TMI Blog2016 (7) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... , JCIT ORDER PER SHRI A.K.GARODIA, AM These are cross appeals filed by the assessee and the revenue and the cross objection has been filed by the assessee which are directed against the order of the ld. CIT(A)-IV, Bangalore dated 31-01-2011 2. In IT(TP)A No.404(B)/2012, the assessee has raised the following grounds: 1.That the order of the Commissioner of Income Tax (Appeals) - IV, Bangalore ['CIT (Appeals)'] is bad in law and liable to be quashed. 2 That the CIT (Appeals) erred in ignoring the functional profile of the Appellant and established comparability with entrepreneurial software development service providers. 3. That the CIT (Appeals) erred in ignoring the limited risk nature of the engineering design services provided by the Appellant and in not providing an appropriate adjustment towards the risk differential. 4. That the CIT (Appeals) erred in not considering the revised set of comparables submitted by the Appellant which are more closely comparable to the functional profile of the Appellant. 5. That the CIT (Appeals) erred in not providing an opportunity of being heard before arriving at a conclusion on the func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and total turnover has not been defined in the section. - 3. The CIT(A) ought to have considered that the order of the jurisdictional High Court on the above issue has not been accepted by the Department and SLP has been filed. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the TPO ought to have excluded com parables having any related party transactions, not only those with more than 25% related party transactions on sales. 5. On the facts and in the circumstances of the case, the Id. CIT(A) erred in holding that M/s Flextronics Software Systems Ltd., and M/s Celestial Labs cannot be taken as com parables being functionally different. 6. The learned CIT(A) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm's Length Price(ALP) under the proviso to section 92C(2) of the Income Tax Act. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing officer may be restored. The appellant craves leave to add, alter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity 9. M/s Megasoft Ltd., 60.23 Functional Dissimilarity 10. M/s Tata Elxsi Ltd., 26.51 Functional Dissimilarity 11. M/s Wipro Ltd (Seg.) 33.65 Branding, ownership of Intangibles R D 6. He submitted a chart and pointed out that the issue regarding exclusion of these comparables is covered in favour of the assessee by various judgments as indicated in the chart submitted by him before us. He also submitted that if these comparable are excluded then, the average PLI of remaining comparables will be 17.72% before working capital adjustment and 16.68% after working capital adjustment as against profit percentage of the assessee company, being tested party at 13.16% and since the difference is within the range of +- 5% no TP adjustment is called for. 7. The ld. DR of the revenue supported the orders of the authorities below. 8. Both sides agreed that if the assessee succeeds on the issue regarding exclusion of various comparables as per chart submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the list of comparables and while holding so, the Tribunal followed another Tribunal order of the Mumbai Bench of the Tribunal rendered in the case of M/s Telecordia Tech. Pvt. Ltd., Vs ACIT in ITA No781(Mum)/2011. The ld. DR of the revenue could not point out any difference in facts in the present case and in these two cases where the Tribunal held that this company i.e. M/s Avani Cimon Tech. Ltd. cannot be considered as a comparable. Hence, respectfully following these Tribunal orders, we direct the AO/TPO in the present case also to exclude this company from the list of final comparables. 11. The next company for which exclusion is being requested by the assessee is M/s Celestial Labs Ltd. For this company also, reliance has been placed on the same Tribunal order rendered in the case of M/s Trilogy EBusiness Software Ind. Pvt. Ltd.,(Supra) and our attention was drawn to page no.927 to 931 of the case law compendium. In that case, the Tribunal held that this company was basically in clinical research and manufacture of bio-products and other products and there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO/TPO to exclude this company i.e. M/s Geometric Ltd.,(Seg.)(Supra) from the list of final comparables because of higher RPT percentage at 17%. 15. The next company for which exclusion is being requested is M/s Infosys Ltd., In support of his claim for exclusion of this company, it was submitted that in assessee s own case, in IT(TP)A No.49(Bang)/2012 for AY: 2006-07 available on page 882 of case law compendium, it was held by the tribunal in para-16 of this Tribunal order that this company should be excluded from the list of final comparables and apart from this, in so many cases, the Tribunal has taken consistent view because of various factors such as branding, ownership of intangibles and R D and software products, this company cannot be considered as a comparable. We therefore, direct the AO/TPO in the present case also to exclude this company from the list of final comparables. 16. The next company for which exclusion is being requested is M/s Ishir Infotech Ltd., The RPT percentage of this company is at 22%. Considering this fact, we direct the AO/TPO to exclude this company from the list of final comparable. 17. The next company for which exclusion is being re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it margin of software services segment only of this company i.e. M/s Megasoft Ltd., (Supra) which has been noted at 23.11%. 20. The next company for which exclusion is being requested is M/s Tata Elxsi Ltd.,(Seg.). For this company, reliance has been placed on two Tribunal orders in assessee s own case for AY: 2005-06 2006-07, copy available on pages 854 873 of the case law compendium. In addition to this, reliance is also placed on the Tribunal order rendered in the case of M/s Telecordia Tech. India Pvt. Ltd., in ITA No.7821/Mum/2011, copy available on page 830 of case law compendium and this Tribunal order is for the same assessment year i.e. AY: 2007-08. As per this Tribunal order rendered in the case of M/s Telecordia Tech. India Pvt. Ltd., it is noted by the Tribunal that this company is engaged in the development of niche product development and related services, as in the present case. Therefore, by respectfully following this Tribunal order, we direct the AO/TPO in the present case also to exclude this company i.e. M/s Tata Elxsi Ltd., also from the list of final comparables. 21. The next company for which exclusion is being requested is M/s Wipro Ltd., (Seg.) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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