TaxTMI 
TaxTMI 
2015 (12) TMI 1675
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....e levy of interest under section 234B of the I.T. Act. 3. As regards ground No.3 is concerned, we find that though the Ld. Counsel for the assessee has argued on merits of the exclusion of these expenses from the export turnover for the computation of deduction under section 10A of the Act, we are inclined to accept the alternative contention of the assessee that if this expenditure is excluded from the export turnover, then the same should also be excluded from the total turnover for the purposes of computation of deduction under section 10A of the I.T. Act. We find that this alternate prayer of the assessee is covered by the decision of the Hon'ble Karnataka High Court in the case of CIT vs. M/s. Tata Elxsi Ltd., and others reported in 2011-TIOL-684- HC-Kar. Respectfully following the same, we direct the A.O. to compute the deduction under section 10A of the Act by excluding the internet expenses both from export turnover as well as total turnover. Ground No.3 of the assessee is accordingly treated as allowed for statistical purposes. 4. As regards ground No.2, we find that there are around 10 sub-grounds thereunder and all against the T.P. adjustment made by the A.O. in ac....
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....ing TNMM as the most appropriate method, he arrived at the average margin of the comparables at 11.3%. Since the assessee's margin of 16.95% on operating cost was within + or - 5% of the average margin of the comparable, the assessee treated the transaction as at arms length. The TPO however, rejected the assessee's T.P. study and proceeded to make a search for comparables and after considering the assessee's objections to the comparable companies proposed by the TPO, the TPO arrived at the final comparables as follows : Sl. No. Name of the Company Operating Revenue (Rs. Cr.) OP to Total Cost % of RPT over sales. % of exports over sales. Onsite Revenue (%) % of R&D over sales % of market over sales. Emp. Cost (%). 1. Avani Cincom Technologies 2.93 21.65 8.08 100.00 0.00 0.00 1.20 63.52 2. Bodhtree Consulting Ltd 10.42 19.14 0.00 96.15 0.00 0.00 1.06 58.00 3. Celestial Biolabs 20.21 87.94 0.00 91.00 0.00 0.00 5.34 38.61 4. e-zest Solutions Ltd., 7.66 28.95 0.00 94.74 0.00 0.00 0.89 65.37 5. Flextronics (Aricent) 956.20 8.07....
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.... are concerned, the Ld. Counsel for the assessee submitted that these companies are functionally different from the assessee as they were also into software products development and as regards some of the companies, the segmental data also is not available. He submitted that the companies, Infosys Technologies Ltd., and Wipro Limited are both engaged in software development and product development and also own intellectual property in the form of patents and have high turnover and brand value and therefore, are not comparable to the assessee. As regards Softsol India Ltd., is concerned, he submitted that this company is functionally different and also RPT filter. As regards Bodhtree Consulting Limited, the Ld. Counsel for the assessee submitted that this company is engaged in data cleansing services and is not engaged in software development services and therefore, is functionally different. He has submitted that all these companies have been considered as not comparable to software development services company such as the assessee, in the case of NTT Data India Enterprise Application Services P. Ltd., in ITA.No.1862/Hyd/2012 dated 02.01.2015 for the very same A.Y. 2008-09 as well ....
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....t be considered. Likewise, the Ld. D.R. objected for excluding the abnormal high margin companies, high turnover companies and relied on various case law in favour of Revenue. 11. After considering the rival contentions, we are of the opinion that the above companies (except Bodhtree Consulting Ltd.,) are to be excluded as these are analysed by Coordinate Bench of the Bangalore Tribunal in I.T.(T.P.)A.No.1303/Bang/2012 dated 28.11.2013 in the case of M/s. 3DPLM Software Solutions Ltd., Bangalore vs. DCIT, Circle(1), Bangalore which was relied upon by Ld. Counsel. Bothtree Consulting Ltd was discussed in the case of Net Hawk Net works India P Ltd in ITA no 7633/Mum/2012 dt 06.11.2013 by ITAT Mumbai Bench 'K' and this is also to be excluded. For the sake of record, the findings of various companies decided by the Coordinate Benches of Tribunal (supra) are as under : 1. "Avani Cincom Technologies Ltd., 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of th....
