TMI Blog2017 (1) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Commissioner of Income Tax, Corporate Circle-6(2) u/s. 143(3) r.w.s. 92CA(4) of the Act, dated 09.02.2016 in pursuance of the directions of DRP Chennai order dated 27.03.2015. 2. The assessee has raised the ground No. 1 to 12 pertaining to Transfer Pricing adjustments and ground no. 13 14, where the Ld. AO erred in reduction of entire expenditure incurred in foreign currency insurance expenses from the export turnover without reducing from the total turnover u/s. 10AA. However, at the time of hearing the Ld. AR of the assessee has made arguments in respect of selection of comparables by Transfer Pricing Officer out of 11 comparables selected, the Ld. AR prayed 4 comparables to be excluded for determining the Arms Length Price. 3. The Brief facts of the case, the assessee company is software development and technical support service provider for Symantec Group Companies and operates as contract development centre for providing software services to its AE including software coding, testing of development works and providing documentation in relation to Indian works. The Assessee filed Return of income electronically on 29.11.2011 with total income of ₹ 2,55,42,884/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.01 07. Persistent Systems Solutions Ltd., 16.00 08. Persistent Systems Ltd., 25.71 09. RS Software (India) Ltd., 16.36 10. Sasken Communication Technologies Ltd., 28.04 11. Tata Elxi Limited 8.41 12. Ybrant Digital Ltd., 13.60 On objections before the DRP by the Assessee, the DRP has excluded one comparable Akshay Software Technologies and confirmed 11 comparables and was considered by the Ld. TPO and gave effect of excluding of comparable and worked out the Transfer Pricing Adjustments to ₹ 4,30,20,425/- and the DRP considered 11 comparables as provided by the TPO and confirmed the action of Assessing Officer in respect of section 10A of the Act Export Turnover Adjustments. 4. On appeal before the Tribunal, the assessee company wants to exclude four comparables from the list of comparables selected by the TPO which read as: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnologies (Seg.) A perusal of the Annual report of this company shows that it is engaged in the development of Computer Software. The company has also shown inventories as work-in-progress in its balance sheet and there is also increase/decrease in inventories in its profit and loss account and under the head employees related onsite development charges, there are onsite development expenses amounting to ₹ 31.45 crores. Considering these facts, it can be safely concluded that this company has totally different business model. It is also seen that this company does not pass the test of 75% export turnover which is used as a filter by the TPO himself. This company was also rejected by the Tribunal in ITA No. 7016/M/2012 wherein the Tribunal has held that the ratio of onsite to total employee related expenses of this company comes to 86.2%k, thus failing the onsite filter. The Tribunal, Bangalore Bench in ITA No. 1316/Bang/2010 in the case of Symphony Marketing Solutions India Pvt. Ltd. has observed that the functions performed by the Engineering Design Services segment of this company cannot be considered as comparable to the ITES/BPO functions performed by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is in the software development and also ITES services and cannot be considered as the functionally comparable and we rely on the decision of Bangalore Tribunal in the case of 3DPLM Software Solutions Limited (Supra) at Para 14.4: 14. E-Zest Solutions Ltd. 14.1 This company was selected by the TPO as a comparable. Before the TPO, the assessee had objected to the inclusion of this company as a comparable on the ground that it was functionally different from the assessee. The TPO had rejected the objections raised by the assessee on the ground that as per the information received in response to notice under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in e-Business Consulting Services , consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O./TPO is accordingly directed. Considering these facts and the decision of the Tribunal, we direct the Ld. TPO to exclude the E-Zest Solutions Limited from the list of the comparables. 9. The Ld. AR argued on the Persistent Systems with operating margin of 25.71% is outsourced product development company and is noncomparable to company engaged in rendering software development services and also has income from licensing of products and focused on the technology investment. The profit and loss account for year ending 31.03.2011 disclose sale of software services and products and other income and the nature of operations being the company is predominantly engaged in outsourced product development services and follows Business models which are entirely different from the Assessee business and relied on the decisions of (i) AlcatelLucent India Ltd Vs. DCIT IT ANo. 6856/Del/2015, (ii) Cashedge India Private Limited, ITA No. 279/2016, (iii) CIT(1) Vs CES Pvt. Ltd., ITTA No 442/2014, (iv) CES Pvt. Ltd., Vs DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) (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. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade earlier. He further noticed that the company has software services segment and segmental results are available for software services. He further pointed out that on the basis of information obtained u/s 133(6), the company qualifies onsite revenue filter (onsite revenues were to the extent 27.27% of its export revenues). After considering the assessee s reply, ld. TPO included this company in the list of comparables. Ld. counsel pointed out that this company has incurred significant expenditure on research and development activity the same being 6.07% of sales. He further submitted that the company had significant intangible inasmuch as it develops siskin branded products. The company owns IPR Further it was pointed out before TPO that during the year the company had acquired Botnia High tech F. and its two subsidiaries and thus, it had under gone significant restructuring. However, ld. TPO ignored these facts He relied on the following decisions: IQ Information System (I) Pvt. Ltd., ITA No. 1961/Hyd./2012 (para no. 11 23, page 25); Amerson Process Management India Pvt. Ltd., ITA No. 8118/Mum./2010 (para 16 page 15). 110. Ld. DR relied on the order of TPO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has raised claim deduction u/s. 10AA ₹ 18,01,20,312/-. The Assessing Officer in the assessment proceedings discussed and excluded expenditure of foreign currency and insurance expenditure and telecommunication expenditure only from export turnover without reducing the same from total turnover u/s. 10AA of the Act and made addition excess claim of ₹ 1,10,51,626/-. The DRP has confirmed the action of Assessing Officer and before us the Ld. AR argued that the special bench decision of this Tribunal in the case of M/s. Sak Soft Limited 2009 30 ITO 55 Chennai has to be followed irrespective of the fact that the appeal has been filed by the Revenue against the said order in the jurisdictional High Court. We find the issue is covered by the decision of assessee's own case in earlier assessment year 2010-11 ITA No. 1289/Mds/2015, at Para 7 and 8 which read as under: 7. The next ground in this appeal is that the DRP erred the AO to exclude to reduce same amounts which has reduced from export turnover from total turnover also for computing the deduction u/s.10AA relying upon the decision of the Special Bench of ITAT Chennai in the case of M/s.Sak Soft Ltd reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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