TMI Blog2016 (10) TMI 1277X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Year: 2009-10) - - - Dated:- 19-10-2016 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For Assessee : Shri Dhanesh Bafna For Revenue : Shri T. Venkat Reddy, DR ORDER Smt. P. Madhavi Devi, Both are cross appeals for the A.Y 2009-10. ITA No.384/Hyd/2014 2. In this appeal, assessee has raised as many as 11 grounds of appeal and vide letter dated 21.01.2016, further additional grounds of appeal have been raised. At the time of hearing, the learned Counsel for the assessee has filed a chart before us, giving the details of the companies taken as comparable by the TPO and the companies which are being challenged by the assessee before us as not being comparable to the assessee. The chart gives the details of the companies challenged by the assessee and also the decisions on which it is placed reliance upon in support of its contentions. 3. The learned DR did not object to the correctness of the facts in the chart filed by the assessee and therefore, the same is taken on record and the decision is given on the basis of the said chart as well as the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies were selected as comparable by the assessee itself on the basis of the limited information available about these companies at the time of its T.P. study but, however, subsequently, it has come to the knowledge of the assessee that these companies are not comparable to the assessee on account of functional dissimilarities. It is submitted that these functional dissimilarities have come to the knowledge of the assessee subsequently by virtue of the decisions of the Coordinate Benches of this Tribunal in various similar cases. Therefore, he prayed for admission of additional grounds of appeal and for rejection of all these companies as comparables to the assessee. In support of his contention that though the assessee has considered these companies as comparable in its own TP study, it is eligible to challenge the comparability subsequently, he placed reliance upon the following decisions: (i) CIT vs. S. Neliappan (66 ITR 722 (S.C) (ii) CIT v. Kanpur Coal Syndicate (53 ITR 225 (S.C) (iii) Jute Corporation of India Ltd (187 ITR 688 (S.C) (iv) NTPC Ltd, Vs. CIT (229 ITR 383 (S.C) (v) Ashok Vardhan Birla vs. CWT (208 ITR 958 )(Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5 are concerned, the issues are more or less covered by decisions of the coordinate benches for the selfsame AY i.e. 2009-10. In case of M/s CISCO Systems (India) Pvt. Ltd. Vs. DCIT, IT(TP) No. 130/Bang/14 dated 14/08/14, the coordinate bench after examining in detail, excluded Bodhtree consulting Ltd., Infosys Ltd., Kals Information Systems and Tata Elxsi Ltd. (Seg.) The relevant observations of the ITAT, Bangalore Bench in respect to each of the aforesaid companies are reproduced hereunder for the sake of clarity: 26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee s notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld. counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to ubmit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the assessee is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee; (ii) (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r also remains identical to the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. 26.3 KALS Information Systems Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered as not comparable to a pure software development services company by the Bangalore Bench of the Tribunal in the case of M/s. Trilogy e-business Software India Pvt. Ltd. (supra). The following were the relevant observations of the Tribunal:- (d) KALS Information Systems Ltd. 46. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was ₹ 45,93,351. The same was less than 25% of the software services revenue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, it is not in dispute before us that in assessee s own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity only could be computed. The company has also in its response to the notice u/s.133(6) stated that it cannot be considered as com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P) No. 1303/Bang/2012, the ITAT Bangalore Bench held as under: We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details / information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly. Though, the aforesaid finding of the coordinate bench relates to the AY 2008-09, but, in our view, it will also equally apply to AY under consideration as facts are identical. Therefore, respectfully following the view expressed by the coordinate bench, we exclude this company as comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. 10.7 The ld. DR has not brought any material to our notice to demonstrate that the aforesaid finding of the coordinate bench will not be applicable to AY under consideration. Therefore, following the view expressed by the ITAT Bangalore Bench, we exclude this company from the list of comparables. 10.8 As far as I-Gate Global Solutions Ltd. is concerned, it is the contention of ld. AR that the company is having huge turnover of more than ₹ 900 crores, and is a relatively big company having presence in various countries and enjoys premium pricing. He has further submitted that the company owns various intangibles in its name and is having closing stock of raw materials which signify that it is into development of product. We have considered the submissions of the parties. On a perusal of the P L account of this company for the year ended March 2009, a copy of which is submitted by ld. AR, it is seen that the company has claimed expenses towards raw materials, stores and spares. Therefore, it needs to be examined in detail whether assessee s claim that the company is into product development is correct. As relevant informations required for coming to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, the cost relating to earning of such revenue has to be taken into account. It is the contention of the assessee that segmental details of cost is not available from the annual report. Since the entire annual report has not been placed before us, we are not in a position to give a conclusive finding in this regard. We, therefore, remit the issue relating to comparability of this company for fresh adjudication by the AO/TPO. However, we make it clear that unless segmental details of cost are available, it will be better to ignore this company . Respectfully following the decision of the Coordinate Bench, we direct the TPO/AO to exclude these companies from the final list of comparables. 10. As regards Ground No.10, it is the case of the assessee that though the assessee has raised objections before the DRP on these issues, the DRP has failed to adjudicate the same. He has drawn our attention to the objections raised before the DRP. The issue raised before us is the objection No.10 before the DRP and also in the ground of appeal No.2 to 3 in Annexure-1. We find that the DRP, has neither reproduced nor adjudicated these grounds of objections. In view of ..... 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