TMI Blog2017 (7) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... cross appeals filed by the company as well as revenue directed against the assessment order dated 30/01/2014 passed u/s. 143(3) read with section 144(C) of the Act for the assessment year 2009-10. 2. Briefly facts of the case are as under: The assessee is a company duly incorporated as 'Openera Communications Pvt. Ltd.', under the provisions of the Companies Act, 1956. It is 100% EOU and is a subsidiary of Openera Networks Inc. USA. Openera Communications Pvt. Ltd., was subsequently acquired by NMS Communications Pvt. Ltd. It is engaged in the business of software development particularly in relation to telecommunication software design, system anlaysis and development and implementation data processing programs for telecommunication, operation support, network, performance support and product development. The return of income for the assessment year 2009-10 was filed on 30/09/2009 declaring income of ₹ 5,84,447/-. The assessee-company also reported the following international transactions: Provision of software development services ... ₹ 17,86,70,411/- 3. The assessee-company had also submitted transfer pricing study report adopting the operating profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s selected by the assessee-company in the TP study and introduced 11 new companies finally selected the following comparables: Sl. No. Name of the Comparable Sales (in Rs.) Cost (in Rs.) Margin 1 Kals Information Systems Ltd. 2,14,04,686 1,87,93,813 13.89% 2 Akshay Software Technologies Ltd. 12,23,21,483 11,31,49,350 8.11% 3 Bodhtree Consulting Ltd. 16,05,75,212 9,89,56,821 62.27% 4 RS Software (India) Ltd. 1,49,57,12,634 1,36,01,02,589 9.97% 5 Tata Elxsi Ltd. (Segmental) 3,78,43,03,000 3,14,63,15,000 20.28% 6 Sasken Communication Technologies Ltd. (seg) 4,05,31,20,000 3,18,69,97,000 27.91% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. 8. The Hon'ble DRP passed directions vide order dated 30/12/2013 confirmed the TP adjustment and directed the AO to reduce travel and telecommunication expenditure incurred in foreign currency from export turnover and total turnover following the ratio of the decision in the case of CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98/204 Taxman 321/17 taxmann.com 100 (Kar.) . Accordingly, the AO passed final assessment order dated 30/01/2014 u/s. 143(3) r.w.s. 144(C) of the Act. 9. Being aggrieved, the assessee-company is in appeal before us in IT (TP) A No. 267/Bang/2014 raising the following grounds of appeal: Re-computation of the arm's length price which has resulted in a transfer pricing adjustments and in doing so the learned Deputy Commissioner of Circle - 12(2) (hereinafter referred to as AO ) and the Hon'ble Dispute Resolution Panel (hereinafter referred to as DRP ) have grossly erred: 1.1 by disregarding the functional and risk profile of the Appellant and comparing it with companies which have an entirely different functional and risk profile. 1.2 by not applying the upper limit of ₹ 200 crores to the 'turnover filter' in search for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring, it is prayed that the directions of the Dispute Resolution Panel insofar as it relates to the above grounds may be reversed. The appellant crave leave to add, alter, amend and/or delete any of the grounds mentioned above. Now, we shall take up assessee's appeals viz. ITA No. (TP) A No. 267/Bang/2014: 11. During the course of hearing, learned AR of the assessee sought exclusion of the following companies: Bodhtree Tata Elxsi Persistent Systems Infosys Ltd. and further contended that in respect of Kals Information Systems Ltd. the TPO has adopted 15.15% as against 13.80%. Now we shall deal with each one of them: 12(i) Bodhtree: It is submitted that in the annual report it has been mentioned that it has only one segment that is hardware segment. Actually it is engaged in providing services such as business intelligence, data warehousing, data cleansing, data management which can be classified as ITeS. Thus it was submitted that it is functionally dissimilar to a pure software development company. Reliance was placed on the decision in ITO v. Infinera India Ltd. [2016] 157 ITD 637/67 taxmann.com 8 (Bang. - Trib.) . (ii) On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shown. Therefore, it cannot be held that the company is engaged in development of software products only. The co-ordinate bench decisions on which reliance was place, are not applicable to the facts of the case as from the perusal of the said decisions it is clear that the Hon'ble Tribunal had not adverted to the Annual Report. (vii) In the result, this company cannot be rejected as comparable entity and direct AO/TPO to include same in the list of comparables. 13.Tata Elxsi : This company was selected by the TPO. It is contested by the assessee on the ground that this company is functionally dissimilar as it is engaged in software development segment such as product design services, innovative design engineering services and visual computing labs. Therefore, this company cannot be compared with that of pure software Development Company. (ii) On the other hand, the learned CIT (DR) relied on the order of the TPO. This Tribunal has been consistently holding that Tata Elxsi cannot be compared with that of pure software Development Company as it is engaged in product design services which are functionally dissimilar with that of pure software Development Company. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, as this company owns significant intangibles and has huge revenues from software products. In this regard, we find that the Bangalore Bench of the Tribunal in the case of TDPLM Software Solutions Ltd. v. Dy. CIT [IT Appeal No. 1303 (Bang.) of 2012, by order dated 28.11.2013] with regard to this comparable has held as follows:- 11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not materially relevant in the software development segment. 11.2 Before us, the learned Authorised Representative contended that this company is not functionally comparable to the assessee in the case on hand. The learned Authorised Representative drew our attention to various parts of the Annual Report of this company to submit that this company commands substantial brand value, owns intellectual property rights and is a market leader in software development activities, whereas the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is functionally dissimilar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. ( supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly . The decision rendered as aforesaid pertains to A.Y. 2008-09. It was affirmed by the learned counsel for the Assessee that the facts and circumstances in the present year also remains identical to the facts and circumstances as it prevailed in AY 08-09 as far as this comparable company is concerned. Respectfully following the decision of the Tribunal referred to above, we hold that Infosys Ltd. be excluded from the list of comparable companies. Respectfully following the ratio of the ..... 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