TMI Blog2015 (10) TMI 2248X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent segments. In such circumstances, we deem it fit to remand the matter back to the file of the TPO to examine whether the segmental data relating to software development are available to compute the PLI at segmental level of this company. In case, it is not able to discern the segmental data as aforesaid of this company then this company should be excluded from the list of comparables. GOLDSTONE TECHNOLOGIES - after perusal of the annual report that the company in the present assessment year is engaged in the software development, so is functionally similar, therefore, we uphold the decision of TPO/DRP to include this company as a comparable. LANCO GLOBAL SYSTEMS - We find that the TPO in assessee’s own case for assessment year 2009-10 has not included this company as a comparable. We are of the opinion that the TPO may de novo decide whether to include this company as a comparable for the instant year under consideration. Accordingly, we remand the matter back to the file of the TPO for de novo consideration. Disallowance of risk adjustment - Held that:- initial onus for claiming any adjustment in the computation of ALP is always on the assessee. It is only when suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s length principle envisaged under the Act. In doing so the Ld. DRP and consequently the Ld. AO (following the directions of the Ld. DRP) have grossly erred in; 2. disregarding the ALP as determined by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') as well as fresh search; and in particular modifying/ rejecting the filters applied by the appellant. 3. disregarding multiple year and prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2007-08) data for comparable companies should be used despite the fact that the same was not available to the Appellant for most of the finally selected comparables at the time of preparing its TP documentation. 4. Arbitrarily rejecting/ retaining comparables without providing any cogent reasons or substance for the same. 5. arbitrarily including high-profit making companies in the final comparable set for bench marking a low risk captive unit such as the Appellant and thereby disregarding various relevant judicial pronouncements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment and IT Enabled Services (ITES) to its various Associate Enterprises (AEs). For this, it was compensated based on the terms of agreements entered between the entities on cost plus 17%. As per the transfer pricing document furnished for the assessment year 2008-09, the taxpayer has entered into the following international transactions with its AEs :- S.N. Nature of transaction Method 1. Provision of CAD/Engineering Design services TNMM 2. Provision of Contract Software Development Services TNMM 3. Provision of IT enabled back office support services. TNMM 4. Reimbursement of expenses CUP 5. The Arm s Length Price (ALP) of the international transaction representing software development services provided to the AEs is determined by applying Transactional Net Margin Method (TNMM) which is stated to be the most appropriate method in the facts and circumstances of the case. The operating profit to total cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment Segment do not satisfy the arm s length principle envisaged under the Act. So, it can be seen that the dispute is only with regard to the transaction of contracts software development services wherein the TPO has ordered addition while computing arms length price. 6. Thereafter, the DRP vide order dated 20.09.2012 held the adjustment made by the TPO, however, added one more comparable, M/s. VMF Softech Limited as a comparable and directed the TPO to recompute the mean margin of comparables. Pursuant to the DRP order, the final list of comparable companies are as under :- Company OP/TC (%) 1 Akshay Software Technologies Ltd. 9 2 FCS Software 71 3 Goldstone Technologies 34 4 Mindtree Consulting 14 5 PSI Data Systems 6 6 Bodhtree Consulting Ltd. 21 7 Lanco Global Systems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit making comparables should be rejected, is not accepted. 10. Before us, the ld. Counsel, Shri Rohit drew our attention to the annual report of FCS Software for financial year 2007-08 which is placed at pages 203 to 283 of the paper book and took our attention to page 274 wherein the product description and business profile is written as software development and IT enabled services and contended that though it was assessee s initial comparable, however, after going through the annual report, of the said company the assessee realized that assessee who is only into contract software development cannot be compared with FCS Software because they are functionally dissimilar and further no segmental break up is available from the annual report, therefore, it needs to be excluded. The Ld counsel took our attention to Page 275 of P.B. to buttress his point that this company is functionally dissimilar and contented that FCS software is engaged in software consultancy, technical support and other e-learning services. And it is also engaged in diversified activities like management of hardware, network, LAN/WAN etc. The relevant extract from the Annual Report is reproduced below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said factual scenario, the Ld counsel contented that this company may be excluded from the list of comparable. 11. On the other hand, the ld. DR supported the decision of the TPO and DRP and pleaded that we may not interfere with the impugned order. 12. We have considered the rival submissions and perused the material on record. The arguments of the ld. AR that only on account of super normal profit this comparable should be excluded is not tenable in the light of the Hon ble jurisdictional High Court decision in the case of ChrysCapital Investment Advisors (India) Pvt. Ltd in ITA 417/2014 judgment dated 27.04.2015 and so, the said contention is rejected. Further, the counsel for the assessee has contended that FCS Software is involved in providing not only software development but also in IT enabled services. He took our attention to page 275 P.B. of the annual report which is reproduced above, which states that the said company is engaged in software consultancy, technical support services, e-learning and other related allied services and it is recorded in the annual report that it is not possible to give the quantitative details of sales; and a perusal of page 229 reveals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, we uphold the decision of TPO/DRP to include this company as a comparable. This ground is rejected. (iii) LANCO GLOBAL SYSTEMS 16. Ld. Counsel took our attention to page 507 of the paper book wherein the annual report of this company has been placed to show that the said company is involved in so many activities like consulting services, enterprise application integration, enterprise system solutions, testing service, business process outsourcing, application maintenance outsourcing, custom development and infrastructure management services etc. According to the ld. Counsel, the said company is involved in range of technical as well as in the financial human resources, life sciences, legal services, supply chain management, sales and customer care etc., in the BPO sector, custom development and took our attention to the chart wherein the segment wise and product wise performance has been discussed to show that the revenue yielding during the relevant assessment year from IT, ITES and Telecom is only 15.8% and the rest of it mainly from consulting i.e. consulting 28.4% and healthcare is 17.8%, manufacturing is 13.3% etc. So, according to the ld. Counsel, this company by n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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