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TMI Blog2019 (9) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 on following revised grounds of appeal filed by assessee dated 09/11/18. In conformity with Rule 8 of Income-tax Appellate Tribunal Rules, 1963. The grounds of appeal raised by the Appellant are without prejudice to one another. 1. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of Acropetal Technologies Ltd (Segment) selected by the learned TPO, whereas the same should be excluded for the reasons of functional dissimilarity and otherwise failing the test of comparability; [corresponding to ground no. 3 d] 2. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of E-Infochips Ltd selected by the learned TPO, whereras the same should be excluded for the reasons of functional dissimilarity and otherwise failing the test of comparability; [corresponding to ground no. 3 d] 3. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding inclusion of ICRA Techno Analytics Ltd s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding exclusion of company Thinksoft Global Services Limited, whereas the same should be included for the reasons of functional similarity and otherwise passing the test of comparability; [corresponding to ground no. 3 g] 11. That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding exclusion of company Akshay Software Technologies Limited, whereas the same should be included for the reasons of functional similarity and otherwise passing the test of comparability; [corresponding to ground no. 3 d] 12.That on the facts and circumstances of the case and in law, the learned AO and the learned CIT (A) erred in; upholding rejection of FCS Software Solutions Limited selected by the learned TPO as part of show cause notice which passes the TPO's test of comparability but later excluded in the transfer pricing order. [corresponding to ground no. 3 d] That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 FCS Software Solutions Ltd. 4 Helios Matheson Information Technology Ltd., 5 LGS Global Ltd 6 Mind tree Ltd.., 7 Omni Ax s Software Ltd., 8 Persistent Systems Solutions Ltd. 9 Quinnox Consultancy Services 10 Reliance Info Solutions Pvt.Ltd. 11 Spry Resources India Pvt.Ltd., 12 CCE Software Pvt.Ltd., 13 Allied Digital Services Ltd. 14 Octant Industries Ltd., 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed an adjustment of ₹ 1,65,11,013/- being shortfall. Ld.AO restricted working capital adjustment in respect of comparables 1.63% and denied any adjustment on account of risks to assessee. 2.6 As distribution segment was in accordance with independent search carried out by Ld.AO, no adverse inference was drawn regarding the same. 3. Aggrieved by order of Ld.TPO/AO, assessee filed appeal before Ld.CIT (A), who upheld action of Ld.AO/TPO. 4. Aggrieved by order of Ld.CIT (A), assessee is in appeal before us now. Ground no.1 to 12 4.1 At the outset, Ld.AR submitted that, following comparables deserves to be excluded on functional dissimilarities: Acropetal Technologies Ltd (segment-IT services) E- Infochips Ltd ICRA Techno Analytics Ltd Infosys Ltd Persistent Systems Ltd Sasken Communication Technologies Ltd Tata Elxsi Ltd (segmental) It is also been submitted that following comparables are to be included: LGS global Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of service. Except for routine tangibles assets, assessee do not own any intangibles in respect of software, hardware developed by assessee. Risks assumed: 4.6 Assessee do not get exposed to market risk, product/service liability risk, credit risk. In the present facts of case, assessee is not exposed to foreign exchange risk also, as invoices are raised in Indian rupees. 4.7 Thus assessee has been characterised as a contract service provider which assumes less than normal risk associated with carrying out software and hardware development services. On the basis of above, we shall undertake the comparability analysis in respect of comparables alleged for exclusion by assessee. Acropetal Technologies Ltd (segment-IT services) 5. Ld.AR submitted that this company, operates in three segments and segmental results are not available placing reliance upon annual reports placed at page 585-664 of paper book. It has been submitted that revenue recognition is from export sales. It has been submitted that this comparable provides end to end solutions to its customers and is committed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y this company, and that there was major fluctuation in its profits, which influenced turnover of this company. Further it is observed that in case of DCIT vs M/s CGI Information Systems and Management Consultations Pvt.Ltd., in ITA No.502/Bang/2016 for assessment year 2011-12 vide order dated 06/04/18 dealt with identical objection raised by Ld. CIT DR before as under: 24. As far as ground No. 4 raised by revenue is concerned, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rules. As far as ground No. 5 in revenue s appeal is concerned, the revenue seeks to challenge the exclusion of AE Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground that: (i) no segmental information is regarding its diverse functions is available; (ii) it failed the software service income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, without there being bifurcation in order to understand component of income earned by this company from software development exclusively. Thus it is amply clear that this company is engaged in diversified activities of software development for which segmental reporting has not been provided. We draw support for exclusion of this company from the decision of coordinate bench of this Tribunal in case of DCIT vs Electronics for Imaging India Pvt.Ltd (supra) and ACIT vs Broadcom India Research (P) Ltd (supra) for exclusion of this company. Respectfully following the same we direct Ld. AO/TPO to remove this comparable from final list. Infosys Ltd 8. This company has been included by Ld.TPO which is objected by assessee due to very high turnover, which is more than 200 crores. It has been submitted by Ld.Counsel that this company for during year ending 31/03/10 had turnover of about ₹ 21,140 crores, which is much higher than that of assessee. Further she submitted that this company is a joint and software development space while assessee is a small captive service provider, providing exclusive services only to its AE s. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products, royalty on sale of products as well as income from maintenance contracts etc which could not be considered functionally similar with that of assessee holders only carrying out software development service at the behest of its AE s on a captive basis. Similar view has been taken by this Tribunal in case of DCIT vs Electronics for Imaging India Pvt.Ltd (supra). Respectfully following the same we direct Ld.AO/TPO to exclude this company from the final list. Sasken Communication Technologies Ltd 10.It has been submitted that this company has been included by TPO even after various objections raised by assessee. Ld.AR submitted that this company recognises revenue from sale of product and revenue from software services include network engineering services. It is also been submitted that this company offers combination of research and development consultancy, wireless software products and services. The segmental details of the sale software product and revenue from software services are not available. 10.1 On the contrary Ld. CIT DR placed reliance upon order passed by Ld.TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the list of comparables. 11.1 On the contrary Ld. CIT DR supported view taken by Ld.CIT (A) in including this company in the list of comparables. We have heard both parties and carefully perused and considered material on record. 11.2 From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in Annual Report show that segment software development services relates to design services and are not similar to software development services performed by assessee. It is observed that Mumbai Tribunal in case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) held that Tata Elxsi Ltd. is not a software development service provider and therefore, it has been submitted that this company is not functionally comparable with assessee. In this context relevant portion of this order is extracted and reproduced below :- . Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.1 On the contrary Ld.CIT DR placed reliance upon orders of authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. 14.2 Annual report of this company is placed at page 1729-1827 of paper book. Further it is observed from the order passed by Ld. CIT (A) that this company has been upheld for inclusion. The only objection that assessee had raised before Ld.CIT (A) in respect of this comparable was relating to the working of computation of operating markup on cost which Ld.TPO inadvertently considered from the consolidated financial statements of FCS. It is observed that Ld.CIT(A), while deciding ground no.8 raised therein, directed Ld.TPO to verify working of computation provided by assessee and thereafter to decide issue in accordance with law. We therefore do not find any reason to express our opinion as this comparable has already been included by Ld.CIT(A) which assessee has alleged before us for inclusion again. Accordingly this comparable is retained in the final list. Accordingly, ground no.8 to 12 stands partly allowed. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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