TaxTMI 
TaxTMI 
2018 (4) TMI 1614
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....ed with the Software Technology Parks of India (STPI) scheme at Bangalore, Gurgaon and Chandigarh. The return of income for the assessment year 2008-09 was filed electronically on 30/09/2008 declaring total income of Rs. 4,73,84,630/-. The assessee-company also reported the following international transactions in Form 3CEB: 3. The assessee sought to justify the consideration received for the above international transactions to be at arm's length. The assessee-company also submitted TP study report adopting TNMM which was considered to be the most appropriate method for the purpose of transfer pricing study and operating profit to operating cost as the Profit Level Indicator (PLI). The assessee-company's profit margin was computed at 7.62% and the same was claimed to be at arm's length with other companies rendering software development services. For the purpose of TP study, the assessee-company had chosen 16 comparables. The arithmetical average mean of the operating margin of the said comparable was computed less than 12%. According to the assessee-company, its PLI was within +/-5% of the arithmetical mean of the comparable entities. Hence, it was claimed that transac....
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.... the following 14 companies by applying the turnover filter of range of Rs. 200 cr. to Rs. 2000 cr.: The ld. CIT(A) held that the application of employee cost filter and diminishing revenue or persisting loss making or different year ending filters are not appropriate. The ld. CIT(A) further held that gain on account of fluctuation of foreign exchange should be treated as operating nature. 9. Being aggrieved, the revenue is in appeal in IT(TP)A No. 1070/Bang/2013 against that part of the order of the ld. CIT(A) which is against the revenue and the assessee is in appeal in IT(TP)A No. 981/Bang/2013 against that part of the order of the ld. CIT(A) which is against the assessee. 10. Now we shall take up revenue appeal. The revenue raised the following grounds of appeal: 1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the AO to exclude the reimbursement of expenses incurred in foreign currency both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s. 10A without appreciating the fact that the statute allow....
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....the learned CIT(A) has erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 9. On the facts and in the circumstances of the case the learned CIT(A) failed to appreciate that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 10. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that foreign exchange loss/gain is operating in nature when, such loss/gain though linked to the operating activity is not derived from operating activity. 11. On the facts and in the circumstances of the case the learned CFT(A) erred in holding that domestic transaction should be excluded from the TP adjustments, in view an aggregate approach is adopted by the TPO wherein the transactions are so inextricably intermixed that the segregation of revenue and appropriate costs are impossible and the approach of the assessee to allocate costs on a ration would provide only distorted results. 12. For these and other grounds that may be urged at the time of hearing, it is prayed that t....
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....essee with regard to additional wages paid to new workman was denied for a reason that engineers who were newly employed by the assessee were not considered as workers by the lower authorities. However, in a similar situation in the case of Texas Instruments India P. Ltd, (supra), it was held by the coordinate bench at para 6 and 7 of its order, as under : 6. We have heard the rival submissions and carefully perused the records. Considering the factual position after referring to the various documents filed by the assessee, the learned CIT(A) held as under : "According to the AO if an employee or workman is getting a salary of more than Rs. 1,600 per month he is not covered by the definition of workman. However as per cl. (iv) of s. 2(s) of the Industrial. Disputes Act a worker, employed in supervisory capacity and getting a salary of more than Rs. 1,600 per month only be excluded from the definition of workman. In appellant's case the software engineers in respect of whom deduction under s. 80JJAA has been claimed have not been employed in a supervisory capacity even though they may be getting a salary of more than Rs. 1,600 per month. As the software engineers were not empl....
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....s stated earlier the assessee had filed the details of the software engineers employed during the years under consideration containing the names of the employees, designation and date of joining. Further, in the same list the details of total number of employees joined during both the assessment years, number of employees without supervisory roles, workmen joined, number of supervisors joined and workmen joined and relieved during the years under consideration. A cursory perusal of this list shows that the assessee had claimed deduction in respect of employees, who had joined as engineers in their respective field such as systems engineer, test engineer, software design engineer, IC design engineer, lead engineer etc. A cursory perusal of those lists establishes that the assessee had claimed deduction in respect of the engineers employed not in the category of supervisory control. All these details were filed before the AO during assessment proceedings. These facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued....
