TMI Blog2014 (7) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... intangibles - the turnover of Infosys Technologies Limited isRs.13,149 crores as against ₹ 47 crores of the assessee - considering the enormity of turnover of the company as well as other relevant factors like brand value, scale of operation, size etc. the company cannot be treated as comparable to a purely captive service provider like the assessee in any manner – Relying upon CIT Vs. Agnity India Technologies Pvt. Ltd. [ 2013 (7) TMI 696 - DELHI HIGH COURT] - the AO/TPO is directed to exclude the company from the list of comparables – Decided in favour of Assessee. Ishir Infotech Ltd. – Employee cost filter - Held that:- The decision in Virtusa (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 422 - ITAT HYDERABAD] followed – Ishir Infotech Limited cannot be treated as comparable as it does not qualify the employee cost filter as well as RPT filter - the AO/TPO is directed to exclude the company from the list of comparables – Decided in favour of Assessee. Lucid Software Limited – Segmental data not available - Held that:- The decision in Virtusa (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 422 - ITAT HYDERABAD] fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on cost to cost basis, they have to be excluded – for Indium Software India Ltd., exclusion of the company is based on valid reasons, hence, has to be upheld - L & T Infotech was also found to be functionally different as it has products also - not only it has turnover of more than ₹ 600 crores but it has brand value and goodwill - TPO was not in a position to include the above case in the absence of segmental data. So far as VMF Softech Ltd. is concerned, even though this company may be includable on the basis of foreign exchange earnings being 90% of the revenue – Relying upon Virtusa (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 422 - ITAT HYDERABAD] - the company has been rightly rejected as comparable – Decided partly in favour of Assessee. Adjustment for risk differences – Held that:- The TPO has elaborately discussed the issue and concluded that risk adjustment need not be given as the single customer risk/political risk of tax payer combined with arithmetic mean price considered in the case of comparable companies qualifies the risk differential if any between the tax payer and comparable Indian enterprise - the assessee has advanced d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so noted that the assessee has not properly followed the criteria while accepting/rejecting the comparables as verticals/horizontals of software industry were not considered. He further noted that the assessee while applying the accept/reject matrix has omitted various companies though they were functionally similar to the assessee and has including certain companies which are not at all comparable. After rejecting the TP study of the assessee by pointing out various defects/deficiencies, the TPO by adopting some of the filters applied by the assessee and applying certain additional filters undertook a search in the databases which yielded 26 comparables with an average margin of 25.14%. After allowing adjustment towards working capital at 2.40%, the adjusted arithmetic mean PLI was worked out to to 22.74%. By applying the aforesaid Arithmetic Mean PLI to the operating cost of ₹ 43,39,20,487/- the ALP was determined at 53,25,94,005/-. The price charged by the assessee towards international transaction being ₹ 47,99,84,033/-, shortfall of ₹ 5,26,09,973/- was treated as adjustment to be made u/s 92CA of the Act. As a consequence of the order passed by the TPO, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.1978/H2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Telcordia Technologies India P. Ltd. ITA.7821/Mum/2011 e) Triology E-Business Solutions ITA.No.1054/Bang/2011 f) Bearing Point Business ITA.No.1124/Bang/2011 g) LG Soft India Pvt. Ltd. ITA.No.1121/Bang/2011 h) Transwitch India P. Ltd. ITA.No.948/Bang/2011 i) Mercedes Benz Research Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd. ITA.No.1119/Bang/2011 k) First Advantage ITA.No.1086/Bang/2012 l) HCL EAI Services Ltd. ITA.No.1348/Bang/2011 We therefore direct the Assessing Officer /TPO to exclude this company while computing ALP. INFOSYS TECHNOLOGIES LTD., : 5. Objecting to the aforesaid company being treated as comparable, learned AR submitted that this company cannot be considered to be comparable to a captive service provider like the assessee, not only because of the quantum of revenue earned by them but also on account of various other factors. It was submitted that the company command a premium in the pricing of their products and services due to the goodwill, reputation and brand value. It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, the assessee has sought exclusion of the aforesaid company on the ground that this company fails employee cost filter as its employee cost is only 3.96%. In this context, the learned AR has relied upon the decision of co-ordinate Bench of this Tribunal in case of M/s Virtusa (India) Pvt. Ltd. (supra). On a perusal of the order passed in case of M/s Virtusa (India) Pvt. Ltd.