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TMI Blog2023 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... td ( Sagarsoft ) - We also notice that a similar view has been held by the coordinate bench in the case of NTT Data FA Insurance Systems (India) Pvt. Ltd ( 2022 (10) TMI 1153 - ITAT BANGALORE] where the issue was remitted back to the AO/TPO. Accordingly respectfully following these decisions we remit the issue of inclusion of SagarSoft back to the AO/TPO for fresh examination. Needless to say that the assessee may be given a reasonable opportunity of being heard. AO/TPO is directed to recompute the ALP in accordance with the directions given in this order. X X X X Extracts X X X X X X X X Extracts X X X X ..... arables viz. Cigniti Technologies Ltd., CGVak Software & Exports Ltd. and Thirdware Solutions Ltd. and rejected the remaining 6 comparables. The TPO applied fresh filters and accordingly the comparables selected by TPO and the median of weighted average of PLIs of the companies is as under:- Sl. No. Name of the Company Weighted Average 1. Kals Information Systems Pvt. Ltd. 10.76 2. Rheal Software Pvt. Ltd. 14.50 3. CG-VAK Software & Exports Ltd. 17.07 4. Cigniti Technologies Ltd. 19.15 5. R S Software (India) Ltd. 20.84 6. Larsen & Toubro Infotech Ltd. 23.67 7. Tata Elxsi Ltd. 25.69 8. Nihilent Ltd. 26.36 9. Inteq Software Pvt. Ltd. 27.89 10. Persistent Systems Ltd. 30.09 11. Infobeans Technologies Ltd. 32.40 12. Aspire Systems (India) Pvt. Ltd. 33.74 13. Infosys Ltd. 38.31 14. Thirdware Solution Ltd. 39.41 15. Cybage Software Pvt. Ltd. 65.91 35th Percentile 23.67% Median 26.36% 65th Percentile 30.09% 6. The TPO computed the ALP based on the above listed comparables and made the TP adjustment as follows:- Operating cost Rs. 59,57,71,651/- Adjusted arm's length margin (%) Rs. 26.36% Arm's length price Rs. 75,28,17,058/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the Assessee. In this regard, it is submitted that application of turnover filter is a relevant criteria in choosing comparable companies. It is submitted that the difference in the scale of operations have a direct impact on the profitability. The concept of economies of scale wherein, an increase in the size and scale of the operations lead to a decrease in the long run average cost of each unit or each service project delivered. Therefore, the per unit fixed cost of a small scale company would be much higher than of a medium/large size organisation. Further, it is submitted that medium/large size organisation operating in a particular industry also enjoys benefits of certain other market drivers and cost arbitrages. It is submitted that the turnover of the Assessee is Rs. 68,51,37,396/-. This being so, the TPO ought to have applied the upper turnover filter while selecting companies comparable to the Assessee. 10. Reliance was placed on the decision of the Bangalore Bench of this Hon'ble Tribunal in Autodesk India (P) Ltd. V. DCIT (2018) 96 taxmann.com 263 (Bang Trib) and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The company renders custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which diverse services, segmental details are unavailable. 17. The company is engaged in development of platform services and is rendering data analytics services, which are different from the routine SWD services rendered by the Assessee. The data analytics services rendered by the company will fall within the definition of KPO services, which are incomparable to the services rendered by the Assessee. The company also owns stock in trade. Significant research and development activities: 18. It is submitted that the company conducts research and development work in the areas of real time analytics, MDM, proximity, payments, digital commerce, mobile payments, testing, automation, personalised loyalty in payments and merchant management in payments laboratory. Wide fluctuation in margin: 19. It is submitted that the company, during the FY 2013-14 and 2014-15 had a turnover of Rs. 351.88 crores and 345.51 crores, and profit margin of 24.14% and 32.75%, respectively. However, during the FY 2015-16, the company realised a tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the company for FY 2015-16 alone ought to be considered. Inteq Software Pvt. Ltd. ('Inteq')- 25. Functionally different: It is submitted that the company is engaged in outsourced product development for small, medium corporation and emerging technology businesses. The company undertakes all the process of product development life cycles, which is a high end product development, which is incomparable to the SWD services rendered by the Assessee. As per the website of the company, the company renders data warehousing services, consulting services, EI and EDI services, testing services healthcare BPO services, and in respect of the diverse services, no segmental details are available. It is submitted that the company is not a pure software development company like the Assessee. The presence of assets such as data processing equipment and electrical installations denote the diversified business segments of the company. 