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TMI Blog2015 (3) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... y and why the same are not comparable to the companies like assessee. Bodhtree consulting Ltd also fails RPT filter as contended. In view of this, we are not discussing above comparables in detail, but, suffice to say that assessee’s submissions are valid. The AO is directed to exclude the above comparables and re-work out the arm’s length margin accordingly. - Decided in favour of assessee. - ITA.No.923/Hyd/2010 - - - Dated:- 10-12-2014 - SHRI B. RAMAKOTAIAH AND SHRI SAKTIJIT DEY, JJ. For The Assessee : Mr. K.R. Vasudevan, Dheeraj Lalwani, Pavan Kumar Gorti For The Revenue : Mr. D. Sudhakar Rao ORDER PER B. RAMAKOTAIAH, A.M. This appeal is filed by assessee against the Order of the Ld. CIT(A)-III, Hyderabad dated 31.03.2010 for the assessment year 2005-2006. 2. The assessee has raised 20 grounds out of which, ground Nos. 1 and 20 are general in nature and therefore, it need not be adjudicated. Ground numbers 5 to 9 pertains to comparables while determining the arms length price, which are pressed. Other grounds are not pressed in the course of hearing. 3. Briefly stated, assessee is a company which is engaged in the business of providing software de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e short- fall was arrived at ₹ 5.18 crores. As briefly stated above, Ld. CIT(A), however, deleted one company Satyam technologies as not comparable and assessee got relief to that extent. The final list of 16 cases selected by the TPO after the order of the CIT(A) are as under : S. No. Name of the Company CIT(A) adjusted margins 1. iGate Global Solutions Ltd. 6.79% 2. Flextronics (Seg.) 34.61% 3. Geometric Software Solutions Co. Ltd. 22.79% 4. Lanco Global Systems Ltd. 14.48% 5. Larsen Toubro Infotech Ltd. 13.53% 6. R S Software (India) Ltd. 11.74% 7. Sasken Communication Techn Ltd. (Seg) 18.29% 8. Sasken Network Systems Ltd. 19.04% 9. Visualsoft Technologies Ltd. (Seg. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the following TPO s f ilters: Related party transactions f ilter: As per schedule 4 of the balance sheet, the company has investments in Perigon, LIC, USA and as per the response u/s 133(6); the company has export sales to Perigon LIC, USA of ₹ 133.90 lakhs, being 34.68% of the total turnover. Functionally different f ilter: The company in its response to notice u/s 133(6) has stated that it provides e-paper solutions, data cleansing sof tware, website development and other customized sof tware and also state that the epaper solutions and data cleansing services would come under the category of IT enabled services. 2. Exensys Sof tware Solutions Ltd., The learned counsel submitted that this company should be rejected under the following TPO s f ilters: a) Functionally different: The company is a sof tware product and ITES company. The company owns signif icant brand intangibles (almost 60% of its net block of assets), unlike the appellant, which is a contract captive services provider. Further, various disclosures on the site of the company also indicate that it is into product development. b) Exceptional year of Operations: There was amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sof t India Pvt. Ltd. ( ITA No. 645/Hyd/09) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 5. Thirdware Solutions Ltd.: Ld. Counsel submitted that this company is functionally different for the following reasons: As per reply to notice issued u/s 133(6), the company informed that it is engaged in implementation and customer services which include training, customized development and help desk services for ERP sof tware and distribution of products of Quad Inc. and Hyperion Solutions Corporation. Various news articles available on the internet http://www.hinduonnet.com/2001/07/11/stori es/0611000h.htmstated that the company is a distributor of products; As per the company s website www.thirdware.net/ourcapabilities.htm. has stated the company has partnered with QAD Inc to deliver the entire business cycle of MGF/PRO, a product of QAD Inc. from Pre-sales, sales, training, consulting, implementation and support to application management services. The following rulings have analysed and rejected this company as it is into trading of sof tware licenses: - Intoto Sof tware India Pvt. Ltd. ( ITA No. 1196/Hyd/2010) - ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO (High Court decision - ITA 1204/2011) - Invensys Development Centre India P. Ltd. in ITA no 1256/Hyd/2010 dt.20-02-2014 6. We have considered the issue and examined the record including paper books placed on record. There is a merit in assessee s contentions about non-comparability of various comparable companies selected by the TPO. 7. As regards the Exensys Sof tware 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 ₹ 737.79 lakhs is possible with the amalgamation of Holool India Ltd. It was further mentioned that Assessee company has got benef it by advanced latest technical expertise on various technology domains of the transferor company. Further, that company has charged deferred expenditure and the amount claimed in this year is ₹ 1.22 crores as against ₹ 30.21 lakhs in earlier year. This was clearly stated in Notes that claim was with reference to the AS-14 and also due to amalgamation of two companies. Vide page 957 of paper book, it was seen that out of gross assets of ₹ 7.95 crores, Brands al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tware Limited and Holool India Limited and formed as one entity viz.,Exensys Sof tware Solutions Limited. during the relevant previous year and the f inancial result is the combined result of these two companies, then, we direct the Assessing Off icer/TPO to exclude this company from the list of comparables. 8. 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 Sof tware India Pvt. Ltd., complete details were not placed on record, therefore, the matter was sent to AO for verif ication whereas in this case assessee has objected even before the AO/ CIT(A), therefore, there is no need to set aside the issue to the f ile of the AO for examination as was done in the case of Intoto Sof tware(supra). We are, therefore, of the opinion that on the basis of facts placed on record, the case of Exensys Sof tware Solutions Ltd. cannot be taken as comparable. 9. Similarly, the other cases, Bodhtree consulting Ltd, Four Sof t Ltd, Infosys,., Sankhya Infotech Ltd., Thirdware Solut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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