TaxTMI 
TaxTMI 
2020 (5) TMI 380
X X X X Extracts X X X X
X X X X Extracts X X X X
....the High Court decision is not accepted by Department and SLP is filed. 4. In the facts and circumstances of the case, the ld. CIT (A) erred in holding that M/s Celestial Labs and Flextronics Software Systems Ltd. being functionally different, cannot be taken as comparables on the transfer pricing issue." 3. Ground No.1 is general and does not require any adjudication. 4. The issue raised vide Ground No. 2 is against the direction of CIT(A) vide para 4.1 . 3 that the telecommunication expenses and other expenses incurred in foreign currency need to be excluded from "export turnover" as per clause (iv) of Explanation 2 to section 10A of the Act, however, they are also required to be excluded from the "total turnover". The CIT(A) held that the same are to be excluded in turn relying on the decision of Hon'ble Karnataka High Court in the case of CIT vs Tata Elxsi Ltd. and others (ITA No. 70/2009 & Others). 5. Ground No. 3 of the revenue appeal relates reliance of the ld. CIT (A) on the order of the Hon'ble High Court in the case of Tata Elxi Ltd. which was not accepted by the department and wherein SLP has been filed. At this juncture, we hold that reference to filin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ational Ltd and Ishir Infotech Ltd in the software development segment of the Appellant and Apollo Health Street Limited, Caliber Point Business Solutions Ltd., HCL Comnet Systems and Services Ltd. and Informed Technologies Ltd in the ITES segment of the Appellant; [corresponding to ground 3 ( b) of original grounds of appeal] Software Development Services Segment 6. That, without prejudice, the learned CIT(A), while excluding Avani Cimcon Technologies Ltd. on the ground of RPT>0 %, has failed to appreciate that this company is functionally dissimilar to the software development segment of the Appellant, as it is a software product company that owns products like Exchange, Travel solutions, Insurance solutions, customer appreciation and relationship management application (CARMA), content management systems, etc, having no segmental information; [corresponding to ground 3( c) of original grounds of appeal] 7. That the learned AO/TPO have erred in considering e-Zest Solutions Ltd. as a functionally comparable company to the software development services of the Appellant, whereas this company is functionally dissimilar as it is engaged in software product d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded on the basis of it being functionally dissimilar to the software development services of the Appellant, as it is engaged in provision of software services and software product development with no segmental information available [ corresponding to ground 5 of additional grounds)] 14. That, without prejudice, the learned CIT( A) while excluding Tata Elxsi Ltd on the ground of RPT>0 %, has failed to appreciate that this company is functionally dissimilar to the software development segment of the Appellant, as i t is engaged in providing embedded product design services, industrial design & engineering and has visual computing labs wherein it provides animation & visual effects services and has engaged in R&D activities; [corresponding to ground 3 (c) of original grounds of appeal] 15. That, without prejudice, the learned CIT ( A) while excluding Thirdware Solutions Ltd. on the ground of RPT>0 %, has failed to appreciate that this company should have been excluded on the basis of it being functionally dissimilar to the software development services of the Appellant, as it is engaged in sale of software licence, provision of product development & software services....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices, has intangibles, has RPT >15 % of sales and has a different accounting year; [corresponding to ground 3 (c) of original grounds of appeal] 21. That, without prejudice, the learned CIT( A) while excluding Informed Technologies Ltd on the ground of RPT>0 %, has failed to appreciate that this company is functionally dissimilar to the IT enabled segment of the Appellant, as it is knowledge based Back-office processing company which is engaged in collecting and analyzing the data on financial fundamentals, corporate governance, director executive compensation and capital market and also has RPT>15 %; [corresponding to ground 3 (c) of original grounds of appeal] 22. That, without prejudice, the learned CIT ( A) erred in excluding Infosys BPO Ltd. on the ground of RPT>0 %, has failed to appreciate that this company is functionally dissimilar to the IT enabled services segment of the Appellant, as it is engaged in providing high-end services, has brand value, intangibles and has incurred selling & marketing expenses; [corresponding to ground 7 (additional grounds)] 23. That the learned AO/TPO have erred in considering I services India Ltd. as a functionall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally dissimilar to the IT enabled services segment of the Appellant, as it is engaged in providing activities of various fields like technology innovation, process innovation & delivery innovation, has brand value and is engaged in significant Research and development activities, unlike the Appellant; [ corresponding to ground 3 (c) of original grounds of appeal] 29. That, without prejudice, the learned CIT ( A) erred in excluding Accurate Data Convertors Ltd. on the ground of RPT>0 %, has failed to appreciate that this company is functionally dissimilar to IT enabled services segment of the Appellant as the company provides software development services ; [corresponding to ground 7 (additional grounds)] 30. That the learned CIT( A) has erred in upholding the approach of the learned TPO in disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial year 2006 - 07) data for companies should be used for comparability; [ corresponding to ground 3 (d) of original grounds of appeal] 31. That the learned CIT( A) has erred in upholding the learned TPO' s approach of usin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the study which do not have any related party transactions. Holding this, he excluded Accel Transmatic Ltd., Geometric Ltd., R Systems International Ltd and Ishir Infotech Ltd in the software development segment and Apollo Health Street Limited, Caliber Point Business Solutions Ltd., HCL Comnet Systems and Services Ltd. and Informed Technologies Ltd in the ITES segment. 10. We have gone through the arguments and facts on record. In the case of Ariba Technologies India (P.) Ltd. v. ITO 67 taxmann.com 265, the ITAT held that finding comparables having zero per cent RPT transaction is impossible and therefore a reasonable tolerance range has to be considered for selecting uncontrolled comparables. The tolerance range is dependent on the availability of comparables. Thus if comparables are easily available tolerance range of RPT should be restricted to minimum. The Hon' ble High Court of Delhi in the case of PCIT Vs Oracle (OFSS) BPO Services (P.) Ltd. 253 Taxman 498 held that the RPT filter is relevant and fits in with the overall scheme of a transfer pricing study which is premised primarily on comparing light entities having similar if not identical functions. Therefore, if a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d, Caliber Point Business Solutions Ltd., HCL Comnet Systems and Services Ltd. and Informed Technologies Ltd. in the ITES segment. 11. The comparable Avani Cimcon Technologies Ltd., e-Zest Solutions Ltd., Flextronics Software Systems Ltd., Ishir Infotech Ltd., Mediasoft Solutions Ltd., Thirdware Solutions Ltd. cannot be functionally similar, hence cannot be taken as comparable. The details are as under: S. No. Name of the comparable Reasons Remarks 1. Avani Cimcon Technologies Ltd. * Segmental details are not available * The company is involved in provision of IT and related services and owns software products Since, functionally the company dissimilar and no segmental details are available, cannot be considered as a comparable. 2. e- Zest Solutions Ltd. * Segmental details are not available * The company diversified into customs software development, CRM ERP, knowledge management consultancy and legal solutions. Since, functionally the company dissimilar and no segmental details are available, cannot be considered as a comparable. 3. Flextronics Software Systems Ltd. * Segmental details are not available * Financials are ....