TMI Blog2023 (3) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi (hereinafter referred to as 'learned AO') under section 143(3) r.w.s. Section 144C(13) of the Act in pursuance of the directions dated 19 February 2021 issued by the Honorable Dispute Resolution Panel - 3 (WZ), Mumbai (hereinafter referred to as 'Hon'ble DRP') and the order passed by learned Transfer Pricing Officer ('TPO') dated 31 October 2019, on the following grounds: On the facts and in circumstances of the case and in law, the learned TPO, learned AO and Hon ble DRP have erred as under: 1. Inappropriate confirmation of transfer pricing adjustment of INR 7,90,08,000 in relation to the international transaction pertaining to provision of Information Technology ('IT') services to Associated Enterprises (AEs) Erred on the facts and in circumstances of the case and in law by confirming transfer pricing adjustment of INR 7,90,08,000 by not considering/accepting the analysis undertaken by the Appellant to determine arm's length price for its international transaction pertaining to provision of IT services for A Y 2016-17. 2. Non-consideration of comparability analysis as documented in the transfer pricing study r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies identified by the Appellant in respect of international transactions pertaining to provision of IT Services: - Akshay Software Technologies Limited - Mudunuru Limited - Cigniti Technologies Ltd - Maveric Systems Limited - Kals Information Systems - CG- V AK Software Exports Ltd - Infornile Technologies Ltd 7. Accepting certain additional companies as comparable to Ventura India in relation, to provision of IT Services Erred on facts and in circumstances of the case and in law in accepting following additional companies as comparable to the Appellant in relation to international transactions pertaining to provision of IT Services: - Cybage Software Pvt. Ltd. - Thirdware Solutions Ltd. - Aspire Systems (India) Ltd. - Nihilent Technologies Pvt. Ltd. - Harbinger Systems Pvt. Ltd. - E-Inforchips Ltd. - Dun Bradstreet Technologies Data Services Pvt. Ltd (Dun Bradstreet) - Exilant Technology Pvt. Ltd. - Puresoftware Pvt. Ltd. - Bhilwara Infotechnology Ltd. 8. Adopting of incorrect methodology while computing related party filter of 25% in case of Aspire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y interest under section 234B of the Act, as applicable, on account of unanticipated additions made to the total income of the Assessee on account of transfer pricing adjustment amounting to INR 7,90,08,000. The Appellant craves leave to add, alter, vary, omit, substitute or amend one or more of the above Grounds of Appeal at any time before or at the time of proceedings so as to enable your Honours to decide these objections according to law. 2. At the outset, learned counsel for the assessee submitted referring to the Grounds of Appeal filed in the Appeal Memo that the assessee is pressing only Ground No. 7 and rest of the grounds are not pressed. That after hearing the submissions of the learned counsel therefore, the only effective ground is Ground No. 7 and all other grounds filed in the Appeal Memo are dismissed as not pressed. 3. In respect to Ground No. 7, the assessee is disputing the inclusion of certain companies as comparables in the final set of comparables in respect of assessee-company for benchmarking international transactions and determination of ALP. The assessee wants exclusion of certain companies which have been included by the TPO/AO considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue from sale of services was Rs. 22,136.09 lakhs as per the P L account of the company and therefore, the T.P.O held that this company does not derive any revenue from software products and the assessee s objections were rejected. (c) The DRP dealt with this issue from pages 77 onwards and gave their finding at page 105 at para 8.2.4 onwards. The DRP as per its detailed findings upheld the observations of the T.P.O referring to the annual report of Thirdware Solutions Ltd. that mainly the income of the companies is from software services and thus the Thirdware Solution company was functionally comparable to that with the assessee. 5. At the time of hearing, the learned counsel demonstrated through annual report of the company which is annexed at paper 1217 onwards that Thirdware solutions is functionally different with that of the assessee and therefore, cannot be comparable company in the final set of comparables. In this regard, the assessee also placed heavy reliance in the decision of the Coordinate Bench Pune Tribunal in the case of Veritas Software Technology India P. Ltd. Vs. Dy. CIT (TP-2), Pune in I.T.A. No. 207/PUN/2021 for A.Y. 2016-17, order dated 31-12-2021. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue from subscription training and sale of licence as under :- Software Services from local unit : 2809.62; Export of Software Services : 19285.11; Revenue from Subscription Training : 32.59; and, Sale of Licence : 8.77 Even though, more than 90% of the total revenue is derived from provisions of software services. In the absence of segment-wise profits and losses, it is not possible to determine the impact of the operations of sale of products and training on the profitability of software service segment of the company. Therefore, we are of the considered opinion that this company i.e. Thirdware Solutions Ltd. cannot be compared with that of the appellant company which is purely software development company. In the circumstances, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. 