TMI Blog2017 (11) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed by the assessee against the Assessment Order dated 29.12.2016 passed by ACIT, Circle-12(1), New Delhi u/s 143(3) read with Section 144C of Income Tax Act, 1961 in Assessment Year 2012-13. 2. Agilis Information Technologies International (I) Ltd. is established in India to undertake software development and installation of computerized systems, conduct feasibility studies, systems analysis and design as well as design of special software and system and application of software. It is also engaged in the business of rendering technical services related to tabulation, coding and software development. It is established to undertake and engaged in export of software, computer skilled manpower and other computer related activities to carry out development in the area of information technology, computer systems, software, application software, integrated tolls for computer systems and application development, data communication and network. During the year under consideration, the assessee entered into international transaction of ₹ 20,61,19,812 regarding rendering of services i.e. Software Development Services . The assessee used TNMM as the method and OP/TC as the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnologies Ltd. 14.58 7 Lucid Software Ltd. 11.10 8 Larsen Toubro Infotech Ltd. (Industrial Cluster) 27.16 9 Persistent Systems Ltd. 26.92 10 R S Software (India) Ltd. 15.43 11 Sankhya Infotech Ltd. 5.68 12 Mindtree Ltd. (IT Service Segment) 19.19 13 Spry Resources Pvt. Ltd. 33.59 14 Tata Elxsi Ltd. 14.32 15 Thirdware Solutions Ltd. (Overseas segment) 11.10 16 Zylog Systems 32.01 Average 21.65 The TPO made an adjustment of ₹ 2,61,31,755/- on account of the difference in the arm s length price of the international transaction of provision of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Pvt. Ltd. 33.59 33.59 14 Tata Elxsi Ltd. 14.32 15.17 15 Thirdware Solutions Ltd. (Overseas segment) 11.10 11.10 16 Zylog Systems 32.01 28.38 Average 21.65 20.48 Thus, the Assessing Officer vide order dated 29.12.2016 assessed total income at ₹ 3,55,88,710/-. The computation of income as per Assessing Officer is as follows: Total income as per Return of Income Rs.1,16,94,390 Add Addition on account of ALP Rs.2,38,94,318 Total Assessed income Rs.3,55,88,708 4. The Ld. AR submits that the assessee is praying for exclusion of following comparables:- (1) Acropetal Technologies Limited (2) Infosys Ltd. (3) Larsen Toubro Infotech Ltd. (4) Mindtree Limited (5) Persistent Systems Ltd. (6) Spry Resources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting Inc. The company acquired 100% stake in Line Beyond Inc. and 70% stake in Optech Consulting Inc. Further, the company also acquired two domestic companies, viz., Mind River Information Technologies Ltd. and Kinfotech Pvt. Ltd. Thus, the Ld. AR submits that it is an extra-ordinary event which the TPO has overlooked while selecting this as comparable. 4.2 The Ld. AR relied upon the decision of Hon ble Delhi High Court in case of Rampgreen Solutions Pvt. Ltd. vs. CIT (377 ITR 533), wherein there is a clear distinction between BPO and KPO companies and it was held that a company engaged in provision of KPO services cannot be regarded as an appropriate comparable for the purpose of benchmarking the international transaction of provision of BPO services. The Ld. AR further relied upon the decision of Hyderabad Bench of the Tribunal in the case of TNS India Pvt. Ltd. vs. DCIT (ITA No. 1875/Hyd/2012) wherein the Tribunal directed to exclude Acropetal Technologies Ltd. holding that the services provided by the company are in the nature of high end services coming within the category of knowledge process outsourcing (KPO) and the company cannot be compared with a low end service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage to this company, leading to higher profitability. As per the annual report, the company is engaged in the sale of software products. In assessee s case, the company is undertaking software development which is more of an event constituting a new stage in a changing situation, than a complete product. Therefore, Acropetal Technologies Limited is functionally different from the assessee company and should have been excluded by the TPO. Further, the segmental data was not available for the assessment year under question of this company. The company is engaged in two business segments, i.e., sale of products and sale of services but segmental profitability is not available in the audited financial statements. The assessee company cannot be compared with this company as segmental data is not available. Besides, this there was extra-ordinary events occurred during the year as the company acquired 100% stake in Line Beyond Inc. and 70% stake in Optech Consulting Inc. Further, the company also acquired two domestic companies, viz., Mind River Information Technologies Ltd. and Kinfotech Pvt. Ltd. Thus, as held by the Hon ble Delhi High Court this Tribunal in various decisions compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Del/2013) directed to exclude Infosys on account of being a giant company. Delhi Bench of the Tribunal in the case of AVL India Software Pvt. Ltd. vs. DCIT (ITA No, 6454/Del/2012) directed to exclude Infosys holding that the assessee providing services to its AE on a cost plus basis without having any intangible assets cannot be compared with a giant company like Infosys. The Ld. AR relied upon the following decisions, wherein, Infosys Technologies Ltd, was directed to be excluded holding that the company is a giant company having significant intangibles: i. Nokia Siemens Networks India Pvt Ltd vs. ACIT (ITA No. 5837/Del/2011) i. FIL India Business Services Pvt. Ltd. vs. DCIT (ITA No. 6867/Del/2014) iii. Sony Mobile Communications International AB (India Branch Office) vs. DDIT (ITA No. 769/Del/2014) iv. Headstrong Services (India) Pvt. Ltd vs. DCIT (ITA No. 714/Del/2015) v. Bentley Systems India Pvt. Ltd. vs, ACIT (ITA No. 6161/Del/2013) vi. Sun Life India Service Centre Pvt. Ltd. vs. DCIT (ITA No. 1489/Del/2014) vii. Avaya India (P) Ltd. vs. ACIT (ITA No. 5528/Del/2011) viii. Alcatel-Lucent Technologies vs. DCIT (ITA No, 2298/Del/2008) ix. DCIT vs. