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TMI Blog2019 (11) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... I A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For The Appellant : Shri P. K. Prasad, Advocate and Umashankar For The Respondent : Shri C. H. Sundar Rao, CIT(DR) ORDER Per PAVAN KUMAR GADALE, JM: The assessee has filed the appeal against the final assessment order dated 26/9/2017 passed u/s 143(3) r.w.s 144C(13) of the Income-tax Act,1961 ['the Act' for short] passed in pursuance to the directions of the DRP vide order u/s 144C(15) No.243/DRP/BNC/76-77 dated 23/08/2017. 2. At the time of hearing, ld. AR submitted that the Additional grounds of appeal filed on 7/6/2018 and 8/6/2018 are not pressed and made endorsement in the grounds of appeal. Whereas in the main grounds of appeal, the ld. AR has not pressed ground No.2 and the effective grounds of appeal are grounds No.1, 3, 4, 5 & 6 which are as under: 1. That the learned Deputy Commissioner of Income Tax, Circle 2(1)(1), Bangalore ("Assessing Officer" or "AO") and the learned Dispute Resolution Panel ("learned Panel") erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned Deputy commissioner of Incometax, Transfer Pricing - Range 1(1)(2) (learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared from time to time and furnished the details. The AO found that the assessee has international transactions in the relevant financial year exceeding ₹ 15 crores and with prior approval of the Principal CIT, the matter was referred to the TPO. TPO observed that the assessee has management functions, software service functions and considered the financial results and PLI on operating cost/operating revenue as under: The TPO also dealt on segmental financials at para 3.1, 3.2 and foreign exchange loss in operating nature. Whereas in the said financial year the assessee has international transactions which are as under: 3. THE ENTITY LEVEL FINANCIAL RESULTS FOR THE F Y 2012-1 COMPUTED BY THE TPO Particulars Amount Total Revenue 314,94,32,203 Less: Other income 1,20,09,335 Operating Revenue 313,74,22,868 Total Expenditure 287,34,31,162 Less: Finance cost (Interest costs -ECB + Interest on Income Tax) 2,54,27,138 Less: Loss on Sale of fixed assets 49,227 Operating Expenditure 284,79,54,797 Operating Profit/Loss 28,94,68,071 OP/OC 10.16% OP/OR 9-23% The TPO has called for documents-maintained u/s 92D of the Act along with Annual reports and copies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 144C(1) dated 21/11/2016 and objections were filed in Form 35A with DRP and on receipt of order of DRP u/s 144C(5) dated 23/8/2017 . AO passed final assessment order u/s 144(3) r.w.s.144C(13) of the Act dated 26/9/2017. 5. Aggrieved by the final assessment order, the assessee has filed appeal before the Tribunal. 6. At the time of hearing, ld. AR has made submissions on grounds of appeal 3 to 6, whereas ground No.1 is general in nature. The ld. AR's contention that two comparables considered by the TPO in the final list viz., M/s.Larson & Toubro Infotech Ltd., and M/s. Persistent Systems Ltd., are to be excluded and 2 comparables viz. M/s.Akshay Software Technologies Ltd., and M/s.Spry Resources India Pvt. Ltd. are to be included and filed chart to support his stand. Whereas the learned DR supported the order of the TPO and the DRP and raised objections for excluding and including comparables. 7. We heard rival submissions and perused the material on record. On the first disputed issue of exclusion of comparables, ld. AR submitted that comparable company Larsen & Toubro Infotech Ltd. has adopted the margin of 24.60% and is functionally different and segmental data is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services and has various segments and has huge intangibles and no segmental data is available. We find the above comparable was dealt by the co-ordinate bench of Tribunal for exclusion in the case of M/s.Metric Stream Infotech (India) Pvt. Ltd. vs. DCIT in IT(TP)A Nos.1418 & 2735/Bang/2017 at page 6 para.11 which read as under: "11. As far as L&T Infotech Ltd. and Persistent Systems Ltd. are concerned, our attention was drawn to the decision of ITAT Hyderabad Bench in the case of M/s. EPAM Systems (I) P. Ltd. v. ACIT, ITA No.2122/Hyd/2017 for AY 2013-14, order dated 20.11.2017. Vide para 12 of the decision, the Tribunal took the view that Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefore the profit margin in the software development services segment could not be compared with the assessee's profit margin. As far as L&T Infotech Ltd. is concerned, the Tribunal vide para 17 of the aforesaid order came to a similar conclusion to hold that L&T Infotech should not be regarded as a comparable company. In the light of judicial precedents which remain uncontroverted, we are of the view that the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware development activity only. We find that this comparable i.e Akshay Software Technologies Ltd had been accepted as comparable in IT sector in the Co-ordinate Bench decision of Delhi Tribunal in the case of Qualcomm India Pvt Ltd vs ACIT in ITA No. 5239/Del/2010 dated 10.6.2013 , wherein it was held that :- 26. On perusal of the order of the Ld. T.P.O. , we find that the Ld. T.P.O. has rejected Akshay Software as a comparable to the assessee for determining the assessee's ALP on the basis that the Akshay Software is functionally different to the assessee. He has observed that Akshay Software is engaged in SAP and remote infrastructure management software applications, as against design work on embodied software, DSP an integrated circuit hardware design and systems and also for the reasons that sales of Akshay Software is only ₹ 6.21 crores against sales of ₹ 125 crores to the assessee. We, however, find that the Ld.T.P.O in the assessment year 2007-08 as it is clear from the TPO order for the said assessment year made available at Page No-69 of the paper book volume 3 , has accepted that Akshay Software is comparable in the light of identical functions. On per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P can also bring in companies which are functionally comparable with that of the assessee with a small caveat that in case the assessee is bringing in a new comparable then in both the cases the TPO / DRP should be given opportunity to deal with those comparables. In the present case needful has not been done, therefore in the considered opinion of the bench these aspects of examining the functional profile of these four companies, namely, Acropetal Technologies Ltd. Cigniti Technologies Ltd, Sasken communications Ltd and Spry Resources India Pvt Ltd, is required to be remanded back to the file of the TPO for examining afresh. In any case, we are remitting back the two companies, namely Persistent Systems Ltd (seg) and Larsen & Toubro Infotech Ltd to the file of the TPO. Therefore these four companies are also directed to be remanded back to the file of TPO for the purposes of due adjudication. Needless to say that the TPO shall give opportunity to the assessee before finalizing the inclusion / exclusion of these comparables after applying the same filters. Accordingly this ground is allowed for statistical purpose. Summary of the result of TP grounds : i) The assessee ground fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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