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TMI Blog2020 (5) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... te Resolution Panel ('DRP'), Bengaluru dated August 23, 2017, under section 253 of the Income- tax Act, 1961 ('Act') on the following grounds: That on the facts and in the circumstances of the case and in law and based on the directions of the DRP: A. Grounds of appeal relating to transfer pricing matters specific to software development services segment The learned TPO/ learned AO have erred, in law and in facts, by not appreciating the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant's international transaction is not at arm's length. 2. The learned TPO/ learned AO have erred, in law and in facts, by determining the arm's length margin/price using only FY 2012- 13 data, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. 3. The learned TPO/ learned AO have erred, in law and in facts, by accepting/rejecting certain companies based on unreasonable comparabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law by levying interest of INR 7,78,07,682 under section 234B of the Act and INR 25,38,505 under section 234C of the Act, which is on account of the adjustments proposed to the returned income MODIFIED GROUNDS OF APPEAL 3. The learned TPO/ learned AO have erred, in law and in facts, by accepting/rejecting certain companies based on unreasonable comparability criteria: 3.1 following companies should not be treated as comparable companies: a) Larsen & Toubro Infotech Limited b) Persistent Systems Limited c) CG - Vak Software & Exports Limited 3.2 following companies should be treated as comparable companies: a) Akshay Software Technologies Limited b) IDBI Intech Limited C) Spry Resources India Private Limited The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Honble Tribunal to decide on the appeal in accordance with the law. Brief facts of the case are as under: 2. Assessee filed its return of income for year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age margin 13.17% 5. Ld.TPO applied various search filters and rejected the comparables selected by assessee in its TP study. The final comparables selected by Ld.TPO was as under: S.No Comparables Margin 1. CG-V a case software exports Ltd 20.54% 2. ICRA techno analytics Ltd 17.10% 3. Larsen and Toubro Infotech Ltd 26.06% 4. Mind tree Ltd (SEG) 18.19% 5. Persistent systems Ltd 28.27% 6. RS software (India) private limited 17.41% 7. Tech Mahindra Ltd (SEG) 18.72% Average margin 20.90% 6. Ld.TPO thus proposed adjustment being shortfall at Rs. 25,04,82,139/-. 7. On the basis of draft assessment order, assessee raised objection before DRP, wherein comparables selected by Ld.TPO was challenged for various functional dissimilarities. DRP on considering assessee's submission, accepted rejection of Tech Mahindra Ltd., since this company had expanded its business through various acquisitions which, materially affected on its profitability. In respect of other comparables, objections raised by assessee were dismissed. 8. Upon receipt of DRP directions, Ld.AO passed final assessment order computing income in the hands of assessee at Rs. 105,99,28,701/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been submitted in TP study that assessee has a small team which works on new initiative projects, wherein assessee primarily carries out limited documentation of designs and limited integration. In TP study, entire project is conceptualised, designed and codified by UK associated enterprise. Assets owned 19. Assessee owns routine assets like furniture fixtures, office space etc. Any intangible developed during the process of research carried out by assessee exclusively belongs to the associated enterprise. Risks assumed. 20. As per TP study, assessee has been held to be bearing limited risk of market and foreign exchange risks to the extent that, remuneration received by assessee is in foreign exchange. Characterisation: 21. Based on the above discussions, assessee has been characterised to be working on a risk mitigated environment on a contract basis strictly providing services, as per needs/requirements of associated enterprise. Based on the above FAR analysis of assessee, we shall undertake the comparability of assessee with alleged comparables for inclusion/exclusion. A. Comparables sought for exclusion: a) Larsen and Toubro Infotech Ltd: 22. Ld.AR submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared to a full-fledged software development service provider like this company. 26. On the basis of above, we direct the Ld.AO/TPO to exclude this company from final list. b) Persistent Systems Ltd 27. It has been submitted that this comparable has been included by Ld.TPO even though it was objected by assessee for functional dissimilarities. Ld.AR submitted that this company is engaged in both product and development of software development services and therefore cannot be compared to a contract software development service provider like assessee. It is also been submitted that there are significant research and development expenditure that resulted in global patents and company owns significant intangibles which has either been developed or have been acquired from 3rd parties as a part of growth strategy. Ld.AR submitted that on these para meters this comparable cannot be compared to a limited service provider like that of assessee. On the contrary, Ld.CIT.DR submitted that, in case of CGI Information Systems and management Consultants Pvt.Ltd vs DCIT reported in (2019) 101 taxman.com 294, this Tribunal set aside this comparable to the file of Ld.TPO for fresh decision. She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the para meters applied by assessee to exclude Persistent Systems Infotech Ltd., this comparable also deserves to be included as there is sale of products for which segmental information is are not available. He also refer to the decision of this Tribunal in case of M/s Metricstream Infotech (India) private limited vs. DCIT in ITA (TP) A No. 1418 and 273518/2017 for assessment year 2013-14 wherein this comparable has been upheld for exclusion. 32. We have perused submissions advanced by both sides in light of records placed before us. We also perused decision relied upon by Ld.CIT DR in case of M/s Metricstream Infotech (India) Put. Ltd (supra),. It is noted that this tribunal excluded this comparable for the reason that the nature of services are doubtful. Before us Ld. A.R. has not been able to establish the correct nature of business carried out by this company or provide with segmental information is in respect of various services provided by this company to its clientele. Under such circumstances we are unable to appreciate the argument advanced by Ld. ar for inclusion of this comparable. 33. Respectfully following the view taken by this tribunal in case of M/s Metricstream ..... X X X X Extracts X X X X X X X X Extracts X X X X
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