TMI Blog2015 (1) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... tric Software Ltd. from the comparables. Based on the above, direct the AO to recomputed the Profit Level Indicator and work out the arithmetic mean margin of the comparables. Thereafter, the AO has to decide whether the PLI of the assessee is within +/- 5% range of the arithmetic mean of the comparables as set out u/s. 92C(2) of the Act and decide on the adjustment, if any, required on the ALP. - Decided in favour of assessee for statistical purposes. Exclusion of telecommunication expenditure from its export turnover - Corporate tax issues - Held that:- Alternative ground taken that if such expenditure is excluded from the export turnover, it has to be excluded from the total turnover also is acceptable in view of the judgment in the case of CIT v. Tata Elxsi Ltd.[2011 (8) TMI 782 - KARNATAKA HIGH COURT] wherein held that if export turnover in the numerator was to be arrived at after excluding certain expenditure, it should also be excluded from the total turnover. Decided partly in favour of assessee. - IT(TP)A No. 1172/Bang/2010 - - - Dated:- 26-9-2014 - Shri N. V. Vasudevan And Shri Abraham P. George,JJ. For the Appellant : Shri Niraj D. Sheth, C.A. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had raised objections with regard to 13 companies considered for comparison by the TPO, such objections were overruled. 6. When the assessee moved the DRP against the draft assessment order proposed by the AO in line with the TPO directions, the DRP confirmed the selection of the comparables done by the TPO. The arithmetic mean of the profit level indicators of the comparables selected by the TPO came to 20.68% on which he allowed working capital adjustment of 0.80% and arrived at an adjusted arithmetic mean of 19.88%. On this basis, an addition of ₹ 1,44,69,371 was made. 7. Now before us, the ld. AR submitted with regard to the companies mentioned by the TPO at Sl.Nos. 15, 19, 12, 8, 13, 14 17 that he had no objection whatsoever. These companies are:- (1) Bodhtree Consulting Ltd. (2) Lanco Global Systems Ltd., (3) Mediasoft Solutions P. Ltd., (4) R. Systems International Ltd. (5) R.S. Software (India) Ltd. (6) SIP Technologies Exports Ltd., and (7) Synfosys Business Solutions Ltd. According to the ld. AR, his objections were confined to the following comparables:- 1. Infosys Ltd. 2. Flextronics Software Systems Ltd. 3. iGate Glo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 590.39 crores (4) Persistent Systems Ltd. 293.74 crores (5) Sasken Communication Technologies Ltd. 343.57 crores (6) Tata Elxsi Ltd. 262.58 crores (7) Wipro Ltd. 961.09 crores (8) Infosys Technologies Ltd. 13149 crores 10. Respectfully following the aforesaid decision of the Tribunal in the case of Triology E-Business Software India Pvt.Ltd. (supra), we hold that the aforesaid companies (listed at S.No.3, 5, 6, 17 20 of the list of comparable companies set out in the chart given para-4 of this order) should be excluded from the list of comparable companies. The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. 8.1.3 In the case of EMC Data also, their turnover was less than 200 crores. Respectfully following the above decision, we hold that Infosys Ltd. cannot be considered as a comparable and has to be excluded for working out the average PLI of the comparables. 8.2 Flextronic Software Syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal s decision of the ITAT in the case of Bindview India Private Limited Vs. DCI, ITA No. ITA No 1386/PN/1O wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: 16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. The assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee s claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin. Besides the above, it was pointed out that this company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes. The submission of the ld. counsel for the assessee was that if the above company should not be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO. 50. We have considered the submissions and are of the view that the plea of the assessee that the aforesaid company should not be treated as comparables was considered by the Tribunal in Capgemini India Ltd (supra) where the assessee was software developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a software product company, but was engaged only in development of software. 8.9.2 We have heard the rival contentions. Whether Tata Elxsi Ltd. could be considered as a software development company was one of the issues which came up for consideration before the this Tribunal in the case of EMC Data (supra), wherein it was held as under:- 17. As far as comparable at Sl.No.9 of the list of comparable chosen by the TPO listed in the chart given at para-4 of this order viz., Tata Elxsi Ltd., is concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt.Ltd. IT (TP) 1129/Bang/2011 AY 07- 08) wherein on the aforesaid company, the Tribunal held as follows:- 14. As far as comparable at Sl.No.6 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. (supra) wherein on the aforesaid two companies, the Tribunal held as follows:- 7.6 Flextronics Software Systems Ltd.: As per the statement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), Tata Elxsi Ltd. could not be considered as a software development company simplicitor. That Tata Elxsi Ltd. was functionally different, has been held by the coordinate Bench of the Tribunal in the case of Yodlee Infotech Pvt. Ltd. (ITA No.1397/Bang/2010 dated 15.2.2013) as well. We therefore direct that Tata Elxsi Ltd. be excluded from the comparables. 8.10 Lucid Software Ltd.: The ld. counsel for the assessee raised similar contentions as in the case of Tata Elxsi Ltd. here also. According to him, Lucid Software Ltd. was functionally dissimilar and was developing products and was not an software development services company. 8.10.1 We find that Lucid Software Ltd. was also one of the comparables which came up for consideration before the coordinate Bench of this Tribunal in the case of EMC Data (supra). EMC Data was also doing software development services in one of its segments and TPO had considered Lucid Software Ltd. also for comparison. The coordinate Bench in the aforesaid decision held as under:- 14. The learned counsel for the Assessee brought to our notice that the comparable company chosen by the TPO at sl.No.10 of the chart given in para-4 of this order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Logica Private Ltd., (supra). Respectfully following the decision of the Tribunal referred to above in the case of Logica Pvt.Ltd..(supra), we direct that the company listed as Sl.No.10 of the list of comparable companies chosen by the TPO and listed in para-4 of this order to be excluded from the list of 20 comparable arrived at by the TPO. 8.10.2 Respectfully following the said decision, we hold that Lucid Software Ltd. was not functionally similar to the assessee and the same has to be excluded from the comparables. Directed accordingly. 8.11 Megasoft Ltd. 8.12 Aztech Software Ltd. 8.13 Geometric Software Ltd. Ld. AR submitted that in each of the above companies the RPT filter exceeded 15%. According to him, RPT filter has been upheld by this Tribunal in a host of decisions including that of EMC Data (supra). Per contra, the ld. DR supported the orders of authorities below. We have perused the orders and heard the rival contentions. Application of RPT filter while selecting the comparables has been held to be an appropriate criteria ..... X X X X Extracts X X X X X X X X Extracts X X X X
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