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TMI Blog2016 (11) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. 3. The Id. CIT(A) erred in directing the TPO/AO to exclude the companies having profits more than 50% on the cost from the list of comparables. 4. The learned CIT(A) erred in holding that the size, turnover and brand of the company are deciding factors for treating a company as a comparable, and accordingly erred in excluding M/s Infosys Technologies Ltd. as a comparable. 5. In the facts and circumstances of the case the learned CIT(A) erred in holding that foreign exchange loss or gain is a part of operating cost or operating income, as the case may be, when the TPO has excluded this data from that of the comparables. 6. The learned CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price (ALP) determined by the TPO/AO. 7. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 8. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 2. The assessee has also filed Cross Obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted more than 75% of the consolidated company-wide/segmental revenues. d. The learned CIT(A) has erred in law and facts, by not accepting the Respondent's plea that companies having different accounting year (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months) should not be rejected. 5. The learned CIT(A) has erred in law by upholding the TPO's approach of exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes. 6. The learned CIT(A) has erred, in law and in facts, by accepting/rejecting certain comparable companies using unreasonable comparability criteria. 7. The learned CIT(A) has erred, in law and in facts, by rejecting a company having margin less than the margin of the Respondent company. 8. The learned CIT(A) has erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Respondent vis-a-vis the comparables. The Respondent submits that each of the above grounds is independent and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables and inclusion of certain comparables. 8. The total 17 comparables taken by the TPO are as under:- 1. Bodhtree Consulting Ltd. 2. Sankhya Infotech Ltd. 3. Visual Soft Technologies Ltd. (Seg.) 4. Infosys Technologies Ltd. 5. Satyam Computer Services 6. Geometric Software Solutions Co. Ltd. 7. Tata Elxsi Ltd. (Seg.) 8. R S Software (India) Ltd. 9. Sasken communication Technologies Ltd. (Seg.) 10. Flextronics Software Systems Ltd. (Seg.) 11. iGate Global Solutions Ltd. 12. L T Infotech Ltd. 13. Thirdware Solutions Ltd. 14. Exensys Software Solutions Ltd. 15. Four Soft Ltd. 16. Sasken Network Systems Ltd. 17. LGS Global Ltd. (Lanco Global Solutions Ltd.) 9. Out of the 17 comparables, the CIT(Appeals) has directed the AO to exclude the following comparables, to which assessee has no objection:- 1. Sasken Network Systems Ltd. 2. Four Soft Ltd. 3. Thirdware Solutions Ltd. 4. R S Software (India) Ltd. 5. Geometric Software Solutions Co. Ltd. 6. Tata Elxsi Ltd. (Seg.) 7. Sasken Communications Technologies Ltd. (Seg.) 8. iGate Global Solutions Ltd. 9. Flextronics Software Systems Ltd. 10. L T Info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further contended that segmental information was also not available. The justification of its exclusion was examined by the Tribunal in the case of ITO v. Sunquest Information Systems (India) Pvt. Ltd. in IT(TP)A No.1032/Bang/2011, copy of which is placed on record. The relevant observations of the Tribunal is extracted hereunder for the sake of reference:- 19. It was submitted by the learned counsel for the Assessee that Sankhya is engaged in the business of development of software products services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant. The products developed and owned by Sankhya are listed below: (1) SILICONTM Training Suite of Products: The products are a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products:- - SILICONTM LMS (Traini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and we accordingly direct the AO for its exclusion from the list of comparables. 16. With regard to Thirdware Solutions Ltd., the ld. counsel for the assessee has contended that this company is also functionally different than the assessee company as this company was involved in trading of software and revenue was from sale of license and subscription. It was further contended that its exclusion was examined by the Tribunal in the case of Sunquest Information Systems (India) Pvt. Ltd. (supra) and Textron Global Technology Centre Pvt. Ltd. (supra) [copies of the orders are placed on record] and we find that this company was examined by the Tribunal and following the order of the Hyderabad Bench of the Tribunal in the case of CNO IT Services (India) Pvt. Ltd. [formerly Conseco Data Services (I) Pvt. Ltd.] v. DCIT, Cir. 1(2), in IT(TP)A No.1280/Hyd/2010 for the AY 2005-06, the Tribunal directed the TPO for its exclusion from the list of comparables. The relevant observations of the Tribunal are extracted as under:- 21. The learned counsel for the Assessee submitted before us that two of the comparable companies out of the 10 excluded by the CIT(A) by applying RPT filter and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the filter of more than 70% of its revenue being from software development services. The learned Counsel submitted that the functions of these companies are different from the assessee who was into sole activity of software development for its associated enterprise. He submitted that the TPO has allocated the expenditure in the proportion of the revenue of these companies from software services and software products and has adopted the figure as segmental margin of the company and has taken these companies as comparables. He submitted that by taking the proportionate expenditure, the correct financial results would not emerge. He submitted that nothing prevented the Assessing Officer/TPO from obtaining the segmental details from the respective comparable companies before adopting them as comparable companies and before taking the operating margin for arriving at the arms length price. He submitted that wherever the segmental details are not available, then the said companies should not be taken as comparables. For this purpose, he placed reliance upon the decision of the Bangalore Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. vs. The DCIT in ITA.No.1252/Bang/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development of the products. The above facts clearly demonstrate that there is functional dissimilarity between the assessee and these companies and without making adjustment for the dissimilarities brought out by the TPO himself, these companies cannot be taken as comparable companies. The method adopted by the TPO to allocate expenditure proportionately to the software development services and software product activity cannot be said to be correct and reasonable. Wherever, the Assessing Officer/TPO cannot make suitable adjustment to the financial results of the comparable companies with the assessee company to bring them on par with the assessee, these companies are to be excluded from the list of comparables. Therefore, we direct the Assessing Officer/TPO to exclude these three companies from the list of comparables. 17. Similarly, its exclusion was also examined in the case of Textron Global Technology Centre Pvt. Ltd. (supra). Since the Tribunal has taken consistent view with respect to this comparable by holding that it is functionally different, we find no justification to readjudicate it again. We accordingly following the aforesaid orders of the Tribunal, hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt. Ltd v. ITO [ITA No. 398/8/2008]. Therefore the grievance as projected by the Revenue in ground No.3 is misconceived. On the facts of the present case, we are of the view that the CIT(A) rightly excluded Exensys Software Solutions Ltd., Infosys Technologies Ltd., and Satyam Computers Ltd., from the list of comparable companies. 20. Similarly, its exclusion was also examined by the Tribunal in the case of Textron Global Technology Centre Pvt. Ltd. (supra) in para 14 of its order. 21. Since the Tribunal has taken a consistent view that this company is not a good comparable, we find no justification to take a contrary view, where the profile of assessee company and Exensys Software Solutions Ltd. are almost same and we accordingly hold that Exensys Software Solutions Ltd. is not a good comparable and we direct the AO/TPO for its exclusion from the list of comparables. 22. With regard to Four Soft Ltd., the ld. counsel for the assessee has contended that this company was rejected by the CIT(Appeals) by applying RPT filter. In the case of this comparable RPT was 19.89%, whereas the Tribunal has repeatedly held that comparable which has more than 15% RPT transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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