TMI Blog2019 (5) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... shable from the assessee company. We, therefore, order to exclude this company from the list of comparables. Companies providing on-site services cannot be considered as comparable. Direction of the DRP to include certain companies which were initially not included by the assessee in its list of comparables because the relevant financial data was not available - As in CIT Vs. Reuters India Pvt. Ltd. [ 2016 (5) TMI 796 - BOMBAY HIGH COURT] has held that there can be no estoppel in pointing out the correct facts before the appellate authorities particularly when all facts are on record. No reason to interfere with the direction given by the DRP on this count in so far as the objection of the Revenue is concerned. The ld. DRP has simply directed to examine the comparability of these companies and did not, at the threshold, throw the assessee out simply on the reasoning that the relevant information was filed in respect of these companies only during the course of proceedings before the TPO. In view of the foregoing discussion, we are satisfied that the direction given by the DRP cannot be interfered. Infosys Technologies Ltd. cannot be treated as comparable with the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss appeals one by the assessee and the other by the Revenue - are directed against the final assessment order dated 26-02-2015 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C (13) of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2010-11. 2. There is a delay of one day in the filing of the appeal by the Revenue. The ld. AR did not object to the condonation of the delay. Resultantly, the delay in condoned and the appeal is admitted for disposal. 3. The ld. AR did not press ground no. 1 concerning deduction u/s 10A and ground no. 4 regarding the treatment of foreign exchange loss/ gain. These grounds are, therefore, dismissed as not pressed. 4. The first effective issue raised in the assessee s appeal is against the addition on account of transfer pricing addition amounting to ₹ 6,37,64,290/- made in respect of international transaction of Provision of Software Development Services by the assessee to its Associated Enterprise (AE). 5. Briefly stated, the facts of the case are that the assessee, an Indian company, is engaged in providing Software Develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to various Business units of Deere Company; Designing new business solutions by using existing and new technologies; Development and enhancement; Maintenance; and Product support. The overall functions performed by the assessee and Deere Company in rendering software development services have been summed up at pages 3 and 4 of the TPO s order. The conceptualization and design of the software is done by the Deere Company. The assessee has a very limited role in overall designing of the software. Functional specifications and requirement analysis of the software is also done by Deere Company, which is then communicated to the assessee and the assessee s role in this function is also very limited. Thereafter, starts the role of the assessee with Development of codes and documentation; Testing and Quality Control. When the Software Developed by the assessee is passed over to Deere Company, the same is integrated by the Deere Company into the big overall Software developed by the latter. The assessee entered into Services agreement with Deere Company on 26.5.2005, which is valid for the year under consideration as well. This Agreement provides that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een given in Schedule No.10 showing `Income from Software Development Export ₹ 2,16,92,935/-; `Translation and Interpretation ₹ 10,84,248/-; and `Training receipts ₹ 2,67,971/- Under the head Operating Expenses , an item of ₹ 11,00,000/- has been shown with narration of Software Consumption from Inventory . Balance sheet of this company shows `Inventories at ₹ 60,47,977/-. The above information clearly deciphers that Kals Information Technology Systems Ltd. is not only engaged in providing Software Development Services but is also dealing in Software products under the relevant segment. As the assessee is not engaged in the business of Software products but is rendering only Software services on captive basis, in our considered opinion, this company cannot be considered as comparable. The Hon ble jurisdictional High Court in CIT vs. PTC Software (I) Pvt. Ltd. (2017) 395 ITR 0176 (Bom) has held that a Software product company cannot be compared with a company providing software services. As Kals Information Technology Systems Ltd. was engaged in selling of software products which was different from activity undertaken by assessee in that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices which made it functionally different. The TPO observed that on-site development expenses were less than 50% of total expenses and hence, it was not a significant factor. He, therefore, proceeded to include it in the list of comparables. The DRP directed the TPO to take only the IT service segment of this company as comparable. The assessee is aggrieved by this direction of the DRP incorporated in the final assessment order. 12. Having heard both the sides and gone through the relevant material on record, we find that the Annual report of this company is available at page 353 onwards of the paper book. Information regarding segmental reporting has been given at pages 376 and 377 of the paper book. There are only three segments, namely, (a) Engineering Design Services, (b) Information Technology Services and (c) Health care. Pursuant to the direction of the DRP, the TPO has included only Information Technology Services segment in the final set of comparables. Directors report of this company records that the company is uniquely placed with readymade Software products to cater to the needs of Hospitals and Healthcare Centres both in India and abroad especially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier order passed by the Pune bench of the Tribunal in the case of TIBCO Software (India) Pvt. Ltd. Vs. DCIT (2015) 58 taxmann.com 215 (Pune-Tribunal) in which a company rendering on-site services has been held to be non-comparable with company rendering in-house services. Incidentally, Akshay Software and Zylog Systems Ltd. were part of the companies considered by the Pune Bench in the aforenoted order which were held to be not comparable. Respectfully following the precedent and adopting our reasoning given above while dealing with Acropetal Technologies Ltd., we overturn the impugned order on this score and direct that such companies providing on-site services cannot be considered as comparable. The departmental ground is allowed. 