TaxTMI 
TaxTMI 
2019 (4) TMI 289
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....ons entered into by the assessee related to provision of software maintenance and support services amounting to Rs. 15,20,04,973/-. During the period relevant to present appeal, the assessee rendered the following software maintenance and support services to its group entities: Software maintenance and support services; Engineering activities - enhancement and customization of supporting platforms and applications, database cleanup and maintenance services, supporting application platforms within Kaplan businesses, bug fixing and maintenance; Quality assurance activities; Other IT services; 2.1 Pursuant to a reference made by the Assessing officer, the Transfer Pricing Officer (TPO) passed order dated 21.01.2014 under section 92CA of the Act. The TPO accepted the Functions Assets and Risk analysis (FAR) as described in the Transfer Pricing (TP) study filed by the assessee. There is no dispute between the parties that the most appropriate method is Transactional Net Margin Method (TNMM) and the Profit Level Indicator (PLI) is OP/TC. The assessee had selected 18 companies with an average margin of 10.04 % and had reported that its international ....
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....ot at arm's length without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of sub-section 92 C of the act. 3. The learned TPO/AO/DRP have erred in: a. Not accepting the use of multiyear data, as adopted by the appellant in its transfer pricing (TP) documentation and b. determining the arm's length margins/prices using data pertaining only to financial year 2009-10 which was not available to the appellant at the time of complying with the Indian TP documentation requirements 4. The learned TPO/AO/DRP have erred in rejecting certain comparable companies selected by the appellant by applying inappropriate comparability criteria such as: a. Turnover less than INR 5 crores b. export turnover less than 75% of operating revenues c. different accounting year and d. employee cost less than 25% of total cost 5. The learned TPO/AO/DRP have erred in erroneously rejecting the comparable companies selected by the appellant and adding certain companies to the final set of comparable companies on an ad hoc basis, thereby resorting to cherry picking of comparables to determine ALP....
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....ar in the context of very same comparable companies. Detailed submissions by both the parties and findings are discussed in following paragraphs: (i) Sonata Software Ltd: Seeking exclusion of Sonata Software Limited, the learned counsel submitted that the TPO himself had applied the related party transactions filter of 25%. Inviting our attention to pages 247 and 302 of the paper book it was submitted that the details of the related party transactions in case of Sonata as reported in the annual report were brought to notice of both the TPO and the Ld. DRP. As per the same, the related party transactions, as a percentage of sales, in the case of Sonata Software Limited was worked out at 55.95%. Our attention was invited to paragraph 9.5 of the Transfer Pricing Order and it was contended that the TPO committed serious error in considering data for only one of the related parties and, perhaps inadvertently, ignoring the related party transactions reported with other entities appearing on the very same page of the annual report for the purposes of applying the Related party transactions filter. Drawing our attention to page 173 of the paper book containing the annual ....
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....ngalore limited, the ld. submitted that this company also needs to be excluded from the final set of comparables. Our attention was invited to the profit and loss account of E Infochips Bangalore Limited which was placed at page 8 of the paper book containing the Annual Reports. It was submitted that income from software services was shown at Rs. 43,04,66,481/-. Further break up of income was shown to be contained in schedule 7 to the balance sheet on page 12 of the paper book containing the annual reports. It was pointed out by the Ld. AR that income from software services was Rs. 37,13,88,107/- (86%) and the balance income of Rs. 5,90,78,374/- (14%) was earned from consultancy charges. Our attention was further invited to note 16 on page 16 of the paper book containing annual reports wherein under the head 'segmental information' it is stated that "the company is primarily engaged in software development and IT enabled services which is considered the only reportable business segment.....". It was the contention of the Ld. Counsel that as the segmental profitability details were not available, this company is not comparable to Kaplan India Private limited. The Ld. Counsel further....
