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2019 (8) TMI 350 - AT - Income TaxTPA - comparable selection - HELD THAT:- Cerner Healthcare Solutions P. Ltd. Vs. ITO [2017 (1) TMI 1491 - ITAT BANGALORE] which is for the same AY i.e. Assessment Year 2010-11 and we have noted that in para 2 of this Tribunal order, this is noted by the Tribunal in this case that Cerner Healthcare Solutions P. Ltd. Vs. ITO (supra) that Cerner Healthcare Solutions Pvt. Ltd. is a captive service provider engaged in the business of rendering software development services to its AE. Hence the functional profile of the present assessee and Cerner Healthcare Solutions Pvt. Ltd. is same and therefore, in our considered opinion, this Tribunal order is applicable in the present case. Respectfully following this Tribunal order, we hold that no interference is called for in the order of CIT (A) regarding exclusion of Tata Elxsi Ltd. We decline to interfere in the order of ld. CIT(A) on this issue. KALS information systems - comparability of this company has been examined by the Tribunal in a series of decisions including in the case of Trilogy e-business Software India Ltd. The Tribunal has also noted that in the balance sheet of this company as on 31.03.2010, there are inventories of ₹ 60,47,977/- and on the basis of these facts, this finding is given that this company is in the business of software products and therefore, it is held that the same cannot be compared with a pure software development services provider company. Hence, in the present case, we hold that because of this functional dissimilarity as held by the Tribunal in the case of DCIT vs. Electronics for Imaging India (P.) Ltd. (supra), no interference is called for in the order of ld. CIT(A) regarding this direction to exclude KALS information systems Ltd. Infosys Ltd. - Tribunal in that case has reproduced the relevant portion of the Tribunal order rendered in the case of DCIT vs. Electronics for Imaging India (P.) Ltd. [2016 (2) TMI 1123 - ITAT BANGALORE] as per which it was held that Infosys Ltd. is having a huge brand value and intangibles as well as having bargaining power and the same cannot be compared with the assessee who is providing only software development services to its AE. Respectfully following this Tribunal order, we hold that Infosys Ltd. should be excluded. Persistent Systems Ltd., it was held that this company is engaged in diversified activities and earning revenue from various activities including licencing of products, royalty on sale of products as well as income from maintenance contract, etc., and therefore, this company cannot be considered as functionally comparable with the assessee. Sasken Communication Technologies Ltd., it was held that this company earns revenue from three segments but the segmental operating margins are not available and therefore, in the absence of relevant segmental data and particularly operating margins, this composite data cannot be considered as comparable with the assessee for software development services segment. Respectfully following this Tribunal order, we hold that these two comparables i.e. Persistent Systems Ltd. and Sasken Communication Technologies Ltd. should also be excluded. Larsen & Toubro Infotech Ltd. - tribunal considered another Tribunal order rendered in the case of M/s. SumTotal Systems India Pvt. Ltd. [2014 (8) TMI 870 - ITAT HYDERABAD] and held that this is not a good comparable because there are no segmental details and it is seen from the annual report that revenues are reported from software development services and products and how much is from services and how much is from products could not be analysed. Respectfully following this Tribunal order, we hold that in the present case, Larsen & Toubro Infotech Ltd. also cannot be considered as a good comparable. TP analysis i.e. consideration of foreign exchange fluctuation gain / loss as operating in nature for the purpose of computation of margin of the assessee as well as the comparable companies - HELD THAT:- Since the details in this regard is not available and there is no finding of any of the authorities below in this regard, we feel it proper to restore the matter back to the file of AO / TPO for fresh decision with the direction that if it is found that foreign exchange fluctuation gain / loss of the tested party i.e. of the assessee or of the comparable companies is in respect of the current year’s turnover then the same should be considered for TP analysis but if such gain / loss is not in respect of current year’s turnover, then the same should be ignored in case of both i.e. the tested party and of the comparable companies. In case the data in this regard regarding comparable company is not made available by the assessee, then it should be presumed that such foreign exchange gain / loss for comparable company is not in respect of current year’s turnover because generally, the accounting of foreign exchange gain / loss is considered in the sales only if such gain / loss has been received in the year of sale itself and only when such gain / loss is received and accounted for in a later year then only the same is accounted for separately as exchange fluctuation gain / loss. Accordingly, ground no. 11 is allowed for statistical purposes. The AO/TPO should decide this issue as per above discussion after providing adequate opportunity of being heard to assessee. Working capital adjustment - Tribunal has given a direction to the AO to carry out the working capital adjustment as per the actual figures and not to apply any cap. In the present case also, we restore the matter back to the file of AO/TPO to work out the working capital adjustment on actual figure without applying any cap. ICRA Techno Analytics Ltd - this company is engaged in diversified activities of software development and consultancy, engineering services, web development & hosting and substantially diversified itself into domain of business analysis and business process outsourcing, and therefore, this cannot be regarded as functionally comparable with that of assessee who is rendering software development services to its AE and on this basis, it was held that ICRA Techno Analytics Ltd. is not a good comparable Tata Elxsi Ltd - This company is engaged in development of niche product and development services which is entirely different from the assessee company, engaged in software development services and respectfully following this Tribunal order rendered in the case of DCIT vs. Electronics for Imaging India (P.) Ltd. [2016 (2) TMI 1123 - ITAT BANGALORE] it was held by the Tribunal that there is no error or illegality in the direction of DRP to exclude this company from the set of comparables. In the present case also, no difference in facts could be pointed out by ld. DR of revenue and therefore, respectfully following this Tribunal order, we hold that there is no error or illegality in the order of ld. CIT(A) on this issue.
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