AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 800
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....export of software, computer skilled manpower and other computer related activities to carry out development in the area of information technology, computer systems, software, application software, integrated tolls for computer systems and application development, data communication and network. The international transaction was software development and support services for Rs. 14,31,12,709/-. The assessee used TNMM as the method and OP/TC as the PLI. The assessee arrived at a set of 23 companies with an average margin of 7.64%. The assessee has used multiple year data. The assessee's own margin is worked out to be 7.99%. Based on this analysis, the assessee concluded that its international transactions are at arm's length. A show cause notice dated 05.12.2014 was issued to the assessee. The assessee made reply dated 17.12.2014 in responses to the show cause notice and the personal hearing was conducted on the same day. The TPO rejected the objections raised by the Assessee by rejecting the economic analysis of the assessee. Foreign exchange fluctuation was also treated as non operating income of the taxpayer and also in the case of comparables by the TPO. 3. The TPO applied the....
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....hnologies Services Ltd.) The Ld. AR submitted that this comparable is not functionally identical with the assessee company. Company is engaged in providing program management, third party data security, quality assurance and business process management services. The company is a software product company. Company in year 2012 has launched its product in the name of 'FLoW' for the retail sector users. Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd., was held by Citi Corp. Banking Corporation, USA upto 20th January, 2009. Wipro Ltd., parent company of the assessee, executed an agreement with Citi Group Inc., for acquiring Citi Technology Services Ltd., now called Wipro Technology Services Ltd. On 21.1.2009, Wipro Ltd. signed a master agreement with Citi Group Inc., for the delivery of technology Infrastructure Services and application development and maintenance services for the period of six years, which also includes the year under consideration. This shows that income from software development support and maintenance services was earned by Wipro Technology Services Ltd., from Citi Group Inc., by means of master service agreement entered into betwe....
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.... perused the records. This Company is engaged in providing program management, third party data security, quality assurance and business process management services. The company is a software product company. Company in year 2012 has launched its product in the name of 'FLoW' for the retail sector users. But the assessee company is not a software product company, it is undertaking software development and installation of computerized systems, conduct studies, systems analysis and design as well as design of special software and system and application of software. The assessee is also engaged in rendering technical services related to tabulation, coding and software development as well as export of software and other computer related activities to carry out development in the area of information technology. There is difference between software product and undertaking software development. A product is outcome of research and development but a development is one stage prior to product. Development might sometime stop at the research stage to offer solutions to Information Technology Industries' problems. In assessee's case it is undertaking software development which is more of an ev....
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....lso. 4.6. We have heard both the parties and perused the records. The segmental data was not available for the assessment year under question of this company. The company is earning revenue from two business segments, namely, software services and software products. However, separate segmental data with respect to the aforesaid two segments is not available in the financial statement. The assessee company cannot be compare with this company as there is not segmental data available. Besides, this there was extra-ordinary events occurred during the year as the company has acquired M/s. Brainhunter Inc., Canada. Thus, as held by this Tribunal in various decisions companies having extra-ordinary event has to be excluded. Therefore, we direct TPO to exclude this company from comparables. 4.7 Persistent Systems & Solutions Ltd. The Ld. AR submitted that the company is "functionally not comparable because of the incomparable financial results arising out of the exceptional circumstances in the financial year ending on 31st March, 2011. The Ld. AR submitted that the company is earning abnormal profits during the Financial Year 2010-11 on the basis of below facts: Year 2009 ....
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....re India Pvt. Ltd. vs. ACIT (ITA No. 7466/Mum/2012) * Bind view India Pvt. Ltd. vs. DCIT : ITA No. 1501/PN/2011 * Sap Labs India Pvt Ltd vs ACIT (ITA no 418/Bang/2008) * Adobe Software India Pvt Ltd vs Addl. CIT (ITA No 4061/Del/2010) * Quark System Vs. DCIT - ITA No.100/CHD/2009 * Frost and Sullivan India Pvt. Ltd. - ITA No.2073/Mum/2010 * Mentor Graphics (Noida) Pvt Ltd vs DCIT (ITA no 1969/D/2006) * Sapient Corporation Pvt Ltd vs DCIT (ITA No 5263/Del/2010) * ACIT vs. NIT Limited (ITA No. 1844/Del/2009 * Symantec Software Solutions Pvt. Ltd vs. ACIT 4.8. The Ld. DR relied upon the order of the TPO and the DRP. 4.9. We have heard both the parties and perused the records. The company is functionally not comparable because of the incomparable financial results arising out of the exceptional circumstances in the financial year ending on 31st March, 2011 as pointed out by the Ld. AR. The Ld. DR could not refute the submissions of the Ld. AR as the documents/TP Study reveals the same on record. In fact, the company is earning abnormal profits during the Financial Year 2010-11. Therefore, this compan....
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....le from the list of comparables." 4.11. The Ld. DR relied upon the order of the TPO and the DRP. 4.12. We have heard both the parties and perused the records. The findings and reasoning given in Tribunal's orders in case of Saxo India Pvt. Ltd Vs. ACIT (ITA No. 6148/del/2015) and Motorola Solutions India Private Limited Vs. ACIT (ITA 5637/Del/2011) are applicable to assessee's case. This company is having extra-ordinary business circumstances during the year as well as there is no segmental bifurcation as relates to software services and software product available. Therefore, this company should be excluded from the comparables. Thus, we direct the TPO to exclude this comparable. 4.13 Larsesn & Turbo Infotech Ltd. The Ld. AR submitted that this company is engaged in two business segments, namely, software development services and software products. However, segmental data with respect to business segment is not available in the annual report of the company. From the audited financial statement and website, it is evident that the company is earning revenue from two business segments, viz., software development and software product. The Ld. AR relied upon the decision of ....
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....uded: "14.2 After considering the rival submissions and perusing the relevant material on record, we find from Profit & Loss Account of this company, a copy of which is placed at page 1534 of the paper book, that its income from 'Sale of software services and Products' is amounting to Rs. 6101.27 millions. The TPO has himself observed that this company does have some products, but, product revenue is only 7.2% and, hence, this company is predominantly a software service provider. This discussion is contained in para 21.67 of the TPO's order. Even Schedule-11 to the Profit & Loss Account also shows 'Sale of software services and Products.' This shows that this company is engaged in both rendering software development services as well as sale of software products. Albeit the percentage of software products in the total revenue is less, as has been noted by the TPO, yet, we are inclined to take it as non-comparable because there is no precise information about the contribution made by such small sale of software products to the total profit of the company. As no segmental information is available in respect of this company and the figures have been adopted by the TPO at entit....
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....e comparable for Arms' Length Price. Thus, we reject this company as comparable. 5.4. CG-VAK Software & Exports Limited The Ld. AR submitted that the company is engaged in business segments, namely, software services and BPO services. Segmental details with respect to these two segments are also available in the audited financial statement. The company's employee cost to total cost ratio during the relevant previous year works out to 69.45% which satisfies employee cost filter. 5.5. The Ld. DR submitted that the DRP held that there is decline in the profitability of the company. The company is not showing employee cost as separate head of expenses and is included in cost of services. 5.6. We have heard both the parties and perused the records. The Annual Report of the company clearly sets that this company is dealing with software Development, Product & Services and there is no segmental data available for software development, product and services. Thus, the company is not only functionally different but also segmental data is not available. Therefore, this company is not fulfilling the criteria of the comparable for Arms' Length Price. Thus, we reject this company as ....