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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 ..... d. 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 Rs. 2,55,42,884/- and the case was selected for scrutiny and notice u/s. 143(2) of the Act was issued. In compliance to the notice the Ld. AR of the assessee appeared from time to time and filed details and written submissions and furnished clarifications. The Assessing Officer in the assessment proceedings found that the assessee company has International transactions more than Rs. 15 Crores with its AE and verified Form No. 3CEB and further referred to Transfer Pricing Officer u/s. 92 CA(1) of the Act on 28.08.2013. The Ld. TPO considering the international transactions and passed order No. CR.S327/TPO-3/A.y.2011-12 dated 29.01.2015 with upward adjustment of Rs. 3,54,20,425/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited 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 operations and the 80% of salary cost pertains to site development charges paid to technical subcontractors. The comparable is a client infrastructure focus delivery model and the Ld. TPO overlooked the fact, it has on site service operations similar to Akshay Software and relied on the judicial decisions and prayed for excluding the comparable. Contra, the Ld. DR submitted that the comparable segment includes engineering, design services, information technology services and Health care and the segmental information for the year ending 31.03.2011 is considered for Bench Marking purposes and also submitted Software Development works are performed and adopted TNMM and the Ld. TPO has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted, 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 comparable company E-Zest Solutions Limited has focused in areas of cloud computing, mobility and business intelligence. The Ld. AR placed reliance on the judicial decisions, where the E-Zest Solutions Limited comparable is rejected in (i) 3DPLM Software Solutions Limited Vs DCIT, IT(TP)A No. 1303/Bang/2012, (ii) Telelogic India Pvt. Ltd., Vs DCIT, IT(TP)A No. 1599/Bang/2012 (iii) Intoto Software India Private Liited Vs ACIT, IT(TP)A No. 1810/Hyd/2012, (iv)Meritor LVS India (P) Ltd Vs ACIT, IT(TP)A No. 1231/Bang/2011, (v) AT &T Global Business Services India Pvt. Ltd Vs. ITO IT(TP)A No. 1604/Bang/2012, (vi) Infineon Technologies India Pvt. Ltd., Vs ACIT, IT(TP)A No. 1670/Bang/2012, (vii) Barclays Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decision of the co-ordinate bench in the case of Capital IQ Information Systems (India) (P) Ltd. in ITA No.1961(Hyd)/2011 dt.23.11.2012 and prayed that in view of the above reasons, this company i.e. e-Zest Solutions Ltd., ought to be omitted from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO. 14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 services and has income from license fee. The Revenue Recognition Policy in notes of accounts and segmental information is available in respect of infrastructure and systems, telecom and wireless, life science and Health care. Further it renders services in cost plus to its Associate Enterprise and sail with partnership and alliances, intellectual property led solutions and end-to-end solutions, strategic acquisitions and the financial year 2010-11 is an exceptional year of operation of persistent systems. We take support from the decision of 3DPLM Software Solutions Limited at Para 17 Page 13 of the paper book as under" "17. Persistent Systems Ltd. 17.1.1 This company was selected by the TPO as a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.3 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 Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details/information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. We rely on the above facts and Tribunal decision and we direct the TPO to exclude the Persistent Systems from the list of comparable companies. 11. The Ld. AR argued that the Ld. TPO has included Sasken Communications Limited with operating margin of 28.04%, whereas it is functionally non-comparable as company was involved in various multimedia product and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 Technologies Pvt. Ltd.(supra), we direct the ld. TPO to exclude this comparable from the list of comparables. If we follow the coordinate bench decision in the case of Motorala Solution (India) P. Ltd, Sasken Communication Technologies Ltd needs to be excluded. However, as mentioned by us at para 24 above, where the contested comparable formed part of assessee's own study, then the AO/TPO has to be given a chance for verification, in view of judgment of Hon'ble Pun jab & Haryana High Court in the case of Quark Systems India P. Ltd (supra). Accordingly we remit the issue of comparability of Sasken Communication Technologies Ltd back to the AO/TPO for consideration afresh as per law. Ordered accordingly." and prayed for exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal 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 operation of the judgment of the Chennai Special Bench in the case of Sak Soft Ltd., (surpa), all the lower judiciaries being quasi judicial authorities are bound to follow the decision of the Chennai Special Bench in the case of Sak Soft Ltd., (surpa). Since the Ld.CIT(A) has rightly followed the decision of the decision of Sak Soft Ltd., cited supra and held the issues in favour of the assessee. 8.1 In the result, the Revenue's appeal is partly allowed for statistical purposes." We respectfully following the decision of the special bench, we direct the Assessing Officer to reduce the expenditure incurred in foreign exchange are to be excluded from both export turnover and total turnover for the purpose of deduction u/s. 10A and accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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