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TMI Blog2022 (7) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... td as functionally similar to the Appellant. 3. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating Dun Bradstreet Technologies Data Services Pvt.as functionally similar to the Appellant. 4. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating for R S Software (India) Limited as functionally similar to the Appellant. 5. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating Cybage Software Pvt. Ltd.as functionally similar to the Appellant. 6. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating Thirdware Solution Ltd.as functionally similar to the Appellant. 7. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating Infobeans Technologies Ltd.as functionally similar to the Appellant. 8. On the fact and circumstances of the case, the learned AO I TPO have erred in law and in fact by treating Aspire Systems (India) Pvt. as functionally similar to the Appellant. 9. On the fact and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case, the learned AO I TPO have erred in law and in fact by application of turnover filter. 23. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by application of 75% export filter to the set of comparable companies and rejecting Appellant's 25% export filter. 24. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by application of 75% forex spending filter. 25. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by incorrectly applying peculiar and extra ordinary economic circumstances filter. 26. On the facts and circumstances of the case, the learned AD I TPO have erred in law and in fact by application of 50% gross intangible to sales filter. 27. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by incorrect application of different accounting year filter. 28. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact inappropriate application of employee cost filter. Comparable Specific 29. On the facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and in fact by not granting the risk adjustment requested by the Appellant. Lack of Information 41. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by not providing the details pertaining to the yearly margin computations for the companies selected as comparable to arrive at three year weighted average margins. 42. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by not providing the unadjusted and working capital adjusted margin computations for the companies selected as comparable. Opportunity of being Heard 43. On the facts and circumstances of the case, the learned AO I TPO have erred in law and in fact by not providing the computations in relation various search filters applied for companies selected as comparable and thereby depriving the Appellant of any opportunity of being heard in case of any factual error as to such computations, if any. levy of penalty 44. The learned AO has erred in law and in fact by issuing notice for levy of penalty under section 270A of the Act for under reporting of income. Prayer The Appellant craves leave to add, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all the grounds of appeal in the appeal memo filed by the assessee. PERSISTENT SYSTEMS 5.1 The T.P.O has discussed this comparable at page 59 para 14.7 of his order. The assessee made following submissions. The main contentions of the assessee regarding this comparable are as follows: Functionally different (Software Products Licences and Software Development Services mix) High Margin Company Adequate judicial guidance against inclusion Fails on turn over filter. 5.2 The T.P.O did not accede to these submissions made by the assessee and he held that this company was engaged in software services. Further, the T.P.O observed that even the ld. D.R.P has included this company in assessee s case for A.Y. 2014-15. Before the D.R.P the assessee made detailed submissions which are at page 69 of the D.R.P s order. The D.RP has given their findings at page 93 para (f) upholding the order of the T.P.O. 5.3 The ld. A.R at the time of hearing on this issue placed heavy reliance on the decision of the Co-ordinate Bench Pune in assessee s own case for A.Y. 2014-15 in ITA No. 15/PUN/2019 dated 23-09-2021 and submitted that he is referring to this judgment though p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the assessee to use the Technology for the sole purpose of performing the Service. There is a bar on the licensee to make available, transfer or otherwise disclose the Technology to third parties. Clause 4 of the Agreement deals with Ownership of the work done by the assessee in the course of providing the Services. It states that all the related information, including any derivative works, Improvements or Modifications created by Subsidiary in the course of providing the Services, is proprietary to RI (i.e. the AE) and that all rights thereto, including all Intellectual Property Rights will vest in RI. On-going through the above clauses of the Agreement, it becomes clear that the nature of the international transaction is that of provision of contract research and development services to its AE, which are utilized by the latter in its business of software products and solutions. With the above backdrop of the nature of activity carried on by the assessee, we now proceed to determine the comparability or otherwise of the companies challenged before us ad seriatim. 5.5 Regarding Persistent Systems Ltd., the Bench held as follows: (1) PERSISTENT SYSTEMS LTD . : 6. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances (even merger took place) 6.2 The contention of the assessee that this company is not functionally comparable did not find favour with the T.P.O and per contra the ld. T.P.O has observed that major part of revenue of this company are from sale of services and the revenue from the sale of product is very negligible. Therefore, this company is predominantly software service company. The D.R.P has dealt with this issue at page 85 para 8.2(a) onwards where they have upheld the findings of the T.P.O. 6.3 At the time of hearing, the ld. A.R took us through the Annual Report of this company which is annexed at paper book page 2295 and demonstrated that for this company also during the relevant assessment year, there was an extraordinary event in respect of amalgamation. The Hon ble High Court of Gujarat vide its order dated 29-03-2016 sanctioned the scheme of amalgamation of Smart Guard Systems Pvt. Ltd. (SGSPL) and nGin Technologies Pvt. Ltd. (NTPL) with e-Infochips Ltd. (the transferee company) w.e.f. 01-04-2015 i.e. F.Y. 2015-16 relevant to A.Y. 2016-17. The ld. D.R also conceded to these facts on record. 