TaxTMI 
TaxTMI 
2014 (7) TMI 641
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....s year relevant to the assessment year under consideration, the assessee reported revenue of Rs. 47,99,84,033/- towards provision of software development services. The assessee undertook TP study through an external consultant to benchmark the ALP of the International Transaction. In the TP study, TNMM was adopted as the most appropriate method . The assessee selected 28 companies as comparables by undertaking a search in databases having average PLI of 14.53%. As assessee's margin was 10.69%, the price charged for the international transaction was found to be within arm's length. The Assessing Officer in course of scrutiny assessment proceedings noticing that revenue earned from international transaction with its AE has exceeded the threshold limit made a reference to the TPO for determining the ALP. The TPO after analysing the TP study of the assessee and other connected documents though accepted TNMM as the most appropriate method, however he rejected the TP report of the assessee basically on the ground that the assessee has taken into consideration multiple year data in case of 22 out of the 28 comparables selected. The TPO also noted that the assessee has not properly followe....
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....oftware services and segment-wise data is not available and secondly, it is contended that the company has shown super normal profit of 50.74% against average margin of other comparables. It is very much evident from the TP order that the assessee has been categorised as a software development service provider. Coordinate Bench of this Tribunal in the case of Virtusa (India) Pvt. Ltd. (ITA No. 1962/Hyd/2011 dated 30/08/2013) after following some other decisions of the Tribunal has held this company cannot be treated as comparable as this company is also into product development. As segmental details of operating income of software development services and sale of software products are not available, it could not be ascertained whether the profit ratio of this company can be taken into consideration for comparing with the assessee. As the aforesaid decision of the Coordinate Bench pertained to the same assessment year i.e. A.Y. 2007-08, following the same, we hold that this company cannot be treated as comparable to the assessee. Other cases considered the same comparable and rejected are as under: a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. ....
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....consideration isRs.13,149 crores as against Rs. 47 crores of the assessee. Therefore, considering the enormity of turnover of the company as well as other relevant factors like brand value, scale of operation, size etc. the aforesaid company cannot be treated as comparable to a purely captive service provider like the assessee in any manner. This view of ours is also in tune with the view expressed by different Benches of this Tribunal as stated below as well as that of the Hon'ble Delhi High Court in the case of CIT Vs. Agnity India Technologies Pvt. Ltd.,[2013] 85 CCH 146. a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang/2011 f) Adaptec (India) P. Ltd. vs. DCIT ITA.No.1801/Hyd/2009 g) Trinity Advanced Software Labs P. Ltd. vs. ACIT ITA.No.1129/Hyd/2005 We therefore direct the Assessing Officer /TPO to exclude this while computing ALP. ISHIR INFOTECH LTD 8. So far as this company is concerned, the assessee has sought exclusion of the aforesaid company....
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....he aforesaid decisions of the Coordinate Benches, we direct exclusion of the aforesaid company from list of comparables. MEGASOFT LIMITED : 10. The main objection of the assessee with regard to the aforesaid company is that this is predominantly a product development company and margin from software development services is 23.11%. As can be seen, in case of M/s Virtusa (India) Pvt. Ltd. (supra), the Co-ordinate Bench of the Tribunal while considering the assessee's objection with regard to the aforesaid company had directed the Assessing Officer/TPO to take only segmental margin of this company for computing ALP. Similar view was also expressed in the following cases : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Triology E-Business Solutions ITA.No.1054/Bang/2011 e) Telcordia Technologies India P. Ltd. ITA.No.7821/Mum/2011 f) Bearing Point Business ITA.No.1124/Bang/2011 g) LG Soft India P. Ltd. ITA.1121/Bang/2011 h) Transwitch India P. Ltd. ITA.948/Bang/2011 i) Mercedes Benz Research & Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd....
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....been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties. " Following the decision of the ITAT Mumbai Bench as aforesaid and also considering the fact that the company itself in the information provided in response to the notice issued u/s 133(6) of the Act has admitted that it cannot be considered as comparable with other assessees, we direct exclusion of the aforesaid company from the list of comparables while determining ALP. WIPRO LIMITED : 14. While objecting to the aforesaid company being treated as comparable, the learned AR submitted that the TPO only on considering segmental details submitted by the said company for IT services, in response to notice issued u/s 133(6), has considered it as a comparable. It was submitted that though the aforesaid company has diversified activities but discloses segmental information for IT services and products as one segment in its annual report. It was submit....
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....y cannot be compared with the assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. And other coordinate bench decisions, we hold that Wipro Ltd. cannot be treated as comparable with the assessee. 18. In Ground No. 7, assessee has challenged the action of the TPO in rejecting certain comparables selected by the assessee, which are as under: 1. Aztec Soft Ltd. 2. Birla Technologies Ltd. 3. Indium software India Ltd. 4. Larsen & Toubro Infotech. 5. PSI Data systems Ltd. (SEG) 6. VMF Softech Ltd. 19. With reference to inclusion of these comparables, assessee's contentions are that related party transactions in the case of Aztek and Birla Technologies will be within the filters applied by the TPO if reimbursements are excluded. With reference to Indium Software P. Ltd. and L & T Infotech, it was submitted that they are functionally similar. It was submitted that they are not functionally different and TPO should have considered segmental margin from the details furnished by the assessee. In the case of L & T Infotech., even though information was not received under section 133(6), it was the submission that this company also should be....
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....that the aforesaid company has been rightly rejected as comparable. Since same facts exist, we are also of the opinion that the aforesaid company has been rightly rejected as comparable. In aforesaid view of the matter, while we reject assessee's contention with regard to Indium Software India ltd, Larsen & Toubro Infotech ltd. and VMF Softech ltd, matter relating to Aztechsoft ltd, Birlasoft Technologies ltd and PSI Data Systems ltd are remitted back to the file of Assessing Officer/TPO. This ground is partly allowed for statistical purposes. 21. Ground No. 9 is on the issue of risk adjustment. This issue was also raised before the DRP while objecting to the draft assessment order. Assessee admits that it did not provide any risk adjustment in the T.P. documentation as margin of the comparable companies presented in the T.P. report was in line with the assessee's operating margin. It was the submission that assessee at any point of time did not deny the fact that comparable companies selected in the T.P. report have fair market risk. Therefore, assessee reserves the right to conduct such risk adjustment in future during the time of assessment. Learned Counsel referred to the gr....