9911796707
TMI Blog2018 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- On the facts and in the circumstances of the case and in law, the Honorable DRP and consequentially the learned AO have: Ground No.1 - Transfer pricing adjustment Erred in making transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm's length price for its international transactions pertaining to provision of software development services to the AE Ground No.2 - Use of single year data Erred in not considering multiple year data for determining the arm's length price Ground No.3 - Use of additional filters/ modification of filters Erred in inappropriately introducing additional filters (selection criterias) and modifying the filters adopted by the Appellant and therefore, inappropriately rejecting certain comparable companies and determining inappropriate companies as comparables to the Appellant Ground No.4 - Comparison with companies having supernormal profits Erred in selecting the companies having super normal profits as comparables to the Appellant, it being a captive service provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment for difference between functional and risk profile of the comparables vis- -vis risk profile of the assessee. The issue in ground of appeal No.9 is limited to the application of +/- 5% range. The issue in ground of appeal No.10 is not pressed and the issue in ground of appeal No.11 is premature. In view thereof, we dismiss the grounds of appeal No.1, 2, 10 and 11. 4. Now, coming to the issue raised vide ground of appeal Nos.3 to 7. The learned Authorized Representative for the assessee pointed out that the Transfer Pricing Officer (TPO) at page 45 had drawn final list of comparables, out of which there is no dispute vis- -vis selection of Goldstone Technologies Ltd., L G S Global Ltd. and Softsol India Ltd. However, the assessee is aggrieved by inclusion of following concerns:- i) Bodhtree Consulting Ltd. ii) E-infochip Ltd. iii) eZest Solutions Ltd. iv) Helios Matheson Information Technology Ltd. v) KALS Information Systems Ltd. (application software seg). 5. The learned Authorized Representative for the assessee further pointed out that the following concerns need to be included in the final list of comparables:- i) Thinksoft Global ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submissions of assessee, final set of comparables which were selected by the TPO were as under:- Sr. No. Name of the comparable OP/OC (%) Working capital adjusted margin (%) 1 Bodhtree Consulting Ltd. 19.14 15.49 2 E-infochip Ltd. 30.32 25.07 3 eZest Solutions Ltd. 28.58 26.45 4 F C S Software Solution Ltd. 57.02 50.66 5 Goldstone Technologies Ltd. 27.06 19.66 6 Helios Matheson Information Technology Ltd. 36.05 30.23 7 KALS Information Systems Ltd. (application software seg) 30.92 26.15 8 L G S Glo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goldstone Technologies Ltd., Softsol India Ltd. and L G S Global Ltd. The assessee is aggrieved by inclusion of Bodhtree Consulting Ltd. In this regard, the learned Authorized Representative for the assessee pointed out that the said concern was functionally different as it was also engaged in software products. Further, during financial year 2007-08, the company had hived off its e-paper business and hence, was an exceptional year of operation and hence, not comparable. In this regard, he pointed out that the issue for assessment year 2008-09 i.e. the year under appeal of assessee has been considered in John Deere India Pvt. Ltd. Vs. ACIT in ITA No.2236/PN/2012, relating to assessment year 2008-09, order dated 18.11.2015 and in MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra) and the same has been directed to be excluded from the final set of comparables in the case of concern, which is also engaged in providing software services to its associated enterprises as in the case of assessee. 11. We find that the issue of exclusion of Bodhtree Consulting Ltd. has been adjudicated by the Tribunal in MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra). The relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration being an exception year, wherein Bodhtree Consulting Ltd. had undertaken major business re-structuring i.e. hiring of e-paper business to another concern. 12. In the facts of the present case before us the assessee is also engaged in providing software services to its associated enterprises as in the case of MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra) and following the same parity of reasoning, we hold that where Bodhtree Consulting Ltd. was engaged both in software development and product as well as ITES services, then in the absence of segmental details being available, such a concern could not be treated as comparable. Another aspect of the issue is it being exceptional year, where the said concern had hived off its e-paper business to another concern. Accordingly, we hold that Bodhtree Consulting Ltd. is to be excluded from final set of comparables. 13. The next concern which the assessee wants to be excluded is E-infochips Ltd. on the ground that it is not functionally comparable. 14. We find that similar plea was raised vis- -vis exclusion of E-infochips in MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra) and it was held as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover. Where the assessee had itself applied the filter of 75% of the sales for software development services, then the said concern qualifies the filter as it was predominantly providing software development services. The next objection of the assessee that E-Infochips Ltd. was engaged in sale of software development products and ITES can be applied since the assessee is deriving its revenue purely from the business of computer software development, programming, infrastructure development and related services and there is no sale of products. Further, the Hon‟ble High Court of Gujarat has set aside the issue of exclusion of E-Infochips Bangalore Ltd. on the ground that it was not clear as to whether the said concern was engaged in any services other than software development services. 