TMI Blog2015 (6) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... -D], DRP should have given a direction to exclude communication charges from the total turnover as well. Since the issue is held in favour of assessee in the case of ITO vs. Sak Soft Limited [supra] and also as approved by Hon’ble Bombay High Court in the case of CIT vs. Gemplus Jewellery Ltd., [2010 (6) TMI 65 - BOMBAY HIGH COURT ], we direct the AO to exclude the communication charges from total turn over as well. - Decided in favour of assessee. - ITA.No.86/Hyd/2013 - - - Dated:- 17-6-2015 - SHRI B. RAMAKOTAIAH AND SHRI SAKTIJIT DEY, JJ. For the Petitioner : Mr. Dhanesh K. Bafna, Mr. Utpal Sen and Mr. Abhiroop Bhargav For the Respondent: Smt. G. Aparna Rao ORDER PER B. RAMAKOTAIAH, A.M. This appeal by assessee is directed against the direction of the Disputes Resolution Panel, Hyderabad passed under section 144C(5) read with sub-section 8 of section 144C of the Income Tax Act, 1961 dated 27.09.2012 and consequential assessment order dated 30.11.2012 passed by A.O. under section 143(3) read with section 144C(5) of the I.T. Act, 1961 relating to A.Y. 2008- 09. 2. Briefly the facts are, assessee company is a private limited company registered under Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 182,223,579. Being aggrieved of the proposed addition, assessee raised objections before the DRP on various grounds. The DRP accepted the objections with reference to items 3,4 5 of the additions and directed to be deleted. With reference to items 1 and 2, it rejected other objections raised by assessee, except excluding one of the comparables selected by the TPO i.e. M/s Celestial Labs limited which was directed to be excluded by the DRP. 3. Being aggrieved of the order passed by the DRP assessee is before us raising nine grounds out of which, ground Nos. 1 is general in nature and therefore, it need not be adjudicated. Ground Nos. 4, 5, 6, 7 and 8 are not pressed and accordingly they are dismissed as not pressed. Ground Nos.2 and 3 reads as under : 2. That the learned A.O./learned TPO erred in including companies which are different from the appellant and rejecting companies similar to the appellant in functions, asset base and risk profile while performing comparability analysis. 3. That the learned A.O./ learned TPO erred in selecting fresh companies which are larger is size as compared to the appellant and companies that are earning super normal pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable companies on the ground that this company is not functionally comparable to assessee as it is into software 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 meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on the company s website which should be considered while evaluating the company s functional profile. It is also submitted 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered 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 product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. iii) Symphony 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 Softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was reiterated by the learned Authorised Representative that this company is not functionally comparable to assessee as it performs a variety of functions under software development and services segment namely a) product design, (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 deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to consider it as a comparable party for comparing the profit ratio from product and services. Thus, on these facts, we are unable to treat this company as fit for comparability analysis for determining the arm s length price for assessee, hence, should be excluded 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment 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 comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. 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. Respectfully following the same, we direct the TPO/AO to exclude the above six companies and rework out the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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