TaxTMI 
TaxTMI 
2025 (11) TMI 2009
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....a transfer pricing adjustment of INR 10.58,23,162/- to the income of the Appellant in relation to the international transection of provision of software development and support services ("SDS services"), vide Assessment Order under section 143(3) r.w 144C(13) read with section 144B of the Income-tax Ac, 1961 ("he Ac") 1.2. The learned AO/Transfer Pricing Officer ("TPO") erred in law and in facts in rejecting the Appellant's transfer pricing documentation without any cogent reasons. 1.3 The learned AO/TPO erred in law and in facts by inappropriately rejecting some of the comparability filters adopted by the Appellant in its TP study report and applying additional filters and proceeded to undertake a fresh search for benchmarking the said international transaction of SOS services. 1.4 The learned AO/TPO erred in law and in facts in rejecting the following comparable companies accepted by the Appellant in its transfer pricing study report for benchmarking the said international transaction of provision of SDS services: ● Inteq Software Pvt Ltd. ● Yudiz Solutions Pvt. Ltd. ● R Systems International Ltd. ....
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....international transaction of provision of SDS services. 2 Erroneously considering the total income of the Appellant in excess in terms of the Intimation" u/s. 143(1) of the Act. 2.1 The learned AO has erred in considering the total income of the Appellant under the normal provisions of the Act in excess in terms of the 'Intimation' u/s. 143(1) of the Act 2.2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, no intimation u/s. 143(1) of the Act has been received/served. 2.3 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the disallowance made in terms of the Intimation u/s. 143(1) of the Act is misconceived, erroneous, illegal, and unwarranted. 2.4 The Appellant submits that the learned AO be directed to consider the correct total income of the Appellant and to re-compute the tax thereon accordingly. 3. Erroneous disallowance of INR 13,13,770 pertaining to leave encashment expenses claimed by the Appellant under section 43B of the Act 3.1 The learned AO has erred in not granting....
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....ovided by the assessee company to its Associate Enterprise (for short, "AE"), viz. High Radius Corporation, USA. 5. The TPO, in the course of proceedings before him, rejected certain comparables included in the assessee's transfer pricing study report, and selected a new set of comparables by applying filters, viz. (i). rejection of companies having R&D expenses in excess of 3% of sales; (ii). turnover filter of more than Rs. 1 crore; (iii). rejection of companies having export income of less than 75% of sales; (iv). employee cost filter of less than 25% of sales; (v). exclusion of companies having different financial year endings; and (vi). application of RPT filter of 25%. Thereafter, the TPO, based on the final set of comparables selected by him, determined the mean margin at 21.43% as against the assessee's margin of 14.29%, resulting in an upward adjustment of Rs. 12,32,46,335/- to the arm's length price of the international transactions of provision of software development services to its AE. 6. Aggrieved, the assessee company filed objections before the DRP, which, vide its order dated 30.01.2024, substantially upheld the action of the TPO, except for minor....
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.... .; (iv). Wipro Ltd .; (v). Nihilent Ltd .; (vi); Great Software Laboratory Pvt. Ltd .; and (vii). Cybage Software Pvt. Ltd. Also, the TPO had excluded R Systems International Ltd., i.e., one of the comparable that was selected by the assessee company. Accordingly, the TPO vide his order passed u/s 92CA(3) of the Act, dated 27/03/2023, suggested an upward adjustment of Rs. 12,32,46,335/-. 14. Thereafter, the Dispute Resolution Panel-1, Bengaluru, vide its order dated 30.01.2024, directed the TPO to exclude certain comparables from the software development segment for comparability analysis. Accordingly, the TPO, in view of the directions of the DRP-1, Bengaluru, made the final adjustment of Rs. 10,58,23,162/-. 15. We have heard the Ld. Authorized Representatives of both parties in the backdrop of the orders of the authorities below. 16. Shri. Ketan Ved, Ld. Authorized Representative (for short, "AR") for the assessee company has assailed the orders of the authorities below on the limited extent that they had erred in including/excluding certain comparables in the final list of comparables for benchmarking the international transaction of provision of software development s....
