TMI Blog2018 (7) TMI 2294X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii). We, therefore, direct removal of this company from the list of comparables. TATA Elxsi Ltd. - Functions performed by this company under software development services are basically on the basis of research and development. It is also observed that there is no segmental information regarding the same. On perusal of the audited reports of this company, we are of the considered opinion that this company is not performing services on the basis of contract as per the requirements of the clients but is into innovative development of its own. Staffing services - Comparable selection - HCCA Business Services Pvt. Ltd company is into services providing human resource to companies. It is also observed that this company has only staffing services and therefore entire revenues earned by this company is from providing manpower as per the agreements with its customers. Under such circumstances we do not find any functional dissimilarity of this company with that of the assessee before us. Accordingly we uphold the inclusion of this company in final list of comparables. Ma Foi Management Consultants Ltd - Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 3. the Ld TPO/ Ld AO erred in enhancing the income of the Assessee by Rs1,10,39,773 holding that the international transactions pertaining to its contract software development business segment do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 3.1 committing factual errors/inconsistencies in computation of net operating profit margins of certain comparables; 3.2 rejecting comparability analysis in Assessee's fresh search and undertaking his own fresh search with following modifications in the choice of filters for screening of software companies: a) Rejection of assessee's turnover filter of sales greater than Rs 1 crores to sales greater than Rs 5 crores b) Application of export by sales filter of 75% for exclusion of companies; c) Rejection of assessee's filter of net fixed assets/sales less than 200%; d) Rejection of assessee's filter of R D/sales less than 3%; and e) Rejection of assessee's filter of Advertising and Marketing expenses/sales less than 3% 3.3 Including certain companies that are not comparable to the Assessee in terms of functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable to the Assessee in terms of functions performed, assets employed and risks assumed; 4.3 excluding in the final set of comparables, companies that are comparable to the Assessee in terms of functions performed, assets employed and risks assumed; 4.4 applying the different financial year end filter and excluding from the final set of comparables, companies merely on the basis of different financial year end even though their financial data relates to the same time period as in which the international transaction took place and the company satisfies all other filters applied by the Ld TPO; 4.5 applying declining sales filter and excluding from the final set of comparables, companies merely on the basis of declining sales even though the company is a going concern and satisfies all other filters applied by the Ld TPO; 4.6 applying a turnover filter of sales greater than Rs 5 crores when assessee s turnover from staffing services itself Rs.6.90 crores and thereby excluding functionally comparable companies from the final set of comparables. Others 5. ignoringthe business/ commercial reality that since Assessee in respect of provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OP/TC. Assessee computed margin of software development and IT Staffing Service segment at 8.24%. with 4 comparables, which are as under: Sl. No. Name of the company Weighted Average OP/TC(%) 1. Akshay Software Technologies Ltd. - 1.04 2. Melstar - 15.65 3. E-Zest Solutions 17.00 4. Synetairos 18.02 Arithmetic mean 4.58% The margin computed for the comparables selected by assessee were at 4.58%. Therefore assessee held international transaction entered into with AE to be at arm s length price. 2.3. In respect of provision for staffing service segment, margin computed in case of assessee was at 2.46%. The comparable companies selected by assessee are as under: Sl. No. Name of the company OP/TC(%) 1. Ma Foi Management Consultants Ltd. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1. Software Service Segment Functions From TP study, it appears that assessee is primarily engaged in provision of contract software development and IT consulting or staffing services. These services are mainly provided to its AE s. From TP study, it is observed that initial core design as well as specifications for software development are provided by AE, and assessee merely undertakes contract software services in line with detailed specifications provided by AEs which included content, activities, time schedules, quality assurance etc., necessary to reach expected outcome of development/assignment. Once specifications related to software are provided. assessee uses its resources as hardware, software and manpower to work on these projects. Assessee is responsible for development, coding and testing functions based on the functional specifications received from the AEs, on a sub contract basis. 7.2. Staffing services Functions In TP study, assessee classified itself to be performing identification, interview in selection of the right IT professionals for the right job as main function. Assessee offers range of human resource management service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that this company is not functionally comparable to assessee inasmuch as, it is also engaged in software development services and generate substantial revenue from the sale of its own products. Ld. counsel placed reliance upon the decision of CIT vs. Agnity India Technologies Pvt. Ltd in ITA No. 1204/Del/2011, wherein this Tribunal vide order dated 10/07/11 upheld exclusion of this company from list of comparables, after taking into consideration its operations as full-fledged risk taking enterprise in diversified field such as application design, development, re-engineering and maintenance integration etc cannot be equated with non-risk bearing companies. It has been submitted that this view of Agnity India technologies Pvt.Ltd., has been upheld by Hon ble Delhi High Court in ITA No. 3856/2010. 