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2015 (2) TMI 981 - AT - Income TaxTransfer pricing adjustment - international transactions in the `Back office support services segment’ - selection of comparables - Held that:- Accel Transmatic Ltd. (Seg.) - it can be seen from the Annual report of this company has three divisions, namely, Systems and Services Division, Technologies Division and Animation Division. A bare perusal of the nature of activities done by this company under this segment divulges that it is into software development services and also the sale of software products. On the other hand, the assessee in question is involved into rendering software non-development services, which are far away different from software development services. We, therefore, order for the exclusion of this company from the list of comparables. Avani Cimcon Technologies Ltd. - from the Annual report of this company, a copy of which is available in the paper book, it can be seen that this company is engaged in providing software development services. In view of the fact that the assessee is not providing any software development services, this company cannot be considered as comparable. We, therefore, order to eliminate this company from the list of comparables. Celestial Labs Ltd. - it is manifest from the Annual report of this company that the same cannot be considered as comparable on entity level when it has dealt not only with software products, but has also engaged itself into software development and also rendering services. In comparison with that, the assessee company is simply providing software nondevelopment services to its AEs. Flextronics Software Systems Ltd. (Seg.) - it is a software products company and is also providing software development services, even the segmental results of software development services cannot be equated with the activities undertaken by the assessee for its AEs. We, therefore, order to exclude this company from the list of comparables. Helios & Matheson Information Technology Ltd. - as find from the Annual accounts of this company it is engaged into similar business activity as is done by the assessee. After going through some pages of the Annual report, giving details about the nature of business activity done by this company, the ld. AR also candidly accepted that functional profile of this company is comparable with the assessee company. We, therefore, uphold the impugned order on the inclusion of this company in the list of comparables. Infosys Technologies Ltd. - It is an undisputed fact that the assessee rendered services to its AEs as a captive unit without retaining any rights in intellectual property in the work done by it. In contrast to that, Infosys Ltd. is a giant company in terms of risk profile, scale, nature of services, revenue ownership of branded/proprietary products, on site and offshore services, etc. As decided in CIT vs. Agnity India Technologies Pvt. Ltd. [2013 (7) TMI 696 - DELHI HIGH COURT] this company cannot be considered a comparable. Infosys Technologies Ltd., has been held to be not comparable with a company engaged in the business of development of software for its parent company - we direct not to consider this company as a comparable. KALS Information Systems Ltd. (Seg.) - The company consisting of STPI unit engaged software products and in development of software is also undertaking training activity of software professionals on online projects. Not only the revenues of the segment considered by the TPO also include the revenue from software products, but also from training imparted on commercial basis. When we consider the assessee’s functional profile, the only irresistible conclusion which can be drawn is that it is not a comparable company. Accordingly, this company is ordered to be expunged from the set of comparables. Lucid Software Ltd. - Considering the assessee’s balance sheet, it turns out that the assessee has also shown a particular amount under the head ‘Software’ in its Schedule of fixed assets, and, thereafter, it also claimed deduction on account of amortization during the year, leaving the balance unamortized amount under the head ‘Software.’ It shows that the assessee is also using its software for rendering the services in the similar manner as is done by Lucid Software Ltd. Apart from that, the ld. AR could not point out any functional difference with Lucid Software Ltd. We, therefore, approve the inclusion of this company in the list of comparables. Megasoft Ltd. (Seg.) - It is patent that the mergers/demergers largely influence the profitability of a company during the year of happening of such event, which makes it incomparable. As there have been acquisitions by Megasoft Ltd., during the year in question and the financial results of the erstwhile company stand included in the overall profitability of this company, respectfully following the precedents, we hold that this company cannot be considered as a comparable. Persistent Systems - The acquisition took place in this company during the relevant to the assessment year under consideration. Following the reasons given above while discussing the case of Megasoft Ltd., we order for the exclusion of this company from the list of comparables. Sasken Communication Technologies Ltd.- we find that the financial results of this company stand distorted due to certain acquisitions made by it during the relevant year. It also transpires from this Annual report that the companies getting merged with the assessee company also provided software services focused on telecom operating systems. Thus, it is abundantly patent that the segmental results taken by the TPO of this company have been influenced by the mergers and acquisitions taken place during the year, thereby making such financial results as incomparable. Following the reason given above, we order for the exclusion of this company from the list of comparables. Tata Elxsi Ltd. (Seg.) - Since the assessee is engaged in providing software non-development services to its AEs, this segment of Tata Elxsi Ltd., being that of software development services’ cannot be considered as comparable. It is, therefore, directed to be eliminated from the list of comparables. Wipro Ltd. (Seg.) - As the TPO has himself noticed that this company is engaged in providing software development services as against the assessee’s provision of software non-development services, we hold that this company cannot be considered as comparable. Non approving the use of multiple year data of comparables - Held that:- Nothing has been placed on record by the ld. AR to demonstrate that the case falls under proviso to rule 10B(4), which provides that the data relating to a period not being more than two years prior to such financial year may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared. In view of a plethora of decisions including the Special Bench decision in the case of Aztech Software Technologies Ltd. (2007 (7) TMI 50 - ITAT BANGALORE), we approve the view taken by the authorities below in considering only the current year’s data. - Decided against assessee. Seeking information u/s 133(6) by the TPO from the companies considered as comparable - Held that:- No embargo on the powers of the TPO in seeking the relevant information from the companies. Unless germane information is obtained, we fail to see as to how the TPO can be sure about the comparability or otherwise of a particular company with the assessee. However, the rider is that such information obtained from the companies must be confronted to the assessee before using against it. As the needful has been done by the TPO, we see no reason to disturb the view taken by the TPO in collecting information u/s 133(6) of the Act.- Decided against assessee.
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