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M/s. NXP Semi Conductors India Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 12 (2) , Bangalore

2015 (4) TMI 803 - ITAT BANGALORE

Transfer pricing adjustment - Determination of Arm's length price in international transactions - Adjustment in Software development services transaction - Selection / Rejection of comparables companies - Comparable collected from public domain u/s 133(6) - Risk adjustment - Depreciation on net working equipments - Interest u/s 234B & 234D - Penalty u/s 271(1)(c) - Held that:- The common ground for rejection of comparable companies are - Non-furnishing the information obtained under section 133( .....

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services. Accordingly companies selected/ rejected for comparables.

Risk adjustment - We have heard both the learned Authorised Representative and the learned Departmental Representative in the matter and perused and carefully considered the material on record. While the submission of the assessee may be based on principles, we find that it has merely put forth its claim but has not filed any basis of the quantification of the risk adjustment either before the authorities below or be .....

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irected to recompute the interest chargeable under Sections 234B and 234D of the Act, if any, while giving effect to this order.

Penalty proceedings under Section 271(1)(c) of the Act - This ground is not maintainable in this appeal as no penalty has been levied on the assessee under Section 271(1)(c) of the Act for any cause of grievance to arise in the assessee's case and for us to adjudicate upon in the impugned order. This ground being not maintainable is dismissed accordingly. < .....

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Following the above decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08, we admit the additional ground raised by the assessee for adjudication and remand the matter to the file of the Assessing Officer for his examination and consideration of the issue in the light of the directions issued by the Tribunal at paras 49 and 50 of its order for Assessment Year 2007-08 in the assessee's own case. - Decided partly in favour of assessee. .....

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of the directions issued by the Dispute Resolution Panel ( DRP ), Bangalore under Section 144C(5) r.w.s 144C(8) of the Act vide order dt.17.8.2012. The relevant Assessment Year is 2008-09. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is engaged in the business of development of software and indenting sale of application embedded business and industrial software. The assessee company, formerly known as Phillips Semi-conductors India Pvt. Ltd. was incorporated on 18.7.2006 .....

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rvices Rs.253,89,24,193. Provision of Order Gathering Services. Rs.13,80,51,438 Purchase of assets. Rs.37,73,264 Receipt of Services. Rs.17,75,56,409 Reimbursement of expenses (received) Rs.81,01,426 In view of the above international transactions entered into by the assessee, the Assessing Officer made a reference under Section 92CA of the Act to the Transfer Pricing Officer ( TPO ) for determining the Arm s Length Price ( ALP ) of these international transactions, after obtaining necessary app .....

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20,53,68,934 to the ALP of international transactions in respect of the software development services rendered by the assessee as proposed by the TPO in the order under Section 92CA of the Act. 2.2 Aggrieved by the draft assessment order for Assessment Year 2008-09 dt.30.12.2011, the assessee filed its objections thereto before the DRP, Bangalore. The DRP, vide its order under Section 144C(5) rws 144C(8) of the Act dt.17.8.2012 confirmed the additions / disallowances made by the Assessing Offic .....

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9.2012, the assessee has preferred this appeal raising the following grounds :- General 1. The order of the learned AO and directions of the Hon'ble DRP are based on incorrect interpretation of law and therefore are bad in law. 2. The learned AO erred in assessing the total income at ₹ 54,10,24,876 as against returned income of ₹ 32,37,84,304 computed by the Appellant. Corporate tax matters 3.1 The learned AO has erred, in law and in facts, by rejecting the claim of the Company t .....

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(or 19 inch heavy racks) as plant and machinery instead of computers and consequently applying lower rate of depreciation of 15% on the adjusted opening balance, resulting in a disallowance of ₹ 11,337,971. 3.3 Separately, the learned AO has treated the additions to networking equipments, appearing in computer block as plant and machinery and consequently applying lower rate of depreciation of 15% resulting in a disallowance of ₹ 533,667. Transfer pricing matters 4. The learned AO / .....