((supra)), we find that the coordinate bench has held that Ishir Infotech Limited cannot be treated as comparable as it does not qualify the employee cost filter as well as RPT filter. This view has also been expressed by different Benches of this Tribunal in the following decisions : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) Intoto Software India P. Ltd. ITA.2102/H/2010 c) LG Soft India P. Ltd. ITA.1121/Bang/2011 d) Transwitch India P. Ltd. ITA.948/Bang/2011 f) Mercedes Benz Research Development ITA.No.1222/Bang/2011 g) CSR India P. Ltd. ITA.No.1119/Bang/2011 h) First Advantage ITA.No.1086/Bang/2012 i) HCL EAI Services Ltd. ITA.No.1348/Bang/2011. Respectfully following the aforesaid decisions of the co-ordinate bench, we direct the Assessing Officer/TPO to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enz Research Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd. ITA.No.1119/Bang/2011 k) First Advantage ITA.No.1086/Bang/2012 l) HCL EAI Services Ltd. ITA.No.1348/Bang/2011. Respectfully following the aforesaid orders of co-ordinate benches, we direct the Assessing Officer /TPO to consider only the segmental margin of this company for the relevant assessment year for computing ALP. TATA ELXSI LIMITED : 11. The assessee has sought exclusion of the aforesaid company by placing reliance upon the information furnished by said company u/s 133(6) wherein the said company has admitted that it cannot be treated as comparable with any other software service provider due to complex nature of its business. However, while the TPO selected the aforesaid company by holding that the services provided are akin to software development services, the DRP, did not specifically comment on the comparability of this company. The learned AR submitted that comparability of the aforesaid company was considered and analysed by different benches of the ITAT and the aforesaid company was rejected as comparable to the software services provider. For such contention, the learned AR relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and products as one segment in its annual report. It was submitted that the TPO has not provided any other documents excepting segmental information obtained from TP report of Wipro, which is unaudited, manually corrected and unverified. It was submitted that Wipro is also considered to be a giant in its field assuming all the risks and cannot be compared to captive service provider like the assessee. To support his contentions with regard to non-comparability of the said company, he relied upon the following decisions : a) Telcordia Technologies India P. Ltd. ITA.No.7821/Mum/2011 b) Triniti Advances Software P. Ltd., ITA No. 1129/H/2005. c) M/s. Foursoft Limited (ITA.No.1903/H/2011) d) M/s. Virtusa (I) P. Ltd. ITA.No.1962/Hyd/2011 e) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011. f) Adaptec (I) P. L.td. ITA.No.1801/Hyd/2011. 15. The learned DR on the other hand supported the orders of the DRP as well as TPO so far as the selection of the aforesaid company as comparable while determining ALP. 16. We have heard the submissions of the parties and perused the material on record. The ITAT Mumbai Bench in case of Telcordia Technologies India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 133(6), it was the submission that this company also should be considered as comparable. As far as PSI Data Systems Ltd. is concerned, it was submitted, the TPO has rejected the company on related party transactions filter. It was the submission that RPT was worked out by including reimbursement transactions otherwise RPT as a percentage of operating revenue will be 22.42%, which is less than the threshold limit applied by TPO. With reference to VMF Soft Tech, the TPO has rejected it as there are no foreign exchange earnings, whereas, it is the submission that the company has 90% of foreign exchange revenues. It was the submission that above companies are to be selected as comparables. 20. Having considered the submissions of the assessee, we are of the view that assessee s contention in respect of Aztecsoft ltd., Birlasoft Technologies ltd. and PSI Data Systems ltd needs to be considered afresh. If the reimbursements are towards expenditure incurred on behalf of the AE and are on cost to cost basis, they have to be excluded. However, the Assessing Officer/TPO must ensure that these companies satisfy all other filters. So far as Indium Software India Ltd. is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in future during the time of assessment. Learned Counsel referred to the ground taken and submissions made in this regard before the DRP, submitted that DRP also has not considered asseesse s contentions properly on risk adjustment. It was submitted that risk adjustment needs to be considered by the TPO and relied on various legal arguments raised in the objections to the draft order. 22. After hearing rival contentions, we are of the opinion that this issue is to be examined by the TPO afresh. Assessee admits that it is having a single customer risk, whereas, other comparable companies have market risk. As can be seen, the TPO has elaborately discussed this issue vide para 16.1.1 to 16.2.3 of his order and concluded that risk adjustment need not be given as the single customer risk/political risk of tax payer combined with arithmetic mean price considered in the case of comparable companies qualifies the risk differential if any between the tax payer and comparable Indian enterprise. On perusal of the order passed by DRP it is seen that, though, the assessee has advanced detailed argument on this issue, however, the DRP has simply endorsed the view of the TPO without dwelling u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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