AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 605
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....in law, the AO / DRP/TPO erred in making adjustment of INR 2,25,96,348 in respect of international transaction pertaining to provision of software development services ("SDS"); 3.1 That on the facts and circumstances of the case and in law, the AO/ DRP / TPO erred in not accepting the quantitative filters selected by the Appellant in its transfer pricing documentation and instead applied his own quantitative filters which lacked valid and sufficient reasoning. 3.2 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily rejecting the set of functionally comparable companies adopted by the Appellant to benchmark the transaction of provision of software development services. 3.3 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in accepting companies, viz., Cybercom Datamatics Information Solutions Ltd, Mindtree Ltd, Persistent Systems Ltd, Tata Elxsi Ltd, and Comviva technologies Ltd. which were functionally not comparable to the Appellant in terms of functions, assets and risk profile. 3.4 That on the facts and circumstances of the case and in law, the AO / DRP / TPO er....
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....d related services under the projects subcontracted to it by the AE as per the specifications and requirements provided by the AE TPG India employs the resources required for development of software. While TPG India undertakes necessary software development activities, the AE monitors such activities of TPG India on an on-going basis. 4. In the TPSR, the assessee selected 8 comparables out of which 5 have been rejected by the TPO and 6 have been introduced by the Revenue. The turnover of the company was Rs. 43.53 Cr. 5. The TPSR considered TNMM as the MAM. 6. The OP/OC as per the assessee was 14.48% and as per the TPO was 12.82%. The ALP determined as the TPO post DRP was 18.79% resulting in adjustment of Rs. 2.25 Cr. 7. The following comparables were contested by the assessee: 1. Cybercom Datamatics Information Solutions Ltd. 2. Mindtree Ltd. 3. Persistent Systems Ltd. 4. Tata Elxsi Ltd. 5. Comviva Technologies Ltd. 8. Heard the arguments of both the parties and perused the material available on record. Cybercom Datamatics Information Solutions Ltd. 9. The TPO/DRP held that this company is primarily involved in soft....
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.... 12. With regard to the segmental information, the ld. DR argued that segmental information is not available however it is seen that M/s Cybercom Datamatic is involved in one segment. only which is mentioned at note 23/page 18 which reads "the Principle business of the Company is of providing of technical and software services. All other activities of the Company revolve around its main business Hence no additional disclosure under Accounting standard -17, "Segment Reporting" are required in these financial statements." Hence, it was submitted that lack of segmental information cannot be a criteria for rejection of the comparables. 13. With regard to the Investment in fixed assets, the assessee has submitted that M/s Cybercom Datamaties has made huge investment in fixed assets as compared to assessee company. The ld. DR argued that from the perusal of the fixed asset schedule it is seen that out of net block Rs. 4.97 crores, the asset of lease hold premises comprise of Rs. 4.04 crores, thus the asssessee contention are clearly not tenable in the sense that there is no correlation between the leasehold premises and the net sales and assessee's contentions are superfluous an....
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....rmation Techno consulting and implementation Company that delivers business solutions through global software development. The Company is structured into five verticals- manufacturing, BFSI Hitech, travel and transportation and others. The Company offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business independent testing infrastructure management services, mobility, product engineering and SAP Services." 21. The above functional profile, clearly shows that M/s Mindtree Ltd. is a software servicing various sectors and for the sake of specialization/convenience the company had divided/structured its software development services functions in 5 sectors. This is nothing new, as all the companies for the sake of convenience /specialization /better productivity divides/ structures its functions. Also in the financial statement at page 63of PB, it is clearly mentioned that the entire income is from software development services only. This fact is further mentioned at page 123 of PB under the quantitative detail column. At page 123 in para 3....
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....mparable in software development services segment only. However more relevant are the comments about profile of Persistent systems Ltd, which has been mentioned in para 115 to 118, and for ready reference is reproduced below.......... 15. In case of Persistent Systems, limited Id AR submitted that Persistent Systems Ltd. is engaged in the business of development and sale of software products and therefore, cannot be regarded as comparable to the assessee, a routine software service provider. At page 27 (Pg 192 of Annual Report paper book) it is stated that the company specializes in building software products and the business of the company is inter-alia focused on products. Also, at page 105 (Pg 270 of annual report paper book) of the annual report it is stated that the company derives significant portion of its revenue from export of software services and products (IP based software products). It is further submitted that at Page 164 & 183 of the Annual report it is stated that the company specializes in software products, services and technology innovations. It is further submitted that segmental profitability of this company from provision of software services is not a....
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....s for its exclusion; hence, we are of the view that Persistent system has rightly been included as Comparable company by Id DRP and TPO. Thus this company is clearly held to be involved in sale of software services only and not in sale of software products. Also in the case of Motherson Sumi infotech and Design Ltd. vs/ ACIT 112 Taxmann.com 300 (2019) again this company was held to be involved in software services only. The para 32 of the Hon'ble ITAT order is very pertinent and reproduced below for ready reference... 32. The Annual Report of this company is placed at pages 762 to 895 of the paper book. In its Profit and Loss account, sale of software services and products is at Rs. 31,231/- and in Schedule 11, bifurcation is given for sale of software services and products - export and domestic. Though segmental information is provided in the Annual Report, from which sale of software services can be separately known from the sale of products, but the information received by the TPO u/s 133(6) of the Act, the company has informed that its software products sales constituted 0.73% of the Revenue which means that more than 99% of the Revenue is from software se....
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....as also alleged opening of new offices by M/s PSL. a. Acquisition of Cloud Squads. The PSL has acquired clouds Squads only in February 2014 (i.e. only in the end) and it is small company and the assessee has failed to mention the impact on financials /P&L on such acquisitions. Also the allegation that assessee has opened new branch offices in Germany and South Africa will at best have negative impact on P&L. because it is a established fact that whenever new offices are opened initially it has negative impact on profits because it takes time to stabilize the business activities from new offices. (iv) High turnover. The assessee has alleged that the PSL has turnover of 1184 crores i.e. high as compared to the assessee company and M/s PSL enjoys economic of scale. This fact has been answered by the TPO in detail in page 33 to 36 of his order and for the sake of brevity, arguments are not repeated. The TPO has clearly demonstrated by comparing revenue/turnover with operating margins of all the 14 comparables and clearly demonstrated that there is no correlation between the high turnover and the profit margins. Further it is established fact, that the turnover may hav....
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....elf classified as global company specializing in software products, services and technology innovation. The Company offers complete product life cycle services. 26. The ld. AR argued that the following arguments was never presented before the Bench while dealing the case of Steria (supra). • Revenue from time and material engagements is recognized on time proportion basis as and when the services are rendered in accordance with the terms of the contracts with customers. • In case of fixed price contracts, revenue is recognized based on the milestones achieved as specified in the contracts, on proportionate completion basis, • Revenue from royalty is recognized in accordance with the terms of the relevant agreements. • Revenue from maintenance contracts is recognized on a pro-rata basis over the period of the contract. • Unbilled revenue represents revenue recognized in relation to work done on time and material projects and fixed price projects until the balance sheet date for which billing has not taken place. • Un-earned revenue represents the billing in respect of contracts for which the revenue is ....