Tribunal excludes companies from comparables list in favor of assessee

The Tribunal allowed the appeal of the assessee, excluding Cybermate Infotek Ltd., Cybercom Datamatics Information Solutions Ltd., Infobeans Systems Pvt. Ltd., and Thirdware Solutions Ltd. from the final list of comparables for benchmarking international transactions. Other grounds of appeal were dismissed, resulting in the appeal being allowed in favor of the assessee.

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Issues Involved:
1. Selection of certain companies as comparable without appropriately applying the mutually agreeable selection/rejection criteria correctly or by not appreciating the non-comparability reasons furnished by the appellant.

Issue-wise Detailed Analysis:

1. Selection of Comparable Companies
The primary issue in this case revolves around the selection of certain companies as comparable for benchmarking the arm's length price of international transactions undertaken by the assessee, who was engaged in providing software development services to related concerns. The companies in question were:
- Cybermate Infotek Limited
- Cybercom Datamatics Information Solutions Limited
- Infobeans Systems Private Limited
- Thirdware Solutions Limited

Cybermate Infotek Limited:
The assessee argued that Cybermate Infotek Ltd. was engaged in both software development services and product development, with no segmental details available. The Tribunal, referencing the case of M/s. PubMatic India Private Limited Vs. ACIT and the judgment in Prl.CIT Vs. Saxo India Pvt. Ltd., held that in the absence of segmental details, the margins of Cybermate Infotek Ltd. could not be applied to benchmark the international transactions of the assessee. The Tribunal emphasized that the functional disparity between a company providing software development services and one involved in product development necessitated the exclusion of Cybermate Infotek Ltd. from the list of comparables.

Cybercom Datamatics Information Solutions Limited:
Similarly, Cybercom Datamatics Information Solutions Ltd. was also engaged in both product development and software development services. The Tribunal, following the same reasoning as in the case of Cybermate Infotek Ltd., held that Cybercom Datamatics Information Solutions Ltd. could not be included in the final list of comparables due to the lack of segmental details and the functional differences.

Infobeans Systems Private Limited:
The Tribunal noted that Infobeans Systems Pvt. Ltd. was earning foreign exchange from export of goods on an FOB basis and had undergone an extraordinary event of demerger during the year. The financials of the company reflected revenue from both software development services and sale of software, with no segmental details available. Citing the decision in M/s. PubMatic India Private Limited Vs. ACIT, the Tribunal held that Infobeans Systems Pvt. Ltd. was not comparable to the assessee and should be excluded from the final list of comparables.

Thirdware Solutions Limited:
Thirdware Solutions Ltd. derived revenue from the sale of licenses, software services export from SEZ units, and subscriptions, and also imported raw materials and owned intangibles. The Tribunal, referencing its decision in M/s. PubMatic India Private Limited Vs. ACIT and the assessee’s own case in I.T.(T.P)A No.1487/Bang/2012, concluded that Thirdware Solutions Ltd. was not functionally comparable to the assessee due to the absence of segmental details and the nature of its revenue sources. Therefore, it was excluded from the final list of comparables.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the companies Cybermate Infotek Ltd., Cybercom Datamatics Information Solutions Ltd., Infobeans Systems Pvt. Ltd., and Thirdware Solutions Ltd. should be excluded from the final list of comparables for benchmarking the international transactions of the assessee. Consequently, the other grounds of appeal became academic in nature and were dismissed. The appeal was thus allowed in favor of the assessee.

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