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TMI Blog2020 (3) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the directions of Dispute Resolution Panel (DRP) Dt.21.08.2018. 2. The assessee has raised the following grounds of appeal : 3. At the time of hearing, the learned Authorized Representative has not pressed Ground of appeal Nos.11 to 14 and made endorsement, hence they are treated as withdrawn and dismissed; The assessee raised additional Ground of appeal on the Turnover criteria and is admitted and read as under : 4. The Brief facts of the case are that the assessee was incorporated in January, 2005 as a wholly owned subsidiary of Microsoft Corporation, US (M S Corp.). The Asssesse company is engaged primarily in rendering Software Development Research and Development Services to its Associated Enterprise (AE) M.S.Corp. The assessee company filed the Original Return of Income on 28.11.2014 with total income of ₹ 18,21,06,039 and filed the Revised Return of Income on 30.03.2016 with total income of ₹ 17,22,00,910. Subsequently, the case was selected for scrutiny under CASS and Notice under Section 143(2) 142(1) of the act were issued. In compliance the learned Authorized Representative appeared from time to time and submitted the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative relied on the orders of the lower authorities and filed written submissions. 10. We heard the rival contentions and perused the material on record. Prima facie, the learned Authorized Representative has made submissions on exclusion of comparables relying on the additional ground of appeal of Turnover Criteria. First we shall deal with the exclusion of comparables as under: (i) Infosys Limited : The turnover being ₹ 44,341 Crores and it is functionally not comparable as the turnover is more than 500 times of the assessee turnover of ₹ 84.09 Crores. The company is engaged in developing software products Pinnacle and was rejected by the DRP in assessee own case for the Assessment Year 2011-12. Further has high brand value and incurred huge expenditure in R D with exceptional areas of operation and earned super natural profits and is engaged in diversified activities. We found that the comparable was excluded by the co-ordinate Bench decision of the Tribunal in the case of M/s. Marwell India P. Ltd. Vs. DCIT in IT(TP)A No.3082/Bang/2018 for the Assessment Year 2014- 15 Dt.23.10.2019 at page 20 para 4.2 (b) which read as under : 4.2 (b). Infosys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar with that of assessee. Ld.Counsel submitted that this company carries out diverse set of activities such as planning and budgeting, MIAs reporting, analytics, rollouts, due diligence, upgrade and migration, data centre migration infrastructure architecture etc. He submitted that the entire operating income is derived from sale of product it is also been submitted that this company fails RPT filter of 15% as applied by Ld.TPO. Ld.Counsel submitted that during the year under consideration this company had extraordinary growth 45.34% be next secluded by various decisions of coordinate bench of this Tribunal. Ld. CIT DR on the contrary placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. On perusal of the annual reports placed at page 573 of paper book volume 2, it is observed that this company has developed its own product by the name PAPA . It is observed that this company has incurred huge expenses towards import of software services evidencing outsourcing of software services unlike that of assessee. It is also observed that this company is into production of softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decisions rendered by ITAT Delhi Benches in case of cash edge India private limited vs ITU in ITA No. 64/del/2015 vide order dated 23/09/15 and the details of orderable Delhi High Court in case of sexual India private limited (supra). The findings in this regard are contained in paragraph 4.14 to 4.16 of its order. Respectfully following the same we are of considered opinion that this company deserves to be excluded from the final list. We, respectfully follow the coordinate Bench decision, and direct the TPO to exclude the comparable from the final list of comparable for determination of ALP. (iv) L T InfoTech Limited, turnover is ₹ 4643.94 Crores, and during the year has undertaken capital expenditure of ₹ 12348 Lakhs which works out to approximately 1.5 times of turnover of the assessee being ₹ 84 Crores.The comparable is engaged in provision of software sales of products and no segmental information is available and is engaged in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee business model with no segmental data is available and brand value with huge intangibles. We found for the Assessment Year 2014-15, the company was excluded by the coordinate Bench decision in the case of Marwell India Pvt. Ltd. Vs. DCIT (supra) at page 24 para 4.2 (f) of the order as under : 4.2 (f). Mindtree Ltd This comparable has been included by Ld.TPO the final list. Ld. counsel submitted that it is functionally not similar with that of assessee. It is submitted that assessee engaged in providing services such as Agile, analytics and information management, application development and maintenance, business process management, business technology consulting, Cloud, Digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services. Ld.AR referred to page 1088 in support. It is further been submitted that this company does not have segmental information on the basis of which revenue earned from different verticals could be identified. This company also owns huge intangibles and therefore deserves to be excluded. On the contrary Ld. CIT DR placed reliance upon orders passed by authorities below. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old this company to be a pioneer in software testing market catering to clients all over the world in different geographies. On the contrary, Ld.CIT DR submitted that this is no different function than what assessee has been carrying out for its AE and therefore is a perfect comparable. We have perused submissions advanced by both sides in the light of the records placed before us. We have also perused the annual report very carefully and is observed that this company is involved exclusively into software testing and has created innovations in the software testing. It is also observed that this company is acquired hundred percent shares in a U.S.-based software testing service company called Gallop Solutions Inc based in Texas USA. It is also observed that this company has been listed on Bombay stock exchange, Bangalore stock exchange and maybe Madras stock exchange with a paid-up capital of ₹ 22.92 crores. It is an undisputed fact that entire revenue has been generated by this company from software testing services rendered to its independent clients as against simple testing carried out by assessee of integrated circuits along with designing, customer support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Annual Report in the Paper Book and further was accepted by the TPO in assessee own case for the Assessment Year 2016-17. We found that this comparable company Annual Report was available during the TP Study and the a not included. Accordingly, we restore this comparable to the file of TPO to examine and verify the functionality of the company. (iii) Pure Soft Private Limited, the comparable margin is 13.72% and the company was not included in the TP Study by the assessee and was rejected by TPO. The learned Authorized Representative submitted that it is functionally similar and is engaged in design and development services of software applications including customized and packaged software and also providing services testing and passes the filters applied by the TPO and selected for comparable. We found the comparable was not part of the TP Study of the assessee and has to be verified. Accordingly, we restore this issue to the file of TPO to verify and examine the comparable for determination of ALP. (iv) Sybrant Technologies Private Limited, it has margin of 15.25% and turnover of ₹ 3.52 Crores and was rejected on the ground that it was not considered by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g connectors during the A.Y. 2008-09 and there was no manufacturing of connectors during the A.Y. 2007-08, for which the assessee is claiming that this company has positive PLI. 23. We have gone through the Annual report of this company relevant for the A.Yrs. 2009-10 and 2008- 09. Page 467 of the paper book for the assessment year under consideration gives details of stock, production and sales for the year ending 31-12-2007 which has opening stock of connectors as well. Similar is the position for the preceding year as well, which depicts that there was opening stock of connectors. In that view of the matter, it becomes evident that this company was already into manufacturing of connectors, which product has been considered as similar by the DRP. Ex consequenti, the relevant contrary finding recorded by the DRP about that company not engaged in manufacturing of connectors during the A.Y. 2007-08 is, therefore, not correct. As FCI Technology Services Ltd. is not a persistent loss making company and further the functional similarity has not been disputed by the TPO, we order to include this company in the list of comparables. We found this comparable was included by the Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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