TaxTMI 
TaxTMI 
2016 (2) TMI 1163
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;) and in making an adjustment to the transfer price of the Appellant in respect of its software development services by Rs. 76,95,410 and in the information technology enabled services by Rs. 20,31,990. 3. That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in; (a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the comparability analysis performed by the learned TPO in the TP Order. (b) Performing his own comparability analysis by modifying some of the filters applied by the learned TPO in the TP Order, without providing an opportunity of being heard to the Appellant. (c) Arbitrarily arriving at a set of companies as comparable to the software development and information technology enabled services of the Appellant, on rejecting companies that are otherwise functionally comparable to the Appellant and on inclusion of companies that otherwise fail the test of comparability. (d) Rejecting the segmental companies in the information technology enabled services segment only for the reason that the software development service segment of these companies....
X X X X Extracts X X X X
X X X X Extracts X X X X
....adopting Transactional Net Margin Method (TNMM) as Most Appropriate Method (MAM) and operating profit to total cost (OP/TC) as Profit Level Indicator (PLI). First we will take up the software development services segment. 5. The assessee selected 18 comparables for bench marking its international transactions and arrived at Mean Margin of 11.30% as under : Sl. No Comparable Company Without Adjs. Markup on Total Cost 1. Bodhtree Consulting Limited (Seg) 18% 2. F C S Software Solutions Ltd. 14% 3. Goldstone Technologies Ltd. 3% 4. Larsen & Toubro Infotech Ltd. 11% 5. Melstar Information Technologies Ltd. 0% 6. Orient Information Technology Ltd -6% 7. Powersoft Global Solutions Ltd 19% 8. SIP Technologies & Exports Ltd 25% 9. Sonata Software Ltd. 9% 10. Synetairos Technologies Limited 11% 11. Trident Info-Tech Corpn.Ltd 66% 12. VJIL Consulting Ltd 7% 13. Akshay Software Technologies Ltd. 7% 14. Cambridge Technology Enterprises Ltd. 21% 15. I C R A Techno Analytics Ltd. 15% 16 Mindtree Consulting Limited 11% 17 Computech In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the companies selected by the TPO as comparable in respect of the international transactions pertain to software development services segment. The CIT (Appeals) excluded 23 companies from the set of comparable companies selected by the TPO and retain only 3 companies which are as under :- Sl.No. Company Name OP to Total Cost % (before working capital adjustment) OP to Total Cost % (after working capital adjustment) 1. E-Zest Solutions Ltd. 36.12 35.0535.05 2. KALS Information Systems Ltd. (Seg.) 30.55 22.47 3. Lucid Software Ltd. 19.37 16.11 Mean Margin After Working Capital Adjustment 73.63/3 24.54 7. Thus the CIT (Appeals) has deleted/excluded all the companies selected by the TPO against which the assessee raised objections except KALS Information Systems (seg.) and Lucid Software Ltd. The assessee did not raised any objections against eJust Solutions. Accordingly the CIT (Appeals) recomputed the Mean Margin of three companies after working capital adjustment at 24.54% and confirmed the TP adjustment to the extent of 77, 410 as against the original 1,39,53,888. The CIT (Appeals) granted part r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the comparables of the international transactions of the assessee is not a difficult task. Thus, when a good number of comparables are available then the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the controlled and related prices. This Tribunal in the series of decisions has taken a view that when good number of comparables are available, then the threshold limit of RPT shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the case of the assessee. Consequently, the impugned order of the CIT (Appeals) whereby applied filter of 0% RPT is set aside. Hence we direct the Assessing Officer/TPO to apply the RPT filter of 15% and then select the comparables. 10. Now we will take up the functional comparability of the other companies selected by the TPO/A.O. 10.1.1 Accel Transmatic Ltd. (Seg.) : This com....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this company and rejected the same/excluded the same by applying 0% RPT filter. He has relied upon the finding of the TPO and submitted that the TPO has examined the functional comparability of this company and the assessee did not dispute before the TPO or before the CIT (Appeals). 10.1.3 We have considered the rival submissions as well as relevant material available on record. Therefore, this company cannot be excluded from the list of comparables. There is no dispute that the assessee did not object this company as comparable by the TPO. Even before the CIT (Appeals) the assessee did not raise any objection for inclusion of this company. However, the CIT (Appeals) has excluded this company by applying 0% RPT filter. Thus the revenue is aggrieved by the order of the CIT (Appeals) on the issue of applying 0% RPT filter. As regards the functional comparability of this company, this issue does not emanate as the assessee did not raise any objection against the comparability of this company. Further the assessee has not filed any additional ground for exclusion of this company from the list of comparables. We find that the revenue from RPT of this company is 6.40% and therefore i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s earning in foreign exchange of software export services. From the profit and loss account, this company has reported only one source of income from operations and that