TaxTMI 
TaxTMI 
2020 (11) TMI 742
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.... years under consideration, the assessee reported international transactions inter-alia on account of provision of IT enabled services and software services. 3. During the financial yearrelevant for AY 2010-11, the assessee entered into the international transaction of provision of IT enabled services amounting to Rs. 1,298,559,298 with its associated enterprises. Assessee considered the FOREX Fluctuation as operating income/expense the Transactional Net Margin Method (TNMM) was selected as the most appropriate method for the purpose of benchmarking the international transaction of ITES, and on that score the OP/OC of the assessee was 18.10% whereas the average OP/OC of the comparable companies selected by the assessee was 11.79%. Assessee, accordingly, treated that the international transaction of provision of IT enabled services was at arm's length price. 4. Ld. TPO, however, computed the operating margin of the assessee at 1.90% considering FOREX Fluctuation as non-operating income/expense, and after conducting a fresh search for comparable companies, Ld. TPO arrived at the following set of comparables: S. No. Company Name (Adjusted OP/OC) (%) 1. Accentia Te....
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....e Transactional Net Margin Method (TNMM) as the most appropriate method for the purpose of benchmarking the international transaction of ITES, on application of which, the OP/OC of the assessee was 15.37% whereas the average OP/OC of the comparable companies at 17.13%, and, therefore, according to the assessee, their profit level indicator lies within the arm's length range of (+/-) 5%of the international transaction of provision of IT enabled services, and consequently was considered to undertaken at arms length price. Ld. TPO, however, computed the operating margin of the assessee at 6.02% considering FOREX Fluctuation as non-operating income/expense, and after conducting a fresh search for comparable companies, Ld. TPO arrived at the following set of comparables: S. no. Company Name AdjustedOP/OC(%) 1. Accentia Technologies Ltd. 28.17 % 2. E4e Healthcare Business Services Pvt Ltd. 12.79 % 3. Eclerx Services Ltd. 57.62 % 4. ICRA Techno Analytics Limited 25.07 % 5. Infosys BPO Ltd. 20.61 % 6. Jindal Telecom Ltd. 15.82 % 7. Microgenetic Systems Ltd -0.14 % 8. TCS e-serve Ltd. 71.05 % 9. Acropetal....
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....he Risk management Policy of each company, e.g., some of the companies do not hedge themselves while others may hedge their forex exposure wholly/partially, i.e., someone may hedge its three months receivables/payables or 50% of 6 months receivables/payables and so on and so forth; that the Risk management policy of each company is its internal matter and it has got nothing to do with transactions entered by it with its AEs; that there is a wide variation between the profits and earned depending upon whether the enterprise has hedged it forex exposure; that as far as the consideration of provision for doubtful debt and provisions written back its operating is concerned, provision for doubtful debt is in the nature of unascertained liability as it is made of estimate basis and at the time of provision, accounts of debtors have not with a certain amount; that, therefore, the expense is still uncertain and ad hoc expense; that the creation of provision is dependent on the risk perception of the business operation by the management; that for the same risk some comparable may create provision at the rate of X% while another comparable may create the provision at Y%; that the sales price....
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....at in respect of foreign exchange gains earned by the assessee which is in relation to trading items and emanating from international transactions, direct value derived from it cannot be treated as non-operating losses and gains. Similar view was taken by the Hon'ble Delhi High Court in the case of Pr. CIT Vs. Cashedge India Pvt. Ltd. in Appeal No.279/2016 as well as in case of Pr. CIT vs. BC Management Services Pvt. Ltd. (supra). Therefore, we agree with the contentions of the AR that foreign exchange fluctuations gains/losses should be treated as operating item if the same are in relation to the trading items emanating from the international transactions. It only remains to be verified as to whether the foreign exchange fluctuations incurred by the assessee relate to the trading items emanating from the international transactions or not. Therefore, for the limited purposes of verifying that the foreign exchange fluctuations of the assessee relate to the trading activities of the assessee, the issue is restored to the file of the Assessing Officer/Ld. TPO to verify the same and if it is found that the foreign exchange fluctuation relate to trading with the associ....
