TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 309
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....is a company which is engaged in the business of software development services and providing quality assurance and support services. It is a subsidiary of Inclusive International Holdings Ltd., UK./Invensys plc UK. For the AY.2009-10, assessee filed return of income disclosing income of Rs. 12,97,42,600/- after claiming deduction u/s.10A. Its IDA centre, Hyderabad was incorporated on 19-06-2013. In the assessment completed u/s.143(3), the Assessing Officer made a transfer pricing adjustment of Rs. 5,78,93,144/-. Assessee's transactions are with its Associated Enterprise [AE] only. 5. Assessee has shown the operating revenue at Rs. 92,34,67,567/-, its operating cost being Rs. 81,96,44,793/-. It has shown OP/OC at 12.66%. It has justified the price received at arm's length by providing comparables of 21 companies. The Transfer Pricing Officer [TPO] in the course of determining the Arm's Length Price [ALP] however, agreed with only eight companies initially taken by assessee and has selected a total of 17 comparables by using various filters. Even though Infosys Ltd., is one of the comparables included by assessee in its own TP study, assessee has objected to the inclusion in a cours....
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....bench in the case of M/s.Kanexa Technologies Pvt. Ltd., in ITA No.243/Hyd/2014, M/s.Cisco Systems (India) Private Ltd., Vs. DCIT in IT(TP)A. No.271/Bang/2014 and also in Planet Online Pvt. Ltd., in ITA No.464 & 608/Hyd/2014 dt.30-01-2015 have considered similar comparables and rejected them as not comparable. Ld.DR however, relied on the orders of TPO and DRP and filed written submissions supporting the contentions on each of the comparables. 9. We have considered the submissions of the parties and perused the orders of the authorities as well as other materials on record. We have also carefully considered various case laws relied upon by the parties. As far as the comparables objected by assessee from Sr.No.12 to 15 of the selection mentioned above, these are are more or less covered by the decisions of the co-ordinate benches for the same assessment year i.e., AY.2009-10. In the case of M/s.Cisco Systems (India) Private Ltd., Vs. DCIT dt.14-08-2014 (supra), the co-ordinate bench after examining in detail, excluded Bodhtree Consulting Ltd., Infosys Ltd., Kals Information Systems Ltd (Seg) and Tata Elxsi (Seg). The relevant observations of the Bangalore Bench in respect of each of....
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.... Software Solutions Ltd. v. DCIT, ITA No.1303/Bang/2012, by order dated 28.11.2013 with regard to this comparable has held as follows:- "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to ubmit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted....
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.... to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly." The decision rendered as aforesaid pertains to A.Y. 2008-09. It was affirmed by the learned counsel for the Assessee that the facts and circumstances in the present year also remains identical to the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 26.3 KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tribunal in the case of M/s. T....
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....as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable." Following the aforesaid decision of the Tribunal, we hold that KALS Information Systems Ltd. should not be regarded as a comparable. 26.4 Tata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee's own case for the A.Y. 2007- 08, this company was not regarded as a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following r....
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.... 1. The company's software development and services segment constitutes three sub-segments i) product design services; ii) engineering design services and iii) visual computing labs. 2. The product design services sub-segment is into embedded software development. Thus this segment is into software development services. 3. The contribution of the embedded services segment is to the tune of Rs. 230 crores in the total segment revenue of Rs. 263 crores. Even if we consider the other two sub-segments pertain to IT enabled services, the 87.45% (›75%) of the segment's revenues is from software development services. 4. This segment qualifies all the filters applied by the TPO." Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : "It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the preceding assessment year i.e., AY 2006-07. When the same was accepted by the TPO as a comparable, the same was not objected to it by the taxpayer. As the facts mentioned by the taxpayer are the same and these were there in the earlier FY 2005-06, there....
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....bal Solutions Ltd. is concerned, it is the contention of ld. AR that the company is having huge turnover of more than Rs. 900 crores, and is a relatively big company having presence in various countries and enjoys premium pricing. He has further submitted that the company owns various intangibles in its name and is having closing stock of raw materials which signify that it is into development of product. We have considered the submissions of the parties. On a perusal of the P&L account of this company for the year ended March 2009, a copy of which is submitted by ld. AR, it is seen that the company has claimed 'expenses' towards raw materials, stores and spares. Therefore, it needs to be examined in detail whether assessee's claim that the company is into product development is correct. As relevant informations required for coming to a definite conclusion are not before us, we are inclined to remit the issue of comparability of this company to AO/TPO for considering afresh. Further, we may observe that in case of Triology E Business (supra) this company has been excluded on the basis of high turnover. Therefore, this aspect is also required to be examined by AO/TPO while deciding ....
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.... all the filters adopted by the TPO and the company is comparable to the assessee's functions. For this purpose, selection of this comparable is restored to the file of the TPO who should examine afresh after giving due opportunity to assessee. 10.3. Larsen & Toubro Infotech Ltd: It was the contention that TPO rejected this comparable without giving any reasons and the company satisfies all the filters applied by the TPO. It is also further submitted that there is no information to assume that the company has software products revenue in excess of 25% and export revenue in excess of 75% of the revenue. It was further contended that Hon'ble Madras High Court has stayed proceedings u/s.136 therefore, information available in public domain can be used. On a question about the turnover of this company, it was fairly admitted that the turnover of this company is Rs. 1,870 Crores during the year. Since the turnover itself is very huge and that company has multi-faceted activities, we are of the opinion that this company cannot be selected as comparable on the basis of functional analysis as well as on turnover basis. The reasons for exclusion of Infosys above in the comparable list will....