TMI Blog2021 (1) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... , no material was placed before us to substantiate the contention of the DRP/TPO. AR also except stating that the company engaged in providing high end software services no other information was provided. As observed from the order of the DRP, we find that the company Infobeans satisfies all the filters and engaged in software services. Since, both the parties failed to substantiate their claim for inclusion or exclusion, we remit this issue back to the file of the AO/TPO to examine the contention of the ld. AR and DR with regard to functions/financials for exclusion/inclusion of comparable in the final list and decide the issue on merits after giving opportunity of being heard to the assessee. This issue is allowed for statistical purposes. Larsen Toubro Infotech Ltd - As decided in M/S. EPAM SYSTEMS VERSUS ACIT, INDIA PVT LTD., CIRCLE-17 (1) , HYDERABAD. [ 2018 (11) TMI 1710 - ITAT HYDERABAD ] L T Infotech Ltd. is functionally dissimilar. Inclusion of CAT Technologies Ltd - whether income from software services is 75% and more for inclusion in the final list of comparables - Out of total receipts of ₹ 7.44 crores, as seen from the order of ITAT, software developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,64,490/-under normal provisions of the Act and a book profit of ₹ 25,76,48,522/-. 3.1. During the course of assessment proceedings, the AO found that the assessee had entered into international transactions, hence, referred the case to TPO for determining Arm's Length price (ALP). 3.2. The assessee is engaged in the development of software and provision of software services to its holding company. The taxpayer is wholly owned subsidiary of DE Shaw Co., L.P. USA. For the AY 2013-14, as per Form 3CEB report/TP document, the assessee had entered into international transactions in respect of software development services to the extent of ₹ 2,19,56,93,803/-and the margin being 12.27%. As per the economic analysis carried out by the assessee the margin of the comparables was worked out to 13.81% and since, the software development services transaction is within the arithmetic mean (OP/OC) of 13.81% and within the range, it was stated that the SDS transactions are at arm's length and no adjustment was made by the assessee. 3.3. The TPO analysed the Balance Sheet and statement of account and its financials and viewed that method of search process conducted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems Ltd. is functionally similar to the assessee company. Merely on the basis of notes mentioned in P L Account, the same cannot be held as functionally different. Ld. DR relied on the decision of the ITAT, Bangalore Bench in the case of Advice America Software Development Center Pvt. Ltd., 94 taxmann.com 179 wherein the coordinate bench has rejected assessee's contention to exclude this company from the list of comparables. Similarly, ld. DR also relied on the decision of ITAT Bangalore in the case of CGI Information Systems and Management Consultants (P) Ltd. in IT(TP) A No. 2460/Bang/2017, dated 12/09/2018 wherein assessee's contention of exclusion of the Persistent Systems Ltd. was rejected. The ld. DR further argued that the DRP has given clear finding that Persistent Systems Ltd. is engaged in the software development services and relied heavily on the DRP's findings in its order at page 8 and argued that acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be a criteria to determine its comparability. The comparability of a company has to be determined with reference to the functions perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd intangible assets for the periods ending 31.03.2012 and 31.03.2013. From page 1059 of the paper book, we find that the final segmental results of each segment is not available and therefore, we are of the opinion that the TPO ought to have excluded this company from the final list of comparables. 5.4 The DRP has gone into the details and observed that the company Persistent Systems ltd. is in sale of software services. The DRP verified the annual report of Persistent Systems ltd. and observed that the revenue from the operations from group companies of ₹ 12,945.12 was from sale of software services. The DRP has perused the entire details in its order and stated that the stand alone P L account of Indian company, was given at page 145 of the paper book, as per which, the revenue from operations was 9,967.51 Million, which is stated to be from sale of software services. For the sake of clarity, we extract the relevant para of the order of DRP, which read as under: At the outset, we are of the view that the acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be a criteria to determine its comparabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct roadmap. This was a strategic multi-year deal which would help your company consolidate and strengthen its position in relation to its IP led business. Acquisition of Cloud from Doyenz. Inc. Persistent Systems Inc. (PSI) a wholly owned subsidiary of your company acquired an innovative cloud platform called Cloud from a privately held company viz. Doyenz. Inc. This acquisition furthers your company's objectives in growing its IP-led business and strengthens its cloud computing and SMB offerings. Strategic agreement with Helwett Packard (HP) for licensing client automation software. PSI further entered into a strategic agreement with HP to license its client automation software. This acquisition underscores your company's commitment to expand its IP portfolio and further strengthen its expertise in PC lifestyle Management (PCLCM) Virtual Desktop Infrastructure (VDI) and MDM. Acquisition of certain assets from Nova Quest. Persistent Telecom Solutions Inc. (PTSI) a wholly owned step down subsidiary of PSI acquired certain assets from a Nova Quest a leading value added reseller (VAR) and services provider of Dassault