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TMI Blog2021 (1) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Services (SWD Services). The Assessee rendered SWD services to its AE. The transaction of rendering software development services by the Assessee to its AE was a transaction with an Associated Enterprise (AE) and was therefore an international transaction. As per the provisions of Sec. 92 of the Income Tax Act, 1961 (Act), income from international transaction has to be computed having regard to Arm's Length Price (ALP). 3. It is not in dispute between the Assessee and the revenue that the Transaction Net Margin Method (TNMM) was the Most Appropriate Method (MAM) for determination of ALP and that the profit level indicator to be adopted for comparison of the Assessee's profit with that of comparable companies was Operating Profit/Total Cost (OP/TC). The OP/TC of the Assessee was 14.93%. The Assessee in it's TP study selected comparable companies whose arithmetic mean of OP/TC was comparable with the profit margins of the Assessee and was acceptable. It was claimed by the Assessee that the price charged by it in the international transaction was at Arm's Length. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred by the AO u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in excluding M/s. Datamatics Global Services Ltd., on the basis of failing export filter of more that 75% when in fact said comparable was having export sales of 98%. 2. ICRA Techno Analytics Ltd.: i) Whether the Hon'ble CIT(A) was right in fact and in law in excluding M/s. ICRA Techno Analytics Ltd., on the basis of failing export filter of more that 75% when in fact said comparable was having export sales of 92%. 3. M/s. Mindtree Ltd.: i) Whether the Hon'ble CIT(A) was right in fact in law in seeking exact comparability, which searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparables ii) Whether while seeking the exact comparability as mentioned above the Hon'ble CIT(A) was right in fact and in law in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin. 4. M/s. Sasken Communication Technologies Ltd.: i) Whether the Hon'ble CIT(A) was right in fact in law in seeking exact comparability, which searching for comparable companies of the assessee under TNMM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of the Assessee in the decision cited by the learned counsel for the Assessee is the same. The following were the relevant observations of the Tribunal. "28. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 4 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz., Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Information Technologies India (P) Ltd. Vs. ACIT (2018) 89 taxmann.com 440 (Delhi-Trib.) for the same AY 2012-13. In this regard it was submitted that the functional profile of the Assessee is same as that of the Assessee in the case of Agilis Information Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen 16 comparable companies out of which 6 companies chosen by the TPO in the case of the Assessee for the purpose of comparability were the same. His submission was that the decision rendered by the Tribunal in the case of Agilis Information Technologies India (P) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India Pvt. Ltd. Vs. ITO ITA No. 64/Del/2015 order dated 23.9.2015 and the decision of Hon'ble Delhi High Court in the case of Saxo India Pvt. Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order. 30. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. In this regard we are also of the view that the plea of the learned DR for a remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP has endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP. 31. The learned DR next submitted that Genesys International Corporation Ltd., should be excluded from the list of comparable companies. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it can crash the entire banking system of several nations. The Assessee's claim of providing only basis software services is rejected. 6.2.3. The Panel holds that the software for financial product is much more complex than a geospatial software. Therefore, the panel holds that the Genesys is a valid comparable." 34. The learned counsel for the Assessee submitted that the DRP has completely proceeded on wrong facts which does not either emanate from the order of the TPO or the submissions of the Assessee. He reiterated submissions made before the TPO and DRP. The learned DR relied on the order of the DRP/TPO. 35. We have given a careful consideration to the rival submissions. It is clear from the material brought to the notice of the TPO by the Assessee that this company renders mapping and geospatial services. In rendering such services it develops software. But that does not mean that this company is in the business of software development. The business profile of this company as per the annual report does not show that this company is into software development service. The only line of business that this company carries on is rendering GIS based services and this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this company has not been properly analyzed and hence the comparability of this company is set aside to the TPO/AO to be considered afresh on both the functional filter as well as RPT and export turnover filter. We hold and direct accordingly. 11. As far as exclusion of Mindtree Ltd., from the list of comparable companies is concerned, the revenue has challenged its exclusion in Grd. No. 3 of its appeal. The learned counsel for the Assessee has no objection to its inclusion in the list of comparable companies of the TPO. Hence, this company is directed to be included in the list of comparable companies. 12. As far as exclusion of M/s. Datamatics Global Services Ltd., which is challenged by the Revenue in Gr. No. 1 of its appeal, the Assessee sought exclusion of this company before CIT(A) on the ground that this company is functionally different from that of the Assessee. The CIT(A) has however in paragraph 6.6.1 at page-43 of his order excluded this company on the basis that this company's export sales are 58% of the total turnover and therefore the company fails the application of export turnover filter. As far as the request of the Revenue that the export sales to turno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g/2017 & IT(TP)A Nos. 2642 & 2643/Bang/2017 Page 19 of 23 respect of the turnover of some other year but the denominator remains same because the turnover is not related to the present year and therefore, the resultant profit percentage will be incorrect. Hence such gain/loss cannot be considered for TP analysis if such gain/loss is not in respect of turnover of the present year. Since the details in this regard is not available and there is no finding of any of the authorities below in this regard, we feel it proper to restore the matter back to the file of AO/TPO for fresh decision with the direction that if it is found that foreign exchange fluctuation gain/loss of the tested party i.e. of the assessee or of the comparable companies is in respect of the current year's turnover then the same should be considered for TP analysis but if such gain/loss is not in respect of current year's turnover, then the same should be ignored in case of both i.e. the tested party and of the comparable companies. In case the data in this regard regarding comparable company is not made available by the assessee, then it should be presumed that such foreign exchange gain/loss for comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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