TaxTMI 
TaxTMI 
2021 (1) TMI 72
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....me on 27/11/2013 declaring income of Rs. 33,88,64,490/-under normal provisions of the Act and a book profit of Rs. 25,76,48,522/-. 3.1. During the course of assessment proceedings, the AO found that the assessee had entered into international transactions, hence, referred the case to TPO for determining Arm's Length price (ALP). 3.2. The assessee is engaged in the development of software and provision of software services to its holding company. The taxpayer is wholly owned subsidiary of DE Shaw & Co., L.P. USA. For the AY 2013-14, as per Form 3CEB report/TP document, the assessee had entered into international transactions in respect of software development services to the extent of Rs. 2,19,56,93,803/-and the margin being 12.27%. As per the economic analysis carried out by the assessee the margin of the comparables was worked out to 13.81% and since, the software development services transaction is within the arithmetic mean (OP/OC) of 13.81% and within the range, it was stated that the SDS transactions are at arm's length and no adjustment was made by the assessee. 3.3. The TPO analysed the Balance Sheet and statement of account and its financials and viewed tha....
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....he said company and argued that Persistent Systems Ltd. is functionally similar to the assessee company. Merely on the basis of notes mentioned in P&L Account, the same cannot be held as functionally different. Ld. DR relied on the decision of the ITAT, Bangalore Bench in the case of Advice America Software Development Center Pvt. Ltd., 94 taxmann.com 179 wherein the coordinate bench has rejected assessee's contention to exclude this company from the list of comparables. Similarly, ld. DR also relied on the decision of ITAT Bangalore in the case of CGI Information Systems and Management Consultants (P) Ltd. in IT(TP) A No. 2460/Bang/2017, dated 12/09/2018 wherein assessee's contention of exclusion of the Persistent Systems Ltd. was rejected. The ld. DR further argued that the DRP has given clear finding that Persistent Systems Ltd. is engaged in the software development services and relied heavily on the DRP's findings in its order at page 8 and argued that acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be a criteria to determine its comparability. The comparability of a company has to be determin....
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....laiming depreciation both on tangible and intangible assets for the periods ending 31.03.2012 and 31.03.2013. From page 1059 of the paper book, we find that the final segmental results of each segment is not available and therefore, we are of the opinion that the TPO ought to have excluded this company from the final list of comparables. 5.4 The DRP has gone into the details and observed that the company Persistent Systems ltd. is in sale of software services. The DRP verified the annual report of Persistent Systems ltd. and observed that the revenue from the operations from group companies of Rs. 12,945.12 was from sale of software services. The DRP has perused the entire details in its order and stated that the stand alone P&L account of Indian company, was given at page 145 of the paper book, as per which, the revenue from operations was 9,967.51 Million, which is stated to be from sale of software services. For the sake of clarity, we extract the relevant para of the order of DRP, which read as under: "At the outset, we are of the view that the acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be....
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....its IP led business. Acquisition of Cloud from Doyenz. Inc. Persistent Systems Inc. (PSI) a wholly owned subsidiary of your company acquired an innovative cloud platform called Cloud from a privately held company viz. Doyenz. Inc. This acquisition furthers your company's objectives in growing its IP-led business and strengthens its cloud computing and SMB offerings. Strategic agreement with Helwett Packard (HP) for licensing client automation software. PSI further entered into a strategic agreement with HP to license its client automation software. This acquisition underscores your company's commitment to expand its IP portfolio and further strengthen its expertise in PC lifestyle Management (PCLCM) Virtual Desktop Infrastructure (VDI) and MDM. Acquisition of certain assets from Nova Quest. Persistent Telecom Solutions Inc. (PTSI) a wholly owned step down subsidiary of PSI acquired certain assets from a Nova Quest a leading value added reseller (VAR) and services provider of Dassault Systems. SDS experience platform and applications. This acquisition furthers the operatives of your company in expanding its PLM practice s....
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....#39;s case that this company can be taken as comparable as it was a software development service provider. Accordingly, the objection raised by the assessee is found unacceptable." 5.5 As seen from the DRP's order, the company Persistent Systems ltd. is predominantly engaged in the software development services and is comparable to the assessee company. 5.6 The ld. DR relied on the decision of coordinate bench of Bangalore Tribunal in the case of Advice America Software Development Center Pvt. Ltd. (supra) wherein the coordinate bench has also taken the similar view after going into the details of financials and observed that the segmental details are available in the case of Persistent Systems Ltd. and upheld the orders of revenue authorities for inclusion of this company in the list of final comparables. For the sake of clarity, we extract para 21 of Bangalore ITAT order in the case of Advice America Software Development Center Pvt. Ltd.,(supra), as under: "21. Persistent Systems Ltd.: The objection of the Assessee for excluding this company from the list of comparable companies is on the ground that this company is also engaged in making software products and ....
