TaxTMI 
TaxTMI 
2015 (6) TMI 717
X X X X Extracts X X X X
X X X X Extracts X X X X
....on was referred to the Transfer Pricing Officer (TPO) u/s 92CA of the Act. The TPO made a transfer pricing adjustment of Rs. 2,40,00,290/-. The AO, thereafter, passed draft assessment order incorporating the said transfer pricing adjustment, against which, the assessee preferred objections before the DRP and the DRP confirmed the transfer pricing adjustment proposed by the AO. In compliance thereto, the AO passed the final assessment order against which the assessee is in appeal before us. 3. At the time of hearing, the learned counsel for the assessee filed a chart showing the various comparable companies which are to be excluded for the reasons given therein. It is stated by the learned counsel for the assessee that there is no dispute with regard to the adoption of the TNMM as the most appropriate method for determination of the ALP but the only challenge is to the comparable companies adopted by the TPO. He submitted that the operating profit on cost as computed by the assessee was 15.14% for software support services whereas the TPO has arrived at the average margins of the comparable companies at 23.65% and after allowing working capital adjustment, he arrived at mean margin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oftware development services and the relevant assessment year is 2008- 09. Therefore, in our opinion, the decision of the Tribunal in the case of 3DPLM Software Solutions Ltd., is applicable to the case before us. Therefore the relevant paragraphs of the above referred decision are reproduced hereunder for ready reference: i) Celestial Biolabs Ltd. "9.4.1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO's order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considered view, the selection process adopted by the TPO for inclusion of this company in the list of comparables is defective and suffers from ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ind that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment "software development services" relates to design services and are not similar to software development services performed by the assessee. 13.4.2 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 the 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. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is functionally dis-similar and different form the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uding the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the coordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013, and in the case of Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct the A.O./TPO to omit this company from the list of comparables." viii) Thirdware Solutions Ltd. "15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted from the list of comparables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of com....