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TMI Blog2014 (9) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act, for the Assessment Year 2008-09. 2. The assessee has taken total 17 grounds in the appeal. Grounds No.4,6,7,11 12 have not been pressed by the learned AR, therefore, the same are dismissed in limine. Grounds No.1 to 4 are general in nature. Now, the effective grounds which remain for consideration in this appeal are grounds No.5, 8, 9 10, which relate to the TP addition made by the AO. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in software development/export and IT enabled services. The total receipts for the year has been shown at ₹ 278.50 crores as against ₹ 172.35 crores in the preceding year. Besides the assessee has shown other income of ₹ 223.59 lakhs as against ₹ 178.38 Iakhs in the preceding year. The assessee has claimed expenses of ₹ 234.24 crores as against ₹ 133.99 crores in the preceding year. The net profit for the year has been shown at ₹ 46.49 crores as against ₹ 40.14 crores in the preceding year as per Companies Act. However, the assessee has claimed exemption u/s.10A on the profits of its STP Unit at Bangalore, Mumbai, Hyderabad and Pune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Helios Matheson Information Technology Limited 38.40 As per information submitted by the company it fails onsite revenue filter. 5. Indium Software (India) Limited 11.09 The assessee itself withdrew it as a comparable based on the updated margins. However, it does not have any export earnings for AY 07-08 and it fails export earning filter. NA 6. KPIT Cummins Infosystems Limited 13.20 The company fails RPT filter, the related party transactions are to the extent of 94%. 7. Lanco Global Systems Limited 13.28 Updated margin 26.26 8. Larsen Toubro Infotech Limited 11.35 The annual report is available for the FY 2007-08. The annual report says that the company earned revenues by way of software services as well as products. But, segmental results/revenue are not available. 133(6) notice was issued in the earlier years and the same was challenged before the HC an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee itself withdrew it as a comparable based on the updated margins. 22. Zylog Systems Limited 16.87 Predominantly on-site company as it derives 82% of its revenue from on-site operations Arithmetic Mean 14.84 12.65 In view of the above discussion, the TPO passed order u/s.92CA(3) and made an adjustment of total income of ₹ 25,87,99,366/-. The DRP upheld the order of TPO. Now, the assessee is in appeal before us against the order passed by the AO u/s.144C(1) of the IT Act. 6. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that assessee had adopted TNMM, with PLI OP/OC, and identified 22 companies as comparables, with mean of 14.84%, in the Transfer Pricing report. The updated margin resulted in the mean of 12.65%. The TPO rejected the Comparable, and carried out a fresh search. The TPO selected a final set of 26 comparables by conducting his own comparability analysis. However, in the comparability analysis the employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny fails the employee cost to sales filter of 25% applied by the TPO himself. The relevant extracts of the same are provided in page 334 338 of the paper book. The relevant extract of search process conducted by the TPO evidencing that this filter was applied by him is provided in page No.132 133 of the paper book. (iv) In case of Acropetal Technologies Limited , we found that the total employee cost of the company is only 8.20% of the total turnover and hence the company fails the employee cost to sales filter of 25% applied by the TPO himself. The relevant extracts of annual report are provided in page 339 352 of the paper book. We also found that in case of this company 73% of total expenditure was in foreign currency under the head Onsite development expenses'. Illustrating that the company provides substantial onsite services and also could have outsourced services. As per document placed at page 345 of the paper book, the ratio of onsite to total employee related expenses comes to 86.2% thus, failing the onsite filter. 7. Learned AR submitted the following chart indicating that arm's length margin scenario if employee cost filter is correctly applied :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.90% 21. E-zest Solutions Ltd. 28.95% 28.95% 22. Acropetal Technologies Ltd.(Seg) 40.03% 23. Infosys Technologies Ltd.(Seg) 40.41% 40.41% 24. Kals Information Systems Ltd. 41.94% 41.94% 25. Softsol India Ltd. 42.15% 42.15% 26. Zenith Infotech Ltd. 67.54% 67.54% Arithmetic mean 32.07% 23.33% Ness India's margin 20.13% 20.13% 5% Range 26.13% 26.13% If the employee cost filter is correctly applied, assessee will be having margin of 20.13% cost within the range of + 5%. 8. From the TPO r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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