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TMI Blog2017 (4) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... ent after the issue of requisite notice under section 143(2) of the Act, during the course of the assessment proceedings, the AO noticed that the assessee company reported the following international transactions: Sl. No. Type of transaction Amount Paid (Rs.) Amount received (Rs.) 1 Software Development Services 34,96,83,925/- 2 Reimbursement of expenses 68,83,883/- 23,98,255/- 3. The assessee company sought to justify the consideration received for the international transactions entered with its AE to be at Arm's Length Pricing. The assessee company had also submitted transfer pricing study report adopting operating profit to total cost (OP/TC) as a profit level indicator for the Transfer Pricing study Report. The assessee company applied TNMM which was considered to be the most appropriate method for the purpose of bench marking the international transactions. The assessee company's profit was computed at 13.6% and the assessee company claimed that the same was comparable with other companies rendering software development services. For the purpose of transfer pricing study, the assessee company had chosen 23 comparables and the arithmetic average prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware are excluded 7 Companies whose employee cost to revenues is less than 25% of the revenues - excluded 8 Companies having different financial year ending - rejected 9 Companies who have diminishing revenues/persistent losses for the period under consideration - excluded 10 Companies that are having peculiar economic circumstances were excluded 11 Companies functionally different from the assessee - excluded 5. The TPO rejected 16 comparables selected by the assessee company and accepted 7 comparables and also introduced 13 new comparables and finally selected the following comparables: SI. No. Name of the Company Mark-up on Total Costs 1. AvaniCimcon Technologies 25.62% 2. Bodhtree Consulting Ltd. 18.72% 3. Celestial Biolabs 87.94% 4. e-zest Solutions Ltd. 29.81% 5. Flextronics (Aricent) 7.86% 6. iGate Global Solution Ltd. 13.99% 7. Infosys 40.37% 8. Kals Information Systems Ltd. (Seg) 41.94% 9. LGS Global Ltd. 27.52% 10. Mindtree Ltd. (Seg) 16.41% 11. Persistent Systems Ltd. 20.31% 12. Quintegra Solution Ltd. 21.74% 13. R Systems (India) Ltd. 15.30% 14. R S Software (India) Ltd. 7.41% 15. Sasken Communication Technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which are rejected by the TPO viz., M/s. Helios & Matheson Information Technology Ltd., and M/s. Maars Software International Ltd. The CIT(A) has also upheld the application of onsite revenue filter and consequently directed the exclusion of Softsol India Ltd., as no breakup of revenue from onsite and offshore was available. The CIT(A) also accepted the contention of the assessee company that the companies Bodhtree Consulting Ltd., Celestial Biolabs, Lucid Software Ltd., should be excluded from the list of comparables on the ground of functionality. The CIT(A) also directed the AO/TPO to include Cat Technologies Ltd., VMF Soft Tech and Thinksoft Global Solutions P. Ltd., on the application of export earnings filter. Thus, consequent to the order of the CIT(A), the final comparables would remain as under: SI. No. Name of the Company Mark-up on Total Costs 1 Avani Cimcon Technologies Ltd. 21.40% 2 Cat Technologies Ltd. 14.86% 3 e-Zest Solutions Ltd. 29.81% 4 Helios & Matheson IT Ltd. 38.40% 5 KALS Information Systems Ltd. 30.92% 6 LGS Global Ltd. 27.52% 7 Maars Software International Ltd. 7.94% 8 Quintegra Solutions Ltd 21.74% 9 R Systems International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 12. In the result, assessee's appeal in appeal IT(TP)A No. 79/Bang/2013 is dismissed. Revenue's Appeal IT(TP)A No.112/Bang/2013 13. Now we shall deal with the revenue's appeal. The revenue has raised the following grounds of appeal: 1. The order of the learned C1T(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT(A) failed to appreciate that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 3. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding M/s Flextronics Ltd., M/s iGate Global Solutions Ltd., M/s Infosys Technologies Ltd., M/s Mindtree Ltd., M/s Persistent Systems Ltd., M/s Sasken Communications Technologies Ltd., M/s Tata Elxsi Ltd. and M/s Wipro Ltd. as comparables. 4. On the facts and in the circumstances of the case the learned CIT(A) has erred in directing the TPO to include M/s Maars Software Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. IGate Global Solutions Ltd., 3. Infosys Technologies Ltd., 4. Mindtree Ltds., 5. Persistent Sytems Ltd., 6. Sasken Communication Technologies Ltd., 7. Tata Elxsi Limited 8. Wipro Limited (Seg.) 15. The above companies were excluded by the learned CIT(A) on the grounds that the turnover of the comparable entities does not fall at 1 to 200 crore category. However, this Tribunal has been holding that the turnover is not a relevant criteria. Hence these companies cannot be excluded on this score. However, the learned counsel for the assessee company argued that though the turnover criteria is not applied, the companies Infosys, Tata Elxsi and Wipro Technologies are functionally dissimilar to that of the assessee company and therefore cannot be held to be comparable and reliance in this regard was placed by him on the decision of the coordinate bench in the case of GXS India Technology Centre (P.) Ltd. v. ITO 2015 (8) TMI 227 - ITAT BANGALORE and Support.com India (P.) Ltd. v. Jt. CIT 2015 (11) TMI 1136 - ITAT BANGALORE. We find from the perusal of the above order that the Tribunal has directed the exclusion of these companies on the ground that these companies posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment and no segmental details were available and therefore in the absence of segmental details, it cannot be held to be comparable with that of the assessee company which is engaged in purely software development. Thus the ground of appeal filed by the revenue is dismissed. 20. Ground No. 7 and 8 challenges the direction of the learned CIT(A) to exclude Celestial Biolabs and Lucid Software Ltd., from the final list of comparables on the ground of functionally different. The coordinate bench in the case of GXS India Technology Centre (P.) Ltd. (supra) has held that these companies are not comparables with that of pure software development company. Placing reliance on the decision of 3DPLM Software Solutions Ltd. (supra) held that this company is functionally different from that of software development company as it is engaged in clinical research and manufacture of other bio products. There was no basis for the TPO to conclude that it was engaged in the business of providing software development services. The learned DR has not brought any evidence on record contrary to the above findings of the Tribunal. Hence, respectively following the decision of the Tribunal, we hold that th ..... 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