TaxTMI 
TaxTMI 
2021 (10) TMI 395
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....ing software development services to the overseas Symentec group entities. Of course, the assessee also provides various other services to the group entities, such as, marketing support services, general and administrative services, etc. However, presently, we are concerned with provision of software development services. In the financial year relevant to the assessment year under dispute, assessee had provided software development services to its overseas associated enterprises (AEs) and earned revenue of Rs. 28,26,79,000/-. In the TP study report, the assessee had benchmarked the transaction with the AEs by applying transactional net margin method (TNMM) as the most appropriate method with operating profit/operating cost (OP/OC) as the profit level indicator (PLI). Undertaking search process in the database, the assessee had selected fifteen companies as comparables with average margin of 9.51%. Since, the assessee had shown operating margin at 12.31%, the transaction with AEs was claimed to be at arm's length. The Transfer Pricing Officer (TPO), however, did not find the assessee's benchmarking acceptable. After verifying the details and materials available on record, he....
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....td. have been rejected as comparables only for the reason that there is wide variation in their operating margin over the years. He submitted, once the companies are accepted to be functional similar to the assessee, they cannot be rejected merely because of variation in their margin. He submitted, CAT Technologies has been accepted by the TPO himself in assessee's own case in assessment years 2011-12, 2012-13 and 2015-16. Thus he submitted, there is no justifiable reason to exclude the company as a comparable. He submitted, Lucid Sofware Ltd. also was not rejected due to any functional difference. Drawing our attention to the annual reports of the company, he submitted, both the companies are functionally similar to the assessee. As regards, Silverline Technologies Ltd., he submitted, it has made loss in the current year and in the preceding assessment year. Whereas, it has made profit in assessment year 2011-12. Therefore, it cannot be treated as a consistent loss making company. Thus, he submitted that these three companies have to be treated as comparables. In support of his contention, learned counsel relied upon the following decisions:- 1. PCIT vs. Honeywell Tur....
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....road comparability has to be seen. If functions of the comparables are broadly similar to the assessee, they can be treated as comparables. He submitted, though a number of companies came out in assessee's search process, as would be evident from the TP study report; however, the assessee did not consider them as comparables due to their relatively high margin. Thus, he submitted, the assessee has resorted to cherry-picking. In this context, he specifically referred to Thirdware Solutions Ltd. The learned departmental representative submitted, software development service also includes development of software product. Therefore, a company cannot be rejected simply for the reason that it has developed a software product. As regards the decisions relied upon by the learned counsel for the assessee, the learned departmental representative submitted, unless it is demonstrated that the assessees, in relation to whom the decisions have been rendered, are functionally similar to the present assessee, the decisions cannot be made applicable. 11. We have considered rival submissions and perused materials on record. Undisputedly, CAT Technologies Ltd., Lucid Software Ltd. and Silverli....
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....in the impugned assessment year. As per generally accepted legal principle, in many cases comparables having super normal profit are not considered as comparables. Reverse is the situation in case of Silverline Technologies Ltd. Compared to assessee's margin, this comparable has shown abnormally high negative margin in two consecutive assessment years. Therefore, in our considered opinion, it will not be safe to include this company as a comparable. Therefore, we agree with the decision of the departmental authorities insofar as Silverline Technologies Ltd. is concerned. 13. As regards Infobean Technologies Ltd. and Thirdware Solutions Ltd. and Cyber Infrastructure Ltd. are concerned, undoubtedly, these comparables were selected by the TPO. After taking note of the rival contentions and perusing materials on record, we find that as per the information available from the annual report of Infobean Technologies Ltd. it is involved in sale of software products, whereas, the transaction of the assessee with its AE being considered for comparability analysis is relating to software development services. It is further evident from the annual report of the company, it is into divers....
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....ure Pvt. Ltd. was excluded for the very same reason. In view of the aforesaid, we direct exclusion of Cyber Infrastructure Pvt. Ltd. as well. 16. In nutshell, the assessing officer is directed to include CAT Technologies Ltd. and Lucid Software Ltd. in the list of comparables. Further, he directed to exclude Infobean Technologies Ltd., Thirdware Solutions Ltd. and Cyber Infrastructure Pvt. Ltd. from the list of comparables. 17. In grounds 5 and 7 assessee has challenged the denial of working capital adjustment and risk adjustment. 18. We have considered rival submissions and perused materials on record. Before us, the learned counsel for the assessee submitted that though in the TP study report, the assessee has not provided detailed working of the working capital adjustment and risk adjustment, since, the transaction with AE was found to be at arm's length; however, the assessee has reserved its right to claim such adjustment at a later stage. He submitted, before the TPO, the assessee had furnished detailed working of working capital adjustment and risk adjustment. However, neither the TPO nor DRP have considered them properly. 19. Per contra, the learned departme....