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2015 (10) TMI 2647 - ITAT HYDERABAD

2015 (10) TMI 2647 - ITAT HYDERABAD - TMI - TPA - comparable selection - Held that:- Assessee is engaged in providing software development services. The assessee has two software development centers in Chennai and Hyderabad, both of which are registered under the STPI scheme of Government of India as 100% export oriented units, thus companies dissimilar with that of assessee need to be deselected from final list of comparable. - Since the information considered by the A.O. said to be belongi .....

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extraordinary event such as merger/amalgamation, even then, such company cannot be taken as a comparable to an assessee. The A.O./TPO shall take into consideration such judicial precedents before taking a decision about the comparability of e-Infochips Bangalore Ltd., with the assessee company. Accordingly, assessee’s appeal is treated as partly allowed for statistical purposes. - Infosys Technology Ltd., be excluded from the list of comparables on account of functional dissimilarity and ow .....

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j ORDER PER SMT. P. MADHAVI DEVI, J.M. Both the above are cross-appeals of the Assessee as well as the Revenue for the A.Y. 2010-2011 against the assessment order dated 09.02.2015 passed by the A.O. under section 143(3) read with section 144C of the I.T. Act, 1961. 2. Brief facts of the case are that the assessee company, which is wholly owned subsidiary of Virtusa Corporation, USA (with 99.99% shareholding) is engaged in providing software development services primarily to it s A.E. The assesse .....

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2CA of the I.T. Act. The financials of the taxpayer i.e., the assessee herein for the F.Y. 2009-2010 were as under : Description Amount ( in Rs.) Operating Revenue 196,98,88,305 Operating Cost 172,58,21,043 Operating Profit 24,40,67,262 OP/OR (%) 13.39 Op/OC (%) 14.14 Before the TPO, the assessee submitted that for the software development services, after applying certain filters, the assessee company has shortlisted 21 companies as comparables whose arithmetic mean/PLI (OP/OC) is computed at 11 .....

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ned the following 19 companies as comparables Sl. No. Name of the Company 1. Accelya Kale Solutions Ltd., 2. Avani Cimcon Technologies Ltd., 3. CAT Technologies Ltd., 4. Comp-U-Learn Tech India Ltd., 5. e-Infochips Bangalore Ltd., 6. Evok Tech 7. E-Zest Solutions Ltd., 8. Infosys Technology Ltd., 9. Kals Information Systems Ltd., (Seg.) 10. Kuliza Tech 11. L & T Infotech Ltd., 12. Mindtree Ltd., (Seg.) 13. Persistent Systems & Solutions Ltd., (Merged) 14. R S Software (India) Ltd., 15. S .....

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gth margin was arrived at 21.74% and arrived at the shortfall of ₹ 13,05,57,916 under section 92CA of the Act. 2.3. Based on the T.P. order, the A.O. passed the draft assessment order and forwarded the same to the assessee for its objections, if any. The assessee filed its objections before the DRP. The DRP directed the A.O. to exclude the following companies from the list of companies viz., (1) Infosys Technologies Ltd., (2) L & T Infotech Ltd., and (3) Tata Elexi Ltd., Against the as .....

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nsel for the assessee has filed a chart showing the comparables selected by the TPO which have been accepted by the assessee and also the comparables which are being challenged by the assessee as well as the Revenue and is also seeking the inclusion of certain companies as comparables which have been rejected by the TPO. As the Ld. D.R. has not disputed the correctness of the facts in the chart filed by the assessee, the same is taken on record. 3.1. The Ld. Counsel for the assessee also submitt .....

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lore Ltd., is comparable to the assessee. It is the contention of the assessee that while the assessee is into only providing software development services to it s A.E., e-Infochips Bangalore Ltd., is functionally different as it is engaged in rendering of both I.T. and ITES Services. He has submitted that the financials of e-Infochips Bangalore Ltd., also does not give segmental data and there are huge variations in the margins of the said company from the earlier assessment years. He further s .....

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orders of the TPO and the DRP. 6. Having regard to the rival contentions and the material on record, we find that the assessee had raised objections about inclusion of this company (e-Infochips Bangalore Ltd.,) before the TPO but the TPO after considering the financials of this company has retained this company as a comparable. We find that assessee has also filed the financials of e-Infochips Bangalore Ltd. before us. On comparison of the particulars considered by the TPO and the particulars f .....

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before us as is available in the Ministry of Corporate Affairs, Government of India, e-Infochips Bangalore Ltd., is in the status of amalgamated during the relevant financial year. This information is fresh information which was not available before the authorities below. For the sake of clarity and ready reference, the information relating to this company which is reproduced by the TPO in his order at page 36 and the information produced by the assessee company before us at pages 10 and 11 of .....

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nts of clients. 2. The company is in software business and does not have any physical inventory. Therefore, the provisions of clause-4(ii) of the Companies (Auditor s Report) Order, 2003 are not applicable to the company. Further, the taxpayer has reported its income to be derived from software services. The relevant extract of P & L account is as under - Schedule 2009-2010 Rs. 2008-2009 Rs. Income from Software Services 7 430,466,481 503,658,971 Software Development Expenses 8 206,674,788 2 .....

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ive details of sales and certain other information as required under paragraph 3.4C and 4D of part-II of Schedule-VI to the Companies Act, 1956. In view of the above, the contention of the taxpayer is rejected and the company is retained as a comparable. (Page 10 and 11 of the paper book filed by the assessee) 16. Segment Information : Information about Primary Segments : The company is primarily engaged in Software Development and I.T. enabled services which is considered the only reportable bu .....

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279,890,393 371,388,107 6.1. Since the information considered by the A.O. said to be belonging to e-Infochips Bangalore Ltd., and the information filed by the assessee before us are at variance with each other, we deem it fit and proper to remand the comparability of this company with the assessee to the file of A.O./TPO to ascertain the correct facts and take a decision in accordance with law. It is no doubt settled by various judicial precedents that where segmental data is not available, suc .....

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