Income Tax Appellate Tribunal - Hyderabad
Agility E Service Pvt.Ltd., Hyd, ... vs Dcit, Circle-1(1), Hyd, Hyderabad on 28 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 363/Hyd/2016
Assessment Year: 2011-12
Agility E. Services Pvt. Ltd., vs. Dy. Commissioner of Income-
Hyderabad. tax, Circle - 2(3), Hyderabad.
PAN - AADCM 6759Q
(Appellant) (Respondent)
Assessee by : Shri Pradeep Kasthala
Revenue by : Shri C. Srinivasa Reddy
Date of hearing 27/12/2017
Date of pronouncement /02/2018
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
This appeal is directed against the order passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'Act') dated 21/01/2016 relating to AY 2011-12.
2. Brief facts of the case are, assessee company, engaged in the business of software development filed its return of income on 09/11/2011 declaring total income at Rs. 2,55,440/- under regular provision of income tax Act and book profit declared at Rs. 1,10,09,515/-.
2.1 As the case was covered by the provisions of section 92CA, with the prior approval of the CIT-1, the AO referred the case to TPO for determining the Arm's length price.
2 ITA No. 363 /Hyd/2016Agility E Services Pvt. Ltd.., Hyd.
2.2 Assessee's Profile:
The assessee is engaged in IT and related business solutions, technical support, maintenance etc. It provides software applications for freight forwarding business and support services according to the customization and product support plan given by the AE.
2.3 International Transactions:
As per 3CEB report/TP Document submitted by the assessee, the international transactions are as under:
AE Nature of transaction Amount (Rs.) Agility Logistics, Provisions of SDS 1,85,75,509 Kuwait Inspection and Provision of SDS 3,88,72,675 control services Ltd.
Global Integrated Provision of SDS 5,68,17,692 Logistics Global Integrated Provision of SDS 1,45,67,064 Logistics - USA Agility Logistics, Receipt of ECB 4,81,32,861 Kuwait 17,69,65,801 2.4 Financial results for FY 2011-12 Item Amount in Rupees Operating Revenue 13,89,80,820 Operating Cost 12,96,66,364 Operating Profit 93,14,456 OP/OR 6.7% OP/OC 7.18% 3 ITA No. 363 /Hyd/2016 Agility E Services Pvt. Ltd.., Hyd.
2.5 Examination of TP study conducted by assessee:
The assessee has carried out the economic analysis and has summarized it as under:
Nature of MAM PLI Margin of Margin of international assessee comparable transaction Provision of 13,86,00,750 TNMM OP/OC 10.76 17.52 SDS Receipt of 4,81,32,861 NA NA NA NA ECB 2.6 The TPO noted that the assessee company had discussed the search procedure adopted by it in search for comparables at pages 34 to 39 of the TP documentation and the assessee had used Prowess & Capitaline Plus data base in search for comparable companies. For the software development services, after applying certain filters, it has short-listed 18 comparables, arithmetic mean PLI (OP/OC) was computed at 17.52% as against its own PLI of at 10.76%. The assessee had taken benefit of +5% and accordingly, it was stated that the international transactions are at arm's length. TPO observed that the assessee did not benchmark regarding the transaction of receipt of ECB.
2.7 The TPO, after rejecting the TP study filed by the assessee and having conducted a new search for comparables, the following comparables were selected as final comparables after analyzing the databases, the annual reports and considering the objections filed by the assesse:
S.No. Company Name OP/OC%
1 Acropetal Technologies Ltd. (Seg.) 34.59
2. Akshay Software Technologies Ltd. 0.85
3. CTIL Ltd. 9.73
4. Evoke Technologies Ltd. 8.33
5. E-Zest Solutions Ltd. 38.03
6. ICRA Techno Analytics Ltd. 25.36
4
ITA No. 363 /Hyd/2016
Agility E Services Pvt. Ltd.., Hyd.
7. Igate Global Solutions Ltd. 24.58
8. Infosys Ltd. 43.74
9. Kals Information Systems Ltd. (Seg.) 10.35 10 Larsen & Toubro Infotech Ltd. 18.08 11 Mindtree Ltd. 11.79 12 Persistent Systems & Solutions Ltd. 21.51 13 Persistent Systems Ltd. 26.68 14 R S Software (India) Ltd. 16.35 15 Sankhya Infotech Ltd. 17.64 16 Sasken Communication Technologies 26.99 Ltd.
