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TMI Blog2019 (8) TMI 1604X X X X Extracts X X X X X X X X Extracts X X X X ..... e becomes academic. No dispute between parties and observations regarding financials of these companies by DRP are concurrent with annual reports placed in paper book filed before us. Thus, in our considered opinion, these comparables cannot be held to be functionally similar with of assessee, who is a contract service provider, working on a cost plus business model. It is observed that RS software (India) Ltd, has been excluded by DRP on application of on-site revenue filter. Both parties do not have objection for inclusion of this company. We are therefore of the view that this company should be included in the list of comparables. Accordingly, Ld. TPO is directed to consider this comparable in the list. Accordingly grounds raised by revenue stands partly allowed. Exclusion of comparable with recorded finding in respect of service income being less than 75%. X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed.- x) The appellant craves leave to add, alter, amend and /or delete any of the grounds mentioned above. CO No.23/Bang/2016(In IT(TP)A No.579(B)/2016(AY: 2011-12) On the facts and circumstances of the case and in law and without prejudice to the directions passed by the Dispute Resolution Panel: 1. The Dispute Resolution Panel ('DRP') has erred, in law and in facts, by not accepting the Respondent's plea in entirety and confirming the action of the learned Assessing Officer (A0')/Transfer Pricing Officer (TP0') of not accepting the transfer pricing ('TP') documentation maintained by the Respondent and rejecting the economic analysis undertaken by the Respondent in accordance with the provisions of the Income Tax Act, 1961 (The Act') read with the Income Tax Rules, 1962 (The Rules') and conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transaction. 2. The learned AO / TPO and the learned DRP have erred, in law and in facts, by rejecting the use of multiple year dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transactions. Description of transaction Paid Received Purchase of products 3,53,74,738 Sale of products 1,80,555 Services income 13,98,69,828 Payment of Royalty 11,20,85,589 Payment of Administrative fee 20,92,97,868 Reimbursement of expenses (paid) 2,28,66,554 Reimbursement of expenses (received) 29,47,928 Total 37,96,24,744 14,29,98,311 2.1 Assessee used TNMM as most appropriate method with PLI s op/OC and determined its margin at 15.10%. He observed that, assessee used TNMM as most appropriate method and OP/OC as PLI to compute its margin. Assessees TP documentation contained 16 comparables with average margin of 13%, and therefore assessee held transaction entered into with AE under this segment to be at arms length price. Name of the company Mark up on Total cost (without adjustment) Akshay Software Technologies Ltd. 4% Bells Softech Ltd 5% FCS Software Solutions Ltd 30% Helios & Matheson Information Technology Ltd. 16% LGS Global Ltd 15% Mindtree Ltd. 21% Omni xis Sotware Ltd. 2% Persistent Systems & Solutions Ltd. 20% Quinnox Consutlancy Services Ltd 14% Reliance Infosolutions Pvt.Ltd 9% Spry Resources India Pvt.Ltd 28% CCE Software Pvt.Ltd 15% Allie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is observed that assessee is challenging inclusion of 3 comparables on the basis of functional dissimilarities, being ; Persistent Systems and Solutions Ltd; Persistent Systems Ltd; Sasken Communication Technologies Ltd; 5. We first take up appeal filed by revenue in ITA No. 579/Bang/2016 5.1 Ld. CIT DR submitted that Ground No. (i) to (iii) is in respect of applying on-site revenue filter selectively on following comparables by DRP: RS software Pvt. Ltd., Acropetal Technologies Ltd L&T Infotech Ltd., She submitted that DRP applied on-site revenue filter selectively instead of applying on all comparables. It has been argued by her that application of a filter determines is what set of comparables would be displayed on the database where search is carried. Application of filter to shortlist companies under a particular segment is the second step in transfer pricing analysis. She payment clay argued that, once comparables are shortlisted by TPO,DRP suo moto applied on-site revenue filter and excluded 3 comparables, which is not as per procedures laid down under law. She submitted that on-site revenue filter applied by DRP, neither applied by assessee in the transfer pricing stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR. 9. On merits, Ld.CIT DR regarding functional similarities/ dissimilarities of these companies with assessee, relied upon decision of coordinate bench of this Tribunal in case of Mercedes- Benz Research and Development India Private Limited vs ACIT reported in (2018) 90 Taxmann.com 300, and submitted that, these comparables were sent back to Ld.TPO for re-examination. She thus submitted that, view taken by coordinate bench of this Tribunal in Mercedes-Benz Research and Development India Pvt Ltd. vs ACIT (supra) may be followed. 10. We have perused view of coordinate bench of this tribunal in case of Mercedes-Benz Research and Development India Pvt. Ltd (supra) in respect of M/sAccropatel Technologies Ltd and M/s L&T Infotech Ltd. It is observed that these comparables were sent back to Ld.TPO by observing as under: 13. Acropetal Technologies Ltd. ('Acropetal') 13.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the DRP has observed that this company, 'Acropetal', operates in three segments and the segmental results are available; while on the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16.5 After having heard both parties and perused and considered the material on record, we find that the functional comparability of these two companies i.e. (i) L & T Infotech Limited and (ii) Sasken Communication Technologies Limited have been considered by benches of this Tribunal in various cases, including those cited by the ld.AR. By way of this additional ground, the assessee is raising objections to the inclusion of these companies on the issue of functional dissimilarity and other grounds. In our considered view, the assessee cannot be precluded from raising an objection against inclusion of a company even if the said company was selected by the assessee in its TP Study. This view was taken by the Special Bench of ITAT, Chandigarh in the case of Dy. CIT v. Quark Systems (P.) Ltd.[2010] 38 SOT 307. As per the principles laid down in the aforesaid decision of the Special Bench (supra), we admit this additional ground raised by the assessee seeking exclusion of these two companies (i) L & T Infotech Limited (ii) Sasken Communication Technologies Limited without commenting on the merits of the case and remit the matter of their comparability analysis to the file of the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., by following view taken by this Tribunal in case of Comscop Network (India) Pvt. Ltd. Limited vs ITO in IT (TP) A/Bang/2016 dated 22/02/17 wherein, this company was excluded for reason that, there is no segmental information regarding diverse functions performed by this company and that there was major fluctuation in its profits, which influenced turnover of this company. Further it is observed that in case of DCIT vs M/s CGI Information Systems and management consultations private limited in ITA No. 502/bang/2016 for assessment year 2011-12 vide order dated 06/04/18 dealt with identical objection raised by Ld. CIT DR before as under: 24. As far as ground No. 4 raised by revenue is concerned, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rules. As far as ground No. 5 in revenues appeal is concerned, the revenue seeks to challenge the exclusion of AE Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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