9911796707
TMI Blog2025 (3) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... eives technical assistance from it's AE if required during coding coupled with regular reviews and feedback by the AE. It also generates and maintain documentation for the code generated. During the financial year relevant to assessment year under consideration, the appellant had entered into international transactions with it's AE for providing software services. The appellant applied Transactional Net Marginal Method [in short 'TNMM"] and Profit Level Indicator [in short "PLI"] Operating Profit/Operating Cost (in short "OP/OC"). The appellant computed the PLI at 16.69% while the PLI range of 14 comparables selected by the appellant were arrived at 4.84% to 18.89% with a median of 9.33%. Accordingly, the software development services of the appellant to it's AE are concluded to be at Arm's Length Price [in short "ALP"]. 2.1. The assessee had filed it's return of income for the assessment year 2015-2016 on 30.11.2015 declaring total income at Rs. 10,20,08,630/- under normal provisions of the Income Tax Act, 1961. The case of the assessee company was selected for scrutiny and during the course of assessment proceedings, a Reference was also made to Transfer Pricing Officer [in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried the matter in appeal before the Tribunal. 4. The assessee has raised several grounds challenging the additions made by the Assessing Officer towards TP adjustment and software development services provided to it's AE. Although the assessee has raised various grounds including grounds challenging rejection of TP documentation and use of additional filters, but the Learned Counsel for the Assessee, made a submission at Bar that the assessee-company wishes to confine it's arguments only in respect of ground nos.3 and 4. Therefore, all other grounds raised by the assessee in the instant appeal has been treated as not pressed. 5. The Learned Counsel for the Assessee referring to ground no.3 of the appeal on selection of comparable companies submitted that the assessee-company has taken a ground of inclusion of 09 comparables, however, wants to restrict it's arguments for inclusion of 07 comparables which includes 02 comparables i.e., Larsen & Toubro Infotech Limited and Infobeans Technologies Limited are comparables selected by the assessee-company in it's TP documentation and remaining 05 comparables are selected by the TPO. TATA ELXSI LIMITED : 6. Learned Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas, Tata Elxsi Limited is engaged in providing product design and engineering services to different segments of business. The company generates 92.04% revenue from design and development of computer software and hardware. Further the company had also incurred substantial amount for in-house R and D project which is supported by technology partnerships, subscriptions and active participation in the standard and technology forums, trade shows and even go by the amount of expenditure incurred for R and D which is almost 2.75% of the total revenues of the company, whereas the assessee-company is a simple service provider to it's AE without any expenditure for R and D projects. We further note that Tata Elxsi Limited owns significant intangible assets which contributes to its revenue. From the details filed by the assessee-company, we find that the assessee-company is a simple captive service provider to it's AE, whereas, Tata Elxsi Limited is a company which provides a software development services to multiple segments and to different verticals of industry. Therefore, the said company i.e., Tata Elxsi Limited cannot be comparable to assessee-company. Further the ITAT Hyderabad Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices to a particular industry, it cannot be said that such company is not comparable to assessee-company. The DRP after considering all the relevant facts has rightly rejected the contention of the assessee-company for exclusion of Persistent Systems Limited and, therefore, the arguments of the assessee-company should be rejected. 11. We have heard both the parties. perused the material on record and the orders of the authorities below. We have also carefully considered relevant annual reports of Persistent Systems Limited with that of the appellant-company and we find that, the assessee-company is a captive service provider to it's AE on cost plus mark-up basis in respect of one vertical of software development i.e., gaming solutions, whereas, the Persistent Systems Limited is engaged in providing IP and product business and also development of software products services and technology innovation. Further there is no segmental details in financials and annual report to compare this software development services segment to the appellant-company. Further the company has spent significant amount towards R and D and also acquired significant rights in the nature of intangible assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company had incurred expenditure under the head cost of bought out items for resale which is a significant part of operating expenditure. 13. 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 giant company is providing software development services to a particular industry, it cannot be said that such company is not comparable to assessee-company. The DRP after considering all the relevant facts has rightly rejected the contention of the assessee-company for exclusion of Larsen & Toubro Infotech Limited and, therefore, the arguments of the assessee-company should be rejected. 14. We have heard both the parties and considered relevant arguments of the Learned Counsel for the Assessee and the learned CIT-DR. We have also carefully considered the annual reports of Lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NOLOGIES LIMITED : 15. Learned Counsel for the Assessee, made a statement at Bar, that Infobeans Technologies Limited was part of comparable selected by the appellant-company 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 Learned Counsel for the Assessee submitted that the above company viz., Infobeans Technologies Limited has been rejected by the TPO in previous years. He submitted that Infobeans Technologies Limited is engaged in the sale of products along with rendering of services and as per the annual reports, it has turnover on export of goods/services calculated on FOB basis. Further, the company is engaged in providing Custom Application Development (CAD), Content Management Systems (CMS), Enterprise Mobility (EM), Big Data Analytics (BDA), which are high end services and non-comparable