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TMI Blog2022 (12) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... l& Entertainment) 7.Segmental details are incomplete and computation of correct margin is not possible 8. Excluded by Hon'ble ITAT in AY 2016-17 in case of ADP Private Ltd. b. Tata Elxsi Ltd. 1. Functionally different 2. It is a KPO and ITES company 3. Existence of inventory in profit and loss account 4. Internally developed intangibles 5. Income from sale of traded goods 6. Segmental details are incomplete and computation of correct margin is not possible 7. Excluded by Hon'ble ITAT in AY 2016-17, AY 2015-16 and AY 2014-15 in case of ADP Private Ltd. c. Persistent Systems Ltd. 1. Functionally different 2.No segmental information 3. Revenue from products 4. Significant related party transactions 5. Presence of brand 6. Research and development approval by CSIR 7. Excluded by Hon'ble ITAT in AY 2016-17, AY 2015-16 and AY 2014-15 in case of ADP Private Ltd. d. Infosys Ltd. 1. Huge turnover 2. functionally different -software products and services 3. significant selling and marketing expenses 4.Extraoridnary event-buisness trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been pressed by the assessee. Accordingly, the inclusion of these three comparables are rejected. III. As mentioned herein above in ground No.6 assessee has pressed for incorrect rejection of comparable company that is functionally comparable to the assessee namely, Sagarsoft (India) Limited. However, no other comparable namely Infomile Technologies Ltd, Nucleus Software Exports Ltd, E-Zest Solutions Ltd, Ace Software Exports Ltd, Sankhya Infotech Ltd. and Harbinger Systems Private Ltd. have not been pressed by the assessee. Accordingly, the inclusion of these three comparables are rejected. IV. On the other hand, ld.DR has raised no objection for not pressing the grounds mentioned in the letter dt.12.07.2022 of the assessee. V. Hence, the same are dismissed as not pressed. 2. The captioned appeal filed by the assessee is found to be barred by 26 days delay in filing. It has moved a petition requesting the bench to condone the delay. We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing. 2.1. The brief facts of the case are that assessee is a company engaged in the business of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was assessed at Rs.3,31,60,388/- for A.Y. 2016-17. 3. Aggrieved with the assessment order dt.30.03.2021, assessee is now in appeal before us. 4. Before us Ld.AR for the assessee submitted that the main dispute is with respect to T.P. adjustment under two heads namely, (i) Provision of software development services at Rs.73,30,140/- and (ii) Interest on delayed receivables at Rs.9,50,811/-, in total Rs.81,80,951/- and further submitted that they are not in dispute with the other international transactions. 5. First of all with respect to exclusion of five comparables companies mentioned in the letter of the assessee vide ground No.4, ld.AR has drawn our attention to the order passed by the co-ordinate Bench of the Tribunal in the case of ADP Ltd. Vs. DCIT in ITA 227 and 228/Hyd/2021 whereby the co-ordinate Bench of the Tribunal has decided the issue in favour of the assessee therein. L & T INFOTECH LTD (Segmental): 6. Ld.AR for the assessee submitted that the first comparable namely, L & T Infotech Ltd is required to be excluded, as the said company is not having brand value which is clear from page 478 of the paper book and also in view of the happening of extra ordinary eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page Nos. 1249 of paper book - Volume - 3 disclosure under the Companies Act, 2013, we observe that the company information system resource centre Pvt. Ltd. (ISRC) was amalgamated with the company with effect from September, 21, 2015 and the appointed for the scheme was October, 17 2014, which reads as under: "Pursuant to the Scheme of Amalgamation sanctioned by the Hon'ble High Court of Bombay vide its order dated September 04, 2015, Information Systems Resource Centre Pvt. Ltd. (ISRC) was amalgamated with the Company with effect from September 21, 2015. The appointed date for the Scheme was October 17, 2014. Consequently, the entire business, assets, liabilities, duties and obligations of ISRC have been transferred to and vested in the Company with effect from October 17, 2014. ISRC was engaged in the business of software services with respect to application development, information technology support and maintenance service to OTIS Elevator Company, USA and other companies of UTC group and was acquired by the Company on October 16, 2014." 4.4 From the above observations, which were extracted from the financial statements, the company named ISRC amalgamated with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "5. Tata Elxsi Ltd. (Segmental): The ld. AR of the assessee submitted that this company renders high -end KPO services i.e. digital content creation, technology and product engineering, chip design, embedded production design, visual computing lab, AI design services. He further submitted that this company earns revenue from sale of trades goods of Rs. 33.74 crore and the same corroborated by existence of inventory in P&L statement about Rs. 2.89. He, therefore, submitted that this company may be excluded as comparable in the comparable list for determining ALP. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for the assessment year 2014-1515 wherein this company is excluded as comparable. 5.1 The ld. DR, on the other hand, besides relying on the orders of revenue authorities, submitted that this company Tata Elxsi is engaged in rendering of software services and, hence, functionally comparable to the assessee company. 5.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this Tribunal in assessee's own case in ITA No. 2233/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionally it is different to compare with the assessee company and that it is specializing in software products, services and technology innovation. Ld.AR further submitted that as this company is engaged in diversified businesses, relevant information on segmental details are not available in the public domain and hence, the same cannot be considered as comparable company to the assessee. It has earned revenue from product at Rs.238.80 crore and that it has research and development approval by CSIR. He, therefore submitted that this company may be excluded as comparable to the assessee company for determining the ALP. He relied on various decisions of ITAT including the decision of this co-ordinate Bench in ITA Nos.227 and 228/Hyd/2021 (supra). 10.2. On the other hand, ld.DR supported the order of lower authorities and submitted that this company is not a product based company. 10.3. We have heard the rival submissions and perused the material on record. The co-ordinate Bench of this Tribunal in ITA Nos.227 & 228/Hyd/2021 (supra) directed the AO/TPO to exclude this company from the final list of comparables holding that this company is functionally different and engaged in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and support services for enterprise customers. It also provides digital content creation for media and entertainment industry" 29. We find that in the case of Infor (India) (P) Ltd vs. ACIT in ITA No.2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No 2233 of 2018 ADP Private Ltd Hyderabad comparables. Thus, assessee's ground of appeal No.2 is partly allowed." 