TaxTMI 
TaxTMI 
2019 (5) TMI 313
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....17 Provision of software development service 146015317 Advanced or service to be rendered 3235 4934 Reimbursement of expenses 2333 5163 4. The assessee has selected the 5 comparables in its TP study and has worked out the OP/OC margins of Assessee stood at 8.86% (considering foreign exchange as non-operating item) as against 22.63% of comparable companies. 5. The TPO was not satisfied with the TP study of the assessee and has therefore applied various filter for the purpose of examining the TP study and for the purpose of ringing suitable comparable. After issuing the show cause notice, TPO finalised after taking 10 comparables.. 6. The arithmetic mean of profit margin of these companies after and before adjustment towards working capital adjustment selected by TPO was as follows:- SI. No. Name of the tax payer OP/OC 1 Datamatics Global Services Ltd. 14.57 2 Genesys International Corpn. Ltd. 30.09 3 ICRA Techno Analytics Ltd. 17.24 4 Infosys Ltd. 43.10 5 Larsen & Toubro Infotech Ltd. 25.47 6 Mindtree Ltd. 15.01 7 Persistent Systems Ltd. 27.20 8 RS Software (India) Ltd. 15.34 9 Sasken Communication Technologies Ltd. 12.15....
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....idering the material available on record had excluded all these for comparables from the list of comparables. 13. The ld. DR of revenue supported the final assessment order and the order of DRP. 14. We have heard both the sides and perused the relevant material on record, gone through the orders of the authorities below and the case law cited by the parties. The coordinate bench in the matter of CGI Information Systems and management consultants Private Limited had examined the functional similarity of these comparables on the touchstone of FAR analysis and thereafter had excluded these comparables from the list of comparables. For the ready reference we're reproducing hereinbelow the relevant paragraphs of CGI Information Systems and management consultants Private Limited dealing with the exclusion of these for comparables to the following effect: "29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P.) Ltd. (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the A....
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....ose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. In this regard we are also of the view that the plea of the learned DR for a remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP bas endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP. 31. The learned DR. next submitted that Genesys International Corporation Ltd., should be excluded from the list of comparable companies. The comparability of this company with the Assessee has been discussed by the TPO in page-11 of his order. The Assessee objected to inclusion of this company in the list of comparable companies for the reason that this company is functionally different and owns intangible assets which are peculiar only when the Assessee owns software products. The objections of the Assessee are contained in its letter dated 22.12.2015 addressed to the TPO and in annexure-B to the said letter. The relevant portion of the objection is at pages 711-713 of the Assessee's paper book. According to the A....
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....e learned OR relied on the order of the DRP/TPO. 35. We have given a careful consideration to the rival submissions. It is clear from the material brought to the notice of the TPO by the Assessee that this: company renders mapping and geospatial services. In rendering such services it develops software. But that does not mean that this company is in the business of software development. The business profile of this company as per the annual report does not show that this company is into software development service. The only line of business that this company carries on is rendering GIS based services and this is clear from the annual report which specifies that since the company carries on only one line of business viz., GIS based services there is no need to give any segmental results. In the circumstances, we are of the view that there is no basis for the TPO to conclude that this company is predominantly into software-development services. The presence of intangible assets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not....