TMI Blog2023 (1) TMI 1201X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The Assessee has raised the following grounds of appeal: Based on the facts and circumstances of the case, SAS Research and Development (India) Private Limited ( Appellant ) respectfully craves leave to prefer an appeal against the order passed by the National e- Assessment Center, Delhi under section 143(3) r.w.s 144C(13),144C(13),143(3A) 143(3B) of the Income-tax Act, 1961 ( the Act ) dated 6 April 2021 pursuant to the directions issued by Hon ble Dispute Resolution Panel - 3 ( Hon ble DRP ), Mumbai, under section 144C(5) of the Act dated 19 February 2021, on the following grounds, which are independent of and without prejudice to each other: Grounds of appeal pertaining to transfer pricing adjustment: 1. Inappropriate transfer pricing adjustment of INR 8,25,09,762 even though the pricing of all international transactions of the Appellant was at arm s length Erred on the facts and in circumstances of the case and in law by making/ confirming transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm s length price of its international transactions pertaining to rendering of software development support, consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law by inappropriately applying a filter wherein companies with employee costs of less than 25% of its total costs are rejected while identifying comparable companies. 8. Inappropriately applying foreign exchange spending filter while identifying comparable companies Erred on the facts and in circumstances of the case and in law by inappropriately applying a filter wherein companies with foreign exchange spending is more than 75 % of its operating costs are rejected while identifying comparable companies. 9. Inappropriately rejecting adjustment to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies Erred on the facts and in circumstances of the case and in law by comparing full-fledged risk bearingentities with the Appellant s captive operations without making any risk adjustment for differencesbetween the risk profile of comparable companies vis-avis the risk profile of the Appellant. Other Grounds of appeal: 10. Deduction in respect of education cess Erred on the facts and circumstances of the case and in law in not considering the additional claim of deduction of the liability for educatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing Study Report has finally arrived at following Comparables companies based on the Functions performed, asset, and Risk (FAR) analysis. (page 87 of PB): Sr.No. Name of the company Weighted average of operating profits on operating cost (%) 1 R S Software (India) Limited -2.00% 2 Akshay Software Technologies Limited -1.02% 3 Sagar Soft India Limited 1.52% 4 Maveric Systems Limited 9.27% 5 InfoMile Technologies Limited 10.87% 6 CG-VAK Software Exports Limited 12.35% 7 Mudunuru Limited 13.18% Data place Range 3 35th percentile 1.52% 5 65th percentile 10.87% 2.3 In the Transfer Pricing Study ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35th percentile 14.13%, Median 19.36% 65th percentile 24.73% 2.5. Thus the mean of Comparables Margin of OP/OC was 24.73 % where as that of the assessee was only 10.95%. Therefore, the TPO concluded that the Assessee s margin of OP/OC is lower than that of comparables, the Transactions were not at Arm s Length. Hence the TPO proposed an adjustment of Rs.8,69,53,667/-. 2.6. Aggrieved by this Transfer pricing Adjustment the assessee is in appeal before us. Thus the only issue is transfer pricing adjustment. 3. Submission of Ld.AR: Ground No.3: Modified ground of appeal filed on 9 May 2022 Akshay Software Technologies Limited ( Akshay ) The Appellant would like to mention that Akshay should be age included as comparable on the following account: The company is engaged in rendering software development services and the same is evident from Note 18 'Revenue from operations' as it derives revenue from services. The above fact is also affirmed in Note 26 'Earnings in foreign currency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with its subsidiaries, Exilant provides/ delivers business solutions through global software development, Business IT services, application development and maintenance, business process management, business technology consulting, cloud and product engineering, (refer page 1372 of paperbook II). The company is into diversified business activity and segmental details are not available. The company is also into research and development work and possess intangibles in the form of patents and also develops intagibles.(refer page 1277 and 1327 of paperbook II). The business model of this company is different from the appellant company as it provides on-site software services. Accordingly, the companies having different business model cannot be called as comparable to the Appellant. The learned TPO/ Hon'ble DRP proposed to reject Maveric since its into onsite activity and hence the same principle should be applied for rejection of said company. Case laws relied upon: M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016- 17 (Refer para 19 of the order on page nos 1629 to 1631 of paperbook III) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applications including customized and packaged software. (Refer page 1405 of paperbook II) The website extracts shows that it provides digital and engineering services to the clients, (refer page no 285 of the paperbook I) Maveric is also in the business of software testing, however the same has been rejected as comparable by the learned TPO/ Hon'ble DRP. Accordingly, following the principle of consistency Puresoftware should also be rejected from the final set of comparables. Infobeans Technologies Limited ( Infobeans ) The Appellant would like to mention that Infobeans should be rejected as comparable on account of the following reasons: The company is engaged in providing business IT services such as Custom Application Development (CAD), Content Management system (CMS), Enterprise mobility and Big data analystics. (refer page 737 of paperbook I). Further, from the website extract of Infobeans it is clear that it provides high end services such as Automation (RPA and CICD), CLoud, UX, Data Storage and Standards Publishing, (refer page no 295 and 296 of paperbook I). Infobeans provides high end services and cannot be compared with the Assessee who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Limited as per order of Hon'ble Gujrat High Court dated 29 March 2016. The merger took effect from 1st April 2021. (refer page no 964 and 1127 of paperbook I) The amalgamation has channelized the synergies and lead to optimum utlization of available resources and result in greater economies of scale, (refer page no 1127 of paperbook I) The company's margin is also abnormally