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or the determination of the arm s length price in connection with the impugned international transaction and holding that the Appellant s international transactions are not at arm s length. 6. The learned AO / TPO have erred, in law and in facts, in determining the arm s length margin/ price using only financial year 2007-08 data. 7. The learned AO / TPO have erred, in law and in facts, in rejecting certain comparables considered by the Appellant in the comparability analysis by applying differe .....

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an 25% of the total revenues as a comparability criterion; d. the learned AO / TPO erred in rejecting certain comparable companies identified by the Appellant using turnover < ₹ 1 Crore as a comparability criterion; e. the learned AO / TPO erred in rejecting certain comparable companies identified by the Appellant as having economic performance contrary to the industry behavior (e.g. companies which showed a diminishing revenue trend); and f. the learned AO / TPO erred in rejecting cert .....

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g certain companies based on unreasonable comparability criteria. 10. The learned AO / TPO have erred, in law and in facts, in wrongly computing the operating margins of some of the comparable companies identified in the TP order. 11. The learned AO / TPO have erred, in law and in facts, in not making suitable adjustments on account of differences in the risk profile of the Appellant vis-à-vis the comparables, while conducting comparability analysis. 12. The learned AO/TPO have erred, in .....

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of appeal vide letter dt.19.12.2013 on the issue of depreciation on goodwill arising out of acquisition of business under slump sale agreement. 3.3 In the course of appellate proceedings, the assessee filed submissions in paper books in support of the grounds of appeal raised and also a compendium of case laws, on which the assessee placed reliance. 4. The grounds raised at S.Nos.1 & 2, are general in nature and not being specifically urged before us, are dismissed as infructuous. CORPORATE .....

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the assessee, treated the net working equipment as plant and machinery and allowed depreciation thereon @ 15% and disallowed the balance claim. 5.2 Before us, it is the contention of the assessee that the net working equipment included servers, netapp filter, optiplex, monitor, laptop video, etc. which ought to be classified as a computers and depreciation @ 60% thereon ought to be allowed. The learned Authorised Representative submitted that the very same issue was before a co-ordinate bench of .....

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before a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08. In its order in IT(TP)A No.1174/Bang/2011 dt.14.11.2014, at para 11 thereof the co-ordinate bench has held as under :- 11. We have considered the rival submissions and are of the view that the issue requires a fresh consideration in the light of the submissions made by the Assessee before the DRP. As far as depreciation on Networking equipment is concerned, the AO has not called upon the Asses .....

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ks, the position remains the same, in as much as the AO has not given due opportunity of being heard to the Assessee. Before DRP the Assessee has explained the nature of the components and racks on which depreciation was claimed at 60% and as to how they were in the nature of Computers . These submissions have not been considered by the DRP. In the circumstances, we are of the view that this issue also requires to be examined afresh by the AO after due opportunity to the Assessee of being heard .....

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uently, the Grounds at S.Nos.3.1 to 3.3 are treated as allowed for statistical purposes only. TRANSFER PRICING ISSUES (Ground Nos.4 to12) 6.1 In the course of proceedings before us, the learned Authorised Representative submitted a chart explaining the assessee's position regarding the acceptability or otherwise of each of the companies selected by the TPO as comparable companies to the assessee. The learned Authorised Representative also submitted that he would only press those grounds on t .....

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for A.Y. 2008-09. iii. Yodlee Infotech Pvt. Ltd. (IT(TP)A No.1538/Bang/2012 dt.30.8.2013) iv. 3DPLM Software Solutions Ltd. (IT(TP)A No.1303/Bang/2012 dt.28.11.2013) for A.Y. 2008-09. 6.2 It was submitted, by the learned Authorised Representative, that the set of comparables chosen by the TPO in the cited cases (supra) are the same as those selected in the case on hand and therefore the assessee places reliance on the decisions in the cited cases. 6.3 In the light of the above observations, we n .....

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s raised by the assessee before us, there is no requirement of specific adjudication on specific issues raised. 6.3.3 Ground No.8 relates to use of information collected under Section 133(6) of the Act. Ground Nos.9 & 10 are general in nature. Ground No.11 is in respect of the grant of adjustment towards differences in risk profile between the assessee and the comparable companies. Ground No.12 is regarding the benefit of + / - 5%. As the learned Authorised Representative has confined the ur .....

