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TMI Blog2017 (9) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... r and more cost-effectively. Mentor Group offers innovative products and solutions that help engineers to overcome the design challenges they face in the increasingly complex world of board and chip design. It has the broadest industry portfolio of best-in-class products and is the only EDA Company with an embedded software solution. 59.83% of equity of Mentor India is held by Mentor Graphics Holding Ltd, Ireland a Mentor Group company and 40.17% is held by Mentor Corporation. 2.1 Mentor Graphics (Noida) Private Limited (hereinafter referred to as 'Mentor Noida') was a subsidiary of IKOS Systems Inc, USA which in turn is a subsidiary of Mentor Graphics Corporation. The unit is registered as a Software Technology Park unit in India. 2.2 Mentor India has software development facilities at Hyderabad and Noida. Both Hyderabad and Noida units of the company have been registered with the Software Technology Park of India (STPI). The assessee is engaged in rendering software development and quality analysis services to Mentor Graphics (Ireland) Limited (Mentor Ireland). It acts as a contract service provider that undertakes software development support and quality analysis servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the Transfer Pricing adjustment and other additions made by the Assessing Officer in the Draft assessment order. The Hon'ble Dispute Resolution Panel-Ill, New Delhi has directed the TPO to exclude Bodhtree Consulting Ltd from the final set of comparables thereby re-compute the arm's length adjustment of the assessee company. The final set of comparables, as determined by the Hon'ble DRP, is as under - Sl.No. Name of the company OP/OC% 1. AvaniCimcon Technologies Ltd. 50.28% 2. Datamatics Ltd. 7.27 3. E-Zest Solutions Pvt. Ltd. 36.12% 4. Flextronics Software Systems Ltd. 24.44% 5. Geometric Limtied 10.71% 6. Helios & Matheson information Technology limited 40.35% 7. Infosys Technologies Ltd. 40.30% 8. KALS Information Systems Limited 30.55% 9. LGS Global Limited (Lanco Global Systems Limited) 15.75% 10. Lucid Software Ltd. 18.60% 11. Mediasoft Solutions Pvt. LTD. 3.66% 12. MINDtREE Consulting Limited 16.90% 13. Quintegra Solutions Ltd. 12.56% 14. Revenue S Software (India) Ltd. 13.47% 15. SIP Technologies & Exports Ltd. 10.19% 16. Tata Elxsi Ltd. 26.51% 17. Thirdware Solutions Ltd. 25.12% 18. Wipro Limited 33.65% & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Rules. 5. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging KALS Information Systems Limited as comparable to the Appellant. 6. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Infosys Technologies Limited as comparable to the Appellant. 7. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Wipro Limited as comparable to the Appellant. 8. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Avani Cimcon Technologies Limited as comparable to the Appellant. 9. On the facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in violating the provisions of Rule 10B(2) by alleging Helios & Matheson Information Technology Limited as comparable to the Appellant. 10. On facts and in law, the Ld. TPO, the Ld. AO and the Hon'ble DRP erred in law and on facts in not allowing appropriate adjustments under 10B(l)(e)(iii) and Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that out of the total 18 comparables remaining after the Hon'ble DRP deleted one comparable, the assessee was challenging six comparables which were namely: Infosys, Kals Info Systems Limited (KALS), Tata Elxsi Limited and Wipro Limited. Ld AR also submitted that out of these six comparables, 3 comparables viz. Infosys, KALS and Tata Elxsi were covered in favour of the assessee in assessee's own case by the order of the ITAT in ITA No. 1565/Hyd/2010 for assessment year 2006-07 wherein the ITAT Delhi 'I-2' Bench had directed the exclusion of these three comparables from the final set of comparables. It was further submitted that this order of the Tribunal was confirmed by the Delhi High Court wherein the department's appeal was dismissed vide order dated 2.5.2017 in ITA 318/2017 in Principal Commissioner of Income Tax-VI, New Delhi vs Mentor Graphics India Pvt. Ltd. Ld. AR read out extensively from the order of the ITAT and vehemently argued that these three comparables ought to be excluded this year also as the facts in this year are identical to that in assessment year 2006-07. Ld. AR also submitted that if these three comparables are excluded, then the other three comparables be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company as claimed by the TPO. The Ld. AR has further submitted that Infosys Limited has a significant turnover of Rs. 9,028 crores which is approx. 125 times the assessee's turnover of INR 72 crores. It was further submitted that Infosys develops/owns proprietary products like Finacle which is not so in the case of the assessee company. It was further submitted that Infosys's brand value stood at Rs. 22,915 crores, while the assessee has no brand value in India. The Ld. AR has also submitted that Infosys has a significant Advertising/Sales promotion and brand building expenditure of INR 499 crores (i.e. 5.53% of revenue). On the other hand, the assessee does not undertake any AMP expenditure. 5.01.1 It is seen that the ITAT Delhi Bench in Agnity India Technologies P. Ltd. vs. ITO Ward 12(1) in ITA No. 3856/Del/2010 for AY 2006-07 ordered to exclude Infosys from the list of comparables by citing - "It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the letter is joined in the area of development of software and assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company to establish that it is engaged in providing of IT enabled Services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus, on this aspect, assessee succeeds." ITAT Bangalore Bench in Hewlett - Packard (India) Globalsoft P. Ltd. vs. DCIT in IT (TP) No. 1031/Bang/2011 followed the view of the Pune Bench as aforesaid and also excluded this company as a comparable. Taking strength from these judicial precedents and the fact that this company is not functionally comparable to the assessee company, we order exclusion of this company from the final set of comparables. 5.4 The department has not been able to demonstrate that there were factual differences between the assessment year 2006-07 and the year under appeal. Accordingly, we order that KALS be excluded from the final list of comparables. 5.5 Similarly, the observations of the ITAT while excluding Tata Elxsi Ltd. are in Para 5.04 and 5.04.1. The same are being reproduced as under for a ready reference:- "5.04 Tata Elxsi Limited ("Tata Elxsi") ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of the aforesaid company from the final list of comparables while determining ALP. 5.6 The department has not been able to demonstrate that there were factual differences between the assessment year 2006-07 and the year under appeal. Accordingly, we order that Tata Elxsi be excluded from the final list of comparables. 5.7 The only other issue remaining for adjudication is inclusion of communication charges in the gross turnover for the purpose of calculating the deduction u/s 10A. This issue is also covered in favour of the assessee by the order of the ITAT in assessee's own case for AY 2006-07 (supra). The relevant paragraph is reproduced here-in-under- "5.2 Ground Nos. 22.1 to 22.3 agitate the action of the Hon'ble DRP in not accepting the assessee's plea of inclusion of communication charges of Rs. 28,599,470/- in the gross turnover for the purpose of exemption u/s 10A. The assessee company has claimed the deduction u/s 10A in respect of the two units/undertakings viz. Mentor Hyderabad and Mentor Noida. Mentor Noida was merged with the company w.e.f 1st April, 2005 as per the scheme of merger approved by the Hon'ble High Court of Delhi and Hon'ble High Court of Andh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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