TaxTMI 
TaxTMI 
2021 (5) TMI 481
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....ee) A.Y. 2012-13 4. In ITA No. 632/PUN/2017, grounds of appeal raised by the assessee are as follows: "Grounds of appeal pertaining to transfer pricing adjustment 1. In appropriate transfer pricing adjustment even though the pricing of all international transactions of the Appellant was at arm's length Erred in making/confirming transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm's length price for its international transactions pertaining to rendering of software development support services to the AEs. 2. In appropriate use of single year and non-contemporaneous financial data comparable companies for transfer pricing analysis. Erred in considering the operating profit margins on operating cost of the comparable companies based on the financial data pertaining only to financial year ended 31 March 2012 and rejecting use of financial data of comparable companies for multiple years i.e. including 31 March 2011 and 31 March, 2010. Further, erred in computing the arm's length price using the financial information of comparable companies available at the time of assessme....
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....ant Erred in identifying additional non-comparable companies as comparable to the Appellant 10. Inappropriately rejecting adjustment to account for differences in the risk profile of the appellant vis-a-vis the comparable companies. Erred in comparing full-fledged risk bearing entities with the Appellant's captive operations without making any risk adjustment for differences between the risk profile of comparable companies vis-a-vis the risk profit of the appellant. Other Grounds of appeal: 11. Inappropriate levy of interest and initiation of penalty proceedings Erred in levying interest under section 234B of the Act and initiating penalty proceedings under section 271(1)(c) of the Act. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Honourable Income Tax Appellate Tribunal to decide this appeal according to law." 5. The assessee has also filed modified grounds in respect of Ground Nos. 8 & 9 of the grounds of appeal in the appeal memo specifically mentioning the concerned compani....
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.... of the comparable identified by the Appellant in the TP study report i.e. Thinksoft Global Services Limited which is beyond the powers of the learned CIT(A) by virtue of Section 251(1)(a) as amended w.e.f. 01.06.2001. The Appellant prays that the order of the learned CIT(A) to the extent of remanding the matter be vacated and the direction should be granted to include the comparable on the basis of merits submitted before the learned CIT(A). The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal any time before or at the time of hearing of the appeal so as to enable your honours to decide this appeal according to law." 8. At the very outset, the Ld. Counsel for the assessee submitted that they are not pressing Grounds of appeal No. 1 to 7 & Ground No. 10. After hearing the submission of the Ld. Counsel for the assessee, Grounds of appeal No. 1 to 7 & Ground No. 10 are dismissed as not pressed. 9. The Ld. Counsel for the assessee submitted that Ground No. 11 is premature and consequential and hence, the same does not call for any adjudication. 10. Therefore, the effective grounds of appeal as per grounds of a....
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....d all the comparability criteria/filters applied while conducting the transfer pricing study. The TPO has not accepted Thinksoft Global Services Limited as comparable company since the annual report of this Company was not available in public domain and as such rejected this company from the list of the comparable companies with that of the assessee company. 14. With regard to this company i.e. Thinksoft Global Services Limited, the assessee submitted that the name of Thinksoft Global Services Limited has been changed into "SQS India BFSI Limited" in FY 2014-15. The said company is listed on the Bombay Stock Exchange and the Annual Report of the company is available on the BSE website (i.e. in public domain). That further, the assessee submitted that Thinksoft Global Services Limited satisfies all the comparability filters that have been applied by the TPO in his TP order. 15. The Ld. CIT(Appeals) vide Para 2.2.2.12.3 and 2.2.2.12.4 has observed that the company's annual report was placed before him which was not examined by the TPO and therefore, he directed the TPO/AO to examine the company's annual report submitted from the point of view of its comparability and re....
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....ybermate Infotek Limited was functionally different from that of the assessee company for FY 2011-12 relevant to assessment year 2012-13. Broadly, the contention of the assessee was that this company is also into product development and the assessee provides Software development services, secondly, it had extra-ordinary event of labour unrest during the year, thirdly, it is a super normal profit making company and fourthly, it fails the net fixed asset to sales filter used by the TPO. Thereafter, the Ld. CIT(Appeals) vide Para 2.3.1.2.4 onwards as per reasons given in his order, rejected the contention of the assessee and upheld the order of TPO. 20. At the time of hearing, the Ld. Counsel for the assessee took us to the annual report of the Cybermate Infotek Limited at Page 1083 of the paper book onwards. That therein, at Page 1096, the evidence of products of this company i.e. Cybermate Infotek Limited has been specifically mentioned. That, reiterating the submissions already made before the Department, the Ld. Counsel for the assessee submitted that this company is functionally dissimilar with that of the assessee company since the said company i.e. Cybermate Infotek Limited ....
