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TMI Blog2020 (4) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The learned Assessing Officer ( learned AO ), learned Transfer Pricing Officer ( learned TPO ) and the Honourable Dispute Resolution panel ( Hon'ble DRP ) grossly erred in adjusting the transfer price by INR 7,45,90,444/- of the Appellant's international transactions with its Associated Enterprises ( AEs ) u/s 92CA of the Income-tax Act, 1961 ( the Act ). 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the Arm's Length Price ( ALP ). 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP has grossly erred in not rejecting the following companies from the list of comparable companies: Persistent Systems Limited R S Software (India) Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and Heard. Further LdAr Argued for exclusion of four comparables and inclusion of two comparables and Interest calculation under Section 234C of the Act and Supported with Chart and Paper Book. 3. The Brief facts of the case are that the assessee is 100% EOU under the STPI Scheme at Bangalore for carrying out software development activities and has a blend of software engineers, game designers and game managers and mainly in the business of software and Software Development Services. The assessee company has filed the Return of Income on 27.11.2014 with total income of ₹ 18,36,09,584. Subsequently the case was selected for scrutiny and Notice under Section 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the learned Authorized Representative appeared from time to time and Books of Accounts are furnished along with details. The assessee is engaged in the international business of software design and Software Development Services to its parent company Zyne, USA . The Assessing Officer found that the assessee has international transactions and with prior approval of Pri. CIT, the matter was referred to the Transfer Pricing Officer (TPO). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer company has entered into the following international transactions with its Associated Enterprises (AEs): International transactions as per Form 3CEB Particulars Receivables/Received Payables/Paid Method Provision of software development services 1106716524 TNMM Reimbursement of expenses paid cost to cost basis 13093825 Other method Outstanding receivables closely linked to Provision of software development services 109210183 TNMM Unbilled revenue closely linked to provision of software development services 16890316 TNMM Total 1232817023 13093825 1245910848 The TPO examined the documentation of assessee and the international transactions in software development segment and the filters. The assessee has considered 22 companies as compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .55% Operating Cost 968311922 Arm's Length Price (ALP) of operating Revenue (@ 121.55% of OC) 1176967922 Price Received 1099971917 Variation in Price 76996005 3% of price received 32999158 Shortfall being adjustment 7,69,96,005 The TPO passed the order under Section 92CA of the Income Tax Act, 1961 on 30.10.2017. The Assessing Officer after the receipt of TPO order under Section 92CA of the Act has passed Draft assessment order under Section 143(3) r.w.s. 144C(1) dt.6.12.2017 determining the total income of ₹ 18,36,09,584. Aggrieved by the Draft assessment order, the assessee has filed objections in Form No.35A with the Dispute Resolution Panel (DRP) after considering the objections of the assessee and the findings of the TPO, DRP has excluded one comparable SQS India BFSI Limited and with other directions passed order under Section 144C(5) of the Act on 29.9.2018.Subsequently TPO/AO based on the directions recomputed the ALP with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee s own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. (ii) R S Software India Limited turnover is ₹ 351.88 Crores with margin of 28.25%. The ld. AR submitted that it is functionally different as the company offers life cycle management services and is involved in providing quality assurance services which include testing services along with maintenance and support statistical data analysis, Further owns products and brands and has presence outside India. Out of total turnover of ₹ 284.39 Crores, foreign branch expenditure is ₹ 203.37 Crores,and fails the turnover filter of more than ₹ 200 Crores. The comparable was excluded in the case of Nielsen Sports (India) Pvt. Ltd. in IT(TP)A No.196/Bang/2017 (supra). (iii) Cignity Technologies Limited;- where the turnover is ₹ 54.63 Crores and margin is 27.62%. The company is functionally dissimilar and offers publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and judicial decisions, we are of the opinion that the following Three comparables are to be excluded from the list of comparables for determination of ALP by the TPO. (i) Persistent Systems Ltd. (ii) R S Software (India) Ltd. (iii) Thirdware Solutions Ltd. And (iv) Cignity Technologies Ltd is restored to the file of TPO for fresh consideration. The learned Authorized Representative argued for inclusion of two comparables. The first company to be included is Evoke Technologies Limited where the turnover is ₹ 45.46 Crores and the margin is at 10.64%. The company is functionally comparable and rendered software services and passes all the filters of TPO and the data is available in public domain and is a sub-set of an entity. DRP has interpreted exports at20.34% which is incorrect as the export revenue is mainly From U S A. We found the DRP has dealt on the comparable at page 9 of the order. The learned Authorized Representative demonstrated the Annual Report at page 1253 and page 1254 of Paper Book, where the revenue from Software Development Services has been disclosed. The learned Authorised Representative argued on second comparable to be included is CAT ..... 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