is export in foreign currency. Apart from this revenue, only a minor amount has been shown from the interest in the profit and loss account. Further, we find that there is no other revenue generating source during the year under consideration. Therefore, we find from the Annual Report of the company, there is one segment i.e. software exports. Thus the contention of the assessee is that this company is in the diversified activity is not found support from the record and therefore it is contrary to the record. The decisions relied upon by the assessee also does not give any finding of fact on functional dissimilarity but the earlier order of the Tribunal in some other cases has been followed in these decisions. There is no independent finding by analysing the facts on record in these decisions. Therefore when we analyse the relevant record and details as given in the annual report, profit and loss account and auditor's report, we find that this company has earned revenue from only one source which is software ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....examined. 10.3.1 It was submitted by Ld A R of the assessee that this company is owner of IPR, it has software for discovery of new drugs and has developed molecule to treat cancer. Thus this company cannot be considered as a comparable of assessee for the reason that this company has diverse business and this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different. 10.3.2 On the other hand Ld D R has relied upon the order of the TPO and submitted that this company has been classified as software development company and therefore the main activity is similar to that of assessee. 10.3.3 We have considered the rival submissions as wellas relevant material on record. The business activities of this company has been examined and analysed by the Mumbai Bench of the Tribunal in the case of Teva Pharma (P.) Ltd. (supra) wherein the tribunal has observed as under: "The learned D.R. however drew our attention to page-389 of the paper book which is an extract from the Directors report which reads as follows: 'The Company has developed a de novo drug design tool "CELSUITE" to drug discove....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....2007 highlighting the fact that this company was develops biotechnology products and provides related software development services. Having regard to the above facts and circumstances as well as the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma (P.) Ltd. (supra) we are of the view that this company was basically in clinical research and manufacture of bio products and other products and therefore, this company cannot not be considered as good comparable of assessee. 10.4 Datamatrics Ltd. : This company is not disputed or contested by any of the parties though the CIT (Appeals) has deleted this company from the list of comparables on the ground of related party transactions. We find that the revenue from RPT of this company is 13.1% and therefore it is much below the threshold of 15% as discussed in the foregoing paragraphs. Thus in the absence of any objections on the functional comparability of this company by the assessee either before the authorities below or before us by way of additional ground, we restore this company to the list of comparables. 10.5 E-zest Solutions Ltd. : This company is not disputed or contested by the assessee, the CIT (Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It has been brought to our notice that the finding of the Tribunal in case of DE Shaw India Software Pvt. Ltd. has been upheld by the Hon'ble High Court. By following the decision of the coordinate Bench at Hyderabad as well as Hon'ble High Court, we direct the TPO/A.O. to exclude this company from the list of comparables for determining the ALP. 10.7.1 Geometric Ltd. (Seg.) : The assessee objected the inclusion of this company before the TPO. The CIT (Appeals) excluded this company from the set of comparables on the ground of RPT filter. 10.7.2 We have heard the rival submissions and considered the material on record. It is not disputed that the Related Party revenue is 19.98% of total sale of this company. Therefore, this company fails the filter of threshold limit of 15% RPT. Accordingly, we do not find any reason to interfere with the finding of the CIT (Appeals) to exclude this company from the list of comparables. 10.8 Helios & Matheson Information Technology and I gate Global Solutions Ltd. : The assessee did not object to the inclusion of these two companies before CIT (Appeals) or even before this Tribunal. The revenue is aggrieved only on account of apply....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not available. The functional comparability of this company has been examined by the Delhi Bench of this Tribunal in case of Agnity India Technologies (P.) Ltd. (supra) and the finding of the Tribunal has been upheld by the Hon'ble Delhi High Court that this company cannot be compared with an ordinary entity because of the scale of operations and brand value. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. Accordingly we direct the TPO/AO to exclude this company from the list of comparables for determining the ALP. It is ordered accordingly. 