TMI Blog2019 (6) TMI 1670X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl.CIT(DR)(ITAT), Bengaluru. ORDER Per N.V. Vasudevan, Vice President This is an appeal by the assessee against the order dated 19.9.2018 of CIT(Appeals)-7, Bengaluru, relating to assessment year 2012-13. 2. The only issue that arises for consideration in this appeal by the Assessee is with regard to the correctness of the determination of Arm s Length Price (ALP) in respect of an international transaction of rendering Software Development Services (SWD services) by the Assessee to its Associated Enterprise (AE) i.e., its holding company Verisign Inc., US and Versign SARL. 3. The Assessee is a company engaged in the business of providing contract Software Development Services (SWD Services) to its holding company. The transaction of rendering software development services to its holding company was a transaction with an Associated Enterprise (AE) and was therefore an international transaction. As per the provisions of Scc.92 of the Income-tax Act, 1961(Act), income from international transaction has to be computed having regard to Arm's Length Price (ALP). 4. The Assessee received a sum of Rs.24,79,60,171 from its AE for rendering SWD services. To jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.20 30.05 8 RS Software (India) Ltd. 15.34 20.67 9 Sasken Communication Technologies Ltd. 12.15 16.21 10 Spry Resources India Pvt. Ltd. 26.18 14.02 AVERAGE MARKUP 22.64 23.80 6. Based on the above average arithmetic mean of profit margin of the comparable companies, the TPO computed the ALP of the international transaction of rendering of SWD services by the Assessee to its holding company as follows:- Computation of arm's length price by the TPO and adjustment made: Arm's Length Mean Markup 22.63% Less: Working Capital Adjustment As per Annex. C 2.51% Adjusted margin 20.12% Operating Cost Rs.22,46,44,069 Arm's Length Price 120.12% of Operating Cost Rs.26,98,42,456 Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Infosys Ltd., (c) Larsen and Toubro Infotech Ltd., (d) Persistent Systems Ltd., and (e) Spry Resources India Pvt.Ltd. The Assessee also seeks inclusion of a company by name Celstream Technologies Private Limited. This company was chosen as a comparable company in the TP study of the Assessee but was not accepted by the TPO as well as CIT(A) as comparable company for the reason that this company was rendering product engineering services. 11. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 5 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz., Infosys Ltd., Larsen Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Information Technologies India (P.) Ltd. v. Asstt. CIT [2018] 89 taxmann.com 440 (Delhi - Trib.) for the same AY 2012-13. In this regard it was submitted that the functional profile of the Assessee is same as that of the Assessee in the case of Agilis InformationTechnologies India (P.) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid, then such companies have to be excluded. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. 14. The learned counsel for the Assessee next submitted that Genesys International Corporation Ltd., should be excluded from the list of comparable companies. The comparability of this company with the Assessee has been discussed by the TPO in page-10 of his order. The Assessee objected to inclusion of this company in the list of comparable companies for the reason that this company is functionally different and owns intangible assets which are peculiar only when the Assessee owns software products. According to the Assessee this company is engaged in providing Geographical Information comprising of Photogrammetry, Remote Sensing, Cartography, Data Conversion, state of the art terrestrial and 3D geocontent including location based and other computer based related services. Pagc-38 of the Annual report 2012 containing the above description was brought to the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is predominantly into software development services. The presence of intangible assets is indicative of the fact that this company is not in software development services business. The TPO has overlooked this aspect and proceeded on the basis that the presence of intangible assets would not be significant. Rule 10B(2) of the Income Tax Rules, 1962 (Rules) specifically provides that for the purposes of sub-rule (1) of Rule 10B, the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said company should be excluded from the final list of comparable companies. We hold accordingly. 17. Respectfully following the decision of the Tribunal, we direct exclusion of the aforesaid com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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