6.4 Having heard the parties, we observe that there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Annual Report the main product/service condition of the company is software development. The company has derived 100% of its revenue from its software development service. Therefore, the entire revenue is from sale of software service and hence was considered as comparable to the assessee. The D.R.P while upholding the order of the T.P.O at page 96 of their order heavily relied on assessment year 2014-15 decision. In that year also, this comparable was included by the T.P.O and the D.R.P approved the said inclusion in case of the assessee. The ld. A.R., for exclusion of this comparable also placed heavy reliance on the decision of the Tribunal in assessee s own case for A.Y. 2014-15 (supra) wherein in respect of R.S. Software Ltd., it was held as follows: 11. This company was included by the assessee itself in the list of comparables. However, during the course of the proceedings before the authorities it was claimed that the company was not comparable. Both the authorities jettisoned the assessee‟s contention. 12. As regards the preliminary objection of the ld. DR that the assessee cannot unchoose a company during the course of proceedings which was suo motu chosen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring space with more than two decades of merchant management expertise. Business analytics and tools: Solution: RS Software supports the needs of its clients across four key areas (technology, governance, analytics and strategy). We offer a complete set of data analytic services that include assessment, consulting, establishing migration methodologies, implementing, testing and production support. 14. It is further borne out from the Annual report of the company that: RS software is a Technology service provider with rich domain ITA No.15/PUN/2019 Optiva India Technologies Private Limited 10 experience in payments and a significant pedigree in dispute management. Our competence has been built around a comprehensive understanding of the dispute lifecycle from the perspective of the network, issuer and acquirer. RS Software uses a proprietary set of tools to accelerate development and integration of the dispute management system. This comprises of the following. *A reference architecture created for dispute/chargeback processing. *A requirements and features checklist for dispute/chargeback solutions. *Business test cases for the comprehensive testing of a dispute/cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is already there on record in the Annual Report as demonstrated hereinabove. Dun Bradstreet Technologies Data Services Pvt. Ltd. 11.1 The main contention of the assessee regarding this comparable was that this is functionally different and that no break of revenue from services was available regarding its various activities and non-availability of segmental data. However, the T.P.O observed that this company is into providing predictive analysis, software development and related technology services and solutions. The principal business from which this company earns its revenue is from sale of services which is 100%. Therefore, the sale of products for this year is NIL. The company is dominantly engaged in providing software development services to its clients. Hence, the objections were rejected and the company was held to be comparable. 11.2 The ld. D.R.P has upheld the decision of the A.O/T.P.O at para 8.2(b) at page 87 of their order. The ld. A.R at the time of hearing brought to our notice the Annual Report of this company at page 1986 of the Paper Book it is totally functionally different with regard to the assessee. He even took us through the related party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 98 onwards in clause (k) of their finding and had upheld the order of the T.P.O. 12.2 The ld. A.R at the time of hearing demanding exclusion of this company referred to the Annual Report at page 594 where P L a/c has been given. He showed that there was stock in trade/ inventory. Furthermore at page 595 of Annual Report the company was also into software services and software development and therefore, in totality, this company was into a varied activity of software service and software development and there was also stock-intrade/ inventory. The further contentions of the learned A.R that the T.P.O himself at page 11 of his order has rejected as not functionally comparables viz. (i) SQS India BFSI Ltd. and (ii) Cigniti Technologies Ltd. These were rejected since their main business was software testing. Similarly, even Puresoftware also into software testing. Therefore, this should also have been excluded. 12.3 We observe from the Annual Report and the other related documents that Puresoftware Ltd., is into varied activities of software services and software development and from the P L a/c of the company they have stock-in-trade and inventory also. Furthermore tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities and in support of his submission that this company should be taken as a comparable, placed reliance on the decision of Pune Tribunal in ITA No. 1788/PUN/2013 where forex filter has been relaxed to 50% from 75% by stating that there is no strict basis/guidelines on the matter and thus is subjective and furthermore therein the T.P.O had applied this forex filter of 75% without demonstrating the same on the basis of any study/analysis. In this regard, therefore the assessee advocated that selection of 75% export sales filter was not appropriate in itself and filter of 50% was more logical. In this year, the assessee has applied forex filter at 54%. 14.3 Per contra, the ld. D.R strongly supported the view of the T.P.O. 14.4 Having heard the parties and examining the relevant documents on record, firstly, there are no guidelines to relax the forex filter to 50% from 75% and in what scenario the selection of filter of 54% is more logical was not explained by the assessee. Thus, we are in conformity with the view taken by the T.P.O rejecting the objection of the assessee and this company as rejected by the T.P.O from the final list of comparables is upheld. Infobeans Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.2 The ld. D.R did not raise any objection. 16.3 In view thereof, we remit this issue to the file of the A.O/T.P.O to readjudicate the comparability while complying with the principles of natural justice. Cybage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliable. This company is product development as well as R D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The ld. A.R demonstrated through Annual Report at page 1804, as per the description of the business of this company that it is onsite service provider. Furthermore at page 1796 of the Annual Report this company is doing other computer related activities but nowhere software services are mentioned. On the other hand, the assessee is offsite provider and thus functionally different. We direct the A.O/T.P.O to exclude this company from the list of comparables. 18. Therefore, all the grounds of appeal of the assessee are decided as appearing h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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