TaxTMI 
TaxTMI 
2021 (1) TMI 160
X X X X Extracts X X X X
X X X X Extracts X X X X
....owing issues:- (a) Relief granted by Ld DRP in respect of addition made on account of transfer pricing adjustment (b) Whether the Ld DRP was justified in directing the AO to follow the decision of Karnataka High Court rendered in the case of Tata Elxsi Ltd, i.e., exclusion of expenses incurred in foreign currency from both export turnover and total turnover. 4. The facts relating to the case are discussed in brief. The assessee company was earlier known as "ABB Global Industries & Services Ltd.". It belongs to M/s ABB group. It is providing software development services to its AE which includes developing software, configuration, testing activity. It also deputes its engineers on need basis for providing IT support. Though the assessee has entered into various types of international transactions with its AEs, we are concerned with Software development activity only, since the TPO has made transfer pricing adjustment in respect of software development services only. 5. Both the parties are in appeal in respect of addition relating to Transfer pricing adjustment. The facts relating to the same are discussed in brief. The assessee has provided software developm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Ld DRP upheld the selection of following three companies:- (a) Persistent Systems & Solutions Limited (b) Persistent Systems Limited (c) Sasken Communications Technologies Ltd 5.3 The grounds pressed by the assessee seek exclusion of (a) Persistent Systems & Solutions Limited (b) Persistent Systems Limited (c) Sasken Communications Technologies Ltd and inclusion of (a) Akshay Software Technologies Ltd and (b) LGS Global Ltd (c) R.S Software Ltd (c) Mindtree Ltd. (d) Evoke Technologies P Ltd. 5.4 The revenue is challenging the decision of Ld DRP in excluding all ten comparable companies listed earlier. 5.5 The Ld A.R submitted that all her submissions are supported by the decision rendered by co-ordinate bench of Tribunal in the case of (i) M/s Applied Materials India Pvt Ltd vs. ACIT (IT(TP)A No.17 & 39/Bang/2016) (ii) Electronics Imaging India P Ltd vs. DCIT (2017)(85 taxmann.com 124)(Bang.) 5.6 The Ld A.R further submitted that the assessee is now accepting for inclusion of M/s R.S. Software (India) Ltd, M/s Evoke Technologies Ltd and M/s Mind Tree....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal IT(TP)A Nos.52 & 97/Bang/2016 had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e- Infochips Ltd., was earning revenue both from the software services and software pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this company was held to be engaged in Knowledge Process Outsourcing (KPO) and cannot be regarded as a SWD services company. However, in the case of Applied Materials India P Ltd (supra), the co-ordinate bench has expressed the view that the question of BPO and KPO is relevant only in ITES segment and not for software development services segment. (d) In the case of AMD India P Ltd vs. ACIT (IT(TP)A 1487 & 1496/Bang/2015 dated 06-04-2017), the Tribunal apparently followed the decision rendered in the case of Saxo India P Ltd (supra), but finally it excluded E Zest Solutions Ltd. We noticed earlier that the Tribunal has retained this company in the case of Saxo India P Ltd. Hence, there is an error in the order passed in the case of AMD India P Ltd (supra). (e) In the case of Electronic Imaging India P Ltd (supra), the decision rendered in the case of AMD India P Ltd (supra) was followed. In view of diverse of opinions expressed in various cases, we are of the view that comparability of this company requires fresh examination as held in the case of Applied Materials India (P) Ltd. Accordingly, we restore this company to the file of AO/TPO for examining it afr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5.13 Consistent with the view taken by the co-ordinate benches in the above said cases, we direct exclusion of aforesaid three comparable companies. 5.14 The assessee seeks inclusion of five companies, which includes three companies sought to be included by the revenue, viz., M/s Evoke Technologies Ltd, M/s R S Software (India) Ltd and M/s Mindtree Limited. Since both the parties agreeing for inclusion of above said three companies, we direct the AO/TPO to include above said three companies in the set of comparable companies. 5.15 The remaining two companies, which assessee seeks inclusion are Akshay Software Technologies Ltd and LGS Global Ltd. 5.16 We heard the parties on this issue and perused the record. With regard to M/s Akshay Software Technologies Ltd, the Ld A.R submitted that the same has been considered as good comparable in the assessee's own case in AY 2005-06. However, we notice that the co-ordinate bench of Tribunal has examined this company in the case of M/s Applied Materials India P Ltd (IT(TP)A No.17/Bang/2016 dated 21.09.2016) relating to assessment year 2011-12, i.e., for the year under consideration and held the same to be not a good comparable. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with the assessee. 12.3 We have considered the rival submissions as well as the relevant material on record. As regards the decision of the co-ordinate bench in the case of Arowana Consulting Ltd. Vs. ITO (supra), the Tribunal has dealt with only one objection of employee cost in paras 8 & 9 as under : 08. What is left for consideration is assessee's grievance regarding M/s. Akshay Software Technologies Ltd. DRP directed exclusion of the said company for a reason that its employee cost was more than 89% of its total operating expenditure. We find that assessee had employee cost in excess of 90% of its operating expenditure. In our opinion, it is normal to have a high percentage of employee cost in a software development company, especially so, when the company is involved in development of software for clients at the site of the clients. Reason given by the DRP, in our opinion, was not correct. Higher employee cost is a normal feature for a software development company for the simple reason that it is a skill oriented business. The skillset required for the employees in the case of the assessee, required knowledge of Arabic also, making it all the more s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ject this ground of assessee. (ii) LGS Global Ltd. 13.1 The TPO rejected this company on the ground that the Annual Report did not give break up of employee cost and thus he could not compute its employee cost factor. The DRP upheld the rejection on the basis that the separate details of employee cost were not available. 13.2 Before us, the ld.AR of the assessee has submitted that this company has shown purchase and employee cost under a composite head which is 83.91% of the sale. Therefore this company satisfied the employee cost of 25% of total sales. The learned Authorised Representative has pointed out that in case of service provider the major component is employee cost and there is hardly any purchases therefore even if the employee cost is not separately reported, the composite of purchase and employee cost constitute 83.91% of sales. Thus he has submitted that this company should be included in the list of comparables. 13.3 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that there is no dispute that this company has not reported employee cost s....