TMI Blog2019 (5) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... ign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises Thirdware Solutions Ltd not functionally comparable to the assessee E -Zest Solutions Ltd. cannot be held to be functionally comparable to the assessee as it was engaged in provision of KPO services. Accordingly, we hold that concerns Cybercom Datamatics Information Solutions Ltd., Cybermate Infotek Ltd., Thirdware Solutions Ltd., Infobeans Systems Pvt. Ltd. and E-Zest Solutions Ltd. are to be excluded from final list of comparables while benchmarking international transactions undertaken by assessee. - Decided in favour of assessee. - ITA No.456/PUN/2017 - - - Dated:- 17-5-2019 - Ms. Sushma Chowla, JM And Shri D. Karunakara Rao, AM For the Assessee : Shri Darpan Kirplani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant has no motive to shift profits outside India, as the Appellant has been availing the benefit of deduction under Section 10A of the Act during the year under consideration; C. Initiation of penalty proceedings under section 271(1)(c) of the Act 11. erred on facts and in law in initiating the penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income. 3. The issue raised in the present appeal is against transfer pricing adjustment made in the hands of assessee in respect of international transaction of provision of software development services. 4. The learned Authorized Representative for the assessee pointed out that in case ground of appeal No.4 is decided i.e. against exclusion of five concerns, then the margins shown by the assessee would be within +/- 5% range of mean margins of comparables finally selected. The learned Authorized Representative for the assessee also pointed out that the issue of exclusion of said concerns is squarely covered by the order of Pune Bench of Tribunal in the case of M/s. PubMatic India Private Limited Vs. ACIT in ITA No.655/PUN/2017, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed. 8. The assessee is aggrieved by the aforesaid adjustment made in its hands and has pointed out that certain concerns are not to be included as these were not functionally comparable. In this regard, the learned Authorized Representative for the assessee has pointed out that in the case of another concern M/s. PubMatic India Private Limited, which was also providing software development services to its associated enterprises, the Tribunal in ITA No.655/PUN/2017, relating to assessment year 2012-13, order dated 09.03.2018 have held some of said concerns functionally not comparable. The learned Authorized Representative for the assessee has taken us through different paras of the said decision of Tribunal. 9. The first concern which the assessee wants to be excluded is Cybermate Infotek Ltd., which was engaged in providing both software development services and was also a product company and segmental details were not available and in the absence of the same, the margins of said concern could not be applied to benchmark arm's length price of international transactions undertaken by concern which was exclusively providing software development se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ‟ble High Court of Delhi in Prl.CIT Vs. Saxo India Pvt. Ltd. in ITA No.682/2016, for assessment year 2011-12, judgment dated 28.09.2016 had held that the cost for a particular segment had to be available in order to determine the exact profitability and if same was not available, then the said company could not be selected as comparable company. The Hon‟ble High Court of Delhi (supra) while deciding the case of a company which was engaged in providing software development services and its margins were compared with a company which were involved in both software development services as well as sale of software products held that the said concern was to be rejected from final set of comparables. 12. The Mumbai Bench of Tribunal in Ness Technologies (India) Pvt. Ltd. Vs. ACIT in ITA No.7016/Mum/2012, relating to assessment year 2008-09, order dated 24.09.2014 had excluded Cybermate as not comparable to the company providing software development support services to associated enterprises. The learned Authorized Representative for the assessee has pointed out that profile of concern Cybermate for assessment year 2008-09 and in the year under appeal i.e. asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding software development services to its associated enterprises, the Tribunal in M/s. PubMatic India Private Limited Vs. ACIT (supra) vide para 15 on same analogy has held as under:- 15. Similarly, the concern Cybercom is also a product company and was providing software development to its associated enterprises and was also selling developed software products. Both the activities were clubbed under one software segment. As per the annual report of said company, it was engaged in providing consultancy and advisory services and was also carrying out the business of development, testing, marketing and manufacturing of information technology products and services. The annual report of the said concern placed at page 918 of Paper Book declares the said facts and it is undisputed that the said concern is engaged in sale of software products. Following our reasoning in the paras hereinabove in respect of Cybermate, we hold that Cybercome is also to be excluded from final set of comparables. 12. Accordingly, we hold that Cybercom Datamatics Information Solutions Ltd. also cannot be included in final list of comparables while benchmarking international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee. 14. Applying the same parity of reasoning, we hold that Infobeans Systems Pvt. Ltd. is also not to be included in the final list of comparables. 15. Further, we may also refer to the observations of DRP on Safe Harbour Rules and also deliberations of the Tribunal in M/s. PubMatic India Private Limited Vs. ACIT (supra) on this issue vide para 19, which reads as under:- 19. Before parting, we may also refer to the observations of DRP on Safe Harbour Rules but the same at present cannot be applied and in any case the same cannot be applied to equate software product with software development company. Another aspect which had taken place during the accounting period is the demerger of business of Seed Enterprises Pvt. Ltd., for which the said concern had filed revised accounts. The extraordinary event which had taken place makes the said concern as not comparable to the assessee. In this regard, we find support from the ratio laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X
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