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TMI Blog2016 (1) TMI 1132X X X X Extracts X X X X X X X X Extracts X X X X ..... his assessment year Kals Information Systems Ltd - 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. L & T Infotech Ltd. cannot be selected as a comparable company. AO/TPO is directed to exclude the same from the list of comparables. - ITA. No. 1918/Hyd/2014 - - - Dated:- 8-1-2016 - Smt. P. Madhavi Devi, Judicial Member And Shri B. Ramakotaiah, Accountant Member For the Petitioner : Mr. Dhanesh Bafna Mr. Abhiroop K. Bhargav For the Respondent : Mr. S. Moharana ORDER Per B. Ramakotaiah, A. M. This is an appeal by assessee against the order of A.O. under section 143(3) read with section 144C(5) of the I.T. Act, consequent to the directions given by DRP vide its order dated 31.10.2014. The issue in the appeal is with reference to the transfer pricing adjustment made by the AO/TPO. 2. Even though assessee raised as many as 8 grounds on va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke Technologies 19.27 5. E-Zest Solutions Ltd., 21.32 6. Kuliza Technologies Ltd., 24.65 7. Mindtree Ltd., (seg.) 18.83 8. Persistent Systems Solutions Ltd., 9.26 9. R S Software (India) Ltd., 10.71 10. Sasken Communication Technologies Ltd., 25.14 11. Thinksoft Global Services Ltd., 9.13 12. Zylog Systems Ltd., 15,13 13. Persistent Systems Ltd., 30.56 14. E-Infochips Bangalore Ltd., 66.52 15. Kals Information Systems Ltd., 19.21 16. Tata Elxsi Ltd., (seg.) 15.86 17. L T Infotech Ltd., 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Co-ordinate Bench order, which is as under: Para 10 With respect to E-Infochip Bangalore Ltd., we find that in the annual accounts of the company, with respect to the segment information it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 products and a training centre engaged in training of software professionals on on-line projects. This indicates that company is engaged in development of software and products and its invento ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable 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. L T Infotech Ltd: 14. Assessee has objected before TPO that the department in earlier years is rejecting this comparable as it has revenue from software services and products and segmental information was not available. Further, company did not respond to the notice issued u/s. 133(6) and challenged the said notice before the Hon'ble Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), as extracted above, we are of the opinion that this company cannot be selected as comparable by the same reasons which DRP in the above referred case accepted. Moreover, there are no segmental details and as seen from the annual report, revenues are reported from software development services and products, how much is from services and how much is from products could not be analysed. Even though TPO considered the software exports reported in earning in foreign currency as that of software development services, we are not sure whether the software exports reported therein exclusively pertain to services or products. As there are no segmental details, it is very difficult to analyse whether the incomes earned by the said company do really pertain to the similar services rendered by Assessee. As also seen from the income schedules, engineering services reported in earlier year were not there in this year, therefore, it is very difficult to analyse whether the company is functionally similar or not? Keeping in view of the above difficulties in analyzing the data and considering the reasons given by DRP in the case of M/s. Sumtotal Systems India Pvt. Ltd., (supra), we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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