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....der section 10A of the Act is allowed for these units, a further deduction u/s. 80JJA of the Act, is also allowable. Argument of the assessee's counsel is that the limitation put in by Section 80A(4) of the Act, would apply only to profit linked deductions. There can be no dispute that deduction under Section 10A of the Act, is profit linked. In so far as deduction u/s. 80JJA is concerned, a look at sub-section (1) of the said section is required, which is reproduced below : 80JJAA(1) : Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from any industrial undertaking engaged in the manufacture of production of article or thing, there shall, subject to the conditions specified in sub-section (2)m be allowed a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in the previous year for three assessment years including the assessment year relevant to the previous year in which such employment is provided. 27. A reading of the above sub-section would clearly show that the deduction is given on profits and gains derived from industrial undertaking eng....
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....favour of the assessee by the decision of this Tribunal for the assessment year 2007-08 cited supra wherein it has been held as follows: "42. We have perused the orders and heard the rival contentions. It is not disputed that the Chandigarh unit came to the assessee through a slump sale. M/s. Virsa had given this undertaking to the assessee as a going concern. That such transaction was a slump sale has not been disputed by any of the lower authorities. It is also not disputed that the said M/s. Virsa was eligible for deduction u/s. 10A of the Act and was claiming such deduction in the earlier years for such unit. Hon'ble Bombay High Court in the case of Sonata Software Ltd., (supra) in a similar situation had held as under : 8. The issue before the court is whether the two requirements, cast in negative terms, have been fulfilled. Clause (ii) of sub-section (1) of section 10A stipulates that the industrial undertaking must not be formed by splitting up or reconstruction of a business already in existence. In other words, the test in law is as to whether the undertaking is formed by splitting up or reconstruction of a business already in existence. In CIT v. Gaekwar Foam and ....
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....d effectively, that would not be reconstruction or if the very nature of the business is changed, that again would not be reconstruction. On the other hand, reorganization of the business on sounder lines or alter actions in the mode or method or scope of the activities of the business or in its personnel or infusion of new blood in the management or control of the business which may even be by some changes in the constitution of persons interested in the undertaking would certainly be no more than reconstruction of the business if it is substantially the same business carried on by substantially the same persons." Reconstruction, the Division Bench held, means that substantially the same business is carried on and substantially the same persons carry it on (page 671) : "The emphasis, it will be noticed, is on two things--when substantially the same business was carried on and substantially the same persons were carrying it on. It is also to be noticed that the learned judge draws a clear distinction between a reconstruction and a sale of an undertaking. In the case of a sale, there can be no question of reconstruction. Now, in these matters, we have to look at the substance of t....
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....not who owns the undertaking but whether the undertaking is entitled to the benefit available under section 10A. As regards the issue of transfer by IOCL to the assessee, the Tribunal noted that section 10A(9) was substituted by the Finance Act, 2000, with effect from April 1, 2002. Section 10A(9) provided that where during any previous year the ownership or beneficial interest in an undertaking of the business is transferred by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years. The Tribunal noted that if a transfer between IOCL and the assessee were to be effected after April 1, 2001, that would result in the undertaking being disentitled to the benefit under section 10A. This was a pointer to the fact that prior to the substitution a transfer of ownership or beneficial interest in the undertaking would not disentitle an assessee to the benefit of section 10A. (As a matter of fact it may also be noted that the provisions of section 10A(9) were omitted by the Finance Act, 2003, with effect from April 1, 2004). 43. Thus it has been held by the Hon'ble Bombay High Co....
