TMI Blog2020 (10) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... asken Communication Technology Ltd. - Only objection of the assessee is that above comparable company has different margin shown in the show cause notice and order of the TPO - order the margins of this comparable was shown to be 7.28% whereas in the TP order as well as the effect order passed by the TPO on direction of the learned dispute resolution panel the margin of this comparable were taken at 33.2%. There is no justification or reasons were found in the TP order for change in the margins and the basis of such changes. Therefore, we set aside this comparable to the file of the learned transfer pricing officer to show assessee how he has changed the above margin and on what basis the margins have gone up to 33.2% from 7.28%. Cybercom Datamatics information solutions Ltd - as challenged by the assessee stating that it was never part of the show cause notice issued by the learned transfer pricing officer but featured in the final order of the learned transfer pricing officer - As carefully gone through the showcause notice issued by the learned transfer pricing officer dated 18 August 2017 and find that in para number seven this comparable company was not at all considered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after making transfer pricing addition of ₹ 3,26,14,009/- in respect of international transaction of software development services rendered by the Appellant to its parent company, viz., Open Solutions Inc., USA. 2. That on facts and in circumstances of the case and in law, the AO erred in making a reference to the Transfer Pricing Officer ( TPO ) under Section 92CA of the Income tax Act, 1961 (the Act ) without recording reasons on the basis which the AO considered it necessary or expedient to refer the international transaction entered into by the Appellant with its associated enterprise ( AE ). 3. That the DRP erred in confirming the action of the TPO in segregating the international transaction entered into by the Appellant with its AE, into IT segment and ITeS segment, without appreciating that there were no separate segments into which the international transactions could be segregated. 4. That on facts and in circumstances of the case and in law, the AO and DRP erred in partly confirming the action of the TPO in making an addition to the income of the Appellant without appreciating that the Appellant had computed arm s length price :n respect of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Ld. AO and DRP erred in confirming the incorrect computation of margins of the comparable companies selected by the TPO. 9. That the Ld. AO and DRP erred in confirming the action of the TPO in rejecting the comparable companies selected by the Appellant without providing any cogent and sufficient reasoning. 10. That the Ld. AO and DRP erred in confirming the action of the TPO in selecting the following companies which were not functionally comparable to the Appellant for the purposes of benchmarking the international transaction entered into by the Appellant: a) Cybercom Datamatics Information Solutions Ltd. b) Persistent Systems Ltd. c) Mindtree Ltd. d) Larsen Toubro Infotech Ltd. e) Cigniti Technologies Ltd. f) Sasken Communication Technologies Ltd. 11. That the DRP erred in upholding the action of the TPO in cherry picking Cybercom Datamatics Information Solutions Ltd. as a comparable, solely on the ground of high profit margin, even though the said comparable never featured in the search conducted by the TPO nor was part of the SCN issued by the TPO. 12. That the AO and DRP erred in confirming the action of the TPO in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter discussion selected 16 compares shows PLI margin determined at 30.30%. He applied the same to the operating cost of the assessee of ₹ 280016195/- and found that the arms length price of the assessee should be ₹ 365029112/-. The price charged by the assessee was ₹ 324042619/- and therefore, proposed an adjustment ₹ 40986493/- with respect to the IT Services. In ITES services he also proposed an adjustment of ₹ 15082666/-. 7. On the basis of draft assessment order on which objections were filed by the assessee, the ld DRP-2, New Delhi after considering the objections of the assessee the ld TPO passed an order on 29.08.2018, wherein in IT sector 12 comparables were retained whose PLI is 27.37% and adjustment was reduced to ₹ 32614009/- against the original adjustment proposed at ₹ 40986493/-. The addition on account of ITES segment was Nil against proposed adjustment of ₹ 15082666/-. The ld AO passed a final assessment order on 30.08.2018 of ₹ 32614009/- which is contested by the assessee. 8. To contest the above assessment the ld AR submitted that the assessee is contesting for deletion of the comparables namely:- a. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India in ITA 6737/Del/2014 the Tribunal has excluded this comparable and such an order of the Tribunal has now been confirmed by the Hon'ble Delhi High Court vide judgment dated 7.10.2016 in ITA 602/2016. Further in another group company's case, i.e. Cash Edge India Pvt.Ltd. (order dt. 23.9.2015 in ITA 64/Del/15) for the A.Y. 2010-11 again this company was held to be incomparable. This judgement of the Tribunal too has been confirmed by Hon'ble High Court vide order in ITA 279/2015. 8.1 On the other hand the Ld.D.R. drew our attention to functional analysis of PSL pointing out that in the course of its software development functions it gets into product development segment also. Here in case of assessee also once the concept of the product is determined, then A.E. contracts with the assessee to execute the design and software development products on a module/part of the final product. Thus, to say that during the course of its providing software development services there is no element of product would not be a correct statement. The overall functions performed by the PSL is exactly the same and there is no trading by the said company. This company is also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US subsidiary Persistent Systems incorporated. Page No. 644 is an overview business of the Persistent Systems Ltd including its subsidiary and not of Persistent Systems only. Page NO. 704 is also related to the consolidated financial statements. Hence, these are not related to the comparability analysis hence rejected. Therefore, for this year we are not inclined to note that persistent Systems Ltd is functionally not comparable to the assessee. Therefore, the coordinate bench in assessee s own case for assessment year 2010 11 excluded this company on altogether different facts, for this year we have noted the facts on the standalone financial statements of persistent Systems Ltd which does not support its exclusion. 16. Ld DRP has considered this issue at page No. 5 and 6 of its direction. The finding of the ld DRP is as under:- Persistent Systems Ltd The assessee has contended that company is also engaged in software products. On the basis of discussion made above regarding application of TNMM the functionality of company is broadly similar to the assessee. Hence, the contention of assessee is rejected. Functionally not comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptember 2016 in ITA number 682/2016. No doubt, for the comparability analysis in case of that assessee, persistent Systems Ltd was held to be not a good comparable and therefore same was excluded. 19. On comparing the functions of the assessee in that case we note that it was engaged in the business of design and development of customized software application and was also providing technical support services. The assessee is engaged in providing software development research and related services to its associated enterprises. From the above observation of the coordinate bench in that case as well as the functional profile of the assessee available before us, we do not find any similarity. Further the issue was decided in ITA number 6148/del/2015 for assessment year 2011 12, we do not have any financial statements are available of assessee in that case or of persistent Systems Ltd for that financial year i.e. 2010 11. 20. Further, the comparability analysis is always required to be decided on the basis of the functions performed by the assessee, assets employed by the assessee to perform those functions and risk assumed by the assessee for those functions which is resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er assessee Saxo India, the coordinate bench has deleted, excluded the above comparable company and therefore it should also be excluded in case of the assessee. 24. The learned DR submitted that assessee has not objected this comparable company before the learned DRP and therefore there is no direction of the learned dispute resolution panel with respect to above comparable. 25. We have carefully considered the rival contention and find that only objection of the assessee is that above comparable company has different margin shown in the show cause notice and order of the TPO. In the show was notice at page number four of the order the margins of this comparable was shown to be 7.28% whereas in the TP order as well as the effect order passed by the TPO on direction of the learned dispute resolution panel the margin of this comparable were taken at 33.2%. There is no justification or reasons were found in the TP order for change in the margins and the basis of such changes. Therefore, we set aside this comparable to the file of the learned transfer pricing officer to show assessee how he has changed the above margin and on what basis the margins have gone up to 33.2% from 7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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