TMI Blog2017 (12) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... lid comparable later on by the TPO/AO as TNMM requires only broad functional and product/services comparability. That is the raison detre of TNMM. That being the case we uphold the order of the AO in including CIL as a comparable. - ITA No. 1291/MUM/2017 - - - Dated:- 7-11-2017 - SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) For The Assessee : Mr. Paras Savla, AR For The Revenue : Mr. V. Jenardhanan, DR ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order dated 24.01.2017 passed by the Asst. Commissioner of Income Tax-15(2)(1)(hereinafter referred to as AO ) in pursuance to the direction of the Dispute Resolution Panel (DRP)-1, Mumbai u/s 144C (5) of the Income Tax Act 1961 (the Act ). 2. During the course of proceedings, the Ld. counsel of the assessee submits that he would argue only against the inclusion of Cybermate Infoteck Ltd. (hereinafter referred to as CIL ) by the AO. In view of the above submission of the Ld. counsel, we restrict our discussion to the case of CIL only. 3. Briefly stated, the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Cybermate Infotek Ltd. 56.97% 3. R S Software (India) Ltd. 15.21% 4. Virinchi Technologies Ltd. 12.98% 5. Ybrant Digital Ltd. (Formerly known as LGS Global Ltd.) 18.70% 6. Acropetal Technologies Ltd. (IT seg) 13.54% 7. Aspire Systems Ltd. 22.17% 8. Indium Software Ltd. 28.95% 9. Persistent Systems Ltd. 26.94% 10. Zylog Systems Ltd. 30.70% Mean 22.62% The operating margin of the assessee is 14.33%. The TPO thus made an adjustment of ₹ 7,09,24,015/- in respect of software development and localization services rendered by the assesseee. In the draft assessment order sent to the DRP, the AO made an addition of ₹ 7,09,24,015/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was selected by it. 4.2 The Ld. counsel relies on the decision in CIT v. PTC Software (I) (P.) Ltd. [2016] 75 taxmann.com 31 (Bom.); Rampgreen Solutions Pvt. Ltd. v. CIT [2015] 377 ITR 533 (Del.); Lionbridge Technologies (P.) Ltd. v. ITO [2015] 64 taxmann.com 461 (Mum.); CIT v. Tata Power Solar Systems Ltd. [2017] 77 taxmann.com 326 (Bom.). 4.3 The Ld. counsel submits that if CIL is excluded from the final set of companies selected as comparable by the TPO, then the average margin of the remaining 9 companies would be 19.90%. The margin of the assessee, according to the TPO, is 14.33%. Since the average margin of the companies falls within the range of 5% provided by the proviso to section 92C(2), there would be no adjustment to the income of the assessee. He files the relevant calculation is as under: Name of Comparable Margin CybermateInfotek Ltd. Excluded Aspire Systems Ltd. 22.17 Indium Software Ltd. 28.95 Persistent Systems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee. (p.24 of (P/B). We also find that CIL is engaged in the business of providing Custom Built Software development, product development and IT services to customers in domestic and overseas locations (p. 211 of the P/B). 6.1 Against the above background of the operations of the assessee and CIL, we discuss the decisions relied on by the Ld. counsel. While discussing we keep in mind the following observation of the Hon ble Supreme Court in Padmausundara Rao v. State of T.N. 255 ITR 147(SC): Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington vs. British Railways Board (1972) 2 WLR 537.Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. 6.1.1 In PTC Software (I) (P.) Ltd. (supra) it has been held that ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances in which revenue recognition can be postponed. Generally speaking, Revenue means gross inflow of cash, receivable and other considerations arising in the course of ordinary activities of an enterprise such as (i) the sale of goods, (ii) rendering the services, (iii) use of the enterprise resources by others yielding interest, dividend and royalties. Against the above back drop, we mention below the Revenue recognition which is a part of Significant Accounting Policies followed by the assessee and CIL. 6.2.1 Revenue recognition of the assessee has been mentioned in Note-15 (p.10 of the P/B), which reads as under: The Company derives its Revenues primarily from rendering Software development, Localisation and other related services. Income from services is recognised based on the contractual arrangement with the customer in the period in which such services are rendered. 6.2.2 The Revenue recognition of CIL reads as under: Revenue from the software development on time and material contracts is recognised based on the software developed and billed in accordance with the terms and specific contracts. Revenue from a fixed price contract is recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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