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TMI Blog2017 (3) TMI 1704X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment and support services for Lifesize Inc's products and services. 03. The assessee bench marked the software development services selecting Transactional Net Margin Method (TNMM") as the most appropriate method and using Net Operating margins based on cost ("NCP) as the Profit Level Indicator ("PLI). On a set of 4 comparables, it arrived the average NCP at 13.01 percent. Since it had earned NCP of 14.34% in this segment, it considered its transactions are at arm's length. However, out of 4 comparables selected by the assessee , the TPO rejected 3 of them and introduced 10 additional comparables and determined the average margin at 22.71%. After giving working capital adjustment of 1.98%, the TPO proceeded to make an adjustment of Rs. 72,25,614 for the software development services. Aggrieved, the assessee filed its objections before the DRP. The DRP upheld the action of the TPO in not accepting the comparables chosen by the assessee . Out of 11 comparables chosen by the TPO , the DRP rejected; 6 comparables on turnover filter, 2 comparables on RPT filter, 2 comparables on non availability of segmental results and retained only one comparable. It rejected the assessee's ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 * DCIT vs Ikanos Communication India (P) Ltd. ITA No. 137/Bang/2015 * DClT vs Applied Materials India (P.) Ltd.: ITA No.180/Bang/2015 * Radisys India (F) Ltd. vs ITO ITA No 345 & 371arig/2015 06. On the software development services segment, the A R pleaded for exclusion of one comparable and inclusion of 2 comparables. The gist of his submissions is extracted as under : 1. Kals Information System Ltd (seg) : 2 & 3. RS Software (India) Ltd & Thinksoft Global Services Ltd : The DRP , suo moto , rejected the RPT filter of 25% adopted by the TPO and applied the RPT filter at 0% and rejected these comparables holding that the RPT is above 0%. The assessee submitted that it has been held by Courts in various decisions that 0% RPT of the comparable price is an impossible situation and therefore, a reasonable tolerance range for related party transactions can be considered for selecting comparables. Accordingly, it has been held that RPT up to 25% is considered reasonable in the following cases. * Philips Software Centre Private Ltd vs ACIT TTJ 721 (Bangalore) * Sony India Private Limited vs DCIT: [2008]114 ITD 448 (Delhi) * Global Logic India (P) Ltd. vs DCIT: [2013] 56 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company cannot be retained as a comparable. On the above comparables, reliance is placed on the following cases: - DCIT vs Ikanos Communications (ITA No. 137/Bang/2015 (AY 2010-11) - ACIT vs Broadcom India Research Private Limited: [2016] 49 ITR(T) 79 (Bangalore) [AY 2010-11] DCIT vs Electronics for Imaging Pvt. Limited: ITA No. 212/Bang/2015 (AY 2010-11) - Bearing Point Business Consulting Pvt Ltd. - ITA No. 1124/Bang/2011 - DCIT vs PMC - Sierra India Pvt. Ltd : IT(TP)A No. 882/Bang/203 - Lam Research vs DC IT: IT(TP)A No 1437/Bang/2014 - Telcordia Technologies India (P.) Ltd. vs DCIT: ITA No. 1692 (Mum) of 2014. We heard the rival submissions. As submitted by the assessee, the DRP rejected them not on turnover filter but on account of absence of segmental information. We do not find any infirmity in the DRP order and hence on these grounds the Revenue's appeal fail. 08. On the following comparables, the AR submitted that the appellant's turnover is just 13.23 crores, while the turn over of each of the comparable is multiple times higher (say from 28 times to 1601 times higher) than its turnover and hence the DRP correctly excluded them. The summary of AR 's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP rejected this company on the ground that the turnover of the company is very high i.e. INR 504 crores which is 38 times the turnover of the assessee from ITES business and therefore it was correctly excluded from the list of comparables. Reliance is placed on the following cases: - ION Trading India (P.) Ltd vs ITO: 1035 (Delhi) of 2015 (AY 2010-11) - Bearing Point Business Consulting Pvt. Ltd. - ITA No. 1 124/Bang/2011 - Trilogy E-Business Software India Pvt. Ltd: [2013} 140 lTD 540 (Bangalore) 5. Sasken Communication Technologies : The DRP rejected this company on the ground that the turnover of the company is very high i.e INR 402 crores which is 30 times the turnover of the assessee from ITES business and therefore it was correctly excluded from the list of comparables. Reliance is placed on the following cases: - Bearing Point Business Consulting Pvt. Ltd. - ITA No.1124/Bang/2011 - DCIT vs Kodiak Networks India Pvt Ltd: ITA No. 532/Bang/2013 - Lam Research vs DCIT: IT(TP)A No. 1437/Bang/2014 - DCIT vs Hellosoft India (P.) Ltd: (2013] 23 ITR(T) 1 (Hyderabad) 6. Tata Elxsi Ltd (seg) : The DRP rejected this company on the ground that the turnover of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey. (b) The asset composition of Cyber Media includes both tangible and intangible assets, while the assessee's asset composition comprises of only tangible assets. Reliance is placed on the case of Microsoft Corporation India P. Ltd v. DCIT [ITA.5766/Del/2011] wherein it was held by the Tribunal that this company cannot be considered as a comparable with the international transaction of 'Provision of marketing support services' since Cyber Media Research Ltd, is an information technology research and advisory firm which earns all its income from technical research and survey. 2. Killick Agencies : The DRP upheld the inclusion holding that the company is providing marketing related support services. The segment in which the service is performed is not a relevant factor for deciding choice of comparables. However, the assessee pleaded for exclusion for the following reason : (a) Company is acting as an agent for various foreign principals for sale of dredgers, dredging equipments etc., It also offers pre-sales and after sales services. Apart from this, the company is involved in exports of micro switches, engineering items, accounts, items and head sets. (b) Export incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dredging equipment and also offers after sales services. Therefore, this company was found to be in the business of marketing support services which is similar to the assessee. 48. On the other hand, the ld. AR has submitted that this company is engaged in the business of construction equipments and earth moving machinery and is not into marketing support services. 49. Having considered the rival submissions as well as relevant material on record, we note that in the profit & loss account for the year under consideration, this company has shown sales (export of Rs. 1,18,00,000 and commission/service charges of Rs. 2,19,00,000. Therefore, export income revenue of this company is less than 75% of the total revenue, a filter applied by the TPO. Once the TPO has applied a filter of 75% of export sale, then this company which fails the filter applied by the TPO cannot be considered as a good comparable. Further, we note that this company is entirely in a different activity with that of the assessee. Undisputedly, this company is acting as agent for various foreign principals for sale of dredgers, dredging equipment, steerable rudder propulsions and other equipments and machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate as to how this company can be considered as comparable with the international transaction of 'Provision of marketing support services' rendered by the assessee to is AE. Similar is the position regarding ICRA Management Consulting Services Ltd., which is providing 'Advisory services'. In our considered opinion, a company providing advisory services can be no match with a company providing actual marketing support services. Despite this clear mismatch of the functional profile of the assessee's international transaction of 'Provision of marketing support services' with the IT research/Advisory services provided by these two companies, we are unable to accept the contention of the ld. DR to order a de novo adjudication. It is patent that the assessee in the instant appeal is aggrieved against the inclusion of the afore discussed four companies from a total set of six companies. It has no issue with the inclusion of IDC Ltd., and ICRA Management Consulting Services Ltd. The Revenue is not in appeal before us. In such circumstances, we are unable to remedy the situation to the advantage of the Revenue inasmuch as it is the TPO who has accepted the comparability of these tw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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