TaxTMI 
TaxTMI 
2022 (5) TMI 1558
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....ount (Rs.) Method 1 Sale of Software Development and IT Enabled Services Titan Technology Partners, USA 31,40,66,675 TNMM/CPM 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 to Total 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 10.34% 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 7 comparables entities and arithmetic average of operating profit margins of said comparables was computed at 8.93%. According to the assessee company, its PLI was much higher than the arithmetic mean of the comparable entities. Hence, it was claimed that the international transac....
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....TP study report and introduced 5 new companies and finally selected the following comparables :- Sr. No. Name of Company OP/TC % (After WC adj.) Remarks 1 CG VAK Software and Exports Ltd. 7.87% As per study 2 E Zest Solutions Ltd. 14.42% As per study 3 Cigniti Technologies Pvt. Ltd. 25.02% Newly added comparable as per Ld. TPO 4 Exilant Technologies Pvt. Ltd. 12.63% 5 Cybercom Datamatics Information Solutions Ltd. 83.99% 6 Thirdware Solutions Ltd. 50.38% 7 Infobeans Systems India Ltd./Infobeans Technologies 48.87% Arithmetic Mean 34.74% 6. The TPO computed the average profit margin of the comparables finally selected by him at 34.74%. On the above basis, the TPO computed the upward TP adjustments of Rs. 6,94,47,074/- vide order dated 27.10.2017 passed u/s 92CA(3) of the Act. 7. Pursuant to receipt of the TPO's order, the Assessing Officer passed the draft assessment order dated 26.12.2017 passed u/s 143(3) r.w.s. 144C(1) of the Act incorporating the above TP adjustments of Rs. 6,94,47,074/-. 8. On receipt of the draft assessment order, the appellant filed objections before the ld. DRP objecting the exclusion of Akshay Software Techno....
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.... have been excluded while working out the ALP. 5] The learned A.O. / DRP further erred in not appreciating that Thirdware Solutions Ltd, Cybercom Datamatics Information Solutions Ltd. and Infobeans Systems India Ltd had earned super normal profits during the year under consideration and accordingly, on this ground also, the above three companies should have been excluded while determining the ALP in respect of the provision of software development services. 6] The learned A.O. / DRP erred in rejecting Virinchi Technologies Ltd. as a comparable entity on the ground that the said company was also engaged in the business of software products and in the absence of segmental details, the said entity was to be excluded from the final list of comparables. 7] The learned A.O. / DRP erred in not appreciating that as per the Annual Report of Virinchi Technologies Ltd., the said entity was engaged only in providing software development services and therefore, there was no reason to reject the said company as a comparable entity. 8] The assessee submits that the learned A.O. erred in rejecting Evoke Technologies Pvt. Ltd. as a comparable entity on the ground that the Annual Report ....
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.... the descriptive given in the annual report. 16. Being aggrieved, the appellant is in appeal before us challenging the inclusion of this company in the list of the comparables placing reliance on page no.239 of the Paper Book, wherein, it is stated that the principal object of Cybercom is that of an advisor and consultant on IT/IT space and act as a surveyor of information services. The company is also into manufacturing, marketing of software products for the telecom industry. Thus, it is submitted that Cybercom is engaged in different activities and hence, it is functionally different not comparable with that of the assessee company. It is also to be noted that there is no segmental information for the various activities carried out by Cybercom. In the absence of any segmental information, this company cannot be considered to be comparable with that of the software development companies. Reliance in this regard placed on the following decisions :- (i) eGain Communications Pvt. Ltd Vs. ACIT (ITA No.544/PUN/2017). (ii) PubMatic India Private Limited Vs. ACIT (ITA No. 655/PUN/2017). (iii) Emerson Electric Company (India) Private Limited Vs. ACIT (ITA No.6098/Mum/2018 & ITA ....
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....of the comparables, the onus of proving the comparability lies upon the TPO. We also find that this company had reported super profit of 83.99% which is abnormally high profits, the TPO should have caused enquiry to ascertain whether such abnormally profits reflected normal business conditions or arising from abnormal conditions. We also find that this company was excluded from the list of the comparables by the Co-ordinate Bench of the Tribunal in the case M/s. Nethawk Networks India Private Limited vs. ACIT in ITA No.173/PUN/2017 for A.Y. 2012-13 vide order dated 17.06.2021. In the circumstances, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 21. Thirdware Solutions Ltd. :- This company was selected by the TPO rejecting the contentions of the appellant that it is a product development company which is quite different from a software services provider. Even before the ld. DRP, the ld. DRP confirmed the exclusion of this company in the list of comparables taking into consideration that the employee cost is around 41% of the revenue from operations which indicate that it is a software company. 22. Being aggrieved, the appellant is in appe....
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....4.07 Revenue from Subscription & Training : 59.32 Sale of Licence : 7.98." 26. On careful perusal of the annual report, it indicates that there is no segmental details are furnished. However, the revenue from sale of licence is only 7.98 crores which is very-very minimal compared to the total revenue of Rs. 20,675.00 crores. Further, the balance sheet does not indicate the presence of any intangible assets or closing stock. Therefore, it cannot be said that this company cannot be compared with software development provider. Therefore, we do not find any merit in the contentions raised on behalf of the assessee company. Hence, we uphold the action of the Assessing Officer/TPO/DRP in inclusion of this company in the list of comparables. 27. Infobeans Systems India Ltd. :- This company was selected for inclusion in the list of the comparables by the TPO rejecting the contention of the appellant that it should be rejected on the ground of earning super normal profits. Even the ld. DRP had confirmed the action of the TPO. 28. Being aggrieved, the appellant is in appeal before us. 29. Before us, it is contended that this company should be excluded from the list of the comparables on....
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....xmann.com 427 (P&H). Thus, we uphold the action of the Assessing Officer/TPO/DRP in inclusion of this company in the final list of the comparables. 32. The appellant company also filed additional ground of appeal no.1 which reads as under :- "1. The assessee submits foreign exchange gain or loss should be considered as part of operating revenue while determining PLI of the assessee and the comparable companies. 33. It is submitted that the exchange operations on account of foreign currency conversion should be considered as a part of the operating revenue for the purpose of determining the PLI of the assessee company. It is stated that it is purely a legal issue and requires no investigation into facts, therefore, this additional ground of appeal should be decided placing reliance on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT, 229 ITR 383 (SC). 34. On the other hand, ld. Sr. DR opposed the admission of the above additional ground of appeal no.1 placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Ultratech Cement Ltd. vs. Addl.CIT, 81 taxmann.com 74 (Bom.). 35. We heard the rival s....