high i.e. 79.25%. Case laws relied upon: M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016-17 (Refer para 18 of the order on page nos 1627 to 1629 of paperbook II); John Deere India (P) Ltd. (ITA No. 2663/PUN/2016 2775/PUN/2016) order dated 29 January 2020 for AY 2011-12 (Refer para 13 of the order on page nos 1868 to 1869 of paperbook III); and Redknee (India) Technologies Private Limited (ITA No. 486/PUN/2016) order dated 29 June 2018 for AY 2011-12 (Refer para 6 of the order on page nos 1882 to 1884 of paperbook III) Dun Bradstreet Technologies Data Services Private Limited ( Dun Bradstreet ) The Appellant would like to mention that Dun Bradstreet should be rejected as comparable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering software development support services to its AEs. SAS R D works under the direction and supervision of its AEs. SAS R D supports the development center of its AE, SAS US which has been established more than 30 years ago. Under the software development support activity, SAS R D supports the development of SAS software products by assisting in development of certain SAS Software Products based on the specifications of AE. AEs of SAS R D are responsible for directing SAS R D and allocating work to SAS R D. Consultancy and training services: Consultancy Services - PSCC: SAS R D is engaged in supporting SAS US on consulting projects i.e., installations, writing of routines/ codes, ETL, data management, data warehousing/ business intelligence and analytics. PSCC team of SAS R D works closely with the Professional services team of SAS US. This team primarily provides offshore software delivery and support to SAS US. Considering the fact that SAS R D provides offshore support, the main activities in relation to installation and configuration of the Software products are performed by teams from AE at customer location. Training services: SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant assessee has challenged the rejection of the comparable Maveric Systems Ltd which according to the assessee is functionally comparable. 6.1 The TPO and DRP has held that the said comparable is in the business of Software testing services where as the assessee is in the business of Software Development Services. The TPO, DRP has also observed that the said comparable is mainly Onshore service provider. Therefore, the TPO and DRP held that this comparable is functionally not comparable. 6.2 The Ld.AR has mainly submitted that Software testing is part of the life cycle process of Software Development. Therefore, he submitted that its is comparable. 6.3 We have already reproduced functions carried out by the assessee company in earlier paragraphs. It has been accepted by the assessee in the transfer Pricing Study report that assessee does Software development as per the basic design provided by its AEs. It is also mentioned in the TPSR that assessee also undertakes the design and other services in the entire Software development life cycle. Assessee also undertakes software coding. 6.4 Whereas, the Maveric Systems Ltd is only providing Testing Services. It is menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that the Maveric Systems Ltd is not a comparable to the assessee taking into consideration FAR of both the companies. 6.7 Ld.AR has relied on the order of ITAT Pune in the case of Xpanxion International Pvt Ltd., in ITA No.666/PUN/2016 for A.Y. 2011-12. In the said order in para 8 the ITAT has cryptically mentioned that Maveric Systems Ltd was engaged in Software Development Services. However, the Ld.CIT(DR) has relied on the Order of ITAT Pune in the case of PTC Software India Ltd where in the ITAT held that Maverick is not comparable to companies providing Software development services. 6.8 We have gone through both the orders of ITAT quoted by both the parties. We have already reproduced the Functions of the Maveric Systems Ltd as mentioned in the Annual Report for FY 2015-16, that maverick is in the business of Software Testing. Therefore, we find that the case law relied by the Ld.AR is of no help to the assessee. 6.9 Therefore, on facts and circumstances of this case and based on FAR we hold that Maverick Systems Ltd is not comparable to the Assessee. 6.10 Accordingly, the Ground No.3 of the Assessee is dismissed. AKSHAY SOFTWARE TECHNOLOGIES LTD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of supplying skilled manpower to clients, along with payroll services. It is also in SAP business. These activities are not Software Development. Therefore, Akshay Software Technologies Ltd is not functionally comparable to the Assessee company. 7.7 In addition to this in FY 2015-16, there has been a special event in Akshay which is mentioned in the Annual report. Quote, Revenue from operations for FY 2015-16 at ₹ 2484.67 lacs was higher by 14.04% over last year(FY 2014-15 ₹ 2178.73 lacs).Earnings before interest, tax, depreciation and amortisation (EBITDA)decreased from ₹ 6.82 lacs in FY 2014-15 to negative (₹ 126.21 lacs) in FY 2015-16 due to reductionin export income on account disinvestment of the subsidiary In FY 2015-16 there is one time credit (net)₹ 447.13 lacs on account of net gain on sale of investment in wholly owned subsidiary Unquote 7.8 This disinvestment and net gain of Rs.447 lacs is one time event, has affected profit. But as mentioned in the Annual report the disinvestment has affected export income also. Therefore, considering this onetime event, the Akshay Software Technologies Ltd is not comparable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book On page 1433 of Paper Book note 26 shows the Revenue from Software Development, Testing, Consultancy services, ARTHA, Mobile Top up of Rs. 22,05,88,150/-. However, on the assessee s web site description of Artha is as under: Arttha is PureSoftware s award winning Unified Fintech Platform that enables financial institutions to accomplish their journey of digital transformation to promote financial inclusion. It uniquely offers propositions of Virtual Banking, Mobile Wallets, Digital Customer On-boarding, Agent Banking and Micro-Lending through a single converged platform based on a completely modular and microservices architecture. 10.3 Thus, the company has a digital valet platform. The segmental are not available. Therefore, it is not functionally comparable to the assessee. Hence, this comparable is rejected. 10.4 Accordingly, this additional ground is allowed. Infobeans Technologies ltd: 11. The TPO has observed that the company is software Service Company specialising in business IT services. It provides software engineering services primarily in Custom Application development, Content management, Big Data Analytics. 11.1 These services are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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