2014 (10) TMI 424 - ITAT DELHI

Selection of comparables – Functionally different unit – Difference in assets employed and risks assumed – Held that:- The assessee itself considered this company as functionally comparable by including it in the accept/reject matrix, but, rejected it on the ground that advertisement expenses were more than 3% - the TPO has taken the figures of this company’s Software services segment alone, which is admittedly akin to that of the assessee and that the Advertisement, marketing and distribution spend in this segment is less than 3%, being the filter applied by the assessee - the inclusion of the Software service segment of Accel Transmatic Limited in the list of comparables is upheld - from the description of business activity of this company, it is a pure software development service provider - In the absence of any other specific objection against this company,

From the annual accounts of this company that it is engaged in rendering ITES BPO services, Application management services, Offshore delivery, Project management services, Public sector services, Maritime practice and Executive education information systems, etc. - the TPO has taken the figures of this company which represent `Income from software sales and services’ - the assessee is not engaged in software sales - the comparability of Flextronics Software Systems Limited is upheld, as the company cannot be considered as comparable and is directed to be excluded from the list of comparables.

Ishir Infotech Limited – Held that:- This company to be comparable to that of the assessee - the company has included Professional fees along with Director’s salary, etc., under the head ‘Administrative expenses’ - When the objection was taken by the assessee before the TPO that the employee cost was only 4% viewing only the ‘Establishment expenses’ in isolation without considering the employee cost included under the head ‘Administrative expenses’, the TPO corrected the position by observing that the employee cost was more than 25% by impliedly including the personnel cost included under the head ‘Administrative expenses’ - The assessee did not challenge the TPO’s calculation before the DRP on this issue - filter of 25% of RPT is good enough to make a controlled transaction and thus expunging it from the list of comparables, which can only be uncontrolled transactions - the view taken by the TPO is upheld in including this case in the list of comparables.

KALS Information Systems Limited – Held that:- The company was engaged in Software development and training - the TPO adopted Software development segment of this company by noticing that this segment also included revenues from software products and training - the assessee is not engaged in imparting any training on commercial basis or selling its software products, the financials of the company under this segment cannot be compared with the assessee - The contribution by the sale of software products or training to the overall revenue of this segment cannot be precisely ascertained to determine the question of its comparability – Decided partly in favour of assessee.