcing and thus functionally dissimilar to the assessee.

Accentia Technologies Private Limited as it had acquired a software development company during the year due to which its revenue had significantly increased affecting the pricing and comparability of the company vis-à-vis the assessee.

BC Management Services Pvt Ltd vs DCIT-TS-438-ITAT-2017(DEL)-TP-ITA No.6134/del/2015, 5839/del/2015 and 6572/del/2016 dated 25.05.2017

324. The Tribunal held that the assessee engaged in the business of providing back office processing services to AE could not be compared to:

Tricon India Limited as it had developed a unique software to provide BPO services to customers and thus was functionally dissimilar to the assessee.

Fortune Infotech Limited as it had developed unique software from which it would derive substantial benefits/advantages and therefore could not be compared to the assessee which was providing pure call centre services.

Wipro BPO Solution Ltd as it had unique intangibles considering the influence of the wipro brand.

Further, it remitted the comparability of Ultramarine & Pigments Ltd, Spanco Telesystems & Solutions Ltd, Allsec Technologies Ltd to the file of AO/TPO as they were functionally dissimilar to the assessee and this issue had not been examined by the AO/TPO.

Siemens BPO Services Pvt. Ltd vs DCIT-TS-530-ITAT-2017(BANG)-TP

325. The Tribunal held that the assessee engaged in providing back office service in the ITeS sector could not be compared to:-

Infosys BPO Ltd as it had an extraordinary event of amalgamation during the year. Further, it earned revenue from providing business process management services to other organizations engaged in outsourcing business services.

Accentia technologies ltd as it was engaged in diversified activity of medical activity of medical transcription, medical coding, billing, receivable management which were functionally different from the service of contract center service provided by assessee.

Cosmic Global ltd as it was engaged in providing service of medical transcription and consultancy services, translation services and accounts of BPO and therefore functionally dissimilar to the assessee.

Business Process Outsourcing (India) Pvt Ltd vs DCIT-TS-577-ITAT-2017(Bang)-TP dated 09.06.2017

326. The Tribunal held that the assessee engaged in the business of providing shared services (ITeS) to its AE could not be compared to:

Accentia Technologies Ltd as there was an extraordinary event of merger and amalgamation during the year and thus could not be compared to the assessee.

Infosys BPO Ltd as it was engaged in the business of providing software products apart from software services and therefore functionally dissimilar to the assessee. Further, it owned intangible assets and had a brand value commanding premium pricing.

Flextronics Technologies India Pvt ltd vs DCIT-TS-588-ITAT-2017(BANG)-TP-ITA No. 649/bang/2015 and Cr. objn IT(TP)A No. 208/bang/2015 dated 21.06.2017

327. The Apex Court admitted Revenue’s SLP challenging Delhi HC ruling in the case of Actis Global Services Pvt. Ltd. The High Court had declined to interfere with the Tribunal ruling on comparability analysis and held that Infosys BPO and Eclerx services ltd were incomparable to assessee engaged in providing KPO services.

Pr.CIT vs Actis Global Services Pvt Ltd-TS-619-SC-2017-TP-6657/2017-ITA No. 2280/mum/2017 dated 04.08.2017

328. The Tribunal held that the assessee, engaged in providing software development could not be compared to:

Vishalsoft Technologies Ltd as 56% of its expenses had been incurred in respect of onsite software development as against assessee who is a captive service provider and it also incurred R&D expenses to the extent of 4.96 percent of its sales and therefore operated a different business model

Infosys Technologies Ltd & Satyam Computer Services Ltd as they were functionally not comparable to the assessee a captive service provider.

L&T Infotech Ltd as the TPO/AO had accepted the exclusion of this company in remand report dt.8.1.2010 for the case of Vishal Web Solution Ltd and therefore could not take a different stand in this appeal

Geometric Software Solution Co. Ltd as its Related Party transactions (16.40 percent) exceeded the 15 percent filter applied.

DCIT vs. Novell Software Development (India) Pvt. Ltd – TS-190-ITAT-2017(Bang)-TP – I.T.{T.P} A. No.1313 / Bang / 2012 dated 10.02.2017.

329. The Tribunal held that the assessee engaged in in provision of software development and marketing support services to its AEs could not be compared to:

Exensys Software Solutions as it was a product development company and a BPO and had also earned abnormal profits due to amalgamation (extra-ordinary event)

Satyam Computers Ltd as the financial results of the company were unreliable

Thirdware Solutions as it was engaged in the business of information services, consulting and outsourcing company and also derived income from sale of licenses.

Infosys Technology Ltd on account of its high brand value

Flextronics Software Systems Ltd as it incurred substantial R&D expenses

Tata Elxsi as it was engaged in diverse activities which were dissimilar to those rendered by the assessee

Bodhtree Consulting as it was engaged in provision of niche IT services and it had fluctuating margins year-on-year since it followed different revenue recognition policies

Further, it held that L&T Infotech Ltd & iGate Global Solutions Ltd, which were excluded as comparable by the CIT(A) on the ground that their turnover exceeded Rs.200 crore, were to be considered as comparable as turnover was not a relevant criterion for the purpose of deciding the comparability as Rule 10B(2) does not specify turnover as one of the factors for deciding comparability.

Electronics for Imaging India Pvt. Ltd vs. DCIT – TS-169-ITAT-2017(Bang)-TP – IT(TP)A No.462/Bang/2013 dated 10.03.2017

330. The Tribunal held that assessee, engaged in rendering ITES to its group companies could not be compared to the following companies viz. a). Accentia Technologies as it was engaged in high on-site operations in different geographical zones and it had undertaken extra-ordinary events (merger) during the year which resulted in higher profits b). Asit C Mehta as it had abnormally low employee cost c). Bodhtree Consulting Ltd as it was engaged in software development therefore functionally different, d). Eclerx Services Ltd as it was a KPO service provider and it reported extraordinary high profits e). Mold Tek Technologies Ltd as it was engaged in providing structural engineering consulting services under the KPO division f). Vishal Information Technologies since it outsourced a large portion of its work to third party vendors and g). HCL Comnet Systems and Services Ltd, Infosys BPO Ltd, Wipro Ltd on account of functional difference, high brand value and premium pricing.

TNS India Pvt Ltd v ACIT – TS-45-ITAT-2017 (Hyd) – TP

331. The Tribunal held that the assessee, engaged in the business of providing software development, quality assurance and support services to its AEs could not be compared with:

E Infochips Bangalore Ltd as it was engaged in the business of software and ITES without adequate segmental data

Kals Info Systems Lt d as it was engaged in the development of software products

Tata Elxsi as it had high turnover, was engaged in complex activities and did not have segmental data.

Invensys Development Centre India Pvt Ltd v DCIT – TS-125-ITAT-2017 (Hyd) – TP ITA No.329/Hyd/2015 ITA No.318/Hyd/2015 dated 23.02.2017

332. The Tribunal held that for the purpose of benchmarking the call centre services provided by the assessee to its AEs, the following companies could not be considered as comparable:

AY 2008-09

Accentia Technologies Ltd at it had undertaken an extra-ordinary event of acquisition during the year and it earned revenue from software development and implementation as well

Coral Hub (earlier Vishal Information Technologies Ltd.) as it outsourced a substantial amount of its services

Eclerx Services Ltd as it had undergone an extraordinary event of merger which resulted in increased profitability and also since it was functionally different as it provided specialized services in the nature of a Knowledge Process Outsourcing (KPO) such as data analytics, data process solution, tailored outsourcing process and management services including multitude of data aggregation, mining and maintenance services

AY 2009-10

Coral Hub as it outsourced a substantial amount of its services and also since it had a huge inventory of POD publishing titles

Eclerx Services Ltd due to the functional differences based on which it was excluded in the immediately preceding assessment year

AY 2010-11 

Accentia technologies Ltd as it had undergone an extraordinary event of merger and acquisition and also since the company had shown income from medical transcription, billing and coding, and software development and implementation for which no segmental data in respect of ITES services was available

TCS E-serve limited as it was engaged in providing high-end transaction processing, technical services involving software testing, verification and validation at the time of implementation, data centre management activities and also used the ‘TATA’ Brand which impacted its profitability

TCS E-serve international Ltd as the company was engaged in providing technical services such as software testing, verification and validation of software at the time of implementation and data centre management activities and no segmental information was available to bifurcate ITES services and technical services.

AY 2011-12

TCS E-serve limited & E clerx service Ltd based on the findings for the earlier years as there was no material change in facts

Corporate Executive Board India Pvt. Ltd. (now known as CEB India Pvt. Ltd) vs. ACIT – TS-220-ITAT-2017(DEL)-TP – ITA No. 6328/Del/2012, ITA No. 1088/Del/2014, ITA No. 963/Del/2015, ITA No. 6683/Del/2015 dated 17.03.2017

Investment Advisory Services

333. The Tribunal excluded two comparables viz. Motilal Oswal Investment Advisory Pvt Ltd. (engaged in rendering services of investment banking and corporate banking and advisory)and Brescon Corporate Advisors Pvt Ltd. (engaged in rendering the services of Merchant Banker)on grounds of functional dissimilarity with the assessee rendering investment advisory services during AY 2009-10. It further held that the DRP was not justified in stating that the comparables selected by the TPO for the earlier year would be valid for the under appeal. It reasoned that each and every year was a separate and independent unit and process of identifying comparables was not merely a formality, and that the procedure laid down in the Act and Rules could not be deviated from.

Blackstone Advisors India Private Limited – TS-5-ITAT-2017 (Mum) – TP

334. The Tribunal held that the assessee, engaged in rendering investment advisory services to its AE could not be compared with:

Crisil Ltd (segment Research Service) as it was Functionally different, its RPT filter was more than 25% and its advisory segment had been transferred to its wholly owned subsidiary

ICRA Ltd as it was functionally incomparable

SBI Fund Management Ltd as it was an ‘Asset manager’ whose main source of income was by way of management fees, while its income from advisory fees was negligible.

Sundaram Asset Management Ltd as it was an asset management company whose main source of income was by way of ‘Investment management fees’

Deutsehe Asset Management India Ltd as it was functional incomparable and had substantial RPT

It also included the following companies that were excluded by the TPO:

Future Capital Holding, KPIT Cummins Global Business Solution Ltd as the said companies were not persistently loss making companies though they had incurred losses during the year.

ICRA Management Consulting Services Ltd as the TPO had incorrectly rejected this company on the ground of RPT and persistent losses whereas its RPT was 14 percent (below the 25 percent threshold applied by the TPO) and it was not a persistently loss making company.

IDC India Ltd as the company was selected as comparable in the preceding year and there had been no change in its functionality since then.

TPG Capital India Private Limited Vs DCIT – TS-101-ITAT-2017(Mum)-TP ITA. No. 7594/Mum/2014 dated 08.02.2017

335. Where the assessee was engaged in providing non-binding investment advisory services to its AE, the Tribunal allowing assessee’s appeal held that Asian Business Exhibition and Conference limited could not be compared to the assessee as it was engaged in the business of organizing exhibitions.

Intellectual Venture India Consulting Pvt. Ltd-TS-884-ITAT-2017(Bang)-TP dated 20.10.2017

336. The Tribunal held that the assessee engaged in the business of providing investment advisory services to its AE could not be compared to Motilal Oswal Investment Advisors Pvt Ltd. as it was engaged in providing merchant banking functions rendering it functionally dissimilar to the assesse. Further, considering the assessee’s submission that the AO had erred in considering interest income as operating income, it remitted the comparable Integrated Capital Services Ltd to the file of AO to verify the same and pass a consequential order.

WL Ross India Pvt. Ltd vs DCIT-TS-954-ITAT-2017(mum)-TP-ITA No. 977 / mum / 2015 dated 03.11.2017

337. The Tribunal held that the assessee engaged in providing investment advisory services to its AEs could not be compared to:

Brescon Advisors & Holdings ltd as it was carrying on merchant banking and investment activities along with providing project advisory services. Further, it had two streams of income namely fee based financial services and other income.

Keynote Corporate Services limited as it was engaged in merchant banking and therefore was functionally dissimilar to the assessee.

DE Shaw India Advisory Services Pvt. Ltd vs. DCIT-TS-817-ITAT-2017(DEL)-TP ITA No. 1681/Del/2015 dated 24.07.2017

338. The Tribunal held that the assessee engaged in providing investment advisory services to its AEs could not be compared to:

Brescon Corporate Advisors as it was engaged in merchant banking and its main source of income was from recapitalization advisory and debt syndication.

Keynote Corporate Services Ltd as it had launched an ESOP division which focused on designing and implementing stock option schemes for corporate

ChrysCapital Investment Advisors (India) Private Limited vs Addl.CIT-TS-772-ITAT-2017(DEL)-TP ITA No.4294/Del./2014 dated 19.09.2017

ChrysCapital Investment Advisors (India) Private Limited vs Addl.CIT-TS-754-ITAT-2017(DEL)-TP dated 19.09.2017

339. The Tribunal held that for AY 2008-09, the assessee, engaged in providing investment advisory services to its AE could not be compared to:

ICRA Ltd as it was not functionally comparable having almost all its income from credit rating services

Deutsche Asset Management India Ltd as it earned significant revenue from investment management services and had no segmental details in respect of income from other activities

Sriyam Broking Intermediary Ltd as the company was into share broking services

21st Century Share and Securities Ltd as significant amount of its income were from share broking services

SBI Fund Management Pvt Ltd as most of its income was from asset management services

Further, it included IDC India Ltd as comparable observing that the company operates in the single segment of market research and management consulting which was held to be comparable to an investment advisory service provider in various precedents of. Hon’ble Bombay High Court in General Atlantic Pvt Ltd, Temasek Holding Advisory India Pvt Ltd and Sandstone Capital Advisors Pvt Ltd.

Further, for AY 2009-10, the Tribunal held that the assessee could not be compared to:

Integrated Capital Services Ltd as the company was engaged in providing investment banking banking services, advisory in mergers and acquisitions and re–construction of business

MotilalOswal Investment Advisors Pvt Ltd as the company was into merchant banking services

It included ICRA Management Consulting Services Ltd as comparable as it was engaged in consulting services to various types of industries through investment advisory, which was held similar to assessee’s business.

Warburg Pincus India Pvt. Ltd. vs. ACIT – TS-44-ITAT-2017 (Mum) – TP ITA no. 6981/Mum./2012 / ITA no. 1717/Mum./2014 dated 13.01.2017

340. The Tribunal held that the assessee, engaged in providing non-binding investment advisory services’ to its AE could not be compared to:

Centrum Capital Limited as it was engaged in ‘merchant banking’ activities having its main income from syndication fees, brokerage and commission and trading in bonds

Keynote Corporate Services Limited as it was engaged in providing merchant banking activities involving lead managing IPOs, right offer, buyback of shares and takeover, corporate finance and M & A advisory

SREI Capital Markets Limited as it carries out full scale investment banking, corporate advisory and project management consulting firm, and primary income is from merchant banking activities and it operated under a single segment, i.e., Project consultancy, merchant banking and underwriter services

Sumedha Fiscal Services Limited as it was engaged in providing merchant banking activities involving loan syndication and project consultancy services

JP Morgan Advisors India Private Limited Vs DCIT – TS-170-ITAT-2017(Mum)-TP – ITA No.7979/MUM/2010 dated :16.03.2017

341. The Tribunal held that the assessee, engaged in providing non-binding investment advisory services could not be compared to Motilal Oswal Investment Advisers Pvt. Ltd as it was a merchant banker and therefore not functionally comparable

Further, it held that ICRA Management Consulting Services Ltd & IDC India Ltd were to be accepted as comparables as they had been accepted as comparables by the Tribunal in the assessee’s own case for prior assessment years.

Warburg Pincus India Pvt. Ltd. vs DCIT – TS-238-ITAT-2017(Mum)-TP- I.T.A.No.1612/Mum/2015 dated 29.03.2017

342. The Tribunal held that the assessee engaged in the business of providing non-binding investment advisory services could not be compared to :-

Motilal Oswal Investment Advisors P. Ltd since it was engaged in providing a gamut of functions and activities as such as M&A, profit equity syndication and structured debt, advisory services related to corporate matters, merchant banking activities etc and which was functionally different from the investment advisory services provided by the assessee.

Integrated Capital Services Ltd as the company was engaged in the business of providing consultancy services in the field of business, M&A, etc. which was not comparable with investment advisory services.

Further, it accepted assessee’s plea for inclusion of IDC India Limited as it was engaged in advisory and consultancy services.

Singuler Guff India Advisors Pvt Ltd vs DCIT- TS-448-ITAT-2017(MUM)-TP- ITA No. 403/Mum/2015 dated 21.04.2017

343. Where the Tribunal had excluded 3 comparables on the ground that they were engaged in debt syndication, debt financing, IPO advisory etc, the Court set aside Tribunal’s order on comparable selection for benchmarking the international transactions of the assessee providing non-binding investment advisory services. It noted that the Tribunal had gone by usage of terms such as debt syndication, debt financing, IPO advisory etc appearing in annual reports of the 3 contested comparables (merchant bankers) to be functionally dissimilar. Observing that the services of the assessee could not be termed as that of merchant banking though there may be some overlap in the advisory segment of the services provided by merchant bankers, it restored the comparability of 3 companies back to CIT(A).

Avenue Asia Advisors Pvt. Limited vs. DCIT-TS-737-HC-2017(DEL)-TP ITA No. 350 / 2016 dated 18.09.2017

344. The Tribunal held that the assessee engaged in the business of providing non-binding investment advisory services to its AE could not be compared to:

Eclerx Services Limited as it was engaged in providing data analytics and risk management services rendering it functionally dissimilar to the assessee.

Mold-Tek Technologies limited as it was engaged in providing engineering design services and therefore was functionally incomparable to the assessee.

Acropetal Technologies as it was engaged in providing engineering design services and information technologies services without adequate segmental data rendering it functionally dissimilar to the assessee.

Crossdomain Solutions Limited as it was engaged in providing data processing services and insurance claim processing and therefore was functionally not comparable to the assessee.

Apax Partners India Advisors Private Limited vs DCIT-TS-743-ITAT-2017(MUM)-TP-ITA No.628/Mum/2013 dated 12.09.2017

345. In case of the assessee providing investment advisory and support services to its AE, the Tribunal had disagreed with assessee’s contention that it was merely a non-binding investment advisory service provider and affirmed characterization of the assessee by the TPO as a merchant banker / fee based investment and financial advisory service provider. Further, as regards AE receivables the Tribunal had restored the computation of the notional interest on outstanding receivables to the TPO with directions to compute interest for receivables on day to day basis and apply the LIBOR rate of interest as against PLR used by the TPO. The Court admitted assessee’s appeal challenging Tribunal’s order and framed 3 questions for determination viz.(i) characterization of assessee’s function as a merchant banker (ii) inclusion of certain comparables selected by the TPO considering assessee’s business profile (iii) whether the Tribunal erred in upholding addition of notional interest on outstanding receivables from AE.

Avenue Asia Advisors Pvt. Ltd vs DCIT-TS-415-HC-2017(DEL)-TP-ITA 350/2016 dated 26.04.2017

Manufacturing

346. The Tribunal held that the assessee engaged in the business of manufacture and/or assembly of components of cable glands, hydraulic motors and pumps and its parts could not be compared to:

Amtek Auto Ltd as it was engaged in automotive components and therefore could not be compared to the assessee.

In respect of the Hydraulics Division i.e Sale of motor & pumps, noting that the assessee had sought exclusion of Dynamatic Technologies Ltd and Denison Hydraulics India Ltd on the ground of their related party transaction (RPT) was more than 15% of the revenue and the TPO had not applied RPT filter, the Tribunal remitted the matter back to the file of TPO/AO to exclude the same if the RPT was more than 15%.

British Engines (India) Pvt. Ltd. vs. DCIT-TS-890-ITAT-2017(bang)-TP IT(TP)A No.1454/Bang/2010 dated 06.11.2017

347. The Tribunal held that Astra Microwave Component Ltd (AMCL) could not be considered as comparable to the assessee, engaged in the manufacturing and export of microwave components as the assessee was a captive unit as against AMCL, a full-fledged manufacturing and marketing company. Further, it also held that theassessee was not a complete manufacturer of the final product, but was only making value addition on behalf of the AE and therefore, it excluded the same company.

Akon Electronics India Pvt. Ltd vs. DCIT – TS-105-ITAT-2017 (Del) – TP ITA No.4804/Del/2009 ITA No.4837/Del/2009 dated 15.02.2017

348. The Tribunal held that the assessee engaged in the business of manufacture and sale of train components could not be compared to:

Shanthi Gears Ltd as it was engaged in the manufacturing of gears and geared boxes used in textile machinery, power sector etc whereas assessee operated in the automotive sector

International Combustion (India) Ltd as it was engaged in the manufacture and sale of premium quality equipments, it has three business divisions i.e. heavy engineering, polymer and bauer and catered to a different industry.

Spicer India Limited Vs ACIT – TS-99-ITAT-2017(PUN)-TP – ITA No.251/PUN/2014 dated 10 .02.2017

349. The Tribunal remitted the issue in the case of assessee’s contract manufacturing & software services segments to the file of AO/TPO in respect of the following comparables:

Aztech Software Ltd, Accel Transmatics Limited, Megasoft Limited where the assessee contended that the companies failed the RPT filter of 15% as it had an RPT of 17.35%, 30.76% and 52.74% respepctively. The Tribunal questioned assessee about the correctness of RPT% submitted vis-à-vis TPO’s order and accordingly remitted the matter to the AO/TPO for fresh decision.

Infosys Technologies Limited, KALS Information Systems Ltd and Tata Elxsi ltd as the assessee contended that these companies should be excluded on grounds of functional dissimilarity. Accordingly, Tribunal remitted the matter back to the AO/TPO for fresh consideration.

GE Medicals Systems India Pvt ltd vs DCIT-TS-587-ITAT-2017(BANG)-TP-ITA no. 1414(bang)2010 dated 23.06.2017

350. The Court dismissed Revenue’s appeal seeking exclusion of HMT Limited as a comparable for assessee engaged in manufacture and export of tractors. Noting that both assessee and HMT Limited were in the segment of manufacture of tractors and power tillers and performed the same functions, the Court upheld Tribunal’s view that that exclusion of a company only on the ground of high turnover was not justified. Further, it rejected Revenue contention that HMT should be excluded as it was a government company and held that no provision of law which makes any distinction between a government owned company and a company under private management for the purpose of transfer pricing audit and/or fixation of ALP and accordingly dismissed the appeal.

CIT vs. Same Deutz – Fahr India Private Limited-TS-973-ITAT-2017(MAD)-TP dated 05.12.2017

351. The Tribunal held that Shroff Engineering Limited engaged in in the manufacturing of premium “PLUGA” brand Submersible Pumpsets, Openwell Submersible Pumpsets, Drainage Pumps and Mini Monoblock Pumps was comparable to the assessee engaged in the business of  manufacturing and sale of pumps to AEs and non-AEs and accordingly disregarded DRP’s rejection of this company merely on the ground that TPO had no occasion to consider this company in the TP proceedings.

Weir Minerals (India) Private Ltd. vs DCIT-TS-975-ITAT-2017(DEL)-TP ITA No.-2021/Del/2015dated 23.11.2017

352. The Tribunal held that the assessee engaged in manufacturing of woodworking machinery and spare parts could not be compared to:

Lakshmi Precision Tools ltd as it had RPT of 74.41% which failed the RPT filter of 15% applied by TPO.

Guindy Machine Tools Ltd, Lykot Hitech Toolrooms ltd, Kiran Machine Tools ltd and Kulkarni Power tools ltd as they were engaged in the business of software services and thus functionally dissimilar to the assessee engaged in the business of manufacturing machinery.

Biesse Manufacturing Company Private Limited vs DCIT-TS-601-ITAT-2017(BANG)-TP-IT(TP)A No. 755/bang/2017 dated 07.07.2017

353. The Tribunal held that the assessee engaged in manufacture and sale of luggage and travel accessories to its AEs could not be compared to:

Gammco Limited as it was engaged in sales and marketing, services and assembling of DG sets as dealer and manufacture of DG sets and segmental details were unavailable.

TIL Limited as it was engaged in manufacturing and marketing of a comprehensive range of material handling, lifting port and road construction solutions with integrated customer support and after Sales Service and its products and services were termed as Materials Handling Solutions (MHS) rendering it functionally dissimilar to the assessee.

Samsonite South Asia Pvt Ltd vs. DCIT-TS-809-ITAT-2017(Mum)-TP ITA No.1934/Mum/2017 dated 01.09.2017

354. Where the assessee was engaged in the manufacture and export of tractors and the TPO rejected HMT Ltd as comparable on the ground that its turnover was Rs.248 crore as against the assessee’s turnover of Rs.120 crore, the Tribunal observing that HMT Ltd. was engaged in the manufacturing of tractors and power tillers and was functionally similar to the assessee and held that the turnover of the company was only 2 times that of the assessee, included this company as a comparable.

SAME Deutz-Fahr India Pvt. Ltd. [TS-316-ITAT-2017(CHNY)-TP] – /ITA No.2666/Mds/2016 dated 22.02.2017

Research and Development Services

355. The Tribunal held that the following companies could not be included in the list of comparable companies while benchmarking the R&D services provided by the assessee:

Sankhya Infotech Ltd as it was engaged in the business of software products, services and training for transport and aviation industry without any segmental data

Thidware Solutions Ltd as it was engaged in the sale of software license and related services

Exensys Software as it had undergone an amalgamation during the year which led to abnormal profits

Four Soft Ltd as it was functionally different and had RPT in excess of 15 percent (19.89%)

Further, it held that LGS Global Ltd could not be excluded as comparable merely because it had a lesser margin as compared to the assessee.

DCIT v Nvidia Graphics Pvt Ltd – TS-1089-ITAT-2016 (Bang) – TP IT(TP)A No.1211/Bang/2011 dated 23.11.2016

356. The Tribunal held that the assessee, engaged in contract research and development services could not be compared to:

Celestial Biolabs Ltd as it was engaged in providing host of IT Services and some trading activity and also owned IPRs

IDC India Ltd as it was engaged in providing market research and survey services

Oil Field Instrumentations Ltd as the nature of assets employed and the activities performed indicate that the company was functionally different

Further, it dismissed the contention of the assessee for exclusion of TCG Lifesciences on the ground that its income from R&D services was 74.5 percent which was less than the filter of 75 percent adopted by the TPO. It held that a difference of 0.1 to 0.9 percent could not be considered as a substantial difference for the purpose of exclusion.

Apotex Research Pvt Ltd v ITO – TS-1035-ITAT-2016 (Bang) – TP IT(TP)A No.40/Bang/2014 dated 04.11.2016

357. The Tribunal held that the assessee engaged in providing R&D services to its AE could not be compared to:-

Alphageo India Limited as it had not undertaken any R&D activities during the year and therefore was not comparable to the assessee.

Vimta Labs as it was engaged in wide spectrum of services (focusing on food, water, drugs, clinical diagnostics and environment) which was functionally dissimilar to the assessee.

Geologging Industries Limited as it was engaged in mudlogging services, drilling data monitoring services and wireline services and thus functionally dissimilar to the assessee.

FMC India Private Limited vs DCIT-TS-573-ITAT-2017(Bang)-TP-dated 23.06.2017

358. The Court noting that the Tribunal had excluded Celestial Labs as a comparable in respect of assessee providing contract research and testing services to AE on grounds on functional dissimilarity as the said company was engaged in providing diversified services such as rendering IT services encompassing application development and maintenance, production support, EERP, data warehousing, SAP implementation and was also engaged into manufacturing and trading of products such as ERP package for manufacturing and had a product ‘Sarijivani’ which is a portal for live ayurvedic consultation, held that no substantial question of law arose and accordingly dismissed Revnue’s appeal

Pr.CIT vs Tevapharm India Pvt Ltd-TS-730-HC-2017(DEL)-TP-ITA No 816 / 2017 dated 19.09.2017

Sales / Trading

359. The Court dismissed Revenue’s appeal against Tribunal’s exclusion of comparables in the absence of substantial question of law as the Tribunal had assigned clear reasons for exclusion of comparables. The TPO had rejected the comparables adopted by assessee and adopted new set of comparables. The Tribunal held that the following companies could not be considered as a comparable to the assessee engaged in the business of distribution and sale of digital switching equipment, cellular exchange equipment and other telecommunication equipment provided contract software development (CSD) services.

E-Infochips Ltd. on the ground that it had income from software products and services and there was no segmental data available.

Larsen &Toubro Ltd. on the ground that it had income from software development services and earned revenue from licensing of products

Persistent Systems Ltd. on the ground that it was engaged in diversified services such as software consultancy, software product development and system integration services.

Infosys Ltd. on the ground that it was engaged in providing software consulting and products.

Zylog Ltd. on the ground that this company derived revenue from consultancy services,project and e Governance projects.

Alcatel Lucent India Ltd-TS-585-HC-2017(DEL)-TP-ITA No.515/2017 dated 18.07.2017

360. The Tribunal, ruling on selection of comparables in respect of assessee engaged in the business of trading of roller, chemical and blanket testing equipments, remitted the comparability of the Tirupati Incs Ltd and ITD imagetic ltd to the file of AO/TPO directing it to verify whether the said companies were engaged in the business of trading and exclude it if it was confirmed that it was engaged in manufacturing operations.

Boettcher India Pvt. Ltd vs ACIT-TS-760-ITAT-2017(DEL)-TP-ITA No. 6610/Del/2016 dated 29.09.2017

361. The Tribunal held that the assessee engaged in trading of refractory materials and providing marketing support services to its AE could not be compared to:

Basiz Fund Services Private limited as it was engaged in providing funds accounting services to fund administrators, insurance companies, prime brokers, private equity funds in selected geographies, managed accounts / portfolio accounts, family offices and internal fund accounting for hedge funds.

ICRA Management Consultancy Services Limited as it was persistent loss making company.

DCIT vs. RHI India Private Limited-TS-818-ITAT-2017(MUM)-TP ITA No.244/Mum/2014 dated 07.08.2017

362. The Court, relying on the decision of Sumitomo Corporation India Pvt. Ltd., [TS-202-HC-2015(DEL)-TP] upheld the Tribunal’s order rejecting TPO’s approach of benchmarking commission from trading activities on the basis of commission rate for indenting business and vice versa on the ground that indenting transactions are different from trading transactions.

Sojitz India Private Limited [TS-177-HC-2017(Del)-TP] [ITA 28/2017]

 

 

Support Services

363. The Tribunal held that the assessee engaged in the business of providing business support services to its AE could not be compared to:

Aptico Limited as it was engaged in providing services in the nature of Entrepreneurship development & Training, Asset Reconstruction & Management Services, Micro Enterprises Development rendering it functionally dissimilar to the assessee.

TSR Darashaw Limited and Cameo Corporate Services Limited as they were engaged in performing share registry services which were different from the services performed by the assessee.

Further, it included EDCIL (India) Ltd on the ground that financial information was available on the MCA website which was in public domain and it was providing similar services as the assessee i.e. technical support services, procurement services, training and management services etc. Further, it also included Sporting & Outdoor Ad-Agency Pvt. Ltd as there was a minor difference in revenue (1 lakh rupees) for the current year as compared to the previous year which could not be regarded as diminishing revenue.

Vestergaard Asia Pvt. Ltd vs. DCIT-TS-1020-ITAT-2017(DEL)-TP ITA No. 6670/Del./2015 dated 30.11.2017

364. The Tribunal held that the assessee engaged in the business of technical support services to its AE could not be compared to:

Wapcos Limited as it was engaged in rendering consultancy services in Water Resources, Power and Infrastructure which included preliminary investigations and feasibility studies field studies, engineering design, drawings and tendering process, project management operations and maintenance and institutional/human resource development and was also a government company.

Mahindra Consulting Engineers Limited as it was engaged in the provision of technical consultancy in Multi-Disciplinary Projects which included designing, engineering, procurement, construction, monitoring and supervision, infrastructure consulting services and integrated project management services.

Further, it included Kirloskar Consultants Limited having an RPT of 11.79% as it satisfied the RPT filter of 25%.

Alcatel-Lucent India Ltd. vs. DCIT-TS-1027-ITAT-2017(DEL)-TP I.T.A .No. 6856/DEL/2015 dated 06.11.2017

365. The Tribunal directed the exclusion of Media Research Users Council as a comparable as it was a not for profit organization and as its major source of revenue was the income from its members in the form of membership fee and subscription fee for Indian Readership Survey (IRS) and Indian Outdoor Survey (IOS) reports and therefore could not be compared to the assessee engaged in the business of marketing support services.

Belkin India Private Limited vs. ACIT-TS-1031-ITAT-2017(DEL)-TP dated 12.12.2017

Autoliv India Pvt. Ltd. vs. DCIT-TS-1033-ITAT-2017(Bang)-TP dated 28.11.2017

366. The Tribunal held that the assessee engaged in providing marketing support services to its AEs could not be compared to:

Asian Business Exhibition and Conferences ltd as it earned revenues from organizing exhibitions and events, sponsorship, delegate fees and entry charge whereas the assessee only participated in such events.

Killick Agencies & Marketing Ltd as it was engaged in varied activities such as exports of micro switches, engineering items and acoustics and head sets, indicating earning of revenue from sale of products and from activity as agent for various foreign principals for sale of dredgers, dredging equipment rendering it functionally dissimilar to the assessee.

PAE limited as it was engaged in sale of automotive parts of various vehicles all over India and in providing warranty services to its customers in this regard and therefore was functionally dissimilar to the assessee.

Salora International Ltd as it was engaged in the sale of mobiles, computers and computer peripherals and other telecom products of various companies all over India and also provided after sales services.

NI Systems (India) Pvt. Ltd vs. DCIT-TS-815-ITAT-2017(Bang)-TP IT(TP)A No. 10491Bang/2016 dated 13.09.2017

367. The Court dismissed Revenue’s appeal against Tribunal order upholding exclusion of Mold-tek technologies ltd from the list of comparables for benchmarking back-office research services rendered by assessee to its AEs. Noting that the Tribunal had excluded Mold-Tek Technologies holding it was functionally dissimilar as it was dealing in engineering design and detailing services, website design services etc and on account of exceptional financial results due to mergers/demergers, the Court held that being a pure question of fact, the findings of the Tribunal, in the opinion of this Court, could not be looked into or faulted under Section 260A of the Income Tax Act.

Pr.CIT vs EVALUESERVE.COM Pvt Ltd-TS-859-HC-2017(DEL)-TP dated 31.10.2017

368. The Tribunal held that the assessee engaged in providing marketing support services to its AE could not be compared to:

HCCA Business Services Pvt Ltd as it was engaged in providing payroll processing services and therefore was functionally dissimilar to the assessee.

Killick Agencies and Marketing Limited as it was acting as agent for various foreign principals for sale of dredgers, dredging equipment, steerable rudder propulsions and other equipment and machineries rendering it functionally incomparable to the assessee.

Asian Business Exhibition & Conferences Ltd as it was mainly engaged in the organization of exhibitions and events as well as conducting conferences on behalf of the various clients for their various products and businesses and therefore was functionally dissimilar to the assessee.

ITO vs. Alcon Laboratories Pvt. Ltd.-TS-942-ITAT-2017(Bang)-TP IT(TP)A No. 391/Bang/2015 dated 21.11.2017

369. The Tribunal held that the assessee engaged in providing marketing support services to its AE could not be compared to:

ICRA Online Ltd as it had also derived revenue from software products and therefore was functionally dissimilar to the assessee.

Agrima Consultants International Ltd as it was engaged in providing consultancy services to financial institutions rendering it functionally dissimilar to the assessee.

Further, it included Empire Industries Limited in the final set of comparables rejecting the TPO’s contention that it should be excluded from the list as it had segregated trading/distribution activities from the marketing support segment.

Haworth (India) private Limited vs DCIT-TS-940-ITAT-2017(PUN)-TP ITA No. 281/PUN/2014, A.Y. 2009-10 dated 30.10.2017

370. The Tribunal held that the assessee engaged in providing customer support services to its AE could not be compared to:

Accentia Technologies Ltd as it was engaged in onsite development and therefore was functionally dissimilar to the assessee.

Coral Hubs Ltd as it was engaged in KPO services and had outsourced majority of its work.

Cross Domain Solutions Ltd as it was engaged in providing KPO services rendering it functionally dissimilar to the assessee.

Eaton Industries Pvt. Ltd. vs. ACIT-TS-897-ITAT-2017(PUN)-TP ITA No.2544/PUN/2012 dated 30.10.2017

371. The Tribunal held that the assessee engaged in providing back office support services to its AE could not be compared to:

Airline Financial services, Fortune Infotech Ltd, Datamatics Technologies Ltd. and Tricom Ltd as they had an RPT of 35.54%, 98.32%,52.54% and 58.03% and accordingly failed the 25% RPT filter adopted by TPO.

National Securities Depository Ltd. as the revenue derived from the ITES sector was only 1.15%, further, it was also catering to government work and therefore was functionally dissimilar to the assessee.

Shreejal Info Hubs Ltd. as it was a consistently loss making company and therefore could not be compared to the assessee.

TSR Darashaw as the assessee had not provided copy of the annual report of this company and only a print of its web home page has been enclosed and it only means that the Annual Report or the Management discussion and analysis of this company is not available in the public domain and accordingly the company cannot be taken as comparable for want of sufficient information I data

DCIT vs Exxon Mobile Company India Pvt. Ltd.- TS-903-ITAT-2017(Mum)-TP- ITA No.8798/Mum/2011 dated 27.10.2017

372. The Tribunal held that the assessee engaged in the business of providing call centre services/ business process outsourcing services to its AE could not be compared to

BNR Udyog Ltd as its RPT to sales was 359.35% which did not satisfy the RPT filter of less than 25% applied by TPO.

CMC Ltd (seg) as its RPT to sales was 59.14% which did not satisfy the RPT filter of less than 25% applied by TPO

Datamatics Technologies Ltd as its RPT to sales was 66.91% which did not satisfy the RPT filter of less than 25% applied by TPO.

MCS Ltd as it was engaged in Registrar and share transfer activities and thus functionally different from assessee.

TSR Darashaw Ltd as it was engaged in Registrar and share transfer and outsourcing activities.

Maple Esolutions Ltd as it was involved in fraud and business reputation had come under serious indictment.

Triton Corp Ltd as it was involved in fraud and its business reputation had come under serious indictment.

Wipro Ltd (BPO services segment) as the company had huge brand value.

Fortune Infotech Ltd as its RPT to sales was 99.96% which did not satisfy the RPT filter of less than 25% applied by TPO.

HCL Technologies as its RPT to sales was 66.90% which did not satisfy the RPT filter of less than 25% applied by TPO.

Oracle (OFSS) BPO Service vs DCIT – TS- 462-ITAT-2017(KOL)-TP- dated 02.06.2017

373. The Tribunal held that the assessee engaged in the business of providing customer support services to AE could not be compared to:-

Eclerx Services Limited relying on the decision in the case of Tesco Hindustan [ITA NO. 1285/BANG/2011] wherein the company was excluded on account of abnormal profits and it was also engaged in KPO services

Coral Hubs as the it was primarily engaged into outsourcing and thus the business model was different than the assessee.

Mold Tek Technologies (seg) having employee cost of 7.6% of sales as it failed the employee cost filter of 25% applied by the TPO.

Further, it remitted Genesys International Corporation Ltd. to the file of CIT(A) with the direction to compare its profile with the profile of the assessee based on various documents/agreements entered by assessee and work done, technology used for the purpose of rendering the work to AE.

G.E India Exports Pvt. Ltd vs DCIT-TS-477-ITAT-2017(Bang)-TP- IT(TP)A No. dated 28.04.2017

374. The Tribunal held that the manufacturing segment of the assessee engaged in the business of handling sales, services and technical functions could not be compared to:-

Rollatainers Limited as it had a different financial year and negative net worth for three consecutive assessment years.

Stovec Industries Limited as it had a different financial year compared to the assessee and as per Rule 10B(4), data used for comparability had to be of the same financial year in which international transactions were entered into by the tested party.

Bobst India Private Limited vs DCIT-TS-510-ITAT-2017(PUN)-TP-ITA No 2231/PUN/2013 dated 24.05.2017

375. The Court, noting Tribunal’s finding that Cosmic Global ltd’s nature of business was distinct from the one carried out by assessee engaged in the business of providing VISA processing services to its AE dismissed Revenue’s appeal in the absence of substantial question of law. The Tribunal had remanded the matter back to the AO/TPO for determining the functional comparability of Cosmic Global vis-à-vis the assessee. The Revenue had contended before the Court that since the company was selected by the assessee as a comparable, it was not open for the assessee to deviate from the same.

VFS Global Services Pvt ltd-TS-595-HC-2017(BOM)-TP-ITA No 336 of 2015 dated 19.07.2017

376. The Tribunal held that the assessee engaged in providing back office services to AE for AY 2010-11 could not be compared to:-

Accentia Technologies Ltd as it was engaged in the business of medical transcription (which required employment of medical professionals and medical coding) as it was functionally dissimilar to the assessee.

EClerx Services Ltd as it was a KPO company providing data analytics and data process solutions to global clients and it also provided end to end support through trade life cycle including trade confirmations and settlements and therefore functionally dissimilar to the assessee.

ICRA Techno Analytics Ltd as it was engaged in business intelligence and analytics space and thus functionally dissimilar to assessee’s back office services.

Infosys BPO Ltd-relying on the decision in the case of Actis Global Service Pvt Ltd[TS-417-HC-2017(Del)-TP], it held that the size of the company was 20 times the assessee’s size and therefore not comparable.

TCS eServe International Ltd as it was engaged in the business of software testing, verification and validation of software and thus functionally dissimilar to the assessee.

Further, it remitted the comparability of R Systems Pvt Ltd and Omega Helthcare Ltd to the file of AO/TPO on the ground that R systems pvt ltd followed a different financial year than the assessee and Omega Healthcare Ltd’s annual report which was not available in the public domain earlier was now available.

Further, it included e4e Healthcare Ltd as comparable as it was selected by assessee itself and it did not provide any reasons for withdrawing of the comparable at this stage.

Evalueserve SEZ (Gurgaon) Private Ltd vs ACIT-TS-564-ITAT-2017(DEL)-TP-ITA No. 1467 (Delhi) of 2017 dated 30.06.2017

377. Where the assessee was engaged in providing management of day-to day accounting functions, the Tribunal referring to the definition of ITeS under Safe Harbour Rules held that support services were primarily within the ambit of ITeS and if the core function was only to provide support services merely because high skilled personnel were involved, it could not be classified as high-end services. Accordingly, the Tribunal held that assessee’s operational outsourcing services to AE was low-end ITeS for AY 2012-13. Based on the above ruling the Tribunal held that the assessee could not be compared to:

Eclerx Services Ltd as it was engaged in providing KPO services which could not be compared to low end services rendered by assessee.

Infosys BPO ltd as it had acquired company engaged in providing high end services. Further, it had incurred high AMP expenditure and had brand leverage and presence of intangibles.

BNR Udyog ltd having RPT of 28.08% I.E >25% filter applied by TPO.

TCS E-serve Limited as it was engaged in software testing and validation activity which was functionally dissimilar to the assessee.

Further, it remitted the comparability of R systems International ltd and Caliber Point Business Solutions ltd to verify if the quarterly audited statements were available.

IHG IT Services (India) Pvt. Ltd vs. DCIT-TS-638-ITAT-2017(DEL)-TP-ITA no. 397/del/2017 dated 30.06.2017

378. The Tribunal remitted the TP-issues in respect of marketing support services provided by assessee to AE. Noting that the comparables selected by TPO were well established and the assessee was in the initial stage of operation, the Tribunal directed the TPO to make adjustments to the operating expenses in order to give due leverage to the contribution of income to the fixed cost so as to bring it at the level playing field with the comparables. Further, observing that assessee had pointed out specific instances for allowing capacity underutilization adjustment which were not considered by CIT(A) & also furnished certain information on comparables which were not appreciated by CIT(A) in right perspective, it remitted the matter back to the file of AO/TPO for fresh adjudication.

Hitachi High-Technologies (Singapore) Pte Ltd-India BO vs. DDIT-TS-705-ITAT-2017(DEL)-TP-ITA No. 3333/del/2014 dated 28.08.2017

379. The Tribunal held that the assessee engaged in providing of BPO services (online recruitment services) to its AE could not be compared to:

Accentia Technologies Ltd as it had a different strategy of growth by way of acquisitions and no segmental data was available.

Eclerx Services Ltd as it was engaged in KPO services and therefore was functionally dissimilar to the assessee.

Infosys BPO Ltd as it was a giant company and had a huge brand value making it incomparable to the assessee.

TCS E Serve Ltd as it was engaged in providing technical services involving software testing, verification and validation of software at the time of implementation and data centre management activities and therefore was functionally dissimilar to the assessee.

Crossdomain Solutions Ltd it was engaged in market research and analysis and IT services which included software development and maintenance and no segmental information was available.

ACIT & others vs. Monster.com-TS-718-ITAT-2017(HYD)-TP- ITA No. 1425 / H / 15 dated 30.08.2017

380. The Tribunal remitted the following comparables to the file of AO in respect of assessee engaged in providing customized and development support services to its AEs:

Larsen & Toubro lnfotech Limited as the functional comparability of this company required adjudication at the DRP level.

Marveric Systems Limited as the DRP had restored this company holding that it failed the export earning filter of 75%. However, in the final order, AO included this company and granted part relief to the assessee.

Accordingly, it remitted the entire issue to the file of DRP and directed it to give a specific finding on the functional comparability of each company against which the assessee had contested.

Alten Calsoft Labs (India) Pvt Ltd vs DCIT -TS-735-ITAT-2017(Bang)-TP-I.T,.(T’.P) A. No.403/Bang/2017 DATED 31.08.2017

381. Where the assessee was engaged in providing business process and back office support services to its AE, the Tribunal directed the TPO to exclude Eclerx Services ltd as a comparable since it was engaged in providing a diverse range of services such as financial services, sales and marketing support services without adequate segmental data.

Fractal Analytics Private Limited vs DCIT-TS-744-ITAT-2017(MUM)-TP-ITA No.1024/Mum/2017 dated 21.09.2017

382. The Tribunal held that the assessee engaged in providing Technical support services to its AE could not be compared to:

HSCC (India) Ltd as it was a government company and its related party transactions were more than 25%

Mitcon Consultancy & Engg. Services Ltd and Rites Ltd as both the companies had multi-dimensional functionality and RPT was 100%.

Granite Services International P Ltd vs ACIT-TS-731-ITAT-2017(DEL)-TP- ITA No. 532/Del/2016 dated 12.09.2017

383. The Tribunal held that the assessee, engaged in the business of research and development of telecommunication software & Sales and providing marketing and customer support services could not be compared to a). Persistent Systems since the company was engaged in the sale of products, R&D in life sciences, product lifecycle services, medical research etc, b). Sonata Software ltd as the company had Related Party Transactions of more than 25 percent of its total revenue, c). Igate Global Solutions Ltd since it was engaged in both IT products and services without any segmental break-up, d). Bodhtree Consulting Ltd on the ground that the said company had an abnormal margin of 64.89 percent which was indicative of the fact that the company did not reflect a normal business connection e). Genesys International Corporation Ltd as it was functionally not comparable since it was engaged in providing geospatial services and specialized in land based technology f). FCS Software Solutions Ltd since it operated in diverse activiites viz. infrastructure management outsourcing for hardware requirements, imparting internet based e-learning and IT consulting services without any segmental break-up.

Noting that the TPO had not applied the turnover filter, it rejected the assessee’s contention for excluding a single comparable viz. Persistent Systems (though excluded on other reasons) based on the turnover filter.

Dialogic Networks (India) Pvt Ltd v DCIT – TS-2-ITAT-2017 (Mum) – TP

384. The Tribunal held that the international transaction of the assessee viz Provision of global call centre services could not be benchmarked by considering the following companies as comparable viz. Informed Technologies Ltd as the company was operating as an IT enabled knowledge based Back office processing centre, which was functionally different, Rev IT Systems Ltd as its RPT transactions were in excess of 25 percent of its total revenue. Further, it held that Allsec Technologies Ltd could not be excluded as comparable merely because it incurred losses as it was not a persistently loss making concern.

Dialogic Networks (India) Pvt Ltd v DCIT – TS-2-ITAT-2017 (Mum) – TP

385. The Tribunal held that the sales and support services segment of the assessee was not comparable to the following companies viz. a). Aplhageo India Ltd since the said company was engaged in seismic research activities such as 2D and 3D seismic services for design; b). Mahindra Consulting Engineers Ltd as the company was engaged providing consultancy services in the infrastructure sector; c). Kirloskar Consultants Ltd as it was providing engineering consultancy, project management services and architectural consultancy, d). Stup Consultant Pvt Ltf as it was engaged in the profession of civil engineering and architectural consultancy; and e). Semac Pvt Ltd as it was engaged in providing engineering consultancy services

Comverse Network Systems India v ACIT – TS-33-ITAT-2017 (Del) – TP

386. The Tribunal noted that the TPO was incorrect in categorizing the services provided by the assessee as technical support services and maintenance services and held that in light of the TP study report, it was clear that the assessee merely acted as an interface between the AEs and customers in India and therefore the services provided by the assessee were mediation services and income therefrom was to be characterized as income from mediation rather than income from technical and maintenance services. It further held that the following companies could not be compared to the assessee:

Apitco Ltd as the said company was functionally dissimilar and did not have segmental results

Choksi Lab Ltd as the company was engaged in providing testing services and services in the field of pollution control, not functionally similar to the assesse

WapcosLTd as the company was engaged in infrastructure development projects

Fujitsu India Ltd v DCIT – TS-56-ITAT-2017 (Del ) – TP – ITA No.6280/Del/2012 dated 02.02.2017

387. The Tribunal held that the assessee, engaged in the business of rendering marketing & sales support services to its AE could not be compared to:

Asian Business Exhibition and Conference Ltd as the company was engaged in the sale / leasing out of stall place in exhibitions and events and it underwent wide fluctuations in margins during the year under consideration vis-à-vis previous years

Cyber Media (India) Ltd and Asian Industry & Information Services Ltd as they were functionally dissimilar to the assessee

Crystal Hues Ltd as sufficient details to establish the margins and functional similarity had not been submitted by the assessee

Hansa Vision Pvt Ltd, Denave India Pvt Ltd and Sadhna Media Pvt Ltd as the P&L account of these companies were not available.

TIBCO Software India Pvt Ltd – TS-49-ITAT-2017 (Pun) – TP ITA No.276/PUN/2015 ITA No.334/PUN/2015 dated 31.01.2017

388. The Tribunal held that the assessee, engaged in marketing support services to its AEs could not be compared to:

ICRA Techno Analytics Ltd (seg) as its service segment comprised of various services such as software development, software consultancy, engineering services, web development, web hosting, etc

Persistent Systems & Solutions Ltd as the segmental details of software services  were not available

Logitech Engineering & Design India P. Ltd vs DCIT – TS-145-ITAT-2017(Bang)-TP – I.T(TP).A No.287/Bang/2015 & I.T(TP).A No.127/Bang/2015 dated 03.03.2017

389. The Tribunal held that the assessee, engaged in providing software development services to its AE could not be compared to Infosys Ltd as it owned significant intangibles, had huge revenues from software products and segmental details of software services were not available

Further, it remitted the issue of comparability of LGS Global Limited back to the file of the CIT(A), noting that instead of deciding the issue itself, the CIT(A) had remitted the matter to the file of the TPO, which was not in accordance with the provisions of Section 251 of the Act.

Samsung R&D Institute India Bangalore Pvt. Ltd. Vs. DCIT – TS-156-ITAT-2017(Bang)-TP – IT(TP)A No.55//Bang/2015 dated 03-03-2017

390. The Tribunal held that the assessee, engaged in providing customer support services to its AEs could not be compared to:

Eclerx Services Ltd as it was involved in diverse services (business consultancy etc) in the nature of KPO services and there was lack of segmental data

Accentia Technologies Ltd., (Seg.) as it operated a different business strategy i.e acquiring other companies for growth

Cosmic Global Ltd as it was functionally dissimilar considering the fact that its segment revenue from BPO services was very low

Informed Technologies Ltd as it had diverse operations, lack of segmental data, was engaged trading of securities

Infosys BPO Ltd as it was a market leader and a giant company, had significant brand value, incurred large amount of marketing expenses.

Magma Design Automation India P. Ltd. Vs. DCIT – TS-141-ITAT-2017(Bang)-TP – I.T(TP).A No.1279/Bang/2014 dated 28.02.2017

391. The Tribunal allowed the grounds of the appeal of the Revenue wherein it contended that the CIT(A) was unjustified in 1) reducing lower limit of sales turnover filter from Rs. 1Cr to Rs. 0.50 Cr without assigning any reason 2) rejecting the wage/sales ratio of 25-50 percent where the assessee’s wage/sales ratio was 37% 3) including Astro Bio Systems (Margin: -18.26%) as comparable even when the assessee itself had eliminated comparables having margin less than 0.05%. It noted the submission of the assessee that even if the grounds of the Revenue were accepted, it would be at ALP. Accordingly, it remitted the matter to the file of AO/TPO to examine the veracity of the submissions made by the assessee.

However, it dismissed the Revenue’s plea against exclusion of Four Soft, and upheld CIT(A)’s exclusion of the company citing presence of extra ordinary events i.e. merger/amalgamation.

DCIT vs. Aircom International India Pvt. Ltd – TS-162-ITAT-2017(DEL)-TP – ITA No.4836/Del./2009 dated 28.02.2017

392. The Tribunal held that the assessee, engaged in providing representation and logistics/marketing support services and cost reimbursement could not be compared to the following companies:

IDC India Ltd as it was a KPO and could not be compared with the back office support services carried out by the assessee

Empire Industries Ltd as it was engaged in the trading and indenting of industrial and medical equipment and machine tools

Further, it held that Agrima Consultants International Ltd engaged in the activities of preparation of feasibility report in respect of cement grinding plant, akin to the market support services provided by the assessee could not be excluded merely because there was a negative trend in the economy of the company.

Philip Morris Services India SA Vs. ADIT – TS-224-ITAT-2017(DEL)-TP – ITA No. 5301/Del/2011 dated 15.03.2017

393. The Tribunal held that the assessee, engaged in providing business support services and supply based development services and information technologies to its AE could not be compared to the following companies:

TSR Darashaw Ltd as it was engaged in organizing events with various kinds of sponsors therefore functionally different

Access India Advisors Ltd as it had deviating margins from year to year.

It dismissed the contention of the Assessee for the exclusion of ICRA Online Ltd and held that the said company ought to have been considered as comparable as it was also providing certain services of conducting research and preparing reports which were provided to its customers and more so since the assessee had selected this comparable in instant and preceding years.

Though it ultimately excluded Access India Advisors Ltd as comparable, it held that the assessee was incorrect in seeking its exclusion merely on the basis of super normal profit margins.

Honeywell Turbo Technologies (India) Pvt. Ltd – TS-84-ITAT-2017(PUN)-TP ITA No.2584/PUN/2012 dated 10.02.2017

394. The Tribunal held that the assessee (non-resident company incorporated in Cayman Islands) who had entered into various international transactions with its associated enterprises (AEs) viz. joint acquisition and development of IT infrastructure and software, provision of support services, interest on loan, management services could not be compared to:

Aptico Limited as it was engaged in skilled allotment, asset reconstruction and management services

IBI Chemature Limited since the company was engaged in the business of high-end engineering services and had high R&D cost

TSR Darshwa Limited as it was engaged in the business of providing registrar and share transfer agency services

Dalkia Energy services Limited and Kirloskar Consultants Limited on the ground of non-availability of financial data in public domain.

It however held that Global Procurement Consultants Ltd could not be excluded merely because it was a Government owned company and held that the fact that the company was a Government company does not have any impact on the business model of the company. It held that Government companies, which are mostly public sector undertakings also operate with similar functions, risks and assets employed, therefore it could not be said that merely because a company is a government company, it should be excluded from comparability analysis.

BG Exploration & Production India Ltd [TS-317-ITAT-2017(DEL)-TP]

395. The Tribunal ruled on selection of comparables in case of assessee providing customer support services to AE for AY 2007-08. Noting that assessee was providing high end technical services with engineering inputs and architecture applications to its AE with engineering inputs and architecture, it ruled that the assessee could not be compared to

Mold Tek Technologies Limited, relying on the decision of Tesco Hindustan Service Centre Pvt Ltd [TS-996-ITAT-2016(Bang)-TP] wherein this company was excluded on acoount of abnormal profits and it failed employee cost filter

eClerx Services Limited on the ground of abnormal profits.

Vishal Information Technologies Ltd as it was engaged into outsourcing and thus had a different business model than the assessee.

Infosys BPO Ltd on account of difference in size of operations.

G.E India Exports Pvt. Ltd (Formerly GE Power Controls India (P) ltd) Vs DCIT TS-348-ITAT- 2017(Bang)-TP IT(TP)A No.987/Bang/2011 dated 28.04.2017

Others

396. The Tribunal held that the assessee engaged in the business of import of assembly of component and re-export of assembled medical disposable balloon catheters could not be compared to:

Hindustan Syringes and Medical Devices Pvt Ltd as it had technology collaborations with multiple companies and carried out research and development in several areas including quality improvement, capacity optimization, waste reduction etc and therefore was functionally dissimilar to the assessee.

Pregna International Ltd as it was a leading contraceptive solutions organization and engaged in sale of components. Further, it also had an inhouse research team.

Degania Medical Devices Pvt. Ltd. vs. ACIT-TS-946-ITAT-2017(DEL)-TP ITA No. 895/Del/2014 dated 07.11.2017

397. The Tribunal remitted the issue of comparability of Lotus Labs to the file of the TPO noting that the assessee, a clinical trial coordinator, contended that it was not a good comparable on account of its significant RPT transactions and lack of segmental information in respect of the clinical trial segment of the said company.

Astra Zeneca Pharma India Ltd v DCIT – TS-1074-ITAT-2016 (Bang) – TP I.T(TP).A NO.107/Bang/2014 dated 27.12.2016

398. Where the comparable selected for benchmarking the assessee’s international transactions in the crop protection segment operated in two segments viz. crop protection segment and pharmaceuticals segment, the Court upheld the order of the Tribunal and held that the relevant segmental results of the comparable were to be considered (segmental results of the crop protection segment) as opposed to the entity level results of the company.

E.I Dupont India Pvt Ltd vs CIT – TS-179-HC-2017(DEL)-TP – ITA 40/2017, C.M. APPL.2421/2017 dated 01.03.2017

399. The Tribunal held that the assessee engaged in providing cargo handling and freight forwarding services could not be compared to Gordon Woodfree Logistics Ltd and that the said company was rightly rejected by the TPO as it was a persistent loss making company. It noted that the company made losses in the prior and relevant year and only earned a small profit in the subsequent year and therefore upheld the TPO’s exclusion of the comparable.

As regards the TPO’s selection of NR International Ltd and Natura Hue Chem Ltd, the Tribunal noted that though the said companies were engaged in various other businesses, the TPO had only considered the relevant segment viz. cargo handling segment for comparability and therefore upheld their selection.

Further, noting that the TPO had excluded Hindustan Cargo Ltd and Tiger Logistice (India) Ltd on the ground of non-availability of financial data for the relevant year, the Tribunal remitted the issue to the file of the TPO directing the assessee to furnish data for the relevant year for verification of comparability.

Ahlers India Pvt. Ltd. Vs DCIT – TS-150-ITAT-2017(CHNY)-TP – I.T.A.No.1071/Mds./2016 dated 03.03.2017

400. The Tribunal, relied on the decision of the co-ordinate bench in the case of the assessee for the earlier year and held that the assessee engaged in the business of rendering travel and financial services was comparable to Crown Tours Ltd, Tamarind Tours Pvt Ltd, Balmer Lawrie & Co Ltd and Trade Wings Ltd as they were also engaged in the business of Tours and travel.

Thomas Cook (India) Ltd v DCIT – TS-63-ITAT-2017 (Mum) – TP

401. The Tribunal held that the assessee, engaged in providing travel security services to its AEs could not be compared to:

Apitco Ltd as the company was engaged in providing services in the nature of Project report preparation, Technical and economic studies, Feasibility studies, Micro enterprise development, Skill development, Project management consulting, Industrial cluster development, Environmental management consulting, Energy management consulting, Market and social research and Asset reconstruction management services without any segment-wise profitability data. Relying on the High Court ruling in Rampgreen Sales Pvt. Ltd. vs. CIT [TS-387-HC-2015(DEL)-TP], it dismissed the contention of the Revenue that the activities done by this company were mainly ‘Business Services’ and that differentiation of functions in the overall `Business services’ umbrella was taken care of under the TNMM.

TSR Darashaw Limited (TSRDL) as the company was one of India’s leading BPO organizations engaged in payroll & employees’ Trust Fund administration & management, Record management, providing registry related services, depository related services etc and had striking dissimilarities with the assessee’s tourists’ safety services.

Travel Security Services (India) Pvt. Ltd. vs. DCIT – TS-285-ITAT-2017(DEL)-TP – ITA No.6828/Del/2015

402. The Tribunal held that the assessee engaged in providing application engineering services to its AEs could not be compared to:

Acropetal Technologies ltd as an extra-ordinary event had occurred during the year and therefore it could not be considered as a valid comparable.

Holtech Consulting Private Limited as it was engaged in providing comprehensive services from concept to commissioning for green field, modernization/expansion of cement as well as captive power plant rendering it functionally dissimilar to the assessee..

Cather Consulting Engineers Pvt as it was involved in providing comprehensive consultancy services in the field of Power, Oil and Gas sectors in India and overseas and during the year it had received orders for project management services for a thermal power plant and therefore could not be compared to the assessee.

Rolls-Royce Marine India Private Limited vs. DCIT [TS-841-ITAT-2017(Mum)-TP] dated 18.10.2017

General

Functionality

403. The Tribunal, rejecting assessee’s contention that Tribunal did not consider the functional comparability of Accentia Technologies while including it as a comparable held that the annual report of the company clearly stated that the revenue of the company was derived from medical transmission, billing, income from coding which were in the nature of ITeS and therefore comparable to the assessee. Accordingly, it dismissed assessee’s miscellaneous petition.

Control Component India Pvt. Ltd vs DCIT-TS-997-ITAT-2017(Bang)-TP MP Nos.100 & 101/Bang/2017 dated 31.10.2017

404. The Tribunal following the order of the co-ordinate bench in the assessee’s own case remitted the issue of exclusion of comparables on the basis of functionality back to the file of the TPO for fresh adjudication. It rejected assessee’s reliance on judgments wherein the comparables were excluded and held that since the Tribunal in the assessee’s own case had remitted the matter back to the file of the TPO, the facts being the same in the year under consideration, the matter ought to have been remitted to the TPO as well.

Open Silicon Research Pvt. Ltd vs. ITO-TS-1023-ITAT-2017(bang)-TP IT (TP) A No.131 (Bang) 2014 dated 14.02.2017

405. Where the DRP had applied onsite revenue filter to exclude only Thinksoft Global Services Ltd, the Tribunal held that the filter ought to be applied to all comparables and restored the matter to the file of AO/TPO for fresh decision after applying the onsite revenue filter to all comparables. Further, regarding assessee’s plea for exclusion of KALS Information Systems, noting that its balance sheet showed inventory as on March 31, 2010 for which no schedule was available, it restored the issue to the AO/TPO directing him to invoke section 133(6) and obtain relevant data of inventory for the purpose of benchmarking.

ITO vs. Galax E Solutions India Pvt. Ltd.-TS-839-ITAT-2017(bang)-T IT (TP) A No. 166/Bang/2015 dated 13.10.2017

406. The Tribunal reversed the order of the CIT(A) order, wherein the CIT(A), relying on the decision of Mentor Graphic Noida, rejected the TPO’s application of the employee cost filter ranging from 25% to 65% and held that since employee cost was low or similar throughout India, employee cost would not make a significant difference. Noting that the Tribunal in Mentor Graphics had not rendered any specific finding regarding the acceptability of the employee cost filter, the Tribunal held that since the assessee’s employee cost to total cost ratio was 42 percent, companies having employee costs of 10% or 70% would not be comparable. Observing that after application of the 25 to 65% filter, 6 companies remained in the set of comparables, it held that since the number of comparables were sufficient to conduct benchmarking analysis, the application of the said filter by the TPO was justified.

DCIT vs. Unisys India Private Limited-TS-805-ITAT-2017(bang)-TP dated 28.09.2017

407. Where the assessee had obtained factory license, paid excise duty and carried on operations of value addition through plant and machinery, the Tribunal rejected assessee’s classification of itself as a ‘limited risk distributor and held that the TPO was correct in classifying the assessee’s operations of slitting jumbo roll into smaller rolls and repacking it as ‘manufacturing activity’ for the purpose of benchmarking assessee’s import transactions for AY 2012-13. It relied on the decision in the case of Northern Strip Ltd case and Apex Court decision in India Cine Agencies [TS-38-SC-2008], wherein it was held that cutting and slitting of polyester films was a manufacturing activity. Further, it rejected TPO’s benchmarking approach whereby he had increased margin of trading comparables selected by assessee by 3%, and held that the presumption drawn by the TPO that the increase of margin by 3% would bring out the result for manufacturing activity also was not correct, since it did not consider the risks attached to manufacturing activity; Accordingly, the Tribunal remitted the selection of comparables to the file of AO directing it to select comparables which were engaged in similar activities of converting jumbo rolls into smaller sized rolls.

UPM-Kymmene India Pvt. Ltd vs. DCIT-TS-765-ITAT-2017(mum)-TP dated 27.09.2017

408. Where the assessee could not put forth any material difference in the FAR between itself and comparable’s case, other than that the comparables had a very high profit during the year, the Tribunal, relying on the decision in the case of Chryscapital Investment Advisors India (P) Ltd [TS-173-HC-2015(DEL)-TP] wherein it was held that mere high profit/loss cannot be basis for comparables exclusion, allowed Revenue’s appeal and included Ultramine & Pigments Ltd as comparable for assessee providing ITES to AE.

DCIT vs. Vertex Customer Services India (P) Limited-TS-904-ITAT-2017(DEL)-TP ITA No. 5228/Del/2014 dated 06.11.2017

409. The Tribunal, noting that the DRP had applied onsite revenue filter to only one comparable (RS Software) in assessee’s software development segment, accepted Revenue’s appeal against the DRP order and held that if a new filter was applied, it had to be applied to all comparables and not to particular comparables on pick and choose basis. Accordingly, it remitted the matter to the file of DRP and directed it examine all comparables under the filter and examine the applicability of other relevant filter as well as functional comparability of those comparables.

ACIT vs Broadcom Communications Technologies Pvt Ltd-TS-932-ITAT-2017(Bang)-TP IT(TP)A No. 347/Bang/2015 dated 17.11.2017

410. Where the assessee was earning 90% of its revenue from onsite services, the Tribunal noting that the comparables selected by the TPO failed the onsite revenue filter, directed the TPO to consider the onsite revenue filter as the relevant factor for the purpose of selecting the comparable and accordingly, remitted the entire TP issue to AO/TPO for AY 2012-13.

