TaxTMI 
TaxTMI 
2016 (5) TMI 1433
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....ssee's representative appeared from time to time and furnished necessary information called for. The AO observed that the assessee had entered into an international transaction with its Associated Enterprises (AE) which exceeds the limits fixed by the CBDT. Therefore, a reference was made to the TPO for determination of the Arms Length Price (ALP) u/s 92CA of the I.T. Act. The TPO passed an order u/s 92CA(3) of the Act on 25.11.2013. The AO passed the draft assessment order in accordance with the proposed adjustment of Rs. 16,32,27,395. Aggrieved by the same, the assessee preferred its objections before the DRP and vide order dated 12.11.2014 the DRP determined the average margin of the final comparable companies after excluding 4 comparables i.e. Infosys Technologies Ltd, L&T Infotech Ltd, Mind Tree Ltd and Comp U Learn Technologies Ltd from the list of 18 comparables. The average margin of the remaining 14 comparables was arrived at 21.61% and after reducing the working capital adjustment, the adjusted arms length margin was worked out to 18.20% and the ALP was computed at Rs. 206,19,56,946 and the consequential adjustment u/s 92CA of the Act was Rs. 14,28,98,384. The AO accordin....
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.... 11.22 10. Zylog Systems Ltd., - 18.62 11. E infochips Bangalore Ltd., - 72.32 12. Comp-U-Learn Tech India Ltd., - 19.96 13. Kals Information Systems Ltd (Seg) - 22.05 14. Persistent Systems Ltd., - 31.57 15. Tata Elxsi Ltd (Seg) - 17.24 16. Sasken Communication Technologies Ltd., - 25.23 17. L&T Infotech Ltd., - 19.97 Therefore, the decision taken by the Tribunal in the case of Pegasystems Worldwide India P Ltd is clearly applicable to the case before us also. We find that the Tribunal has observed as under with regard to the comparable companies challenged by the assessee company: E infochips Bangalore Ltd., : 8. This company is selected by TPO even though Assessee objected to the same (vide page 34 and 35 of the order of TPO). Assessee objected that the information for FY. 2009-10 was not available in public domain. It was further contended that company is functionally different and is having two different segments i.e., software development services and ITES. Company offers broad portfolio of services comprising new products, product development, product sustenance and maintenance, Product Qualitative Analysis (QA) and independent testing hardware and software design....
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.... which is considered the only reportable business segment as per Accounting Standard AS-17 "segment reporting" prescribed in Companies (Accounting Standard) Rules, 2006. We thus find that no segmental information is available ..........................Considering the aforesaid facts, we are of the view that the aforesaid two companies needs to be excluded while working out the comparability analysis and therefore uphold the plea of the Assessee in excluding the margins of the aforesaid 2 companies". 8.2. Ld. DR, however, referred to the extracts made by TPO in the order to submit that Assessee is a comparable company with that of Assessee. 8.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable company for TP analysis. First of all, this company is engaged in both software development as well as ITES. Assessee being only captive service provider, the above company cannot be considered as comparable on functional basis. Not only that, as pointed out, segmental information pertaining to the above company is not available. As seen from the TP orders, documents placed on re....
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....jected in earlier year on functional analysis by ITAT in the case of Planet Online Pvt. Ltd., company is engaged in development of software products. Since its annual report states the same facts in this assessment year also, we are of the opinion that the company cannot be selected as a comparable as it was engaged in development of software and software products. Accordingly, Assessee's objections are accepted and AO is directed to exclude the company". Tata Elxsi Ltd (Seg): 12. Before TPO, Assessee contended that the above said company is functionally different as it specialized in embedded software development technology. It was also objected before TPO that in earlier year this company has clearly stated that it cannot be compared to any other software services company due to complex nature of its business. Assessee relied on the decisions of ITAT in the case of Conexant Systems India Pvt. Ltd. (ITA No.1429/Hyd/2010 and 1978/Hyd/2011) and other cases as stated by TPO in page 41 of his order. However, TPO did not agree with the objections stating that the company has two segments including software development services and revenue from software development services is Rs. 33,64....
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....o. 464/Hyd/2014 (supra), wherein the ITAT remitted the issue to comparability of this company for fresh adjudication by AO/TPO in an earlier year. Considering the view taken earlier, since AO/TPO did not have the opportunity to analyse the objections of Assessee as they have not objected earlier, we are of the opinion that inclusion of this company as comparable company is to be analysed afresh by taking the objections from Assessee and then after due analysis, TPO should consider whether the same can be included as a comparable company. Therefore, without expressing any opinion or finding in this regard, we remit the issue relating comparability of this company for fresh adjudication by TPO". 5. Further, as regards the comparable company, CAT Technologies Ltd, rejected by the TPO, the Learned Counsel for the assessee submitted that the margin calculated by the AO/TPO is to be rectified. Calculation of the correct margin of the CAT Technologies is also filed before us. 6. Respectfully following the decision of the Coordinate Bench in the case of Pegasystems Worldwide India Pvt Ltd, we direct that the above four companies be excluded from the list of final comparables in the case ....