10.10.1 Ishir Infotech Ltd. : The assessee objected to the inclusion of this company on the ground of RPT at 22%. The CIT (Appeals) excluded from the list of comparables by applying the filter of RPT. 10.10.2 We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that the RPT revenue earned by this company is 21.97% as stated by the TPO as well as by the CIT (Appeals). In view of our finding on this issue the RPT of this company exceeds the threshold limit o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India (P.) Ltd. v. Dy. CIT IT Appeal No 1386/PN/2010 wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: "16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin." Besides the above, it was pointed out that this company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes. The submission of the ld. counsel for the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO. 50. We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re us, the learned Authorised Representative has submitted that this company is a software product company. The company has debited the expenditure to the profit and loss account as work in progress. Further, this company has employed about 30% of total capital in product development expenditure as per the balance sheet. The learned Authorised Representative has pointed out that the Tribunal in assessee's own case for the Assessment Year 2006-07 has excluded this company from the list of comparables. He has relied upon the following decisions : Cases pertaining to Asst. year : 2007-08 Cases pertaining to other Asst. years CSR India (P.) Ltd. (supra) Ariba Technologies India (P.) Ltd. (supra) DE Shaw India Software (P.) Ltd. (supra). This Tribunal ruling has been upheld by the high court for the State of Telangana and Andhra Pradesh - ITTA No. 433 of 2014 dated 22 July 2014 Huawei Technologies India (P.) Ltd. (supra) 10.13.3 On the other hand, the learned Departmental Representative has submitted that the functional comparability of this company has been examined by the TPO as well as by the CIT (Appeals) and it was found that this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t then profitability in the sale of product would be entirely different from the company, who is involved in service sector. Therefore, this company cannot be treated as having same function and profitability ratio. In our view, due to non-availability of full information about the segmental details as to how much is the sale of product and how much is from the services, therefore, this entity cannot be taken into account for comparability analysis for determining arms length price in the case of the assessee. ** ** ** 15. The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Logica Private Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Logica Pvt. Ltd. (supra), we direct that the company viz., Lucid Software be excluded from the list of 20 comparable arrived at by the TPO." Similar view has been taken by the co-ordinate benches of this Tribunal in the other cases cited supra. Accordingly, following the ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the TPO given in the chart at para-12 of this order is concerned, this Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) had held that only segmental data should be taken for the purpose of comparison. Following are the relevant observations of the Tribunal:- "37. The next plea of the Assessee is that if at all this company is considered as a comparable then the segmental margin of 23.11% (which is the margin for software service segment) alone should be considered for comparability. On the above submission, we find that the TPO considered the segmental margin (Software service segment) in the case of Geometric, Kals Info systems, R Systems, Sasken Communication and Tata Elxsi. Before DRP the Assessee pointed out that the segmental margin of 23.11% alone should be taken for comparability. The DRP has not given any specific finding on the above plea of the Assessee. Perusal of the order of the TPO shows that the TPO relied on information which was given by this company in which this company had explained that it has two divisions viz., BLUEALLY DIVISION and XIUS-BCGI DIVISION. Xius-BCGI Division does the business of product software (developing softwar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e margin of the software service segment be taken for comparability. In view of the above conclusion, we do not wish to go into the question as to whether less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO's filter of more than 75% of revenues from software development services." 27. In view of the aforesaid decision of the Tribunal, segmental margins in so far as it relates to providing software services by Megasoft alone should be taken for the purpose of comparison.' In view of the decision of the co-ordinate bench of this Tribunal, we hold that the segmental margins of this company relating to providing software services are comparable to the assessee's software development service segment and therefore we direct the A.O./TPO to consider only segmental data relating to providing software services of this company i.e. Megasoft Ltd. 10.16 Mindtree Consulting Ltd. : The assessee has not objected to this company to be included in the list of comparables. The CIT (Appeals) has excluded this company from the list of comparables on the ground of on-site revenue filter. Since neither the assessee no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... inclusion of this company in the list of comparables on the ground of R&D filter as well as functional dis-similarity. The CIT (Appeals) has excluded this company on all three grounds of RPT filter as well as functional dis-similarity. 10.20.2 The learned Authorised Representative of the assessee has submitted that this company is engaged in diversified activities including embedded product design services, industrial design and engineering, animation and visual effects, and system integration services. This company is having unique IP portfolio comprising re-usable software components and ready-to- deploy product frameworks. Further this company is engaged in R&D activities resulting in certain IPRs. He has further submitted that the functional comparability of this company has been examined by this Tribunal in assessee's own case for Assessment Year 2006-07. He has relied upon the following decisions : Cases pertaining to Asst. year : 2007-08 Cases pertaining to other Asstt. years Systech Integrators India (P.) Ltd. v. ITO [2014] 44 taxmann.com 324 (Bang. - Trib.). Ariba Technologies India (P.) Ltd. (supra). 