M/s Tyco Fire & Security India Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-7(1)(1), Bangalore

MA 57/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2943 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 05-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 04-07-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) Assessment Year : 2014-15 M/s. Tyco Fire & Security India Pvt. Ltd., D-601, RMZ Contennial, Kundalahalli Main Road, Bangalore – 560 048. PAN: AABCT0087C Vs. The Assistant Commissioner of Income Tax, Circle – 7 (1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Rajan Vora, CA Revenue by : Shri K. Sankar Ganesh, JCIT DR ITAT Date of Hearing : 19-08-2022 Date of Pronouncement : 06-09-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present miscellaneous petition is filed by assessee in order passed by this Tribunal dated 30/03/2022. 2. The Ld.AR submitted that while deciding Ground no. 12, this Tribunal did not adjudicate Ground no. 14 wherein a prayer was raised to limit the adjustment to the value of international transaction of the assessee under P&T segment. Following paragraphs shall be read as 30A to E in the impugned order. “30.A The Ld.AR submitted that the TPO computed transfer pricing adjustment on the Page 2 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) total operating cost of assessee under P&T segment and did not limit the adjustment on the cost base relevant to the international transaction alone. The DRP however restricted the adjustment being the value of international transaction under P&T segment. B. Before this Tribunal, assessee had submitted that the approach adopted by the Ld.TPO was incorrect as they applied operating cost base of the P&T segment to the adjustment instead of ratio of cost attributable to international transaction under P&T segment. C. The Ld.AR submitted that with the direction of this Tribunal by adjudicating this ground would be proper for the Ld.TPO to compute the adjustment in respect of the transaction. D. The Ld.DR though did not agree with the submissions of the assessee, could not controvert the fact that this ground was missed out to be adjudicated. We have perused the submissions advanced by both sides in the light of records placed before us. E. We note that Ground no. 14 was not adjudicated by this Tribunal. Admittedly a Page 3 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) transfer pricing adjustment has to be restricted to the international transaction alone. The Ld.TPO has considered the revenue earned by assessee under P&T segment at the entity level which is not appropriate. We therefore direct the Ld.TPO to compute the adjustment in accordance with law restricting to the revenue earned by assessee from the international transaction. Accordingly, this ground raised by assessee stands allowed for statistical purposes.” 3. The next issue raised by assessee is in respect of a typographic mistake that has crept in while considering comparable Persistent Systems Ltd. in para 34 of the impugned order. The Ld.AR submitted that after considering various submissions this Tribunal, has held this comparable not functionally similar with that of assessee. However in the conclusion directed the comparable to be included. It is submitted that this is a mistake apparent and is to be corrected. We have perused the submissions advanced by both sides in the light of records placed before us. 4. We note that there is a typographic mistake that deserves to be corrected and accordingly the conclusion of para 34 shall be read as under: “Accordingly, we direct Ld.AO/TPO to exclude this comparable from the finalist.” 5. The next issue raised by assessee is in respect of two comparables being Larsen & Toubro Infotech Ltd. was remanded Page 4 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) and Thirdware Solutions Ltd. was directed to be included. The Ld.AR submitted that there were decisions relied by the Ld.AR at the time of hearing wherein these comparables stood excluded. On perusal of the fact sheet filed by the assessee, we note that these comparables were alleged by the assessee for exclusion and following were the decisions relied in support. For exclusion of L&T Infotech Ltd.:  Decision of Coordinate Bench of this Tribunal in case of Synamedia India Pvt. Ltd. in IT(TP)A No. 184/Bang/2017  Decision of Coordinate Bench of this Tribunal in case of Evolving Systems Network (India) Pvt. Ltd. in IT(TP)A No. 216/Bang/2017  Decision of Hon’ble Delhi Tribunal in case of Pitney Bowes Software India Pvt. Ltd. vs. ACIT in ITA No. 5052/Del/2018 6. We have considered the submissions by the assessee and the view taken by this Tribunal in respect of the above comparables. Regarding L&T Infotech is concerned, is has been remanded to the Ld.AO. We direct the Ld.AO to consider the decisions relied by assessee reproduced in the preceding paras having regards to the specific observation regarding L&T Infotech, while adjudicating the comparable. 