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TMI Blog2015 (1) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes Resolution Panel under section 144C(5) of the Income Tax Act, 1961. 1.1. Assessee raised as many as 13 grounds in the main appeal and further raised additional grounds of appeal from 14 to 18. In the course of present appeal proceedings, assessee's additional grounds are admitted being legal in nature after considering the objections of the Ld. D.R. 2. Assessee, formerly known as Intelli Group Asia P. Ltd., has become NTT Data India Enterprises Applications Services P. Ltd., and at present, merged with NTT Global Delivery Services Ltd., vide orders of Hon'ble High Court of A.P. dated 10th July, 2013. Assessee, accordingly, filed revised Form 36B indicating change in status which was taken on record. 3. Briefly stated, assessee is an IT solution company that provides software development service in the areas of ERP solutions design, implementation & maintenance and Internet technology solutions to its customers. The company has a hundred percent Export Oriented Undertaking (EOU) registered with the software Technology Parks of India {STIP}. The AE is a global provider of innovative consulting, technology, and outsourcing services. The services if the Group are broad based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l adjustment of (-) 3.42%. Thus, the Arm's length Margin as arrived at by the TPO would be 29.62 %. Arithmetic mean of PLI as arrived at by the TPO : 26.20% Less: Working Capital Adjustment : (-) 3.42% Arm's length Margin as arrived at by the TPO : 29.62% TPO arrived at short fall as under. Operating cost Rs.151,00,98,000 Operating cost with reimbursements received Rs.163,57,94,824 Arms Length Margin 29.62% on operating cost. Arms Length Price (ALP) @ 129.62% of operating cost. Rs.212,03,17,251 Less: Sales made to non-A.Es. ₹ 34,20,39,922 Arm's Length sales made to A.Es. Rs.177,82,77,329 Price received by the assessee with reimbursements Rs.136,03,22,078 Shortfall being adjustment u/s.92CA ₹ 41,79,55,251 The above shortfall of ₹ 41,79.55,251/- was treated as transfer pricing adjustment u/s. 92CA of the IT Act by the TPO. 4. Aggrieved by the above adjustment as proposed on the draft order, assessee preferred application to the DRP, Hyderabad who vide their order dated 03.08.2012 allowed some of the objections. DRP directed that (a) T.P. adjustment to be modified from PLI of 26.20 of operating cost as adopted by TPO to 21.25% consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g various filters. Assessee selected 23 comparables with weighted average margin 14.84% on cost. Nowhere assessee has submitted any requisite data for internal TNMM. Moreover, even before the DRP also assessee has not raised the issue of internal TNMM. Just because there are certain case law in favour of assessee for accepting internal TNMM in preference to external TNMM, we cannot direct the A.O./TPO to start the search process afresh or the T.P. analysis afresh in the absence of any comparative data placed before TPO/DRP earlier. In view of this, without going into various principles laid down in the three cases relied upon by assessee, which, in our view, does not help assessee on the facts of the case, we refuse to entertain this additional ground raised by assessee as ground No.14. Since assessee has not submitted any segmental profits or the profits for comparison of internal TNMM as claimed by it, in the absence of any data or facts on record, the issue cannot be considered just because there are certain legal principles favourbly decided. Therefore, this issue is decided against assessee. 2. SELECTION OF COMPARABLES. 9. The next issue for consideration is with reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies decided by the Coordinate Benches of Tribunal (supra) are as under : 1. "Avani Cincom Technologies Ltd., 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Non-furnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware products. He has referred the TPO order and submitted that in the profile of the comparables selected by the TPO itself has mentioned the business of the assessee is in software products. The Id AR has referred the objections raised by the assessee before the TPO at page 286 of the paper book and submitted that the assessee brought this fact that this company is engaged in providing open and end to end web solutions, software consultancy, design and development of software, using the latest technologies. Further, the company has identified only one segment i.e software development. Therefore, the Id AR has submitted that this company is functionally not comparable with the assessee and consequently should be excluded from the comparables. 29.2 On the other hand, the Id DR has filed the information collected u/s 133(6) of the I T Act and submitted that as per this information, this company has revenue from ITES activity to the extent of ₹ 2,94,85,528/-. Therefore, this company is a good comparable having functional similarity. 29.3 ……... 30. We have considered the rival submissions as well as the relevant material on record. The details filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. 5. KALS Information Systems Ltd., : 10.4. We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable portion." As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 200708 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly. 7. Thirdware Solutions Ltd 15.3. We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income of this company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by TPO. 3. COMPARABLES SELECTED BY TPO 13. This issue raised in ground No.16. Assessee wants following four companies to be included in the selection of comparables made by TPO. 1. Indium Software India Ltd. 2. Larsen & Toubro Infotech Ltd 3. V M F Softtech ltd 4. SIP Technologies ltd These comparables are considered and decided by Coordinate Bench in the case of Curam Software International P. Ltd., ITA.No.1280/Bang/2012 dated 31.07.2013 and sent to the TPO for fresh examination. However, we find that there is no need to restore the matter to TPO as TPO has given detailed reasons while rejecting the said comparables, which were brought to our notice by learned D.R. 13.1. Considering the objections raised by assessee and TPO in its study, we agree with the findings of TPO that these companies are not comparable and therefore, they need not be considered for comparability analysis afresh now. Therefore, additional ground No.16 raised by assessee on this issue is rejected. 4. WORKING CAPITAL ADJUSTMENT : 14. It was the objection of assessee that TPO has arrived at negative working capital adjustment wherein assessee does not have any risk and is a captive services prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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