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availability of segmental data. The Ld. AR also relied upon the following decisions, wherein, Larsen Toubro was directed to be excluded on account of unavailability of segmental data: Pegasystems Worldwide India Pvt. Ltd vs. ACIT (ITA No. 1758/Hyd/2014) Cerner Healthcare Solutions P Ltd vs ITO (ITA No, 44/Bang/2015) Invensys Dvelopment Centre India Pvt, Ltd. vs DCIT (ITA No 383/Hyd/2014) M/s Broadcom India Research Pvt Ltd. vs, DCIT (ITA No, 62/Bang/2014) 4.9 The Ld. DR relied upon the orders of the TPO and DRP 4.10 We have heard both the parties and perused the material available on record. This company is engaged in two business segments, namely, software development services and software products. However, separate segmental data with respect to business segment is not available in the annual report of the company. From the audited financial statement and website, it is evident that the company is earning revenue from two business segments, viz., software development and software product. Therefore, this company should be excluded from the comparables. Thus, we direct the TPO to exclude this comparable. 4.11. Mindtree Limited: The Ld. AR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed a new product, namely, eMee, an employee engagement platform, targeted towards SME clients. Further, at page 49 of the annual report of the company it is stated that during the relevant previous year, the company has developed and launched two new products namely eMee and KLISMA. The Ld. AR relied on the decision of Delhi Bench of the Tribunal in the case of Cash Edge India (Pvt.) Ltd vs ITO (ITA No. 64/Del/2015), directed to exclude the company on account of functional dissimilarity. Appeal preferred by the Revenue was dismissed by the Hon ble Delhi High Court vide order dated 04.05.2016 (ITA No, 279/2016). Delhi Bench of the Tribunal in the case of Equant Solutions India Pvt, Ltd. vs. DCIT (ITA No. 1202/Del/2015), directed to exclude Persistent Systems Ltd holding that it is engaged in software product and segmental data is not available. The Ld. AR relied upon the following decisions, wherein, the Benches have specifically held that Persistent Systems Limited is engaged in product development and product design and analysis service is functionally different from a pure software service provider and therefore ought to be excluded: Saxo India Pvt. Ltd vs. ACIT (ITA No. 61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and sale of software products. At page 21 of the annual report, it is stated that products and solutions offered by the company are it s main differentiators vis-a- vis the competitors. The company invests heavily in development of new products and also owns IP rights with respect to various software products such as Field Power, Smart Migrator and Bank. Companion. Further, at page 26 37 of the annual report, it is stated that the company spends significant resources on the R D activity for the purpose of development of new products. Further, as on March 31, 2012, the company has capitalized a sum of ₹ 97.72 crore as product development cost under the head intangible assets. (Fixed asset schedule at page 73 of the annual report). The Ld. AR relied on the decisions of Delhi Bench of the Tribunal in the case of Equant Solutions India Pvt. Ltd. vs. DCIT (ITA No. 1202/Del/2015) (Now Known as Orange Business Services India Solutions (P) Ltd.), directed to exclude Zylog Systems Ltd. holding that the company holds intangibles, segmental data is not available and there was a merger during the year. Following the decision for assessment year 2010-11, Delhi Bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. At page 38 of the annual report, it is evident that the business operations of the company predominantly relates to software validation and verification services relating to banking and financial services industry. During the financial year 2011-12, the company earned 100 percent revenue amounting to ₹ 1,118,983,577 from provision of software services. The Ld. AR relied upon the decision of Pune Bench of the Tribunal in the case of TIBCO Software India Pvt. Ltd. vs. DCIT (ITA No. 2536/PN/2012), wherein, the Tribunal directed TPO to include Thinksoft Global Services Ltd holding that verification and validation services provided by the company is similar to software development services. 5.2 The Ld. DR relied upon the orders of the TPO and DRP. 5.3 We have heard both the parties and perused the records. The assessee company vide reply dated 23.12.2015 submitted a detailed submission substantiating that the company is functionally comparable to the assessee company. However, the TPO failed to adjudicate the aforesaid objection in the Transfer Pricing order. Therefore, we direct the TPO to adjudicate the objection of the assessee. The TPO, thereafter, should cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sasken Communication Technologies Ltd. 14.58% 8 Tata Elxsi Ltd. (Segmental) 15.17% 9 Thirdware Solution Ltd. (Overseas Segment) 11.10% 10 Thinksoft Global Services Ltd. 11.08% 11 Sonata Software Ltd. 5.66% Average 10.64% Appellant s Margin 7.93% 6.1 The Ld. DR relied upon the order of the TPO and DRP and submitted that the final comparables given by the TPO are the proper comparable. 7. We have heard both the parties and perused the material available on record. Ground No. 1 is general therefore, the same is not adjudicated. Ground No. 2, 2.1, 2.2, 2.3, 2.4 and 2.5 are relating to exclusion and inclusions of the comparables by the TPO. The reasons and directions for each comparables are given hereinabove paras. Hence, the matter is remanded back to Assessing Officer /TPO to decide as per the directions given i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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