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TMI Blog2016 (8) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... mber) For the Revenue : G. R. Reddy, CIT For the Assessee : Arvind Sonde, Advocate ORDER A. K. Garodia (Accountant Member) The appeal is filed by the revenue and the cross objection is filed by the assessee and these are directed against the assessment order dated 2202-2014 passed by the AO u/s 143(3) r.w.s. 144C of the IT Act, 1961, as per the direction of DRP. 2. The grounds raised by the revenue in this appeal are as under; 1. The order of the Dispute Resolution Panel is opposed to law and the facts and circumstances of the case. 2.The DRP erred in directing the AO to exclude M/s. ICRA Techno Analytics Ltd., M/s. KALS Information Systems Ltd., M/s. Persistent Systems Ltd., M/s, Tata Elxsi Ltd., from the list of comparables in Software development segment as being functionally different without appreciating the fact that these companies qualify all the qualitative and quantitative filters applied by the TPO. 3.The DRP erred in holding that M/s. Infosys Ltd cannot be taken as comparable, being functionally different, big brand by relying on various decisions of the 'TAT without appreciating the fact that the company qualify all the qual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Respondent without considering the differences in the functions performed, assets employed and risk undertaken by the Respondent vis-a-vis comparable companies. The Ld. Dispute Resolutions Panel ('Ld. Panel') erred in confirming the same. b) The Ld. AO/Ld. TPO had erred on facts and in law in not acknowledging that the sub-contracting charges, incurred by the Respondent, represents arm's length consideration, and thereby was required to be considered as pass-through cost. The Ld. Panel erred in confirming the same. c) The Ld. Panel erred in law in arbitrarily applying the onsite revenue filter without providing the respondent an opportunity of being heard. Accordingly, the Ld. Panel erred in rejecting Akshay Software Technologies Limited and R S Software (India) Limited, as comparable upon application of the onsite revenue filter. d) The Ld. AO I Ld. TPO had erred on facts and in law in rejecting Powersoft Global Solutions Limited ('Powersoft') as a comparable on the application of the employee cost filter. The Ld. Panel erred in confirming the same without considering the submissions of the Respondent. e) The Ld. Panel erred on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue is allowed and it is held that M/s R. S. Software Ltd., is a good comparable. Regarding the remaining comparables for which the exclusion is being objected by the revenue, it was submitted that all these comparables are to be excluded as per the Tribunal s order rendered in the case of DCIT Vs M/s Electronics for Imaging India (P) Ltd., as reported in 70 Taxmann.com 299(Bangalore)(Trib.), copy available on pages 1615 to 1636 to the case laws paper book and in particular, our attention was drawn to para-nos.13 to 33 of this order, 5. We have considered the rival submissions and have gone through the material available on record and the Tribunal order on which reliance has been placed by the ld. AR of the assessee. For the sake of ready reference, we reproduce para-13 to 33 of this Tribunal order:- 13. We shall deal with each comparable which has been disputed by the Revenue one by one as under:- (1) ICRA Techno Analytics Ltd. (seg) 14. At the outset, we note that apart from having the related party revenue at 20.94% of the total revenue, this company was also found to be functionally not comparable with software development services segment of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue as well as intangible assets cannot be compared with an ordinary entity provide captive service. We further note that this company provides end to end business solutions that leverage cutting edge technology thereby enabling clients to enhance business performance. This company also provides solutions that span the entire software lifecycle encompassing technical consulting, design, development, re-engineering, maintenance, systems integration, package evaluation and implementation, testing and infrastructure management service. In addition, the company offers software product for banking industry. Thus, this company is engaged in diversified services including design as well as technical consultancy, consulting, re-engineering, maintenance, systems integration as well as products for banking industry. 20. In view of the above facts that Infosys Ltd. having a huge brand value and intangibles as well as having bargaining power, the same cannot be compared with the assessee who is providing services to its AE. (3) KALS Information Systems Ltd. 21. The assessee raised objections against this company on the ground that this company is engaged in the development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from the revenue from software services, it also earns income from licence of products, royalty on sale of products, income from maintenance contract, etc. These facts recorded by the DRP has not been disputed before us. 26. Therefore, when this company is engaged in diversified activities and earning revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, etc., the same cannot be considered as functionally comparable with the assessee. Further, this company also earns income from outsource product development. In the absence of any segmental data of this company, we do not find any error or illegality in the findings of the DRP that this company cannot be compared with the assessee and the same is directed to be excluded from the set of comparables. (5) Sasken Communication Technologies Ltd. 27. The assessee raised objection that this company has revenue from software services, software products and other services. The DRP has come to the conclusion that this company earned revenue from 3 segments. However, no segmental information is available. Accordingly, the DRP directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in the case of Telcordia Technologies Pvt. Ltd. (supra). 32. We have heard the ld. DR as well as ld. AR and considered the relevant material on record. We find that this company even in the software development segment is engaged in diversified activities of product design services, innovation design, engineering services, visual computing labs, etc. We further note that in the case of Telcordia Technologies Pvt. Ltd. (supra), the Mumbai Bench of the Tribunal vide its order dated 11.5.2012 in para 9.7 has held as under:- 7.7 From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the revenue s appeal, we find that this issue is covered in favour of the assessee by the judgment of Hon ble Karnataka High Court rendered in the case of M/s Tata Elxsi Ltd., as reported in 349 ITR 98 wherein it was held that the total turnover is sum total of export turnover and domestic turnover and therefore, if some amount is reduced from the export turnover then the total turnover also goes down automatically by the same amount. Respectfully following this judgment of the Hon ble Karnataka High Court, we decline to interfere with the order of the DRP on this issue. Accordingly, round no.6 7 are rejected. 8. Ground no.8 9 are general in nature and the same do not require any specific adjudication. 9. In the result, the revenue s appeal is partly allowed. 10. Regarding cross objection of the assessee, it was submitted by the ld. AR of the assessee that if the issues raised by the revenue in its appeal are decided in favour of the assessee except ground no.5 of the revenue s appeal, the issue raised by the assessee in its cross objection will be of academic interest except the issue regarding the allowability of deduction u/s 10A which is covered in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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