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TMI Blog2019 (7) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... Pradeep Kumar, CIT ORDER Per Jason P Boaz, Accountant Member: This appeal filed by the assessee is directed against the final order of assessment dated 29.12.2016 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short the Act ) for Assessment Year 2012-13, pursuant to the directions of the Dispute Resolution Panel 1, Bangalore (DRP) under section 144C(5) of the Act on 31.10.2016. 2. Briefly stated, the facts of the case are as under: 2.1 The assessee, a subsidiary of EMC Corporation, USA, engaged in marketing and distribution of EMC Products, consultancy and provision of software development services and IT enabled services (ITES) to its Associated Enterprises (AEs), filed its original return of income for Assessment Year 2012-13 on 29.11.2012 declaring income of Rs.61,23,25,140/-. A revised return was filed on 10.06.2013, wherein the assessee declared income of Rs.41,11,22,730/-. The case was selected for scrutiny and thereafter the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determination of the arm s length price (ALP) of the international transactions entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt services segment of the Appellant by: 3.1. Invoking provisions of section 92C(3) read with section 92CA of the Act contending that the information or data used in the computation of the arm's length price is not reliable or correct; 3.2. Disregarding application of multiple year/ prior year data as used by the Appellant in the transfer pricing documentation and holding that current year (i.e. Financial Year 2011-12) data for companies should be used for comparability; 3.3. Using data which was not available in the public domain at the time, the transfer pricing documentation was prepared by the Appellant; 3.4. Conducting a fresh comparability analysis by rejecting certain filters applied by the Appellant in the transfer pricing documentation (i.e., R D spend / Sales filter, net-worth filter and advertising, marketing and distribution expenses / sales filter) and applying additional /modified filters (i.e., service revenue 75% filter, export sales / total sales filter, consistent losing making filter, different year ending filter and RPT /Sales 25% filter). 3.5 Rejecting companies (i.e., Celstream Technologies Private Limited, Akshay Software Technologies Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed We, therefore, now proceed to consider and adjudicate ground No.3.6 (supra); which is the only surviving ground of appeal. Transfer Pricing Issues Ground No.3.6 Exclusion of companies from list of comparables (software Development Services segment) 6.1 In this ground, the assessee seeks exclusion of the following two comparables chosen by the TPO:- (1) Larsen Toubro Infotech Ltd., (2) Persistent Systems Ltd., The assessee had objected to the inclusion of both these companies as comparables on the ground that they were software product companies and were functionally different. 6.2 Before taking up the comparables of these two companies for consideration, it would be appropriate to give a factual background of the transfer pricing issues in this case. The assessee, inter alia, in the year under consideration, is engaged in providing software development services and IT enabled services to its AEs. In its TP study / documentation, the assessee selected the following 14 comparable companies, as listed at para 8 of TPO s order, with an average margin of 13.08%. As the PLI of the assessee (OP/TC) was 12.02% in comparison to those of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsen Toubro Infotech Ltd., and Persistent Systems Ltd., and directed the exclusion of these two companies, holding as under:- 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. ACTT (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., (supra) would be equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices 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. 6.4.2 Respectfully following the aforesaid decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems Management Consultants Pvt. Ltd., Vs. ACIT in ITA No.183/Bang/2017 dated 11.04.2018, which is also rendered for Assessment Year 2012-13, we direct the AO/TPO to exclude:- (1) M/s. Larsen Toubro Infotech Ltd., and (2) M/s. Persistent Systems Ltd., from the TPO s list of comparable companies. We hold and direct accordingly. Consequently, ground No.3.6 of the assessee s appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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