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....ng considered the submissions, we note, the company is engaged in providing application maintenance and Development, Enterprise Resource Planning and Testing. For the period ended March 31, 2018, March 31, 2019 and March 31, 2020, as per the information in the annual reports, 100 percent of the operating revenues respectively were derived from software development services. The activities IT services like Application maintenance and Development, Enterprise Resource Planning and Testing are all software development activities and fall within the umbrella IT services, as per NASSCOM. As per the annual report information for the year ended 31.03.2020, the main object of the Assessee company is to carry on the business of designing software development, software maintenance and support services the areas of computer networks, computer software and hardware, data communication equipment, dectronic equipment, radio and wireless communication product and equipment wireless telecommunication equipment of every description. Thus, the activities of L&T are functionally comparable to the Assessee company, as evident from the nature of services rendered by it. Therefore, the plea that this com....
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....On further perusal of the financial reports for the three years, we note that there is no impact on the profitability of the transferee company on account of such acquisition, as could be seen from the following information extracted from the annual report: Financial Year Operating profit 2012-13 22.7% 2013-14 21.19% 2014-15 21.6% 2015-16 21.7% 2016-17 19.15% 2017-18 18.11% 2018-19 20.15% 2019-20 18.15% 2.5.6.5. The above information clearly shows that the amalgamation has not impacted in increasing the profitability of the transferee company. Besides, it is also seen that the company has not reported amalgamation as a significant factor affecting its revenue growth or profitability. In view of these, we reject the plea that this company has to be excluded on account of amalgamation. 2.5.6.6 The Assessee has also argued that this company derives a significant amount of revenue from its onsite activities as well as incurring onsite branch office expenses. Although the Assessee has argued for the exclusion of the company also on this ground but, has not given any reasons or justification as to how this affect com....
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....e work because dead hours would mean less output with the same employee cost, which would in fact reduce the margin. No material has also been placed before us to show that the margin in case of on-site work is higher. Therefore, we do not find merit in the objection for exclusion of companies merely on account of onsite expenditure." In view of the above, the argument made by the Assessee is rejected on onsite activity. 2.5.6.9 A plea was also raised that this company has incurred substantial expenditure towards R&D and hence not to be taken as comparable. However, perusal of the information in the annual report shows that there is an expenditure of Rs.302 million as against total revenue of Rs.69,064 million which comes to 0.43% of total revenue. This percentage of expenditure is below the threshold limit of 3% adopted in case of R&D expenditure. There is no indication in the annual report to show that the R&D had resulted in any distinct product development giving rise to source of separate revenue stream. The information on technology absorption on which the Assessee has relied on states that R&D activities are integrated with software development process with objectiv....
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....&D and operate on a global scale. 21. We find that the issue of inclusion of LTI as a comparable company in the case of software development services (SDS) had come up before the ITAT, Hyderabad in the case of ADP Pvt. Ltd vs. DCIT (2022) 135 taxmann.com 44 (Hyderabad). The Tribunal had, after exhaustive deliberations, concluded that the said company cannot be considered as a comparable for benchmarking the transactions in the software development segment for the reason that there was an extraordinary event during the subject year, i.e., amalgamation. Also, we find that the ITAT, Bangalore in the case of EMC Software and Services India Private Limited in IT(TP)A No. 191/Bang/2022 had observed that LTI could not have been considered as a comparable for benchmarking the transactions of software development segment in the case before them for the reason that it was functionally dissimilar, and also that no segmental information etc. of its software development segment was available. We find that the ITAT, Bangalore in the case of AMD India Private Limited vs. ACIT, IT(TP)A. No. 775/Bang/2022, while disposing of the case of the assessee before them for AY 2018-19, had held that the ....
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.... IP nor bears any market risk. 24. Accordingly, in terms of our aforesaid observations, we are of a firm conviction that the aforementioned company, i.e., LTI, for the reasons stated hereinabove, could not have been picked up as a comparable for benchmarking the international transactions of the assessee company, and accordingly direct the AO/TPO to exclude the same from the final list of comparables. (B) Tata Elxsi Ltd. 25. We have thoughtfully deliberated upon the contentions advanced by the Learned Authorized Representatives of both parties in the context of inclusion of the aforementioned comparable, viz., Tata Elxsi Ltd., in the final list of comparables by the TPO for benchmarking the transactions of providing software development services by the assessee company to its AE. Before proceeding further, we deem it apposite to cull out the observations of the DRP, which had upheld the inclusion of Tata Elxsi Ltd. in the final list of comparables by the TPO, as under: "2.5.10.1 Having considered the submissions, on perusal of the annual report of this company, the operations of the company are into Design and Development of Computer Hardware and Software as its p....
