M/s TE Connectivity Global Shared Services India Pvt. Ltd. v. The Income-tax Officer, Ward-11(1), Bangalore
[Citation -2016-LL-1018-112]

Citation 2016-LL-1018-112
Appellant Name M/s TE Connectivity Global Shared Services India Pvt. Ltd.
Respondent Name The Income-tax Officer, Ward-11(1), Bangalore
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 18/10/2016
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags export oriented undertaking • software development • interest of revenue • capital expenditure • additional ground • foreign currency • working capital • total turnover
Bot Summary: The assessee has raised the following grounds of appeal: The grounds mentioned herein are without prejudice to one another. The ld counsel for the assessee submitted that grounds 1 to 3(a) to 3(d) are general grounds and 3(e) is with respect to comparable and ground 4 is with respect to working capital adjustment. The assessee has raised the additional ground, which reads as under : On the facts and in the circumstances of the case and in law and without prejudice to the grounds of appeal already filed by the Appellant: IT(TP)A No.512 621/B/13 14 1.The learned Assessing Officer /learned Transfer Pricing Officer erred in considering e-zest Solutions Ltd. As company comparable to the Appellant. After considering the averments of the counsel with regard to admission of additional grounds, we find force in the contention of the ld AR that by virtue of Spl. Bench decision in the case of M/s Quark Systems Pvt. Ltd, assessee can raise additional grounds seeking exclusion of comparables selected by it or not objected by it before the lower authorities. The comparability of the companies assailed in such additional grounds will be dealt by us, considering the judgment of the Hon ble Punjab Haryana High Court judgment in the case of CIT Vs. M/s Quark Systems India Ltd., 62 DTR 0182. The learned CIT(A) erred in excluding M/s Celestial Biolabs Ltd., Flextronics Ltd., iGate Global Solutions Ltd., Infosys technologies Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Communication technologies Ltd., Tata Elxsi Ltd. And Wipro Limited from the final list of comparables in the Software services segment holding that the size and turnover of the company are deciding factors for treating a company as a comparable 3. With respect to ground to 11, 12, 13 and 14 are covered in favour of the assessee in the light of Hon ble Court s decision in the case of Tata Elxsi Ltd., 349 ITR 98.


IN INCOME TAX APPELLATE TRIBUNAL, BENCH- A, BANGALORE BEFORE SHRI A.K GARODIA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IT(TP)A No.512 /Bang/2013 (Asst. Year 2008-09) M/s TE Connectivity Global Shared Services India Pvt. Ltd., Formerly known as ADC (India) Communications and Infotech Pvt. Ltd., Bangalore. . Appellant Vs. Income-tax Officer, Ward-11(1), Bangalore. . Respondent IT(TP)A No.621 /Bang/2013 (Asst. Year 2008-09) Income-tax Officer, Ward-11(1), Bangalore. . Appellant Vs. M/s ADC (India) Communications and Infotech Pvt. Ltd., Bangalore. . Respondent Revenue by : Dr. PK Srihari, Addl. CIT Assessee by : Shri PK Prasad, Advocate Date of Hearing : 20-07-2016 Date of Pronouncement : 18-10-2016 IT(TP)A No.512 & 621/B/13 2 ORDER PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER:` These cross appeals by assessee as well as by Revenue are directed against order of Commissioner of Income-tax (Appeal) - IV, Bengaluru dated 14/2/2013 and it pertains to assessment year 2008-09. ITA No.512/Bang/2013 2. ADC India company incorporated in October 2000 under Companies Act, 1956, has its registered office in Bangalore. ADC India started its operations in November 2012 and is registered as 100% Export Oriented Undertaking with Software Technology Parks of India. 3. ADC India is subsidiary of ADC Telecommunications Inc., USA. ADC India provides following services to its parent company: IT(TP)A No.512 & 621/B/13 3 1.Software design and development services ( Software development services ) 2.Shared services ( IT enabled Services ) COMPUTATION OF ARMS LENGTH PRICE AS PER TP ORDER - SWD Segment Arithmetic Mean PLI : 23.65% Less: Working Capital adjustment (Annexure-C) : Nil Adjusted Arithmetic Mean PLI : 23.65% Arm s Length Price: Operating Rs. 11,19,85,237/- Cost Arm s Length Margin 23.65% of Operating Cost Arm s Length Price @ 122.20% Rs. 13,84,69,745/- of Operating Cost 1. price charged by taxpayer to its Associated Enterprises is compared to Arm s Length price as under: Arm s Length Price @% of Rs. 13,84,69,745/- Operating Cost Price shown in International Rs. 12,42,92,433/- Transactions Shortfall being adjustment u/s Rs. 1,41,77,312/- 92CA IT(TP)A No.512 & 621/B/13 4 