TMI Blog2015 (5) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer shall allow the assessee a reasonable opportunity of being heard and to put-forth the material and submissions in support of its stand and only thereafter the Assessing Officer shall pass an order afresh on this limited aspect as per law. Thus, on this aspect, assessee succeeds for statistical purposes. Adoption of Kals Information Systems Limited as a comparable - Held that:- Said concern has been sought to be excluded from the list of comparables on account of functional dissimilarities. The Bangalore Bench of the Tribunal in the case of M/s 3DPLM Software Solutions Ltd. (2014 (12) TMI 612 - ITAT BANGALORE) has considered the functions undertaken by the said concern during the previous year relevant to the assessment year under consideration before us, and it has been found that the said concern was engaged in the business of developing and selling software products and was not purely or mainly a software service provider. There is no dispute to the fact position that the appellant before us has undertaken mainly software development services for its associated enterprises and the non-associated enterprises and that such activity is quite distinct from the devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of provisions of Software Development and related services, Reimbursement of Expenses and Recovery of Expenses. In order to determine the computation of arm's length price in relation to the international transactions, Assessing Officer referred the matter to the Transfer Pricing Officer in terms of section 92CA(1) of the Act. The TPO has passed an order u/ s 92CA(3) of the Act dated 28.10.2011 determining the arm's length price of the international transactions relating to the provision of Software Development and related services at ₹ 79,63,60,703/- as against the stated consideration of ₹ 62,59,60,686/-, thereby resulting in upward adjustment of ₹ 17,04,00,017/- to the arm's length price. While passing such order the TPO allowed assessee an opportunity to produce the relevant material which the assessee sought to rely on for the purposes of determining the arm's length price. Accordingly, the Assessing Officer p assed a draft assessment order dated 27.12.2011 making an addition of ₹ 17, 04,00,017/- to the returned income on account of the transfer pricing adjustment determined by the TPO. The assessee chose to file objections t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PLI of the asse4s see has been worked out at 18.26 as against PLI of comparables at 24.34 assessee is not entitled for benefit of +/- 5% deduction. In view of the above, revised adjustment is worked out as under :- As per TPO s Order As per DRP s directions Operating revenue of the assessee [B] 913,024,950 625,960,687 Operating Cost (OC) 821,211,981 563,014,642 (*) Arms Length Mean Margin OP/OC) [D] 0.3193 0.2436 Arm s Length Price (ALP ) of the international transaction [A](ALP=OC*)1+D)) 1,083,424,967 700,165,009 5% range on lower side -- 655,156,759 Adjustment over operating income [A-B] 170,400,017 74,204,322 (*)- There is no segmental account with reference to transaction with AE and with Non AE, OC is therefore taken on proportionate basis. 7. As per the learned counsel, the revised adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above whereas the same would amount to ₹ 49,51,47,742/- on the basis of the following allocation worked out by the assessee : ANNEXURE - DETAILS OF SEGMENTAL MARGIN Particulars Non-AE AE Total Basis of allocation INCOME Software dev. Services 28,70,64,264 62,59,60,686 91,30,24,950 Actual Basis Operating Income 28,70,64,264 62,59,60,686 91,30,24,950 EXPENDITURE Employee costs 18,62,22,333 34,26,56,991 52,88,79,324 On actual basis to the extent identifiable and balance apportioned on head count basis Operating adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een taken by the Assessing Officer on proportionate basis with reference to the respective Operating revenues of the AE and non-AE segments. However, as per the assessee there are certain costs, as is stated in the aforesaid Tabulation, which can be identified on actual basis and only the non-identifiable costs be apportioned. Even apportioning has been done by the assessee on the basis of the head count in the respective segments and not on the basis of the revenues of the respective segments. The aforesaid brings out the relevant facts and the controversy sought to be raised by the assessee is merely with regard to the determination of Operating costs in relation to the AE and the non-AE segments for the purposes of determining of PLI of AE segment based on the formula Operating Profits/ Operating Costs (OP/OC). 11. The learned CIT-DR, on the other hand, pointed out that the TPO as well as the Assessing Officer in para 7.5.3 has opined that there are no segmental accounts with reference to the AE and the non-AE and therefore the Operating cost has been allocated on proportionate basis and thus no interference is called for. 12. We have carefully considered th7e rival submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is with regard to the adoption of Kals Information Systems Limited as a comparable concern while benchmarking the international transactions of the assessee. Before the TPO, assessee submitted that the said concern be excluded from the list of comparables on account of functional dissimilarities. The relevant discussion in this regard is contained in para 6.1 of the order of the TPO. The plea of the assessee was that the said concern was engaged in selling of software products, namely, Virtual Insure, La Vision, CMSS, e-DMS and ERP SHINE , etc., which are all specialised software products developed for the respective sectors. For the instance, Virtual Insure was said to be a web based solution that was useful in the insurance sector; La Vision was an e-commerce based application in the field of intra-organizational communications, etc.; and, CMSS was a software for consultants/agents to manage their customers pre and post sales. On this basis, it was sought to be made out that the assessee was functionally different inasmuch it was engaged in the provision of software development and other related services to its associated enterprises as well as to the non-associated enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissimilarities. The learned counsel pointed out that M/s 3DPLM Software Solutions Ltd. (supra) was also a concern engaged in the provision of software development and other related services, which is similar to the functions undertaken by the assessee. It was pointed out that the functions of Kals Information Systems Limited considered by the Bangalore Bench of the Tribunal is for the same assessment year as is in the present case and therefore the s1a0id decision also squarely applies to the facts of the present case. 16. The learned CIT-DR has defended the position of the TPO by relying on the discussion in the order of the TPO, which we have already adverted to in the earlier part of this order, and is not being repeated for the sake of brevity. 17. We have carefully considered the rival submissions. We find that the precedents by way of the decision of the Pune Bench of the Tribunal in the case of Bindview India Pvt. Ltd. (supra) and the decision of the Bangalore Bench of the Tribunal in the case of M/s 3DPLM Software Solutions Ltd. (supra) relied upon by the assessee squarely cover the controversy relating to Kals Information Systems Limited. In the aforesaid two prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the functions performed by the assessee. It was also pointed out to the TPO that the e-business consultancy and technology consultancy services being provided by the said concern do not pertain to software development services but are ITES services. Assessee also submitted before the TPO that the said concern does not provide any segmental data and being a highly diversified company, it is not possible to segregate data relating to the segment of software development services being undertaken by the said concern. 20. The TPO has considered the submissions of the assessee as per his discussion in para 16.3 of the order. The TPO referred to the Profit Loss Account of the concern and noted that it was a typical software developing company and rejected the plea of the 1a2ssessee for excluding the same for the list of the comparable. 21. Before us, the learned counsel for the assessee submitted that the said concern was functionally dissimilar and its services can be considered as Knowledge Process Outsourcing (KPO), which is quite distinct from that of the assessee. It is further pointed out that the said distinction has been appreciated by the Bangalore Bench of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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