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....show that margins in the high-end segments of IT services is high compared to low end services. Therefore, we are unable to accept the argument that the comparable belonging to high end segments such as KPO etc. should be excluded from the comparability list on this ground alone. In fact, KPO is a term given to a branch of BPO in which apart from processing data, knowledge is also applied. In view of the above, IT services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. Accordingly, we reject this plea of the Assessee. In view of the above, the company is involved in diversified activities is not acceptable. 2.5.10.3 The plea of the turnover range will not affect the comparability as discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above. 2.5.10.4 With regard to the plea that the company has significant intangibles, we note that the value of intangibles assets shown in the balance sheet (Note 3.(ii) -Page 74) represent the computer software. The value of intangible assets as on 31-3-2020 was only Rs. 3462.77/- lakhs (page no 90 of AR) a....
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....PO's view of rejecting comparables with financial years outside the period of April to March is well-founded and aligns with sound Transfer Pricing principles. By applying this filter, the Assessee aims to ensure a more accurate and meaningful comparison between its financials and those of selected comparables. The decision to focus on companies with financial years ending in March is logical, as it maintains consistency and facilitates a genuine comparison profit level indicators. Comparing companies with different financial year periods could lead to distorted results, as their financials correspond to different timeframes. This approach is not only in accordance with the taxpayer's accounting practices but also enhances the reliability of the Transfer Pricing analysis by promoting a more robust and relevant set of comparables for determining the arm's length price of international transactions entered into by the Assessee. Thus, the Panel finds no infirmity with TPO's findings and accordingly the objection raised by the Assessee are hereby rejected. 2.5.10.8 In view of the above, we uphold the selection of this comparable." 26. Having given thoughtful....
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.... and further owns intellectual property (IP) in the form of embedded software design and simulation tools and operates multiple R&D centers, which all factors renders it functionally incomparable to the assessee company which neither carries out any R&D nor owns any intellectual property. 29. We find that the ITAT, Hyderabad Bench in the case of ADP Pvt. Ltd vs. DCIT (2022) 135 taxmann.com 44 (Hyderabad) had observed that Tata Elxsi Ltd (supra) cannot be considered as a comparable for benchmarking the transaction in the software development segment for the reasons that it being engaged in diversified activities was functionally dissimilar. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under: "28. In the case of Tata Elxsi, the assessee has taken the following objections: (a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: (1) Corpoprate Information "Tata Elxsi Ltd was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications an....
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....ly direct the AO/TPO to exclude the same from the final list of comparables. (C). Infosys Ltd. 32. We shall now deal with the Ld. AR's contention that the TPO/DRP had erred in including Infosys Limited as a comparable for benchmarking the software development services rendered by the assessee company to its AE. Before proceeding further, we deem it apposite to cull out the observations of the DRP, which had upheld the inclusion of Infosys Ltd. in the final list of comparables by the TPO, as under: "2.5.11.1 Having considered the submissions, and on perusal of the annual report of the company, we note that this company provides business IT services (comprising software application development, integration, maintenance, validation, enterprise system implementation, product engineering, infrastructure management and business process management); consulting and systems integration services (comprising consulting, enterprise solutions, systems Integration and advanced technologies); products, business platforms and solutions to accelerate intellectual property-led innovation. All these activities fall within the gamut of 'software services. The mere reason that th....
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.... the company as there is no segmental information is available in the Annual Report, is hereby rejected. 2.5.11.5 The plea of the turnover range will not affect the comparability as discussed in paras 2.4.3.1 & 2.4.12.1 to 2.4.12.12 above. 2.5.11.6 In view of the above, we uphold this company as comparable to the Assessee." 33. We may herein observe that Infosys Limited is admittedly a leading provider of consulting, technology, outsourcing, and next-generation digital services, wherein it enables its clients to execute strategies for their digital transformation. Apart from that, Infosys Limited is also engaged in the development of software products. Also, no segment-wise breakup regarding software development services of the aforementioned company can be gathered from its annual report. We are of the considered view that, in the backdrop of the diversified business transactions of Infosys Limited, it could not have been picked up as a comparable for benchmarking the software development segment of the assessee company, i.e., a low-risk captive software development service provider to its AE. Apart from that, we find that Infosys Limited has a huge brand valu....