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....respect of the ITES Segment, it is stated that the company provides business process management services to organizations that outsource their business processes, the information at page 118 shows that the company leverages Infosys Technologies client relationship to cross sell services, whereas at page 157 thereof, it is reported that the parent company namely Infosys Technologies Ltd has issued performance guarantee on behalf of the company. 22. According to the ld. TPO the brand value may not affect the profitability of a company and a brand may generate revenue, but there is a cost associated with development of such brand, and that the supernormal profit and high revenue is not a criteria for selection of comparable companies. Reason for the Ld. DRP to direct the ld. TPO to exclude the company is that it is a giant in the industry and enjoys the benefits associated with such size. 23. On this, aspect, learned DR invited our attention to certain extracts of annual report of this comparable, wherein, in respect of the Segment reporting at page No 56 of the Annual report, it was stated that the company's operations primarily relate to providing business process manageme....
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....than half of its service, income from onsite services) The appellant provides only offshore services( i.e. remotely from India) Expenditure on advertising/sales promotion and brand building Rs. 61 crores Rs. Nil ( as the 100% services are provide to AEs) Expenditure on Research & Development Rs. 102Crores Rs. Nil Other 100% offshore( from India) 25. He further submitted that the difference in risk profile applies to even those comparables selected by the assessee; that Infosys BPO Ltd is not engaged in carrying out different kind of activities; that there is not much difference in the turnover of the assessee and the comparables as was in that case; that the Hon'ble Delhi High Court on the issue of super normal profits and turnover, in case of Chrys Capitaql Investment advisors(India) Pvt. Ltd rejected the taxpayers arguments by holding that once the comparables are found to functionally similar to the assessee, they would be required to be included as comparable, notwithstanding their high profit margins or turnover; that in case of Infosys BPO Ltd. there are no propriety products as were in the case of Infosys Technologies Ltd.; that the TP....
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....involved for the AY 2015-16 to the assessment year under consideration are brought to our notice. In these circumstances, we do not find any reason not to follow the view taken by the Tribunal in assessee's own case for the AY 2015-16 and also the consistent view taken by the Hon'ble jurisdictional High Court in the decisions referred to above. We, therefore, in the light of these facts, accept the finding of the ld. DRP in excluding this company from the list of comparables. 2. TCS E Serve International Ltd. 30. Information given at page 336 of the annual report paper book in respect of ITES segment for the relevant year, shows the broad range of process management services rendered by this company to various industries and that this company is a part of TATA group and is backed by TCS's scale and large client base. So also the information at page 336 of the annual report paper book speaks that the association with TATA group has enhanced the company's services offerings and as a result the company has started serving new clients during the year under consideration. Ld. TPO with reference to the contents of the annual report observed that the company is engaged in provision ....
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....that companies having significant brand presence cannot be regarded as appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider, and such a decision of the Hon'ble High Court is upheld by the Hon'ble Supreme Court in SLP (CC) No. 32469/2018. Further, the Hon'ble Delhi High Court in the case of PCIT vs B.C. Management Services (P.) Ltd (ITA No. 1064 & 1083 of 2017)for AY 2011-12,upheld the ITAT finding of exclusion of the company on account of the brand value associated with TCS consultancy reflected/ impacted TCS E-Serve profitability in a very positive manner. 34. Apart from that, a coordinate Bench of this Tribunal in appellant's own case for AY 2015-16 (ITA No. 6687/Del/2019) rejected Infosys BPO Ltd. on account of brand presence. There is no explanation as why the decisions of Hon'ble High Court and the view taken by the Tribunal in assessee's own case should not be followed this year also. We therefore, agree with the ld. DRP that TCS E-Serve International Ltd. too deserves to be excluded from the final list of comparable companies. 3. TCS E Serve Ltd. 35. As could be found from page 295 of the annu....
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....c advantage conferred to them on account of sheer size and enormity, is untenable. 38. His further contention is that this company owned significant intangibles and brand value but the argument that brand has helped in better margins is also not correct; that the brand name may have helped TCS E-Serve in increasing its number of clients & retention of existing clients and thus an increase in its market share, but it has not necessarily resulted in better profit margins, because Brand may bring more revenues but not necessarily higher margins, whereas conversely some companies despite having brand name have earned lower margins. Further according to him, any brand comes with a cost i.e. huge expenses are required to be incurred to build brand value, which shows that a brand may generate revenue but with a cost compensating any extra benefit, if any derived from such effort. He placed reliance on the decision of the Visakhapatnam Bench of Tribunal in the case of LG Polymers India Pvt. Ltd. (2011-TII-97-ITAT-vizag-TP) wherein it was held that brand name is only one of the factors but not the only factor which affects profitability, and several other factors go into the profitabi....
