TMI Blog2016 (1) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... rs dated 11.0-4.2012 and 12.07.2002 respectively. 3. Assessee during the impugned year had international transactions (IE) to an extent of ₹ 22,55,66,318 in its software development and support services to its parent company (AE) in USA. It had an operating profit margin of 12.86% on cost. For the purpose of transfer pricing documentation it had considered 36 comparable cases and selected most appropriate method the TNMM . It arrived at operating margin of 12.06% based on 3 years data. The matter was referred to TPO for determining the ALP in respect of IE. TPO conducted fresh analysis and using only current year s data selected 20 comparables wherein arithmetic mean operating profit margin was arrived at 20.67% on cost. Allowing working capital adjustment of 1.55% he determined the ALP at 19.12% and consequent ALP at 119.12% on operating cost. The TPO vide order dated 30.10.2009 determined the value of IE at ₹ 23,80,70,631 as against the price shown by assessee at ₹ 22,56,66,318, thereby, enhancing by an amount of ₹ 1,25,04,313. Assessee prepared objections before DRP which were rejected on the T.P. issues. On the consequential order passed by A.O, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof without providing any opportunity for the Appellant and the DRP failed to deal with ground 7 read with Annexure 7 thereto Sl.No. Name of the Company 1. iGate Global Solutions Ltd., 2. R Systems International Ltd., 3. SIP Technologies and Exports Ltd., 4. Synfosys Business Solutions Ltd., 5. Megasoft Ltd., 6. Lanco Global Solutions Ltd., Additional Grounds 1. The learned TPO has erred in selecting certain comparables in the order u/s 92CA, without considering that the scale of operations of the companies vis-a-vis the turnover of the Appellant (viz. INR 22.55 Crores) for FY 2005-06. Accordingly, the following companies cannot be compared to the Appellant on application of turnover filter of INR 200 Crores. Sl. No. Name of the Company Turnover (In Crs.) Margin as per TPO 1. iGate Global So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Bodhtree Consulting Ltd., 15.99 15. Accel Transmatics Ltd., (seg.) 44.07 16. Synfosys Business Solutions Ltd., 17.70 17. Flextronics Software Systems Ltd., 27.24 18. iGate Global Solutions Ltd., (seg.) 15.61 19. Megasoft Ltd., 52.74 20. Lanco Global Solutions Ltd., 5.27 Arithmetic mean PLI 20.67% Less: Working Capital Adjustment 1.55% 19.12% 6. Assessee in the grounds object to in ground 2- (a) to (d) the following comparables : 1. Kals Info Systems Ltd., 2. Tata Elxsi Ltd., (seg.) 3. Infosys Ltd., 4. Accel Transmatics Ltd., (seg.) 5. Megasoft Ltd., 6.1. The above companies were considered by the Coordinate Bench in detail and same objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparability of the aforesaid company to a purely software development service provider has held as under: In so far Kals Info Systems Ltd., and Accel Transmatics Ltd., chosen by the TPO as comparables, this Tribunal in the case of Trilogy EBusiness Software India Pvt. Ltd. (supra) has taken a view that these companies are not comparable to the software service provider companies as they are functionally different. The following are the relevant observations of the Tribunal in this regard:- 46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was ₹ 45, 93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the. Pune Bench Tribunal's decision of the ITA T in the case of Bind view India Private Limited Vs. DC/, ITA No. ITA No 1386/PN/10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of DRP as extracted by the ITAT in its order are as follows: In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel lT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/8PO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development 4.3 On careful perusal of the business activities of Acce/Transmatic Ltd. DRP agreed with the assessee that the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACC EL animation services for 2D and 3D animation and therefore assessee's claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, if at all this company is to be treated as comparable, the TPO may be directed to consider the profit margin of software development services segment alone which is 16.97%, In respect of such contention, the learned AR relied upon the following decisions: 1. Trilogy E Business Software India Pvt. Ltd. (ITA No.1054/Bang/2011) 2. LG Soft India P. Ltd. (TS-64-ITAT-2013(Bang.-TP) 3. Bearing Point Business Consulting Pvt. Ltd. (ITA No.1124/Bang/2011) 4. Intoto Software India Pvt. Ltd. (ITA.1196/H/2010) 5. Transwhich India P. Ltd., vs. DCIT (ITA.No.948/Bang/2011). 6. Mercedez Benz Research Development India Pvt. Ltd., (ITA.No. 1222/Bang/2011). 7. Huawei Technologies India Pvt. Ltd. Vs. ITO (ITA No.1338/Bang/2010). ii. The learned DR, on the other hand, submitted that the TPO having correctly considered the profit margin of the company by examining the annual report there is no need to modify the order of the TPO in this regard. iii. We have heard the parties and perused the materials on record. On a consideration of the contentions raised by the assessee vis- -vis materials on record as well as decisions of different benches of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified activities and also engaged in development of products consultancy and solution. That apart, the size, reputation and brand value of Infosys, in no way makes it comparable to a small captive service provider like assessee. Therefore, following consistent view of different benches of Tribunal, we exclude this company from the list of comparables. IV. Tata Elxsi Ltd. (Seg.) i. Objecting to the aforesaid company being treated as comparable, the learned AR submitted that the said company shall be rejected as comparable since it is a specialized embedded software development company. Further, he submitted that as per the information obtained from the said company u/s 133(6) of the Act, it was stated that due to the complex segments in which they are operating, it is not comparable to any other software services company. The AR relied on the following precedents in support of his submissions : 1. Conexant Systems India Pt. Ltd., (ITA No. 1429/Hyd/2010 and 1978/Hyd/2011) 2. Telcordia Technologies India P. Ld., (ITA No. 7821/Mum/2011) 3. Logica Pvt. Ltd. (IT(TP)A No. 1129/Bang/2011) 4. Huawei Technologies India Pvt. Ltd. Vs. ITO (ITA No. 1338/Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in additional ground, we have already considered Infosys Ltd., (list-2 in ground) and rejected on various other reasons as well. With reference to the other five companies, two companies viz., Persistent Systems Ltd., and Sasken Communication Ltd., (seg.) has turnover of just above ₹ 200 crores (less than 10 times) and the three companies viz., iGate Global Solutions Ltd., (seg.) Mindtree Consulting Ltd., and Flextronics Software Systems Ltd., has above ₹ 500 crores (just more than 20 times). This scale of turnover cannot be considered extraordinary so as to exclude them on turnover basis. We also notice that assessee has not raised any objection to lower turnover companies like Lucid Software Ltd., (1.02cr sales turnover), Mediasoft Solutions P. Ltd., (1.76cr) which are in the same scale/range on lower side, as assessee turnover being 22.55 crores. Considering this, we are of the opinion that the balance 5 companies cannot be rejected only on turnover basis which was raised as an additional ground before us, without having any objections earlier. This ground is accordingly rejected. 8. The A.O./TPO is directed to modify the order accordingly. 9. In the result, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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