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2016 (3) TMI 1271
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....development services to an extent of Rs. 50.20 Crores and provision for call centre services to an extent of Rs. 161 Crores. AO referred the matter to the Transfer Pricing Officer [TPO]. In the software development services segment, assessee has selected a set of 17 comparable companies with an average of 10.86% and justified the Arm's Length Price [ALP] of 15.35% of assessee. In the call centre service agreement, assessee selected set of 22 comparable companies with the margin of 13.30% viz-a-viz that of 15.46% of assessee. Since both the TP studies indicate that assessee's receipts are above the average mean, assessee justified its receipts. However, TPO did not accept assessee's TP study and proposed to reject 13 out of 17 comparable companies in the software development services and selected new companies. In the call centre service segment also, TPO accepted six comparables and proposed 25 new comparables. After accepting assessee's objections, TPO has finalized the order proposing the adjustments as under: Particulars Software development services segment Call Centre services segment Arithmetical mean of the NCP margin of comparables 25.14% 30.12% Transfe....
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....hnologies & Exports Ltd., 3.8 13.90 24. Tata Elxsi Ltd., 262.58 26.51 25. Thirdware Solution Ltd., 36.08 25.12 26. Wipro Ltd., 9,616.09 33.65 4.1. Out of this, assessee is accepting the comparables at Sr. No. 4, 7, 13, 15, 19, 20, 21 & 23 Sl. No. as per TP order Name of the company Turnover (INR Crores) NCP computed by TPO (%) 4. Datamatics Ltd., (Merged) 54.51 1.38 7. Geometric Ltd., 158.38 10.71 13. LGS Global Ltd., 45.39 15.75 15. Mediasoft Solutions Pvt. Ltd., 1.85 3.66 19. Quintegra Solutions Ltd., 62.72 12.56 20. RS Software (India) Ltd., 101.04 13.47 21. R Systems International Ltd., 112.01 15.07 23. SIP Technologies & Exports Ltd., 3.8 13.90 4.2. Assessee is objecting to the balance of the comparables and objections on each of the comparables are as under: Sl. No. as per TP order Name of the company Turn over (INR Crores) NCP computed by TPO (%) Summary of Applicant's Objections & Relevant references to the paper-book filed by the appellant 1. Accel Transmatic Ltd., 9.68 ....
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....me Muulam. 2. Product development expenses constitutes 27.66% of the total operating revenue. Refer Balance Sheet (page 10 of the Annual Report) and P&L (page 19 of the Annual Report) of Annual Report & refer Schedule M point 1.4.1 of notes to accounts of Annual Report on page 22) 16. Megasoft Ltd., 139.33 60.23 1. Functionally Not Comparable- company has two segments- BLUEALLY and XIUS-BCGI. Under the XIUS-BCGI company carried out product development. Software development is carried out under BLUEAPPLY division. 2. the product segment has employee cost of 27.65% whereas software services segment has employee cost of 50%. Similarly profit margin on cost in product segment is 117.95% and in case of software services segment is 23.11%. Hence both the segments are substantially different. 18. Persistent Systems Ltd., 293.75 24.52 1. Functionally not comparable - the company is engaged in product development. Segmental information is not available. Application of Turnover Filter. 24. Tata Elxsi Ltd., 262.58 26.51 1. Functionally not comparable- The company is engaged in development of niche products. 2. Application of Turnover Filter of INR ....
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.... Crores. Consequently, in our view, the 200 Crores upper filter cannot be accepted to eliminate the companies only on turnover filter. As seen from Flextronics, the turnover is 848 Crores and iGate Solutions is about 747 Crores, Mindtree is about 590 Crores, Sasken Technolgies is about 343 Crores. Considering the assessee's receipts, we are of the opinion that only Flextronics Software Solutions at Sr. No. 6 and iGate Global Solutions at Sr. No. 9 can be excluded, as these are exceeding the upper turnover filter of ten times the assessee's turnover. Mindtree is little marginally over the upper filter but considering the small margin, we are of the opinion that this comparable can be included in the list of comparables, as the company fulfils all other filters. Sasken Technolgoies is however, within the range and also fulfils the other comparability filters. In view of this, we direct the AO/TPO to exclude only the two companies i.e., Flextronics and iGate Solutions from the list of comparables. The ground on this is partly allowed. 5. TPO is directed to rework out the Arithmetic Mean of the selected comparables and make the adjustment if any, after considering the proviso to Sec....
