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TMI Blog2021 (10) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... logies Limited - In the instant case, the assessee is a captive service provider to its AEs and the concerned assessment year is 2015-2016. The Tribunal in the case of Zynga Game Network India Private Limited ( 2021 (4) TMI 208 - ITAT BANGALORE] was considering a case of an assessee, who is also a capital service provider to its AEs and was concerned with identical assessment year, namely, A.Y. 2015-2016. Therefore, following the order of the Tribunal in the case of Zynga Game Network India Private Limited (supra), we direct the AO / TPO to exclude Infobeans Technologies Limited from the list of comparables. It is ordered accordingly. Inteq Software Private Limited - On perusal of the abridged balance sheet of Inteq Software Private Limited, it is clear Inteq Software Private Limited is involved in multifarious services such as application services, software testing, data warehousing, EDI, BPO, staffing etc. However, we noticed from the AO / TPO and the DRP s order, it is stated that Inteq Software Private Limited is only involved in software development services and the entire turnover is from such service. It is not clear how DRP had arrived at such a conclusion. The profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in software development services (SWD) to its Associate Enterprises (AEs). The assessee also provides pre sales and marketing support services to its AEs for the products sold in India. For the services rendered to its AEs, the assessee is remunerated on a cost plus mark-up basis (capital service provider). For the assessment year 2015-2016, the return of income was filed on 27th November, 2015, declaring total income of Rs.8,02,38,163. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued. During the course of assessment proceedings, the A.O. referred the case to the Transfer Pricing Officer (TPO) to determine the Arm s Length Price (ALP) of the international transactions undertaken by the assessee with its AEs (In this case transfer pricing adjustment was made by TPO only with regard to software development segment). In the transfer pricing study, the assessee had selected Transactional Net Margin Method (TNMM) as the most appropriate method. The assessee had selected fourteen companies as comparable companies in its transfer pricing study. For the companies identified as comparable by the assessee, the weighted average operating profit e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Larsen Toubro Infotech Limited 24.89% 13 R S Software (India) Limited 25.29% 14 InfoBeans Technologies Limited 41.85% 35th Percentile 7.56% Median 12.09% 65th Percentile 20.00% Note: Margins of certain comparables have been updated based on the information available at the time of the show cause notice issued by the TPO. 4. The TPO vide his order dated 29.10.2018 rejected the TP study of the assessee. The TPO held that the transfer pricing documentation prepared by the assessee by using data in computation of ALP in respect of provision for software development services is not reliable / correct. Accordingly, the TPO undertook fresh search and thirteen comparables were selected by the TPO (some comparables are common in TP study of assessee and in the TPO s order). The TPO computed the operating margin of the comparable companies with respect to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43.69 44.68 32.65 41.12 13 Cybage Software Pvt.Ltd. 68.17 68.82 60.81 66.27 35th Percentile 24.82% Median 31.69% 65th Percentile 34.18% Computation of ALP and TP adjustment in SWD segment: Particulars Formula Amount Taxpayers operating revenue OR 3890,92,615 Taxpayers operating cost OC 3383,24,419 Taxpayers operating profit OP 507,68,196 Taxpayers PLI PLI-OP/OC 15.01% 35th Percentile Margin of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be excluded are companies mentioned above in Sl.No.(i) to (ix). As regards exclusion of Aspire Systems (India) Private Limited and Inteq Software Private Limited, it was submitted by referring to the financials that these companies are not functionally comparable to the assessee. As regards exclusion of Infobeans Technologies Limited, the learned AR relied on the order of the Bangalore Bench of the Tribunal in the case of Zynga Game Networks Indfia Private Limited v. DCIT in ITA No.2573/Bang/2019 (order dated 23.03.2021). As regards the companies which the assessee is seeking to include in the comparable list, the learned AR submitted that the TPO in his order dated 29.10.2018 had held that the above three companies are functionally comparable and is to be included. However, the same was omitted to be included in the list of comparables selected by the TPO. It was further submitted that the assessee has filed rectification application for inclusion of the above three companies in the list of comparables. However, the same is pending adjudication. 6.3 The learned Departmental Representative submitted that out of the nine companies the assessee is seeking to exclude on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Genesis Integrating Systems India Pvt Ltd vs DCIT reported in (2012) 53 SOT 159 and various other decisions have held that, companies having turnover in excess of Rs.200 crores cannot be compared with companies having turnover less than Rs.200 crore. This preposition has been accepted by Hon ble Bombay High Court in case of CIT vs Pentair Water Pvt.Ltd., by order dated 16/09/2015 in ITA No. 18/2015. Hon ble Court upheld rejection of companies having turnover holding that turnover is a relevant factor in considering comparability of companies. 39. Objection raised by Ld.CIT.DR has been dealt with by this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT in (2018) 96 taxmann.com 263 for assessment year 2005-06. This Tribunal reviewed gamut of case laws to consider, whether companies having turnover more than Rs.200 crores should be regarded as comparable with a company having turnover less than 200 crore. This Tribunal held as under: 17.7 We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we upho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and perused the material on record. The Tribunal in the case of Zynga Game Network India Private Limited (supra) had excluded Infobeans Technologies Limited from the list of comparables. The Tribunal held that the said company was having multiple segments and cannot be compared with a captive service provider. The relevant finding of the Tribunal in the case of Zynga Game Network India Private Limited (supra), reads as follows:- 43. We have perused submissions advanced by both sides in light of records placed before us. It is observed that the annual report of this company categorises the diversify services provided by this company under software development segment. We also note that this company is basically into application development for web and mobile and provides customised services to its offshore clients comprising. Entire revenue received by this comparable ease under one single segment of sale of software. This company also owns software licenses. 44. In our considered opinion this comparable cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is directed to afford a reasonable opportunity of hearing to the assessee and decide whether Inteq Software Private Limited is to be included in the comparable list of companies. It is ordered accordingly. Aspire Systems (India) Private Limited 7.5 The assessee is seeking the exclusion of the above company from the list of comparables. It is contended that Aspire Systems (India) Private Limited is an outsourced technology service company focused on helping software companies create innovative products through its onsite and offshore model. It is also contended that the said company has also income from power generation. It was stated that bifurcation of revenue from both software and power generation services is not provided in the annual report. The learned AR also had contended that the said company fails RPT filter. The learned AR had took us through the abridged balance sheet of Aspire Systems (India) Private Limited to contend that the said company is not merely into the software development services, but has multifarious activities and cannot be compared to the assessee. 7.5.1 The learned Departmental Representative supported the findings of the TPO / DRP. 7.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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