TaxTMI 
TaxTMI 
2019 (11) TMI 505
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....ty Commissioner of Income Tax, Circle 2(1)(1), Bangalore ("Assessing Officer" or "AO") and the learned Dispute Resolution Panel ("learned Panel") erred in upholding the rejection of Transfer Pricing (TP) documentation by the learned Deputy commissioner of Incometax, Transfer Pricing - Range 1(1)(2) (learned TPO') and in upholding the adjustment to e rejection of Transfer Pricing ('TP') documentation by the learned Deputy Commissioner of the transfer price of the Appellant in respect of software development services. "3. The Ld. AO in pursuance of the directions of the learned Panel erred in law and on facts in including Larsen & Toubro Infotech Ltd. as a comparable to the Appellant on the ground of functional similarity whereas this comparable should have been excluded for the reason being functionally dissimilar and segmental data not available in the public domain. 4. The Ld. AO in pursuance of the directions of the learned Panel erred in law and on facts in including Persistent Systems Ltd. as a comparable to the Appellant on the ground of functional similarity whereas this comparable should have been excluded for the reason being functionally dissi....
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.... 287,34,31,162 Less: Finance cost (Interest costs -ECB + Interest on Income Tax) 2,54,27,138 Less: Loss on Sale of fixed assets 49,227 Operating Expenditure 284,79,54,797 Operating Profit/Loss 28,94,68,071 OP/OC 10.16% OP/OR 9-23% The TPO has called for documents-maintained u/s 92D of the Act along with Annual reports and copies of agreements whereas the TP study of the assessee contains 26 comparables in software development activity and 10 comparables of IT enabled services. TNMM is the most appropriate method. Whereas the TPO considered the TP documents and was not satisfied and rejected the TP study report and applied the filters for software development and IT enabled services segment. On usage of current year data Revenue and RPT. Further, comparables selected by the tax-payer failed filters and the final set of comparables for software development services at para.8.6 at page 31. Whereas the TPO has selected 7 comparables for inclusion. The TPO in IT enabled services, has applied filters to 10 comparables selected by the assessee at para.9 page 32 and adopted final set of comparables for determination of ALP at page 47 para.9.7 as under....
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....filed chart to support his stand. Whereas the learned DR supported the order of the TPO and the DRP and raised objections for excluding and including comparables. 7. We heard rival submissions and perused the material on record. On the first disputed issue of exclusion of comparables, ld. AR submitted that comparable company Larsen & Toubro Infotech Ltd. has adopted the margin of 24.60% and is functionally different and segmental data is not available. Ld. AR emphasized on functionality and is in engineering services and should be excluded and supported the stand relying on the decision in the case of CGI Information Systems Management Consultant Pvt. Ltd. vs. DCIT in IT(TP)A No.2460/Bang/2017 for assessment year 2013-14. Whereas the learned DR argued that in the case of M/s.Advice America Software Development Center Pvt. Ltd. vs. ITO in IT(TP)A No.2531/Bang/2017 dated 23/5/2018 in page 6 para.11 "11. As far as the objection by the Assessee that this company owns intangibles, it is seen from the order of the TPO that the intangibles are nothing but Operating systems, office tools, development tools, testing tools etc., that are used in the process of rendering SWD....
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....olutions and no segmental details were available and therefore the profit margin in the software development services segment could not be compared with the assessee's profit margin. As far as L&T Infotech Ltd. is concerned, the Tribunal vide para 17 of the aforesaid order came to a similar conclusion to hold that L&T Infotech should not be regarded as a comparable company. In the light of judicial precedents which remain uncontroverted, we are of the view that the aforesaid two comparable companies should be excluded from the list of comparable companies." Whereas the learned DR raised objection for exclusion relying on the decision of the co-ordinate bench in M/s.Advice America Software Development Center Pvt. Ltd.(supra) We find the decision rendered by co-ordinate bench on exclusion of comparable Persistent Systems Ltd., in the case of M/s.Metric Stream Infotech (India) Pvt. Ltd (supra) is a subsequent decision where technical and financial profile has been considered. Therefore, we, considering the judicial decisions and the material filed in the paper book and supported with the annual reports, are of the considered view and follow judicial precedent and Restore the disput....
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....bodied software, DSP an integrated circuit hardware design and systems and also for the reasons that sales of Akshay Software is only Rs. 6.21 crores against sales of Rs. 125 crores to the assessee. We, however, find that the Ld.T.P.O in the assessment year 2007-08 as it is clear from the TPO order for the said assessment year made available at Page No-69 of the paper book volume 3 , has accepted that Akshay Software is comparable in the light of identical functions. On perusal of profit and loss account of the Akshay Software, we find that Schedule -12 of it shows break up of the sales of the company as Rs. 4,97,88,191 towards exports of Software services, Rs. 1,17,29,263/- towards domestic software services and Rs. 6,30,000/- towards sale of product. Under these circumstances, we find substance in the contention of the Ld. A.R. that Akshay Software should have been accepted as comparable to bench mark the international transaction of the assessee also because in the assessment year 2007-08, the Ld. T.P.O himself has accepted the company as comparable. We accordingly direct the Ld. T.P.O to accept Akshay Software as comparable to determine the Arms Length Price of the assessee. ....