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TMI Blog2020 (10) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... way of speaking and reasoned order. 3. The assessee is engaged in the business of software development and support services to its parent company M/s. Sonus, USA. The assessee is a wholly owned subsidiary of Sonus Network Inc., USA. 4. The issue under consideration relates to transfer pricing addition made by the TPO in respect of provision of software services and confirmed by Ld. DRP. 5. The international transactions entered by the assessee with its associated enterprises, inter-alia, included provision of software development services to its AE. The total receipts of the assessee declared by it for the year under consideration was ₹ 31.59 crores. The assessee adopted transactional net marginal method (TNMM) as most appropriate method and Operating revenue by Operating cost as Profit Level Indicator. The assessee declared net margin of 11.81%. The assessee selected 13 companies as comparables and contended that the provision of software development services was at arm s length. 6. The TPO rejected the transfer pricing study conducted by the assessee and finally selected following companies as comparable companies: Sl. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for captive software development service provider. Accordingly, he prayed for exclusion of the above said 6 companies. He submitted that the Tribunal, in the above said case has followed the decision rendered by another co-ordinate bench in the case of M/s. Infinera India Pvt. Ltd. Vs. ITO in IT(TP)A No.977 1008/Bang/2014 (Bangalore) (2016) 72 taxmann.com 68 (Bangalore) and M/s VMware Software India (P) Ltd (IT(TP)A No.1311 (Bang) 2014 dated 06-01-2017. 8. The Ld. D.R. on the contrary supported the order passed by Ld. DRP. 9. We heard the rival contentions and perused the record. In the case of M/s. Schneider Electric IT Business India Pvt. Ltd. (supra), the above said 6 companies have been discussed by the Tribunal in paragraph 10 to 12 of its orders and has held that these are not good comparables. For the sake of convenience, we extract below the said paragraphs: 10. As far as the appeal of the Assessee is concerned, the first aspect is with regard to exclusion of some of the comparable companies chosen by the TPO and retained by the DRP as comparable companies. The learned counsel for the Assessee submitted before us that the comparability of the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate bench has followed the decision rendered by another coordinate bench in the case of M/s. Infinera India Pvt. Ltd. (supra), wherein following discussions have been made in respect of four of the above said comparable companies, viz., (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd. (2) M/s Bodhtree Consulting Ltd., For exclusion of this company also, reliance has been placed on the same Tribunal order rendered in the case of Cisco Systems (Ind.)(P.) Ltd. (supra) and in particular, our attention was drawn to para-26.1 available on page no.98 to 99 of Case Law Compendium. In this case, it is noted by the Tribunal that this company is in the business of software product and was engaged in providing open and end to end web solutions software consultancy and design and development of software using latest technology and therefore, the same cannot be considered as a comparable in the case of companies rendering software development services, as in the present case. Therefore, by respectfully following this Tribunal order, we hold that this company is also excluded from the list of final comparables. (3) M/s Tata Elx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference in facts, respectfully following these Tribunal orders, we direct the AO/TPO to exclude this company also from the list of final comparables. (4) Persistent Systems Ltd., For exclusion of this company, reliance has been placed on the Tribunal order rendered in the case of Unisys India (P.) Ltd. IT(TP) Appeal No.67(Bang) of 2015, copy available on pages 210 to 246 of case law compendium and in particular, our attention was drawn to para 36 to 37 of the Tribunal order. These paras are reproduced as under:- '36. As far as Persistent Systems Ltd. a comparable by the assessee in his TP study but was objected by the assessee before the TPO as not comparable, this Tribunal in the case of IT(TP)A No.108(Bang)/21014 order dated 12-12-2014 in the case of Yodlee Infotech Pvt. Ltd. v. ITO held as follows: 5.12 This Tribunal in the case of 3DPLM Software Solutions Ltd. v. Dy. CIT (IT(TP) A No. 1303(Bang)/2012 dated 28-11-2013) has also held that Persistent Systems Pvt. Ltd., was in product designing services and into software product development. In the same decision it was also held that M/s Infosys Technologies Ltd., had considerable intangibles like IPR, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta etc. to the two companies mentioned earlier in the order i.e. the chart. In the grounds of appeal the Revenue has not been able to controvert or deny the data and differences mentioned in the tabulated form. The chart has not been controverted . 17. From the above para of the judgment of the Hon'ble Delhi High Court, it is seen that this company is a giant company in the area of software and it assumed all risks leading to higher profits, whereas the assessee company was a captive unit of the parent company and assumed only a limited risk. In the present case also, the assessee company is providing services to the parent company and therefore, assuming only limited risk and hence, respectfully following this judgment of the Hon'ble Delhi High Court, we direct the AO/TPO to exclude this company also from the list of final comparables. 11. Following above said the decision rendered by the Tribunal in the case of M/s. Schneider Electric IT Business India Pvt. Ltd (supra) and M/s. Infinera India Pvt. Ltd. (supra), we direct exclusion of (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd. 12. The co-ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 11 23, page 25), Amerson Process Management India Pvt. Ltd., ITA No. 8118/Mum./2010 (para 16 page 15). 110. Ld. DR relied on the order of TPO and submitted that TPO considered the companies software services segment details only. We have considered the rival submissions and have perused the record of the case. 111. Ld. TPO has completely ignored the extraordinary business circumstances pointed out by assessee for which necessary adjustment was required to be made in accordance with Rule 10E3(3) of Income Tax Rules. However, since this adjustment was not possible, therefore, this company should not have been included in the list of comparables. Further, we find t7iat the company owns IPR and has branded products which also distinguishes it from the assessee and, therefore, keeping in view the decision of Hon'ble Delhi High Court in the case of Agnity India Technologies Pvt. Ltd.(supra), we direct the TPO to exclude this comparable from the list of comparables.If we follow the coordinate bench decision in the case of Motorola Solution (India) P. Ltd, Sasken Communication Technologies Ltd needs to be excluded. However, as mentioned by us at para 24 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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