6. The learned counsel for the assessee further submitted that the aforestated decision pertains to same assessment year i.e. 2016-17 which is presently before us. 7. Similarly the Co-ordinate Bench, Hyderabad in the case of ADP (P) Ltd. Vs. Dy. CIT. Hyderabad in ITA No. 227 and 228 (HYD) of 2021 for A.Y. 2016- 17 reported in (2022) 135 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) having found this company to be involved in development of software product and trading in software licenses has held that it cannot be a comparable to a software development service provider. Similar view has been expressed in the other decisions cited before us by the learned Authorised Representative. Since, many of these decisions relate to very same assessment year, following the ratio laid down in these decisions, we hold that this company cannot be a comparable to the assessee . The decision of Hyderabad Bench also pertains to the same assessment year i.e. 2016-17. We are of the considered view that on perusal of the aforestated decision and the Annual Repot of Thirdware Solutions Ltd. that this company is functionally not comparable to the assessee and that also the company is engaged in provision of diversified services for which separate segmental information is not available. In such scenario respectfully following the aforestated Tribunal decisions pertaining to the same assessment year i.e. 2016-17, we direct the A.O/T.P.O to exclude Thirdware solutions from the final set of comparables. 8. Asphire Systems (India) Pvt. Ltd. (a) The contention before the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of comparables by holding that the submissions made by the assessee are based on the website information which cannot be relied upon. (B) Being aggrieved, the appellant is challenging the inclusion of this company in the list of comparables by arguing that it is engaged in diversified activity such as product engineering, testing, IT infrastructure support, cloud computing, etc, exceptional year companies amalgamated with Aspire super normal profit-making company. (ii) The TPO had not considered the website information and it is super normal profit-making company and (iii) The business model of the company is different from that of the assessee company as it had rendered service of onsite and offshore. (C). On the other hand, ld. CIT-DR contended that the annual report does not reveal any income for sale of software products, ITES, in-fact the annual report revealed that the entire revenue operation only from onsite of software services, software development and the information contained in the website cannot be relied upon. As regards to the amalgamation to the company applied Development Software (India) Pvt. Ltd. and Pure Apps Consulting Services Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as a comparable. That, in the referred case, only indication available in the field report suggested that the said company was rendering both onsite and offshore services is incurring expenditure in foreign currency. There was no other indication available. In such circumstances, the matter was remitted back to the A.O/T.P.O to examine business model of the said company with that of the assessee company and adjudicate the issue of the comparability. That, in the same of line on the same parity of reasoning, the ld. D.R also conceded that the matter may be restored to the file of the A.O/T.P.O for adjudication. In view thereof, this issue is remitted to the file of the A.O/T.P.O as per the directions contained at para (E) in the decision of Veritas Software Technology India Pvt. Ltd (supra). 10. E-Infochips Ltd. (a) The assessee submits that this company is also not functionally comparable for the following reasons. E-Infochips is engaged in manufacturing and sale of products; E-Infochips is engaged in diversified portfolio and therefore, functionally not comparable to the assessee. E-Infochips is consistently earning super-normal profits; E-Info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition had insignificant impact on the profitability of this company. (B) The TPO further held that the company cannot be excluded based on the website information. Even the DRP also upheld the inclusion. (C) Being aggrieved, the appellant is before us in the present appeal. (D). The ld. AR submitted that the company is into diversified activity such as, IT enabled services and sale of products. He placed reliance on the information contained in the disclosure of Accounting Policies etc., wherein it is stated as under : e-Infochips Limited (e-Infochips) provide solutions to key verticals like Aerospace Defense, Automotive, Consumer Electronics, Energy Utilities, Healthcare, Home, Office, Industrial Automation, Media Broadcast, Medical Devices, Retail E-Commerce, Security Surveillance and semiconductor. Our attention is also drawn to the information contained on segmental reporting at page 2686 of the paper book wherein it is stated as under : Information about Primary Segments. The company is primarily engaged in Software Development and IT enable services and products which is considered the only reportable business segment as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se also, the T.P.O held that the revenue of this company is mainly from software services as per the annual report and thus continues as functionally similar with the assessee, therefore, included in the final set of comparables. (b). The DRP has dealt