to the services provided by the appellant-company which is engaged in providing software development services to it's AEs. He also drew the attention of the Bench the decision of ITAT, Hyderabad Bench in assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Infobeans Technologies Limited from the list of comparables. In so far as the various case laws relied on by the Learned Counsel for the Assessee, we are of the considered view that the finding recorded by any Appellate Authority or Court has to be read in conjunction with the facts to make it applicable to another case. Since the appellant-company itself has selected Infobeans Technologies Limited as comparable in it's TP documentation, therefore, in our considered view, there is no reason to exclude Infobeans Technologies Limited from the list of comparables. Thus, we are inclined to uphold the order of the learned Assessing Officer/DRP and reject the arguments of the appellant-company. INFOSYS LIMITED : 18. Learned Counsel for the Assessee submitted that although, the TPO/DRP o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess consulting, technology, engineering and outsourcing services which includes software products and platforms which are not limited only to routine software development. Further, the company also into product development which is evident from the annual report where it generates revenue from sale of 'Finacle' and "EdgeVerve'. Further, Infosys Limited is a giant company carries huge brand value which is evident from the report of brand financials where the total value of brand of Infosys Limited was at USD$ 3414 million. We further note that the company incurred significant amount of expenditure on R and D activities which is more than the 1000% of the turnover of the appellant-company. From the nature of services rendered by Infosys Limited and it's scale of operations, in our considered view, it cannot be compared with appellant-company which is a capitive service provider to it's AE on cost plus mark-up. It is relevant to refer to the decision of it Hyderabad bench in appellants 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it's brand value does not effect with respect to software development and 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 activities of software development services because software development services is an industry where the revenues are computed on the basis of man hours, but, not on the basis of total assets employed in the business. Therefore, there is no merit in the arguments of the Learned Counsel for the Assessee that Mindtree Limited is a giant company and it cannot be compared with appellant-company. He accordingly submitted that the order of the TPO/DRP should be upheld. 23. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. On perusal of annual reports of Mindtree Limited, we find that the company provides 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d information has not been given to the appellant-company for it's comments. He, therefore, submitted that Cybage Software Private Limited cannot be compared with the appellant-company and needs to be excluded. In this regard, the Learned Counsel for the Assessee relied upon decision of ITAT, Pune Bench in the case of Optiva India Technologies Private Limited for the assessment year 2016-2017 in ITA.No.194/Pun/2021, order dated 21.07.2022 and decision of ITAT, Hyderabad Bench in the case of Infor (India) Private Limited in ITA.No.1689/ Hyd./2019, order dated 19.10.2020 wherein the Tribunal directed to exclude Cybage Software Private Limited on the ground that it had abnormal profits and high margins. 25. The Learned CIT-DR, on the other hand, vehemently relied on the orders of the authorities below. He submitted that software development services is an umbrella of all activities which includes providing software services to various industries. He submitted that the Assessing Officer has called for information u/sec.133(6) of the Act and Cybage Software Private Limited stated that it operates only in one business segment i.e., provision of software development and IT consulting ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d view, there is no merit in the arguments advanced by the Learned Counsel for the Assessee for exclusion of Cybage Software Private Limited from the list of comparables. We, therefore, reject the arguments of the appellant-company. Although the Counsel for the Assessee has relied on decision of ITAT, Pune Bench in the case of Optiva India Technologies Private Limited for the assessment year 2016-2017 in ITA.No.194/Pun./2021, order dated 21.07.2022 and decision of ITAT, Hyderabad Bench in the case of Infor (India) Private Limited in ITA.No.1689/ Hyd./2019, order dated 19.10.2020, in our considered view, as already stated in earlier part of this order, a reference to any judgement cannot be made in isolation with the facts and context under which such observation was made. Therefore, in our considered view, the case law relied upon by the Learned Counsel for the Assessee are not applicable to the facts of the present case and thus, rejected. We thus inclined to uphold the order of the DRP/TPO and reject the ground taken by the appellant company. 27. Referring to ground no.4 of appellant-company, the Learned Counsel for the Assessee submitted that assessee seeks to include Akshay So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion available for comparison of software development services. Therefore, we are of the considered view that Akshay Software Technologies is not comparable to appellant-company and thus, we reject the arguments of the appellant-company. MAVERIC SYSTEMS LIMITED : 31. Learned Counsel for the Assessee submitted that Maveric Systems Limited is engaged in the business of software testing services which is similar to software development services and comparable to appellant company. In this regard, he relied upon the order of learned DRP in assessee's own case for the assessment year 2017- 2018 wherein the DRP has included Maveric Systems Limited on the ground that it is functionally comparable to the appellant-company as software testing forms part of software development services. 32. Learned CIT-DR, on the other hand, supporting the order of the Assessing Officer/DRP submitted that Maveric Systems Limited fails filters applied by the TPO which is evident from the discussion of the DRP wherein it;s R and D expenditure is more than 7.8% of the turnover which is beyond the general acceptable tolerance limit of 3% of the revenue and thus, rightly rejected as comparable. 33. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
