9911796707
TMI Blog2015 (10) TMI 2419X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sumtotal Systems India P. Ltd., Hyderabad [2014 (8) TMI 870 - ITAT HYDERABAD] wherein the Tribunal vide its order has rejected the contentions of Assessee for inclusion of all the six companies under consideration before it [Aztec Soft Ltd., Birla Technologies Ltd., Indium software India Ltd., Larsen & Toubro Infotech., PSI Data systems Ltd. (SEG) and VMF Softech Ltd.] Computation of deduction under S.10A - reducing the communication charges from the export turnover considering it as attributable to the delivery of computer software outside India, but not reducing the same from the total turnover - Held that:- this Tribunal in similar cases, including in assessee’s own case for the assessment year 2006-07 have directed the Assessing Officer to exclude the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. In this view of the matter and respectfully following the decision of the Bombay High Court in the case of Gemplus Jewellery (2010 (6) TMI 65 - BOMBAY HIGH COURT) and Sak Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] we allow this ground of Assessee Penalty under S.271(1)(c) - difference in the value of Arm’s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of proviso to S.92C(2). These grounds are hence rejected as not pressed. As for the issue relating to adjustment towards risk, raised in Ground No.10, it becomes academic, if suitable directions are given in relation to the grounds contested in this appeal. Being academic, ground No.10 is also treated as not pressed and rejected accordingly, with liberty to the assessee to agitate this issue in further proceedings that ensue in pursuance of this order, if warranted. So also, ground No.13 relating to levy of interest under S.234B and 234C; and ground No.14 relating to initiation of penalty proceeding under S.271(1)(c) are not pressed. These grounds are accordingly rejected. Assessee raised additional ground for exclusion of some more comparable companies. These are also dealt with at appropriately. 4. We may now take up for consideration the only other grounds that survive for consideration, being ground Nos.7 and 8 including additional grounds and 12. 5. Grounds No.7 and 8 relate to the transfer pricing adjustment made by the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel. In Ground Nos.7 assessee initially disputes the inclusion of seven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on the data worked out in respect of 26 companies, determined the Arm's Length margin at 24.23% on cost, and transfer price adjustment to be made at ₹ 2,28,50,421, vide his order under S.92CA dated 31.8.2010. 9. On the objections raised by Assessee against the action of the Transfer Pricing Officer in rejecting comparables selected by Assessee, and in selecting other companies as comparable, the Dispute Resolution Panel has upheld the order of the Transfer Pricing Officer with regard to all the comparable companies ultimately taken by the TPO, except Celestial Labs Ltd. The Dispute Resolution Panel also rejected all other objections in relation to determination of Transfer Pricing Adjustment and the adjustments to be made in the course of computation under S.10B/10A, etc. raised by Assessee before it, vide its directions under S.144C(5) of the Income Tax Act,1961, dated 9.8.2011. 10. In pursuance of the directions of the Dispute Resolution Panel, the Assessing Officer, passed the order under S.143(3) read with 144C of the Act, on 25.8.2011, whereby he re-computed the Transfer Pricing adjustment to be made at ₹ 2,07,22,767; and also rejected Assessee's plea for red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no.7, in this appeal relates to the inclusion of the following seven comparable companies selected by the TPO notwithstanding the objections raised by Assessee. 1. Avani Cimcon Technologies Ltd. 2. Infosys Technologies Ltd. 3. Ishir Infotech Ltd. 4. Lucid Software Ltd. 5. Mega Soft Ltd. 6. Tata Elexsi Ltd. (Seg.) 7. Wipro Ltd. (Seg.) 15. The learned counsel for Assessee has also raised an additional ground whereby the inclusion of the following four companies selected by the TPO as comparable, notwithstanding the objections raised by Assessee, has been questionedITA 1. Kalls Information Systems Ltd. (Seg.) 2. Accel Transmatic (Seg) 3. Flextronics Software Systems ltd. (Seg.) 4. Helios & Matheson Information Tech. Ltd. The said additional ground has been filed alongwith a petition praying its admission and adjudication thereon. Reliance is also placed on the decision of the Apex Court in the case of National Thermal power Co. Ltd. V/s. CIT (229 ITR 383), in support of the admission of the said additional ground. Since the additional ground does not require enquiry into any new facts, we admit the same, and proceed to adjudicate upon the same alongwith the main ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of operating income of software development