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....ndia Pvt Ltd (ITA No. 532/2019) too Hon'ble High Court rejected TCS E Serve Ltd on account of high brand value as comparable to captive service provider. So also, in the case ofPr. CIT vs Oracle (OFSS) BPO Services Pvt Ltd (ITA No 124/2018)Hon'ble Jurisdictional High Court held that companies having significant brand presence cannot be regarded as appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider and the said decision is upheld by the Hon'ble Supreme Court in SLP (CC) No. 32469/2018. 42. This company was directed to be excluded by the Hon'ble Delhi Bench of the Tribunal in the case of Smart Cube India Pvt Ltd. (ITA No. 1178/Del/2019) on account of its association with the Brand name of TATA's. Pertinently, a coordinate Bench of this Tribunal in the appellant's own case for AY 2015-16 (ITA No. 6687/Del/2019) rejected Infosys BPO Ltd. which stands on the same footing of TCS E-Serve Ltd. on account of brand presence. In this set of facts, we are of the considered opinion that the decisions of the Hon'ble High Court are applicable to the facts of this case for this year on all fours and renders this company....
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....ing or converting voice recorded reports as dictated by physicians and/or other health care professionals to text format; that Medical coding is defined as assigning codes to diagnosis and procedure which help in financial reimbursements from insurance companies and others; that Medical billing is a billing on insurance companies by hospitals for and on behalf of the patients' medical care expenses; that all these services are interlinked and are just extensions of the work done in the medical transcription segment; that medical transcription from which Accentia earns maximum revenue is an ITES service; whereas the taxpayer has defined only one segment ie., Health Care Receivable Management. Ld. TPO maintained that there is no distinction between the transcription services and coding services, and, even if a distinction is made between the transcription services and coding services, it is clear that more than 86 % of the receipt is from ITES services and a small portion (12.56%) is from the coding activity. 45. While drawing our attention to the margins of Accentia from FY 2007-08 to F.Y 2009-10, ld. DR submitted that the merger has not significantly influenced the business of A....
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.....2010 are inclusive of the figures of the amalgamating company. Yet another contention on behalf of the assessee is that the company owns significant intangible assets in the form of Goodwill amounting to Rs. 219,449,287/-. 50. Reliance is placed on the decisions of the Hon'ble Delhi High Court in the case of Evalueserve SEZ (Gurgaon) Pvt Ltd (ITA No 241/2018) (for AY 2010-11), and the decisions of the coordinate benches of this Tribunal in Smart Cube India Pvt Ltd (ITA No. 6078/Del/2015), Cognizant Technology Services Pvt. Ltd. vs. ACIT (ITA No. 2106 & 1864/Hyd/2011) and ACIT vs. NIT Ltd. [ITA no. 1844/Del/2009]. 51. We have carefully considered the submissions on behalf of either side. From the material papers on record, we notice that in respect of the argument of the assessee that Accentia has undertaken extraordinary events namely, amalgamation with Asscent Infoserve Private Limited during the year, ld. TPO observed that the acquisitions are made by companies to benefit from each other's strengths, but the acquisitions in themselves do not become extraordinary events, except when the company's functions change substantially after an acquisition the same may becom....
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....hether all the comparables selected by the assessee are proper comparables for the purpose of determining Arm's Length Price after considering the following factors as per law: (i) Whether the companies have large volume of related party transactions. (ii) Whether companies have abnormally high profits or losses. (iii) Whether companies have gone for business re-structuring. (iv) Whether companies have shown high growth. (v) Whether companies are having high turnover. (vi) Whether companies are having larger inventory. (vii) Whether companies are having high marketing expenses." 54. This company was also directed to be excluded by by a coordinate Bench of this Tribunal in the case of Smart Cube India Pvt Ltd (ITA No. 6078/Del/2015) on the basis that it is engaged in provision of medical transcription services and sale of software and therefore cannot be regarded as comparable to a ITES service provider. It is pertinent to note that these observations are in respect of the AY 2011-12. We find it necessary and convenient to extract the relevant observations of the Tribunal: 46. Now we take up the issue of sele....