Arowana Consulting Ltd vs. ITO-TS-876-ITAT-2017(bang)-TP dated 23.10.2017

411. Where the Tribunal had excluded (a) Ashok Leyland Projects Services ltd as major part of its revenue was derived from wind energy segment and due to extraordinary event of merger during the year which presented a clear possibility of differential advantage. (b) Kitco Ltd as it was a substantial government undertaking and prominent business was from government entity and (c) Mitcon Consultancy & Engineering Services Ltd as it was engaged in diversified activities like training and engaging in laboratories and research etc. and it derived less than 75% of revenue from consultancy services, the Court held that the issue of inclusion/exclusion of comparables could not be treated as a question of law unless it was demonstrated that the Tribunal/lower authorities took into account irrelevant considerations or excluded relevant factors which impacted the ALP determination significantly. Accordingly, it dismissed Revenue’s appeal.

Pr. CIT vs. WSP Consultants India Pvt. Ltd-TS-861-HC-2017(DEL)-TP ITA 935/2017 dated 03.11.2017

412. The Court dismissing Revenue’s appeal, confirmed Tribunal’s order of exclusion of comparables in case of assessee rendering software development services (IT), IT Enabled Services (ITeS) for AY 2008-09. on the ground that having carefully examined the order of the Tribunal in light of Rule 10B(4) of Income Tax Rules, 1962, the Court was unable to be persuaded that the exclusion of comparables for reasons set out in the order of the Tribunal gave rise to any substantial question of law. The Tribunal had excluded comparables on grounds of functional dissimilarity on account of revenue from software products/KPO services, ownership of branded/proprietary products, RPT filter > 15% and absence of separate segmental reporting.

.Pr. CIT vs Avaya India Pvt Ltd – TS-452-HC-2017(DEL)-TP-ITA No.838/2016 dated 16.05.2017

413. Where the assessee, engaged in the manufacture and sale of internal combustion (IC) engines for power generation and industrial applications in the domestic market as well as for export outside India entered into various international transactions relating to export of IC engines, payment of royalty and technical know-how fees to associate enterprises (‘AEs’), rendering of procurement support services and receipt of commission from AEs as well as transactions relating to interest on extended credit period allowed to AEs and other transactions and, benchmarked the same under TNMM by aggregating the said transactions, which was rejected by the TPO who proceeded to benchmark the transactions on a stand-alone basis and made an upward addition of Rs.40.64 crore, the Tribunal relying on Rule 10A(d) and 10B of the Rules as well as OECD Guidelines, held that, in appropriate circumstances, where there was existence of closely linked transactions, the same could be grouped and constituted as one composite transaction for the purpose of determining ALP. With regard to the facts of the case, it noted that, where the assessee’s primary activity was to manufacture and sell IC engines and components, then the activities of importing engine parts and components, payment of royalty against receipt of know-how, provision of procurement support services to the AEs to help the sourcing of components, receipt of IT support services, design services and payment of technical knowhow fees, etc. were closely linked to the export of manufactured IC engines. Accordingly, it directed TPO to aggregate the various activities undertaken by assessee under the head of ‘manufacturing activities’ for the purpose of benchmarking.

Cummins India Limited vs. DCIT – TS-165-ITAT-2017(PUN)-TP – ITA No.115/PUN/2011 dated 03.03.2017

414. The Tribunal remitted the TP issue relating to selection of comparables for benchmarking software development services rendered by the assessee to its AE noting that the both the assessee and the Revenue made various contradictory submissions regarding the inclusion / exclusion of comparables. Accordingly, it directed the TPO to re-work the ALP adjustment after conducting a fresh search of comparbales by applying requisite filters and provided the assessee liberty to submit a fresh list of comparables.

eGain Communications Pvt Ltd v ITO – TS-51-ITAT-2017 (Pun) – TP – ITA No.1579/PUN/2013 dated 31.01.2017.

415. The Tribunal dismissed the assessee’s appeal ex-parte since none appeared on behalf of assessee despite notice of hearing being served and acknowledgement available on record. It rejected the assessee claim for multiple year data and also rejected the assessee’s ground against TPO’s ‘arbitrary’ comparability analysis stating that it was general as assessee had not mentioned any specific comparable to be included / excluded on the basis of functionality. Further, it upheld the TPO/DRP’s restriction of working capital adjustment to 1.63% for the reason that assessee had not quantified its claim before the lower authorities.

Salesforce.com India Pvt Ltd vs. DCIT – TS-255-ITAT-2017(Bang)-TP – IT (TP) A No.697 (Bang) 2016 dated 10-03-2017

416. The Court dismissed the Revenue’s appeal against Tribunal order upholding TPO’s inclusion of S.H. Kelkar and Company Limited as comparable for assessee engaged in the business of manufacturing industrial fragrance, flavours and chemical specialities. The Revenue contended that the Tribunal had not considered other instances where the said company was not held to be comparable. Expressing surprise that Revenue had filed an appeal against Tribunal order which was in its favour, the Court held that when the Tribunal held that the Transfer Pricing Officer was right in considering this company as comparable whereas some other instances wherein the said company was held to be not comparable were left out from consideration by the Tribunal, then, such findings and conclusion essentially on facts did not raise any substantial question of law.

CIT vs. Firmenich Aromatics India Pvt. Ltd – TS-286-HC-2017(BOM)-TP – INCOME TAX APPEAL NO. 2483 OF 2013 dated 22.02.2017

417. The Tribunal noting that for trading segment ALP determination, TPO had considered gross profit margin of a compatable- Advanced Micronic Devices Ltd at entity level, set aside CIT(A) order deleting TP-adjustment on international transaction in trading segment and held that if the comparable had more than one segment, then only the trading segment of the said company had to be compared with the assessee. Further, it held that the CIT(A) had violated the principles of natural justice by carrying out ALP determination exercise on its own without calling for remand report from AO/TPO and directed AO/TPO to consider the matter afresh in light of above observations.

DCIT vs Wipro GE Medical Systems Pvt Ltd-TS-429-ITAT-2017(BANG)-TP- IT(TP)A.No.40/bang/2011/ & 1647/bang/2013 dated 21.04.2017

418. The Court dismissed Revenue’s appeal against Tribunal’s decision wherein it included comparables having negative net-worth and held that when the FAR was comparable, it could not be said that the company was non-comparable unless it was shown how the negative net-worth of the company had impacted the profitability.

Pr. CIT vs Gillette Diversified Operation Pvt Ltd [TS-441-ITAT-2017(DEL)-TP] dated 02.05.2017

419. The Court, set aside Tribunal’s order remanding TP-issues in respect of international transactions undertaken in assessee’s distribution, agency & marketing segments without giving any conclusive finding on selection of comparables for AY 2008-09. It held that Rule 10B(2) r.w. Rule 10B(3) required that comparables selection to be made with reference to FAR analysis and after considering specific characteristic of the property transferred or services provided in both the controlled and uncontrolled transactions. Accordingly, it remanded the matter to the file of Tribunal for disposal on merits.

Corning SAS-India Branch Office vs DDIT-TS-725-HC-2017(DEL)-TP- ITA 505/2017 dated 18.09.2017

420. Noting that the TPO had conducted the benchmarking analysis of the assesse, a captive service provider, merely on the basis of the TP study, the Tribunal remitted the entire TP issue to the file of the TPO and held that it was incumbent upon the TPO to examine the assesse’s agreement with its AE so as to ascertain its exact profile and that he could not merely rely on TP study or profile given in the audited accounts.

GE India Exports Pvt. Ltd vs DCIT-TS-426-ITAT-2017(BANG)-TP- IT(TP)A No.117/Bang/2014 dated 05.05.2017

421. The Tribunal excluded Nitin Fire Protection Industries Ltd from the set of comparables on the ground that its major income was from project related activity.

R Stahl Private Limited [TS-377-ITAT-2017(CHNY)-TP] I.T.A No.2745/Mds/2016 dated 19.04.2017

422. Where the assessee was not engaged in the activity of purchase and sales, the Tribunal held that the TPO had erred in selecting comparables engaged in trading activity while benchmarking the assessee’s business support services and accordingly upheld CIT(A)’s order deleting TP-adjustment for AYs 2007-08 and 2008-09 in respect of the aforesaid services provided to its AEs for the purpose of sourcing of goods.

DCIT vs Itochu India (P) ltd-TS-650-ITAT-2017(DEL)-TP-ITA No. 6287/del/2012 dated 18.08.2017

423. The Court, observing that the order of Tribunal did not give rise to any substantial question of law dismissed Revenue’s appeal challenging exclusion of ICC International Agencies Ltd as a comparable for AY 2008-09.

CIT vs Panasonic Industrial Asia Pte Ltd-TS-520-HC-2017(DEL)-TP-ITA No. 244/2017 dated 24.04.2017

424. The Tribunal remitted the comparability of the following companies to the file of the AO/TPO for fresh consideration:

Infosys Ltd, L&T Infotech ltd, Midntree ltd, R S Software Ltd, Tata Elxsi ltd. Persistent Tech ltd, Sasken Communications ltd relying on the decision in the case of Chryscapital Investment Advisors (india) Pvt ltd [TS-173-HC-2015(DEL)-TP] wherein it was held that before excluding a comparable based on turnover filter, some exercise had to be done by the AO/TPO to find out whether such a high or low turnover had any effect on the price and whether reasonable adjustment could be made for such difference.

Acropetal Tech ltd- the Revenue had sought exclusion of this company on the basis that it did not qualify employee cost filter which was not applied to other companies. Accordingly, the Tribunal remanded its comparability for fresh consideration and directed the AO/TPO to apply the filter to other comparables as well.

ITO vs Cenduit India Services Pvt. Ltd-TS-576-ITAT-2017(BANG)-TP dated 07.07.2017

425. The Tribunal noting that the TPO had applied filter of commission and related revenue not being less than 75% of the total revenue, excluded Priya International and ICC International Agencies ltd as comparable for assessee’s sales and marketing support services provided during AY 2007-08 on the ground that Priya International Ltd had 23% commission income while ICC International Agencies Ltd had commission income of 59% which did not meet the filter adopted by TPO.

Texas Instruments (India) Private Limited vs ACIT-[TS-544-ITAT-2017(Bang)-TP]- IT(TP)A No. l032/Bang/2011 dated 16.06.2017

Data for the year

426. The Tribunal, relying on the decision of the Delhi High Court in the case of Mckinsey Knowledge Centre India Pvt. Ltd [TS-672-HC-2015(DEL)-TP (wherein it was held that if from the available data on record, the results for financial year can be reasonably extrapolated then the comparable could not be excluded solely on the ground that it had a different financial year ending) included R Systems International Ltd as a comparable in respect of assessee’s ITES segment.

Bain Capability Centre India Pvt Ltd vs DCIT-TS-989-ITAT-2017(DEL)-TP dated 13.11.2017

427. Noting that assessee had not included Microgenetic Systems in final set of comparables due to non-availability of financial data which subsequently became available during assessment proceedings, pursuant to which assessee sought its inclusion, the Tribunal upheld CIT(A)’s direction to include the said company as comparable while benchmarking the assessee’s international transaction viz., provision of engineering design services to its AE. Relying on the decision in the case of Vishay Components India Private ltd [TS-356-ITAT-2016(PUN)] it held that since TPO had the powers to select and include any functionally comparable concern in the final set of comparables, data of which was available during TP proceedings and not TP study report, the same was permissible even in the case of the assessee. Accordingly, it dismissed Revenue’s appeal.

Dar Al-Handasah Consultants (Shair and Partners) India Pvt Ltd-TS-741-ITAT-2017(PUN)-TP-ITA No. 1711 / PUN / 2014

428. Noting that engineering segment reported by assessee in its financial statement comprised of a) manufacturing and sale of goods, and b) engineering services and international transaction with AE pertained only to engineering services, however, data considered by TPO comprised of both engineering goods and services, the Tribunal remitted the TP-adjustment in respect of assessee’s engineering segment to the file of TPO directing it to take only segmental data for comparability analysis & benchmarking. Observing that assessee had now submitted segmental data of engineering goods and services, the Tribunal accepted assessee’s plea that when the segmental data is available, the same should be taken into account. It rejected DRP’s observation that assessee had not demonstrated as to how both the divisions are not enter-twined and held that by no stretch of imagination, the manufacture and sale of engineering goods on one hand and provision of engineering services on the other can be considered as the same segment unless specific facts to the contrary is put on record. Accordingly, it remitted the matter to the file of TPO for fresh adjudication.

Valmet Automation India Private Limited (Formerly known as Metso Automation India Private Limited) vs. DCIT-TS-812-ITAT-2017

429. The Tribunal remitted the comparability of R Systems International Ltd to the file of TPO as it had a different accounting year (Jan to Dec) directing it to verify the availability of data for FY (April to March). Regarding exclusion of certain companies as comparable, noting that the TPO considered the services rendered by these companies as IT enabled services based on limited information it accepted assessee’s submission that it would provide all relevant details if the matter was restored back to the TPO, and accordingly remitted the entire matter back to the file of TPO directing him to provide adequate opportunity of being heard to the assessee.

DCIT vs. Continental Automotive Component (I) Pvt Ltd-TS-825-ITAT-2017(Bang)-TP dated 28.09.2017

430. The Tribunal set aside the CIT(A)’s order deleting TP adjustment without giving reasons for taking average of multiple year data for computing PLI of comparables for AY 2005-06. It dismissed assessee’s contention that variation in net profit of comparables by itself justified use of multiple year data and held that Rule 10B(4) specifically provides for using the data of the relevant FY and data of the 2 years prior to the relevant FY only if such data reveals facts which could have influence on the determination of the transfer price in relation to the transaction being compared. Noting that assessee had not brought on record any factual information showing the influence of the cyclic nature of the transactions of the comparables or having financial impact of operational activity over the subsequent years, the Tribunal held that CIT-(A) was not justified in deleting the transfer pricing addition without giving reasons for taking average of multiple year data for computing PLI of comparables.

ACIT vs. Va Tech Esher Wyas Flovel Ltd.-TS-902-ITAT-2017(DEL)-TP ITA No. 1675/Del/2010 dated 13.11.2017

431. Where the AO made a TP addition in the hands of the assessee adopting earlier years data for the purpose of benchmarking and the CIT(A) observing that that the AO had neither been able to establish that assessee’s pricing pattern was influenced by market conditions/ business cycle etc. of earlier years nor provide fresh working of ALP utilizing current year data which could have been confronted before assessee, the Tribunal upheld the order of the CIT(A) and observed that as per Rule 10B(4) the data for comparability of an uncontrolled transaction with international transactions ought to have been the data of the relevant to the Financial Year in which the international transaction has been entered into, unless there were circumstances justifying the use of previous year data. It held that multiple year data could not be used as a matter of right and accordingly held that the CIT(A) was justified in rejecting the method and basis of making addition by the Assessing Officer.

DCIT vs. Softbrands India Pvt. Ltd (Now INfore Banga-lore Pvt Ltd)-TS-934-ITAT-2017(bang)-TP IT(TP)A No. 461/Bang/2013 dated 17.11.2017

432. The Tribunal remitted the comparability of Lucid Software Ltd and Bodhtree Consulting Ltd to the file of TPO for fresh consideration. These comparables were selected by TPO, but the assessee had not objected to their inclusion as the specific details of the financials were not available in the public domain. However, after filing appeal before Tribunal, the assessee noticed that the details were available in the public domain and the Tribunal in various cases had held that since these two companies were engaged in product development, and their financials did not have adequate segmental details, they were functionally dissimilar to the assessee engaged in software development. Accordingly, the Tribunal admitted assessee’s additional ground contesting the exclusion of these two companies and held that it would be in the interest of justice to allow the assessee to take these objections.

Moong Controls India P Ltd vs ACIT-TS-483-2017(Bang)-TP-IT(TP)A No. 1519/bang/2012 dated 09.06.2017

433. The Tribunal held that companies following different accounting years could not be considered as comparable unless it was possible to draw financials for the period corresponding to assessee’s accounting year. Further, it directed the AO/TPO to examine assessee’s contentions regarding inclusion of provisions write back & miscellaneous income as part of assessee’s operating income. Also, admitted assessee’s additional grounds relating to selection of comparables and working capital adjustment on the ground that companies included in earlier years as comparables could not be excluded without demonstrating any functional dissimilarity. Noting similar treatment in APA in earlier year, it directed the AO to consider foreign exchange gains as part of operating profits.

RBS India Development Centre Pvt Ltd – TS-18-ITAT-2017(Del)-TP

434. The Tribunal, observing that the assessee followed financial year (April to March) for accounting its income, whereas Bosch Chassis and Escorts Ltd followed the calendar year (January to December) and year ending September 2007, respectively, held that since the accounting year adopted by the said comparables were at variance with the financial year adopted by the assessee, the said companies were to be excluded from the final list of comparables, in order to benchmark the international transactions undertaken by the assessee.

Endurance Systems (India) Pvt. Ltd. vs ACIT – TS-114-ITAT-2017(PUN)-TP – TS-114-ITAT-2017(PUN)-TP ITA No.2567/PUN/2012 dated 15.02.2017

435. Where the assessee, in the manufacturing segment, had applied TNMM to benchmark its international transactions and claimed them to be at arm’s length price based on certain select comparables but the TPO conducted a fresh search and selected certain other companies also, one of which was Tibrewala Electronics Ltd, which was added in the data base on 25.03.2008 i.e. beyond the due date of compliance, the Tribunal held that the assessee was incorrect in contending that the said company could not be used for benchmarking its international transactions based on the fact that it was selected on a later date. It held that data collected by the TPO could not be called non-contemporaneous, where the comparable companies selected by the TPO were functionally comparable to the assessee, observing that TPO has the power to use data gathered by him so long as (a) it was available in public domain (b) it related to the year under consideration (c) assessee had been given an opportunity to explain before the said data is used against him.

Accordingly, itupheld TPO’s action in selecting the said concern and dismissed assessee’s grounds. 

Vishay Components Pvt Ltd v ACIT – TS-73-ITAT-2017 (Pun) – TP – ITA No.1712/PUN/2011 dated 10.02.2017

436. The Tribunal relying on its decision for the prior year held that for the purpose of benchmarking, the TPO was correct in adopting the single year data as the assessee had failed to demonstrate any peculiarities in the data that would justify invoking proviso to Rule 10B(4) permitting use of multiple year data. In this regard it held that the multiple year data in the case of a comparable could be used only to understand its peculiar circumstances and not to work out PLI of comparable and that the proviso to Rule 10B (4) provides that multiple year data can be invoked only if assessee demonstrates any Qualitative peculiarities in the data which reveal facts that are potent to justify invoking the proviso.

Vishay Components Pvt Ltd v ACIT – TS-73-ITAT-2017 (Pun) – TP – ITA No. 1712/PUN/2011 dated 10.02.2017

437. The Tribunal upheld TPO’s rejection of assessee’s TP-study due to failure to adopt filters like employee-cost filter and export earnings filter as well as use of 3 years weighted profit margin. Further, it rejected assessee’s grounds to include/exclude comparables since no proper application had been made by assessee for admission of additional grounds and the same had not been a subject matter of proceedings before the AO/DRP.

Curam Software International Pvt Ltd vs ITO-TS-540-ITAT-2017(Bang)-TP-IT(TP)A No.192/bang/2017 dated 07.06.2017

438. The Apex Court, admitted Revenue’s SLP challenging High Court decision upholding exclusion of comparable following different financial period and rejecting the Revenue’s submission that mandate of Rule 10B of the Rules could not be ignored merely because the difference in the respective financial periods was only of three months.

CIT vs PTC Software (I) Pvt ltd-TS-598-SC-2017-TP- SLP 16015/2017 dated 04.07.2017

439. The Tribunal, relying on the decision in assessee’s own case for AY 2006-07 [TS-672-HC-2015(DEL)-TP] remanded the matter to the file of TPO directing it to verify the quarterly results and include CG-VAK Software & Exports as a comparable for the assessee since it was a listed company and quarterly results of the company were available in the public domain and accordingly there was no need of extrapolating the result.

Mckinsey Knowledge centre India Private Limited vs DDIT-TS-700-ITAT-2017(DEL)-TP-ITA No. 1879/del/2014 dated 30.08.2017

440. Noting that assessee had not included Microgenetic Systems in final set of comparables due to non-availability of financial data which subsequently became available during assessment proceedings, pursuant to which assessee sought its inclusion, the Tribunal upheld CIT(A)’s direction to include the said company as comparable while benchmarking the assessee’s international transaction viz., provision of engineering design services to its AE. Relying on the decision in the case of Vishay Components India Private ltd [TS-356-ITAT-2016(PUN)] held that since TPO had the powers to select and include any functionally comparable concern in the final set of comparables, data of which was available during TP proceedings and not TP study report, the same was permissible even in the case of assessee. Accordingly, it dismissed Revenue’s appeal.

Dar Al-Handasah Consultants (Shair and Partners) India Pvt Ltd-TS-741-ITAT-2017(PUN)-TP-ITA No. 1711 / PUN / 2014 dated 30.08.2017

441. The Court dismissed Revenue’s appeal against Tribunal’s order noting that the Tribunal had excluded Tata Elxsi and E-Infochips as comparables on the ground that separate segmental details in respect of software development services segment was not available, as the order of the Tribunal given on facts, did not give rise any substantial question of law.

Pr.CIT vs. Steria India Ltd-TS-733-HC-2017(DEL)-TP -ITA no. 762 / 2017 dated 19.09.2017

442. The Apex Court, allowed Revenue’s request to withdraw SLP against High Court order for AYs 2006-07 & 2007-08 wherein the Court had upheld exclusion of comparables on account of different financial year, rejecting Revenue’s contention that a difference of 3 months could be ignored.

CIT vs. PTC Software India Pvt. Ltd-TS-707-SC-2017-I.A no. 84278 of 2017 dated 08.09.2017

Turnover

443. Where the CIT(A) had excluded several comparables applying the high turnover filter, the Tribunal relying on the decision in the case of Chyscapital Investment Advisors India Pvt Ltd [TS-173-HC-2015(DEL)-TP held that it had to be seen whether the size and turnover was materially affecting the price or not and whether the effect of such differences can be eliminated by way of a reasonable adjustment or not. Accordingly, it remitted the matter back to the file of CIT(A) for fresh consideration.

ITO vs. Huawei Technologies India Pvt Ltd-TS-826-ITAT-2017(bang)-TP-ITA No. 598/bang/2013, C.O No.192/bang/2015 dated 22.09.2017

444. The Tribunal, relying on the decision in the case of Chryscapital Investment Advisors held that turnover filters could not be applied unless and until it was established that it affected the profitability of the comparables and accordingly remitted the comparability of iPower Solutions Limited, Infosys Technologies Limited, Satyam Computer Services Limited and Larsen & Toubro Infotech Limited and Xcelvision Limited to the file of CIT(A) for re-examination.

Sharp Software Development India Pvt Ltd vs Dy.CIT-TS-797-ITAT-2017(bang)-TP dated 27.09.2017

445. Noting that Tribunal has in other cases been restoring cases back to AO/TPO for fresh consideration where grounds raised relate to application of turnover/ high profit filter in light of Chryscapital HC ruling (wherein it was held that turnover cannot be a criteria for inclusion / exclusion of a comparable, but it is for DRP / TPO to examine whether the turnover has affected the price or margin of the comparable with that of the assessee), the Tribunal remitted the entire TP issue in respect of assessee’s provision of software development and marketing support services for AY 2010-11. Further, in respect of RPT filter, relying on the decision in the case of ACI Worldwide Solutions P Ltd [TS-614-ITAT-2017(bang)-TP], held that 25% RPT filter was to be applied as opposed to 0% proposed by the CIT(A) as it would lead to a larger number of comparables and 25% filter had been consistently applied by the Tribunal. Accordingly, it restored the entire TP issue to the file of TPO.

Microchip Technology (India) P Ltd vs. ACIT-TS-864-ITAT-2017(bang)-TP-I.T(TP).A No.260/Bang/2015) dated 27.10.2017

446. The Tribunal, relying on the decision in the case of Chryscapital Investment Advisors Limited [TS-173-HC-2015(DEL)-TP (wherein it was held that mere fact that an entity makes high profits/losses or has huge turnover does not ipso facto lead to its exclusion from the list of comparables for the purpose of determination of ALP) , remitted the comparability of Flextronics Software Systems Ltd, Infosys Ltd, Foursoft Ltd, Geometric Software Solutions Company Ltd, Sankhya Infotech Ltd, Satyam Computer Services Ltd, iGate Global Solutions Ltd and L&T Infotech Ltd to the file of AO/TPO for fresh decision. Further, in respect of Exensys Software Solutions Ltd, noting that the Tribunal had not decided all the aspects as they were never argued before the Tribunal (except the issue of extraordinary event), remitted it back to the file of AO/TPO to consider it afresh.

DCIT vs IGEFI Software India Pvt Ltd-TS-923-ITAT-2017(bang)-IT(TP)A No. 461/Bang/2013 dated 17.11.2017

447. The Tribunal held that the assessee engaged in the business of development and delivery of domain specific software for its AE was not comparable to Infosys Ltd, Larsen & Toubro Infotech Ltd, Mindtree Ltd, Persistent Systems Ltd having turnover Rs. 25385 crores, Rs. 2181 crores, Rs. 878 crores and Rs. 610 crores respectively as the said comparables failed the 10 times turnover filter of the assesseee having turnover Rs. 41.13 crores.

Obopay Mobile Technology India Private Ltd vsDCIT-TS-493-ITAT-2017(Bang)-TP-IT(TP)A Nos 238 & 553/bang/2016 28.04.2017

 

448. The Tribunal excluded 10 companies viz. Visual Soft Technologies Ltd, Infosys Technologies Ltd, Satyam Computer Services Ltd, Geometric Software Solutions Co Ltd, Tata Elxsi Ltd, RS Sofware Ltd, Sasken Communication Technologies Ltd, Flextronics Software Systems Ltd, iGate Global Solutions Ltd & L&T Infotech Ltd by applying the turnover filter of 10 times the turnover of the assessee i.e. Rs.4.95 crores. Accordingly, these companies having turnover ranging between 81.69 crore to Rs.6859.66 crore were excluded.

DCIT v Nvidia Graphics Pvt Ltd – TS-1089-ITAT-2016 (Bang) – TP – IT(TP)A No.1211/Bang/2011 dated 23.11.2016

449. The Tribunal applied a turnover filter of 1/10th times to 10 times of the assessee’s turnover (Rs. 90 crore) and accordingly held that:

AvaniCimcon Technologies (Rs.2.93 crore), e-zest Solutions Ltd (Rs.7.66 crore), Flextronics (Rs.954.42 crore), Infosys Ltd (Rs.15,672 crore), Kals Information Systems Ltd (Rs.2.05 crore)., Lucid Software Ltd (Rs.2.35 crore) could not be considered as comparable to the assessee engaged in providing software development services and thatiGate Global Solution Ltd, Mindtree Ltd and Sasken Communication Technologies Ltd which were previously excluded on the turnover filter of Rs.1 – 200 crore were to be included as they satisfied the 1/10th to 10 times filter.

DCIT Vs Cypress Semiconductors Technology Pvt. Ltd. – TS-144-ITAT-2017(Bang)-TP – IT (TP) A No.463 (Bang) 2013 dated 07/02/2017.

450. The Tribunal directed the TPO to consider turnover filter while selecting comparables for the purpose of benchmarking, noting that the turnover of the company was very vital for determining the ALP since it would have a substantial impact on the financial results. It noted the contention of the assessee viz. that TPO erred in selecting comparables with turnover ranging from Rs. 3 crores to Rs. 730 against it’s turnover of Rs. 148 crores the fact that the issue was not adjudicated by CIT(A) and accordingly remitted the selection of comparables back to the file of TPO for fresh examination on the basis of turnover. However, it directed the assessee to submit specific and necessary information on how the comparables were not comparable instead of giving generalized grounds like huge turnover.

Venture Power Systems India Pvt. Ltd. Vs. DCIT – TS-123-ITAT-2017(CHNY)-TP – ITA No.1703/Mds/2011 dated 13.01.2017

451. The Tribunal agreeing that turnover was a relevant factor to be taken into account, held that there should be some proper and reasonable parameter to apply turnover filter which may be a multiple in the range of ‘x’ number of times rather than a fixed slab. Noting that many Tribunals have been applying a turnover filter of 10 times of assessee’s turnover on both sides, it directed the TPO to apply turnover filter of 10 times of assessee’s turnover, which was Rs. 100 Cr in the software development services segment, thereby arriving at tolerance range of Rs. 10 Cr to Rs. 1000 Cr. Accordingly, it noted that 2 companies viz.KALS Information System Ltd. (Rs. 2.5 Cr turnover) and Infosys Technologies Ltd. (turnover of Rs. 20,000 Cr) were to be excluded on account of turnover.

VMware Software India Pvt. Ltd. Vs DCITTS-71-ITAT-2017(Bang)-TP -LT. (T.P}A. No.1311/Bang/2014 dated 6.1.2017

452. The Tribunal set aside TP issues relating to ALP determination in respect of software development services rendered to AE for AY 2008-09. Out of 20 comparables selected by TPO, CIT(A) had rejected 7 comparables by applying Rs 1-200 cr turnover filter, 1 comparable on the ground of high profit margin and 2 on the grounds of functional dissimilarity. Rejecting Rs 1-200 cr turnover filter applied by CIT(A), the Tribunal held that a turnover filter of 1-200 cr was not proper as it gave unacceptable results and a tolerance range of turnover as ten times of turnover of the tested party was an appropriate filter. Regarding the ground of high profit margin, it held that high profit margin or loss could not be a ground or criteria for exclusion or inclusion of comparable, however, abnormal circumstances or extraordinary events could be a reason for exclusion but not high profit margin alone. Further, observing that the CIT(A) had not examined the functional comparability of 8 out of 10 comparables rejected by it, the Tribunal set aside the entire issue of determination of arm’s length price and consequential transfer pricing adjustment to the file of CIT(A) for fresh determination of the functional comparability of the companies objected by assessee.

Huawei Technologies India Pvt. Ltd vs ITO-TS-526-ITAT-2017(Bang)-TP-IT(TP)A No.395 and 459/bang/2013 dated 31.05.2017

453. The Tribunal, relying on the decision in the case of Chryscapital Investment Advisors India P Ltd [TS-173-HC-2015(DEL)-TP], restored TP-adjustment for AY 2005-06 and 2008-09 to the file of AO/TPO. It held that huge profits or huge turnover could not ipso facto lead to exclusion of comparable unless such difference could materially affect the price or cost. Further, it held that an attempt had to be made to make a reasonable adjustment to eliminate the material differences between assessee’s transaction and comparables. Accordingly, it directed the AO/TPO to consider the issue afresh after giving the assessee an opportunity of being heard.

DCIT v ARM Embedded Technologies P. Ltd-TS-703-ITAT-2017(Bang)-TP-ITA No. 623 & 624(bang) 2013 dated 24.08.2017

454. Where the CIT(A) had excluded companies by applying the Rs. 1-200 crores turnover filter without examining the functional differences of these companies, the Tribunal relying on the decision in the case of Chryscapital Investment advisors (India) (P) ltd and held that mere high profit or loss could not be basis for comparables exclusion and analysis under rule 10B(3) must be done and accordingly remitted the matter to the file of AO/TPO for fresh consideration.

ITO vs iPass India P LTD-TS-584-ITAT-2017(Bang)-TP-IT(TP)A no.597/bang/2013 dated 16.06.2017

455. The Tribunal allowed the appeal of the Revenue and relying on Chryscapital Investment Advisors (India) Pvt Ltd [TS-173-HC-2015(DEL)-TP], held that the CIT(A) erred in excluding certain comparables on grounds like size, turnover, high profit margin etc.,It held that huge profit or turnover, ipso facto would not lead to the exclusion of a comparable and directed the TPO to verify if such difference materially affected the price or cost and if so make reasonable adjustment to eliminate the effect of such differences. Accordingly, it restored the matter to the file of AO for fresh consideration.

DCIT vs. Synopsys India Pvt. Ltd.-TS-678-ITAT-2017(Bang)-TP-ITA no. 874/B/2013, 1576 & 1622/B/2014 & C.O No. 154(B)-2015 dated 16.06.2017

456. The Tribunal allowed the appeal of the Revenue and relying on Chryscapital Investment Advisors (India) Pvt Ltd [TS-173-HC-2015(DEL)-TP], held that the CIT(A) erred in excluding certain comparables on grounds like size, turnover, high profit margin etc.,It held that huge profit or turnover, ipso facto would not lead to the exclusion of a comparable and directed the TPO to verify if such difference materially affected the price or cost and if so make reasonable adjustment to eliminate the effect of such differences. Accordingly, it restored the matter to the file of AO for fresh consideration.

Tesco Hindustan Service Centre Pvt Ltd vs CIT and others-TS-740-ITAT-2017(Bang)-TP-IT(TP)A No.577/Bang/2012 dated 13.09.2017

Related Party Transactions

457. The Tribunal upheld the order of CIT(A) upholding RPT filter of 25% and held that if lower RPT filter was applied, the number. of remaining comparables would be lesser and as a result, the whole TP exercise would become redundant. Observing that only 3 comparables were left even after applying 25% RPT, the Tribunal refused to interfere with the order of CIT(A).

Siebel Systems Software (India) Pvt. Ltd vs. ACIT-TS-832-ITAT-2017(Bang)-TP-ITA No. 1195/bang/2013 dated 22.09.2017

458. The Tribunal held that a related party filter of 15% was to be adopted as against CIT(A)’s 0% filter and TPO’s 25% RPT filter. It held that the 0% related party transaction was an impossible situation and no comparables would be available if the said filter was applied. It explained that 15% RPT filter would be proper in ordinary circumstances when there was no difficulty of selecting comparable companies and only in extreme and exceptional circumstances when the comparable companies were not easily available the tolerance range could be relaxed upto 25%. It held that the Tribunal in a series of decisions had taken the view that a tolerance range of related party transaction could be considered from 5% to 25% depending upon the facts and circumstances of each case particularly the availability of the comparable companies. Further, Since neither the TPO not the assessee had made out a case of exceptional difficulty in searching for comparables, it adopted the 15% RPT filter. Further, relying on the decision in the case of Maersk Global Centres (India) (P.) Ltd [TS-74-ITAT-2014(Mum)-TP] , it held that mere high profit margin or loss could not be considered as a parameter or criteria for selection/exclusion of comparable companies, and accordingly held that the CIT(A) erred in excluding Éxensys Solutions Ltd and Thirdware Solutions Ltd merely on the ground of high profit margin.

SunGard Solutions (India) (P.) Ltd vs ACIT [TS-351-ITAT-2017(BANG)-TP] dated 28.04.2017

459. The Tribunal upheld 15% RPT filter as proper in assessee’s case on the ground that ideally the RPT should be nil, however in case of non-availability of enough comparables by applying 0% filter, RPT Filter of 15 or 25% may be acceptable on case to case basis.

Novell Software Development (Ind.) Pvt Ltd – TS-1044-ITAT-2016(Bang)-TP

460. The Tribunal held that the CIT(A) was not justified in applying the RPT filter of 0 percent and relying on the decision of ITO v Net Devices India Pvt Ltd (TS-354-ITAT-2016 (Bang) – TP, ordered the adoption of 15 percent as the RPT filter. Accordingly, companies having RPT below 15 percent were considered and included / excluded based on functionality of the companies.

Thomson Reuters India Services Pvt Ltd v ACIT – TS-1084-ITAT-2016 (Bang) – TP – I.T.{T.P} A. No.1097/Bang/2011 I.T.(T.P} A. No.1115/Bang/2011 dated 09.12.2016.

461. The Tribunal set aside the DRP’s direction adopting 0% RTP filter and directed the TPO to adopt 15% RPT filter and restored the entire TP issue to the files of AO/TPO noting that several comparables rejected due to adoption of 0% RPT filter would have to be considered afresh for comparability. Accordingly, it directed the AO/TPO to decide the matter afresh after allowing adequate opportunity of being heard to the assessee.

Net Devices India Pvt. Ltd. Vs. ITO – TS-216-ITAT-2017(Bang)-TP – IT(TP)A No.435/Bang/2012 dated 23/02/2017

462. The Tribunal held that the CIT(A) was incorrect in applying a 0% RPT filter as it was an impossible situation and held that a reasonable range of RPT to sales had to be considered for selecting uncontrolled comparables. Noting that the Tribunal, in a series of orders, accepted a tolerance range of 5% to 25% of total revenue depending upon availability of comparables, it held that when a good number of comparables were available, the threshold limit of RPT should not be more than 15% of total revenue. Accordingly, it opined that the RPT filter of 15% was proper in assessee’s case and directed AO/TPO to apply the same.

DCIT vs. Novell Software Development (India) Pvt. Ltd – TS-190-ITAT-2017(Bang)-TP – I.T.{T.P} A. No.1313 / Bang / 2012 dated 10.02.2017.

463. The Tribunal noting that various benches of Tribunal were consistently adopting 15% RPT filter, set aside CIT(A)’s order adopting 0% RPT filter for selection of comparables for assessee engaged in providing software development services and directed the CIT(A) to obtain remand report from the AO/TPO and then examine and decide the entire TP matter including other objections of the assessee in respect of cornparables which were excluded applying 0% RPT filter.

DCIT vs Though Works Technologies (I) Pvt Ltd-TS-542-ITAT-2017(Bang)-TP- IT(TP)A No.31(B) & CO No.31(B)2012 dated 16.06.2017

464. The Tribunal admitted assessee’s grounds seeking exclusion of 14 comparables viz. [Accel Transmatic Limited, Avani Cincom Technologies Limited, Celestial Labs Limited, E-Zest Solutions Limited, Flextronics Software Systems Limited, Geometric Limited, Ishir Infotech Limited, KALS Information Systems Limited, Lucid Software Limited, Megasoft Limited, Persistent Systems Limited, Tata Elxsi Limited, Thirdware Solutions Limited and Wipro Limited] on grounds of functional dissimilarity and 4 companies viz., [Hellos & Matheson Information Technology Limited, Infosys Technologies Limited and Sasken Communication Technology Limited on grounds of RPT filter and remanded the matter to the file of AO/TPO with the direction to decide the issue on merits.

Novellus Systems (India) P Ltd-TS-632-ITAT-2017(Bang)-TP-ITA No. 1087/bang/2011 dated 12.07.2017

 

465. The Tribunal rejected Revenue’s miscellaneous petition against Tribunal order remitting the comparability of Lotus Labs to examine RPT percentage. Since the assessee had argued that Lotus Labs should be rejected as a comparable as it had significant RPT while Revenue had contended that there were no RPT in the non-AE segment, the Tribunal restored the matter back to the file of AO/TPO to re-examine whether RPT was significant or not.

DCIT vs AstrsZeneca Pharma India Ltd-TS-708-ITAT-2017(Bang)-TP-[MP No. 1 Q9/B/2017 dated 24.08.2017

Loss making companies

466. The Court dismissed Revenue’s appeal against Tribunal’s order directing inclusion of two loss making comparables and considering DEPB (Duty Entitlement Passbook) benefits and depreciation while computing assessee’s margin for AY 2008-09 since the Revenue itself accepted the comparables in the earlier AY, and as such there was no dispute regarding their comparability. Further, the parameters set out in Rule 10B(2) or judging comparability with international transaction are exhaustive and the rule does not require exclusion of a company only because it had suffered a loss in a particular year.

Welspun Zucchi Textiles Ltd -TS-9-HC-2017(BOM)-TP

467. The Tribunal held that where the disputed companies viz. Gujarat Poly Avx Electronics and Keltron Group companies were not simply loss making concerns but persistently loss making concerns, their margins could not be adopted in order to benchmark the international transactions of assessee which was making supplies to AEs and was a market dominant concern. 

Accordingly, ITAT directed AO to verify the claim of assessee and exclude the comparables if found to be persistent loss making concerns. 

Vishay Components Pvt Ltd v ACIT – TS-73-ITAT-2017 (Pun) – TP – ITA No.1712/PUN/2011 dated 10.02.2017

468. The Tribunal remitted TP issues related to import of components and rejected exclusion of two comparables merely on the ground that they had been consistently loss making since 2002 holding that the TPO had neither looked into the FAR analysis of the two entities nor conducted the exercise provided in Rule 10B(4) for use of prior period data. Further, it also allowed assessee’s plea for adopting PBDIT/Sales as PLI under TNMM i.e after excluding depreciation noting that the assessee had increased its fixed assets eligible for depreciation which resulted in decline in net profits. It also agreed with assessee’s arguments in principle that difference in sale price of cloth guiders involving AEs and third parties was on account of huge volume of sales to its AEs and warranties provided to its local purchasers and directed the TPO to make appropriate adjustments. However, it upheld TP Adjustment of commission income since the assessee was unable to dispute that the German unrelated party was a valid comparable under CUP method.

Erdhardt+Leimer India Private Limited – TS-1059-ITAT-2016(AHD)-TP

469. The Tribunal rejected TPO’s approach of making adhoc adjustment of 3% which was enhanced to 8% by the DRP towards differences between assessee’s contract manufacturing activity for AE and sales made to Non-AEs under internal TNMM, on the ground that adhoc adjustment without giving reasons was against the basic concept of transfer pricing. The Tribunal further observed that DRP, after rejecting internal TNMM, should have deliberated upon the issue of determination of ALP in a more rational manner. As regards DRPs rejection of loss-making comparable on the ground that assessee being a contract manufacturer, could never incur a loss, the court observed that the eliminated comparable had not suffered losses after losses and only a persistent loss making comparable could be excluded.

ASB International Pvt Ltd – TS-6-ITAT-2017(Mum)-TP

Multiple filters

470. The Tribunal remitted the issue of comparability of ADCC Research & Computing Centre, Bodhtree Consulting and Onward Technologies for benchmarking the international transaction of the assessee i.e. software development services to the file of AO/TPO for fresh consideration. The assessee had appealed for the exclusion of said comparables on the ground of non-availability of data. Noting that the TPO had adopted data for different accounting year for 3 companies, it held that even if a concerned comparable was adopting a different accounting period as its accounting year then also, the data for relevant FY could be compiled on the basis of quarterly reports of the said company. Further, in respect of comparability of Satyam Computers vis-à-vis the assessee, relying on the decisions in the case of SAP Labs India Pvt. Ltd [TS-657-ITAT-2011(Bang)] and NTT Data Global [TS-219-ITAT-2016(Bang)-TP] wherein the Tribunal had given a finding that the company was alleged to have involved malpractice, it remitted to the file of AO/TPO, comparability of the said comparable to factually verify whether the accounts for subject AY 2003-04 were also falsified and if so, it directed AO/TPO to exclude the said comparable.

i2 Technologies Software Pvt Ltd vs CIT -TS-475-ITAT-2017(Bang)-TP- IT(TP)A Nos. 1207 and 274(B)2014 dated 06.04.2017

471. Where the DRP suo-moto invoked 0% RPT filter and applied Rs. 200 cr turnover filter pursuant to which only 2 companies remained in the list of comparables, the Tribunal, relying on the decision in the case of ACI Worldwide Solutions P Ltd. [TS-614-ITAT-2017(Bang)-TP] wherein it was held that RPT filter of 25% was required to be applied if there were less than six comparables and 15% would be applied if they were more than six comparables, remitted the matter to the file of DRP directing it to apply 25% RPT filter. Further, in respect of application of Rs. 200 cr turnover filter, noting that the DRP did not have the benefit of Chryscapital Investment Advisors India P ltd [TS-173-HC-2015(DEL)-TP] ruling wherein it was held that if the turnover has not affected the margin or price of the comparable and the comparable on the test-stone of FAR, then it cannot be included/excluded merely on the ground of turnover, it remitted the application of turnover filter back to DRP for fresh adjudication.

Broadcom Communications Technologies P Ltd vs ACIT-TS-752-ITAT-2017(Bang)-TP IT(TP)A No.l230/Bang/2011 dated 01.09.2017

472. The Tribunal, relying on the decision in the case of Chryscapital investment advisors (India) pvt ltd-TS-173-HC-2015(DEL)-TP wherein it was held that the huge turnover/abnormal margin etc. ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded, restored the TP issue to the file of CIT(A), directing it to decide comparable issue after examining the aspect of high profit margin/turnover. Further, relying on the decision in the case of ACI Worldwide Solutions P Ltd [TS-614-ITAT-2017(bang)-TP], held that On account of application of 25% RPT filter, several comparables would be available which were earlier deleted on account of 0% RPT filter. Further, the Tribunal has been consistently adopting 25% and 15% filter depending on availability of comparables. Accordingly, it held that this aspect required fresh consideration and remitted the matter to the file of the CIT(A).

Robert Bosch Engineering and Business Solutions Ltd vs DCIT-TS-783-ITAT-2017(BANG)-TP I.T(TP).A No.1519/Bang/2013 dated 13.09.2017

473. The Tribunal held that where a reasonable number of comparable companies were available (29 in this case) the RPT filter could not allowed to be the extreme limit of 25 percent of revenue. Accordingly, it directed the application of 15 percent RPT filter, which led to the exclusion of 3 comparables viz. Aztec Software Ltd, Lanco Global Solutions Ltd and Geometric Software Ltd.

As regards the turnover filter applied by the AO/TPO viz. Rs. 1 crore to Rs. 200 Crore, the Tribunal observed that there was an inherent difficulty in applying such a turnover slab as it gave unrealistic results i.e. an entity having Rs. 1 Cr turnover could be compared with a concern having turnover of Rs. 200 Cr, but an entity having Rs. 200 Cr turnover could not be compared with an entity having 201 Cr turnover. Accordingly, it held that such classification of comparables on the basis of companies selected on turnover basis is not appropriate and acceptable and adopted the multiple of 10 times of turnover. Since the assessee’s turnover was Rs. 31.33 Cr, it directed the exclusion of companies having turnover less than Rs. 3.1 Cr and more than Rs. 313 Cr. As a result, following 4 comparables were excluded IGate Global Solutions Ltd. (Rs.527.91 Cr), Infosys Ltd. (Rs.9,028 Cr), Mindtree Ltd. (Rs.448.79 Cr) and Flextronic Software System Ltd. (Rs.595.1 Cr) 

Valtech India Systems Pvt Ltd v DCIT – TS-70-ITAT-2017 (Bang) – TP – IT. (T.P) A. No.1496/Bang/2010 dated 13.01.2017.

474. Where the TPO had applied the export revenue filter of 75% while benchmarking the software development segment but did not apply the same in ITES Segment, the Tribunal dismissed the appeal of the Revenue against the CIT(A)’s direction to apply the filter in ITES Segment (on thr ground that the assessee had not objected on this issue before TPO) and held that since the international transactions either in the software development or in ITES Segment were 100% export sales, it was justified to compare them with the uncontrolled unrelated price of comparable with at least 75% of export sale. Thus, it concurred with CIT(A)’s direction in principle and stated that CIT(A) had co-terminus power of the A.O. and could take up an issue for adjudication even if assessee had not raised any objection earlier. 

Further, it held that the employee cost filter was a relevant criteria for selection of comparables as it showed the business model of a particular company and noting that the assessee’s employee cost was much more than 25 percent of total revenue, it held that an employee cost filter of 25 percent was not incorrect. Accordingly, the Tribunal set aside the issue to TPO and added that assessee was at liberty to raise the objections of functional comparability if the need arose. 

As regards the assessee claim for inclusion of comparables with a different financial year ending, the Tribunal noted that FAR analysis had to be done by considering the contemporaneous financial data of the assessee as well as comparables and held that such companies could not be considered as good comparable for want of necessary data. 

The Tribunal also held that the turnover filter of < Rs. 1 crore could not be applied and upheld the 10 times turnover filter as applied by various Tribunals.

Further, noting that the TPO’s eliminated Thinksoft Global Services Ltd. and FCS Software Solutions Ltd. on ground that these companies were having borrowed funds and the working capital impact was more than 4% on company profits which would distort the profit margin, the Tribunal opined that the limit of working capital was relevant for adjustment in the price and not for inclusion/exclusion of comparables. Accordingly, the Tribunal directed AO/TPO to include the functionally similar comparables. 

DCIT vs. Informatica Business Pvt. Ltd – TS-212-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1285/Bang/2014 dated : 17.03.2017.

475. The Tribunal, noting that the DRP had adopted turnover filter of RS.200 crores and RPT filter of 0%, held that as per recent trend the Tribunals were now adopting turnover filter of 10 times the assessee’s turnover and 15% RPT filter, which if had to be applied to the case of the assessee would result in some comparables originally excluded on the basis of the DRPs filters being now included. It held that these comparables which would be now included based on the new filters would have to be examined on other aspects. Further, as regards assessee’s claim for working capital adjustment and risk adjustment, it noted that the DRP rejected the same on the ground that it had negative impact, and held that whether the impact of an adjustment was negative or positive was not relevant to decide as to whether any adjustment was to be made or not. Accordingly, it remitted all TP issues to AO/TPO for applying proper turnover and RPT filter and for deciding issues regarding working capital and risk adjustment afresh.

ITO Vs Open Silicon Research Pvt. Ltd – TS-205-ITAT-2017(Bang)-TP – IT(TP)A No.3491Bang/20 15 dated 22.02.2017

476. The Tribunal upheld the application of the turnover filter of 10 and 1/10th times assessee’s turnover and also directed the TPO to adopt a 15% related party transaction filter in view of the fact that there were adequate number of comparable companies. It observed that the entire TP-issue required fresh examination and consideration at AO/TPO’s level as the comparability of the entire set of comparables had to be decided by applying the appropriate filters. Accordingly, it set aside the transfer pricing issue for AY 2008-09 including the issue of selection of comparables to TPO for fresh consideration after giving opportunity of being heard to assessee.

Microchip Technology (India) Pvt. Ltd v ACIT – TS-384-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1586/Bang/2012 dated 03.05.2017.

 

477. The Tribunal relying on the decision in the case of Thyssen Krupp Industries (P) Ltd [TS-46-ITAT-2013(MUM)-TP] (Confirmed by Bombay High Court [TS-134-HC-2016(BOM)-TP] held that the assessee engaged in the business of providing Engineering Consultancy services in the field of chemicals, petrochemicals, fertilizers, cement, pharmaceuticals and allied industries could not be compared to:-

Engineers India Ltd and Water and Power Consultancy Ltd as they were Government companies and the contracts between Public Sector Undertakings were not driven by profit motive alone by other consideration also, such as discharge of social obligations.

Further, it directed the AO to exclude infrastructure and overhead recoveries in the case of L&T Sargent & Lundy Limited, as they were mere reimbursement of expenses incurred by a group concern on behalf of the assessee and hence should not be considered as a commercial transaction involving profit element while computing the percentage of related party transactions. Relying on the decision in the case of McAfee Software India P Ltd [TS-136-ITAT-2016(Bang)] it held that the co-ordinate bench had consistently accepted the turnover filter at 1/10th to 10 times of turnover and the adoption by TPO of filter of 1/4th to 4 times the assessee’s turnover was arbitrary in nature. Accordingly it directed the AO/TPO to adopt a filter of 1/10th to 10 times of the turnover of the assessee. It accepted assessee’s argument that Telecommunications Consultants India Ltd was functionally similar to the assessee and held that since it had been accepted as a comparable in the earlier year and subsequent year in the assessee’s own case, the TPO was not justified in rejecting the same during the year under consideration and accordingly restored the issue to the file of the AO with the direction to finalize the comparables.

Jacobs Engineering India Private Limited vs DCIT-TS-428-ITAT-2017(MUM)-TP-I.T.A.No.7194/Mum/2012 dated 17.05.2017

478. The Tribunal upheld the exclusion of Mecon Limited from the list of comparables due to (i) unavailability of current year data, (ii) persistent losses, (iii) unavailability of segmental data and (iv) functional dissimilarity as it was a Government owned company.

Sunway Construction India Pvt Ltd-TS-342-ITAT-2017(Bang)-TP-IT(TP)A No.1190(bang) dated 23.05.2017

479. The Tribunal upheld DRP’s order and held that,

Pfizer ltd was to be excluded from its list of comparables as its related party transactions were about 95% which did not satisfy the RPT Filter applied and the said company had a different accounting year. It relied on the decision in the case of PTC Software (I) Pvt Ltd [TS-788-HC-2016(BOM)-TP] it held that to ensure comparability the accounting period of the comparable and the assessee had to be same.

Celestial lab limited could not be considered as comparable due to difference in functional profile as it was engaged in software development and services and derived revenue from sale of products and services.

Tevapharm India Pvt Ltd vs DCIT (formerly known as Ratio Pharm India pvt ltd [TS-387-ITAT-2017(Mum)-TP] dated 12.05.2017

480. The Tribunal, noting that wrong filters for related party transactions i.e. 0% and turnover i.e. 1-200 crores were adopted by DRP in respect of assessee engaged in providing software development and related services, held that the Tribunal had consistently adopted 15% RPT filter and 1/10th or 10 times of assessee’s turnover as filter and accordingly remitted the TP-issue back to the AO/TPO for fresh consideration after applying proper filters.

L.G Soft India Pvt. Ltd vs. DCIT- [TS-553-ITAT-2017(Bang)-TP]- IT(TP)A Nos.463 & 516(B)/2015 & CO No. 140(B)/2015 dated 09.06.2017

481. Noting that the DRP had excluded Jeevan Scientific Technology by applying employee cost filter on its own account, the Tribunal accepted assessee’s & Revenue’s submission that employee cost filter should not have been applied to this company alone but to all comparables. Further, by way of additional grounds, assessee requested for rejection of comparable based on 10 times turnover range. Relying on the decision in the case of Chryscapital Investment Advisors (India) Pvt Ltd[TS-173-HC-2015(DEL)-TP] held that huge profit or a huge turnover, ipso facto could not lead to exclusion of comparable and the TPO first had to be satisfied that such differences did not materially affect the price or cost. Accordingly, it remitted the matter back to the AO/TPO for fresh consideration.

Dell International Services India Pvt Ltd vs JCIT-TS-575-ITAT-2017(Bang)-TP-IT (TP) A No.636 (Bang) 2016 dated 28.06.2017

 

482. Where the DRP had adopted wrong related party transactions (0)% and Turnover (Rs. 1-200 cr) in respect of assessee providing software development and related services, the Tribunal held that the Tribunal had been consistently adopting 15% RPT filter and 1/10th or 10 times of assessee’s turnover as turnover filter and accordingly remitted TP-issue back to the file of AO/TPO for fresh adjudication.

L.G Soft India Pvt. Ltd vs. DCIT-TS-553-ITAT-2017(BANG)-TP dated 09.06.2017

483. The Tribunal restored TP-issue for assessee engaged in the manufacture of spark plugs and marketing and distribution of products for AY 2005-06 to the file of AO/TPO for fresh consideration. The TPO while reviewing the valuation done by assessee found that the assessee had earned commission income of Rs. 1.65 crores while none of the comparables had earned commission income. The Ld. TPO also observed that the goods sold to the Associated Enterprise and non-AE were not similar and hence the comparison made by the assessee company was not acceptable. Noting that the TPO had refused to include commission income while working out PLI of assessee on the ground that none of the comparables earned commission income, it held that the TPO’s approach of out rightly rejecting the comparable was not tenable. The assessee had adopted TNMM with operating revenue computed in relation to total cost as a PLI for import of raw material, components and tools, provision of marketing support services and professional services. Noting the assessee’s contention that marketing and professional services were intrinsic to assessee’s business model and therefore could not be considered as separate business segment, it held that combined transactions approach could be followed under Rule 10A(d) r.w.r. 10B, but the onus to demonstrate with evidence that such an approach was justifiable was on the assessee and it had failed to justify as to why the rendering of marketing services and professional services should be classified as closely linked transactions. The Tribunal questioned TPO’s approach of outright rejecting aggregation of transactions without giving any justification and accordingly directed the AO/TPO to re-determine the ALP of each transaction after considering whether such transactions should be combined for the purpose of benchmarking after taking into account the material submitted by assessee..

ITO vs Federal Mogul Automotive Product (India) Pvt Ltd-TS-499-ITAT-2017(DEL)-TP-ITA No. 599/del/2012 dated 12.05.2017

 

484. The Tribunal, relying on the decision of High Court in the case of Chryscapital Investment Advisors (India) Pvt Ltd [376 ITR 183], held that huge profit / turnover does not ipso facto lead to exclusion of a comparable unless such difference materially affected price/ cost. Further, on the RPT filter, it held that Tribunal had been consistently adopting 25% and accordingly directed the CIT(A) to adopt 25% as the RPT filter as against 0%. Accordingly, it restored the matter to the file of CIT(A), directing it to decide the issue afresh by applying 25% RPT filter and examining the aspect of high profit and turnover.

ITO vs. AT & T Global Business Bangalore Services India (P) Ltd (Formerly known as USI Internet Working Solutions Pvt. Ltd.)-TS-680-ITAT-2017(BANG)-TP-IT(TP)A no. 342/bang/2012 dated 24.08.2017

485. Where the assessee had filed an appeal against various filters applied by TPO viz., 25% RPT filter. Rs. 1-200 cr turnover filter, employee cost filter, functionality etc, the Tribunal noting that the RPT filter of 25% and turnover filter have been universally applied by many coordinate benches, restored the matter to the file of AO/TPO directing it to verify the functional comparability of those companies satisfying the turnover and RPT filter applied by TPO.

Texas Instruments (India) Pvt Ltd vs ACIT-TS-738-ITAT-2017(Bang)-TP-IT(TP)A no. 755 & 756 (bang) 2012 dated 08.09.2017

Argue own comparables

486. Where the assessee engaged in providing ITES filed an additional ground of appeal seeking exclusion of 3 comparables (Maple Esolutions, Datamatics Financial Services and Apex Knowledge Solutions) on different grounds i.e. functional dissimilarity as compared to that pleaded before DRP, the Tribunal admitting the additional ground held that it was not a new plea for seeking exclusion of these companies per se as but only an additional point for exclusion of the companies. Further observing that the DRP rejected assessee’s arguments without giving reasons or considering various Tribunal rulings on points raised by assessee, it held that the entire TP issue required to be reconsidered at the level of the TPO and directed the TPO to adjudicate the same by considering the earlier objections as well as other fresh objections raised by the assessee .

lndecomm Global Services (India) Pvt. Ltd vs. ACIT-TS-909-ITAT-2017(Bang)-TP I.T.(T.P)A. No.1484/Bang/2010 dated 27.10.2017

487. The Tribunal held that the assessee engaged in the business of manufacturing and trading of packaging equipment and reconditioning of packaging equipment and machines could not be compared to Rollatainers Ltd as the said company had significant related party transactions (48.57%), it was a sick company and it followed a different financial year ending. It rejected the Revenue’s argument that the said company could not be excluded as it was included as comparable in the TP study by the assessee itself and relying on the ruling of Barclays Technology Centre India Pvt Ltd TS-41-ITAT-2015 (Pun) – TP, held that where an assessee subsequently points out that a company is not comparable due to justifiable reasons, the plea of the assessee could not be rejected merely because the said company was initially adopted by it as a comparable in its TP study.

Bobst India Pvt Ltd v ACIT – TS-90-ITAT-2017 (Pun) – TP – ITA No.2090/PUN/2012 dated 03.02.2017

488. The Tribunal relying on the decision of Quark System wherein it was held that merely because the assessee had wrongly added in the list of comparables, it would not bar the assessee to take objection against the functional dissimilarity of a company dismissed petition filed by the assessee seeking rectification of mistake in the order of Tribunal for AY 2010-11 in respect of comparability of ICRA Techno Analysis Ltd on the ground that the company had been selected as a comparable by both the assessee and TPO, and the assessee had not raised any objection before lower authorities.

Aptean Software India Pvt Ltd – TS-1076-ITAT-2016(Bang)-TP

489. The Court upheld the order of the Tribunal and held that an assessee is not barred from withdrawing a comparable originally selected by it in its transfer pricing study where the comparable was included on account of mistake of fact or where on further examination the assessee realised that the said company is not comparable.  It held that the Transfer Pricing mechanism requires comparability analysis to be done between companies and the controlled transactions and that the assessee’s submission in arriving at ALP is not the final position as the TPO is to examine whether the companies selected by the assessee are in fact comparable.

CIT v Tata Power Solar Systems – published on 09.08.2017

Others

490. The Tribunal partly allowed Revenue’s appeal and directed the AO /TPO to retain inclusion of FCS Solutions and Thinksoft Global Services Limited as comparables after making working capital adjustment on actual basis for AY 2009-10. It noted that the AO/TPO had excluded these comparables on the basis that their working capital adjustment required was more than 4% and held that once a working capital adjustment was made, there was no reason to exclude any company for such reasons it is found that the company was comparable on all other grounds. Since no other reason was given for exclusion of these companies, the Tribunal held that the two companies were wrongly excluded by the AO / TPO.

DCIT vs Torry Harris Business Solutions Pvt Ltd – TS-463-ITAT-2017(Bang)-TP- IT(TP)A Nos 238/B/2014, 1495/B/2015 and 266/B/2016 dated 14.04.2017

491. The Tribunal held that the margin approved in MAP proceedings for provision of ITES to US AEs could be adopted for benchmarking international transactions with non-US AEs as well. Reliance was placed on the orders of the co-ordinate bench for earlier years where the assessee’s claim was accepted on identical facts.

JP Morgan Services India Pvt Ltd – TS-64-ITAT-2017 (Mum) – TP

492. The Tribunal remitted comparability of foreign companies to CIT(A) for fresh adjudication on the ground that CIT(A) had not called for remand report from AO/TPO to examine circumstances in which foreign comparables were considered in subsequent years vis-a-vis the circumstances in which foreign comparables were excluded by AO/TPO in the present year. Tribunal agreed with Revenue’s contention that geographical locations, different markets & the prevailing laws and government orders, cost of labour and capital, overall economic development, size of the markets etc. also played an important role in the test of comparables and accordingly held that if common foreign comparables were considered in subsequent years under identical facts and circumstances and having similar FAR analysis, then assessee deserved relief on this issue, provided this fact was duly demonstrated.

Timex Watches India Pvt Ltd – TS-1064-ITAT-2016(Del)-TP

493. The Tribunal, referring to Rule 10B(1)(e)(ii) noted that net profit margin realized could be benchmarked from one or more comparable uncontrolled transactions and therefore rejected the Revenue’s argument that consideration of one comparable company could not be taken for benchmarking ALP of a party. It further explained that although more than one comparable was desirable to get appropriate arm’s length results, there was no mandate in the law that one may choose more than one comparable only. 

However, it clarified that on consideration of only one comparable, the tolerance range of +/- 5% (or 3%) as envisaged in the second proviso to Sec 92C would not be applicable. Accordingly, considering the Tribunal eliminated 4 out of 5 companies on functionality, it directed the TPO to benchmark assessee’s margin with only one comparable. 

JP Morgan Advisors India Private Limited Vs DCIT – TS-170-ITAT-2017(Mum)-TP – ITA No.7979/MUM/2010 dated 16.03.2017

494. Where the TPO neither gave reasons for rejection of 2 comparables nor provided details of search process adopted for selection of 14 new comparables and even the DRP had not fully addressed assessee’s contentions in this regard, the Tribunal taking note of sizeable increase in quantum of addition due to margin proposed by TPO (8.53%) being substantial as against assessee’s margin (1.47%), it directed the TPO to provide reasons for rejecting existing comparable as well as the search criteria for selection of new comparables and decide the issue afresh after giving assessee an opportunity of being heard.

Woosu Automotive India Private Vs ACIT – TS-74-ITAT-2017(CHNY)-TP – ITA No.870/Mds/2016 dated 13.01.2017

495. Tribunal admitted additional evidence filed by assessee in respect of its international transaction of providing software development services to AE for AY 2006-07. Relying on the decision in the assessee’s own case wherein the coordinate bench had restored the matter back to the CIT(A) with directions to consider the additional evidence submitted by the assessee relating to segmental accounts and provide a reasonable opportunity of being heard, it restored the matter back to CIT(A) to adjudicate the issue afresh.

RMSI Pvt Ltd vs ACIT -TS-321-ITAT(DEL)-TP ITA No.3478/del/2012 dated 21.04.2017

496. The Tribunal directed the DRP to consider the correctness of margins of various comaparbles chosen by the TPO and decide on their inclusion/exclusion. It noted that the TPO in its original order had considered 9 comparables with the average margin of 25.90%. Thereafter, TPO passed a rectification order finalizing a set of 7 comparables with average margin of 24.12%. The Tribunal opined that a change in profit level margins of comparables would have a considerable effect on the TP study since assessee’s margin had to be compared with the average PLI of comparables. The Tribunal thus remitted the matter to DRP for fresh consideration.

Extreme Networks India Pvt. Ltd vs DCIT TS-367-ITAT-2017(CHNY)-TP – I.T.A.No.434/mds/2015 and I.T.A,No.449/mds/2015 dated 07.04.2017

497. The Tribunal upheld DRP’s inclusion of FCS Software Solutions and Thinksoft Global Services Limited and held that the comparables were wrongly excluded by the TPO merely because their impact on working capital adjustment exceeded 4%. Further, relying on the decision in the case of Mercer Consulting (India) Pvt. Ltd [TS-664-HC-2016(P&H)-TP, it upheld assessee’s claim for inclusion of R Systems having different accounting years noting that data for quarter ended 31/3/2008 and 2009 was available in public domain so as to reliably arrive at data for FY ended 31/03/2009.

G.E India Exports Pvt. Ltd vs DCIT-TS-426-ITAT-2017(Bang)-TP- IT(TP)A No.117/Bang/2014 dated 05.05.2017

498. The Tribunal allowed Revenue’s appeal and set aside CIT(A)’s order on application of filters for comparables selection for AY 2005-06 stating that the order of the CIT(A) was very cryptic and erroneous as he had adopted 0% RPT filter as opposed to 15% RPT filter adopted by a number of Tribunals. It noted that, once 15% RPT filter had been adopted instead of 0% RPT filter, several comparables which were rejected by the CIT(A) would come back and be required to be re-examined on functional comparability aspect. Thus, it restored the matter to the file of Ld CIT(A) fresh consideration.

Novellus Systems (Ind) Pvt ltd [TS-391-ITAT-2017(Bang)-TP- In IT(TP)A No.1101(bang)/2011

499. Where the assessee did not have any objection to Revenue’s ground for excluding the two comparables viz. Thinksoft Global and FCS Software for benchmarking software development services, the Tribunal allowed the exclusion of the said two comparables for benchmarking software development services provided by the assessee to its AE.

DCIT vs Yodlee Infotech P Ltd-TS-497-ITAT-2017(Bang)-TP-IT(TP)A.83/B/2014 & CO.70/B/2016 dated 05.05.2017

500. Tribunal allowed assessee’s appeal and held that the AO/TPO was incorrect in considering the 2 related parties as comparable for determining ALP of its royalty payment at 4% of net sales to AE. It held that for determination of ALP, price to be taken into account was the price charged or paid in the same or similar uncontrolled transaction with or between two non-related parties and therefore held that the comparable adopted by TPO was invalid.

