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TMI Blog2019 (8) TMI 1630X X X X Extracts X X X X X X X X Extracts X X X X ..... , we hold this company to be excluded from the final list of comparables. Cosmic Global Limited - There is substantially outsourcing work conducted by this company. Respectfully following the decision of PTC SOFTWARE (I) PVT. LTD. [ 2016 (9) TMI 1282 - BOMBAY HIGH COURT] we direct the Assessing Officer to exclude this company from the final list of comparables while benchmarking the international transaction of the assessee. Eclerx Services Limited - We direct the Assessing Officer to exclude this company from the final list of comparables. We set aside the impugned order and remit the matter of determination of ALP of Software development and ITes services afresh by the AO/TPO in accordance with law. - ITA No.189/PUN/2014 - - - Dated:- 22-8-2019 - Shri R.S.Syal, VP And Shri Partha Sarathi Chaudhury, JM Assessee by: Shri Madhur Agarwal Revenue by: Shri Neeraj Bansal, CIT And Shri Mugda Sardeshmukh, JCIT ORDER Partha Sarathi Chaudhury, This appeal preferred by the assessee emanates from the directions of the Ld. Dispute Resolution Panel (DRP) dated 30.10.2013 for the assessment year 2009-10 as per the grounds of appeal on record. 2. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting profit margins. The TPO rejected the assessee‟s contention of business restructuring during the year and also held the same to be functionally similar inasmuch as it was having only one identifiable reportable segment of `Software development services‟. The assessee is aggrieved by the inclusion of this company in the final list of comparables. 8.2. We find from the Annual report of this company that it: has only one segment, namely, Software development. Being a software solutions company, which is engaged in providing open and end-to-end web solutions, software consultancy, design and development of solutions, using the latest technologies. Thus, it can be seen that this company is providing end-to-end solutions and also consultancy, which is not the case with the assessee company. 8.3. The ld. AR submitted that Bodhtree Consulting Ltd. cannot be considered as comparable because of a different model of revenue recognition. He invited our attention towards the Annual report of this company, in which it has been specifically reported under the head Revenue recognition‟, that: Revenue from software development is recognized based on software develope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of income become insignificant. This is also called `Matching concept‟, as per which income is recognized with the incurring of expenses. To put it simply, if income does not accrue from a particular transaction, the expenses incurred for such transaction are excluded from the Trading and Profit loss account by taking them to Balance sheet. To illustrate, if there is an incomplete contract worth ₹ 100 for doing a particular work, and the assessee has incurred ₹ 60 on this project till the close of the year, but the income is to be recognized only on the completion of the project, an event to take place in the subsequent year, then, the amount of ₹ 60 is not considered as expenditure for the year, but is taken to the Balance sheet as closing work-in-progress, which becomes opening work-in-progress for the subsequent year and the income is finally computed from such project/contract in the next year on the raising of bill of ₹ 100/- after allowing deduction for the expenses incurred in the earlier year at ₹ 60 and the further expenses incurred in the year of raising of the bill. In this way, profit for the earlier year in which expenses of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment as well as provides IT enabled services and no revenue break up for these respective business activities is available. However, both the TPO/ DRP as per reasons appearing in their respective order have held this company to be comparable company with that of the assessee. 4. The Ld. Counsel for the assessee referred to the Tribunal s order in assessee s own case for the assessment year 2008-09 (supra.) at page 17, Para 12.1 to 12.2 of the order wherein the Tribunal has held as follows: (v) KALS Infosystems Ltd. : 12.1. The TPO proposed to include this company in the list of comparables. The assessee objected to the same by contending that it was functionally different as also engaged in Software products. The TPO rejected the assessee‟s contention by observing that nothing was mentioned in the Annual Report of the company about the sale of products. The DRP upheld the action of the AO in the draft order, incorporating the inclusion of this company in the final set of comparables by the TPO. Aggrieved thereby, the assessee is in appeal before the Tribunal. 