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TMI Blog2023 (9) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... his contention of assesssee is without any basis and thus based on the above analysis, the assessee company is functionally similar comparable to M/s Mindtree Ltd. Persistent Systems Ltd. - We find that the turnover is within the acceptable range, the FAR matching, the segmental information is not required as there is single common segment of revenue and in the absence of financial implication on the occurrence of extraordinary events and having found intangibles being 1.35% as negligible and same with the R D activities which is 0.3% of the turnover and hence, we hold that Persistent Systems Ltd. can be considered as a right comparable. Tata Elxsi Ltd. - The case was selected by the assessee itself in the A.Y. 2012-13. The turnover of the company s 20 times that of the company which is within the acceptable range and the FAR has been similar, hence, we hold that it can be considered as a right comparable. Comviva Technologies Ltd. - By claiming that the company is not functionally comparable to the assessee company and also it has high turnover. At the outset, it is seen from the records and the assessee written contentions that this company was in the list of assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not providing the benefit of economic adjustment on account of difference in risk profile in arriving at the arm's length mean margin. 3.5 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in considering the current year data (i.e. FY 2013-14) for comparability despite the fact that the same was not necessarily available to the Appellant at the time of preparing its transfer pricing documentation. 3.6 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in adopting inconsistencies in calculation of the operating margin of the comparable companies and the Appellant. 4. That on the facts and circumstances of the case and in law, the AQ erred in levying interest under section 2348, 234C and 234D of the Act. 5. That on the facts and circumstances of the case and in law, the AO erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act mechanically without recording any adequate reasons for such initiation. 3. TPG Software Private Limited ( TPG India ) is a private limited company incorporated on June 9th, 2011 under the provision of the companies Act, 1956. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties are incidental to providing software services. The company is engaged in providing information Technology (IT), business process outsourcing (BPO) and consulting services. 10. The ld. AR submitted that the primary objective of Cybercom Datamatics is to act as consultants and advisors on information/internet system and surveyors of information services. It also carried on the business of development, testing, implementation, migration of home grown and other applications, marketing and manufacturing of information technology products and services, software and hardware systems to enterprise and embedded technologies in telecom and other industries. The assessee has submitted that the company needs to be excluded on the following grounds: (i) Functionally not comparable (ii) Segmental information not available (iii) Huge investment in fixed assets (iv) Super normal profits 11. The ld. DR argued that the functional profile of Cybercom Datamatics as mentioned in page 10 of the Annual Report. It reveals that the principle object of the company is to act as consultants and advisors on information/ internet and surveyors of information services, and to carry on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware service company is the employees and it is seen that the ratio of employee benefit expenses to the total revenue is Rs. 13.69/Rs.43.53 crores which is 70.5% in the case of assessee whereas in the case of Cybercom Datamatics this ratio is Rs. 5.15 crores/14.69 is 35.05% which clearly proves that assessee has major investment in employees then M/s Cybercom Datamatics. 14. With regard to the extraordinary/abnormal profits, the ld. AR sought exclusion based on the fact that M/s Cybercom Datamatics earned super normal profit of around 87%. The ld. DR argued that a company can't be excluded based on high profits/ fluctuating profits and this issue has already been decided by the Hon'ble Jurisdictional Delhi High Court in the case of ChrysCapital Investment advisers (India) Pvt. Ltd. v/s DCIT in 56 taxmann.com 417, 2015 (Delhi) (para 44) wherein Hon'ble High Court clearly held that only on the reason of high/extremely high, high/low, profit/loss, an entity can't be excluded as comparable. 15. Rebutting the case laws relied upon by the ld. AR, the Departmental Representative argued that M/s Cybercom Datamatics as a right comparable to M/s Steria India Ltd. for so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in software development services only and accordingly no other segment is applicable in the case of the assesee. Thus the assessee contention about no segmental information is not tenable. Further, with regard to the intangible of Rs. 6.7 crore comes to 0.2% of turnover of Rs. 3031.6 crore. However, the assessee also owns intangible of Rs. 6.03 crore including goodwill, which is 13.85% of turnover of Rs. 43.53 crore. Thus this contention of assesssee is without any basis and thus based on the above analysis, the assessee company is functionally similar comparable to M/s Mindtree Ltd. Persistent Systems Ltd. 22. The Revenue held that this is functionally comparable as the companies found to be providing software services. 23. The ld. AR submitted that the company is mainly involved in software product development and development of end to end solutions. The assessee, on the other hand, is engaged in providing software development services and does not develop software products or end to end solutions. The ld. AR submitted that this company is engaged in sale of software products and not software services. The ld. AR further argued that, 1. Segmental financials are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng analysis. 116. The learned departmental representative vehemently supported the order of the learned dispute resolution panel and the learned transfer-pricing officer and submitted that they have discussed the functionality of this company in detail and therefore this company is functionally comparable. 117. We have carefully considered the rival contentions and perused the standalone financial statement of the above company placed in the paper book at page number 110- 153 (annual report page number 156 198). In its revenue stream as per page no 166 of Standalone Financial statements its revenue recognition shows that:- Income from software services Revenue from time and material engagements is recognized on time proportion basis as and when the services are rendered in accordance with the terms of the contracts with customers. In case of fixed price contracts, revenue is recognized based on the milestones achieved as specified in the contracts, on proportionate completion basis. Revenue from royalty is recognized in accordance with the terms of the relevant agreements. Revenue from maintenance contracts is recognized on a pro-rata basis over the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sourced software product development services as investment in Intellectual property led sales. The Id. counsel for the assessee further stated that this company has undertaken significant restructuring and has very high turnover, but failed in convincing us the impact of these things on the overall margin of the company. Therefore, we are of the considered view that this company passes all the filters and has been rightly taken in the final set of comparables. No interference is called for. Thus in view of the above, it is absolutely clear that this company is involved in sale of software services only for the same assessment year i.e. A.Y. 2014-15 only, like the assessee company and these are the findings/decisions of Hon'ble Jurisdictional ITAT only, which have a binding precedence. Also, the P L account shows M/s PSL. has only one stream of income (page 449) i.e. from sale of software services only. The assessee has quoted certain case laws including the decision of the Hon'ble Delhi High Court in the case of Microsoft India Ltd. however the facts of that case were different i.e. M/s Microsoft was found engaged in rendering software development services and ITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Hon'ble Delhi High Court in the case of Pr. CIT Delhi-1 vs. M/s Agnity India Technologies Pvt. Ltd. In ITA No. 447/2018 to claim that companies with high turnover cannot be compared with low turnover companies. The decision of the Hon'ble High Court has been perused and it is seen that in that case M/s Vipro Technology was excluded as a comparable on several grounds and the contentions of the assessee are not clearly borne out of the decision of the Hon'ble Delhi High Court, a fact, which has been duly observed by the Hon'ble Bench also. Further, the assessee reliance on DRPS findings for A.Y. 2012-13 with regard to highturn over companies is also not mentioned in the order of the Hon'ble Delhi High court. (v) Intangibles: Further the assessee has alleged that M/s PSL owns intangibles of Rs. 16 crores however if we compare it with sales of Rs. 1184 crores then it is only 1.35% of the turnover which is negligible. It is also not only of place to mention that assessee company has intangible including goodwill of Rs. 6.03 crore against sales of Rs. 43.53 crore, which comes out to 13.85% of turnover. (vi) R D activity: The assessee has also taken the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held to be not comparable to the Software Development service provider in the absence of segmental and relied on the following case laws: EMC Software and Services India Pvt. Ltd. [IT(TP)A No. 3375/Bang/2018 CGI Information Systems and management consultants Private Limited vs. ACIT: IT(TP)A No. 586/Bang/2015 Saxo India Pvt. Ltd. vs. ACIT: ITA No. 6148/Del/2015 28. The ld. AR argued that the companies having significantly higher turnover than the assessee is not a good comparable: PCIT vs. Agnity India Technologies Pvt. Ltd.: ITA 447/2018 (Delhi High Court) Aggressive Digital Systems (P) Ltd. vs. ITO: [2022] 97 ITR (T) 687 (Delhi Trib.) Nuance Transcription Services India Private Limited vs. ACIT: [IT(TP)A No. 3230/Bang/2018) Deliverhealth Solutions India Pvt. Ltd. vs The AO: [IT(TP)A No. 721/Bang/2021] 29. Having gone through the submissions, we find that the turnover is within the acceptable range, the FAR matching, the segmental information is not required as there is single common segment of revenue and in the absence of financial implication on the occurrence of extraordinary events and having found intangibles being 1.35% as negligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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