TaxTMI 
TaxTMI 
2014 (3) TMI 171
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....quality assurance and support services. It is a subsidiary of Inclusive International Holdings Ltd. UK. For the A.Y. 2005-06 it has filed return of income on 30.10.2005 showing income of Rs.1,17,27,690/- after set off of brought forward losses. Since assessee had international transactions with its Associated Enterprises (in short "AE") for determining the ALP, the A.O. made a reference under section 92CA(1) of the Act to the ACIT (Transfer Pricing) / TPO. In response to this, after verifying the details furnished by the assessee and conducting enquiries, the TPO passed an order dated 28.03.2008 under section 92CA(3) adopting TNMM as the most appropriate method and determined the ALP of the transactions arising from software development services to its AEs at Rs.29,79,42,116/- as against Rs.27,55,22,944/- shown by the assessee. In conformity with such order passed by the TPO, the A.O. adopted the ALP and made the difference of Rs.2,24,19,172/- as adjustment to the returned income. Being aggrieved, assessee preferred appeal before the CIT(A) and raised 8 grounds. Learned CIT(A) more or less rejected all the grounds and accepted only one company as not comparable and directed the TPO....
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....objecting to the rejection of two comparable companies one Birla Technologies Ltd. and other VJIL Consulting Ltd. which the TPO rejected on the reason that persistent loss making/functionally different. As far as the selection of comparables are concerned, the assessee's objections and reasoning given are considered as as under : 1. Bodhtree Consulting Ltd. The learned counsel submitted that this company should be rejected under the following TPO's filters: * Related partly transactions filter: As per schedule 4 of the balance sheet, the company has investments in Perigon, LIC, USA and as per the response u/s 133(6); the company has export sales to Perigon LIC, USA of Rs. 133.90 lakhs, being 34.68% of the total turnover. * Functionally different filter: The company in its response to notice u/s 133(6) has stated that it provides e-paper solutions, data cleansing software, website development and other customized software and also state that the epaper solutions and data cleansing services would come under the category of IT enabled services. 2. Exensys Software Solutions Ltd., The learned counsel submitted that this company should be rejected under the following T....
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....der is no longer res-integra. The following cases have specifically anlaysed in detail the comparability of Infosys on various parameters to a similar size software service provider and rejected it: - Intoto Sof tware India Pvt. Ltd. ( ITA No. 1196/Hyd/2010) - Virtusa India Pvt. Ltd. Vs. DCIT (ITA No. 1962/H/2010) - Patni Telecom Solutions Pvt. Ltd. Vs. ACIT (ITA No. 1846/Hyd/2012) - Adaptee (India) Pvt. Ltd. Vs. DCIT (ITA No. 1801/Hyd/2009) - DCIT Vs. M/s Hellosoft India Pvt. Ltd. (ITA No. 645/Hyd/09) - Trilogy E Business Services Software Ltd. Vs. DCIT (ITA No. 1054/Bang/2011 - Para 20) - Telcordia Technologies India P Ltd. (ITA No. 7821/Mum/2011 - Para 7.4) - Cordys Software India Pvt. Ltd. Vs. ACIT (ITA No. 1972/H/2011) - Agnity India Technologies Vs. ITO (ITA No. 3856/Del/2010) - Agnity India Technologies Pvt. Ltd. Vs. ITO (High Court decision - ITA 1204/2011) 5. Sankhya Infotech Ltd. The learned counsel submitted that this company is functionally different as evident from the following: * Various disclosures in the annual report and response to 133(6) notice indicates clearly that the company is into software products (services are suppleme....
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..... Ltd. (ITA No. 7821/Mum/2011) - Logica Pvt. Ltd. (IT(TP)A No. 1129/Bang/2011) 8. With reference to these companies, the learned counsel referring to replies given to AP/TPO in response to the notices u/s 133(6) and their annual reports, which are available in its paper book, submitted that companies are functionally different and the operations are exceptional as there was a merger in the year with another company which had a material/significant impact on the profit margins and further the computations are also wrong as the deferred revenue expenditure, which was claimed regularly on the basis of accounting policy of the company, was excluded by the TPO in arriving at a different higher profit margin, which is not correct. 9. The learned DR, however, referred to the detailed order by the AO and TPO with reference to the comparables. 10. We have considered the issue and examined the record including paper books placed on record. There is a merit in assessee's contentions about noncomparability of various comparable companies selected by the TPO. 11. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Hol....
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....to be taken note of and where no adjustment can be made on account of this extraordinary event, then such company cannot be considered as a comparable. The objections to this company by Assessee are made for the first time before the Tribunal. The Tribunal being the final fact finding authority is bound to take note of the objections of Assessee. As the material relied upon by the learned Counsel for Assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, we deem it f it and proper to remand this issue to the file of the Assessing Officer/TPO for reconsideration. If it is found that there is an amalgamation of Exensys Software Limited and Holool India Limited and formed as one entity viz.,Exensys Software Solutions Limited. during the relevant previous year and the f inancial result is the combined result of these two companies, then, we direct the Assessing Officer/TPO to exclude this company from the list of comparables." 12. In view of the above, we are of the opinion that there is an extra-ordinary event which resulted in high operating margin of that company and we, therefore, direct the AO to exclude thi....