TMI Blog2018 (1) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... n upholding the action of the Ld. Assessing Officer (Ld. AO)/ Ld. Transfer Pricing Officer (Ld. TPO) in making an adjustment to the extent of ₹ 1,09.45,524 to the international transaction of provision of software development services by the Appellant to its Associated Enterprise ('AE'). 2. In doing so, the Ld. CIT(A)/Ld. AO/Ld. TPO erred in: 2.1. rejecting the transfer pricing ('TP') documentation which was maintained in good faith and with due diligence; 2.2. rejecting the search process followed by the Appellant in the TP documentation and carrying out a fresh comparability analysis for determining the arm's length price; 2.3. using the data available at the time of assessment proceedings instead of those available as on the date of preparing the TP documentation; 2.4. rejecting multiple year data and relying on contemporaneous information which was not available at the time of preparation of TP documentation; 2.5. including companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile; 2.6. not considering companies similar to the Appellant in functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a chart showing the companies which are remaining after giving effect to the order of the CIT (A) and the companies which are challenged by the assessee and the grounds on which they are challenged along with the list of the decisions on which the assessee is relying upon for their exclusion. 6. The learned DR, on the other hand, relied upon the orders of the authorities below. 7. Having regard to the rival contentions, the appeal is disposed of on the basis of the material available in the paper books and those documents which are specifically referred to by the assessee and the Revenue. 8. The first company challenged by the assessee is M/s. Megasoft Ltd. According to the assessee, the said company is functionally different as it is into software development and also product development. The learned Counsel for the assessee fairly conceded that in all the decisions relied upon by him, the said company has been retained as a comparable but a direction was given to the AO/TPO to consider only the segmental results of software development. He prayed that similar direction may be given in the case of the assessee as well. 9. We have gone through the decisions relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of multi-function kiosks Queue management system, ticket vending system. ( ii) Ushus Technologies - offshore development centre for embedded software, network system, imaging technologies, outsourced product development. ( iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO ( iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 7.8.1. On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with Assessee that the company was functionally different from Assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. It directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin. A similar view was taken in the following cases : ( a) M/s. Conexant System India P. Ltd. ITA. No. 1978/Hyd/2011. ( b) Intoto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO/TPO in taking this company as a comparable. Assessee s objections to this company are therefore, rejected. 16. As regards Celestial Labs Ltd is concerned, the contention of the assessee is that this company is engaged in R D activities and is therefore, functionally different. He placed reliance upon the following decisions in support of his contention: i) Hewlett-Packard (India) Globalsoft P Ltd v. DCIT (ITA 1031/Bang/2011) ii) SAP Labs India P Ltd (IT(TP)A No.1006/Bang/2011) iii) Triology E Business Software India P Ltd vs. DCIT (ITA No.10545/Bang/2011) iv) Tevapharm P Ltd vs. DCIT (ITA No.6623/Mum/2011). 17. We find that in the case of SAP Labs India Private Ltd (cited Supra), the Coordinate Bench of the Tribunal has considered the issue at length at at Para 8 and has reproduced the decision of the Coordinate Bench of the Tribunal in the case of First Advantage Offshore Services (P) Ltd v. Dy.CIT (IT(TP) No.1086/Bang/2011) for the A.Y 2007-08 wherein the decision with regard to Celestial Lab is given as under: ( c) Celestial Labs Ltd. 42. As far as this company is concerned, the stand of the assessee is that it is absolutely a research ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ECI-l CHANDIGARI-l (a very reputed CSIR organization) to manufacture and market initially two Enzymes, Alpha Amylase and Alkaline Protease in India and overseas. The company is planning to set up a biotechnology facility to manufacture industrial enzymes. This facility would also include the research laboratories for carrying out further R D activities to develop new candidates' drug molecules and license them to Interested Pharma and Bio Companies across the GLOBE. The proposed Facility will be set up in Genome Valley at Hyderabad in Andhra Pradesh' According to the learned D.R. celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the Assessee, the discovery is in relation to a software discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bioinformatics tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not clear as to whether any segmental data