COMPUTATION OF ARMS LENGTH PRICE AS PER TP ORDER - ITES Segment Arithmetic Mean PLI : 24.75% Less: Working Capital adjustment (Annexure-C) : Nil Adjusted Arithmetic Mean PLI : 24.75% Arm s Length Price: Operating Rs. 10,05,43,862/- Cost Arm s Length Margin 24.75% of Operating Cost Arm s Length Price @ 122.20% Rs. 12,54,28,467/- of Operating Cost 4. price charged by taxpayer to its Associated enterprises is compared to Arm s Length price as under: Arm s Length Price @% of Rs. 12,54,28,467/- Operating Cost Price shown in International Rs. 11,57,90,037/- Transactions Shortfall being adjustment u/s Rs. 96,38,430/- 92CA 5. TNMM has been considered as most appropriate method both by assessee as well as by TPO. IT(TP)A No.512 & 621/B/13 5 ITES 6. final list of comparables considered by TPO are as follows:- 1. Accentia Technologies Ltd 2. Acropetal Technologies Ltd 3. Transworks Information Services Ltd 4. Asit C Mehta 5. Caliber Point Business Solutions Ltd 6. Coral Hub Ltd 7. Cosmic Global Ltd 8. Crossdomain Solution Pvt.Ltd. 9. Datamatics Financial Services Ltd 10. e4e Healthcare Solutions Limited 11. Eclerx Services Ltd 12. Genesys International Corporation Ltd 13. Infosys BPO Ltd 14. IServices India Private Limited 15. Jindal Intellicom Pvt.Ltd 16. Mold-Tek Technologies Ltd IT(TP)A No.512 & 621/B/13 6 17. R Systems International Ltd. 18. Spanco Ltd 19. Wipro Ltd 20. Allsec Technologies Ltd. 7. learned counsel for assessee PK Prasad submitted that out of 20 companies selected by TPO, following 11 companies were requested to be rejected by assessee as they were functionally dissimilar to that of assessee. assessee had relied on decision of Symphony Marketing Solutions India Pvt. Ltd., (presently merged with Genpact India) in IT(TP)A No.1316/Bang/2012 for asst. year 2008-09. 1. Accentia Technologies Ltd 2. Acropetal Technologies Ltd 3. Coral Hub Ltd 4. Cosmic Global Ltd 5. Crossdomain Solution Pvt.Ltd. 6. Datamatics Financial Services Ltd IT(TP)A No.512 & 621/B/13 7 7. Eclerx Services Ltd 8. Genesys International Corporation Ltd 9. Infosys BPO Ltd 10. Mold-Tek Technologies Ltd 11. Wipro Ltd 8. ld counsel for assessee requested for acceptance of following 9 companies as comparables. 1. Transworks Information Services Ltd 2. Asit C Mehta 3. Caliber Point Business Solutions Ltd 4. .e4e Healthcare Solutions Limited 5. IServices India Private Limited 6. Jindal Intellicom Pvt.Ltd 7. R Systems International Ltd. 8. Spanco Ltd 9 .Allsec Technologies Ltd. IT(TP)A No.512 & 621/B/13 8 Software Development Services 9. final list of comparables considered by TPO are as follows:- 1. Avani Cimcon Technologies Ltd 2. Bodhtree Consulting Ltd 3. Celestial Labs Ltd 4. e-zest Solutions Ltd. 5. Flextronics Software Systems Ltd. 6. iGate Global Solutions Ltd. 7. Infosys Technologies Ltd 8. KALS Information Systems Ltd 9. LGS Global Ltd. 10. Mindtree Consulting Ltd. 11. Persistent Systems Ltd 12. Quintegra Solution Ltd 13. R Systems International Ltd. 14. RS Software (India) Ltd. IT(TP)A No.512 & 621/B/13 9 15. Sasken Communication Technologies Ltd 16. Tata Elxi Ltd 17. Thirdware Solutions Ltd 18. Wipro Ltd 19. Softsol India Ltd 20. Lucid Software Ltd 10. learned counsel for assessee PK Prasad submitted that out of 20 companies selected by TPO, following 12 companies were requested to be rejected by assessee as they were functionally dissimilar to that of assessee. assessee had relied on decision of 3DPLM Software Solutions Ltd. (successor to Delmia Solutions Pvt. Ltd., in IT(TP) No.1303/Bang/2012 for asst. year 2008-09. 1. Avani Cimcon Technologies Ltd 2. Bodhtree Consulting Ltd 3. Celestial Labs Ltd 4. Infosys Technologies Ltd 5. KALS Information Systems Ltd IT(TP)A No.512 & 621/B/13 10 6. Persistent Systems Ltd 7. Quintegra Solution Ltd 8. Tata Elxi Ltd 9. Thirdware Solutions Ltd 10. Wipro Ltd 11. Softsol India Ltd 12. Lucid Software Ltd 11. ld counsel for assessee requested for acceptance of following 8 companies as comparables: 1. e-zest Solutions Ltd. 2. Flextronics Software Systems Ltd. 3. iGate Global Solutions Ltd. 4. LGS Global Ltd. 5. Mindtree Consulting Ltd. 6. R Systems International Ltd. 7. RS Software (India) Ltd. 8. Sasken Communication Technologies Ltd. IT(TP)A No.512 & 621/B/13 11 12. assessee has raised following grounds of appeal: grounds mentioned herein are without prejudice to one another. 2. That order passed by Learned Commissioner of Income Tax (Appeals) IV, Bangalore ( CIT(A) , to extent prejudicial to Appellant, is bad in law and liable to quashed. 3. That learned CIT(A) erred in upholding rejection of Transfer Pricing ( TP ) documentation by Learned Transfer Pricing Officer ( TPO )/Assessing Officer ( AO )/Assessing Officer ( AO ) and in making adjustment to transfer price of Appellant in respect of its software development services and shared services. 