Praxair India Private Limited vs DCIT-TS-388-ITAT-2017(Bang)-TP-IT(TP)A No.315/bang/2014 dated 15.05.2017

501. The Tribunal remanded the benchmarking of assessee’s international transactions relating to provision of software development & back pffice processing (ITeS) services. The TPO had rejected assessee’s TP study report including adoption of comparable uncontrolled price (CUP) method as MAM and undertook FAR analysis of comparables in respect of software development services segment but made a TP-adjustment in respect of ITeS segment. Noting that there was no finding of TPO on software segment and no FAR analysis of comparables in ITES segment, the Tribunal held that the order of the TPO was not sustainable and accordingly remanded the matter back for fresh benchmarking analysis in both the segments after affording an opportunity of being heard to the assessee.

First Advantage Global Operating Center Pvt ltd (formerly known as First Advantage Offshore Services Pvt ltd) vs DCIT-TS0548-ITAT-2017(Bang)-TP dated 24.05.2017

502. The Tribunal allowed assessee’s appeal against cryptic CIT(A) order on comparables selection in respect of call center services rendered to AE for AY 2005-06. The TPO had finalized a list of 9 comparable enterprises exporting IT Enabled Services. The Tribunal noting that the CIT(A) had not given any reasoning for upholding the inclusion of the comparables, held that the CIT(A) should have examined the FAR of the comparables while examining assessee’s objections. Accordingly, it remitted the matter back to the file of CIT(A) for fresh adjudication.

24/7 Customer.com P. Ltd vs. DCIT-TS-627-ITAT-2017(BANG)-TP-IT(TP)A no. 228/bang/2010 dated 12.07.2017

503. Where the assessee was awarded an Engineering, Procurement and Construction contract from its AE containing 4 parts viz. 1.onshore services 2. Onshore supply of equipment / spares 3. Offshore services and 4.offshore supply of equipment, the Tribunal held that the TPO was justified in aggregating all the transactions for the purpose of benchmarking the transaction under TNMM as against the benchmarking approach adopted by the assessee i.e. separate benchmarking of equipment supply and services. Observing that the contract was composite in nature as the assessee was required to deliver the complete facility to its AE and revenue of both supply and services were recognized under the percentage of contract executed method, it held that aggregate benchmarking was justified. However, the Tribunal rejected the TPO’s characterization of the assessee as an engineering service provider as more than 60 percent of revenue was from supply of equipment. Accordingly, it remitted the matter to the TPO for fresh adjudication directing him to consider the assessee as an EPC contractor engaged in providing turnkey solutions.

RTA Alesa AG vs DCIT (International Taxation)-TS-675-ITAT-2017(DEL)-TP-ITA No. 1659/del/2017 dated 31.08.2017

504. The Tribunal, relying on the decision in the case of Logica Private Limited [TS-187-ITAT-2017(bang)-TP] wherein it was held that merely because of a working capital impact of 4%, the said companies could not be characterized as being engaged in the provision of financing activities, held that as the TPO himself had included the companies, they passed all necessary filters and directed the inclusion of FCS and Thinksoft Global as comparables in respect of benchmarking assessee’s international transaction of ITes services.

Target Corporation India Pvt Ltd-TS-756-ITAT-2017(Bang)-TP-IT(TP)A No.184 (Bang) 2014 dated 31.08.2017

505. The Tribunal deleted the TP adjustment made vis-à-vis the manufacturing and trading segment of the assessee (engaged in manufacturing and distributing electric meters). It upheld the assesee’s approach of benchmarking each transaction separately based on separate certified segments viz. domestic manufacturing, export manufacturing and trading as opposed to the TPOs approach of benchmarking the same on an aggregate basis. It held that the bundled / aggregate approach was only permissible when the transactions could not be benchmarked independently and considering the fact that the assessee’s international transactions constituted only 5.75 percent of total transactions if held that comparison based on aggregation of both domestic and international transactions would lead to absurdity. Accordingly, it deleted the addition made by the TPO.

DCIT vs Landis + Gyr Ltd-TS-711-ITAT-2017(Kol)-TP dated I.T.A No. 584/Kol/2015 , I.T.A No. 687/Kol/2015 , I.T.A No. 549/Kol/2016 13.09.2017

506. The Tribunal accepted the assessee’s approach of benchmarking its international transactions (viz. developing and selling packaging material, importing and reselling straws and manufacturing processing equipment) on an aggregate basis as opposed to the TPO’s approach of benchmarking the transactions separately. Observing that the assessee sold straws along with packaging material at a reduced price so to as reduce its total cost of packaging in order to create demand for consumables manufactured by it, relying on the OECD Transfer Pricing guidelines, it held that since the business strategy of the assessee was an accepted manner of conducting business, the same should not be segregated. Accordingly, it dismissed the appeal of the Revenue.

Tetra Pak India Pvt Ltd – TS-762-ITAT-2017 (Pun) – TP- ITA No.359/PUN/2014 20.09.2017

d. Computation / Adjustments

Capacity Utilization Adjustment

507. The Court dismissed the appeal of the assessee against the order of the Tribunal, wherein the Tribunal rejected the assessee’s claim for adjustment towards abnormal expenses arising on account of lower capacity utilization since the assessee had not brought any material on record relating to the capacity utilization of the comparable companies. It upheld the finding of the Tribunal that capacity utilization was a relative feature and therefore unless the capacity utilization figures of comparables were known, no adjustment could be granted to the assessee. Further, noting that the assessee was engaged in jewellery manufacturing, it held that it was very difficult to standardize capacity in case of such companies as it involved several items with a wide variation in the consumption of time and labour.

Royal Star Jewellery Pvt Ltd v ACIT – TS-43-HC-2017 (Bom) – TP – INCOME TAX APPEAL NO. 2463 OF 2013 dated 30.01.2017

508. Where the assessee claimed a capacity utilization adjustment on the ground that it went through shutdowns and lockout for a longer period of time which hampered production which was rejected by the DRP on the ground that the labour unrest did not adversely impact assessee’s margins and that the assessee had failed to furnish actual details for loss caused by labour problems, the Tribunal after referring to the tabular statement filed by assessee containing details of power and fuel, salary and wages and capacity utilization in last 3 years and present AY, opined that that prima facie, there was under-utilization of installed capacity towards which suitable adjustments were required to be made. Since the assessee had not furnished all details before DRP, the Tribunal directed the DRP to consider under-utilization of installed capacity and grant suitable deduction in TP-adjustment, if any.

Bailey Hydropower (P) Ltd. vs. ACIT – TS-122-ITAT-2017(CHNY)-TP- /I.T.A.No.2605/Mds./2014 dated 17.02.2017

509. Where the TPO determined ALP based on only 1 comparable, after rejecting 3 other comparables selected by assessee on the premise that capacity utilization figures of production as well as of the installed capacity of these comparables were not available in same units, the Tribunal restored the matter to the file of TPO and held that that Rule 10B clearly provided for reasonable accurate adjustment to be made to eliminate material differences between assessee & comparables and the TPO was obligated to work out the capacity utilization and its effect on the profit earned by the comparable as well as by the assessee. Accordingly, it restored the matter to the file of TPO for fresh consideration.

Nissin Brake India Pvt. Ltd vs. DCIT-TS-779-ITAT-2017(DEL)-TP ITA No. 3425/Del/2016 dated 22.09.2017

510. Where the assessee claimed capacity utilization adjustment on the ground that this being its initial year of operation, it was operating only at 28% capacity, thereby incurring substantial amount of idle capacity costs and significant under recovery of cost resulting in lower margins, whereas comparables were in the mature stage of their economic life cycle and were operating at average capacity of 71%, the Tribunal held that idle capacity was one of the factors which could influence margins substantially and observed that the reasons for non-utilization of capacity were required to be verified with respect to resources available and functions performed by comparable companies. Noting that the assessee was engaged in manufacturing and trading while comparables were engaged only in manufacturing activity, it remitted the issue and directed AO to make necessary adjustments for idle capacity after considering all the factors.

Nippon Paint India Pvt Ltd v ACIT– TS-102-ITAT-2017 (Chny) – TP – ITA No.779/Mds/2016 dated 10.02.2017

511. The Tribunal allowed assessee’s appeal with regard to the issue of grant of capacity utilization adjustment and working capital adjustment for AY 2005-06, observing that the Tribunal, in the assessee’s own case for succeeding AY 2006-07, had examined the issue in light of the ruling in Claas India (ITA No.1783/Del/2011) and remitted the matter to AO/TPO for granting capacity utilization and working capital adjustment. It held that since the Tribunal had taken a view in assessee’s own case in the succeeding year, there was no justification to take contrary view in this appeal and accordingly set aside the CIT(A) order and remitted the matter to AO/TPO to re-adjudicate the issue of lower capacity utilization and working capital adjustment in light of decision in assessee’s own case for AY 2006-07.

Molex India Tooling Pvt Ltd v ACIT – TS-92-ITAT-2017 (Bang) – TP – IT(TP)A No.770/Bang/2012 dated 25.01.2017

512. The Tribunal, noting that the assessee was incorporated as a subsidiary of Japanese parent company in March 2007, and that AY 2009-10 was its first year of operation, wherein it had actually utilized only 35.70% of capacity for actual production, remitted the matter to AO/TPO for consideration of capacity utilization issue while selecting comparables.

Yutaka Auto Parts India Pvt. Ltd. Vs DCIT – TS-1096-ITAT-2016 (Del) – TP – ITA No 1120 / Del / 2014 dated 09.12.2016

513. The Tribunal, dismissed the Revenue’s appeal and upheld the order of the CIT(A) granting idle capacity adjustment to the assessee engaged in purchase and sale of components of refrigeration, industrial controls, frequency converters, etc. for AY 2004-05. Noting the assessee’s contention that its utilized capacity for AY 2004-05 was only 200 units as against installed capacity of 7200 units and that its margin after idle capacity adjustment was 11.77% as against ALP of 7.16% as determined by the TPO, it dismissed the Revenue’s contention that the assessee had not demonstrated idle capacity and capacity utilization.

DCIT Vs Danfoss Industries Pvt. Ltd.- TS-164-ITAT-2017(CHNY)-TP – ITA Nos.1131, 1132 & 1582/Mds/2016 dated 23.02.2017

514. The Tribunal denied the assessee’s claim for idle capacity adjustment dismissing the claim of the assessee that it was in the initial stage of business and incurred huge fixed cost and that it could not achieve the optimum capacity utilization as its utilized capacity was only 34% against the comparable company’s capacity utilization of 61.36%.  It noted that that assessee was not a new or a startup company, and was existing prior to 2002 when it was manufacturing tractors along with Greaves. Accordingly, it held that since the company was reasonably old from the profile, justifiable reasons had to be explained for non-utilization of the capacity, fixed costs incurred from the year of inception, the installed capacity, utilized capacity and capacity of breakeven point. It further held that the assessee should have submitted detailed reasons with particular reference to the availability of raw materials, man power, machinery, capital resources, which have influenced the utilization of maximum capacity and for non-utilization of the installed capacity. Accordingly, since the aforesaid details had not been submitted, it rejected the assessee’s idle capacity adjustment claim.

SAME Deutz-Fahr India Pvt. Ltd. Vs CIT – TS-316-ITAT-2017(CHNY)-TP – /ITA No.2666/Mds/2016 dated 22.02.2017

515. The assessee engaged in providing engineering design services  had adopted TNMM as the MAM and selected a set of 4 comparables having an average operating profit to operating cost margin of 13.5% as against its operating profit to operating cost margin of 37.5% which was computed after making adjustment for idle capacity on the premise that it had only utilized capacity to the extent of 66.5% at its Chennai center. the TPO disallowed the claim for idle time adjustment noting that assessee had been in business since 2001 and annual reports of the assessee for various financial years demonstrated improved working with better volume of work load. The Tribunal noted that for computing the adjustment, the assessee considered the total capacity in terms of billing hours for its Chennai Region but considered capacity in terms of number of persons for its NDPC office. The Tribunal upheld the order of the TPO and denied the assessee’s idle capacity adjustment and held that assessee had not been able to demonstrate how it worked out the capacity hours using a reliable method, as it itself had followed different yardsticks for working out its capacity levels at Chennai and NDPC centers. It held that the assessee had even been unable to prove that idle capacity in service industry was not an across the industry feature, or the existence nor nonexistence of idle capacity for the various comparables selected by it.

Saipem India Projects Limited Vs DCIT – TS-308-ITAT-2017(CHNY)-TP – ITA Nos.985 & 1400, CO 79/2014 dated 05.04.2017

516. The Tribunal, reversing the order of the TPO and DRP and relying on the decision of Tasty Bite Eatables Ltd. Vs. ACIT (2015) 59 taxmann.com 437 (Pune-Trib.) allowed the assessee capacity under-utilization adjustment in its manufacturing segment noting that subject AY 2009-10 was its first complete year of operations and it was due to under-utilization of capacity and other unabsorbed expenses that the assessee had incurred losses during the year. It rejected the TPO’s alternative stand that since assessee had received support payments from AE for low capacity utilization in the succeeding AY, assessee should have received similar payments in subject AY although such arrangement did not exist. Referring to Section 92B, it held that none of the limbs of section 92B of the Act or Explanation defining the expression ‘international transaction’ spoke of any hypothetical transaction and in the absence of the same, TPO could not pre-suppose an international transaction between the assessee and its AEs and determinate the TP adjustment on account thereof. Further, it held that even if there was a presumption of support payments from the AEs to the assessee, it did not get covered by the definition of international transaction and accordingly was beyond the scope of the TPO.

Dover India Pvt. Ltd Vs ACIT – TS-318-ITAT-2017(PUN)-TP – ITA No.411/PUN/2014 dated 19.04.2017

517. The Tribunal remitted adjustment on account of underutilization in respect of extraordinary/non-recurring expenses (like high manufacturing cost, high personnel cost, high import content cost etc.) to operating cost while computing operating margin for assesse. The assessee was engaged in manufacture of programmable logic controllers, automation software and related automation products. The assessee contended that adjustment in respect of extraordinary expenses/of non-recurring expenses should be allowed since they were incurred keeping in view anticipated expenses of operation of the company and directly relatable to manufacturing activity of the company. The Tribunal held that though the law was quite settled that adjustment should be made for unutilized capacity/manpower and that underutilization does impact operating margin, it held that onus was on the assessee to establish that there was underutilization of capacity which was more than the average underutilization in the industry. Stating that the assessee failed to demonstrate capacity underutilization and that its utilization was also not falling below average rate of utilization in the industry, it remitted the issue back to AO/TPO for adjudication. Further, it remanded the matter back to the file of the TPO for fresh adjudication on the assessee’s additional grounds in respect of risk, working capital, entity vs. transaction level adjustments, exclusion of inventory write-off from operating cost and use of internal-CUP for benchmarking purchase of raw materials from AE as TPO had no occasion to adjudicate on the matter since the grounds were not raised before him earlier.

DCIT vs GE Intelligent Platform Pvt Ltd [TS-369-ITAT-2017(BANG)-TP] dated 04.04.2017

518. The Tribunal held that where the assessee had claimed adjustment for extra-ordinary costs (salary of employees not working on billable projects, recruitment and training costs, rent for unutilized space, business promotion expenses, travelling expenses, depreciation on capital expenditure etc) incurred due to ramp-up of its operations in its first two years of operations, the CIT(A) erred in denying the assessee adjustment vis-à-vis the rent for unutilized space, business promotion expenses, travelling expenses and depreciation. Noting that the CIT(A) had prepared a comparative chart of extra-ordinary expenses incurred in earlier and subsequent years based on which it had disallowed the claim of the assessee, the Tribunal held that only data for the relevant year under consideration was to be considered. It held that any abnormal or extra ordinary event had to be taken into account and wherever possible suitable and reasonable adjustment to such extra ordinary event or circumstances was to be made. Accordingly, it remitted the issue to the file of CIT(A) for fresh consideration.

Symphony Services India P. Ltd vs ACIT-TS-489-ITAT-2017(BANG)-TP- dated 28.04.2017

519. Where the assessee’s total installed capacity took into account anticipated provision of web hosting services which was approved by the AE but during the year under consideration the said web hosting services were not provided to the AE, the Tribunal held that the AO erred in imputing a mark-up on the costs incurred by the assessee with regard to the web hosting services as the assessee had not performed any functions vis-à-vis the services. Accordingly, it held that the assessee was justified in claiming that only the expenses incurred by it with regard to the web hosting services were to be recovered at cost. However, considering that the assessee submitted additional evidence i.e. addendum to the agreement, it restored the issue to the file of the AO for verification of such evidences.

Affinity Global Advertising Pvt. Ltd (Formerly known as Hostway Solutions Pvt. Ltd) vs. ITO-TS-1057-ITAT-2017(Mum)-TP dated 20.12.2017

Depreciation Adjustment

520. The Tribunal, relying on the decision passed by the co-ordinate bench in the assessee’s own case for AY 2003-04 [TS-441-ITAT-2014(DEL)-TP] held that depreciation adjustment was to be made to the operating profit margin of comparable companies if there was a difference in the rates of depreciation charged by assessee vi-a-vis comparables.

Exl Service.com (India) Pvt Ltd v DCIT – TS-104-ITAT-2017 (Del) – TP – ITA No. 302/Del/2015 & ITA No. 615/Del/2015 dated 03.01.2017

521. Where the assessee depreciated its assets at higher rates than those prescribed by Schedule XIV of the Companies Act, 1956 and most of the comparable companies considered by the TPO followed the rates prescribed under Companies Act, 1956, thereby charging a lower rate of depreciation, the Tribunal accepted the plea of the assessee and relying on the Tribunal judgments in ExlService.com India Private Limited [TS-441-ITAT-2014(DEL)-TP]  and Worldwide Solutions Private [TS-176-ITAT-2015(Bang)-TP], wherein depreciation adjustment had been granted, remitted the matter to TPO for re-examination and re-adjudication in accordance with aforesaid Tribunal decisions.

Outsource Partners International P Ltd vs. DCIT – TS-57-ITAT-2017(Bang)-TP – I.T(TP).A No.337/Bang/2015 dated 06.02.2017

522. The Tribunal dismissed Revenue’s appeal against granting adjustment for accelerated depreciation and exclusion of VoltAmp Transformers from the comparable list on the ground that with respect to the accelerated depreciation adjustment, the Tribunal had decided the issue in favour of the assessee for AY 2008-09 and in respect of exclusion of VoltAmp Transformers as a comparable it held that the Tribunal had regarded it as not a good comparable for AY 2003-04.

Advance Power Display Systems Limited – TS-14-ITAT-2017(Mum)-TP

523. The Tribunal noting that the assessee had provided for higher depreciation on certain assets whereas comparables were following depreciation rates as per the Companies Act and relying on the ruling of Welspun Zucchi Textiles Ltd [TS-9-HC-2017(BOM)-TP] held that depreciation was to be considered as part of operating cost and thus there was no merit in assessee’s claim for depreciation adjustment. The Tribunal, however, noted that, in case the assessee was able to establish material differences in depreciation between itself and the comparable, then a suitable adjustment could be accorded in the hands of the comparable after due verification by the TPO.

Tieto Software Technologies LTD. vs. DCIT – TS-155-ITAT-2017(PUN)-TP – ITA No.986/PUN/2013 dated 03.03.2017

524. The Tribunal held that a depreciation adjustment could not be granted in isolation, without taking into consideration the repair and maintenance cost as well as lease rentals for hiring plant and machinery. It observed that depreciation would be higher in a case of newly installed plant and machinery, but corresponding expenditure on maintenance and repairs would be higher in case of old plant and machinery. Noting that the assessee did not produce comparative details of depreciation rates charged by assessee vis-à-vis comparables, it directed the TPO/AO to grant appropriate adjustment if any in respect of difference of depreciation charged by assessee in comparison to comparable companies after taking into consideration corresponding expenditure on repairs and maintenance as well as lease rentals if any.

DCIT vs. Novell Software Development (India) Pvt. Ltd – TS-190-ITAT-2017(Bang)-TP – I.T.{T.P} A. No.1313 / Bang / 2012 dated 10.02.2017.

525. The Tribunal noting that the assessee providing contract research and development services to its AE in the field of petrochemicals and polymers, had adopted SLM for the purpose of computing depreciation as against WDV method adopted by the comparables and noting that the assessee’s asset turnover ratio ranged from 17% to 29% for the relevant years AY 2004-05 to 2008-09 while that of the comparables ranged between 71% and 177.8%, directed that depreciation cost be excluded from operating cost for computing PLI. Accordingly held that the issue of allowance of depreciation adjustment claimed by the assessee was academic. Further, relying on Pole to Win India Ruling it held that expenses disallowed as deduction by the assessee in its computation of income could not be included in operating cost for computing operating margin.

Sabic Research and Technology Pvt Ltd TS-327-ITAT-2017(Ahd)-TP ITANo.1065 dated 01.05.2017

Extraordinary expenses

526. The Tribunal rejected assessee’s claim for adjustment of extra ordinary expenses on account of 1). abnormal wastage of materials to the tune of Rs. 1.43 crore which arose due to high material cost and learning curve of operators considering that the the assessee started a new knitting division during the year and 2). depreciation, (as the assessee had revised the estimated economic life of its fixed assets based on a technical study resulting in excess depreciation by Rs. 99.94 lakhs) and held that since the assessee’s pricing pattern was cost plus mark-up, which had been raised from 5% to 9.5% on the goods procured by it and later revised to 7%, any loss on account of wastage / increased depreciation suffered by assessee would be taken care of by mark-up prices as the same would be included in the cost base while computing the mark-up.

KOB Medical Textiles Pvt Ltd. Vs. DCIT- TS-211-ITAT-2017(CHNY)-TP – /I.T.A.No.855/Mds./2015 dated 09.03.2017

527. The Tribunal allowed the assessee’s claim towards adjustment of extraordinary expenditure relating to employee cost and consultancy charges incurred for future project requirement while computing operating margin for AY 2012-13. Noting that manpower was one of the main costs for assessee rendering software development services, it considered the assessee’s submission that it maintained more than 10% of its manpower requirement in anticipation of new job orders due to difficulty in recruiting trained software personnel. It held that lack of mention of the fact of such extraordinary event having material impact on profitability in its financials, could not be reason for rejection of assessee’s claim. It also observed that these expenses did not relate to the project executed and billed in the subject AY and that assessee was only in the 2nd year of operations, and therefore the impugned expenses could not be considered as intangible assets as the assessee had not exercised sufficient control over the expected future benefits arising from a team of skilled staff and from training so as to consider the expenses as intangible assets. Accordingly, it held that business module could not be straightway compared with other comparables, unless the extraordinary item of expenditure were excluded so as to arrive at correct margin of profit and since the assessee’s PLI after adjustment was higher than that of comparables, it deleted the TP adjustment of Rs. 2.64 Cr.

Saggezza India P Ltd. Vs. DCIT – TS-240-ITAT-2017(CHNY)-TP – /I.T.A.No.3323/Mds./2016 dated 22 -03-2017

528. Where the assessee claimed adjustment on account of custom duty on imports stating that due to stringent quality norms, imports were necessitated in the initial stages and the non-cenvatable basic custom duty constituted additional cost for the assessee and the TPO disregarded the claim of the assessee stating that no evidence had been provided and that the comparable companies in the industry to which the assessee belonged also incurred import duties for sourcing material, the Tribunal remitted the matter to the TPO for examination of the assessee’s claim and to eliminate the difference, if any.

Doowon Automotive Systems India Pvt Ltd v DCIT – TS-97-ITAT-2017 (Chny) – TP- / I.T.A. No. 692/Mds/2016 dated 25.01.2017

529. The Tribunal accepted assessee’s claim for adjustment towards difference in Lube oil price and Zinc tolling fee while benchmarking international transactions of assessee engaged in manufacture and sale of lubricant additives, noting that the comparable company viz. Lubrizol India P Ltd enjoyed better discount from IOCL (one of the JV partner for Lubrizol) in respect of price of Lube Oil and hence, cost of raw material was lower in its case as compared to the assessee and that the cost of zinc for Lubrizol was lower as it had an in-house manufacturing facility as opposed to the assessee, who had entered into sub-contracting arrangement with a third party for manufacture of zinc. Accordingly, it remitted both the issues to TPO for re-consideration with directions to work out the PLI after considering these adjustments. It also stated that the adjustment for difference in cost of zinc could be granted only if Lubrizol’s cost details were made available.

Indian Additives Ltd. Vs. DCIT TS-121-ITAT-2017(CHNY)-TP – /I.T.A.No.2579/Mds./2016 dated 17.02.2017

530. The Tribunal allowed the assessee adjustment on account of extraordinary expenditure incurred by assessee relating to ex-gratia paid to the family of employee on his death as it was a non-recurring expense and also towards extraordinary expenses pertaining to merger (i.e. press meet expenses and rent for vacated old premises as they had a direct connection with the process of merger). However, it refused adjustment towards extra salary paid for duplicate post of CEO/CFO and held that such expenses / salary paid to existing staff could not be treated as extraordinary expenditure. Further it rejected the assessee’s claim of extra-ordinary cost adjustment towards salary cost of 5,128 man hours due to the merger, which was claimed without establishing how the assessee’s business was impacted because of the acquisition.

Valtech India Systems Pvt Ltd v DCIT – TS-70-ITAT-2017 (Bang) – TP – IT. (T.P) A. No.1496/Bang/2010 dated 13.01.2017.

531. During the relevant AY, the assessee suffered an abnormal increase in the price of some of its raw – materials, mainly gold, owing to unexpected increase in price of gold (20 percent increase in price of gold) as a result of which it reduced this cost from the operating cost while arriving at the PLI margin of gross profit to sales, contending that, as the change in gold market did not coincide with the conditions prevailing when the agreement for sale of goods was entered into with the customers, it had not been able to pass on the increased cost to its customers including its AE. The aforesaid reduction in cost was denied by the TPO and on appeal restricted by the CIT(A) to 5 percent as opposed to 20 percent (as claimed by the asssessee). The Tribunal, observing that the CIT (A) had not examined the sales price charged to AE in the present and preceding year, remitted the issue to the file of the CIT (A) with directions to examine the details submitted by assessee in this regard. 

Molex Mafatlal Micron Pvt Ltd (now merged with Molex India Ltd) vs DCIT – TS-191-ITAT-2017(Bang)-TP – 1170/ Ahd/2010, 1197/Ahd/2010 etc dated 10.01.2017

532. Where the AO, dismissing the contention of the assessee(that for sales made to AEs the warranty cost thereon was incurred by the AE itself as the assessee had allegedly failed to bring any evidence on record), made an adjustment in the hands of the assessee on the ground that the assessee had included the cost of warranty on sale of cloth guiders in the sale consideration to Non-AEs while it did not do so in the case of its AE, the Tribunal relying on the decision in the assessee’s own case for AY 2007-08 and 2008-09 (TS-1059-ITAT-2016 (Ahd) – TP) remitted the issue back to the AO for decided the matter afresh after giving adequate opportunity of being heard to the assessee.

Erhardt + Leimr (India) Pvt Ltd v DCIT – TS-72-ITAT-2017 (Ahd) – TP – ITA No. 352/Ahd/2015 dated 06.02.2017

533. The Tribunal, relying on coordinate bench’s decision in assessee’s own case for AYs 2006-07 and 2007-08 deleted adjustment made on alleged excess payment made by assessee in procuring raw material from AE on the ground that payment of higher price to AE as compared to non-AE was justified considering there were minimum order quantity restrictions on Non-AE purchases. Further, relying on coordinate bench’s ruling in assessee’s own case it accepted assessee’s contention that the commission was paid for the purpose of business wholly and exclusively based on turnover and remitted issue of ALP determination in respect of sales commission paid to AE at 5% of net exports to the file of the Assessing officer to decide the matter afresh on the basis available supporting material and evidence and after providing an opportunity to the assessee to substantiate its claim.

Intimate Fashions India Pvt. Ltd vsDCIT-TS-424-ITAT-2017(CHNY)-TP-I.T.A.No.1163/Mds/2014 dated 10.04.2017

Profit Level Indicator

534. The Tribunal rejected the assessee’s contention for exclusion of expenses reimbursement in operating cost / revenue and held that the relevant expenses were incurred by the assessee in connection with providing services to its AE and therefore ought to have been included while computing operating cost / revenue irrespective of the fact that no mark-up had been charged.

AXA Business Services Pvt Ltd – TS-1032-ITAT-2016 (Bang) – TP

535. The Tribunal rejected the contention of the assessee i.e. that Rs. 17.13 lacs incurred on outsourced maintenance services to third party vendors should be excluded from the computation of total costs since no value added functions were provided by the assessee on such costs. It noted that in the instant case the costs were incurred qua third parties and ultimately was incurred towards rendering of services by assessee to its AE which fetched contracted revenue and also that they were not recovered as such from AE. Therefore, it held that pass through costs pre-supposed specific and identifiable recovery as such from its AE without any profit element and if such cost was not separately recoverable from AE and formed part of the overall contracted value, then, it would shed the character of pass through costs.

Fujitsu India Ltd v DCIT – TS-56-ITAT-2017 (Del ) – TP – I.T. (T.P) A. No.334/Bang/2013, IT. (T.P) A. No.484/Bang/2013, IT. (T.P) A. No.96S/Bang/2014, I.T. (T.P) A. No.91/Bang/2014 dated 29.11.2016.

536. The Tribunal remitted the issue of whether forex gain/loss was to be treated as a part of operating income while computing operating margin of the tested party and comparable companies to the file of AO directing it to consider forex gain as operating for computing profit percentage for ALP only if it was in respect of turnover of present year.

Akamai Technologies India Private Limited vs. DCIT-TS-757-ITAT-2017(Bang)-TP IT(TP)A No. l 122/Bang/2011 dated 08.09.2017

537. The Tribunal allowed the assessee’s appeal and held that the arbitration award payment by the assessee to DRMC on behalf of AE which was subsequently reimbursed to the assessee does not form part of cost base for margin computation as it was a mere cost to cost reimbursement, however more so since the TPO had accepted the assessee’s PLI without including the arbitration payment in the subsequent AY 2012-13.

Hyundai Rotem Company vs. ACIT-TS-924-ITAT-2017(DEL)-TP-ITA No. 510/Del./2016 dated 22.11.2017

538. The Court dismissed the appeal on whether repair and maintenance, electricity, insurance and depreciation on assets was to be included in the computation of PLI, noting that the assessee’s transaction were at ALP irrespective of inclusion/exclusion.

Pr.CIT vs Swarovski India Pvt. Ltd-TS-874-HC-2017(DEL)-TP ITA No. 419/2017 dated 04.09.2017

539. The Court, noting that Tribunal had discussed in detail the factual position regarding the sharp depreciation of Indian Rupee (INR) against the Euro (EUR) by about 16% in a short span of 6 months, i.e., February to July 2008, held that a forex fluctuation adjustment had to be carried out in accordance with the Transfer Pricing regulations so as to eliminate differences between international transactions involving comparable companies and that entered into by the assessee. Accordingly, it held that the Tribunal was correct in making the said adjustment in assessee’s hands.

Pr. CIT vs. Schneider Electric India Pvt. Ltd-TS-696-HC-2017(DEL)-TP-ITA no. 713/2017 Dated 09.07.2017

540. The Court, relying on the decision in the case of Ameriprise India (wherein it was held that forex gains earned in relation to trading items and emanating from international transactions could not be treated as non-operating in nature), held that forex gain/loss was to be treated as operating in nature.

Pr.CIT vs B.C Management Services Pvt Ltd-TS-948-HC-2017(DEL)-TP-ITA no.1064/2017 and CM no. 43177/2017 dated 28.11.2017

541. Where the TPO applied PLI on entire costs which included cost attributable to non-AEs as the well and the assessee had both the AE as well as non-AE transactions, the Tribunal held that the operating profit and operating cost relating to the AE transactions alone ought to be considered for determining the ALP and thereafter the fixed cost attributable to both the transactions ought to be apportioned. Accordingly, it remitted the TP issue for assessee engaged in rendering engineering & consulting services to AEs to the file of AO with the direction to consider only operating profit / operating cost of AE transactions.

Satyam Venture Engg. Services P) Ltd vs Dy.CIT-TS-1072-ITAT-2017(Hyd)-TP ITA No. 1464/Hyd/2014 dated 29.12.2017

542. The Court admitted asssesse’s appeal on whether Tribunal erred in coming to the conclusion that reimbursement of assessee’s expenses by AE could form part of the receipts as well as cost base of the marketing support services segment while determining operating profitability of such segment. The Tribunal had upheld CIT(A)’s inclusion of reimbursements received from AEs as part of cost base / income while determining operating margins and allocation of certain cost items on head count basis.

Pernod Ricard India Pvt. Ltd vs CIT-TS-1082-HC-2017(DEL)-TP ITA 1177/2017 dated 22.12.2017

543. Where the TPO treated the entire write back amount of Rs. 37.84 crores as non-operating income on the basis that it was a mere book entry and not connected with assessee’s business operations, the Tribunal, relying on the decision in the case of Sony India (P) Ltd – (315 ITR 50) and Gillete Diversified Operations ITA No.400/DEL/2013 (wherein it was held that if the reversal of provision / write back is on account of revenue in nature, it should be included as part of operating income and if the liabilities originally created were on account of capital items then their write back cannot be considered to be a normal instances of business and hence to be excluded as operating income), accepted assessee’s plea for inclusion of Rs. 37.49cr representing write back in connection with revenue items as part of operating profit.

Suessen Asia Private Limited (merged with Rieter India Private Limited) vs. ACIT-TS-1055-ITAT-2017(PUN)-TP ITA No.1629/PUN/2011 dated 20.10.2017

544. The Tribunal dismissed Revenue’s appeal against CIT(A)’s acceptance of assessee’s operating profit/sales (OP/sales) as PLI while benchmarking imports by assessee under TNMM. Noting that the CIT(A) had rejected OP/TC as PLI as the purchase price in total cost included purchases from AEs, the Tribunal held that there was no infirmity in the order of the CIT(A) and accordingly, dismissed Revenue’s appeal.

ACIT vs Dentsply India (P) Ltd-TS-947-ITAT-2017(DEL)-TP ITA No. 1860/Del/2009 dated 06.11.2017

545. The assessee, a wholly owned subsidiary of Mitsubishi Corporation Japan, one of the leading Sogo Shosha establishments in Japan, carried out transaction of provision of services, purchase of goods and various other transactions and used the Berry Ratio to benchmark its transactions. The TPO rejected use of Berry ratio (Gross Profit / Operating Cost )adopted by the assessee contending that the assessee performed all the critical functions, assumed significant risks and used both tangible and unique intangibles developed by it over a period of time and applied the ratio of Operating Profit / Total Cost of comparables (around 2.49%) to the FOB value of goods sourced from India & finally made a TP adjustment. The Court dismissed the appeal of the Revenue and upheld the order of the Tribunal wherein it accepted the assessee’s contention that the Berry Ratio was appropriate for benchmarking its transactions (as the assessee neither assumed any major inventory risk nor committed any significant assets for the same and as there was no value addition or involvement of unique intangibles) and remitted the issue of the TPO to benchmark the assessee’s transactions accordingly.

Mitsubishi Corporation India P Ltd. [TS-230-HC-2017(DEL)-TP – ITA 159/2017, CM APPL.6427/2017 dated 22.03.2017

546. The Tribunal directed the AO / TPO to exclude the pre-operative expenses incurred by the assessee such as rent, employee cost and administrative expenses from the computation of PLI noting that the assessee had entered into an agreement with its AE for provision of software development services on 1.04.2005 while it was granted STPI registration with effect from 30.06.2005 and therefore expenses incurred prior to the registration were to be considered as expenses for establishment of business and not for rendering services and therefore could not be considered as operating in nature.

ACIT v Amberpoint Technology India Pvt Ltd – TS-124-ITAT-2017 (Pun) – TP – ITA No.266/PUN/2012, ITA No.1862/PUN/2012 dated 15.02.2017

547. The Tribunal rejected assessee’s plea to consider operating profit before depreciation, interest and tax (PBDIT) as PLI. It held that in an asset intensive industry where revenues were driven by assets, exclusion of depreciation from profits would distort the comparability analysis. However, it directed the AO/TPO to grant a suitable adjustment in hands of comparables if assessee was able to establish that its depreciation rates were higher than that of its comparables.

Vishay Components Pvt Ltd v ACIT – TS-73-ITAT-2017 (Pun) – TP – ITA No.1712/PUN/2011 dated 10.02.2017

548. The Tribunal, relying on ruling in Welspun Zucchi Textiles Ltd. Vs. ACIT[TS-6-ITAT-2013(Mum)-TP], upheld the claim of assessee and held that export incentives were to be considered as operating income for computation of operating margins of the assessee as well as the comparable.

Carraro India Pvt Ltd v ACIT – TS-26-ITAT-2017 (Pun) – TP – ITA No.1629/PUN/2013, ITA No.1673/PUN/2013 dated 19.01.2017

549. Since the DRP’s order was cryptic in respect of forex fluctuation and risk adjustment for AY 2011-12, the Tribunal restored the matter back to the file of DRP for fresh consideration directing it to verify whether such fluctuation was in respect of turnover of the present year or of the earlier year and include it only if it was relatable to the turnover of the present year for computation of ALP. Further, in respect of risk adjustment, it directed the assessee to provide working of such claim before DRP’s adjudication on the issue.

Marlabs Software Pvt Ltd vs ACIT-TS-1002-ITAT-2017(Bang)-TP- IT(TP)A No. 588/Bang/2016 dated 08.12.2017

550. The Court, relying on the decision in the case of Cash Edge – (351 ITR 8) (wherein the coordinate bench for same AY 2010-11 had considered forex fluctuation as operating item and held that safe harbor rules which came into force after AY 2010-11 were not applicable), upheld the Tribunal’s order considering forex gain/losses as operating in nature.

Pr. CIT vs. Rolls Royce India Pvt. Ltd-TS-1066-HC-2017(DEL)-TP ITA 419/2016 & ITA 747/2016 dated 23.10.2017

551. The Tribunal held that the foreign exchange loss on account of borrowing from AE should be considered as operating expenditure for assessee engaged in manufacturing of APIs, other intermediaries and bulk drugs. However, since the assessee had failed to link exchange loss of Rs. 112.40 million with the transaction of borrowing from the assessee’s AE, the Tribunal remitted the matter to AO/TPO with the direction that exchange loss pertaining to loan transactions should be treated as non-operating while remaining amount pertaining to trading transactions to be taken as operating expenses for determination of PLI.

Teva API India Pvt Ltd (Formerly known as Teva API India Ltd.) vs. ACIT-TS-952-ITAT-2017(DEL)-TP ITA No.6706/Del/2016 dated 27.10.2017

552. The Tribunal accepted the assessee’s contention to consider ‘contract termination fee’ received from AEs as part of operating revenue for AY 2010-11 and held that the contract termination fee was in effect compensating the assessee for the expenses incurred by it for executing the contract partially and therefore was to be considered as operating revenue. It observed that the assessee, on execution of contract for rendering software development services, would have received full consideration from AE, whereas contract termination fee was paid on similar lines, but proportionately owing to premature contract termination.

Invensys Development Centre India Pvt Ltd v DCIT – TS-125-ITAT-2017 (Hyd) – TP – ITA No.329/Hyd/2015, ITA No.318/Hyd/2015 dated 23.02.2017

553. The Tribunal held that provision for bad and doubtful debts was to be considered as operating expenses and accordingly remitted the issue of the AO to re-compute the margins of the assessee and comparables treating the same as operating expenses.

ITO v Intoto Software (India) Pvt Ltd – TS-42-ITAT-2017 (Hyd) – TP – ITA No 1921/Hyd/14, ITA No 25/Hyd/15 dated 31-01-2017

554. The Tribunal upheld the CIT(A)’s approach of considering cost of raw-material obtained from its AE as pass through cost and directed its exclusion from operating cost as well as operating revenue for computing GP margin under Cost Plus Method (CPM), observing that AE had supplied raw material kits which were to be re-exported to AE after assembling and partial testing and that there was a prior binding obligation on part of the assessee for returning the same raw kits in their finished form to the AEs. Thus, it held that assessee’s duty was confined only to rendering services (testing etc.) on the raw kits and that there was no profit element involved. It also took note of method of accounting followed by assessee whereby purchase price of kits received from AE was recorded separately, and though no separate amount was paid to the AE, the same was ultimately adjusted against export price receivable from AE on re-export.

Akon Electronics India Pvt. Ltd vs. DCIT – TS-105-ITAT-2017 (Del) – TP – ITA No.4804/Del/2009, ITA No.4837/Del/2009 dated 15.02.2017

555. The Tribunal dismissed the contention of the Revenue that foreign exchange loss was to be considered as non-operating expense relying on Safe Harbour Rules, wherein foreign exchange loss and income had been excluded from the calculation of operating expense and income respectively and relying on the ruling of Westfalia Separator India (P.) Ltd. vs. ACIT [TS-220-ITAT-2014(DEL)-TP], held that the safe harbor rules were notified on 18.09.2013, and hence were not applicable to the subject AY and accordingly held that foreign exchange loss was required to be treated as operating in nature. 

St-Ericsson India Private Limited vs Addl CIT – TS-119-ITAT-2017(DEL)-TP – ITA No.1672/Del./2014 dated 22.02.2017

556. The Tribunal held that the foreign exchange loss arising due to reinstatement of foreign currency in accordance with accounting standards was to be treated as operating in nature. It placed reliance on the ruling of CIT Vs. Pentasoft Technologies Ltd [TS-123-HC-2010(MAD)] wherein it was held that Section 10A benefit would be granted in respect of foreign exchange gain as the gain arose on account of export operations of the assessee, and accordingly held that foreign exchange loss was operating in nature.

Infac India P. Ltd vs DCIT – TS-120-ITAT-2017(CHNY)-TP- I.T.A.No.3182/Mds./2016 dated 17.02.2017

557. The Tribunal, allowing Revenue’s appeal set aside DRP’s order directing the inclusion of forex gain/loss in operating income on the ground that the DRP had erred in including forex gain/loss as operating in nature without ascertaining the nexus with assessee’s business activity. Further, it accepted Revenue’s argument that the DRP had erred in granting risk adjustment arbitrarily without appreciating the facts of the case and the comparables and directed the AO to pass a reasoned order with respect to granting of risk adjustment bringing out the facts of the case and giving due regard to to its comparables. The Tribunal found merit in assessee’s argument that the DRP had erred in law and on facts in application of inappropriate qualitative filters such as rejection of comparable companies having related party transactions greater than 25% of the sales and inconsistent comparability criteria (i.e using current year data for some comparables and using multiple year data for others) and therefore set aside the ground to the file of the TPO to apply appropriate filters and redo the assessment in accordance with law.

Symbol Technologies India Private Limited – TS-19-ITAT-2017(Bang)-TP

558. The Tribunal partly allowed Revenue’s appeal for AY 2004-05 and AY 2005-06 on the ground that foreign exchange gain was no doubt part of operating profit if it was related to collection of sale proceeds, however, it could not be considered if it arose on account of turnover of earlier year. Further, it accepted revenue’s contention of not allowing 5% standard deduction as the price charged by the assessee fell beyond 5% in view of the subsequent amendment in the provisions of section 92C.

Synova Innovative Technologies Pvt Ltd – TS-1068-ITAT-2016(Bang)-TP

559. The Tribunal allowed the adjustment in the PLI of the assessee i.e. tested party, towards the abnormal loss of Rs.2.22 crore arising out of cancellation of forward contracts due to sharp decline in the value of the Indian rupee vis-à-vis the US Dollar. It held that the material difference had arisen due to an abnormal feature qua the assessee which was absent in the case of comparables and since there is no provision in Rule 10B requiring comparability adjustments to be made only to the PLI of comparables, it directed for the adjustment to be made in the PLI of the assessee / tested party. Considering the fact that there was a difficulty in ascertaining the foreign exchange loss / gain of the comparable companies as the information available in the public domain was not complete, it held that making an adjustment of comparable margins with partial information would lead to absurdity / unscientific analysis. Though it agreed with the in-principle contention of the Revenue, that the hedging loss arising in the normal course of business was to be given the same treatment as the loss or gain in underlying transactions i.e. to be included in operating cost, it held that in the absence of evidence demonstrating similar kind of loss in the hands of the comparable companies it was to be treated as an abnormal loss and therefore was to be excluded from the PLI of the assessee.

Pangea3 & Legal Database Systems Pvt Ltd – TS-148-ITAT-2017 (Mum) – TP dated 06.03.2017

560. The Tribunal agreed with the contention of the assessee that foreign exchange losses were to be treated operating expenses and rejected the Revenues contention that as per the Safe Harbour Rules, foreign exchange loss and income was to be excluded from the calculation of operating expense and income respectively.  Relying on the decision of Westfalia Separator India (P.) Ltd. vs. ACIT [TS-220-ITAT-2014(DEL)-TP], it held that since the safe harbor rules were notified on 18.09.2013, they were not applicable to the subject AY and accordingly, the foreign exchange loss was required to be treated as operating in nature. 

St-Ericsson India Private Limited vs Addl CIT – TS-119-ITAT-2017 (Del) – TP – ITA No.1672/Del./2014 dated 22.02.2017

561. The Tribunal remitted the issue regarding treatment of abnormal loss on account of cancellation of orders as extraordinary cost under Cost Plus Method (CPM) for AY 2006-07 to the TPO / AO and held that the assessee (an exporter of ready-made garments) had failed to prove actual loss incurred on the basis of concrete evidences. Noting the contention of the assessee that in January 2005, export orders from one of its biggest buyers were cancelled because of the buyer going bankrupt, which led to loss of Rs. 2.4 Cr on account of revaluation of raw material inventory at present realisable scrap value, it held that extraordinary costs which were beyond assessee’s control and unrelated to sale of goods, were to be excluded from direct / indirect cost, however it observed that assessee had neither shown such extraordinary expenditure in its P&L A/c / schedules as specifically required by accounting standard nor had it furnished details regarding cancellation of order, realisable value of materials or how valuation loss of Rs. 2.4 Cr was determined. It also noted that the assessee was also supplying goods not only to that buyer but also to 3 other AEs, whereas it was not proved whether raw material was purchased for supply to that buyer only. Accordingly, it directed the assessee to furnish all this information to justify its claim and also to show the nature and extent of extraordinary loss incurred by the assessee with evidences.

Cornell Overseas P Ltd Vs DCIT – TS-1092-ITAT-2016(DEL)-TP – ITA No.1158/Del/2014 dated 24.10.2016

562. The Tribunal held that foreign exchange fluctuation gain or loss arising from realization of sales made during the year would be considered as operating in nature. Accordingly, it remitted the issue to AO/TPO for verify the source of such gains / losses.

Dhanya Agroindustrial Pvt. Ltd. Vs DCIT – TS-168-ITAT-2017(Bang)-TP- I.T.(T.P) A. No.161/Bang/2016 dated 08.03.2017

563. The Tribunal accepted the contention of the Revenue and held that only foreign exchange fluctuation gains/losses in respect of the sale proceeds of the current year could be considered as operating in nature and not on account of realization of sale of earlier years. Accordingly, it set aside the issue to the record of AO/TPO for re-computing the margins. 

Logix Microsystems Ltd. vs. DCIT – TS-181-ITAT-2017(Bang)-TP – IT. {T.P} A. No.280/Bang/2014 dated 22.02.2017.

ACIT v Bateman Engineering Pvt Ltd – TS-192-ITAT-2017 (Bang) – TP – IT (TP) A No.495 (Bang) 2015 dated 17-02-2017

564. The Tribunal held that foreign exchange fluctuation gains arising out of earlier years turnover was to be excluded from the operating profit while computing the PLI as it would be absurd to include the same if the related turnover was not included in the denominator. Accordingly, in the absence of details as to whether the gain arose on account of current year’s turnover of earlier year’s turnover, it remitted the issue to the file of the AO / TPO for verification.

Commscope Networks (India) Private Ltd. (Earlier known as Airvana Networks (India) Private Ltd.) Vs ITO – TS-161-ITAT-2017(Bang)-TP – IT (TP) A No.166 (Bang) 2016 dated 22.02.2017

565. The Tribunal, held that foreign exchange loss / gain arising on account of realization of sales / exports was operating in nature but noting the contention of the Revenue it held that the issue required verification as to whether such gain or loss pertained to the sales made during the year under consideration or earlier year and accordingly, set aside the issue for verification. 

DCIT vs. Informatica Business Pvt. Ltd – TS-212-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1285/Bang/2014 dated : 17.03.2017.

566. The Tribunal allowed Revenue’s appeal w.r.t treatment of forex gain and held that forex gain/loss had to be treated as operating income while computing the margin of the current year if such gain was in respect of the turnover of the current year. It observed that the lower authorities had not given a finding on this aspect and accordingly remitted the matter to the file of the AO/TPO with the direction that assessee should establish that the foreign exchange gain was earned by the assessee in the current year for the purpose of computing operating margin.

DCIT vs ABB Global Services Pvt Ltd-TS-501-ITAT-2017(BANG)-TP- IT(TP)A No.49 and 97/B/2014 dated 05.05.2017

567. The Tribunal rejected Revenue’s contention that definition of ‘operating cost’ & ‘operating revenue’ under Rule 10TA (Definitions in respect of Safe Harbour Rules for International Transactions) should be adopted for Rule 10B & Sec. 92 and held that such definition under Rule 10TA was for a specific purpose. Accordingly, it held that the forex gain on AE-receivables on account of services rendered by assessee (captive service provider designing transformer components etc. under the projects provided by AE) was to be considered as operating revenue for computing assessee/comparables margin for AY 2009-10.

Virginia Transformer India P. Ltd vs. ITO-TS-651-ITAT-2017(DEL)-TP-ITA No. 1001/del/2014 dated 31.07.2017

568. The Tribunal, following the decision of co-ordinate bench in assessee’s own case for AYs 2009-10 and 2010-11 [TS-80-ITAT-2015(Mum)-TP], allowed assessee’s appeal and held that loss/gain on account of foreign exchange fluctuation had to be considered as operating in nature

Hapag-Llyod Global Services Private Limited-TS-676-ITAT-2017(Mum)-TP-ITA No. 2190/mum/2017dated 18.08.2017

569. The Tribunal held that for the purpose of computing profit margin under Rule 10B(1)(e) there could be any denominator such as cost incurred or sales effected or assets employed, however the numerator ought to be the net operating profit as against the net profit adopted by the TPO as the net profit would factor in non-operating expenses as well.

ACIT vs. Progressive Tools & Components Pvt. Ltd – TS-200-ITAT-2017(DEL)-TP –

570. The Tribunal, noting that the assessee had debited provision of doubtful debts to the P&L A/c and had also claimed the same in its computation of income on the basis of amount written-off during the year, dismissed the contention of the assessee that the provision for doubtful advances debited to P&L A/c was a non-operating expense which ought to be excluded while computing the operating cost. It held that once the amount was allowed as a written off claim, then it would be part of the operating cost. Noting that the TPO had excluded provision for doubtful debts from the operating margins of comparables, it held that the exclusion of doubtful debts in the case of comparables would also depend on whether the amount was actually written off and claimed as an allowable revenue expenditure u/s 36(1)(vii). Accordingly, it remitted this issue to AO/TPO for verification of relevant facts and directed exclusion of this expenditure from operating cost in the case of both the assessee as well as the comparables only if it was found to be only a provision and not a write-off. 

VMware Software India Pvt. Ltd. Vs DCITTS-71-ITAT-2017(Bang)-TP -LT. (T.P}A. No.1311/Bang/2014 dated 6.1.2017

571. The Court, noting that Tribunal had discussed in detail the factual position regarding the sharp depreciation of Indian Rupee (INR) against the Euro (EUR) by about 16% in a short span of 6 months, i.e., February to July 2008, held that a forex fluctuation adjustment had to be carried out in accordance with the Transfer Pricing regulations so as to eliminate differences between international transactions involving comparable companies and that entered into by the assessee. Accordingly, it held that the Tribunal was correct in making the said adjustment.

Pr. CIT vs. Schneider Electric India Pvt. Ltd-TS-696-HC-2017(DEL)-TP-ITA no. 713/2017 Dated 09.07.2017

572. The Tribunal upheld the directions of the DRP excluding assessee’s Solar Test (ST) activity costs from operating costs while computing the PLI as they were extra-ordinary in nature. It noted that the assessee had undertaken trial runs for production of solar receiver tubes during AY 2010-11, and subsequently, the economic conditions had turned unviable creating uncertainty in demand, owing to which, assessee had stopped the production of tubes and that the solar test trails, carried out by assessee during the period 09.10.2009 to 23.11.2009, were an exception to its regular business of producing tubes for pharmaceutical packaging. Accordingly, it held that the costs incurred on the impugned activity could not be treated as operating in nature. Further, it held that the provision of Rs. 13.9 Cr for impairment of assets used in the t rial made by the assessee as per AS-28 was also to be considered as an extra-ordinary cost.

ITO vs. Schott Glass India Pvt. Ltd. – TS-166-ITAT-2017(Mum)-TP – I.T.A./1867/Mum/2015 dated 08.03.2017

573. The Apex Court admitted the Revenue’s SLP against order of the Delhi High Court wherein the High Court had held that for the purpose of computing PLI of OP/TC, the denominator had to be total costs incurred by assessee and not the FOB value of goods sourced through the assessee as the Act did not authorize broadening of the cost base in such circumstances and dismissed the appeal of the Revenue holding that no question of law arose. Since the same issue had arisen in earlier years as well, the Apex Court directed that this case would be heard along with earlier year appeal and other connected matters.

Pr. CIT vs. Li and Fung (India) Pvt Ltd – TS-223-SC-2017-TP – Petition(s) for Special Leave to Appeal (C)……CC No. 5274/2017 dated 24.03.2017

574. Where the assessee was allowed working capital adjustment, the Tribunal held that the CIT(A) was justified in not considering interest received on delayed payments from AE as operating income. Syniverse Teledata Systems Pvt. Ltd (Formerly known as MACHTeledata systems Pvt. Ltd) vs. DCIT – TS-217-ITAT-2017(Bang)-TP – IT (TP) A No.1363 (Bang) 2014 dated 15.02.2017

575. The assessee, a wholly owned subsidiary of Mitsui & Company Pvt Ltd., Japan engaged in providing sales support services and liasoning services to its Associated Enterprises (“AEs”) with regard to the exports and imports of the commodities from its AE to / from India used TNMM as the MAM for determining ALP of its international transactions and adopted the Berry Ratio i.e. Gross Profit / Operating Cost as PLI but the TPO re-characterized the service and commission activities of the assessee as its trading segment and also rejected the comparables selected by assessee thereby inflating the assessee’s total cost by Rs 4,541cr in AY 2009-10 and Rs 5,924cr in AY 2010-11 by including the value of sale / purchases on which it earned commission income, ignoring the fact said value was recorded as sale / purchase by AEs and was never a cost to assessee. The Tribunal, relying on the decision of the co-ordinate bench, in assessee’s own case for AY 2007-08 and 2008-09 rejected the TPO’s recharacterisation and held that the computation of the operating profit margin by increasing the cost led to an arbitrary adjustment of assessee’s income and was contrary to the Rules and the provisions of the Act. The Court upheld the order of the Tribunal. Further, noting that the Tribunal had observed that when the value of the goods on which commission/ service income was earned was not to be added to the cost base, the assessee’s international transactions computed by using TNMM as MAM and Berry Ratio (Gross Profit / Operating Cost) as PLI was at arm’s length, the Court dismissed the appeal of the Revenue and held that no substantial question of law arose.

Mitsui & India Pvt. Ltd. [TS-174-HC-2017(Del)-TP] [ITA 788 & 789/2016]

576. Where the Tribunal had upheld use of Berry Ratio (i.e. Gross Profit / Operating Cost) under TNMM for benchmarking international transactions of purchase of goods, provisions of services etc. undertaken by ‘Soga Shosha’ assessee, but remitted matter back to TPO to determine outcome in line with legal principles, the Court dismissed the Revenue’s appeal against Tribunal order by relying on the decision of the co-ordinate bench of Court for a different AY, wherein the Court had declined to interfere with remand order in assessee’s appeal. Accordingly, it held no substantial question of law arose.

CIT vs. Mitsubishi Corporation India (P) Ltd – TS-230-HC-2017(DEL)-TP – ITA 159/2017, CM APPL.6427/2017

577. The Tribunal, following the decision of Capital One Services India P. Ltd [TS-214-ITAT-2015(Bang)-TP], held that donation was to be treated as a non-operating item as it was not in nature of normal business activity.

ACIT vs. Curam Software International P. Ltd – TS-244-ITAT-2017(Bang)-TP – IT(TP)A.499 & CO.136/Bang/2015 dated : 21.03.2017

578. The Tribunal, relying on its decision in the case of Techbooks International Pvt Ltd (TS-317-ITAT-2015 (Del) – TP) dismissed the appeal of the Revenue challenging the order of the CIT(A) wherein the CIT(A) had accepted the assessee’s claim of including the foreign exchange gains / loss while computing its PLI as well as while computing the PLI of comparable companies. It noted that the foreign exchange loss and gains were in respect of revenue items.

ITT Corporation India Pvt Ltd – TS-245-ITAT-2017 (Ahd) – TP – IT(TP)A No. 552/Ahd/2016 dated March 28, 2017

579. The assessee had suffered forex loss to the tune of Rs. 2.66 Cr on account of cancellation of forward contracts. The Revenue argued that assessee had entered into forward contracts to cover the loss that could arise, if payments were delayed, and since 88% of assessee’s revenue was from AEs, the foreign exchange loss ought to have been considered as operational in nature. The Tribunal followed the decision in Pangea3 & Legal Database Systems Pvt. Ltd. [TS-148-ITAT-2017(Mum)-TP], and held that entering into forward contracts for covering the risks of exchange rate fall was a normal business transaction, and further, extraordinary fluctuations could warrant an adjustment if it could be demonstrated that such a phenomena was absent for comparable cases. Since the assessee had not demonstrated extraordinary forex fluctuations on the basis of comparable cases, the Tribunal accepted the contention of the Revenue and considered the foreign exchange loss/gain as operating in nature.

Saipem India Projects Limited Vs DCIT – TS-308-ITAT-2017(CHNY)-TP – ITA Nos.985 & 1400, CO 79/2014 dated 05.04.2017

580. The Tribunal noted that the TPO included depreciation as part of operating cost while working out PLI for assessee, but excluded the same while working out comparables’ margin. Relying on Bombay High Court decision in Welspun Zucchi Textiles Ltd  [TS-9-HC-2017(BOM)-TP]  it held that depreciation was required to be considered as part of operating cost for computing PLI and therefore directed the AO/TPO to recompute PLI of comparable companies after considering depreciation as part of operating costs.

Further, it noted that the TPO had excluded duty drawback of Rs. 73.17 lakhs and scrap sale f 23.04 lakhs from operating profit of the assessee while computing PLI. Relying on Welspun Zucchi HC (supra), the Tribunal held that duty drawback was to be considered as part of operating profits.  Thus, it directed AO/TPO to recompute PLI of assessee as well as comparables by considering duty drawback and sale of scrap as part of operating profit.  

Behr India Limited [TS-320-ITAT-2017(PUN)-TP] – ITA No. 566/PUN/2013 dated 21.04.2017

581. The Court dismissed the Revenue’s appeal against the order of the Tribunal treating reimbursement received by assessee towards advertisement, marking and promotion expenses as operating in nature. It noted that the similar issue had arisen in AY 2002-03, wherein its co-ordinate bench had taken the same view and therefore held that no substantial question of law arose warranting any interference.

Pr. CIT vs. Samsung Electronics India Information & Telecommunications Ltd – TS-324-HC-2017(DEL)-TP – ITA 305/2017 dated 18.04.2017

.

582. The Court upheld the order of the Tribunal directing the AO/TPO to exclude reimbursement of costs (without mark-up) from AE in respect of spare infrastructure capacity while working out assessee’s PLI for AY 2011-12. It distinguished the decision of Cushman and Wakefield (India) (P.) Ltd [TS-150-HC-2014(DEL)-TP], which provided that the reimbursement was to be included while computing PLI as the said case pertained to reimbursement by an Indian entity for costs incurred by AE and not  vice versa as in assessee’s case. It also observed that there was no categorization of the reimbursement costs (with/without markup) in Cushman & Wakefield ruling as in instant case. Noting that the Tribunal had examined agreement with AE to come to a definite factual conclusion as regards reimbursement of the infrastructure costs without any mark up, it rejected the Revenue’s general plea that order of the Tribunal was ‘perverse and bad in law’ as it had failed to consider reasons provided in TPO/DRP’s order. Accordingly, it dismissed the Revenue’s appeal absent any substantial question of law.

Pr. CIT vs. CPA Global Services Private Limited – TS-329-HC-2017(DEL)-TP – ITA 266/2017 dated 03.05.2017

583. The Tribunal accepted the plea of the assessee for exclusion of forex gain / loss from operating items, noting that the content of raw material imported was low in case of comparables because of which they were not impacted as much by currency fluctuations, and that in any case the impugned year was an extraordinary year of depreciating rupee.

Relying on the decision of the Tribunal in Motonic India Automotive, it opined that forex fluctuations gains / losses ought to be excluded from the operating incomes / expenses and thus remitted this ground to AO for fresh consideration.

Gates Unitta India company P Ltd. Vs DCIT TS-360-ITAT-2017(CHNY)-TP – /I.T.A.Nos.1041/Mds./2014 dated 26-04-2017

584. The Tribunal directed the consideration of foreign exchange gain arising out of current year’s turnover as part of operating revenue for AY 2005-06 and directed the assessee to furnish complete details before CIT(A) regarding sale against which forex gain had been received. Further, the Revenue had argued that CIT(A) had erred in considering assessee’s nature of business as construction activity when the assessee was actually providing managerial support services. Referring to the order of CIT(A), the Tribunal observed that the CIT(A) had decided the issue considering the assessee to be engaged in the provision of management and supervisory services and thus the Revenue had filed the appeal in the wrong impression that the CIT(A) had considered the assessee as engaged in construction activity.

Sunway Construction India Pvt Ltd-TS-342-ITAT-2017(Bang)-TP-IT(TP)A No.1190(bang) dated 23.05.2017

585. The Tribunal rejected Revenue’s contention that the CIT(A) had erred in holding foreign exchange loss or gain, amortization expenses of pre-operative and preliminary expenses, forex losses, bad debts written off and fixed assets written off etc. as part of operating cost, when TPO had excluded it from the comparables. CIT(A) had held that such expenses were in the natural course of business and therefore their exclusion for the purpose of calculation of operating profits would not be in line with audited accounts. While upholding the order of the CIT(A), the Tribunal remitted the matter to the AO/TPO to reexamine as to whether there was any calculation error adopted by the CIT(A)/TPO in applying the principles and make suitable correction after affording due opportunity to the assessee.

Swiss Re Shared Services (India) P Ltd vs DCIT-TS-352-ITAT-2017(Bang)-TP I.T(TP).A.No.1139/bang/2011 dated 03.05.2017

586. The Tribunal, relying on the decision in the case of Fiserv India Pvt Ltd [TS-437-HC-2016(DEL)-TP], held that the exchange gain/loss arising on account of realizing sales, payment to suppliers was to be treated as part of operating revenue/operating cost. It noted that nothing was brought on record to establish that the foreign exchange loss was on account of revenue items and therefore remanded the matter back to the AO/TPO directing him to examine whether loss was arising on account of revenue items, and if so, directed him to treat it as part of operating cost for the purpose of computing the operating margins of the company.

FCG Software Services (India) Pvt Ltd [TS-409-ITAT-2017(Bang)-TP IT(TP)A No. 994 /bang/2011 dated 21.04.2017

587. The Tribunal directed the AO to exclude recovery of advance written off from operating profit for comparing ALP, relying on the decision in the case of Logica Private Ltd (Bang)-TP- ITA No.1129/bang/2011. Further, it remitted the issue of non-allowance of adjustment in respect of extraordinary forex loss suffered by the assessee as against comparables by relying on the decision in the case of Motonic India Automotive (P.) Ltd and held that exchange rate was subject to fluctuation due to economic conditions and while determining the ALP, such factors had to be considered. Further, it also excluded Nitin Fire Protection Industries Ltd from the set of comparables on the ground that its major income was from project related activity.

R Stahl Private Limited [TS-377-ITAT-2017(CHNY)-TP] I.T.A No.2745/Mds/2016 dated 19.04.2017

588. The Tribunal, relying on the decision in the case of Motonic India Automotive, allowed custom duty adjustment in principle in respect of assessee’s manufacturing segment for AY 2009-10, noting the fact that the raw material import content of the assessee was 99% as against 30% import content for comparable companies. It held that the custom duty was to be eliminated from comparable price also to arrive at the correct PLI in order to arrive at correct PLI in order to bring uniformity and therefore remitted the issue to AO for fresh consideration. Further, it excluded one company from list of comparables noting that it used raw material re-cycled from worn out tyres and tread peelings and thus had an inferior product compared to that of the assessee.

Gates Unitta India Company P Ltd -TS-360-ITAT-2017(CHNY)-TP-.ITA Nos 1041/Mds./2014 dated 11.05.2017

589. The Tribunal held that foreign exchange gain/loss arising during the year on account of fluctuation of foreign exchange rate in respect of export realization would form part of operating revenue or cost as the case may be.

Goldman Sachs Service Pvt Ltd [TS-430-ITAT-2017(Bang)-TP] IT(TP)A No. 66IBang/2014

590. The assessee’s AE had provided the assessee with fixed assets free of cost basis and had also provided the assessee’s employees with stock options without charging the assessee any amount. Further, it also rendered administrative and management support (generally made available to the companies belonging to the Group) to the assessee, for which no amount was charged from the assessee. Noting that the assessee earned revenue at a mark-up of its total cost, the TPO alleged that the assessee had intentionally suppressed its cost by not making any payment for the aforesaid expenses and therefore, in-turn, suppressed its revenue. Accordingly, he proposed to include the amount representing the aforesaid expenditures (depreciation in the case of the fixed assets) in the value of total cost for the purpose of determining ALP which led to an adjustment of Rs 2 crores due to the corresponding increase in revenue.  Vis-à-vis the stock options provided free of cost by the AE, the Tribunal relying on the decision of various co-ordinate benches, held that the value of such costs was not operating in nature and therefore it could not be included in computing the total cost of the assessee. With regard to the other costs i.e. depreciation on fixed assets free of cost and administrative and management support services, the Tribunal opined that since the assessee’s revenue was earned as a mark-up of cost, the TPOs allegation i.e. that the assessee’s costs had been suppressed required examination. Noting that the lower authorities had not examined the alleged suppression in costs, it remitted the issue to the file of the AO / TPO.

i2 Technologies Software Pvt Ltd vs CIT -TS-475-ITAT-2017(Bang)-TP- IT(TP)A Nos. 1207 and 274(B)2014 dated 06.04.2017

591. The Tribunal held that the for the purpose of computing the margins for the assessment year the gain or loss pertaining to exports made during the year under consideration had to be taken into account as operating revenue or cost. It held that if the foreign exchange gain/loss arising on account of fluctuation of foreign exchange rate was in respect of export realization then the same would be part of operating profit or cost as the case may be. Accordingly, it directed the AO/TPO to compute the operating margins of the assessee as well as comparable companies after considering forex fluctuation gain/loss on account of exports made during the year.

DCIT vs Goldman Sachs Service Pvt Ltd – TS-430-ITAT-2017(Bang)-TP- IT(TP)A No.66/bang/2014 dated 05.04.2017

592. The Tribunal relying on the decision in the case of SAP Labs [TS-61-ITAT-2010(Bang)-TP] held that foreign exchange loss/gain was to be considered as operating in nature and directed the DRP to consider them as part of operating income/expenses only to the extent pertaining to international transactions entered during the year under consideration.

