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2018 (5) TMI 2146 - AT - Income TaxTP Adjustment - Comparable selection - R Systems International Limited rejected as it has different accounting period inasmuch as this company’s year ended on 31.12.2012 - HELD THAT:- As there are case laws for the proposition that companies having a different financial year ending can be selected if the margin for the period April-March can be computed based on audited segmental information available - See Mercer Consulting (India) (P.) Ltd.[2016 (8) TMI 1163 - PUNJAB AND HARYANA HIGH COURT], PANGEA3 AND LEGAL DATABASE SYSTEMS PVT. LTD. [2017 (3) TMI 267 - ITAT MUMBAI] and EGIS LIMITED [2017 (2) TMI 1204 - ITAT MUMBAI]. Thus we hold that this comparable is to be selected. The Transfer Pricing Officer may verify the margin as computed by the assessee. Acropetal Technologies Limited - assessee submitted that the AO has taken health care segment from this comparable instead of the ITES services which is being compared - We direct the Transfer Pricing Officer to compute and take the margin of ITES Segment of the comparable for analysis. Persistent Systems Limited - Revenue has not brought out any difference in the functional profile of the assessee for the year under consideration with that of the assessee for those assessment years. Hence, the Tribunal in assessee’s own case [2015 (11) TMI 1582 - ITAT MUMBAI] has accepted that a software product company is not comparable to assessee company which is into software development services. Accordingly, respectfully following the above precedent, we hold that this comparable has to be excluded from the final list of the comparables. Aspire Systems (India) Private Limited - assessee submitted that this company is into IT Consultancy and Software Product Development and it is not Software Service Company - DRP has held that it was the assessee’s submissions that this comparable is into varied activities, the same argument has been placed before us. The Dispute Resolution Panel has held that this company is into Development and Software. Dispute Resolution Panel has held that merely because this company is having IPs & R & D centre, one cannot reject the comparable. We find that the ld. Counsel of the assessee has not been able to cogently rebut the findings of the authorities below. Hence, the objection of the ld. Counsel of the assessee against the selection of Aspire System Ltd. is rejected. Infobeans Technologies Limited - DRP found that this company’s business is similar with that of the assessee - As found that Infobeans Software Solutions Pvt. Ltd. is into development of software and its sale. We find that from the perusal of the financial of this comparable submitted in the paper book we agree with the finding of the Dispute Resolution Panel and held that merely because company has shown sale of software in profit and loss account, one cannot reject this comparable. As regards the ld. Counsel of the assessee’s submission that there has been a demerger in the said comparable, hence it is not comparable, we find that it has not been explained as how the demerger has affected the results. Hence, we reject this aspect also of tassessee’s submission. Hence, we affirm the Transfer Pricing Officer’s action for inclusion of this comparable. Thirdware Solutions Limited - assessee submitted that this comparable is into acquisition/purchase of hardware and software including software as a service - When this company's substantial revenue is from other various business segments like sale of licence, software services and segmental results are not available, this company cannot be a valid comparable for benchmarking the international transaction. Following the cases M/S. IVY COMPTECH LIMITED [2014 (12) TMI 1414 - TELANGANA HIGH COURT] and M/S INTOTO SOFTWARE INDIA PVT. LIMITED HYDERABAD [2014 (3) TMI 1071 - ANDHRA PRADESH HIGH COURT] we hold that this is not a valid comparable in the present case. Inclusion of Pass-through Costs in the Operating Margin - TPO has recomputed the PLI by considering the out sourcing cost as operating cost, whereas the assessee has treated the same as pass through cost and adjusted the same in indirect expenses - HELD THAT:- We find that as rightly held by the authorities below, the outsourcing cost is directly related to the software development and services. It is not the case that the AE has directly given contract to other parties, rather it is to the assessee who has sub-contracted its part of work. The assessee has merely developed a part of the software through out-sourcing instead of in-house development. The outsourced work is incorporated in the work of the assessee in the final software prior to providing the same to the AE. Hence, we are in agreement that the TPO has correctly considered the outsourcing cost as operating expense of the assessee. Assessee appeal is partly allowed.
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