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% on cost. The assessee's list of comparables, as per its T.P. Study, are as under :- Sl.No. Name of the Company Weighted average of operating profits on operating costs (%) 1. Akshay Software Technologies Limited 6.60 2. Aztecsoft Limited 18.16 3. Goldstone Technologies Ltd. 11.50 4. Helios & Matheson Information Technology Ltd. 38.40 5. Indium Software (India) Ltd. 11.09 6. Infosys Technologies Ltd. 39.96 7. KPIT Cummins Infosystems Ltd. 13.20 8. Lanco Global Systems Ltd. 13.28 9. L &a .....

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logies Limited 16.76 23. Zylog Systems Limited 16.87 Arithmetic mean 14.84 Since the average profit margin of the assessee was 12.64% on total cost, the assessee held its international transactions in the software development services segment to be at arm s length. 7.2 The TPO, while accepting TNMM as the MAM, as adopted by the assessee, rejected the assessee's T.P. Study for various reasons and embarked on a fresh search, using the data bases, Prowess and Capitaline. After issuing a show ca .....

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d. 27.52 10 Mindtree Ltd. (seg) 16.41 11 Persistent Systems Ltd. 20.31 12 Quintegra Solution Ltd. 21.74 13 R Systems International (seg) 15.30 14 R S Software (India) Ltd. 7.41 15 Sasken Communication Technologies Ltd. (seg) 7.58 16 Tata Elxsi (seg) 18.97 17 Thirdware Solution Ltd. 19.35 18 Wipro Ltd. (seg) 28.45 19 Softsol India Ltd. 17.89 20 Lucid Software Ltd. 16.50 Average 23.65 The average mean margin of the 20 comparable companies selected by the TPO was 23.65% whereas the average mean mar .....

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ents / contentions only on the issue of comparability or otherwise of individual companies, which in the assessee's opinion are incorrectly included or excluded by the TPO in the final set of comparable companies. In this context, the learned Authorised Representative also submitted a chart explaining the assessee's position regarding the acceptability or otherwise of each of the companies selected or rejected by the TPO as comparable companies to the assessee. 8.1 The learned Authorised .....

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ms Ltd. 8.2 The learned Authorised Representative further submitted that the following three companies are liable to be excluded from the final list of comparables as they are functionally different from the assessee and based on the rulings of co-ordinate benches of ITAT, Bangalore in the cases of Curram Software International Pvt. Ltd. (supra) and Yodlee Infotech Pvt. Ltd. (supra) : (i) Infosys Technologies Ltd. (ii) Tata Elxsi Ltd. (seg.) (iii) Wipro Ltd. (seg.) 8.3 It was also submitted by t .....

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and consider each of the comparable companies so highlighted by the assessee in its chart. 9. Avani Cincom Technologies Ltd. 9.1 This company was selected by the TPO as a comparable. The assessee objects to its inclusion as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the assessee's objections for the reason that this compar .....

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ssee as it is into software products whereas the assessee offers purely software development services to its AEs. In support of its contention for exclusion of this company from the list of comparables the learned Authorised Representative placed reliance on the following judicial decisions :- i. Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011 dt.23.11.2012) ii. Curram Software International Pvt. Ltd. (ITA No.1280/Bang/2012 dt.31.7.2013) for A.Y. 2008-09. 9.3 The learned Depa .....

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n of the comparability of this company to the file of the Assessing Officer / TPO afresh; holding as under at para 9.5.1 to 9.5.2 of its order :- 9.5.1 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. In these circumstances, it was the duty of the TPO to have necessarily furnished the in .....

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deleted from the set of comparables in the case of Triology E-Business Software India Pvt. Ltd. (supra). No doubt this company has been deleted as a comparable in the case of Triology E-Business Software India Pvt. Ltd. (supra) and this can be a good guidance to decide on the comparability in the case on hand also. This alone, however, will not suffice for the following reasons :- (i) The assessee needs to demonstrate that the FAR analysis and other relevant facts of the Triology case are equall .....

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. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09. 9.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that, it is necessary to first establish that the f .....

