TMI Blog2017 (4) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of manufacture of Electrical, Mechanical and process control. Converteam EDC Pvt. Ltd., is owned by Converteam International SAS with 99% stake and 1% by converteam SAS(France) and these two companies are wholly owned subsidiaries of Converteam Group SAS. The assessee company is in Global Engineering and Development Centre registered with the Software Technology Parks of India (STP). And the Return of income was filed on 24.09.2010 with total income of ₹ 25,20,889/- and the Return of income was processed u/s. 143(1) of the Act on 24.02.2011. The case was selected for scrutiny under CASS and notice u/s. 143(2) was issued. The Assessing Officer on perusal of Form 3CEB filed by the assessee found the assessee company has international transactions with Associated Enterprises (AE) for ₹ 48,42,91,234/- and reference was made to TPO. The Ld. TPO in order No. DCIT(TP)/C415/TPO-IV for the assessment year 2009-10 determined the Arms Length Price (ALP) of international transactions entered into by the assessee with Associate Enterprise. The Ld. TPO found that the assessee's international transactions pertaining to Software services, management/technical, administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsultancy Limited as comparables as it is functionally different because it is in software development services and software products and provides ITES data activities, data management and data warehousing activities and the margins are fluctuating over a period of 3 years due to Revenue Recognition policy and also have low employee cost to the sale and relied on the judicial decisions of CISCO Systems (India) Private Ltd Vs. DCIT IT(TP)A No. 271(1)(c)/Bang/2014 dated 14.08.2014 and Q Logic (India) Private Limited Vs DCIT, ITA No. 227/PN/2014 dated 21.10.2014 and prayed for excluding the same. On the other hand, the Ld. DR submitted that the DRP and TPO has considered these facts and has to be treated as comparable in determining the ALP and opposed to the grounds 4. We heard the rival submissions, perused the material on record and judicial decisions. The Ld. AR submitted the facts of the Bodhtree Consultancy Limited and emphasized that it is not comparable to the assessee company due to fluctuating margin and Abnormal profits in earlier years. Whereas Ld. DR's contention being the comparable is engaged in Global IT Consulting Product Agency services and other technology so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company. 9. The same view was taken by the Tribunal, Delhi Bench in the case of Ciena India Pvt. Ltd. in ITA No.1453/Del./14 dated 24.4.2015, wherein it was held as under: 9.6. Coming back to the facts of the instant case, we find from Schedule 12 that there is a mention of Significant accounting policy at Sl. no.3, which provides that : Revenue from software development is recognized based on software development and billed to clients. If some software development project is incomplete at the end of the year, this Note may entail two situations , viz., the first, in which the expenses incurred in respect of such software development may be capitalized, which appears to be a more rational manner of depicting the true and fair view of the profitability of the enterprise; and the second, in which such expenses may be straightway taken as revenue cost for the year of its incurring itself, which may not reflect a true and fair view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable to the assessee company in determining the ALP by the TPO and held the same to be excluded from the list of comparables and the ground of the assessee is allowed 6. The assessee submitted that the following two comparables (i) CIP Technologies and Export Limited and (ii) VMS Software Technology Ltd., are to be included. The Ld. TPO rejected the CIP Technologies and Export Ltd., comparable because company incurred losses for the consequent two years and whereas, the DRP has confirmed these facts at Page 5 of the order. The Ld. AR argued that it is not a loss making company and whereas in the earlier financial year 2006-07 the company has a profit and supported with the decisions of Affinity Express India Pvt. Ltd. Vs. DCIT, ITA No. 106/PN/2012 dated 09.03.2016 and Chryscapital Investment Advisors (India) Pvt. Ltd., Vs. DCIT, 376 ITR 0183 (Delhi). We found that there is abnormality of profits and losses as the three years average include two year losses of the comparable. Therefore, we are of the opinion that the above comparable cannot be included for determining ALP by the TPO and we are not inclined to direct TPO. In the case of comparable VMS Software Technology Li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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