TMI Blog2019 (9) TMI 1686X X X X Extracts X X X X X X X X Extracts X X X X ..... selected for scrutiny and accordingly, notices issued u/s 143(2) and 142(1). . In response to the said notices, the AR of the assessee furnished the information called for. 2.1 After verification of the information, the AO referred the matter to TPO u/s 92CA of the Act, for determination of arm s length price in respect of international transaction reported by the assessee for the AY 2011-12. 3. International transactions: AE Nature of transaction Amount (Rs.) GE Healthcare Receipt for provision of software development services 49,007,274 GE Healthcare Receipt for provision of IT enabled services 8,418,000 3.1 Examination of TP study conducted by assessee: The assessee has carried out the economic analysis and has summarized it as under: Nature of international transaction Amount (Rs.) MAM PLI Margin of taxpayer (%) Margin of comparables (%) Contract software development services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Solutions Ltd. 24.58 8 Kals Information Systems Ltd. (seg.) 10.35 9 Larsen Toubro Infotech Ltd. 18.08 10 Mindtree Ltd. 11.91 11 Persistent Systems Solutions Ltd. 21.51 12 Persistent Systems Ltd. 26.76 13 RS Software (India) Ltd. 16.35 14 Sankhya Infotech Ltd. 17.64 15 Sasken Communication Technologies Ltd. 26.99 16 Tata Elxi Ltd. 13.77 17 Zylog Systems Ltd. 26.21 Arithmetic Mean 19.46 Particulars Amount (Rs.) Total operating income (OR) 4,90,07.274 Total operating cost (OC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.78 12 Microgenetic Systems Ltd. -0.22 13 TCS E-serve Ltd. 76.28 Arithmetic Mean 25.73 Particulars Amount (Rs.) Total operating income (OR) 84,18,000 Total operating cost (OC) 76,88,957 Operating profit (OP) 7,29,043 OP/OC (%) 9.48 3.7 Computation of arm s length price by TPO and the adjustment made as under: Arm s length mean margin on cost 25.73% Less: Working capital adjustment 2.19% Adjusted mean margin of the comparables A 23.54% Operating Cost B Rs. 76,88,957 Arm s length price (116.93% of operating cost) C=B*123.54% Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking capital adjustment 2.53 Adjusted Arm s length margin 16.71 Consequent to the above, the AO computed adjustment of Rs. 5,55,782/- towards international transaction of provision of IT enabled services. 5.3 Thus, the AO vide final assessment order dated 28th January, 2016, computed total TP adjustment to be at Rs. 35,13,856/-, against which, the assessee is in appeal before us raising the following grounds of appeal: Transfer Pricing Matters 1. That the order passed by the learned Assistant Commissioner of Income-tax, Circle-16(2), Hyderabad Assessing Officer ( AO ) pursuant to the directions of the learned Dispute Resolution Panel ( learned DRP or learned Panel ) under section 143(3) read with Section 144C of the Income-tax Act, 1961 ( the Act ), also read with the order passed by the learned Joint Commissioner of Income-tax (Transfer Pricing, Hyderabad) ( learned Transfer Pricing Officer or learned TPO ) under section 92CA of the Act, is erroneous on facts and bad in law and is liable to be quashed. 2. That the learned AO/ DRP erred both in facts and in law in making an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing documentation and in conducting a fresh comparability analysis for the SWD and ITES segments of the Appellant based on the application of additional filters in determining the arm's length price. e) Upholding the acceptance of companies that fail the parameters / tests of comparability analysis while performing the comparability analysis and arriving at the final set of comparables in the TP order with respect to the Appellant's SWD and ITES segments. f) Upholding the action of the learned TPO in rejecting companies which pass the test of comparability and are functionally comparable to the Appellant in relation to the SWD and ITES segments. g) Rejecting certain companies which otherwise pass the test of comparability and are functionally comparable to the Appellant in respect of the SWD and ITES segments and were also not particularly disputed by the Appellant. h) Upholding the learned TPO's approach of disregarding certain filters as applied by the Appellant in selection of the comparable at the time of transfer pricing documentation and for the determination of comparables while conducting the search for the SWD and ITES segments without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uested the Bench to adjudicate on these issues only. In this regard, he filed written submissions. 6.1 As regards exclusion of Persistent Systems Ltd., in software development services, it was stated as under: Functionally different: The annual report of the company indicates the following: The company specializes in software product development services and provides end to end software development services to IT product companies. The company is predominantly engaged in Outsourced Product Software Development Services and offers complete product life cycle services. The company is building. IP portfolio which includes Cloud computing, BI Analytics, Collaboration and Mobility. Revenue of Co. is both from software services as well as products and no bifurcation of income is given. The company has derived revenues from provision of software services as well as products; However, no segmental details are available in the annual report for the year under consideration. Company acquired OPD Business of Infospectrum India Pvt. Ltd. during year. The turnover of Persistent Systems for FY 2010-11 is Rs. 610.12 crores which is 13 times the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [ITA No. 682 of 2016] (Delhi HC) (AY 2011-12) Para no. 4 5 Conexant Systems (P.) Ltd. vs. DCIT [(2018) 91 taxmann.com 308 (Hyd)] (AY 2011-12) - Para no. 6.2 and 9 on page 3 and 4 Symantec Software Services India (P) Ltd. [(2017) 79 taxmann.com 208 (Chennai)] (AY 2011-12) - Para 11 12 Page 9 10 Saxo India (P) Ltd. vs. ACIT - AY 2011-12 - [(2016) 176 TTJ 540 (Del] - Para 15 Page 16 6.5 As regards exclusion of comparable company i.e., Crossdomain Solutions Pvt. Ltd., in IT Enabled Services, it was stated as under: Functionally different Co. is engaged in rendering Business Process Management Service's and focuses on knowledge intense processes. Co. thrives on Business Excellence and leverages models such as Six Sigma and Kaizen along with IT which are high end services. The service offering of cross domain include Knowledge Service Outsourcing in Insurance, Healthcare, HR and Accounting domains. The company also offers business Excellence, Market Research and Data Analytics and IT services. Decisions where Cross Domain was excluded based on functionality: 6.6 Ld. AR relied on the following decisions where Cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO negatived this contention and included the same in the final set of comparables. 14.2. After considering the rival submissions and perusing the relevant material on record, we find from Profit Loss Account of this company, a copy of which is placed at page 1534 of the paper book, that its income from 'Sale of software services and Products' is amounting to Rs.6101.27 millions. The TPO has himself observed that this company does have some products, but, product revenue is only 7.2% and, hence, this company is predominantly a software service provider. This discussion is contained in para 21.67 of the TPO's order. Even Schedule-11 to the Profit Loss Account also shows 'Sale of software services and Products.' This shows that this company is engaged in both rendering software development services as well as sale of software products. Albeit the percentage of software products in the total revenue is less, as has been noted by the TPO, yet, we are inclined to take it as non-comparable because there is no precise information about the contribution made by such small sale of software products to the total profit of the company. As no segmental informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcing. Crossdomain. has created are engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours*. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll. retrials. reimbursement. tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000. Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn-a round-time for business critical processes. As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. III. I. We are of the view that in the absence of any reasons given to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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