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TMI Blog2018 (3) TMI 2039X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Cybercom company, was engaged in providing consultancy and advisory services and was also carrying out the business of development, testing, marketing and manufacturing of information technology products and services. The annual report of the said concern declares the said facts and it is undisputed that the said concern is engaged in sale of software products. Cybercome is also to be excluded from final set of comparables. Assessee here pointed out that once the two concerns are so excluded, then the margins of comparables would be within +/- 5% of assessee's margins. Accordingly, we hold so. TP Adjustment is in respect of provision of back office support services by the assessee to its associated enterprises - Jindal excluded for benchmarking international transactions on the ground of being persistent loss making - HELD THAT:- The perusal of margins of said concern from year to year reflect that in the preceding two years, it had shown positive margins and only in the year under consideration, it had shown negative margin, such concern could not be termed as persistent loss making concern. We find support from the ratio laid down in CIT Vs. M/s. Welspun Zucchi Text ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are in fact not comparable to the appellant. 2.4 cherry picking the high margin companies and rejecting the low margin companies and inconsistently applying the benchmarking criteria; 2.5 disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report maintained as per Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules') 2.6 not sharing the search strategy adopted for selection of alleged comparable companies during the course of assessment proceedings; 2.7 applying inappropriate filters to reject certain comparable companies selected by the Appellant 2.8 disregarding the Hon'ble DRP directions, by not accepting Caltec Servicez Pvt. Ltd. and Jindal Intellicom Ltd. as comparable companies for the back office support segment which are rejected by the TPO just on the basis of loss making 2.9 erroneously computing the operating margins of the alleged comparable companies while making an adjustment to the international transaction of the Appellant; 2.10 disregarding the DRP directions and incorrectly computing the working capital adjusted m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act, is not pressed and hence, the same is dismissed as not pressed. 6. Vide ground of appeal No.2, the assessee has raised several issues with regard to transfer pricing adjustment made in the hands of assessee i.e. provision of software development services to the associated enterprises, an upward adjustment of ₹ 3,21,96,321/- and pertaining to back office support services provided by the assessee to its associated enterprises at ₹ 1,47,19,984/-. 7. Briefly, in the facts of the case, the assessee had furnished the return of income declaring income of ₹ 11,66,71,150/-. The assessee had undertaken international transactions with its associated enterprises at ₹ 76,15,55,466/-. The Assessing Officer thus, made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for verifying the correctness of arm's length price of said transactions. The TPO noted that the assessee had undertaken international transactions in three different fields i.e. provision of software services, provision of back office support services and reimbursement of expenses. The segmental information was available. The assessee had applied TNMM method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in comparables and in case the same are so excluded or included, then the margin shown by the assessee would be +/- 5% range of mean margins of comparables finally selected. In respect of segment of provision of software development services, he pleaded that the concerns Cybermate Infotek Ltd. (in short 'Cybermate') and Cybercom Datamatics Information Solutions Ltd. (in short 'Cybercom') are to be excluded from final list of comparables. In respect of Cybermate, it was pointed out that it was functionally different and was a product company and was also engaged in software development but no segmental details were available. Our attention was drawn to the financials of said concern which are placed at pages 872 to 902 of the Paper Book. In this regard, the learned Authorized Representative for the assessee also placed reliance on different decisions of Tribunal for the exclusion of Cybermae. In respect of Cybercom, it was pointed out that it was a product company and the margin of the same could not be compared with the assessee, who was engaged in providing software development services to its associated enterprises. Further, in respect of provision of back office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60% 2 Cybermate Infotek Limited 39.32% 3 Infobeans Systems Pvt. Ltd. 25.75% 4 E-Zest Solutions Ltd. 16.79% 5 Cybercom Datamatics Information Solutions Ltd. 46.50% 6 Evoke Technologies Ltd. 11.92% 7 Thirdware Solutions Limited 26.81% 8 RS Software (India) Limited 15.55% 9 Sasken Technologies Ltd. 11.77% 10 Spry Resources Ltd. 7.31% Arithmetic Mean 21.52% 14. The assessee is aggrieved by inclusion of two concerns i.e. Cybermate and Cybercom. In respect of Cybermate, the assessee has pointed out that it was engaged in sale of software products and also providing software development services to its associated enterprises. Both these business activities were clubbed under the head 'Software segment' and in the absence of segmental details being available, the assessee argues that the same cannot form part of list of comparables. The perusal of annual report of the said concern at pages 872 to 874 of Paper Book reflects the said concern to be engaged in providing software development services as well as developing variety of software products i.e. in the field of Hospital Management, Software HEAL SOFT and 38 other products. The financials of the said concern reflect no segmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware Corporation India (P.) Ltd. Vs. ACIT (2017) 80 taxmann.com 55 (Pune-Trib) while deciding the case of exclusion of a product company had held as under:- 18. On perusal of record and the order of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra), we find that the concern E-zest Solutions Ltd. is a product company and is engaged in both the provision of software services and sale of software services. On the other hand assessee is engaged in Software development services where the segmental details are not available, accordingly, E-zest Solutions Ltd. is functionally not comparable. Accordingly, we hold that the said concern is to be excluded from the final set of comparables. 18. The said proposition was applied by Pune Bench of Tribunal in DCIT Vs. Amber Point Technology India Pvt. Ltd. in ITA Nos. 756 757/PUN/2014 and cross appeals in ITA Nos. 761 762/PUN/2014, relating to assessment years 2008-09 and 2009-10, order dated 25.01.2018 for exclusion of concern which was engaged in providing both software services and was also selling its products. Accordingly, we hold that the concern Cybermate which is engaged in both sale of software products and providing software dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un Zucchi Textiles Ltd. (supra). 21. On perusal of record, we find that the TPO had excluded the said concern from final set of comparables, against which the assessee filed objections before the DRP, who directed the Assessing Officer to include the same on satisfaction of certain conditions. However, while passing the final assessment order, the Assessing Officer / TPO excluded the said concern as being not comparable on the ground of being persistent loss making. The perusal of margins of said concern from year to year reflect that in the preceding two years, it had shown positive margins and only in the year under consideration, it had shown negative margin, such concern could not be termed as persistent loss making concern. We find support from the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. M/s. Welspun Zucchi Textiles Ltd. (supra), wherein it has been held that merely because the comparable had made losses in one year would not ipso facto result in its exclusion from comparable analysis. Following the said proposition, we hold that a concern which is not persistent loss making, cannot be excluded from final set of comparables. Such proposition has also be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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