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a) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007-08. In view of facts as discussed above, we deem it fit to remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act an .....

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to 9.5.3 of the cited order (reproduced supra). The Assessing Officer / TPO is directed to make available to the assessee information obtained under Section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and make submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly. 10. Celestial Biolabs Ltd. 10.1 This comparable was selected by the TPO for inclusion in the final list of comparables. Before the TPO, t .....

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ntal break up is not provided. In support of its claim, the learned Authorised Representative placed reliance on the decision of a co-ordinate bench of this Tribunal in the case of Triology E-Busienss Software India Pvt. Ltd. (supra) wherein at para 43 thereof it was observed of this company that - 43….. As explained earlier, it is a diversified company and therefore cannot be considered as comparable functionally with that of the assessee. There has been no attempt made to identify and e .....

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A No.1303/Bang/2012 dt.28.11.2013, which followed the decision taken in the case of Triology E-Business Software India Pvt. Ltd. (supra), this company ought to be excluded from the final list of comparables. 10.3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the final list of comparables. 10.4.1 We have heard both parties and perused and carefully considered the material on record; including the judicial decisions c .....

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previous assessment year, and there cannot be an assumption that it would continue to be applicable for this year as well, the same parity of reasoning is applicable to the TPO as well who seems to have selected this company as a comparable based on the reasoning given in the TPO s order for the earlier year. It is evidently clear from this, that the TPO has not carried out any independent FAR analysis for this company for this year viz. Assessment Year 2008-09. To that extent, in our considere .....

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isions for the earlier years i.e. Assessment Year 2007-08 is applicable for this year also. We agree with the submissions of the assessee that this company is functionally different from the assessee. It has also been so held by co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) as well as in the case of Triology E-Business Software India Pvt. Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company .....

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bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer / TPO to omit this company from the final set of comparables as it is functionally different from the assessee in the case on hand, who is purely a provider of software development services. 11. KALS Information Systems Ltd. 11.1 This is a company selected by the TPO. The assessee had objected to the inclusion of this company in the TPO s set of comparables for the reason that it is func .....

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luded from the list of comparables as it is into software products, unlike the assessee who is only a software service provider to its AEs. It was also submitted that this company was rejected as a comparable to a software service provider by the decision of a co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd (supra). The learned Authorised Representative prayed that in view of the above cited decision (supra), this company be excluded from the list of comparabl .....

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able, observing that it was developing software products and was not purely a software service provider and at para 10.4 thereof it was held as under :- 10.4 We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the .....

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f co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company s Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of compar .....

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service provider. 12. Infosys Technologies Limited. 12.1 This company was selected as a comparable by the TPO. Before the TPO, the assessee objected to the inclusion of this company in the final set of comparables on the grounds of turnover and its brand value attributable to profit margin. The TPO, however, rejected the assessee's objections as he was of the view that turnover and brand value aspects were not materially relevant in the software development services segment. 12.2 In appella .....

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tative placed reliance on the decision of the co-ordinate bench in the case of Curram Software International Pvt. Ltd. (supra) and M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 wherein this company was excluded from the final list of comparables, as it is functionally different from the assessee. 12.3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the final set of comparables. 12.4.1 We have .....

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under :- 11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put f .....

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of 3DPLM Software Solutions Ltd. (supra), we direct the Assessing Officer / TPO to omit this company from the final set of comparables as it is functionally different from the assessee in the case on hand, who is purely a software service provider. 13. Wipro Limited. 13.1 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 dis-similarity, brand value, size, .....

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Software International Pvt. Ltd. (supra) and M/s. 3DPLM Software Solutions Pvt. Ltd. (supra) for Assessment Year 2008-09 have held that this company cannot be held as a comparable to a software service provider and therefore it ought to be excluded from the list of comparables. The learned Authorised Representative prayed that in view of the above, the company should be excluded from the list of comparables in the case on hand. 13.3 Per contra, the learned Departmental Representative supported t .....

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which is extracted hereunder :- 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company 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. The TPO appears to have adopted this company as a com .....

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cations for grant of patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (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 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 bench of the Tribunal i.e. 24/ .....

