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TMI Blog2019 (1) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... to contest ground no.14, relating to corporate tax issue. In view of the aforesaid submissions of the learned Authorised Representative, we proceed to deal with the issue relating to selection / rejection of certain comparables disputed before us as well as the corporate tax issue as raised in ground no.14. At the outset, we propose to deal with the dispute relating to transfer pricing adjustment. 3. Brief facts are, the assessee an Indian company is engaged in the business of software development and distribution of software licenses. During the previous year the assessee entered into international transactions with its Associated Enterprises (A.E) in the aforesaid two segments. Admittedly, the Transfer Pricing Officer accepted the arm's length price of the international transactions with the A.E. relating to software distribution and related services, reimbursement received for expenses incurred and reimbursement paid for expenses incurred by the A.E. However, as regards provision of software development and support services to the A.E. the Transfer Pricing Officer on verifying the transfer pricing study report found that the assessee has bench marked the aforesaid transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e since as per the information available in the website of the company, it is into software solution, software development and consulting and information technology services. He submitted that the company owns products like D- Xchange, Bizrule Exchange, CARMA, etc. In this context, he drew our attention to the relevant extract of the website as submitted in the paper book. The learned Authorised Representative submitted, no segmental break-up of software product and software development is available in the annual report of the assessee. He submitted, considering the aforesaid factual aspect, the Tribunal in a number of decisions pertaining to the very same assessment year has held this company not to be a comparable to a software development service provider. In this context, he relied upon the following decisions:- i) Telcordia Technologies India Pvt. Ltd. v/s ACIT, [2012] 22 taxmann.com 96; ii) Sumtotal Systems India Pvt. Ltd. v/s ACIT, [2014] 65 SOT 48; iii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann. com 405; iv) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann. com 214; v) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann. com 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons, the company cannot be treated as a comparable. In support of such contentions, he relied upon the following decisions:- i) Ness Innovative Business Services Pvt. Ltd. v/s DCIT, [2014] 151 ITD 190; ii) PCIT v/s Barclays Technology Centre India Pvt. Ltd., [2018] 95 taxmann.com 170; iii) Dialogic Networks India Pvt. Ltd. v/s ACIT, ITA no.7280/Mum./ 2012, dated 27.07.2018; and iv) QAD India Pvt. Ltd. v/s DCIT, [2016] 75 taxmann.com 280. 10. The learned Departmental Representative relied upon the orders of the DRP and the Transfer Pricing Officer. 11. We have considered rival submissions and perused materials on record. As could be seen, in case of Ness Innovative Business Services Pvt. Ltd. (supra), the Tribunal having taken note of the fact that the related party transaction of the company during the relevant previous year exceeded the threshold limit of 25% has excluded this company as a comparable. Since, the aforesaid decision of the Tribunal pertains to the very same assessment year, we are of the view that the company cannot be treated as comparable as it fails the RPT filter. Even otherwise also, in various other decisions, as cited by the learned Authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it undertakes research and development of new services, design, frameworks and methodologies which is suggestive of the fact that the company is into development of products. Thus, he submitted that it cannot be treated as comparable to the assessee. In support of his contentions, he relied upon the following decisions:- i) CIT v/s PTC Software India Pvt. Ltd., 75 taxmann.com 31; ii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann.com 405; iii) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann.com 214; and iv) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159. 16. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 17. We have considered rival submissions and perused materials on record. The primary ground on which the assessee objects to selection of this company is, it is involved in development of products. Notably, in case of PTC Software (I) Pvt. Ltd. (supra), the Hon'ble Jurisdictional High Court upheld the decision of the Tribunal rejecting this company as a comparable on the ground that it is involved in development of software products. The same view has been expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is engaged in the development of product. The other decisions cited by the learned Authorised Representative also express similar view. Since, most of the decisions cited by the learned Authorised Representative including the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra) pertain to the impugned assessment year, respectfully following them, we exclude this company from the list of comparables. vi) LUCID SOFTWARE LTD. 21. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of this company as comparable, the learned Authorised Representative submitted that the annual report of the company reveals that it has incurred product development expenses which demonstrate that the company is into product development activity and not software development. Thus, he submitted that the company cannot be treated as comparable. In support of this contentions, he relied upon the following decisions:- i) ACIT v/s Tech Mahindra Ltd., [2018] 91 taxmann.com 329; ii) Telcordia Technologies India Pvt. Ltd. v/s ACIT, [2012] 22 taxmann.com 96; iii) Sumtotal Systems India Pvt. Ltd. v/s ACIT, [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware product development and segmental details are not available. However, on a perusal of the order passed by the Transfer Pricing Officer, it is seen that he has taken the profit margin of this company at 23.11% which appears to be relating to the software development segment. It is relevant to observe, in case of Sumtotal System India Pvt. Ltd. (supra) and LSI Technologies India Pvt. Ltd. (supra) the Tribunal has directed the Assessing Officer / Transfer Pricing Officer to consider the profit margin