TMI Blog2016 (6) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... e declaring income of ₹ 2,18,690/-. The assessee had entered into following international transactions with its AE: - Provision of software development services : ₹ 37961871 - Reimbursement of expenses ₹ 3,09,403 3. Ld. TPO did not dispute the ALP of reimbursement of expenses. Ld. TPO analysed the transactions pertaining to software development services. There is no dispute between assessee and TPO on the method employed for bench marking viz. TNM method. Ld. TPO noted that assessee had applied following filters to identify the comparables. 1. Companies for which sufficient financial data is not available to undertake analysis were excluded 2. Companies that have foreign shareholding more than 26% were excluded. 3. Companies which have trading sales, mfg. sales and scrap sales more than 5% of total sales were excluded. 4. Companies that have net worth and net PBT less than 10% were excluded. 4. Assessee identified 19 comparables. The average profit margin of comparables was 11.48% on cost and the assessee s operating margin was 15% of operating cost and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Elxsi Ltd 20.04.2007 25 Thirdware Solutions Ltd. May, 2007 26 Wipro Ltd. 20.06.2007 5. Ld. CIT(A) rejected Megasoft Ltd. out of 26 comparables selected by ld. TPO. 6. Ld. counsel submitted that the assessee was incorporated in 1990 and is a part of international software development team of AVL group, participating in various development projects for premier clients of AVL world-wide. The assessee provides services to its AEs for developing softwares for various equipment / machine testing equipment (automobile industry) as per the specification prescribed by the contractor AEs. The software is used for the testing equipment, upon assembling of all required components, whether hardware or software, whether purchased or developed in-house by AEs. For each of the projects, for which a task is sub-contracted to the assessee, specifications and details are provided by the AEs, which defines the scope of work, execution plan, quantum of deliverables, time etc. The assessee, thus, works closely with its AEs to develop customized software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was incorporated in India in the year 2003 as a wholly owned@ subsidiary of Greenfield Online Inc., USA (Greenfield US), the ultimate parent entity of the Greenfield Group. The assessee is in the business of software development and providing related services to the Greenfield Group. Certain international transactions were reported in the requisite Form. The assessee is compensated on a time cost or fixed price basis for the projects assigned. Greenfield US is providing end to end information technology services which include the provision of consulting and systems integration services to managing IT and business functions on behalf of its customers. 13. Thus it is evident that the functions carried out by assessee are similar to that of Toluna India Pvt. Ltd. (supra) and, therefore, both are functionally comparable. 14. In the case of Avaya India (P) Ltd. (supra), the Tribunal in para 2 of its order has observed as under: The assessee, Avaya India Private Limited is a subsidiary in India of Avaya International LLC. During the financial year ( FY ) 2006-07, the assessee has provided software development and back office support services to the Associated Ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software for designs as per the specifications given by its AE and then testing and simulating the work done by it before handing over such software to its AEs. To put it simply, the assessee is simply engaged in providing software development services to its AE, which work ends before the approval of designs by the final customers for manufacturing at a later stage . 18. From the above it is evident that business profile of Lear Automotive India P. Ltd.( supra) is very similar to assessee. As a matter of fact assessee s functional profile is not that extensive as that of Lear Automotive India P. Ltd.( supra). 19. In the case of Element K. India Pvt. Ltd. the Tribunal in para 8 of its order, inter alia, has observed as under: 8. After hearing both the sides and having gone through the material placed on record, we hold that assessee is ab wholly owned subsidiary of Element K Corporation, USA. It provides content design and development support services for online courseware under a service agreement with its parent company. Assessee is remunerated on cost plus 15% markup for the services rendered. Thus, assessee is a low risk captive service provider. According to TPO al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scale up its operations during the year due to increased competition and our inability to open new centres. Efforts are on to overcome the limitations and current year is expected to be a growth year for Accel IT Academy. 26. Ld. counsel further pointed out that this company has a RPT of 19.29%, which is significant enough for Accel to be rejected on RPT filter. Further, he pointed out that this company fails software service revenue filter. In this regard he submitted that revenue from the software service is 27.60% of the total revenue which is much less than the 75% threshold. 27. In the case of Toluna India Pvt. Ltd. (supra), the Tribunal has rejected the assessee s contention for exclusion of this comparable. Further in other decisions, ld. counsel very fairly conceded that this comparable has been accepted since the tested party was also in the business of software development and providing related services to its AE. Ld. counsel, however, submitted that in the decision of Toluna India Pvt. Ltd. (supra), the application of filter of revenue from software services was not considered and, therefore, matter may be restored back to ld. TPO for verification. After hearing b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal has excluded this comparable from the list of comparables by observing as under: 23.1. The TPO noticed from the annual accounts of this company that it was engaged in the software development services and also qualified employee cost filter. The assessee objected to its inclusion by, inter alia, contending that the PLI of this company was incorrectly worked out by the TPO. Correcting this mistake in calculation part, the TPO held this company to be comparable and determined its revised PLI at 36.630/0. The DRP upheld the inclusion of this company in the list of comparables. 23.2. After considering the rival submissions and perusing the relevant material on record, we find from the annual accounts of this company that it is engaged in rendering ITES BPOservices, Application management services, Offshore delivery, Project management services, Public sector services, Maritime practice and Executive education information systems, etc. From the above narration of the nature of services rendered by this company, it can be seen that the same is not at all comparable to that of the assessee. It can further be noticed that the TPO has taken the figures of this compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udible. 