TMI Blog2015 (10) TMI 2419X X X X Extracts X X X X X X X X Extracts X X X X ..... r has rejected the contentions of Assessee for inclusion of all the six companies under consideration before it [Aztec Soft Ltd., Birla Technologies Ltd., Indium software India Ltd., Larsen & Toubro Infotech., PSI Data systems Ltd. (SEG) and VMF Softech Ltd.] Computation of deduction under S.10A - reducing the communication charges from the export turnover considering it as attributable to the delivery of computer software outside India, but not reducing the same from the total turnover - Held that:- this Tribunal in similar cases, including in assessee’s own case for the assessment year 2006-07 have directed the Assessing Officer to exclude the communication charges from export turnover as well as total turnover while computing deduction under S.10A of the Act. In this view of the matter and respectfully following the decision of the Bombay High Court in the case of Gemplus Jewellery (2010 (6) TMI 65 - BOMBAY HIGH COURT) and Sak Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] we allow this ground of Assessee Penalty under S.271(1)(c) - difference in the value of Arm’s Length Price - CIT(A) deleted penalty levy - Held that:- The determination of the Arm’s Length Price is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso to S.92C(2). These grounds are hence rejected as not pressed. As for the issue relating to adjustment towards risk, raised in Ground No.10, it becomes academic, if suitable directions are given in relation to the grounds contested in this appeal. Being academic, ground No.10 is also treated as not pressed and rejected accordingly, with liberty to the assessee to agitate this issue in further proceedings that ensue in pursuance of this order, if warranted. So also, ground No.13 relating to levy of interest under S.234B and 234C; and ground No.14 relating to initiation of penalty proceeding under S.271(1)(c) are not pressed. These grounds are accordingly rejected. Assessee raised additional ground for exclusion of some more comparable companies. These are also dealt with at appropriately. 4. We may now take up for consideration the only other grounds that survive for consideration, being ground Nos.7 and 8 including additional grounds and 12. 5. Grounds No.7 and 8 relate to the transfer pricing adjustment made by the Assessing Officer in pursuance of the directions of the Dispute Resolution Panel. In Ground Nos.7 assessee initially disputes the inclusion of seven compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and selected on the other hand, certain other companies as comparables for the purpose of his TP study. The TPO ultimately based on the data worked out in respect of 26 companies, determined the Arm s Length margin at 24.23% on cost, and transfer price adjustment to be made at ₹ 2,28,50,421, vide his order under S.92CA dated 31.8.2010. 9. On the objections raised by Assessee against the action of the Transfer Pricing Officer in rejecting comparables selected by Assessee, and in selecting other companies as comparable, the Dispute Resolution Panel has upheld the order of the Transfer Pricing Officer with regard to all the comparable companies ultimately taken by the TPO, except Celestial Labs Ltd. The Dispute Resolution Panel also rejected all other objections in relation to determination of Transfer Pricing Adjustment and the adjustments to be made in the course of computation under S.10B/10A, etc. raised by Assessee before it, vide its directions under S.144C(5) of the Income Tax Act,1961, dated 9.8.2011. 10. In pursuance of the directions of the Dispute Resolution Panel, the Assessing Officer, passed the order under S.143(3) read with 144C of the Act, on 25.8.2011, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. R.S.Software (India) Ltd. 13.47 20. R. Systems International Ltd. (Seg.) 15.07 21. Sasken Communication Technologies Ltd. (Seg.) 21.16 22. SIP Technologies Exports Ltd. 13.90 23. Tata Elxsi Ltd. (SEg. 26.51 24. Thirdware Solutions Ltd. 25.12 25. Wipro Ltd. (Seg.) 33.65 13. Out of the above twenty five companies ultimately selected as comparable, the assessee has no objection with regard to Datamatics Ltd., E-Zest Solutions Ltd., Geometric Ltd.(Seg). Igate Global Solutions Ltd., Lanco Global Systems Ltd., Media Soft Solutions Ltd. Mind Tree Consulting Ltd. (Seg.), Persistent Systems Ltd., Integra Solutions Ltd., R.S. Software (India) Ltd. , R. Systems International Ltd. (Seg)., S I P Technologies and Exports Ltd., Sasken Communication Tech Ltd.(Seg.), Thirdware Solutions Ltd. (Seg.). We may hereinafter deal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of above eleven companies (companies in original grounds as well as additional grounds taken together), viz. other than Flextronics Software Systems Ltd. (Seg.) and Helios Matheson Information Tech. Ltd. has come up for consideration before this Tribunal for assessment year 2007-08 itself, in the case of Sumtotal Systems India P. Ltd., Hyderabad in ITA No.1710/Hyd/2011, wherein the Tribunal vide its order dated 9.5.2014 has accepted the contentions for exclusion of these nine companies under consideration before it. Relevant portion of the said order of the Tribunal, being para 7 thereof, reads as under- 7. Each of these comparables in dispute, challenged in ground no 7 was considered as under: AVANI CIMCON TECHNOLOGIES LIMITED : 7.1. Assessee has basically sought exclusion of above company on two grounds, firstly, this company has revenue from