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TMI Blog2017 (11) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... CHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Shri. Neeraj Jain, Adv For The Respondent : Sh. H. K. Choudhary, CIT-DR ORDER PER SUCHITRA KAMBLE, JM This appeal has been filed by the assessee against the Assessment Order dated 27/01/2016 passed by ITO, Ward-1(4), New Delhi u/s 143(3) read with Section 144C of Income Tax Act, 1961 in Assessment Year 2011-12. 2. Agilis Information Technologies International (I) Ltd. is established in India to undertake software development and installation of computerized systems, conduct feasibility studies, systems analysis and design as well as design of special software and system and application of software. It is also engaged in the business of rendering technical services related to tabulation, coding and software development. It is established to undertake and engaged in export of software, computer skilled manpower and other computer related activities to carry out development in the area of information technology, computer systems, software, application software, integrated tolls for computer systems and application development, data communication and network. The international transaction was software d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems Ltd. 28.74 6 Wipro Technologies Ltd. (Wipro Technologies Services Ltd.) 54.42 Average Margin 28.52 The TPO made an adjustment of ₹ 2,72,60,794/- on account of the difference in the arm s length price of the international transaction of provision of software development services, as under:- Operation Cost 1,32,565,751 Arm s length price at a margin of 28.52% 170,373,503 Price received 143,112,709 105% of the price received 131,269,898 Proposed Adjustment u/s 92CA 27,260,794 The adjustment made by the TPO/A.O was upheld by the DRP vide order dated 07/12/2015. 4. The Ld. AR submits that the assessee is praying for exclusion of following comparables:- (1) Wipro Technologies Ltd. (Wipro Technologies Services Ltd.) (2) Zylog Systems Ltd. (3) Persistent Systems and Solutions Ltd. (4) Sasken Communication Technologies Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Services Ltd. It was contended further that it has no where been reported that the company is engaged in provisions of software development services. Several decisions have been cited by the Ld. AR including the decision of delhi Bench of the ITAT in the case of Sapient Corporation Pvt. Ltd. Vs. DCIT (Supra), Cincon System India Pvt. Ltd Vs. ACIT (Supra). Toluna India Pvt. Ltd Vs. ACIT (Supra) and Lear Automotive India Pvt. Ltd Vs. ACIT *(Supra) in support of his contention that the companies are engaged in the business of selling software products and thus is not comparable for the purpose of benchmarking companies engaged in software development services. Respectfully following the decision of Co-ordinate Benches of the ITAT, we hold that WIPRO Technology Services Ltd. has been wrongly included by the Assessing Officer in the case of the present assesse as comparables for the purpose of benchmarking the international transaction. 4.2. The Ld. DR submitted that the company is functionally comparable as set out in the order of the TPO. The Ld. DR submitted that the upper limit turnover filter is not applicable in the case of the assessee. This company is involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Data India Enterprise vs. ACIT (ITA No. 1612/Hyd/2010) Calibrated Healthcare Systems India Pvt. Ltd. vs. ACIT Toluna India Pvt. Ltd. vs. ACIT (ITA No.5645/Del/2011) Lear Automotive India P. Ltd. Vs. ACIT (ITA No. 5612/Del/2011) and Global Logic India Pvt. Ltd. vs. ACIT (ITA No. 5809/Del/2011) The Ld. AR further submitted that the segmental data was not available for the assessment year under question. The company is earning revenue from two business segments, namely, software services and software products. However, segmental data with respect to the aforesaid two segments is not available in the financial statement. The Ld. AR relied upon the following decisions, wherein, the Tribunal directed to exclude a company on account of non-availability of segmental data: i. Vodafone India Services vs. DCIT ((ITA no. 7140 7097/Mum/2012) ii. Macquarie Global Services (P.) Ltd (ITA 6803/Delhi/2013) 4.5. The Ld. DR submitted that the company is functionally comparable as set out in the order of the TPO. The Ld. DR submitted that the upper limit turnover filter is not applicable in the case of the assessee. This company is involved in Software Development act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre India Pvt. Ltd it can clearly be taken into account that the company grew with a compounded annual growth rate (CAGR) of 147% for 3 years which is evident from the chart given in the impugned order of the Ld.CIT(A) and on the basis of the said chart, CIT(A) has rightly rejected Mold-Tek as comparable company due to the consistently abnormal profits earned by the company. The CIT(A) by deciding