TMI Blog2017 (12) TMI 1683X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions Comparable for market support services - TSR Darashaw Ltd is primarily engaged in provision of share registry and related financial services and therefore, cannot be compared with the Assessee, a captive market support service provider. Global procurement consultants Ltd - perusing the functional profile of this comparable company, we are of the view that functions performed by this comparable company are comparable with the functions performed by the Assessee. Hence, we reject the argument of the Ld. Authorised Representative of the functional dissimilarity of this comparable. - ITA No1263 /Del/2015 - - - Dated:- 8-12-2017 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri SD Kapila And Adv Shri SS Maurya, Adv. For The Revenue : Shri Amrender Kumar, Sr. DR And Shri Kumar Pranav, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. The assessee is a company engaged in the business of designing of semi conductor products, software and electronic systems and providing sales and technical support services. It is providing services to its Associated Enterprise and is wholly owned su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Indicator (PLI) of operating profit to Operating cost and therefore, international transactions of software development was treated at arm‟s length. 4. In market support services the assessee selected 5 comparables whose average margin was 7.37% as against taxpayers margin of 6.14 % and therefore, the international transaction of market support services was stated to be a arm‟s length. 5. The ld Transfer Pricing Officer rejected the transfer pricing study report. For software development services he carried out fresh search applying different filters and accordingly selected a set of 16 comparables whose arithmetic mean of the margin was 25.94% Therefore, on the software development services of ₹ 2158119855/-, he proposed an adjustment of ₹ 297434495/-. 6. For marketing support services of ₹ 36872941/-- he used the 5 comparables their adjusted PLI of operating profit to operating cost was determined 21.65/- therefore, he made an addition of ₹ 5389308/--. 7. Therefore, he proposed an adjustment on account of software development services of ₹ 297434495/- and on marketing support services of ₹ 5389308/- making the total ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time of comparison done by the Appellant, data for financial year 2009-10 was not available within the public domain. 5. The Ld. AO/ Ld. TPO/Ld. DRP erred in not appreciating the fact that the Assessee is a company incorporated under the provisions of the Companies Act, 1956 and enjoying the tax holiday benefits conferred under the tax holiday benefits as per the Software Technology Park of India (herein after referred to as STPI ) Scheme. 6. On the facts and circumstances of the case, the Ld. AO has erred both in facts and in law in initiating penalty proceedings under section 271 (1 )(c) of the Act. 7. That the Ld. AO erred in facts and in law in charging and computing interest under section 234B and 234D of the Act. 9. At the time of hearing before us the Ld. authorised representative stated that assessee is contesting inclusion of Infinete data system, Infosys limited, E-infochips private limited in software development support system . He also contested that Sonata software limited does not cross the filter of 25% of Related Party transaction (RPT) adopted by the Ld. transfer pricing officer and therefore it should also be excluded. In marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and infrastructure management services. These services except infrastructure management services have also been referred to a technical support services in revenue recognition portion and has a software technical consultancy services in segment reporting portion of the annual report. According to the assessee all the services are in the nature of the software development services. The Ld. transfer pricing officer as well as the ld. DRP panel has rejected the objection of the assessee stating that this is functionally comparable with the assessee. Assessee neither design and develop a software but is providing a low end chip services where infrastructure and architect everything is provided by the group company. It does not have any research and development activities whereas in the case of the comparable company it provides that services to Fujitsu services Ltd and also maintains and design and develop a software. In view of this this comparable company cannot be said to be in the same functions as it is performed by the assessee. In view of this we direct the Ld. transfer pricing officer/AO to exclude the above comparable company as its functions are quite different with the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2010 11. We have carefully perused the balance sheet of the E info chips Bangalore Ltd provided to us at page No. 637 654 of the paper book wherein it was noted that at page No. 651 the earnings of the assessee was shown to be software development services and consultancy charges. In item No. 9 it is stated that the company is engaged in development and maintenance of computer software , production and sale of software. At page No. 652 while giving the segmental information, it was also maintained that the company is primarily engaged in software development and IT enabled services which is considered as the only one reportable segments and therefore there is no segmental information available with respect to the software development activities as well as IT enabled services. In view of this the above comparable is required to be excluded from the comparability analysis of the software development service segment of the assessee. Accordingly we direct the Ld. transfer pricing officer to exclude E info chips Bangalore Ltd. 16. The 3rd comparable is contested by the Ld. authorised representative is with respect to the Infosys limited which has already been excluded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables (i) TSR darswhwa Limited and (ii) Global procurement Consultants Limited. The assessee reiterated the same arguments which were raised before the Ld. transfer pricing officer and the Ld. dispute resolution panel about the functional dissimilarity of the above comparables with the functions performed by the assessee. However the Ld. lower authorities rejected the contention of the assessee. The same arguments were advanced before us by the Ld. authorised representative. 20. The marketing and sales support services rendered by the assessee are tabulated at page No. 24 of the transfer pricing documentation is study of the assessee. According to that services provided by an Indian entity in monitoring and analysing the Indian market, it collects information such information pertaining to market trends, key policy changes in the industry etc provided to the core group companies. It has its in nutshell the group companies in identifying customers and provides market related information. It acts as a coordinator between the group companies and the customers located in India with respect to the sales of the groups products and solutions in India. The employees of the assessee furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we direct the Ld. Transfer Pricing Officer/AO to exclude this comparable for being functionally dissimilar. 22. The next comparable contested is Global procurement consultants Ltd. The Ld. Transfer Pricing Officer has included this comparable and according to him this company acts as the clients' representative in taking on the total responsibility of procurement by providing a comprehensive range of procurement related advisory services and allied activities for projects in India and abroad. The main functions of the company are preparing and reviewing technical specifications, estimation of costs, selection of vendors, inspection and expediting, quality control and time management. The Ld. authorized representative has contested that this Company is engaged in business of shipping logistics, payment and accounting, know-how transfer (training) and bid support services which are not similar to services provided by the Assessee. It also renders financial advisory services. It was further contested that it has abnormal and volatile margins. The Assessee has submitted the balance sheet of the company, which is placed at page No. 1279-1323 of the paper book. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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