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TMI Blog2025 (3) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... s of some decisions of Tribunal, unless the appellant-company makes out a case that such company is functionally dissimilar to that of the appellant-company. Therefore, we are of the considered view, that there is no merit in the arguments advanced by Assessee for exclusion of Larsen & Toubro Infotech Limited from the list of comparables. Infobeans Technologies Limited - No doubt, the appellant seeks to exclude Infobean Technologies Limited from the list of comparables on functional dissimilarity, but, on perusal of functions performed by the appellant company, when compared to Infobean Technologies Limited, we find that largely the functions performed by both the companies are similar and the dissimilarities are miniscule and insignificant. We find that Infobeans Technologies Limited is engaged in the provision of software development services. Therefore, in our considered view, once a particular company is a part of comparable selected in it's TP documentation by the appellant-company, it cannot be excluded at subsequent stage merely on the basis of some decisions of Tribunal, unless the appellant-company makes out a case that such company is functionally dissimilar to that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant company, the same cannot be rejected on the basis of one filter i.e., R and D expenditure above tolerance limit. Therefore, we are of the considered view that the DRP/TPO erred in not including Maveric Systems Limited from the list of comparables and thus, we direct TPO/AO to include.
Harbinger Systems Pvt. is engaged in software development services. Once a particular company is functionally similar to the appellant-company, then such company cannot be rejected on the ground of data not available in prowess database/search matrix. Although the learned DRP/TPO has not included Harbinger Systems Pvt. Limited on the ground of data not available in prowess database/search matrix, but, in our considered view, once the company is functionally similar to appellant company, the same cannot be rejected on the basis of prowess database/search matrix.
Appeal of the assessee is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ,001/-. The learned TPO had also computed interest on receivables on outstanding receivables by applying short term SBI deposit rate of 7.5% and proposed adjustment of Rs. 38,33,317/-. Consequent to TP adjustment as suggested by the TPO the Assessing Officer has passed draft assessment order on 13.12.2018 u/sec.143(3) of the Act and made total addition of Rs. 4,01,82,001/- on software development segment and also made addition towards TP adjustment on account of interest on receivables on outstanding receivables from AE at Rs. 38,33,317/- and determined the total adjustments u/sec.92CA of the Act at Rs. 4,40,15,318/-. 2.2. Aggrieved by the adjustment made by the learned Assessing Officer in the Draft Assessment Order, the appellant has filed it's objections before the DRP-1, Bengaluru. The DRP vide it's directions dated 06.09.2019 issued u/sec.144C(5) of the Act has allowed partial relief to the assessee-company by directing the learned Assessing Officer/TPO to exclude Thirdware Solution Limited from the list of comparables considered for the purpose of computing the ALP range and also included Cybage Software Private Limited; Inteq Software Private Limited and R S Software (India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software. Further the company has incurred substantial expenditure for R and D purposes which is almost 2.75% of the total revenues of the company. The company had also carries significant intangible assets. Therefore, the Assessing Officer has erred in comparing Tata Elxsi Limited to the appellant-company which is providing services to it's AE on cost plus mark-up basis. In this regard, he relied upon the decision of ITAT Hyderabad Bench, Hyderabad in assessee's own case for the assessment year 2010-2011 in ITA.No.222/Hyd./2015 and ITA.No.334/Hyd./2015 order dated 29.11.2018 wherein the Tribunal has directed the Assessing Officer/TPO to exclude Tata Elxsi Limited. 7. The learned CIT DR Shri B Bala Krishna, on the other hand, supporting the order of the DRP submitted that once TNMM is selected as the most appropriate method which is tolerant to various aspects including minor differences in services rendered by a company and the comparable company. Further software development services is an umbrella of all activities which includes providing software services to various industries. Therefore, merely for the reason that a particular company is providing software development servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lter which is evident from the evidences filed before the TPO where the related party transactions are more than 30% on sales. Further the company is functionally different from the appellant company which is evident from the annual report wherein it's specified services which includes IP and Product business and outsourced product development. The company is engaged into development and software products services and technology innovation and also earns income from royalty and branding. The company has spent significant amount towards R and D which is not comparable to that of the appellant-company. The company had also acquired significant rights in the nature of intangible assets. Therefore, going by the nature of services provided by Persistent Systems Limited, it is definitely not comparable to assessee-company which is captive service