4. That on facts and in circumstances of case, learned CIT(A) while making adjustment to various segments of Appellant, erred in; (a) Upholding rejection of comparability analysis of Appellant in TP documentation and accepting comparability analysis performed by learned TPO in TP Order. IT(TP)A No.512 & 621/B/13 12 (b) Disregarding application of multiple year/prior year data as used by Appellant in TP documentation and holding that current year (i.e. Financial Year 2007- 08) data for companies should be used for comparability. (c) Upholding learned TPO s approach of using data as at time of assessment proceedings, instead of that available as on data of preparing TP documentation for comparable companies while determining arm s length price. (d) Upholding approach adopted by learned TPO of collecting selecting information of companies by exercising power granted to him under section 133(6) of Income Tax Act, 1961( Act ) that was not available to Appellant in public domain. (e) Arbitrarily arriving at set of companies as comparable to software development and shared services of Appellant, on rejecting companies that are otherwise functionally comparable to Appellant and on inclusion of companies that otherwise fail test of comparability. 5. learned CIT(A) erred in law and on facts in ignoring limited risk profile of Appellant as detailed in TP documentation and in upholding conclusion of IT(TP)A No.512 & 621/B/13 13 learned TPO and in not allowing appropriate adjustments under Rule 10B of Rules to account for differences between Appellant and comparable companies. 13. ld counsel for assessee submitted that grounds 1 to 3(a) to 3(d) are general grounds and 3(e) is with respect to comparable and ground 4 is with respect to working capital adjustment. We shall adjudicate ground 3(e) in forth coming paragraphs. We find that ground 4 does not arise out of CIT(A) order and hence dismissed as infructuous. 14. assessee has raised additional ground, which reads as under : "On facts and in circumstances of case and in law and without prejudice to grounds of appeal already filed by Appellant: IT(TP)A No.512 & 621/B/13 14 1.The learned Assessing Officer /learned Transfer Pricing Officer erred in considering e-zest Solutions Ltd. As company comparable to Appellant. Appellant craves leave to add, alter, amend or withdraw all or any of Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before appeal hearing. Further, this ground of appeal is independent of grounds of appeal already filed by Appellant. 15. For admitting additional grounds ld AR placed reliance on Special Bench decision in case of DCIT Vs. M/s Quark Systems Pvt. Ltd (2010) 42 DTR 0414. 16. Per contra, ld DR strongly objecting admission of above additional ground submitted that in case these were admitted, comparability of concerned companies had to be referred back to AO/TPO for verification fresh. IT(TP)A No.512 & 621/B/13 15 17. After considering averments of counsel with regard to admission of additional grounds, we find force in contention of ld AR that by virtue of Spl. Bench decision in case of M/s Quark Systems Pvt. Ltd (Supra), assessee can raise additional grounds seeking exclusion of comparables selected by it or not objected by it before lower authorities. However, Hon ble Punjab & Haryana High Court in (2011) 62 DTR 0182 had upheld he Special Bench decision in case of M/s Quark Systems Pvt. Ltd., (Supra) specifically noting that Special Bench had remitted issue of comparability of such companies to Ao/TPO for verification afresh. Hence, we are admitting additional grounds. However, comparability of companies assailed in such additional grounds will be dealt by us, considering judgment of Hon ble Punjab & Haryana High Court judgment in case of CIT Vs. M/s Quark Systems India (P) Ltd., (2011) 62 DTR 0182. 18. We set aside issue of comparability to TPO to rework Arms Length Price after following directions with respect to inclusion and exclusion of comparables as discussed by us. IT(TP)A No.512 & 621/B/13 16 19. In result, appeal is set aside for statistical purposes. ITA No.621/Bang/2013 20. Revenue has raised following grounds of appeal: 1. order of Learned CIT(Appeals), in so far as it is prejudicial to interest of revenue, is opposed to law and facts and circumstances of case. 2. learned CIT(A) erred in excluding M/s Celestial Biolabs Ltd., Flextronics Ltd., iGate Global Solutions Ltd., Infosys technologies Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Communication technologies Ltd., Tata Elxsi Ltd. And Wipro Limited (Segment) from final list of comparables in Software services segment holding that size and turnover of company are deciding factors for treating company as comparable 3. learned CIT(A) erred in holding that M/s Avani Cincom Technologies Ltd., cannot be taken as comparable in case of taxpayer. IT(TP)A No.512 & 621/B/13 17 4. Ld. CIT(A) erred in holding that M/s Bodhtree Consulting Ltd. Cannot be taken as comparable as it is functionally different from taxpayer. 