TaxTMI 
TaxTMI 
2014 (1) TMI 1031
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.... a company incorporated under the Companies Act, 1956. It is engaged in the business of software development services and ITES services. The assessee during the year under dispute provided such services in the sector of software development and ITES only to its Associated Enterprise (AE). For the impugned assessment year, the assessee filed its return of income declaring total income at 'nil' under the normal provisions of Income tax Act, 1961 and book profit of Rs. 8,61,610 u/s. 115JB of the Act. The return of income was initially processed u/s. 143(1) of the Act. Subsequently, in course of scrutiny assessment proceedings, the AO noticing that the assessee has earned revenue from international transactions with its associated enterprises (AEs), made a reference to the Transfer Pricing Officer (TPO) for determining ALP. In course of proceedings before him, the TPO while examining the TP Study report submitted by the assessee along with its return of income noticed that the assessee's business has been divided into two segments i.e., ITES/BPO and software development services. He further noted that the assessee has selected TNMM as the most appropriate method and OP/TC as the profit....
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....ificant intangibles owned by that company. That apart it is also an exceptional year of operation in case of the said company. There is merger of Holool India with effect from 14.2004 which had a material impact in the financial results for the year. In support of such contention, the learned AR referred to the decisions of the co ordinate Bench of the Tribunal in case of Intoto Software India Pvt. Ltd. ( ITA Nos. 1196, 1197/Hyd/ 2010), ITO vs. Colt Technology Services India Pvt. Ltd. (ITA No. 609/Del/2011), Integrated Decisions & Systems India (P) Ltd. vs. DCIT (TA No. 27/JP/2011) and ACIT vs. Sonata Software (ITA No. 3514/Mum/2010) wherein the co ordinate Benches of the Tribunal have excluded the aforesaid company from being treated as comparable due to the aforesaid reasons. The learned DR, however, submitted that the TPO having selected the comparables after considering all the issues, there is no reason for excluding this company as comparable. We have considered the submissions of the parties and perused the materials on record. It is the contention of the learned AR that not only the aforesaid company is involved in development of products but there is also an extraordinar....
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.... respectfully following the view expressed by the co ordinate Bench in case of Intoto Software India Pvt. Ltd. (supra), we direct the AO/TPO to examine the issue afresh in conformity with the direction given in the case of Intoto Software India Pvt. Ltd. (supra). Accordingly, this issue is remitted back to the file of the AO. (b) Sankhya Infotech Ltd. and Four Soft Ltd.: The learned AR objecting to the aforesaid company being treated as a comparable, submitted that the annual report as well as other material on record would clearly show that the aforesaid company is engaged in development of product. Therefore, the company being functionally different with the assessee company, it cannot be treated as a comparable. In support of such contention, the assessee relied on the decisions of the Tribunal in cases of Colt Technology Services India Pvt. Ltd. (supra), DCIT vs. M/s. Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09), Integrated Decisions & Systems India (P) Ltd. (supra) and Sonata Software (supra). The learned DR, on the other hand, supported the order of the TPO. We have heard submissions of the parties and perused materials on record. On a perusal of the order passed in the ....
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....Ltd. and WIPRO can be treated as comparable to the assessee as it is a giant in the sector of software development and ITES having considerable brand value. The learned DR, on the other hand, while strongly opposing contention of the assessee, submitted that the assessee itself in its own TP Study had selected Infosys Technologies as a comparable having found it to be functionally similar. Hence, the assessee's contention to exclude companies as comparables would be totally irrelevant. The learned AR in his rejoinder submitted that though the assessee had selected Infosys Technologies Ltd. as a comparable but it is not estopped from objecting to the company being selected as a comparable if it has been mistakenly considered as a comparable by the assessee. In support of such contention, the learned AR relied upon the decision of the ITAT Special Bench in the case of Quark Systems (38 SOT 207). We have heard submissions of the parties and perused the materials on record. So far as Infosys Technologies Ltd. is concerned the issue of comparability of the aforesaid company has been considered by different Benches of the Tribunal including the Hyderabad Benches. It is to be noted tha....
