TMI Blog2018 (1) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/PUN/2014 - - - Dated:- 25-1-2018 - Ms. Sushma chowla, Jm And Shri Anil Chaturvedi, AM Assessee by : Shri Dhanesh Bafna Revenue by : Dr. Vivek Aggarwal ORDER Sushma Chowla, JM These two cross appeals filed by the Revenue and the assessee are against the consolidated order of CIT(Appeals)-IT/TP, Pune, dated 30.01.2014 relating to assessment years 2008-09 2009-10 against respective orders passed under section 143(3) of the Income-tax Act, 1961 (in short the Act‟). 2. The two cross appeals filed by the Revenue and the assessee relating to assessment years 2008-09 and 2009-10 on similar issues were heard together and are being disposed of by this consolidated order for the sake of convenience. However, in order to adjudicate the issues, we make reference to the facts in ITA Nos.756/PUN/2014 and 761/PUN/2014. First, we take up the cross appeal filed by the Revenue and the assessee relating to assessment year 2008-09. 3. The Revenue in ITA No.756/PUN/2014 relating to assessment year 2008-09 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Learned Commissioner of Income tax (Appeals) er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies that are otherwise functionally comparable to the Appellant and by inclusion of companies that otherwise fail the test of comparability. (e) Ignoring the limited risk nature of the services provided by the Appellant as detailed in the TP documentation and in upholding the conclusion of the learned AO/learned TPO that no adjustment on account of risk differential is required while determining the Arm's Length Price of the international transactions of the Appellant. (f) That the learned AO erred in initiating the penalty proceeding and issued a notice under section 274 read with section 271(1)(c) of the income tax Act 4. The learned CIT (Appeals) erred in upholding the charging of interest under section 234B and 2340 of the Act. 5. The assessee has also raised additional ground of appeal which reads as under:- 5. The learned Commissioner of Income Tax (Appeals), Pune ( CIT(A)‟), the learned Deputy Commissioner of Income Tax Circle 1(1), Pune ( Assessing Officer‟ or AO') and learned Deputy Commissioner of Income Tax Transfer Pricing III, Pune ( Transfer Pricing Officer‟ or TPO‟) have erred in not providing working capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as (e-Zest) in the final set of comparables. The assessee is also aggrieved by non-inclusion of CG-VAK Software Exports Ltd. (hereinafter referred to as CG-VAK‟). On the other hand, the Revenue is in appeal against the order of CIT(A) in excluding KALS and including Akshay. 8. We proceed to take up the appeals of assessee and the Revenue after hearing both the learned Authorized Representatives, wherein the issue raised was only in respect of selection or rejection of comparables. 9. On perusal of record, we find that the assessee is a wholly owned subsidiary of Amberpoint Technology Mauritius Pvt. Ltd., which in turn, was held by Amberpoint. The unit of assessee is registered under the scheme of Software Technology Park of India (STPI) of Govt. of India. The assessee has expertise in software development, installation and implementation, system analysis and design, data processing and computer programming. The assessee undertakes development of functional specifications and requirement analysis for software modules as well as coding of the software for Amberpoint. During the year under consideration, the assessee had rendered software development service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l adjustment as per additional ground of appeal. 11. Now, we proceed to take the case of comparables whether the same are to be included or excluded from the final set of comparables. 12. Coming to the appeal of assessee, the first comparable which has been sought to be excluded from final list of comparables by the assessee is Helios. The assessee claims that the TPO had adopted turnover filter of ₹ 1 to 200 crores. However, the concern Helios had turnover of ₹ 213 crores and hence, the same was not to be included in the final list of comparables. The TPO had included the said concern to be comparable on the basis of cost of turnover. The learned Authorized Representative for the assessee in this regard pointed out that total turnover of assessee for the year under consideration was ₹ 5.47 crores. He further pointed out that the issue in the present appeal is squarely covered by the order of Tribunal in the case of MSC Software Corporation India (P.) Ltd. Vs. ACIT (2017) 80 taxmann.com 55 (Pune-Trib). 13. The learned Departmental Representative for the Revenue on the other hand, pointed out that the CIT(A) at page 19 vide para 2.7.5.2 has observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applied, then FCS do not fall within range. He stressed that where the assessee was pure software development concern and provided services to its associated enterprises, then the margins of assessee could not be compared with FCS, which admittedly, was engaged in IT consulting, application support, infrastructure, management services and e-learning digital consulting. He pointed out that IT consulting services of FCS were to the tune of 44% of total turnover and application support was to the tune of 11% and IT segment was to the tune of 45%. He further stressed that the perusal of financials of said concern would reflect that no segmental were available. Our attention was drawn to the pages 909 and 953 of the Paper Book in this regard. He further referred to the product description at page 954 of Paper Book. The learned Authorized Representative for the assessee pointed out that the Tribunal in TIBCO Software India (P.) Ltd. Vs. DCIT (2015) 56 taxmann.com 91 (Pune-Trib) rejected the said concern on the above said basis. 