TaxTMI 
TaxTMI 
2019 (8) TMI 1479
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....the Hon'ble DRP is right in applying "onsite revenue filter" without appreciating the fact that the function carried out is "Software Development" irrespective of whether onsite or offshore. (iii) Whether the Hon'ble DRP in correct in excluding M/s RS Software Pvt. Ltd. and M/s Acropetal Technologies and M/s L&T Infotech ltd on the ground that they have significant onsite revenue without appreciating the fact that onsite development of software entails more cost and thereby results in lower profit margins. (iv)Whether the Hon'ble DRP was right in seeking exact comparability while searching for & comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. (v) Whether the Hon'ble DRP has erred on fact in deleting M/s E-infochips as a comparable on the ground that it fails the filter of service income less than 75% of the sales, when the said company has service income being 100% of the sales. (vi)Whether Hon'ble DRP erred in fact in rejecting the company/s Infosys Technologies Ltd., as a comparable on the ground that it ....
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....nd M/s L&T Infotech ltd on the ground that they have significant onsite revenue without appreciating the fact that onsite development of software entails more cost and thereby results in lower profit margins. (iv)Whether the Hon'ble DRP was right in seeking exact comparability while searching for &Imparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. (v) Whether the Hon'ble DRP has erred on fact in deleting M/s E-infochips as a comparable on the ground that it fails the filter of service income less than 75% of the sales, when the said company has service income being 100% of the sales. (vi)Whether Hon'ble DRP erred in fact in rejecting the company/s Infosys Technologies Ltd. as a comparable on the ground that it is functionally different when the primary source of income of the comparable is from provision of software development services. (vii) Whether while seeking the exact comparability as mentioned above the DRP was right in fact and in law in imposing condition beyond law whereas the requirement of law is to ackno....
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....owing services: • services in relation to error fixing or maintenance of specific features in software and used in products of HP • assistance in relation to software development in certain software feature enhancement and development for products of HP • rendering services in the fields of e-commerce, E solutions, e-services, Internet security and management. 2.3. Ld.TPO observed that assessee used TNMM as most appropriate method for determining ALP of international transaction, with OP/OC as PLI and computed its margin at 8.67% as compared to following 17 comparables selected having average margin of 8.07% and thus treated the transaction with AE to be at arms length price. Sl.No. Name of the comparables 1 Bells Softch Ltd. 2 CG Vak Software & Exports Ltd. 3 Goldstone Technologies Ltd 4 KLG Systel Ltd. 5 Intertech Communications Ltd 6 Larsen & Toubro Infotech Ltd 7 LGS Global Ltd. 8 Mascon Global Ltd 9 Mindtree Ltd. 10 Ontrack Systms Ltd 11 Onward Technologies Ltd. 12 Powersoft Global Solution Ltd 13 R S Software (India) Ltd., 14 R Systems Internatio....
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....in appeal before us now. 5.1 In revenue's appeal, grounds raised pertains to application of "on-site revenue filter" selectively to few comparables for rejecting excluding E-Infochips Ltd., on the ground of having service income less than 75% of the sales which is alleged to be contrary to observations of Ld. TPO. 5.2. Revenue also challenged disallowance made by Ld.AO on account of software expenditure, provision for leave encashment and write off of provision for electricity deposits being deleted by Ld. CIT (A) 5.3. In cross appeal filed by assessee, it is observed that assessee is challenging inclusion of three comparables on the basis of functional dissimilarities, being ; • Persistent Systems and Solutions Ltd; • Persistent Systems Ltd; It has been submitted by Ld.AR that assessee do not wish to press CG-Vak Software and Exports Ltd, R Systems International Ltd, Mascon Global Ltd, Akshay Software Technologies Ltd, Think Soft Global Services Ltd, Evoke Technologies Ltd, RS Software (India) Ltd, Tata Elxi Ltd, for exclusion. 5.4. Ground No. 4.1.: It is further submitted that ground relating to operating margins on account of foreign ....
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....#39;s appeal in ITA No. 583/Bang/2016 8. Ground no. (i) - (v) She submitted that DRP applied on-site revenue filter selectively, instead of applying in respect of all comparables. It has been argued by her that application of a filter determines what set of comparables would be displayed on database, on which search is carried out. Application of filter to shortlist companies under a particular segment is 1st step to conduct transfer pricing analysis. She vehemently argued that, once comparables are shortlisted by Ld.TPO, DRP cannot suo moto apply "on-site revenue filter" subsequently and exclude comparables, which is not as per procedures laid down under law. She submitted that "on-site revenue filter" applied by DRP subsequently, neither been applied by assessee in transfer prising study, nor been considered by Ld.TPO, while conducting analysis under section 92CA of the Act. 8.1. Placing reliance upon decision of this Tribunal in case of Asstt. CIT v. Broadcom Communication Technologies (P.) Ltd., [2017] 88 taxmann.com 309 (Bang. - Trib.), she submitted that new filter suo moto cannot be applied by DRP selectively, but should be applied to all comparables. She further su....