Systems. SDS experience p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared. In the earlier year, the Indian company amalgamated two subsidiaries PeBS and PSSL, which were engaged in Software development services, as stated at pg. 179; which show that even such acquisition has not resulted in IP based revenue. It is further noted that there was increase in India based head count from 6245 to 6429 increase in onsite head count from 383 to 541 which again shows that the company is predominately into software development service. In the light of the above information contained in the annual report, we are of the view that this company is predominately engaged in software development service and is comparable to the assessee company. It is also seen that for the AY 2012-13, the DRP has held in the assessee's case that this company can be taken as comparable as it was a software development service provider. Accordingly, the objection raised by the assessee is found unacceptable. 5.5 As seen from the DRP's order, the company Persistent Systems ltd. is predominantly engaged in the software development services and is comparable to the assessee company. 5.6 The ld. DR relied on the decision of coordinate bench of Bangalore Tribunal in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is held to be without any basis and is rejected. No other arguments were advanced for exclusion of this company. Hence, we uphold the orders of the revenue authorities including this company in the list of comparable companies. 5.7 On perusal of DRP's order and the ITAT, Bangalore's order in the case of Advice America Software Development Center Pvt. Ltd., (supra), it is found that segmental details are available in the financials of Persistent Systems Ltd. and the company is engaged in the software development services and, therefore, this company is comparable. These facts and relevant material was not made available to the ITAT, Hyderabad Bench, while passing the order in the case of EPAM Systems India Pvt. Ltd. (supra) and hence, held that in the absence of segmental details, Persistent Systems Ltd. is functionally dissimilar and directed the AO/TPO to exclude this company from the list of comparables. Since the details are available as per the order of the ITAT, Bangalore in the case of Advice America Software Development Centre Pvt. Ltd. and in the order of DRP, we are of the view that this issue needs verification by AO/TPO to decide whether the company is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R is that this company is functionally dissimilar, hence, required to be excluded from the list of final comparables. The ld. DR's contention is that this company is functionally similar. Ld. AR relied on the decision of this Tribunal in the case of EPAM Systems India Pvt. Ltd. (supra), whereas the ld. DR relied on the decision of ITAT Bangalore in the case of Advice America Software Development Center Pvt. Ltd., 94 taxmann.com 179 and in the case of CGI Information Systems and Management Consultants (P) Ltd. in IT (TP) A No. 2460/Bang/2017, dated 12/09/2018 and requested to retain L T Infotech ltd. in the list of final comparables. 7.1. We have heard the submissions of both the parties and perused the material on record. We find that in the case of EPAM Systems India Pvt. Ltd. (supra), this Tribunal has considered the issue in detail and held that L T Infotech Ltd. is functionally dissimilar. For the sake of clarity and convenience, we reproduce para 17 18 of the order as under: 17. As far as the L T Infotech is concerned, the assessee's objections are that the it is a giant company with a turnover of ₹ 3613 Crs and has a significant brand value and in RP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue's contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption that segmental data for relevant facts was available to determine the profitability of the concerned comparable. 19. Respectfully following the same, we direct the TPO/A.O. to exclude L T Infotech from the final list of comparables. The Ld. DR relied on the decisions of ITAT, Bangalore bench and Ld. AR relied on the decision of this Tribunal in the case of EPAM Systems India Pvt. Ltd. The coordinate Bench of Bangalore taken the view against the assessee holding that the Brand, turnover, intangibles etc. has no impact on profitability of the company. This Tribunal has also considered the turnover, intangibles and held that L T required to be deleted from the final list of comparables. Since the decision of this Tribunal is favourable to the assessee, respectfully following the view taken by this Tribunal, we hold that L T Infotech Ltd. is functiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent. From the annual report of the company, the TPO held that this company is in SDS and ITES and the same are reported in only one segment and no separate segment was available with exact figures. On appeal, the DRP rejected assessee's contention for inclusion of CAT Technologies Ltd. observing that from the annual report, out of total revenue of ₹ 7,44,82,748/-, the revenue from software development was ₹ 5,52,21,160/-, which was about 74% of the total revenue and fails the filter of 75% or more of revenue applied by the TPO. The ld. AR relied on the decision of NXP India Pvt. Ltd. (supra) wherein the coordinate bench directed the TPO to include CAT Technologies Ltd. in the final comparables list observing as under: 33. This company was rejected by the TPO for the reason that it is engaged in quality consultancy services in system analysis, system design and other related services. According to the TPO, it was functionally different from the assessee, and rejected the said company from the comparables. As seen from the Notes relating to statement of profit and loss account as on 31.03.2013, along with sales and services as under:- Parti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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