TaxTMI 
TaxTMI 
2015 (10) TMI 2419
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....nds in this appeal, out of which grounds No.1 to 9 relate to Transfer Pricing Adjustment. In the course of arguments, the learned counsel has not pressed the grounds No.1 to 6, 9 10 and 11, which relate to rejection of transfer pricing documentation maintained by Assessee; rejection of use of contemporaneous data and undertaking fresh search of comparables; rejection of use of multiple year data; information obtained under S.133(6); incentive to shift profits; use of additional filters; and selection of companies earning abnormal high margins; and applicability of proviso to S.92C(2). These grounds are hence rejected as not pressed. As for the issue relating to adjustment towards risk, raised in Ground No.10, it becomes academic, if suitable directions are given in relation to the grounds contested in this appeal. Being academic, ground No.10 is also treated as not pressed and rejected accordingly, with liberty to the assessee to agitate this issue in further proceedings that ensue in pursuance of this order, if warranted. So also, ground No.13 relating to levy of interest under S.234B and 234C; and ground No.14 relating to initiation of penalty proceeding under S.271(1)(c) are not....
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....he transfer pricing study. 8. The TPO and Assessee accepted the TNMM as the most appropriate method on the facts and circumstances of the case. Assessee has selected 28 comparables with weighted profit margin of 14.53% on operating cost in its T.P. study, out of which the TPO, in the course of his TP study has rejected and thereby excluded the eight comparable companies selected by Assessee from the scope of his TP study, and selected on the other hand, certain other companies as comparables for the purpose of his TP study. The TPO ultimately based on the data worked out in respect of 26 companies, determined the Arm's Length margin at 24.23% on cost, and transfer price adjustment to be made at Rs. 2,28,50,421, vide his order under S.92CA dated 31.8.2010. 9. On the objections raised by Assessee against the action of the Transfer Pricing Officer in rejecting comparables selected by Assessee, and in selecting other companies as comparable, the Dispute Resolution Panel has upheld the order of the Transfer Pricing Officer with regard to all the comparable companies ultimately taken by the TPO, except Celestial Labs Ltd. The Dispute Resolution Panel also rejected all other objections ....
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....olutions Ltd. Mind Tree Consulting Ltd. (Seg.), Persistent Systems Ltd., Integra Solutions Ltd., R.S. Software (India) Ltd. , R. Systems International Ltd. (Seg)., S I P Technologies and Exports Ltd., Sasken Communication Tech Ltd.(Seg.), Thirdware Solutions Ltd. (Seg.). We may hereinafter deal with the objections raised by the assessee in grounds No.7 of this appeal, with regard to the other comparable companies selected by the TPO. 14. As noted above, the first effective grievance of Assessee that survives for consideration, raised in ground no.7, in this appeal relates to the inclusion of the following seven comparable companies selected by the TPO notwithstanding the objections raised by Assessee. 1. Avani Cimcon Technologies Ltd. 2. Infosys Technologies Ltd. 3. Ishir Infotech Ltd. 4. Lucid Software Ltd. 5. Mega Soft Ltd. 6. Tata Elexsi Ltd. (Seg.) 7. Wipro Ltd. (Seg.) 15. The learned counsel for Assessee has also raised an additional ground whereby the inclusion of the following four companies selected by the TPO as comparable, notwithstanding the objections raised by Assessee, has been questionedITA 1. Kalls Information Systems Ltd. (Seg.) 2. Accel Transmatic (Seg)....
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....ailable and secondly, it is contended that the company has shown super normal profit of 52.59% against average margin of other comparables. It is very much evident from the TP order that Assessee has been categorised as a software development service provider. Coordinate Bench of this Tribunal in the case of Virtusa (India) Pvt. Ltd. (ITA No. 1962/Hyd/2011 dated 30/08/2013) after following some other decisions of the Tribunal has held this company cannot be treated as comparable as this company is also into product development. As segmental details of operating income of software development services and sale of software products are not available, it could not be ascertained whether the profit ratio of this company can be taken into consideration for comparing with Assessee. As the aforesaid decision of the Coordinate Bench pertained to the same assessment year i.e. A.Y. 2007-08, following the same, we hold that this company cannot be treated as comparable to Assessee. Other cases considered the same comparable and rejected are as under: a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) Intoto Software India P. Ltd. ITA.210....