6.3 In the said decision, it has been held that the company is functionally different and engaged in diversified activities and since the revenue could not controvert the said decision nor brought any contrary decision, following the same, we direct the AO/TPO to exclude this company from the final list of comparables." 10.4. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions. 4. Conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets the laws and govt orders in force, cost of labour and capital in the markets, the laws and government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 9.1 He further submitted that this company offers end to end business solutions including product support, product engineering and lifecycle solutions, artificial intelligence, software products, business platforms and solutions. Further, he submitted that it has a turnover of Rs. 53,983 crores whereas assessee's turnover is Rs. 437 crores and the turnover of this company is 123 times more than assessee. He, therefore, submitted that this company cannot be compared as the different in its size and scale of operations have a direct impact on their profitability. He relied on various decisions of ITAT inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of product - financial & edge services as well as diversified activities like artificial intelligence, products services, platforms, consulting etc. Also onsite revenue was 52.7% and no segmental details like services, consulting products are available. In view of the above observations, the coordinate bench in assessee's own case for AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company as comparable from the list of comparables. 11.3. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 12. THIRDWARE SOLUTIONS LIMITED : 12.1 The next company sought for exclusion as comparable is Thirdware Solutions Limited. With respect to the same, ld.AR submitted that this company is functionally different to assessee company and that it is engaged in diversified activities that are not similar to the software development services rendered by the assessee. Ld.AR pointing to annual report submitted that this company has earned revenue from sale of software products. Ld.AR further submitted that no segmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rendering of software services and hence, functionally comparable to assessee. In this regard, he has drawn inference to note 37 pertaining to earnings in foreign exchange earnings, which is placed at page 2268 of the paper book of assessee vide volume 3. 10.2 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The coordinate bench of this :- Tribunal in assessee's own case for AY 2014-15 in ITA No. 2233/Hyd/2018 vide order dated 18/12/2020 directed the AO/TPO to exclude this company as comparable for determining ALP by observing as under: "16. Having regard to the rival contentions and the material on record, we find that in the cases relied upon by the learned Counsel for the assessee, the assessees therein had also raised similar objections and the Tribunal has held Thirdware Solutions to be not comparable to the assessee. We find that the assessee before us is carrying on similar activities as the companies in those cases and therefore, the decisions taken by the Tribunal in those cases are applicable to the assessee before us. For the sake of ready reference, the relevant paras of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in development of software product and trading in software licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee". 12.4. Accordingly following the above noted decision, we direct the AO / TPO to exclude this company as comparable from the list of comparable. 12.5. Thus, Ground No.4 is partly allowed. 13. Ground Nos. 5 and 6 - Sought for inclusion of companies to the list of comparables. (i) EVOKE TECHNOLOGY (P) LIMITED. 13.1. As regards to ground No.5, the ld.AR of the assessee had requested for inclusion of two companies namely, Evoke Technology (P) Limited and Sagarsoft (India) Limited to the list of comparables. 13.2. With respect to inclusion of Evoke Technology (P) Limited, assessee had submitted that it is functionally comparable with it and that it was accepted in earlier years as comparable and also submitted that as per Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Evoke Technologies Ltd is allowed for statistical purposes. 32. Since the issue is similar, we direct the AO/TPO to reconsider the comparability of this company to the assessee by taking the revenue from Indian Branch only." 13.5 it is noticed from the order passed by the TPO , that this company was excluded by the TPO on account of the nonavailability of the current year data at the time of preparation of the TP study by the assessee .DRP has rejected the inclusion of this company, on account of the fact that various companies were excluded only on account of nonavailability of the information at the relevant time . Though it is correct that the tribunal in the above cited order had directed to include Evoke Technologies, as comparable however in the present case there is no examination of the profile of the Evoke Technologies on the parameters laid down by Rule 10 B of Income Tax Rules 1962, with the assessee. In the light of the above we deem it appropriate to remand back the inclusion of evoke technologies to the file of TPO with the direction to consider whether this company is functionally similar on the touchstone of the parameters laid down in the rule 10 B of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion of SAGARSOFT (INDIA) LIMITED to the file of the transfer pricing Officer with the direction to consider whether this company is functionally similar on the touchstone of the parameters laid down in the rule 10 B of the Rule or not. However, in case the assessing officer / TPO had rejected the inclusion of other similarly situated companies while connecting the TP study on the ground of nonavailability of the current year data in prowess data base, then it will be open for the TPO /assessing officer to examine any other company for the purposes of benchmarking the international transaction. With the above said directions, the ground raised by the assessee is allowed for statistical purposes. 14.5. Thus, Ground Nos. 5 and 6 are partly allowed. 15. Ground 10 to 12 are with respect to interest on outstanding receivables: 15.1 The ld.AR for the assessee had submitted that interest computed by the lower authority on the outstanding receivable was Rs.9,50,811 as against the trade receivables from AE as on 1.4.2015 was Rs.1,47,99,409-/. The ld.AR submitted that the DRP had bench marked the international transaction by taking the Short Term deposit rate of SBI. 15.2 The learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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