Obopay Mobile Technology India Private Ltd vs DCIT-TS-493-ITAT-2017(Bang)-TP-IT(TP)A Nos. 238 & 553/bang/2016 dated 28.04.2017

593. The Tribunal upheld the DRP’s view that forex fluctuation gain/loss is operating in nature and was to be considered for computing assessee and comparables margin while determining ALP. However, relying on the decision in the case of Synova Innovative Technologies Pvt Ltd [TS-1068-ITAT-2016(BANG)-TP], it also clarified that if the fluctuation of foreign exchange, either gain or loss, was on account of the sale proceeds booked in the earlier Financial Year, then the same could not be considered as part of the operating margin of the current assessment year. Accordingly, it held that since in the present case, the turnover of the earlier year had already been taken into consideration for benchmarking the profit margin of the earlier year, the foreign exchange gain resulting from such turnover could not be considered for calculation of operating margin of the current assessment year.

ACIT vs Swiss Re Shared Services (India) Pvt Ltd-TS-504-ITAT-2017(BANG)-TP-IT(TP)A No 630/bang/2016 dated 13.04.2017

594. The Tribunal, relying on the decision in the case of Techbooks International Pvt Ltd [TS-317-ITAT-2015(DEL)-TP] directed the TPO to treat the provision for doubtful debts in case of comparables viz. BVG India Ltd and Cameo Corporate Services Ltd as in operating nature. Noting that Revenue had not disputed that assessee’s provision of doubtful debts was excessive and concurring with DRP’s direction to have consistent treatment vis-à-vis the assessee and comparables, it held that provision for doubtful debts should be treated as operating. TPO had excluded provision for doubtful debts in case of these 2 comparables treating it as an extraordinary event on the basis that it appeared in their financials for the first time.

Adidas Technical Services Pvt Ltd vs DCIT-TS-507-ITAT-2017(DEL)-TP-ITA No.412/del/2017 dated 18.05.2017

595. Where the assessee benchmarked its international transactions viz. provision of software development services under TNMM and allocated its indirect costs to the software development segment based on manpower and turnover and the TPO accepting the application of TNMM disputed the allocation of indirect costs as done by the assessee, proceeded to benchmark the transactions based on the gross profit margins of the assessee and the comparables, the Court upheld the order of the Tribunal and CIT(A) accepting the benchmarking conducted by the assessee and dismissed Revenues appeal. It held that the computation of PLI being a factual issue did not constitute a substantial question of law.

Pr.CIT vs Network Programs India Ltd-TS-883-HC-2017(DEL)-TP ITA 883/2017 dated 07.11.2017

Restrict adjustment to AE transactions

596. Where in the second of proceedings the assessee in respect of computation of adjustment of manufacturing activity contended that the TPO/DRP had erroneously benchmarked the transactions with AE at entity level ignoring the fact that the transactions with AEs were required to be benchmarked adopting the basis of proportionality, the Tribunal, relying on the coordinate bench’s ruling in assessee’s own case for AY 2006-07 to 2008-09 wherein the principle of proportionality against entity level benchmarking was approved. Held that applying the principle of consistency, the ground raised by assessee is allowed.

Demag Cranes & Components (India) Pvt Ltd-TS-892-ITAT-2017(PUN)-TP ITA No.328/PUN/2014 dated 11.11.2017

597. The Tribunal remitted the issue of computation of arm’s length cost for onsite services rendered to assessee by its AE to the file of TPO. Noting that the TPO while computing the arm’s length cost had first determined the total arm’s length cost of the entire revenue of the assessee and then divided in proportion to transactions with the related party and non-related party, it accepted assessee’s contention that TPO instead should have calculated ALP of costs of international transactions only and should have taken into account, details furnished by assessee to show that TPO’s methodology resulted in excess adjustment of Rs. 60.53 lakhs.

Altimetrik India Pvt Ltd vs ACIT-TS-856-ITAT-2017(Bang)-TP- I.T.(T.P)A. No.1294/Bang/2010 dated 25.10.2017

598. The Tribunal, relying on its earlier and subsequent year’s orders in the case of the assessee, held that where the assessee had maintained segmental profits that were used for the purpose of claiming deduction under section 10A, the TPO erred in computing TP adjustment on the entire turnover of the assessee which included transactions with non-AEs. Accordingly, it directed the AO / TPO to make adjustments only to the extent of transactions with AE and exclude the adjustment on transactions with non-AEs.

TNS India Pvt Ltd v ACIT – TS-45-ITAT-2017 (Hyd) -TP – I.T.A. No. 1927/HYD/2011 dated 06-01-2017

599. The Tribunal held that the TPO erred in making adjustment under TNMM on the entire turnover of the assessee and that the adjustment should only be made on the international transactions undertaken by the assessee. Further, it held that movement in Work-in-Progress was to be considered for computing the operating margin of the assessee. Accordingly, it directed the AO / TPO to make adjustments only to the extent of transactions with the AE and exclude the adjustment on transactions with Non-AEs and to re-compute the correct margin.

TNS India Pvt Ltd v ACIT – TS-45-ITAT-2017 (Hyd) – TP

600. The Tribunal upheld the CIT(A)s restriction of the TP addition exclusively to AE transactions relating to purchase of raw material and components. However, it observed that the while segregating the purchases made from AEs from the entity level transactions, the CIT(A) had also included the value of international transaction relating to purchase of machinery / spares, against which no TP-addition had been made. Accordingly, it suggested two options for segregation – i) apportioning the total operating profit in the ratio of `utilized raw material purchased from the AEs’ and `utilized raw material purchased from non-AEs’ (Opening stock of raw material + Purchases– Closing stock) or ii) Deducing the share of operating profit from the `utilized raw material purchased from AEs’ by dividing the amount of `utilized raw material purchased from AEs’ with overall amount of `utilized raw material purchased from AEs and non-AEs and remitted the matter to the file of the AO / TPO for re-computation of AE transactions in line with its suggestions.

Hi Lex India Pvt Ltd – TS-152-ITAT-2017 (Del) – TP – ITA No.2036/Del/2014 dated 03.03.2017

601. The Tribunal, relying on the decision of the Bombay High Court in CIT Vs Hindustan Unilever Limited [TS-538-HC-2016(BOM)-TP]held that transfer pricing adjustments ought to be restricted to the international transactions only and it could not be applied to uncontrolled transactions. Accordingly, it directed the AO/TPO to restrict adjustment on account of ALP to the extent of the transactions with AE only.

Cornell Overseas P Ltd Vs DCIT – TS-1092-ITAT-2016(DEL)-TP – ITA No.1158/Del/2014 dated 24.10.2016

602. The Tribunal deleted TP-adjustment made at entity level in respect of international transactions entered into by assessee, engaged in manufacturing and trading of tractors/its parts, holding that the TP adjustments had to be made only with respect to international transactions with AEs and not at entity level. Noting that by working out proportionate adjustment on the basis of AE sales to total sales of tractor division, assessee had claimed that entity level transactions could be segregated into AE and non-AE segments, relying on the decision in the case of Bombay HC in the case of Alstom Projects India [TS-758-HC-2016(BOM)-TP], it held that the absence of segmental accounts did not warrant entity wise adjustment and that the absence of segmental data was not an insurmountable issue and proportionate basis could be adopted.

New Holland Fiat (India) Pvt Ltd vs DCIT- TS-356-ITAT-2017(Mum)-TP – I.T.A No. 7574/Mum/2012 dated 03.05.2017

603. The Tribunal directed the TPO to restrict TP-adjustment only in respect of assessee’s international transaction of purchase of components from AE and not assessee’s entire turnover for AY 2005-06.. The Tribunal held that the action of the TPO was illegal and arbitrary and the adjustment was to be made only in respect of international transaction of purchase of components from its AE and not the entire turnover. Further, it remitted the comparability of Remi Process Plant & Machinery Ltd to the file of TPO/AO for fresh consideration. The CIT(A) had excluded the comparable since its selling price was higher than 5% margin adopted by TPO. The assessee submitted that if the extraordinary item of late delivery charges was excluded from sales expenses, Remi Process would be comparable to the assessee. Accordingly, the Tribunal held that contention of the assessee required fresh examination and restored the matter to the file of AO/TPO for fresh adjudication.

IMA PG India Limited (Formerly known as Precision Gears Ltd) vs Addl.CIT-TS 517-ITAT-2017(Mum)-TP-ITA Nos. 6960 & 7650/M/2010 dated 26.04.2017

604. The Tribunal, relying on the decision in the case of Kshema Technologies Ltd [TS-182-ITAT-2016(BANG)], held that the use of entity level margin for the purpose of benchmarking international transactions was not permissible as per the provisions of Transfer pricing under chapter X of the Act. Accordingly, it remitted the TP-issue in respect of assessee (engaged in the development of computer software and providing other related services) to the AO/TPO for fresh consideration by comparing the margins of the international transactions with the uncontrolled comparable price. Observing that the CIT(A) had considered foreign AE as a tested party, it held that only price/PLI of the assessee’s international transaction had to be compared with the uncontrolled comparable price.

Mphasis Limited vs ACIT-TS-539-ITAT-2017(Bang)-TP- I.T. (T.P) A. No.1104/Bang/2012 and 1258/bang/2012 dated 07.06.2017

605. The Tribunal dismissed the contention of the assessee that the TP adjustment was to be restricted to the international transactions of the assessee and held that the while determining the ALP, comparison was to be made between the PLI of assessee vis-à-vis arithmetic mean of the PLI of the uncontrollable comparables, and therefore it was to be presumed that every other factor was constant and that the difference had arisen only because of the international transactions. It held that, if this presumption was not made, no adjustment in any case could be made and the assessee could always take an argument that difference in PLI was not due to international transactions and that it was due to non-international transactions.

Caterpillar India Pvt. Ltd vs. ACIT – TS-302-ITAT-2017(CHNY)-TP – ITA 204 & 365/12 dated 05.04.2017

606. The Tribunal relying on the coordinate bench ruling in the case of UCB India [TS-8-ITAT-2009(MUM)-TP] and Tej Diam [TS-54-ITAT-2010(MUM)] and considering transaction level margins over entity level approach, upheld the CIT(A)’s order deleting Rs. 10.83 Cr TP-adjustment made by TPO in respect of sale of silk fabrics by assessee to its US subsidiary during AY 2007-08. It held that as per the statutory provision in Rule 10B(e)(i) to (iii) it was only the international transaction that had to be compared with uncontrolled transaction and not the transactions undertaken by the entity as a whole. Noting that the profit margin earned by the assessee from controlled international transaction i.e. sale of silk fabrics was higher than average net profit margin earned by the comparables selected by assessee as well as by TPO it dismissed Revenue’s appeal.

J.J Exporters Ltd [TS-392-ITAT-2017(Kol)-TP – ITA No.201/kol/2012 dated 12.05.2017

Risk Adjustment

607. The Tribunal accepted the assessee’s contention for granting market risk adjustment noting that comparable uncontrolled companies assumed significant business risks visa-vis a captive service provider such as the assessee, thus warranting an adjustment to account for differences in comparability.

DCIT v IDS Software Solutions India Pvt Ltd – TS-1085-ITAT-2016- IT(TP)A No.214 IBang/20 14, IT(TP)A 179/Bang/2014 dated 16.12.2016

608. The Tribunal, relying on its earlier year’s order held that foreign exchange gain / loss was to be considered as part of operating revenue / operating cost, respectively.

Mercedes Benz Research & Development India Pvt Ltd v DCIT – TS-1075-ITAT-2016 (Bang) – TP – IT (TP) A No.120 (Bang) 2014 dated 11.11.2016

609. The Tribunal accepted the assessee’s claim for risk adjustment and held that where the comparableswere independent risk bearing entities visa-vis the assesse who, being a captive service provider, was a risk free entity, compensated on a Cost plus basis regardless of the result of its operations, the assessee was entitled to a risk adjustment to account for the differences in risk (and consequent margins) between the assesse and the comparable company.

IDS Software Solutions India Pvt Ltd v ITO – TS-1072-ITAT-2016 (Bang) – TP – IT(TP)A No. 154 / Bang/2015 dated 28.11.2016

610. The Tribunal concurred with the assessee’s submissions viz. that it was captive service provider devoid of any significant risks relating to its business operations and provided mere services based on the requirements of AEs in return for a fixed mark up on cost incurred and that all significant risks were borne by AE as all intangibles were owned by its AE as a result of which it was entitled to a risk adjustment. Accordingly, it directed the TPO to make appropriate risk adjustment.

Outsource Partners International P Ltd vs. DCIT – TS-57-ITAT-2017(Bang)-TP – IT(TP).A No.337/Bang/2015 dated 06.02.2017

611. Where the assessee claimed a risk adjustment contending that being a captive service provider, its operations (which were remunerated by a fixed mark up on cost) were devoid of any significant risks and that all the valuable intellectual property rights and other commercial and marketing intangibles were owned by its AE as compared to the independent comparable companies which worked under uncontrolled conditions and bore numerous risks during the course of their business operations, the Tribunal, relying on the decision of the Delhi High Court in Chryscapital Investment Advisors India Pvt. Ltd. [TS-173-HC-2015(DEL)-TP]  held that appropriate adjustments should be carried out in situations where there were differences between the tested parties and comparables and in case the  differences in the comparables could not be eliminated on account of adjustments or otherwise, then such comparables were to be rejected.  Accordingly, it directed TPO to work out an appropriate risk adjustment. 

CAPCO IT Services India Pvt. Ltd. v. ITO – TS-1079-ITAT-2016 (Bang) – TP – ITA No. 1340 lBang/2011 dated 09.12.2016

612. Where the assessee, a contract manufacturer claimed risk adjustment contending that its comparables were entrepreneur companies bearing significantly higher risks, the Tribunal held that there was no thumb rule for risk adjustments in accordance with Rule 10C(2)(e), and stated that assessee had to identify and quantify the level of risk involved for the assessee as well as the comparables while undertaking analysis in its TP documents. Despite observing that the assessee did not discharge its initial onus as it failed to provide requisite information pertained to the claim, considering the high degree of risk involved with the comparables, it allowed a risk adjustment at 2% on adhoc basis.

KOB Medical Textiles Pvt Ltd. Vs. DCIT – TS-211-ITAT-2017(CHNY)-TP – I.T.A.No.855/Mds./2015 dated 09-03-2017

613. The Tribunal denied the claim for risk adjustment made by the assessee wherein the assessee contended that since it was a captive service provider it had risk of single customer as compared to uncontrollable comparables, as the assessee had not provided any scientific working justifying its claim.

Syniverse Teledata Systems Pvt. Ltd (Formerly known as MACHTeledata systems Pvt. Ltd) vs. DCIT – TS-217-ITAT-2017(Bang)-TP – IT (TP) A No.1363 (Bang) 2014 dated 15.02.2017

614. The Tribunal held that the grant of ad-hoc risk adjustment of 1 percent by the DRP, was unjustified in the absence of any detailed working submitted by assessee as it was without any basis and without any factual foundation and therefore could not be granted to the assessee.

Obopay Mobile Technology India Private Ltd vs DCIT-TS-493-ITAT-2017(Bang)-TP-IT(TP)A Nos. 238 & 553/bang/2016 dated 28.04.2017

615. The Tribunal allowed Revenue’s appeal and held that the DRP erred in granting the assessee a risk adjustment at 1% without calculating the risk of the comparable companies. It noted that TPO had rejected assessee’s general claim for risk adjustment on the premise that there is always a risk of going out of business when dealing with a single customer and opined that risk adjustment was required to be provided if accurate calculation was provided by the assessee during the assessment / proceedings or before the TPO at the relevant stage. Accordingly, it held that in the absence of the accurate projections it would be unfair for the DRP to provide a lump sum 1% risk adjustment to the assessee and therefore held that the claim of risk adjustment to the extent of 1%, was not maintainable.

ACIT vs Swiss Re Shared Services (India) Pvt Ltd-TS-504-ITAT-2017(BANG)-TP-IT(TP)A No 630/bang/2016 dated 13.04.2017

Segments

616. Where the assessee had benchmarked its transactions in its manufacturing segment based on a transaction by transaction approach but the TPO proceeded to aggregate the transactions and made addition on the ground that the segmental results of the assessee had not been statutorily audited, the Tribunal relying on the decision of the co-ordinate bench in the assessee’s own case for the prior year held that the law did not mandate that the segments be audited and remitted the matter back to the file of the TPO for fresh adjudication.

Fresenius Kabi India Private Limited vs. DCIT-TS-819-ITAT-2017(PUN)-TP dated 22.09.2017

617. Where the assessee had allocated its direct costs as per the actuals and indirect costs based on turnover between the AE and Non-AE segments, the Tribunal held that the TPO was incorrect in rejecting the said bifurcation and allocating all costs (direct and indirect) based on turnover of the two segments. Accordingly, it set aside the issue back to the file of AO/TPO for the limited purpose of proper verification and allocation of cost. Further, in respect of treatment of forex fluctuation gain/loss on AE receivables, it held that the same had to be treated as operating revenue/cost.

Allegis Services India Pvt Ltd vs DCIT-TS-723-ITAT-2017(Bang)-TP – I.T.(T.P) A. No.1370/Bang/2014 dated 15.09.2017

618. Where the assessee applied the generally accepted Costing Principles to allocate expenses between its various segments but the TPO rejected the assessee’s approach, without giving any basis or reason and proceeded to re-allocate the subject expenses on the basis of sales ratio and thus, re-worked the cost used for determination of operating margins, the Tribunal noting that certain expenses i.e. depreciation, rent, rates, repairs & maintenance, taxes and other expenses had not been allocated at all to the export division by the assessee for the reason that they were already included in cost of goods sold and non-allocation if any, did not affect cost, held that the there was no merit in re-allocation of administrative expenses and selling & distribution expenses by TPO.

Cummins India Limited vs. DCIT – TS-165-ITAT-2017(PUN)-TP – ITA No.115/PUN/2011 dated 03.03.2017

619. Where, for the purpose of computing the margin of its software development service segment, the assessee had allocated a sum of Rs. 7.92 crore as administrative & other expenses and the TPO considered the same to be Rs. 17.61 crore, the Tribunal upheld the assessee’s allocation noting that the difference of approximately Rs.10 crore was not included for the purpose of computing the margin since the expenditure was incurred for a specific purpose and not attributable to the software development services. Accordingly, it remitted the issue to the file of the TPO for re-computation with a direction that if the margin of 31.69% as computed by the assessee was found to be correct, no TP adjustment would survive.

Altair Engineering India Pvt. Ltd. Vs DCIT – TS-206-ITAT-2017(Bang)-TP – LT. (T.P}A. No.279/Bang/2015 dated 22.02.2017.

620. The Tribunal rejected the assessee’s apportionment of un-allocable costs among assessee’s 3 segments (viz. marketing support services, trading segment and domestic segment which included both services and trading) in the ratio of headcounts and held that that such an allocation without considering staff positions, etc would give distorted results as a well-qualified technician could not be compared to a helper or assistant. It also disagreed with the TPO’s allocation based on gross revenue noting that ‘trading segment’ would have higher revenue than ‘service segment’ as it would also include cost of goods sold. Accordingly, it held that allocation based on gross profit margin would be more logical and realistic method. However, in the absence of details of un-allocable costs, it remitted the matter to AO/TPO with a direction to examine the same and exclude costs which were directly identifiable to specific segment from the un-allocable costs.

Fujitsu India Ltd v DCIT – TS-56-ITAT-2017 (Del )– TP – ITA No.6280/Del/2012 dated 02.02.2017

621. The Tribunal, accepting assessee’s submission that since few of the expenses such as depreciation, wages, consumable, power and fuel etc. were directly allocable to manufacturing sector, they could not to be allocated to assessee’s trading activity for computation of OP/OC arising therefrom, directed the AO to exclude expenses directly relating to manufacturing segment while allocating expenses to manufacturing and trading segment in the ratio of turnover.

Silver Oak Laboratories Pvt Ltd vs ACIT-TS-688-ITAT-2017-ITA no. 6197/del/2012 dated 28.08.2017

622. The Tribunal upheld CIT(A) order deleting TP adjustment made by TPO on the basis of reallocation of direct and indirect costs to assessee’s three segments (marketing support services, trading functions and AMC of local sales) in proportion to segment turnover. It held that allocation could be made only in respect of indirect costs and therefore the action of TPO in allocating direct as well as indirect costs in ratio of turnover of each segment was not proper and justified.

3D Networks PTE Ltd vs ACIT [TS-372-ITAT-2017(Bang)-TP IT(TP)A No. 544/Bang/2011 dated 18.05.2017

623. Tribunal following the co-ordinate bench ruling in the assessee’s own case in AY 2006-07 (wherein the issue regarding allocation of various costs between AE and non-AE segments was restored back to the AO for de-novo consideration after holding that such allocation, consideration of cost records was necessary), directed the AO to verify cost records and ensure reconciliation with books of accounts before passing the order for AY 2003-04 and 2004-05.

Otto Blitz India Pvt Ltd [TS-344-ITAT-2017(Bang)-TP] IT(TP)A Nos.1388 & 1389/bang/2012 dated 12.05.2017

Working Capital Adjustment

624. The Tribunal upheld the order of the DRP and directed the TPO to allow working capital adjustment based on the actual figures of the comparables without restricting it to 1.71 percent being the average cost of capital of comparables selected.

DCIT v Brocade Communications Systems Pvt Ltd – TS-1031-ITAT-2016 (Bang) – TP – IT. (T.P) A. No.71/Bang/2014 dated 9.11.2016

625. Where the TPO computed working capital adjustment at 5% for software development services and 4.64% for ITeS based on actuals but restricted the adjustment to 1.71% for software development services and 0.91% for ITeS on the basis of the average cost of capital of the comparables, the Tribunal, relying on the decision of ARM Embedded Technologies Pvt. Ltd. [TS-466-ITAT-2015 (Bang)-TP], held that working capital adjustment was to be made on actual basis.

EMC Software and Services India P Ltd [TS-1077-ITAT-2016(Bang)-TP – I. T(TP).A No.324/Bang/20 14, I.T(TP).A No.319/Bang/2014 dated 09.12.2016

626. The Tribunal remitted the TP issues arising in both Revenue’s and Assessee’s appeals back to the file of DRP for fresh adjudication. Allowing the Revenue’s appeal it refused to accept the DRP’s 1% risk adjustment to the average margin by arbitrarily relying on Intelligent and Hello Soft rulings to account for the risk differential between assessee and comparable companies. It observed that the risk adjustment working was not provided by the assessee and that the DRP’s order was also cryptic in respect of assessee’s facts and facts of the aforementioned rulings. Further, upon reviewing the grounds of appeal pressed by Assessee, it noted that the AO had not carried out the necessary corrections to arithmetic miscalculations as directed by DRP and that on the remaining issues relating to comparability, computation of margins & working capital adjustment, DRP’s directions were cryptic. Hence, it restored the entire matter to the file of the DRP for fresh adjudication by way of a speaking and reasoned order.

ACIT vs Momentive Performance Materials (India) Pvt Ltd-TS-24-ITAT-2018(bang)-TP dated 08.12.2017

627. Where the DRP had given the AO a specific direction to verify the working capital position between the assessee and the comparables, and the AO did not consider working capital adjustment for advances from customers recoverable in cash or kind from 4 companies, viz. Sparsh BPO Service Ltd, Aditya Birla Minacs Worldwide Ltd, Professional Management Consultants Pvt Ltd and Sundaram Business Services Ltd., on the ground that break up was not available from the downloaded financials of the 4 companies, the Tribunal observing that the breakup of advance recoverable in cash or kind were part of the Audited accounts and annual report of these 4 companies, directed the AO/TPO to rework the working capital adjustment after considering the value of advance and deposits recoverable in cash or kind or for the value to be receivable from the 4 companies as well.

Visual Graphics Computing Services India Private Limited Vs ACIT – TS-129-ITAT-2017(CHNY)-TP – I.T.A. No.2340/Mds/2012 dated 10.02.2017

628. The Tribunal observed that the TPO / DRP was not justified in denying working capital adjustment to the assessee on the ground that the figures given by the assessee did not match with the financials and that working capital adjustments were to be granted only to manufacturers and not service providers and held that the TPO should have corrected the errors himself rather than denying the adjustment altogether. As regards working capital adjustments vis-à-vis service providers, it relied on the decision of Mercer Consulting (TS-170-ITAT-2014 (Del) – TP, wherein it was held that working capital could not be restricted to manufacturers or traders alone and that in case of a service provider working capital adjustments were warranted for higher / lower trade receivables or payables. Accordingly, it set aside the finding of the TPO / DRP and remitted the matter to the file of the TPO directing him to examine the assessee’s claim for working capital adjustment.

Comverse Network Systems India v ACIT – TS-33-ITAT-2017 (Del) – TP

629. Where the assessee claimed a working capital adjustment which was denied by the Revenue on the grounds that (a) inventory and accounts payables were absent in case of assessee and that (b) working capital was computed on the basis of daily or monthly averages and not on year end balances, the Tribunal relying on the rulings in the case of United Health Group Information Services (P) Ltd [TS-255-ITAT-2014(DEL)-TP] and Marubeni-Itochu Steel India[TS-56-ITAT-2016(DEL)-TP], accepted the assessee’s claim and held that the adjustment was to be granted in order to bring the assessee and the comparables at par. However, it noted that the assessee was to furnish complete details of working capital deployed to identify the differences in margins earned by assessee vis-a-vis comparables and accordingly remitted the issue to the file of TPO for fresh consideration.

St-Ericsson India Private Limited vs Addl CIT – TS-119-ITAT-2017 (Del) – TP – ITA No.1672/Del./2014 dated 22.02.2017

630. Where the TPO restricted working capital adjustment to 1.71% (based on the average cost of capital of comparables), instead of considering the actual figures in respect of each and every comparable companies, the Tribunal, relying on the decision in ARM Embedded Technologies Pvt. Ltd. [TS-466-ITAT-2015(Bang)-TP], observed that there was no provision under FAR analysis to restrict the working capital adjustment arbitrarily. Accordingly, it directed the AO/TPO to re-compute working capital adjustment on actual basis without any upper limit. 

VMware Software India Pvt. Ltd. Vs DCITTS-71-ITAT-2017(Bang)-TP -LT. (T.P}A. No.1311/Bang/2014 dated 6.1.2017

DCIT vs. AMD India Pvt. Ltd – TS-250-ITAT-2017(Bang)-TP – IT(TP)A No.92/Bang/2014 dated 08.03.2017

631. The Tribunal dismissed 3 appeals filed by Revenue for AYs 2007-08, 2008-09 and 2009-10 with respect to grant of working capital adjustment and treatment of forex gains/loss. The Revenue had alleged that the CIT (A) had wrongly issued direction to the TPO to grant working capital adjustment as per the prevailing norms and as per the provisions of Section 251(1)( a) of the Act, the CIT(A) had no power to issue the direction. Rejecting Revenue’s contention that CIT(A)’s direction to TPO for granting working capital was beyond jurisdiction held that CIT(A) had not directed the TPO in the way portrayed by Revenue authorities, and held that the direction was only to calculate and grant the working capital adjustment based on final set of comparables. Relying on the decision in the case of SAP Labs India P Ltd, Tribunal noted that TPO neither disputed the quantum of the foreign exchange gain/loss nor had given any finding that such gain / loss was not arising out of assessee’s activities and therefore upheld CIT(A) order treating the forex gain / loss as operating in nature.

Sanyo BPL P. Ltd vs. DCIT-TS-537-ITAT-2017(Bang)-TP- I.T(TP)A Nos.1578 to 1580/Bang/2014 dated 09.06.2017

632. The Tribunal upheld DRP’s order lifting working capital cap imposed by TPO for AY 2009-10. Observing that the TPO had restricted working capital adjustment to 0.91% which was nothing but the average cost of capital of comparable companies selected by him without considering the capital figures for assessee. The Tribunal held that the TPO could not force the assessee to fund its working capital requirements in a specific way as the same was not in his domain. Accordingly, it held that the DRP was correct in lifting the working capital cap imposed.

DCIT vs. Synchrony International Services Pvt. Ltd (Formerly known as GE Global Servicing Pvt. Ltd)-TS-622-ITAT-2017(BANG)-TP dated 14.07.2017

633. The Tribunal remitted issue of working capital adjustment to the AO with the direction to examine facts with relevance to the decision in the case of Mobis India Ltd ITA No.2212/Mds/2011 wherein it held that adjustment had to be granted for eliminating material effects, if any, arising from out of difference in working capital between tested party and comparables. and allow suitable working capital adjustment to the assessee. It also directed the assessee to furnish the pricing models of AE as well as assessee to verify whether the working capital margin of interest was included in the sales price of the product. Further, noting that the assessee was not a start-up company as it was established in 2008, it rejected assessee’s claim for unutilized capacity adjustment to the extent of 46.54% since adjustments relating to unutilized capacity were allowed in the case of startup companies to cover the initial deficiencies and financial implications.

Shipnet Software Solutions India Pvt Ltd vs DCIT-TS-427-ITAT-2017(CHNY)-TP-ITA No.3404/Mds/2016 dated 28.04.2017

634. The Tribunal relying on the decision of ARM Embedded Technologies Private Limited [TS-466-ITAT-2015(Bang)-TP] wherein it was held that there was no rationality in fixing cap on the actual working capital adjustment, dismissed Revenue’s ground challenging DRP direction to carry out working capital adjustment in respect of software development services as per actual figures without putting any cap on the same. Further, it allowed assessee’s plea for inclusion of Think Sodt Global Services Limited which was originally selected by the TPO, but subsequently excluded as working capital adjustment exceeded 4% of profits.

Genisys Information Systems India Pvt Ltd -TS-267-2017(Bang)-TP-IT(TP)ANo.59/bang/2014 dated 16.05.2017

635. The Tribunal directed the AO to re-compute working capital adjustment of comparable ICRA Management Consulting Services Ltd for benchmarking international transaction of assessee engaged in the business of providing support services with respect to footwear and apparels. The TPO had while computing working capital adjustment of ICRA, taken trade receivables figure at ‘nil’ which disturbed the entire adjustment calculation. Noting that the financials of ICRA had sufficient trade receivables during the AY under consideration, it set aside the issue and directed the TPO to re-compute working capital adjustment after taking into account the figure of trade receivables.

Adidas Technical Services Pvt Ltd vs DCIT-TS-507-ITAT-2017(DEL)-TP-ITA No.412/del/2017 dated 18.05.2017

636. The Tribunal, relying on the decision in the case of CGI Information System & Management Consultant (wherein it was held that advances received from AEs would reduce the need for borrowings from outsider and would have direct impact on profitability of business, thus should be considered for working capital adjustment calculation), held that advance received from AE should be considered for the purpose of computation of working capital adjustment and accordingly allowed assessee’s appeal.

Intellectual Venture India Consulting Pvt. Ltd-TS-884-ITAT-2017(Bang)-TP dated 20.10.2017

+ / – 5% adjustment

637. Where the assessee did not dispute the mean margin of 6.84% of comparables computed by TPO, but requested for a benefit of +/- 5% benefit which was accepted by CIT(A) and Tribunal, the Court held that Tribunal had not committed any error in granting benefit of the +/- 5% adjustment as it was in accordance with second proviso to Section 92CA(2). Accordingly, it dismissed Revenue’s appeal.

CIT vs. Kgk Enterprises-TS-852-HC-2017(RAJ)-TP dated 18.09.2017

638. The Tribunal, considering the fact that the circumstances were not identical to the previous year, rejected CIT(A)’s application of filters based on previous year and remitted comparables selection to the file of TPO directing him to verify the various filters (Related party transaction filter, Rs.50 Crores upper-limit sales filter) for assessee’s research and development functions to decide the issue afresh. Further, noting that in previous AY the +/- 5% adjustment was granted considering the economic downturn experienced during the year owing to the 11th September disaster, the Tribunal held that the same could not be applied for the AY in question since no economic downfall was experienced.

DCIT vs. Nokia India (P) Ltd.-TS-1017-ITAT-2017(DEL)-TP ITA No. 2380/Del/2010 dated 06.12.2017

639. Where the assessee was established in 1967and its depreciation ratio was only 0.95% as against 4.72% of comparables and the difference of 0.14% in ALP resulting in Rs.54 lakhs TP-addition was due to AO’s reduction of depreciation in the hands of assessee & comparables and if such depreciation ratio was not reduced, the price adopted by assessee would be within the 5% tolerance range, the Tribunal noting that the machineries utilised by comparable companies are latest ones, whereas, the machineries used by the assessee-company are older ones and as a result the efficiency of old machines would be less, held that ignoring the difference of 0.14% over and above +5% of permissible limit would meet the ends of justice and accordingly set aside the order of lower authorities and deleted the TP addition of Rs. 54 lakhs.

Western Thomson (India) Private Ltd vs. DCIT-TS-910-ITAT-2017(CHNY)-TP-ITA no. 1093/Mds/2017 dated 27.10.2017

640. The Court dismissed the Revenue’s appeal against Tribunal’s order deleting the TP adjustment since as per the proviso to section 92C(2), the transfer price was within the range of 5% of ALP. The TPO had made an adjustment in the case of assessee which was upheld by DRP. The Tribunal, however, deleted the TP adjustment made by AO since as per the proviso to section 92C(2), the Transfer price was within the range of 5% of ALP and accordingly, it directed the AO to consider proviso to section 92C(2) and arrive at the conclusion.

CIT vs DHL Danzas Lemuir Pvt ltd-TS-559-HC-2017(BOM)-TP-ITA No.1492 of 2014 dated 05.07.2017

641. Where the DRP accepted assessee’s claim for revised working of margin for one of the comparables and subsequently, the AO passed order u/s 154 in view of some basic flaws in AO’s computation pointed out by assesssee, noting that after considering the revised margin for one of the comparables (as accepted by DRP) the variation from ALP was within 5% of the transaction price and thus no TP adjustment would survive, the Tribunal remitted the matter to the TPO for verification of the working submitted by the assessee with a direction to decide the issue afresh as per law after such verification

BASF Coatings (India) P. Ltd vs ACIT-TS-522-ITAT-2017(Mum)-TP- ITA no.1555/Mum./2012 dated 28.04.2017

642. The Tribunal dismissed the Revenue’s appeal challenging DRP’s deletion of Rs. 7.47 Cr TP addition for AY 2011-12 and upheld the allowability of benefit of 5% variation as per proviso to Sec 92C in case of the assessee, an authorized foreign exchange dealer, rejecting the Revenue’s contention that proviso to Sec 92C, which allows +/-5% range to assessee, could not be applied in case of assessee having transactions on account of trading in foreign exchange, which were benchmarked using RBI rates. Following the decision in assessee’s own case for preceding AY 2010-11, it held that RBI rates of foreign exchange were based on averaging and therefore, benefit was available under the proviso to Sec 92C.

UAE Exchange and Financial Services Ltd. Vs DCIT – TS-116-ITAT-2017(Bang)-TP – IT (TP)A No.299 (Bang) 2016 dated 07.02.2017

 

643. The Tribunal rejected assessee’s claim for benefit of +/- 5% range mentioned in proviso to section 92C(2) considering retrospective amendment vide Finance Act 2012, held that the benefit was not allowable as ALP in the present case was in excess of assessee’s margin by more than 5%. It rejected reliance on Tribunal decisions in assessee’s own case for earlier AY on the ground that they were pronounced prior to the relevant amendment and accordingly dismissed the appeal.

Insilica Semiconductors India Pvt Ltd [TS-346-ITAT-2017(Bang)-TP- ITA No. Dated 15.03.2017

Others

644. Where the assessee’s contented that Sec 92 should not have been invoked for making TP-addition as assessee’s income had been computed u/s 44 read with First Schedule, the Tribunal referring to the provisions of section 44 held that  only provisions relating to the computation of income chargeable under the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B’ are inoperative and provisions relating to section 92 were applicable to the assessee carrying on insurance business. Further, noting that   that there are 2 computations made in determining total income viz. first computation of income under respective heads under Chapter IV (which exercise is undertaken by AO) and second computation of income from international transaction by determining its ALP (which exercise is done by TPO), it held that section 44 simply substitutes the first computation and it has no role whatsoever in so far as the second computation of determination of ALP of an international transaction u/s 92 of the Act is concerned. Accordingly, it dismissed assessee’s appeal.

ACIT vs. Max New York Life Insurance Company Ltd-TS-822-ITAT-2017(DEL)-TP dated 17.10.2017

645. Where the TPO held that prices charged by assessee from its AE were substantially lower than the comparable uncontrolled prices and determined ALP at 125% of the sales price but the CIT(A) considered detailed reasons filed by assessee and concluded that average price difference between the transactions with AE and the domestic transactions would be around 5.1% and if the marketing overheads, selling expenses, packing and material expenses etc. incurred with respect to the non AE export segment are considered, the international transactions undertaken by the assessee with the AE would be at arm’s length price, the Tribunal held that the finding of CIT(A) on the issue in dispute was well reasoned and accordingly, deleted the TP adjustment in respect of purchase and sales transactions with AE.

ACIT vs. Unipatch Rubber Ltd-TS-911-ITAT-2017(DEL)-TP ITA No.3267/Del/2014 dated 06.11.2017

646. Where the assessee even on specific request by the TPO, did not provide copies of orders, vouchers, work-sheets etc., but only submitted details of incremental cost of salaries, additional employees in the present year number of employees resigned in each month, number of new employees appointed in each month which was not helpful in finding out as to whether the salary paid to particular employee is to be considered for technical services segment or trade support or other trading segment, the Tribunal upheld TPO’s allocation of expenses in the ratio of turnover among various segments like software service segment, trade export segment and domestic transactions segment for AY 2006-07. Noting that assessee was not willing to file these details if the matter was remanded back, the Tribunal refused to interfere with allocation of cost on turnover basis in absence of necessary details to support any other reasonable basis.

Systat Software Asia Pacific Ltd vs. Dy. CIT-TS-846-ITAT-2017(Bang)-TP dated 22.09.2017

 

647. The assessee had entered into an international transaction in respect of purchase of raw material, return of packing material and sale of finished goods from its AE and applied TNMM for the purpose of benchmarking the international transaction. It had installed windmill for generating power and sold the above power to its manufacturing division in lieu of payment of transmission cost computed at the rate as is charged by the state undertaking and recorded it in its books as an operating income. The TPO and CIT(A) excluded windmill income as non-operating income for the purpose of determining the ALP. On appeal, the Tribunal held that assessee’s windmill income had nothing to do with its international transactions. It rejected assessee’s contention that it sold its captive power form one division to the other instead of generating revenue from open market and windmill income had already been taken as business income for the purpose of section 80IA deduction and held that both the divisions of the assessee viz., windmill land and steel manufacturing were separate without having any interwoven element embedded therein and mere fact of the windmill income accepted under the head of business income would not make it as income derived from manufacturing division forming subject matter of the impugned transfer pricing adjustment.

Rajratna Metal Industries ltd-TS-521-ITAT-2017(Ahd)-TP-ITA No.1050/ahd/15 and 91/ahd/15 dated 12.05.2017

648. Noting that there was a typographical error in the order of the TPO wherein the OP / OC margin was inadvertently mentioned as 13% as opposed to the correct margin of 15% (as self-evident from the computation produced in the impugned order), the Tribunal remitted the issue back to the file of the AO to verify whether the ALP of international transactions determined by the TPO (18.864% based on 5 comparables) fell within the + / – 5 percent adjustment under proviso to Section 92C(2) of the Act.

Everest Business Advisory India Private Limited vs. DCIT-TS-748-ITAT-2017(DEL)-TP-ITA no. 5211 / del / 2014 dated 25.09.2017

649. The Tribunal rejected the CIT(A)’s ALP computation based on a ‘contemporary’ resale price method (RPM) for benchmarking Engineering Drawing & design Services rendered to AE for AY 2005-06 and directed AO/TPO to re-compute ALP considering AE’s audited financials for March ending furnished as additional evidence. It held that the CIT(A) erred in arriving at a hypothetical ALP figure based on contemporary RPM by trying to correlate AE’s sale price for March ending with cost price for December ending arriving at the computation of ALP due to the alleged non-availability of financial figures of AE for period of Jan-Mar period (without giving assessee an opportunity to furnish it). Since the CIT(A) had (i) ignored provisions of Rule 10B(1)(b), (ii) applied contemporary RPM stating that it was internationally recognized, without bringing evidence and citation on record, the Tribunal noted that that audited financial data for March ending was now available and therefore directed the TPO/AO to consider the same for ALP determination. Referring to the working submitted by the assessee before it during the hearing, it clarified that if AE’s financial figures were found to be true and correct, assessee’s computation should be accepted.

DCIT v Development Consultants Ltd – TS-117-ITAT-2017 (Kol) – TP – ITA No.1591/Kol/2010 dated 15/02/2017

650. The Tribunal rejected TPO’s allocation of 100% loan syndication fee to the assessee (an Indian company) following the preceding year ruling where the Tribunal had restored the allocation of loan syndication fee between the assessee and its AE to the TPO/AO with direction that the issue should be decided based on the ruling of Calyon Bank [TS-106-ITAT-2014-(Mum)-TP] and Credit Lyonnais [TS-180-ITAT-2014(Mum)], where 20% allocation was held as just and proper.

RBS Financial Services India Private Limited – TS-24-ITAT-(Mum)-TP

651. The assessee was engaged in providing contract manufacturing services including audit and inspection of the contract manufacturing carried out by third parties for assessee’s AE and the said services were benchmarked separately under TNMM for which the assessee made a voluntary upward adjustment of Rs. 10 lakhs. The TPO held that the subject services were similar to the services of ‘Business development & Procurement’ and ‘Support Services’ (which were also provided by the assessee to its AEs). Consequently, he aggregated all the services and proceeded to benchmark it under TNMM. The Tribunal held that the TPO was incorrect in ignoring the Rs. 10 lakh voluntary adjustment made by the assessee as income of the assessee. Accordingly, it remitted the issue to the file of the TPO directing him to consider Rs. 29 lakh (Rs.19 lakh considered by the TPO + Rs. 10 lakh offered by the assessee) as the income of the assessee for the purpose of benchmarking the transactions.

Tevapharm India Pvt. Ltd vs Addl CIT – TS-151-ITAT-2017 (Del) – TP ITA No.6707/Del/2016 dated 06.03.2017

652. The Arrow Group had set up a branch office in Singapore, namely, ‘Arrow Electronics India Limited’, exclusively to service the customers in India which immediately opened a liaison office (LO) in Bangalore in 1994 after obtaining approval from the RBI and later opened LOs in Hyderabad, Mumbai, New Delhi & Pune. In December 2002, the Arrow Group started a fully owned subsidiary of Arrow Asia Pac Limited in the name of ‘Arrow Electronics India Private Limited’ i.e. the assessee in December 2002. However, till July 2003, no effective operation was carried out by the assessee as the LO itself was taking care of the operations. Pursuant to a search operation conducted at the premises of the liaison office which was where the Indian subsidiary was also located, notices under section 148 of the Act were issued for which the assessee complied with the notices and filed the returns declaring income on the basis of cost + 6%. The AO noted that the LO had carried out income earning activities even though it was not supposed to and attributed 40 percent of the net profit of the Singapore and Indian LOs (based on Functions, Assets and Risks) to the Bangalore LO. The AO referred the international transactions of the to the TPO who proposed certain adjustments. On appeal, the CIT(A) gave the assessee part relief by holding that the percentage of ALP as determined by the TPO should have been applied only on 40% of the total sales. The Tribunal dismissed the appeal of the Revenue and held that there was no infirmity in the order of the CIT(A).

Arrow Electronics India Ltd vs. Addl. DIT – TS-261-ITAT-2017(Bang)-TP – IT(TP)A.209,210,617 to 619,COs.31 to 33/B/2011dated 31.03.2017

653. The assessee entered into a Market Development Agreement with Microsoft Operations Pte Ltd (‘Microsoft Singapore’) to provide marketing support services and product support services for Microsoft products in the territories of Bhutan, India, Maldives, Nepal and British Indian Ocean, for which it was entitled to remuneration on cost plus 15% mark-up basis. The TPO proposed an upward adjustment on account of difference in ALP and pursuant to the DRP’s directions, the AO assessed total income at Rs. 2.13 Cr as against Rs. 1.76 Cr declared by the assessee. In the meanwhile, the Commissioner of Service Tax (‘CST’) raised a service tax demand of Rs. 256.07 Cr, rejecting assessee’s contention that the services rendered under the Market Development Agreement qualified as ‘export of services’ and were thus exempt from service tax, pursuant to which the AO issued notice u/s 148 for reassessing assessee’s income for AY 2009-10 on the ground that assessee was entitled to a 15% mark up on the service tax element and thus a sum of Rs. 38.41 Cr had escaped assessment, despite the fact that the CESTAT had ultimately held that the service tax demand raised did not hold good. The assessee filed a writ Petition which was allowed by the High Court. It allowed the assessee’s writ and observed that the Agreement between assessee and Microsoft Singapore clearly indicated that the compensation payable to the assessee was exclusive of service tax, which would be the responsibility of Microsoft Singapore and therefore held that the reasons recorded by AO for reopening of the assessment viz.that assessee was entitled to 15% mark up on service tax, was clearly erroneous. It also observed that the AO, despite noting that CESTAT had rejected service tax liability on assessee’s services, had held that the CESTAT order was likely to be appealed against and therefore observed that the AO had approached the entire matter with the pre-determined mind to raise a demand oblivious of the relevant facts. On further appeal by the Revenue before the Apex Court, the Apex Court issued a notice for the SLP and directed the assessee to file a counter affidavit, if any within four weeks.

DCIT and Anr. vs. Microsoft Corporation (I) Pvt. Ltd – TS-290-SC-2017-TP] – Petition(s) for Special Leave to Appeal (C)……/2017 CC No(s). 3936/2017 dated 07/04/2017

654. The Tribunal dismissed Revenue’s appeal challenging reduction of TP-adjustment pursuant to DRP’s direction to re-compute comparables’ margin in respect of ITeS and software development services provided to AE after considering the the workings provided by the assessee for AY 2009-10. It noted that the TP-adjustment of Rs 8.54cr was proposed in the draft assessment order which was reduced to Rs 6.11cr by TPO (pursuant to DRP directions) recalculating comparables’ margin based on OECD TP Guidelines. It held that it could not be said that the DRP had allowed any relief amounting to Rs.2,43,80,550/- (Rs.8,54,98,108 – Rs.6,11,17,557) rather the TPO himself on being satisfied after proper verification worked the adjustment which has been made by the AO. Therefore, it held that the Revenue’s appeal was without basis and not maintainable.

DCIT vs. Xchanging Technology Services India Pvt. Ltd – TS-291-ITAT-2017(DEL)-TP – ITA No. 991/Del/2014 dated 31.03.2017

655. The Tribunal, relying on the decision of the co-ordinate bench in in Motonic India Automotive allowed the assessee custom duty adjustment in principle in respect of assessee’s manufacturing segment for AY 2009-10, noting the fact that the raw material import content of the assessee was 99% as against 30% import content for comparable companies. It held that custom duty was to be eliminated from the comparable price also to arrive at correct PLI in order to bring uniformity and therefore remitted the issue to AO for fresh consideration.

Gates Unitta India company P Ltd. Vs DCIT TS-360-ITAT-2017(CHNY)-TP – /I.T.A.Nos.1041/Mds./2014 dated 26-04-2017

e. Specific Transactions

Advertisement, Marketing and Promotion expenses

656. The Tribunal deleted TP adjustment of Rs. 14.11 Cr on account of Advertising, Marketing and Promotion (AMP) expenses incurred by assessee for alleged promotion of the brand ‘Nippon’ in India as it was not an international transaction u/s 92B since the Revenue had failed to demonstrate existence of an agreement with AE (legal owner of the brand) to promote the ‘Nippon’ brand in India and had also failed to prove that benefits of AMP expenses were for improving the brand in India. It held that the AMP spend was not obligated by AE, but was incurred by assessee as sales promotion expenses for its own cause.

Nippon Paint India Pvt Ltd v ACIT– TS-102-ITAT-2017 (Chny) – TP – /ITA No.779/Mds/2016 dated 10.02.2017

657. The Court, set aside Tribunal’s order restoring AMP issue to the file of AO/TPO for fresh consideration. It noted assessee’s submission that the Tribunal did not have the benefit of rulings of Sony Ericsson Mobile Communications India Pvt Ltd [TS-543-HC-2016(DEL)-TP], Bose Corporation (India) Pvt. Ltd. [TS-702-HC-2016(DEL)-TP] wherein the Court had held that prior to commencement of TP exercise, existence of international transaction involving assessee and its AE had to be first established. Accordingly, the Court restored the matter to the file of Tribunal directing it to decide the assessee’s appeal afresh itself without being influenced by anything said in any of the previous order of the Tribunal Louis Vuitton India Retail Pvt. Ltd. vs. DCIT-TS-794-ITAT-2017(DEL)-TP ITA No. 980/Del/2017 dated 06.10.2017

658. Considering assessee’s submission that AMP expenses had been incurred unilaterally by the assessee (engaged in manufacturing and selling malted nutritional food products and drinks under brand names, Horlicks, Maltova, Viva and Boost) on its own discretion through unrelated Indian parties for the purpose of its own business in order to cater to local market needs and since no arrangement had been shown to exist between assessee and its AE, the Tribunal held that the transaction cannot constitute an international transaction u/s 92B and remitted the AMP-issue back to TPO directing it to adjudicate the issue afresh in accordance with law.

GlaxoSmithKline Consumer Healthcare Ltd vs. ACIT-TS-998-ITAT-2017(CHANDI)-TP dated 17.11.2017

659. The Tribunal relying on the conclusion of the Delhi High Court in assessee’s case for AY 2008-09 held that in the absence of an agreement or arrangement between the assessee and the associated enterprise with regard to development of brand, it could not be inferred that there existed an international transaction between assessee and the associated enterprise. Therefore, it held that the question of determination of ALP does not arise and accordingly deleted TP adjustments of Rs. 311.88 crores on account of AMP.

Maruti Suzuki India Pvt Ltd vs ACIT-TS-974-ITAT-2017(DEL)-TP dated 09.11.2017

660. The Tribunal, relying on the decisions in the case of Essilor India (wherein the Sony Ericsson Delhi Hc was followed) and Toshiba India (wherein the issue of existence of international transaction regarding AMP expenditure had been set aside to the file of TPO to undertake fresh TP analysis), remanded the issue of existence of international transaction for distributor assessee’s AMP expenditure and consequent determination of ALP back to the file of AO/TPO for de-novo adjudication.

Transitions Optical India Pvt Ltd vs DCIT-TS-1015-ITAT-2017(Bang)-TP dated 22.11.2017

661. The Tribunal, relying on the decision in the case of AMD India Private Limited [TS-840-ITAT-2017(bang)-TP] (wherein it was held that extra credit allowed could be considered as an independent international transaction and the same be compared with the internal CUP being average cost of the total funds available to the assessee) dismissed assessee’s appeal against DRP/TPO’s order imputing notional interest on outstanding receivables from AEs and restored the matter to the file of TPO for the purpose of ascertaining the agreed period and determination of arm’s length interest pertaining to the excess credit period.

Ingersoll Rand (India) Ltd. vs. DCIT-TS-1061-ITAT-2017(Bang)-TP 251/Bang/2014 dated 10.11.2017

662. Where the TPO had made protective addition in respect of AMP expenses by following Bright Line test (BLT) (which was struck down as a method for imputing adjustments by the High Court), the Tribunal held that the very concept of protective addition would not apply to the instant case as it was relevant only when an income was to be added in the hands of one of the two taxpayers and where there was an element of ambiguity as to in whose hands the said income could be rightly brought to tax, which was not so in the present case. Accordingly, it deleted AMP adjustment of Rs. 23.83 cr made by TPO/DRP on protective basis and held that the mere fact that the appeal against the High Court judgment declaring BLT as unsustainable was pending before the Apex Court would not take away from precedent value of the High Court decision.

MSD Pharmaceuticals Private Limited vs. Addl. CIT-TS-896-ITAT-2017(DEL)-TP SA No.619/Del/2017 dated 10.11.2017

MSD Pharmaceuticals Private Limited vs. Addl.. CIT-TS-888-HC-2017(DEL)-TP -ITA 971/2017 dated 13.11.2017

663. Where on perusal of the agreement between assessee & AE, the DRP observed that nothing was discernible from the said documents that could be construed as an agreement between the assessee and the AEs for AMP expenses on behalf of AEs, the Tribunal relying on the decision in assessee’s own case for AY 2008-09 to 2010-11 (wherein it was held that the impugned transaction was not an international transaction and TPO had wrongly invoked provisions of Chapter X), upheld DRP’s deletion of AMP-adjustment in the case of assessee for AY 2011-12.

DCIT vs. Heinz India Pvt. Ltd- TS-881-ITAT-2017(Mum)-TP ITA No. 2101/MUM/2016 dated 06.11.2017

664. Where the TPO proposed AMP adjustment of Rs. 33.08 cr on substantive basis and Rs.42.09 cr on protective basis following bright line test and the DRP deleted adjustment on substantive basis but retained the adjustment on protective basis, the Tribunal relying on the decision in the case of Sony Ericsson Mobile Communications India Private Limited [374 ITR 118], held that BLT has been discarded as a method for computing arm’s length price for international transactions of AMP and therefore no addition could be sustained applying the BLT even on protective basis. Accordingly, it deleted AMP adjustment in respect of the assessee for AY 2013-14.

Nikon India Pvt. Ltd vs. DCIT-TS-893-ITAT-2017(DEL)-TP ITA No. 6299/Del/2017 dated 06.11.2017

Toshiba India Pvt. Ltd. vs. ACIT-TS-961-ITAT-2017(DEL)-TP ITA No. 6531/Del/2017 dated 30.11.2017

665. The Court upheld the Tribunal’s order deleting the adjustment on account of AMP expenses by relying on the decision of jurisdictional High Court in the assessee’s own case wherein it was held that AMP expenses unilaterally incurred by the assessee could not be construed as an international transaction

Pr. CIT vs. HONDA SIEL POWER PRODUCT LTD-TS-930-HC-2017(DEL)-TP ITA 118/2017, C.M. APPL.4660/2017 dated 01.03.2017

666. The Apex Court admitted Revenue’s SLP against High Court judgment wherein it had relied upon its own judgment for previous years in assessee’s own cases to hold that since Revenue was unable to demonstrate with tangible material the existence of an international transaction involving AMP expenses between assessee and foreign AE, the question of determining ALP did not arise.

CIT vs. Honda Siel Power Product Ltd-TS-931-SC-2017 dated 27.11.2017

667. Noting that in the immediately preceding AY 2009-10, the coordinate bench had held that in absence of agreement, arrangement or understanding between the assessee and its AE for sharing AMP expenses or for incurring AMP expenses, payments made by assessee to the domestic parties cannot be termed as an international transaction specifically when the TPO had not been able to prove that the expenses incurred were not for business carried out by assessee in India, the Tribunal directed the AO to delete the TP addition on account of AMP expenses.

Amadeus India Private Limited vs ACIT-TS-898-ITAT-2017(DEL)-TP- ITA No. 1835/Del/2015 dated 23.10.2017

668. Where pursuant to agreement with AE. it was the responsibility of the assessee to undertake the performance of advertisement and sales functions, the Tribunal held that they were pointers to the fact that the assessee undertook AMP functions. Accordingly, it upheld the existence of international transaction of AMP-expenses. However, it remitted the ALP-determination back to TPO directing examination of distribution & AMP ‘functions’ carried out by the assessee and the probable comparables in light of Sony Ericsson HC ruling.

BMW India Private Ltd. vs. DCIT-TS-880-ITAT-2017(DEL)-TP ITA No.1406/Del/2015 dated 10.11.2017

669. The Apex Court admitted Revenue’s SLP against Delhi High Court judgment dated 6.5.2016 in case of Bausch and Lomb Eyecare (India) (assessee engaged in distribution activities) wherein marketing intangibles adjustment was deleted absent existence of an international transaction involving AMP expenses between assessee and foreign AE and tagged it with the case of Canon India Private Limited Vs DCIT.

Pr CIT v Bausch and Lomb Eyecare India Pvt Ltd – TS-69-SC-2017 – TP – Special Leave to Appeal (C)……/2017 (CC No.3014/2017) dated 10.02.2017

670. The Tribunal held that the payment towards Advertising, Marketing and Promotion (AMP) made by assessee (manufacturer & distributor of digital hearing aids) to domestic parties during AY 2011-12 was not an international transaction. It observed that AMP spend had been treated as international transaction by the Revenue merely because it was found to be benefiting the AE which was owner of brand, whereas there was no finding of any arrangement between assessee and AE obliging assessee to incur AMP expenditure on behalf of the AE. Accordingly, it concluded that the payment made by assessee under AMP head to domestic parties could not be termed as an international transaction and that no imaginary price could be be attributed by allocating AMP costs and then adjusting the same by applying TP provisions. Consequently, the Tribunal concluded that the TPO had wrongly invoked Chapter X provisions, and deleted TP-addition of Rs. 4.59 Cr on AMP spend.

Widex India Pvt Ltd vs. ACIT – TS-60-ITAT-2017 (Chand) – TP – ITA No.117/Chd/2016 dated 06.02.2017

671. The Court refused to admit Revenue’s appeal challenging Tribunal’s deletion of TP-adjustment on account of Advertising, Marketing and Promotion (AMP) expenses in the case of Goodyear India for AYs 2007-08 to 2009-10, which had been deleted by the Tribunal by following HC decisions in Maruti Suzuki  [TS-595-HC-2015(DEL)-TP] and Honda Siel[TS-627-HC-2015(DEL)-TP]. Since the AMP expenditure was not subjected to adjustments in all the previous years, although it had been part of the Transfer Pricing exercise, it refused to admit the appeal. However, it admitted question of law raised by Revenue against Tribunal’s deletion of TP-addition on payment of trademark fee to AE and application of TNMM over CUP method for benchmarking the trademark fee paid.

Pr. CIT vs. Goodyear India Limited – TS-115-HC-2017 (Del) – TP – ITA 77/2017 & CM Nos. 3072-73/2017 + ITA 78/2017 & CM Nos. 3074-75/2017 + ITA 79/2017 & CM No. 3076/2017 dated 13.02.2017

672. The Apex Court admitted the SLP filed by the Revenue against the order of the Delhi High Court in Maruti Suzuki Ltd wherein the High Court, distinguished the judgment passed by the co-ordinate bench in Sony Ericsson Mobile Communications India P. Ltd   [TS-543-HC-2016(DEL)-TP] (on the ground that the impugned judgment was rendered in the context of distributors and not manufacturers and the assessee in the instant case was a manufacturer) had held that AMP expenses incurred by Maruti Suzuki did not qualify as an international transaction under Section 92B of the Act.

CIT v Maruti Suzuki India Ltd – TS-159-SC-2017- TP – PETITION(S) FOR SPECIAL LEAVE TO APPEAL (C) NO(S). 22181/2016 dated March 10, 2017

673. The Tribunal remitted the issue of existence of ‘international transaction’ relating to AMP expenses in assessee’s case for AY 2011-12 and directed fresh determination, despite the fact that the jurisdictional HC in assessee’s own case [with the lead order in Sony Ericsson [TS-96-HC-2015(DEL)-TP] ] had held that AMP expenses resulted in an international transaction, noting that a different view was taken in some later decisions of the Court viz. Maruti Suzuki India Ltd [TS-595-HC-2015(DEL)-TP], Whirlpool of India Ltd [TS-622-HC-2015(DEL)-TP] and that post the decision of Sony Ericsson, even the Tribunal was not consistent in its stand. Noting that TPO did not have the occasion to consider the ratio laid down in several judgments of the jurisdictional Court as well as following the predominant view taken in several Tribunal orders including the recent order in case of Louis Vuitton India Retail P. Ltd,  [TS-146-ITAT-2017(DEL)-TP], it restored the matter for fresh determination in light of relevant judgments of the HC and further held that no TP-addition would be called for if it is found that no international transaction existed.

Reebok India Company vs. DCIT – TS-219-ITAT-2017(DEL)-TP – ITA No. 954/Del/2016 dated 20.03.2017

674. The Tribunal in the second round of proceedings, remitted AMP-adjustment back to AO/TPO in case of the assessee engaged in distribution of watches etc for determining the existence of international transaction. In the first round of proceedings, the Delhi High Court had directed Tribunal to adjudicate the core issue as to whether there existed an international transaction entered with assessee’s AE in respect of AMP expenses. Examining the facts, Tribunal noting that TPO had not given any finding w.r.t actual expenditure incurred and had analyzed terms and conditions set out in only one of the several agreements with AE, held that it had to be examined in detail whether the services rendered by appellant of incurring expenditure incurred by assessee had really resulted into any benefit to the foreign AE. Accordingly, it restored the matter back to the AO/TPO for determining the existence of international transaction with the direction to determine ALP if the existence of international transaction was proved.

Casio India Company Pvt Ltd vs DCIT-TS-586-ITAT-2017(DEL)-TP-ITA no. 4726/del/2010 dated 03.04.2017

675. The Apex Court admitted Revenue’s SLP filed against the judgment of the Delhi High Court in case of Bose Corporation India Pvt Ltd on the issue of AMP-adjustment wherein the Court dismissed the Revenue’s appeal against the Tribunal order remitting the AMP-adjustment back to the file of TPO for fresh consideration following SB ruling in LG Electronics. The High Court had held that since L.G. Electronics itself was been partially reversed the matter that was remitted was to be reconsidered in light of the directions in Sony Ericsson Mobile Communications India Private Limited.

Pr. CIT vs. Bose Corporation India Pvt. Ltd- [TS-556-SC-2017-TP]- ITA No. 635/2016 dated 03.07.2017

676. The Court allowed assessee’s appeal against Tribunal order remanding marketing intangibles issue to the file of AO/TPO since the Revenue had failed to show existence of an international transaction with its AE. Distinguishing coordinate bench ruling in the case of Le Passage to India Tour & Travels case wherein the matter was remanded absent determination by TPO as to existence of international transaction, the Court held that TPO had applied his mind as to existence of international transaction involving advertising, marketing and brand promotion (‘AMP’) expenses and his conclusion as to this issue was solely on the ground that assessee’s AMP expenses were in excess of that incurred by comparable. Noting that TPO had applied Bright Line test and made an adjustment of Rs. 23.98 crores which was confirmed by CIT(A), The Court held that Bright Line Test’ (‘BLT’) was not an appropriate yardstick for determining the existence of an international transaction and the mere fact that the Assessee was permitted to use the brand name ‘Valvoline’ would not automatically lead to an inference that any expense that the Assessee incurred towards AMP was only to enhance the brand ‘Valvoline. Further, it held that Tribunal was not justified in remanding the matter to the AO/TPO when in fact, Revenue had failed to discharge its onus to show the existence of any arrangement or agreement inferring that the AMP expense incurred by the assessee was for the benefit of AE.

Valvoline Cummins Private Ltd vs DCIT-TS-610-HC-2017(DEL)-TP-ITA no.158/2016 dated 31.07.2017

677. Noting that the co-ordinate bench had in assessee’s own case for AYs 2004-05 and 2005-06 confirmed deletion of AMP adjustment, the Tribunal deleted AMP adjustment of Rs. 5.29 cr in respect of assessee engaged in the business of blending, bottling and trading of India made foreign liquor. Noting that the AO had disallowed 10% of total brand expenses on the contention that expenses incurred by assessee was for increasing brand popularity of parent company it held that benefit arising to AE was purely incidental and since the product manufactured and sold by the assessee was India specific it could not be said that any benefit could have accrued to the AE on account of AMP spend in India in respect of such brand.

Pernod Ricard India Pvt ltd vs ACIT-TS-618-ITAT-2017(DEL)-TP-ITA No.4626/del/2010 dated 24.06.2017

678. The Court, following the ruling of the coordinate bench in assessee’s own case for AY 2009-10, dismissed Revenue’s appeal against Tribunal’s order remanding AMP issue to the file of AO by holding that the Revenue had failed to establish existence of international transaction between assessee and AE involving AMP expenses.

Pr.CIT vs Valvoline Cummins Ltd-TS-613-HC-2017(DEL)-TP-ITA no. 1031/2015 dated 31.07.2017

679. The Court, set aside Tribunal’s order restoring AMP issue to the file of AO/TPO for fresh consideration. It noted assessee’s submission that the Tribunal did not have the benefit of rulings of Sony Ericsson Mobile Communications India Pvt Ltd [TS-543-HC-2016(DEL)-TP], Daikin Air-conditioning India Pvt. Ltd. [TS-533-HC-2016(DEL)-TP] wherein the Court had held that prior to commencement of TP exercise, existence of international transaction involving assessee and its AE had to be first established. Accordingly, the Court restored the matter to the file of Tribunal directing it to decide the assessee’s appeal afresh without being influenced by anything said in any of the preivous order of the Tribunal that had been set aside by this order.

Haier Appliances (India) P. Ltd vs. DCIT-TS-684-HC-2017(DEL)-TP-ITA no. 563/2017 dated 01.09.2017

680. The Tribunal, relying on the coordinate bench’s ruling in assessee’s own case for AY 2007-08, deleted AMP adjustment in the case of the assessee (engaged in manufacturing & marketing of international alcoholic brands) and held that in the absence of an agreement/arrangement between the assessee and its AE and considering the fact that the assessee mainly made payments to unrelated domestic parties, AMP expenses incurred did not constitute an international transaction.

Diageo India Private Limited vs. ACIT-TS-699-ITAT-2017(Mum)-TP- ITA No. 981/Mum/2017 dated 18.08.2017

681. The Tribunal, referring to assessee’s exclusive distribution agreement with AE, held that since the assessee undertook brand promotion of Toshiba in India and AEs reimbursed a substantial sum, it constituted an international transaction for AY 2012-13. Referring to the decision of Sony Ericsson, it held that distribution and AMP functions were two separate international transactions and due to their inter-twinning nature, both transactions could be aggregated only for the purpose of benchmarking so that surplus from one could be adjusted against deficit from other in the overall approach. Accordingly, it held that in the absence of suitable comparables carrying out similar functions or where adjustment could be made to iron out differences between functions performed by assessee and comparables, ALP of international transaction of AMP-function should be determined in segregated manner, however a proper set off, if any, available from the distribution activity, should be allowed.

Toshiba India Pvt Ltd vs DCIT-TS-686-ITAT-2017(DEL)-TP- ITA No.1357/Del/2017 dated 01.09.2017

682. The Tribunal, in the second round of proceedings, deleted Rs. 22.30 cr AMP adjustment made on protective basis. Noting that TPO had proposed AMP-adjustment on protective basis by applying bright line test (BLT), the Tribunal, relying on the decision in the case of Perfetti Van Melle India Pvt Ltd [ITA No. 1073 / del / 2017] and Sony Ericsson Mobile Communications India (P) Ltd [55 taxmann.com 240 (Delhi)] held that Bright Line test had no statutory mandate and it was illogical to consider non-routine AMP-expenses as a separate transaction.

