TMI Blog2017 (4) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, we hold so. The ground of appeal raised by the assessee is thus, partly allowed. Assessee which is providing software development services thus selection of comparable as companies functionality dissimilar with that of assessee need to dis-selected as final list of comparable. Non-allowance of risk adjustment - Held that:- We direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (2008 (9) TMI 420 - ITAT DELHI-H) and compute the TP adjustment, if any, in the hands of assessee. Assessee is against applicability of +/- 5% and the benefit can be allowed if the adjustment is within such range and hence, no adjustment is to be made in case it is not more than 5% from the arm's length price. We hold so. Allowance of payment made for meeting expenses, travel cost, stay cost, etc. - Held that:- uthorized Representative for the assessee pointed out that the said expenditure was part of operating cost and was recovered @ 7%. The factual aspects of this issue are not clear and the Assessing Officer/Transfer Pricing Officer is direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for analysis) resulting in companies having turnover even higher than INR 200 crores being taken as comparable (i.e . Helios and Matheson Information Technology Ltd identified as comparable even though the turnover of the said company is INR 213 . 37 crores) 4. Selecting inappropriate qualitative filters and applying certain filters on selective basis Erred in selecting following inappropriate qualitative filters , applying certain filters on selective basis for rejecting/accepting certain companies such as: - Use of single year data for comparability analysis (as opposed to three years data used in the Transfer Pricing study report); - Rejection of companies with less than 75% earnings from exports ; - Rejection of loss making companies; - Rejection of companies with peculiar circumstances and - Use of diminishing revenue filter 5. Rejection of certain comparable companies identified by the Appellant in the transfer pricing study report Erred in rejecting certain comparable companies from the comparable set identified by the Appellant in respect of international transaction pertaining to provision of software devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of difference of opinion pertaining to selection criteria adopted for identifying the comparable companies, interpretation of provisions of law, etc and not due to concealment of or furnishing of inaccurate particulars of income. 13. Erroneous levy of interest under section 234B of the Act Erred in levying interest under section 234B of the Act to the extent addition is made to the total income of the Appellant on account of transfer pricing adjustments related matters without considering the fact that shortfall in advance tax resulted due to the proposed additions to total income, which are unanticipated in nature. 3. Briefly, in the facts of the case, original return of income was filed on 15.10.2008 declaring total income of ₹ 39,54,550/-. Thereafter, the assessee filed revised return of income declaring total income of ₹ 42,18,320/- on 31.03.2010. The case of the assessee was taken up for scrutiny. Since the assessee was engaged in the business of software development, the Assessing Officer made reference under section 92CA(1) of the Act for determination of arm's length price of international transactions with associate enterprises. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... super profit making companies were to be rejected. However, the companies which were selected by the assessee in the TP report but were sought to be rejected being super profit companies, was not accepted by the TPO and the contentions of assessee were rejected. Thereafter, the TPO considered the companies selected by the assessee and the comparables selected by him and finally selected eight companies to be comparable and after allowing the working capital adjustment as provided by the assessee, the arithmetic mean of PLI was worked out at 31.92% and after working capital adjustment at 27.32%. The TPO also verified the working PLI submitted by the assessee and extraordinary expenses on account of rent paid for premature termination of leave and license agreement was excluded while working PLI. Similarly, miscellaneous income was found to be included in the operating income and Fringe Benefit Tax was held to be considered for the said working. The PLI of assessee was thus, re-worked and revised to 4.12% by applying the indicator of operating profit / operating cost. In view thereof, the TPO proposed an adjustment of ₹ 3,21,60,400/-. The assessee sought risk adjustment which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ground of appeal No.3 is against the application of turnover filter of ₹ 1 to ₹ 200 crores and not ₹ 100 crores as applied by the assessee. The learned Authorized Representative for the assessee pointed out that the first limb of ground of appeal No.3 is not pressed, hence, the same is dismissed as not pressed. 