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TMI Blog2021 (4) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... rt the differences. X X X X Extracts X X X X X X X X Extracts X X X X ..... ave;-vis comparable companies. 14. The learned AO/learned TPO/Hon'ble DRP erred in levying interest under Section 23413 of the Income-tax Act, 1961. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 2. The Ld. AR submitted that assessee has raised additional ground vide application dated 09/01/2020, wherein following grounds have been raised: "Ground No. 9: The learned AO/learned TPO/Hon'ble DRP erred in not excluding Persistent Systems & Solutions Ltd. from the list of comparable companies." 3. The Ld. AR submitted that comparable Persistent Systems And Solutions Ltd. was selected by the Ld. TPO during the transfer pricing assessment proceedings. Assessee also included this comparable in the TP study. The Ld. AR submitted that based on judicial pronouncements by coordinate benches of this Tribunal, in Genesis Integrating Systems (India) Pvt. vs. DCIT reported in [2012] 20 taxmann.com 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red before Ld. AO and filed details as called for. 11. The Ld. AO observed that, assessee had international transaction with its associated enterprise exceeding ₹ 15 crores, and accordingly, reference was made to the Ld. TPO under section 92CA of the Act. 12. Upon receipt of reference, the Ld. TPO called for economic details of international transaction between assessee and associated enterprise in Form 3 CEB. The Ld. TPO noted that, assessee had following international transaction with its AE: Particulars Amount in Rs. Software development services 15,40,36,635/- Total 15,40,36,635/- 13. The Ld. TPO observed that, assessee used TNMM as most appropriate method, and PLI as OP/OC and computed its margin at 10.05%. He noted that, assessee selected following 8 comparables having average margin of 13.88%. Name of the company Markup on Total Cost (without adjustment) A B M Knowledgeware Ltd. 40.35 C G- VAK Software& Exports Lrd. 5.44 Globsyn Infotech Ltd. 6.6 Kals Information System Ltd. 18.69 Melstar Information Technologies Ltd. 1.93 Persistent Systems and Solutions Ltd. 21.79 R S Software (India) Ltd. 16.18 Thinksoft Global Services Ltd. 0. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.55 19. On receipt of DRP directions, Ld. AO passed final assessment order by making, transfer pricing addition as per proposed adjustment by Ld. TPO. 20. Aggrieved by order of Ld. AO, assessee is in appeal before us. Assessee challenges exclusion of 4 comparables in Ground No. 7-10 on the basis of functional dissimilarities, being; • Acropatel Technologies Ltd. • E Zest Solutions • E-Infochips Ltd. • ICRA Techno Analytics 21. Assessee has also sought inclusion of 3 comparable is in Ground No. 11 being; • Akshaya Software Ltd. • LGS Global Ltd. • Thinksoft Global Services Ltd. 22. The Assessee also seeks working capital adjustment on actual in Ground No. 12. 23. Apart from the above referred comparables, Ld. AR has not pressed upon and argued any other issues raised in the ground of appeal. Accordingly, we are restricting our observation in respect of selected comparables referred to herein above alleged by assessee for inclusion/exclusion. 24. Before we undertake comparability analysis, it's sine qua non to understand the FAR of assessee under software development service segment. Functions: Mavenir India has 101 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3] 32 taxmann.com 21 (Hyd. - Trib.). The DRP also observed that this company was predominantly doing on-site development of software and therefore cannot be compared with a company which develops software offshore. One of the filters applied by the TPO was that companies where employee costs are less than 25% of turnover cannot be regarded as comparable. In the absence of segmental information, it was not possible to ascertain as to whether this company passes the test adopted by the TPO himself for comparison. The learned DR submitted that the required data can be culled out from the information available in the public domain or by resorting to a process of calling for information from this company u/s. 133(6) of the Act. The learned counsel for the Assessee in this regard pointed out that the Hon'ble Delhi High Court rejected a similar argument by the Revenue in the case of Pr. CIT v. Saxo India (P.) Ltd. [2016] 74 taxmann.com 88. In the circumstances, this company was rightly held by the DRP to be not comparable. We are of the view that once a company becomes not comparable for the reason that segmental information to apply filters, we need not consider any other aspect of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Tribunal in the case of M/s. Electronics for Imaging India Pvt. Ltd. (supra) relied upon by the learned Authorised Representative is based on two aspects. (i) The information received under Section 133(6) of the Act was considered by the TPO without sharing with the assessee and (ii) nature of the activity is KPO. It is pertinent to note that the question of BPO and KPO is relevant only in ITES segment and not for software development services segment. On the contrary, the decision in the case of Toluna India Pvt. Ltd. (supra), pertains to the Assessment Year 2007-08, therefore the facts of the different year cannot be applied without verification. Accordingly, we set aside this issue of comparability of E-Just Solution Ltd. to the record of the Assessing Officer/TPO for deciding the same after verification of the relevant facts as well as considering the objections of the assessee." 