TaxTMI 
TaxTMI 
2021 (4) TMI 240
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.... 92CA of the Income-tax Act, 1961. 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of Sub-section (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the ALP. 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying export earning filter of 75% instead of 25% of the total sales, leading to a narrower comparable set. 6. The learned AO/learned TPO/Hon'ble DRP erred in not considering the provision for bad and doubtful debts as extraordinary in nature. 7. The learned AO/learned TPO/Hon'ble DRP has grossly erred in not rejecting Acropetal Technologies Ltd. on the grounds of functional dissimilarity, abnormal trend of profitability and failing of employee cost filter. 8. The lear....
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.... Solutions Ltd. was selected by the Ld. TPO during the transfer pricing assessment proceedings. Assessee also included this comparable in the TP study. The Ld. AR submitted that based on judicial pronouncements by coordinate benches of this Tribunal, in Genesis Integrating Systems (India) Pvt. vs. DCIT reported in [2012] 20 taxmann.com 715, Mobility Infotech India (P.) Ltd. v. Dy. CIT [2018] 97 taxmann.com 2 and many more such decisions, it was submitted that, this comparable is functionally not similar with that of assessee due to high turnover and deserves to be excluded. 4. The Ld. AR submitted that though this comparable was included by assessee. Subsequently it could be alleged for exclusion. In support he placed reliance on the decision of Hon'ble Special Bench of Chandigarh Tribunal in case of Quark Systems Ltd., reported in 38 SOT 307. 5. It was submitted that, no prejudice would be caused to the revenue by reason of the above additional grounds being admitted and adjudicated and accordingly the balance of convenience is in favour of such an order being passed by this Hon'ble Tribunal. The Ld. AR states and submits that the issues raised in the additional grou....
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....the company Markup on Total Cost (without adjustment) A B M Knowledgeware Ltd. 40.35 C G- VAK Software& Exports Lrd. 5.44 Globsyn Infotech Ltd. 6.6 Kals Information System Ltd. 18.69 Melstar Information Technologies Ltd. 1.93 Persistent Systems and Solutions Ltd. 21.79 R S Software (India) Ltd. 16.18 Thinksoft Global Services Ltd. 0.08 Number of Companies 8 Mean 13.88% 14. Ld. TPO rejected economic analysis undertaken by assessee and conducted fresh economic search by applying following filters: Step Description 1 Companies whose data for FY 2010-11 is not available - excluded 2 Companies whose software development service income < Rs. 1 Cr - excluded 3 Companies whose software development service revenue is < 75% of the total operating revenue - excluded 4 Companies which have related party transactions > 25% of sales -excluded 5 Companies which have export sales < 75% of sales in software cases - excluded 6 Companies whose employee cost is < 25% of their turnover in software cases - excluded 7 Companies having different financial year ending - excluded 8 Compani....
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....ervices Ltd. 22. The Assessee also seeks working capital adjustment on actual in Ground No. 12. 23. Apart from the above referred comparables, Ld. AR has not pressed upon and argued any other issues raised in the ground of appeal. Accordingly, we are restricting our observation in respect of selected comparables referred to herein above alleged by assessee for inclusion/exclusion. 24. Before we undertake comparability analysis, it's sine qua non to understand the FAR of assessee under software development service segment. Functions: Mavenir India has 101 employees, including a country manager and an administrative staff, directors of various projects (e.g. software development, improvements to existing software, testing and validation of software, and document writing), and system engineers providing technical support to the sales team. Mavenir India does not sell products or provide similar contract R&D and support services to third party customers. 25. Asset Owned: 26. Risks Assumed: 27. Ground No. 7 Assessee is seeking exclusion following comparable Acropatel Technologies Ltd.: It is submitted that this comparable is functionally not similar wit....