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....ps Bangalore itself describes as ITES segment in the audited financials. While prima facie, the Ld. DR's contention that coordinate bench decisions should not be blindly followed cannot be faulted, wellreasoned orders of the coordinate benches of the Tribunal for very same assessment year 10-11, more so dealing with Software development services segment deserve respectful consideration and cannot be lightly ignored unless factual differences or developments in law which have a bearing on the issue in dispute are pointed out. This is more so when in the present case, broad characterisation of international transactions as Software development services and application of TNMM as the most appropriate method is not disputed by both the parties. In such factual background decisions, excluding or including companies on basis of generic disqualifications like software product revenue being earned in case of certain companies and segmental data not being available or conclusion that a certain company fails identical filter in such decided case, deserve to be followed. We note that Para 13 to 15 of the order of the ITAT in Freescale Semiconductors (supra) also support the case of the assess....
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....may not have information which pertain to the assessment year 2010 - 11. We have carefully perused the balance sheet of the E info chips Bangalore Ltd provided to us at page No. 637 - 654 of the paper book wherein it was noted that at page No. 651 the earnings of the assessee was shown to be software development services and consultancy charges. In item No. 9 it is stated that the company is engaged in development and maintenance of computer software, production and sale of software. At page No. 652 while giving the segmental information, it was also maintained that the company is primarily engaged in software development and IT enabled services which is considered as the only one reportable segments and therefore there is no segmental information available with respect to the software development activities as well as IT enabled services. In view of this the above comparable is required to be excluded from the comparability analysis of the software development service segment of the assessee. Accordingly we direct the Ld. transfer pricing officer to exclude E info chips Bangalore Ltd." Therefore, in absence of any other information being brought on record by the TPO to su....
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....e dealt with in detail and that the TPO had rightly concluded that this comparable was primarily engaged in IT services. The Learned DR objected to placing reliance on the coordinate bench's decision for excluding any comparable. We have carefully considered the rival contentions as also the detailed arguments summarized hereinabove. It is apparent that Infinite Data Systems Private Limited is engaged in a wide variety of services including software technical consultancy services etc. It is our considered opinion that these services cannot be compared with software development services provided by a captive service provider like the assessee in the absence of segmental information. FAR of Infinite Data Systems Private Limited is clearly different from that of the assessee. We also note that the assessee's case is covered in assessee's favour by the order of the Delhi Bench of the Tribunal in Freesscale Semiconductors India (P) Ltd. (supra). The relevant observations of the Bench are contained in Para 10 to 12 of the said order and the same are being reproduced here in under for a ready reference: "10. With respect to Infinite data systems private limited assessee ....
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.... are in the nature of the software development services. The Ld. transfer pricing officer as well as the ld. DRP panel has rejected the objection of the assessee stating that this is functionally comparable with the assessee. Assessee neither design and develop a software but is providing a low end chip services where infrastructure and architect everything is provided by the group company. It does not have any research and development activities whereas in the case of the comparable company it provides that services to Fujitsu services Ltd and also maintains and design and develop a software. In view of this this comparable company cannot be said to be in the same functions as it is performed by the assessee. In view of this we direct the Ld. transfer pricing officer/AO to exclude the above comparable company as its functions are quite different with the functions performed by the assessee." Respectfully following the decision of the coordinate bench in the case of Freescale Semiconductors India (P) Ltd (supra), we direct exclusion of Infinite Data Systems Private Limited from the final set of comparable companies. (iv) Infosys Ltd.: Lastly, the Ld. Coun....
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....nal's order and the same are being reproduced here in below for a ready reference: "16. The 3rd comparable is contested by the Ld. authorised representative is with respect to the Infosys limited which has already been excluded in the case of the assessee for earlier years following the decision of the Hon'ble Delhi High Court. The assessee reiterated the same submission with respect to exclusion of the above comparable as submitted before ld Transfer Pricing Officer. It was the contention of the assessee that it has a huge brand value, it has huge turnover, and its Finacle' Software is a leading product in banking industry. Therefore, it was submitted that it is functionally different and has significant R&D. The ld Transfer Pricing Officer and the ld Dispute Resolution Panel rejected the above contention. Before us, the ld AR submitted that this comparable should be excluded in view of the decision of Hon'ble Delhi High Court in case of CIT v. Agnity India Technologies Ltd.262 CTR 291. He further stated that this comparable has been excluded in the case of the assessee for AY 2007-08 by the coordinate bench. 17. The ld DR relied upon the ord....