TaxTMI 
TaxTMI 
2020 (1) TMI 1709
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....ce [ALP] in respect of international transactions with AE. 4. Briefly stated, the facts of the case are that the appellant company was incorporated as an Indian Company under the Indian Companies Act, 1956. The flagship company is Nagarro Inc., USA. The holding company is into the business of requirement analysis, quarterly project reviews, conflict resolution, marketing, sales and other support services operations on a vertically integrated basis. To augment its work process, it has the India subsidiary Nagarro Software Pvt Ltd., the appellant. 5. The appellant company is a software solution developer for its holding company Nagarro Inc and the German Associated in the areas of product co-development, health care and finance. It has a wholly dedicated unit for the purpose. In short, the appellant is a captive service provider. 6. The appellant is in the business of customised software development on contractual basis and the specifications of the same are provided by Nagarro Inc. USA and Nagarro GmbH, Germany. The domain and vertical of software development work relates to the development of software including coding, provides technical support in terms of research and de....
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....solidated level as Ihe two entities are having wide variations in margins indicating that the consolidated entity has significantly different functions in entities other than standalone Aztecsoft Ltd 4 CG Vak Sofbvare & Exports Ltd The company does not qualify employee cost filter as its employee cost is 7.22% which is less than 25% of total cost It cannot be taken as comparable 5 Goldstone Technologies Ltd II is a correct comparable 6 Helios & Motherson Information Technologies Ltd The company does not qualify financial year filter as its financial yearns different than assessec's financial year ending March, 2009 It cannot be taken as comparable 7 Indium Software (!) Ltd The company does not qualify export sales filter as its export solos is 0% which is less than 75% of sales. It cannot be taken as comparable. 8 Infosys Technologies Ltd It is a correct comparable. 9 KPIT Cummins Infosystems Ltd 'it is a correct comparable. 10 Larsen & Turbo Infotech Ltd It is a correct comparable 11 LGS Global Ltd The company is now named Ybrant Digital Ltd Perusal of Annual Report of the company shows:- P-39/AR- 3 5 ....
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....he business, we continue to build on our successes in the Japanese market and our models are the latest in the lineup of rich media phones which have boon well received by the discerning and demanding Japanese consumer.' Page 107 of Annual Report states that 'the company has following segments for its consolidated accounts:- Telecom Software Services Telecom Software Products Network Engineering Services Automotive, Utilities and Industrial However no segmental information SIP is available for SIP Technologies & Export Ltd The company has sales of Rs. 1 25 Cr which is less than Rs. 5 Cr and hence fails the filter of sales >5 Cr The company also does not qualify employee cost filter as its employee cost is 19.63% which is loss than 25% of total cost. It cannot be taken as comparable. Zylog Systems Ltd The company's revenue is also segmented into onsite (includes onsite and offsite) and offshore revenues As per Page 31 of Annual Report In Management discussion:- 'Onsite revenues are those services, which are performed at client sites as part of software projects O/lsite revenues are those services rendered from our office premises located abroa....
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....e ld. counsel for the assessee reiterated what has been stated before the lower authorities. 18. We have given thoughtful consideration to the orders of the authorities below and have perused the Annual Report of this company which is placed at pages 432 to 492 of the paper book. 19. The operational income of this company is Rs. 9.35 crores, which includes income from training, software development and consulting services and medical transaction receipts. In its audited report under the head "Accounting Policies and Notes Forming Part of the Account" it has been specifically mentioned that segmental report is not available. 20. In our considered opinion, services rendered such as job placement portal and BPO services cannot be compared with the business profile of the assessee. We also find that this company has also launched a job portal in the current F.Y. namely, Logtalent.com and further proposes to launch 3-4 more portals in next F.Y. There is a significant abnormal growth in profit of 65.40%. 21. For these very reasons, the co-ordinate bench in the case of United Health Group Information Services [P] Ltd in ITA Nos. 419 & 825/DEL/2014 had excluded this company fro....
