TMI Blog2019 (8) TMI 1604X X X X Extracts X X X X X X X X Extracts X X X X ..... are concurrent with annual reports placed in paper book filed before us. Thus, in our considered opinion, these comparables cannot be held to be functionally similar with of assessee, who is a contract service provider, working on a cost plus business model. It is observed that RS software (India) Ltd, has been excluded by DRP on application of on-site revenue filter. Both parties do not have objection for inclusion of this company. We are therefore of the view that this company should be included in the list of comparables. Accordingly, Ld. TPO is directed to consider this comparable in the list. Accordingly grounds raised by revenue stands partly allowed. Exclusion of comparable with recorded finding in respect of service income being less than 75%. - IT(TP)A No.579(B)/2016 & CO No.23(B)/2017 - - - Dated:- 7-8-2019 - B.R.Baskaran, Accountant Member And Beena Pillai, Judicial Member Judgments Beena Pillai, Present appeals are filed by revenue along with cross objection filed by assessee against order passed by Ld.DCIT Circle 3 (1) (2), under section 143 (3) read with section 144C of the Act, for assessment year 2011-12 on following grounds of appeal: IT(TP) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panel in so far as it relates to the above grounds may be reversed.- x) The appellant craves leave to add, alter, amend and /or delete any of the grounds mentioned above. CO No.23/Bang/2016(In IT(TP)A No.579(B)/2016(AY: 2011-12) On the facts and circumstances of the case and in law and without prejudice to the directions passed by the Dispute Resolution Panel: 1. The Dispute Resolution Panel ('DRP') has erred, in law and in facts, by not accepting the Respondent's plea in entirety and confirming the action of the learned Assessing Officer (A0')/Transfer Pricing Officer (TP0') of not accepting the transfer pricing ('TP') documentation maintained by the Respondent and rejecting the economic analysis undertaken by the Respondent in accordance with the provisions of the Income Tax Act, 1961 (The Act') read with the Income Tax Rules, 1962 (The Rules') and conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transaction. 2. The learned AO / TPO and the learned DRP have erred, in law and in facts, by rejecting the use of multiple year data for determination of arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Description of transaction Paid Received Purchase of products 3,53,74,738 Sale of products 1,80,555 Services income 13,98,69,828 Payment of Royalty 11,20,85,589 Payment of Administrative fee 20,92,97,868 Reimbursement of expenses (paid) 2,28,66,554 Reimbursement of expenses (received) 29,47,928 Total 37,96,24,744 14,29,98,311 2.1 Assessee used TNMM as most appropriate method with PLI s op/OC and determined its margin at 15.10%. He observed that, assessee used TNMM as most appropriate method and OP/OC as PLI to compute its margin. Assessees TP documentation contained 16 comparables with average margin of 13%, and therefore assessee held transaction entered into with AE under this segment to be at arms length price. Name of the company Mark up on Total cost (without adjustment) Akshay Software Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ALP if any, to be limited to lower end of 5% range as per proviso to section 92C (2) of the act. 3. Aggrieved by adjustment proposed by Ld.TPO, assessee raised objections before DRP. DRP rejected 14 comparables selected by Ld. TPO and restricted to 4 comparables with average margin of 19.94% as under: Sl.No Company name Net margin as per TP order 1 Persistent Systems Solutions Ltd. 22.12% 2 Persistent Systems Ltd 22.84% 3 Sasken Communication Technologies Ltd. 24.13% 4 Mindtree Ltd.(Seg.) 10.66% Average 19.94% 3.1 DRP further allowed working capital adjustment to assessee but rejected risk adjustment. As margin earned by assessee was within +/-5% range, no adjustment was called for. Based upon DRP directions, Ld.AO passed final assessment order making addition. 4. Aggrieved by order of Ld.AO, revenue is in appeal and assessee filed cross obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by DRP and therefore needs to be set aside to Ld.TPO. 7. On the contrary, Ld.AR submitted that issue of suo moto application of on-site revenue filter by DRP has been addressed by coordinate bench of this Tribunal in case of Autodesk India private limited vs ACIT in ITA(TP)A No.156/Bang/2016 for assessment year 2011-12 vide order dated 21/12/18. She further submitted that assessee do not have any objection of RS software India Private Limited to be included as they are functionally similar. 8. We have perused submissions advanced by both sides in the light of records placed before us. 8.1 Main grievance of revenue is in respect of on-site revenue filter applied by DRP suo moto selectively, on certain comparables, and excluding them. On this, we agree with contention raised by Ld. CIT DR that a filter cannot be applied once TP analysis has been concluded by Ld.TPO However on perusal of observations recorded by DRP, Acropetal Technologies Ltd., L T Infotech Ltd., has primarily excluded on basis of functional dissimilarities and that segmental information not being available. DRP further observed that these comparables cannot be considered comparable with contract service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, we are of the opinion that it is necessary to remand the issue of comparability of this company back to the file of the DRP for examining and adjudication of the issues raised by the assessee, after affording the assessee adequate opportunity of being heard in the matter and to file details /submissions in this regard, which shall be duly considered. We hold and direct accordingly. 16.2 During proceedings before us, the learned Authorised Representative for the assessee stated that the assessee does not wish to press the ground related to exclusion of Sasken Communication Technologies Limited; therefore this ground is dismissed as not pressed and consequently Sasken Communication Technologies Ltd. is retained in the final list of comparables. 16.3 According to the learned Authorised Representative, the other two companies were chosen as comparables by the assessee in its TP Study itself. The learned Authorised Representative however submits that the assessee seeks exclusion of L T Infotech Limited and Persistent Systems Limited, due to more details being now available in the public domain which render these two companies as not comparable to the assessee and therefore pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current with annual reports placed in paper book filed before us. Thus, in our considered opinion, these comparables cannot be held to be functionally similar with of assessee, who is a contract service provider, working on a cost plus business model. It is observed that RS software (India) Ltd, has been excluded by DRP on application of on-site revenue filter. Both parties do not have objection for inclusion of this company. We are therefore of the view that this company should be included in the list of comparables. Accordingly, Ld. TPO is directed to consider this comparable in the list. Accordingly grounds raised by revenue stands partly allowed. 12. Ground No. (iv) is for excluding M/s.E-Infochips, by DRP as comparable on the ground that it fails service income filter. Ld. CIT DR submitted that Ld. TPO while analysing comparables observed that, this company has revenue from software development up to 88%, whereas DRP observes that revenue earned by this company is less than 75%, and therefore cannot be included. She submitted that basis of DRP to hold that revenue is less than 75% has not been demonstrated and therefore needs to be reconsidered. 13. Ld.AR placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 75% of its total operating revenue for the year. Thus the above action of the DRP in rejecting the above companies correct. From the above, it is observed by this Tribunal consistently in various decisions for AY:2011-12 held that this company does not satisfy service income filter being 7.5%. We therefore, do not see any reason to set aside this company to Ld.TPO. In the facts before us, revenue is challenging exclusion of this comparable as DRP recorded finding in respect of service income being less than 75%. Other factual dissimilarities considered by DRP regarding extraordinary event and no segmental information available, has not been challenged before us (page 11 of DRP order). Therefore, respectfully following view taken by coordinate bench of this Tribunal in DCIT vs M/s CGI Information Systems and management consultations private limited (supra), we direct Ld. TPO to exclude this company. Accordingly this ground raised by revenue stands dismissed. Ground No. (v) - (x) has been stated to be general in nature and therefore do not require any adjudication. 15. In the result appeal filed by revenue stands dismissed. As appeal filed by revenue stands dismissed the cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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