provider to it's AE on cost plus mark-up. Therefore, he submitted that Persistent Systems Limited should be excluded from the list of comparables. In this regard, he relied on the decision of ITAT Hyderabad Bench in assessee's own case for the assessment year 2010-2011 in ITA.No.222/Hyd./2015 and ITA.No.334/Hyd./2015 order dated 29.11.2018 where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.222/Hyd./ 2015 and ITA.No.334/Hyd./2015 order dated 29.11.2018 wherein the Tribunal has directed the Assessing Officer/TPO to exclude Persistent Systems Limited from the list of comparables on functional dissimilarities. Therefore, we direct the learned Assessing Officer/TPO to exclude Persistent Systems Limited from the list of comparables. LARSEN & TOUBRO INFOTECH LIMITED : 12. Learned Counsel for the Assessee, made a statement at Bar, that L & T was part of comparable selected by the appellant in it's TP documentation. However, sought exclusion of the above company from the list of comparable before the TPO and DRP on the ground that the said company is functionally different from appellant company and there is an extraordinary event of acquisition and amalgamation for the year under consideration, which significantly affect the operating margins. The company has made substantial investments in technology absorption. Therefore, the above company i.e., L & T Infotech Limited cannot be compared with the appellant-company which is a simple service provider to it's AE on cost plus mark-up. In support of this contention he relied upon decision of ITAT Hyderabad Bench in assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that largely the functions performed by both the companies are similar. Although, the Learned Counsel for the Assessee seeks to exclude the Larsen & Toubro Infotech Limited on the ground of significant intangibles/business rights and huge brand value, but, in our considered view, going by the value of IPR, they are miniscule and insignificant. Further, although the company has required 100% stake in M/s. Information Systems Resources Centre Private Limited which also engaged in the provision of software development services. Further the appellant had failed to prove how the brand value effects the operating margin of the company. Therefore, in our considered view, once a particular company is a part of comparable selected in it's TP documentation by the appellant-company, it cannot be excluded at subsequent stage merely on the basis of some decisions of Tribunal, unless the appellant-company makes out a case that such company is functionally dissimilar to that of the appellant-company. Therefore, we are of the considered view, that there is no merit in the arguments advanced by the Learned Counsel for the Assessee for exclusion of Larsen & Toubro Infotech Limited from the list of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is basically into application development for web and mobile, provides customised service to it's offshore clients and own software licenses. He accordingly pleaded that Infobeans Technologies Limited be excluded from the list of comparables on functional dissimilarities. 16. The learned CIT-DR Shri B. Bala Krishna, on the other hand strongly relied on the orders of the Assessing Officer/DRP. He submitted that in TP comparability analysis, consistency is not a mandatory requirement in light of new information, one company may be chose as comparable even though it was rejected in previous years. He submitted that the Assessing Officer/TPO upon gathering information through Annual reports and 133(6) response and after analysing the same, Infobeans Technologies Limited was included as comparable as it is purely into software development with the appellant company. He accordingly submitted that the comparable selected by the TPO/DRP should be upheld. 17. We have heard both sides and perused relevant material available on record. Admittedly, Infobean Technologies Limited is part of TP documentation of the appellant-company and the appellant-company has selected the above comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited was $USD3114 million. The company incurred significant amount for R & D activities which is more than 1000% of the turnover of the appellant-company. Infosys Limited is a giant company and it's size and scale of operations is several times higher than the appellant-company. Therefore, Infosys Limited cannot be compared to appellant-company which is the capital service provider to it's AE on cost plus mark-up basis. In this regard, the Learned Counsel for the Assessee relied on the decision of ITAT, Hyderabad Bench in assessee's own case for the assessment year 2010-2011 in ITA.No.222/Hyd./2015 and ITA.No.334/ Hyd./2015 order dated 29.11.2018 wherein the Tribunal has directed the Assessing Officer/TPO to exclude Infosys Limited from the list of comparables on functional dissimilarities. 