TMI Blog2015 (10) TMI 2716X X X X Extracts X X X X X X X X Extracts X X X X ..... R SHRI ABRAHAM P GEORGE, AM: In this appeal filed by the assessee directed against an assessment done on it u/s 143(3) r.w.s 144C of the IT Act, 1961( The Act ) it has altogether taken nine grounds of which grounds 1,2,3 9 are general in nature needing no specific adjudication. 2. The learned counsel for the assessee at the outset submitted that he was pressing only ground nos.4.4, 4.5 and 4.6 out of the grounds raised on the Transfer Pricing issues accordingly, we dismiss ground nos.4.1,4.2,4.3 4.7 as not pressed. Ground nos.4.4 4.5 are concerned with selection of comparables taken by the lower authorities for bench marking the pricing of the international transactions undertaken by the assessee with its Associated Enterprises (AE) during the relevant previous year. Ground no.4.6 is on the benefit of +/-5% as stipulated u/s 92C(2) of the IT Act. These grounds 4.4 to 4.6 are taken up together for disposal. 3. Facts apropos are that the assessee a wholly owned subsidiary of M/s LightSurf Technologies India Pvt.Ltd., USA had filed its return for the impugned assessment year on 29-11-2006 declaring an income of ₹ 11,61,159/-. Since assessee had international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,27,611/- Rs.7,93,371/- Operating Profit to Cost Ratio 10.70% 10.37% 6. International transactions with AE reported by the assessee in its audit report were as under; Contract software design development services Rs.30,34,90,270/- Provision of marketing support services ₹ 84,41,472/- Purchase of fixed assets ₹ 18,05,200/- Recharge of expenses Rs. 2,32,879/- Interest paid/payable on loan from AE ₹ 82,230/- 7. The TPO found adjustment necessary only with regard to the contract software design and development services segment. Therefore, the issues in this appeal are also confined to this particular segment. 8. Assessee had selected TNM method in its TP study to justify its profit level and had used prowess and capital data base for selecting 44 comparables. It worked out a mean operating margin of 11% for such comparables without making any adjustment for working cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R S Software (Ind.) Ltd 91.57 15.69 13 SIP Technologies Exports Ltd 6.53 3.06 14 Bodhtree Consulting Ltd 5.32 15.99 15 Accel Transmatics Ltd (Seg.) 8.02 44.07 16 Synfosys Business Solutions Ltd 4.49 10.61 17 Flextronics Software Systems Ltd 595.12 27.24 18 Lanco Global Solutions Ltd 35.63 5.27 19 Megasoft Ltd 56.15 52.74 20 iGate Global Solutions Ltd (Seg.) 527.91 15.61 Average PLI 20.68% He effected the margin of working capital adjustment of 2.24% on the mean PLI and arrived at adjusting the arithmetic mean P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred back to the AO/TPO for verification fresh. 12. After considering the averments of the counsels with regard to admission of additional grounds, we find force in the contention of the learned AR that by virtue of Special Bench decision in the case of M/s Quark Systems Pvt. Ltd (Supra), assessee can raise additional grounds seeking exclusion of comparables selected by it or not objected by it before the lower authorities. However, the Hon ble Pubjab Haryana High Court in (2011) 62 DTR 0182 had upheld the Special Bench decision in the case of M/s Quark Systems Pvt.Ltd., ( Supra) specifically noting that the Special Bench had remitted the issue of comparability of such companies to the AO/TPO for verification afresh. Hence, we are admitting the additional grounds. However, the comparability of the companies assailed in such additional grounds will be dealt by us, considering the judgment of the Hon ble Punjab Haryana High Court judgment in the case of CIT Vs M/s Quark Systems India (P) Ltd., (2011) 62 DTR 0182. 13. Learned counsel for the assessee submitted before us a chart which according to him, summarize the exclusions which were sought by the assessee from the list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able at 6.4 to 6.5 of the same decision. M/s Accel Transmatics Ltd(Supra) was also found functionally not comparable to a software development services provider in the very same para. M/s Flextronics Software System Ltd (Supra) was directed to excluded applying the turnover filter at para-6.2 of the same ruling. M/s Megasoft Ltd(Supra) was directed to be excluded applying the RPT filter of 15% at para-6.3 of the very same decision. M/s iGate Global Solutions Ltd(Supra) was directed to be excluded by application of turnover filter again at para- 6.2 of the same order. These paras 6.2, 6.3, 6.4 6.5 are reproduced hereunder; 6.2 This Tribunal, in the case of Genesis Integrating Systems (India) P Ltd. vs. DCIT reported in (2012) 20 Taxmann.com 715(Bang.) has held that turnover is a reasonable filter to be adopted and has also prescribed the slabs of ₹ 1 to 200 crores, ₹ 200 to 500 Crores and ₹ 500 and above for the purpose of adopting this filter. Respectfully following the above decision, we direct the TPO to exclude these companies from the final list of comparables. 6.3 Further, the assessee is also seeking application of RPT of more than 15%. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Pvt. Ltd., (ITA No.1274/Bang/2010), and iv. Huawei Technologies India Pvt. Ltd.,(ITA No.1338/Bang/ 2010). In all these cases, the Tribunal had considered the functional dissimilarity of these companies with software development companies like the assessee and has held as under for exclusion of these companies . 15. We also find that 15% as the threshold limit for applying RPT filter was laid down by the Co-ordinate Bench decision in the case of 24/7 Customer.com Pvt.Ltd Vs DCIT(2013) 140ITD 344. Similarly, Co-ordinate Bench in the case of M/s Genesis Integrating System (Ind.) Pvt.Ltd., Vs DCIT (2011) 64 DTR 0225 had directed exclusion of companies, applying the turnover filter of 1 to 200 Crores. 16. However, out of the very many companies which prima facie have to be excluded on account of the decision of the Co-ordinate Benches in the case of M/s ThoughtWorks Tech.(Ind.) Pvt. Ltd (Supra), 24x7 Customer.com. Pvt. Ltd.,(Supra) and M/s Genesys Integrating System India Pvt.Ltd.,(Supra), we find that M/s Aztec Software Ltd., M/s Accel Tansmatics Ltd.(Seg.) M/s Megasoft Ltd were part of assessee s own transfer pricing study. Further, vis- -vis M/s Geometric Softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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