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....lined in clauses (a) to (f) of Rule 10B(1), while judging comparability. Rule 10B (3) on the other hand, indicates the approach to be adopted where differences and dissimilarities are apparent. Therefore, the mere circumstance of a company - otherwise conforming to the stipulations in Rule 10B (2) in all details, presenting a peculiar feature - such as a huge profit or a huge turnover, ipso facto does not lead to its exclusion. The TPO, first, has to be satisfied that such differences do not "materially affect the price...or cost"; secondly, an attempt to make reasonable adjustment to eliminate the material effect of such differences has to be made." This ratio was followed by this Tribunal in several cases, for example, NTT Data Global Delivery Services Ltd. v. Ass. CIT (69 taxmann.com 7)(Bang) and Societe Generale Global Solution Centre (P.) Ltd. v. DCIT (69 taxmann.com 336)(Bang). Following the ratio of the above decisions, we hold that turnover is not relevant criteria for deciding comparability. Accordingly, this ground of appeal is allowed. 21. Ground No. 7 challenges the direction of the ld. CIT(A) in rejecting the employee cost filter as not appropriate to apply in search....
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....ith an international transaction shall be the data relating to the financial year in which international transaction had been entered into. In the light of the plain provisions of the law, we do not see any reason to differ from the finding of the ld. CIT(A). Hence the ground of appeal filed by the revenue is dismissed. 24. Ground No. 10 challenges the finding of the ld. CIT(A) that the gain arising out of variations in foreign exchange currency is operating in nature. The only issue in the ground of appeal pressed, relating to TP adjustment is whether Foreign Exchange gain made an account of sale proceeds can be treated as operating in nature. The Hon'ble Delhi High Court in the case of Pr. CIT v. Ameriprise India Pvt. Ltd. in ITA No. 206/2016 dated 23/03/2016 has categorically held that foreign exchange gain earned by the assessee in relation to sale/purchase emanating from international transactions should be treated as operating in nature. In the light of the ratio laid down in the case of Ameriprise India Pvt. Ltd. (supra), we do not find any reason to differ with the order of the ld. CIT(A). Hence, the ground of appeal is dismissed. 25. The next ground of appeal challe....
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....'s contention that, deduction under section 80JJAA is limited only to the residual profits forming part of the gross total income of the assessee, i.e. after the claim of deduction under section 10A of the Act. 3. (a) That the learned CIT (Appeals) erred in confirming the disallowance made by the learned AO in re- allocating the interest expense to the extent of Rs. 12,980,367 relating to Unit-1 (non 10A unit) to Unit-2 (10A unit). (b) That the learned CIT (Appeals) erred in not appreciating the fact that, loan was taken for construction of campus housing Unit-i and accordingly, no interest was to be apportioned to Unit-2. (c) That the learned CIT (Appeals) erred in not considering the Appellant's submissions and holding that, the loan was not completely utilised for construction of building, but for other purposes such as working capital and other business needs and accordingly, directed the AO to apportion 20% of total interest expenditure, based on the actual floor area occupied. 4. (a) That the Ld. CIT (Appeals) erred in confirming the disallowance made by the learned AO in re-allocating the rent expense to the extent of Rs. 47,294,681 relating to Unit-i (non 10A ....
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.... price. 10. On the facts and in the circumstances of the case and in law, the TPO erred in introducing E-zest Solutions Limited in its comparability analysis which is functionally dissimilar to the Appellant. It is prayed that E-zest Solutions Limited be excluded from the set of comparables considered by the Ld. TPO for comparability analysis. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 29. Ground No. 1 is general in nature and does not require adjudication. 30. Ground No. 2 challenges restriction of deduction of section 80JJA of the Act to only to non-10A unit invoking the provisions of section 80A(4) of the Act. This issue was covered against the assessee in assessee's own case in earlier year for assessment year 2007-08. The relevant paragraph is extracted in revenue appeal. The ground of appeal raised by the assessee is dismissed. 31. Ground No. 3 is not pressed and is accordingly dismissed. 32. Ground No. 4 challenges re-allocation of rent expenses relating to non-10A unit. It was submitted a....