services and sale of software products are not available, it could not be ascertained whether the profit ratio of this company can be taken into consideration for comparing with Assessee. As the aforesaid decision of the Coordinate Bench pertained to the same assessment year i.e. A.Y. 2007-08, following the same, we hold that this company cannot be treated as comparable to Assessee. Other cases considered the same comparable and rejected are as under: a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang /2011 f) Bearing Point Business ITA.No.1124/Bang/2011 g) LG Soft India Pvt. Ltd. ITA.No.1121/Bang/2011 h) Transwitch India P. Ltd. ITA.No.948/Bang/2011 i) Mercedes Benz Research & Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd. ITA.No.1119/Bang/2011 k) First Advantage ITA.No.1086/Bang/2012 l) HCL EAI Services Ltd. ITA.No.1348/Bang/2011 We herefore direct the Assessing Officer /TPO to exclude this while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst ₹ 42 crores of Assessee. Though it is a fact that Assessee in the TP documentation, has selected Infosys Technologies Ltd. as comparable but that cannot prevent Assessee from objecting to the aforesaid company being selected as comparable, if there are valid reasons for doing so. In this context, the contention of the learned AR that Assessee has selected Infosys Limited on the basis of three years financial data, whereas the TPO considered only the current year data also needs to be appreciated. Therefore, considering the enormity of turnover of the company as well as other relevant factors, the aforesaid company cannot be treated as comparable to Assessee in any manner. This view of ours is also in tune with the view expressed by different Benches of this Tribunal as stated below as well as that of the Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies Pvt. Ltd.,[2013] 85 CCH 146. a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. ITA.No.7821/Mum/2011 c) LG Soft India P. Ltd. ITA.1121/Bang/2011 d) Transwitch India P. Ltd. ITA.948/Bang/2011 f) Mercedes Benz Research & Development ITA.No.1222/Bang/2011 g) CSR India P. Ltd. ITA.No.1119/Bang/2011 h) First Advantage ITA.No.1086/Bang/2012 i) HCL EAI Services Ltd. ITA.No.1348/Bang/2011. Following the aforesaid decisions of the Coordinate Benches, we direct exclusion of the aforesaid company from list of comparables. MEGASOFT LIMITED : 7.5. The main objection of Assessee with regard to the aforesaid company is that this is predominantly a product development company and margin from software development services is 23.11%. As can be seen, in case of M/s Virtusa (India) Pvt. Ltd. (supra), the Co-ordinate Bench of the Tribunal while considering Assessee's objection with regard to the aforesaid company had directed the Assessing Officer/TPO to take only segmental margin of this company for computing ALP. Similar view was also expressed in the following cases : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Triology E-Business Solution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different from Assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from Assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the prof it ratio from product and services. Thus, on these facts, we are unable to treat this company f it for comparability analysis for determining the arms length price for Assessee, hence, should be excluded from the l ist of comparable parties. " Following the decision of the ITAT Mumbai Bench as aforesaid and also considering the fact that the company itself in the information provided in response to the notice issued u/s 133(6) of the Act has admitted that it cannot be considered as comparable with other assessees, we direct exclusion of the aforesaid company from the list of comparables while determining ALP. WIPRO LIMITED : 7.7. While objecting to the aforesaid company being treated as comparable, the learned AR submitted that the TPO only on considering segmental details submitted by the said company for IT se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials on record during the year under consideration, the segmental turnover of the Wipro Ltd. Is 9616.09 crores. Therefore, considering the turnover, brand value as well as other dynamics of Wipro Ltd., it comes in the same category as Infosys and certainly cannot be compared with Assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. And other coordinate bench decisions, we hold that Wipro Ltd. cannot be treated as comparable with Assessee. ACCEL TRANSMATIC LTD. : 7.8. With regard to this company, the complaint of Assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of Assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: "In regard to Accel Transmatics Ltd. Assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts order has discussed at length the reasons for not considering the said company as comparable to software development services company. The relevant portion of the order is reproduced hereunder : (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of Assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was ₹ 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: "16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India P. Ltd. ITA.1121/Bang/2011 e) Transwitch India P. Ltd. ITA.948/Bang/2011 f) CSR India P. Ltd. ITA.No.1119/Bang/2011 g) First Advantage ITA.No.1086/Bang/2012 Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude the company from the list of comparables." 