Nikon India Pvt Ltd vs DCIT-TS-749-ITAT-2017(DEL)-TP-ITA no. 4574 / del / 2017 dated 20.09.2017

683. The Apex Court admitted Revenue’s SLP against High Court order remitting AMP issue for comprehensive decision on whether AMP expenditure in assessee’s outbound travel business i.e., engaged in the business of organizing tours and arrangements for foreign tourists coming to India and going out of India) constituted an international transaction. The AO had made TP addition in respect of AMP expenses incurred in outbound segment by comparing them with expenses of inbound segment, which was remitted by the Tribunal on the ground that the segments were materially different and required different level of expenditure for promotion. On appeal, the High Court had remitted the matter to the Tribunal holding that the Tribunal should have first decided whether in the circumstances of the case, the nature of AMP reported could lead to the conclusion that there was an international transaction and then remitted the matter to the file of AO for fresh examination.

DCIT vs Le Passage To India Tour & Travels P ltd-TS-687-SC-2017-TP IA No. 80934/2017 dated 04.09.2017

684. The Tribunal, following the decision in assessee’s own case for earlier AY 2007-08 (wherein Tribunal, relying on the decision of Johnson & Johnson Limited [TS-19-ITAT-2016(Mum)-TP] and by Delhi HC in the case of Perfetti Van Melle IndiaPvt Ltd. [TS-246-ITAT-2015(DEL)-TP]  had restored the matter to AO as the AO had made TP additions on account of the Bright Line Test which was no longer valid), remanded the issue of benchmarking the reimbursement of AMP expenses received by the assessee (engaged in marketing Cobra brand of products in India) for AYs 2008-09 and 2009-10.

Molson Coors Cobra India Private Limited (erstwhile Cobra Indian Beer Pvt. Ltd.) Vs DCIT – TS-213-ITAT-2017(Mum)-TP – /I.T.A./7576/Mum/2013 & I.T.A./4306/Mum/2015 dated 15.03.2017

685. Where during the assessment proceedings, the TPO applying the bright line test held that AMP expenses incurred by the assessee were subject to TP adjustment which was confirmed by DRP and on appeal by the assessee, the Tribunal remitted the matter to TPO for reconsideration, the Court, relying on the decision in the case of Passage to India Tour & Travels (P.) Ltd. v. DCIT [TS-15-HC-2017(DEL)-TP], directed the Tribunal to decide whether AMP expenditure constituted an international transaction requiring TP adjustment by applying the ratio laid down in Sony Ericsson Mobile Communications case [TS-96-HC-2015(DEL)-TP].

Pepsico India Holding Pvt. Ltd [TS-178-HC-2017 (Del)-TP] [ITA 100/2017]

686. The Court upheld the Tribunal’s order deleting the adjustment on account of AMP expenses by relying on the decision of jurisdictional High Court in the assessee’s own case wherein it was held that AMP expenses unilaterally incurred by the assessee could not be construed as an international transaction.

Honda Siel Power Product Ltd. [TS-182-HC-2017(DEL)-TP]

687. The Tribunal remitted AMP-issue in the case of the assessee (engaged in trading of all kinds of leather bags, fashion apparels and accessories etc). for AYs 2009-10 and 2010-11, observing that the TPO/DRP had proposed AMP-adjustment by applying Bright Line Test which was overruled by Delhi HC in Sony Ericsson’s case. Noting that neither TPO nor DRP had benefit of Sony Ericsson HC ruling, it set-aside the issue relating to the adjustment on account of AMP to the file of TPO/AO to decide the issue afresh and in accordance with law.

Christian Dior Trading India Pvt. Ltd. vs. DCIT – TS-233-ITAT-2017(Mum)-TP- ITA No.1045/Mum/2014 dated 22.03.2017

688. The Tribunal remitted the issue of existence of ‘international transaction’ relating to AMP expenses in assessee’s case for AY 2011-12 and directed fresh determination, despite the fact that the jurisdictional HC in assessee’s own case [with the lead order in Sony Ericsson [TS-96-HC-2015(DEL)-TP] ] had held that AMP expenses resulted in an international transaction, noting that a different view was taken in some later decisions of the Court viz. Maruti Suzuki India Ltd [TS-595-HC-2015(DEL)-TP], Whirlpool of India Ltd [TS-622-HC-2015(DEL)-TP] and that post the decision of Sony Ericsson, even the Tribunal was not consistent in its stand. Noting that TPO did not have the occasion to consider the ratio laid down in several judgments of the jurisdictional Court as well as the predominant view taken in several Tribunal orders including the recent order in case of Louis Vuitton India Retail P. Ltd,  [TS-146-ITAT-2017(DEL)-TP], it restored the matter for fresh determination in light of relevant judgments of the HC and further held that no TP-addition would be called for if it is found that no international transaction existed.

Grohe India Private Ltd. Vs ACIT TS-280-ITAT-2017(DEL)-TP – ITA No.479/Del./2015

Nikon India Pvt. Ltd. vs. DCIT – TS-272-ITAT-2017(DEL)-TP – ITA No.719/Del./2017 dated 31.03.2017

Bose Corporation India Pvt. Ltd. vs. ITO – TS-337-ITAT-2017(DEL)-TP – ITA No.1509/Del./2014 dated 30.03.2017

689. The Tribunal remitted the TP-issue of Advertisement, Marketing and Promotion (“AMP”) expenses incurred by assessee (distribution of watches in India) during AYs 2007-08 and 2008-09 to the AO / TPO and directed them to re-determine ALP in accordance with directions in Sony Ericsson ruling and not as per the Bright Line Test adopted by the TPO. However, it rejected assessee’s contention that since its profit margin was favourable when compared with that of comparables, the AMP expenses stood subsumed in the overall profit and no TP-adjustment was warranted, and held that that such an argument was contrary to the findings of the High Court. It stated that the examination of assessee’s Distribution and AMP functions vis-a -vis probable comparables was sine qua non in the ALP determination process and held that if the assessee’s argument was taken to a logical conclusion, it would make the AMP spend a non-international transaction, which, would not be appropriate. Considering the observations of the High Court with respect to bundling of transactions, it observed that the essence of the judgment was that the two international transactions of Distribution and AMP was to be examined as per transfer pricing provisions, but on an aggregate basis and clarified that the Distribution and AMP expenses, were being aggregated only for ALP determination purposes, and the same did not take away the separate character of the AMP transaction.

ACIT vs. Casio India Company Pvt. Ltd – TS-287-ITAT-2017(DEL)-TP – ITA No. 6135/Del/2012 dated 03/04/2017

690. The Apex Court admitted the SLP filed by the Revenue against the order of the High Court wherein the Court, relying on the decision of the coordinate bench in the case of Sony Ericsson upheld Tribunal’s decision rejecting application of bright line test.

Toshiba India Pvt Ltd [TS-309-SC-2017-TP] – Petition(s) for Special Leave to Appeal (C)….CC No(s).8042/2017 dated 21/04/2017

691. The Tribunal remitted the issue of addition on account of AMP for AYs 2009-10 and 2010-11 and held that the contentions of the assessee viz. (a) whether incurrence of AMP expenses was an independent international transaction or not and (b) whether no separate adjustment was called for on account of AMP expenditure as its margin was much healthier than the margin of the comparables etc. had to be factually examined by the TPO. It directed the TPO to consider these issues in light of the findings given by the High Court in Sony Ericsson and Maruti Suzuki rulings.

RayBan Sun Optics India Ltd vs. DCIT – TS-239-ITAT-2017(DEL)-TP – ITA No.672/Del/2014 and ITA No.891/Del/2015 dated 24-03-2017

692. The Tribunal remitted AMP adjustment back to the TPO to determine whether incurrence of AMP expenditure was an international transaction for assessee engaged in the business of manufacturing confectionary products. It noted that the TPO presumed existence of international transaction of AMP by adopting bright line test by relying on special bench ruling in LG Electronics. It observed that while considering AMP expenses as an international transaction, the TPO did not have the benefit of judicial precedents now available for consideration, whereas some judgments consider the transaction of AMP expenses as an international transaction, and some others have held otherwise. Referring to recent HC rulings in Rayban Sun Optics India, Toshiba India and Bose Corporation, it restored the matter to the file of TPO/AO for fresh consideration.

Perfetti Van Melle India Pvt Ltd -TS-403-ITAT-2017(DEL)-TP-I.T.A.No.789/DEL/2016 dated 28.04.2017

693. The Tribunal, upheld deletion of TP-adjustment on account of brand promotion expenses incurred by assessee engaged in blending, bottling and trading of Indian Made Foreign Liquor (‘IMFL’) on the ground that if the product manufactured and sold by the assessee was India specific then it could not be said that any benefit could have accrued to the AE on account of AMP spend in India in respect of such brands. Further, it rejected Revenue’s plea for remanding the issue in view of Delhi HC decisions on this issue, clarifying that its adjudication on AMP issue was specific to present case and should not be enunciated as a legal principle or precedent.

Pernod Ricard India Pvt. Ltd (formerly known as Seagram India Pvt Ltd) Vs DCIT TS-354-ITAT-2017(DEL)-TP ITA No.3525/Del/2009 and ITA No. 2770/del/2011 dated 02.05.2017

694. The Court, relied on the decision in the case of Sony Ericsson Mobile Communications India Pvt. Ltd [TS-96-HC-2015(DEL)-TP] and held that where the facts pertaining to existence of international transactions of AMP expenses had already been analyzed and considered by the Tribunal and no new facts had emerged, the Tribunal could not remand the matter back to the TPO. It accordingly set aside Tribunal’s order remitting issue regarding existence of international transaction of AMP expenses incurred by the assessee (engaged in the business of manufacturing, distribution, selling and marketing of alcoholic beverages in India) and restored the matter back to it to decide the issue on merits.

Bacardi India Pvt. Ltd vs DCIT-TS-418-HC-2017(DEL)-TP-I.T.No.417/2017 dated 24.05.2017

695. The Court, directed the AO/TPO to decide AMP issue in case of the assessee for AY 2009-10 in conformity with the High Court decision in the case of Sony Ericsson Mobile Communications 374 ITR 118 and not Special Bench decision in LG Electronics [152 TTJ (del) (SB)] as the opinion in the case of LG Electronics was no longer good in law.

Ray Ban Sun Optics India Ltd [TS-423-HC-2017(DEL)-TP] ITA No.942/2016 dated 15.05.2017

696. The Court, relying on the decision in assessee’s own case [TS-627-HC-2016(DEL)-TP] dismissed Revenue’s appeal challenging Tribunal’s order in respect of TP-adjustment on advertising, marketing and promotion (AMP) expenses. It held that the Revenue had been unable to demonstrate with any tangible material the existence of an international transaction. Mere existence of technical collaboration agreement whereby license granted to Honda for use of brand name would not imply arrangement with the foreign AE for promoting brand of foreign AE.

Pr.CIT vs Honda Seil Power Products Ltd-TS-421-HC-2017(DEL)-TP-ITA 291/2017 dated 16.05.2017

697. The Court, relying on the decision in the case of Bausch & Lomb Eyecare (India) Pvt Ltd [ 381 ITR 227 (Del)] dismissed Revenue’s appeal challenging deletion of Rs 75.40 Crores TP-adjustment on account of Advertising, Marketing and Sales Promotion Expenses (AMP expenses) on the ground that since the issue was covered by earlier High Court decisions, there was no substantial question of law involved in the issue.

Amadeus India Private Ltd vs Pr.CIT-TS-422-HC-2017(DEL)-TP-ITA-154/2017 dated 26.04.2017

698. The Tribunal following the principle of consistency, remitted the issue of AMP-adjustment back to the TPO to determine the existence of international transaction for AY 2012-13 in light of the decision of the coordinate bench in the assessee’s own case of AY 2011-12. In AY 2011-12 the Tribunal remitted the AMP adjustment back to the TPO to determine whether incurrence of AMP expenditure was an international transaction for assessee engaged in the business of manufacturing confectionary products. The TPO had applied bright line test to determine the routine advertising, marketing and promotional expenses and proposed transfer pricing adjustment using a markup 38.27% (assessee’s gross profit rate) and calculated the same at Rs. 308.19 crores under cost plus method. The assessee relied on the decision in the case of Maruti Suzuki India Ltd [TS-595-HC-2016(DEL)-TP] and Whrilpool of India Ltd [TS-622-HC-2015(DEL)-TP] to contend that AMP expenses could not be considered as an international transaction. Observing that the TPO had benefit of only some High Court judgments while passing its order, Tribunal held that several other judgements on the same issue had been delivered, thus the judicial position of the High Court was required to be applied to the facts of this case. Further, quoting Rule 10B(1)(c) containing the modus operandi for determining the ALP of an international transaction, it rejected TPO’s approach of considering assessee’s own gross profit rate (38.27%) instead of the comparables for TP adjustment under cost plus method.

Perfetti Van Melle India Pvt Ltd vs DCIT -TS-432-ITAT-2017(DEL)-TP-ITA No.1073/del/2017 dated 24.05.2017

699. The Tribunal relying on coordinate bench’s ruling in assessee’s own case for AY 2010-11, remitted TP-adjustment in respect of AMP expenses relating to selling and distribution activities. For AY 2010-11, the TPO had made an addition in respect of AMP expenses incurred by the assessee. The assessee had contended that all expenses incurred by it were in the nature of selling expenses and it was prohibited under the Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 from incurring any expenditure on advertisement, marketing and promotion. Further, it also placed reliance on the ruling in the case of CIT vs Whirlpool of India Ltd [(2015) 94 CCH 156 Delhi HC] to contend that AMP expenses could not be considered as an international transaction. The Revenue relying on the decisions in the case of Rayban Sun Optics India Ltd, Toshiba India Pvt Ltd and Bose Corporation contended that there was no blanket rule of AMP expenses as a non-international transaction and that the High Court had restored the issue for fresh consideration. Further, the Tribunal had in several cases restored the matter to the file of TPO to be decided in light of the decision in the case of Sony Ericson Mobile Communications (India) Pvt. Ltd in which the question as to whether AMP expenses was an international transaction had been restored to the file of TPO/AO for fresh determination. Accordingly, the Tribunal restored to the file of AO/TPO the issue relating to transfer pricing i.e. AMP expenses for fresh adjudication.

MSD Pharmaceuticals Pvt Ltd vs DCIT-TS-435-ITAT-2017(DEL)-TP-ITA Nos. 1383 & 1563/del/2016 dated 25.05.2017

Loans

700. The Court deleted the adjustment in respect of interest paid on fully convertible debentures (FCDs) since the assessee’s interest rate was within the range of prime lending rate and the TPO’s ALP determination by relying on HC ruling in Cotton Naturals India was not tenable as the FCDs were issued in Indian currency.

Bacardi India Pvt Ltd – TS-1052-ITAT-2016 (Del)-TP

701. The Tribunal deleted TP-addition on account of interest paid on Compulsorily Convertble Debentures (CCDs) issued by assessee to its AE on the ground that TPO had wrongly treated issuance of CCDs as external commercial borrowing without appreciating that the CCD is hybrid instrument basically categorized as equity in nature and as per Govt and RBI policy, issue of CCD is part of FDI being quasi-equity in nature. Further, it rejected LIBOR+2% benchmark adopted by the TPO on the ground that assessee had justified 12% interest rate on the basis of SBI PLR and also data from NSDL website.

ADAMA India Private Limited – TS-16-ITAT-2017(HYD)-TP

702. The Tribunal directed TPO to adopt arm’s length interest rate of LIBOR +2% or 7%, whichever is higher, for benchmarking interest received by assessee on loans advanced to subsidiaries during AY 2007-08 and 2008-09 relying on the decision in the assessee’s own case for AY 2006-07 as facts and circumstances were similar. Further, it rejected assessee’s contention for considering RBI approvals for investment in subsidiaries as benchmark, stating that RBI approvals were on a different criteria and for different purposes. Also, Although RBI approvals maybe one of the aspects considered for ALP determination, it could not by itself be considered as benchmark or ALP.

Dr Reddy’s Laboratories Limited – TS-8-ITAT-2017(HYD)-TP

703. Where the assessee had entered into an international transaction of providing loans to its AE at 2% and established that loans were given for the purpose of carrying on the business and to build the brand image globally and there was no intention of earning interest, the Tribunal relying on the decision in the case of Cotton Naturals (I) Pvt Ltd-TS-117-HC-2015(DEL)-TP held that since interest charged by the assessee i.e., 2% was more than LIBOR rate, it was arm’s length and accordingly dismissed the Revenue’s appeal.

ACIT vs. CCL Products (India) Limited-TS-777-ITAT-2017(VIZ)-TP I.T.A.No.192 & 193/Vizag/2017 dated 21.09.2017

704. The Tribunal following coordinate bench’s ruling in assessee’s own case upheld CIT(A)’s restriction of interest rate ALP from 4.31% as adopted by TPO to 2.40% in respect of loan given by assessee to AE for AY 2010-11 on the ground that the calculation of arm’s length interest rate for an interest-free unsecured loan to a French AE should be done using the average French interest rate spread as conditions in entire European financial market are not the same and without any adjustment for foreign exchange risk as exchange fluctuations are inherent in comparable transactions.

DCIT vs. Jyoti CNC Automation Pvt. Ltd-TS-968-ITAT-2017(Rjt) ITA No. 301/Rjt/2015 & CO No.57/Rjt/2015 dated 28.11.2017

705. Where the DRP had in the subsequent AY i.e AY 2012-13, accepted LIBOR based rate for benchmarking interest on loan granted by assessee to its AE, the Tribunal rejected Revenue’s application of flat rate of 13.25% of bank rate for benchmarking and applying the principle of consistency, remitted the interest adjustment on loan to the file of AO to verify the same and decide the issue afresh.

Autoline Industries Ltd vs DCIT-TS-1000-ITAT-2017(PUN)-TP dated 24.11.2017

706. Assessee had borrowed funds in India and advanced the same (without charging interest) to two AEs outside India, which were engaged in excavation of copper ore, a raw material used by the assessee for the manufacture of non-ferrous metals. Accordingly, the assessee claimed that the money had been advanced due to business expediency, which was disregarded by the TPO who made an addition of Rs. 2.13 crores on account of notional interest on advance given by assessee to AE. On appeal, the CIT(A) considering the plea of business expediency deleted the addition by relying on SC decision in S.A. Builders Ltd. [TS-30-SC-2006]. The Tribunal, noting the contention of the Revenue that by diverting the borrowed funds outside India, the assessee was diverting the taxable profit outside the jurisdiction, observed that the CIT(A) had not examined whether the advance made to foreign companies had resulted in shifting of profits. It also considered assessee’s contention that the advance made to one of the AEs was made in earlier AY. Accordingly, it remitted the TP adjustment to AO/TPO for re-examining whether any advance was made to foreign company during the current year and whether such advance would amount to shifting of profit to other nation. 

ACIT vs. Sterlite Industries (India) Ltd – TS-278-ITAT-2017(CHNY)-TP – ITA Nos.318 & 319/Mds/2008 dated 29.03.2017

707. The Tribunal accepted LIBOR + 2% as arm’s length interest rate for benchmarking loan advanced by assessee to its 100% subsidiary. The TPO, contended that if the subsidiary was to obtain loan from bank, owing to its lower credit rating, it would have required a guarantee from assessee, and thus worked out effective borrowing rate of assessee at 8.7% i.e. LIBOR + 2% (bank’s margin) + 2% (guarantee fees). The Tribunal rejected the additional 2% rate considered by TPO and held that the adjustment made by TPO on account of guarantee fees was invalid as no such guarantee had been given by assessee. Further relying on the decision of the co-ordinate bench in UFO Movies  [TS-7-ITAT-2016(DEL)-TP] , the Tribunal held that the fiction of assuming a corporate guarantee and then proceeding to benchmark the same was unsustainable in law. Further, even otherwise an adjustment due to assumption about lower credit rating of the subsidiary was not warranted. Noting that for the earlier AY, the TPO himself had adopted LIBOR + 2% which had been accepted by Tribunal, and there was no material change in facts and circumstances for the current year, the Tribunal allowed the assessee’s appeal.

Soma Textiles & Industries Ltd. Vs ACIT – TS-295-ITAT-2017(Ahd)-TP – ITA No.472/Ahd/2014 dated 11.04.2017

708. The Tribunal upheld the TPO/DRP’s determination of ALP in respect of interest on debit balance of advances given by assessee to AEs for AY 2006-07. It observed that though the assessee had incurred cost by availing credit facility, it had advanced interest free funds to its subsidiaries, and therefore held that it could be safely be concluded that a benefit had accrued to the subsidiaries on account of cost incurred on credit facility which had been shifted by the assessee to its subsidiaries. Further, stating that the principle of commercial expediency would not come into play under the present facts, it held that as the assessee had not charged interest on the outstanding receivables from the overseas subsidiaries, the ALP of the same had rightly been determined by the A.O/TPO. However, it directed the AO/ TPO to apply LIBOR+300 points to compute interest ALP, following co-ordinate bench ruling in assessee’s own case in earlier year.

Strides Shasun Limited [Formerly known as Strides Acrolab Limited] vs. ACIT – TS-260-ITAT-2017(Mum)-TP – /I.T.A. No. 8540/Mum/2010 dated 31/03/2017

709. The assessee availed unsecured loan in foreign currency from its AEs as external commercial borrowing of USD 500 million until 2020, as unsecured loan for financing its oil and gas operation in India at the interest rate of US dollar Libor +2%. As a result of the 2008 crisis, the assessee availed additional loan amounting to USD 300 million and the interest rate was changed from floating rate of interest to a fixed rate of interest of 6.18% for 5 years as an amendment to the existing loan facility agreement. Consequently, the assessee paid interest at Libor + 2% for the period from 01/04/2009 to 21/10/2009 and at the rate of 6.18% for the period from 22/10/2009 to 31/03/2010. Though the TPO accepted CUP method adopted by assessee, he held that the assessee had not provided any documentary evidence or convincing argument for shift in the interest rates from floating rate of interest to fixed rate of interest mechanism and no independent party would have agreed to such an increase and opined that the interest paid at the rate of 6.18% was excessive, and determined effective rate at 2.33%, being the interest rate paid by assessee from 01/04/2009 to 21/10/2009. Accordingly, he proposed adjustment an of Rs. 42.72 Cr. The Tribunal disagreed with TPO’s finding that there was no reason for assessee to increase the interest rate from 2.33% to 6.18% and noted that the assessee had given detailed rational behind its own decision for shifting from floating rate of interest regime to fixed rate of interest viz. it reduced the risk of changes in the interest rates. Based on the a well settled proposition of law it held that the TPO was not supposed to question the business decision of the assessee, and further observed that assessee had given ample reasons for its business decision, even stating that most of the reported loans in that particular period were having a clause of fixed rate of interest. Accordingly, it held that it was beyond the authority of the TPO to question the wisdom of the assessee, and it was not the prerogative of revenue to direct assessee to conduct its business in a particular manner, despite heavy business risk. It also held that the TPO had not performed his duty of determining ALP of interest payment made by assessee, but had only analyzed and questioned the international transactions. It stated that the TPO was duty bound to apply one of the methods specified in Sec 92C to determine ALP and that it was not proper to benchmark both the transactions of payment of interest with respect to two different loans governed by two different agreements which has different terms and conditions as ‘one transaction. Consequently, it remitted the matter to the TPO with a direction to examine ALP computation strictly in accordance with the provisions of Sec 92C considering the evidences placed by the assessee.

BG Exploration & Production India Ltd [TS-317-ITAT-2017(DEL)-TP]

710. The assessee had subcontracted EPC contracts to its AE viz. Lanco International Pte. Ltd (LIPL) and paid mobilization/ material advance for the execution of projects. The TPO considered these as loans and advances granted/ receivables and treated them as international transaction. The TPO made an addition of Rs 145Ccr towards the advances at 12.25%. Aggrieved, the assessee filed an appeal before Tribunal. The Tribunal deleted the adjustment of Rs 145 cr towards interest on mobilization advances. It noted that mobilization of advances was a well-known practice in the construction industry and there was complete uniformity in assessee’s act in not charging interest from both AE and Non-AE and also not paying interest on advances received. Further, it deleted TP adjustment on account of interest received on loans observing that the assessee had received interest at 6.37% which was more than average Singapore PLR of 5.38% relying on the decision in the case of Tata Autocomp Systems ltd [TS-45-HC-2015(BOM)-TP] and Cotton Naturals India Pvt. Ltd [TS-117-HC-2015(DEL)-TP]. The Tribunal also rejected assessee’s contention that provision of corporate guarantee did not fall within the scope of International Transaction as per section 92B. However, considering Asian Paints Ltd [TS-868-HC-2016(BOM)-TP] case, it directed the AO/TPO to consider only 0.27% as the guarantee commission on the amount involved and clarified that if any of the corporate guarantees were provided in earlier year, they would not be subjected to transfer pricing during the year under consideration. Accordingly directed the AO/TPO to appropriately quantify the guarantee commission after considering those in earlier year or withdrawn during the year.

Lanco Infratech Limited vs DCIT –TS-328-ITAT-2017(HYD)-TP ITA No. 404/hyd/2016 dated 03.05.2017

711. The Tribunal relying on the decision in assessee’s own case for AY 2009-10 and 2010-11 rejected TPO’s re-characterization of assessee’s subscription of preference shares issued by its AE as a loan transaction for AY 2011-12 and 2012-13. It held that the transaction was clearly a case of investment in shares and it could not be given a different colour to expand the scope of transfer pricing adjustments by recharacterizing it as interest free loan and accordingly deleted the TP adjustment made by AO. The assessee had subscribed to redeemable preference shares of its AE and also redeemed some of these shares at par. The shares were non-cumulative and redeemable on par without dividend and the assessee had a running account with the AE, in terms of which monies were being advanced towards purchase of shares as and when need arose. Considering the nature and frequency of the transactions in the running account, the TPO held that the subscription and redemption of the shares was in the nature of loan and not subscription for investment in shares. The TPO applied arm’s length rate of interest on the amount given to the AE, and proposed TP addition of Rs. 63.64 Cr which was confirmed by the DRP. The assessee contended that TPO could not re-characterize the subscription of preference shares to advancement of unsecured loan by terming it at as exceptional circumstance, and could not question the commercial expediency of the transactions entered into by the assessee. It contended that the subscription to preference of shares was purely an investment in shares and could not be inferred as a loan. The Tribunal held that the TPO could not disregard the commercial expediency of the transaction unless there was evidence and circumstances to doubt. Further, it held that if in a third-party scenario, if the subscription of a share by the independent enterprise could not be characterized as loan, then this transaction also could not be inferred as loan. It accepted assessee’s reliance on the coordinate bench’s ruling in the case of Bexiskier Dhboal SA, ITA No. 776 of 2011 for the proposition that re-characterization of a transaction (i.e. re-characterization of subscription of share as loan) was not permissible in the absence of any enabling provision to that effect in the Act) that subscription of shares cannot be characterized as loan and therefore no interest should be imputed treating it as a loan.

Aegis Limited vs ACIT-TS-450-ITAT-2015(MUM)-TP-IT(TP)A no. 962/mum/2016 and IT(TP)A No 1556/mum/2016 dated 12.05.2017

712. The Tribunal for AY 2008-09 relying on the decision of Delhi HC in the case of Cotton Natural (I) Pvt Ltd [ITA No. 5855/del/2012] and Bombay HC ruling in Tata Auto Comp System [52 SOT 48 (Mum)], upheld deletion of TP-adjustment in respect of interest on loan given by assessee to AE for in foreign currency. The TPO benchmarked the international transaction by adopting as the ALP rate of interest at 14.12% (Domestic PLR). Noting that the loan was given in foreign currency at interest of 4% p.a., it held that where the transaction of loan between the AEs was in foreign currency, the international LIBOR rate should be applied and therefore domestic prime lending rate had no applicability. Since the rate charged by assessee was more than LIBOR it deleted the addition of the TPO.

DCIT vs M K Shah Exports Ltd – TS- 470- ITAT-2017(Kol)-TP- ITA No. 2149/kol/2014 dated 12.05.2017

713. The assessee had provided interest free loans to its wholly owned subsidiaries, which it benchmarked at cost plus zero percent mark-up contending that it did not bear any costs in the impugned transaction. However, the TPO held that in a comparable uncontrolled situation such advances would have been liable to interest and therefore levied interest at LIBOR plus 3%. The DRP considered the rate of interest at 14% p.a. as reasonable and representative of the market rate prevailing in India and enhanced the addition. The Tribunal rejected the assessee’s contention that since there was a commercial consideration involved, no transfer pricing adjustment was justified and it held that interest free advances to wholly owned subsidiary were undoubtedly within the ambit of international transaction. Applying CUP method, it noted that interest on Bank FD for a term equivalent to the term of loan to AEs would be the safest comparable. However, for the purpose of maintaining the rule of consistency, as various benches of Tribunal had considered LIBOR in the past, it held that LIBOR plus 2% would be the appropriate interest rate for the unsecured loans (as also sans guarantee) to the AEs. The Court dismissed the appeal of the Revenue and upheld the order of the Tribunal observing that where there was a choice between the interest rate of a currency other than the currency in which transaction had taken place and the interest rate in respect of the currency in which transaction had taken place, the latter was to be adopted. Therefore, since the loan was in foreign currency, it held that the LIBOR rate would be considered to determine the Arm’s Length interest and therefore upheld the order of the Tribunal..

CIT vs Aurionpro Solutions Ltd – TS-474-HC-2017(BOM)-TP-dated 09.06.2017

714. The assessee had provided a loan to its Singapore based AE and charged interest @ LIBOR + 5.25 percent and benchmarked the same under CUP adopting the Singapore PLR of 5.38 percent as comparable. The TPO made an addition adopting PLR in India @ 14.75 at ALP which was confirmed by the DRP on the ground that the assessee did not respond to the query of the TPO. The Tribunal relying on the order of the co-ordinate bench in the assessee’s own case for the prior assessment year (wherein the benchmarking adopted by the assessee had been accepted) deleted the addition and held that the DRP erred in confirming addition merely because the assessee did not respond to the query of the TPO.

Lanco Infratech Ltd vs. ACIT – TS-1022-ITAT-2017(HYD)-TP – ITA Nos. 221 /Hyd/2017

715. Where the TPO recharacterized outstanding debts exceeding 6 months as a loan and determined ALP on the basis of B-rate bond yield rate of 13.46%, the Tribunal applying the provisions of subclause (c) of clause (i) of explanation to section 92B inserted by Finance Act 2012 held that deferred payments or receivables or any other debt arising during the course of business fell under the expression ‘international transaction. Accordingly, it confirmed the TP adjustment made in respect of outstanding receivables from AE and dismissed assessee’s appeal. Further, regarding assessee’s plea that adoption of 13.46% interest rate on receivables was excessive and unreasonable, the Tribunal held that it was not raised before the lower authorities and did not emanate from the orders of the lower authorities and therefore dismissed the same.

Nuance Transcription Services India Pvt. Ltd vs DCIT-TS-1009-ITAT-2017(Bang)-TP dated 28.11.2017

716. Where the TPO made a TP adjustment relating to interest on assessee’s foreign currency loan to AE for AY 2010-11, the Tribunal relying on the co-ordinate bench’s ruling in assessee’s own case for AY 2008-09 (wherein it was held that when loan advanced to foreign subsidiary in foreign currency, LIBOR and not the domestic prime lending rate would be appropriate for benchmarking the international transaction) deleted the TP adjustment related to the interest on foreign currency loan to AE.

Cotton Natural (I) Pvt Ltd vs DCIT-TS-1068-ITAT-2017(DEL)-TP dated 04.12.2017

717. The Tribunal, relying on the decision in the case of Geodesic ltd [62 taxamann.com 383] and Ion Exchange [ITA No. 5109/Mum/2013] held that where the interest payment made by the assessee on ECB to its AE was at EURIBOR+500 basis points i.e within the range of interest payment sanctioned by RBI in its master circular i.e LIBOR +500 basis points, the interest payment was at arm’s length. Accordingly, it deleted the TP addition in respect of interest paid by assessee on ECBs.

Tuppadahalli Energy India Pvt. Ltd vs. DCIT-TS-829-ITAT-2017(Bang)-TP-IT(TP)A No. 2207/Bang/2016 dated 13.10.2017

718. Where the assessee had received interest on loan provided to its AE and the TPO had taken the annualized average yield rate as provided by CRISIL i.e. 14.47%, the Tribunal, relying on the decision in the case of Tata Autocomp Systems Ltd [TS-45-HC-2015(BOM)-TP] held that in case of loans advanced to an Associate Enterprise situated abroad, the rate of interest to be applied is the rate prevailing in the country where the loan has been consumed and therefore the TPO erred in benchmarking the interest based on the CRISIL rates. Accordingly, it remitted the interest adjustment on loan granted by assessee to AE for AY 2012-13 to the file of AO/TPO for fresh decision.

Subex Limited vs. DCIT-TS-843-ITAT-2017(Bang)-TP IT(TP)A No.572/Bang/2017 dated 26.10.2017

719. Where the TPO determined interest ALP at 9% (6% domestic cost of borrowing plus 2% exchange risk and 1% being charged as administrative cost) and computed adjustment at Rs. 79.20 lakhs, the Tribunal, relying on the decision in the case of Cotton Naturals (I) Pvt Ltd [TS-117-HC-2015(DEL)-TP] and Firestar International Pvt Ltd [TS-355-ITAT-2015(mum)-TP] held that the CIT(A) had rightly held that interest rate be charged at LIBOR + 300 bps as an ALP rate of interest and there was no infirmity in the order of the CIT(A).

Roha Dyechem Pvt Ltd vs ACIT-TS-867-ITAT-2017(Mum)-TP ITA No. 1991/MUM/2016 dated 27.10.2017

720. The assessee granted loans to 3 AE’s, i.e. Mauritius (interest-free loan as the AE was 100% subsidiary), USA (6% interest) and Bangladesh (6% interest). In respect of the interest free loan to the Mauritius subsidiary, the TPO determined ALP at SBI PLR plus 350pbs which was restricted by the DRP SBI PLR as on 30 June of the previous year plus 150bps. The Tribunal rejected the plea of the assessee that if it charged interest to the AE, it would reduce the AEs profits and in turn reduce the dividend received by it noting that there was no correlation between the two Tribunal also relied on the ruling of Delhi Tribunal in Perot Systems TSI (I) Ltd. vs. DCIT (ITA No. 2320, 2321, 2322/DEL/2008) and Mumbai Tribunal in VVF Ltd. vs. DCIT (2010-TIOL-55-ITAT-MUM) and Tata Autocomp Systems Ltd. vs. ACIT (ITA No. 7354/MUM/2011), wherein assessee’s contention that it was commercially expedite to provide interest free loans was rejected holding that international transactions could not be equated with ordinary business transactions. Further, noting that the TPO accepted the interest rate earned by the assessee from its USA and Bangladesh subsidiaries to be at ALP, it held that the TPO could not have inconsistency in its view in respect of the same tested party vis-à-vis benchmarking the loan from Mauritius. Accordingly, it directed the AO to re- compute the ALP of the interest at 6% in respect of loans granted to all three AEs.

House of Pearl Fashions Limited [TS-926-ITAT-2017(DEL)-TP] ITA No.-1589/Del/2014 dated 8.11.2017

721. The Tribunal remitted to the file of the AO issue relating to disallowance made by DRP for AY 2011-12 on account of interest payable on Compulsorily Convertible Debentures (CCDs) issued by assessee in FY 2007-08, on the ground that though there was no evidence to suggest that the money received from convertible debentures was used for the purpose of business, the DRP had not considered as to how the amount received on issue of convertible debenture in FY 2007-08 was used by the assessee. The Tribunal observed that in the subsequent year, there was waiver of interest by debenture holders and the assessee had written back the interest and offered the same for tax. Further, it rejected assessee’s contention that DRP had no power to make such disallowance relying on provisions of sub section 5 and explanation below sub section 8 of section 144C as per which the DRP has powers to issue directions as it thinks fit.

Epsillon Real Estate Private Limited – TS-1038-ITAT-2016(Bang)-TP

722. Where the assessee, a promoter of Haldia Petrochemicals Ltd (‘HPL’) had made interest free advances to HPL, and the AO, noting that on the one hand the assessee had been suffering interest liability on loans taken by it and on the other hand it was providing interest free loans to HPL, made an addition of notional interest income @ 12 percent of the amounts advanced, the Tribunal taking into consideration the submissions of the assessee viz. that notional income could not be brought to tax and that the interest free loans were to be adjusted against the equity contribution, relied on the order passed by its co-ordinate bench in the case of the assessee for another AY and set aside the matter to the file of the AO with direction to decide the same afresh in accordance with law.

Tata Global Beverages Ltd v DCIT – TS-48-ITAT-2017 (Kol) – TP – I.T.A No.511/Kol/2010, I.T.A No.2105/Kol/2010 dated 03.02.2017

723. Where the assessee had advanced interest free loans to its AE and benchmarked the same under TNMM along with its other transactions as the loan was to ensure supply of raw materials to the assessee by the AE and the AO rejecting the benchmarking adopted by the assessee computed interest at the rate of LIBOR + 2 percent, the Tribunal accepted the additional evidence sought to be filed by the assesseei.e. the letter given to SBI in respect of remittance of funds to its AE with a view to demonstrate that the funds were advanced to the AE to avail economies of scale and remitted the matter to the TPO to decide the issue afresh considering the additional evidence filed as well. It dismissed the Revenue’s contention that additional evidence could not be filed and held that the letters, being filed with the SBI assumed a regulatory character.

Rubamin Ltd vs ITO – TS-113-ITAT-2017 (Ahd) – TP – ITA Nos. 664/Ahd/2012, ITA Nos. 665/Ahd/2012, ITA Nos. 795/Ahd/2012 dated 17.02.2017

724. The Tribunal, relying on its order in the case of the assessee for the prior years, held that where the assessee had provided interest free loans to its AE as a temporary advance to facilitate the AE in meeting operational requirements and the same was given out of own funds, no adjustment could be made without identification of comparable transactions. Accordingly, it directed the TPO to follow the directions issued for the earlier years.

Wipro Ltd v DCIT – TS-126-ITAT-2017 (Bang) – TP – I.T. (T.P)A. No.1665/Bang/2012 dated 04.01.2017.

725. The Tribunal deleted the TP-adjustment towards interest on optionally convertible loans given by the assessee to its Irish subsidiary during AY 2009-10, whereby the assessee lender had either the option for repayment (in which case the cumulative interest payable by the borrower was LIBOR plus 290 basis points) or for conversion of loan into equity at par at any time during the 5 year tenure of the loan. It held that the assessee’s transaction was quasi capital in the nature and could not be characterized as debt and the true reward of this loan was not interest simplictor but the opportunity and privilege to own the borrower’s capital (by way of conversion into equity) on certain favourable terms and therefore could not be compared with a simple loan transaction where the sole motivation and consideration for the lender was interest on loans and that the right comparable for this transaction was a loan transaction with a similar option to convert the loan into capital and granting similar privilege and opportunity to the lender.  Noting that it was not the case of lower authorities that no independent enterprise would have given an interest free loans even if there was an option, coupled with such a deal, to subscribe to the AE’s capital on the terms as offered to the assessee, it held that there was not even a prima facie case made out for ALP adjustment. It also noted that on lapse of assessee’s right to exercise the option of converting the loan into equity, the assessee was entitled to interest on the commercial rates, and that it was not the case of lower authorities that interest so charged by the assessee was not at ALP. Consequently, it deleted the TP adjustment on the optionally convertible loan granted to the AEs.

Cadila Healthcare Limited Vs ACIT – TS-241-ITAT-2017(Ahd)-TP – IT (TP) No. 898/Ahd/2014 and 694/Ahd/2015 dated 03.03.2017

726. The Tribunal, following the decisions in Cotton Naturals (I) P. Ltd [TS-117-HC-2015(DEL)-TP] and TTK Prestige [TS-242-ITAT-2014(Bang)-TP], dismissed the Revenue’s appeal and confirmed the CIT(A)’s and held that the Prime Lending Rate (PLR) could not be considered for benchmarking interest on foreign currency loan. Accordingly, where the assessee advanced foreign currency loans to its subsidiaries in China & Japan at 4% & 3% rate of interest respectively using LIBOR, it held that the TPO was incorrect in making an adjustment of Rs. 35.01 lakhs by considering PLR as benchmark and it rejected the Revenue’s submission that since the assessee was the tested party, interest rate prevailing in the Indian market i.e PLR was to be taken as comparable and not LIBOR.

DCIT vs. Steer Engineering Pvt. Ltd – TS-1087-ITAT-2016 (Bang) – TP – IT. (T.P) A. No.965/Bang/2015 dated 09.12.2016.

727. The assessee had issued inter corporate convertible debentures to its AE on which interest was payable at 10.5 percent and the TPO while benchmarking the interest rate adopted the interest rate of 0.5 percent paid by TPG Wholesale Pvt Ltd as comparable and made a consequent adjustment. The Tribunal noting the assessee’s contention that the correct interest rate paid by the said company, as per the audited financials, was 50 percent, held that the question of comparability of the assessee with TPG Wholesale Pvt Ltd required fresh consideration as both the rates viz. 0.5% and 50% appeared to be prima facie incorrect unless there were other conditions which constrained the company from paying interest at normal market rates. Accordingly, it remitted the issue to the file of the TPO for fresh consideration.

Hospira Healthcare India Pvt Ltd – TS-147-ITAT-2017 (CHNY) – TP dated 28.02.2017

728. Where the assessee had paid interest to its AE on fully convertible debentures (‘FCD’) and external commercial borrowings (‘ECB’) at the rate of 4% and 5.94% respectively and benchmarked it against LIBOR/SIBOR + 500 basis points (‘bps’) claiming it to be at arm’s length, the Tribunal dismissed the Revenue’s appeal against DRP order deleting TP-adjustment on interest paid on ECB/FCD for AY 2011-12 made by the TPO by adopting the rate of LIBOR + 200 bps as ALP. It rejected the contention of the Revenue that 200 bps had to adopted as per various judicial pronouncements viz. Four Soft Ltd [TS-518-ITAT-2011(HYD)-TP], Aurobindo Pharma Ltd [TS-23-ITAT-2014(HYD)-TP] and Dr. Reddy’s Laboratories Ltd  [TS-332-ITAT-2013(HYD)-TP] and held that that 200 bps could not be adopted as a universal rate for all types of loan. It further observed that the spread could differ according to terms, risk, etc of international loans and since the RBI in its prudential norms had allowed a spread of 500 bps for a term loan beyond 5 years, it held that there was no infirmity in the directions issued by the DRP.

DCIT vs. Devgen Seeds & Crop Technology Pvt. Ltd – TS-222-ITAT-2017(HYD)-TP – ITA No. 399/Hyd/2016 dated 24-03-2017

729. Where the assessee   had advanced interest-free loans and share application money to its AEs out of proceeds of zero coupon convertible bonds, the Tribunal rejected the TPO’s benchmarking of the said transaction on the basis of net margin on borrowing costs of assessee. It applied the ratio of the decision of Bombay High Court in CIT vs. Tata Autocomp Systems Limited [TS-45-HC-2015(BOM)-TP] wherein it was held that where taxpayer advances loans to its AE in Germany, the rate of interest for TP purposes would be applied based upon rates prevailing in Germany (where loans were consumed). Accordingly, it remitted the matter to the AO for de-novo ALP determination in light of Tata Autocomp ruling, and directed the assessee to produce all necessary and relevant evidences and explanations before the AO to substantiate its claim.

Geodesic Limited Vs DCIT – TS-131-ITAT-2017(Mum)-TP – I.T.A. No. 1234/Mum/2014 dated 27-02-2017

730. Where the TPO had added income by imputing notional interest at the rate of 14% on the outstanding advance balance shown in the assessee’s books, the Tribunal remitted the TP-adjustment to the file of AO/TPO for examination as to whether there was any agreement for charging interest on late payments or not from its AEs. It held that if there was no such agreement, then the TP-adjustment made was to be deleted. It relied on the decision in the assessee’s own case [TS-572-ITAT-2015(BANG)-TP] and [TS-190-ITAT-2015(BANG)-TP] wherein it was accepted that TP-adjustment could not be made on hypothetical and notional basis until and unless there was some material on record that there had been under charging of real income.

Ingersoll Rand India Ltd vs DCIT [TS-449-ITAT-2017(BANG)-TP] dated 21.04.2017

731. The Tribunal upheld DRP’s order directing AO to compute interest rate at LIBOR +200 points on advances given by assessee to US AE for AY 2010-11. Noting that the assessee had charged interest based on LIBOR on similar advances to Hong Kong AE but not charged interest on advances to US AE, it held that these were advances given to AEs and not for any capital investment for which there was no allotment of shares and therefore dismissed the plea of the assessee that it was a capital advance on which it received no income, not subject to the TP provisions. The Tribunal following the decision in the case of Transport Corporation directed the AO to compute interest rate at LIBOR +200 points. Further, relying on the decision in the case of Four Soft, it deleted the TP-addition in respect of corporate guarantee and held that providing corporate guarantee would not amount to an international transaction where no cost was incurred by the assessee. Further, relying on the decision in the case of Siro Clinpharm held that the amendment to section 92B in respect of corporate guarantee was only prospective and applicable from AY 2013-14 and accordingly deleted the TP-addition.

Vivimed Labs ltd vs DCIT-TS-498-ITAT-2017(HYD)-TP-ITA Nos 404 & 479/hyd/2015 dated 02.06.2017

732. The Tribunal rejected ‘nil’ ALP determined by TPO in respect of transaction for import of fixed assets from AE and held that ALP could not be ‘nil’ unless it was brought on record by the TPO that in third party situation, the cost to such an asset would also be ‘nil’. Further, in respect of delay in receipt of payments from its AE, the AO/TPO treated it as an unsecured loan advanced to the AE and charged interest on the same by taking SBI base rate and adopted interest rate of 11.69%. The assessee contended that the credit period extended to third parties was much longer and since no interest had been charged on delayed payments made by third parties, no interest should be imputed in respect of receivables outstanding from the AEs also. Relying on the decision in the case of Bechtel India Private Limited [ITA No. 1478/del/2015], it held that once it was an accepted fact that assessee did not have any interest bearing borrowed funds for extending any kind of loan to its AE, then it could not be the reckoned that assessee had given any benefit to the AE by blocking its interest-bearing funds to the AE by extending the credit period. Further, it held that If a similar credit period was given to the AE as given to third parties, then under the arms-length scenario and looking into the similar conditions prevailing between controlled transaction and comparable uncontrolled transaction, there could not be any adjustment, as there would be a direct CUP to analyze such transaction and accordingly, it deleted the TP adjustment.

BC Management Services Pvt Ltd vs DCIT-TS-438-ITAT-2017(DEL)-TP- ITA Nos. 6134/Del/2015, 5829/Del/2015 & 6572/Del/2016- dated 25.05.2017

733. The Court referring to the decision of the coordinate bench in Tata Autocomp [TS-45-HC-2015(BOM)-TP] held that arm’s length price in the case of loans advanced to AE would be determined on the basis of rate of interest charged in the country where the loan was received/consumed. Therefore, where the assessee was paying interest @ 4.79% on loans taken by it in the US, the interest of 7.5% charged by it on its loan to AE was at ALP. It held that the TPO was incorrect in adopting 14% as ALP based on interest rates prevalent in India.

CIT vs The Great Eastern Shipping Co Ltd- TS-534-HC-2017(BOM)-TP-ITA No. 1455 of 2014 dated 28.06.2017

734. For the purpose of determining the ALP of services rendered by the assessee to its AE i.e for arranging borrowers for obtaining foreign currency loans from AEs, the interest earned by the foreign AE could not be considered as the income of the assessee as the assessee had not contributed to the loan amount on which the foreign AEs had earned interest income.

DIT vs Credit Lyonnais-TS-608-HC-2017(BOM)-TP-ITA No.4433/mum/2009 dated 18.06.2017

735. The assessee had advanced loans to its AE in Australia and charged interest rate of 10% p.a, which was rejected by the TPO who held that the ‘BB’ Corporate Board rate of 14.77% was to be adopted to determine the ALP under CUP method. Noting that assessee’s finance cost were available on record, DRP issued directions that the bank overdraft interest rate should be adopted as the internal CUP. Following the order of the Tribunal in the assessee’s own case for AY 2008-09(TS-305-ITAT-2016(Bang)-TP), the Tribunal held that LIBOR rate should be applied for the interest on the said loan transactions and if the interest rate of 10% p.a charged by the assessee was higher than the LIBOR applicable, the adjustment towards interest on the said loans advanced by assessees to its AEs was not tenable. Accordingly, it remitted the issue to the TPO for verification of LIBOR vis-à-vis rate charged by the assessee.

Indegene Pvt. Ltd (formerly known as Indegene Life Systems Pvt. Ltd) vs ACIT-TS-645-ITAT-2017(Bang)-TP-IT(TP)A no. 591/B/17 dated 02.08.2017

736. Relying on the decision of coordinate bench in assessee’s own case for AY 2011-12 [TS-522-ITAT-2016(DEL-TP], the Tribunal deleted the TP adjustment of Rs. 17.62 crores towards interest on compulsorily convertible debentures issued by the assessee following the principle of consistency. Noting that in the remand proceedings for AY 2011-12, TPO had not made any adjustment holding interest rate of 12% to be at ALP, wherein the coordinate bench directed TPO to consider additional evidence submitted by assessee giving analysis of BSE database as per which average rate of return on comparable instruments was 13.66%, the Tribunal held that since the interest paid by assessee during the relevant year at 12% was at ALP. It accordingly deleted the addition in respect of interest on CCDs.

Brahma Center Development Pvt Ltd vs ACIT-TS-658-ITAT-2017(DEL)-TP-ITA no. 1215/del/2017 dated 02.08.2017

 

Receivables

737. The Tribunal relying on the decision in the case of Bechtel India wherein it was held that where the assessee was a debt free company, the question of receiving interest on receivable would not arise, deleted TP adjustment in respect of interest on account of delay in recovering outstanding AE-receivables by assessee (engaged in manufacturing thread rolling dies, milled flat dies and milled ground dies and sale of screws). It held that the TPO was not justified in making adjustment of interest on account of alleged delay in recovering the outstanding toward receivables from the AE as per the provisions of section 92CA(3) of the Income Tax Act.

Kadimi Tool Manufacturing Co. Pvt Ltd vs DCIT-TS-781-ITAT-2017(DEL)-TP dated 25.09.2017

738. The Tribunal, relying on the decision in the case of Patni Computer Systems [TS-51-HC-2013(Bom)], Ameriprise India [TS- 382-ITAT-2015(DEL)-TP] and Techbooks International [TS-317-ITAT-2015(DEL)-TP] held that once any debt arising during the course of business had been ordained by the legislature as an international transaction, if there was any delay in the realization of such debts arising during the course of business, the same was liable to be considered as an international transaction. Further, it rejected CIT(A)’s approach of netting of interest payable with interest receivable only for 1 AE and accepted assessee’s contention that aggregate of amounts receivable and payable form all 3 AEs should have been considered for the purpose of computing the TP addition and held that since the balances with all 3 AEs were on account of trading transactions i.e. same class of transaction, they should be aggregated.

AVL India Private Limited vs DCIT-TS-963-ITAT-2017(DEL)-TP- ITA No.4529/Del/2014dated 07.11.2017

739. Where the sales to AE constituted 64% of the total sales and a uniform credit period of 145 days had been granted to the AEs as well as the non-AEs and no interest was charged on delayed realization of sale proceeds from both AEs as well as non-AEs, the Tribunal held that since there was complete uniformity in the act of the assessee, no ALP adjustment could be made and accordingly upheld the CIT(A)’s deletion of notional interest adjustment in respect of outstanding AE receivables for assessee.

KGK Enterprises (now known as KGK Diamonds (I) Pvt Ltd) vs ACIT-TS-943-ITAT-2017(JPR)-TP dated 28.11.2017

740. Where the TPO treated the outstanding AE-receivables as an international transaction and determined ALP of receivables exceeding 6 months at 16% based on SBI prime lending rate + 300 bps and the CIT(A) directed AO/TPO to charge LIBOR based interest rate, the Tribunal relying on the decision in the case of Tech Mahindra [(2011) 12 taxmann.com 13 (mum)] and Cotton Naturals (I) (P) Ltd [(2015) 55 taxmann.com 523 (Delhi)] held that since the outstanding AE receivables was an international transaction, interest rate ALP should be taken from the country of the borrower/debtor and accordingly remitted the issue back to the file of AO/TPO to compute interest rate by applying LIBOR prevalent during the relevant period in case of Australian Dollar/US Dollar plus suitable basis point keeping in view the credit score of the AEs.

DCIT vs. Delhi Call Centers Pvt. Ltd-TS-1019-ITAT-2017(DEL)-TP ITA No.6132/Del/2014 dated 30.11.2017

741. The Tribunal relying on the decision in the case of Kusum Healthcare wherein it was held that the expression “international transaction” shall include “capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business” added in Explanation to Sec 92B does not mean that de hors the context, every item of receivables appearing in the accounts of an entity, which may have dealing with foreign AE, would automatically be characterized as an international transaction, and noting that the assessee had made no distinction between AE and non-AE in charging interest on outstanding receivables, deleted the TP adjustment in respect of interest on account of delay in recovering outstanding AE receivables by assessee.

Global Logic India Ltd. (Formerly known as Global Logic India Private Limited) vs. DCIT-TS-1028-ITAT-2017(DEL)-TP ITA No.1104/Del./2015 dated 12.12.2017

742. The Tribunal, noting that the co-ordinate bench had taken a similar view in the earlier year after examining all the facts and records and the order was not reversed by the High court, reversed CIT(A)’s order and upheld Revenue’s contention to apply Indian rate for determining interest on outstanding AE-receivables and directed that the arm’s length interest rate should be determined at 5% as against 10.25% adopted by the AO/TPO.

DCIT vs Izmo limited (formerly known as logix Microsystems ltd)-TS-806-ITAT-2017(BANG)-TP dated 28.09.2017

743. Where the Assessee allowed an extra credit period to AEs beyond the agreed credit period (30 days in the present case), the Tribunal held that to the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt but when extra credit is allowed beyond the agreed credit period, the same is a subsequent, independent event and interest for such extra credit period cannot be factored in the price agreed and accordingly amounted to an international transaction. Accordingly, it held that the extra credit period allowed by the assessee’s to its AE (30 days) was an international transaction, requiring separate benchmarking. Further, relying on the decision in the case of M/s Goldstar Jewellery Ltd. vs. JCIT in ITA No. 6570/Mum/2012 directed the AO to ascertain the cost of the total funds available to the assessee and adopt it as internal CUP for benchmarking of this independent international transaction.

AMD India Private Ltd vs. DCIT-TS-840-ITAT-2017(Bang)-TP dated 26.10.2017

744. The Tribunal, relying on the decision in the case of Kusum Healthcare citation wherein it was held that working capital adjustment takes into consideration the outstanding receivables and therefore no fresh ALP adjustment of interest on the outstanding receivables was called for, accepted assessee contention that no separate addition of interest on outstanding AE receivables was required after allowing working capital adjustment. However, in the absence of details, it directed the AO to examine if the final margin of the comparables and the assessee arrived at after granting WCA.

EPAM Systems India P Ltd vs ACIT-TS-858-ITAT-2017(HYD)-TP dated 24.10.2017

745. Where the invoices raised by the assessee on its AE were outstanding for a period of more than 300 days, the Tribunal observing that no independent 3rd party would allow its outstandings to drift to such an extent and also noted that the assessee claimed that it did not absorb any credit risk, held that the outstandings constituted sale as well as loan. Accordingly, observing that the receivables or any other debt arising during the course of the business was included in the definition of capital financing as an international transaction as per explanation 2 to section 92B of the Act w.r.e.f 01.04.2002 inserted by the Finance Act 2012, upheld the addition on account of interest on such receivables made by the TPO @ 14.88%. It rejected assessee’s reliance on the fact that the RBI Master Circular does not prescribe any conditions for repatriation of exports proceeds for SEZ, held that the RBI circular could not be the basis for determination of ALP.

BT e-Serv (India) Pvt Ltd vs ITO-TS-849-ITAT-2017(DEL)-TP dated 30.10.2017

746. Where the assessee had shown outstanding balance due from its AE and the assessee was not charging interest on debit balance due to bad financial condition of the AE, the Tribunal noting that even if the assessee would have provided for interest on outstanding balance from its AE, it could not have recovered the same as the AE had not honoured its commitments to the lenders, as well as it had incurred heavy losses year after year, held that the outstanding debit balance with the AE could not be regarded as an international transaction within the meaning of section 92B of the act as they had arisen mainly on account of reimbursement of the counter guarantee fee and not in the course of business. It observed that the outstanding debit balances with the associates was not directly covered within the ambit of international transaction and held that the terms ‘any other transaction having a bearing on the profits, income, losses or assets of such enterprises must be interpreted ejusdem generis with the transactions mentioned in the preceding clause or at least analogous to it and therefore would not include the provision of guarantee for loans taken by associate enterpises.

Bombay Dyeing & Mfg. Co Ltd vs DCIT-TS-834-ITAT-2017(mum)-TP dated 27.10.2017

747. Where the TPO failed to consider assessee’s contentions that i) adjustment towards notional interest for delayed payment made by the AEs is not an independent and standalone international transaction, and ii) it had already factored in the impact of the receivables of the working capital in TNMM analysis and thereby on its pricing/profitability vis-a-vis that of its comparable, the Tribunal remitted interest adjustment on account of delay in realization of export receivables to the file of AO for fresh assessment.

Siro Clinpharma Pvt. Ltd-TS-882-ITAT-2017(mum)-TP ITA No. 7294/MUM/2016 dated 07.11.2017

748. Where the sales to AE constituted 64% of the total sales and a uniform credit period of 145 days had been granted to the AEs as well as the non-AEs and no interest was charged on delayed realization of sale proceeds from both AEs as well as non-AEs, the Tribunal held that since there was complete uniformity in the act of the assessee, no ALP adjustment could be made and accordingly upheld the CIT(A)’s deletion of notional interest adjustment in respect of outstanding AE receivables for assessee.

KGK Enterprises (now known as KGK Diamonds (I) Pvt Ltd) vs ACIT-TS-943-ITAT-2017(JPR)-TP dated 28.11.2017

749. The Tribunal, applying the provisions of section 92C read with section 92B held that since after factoring in notional interest calculated with respect to overdue receivables from associated enterprises, the reduced margin of the assessee was more than average margin of comparables selected, no further adjustment was required to be made to the stated transactions.

Agilisys IT Services India (P.) Ltd – [2017] 77 taxmann.com 16 (Mumbai – Trib.)

750. The TPO made an ALP adjustment on account of outstanding receivables from AE beyond a period of 60 days by re-characterizing outstanding receivables as unsecured loans advanced by assessee to its AEs and imputing notional interest based on SBI PLR + 300 basis points. The Tribunal noting the submission of the assessee (- that it had made a factual mistake in TP study that it was receiving payments from AE in Indian currency though actually the same was received in foreign currency), held that the LIBOR rate should be applied and not SBI PLR, opined that this fact required verification and therefore remitted the issue to AO for fresh consideration. As regards the assessee’s contention that its average days of realization period of receivables was 206.95 days as compared to the average realization period of 446.71 days of the comparables companies, it held that this aspect also required verification and therefore directed the AO / TPO to verify this as well.

Target Sourcing Services India Pvt. Ltd. Vs ACIT – TS-237-ITAT-2017(DEL)-TP – ITA No.6040/Del/2016 dated 24-03-2017

751. The Tribunal dismissed the assessee’s appeal challenging TP-adjustment towards notional interest on receivables outstanding from AE beyond 90 days and rejected the arguments of the assessee that it was a debt free company and profit margin from provision of software development services was much higher than comparables, not warranting any adjustment on account of notional interest. It distinguished the ruling of the Court in Bechtel India relied on by the assessee, stating that credit period in that case was 60 days while for assessee it was 1 year and rejected the assessee’s contention that there was no benefit to AE since it immediately remitted the amount on receipt from its customers and held that assessee could not be a party for delayed payment by AE customers. Observing that the assessee was financing its AE by accommodating the delayed remittance and that the huge funds so parked with AE, if repatriated, could have been invested to earn better profits for assessee, the Tribunal concluded that this potential loss was a factor for consideration while evaluating financial impact of this transaction. Accordingly, it upheld the addition made by the TPO.

Professional Access Software Development Pvt Ltd v DCIT – TS-103-ITAT-2017 (Chny) – TP – I.T.A.No.3305/Mds./2016 dated 09.02.2017

752. The Tribunal, relying on the decisions of the coordinate bench in Goldstar Jewellery [TS-14-ITAT-2015(Mum)-TP] and Avnet India [TS-629-ITAT-2015(Bang)-TP], deleted TP adjustment on account of notional interest on overdue receivables, computed @17.22 percent by the TPO and held that the transaction of non-realization of dues from AEs was not an independent transaction and had to be considered along with main transaction viz. sales, as it was an integral part of sales transaction to AE.

Millipore (India) Ltd. Vs ACIT – TS-83-ITAT-2017 (Bang) – TP – IT(TP)A No.327/Bang/2015 dated 07.03.2017\

753. Where the assessee had provided extended credit period facility to its AEs for amounts due against export of IC engines and had charged interest at LIBOR + 290 basis points in case of USD billing and LIBOR + 280 basis points in case of billing in GB pounds and the credit period was extended by 80 days over the original credit period of 90 days allowed to AEs pursuant to which the TPO rejected assessee’s application of the rates of packing credit in foreign currency for the purpose of benchmarking and adopting the Prime Lending Rate as ALP, made an adjustment of Rs. 1.41 crores on account of differential interest amount, the Tribunal noted that a similar issue was considered before Pune Tribunal in iGATE Computer Systems Ltd. [TS-250-ITAT-2015(PUN)-TP], wherein the use of LIBOR + rates had been upheld by Tribunal. Thus, it applied the ratio laid down in this ruling to uphold the use of LIBOR + rates for amounts (in foreign currency) due from AEs for the extended period of credit.

Cummins India Limited vs. DCIT – TS-165-ITAT-2017(PUN)-TP – ITA No.115/PUN/2011 dated 03.03.2017

754. Where the assessee had remittances outstanding from its AEs, which was in the nature of continuing debit balance and the TPO, noting a time lag in recovery of the same, which was more than the agreed period between parties the (i.e. 90 days), proceeded to re-characterize the delay in the receipt of these receivables as unsecured loans advanced to the AE, and imputed a notional interest on the delay in receipt of receivable @ 14.75% (based on SBI’s average base rate of 11.75% + 3% markup), the Tribunal, observing that the exact nature of the receivables viz. as to whether they represented lending or guarantee or whether they were against sales or advance or represented deferred payments was unclear, and accordingly remitted the issue back to the file of the AO/TPO for fresh adjudication after affording assessee a reasonable opportunity of being heard and after considering various decisions cited by both the parties. 

Exl Service.com (India) Pvt Ltd v DCIT – TS-104-ITAT-2017 (Del) – TP – ITA No. 302/Del/2015, ITA No. 615/Del/2015 dated 03.01.2017

755. The Court, upheld Tribunal’s deletion of notional interest adjustment on delayed AE-receivables in the hands of the assessee on the ground that the since assessee had earned significantly higher margin than its comparables, it compensated for credit period extended to its AEs and thus the TP-adjustment on receivables outstanding from AE beyond the stipulated credit period of 180 days was unwarranted and wholly unjustified. Further, it held that the inclusion in the explanation to section 92B of the Act, the expression ‘receivables’ would not mean that de hors the context every item of ‘receivables’ appearing in the accounts of an entity which may have dealings with foreign AEs would automatically be characterized as an international transaction. It observed that, assessee had already factored in the impact of receivables on working capital and thereby on its pricing/profitability vis-a-vis that of comparables, and adjustment purely on the basis of outstanding receivables would amount to re-characterizing the transaction which was impermissible as per High Court ruling in the case of EKL Appliances [TS-206-HC-2012(DEL)-TP].

Kusum Helath Care Pvt. Ltd [TS-412-HC-2017(DEL)-TP- I.T.A.No.765/2016 dated 25.04.2017

756. Relying on the decision in the case of Tally Solutions [TS-620-ITAT-2016(Bang)-TP and assessee’s own case [TS-865-ITAT-2016(Bang)-TP], the Tribunal held that extending credit period for realization of sales to AE could not be treated as an individual and separate transaction of advance or loan and accordingly, remitted the ALP determination for outstanding AE receivables to the file of AO/TPO to consider the  credit period allowed in realization of sale proceeds as closely linked transaction to the transaction of providing services to AE. Rejecting Revenue’s contention based on Delhi HC ruling in Kusum Healthcare Pvt. Ltd that TPO had to analyze the statistics over a period of time (and not merely for one AY) to discern a pattern which would indicate whether the receivables arrangement reflected an international transaction intended to benefit the AE in some way, it held that there may be delay in collection of monies for supplies made even beyond the agreed time limit due to a variety of factors which had to be investigated on a case to case basis.

Lotus Labs Pvt. Ltd. vs. DCIT-TS-574-ITAT-2017(Bang)-TP IT(TP)A Nos.92 & 98/Bang/2016 dated 07.07.2017

757. The Apex Court, relying on co-ordinate bench ruling in Kusum Healthcare Pvt. Ltd, and noting Tribunal’s findings that the assessee was a captive service provider and a debt free company and that the Revenue had also not brought on record that the assessee had paid any interest to its creditors or suppliers on delayed payments, it directed that no separate adjustment for interest on receivables was warranted in the hands of the assessee and accordingly upheld the order of High Court.

Bechtel India Pvt Ltd-[TS-591-SC-2016-TP-ITA No. 379/2016 dated 21.07.2016

758. The Tribunal, following the decision of the Court in Kusum Health Care [TS-412-HC-2017 (DEL)- TP] wherein it was held that once working capital adjustment was factored into ALP no separate adjustment on account of outstanding receivable was tenable, allowed the assessee’s appeal and deleted the TP adjustment made towards notional interest on receivables and held that the TPO was unjustified in re-characterizing the receivable as a loan and imputing interest thereon at SBI + 300 basis points.

Teradata India Pvt Ltd v ITO – TS-655-ITAT-2017 (Del) – TP-ITA No. 87/del/2017 dated 08.08.2017

759. The Tribunal relying on co-ordinate bench’s ruling in assessee’s own case for AY 2010-11[TS-865-ITAT-2016(Bang)-TP] held that the credit period allowed in realization of sale proceeds was a closely linked transaction with the transaction of providing services to AE, could not be treated as an international transaction. Accordingly, it remitted the issue to the file of AO/TPO directing it to reconsider the issue of transfer pricing by clubbing and aggregating the transaction with the main transaction of providing service to the AE.

Lotus Labs Pvt. Ltd vs ACIT-TS-624-ITAT-2017(Bang)-TP-IT(TP)A no.2295/bang/2016 dated 12.07.2017

760. Where the assessee was charging interest on extended credit period (beyond 90 days) to non-AEs but not to its AEs, the Tribunal held that the CIT(A) was justified in making notional interest adjustment on excess credit period allowed to AEs by assessee beyond 90 days.

