TaxTMI 
TaxTMI 
2021 (10) TMI 1339
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....ital service provider). For the assessment year 2015-2016, the return of income was filed on 27th November, 2015, declaring total income of Rs.8,02,38,163. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued. During the course of assessment proceedings, the A.O. referred the case to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transactions undertaken by the assessee with its AEs (In this case transfer pricing adjustment was made by TPO only with regard to software development segment). In the transfer pricing study, the assessee had selected Transactional Net Margin Method (TNMM) as the most appropriate method. The assessee had selected fourteen companies as comparable companies in its transfer pricing study. For the companies identified as comparable by the assessee, the weighted average operating profit earned on cost was computed using the financial data pertaining to financial year 2012-2013, financial year 2013-2014 and financial year 2014-2015. The weighted average profit margin of the comparable companies was determined from 7.56% to 19.99% with a median of 12.05%. Since operating profi....
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....ordingly, an adjustment was made on the account of ALP Rs.4,18,31,197 in the software development segment. The details of comparable companies selected by the TPO, the computation of ALP and the adjustment made by the TPO are as follows:- The final set of comparable companies selected by the TPO in TP Order. Sl. No. Company Name Financial Year wise OP/OC (%) 2014-15 2013-14 2012-13 Average 1. Tata Elxsi Ltd (Seg.) 23.33 22.02 11.24 19.34 2. Rheal Software Pvt. Ltd. 2.76 36.64 No data in public domain 19.88 3. Mindtree Ltd. 20.55 21.18 19.75 20.55 4. Larsen & Toubro Infotech Ltd. 24.22 23.54 17.44 24.82 5. R S Software (India) Ltd. 32.66 24.14 17.44 24.82 6. Infobeans Technologies Ltd. 20.7 41.95 29.22 29.91 7. Persistent Systems Ltd. 31.11 35.44 28.2 31.69 8. Nihilent Technologies Ltd. 29.19 35.72 No data in public domain 32.21 9. Aspire Systems (India) Pvt. Ltd. 30.98 38.04 No data in public domain 34.18 10 Inteq Software Pvt.Ltd. 31.16 45 Fails employee cost filt....
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....ted (ix) Cybage Software Private Limited (x) Aspire Systems (India) Private Limited (xi) Inteq Software Private Limited (xii) Infobeans Technologies Limited. 6.1 The companies the assessee is seeking to include are as follows:- (i) Kals Information Systems Limited (ii) E-Zest Solutions Limited (iii) CG-VAK Software & Exports Limited 6.2 The learned AR submitted that out of twelve companies sought to be excluded, nine companies are to be excluded on turnover filter. The list of nine companies sought to be excluded are companies mentioned above in Sl.No.(i) to (ix). As regards exclusion of Aspire Systems (India) Private Limited and Inteq Software Private Limited, it was submitted by referring to the financials that these companies are not functionally comparable to the assessee. As regards exclusion of Infobeans Technologies Limited, the learned AR relied on the order of the Bangalore Bench of the Tribunal in the case of Zynga Game Networks Indfia Private Limited v. DCIT in ITA No.2573/Bang/2019 (order dated 23.03.2021). As regards the companies which the assessee is seeking to include in the comparable list, the le....
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....d v. DCIT in ITA No.3171/Bang/2018 (order dated 28.06.2019) had followed the judgement of the Hon'ble Bombay High Court in the case of CIT v. Pentair Water Private Limited (supra) and directed the AO / TPO to exclude from the list of comparables, the companies having turnover of more than Rs.200 crore. The relevant finding of the ITAT in the case of Zynga Game Network India Private Limited v. DCIT (supra), reads as follows:- "38. We note that Ld.AO/TPO has applied filter of more than Rs.1 crore, but did not put an upper limit to the filter. This Tribunal in case of Genesis Integrating Systems India Pvt Ltd vs DCIT reported in (2012) 53 SOT 159 and various other decisions have held that, companies having turnover in excess of Rs.200 crores cannot be compared with companies having turnover less than Rs.200 crore. This preposition has been accepted by Hon'ble Bombay High Court in case of CIT vs Pentair Water Pvt.Ltd., by order dated 16/09/2015 in ITA No. 18/2015. Hon'ble Court upheld rejection of companies having turnover holding that turnover is a relevant factor in considering comparability of companies. 39. Objection raised by Ld.CIT.DR has been dealt with b....
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....ms (I) (P.) Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Ch....
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....e relevant assessment year. It is ordered accordingly. Infobeans Technologies Limited 7.3 The assessee is seeking the exclusion of this company from the comparable list. According to the learned AR, Infobeans Technologies Limited is engaged in providing Custom Application Development (CAD), Content Management Systems (CMS), Enterprise Mobility (EM), Big Data Analytics (BDA). Therefore, it was submitted that Infobeans Technologies Limited cannot be compared to assessee, who is engaged in providing routine software development services to its AEs. 7.3.1 We have heard rival submissions and perused the material on record. The Tribunal in the case of Zynga Game Network India Private Limited (supra) had excluded Infobeans Technologies Limited from the list of comparables. The Tribunal held that the said company was having multiple segments and cannot be compared with a captive service provider. The relevant finding of the Tribunal in the case of Zynga Game Network India Private Limited (supra), reads as follows:- "43. We have perused submissions advanced by both sides in light of records placed before us. It is observed that the annual report of this company categorises....
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....e AO / TPO and the DRP's order, it is stated that Inteq Software Private Limited is only involved in software development services and the entire turnover is from such service. It is not clear how DRP had arrived at such a conclusion. The profit and loss account of Inteq Software Private Limited is not on record. Therefore, we are not in a position to verify the veracity of the findings of the AO / TPO and the DRP, which is contrary to the narration in the balance sheet of Inteq Software Private Limited. Therefore, we deem it appropriate to restore this issue to the files of AO / TPO. The AO / TPO is directed to afford a reasonable opportunity of hearing to the assessee and decide whether Inteq Software Private Limited is to be included in the comparable list of companies. It is ordered accordingly. Aspire Systems (India) Private Limited 7.5 The assessee is seeking the exclusion of the above company from the list of comparables. It is contended that Aspire Systems (India) Private Limited is an outsourced technology service company focused on helping software companies create innovative products through its onsite and offshore model. It is also contended that the said company ....