18. The learned Departmental Representative for the Revenue however, placed reliance on the observations of CIT(A) at pages 12 and 13 of the order, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions put-forth before the lower authorities by pointing out that the applications software segment of the said concern was into development and sale of software products, which is an activity distinct from providing software development services undertaken by the assessee. Our attention has been drawn to pages 1086 and 1087 and pages 1092 to 1096 of the Paper Book wherein are placed relevant extracts of the Annual Report of the said concern for financial year 2007-08 and the website extract respectively to support the pleas raised before the lower authorities. It has also been pointed out that the activities of said concern were considered by the Pune Bench of the Tribunal in the case of Bindview India P. Ltd. vide ITA No.1386/PN/2010 order dated 30.11.2011, wherein it has been held that the said concern was functionally different from a software development service provider. A reference has also been made to the decision of the Bangalore Bench of the Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. vide ITA No.1054/Bang/2011 order dated 23.11.2012, wherein also said concern was held to be not comparable to a software development service provider. 12. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the same is to be excluded from final list of comparables. 25. The Revenue is in appeal against exclusion of KALS which was also a product company. The reasoning as for exclusion of e-Zest is to be applied for KALS also. We further find that the Tribunal in MSC Software Corporation India (P.) Ltd. Vs. ACIT (supra) in para 21 at page 13 had also excluded KALS on similar basis. Accordingly, we find no merit in the stand of Revenue in this regard and hold that KALS not to be excluded from the final list of comparables. 26. The next concern which the Revenue is aggrieved upon is the inclusion of Akshay. The learned Authorized Representative for the assessee in this regard fairly pointed out that the issue is against the assessee and Akshay has to be included in the final set of comparables. In this regard, he again placed reliance on the order of Tribunal in MSC Software Corporation (P.) Ltd. Vs. ACIT (supra) at page 14, para 23, which reads as under:- 23. Now, coming to the second argument of the assessee i.e. exclusion of concerns which were selected by the assessee in its TP analysis. The first concern is Akshay Software Technologies Ltd., which as per the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cchi Textiles (2017) 77 taxmann.com 137 (Bom). 29. The learned Departmental Representative for the Revenue here pointed out that inclusion of CG-VAK has been raised by way of additional ground of appeal and there is no finding of CIT(A) in this regard. He further referred to the order of TPO at page 23, wherein the conclusion was that financial data was not available and also on the ground that it was a loss making concern. 30. We find no merit in the plea of Revenue in this regard. The reason for exclusion of CG-VAK was that the operating margin for the year under consideration was that the concern was showing loss. In the financial year 2005-06, the operating margin i.e. OP/OC was 2.54%, in financial year 2006-07 it was 5.69% and in financial year 2007-08, it was (-) 1.97%. The concern which has been thus, claimed to be persistent loss making by the TPO has only suffered losses in a particular year. Where the concern is not consistent loss making concern, then the same is not to be excluded from list of comparables, is the ratio laid down by the Hon‟ble Bombay High Court in CIT Vs. Welspun Zucchi Textiles Ltd. (supra). The Tribunal in TIBCO Software India Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment was allowed to the assessee. However, it was denied during the year. He fairly agreed that the issue may be sent back to the file of Assessing Officer and the actual may be computed. We find merit in the plea of assessee in this regard, where similar issue of working capital adjustment has been allowed in the hands of assessee and there is no finding of TPO why the same is being denied during the year under consideration. However, in order to compute the said economic adjustment, we remit this issue back to the file of Assessing Officer, who shall afford reasonable opportunity of hearing to the assessee and allow the working capital adjustment as per law. In final analysis, the grounds of appeal No.3a and 3d are allowed and the additional ground of appeal raised by the assessee is allowed. The grounds of appeal No.1 and 2 are general in nature and the balance grounds of appeal have not been pressed by the assessee and hence, the same are dismissed. 34. Now, coming to the appeal in assessment year 2009-10, wherein the learned Authorized Representative for the assessee has only stressed for working of correct margins of concern Goldstone Technologies Ltd. He pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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