TaxTMI 
TaxTMI 
2019 (1) TMI 263
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....des the aforesaid grounds, the assessee wants to contest ground no.14, relating to corporate tax issue. In view of the aforesaid submissions of the learned Authorised Representative, we proceed to deal with the issue relating to selection / rejection of certain comparables disputed before us as well as the corporate tax issue as raised in ground no.14. At the outset, we propose to deal with the dispute relating to transfer pricing adjustment. 3. Brief facts are, the assessee an Indian company is engaged in the business of software development and distribution of software licenses. During the previous year the assessee entered into international transactions with its Associated Enterprises (A.E) in the aforesaid two segments. Admittedly, the Transfer Pricing Officer accepted the arm's length price of the international transactions with the A.E. relating to software distribution and related services, reimbursement received for expenses incurred and reimbursement paid for expenses incurred by the A.E. However, as regards provision of software development and support services to the A.E. the Transfer Pricing Officer on verifying the transfer pricing study report found that the a....
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....hat the company is functionally different from the assessee since as per the information available in the website of the company, it is into software solution, software development and consulting and information technology services. He submitted that the company owns products like D- Xchange, Bizrule Exchange, CARMA, etc. In this context, he drew our attention to the relevant extract of the website as submitted in the paper book. The learned Authorised Representative submitted, no segmental break-up of software product and software development is available in the annual report of the assessee. He submitted, considering the aforesaid factual aspect, the Tribunal in a number of decisions pertaining to the very same assessment year has held this company not to be a comparable to a software development service provider. In this context, he relied upon the following decisions:- i) Telcordia Technologies India Pvt. Ltd. v/s ACIT, [2012] 22 taxmann.com 96; ii) Sumtotal Systems India Pvt. Ltd. v/s ACIT, [2014] 65 SOT 48; iii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann. com 405; iv) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 tax....
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....ompany has recorded an abnormal growth in turnover and profit of 91.63% and 546% respectively. For aforesaid reasons, the company cannot be treated as a comparable. In support of such contentions, he relied upon the following decisions:- i) Ness Innovative Business Services Pvt. Ltd. v/s DCIT, [2014] 151 ITD 190; ii) PCIT v/s Barclays Technology Centre India Pvt. Ltd., [2018] 95 taxmann.com 170; iii) Dialogic Networks India Pvt. Ltd. v/s ACIT, ITA no.7280/Mum./ 2012, dated 27.07.2018; and iv) QAD India Pvt. Ltd. v/s DCIT, [2016] 75 taxmann.com 280. 10. The learned Departmental Representative relied upon the orders of the DRP and the Transfer Pricing Officer. 11. We have considered rival submissions and perused materials on record. As could be seen, in case of Ness Innovative Business Services Pvt. Ltd. (supra), the Tribunal having taken note of the fact that the related party transaction of the company during the relevant previous year exceeded the threshold limit of 25% has excluded this company as a comparable. Since, the aforesaid decision of the Tribunal pertains to the very same assessment year, we are of the view that the company cann....
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....CHNOLOGY LTD. 15. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of this company, the learned Authorised Representative submitted, it undertakes research and development of new services, design, frameworks and methodologies which is suggestive of the fact that the company is into development of products. Thus, he submitted that it cannot be treated as comparable to the assessee. In support of his contentions, he relied upon the following decisions:- i) CIT v/s PTC Software India Pvt. Ltd., 75 taxmann.com 31; ii) LSI Technologies India Pvt. Ltd. v/s ITO, [2015] 60 taxmann.com 405; iii) CAPCO IT Services India Pvt. Ltd. v/s ITO, [2017] 79 taxmann.com 214; and iv) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159. 16. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 17. We have considered rival submissions and perused materials on record. The primary ground on which the assessee objects to selection of this company is, it is involved in development of products. Notably, in case of PTC Software (I) Pvt. L....
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.... comparable is, it is engaged in development of software products. Notably, in case of PTC Software India Pvt. Ltd. (supra), the Hon'ble Jurisdictional High Court upheld the decision of the Tribunal in rejecting this company as a comparable to a software development service provider on the ground that it is engaged in the development of product. The other decisions cited by the learned Authorised Representative also express similar view. Since, most of the decisions cited by the learned Authorised Representative including the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra) pertain to the impugned assessment year, respectfully following them, we exclude this company from the list of comparables. vi) LUCID SOFTWARE LTD. 21. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of this company as comparable, the learned Authorised Representative submitted that the annual report of the company reveals that it has incurred product development expenses which demonstrate that the company is into product development activity and not software development. Thus, he submitted that t....
