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TMI Blog2000 (4) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... with AE. 4. Briefly stated, the facts of the case are that the appellant company was incorporated as an Indian Company under the Indian Companies Act, 1956. The flagship company is Nagarro Inc., USA. The holding company is into the business of requirement analysis, quarterly project reviews, conflict resolution, marketing, sales and other support services operations on a vertically integrated basis. To augment its work process, it has the India subsidiary Nagarro Software Pvt Ltd., the appellant. 5. The appellant company is a software solution developer for its holding company Nagarro Inc and the German Associated in the areas of product co-development, health care and finance. It has a wholly dedicated unit for the purpose. In short, the appellant is a captive service provider. 6. The appellant is in the business of customised software development on contractual basis and the specifications of the same are provided by Nagarro Inc. USA and Nagarro GmbH, Germany. The domain and vertical of software development work relates to the development of software including coding, provides technical support in terms of research and development on technology, best practices, code rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, it cannot be taken as comporablo 2 Ancent Software International Ltd The company has sales of ₹ 0 86 Cr. which is less than ₹ 5 Cr and hence fails the filter of sales 5 Cr. It cannot bo taken as comparable. 3 Aztocsoft Ltd It is not a correct comparable. The assessee had shown jpetiftr s RPT less than 25% However, as per annual report was calculated as 34.28%. Futther. the consolidated sales were 1.21 times the standalone sales Margin on consolidated and stand alone level are 27 37% and 28.12% Hence, it is not being considered as comparable even at consolidated level as Ihe two entities are having wide variations in margins indicating that the consolidated entity has significantly different functions in entities other than standalone Aztecsoft Ltd 4 CG Vak Sofbvare Exports Ltd The company does not qualify employee cost filter as its employee cost is 7.22% which is less than 25% of total cost It cannot be taken as comparable 5 Goldstone Technologies Ltd I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. - The company commenced to trade on 1 st September, 2003 and its principal activity during the penod under review was that of the provision of computer software development and support services, computer software products and other information technoloav related services. The company has Copynghts of ₹ 27.175.655 as on 31.03.2008 and ₹ 21, 740,524 as on 31.03.2009 in its fixed assets (Schodulo 5) It is dear from the above that the company has several products which it customizes for the clients. Since this is a functionally different company, the same is not a comparable R S Software (1) Ltd It is a correct comparable. Sasken Communication Technologies Ltd Page 7 of Annual Report states that Sasken is designing and bringing into pre-production the complete phone, which would include the hardware component composing design, development testing of antenna, RF and its mechanical lements along with the software component comprising protocol stacks, application framework and test lab offerings' Page 10 of Annual Report states that On the products si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.33 6. LGS Global 18.79 7. Mind tree 27.36 8. Persistent Sys 37.77 9. RS Software (I) 10.15 10. Sasken Comm. Tech. 51.44 11. Tata Elxsi 16.88 12 TCS 31.44 13. Thinksoft Global Services 16.56 14 Thirdware Solutions Ltd. 37.27 Average 24.95% 13. And ALP was computed as under: Operating Cost 30,90,06,746 Arm's Length Price at a margin of 24.95% 38,61,03,929 Price received 36,08,23,635 105% of International Transaction 37,88,64,817 Proposed Adjustment u/s 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively in the business of Medical Transcription, Training, Software Development and Consulting Services. Perusal of annual report, available at page 1871, also shows that CAT Technology is engaged in job portal services. 85. Ld. DR contended that the CAT Technology is only into software development as discussed by the TPO. However, as per data available in the annual report at page 1871, it is categorically mentioned that during the year under assessment, the company launched job portal viz. Logtalent.com which was instant success with job aspirants. Encouraged with success of this portal company proposed to launch 3 to 4 portal during the current financial year in the different fields. So, in the given circumstances, contention ITA No.419/Del/2014 made by ld. Senior DR is misplaced and ld. DRP has rightly excluded CAT Technology from the final set of comparables. 22. Considering the business profile of this company in light of decision of the co-ordinate bench [supra] we direct the Assessing Officer/TPO to exclude this company from the final set of comparables. Persistent Systems Ltd 23. Before the TPO, the assessee strongly objected for inclusion of this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, we direct this company to be excluded from the final set of comparables. Tata Consultancy Limited 30. The TPO included this company for the reason that out of total sales of ₹ 27,385 crores, ₹ 1919 crores is from BPO and ₹ 2,225/- crores is from IT infrastructure services. Hence, these turnover figures contribute only 15% of the total revenue. The TPO further observed that sale of equipment and software license constitutes only 3.76% and inventory is only 0.13%. The assessee had strongly objected for inclusion of this company stating that enterprise solutions, such as, enterprise resource management, supply chain, management customer relationship management, IT infrastructure services business processing outsourcing, ITES, engineering and industrial services are non-comparable services with that of the business profile of the assessee company. The ld. counsel for the assessee further pointed out that there is sale of equipment and software licence and further, there are significant R D activities. 31. The ld. DR supported the findings of the TPO. 32. We have given thoughtful consideration to the orders of the authorities below and have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the Assessing Officer/TPO to exclude this company from the final set of comparables. 37. The assessee has also pointed out some margin computation errors in the case of Goldstone Technologies Limited and Sasken Technology Limited. The assessee has furnished the corrected operating margins of these comparables which is placed at pages 194- 195 of the paper book. 38. We are of the considered view that the TPO should examine the correct margins of these companies as furnished by the assessee and if found correct, may decide the issue afresh as to whether these companies are to be included or excluded from the final set of comparables. With these directions, we restore the inclusion/exclusion of Goldstone Technologies Ltd and Sasken Technologies Ltd to the file of the TPO. 39. In the case of CG VAK Software Exports Ltd, the TPO excluded this company by stating that this company does not qualify employee cost filter as employee cost is 7.22% which is less than 25% of the total cost. However, as per the Annual Report of this company, we find that its employee cost is around 75.42%. The computation of employee cost is also made available at page 214 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .86% 64.04% 34.39% 29.65% Further, on calculation of the growth of Bodhtree Consulting Ltd., the appellant has pointed out that it has a growth of 353% in its net profit for the FY 2008-09 as compared to its immediate preceding year. The appellant has further stated that the company is engaged in diversified business operations. The TPO had rejected the contention of the appellant that this is not a comparable company to the appellant. However, the reason for the extraordinary growth in the margin of Bodhtree Consulting Ltd. is a factor which is not considered by the TPO. Appellant has relied upon the decision of Sap Labs India Pvt. Ltd. (2010-TII-44-ITAT-Bang-TP) to state that Bodhtree Consulting Ltd. was excluded because of its abnormal profit in the same year. The extraordinary revenue growth is a factor which needs to be analyzed. The application of most appropriate method needs to be judged with reference to the contractual terms between the parties to the transaction. The profit of this company is very volatile. In absence of the details, it is difficult to verify as to how this company has earned such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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