3DPLM Software Solutions Ltd. v. Dy. CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties." 15. In view of the above, the ld. counsel for the assessee fairly admitted that comparable company at Sl. No. 6 viz., Flextronics Software Systems Pvt. Ltd. should be taken as a comparable, while comparable at Sl. No. 24 viz., Tata Elxsi Ltd. should be rejected as a comparable." 18. In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO.' In view of the above facts, we direct the A.O/TPO to exclude this company from the list of comparables. 10.21.1 Thirdware Solutions Ltd. : This company was selected by the TPO and included in the list of comparables for the purpose of computing the ALP. The assessee did not contest inclusion of this company in the list of comparables before the TPO as well as before the CIT (Appeals). However, the CIT(A) excluded the company from the list of comparables. assessee is seeking exclusion of this company from the list of comparables on the ground that this comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hand, learned Departmental Representative has submitted that when the TPO has considered ITES segment of this segment than the other activity of this company are not relevant for determining the ALP. Thus he has submitted that this company is engaged in the similar activities and therefore is a good comparable. He has relied upon the order of the TPO. 10.23.4 We have considered the rival submissions and the relevant material on record. The assessee objected to the inclusion of this company in the list of comparables on the ground that it fails the R&D filter as well as the functional dis-similarity. The CIT (Appeals) excluded this company from the list of comparables as it was found functionally dissimilar to the assessee. There is no dispute that this company is having significant investment in acquiring new business and also engaged in the R&D activities. Therefore this company is having huge brand value as well as bargaining power in comparison to the other companies who are engaged in the software services providing activity. The comparability of this company was also considered by the Hon'ble Delhi High Court in the case of Agnity India Technology Pvt. Ltd. and the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fer Pricing analysis except the four companies which are at S.Nos.4, 5, 6 & 7 as under :- Comparable Company Without Adjs. Mark up on Total Cost (after WC) % Cosmic Global Ltd. 9.64 Maple Esolutions Ltd. 29.16 Aditya Birla Minacs Worlwide Ltd (Earlier Transworks Information Services Ltd.) 10.32 Triton Corp Ltd. 25.07 Before the TPO/A.O., the assessee has also submitted the additional comparables as under :- Sl. No. Comparable Company Without Adjs. Mark up on Total Cost (after WC) % 1. Cameo Corporate Services Ltd. -- 2. Sparsh BPO Services Ltd. -- 3. Nittany Outsourcing Services Ltd. -- Out of these additional comparables submitted by the assessee, the TPO accepted the only one namely Nittany Outsourcing Services Pvt. Ltd. The TPO carried out fresh search and selected 27 companies in the set of comparables inclusive of three in the original set of comparables selected by the assessee and one from the additional comparables submitted before the TPO by the assessee. The set of comparables selected by the TPO are as under :- Sl. No. Comparable Company Name OP to Total Cost % as per TP ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mparables from the set of comparables. Another comparable being Flextronics Software segment was excluded by the CIT (Appeals) on the ground that this company fails R&D filter which is more than 3.88% of the sale and further this company is engaged in the diversified segment i.e. ;product and services. Thus out of the 19 excluded by the CIT (Appeals) 18 were excluded on the ground of 0% RPT filter. 13. As regards the exclusion of the 18 comparables on the ground of RPT filter, we have already discussed this issue while dealing with software development services segment and therefore in view of our finding that 15% RPT is appropriate in the case of the assessee. The companies which are included in the set of comparables and having upto 15% revenue from RPT are required to be examined on other grounds including functional comparability. The CIT (Appeals) has retained 8 comparables which are as under :- Sl. No. Company Name OP to Total Cost % (before working capital adjustment) OP to Total Cost % (after working capital adjustment) 1. Accentia Technologies Ltd. (Seg.) 30.61 25.43 2. Apex Knowledge Solutions Pvt. Ltd. 12.83 12.38 3. Bodhtree ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the revenue. (v) Apollo Health Street Ltd. : This company was selected by the TPO/A.O though the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on turnover filter. We find that the RPT revenue of this company is 17.77%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (vi) Asit C Mehta Financial Services Ltd. : This company was selected by the TPO/A.O though the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on turnover filter. We find that the RPT revenue of this company is 15.76%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (vii) Bodhtree Consulting Ltd (Seg.) : This company was selected by the TPO/A.O. However, the assessee objected the inclusion of this company in the list of comparable