7. Now, coming to the second limb of ground of appeal No.3. The assessee is aggrieved by the order of Assessing Officer / TPO in considering the turnover range on cost basis instead of turnover basis and hence, the inclusion of Helios and Matheson Information Technology Ltd., which was identified as comparable even though its total turnover was ₹ 213.37 crores. The grievance of assessee in considering the turnover range on cost basis merits to be allowed. Various Benches of the Tribunal including the Pune Bench of Tribunal in series of cases have held that the turnover basis is to be adopted range for the selection of companies. The total turnover of the assessee was ₹ 14.37 crores, as against which we hold that the turnover filter of ₹ 1 to ₹ 200 crores merits to be applied. Since the turnover of Helios and Matheson Information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr No. Name of the company 1 Akshay Software Technologies Ltd. 2 Indium Software (India) Ltd. 3 Maars Software international Ltd. 4 Quintegra Solutions Ltd. 5 S I P Technologies and Exports Ltd. 6 R S Software (India) Ltd. 10. First, we shall take up the objections of assessee and the submissions of the learned Departmental Representative for the Revenue in respect of companies which were finally selected by the Assessing Officer / TPO / DRP in the final set of comparables. The first concern is Bodhree Consulting Ltd. The learned Authorized Representative for the assessee pointed out that the said concern merits to excluded from the final list of comparables as the said concern was product company and was also engaged in ITES segment. Further, there was re-structuring during the year and the year under consideration was an exceptional year. 11. The learned Departmental Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a product company and also in ITES segment. Our attention was drawn to the financial statements for the year under consideration placed at pages 618, 619, 625 and 630 of the Paper Book and the learned Authorized Representative for the assessee pointed out that there was decrease in inventories in the case of E-Infochips Ltd. establishing the contention of assessee that it was product company. He stressed that where the comparable was not purely a software development company, the results of such concern could not be compared with the assessee which was purely engaged in the software development. The second issue of it being a super profit making company was not pressed during the course of hearing. 14. The learned Departmental Representative for the Revenue on the other hand, pointed out that the concern was engaged in embedded software development services. He further pointed out that the quantum of hardware sale had to be seen. Since the assessee and also the Assessing Officer / TPO had selected the companies with export filter of 75% turnover, then the concern EInfochips Ltd. is to be included in the final set of comparables. He referred to the decision of Hon ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g services, consulting services, enterprises solutions, BPO / KPO services, etc., the same is to be excluded. Reliance was placed on the decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra). 17. On the other hand, the learned Departmental Representative for the Revenue pointed out that where the assessee is also providing mixed bag of services, so it cannot be pleaded that it is not comparable being providing mixed services. 18. On perusal of record and the order of Tribunal in John Deere India Pvt. Ltd. Vs. ACIT (supra), we find that the concern E-zest Solutions Ltd. is a product company and is engaged in both the provision of software services and sale of software services. On the other hand assessee is engaged in Software development services where the segmental details are not available, accordingly, E-zest Solutions Ltd. is functionally not comparable. Accordingly, we hold that the said concern is to be excluded from the final set of comparables. 19. The next concern is KALS Information Systems Ltd., wherein the plea of assessee is that the same is product company as in the case of E-zest Solutions Ltd. and the same is to be excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software (India) Pvt. Ltd. Vs. DCIT in ITA No.2536/PN/2012 relating to assessment year 2008-09, order dated 11.02.2015 had held that both Akshay Software Technologies Ltd. and Maars Software International Ltd. were to be rejected being on-site developers while comparing the margins with off-site developers. The said proposition was again applied by the Pune Bench of Tribunal in BMC Software India Pvt. Ltd. Vs. DCIT in ITA No.1425/PN/2010, relating to assessment year 2006-07, order dated 16.03.2016. Applying the said principle, we hold that Akshay Software Technologies Ltd. is to be excluded from the final list of comparables as done by the TPO. Applying the said principle, we further hold that the concern at serial No.3 i.e. Maars Software International Ltd. being on-site developer is also to be excluded from the final set of comparables. Similarly, the concern at serial No.6 i.e. R S Software (India) Ltd. is on-site developer and the same is to be excluded from the final list of comparables. 24. Now, coming to the concern at serial No.2 i.e. Indium Software (India) Ltd. The said concern was picked up by the assessee as comparable. However, the same was rejected by the TPO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, which having intangibles has already been decided by the Pune Bench of Tribunal in Barclays Technology Centre India (P.) Ltd. Vs. ACIT, relating to assessment year 2008-09 reported in (2015) 56 taxmann.com 386 (Pune Trib.) and the same is to be excluded from the final list of comparables. 29. Now, coming to the last concern S I P Technologies and Exports Ltd., which the assessee wants to be included in the final set of comparables. The said concern was rejected on the ground that it was loss making and had shown loss of (-) 33.20%; the profits of the company were diminishing from year to year. 30. The contention of the assessee was that in case the said concern is to be excluded, then super profit companies also should be excluded. 31. We find no merit in the plea of the assessee since the assessee is captive service provider and is being reimbursed on cost plus basis, hence, the said loss making concern declaring operating loss of (-) 33.20% merits to be excluded. Accordingly, we hold that it is to be excluded from the final list of comparables. The Assessing Officer is directed to compute the margins of comparables and make suitable adjustments, if any, to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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