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.... exclusion of this comparable in the final list of comparables for both the years under consideration. 5. ICRA Techno Analytics Ltd 57. Assessee argued for the exclusion of this company on the ground of functionally dissimilarity, company's engagement in provision of KPO services and sale of software products. According to the assessee this entity is engaged in providing software development services. Ld. TPO examined this contention and found not to be acceptable on the ground that the services offered by this company are broadly very much similar to that of assessee. In this regard ld. DR placed reliance on the CBDT notification SO 2810(E) dated 19.9.2013, and submitted that this notification gave a detailed list of products or services and that assessee's functions and this comparable company functions falls under one segment only. 58. Ld. AR submitted that this company is functionally different, engaged in provision of KPO services and sale of software products. He submitted that the company is engaged in provision of KPO services such as Business Intelligence and Analytics and also trades in computed software and on that ground, it cannot be regarded as an appropriate....
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....parables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector." 61. In respect of this ICRA Techno Analytics Ltd, observations of the coordinate Bench in Smart Cube India Pvt Ltd vs ACIT (ITA No. 6078/Del/2015) for AY 2011-12 held that the company is engaged in the business ofsoftware development and consultancy, engineering services aswell as business analytics and due to non availability of segmental data, it is not a good comparable with the assessees who are merely captive service providers. Relevant observations are as follows: 48. As far as the Ld AR's plea of exclusion of ICRA Techno Analytics Ltd as a comparable company is concerned, learned AR has pointed that it is engaged in a diverse set of activities. As per its annual report, the company is engaged in the business of software development and consultancy, engineering services as well as business analytics. The aforesaid contentions of the Ld AR has not been controverted by Revenue. We find that the Co ordinate Bench of Tribunal in the case of B. C. Management Services (P.) Ltd. (su....
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....he decisions supra makes it clear that this company is engaged in diversified activities of software development, derives its revenue from services consisting of revenues earned from software development and consultancy, licensing and sublicensing fees, Web development and hosting which is recognized to the extent of service performed, for which segmental reporting is not available; that in profit and loss account, income has been received from services and sales, without there being bifurcation in order to understand component of income earned by this company from software development exclusively. It further makes it clear that since this company is engaged in diversified activities of software development for which segmental reporting are available, this company is not a good comparable with the companies which are captive service providers like the assessee. Hence, we decline to interfere with the findings of the ld. DRP in excluding this comparable. 6. Eclerx Services Ltd. 65. Assessee's contention for rejection of this company was based on the functional dissimilarity and its engagement in provision of KPO services. Annual Report of this company reveals that the Compa....
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....l report make it clear that the entity is engaged in data processing activities, which are considered to be ITES Services even if the contention of the assessee regarding safe harbor rule definition is considered. He, therefore, prayed to reject the objection of the assessee and reverse the findingof the ld. DRP in respect of this comparable. 69. Assessee's prayer for rejection of this company is again based on functional dissimilarity and that it is engaged in provision of KPO services. Ld. AR submitted that Page No 6 of annual report of eClerx Services Ltd. reveals that this company is engaged in the business of providing Knowledge Process Outsourcing ('KPO') services, namely, providing data analytics, search engine analytics, competitive intelligence, channel analytics, etc. making it clear that the specific characteristics of KPO services rendered by eClerx Services and characteristics of ITES services rendered by the assessee are not similar and do not satisfy the test of comparability as provided in clause (a) of sub rule (2) of rule 10B of the Rules. 70. He placed reliance on the decisions of the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs.....
