TaxTMI 
TaxTMI 
2020 (2) TMI 1767
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....s Private Limited and M/s Smac Limited, and included M/s Himachal Futuristic Communication Ltd used as a comparable for determining the ALP in the case of the assessee company, since the TPO had made detailed findings by analyzing functionality, turnover and profile of various comparables considered in his order. Further the ITAT was not justified to consider issues pertaining to earlier years, since each year is a separate assessment year and should be considered independently. The comparables has been selected by the TPO by applying suitable and relevant parameters." 2. The Respondent assessee, M/s Comverse Network Systems India Pvt. Ltd. is a wholly owned subsidiary of M/s. Comverse Network Systems Inc., USA. The assessee is engaged in the provision of sales and post-sales support services, software development services, professional and maintenance services to its Associated Enterprises ('AEs'). 3. For assessment year 2008-09, the Respondent assessee filed its return of income on 30.09.2008, declaring a loss of INR 6,44,33,875 which was revised to INR 7,28,17,072 on 31.03.2010. The case of the assessee was selected for scrutiny under 'Computerized Assisted Sel....
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....24,83,680/- Total INR 5,17,16,964/- 6. After incorporating the adjustment proposed by the TPO, the Assessing Officer issued a draft assessment order on 23.12.2011 to the assessee. Against the draft assessment order, the assessee filed its objection before the Dispute Resolution Panel ('DRP'), New Delhi. In compliance to the direction of the DRP vide order dated 06.09.2012, the TPO recomputed the adjustment as under: 1. Software development service INR 2,74,97,397/- 2. Sales and post-sales support services INR 2,24,83,680/- Total INR 4,99,81,078/- 7. After taking into account the adjustment to ALP, as directed by the DRP, the Assessing Officer passed the impugned order under section 144C read with section 143(3) of the Act on 23.10.2012. 8. Aggrieved by the final assessment order dated 23.10.2012, the assessee preferred an appeal before the ITAT. The ITAT, vide its order dated 20.01.2017, accepted the submissions of the assessee that the comparables chosen by the TPO were functionally dissimilar and were liable to be rejected. 9. Being aggrieved by the impugned order dated 20.01.2017 of the Hon'ble ITAT, the Revenue has preferred the present a....
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....asis. In view of the above, in our opinion the functions carried out by the comparable are dissimilar and it cannot be included as a comparable. Accordingly, we direct the TPO/AO to eliminate this company from the list of comparables." 13. The counsel for the revenue relies upon the order passed by the TPO and argued that the ITAT failed to appreciate the findings and observations given by the TPO. But the said finding of fact has not been shown to be perverse by the Revenue and thus, the finding of facts that the comparable is functionally dissimilar and in the absence of segmental details of revenue generated from its services and sale of products, has rightly been excluded by the ITAT. Celestial Labs Limited 14. The TPO has selected this company on the basis that it was engaged in software development activities and passed all the filters applied. The said finding was upheld by the DRP. Before the ITAT, the assessee submitted that Celestial Labs Limited was functionally dissimilar to the profile of the assessee, being a product company engaged in both development of software and bio- informatic products. Additionally, it was submitted before the ITAT that the company be....
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....e stating that it passed all the filters and was engaged in the business of software development services. The said finding was confirmed by the DRP. Before the ITAT, the assessee submitted that Infosys Limited could not be retained as a comparable owing to the fact that the company was engaged in wide range of services from package evaluation and infrastructure management to development of software products. It was further submitted before the Tribunal that Infosys Limited did not have adequate segmentation of the revenue earned from provision of services and sale of products, in addition to the fact that the said services were widely varied and dissimilar to the services rendered by the assessee. Various other contentions such as Infosys only maintain segmental information on the basis of its geographical/industry segment, being an industry leader having significantly large scale of operations (turnover Rs.15,648 crores), having significant brand value, intangible assets were raised before the ITAT. The ITAT while excluding the said comparable has observed as under: "4.3.13 We have heard the rival submissions of the parties and perused the relevant material on record. On....