both product and software services and segment-wise data is not available and secondly, it is contended that the company has shown super normal profit of 52.59% against average margin of other comparables. It is very much evident from the TP order that Assessee has been categorised as a software development service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dwill, reputation and brand value. It was submitted that due to scale of operation it not only enjoy economies of scale in the lower cost of infrastructure facilities and employees but also earning profit. It was submitted that the company has diversified activities including products, consultancy and solutions. Company own intangibles and assume considerable risk which results in earning higher profits. In support of such contention the ld. AR relied upon a number of decisions, copies of which are placed in the paper book. 7.2.1. The learned DR strongly contesting the contentions of Assessee submitted that so far as Infosys Technologies is concerned, Assessee itself has selected the said company in the TP documentation. Therefore, Assessee cannot again object to the TPO selecting the said company as comparable. He further submitted that only because the company has brand value and is big in size, it cannot be treated as uncomparable to Assessee. 7.2.2. In rejoinder, the ld. AR submitted that Assessee selected Infosys on the basis of three years data, whereas TPO has considered only current year data. The learned AR further submitted that if Assessee has mistakenly selected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /TPO to exclude this while computing ALP. ISHIR INFOTECH LTD 7.3. So far as this company is concerned, Assessee has sought exclusion of the aforesaid company on the ground that this company fails employee cost filter as its employee cost was only 3.96%. In this context, the learned AR has relied upon the decision of co-ordinate Bench of this Tribunal in case of M/s Virtusa (India) Pvt. Ltd. (supra). On a perusal of the order passed in case of M/s Virtusa (India) Pvt. Ltd.((supra)), we find that the co-ordinate bench has held that Ishir Infotech Limited cannot be treated as comparable as it does not qualify the employee cost filter as well as RPT filter. This view of ours is also in tune with the view expressed by different Benches of this Tribunal as stated below : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) Intoto Software India P. Ltd. ITA.2102/H/2010 c) LG Soft India P. Ltd. ITA.1121/Bang/2011 d) Transwitch India P. Ltd. ITA.948/Bang/2011 f) Mercedes Benz Research Development IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Pvt. Ltd. (supra), the Co-ordinate Bench of the Tribunal while considering Assessee s objection with regard to the aforesaid company had directed the Assessing Officer/TPO to take only segmental margin of this company for computing ALP. Similar view was also expressed in the following cases : a) M/s. Foursoft Limited (ITA.No.1903/H/2011) b) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011 c) Intoto Software India P. Ltd. ITA.2102/H/2010 d) Triology E-Business Solutions ITA.No.1054/Bang/2011 e) Telcordia Technologies India P. Ltd. ITA.No.7821/Mum/2011 f) Bearing Point Business ITA.No.1124/Bang/2011 g) LG Soft India P. Ltd. ITA.1121/Bang/2011 h) Transwitch India P. Ltd. ITA.948/Bang/2011 i) Mercedes Benz Research Development ITA.No.1222/Bang/2011 j) CSR India P. Ltd. ITA.No.1119/Bang/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the learned AR that the nature of product developed and services provided by this company are different from 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 prof it ratio from product and services. Thus, on these facts, we are unable to treat this company f it for comparability analysis for determining the arms length price for Assessee, hence, should be excluded from the l ist of comparable parties. Following the decision of the ITAT Mumbai Bench as aforesaid and also considering the fact that the company itself in the information provided in response to the notice issued u/s 133(6) of the Act has admitted that it cannot be considered as comparable with other assessees, we direct exclusion of the aforesaid company from the list of comparables while determining ALP. WIPRO LIMITED : 7.7. While objecting to the aforesaid company being treated as comparable, the learned AR submitted that the TPO only on considering segmental details submitted by the said company for IT services, in response to notice issued u/s 133 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o cannot be considered as a comparabil ity analysis, hence, would not be included in the list of the comparable entities as identif ied by the TPO. 7.7.3. As can be seen from the facts and materials on record during the year under consideration, the segmental turnover of the Wipro Ltd. Is 9616.09 crores. Therefore, considering the turnover, brand value as well as other dynamics of Wipro Ltd., it comes in the same category as Infosys and certainly cannot be compared with Assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. And other coordinate bench decisions, we hold that Wipro Ltd. cannot be treated as comparable with Assessee. ACCEL TRANSMATIC LTD. : 7.8. With regard to this company, the complaint of Assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of Assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: In regard to Accel Transmatics Ltd. Assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his