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....al Ltd., 4.28 12.40 10. Datamatics Financial Services Ltd -Seg 2.92 5.07 12. Flextronics Software Systems Limited 12.93 8.62 13. Genesys International Corporation 19.17 13.35 15. ICRA Techno Analytics Ltd., 7.23 12.24 21. R Systems International Ltd., 17.34 20.18 26. Nittany Outsourcing Services Pvt Ltd., 23.23 11.50 6.2. Assessee is objecting to the balance of the comparables and objections of each of the comparables are as under: Sl. No. as per TP order Name of the company Turnover (INR Crores) TPO margins (%) (Pre WC adj) Summary of Applicant's Objections 1. Accentia Technologies Limited - Seg. 16.57 30.61 1. Extraordinary Events during the year - Amalgamation of subsidiaries resulting in growth of revenues by 100683% (refer pg 48 of the Annual Report FY 06-07) - Amalgamated the company Iridium Technologies which is a software product company. 2. Functionally not comparable - The activity of Medical transcription (considered by the TPO), Billing and coding and software development and implementation is not comparable to the services proved by the Appell....
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....u/s. 133(6) contrary to the Annual Report. 5. Unique Intangibles (incurred trade mark expenses). 6. The entity has fluctuating margins. 11. Eclerx Services Ltd., 86.12 89.33 1. Functionally not comparable - provides industry specialized services like Data Analytics, Operations Management and Audits & Reconciliation services which cannot be compared to a BPO or an IT offshoring company. 2. Launched and IPO in Dec 2007 - Reported high profits for 3 years on account of booking building for its upcoming IPO in December 2007. 3. Abnormal profits. 4. Directors involved in legal and regulatory proceedings. 5. Business promotion Expenses - 9.72% of sales. 14. HCL Comnet Systems & Services Ltd - Seg 260.18 44.99 1. Fails the RPT> 15% filter = 21.52% of sales. 2. Functionally not comparable - product and services in the area of connectivity services, security services and IT infrastructure management services. 3. Different accounting year - June year ending. 4. Enjoys unique position in the market - The company enjoys a leading position in the BPO segment on account of its brand and unique intangibles. 5. Fails upper turnover filtes....
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....- provides engineering design services for construction of building by using design tools like CAD/CAM, stadd pro by employing highly skilled software engineers. 4. Abnormal Growth - Growth of 204% in sales over previous year. 5. Extraordinary Profits - 113.49% (The TPO had rejected Mold Tek for AY. 2006-07 in the Appellant's own case on account of having high profitability at 74.63% pg. 890 of PB 5 for AY. 2006-07), however he chose to retain the same comparable at 113.49% for AY. 2007-08). 6. Incurs significant Marketing Expenses - 7.46% of sales. 23. Triton Corp. Ltd., 53.37 34.93 1. Unreliable financials - the business reputation of Rastogi group, owning Maple E Solutions and Triton Corporation was under serious indictment. In view of a question mark on the reputation of the owner for earlier years, it would be unsafe to take their results for comparison of the profitability of the Appellant. 2. Functionally not comparable - Trading of IT Peripherals, providing of call centre services and support services; Absence of segmental information. 24. Vishal Information Technologies Ltd., 30.6 51.19 1. Employee cost filter inconsistently ap....
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....ed in-house software and sales and returns are fluctuating over a period of five to six years. It relied on the cases pertaining to AY. 2006-07 for exclusion of the same. However, after examining the TPO's report and the data available on record, we are of the opinion that assessee has not made out a case to exclude the above comparable. Hence, this comparable is directed to be retained. Apollo Healthstreet Ltd (Sr. No. 5): Assessee objects to the above comparable on the reason of RPT filter. Even though RPT filter at 15% is accepted in some of the cases by the Co-ordinate Benches, the RPT filter can be considered upto 25% depending on the facts of the case. As worked out by assessee, RPT filter is only 17.7%. How it is worked out is not available. Since TPO has given valid reasons to include the above comparable, we are of the opinion that the same cannot be excluded. Moreover, as seen from the other orders also, no other assessee has objected to inclusion of the above company may be on the reason that its margin is a negative margin. Be that as it may, we are of the opinion that there is no need to exclude that comparable from the list of comparables selected by the TPO. ....