9911796707
TMI Blog2016 (2) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... ns issued by the Dispute Resolution Panel, Hyderabad. 2. The only issue involved in this appeal relates to the addition of ₹ 1,11,51,669 made by the Assessing Officer on account of Transfer Pricing Adjustment in respect of the international transactions of the assessee, and more specifically, the grievance of the assessee is against the inclusion of the following three companies in the list of comparables selected by the TPO, which has been upheld by the Dispute Resolution Panel - (a) E-Infochips Bangalore ltd. (b) Kals information Systems ltd. (c) Tata Elxsi Ltd.(Srg) 3. Facts of the case in brief are that the assessee company, engaged in the business of software development and export services, filed its return of income on 25.9.2010 admitting a total income of ₹ 2,71,72,072 under normal provisions and ₹ 2,35,78,050 under S.155JB. During the course of assessment, the assessee furnished a report in Form No.3CEB in accordance with the provisions of S.92E, according to which the assessee had international transactions with its associated enterprises. The Assessing Officer therefore, made a reference to the Transfer Pricing Officer as per the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the draft assessment order passed by the Assessing Officer on the basis of the above order of the Transfer Pricing Officer, the assessee raised objections before the Dispute Resolution Panel. The assessee s objection before the Dispute Resolution Panel was with regard to the inclusion of eight out of the eighteen comparable companies selected by the Transfer Pricing Officer, which are against sl. Nos. 11 to 18 above. The Dispute Resolution Panel, vide its directions dated 28.11.2014, accepted the objections of the assessee with regard to five comparables listed against Sl.Nos.11 to15 above, but rejected the pleas of the assessee for exclusion of three other comparables, which are against sl. Nos.16 to 18 above. 5. In pursuance of the order of the Dispute Resolution Panel dated 28.11.2014, Assessing Officer passed the impugned assessment order 9.1.2015, making an addition of ₹ 1,11,51,669, by way of transfer pricing adjustment, to the income declared by the assessee under normal provisions. He accordingly completed the assessment on a total income of ₹ 3,83,23,741. 6. We have considered the rival submissions and perused the impugned orders of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margin, the reasons of which could not be analysed in the absence of annual report. It was further contended that segmental information was not available. On the argument that the said company is providing both software development and IT enabled services Ld. Counsel placed the disclosures in annual report of FY. 2008-09 and annual report of FY. 2009-10 to submit that the company is primarily engaged in software development and IT enabled services and has reported both of them as one segment. Therefore, company is not comparable with Assessees on functional analysis. It was further submitted that company has merged in 2012 with another company and it will be difficult to obtain further information/segmental information about the company now. In view of its fluctuating profits over the years, this company was not selected as a comparable earlier or in later years by Revenue. Since the disclosure in annual report is common, Assessee relied on the decision of Ahmadabad Bench of ITAT in the case of All Scrips (India) Private Ltd., in ITA No. 771/AHD/2014 for AY. 2009-10, wherein this comparable was rejected on the basis of lack of segmental information. Assessee relied on para 10 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparability analysis. We uphold the plea of Assessee in this regard. Kals Information Systems Ltd : 10. Assessee objected to the above company before TPO stating that the above said company is functionally different as it is engaged in the development of software and software products. It has inventories equivalent to 27% of the revenue. TPO however rejected Assessee s contentions stating that company classified itself as pure software development service provider. Further, extracting page No. 22 of the annual report of the company, TPO opined that the segmental information indicates that revenue is shown to have been earned from application software and training. Accordingly, he rejected Assessee s objections and included as the comparable company. DRP confirmed the same. 10.1. Assessee s main objection before us is on functionality of the comparable company. As seen from the annual report of 2008-09 and 2009-10 and comparative statement placed by Assessee, the company classified itself as the company engaged in development of software and software products since its inception . The company consisting of STPI unit engaged in development of software and software pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th any other software service company because of its complex nature. Similar view was taken by many of the Co-ordinate Benches in earlier years that Tata Elxsi Ltd., cannot be selected as comparable company. Consistent with the above view, we are of the opinion that a company like Tata Elxsi Ltd., which has complex activities and segmental information of which is not available cannot be selected as comparable company to Assessee. Moreover, as seen from the turnover as reported by TPO itself, it was many times Assessee s turnover and therefore cannot be exactly considered as a similar company unless the nature of activity, the incomes are analysed in detail. Since no segmental data is available, considering the software development services as a segment by TPO cannot be considered as segmental data, unless the services rendered by that company are similar to the services rendered by Assessee. In view of this, we are of the opinion that this company cannot be selected as comparable. AO is directed to exclude the same. Even though the Learned Departmental Representative supported the action of the Revenue authorities in taking the above three companies as comparables, he did not d ..... 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