TMI Blog2019 (6) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 234.38 Crores. By applying the turnover filter, we direct the TPO/AO to exclude these two comparables from the final list. In view of this, we feel that other arguments in respect of exclusion of these two comparables are not required to be discussed and decided. As assessee is engaged in the provision of software development services to its AEs, thus companies functinally disimilar with that of assessee need to deselected from final list. - IT(TP)A No. 1929/Bang/2017 - - - Dated:- 14-6-2019 - SHRI ARUN KUMAR GARODIA AND SHRI PAVAN KUMAR GADALE, JJ. Appellant By : Shri Sharath Rao, Ca Respondent By : Ms. Neera Malhotra, CIT (DR) ORDER Shri A.K. Garodia, J. This appeal is filed by the assessee and the same is directed against the assessment order passed by the AO on 13.07.2017 u/s. 143(3) r.w.s. 144C (13) of IT Act, 1961 as per the directions of DRP. 2. The grounds raised by the assessee are as under. 1. The Assessment Order dated July 13, 2017 (served on August 1, 2017), issued by the learned Deputy Commissioner of Income-tax, Circle -1(1)(2), Bangalore ( learned AO ) under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-operating in nature while computing the operating profit margins of the comparable companies overlooking the fact that the same resulted from company's normal business operations. 6. Comparable companies 6.1. The Hon'ble DRP and the learned AO / TPO have erred in law by conducting a fresh search for comparable companies and by rejecting the search process carried out by the Appellant, without giving justifiable reasons under the law including Section 92C (3) for the rejection. 6.2. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in adopting additional filters and modifying the filters adopted by the Appellant for conducting TP analysis, without appreciating the TP documentation prepared by the Appellant. 6.3. The Hon'ble DRP and the learned AO / TPO have erred in selecting following companies which are not comparable to the Appellant for reason including functional dissimilarity, nonavailability of segmental information, diverse set of activities, presence of intangibles etc.: Larsen Toubro Infotech Limited CG - VAK Software Exports Limited 6.4. The Hon'ble DRP and the learned AO / TPO have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned AO / TPO have erred in law and on facts, in making several observations and findings which are based on incorrect interpretations of law and contrary to facts of the case. 9.3. The Hon'ble DRP and the learned AO / TPO have erred in not carrying out the determination of arm's length price as required under Section 92C of the Act read with Rule 10D of the Rules. 9.4. The Hon'ble DRP and the learned AO / TPO have erred in not following the process specified under Section 92C (3) of the Act, for rejection of TP analysis of the Appellant and for independent determination of arm's length price. 9.5. The learned AO has erred in law and on facts in initiating penalty proceedings under section 271(1)(c) of the Act. 9.6. The learned AO has erred in computing interest under Section 234B on the assessed income. Each of the above objections is independent and without prejudice to the other grounds of objections preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal. Each of the above objections is independent and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected by the TPO and the assessee did not raise any objection in this regard before the DRP. But later on, as per the judgement of Hon'ble Karnataka High Court rendered in the case of Acusis Software India P. Ltd. Vs. ITO as reported in 98 taxmann.com 183, Hon ble Karnataka High Court has upheld the application of turnover filter. It is also submitted in the application that as per two Tribunal orders rendered in the case of Autodesk India Pvt. Ltd. (98 taxmann.com 263) and in the case of Northern Operating Services Private Limited in IT(TP)A No. 101/Bang/2016, application of turnover filter has been upheld. One more Tribunal order has been cited having been rendered in the case of DCIT Vs. EMC Software and Services (India) P Ltd. in IT(TP)A No. 875/Bang/2013 and it was submitted that in this case also, it is held that various Tribunal order has upheld the turnover filter range of 1/10th and 10X times of the turnover. He submitted that under these facts, the additional grounds should be admitted because it is purely a legal issue. The ld. DR of revenue although raised the objection against the admission of additional grounds but in the facts of present case, we admit the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was drawn to paras 32 to 36, 43 and 44 9. On the other hand, the Ld. AR has drawn our attention to the recent judgment of the Hon ble jurisdictional High Court in the matter of Pr. CIT v. Softbrands India P. Ltd [94 taxmann.com 426] and also in the matter of Acusis Software India P. Ltd v. ITO [98 taxmann.com 183], wherein at para 14 and 15, it had approved the filter applied by the Tribunal i.e., the turnover of ten times of both sides of the assessee s turnover. 10. In rebuttal the Ld. DR submitted that the CIT (A) had not examined the functional profile of any of these comparables and had merely excluded them on the basis of turnover filter of 1 to 200 crores. It was also contended that the profile of these companies should be examined by the CIT (A), hence matter is required to be sent back to the file of the CIT (A) with a direction to examine the functional profile of these companies, 11. We have heard the rival submissions and perused the record. The Hon ble jurisdictional High Court in the matter of Acusis Software India p. Ltd (supra) had approved the order passed by the tribunal wherein it has applied the filter of ten times of both sides of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exclude these two comparables from the final list. In view of this, we feel that other arguments in respect of exclusion of these two comparables are not required to be discussed and decided. 