TaxTMI 
TaxTMI 
2014 (12) TMI 50
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....essee is remunerated at cost plus 14% mark up for rendering services to its AE. During the AY under dispute, assessee earned revenue of Rs. 16,52,99,464 from the services rendered towards software design and software development to its AE. Assessee also received reimbursement of expenses actually incurred amounting to Rs. 45,35,095. For the impugned AY, assessee filed its return of income on 01/11/2005 declaring 'Nil' income after claiming exemption u/s 10A of the Act of Rs. 144,37,018. 3. During the scrutiny assessment proceeding, AO noticing that revenue earned from international transaction has exceeded Rs. 5 crore made a reference to the Addl. CIT, International Taxation (hereinafter referred to as Transfer Pricing Officer (TPO) ) in terms with the provisions contained u/s 92CA of the Act, for analyzing Arm's Length Price (ALP) of international transaction with AE. In course of proceeding before TPO, assessee submitted its TP study report carried out through an external agency for bench marking the price received from international transaction with AE. For establishing that the price charged is within arm's length, FAR analysis was undertaken by categorizing assessee as a ri....
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....er rejecting the TP study, TPO applying certain filters adopted by assessee in addition to certain additional filters chosen by him conducted a fresh search in the data bases for selection of comparables. TPO also exercising his power u/s 133(6) obtained information from certain comparable companies. Search process adopted by TPO resulted in selection of 17 companies as comparable with an average margin of 26.59% Companies selected by TPO are as under: S. No. Name of the company OP/TC% 1. Gate Global Solutions Ltd. 1.64% 2. Flextronics (seg.) 29.33% 3. Geometric Software Solutions Co. Ltd. 17.59% 4. Lanco Global Systems Ltd. 9.31% 5. Larsen & Toubro Infotech Ltd. 8.34% 6. RS Software (India) Ltd. 6.56% 7. Sasken Communication Techn Ltd. (Seg.) 13.05% 8. Sasken Network Systems Ltd. 13.84% 9. Visualsoft Technologies Ltd. (seg) 19.95% 10. Bodhtree Consulting Ltd. 22.21% 11. Exensys Software Solutions Ltd. 52.94% 12. Sankya Infotech Ltd. 21.00% 13. Foursoft Ltd. 21.21% 14. Thirdware Solutions Ltd. 64.07% 15. Tata Elxsi Ltd. (seg) 22.63% 16. Infosys Technologies Ltd. 40.87% 17. Sa....
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....r submitted that so far as this company is concerned, it is exceptional year of operation as there was amalgamation of the company with Holool India Ld., with retrospective effect from 01/04/2004, which had a material/significant impact on the profits of the company for AY 2004-05. Ld. AR also brought to our notice that there is an error in computation of margin as TPO has excluded deferred revenue expenditure is included the net margin of company would be 32.68%. In support of his contention that the aforesaid company cannot be a comparable to assessee, learned AR relied on the following decisions: 1. Ness Innovative Business Services Pvt. Ltd., ITA No. 472/Hyd/2014 . 2. Invensys Development Centre (India) Pvt. LOd., ITA No. 1256/h/2010. 3. Colt Technology, ITA No. 609/Del/2011. 4. Sonata Software, ITA No. 3514/Mum/2010 5. Integrated Decisions & Systems India (P) ltd., 27/JP/2011. 10. Objecting to Sankhya Infotec Ltd., ld. AR submitted that it is functionally different as it is involved in development and distribution of products, which is clearly revealed from website of the company. Further, elaborating, it was submitted that as per company's website, the aforesaid c....
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....lowing decisions: 1. Ness Innovative Business Services Pvt. Ltd., ITA No. 472/Hyd/2014 . 2. Invensys Development Centre (India) Pvt. LOd., ITA No. 1256/h/2010. 14. The learned DR, however, submitted that TPO after undertaking objective analysis having selected comparables, they cannot be excluded. 15. We have considered the submissions of the parties along with materials submitted before us in the form of paper book and record. Hereinafter, we record our finding on each of the companies objected by assessee. 15A. Exensys Software Solutions: i) It is evident from the materials placed in the paper book that there is merger of Holool Ltd. as a result of which the company's income for the year under consideration was Rs. 737.79 lakhs. Considering these aspects, coordinate bench of this Tribunal in case of Invensys Development Centre(supra) excluded the company after following another coordinate bench decision in case of Intoto Software India Pvt. Ltd. The observations made by the coordinate bench is extracted hereunder: "11. As regards the Exensys Software Solutions Ltd., as seen from the paper book placed on record, there is a merger of Holool India Ltd. and in th....
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....ere 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 fit 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 financial 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 this company from the list of c....