27.2. After considering the rival submissions and perusing the relevant material on record, it is an admitted position that the TPO adopted Software development segment of this company by noticing that this segment also included revenues from software products and training. In view of the fact that the assessee is not engaged in imparting any training on commercial basis or selling its software products, we hold that the financials of this company under this segment cannot be compared with the assessee. The contribution by the sale of software products or training to the overall revenue of this segment cannot be precisely ascertained to determine the question of its comparability. As such, this case is directed to be excluded. The assessee succeeds . 36. Keeping in view the functional profile of Toluna India Pvt. Ltd. (supra) vis-a-vis the assessee, respectfully following the decision of coordinate Bench, this comparable is directed to be excluded from the list of comparables. Persistent Systems Ltd . 37. We find that in the case of Toluna India Pvt. Ltd. (supra), the Tribunal has excluded this comparable from the list of comparables by observing as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this company cannot be included in the list of comparables. Accordingly, this company is directed to be excluded. The assessee succeeds . 40. Keeping in view the functional profile of Toluna India Pvt. Ltd. (supra) vis-a-vis the assessee, respectfully following the decision of coordinate Bench, this comparable is directed to be excluded from the list of comparables. Wipro Limited : 41. We find that in the case of Toluna India Pvt. Ltd. (supra), the Tribunal has excluded this comparable from the list of comparables by observing as under: 41. After considering the rival submissions and perusing the relevant material on record, we have absolutely no doubt in our mind that this company cannot be considered as comparable to the assessee inasmuch as it is a giant company in terms of parameters discussed above while dealing with the case of Infosys Ltd. The Hon'ble Delhi High Court in the case of Agnity India Technologies Pvt. Ltd. (supra) has upheld the exclusion of this company also from the list of comparables on the basis of certain parameters, which are fully applicable to the instant assessee as well. It is, therefore, directed to exclude this company from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he list of comparables by observing that it qualified 25% employee cost filter and all other filters on the basis of information received u/s 133(6). The assessee objected to the inclusion of this company by contending that its related party transactions were more than 15% and employees cost was only 4%. The TPO rejected_ both the contentions by noticing that the employees cost was, in fact, more than 25% as was apparent from the information received u/s 133(6) and, further, the RPTs also did not exceed 25%. 26.2. Having heard both the sides and perused the relevant material on record, we find this company to be comparable to that of the assessee. The assessee's objection that employee cost of this company was 4% only, is not correct because of the exercise carried out by the TPO indicating that the employees cost was more than 25%). The Id. DR has taken us through the Annual accounts of this company which show that some part of the employees cost was also included In 'Administrative expenses' apart from direct Establishment expenses. It can be seen that the company has included Professional fees of ₹ 3.41 crore along with Director's salary, etc., under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbit of computer and computer software. He, accordingly, allowed depreciation @ 15% treating the same as plant and machinery. In appeal the ld. CIT(A) confirmed the action of AO. Aggrieved, the assessee is in appeal before us. 51. Having heard the submissions of both the sides, we find that the issue in question is squarely covered by the decision of Hon ble Jurisdictional Delhi High Court in the case of CIT Vs. Orient Ceramics Industries Ltd. (2011) 56 DTR 397, holding that UPS would form part of computer peripherals and accessories and, accordingly, depreciation is to be allowed at 60% rate. Respectfully following the decision of Hon ble Jurisdictional Delhi High Court, order of authorities below on the issue in question is set aside and the assessee s claim for depreciation @ 60% is directed to be allowed. ITA no. 279/Del/2013 (AY 2008-09) : 52. In AY 2008-09, under consideration, the assessee continued to carry on the same activity as bin AY 2007-08 and the functional profile remained the same. 53. Ld. counsel for the assessee referred to page 46 f the PB, wherein the TP study is contained in which assessee had selected 25 comparables. The average OP/TC was 9.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in the provision of software development and other related service to its group companies . 59. We have considered the submissions of both the parties. As regards Sun Life India Service Centre Pvt. Ltd. (supra), we find that Tribunal in para 3 has, inter alia, observed as under: Briefly stated, the facts of the case are that the assessee is an Indian company, a part of Sun Life Group, which has diversified financial services organization providing savings, retirement and pension products and life and health insurance in Canada, UK and Asia. This group also operates mutual funds and investment management business. The assessee provided software development and maintenance support services and also back office support services to its associated enterprises (AEs) for assistance in their projects. 60. The functional profile of this company, in our opinion, is though broadly in line with assessee, but the functional profile of Toluna India Pvt. Ltd. (supra) is more in conformity with the assesse s functional profile. Therefore, we are not inclined to deviate from the view which were have taken in AY 2007-08 and, therefore, we are not inclined to exclude this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral in nature. He submitted that before ld. CIT(A), no ground of appeal was taken regarding capacity utilization as is evident from ground no. 4.7. 67. Having heard both the parties, we find that assessee had taken specific objection on this count before ld. CIT(A) and, therefore, we restore this matter to the file of ld. CIT(A) to provide opportunity to assessee in regard to this comparable and specifically consider the adjustment claimed by assessee regarding capacity utilization so that the comparable is brought on the level playing field with the assessee. We order accordingly. Tata Elxsi Ltd. : 68. For the very same reasons as in AY 2007-08 we exclude this comparable from the list of comparables. Assessee succeeds. 69. No other argument was advanced on behalf of the assessee in regard to other comparables. 70. In view of above discussion, we set aside the impugned order and remit the matter back to the file of ld. TPO/ AO for fresh determination of ALP of the assessee s international transaction in terms of our observations. 71. In the result both the appeals are partly allowed. Order pronouncement in open court on 10/06/2016. - - TaxTMI - TMITa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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