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t, owns IPR s, intangibles, etc. and cannot be held as comparable to a pure software service provider, as is the assessee in the case on hand. It is ordered accordingly. 14. Tata Elxsi Ltd. 14.1 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 counts, like functional dis-similarity, significant R&D activity, brand value, size, etc. The TPO however rejected the assessee's .....

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e assessee. The learned Authorised Representative also submitted that the co-ordinate benches of this Tribunal in the cases of Curram Software International Pvt. Ltd. (supra) and M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 have held that this company is to be excluded from the list of comparables for a software service provider. The learned Authorised Representative prays that in view of the above, this company be excluded from the list of comparables. 14.3 Per contra, .....

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be considered comparable to a pure software service provider and excluded it from the list of comparables holding as under at paras 13.4.1 and 13.4.2 of its order, which is extracted hereunder :- 13.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment .....

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engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratio from prod .....

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sion in the set of comparables in the case on hand. It is ordered accordingly. 14.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct the TPO to exclude this company from the list of comparables as it is predominantly engaged in a variety of functions like product designing services and not purely software development services like the assessee in the case on hand. It is ordere .....

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of Mindtech (India) Ltd. (supra) and CISCO Systems (India) Pvt. Ltd., in IT(TP)A No.271/Bang/2014 dt.14.8.2014, both for Assessment Year 2009-10, wherein this company was excluded from the list of comparables. It was submitted by the learned Authorised Representative that though these cited decisions were rendered for Assessment Year 2009-10, the facts and circumstances of the case are similar for Assessment Year 2008-09 as well and applies to the year under consideration. The learned Authorise .....

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tware development service companies in both the aforesaid decisions cited by the assessee. In Mindtech (India) Ltd., the relevant portion of the order at para 16 thereof it has been held as under :- 16. We have considered the rival submissions. The Special Bench of the ITAT in the case of Maersk Global Centres (supra) had an occasion to deal with the question as to whether high profit margin making companies should be excluded as a comparable. The Special Bench after considering several aspects .....

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ollows Fixed Price Project model where revenues from software development is recognized based on software developed and billed to clients, there is a possibility of the expenditure in relation to the revenue being booked in the earlier year. The results of Bodhtree from FY 2003 to 2008 excluding FY 2007 as given by the learned counsel for the assessee were also perused. Perusal of the same shows, that there has been a consistent change in the operating margins. The chart filed by the assessee in .....

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1 is extracted hereunder :- 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 broug .....

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end to end web solutions software consultancy and design & development of software using latest technology. The decision rendered by the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. (supra) is in relation to A.Y. 2008-09. It was affirmed by the learned counsel for the Assessee that the facts and circumstances in the present year also remains identical to the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Followin .....

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elied on by the co-ordinate bench of this Tribunal in the above mentioned case; CISCO Systems (India) Pvt. Ltd. (supra), has been in relation to Assessment Year 2008-09 and therefore we find merit in the contention of the assessee that the finding rendered in the above cited decision applies to the facts and circumstances of the case on hand, which is for Assessment Year 2008-09. In this view of the matter, following the above decision of the co-ordinate bench of the Tribunal, we direct the TPO .....

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of the Act, this company is engaged in software development services and satisfies all the filters. 16.2 In proceedings before us, the learned Authorised Representative reiterated its contention that this company be excluded from the list of comparables as it was functionally different from the assessee as it is engaged in e-Business Consulting Services which are high end ITES, categorized as knowledge process outsourcing ( KPO ) services which are not comparable to the pure software development .....

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this company ought to be excluded from the list of comparables. 16.4.1 We have heard both parties and perused and carefully considered the material on record. We find that a co-ordinate bench of ITAT, Bangalore in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 had excluded this company from the list of comparables holding that this company is into rendering of product development services and high end technical services in the category of KPO Services and therefore .....

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ct. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held .....

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gly directed. 16.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra), we direct the A.O. / TPO to exclude this company from the list of comparables as it is functionally different from the assessee in the case on hand who is rendering purely software development services. It is ordered accordingly. 17. Thirdware Solutions Ltd. 17.1 This company was included in the list of comparables by the TPO in spite of the assessee&# .....