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....n that the company is engaged in the software development only. However, the assessee argued vehemently stating that this company is engaged in the software based products. Further, Ld Counsel mentioned that the said company was already examined and was held as product based company by the TPO in the TP study of other case and the TPO cannot take different stand in this case. In this regard, we have perused the para 29 of the order of the Tribunal in the case of M/s. Wills Processing Services (I) P Ltd (supra) wherein it was mentioned that the TPO described this company is engaged in the business of software products, not the software development services. Relevant portions from the said para 29 of the order of the Tribunal is reproduced here under : 29.1 The Id Sr Counsel for the assessee has submitted that this company is engaged in the software products. He has referred the TPO order and submitted that in the profile of the comparables selected by the TPO itself has mentioned the business of the assessee is in software products. The Id AR has referred the objections raised by the assessee before the TPO at page 286 of the paper book and submitted that the assessee broug....
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....duct development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q Information Systems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. / TPO is accordingly directed. 4. Infosys Technologies Ltd. 11.4. We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that ....
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....e 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. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm's length price for the assessee, hence, should be excluded from the list of comparable portion." As can be seen from the extracts....
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.... patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/ 2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand for the year under consideration. 12. Respectfully following the decisions of Coordinate Benches of the Tribunal referred above, and other cases relied on, we hold that the aforesaid 8 companies have to be excluded from the list of comparables chosen by TPO". 7.2. Further, the Ld. Counsel for the assessee is seeking exclusion of the following companies also for the following reasons : a) Persistent Systems Ltd., is engaged in product development and design ser....
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....e development service provider as is the assessee in the case on hand. (ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in 'Outsourced Software Product Development Services' for independent software vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the TPO in including this company in the....
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....ct engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies." (iii) This company is also engaged in research and development activities which resulted in the creation of Intellectual Proprietary Rights (IPRs) as can be evidenced from the statements made in the Annual Report of the company for the period under consideration, which is as under : " Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company ............... have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks." (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO's own filter since there have been acquisitions in this case, as is evidenced from the company's Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Represe....
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....mpany was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable on the grounds that this company is functionally different and dis-similar from it. The TPO rejected the assessee's objections on the ground that as per the company's reply to the notice under section 133(6) of the Act, the company has categorized itself as a pure software developer and therefore included this company as a comparable as the assessee was also a provider of software development services. Before us, in addition to the plea that the company was functionally different, the assessee submitted that this company was excluded from the list of comparables by the order of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No.845/Bang/2011) on the ground that the 'Related Party Transactions ('RPT') is in excess of 15%. The learned Authorised Representative submitted that for the current period under consideration, the RPT is 18.3% and therefore this company requires to be omitted from the list of comparables. 19.2. Per contra, the learned Departmental Representative supported the action of the TPO....
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....evenue. The Ld. Counsel for the assessee referred to the annual report of the SIP Technologies Ltd., to demonstrate that investment in SIPTECH Solutions Ltd., existed during F.Y. 2006-07 and not relevant to A.Y. 2008-2009. He further submitted that the TPO has selected this company as a comparable in the year in which the investment was made and has erroneously rejected the same in the subsequent year by changing his stand. He submitted that the company was having margin of 13.90% as in the A.Y. 2007-08 and therefore, the TPO cannot apply the diminishing revenue filter for the relevant assessment year. 9. The Ld. D.R. on the other hand, supported the order of the TPO. 10. Having regard to the rival contentions and the material on record, we find that the TPO appears to have rejected these two companies as comparables on the basis of material available before him or as analysed by him. Since the assessee has brought out the factual inconsistencies in the order of the TPO, we deem it fit to remit the matter to the file of TPO/A.O. for reconsideration as to whether these companies are comparable to the assessee. Needless to mention that the assessee shall be given a fair opportu....