Ingersoll Rand India Ltd vs DCIT-TS-637-ITAT-2017(BANG)-TP-ITA No. 6&7/bang/2014 dated 02.08.2017

761. The Court, admitted assessee’s appeal on TP-issue relating to trade receivables and admitted 2 questions of law (1) whether Tribunal erred in setting aside matter to AO/TPO to verify certain calculations without first adjudicating on the primary legal issue of whether a trade receivable per se could be characterized as an international transaction u/s 92B. (2) whether Tribunal ought to have held that even if a trade receivable per se was to be regarded as an international transaction, it was inextricably linked to and arose from the transaction of provision of services and therefore the two formed a bundle of transactions, which ought to be benchmarked.

Target Sourcing Services India Pvt. Ltd vs. ACIT-TS-697-HC-2017(DEL)-TP-ITA no. 741/2017 dated 01.09.2017

762. Where the assessee had outstanding receivables from AEs as well as advance to AEs and the TPO made an adjustment of Rs. 2.05 crore at 7.25%, the Tribunal relying on the decision in the case of of Bentley Systems [TS-559-ITAT-2015(DEL)-TP] and Cotton Naturals [TS-117-HC-2015(DEL)-TP] held that extending credit period for realization of sales to its AE was a closely linked transaction with the transaction of providing services to the AE and accordingly directed the AO/TPO to determine the ALP in respect of interest on receivables considering it as a closely linked transaction with the provision of services to AE and make necessary TP adjustment at the rate of LIBOR+1% as the arm’s length interest rate. Further, in respect of Loans and advances, the Tribunal held that it amounted to an international transaction and directed the TPO/AO to compute the arm’s length at LIBOR+1.5%.

Och-Ziff Real Estate India Pvt Ltd vs DCIT-TS-693-ITAT-2017(Bang)-TP-IT(TP)A no. 358/bang/2016 dated 24.08.2017

763. The Tribunal set aside the issue relating to adjustment on account of interest on receivables from AE considering assessee’s contention that as a policy, it did not charge interest to unrelated party even in cases where receivables were outstanding for more than 6 months. However, it rejected the assessee’s contention that outstanding AE receivables do not constitute an international transaction and held that it would fall under the purview of clause (i)(c) of Explanation to Sec. 92B(1). Accordingly, it directed the TPO to examine the issue afresh in light of assessee’s contention while directing assessee to support its contention with documents and working.

AT & T Global Network Services (India) Pvt Ltd vs. DCIT-TS-736-ITAT-2017(DEL)-TP-ITA No. 1059 / del / 2015 dated 18.09.2017

764. Where the TPO had made an addition on account of notional interest on receivables, the Court relying on the decision in the case of Kusum Healthcare Pvt Ltd [TS-412-HC-2017(DEL)-TP] directed the CIT(A) to study the impact of the receivables appearing in the accounts of the assessee, looking into the various factors as to the reasons why the same were shown as receivables and also as to whether the said transactions could be characterized as international transactions.

Avenue Asia Advisors Pvt. Limited vs. DCIT-TS-737-HC-2017(DEL)-TP ITA No. 350 / 2016 dated 18.09.2017

Corporate Guarantee

765. The Tribunal relying on the decision in assessee’s own case for AY 2009-10 (heard alongwith this appeal) which had in turn relied on the ruling of Micro Ink (wherein it was held that issuance of corporate guarantees was in the nature of ‘shareholder activities’ / ‘quasi-capital’ and thus could not be included within the ambit of ‘provision for services’ under the definition of ‘international transaction’ u/s 92B) upheld CIT(A)’s deletion of TP-adjustment in respect of corporate guarantee for AY 2010-11.

DCIT vs. Jyoti CNC Automation Pvt. Ltd-TS-968-ITAT-2017(Rjt) ITA No. 301/Rjt/2015 & CO No.57/Rjt/2015 dated 28.11.2017

DCIT vs. Jyoti CNC Automation Pvt. Ltd-TS-981-ITAT-2017(Rjt)-ITA No. 435/Rjt/2015 dated 28.11.2017

766. The Tribunal, relying on the decision in the case of Micro Ink Ruling [176 TTJ 8] (wherein it was held that issuance of corporate guarantees was in the nature of ‘shareholder activities’ / ‘quasi-capital’ and thus could not be included within the ambit of ‘provision for services’ under the definition of ‘international transaction’ u/s 92B), deleted the TP adjustment in respect of corporate guarantee proposed by the TPO/DRP. Further, noting that TPO treated excess credit (beyond 60 days) allowed to AE as an international transaction and proceeded to benchmark the same at 3.37% on the basis of LIBOR+90bps, the Tribunal relying on Micro Ink ruling –(176 TTJ 8) (wherein it was held that when such an interest was includible in operating income and the operating income itself has been accepted as reasonable under the TNMM), held that there could not be an occasion to make adjustment for notional interest on delayed realization of debtors and accordingly deleted the TP adjustment in respect of outstanding receivables.

Dorf Metal Speciality Catalyst Pvt. Ltd vs. ACIT-TS-993-ITAT-2017(Rjt)-TP ITA No. 16/Rjt/2017 dated 28.11.2017

767. Vis-à-vis the corporate guarantee provided by the assessee to its AEs, the Tribunal following the decision of the co-ordinate bench in the assessee’s own case for the prior assessment year held that the TPO was not justified in computing ALP of the corporate guarantee provided based on the bank guarantee rate (2 percent) and accordingly adopted 0.27 percent (based on the rate applied in the decision of Asian Paints Ltd. Vs. CIT (ITA No. 7801/Mum/2010) as the ALP of corporate guarantee.

Lanco Infratech Ltd vs ACIT-TS-1022-ITAT-2017(HYD)-TP-ITA No. 221/hyd/2017 dated 30.11.2017

768. The Tribunal considering the retrospective amendment brought in by Finance Act, 2012, by which corporate guarantee was included in the definition of international transaction by virtue of explanation i(c) to section 92B, upheld TPO/DRP’s treatment of corporate guarantee extended by assessee to AEs as an international transaction.

TAKE Solutions Limited vs ACIT-TS-1070-ITAT-2017(CHNY)-TP dated 04.12.2017

769. The Tribunal, relying on the decision in the case of Micro Ink Ruling (wherein it was held that issuance of corporate guarantees was in the nature of ‘shareholder activities’ / ‘quasi-capital’ and thus could not be included within the ambit of ‘provision for services’ under the definition of ‘international transaction’ u/s 92B), deleted the TP adjustment in respect of corporate guarantee as the relevant AY 2012-13 was outside the scope of the international transaction since the amendment applied from 2013-14.

Autoline Industries Ltd vs DCIT-TS-1000-ITAT-2017(PUN)-TP dated 24.11.2017

770. The Tribunal, relying on the decision in the case of Dr. Reddy’s Laboratories Limited [TS-331-ITAT-2017(HYD)-TP wherein it was held that amendment by Finance Act, 2012 to include corporate guarantees under the purview of international transaction was to be treated as prospective, thus applicable from AY 2013-14, deleted the TP adjustment on corporate guarantee rejecting it as an international transaction for AY 2012-13.

Bartronics India Ltd vs DCIT-TS-814-ITAT-2017(HYD)-TP ITA No. 259 /Hyd/2017 dated 27.09.2017

771. The Tribunal, relying on the decision in the case of Micro Ink ruling (wherein it was held that issuance of corporate guarantees was in the nature of ‘shareholder activities’ / ‘quasi-capital’ and thus could not be included within the ambit of ‘provision for services’ under the definition of ‘international transaction’ u/s 92B) upheld CIT(A)’s deletion of TP adjustment in respect of corporate guarantee and held that though corporate guarantee issue in Micro Ink’s case was currently in appeal before HC, that did not dilute binding nature of the decision as now. Accordingly, it dismissed revenue’s appeal.

DCIT vs. Jyoti CNC Automation Pvt. Ltd-TS-955-ITAT-2017(Rjt)-TP ITA No. 183/Rjt/2015 & CO No.48/Rjt/2015 dated 28.11.2017

772. The Tribunal adopted ALP of 0.50% for benchmarking corporate guarantee / letter of undertaking given by the assessee in respect of credit facilities availed by its AEs for AY 2011-12 while refusing to enter into semantics of whether corporate guarantee was an ‘international transaction’ as the assessee’s argument was mainly restricted to the commission rate. It noted that the security for loans was primarily covered by pledged securities, hypothecation of debtors’ balances and other assets of AE, which indicated that entire security of loan was not based only on corporate guarantee and after considering bank guarantee commission rate at 0.875% after 50% concession given to assessee by SBI and after evaluating various factors like country risk, currency risk and entity risk etc, it determined arm’s length rate at 0.50% as it constituted an internal CUP available to the assessee. Noting that the assessee had recovered corporate guarantee at 0.25 percent, the Tribunal directed AO/TPO to make TP adjustment applying 0.50% rate of corporate guarantee commission as against the 3% rate applied by the AO / TPO.

Videocon Industries Ltd Vs. DCIT – TS-127-ITAT-2017(Mum)-TP – ITA No.1310/M/2016 dated 24.02.2017

773. Where during the year under consideration, the assessee provided guarantee to banks on behalf of its AEs worth Rs. 670.57 Cr without treating the corporate guarantee as an international transaction within the meaning of Sec 92B and the TPO disregarded this approach and held that assessee ought to have charged corporate guarantee fee from its AEs thereby adopting the guarantee fee at 4.43 percent which was reduced by the DRP to 3 percent, the Tribunal noting the assessees submission that it had recovered guarantee fee @1% of outstanding guaranteed amount from its AEs which had been recognized in the financial statements, followed the decision in assessee’s own case for AY 2009-10 and directed the AO/TPO to benchmark the guarantee fee by adopting the rate at 1% of the outstanding guaranteed amount for maintaining consistency with the precedent in the assessee’s own case.

Aegis Limited v DCIT – TS-66-ITAT-2017 (Mum) – TP – ITA No.7694/Mum/2014 dated 08.02.2017

774. The Tribunal, relying on the ruling of Micro Inks Limited vs. ACIT [TS-568-ITAT-2015(Ahd)-TP],  held that as issuance of corporate guarantee did not have bearing on profits, income, losses or assets it did not constitute an international transaction under section 92B. It further held that issuance of guarantees could be said to be in the nature of shareholder activities and hence could not be included in the "provision of services" under the definition of ‘international transaction under section 92B.

Rubamin Ltd vs ITO – TS-113-ITAT-2017 (Ahd) – TP – ITA Nos. 664/Ahd/2012 , ITA Nos. 665/Ahd/2012, ITA Nos. 795/Ahd/2012 dated 17.02.2017

775. Where the assessee issued a corporate guarantee on behalf of its subsidiary in Thailand, in order to enable the subsidiary to avail financing from Bank of India, despite not being very credit worthy and the TPO applied external CUP and considering 1% guarantee fee charged by banks in India, proposed TP adjustment of US$ 16000 equivalent to approximately Rs.6.4 lacs, the Tribunal relying on the decision of the co-ordinate bench in the case of Manugraph India Ltd [TS-113-ITAT-2015(Mum)-TP] (wherein the rate of 0.5% was accepted to be at ALP) and directed the AO to apply the rate of 0.5% as the charges for providing the impugned guarantee to the AE and to restrict TP addition accordingly.

Endurance Systems (India) Pvt. Ltd. vs ACIT – TS-114-ITAT-2017(PUN)-TP – ITA No.2567/PUN/2012 dated 15.02.2017

776. The Court, relying on the decision of co-ordinate bench in Everest Kanto Cylinders Ltd, dismissed the appeal of the Revenue and held that that the guarantee commission fee charged by the assessee to its AE @ 0.53 percent in relation to bank loans and @ 1.47 percent in relation to L/C facilities was at ALP. It upheld the finding of the Tribunal that guarantee commissions rates could not be compared to the rates of bank guarantee.

CIT v Glenmark Pharmaceuticals Ltd – TS-61-HC-2017 (Bom) – TP – INCOME TAX APPEAL NO.1302 OF 2014 dated 02.02.2017

777. The assessee provided certain corporate guarantees to the bankers, in respect of borrowings by its AEs, and on 2 corporate guarantees issued to ICICI Bank in respect of Zydus Netherlands BV and Bank of Baroda in respect of Zydus Inc USA, it did not charge any guarantee fees, as the loans had been availed by AEs for strategic acquisitions in furtherance of Cadila’s inorganic expansion strategy, which had benefited Cadila itself rather than the AEs. The Tribunal, observing that that the issue was covered by the coordinate bench ruling of the Tribunal in case of Micro Ink [TS-568-ITAT-2015(Ahd)-TP], wherein it was held that corporate guarantees issued in nature of ‘shareholder activities’ / ‘quasi capital’ could not be included within ambit of ‘provision for services’ under definition of ‘international transaction’ u/s 92B, as they did not have “bearing on profits, income, losses or assets” deleted the addition made by the DRP who had adopted a corporate guarantee fee of 1 percent to be at ALP.

Cadila Healthcare Limited Vs ACIT – TS-241-ITAT-2017(Ahd)-TP – IT (TP) No. 898/Ahd/2014 and 694/Ahd/2015 dated 03.03.2017

778. The assessee had extended a corporate guarantee in respect of loan of Rs. 101.48 Cr taken by its subsidiary Suzlon Energy BV Netherland for which it had not charged any guarantee fee, contending that the guarantee was granted in the course of its stewardship activities for its subsidiaries and that it did not constitute an international transaction under section 92B of the Act. The TPO, ignoring the alternate contention of the assessee that if the corporate guarantee was considered as an international transaction, a corporate guarantee fee of 0.75 percent was to be adopted as ALP under CUP, adopted 2 percent as the ALP fee and made a TP addition. The Tribunal, relying on the decisions of the Mumbai Tribunal in Micro Ink Ltd. [(2016) 176 TTJ (Ahd)].and Siro Clinpharm Pvt. Ltd [TS 144 ITAT (2016) TP], held that when the assessee had provided the guarantee in the course of its stewardship activities for its subsidiaries, it would not constitute an international transaction, and, as such, no ALP adjustment could be made in respect of the same. Accordingly, it deleted the addition made by the TPO.

Suzlon Energy Limited [TS-311-ITAT-2017(Ahd)-TP] – ITA No.1369/Ahd/2013 dated 21.04.2017

779. The Tribunal, following the decision of the co-ordinate bench in Redington India [TS-208-ITAT-2014(CHNY)-TP] , upheld the DRP’s order deleting TP-adjustment in respect of corporate guarantee transaction for AYs 2010-11 & 2011-12 and held that since no cost was involved in extending the corporate guarantee, it would not constitute an ‘international transaction’. It refused to consider Revenue’s submission hat since Redington India ruling had not been accepted by Revenue who preferred appeal before Madras High Court, the decision of the Mumbai Tribunal Everest Kanto Cylinders  [TS-309-ITAT-2014(Mum)-TP] ought to have been followed and held that the principle of judicial discipline provides for consistency in proceedings and therefore where the decision of the very same co-ordinate Bench was available, it was to be followed instead of the decision of Mumbai Bench. Further, it held that as per the decision of the Apex Court Court in Vegetable Products (88 ITR 192)(SC), where there are two conflicting decisions, the decision in favour of the assessee is to be followed. Accordingly, it dismissed the appeal of the Revenue.

DCIT vs. Aban Offshore Ltd – TS-366-ITAT-2017(CHNY)-TP – /ITA No.1947/Mds/2015 dated 05.04.2017

780. The assessee had not charged any fee or commission for providing corporate guarantee as collateral for the aforesaid borrowing on behalf of its AE. Considering it as an international transaction, TPO worked out addition of Rs. 1.63 crores being 3% of the average amount of loan outstanding during the year. The CIT(A) affirmed the order. The Tribunal noted that the assessee had issued corporate guarantee on behalf of its AE for loan facility availed by it from the bank. It opined that TPO’s approach to determine ALP based on fees charged by the bank was inconsistent with Bombay High Court ruling in Everest Kanto Cylinders Ltd [TS-200-HC-2015(BOM)-TP]. Accordingly, it upheld the rate of 0.50% for the purposes of determining arm’s length rate of corporate guarantee commission/fee. The Tribunal rejected assessee’s plea for guarantee commission rate below 0.5% (on the basis that the loan raised by AE had adequate primary security in the shape of the net worth of the AE itself and therefore the risk of devolvement on assessee was minimal) on the ground that the it was not a peculiar situation so as to warrant a rate lower than 0.50%. ATL Mauritius had availed credit facilities from Barclays Bank.

Zee Entertainment Enterprises Ltd vs ACIT -TS-382-ITAT-2017(Mum)-TP ITA No.3406/Mum/2014 dated 05.05.2017

781. The Tribunal deleted TP-adjustment towards corporate guarantee commission for AY 2009-10 and 2010-11 on the ground that corporate guarantee was outside the ambit of definition of international transaction under section 92B. It relied on the coordinate bench’s ruling in the case of Bharti Airtel Limited [TS-76-ITAT-2014(DEL)-TP] and Siro Clinpharm Ltd [TS-144-ITAT-2016(Mum)-TP] and held that explanation to section92B could not be applied retrospectively for the years under consideration and since the assessee had not incurred any costs in providing corporate guarantee, it would not constitute an international transaction within the meaning of section 92B. Further, relying on coordinate bench’s ruling in assessee’s own case directed the TPO to compute ALP based on LIBOR rate applicable for the years under consideration + 200 basis points.

Dr Reddy’s Laboratories Limited – ACIT TS-331-ITAT-2017(HYD)-TP- TA.No.294/Hyd/2014 dated 28.04.2017

782. The Tribunal relying on the ratio laid down in Siro Clinpharm [TS-144-ITAT-2016(MUM)-TP] held that corporate guarantee provided by the assesse (engaged in the business of manufacturing and trading of cement, calcined petroleum coke (CPC) and generation of electricity) on behalf of its AEs in USA during AY 2011-12 were not international transactions as the amendment to the definition of international transaction under section 92B was applicable prospectively. Further, relying on the decision in the case of Four soft Limited and Siva Industries & Holdings Ltd upheld the adoption of LIBOR+200 basis points as arm’s length rate for benchmarking interest on loans provided to its US subsidiary.

Rain Cements Ltd vs DCIT -TS-330-ITAT-2017(HYD)-TP–222/Hyd/2014, 309/hyd/2015, 344/hyd/2015, 259/hyd/2016, 260/hyd/2016, 315/hyd/2015, 433/hyd/2016, 434/hyd/2016 dated 26.04.2017

783. The Tribunal rejected Revenue’s request for constituting Special Bench to decide the issue relating to TP-adjustment on corporate guarantee fees for AY 2007-08 noting that the issue was admitted in appeal by Gujarat HC. The Tribunal remitted the matter to AO with a direction to consider it afresh after the HC decision. The assessee had given corporate guarantee to banks on behalf of its AEs without charging any commission/fee. Noting that the legislature had inserted Explanation to section 92B vide Finance Act, 2012 with retrospective effect, it held that the assessee could not benchmark its transaction retrospectively. Further, with respect to interest free advances given by the assessee to its AEs, the AO made an addition of notional interest @ LIBOR + 2 percent which was confirmed by the CIT(A). The Tribunal noted that in the immediately preceding assessment year in the assessee’s own case where the CIT(A) had adopted LIBOR + 0.25 percent to benchmark the impugned transaction, it had held that only the LIBOR rate without any mark-up, was to be considered while making the addition. Accordingly, the Tribunal, following its previous order held that the addition made by the AO / CIT(A) was to be made only on the basis of LIBOR without any mark-up.

Sun Pharmaceutical Industries Ltd [TS-357-ITAT-2017(AHD)-TP- ITA 2076 & 2067/AHD/2013 dated 27.04.2017

784. The Apex Court admitted Revenue’s SLP challenging Gujarat High Court’s decision in respect of deletion of TP-adjustment on corporate guarantee absent actual pledging of shares in favor of the AE. Assessee’s AE, Adani Global Pvt. Ltd Singapore had raised a term loan from ICICI Bank for which assessee had intended to provide guarantee by way of by pledging 23.5% shareholding of Mundra Port and SE2 Limited (owned by the assessee), subject to RBI approval. Since the RBI denied the assessee the approval, the guarantee was not provided and consequently the assessee did not charge any guarantee fee from its AE. The TPO applied CUP method and proposed TP adjustment of Rs. 3.65 cr based on market rate of 2% of guarantee fees. The TPO rejected assessee’s submission that it had intended to provide a guarantee by pledging of shares and that since the same was not approved by RBI, no guarantee had been provided to the AE. The TPO held that RBI letter was regarding pledging of shares in favor of IDBI Trusteeship Services Ltd and therefore may have been referring to some other transaction. CIT(A) reversed AO’s decision observing that IDBI Trusteeship Ltd was security trustee of ICICI Bank Limited, Singapore and thus, RBI’s letter refusing permission for pledge of the shares pertained to the same transaction. The Tribunal confirmed the decision of CIT(A) and held that since the assessee had not furnished guarantee to AE, no adjustment was warranted. The High Court upheld Tribunal’s order.

Adani Enterprises Ltd [TS-408-SC-2017-TP] –CC No.6814/2017 dated 07.04.2017

785. The assessee had borrowed Rs. 70 crores from its Associated Enterprise at an interest rate of 12.25% p.a. as against interest of 15% which was quoted by the Bank. Another AE of the assessee viz. M/s. Robert Bosch GmBH provided guarantee on behalf of the assessee in respect of the borrowings of Rs. 70 crores on which the assessee had paid guarantee fee @ 0.75%. The TPO held that the payment of guarantee commission / fee was not required as the assessee had sufficient reserves as well as assets to support the loan and accordingly made a TP adjustment. The Tribunal held that aggregating the interest on loan and the guarantee fee paid by the assessee, the total cost of borrowing was 13 percent which was still less than the 15 percent quote from the bank which was sufficient justification for the payment and therefore it deleted the adjustment made by the TPO. It also noted that even after the payment of guarantee fee, the operating margin of the assessee was at 18.21 percent which was much better than the average margin of comparables i.e. 10.36%.

ITO vs Bosch Rexroth (India) Ltd – TS-431-ITAT-2017(AHD)-TP- IT(TP)A No. 462/ahd/2016 dated 08.05.2017

786. The Tribunal determined 0.25% as ALP of commission on corporate guarantee given by assessee (engaged in the business of fabrication, supply, erection and maintenance of telecom towers) to its AE in Afghanistan for AY 2010-11 and AY 2011-12. The DRP had computed the ALP of the guarantee commission at 6% of outstanding loan based on difference between bank loan given to AE at 12% and provisional interest rate in Afghanistan at 18%. It rejected DRP’s computation of ALP and held that the parameter for obtaining loan at a particular interest rate was different from providing corporate guarantee and there was no basis for DRP’s determination of ALP at 6%. Relying on the decision in the case of Asian Paints [41 taxmann.com 71] and the assessee’s own case for AY 2006-07, it held that the difference in interest rate charged on the loan could not be considered as a guarantee commission fee.

Further, the assessee had also given a foreign currency loan to its subsidiary in Afghanistan and charged interest @8 percent. The TPO adopting 12.25% as the ALP made consequent TP addition which was reduced by the DRP who held that 8.25 percent was the ALP rate of interest. The Tribunal held that since the loan was given to an overseas subsidiary in foreign currency, LIBOR was to be taken as ALP and noting that the assessee had already charged interest @ 8 percent which was much higher than the LIBOR rate, it deleted the adjustment.

Aster Pvt. Ltd vs DCIT- TS-446-ITAT-2017(Hyd)-TP-ITA No. 220/hyd/2015 and 458/hyd/2016 dated 03.05.2017

787. The Tribunal restricted TP-adjustment towards guarantee commission at 0.385% for AY 2007-08 to 2009-10 in respect of corporate guarantee provided by assessee to Bank of America in connection with loans taken by its AE. The assessee had not charged any guarantee commission fee to the AE for providing the said guarantee and contended that the transaction did not fall within the definition of an international transaction u/s 92B of the Act as it had no bearing on income of the assessee. The TPO did not accept the above contention and held that providing guarantee to its AE was a clear evidence of benefit being provided. If the AE had requested any bank or third party to provide such guarantee for its loans, it would have had to pay guarantee fee/commission. The Tribunal relying on the decision in assessee’s own case for AY 2005-06 and 2006-07, upheld CIT(A) ALP determination based on average guarantee commission rate i.e 0.385% paid by assessee to various third-party banks. Further, the assessee had given interest free loans to two of its subsidiaries since the amounts had been given as temporary advances for the purpose of meeting their urgent business requirements. Further, the companies were 100% subsidiaries of the assessee which contributed to furthering the business interest of the assessee. The TPO has not accepted the explanation given by the assessee and held that the assessee ought to have charged the interest on the said loans at the prevailing market rate and made an adjustment of Interest at 5.3% of the amount advanced. The Tribunal relying on the decision in the case of Taurian Iron & Steel Co. Pvt Ltd vs ADCIT [ITA No. 5920/mum/2012] and Golawal Diamonds vs ACIT [ITA No. 518/mum/2014] directed the AO to restrict the adjustment at LIBOR+1.50%.

ACIT vs Reliance Industries Ltd-TS-528-ITAT-2017(Mum)-TP-ITA no.4361/mum/2012 dated 12.04.2017

788. The Tribunal, noting that the question whether corporate guarantee was an international transaction was pending before the special bench, remitted TP-issues in respect of corporate guarantee to the file of AO/TPO for assessee (engaged in the business of television new broadcasting and producing customized software, programs for broadcasters) for AY 2009-10 with the direction to decide the issue after decision of the special bench of the Tribunal. Further, in respect of working capital adjustment, it remitted the issue back to the file of TPO with a direction to the assessee to submit details of working capital adjustment to the TPO and directed the TPO to grant the adjustment after verifying the details if it was found to be in accordance with law.

New Delhi Television Ltd vs ACIT-TS-579-ITAT-2017(DEL)-TP- ITA No. 1212/Del/2014 & 2658/Del/2014 C.O. No. 233/Del/2014 dated 14.07.2017

789. Relying on the decision in the case of Videcon Industries ltd [TS-127-ITAT-2017(mum)-TP] wherein 0.5% rate was determined as guarantee fee ALP for benchmarking corporate guarantee transaction, the Tribunal directed the AO to compute ALP of guarantee fees at 0.5% in respect of corporate guarantee given by the assessee to its UAE based AE.

Mahindra Intertrade Ltd vs DCIT-TS-607-ITAT-2017(Mum)-TP-ITA no. 269/mum/2014 dated 15.03.2017

790. Where the assessee had provided corporate guarantee on behalf of its AEs in respect of a term loan obtained by the AE, and the TPO made an adjustment on the ground that an economic benefit had been provided by the assessee. The Assessee contended that no real benefit had been provided to the AE and after provision of corporate guarantee, the interest liability of the AE had increased. Since the DRP had not dealt with the assessee’s objections relating to effect of increased interest rates and overall debt position of AE after corporate guarantee was given, the Tribunal, relying in the decision of the coordinate bench in assessee’s own case for AY 2010-11 the TP issue in respect of corporate guarantee to the file of DRP for fresh consideration.

Apollo Tyres Ltd vs DCIT-TS-628-ITAT-2017(COCH)-TP-ITA No. 35/coch/2017 dated 24.07.2017

791. The Apex Court admitted Revenue’s SLP against High Court order confirming deletion of guarantee fee adjustment for AY 2008-09. The Assessee had charged guarantee fee at 0.53% in respect of bank loan and 1.47% in respect of guarantee for L/C facility obtained by 2 AEs while TPO determined ALP at 3% based on guarantee commission rates charged by banks. The Tribunal, relying on the decision in the case of Everest Kanto Cylinders Ltd, had deleted impugned adjustment holding that bank guarantee was not the same as corporate guarantee which was confirmed by the High Court.

CIT vs Glenmark Pharmaceuticals ltd-TS-698-SC-2017-TP – I.R. AND IA NO.81058/2017- AND IA NO.81060/2017 dated 08.09.2017

Royalty / Management fees / Intra Group services / Reimbursements

Royalty

792. The Tribunal set aside CIT(A)’s order on ALP determination of royalty and import transactions in case of assessee. It rejected CIT(A)’s deletion of royalty adjustment on the basis that no TP-adjustment in respect of such royalty was proposed for previous AY 2002-03 and the Tribunal had allowed deduction for royalty as revenue expenditure and held that allowance of expenditure operated in altogether different provisions of the law and the determination of arm’s length price of international transaction operated in different provisions of law. It held that the AO’s adjustment of Rs. 4.67 crore on the basis of benefit test and TPO’s comparability analysis based on the past year as impermissible and accordingly, set aside the whole transaction of ALP determination of royalty back to the AO for fresh determination.

ACIT vs. Denso India Ltd-TS-957-ITAT-2017(DEL)-TP ITA No. 1751 and 4365/Del/2011 dated 05.11.2017

793. Where the assessee had benchmarked the royalty payment under TNMM after aggregating the same with other transactions, but the TPO determined the ALP at NIL by benchmarking royalty separately under CUP method holding that royalty and other transactions were not closely linked, the Tribunal, noting that issue as to payment or royalty and technical fee by the taxpayer to its AE had already been decided in assessee’s favour in AYs 2002-03 and 2004-05 by the Tribunal, and an appeal preferred by the Revenue before the Hon’ble Delhi High Court had been dismissed, restored the matter to the file of TPO directing it to decide the issue qua payment of royalty and technical fees qua AY 2009-10 in accordance with the decision taken in earlier years.

Munjal Showa Limited vs. ACIT-TS-960-ITAT-2017(DEL)-TP-ITA No.1030/Del./2014 dated 22.11.2017

794. Where the TPO initially determined ALP as NIL by holding that no benefit etc accrued to the assessee because of Royalty payment and the AO made the addition without applicability of section 37(1) of the Act, the Tribunal remitted ALP determination of royalty payment by assessee to the file of TPO for fresh consideration since the ratio laid in down Cushman & Wakefield had not been followed

Honda Motor India Pvt. Ltd vs. DCIT-TS-966-ITAT-2017(DEL)-TP dated 28.11.2017

795. The Tribunal, noting that co-ordinate bench ruling in assessee’s own case in AY 2009-10 had held that RBI and SIA approved ‘royalty’ payment to AE was at ALP and had rejected TPO’s determination of Nil ALP held that since the assessee’s royalty payment to AE for subject AY was germinating from same agreement which was subject matter of dispute in AY 2009-10, the CIT(A) was justified in rejecting the TPO’s determination of ALP at NIL.

ACIT v Spicer India Private Limited – TS- 971-ITAT-2017(PUN)-TP -ITA No.1321/PUN/2015 dated 27.10.2017

796. Where the assessee’s Rs. 33.29 lakhs royalty payment to AE was on the basis of RBI-approved agreement which was initially entered into in 1992 between two unrelated parties, the Tribunal, relying on the decision in the case of Ballast Nedam Dredging held that since the price paid to associated enterprise was the same as entered when the entities were independent entities the same had to be considered as uncontrolled transaction. Further, noting that the assessee had paid royalty to its associated enterprises as per the rates which were approved by RBI, the Tribunal held that the said transaction was at arm’s length. Further, observing that assessee’s royalty payment in all preceding years from AYs 1997-98 to 2002-03 were allowed and Revenue had not brought any evidence to show change in facts, Tribunal upheld deletion of royalty payment to AE.

DCIT vs Kalyan Hayes Lemmerz Ltd- TS- 1001-ITAT-2017(PUN)-TP ITA Nos.999 & 1000/PUN/2013 dated 11.12.2017

797. The Tribunal, relying on the decision in assessee’s own case wherein the High Court had restored the matter to the file of TPO for reconsideration of aggregation of royalty/ FTS Transaction with other transactions remitted the issue of aggregation vs segregation of payment of royalty/fees for technical services (FTS) from other transactions for deciding the issue afresh.

Gruner India Pvt. Ltd vs ACIT-TS-996-ITAT-2017(DEL)-TP ITA No. 6801/Del/2017 dated 30.11.2017

798. Where the assessee was receiving royalty from its AE in prior years for provision of expertise and brand name, the Court held that a mere change of ownership structure of the AE would not justify the contention that no royalty was charged in the current year. It rejected assessee’s contention that mere absence of consideration for use of the Dabur brand per se could not amount to an international transaction. It held that if the assessee’s contention was to be accepted any omission by a party to indicate an initial income, which was concededly being shown in the past as an international transaction, could not be scrutinized at all, which would lead to absurd results and therefore could not be accepted. Accordingly, the assessee’s appeal was dismissed.

Dabur India Ltd vs Pr.CIT – TS- 979-HC-2017(DEL)-TP- ITA No. 1142/ 2017 & CM No. 45221/ 2017

799. The Tribunal, following jurisdictional ruling of the High Court in assessee’s own case for AY 2010-11[TS-1091-HC-2016(AP)-TP] (wherein deletion of similar royalty adjustment was upheld after holding that TPO was unjustified in reducing the royalty rate from 3% to 2% without substantiating it with an appropriate alternate TP analysis) deleted the TP adjustment arising from TPO’s reduction of arm’s length royalty rate.

RAK Ceramics India Private Limited vs DCIT-TS-1054-ITAT-2017(HYD)-TP dated 29.11.2017

800. The Court dismissed the Revenue’s appeal challenging the Tribunal’s order of deleting TP adjustment made on royalty payment to AE since the Tribunal had correctly relied on the decision of EKL Appliances [TS-133-ITAT-2016(DEL)-TP] and held that TPO had erred in determining the ALP at Nil by judging commercial and business expediency of the expenditure. Also, the assessee’s adoption of combined transactions approach under TNMM was upheld as against TPO’s adoption of CUP method as no comparable transaction was brought on record by the AO/DRP.

Frigoglass India Pvt Ltd [TS-180-HC-2017(Del)-TP] [ITA 123/2017]

801. Where the TPO had arbitrarily restricted royalty payment for technical know-how from 2% to 1%, the Court upheld the Tribunal’s finding that TPO’s restriction was arbitrary and adhoc and that the TPO had not carried out the exercise to determine the ALP by following one of the methods prescribed under Section 92C. Further, where the assessee had entered into agreement to pay royalty @1% on brand usage for the period 1st July, 2001 – 31st March, 2002 which was executed on 14th March, 2002 and where the TPO had allowed the royalty paid on brand usage, but the CIT(A) disallowed the said payment for the period 1st July, 2001-14th March, 2002 as the assessee had failed to produce minutes of its board meeting recording the decision to make the payment of royalty w.e.f. 1st July, 2001, the Court upheld the Tribunal’s order of allowing the royalty payment since the assessee had entered into commercial agreement with its AE which was also approved by RBI.

Johnson & Johnson Ltd [TS-171-HC-2017(BOM)-TP] [ITA No. 1030 of 2014]

802. The Court admitted Revenue’s appeal against the Tribunal’s order in the case where the TPO disallowed the tax borne by the assessee on the royalty paid on brand usage & technical know-how since there was no specific provision in the agreement providing that the assessee was to bear the taxes, but, the same was allowed by the Tribunal on the ground that the agreement entered into by the assessee mentioned that the royalty was to be remitted net of taxes and for which requisite RBI approval was obtained and accordingly, deleted the disallowance of tax made by the TPO on royalty paid.

Johnson & Johnson Ltd [TS-171-HC-2017(BOM)-TP] [ITA No. 1030 of 2014]

803. Where the assessee had entered into a Drive Shaft Technology Licensing Agreement and Technology License Agreement with its AE, under which it was granted license, patents and design information in respect of drive shafts for which it paid royalty at 2.85% of the net sales of license products, which had been approved by the Secretariat of Industrial Approval, Ministry of Industry, Government of India (SIA), vide letter dated 28/31.01.2003. and royalty was being paid for AY’s 2005-06 to 2008-09, which was considered to be at arm’s length by the authorities, the Tribunal noting that the AEs were supporting the assessee in technology upgradation by bringing the latest technology in drive train systems to India and that assessee had submitted the required documentation in support of the payment and relying on the rulings of ACIT Vs. Dow Agrosciences India Pvt. Ltd [TS-489-ITAT-2016(Mum)-TP] and Bombay HC ruling of CIT Vs. SGS India Pvt. Ltd [TS-569-HC-2015(BOM)-TP], held that where the royalty was approved by the RBI and the SIA, the same constituted CUP data and thus, the royalty could be considered to be at arm’s-length. Further, it held that the jurisdiction and power of TPO was to determine arm’s length price of royalty and the order of TPO holding that the assessee had not derived any benefit under the said agreement was beyond the scope of TPO

Spicer India Limited Vs ACIT – TS-99-ITAT-2017(PUN)-TP – ITA No.251/PUN/2014 dated 10 .02.2017

804. The Court confirmed the Tribunal ruling wherein the TP adjustment on royalty paid to AE was deleted. It held that that the TPO was unjustified in reducing the royalty rate from 3% to 2%, on the ground that the increase in sales of assessee was attributable to marketing efforts and that the assessee failed to demonstrate the benefit derived from royalty payment, without substantiating it with an appropriate alternate TP analysis. Relying on the decision of the Apex Court in Walchand and Co.Pvt Ltd [1967]65ITR 381 (SC), it held that once the assessee claimed that it had benefited from royalty agreement in the form of quantum increase in sales with no apparent increase in production, minimal product recalls and low after sales maintenance cost, it was not for the TPO to determine as to what could be the other reasons for increase in the assessee’s sales and profit (alleged to be increased marketing expenditure in this case). Thus, categorizing the TPO’s approach as an arbitrary and unbridled exercise of power, the Court dismissed the appeal holding that no question of law arises for its consideration.

RAK Ceramics India PvtLtd – TS-1091-HC-2016 (AP) – TP – I.T.T.A.NO.595 OF 2016 dated 23.12.2016

805. Where the assessee had entered into a license and assistance agreement with its Associated Enterprise (AE) for access to license and technical know-how for the purpose of manufacture of power components, pursuant to which it paid a royalty at 5% of net sales and the TPO had determined the ALP of royalty as NIL, the Tribunal noting that that the power components, in turn, were sold to the AE and that the royalty was considered as part of operating cost for the purpose of benchmarking other international transactions of the assessee, the ALP of which had been accepted by the TPO and relying on the decision of Luwa India Pvt. Ltd.  [TS-687-ITAT-2016(Bang)-TP] deleted the addition made by the TPO.

It noted that the assessee had produced the agreement under which it was granted technical know-how belonging to AE for the purpose of manufacturing activity and that the alleged royalty was paid in accordance with this agreement and held that ideally the royalty payment should have been benchmarked with reference to uncontrolled comparable price (CUP) but since neither assessee nor TPO had been able locate appropriate CUPs and the royalty transaction had been aggregated along with other related international transactions of the assessee and benchmarked under TNMM, the ALP of which was accepted by the TPO, no addition could be made.

Siemens VDO Automotive Ltd vs DCIT – TS-79-ITAT-2017(Bang)-TP – I,T.{T.P} A. No.923/Bang/2012 dated 25.01.2017.

806. The Court, upheld the Tribunal order deleting TP-addition on account of royalty payment for technical know-how made by assessee to AE for AY 2008-09. It followed coordinate bench ruling in assessee’s own case and held that TPO’s restriction of royalty payment from 2% to 1% without giving reasons or justification was arbitrary and adhoc. It noted that the TPO had not carried out exercise to determine the ALP by following one of the methods of section 92C. However, it admitted Revenue’s appeal on deletion of adjustments on brand usage royalty and royalty payment on traded finished goods and deletion of disallowances of withholding taxes, R&D cess and service tax on royalty payments to consider whether on facts and in circumstances of the case and in law, Tribunal was justified in deleting the addition on account of tax on brand usage royalty without appreciating the fact that approval taken from RBI cannot be taken to be augmenting the terms of agreement with the principals.

Johnson & Johnson Ltd TS-397-HC-2017(BOM)-TP- ITA No.1671 of 2014 dated 03.04.2017

807. The Tribunal upheld TPO/DRP’s NIL ALP in respect of administrative service fees and royalty payment by assessee to AE for AY 2006-07 and 2007-08 on the ground that the assessee had only described the nature of technical knowhow and administrative services received without conclusively proving their use in the manufacturing. It held that although Delhi High Court ruling in the case of EKL Appliances stressed that TPO/AO cannot question the necessity of incurring the expenditure or the benefits of the expenditure incurred, the onus lied on the assessee to prove that the actual services for which administrative services fess were paid were actually rendered.

Herbalife International India Pvt Ltd [TS-364-ITAT-2017(Bang)-TP- IT(TP)A No.1406(bang)/2010 and IT(TP)A No. 924/bang/2012 dated 17.04.2017

808. The Tribunal relying on the decision in the case of Toyota Kirloskar Motors Private Limited [TS-650-ITAT-2016(BANG)-TP] held that where no comparable had been found in respect of royalty payment made by the assessee to its AE, the ALP may be determined by considering the royalty as part of operating cost for the purpose of computing the margin in the trading segment. Accordingly, it remitted the issue back to the file of AO/TPO for fresh consideration.

DCIT vs Wipro GE Medical Systems Pvt Ltd-TS-429-ITAT-2017(BANG)-TP-IT(TP)A.No.40/bang/2011 & 1647/bang/2013 dated 21.04.2017

809. The Tribunal deleted Rs 7.5 cr. adhoc adjustment made by the AO in respect of royalty payment as the assessee had undertaken a similar transaction for succeeding AY 2010-11 which was accepted at arm’s length. Relying on the decision in the case of Spicer India Limited [TS-569-HC-2015(BOM)-TP, it held that the Revenue had failed to show difference between the two transactions and the procedure laid down under the transfer pricing provisions had not been followed because it made an adhoc adjustment which was not as per law. Further, it noted that the no addition on account of royalty had been made in the TPO’s order and that AO had made the addition on account of royalty on the basis of the show cause notice of the TPO. Additionally, the Tribunal relying on the ruling in the case of SGS India Pvt Ltd wherein rate of royalty approved by SIA/RBI was upheld as CUP data and Spicer India Limited [TS-99-ITAT-2017(PUN)-TP] wherein rate of royalty lesser than 3% was considered to be at arm’s length as it was as per RBI approved rate, held that since royalty payment in the instant case was also less than 3%, the same could be considered to be at ALP.

John Deere India Pvt Ltd [TS-398-ITAT-2017(PUN)-TP- ITA No.828/PUN/2014 dated 17.05.2017

810. Relying on the decision of co-ordinate bench in assessee’s own case for AY 2007-08, 2008-09 and 2010-11, the Tribunal remitted to the file of the TPO the ALP determination in respect of royalty paid by assessee to its AE since the AO applying CUP method had not brought any comparables on record to arrive at ALP but had only applied the benefit test to determine the ALP at ‘NIL’.

Toyota Kirloskar Auto Parts Pvt Ltd vs. DCIT-TS-828-ITAT-2017(bang)-TP dated 13.09.2017

811. The Tribunal held that an international transaction could be clubbed / aggregated with other international transactions if such transactions were closely connected with each other, and the onus to establish such justification was on assessee. Accordingly, where the assessee failed to discharge its onus of establishing the justification for clubbing and aggregating royalty transaction with other transactions, the Tribunal upheld the TP-adjustment made by the TPO on the royalty payment arrived at by benchmarking the royalty payment transaction under TNMM on standalone basis. It rejected the assessee’s contention that when TNMM was applied at the entity level, there was no necessity of separate benchmarking in respect of royalty transaction.

Kaypee Electronics & Associates Pvt Ltd [TS-310-ITAT-2017(Bang)-TP] – IT (TP) A No. 159/Bang/2015 dated 21.04.2017

812. The Court dismissed Revenue’s appeal and upheld the Tribunal order deleting TP-addition on account of royalty payment for technical knowhow and brand usage by assessee to its AE for AY 2006-07. Following the decision of the co-ordinate bench in AY 2002-03, it confirmed the Tribunal’s view that TPO’s restriction of royalty payment to 1% without giving reasons/ justification was arbitrary and adhoc and that TPO had not carried out ALP-determination exercise by following one of the prescribed methods in Section 92C.

Further, the with regard to the part disallowance of publicity and sales promotion expenses paid by the assessee to the AE, it upheld the finding of the Tribunal that the TPO was incorrect in making such disallowance on the ground that AE should have borne a part of such cost considering it received higher royalty due to higher sales. It noted that the TPO had not determined ALP by following any of the methods prescribed u/s 92C(1) read with Rule 10B of the Income Tax Rules, 1962 and accordingly held that the adjustment had been rightly deleted.  It stated the determination of the ALP had to be done only by following one of the methods prescribed under the Act and since the Revenue had not acted in accordance with the clear mandate of law, it held that the appeal of the Revenue did not give rise to any substantial question of law. 

CIT (LTU) vs. Johnson & Johnson Ltd – TS-265-HC-2017(BOM)-TP – INCOME TAX APPEAL NO.1291 OF 2014

813. The Tribunal held that payment of royalty approved by RBI under automatic route or the approval granted by the FIPB would not be conclusive ‘ALP’ rates. It rejected the assessee’s stand that royalty payment at 3% for AY 2012-13 was at ALP since it was within the rates approved by FIPB and held that the relevant FIPB approval was not a specific approval but it merely referred to rates prescribed under the automatic route and also noted that such rates pertained to payment under technology transfer whereas assessee’s payment was on account of use of trademark/ brand name. Further, it noted that the Government of India, vide. Press Note No-8 (2009 series) dated December 16, 2009, had waived all the restrictions on payment of royalty under foreign technology collaboration and put the same under automatic route and therefore it held that under these circumstances the assessee could not be permitted to take this stand that since there were no restrictions on payment of royalty by the Government of India, any amount paid by assessee on account of royalty would ipso-facto be its ALP. It distinguished the ruling of the High Court in SGS India, noting that Press Note No-8 was not brought to the notice of Court / Tribunal. Stating that the rates allowed under the automatic route by the RBI or FIPB were meant to achieve objectives in different areas, it opined that independent ALP-determination needed to be done to find out ALP of royalty and accordingly remitted the issue to the file of AO / TPO.

A.W. Faber Castell (India) P. Ltd. vs. DCIT – TS-283-ITAT-2017(Mum)-TP – I.T.A. No. 1037/Mum/2017

814. The Tribunal dismissed assessee’s appeal for AY 2008-09 as TP-issue relating to royalty paid by assessee to its AE (Matsushita Electric Works Ltd) was resolved under India-Japan MAP. It noted that this issue was referred by AE under India-Japan MAP pursuant to which order was passed wherein royalty payment was agreed to be allowable @ 1.15% and that the order giving effect to MAP was passed by the AO. Since the ground relating to royalty was not pressed by the assessee on account of them being infructuous as on date, the issue was dismissed by the Tribunal.

Anchor Electricals Pvt. Ltd vs. DCIT – TS-325-ITAT-2017(Mum)-TP – I.T.A.No.6930/Mum/2012 & I.T.A.No.326 /Mum/2012

815. The Tribunal upheld the CIT(A)’s order for AY 2007-08 and 2008-09 deleting adjustment in respect of royalty payments made by assessee (engaged in the business of manufacturing of auto parts and components) to its AE noting that the AO/TPO did not bring on record any comparable case to find out the rate of royalty in the assessee’s line of business and also because there was no justification to determine the ALP at NIL on alleged the basis that no worthwhile recurring technology had been transferred. It also noted that the AO/TPO had accepted the ALP of such royalty payments in the earlier AY i..e AY 2005-06.

JCIT vs Progressive Tools & Components Pvt Ltd-TS-476-ITAT-2017(DEL)-TP-I.T.A No 530/del/2012 and I.T.A no 5962/del/2012 dated 15.05.2017

816. Relying on the decision of co-ordinate bench in assessee’s own case for AY 2007-08, 2008-09 and 2010-11, the Tribunal remitted to the file of the TPO the ALP determination in respect of royalty paid by assessee to its AE since the AO applying CUP method had not brought any comparables on record to arrive at ALP but had only applied the benefit test to determine the ALP at ‘NIL’.

Toyota Kirloskar Auto Parts Pvt. Ltd V. ACIT-TS-636-ITAT-2017(BANG)-TP-IT(TP)A No.

Management Fees / Intra-group services

817. The assessee had entered into an international transaction with its Sharjah AE for payment of technical fees for achieving operational and technical competencies, relating to the know-how and technology licensed to the assessee by Woco Germany. The TPO comparing the transaction of Sharjah AE with the transaction of royalty-free licensing of manufacturing process intangibles by German AE, determined the ALP as Nil, ignoring the contention of the assessee that the services provided by Woco Sharjah and Germany were distinct. (as the technical services agreement with Woco Sharjah was for achieving operational and technical competencies, whereas Woco Germany had granted the assessee a non-exclusive license to manufacture, use, exercise or sell licensed products/use its know-how and inventions). The Tribunal noted that the Revenue’s comparison of technical fees to Woco Sharjah with royalty free licensing of manufacturing process intangibles from German AE was not valid since transaction with the German AE was an intra-AE transaction, rejected the TPO’s Nil ALP determination and deleted the TP addition. However, the Court admitted the appeal of the Revenue against the impugned Tribunal order.

Woco Motherson Advanced Rubber Technologies Limited [TS-173-HC-2017(GUJ)-TP] (Tax Appeal No. 129 of 2017)

818. Where the TPO/DRP rejected assessee’s contention that the transaction of payment of management, technical and professional fees should be aggregated with software development services under TNMM and proceeded to determine ALP at Nil by applying CUP-method on the basis that assessee failed to demonstrate benefit derived out of such payment for such services, the Tribunal, relying on the decision in the case of 3M India Ltd [TS-293-ITAT-2016(Bang)-TP] (wherein it was held that it is incumbent on the assessee to prove that services are actually received by the assessee and failure to do so may result in ALP adjustment),  upheld the TP adjustment on account of payment of management, technical and professional fees paid by assessee to AE for AY 2011-12.

Safran Engineering Services India Pvt. Ltd vs. ACIT-TS-990-ITAT-2017(Bang)-TP dated 11.12.2017

819. The Tribunal deleted TP adjustment on payment of fees for advisory and other services rendered by AE. Noting that the assessee had filed contemporaneous and highly technical documentary evidence to demonstrate benefits of services such as support for new product, marketing material, training material and technical support etc and the AE had provided similar services to other group entities, the Tribunal held that the examination of qualification of AEs to provide services and costs incurred by AE was beyond the scope of TP provisions and accordingly deleted the adjustment.

Emerson Climate Technologies (India) Limited vs DCIT-TS-1065-ITAT-2017(PUN)-TP dated 29.12.2017

820. Where the assessee had availed services from its AE in respect of only 5 areas out of 11 mentioned in the agreement, consequent to which the TPO made proportionate disallowance for services not availed by the assessee and the Tribunal following its earlier year’s decision in the assessee’s own case, deleted the TP addition since the TPO had made disallowance without applying the method prescribed under TP Regulations, the Court, following its earlier order in the case of assessee, dismissed the Revenue’s appeal as neither any specific TP-method was applied nor was any benchmarking with comparables carried out.

Merck Ltd [TS-130-HC-2017(BOM)-TP] [ITA No. 909 of 2014]

821. Where the assessee had made payments of management fee and IT support fee (‘SAP’) to its AE in accordance with an agreement at a mark-up of 1% for management fees (mainly in respect of deputation of personnel whose salaries were paid byassessee) and 5% for SAP fee and TPO considered the ALP as NIL contending that assessee failed to demonstrate benefit derived there from, the Tribunal upheld the contention of theassessee that the TPO’s analysis on benefit test and determination of NIL ALP could not be accepted. In this regard, it held that the Revenue could not question the reasonableness of expenditure incurred by assessee. Since the benchmarking of the other transactions undertaken by the assessee were being remitted to the TPO for reconsideration, the Tribunal remitted this issue to the file of the TPO as well.

JT International (India) vs DCIT – TS-107-ITAT-2017 (Hyd) – TP – I.T.A. No. 422/HYD/2014 dated 17.02.2017

822. Where the assessee had made a payment of technical know- how fee to its AE and the TPO observed that it had availed services from AE in respect of only 5 areas out of 11 mentioned in the agreement with AE, against which he made a proportionate disallowance by taking the ALP for services not availed by assessee at Nil, the Court, following its own order for AY 2003-04, held that assessee could have availed all or any one of the services listed in the agreement as per its business needs and it need not have necessarily availed all services. Accordingly, it rejected the Revenue’s plea for disallowing proportionate technical knowhow fee paid by assessee to AE during AY 2006-07.

CIT vs. Merck Ltd – TS-130-HC-2017(BOM)-TP – INCOME TAX APPEAL NO. 909 OF 2014 dated 22.02.2017

823. Where the assessee paid a sum of around Rs. 2 crores as technical service fees toward various services rendered by the AE viz. machinery expansion and sourcing support, test work support, quality support, preparation of response cost sheet for new order procurement, ECB Loan related work etc out of which, the TPO / DRP only accepted the sum paid towards ECB loan related work and determined the ALP for rest of the services as NIL on the ground that (a) no specific services were provided by AE (b) there was lack of details and evidence in support of the subject services c) the payments were beyond the scope of the agreement which only provided for royalty and fees for technical services, the Tribunal relying on an earlier ruling in the assessee’s own case [TS-454-ITAT-2016(CHNY)-TP] , remitted the issue to the TPO after observing that that the issue had not been examined with respect to the correct factual matrix. It held that when the assessee made payments to its parent company, it had to establish and justify the nature of payment and the nature of service received for the purpose of determining Arm’s length price in Transfer pricing matters and just because the operating cost incurred by the assessee company was less than the operating cost of the comparable companies, the claim of expenses incurred could not be justified. Therefore, it remitted the issue to TPO for fresh consideration.

Infac India P. Ltd vs DCIT – TS-120-ITAT-2017(CHNY)-TP – I.T.A.No.3182/Mds./2016 dated 17.02.2017

824. The Tribunal remitted the issue relating to TP-adjustment of Rs. 6.19 Crore on payment made by assessee to its AEs towards management fee for AY 2007-08 for which TPO had determined ALP at ‘Nil’ and accepted the assessee’s contention that certain evidence filed by it was not examined by the TPO while determining the ALP. It followed the decision for earlier AY 2006-07 in the case of the assessee wherein it was held that the AO could not disallow entire management fee expenditure on the ground that assessee has not proved the commercial benefit from such payment. Consequently, it remitted matter to AO/TPO to re-examine the evidence filed by the assessee and to re-determine ALP after analyzing the same.

Safran Engineering Services India Pvt. Ltd. (formerly Safran Aerospace India Pvt. Ltd.) Vs DCIT – TS-93-ITAT-2017 (Bang) – TP – IT(TP)A No.1169/Bang/2011 dated 25.01.2017

825. The Tribunal remitted the determination of ALP of intra-group services paid by the assessee to its AE, which was benchmarked by the assessee by aggregating the intra-group services with other international transactions under its manufacturing segment which was rejected by the TPO who determined the ALP at Nil on the ground that the assessee could not furnish evidence relating to services received from the AEs. Relying on the decision in the assessee’s own case for earlier years, it directed the TPO to find out whether the assessee received any service from the AE from which assessee had derived any benefit.

SKF Technologies India Pvt Ltd – TS-52-ITAT-2017 (Bang) – TP

826. Where the TPO made an adjustment of Rs.6.34 crore on the corporate service charges paid by the assessee to its AE, by adopting the CUP method and by considering man hours of the services rendered by the AE, which was confirmed by the DRP vide a non-speaking order, the Tribunal remitted the issue to the file of the DRP for re-adjudication, directing it to pass a reasoned order. Huntsman International India Pvt Ltd – TS-65-ITAT-2017 (Mum) – TP

827. The Tribunal deleted disallowance of payment made towards support services and corporate cost allocation to AEs since the activities were routine in nature and the said expenditure could not be disallowed on the ground that the assessee had failed to provide documentary proof to evidence receipt of benefits of corporate functions. Also, the entire cost incurred by the assessee was recovered from the AE with a markup of 18.8%. The Court further observed that if the AO’s action was upheld it would lead to disallowance of cost on one hand and taxation of markup on the recovery on the other hand.

Eaton Industries Manufacturing GmbH -TS-1051-ITAT-2016(PUN)-TP

828. The Court dismissed Revenue’s appeal against deletion of TP-adjustment on reimbursement of 20% of advertisement expenditure incurred by assessee’s AE in respect of new products on the ground that sharing of expenditure with AE was a strategy to develop assessee’s business which could result in improving brand image and higher profit due to higher sales. It held that it was not part of the TPO jurisdiction to consider whether or not the expenditure which had been incurred by the respondent assessee passed the test of Section 37, the jurisdiction of the TPO was specific and limited i.e to determine the ALP of an International transaction. It further held that as neither the most appropriate method nor the choice of comparable had been disputed by TPO, adhoc disallowance of expenditure could not be allowed and thus, concluded that no substantial question of law arose for its determination.

Lever India Exports Ltd – TS-23-HC-2017-(Bom)-TP

829. The Tribunal remitted the matter to the DRP to re-adjudicate the issue relating to the computation of ALP of the international transactions of the assessee’s payment of corporate service charges (legal services, treasury and credit, purchasing, transportation and logistics, travel co-ordination services, internal audit, human resources services, etc) to the AEs, on which the TPO made an addition by rejecting the TNMM adopted by the assessee and applying CUP, by considering man hours of various services rendered by the AE. Observing that the DRP had not passed a speaking / reasoned order, the Tribunal directed the DRP to re-adjudicate the issue after allowing assessee opportunity of being heard.

Huntsman International (India) Private Limited vs DCIT – TS-65-ITAT-2017 (Mum) – TP – ITA No.5637/Mum/2015, ITA No.382/Mum/2016 dated 31.01.2017

830. Where the TPO had rejected assessee’s approach of aggregating intra-group services paid by it to its AE with other international transactions under its manufacturing segment and determined its ALP at NIL contending that assessee could not furnish evidence relating to services received from AEs, the Tribunal, relying upon the ruling in assessee’s own case for AYs 2006-07 & 2007-08, remanded the matter back to TPO for fresh consideration, observing that assessee ought to establish receipt of benefits on account of services rendered by its AEs and thereafter the TPO was to determine ALP of such services with reference to similar payments made by independent enterprise in uncontrolled transactions.

SKF Technologies India Pvt. Ltd vs. ACIT – TS-52-ITAT-2017 (Bang) – TP – IT(TP)A No.1563/Bang/2012 dated 31.1.2017

831. The Tribunal deleted the TP-adjustments for AYs 2009-10 and 2011-12 on account of payment made by assessee to its AEs on account of intra-group management services. It rejected the TPO/DRP’s determination of ALP at Nil under the CUP and held that whether a particular expense on services received actually benefitted an assessee, could not have any role in determining ALP of that service. Observing the nature of services rendered on random sample basis, it concluded that there was reasonable evidence of rendition of services and held the ALP could not be determined at Nil based on subjective perceptions, without anything on record to show that the ALP of the services were in fact Nil.

Further, noting that that no specific comparables had been considered by Revenue, it also deleted the TP-adjustment on payment towards information management support made by TPO by applying 3% mark-up on costs vis-a-vis the 10% mark-up applied by assessee. It rejected the reasoning of the TPO i.e. that the services rendered by AE was more of infrastructure support than software development, because the software was being procured from outside and distributed to AEs and held that the variation in the mark-up proposed by the TPO was based on the perceptions of the TPO and not any cogent material.

Sabic Innovative Plastics India Pvt Ltd [TS-234-ITAT-2017(Ahd)-TP] – ITA No. 1125/Ahd/ 2014 and IT (TP) No. 427/Ahd/16 dated 17.03.2017

832. The Tribunal, relying on the ruling of Tecnimount ICB (P.) Ltd [TS-557-ITAT-2012(Mum)], and held that an internal comparable having related party transactions was unacceptable for ALP computation and therefore deleted the adjustment made by the TPO on the commission on sale of imported DG sets, earned by the assessee from one of its AEs by comparing the same with the commission earned by the assessee from another AE. Accordingly, it directed AO to delete the adjustment.

Cummins India Limited vs. DCIT – TS-165-ITAT-2017(PUN)-TP – ITA No.115/PUN/2011 dated 03.03.2017

833. The Tribunal allowed assessee’s appeal for AY 2008-09, (wherein the CIT(A) applied the CUP method to benchmark payment of management fees) by noting that the Tribunal in the prior AY  [TS-503-ITAT-2016(Bang)-TP]  had considered the identical issue in the assessee’s own case and had accepted the benchmarking of management fees along with ITES, on a composite transaction basis, under TNMM. It also noted that the Department had accepted the management fees on the basis of TNMM along with other services under the Advance Pricing Agreement.

AXA Technologies Shared Services Pvt. Ltd (formerly known as AXA Technology Services India Pvt. Ltd) vs. DCIT – TS-210-ITAT-2017(Bang)-TP – IT(TP)A No.12/Bang/2013 dated 15.03.2017

834. Where the assessee showed no inextricable link between the transactions of intra-group services viz., business planning, project review board and reimbursement of related travel and accommodation expenses from different AEs and there was no package deal as the transactions were valued separately, the Tribunal relying on the decision in the case of Knorr Bremse [TS-558-HC-2015(P&H)-TP (wherein it was held that several transactions between two or more AEs can form a single composite transaction if they are closely linked transactions and the onus is always on the assessee to establish that such transactions are part of an international transaction pursuant to an understanding between various members of a group), upheld the rejection of aggregation approach adopted by assessee (engaged in exploring and drilling, producing, refining and marketing of minerals, oils and related by-products) for benchmarking receipt of intra-group services from different AEs and held that it was not permissible to combine all the international transactions for determining their ALP in a unified manner when such transactions were diverse in nature.

Cairn India Ltd vs. DCIT-TS-767-ITAT-2017(DEL)-TP- ITA No.1459/Del/2016 dated 09.10.2017

835. Where the assessee benchmarked the payments made to its US based AE for selling agent services received by it under CUP method adopting the payments by the AE to independent third parties in the USA for similar services as comparable, the Tribunal held that since the commission paid by the assessee to AEs was also for services rendered in respect of sales in USA and the scope of services rendered by the AEs was much more than the scope of services being rendered in such cases of uncontrolled comparable cited by the assessee, no adjustment could be made.

Pr.CIT vs Paxar India Private Limited-TS-780-HC-2017-TP ITA 771/2017 dated 27.09.2017

836. The AE’s employee was transferred to assessee’s rolls as a whole-time director with responsibility for scientific business and infrastructure operations of certain sister concerns/ affiliates, for which the assessee reimbursed the AE with the apportioned salary and other direct expenses incurred on a cost-to-cost basis. The TPO suggested that a markup of 10% should be charged which was upheld by CIT(A) observing that the transaction was not routed through the books. The Tribunal held that in case, the transaction was not routed through the books, the action of TPO may be sustained and remitted the issue back to the file of AO to verify the transaction. However, if the transaction was routed through books of accounts, it clarified that it was a normal practice in the multinational companies to utilize the expertise of the various executives in the group companies and since there were no comparable cases in the market, and it was a business decision of the assessee to share the employee cost with other sister concerns on cost to cost basis the addition of markup was to be deleted. Accordingly, it remitted it to the file of AO for the limited purpose of verification of whether the transactions were routed through books of accounts.

DCIT vs. United States Pharmacopeia India Pvt. Ltd-TS-857-ITAT-2017(Hyd)-TP dated 27.10.2017

837. The Tribunal, relying on the decision in the case of BG Exploration & Production wherein it was held that time writing charges were neither duplicative in nature nor were shareholder activities, remitted the matter to the file of TPO (who had determined ALP at Nil) directing him to examine the issue following the above mentioned ruling.

BG India Energy Solutions Private Limited -TS- 878- ITAT-2017(DEL)-TP dated 30.10.2017

838. Where the TPO had made an adjustment by treating ALP of service fee as NIL on the ground that assesse had failed to prove receipt of actual services/justify payment of fees, which was deleted by the DRP after considering services of managing director to the company, the Tribunal relying on Volvo India ruling (wherein it was inter alia held that onus always lies on the assessee to prove receipt of services from AE), held that DRP had not referred to any evidence or dealt with the aspect of receipt of services by the assessee from AE towards management support services and further, assessee had also not filed any evidence to substantiate receipt of services from AE. Accordingly, allowing Revenue’s appeal, it rejected assessee’s request for remand of issue relating to payment of management technical support and professional fee to AE for de-novo adjudication and confirmed the adjustment made by the TPO.

ITO vs Safran Engineering Services India Pvt. Ltd – TS- 949-ITAT-2017(bang)-TP- IT(TP)A NO. 451/BANG/2015 dated 20.11.2017

WM India Technical and Consulting Services Pvt Ltd vs. ACIT-TS-877-ITAT-2017(DEL)-TP-ITA No. 5875 / del / 2017 dated 13.10.2017

839. The assessee made payments to its AE towards information management support at 10 percent mark-up of the costs allocated by the AE, which it benchmarked by adopting comparables in the IT sector. The TPO, contended that the services rendered by the AEs were more of infrastructure support than software development (since the software were procured from outside and distributed to the AEs) and rejected the mark-up of 10 percent and adopted a 3 percent mark-up as ALP. The Tribunal held that no specific comparables had been considered by the Revenue for the purpose of determining mark-up at 3 percent and that the TPO was incorrect in rejecting the comparables selected by the assessee merely because the AE was not developing the software on its own but was providing software obtained from outside vendors. Accordingly, it deleted the addition.

Sabic Innovative Plastics India Pvt Ltd – TS-234-ITAT-2017 (Ahd) – TP

840. The Tribunal deleted the TP adjustment with respect to the payment of intra-group management services made by the assessee to its AEs. The TPO had determined the ALP of the payment at Nil under the CUP method, contending that there were no services rendered by the AEs and that the benefit derived by the assessee was not commensurate with the payment. The Tribunal held that whether a particular expense on services received actually benefits an assessee was not even a consideration for determination of ALP and held that the ALP determination was to be made on the basis of a recognized method and not on the basis of subjective perceptions as done by the TPO. Noting that the TPO failed to bring anything on record to show that in an arm’s length situation these services would be provided without any consideration, it deleted the ALP adjustments.

Sabic Innovative Plastics India Pvt Ltd – TS-234-ITAT-2017 (Ahd) – TP

841. The assessee availed support services / management services from its AEs for which it paid a fee and benchmarked the said payment under TNMM. The TPO adopting CUP method determined the ALP of the said services at Nil on the ground that the assessee was unable to substantiate its claim of expenditure. On submission of evidence by the assessee, the DRP reduced the addition from Rs.2.65 crore to Rs.2.26 crore and observed that many of the services were duplicative in nature as the assessee failed to explain how payments were made to its employees as well as its AEs for similar services. The Tribunal relying on the decision in the case of Control Techniques India Pvt. Ltd. [TS-1024-ITAT-2016(CHNY)-TP] and noting the assessee’s submission that the assessing authorities had not considered the documentary evidence submitted in support of the services availed by it,  remitted the issue to DRP with direction to provide the assessee with an opportunity to substantiate its claim with supporting the details of expenditure in the nature of management fees paid to the AEs.