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....it to unit I i.e. non-10A unit) and the date of de-bonding of private warehouse by 10A unit was later than the date of bonding by unit I i.e. non-10A unit and even the floor space of the premises bonded and de-bonded are different. It was further submitted that the AO had re-allocated the rent based on presumptions and assumptions which is not permitted. 34. We heard rival submissions and perused material on record. From the perusal of the chart placed at page 28 of the written submissions placed before us, it is clear that there was no shifting of bonded warehouse from unit II to unit I. No addition can be made based on presumptions/assumptions. Thus, we allow this ground of appeal. 35. The additional grounds No. 7 to 11 seeks to exclude the following comparables: i. Avani Cimcon Technologies Ltd. ('Avani') ii. Bodhtree Consulting Limited ('Bodhtree') iii. E-Zest Solutions Ltd. iv. Infosys Technologies Ltd. v. Kals Information Systems Ltd.(seg.) vi. Persistent Systems Ltd. vii. Quintegra Solutions Ltd. viii. Tata Elxsi Ltd. (seg) ix. Thirdware Solutions Ltd. x. Wipro Ltd. (Seg.) xi. Softsol India Ltd. xii. Lucid Software Ltd. Avani Cimco....
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....s, the learned Authorised Representative reiterated the assessee's objections to inclusion of this company on the ground that it is not functionally comparable to the assessee as it is into software products. In support of this contention, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09. 5.3 Per contra, the learned Departmental Representative supported the order of the TPO in including this company as a comparable. 5.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that a co-ordinate bench of this Tribunal on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 had held that this company be omitted from the set of comparables as it was functionally dis-similar from a company which only provides software development services to its AEs, like the assessee in the case on hand. At paras 7.6.1 and 7.6.2 of its order, the co-ordinate bench held as under :- "7.6.1 We have hea....
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....o- ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude Avani Cimcon Technologies Ltd., from the list of comparables. Bodhtree Consulting Limited ('Bodhtree'): 37. This company was selected by the TPO, but not contested by the assessee-company before the TPO. However, inclusion of this company was challenged before the ld. CIT(A) on the grounds of functional differences. 37.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of Rs. 200 crores to Rs. 2000 crores. Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. 37.2 Hence, the assessee-company is challenging the inclusion of this company on the ground that Bodhtree is in business of software products and has a hybrid service business model. It is engaged in providing open and end web solutions, software consultancy and design & development of software using latest technology and Bodhtree is a specialist entity offering niche IT services in software engineering, data management and document dig....
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....idered the material on record; including the judicial pronouncements relied upon by the assessee. We find that this company; i.e. Bodhtree Consulting Ltd. has been excluded from the list of comparables for providers software development services in the judicial decisions cited by the assessee (supra at para 6.1.2 of this order). The relevant portion at para 15 of the order in the case of NXP Semi-conductors India (P) Ltd. (supra) is extracted hereunder :- "15. Bodhtree Consulting Ltd. 15.1 This company has been selected as a comparable by the TPO. The assessee has objected to the inclusion of this company as a comparable, both before the DRP and this Bench, on the grounds that this company is functionally different as it has software products and a hybrid service business model. In the proceedings before us, the learned Authorised Representative placed reliance on the decision of the coordinate benches of this Tribunal in the cases of Mindtech (India) Ltd. (supra) and CISCO Systems (India) Pvt. Ltd., in IT(TP)A No. 271/Bang/2014 dt. 14.8.2014, both for Assessment Year 2009-10, wherein this company was excluded from the list of comparables. It was submitted by the learned Authoris....
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.... the drastic variation in the profit margins of this company. In the given circumstances, we are of the view that it would be safe to exclude Bodhtree Consulting from the final list of comparables chosen by the assessee. We hold and direct accordingly." Respectfully following the ratio of the decision of the co-ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude M/s. Bodhtree Consulting Ltd. Ltd., from the list of comparables. E-Zest Solutions Ltd.: 38. This company was selected by the TPO, but contested by the assessee-company before the TPO on the ground that it functionally different. 38.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of Rs. 200 crores to Rs. 2000 crores. Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. 38.2 Hence, the assessee-company is challenging the inclusion of this company on the ground that this company on the ground that the company is into diversified activities such as outsourced product engineering, product devel....