5. learned CIT(A) erred in holding that M/s KALS Information Systems Ltd., cannot be taken as comparable without appreciating fact that it qualifies all qualitative and quantitative filters applied by TPO. 6. learned CIT(A), on facts and in circumstances of case, erred in holding that M/s Accentia Technolgies Ltd., cannot be taken as comparable. 7. learned CIT(A), on facts and in circumstances of case, erred in holding that M/s gensys International Corporation., cannot be taken as comparable in case of taxpayer in respect of ITES segment. 8. CIT(A) erred in deleting disallowance of expenditure on purchase of computer software amounting to Rs.3,76,074 without appreciating fact that only such of those softwares which have long IT(TP)A No.512 & 621/B/13 18 duration was treated as capital expenditure as against Rs. 9,40186 debited towards software expenses. 9. Ld.CIT(A) erred in holding that software expenses incurred is not capital expenditure without appreciating fact that expenditure of Rs. 3,76,074 on purchase of computer software has enduring benefit to assessee. 10. CIT(A) erred in holding that as AO neither has not brought out reasons that led him to believe that software licenses purchased had longer life than year or two nor discussed what enduring benefits are generated by software and how long such benefits are expected to endure. 11. CIT(A) was not justified in directing AO to recomputed deduction allowable u/s 10A of IT. Act after reducing internet charges and foreign currency expenditure incurred towards travelling from total turnover also. 12. CIT(A) erred in holding that decision of case of ACIT v Tata Elxi Ltd [2011] TIOPL 684 HC KAR IT is squarely applicable to facts of present case and jurisdictional High Courts decision is binding. IT(TP)A No.512 & 621/B/13 19 13. Ld. CIT(A) erred in not appreciating fact that there is no provision is section 10A which requires concerned expenses: which are required to be reduced from total turnover also. 14. Ld. CIT(A) erred in not appreciating fact that jurisdictional High Court s decision relied upon by him has not been accepted by department and appeal has been filed before Hon ble Supreme Court which is still pending. 15. For these and such other grounds that may be urged at time of hearing, it is humbly prayed that order of CIT(A) be reversed and that of AO be restored. 16. appellant craves leaves to add, to alter, to amend or delete any of grounds that may be urged at time of hearing of appeal. 21. Ground 1 is general. 22. W ith respect to ground 2, we direct TPO to follow decision in case of M/s McAfee Software (India) Pvt. Ltd., in IT(TP)A No.04/Bang/2012 dated 18/3/2016. IT(TP)A No.512 & 621/B/13 20 23. With respect to 3, 4 5, 6 and 7 have already been discussed in ITA No.521/Bang/2013 in assessee s appeal for asst. year 2008-09. 24. Ground No.8, 9 and 10 are against order of CIT(A) allowing software expenses of Rs.9,40,186/- as revenue in nature. We find no infirmity in order of CIT(A) has taken view that as AO has not brought out reasons that led him to believe that software licenses purchased by assessee were for period longer than year or two, nor discussed what enduring benefits are generated by software and how long such benefits are expected to endure. Further relying on decision of decision of Fox & Kings (I) Pvt. Ltd. In ITA No.3652/Mum, we dismiss Department appeal in this issue. 25. With respect to ground to 11, 12, 13 and 14 are covered in favour of assessee in light of Hon ble Court s decision in case of Tata Elxsi Ltd., 349 ITR 98. IT(TP)A No.512 & 621/B/13 21 26. Ground 15 and 16 are general. 27. In result, Departmental appeal is dismissed. 28. In result, appeal of assessee is set aside for statistical purpose and appeal of Department is partly allowed for statistical purpose. Order pronounced in open court on 18th October, 2016. Sd/- Sd/- (A.K GARODIA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore Dated : 18/10/2016 Vms Copy to :1. Assessee 2. Revenue 3.The CIT concerned 4.The CIT(A) concerned 5.DR 6.GF By order Asst. Registrar, ITAT, Bangalore M/s TE Connectivity Global Shared Services India Pvt. Ltd. v. Income-tax Officer, Ward-11(1), Bangalore
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