Cook India Medical Devices Private Limited vs. JCIT – TS-306-ITAT-2017(CHNY)-TP – /ITA No.: 2546/Mds/2016 dated 30.03.2017

842. The Tribunal, noting that the assessee had not produced proper evidences for substantiating actual rendering of various services by foreign AE during AY 2012-13, remitted the matter to AO/TPO for fresh verification. The TPO had applied the CUP method and determined Nil ALP of the services contending that assessee had failed to substantiate actual receipt of the services or the benefit received from these services. It held that while evaluating the intra-group services availed by the assessee, the TPO was required to assess (a) need test, (b) benefit test, (c) rendition test, (d) duplication test and (e) shareholder activity test. Noting that the Tribunal in earlier years had held that the need/benefit test was satisfied for services rendered under the same agreement, it held that TPO was not right in questioning satisfaction of such tests. Further, it held that rendering of intragroup services was subject to determination for each AY independently based on the evidences for rendering of the services, and that assessee was required to demonstrate it with the credible evidence. Since the assessee had not filed proper evidences with respect to each class of services with corresponding manner of rendering of the services it directed the assessee to provide proper and credible evidence.

Avery Dennison (India) Pvt. Ltd. Vs DCIT – TS-282-ITAT-2017(DEL)-TP – ITA No. 5578/Del/2016 dated 31/03/2017

843. The assessee had provided management services to its AEs to the tune of Rs. 4.35 crores, and claimed the transaction to be at arm’s length by assuming margin of 15% on cost. However, the TPO noted that the details of specific services provided by assessee were not available and further considering the proportion of the AE companies in terms of inventory, business size and value of assets, he concluded that the assessee should have received double the amount towards management consultancy fee from its AEs and made an adjustment of Rs. 4.35 crore which was deleted by the CIT(A). On appeal, after referring to the provisions of Rule 10C and considering the fact that the TPO had not considered third party comparable cases, and that the details of the actual services rendered by the assessee were not known, the Tribunal remitted the matter to the AO / TPO for re-examination and held that until the details of the actual services rendered by assessee to AEs were not brought on record, the business size of the AEs could not determine the comparability of services (as done by the TPO). It opined that it was obligatory on the part of TPO to bring on record the exact nature of services rendered by assessee and thereafter to compare the same with an uncontrolled transaction.

ACIT vs. Sterlite Industries (India) Ltd – TS-278-ITAT-2017(CHNY)-TP – ITA Nos.318 & 319/Mds/2008 dated 29.03.2017

844. Assessee made payment of Rs. 30.50 lacs towards management consultancy fees to its AE, Twin Star Holdings Ltd., Mauritius for which the TPO proposed a TP addition on the ground that the benefit received by the assessee from such services was not shown. The CIT(A) deleted the addition. Since the nature of services / consultancy provided to assessee was not known, the Tribunal remitted the issue to AO/TPO for examining the actual services rendered and then to re-determine ALP. 

ACIT vs. Sterlite Industries (India) Ltd – TS-278-ITAT-2017(CHNY)-TP – ITA Nos.318 & 319/Mds/2008 dated 29.03.2017

845. The Assesse engaged in the business of manufacturing and marketing of paints, special chemicals and starch, entered into a service level agreement (SLA) with another Akzo Nobel Group company whereby it was to receive services relating to (i) Advice/support in the area of human resources to attain functional excellence, (ii) Advice and assistance on operation relating to plant, (iii) advice and support on strategies to optimize cost structures in purchasing, (iv) wide range of market support services (v) information technology, (vi) advice and assistance on reporting/accounting, financial control and planning activities and (vii) other ancillary business support functions including public affairs advise or public relations. The Tribunal rejected the TPO’s classification of support services received from its AE as stewardship services. It relied on OECD Guidelines and US regulations to observe that co-ordination activities qualified as services unless a particular subsidiary did not need the activity and would not be willing to pay an unrelated party to perform it. Accordingly it deleted the TP addition relating to support services. The Tribunal further upheld the deletion of TP adjustment on account of SAP implementation services received from another AE on the ground that the TPO had erroneously construed these services as stewardship services without considering the plethora of facts, justifications and details. It observed that the assessee had submitted documentary evidence such as sample evidences of communications, training manuals and other relevant documents with TPO showing valuable commercial services received. Observing that SAP implementation leads to improved productivity and reduce costs through flexibility as well as increased profitability, improved financial control as well as optimization of IT spending, it noted that the asseesee had used SAP software for integrating the process at varied locations for the business. The manner of allocation of cost was scientific and correct. It accordingly concluded that the transaction was at ALP and dismissed Revenue’s appeal.

Akzo Nobel India Limited [TS-379-ITAT-2017(Kol)-TP I.T.A No. 335/Kol/2014 dated 03.05.2017

846. The Tribunal, relying on co-ordinate bench ruling in the assessee own case for AY 2007-08 allowed payment for intra group services to the extent cost was substantiated and upheld DRP’s order for AY 2011-12 that intra-group managerial services rendered by the AE to the assessee were at ALP. It rejected Revenue’s contention that the assessee could not establish that services were rendered by AE against which assessee had made payment.

Essentra India Pvt Ltd [TS-368-ITAT-2017(Bang)-TP- I.T.(TP).A No.311/BANG/2016 dated 31.03.2017

847. The assessee under a cost sharing arrangement had paid management fees to its French parent company and applied TNMM as the most appropriate method. However, the TPO determined ALP of management fees at NIL contending that the assessee had failed to justify the payment on the basis of receipt and benefit test and that the services were in the nature of stewardship or shareholder activities and the same should not have been charged by the AE. Accordingly, he made TP addition. The CIT(A) upheld the AO’s TP addition on the ground that the assessee had not provided details regarding the experts/professionals who had actually rendered the specific services. The Tribunal deleted the TP adjustment on the ground that TPO had not adopted any permissible method for determining ALP at NIL. It further observed that the assessee had submitted evidence for the visits by representatives of AE for rendition of services and had also furnished cost allocation agreement. Accordingly, it held that it was not open for TPO to bother about the business expediency and held that for the purpose of determining ALP at NIL, the TPO had to demonstrate that the said services were available for NIL consideration in an uncontrolled situation. As the TPO failed to do so, it deleted the TP addition made by the TPO.

Schneider Electric India Pvt Ltd [TS-433-ITAT-2017(Ahd)-TP] ITA No. 209/Ahd/2015

 

848. The Tribunal upheld ALP adjustment made by the TPO in respect of payment of management fee by assessee (engaged in the business of manufacturing, trading and marketing) to its AE as the assessee had failed to provide proof of actual rendition of services by AE. The assessee had submitted transfer pricing study report adopting TNMM at entity level to justify ALP of all its transactions. Considering the fact that when no management fee was paid in the year 2004-05, the profit was 48% and that in FY 2005-06, after payment of management fee, the profit was 35.95%; the TPO accepted all other transactions except the transaction of management fee at arm’s length and considered it as a separate transaction. The TPO accordingly inferred that the above payment had not resulted in any tangible benefit or economic value to the assessee. Accordingly, held that the transaction was a sham transaction which could not be bundled with others and held that the arm’s length price was ‘nil’. Relying on the decision in the case of EKL Appliances Ltd [TS-206-HC-2012(DEL)-TP] and Volvo India Private Limited [TS-993-ITAT-2016(Bang)-TP], the Tribunal held that ALP of management services fee could not be determined at ‘nil’ by questioning the necessity or the benefits out of expenditure incurred, but the onus to furnish proof of actual receipt of services by appellant from its AE was on the assessee. It held that in the present case, it was not discernible that the appellant made any attempt to furnish the proof of rendition of services. In respect of additional evidence submitted by assessee in the form of email correspondence and EDP (Electronic data processing) screenshot, the Tribunal opined that the additional evidence could be admitted by the Tribunal at its discretion only in the event that the party submitting the additional evidence satisfied the Tribunal that it was prevented by sufficient cause from providing such evidence before lower authorities and this evidence would have a material bearing on the issue which was to be deiced by the tribunal. In the present case, the appellant had not explained as to how it was prevented from furnishing the additional evidence before lower authorities and how it proved the rendition of services. Accordingly, it held that the TPO was justified in making ALP adjustment.

TaeguTec India Pvt Ltd vs DCIT -TS-454-ITAT-2017(Bang)-TP- IT(TP)A No.1337/bang/2010 dated 24.05.2017

849. The Tribunal rejecting TPO’s ‘nil’ ALP determination for administrative and support services directed TPO to re-determine ALP applying TNMM. It rejected Revenue’s contention that assessee had not received any services from AE and held that DRP had acknowledged receipt of services by the assessee and also dismissed the Revenue’s contention regarding absence of agreement prior to 01.01.2010, holding that services could be availed the assessee from its AE even without agreement. Relying on the decision in the case of EKL Appliances and Knorr Bremse India P Ltd, it held that the assessee was required to establish benefit received from intra-group services. It held that when the services were being taken as per policy of the group company to avail the benefit of low cost, specialization and confidentiality and rendering and need of the services was proved from the details brought on record by the assessee. Further, it held that where the TPO accepted TNMM applied by assessee as most appropriate method in respect of other international transactions, he could not apply different standard or criteria to judge an international transaction of intragroup services and thus upheld the clubbing of intra-group services with other transactions for ALP determination. Accordingly, it directed the TPO to make fresh a TP analysis for benchmarking international transactions undertaken by assessee.

Corning SAS-India Branch-TS-439-ITAT-2017(DEL)-TP dated 29.05.2017

850. The Tribunal upheld the CIT(A)’s deletion of the disallowance of royalty paid (@ 5% on net sale of products manufactured) by assessee (engaged in the business of designing garments) to AE for use of technical know-how, designs, logos, trade names, and trade-marks for AY 2003-04. It noted that that for the previous AY i.e. AY 2002-03, royalty payment was accepted by TPO to be at ALP and the benefit derived by assessee under the royalty agreement was also accepted by AO and that the only dispute raised by AO in previous AY 2002-03 was whether royalty was capital or revenue expenditure, which was settled by the Tribunal holding it to be revenue expenditure. It stated that in the present case, royalty expenditure incurred by assessee was fully and exclusively incurred in regular course of business and after incurring this expenditure the assessee declared profit @19% which was still better than the gross profit rate of 12 & 16% declared by comparables. Observing that the Tribunal ruling for AY 2002-03 was not reversed by higher forum, keeping in view the principle of consistency, it held that the ld. CIT(A) was fully justified in deleting the addition made by the AO, particularly, when the benefit derived under the agreement was not doubted by the TPO and the assessee by using the technical know-how assistance and designs received under the said agreement was manufacturing the finished products which were sold to the AE as well as to the other parties.

DCIT vs Cornell (P) Ltd-TS-469-ITAT-2017(DEL)-TP-ITA No.2166/del/2011 dated 02.05.2017

851. The Tribunal following its own case in the prior AY i.e. AY 2010-11 restored the TP-adjustment in respect of payment of technical and management service fee by assessee (engaged in manufacturing automobile seats) to its Korean AE to the file of the TPO for re-adjudication. The assessee had benchmarked the transaction under TNMM which was rejected by the TPO who adopting the CUP method determined the ALP at Nil. The Tribunal held that first of all, the TPO/AO was to ascertain whether Technical Management service expenses were at arm’s length as compared to the actual sales achieved by the assessee and accordingly remitted the matter directing him to reconsider the issue afresh. It also noted the assessee’s submission that in the set aside proceedings for AY 2010-11, TPO had allowed the issue as per Tribunal directions and no adjustment had been made.

Dymos Lear Automative India Pvt Ltd vs ACIT-TS-487-ITAT-2017(CHNY)-TP-ITA no.3472/mds/2016 dated 31.05.2017

852. Where the TPO had imputed a TP adjustment on account of notional commission income in respect of alleged marketing and distribution activities carried out by the assessee on behalf of its AE who supplied medical devices directly to hospitals in India, the Tribunal, relying on its earlier years order held that since the TPO failed to bring any material on record or to apply any of the approved methods for determining ALP, the addition made being on a notional basis, was invalid. Following the prior year’s Tribunal order, it remanded the matter to the AO / TPO to determine ALP by applying one of the prescribed methods.

India Medtronic Pvt Ltd vs ACIT- [TS-531-ITAT-2017(Mum)-TP]- ITA No.812/Ahd/2008 and other three appeals dated 25.05.2017

853. Noting that there was a close nexus between all international transactions undertaken by assessee, the Tribunal held that the aggregation of these transactions with other transactions was required, and the most appropriate method was to adopt TNMM at entity level for the purpose of the bench marking the transactions and accordingly remitted the matter to the file of AO/TPO directing it to aggregate the transactions. The TPO had questioned the payment of benchmarking of payment of management fees and technical fees and held that there was no basis for assessee’s adoption of 10% and 15% markup respectively. Accordingly, it made an adjustment which was confirmed by CIT(A). The assessee contended that the TP study report adopting TNMM at entity level was accepted by the TPO and therefore, there was no need of separate bench marking in respect of transactions of royalty and technical fee as the same formed part of operating expenditure. Observing that the Revenue had no objection if the matter was remitted back to the TPO to adopt TNMM at entity level, the Tribunal remanded the matter back to the file of AO/TPO.

Fosroc Chemicals India Pvt Ltd vs. ACIT-TS-572-ITAT-2017(bang)-TP IT(TP)A No.1813/Bang/2013 dated 21.06.2017

854. The Tribunal, rejecting TPO’s nil ALP determination in respect of selling commission paid to US/UK AE in respect of ITES orders procured from end customers and passed on to the assessee, remitted the issue of ALP determination to the file of TPO for fresh consideration. It held that ALP could not be nil in view of the fact that assessee procured the entire business from US region only through its AE for which the AE in turn charged the assesses a selling commission of 7% of sale and therefore the actual rendering of service by the AE had been established.

Msource (India) Pvt. Ltd vs. ACIT-TS-581-ITAT-2017(bang)-TP-ITA No. 420/bang/2015 dated 23.06.2017

855. Noting that the Tribunal had followed co-ordinate bench’s ruling in assessee’s own case for AYs 2007-08 and 2008-09 wherein similar TP-adjustment was deleted allowing aggregation of intra-group services closely linked to manufacturing business under TNMM, the Court, dismissed Revenue’s appeal against Tribunal’s order holding that there was no substantial question of law for consideration.

Pr. CIT vs Avery Dennison (India) Pvt Ltd-TS-589-HC-2017(DEL)-TP-ITA No. 516/2017 dated 18.07.2017

Pr. CIT vs. Avery Dennison (India) Pvt. Ltd – TS-590-HC-2017(DEL)-TP – ITA 517/2017 dated 18.07.2017

856. Where the assessee availed only certain services out of bunch of services mentioned in an agreement and the TPO did not doubt the arm’s length price of the services availed, the Tribunal held that no TP adjustment could be made vis-à-vis the balance services. It held that if the assessee availed only few services of the bouquet of services, the TPO should not reject the TP study on the ground that the assessee did not avail all the services or majority of services as provided in the agreement.

Dimension Data India Private Limited vs DCIT-TS-644-ITAT-2017(Mum)-TP-ITA no. 2280/mum/2016 dated 16.08.2017

857. The Tribunal, rejected TPO’s ‘NIL’ ALP determination for services provided by AE and restored the issue back to the file of TPO for verification and examination of evidence submitted by assessee. It noted that an identical issue for AY 2007-08 was remitted back to AO/TPO and Revenue’s appeal against the Tribunal’s order was dismissed by the High Court, and in the second round of litigation, Tribunal had again remanded the issue for giving a specific decision. For the relevant year, the Tribunal carried out a prima facie examination of the assessee’s agreement with its AE which had an enabling provision for payment by assessee for brief visit of personnel, specialized technical services management team and held that the assessee had to establish basis for payment along with rendition of services by AE. Accordingly, It held that the TPO/AO was required to examine the evidence produced and give a speaking order.

Fosroc Chemicals India Pvt Ltd vs ACIT-TS-547-ITAT-2017(Bang)-TP-IT(TP)A no. 279/bang/2014 dated 31.05.2017

858. Assessee’s parent formed a joint venture with an Indian entity to secure 3 highway projects in India under a contract with NHAI and part of the work was allotted to assessee through supplementary arrangement which was reported as international transaction by assessee.  Due to a delay in completion of project, the assessee had incurred losses as a result of which, the TPO made an addition to the income of the assessee contending that the transaction was not at ALP.  Following the order of the co-ordinate bench for AY 2004-05 to 2007-08 in the assessee’s own case, the Tribunal held that where the TPO had accepted the transaction to be at ALP in the hands of the AE, then he could not take a different stand in the case of the other party to the transaction i.e. Assessee herein. Accordingly, it deleted the TP adjustment. 

UE Development India Pvt Ltd v DCIT – TS-550-ITAT-2017 (Bang) – TP – IT(TP)A No.1506 /Bang/2012 -dated 14.6.2017

859. Following the order of the co-ordinate bench in the assessee’s own case for the prior assessment years, wherein the Tribunal had restored the determination of ALP of the assessees’ international transactions (receipt of IT, network engineering, project management, service delivery and other support services from its AE) to the file of AO / TPO (who had determined ALP at Nil), the Tribunal restored the ALP determination to the file of the AO for the impugned year as well as there was no material difference in the facts vis-à-vis the earlier years.

AT & T Global Network Services (India) Pvt. Ltd vs. DCIT-TS-728-ITAT-2017(DEL)-TP dated 18.09.2017

AT & T Global Network Services (India) Pvt. Ltd vs. DCIT-TS-724-ITAT-2017(DEL)-TP dated 21.09.2017

Reimbursements

860. The Tribunal, relying on the decision of the coordinate bench in the assessee’s own case for AY 2009-10 and 2010-11 held that the TPO erred in imputing a mark-up of 5 percent of the reimbursements from AEs without appreciating that the corresponding cost was not debited to the P&L account and was only a balance sheet entry.

Cambridge Technology Enterprises Ltd vs. DCIT-TS-1048-ITAT-2017(HYD)-TP ITA No.1708/Hyd/2016 dated 29.12.2017

861. The Tribunal deleted TP-adjustment on account of reimbursement of software cost by assessee (engaged in production and sale of readymade garments) to its AE for AY 2009-10. Noting that AE charged assessee for use of software in its manufacturing process on a cost-to-cost basis, relying on the decision in assessee’ s case for AY 2007-08 and 2008-09, it held that the TPO was not justified in questioning the commercial expediency of such reimbursements Further, it held that even otherwise, there was no data available with the Revenue to prove that the ALP of the transaction was NIL. Noting that TPO/CIT(A) did not dispute the incurring of software cost in the earlier year, Tribunal held that rule of consistency was required to be followed by the Revenue particularly when there was no change in facts and circumstances of the case. When the Revenue has extended relief to the taxpayer in AY 2007-08 and 2008-09 the ld. CIT (A) had no reason to decline the same qua the year under assessment. Accordingly, it allowed assessee’s appeal.

Benetton India Private Ltd vs. DCIT-TS-835-ITAT-2017(DEL)-TP dated 27.10.2017

862. Where the assessee had reimbursed certain technical and commercial administrative expenses to its AE at actuals in respect of which TPO made an addition of Rs. 2.67 crores by determining the ALP of the said payments at Nil under the CUP method on the ground that there was no proof of assessee having received any service and also there was no benefit derived therefrom the Tribunal observed that the assessee had not provided any evidence either before TPO or DRP in support of the service having been rendered by the AE and accordingly remitted the issue back to the file of TPO to examine (i) whether any service was actually rendered by the AE and (ii) to ascertain whether the reimbursement was at actuals without involving any profit element and (iii) also whether the same was incurred for the purpose of business only.

Trianz Holdings Pvt. Ltd. vs. DCIT – TS-204-ITAT-2017(Bang)-TP – IT(TP)A No.415 / Bang/2016 dated 23. 02. 2017

863. The Tribunal deleted transfer pricing adjustment in respect of reimbursement of salary & travelling expenses of an employee seconded in the capacity of Managing Director by the associated enterprise to the assessee noting that the assessee was the economic employer of the MD and that there was adequate proof of the work performed by the MD and quantum of salary paid viz. sample emails, minutes of meeting and nature of services provided, and therefore it could not be held that no activities had been carried out by MD for the assessee in India. It rejected transfer pricing officer’s determination of arm’s length price at Nil and held that if a person to whom salary has been paid was not an equity shareholder in either of the associate entities, he did not qualify to be a related party and therefore the payment of salary to an independent person could not be subject matter of benchmarking. It further noted that the Revenue had accepted that the reimbursement was a pure cost to cost transaction without any markup and that the only contention of the Revenue was the legitimacy of the expenditure which was a commercial decision of the assessee and not within the powers of the TPO.

Royal Canin India Pvt Ltd vs ACIT-TS-782-ITAT-2017(Mum)-TP ITA No.640/Mum/2017 dated 25.09.2017

864. Where a TP adjustment was made by AO/TPO on account of reimbursement of software cost by the assessee to its AE treating its ALP at NIL, the Tribunal, relying on the decision in assessee’s case for AY 2007-08 and 2008-09 held that certain transactions entered into by the assessee for business expediency need not necessarily attract financial benefits and Revenue cannot dictate that certain transactions should not be entered into and accordingly deleted the TP adjustment.

Benetton India Private Ltd vs. DCIT-TS 835-ITAT-2017(DEL)-TP ITA No.4329/Del./2014 dated 27.10.2017

865. Where the assessee manufactured products in line with AE specification, which were then first registered in his name and thereafter, the ownership of the same was passed on to the AE, for which it recovered the registration fees (Rs. 1.3 crores) paid by it from the AE at cost without any mark-up, the Tribunal held that the TPO erred in rejecting this approach of the assessee and in applying a markup of 14.26% (being the mark up charged in contract manufacturing segment) to such expenses. It held that as this cost was incurred by the assessee for and on behalf of its AE and the same was recovered without rendering any service qua the payment of registration fees, the assessee was justified in not charging a mark–up on the same.

Tevapharm India Pvt. Ltd vs Addl CIT – TS-151-ITAT-2017 (Del) – TP ITA No.6707/Del/2016 dated 06.03.2017

866. The Tribunal remitted the benchmarking of the reimbursements paid by the assessee to its AEs to the file of the AO / TPO for verification. It noted that the assessee had reimbursed its AE for salary expenses relating to two expatriate employees seconded to it by its AEs, which were paid by AEs outside India for administrative convenience and subsequently reimbursed by the assessee. The Tribunal noted that for immediately preceding AY 2005-06, assessee had paid the AEs for the reimbursement of one of the employees, which had been assessed u/s 143(3) and no disallowance in respect of such reimbursement had been made by AO. Further, it noted that the assessee in its TP report had benchmarked the reimbursement by applying CUP method, therefore, TPO’s statement that assessee had not benchmarked these transactions was without basis. The remuneration had been agreed upon between two independent parties, i.e. the assessee and expatriate employees, and the same had actually been paid to the employees (initially by the AEs which were subsequently reimbursed by the assessee a). Accordingly, it held that the payment made by the assessee towards reimbursement of salary of seconded employees had to be accepted to be at arm’s length. As regards TPO’s finding that assessee had been unable to demonstrate that the salary paid to the expatriates was in line with the salary paid to its own senior management personnel, the Tribunal took note of assessee’s submission that the employees were rightfully entitled to the same level of salary as they were earning in their country of origin.

Vis-à-vis the consultancy charges reimbursed by the assessee, it noted that the assessee had not claimed a deduction in respect of these charges and therefore the amount had been taxed twice in the hands of the assessee and accordingly directed the AO to make proper adjustment in respect of consultancy charges.

Mars International India Pvt. Ltd. Vs DCIT – TS-289-ITAT-2017(DEL)-TP – I.T.A .No. 160/DEL/2011 dated 29. 03.2017

867. The Tribunal, relying on the coordinate bench’s ruling in assessee’s own case [TS-18-ITAT(Bang)-2016-TP] held that reimbursement of paid/ received expenditure could not to be treated as part of operating cost or operating revenue, and remanded the matter back to the file of AO to examine whether any profit element was involved in the reimbursement transaction and whether it was in the nature of pure reimbursement of expenditure.

FCG Software Services (India) Pvt Ltd [TS-409-ITAT-2017(Bang)-TP IT(TP)A No. 994 /bang/2011 dated 21.04.2017

868. The Tribunal deleted TP-adjustment in respect of reimbursement received from AE for AY 2011-12.

relying on the coordinate bench’s ruling in the case of Cambridge Technologies and Mylan Laboratories, held that no ALP adjustments could be made to reimbursement of expenditure (viz. travel and miscellaneous expenses) received by the assessee on costs to cost basis without markup.

Aster Pvt. Ltd vs DCIT- TS-446-ITAT-2017(Hyd)-TP-ITA No. 220/hyd/2015 and 458/hyd/2016 dated 03.05.2017

869. The Tribunal following the ruling in assessee’s own case for AY 2003-04 upheld TP-adjustment towards reimbursement of advertisement expenditure by assessee to its AE for AY 2006-07. In the earlier year, Tribunal noted that assessee was a contract manufacturer for its AE and was entitled to only markup on manufacturing costs incurred by it. Thus, it was not required to bear any risk associated with marketing and distribution of goods sold by AE worldwide. The Tribunal noting that the legal and economic ownership of the brand ‘TITAN’ in overseas market belonged to and was exploited by assessee’s AE held that the benefit from advertisement expenditure was not derived by assessee. Further, it upheld the TP-adjustment in respect of interest on advertisement advance and held that non-charging of interest on such outstanding amounts attracted Transfer Pricing provisions and therefore interest at least LIBOR +2% was appropriate.

Titan Industries Ltd vs ACIT-TS-363-ITAT-2017(CHNY)-TP dated 03.04.2017

Share capital / share issue / share transactions

870. The Tribunal deleted the addition on account of alleged under charged premium on shares issued to its overseas holding company and corresponding interest imputed on the same by following the decision of the co-ordinate bench in the assessee’s own case for the earlier AY wherein the Tribunal had decided the identical issue in favour of the assessee by following the decision of the Bombay High Court in the case of Vodafone. It was held that Transfer pricing provisions would not apply to capital transactions viz. issue of equity shares as it was not in the nature of income.

MSC Crewing Services Pvt Ltd – TS-38-ITAT-2017 (Mum) _ TP

871. Where the TPO had re-characterized the advance given by assessee to AE towards investment in shares as loan and imputed interest of Rs. 48.10 cr., the Tribunal noting the disclosure of share application money as loans and advances in assessee’s balance sheet, held that it was only a classification of accounting entry in the books and since the assessee received share certification in following AY, held that as the transfer of funds were duly accounted by the AE and there was no restriction on the part of the AE to allot shares in the same AY of receipt of funds. It held that as long as the shares were allotted, there was no profit element and therefore it could not be regarded as an international transaction. Further, relying on the decision in the case of GSS Infotech [TS-298-ITAT-2016(HYD)] held that as the assessee was not charging interest to AE as well as non-AE, deleted the TP-adjustment towards notional interest on mobilization advance to AEs.

Bartronics India Ltd vs DCIT-TS-814-ITAT-2017(HYD)-TP ITA No. 259 /Hyd/2017 dated 27.09.2017

872. The assessee had invested Rs. 1343.76 cr. in its Jersey based 100% subsidiary by way of the preference shares which was recharacterized by the TPO as unsecured loan advanced to Cairn India Holding Limited (CIHL) and interest at 14.88% was treated as at arm’s length and the TPO made an adjustment of Rs. 84.36 c. The Tribunal, noting that the instant transfer pricing addition has its foundation in the immediately preceding assessment year, held that it cannot adjudicate on the issue independently unless the preceding year on the same issue is decided. Accordingly, it held that if the re-characterization is held to be valid, then the addition will be required to be made in this year and if re-characterization is held to be invalid, this addition will have to be deleted. Accordingly, it remitted the matter to the file of AO/TPO for fresh adjudication.

Cairn India Ltd vs. DCIT-TS-767-ITAT-2017(DEL)-TP ITA No.1459/Del/2016 dated 09.10.2017

Cairn India Ltd vs. DCIT-TS-775-ITAT-2017(DEL)-TP dated 09.10.2017

873. The Tribunal upheld CIT(A)’s order deleting TP adjustment on buy back of equity shares by the assessee’s wholly owned subsidiary in US (on the ground that where assessee-company received certain amount from its wholly owned foreign subsidiary on account of buy-back of shares), since the assessee had given ample justification of buy back price by pointing out NAV of investee company on date of buy-back, which was much lower than buy-back price and therefore the TPO was not justified in considering aforesaid transaction as sham and making addition of notional interest on amount in question. It further held that it was a trite law that the transfer pricing proceedings do not envisage empowering of transfer pricing officer to re-characterize the transactions on the basis of his own whims and fancies.

Patel Engineering Ltd – TS-12-ITAT-2017(Mum)-TP

874. Where the assessee subscribed to 1,85,03,468 redeemable preference shares of Essar Services Mauritius (AE) and also redeemed 1,81,00,000 of such shares at par and the shares were non-cumulative and redeemable on par without dividend and also had a running account with the AE, the TPO considering the nature and frequency of the transactions in the running account, re-characterized the subscription and redemption of the shares as a loan and computed notional interest on the alleged loan, the Tribunal following the decision in assessee’s own case for AY 2009-10  held that the TPO could not disregard an apparent transaction and substitute it with a transaction as per his own perception. Accordingly, it set aside the addition made.

Aegis Limited v DCIT – TS-66-ITAT-2017 (Mum) – TP- ITA No.7694/Mum/2014, ITA No.1209/Mum/2015 dated 08.02.2017

875. The Tribunal held that the assessee’s remittance to subsidiary for subscription of equity shares constituted an international transaction u/s 92B considering extraordinary delay in allotment of shares as the transaction had a direct bearing on the profit /loss as well as the assets of the enterprise. Noting that the assessee had remitted the amount during the year and no shares were allotted till the end of the financial year i.e 31.03.2009, it held that in such a case, share application money loses its character as the money was available to AE for utilization but it agreed with the assessee’s contention that ordinarily share application money would not constitute international transaction when allotment of shares was made within reasonable time as the funds would remain in a separate bank account and would not be available to allotting company for utilization. Further, it accepted assessee’s alternative plea to apply LIBOR rate for determining the arm’s length interest as the remittance was made in foreign currency but however disallowed its claim for grace period of 180 days from date of remittance for computing interest.

Logix Microsystems Ltd. vs. DCIT – TS-181-ITAT-2017(Bang)-TP – IT. {T.P} A. No.280/Bang/2014 dated 22.02.2017.

876. The Tribunal, rejecting TPO/CIT(A)’s recharacterization of subscription of equity share capital of its AE as loan/advance, deleted TP-adjustment of Rs 6.56cr on account of interest on share application money advanced towards subscription of shares in AE (incorporated in British Virgin Island. Noting that shares worth Rs. 462.3 million were allotted to assessee during the year while balance was allotted in subsequent years and assessee remained 100% shareholder in AE prior & post allotment, the Tribunal held that merely because allotment of shares was delayed it would not alter the characterization to the prejudice of the assessee. The percentage of ownership was the only a material factor. As the assessee was the only shareholder in it’s 100% subsidiary company, it would not make any difference merely because part of the share application money was converted into equity shares and the balance were allotted in subsequent assessment years. It rejected Revenue’s submission that Indian Companies Act mandates charging of interest if the company was unable to allot shares within specified time, held that relevant provisions of Indian Companies Act would not be applicable to this case and deferent countries had separate laws/regulations on such issue. Accordingly, it deleted the TP-adjustment on account of interest on share application money advanced towards subscription of shares in AE.

Sun Pharmaceuticals Industries ltd vs ACIT-TS-596-ITAT-2017(Ahd)-TP-ITA No.3297 & 3420/AHD/2014 dated 16.06.2017

Others

877. The Tribunal deleted TP-addition of Rs. 5.53 Crore on purchase of intangible assets (Trademarks, Customer lists and Goodwill) by assessee consequent to acquisition of credit card processing and merchant banking acquisition business of HSBC India during AY 2007-08. As regards the Goodwill and Customer List, it noted that no deduction or depreciation was claimed on the consideration paid for it while computing taxable income and applied the decision of Bombay HC in Vodafone India Services and held that Chapter X provisions could only be invoked only when “income arises from international transaction” and there being no income from the said transaction, the provisions of Chapter X could not be applied. With regard to acquisition of Trademark, which had been capitalized and depreciated by assessee, the Tribunal approved the justification of ALP adopted by the assessee viz. on the basis of report of independent valuer, where weightage had been assigned considering various factors, including the potential of generating business in future wherein a higher weightage was given to the India territory and rejected the TPO’s contention that lower weightage should have been given to Indian business as credit card business was much more advanced in other countries. Accordingly, it rejected TPO’s conclusion that assessee has paid 25% extra for trademark acquisition and deleted the TP addition.

Global Payments Asia Pacific (India) vs. DCIT – TS-112-ITAT-2017 (Mum) – TP ITA NO. 5345/MUM/2012 dated 25.01.2017

878. The Tribunal, following co-ordinate bench’s ruling in assessee’s own case for AY 2009-10 wherein the bench had dismissed grounds relating to similar TP-adjustment as infructuous as DRP had subsequently issue a corrigendum (after passing order) deleting the adjustment, deleted the TP addition of Rs. 13.94 crores made on account of assessee’s international license revenue transaction for AY 2010-11.

Nimbus Communications Ltd vs ACIT-TS-941-ITAT-2017(mum)-TP dated 03.11.2017

879. Where the assessee had purchased capital goods from AE at cost plus 10% mark-up which was accepted by the authorities in assessee’s case for previous years, in the absence of change in facts and law and following the principle of consistency, the Tribunal deleted the TP adjustment regarding the purchase of capital goods and spares.

Samsonite South Asia Pvt Ltd vs. DCIT-TS-809-ITAT-2017(Mum)-TP dated 01.09.2017

880. The Tribunal upheld the CIT(A)’s deletion of TP-addition on account of depreciation on purchase of trademarks by assessee from its AEs during AY 2005-06 and rejected the Revenue’s objection that CIT(A)’s admission of documentary evidence furnished by assessee was contrary to the procedure contemplated under Rule 46A of the Income Tax Rules. It noted that the CIT(A), after perusing the copies of agreements, had deleted the addition considering the fact that assessee had paid the same price for brands/registrations as was paid by the AEs for acquiring the same from unrelated third party owners, which itself sufficiently proved that the acquisition of the brands/registrations was within ALP and that the CIT(A) had called for remand report from AO and had considered the latter’s objections as regards the admission as well as reliability of the documents furnished by assessee (that the report of the Chartered Accountant relied on by the assessee was not reliable on account of the disclaimers contained therein). Accordingly, it held that the CIT(A) was justified in deleting the addition and also that he had acted in the true letter and spirit of law while exercising his powers u/s 250(4). Further, it also agreed with CIT(A)’s observation that the disclaimer incorporated in the certificate of the Chartered Accountant was in the nature of a customary disclaimer, which is given in the reports/certificates to protect the interest of the individual professional issuing such certificate/s, and the same in no way can go to adversely hit the reliability of the same.

ACIT v Strides Acrolabs Ltd – TS-294-ITAT-2017(Mum)-TP – /I.T.A. No.6528/Mum/2010 dated 31/03/2017

881. The Tribunal deleted the TP adjustment, made in the case of the assessee, on account of ‘deemed brand development’ for three years viz. AY 2009-10, 2010-11 and 2011-12. The TPO made a transfer pricing addition on the ground that the assessee significantly contributed to the development of ‘Hyundai’ brand in the Indian market and Korean parent company (being the brand owner) benefited due to brand promotion activity carried out in India by way of sale of cars and therefore proposed an adjustment by contending that assessee should have received compensation from foreign AE for brand development. He computed the addition based on overall increase in Hyundai’s global brand value in proportion to Indian sales and global sales, even though assessee contended that its AMP spend as percentage of sales was much lower than other Indian automotive comparables. The Tribunal held that the accretion of brand value, because of use of the brand name of foreign AE under the technology use agreement- which had been accepted to be an arrangement at an arm’s length price, did not result in a separate international transaction to be benchmarked. Observing that trigger for ALP adjustment in Hyundai’s case was mere fact of sale of cars by assessee, and not AMP expenses incurred because of conscious brand promotion, it held that the ratio of Special bench ruling in LG Electronics was not applicable. It explained that brand building which increased market in India was a subliminal exercise and a by-product of the economic activity of sales. However, acknowledging the incidental benefit to AE on account of visibility to trade name, it proceeded to analyze whether accretion to brand value was covered by definition of international transactions u/s 92B and explained that the present case dealt with increase in value of intangibles as a by-product of business model employed by assessee and AE, and not with ‘purchase, sale or lease of intangibles’. Further, it held that the use of the ‘Hyundai’ brand was a “privilege, a marketing compulsion and of direct and substantial benefits to the assessee”, and therefore could not fall under ‘provision of service’. Also, it noted that accretion in brand value was not on account of costs incurred by the assessee, or even by its conscious efforts, and therefore was not a ‘transaction having a bearing on profits, income, losses or assets’. Accordingly, it concluded that no international transaction existed in relation to accretion in brand value of the AE due to use of ‘Hyundai’ brand by assessee.

Hyundai Motor India Limited Vs DCIT – TS-322-ITAT-2017(CHNY)-TP – I.T.A. No. 853/Chny/2014 and 563/Chny/2015 dated 27.04.2017

f. Miscellaneous

Appeal

882. The Tribunal allowed the miscellaneous petition filed by assessee challenging its previous order dated 26.08.2016 for AY 2011-12 relating to selection of comparables for benchmarking technical and marketing support services rendered to AEs.It agreed that the assessee’s ground for inclusion of ‘Indus Technical and Financial Consultants’ as comparable was not decided by the Tribunal and also that although it had decided assessee’s ground for inclusion of ‘United Vander Horst Ltd’ and ‘Yashmun engineers Ltd.’ it had not considered the aspects of consistency. Further it accepted that the Tribunal had also not considered and decided on the issue regarding benefit of cost of living index adjustment to comparables for technical support services segment. Accordingly, it concluded that there was apparent mistake in the Tribunal order on these three grounds, and it recalled the order for the limited purpose of deciding these grounds.

EADS India Pvt. Ltd v ACIT – TS-27-ITAT-2017 (Bang) – TP – IT(TP)A No.95 (Bang)/2016) dated 06.01.2017

883. The Tribunal allowed the assessee’s miscellaneous petition challenging its order for AY 2008-09 dated 30/8/2016, accepting that certain mistakes had crept in its ITAT decision. Accordingly, it recalled the appeal for fresh hearing.

Microchip Technology (India) Pvt. Ltd. Vs ACIT – TS-110-ITAT-2017 (Bang) – TP

IT(TP)A No.l586IBang/2012 dated 10.01.2017

884. The Tribunal dismissed assessee’s miscellaneous petition against Tribunal order remitting comparability of Accurate Data Converters Pvt. Ltd back to AO/TPO for AY 2007-08. The assessee submitted that Tribunal had not taken into consideration the complete details of this comparable and had simply restored the matter back to AO/TPO to re-examine exclusion of this company after collecting relevant information. Noting that the Tribunal while adjudicating the issue of exclusion of this comparable, had considered Magma Design and AOL Online rulings and the TPO had in its order categorically observed that the annual report for the comparable was not available, the Tribunal held that there was no infirmity in the order and accordingly dismissed the application.

Global E-Business Operations Private Limited vs. DCIT-TS-830-ITAT-2017(bang)-TP [MP No. 78/B/2017 dated 13.10.2017

885. Where the assessee appealed against Tribunal’s order contending that while Tribunal admitted the additional ground of appeal and required the TPO to undertake fresh comparability analysis for determining ALP, it did not consider it necessary to adjudicate any of the remaining grounds urged by the assessee, the Court dismissing assessee’s appeal held that the since the remaining grounds also pertained to comparability analysis, there was no infirmity in the order of Tribunal since the matter being remanded for a fresh determination of ALP was in accordance with law, there was no need to decide the remaining grounds at the current stage.

Validor Capital India pvt. Ltd vs ITO-TS-821-HC-2017(DEL)-TP ITA 491/2017 dated 12.10.2017

886. The Court, relying on the decision in the case of Post Master General v Living Media India Ltd wherein it was held that mere departmental administrative process involved in filing of appeal could not be a reason for condonation of delay, dismissed Revenue’s appeal on account of 158 days delay in filing the appeal.

Pr. CIT vs. Oks Span Tech Pvt Ltd-TS-776-HC-2017(DEL)-TP ITA 789/2017 dated 09.10.2017

887. The Tribunal dismissed assessee’s miscellaneous petition contending that the Tribunal had ruled upon only one ground regarding exclusion of 2 comparables, but had not decided other grounds raised in appeal. Noting Tribunal’s categorical finding in its order that the assessee had not pressed remaining grounds of appeal, it rejected assessee’s contention that since the Tribunal while deciding another appeal for AY 2011-12 which was heard on the same day, had restored other issues to the file of DRP for fresh consideration, similar action should have been taken for relevant year under consideration i.e. AY 2009-10. It noted that while specific ground was taken regarding comparability of 7 companies in AY 2011-12, assessee had not taken similar specific ground for AY 2009-10.  Accordingly, it held that there was no mistake apparent from record in the Tribunal order in absence of specific ground on inclusion/exclusion of specific comparable.

Symbol Technologies India P Ltd v ITO-TS-786-ITAT-2017(Bang)-TP- M.P. Nos. 84 & 85/Bang/2017 (in IT(TP)A Nos.264 & 177/Bang/2014) dated 08.09.2017

888. The Tribunal, applying the provisions of section 254(2) which provided that miscellaneous petition is to be filed within 6 months from the end of the month in which order was passed, dismissed Revenue’s miscellaneous petition on account of delay in filing the petition. Noting that the Tribunal order was passed on 21.10.2016 and therefore, 6 months period from filing of miscellaneous petition ended on 30.04.2017, it held that since there is no provision u/s 254(2) for condonation of delay, the appeal stood dismissed

DCIT vs Brocade Communications Systems P ltd -TS- 802-ITAT-2017(Bang)-TP dated 13.09.2017

889. Where the assessee had raised about 20 grounds (including TP grounds), but the Tribunal had extracted only about 9 grounds which did not emerge from the appeal filed by the assessee, but were part of some other case, the Tribunal allowed assessee’s miscellaneous petition against the order and held that since the grounds of other appeal had been reproduced inadvertently, the grounds raised in this appeal should replace the grounds extracted in the order.

Magma Design Automation India Private Limited (now merged with and known as Synopsys (India) Private Limited) vs. DCIT-TS-793-ITAT-2017(Bang)-TP dated 13.09.2017

890. Where the DRP recorded objections raised by the assessee, but while confirming TPO’s order, restricted its finding only on the selective points of objections raised by the assessee instead of deciding each aspect of functional similarity of comparables, the Tribunal remitted matter back to the file of DRP for fresh adjudication in respect of assessee’s software development & ITeS segments.

Arctern Consulting Pvt Ltd [TS-813-ITAT-2017(Bang)-TP] I.T.(T.P) A. No.240/Bang/2014 dated 08.09.2017

891. The Tribunal dismissed assessee’s additional grounds agitating that the AO’s order dated January 16, 2015 u/s 144C r.w.s. 143(3) was time barred and thus bad in law. It noted that the DRP gave its directions on December 31, 2013 and in the meantime assessee filed a writ petition before the High Court which directed the AO not to pass the final assessment order till disposal of the petition. Since the High Court passed its order on November 18, 2014 setting aside DRP’s directions and deleting TP-adjustment on issue of equity shares following the Vodafone India ruling, the Tribunal opined that the assessee’s case clearly fell under the ambit of provision of section 153(6), which provides that orders pursuant to an order of any court in a proceeding otherwise than by way of appeal or reference under this Act should be passed before the expiry of 12 months from the end of the month in which such order is received or passed. It held that since the assessment order was passed on January 16, 2015, which was well within 12 months from November, 2014 in which month HC had passed the order, the Tribunal held that the order passed by the A.O. was well within the time limit mandated as per section 153(6). On the merits of the case (taxability of interest on loan given to employees, margin deposits), it followed its own order in the case of the assessee for prior years wherein the said interest income was held to be business income and not IFOS. Vis-à-vis the 14A disallowance, relying on the decision of the High Court in Cheminvest Ltd 281 CTR 447 (Del), it held that no disallowance could be made where no exempt income was earned.

Essar Power Limited vs ACIT-TS-824-ITAT-2017(MUM)-TP dated 17.10.2017

892. Where the Tribunal had not adjudicated the issue regarding treatment of miscellaneous income earned by comparables as part of operating margin and 2 other issues viz., correctness of assessee’s margin computation by TPO on consolidated/combined transaction basis (AE and non-AE) and exclusion of special rebate given by assessee to AE from operating cost, the Tribunal held that there was an apparent mistake in the impugned order to the extent of non-adjudication of these issues and accordingly recalled the order for the limited purpose of adjudication of these issues. Thus, it allowed assessee’s miscellaneous petition.

Logix Mircosystems Ltd-TS-820-ITAT-2017(BANG)-TP M.P. No.174/Bang/2017 dated 15.09.2017

893. Where the Tribunal remanded the matter in respect of determination of ALP for intra-group services to the file of AO even when all the details were available on record, the Court held that the Tribunal had erred in remitting the matter and set aside the order directing it to decide the issue on merits.

Voith Hydro Private Limited (Earlier known as Voith Siemens Hydro Private Ltd) vs. Pr. CIT-TS-771-HC-2017(DEL)-TP ITA 10/2017 dated 25.09.2017

894. The Tribunal, allowed assessee’s appeal challenging CIT(A)’s direction to AO/TPO to re-compute/reconsider ALP determination without discussing merits of the case and held that it was incumbent upon the CIT(A) to adjudicate the issue and it was beyond his scope to set aside the matter to the file of AO for recalculation. Accordingly, the Tribunal remanded the matter back to the file of CIT(A) to adjudicate the issue after giving the assessee an opportunity of being heard.

Wipro GE Healthcare P ltd vs ACIT-TS-801-ITAT-2017(Bang)-TP dated 31.08.2017

895. The Tribunal dismissed assessee’s miscellaneous petition and rejected assessee’s contention that Tribunal had not adjudicated Ground No 5 (that CIT(A) erred in ignoring margin computation under internal TNMM as not reliable without considering that AO/TPO himself in assessment order had computed margins earned by assessee from transactions with AEs and non-AEs) and held that the Tribunal had adjudicated ground 5 collectively with other grounds and in para No.7 had opined that comparison of internal TNMM was not possible as comparison was not of the same period in respect of AE and non-AE business. Accordingly, it held that though the Tribunal had not made a detailed discussion with respect to ground No.5, but the gist of ground No.5 was considered by the Tribunal and gave its findings which could not be reviewed under the garb of provision to section 254(2) of the Act.

e4e Business Solutions India Private Ltd vs. DCIT-TS-789-ITAT-2017(bang)-TP dated 13.09.2017

896. Where the tax effect was less than Rs. 10 lakhs, the Tribunal dismissed Revenue’s appeal on account of CBDT Circular No. 21/2015 (providing monetary limits for filing of departmental appeals before Appellate Tribunal and High Courts and SLP before the Supreme Court).

ACIT v Glenmark Generics Ltd-TS-787-ITAT-2017(Mum)-TP- ITA No. 4973/MUM/2016 dated 06.09.2017

897. Where the assessee had not raised grounds for exclusion of Cosmic Global in the grounds of appeal and assessee had only made a submission in the form of a chart, the Tribunal held that it was necessary for the assessee to raise the specific ground for exclusion/inclusion of any comparable in the grounds of appeal and unless the grounds of appeal are specific, no adjudication can take place at the Tribunal level, based on the chart, filed or submissions filed by assessee. Accordingly, it dismissed the miscellaneous petition filed by the assessee against the Tribunal order with regard to non-adjudication of the issue of inclusion/exclusion of Cosmic Global as a comparable.

AOL Online India P. Ltd vs. DCIT-TS-916-ITAT-2017(bang)-TP- Miscellaneous Petition No.189/Bang/2017 dated 02.11.2017

AOL Online India P. Ltd vs. DCIT – TS-907-ITAT-2017(Bang)-TP dated 2.11.2017

898. Where the Tribunal, relying on its order for the previous year in the case of the assessee, remitted the issue of determination of the ALP of technical fees paid by the assessee to its AEs to the AO / TPO and made further observations / directions viz. that since the transaction was an expense transaction, profit method could not be the Most Appropriate Method and that the CUP method was to be considered, the Court held that once a finding was recorded to remand the issue with a particular direction, the Tribunal should refrain itself from making any observation with regard to the mode and the manner in which the direction is to be complied with. Therefore, it held that the order passed by the Tribunal making observation exceeding the direction given in the case of the assessee for the Assessment Year 2007-08 would no more operate and directed the TPO/AO to consider the matter in the same manner as was considered earlier viz. AY 2007-08.

Forsoc Chemicals India Pvt Ltd v DCIT – TS-158-HC-2017 (Kar) – TP – ITA No 15 / 2016 dated January 24, 2017

899. The Tribunal allowed the assessee’s miscellaneous application against its order dated August 28, 2016 noting that it had wrongly stated the name of M/s Accentia Technologies Ltd for exclusion from the list of comparables as opposed to the correct name of M.s Acropetal Tech Ltd. Further, it noted that in Para 28 of its order it had incorrectly excluded M/s Accentia Technologies Ltd from the list of comparables wherein the correct name of the comparable was M/s Asian Busienss Exhibition and Conference Ltd and that in Para 6 of the order it had wrongly mentioned that the Revenue had filed an appeal for the inclusion of Infosys BPO and that the order was to be read after omitting the said name. Accordingly, it held that the Tribunal order dated August 28, 2016 was to be read with the aforesaid corrections without any change in the final conclusion.

Interwoven Software Services Ind. Pvt. Ltd. Vs ITO – TS-136-ITAT-2017(Bang)-TP] -M.P No.119 (B)/2016 dated 06-01-2017

900. The Tribunal allowed assessee’s miscellaneous petition seeking rectification of mistake in the order for AY 2010-11, accepting assessee’s claim that the TP issues pertaining to the ALP determination of both ‘service charges’ and ‘royalty’ were adjudicated during appeal but final conclusions referred to only ‘royalty’ and not ‘service charges’. It held that both issues were identical and were adjudicated along similar lines, observing that, similar to royalty, the ALP of service charges also could not be treated as NIL and accordingly rectified its order to set aside ALP determination of both royalty and service charges to TPO for fresh consideration.

Inteva Products India Automotive Pvt Ltd vs. DCITTS-78-ITAT-2017(Bang)-TP – M.P. No.125/Bang/2016 dated 20.01.2017.

901. The Court disposed the writ petition filed by assessee, challenging the TPO’s show cause notice determining the ALP of management fees paid by assessee at Nil in the second round of proceedings for AY 2007-08, observing that no interference was called for at this stage. However it directed the TPO to consider assessee’s submissions in their entirety. It noted that in the first round of proceedings, the Tribunal had observed that although assessee had claimed TNMM as MAM, the TPO had not discussed most appropriate method and simply concluded that management fees payment was not justified since there was no improvement in revenue as a result of which the Tribunal had remitted the matter to AO/TPO holding that TPO / DRP were expected to compare the payment with that of the comparable companies in India on the basis of method prescribed under Rule 10B.

AB Mauri India Pvt Ltd v DCIT – TS-1097-HC-2016 (Mad) – TP – W.P. No.43204 of 2016 dated 12.12.2016

902. Where the assessee had applied RPM in respect of international transaction of goods imported for distribution which was rejected by the TPO who applied TNMM as the MAM, the Tribunal upheld the TPOs order and rejected RPM considering the huge selling and distribution expenses incurred by assessee which was not the case for comparables and held that the precedent relied on by assessee was not applicable as no such expenditure was incurred therein. The Tribunal dismissed the assessee’s miscellaneous petition seeking rectification of its order for AY 2007-08 on the ground of non-consideration of judicial precedent relied upon. It held that the that review of existing evidence was not permissible u/s 254(2) as the issue was decided on merit after consideration of facts and law and accordingly dismissed the petition.

Abott Medical Optics Private Limited vs. DCIT – TS-75-ITAT-2017(Bang)-TP – M.P. No.130/Bang/2016 dated 25.01.2017.

903. The Tribunal allowed the assessee’s miscellaneous petition seeking rectification of Tribunal order for AY 2010-11 dated 24.6.2016, wherein it had rejected assessee’s plea for exclusion of ‘Infosys Ltd’ from the list of comparables, observing that it was selected by assessee in its TP study and no separate ground was raised before Tribunal whereas the assessee pointed out that it had objected to inclusion of this company before TPO itself, and also submitted that it had selected this company in its TP study by adopting CUP method, whereas TPO had applied TNMM for benchmarking. Referring to the order passed by AO/TPO which recorded assessee’s objection against inclusion of this company, the Tribunal concluded that since its observation was without considering the fact of objection raised by assessee before TPO, there was a mistake apparent on record of ITAT order. Accordingly, it directed the Registry to fix the appeal in normal course for hearing for adjudication of the issue of functional comparability of ‘Infosys Limited’.

Mercedes-Benz Research & Development Pvt. Ltd. vs. ACIT – TS-77-ITAT-2017(Bang)-TP – M.P. No.133/Bang/2016 dated 23.01.2017

904. Where in the original order passed by the Tribunal, it had set aside comparability of one company viz. Jeevan Scientific Technology Ltd. for considering only segmental turnover of ‘BPO operations’ and the assessee vide a miscellaneous application sought to rectify the said order to the effect that earnings from ‘BPO segment’ should be considered as against ‘BPO operations’, the Tribunal dismissed the miscellaneous petition observing that it had in its previous order specifically mentioned that segmental revenue from BPO operations stated at Rs. 71.219 lacs required verification and therefore there was no apparent mistake rectifiable u/s 254(2).

Swiss Re Global Business Solutions India Pvt. Ltd. (Formerly M/s. Swiss Re Shared Services (India) Pvt. Ltd.) vs. ACIT – TS-186-ITAT-2017(Bang)-TP – M.P. No.7/Bang/2017

905. The Tribunal admitted additional evidence filed by the assessee with regard to TP-adjustment on management fees paid by assessee to its AE the ALP of which was determined at Nil by the TPO TPO who held that assessee had neither received services nor derived benefit from the said payment. Noting that the TPO had also held that the assessee had failed to produce supporting evidence and that the expenses were actually in the nature of stewardship, the Tribunal remitted the issue to TPO for fresh decision in light of additional evidence submitted by assessee after giving assessee an adequate opportunity of being heard. It also clarified that it had not expressed any opinion on the merits of the case.

Flowserve India Controls Pvt.Ltd vs DCIT – TS-195-ITAT-2017(Bang)-TP – IT(TP)A No.1366/Bang/2010 dated 23/02/2017

906. The Tribunal, concurring with the assessee’s submission, held that since the CIT(A) order on the inclusion / exclusion comparables was very cryptic and not a speaking / reasoned order, restored the matter back to CIT(A) for fresh decision with a direction to pass speaking and reasoned order after affording adequate opportunity of being heard to both sides. 

Syniverse Teledata Systems Pvt. Ltd (Formerly known as MACHTeledata systems Pvt. Ltd) vs. DCIT – TS-217-ITAT-2017(Bang)-TP – IT (TP) A No.1363 (Bang) 2014 dated 15.02.2017

907. Where the Tribunal had directed inclusion of 3 comparables and had remitted comparability of 8 comparables to TPO for reconsideration, the Court held that though remittance of the issue by the Tribunal was justified, however, the lack of reasoning by the authorities for inclusion of the comparables would mean that the matter would be open for the assessee and it had right to contend that the inclusion of comparables was not in accordance with law for whatever grounds it choose to urge. Accordingly, it remitted the matter back to TPO.

Agnity India Technologiers P. Ltd. [TS-175-HC-2017(Del)-TP] [ITA 99/2017]

908. The Tribunal dismissed the assessee’s miscellaneous petition seeking to recall ex-parte Tribunal order on the basis that notice for hearing of stay petition was not served on assessee for AY 2010-11. It held that even if the notice was not served on the assessee, the assessee should have been vigilant to find out the date of hearing because in normal cases, the stay petition is fixed for hearing on the second Friday after filing of the stay petition. Further, it held that in any case, once assessee’s stay petition was dismissed, a fresh stay petition could always be filed and therefore instead of recalling the ex-parte Tribunal order, the assessee may file a fresh stay petition which can be disposed of in regular course.

Logix Microsystem Ltd. Vs ACIT – TS-253-ITAT-2017(Bang)-TP – M.P No.134 (B)/2016 dated 21-03-2017

909. The Tribunal, in the case of the assessee, had directed the AO/TPO to apply the Court’s decision in the case of Knorr Bremse on the issue of adoption of CUP method vs TNMM for determining ALP of assessee’s international transaction of payment of management fees to AE. Assessee filed writ on the ground that AO had not applied the said decision in Knorr Bremse, therefore the order was not in accordance with the Tribunal’s directions. The Court agreeing with Revenue’s contention held that effect giving orders could be challenged before the next fact finding authority, namely the First Appellate Authority, and that it was not inclined to entertain the writ petition as there was an alternative remedy. Noting that the AO had sought to distinguish the facts and circumstances of assessee’s case with the case of Knorr Bremse, the Court stated that whether such distinction of the facts as done by the first respondent was correct or not, was for the next fact finding authority to consider and decide, as such exercise involved appreciation of the facts and circumstances of both the cases. Accordingly, it dismissed the writ petition filed by assessee challenging order passed by AO giving effect to Tribunal’s directions for AYs 2010-11 and 2011-12, holding that the assesee could avail of alternative remedy before the First Appellate Authority.

Volex Interconnect India Private Limited Vs DCIT & Anr – TS-315-HC-2017(MAD)-TP – W.P.Nos.9199 & 9200 of 2017 dated 17.04.2017

910. The assessee filed a direct appeal to the CIT(A) (without filing objections before DRP) which was not entertained by the CIT(A) under the mistaken belief that the order passed by the AO under section 143(3) r.w.s. 144C of the Act was not appealable before the CIT(A) under section 246A of the Act. The Tribunal held that the said order was maintainable and accordingly directed the CIT(A) to admit the same. It held that it couldn’t be proved that any draft assessment order was passed by AO or that objections were filed by assessee or that DRP had given any directions and therefore the CIT(A) was not justified in observing that the assessment order has been passed by the AO on the direction of the ld. DRP. Further, it considered CBDT Circular No. 5/2010 dated June 3, 2010 and corrected by Corrigendum dated September 30, 2010 and concluded that that in case the assessee did not file objections, the AO can pass the assessment order and thereafter the assessee can file an appeal against such assessment order before the ld. CIT(A). Further, it stated that it was the choice of the assessee as to whether to file an objection before the DRP or to pursue the normal channel of filing appeal against the assessment order before the ld. CIT(A). Accordingly, it remitted the matter to the file of the CIT(A).

Samsung Heavy Industries India Pvt. Ltd. vs. ACIT – TS-304-ITAT-2017(DEL)-TP – ITA No. 4544/Del/2016 dated 28.03.2017

911. The Tribunal allowed the assessee’s miscellaneous petition against Tribunal’s order on comparables selection for AY 2007-08 noting that it had directed exclusion of ‘Geometric Software Solutions limited’ as it had more than 15% RPT and ‘Lucid Software Ltd’ by relying on Meritor LVS India ruling; but had missed out on their exclusion in the concluding para. Accordingly, it held that there was an apparent mistake in the impugned order to the extent of not specifically passing the directions of the exclusion of these two companies from the set of comparables and therefore modified the order directing the AO/TPO to exclude these 2 companies apart from the 7 comparables already excluded.

Microchip Technology (India) Pvt. Ltd vs. ACIT – TS-257-ITAT-2017(Bang)-TP – M.P. No.3/Bang/2017 dated 08.03.2017.

912. The Tribunal, relying on the decisions in the case of Nortel Networks India P. Ltd and Roche Products (India) Private Limited, allowed assessee’s additional ground on admission of fresh evidence which was declined by CIT(A) for AY 2003-04. The assessee further submitted that Choksi Laboratories (engaged in engineering activities and chemical testing services) was functionally dissimilar to assessee providing contract testing and other services to AE. However, considering the admission of additional evidence, the Tribunal remitted the matter to the file of CIT(A), without adjudicating on the issue of comparability.

UL India Pvt Ltd [TS-343-ITAT-2017(Bang)-TP IT (TP) A No .180/bang/2012 dated 22.03.2017

913. The Tribunal, relying on Apex Court’s ruling in the case of NTPC Ltd admitted software developer assessee’s additional grounds challenging CIT(A)’s modification of filters in respect of comparables selection for AY 2007-08 and held that since issues raised in the additional grounds were in respect of the filters applied by the CIT (A), it did not require any investigation and examination of new facts.

PMC Sierra India Pvt Ltd vs DCIT [TS-371-ITAT-2017(Bang)-TP- IT(TP)ANo.1308/BANG/2012 dated 13.04.2017

914. The Tribunal, referring to the provisions of section 144C, allowed Revenue’s appeal challenging DRP’s direction to remit working capital adjustment back to AO. It held that the DRP had no power to remit a matter back to the AO and had to determine the adjustment on its own. Accordingly it remitted the matter back to DRP to work out the correct amount of working capital adjustment and then issue necessary directions to AO/TPO. In respect of assessee’s plea against inclusion of Dynamic Technologies Ltd as a comparable, following the ruling in assessee’s own case, it remitted the matter to the file of AO/TPO for selection of comparables with similar functional profile.

Myunghwa Automotive India Pvt Ltd [TS-401-ITAT-2017(CHNY)-TP ITA No. 1186/Mds/2016 & CO no.179/Mds/2016 dated 12.04.2017

915. The Court, refusing to condone extraordinary delay of 505 days in refiling appeal, dismissed Revenue’s appeal challenging Tribunal’s decision on transfer pricing issues on the ground that change in counsel could not explain a delay of 505 days in curing defects and refiling the appeal. Noting Revenue’s explanation that appeal was initially filed on 9.10.2014, but was placed under objections by registry owing to drastic increase in Court fees, digitization (e-filing), it held that the Court registry had conducted orientation sessions to enable lawyers to familiarize themselves with e-filing process and that the increase in court fees had come into force much before filing of present appeal. Accordingly, it dismissed the appeal of the Revenue.

Pr. CIT vs Iqor India Services (P) Ltd [TS-419-HC-2017(DEL)-TP- ITA 314/2017 & CM No. 14730/2017 dated 19.04.2017

916. Tribunal remitted TP-issue of exclusion of comparables for AY 2010-11 to the DRP for fresh consideration considering the correctness of margins of various comparables chosen by TPO and decide on their inclusion/exclusion as a change in profit level margins of comparables would have a considerable effect on the TP study. It directed the AO to pass a fresh order based on the directions of DRP.

Extreme Networks India Pvt Ltd [TS-367-ITAT-2017(CHNY)-TP ITA No 449/Mds/2015 dated 26.04.2017

917. The Court, dismissed Revenue’s appeal for AY 2006-07 challenging Tribunal’s order on exclusion of comparables without proper discussion. It held that previous precedents had been relied by the Tribunal and it was incorrect to say that it had not taken into account the factors that weighed with it for excluding the said comparables.

Pr. CIT vs Mentor Graphics (India) P Ltd-TS-420-HC-2017(DEL)-TP-ITA 318/2017 dated 02.05.2017.

918. The Court, admitted assessee’s appeal and framed 2 questions for determination (i)pertaining to exclusion of ‘Advanced Micronic Devices Ltd’ as a comparable and (ii) restricting the ALP-adjustment to the value of international transactions instead of the assesses’s entire turnover. Further, it also permitted the parties to file additional documents/papers which were part of assessment record filed before Tribunal within 8 weeks.

Becton Dickinson India Pvt. Ltd vs Pr. CIT – TS-416-HC-2017(DEL)-TP-ITA 289/2017 dated 16.05.2017

919. The Tribunal reprimanded the assessee for contesting inclusion of 2 comparables initially selected in TP study in the second round of proceedings before Tribunal in 2017 i.e. 11 years after filing return of income for AY 2006-07. It admitted the additional grounds while clarifying that Special Bench in the case of Quark Systems had not laid down a law that anytime and every time assessee could resile from a comparable selected by it. It further observed that the assessee in the present had not pointed out any specific functional dissimilarity vis-à-vis the comparable.

Further, it adjudicated the dispute on functional profile of the assessee in the backdrop of the decision in the assessee’s own case for subsequent AY 2007-08 classifying assessee as low end ITES provider as against decision for earlier AY 2005-06 wherein it was held that the assessee was a high end ITES provider on the basis of TP study report. It observed that the coordinate bench, while deciding the case for AY 2007-08, had not considered the AY 2005-06 findings which held assessee to be a high end ITES services provider (based on TP study report) as it was conducting research activity and knowledge management services and noted that the for the relevant year the TPO had neither classified assesse as high end or low end ITES provider. Accordingly, it remitted the entire issue of TP-Adjustment to AO/TPO for correct ascertainment of assessee’s functional profile, carrying out comparability analysis and then determining ALP. In sum and substance, the Tribunal admitted additional ground only on the premise that the assessment year involved in Quark Systems was very near to the assessment year involved in the present case i.e AY 2006-07 being initial years of transfer pricing.

Evalueserve.com Pvt Ltd TS-390-ITAT-2017(DEL)-TP- ITA 4001/DEL/2013 dated 11.05.2017

920. The Court held that the Tribunal was not justified in remanding the issues relating to inclusion/exclusion of comparables, determination of working capital and risk adjustments while benchmarking the assessee’s Contract Software Development (CSD) services and Technical Support Services (TSS) segments for AY 2011-12 without giving any finding, and that the Tribunal could remand the matter to TPO only when it was absolutely necessary, i.e. due to lack of clarity on factual aspects or for consideration of facts which have emerged since the TPO’s order which would have a bearing on outcome.. Noting that the Tribunal had remanded, it further held that the scope of remand should be clearly spelled out. Accordingly, it held that where all relevant facts were already before the Tribunal and the parties had no new material to provide, simply remanding the issue to the TPO without rendering a finding would be an abdication of the functions of the appellate body. Thus, it directed the Tribunal to decide the 4 issues arising out of appeal viz, (i) exclusion of WAPCOS and Mahindra and Mahindra and inclusion of Kirloskar in TSS segment. (ii) Exclusion of Sasken in CSD segment, (iii) denial of working capital adjustment and risk capital adjustment and (iv) proportionate adjustment in TSS segment.

Alcatel Lucent India Pvt. Ltd vs DCIT -TS-437-HC-2017(DEL)-TP- ITA No. dated 21.05.2017

921. The Tribunal dismissed the assessee’s direct appeal to Tribunal (in second round of proceedings) on grounds of maintainability for AY 2006-07 holding that remedy was available before CIT(A). It noted that in the first round of proceedings, Tribunal had remanded matter involving TP-adjustment and comparability of various companies back to AO/TPO for fresh adjudication after considering assessee’s submissions. It held that the effect of remand order was not to restrict the jurisdiction of the Assessing Officer to just follow the findings of the Tribunal but it was kept open for fresh adjudication as per law and that when the Assessing Officer / TPO had discretion to take a decision on the issue then a proper remedy to challenge the said order was appealable before the CIT (Appeals) and not directly to the Tribunal. Holding that the present appeal was not maintainable, it dismissed the appeal and provided it liberty to file appeal before CIT(A) and held that the time consumed in filing and pendency of present appeal would be excluded for the purpose of limitation of filing appeal before CIT(A).

