TMI Blog2015 (4) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transactions of a company having more than 25% of Related Party Transactions (RPTs) are considered as controlled, thereby failing the test of comparability. This view has been taken in several decisions including by the Delhi Bench in Toluna India Pvt. Ltd. [2014 (10) TMI 424 - ITAT DELHI] and Actis Advisers Pvt. Ltd. [2012 (10) TMI 779 - ITAT, DELHI] and Mumbai Bench in Stream International Services Pvt. Ltd. [2014 (10) TMI 393 - ITAT MUMBAI]. The mechanism for calculating the percentage of Related Party Transactions has been broadly laid down in Nokia India Private Ltd. [2014 (11) TMI 101 - ITAT DELHI]. Since the authorities below have not examined the extent of the RPT percentage of this company, which the learned AR is claiming to be in excess of 25%, we set aside the impugned order and remit the matter to the file of AO/TPO for fresh determination of the percentage of Related Party Transactions of this company in consonance with the broader principles laid down in the case of Nokia India Private Ltd (supra), to the extent these are applicable. If the Related Party Transactions of this company are found to be more than 25%, then this company should be excluded from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the inclusion of certain companies in the list of comparables. 3. Briefly stated the facts of the case are that the assessee Mentor Graphics (NOIDA) P. Ltd., formerly known as IKOS India Pvt. Ltd., is a wholly owned subsidiary of IKOS Systems Inc. USA, which, in turn, was acquired by Mentor Graphics Corporation, USA during the year relevant to the assessment year under consideration. The assessee reported two international transactions, namely, Software Development Services Rendered with value of ₹ 11,17,29,489/- and Marketing Support Services Rendered with value of ₹ 1,33,72,483/-. Insofar as the segment of `Software development services is concerned, the assessee provided software development services only to its AEs and not to the third parties. Such software development services were utilized by its parent company, which is engaged in the development of software products for chip designing. Apart from this, the assessee also rendered `Marketing Support Services to IKOS, USA by securing clients in India for its foreign entity. The assessee is a contract service provider who was remunerated by its AEs at cost plus 13% in respect of both the above types of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeded to determine their ALP by treating both of them as Software development services rendered in a combined manner. As the assessee has not challenged this aspect, we will also consider both these services in a combined manner as software development services, albeit we feel that these two ought to have been benchmarked separately. 6. The assessee entered into an Agreement with Mentor Graphics (Ireland) Ltd effective from 08.05.2002 under which it undertook to render `Development services to its AEs. A copy of the Agreement is available at pages 127 onwards of the paper book. Development Services in this Agreement have been defined to mean all development activities concerning any of the Products, including but not limited to (i) development of new Products; and (ii) creation of improvements, updates, adaptations, translations or other modifications to existing Products or Products under development . The expression Products has been defined in this Agreement to mean and include all software products which any Party or any Affiliate markets or intends to market and updates, enhancements, new versions and new releases thereof, other than Specifically Excluded Products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year in question and the financial results of the erstwhile company stand included in the overall profitability of this company, we hold that the same cannot be considered as a comparable. 7.4. Be that as it may, it is seen that Aftek Infosys Ltd. is not only engaged in providing software development services but is also in the business of software products by holding Intellectual Property Rights in some software products developed by it. No segmental data of the `Software development services of this company is available. Thus, it cannot be considered as comparable to the assessee on an entity level because the assessee is engaged only in the provision of contract software development services. We, therefore, order for the exclusion of this company from the list of comparables. (ii) Blue Star Infotech Ltd. 8.1. The TPO included this company in the final set of comparables with the profit ratio of 37.27%. The learned AR was fair enough to concede before us about the similarity of the functional profile of this company with the assessee. It was, however, claimed that the Related Party Transactions of this company were quite substantial. 8.2. After considering the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliminate this company from the list of comparables. (iv) Zylog Systems Ltd. 10.1. The TPO made this company as a part of the list of comparables with the profit margin of 24.93%. The assessee is contesting against the inclusion of this company in the final set of comparables. 10.2. Having heard the rival submissions and perused the relevant material available on record, it is noticed as an admitted position that this company is functionally comparable with the assessee company. The learned AR candidly accepted this position. He, however, urged to exclude this company on the basis of fresh Acquisitions undertaken by it during the financial year relevant to the assessment year under consideration. We find from its Annual report, which is available in the paper book, that the business acquisitions of three firms in USA were undertaken by this company giving a substantial boost to its operations. When we come to the Schedule of fixed assets of this company, which is available on page 523 of the paper book, it can be seen that there is an entry with the narration Business acquisitions , during the year with the value of ₹ 8,47,18,999/-. These facts abundantly show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware Technology Park of India. He further held that STPI society has mechanically approved all the units without examining anything except export commitments. Further, there was no evidence that Press Note 5 and Green Card were issued with the concurrence of the Department of Revenue or the CBDT. The learned CIT(A) overturned the assessment order on this point by relying on the order dated 06.06.2008 passed by the Delhi Bench of Tribunal in the case of ACIT Vs. Sanjay Bhalla. 12.3. We have heard the rival submissions and perused the relevant material available on record. The only objection taken by the Assessing Officer for refusing deduction under Section 10A is that the registration was granted by the STPI Society and not the Inter-ministerial Standing Committee. We find that this issue is no more res integra in view of the judgment dated 26.2.2013 of the Hon ble Delhi High Court in CIT Vs. Technovate E Solution Pvt. Ltd., a copy of which has been placed on record by the ld. AR. In this judgment, it has been held that the approvals given by the Directors of Software Technology Parks of India are valid having the authority of the Inter-ministerial Standing Committee. This posit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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