7. In so far as Thirdware Solutions Ltd. is considered, we note that, a reference is made in the impugned order to the decision of Hon’ble Delhi High Court in case of Steria India Ltd. vs. CIT reported in (2018) 92 taxmann.com 120 for upholding its inclusion. We went through the decision of Hon’ble Delhi High Court in case of Steria India Ltd. vs. CIT (supra) and the decisions relied by the assessee for exclusion of Thirdware Solutions Ltd. which are as under: Page 5 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018)  Decision of Coordinate Bench of this Tribunal in case of M/s.ARM Embedded Technologies Pvt. Ltd. in IT(TP)A No 3374/Bang/2018 for AY 2014- 15 by order dated 24/11/2020  Decision of Coordinate Bench of this Tribunal in case of M/s. LSI India Research & Development Pvt. Ltd. in IT(TP)A No 3170/Bang/2018 for AY 2014-15 by order dated 07/10/2020  Decision of Coordinate Bench of this Tribunal in case of M/s EMC Software and Services India Private Limited in IT(TP)A No 3375/Bang/2018 for AY 2014-15 by order dated 01/10/2020  Decision of Coordinate Bench of this Tribunal in case of LG Soft India Private Limited in IT(TP)A No 3122/Bang/2018 for AY 2014-15 by order dated 22/02/2019  Decision of Coordinate Bench of this Tribunal in case of Brocade Communications Systems Private Limited in IT(TP)A No 79/Bang/2019 by order dated 19/06/2020  Decision of Coordinate Bench of this Tribunal in case of Yahoo Software Development India Pvt. Ltd. in IT(TP)A No 2657/Bang/2018 by order dated 28/02/2020  Decision of Coordinate Bench of this Tribunal in case of Citrix R&D India Private Ltd in IT(TP)A No. 3134/Bang/2018 by order dated 29/01/2020  Decision of Coordinate Bench of this Tribunal in case of Microsoft Research Lab India Pvt. Ltd. in IT(TP)A No 3131/Bang/2018 by order dated 05/02/2020 8. In all the above decisions, the observation of Hon’ble Delhi High Court has not been considered. The objection of the assessee regarding Thirdware Solutions Ltd. for the inclusion are as under: “Reject: Functionally different, no segmental information, inconsistent reporting Functionally different: Thirdware is engaged in sale of products. specializes in emerging technology applications like oracle, peoplesoft. QAD, Hyperion. SAP and other leading Cloud platforms. Thirdware also earns revenue from sale of software licenses by delivering the software licence key, which further substantiates it to be a product company (refer page 1558 of supplementary paper book dated February 09. 2021). Further, statement of profit and loss of the company for FY 2013-14 clearly states that company has earned revenue from sale of products amounting to INR 206.76 crores (approx.) (refer pages 1547 to 1549 of supplementary paper book dated February 09, 2021). In this regards, reliance is placed on the following cases wherein Thirdware is rejected as comparable on the ground of functional dissimilarly:  M/s EMC Software and Services India Private Limited vs. JCIT (IT(TP)A No. 3375/Bang/2018) (AY 2014-15) Page 6 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018)  LG Soft India Private Limited Vs. DCIT [IT(TP)A No. 3122/Bang/2018] (AY 2014-15)  ARM Embedded Technologies Pvt. Ltd., [IT(TP)A No.3374/Bang/2018] for AY 201415 dated 24 November 2020 (refer page 1927 of caselaw paperbook) The company is not functionally comparable as it has different diversified activities, and derives income from software development. income from subscription contract and from sale of user licenses. Further, no segmental details are available and has diverse services and also error in computation of margins. The company was excluded as comparable in the decision of co-ordinate Bench in the case of EMC Software and Services Pvt. Ltd. Vs JCIT (supra) at para 6(iv) pages 594 & 595 of Paper Book as under........................................We found there is a functional dissimilarity in respect of assessee's financial profile and accordingly, we direct the TPO to exclude the comparable from the final list for determination of ALP (Emphasis supplied)  LSI India Research & Development Pvt. Ltd., vs DCIT (IT(TP)A No.3170/Bang/2018 for AY 2014-15 dated 7 October 2020 (refer page 1957 of caselaw paperbook) No segmental information: There is no sufficient segmental information available in respect of the activities of Thirdware. The segmental information is provided on the basis of the geographical location of the customers (refer pages 1529 of supplementary paper book dated February 09, 2021). Thirdware has been rejected by the Hon'ble Delhi Tribunal in the case of Open Solution Software Services Pvt Ltd Vs DCIT (ITA No.7078/De1/2014) on the grounds that without segmental information of various activities (sale of licences. software services and revenue from subscription). it would be difficult to accept that proper comparability analysis can be carried out with the taxpayer's business which consists of software development services. Inconsistent disclosure: While the Statement of Profit & Loss reports revenue from sale of products in various places, the segment reporting schedule mentions that Thirdware's operation comprises of software development, implementation and support services (as against software products). Accordingly. there is inconsistent reporting which has been adopted in the financial Statements.” 