38. The decision of this Tribunal in the case of M/s. Applied Materials of India Ltd. v. ACIT (supra) relied upon by the Ld. AR based on two aspects (i) The information received under Section 133(6) of the Act was considered by the TPO without sharing with the assessee and (ii) nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordinary/peculiar circumstances; and (iv) there is a presence of inventory (page 10 and 11 of the DRP's directions). The revenue, in its appeal has challenged its exclusion only on the 2nd ground. In other words, the revenue has not challenged its exclusion on the other grounds stated hereinabove and thus its exclusion on these grounds have attained finality and cannot be disturbed by this Hon'ble Tribunal. Even otherwise, we are of the view that the DRP rightly arrived at the finding that companies software development service revenue for FY 2010-11 was less than 75% of its total operating revenue for the year. Thus the above action of the DRP in rejecting the above companies correct." 45. From the above, it is observed by this Tribunal consistently in various decisions for A.Y: 2011-12 held that, this company does not satisfy service income filter being 75%. We therefore, do not see any reason to set aside this company to Ld. TPO. Therefore, respectfully following view taken by coordinate bench of this Tribunal in DCIT vs. M/s. CGI In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the case of DCIT v. Electronics for Imaging India Pvt. Ltd. (supra) has considered the comparability of this company in paras 14 to 16 as under: "(1) ICRA Techno Analytics Ltd. (seg) 14. At the outset, we note that apart from having the related party revenue at 20.94% of the total revenue, this company was also found to be functionally not comparable with software development services segment of the assessee. The DRP has given its finding at pages 13 to 14 as under:- "Having heard the contention, on perusal of the annual report, it is noticed by us that the segmental information is available for two segments i.e., services and sales. However, it is evident from the annual report that the service segment comprises of software development, software consultancy, engineering services, web development, web hosting, etc. for which no segmental information is available and therefore, the objection of the assessee is found acceptable. Accordingly, Assessing Officer is directed to exclude the above company from the comparables." 15. We find that the facts recorded by the DRP in respect of business activity of this company are not in dispute. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Electronics for Imaging India (P.) Ltd. in IT(TP)A Nos. 227 & 285/Del/2013 by order dated 22/04/2016 in paras 60 and 61 & as under: "Persistent Systems & Solutions Ltd. 60. The assessee has the grievance against rejection of this company by the DRP. The ld. AR has submitted that assessee did not raise any objection against this company, however, the DRP has rejected the said company. Therefore, the said company should be retained in the list of comparables. 61. Having considered the rival submissions as well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this company from the sale of software services and products and in the absence of segmental details, it cannot be considered as comparable with software services segment. We find that this company has shown the income from sale of software services and products to the tune of ₹ 6.67 crores. We further note that as per Schedule 11, the entire revenue has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be provided for any differences in the economic factors between the tested party and the comparables. The Ld. AR also placed reliance on decision of coordinate bench of this tribunal in case of ARM Embedded Technologies Pvt. Ltd. vs. ITO in IT(TP)A No. 1369/Bang/2014 and VMWare Software India Pvt. Ltd. vs. DCIT in IT(TP)A No. 1311 (Bang.) of 2014, dated 6-1-2017, wherein the Tribunal directed to grant full working capital adjustment without any. On the contrary, the Ld. CIT. DR relied on orders passed by authorities below. 58. We have perused submissions advanced by both sides in light of records placed before us. 59. The Ld. TPO restricted the working capital adjustment at 1.63%. Identical issue which had come up before this Tribunal in the case of Rambus Chip Technologies (India) (P.) Ltd. v. Dy. CIT IT(TP)A 23/Ban/2015, dt. 22.07.2015, wherein this tribunal observed and held as under: "13. As regards ground No. 3(f) learned counsel for the assessee submitted that the AO/TPO while considering the working capital adjustment, has arrived at the working capital adjustment in the case of the assessee at 5.97%, but while giving effect to the working capital adjustment, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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