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d subscription. It has been pointed out form the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services; (ii) the co-ordinate bench of this Tribunal in its order in M/s. 3DPLM Software Solutions Ltd. (supra) has held that this company, which is into product development and sale of licenses, be omitted as a comparable in respect of those companies rendering purely software development servic .....

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Bangalore in the case of 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has excluded this company from the set of comparables to a pure software development service provider since this company is functionally different as it is engaged in product development and earns revenue from sale of licenses and subscription. The relevant portion of the above order at para 15.3 thereof is extracted hereunder :- 15.3 We have heard the rival submissions and perused and carefully considered .....

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company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 17.3.2 Following the decision of the co-ordinate bench of this Tribunal .....

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is into software product development and is therefore functionally different from the assessee. The learned Authorised Representative submitted that a co-ordinate bench of this Tribunal in its order in the case of M/s. 3DPLM Software Solutions Ltd. (supra) in IT(TP)A No.1303/Bang/2012 dt.28.12.2013 for Assessment Year 2008-09 has held that this company is to be excluded from the list of comparables for software development service providers and therefore prayed that this company be excluded fro .....

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ld that this company has to be excluded from the list of comparables for software development service providers as it is engaged in software product development and the relevant observations of the order at para 16.3 thereof is extracted hereunder :- 16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid Software Ltd., is engaged in the development of software products whereas the ass .....

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the software product development and not software development services, it is functionally different and dis-similar and is therefore to be omitted from the list of comparables for software development service providers. The assessee has also brought on record details to demonstrate that the factual and other circumstances pertaining to this company have not changed materially from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09. In th .....

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rables as it is functionally different; (being engaged in software product development) from the assessee in the case on hand who is rendering only software development services. It is ordered accordingly. 19. Persistent Systems Ltd. 19.1 This company was selected by the TPO as a comparable in spite of the assessee's objections that this company being engaged in software product designing and analysis service is functionally different from the assessee who is rendering purely software develo .....

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jected to the inclusion of this company as a comparable on the ground that it being engaged in software development services and analytic services, it is not a purely a software development service provider as is the assessee in the case on hand. The learned Authorised Representative submitted that a co-ordinate bench of this Tribunal in its order in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has excluded this company from the list of comparables to a pure .....

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rd; including the judicial decision cited. We find that a co-ordinate bench of this Tribunal in its order in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company being engaged in product development and product design and analysis service is functionally different from a pure software service provider and therefore excluded it from the list of comparables for software development services; holding as under at para 17.3 of its order :- 17.3 .....

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f Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. 19.3.2 Following the decision of the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we di .....

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ircumstances in the form of acquisitions made during the year. The TPO rejected the assessee's objections, holding that this company qualifies all the filters applied and included this company in the list of comparables. 20.2 In proceedings before us, the assessee objected to the inclusion of this company on the ground that it is functionally different as it is engaged in product engineering services and not purely into software development services like the assessee. It was further submitte .....

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rayed that in view of the above, this company ought to be excluded from the list of comparables. 20.4.1 We have heard the rival contentions and perused and carefully considered the material on record. We find that a co-ordinate bench of this Tribunal in its order in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09 has held that this company be excluded from the list of comparables for software development service providers, holding as under at paras 18.3.1 to 18 .....

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ation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18 .....

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ompany i.e. Quintegra Solutions Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike the assessee in the case on hand who is a software service provider. 20.4.2 Following the decision of the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, we direct the TPO to exclude this company from the list of comparables as it is funct .....

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rejected the assessee's objections on the ground that as per the company s reply to notice calling for information under Section 133(6) of the Act the company had categorized itself as a pure software development service provider and therefore included this company as a comparable as the assessee in the case on hand is also a provider of software development services. 21.2 In the appellate proceedings before us, the learned Authorised Representative submitted that the co-ordinate bench of th .....

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d the rival contentions and perused and carefully considered the material on record. We find that a co-ordinate bench of this Tribunal in its order in the case of M/s. 3DPLM Software Solutions Ltd. (supra), has excluded this company from the list of comparables holding as under at para 19.3 thereof :- 19.3 We have heard both parties and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2 .....