26. It is submitted that the company earns revenue from software development services and service charges and the same is shown in the annual report of the company in a composite manner with no segmental profitability and therefore, it is submitted that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Tribunal in the cases of NTT Data FA Insurance Systems (India) Pvt. Ltd. v. DCIT (order dated 03.10.2022 in IT(TP)A No. 261/Bang/2021) at para nos. 19-21 and Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 235/Bang/2021]). Reliance is placed on the decision of the Delhi Bench of the Hon'ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables. Infobeans Technologies Ltd. ('Infobeans') 32. Functionally different: The ld. AR submitted that Infobeans Technologies Ltd. is engaged in providing software engineering services primarily in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics. Though the annual report of the company mentions that the company is earning 100% revenues from sale of software services, such services are in the nature of CAD,CMS etc., which are in the nature of KPO services. The above services rendered by the company are vastly different from the SWD services rendered by the Assessee, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P)A No. 235/Bang/2021]) and the decision of the Hon'ble Tribunal at Hyderabad in ADP Pvt. Ltd. v. DCIT [Order dated 03.02.2022 in ITA Nos. 227&228/Hyd/2021 at para 7] where, in the case of a similarly placed assessee, the Tribunal directed the exclusion of Infobeans from the list of comparables for assessment year 2016-17 on the ground that it is not functionally comparable and no segmental details were available for the said year and the decision of the Delhi Bench of the Hon'ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17. Thus, it is submitted that Infobeans ought to be excluded from the final list of comparables. 38. We heard the rival submissions and perused the material on record. The comparable companies other than R S Software (India) Ltd., Inteq Software Pvt. Ltd., and Infobeans Technologies Ltd. have already been directed to be excluded based on turnover filter. Hence we will now adjudicate the exclusion only these companies in Ground no.4.6. We notice that the coordinate bench in the case of NTT Data FA Insurance Systems (India) Pvt. Ltd (supra) have considered the exclusion of these three companies and held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee ". 22. Respectfully following the same, we direct that Infobeans be excluded from the final list of comparables in this case also. 7.4 On perusal of the order of the coordinate bench of this Tribunal and on perusal of the financial statements of Infobeans Technologies Ltd., we observe that the company is functionally not comparable and no segmental details are available. Therefore, the coordinate bench did not consider this company as comparable in assessee's own case for AYs 2014-15 & 2015-16. Respectfully following the decision of the coordinate bench, we direct the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is into custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which, segmental details are unavailable. The company is engaged in development of platform services and is rendering data analytics services, which are different from the routine SWD services rendered by the assessee. The data analytics services rendered by the company will fall within the definition of KPO services, which are incomparable to the services rendered by the assessee. It is submitted that this company conducts research and development work in the areas of real time analytics, MDM, proximity, payments, digital commerce, mobile payments, testing, automation, personalised loyalty in payments and merchant management in payments laboratory. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the company is functionally comparable to the Assessee and passes all the filters applied by the TPO. Submissions in this regard are placed at pages 135, 272 and 281 of the paperbook. 46. It is submitted that this company was directed to be included in the final list of comparables in the assessee's own case by this Hon'ble Tribunal for the assessment year 2011-12 and the decision of this Hon'ble Tribunal in the case of Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon'ble Tribunal in IT(TP)A No. 235/Bang/2021]). Further, reliance is also placed on the decision of the Hyderabad Bench of the Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227&228/Hyd/2021). It is submitted that this company is consistently included in the final list of comparables in cases of similarly placed assessees, and therefore the company ought to be included. 47. We heard both parties. We notice that the coordinate bench in the case of Arm Embedded Technologies Pvt. Ltd (supra) has considered the issue of inclusion of Akshay and Evoke and held as under - We have perused the submissions of both sides in light of records pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is functionally comparable to the Assessee. The entire service income of the company is from rendering SWD services, and therefore it clearly passes the service revenue filter applied by the TPO. Submissions in this regard are placed at pages 135, 272 and 280 of the paper book. 51. It is submitted that this company is consistently included in the final list of companies in cases of similarly placed assessees. Reliance in this regard is placed on the decision of the Mumbai Bench of this Hon'ble Tribunal in Red Hat India Pvt. Ltd. v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021. 52. We heard the parties. The issue of inclusion of SagarSoft as a comparable has been considered by the Mumbai Bench of the Tribunal in the case of Red Hat India Pvt. Ltd(supra) where it is held that - 54. We have perused the computation given by the assessee at page A381 and A427 of the paper book. Since it is a factual aspect, which needs to be examined at initial level, Ld. TPO may verify the same to reconsider SagarSoft as a comparable after providing opportunity of being heard to the assessee 53. We also notice that a similar view has been held by the coordinate bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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