2017 (5) TMI 1815

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....e Act and the IT Rules, 1962 ( the rules), 7. Id. AO/TPO and the Hon'ble DRP have erred in determining the ALP for the international transaction of software development services by selecting companies by way of a fresh search which are not comparable to the appellant due to various factors such as functional differences, lack of segmental information, product led revenues, difference in size, inadequate financial information, extra ordinary events, peculiar economic circumstances, failing IPO's filers etc. Further, the Id. AO/TPO and the Hon'ble DRP has erred in not taking cognizance o the judicial precedence wherein these companies have been adjudicated to be not comparable to SWD services rendered by a captive SWD service provider. The list of companies which are not comparable to the appellant in the SWD segment is as follows; a.) ICRA Techno Analytics Ltd., b) Infosys Ltd. c) Larsen & Toubro Infotech Ltd. d) Persistent Systems Ltd, and e) Spry Systems Ltd. 8. The Id. AO/TPO and the Hon'ble DRP have erred in determining the ALP for the international transaction of ITES by selecting companies by w....

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....able). 15 The la. AO/TPO and the Hon'ble DRP have erred in. law and on facts in not granting the correct working capital adjustment to the margin of the comparable companies for the respective intl transactions. 16, The ld. AO has erred in not providing the appreciate risk adjustment considering the risk profile of the appellant as directed by the Hon'ble DRP. 17. The Hon'ble DRP/ld. AO/TPO have in law and on facts, in levying interest under sections 234B and 234D of the Act. 18. The ld. AO has erred in law by initiating penalty proceedings under section 271(1)(c ) of the Act". 3. In course of hearing before us, Id. AR of the assessee submitted a chart regarding the claim for inclusion/ exclusion Of various comparables. He submitted that as per this chart, there are two segments i.e. Software Development Segment and ITES Segment. Regarding first segment, he submitted that the turnover of the assessee company for this segment is Rs. 198.65 Crores and for this segment, there are 10 comparables selected by the TPO and confirmed by the DRP. Out of it, the assessee is seeking exclusion of three comparables i.e. 1) M/s Infosys ltd. 2) L ....

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....ervice sector where fixed overheads are nominal and the cost of service is in direct proportion to the service rendered. He submitted that in view of this Tribunal order, no comparable should be excluded by applying the turnover filter. 5. Regarding the second segment i.e. ITES segment, it is submitted by the Id. AR of the assessee that as per chart for this segment, the turnover of the assessee company for this segment is be 15.29 Crores and the TPO has selected 1.0 comparables out of which one is excluded by the DRP being Jindal intellicom Ltd. but the assessee seeks its inclusion. The assessee is seeking exclusion of 5 comparables. The assessee is also seeking inclusion of one more comparable i.e. Microland Ltd. He, submitted that turnover of two companies i.e. Infosys BPO Ltd. Rs. 1312.41 Crores and TCS E-Serve ltd 1578.44 Crores is more than 10 times Of turnover of this segment of the assessee company and therefore, these two comparables are to be excluded by applying the turnover filter alone. 6. Regarding the request of the assessee for exclusion of three more comparables, i.e. Jindal Intellicom Ltd, BNR Udyog Ltd. (Seg.) M/S Excel Infoways Ltd. (Seg.), he submitted th....

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.... as the application of this rule does not enable comparison of a company with Rs.200 crores with another company having a turnover of Rs.201 crores. It was further observed by the Hon'ble Tribunal that the turnover was also not a criteria prescribed under rule 10B for selection of comparables We are also of the considered opinion that the turnover cannot be relevant criteria in a service sector where fixed overheads are nominal and the cost of service is in direct proportion to the services rendered. Following this reasoning we hold that the above companies cannot be excluded from the list of comparables. From the above Para re-produced from the Tribunal order, it is seen that. in that case, the turnover filter applied was different i.e. 1.00 crore to 200 Crores. The Tribunal has noted another Tribunal order rendered in the case of Willis Processing Services (I) P. Ltd. vs. DCIT (Supra) wherein it was held that the turnover filter of Rs.1 to 200 Crores is bereft or any rationality as the application of this rule does not enable comparison of a company Having turnover Of Rs.200 Crores with any company having the turnover Of RS.1 to 200 Crores. In our considered opinion, this ....

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....fosys BPO Ltd and M/S L & T Infotech Ltd from the list of final comparables by applying higher turnover filter because, the turnover of these two companies is more than 10 times of the turnover of Software Development Segment of the assessee company. Similarly, in respect Of ITES Segment, we direct the to exclude two companies i.e. Infosys BOPO Ltd and TCS E-Serve Ltd. by applying turnover filter because, the turnover of these two companies is more than 10 times of the turnover of ITES segment Of the assessee company. 10. Regarding the request of the assessee for exclusion of Persistent Systems Ltd. in Software Development Segment and universal Print Systems Ltd. (Seg.) and BNR Udyog Ltd. (Beg.) in ITES Segment. we direct the AO/TPO to examine these companies Afresh on account of functional dissimilarity being claimed by the Assessee because regarding these 4 comparable companies, the Order of DRP is very cryptic and therefore, this issue should be decided afresh in respect of both these segments for these 4 comparable company by way of a speaking and reasoned order. 11. With regard to assessee's request for inclusion of two comparable companies in the final list of compa....