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....kets, the laws and government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 9.1 He further submitted that this company offers end to end business solutions including product support, product engineering and lifecycle solutions, artificial intelligence, software products, business platforms and solutions. Further, he submitted that it crores and the turnover of this company is 123 times more than assessee. He, therefore, submitted that this it has a turnover of Rs. 53,983 crores whereas assessee's turnover is Rs. 437 company cannot be compared as the different in its size and scale of operations have a direct impact on their profitability. He relied on various decisions of ITAT including the decision in ADP (P) Ltd. (supra) wherein this company is excluded as comparable. 9.2 On the other hand, Id. DR submitted that under TNMM comparable transactions needs to be broadly similar with this company and significant product diversity and some functional diversity between the controlled and uncontrolled parties are acceptable. 9.3 We have cons....
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....or AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company as comparable from the list of comparables." 35. Also, we find that a similar view was taken by the ITAT, Hyderabad in the case of Indeed India Operations Pvt Ltd vs. DCIT, (2022) 143 taxmann.com 212 (Hyderabad), wherein the aforementioned comparable was excluded from the final list of comparables for benchmarking the software development segment for the reason that it was found to be functionally dissimilar and into diversified activities, owns intangibles etc. Also, we find that the ITAT, Bangalore in the case of AMD India Pvt Ltd vs. ACIT, IT(TP)A No. 775/Bang/2022, while disposing of the appeal of the assessee company for the AY 2018-19, had held that the aforementioned company could not be considered as a comparable for benchmarking the software development segment for the reason that it was functionally dissimilar and into diversified activities. Also, we find that the ITAT, Hyderabad in the case of SSNC Fin Tech Services India Private Limited vs. DCIT, ITA No. 916/Hyd/2024, dated 03/07/2025, had directed the exclusion of Info....
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....n of the above 5 companies from the final list of comparables. 5. Ld. DR on the other hand supported the orders of the authorities below. 6. Having regard to rival contentions and material placed on record, we find that the assessee is into providing Software Development Services and M/s Kony India Private Ltd. was also into similar business of providing Software Development Services to it's AE, we also find that the TPO has taken the very same 12 companies as comparables in the case of Kony India Ltd. Since the relevant AY is also 2014-15, the facts and circumstances under which those companies have been held to be not comparable to M/s. Kony India Private Limited are also the same, the said decision is also applicable to the case before us. 6.1. In view of the same, respectfully following the decision of Coordinate Bench of this Tribunal to which one of us (i.e. J.M.) is a signatory, we direct the exclusion of above mentioned companies from the final list of comparables. For the sake of ready reference, the relevant paragraphs from the order of this Tribunal are reproduced hereunder :- "9. We have heard the rival submissions and carefully p....
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....ible assets as apparent from page no. 65 & 121 of PB- II, while as the assessee company is not involved in any R & D activity. In the case of the assessee company neither such expenses are incurred, or any intangibles are acquired during the relevant period. Extraction from page no. 65 of PB-II Disclosure of intangible assets [Table] -(1) Unless otherwise specified, all monetary values are in INR Classes of intangible assets [Axis] Company total intangible assets [Member] Sub classes of intangible assets [Axis] Internally generated and other than internally generated intangible assets [Member] Carrying amount accumulated amortization and impairment and gross carrying amount [Axis] Carrying amount [Member] Gross carrying amount [Member] Accumulated amortization and impairment [Member] 01/04/2013 to 31/03/2014 01/04/2012 to 31/03/2013 31/03/2012 01/04/2013 to 31/03/2014 01/04/2012 to 31/03/2013 01/04/2013 to 31/03/2014 Disclosure of intangible assets [Abstract]  ....
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.... Revenue information technology consultancy 29,70,74,153 35,70,87,748 Revenue information technology services 170,77,98,168 102,98,70,604 Total gross income from services rendered 200,48,72,321 138,69,58,352 Value of imports of raw materials 3,35,87,489 4,31,64,414 Value of imports of capital goods 1,49,89,361 1,81,32,492 Total value of imports calculated on CIF basis 4,85,76,850 6,12,96,906 Expenditure on other matters (A) 3,16,12,491 (B) 1,62,12,494 Total expenditure in foreign currency 3,16,12,491 1,62,12,494 Final dividend remitted in foreign currency (C) 6,45,550 (D) 12,07,010 Interim dividend remitted in foreign currency 0 (E) 60,35,050 Total amount of dividend remitted in foreign currency 6,45,550 72,42,060 Total number of non-resident shareholders [pure] 6 [pure] 5 Total number of shares held by non-resident shareholders on which dividends were due [shares] 6,45,554 [shares] 4,82,804 10. Considering the nature of activities carried out by M/s. E infochips Limited discussed hereinabove and since the assessee company is primarily engaged in custom-built m....
