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TMI Blog2019 (1) TMI 1691X X X X Extracts X X X X X X X X Extracts X X X X ..... ise functionally comparable with that of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the Ld. AR has drawn our attention to the recent judgment of the Hon'ble jurisdictional High Court in the matter of Pr. CIT v. Softbrands India P. Ltd [94 taxmann.com 426] and also in the matter of Acusis Software India P. Ltd v. ITO [98 taxmann.com 183], wherein at para 14 and 15, it had approved the filter applied by the Tribunal i.e., the turnover of ten times of both sides of the assessee's turnover. 10. In rebuttal the Ld. DR submitted that the CIT (A) had not examined the functional profile of any of these comparables and had merely excluded them on the basis of turnover filter of 1 to 200 crores. It was also contended that the profile of these companies should be examined by the CIT (A), hence matter is required to be sent back to the file of the CIT (A) with a direction to examine the functional profile of these companies, 11. We have heard the rival submissions and perused the record. The Hon'ble jurisdictional High Court in the matter of Acusis Software India p. Ltd (supra) had approved the order passed by the tribunal wherein it has applied the filter of ten times of both sides of the assessee. As this Tribunal falling within the territorial jurisdiction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d [TS-354-ITAT- 2016(Bang)-TP] Sysarris Software P. Ltd v. DCIT [67 taxmann.com 243] and ITO v. Sunquest Information Systems (India) P. Ltd [61 taxmann.com 81], wherein both Exensys Software Solutions Ltd and Thirdware Solutions Ltd. were part of the same booklet and the Tribunal after considering the profile of all these companies directed to exclude these two companies. 15. On the other hand the Ld. DR relied upon the order passed by the lower authorities. 16. We have heard the rival submissions and perused the record. The Tribunal for the same assessment year in the matter of Net Devices India p. Ltd (supra), at para 8.1 to 8.3 and 9.1 to 9.3, held as under : 8.1 Ground No.4 is regarding exclusion of the companies having more than 50% of profit margin. The learned Departmental Representative has submitted that the CIT (Appeals) has excluded two companies viz. Accentia Software Solutions Ltd. and Thirdware Solutions Ltd. on the ground that these companies are having abnormal profits of more than 50%. Thus the learned Departmental Representative contended that high profits or high loss cannot be a reason for exclusion of a company in the list of comparables. He has relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of this Tribunal in case of M/s. Textron Global Technology Centre Pvt. Ltd. in lT(TP)A No.29/Bang/2012 has considered the comparability of this company in paras 19 & 20 as under: "Sankhya Infotech Limited ('Sankhya') 19. It was submitted by the learned counsel for the Assessee that Sankhya is engaged in the business of development of software products & services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant. The products developed and owned by Sankhya are listed below: (1) SILICON' rm Training Suite of Products: The products are a comprehensive enterprise wide training platform that covers the entire spectrum of training in a paperless environment. It comprises of four products:- - SILICON TM LMS (Training Management Information - SILICON TM QT (Online Assessment System) - SILICON TM LCMS (Learning Content Management System) - IRMAQT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , customer relationship management and ERP, software products. He has referred to the Annual Report of this company and submitted that this company is also engaged in the distribution of software products and providing trunky project which include a bundle of activities such as providing software product combined with implementation and customer services. In support of his contention, he has relied upon the following decisions i) M/s. McAfee Software ( India) Pvt . Ltd. in IT(TP)A Nos.4/Bang/2012 & 1388/Bang/2011. ii) M/s. Sunquest Information Systems (India) Pvt.Ltd. in IT(TP)A No. 1302/Bang/2012. iii) M/S. Symbol Technologies India Pvt. Ltd. in lT(TP)A No.391/Bang/2012. iv) Textron Global Technology Centre Pvt. Ltd. in IT(TP)A No.29/Barig/2012. 9.2 The learned Departmental Representative has submitted that the TPO has analysed the functions of this company and it was found that this company is engaged in the similar activity of providing software development services. He has relied upon the orders of the authorities below. 9.3 We have heard the rival submissions as well as considered the relevant material on record. The learned Authorised Representative of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule(4) of rule 10B. On the basis of the above, it was argued by the Ld. DR that if the comparables are following the different accounting year in comparison to assessee then the AO / TPO/ CIT (A) can deduce the corresponding accounts for the accounting year used by the assessee representing different quarter in the same accounting year. 19. It was further submitted that on the basis of rejection of the comparable by the TPO and inclusion by the CIT (A) on account of different accounting year, various other comparables would be available as the said comparable amounts have been rejected by the TPO on the basis of different accounting year. 20. The Ld. AR has relied upon the order passed by the CIT (A). 