TMI Blog2015 (6) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... list of comparables on the ground that these companies have a turnover filter above ₹ 200 crores and cannot be compared with the assessee, whose turnover is only ₹ 66.94 crores. Wipro Ltd. be excluded from the list of comparable companies. Thirdware Solutions Ltd. and Lucid Software Ltd. companies be omitted from the list of comparables for the period under consideration in the case on hand as are not functionally comparable with a software development service provider such as the assessee. Persistent Systems Ltd. is engaged in product development and product design services while the assessee is a software development services provider. Helios & Matheson Information Technology Ltd. in view of the admitted factual position that the employee cost in the case of this company was less than 25% of its sales, this company has to be excluded from the list of comparables. Birla Technologies Ltd. company should be taken as a comparable as there is no other basis for rejecting this company as comparable assigned by the TPO Indium Software (India) Ltd t export turnover filter of this company was 37.77% of its total turnover and therefore this company passes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n holding that M/s KALS Informations Systems Ltd. being functionally different, cannot be taken as comparable ignoring the fact that it qualifies all the quantitative and qualitative filters applied by the TPO. 3. In the appeal filed by the assessee, there are about 8 grounds raised in the grounds of appeal. Grounds No. 1 to 7 are with reference to the addition made by the TPO to the total income of the assessee, consequent to determination of ALP of an international transaction carried out by the assessee with its AE under the provisions of 92 of the Incometax Act, 1961 [ the Act ]. Ground No.8 is with regard to charging of interest u/s.234B of the Act. These grounds read as follows: 1 Assessment and reference to Transfer Pricing Officer are bad in law a) The order issued by the Income-tax Officer - Ward 11(1) [ AO ] under section 143(3) r.w.s. 92CA of the Income-tax Act, 1961 [ the Act ] and the order passed by .the Commissioner of Income-tax (Appeals)-IV, Bangalore [ the CIT(A) ] under section 250 of the Act, are bad in law and on facts and is in violation of the principles of natural justice. b) The AO has erred in making a reference to the Additional Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO/TPO grossly erred in law in deviating from the uncontrolled party transaction definition as per the Income-tax Rules and arbitrarily applying a 25% related party criteria in accepting / rejecting comparables and the Ld.CIT(A) also erred in confirming the same. e) The AO/TPO grossly erred on facts in arbitrarily rejecting companies having software development revenue less than 75% of total operating revenue and applying inconsistently such filter, without considering the specific segmental results and the Ld.CIT(A) also erred in confirming the same. f) The AO/TPO erred on facts in arbitrarily rejecting companies having export revenues less than 25% of total sales and the Ld.CIT(A) also erred in confirming the same. g) The AO/TPO also erred on facts in arbitrarily rejecting companies based on their financial results without considering the functional comparability and the Ld.CIT(A) also erred in confirming the same. h) The AO/TPO erred on facts and in law in considering a set of secret data , i.e. data which was not available in public domain, in arriving at a fresh set of companies using his power under section 133(6) of the Act, which is grossly unjustified. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee did not object to the aforesaid companies being chosen as comparable before the TPO. However, the functional profile of these companies were considered which came at a later point of time and it has been held that these companies are not comparable functionally or otherwise with a software service provider company such as the assessee. Hence the assessee has raised the aforesaid additional ground and prayed for admission of the same. The assessee has submitted that all facts are already available on record and it is a question of applying the decisions rendered in cases of companies engaged in software development services. 6. We have considered the request for admission of additional ground and are of the view that plea of the assessee deserves to be accepted, as it has been held by the Chandigarh Special Bench of the Tribunal in Quark Systems Pvt. Ltd., 38 SOT 307 (SB) (Chd) that the taxpayer can reject a company selected by it in its TP study as not being comparable, even if such a plea is raised for the first time before the Tribunal. The Special Bench further held that the taxpayer is not estopped from pointing out that a particular company cannot be taken as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provided); and d) proposed a transfer pricing adjustment to the international transactions to the tune of ₹ 126,991,063. 12. In response to the above, the Appellant made detailed submissions on 27 October 2011, placing on record, all legal and factual arguments before the TPO. 13. The TPO passed an order under section 92CA of the Act, on 28 October 2011, determining the mean margin of the comparables at 22.64% (after working capital adjustment of 1.01%) thereby proposing a transfer pricing adjustment of ₹ 70,120,473. 14. Subsequently, the AO issued a draft assessment order under section 143(3) read with 144C, dated 19 December 2011, proposing a transfer pricing adjustment of ₹ 70,120,473 and disallowance of excess claim under section 10A of the Act of ₹ 970,832, thereby proposing to determine the taxable income of the Appellant at ₹ 71,091,305. The draft assessment order was served to the Appellant on 22 December 2011. 