9911796707
TMI Blog2023 (9) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... d in not following the direction of the ITAT in allowing full deduction claimed u/s. 10A of the Act. The ld. AR submitted that the Tribunal in the first round of proceedings vide para 6 of its order had directed the AO to compute deduction u/s. 10A by considering expenses both from export turnover as well as total turnover. However, the AO in the order giving effect to the order of the Tribunal has not followed the direction of the Tribunal and retained the disallowance made originally. Since the issue was already allowed by the Tribunal, it was prayed that the AO be directed to allow the deduction u/s. 10A in full. 4. We have heard both the parties and perused the material on record. We notice that pursuant to the order of the Tribunal dated 14.9.2011 in the first round, the revenue had carried the matter in appeal to the Hon'ble High Court of Karnataka and the Court in its judgment in ITA No.25/2012 dated 09.07.2019 affirmed the order of the Tribunal and dismissed the appeal of the revenue. It was held that the issue was covered by the decision of Karnataka High Court in M/s. Tata Elxsi Ltd. v. ACIT (2015) 127 DTR 037 (Kar) which was affirmed by the Hon'ble Supreme Court in CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting 448.79 This company is an international information technology consulting and implementation company that delivers business solutions through global software development. It is structured into two business units that focus on software developments- R&D services and IT services. Persistent Ltd. Systems 209.18 The Company is primarily engaged in offering complete product life cycle services to the software product companies in infrastructure segment. Sasken Communications Ltd. (seg.) 240.03 This is a focused communication software company with presence in the broadband and wireless software space. It develops embedded communication software for companies across the communication value chain viz. network equipment manufacturers (NEM), semiconductor vendors, terminal device vendors and operators. They focus on connecting all the dots in the telecom value chain and create competitively priced software solutions that helps its customers increase their revenue base. In the context of the Indian IT industry structure, their services fall under the R&D services category which is a part of IT services. Flextronics Software Systems Ltd 595.12 The company is an end to end pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a nonjurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra)." 10. Respectfully following the aforesaid decisions of the Tribunal referred to above, we hold that the following companies whose turnover is above Rs. 200 Crores should be excluded from the list of comparable companies:-" 8.1 Respectfully following the decision of the Tribunal in Sterling Commerce Solutions India (P.) Ltd. (supra), we direct the AO/TPO to exclude the above six companies viz., iGate Global Solutions Ltd. (seg.), Infosys Ltd., Mindtree Consulting Ltd., Persistent Systems Ltd., Sasken Communications Ltd. (seg.) and Flextronics Software Systems Ltd. whose turnover is exceeding Rs. 200 crores from the comparables and also for the reason that these companies are functionally different from the assessee which is a captive service provider rendering software development services. Ground Nos.15 to 17 9. The next 3 companies are Aztec Software Ltd., Geometric Software Ltd. and Megasof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the TPO viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid company with that of the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica (P.).Ltd. (supra), wherein on the comparability of the aforesaid company, the Tribunal held as follows:- "14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- "7.7.Tata Elxsi Limited.: From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which is entirely different from the assessee company. We agree with the contention of the learned AR that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transmatics and KALS Info Systems Ltd. are functionally different and hence to be excluded. The ld. AR submitted that the business verticals of Accel Transmatics include healthcare equipment, consumer electronics, networking. It also renders Embedded software services, software testing, validation, migration and re-engineering, design, development and manufacture of multi-function kiosks, queue management system and ticket vending system. It also renders training services in hardware and networking enterprise system management, VLSI designs, CAD/CAM/BPO. It also manufactures software related products. From the annual report of this company, it is evident that it has sold IP rights of its product "Prodigy" a school management system to Accel Frontline Ltd. As regards KALS Info Systems Ltd., he submitted that it was engaged into developing software products. It was further submitted that these company were excluded in the case of Sterling Commerce Solutions India (P.) Ltd. (supra). 17. We have heard the rival submissions. We note that Accel Transmatics is engaged in various business models whereas the assessee is into software development services and KALS Info Systems Ltd. is into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds." Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable." "(e) Accel Trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables." 13. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Triology E-Business Software India (P.) Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Trilogy E-Business Software India (P.) Ltd. (supra), we direct that KALS InfoSystems Ltd. And Accel Transmatic Ltd. be excluded from the list of 20 comparable arrived at by the TPO." 17.1 In view of the above discussion, we direct exclusion of KALS Info Systems Ltd. and Accel Transmatic Ltd. from the list of comparables. 18. This appeal of the assessee for AY 2006-07 is partly allowed for statistical purpose. ITA No.189/B/2023 AY 2007-08 Ground No. 01-10 excluding Ground No. 06 19. In this appeal for AY 2007-08, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparability of this company has been considered by the co-ordinate bench of this Tribunal in Trilogy E-Business Software India (P.) Ltd.'s case (supra) in para 39 & 41 as under : '39. As far as this company is concerned, the plea of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company's website, which reveals that this company has developed a software product by name "DXchange", it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision in the case of Telcordia Technologies Pvt. Ltd. v. ACIT - ITA No.7821/Mum/2011 wherein the Tribunal accepted the assessee s contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only and it was held as follows:- "7.8 Avani Cincom Technologies Ltd. ('Avani Cincom'): Here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company which is developing and maintaining software for forex markets. This also explains the huge operating margin of 58.35% to cost. This company ought to be rejected since it is absolutely a Research & Development company and therefore, functionally different from the assessee. He relied on the decision of this Tribunal in the case of Softbrands India (P.) Ltd. (supra) where this company was directed to be deleted as a comparable. 24. The ld. DR supported the orders of the lower authorities. 25. After considering the rival submissions, we note that this Tribunal in Softbrands India (P.) Ltd. (supra) has excluded this company from the comparables by holding as under:- "9.2 We have considered the rival submissions as well as the relevant material on record. We note that the comparability of this company has been considered by the co-ordinate bench of this Tribunal in Trilogy E-Business Software India (P.) Ltd.'s case (supra) in paras 43 & 45 as under : "43. Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT - ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the Assessee in this regard.' " "45. From the material available on record, it transpires that the TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07-08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company. The TPO has relied on the response from this company to a notice u/s.133(6) of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to several references in the annual report for 31.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso provides a comprehensive range of support services for managing the IT infrastructure of clients and not in software development services like the assessee. He placed reliance on the decision of the Tribunal in the case of Softbrands India (P.) Ltd. (supra) and submitted that this company is not comparable with the assessee. 27. The ld. DR relied on the orders of the lower authorities. 28. After considering the submissions of both the parties, we note that this company has been excluded by the Tribunal in the case of Softbrands India (P.) Ltd. (supra) wherein it was held as under:- "12.2 We have considered the rival submissions as well as the relevant material on record. We note that the comparability of this company has been considered by the co-ordinate bench of this Tribunal in the case of Serial Innovations India (P.) Ltd. (supra) in paras 29 & 30 as under : '29. As far as comparable chosen by the TPO at Sl.No.8 of the final list of comparable viz., M/s.Helios & Matheson Information Technology Ltd., we find that the said company has been held to be not comparable with a software service provider like the Assessee by the ITAT Pune Bench in the case of PTC Software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO agreed that the quantum of revenue from sale of products was not available as per the financial statements of the said concern, but as the basic function of the said concern was software development, it was includible as it was functionally comparable to the assessee's segment of IT-Services. 18. Before us, apart from reiterating the points raised before the TPO and the DRP, the Ld. Counsel submitted that in the immediately preceding assessment year of 2006-07, the said concern was evaluated by the assessee and was found functionally incomparable. For the said purpose, our reference has been invited to pages 421 to 542 of the Paper book, which is the copy of the Transfer Pricing study undertaken by the assessee for the A.Y. 2006-07, and in particular, attention was invited to page 454 where the accept reject matrix undertaken by the assessee reflected KALS Information Solutions Ltd. (Seg) as functionally incomparable. The Ld. Counsel pointed out that the aforesaid position has been accepted by the TPO in the earlier A.Y. 2006-07 and therefore, there was no justification for the TPO to consider the said concern as functionally comparable in the instant assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the list of comparable for determining the ALP." 28.1 Respectfully following the above order of this Tribunal, we hold that Helios & Matheson Information Technology Ltd. is not comparable with the assessee and directed to be excluded from the comparable companies. Ishir Infotech Pvt. Ltd. 29. The ld. AR submitted that in this company selected by the TPO, compensation to employees is only 3.96% of sales. Hence this company fails the employees cost filter fixed by the TPO at 25%. The TPO and DRP has considered professional charges paid to outside consultants also while testing this filter, which is incorrect. The business model of the assessee is such that all the resources are in- house unlike Ishir Infotech Ltd. Therefore, this comparable ought to be rejected on the ground that it fails the employee cost filter. The ld. AR relied on the decision of this Tribunal in the case of Softbrands India (P.) Ltd. (supra) where this company was excluded as a comparable. 30. The ld. DR relied on the orders of lower authorities. 31. After hearing both the sides, we note that this company was excluded by the Tribunal in the case of Softbrands India (P.) Ltd. (supra) with the following o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies for the purpose of determining ALP.' Following the earlier orders of this Tribunal, we direct the A.O./TPO to exclude this company from the list of comparable for determining the ALP." 31.1 Respectfully following the above decision of this Tribunal, we remit this issue to the AO/TPO to re-examine the issue whether professional charges paid to outside consultants are also included in the employee compensation and decide the issue as per law if it satisfies 25% employee cost filter. Megasoft Ltd. 32. The ld. AR submitted that this company deals in both product and services with focus to invent and manage products and applications for other product companies whereas the assessee company is only engaged in provision of software development services and does not sell any software products. Moreover, there was also an extraordinary event of amalgamation which makes this company not fully comparable to the assessee. 32.1 Without prejudice to the above contentions, it was submitted that there is an error in the margin computation of this company by the TPO. This company has two divisions, viz., Blue Ally division, which is an offshore and online consulting division, and XIUS- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above decision of the Tribunal, we remit this issue to the AO/TPO to verify the aspect of correct computation of operating margin of this company in the light of the decision of the coordinate Bench in the case of Trilogy E-Business Software India (P.)Ltd. Thirdware Solutions Ltd 35. The ld. AR submitted that this company was selected as a comparable for AY 2007-08 which was not considered by the TPO in AY 2006-07 on the ground that it has merged with its foreign parent Thirdware Inc. Hence, it cannot be considered as a comparable in view of the restructuring. An extra ordinary event like a merger in the comparable company will have an effect on profitability in the financial years succeeding the year in which such event takes place. This is because a merger brings in new resources and opportunities to a company that will help to enhance its profitability. Moreover, an Indian company that has merged with a foreign company can no longer be considered as an independent comparable. Hence, on the ground of such extra ordinary events, the financial numbers of this company cannot be compared to Appellant's financial numbers for the fiscal year 2006-07 and ought to be rejected. This com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products and services and manages products and applications for other product companies, whereas the assessee is into only software development services. Also, following the decision of the Tribunal in the case of Softbrands India (P.) Ltd. (supra), we direct to exclude Thirdware Solutions Ltd. from the comparable companies. Accel Transmatic Ltd. 38. This company is directed to be excluded from the comparables list for the AY 2006-07 in assessee's own case hereinabove. For the same reasons, since in the impugned AY there is no change in functional profile of the comparable company, accordingly we direct exclusion of this company as a comparable. KALS Info Systems Ltd. 39. The ld. AR submitted that this company is engaged in development of software and software products. It has a Training Centre engaged in training of software professionals on online projects. It's employee costs @ 16.38%, is lower than the 25% threshold fixed by the TPO himself. Moreover, it holds inventory which constitutes 52.47% of the total current assets and 48.42% of the total revenue of this company. (Pages 383-384 of Paper book 1). In contrast, the appellant neither sells any software products nor does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso involved in development of software product. The learned AR has tried to distinguish by pointing out that product development expenditure in this case is around 39% of the capital employed by the said company, and, therefore, such a company cannot be considered as tested party. Even as per the information received in response to notice under Section 133(6), the company has described its business as software development company or pure software development service provider. This information itself is very vague as the segmental details of operating revenue has not been made available to examine how much is the ratio of sale from software product and sale of software service and development. Looking to the fact that it has developed a software product named as "Muulam" which is used for civil engineering structures and the product development expenditure itself is substantial vis-a-vis the capital employed by the said company, this criteria for being taken as comparable party, gets vitiated. For the purpose of comparability analysis, it is essential that the characteristics and the functions are by and large similar as that of the assessee company and T.P. analysis/study can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation which may not be available in the public domain may become available at a later stage including interpretation of classification of activities of a particular year. Hence, the ld. AR submitted that the comparability of the above 4 companies raised by the assessee in AY 2008-09 may be considered and adjudicated. We agree with the submissions of the assessee in this regard and proceed to adjudicate the issue of comparability of companies raised by the assessee for AY 2008-09 including the four companies discussed above. We now take up for consideration the issue of comparability each company wise as follows:- Avani Cimcon Technologies Ltd. 49. The ld AR submitted that this company is functionally different from the Appellant since it focuses on travel and insurance industry wherein the margins are much higher than those available for other industries and in particular manufacturing. It is primarily engaged in development of software products. 49.1 He further submitted that in the case of IBM India Private Limited Vs JCIT (AY 2008-09 dated 20th Dec 2013), the ITAT, Bangalore Bench had decided that Avani is functionally different from a software development company as it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not comparable with the activities of the appellant. 52.1 The ld. AR submitted that this company was rejected as a comparable by the Hon'ble Mumbai Bench, ITAT for AY 2008-09 in the case of Nethawk Networks India Private Limited Vs. ITO (Refer Pages 1192 to 1193, Para 23 of Paper book 2) as it was not engaged in software development services. He relied on the decision of the Mumbai Tribunal in the case of Nethawk Networks India Pvt. Ltd., [2014] 41 taxmann.com 250 (Mumbai) for AY 2008-09. 53. The ld. DR supported the orders of revenue authorities. 54. We have heard both the sides and perused the material on record. This company has already been held to be functionally different and relying on the decision of Sterling Commerce Solutions India Ltd. (supra), it has been excluded hereinabove for the AY 200607. Further, for AY 2008-09, this company was considered by the coordinate Bench of the Tribunal in the case of Nethawk Networks India Pvt. Ltd., [2014] 41 taxmann.com 250 (Mumbai) where this company was directed to be excluded from the comparables with the following observations:- "C. Bodhtree Consulting Limited 21. On this comparable, case of the assessee is that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3** ** ** 30. We have considered the rival submissions as well as the relevant material on record. The details filed by the Id DR before us has been obtained by the TPO at Hyderabad and not by the TPO of the assessee in the present case. It is stated in the letter dated 5.2.2010 written by the Chartered Accountant of Bodhtree Consulting Ltd to the TPO Hyderabad that the company is providing data cleaning services to clients for whom it had developed the software application...." 23. Considering the above, we are of the opinion that Bodhtree Consulting Limited is not engaged in the software development services and there is no segmental data comparable. Therefore, the FAR analysis goes against the TPO/AO. Accordingly, we dismiss the argument of the Ld DR in this regard. Ex consequenti, the AO/TPO is directed to exclude the same from the list of final comparables for working out the arithmetic mean." 54.1 In view of the above decisions, we hold that Bodhtree Consulting Ltd. is functionally dissimilar to the assessee which is engaged in software development services and exclude this company from the comparables list. Celestial Biolabs Ltd. 55. The ld. AR submitted that this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the case on hand and is therefore not comparable and also that the findings rendered in the cited decisions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by coordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India (P.) Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Triology E-Business Software India (P.) Ltd. case (supra), we hold that this company ought to be omitted form the list of comparables. The A.O./TPO are accordingly directed." 57.1 In view of the above decisions of the Tribunal, we note that this company's functional profile is different from the assessee and it fails employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O./TPO is accordingly directed." 60.1 Following the above decision of the Tribunal, we direct exclusion of this company from the comparables. Infosys Limited 61. The ld. AR submitted that this company is functionally different since it owns significant intangibles and has huge revenues from software products. The Bangalore Bench of ITAT rejected this company as a comparable in the case of 3DPLM Software Solutions P Ltd (AY 2008-09) (supra). 62. The ld. DR relied on the orders of lower authorities. 63. After considering the submissions of both the parties and perusing the material on record, we note that this issue also was considered by this Tribunal in 3DPLM Software Solutions P Ltd (AY 2008-09) (supra) and it was held as under:- "11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India (P.) Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy E-Business Software India (P.) Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form the list of comparable companies. It is ordered accordingly." 66.1 In view of the above decisions, we direct exclusion of KALS Information Systems Ltd. (Seg) from the comparables list. LGS Global Ltd 67. The ld. AR submitted that as the company is in the business of Enterprise resource planning, e-Commerce etc., it caters to manufacturing, life sciences, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y into service providing activities. It is further directed that if segmental results of the above companies relating to similar services as being provided by assessee are not available, then these companies will have to be excluded as comparables as held in various judicial pronouncements relied upon by Ld. A.R.." 107. We find the decision of the co-ordinate Bench of the Tribunal in the case of Saxo India (P.) Ltd. (supra) has been upheld by the Hon'ble Delhi High Court Saxo India (P.) Ltd. (supra). The relevant extract of the Hon'ble High Court reads as under:- "10. On a comparison with the data available and made available, undoubtedly, the object of the statute is to "pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology - shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to levy within its jurisdiction where international transactions are involved. This exercise does not compare with other income assessments where the methodology adopted in their domestic jurisdiction will differ". The TNMM method depends on accurate data with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra) that in the absence of segmental details/information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly." 72.1 Respectfully following the decision, on identical facts, we direct exclusion of Persistent Systems Ltd. from the list of comparables. Quintegra Solutions Ltd 73. The ld. AR submitted that as the company is engaged in rendering customized IT solutions - development, testing, product engineering, SAP and infrastructure management services, it is functionally different. The Bangalore Bench of ITAT rejected this company as a comparable in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 77. The ld. AR submitted that this company is functionally dissimilar as it has substantial revenue from products. It was decided by the Hon'ble ITAT, Bangalore Bench in the case of 3DPLM Software Solutions Ltd Vs DCIT (AY 2008-09) supra that this company is to be rejected as a comparable for small software services companies like the Appellant. 78. The ld. DR relied on the orders of lower authorities for retaining this company as a comparable. 79. We have heard both the parties and perused the material on record. in the case of 3DPLM Software Solutions Ltd Vs DCIT (AY 2008-09) supra, this Tribunal has rejected this company and held as under:- "3.4 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment "software development services" relates to design services and are not similar to software development services performed by the assessee. 13.5 The Hon'ble Mumbai Tribunal in the case of Telcordia Technologies India (P.) Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinate Bench of this Tribunal in 3DPLM Software Solutions Ltd Vs DCIT (AY 2008-09) (supra) rejected this company for comparability and it was held as under:- "15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications (P.) Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand." 82.1 Respectfully following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomer.Com (P.) Ltd. (supra) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com (P.) Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration." 85.1 Considering the submissions of the assessee and respectfully following the above decision of this Tribunal, this company is rejected as a comparable with the assessee company. Lucid Software Ltd. 86. The ld. AR submitted that this company has product development expenses incurred for software products developed inhouse and hence functionally different. It was rejected as a comparable for small software services companies in the case of 3DPLM Software Solutions P Ltd (AY 2008-09) (supra). 87. The ld. DR supported the orders of lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Softech Limited (viii) Birla Technologies Limited 90. The ld. AR submitted that the above companies were rejected by the TPO without assigning any specific reasons. He further submitted that the assessee raised this issue before the ld. DRP during the remand proceedings, however, the ld. DRP has not adjudicated the same. 91. We have heard both the parties and perused the material on record. We find that the assessee has raised this issue of inclusion of 8 comparables in the remand proceedings before the DRP, but the same is not adjudicated by the ld. DRP. However, the TPO has rejected these companies stating that either they are functionally different or do not quality filters applied by the TPO, but we note that there is no detailed discussed about the same in the TP order. We therefore think it fit to remit this issue to the ld. TPO for fresh decision with elaborate reasoning, after providing opportunity of being heard to the assessee. 92. This appeal of the assessee for AY 2008-09 is partly allowed for statistical purpose. 93. In the result, the appeals of the assessee for AY 2006-07, 2007-08 & 2008-09 are partly allowed for statistical purposes. This common order passed s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