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....ssessee, filed before us the reply of Tata Elxsi Limited to the Addl. CIT (Transfer Pricing), Hyderabad, wherein the concerned Officer has been informed that Tata Elxsi Limited is specialized Embedded Software Development Service Provider and that it cannot be compared with any other software development company. It was submitted that because of the specialization and also because of diverse nature of its business, it is very difficult to scale-up the operations of Tata Elxsi Limited. In view of this, Tata Elxsi Limited has informed that it is not fair to use its financial numbers to compare it with any other company. The communication dated 25th August, 2009 to the TPO is placed before us. As this communication was not before the TPO at the time of transfer pricing adjustment we deem it fit and proper to remand this issue also to the file of the TPO to reconsider adopting this company as the comparable in the light of observations of this company to the TPO in the case of another assessee. In the result, the Assessing Officer/TPO is directed to reconsider the issue in accordance with law, after affording a reasonable opportunity of being heard to the assessee. Respectfully follow....
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.... is it has outsourced a considerable part of its business to third party vendors. This is proved from the fact that only 2% of the revenue is spent towards employee cost and there is huge vendor payment. In support of such contention, the leaned AR relied on the decisions of Hyderabad ITAT in the following cases: Capital IQ Information Systems India Pvt. Ltd. (ITA No. 1961/Hyd/2011) Cognizant Technology Services Pvt. Ltd. (ITA No. 1623/Hyd/2010). The learned Departmental Representative, on the other hand, submitted that the TPO having considered all aspects of the matter and selected the aforesaid company as a comparable, it should not be excluded from the comparability analysis. We have heard the contentions of the parties and perused the materials on record. On a perusal of the order passed by the co ordinate bench in the case of Capital IQ Information Systems Pvt. Ltd. (supra), it is to be noted that the aforesaid company has been excluded as a comparable by holding as under: "17. After considering the submissions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008-09 in assessee's own case, after ....
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....on, intranet/extranet, email list management content management, security etc. Hence, the companies is functionally dissimilar to the assessee. He further submitted that the said company cannot also be treated as comparable as the directors of the said company were found to be involved in fraud, hence financial results of the company cannot be trusted as reliable. In support of such contention, the learned AR relied upon the decision of ITAT, Delhi Bench in case of ITO vs. CRN Services India (P) Ltd. (14 Taxman. Com.96 (Del). Having heard the submissions of the parties and considering the material on record, we find that the ITAT, Delhi Bench in case of ITO V/s. CRM Services Pvt. Limited (supra) held that the aforesaid company cannot be treated as comparables with the following observation: "17.5 We have considered the facts of the case and submissions made before us. The admitted facts in respect of Galaxy Commercial are that it is carrying on three lines of business and segment profitability is not available. Obviously, overall profitability of the company cannot be applied in the case of the assessee as it will amount to comparing incomparable cases. Further, the business repu....
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....hen this company cannot be treated as a comparable. (d) WIPRO BPO Solutions Ltd. : We have heard the contentions of the parties and perused the materials on record in the context of assessee's objection with regard to aforesaid company. The ground on which the assessee has sought exclusion of the aforesaid company is that WIPRO commands a premium in the pricing of its products and services due to goodwill, reputation and brand value. Therefore, it cannot be compared to a risk mitigated captive service provider like the assessee. In support of such contention the learned AR relied upon the following decisions: a) Capital IQ Information Systems India Pvt. Ltd. (ITA No. 1961/Hyd/2011). b) Market Tools Research Pvt. Ltd. vs. ACIT (ITA No. 2066/Hyd/2011). c) Adaptec (India) Pvt. Ltd. vs. DCIT (ITA No. 1801/Hyd/09). d) Patni Telecom Solutions Pvt. Ltd. vs. ACIT (ITA No. 1846/Hyd/2012). e) Agnity India Technologies vs. ITO (ITA No. 3856/Del/2010). f) Trinity Advanced Software Labs Pvt. Ltd. vs. ACIT (ITA No. 1129/Hyd/2005). g) Triology E Business Services Software Ltd. vs. DCIT (ITA No. 1054/Bang/2011). h) Telcordia Technologies India P. Ltd. (ITA No. 7821/Mum/2011). i) 24/7 Cus....