on the ground that there is extra-ordinary profit as well as extra-ordinary event in this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction. As regards the RPT at 38.54%, we find that the assessee raised this objection before the TPO/A.O and it has not been specifically dealt with by the authorities below. Further, from the Annual Report of this company, we find that the objection raised by the assessee pertains to the advances given by this company to the Associated Enterpries (AEs) and reported that the same was taken as RPT. The advance to the AEs does not pertain to the ITES segment and further it is not a operational trading activity of the said company to be considered as RPT for the purpose of uncontrolled comparable price. Accordingly, we do not find any merit in the objections of the assessee, even on the ground of RPT. (viii) Caliber Paint Business Solutions : This company was selected by the TPO/A.O. However, the assessee objected the inclusion of this company in the list of comparables on the ground that it has 23% revenue from RPT and further this company is engaged in R&D activity and also functionally different. The CIT (Appeals) excluded this company on the ground of 0% RPT filter as this company was stated to have 13.69% RPT. Before us, the learned Authorised Representative of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is having only 9.12% RPT. Therefore in view of our finding on RPT filter, the comparability of this company has to be decided on basis of functional similarity or dis-similarity. The ld. AR submitted that this company is rendering services like engineering, designing services which requires highly skilled employees. Thus, this company cannot be selected as comparable because their functions are different. He has relied upon the decision of Special Bench of Mumbai Tribunal in the case of Maersk Global Centres (India ) (P.) Ltd. v. Asstt. CIT [2014] 147 ITD 83/43 taxmann.com 100 and submitted that this company is rendering highly skilled services and cannot be compared with the service of ITES and accordingly, this company should be deleted from the set of comparables. On the other hand, the ld. DR has relied upon the orders of authorities below and submitted that the TPO has considered the functional comparability at the time of selecting this company. We have considered the rival submissions and relevant record. At the out set, we note that the comparability of M/s Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Cent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." As discussed by the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), this company provides data analysis and data process solution and is recognised as experts in chosen market financial services, retail and manufacturing. It was found to have being providing complete business solutions. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the software development services. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables. (xii) Flextronics Software : This company was selected by the TPO/A.O. However, the assessee objected the inclusion of this company in the list of comparable as it fails R&D filter and also having ITES se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is company on RPT filter. We find that the RPT revenue of this company is 21.52%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (xv) I C R A Techno Analytics Ltd. (Seg.) : This company was selected by the TPO/A.O but was not objected by the assessee either before the TPO/A.O or before the CIT(A) even not before this Tribunal. However, the CIT (Appeals) excluded this company by applying 0% RPT filter. In view of our finding of proper RPT tolerance range this company having RPT at 1.85% is restored back to the set of comparables. (xvi) Informed Technologies Ltd. : This company was selected by the TPO/A.O and the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on RPT filter. We find that the RPT revenue of this company is 15.93%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. (xvii) Infosys BPO Ltd. : This company was selected by the TPO and included in the list of comparables. The assessee obje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....prise Application Services (P.) Ltd. v. Asstt. CIT [2013] 40 taxmann.com 173 (Hyd. - Trib.) Motorola India Electronics (P.) Ltd. v. ACIT [IT Appeal Nos. 1274 & 1413/Bang/2008]. Logica (P.) Ltd. v. Asstt. CIT [2013] 36 taxmann.com 374 (Bang. - Trib.) On the other hand, the learned Departmental Representative has relied upon the orders of the TPO and submitted that when this company is in the business of ITES then it is functionally comparable with that of the assessee. The assessee did not object the inclusion of this company in the list of comparables before the TPO. We have considered the rival submissions as well as the relevant material on record. The contention of the ld. A.R. of the Assessee is that if at all this company is considered as a comparable then the segmental margin of 23.11% (which is the margin for software service segment) alone should be considered for comparability. On the above submission, we find that the TPO considered the segmental margin (Software service segment) in the case of Geometric, Kals Info systems, R Systems, Sasken Communication and Tata Elxsi. Before DRP the Assessee pointed out that the segme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the DRP have noticed that there is bound to be a difference between the Assessee and Megasoft and the profit arising to the Megasoft as a result of the existence of the software product segment and no finding has been given that reasonably accurate adjustments can be made to eliminate the material effects of such