TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 707
X X X X Extracts X X X X
X X X X Extracts X X X X
....irections dated 19 February 2021 issued by the Honorable Dispute Resolution Panel - 3 (WZ), Mumbai (hereinafter referred to as 'Hon'ble DRP') and the order passed by learned Transfer Pricing Officer ('TPO') dated 31 October 2019, on the following grounds: On the facts and in circumstances of the case and in law, the learned TPO, learned AO and Hon'ble DRP have erred as under: 1. Inappropriate confirmation of transfer pricing adjustment of INR 7,90,08,000 in relation to the international transaction pertaining to provision of Information Technology ('IT') services to Associated Enterprises (AEs) Erred on the facts and in circumstances of the case and in law by confirming transfer pricing adjustment of INR 7,90,08,000 by not considering/accepting the analysis undertaken by the Appellant to determine arm's length price for its international transaction pertaining to provision of IT services for A Y 2016-17. 2. Non-consideration of comparability analysis as documented in the transfer pricing study report Erred in law on facts and in circumstances of the case by not considering the data provided in the transfer pricing study report for benc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hnologies Ltd - Maveric Systems Limited - Kals Information Systems - CG- V AK Software & Exports Ltd - Infornile Technologies Ltd 7. Accepting certain additional companies as comparable to Ventura India in relation, to provision of IT Services Erred on facts and in circumstances of the case and in law in accepting following additional companies as comparable to the Appellant in relation to international transactions pertaining to provision of IT Services: - Cybage Software Pvt. Ltd. - Thirdware Solutions Ltd. - Aspire Systems (India) Ltd. - Nihilent Technologies Pvt. Ltd. - Harbinger Systems Pvt. Ltd. - E-Inforchips Ltd. - Dun & Bradstreet Technologies & Data Services Pvt. Ltd (Dun & Bradstreet) - Exilant Technology Pvt. Ltd. - Puresoftware Pvt. Ltd. - Bhilwara Infotechnology Ltd. 8. Adopting of incorrect methodology while computing related party filter of 25% in case of Aspire systems (India) Pvt. Ltd. Erred in computing the workings of related party filter by considering the percentage of related party income and related party expenses to operating income and operating expenses. respectively, instead of holistic approach of to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e above Grounds of Appeal at any time before or at the time of proceedings so as to enable your Honours to decide these objections according to law. 2. At the outset, learned counsel for the assessee submitted referring to the Grounds of Appeal filed in the Appeal Memo that the assessee is pressing only Ground No. 7 and rest of the grounds are not pressed. That after hearing the submissions of the learned counsel therefore, the only effective ground is Ground No. 7 and all other grounds filed in the Appeal Memo are dismissed as not pressed. 3. In respect to Ground No. 7, the assessee is disputing the inclusion of certain companies as comparables in the final set of comparables in respect of assessee-company for benchmarking international transactions and determination of ALP. The assessee wants exclusion of certain companies which have been included by the TPO/AO considering them to be comparable companies with that of the assessee. Brief background in this case are that (a) Ventura India incorporated on 10th June 2004, is registered as a 100% Export Oriented Unit under the Software Technology Park Scheme at Pune. It is engaged in rendering information technology enabled servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 8.2.4 onwards. The DRP as per its detailed findings upheld the observations of the T.P.O referring to the annual report of Thirdware Solutions Ltd. that mainly the income of the companies is from software services and thus the Thirdware Solution company was functionally comparable to that with the assessee. 5. At the time of hearing, the learned counsel demonstrated through annual report of the company which is annexed at paper 1217 onwards that Thirdware solutions is functionally different with that of the assessee and therefore, cannot be comparable company in the final set of comparables. In this regard, the assessee also placed heavy reliance in the decision of the Coordinate Bench Pune Tribunal in the case of Veritas Software Technology India P. Ltd. Vs. Dy. CIT (TP-2), Pune in I.T.A. No. 207/PUN/2021 for A.Y. 2016-17, order dated 31-12-2021. That on identical facts and circumstances, it was held by Tribunal as follows: 15. THIRDWARE SOLUTIONS LTD. The assessee sought the exclusion of this company from list of comparables on the ground that (i) The company is engaged in consulting, design, implementing and support of enterprise applications for Fortune 500 firms. Al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sses, it is not possible to determine the impact of the operations of sale of products and training on the profitability of software service segment of the company. Therefore, we are of the considered opinion that this company i.e. Thirdware Solutions Ltd. cannot be compared with that of the appellant company which is purely software development