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....e case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company is to be omitted from the list of comparables to a provider of software development services as it is into product development services and high end technical services which come under the category of KPO Services; holding as under at para 14.4 thereof :- "14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparables only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the coordinate bench of this ....
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....Ltd., had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: "23. Vis-a-vis M/s. Infosys Technologies Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 9 which is reproduced hereunder : 9. Infosys Technologies Ltd. 9.1 This company was selected as a comparable by the TPO in spite of the assessee's objections to its inclusion as a comparable on the grounds of its scale of operations and brand attributable profit margins. The TPO, however, brushed aside the assessee's objections on the ground that turnover and brand aspects were not materially relevant in the software development services segment. 9.2 Before us, the learned Authorised Representative contended that this company ought to be omitted from the list of comparables as it is not functionally comparable to the assessee since it commands substantial brand value, owns IPR's and is a market leader in software development activities, whereas the assessee in the case on hand is merely a provider of....
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....he list of comparables. Kals Information Systems Ltd. (Seg.) 40. This company was selected by the TPO, but contested by the assessee-company before the TPO on the ground that it is functionally different. 40.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of Rs. 200 crores to Rs. 2000 crores. Being aggrieved by this, revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. 40.2 Hence, the assessee-company is challenging the inclusion of this company on the ground that this company on the ground that the company derives its revenues primarily from software development services and software products. Besides, the company is also engaged in providing training, translation and interpretation services. The financials has two segments i.e. Application Software and Training. But there is no further bifurcation between software services and products. Inventory holding on account of software development products is around 43% of total current assets. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. ....
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....parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s. 133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company's Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited s....
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....ns Technologies P. Ltd. (supra), appears at para 12 which is reproduced hereunder : 12. Persistent Systems Ltd. 12.1 This company was selected as a comparable by the TPO overruling the objections of the assessee that this company, being into development of software products engaged in product design and analytic services is functionally different from the assessee who is only a provider of software development services. The TPO rejected the assessee's objections on the ground that this company is mainly, a software development service company, and as per the details filed/obtained under Section 133(6) of the Act 96% of its revenues are from software development services. 12.2 Before us, the assessee objected to the inclusion of this company in the list of comparables on the ground that it is functionally different, being engaged in software designing and analytic services and is therefore not comparable to a provider of software development service provider, as is the assessee in the case on hand. The learned Authorised Representative submitted that a coordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has h....
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....ore the TPO on the ground that the company is having peculiar economic circumstances and as an extraordinary event of acquisition of another company. 42.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of Rs. 200 crores to Rs. 2000 crores. Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. 42.2 Hence, the assessee-company is challenging the inclusion of this company on the ground that this company on the ground that the company provides a full range of custom high end IT solutions such as development, testing, maintenance, SAP, product engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies. During the year under consideration, the company has developed certain proprietary products portfolio and acquired copy rights for the same in Flexible Home Building (HBfx), Hospital Management and Information System (HMIS) in healthcare and Edu Campus in Education verticals as products. During the year, the company made a key strategic acq....
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....ered the material on record; including the judicial decision relied on by the assessee. We find that the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 has held that this company, being engaged in product engineering services, having substantial R&D activity resulting in the creation of proprietary software products and IPR's, is functionally different from a mere provider of software development services is to be omitted from the set of comparables; observing as under at paras 18.3.1 to 18.3.3 of the order :- "18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns ....
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....ation services and 2) Software Development services. Software Development services segment is further diversified into sub-services/activities being, 'Product Development services', 'Design Engineering services', 'Visual Computing Labs' for which no segmental information is available. Business Units of company include Embedded Product Design services, Animation and Visual Effects, System Integration Services. The financials indicate that the R&D activities has resulted in the creation of Intellectual properties. On perusal of the annual report, it can be seen that the company has R & D expenses of 3.39% of sales. On perusal of the annual report, it can be seen from the description of the activities performed in the embedded software service segment that the company has invested in R&D efforts in developing reusable software components, licensable IPs, etc. The company is engaged in IP development in communication and multimedia technologies. Reliance in this regard was placed on the decision of the co-ordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. ....
