TMI Blog2015 (3) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... lysis has to be done and we direct the TPO to look into the financial statement of the company and also provide an opportunity to the assessee to submit relevant details to substantiate its claim that Comp-U-Learn Tech India Ltd. is not a comparable company - Decided in favour of assessee for statistical purposes. I-Gate Global Solutions Ltd - On a perusal of the P&L account of this company for the year ended March 2009 it is seen that the company has claimed ‘expenses’ towards raw materials, stores and spares. Therefore, it needs to be examined in detail whether assessee’s claim that the company is into product development is correct. As relevant informations required for coming to a definite conclusion are not before us, we are inclined to remit the issue of comparability of this company to AO/TPO for considering afresh. - Decided in favour of assessee for statistical purposes. Inclusion of comparable - CG-VAK Software Exports Ltd (Seg) - Held that:- Considering the assessee's submission that employee cost is more than 80% of the total revenue and in the annual report, the expenditure was categorized under the heading ‘Cost of Services’, which should be considered as em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations on this and reject company as comparable to assessee’s activities. - Decided against assessee. Foreign tax credit denied - Assessee-company has rendered services to one of its group entities in Spain - The said AE deducted tax @20% on the payments made to assessee - Held that:- We were surprised with the observations of the DRP. The DRP seems to have ignored provisions of Section 90 of the IT Act. Not only that, Article 25 of the DTIA entered between India and Spain also comes into play. Since neither the Assessing Officer nor DRP considered the issue in the correct perspective, we are of the opinion that the matter should be re-examined by the Assessing Officer to give necessary credit to assessee. With these observations, the issue in this ground is restored to the file of Assessing Officer for fresh adjudication. - Decided in favour of assessee for statistical purposes. - I.T.A. No. 383/HYD/2014 - - - Dated:- 13-2-2015 - Shri B. Ramakotaiah And Shri Saktijit Dey JJ. For the Appellant : Shri K.C.Devdas, For the Respondent : Shri D.Sudhakar Rao ORDER Per B. Ramakotaiah, A.M. : This is an appeal by assessee preferred against the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer. Accordingly, assessee has raised various grounds. 6. Transfer Pricing Grounds: Aggrieved on the transfer pricing adjustments made by the Assessing Officer, assessee has raised Ground No.1 to 9 on various aspects of TP adjustment. However, in the course of arguments Ld.AR confined his arguments to Ground No.5 on selection of comparables, Ground No.6 rejection of comparables selected by assessee and Ground No.7 on adjustment for risk differences. It was fairly admitted that if all the comparables objected by assessee are rejected, then the other issues of inclusion of comparables requested by assessee and risk adjustments would become academic in nature. However, these aspects will be discussed in due course. 7. The TPO has selected the following 17 companies as comparables: Sl. No. Name of the Company As per TP order OP/OC 1. Akshay Software Technologies Ltd 12.26% 2. Lanco global Systems Ltd 15.59% 3. MindTree Ltd (Seg) 3.65% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the selection mentioned above, these are are more or less covered by the decisions of the co-ordinate benches for the same assessment year i.e., AY.2009-10. In the case of M/s.Cisco Systems (India) Private Ltd., Vs. DCIT dt.14-08-2014 (supra), the co-ordinate bench after examining in detail, excluded Bodhtree Consulting Ltd., Infosys Ltd., Kals Information Systems Ltd (Seg) and Tata Elxsi (Seg). The relevant observations of the Bangalore Bench in respect of each of the aforesaid companies are re-produced hereunder for the sake of clarity. 26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee s notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld. counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Authorised Representative drew our attention to various parts of the Annual Report of this company to ubmit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevailed in AY 08-09 as far as this comparable company is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 26.3 KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tribunal in the case of M/s. Trilogy e-business Software India Pvt. Ltd. (supra). The following were the relevant observations of the Tribunal:- (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual repot, the salary cost debited under the software development expenditure was ₹ 45,93,351. The same 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 Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity only could be computed. The company has also in its response to the notice u/s.133(6) stated that it cannot be considered as comparable to any other software services company because of its complex nature. Hence, Tata Elxsi Ltd., is to be excluded from the list of comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs applied by the TPO. Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the preceding assessment year i.e., AY 2006-07. When the same was accepted by the TPO as a comparable, the same was not objected to it by the taxpayer. As the facts mentioned by the taxpayer are the same and these were there in the earlier FY 2005-06, there is no reason why the taxpayer is objecting to it. How the company is functionally similar in the earlier FY 2005- 06 but the same is not functionally similar for the subsequent FY 2006-07 even when no facts have been changed from the preceding year. Thus the taxpayer is arguing against this comparable as the company was not considered as a comparable by the taxpayer for the present FY 2006-07. 21. We have heard the rival submissions and considered the facts and materials on record. After considering the submissions, we find that Tata Elxsi and Flextronics are functionally different from that of the assessee and hence they deserve to be deleted from the list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and spares. Therefore, it needs to be examined in detail whether assessee s claim that the company is into product development is correct. As relevant informations required for coming to a definite conclusion are not before us, we are inclined to remit the issue of comparability of this company to AO/TPO for considering afresh. Further, we may observe that in case of Triology E Business (supra) this company has been excluded on the basis of high turnover. Therefore, this aspect is also required to be examined by AO/TPO while deciding comparability of this company. 10. In Ground No.6, assessee requested for inclusion of following companies which are rejected by the TPO: i. CG-VAK Software Exports Ltd (Seg); ii. Goldstone Technologies Ltd; iii. Larsen Toubro Infotech Ltd; iv. Quintegra Solutions Ltd; 10.1. CG-VAK Software Exports Ltd (Seg): TPO in his order opined that there is no clarification given in the notes to accounts in respect of employee cost and other related costs of the company. Hence rejected, as it does not satisfy the employee cost filter. DRP agreed with the argument of the TPO. It was the submission that employee cost is more than 80% of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court has stayed proceedings u/s.136 therefore, information available in public domain can be used. On a question about the turnover of this company, it was fairly admitted that the turnover of this company is ₹ 1,870 Crores during the year. Since the turnover itself is very huge and that company has multi-faceted activities, we are of the opinion that this company cannot be selected as comparable on the basis of functional analysis as well as on turnover basis. The reasons for exclusion of Infosys above in the comparable list will equally apply to Larsen Toubro Infotech Ltd. Therefore, we reject assessee s contentions on this company and hold that TPO and DRP are correct in not including this company as comparable. 10.4. Quintegra Solutions Ltd: It was submitted that this company was not selected by the TPO on the reason that it fails the export turnover filter and Financial Year 2008-09 was a year of peculiar economic circumstances for the company. After considering the rival contentions, we are of the opinion that there is no need to include this company as comparable. We uphold the TPO s observations on this and reject company as comparable to assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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