company. In the circumstances, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 6. The learned counsel for the assessee further submitted that the aforestated decision pertains to same assessment year i.e. 2016-17 which is presently before us. 7. Similarly the Co-ordinate Bench, Hyderabad in the case of ADP (P) Ltd. Vs. Dy. CIT. Hyderabad in ITA No. 227 and 228 (HYD) of 2021 for A.Y. 2016- 17 reported in (2022) 135 taxmann.com (Hyderabad - Trib) held as follows: (xi) THIRDWARE SOLUTIONS LTD. "36. This company was selected by the Transfer Pricing Officer and retained by the DRP. Objecting to the selection of the aforesaid company as a comparable, the learned Authorised Representative submitted that this company is involved in the activities of software development services as well as developme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions, we hold that this company cannot be a comparable to the assessee". The decision of Hyderabad Bench also pertains to the same assessment year i.e. 2016-17. We are of the considered view that on perusal of the aforestated decision and the Annual Repot of Thirdware Solutions Ltd. that this company is functionally not comparable to the assessee and that also the company is engaged in provision of diversified services for which separate segmental information is not available. In such scenario respectfully following the aforestated Tribunal decisions pertaining to the same assessment year i.e. 2016-17, we direct the A.O/T.P.O to exclude Thirdware solutions from the final set of comparables. 8. Asphire Systems (India) Pvt. Ltd. (a) The contention before the Department by the assessee was that this company is engaged in providing diversified services and hence, it is functionally not comparable to Ventura India. It is involved in outsources operations; F.Y. 2015-16 is an exceptional year of operation for Aspire; it is a consistently supernormal profit earning company; and Non-availability of segmental information. (b) The T.P.O did not agree with the submissions of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany. (ii) The TPO had not considered the website information and it is super normal profit-making company and (iii) The business model of the company is different from that of the assessee company as it had rendered service of onsite and offshore. (C). On the other hand, ld. CIT-DR contended that the annual report does not reveal any income for sale of software products, ITES, in-fact the annual report revealed that the entire revenue operation only from onsite of software services, software development and the information contained in the website cannot be relied upon. As regards to the amalgamation to the company applied Development Software (India) Pvt. Ltd. and Pure Apps Consulting Services Private Limited, it is submitted that the assessee has not demonstrated as to how the amalgamation of this two companies has impacted the profitability of the assessee company and in any event both the companies are engaged in the business of development of software and provisions of software services. (D). We heard the rival submissions and perused the material on record. The company considered its business segment as its primary segment. The company is engaged in the business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....same parity of reasoning, the ld. D.R also conceded that the matter may be restored to the file of the A.O/T.P.O for adjudication. In view thereof, this issue is remitted to the file of the A.O/T.P.O as per the directions contained at para (E) in the decision of Veritas Software Technology India Pvt. Ltd (supra). 10. E-Infochips Ltd. (a) The assessee submits that this company is also not functionally comparable for the following reasons. E-Infochips is engaged in manufacturing and sale of products; E-Infochips is engaged in diversified portfolio and therefore, functionally not comparable to the assessee. E-Infochips is consistently earning super-normal profits; E-Inforchips is involved in rendering services to various industries; and Service-wise segmental bifurcation is also not available in the annual report. (b) These submissions of the assessee were not accepted by the T.PO. and he opined that from the annual report of this company, revenue from sale of product is at 5.16% of the total revenue whereas the remaining 94.84% revenue was from sale of services. Therefore, predominantly it is software service company. The D.R.P dealt with this issue at para 8.2.8.1.an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under : "e-Infochips Limited (e-Infochips) provide solutions to key verticals like Aerospace & Defense, Automotive, Consumer Electronics, Energy & Utilities, Healthcare, Home, Office, Industrial Automation, Media & Broadcast, Medical Devices, Retail & E-Commerce, Security & Surveillance and semiconductor." Our attention is also drawn to the information contained on segmental reporting at page 2686 of the paper book wherein it is stated as under : "Information about Primary Segments. The company is primarily engaged in Software Development and IT enable services and products which is considered the only reportable business segment as per Accounting Standard -AS17. "Segment Reporting" prescribed in Companies accounting standards notified under Section 133 of the Companies Act, 2013 ("the Act") read with Rule 7 of the Companies (Accounts) Rules, 2014 and other relevant provisions of the Act. Information about Secondary Segments Sales by market. . . . . ." (E). On the other hand, the ld. CIT-DR placing reliance on the page 11 of the annual report of this company wherein name of the main product/service has been described as Computer Programming, Consultancy & related activ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lows: 17. DUN AND BRADSTREET TECHNOLOGIES & DATA SERVICES PVT. LTD. : The appellant sought the exclusion of this company from the list of comparables selected by the TPO on the ground that (i) Functional dissimilarity, as the company is engaged into diversified activities and no segmental information is available. However, the TPO rejected the contention of the appellant by holding that entire revenue of the company is derived from the activities of the provisions of software services. (B) Even the DRP confirmed the inclusion of this company in the list of comparables. (C). Before us, the assessee sought the exclusion of this company on the ground that this company is engaged in providing data analytics services cum-predictive analytics and also engaged in diversified activities which is totally different from the software development services. It is also sought that the exclusion of this company on the ground that the entire business transactions are to its holding company or its affiliates. Therefore, comparison cannot be made with another controlled transaction and also is a super-normal profit-making company. (D) On the other hand, ld. CIT-DR placing reliance o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that Exilant Technologies is functionally different is not acceptable. It can be seen from the Annual Report on page No. 1 under the head "Description of product or services category" that the company is engaged in information Technology Software and other related services. Further, on page 15 of the annual Report, under the head "Principal Business Activities of the Company" it is stated as below. Name and description of main products /services % to total turnover of the company Information of Technology Software and Other related services 100% Moreover, it can be seen from Profit and Loss Account (page 114 and page 117 of AR) of the company that it is earning Revenue of Rs. 3,75,57,97,901/- from sale of services out of the total revenue of Rs. 3,75,93,93,43,986/-. It shows 98.39% of its revenue from software development and only 0.09% of the revenue is from sale of products. Thus, it can be concluded that the company is engaged in the software development services. This company is retained as comparable." (b) The ld. D.R.P. on this issue in para 8.2.10 observed and held as follows: "8.2.10.1 The assessee has objected to the inclusion of Exilant Technologies Pvt. Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provides business solutions, business IT services, application development and maintenance, etc. However, from the information extracted. By the assessee, it is apparent that these services are provided by the subsidiaries of the company. Further, the assessee has not disputed the above findings of the TPO, which are based on the Annual Report of the company. From the findings of the TPO, it is clear that the company is engaged in provision of software development services and almost the entire revenue is also from such activity. Since the assessee has not disputed the findings of the TPO before us, we hold that Exilant Technologies is functionally comparable to the assessee. 8.2.10.3 Non-availability of segmental information: The assessee's contention regarding non-availability of segmental information is based on the premise that the company is engaged in diversified activities. Since it has been found that almost the entire revenue of the company is from software development services, this objection of the assessee rejected. 8.2.10.4 In view of the above, inclusion of Exilant Technologies Pvt. Ltd. As a comparable by the TPO is upheld." (c) We find that Exilant Techn....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Open Solutions Software Services (P) Ltd. (2020)116 taxmann.com 708 (Delhi), PCIT Vs. Aptara Technology (P) Ltd. (2019) 40 TR 100 (Bombay) and Rampgreen Solutions (P) Ltd. Vs. CIT (2015) 377 ITR 533 submitted that the companies having different business models are not comparable with the appellant company and therefore, urged for exclusion of this company from the list of comparables. (E). The ld. CIT-DR submitted that since 98.39% of the revenue is derived from the software development this company is comparable with that of the appellant company. (F). We heard the rival submissions and perused the material on record. We have also perused the annual report of the company which is placed at pages 3594 to 3716 of the paper book. From the information contained in the Director's report at page 3599, it is seen that the entire revenue of this company is derived from the activities of Software services and products and Software licences. Activities of the company are described as Information Technology Software and other related services which is placed at page 15 of the annual report. Balance sheet placed at page 3678 also shows that this company is in possession of intangibles ....