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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 ..... ountant Member For the Assessee : Shri Sunil Moti Lala For the Revenue : Shri Jayant Kumar ORDER PER SAKTIJIT DEY, J.M. The aforesaid appeal is directed against assessment order dated 23rd November 2010, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ) for the assessment year 2007 08, in pursuance to the directions of the Dispute Resolution Panel 1 (DRP), Mumbai. 2. Altogether, the assessee has raised 15 grounds. Vide written submissions dated 5th September 2018 filed before us, the learned Authorised Representative has submitted, as regards the issue relating to transfer pricing adjustment, assessee wants only to contest selection / rejection of certain comparables and denial of benefit under proviso to section 92C(2) as raised in ground no.2, 3 and 4. Further, he submitted, besides the aforesaid grounds, the assessee wants 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the draft assessment order adding the transfer pricing adjustment suggested by the Transfer Pricing Officer. Though, the assessee raised objections before the DRP contesting the transfer pricing adjustment on various grounds including selection / rejection of comparables, however, the DRP more or less rejected all the objections of the assessee. Being aggrieved with the directions of the DRP, the assessee is in appeal before us. 4. Since the major issue pertaining to transfer pricing adjustment as contested before us is with regard to selection / rejection of comparables, we will proceed to deal with the issue at the outset. i) AVANI CIMCON TECHNOLOGIES LTD. 5. The aforesaid company was selected by the Assessing Officer and retained by the DRP. 6. The learned Authorised Representative objecting to the selection of the aforesaid comparable submitted that the company is functionally different from the assessee 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, CARM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent view expressed by the Tribunal with regard to the acceptability of the aforesaid comparable, we direct the Assessing Officer to exclude this company from the list of comparables. ii) BODHTREE CONSULTING LTD. 9. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of this company, the learned Authorised Representative submitted that it is into varied activities like software solutions, end to end web solution, software consultancy, design and development of solutions. He submitted, no segmental information is available in the annual report of the company. He submitted, income from e paper activity is included in the company s Profit Loss account, however, expenses have been debited to the joint venture created in the name and style of Learn Smart India Pvt. Ltd. He submitted, the company has recorded an abnormal growth in turnover and profit of 91.63% and 546% respectively. For aforesaid 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 Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the DRP and the Transfer Pricing Officer. 14. We have considered rival submissions and perused materials on record. As could be seen from the material placed before us, comparability of this company came up for consideration before different benches of the Tribunal in respect of various assessees. In these decisions the Tribunal has consistently held that this company, since, is into product development and also provides high end technical services in the category of KPO services, it cannot be treated as comparable. Thus, respectfully following the consistent view of the Tribunal in the decisions cited by the learned Authorised Representative, most of which are for the impugned assessment year, we hold that this company cannot be treated as comparable to the assessee. iv) HELIOS AND MATHESON TECHNOLOGY LTD. 15. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of this company, the learned Authorised Representative submitted, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s ITO, [2017] 79 taxmann.com 214; v) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159; vi) PCIT v/s Barclays Technology Centre India Pvt. Ltd., [2018] 95 taxmann.com 170; vii) Dialogic Networks India Pvt. Ltd. v/s ACIT, ITA no.7280/Mum./ 2012, dated 27.07.2018; viii) Accenture Services Pvt. Ltd. v/s ACIT, [2018] 96 taxmann.com 400; ix) Telelogic India Pvt. Ltd. v/s DCIT, [2015] 69 SOT 135; and x) QAD India Pvt. Ltd. v/s DCIT, [2016] 75 taxmann.com 280 19. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 20. We have considered rival submissions and perused materials on record. The main plank on which the assessee has challenged selection of the aforesaid comparable is, it is engaged in development of software products. Notably, in case of PTC Software India Pvt. Ltd. (supra), the Hon'ble Jurisdictional High Court upheld the decision of the Tribunal in rejecting this company as a comparable to a software development service provider on the ground that it is engaged in the development of product. The other decisions cited by the learned Authorised Representative also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company cannot be treated as a comparable. In support of this contentions, he relied upon the following decisions: i) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159; and ii) Telelogic India Pvt. Ltd. v/s DCIT, [2015] 69 SOT 135 25. The learned Departmental Representative submitted that segmental details of the company are very much available in the annual report and the Transfer Pricing Officer has applied the margin of software development segment. In this context, he drew our attention to Para 15 of the Transfer Pricing Officer s order. Further, he submitted that 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 of the company. Thus, he submitted that this company cannot be rejected as comparable. 26. We have considered rival submissions and perused materials on record. The only ground on which the learned Authorised Representative seeks removal of this company is, it is also involved in software product development and segmental details are not available. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered rival submissions and perused materials on record. The primary and fundamental reason on the basis of which assessee seeks rejection of the aforesaid comparable is, it is also engaged in the development of product and segmental details are not available. Notably, in case of LSI Technologies India Pvt. Ltd. (supra), the Co ordinate Bench while examining the comparability of the aforesaid company to a software development service provider, has rejected this company as a comparable considering the fact that it is engaged in product development and product design services. The same view has been reiterated by the Tribunal in the other decisions cited by the learned Authorised Representative. Since, many of these decisions pertain to the impugned assessment year, respectfully following the aforesaid decisions of the Tribunal, we direct the Assessing Officer to exclude this company from the list of comparables. xi) SASKEN COMMUNICATION LTD. 30. 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, the software develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in various activities such as software development and services, embedded product design services, industrial design and engineering, visual computing labs etc. Thus, he submitted, the company being functionally different cannot be treated as comparable. In support of such contention, the learned Authorised Representative 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) Ness Innovative Business Services Pvt. Ltd. v/s DCIT, [2014] 151 ITD 190; iv) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann.com 405; v) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann.com 214; vi) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann. com 159; vii) Dialogic Networks India Pvt. Ltd. v/s ACIT, ITA no.7280/ Mum./2012, dated 27.07.2018; viii) PCIT v/s S.T. Ericsson India Pvt. Ltd. ITA no.821/2017, dated 31.01.2018; and ix) S.T. Ericsson India Pvt. Ltd. v/s ACIT, ITA no.1672/Del./ 2014. 34. The learned Departmental Representative relied upon the order of the DRP and the Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires verification. 38. We have considered rival submissions and perused materials on record. Though, it may be a fact that the assessee may not have objected to selection of this company before the Transfer Pricing Officer, however, the assessee raised objections against selection of this company before the DRP as well as before us. The grievance of the assessee is, the company being involved in development of products and since no segmental details are available in the annual report, it cannot be treated as comparable. The Co ordinate Bench in Tech Mahindra Ltd. (supra) having found this company to be involved in development of software product and trading in software licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee. xii) R SYSTEMS LTD. 39. This company was selected both by the assessee and Transfer Pricing Officer. Though, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer and retained by the DRP. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that it undertakes application management services, application development, tool set development, product development and support activities. He submitted, since no segmental information is available in the annual report, this company cannot be treated as comparable. In support of such contention, the learned Authorised Representative relied upon the following decisions: i) Telcordia Technologies India Pvt. Ltd. v/s ACIT, [2012] 22 taxmann.com 96. 43. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 44. We have considered rival submissions and perused materials on record. From the annual report of this company, it appears that the company was also selected by the assessee in its transfer pricing study report. It further appears that before the Transfer Pricing Officer also the assessee had accepted this company as comparable. However, considering the contention of the learned Authorised Representative that this company is also engaged in development of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... threshold limit applied by the Transfer Pricing Officer. Thus, he submitted that the company cannot be treated as a comparable. 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; iii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann.com 405; and iv) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann.com 214. 49. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 50. We have considered rival submissions and perused materials on record. From the transfer pricing order passed by the Transfer Pricing Officer, it is evident that by applying the employee cost filter, he has excluded companies whose employee cost as a proportion to operating revenue is less than 25%. It is the contention of the assessee that the employee cost of the company is 3.96% of the operating revenue. The aforesaid factual submission made by the learned Authorised Representative could not be controverted by the learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable opportunity of being heard to the assessee. 55. In view of the aforesaid, the Assessing Officer / Transfer Pricing Officer is directed to determine the arm's length price of transaction with the A.E. relating to provision of software development services keeping in view our observations herein above. Adjustment, if any, on account of such determination of arm's length price should be made after allowing the benefit of 5% as provided under the proviso to section 92C(2) of the Act. 56. In ground no.14, the assessee has challenged addition of ₹ 8,23,860, on account of mismatch in receipt as shown by the assessee and as appearing in the TDS certificates. 57. The learned Authorised Representative submitted, though the DRP had directed the Assessing Officer to consider assessee s submissions on the issue, however, the Assessing Officer without considering the submissions of the assessee has again repeated the addition, as was made in the draft assessment order. Thus, he submitted, necessary direction may be issued to the Assessing Officer to consider the submissions and other details furnished by the assessee to reconcile the difference. 58. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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