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....n Systems (India) Pvt. Ltd. vs ACIT (ITA No. 124/Hyd/2014) ; Avineon India Pvt. Ltd. vs DCIT (ITA No. 1989/Hyd/2011), to name a few, are brought to our notice in support of the contention of the assessee that eClerx Services Ltd provides KPO services and it was also directed to be excluded from the list of comparables on that basis. 74. On a perusal of all these decisions in the light of the profiles of the assessee and eClerx Services Ltd. in juxtaposition, the irresistible inference is that eClerx Services Ltd is providing KPO services and on that ground, it is not a good comparable to the assessee who is a captive service provider to its AEs. We, therefore, find that the finding of the ld. DRP is proper and does not invite any interference by this Tribunal. 75. This brings our discussion to an end in respect of the sustainability of the exclusion of comparables by the ld. DRP in the segment of ITES. We shall now proceed to deal with a similar question in respect of Software Services Segment. 76. During the financial year relevant for the AY 2010-11, assessee entered into the international transaction of provision of software development services with its associated e....
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....n the assessee, aggrieved by the said action of the upward adjustment, filed objections before the ld. DRP, by order dated 20.10.2015, ld. DRP directed the TPO to exclude four companies, Persistent Systems Ltd.; Infosys Technologies Ltd.; Infinite Data Systems Ltd; and Wipro Technologies Services Ltd from the set of comparables. Following the said directions, Ld. TPO recomputed the adjustment and reduced the same to Rs. 75,47,44,000/-. 78. Challenging the directions of the DRP, Revenue is in appeal, and during the course of arguments, Ld. DR prayed the inclusion of Persistent Systems Ltd.; Infosys Technologies Ltd.; Infinite Data Systems Ltd; and Wipro Technologies Services Ltd in the list of comparables rejected by the DRP for adjustment in software segment. 79. So also, during the financial year relevant for AY 2011-12, the assessee entered into the international transaction of provision of software development services with its associated enterprise amounting to Rs. 3,276,026,399/-. By considering the FORX fluctuation as nonoperating, assessee calculated their operating margin at 6.23%. Selecting the TNMM as the most appropriate method, assessee computed the average OP/OC ....
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....duced the adjustment to Rs. 29,90,52,000/-. 81. Revenue, therefore, challenges the exclusion of Persistent Systems Ltd.; Infosys Technologies Ltd.; E Infochips Ltd; Wipro Technologies Services Ltd; E Zest Solutions; and Acropetal Technologies Ltd. from and the inclusion of Thinksoft Global Services Ltd. in the set of comparables. 82. It is, therefore, clear that the entire dispute in respect of Software segment revolves around exclusion of Infinite Data Systems Pvt. Ltd for the AY 2010-11, E Infochips Limited, E- Zest Solutions Limited and Acropetal Technologies Ltd. for the AY 2011-12, and Infosys Ltd., Persistent Systems Ltd., and Wipro Technology Services Ltd. for both the years, and inclusion of Thinksoft Global Services Ltd. for AY2011-12. Now we shall proceed to deal with the question of comparability of these entities with the assessee. 1. Infinite Data Systems 83. Annual Report of this company describes the profile of this company stating that the company is engaged in providing a diverse set of services which inter-alia include technical consulting and infrastructure management services, and according to the note on Revenue Recognition the company derives its r....
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....s not having any peculiar activities during the year under consideration and the company sales growth is result of company strategy and its self efforts. Basing on all these, he argued that in comparability analysis, loss/higher growth or so called higher margin is not a determining factor unless there are any peculiar economic circumstances in a case making it functionally not comparable; that interestingly in favour of loss making companies it is generally argued that such companies should not be rejected simply because they have incurred losses in a single year as loss making companies is as much part of industry as are profit making companies and the Department agrees with the aforesaid contention, but at the same time the logic is required to be applied to the case having exceptional growth also. 86. Next contention of the ld. DR is that the turnover/ principles of economies of scale etc, have no relevance more particularly when TNMM has been selected as the most appropriate method and as per the Act/ Rules/ UN Guidelines/ OECD Guidelines, only those comparability factors are to be considered which have effect on prices and profits. Both UN & OECD Guidelines mention 'econom....
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....er submitted that during the year ending March 31, 2010, the turnover of the company increased by 708%, i.e. from Rs. 47,407,301 to Rs. 383,160,901 in the preceding year, increasing the operating profit margin from 28.35% to 88.25%. It is brought to our notice that the TPO has also rejected companies incurring persistent losses as well as companies having exceptional year of operations and also noted that the software industry is growing at 20% and therefore, Infinite Data Systems which has grown multifold (a growth of 708% in the revenue) cannot be regarded as comparable for the purpose of benchmarking analysis. Basing on this, it is submitted that this company cannot be considered as comparable to the assessee, not being representing the normal industry trend and operating in a different market condition. 90. On the aspect of this company being functionally different from the assessee, Ld. AR submitted that the company is engaged in providing a diverse set of services which inter-alia include technical consulting and infrastructure management services; that the note on Revenue Recognition states that the company derives its revenue primarily from technical support and infrastr....
