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TMI Blog2017 (1) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... l against the order of Deputy Commissioner of Income Tax, Corporate Circle-6(2) u/s. 143(3) r.w.s. 92CA(4) of the Act, dated 09.02.2016 in pursuance of the directions of DRP Chennai order dated 27.03.2015. 2. The assessee has raised the ground No. 1 to 12 pertaining to Transfer Pricing adjustments and ground no. 13 & 14, where the Ld. AO erred in reduction of entire expenditure incurred in foreign currency insurance expenses from the export turnover without reducing from the total turnover u/s. 10AA. However, at the time of hearing the Ld. AR of the assessee has made arguments in respect of selection of comparables by Transfer Pricing Officer out of 11 comparables selected, the Ld. AR prayed 4 comparables to be excluded for determining the Arms Length Price. 3. The Brief facts of the case, the assessee company is software development and technical support service provider for Symantec Group Companies and operates as contract development centre for providing software services to its AE including software coding, testing of development works and providing documentation in relation to Indian works. The Assessee filed Return of income electronically on 29.11.2011 with total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable Akshay Software Technologies and confirmed 11 comparables and was considered by the Ld. TPO and gave effect of excluding of comparable and worked out the Transfer Pricing Adjustments to ₹ 4,30,20,425/- and the DRP considered 11 comparables as provided by the TPO and confirmed the action of Assessing Officer in respect of section 10A of the Act Export Turnover Adjustments. 4. On appeal before the Tribunal, the assessee company wants to exclude four comparables from the list of comparables selected by the TPO which read as: (i) Acropetal Technologies Ltd (seg) (ii) E-Zest Solutions Limited (iii) Persistent Systems Limited (iv) Sasken Communication Technologies Limited 5. The Ld. AR submitted that the Acropetal Technologies Ltd. it is functionally non-comparable as it is engaged in software development solutions, other non-comparable services and the segmental information is not available and supported that has segment revenue only in the Engineering Design Service, Information Technology service, Health Care and engaged in non-comparable business activities as IT Infrastructure Management Services, IT Security Services and outsourced majority of business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This company was also rejected by the Tribunal in ITA No. 7016/M/2012 wherein the Tribunal has held that the ratio of onsite to total employee related expenses of this company comes to 86.2%k, thus failing the onsite filter. The Tribunal, Bangalore Bench in ITA No. 1316/Bang/2010 in the case of Symphony Marketing Solutions India Pvt. Ltd. has observed that the functions performed by the Engineering Design Services segment of this company cannot be considered as comparable to the ITES/BPO functions performed by the assessee. Considering all these facts in totality, we direct for the exclusion of this company from the final list of comparables. Considering the Mumbai Tribunal decision and facts submitted, we direct the TPO to exclude the company from the list of comparables. 7. The Ld. AR submitted on second comparables E-Zest Solutions Limited which has operating margin of 34.83% is functionally non-comparable to the assessee as it is engaged in product engineering services which are in the high end knowledge process outsourcing (KPO) services and outsourced product development services and specialization product design development, product feature enhancement and others. The com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ('KPO') services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submitted by the learned Authorised Representative that KPO services are not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ending 31.03.2011 disclose sale of software services and products and other income and the nature of operations being the company is predominantly engaged in outsourced product development services and follows Business models which are entirely different from the Assessee business and relied on the decisions of (i) AlcatelLucent India Ltd Vs. DCIT IT ANo. 6856/Del/2015, (ii) Cashedge India Private Limited, ITA No. 279/2016, (iii) CIT(1) Vs CES Pvt. Ltd., ITTA No 442/2014, (iv) CES Pvt. Ltd., Vs DCIT ITA No. 1445/Hyd/2010, (v) Hewlett-Packard India Software Operation Pvt. Ltd Vs ACIT, IT(TP)A No. 1456/Bang/2010, (vi) Equant Solution India Pvt. Ltd. Vs DCIT, ITA No. 1202/Del/2015, and (vii) 3DPLM Software Limited Vs DCIT, IT(TP)A No. 1303/Bang/2012 and prayed for excluding the comparable. Contra, the Ld. DR submitted that the comparables is also engaged in Development of software and adopted TNMM for project functionally therefore should be comparable to the Assessee company. 10. We heard the rival submissions, perused the material on record and judicial decisions. We found that the company is engaged in product development and cannot be comparable to the software development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the list of comparables. 17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out before TPO that during the year the company had acquired Botnia High tech F. and its two subsidiaries and thus, it had under gone significant restructuring. However, ld. TPO ignored these facts He relied on the following decisions: • IQ Information System (I) Pvt. Ltd., ITA No. 1961/Hyd./2012 (para no. 11 & 23, page 25); • Amerson Process Management India Pvt. Ltd., ITA No. 8118/Mum./2010 (para 16 page 15). 110. Ld. DR relied on the order of TPO and submitted that TPO considered the companies software services segment details only. We have considered the rival submissions and have perused the record of the case. 111. Ld. TPO has completely ignored the extraordinary business circumstances pointed out by assessee for which necessary adjustment was required to be made in accordance with Rule 10B(3) of Income Tax Rules. However, since this adjustment was not possible, therefore, this company should not have been included in the list of comparables. Further, we find that the company owns IPR and has branded products which also distinguishes it from the assessee and, therefore, keeping in view the decision of Hon'ble Delhi High Court in the case of Agnity India T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is covered by the decision of assessee's own case in earlier assessment year 2010-11 ITA No. 1289/Mds/2015, at Para 7 and 8 which read as under: "7. The next ground in this appeal is that the DRP erred the AO to exclude to reduce same amounts which has reduced from export turnover from total turnover also for computing the deduction u/s.10AA relying upon the decision of the Special Bench of ITAT Chennai in the case of M/s.Sak Soft Ltd reported in (2009) 30 SOT 55(Chennai)(SB) against which the Deparment filed appeal u/s.260A before the Hon'ble Madras High Court. 8. After hearing the ld.D.R and perusing the materials on record, it appears that the Ld. Assessing Officer was of the view that since the Revenue was on appeal against the decision of the Chennai Special Bench in the case of Sak Soft Ltd., (supra) before the Hon'ble Madras High Court, he need not follow that decision. Further, it is not the case of the Revenue that the judgment of the Chennai Special Bench in the case of Sak Soft Ltd., (surpa) is stayed by the Madras High Court. It is pertinent to mention that in the absence of any stay granted by the by the Hon'ble Madras High Court against the operati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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