2020 (11) TMI 1099

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....to certain international transactions pertaining to backend and support services to mobile operations. Therefore, a reference was made to TPO for determination of Arm's Length Price (ALP) of the said international transactions. The TPO vide his order dated 29/01/2015, determined the adjustment in ALP of the international transactions at Rs. 76,09,281/-, i.e. in respect of provision of software development services at Rs. 43,28,861/- and provision for IT enabled back office services segment at Rs. 32,80,420/-. In accordance therewith, draft assessment order was proposed bringing the adjustment in respect of international transactions to tax. Against the draft assessment order, the assessee raised its objections before the DRP. 3. The DRP vide its order dated 29/12/2015 passed u/s 144C(13) of the Act granted partial relief to the assessee and in accordance with the order of DRP, the final assessment order dated 29/02/2016 was passed, against which the assessee is in appeal before by us raising the following grounds of appeal: "1. On the facts and circumstances of me case and in law, me learned Dispute Resolution Panel ('DRP') erred in confirming the action of the ....

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....cing Related 5. That the Ld. DRP/AO erred in disallowing 'provision for customer claims amounting to Rs. 43,04,342 considering it to be provisional in nature and an unascertained liability. 6. That the Ld. DRP/AO erred in adding back 'provision for customer claim5 to book profit calculated u/s 115JB of the Act, considering them to be contingent liability. 7. On the facts and in circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B and 234C of the Act That the Appellant craves leave to add to and 1 or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." 4. At the time of hearing, the ld. Counsel for the assessee submitted that ground No. 1 is general in nature and needs no adjudication. He further submitted that the assessee does not wish to press any other ground, except, ground No. 2. Therefore, all other grounds are dismissed as not pressed. 4.1 In addition to the above grounds, the assessee had also raised additional grounds of appeal. However, at the time of hearing, ld. Counsel for the assessee submitted t....

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....any wherein the income from sale of software services and products has been shown at Rs. 6101.27 Million and there is no bifurcation of the income between the services and products. The ld. Counsel for the assessee submitted that since no segmental data is available in the public domain, the said company cannot be taken as comparable to the assessee company. Further, he has also submitted that as per Notes of Account of Persistent Systems Ltd., it is predominantly engaged in the outsourced product development services and the company offered complete produce lifecycle services, unlike the assessee, who is offering only software development services. He has drawn our attention to page No. 99 of the paper book wherein the company described itself as a company engaged in providing outsourced product development services to independent software vendors and enterprises and that the company derives significant portion of its revenue from export software services and products. He has also submitted that Persistent Systems Ltd. has been recognized and awarded as a leading global outsourced product development vendor in terms financial statement of FY 2009-10 and the relevant portion is rep....

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....ubmitted that the assessee as well as Persistent Systems Ltd. are offering software development services only and further that Persistent Systems is not into software product development as is evident from the financial statement of the company. He submitted that TPO perused the financials of the company and observed that the company has significant portion of its revenue from software development services and products and that the DRP also noted that the company has 297 customers with whom the company has long term contract for 'software development'. With regard to assessee's contention that Persistent Systems Ltd is into rendering of product development services, the DR submitted that it is not into product development but it is into software development services like the assessee. Regarding owning of intangibles and high turnover of Persistent Systems Ltd. as compared to other companies, the DR submitted that the onus is on the assessee to show the quantitative linkages with the said parameters and their margin. He, therefore, prayed that the said company be retained as comparable to the assessee. 7. Having regard to the rival contentions and material on record, we find that....

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....Y. 2011-12 - ITA No. 614/Mds/2016 (Pg. 6-7; para 9-10); vi. ACIT Vs. Broadcom India Research (P) Ltd., - AY. 2010-11 - ITA No. 348/Bang/2015 (pag. 10; para 13.4)." 9. We have considered the rival contentions. As seen from the orders placed on record and also consistent stand taken by the Tribunal in various such cases, we have no hesitation in excluding two companies, Persistent Systems Ltd., and Sasken Communication Technologies Ltd on functionality basis. As far as Evoke Technologies Pvt. Ltd., is concerned, this company was also argued to be included in the case of Electronic Arts Games (India) Private Ltd., Vs. Dy.CIT (supra). But the Bench did not accept on the reason that assessee has accepted the exclusion in a later year. However, as pointed out by the Ld. Counsel, this company is functionally similar to assessee-company and the annual report does not disclose any peculiar economic circumstances as stated by the DRP. Moreover, the said consultancy charges were shown under the head administrative expenditure and the increase in administrative expenditure is proportionate to increase in turnover. Therefore, we are of the opinion that Evoke Technologies Pvt. ....

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....No. 614/Mds/2016 - Para 11-12 Page 8 (Page 103 of the compilation)." 9. The ld. DR, on other hand, submitted that the TPO has taken only segmental details of this company into consideration and, therefore, it should not be excluded from the final list of comparables only on the ground that it has developed products also. 10. Having regard to the rival contentions and material on record, we find that in the case of Conexant Systems Pvt. Ltd. for AY 2011-12, the coordinate bench of this Tribunal has observed that though the breakup of revenue between the services and products is available, the breakup of operating costs and the net profitability between the two segments is not available. Similar view has been expressed by the coordinate bench of ITAT, Delhi in the case of Saxo India (P) Ltd. reported in (2016) 176 TTJ 540. The relevant paras are reproduced hereunder:- "(vi) Sasken Communications Technologies Ltd. 15.1 The TPO included this company in the set of comparables despite the assessee's objection that it was functionally different and also had Product portfolio. 15.2 After considering the rival submissions, we find from page 58 of the TPO....