19. Learned CIT-DR submitted that Infosys Limited is also into software development services and there is no evidence that it's brand value does have any bearing on margins, because, in software development, the turnover is based on man hours. He further submitted that the size and scale of operations does not matter when it comes to margins of a company which is engaged in similar activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted is engaged in the area of software development services in different vertical's and also engaged in product sales. He submitted that Mindtree Limited is offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services. He submitted that Mindtree Limited has incurred INR 212 Million on R & D activity, sold 3,500 licenses of Gladius Software, sold 8000 licences of secure mind software and has filed 4 patents in India and US in the areas of Video Analytics. He submitted that this company has been named as overall leader zone by Zinnov, a leading globalization and market expansion advisory firm, in it's global R & D service provider ratings 2014. Further, Mindtree Limited has significant intangible assets and it's onsite activities are at 46% and onsite revenue of the company grew by 27.8% in the current year as compared to growth of 8.8% in offshore revenue. He further submitted that in response to notice u/sec.133(6) of the Act, Mindtree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant-company. From the nature of services rendered by Mindtree Limited and it's scale of operations, in our considered view, it cannot be compared with appellant-company which is a captive service provider to it's AE on cost plus mark-up. It is relevant to refer to the decision of it Hyderabad Bench in the case of Infor (India) Private Limited ITA.No.1689/Hyd/2019 dated 19.10.2020 for the assessment year 2015-2016 wherein the Coordinate Bench of Hyderabad Tribunal has directed to exclude Mindtree on the ground that it is a giant company in the area of development of software. Similar decision has been taken by the ITAT, Bangalore Bench in the case of Yahoo Software India Private Limited ITA.No.2365/Bang./2019 dated 28.02.2020 for the assessment year 2015-2016 wherein the Bangalore Tribunal directed to exclude Mindtree on the ground that 46% of revenue is from onsite activity which is over and above the threshold limit of 25% of total revenue. Considering the totality of the facts and circumstances of the case, we direct the Assessing Officer/DRP to exclude Mindtree Limited from the list of comparables on functional dissimilarities. CYBAGE SOFTWARE PRIVATE LIMITED : 24. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company should be rejected. 26. We have heard both sides and perused the material on record and gone through the orders of the authorities below. On perusal of the annual report of the Cybage Software Private Limited, we find that it is predominantly engaged in the business of software and IT consultancy services. Although the description of the services provided in the annual report states various activities, but on perusal of the relevant services provided by the company, in our considered view, it is an umbrella of all the activities of software development services provided by a company. Further, the appellant-company contents that there is insufficient segmental information for comparison of software development services, but, in our considered view, since bundle of services provided by the company is coming under the umbrella of software development services, there is no question of requirement of segmental information as contended by the appellant-company. We further note that the independent audit report also specifies that the company i.e., Cybage Software Private Limited is engaged in software services. Further, there is no reference in the annual report which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident from the nature of services referred to in the annual report. Therefore, he submitted that Akshay Software Technologies should be included in the list of comparables. 29. The Learned DR, on the other hand, supporting the order of the learned Assessing Officer/TPO/DRP submitted that Akshay Software Technologies fails onsite service filter which is evident from the observation of the DRP. Further, the company is engaged in providing ERP solutions which is multi-layer software that indicates different functions within an organisation. Therefore, the above company cannot be compared with the appellant company which is providing simple software development services to it's AE on cost plus mark-up basis. 30. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We find from the relevant evidences filed by the appellant-company including annual reports of Akshay Software Technologies and from the details furnished by the appellant-company, we find that Akshay Software Technologies fails onsite revenue filter which is evident from the annual report where it derives revenue from export of software services which is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any filter. Although the learned DRP has observed that R and D expenditure is above tolerance limit, but, in our considered view, once the company is functionally similar to appellant company, the same cannot be rejected on the basis of one filter i.e., R and D expenditure above tolerance limit. Therefore, we are of the considered view that the DRP/TPO erred in not including Maveric Systems Limited from the list of comparables and thus, we direct TPO/Assessing Officer to include Maveric Systems Limited in the list of comparables. HARBINGER SYSTEMS PVT. LIMITED : 34. Learned Counsel for the Assessee submitted that the learned TPO has rejected Harbinger Systems Pvt. Limited as a comparable company on the ground that it's data is not available in the search matrix. However, the fact remains that going through the annual report of the company, it is engaged in software development services and passes all the filters applied by the TPO. He, therefore, submitted that the TPO/DRP are erred in not including Harbinger Systems Pvt. Limited from the list of comparables and thus, requested to include Harbinger Systems Pvt. Limited in the list of comparables. 35. Learned CIT-DR, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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