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....ilable on page 706 to page 726 of the Annual Report compilation, we find that the company earned revenue from two segments namely application software and training. Further on perusal of clause 2 (b) of schedule No.16 (notes to the financial statement) of the Annual Report, we find that application software segment consisted of both software services and software products. The relevant clause reproduced as under .............. 4.3.18 Further we find that in the case of Sun Life India Service Center Private Limited (supra) also the revenue under application software segment of comparable company has been held to be consisted of from development of software as well as from sale of software products. The relevant part of the finding of the Tribunal is reproduced as under. 4.3.19 In view of the above, we are of the considered opinion that the segment of comparable company, compared with the assessee company is functionally dissimilar and accordingly, we direct the AO/TPO to exclude the above company from the list of comparables." 19. The counsel for the revenue relies upon the order passed by the TPO and argued that the ITAT failed to appreciate the findings and ob....
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....any from the set of comparable company for the year under consideration." 21. The counsel for the revenue relies upon the order passed by the TPO and argued that the ITAT failed to appreciate the findings and observations POOJA SHARMA 2020.03.13 16:22 I attest to the accuracy and integrity of this document given by the TPO. The ITAT has given detailed reasons while passing the order and also came to conclusion that as against the intellectual property rights owned by the company and R&D activities, the assessee was only a captive service provider to its AE. The ITAT further followed the decision of the coordinate bench of the Tribunal in the case of 3-D Software Solutions. The said finding of facts have not been shown to be perverse and thus, the exclusion is completely justified on facts. SALES AND POST SALES SUPPORT SEGMENT Alphageo India Limited 22. The TPO selected the said comparable while stating that since the assessee had adopted TNMM as most appropriate method, the services rendered by Alphageo "broadly similar" to the technical services provided by the assessee for the valid comparable. The said finding was confirmed by the DRP. Before the ITAT, the assessee c....
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....agement, urban infrastructure, agricultural and horticultural infrastructure, social infrastructure, ports, harbor and offshore terminals, industrial infrastructure etc. Additionally, it was submitted by the assessee that the said company owned technical know-how and operated in single business segment. The ITAT recorded the following findings while excluding the said comparable: "5.7 ....... On perusal of page 119 of the compilation of the annual reports, we find that M/s Mahindra Consulting Engineers Ltd. is engaged in infrastructure sector by providing consultancy services in the areas of Special Economic Zone, water supply, sewage, solid waste management, urban infrastructure, agricultural and horticultural infrastructure, social infrastructure, ports, harbor and offshore terminals, industrial infrastructure etc. 5.8. ......... Accordingly, we direct the AO/TPO to exclude above company from the list of comparables for sale and post sale support segment of the assessee." 25. The counsel for the revenue relies upon the order passed by the TPO and argued that the ITAT failed to appreciate the findings and observations given by the TPO. The IT....
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....he DRP. The ITAT while directing its exclusion on account of Stup Consultants Limited being functionally dissimilar observed as under: "On perusal of segment information available on page 148 of the annual report compilation, we find that M/s Stup Consultants Private Limited was engaged in the profession of civil engineering and architectural consultancy. Accordingly, we direct the AO/TPO to exclude above company from the list of comparables for sale and post sale support segment of the assessee. 5.8 ........ Accordingly, we direct the AO/TPO to exclude above company from the list of comparables for sale and post sale support segment of the assessee." 29. The said finding of facts have not been shown to be perverse and thus, the exclusion is completely justified in facts and in law. Semac Private Limited 30. The TPO selected the said company as being functionally comparable since it derived all its income from professional fee on account of technical consultancy. The said finding was confirmed by the DRP. Before the ITAT it was submitted by the assessee that the said company was functionally dissimilar owing to the fact that it was engaged in pro....
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....ival submissions and perused the relevant material on record. We find that the assessee has compared the 'turnkey contract and service' segment of the company with the sales and post sales support segment of the assessee company. However, we do not agree with the contention of the assessee that the company segment of turnkey contract & service was functionally similar to the segment of the assessee under comparison. The segment of the company compared is turnkey contract and services. No information is available in respect of the turnkey contract executed by the company and, therefore, the result of turnkey contract and service segment are not comparable with the sales and post sale support services in respect of software products. Normally, the turnkey contracts include executing of all component of contracts, i.e., from start to the end including civil, electrical, transportation etc. kind of work. In the Annual Report of the company, no information in respect of turnkey contract executed by the company, is available. In our opinion, the segment of the company inclusive of turnkey contract, cannot be compared functionally with the sales and post sale support segment of th....