9.1. Ld. CIT DR placed reliance upon the order of Ld. TPO. 9.2. We have considered the various distinguishing features submitted by Ld.Counsel on the basis of records placed before us. Since all the distinguishing features exist even in the year under consideration, respectfullly following the orderof this Tribunal in assessee s own case, we direct this company to be exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded to include it in the final set of comparables. On the contrary, Ld.DR submitted that there is no related party transaction during the year under consideration. 10.2. We have heard the rival submissions of both sides in the light of records placed before us. Ld. Counsel submitted that Wipro Technology Services Limited (formerly Citi Technology Services Limited) ( the Company ) was incorporated on 15 September, 2004. The entire share capital of the Company was held by Citicorp Banking Corporation, a company incorporated under laws of Delaware, USA, upto 20 January, 2009. It was submitted that Wipro Limited (Wipro) executed agreement with Citigroup Inc. for acquiring all of Citigroup interest in the Company w.e.f. 21 January 2009. On 21 January 2009, Wipro signed master service agreement (MSA) with Citigroup Inc. for delivery of technology infrastructure services, application development and maintenance services After acquisition by Wipro, name of Company was changed to Wipro Technology Services Limited ( WTS or the Company ) on 16 March 2009. 10.3. It is observed from the above that, Wipro Technology Services Ltd., which was earlier Citi Technology Services Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action entered into between two AEs, if there exists a prior agreement in relation to the relevant transaction between third person and the AE, or the terms of relevant transaction are determined in substance between the third person and AE. When we consider section 92B(2) in combination with Rule 10A(a), it follows that transaction between non-AEs shall be construed as a transaction between two AEs, if there exists a prior agreement in relation to relevant transaction between third person and AE. If such an agreement exists, third person is also considered as an AE, and transaction with such third person becomes international transaction within the meaning of section 92B. Once there is a transaction between two associated enterprises, it ceases to be an uncontrolled transaction and, thereby, goes out of reckoning under Rule 10B(1)(e)(ii). Adverting to the facts of the instant case, we find that Wipro Technology Services Ltd. earned revenue from Master services agreement with Citigroup Inc. for the delivery of technology infrastructure services. This agreement was, in fact, executed between the assessee's AE, Wipro Ltd., and Citigroup Inc., a third person. This unfolds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the focus on industrial design) and visual computing labs division (animation and special effects). In product design services rendered by this company, it provides services in multiple domains such as broadcast, wireless, transportation, convergence, DSP, graphics and imaging and same; and service markets such as automated aerospace consumer products networking, semiconductors, multimedia, telecom and instrumentation with cost-effective and timely product engineering services. It is observed that this company undertakes research and development towards software and electronic system development for industries, such as wireless multimedia and automate even broadcast. Thus in our considered view the functions performed by this company under software development services are basically on the basis of research and development. It is also observed that there is no segmental information regarding the same. On perusal of the audited reports of this company, we are of the considered opinion that this company is not performing services on the basis of contract as per the requirements of the clients but is into innovative development of its own. 12.3. We therefore disqualify this compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a comparable. Merely because it has a different financial year ending cannot be a sole reason to reject it as a comparable. We therefore set aside this comparable to Ld.TPO to verify having regard to extrapolating quarterly details of this comparable. 15. Nirbhay Management Services Pvt. Ltd. This company has been excluded by DRP on the basis of turnover filter, less than 5 crore, whereas turnover filter applied by Ld.TPO was less than one crore. It has been submitted that DRP nowhere doubts the functional similarity between assessee and this company. 15.1. On the contrary Ld.CIT,DR submitted that this company was included at the DRP stage and therefore proper FAR analysis has not been conducted by Ld. TPO. He thus submitted that this comparable may be set aside to Ld.TPO for verification. 15.2. We have perused the submissions of both the sides and agree with the contentions of Ld.DR. We accordingly set aside this issue to ld.TPO to verify the FAR analysis of this company. Assessee is directed to provide all necessary information/details regarding TP report, audited accounts for verification. Ld.TPO is directed to verify the same for considering it for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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