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assessee in the case on hand. 21.4.2 Following the decision of the co-ordinate bench of this Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. (supra) for Assessment Year 2008-09, and 24/7 Customer.com Pvt. Ltd. in ITA No.227/Bang/2011, we direct the A.O / TPO to exclude this company from the list of comparables as it has RPT of 18.30% which is in excess of 15%. It is ordered accordingly. 22. Assessee's plea for companies to be included in the list of comparables. 22.1 In the cours .....

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that its RPT was in excess of 25%. The learned Authorised Representative contends that the filters have been wrongly applied in the case of these three companies and they deserve to be included in the list of comparables even as per the filters adopted by the TPO, if properly applied. 22.3 We have heard both the learned Authorised Representative and the learned Departmental Representative in the matter. From the material on record, we find that the TPO in his order under Section 92CA of the Act .....

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companies (supra) and also for KPIT Cummins Infosystems Ltd. In this view of the matter, we deem it fit to restore the issue of the comparability of the above three companies back to the file of the TPO to examine the computation given by the assessee in this regard and to decide the issue afresh after affording the assessee adequate opportunity of being heard and to make submissions in the matter, which shall be duly considered before a decision is taken. It is ordered accordingly. 23. Ground .....

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like the assessee and risk bearing entities among the comparables selected by the TPO. The learned Authorised Representative submitted that in similar factual positions, co-ordinate benches of this Tribunal have held that the single customer risk borne by a captive service provider is only an anticipated risk vis-à-vis the existing market risk borne by independent comparables and that the TPO ought to have given risk adjustment to the margins of the comparables to bring them on par with .....

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ut forth its claim but has not filed any basis of the quantification of the risk adjustment either before the authorities below or before us. In this view of the matter, the assessee's claim for risk adjustment is rejected. Consequently, Ground No.11 raised by the assessee is dismissed. 24. In Ground No.13, the assessee has denied itself liable in respect of the interest it has been charged under Sections 234B and 234D of the Act. The charging of interest is consequential and mandatory and t .....

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f the Assessing Officer in initiating penalty proceedings under Section 271(1)(c) of the Act in its case for Assessment Year 2008-09. This ground is not maintainable in this appeal as no penalty has been levied on the assessee under Section 271(1)(c) of the Act for any cause of grievance to arise in the assessee's case and for us to adjudicate upon in the impugned order. This ground being not maintainable is dismissed accordingly. 26. Additional Ground of appeal. 26.1 The assessee has filed .....

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ss Transfer Agreement. 26.2 In appellate proceedings before us, it was submitted that the same issue was before the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 and the Tribunal had remanded the matter back to the file of the Assessing Officer for adjudication afresh. 26.3 We have heard both the learned Authorised Representative and the learned Departmental Representative in the matter and have perused and carefully considered the submissions on r .....

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a very careful consideration to the rival submissions. It is clear from the material on record of the AO that the facts with regard to the business transfer by PEIL to the Assessee and its valuation were filed before the AO in the course of assessment proceedings. The fact that there was a sum of ₹ 140 crores shown as goodwill consequent to the business transfer agreement has also been acknowledged by the AO in the order of assessment. As to how the goodwill was valued and whether it was u .....

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x which is not due in law which was paid under a mistake cannot be said to be tax levied and collected in accordance with law. As we have already seen the law on the question of allowing depreciation on Goodwill was in a fluid state. With the decision of the Hon ble Supreme Court in the case of Smifs Securities (supra) which decision was available only after the directions of the DRP were given, the law on the issue became clear. The learned DR s attempt to distinguish the facts of the Assessee .....

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the facts of the Assessee s case is identical to the facts of the case decided by the Hon ble Supreme Court in the case of Smifs Securities Ltd.(supra). We are also of the view that the Assessee was also in the business of Semiconductors and the claim of the Assessee of having acquired goodwill on purchase of the said business with all existing contracts will result in creation of Goodwill to the Assessee. We are therefore of the view that the additional ground sought to be raised by the Assesse .....

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