TMI Blog2017 (4) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 - - - Dated:- 17-3-2017 - INTURI RAMA RAO, ACCOUNTANT MEMBER AND LALIET KUMAR, JUDICIAL MEMBER For The Appellant : T. Suryanarayana, Advocate For The Respondent : Kamaladhar, Sd. Counsel ORDER Inturi Rama Rao, Accountant Member These are the appeals filed by the assessee company as well as the revenue directed against the order of learned CIT(A)-IV, Bengaluru dated 20.11.2012 for the assessment year 2008-09. 2. Briefly the facts of the case are that the assessee company is a wholly owned subsidiary of Sunquest Information Systems Inc., USA, and is engaged in the business of providing software services to its Associate Enterprises (AE). The assessee company filed its return of income for the assessment year 2008-09 on 30.09.2008 declaring total income of ₹ 2,25,47,548/- under the provisions of MAT and ₹ 1,43,060/- under the normal provisions of the Act. The said return of income was taken up for scrutiny assessment after the issue of requisite notice under section 143(2) of the Act, during the course of the assessment proceedings, the AO noticed that the assessee company reported the following international transactions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited 3.46% Mindtree Limited 16.98% Persistent Systems Private Limited 24.34% Quintegra Solutions Limited 15.18% R S Software (India) Limited 14.11% S I P Technologies and Exports Limited 18.37% Sasken Communication Technologies Limited 17.88% Satyam Computers Services Limited 29.43% T V S Infotech Limited -21.27% V J I L Consulting Limited 5.85% V M F Softech Limited 4.32% Visualsoft Technologies Limited 16.76% Zylog Systems Limited 16.87% Mean (Average) 14.84% 4. The AO referred the matter to the TPO for the purpose of bench marking the international transactions. The TPO by order dated 31.10.2011 passed under section 92CA(3) of the Act, computed the transfer pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Flextronics (Aricent) 7.86% 6. iGate Global Solution Ltd. 13.99% 7. Infosys 40.37% 8. Kals Information Systems Ltd. (Seg) 41.94% 9. LGS Global Ltd. 27.52% 10. Mindtree Ltd. (Seg) 16.41% 11. Persistent Systems Ltd. 20.31% 12. Quintegra Solution Ltd. 21.74% 13. R Systems (India) Ltd. 15.30% 14. R S Software (India) Ltd. 7.41% 15. Sasken Communication Technologies Ltd. (Seg) 7.58% 16. Tata Elxsi (Seg) 18.97% 17. Thirdware solution Ltd. 19.35% 18. Wipro Ltd. (Seg) 28.45% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing companies from the list of comparables: 1. Flextronics Ltd., 2. IGate Global Solutions Ltd., 3. Infosys Technologies Ltd., 4. Mindtree Ltds., 5. Persistent Sytems Ltd., 6. Sasken Communication Technologies Ltd., 7. Tata Elxsi Limited 8. Wipro Limited (Seg.) The CIT(A) also directed the AO/TPO to include 2 comparables which are rejected by the TPO viz., M/s. Helios Matheson Information Technology Ltd., and M/s. Maars Software International Ltd. The CIT(A) has also upheld the application of onsite revenue filter and consequently directed the exclusion of Softsol India Ltd., as no breakup of revenue from onsite and offshore was available. The CIT(A) also accepted the contention of the assessee company that the companies Bodhtree Consulting Ltd., Celestial Biolabs, Lucid Software Ltd., should be excluded from the list of comparables on the ground of functionality. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctification order passed by the CIT(A): SI. No. Name of the Company Mark-up on Total Costs (Before WC Adj.) 1 AvaniCimcon Technologies Ltd. 21.40% 2 Cat Technologies Ltd. 14.86% 3 e-Zest Solutions Ltd. 29.81% 4 KALS Information Systems Ltd. 30.92% 5 LGS Global Ltd. 27.52% 6 Maars Software International Ltd. 7.94% 7 Quintegra Solutions Ltd 21.74% 8 R Systems International Ltd 15.30% 9 RS Software (India) Ltd. 7.41% 10 Thinksoft Global Solutions Pvt. Ltd. 16.94% 11 Thirdware Solutions Ltd. 19.35% 12 VMF Soft Tech Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the TPO to include M/s Maars Software International Ltd. and M/s Helios Matheson IT Ltd. in the final set of comparables which were rejected by the TPO on application of the Employee Cost filter. 5. On the facts and in the circumstances of the case the learned CIT(A) has erred in rejecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 6. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s Bodhtree Consulting Ltd, being functionally different, dannot be taken as a comparable. 7. On the facts and in the circumstances of the case the learned CIT(A) has erred in excluding M/s Celestial Biolabs Ltd. from the final set of comparables. 8. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s Lucid Software Ltd being functionally different cannot be taken as comparable. 9. On the facts and in the circumstances of the case the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee company argued that though the turnover criteria is not applied, the companies Infosys, Tata Elxsi and Wipro Technologies are functionally dissimilar to that of the assessee company and therefore cannot be held to be comparable and reliance in this regard was placed by him on the decision of the coordinate bench in the case of GXS India Technology Centre (P.) Ltd. v. ITO 2015 (8) TMI 227 - ITAT BANGALORE and Support.com India (P.) Ltd. v. Jt. CIT 2015 (11) TMI 1136 - ITAT BANGALORE. We find from the perusal of the above order that the Tribunal has directed the exclusion of these companies on the ground that these companies possess high brand value and intangible assets. Hence, we direct TPO/AO to exclude the entities Infosys Technologies, Tata Elxsi and Wipro Ltd., on the ground of functionality. 16. Ground No. 4 challenges the direction of CIT(A) to exclude the comparables Maars Software International Ltd., and Helios Matheson Information Technology Ltd., in the final set of comparables which were rejected by the TPO on the application of employee cost filter. The learned counsel for the assessee submitted that the learned CIT(A) in the rectification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technology Centre (P.) Ltd. (supra) has held that these companies are not comparables with that of pure software development company. Placing reliance on the decision of 3DPLM Software Solutions Ltd. (supra) held that this company is functionally different from that of software development company as it is engaged in clinical research and manufacture of other bio products. There was no basis for the TPO to conclude that it was engaged in the business of providing software development services. The learned DR has not brought any evidence on record contrary to the above findings of the Tribunal. Hence, respectively following the decision of the Tribunal, we hold that this company i.e., Celestial Biolabs cannot be compared with that of the assessee company. 21. Similarly, as regards to Lucid Software Ltd., it was held by the coordinate bench in the case of 3DPLM Software Solutions Ltd. (supra) that it is engaged in the product development rather than services. Therefore this company cannot be held to be comparable to that of assessee company which is engaged in the pure software development services. Thus the ground Nos. 7 and 8 raised by the revenue are dismissed. 22. The grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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