9911796707
TMI Blog2015 (6) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and support services to Convergys Information Management Group Inc. USA, Convergys EMEA Limited and Convergys Customer Management Group Inc USA ("Convergys Group"). Convergys group compensates assessee company for software development and support services on cost plus basis without regard to the success or failure of the activities. The assessee company filed its return of income for the A.Y. 2008-09 on 23.09.2008 declaring the total income of Rs. 41,412 after claiming deduction under section 10A of Rs. 27,74,72,754 under normal provisions. The assessee company paid tax on book profit of Rs. 22,72,37,501 under section 115JB of the I.T. Act, 1961. A reference under section 92CA was made to the Addl. Commissioner of Income Tax, Transfer Pricing, Hyderabad by the Addl. CIT, Range-1, Circle 1(2), Hyderabad to determine the ALP of the international transactions of the assessee reported in Form 3CEB. The A.O. passed a draft assessment order dated 28.12.2011 under section 143(3) read with section 144C of the Act for arriving at a total income of Rs. 186,344,463 as against Rs. 41,412 as declared in the return of income. The A.O. made the following adjustments in the draft order. 1. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies : 1. Infosys Technologies Ltd., 2. Wipro Ltd. (Seg.) 3. KALS Information Systems Ltd., (Seg.) 4. Tata Elxsi Ltd., (Seg.) 5. Avani Cimcon Technologies Ltd., 6. E-Zest Solutions Ltd., 4.1. It was submitted that assessee's objections are already considered similarly in the Coordinate Bench decision in the case of M/s. Invensys Development Centre India (P) Ltd., Hyderabad vs. ACIT, Circle 2(1), Hyderabad in ITA.No.1692/Hyd/2012 dated 12.11.2014 for A.Y. 2008-2009. After considering the arguments of learned D.R. we are of the opinion that assessee should get relief on the above issue. The facts in both cases being same and both A.O. as well as DRP has taken similar companies for comparison and DRP excluded one company like in the case of Invensys Development Centre India (P ) Ltd., vs. ACIT, Circle 2(1), Hyderabad (supra), We have no hesitation in directing the A.O. to exclude the six companies as the issues are already decided similarly in Invensys Development Centre India (P) Ltd., (supra). For the sake of record, the consideration and decisions in that order are extracted as under : "1.AVANI CIMCON TECHNOLOGIES LIMITED : 4.1.1 This company was selected by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is functionally dissimilar and different from assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by assessee, following the decisions of the co-ordinate benches of this Tribunal in assessee's own case for Assessment Year 2007-08 in ITA No.1780/hyd/2011, and the findings in the above cited cases wherein this company was excluded, we direct the A.O./TPO to exclude this company from the list of comparables. 2. E-ZEST SOLUTION LTD: 4.2.1 This company was selected by the TPO as a comparable. Before the TPO, assessee had objected to the inclusion of this company as a comparable on the ground that it was functionally different from assessee. The TPO had rejected the objections raised by assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 4.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the cases of Capital I-Q Information Systems (India) (P) Ltd. that KPO services are not comparable to software development services and are therefore not comparable. Further, the decisions of the co-ordinate bench in the aforesaid cases of (i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013 and (ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013, we hold that this company, i.e. e-Zest Solutions Ltd. be excluded from the set of comparables. 3. INFOSYS TECHNOLOGIES LTD.: 4.3.1. This was a comparable selected by the TPO. Before the TPO, assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand effecting profit margin. The TPO, however, rejected these objections raised by assessee on the grounds that tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. iii) Adaptec (India) P. Ltd., Hyderabad vs. ACIT, Circle 1(1), Hyderabad ITA.No.1758/Hyd/2012 dated 21.03.2014. iv) M/s. Patni Telecom Solutions P. Ltd., Hyderabad vs. ACIT, Circle 16(3), Hyderabad ITA.No.1846/ Hyd/ 2012 dated 25.04.2013. AO/TPO is directed to exclude this company from the list of comparables. 4. KALS INFORMATION SYSTEMS LTD: 4.4.1 This is a comparable selected by the TPO. Before the TPO, assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of assessee observing that the software products and training constitutes only 4.24% of total revenues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007-08 and qualifies as a comparable by the service income filter. 4.4.2 Before us, the learned Authorised Representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration i.e. A.Y. 2008-09. To this, the counter argument of the learned Authorised Representative is that the functional profile of this company continues to remain the same for the year under consideration also and the same is evident from the details culled out from the Annual Report and quoted above. 4.4.4 We have heard both parties and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to assessee based on information obtained u/s.133(6) of the Act. We also find that the co-ordinate benches of this Tribunal have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is functionally dissimilar and different form assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be omitted form the list of comparables. (v) The learned A.R. further relied on the Coordinate Benches of the Tribunal in the following cases : i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013. ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. 4.5.3 Per contra, the learned Departmental Representative supported the stand of the TPO in including this company in the list of comparables. 4.5.4 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment "software development services" relates to design services and are not similar to software development services performed by assessee. 4.5.5 The Hon'ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable to captive service providers assuming limited risk; (iii) The Coordinate Bench of the ITAT, Mumbai in the case of Telecordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) has held that Wipro Ltd. is not functionally comparable to a software service provider. (iv) Wipro Ltd. is engaged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (v) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO's own filter of rejecting companies with consolidated financial statements. (vi) The learned A.R. further relied on the following decisions : i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013. ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. iii) Adaptec (India) P. Ltd., Hyderabad vs. ACIT, Circle 1(1), Hyderabad ITA.No.1758/Hyd/2012 dated 21.03.2014. iv) M/s. Patn ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
