TaxTMI 
TaxTMI 
2015 (4) TMI 916
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.... Rendered" with value of Rs. 11,17,29,489/- and "Marketing Support Services Rendered" with value of Rs. 1,33,72,483/-. Insofar as the segment of `Software development services' is concerned, the assessee provided software development services only to its AEs and not to the third parties. Such software development services were utilized by its parent company, which is engaged in the development of software products for chip designing. Apart from this, the assessee also rendered `Marketing Support Services' to IKOS, USA by securing clients in India for its foreign entity. The assessee is a contract service provider who was remunerated by its AEs at cost plus 13% in respect of both the above types of services. The Transactional Net Margin Method (TNMM) was used by the assessee as a most appropriate method with the Profit Level Indicator (PLI) of Operating profit to Sales. Four companies were chosen by it as comparables which have been listed on page 3 of the order of the Transfer Pricing Officer (TPO). The arithmetic mean of the Profit ratio of these four companies was computed at 5.50% against the assessee's PLI of 9.75%. That is how, the assessee demonstrated that its international ....
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....ices' to its AEs. A copy of the Agreement is available at pages 127 onwards of the paper book. "Development Services" in this Agreement have been defined to mean "all development activities concerning any of the Products, including but not limited to (i) development of new Products; and (ii) creation of improvements, updates, adaptations, translations or other modifications to existing Products or Products under development". The expression "Products" has been defined in this Agreement to mean and include "all software products which any Party or any Affiliate markets or intends to market and updates, enhancements, new versions and new releases thereof, other than "Specifically Excluded Products", if any, set forth in Exhibit A". From the above description of the work to be carried out by the assessee, it clearly emerges that the assessee is providing software development services to its AEs as a captive unit. With the above understanding of the functional profile of the assessee company, let us examine if the four companies under challenge are, in fact, comparable. (i) Aftex Infosys Ltd. 7.1. The TPO included this company in the list of comparables with profit rate of 86.45%....
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....ices' of this company is available. Thus, it cannot be considered as comparable to the assessee on an entity level because the assessee is engaged only in the provision of contract software development services. We, therefore, order for the exclusion of this company from the list of comparables. (ii) Blue Star Infotech Ltd. 8.1. The TPO included this company in the final set of comparables with the profit ratio of 37.27%. The learned AR was fair enough to concede before us about the similarity of the functional profile of this company with the assessee. It was, however, claimed that the Related Party Transactions of this company were quite substantial. 8.2. After considering the rival submissions and perusing the relevant material on record, we find that the predominant view of the Tribunal across the country in several cases is that the transactions of a company having more than 25% of Related Party Transactions (RPTs) are considered as controlled, thereby failing the test of comparability. This view has been taken in several decisions including by the Delhi Bench in Toluna India Pvt. Ltd. (supra) and Actis Advisers Pvt. Ltd. Vs. DCIT, (2012) 20 ITR 138 (Del.)(Trib.). and....
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....AR candidly accepted this position. He, however, urged to exclude this company on the basis of fresh Acquisitions undertaken by it during the financial year relevant to the assessment year under consideration. We find from its Annual report, which is available in the paper book, that the business acquisitions of three firms in USA were undertaken by this company giving a substantial boost to its operations. When we come to the Schedule of fixed assets of this company, which is available on page 523 of the paper book, it can be seen that there is an entry with the narration "Business acquisitions", during the year with the value of Rs. 8,47,18,999/-. These facts abundantly show that this company undertook acquisitions in the relevant year making it incomparable in the light of the reasoning given above while dealing with Aftek Infosys Ltd. We, therefore, order to delete this company from the list of comparables. 11. The first issue taken by the ld. DR from the Revenue's appeal is against the exclusion from the list of comparables by the ld. CIT(A) of Genesys International Corporation Ltd. with a profit margin of 45%. There is not much discussion in the TPO' s order about this com....