TaxTMI 
TaxTMI 
2020 (1) TMI 1709
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....ernational 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 development on technology, best pr....
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....ly 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 Product Development Expenses. The company is in the process of launching a local search business YReach. The softwaro and system to manage the business was largely built mhouse.....
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....ese 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 ₹ 1 25 Cr which is less than ₹ 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 abroad while offshore services are those services which are performed at the company's software development centers located in India The details of soft ware services and products are as follows Revenue by location Figures in %....
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....t 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 from the final set of comparables. The relevant findings of the co-ordinate bench read as under: "84. Before the ld. TPO, taxpayer has sought exclusion of CAT Technology on ground of functional dis-similarity because the company is exclusively in the business of Medical Transcription, Training, Software Development and Consulting Services. Perusal of annual report, available at page 1871, also shows that CAT....
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....nnot 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 considered as a good comparable. For similar reasons, this company was excluded by the co-ordinate bench in the case of United Health Group Information Services [P] Ltd [supra]. For the dissimilarity in the functions and for want of segmental accounts, we direct this company to be excluded from the final set of comparables. Tata Consultancy Limited 30. The TPO included this company for the reason that out of total sales of ₹ 27,385....
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....e TPO is that sale of licence is only ₹ 2.32 crores out of total sale of ₹ 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 ₹ 77 crores and its bifurcation shows revenue from sale of licence , software services, export from SEZ unit export from STPL Unit, and revenue from subscription. But no segmental accounts are available. Considering the business profile of this company vis a vis that of the appellant company, and for want of segmental reporting, we direct the Assessing Officer/TPO to exclude this company from the final set of comparables. 37. The assessee has also pointed out some margin computation errors in the case of Goldstone Technologies Limited and Sasken Tec....
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....ssee 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% 20.86% 64.04% 34.39% 29.65% Further, on calculation of the growth of Bodhtree Consulting Ltd., the appellant has pointed out that it has a growth of 353% in its net profit for the FY 2008-09 as compared to its immediate preceding year. The appellant has further stated that the company is engaged in diversified business operations. The TPO had rejected the contention of the appellant that this is not a comparable company to the appellant. However, th....