TMI Blog2015 (1) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 144C(5) of the Income Tax Act, 1961. 1.1. Assessee raised as many as 13 grounds in the main appeal and further raised additional grounds of appeal from 14 to 18. In the course of present appeal proceedings, assessee s additional grounds are admitted being legal in nature after considering the objections of the Ld. D.R. 2. Assessee, formerly known as Intelli Group Asia P. Ltd., has become NTT Data India Enterprises Applications Services P. Ltd., and at present, merged with NTT Global Delivery Services Ltd., vide orders of Hon ble High Court of A.P. dated 10th July, 2013. Assessee, accordingly, filed revised Form 36B indicating change in status which was taken on record. 3. Briefly stated, assessee is an IT solution company that provides software development service in the areas of ERP solutions design, implementation maintenance and Internet technology solutions to its customers. The company has a hundred percent Export Oriented Undertaking (EOU) registered with the software Technology Parks of India {STIP}. The AE is a global provider of innovative consulting, technology, and outsourcing services. The services if the Group are broad based and include business proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 786.90 13.90 7. Infosys Technologies Ltd., 15677.00 40.41 8. Kals Information Systems Ltd., (seg.) 2.05 41.94 9. LGS Global Ltd., 136.52 26.64 10. Mindtree Ltd., (seg.) 579.01 17.51 11. Persistent Systems Ltd., 405.49 27.23 12. Quintegra Solution Ltd., 89.87 21.74 13. R Systems International (seg.) 144.56 15.30 14. RS Software (India) Ltd., 100.71 6.46 15. Sasken Communication Technologies Ltd., (seg.) 354.12 13.44 16. Tata Elxsi (Seg.) 342.85 18.97 17. Thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n various issues. 5. Assessee has raised in all 18 grounds on 5 main issues for consideration. (1) Internal TNMM is to be considered before considering the external TNMM on the basis of comparative analysis. (2) Within the comparability analysis, it was the contention that 8 companies are not comparable and if they are excluded, assessee s arms length price is within the range. (3) assessee also contests that A.O. has not considered the comparable selected by assessee s 4 companies and want them to be included (4) assessee is contesting the incorrect working capital adjustment, and (5) that the TPO/AO made adjustments to the Non AE turnover also. Further contention that the adjustment so made are in excess of the profit of entire group and price received by AE, so the adjustment should be restricted to the total profits of the group is academic in nature so the same is not dealt with here. The above five contentions are considered in detail after hearing the Ld. Counsel and Ld. D.R. 1. INTERNAL TNMM ANALYSIS : 6. It was the contention that assessee has international transactions with its AE but also with third parties and there is evidence available with reference to inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally different. 2. Bodhtree Consulting Ltd., 19.14% 3. E-Zest Solutions Ltd., 28.95% 4. Infosys Technologies Ltd., 40.41% 5. Kals Information Systems Ltd., 30.92% 6. Tata Elxsi Ltd., (Seg.) 18.97% 7. Thirdware Solutions Ltd., 18.01% 8. Wipro Ltd., (Seg.) 28.38% 9.1. It was the submission that these companies are functionally different and the objections are summarily stated in the chart submitted. It was the submission by Ld. Counsel that these comparables were analysed by various Coordinate Benches particularly in the case of M/s. 3DPLM Software Solutions Ltd. vs. DCIT ITA.No.1303/Bang/2012, Agnity India Technologies P. Ltd., vs. DCIT ITA.No.6485/Del/2012, Nethawk Networks India P. Ltd., vs. ITO ITA.No.7633/M/2012 and IBM India P. Ltd., vs. JCIT ITA.No.1543/Bang/2012. 10. Ld. D.R. however, objecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of information collected under section 133(6) of the Act. Apart from placing reliance on the judicial decision cited above, including the assessee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dis-similar and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change during the year under consideration which fact has been demonstrated by the assessee, following the decisions of the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA.No.845/Bang/2011 dt.22.2.2013, and in the case of Triology E-Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011), we direct the A.O./TPO to omit this company from the list of comparables. 2. Bothtree consulting ltd. 21. On this comparable, case of the assessee is that the company is not a good comparable in view of the software products produced by the company. As such, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material on record. The details filed by the Id DR before us has been obtained by the TPO at Hyderabad and not by the TPO of the assessee in the present case. It is stated in the letter dated 5.2.2010 written by the Chartered Accountant of Bodhtree Consulting Ltd to the TPO Hyderabad that the company is providing data cleaning services to clients for whom it had developed the software application . 23. Considering the above, we are of the opinion that Bodhtree Consulting Limited is not engaged in the software development services and there is no segmental data comparable. Therefore, the FAR analysis goes against the TPO/AO. Accordingly, we dismiss the argument of the Ld DR in this regard. Ex consequenti the AO/TPO is directed to exclude the same from the list of final comparables for working out the arithmetic mean. 3. E-Zest Solutions Ltd. 14.4. We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparabales only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Triology E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software products and was not purely or mainly a software service provider. Apart from relying of the above cited decisions of co-ordinate benches of the Tribunal (supra), the assessee has also brought on record evidence from various portions of the company s Annual Report to establish that this company is functionally dissimilar and different form the assessee and that since the findings rendered in the decisions of the co-ordinate benches of the Tribunal for Assessment Year 2007-08 (cited supra) are applicable for this year i.e. Assessment Year 2008-09 also, this company ought to be excluded from the list of comparables. In this view of the matter, we hold that this company i.e. KALS Information Systems Ltd., is to be omitted form the list of comparable companies. It is ordered accordingly. 6. Tata Elexsi Ltd. 13.4.1. We have heard both parties and carefully peruse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. (supra) has directed that since the income of this company includes income from sale of licenses, it ought to be rejected as a comparable for software development services. In the case on hand, the assessee is rendering software development services. In this factual view of the matter and following the afore cited decision of the Pune Tribunal (supra), we direct that this company be omitted from the list of comparables for the period under consideration in the case on hand. 8. Wipro Ltd., 12.4.1. We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the segmental bifurcation of revenue from sale of product and software services. The TPO appears to have adopted this company as a comparable without demonstrating how the company satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working capital adjustment wherein assessee does not have any risk and is a captive services provider. Therefore, following the decision of Coordinate Bench in the case of Cordys Software India P. Ltd., in ITA.No.1972/H/2011 dated 15.03.2013 for A.Y. 2007-08, assessee requests for positive working capital adjustments. As far as the working capital adjustment is concerned, these are academic in nature and require to be analysed on the basis of assessee s work profile and comparable companies working results. No clear cut directions can be given in this as it requires examination of various documents. In fact, DRP itself has directed the TPO to re-workout the working capital adjustment after excluding certain comparable companies. We also directed the TPO to exclude certain comparables above. Consequently we direct the A.O./TPO to re-workout the working capital adjustment after giving due opportunity to assessee, keeping in mind the principles laid down on this issue. 14.1. With reference to objection of assessee that it is a captive service provider fully funded by A.E. Assessee also undertakes works for third parties. It was one of the objection that internal TNMM is available ..... X X X X Extracts X X X X X X X X Extracts X X X X
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