TaxTMI 
TaxTMI 
2022 (12) TMI 377
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....s :- Sr.No. Nature of the AE Description Amount in Rs. Method used 1 eGain Communication Corp. Software Development Services 30,42,26,067 TNMM 2 eGain Communication Corp. Reimbursement of expenses Recd 22,04,073 CUP 3 eGain Communication Corp. Reimbursement of expenses Paid 1,37,539 CUP Total 30,65,67,679 3. The assessee company sought to justify the consideration received for the above international transactions entered with its AE to be at arm's length price (ALP). The assessee company also submitted Transfer Pricing (TP) study report adopting the Operating Profit/Operating Cost (OP/TC) as a Profit Level Indicator (PLI) for the transfer pricing study. The assessee company also applied Transactional Net Margin Method (TNMM) which is considered to be the most appropriate method for the purpose of benchmarking the international transactions. The assessee company's profit margin was computed at 17.49% and the assessee company claimed that the same was comparable with other companies rendering software development services. For the purpose of TP study, the assessee company chosen 12 comp....
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....g in peculiar economic circumstances after giving valid reasons were excluded (ix) The companies having turnover of Rs.1 Cr to Rs.500 Cr have been selected 5. Applying the above filter, the TPO had rejected the 10 comparables and accepted 2 comparables chosen by the appellant company and introduced 11 new comparables and finally selected the following comparables :- Sr. No. Name of Company PLI % 2 CG-VAK Software & Exports Ltd. 18.40 2 Cignity Technologies Ltd. 8.59 3 Exilant Technologies Pvt. Ltd. 10.48 4 E Zest Solutions Ltd. 9.30 5 Harbinger Software Pvt. Ltd 21.98 6 Infobeans Systems India Ltd./Infobeans Technologies 33.73 7 R. S. Software (India) Ltd. 17.35 8 Priya Softweb Solutions Pvt. Ltd. 21.02 9 Sasken Communication Technologies Ltd. 12.15 16.16 10 Saven Technologies Ltd. 26.96 26.54 11 Thirdware Solutions Ltd. 36.98 40.42 12 Vama Industries Ltd. 36.27 36.27 Average 21.10 23.94 6. The TPO co....
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....and objected by the appellant on the ground that it is software product development company and also deal with hardware placing reliance on the company's revenue recognition policy as well as descriptive of nature of business of the company and no segmental results was available. However, the TPO rejected the above contention by stating that the said company is only into software development company. Even on appeal before the ld. CIT(A), the inclusion of this company in the set of comparables was upheld placing reliance on the information provided in Profit & Loss Account which indicated that the income is mainly earned from software. 13. Being aggrieved the appellant is in appeal before us. 14. It is argued before us that this company is not functionally comparable with that of the assessee company, as it is engaged in sale of software product and earning income in the form of license fee. The ld. AR taking us through Profit & Loss Account at page no.1225 of the Paper Book submitted that this company had purchased stock-in-trade of Rs.24.82 crores which indicate that the sale of the products and there is no bifurcation of revenue from sale of software development and sale....
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....ware products as well as providing software services cannot be compared with a company which is engaged in software development services. Therefore, we direct the Assessing Officer/TPO to exclude this company, 'Thirdware Solutions Ltd.' from the list of the comparables. 19. The other grounds of appeal raised before us seeking exclusion/inclusion of comparables was not pressed during the course of hearing before us by stating that in the event the comparable entity, 'Thirdware Solutions Ltd.' is excluded from the list of comparables chosen by the TPO consideration received by the assessee shall be at arm's length price. Therefore, we dismiss the other grounds of appeal seeking the exclusion/inclusion of the comparables as other grounds of appeal become academic in nature. However, we grant liberty to the appellant to press these grounds of appeal in the event on further appeal this comparable, 'Thirdware Solutions Ltd.' is held to be comparable. 20. Ground of appeal no.2 challenges the addition u/s 40(a)ia) on account of payment made for purchase of license on the ground that the tax was not deducted at source. Admitted facts of the case are that the appellant made a paymen....