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TMI Blog2019 (2) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ised of 49% of its total fixed assets and also was incurring significant R&D expenditure. Hence, the concern could not be held to be comparable to the assessee. Accordingly, we direct the AO / TPO to exclude the concern Acropetal Technologies Ltd. from final set of comparables. The ground of appeal No.8 raised by assessee is thus, allowed. E-Infochips Limited as a comparable without appreciating that the company is functionally different and has earned supernormal profits and / or has exceptional year of performance - Held that:- On perusal of financial statement of E-Infochips Ltd., it is apparent that the said concern was engaged in various activities and was also having income from sale of products. The segmental details of said business activity undertaken by the said concern were not available. In view thereof, where the concern is engaged in diversified activities and was also a product company, then the margins of said concern cannot be applied to the margins of assessee, who was only providing software development services to its associated enterprises and was not a product company. In the absence of segmental details, E-Infochips Ltd. cannot be adopted as comparable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N/2016 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, whether the learned DRP was right in law and on facts in excluding functionally comparable companies. 2. On the facts and in the circumstances of the case, whether the learned DRP was right in law and on facts in including companies which are not functionally comparable. 3. On the facts and in the circumstances of the case, whether the learned DRP was right in law and on facts in excluding functionally comparable companies on the ground of non availability of segmental data, when the entire range of activity of the comparable was in the field of software services. 4. On the facts and in the circumstances of the case, whether the learned DRP was right in law and on facts for not considering that onsite and offsite revenue differences are material for deciding the functional comparability of a company and that assets and risk profile, pricing as well as prevailing market conditions are different in predominantly onsite companies from predominantly offshore companies. 5. On the facts and in the circumstances of the case, whether the learned DRP was right in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment is allowed to the assessee, then margins of assessee and mean margins of comparables would be within +/-5% range and Revenue s appeal would become academic in nature. He also pointed out that the issue of risk adjustment was against the assessee. 5. The learned Departmental Representative for the Revenue relied on the orders of Assessing Officer/DRP and also explained the reason for delay in filing the appeal late by 14 days before the Tribunal. 6. We have heard the rival contentions and perused the record. Briefly, in the facts of the case, the assessee was international developer, publisher, distributor of interactive entertainment products. The assessee provided development and quality assurance services to Ubisoft. The assessee had entered into international transactions with its associated enterprises for total value of ₹ 24.70 crores. Reference under section 92CA(1) of the Act was made to the Transfer Pricing Offer (TPO). The TPO adopted revised filters and as against 14 companies selected by assessee as comparables, finally selected 10 concerns as comparable in the software development services segment. The assessee had shown margins of 8.53% as against wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owns significant intangible assets and has earned supernormal profits and/or has exceptional year of performance. 11. With regard to the issue raised by way of ground of appeal No.8 by assessee against exclusion of Acropetal Technologies Ltd., the plea of assessee before us is that the said concern was not accepted as comparable in assessment year 2010-11. The TPO did not accept the contention of assessee that the said concern was engaged in significant research and development activity, since the assessee could not quantify the R D expenditure of Acropetal Technologies Ltd. The learned Authorized Representative for the assessee pointed out that IT services segment of said concern included variety of services including software development, IT Infrastructure, Management services, IT security consultancy services, enterprise solutions, etc. The plea of assessee before us was that the said services were not comparable to the software development activity undertaken by the assessee. It was further mentioned by the learned Authorized Representative for the assessee that the said concern owned significant intangible assets which comprised of 49% of its total fixed assets and Acr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. 14. On perusal of financial statement of E-Infochips Ltd., it is apparent that the said concern was engaged in various activities and was also having income from sale of products. The segmental details of said business activity undertaken by the said concern were not available. In view thereof, where the concern is engaged in diversified activities and was also a product company, then the margins of said concern cannot be applied to the margins of assessee, who was only providing software development services to its associated enterprises and was not a product company. In the absence of segmental details, E-Infochips Ltd. cannot be adopted as comparable to benchmark the international transactions undertaken by the assessee. In this regard, we find support from the ratio laid down by the Pune Bench of Tribunal in Redknee (India) Technologies Pvt. Ltd. Vs. DCIT (supra) with special reference to para 8 of the said decision and accordingly, we direct the Assessing Officer to exclude E-Infochips Ltd. from the final set of comparables. 15. Now, coming to the last concern i.e. the issue raised vide part of ground of appeal No.7, under which the assessee is aggrieved by non inclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern Maveric Systems Ltd., we find that as against total turnover of ₹ 56.90 crores, the export turnover was ₹ 43.17 crores and in such regard, the export sales to total sales ratio worked out to 75.87%. Without going into merits of applying export filter of 75%, we hold that since the said concern fulfills the export turnover filter, then the said concern is to be included in the final set of comparables for benchmarking the international transactions. Accordingly, we hold so. The ground of appeal No.7 part is thus, allowed. 18. Now, coming to ground of appeal No.13 i.e. allowance of working capital adjustment. The learned Authorized Representative for the assessee pointed out that similar issue was decided by the Tribunal in assessee s own case for assessment year 2010-11 and vide para 10 at pages 19 and 20 of the said order, the Tribunal has allowed the claim of assessee. Following the same parity of reasoning, we direct the Assessing Officer to allow working capital adjustment and re-compute the margins of comparables. 19. As far as ground of appeal No.14 is concerned, the said issue of allowance of risk adjustment is decided against the assessee. Hence, we dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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