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.... Ltd., (supra) may be followed. 8.7. We have perused view of coordinate bench of this Tribunal in case of Mercedes Benz Research & Development India (P.) Ltd., (supra) in respect of Accropatel Technologies Ltd and L&T Infotech Ltd. It is observed that these comparables were sent back to Ld.TPO by observing as under: Acropetal Technologies Ltd. ('Acropetal') ** ** ** 13.3.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the DRP has observed that this company, 'Acropetal', operates in three segments and the segmental results are available; while on the contrary the assessee contends that 'Acropetal' operates in four segments. Further, it is seen that even though the assessee has raised the other issues before the DRP, as laid out in para 13.1 of this order, the DRP has not rendered any finding thereon. We find that the c....
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....have been considered by benches of this Tribunal in various cases, including those cited by the ld.AR. By way of this additional ground, the assessee is raising objections to the inclusion of these companies on the issue of functional dissimilarity and other grounds. In our considered view, the assessee cannot be precluded from raising an objection against inclusion of a company even if the said company was selected by the assessee in its TP Study. This view was taken by the Special Bench of ITAT, Chandigarh in the case of Dy. CIT v. Quark Systems (P.) Ltd . [2010] 38 SOT 307. As per the principles laid down in the aforesaid decision of the Special Bench (supra), we admit this additional ground raised by the assessee seeking exclusion of these two companies (i) L & T Infotech Limited (ii) Sasken Communication Technologies Limited without commenting on the merits of the case and remit the matter of their comparability analysis to the file of the TPO/A.O. for examination of the assessee's claim and to adjudicate thereon after providing the assessee adequate opportunity of being heard, which shall be duly considered. We hold and direct accordingly." 8.8. On perusal of aforestat....
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....arding diverse functions performed by this company, and that there was major fluctuation in its profits, which influenced turnover of this company. Further it is observed that in case of Dy. CIT v. CGI Information Systems & Management Consultations (P.) Ltd. [2018] 93 taxmann.com 9 (Bang. - Tri.) dated 06/04/18 dealt with identical objection raised by Ld. CIT DR before as under: "24. As far as ground No. 4 raised by revenue is concerned, the said ground of appeal is weak and any event comparability of companies that were excluded by the DRP were on valid grounds contemplated by the relevant statutory provisions of the act and rules. As far as ground No. 5 in revenue's appeal is concerned, the revenue seeks to challenge the exclusion of AE Infotech Ltd. On the ground that it failed direct software service income filter at 75%. At the outset, the assessee submits that E Infotech Ltd was excluded by the DRP on the ground that: (i) no segmental information is regarding its diverse functions is available; (ii) it failed the software service income filter and 75%; (iii) there were major fluctuations in profit and turnover every years which seems to be influenced by extraordi....
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.... maintenance, systems integration, package evaluation and implementation, testing and infrastructure management services. With such diversified activities carried on this company, it is not appropriate to compared it with a one-to-one service provider like assessee. 10.3. It is observed that in case of Agnity India Technologies (P.) Ltd. v. ITO [2015] 58 taxmann.com 167/154 ITD 293 (Delhi - Trib.) Delhi benches of this Tribunal after analysing various aspects took a view that this company is not a fit comparable for a captive service provider . The said view has been upheld by Hon'ble Delhi High Court wherein, Hon'ble Court upholding the view taken by the Tribunal, observed that company having brand value as well as intangible assets cannot be compared with an ordinary entity who provide captive services. Respectfully following the decisions relied upon and cited hereinabove, we direct Ld. TPO to exclude this company from the finalist. Accordingly ground(vii) raised by revenue stands dismissed. 11. Ground No. (viii) and (xii) - (xiii) has been submitted to be general in nature hence do not require adjudication. 12. Ground No. (ix) raised by revenue is against....
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....are general in nature and therefore do not require any adjudication. 15. Ground No. 3.1, 3.2, 3.3, 3.4 and additional ground filed on 06/12/17 contains certain comparables which has been alleged by assessee for exclusion and inclusion as under: Comparables alleged for Exclusion • Persistent Systems and solutions Ltd • Persistent Systems Ltd. • Comparables alleged for Inclusion • LGS Global Ltd • Evoke Technologies Ltd • Mindtree Ltd • FCS Software Solutions Ltd 16. Before carrying out compatibility analysis, it is sine qua non to understand functions performed, assets owned and risk assumed by assessee under this segment. Functions: Assessee offers wide range of professional software development services through following services: 1. services in relation to error fixing or maintenance of specific features in software and used in products of HP 2. assistance in relation to the software development in certain software feature enhancement and development for the products of HP Rendering services in fields of e-commerce, E solutions, e-services, Inter....
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....us. It is observed that annual report of this company is placed at 1280 -1471 of paper book wherein, Schedule 15 forming part of profit and loss account shows income from sale of software services and products, however there is no separate segmental information in respect of these 2 segments. Thus it is clear that this company is earning revenue from activities which includes licensing of products, royalty on sale of products as well as income from maintenance contracts etc which could not be considered functionally similar with that of assessee holders only carrying out software development service at the behest of its AE's on a captive basis. Similar view has been taken by this Tribunal in case of Dy. CIT v. Electronics for Imaging India (P.) Ltd. [2015] 64 taxmann.com 443 (Bang. - Trib). Respectfully following the same we direct Ld.AO/TPO to exclude this company from the final list. 18. Comparables alleged for Inclusion (a) Evoke Technologies Ltd and Mindtree Ltd It has been submitted by both parties that this company was directed by DRP to be excluded. Ld.AR submitted that Ld.TPO/AO included it while computing margin of comparables. We therefore direct Ld.....