of software development segment for comparability purpose. Thus, if the segmental details of this company are available and the profit margin of the software development segment can be ascertained, in our view this company can be considered as a comparable. In view of the aforesaid, we direct the Assessing Officer / Transfer Pricing Officer to examine the issue and if from the financials of the company relating to the impugned assessment year, segmental details are available from which the profit margin of software development segment can be ascertained, this company can be considered as a comparable. However, before deciding the issue relating to inclusion of this company as a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative submitted, the software development service provided by the company includes income from licensing of product / technology. Thus, he submitted, the company is involved in development of product. Further, the learned Authorised Representative submitted that in the relevant previous year, there was an extra ordinary event relating to amalgamation / merger which must have impacted the profitability of the company. Thus, he submitted that the company cannot be selected as a comparable. In support of his contention, the learned Authorised Representative relied upon the following decisions:- i) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159; and ii) PCIT v/s Saxo India Pvt. Ltd., [2016] 74 taxmann.com 88. 31. The learned Departmental Representative submitted, the Transfer Pricing Officer has considered only segmental result, hence, contention of the assessee is not acceptable. As regards amalgamation / merger having taken place in the relevant previous year, the learned Departmental Representative submitted, neither the assessee has raised the issue before the Departmental Authorities nor it has demonstrated how the amalgamation / merger has impacted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 35. We have considered rival submissions and perused materials on record. On a perusal of the documents placed in the paper book it appears that this company is engaged in various activities including development of niche product and development services. Thus, the company is functionally different from the assessee. Considering the aforesaid aspect, the Co-ordinate Bench in case of Telcordia Technologies India Pvt. Ltd. (supra), which is for the very same assessment year, has excluded this company as a comparable. Similar view has also been expressed in the other decisions cited by the learned Authorised Representative. Thus, keeping in view the decisions of the Tribunal referred to above, we hold that this company cannot be a comparable to the assessee. xi) THIRDWARE SOLUTIONS LTD. 36. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that this company is involved in the activities of software development services as well as development of product. However, no segmental details are available. Thus, he submitted that this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjection was rejected. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that it has developed products like Indus Lending Solutions, Ecnet etc. He submitted, the annual report of the company does not provide segmental bifurcation. Further, he submitted, the financial year ending of the company is December 2008, whereas, assessee's financial year ends on March 2008. Therefore, this company cannot be treated as comparable. In support of such contention, the learned Authorised Representative relied upon the following decisions:- i) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann. com 214. 40. The learned Departmental Representative submitted, the Transfer Pricing Officer has considered the profit margin of software development segment only. Further, he submitted, merely because the company has a different financial year it cannot be excluded as a comparable. He submitted, the data relating to nine month period can be extrapolated to other three month to ascertain the margin of the company. 41. We have considered rival submissions and perused materials on record. We are unable to accept the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider it appropriate to restore the issue relating to comparability of this company to the Assessing Officer / Transfer Pricing Officer for re- consideration after due opportunity of being heard to the assessee. xiv) ACCEL TRANSMATIC LTD. 45. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that there is no description about software services segment in the annual report. He submitted that the company is also into of-shore development of embedded software, network system, imaging technologies and outsourced product development. He submitted that no segmental information with regard to different kind of services / product developed by the company is available in the annual report. In support of such contention, the learned Authorised Representative relied upon the following decisions:- i) ACIT v/s Tech Mahindra Ltd., [2018] 91 taxmann.com 329; ii) Sumtotal Systems India Pvt. Ltd. v/s ACIT, [2014] 65 SOT 48; and iii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann.com 405. 46. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 47. We have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it was found to be outsourcing its work. In case of Sumtotal Systems India Pvt. Ltd. (supra), the Co-ordinate Bench taking note of the fact that the employee cost of the company is 3.96% of the operating revenue excluded it from the list of comparables. Similar view has been expressed in the other decisions cited by the learned Authorised Representative. In view of the aforesaid, we are inclined to exclude this company from the list of comparables. xvi) PSI DATA SYSTEMS LTD. 51. Though, this company was selected by the assessee, however, the Transfer Pricing Officer rejected the company as a comparable. The DRP also upheld the rejection of this company as comparable. 52. The learned Authorised Representative submitted, though the Transfer Pricing Officer has rejected the company on the reasoning that related party transaction of this company exceeds the threshold limit of 25%, however, this finding of the Transfer Pricing Officer is factually incorrect. He submitted, the related party transaction of the company works out to 22.42%. In this context, he drew our attention to Page no.162-163 of the paper book containing Profit & Loss account with Schedule forming part of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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