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TMI Blog2017 (7) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... nce support and product development. The return of income for the assessment year 2009-10 was filed on 30/09/2009 declaring income of Rs. 5,84,447/-. The assessee-company also reported the following international transactions: Provision of software development services ... Rs. 17,86,70,411/- 3. The assessee-company had also submitted transfer pricing study report adopting the operating profit to total cost (OP/TC) as a profit level indicator for the transfer pricing study. The assessee-company applied Transactional Net Margin Method [TNMM] which was considered to be the most appropriate method for purposes of benchmarking the international transactions. The assessee-company's profit margin was computed at 15.83% and the assessee-company claimed that the same was comparable with other companies rendering software development services. For the purpose of transfer pricing study, the assessee-company had chosen 11 comparable entities and arithmetic average of operating profit margins of said comparables was computed at 15.52%. According to the assessee-company, its PLI was much higher than the arithmetic mean of the comparable entities. Hence, it was claimed that the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 Larsen and Toubro infotech 19,50,83,81,374 15,64,12,76,626 24.72% 11 Infosys Ltd. 2,02,64,00,00,000 1,39,17,00,00,000 45.61% Average mean 24.32% 6. The TPO computed average profit margin of the comparables finally Selected at 24.32% and after giving working capital adjustment of 1.33%, the adjusted arithmetical mean PLI was determined at 25.65%. On the above said basis, the TPO computed the transfer pricing adjustment as follows: Arm's Length Mean Margin on cost 24.32% Less: Working Capital Adjustment (Annex. C) (1.33)% Adjusted margin 25.65% Operating Cost Rs. 15,53,07,521/- Arm's Length Price (ALP) @ 125.65% of Operating Cost Rs. 19,51,43,900/- Price Received Rs. 17,86,70,411/- Shortfall being adjustment u/s. 92CA: Rs. 1,64,73,489/- 7. The AO passed draft assessment order dated 18/03/2013 incorporating above adjustments and also restricting deduction u/s. 10A by reducing telecommunication and travelling expenditure from the export turnover. After receiving the draft assessment order, the assessee-company filed objections before the Hon'ble DRP contesting TP adjustment contesting rejection of comparable entities v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove grounds be considered discretely and without prejudice to each other. The Appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the appeal. 10. The Revenue is also in appeal before us in IT (TP) A No. l95/Bang/2014 raising the following grounds of appeal: * The directions of the Dispute Resolution Panel are opposed to law and facts of the case. * On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s. 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause (4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined, in this Section. * On the facts and in the circumstances of the case the Dispute Resolution Panel erred in directing the AO to compute deduction u/s. 10A in the above manner by placing reliance on the decision of Hon'ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. This finding has been confirmed by the Hon'ble DRP. (iv) Being aggrieved, the assessee is before us in the present appeal. (v) On perusal of Annual Report of the company which is placed at pages 1 to 37 of the paper book, it is clear that the company is engaged in only one segment i.e. software development segment. Clause 3 of Schedule 12 mentions as under: 3. Revenue recognition Revenue from software development is recognised based on software developed and billed to clients. In Annexure III to the Director's Report placed at page 12 of the Annual Report (page 15 of the paper book) Segment-wise and product-wise product-wise performance is mentioned as under: Segment-wise and product-wise performance Bodhtree has only one segment, namely software development. Being a software solutions company, it is engaged in providing open and end-to-end web solutions, off shoring Data Management, Data Warehousing, software consultancy, design and development of solutions, using the latest technologies. Outlook With some new offerings being developed by the company in the sectors of business intelligence, spend data management and data cleansing operations, the outlook for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his company from the list of comparables. Infosys: 14. This Company was included by the TPO. It was not contested before the TPO. However, before the DRP it was contested on the ground that it is a giant company and engaged in software development and software Product Company owning intangibles and huge revenue from software products. Reliance in this regard was placed on the decision of the co-ordinate bench in the case of 3DPLM Software Solutions Ltd. v. Dy. CIT [2014] 42 taxmann.com 333 (Bang. - Trib.) and 24/7 Customer.Com (P.) Ltd. v. Dy. CIT [2012] 28 taxmann.com 258/[2013] 140 ITD 344 (Bang.) and Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT [2013] 140 ITD 540/29 taxmann.com 310 (Bang. - Trib.) . (ii) On the other hand, Ld.CIT (DR) relied on the order of the TPO. (iii) We heard rival submissions and perused material on record. This Tribunal has been consistently holding that Infosys cannot be compared with that of pure software Development Company as it is engaged in product design services which are functionally dissimilar with that of pure software Development Company. The co-ordinate bench in the case of Cisco Systems (India) (P.) Ltd. ( supra) held as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk; (iii) the company has generated several inventions and filed for many patents in India and USA; (iv) the company has substantial revenues from software products and the break up of such revenues is not available; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in 'AUTOLAY', a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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