TaxTMI 
TaxTMI 
2019 (5) TMI 1194
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....ion Net Margin Method as the most appropriate method; 3. disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report 4. cherry picking the high margin companies and rejecting the low margin companies by applying arbitrary filters to arrive at a fresh set of comparable companies and not sharing the search strategy adopted for selection of alleged comparable companies during the course of assessment proceedings; 5. erroneously computing the operating margins of the companies by considering foreign exchange gain / loss as non-operating in nature; 6. erred in computing the working capital adjustment for comparable companies while giving effect to the directions passed by the Hon'ble DRP; 7. rejecting the use of multiple year data for determining the arm's length price of the international transactions of the appellant pertaining to provision of software development services to its AE; 8. not allowing adjustments for difference in risk undertaken, difference in marketing and R&D activities in accordance with the provisions of ....
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....pplied TNMM method and worked out the PLI on Operating Profit / Operating Cost at 17.80%. The assessee had selected certain concerns as functionally comparable and since the mean margins of said concerns were within +/- 5% of margins shown by the assessee, arm's length price of international transactions was taken at Nil. However, the Transfer Pricing Officer (TPO) revised the filters to be applied and consequently, picked up different set of concerns as comparable, against which show cause notice was issued to the assessee and after considering the objections of assessee finally eight concerns were found to be comparable to the assessee. The mean PLI of said concerns after working capital adjustment was 28.89% and the TPO thus, proposed an upward adjustment of Rs. 37.31 crores. The Assessing Officer issued draft assessment order to the assessee, against which the assessee filed objections before the Dispute Resolution Panel (DRP), which gave certain directions and consequent to the same, finally eight concerns were retained as comparables whose mean margins after working capital adjustment were 23.99% and hence, an upward adjustment of Rs. 20.82 crores was made in the hands....
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....ervices as well as developing variety of software products i.e. in the field of Hospital Management, Software HEAL SOFT and 38 other products. The financials of the said concern reflect no segmental reporting and the services are declared under one head. In such circumstances, where the segmental details were not available of the concern which was engaged in multiple activities i.e. in the present case, in providing software development services as well as being a product company; then we hold that the margins of said concern cannot be applied to benchmark the international transactions of the concern which was engaged in providing software development services to its associated enterprises. The assessee was also providing back office support services to its associated enterprises but was maintaining segmental details for both the activities undertaken by it and hence, the two transactions have been benchmarked separately even by the TPO and the Assessing Officer. The concern which is functionally different from the assessee i.e. in addition to providing software development services, was also product company, then the margins of said concern cannot be compared with the margins of ....
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.....2018 for exclusion of concern which was engaged in providing both software services and was also selling its products. Accordingly, we hold that the concern Cybermate which is engaged in both sale of software products and providing software development services and where no segmental details are available for each of the segments, then the margins of said concern could not be applied to benchmark the arm's length price of international transactions of providing software development services to associated enterprises by the assessee." 10. Following the same parity of reasoning, we hold that the concern Cybermate Infotek Ltd. being engaged in both sale of software products and also providing software development services and in the absence of any segmental details of two divisions being available, the margins of said concern cannot be applied in order to benchmark arm's length price of international transactions undertaken by the assessee, which was solely engaged in providing software development services. 11. Now, coming to the next concern i.e. Cybercom Datamatics Information Solutions Ltd., which was also a product company and was also providing software developmen....
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.... 17. Another aspect which has been stressed by the assessee is the extraordinary event of demerger, wherein the financial statements of said concern included the financial statements of software business of demerged company i.e. Seed Enterprises Pvt. Ltd., are available at pages 614 and 633 of the Paper Book. 18. We have heard the rival contentions and perused the record. The first aspect is the functional comparability of concern which has been finally selected to be comparable. In respect of Infobeans Systems Pvt. Ltd., the financials of said concern clearly reflect that in addition to providing software development services to its associated enterprises, it had also earned foreign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of....