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....ct is only Rs.940.8 crores as against total revenue of Rs.50387.7 crores. The segmental information given in the consolidated financial statements also reflects that the substantial revenue is derived from IT services only. Therefore, the IT service segment of the company being the major revenue earning segment is very much comparable to the Assessee on functional aspect. The company's IT services segment is considered as a comparable on standalone basis. This segment is into software services development. Therefore, the plea of the Assessee that it is into diversified activities and no segmental details are not acceptable. 2.5.4.2 At the outset, it is pertinent to note, that the assessee has challenged the selection of some comparables, relying on some decisions of Hon'ble ITAT either in assessee's own case or in some other case, holding that certain companies are to be excluded as comparable for some other years. We are of the humble view that the comparability of a company cannot be determined with regard to decisions of the appellate bodies rendered for some other year, as the business and economic factors are dynamic and different in each year both in the ....
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....e the challenge has to be considered on the basis of facts and evidence on record for that year. It is only after the facts and evidences are taken into consideration that the relevance of applying a precedent would come into play. In the facts of the present case, we find that the revenues from the software development segment of this comparable constituted 96% and this finding of fact has not been assailed by the Assessee." 2.5.4.5 Therefore, inclusion or exclusion of a comparable has to be necessarily justified on the basis of facts available on record, the FAR analysis and the information in the annual reports submitted for each year and not on the basis of judicial precedent. 2.5.4.6 It was also pleaded that the company has significant intangibles. However, on perusal of the information at page 177 of the annual report, we note that the value of intangible assets as on 31.03.2020 is Rs. 4571 millions which is insignificant (0.90%) considering its turnover of Rs. 503877 million. As per the information in page 144 the customer relationship is added to the company during the previous year under a contract with a group company. Therefore, this intangible does not....
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.... assessee company before us. Also, we find that as no separate segment-wise breakup regarding software development services of the aforementioned comparable can be gathered from its annual report, therefore, for the said reason also it could not have been selected as a comparable for benchmarking the software development services provided by the assessee company to its AE. Further, we find that as stated by the Ld. AR, and rightly so, the aforementioned company, viz., Wipro Limited, uses its highly innovative and IP led technology to provide its service offerings and solutions to its customers, which, thus, on the said count also renders it incomparable to the assessee company before us. Further, we find that the scale of operations of the aforementioned company for the subject year reveals that it had, during the subject year, i.e., Financial Year 2019-20, generated revenue from operations of Rs. 50,387,70 crores, which is significantly higher as in comparison to the revenue from operations of the assessee company of Rs 195.39 crores during the subject year. 41. We find that the ITAT, Bangalore in the case of AMD India Pvt Ltd vs. ACIT, IT(TP)A No. 775/Bang/2022 for AY 2018-19,....
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.... Considering the rival submissions, we note from the company's overview that Wipro Ltd. is a leading global information technology (IT) consulting and business process services. It is clear that the company is engaged in diversified activities and not a pure software development company like the assessee and hence functional profile is different. Therefore, this company is directed to be excluded from comparables list." 42. Also, we find that the ITAT, Bangalore in the case of Metricstream Infotech (India) Pvt Ltd vs. DCIT, IT(TP)A No. 827/Bang/2022, had adopted a similar view and observed that the aforementioned company cannot be picked up as a comparable for benchmarking the software development segment of the assessee company before them, for the reason that it was found to be functionally dissimilar and into diversified activities, viz., engaged in global information technology, consulting and business process solutions, etc. 43. We thus, in terms of our aforesaid observations are of the view that, unlike the assessee company before us which is a captive service provider of software development services to its AE, the subject comparable i.e., Wipro Limited (supra) whi....
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....ould not point to any such information in the annual report. We also note at page 30 of the annual report, the independent auditor has certified, "the company is in the business of rendering services and consequently, does not hold any inventory." There is no information in the annual report that the company is into diversified activities. In view of these, we hold that this company is functionally comparable to the Assessee and the pleas raised in this regard are rejected. 2.5.5.2 As the company is primarily engaged in software development services and earns the revenue from this activity there is no need of providing segmental information as per AS 17. 2.5.5.3 In view of the above discussion, the selection of this company is upheld." 45. We may herein observe that a perusal of the "annual report" of the aforementioned company, it transpires, that it is a business consulting and enterprise transformation company which renders software services, business consulting in the area of enterprise transformation, change, and performance management and related IT services by using proprietary frameworks and methodologies. Also, the said company earns revenue mainly fro....
