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TMI Blog2019 (11) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(TP)A no.1576/Bang./2013 Appeal by the Assessee 2. Though, the assessee has raised various issues in the grounds, however, they basically relate to the addition made on account of transfer pricing adjustment made to the arm's length price of software development services provided to the overseas Associated Enterprises (AEs). Notably, subsequently, the assessee has filed amended grounds of appeal and as per the said amended grounds, the dispute has been narrowed down to selection of seven comparables. Therefore, we will restrict our finding to the aforesaid issue alone. 3. The assessee is a successor to Delmia Sales Pvt. Ltd., which was a subsidiary of Somero Enterprises Inc., Mauritius. Somero Enterprises Inc., in turn, is a subsidiary of Delmia Corporation, USA. The assessee basically is engaged in providing software development services to the AE. During the year under consideration, the assessee received revenue of ₹ 17,02,81,992, towards provision of software development and consultancy services to the AE. In the transfer pricing report, the assessee benchmarked the aforesaid transaction with the AE by adopting Transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hereafter we will deal with each of the comparables objected by the assessee. i) THIRDWARE SOLUTIONS LTD. 6. Objecting to the selection of this company, the learned Authorised Representative submitted, the company is engaged in multiple activities, such as, software development services, sale of products and related service. He submitted, the company has earned substantial revenue from product license and has earned extra ordinary profit due to intangible owned by it. Thus, he submitted, the company being functionally different from the assessee cannot be treated as comparable. He submitted, for the aforesaid reasons, the company was not considered as a comparable by the Tribunal in assessee s own case in assessment year 2008 09. In this context, he drew our attention to the relevant observations of the Tribunal. Further, he submitted, the Tribunal in Saplabs India Pvt. Ltd. v/s ADIT, [2017] 87 taxmann.com 316, while considering the issue relating to comparability of this company with a software development service provider for the very same assessment year, has held that this company cannot be treated as comparable. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not available. He submitted, considering the aforesaid facts, in assessee s own case in assessment year 2008 09 and 2009 10 the company was rejected as a comparable. In this context, he drew our attention to the orders passed by the Tribunal in ITA no.1303/Bang./2012, dated 28th November 2013, and ITA no.634/Mum./2014, dated 7th September 2015. Further, he submitted, in case of Google India Pvt. Ltd. v/s DCIT, ITA no.1298/Bang./2013, dated 3rd March 2017, which is for the very same assessment year, the Tribunal having found the company to be functionally different excluded it from the list of comparables. Thus, he submitted, this company cannot be selected as a comparable. 10. The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) / Transfer Pricing Officer. 11. We have considered rival submissions and perused the material on record. From the facts placed on record, it appears that this company has more than one segment and further, the software development service segment also has more than one sub segments. Whereas, the segmental details are not available. Considering these aspects, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is noticed that the company is engaged in product development. That being the case, it is functionally dissimilar to the assessee. Considering the fact that this company is a product development company, the Co ordinate Bench in Saplabs India Pvt. Ltd. (supra) and Google India Pvt. Ltd. (supra) have excluded this company as a comparable. The aforesaid decisions of the Tribunal being for the very same assessment year, respectfully following them, we exclude this company from the list of comparables. iv) EXENSYS SOFTWARE SOLUTIONS LTD. 15. Objecting to the selection of this company, the learned Authorised Representative submitted, the company is functionally dissimilar to the assessee as it is engaged in multiple activity including software product development. He submitted, the business of the company is primarily related to ERP Suite of products owned by it. He submitted, the company owned significant intangible including marketing intangible consisting 60% of its gross assets. He submitted, the company is involved in complex operations of developing proprietary technologies and marketing the same. Further, he submitted, during the year there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng software development service, the company is also engaged in development of software products and training. However, segmental details relating to all its activities are not available in public domain. Considering the above, the Co ordinate Bench in Saplabs India Pvt. Ltd. (supra) and Google India Pvt. Ltd. (supra) has excluded these companies as comparable. No contrary facts or material has been brought to our notice by the Revenue to take a different view other than the view taken by the Bench in the decisions referred to above. Accordingly, we direct the exclusion of this company from the list of comparables. vi) GEOMATRIC SOFTWARE SOLUTIONS LTD. 21. Objecting to the selection of this company, the learned Authorised Representative submitted, the company is functionally different from the assessee as it is engaged in the development of software product and segmental details of software service and software product segments are not available. Thus, he submitted, the company cannot be treated as comparable. In support, he relied upon the decision of the Tribunal in Saplabs India Pvt. Ltd. (supra) and Google India Pvt. Ltd. (supra). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. Undisputedly, the Transfer Pricing Officer has applied RPT filter of more than 25% to reject comparables. Though, the Transfer Pricing Officer has taken a RPT of this company as zero percentage, however, it is the contention of the assessee that the RPT of the company is actually 34.68%, hence, it fails the RPT filter applied by the Transfer Pricing Officer. It is noticed that in case of Google India Pvt. Ltd. (supra) which is for the very same assessment year, the Tribunal having factually found that RPT of the company constitutes 34.68% of the total turnover excluded it as a comparable. Moreover, in case of Saplabs India Pvt. Ltd. (supra), the Tribunal excluded it due to extraordinary and extremely fluctuating margins over the years. Since, the aforesaid decisions of the Tribunal are for the very same assessment year and the Revenue has failed to bring to our notice any contrary fact or material to deviate from the view expressed by the Bench in these decisions, respectfully following them, we exclude this company from the list of comparables. Accordingly, we direct the Assessing Officer to compute the arm s length price afresh after excluding the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ₹ 3464.20 crore Infosys Technologies Ltd. ₹ 6859.70 crore 33. It is relevant to observe, the assessee while selecting comparables had applied both upper and lower turnover filter by fixing range of ₹ 5 to 250 crore. Whereas, the Transfer Pricing Officer, though, has applied the lower turnover filter by excluding companies having less than ₹ 1 crore income, however, it did not apply upper turnover filter. This, in our view, is a wholly incorrect approach. Undisputedly, compared to assessee s turnover of ₹ 17.30 crore, the turnover of the excluded companies are substantially higher and far ahead of the assessee. Compared to these companies and more particularly, Infosys Technologies and Satyam Computer Service Ltd., the assessee has to be considered as a pigmy. Further, it cannot be said that the turnover in all cases do not impact the profitability. Pertinently, in assessee s own case in assessment year 2006 07, the Tribunal in ITA no.1109/ Bang./2010, dated 10th May 2013, has held that upper turnover fi ..... 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