was given or not. Besides the above there is no other detail in the TPO's order as to the nature of software development services performed by the Assessee. Celestial labs had come out with a public issue of shares and in that connection issued Draft Red Herring Prospectus (DRHP) in which the business of this company was explained as to clinical research. The TPO wanted to know as to whether the primary business of this company is software development services as indicated in the annual report for FY 06- 07 or clinical research and manufacture of bio products and other products as stated in the DRHP. There is no reference to any reply by Celestial labs to the above clarification of the TPO. The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07. We are of the view that in the light of the submissions made by the Assessee and the fact that this company was basically/admittedly in clinical resea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its order, the Tribunal has discussed the functional dissimilarity with Assessee therein and has directed that the company should be excluded from the list of comparables. Similarly, the Tribunal at Bangalore in the case of M/s.HCL EAI Services Ltd. v. DCITIT (TP) A. No. 13481Bang12011 at para 17 at pages 24 to 26 of its order has discussed at length the reasons for not considering the said company as comparable to software development services company. The relevant portion of the order is reproduced hereunder: (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of 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 ITAT in the case of Bindview India Pvt. Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Systems Ltd. applies to the facts of the case before us also. Similar view has been expressed by the Coordinate Bench of the Tribunal in the following cases: ( a) M/s. Conexant System India P. Ltd. ITA. No. 1 978/Hyd120 11. ( b) Into to Software India P. Ltd. ITA. 2102/H12010 ( c) Bearing Point Business ITA. No. 1124/Bang/2011 ( d) LG Soft India P. Ltd. ITA. 1121/Bang/2011 ( e) Transwitch India P. Ltd. ITA. 948/Bang12011 ( f) CSR India P. Ltd. ITA. No. 1119/Bang12011 ( g) First Advantage ITA. No. 1086/Bang/2012 Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude the company from the list of comparables . 21. Respectfully following the same, the AO is directed to exclude this company from the list of comparables. 22. As regards Lucid Software Ltd is concerned, it is the case of the assessee that this company is also engaged in the development of software products and sale thereof. The learned Counsel for the assessee has drawn our attention to the P L A/c for the year ended on 31.3.2006 and 31.3.2007 to demonstrate that the product develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f comparables. 4.4 Respectfully following the aforesaid decision of the coordinate bench in case of Intoto Software (supra), we direct the AO/TPO to exclude the aforesaid company from the list of comparables while determining the ALP . 23. Since the facts and circumstances are similar and are for the very same A.Y, respectfully following the decision of the Coordinate Bench, we direct that this company is excluded from the final list of comparables. 24. As regards Wipro Ltd, the assessee is seeking its exclusion not only on the functional difference, but also on the ground of incomparable scale of operations and segmental data not being available. The learned Counsel for the assessee placed reliance upon the following decisions in support of his contention: i) Agnity India Technologies Pvt Ltd (TS 180 High Court 2013 Del T.P, High Court Delhi) ii) Conexant Systems India P Ltd (ITA No.1429/Hyd/2010 ITA No.1978/Hyd/2011) iii) DE Shaw India Software P Ltd (ITA No.2071/Hyd/2011 iv) Vortisa (India) Pvt Ltd (ITA No.1962/Hyd/2011 v) NTT Data India Enterprises Application Services P Ltd in ITA No.2190/Hyd/2011 vi) ADP Pvt. Ltd in ITA No.1711/Hyd/2011. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on premium resulting into higher profitability, therefore, cannot be compared with the assessee company at all. There are several judgments of ITAT which have been referred in para 6.5 above, that Wipro cannot be taken as comparable case for comparable case with the company like assessee. In view of these facts and the reasoning given in the case of Infosys, we hold that Wipro also cannot be considered as a comparability analysis, hence, would not be included in the list of the comparable entities as identified by the TPO. 7.4. As can be seen from the facts and materials on record during the year under consideration, the segmental turnover of the Wipro Ltd. Is 9616.09 crores. Therefore, considering the turnover, brand value as well as other dynamics of Wipro Ltd., it comes in the same category as Infosys and certainly cannot be compared with the assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. we hold that Wipro Ltd. cannot be treated as comparable with the assessee . 26. Respectfully following the same, we direct the AO to exclude this company also from the final list of comparables. 27. Except seeking the exclusion of the above compar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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