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....- ● M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT-2022 Bang- TP-for AY 2017-18 ● Etisalat Software Solutions (P.) Lad v DCIT (2022) 144 taxmann.com 162 (Bangalore-Trib.) for AY 2017-18 17.1 The Id. DR relied on the orders of lower authorities. 17.2 Considering the rival submissions, we note from the financial statements placed at page 1882-1889 of PB that the core activity of Nihilent Ltd. as per NIC Code No.99831319 allotted, "other professional, technical and business services" and the turnover is Rs.2800.62 crores during the year from the core activity of "other IT consultancy services". The comparable company is engaged in global business consulting and IT services solutions, the major revenue is received from South Africa. In the annual report, it is stated as under :- "Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and innovation. Our service offerings include: Consulting: Nihilent partners with businesses in transforming their organizations with solutions using a holistic design-thinking led approach to problem solving. Our sui....
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....assessee company. Before proceeding further, we deem it apposite to cull out the observations of the DRP, which had upheld the inclusion of Great Software Laboratory Pvt. Ltd. in the final list of comparables by the TPO, as under: "2.5.1.1. Having considered the submissions, it is gathered from annual report (page No.2 that the principal business activity for the company is development and design of software application, As per Page 28 of the Annual report, the Principle business of the company is mentioned as Computer Programming and consultancy and related activities. As per the statement of profit and loss account the revenue is derived from sale of services amounting to Rs.236.59 crores in the relevant financial year ending on 31.03.2020 (page No. 126 of the AR). There is no revenue from sale of products. At page 133 of the annual report, the footnote to the statement of profit and loss account specifically mentions that the revenue from software development includes software development services only. In this case the difference in various segments i.e. low end to high end in services is mainly on account of differences in the skill/qualification and pay structure of ....
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....03-2020 was only Rs. 59,88,486/- (page no 146 of AR) as against total revenue of Rs. 249,75,28,071/- constituting 0.24% of operating revenue. There is no reference to any IPR or patent owned or developed by the company, in the stand-alone annual report. There is also no acquisition of IPR during the year. The intangibles shown in the Asset Schedule are only computer software acquired for the business. The intangible assets schedule shows no other intangibles generated internally are acquired. The Assessee also did not point to any information in the annual report to indicate that the intangibles have materially affected the profitability of the company as required in clause (i) of sub-rule (3) of Rule 10B. Thus, as stated in above paras, the information put in website cannot be given complete credence and there is no way to verify whether the said information has any relevance for the year under scrutiny or it totally related to subsequent current year developments. Therefore, the information in the annual report which is based on audited financial statements and management reports is more reliable and authentic, for qualitative analysis of comparability. Taking into account all th....
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....e in the public domine. For the sake of clarity, the observations of the ITAT, Bangalore in the case of NTT Data Information Processing Services Pvt Ltd vs. DCIT (supra) are culled out as under: "(B). Great Software Laboratory Pvt. Ltd. The Ld.AR submitted that this company is engaged in the business of design and development services of software applications including customisation and packaged software. She further submitted that the primary service of the Company are cloud products and operations management, IDM and connected experience practice, big data analytics and support services. The Company has also earned revenue from sale of products. The company is engaged in diverse activities for which no segmental details is available. It is further submitted that the company owns significant intangibles and that this company earned significant onsite revenue which demonstrates that it operates on a different model and therefore functionally not comparable with the assessee. The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. in IT(TP)A No. 713/Bang/2022 by order dated 11.01.2023. The Ld.DR on....
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.... erred in including Cybage Software Pvt. Ltd. as a comparable for benchmarking the software development segment of the assessee company. Before proceeding further, we deem it apposite to cull out the observations of the DRP, which had upheld the inclusion of Cybage Software Pvt. Ltd. in the final list of comparables by the TPO, as under: "2.5.12.1 Having considered the submissions, and on perusal of the annual report, we note that as per information at page 2 of the annual report, the principal business activity of the company is stated to be Information Technology Consulting and Support services. The company information at page 68 of the annual report states that it is engaged in the business of software development services only The Revenue Recognition Statement also discussed about the accounting principle adopted in recognizing revenue from software development services and not as to product sales. There is no discussion about any other revenue stream in its annual and financial statements. Further, in the various notes of the annual report, it is mentioned that the company had entire earnings from software development services. Under operating segments in the annual r....