17 Tata Elxsi Ltd. 13.77
18 Zylog Systems Ltd. 26.21
Total 374.58
Arithmetic Mean 20.81
After applying the average margins of the comparables to the financials of the assessee, TPO arrived the ALP as under:
Description Amount
Arm's length Margin 20.81%
Operating Cost (OC) 12,96,66,364
Arm's length price = (100+AALM)*OC 15,66,49,934
Price received (OR) 13,89,80,820
Adjustment u/s 92CA 1,76,69,114
Thus, the arm's length price of the assessee is Rs. 15,66,49,934/-
and the shortfall of Rs. 1,76,69,114/- was treated as an adjustment u/s 92CA of the Act by the TPO and accordingly, proposed the enhancement to the income of the assessee u/s 92CA(3) of the Act.
3. The assessee carried the matter before the DRP. The DRP has analyzed the submissions of the assessee and deleted the 14 comparables selected by the TPO and discussed the individual comparables of the above said 14 comparables as to why they should not be considered as comparable company with the assessee company. However, after retaining four comparables selected by the TPO, ALP margin of the said comparables are more than the ALP margin arrived by the TPO, therefore, DRP confirmed the order of the 5 ITA No. 363 /Hyd/2016 Agility E Services Pvt. Ltd.., Hyd.
TPO. However, aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal:
1. The final assessment order passed by the assessing officer is erroneous both in law and on the facts of the case.
2. The ld. Dispute Resolution Panel ("DRP") has erred by upholding the order of the Ld. TPO.
3. The ld. TPO has erred by rejecting the FAR analysis of the assessee and adopting different filters to arrive at the comparable set. The Ld. TPO has erred by rejecting the TP study of the assessee.
4. Without prejudice to the above, the ld. TPO erred by considering comparables that have high turnovers and have brands.
5. Without prejudice to the above, the ld. TPO has erred by considering the following comparables that have different FAR analysis and are not comparable to the assessee:
a. Acropetal Technologies Limited (Segment) b. E - Zest Solutions Ltd c. ICRA Techno Analytics Ltd d. Igate Global Solutions Ltd e. Infosys Ltd f. L& T Infotech Ltd g. Mindtree Ltd h. Persistent Systems & Solutions Ltd i. Persistent Systems Ltd j. Sasken Communication Technologies Ltd k. Tata Elxsi Ltd l. Zylog Systems Ltd
5. Ld. AR of the assessee submitted before us that even though DRP has accepted the contentions of the assessee with regard to 14 comparables and retained only 4 comparables, which are, Infosys Ltd., Persistent Systems & Solutions Ltd., Sasken Communication Technologies Ltd and Persistent Systems Ltd. He submitted that the four comparables retained by the DRP are having high turnover compared to the assessee, whose turnover is 20 crores and also they are functionally different.6 ITA No. 363 /Hyd/2016
Agility E Services Pvt. Ltd.., Hyd.
6. The ld. DR, on the other hand, supported the orders of revenue authorities and submitted that no specific objections were raised by the assessee before the TPO. Therefore, he agreed with the revenue authorities.
7. Considered the rival submissions and perused the material on record. We noted that the DRP has adjudicated the objections raised by the assessee with regard to comparables and individually they have discussed 14 comparables and opined that these 14 comparables cannot be compared to assessee's case, however, retained 4 comparables, which have high turnover and are also functionally different as per the submissions of the assessee. After considering the submissions of the assessee and case law relied upon by the ld. AR, we are of the opinion that the four companies retained by the DRP, certainly, have high turnover compared to the turnover of the assessee and are also functionally different. Therefore, in our view, all the comparables selected by the TPO are not comparables as per the above discussion. Therefore, we remit this issue back to the file of the TPO to do fresh TP study and arrive at the proper TP adjustment de-novo. Accordingly, we direct the TPO to redo the TP adjustment afresh after providing proper opportunity of being heard to the assessee in the matter.
8. In the result, appeal of the assessee is treated as allowed for statistical purposes.
Pronounced in the open Court on 28 th February, 2018.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 28 th February, 2018 kv 7 ITA No. 363 /Hyd/2016 Agility E Services Pvt. Ltd.., Hyd.
Copy to:-
1) Agility E Services Pvt. Ltd., 4 th Floor, C-Block, My Home Hub, Hitech City Road, Madhapur, Hyderabad - 81
2) DCIT, Circle - 1(1), Hyd.
3) DRP, Bengaluru
4) The Departmental Representative, I.T.A.T., Hyderabad.
5) Guard File