TaxTMI 
TaxTMI 
2015 (1) TMI 920
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....nce and support services to its group companies overseas. For provision of software services to AEs, assessee is remunerated at cost plus 10% mark up. For the impugned assessment year, assessee filed its return of income on 30.09.2008 declaring income of Rs. 6,10,86,409. During the previous year relevant to the assessment year under consideration, assessee reported revenue of Rs. 67,44,77,623 towards provision of software development services. 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. Assessee selected 23 companies as comparables by undertaking a search in databases having average PLI of 14.41%. As assessee's margin was 9.67%, 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 assessee and other connected documents though accepted TNMM as the most a....
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....ted by the TPO, assessee is objecting to selection of six comparables. Rest of the grounds are not pressed. 4. Hereinafter, we will deal with each of the comparables objected to by assessee. 1.AVANI CIMCON TECHNOLOGIES LIMITED : 4.1.1 This company was selected by the TPO as a comparable. Assessee objects to the inclusion of this company as a comparable on the ground that this company is not functionally comparable to assessee as it is into software products whereas assessee offers software development services to its AEs. The TPO had rejected the objections of assessee on the ground that this comparable company has categorized itself as a pure software developer, just like assessee, and hence selected this company as a comparable. For this purpose, the TPO had relied on information submitted by this company in response to enquiries carried out under section 133(6) of the Act for collecting information about the company directly. 4.1.2 Before us, the learned Authorised Representative reiterated assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to assessee as it is into ....
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....assessee. The TPO had rejected the objections raised by assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 4.2.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to assessee. It is submitted by the learned Authorised Representative that this company is engaged in 'e-Business Consulting Services', consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services and enterprise solutions. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, assessee places reliance on the details available on the company's website which should be considered while evaluating the company's functional profile. It is also submitted by the lea....
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.... selected by the TPO. Before the TPO, assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand effecting profit margin. The TPO, however, rejected these objections raised by assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 4.3.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to assessee. The learned Authorised Representative drew our attention to various parts of the Annual Report of company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas assessee is merely a software service provider and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). The observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to capt....
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....ues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007-08 and qualifies as a comparable by the service income filter. 4.4.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to assessee and ought to be rejected/excluded from the list of comparables for the following reasons :- (i) This company is functionally different from the software activity of assessee as it is into software products. (ii) This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India Pvt. Ltd.V DCIT in ITA No.1386/PN/2010. (iii) The rejection of this company as a comparable has been upheld by co-ordinate benches of the Tribunal in the case of - i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013. ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. iii) Symphony Services Pune P. Ltd., vs. ITO, Ward 1(4), Pune ITA.....
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....onally dissimilar and different form assessee and that since the findings rendered in the decisions of the co- ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted from the list of comparable companies. 5. TATA ELXSI LTD: 4.5.1 This company was a comparable selected by the TPO. Before the TPO, assessee had objected to the inclusion of this company in the set of comparables on several counts like, functional dissimilarity, significant R&D activity, brand value, size, niche products etc. The TPO, however, rejected the contention put forth by assessee and included this company in the set of comparables. 4.5.2 Before us it was reiterated by the learned Authorised Representative that this company is not functionally comparable to assessee as it performs a variety of functions under software development and services segment namely - a) product design, (b) innovation design engineering and (c) visual computing labs as is reflected in....
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....o software development services performed by assessee. 4.5.5 The Hon'ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. In this context the relevant portion of this order is extracted and reproduced below :- " .... Tata Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not 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 as fit for comparability analysis for determining the arm's length price for assessee, hence, should be excluded from the list of comparable portion." As can be seen from the extracts of the Annual Report of this....
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...., Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. iii) Adaptec (India) P. Ltd., Hyderabad vs. ACIT, Circle 1(1), Hyderabad ITA.No.1758/Hyd/2012 dated 21.03.2014. iv) M/s. Patni Telecom Solutions P. Ltd., Hyderabad vs. ACIT, Circle 16(3), Hyderabad ITA.No.1846/ Hyd/ 2012 dated 25.04.2013. 4.6.3. Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 4.6.4. We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. We also find that this company owns intellectual property in the form of registered patents and several pending applications for gran....