contention, the learned Counsel for Assessee relied upon the decision of the Bangalore Tribunal in the case M/s. Trilogy E-Business Software India Private Limited (supra) wherein at paras 46 and 47 of its order, the Tribunal has discussed the functional dissimilarity with Assessee therein and has directed that the company should be excluded from the list of comparables. Similarly, the Tribunal at Bangalore in the case of M/s. HCL EAI Services Ltd. vs. DCIT IT(TP) A. No. 1348/ Bang/2011 at para 17 at pages 24 to 26 of its order has discussed at length the reasons for not considering the said company as comparable to software development services company. The relevant portion of the order is reproduced hereunder : (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of Assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was ₹ 45,93,351. The same was less than 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies. Assessee is also into similar type of activity. Therefore, the decision taken in M/s. Trilogy E-Business Software India Private Limited as well as M/s. HCL EAI Services Ltd. to exclude Kals Information Systems Ltd. applies to the facts of the case before us also. Similar view has been expressed by the Coordinate Bench of the Tribunal in the following cases : a) M/s. Conexant System India P. Ltd. ITA.No.1978/Hyd/2011. b) Intoto Software India P. Ltd. ITA.2102/H/2010 c) Bearing Point Business ITA.No.1124/Bang/2011 d) LG Soft India P. Ltd. ITA.1121/Bang/2011 e) Transwitch India P. Ltd. ITA.948/Bang/2011 f) CSR India P. Ltd. ITA.No.1119/Bang/2011 g) First Advantage ITA.No.1086/Bang/2012 Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude the company from the list of comparables. 18. Similarly, as contended by the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally similar. The various filters and reasons accepted in other cases do apply to Assessee as TPO selected same 26 comparables in all the cases relied on and decided earlier in various cases. 19. Further, as per the chart furnished before us, similar view has been taken by the coordinate benches of the Tribunal in similar matters, wherein comparable nature of above eleven companies has come up for consideration, such as- (a) M/s. Axsys Healthcare Ltd. (ITA No.2076/hyd/2011) (b) M/s.Virtusa (I) P. Ltd. (ITA No.1962/Hyd/2011) (c) M/s. Contexant System India Pvt. Ltd.(ITA Nos.1978/Hyd/2011) (d) Intoto Software India Pvt. Ltd. (ITA No.2102/Hyd/2010) (e) Triology E Business Solutions (ITA No.1054/Bang/2011) (f) Telcordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) (g) LG Soft India Pvt. Ltd. (ITA No.1121/Bang/2011) (h) Transwitch India Pvt. Ltd. (ITA No.948/Bang/2011) (i) Mercedes Benz Research Development (ITA No.1222/Bang- -/2011) (j) CSR India Pvt. Ltd. (ITA No.1119/Bang/2011) (k) First Advantage (ITA No.1086/Bang/2012) (l) HCL EAI Services Ltd. (ITA No.1348/Bang/2011) (m) Adaptee (India ) Pvt. Ltd.(ITA No.1801/Hyd/2011) 20. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tech, they are functionally similar. It was the submission by the Ld. Counsel that they are not functionally different and TPO should have considered segmentals from the details furnished by Assessee. In the case of L T Infotech., even though information was not received under section 133(6), it was the submission that this company also should be considered as the comparable. As far as PSI Data Systems Ltd. are concerned, the TPO is rejected the comparison on the related party transactions filter. It was the submission that RPT was worked out by including reimbursement transactions. With reference to VMF Soft Tech, the TPO has rejected it as there are no foreign exchange earnings, whereas, it was the submission that assessee has 93% of foreign exchange revenues. It was the submission that above companies are to be selected as comparables. 8.2. After considering the submissions, we are of the opinion that proper case was not made out for inclusion of the above comparables. Once TPO and DRP forms that these comparables are not functionally similar to Assessee on the basis of various filters adopted by the TPO, it would be better if the matter is left like that rather than orderi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of deduction under S.10A by reducing the communication charges of ₹ 9,79,218 from the export turnover considering it as attributable to the delivery of computer software outside India, but not reducing the same from the total turnover. 25. We have considered the rival submissions and perused the material available on record. It is settled position of law that the communication charges have to be excluded from the export turnover, and the issue that remains to be considered is whether it has to be reduced from the total turnover as well, in the computation of deduction under S.10A. This issue of deductibility of communication charges from total turnover as well, is also covered by the decision of the Hon'ble Bombay High Court in the case of CIT V/s. Gemplus Jewellery (330 ITR 175) and Special Bench (Chennai ) decision of this Tribunal in the case of ITO V/s. Saksoft Ltd. (313 ITR AT 353) (SB). Following these decisions of the Hon'ble Bombay High Court and the Special Bench, coordinate benches of this Tribunal in similar cases, including in assessee s own case for the assessment year 2006-07 in ITA No.1500/Hyd/2010, referred to above, have directed the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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