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....ts Holding Company - Infinite ITA No. 599, 1051 & 617/Kol/2015 Labvantage Solution Pvt. Ltd. AY 2009-10 & 2010-11 Computer Solutions (India) ltd during the financial year 2011-12. We are inclined to agree with the submissions of the ld AR that this Comparable Infinite Data Systems Pvt Ltd was created for purposes of transfer of business. Hence the nature of services and business model of assessee company and comparable company are entirely different. Apart from this, we also find that there exist abnormal circumstances in the said comparable. During the last 3 years, variations in margins earned show an abnormal circumstances leading to huge fluctuations and supernormal profit , the margin earned by Infinite is 88.25% which is abnormally high. It was argued that such companies which are making more than twice the arithmetical mean margin as computed by the ld TPO should not be considered as comparable. The ld AR referred to page 591 of the Paper Book where the details of the fluctuation in the revenue, profit and margins has been provided. It is true that where company in which extraordinary events had taken place during the year like major acquisitions which had impact on profits ....
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....bnormal profit to the tune of 1496%. Perusal of annual report of Infinite, available at page 56 of the paper book, shows that Infinite is a global service provider of Application Management Outsourcing, Remote Infrastructure Management Services, R&D and Intellectual Property Leveraged Solutions and related IT Services. Furthermore, when we examine revenue recognition of Infinite it shows that primarily it derives its revenue from technical support and infrastructure management services whereas the taxpayer is driving its revenue from software development support services. Infinite is also into rendering technical consultation, design & development of software, maintenance system integration, implementation, testing & infrastructure, management services and its segmental information is not available, whereas the taxpayer is into providing routine software development support services to its AE. 14. The taxpayer placed reliance on decision rendered by coordinate Bench of the Tribunal in DCIT vs. Exchanging Technology Services India Ltd. (ITA No.121/Del/2015) wherein Infinite was ordered to be excluded being not a valid comparable vis-à-vis Exchanging Technology which ....
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....d renders it incomparable with the assessee. We therefore, uphold the findings of the ld. DRP on this aspect. 2. E-Infochips Ltd. 97. Next comparable in dispute is E-Infochips Ltd. Assessee prayed for its exclusion from the set of comparables on the ground that it is functionally different from the assessee company. Functional profile of this company, as submitted by the ld. DR is that EInfochips Limited (e- Infochips) is an IP design services company, engages in providing ASIC/Chip/SoC, embedded system, and software services and solutions; this company offers software development services, such as product lifecycle management, application development, maintenance and support, re-engineering/migration, quality assurance and testing, CRM/package implementation, and business intelligence; and embedded system design services, including turnkey product development, board design, BSP and RTOS design, codecs/stacks design, sustenance engineering, and product reengineering. The company also provides Chip/ASIC/SoC design and verification services and solutions through verification methodologies and hardware verification languages, physical design and verification; ASIC prototyping on....
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....hough the EInfochips Ltd was doing diversified business, no segmental information was available and that was the ground for excluding the same from the set of comparables in the Software development segment. These circumstances justify the findings of the ld. DRP and we confirm the same. 3. E Zest Solutions 101. As could be gathered from the annual report, this Company's activities predominantly revolve around computer Software Development services, considering the nature of Company's business and operations, there is only one reportable segment - business and/or geographical in accordance with the requirements of the Accounting Standard 17 -Segment Reporting/1 notified in the Companies (Accounting Standards) Rules 2006.", and as per the further information furnished in the annual report e-Zest is an SEI-CMMi Level-3 & . ISO 9001:2008 certified Product Engineering and Software Development Company, having special expertise in emerging technologies such as Cloud, SciaS, Business Intelligence and Mobility. 102. Assessee's resistance to include this company in the final set of comparables is based on the ground that this company is engaged in development and sale of so....