Mercedes Benz India Pvt Ltd vs DCIT – TS-901-ITAT-2016(PUN)-TP- IT(TP)A No. dated 06.06.2017

922. The Court, dismissed Revenue’s appeal challenging Tribunal’s decision wherein it had deleted the TP adjustment as the value of international transactions undertaken by the assessee was within +/- 5% range of ALP. The Revenue contended that section 92C(2) had not been properly considered by CIT(A) and Tribunal. It was argued that by mere mathematical calculation, the purchase ALP computed by TPO fell beyond the +/- 5% range. Noting that these grounds were not agitated before lower authorities it held that it could not be agitated in the present appeal. Accordingly, the appeal was dismissed.

CIT vs Mettler Toledo India Pvt Ltd – TS-478-HC-2017(BOM)-TP-ITA No. 980 of 2014 dated 07.06.2017

923. The Tribunal allowed assessee’s miscellaneous petition, modified Tribunal order for AY 2007-08. Noting that the Tribunal had set aside comparability of various companies back to the AO/TPO in the ITeS segment but had , however, omitted to deal with 2 comparables viz., Accurate Data Converters Private ltd and iServices India Private Ltd specifically, it remanded the matter back to the AO/TPO directing it to consider these two companies and thereafter make an analysis of pricing of international transaction of the assessee in the ITeS segment.

Hewlett Packard (India) Global Soft P Ltd vs DCIT-TS-552-ITAT-2017(Bang)-TP-IT(TP)A no. 1031/bang/2011 dated 28.03.2017

924. The Tribunal dismissed assessee’s miscellaneous petition for AY 2005-06 refusing to interfere with its earlier direction to the AO/TPO for verification of additional evidence filed by assessee and decide whether administrative and business support services for which assessee had made payment were actually rendered by the AE. Assessee had contended that the evidence to prove the service rendition was earlier filed before CIT(A) who had granted relief in this respect and thus, remand to the AO / TPO for verification was unwarranted. Noting that nothing was discernable from the CIT(A) order and that the evidence on record did not conclusively prove that services were actually rendered by AE it upheld the remand of the Tribunal. Since there was no finding by lower authorities as evidence was not filed before it by the assessee, it also observed that the jurisdiction of the CIT(A) on issue involving facts could be exercised only if there was a finding by lower authorities. The CIT(A) could only give a finding on the correctness or otherwise of finding of lower authorities. Accordingly, it held that there was no mistake apparent from the record in the Tribunal order requiring modification. It held that in the proceedings u/s 254, the final conclusion reached by the Tribunal in the earlier order was not to be disturbed.

3M India ltd vs ACIT-TS-532-ITAT-2017(Bang)-TP-MP No. 42/bang/2017 dated 31.03.2017

925. The Tribunal allowed assessee’s miscellaneous petition seeking rectification of Tribunal’s order on the ground of non-consideration of 4 out of 5 additional grounds raised by assessee Noting that only 1 additional ground pertaining to inclusion of 2 comparables viz., Guindy Machine Tools ltd and United Drilling Tools Ltd had been considered by Tribunal, it restored the matter back to the file of AO/TPO for fresh consideration in respect of adjustment made by AO/TPO to the same class of international transaction twice, not providing an adjustment to the operating cost mark-up for difference in working capital of assessee vis-à-vis the comparables, considered non-comparable companies, Electronics Machine Tools Ltd. and Kulkami Power Tools Ltd. as comparable while determining the arm’s length price as the aforementioned companies failed functional and other criteria.

Molex India Tooling Pvt. Ltd vs. ACIT-[TS-538-ITAT-2017(Bang)-TP]-IT(TP)A No. 1494 (bang)/2010 dated 28.04.2017

926. The Tribunal admitted additional grounds pertaining to benchmarking of international transactions in the Trading Segment adopting RPM as the most appropriate method as opposed to TNMM adopted by the CIT(A) on the ground that it was legal in nature. Accordingly, it remitted the issue to the file of AO/TPO for considering the benchmarking of international transaction of trading activity and directed the AO/TPO to grant a reasonable opportunity of being heard in accordance with the principles of natural justice.

Fresenius Kabi India Private Limited vs DCIT-TS-625-ITAT-2017(PUN)-TP-ITA No.235/pun/2013 dated 16.06.2017

927. The Tribunal, noting that since the coordinate bench of the Tribunal in a series of rulings in the cases of AMD India, GT Nexus Software & Quark Systems had examined functional comparability of E-lnfochips, Acropetal Technologies, ICRA Techno Analytics and E-Zest Solutions even though the assessee did not raise a specific issue of functional dissimilarity before the authorities, as the assessee had made out prima facie case for raising this issue of functional comparability of these four companies, in the instant case, the Tribunal admitted the additional ground and remanded the comparability of the aforesaid companies to the file of AO/TPO for examination/ verification of functional comparability.

Fortinet Innovation Centre India Pvt. Ltd (formerly known as Meru Networks India Pvt. Ltd) vs. ITO-TS-617-ITAT-2017(BANG)-TP dated 28.07.2017

928. Noting that since the assessee was taken over by Canara Power Projects Group and entire managing team had quit the office while a new team was yet to be in place, required documents could not be filed before DRP/TPO, the Tribunal admitted additional evidence filed by assessee even though application for admission of such evidence was made for the first time before Tribunal. Although no records were maintained by the assessee and TP study was not filed before TPO/DRP, the Tribunal held that the assessee had vide letter dated November 11, 2013 explained that the entire management team along with the Company Secretary had left the office and new management had taken over the assessee and in view of the that necessary documents had not been furnished before the TPO. Accordingly, the Tribunal held that the it was justified to accept the additional evidence and remanded the matter back to the file of TPO for examination after granting the assessee a personal hearing.

Conergy Energy Systems Private Limited (formerly known as Sun Technics Energy Systems Pvt Ltd) vs ACIT-TS-604-ITAT-2017(BANG)-TP-IT(TP)A no.584/bang/2015 dated 22.03.2017

929. Relying on the decision in the case of Desa Singh vs Ajit Singh where it was held that normally when appellant was not represented, the Court would dismiss it for default and not go into merit in detail, the Tribunal dismissed assessee’s appeal for non-prosecution/dismiss in default as no one appeared on behalf of assessee to argue the case.

MModal Global Services Private Limited vs ITO-TS-615-ITAT-2017(Bang)-TP-ITA No. 1351/bang/2011 dated 17.05.2017

930. Noting that the substantial question of law framed in the said order wrongly pertained to quantum appeal instead of the appeal against penalty, it deleted the earlier 4 questions framed relating to TP-addition of Rs. 5.86 crores, validity of reference to TPO in respect of mere reimbursement and secondment of employees and framed the following questions-(a) Whether on the facts and in the circumstances of the case and in law the Tribunal was right in confirming the levy of penalty of Rs.2,05,26,780/under section 271(1)(c) of the Act. (b) whether the Tribunal was right in holding that the revised return filed was invalid. (c) whether the Tribunal was right in holding that the Appellant had not offered any explanation towards claim of Rs. 5.86 crores as expenditure or deduction u/s 10A of the Act. (d) whether on facts and in circumstances of the case and in law the order of Tribunal was perverse and liable to be quashed.

Deloitte Consulting India Pvt ltd vs ACIT-TS-605-HC-2017(BOM)-TP-ITA NO 107 of 2015 dated 27.07.2017

931. The Tribunal allowed the assessee’s miscellaneous application (relating to deductibility of license fee) for AY 2003-04 as it had restored the matter to the file of AO following assessee’s own case for AY 2002-03, ignoring the fact that the exact same issue had been decided in favour of the assessee by the High Court for AY 2001-02. It held non-consideration of the jurisdictional HC judgment by Tribunal in case of assessee constituted a mistake apparent from record and accordingly, directed the rectification of the Tribunal order and refixed the matter before Regular bench to hear the case afresh.

Star India Pvt. Ltd vs ACIT-TS-639-ITAT-2017(Mum)-TP-MA no. 329/mum/2016 dated 21.07.2017

932. Where the assessee had produced before the Court a detailed chart explaining the approach of the TPO, DRP and the Tribunal in respect of determination of ALP for each of the segments which proved that all facts were available on record before the Tribunal, the Court noting that the Tribunal had failed to render a finding, directed the Tribunal to decide TP-issues without remanding matter for de-novo adjudication.

Bechtel India Private Limited vs DCIT-TS-606-HC-2017-ITA No 97/2017 dated 25.07.2017

933. Where the CIT(A) had elaborately considered both the internal as well as external benchmarking analysis and come to a definitive conclusion that TP adjustment was unwarranted, the Court rejected Revenue submission that the AO ought to have made reference to TPO and that the CIT(A) had no power in exercise of its appellate jurisdiction, to undertake a TP analysis. Accordingly, the Court, upheld Tribunal’s order refusing to adopt earlier year’s comparables without undertaking proper analysis. Noting that the Revenue had not contended before the Tribunal that the CIT(A) ought to have remanded the matter to the file of the TPO rather than adjudicating it himself, the Court held that the Revenue could not be permitted to raise such ground at this stage.

Pr. CIT vs. Interra Infotech (India) Pvt. Ltd.-TS-669-HC-2017(DEL)-TP-ITA no. 250/2017 dated 25.08.2017

934. The Tribunal, noting that during the course of the proceedings no one appeared on behalf of the assessee nor any application to seek adjournment was filed even though notice was duly served on the assessee, dismissed assessee’s appeal for non-prosecution for AY 2012-13.

Advice America Software Development Center Pvt Ltd vs DCIT-TS-763-ITAT-2017(Bang)-TP dated 06.09.2017

935. The Tribunal, allowed Revenue’s miscellaneous petition against its earlier order. Noting that the Revenue had contended for inclusion of 2 companies (RS Software India Limited and Mindtree Limited) on the ground of functional comparability but the Tribunal had not adjudicated on the issue, and no objection was raised by the assessee vis a vis the inclusion of the two comparables, the Tribunal, directed the AO/TPO to include the aforesaid comparables for determining the arm’s length price (ALP).

ITO vs Arcot R&S Software Pvt Ltd-TS-692-ITAT-2017(Bang)-TP-M.P.No. 92/bang/2017 [IT(TP)A no. 393/bang/2015 dated 24.08.2017

936. The Tribunal, noting that no one appeared on behalf of the assessee even though notice was duly served on it fixing appeal hearing for August 21, 2017, dismissed assessee’s appeal for non-prosecution under rule 19(2) of Income Tax Appellate Tribunal Rules.

Indeca Sporting Goods Pvt. Ltd vs. DCIT-TS-713-ITAT-2017(Bang)-TP-IT(TP)A no. 445/bang/2017 dated 21.08.2017

937. The Tribunal allowed assessee’s miscellaneous petition seeking recall of ex-parte Tribunal order. Noting assessee’s submission that it was unable to appear before the Tribunal on the hearing date as the notice was misplaced since it was delivered on a weekend & collected by the security person, the Tribunal held that there was reasonable cause for non-appearance of the assessee on the appointed date and accordingly recalled the ex-parte order and fixed appeal hearing on December 5, 2017.

Salesforce.com India Private Limited vs DCIT-TS-761-ITAT-2017(Bang)-TP-MP no.160/bang/2017 dated 08.09.2017

938. The Tribunal partly allowed assessee’s miscellaneous petition and recalled Tribunal’s order for the limited purpose of adjudicating working capital adjustment not adjudicated earlier. Further, it dismissed assessee’s contention that the comparability of Evoke was not to be remanded to the lower authorities as neither did the DRP nor the TPO object to the inclusion of this comparable and held that there was no mistake apparent from records as the Tribunal held that all comparables were to be reexamined.

Obopay Mobile Technology India P. Ltd vs DCIT-TS-710-ITAT-2017(Bang)-TP- Misc Petition No.145/Bang/2017 dated 11.08.2017

939. The Tribunal, dismissed second miscellaneous petition filed by Revenue against Tribunal order for AY 2005-06 as it was time barred. It held that as per the amended provisions of section 254(2), assessee/Revenue could file a miscellaneous petition within 6 months from the end of the month in which order was passed by the Tribunal and since the Tribunal order against which the petition was filed was passed on August 11, 2016, the miscellaneous petition filed on May 29, 2017 was time barred.

DCIT vs Swiss’ Re Shared Services (India) Pvt Ltd-TS-721-ITAT-2017(Bang)-TP- M§ No. 159/Bang/2017 (in IT(TP)A No. l 72/Bang/2012) dated 18.08.2017

940. The Court dismissed the appeal filed by the assessee owing to extraordinary delay of 439 days and rejected the assessee’s justification that the delay occurred since it was pursuing an alternate remedy by way of filing a miscellaneous application before the Tribunal for the exclusion of Bodhtree as comparable. It held that an application under Section 254(2) of the Act is for rectifying mistakes apparent from record which is much narrower in scope than an appeal before the Court under Section 260A. Therefore, it held that the time period for filing an appeal under Section 260A would not get suspended on account of pendency of miscellaneous application filed before the Tribunal.

Agnity Technologies Pvt Ltd vs CIT-TS-729-HC-2017(DEL)-TP- ITA 939/2016 dated 19.09.2017

941. The Tribunal dismissed assessee’s miscellaneous petition against Tribunal’s order for AY 2007-08. Noting that the Tribunal (vide order dated February 10, 2011) had decided the issue considering the explanation to section 92C(2) which provided that the second proviso to section 92C(2) was applicable to all proceedings pending before the AO on 1.10.2009, it held that since the proceedings for subject AY were pending as on 1.10.2009 and accordingly, there was no apparent mistake in the order of Tribunal.

Insilica Semiconductors India Pvt Ltd-TS-709-ITAT-2017(Bang)-TP- ”rvr.P.No. 1211Bang/2017 (in IT(TP)A No. 1 l 17/Bang/2013) dated 18.08.2017

942. Where the CIT(A) had not examined and decided the issue of functional dissimilarity in respect of 9 companies against which the assessee had raised objections, the Tribunal remitted the matter to the file of CIT(A) for fresh adjudication. Further, in respect of 0% RPT filter, it held that the CIT(A) was not justified in applying 0% RPT filter suo-moto as no comparables were available. It held that a reasonable tolerance range of 5% to 25% depending on facts and circumstances of the case should be applied.

ITO vs iPass India Pvt Ltd-TS-751-ITAT-2017(Bang)-TP- I.T.(T.P)A. No.526/Bang/2012 dated 31.08.2017

943. The Tribunal dismissed assessee’s miscellaneous petition (MP) seeking to modify Tribunal’s order for contending that the Tribunal in the impugned order had discussed the comparability of several companies but failed to render finding thereon. Noting that the assessee had filed a single application for rectification of the order even though the original appeal was filed by both assessee and Revenue as cross appeals, it held that the minimum requirement of law is that separate applications are required to be filed in respect of each appeal. Since the fact of the defect was intimated but the assessee had chosen not to rectify the same, it dismissed the Miscellaneous application filed by assessee as defective.

IDS Software Solutions India Pvt Ltd vs DCIT-TS-759-ITAT-2017(Bang)-TP- Misc. Petn.No.138/Bang/2017 dated 15.09.2017

944. The Apex Court admitted Revenue’s SLP against High Court order confirming Tribunal’s quashing of assessments made by AO/TPO u/s 153A pursuant to search and seizure operations. The Tribunal noting that no new or incriminating material was found during search and seizure proceedings which took place in assessee’s premises after completion of scrutiny assessment u/s 143(3), but that the AO, based upon existing material, had referred the matter to TPO, who then proposed TP adjustment on interest-free loans granted to AE, deleted this TP addition in absence of any incriminating material which was upheld by the High Court.

Pr.CIT vs Baba Global Ltd-TS-956-SC-2017-TP dated 01.12.2017

945. Where the assessee’s filed TP documentation before the CIT(A) for the first time who thereafter called for a remand report from the AO, the Tribunal held that the approach of the CIT(A) was incorrect and he should have referred the matter back to the file of TPO for determination of ALP. Further, noting that there were mistakes in the margin computation, the Tribunal remanded the matter back to the file of AO/TPO for fresh determination of ALP in accordance with law.

ACIT vs. Mindspeed Technologies Ltd-TS-1012-ITAT-2017(DEL)-TP- ITA No.1600/Hyd/2014 dated 08.12.2017

946. The Tribunal considering assessee’s submission that Revenue only had time till July 31, 2017 (being the end of 6 months from expiry of January 2017 being the month in which the Tribunal order was passed) and since miscellaneous petition (MP) was filed on September 20, 2017 it was time barred, dismissed Revenue’s MP against Tribunal order as time barred.

Infineon Technologies India Ltd vs. DCIT-TS-1010-ITAT-2017(Bang)-TP- M.P. No. 222/Bang/2017 dated 10.11.2017

947. The Tribunal noting that the TPO had mentioned that the information furnished by assessee was incomplete and consequently no conclusion could be drawn, but the assessee had asked for time to comply with the directions which had not been granted by TPO, restored the TP issues back to the AO/TPO for re-adjudication.

POSCO India Chennai Steel Processing Centre Pvt. Ltd vs. ACIT-TS-1011-ITAT-2017(CHNY)-TP dated 01.12.2017

948. Where the AO/TPO had made no adjustment with respect to guarantee commission while determining the ALP and the Tribunal had in Para NO. 17, by holding that guarantee commission should from part of the ALP, enhanced the income though the Tribunal had no power of enhancement and thereby committed mistake apparent on record, the Tribunal allowed assessee’s miscellaneous application against Tribunal order for AY 2008-09 and expunged the guarantee commission from the order.

Uttam Galva Steel Ltd vs. ITO-TS-1044-ITAT-2017(mum)-TP MA No.292/MUM/2016 dated 27.11.2017

949. Where the Tribunal had not adjudicated ground no. 7 of its appeal (regarding exclusion of E-Infochips Ltd from the list of comparables for software developer assessee), the Tribunal allowing Revenue’s appeal recalled the Tribunal order for the limited purpose of adjudicating ground no 7 of Revenue’s appeal.

DCIT vs. Applied Material India P. Ltd-TS-1063-ITAT-2017(Bang)-TP Miscellaneous Petition No.269/Bang/2017 dated 26.12.2017

950. The Tribunal accepted assessee’s miscellaneous petition against Tribunal order for AY 2008-09. Noting that Tribunal, in its order, had incorrectly stated that assessee sought exclusion of Saksoft Ltd whereas in reality, the assessee had successfully appealed before CIT(A) for its inclusion and the CIT(A) had accepted assessee’s contentions and held that Saksoft Ltd was functionally similar and therefore could not be excluded, the Tribunal held that there was an apparent error in the order and accordingly directed the inclusion of Saksoft Ltd.

Radisys India P. Ltd (Formerly Continuous Computing India P. Ltd) vs ITO-TS-1004-ITAT-2017(Bang)-TP dated 08.12.2017

951. Where the Tribunal had not adjudicated Revenue’s ground against DRP’s exclusion of Acropetal Technologies Pvt. Ltd by applying onsite revenue filter, the Tribunal allowed Revenue’s miscellaneous petition and directed the AO/TPO to apply onsite revenue filter to all the comparables and include only those companies which satisfy the filter.

Addl. CIT vs Dell International Services India Pvt. Ltd (formerly known as Perot Systems TSI (India) Pvt. Ltd-TS-991-ITAT-2017(Bang)-TP dated 29.11.2017

952. The Tribunal allowed the miscellaneous petition filed by the assessee as the Tribunal had not decided the assessee’s ground regarding treatment of foreign exchange gain / loss as operating in nature for the purpose of computation of PLI of the assessee and the comparables. Observing that there were no details vis-à-vis the issue, it restored the matter back to the AO / TPO for fresh examination.

Further, it dismissed assessee’s contention that the AO / TPO erred in selecting certain comparables which were functionally dissimilar and held that there was no mistake apparent from record vis-à-vis this contention as during the original hearing the appeal was heard based on a chart filed by the assessee wherein the only contentions raised were margin computation errors and turnover filter.

ISG Novasoft Technologies Ltd vs. ACIT-TS-1016-ITAT-2017(Bang)-TP- M.P. No. 250/Bang/2017 dated 15.12.2017

953. The Tribunal, considering assessee’s submission that delay in filing objections before DRP in respect of technical & management costs for AY 2012-13 arose as it was in the process of shifting its office to a new location and also due to ongoing assessment proceedings for subsequent AY 2013-14 and CIT(A) for AY 2011-12, held that delay was neither with malafide intention/ wilful and that the assessee had sufficient and reasonable cause. Accordingly, it set aside the DRP directions which rejected condonation of 22 days delay by assessee in filing of objections. Accordingly, it condoned the delay of 22 days and restored the matter back to the file of DRP for fresh adjudication.

Conergy Energy Sytems Pvt. Ltd vs. ACIT-TS-967-ITAT-2017(Bang)-TP I.T. (T.P) A. No.88/Bang/2017 dated 29.11.2017

954. The Tribunal refused to condone assessee’s 117 days delay in filing appeal (including TP-issues) for AY 2009-10 for failure to establish sufficient cause to condone delay. Noting that no one appeared on behalf of assessee for hearing on many occasions despite several notices, the Tribunal opined that from the conduct of the appellant/ assessee it seemed that the assessee was no longer interested in pursuing its appeal. Further, referring to Sec 253(5) (which provided that Tribunal may admit appeal or permit filing of memorandum of cross-objection after expiry of relevant period of limitation if it was satisfied that there was sufficient cause for not presenting it within that period), the Tribunal held that as per the settled law when mandatory provision is not complied with and the delay is not properly explained, the court cannot condone the delay on sympathetic grounds alone. Accordingly, it concluded that since, the application for condonation of delay was dismissed, the appeal of the assessee was not maintainable being barred by law of limitation. 

TCL India Holdings Pvt Ltd vs DCIT-TS-972-ITAT-2017(Mum)-TP dated 30.10.2017

955. The Tribunal dismissed the miscellaneous petition filed by the assessee wherein it contended that Tribunal’s dismissal of grounds for inclusion/exclusion of various comparables for the reason that the same was not urged before lower authorities was “contrary to facts”. It held that the ruling of the Tribunal was based on a chart filed by assessee during the course of hearing wherein it clearly showed that contentions for inclusion/ exclusion of comparables were not put forth before lower authorities. Therefore, considering that assessee had not brought the Tribunals attention to the pleadings made before lower authorities, it dismissed the miscellaneous petition.

Curam Software International Pvt. Ltd. vs. ITO-TS-978-ITAT-2017(Bang)-TP Misc. Petn. No.181/Bang/2017 (In IT(TP)A No.192/Bang/2017) dated 25.10.2017

956. Where the assessee’s appeal was decided based on chart filed during hearing which contained arguments regarding exclusion of certain comprabales and adjustment for capacity under-utilization but grounds for adjustment regarding rent, depreciation, provision for doubtful advance, employee cost and working capital etc were not argued at all, the Tribunal held that there was no mistake apparent from record which could be rectified and accordingly dismissed assessee’s miscellaneous petition alleging that certain grounds raised by assessee were not decided by Tribunal.

Biesse Manufacturing Co. Pvt. Ltd v DCIT-TS-1041-ITAT-2017(Bang)-TP M,P. No. 252/Bang/2017 · · in IT(TP)A No. 755/Bang/2017 dated 15.12.2017

957. Where the assessee claimed that notice for hearing of appeal was received by front desk security guard who misplaced it without informing or handing over the same to appropriate person, the Tribunal held that there was reasonable cause for failure of assessee to appear before the Tribunal for hearing on August 21, 2017 and accordingly, allowed miscellaneous petition filed by assessee, recalled Tribunal order for AY 2012-13 whereby appeal was dismissed in limine for non-prosecution.

Indeca Sporting Goods Pvt. Ltd. v ACIT-TS-1040-ITAT-2017(bang)-TP M.P No.246/Bang/2017 dated 17.11.2017

958. Where the assessee had raised grounds regarding adjustment on royalty paid to AE,viz., i) DRP’s action of disregarding the basis of royalty payment i.e. as a percentage of sales, ii) comparison with Toyota Motors without establishing comparability, iii) absence of tax base erosion, etc, however the representative of assessee had not pressed these grounds of appeal, the Tribunal, relying on the decision in the case of Earnest Exports wherein it was held that miscellaneous petition was maintainable only on the issues which are argued and specific attention of the bench was drawn, dismissed assessee’s miscellaneous petition alleging non-adjudication of certain grounds for AY 2010-11.

Kaypee Electronics & Associates Pvt. Ltd v ACIT-TS-1043-ITAT-2017(bang)-TP Misc. Petn. Nos.162, 163 & 164/Bang/2017 dated 31.10.2017

959. The Tribunal rejected assessee’s miscellaneous petition for AY 2006-07 and 2007-08 raising a contention that Tribunal failed to consider additional evidence filed by the assessee to prove the receipt of administrative services provided by AE. Noting that the Tribunal while passing the original order had rendered a specific finding that evidence on record only describes nature of technical know-how and administrative services, but did not conclusively prove the actual rendition of services held that the Tribunal had considered all material on record and accordingly dismissed assessee’s petition as there was no mistake apparent from record.

Herbalife International India Pvt. Ltd v ACIT-TS-1042-ITAT-2017(Bang)-TP Misc.Petn.Nos.131 & 132/Bang/2017 dated 25.10.2017

960. The Tribunal dismissed assessee’s miscellaneous petition against Tribunal order for AY 2008-09. Noting assessee’s submission that Tribunal had considered the margin of transactions with AEs excluding idle costs, but transactions for non-Associated Enterprises were not considered and therefore, the ground relating to operating costs of both Associated and non-Associated Enterprises should be considered in order to determine the ALP adjustment for non-Associated Enterprises also, the Tribunal held that the issue of idle costs incurred by the assessee on account of excess capacity as operating cost for arriving at the ALP was considered by Tribunal in detail in para 8 and had restored the matter to the file of AO for fresh adjudication and therefore there was no error apparent in the order of the Tribunal.

Trianz Holdings Pvt. Ltd (formerly Trianz Consulting P. Ltd.,) vs. DCIT-TS-1037-ITAT-2017(bang)-TP M.P. No.234/Bang/2017 dated 17.11.2017

961. Where the CIT(A) did not adjudicate assessee’s contentions regarding inclusion/exclusion of comparables by passing a reasoned order on all disputed comparables and thereafter to determine ALP, the Tribunal set aside the order of the CIT(Appeals) and restored the matter to his file with a direction to adjudicate the issues raised after affording opportunity of being heard to the assessee.

GE Intelligent Platforms Pvt. Ltd (formerly GE Fanuc Systems Pvt. Ltd) vs. ACIT-TS-1035-ITAT-2017(Bang)-TP dated 15.12.2017

Assessment/Reassessment

962. The Tribunal allowed the appeal of the Revenue against the directions of the DRP wherein the DRP had directed the TPO to decide the percentage of risk adjustment to be calculated and held that the DRP had no power to do so. Referring to the provisions of Section 144C(7) and (8) it held that the DRP had no authority either to direct the AO or the TPO to make further enquiry and decide the matter and that at best the DRP could call for a remand report from the AO / TPO or make further enquiry itself. Accordingly, it set aside the order passed by the DRP and directed it to decide the issue afresh after considering the relevant material on record.

India Trimmings Pvt Ltd – TS-62-ITAT-2017 (Chny) – TP

963. Where the DRP summarily rejected assessee’s contentions in a cryptic manner and failed to pass a reasoned order, the Tribunal held that the DRP had not applied his mind to assessee’s submission and the TPO’s conclusions and accordingly restored the matter back to the file of DRP for fresh adjudication on inclusion/exclusion of comparables for assessee’s international transactions relating to software development services and ITes. Further, noting that the assessee had raised additional grounds before tribunal, it also directed the DRP to consider the said grounds while adjudicating the matter.

TE Connectivity Global Shared services India Pvt Ltd (formerly known as ADC (India) communications & infotech ltd) vs ITO-TS-807-ITAT-2017(BANG)-TP IT(TP)A No.l230/Bang/2011 dated 27.09.2017

964. The Tribunal restored the entire issue to the file of the DRP since the order of the DRP was not speaking and reasoned and directed the DRP to pass a fresh speaking and reasoned order.

Thomson Reuters International Services Pvt Ltd vs DCIT- TS-836-ITAT-2017(Bang)-TP dated 28.09.2017

Thomson Reuters International Services Pvt Ltd vs. DCIT-TS-810-ITAT-2017(Bang)-TP dated 28.09.2017

965. Where the Pr.CIT issued a show cause notice u/s 263 considering the order of AO as erroneous and prejudicial to the interest of Revenue without making proper inquiries/verifications/investigations on various issues, the Tribunal relying on the High Court ruling in the case of Delhi Airport Metro Express and DG Housing Projects (wherein it was held that it was incumbent for the PrCIT to make some minimum independent enquiry to reach the conclusion that AO’s order was erroneous and prejudicial to the Revenue’s interest), quashed the revision u/s 263 by PrCIT.

Amira Pure Foods Pvt. Ltd vs Pr.CIT-TS-1053-ITAT-2017(DEL)-TP SA No. 451/DEL/2017 & ITA No. 3205/DEL/2017 dated 29.11.2017

966. The Tribunal remitted ALP determination in respect of assessee’s import transactions for AY 2003-04. Noting that CIT(A) had held that the assessee’s operating profit margin during the subject AY from the combined activities as compared by the AO was 4.4% while comparables margin was 2.61%, thus even by adopting TPO’s comparables, the transaction would be at ALP under TNMM. Further, observed that CIT(A) allowed adjustment on account of excise duty and working capital and restricted TP adjustment to Rs. 16.99 crore as against TPO’s Rs. 36.28 crores. Since the CIT(A)’s order was not elaborate and very cryptic, the Tribunal remanded the matter back to the file of TPO/AO for fresh consideration.

Whirlpool Of India Ltd vs DCIT-TS-1003-ITAT-2017(DEL)-TP dated 03.11.2017

967. Relying on the decision in the case of Maruti Suzuki India (wherein under similar facts, assessment made in the name of non-existent entity post amalgamation was quashed), the Tribunal rejected Revenue’s contention that since in the assessment order, along with the name of the merged company (Aztecsoft Ltd), the name of the successor company (Mindtree Ltd) was also mentioned, it could not be said that the assessment was completed in the name of the merged company, and quashed the assessment order & revisionary order passed in the name of non-existent merged entity (Aztecsoft Ltd).

Mindtree Ltd (Previously known as Aztecsoft Ltd, now merged with Mindtree Ltd.) vs. DCIT-TS-1014-ITAT-2017(Bang)-TP- IT(TP)A No. 277/Bang/2014 dated 08.12.2017

JCB India Limited (formerly known as JCB Manufacturing Pvt. Ltd) vs. DCIT-TS-1034-ITAT-2017(DEL)-TP dated 12.12.2017

968. Where the assessee [Heartland Delhi Transcription and Services Pvt. Ltd. (HDTS)] amalgamated with Heartland Information and Consultancy Services Pvt. Ltd (HICS) pursuant to Delhi HC-order dated July 25, 2008 and this fact was brought to AO & CIT’s notice vide separate letters dated October 19, 2008, however, the AO referred the matter u/s 92CA of amalgamating company to TPO who passed the order on the amalgamating entity and thereafter, AO also passed assessment order on amalgamated entity, the Tribunal, relying on the decision in the case of Maruti Suzuki India Ltd [TS-520-ITAT-2016(DEL)-TP] quashed the assessment order framed on non-existent amalgamating company for AY 2007-08 as the assessment was void ab intio since the assessee entity M/s (HDTS) was not in existence when the TPO as well as the AO passed their respective orders.

DCIT vs Transcend MT Services Pvt. Ltd-TS-992-ITAT-2017(DEL)-TP dated 30.11.2017

969. Where the Revenue was unable produce any letter to prove that AO had made a reference of international transactions to TPO and what was produced was only an approval granted by DIT on December 27, 2011 to make such reference, the Tribunal quashed assessment orders for AYs 2009-10 & 2010-11 as being barred by limitation u/s 153(1) absent valid reference by AO to TPO u/s 92CA(1). It held that the grant of approval did not meet the requirements of section 92CA(1) of the Act, which specifically requires reference by the Assessing Officer to the Transfer Pricing Officer for the computation of ALP in relation to international transactions. Accordingly, it concluded that the assessment orders were barred by limitation u/s 153(1).

Dongfang Electric Corporation (Kolkata Project Office) vs. DCIT-TS-847-ITAT-2017(kol)-TP dated 25.10.2017

970. In the original order, the Tribunal, had accepted assessee’s contention that CIT(A)’s order was cryptic in respect of inclusion/exclusion of comparables for IT enabled services had restored the matter back to the CIT(A) for a fresh decision. However, regarding CIT(A)’s decision of not considering interest received on delayed payments from AE as operating income for computation of PLI, it had held that it was based on the High Court decision in the case of Sharavathy Steel Products [347 ITR 371]. The assessee filed a miscellaneous petition contending that there was an apparent mistake in the order of the Tribunal as the Tribunal ought to have remanded this issue back to the file of the CIT(A) as well. The Tribunal dismissed the Miscellaneous Petition filed by assessee noting that it was apparent that the order of CIT(A) on this issue was not cryptic and accordingly held that there was no apparent mistake in the Tribunal order.

Syniverse Teledata Systems Pvt Ltd (Formerly known as MACHTeledata Systems Pvt Ltd) vs. DCIT-TS-845-ITAT-2017(Bang)-TP dated 26.09.2017

971. Where the DRP had not recorded any specific finding on assessee’s objections regarding various comparables such as high turnover, big size, brand and high profitability, the Tribunal restored the DRP’s cryptic order on comparables selection for fresh decision directing it to decide the exclusion of 7 comparable companies contested by assessee by way of a speaking and reasoned order

Akamai Technologies India Private Limited vs. DCIT-TS-757-ITAT-2017(Bang)-TP IT(TP)A No. l 122/Bang/2011 dated 08.09.2017

972. Where the DRP’s findings were very cryptic and in view of the settled position of law that any order of a quasi-judicial authority should be a speaking and reasoned order, the Tribunal restored the entire TP-issue in respect of inclusion/exclusion of comparables back to the DRP for fresh decision by way of a speaking and reasoned order for AY 2007-08.

Moody’s Analytics Knowledge Services (India) Pvt Ltd [TS-838-ITAT-2017(bang)-TP r IT(TP)A No.1238/Bang/2011 dated 22.09.2017

973. The Court dismissed assessee’s writ challenging the order of enhancement by DRP wherein the DRP directed the AO not to restrict TP adjustment to the proportion of international transactions to the total operating costs and held that the DRP order was binding on the AO, and the assessment order was an order giving effect to the direction issued by DRP and against such an order the assessee could file an appeal before Tribunal. Rejecting assessee’s reliance of various judicial precedents viz., Mobis India Ltd [TS-235-ITAT-2013(CHNY)-TP], IL Jin Electronics [TS-11-ITAT-2009(DEL)], it held that none of the decisions arose out of a challenge in Writ petition to the order passed by the DRP. Accordingly, it directed the AO to pass a final assessment order after giving effect to DRP directions and clarified that the assessee was free to challenge such assessment order before Tribunal.

Hyundai Motor India Limited vs The Secretary (Income Tax Department) and Ors.-TS-823-HC-2017(MAD)-TP dated 20.10.2017

974. The Tribunal dismissing assessee’s additional ground for AY 2012-13 held that mere issue of demand notice and penalty notice along with the draft assessment order did not tantamount to passing final assessment order. It held that the AO had passed a draft assessment and the issue of demand notice and penalty notice were procedural mistakes. Accordingly, it dismissed the appeal.

Bartronics India Ltd vs DCIT-TS-814-ITAT-2017(HYD)-TP ITA No. 259 /Hyd/2017 dated 27.09.2017

975. Where the DRP had rejected assessee’s ground that functional comparability was not considered and merely stated that the TPO had discussed functional comparability of comparables, the Tribunal held that any quasi-judicial authority had to pass a reasoned order and accordingly, restored the matter to the file of DRP for fresh adjudication after providing adequate opportunity of being heard to both sides.

Mann and Hummel Filter Pvt Ltd vs ACIT-TS-800-ITAT-2017(Bang)-TP dated 08.09.2017

976. Where the assessee had amalgamated with another entity (Telelogic India P ltd) w.e.f May 27, 2010 and despite intimation, the TPO passed order in the name of the non-existent entity and the assessee had not filed appeal memo etc in the name of the merged entity, the Tribunal held that both the assessee and Revenue had not followed the procedure established by law and remanded the matter to the file of DRP directing it to pass order in the name of Telelogic India P ltd.

Corio India Infotech Services P. Ltd, (Since merged with Telelogic India P. Ltd) v DCIT-TS-788-ITAT-2017(Bang)-TP dated 23.08.2017

977. Relying on the decision in the case of Turner International India Pvt Ltd [TS-400-HC-2017(DEL)-TP], the Court held that even where the Tribunal had remanded the matter, the AO ought to have passed the draft assessment order under section 144C prior to the final order. Further, it held that section 292B of the Act could not save an order not passed in accordance with the provisions of the Act since it was an incurable illegality. Accordingly, it held that the final assessment order passed by the AO was without any jurisdiction.

JCB India Ltd vs DCIT-TS-706-HC-2017(DEL)-TP dated 07.09.2017

978. The Tribunal relying on co-ordinate bench ruling in BA Continuum India Private Limited (formerly CFC India Services Pvt. Ltd set aside CIT(A)’s order wherein he had quashed the assessment order on the ground that assessment was done in the name of a non-existing company. The Tribunal noted that the assessee, Merrill Lynch India Technology Services Private Limited merged with B. A. Continuum India Private Limited w.e.f. April 1, 2009, and that the order passed by the TPO was in the name of Merrill Lynch, but the draft as well as final assessment orders were passed by AO having jurisdiction over amalgamated company in the name of BA Continuum. Accordingly, it disagreed with the CIT(A) that assessment was made on non-existent company and remanded the matter to the CIT(A) directing it to decide the issue on merits.

DCIT vs. B. A. Continuum India Private Limited-TS-773-ITAT-2017(HYD)-TP dated 22.09.2017

979. Noting that the AO made TP-adjustment without making a reference to TPO but following TPO’s order for AY 2007-08 as basis for making TP-addition, the Tribunal set aside the order of the CIT(A) on TP -adjustment of Rs. 13.28 crores and admitted assessee’s additional grounds challenging the framing of assessment without making reference to TPO for determination of ALP and without following procedure u/s 144C. Accordingly, it remitted the matter to the file of AO for de-novo determination of the issue on merits.

Bericap India Pvt. Ltd. vs. ACIT-TS- TS-935-ITAT-2017(Mum)-TP- I.T.A. No. 4703/Mum/2013 dated 27.11.2017

Bechtel India Pvt Ltd vs ACIT-TS-925-ITAT-2017(DEL)-TP dated 11.11.2017

 

980. The Tribunal upheld the final assessment order and dismissed the assessee’s contention that the same was void ab initio as the DRP had not passed any directions. It noted that since there was a delay of 13 days in filing objections before the DRP and the DRP rejected the assessee’s application for condondation the AO passed the final assessment order as if no objections were filed. Accordingly, it held that the order passed by the AO was within the time limits and dismissed the assessee’s appeal.

Gameloft Software Private Limited vs. DCIT-TS-912-ITAT-2017(HYD)-TP I.T.A. No. 443/HYD/2017 dated 10.11.2017

981. The Tribunal upheld CIT’s revisionary order u/s 263 and held that the order of the AO was prejudicial to the interest of the revenue as the AO failed to verify the specified domestic transactions [deduction u/s 80IB and payment to specified persons u/s 40A(2)] for AY 2013-14 entered into by the assessee. It rejected the assessee’s submission that the transactions had been examined by the AO who denied deduction u/s 80IB/80IE on the ground that assessee was not carrying on manufacturing activity and held that the denial of deduction was on a technical ground and the quantum of deduction claimed was not examined. It held that the mere submission of necessary details in form of 3CEB would not prove that the AO had verified the details regarding the deduction claimed by the assessee u/s 80IB/80IE of the Act. Accordingly, it upheld the initiation of proceedings under Section 263 of the Act.

Amrit Feeds Ltd vs. DCIT- TS-875-ITAT-2017(Kol)-TP- ITA No.753/Kol/2017 dated 31.10.2017

982. Where the assessee had adopted TNMM to determine ALP of export of vaccine, but TPO proposed adjustment by comparing margins of export sales with margins of sale in domestic market to related entities and the CIT(A) had dismissed assessee’s appeal even though assessee made detailed submission and filed additional evidence in support of its claim, the Tribunal noting that right from AY 2002-03 onwards, Tribunal had remitted the matter to the AO/TPO for fresh determination of ALP as neither the assessee nor the TPO carried out ALP determination exercise as per law, remitted the matter to the AO/TPO directing it to consider the assessee’s evidence and submission and re-adjudicate the issue after giving opportunity of hearing to the assessee.

Chiron Behring Vaccine Pvt Ltd vs ACIT-TS-929-ITAT-2017(mum)-TP dated 03.11.2017

983. Where the assessee made a submission that it was not clear from TPO/DRP’s order as to which comparables where finally adopted, how ALP was determined and how TP adjustment was quantified, the Tribunal set aside the assessment order on TP issue and restored the entire TP issue to the file of DRP for fresh decision by way of speaking and reasoned order after providing adequate opportunity of being heard to both sides.

Aptean Software India Pvt. Ltd (formerly CDC Software India Pvt. Ltd.) vs. ITO-TS-870-ITAT-2017(Bang)-TP dated 26.10.2017

984. Where the TPO in remand proceedings for the subsequent year, had accepted the ALP of SAP implementation / IT / SAP service charges on identical facts but had determined the ALP of such payment at Nil in the relevant year, the Tribunal set aside the assessment order for the relevant year directing the AO / TPO to conduct a fresh exercise for determining ALP in light of the remand report of the succeeding year.

Kennametal India Ltd – TS-30-ITAT-2017 (Bang) – TP

985. The Tribunal allowed the assessee’s miscellaneous application for restoration of the assessee’s appeal which was dismissed ex-parte as none appeared on behalf of the assessee. It noted that there was a delay in engaging counsel before the Tribunal and that the non-appearance was neither deliberate nor intentional, which amounted to reasonable cause. Accordingly, it recalled the ex-parte order and re-fixed the hearing.

Merck Life Science Pvt Ltd – TS-46-ITAT-2017 (Bang) – TP

986. The Tribunal quashed the reassessment proceedings initiated against the assessee and the consequent orders for AYs 1998-99, 1999-00, 2000-01 and 2001-02 which were initiated on the assumption that the assessee had suppressed its profits from its transactions with Indian companies as a result of which the provisions of Section 92 were applicable. With respect to AYs 1998-99 and 1999-00, for which reopening was initiated beyond 4 years, it upheld the contention of the assessee that there was no allegation regarding failure to disclose materials facts and therefore reopening was invalid. Further, in respect of all years, it noted that during the original assessment proceedings, the AO realizing the non-applicability of section 92 had accepted the justifications provided by the assessee and dropped the ground which formed the basis of reopening.

Coca Cola India Inv v DCIT – TS-59-ITAT-2017 (Del) – TP

987. The Tribunal, by applying the provisions of section 144C read with section 143, held that where the Assessing Officer passed final assessment order under section 143(3) making certain adjustments to the assessee’s ALP without passing draft assessment order which was against the provisions of the Act and hence, the same was invalid in law. It held that the compliance of section 144C was mandatory in all such cases where the TPO proposed variation in the income or loss returned, which was prejudicial to interest of the assessee.

Soktas India (P.) Ltd – [2017] 77 taxmann.com 19 (Pune – Trib.)

988. The Court held that the reassessment proceedings initiated by AO u/s 147 for AY 2005-06 on the basis of Form 3CEB furnished by group company of assessee, were without jurisdiction and unsustainable as the AO had no new information or tangible material to conclude that there was escapement of income since the assessee had also filed Form 3CEB along with return of income, making full disclosure of receipts from IT support services rendered to group company and claiming the same to be reimbursement of expenditure and not income.

Sanvik Information Technology AB – TS-1055-ITAT-2016 (PUN)-TP

989. The Court admitted assessee’s writ petition challenging reopening notice under section 148 for AY 2009-10 issued beyond 4 years from the end of the relevant AY to disallow ESOP costs on the ground that prime face on the date of issuing of the impugned notice, the assessing officer could not have had any reason to believe that income had escaped assessment. Further, the Court observed that the assessee had given the complete manner of accounting as well as taxation of ESOP cost in its return of income and had also disclosed the relevant details in its form 3CEB. Therefore, the provisions of explanation 1 to section 147 was not applicable.

DSP Merrill Lynch Ltd – TS-21-HC-2017-(Bom)-TP

990. The Tribunal deleted the TP adjustment made in assessment order passed under section 153A for AY 2005-06 pursuant to search and seizure operations on the ground that completed assessment under section 143(3) could not be interfered with by AO/TPO in the absence of incriminating material during search, and that the assessee had not suppressed international transactions during assessment proceedings under section 143(3).

Baba Global Limited – TS-1070-ITAT-2016(DEL)-TP

991. Where the AO disallowed section 10AA benefit while passing the final assessment order which was not proposed in the draft assessment order, the Court held that while passing the final assessment order, the AO cannot go beyond what is proposed in the draft assessment order as it will lead to breach of principle of natural justice as no opportunity would be given to the assessee to file its objection before DRP and accordingly, it confirmed Tribunal’s order of deletion of disallowance of section 10AA benefit.

Woco Motherson Advanced Rubber Technologies Limited [TS-173-HC-2017(GUJ)-TP] (Tax Appeal No. 129 of 2017)

992. The Court admitted Revenue’s appeal against the order passed by the Tribunal quashing the assessment framed on the amalgamating company after incorporating the TP addition for excess royalty paid by it by virtue of the provisions of section 170(2) as per which assessment should be framed on the amalgamated company and not amalgamating company.

Maruti Suzuki India Ltd. [TS-172-HC-2017(DEL)-TP] [ITA 65/2017]

993. The Tribunal admitted assessee’s additional grounds for consideration of 7 companies as comparable for its international transaction relating to software development/content development services for AY 2010-11 and remitted the matter to the file of the AO/TPO on the ground that comparable companies submitted by assessee needed further examination for determination of ALP of international transaction. Further, it held that it would be open to assessee to furnish objection in which case DRP would consider the matter afresh in accordance with provisions of section 144C.

Harland Clarke Holdings Software India Private Limited – TS-1062-ITAT-2016-(CHNY)-TP

994. The Tribunal dismissed revenue’s appeal for AY 2009-10 on transfer pricing issues and deductions under section 10A on the ground that the appeal filed by revenue was in violation of CBDT Circular No 21/2015, prescribing pecuniary limit for preferring appeal by Revenue before ITAT as beyond Rs 10 Lakhs.

Curam Software International Pvt Ltd – TS-1037-ITAT-2016(Bang)-TP

995. With respect to service fees paid by the assessee (a US entity) to GEIIPL, an Indian entity, the Tribunal rejected the plea of the assessee, that since the transfer pricing analysis of the said services was accepted in the hands of GEIIPL, there were no further profits to be attributed to GEIIPL in the capacity of the PE of the assessee and that there was no reason to believe that income had escaped assessment. It noted that the ALP of marketing support services offered by GEIIPL to all the group entities was determined on the basis of the Global Service agreement entered into between GEIIPL and a US based Group company viz. GEIOC Inc, but the reassessment proceedings were initiated based on a survey conducted at the premises of GEIOC’s liaison office in India, which revealed that the actual activities carried out in India were far in excess of the services provided in the Agreement and therefore the proceedings were to be upheld as valid. Therefore, it held that since the transfer pricing analysis did not reflect the services provided beyond the scope of the Agreement, there was a need to attribute profits to the PE for those additional functions / risks.

GE Energy Parts Inc v ADIT – TS-22-ITAT-2017 (Del) – TP

996. The Court dismissed writ petition filed by MagnetiMarelli (assessee) challenging notice u/s 147/148 of the Act reopening assessment for AY 2010-11. The Court dismissed the writ petition filed by the Petitioner and noted that AO in the ‘reasons to believe’, indicated the possibility of escapement on the ground that an identical transaction relating to payment to AE for technical know-how had resulted in TP addition for the earlier AY 2009-10 and that, assessment had been completed after framing of assessment u/s 143(1).It rejected assessee’s submission for quashing section 148 notice on the ground that revenue’s stand for AY 2009-10 had been rejected by the Court and held that the validity of the notice was based on the facts available on the record on the date when the notice was issued.However, it directed the AO to consider the assessee’s submissions with respect to the matters covered by HC judgment for AY 2009-10 in light of the said judgment

MagnettiMarelliPowertain India Pvt Ltd v DCIT – TS-68-HC-2017 (Del) – TP – W.P. (C) 8760/2014 dated 06.02.2017

997. The Tribunal remitted TP-issues to DRP for passing fresh direction in case of assessee rendering software development services to its AEs during AY 2007-08, noting that the DRP had upheld TPO’s application of filters while selecting appropriate comparables for benchmarking, and had rejected assessee’s objections with respect to ‘secret data’ u/s 133(6) used by TPO. It held that the order passed by TPO was cryptic and non-speaking and that no proper reasoning was given by DRP while dismissing assessee’s objections. Accordingly, it remanded the matter stating that DRP had not given proper reasons while issuing directions which it ought to have done.

ABB Global Industries & Services Ltd. Vs DCIT – TS-137-ITAT-2017(Bang)-TP – IT(TP)A No.1142//Bang/2011 dated 07.02.2017

998. Where the assessee contended that the transactions entered into it were at ALP in light of the fact that it had entered into advance pricing agreement (APA) under section 92CC of the Act with CBDT on 24th November 2015, wherein, the arm’s length price of international transaction relating to investment advisory services provided to AE had been accepted at operating profit margin of not less than 20% and the DRP and TPO had in AY 2006-07 and AY 2007-08, accepted the margin of the assessee at cost plus 17% and 17.5%, respectively, the Tribunal held that though no conclusive finding on the binding nature of APAs was required in light of its decision on comparables (assessee succeeded in excluding and including certain comparables post which it was at ALP), it held that the the APA entered into by the assessee was of persuasive value while determining ALP of the relevant year.

Warburg Pincus India Pvt. Ltd. vs. ACIT – TS-44-ITAT-2017(Mum)-TP -ITA no. 6981/Mum./2012 dated 13.01.2017

999. Where the AO failed to issue a notice under section 143(2) of the Act within the time limit prescribed as a result of which the regular assessment came to an end and the matter had reached its finality, and then subsequently he made a reference to the TPO wherein the TPO made an upward addition of Rs.85.63 lakh, the Tribunal held that the AO erred in issuing a notice under section 148 of the Act on the basis of the order of the TPO contending that income of the assessee had escaped assessment as the reference made by the AO to the TPO was bad in law in the first place as at the time of reference no proceedings were pending. Accordingly, it held that the order of the TPO based on such incorrect reference was void-ab-initio and therefore could not be a valid material to entertain a belief on part of the AO that income chargeable to tax has escaped assessment. 

ITO vs. Magic Software Enterprises India Pvt. Ltd – TS-53-ITAT-2017(PUN)-TP- ITA No.1801/PUN/2013 dated 31.01.2017

1000. Noting that the assessee placed a copy of MAP order before the Tribunal, it dismissed assessee’s transfer pricing grounds as withdrawn in view of MAP order under Article 27 of the relevant DTAA for AY 2009-10.

DCIT v Hewlett Packard (India) Software Operation Pvt Ltd – TS-1039-ITAT-2016 (Bang) – TP – IT(TP)A No.213lBang/2014 IT(TP)A No.2881Bang/2014 dated 04.11.2016

1001. The Tribunal dismissed the assessee’s appeal for AY 2009-10 as well as transfer pricing grounds raised in Revenue’s appeal as TP-issues raised therein were resolved as per MAP order under Article 25 of the Indo-US DTAA and the MAP order had also passed by AO/TPO.

Northern Operating Services Pvt. Ltd. vs. DCIT – TS-1086-ITAT-2016 (Bang) – TP – I.T.(TP)A. No.261/Bang/2014 dated 13.12.2016

1002. Relying on the decision of the coordinate bench in the assessee’s own case for the prior AY, the Tribunal remitted the TP grounds raised by assessee (contract manufacturer / distributor of medical equipment) to the file of DRP for re-adjudication, noting that identical TP issues involving additions with respect to royalty, distribution / trading, trademark and interest had been remitted back by ITAT for AYs 2006-07 to 2010-11since both TPO and DRP had failed to consider detailed submissions made by assessee, which was so in the instant case as well.

Wipro GE Health Care Pvt Ltd v ACIT – TS-109-ITAT-2017 (Bang) – TP – ITA No. 406IBang/2016 dated 09.01.2017

1003. The Tribunal adjudicated on 2 grounds not considered in original order which was recalled pursuant to miscellaneous petition filed by assessee for AY 2008-09 and held that since assessee’s claim [(i) TP-adjustment exceeded the AE’s share of revenue (approximately Rs. 7.7 crores as against TP adjustment of Rs. 16 crores) and that reverse analysis could have been done by making the AE as the tested party and(ii) TPO failed to recognize that the compensation ratio between AE and assessee was commensurate with the FAR analysis of both parties] were not raised before DRP and the TPO and the issues involved were not properly addressed by authorities in earlier proceedings the same ought to have been remitted to the TPO to re-consider the issue after the assessee furnished requisite details.

Synechron Technologies Pvt Ltd v ACIT – TS-50-ITAT-2017 (Pun) – TP – ITA No. 2518/PUN/2012 dated 01.12.2017

1004. The Tribunal allowed the miscellaneous petition filed by assessee seeking correction of its previous order wherein the Tribunal set aside the order of the CIT(A) and directed for the selection of 2 comparables viz. Exensis Software Solutions and Thirdwave software Solutions on ground that they could not be excluded merely because of their high profit margin, noting that the assessee sought their exclusion on the ground of functional dissimilarity. Accordingly, it recalled the earlier order to consider assessee’s claim for comparable exclusion on ground of functional dissimilarity and scheduled hearing on 23.02.2017.

Maxim India Integrated Circuit Design Pvt. Ltd vs ITO – TS-108-ITAT-2017(Bang)-TP – M.P. No.10S/Bang/2016 dated 13.01.2017

1005. The Tribunal set aside the order of the CIT(A) wherein he had directed the AO to exclude 3 functionally dissimilar companies viz. Exensys Software Solutions Ltd, Four Soft Ltd and Geometric Software Solutions Co Ltd from the list of comparables. The Tribunal held that as per the provisions of Section 251 of the Act the CIT(A) has the power to confirm / reduce / enhance or annul the assessee but does not have the power to remand the matter for fresh consideration. It held that the CIT(A) should not have remanded the matter to the AO and instead ought to have exercised his power under the Act to complete the assessment by excluding companies which were functionally dissimilar. Accordingly, it directed the AO to examine the comparability of the 3 companies on the basis of the submission made by the assessee and to find out whether these companies were functionally dissimilar to that of the assessee or not while making the ALP adjustment.

ITO Vs Crimsonlogic India Pvt. Ltd.- TS-143-ITAT-2017 (Bang) – TP – IT(TP)A No.1666IBang/2013 dated 31.01.2017

1006. The Tribunal accepted the Revenue’s contention that CIT(A)’s direction to exclude certain functionally dissimilar companies in light of guidelines laid down by Delhi Tribunal in Actis Advisers Pvt. Ltd. Vs DCIT, was beyond the mandate of Sec 251(1)(a) and held that the CIT(A) should not have restored the matter to the file of the AO with certain directions and that he ought to have decided the issue himself. Accordingly, it remitted the TP-issues raised vide both the assessee’s and Revenue’s appeals for AYs 2004-05 and 2005-06 to the file of CIT(A) for fresh adjudication.

DCIT vs. AOL Online India Pvt Ltd – TS-134-ITAT-2017(Bang)-TP – IT (TP)A Nos.1669 & 1670(Bang} 2013 dated 25-01-2017

DCIT vs. E4E Business Solutions Pvt. Ltd – TS-221-ITAT-2017(Bang)-TP – 1763/Bang/2013 (2004-05), 1781/Bang/2013 (2004-05) 1764/Bang/2013 (2005-06) 1782/Bang/2013 (Asst. Year 2005-06) dated 17-3-2017

1007. The Tribunal upheld the jurisdiction of the TPO in determining ALP of the alleged international transactions relating to AMP expenses which were not reported as an international transaction by the assessee (re-seller of Louis Vuitton Group products in India) in its Form 3CEB. Relying on the decision of the co-ordinate bench in Nikon India Pvt Ltd – TS-469-ITAT-2016(Del)- TP, it rejected the assessee’s contention that as per CBDT Instruction No 3/ 2016, the AO ought to have first provided the assessee an opportunity of being heard before recording satisfaction in respect of AMP transaction and that the TPO could not have proceeded to undertake ALP determination without providing such opportunity and held that since in the instant case, it was not the AO who formulated his view on AMP expenses as an international transaction, the said Instruction was not applicable. As regards the contention of the assessee that as per Para 4.1 of the impugned Instruction, the TPO could proceed to determine the ALP of only those transactions which were referred to him, the Tribunal held that though the original jurisdiction of the TPO was confined to the international transactions referred to him by the AO for determination of ALP, such jurisdiction was extendable to other international transactions which came to his notice during the course of proceedings before him and that it was nowhere mentioned that the power of the TPO to determine the ALP of international transactions was restricted to only those transactions referred by the AO alone. Accordingly, it held that there was no lack of jurisdiction in the instant case.

On the issue of whether the AMP expenses constituted an international transaction, the Tribunal, noted that the order of the TPO had been passed before several other judgments of the Court on this issue and thus remitted the matter to the file of the TPO for fresh determination in accordance with the principles set out in those judgements.

Louis Vuitton India Retail P Ltd v DCIT – TS-146-ITAT-2017 (Del) – TP dated 01.03.2017

1008. The Court, relying on the decision in CIT vs. Kabul Chawla  [TS-494-HC-2015(DEL)], dismissed the Revenue’s appeal against the decision of the Tribunal wherein it had quashed assessments made by AO/TPO u/s 153A for AY 2008-09 pursuant to search and seizure operations, despite the fact that no new or incriminating material had been found during search and seizure proceedings [which took place in assessee’s premises after completion of scrutiny assessment u/s 143(3)] and that the AO based upon existing material, referred the matter to TPO, who proposed TP adjustment on interest-free loans granted to AE. The Court observed that the scrutiny assessments concluded earlier were based upon queries, and assessee had disclosed all the materials which came to be reviewed subsequently in Sec 153A proceedings. Accordingly, it upheld the order of the Tribunal quashing the assessments.

Pr. CIT Vs Baba Global Ltd – TS-1098-HC-2016 (Del) – TP – ITA 938/2016, CM APPL.47139-47140/2016 dated 23.12.2016

1009. Where pursuant to the order passed by the TPO, the AO passed draft assessment order dated 07-02-2014 making TP-addition of Rs. 24.37 Cr and along with the impugned assessment order, the AO also issued notice of demand u/s 156 and show cause notice for levy of penalty u/s 271(1(c), after recording satisfaction for initiating penalty proceedings u/s. 271(1)(c) r.w.s Explanation 7, the DRP refused to exercise its jurisdiction, holding that the draft assessment order was final order for all intent and purposes as it was issued along with demand and penalty notices. The Tribunal held that as per the provisions of Sec 144C, it was incumbent upon the AO to forward a draft assessment order to the assessee in the first instance, so as to enable the assessee to file objections before the DRP and that it was only after receipt of directions from the DRP, that the AO could pass the final assessment order and record satisfaction for initiating penalty proceedings. Noting that the AO issued demand notice u/s 156 and show cause notice for levy of penalty u/s. 271(1)(c) while passing the draft assessment order itself, the Tribunal held that in spirit the draft assessment order was the final assessment order and therefore quashed the assessment order dated 07.02.2014, and held that the subsequent proceedings arising there from were vitiated and null and void.

Can-Pack India Private Limited vs. DCIT – TS-167-ITAT-2017(PUN)-TP – / ITA No. 285/PUN/2015 dated 08.03.2017

1010. The Tribunal set aside the order of the DRP for AY 2008-09 on TP-issues viz. regarding non -exclusion of certain comparables, non-inclusion of comparables, risk adjustment, ALP of Management fees, RPT Filter, Employee cost filter etc by holding the same to be cryptic, non-speaking and non-reasoned and thus remitted the issues to TPO for fresh decision after affording assessee adequate opportunity of being heard.

UL India Private Ltd vs DCIT – TS-207-ITAT-2017(Bang)-TP- IT(TP)A No. 1564(Bang) 2012 dated 03.03.2017

UL India Pvt Ltd vs DCIT – – TS-209-ITAT-2017(Bang)-TP – IT(TP)A No.1240//Bang/2011 dated 23.02.2017

1011. Where the AO passed the final assessment order without issuing a draft assessment order as provided in section 144(C)(1), the Tribunal accepted the assessee’s contention that, in view of the provisions u/s 144C(1), he ought to have been given an opportunity to present its objections before DRP on the basis of a draft assessment order, failing which the final order issued by AO was void-ab-initio. Relying on the decision of Zuari Cement Ltd. [TS-271-HC-2013(AP)-TP] wherein it was held that AO is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objection and then compete assessment, it held that the final order of the assessment was clearly contrary to section 144C of the Act.

Molex Mafatlal Micron Pvt Ltd (now merged with Molex India Ltd) vs DCIT – TS-191-ITAT-2017(Bang)-TP – 1170/ Ahd/2010, 1197/Ahd/2010 etc dated 10.01.2017

1012. The Tribunal held that where the due date for issuing the final assessment order as provided in section 144(C)(4) was February 28, 2011 (within one month from the end of the month in which either (a) the acceptance of the assessee is received or (b) the period of filing of objections under sub-section (2) expires and the assessee does not file such objections) but the order was actually issued on March 25, 2011, the order passed by AO was contrary to law and void –ab-initio. 

Molex Mafatlal Micron Pvt Ltd (now merged with Molex India Ltd) vs DCIT – TS-191-ITAT-2017(Bang)-TP – 1170/ Ahd/2010, 1197/Ahd/2010 etc dated 10.01.2017

1013. The Court allowed assessee’s writ and quashed the show cause notice issued to Li & Fung India (assessee) for AY 2007-08 pursuant to remand by Tribunal, proposing to reject comparables selected by the assessee in its TP-study noting that the Tribunal, relying on HC decision in assessee’s own case for AY 2006-07, had directed TPO to determine ALP afresh by considering ‘total cost’ as cost base and not FOB value of goods sourced through assessee. The Court observed that when there was a remand on the basis of a specific finding (in this case, the untenability of shifting of the OP/TC to FOB) the TPO could not have travelled beyond it, given that there was no controversy ever about the inclusion of any comparable.

Li & Fung India Pvt. Ltd. Vs ACIT – TS-228-HC-2017(DEL)-TP – W.P. (C) 11596/2016, CM APPL.45660-61/2016 dated 08.03.2017

1014. Where the assessee had filed a letter on 3/3/2015 intimating change in address in respect of appeal for AY 2005-06 but had not filed a separate letter intimating address change in respect of appeal for subject AY 2009-10, the Tribunal allowed the assessee’s miscellaneous petition, and recalled its ex-parte order dated 7/10/2016 for AY 2009-10, opining that not filing of separate letter about the change of address in respect of present appeal being in IT(TP)A No.2871Bang/20 14 for assessment year 2009-10 was an inadvertent mistake and hence, there was a reasonable cause for non-appearance of assessee on the date of hearing. Accordingly, as per Rule 24 of Income-tax Appellate Tribunal Rules 1963, it recalled its earlier order and fixed the appeal for hearing on May 24, 2017.

Maxim India Integrated Circuit Design Pvt. Ltd. vs. DCIT – TS-262-ITAT-2017(Bang)-TP – M.P No.35IBang/2017 dated 10-3-2017

1015. The Court dismissed Revenue’s appeal against Tribunal’s order remitting the inclusion of 6 comparables to TPO as the TPO failed to conduct the FAR analysis which was a prerequisite for selection of comparables. It considered the Revenue’s submission that both the DRP and TPO had given reasons and sent notices as to why the six comparables had to be included for purposes of ALP determination and held that the Revenue was not prejudiced in the present matter as it was at liberty to argue all the submissions not foreclosed by the Tribunal. Thus, in absence of substantial question of law, it dismissed the appeals of the Revenue

Copal Research India Pvt Ltd [TS-229-HC-2017(DEL)-TP]

1016. The Division bench of the Court stayed the order of the Single judge dismissed the writ petition filed by the assessee on the issue of jurisdiction of TPO to examine the existence of international transaction without the AO making a particular finding that there was an international transaction within the meaning of Section 92B before referring the matter to the TPO. The Single bench had upheld the AO’s reference to the TPO, holding that Section 92CA(1) did not require the AO to first come to a definite finding that there was an ‘international transaction’ within the meaning of Sec 92B before referring the matter to TPO. On further appeal, the Division bench was prima facie satisfied with the contention of the assessee viz. the AO should have determined as to whether the transactions involved came within the ambit of the international transactions or not before making reference to the TPO. Accordingly, it proposed to hear the entire appeal and stayed the operation of the judgment of the single bench.

Price Waterhouse and Anr. Vs CIT, Lovelock & Lewes and Anr. Vs CIT – TS-284-HC-2017(CAL)-TP – APO NO.36 OF 2017 & APO NO.37 OF 2017

1017. The Tribunal set aside the CIT(A)’s cryptic order with respect to the issue of selection of comparables and restored the matter to the CIT(A) for fresh decision by way of a speaking and reasoned order.  It considered assessee’s plea that various objections were raised before CIT(A) for exclusion of Bodhtree Consulting Ltd and Kals Information Systems Ltd but the CIT(A) had decided the matter only on the basis of assessee’s objection that Bodhtree Consulting Ltd had abnormal profit margin. However, it rejected the assessee’s contention that issue regarding exclusion of these two comparables on the ground that the issue was now covered by various Tribunal orders and held that it would do not like to promote a culture of not bringing on record all materials before the lower authorities.

VeriFone India Technology Pvt. Ltd. vs. ITO – TS-293-ITAT-2017(Bang)-TP – IT (TP) A No.300 (Bang) 2014 dated 17-03-2017

1018. Where the DRP upheld CUP method as Most Appropriate Method (MAM) instead of TNMM adopted by TPO, but, the AO/TPO passed final order without giving effect to DRP directions, the Tribunal deleted the TP addition in case of the assessee for AY 2010-11 and held that the AO/TPO acted in clear defiance and disregard to the binding directions of the DRP. It held that when the directions of DRP were binding then the TPO/A.O. were bound to give the effect to the directions of DRP irrespective of the fact whether the same are acceptable or not to the department. It held that the remedy to file appeal against the DRP’s directions was available to the department when a final order is passed in pursuant to the directions of the DRP.

DCIT Vs Lenovo India Pvt. Ltd – TS-259-ITAT-2017(Bang)-TP – I.T. (T.P) A. No.511 /Bang/2015 dated 31.03.2017.

1019. The Tribunal set aside the order of the CIT(A) in the case of the assessee engaged in providing software service and directed the CIT(A) to re-adjudicate issues relating to functional comparability and applica