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....formation available in the public domain or by resorting to a process of calling for information from this company u/s. 133(6) of the Act. The learned counsel for the Assessee in this regard pointed out that the Hon'ble Delhi High Court rejected a similar argument by the Revenue in the case of Pr. CIT v. Saxo India (P.) Ltd. [2016] 74 taxmann.com 88. In the circumstances, this company was rightly held by the DRP to be not comparable. We are of the view that once a company becomes not comparable for the reason that segmental information to apply filters, we need not consider any other aspect of comparability. The learned counsel for the Assessee made submissions before us that this company was rightly directed to be excluded by the DRP on the above basis and further contended that even otherwise, this company is not functionally comparable to the Assessee. As already stated, we do not wish to go into this aspect as this company goes out of comparability on other reasons. 32. Further, Ld. AR alleged that, Acropetal is functionally not similar with a contract service provider like assessee. This observation could not be dislodged by Ld. CIT. DR. We also note that, Acropetal ....
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....007-08, therefore the facts of the different year cannot be applied without verification. Accordingly, we set aside this issue of comparability of E-Just Solution Ltd. to the record of the Assessing Officer/TPO for deciding the same after verification of the relevant facts as well as considering the objections of the assessee." 38. The decision of this Tribunal in the case of M/s. Applied Materials of India Ltd. v. ACIT (supra) relied upon by the Ld. AR based on two aspects (i) The information received under Section 133(6) of the Act was considered by the TPO without sharing with the assessee and (ii) nature of the activity is KPO. It is pertinent to note that the question of BPO and KPO is relevant only in ITES segment and not for software development services segment. 39. Accordingly, we set aside this issue of comparability of E-Jest Solutions Ltd. to the record of the Assessing Officer/TPO for deciding the same after verification of the relevant facts as well as considering the objections of the assessee. 40. Ground No. 9 is against inclusion of M/s. E-Infochips, by authorities below. 41. Ld. AR placed reliance upon decision of coordinate bench of this Tribunal in c....
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....wise, we are of the view that the DRP rightly arrived at the finding that companies software development service revenue for FY 2010-11 was less than 75% of its total operating revenue for the year. Thus the above action of the DRP in rejecting the above companies correct." 45. From the above, it is observed by this Tribunal consistently in various decisions for A.Y: 2011-12 held that, this company does not satisfy service income filter being 75%. We therefore, do not see any reason to set aside this company to Ld. TPO. Therefore, respectfully following view taken by coordinate bench of this Tribunal in DCIT vs. M/s. CGI Information Systems and Management consultations Pvt. Ltd. (supra), we direct Ld. TPO to exclude this company. Accordingly this ground raised by revenue stands dismissed. Ground No. 10 46. ICRA Technology Analytics Ltd. is not functionally comparable with a captive service provider like assessee. It is submitted that this company has significant RPT of 24.81% with margin of 24.83% and predominantly into Software Development Services and which is engaged in diversified activities and no segmental details are available and further concentrated in niche ar....
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....ion, on perusal of the annual report, it is noticed by us that the segmental information is available for two segments i.e., services and sales. However, it is evident from the annual report that the service segment comprises of software development, software consultancy, engineering services, web development, web hosting, etc. for which no segmental information is available and therefore, the objection of the assessee is found acceptable. Accordingly, Assessing Officer is directed to exclude the above company from the comparables." 15. We find that the facts recorded by the DRP in respect of business activity of this company are not in dispute. Therefore, when this company is engaged in diversified activities of software development and consultancy, engineering services, web development & hosting and substantially diversified itself into domain of business analysis and business process outsourcing, then the same cannot be regarded as functionally comparable with that of the assessee who is rendering software development services to its AE. 16. In view of the above facts, we do not find any error or illegality in the findings of the DRP that this company is functi....
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..... Having considered the rival submissions as well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this company from the sale of software services and products and in the absence of segmental details, it cannot be considered as comparable with software services segment. We find that this company has shown the income from sale of software services and products to the tune of Rs. 6.67 crores. We further note that as per Schedule 11, the entire revenue has been shown under one segment i.e., sale of software services and products. Therefore, no separate segment has been given in respect of software services. Accordingly, the composite data of revenue as well as margins of this company pertaining to the sale of software services and products cannot be considered as comparable with the software development services segment of the assessee. In view of the above facts and circumstances, we do not find any error or illegality in the directions of the DRP in excl....