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....nal Special Bench decision in case of Quark Systems, 4 ITR (Trib) 606. 7.2.3. We have considered the submissions of the parties and perused the materials on record. On considering the same, we are of the view that this company cannot be considered as comparable to Assessee due to various factors such as its size, turnover, brand value, scale of operation, diversified activities and owning of intangibles. As can be seen from the TP order, the turnovers of Infosys Technologies Limited during the year under consideration are Rs. 13,149 crores as against Rs. 42 crores of Assessee. Though it is a fact that Assessee in the TP documentation, has selected Infosys Technologies Ltd. as comparable but that cannot prevent Assessee from objecting to the aforesaid company being selected as comparable, if there are valid reasons for doing so. In this context, the contention of the learned AR that Assessee has selected Infosys Limited on the basis of three years financial data, whereas the TPO considered only the current year data also needs to be appreciated. Therefore, considering the enormity of turnover of the company as well as other relevant factors, the aforesaid company cannot be treated ....
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....h in the case M/s Virtusa (India) Pvt. Ltd. (supra). On perusal of the order passed in case of M/s Virtusa (India) Pvt. Ltd. (supra), it is seen that the co-ordinate bench has excluded the aforesaid company accepting assessee's contention that segmental data in respect of sale of products and software services are not available. Further following cases also considered the above company and excluded the same on same reason. a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) Intoto Software India P. Ltd. ITA.2102/H/2010 c) Telcordia Technologies India P. Ltd. ITA.No.7821/Mum/2011 c) LG Soft India P. Ltd. ITA.1121/Bang/2011 d) Transwitch India P. Ltd. ITA.948/Bang/2011 f) Mercedes Benz Research & Development ITA.No.1222/Bang/2011 g) CSR India P. Ltd. ITA.No.1119/Bang/2011 h) First Advantage ITA.No.1086/Bang/2012 i) HCL EAI Services Ltd. ITA.No.1348/Bang/2011. Following the aforesaid decisions of the Coordinate Benches, we direct exclusion of the aforesaid company from list of comparables. MEGASOFT LIMITED : 7.5. The main objection of Assessee with regard to the aforesaid company is that this is predominantly a product development company and margin from sof....
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....TPO and DRP in this regard and referred to the observations made by the TPO in his order. 7.6.2. We have heard the submissions of both the parties and perused the material on record. In case of Telcordia Technologies India Pvt. Ltd., ITA No. 7821/Mum/2011, the ITAT Mumbai Bench while considering the comparability of the aforesaid company with software services provider held as under: "7.7 From the facts and material on record and submissions made by the learned AR, it is seen that the Tata Elxsi is engaged in development of niche product and development services, which is entirely different from Assessee company. We agree with the contention of the learned AR 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 prof it ratio from product and services. Thus, on these facts, we are unable to treat this company f it for comparability analysis for determining the arms length price for Assessee, hence, should be excluded from the l ist of comparable parties....
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....oduct which are sold on premium resulting into higher prof itabil ity, therefore, cannot be compared with Assessee company at all. There are several judgments of ITAT which have been referred in para 6.5 above, that Wipro cannot be taken as comparable case for comparable case with the company like assessee. In view of these facts and the reasoning given in the case of Infosys, we hold that Wipro also cannot be considered as a comparabil ity analysis, hence, would not be included in the list of the comparable entities as identif ied by the TPO." 7.7.3. As can be seen from the facts and materials on record during the year under consideration, the segmental turnover of the Wipro Ltd. Is 9616.09 crores. Therefore, considering the turnover, brand value as well as other dynamics of Wipro Ltd., it comes in the same category as Infosys and certainly cannot be compared with Assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. And other coordinate bench decisions, we hold that Wipro Ltd. cannot be treated as comparable with Assessee. ACCEL TRANSMATIC LTD. : 7.8. With regard to this company, the complaint of Assessee is that this company is not a pure softwar....
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....ee submitted that it is functionally different from Assessee. In support of his contention, the learned Counsel for Assessee relied upon the decision of the Bangalore Tribunal in the case M/s. Trilogy E-Business Software India Private Limited (supra) wherein at paras 46 and 47 of its order, the Tribunal has discussed the functional dissimilarity with Assessee therein and has directed that the company should be excluded from the list of comparables. Similarly, the Tribunal at Bangalore in the case of M/s. HCL EAI Services Ltd. vs. DCIT IT(TP) A. No. 1348/ Bang/2011 at para 17 at pages 24 to 26 of its order has discussed at length the reasons for not considering the said company as comparable to software development services company. The relevant portion of the order is reproduced hereunder : (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of Assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software dev....
