TMI Blog2020 (3) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri G Gurusamy, CIT ORDER PER B.R BASKARAN, ACCOUNTANT MEMBER : The appeal of the assessee is directed against the assessment order dated 26-09-2017 passed by the assessing officer for assessment year 2013-14 u/s 143(3) r.w.s. 144C(13) of the Act in pursuance of directions issued by Ld Dispute Resolution Panel (DRP). 2. All the grounds urged by the assessee relate to Transfer pricing adjustment made in respect of Software development services. Though the assessee has raised many grounds, yet the Ld A.R restricted her arguments at the time of hearing with regard to exclusion of two comparable companies, viz., Larsen Toubro Infotech Limited and Persistent Systems Ltd. Accordingly remaining grounds are dismissed as Not Pressed. 3. The assessee is engaged in the business of providing Software development services to its overseas affiliates. The turnover of the assessee company for the year under consideration was ₹ 13.46 crores. The assessee adopted Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI). The PLI declared by the assessee was 12.33%. 4. Amongst the comparables selected by TPO and confirmed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, ITA No.2122/Hyd/2017 for AY 2013-14, order dated 20.11.2017. Vide para 12 of the decision, the Tribunal took the view that Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefore the profit margin in the software development services segment could not be compared with the assessee s profit margin. As far as L T Infotech Ltd. is concerned, the Tribunal vide para 17 of the aforesaid order came to a similar conclusion to hold that L T Infotech should not be regarded as a comparable company. In the light of judicial precedents which remain uncontroverted, we are of the view that the aforesaid two comparable companies should be excluded from the list of comparable companies. 9. However in the case of M/s Advice America Software Development Centre P Ltd (supra), another co-ordinate bench has held that both M/s Larsen Toubro Infotech Ltd and M/s Persistent Systems Ltd are good comparable companies and the relevant observations made by the ITAT are extracted below:- 14. Larsen Toubro Infotech Ltd. As far as this company is concerned, this company also renders SWD services. In page-15 of the TPO s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee in this regard is not specific and is vague and is on an assumption that this company operates in three segments. The TPO has pointed out that there is only one segment and hence this objection in our view was rightly disregarded by the revenue authorities. 19. As far as the objections regarding presence of intangibles, it is seen from the order of the TPO that the intangibles are nothing but Operating systems, office tools, development tools, testing tools etc., that are used in the process of rendering SWD services by the Assessee and therefore cannot be the basis to hold that this company is functionally not comparable with the Assessee. As far as the objection regarding presence of brand value is concerned, it has been held by the TPO that there is no intangible in the form of brand owned by this company. The scale of operations of this company cannot be the basis to hold that this company is not comparable when functionally it is found to be comparable. 20. None of the objections raised by the Assessee meet the criteria for excluding this company in terms of comparability criteria laid down in Rule 10B(2) of the Rules. We therefore uphold the inclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile the turnover of the above said two comparable companies was ₹ 3609.32 crores and ₹ 996.75 crores respectively. 11. Though the Ld D.R contended that the turnover filter cannot be a criteria for exclusion of comparable companies, yet we notice that the co-ordinate benches of tribunal are consistently holding that turnover filter is a relevant criteria. In the case of Neilsen Sports India P Ltd (supra), the co-ordinate bench, by following the decisions rendered by other co-ordinate benches, has applied the turnover filter for examining the comparability of companies. The relevant observations made by the co-ordinate bench in the above said case are extracted below:- 7. Before us, the ld AR sought exclusion of 2 companies viz., M/s Infosys BPO Ltd., and TCS-EIT Serve Ltd., on the ground that the turnover of both these companies are more than 200 cores while the turnover of the assessee company was only 20.23 crores. By placing reliance rendered in the case of Northern Operating Services IT(TP)A No.101/Bang/2016, more particularly paragraph 18 of the order thereof, the ld AR submitted that high turnover companies cannot be compared with the low turnover comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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