21. We have heard the rival submissions and perused the record. In our view, the otherwise valid comparables which are matching with the profile of the assessee with respect to FAR should not be rejected on the basis of its using different financial year. The results on quarterly basis are available in public domain and it should be an endeavour on the part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales and, therefore, ought to be rejected in view of this Honble Tribunal's decisions in 24/7 Customer Pvt. Ltd. [ITA No.227/Bang/2010] (para 13) and in the Assessee's own case for AYs 2006-07 (ITA No.1274/Bang/2010) and 2007-08 (ITA No.973/Bang/2010). 25. We have heard the rival contentions of the parties and perused the record. The Tribunal in the matter of ABB Global Industries P. Ltd (97 taxmann.com 475) had held as under at para 11.4.1 : 11.4.1 As regards M/s. Geometric Software Solutions Co. Ltd., the learned CIT (Appeals) has rendered a finding that this company is engaged in developing and licensing of products and product life cycle management services which are not similar to the functions of the assessee. The learned CIT (Appeals) has also observed that the revenue break up between products and services is not available and therefore directed exclusion of this company from the set of comparables. This finding of the learned CIT (Appeals) that this company is functionally dissimilar to the assessee, has not been controverted by the learned Departmental Representative. In this view of the matter, we find no reason to interfere with the decision of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it to be functionally dissimilar from the similar activity of software development service. We find that the Tribunal, at para.12 & 13 of its order, has held as under: "12. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Triology E-Business Software India Pvt.Ltd.(supra): Xxxxxx Xxxxxx 17. As far as comparable company chosen by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt.Ltd. IT (TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:- "14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- "7.7. Tata Elxsi Limited.: From the facts and material on record and submissions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amount of ₹ 1.2 crores was deposited in UK towards the VAT. It was the contention of the assessee that in UK, VAT is leviable on both sale of product as well as on the services and therefore the conclusion drawn by the CIT (A) is correct. 30. In this regard the Ld. AR relied upon the decision of the Delhi Tribunal in Qualcomm India P. Ltd v. ACIT [ITA No.5239/Del/2010, dt.10.06.2013], to support that the order passed by the CIT (A) is correct. Further the Ld. AR relies upon the decision of the Tribunal in the matter of ABB Global Industries P. Ltd (97 taxmann.com 475), to the following effect: 12.2 Per contra, the learned Authorised Representative of the assessee supported the decision of the learned CIT (Appeals) in including this company in the set of comparables and in support of the assessee's contentions placed reliance on the decision of the Delhi Bench of ITAT in the case of Qualcomm India (P.) Ltd. v. Asstt. CIT [2013] 37 taxmann.com 306/[2014] 147 ITD 17. 12.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncement cited (supra). The learned CIT (Appeals), in the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s actually paid on sale of product and was only paid on account of services. On both the aspects the necessary response should be sought by the CIT (A) by exercising his power u/s.133(6) of calling upon VJIL to disclose whether it is into sale of product or provider of services. We may point out that the coordinate bench in the matter of ABB Global Industries, had not examined these aspect while passing the order. If on enquiry it is found that it is into sale of product, then this comparable is required to be excluded, otherwise it is to be included. In view of the above, this ground of the Revenue is allowed for statistical purpose. Assessee's C O : 33. Re. Ground No.14 in the cross objections: The Assessee submits that one company, namely, Sankhya Infotech Limited ('Sankhya' for short), selected by the TPO and retained by the CIT(A), ought to stand rejected as it is not functionally comparable to it. The said company is engaged in the business of development of software products as well as services and training. Further, Sankhya focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions as well as relevant material on record. At the outset, we note that the functional comparability of this company has been examined by the Tribunal in a series of the cases as relied upon by the learned Authorised Representative of the assessee. In the case of ITO Vs. M/s. Sunquest Information Systems (India) Pvt. Ltd. (IT(TP)A No.1302/Bang/2011 & 92/Bang/2012), the Tribunal has considered and decided an identical issue in paras 19 & 20 as under : "Sankhya Infotech Limited ('Sankhya') 19. It was submitted by the learned counsel for the Assessee that Sankhya is engaged in the business of development of software products & services and training. The company focuses on the development of niche products for the transport and aviation industry. However, segmental information in relation to the above mentioned activities is not available in public domain. Therefore, as Sankhya engages itself in products and services as well as software training, it cannot be IT(T.P)A No.1099/Bang/2011 & C.O. No.19/Bang/2012 considered as a comparable of the Appellant. The products developed and owned by Sankhya are listed below: (1) SILICONTM Training Suite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the TPO to exclude this company from the list of comparables. 36. The assessee has not pressed the ground pertaining to Melstar Information Technology Ltd, Hence this ground is not adjudicated by the Tribunal. 37. Ground no 13 regarding exclusion of foursoft Ltd, on the ground that it fails the RPT filter. In this regard the Ld. AR brought to our notice the binding decision of the Tribunal in the matter of ACI Worldwide Solutions P. Ltd, to the following effect 09. We have heard the rival contentions and perused the material on record. Recently this Tribunal in the matter of ACI Worldwide Solutions P. Ltd (IT(TP)A.262/Bang/2015, dt.26.07.2017, has extensively dealt with the issue of RPT filter, to the following effect: "12. We have heard the rival contentions and perused the record. We would like to bring on record that the assessee has not raised the objection with regard to RPT either at the stage of TPO or before the DRP. Therefore, the DRP did not have the occasion to examine the RPT of L & T Ltd, with its other related parties. Nonetheless, the Tribunal in its order in Electronics for Imaging India Ltd (supra), has not disputed that RPT of L & T Ltd was 18.66% an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Rule 10B(2), the FAR (Functions, Assets and Risk assumed) analysis is to carried out for comparable company viz a viz the tested company. If the FAR of the tested party as well as the comparable company are comparable, then only the ALP of the tested party is required to be determined in relation to the international transactions. However, for the purpose of finding a suitable comparable efforts should be made by the TPO to iron-out or minimise the differences if any between the comparable and tested party. It is an admitted position, in some case, that if the transaction is between the two related parties, then the prices can be controlled and the transaction will lose its character of being an uncontrolled transaction. 14. An "Associated Enterprise" is defined u/s.92A under the Income-tax Act, 1961, as under : (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, associated enterprise, in relation to another enterprise, means an enterprise (a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise ; or (b) in respect of which one or more persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise ; or (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual ; or (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family, or by a relative of a member of such Hindu undivided family, or jointly by such member and his relative ; or (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent. interest in such firm, association of persons or body of individuals ; or (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. 15. whereas the "Related Party" is defined u/s.2(76) of the Companies Act, 2013, as under : (76) "related party", with reference to a company, means- (i) a director or his relative ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RPT i.e fixing the RPT as 25%. Therefore, keeping the above said in mind, for many years, the RPT filter had been adopted by the TPOs to exclude the otherwise comparable company from the list of comparables, if the RPT was found to be more than 25%. Theoretically, 0% RPT filter adopted by the DRP is correct, but with a view to appreciate the practical difficulties in finding out the comparable, the RPT filter was relaxed in some matters by the Tribunal to the extent of 25% and in some matters, it was relaxed up to 15%. In our view, a balanced view is required to be adopted and when sufficient number of comparables are available, then the RPT filter should be adopted at 15% otherwise it can be relaxed for 25% . Recently, there is a change in law ( CBDT issued in rules on multi year data and range concept after passing of Finance Act 2014 ) which requires that there should be a minimum of six comparables available for the purpose of determining the ALP. Though the said amendment is prospective nature, but taking clue from the wisdom of the legislature, we deem it appropriate if more than six comparables are available, then 15% RPT filter should be applied, but if the comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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