TMI Blog2015 (1) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered for inclusion in the set of comparables in the case on hand as it is engaged in development of niche product and development services which is entirely different from the assessee company. WIPRO LTD cannot be considered as a comparable to the assessee as it is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. Risk adjustment - Held that:- Consequent to our decision on comparables the risk adjustment may vary. Therefore AO/TPO is directed to re-workout the same after giving due opportunity to assessee for making submissions. Therefore, issue of risk adjustment is restored to the file of the Assessing Officer/TPO for fresh consideration. Charging of interest under sections 234B and 234D - Held that:- The charging of interest under the aforesaid sections is consequential and mandatory and the Assessing Officer has no discretion in the matter and in this view of the matter, we uphold his action in charging the said interest. The Assessing Officer is, however, directed to re-compute the interest chargeable under section 234B/234D of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TP report of assessee basically on the ground that assessee has taken into consideration multiple year data. The TPO also noted that 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 assessee while applying the accept/reject matrix has omitted various companies though they were functionally similar to assessee and has included certain companies which are not at all comparable. After rejecting the TP study of assessee by pointing out various defects/deficiencies, the TPO by adopting some of the filters applied by assessee and applying certain additional filters undertook a search in the databases which yielded 19 comparables with an average margin of 26.20%. After making adjustment towards working capital at 2.21%, the adjusted arithmetic mean PLI was worked out to 23.99%. By applying the aforesaid Arithmetic Mean PLI to the operating cost of ₹ 61,16,13,064 the ALP was determined at ₹ 75,83,39,038. The price charged by assessee towards international transaction being ₹ 67,44,77,623, shortfall of ₹ 8,38,61,415 was treated as adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware products. It is also submitted that the segmental details of this company are not available and the Annual Report available in the public domain is not complete. In support of this comparable, the learned Authorised Representative placed reliance on the following judicial decisions : i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013. ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013. 4.1.3 Per contra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 4.1.4 We have heard both parties and perused and carefully, considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the learned Authorised Representative that KPO services are not comparable to software development services and therefore companies rendering KPO services ought not to be considered as comparable to software development companies and relied on the decisions of the coordinate Benches of the Tribunal in the cases of (i) Agnity India Technologies P. Ltd., vs. DCIT, Circle 1(1), New Delhi ITA.No.6485/Del/2012 dated 20th September, 2013 and (ii) 3DPLM Software Solution Ltd., (Successor to Delmia Solutions P. Ltd.,) Bangalore vs. DCIT, Circle 11(1), Bangalore I.T.(T.P.)A.No.1303/ Bang / 2012 dated 28.11.2013 and prayed that in view of the above reasons, this company i.e. e- Zest Solutions Ltd., ought to be omitted from the list of comparables. 4.2.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO. 4.2.4 We have heard the rival submissions and perused carefully the material on record. It is seen from the record that the TPO has included this company in the list of comparables only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparable to captive service providers assuming limited risk was relied on. Learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 4.3.3 Per contra, opposing the contentions of assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand as profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 4.3.4 We have heard the rival submissions and perused and carefully considered the material on record. We are inclined to concur with the argument put forth by assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangibles and has huge revenues from software products. It is also seen that the break-up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. Coordinate benches i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Services Pune P. Ltd., vs. ITO, Ward 1(4), Pune ITA.No.257/PN/2013 dated 30.04.2014. iv) Triology E-Business Software India Pvt. Ltd. (ITA.No.1054/ Bang/2011). v) LG Soft India Pvt. Ltd. (IT (TP) A No.112/Bang/2011) vi) CSR India Pvt. Ltd. (IT (TP) A No.1119/Bang/2011) and vii) Transwitch India Pvt. Ltd. (ITA No.6083/Del/2010) (iv) The facts pertaining to this company has not changed from Assessment Year 2007-08 to Assessment Year 2008-09 and therefore this company cannot be considered for the purpose of comparability. In support of this contention, the learned Authorised Representative drew our attention to various parts of the Annual Report of this company. (v) This company is engaged not only in the development of software products but also in the provision of training services as can be seen from the website and the Annual Report of the company for the year ended 31.3.2008. (vi) This company has two segments; namely, a) Application Software Segment which includes software product revenues from two products i.e. Virtual Insure and La-Vision and b) The Training segment which does not have any product revenues. 4.4.3 Per contra, the learned Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) innovation design engineering and (c) visual computing labs as is reflected in the annual report of the company. The learned Authorised Representative submitted that, (i) The co-ordinate bench of the Mumbai Tribunal in the case of Telecordia Technologies Pvt. Ltd. (supra) has held that Tata Elxsi Ltd. is not a functionally comparable for a software development service provider. (ii) The facts pertaining to Tata Elxsi Ltd. have not changed from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008- 09 and therefore this company cannot be considered as a comparable to assessee in the case on hand, as the same was excluded in earlier year by ITAT in assessee own case. (iii) Tata Elxsi Ltd. is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment software development services relates to design services and are not to software services provided by assessee. (iv) Tata Elxsi Ltd. invests substantial funds in research and development activities which has resulted in the Embedded Product Design Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the list of comparable portion. As can be seen from the extracts of the Annual Report of this company produced before us, the facts pertaining to Tata Elxsi have not changed from Assessment Year 2007-08 to Assessment Year 2008-09. We, therefore, hold that this company is not to be considered for inclusion in the set of comparables in the case on hand. It is ordered accordingly. 6. WIPRO LTD: 4.6.1. This company was selected as a comparable by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the list of comparables on several grounds like functional dissimilarity, brand value, size, etc. The TPO, however, brushed aside the objections of the assessee and included this company in the set of comparables. 4.6.2 Before us, the learned Authorised Representative of the assessee contended that this company i.e. Wipro Ltd., is not functionally comparable to the assessee for the following reasons :- (i) This company owns significant intangibles in the nature of customer related intangibles and technology related intangibles, owns IPRs and has been granted 40 registered patents and has 62 pending applications and its Annual Report co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co- ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the co-ordinate benches cited supra, we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies. 7. RISK ADJUSTMENT: 7.1. In the grounds of appeal at S.No.10, assessee has submitted that it has a limited risk profile vis- -vis the comparable companies selected by the TPO and therefore the TPO ought to have allowed appropriate positive adjustments to account for differences between the risk profile of assessee and the companies identified by the TPO as comparables. 7.2. We have heard both the learned Authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