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....he orders of the TPO. 27. We have given thoughtful consideration to the orders of the authorities below. In so far as whether forex exchange fluctuation is to be considered as operating expenses/income on the basis of Safe Harbour Rules is concerned, we find that the Hon'ble High Court of Delhi in the case of Fiserv India Ltd [supra] has categorically held that the said Notification is prospective and, therefore, the same cannot be considered for A.Y under consideration. 28. A perusal of the Annual Report of this company reveals that it is true that under the head Income "Sale of Software Services and Products" has been mentioned and bifurcation of software services and products given in Schedule 11 is only in respect of overseas sales and domestic sales. Further, in Schedule 14 under the head "Operating and other expenses" there are software support charges, commission on sales to other than sole selling agents, advertisements, sponsorship fees and other expenses. This shows that this company is paying commission and also incurring expenditure on advertisement and sponsorship. 29. In our considered opinion, for want of segmental reporting, this company cannot be consi....
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.... ld. counsel for the assessee strongly objected to the inclusion of this company on the ground that this company derives revenue from various sources, such as, licence, software services, export from SEZ unit, revenue from subscription etc. Objections of this assessee were dismissed by the TPO holding that this company provides software development services akin to that of the profile of the assessee. Another reason given by the TPO is that sale of licence is only Rs. 2.32 crores out of total sale of Rs. 77.03 crores thereby treating this company as predominantly software services provider. The inclusion of this company was upheld by the ld. CIT(A). 35. Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities and the ld. DR strongly supported the findings of the TPO. 36. We have given thoughtful consideration to the orders of the authorities below and have carefully perused the Annual Report of this company which is placed at pages 940 - 996 of the paper book. Total sales as per P & L Account is Rs. 77 crores and its bifurcation shows revenue from sale of licence , software services, export from SEZ unit export from STPL Unit, a....
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....ot be any reason for exclusion of this company from the final set of comparables. 42. With the above directions, the appeal of the assessee is allowed in part for statistical purposes. REVENUE'S APPEAL 43. The only grievance of the revenue is that the ld. CIT(A) erred in excluding M/s Bodhtree Consulting Ltd and Infosys Ltd from the final set of comparables adopted by the TPO. 44. Before the TPO, the assessee has strongly objected for inclusion of this company on the ground that this company has shown abnormal profit during the F.Y. under consideration in comparison to profit shown in earlier years and subsequent years. The TPO rejected the contention of the assessee. 45. Before the ld. CIT(A), the same objection was raised and after considering the facts and submissions the ld. CIT(A) held as under: "The appellant has pointed out that this company is having abnormal results during this year. According to the appellant, the margins of this company for the earlier and subsequent years are as follows: Company Name 2005-06 2006-07 2007-08- 2008-09 2009-10 2010-11 OP/TC Margin Bodhtree Consulting Limited 14.66% 33.20% ....
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....e assessee were dismissed by the TPO which were once again raised before the ld. CIT(A) and the ld. CIT(A) while excluding this company held as under: "The appellant has objected to the inclusion of Infosys in the final set of comparables. The turnover of the appellant in Software Development Segment is Rs. 36,08,23,635/-. In the case of Willis Processing Services (I) Pvt. Ltd. Vs Dy CIT[2013] 30 Taxmann.com 350, the Hon'ble ITAT, Mumbai has held that the turnover criteria is not a valid criteria as per Rule 10B(2) and hence, cannot be applied. The appellant has relied on the decision of the Hon'ble Delhi High Court in the case of Agnity India [2013] 36 taxmann.com 289 (Delhi) wherein it has been held that Infosys is not a proper comparable on account of (i) risk profile, (ii) revenue & ownership of branded products, (iii) R 85 D expenses, (iv) Onsite v. Offshore operations, (v) Expenditure on Advertisement/Sale promotion & brand building. Respectfully following the decision of the Hon'ble Delhi High Court in the Agnity India (supra) the AO/TPO is directed to exclude it from the final set of comparables." 48. Before us, the ld. DR placed strong reliance on the d....