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TMI Blog2014 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... rk up for rendering services to its AE. During the AY under dispute, assessee earned revenue of Rs. 16,52,99,464 from the services rendered towards software design and software development to its AE. Assessee also received reimbursement of expenses actually incurred amounting to Rs. 45,35,095. For the impugned AY, assessee filed its return of income on 01/11/2005 declaring 'Nil' income after claiming exemption u/s 10A of the Act of Rs. 144,37,018. 3. During the scrutiny assessment proceeding, AO noticing that revenue earned from international transaction has exceeded Rs. 5 crore made a reference to the Addl. CIT, International Taxation (hereinafter referred to as Transfer Pricing Officer (TPO) ) in terms with the provisions contained u/s 92CA of the Act, for analyzing Arm's Length Price (ALP) of international transaction with AE. In course of proceeding before TPO, assessee submitted its TP study report carried out through an external agency for bench marking the price received from international transaction with AE. For establishing that the price charged is within arm's length, FAR analysis was undertaken by categorizing assessee as a risk mitigated service provider and consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional filters chosen by him conducted a fresh search in the data bases for selection of comparables. TPO also exercising his power u/s 133(6) obtained information from certain comparable companies. Search process adopted by TPO resulted in selection of 17 companies as comparable with an average margin of 26.59% Companies selected by TPO are as under: S. No. Name of the company OP/TC% 1. Gate Global Solutions Ltd. 1.64% 2. Flextronics (seg.) 29.33% 3. Geometric Software Solutions Co. Ltd. 17.59% 4. Lanco Global Systems Ltd. 9.31% 5. Larsen & Toubro Infotech Ltd. 8.34% 6. RS Software (India) Ltd. 6.56% 7. Sasken Communication Techn Ltd. (Seg.) 13.05% 8. Sasken Network Systems Ltd. 13.84% 9. Visualsoft Technologies Ltd. (seg) 19.95% 10. Bodhtree Consulting Ltd. 22.21% 11. Exensys Software Solutions Ltd. 52.94% 12. Sankya Infotech Ltd. 21.00% 13. Foursoft Ltd. 21.21% 14. Thirdware Solutions Ltd. 64.07% 15. Tata Elxsi Ltd. (seg) 22.63% 16. Infosys Technologies Ltd. 40.87% 17. Satyam Computers Services Ltd. 28.79% 5. After giving allowance for working capital adjustment of 2.98%, TPO arrived at the adjusted Arithmetic Mean PLI of 23.61% . By apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, which had a material/significant impact on the profits of the company for AY 2004-05. Ld. AR also brought to our notice that there is an error in computation of margin as TPO has excluded deferred revenue expenditure is included the net margin of company would be 32.68%. In support of his contention that the aforesaid company cannot be a comparable to assessee, learned AR relied on the following decisions: 1. Ness Innovative Business Services Pvt. Ltd., ITA No. 472/Hyd/2014 . 2. Invensys Development Centre (India) Pvt. LOd., ITA No. 1256/h/2010. 3. Colt Technology, ITA No. 609/Del/2011. 4. Sonata Software, ITA No. 3514/Mum/2010 5. Integrated Decisions & Systems India (P) ltd., 27/JP/2011. 10. Objecting to Sankhya Infotec Ltd., ld. AR submitted that it is functionally different as it is involved in development and distribution of products, which is clearly revealed from website of the company. Further, elaborating, it was submitted that as per company's website, the aforesaid company has partnered with Quad Inc. to deliver the entire business of MGF/PRO Product of Quad Inc. from pre-sales, training, implementation and support of application management services. In support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king objective analysis having selected comparables, they cannot be excluded. 15. We have considered the submissions of the parties along with materials submitted before us in the form of paper book and record. Hereinafter, we record our finding on each of the companies objected by assessee. 15A. Exensys Software Solutions: i) It is evident from the materials placed in the paper book that there is merger of Holool Ltd. as a result of which the company's income for the year under consideration was Rs. 737.79 lakhs. Considering these aspects, coordinate bench of this Tribunal in case of Invensys Development Centre(supra) excluded the company after following another coordinate bench decision in case of Intoto Software India Pvt. Ltd. The observations made by the coordinate bench is extracted hereunder: "11. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Holool India Ltd. and in the director's report (PB-951), there is a clear mention that the company's income of Rs. 737.79 lakhs is possible with the amalgamation of Holool India Ltd. It was further mentioned that Assessee company has got benefit by advanced latest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final fact finding authority is bound to take note of the objections of Assessee. As the material relied upon by the learned Counsel for Assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, we deem it fit and proper to remand this issue to the file of the Assessing Officer/TPO for reconsideration. If it is found that there is an amalgamation of Exensys Software Limited and Holool India Limited and formed as one entity viz.,Exensys Software Solutions Limited. during the relevant previous year and the financial result is the combined result of these two companies, then, we direct the Assessing Officer/TPO to exclude this company from the list of comparables." 12. In view of the above, we are of the opinion that there is an extra-ordinary event which resulted in high operating margin of that company and we, therefore, direct the AO to exclude this company from the list of comparables. In the above referred case of Intoto Software India Pvt. Ltd., complete details were not placed on record, therefore, the matter was sent to AO for verification whereas in this case assessee has objected even before the AO/ CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the accept/reject matrix of more than 25% fixed by the TPO. It is to be noted that in final filters adopted by the TPO in para 8.6 of his order he himself has excluded companies having RPT of more than 25%. We, therefore, direct the Assessing Officer/TPO to examine this aspect and exclude it from the list of comparables if assessee's contention is found to be correct. 15E. Tata Elxsi Ltd. i) We have considered the submissions of the parties. From the informations available on record it is evident that, the aforesaid company itself acknowledges that it is a specialized embedded software development service provider, hence, cannot be compared with any other software development company. The company also informed, because of specialization and diverse nature of its business, it is very difficult to scale up its operations. Considering the aforesaid factual aspects, coordinate benches of this Tribunal, including the Hyderabad Benches, in the decisions cited by ld. AR have held this company not to be a comparable to a pure software development service provider like the present assessee. Respectfully following the consistent view of the ITAT in respect of the aforesaid company, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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