15. The Appellant filed a letter dated 1. January 2012, requesting the AO to pass the final assessment order as the Appellant did not wish to file objections before the Dispute Resolution Panel. Accordingly, the AO iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arithmetic mean PLI 23.65% Less: Working capital Adjustment(Annexure-C) 1.01% Adj.Arithmetic mean PLI 22.64% Arm s Length Price: Operating Cost Rs.603091554 * Arms Length Margin 22.64% of the operating cost Arms Length Price (ALP) At 122.64% of operating cost Rs.739610218 * excluding Exchange loss, financial expenses 23.7 Price received vis- -vis the Arms Length Price: The price charged by the tax payer to its Associated Enterprises is compared to the Arms Length Price as under: Arms Length Price (ALP) At 122.64% of operating cost ₹ 739619218 Price charged in the international transactions ₹ 669498745 Shortfall being adjustment u/s.92CA Rs.3,43,55,770 The above shortfall of ₹ 3,43,55,770/- is treated as transfer pricing adjustment u/s 92CA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. This filter is an accepted filter in the case of companies engaged in software development services. The CIT(A) did not apply this filter because the application of this filter does not serve any useful purpose since the other filters like turnover and functionality are also applied in the case of assessee. It can thus be seen that the employee cost filter in the case of Helios Matheson Information Technology Ltd. was less than 25% of the sales. If this filter is held to be a valid filter, then this company should be excluded from the list of comparable companies. 19. Aggrieved by the order of the CIT(Appeals) accepting the comparable companies chosen by the TPO, the Revenue has filed the appeal before the Tribunal. Aggrieved by the order of CIT(Appeals) not accepting certain comparable companies chosen by the TPO and also seeking inclusion of two companies chosen by the assessee viz., Birla Technologies Ltd. and Indium Software (India) Ltd., the assessee has filed the appeal before the Tribunal. 20. We have heard the submissions of the ld. counsel for the assessee and the ld. DR. The ld. DR besides relying on the order of CIT(A) in support of the grounds of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnual Report available in the public domain is not complete. It was further contended that the information obtained by the TPO under section 133(6) of the Act, on the basis of which the TPO included this company in the final list of comparable companies, has not been shared with the assessee. In support of this contention, the learned Authorised Representative placed reliance on the following judicial decisions : i) Trilogy E-Business Software India Pvt. Ltd. V DCIT (ITA No.1054/Bang/2011) ii) Telecordia Technologies India Pvt Ltd V ACIT (ITA No.7821/Mum/2011) It was also submitted that this company has been held to be functionally not comparable to the assessee by a co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013. 7.3 The learned Authorised Representative further submitted that the facts pertaining to this company has not changed from the earlier year (i.e. Assessment Year 2007-08) to the period under consideration (i.e. Assessment Year 2008-09). In support of this contention, it was submitted that :- (i) The extract from the Website of the company clearly indicates that it is primari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and attendant factors have remained the same so that the factors of comparability are the same. Viewed in that context, the assessee has not discharged the onus upon it to establish that the decision rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) can be applied to the facts of the case and that too of an earlier year i.e. Assessment Year 2007-08. The assessee, in our view, has not demonstrated that the facts of Trilogy E-Business Software India Pvt. Ltd. (supra) are identical to the facts of the case on hand and that the profile of the assessee for the year under consideration is similar to that of the earlier Assessment Year 2007-08. In view of facts as discussed above, we deem it fit to remand the matter back to the file of the Assessing Officer / TPO to examine the comparability of this company afresh by considering the above observations. The TPO is directed to make available to the assessee information obtained under section 133(6) of the Act and to afford the assessee adequate opportunity of being heard and to make its submissions in the matter, which shall be duly considered before passing orders thereon. It is ordered accordingly. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional comparable only on the ground that this company was selected in the earlier year. Even in the earlier year, it is seen that this company was not selected on the basis on any search process carried out by the TPO but only on the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt.22.2.2013, and in the case of Trilogy EBusiness Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct the A.O./TPO to omit this compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . in IT(TP)A No.1119/Bang/2011 and by the ITAT, Delhi Bench in the case of Transwitch India Pvt. Ltd. in ITA No.6083/Del/2010. (v) 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 the instant case and hence ought to be rejected. In support of this contention, the assessee has also referred to and quoted from various parts of the Annual Report of the company. 9.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparable companies. The learned Departmental Representative submitted that the decisions cited and relied on by the assessee are for Assessment Year 2007-08 and therefore there cannot be an assumption that it would continue to be applicable for the period under consideration i.e. Assessment Year 2008-09. 9.4.1 We have heard both the parties and perused and carefully considered the material on record. While it is true that the decisions cited and relied on by the assessee were with respect to the immediately previous assessment year, and there cannot be an assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4% of total revenues and the revenue from software development services constitutes more than 75% of the total operating revenues for the F.Y. 2007- 08 and qualifies as a comparable by the service income filter. 10.