TMI Blog2018 (1) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... hanesh Bafna, AR For The Revenue : Shri J. Siri Kumar, DR ORDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by Assessee against the order of the Assessing Officer (AO) u/s. 143(3) r.w.s. 144C(1) of the Income Tax Act [Act]. The issues in this appeal are with reference to Transfer Pricing adjustments made by the Transfer Pricing Officer [TPO] as modified by the Dispute Resolution Panel [DRP]. 2. Brief facts of the case are that assessee is engaged in the business of developing software design, development and modification services related to semi-conductors and also provides marketing and technical support services which are generally categorized as software development services . During the year, assessee has p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able company 1 Acropetal Technologies Limited (Seg) 2 Akshay Software Technologies Ltd 3 CTIL Ltd 4 Evoke Technologies Pvt. Ltd 5 E-Zest Solutions Ltd 6 ICRA Techno Analytics Ltd 7 Igate Global Solutions Ltd 8 Kals Information Systems Ltd (Seg) 9 Larsen Toubro Infotech Ltd 10 Mindtree Ltd 11 Persistent Sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. The submissions of Ld. Counsel on the three comparables are as under: To be excluded: i. Persistent Systems Ltd: 6.1. The above company is engaged in product development which is different from software development services. The company is engaged in development of products. It earns revenue from licensing of products, royalty on sale of products as well as income from maintenance contracts. However, no segmental details are available. Ld. Counsel placed reliance on the following decisions where in this company was excluded as functionally not similar: i. Saxo India (P) Ltd. Vs. ACIT ITA No. 6148/Del/2015 (Pg. 16; para 15.1 15.2) affirmed by Hon'ble Delhi High Court in ITA No. 682/2016 (pg.4; para 10); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. Counsel for assessee submitted that firstly, the functional comparability of the company has not been doubted by the TPO or the Hon'ble DRP. The total revenue of the company has increased by 33% during the current year from 10.86 Crores to 14.48 Crores as against increase in total expenses from 9.03 Crores to 13.13 Crores. The increase in expenditure has to be seen vis- -vis its effect on the turnover, which is significant in the case of Evoke Technologies P. Ltd. Increase in expenses is a normal incidence of every business cycle. The annual report of the company nowhere indicates existence of any peculiar business circumstances. It was submitted that, unless the high/low margin is on account of abnormal/peculiar economic circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables could be indicative that the comparables selected are either materially dissimilar or the data used is not reliable . This exercise would fail, if a factor, which has a material bearing on the value of profitability, as the case may be depending on method used is ignore.' Applying this principle, it is noticed by us that after exclusion of the comparables, the margin of the above company is abnormally low at 8.11% as compared to all other comparables selected by the TPO. It is noticed by us from the Annual Report that even though the revenue has been increased by 33% as compared to last year, the expenses on consultancy charges debited are increased from ₹ 9,57,480/- to ₹ 1,07,17,363/- i.e. by 1.118%, which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no hesitation in excluding two companies, Persistent Systems Ltd., and Sasken Communication Technologies Ltd on functionality basis. As far as Evoke Technologies Pvt. Ltd., is concerned, this company was also argued to be included in the case of Electronic Arts Games (India) Private Ltd., Vs. Dy.CIT (supra). But the Bench did not accept on the reason that assessee has accepted the exclusion in a later year. However, as pointed out by the Ld. Counsel, this company is functionally similar to assessee-company and the annual report does not disclose any peculiar economic circumstances as stated by the DRP. Moreover, the said consultancy charges were shown under the head administrative expenditure and the increase in administrative expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
