TMI Blog2012 (10) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. This ground thus does not need any adjudication. Ground No. 1 3. The facts in brief are that in its return of income the assessee declared income at NIL under the head profit and gains of business or profession after claiming deduction u/s 10A of the Act amounting to ₹ 65,896,497. Book profits of the company were computed under section 115JB of the Act at Rs. NIL and 7.5 % of such book profits amounting to Rs. Nil. The assessment was framed u/s 143 (3) and the AO made addition of ₹ 16967314/- on account of adjustment u/s 92CA(3) on provision of IT enabled back office services and contract software development services. The aggrieved assessee preferred first appeal against the said addition on the issue of transfer pricing. Ld. CIT(A) after discussing the issue in detail has held that the assessee s international transactions are proved to be at arm s length. In the result the addition made by the AO has been deleted. This action of the Ld. CIT(A) has been questioned in the present appeal by the revenue. 4. In supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company works on the basis of cost plus profit of 10% under contract. In support he referred page No. 75,94,99 of the PB(A). It is the part of Transfer Pricing Study for assessment year 2005-06 furnished by the assessee before the authorities below and placed at page Nos. 67 to 154 of PB(A). At page No. 75 of the PB(A) has been placed the overview of group and the company. In para No. 2.2.3 thereof it has been stated that during the current financial year, COLT India was essentially engaged in providing IT input company services and contract software development services to its group companies. At page 94 of the PB (A) has been made available about the functions performed by COLT India. In para No. 4.2.10 thereof, has been stated that the services provided by COLT India during the current financial year, under the SW segment essentially entailed provision of applications development support and maintenance support. It has been further stated that these services were only in relation to systems and applications used within the COLT group. In para No. 4.2.11 thereof has been stated that the company is being remunerated by its group companies for the rendering of IT enables back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D expenditure for the year in case of Visual Soft Technology Ltd. Shown in its Annual Report for Financial year 2004-05, placed at page No. 166 of PB(A). At this page under the head R D expenditure for the year ended March 31, 2005 has been shown at 4.44% of total revenue. The Ld. AR also placed reliance on the following decisions :- E-Gain Communication Pvt. Ltd. Vs. ITO, 2008 118 TTJ 354 TPUN 2) Philips Soft Ware Center Pvt. Ltd. Vs. ACIT, 2008 119 TTJ 721 TBAL 3) SAP Laps India Pvt. Ltd. Vs. ACIT 2010 TTJ 44 ITAT BANG TP. 6. The Ld. AR also referred page No. 116 of PB(A) wherein a summary of the data based searches employing the search criteria has been provided. He also referred page No. 167 of PB (A) i.e. copy of extracts from annual report of exensys software solutions Ltd. for FY 2004-05. Ld. AR also placed reliance on the decision in the case of ST Micro electronis Pvt. Ltd. Vs. CIT, 2011 T11 63 ITAT DEL TP. 7. The Ld. AR also placed emphasis on the submission that the assessee is not doing high end work. He reiterated that functional similarities is important to look into the comparables and not the trading. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant profit level indicator ( PLI ). The following table summarises the results of the comparable search and the financial and economic analysis undertaken by the assessee for its Category I and II transactions: Category I (ITES) Category II (SW) No. of Companies 22 87 Mean (average) OP/TC 14% 14% Appellant s OP/TC 13% 13% 11. As a part of the income tax assessment proceedings, a reference was made by the AO under section 92CA(1) of the Act to the TPO. In the Transfer Pricing ( TP ) Order, the Transfer Pricing Officer ( TPO ) made an adjustment of ₹ 12,785,576) and ₹ 4,181,738 to the income from ITES and SW segments respectively while all the other transactions were accepted to be at arm s length. However, further to the rectification application u/s 154 dated February 6, 2009 filed by the assessee, the adjustment to the ITES segment was deleted by the TPO vide order dated July 22, 2009 under section 154 r/w 92CA(5) of the Act. Hence, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.64 % 13. Thus the issue before us is as to whether the Ld. CIT(A) was justified in agreeing with the assesee that the above stated four comparables searched by the TPO were not akin to the case of the assessee to determine the arms length price for the assessee. Now we have to examine as to how the four comparables searched by the TPO were not comparable with the assesee, as held by the Ld. CIT(A).The assessee tried to distinguish its case with these comparables mainly on the basis that the assessee is engaged in the provision of contracts softwares development services to its associated enterprise. It was claimed that the company is a captive unit that provide software development services to suit the requirement to its associated enterprises. The services provided by the assessee during the financial year essentially entailed provision of applications development support and maintenance support. Business system services division of the assessee is responsible for applications development, maintenance and support of all systems and applications. This division supports COLT Groups Internal Users such as billing system, customers orders direct features ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (SEG) searched by TPO, which have been accepted by the Ld. CIT(A), have not been successfully rebutted by the department before us. Regarding Exensys Software Solutions Ltd. the submission of the assessee remained that the said company owns brands worth ₹ 5 crores as against its turn over of ₹ 7.37 crores during the financial year 2004-05, hence the company is a brand owner of the products developed by it. The said company is also engaged in section R D and owns several software products such as X migrate, integration workbench , and report designer etc. Regarding Sankhya Infotech Ltd., it was submitted that they own the intellectual property rights in the form of software products developed by it and bears substantial risk associated with the success / failure of these products in the market. These submissions were made on the basis of its annual report for the relevant financial year. It was also submitted that as a part of its business operations the said company is engaged in and focuses on development of niche products for the transportation and aviation industry and accordingly spends heavily on development of software products. It was also submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Conclusion 1. Bodthtree Consulting Limited 24.85% 24.85% 2. Akshay Software Technologies Limited 7.72% 7.72% 3. Lanco Global Systems Ltd. 13.78% 13.78% 4. Exensys Software Solutions Ltd. 30.36% Rejected based on different functional profile (owns software products) 5. Sankhya Infotech Ltd. 27.35% Rejected based on different functional profile (owns software products) 6. Sasken Network Systems Ltd. 16.64% 16.64% 7. Gebbs Infotech Limited 16.52% 16.52% 8. VJIL Consulting Ltd. 6.68% 6.68% 9. Thirdware Solution Limited 66.11% Rejected based on different functional profile-trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention of the Ld. AR that the loans are normally part of business and the loss making companies should have also been considered as comparables by the TPO. 17. We thus in absence of a successful rebuttal by the department that aforesaid four comparables searched by the TPO were not comparable with the assessee, are not inclined to interfere with the above finding of the Ld. CIT(A) on the issue. The same is upheld. The ground is thus rejected. 18. Consequently appeal is dismissed. 19. The assessee has raised following objections against the first appellate order :- 1. The Learned Assessing Officer ( Ld. AO ) and Learned Transfer Pricing Officer ( Ld. TPO ) have erred in law as well as facts of the case in rejecting the arm s length analysis conducted by the respondent without any basis and carrying out a fresh arm s length analysis. 2. The Learned Commissioner of Income Tax (Appeals) ( Ld. CIT(A) ), Ld. AO and Ld. TPO have erred in law by ignoring the fact that the respondent is entitled to deduction u/s 10A of the Income Tax Act, 1961 ( the Act ) on its profits from provision of Information Technology Enabled services ( ITES ) and Software Development Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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