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....er / Transfer Pricing Officer to consider the profit margin of software development segment of the company. Thus, he submitted that this company cannot be rejected as comparable. 26. We have considered rival submissions and perused materials on record. The only ground on which the learned Authorised Representative seeks removal of this company is, it is also involved in software product development and segmental details are not available. However, on a perusal of the order passed by the Transfer Pricing Officer, it is seen that he has taken the profit margin of this company at 23.11% which appears to be relating to the software development segment. It is relevant to observe, in case of Sumtotal System India Pvt. Ltd. (supra) and LSI Technologies India Pvt. Ltd. (supra) the Tribunal has directed the Assessing Officer / Transfer Pricing Officer to consider the profit margin of software development segment for comparability purpose. Thus, if the segmental details of this company are available and the profit margin of the software development segment can be ascertained, in our view this company can be considered as a comparable. In view of the aforesaid, we direct the Assessing O....
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....ions pertain to the impugned assessment year, respectfully following the aforesaid decisions of the Tribunal, we direct the Assessing Officer to exclude this company from the list of comparables. xi) SASKEN COMMUNICATION LTD. 30. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted, the software development service provided by the company includes income from licensing of product / technology. Thus, he submitted, the company is involved in development of product. Further, the learned Authorised Representative submitted that in the relevant previous year, there was an extra ordinary event relating to amalgamation / merger which must have impacted the profitability of the company. Thus, he submitted that the company cannot be selected as a comparable. In support of his contention, the learned Authorised Representative relied upon the following decisions:- i) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann.com 159; and ii) PCIT v/s Saxo India Pvt. Ltd., [2016] 74 taxmann.com 88. 31. The learned Depa....
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....Pvt. Ltd. v/s ITO, [2017] 79 taxmann.com 214; vi) Global Logistic India Pvt. Ltd. v/s ACIT, [2015] 56 taxmann. com 159; vii) Dialogic Networks India Pvt. Ltd. v/s ACIT, ITA no.7280/ Mum./2012, dated 27.07.2018; viii) PCIT v/s S.T. Ericsson India Pvt. Ltd. ITA no.821/2017, dated 31.01.2018; and ix) S.T. Ericsson India Pvt. Ltd. v/s ACIT, ITA no.1672/Del./ 2014. 34. The learned Departmental Representative relied upon the order of the DRP and the Transfer Pricing Officer. 35. We have considered rival submissions and perused materials on record. On a perusal of the documents placed in the paper book it appears that this company is engaged in various activities including development of niche product and development services. Thus, the company is functionally different from the assessee. Considering the aforesaid aspect, the Co-ordinate Bench in case of Telcordia Technologies India Pvt. Ltd. (supra), which is for the very same assessment year, has excluded this company as a comparable. Similar view has also been expressed in the other decisions cited by the learned Authorised Representative. Thus, keeping in view the decisions of the Tribunal ref....
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.... licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee. xii) R SYSTEMS LTD. 39. This company was selected both by the assessee and Transfer Pricing Officer. Though, the assessee objected this company before DRP, however assessee's objection was rejected. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that it has developed products like Indus Lending Solutions, Ecnet etc. He submitted, the annual report of the company does not provide segmental bifurcation. Further, he submitted, the financial year ending of the company is December 2008, whereas, assessee's financial year ends on March 2008. Therefore, this company cannot be treated as comparable. In support of such contention, the learned Authorised Representative relied upon the following decisions:- i) CAPCO IT ....
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....d upon the order of the DRP and the Transfer Pricing Officer. 44. We have considered rival submissions and perused materials on record. From the annual report of this company, it appears that the company was also selected by the assessee in its transfer pricing study report. It further appears that before the Transfer Pricing Officer also the assessee had accepted this company as comparable. However, considering the contention of the learned Authorised Representative that this company is also engaged in development of product and no segmental information is available in the annual report, we consider it appropriate to restore the issue relating to comparability of this company to the Assessing Officer / Transfer Pricing Officer for re- consideration after due opportunity of being heard to the assessee. xiv) ACCEL TRANSMATIC LTD. 45. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that there is no description about software services segment in the annual report. He submitted that the company is also into of-shore development of embedded software, network system, imaging technologies and outsourced product ....
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....0. We have considered rival submissions and perused materials on record. From the transfer pricing order passed by the Transfer Pricing Officer, it is evident that by applying the employee cost filter, he has excluded companies whose employee cost as a proportion to operating revenue is less than 25%. It is the contention of the assessee that the employee cost of the company is 3.96% of the operating revenue. The aforesaid factual submission made by the learned Authorised Representative could not be controverted by the learned Departmental Representative. It is relevant to note, in case of Tech Mahindra Ltd. (supra), this company has been rejected as a comparable as it was found to be outsourcing its work. In case of Sumtotal Systems India Pvt. Ltd. (supra), the Co-ordinate Bench taking note of the fact that the employee cost of the company is 3.96% of the operating revenue excluded it from the list of comparables. Similar view has been expressed in the other decisions cited by the learned Authorised Representative. In view of the aforesaid, we are inclined to exclude this company from the list of comparables. xvi) PSI DATA SYSTEMS LTD. 51. Though, this company was selected b....