12.2. We have heard both the sides and gone through the relevant material on record. We have perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final list of comparables as regards the assessee. (C) Infosys Technologies Ltd. : It is claimed by the assessee that this company should be rejected due to very high turnover, super profit making company and significant intangible assets. 5. The Ld. Counsel for the assessee for this proposition has placed reliance on the decision in the case of M/s. Siemens Industry Software (I) P. Ltd. Vs. DCIT, Circle 8(1), New Delhi in ITA No.1307/Del/2014 for the assessment year 2009-10 wherein the Delhi Bench of the Tribunal has categorically observed that on account of very high turnover of the Infosys Technologies Ltd., it is not matched to the assessee along with research, development and other factors. Therefore, this company was excluded from the final list of comparables for benchmarking international transaction. 5.1 That in another case of Delhi Bench of the Tribunal in ITA No.410/Del/2013 for assessment year 2008-09 and in ITA No. 1484/Del/2014 for the assessment year 2009-10, the Delhi Bench of the Tribunal has held that Infosys Technologies Ltd. was taken as comparable by the TPO/DRP to which the assessee has objected. It was analyzed by the Tribunal that this comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O services form a sub-set of the larger set of BPO services and hence, are similar. 8. The Ld. Counsel for the assessee invited our attention to the decision of the Hon ble Bombay High Court in the case of The Pr. Commissioner of Income Tax-2, Pune Vs. PTC Software (I) Pvt. Ltd., Income Tax Appeal No. 598 of 2016 wherein the Hon ble High Court has observed and held as follows: 5. Re Question (c) :- (i) The impugned order of the Tribunal has excluded M/s. Accentia Technologies Ltd., from the list of comparable to determine the ALP of the Respondent‟s transactions. (ii) The impugned order renders findings of fact that the nature of activities carried out by M/s. Accentia Technologies Ltd. are different from that carried out by Respondent. M/s. Accentia Technologies Ltd. develops its own software and rendered Medical transcription services while the Respondent is providing BPO services. Besides, the impugned order of the Tribunal held that high profit margins of M/s. Accentia Technologies Ltd. was attributable to amalgamation which took place in the previous years relevant to subject assessment year. Therefore, not comparable. (iii) In fact, this Court in CIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions. The Hon ble Jurisdictional High Court has held as follows: (II) Cosmic Global Ltd. (i) The impugned order of the Tribunal records the fact that Cosmic Global Ltd. had outsourced its services to vendors just as M/s. Vishal Technologies Ltd. had done. In the above facts, the impugned order held that Cosmic Global Ltd. is not functionally comparable and therefore, could not be included amongst the comparable to determine the ALP of the Respondent‟s transactions. (ii) The aforesaid finding of fact by the Tribunal has not been shown to be perverse. In fact, the reasons indicated in the impugned order to hold that Vishal Technologies Ltd. is not a comparable, would equally apply to Cosmic Global Ltd. (iii) Thus, the sub question (II) as proposed does not give rise to any substantial question of law. Thus, not entertained. (III) Accordingly, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 11. We have perused the judicial pronouncements placed before us and relevant material on records along with Annual Report of the Company i.e. Cosmic Global Ltd. We find that there is substantially outsourcing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Vs. Aptara Technology Pvt. Ltd. ( Income Tax Appeal No.1209 of 2015) rendered on 26th March, 2018-as follows:- merely because the tested party and the comparable provide ITES, they do not become comparable. The content of the services rendered by virtue of IT is to be examined before holding it to be comparable‟. (v) Further our attention is invited to the decision of the Delhi High Court in Rampgreen Solutions P. Ltd. Vs. CIT, 377 ITR 533 wherein Delhi High Court held that KPO services could not be compared to call centre services, although both would fall under the umbrella of ITES. Therefore,, the functions of two cannot be considered to be similar for the purpose of being comparable. (vi) In the above view, this question also does not give rise to any substantial question of law. It is essentially a finding of fact which is not shown to be perverse. Thus, not entertained. Respectfully following the aforesaid decision of the Hon ble Jurisdictional High Court, we direct the Assessing Officer to exclude this company from the final list of comparables. 13. In view of our forgoing discussion, we set aside the impugned order and remit the matter of determina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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