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....elopment services of this company include the product design and development, product feature enhancement, product platform migration, software product testing, product maintenance and support, product release and license management, SAAS/SOA services, web 2.0 services etc ; enterprise application development services include customer relationship management, enterprise resource planning, business intelligence, knowledge management, enterprise application integration, consulting etc; ID services include global on57 site/offshore software development, custom software development/bespoke software development, independent software testing, RIA/Ajax application development etc and technology expertise of this company includes the technology competency centers in relation to Microsoft competency Centre, Sun Java competency Centre, open source competency Centre, Cloud computing practice, mobility practice and BI practice. 107. By no stretch of imagination can anyone say that the e-Zest Solutions Ltd which is rendering product development services and highend technical services which come under the category of KPO services would be comparable with a captive software development company....
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....made on either side. In the case of Rampgreen Solutions Pvt. Ltd. vs. CIT (ITA No. 102/2015) the Hon'ble Delhi High Court held that companies outsourcing significant portion of their business cannot be regarded as appropriate comparable. Further this company was directed to be excluded as comparable by a coordinate Bench of this Tribunal in the case of Omniglobe Information Technology (ITA No 1380/Del/2016) as comparable for AY 2011-12 to the companies like assessee who do not outsource the significant portion of their business. Similar exclusion was made by the Bangalore Bench of the Tribunal in the case of ACIT vs. Flextronics Technologies (India) (P.) Ltd. - (2019) 101 taxmann.com 348. 112. We have also gone through the observations of the Tribunal in respect of the Acropetal Technologies Ltd, wherein the arguments similar to the ones advanced in this matter are considered and this comparable is excluded. All these additions have application to the facts involved in this case for this assessment year, in such decisions we hold that Acropetal Technologies Ltd is not a proper comparable to the assessee and its exclusion by the Ld. DRP cannot be found fault with. Such an excl....
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....etc. enjoys significant competitive advantage in the form of premium pricing and/or higher volume of business leading to higher profitability. He further submitted that abnormal margins are usually a result of abnormal circumstances or availability of intangible asset as a distinct advantage to the company which is not available to its competitors operating in the same industry and that the assessee does not own such similar intangible assets to enable it to earn higher margins. 115. It is an undeniable fact that Infosys Ltd is inter-alia engaged in development and sale of software products. The software products developed by the company includes Finacle TM, Finacle core banking solution.In the case of Agnity India Technologies Pvt. Ltd vs. ITO (ITA No. 3856/Del/2010), wherein it was held as under: "It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considere....
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.... that the entity had product revenue only to the extent of 7.2%. Basing on this the Ld. TPO concluded that the entity was a software service provider. Ld. DR further submitted that the assessee has considered itself this company as a comparable in the transfer pricing study report. 120. Ld. DR further submitted that the company was considered as a comparable by the assessee itself in its own TP report. At that time there was no reason to consider this entity as a non comparable. However, the assessee has objected to inclusion of this entity, ostensibly because the entity has a high margin. 121. Per contra it is the submission on behalf of the assessee thatPersistent Systems Ltd. is engaged in the business of development and sale of software products and therefore, cannot be regarded as comparable to the assessee, a captive software service provider. It is further submitted that in terms of business description given in the Annual report of this company, it is stated that the company specializes in software products, services and technology innovations. Ld. AR lastly submitted that the segmental profitability of this company from provision of software services is not available....
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.... Ltd. is engaged in provision of software verification and validation services which is a subset of software services; that software validation is a part of software development life cycle and the skills required for software validation and similar to those required for software development; and that as per the website softwaretestingmentor.com (a comprehensive website for software testing) a software tester requires knowledge of requirement analysis, design and coding. 125. According to the assessee Thinksoft Global Solutions Ltd., being a company engaged in provision of Software validation services is functionally comparable to the assessee, engaged in provision of software services.Ld. TPO , however, rejected Thinksoft Global Services Ltd. on the basis that it is engaged in provision of software validation and verification services and therefore cannot be regarded as an appropriate comparable to the assessee. Ld. DRP, however held that the company is functionally comparable to the assessee and therefore ought to have been included in the final set of comparable companies. 126. Ld. DR placing reliance on the findings of the Ld. TPO; whereas Ld. AR submitted that the DRP rig....