8. Now we decide about the assessee s request for inclusion of four comparables i.e. i) Evoke Technologies Ltd. ii) Helios Matheson Information Technology Limited iii) R Systems International Limited iv) Akshay Software Technologies Limited 9. In support of the assessee s request for inclusion of these four comparables, the ld. AR of assessee in this chart has placed reliance on two judicial pronouncements being a Tribunal order rendered in the case of Capco Technologies Pvt. Ltd. (97 taxmannn.com 71) and a judgment of Hon ble Punjab Haryana High Court rendered in the case of CIT Vs. Mercer Consulting (India) (P) Ltd.,390 ITR 615. Copy of this Tribunal order in the case of Capco Technologies Pvt. Ltd. is available on pages 1068 to 1085 of the case law compilation. Our attention was drawn to paras 17 to 19 for Akshay Software Technologies Limited, paras 20 to 22 in respect of Evoke Technologies Ltd. and para 24 in respect of R Systems International Limited and it was poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Akshay Software where it is mentioned that it is predominantly engaged in providing IT related services to the following effect : Conservation of energy, Research and Development, Technology absorption and Foreign exchange i. The operations of the company being IT related require normal consumption of electricity. However the Company is taking every necessary step to reduce the consumption of energy. On the basis of the above, it was submitted that Akshay Software is functionally comparable to the assessee and it further fulfilled all the quantitative filters applied by the TPO. Hence, the company is functionally comparable to the Assessee. The Ld. AR relies upon the decision rendered by the Tribunal in the assessee s own case for the asst.year 2007-08 bearingITA.1340/Bang/2011 and Arowana Consulting P. Ltd in IT(TP)A.157/Bang/2016, for AY 2011-12. 18. Per contra, the Ld. DR, relies upon the order of the DRP at page 24-25 and has submitted that the company is functionally not comparable with the assessee and the decision relied upon are distinguishable on facts. 19. We have heard the rival contentions and perused the record. As per the TP study of the assessee the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: No Data in prowess database The relevant extract of the TP order is as below: Assessee s contentions: 20.1. Company selected from Capitaline Database : The Assessee herein submits that the said comparable company is selected from Capitaline Database. The complete qualitative and quantitative information of Evoke Technologies is available for FY 2012-13. Also, the annual report of the company is available in public domain i .e. Ministry of Corporate Affairs, wherein it has been clearly mentioned that the company is engaged in provision of software development services. The assessee has furnished the relevant screenshot in this regard, as under: h) Segment Reporting: There are no separate reportable segments as per Accounting Standards 17, as the entire operations of the company relate to one segment namely, Software development. 20.2 Functionally Comparable Engaged in softwar e development services The Company is engaged in software development services. Refer below the screenshot from annual report: h) Segment Reporting: There are no separate reportable segments as per Accounting Standards 17, as the entire operations of the company rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of software development services to its AEs. In the present case also, the TPO has noted on page 2 of his order that the assessee is engaged in software development services for the projects of its AE. Hence the functional profile is similar and therefore, this Tribunal order is applicable in the present case. In this case, the Tribunal has examined the issue regarding inclusion of these three comparables i.e. Akshay Software Technologies Limited, Evoke Technologies Ltd. and R Systems International Limited and in respect of these three comparables, the issue was restored back to the file of TPO for a fresh decision with the direction to decide the issue about the inclusion of these three comparables afresh after giving due opportunity to the assessee. Respectfully following this Tribunal order, we hold that in the present case also, this issue is restored back to the file of TPO with similar directions. 11. Regarding the request for inclusion of Helios Matheson Information Technology Limited, it was submitted that this is the only objection of TPO and DRP that the Financial Year of this company is different. In this regard, our attention was drawn to page no. 7 of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod of each of them are available. If they are, the TPO must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP. 29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending 31.12.2008 had been given under one column and the data for the quarter ending 31.03.2009 and 31.03.2008 (both audited) had been given in two other columns. Thus, as rightly held by the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009. 30. This view is not contrary to Rule 10(B)(4) which reads as under:- 10B (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into . 31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s request for exclusion of two comparables i.e. CGVAK Software Exports Limited and Larsen Toubro Infotech Limited and also for assessee s request for inclusion of various comparables, the ld. DR of revenue has filed written submissions which are as under. May It Please Your Honours, I. GOA No. 6.3 - LAT IINFOTECH LIMITED - TO BE REMANDED In the following case the Hon'ble ITAT has restored the matter back to the file of TPO: Capco Technologies (P) Ltd. Vs ITO [2018] 97 taxmann.com 71 (Bang. Trib.) (A.Y.2013-14) (Pg.10, Para 14 -15) (Para 16 - 23.3) M/s Technotree Convergence Pvt. Ltd. IT(TP)A No. 1616/B/17 dtd. 27.06.2018 (A.Y.2013-14) (Pg.37, Para 27) II. GOA No. 6.3 - CG-VAK SOFTWARE EXPORTS LIMITED - GOOD COMPARABLE In the following case CG-VAK Software Exports Ltd. is held to be a good comparable : M/s Technotree Convergence Pvt. Ltd. IT(TP)A No. 1616/6/17 dtd. 27.06.2018) (A.Y.2013-14) (Pg.35, Para 23) III. GOA No. 6.4 GOA No. 6.5 - R SYSTEMS INTERNATIONAL LTD., AKSHAY SOFTWARE TECHNOLOGIES LIMITED AND EVOKE TECHNOLOGIES LIMITED- TO BE REMANDED BACK In the following case the Hon'ble ITAT has rest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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