15. Following the same parity of reasoning, we find no merit in the plea of assessee and hold that E-infochips Ltd. is to be included in the final set of comparables. 16. The next concern against which the assessee has raised its plea for its exclusion is eZest Solutions Ltd. The case of assessee is that the said concern is engaged in diversified activity and is a product company. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Once a range has been applied, then there is no question of holding the same to be within +/- 10% of upper filter applied by the TPO. The total turnover of the assessee for the year under consideration was only ₹ 55.21 crores and the concern selected had turnover of ₹ 213 crores. Even if functionally comparable, then the margins could not be applied as it does not fit into filters applied by the TPO, against which the assessee has no dispute. 21. We find similar issue of exclusion of the concern Helios Matheson Information Technology Ltd. arose before the Tribunal in the case of MSC Software Corporation India (P.) Ltd. Vs. ACIT (supra) and the Tribunal vide para 6 at page 7 held as under:- 6. The issue in ground of appeal No.3 raised by the assessee is the application of turnover filter of ₹ 1 to ₹ 200 crores as comparables selection criteria, as against the turnover filter up to ₹ 100 crores applied by the assessee for identifying the comparable companies. The first part of the issue raised by way of ground of appeal No.3 is against the application of turnover filter of ₹ 1 to ₹ 200 crores and not ₹ 100 crores as applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras 26 and 29 had considered the plea of assessee and held the said concern to be included in the final list of comparables as it was not a consistent loss making company. He further placed reliance on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Welspun Zucchi Textiles (2017) 77 taxmann.com 137 (Bom). 27. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 28. We find no merit in the plea of Revenue in this regard. The reason for exclusion of CG VAK Software Exports Ltd. was that the operating margin for the year under consideration was that the concern was showing loss. In the financial year 2005-06, the operating margin i.e. OP/OC was 2.54%, in financial year 2006-07 it was 5.69% and in financial year 2007-08, it was (-) 1.97%. The concern which has been thus, claimed to be persistent loss making by the TPO has only suffered losses in a particular year. Where the concern is not consistent loss making concern, then the same is not to be excluded from list of comparables, is the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Welspun Zucchi Textiles Ltd. (supra). The Tribunal in TIBCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same parity of reasoning as in the case of CG VAK Software Exports Ltd., we hold that the said concern is not persistent loss making concern and applying the ratio laid down by the Hon ble Bombay High Court in CIT Vs. M/s. Welspun Zucchi Textiles Ltd. (supra), we hold that the said concern is to be included in the final set of comparables. 31. The last concern which the assessee wants to be included in the final set of comparables is Thinksoft Global Services Ltd. The said concern was excluded by the TPO on the ground that it was engaged in the software testing, validation and verification services to the banking and financial services industry worldwide. The assessee on the other hand, claims that the said concern was functionally comparable as software testing, validation and verification forms part and parcel of software development. In this regard, our attention was drawn to the profile of the said concern which is placed at pages 864 to 867 of the Paper Book-3. Further, the learned Authorized Representative for the assessee pointed out that the said concern has been held to be functionally comparable to a concern providing software services to its associated enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Validation‟ are steps to test the efficiency of the software, but not a part of software development, in our view is a hairsplitting argument, which is not justified in the context of the present comparability analysis. Ostensibly, Verification‟ and Validation‟ are broadly speaking, a part and parcel of the process of software development. Therefore, on this aspect, we are unable to uphold the action of lower authorities in excluding the said concern from the final set of comparables. We direct, accordingly. 33. The year under appeal before the Tribunal in TIBCO software India Pvt. Ltd. Vs. DCIT (supra) was assessment year 2008-09 and the year under appeal before us is also relates to assessment year 2008-09. In view of the findings of the Tribunal in TIBCO software India Pvt. Ltd. Vs. DCIT (supra), we hold that the concern Thinksoft Global Services Ltd. is functionally comparable and hence needs to be included in the final set of comparables. Accordingly, we direct the Assessing Officer to benchmark the international transactions of providing software services to associated enterprises by drawing final list of comparables as directed above. The case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. 35. The ground of appeal No.10 raised by the assessee is against applicability of +/- 5% and the benefit can be allowed if the adjustment is within such range and hence, no adjustment is to be made in case it is not more than 5% from the arm's length price. We hold so. 20. The issue arising before us is similar and following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment and re-work the margins of comparables, in turn, relying on the ratio laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. The ground of objection No.2.2 is thus, allowed. 36. Following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment in turn relying on the proposition laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra), wherein it was allowed @ 20%, and compute the TP adjustment, if any, in the hands of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
