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TMI Blog2016 (7) TMI 1573X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO to exclude 15 comparables and include one comparable i.e. Synetarios Technologies Ltd. based on functionality. The DRP further directed to adopt margin of Acropetal Technologies Ltd at 21.30% as against 39.06%. The average margin of comparables after DRP's direction stood at 24.09% and the Transfer pricing adjustment came down to Rs. 1,84,22,714/- and the final set of DRP comparables are as under:- S. No. Name of the company OP/TC 1. Accel Transmatic Ltd (Segment) 18.33% 2. LGS Global Ltd. 18.05% 3. Mindtree Ltd (Seg) 5.52% 4. Persistent Systems Ltd. 38.12% 5. R.S. Software (India) Ltd. 10.09% 6. Thirdware Solutions Ltd 37.32% 7. KALS Information Systems Ltd 41.91% 8. Acropetal Technologies Ltd(Seg) 21.30% 9. Synetarios Technologies Ltd 26.17% Arithmetic Mean 24.09% 3. The Ld. Counsel for the assessee submits before us that the comparables listed at 4, 6 & 7 viz., Persistent Systems Ltd., Thirdware Solutions Ltd and KALS Information Systems Ltd should be excluded the same said companies were excluded and have not considered them as comparables in many decisions. The Ld. Counsel for the assessee submitted the following as to why t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available in the financial statements. Further, no bifurcation is available as to whether the revenue from exports pertains to software services, products or licenses. The operations of the company comprise of software development, implementation and support services. The DRP Panel has excluded one comparables namely -Aditya Birla Minaces IT Services Labs Ltd, as it was not only engaged in development of products but also earn license fees on sale of products. Further, the Revenue is not into appeal. Therefore, on the same lines, Thirdware which is also into development of products and sale of licenses, cannot be accepted as a comparable. 5. The Ld. Counsel for the assessee submits that for very same Assessment Year in the following decisions Thirdware Solutions Ltd has been rejected on the reason that this company has revenues from software services, sale of licences and is also into product development and has inadequate segmental details. 1. Planet Online (P.) Ltd. (supra) 2. Approva Systems (P.) Ltd. v. CIT [2015] 54 taxmann.com 81 (Pune - Trib.) III. Kals Information Systems Ltd The company primarily derives its revenues from software services and software products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 are concerned and in respect of KALS Information Systems, he submits that this company is a product company therefore should be excluded. 8. We have heard the rival contentions, perused the orders of the authorities below and the decisions relied on. The only dispute before us is the exclusion of comparables in Sl. Nos. 4, 6 & 7. The assessee submits that the comparables referred to in Sl. No. 4,6 & 7 have to be excluded for the reason that either there are no segmental information available or there are revenues from software products, software services and also running training centers of professionals etc. Therefore, it was the contention that these companies are functionally dissimilar as that of the assessee company, therefore they should be rejected as comparables. 9. In the case of Intoto Software India (P.) Ltd. (supra) it was held as under:- "Having heard both the parties and having gone through the material on record, we find that the TPO at page-37 of his order has brought out the differences between the product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), it was held as under:- "79. In this regard, it is seen that the audited financials of KALS for AY 2010-11 are at APB 271 - 298. At APB 291, is Schedule no. 14, i.e., "Notes to the Financial Statements". In para-1 thereof it is stated as follows: 80. This clearly shows that KALS is into development of software and software products. 81. The segmental information of KALS is available at APB-293, as follows: 82. From the above, it is evident that segmental information of KALS regarding its software development segment is not available. Therefore, comparison of the assessee, who is into software development only, with the software development segment of KALS is not possible. Therefore, finding the functionality of KALS incomparable with the assessee, we reject this company as a comparable. We hold that the DRP has erred in confirming the TPO's action including KALS as a comparable" 12. In the case of NXP Semi-Conductors India (P.) Ltd. (supra), it was held as under:- '"9. KALS Information Systems Ltd. 9.1 . . . . . . . . . . . . . . . . . . . . . . 9.2 . . . . . . . . . . . . . . . . . . . . . . 9.3 . . . . . . . . . . . . . . . . . . . . . . 9.4.1 We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO. We also find that in the decision referred to the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of the Assessee that this company is not comparable." Following the aforesaid decision of the Tribunal, we hold that KALS Information Systems Ltd. should not be regarded as a comparable." 9.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of Cisco Systems Services BE, India Branch (supra) for Assessment Year 2009-10, we direct the Assessing Officer/TPO to omit this company from the final set of comparables as it is functionally different from the assessee in the case on hand, who is purely a software service provider.' 13. In the case of Planet Online (P.) Ltd. (supra). '10. We have considered . . . . . . . . . . . . . . . . . . . . . . . 10.1 As far as comparables at SI. Nos. 1 to 5 are concerned, the issues are more or less covered by decisions of the coordinate benches for the self-same AY i.e. 2009-10. In of M/s CISCO systems (India) Pvt. Ltd. v. DClT, IT (TP) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . . . . . . . . . . . . . . . . . 10.2 ITAT, Hyderabad Bench following the aforesaid decision of the ITAT, Bangalore Bench also excluded these four companies in case of M/s. Kenexa Technologies Pvt. Ltd. v. DCIT in ITA No. 243/Hyd/2014 dt. 14/11/2014. Respectfully following the decisions of the ITAT, we direct AO/TPO to exclude these four companies.' 14. In the case of Approva Systems (P.) Ltd. (supra), it was held as under:- "18. So far as the grounds raised by the revenue are concerned, we find the same relates to exclusion of Kals Information System Ltd. from the list of comparable companies by the Ld. CIT (A). 19. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT (A) and the paper book filed on behalf of the assessee. We find the Pune Bench of the Tribunal in the case of Bindview India (P.) Ltd. (supra) for A.Y. 2006-07 has held that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. Similarly, the Pune Bench of the tribunal in the case of Bitwise Solutions (P.) Ltd. v. Asstt. CIT [2014] 66 SOT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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