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee and ought to be rejected / excluded from the list of comparables for the following reasons :- (i) This company is functionally different from the software activity of the assessee as it is into software products. (ii) This company has been held to be functionally not comparable to software service providers for Assessment Year 2007-08 by the co-ordinate bench of this Tribunal in the assessee's own case. This company has been held to be different from a software development company in the decision of the Tribunal in the case of Bindview India Pvt. Ltd. V DCIT in ITA No.1386/PN/2010. (iii) The rejection of this company as a comparable has been upheld by co-ordinate benches of the Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011). LG Soft India Pvt. Ltd. (IT (TP) A No.112/Bang/2011) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company s Annual Report to establish that this company is functionally dis-similar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form the list of comparable companies. It is ordered accordingly. 17. Respectfully following the aforesaid decision rendered by the coordinate Bench of this Tribunal, we direct exclusion of the aforesaid three companies from the list of comparable companies. 18. Bodhtree Consulting Ltd. : As far as this company is concerned, the Mumbai Tribunal in the case of Nethawk Networks India (P.) Ltd. v. ITO, ITA No.7633/Mum/2012 for A.Y. 2008-09, order dated 6.11.2013, hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has filed the information collected u/s 133(6) of the I T Act and submitted that as per this information, this company has revenue from ITES activity to the extent of ₹ 2,94,85,528/-. Therefore, this company is a good comparable having functional similarity. 29.3 ** ** ** 30. We have considered the rival submissions as well as the relevant material on record. The details filed by the Id DR before us has been obtained by the TPO at Hyderabad and not by the TPO of the assessee in the present case. It is stated in the letter dated 5.2.2010 written by the Chartered Accountant of Bodhtree Consulting Ltd to the TPO Hyderabad that the company is providing data cleaning services to clients for whom it had developed the software application ......... 23. Considering the above, we are of the opinion that Bodhtree Consulting Limited is not engaged in the software development services and there is no segmental data comparable. Therefore, the FAR analysis goes against the TPO/AO. Accordingly, we dismiss the argument of the Ld DR in this regard. Ex consequenti, the AO/TPO is directed to exclude the same from the list of final comparables for working out the arithmetic mean. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. e-Zest Solutions Ltd., ought to be omitted from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the inclusion of this company in the list of comparables by the TPO. 14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparables only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co-ordinate bench of this Tribunal in the case of Capital I-Q Information Systems (India) (P) Ltd. Supra) that KPO services are not comparable to software development s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks. (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO s own filter since there have been acquisitions in this case, as is evidenced from the company s Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles / IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. 18.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration. 18.4 We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-business Software India Pvt. Ltd. v. DCIT, ITA No.1054/Bang/2011 dated 23.11.2012, the relevant observations therein are as follows:- (1) Turnover Filter 11. The ld. counsel for the assessee submitted that the TPO has applied a lower turnover filter of ₹ 1 crore, but has not chosen to apply any upper turnover limit. In this regard, it was submitted by him that under rule 10B(3) to the Income-tax Rules, it was necessary for comparing an uncontrolled transaction with an international transaction that there should not be any difference between the transactions compared or the enterprises entering into such transaction, which are likely to materially affect the price or cost charged or paid or profit arising from such transaction in the open market. Further it is also necessary to see that wherever there are some differences such differences should be capable of reasonable accurate adjustment in monetary terms to eliminate the effect of such differences. It was his submission that size was an important facet of the comparability exercise. It was submitted that significant differences in size of the companies would impact comparability. In this regard our attention was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.1231/Bang/2010, wherein relying on Dun and Bradstreet s analysis, the turnover of ₹ 1 crore to ₹ 200 crores was held to be proper. The following relevant observations were brought to our notice:- 9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. Sec.92- A defines what is an Associated Enterprise. In the present case there is no dispute that the transaction between the Assessee and its AE was an international transaction attracting the provisions of Sec.92 of the Act. Sec.92C provides the manner of computation of Arm s length price in an international transaction and it provides:- (1) that the arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in subclause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm s length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as well as the decisions referred to by the ld. counsel for the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables. The assessee s turnover is ₹ 47,46,66,638. It would therefore fall within the category of companies in the range of turnover between 1 crore and 200 crores (as laid down in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010) . Thus, companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee. Applying those tests, the following companies will have to be excluded from the list of 26 comparables drawn by the TPO viz., Turnover Rs. (1) Flextronics Software Systems Ltd. 848.66 crores (2) iGate Global Solutions Ltd. 747.27 crores (3) Mindtree Ltd. 590.39 crores (4) Persistent Systems Ltd. 293.74 crores (5) Sasken Communication Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company to create a portfolio of reusable software components, ready to deploy frameworks, licensable IPs and products. The learned Authorised Representative pleads that in view of the above reasons, Tata Elxsi Ltd. is clearly functionally different / dis-similar from the assessee and therefore ought to be omitted form the list of comparables. 