TMI Blog2015 (9) TMI 1669X X X X Extracts X X X X X X X X Extracts X X X X ..... udevan ORDER Amit Shukla, The aforesaid appeal has been filed by the assessee against final assessment order passed in pursuance of direction given by Dispute Resolution Panel (DRP) u/s 144C(5) for the assessment year 2009-10. The assessee is mainly aggrieved by Transfer Pricing Adjustment of ₹ 2,59,53,826/- in respect of international transaction with the Associated Enterprise (AE) on software development services on the ground of inclusion of certain comparable companies by the TPO to benchmark the profit margin of the assessee on such transactions. 2. The assessee company is a subsidiary of Somero Enterprises Inc Mauritius, which in turn is a subsidiary of Dassault Systems France which is premier global software developer and product like Cycle Management Solutions. It is the holding company of Delmia Corporation, USA. The assessee was established as 100% export oriented Unit registered under STPI. It is mainly engaged in the provision of software developer and other related services primary to its group companies. The international transactions reported in the Audit Report in Form 3CEB by the assessee during the year were as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.08% 10 S I P Technologies Exports Ltd. -9.78% 11 Thirdware Solutions Ltd. 21.43% 12 VMF Soft Tech Ltd. 0.20% 13 Zylog Systems Ltd. 17.64% Mean 9.80% 4. However, the TPO, rejected most of the assessee s comparable and finally selected following comparables with arithmetic mean of 24.32% by taking the data for financial year 2008-09 :- No. Name of Company Unadjusted average margins FY 2008-09 1 KALS Information Systems Limited 13.89% 2 Akshay Software Technologies Ltd. 8.11% 3 Bodhtree Consulting Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, DRP gave direction to give adjustment for working capital. After giving effect to the DRPs direction, the computation of Arm s length Price was determined in the following manner :- Description Amount (INR) Arm s length Mean Margin 24.32% Price charged in international transactions 34,32,61,561 Operating Cost 29,77,30,334 Operating Profit on Costs 4,55,31,227 Arm s Length Margin based on DRP directions 24.01% Revised Arm s Length Price 36,92,15,387 Transfer Pricing Adjustment as per directions 2,58,53,826 6. Before us, the Ld. Counsel submitted that most of the comparables are either not objected to or have been accepted by the assessee. Out of the 13 Final Comparables, the assessee is only challenging six comparables before us, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is functionally dissimilar to software development services company like assessee. In a recent decision, the Tribunal in the case of Cisco Systems (India) Private Limited vs DCIT (I.T. No. 130/Bang/2014 IT(TP) A No. 271/Bang/2014)(AY 2009-10 has held that this company is engaged not only in the business of software products but also engaged in providing open and end to end Web Solution , consultancy and design development of software . Further there is a wide fluctuation of margin which indicates volatile trend in its profits earning. Further in the case of Willis processing and services, ITAT, Mumbai Bench and Air Bus India Operations P Ltd IT No. 35/Bang/2014, Bangalore Bench have held that this company is to be rejected as functionally not comparable with companies engaged in purely software development services. 7.1 Ld. DR on the other hand, submitted that, once in earlier two years, this company has been found to be comparable in assessee s own case, which has been upheld by the Tribunal in AYs 2007-08 2008-09, then, such a comparable should not be rejected. 7.2 After considering the rival submissions and on perusal of the Tribunal order for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment software development services relates to design services and are not similar to software development services performed by the assessee. The Hon ble Mumbai Tribunal in the case of Telecordia Technologies India Pvt Ltd v ACIT (ITA No. 7821/Mum/2011) has held that Tata Elxsi Ltd. is not a software development service provider and therefore it is not functionally comparable. In this context the relevant portion of this order is extracted and reproduced below :- That Elxsi is engaged in development of niche product and development services which is entirely different from the assessee company. We agree with the contention of the learned Authorised Representative that the nature of product developed and services provided by this company are different from the assessee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that Sasken develops and owns several patents and earns huge returns on the same, whereas the assessee does not develop any products nor owns any patent. Sasken is also involved in huge R D activities which is absent in the case of the assessee. Thus on various counts, this company cannot held to be functionally comparable. On the other hand, Ld. DR strongly relied upon the order of the TPO as well as DRP. 10.1 After considering the rival submissions and on perusal of the relevant material on record, we find that on FAR analysis, Sasken cannot be held to be comparable, firstly, its sales turnover is more than ₹ 405 crores as compared to the assessee s turnover of only ₹ 34 crores. Such a huge variation in turnover itself goes to show that there is a huge difference in FAR analysis not only in the assets deployed but also a risk assumed. Further the Sasken have several patented products and carries out huge R D activity, which has huge impact on the overall profit margins and accordingly, it cannot be held that the margin of the Sasken can be held to be comparable to the assessee; and lastly, in AY 2007-08 this company has been held not to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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