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....its own proprietary software frameworks and tools and offers various solutions (IT enabled and BPO services etc.), and had invested in R&D activities with the object of devising efficient method of product development, as in comparison to the assessee company before us, which is a low-end captive service provider of software development services to its AE. Although the aforesaid company had during the subject year primarily earned revenue from software development services but it does not maintain segmental information, as a result whereof in the absence of the bifurcated details of the revenue generated, viz., (i) software development services; and (ii) ITeS and digital marketing services it could not have been picked up as a comparable for benchmarking the software development services provided by the assessee company to its AE. 55. We find that the ITAT, Bangalore in the case of NTT Data Information Processing Services Pvt Ltd vs. DCIT, IT(TP)A No. 922/Bang/2022, had observed that, as the aforementioned company, viz., Cybage Software Pvt Ltd (supra), was functionally dissimilar, wherein it had undertaken R&D activities involving developing new technologies under the software ....
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....e had objected before the TPO and DRP that the same is not functionally comparable, lacks segmental information and has extra ordinary high margins. However, the TPO and DRP rejected the objections of the assessee. The Pune Tribunal in the case of Optiva India Technologies Pvt Ltd in ITA 194/Pun/2021 dt. 21.07.2022 has directed to exclude comparable Cybage Software Pvt. Ltd on the ground of functional dissimilarity. Relevant portion is extracted hereunder: "Cubage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliable. This company is product development as well as R & D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The Id. A.R demonstrated through Annual Report at page 1804, as per the description of the business of this company that it is onsite service provider. Furthermore at page 1796 of the Annual Report this company is doing other computer related activities but nowhere software services are m....
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....s, we are of the view that the said company should not have been picked up as a comparable for benchmarking the software development segment of the assessee company i.e., a low end captive software development service provider to its AE. We, thus, in terms of our aforesaid observations, direct the AO/TPO to exclude the abovementioned company from the final list of comparables for benchmarking the software development services provided by the assessee company to its AE. (H). R Systems International Ltd. 57. We have thoughtfully considered the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the records available before us and the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 58. As observed herein above, the assessee company has sought for inclusion of the aforementioned company, viz., R. Systems International Ltd (supra) in the final list of comparables. However, we find that the TPO had rejected the inclusion of the aforementioned comparables for the reason that it had a different financial year ending. Thereafter, the DRP had concurred with the view taken by....
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....ering Private Limited vs. ITO (2017) 78 taxmann.com 22 (Hyderabad), had observed, that a company having a different financial year ending can be considered as a comparable in case its data available in the public domain can be extrapolated for the financial year ending of the assessee company. 63. We, thus, in terms of our aforesaid deliberations, read along with the orders of the coordinate Benches of the Tribunal, concur with the Ld. AR's contention that though the aforementioned comparable, viz., R. Systems International Ltd (supra) has a different financial year ending viz-a-vis the assessee company, but considering that its data available in the public forum can be extrapolated for the financial year ending of the assessee company, therefore, it can be considered as a comparable for benchmarking the provision of software development services by the assessee company to its AE. 64. We, thus, herein direct the AO/TPO to include the aforementioned company in the final list of comparables for determining the ALP of the software development segment of the assessee company before us. 65. Accordingly, in terms of our aforesaid deliberations, we direct the AO/TPO to recomp....
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....making an addition/adjustment of Rs. 13,13,770/- under section 43B of the Act. At this stage, it would be relevant to point out that the notice under section 143(2), dated 29/06/2021, was issued much before the processing of the return of the assessee company vide the aforesaid impugned intimation that is stated to have been issued by the CPC under section 143(1)(a) of the Act on 30/11/2022. 71. We are of the view that as the Intimation under section 143(1) of the Act, dated 30/11/2022, was issued after the notice under section 143(2) of the Act, dated 29/06/2021, was issued by the AO, therefore, the same has no sanctity of law. Once the AO has issued a notice under section 143(2), he is thereafter divested of his jurisdiction to issue an Intimation under section 143(1) of the Act. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Gujarat Electricity Board (2003) 260 ITR 84 (SC). The Hon'ble Supreme Court had observed that it is not open for the revenue to issue an intimation under Section 143(1)(a) of the Act after notice for regular assessment is issued under Section 143(2). The Hon'ble Apex Court was seized of the ....