13.3 Per contra, the learned Departmental Representative supported the stand of the TPO in including this company in the list of comparables. 13.4 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment software development services relates to design services and are not similar to software development services performed by the assessee. 13.5 The Hon'ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. V ACIT (ITA No.7821/Mum/2011) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. in ITA No.3856(Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and a market leader assuming all risks leading to higher profits, cannot be considered as comparable to captive service providers assuming limited risk; (iii) the co-ordinate bench of the ITAT, Mumbai in the case of Telecordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) has held that Wipro Ltd. is not functionally comparable to a software service provider. (iv) this company has acquired new companies pursuant to a scheme of amalgamation in the last two years. (v) Wipro Ltd. is engaged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO s own filter of rejecting companies with consolidated financial statements. 12.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 12.4 We have heard both partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 500 Crores. Before us, the assessee has objected to the inclusion of this company as a comparable for the reason that apart from software development services, it is in the business of product development and trading in software and giving licenses for use of software. In this regard, the learned Authorised Representative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNE-TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the period under consideration i.e. Assessment Year 2008-09 and therefore on this basis, this company cannot be considered as a comparable in the case on hand. (v) The relevant portion of the Annual Report of this company evidences that it is in the business of product development. The learned Authorised Representative prays that in view of the factual position as laid out above and the decisions of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 and other cases cited above, it is clear that this company being into product development cannot be considered as a comparable to the assessee in the case on hand who is a software service provider and therefore this company i.e. Lucid Software Ltd., ought to be omitted from the list of comparables. 16.2 per contra, the learned Departmental Representative supported the action and finding of the TPO in including this company in the list of comparables. 16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid Software Ltd., is engaged in the development of software pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts revenues. In this view of the matter, the Assessing Officer included this company i.e. Persistent Systems Ltd., in the list of comparables as it qualified the functionality criterion. 17.2 Before us, the assessee objected to the inclusion of this company as a comparable submitting that this company is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Representative submitted that : (i) This company is engaged in software designing services and analytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand. (ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in Outsourced Software Product Development Services for independent software vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that it has zero export turnover. This was confirmed by the CIT(A). It has been pointed out before us that export revenue of this company is 88.97% of its turnover and therefore it passes the export revenue filter of 25% of the turnover and has to be selected as a comparable. Our attention was drawn to the decision of this Tribunal in the case of IBM India Pvt. Ltd. v. JCT, 2014 46 taxman.com 129 (Bang. Trib), wherein it was held that this company passes the export revenue filter and has to be regarded as a comparable. Following were the relevant observations:- 1. M/s Birla Technologies: The reason assigned by the TPO for excluding this company as comparable was that the exports sales were less than 25%. In this regard, the learned counsel for the assessee drew our attention to pages -689 to 698 and page 317 of T.P. Paper book, which is a compilation of the annual reports of various companies filed by the assessee. Perusal of page-698 shows that total income from software services/licence fee of assessee was ₹ 24,12,30,696/-. It is also clear from the Director s report that the entire income were derived from exports. It thus, appears that the reason assigned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held to be without any merit. The TPO is directed to exclude the companies directed to be excluded in this order and compute the ALP and allow + / - 5% variation as provided in the second proviso to section 92C of the Act. 41. All other grievances projected by the assessee in its grounds of appeal Nos. 1 to 7, other than those decided in this order, are left open for consideration, as the decisions rendered in this order would bring the prince charged by the assessee in the international transaction within + / - 5% range of the arithmetic mean of comparables ultimately retained as given by the assessee in page 12 of the written submissions filed before us. 42. Thus grounds Nos.1 to 8 raised by the Revenue are dismissed, while ground Nos. 1 to 7 of the assessee s appeal are treated as partly allowed. 43. In grounds No. 9 to 11, the Revenue has projected its grievance with regard to excluding the lease line expenses from the total turnover as well as the export turnover, following the decision of the CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn). 44. The only grievance of the Revenue is that the decision of Hon'ble High Court of Karnataka in Tata Elxsi (supra) has not att ..... X X X X Extracts X X X X X X X X Extracts X X X X
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