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....are development holding as under at paras 13.4.1 and 13.4.2 of its order extracted hereunder :- "13.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment "software development services" relates to design services and are not similar to software 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 ....
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....developed and traded software cannot be expressed in any generic unit and therefore, segmental data is not available. Reliance in this regard was placed on the decision of the coordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 44.3 We heard rival submissions and perused the material on record. The comparability of Thirdware Solutions Ltd. had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: "28. Vis-a-vis M/s. Thirdware Solutions Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 16 which is reproduced hereunder : 16. Thirdware Solutions Ltd. 16.1 This company was included in the list of comparables despite the objections of the assessee to its inclusion in the list of comparables on the ground that its turnover was in excess of Rs. 500 Crores. 16.2 Before us, the assessee objected to the inclusion of this company as a comparable for the reason that a....
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....e case on hand." Respectfully following the ratio of the decision of the co-ordinate bench in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra) we direct the AO/TPO to exclude Thirdware Solutions Ltd., from the list of comparables. Wipro Ltd.(seg) 45. This company was selected by the TPO, but contested by the assessee-company before the TPO on the ground that it is functionally different and the revenue from software development services is less than 75% of total revenue and possess high turnover brand value. 45.1 On appeal, the ld. CIT(A) deleted this company from the list of comparables by applying turnover filter of range of Rs. 200 crores to Rs. 2000 crores. 45.2 Being aggrieved by this revenue was in appeal before us in IT(TP)A No. 1070/Bang/2013 wherein we held that turnover is not an appropriate filter. Hence, the assessee-company is challenging the inclusion of this company on the ground that this company on the ground that the company is engaged in Information Technology Services, R&D Services, Business Processing Outsourcing and other business. The company caters to various industries and is leading India based provider of IT services and Pro....
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....ny is to be omitted from the list of comparables for providers of software development services for the following reasons as laid out at paras 12.4.1 and 12.4.2 of its order which is extracted hereunder :- "12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 12.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of pa....
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....ion is extracted hereunder: 30. Vis-a-vis M/s. Softsol India Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 14 which is reproduced hereunder : 14. Softsol India Ltd. 14.1 This company was selected as a comparable by the TPO inspite of the assessee's objections that it was functionally different and dis-similar from the assessee. The TPO rejected the assessee's objections on the ground that as per the company's reply to the information called for under Section 133(6) of the Act, the company has categorised itself as a pure software developer and therefore included this company as a comparable to the assessee in the case on hand who was also a provider of software development services. 14.2 Before us, the learned Authorised Representative submitted that this company ought to be excluded from the list of comparables as a co-ordinate bench of this Tribunal in its order in 3DPLM Software Solutions Ltd. (supra) has held that this company is to be excluded as a comparable as it has related party transactions (RPT) of 18.3%; thereby failing the RPT filter of 15%. 14.3. Per contra, the learne....
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....eloped proprietary software known as 'Mullam'. Lucid amortizes expenditure in relation to this software on a deferment basis. Approximately 28% of total capital employed is invested in product development expenditure. No bifurcation is available between the two activities of the company, being software development services and sale of software products. 47.2 Reliance in this regard was placed on the decision of the coordinate bench of Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd. v. Asst. CIT in IT(TP)A No. 1682/Bang/2012 dated 26/08/2015. 47.3 We heard rival submissions and perused the material on record. The comparability of Lucid Software Ltd. had come up for consideration before co-ordinate bench of this Tribunal in the case of M/s. Hewlett-Packard (India) Software Operation P. Ltd (supra). The relevant portion is extracted hereunder: 31. Vis-a-vis M/s. Lucid Software Ltd., findings of this coordinate bench in the case of M/s. Broadcom Communications Technologies P. Ltd. (supra), appears at para 11 which is reproduced hereunder : 11. Lucid Software Ltd. 11.1 This company was selected as a comparable by the TPO. Before the DRP, th....