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....a) and hence, held that in the absence of segmental details, Persistent Systems Ltd. is functionally dissimilar and directed the AO/TPO to exclude this company from the list of comparables. Since the details are available as per the order of the ITAT, Bangalore in the case of Advice America Software Development Centre Pvt. Ltd. and in the order of DRP, we are of the view that this issue needs verification by AO/TPO to decide whether the company is comparable or not with the segmental details. Therefore, we deem it fit to remit the matter back to the file of TPO/AO to examine financials of the Persistent Systems Ltd., and decide the issue afresh on merits whether to include or exclude the Persistent Systems Ltd. from the list of final comparables. Accordingly, this issue is allowed for statistical purposes. 6. Infobeans Technologies Ltd.-The ld. AR challenging the inclusion of this company from the list of comparables, submitted that this company is functionally dissimilar, hence, argued that the same needs to be excluded from the list of comparables. The ld. AR relied on the decision of M/s. Kony India Pvt. Ltd. in ITA No. 2305/Hyd/2018 for AY 2014-15. 6.1. On the other hand,....
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.... that in the case of EPAM Systems India Pvt. Ltd. (supra), this Tribunal has considered the issue in detail and held that L&T Infotech Ltd. is functionally dissimilar. For the sake of clarity and convenience, we reproduce para 17 & 18 of the order as under: "17. As far as the L & T Infotech is concerned, the assessee's objections are that the it is a giant company with a turnover of Rs. 3613 Crs and has a significant brand value and in RPT schedule there is revenue from sale of services as well as products. Further, under operating expenses there are costs of bought-out items for resale of products and therefore, in the absence of segmental details, it cannot be considered as a comparable. In support of this contention, Learned Counsel for the Assessee placed reliance upon the following decisions:- (i) Saxo India (P) Ltd. vs. ACIT-ITA No. 6148/Del/2015 (ii) Electronic Arts Games India (P) Ltd. vs. ACIT-ITA No. 444/Hyd/2017 (iii) Agilis Information Technologies Intl. P. Ltd. vs. ITO-ITA No. 1063/Del/2016 (iv) Alcatel-Lucent India Ltd. vs. DCIT-ITA No. 6856/De/2015 18. We have gone through the financial results of this company....
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..... Ltd. The coordinate Bench of Bangalore taken the view against the assessee holding that the Brand, turnover, intangibles etc. has no impact on profitability of the company. This Tribunal has also considered the turnover, intangibles and held that L&T required to be deleted from the final list of comparables. Since the decision of this Tribunal is favourable to the assessee, respectfully following the view taken by this Tribunal, we hold that L&T Infotech Ltd. is functionally dissimilar to that of assessee company and not comparable. Accordingly, we direct the AO/TPO to exclude the L&T Infotech Ltd., from the final list of comparables. This issue is allowed. 8. In ground No. 9, assessee has requested for inclusion of following 5 companies: 1. Acropetal Technologies Ltd. 2. Akshay Software Technologies Ltd. 3. Spry Resources India 4. CAT Technologies Ltd. and 5. Sankhya Infotech Ltd. However, when the appeal was taken up for hearing, the ld. AR of the assessee pressed for inclusion of only CAT Technologies Ltd. and did not press the remaining four comparables. Therefore, the assessee's appeal on remaining four comparables, name....
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....final comparables list observing as under: "33. This company was rejected by the TPO for the reason that it is engaged in quality consultancy services in system analysis, system design and other related services. According to the TPO, it was functionally different from the assessee, and rejected the said company from the comparables. As seen from the Notes relating to statement of profit and loss account as on 31.03.2013, along with sales and services as under:- Particulars As on 31.03.2013 (Rs.) Sales & Services EXPORT Consultancy Fees Receipts 14,630,808 Medical Transcription Receipts 4,342,700 Software Development Receipts 55,221,160 DOMESTIC Course Fees 178,350 Local Software Development Receipts 109,730 Total 74,482,748 33.1 As seen from the above, the company is engaged in software development services as per its annual report. Further, the revenue from the software development services is more than 93.93% of the total revenue. Being so, this company should be included in the list of comparables. Accordingly, we direct the TPO to include Cat Technologies Limited in the list of comparables." ....