TaxTMI 
TaxTMI 
2020 (4) TMI 390
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.... Associated Enterprises ("AEs") u/s 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the Arm's Length Price ("ALP"). 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP has grossly erred in not rejecting the following companies from the list of comparable companies: • Persistent Systems Limited • R S Software (India) Limited • Cigniti Technologies Limited • Thirdware Solutions Limited 6. The learned AO/learned TPO/Hon'ble DRP has grossly erred in rejecting companies that ought to have been included as comparable companies: • Akshay....
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.... 234C of the Act and Supported with Chart and Paper Book. 3. The Brief facts of the case are that the assessee is 100% EOU under the STPI Scheme at Bangalore for carrying out software development activities and has a blend of software engineers, game designers and game managers and mainly in the business of software and Software Development Services. The assessee company has filed the Return of Income on 27.11.2014 with total income of Rs. 18,36,09,584. Subsequently the case was selected for scrutiny and Notice under Section 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the learned Authorized Representative appeared from time to time and Books of Accounts are furnished along with details. The assessee is engaged in the international business of software design and Software Development Services to its parent company Zyne, USA . The Assessing Officer found that the assessee has international transactions and with prior approval of Pri. CIT, the matter was referred to the Transfer Pricing Officer (TPO). The TPO dealt on the financial statements of assessee at para 2.2 and international transactions at 2.3 which are as under : 2.2. Financi....
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.... turnover of Software Development Segment is Rs. 109.99 Crores and PLI on OP/OC is 13.60%. The TPO applied the filters on 22 comparables selected by the assessee in Software Development Segment and after considering the assessee objections, the TPO has selected final set of comparables in order at page 35 Para 16 which are as under : 16. FINAL SET OF COMPARABLES CONSIDERED BY THE TPO: After considering the objections of the taxpayer to the comparable proposed in the show-cause notice, perusal of relevant annual reports and examination of additional comparable suggested by the taxpayer on the touchstones of filters and functionality, the final set of comparable companies considered by the TPO, is as under Sl. No. NAME (M/s.) OP/OC (in %) 1. Persistent Systems Ltd. 35.10% 2. R S Software (India) Ltd. 24.25% 3. Cigniti Technologies Ltd. 27.62% 4. S Q S India B F S I Ltd. 22.37% 5. Thirdware Solution Ltd. 44.68% 6. Dumadu Games Private Limited 1.78% 7. Appon Software Private Ltd. 16.28% 8. Inexgen Games Technologies Pvt. Ltd 0.30% Average 21.55% The TPO computed the Arm....
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.... is Rs. 1184.11 Crores and the margin is 35.10%. The company is functionally different as it provides complete life cycle services and has specialized software product and technology innovation. The information under Section 133(6) of the Act was furnished in respect of outsource product development which is different from Software Development Services.Further entire revenue of the comparable company is from outsourced product development and has presence of intangibles, brand ownership and provision of applied solutions and further holds proprietary products. A new business unit was established in the said year exclusively for the product business engaged in R & D and also has onsite activities and no segmental information is available. During the year there are extraordinary events of acquisitions of cloud squads and fails the turnover filter of more than Rs. 200 Crores. The learned Authorised Representative relied on co-ordinate Bench decision of Nielsen Sports (India) Pvt. Ltd.vs Dcit in IT(TP)A No.196/Bang/2017 and In LG Soft India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 Dt.28.5.2019 the tribunal has at page 3 Para 7 & 7.1 held as under ....
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....o examine the same. Accordingly we restore this comparable to the file of AO/TPO for examining it afresh." (iv) The fourth comparable to be excluded is Third ware Solutions Limited where the turnover of Rs. 206.75 Crores and the margin is 44.68%.The comparable is functionally different and has diversified activities and earns revenue from export of services, transcription and provides consultancy services and there is no segmental data.Further delivery locations are outside India and has an extraordinary events and fails the turnover filter of more than Rs. 200 Crores. The learned Authorised Representative relied onM/S LG Soft Private Ltd. (supra) and Nielsen Sports (India) Pvt. Ltd. (supra). We found that the Tribunal in the case of LG Soft Pvt Ltd. (supra) has observed at page 4 paras 8 & 8.1 as under : "8. We also notice that in AY 2008-09, the co-ordinate bench has excluded M/s Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Thirdware solutions Ltd is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details....