TMI Blog2020 (11) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... m the assessee company and, therefore, has to be excluded from the list of final comparables as comparable. Sasken Communication Technologies Ltd. - As decided in SAXO INDIA PVT. LTD VERSUS. ACIT, [ 2016 (2) TMI 604 - ITAT DELHI] though the break-up of revenue from software services and software products is available, but, the break-up of operating costs and net operating revenues from these two segments have not been the TPO has taken entity level figures for the purposes of making comparison. Since such entity level figures contain revenue from both software services and software products, as against the assessee only providing software services, we are disinclined to treat this company as comparable. The assessee's contention is accepted on this issue we direct the AO/TPO to exclude Sasken Communication Technology Ltd. from the list of final comparables. - ITA No. 475/Hyd/2016 - - - Dated:- 9-11-2020 - SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND D.S. SUNDER SINGH, ACCOUNTANT MEMBER For the Assessee : Shri Aliasger Rampurwala For the Revenue : Shri YVST Sai ORDER PER P. MADHAVI DEVI, J.M.: This appeal of the assessee is directed against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding application of multiple year/prior year data as used by the Appellant in the TP documentation; 2.4. Disregarding certain filters as applied by the Appellant in selection of the comparable companies at the time of TP documentation. 2.5 Applying/modifying certain filters while undertaking comparability analysis; 2.6. Including companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile such as; (i) Persistent Systems Limited (ii) Sasken communications Limited 2.7. Not considering comparables similar to the Appellant in functions, asset base and risk profile while performing comparability analysis such as: (i) Evoke Technologies private Limited (ii) Sankhya Infotech Ltd. 2.8 Not granting risk adjustment; 3. On the facts and circumstances of the case and in law, the Ld DRP/ AO/TPO erred in: a. not treating provision for doubtful debts as part of operating cost while computing the operating mark-up on total cost of the comparable companies; and b. not treating provision no longer required written back as part of operating income while computing the operating ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin was within the arithmetic mean PLI of 12 companies, it was held that the transactions were within the arm s length. He submitted that the TPO, however, rejected the TP study of the assessee and arrived at 17 companies as final comparables to the assessee and arrived at the adjustment and arithmetic mean PLI of the comparables at 19.46% after allowing the working capital adjustment of 1.73%.Thus, the TPO proposed an adjustment of Rs. 43,28,861/- u/s 92CA in respect of provision of software development services. 5.1 The ld. counsel for the assessee submitted that before the TPO also the assessee had challenged the comparability of Persistent Systems Ltd. by contending that this company is functionally different as it is engaged in rendering outsourced product development services as against software development services rendered by the assessee company. It was also pointed out that the said company is having income from sales of software services and products and during the year, the said company had also acquired the business of Agilent, which owns intangibles and has high turnover as compared to the assessee. He submitted that the TPO did not accept assessee s contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular version. As a result, most product companies plan multiple product versions for their product. Every team member must contribute not only to building features for the current release but must also contribute enhancements and provide feed back for future releases of the product. In view of all the above features, ld. Counsel for the assessee submitted that Persistent Systems Ltd. is to be excluded from the list of final comparables. Further, he also placed reliance on the following decisions, in which, Persistent Systems has been held to be not comparable to a software development company like the assessee: Conexant Systems Pvt. Ltd. vs. DCIT (AY 2011-12) - ITA No. 464/Hyd/2016 - Para 9 Page 8 (Page 23 of the compilation) CIT vs. Intoto Software India Private Limited - ITA No. 233/2014 (AP HC) - Page 2 (Page 27 of the compilation) Intoto Software India Private Limited vs. ACIT (2014) 146 lTD 360 (Hyd ITAT) - Para 25 Page 10 (Page 37 of the compilation) PCIT vs. Saxo India (P) Ltd. - ITA 682/2016 (Del HC) - Para 4,5,10 (Page 47,48 51 of the compilation) Saxo India (P) Ltd. vs. ACIT (AY 2011-12) - (2016) 176 TTJ 540 (Del ITAT)- Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the list of final comparables as comparable. It is also further noticed that the said company has intangibles and the turnover is also high i.e. it has a turnover of Rs. 6,101.27 Millions as compared to assessee s turnover of 955.68 Millions. For these reasons also, the said company is distinguishable to the assessee company. Further, in the decisions relied upon by the ld. counsel for the assessee, Persistent Systems was excluded by ITAT. For the sake of ready reference, the relevant paras of ITAT order in the case of Conexant Systems for the AY 2011-12 are reproduced hereunder:- i. Persistent Systems Ltd: 6.1. The above company is engaged in product development which is different from software development services. The company is engaged in development of products. It earns revenue from licensing of products, royalty on sale of products as well as income from maintenance contracts. However, no segmental details are available. Ld. Counsel placed reliance on the following decisions where in this company was excluded as functionally not similar: i. Saxo India (P) Ltd. Vs. ACIT - ITA No. 6148/Del/2015 (Pg. 16; para 15.1 - 15.2) affirmed by Hon'ble Delhi H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The objection of the assessee is that the said company is into telecom software services and therefore is engaged in R D activities. The ld. counsel for the assessee has drawn our attention to the P L account of the said company where the income is shown from sale of software services/products and other services at page 68 of the paper book and the break up of the revenue from software is given at Rs. 35,685.92 Million and the software products is at Rs. 3721.84 Million. Therefore, according to the ld. counsel for the assessee since it is into software products as well, the said company should not be taken into consideration as comparable at all. The ld. counsel for the assessee relied upon the following cases for its exclusion: Conexant Systems Pvt. Ltd. vs. DCIT (AY 2011-12) - ITA No. 464/Hyd/2016 - Para 9 Page 8 (Page 23 ofthe compilation) CIT vs. Intoto Software India Private limited - ITA No. 233/2014 (AP HC) - Page 2 (Page 27 of the compilation) Intoto Software India Private limited vs. ACIT (2014) 146 lTD 360 (Hyd ITAT) - Para 25 Page 10 (Page 37 of the compilation) PClT vs. Saxo India (P) Ltd. - ITA 682/2016 (Del HC) - Para 4,5,10 (Page 47,48 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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