8.1 Further, Hon’ble Delhi High Court in its decision (supra) observed as under: Page 7 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) “9. With regard to the proposed comparable Thirdware Solutions Limited the TPO held that the said comparable was available in Capitaline database and cleared all the requisite filters referred to. As per P&L Account, Income from Software services/ export of services was 67.56 crores out of total income of 74.82 crores. As per the Segment Reporting in the said Company's operation comprised of software development, implementation and support services. Primary segmental reporting was based on geographical areas, viz.. Domestic = India (products & services) and International = Rest of the World (Exports- Software Services). Said company's earnings were to a significant extent export oriented. It was maintaining separate books of account for the reported segments and wherever costs were directly identifiable with the reported segment, it had been booked to that segment- Wherever common expenses were incurred, those expenses had been considered for allocation and relevant entries in the books of account had been passed. Thus, there were no unallocable expenses. It was further observed that the revenue in the overseas segment came from export of software services, which was comparable to the assessee company. Thus it was held to be comparable by the TPO. 10. With regard to objection of the petitioner qua inclusion of Thirdware Solutions Limited as a comparable, the ITAT observed that From the copy of Profit & Loss Account, it could be seen that there were items of income, viz., 'Sales' and 'Other income'. Bifurcation of 'Sales' as per Schedule 12 consisted of Export from SEZ units, Export from STPI unit, Revenue from subscription Sale of Licence & Software services. It was further discernible from the segment reporting, that the figures had, been given on the basis of Geographical segments, viz., 'India' comprising of Products and other services and 'Overseas' comprising of Software services. The TPO had taken only the 'Overseas' segment for the purposes of inclusion in the list of comparables, which encompassed only export of software services. As the segment of the assessee under consideration was also only Software services, said segment of Thirdware Solutions - taken by the TPO fully matched and was held to be comparable. 11. This court is also of the view that said Company's operation comprised of software development, implementation and support services. Primary segmental reporting is based on geographical areas. Said company's earning are to a significant extent export oriented. Separate books of account were maintained for the reported segments and wherever costs are directly identifiable with the reported segment, Revenue in the Page 8 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) overseas segment came from export of software services, which are comparable to the assessee company. It is discernible from the segment reporting, that the figures had, been given on the basis of Geographical segments, i.e. 'India' comprising of Products and other services and 'Overseas' comprising of Software services. The TPO had taken only the 'Overseas' segment for the purposes of inclusion in the list of comparables, which encompassed only export of software services. The segment of the assessee under consideration is also only Software services, said segment of Thirdware Solutions - taken by the TPO fully matched and was held to be comparable. These are findings of facts based upon record. Consequently, taking of Thirdware Solutions Limited as a comparable was in order and cannot be interfered with.” 10. In the present assessee, the turnover under SWD is reported to be 40.88 crores. We therefore note that the information regarding revenue generated by Thirdware under SWD segment is not very clear from the annual report for year under consideration. Further the decisions relied by the assessee has not considered the observation of Hon’ble Delhi High Court in case of Steria India Ltd. vs. CIT (supra). In the interest of justice, we direct the Ld.AO to consider this comparable keeping in mind that the functions of Thirdware and the assessee before us must also be looked into under the SWD segment. In the result, the M.P. filed by the assessee stands allowed as indicated hereinabove. Order pronounced in the open court on 06 th September, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 06 th September, 2022. /MS / Page 9 of 9 M.P. No. 57/Bang/2022 (in IT(TP)A No. 3363/Bang/2018) Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore