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TMI Blog2024 (8) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... te revenue filters and excluded the above companies on the ground that these companies are engaged in predominantly onsite development and is not comparable to appellant company - Unless the TPO and DRP makes out a case that the appellant has incurred higher cost which is on account of providing onsite development services, in our considered view, onsite revenue filter cannot be applied. Further, when the appellant and the TPO are accepted a particular company as comparable after analyzing their functions, then the DRP cannot Suo motto exclude the above company by applying new filter and this principle is supported by the decision of the ITAT Bangalore Bench in the case of Aspect Technology Center (India) Private Limited [ 2020 (9) TMI 1093 - ITAT BANGALORE] Therefore, we set aside the findings of the learned DRP and direct the TPO/AO to include Akshay Software Technologies Ltd, Mindtree Ltd and R.S. Software India Ltd in the list of comparables. Exclude Persistent Systems Ltd from the list of comparables held to be not comparable to a software development. Sasken Communication Technologies Ltd is predominantly a product company which cannot be compared with the appellant company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined the ALP for the provision of software development services and arrived at higher value of Rs. 2,229,53,557/- being transfer pricing adjustment u/s 92C of the Act. The TPO had also made transfer pricing adjustment of Rs. 2,30,25,260/- towards notional interest receivable on outstanding receivable from AE. Against the draft assessment order, the assessee has filed objections before the DRP and contested TP adjustment suggested by the TPO in respect of provision of software development services and notional interest receivable on outstanding receivables from AE. The DRP-1 Bengaluru vide directions issued u/s 144C(5) of the I.T. Act, 1961 dated 3.12.2015 directed the Assessing Officer to recompute the deduction claimed u/s 10A of the Act by excluding communication charges from the total turnover. The DRP had also directed the Assessing Officer to delete TP adjustment made towards receivables and further issued direction to the Assessing Officer/TPO to exclude certain comparables for the reasons stated in their order dated 3.12.2015. In pursuant to the directions issued by the DRP u/s 144C(5) of the Act dated 3.12.2015, the Assessing Officer has passed the final assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinary events of merger and investment in the year. The fact remains that when both the appellant and TPO accepted a particular company after verifying relevant facts, then the learned DRP cannot Suo motto exclude any company by applying fresh filters. Therefore, he submitted that these companies should be included in the list of final comparables. 7. The learned DR, on the other hand, supporting the orders of the DRP submitted that the DRP has given categorical reason as to how these companies are not comparable to the appellant company. Further, these companies are predominantly engaged in providing onsite development services and the TPO has failed to apply onsite revenue filters and therefore, the DRP has rightly applied on site revenuer filter and excluded above companies and their order should be upheld. 8. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. As regards the reason given by the learned DRP to exclude M/s. Evoke Technologies Ltd on the ground that the margin of the company was abnormally low and reasons for low margin is increase in consultancy charges, we find that the learned Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f software development activity and nature of services and functions performed remains the same irrespective of whether the service provider undertakes the development activity at a remote location at the offshore or at the clients place onsite except in a case where the services are rendered onsite the cost may be little higher side. Unless the TPO and DRP makes out a case that the appellant has incurred higher cost which is on account of providing onsite development services, in our considered view, onsite revenue filter cannot be applied. Further, when the appellant and the TPO are accepted a particular company as comparable after analyzing their functions, then the DRP cannot Suo motto exclude the above company by applying new filter and this principle is supported by the decision of the ITAT Bangalore Bench in the case of Aspect Technology Center (India) Private Limited (Supra). Therefore, we set aside the findings of the learned DRP and direct the TPO/Assessing Officer to include Akshay Software Technologies Ltd, Mindtree Ltd and R.S. Software India Ltd in the list of comparables. 10. The next issue that came up for our consideration from Ground No.5 of assessee s appeal is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, we find that Persistent Systems Ltd derives revenue from sale of software products and sale of software services. There is no break up of income/expenses from two segments. The above company is predominantly a product company. Therefore, in our considered view Persistent Systems Ltd cannot be compared with appellant company which is engaged in providing software development services to its AE on cost plus mark up. Further, Persistent Systems Ltd has been held to be not comparable to a software development provider by the ITAT Hyderabad Bench in the case of Conexant Systems (P) Ltd in ITA No.464/Hyd/2016. Therefore, we are of the considered view that the DRP is erred in including Persistent Systems Ltd and thus, we direct the learned TPO/Assessing Officer to exclude Persistent Systems Ltd from the list of comparables. 15. In so far as Sasken Communication Technologies Ltd, from the details available on record, we find that it derives revenue from software development services and product design services. Allocation of actual expenditure between each segment is also not available. It also spent substantial amount for R D purposes. The company holds inventory. From the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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