18. Similarly, as contended by the learned counsel for Assessee comparable nature of Flextronics Software Systems Ltd.(Seg) and Helio & Matheson Information Tech Ltd., has been rejected by coordinate bench of the Tribunal in the case of M/s. Axsys Heathcare Ltd. vide order dated 28.5.2014 in ITA No.2076/Hyd/2011 for the assessment year 2007-08, for the following reasons- "14. After hearing rival contentions, we agree that the following comparables were excluded by the Coordinate Benches considering the similar facts and arguments raised before us: ........................... 3. High Turnover- functionally dissimilar: 6. FLEXITRONICS SOFTWARE LIMITED : " As far as Flexitronics Software Limited is concerned, we find that at page 90 of his Order, the TPO has also observed that the said company has incurred expenditure for selling of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LG Soft India Pvt. Ltd. (ITA No.1121/Bang/2011) (h) Transwitch India Pvt. Ltd. (ITA No.948/Bang/2011) (i) Mercedes Benz Research & Development (ITA No.1222/Bang- -/2011) (j) CSR India Pvt. Ltd. (ITA No.1119/Bang/2011) (k) First Advantage (ITA No.1086/Bang/2012) (l) HCL EAI Services Ltd. (ITA No.1348/Bang/2011) (m) Adaptee (India ) Pvt. Ltd.(ITA No.1801/Hyd/2011) 20. Respectfully following the consistent view taken by the Tribunal with regard to comparable nature of the above seven companies in similar matters and more particularly, the decision of the Tribunal in the case of Sumtotal Systems India Private Ltd. cited supra, including the decision rendered in assessee's own case for assessment year 2006-07, we allow ground No.7 of Assessee along with additional ground and direct the Assessing Officer to exclude the above eleven companies from the scope of comparability analysis. 21. The next effective grievance of Assessee that survives for consideration raised in ground no.8 in this appeal, as noted above, relates to the exclusion of the following comparable companies selected by Assessee, but rejected by the TPO/DRP- (a) Aztecsoft Limited (b) Birla Technologies Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2. After considering the submissions, we are of the opinion that proper case was not made out for inclusion of the above comparables. Once TPO and DRP forms that these comparables are not functionally similar to Assessee on the basis of various filters adopted by the TPO, it would be better if the matter is left like that rather than ordering fresh enquiry. We also noticed that these companies have related party transactions and therefore, may not justify on various filters adopted. As far as Indium Software India Ltd. there is a finding that this company is functionally different. L & T Infotech also found to be functionally different. Moreover, it has more than ₹ 600 crores turnover and may fail on turnover filter, even though turnover filter was not applied in this case. When specific 133(6) notice was issued, that assessee has not to responded and therefore, TPO was not in a position to include the above case in the absence of segmental data. PSI Data Systems also in our view need not be considered as it has related party transactions. It requires analysis of segmental data to notice whether it has related party transactions. Even with reference to software development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of ITO V/s. Saksoft Ltd. (313 ITR AT 353) (SB). Following these decisions of the Hon'ble Bombay High Court and the Special Bench, coordinate benches of this Tribunal in similar cases, including in assessee's own case for the assessment year 2006-07 in ITA No.1500/Hyd/2010, referred to above, have directed the Assessing Officer to exclude the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. In this view of the matter and respectfully following the decision of the Bombay High Court in the case of Gemplus Jewellery (supra), we allow this ground of Assessee and direct the Assessing Officer to reduce the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. 26. In the result, assessee's appeal, ITA No.1658/Hyd./2011 for assessment year 2007-08, is treated as partly allowed. Revenue's Appeal : ITA No.12329/Hyd/2013 : Assessment year 2007-08 27. This appeal of the Revenue is directed against the order of the Commissioner of Income-tax(Appeals) dated 7.6.2013, whereby he cancelled the penalty of ₹ 70,43,668 imposed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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