this issue has studied annual report of the company and found that there were several irregularities in the financial statements. When we look into all these aspect, we find that the CIT(A) was correct in excluding Mold-Tek Technologies Ltd. as comparable and hence the Revenue is not proper in harping that Mold-Tek has to be taken into account as a comparable in TP study. As regards to the Cross-objection of the assessee is concerned the Ld. A.R during the course of hearing stated that the same may be treated as not pressed if the appeal of the Department is dismissed. Since in the former part of the order, we have dismissed the appeal of the Departmetn, the Cross Objection of the assessee which mainly supports the impugned order of the CIT(A) is dismissed as not pressed. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of making comparison. Since such entity level figures contain revenue from both software services and software products, as against the assessee only providing software services, we are disinclined to treat this company as comparable. The assessee s contention is accepted on this issue. The Ld. AR also relied upon the decision of Delhi Bench of the Tribunal in the case of Motorola Solutions India Private Limited Vs. ACIT (ITA 5637/Del/2011), wherein, the company was rejected on account of significant intangibles in the form of Sasken Branded products and exceptional year of operation, the relevant extract of which is reproduced as under: We have considered the rival submissions and have perused the record of the case. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in the sale of Products apart from rendering software development services. Adopting the same reasons as given for the exclusion of Einfochips Ltd., we order for the exclusion of this company as well. 4.14. The Ld. DR relied upon the orders of the TPO and DRP 4.15. We have heard both the parties and perused the material available on record. This company is engaged in two business segments, namely, software development services and software products. However, segmental data with respect to business segment is not available in the annual report of the company. From the audited financial statement and website, it is evident that the company is earning revenue from two business segments, viz., software development and software product. Therefore, this company should be excluded from the comparables. Thus, we direct the TPO to exclude this comparable. 4.16 . Persistent Systems Ltd. The Ld . AR submitted that the company is engaged in the business of software products such as Paxproj. Thus this company is not comparable. The Ld. AR relied on the various decisions Saxo India Pvt. Ltd. vs. ACIT (ITA No. 6148/DeI/2015) as well as the Tribunal specifically held that Pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to 2.25%, as under:- S. NO. Company Name OP/OC (%) 1 Cat Technologies Ltd. 1.90% 2 CG-VAK Software Exports Ltd. -2.28% 3 Chakkilam Infotech Ltd. 7.13% Average 2.25% Since, the operating profit margin of the assessee company at 7.99% is higher than the average operating profit margin of the final comparable companies at 2.25%, therefore, the international transaction of provision of software development services undertaken by the assessee ought to be considered to be at arm s length price. 5.1 CAT Technologies Ltd. The Ld. AR submitted that as per the website 'S' and annual report, the company is engaged in the business of providing software development services to its customer. The TPO wrongly rejected the company in the show cause notice holding that it is engaged in ITES business. 5.2 The Ld. DR submitted that the TPO has rightly rejected this comparable as the function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent but also segmental data is not available. Therefore, this company is not fulfilling the criteria of the comparable for Arms Length Price. Thus, we reject this company as comparable. 6. We have heard both the parties and perused the material available on record. Ground No. 1 is general therefore, the same is not adjudicated. Ground No. 2, 2.1, 2.2, 2.3, 2.4 and 2.5 are relating to exclusion and inclusions of the comparables by the TPO. The exclusion and inclusions of the comparables given by the Ld. AR are functionally different than assessee company, in some cases there is no segmental data available for software development services as well as there are certain extra-ordinary events occurred during the year in some of the comparables. The reasons for each comparables are given hereinabove paras. Thus, all the comparables are excluded by us. Therefore, there remains no comparable for TP study. Hence, the matter is remanded back to Assessing Officer /TPO to decide afresh by giving new set of comparables which are functionally similar to the Assessee company and the segmental data including other filters of the TPO are met with. Needless to say, the assessee will provide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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