15. Vide Ground No.2, the Revenue has objected to the direction of the DRP to include certain companies which were initially not included by the assessee in its list of comparables because the relevant financial data was not available. However, during the course of proceedings before the TPO, the assessee could lay its hands on the data and came up with contention to include them in the list of comparables, which was not acceded to by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable company chosen by the assessee, albeit later, as comparable. The underlying object of the entire exercise is to determine the correct arm s length price of an international transaction. Simply because a company was wrongly not considered by the assessee as comparable, cannot, act as a deterrent for claiming that this company is, in fact, comparable and be considered for evaluation. The Special Bench of the Tribunal in DCIT vs. Quark Systems Pvt. Ltd. (2010) 132 TTJ (Chd) (SB) 1 has held that a company which was wrongly included by the assessee and also by the TPO in the list of comparables at the time of computing ALP, can be excluded by the Tribunal, if the assessee proves that the same was wrongly included. Similar view has been later on taken by the Hon ble Bombay High Court in CIT Vs. Tata Power Solar Systems Ltd. (2017) 298 CTR 0197 (Bom) holding that a party is not barred in law from withdrawing from its list of comparables, a company included on account of mistake. This ratio also applies in the reverse direction, that is, where the assessee wrongly excluded a good comparable from the list of comparables and then pleads for its inclusion in the final list o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment of software, which also makes it distinguishable from Infosys. The Hon ble Delhi High Court in CIT vs. Agnity India Technologies (P) Ltd. (2013) 219 Taxmann 26 (Del) considered the giantness of Infosys Ltd., in terms of risk profile, nature of services, number of employees, ownership of branded products and brand related profits, etc. in comparison with such factors not prevailing in the case of Agnity India Technologies Pvt. Ltd., being, a captive unit providing software development services without having any IP rights in the work done by it. After making comparison of various factors as enumerated above, the Hon ble Delhi High Court held Infosys to be not comparable with Agnity India Technologies Pvt. Ltd. The facts of the instant case are more or less similar inasmuch as the extant assessee is also a service provider with a limited number of employees at its disposal and also not owning any branded products with no expenditure on R D etc. When we consider all the above factors in a holistic manner, there remains absolutely no doubt that Infosys Technologies Ltd. is incomparable to the assessee company. Respectfully following the judgment of the Hon ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example, `Rent paid by an assessee cannot be bifurcated on the basis of sales or revenue from different segments, such as, Manufacturing, Trading and services. The extent of area used by each business segment varies as per the nature of transaction, which may have no relation with the gross revenue. For example, a manufacturing unit will need relatively more space than a trading unit. Similarly, a service unit will need still lesser space. In such a scenario, apportioning common Rent expenditure on the basis of sales or gross revenue from such varied divisions, will give skewed results of segment profitability. Similarly, contribution of various segments to other items of expenses varies depending upon the nature of transaction, extent of capital employed and labour required etc. etc. So all common expenses cannot be apportioned in the universal ratio of sales or gross revenue from different segments, each having its own separate features and characteristics. One can logically make allocation depending upon the nature of expenses and appropriate allocation key. As the assessee is not aggrieved by the otherwise inclusion of such companies on the ground of allocation of unallocated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee in contending before the authorities that a particular company or companies may be considered as comparable. It is then for the authorities to examine the comparability and decide as to whether these are comparable or not. We, therefore, reject the view point taken by the Department in Ground no.2 of its appeal. 28. Ground no.5, in so far as it is relevant for this segment, is against the direction of the ld. DRP to allocate common unallocated expenses to the relevant segment in proportion of segmental turnover to total turnover. We have discussed this aspect while dealing with Software development services segment of the assessee. The same view is followed here also. BUSINESS SUPPORT SERVICES SEGMENT : 29. The assessee reported, inter alia, the international transaction of Provision of Business Support Services to Deere Company with transacted value of ₹ 8,81,33,662/-. The TNM method was applied for exhibiting that this transaction was at ALP. The TPO considered 7 companies, including Asian Business Exhibition and Conference Ltd., as comparable, which have been listed at page 47 of his order. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees record keeping, healthcare transactions. 31. With the above understanding of the nature of the transaction undertaken by the assessee under this segment, we now proceed to examine as to whether the DRP was justified in directing to exclude Asian Business Exhibition and Conference etc. which was included by the TPO in the list of comparables. We have gone through the Annual report of the company which is available at page 503 onwards of the paper book. In the Directors report, it has been mentioned that the main area of operations of the company is organizing Exhibitions and Conferences . Profit and Loss account of this company has been placed at page 514 of the paper book, which shows Direct Income of ₹ 53,18,30,655/-. Bifurcation of the income has been given in Schedule 12 which reveals that the Revenue from Exhibitions and Events is ₹ 50,94,41,029/-; `Delegate Fee is ₹ 7,000/-; `Sponsorship/Promotional Charges are ₹ 88,67,639/-; `Miscellaneous Receipts are ₹ 7,57,747/- and `Entry Charges are ₹ 1,27,57,240/-. It is obvious from the bifurcation of the `Direct Income that the entire income pertains to Exhibiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of tax at source. The AO held that the amount paid by the assessee was chargeable to tax in the hands of the recipients as Royalty. He, therefore, disallowed the said amount u/s.40(a)(i)/(ia) of the Act because the assessee failed to deduct tax at source on such payments. The DRP did not interfere with the order passed by the AO. 35. We have heard both the sides and gone through the relevant material on record. The ld. AR, at the very outset, submitted that the assessee made payments pursuant to certain agreements, some of which were filed by him as additional evidence. He further stated that similar issue came to be considered by the Tribunal in assessee s own case for the A.Yrs. 2007-08 and 2008-09 in which the matter was decided in favour of the assessee. The ld. AR submitted that he would be satisfied if the impugned order is set aside and the matter is restored to the file of AO for deciding this issue afresh in the light of the additional evidence filed by the assessee. The ld. DR did not raise any objection to the restoration of the issue. 36. In view of the rival but common submissions, we set-aside the impugned order on the question of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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