differences. For this reason, we are inclined to hold that the profit margin of 23.11% which is the margin of the software service segment be taken for comparability. In view of the above conclusion, we do not wish to go into the question as to whether less than 25% of the revenues of the comparable are from software products and therefore the comparable satisfied TPO's filter of more than 75% of revenues from software development services. Thus it was found that this company is functionally dis-similar to the ITES service provider company as it provides end to end solutions in technical consultancy, design, development, re-engineering, maintenance, system integration and implementation. This company also generates revenue from the software products and has huge intangible assets. In view of the above facts and circumstances as discussed above, this company is funct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Knoah Solutions (P.) Ltd. [IT Appeal No.1407 (Hyd.) of 2013 On the other hand, the learned Departmental Representative has submitted that this company is in ITES and the CIT (Appeals) has excluded this company by holding that this company is a KPO and not a BPO. However, mere nomenclature of KPO and BPO cannot be a ground for inclusion or exclusion of a company in this list of comparables without examining the actual functions performed by the company. We have heard the rival submissions and the relevant material on record. We find that this company is providing highly technical and specialized engineering services. The functional comparability has been examined by the Special Bench of the Tribunal in the case of Maersk Globle Solution (supra) and it was held that this company cannot be compared with an ordinary ITES. The assessee before us is providing only back office support to the parent company. Therefore, Mold-tek Technology is engaged in producing design, drawing and structural engineering drawings of 2D and 3D software cannot be compared with the assessee. Accordingly, we do not find any reason to interfere with the order of the CIT (Appeals) in treating this com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a good comparable. The learned Authorised Representative has further pointed out that for the Assessment Year 2006-07, this Tribunal has held that this company cannot be considered as a good comparable. He has also relied upon the decisions as under : Zavata India (P.) Ltd. v. Dy. CIT [2013] 35 taxmann.com 423 (Hyd. - Trib.) Capital IQ Information Systems (India) (P.) Ltd. v. Asstt. CIT [2012] 26 taxmannn.com 31/149 ITD 809 (Hyd. - Trib.) Cognizant Technology Services (P.) Ltd. v. Asstt. CIT [2014] 151 ITD 191/47 taxmann.com 209 (Hyd. - Trib.) Avineon India (P.) Ltd. v. Dy. CIT [2014] 150 ITD 543/41 taxmann.com 334 (Hyd. - Trib.) On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that as far as the functions of this company is concerned, it is very much similar to that of the assessee in providing ITES services. We have heard the rival submissions and the relevant material on record. We find that salary and wages expenditure of this company is very minimal at 2.3% of total revenue which shows that this company outsources the services to third parties. This fact is also reflected in the Ann....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case of First Advantage Off-shore Services (ITA No.1252/Bang/2010) has directed to use employee turnover filter in a consistent manner for selection of comparables and in the case of Asstt. CIT v. Maersk Global Services Centre (India) (P.) Ltd. [2012] 14 ITR(Trib) 541 (Mum.) the Mumbai Bench of the Tribunal has analysed and rejected this company as comparable for the reason that it has outsourced a considerable portion of it's business and is functionally different. Moreover, it was also submitted that the DRP in the later year of 2008-09 vide its order dated 3.8.2012 has rejected this company as a comparable (name changed to Coral Hub Ltd.), vide para 18 of the order, wherein ultimately, it was decided that there is major difference in functionality and the business model and the DRP Bench was of the view that Coral Hub (formerly known as Vishal Information Technology Ltd.) was not a suitable comparable and needs to be dropped from the final set of comparables. Based on the above submissions, it was submitted that this company cannot be used as a comparable and has to be excluded. 9.1. The learned Departmental Representative, however relied on the orders of the TPO. 9.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estment in acquisition of the business. This company is also engaged in the business of innovation, technology innovation, process innovation and delivery innovation. It also earns about 8% from innovation activity and also having more than 13 engineering patents, enterprises, business and quality. This company has 55 centres of excellence and 30 innovation products. It has also set up a handset mobile tested lab and engaged in R&D activity. Thus this company cannot be compared with the assessee. He has relied upon the following decisions : Market Tools Research (P.) Ltd. (supra) Intoto Software India (P.) Ltd. v. Asstt. CIT [2014] 146 ITD 360/[2013] 35 taxmann.com 421 (Hyd. - Trib.) On the other hand, learned Departmental Representative has submitted that when the TPO has considered ITES segment of this company than the other activity of this company are not relevant for determining the ALP. Thus he has submitted that this company is engaged in the similar activities and therefore is a good comparable. He has relied upon the order of the TPO. We have considered the rival submissions and the relevant material on record. Though the TPO has considered only segmental data ....