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....are into software development services to its parent companies. Assessee is also into similar type of activity. Therefore, the decision taken in M/s. Trilogy E-Business Software India Private Limited as well as M/s. HCL EAI Services Ltd. to exclude Kals Information Systems Ltd. applies to the facts of the case before us also. Similar view has been expressed by the Coordinate Bench of the Tribunal in the following cases : a) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011. b) Intoto Software India P. Ltd. ITA.2102/H/2010 c) Bearing Point Business ITA.No.1124/Bang/2011 d) LG Soft India P. Ltd. ITA.1121/Bang/2011 e) Transwitch India P. Ltd. ITA.948/Bang/2011 f) CSR India P. Ltd. ITA.No.1119/Bang/2011 g) First Advantage ITA.No.1086/Bang/2012 Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude the company from the list of comparables." 18. Similarly, as contended by the learned counsel for Assessee comparable nature of Flextronics Software Systems Ltd.(Seg) and Helio & Matheson Information Tech Ltd., has been rejected by coordinate bench of the Tribunal in the case of M/s. Axsys ....
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....r the chart furnished before us, similar view has been taken by the coordinate benches of the Tribunal in similar matters, wherein comparable nature of above eleven companies has come up for consideration, such as- (a) M/s. Axsys Healthcare Ltd. (ITA No.2076/hyd/2011) (b) M/s.Virtusa (I) P. Ltd. (ITA No.1962/Hyd/2011) (c) M/s. Contexant System India Pvt. Ltd.(ITA Nos.1978/Hyd/2011) (d) Intoto Software India Pvt. Ltd. (ITA No.2102/Hyd/2010) (e) Triology E Business Solutions (ITA No.1054/Bang/2011) (f) Telcordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) (g) LG Soft India Pvt. Ltd. (ITA No.1121/Bang/2011) (h) Transwitch India Pvt. Ltd. (ITA No.948/Bang/2011) (i) Mercedes Benz Research & Development (ITA No.1222/Bang- -/2011) (j) CSR India Pvt. Ltd. (ITA No.1119/Bang/2011) (k) First Advantage (ITA No.1086/Bang/2012) (l) HCL EAI Services Ltd. (ITA No.1348/Bang/2011) (m) Adaptee (India ) Pvt. Ltd.(ITA No.1801/Hyd/2011) 20. Respectfully following the consistent view taken by the Tribunal with regard to comparable nature of the above seven companies in similar matters and more particularly, the decision of the Tribunal in the case of Sumtotal Systems India Private L....
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....der section 133(6), it was the submission that this company also should be considered as the comparable. As far as PSI Data Systems Ltd. are concerned, the TPO is rejected the comparison on the related party transactions filter. It was the submission that RPT was worked out by including reimbursement transactions. With reference to VMF Soft Tech, the TPO has rejected it as there are no foreign exchange earnings, whereas, it was the submission that assessee has 93% of foreign exchange revenues. It was the submission that above companies are to be selected as comparables. 8.2. After considering the submissions, we are of the opinion that proper case was not made out for inclusion of the above comparables. Once TPO and DRP forms that these comparables are not functionally similar to Assessee on the basis of various filters adopted by the TPO, it would be better if the matter is left like that rather than ordering fresh enquiry. We also noticed that these companies have related party transactions and therefore, may not justify on various filters adopted. As far as Indium Software India Ltd. there is a finding that this company is functionally different. L & T Infotech also found to be....
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....ubmissions and perused the material available on record. It is settled position of law that the communication charges have to be excluded from the export turnover, and the issue that remains to be considered is whether it has to be reduced from the total turnover as well, in the computation of deduction under S.10A. This issue of deductibility of communication charges from total turnover as well, is also covered by the decision of the Hon'ble Bombay High Court in the case of CIT V/s. Gemplus Jewellery (330 ITR 175) and Special Bench (Chennai ) decision of this Tribunal in the case of ITO V/s. Saksoft Ltd. (313 ITR AT 353) (SB). Following these decisions of the Hon'ble Bombay High Court and the Special Bench, coordinate benches of this Tribunal in similar cases, including in assessee's own case for the assessment year 2006-07 in ITA No.1500/Hyd/2010, referred to above, have directed the Assessing Officer to exclude the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. In this view of the matter and respectfully following the decision of the Bombay High Court in the case of Gemplus Jewellery (supra), we allo....