TMI Blog2014 (12) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... margin of that company – thus, the AO is directed to exclude the company from the list of comparables. Thirdware Solutions Ltd. – software development business - Held that:- Following the decision in Intoto Software India (P.) Ltd. Versus Assistant Commissioner of Income-tax, Circle -2(1), Hyderabad [2013 (10) TMI 599 - ITAT HYDERABAD] - there are software products that the company invoiced during the FY and the financial results are in respect of services only but still it held that though there is no sale of software products during the year but the company might have incurred expenditure towards development of software products - the AO/TPO is directed to exclude the company from the list of comparables. Bodhtree Consulting Ltd. –Related party transaction - Held that:- Related party transaction as a percentage to the total revenue is 34.68% which is more than the accept/reject matrix of more than 25% fixed by the TPO - in final filters adopted by the TPO he himself has excluded companies having RPT of more than 25% - the matter is remitted back to the AO/TPO to examine this aspect and exclude it from the list of comparables. Tata Elxsi Ltd. – Held that:- The company its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice (ALP) of international transaction with AE. In course of proceeding before TPO, assessee submitted its TP study report carried out through an external agency for bench marking the price received from international transaction with AE. For establishing that the price charged is within arm s length, FAR analysis was undertaken by categorizing assessee as a risk mitigated service provider and considering it as tested party. Transaction Net Margin Method (TNMM) was chosen as most appropriate method and operating profit to operating cost was chosen as Profit Level Indicator (PLI) by applying certain filters. A search was made in the data bases for selecting comparable companies, which resulted in selection of 87 companies as comparables with an average profit margin of 13% on cost and after adjustment of working capital, average margin of comparable companies was worked out at 10% on cost as against operating margin of 16.46% of assessee, hence, the price charged was found to be within arm s length requiring no adjustment. Further in course of proceeding before TPO, in response to the query raised, assessee selected 12 companies as comparables out of 87 originally selected in the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with an average margin of 26.59% Companies selected by TPO are as under: S. No. Name of the company OP/TC% 1. Gate Global Solutions Ltd. 1.64% 2. Flextronics (seg.) 29.33% 3. Geometric Software Solutions Co. Ltd. 17.59% 4. Lanco Global Systems Ltd. 9.31% 5. Larsen Toubro Infotech Ltd. 8.34% 6. RS Software (India) Ltd. 6.56% 7. Sasken Communication Techn Ltd. (Seg.) 13.05% 8. Sasken Network Systems Ltd. 13.84% 9. Visualsoft Technologies Ltd. (seg) 19.95% 10. Bodhtree Consulting Ltd. 22.21% 11. Exensys Software Solutions Ltd. 52.94% 12. Sankya Infotech Ltd. 21.00% 13. Foursoft Ltd. 21.21% 14. Thirdware Solutions Ltd. 64.07% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company being functionally different cannot be a comparable to assessee under any circumstances. Ld. AR submitted that the company owns significant brand intangibles, which show that it is into product development. He further submitted that so far as this company is concerned, it is exceptional year of operation as there was amalgamation of the company with Holool India Ld., with retrospective effect from 01/04/2004, which had a material/significant impact on the profits of the company for AY 2004-05. Ld. AR also brought to our notice that there is an error in computation of margin as TPO has excluded deferred revenue expenditure is included the net margin of company would be 32.68%. In support of his contention that the aforesaid company cannot be a comparable to assessee, learned AR relied on the following decisions: 1. Ness Innovative Business Services Pvt. Ltd., ITA No. 472/Hyd/2014 . 2. Invensys Development Centre (India) Pvt. LOd., ITA No. 1256/h/2010. 3. Colt Technology, ITA No. 609/Del/2011. 4. Sonata Software, ITA No. 3514/Mum/2010 5. Integrated Decisions Systems India (P) ltd., 27/JP/2011. 10. Objecting to Sankhya Infotec Ltd., ld. AR submitted that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut, also is engaged in distribution activity like implementation and customers services, which include training, customized development and help desk services for ERP software. In support of such contention, ld. AR relied on the following decisions: 1. Ness Innovative Business Services Pvt. Ltd., ITA No. 472/Hyd/2014 . 2. Invensys Development Centre (India) Pvt. LOd., ITA No. 1256/h/2010. 14. The learned DR, however, submitted that TPO after undertaking objective analysis having selected comparables, they cannot be excluded. 15. We have considered the submissions of the parties along with materials submitted before us in the form of paper book and record. Hereinafter, we record our finding on each of the companies objected by assessee. 15A. Exensys Software Solutions: i) It is evident from the materials placed in the paper book that there is merger of Holool Ltd. as a result of which the company s income for the year under consideration was ₹ 737.79 lakhs. Considering these aspects, coordinate bench of this Tribunal in case of Invensys Development Centre(supra) excluded the company after following another coordinate bench decision in case of Intoto Software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther company, both the companies have to be brought on par with each other after making the necessary adjustments wherever necessary and possible. However, where there are extraordinary events such as this, then those events have to be taken note of and where no adjustment can be made on account of this extraordinary event, then such company cannot be considered as a comparable. The objections to this company by Assessee are made for the first time before the Tribunal. The Tribunal being the final fact finding authority is bound to take note of the objections of Assessee. As the material relied upon by the learned Counsel for Assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, we deem it fit and proper to remand this issue to the file of the Assessing Officer/TPO for reconsideration. If it is found that there is an amalgamation of Exensys Software Limited and Holool India Limited and formed as one entity viz.,Exensys Software Solutions Limited. during the relevant previous year and the financial result is the combined result of these two companies, then, we direct the Assessing Officer/TPO to exclude this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in case of Sonata Software (supra). Respectfully following the decisions of the co-ordinate Benches, as noted above, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 15D. Bodhtree Consulting Ltd. i) We have considered the submissions of the parties and perused the materials on record. The ground on which the learned AR seeks for exclusion of the aforesaid company is, its related party transaction as a percentage to the total revenue is 34.68% which is more than the accept/reject matrix of more than 25% fixed by the TPO. It is to be noted that in final filters adopted by the TPO in para 8.6 of his order he himself has excluded companies having RPT of more than 25%. We, therefore, direct the Assessing Officer/TPO to examine this aspect and exclude it from the list of comparables if assessee's contention is found to be correct. 15E. Tata Elxsi Ltd. i) We have considered the submissions of the parties. From the informations available on record it is evident that, the aforesaid company itself acknowledges that it is a specialized embedded software development service provider, hence, cannot be compared with any other software develop ..... 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