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.... transactions have been benchmarked separately even by the TPO and the Assessing Officer. The concern which is functionally different from the assessee i.e. in addition to providing software development services, was also product company, then the margins of said concern cannot be compared with the margins of assessee. 11. The Hon'ble High Court of Delhi in Prl. CIT Vs. Saxo India Pvt. Ltd. in ITA No. 682/2016, for assessment year 2011-12, judgment dated 28.09.2016 had held that the cost for a particular segment had to be available in order to determine the exact profitability and if same was not available, then the said company could not be selected as comparable company. The Hon'ble High Court of Delhi (supra) while deciding the case of a company which was engaged in providing software development services and its margins were compared with a company which were involved in both software development services as well as sale of software products held that the said concern was to be rejected from final set of comparables. 12. The Mumbai Bench of Tribunal in Ness Technologies (India) Pvt. Ltd. Vs. ACIT in ITA No. 7016/Mum/2012, relating to assessment year 20....
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.... (ii) Infobeans Systems Private Limited:- 23. The TPO had held that this company is comparable to that of the assessee since it passes all the filters provided to the assessee. Broadly, the assessee wants exclusion of this company based on extraordinary event i.e. the event of demerger that has taken place and therefore, the assessee wants exclusion of this company from the final list of comparables. The assessee had filed detailed written submissions before the Department in this regard. The Ld. CIT(Appeals) was of the opinion that demerger became effective only on 26.09.2012 as per High Court's order. 24. At the time of hearing, the Ld. Counsel for the assessee took us to the annual report of this company at Pages 689 to 692 of the Paper book wherein it has been stated as follows: "MERGER A scheme of Arrangement ("Scheme") between the company, Infobeans Systems India Private Limited ("the Demerged Company") currently known as Seed Enterprises Private Limited) to Infobeans Software Solutions Private Limited ("Resulting Company, currently known as infobeans Systems India Private Limited"). Under the scheme, the Resulting Company had acquired the Softwar....
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.... Systems Pvt. Ltd., the financials of said concern clearly reflect that in addition to providing software development services to its associated enterprises, it had also earned foreign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee. 19. Before parting, we may also refer to the observations of DRP on Safe Harbour Rules but the same at present cannot be applied and in any case the same cannot be applied to equate software product with software development company. Another aspect which had taken place during the accounting period is the demerger of business of Seed Enterprises Pvt. Ltd., for which the said concern had filed re....
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....t available before the Ld. CIT(Appeals) for proper adjudication to decide whether this company should be excluded from the final list of comparables or not. In view thereof, in the interest of justice, we set aside the order of the Ld. CIT(Appeals) on this comparable and remand the same to the file of the AO/TPO to determine from company's annual report for the year under consideration in respect of Director's report, notes of accounts and audit report regarding the functional comparability of the company. The assessee is directed to provide full details so that the AO/TPO would adjudicate the matter as per law complying with the principles of natural justice. Thus, this part of ground is allowed for statistical purposes. 29. Thus, ground No. 9 raised in appeal by the assessee is partly allowed for statistical purposes. 30. Now coming to the additional ground i.e. Ground No. 13, the assessee submitted that they are not pressing this ground. After recording the submissions of the assessee, this additional ground of appeal i.e. Ground No. 13 is dismissed as not pressed. 31. Next additional ground i.e. Ground No. 12 pertains to rejection of Thirdware Solutions Limited....
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.... company is deriving income of Rs. 2,32,37,588/- from sales of licences, Rs. 8,91,77,023/- from software services, Rs. 47,85,72,420/- from export of SEZ unit, Rs. 16,29,00,630/- from export from STPUI unit and a sum of Rs. 1,64,33,744/- from subscriptions. No segmental information is available. 36. On a careful consideration of the diversified functions performed by Thirdware Solutions Ltd. we are of the considered opinion that this company is not suitable to be compared with a captive contract software developer like the assessee and this company is liable to be excluded from the list of the comparables. We accordingly direct learned AO to delete this company from the list of comparables for benchmarking the international transactions." 33. The Ld. DR submitted that this issue may be remanded to the file of the AO/TPO for detailed factual verification based on annual report and other relevant documents in order to verify the nature and scope of the function of Thirdware Solutions Limited. The Ld. Counsel for the assessee did not raise any objection to this proposition. We are of the considered view, in the interest of justice, we agree with the submissions of the Ld. D....