TMI Blog2016 (7) TMI 1573X X X X Extracts X X X X X X X X Extracts X X X X ..... s engaged in providing software development services and related services to its AE. The assessee used TNMM to Bench mark the international transactions and arrived at margin of 14.5%. The TPO rejected the search methodology adopted by the assessee and proceeded with fresh study on comparables and selected final set of 23 comparables and arrived at arithmetic mean of 29.77% of these comparables and it resulted in TP adjustment of ₹ 2,93,92,757/-. The DRP directed 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 ₹ 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 Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oto Software India (P.) Ltd. - ITA No. 233/2014 (AP HC), Persistent Systems Ltd., was rejected as comparable on account of the fact that no segmental information is available. The Ld. Counsel for the assessee further submits that Persistent Systems Ltd., has been rejected on the reason that this company has revenues from software services as well as products and no segmental details are available and therefore was not considered as comparables in the following decisions: 1. Lionbridge Technologies (P.) Ltd. v. ITO - ITA No. 668/M/2014 - A.Y. 2010-11 dt. 18-11-2015 2. NXP Semi Conductors India (P.) Ltd. v. Dy. CIT - ITA No. 1634/Bang/14-A.Y. 2009-10 dt. 22-7-2015 3. Planet Online (P.) Ltd. v. Asstt. CIT [2015] 56 taxmann.com 202 (Hyd. - Trib.) II. Thirdware Solutions Ltd. Revenue from operations includes income from software services, sale of licenses, subscription fees and exports from tax holiday units. Though segmental details of revenues from software development services are available, no bifurcation of expenditure is available in the financial statements. Further, no bifurcation is available as to whether the revenue from exports pertains to software services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (supra) 6. Approva Systems (P.) Ltd. (supra) Therefore the Ld. Counsel for the assessee strongly submits that these comparables in Sl. Nos. 4, 6 7 should be excluded. 7. The Ld. Departmental Representative submits that in so far as Persistent Systems Ltd., and Thirdware Solutions Ltd., are concerned, the assessee has not raised any objection before the lower authorities and these companies were accepted as comparables by the assessee. The Ld. Departmental Representative submitted that assessee has not even raised an additional ground before the Tribunal contending that these comparables should be excluded. In so far as KALS Information Systems Ltd is concerned, the Ld. Departmental Representative submits that the DRP has considered the objections of the assessee in para 9.5 of its order and has rightly rejected the objections of the assessee and the assessee has not uprooted/dislodged the findings of the DRP in respect of this comparable. In reply, the Ld. Counsel for the assessee submits that additional ground has been filed in so far as Item No. 4 6 are concerned and in respect of KALS Information Systems, he submits that this company is a product company therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of software professionals. The said company offers variety of software products in the area of web solutions, e-commerce, software consultants, content management ERP applications etc. It's functional profile is quite different from the assessee company, which is purely providing software services in the field of 3D animation. Thus, it cannot be held to be a comparable company for the purpose of bench marking the assessee's margin or caring out any comparability analysis. The ITAT Pune Bench in the case of PTC Software (India) (P.) Ltd. (supra), has held that the Kals, which is engaged in the sale of software products cannot be held to be a comparable case with the companies providing software services. Similarly, in view of series of other decisions of the Tribunal as noted by the DRP, Kals cannot be held to be comparable company for bench marking with the companies providing software services. Thus, the order of the DRP as noted above is upheld. Accordingly, the ground raised by the Revenue is dismissed. 11. In the case of Lionbridge Technologies (P.) Ltd. (supra), it was held as under:- 79. In this regard, it is seen that the audited financials of KALS for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Private Limited v. DCI, ITA No. 1386/PN/10 wherein KALS as comparable was rejected for AY 2006-07 on account of it being functionally different from software companies. The relevant extract are as follows: 16. . . . . . . . . . . . . . . . . . . . . . . 47. We have given a careful consideration to the submission made on behalf of Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s. 133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to the learned counsel for the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functionally different from software companies. The relevant extract are as follows: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice U/S. 133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 ITAT, Hyderabad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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