with this issue from page 117 to 120 from para 8.2.9 onwards and has upheld the observations of the T.P.O. (c) The assessee once again relied on the decision of Co-ordinate Bench of Pune Tribunal in the case of Veritas Software Technology India Pvt. Ltd. (supra) and we find that it was observed and held as follows: 17. DUN AND BRADSTREET TECHNOLOGIES DATA SERVICES PVT. LTD. : The appellant sought the exclusion of this company from the list of comparables selected by the TPO on the ground that (i) Functional dissimilarity, as the company is engaged into diversified activities and no segmental information is available. However, the TPO rejected the contention of the appellant by holding that entire revenue of the company is derived from the activities of the provisions of software services. (B) Even the DRP confirmed the inclusion of this company in the list of comparables. (C). Before us, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity of reasons as aforestated in the same facts and circumstances, the issue in respect of this company is remitted back to the file of the A.P.O/A.O as per our similar directions provided in the above referred judgment. 12 . Exilant Technologies Pvt. Ltd. It was submitted by the assessee that this company is engaged in the business of information technology consulting and implementation and therefore functionally different to Ventura India; and Segmental information of Exilant Technologies is not available. (a). The T.P.O observed and held as follows: The contention of the assessee that Exilant Technologies is functionally different is not acceptable. It can be seen from the Annual Report on page No. 1 under the head Description of product or services category that the company is engaged in information Technology Software and other related services. Further, on page 15 of the annual Report, under the head Principal Business Activities of the Company it is stated as below. Name and description of main products /services % to total turnover of the company Information of Technology Software and Other related services 100% Moreover, it can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue of Rs.375,93,43,986/-, revenue of Rs.375,57,97,901/- was from sale of services, and, thus, 98.39% of the total revenue is from software development and only 0.09% of the revenue is earned from sale of products. Accordingly, the TPO has held that the company is comparable to the assessee. The contentions of the assessee are based partly on the information available on the website of the company, which, as discussed above, cannot be considered. The assessee has also relied upon the information available in the Annual Report on Page 102, under the heading, Company Overview , in support of its contention that Exilant also provides business solutions, business IT services, application development and maintenance, etc. However, from the information extracted. By the assessee, it is apparent that these services are provided by the subsidiaries of the company. Further, the assessee has not disputed the above findings of the TPO, which are based on the Annual Report of the company. From the findings of the TPO, it is clear that the company is engaged in provision of software development services and almost the entire revenue is also from such activity. Since the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated and headquartered in India and has registered office in Bangalore, Karnataka. Apart from having offices in India, the company has offices in United States of America, United Kingdom and Singapore. The company has also its wholly owned subsidiary in Switzerland and Singapore. It is also submitted that the company provides product engineering and consulting services, develops and owns the intangibles. Finally, it is submitted that the business model of this company is different from that of the appellant company as it provides on-site software services. The ld. AR placing reliance on the judgment of Hon ble Delhi High Court in the case of PCIT Vs. Open Solutions Software Services (P) Ltd. (2020)116 taxmann.com 708 (Delhi), PCIT Vs. Aptara Technology (P) Ltd. (2019) 40 TR 100 (Bombay) and Rampgreen Solutions (P) Ltd. Vs. CIT (2015) 377 ITR 533 submitted that the companies having different business models are not comparable with the appellant company and therefore, urged for exclusion of this company from the list of comparables. (E). The ld. CIT-DR submitted that since 98.39% of the revenue is derived from the software development this company is comparable with tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies i.e. Maveric Systems Ltd., and Cigniti Technologies Ltd. These companies also, as evident from para 19.4 and 19.8 of the T.P.O s order are engaged in software testing services but these companies which were taken up as comparable by the assessee was rejected by the T.P.O while on the other hand the T.P.O has taken up Puresoftware Pvt. Ltd. and held it as comparable though it is also engaged in testing and software development. Thus, there is inconsistency in his decision. The ld. D.R submitted that the Puresoftware Pvt. Ltd. not only deals with software testing but also services and software development. Whereas Cigniti Technologies Ltd. is engaged in rendering software testing, services only and similarly Maveric Systems Ltd. is also rendering only software testing services. Therefore, the functionality of these companies i.e. Maveric Systems Ltd., and Cigniti Technologies Ltd., and Puresoftware Pvt. Ltd. are not 100% similar and there is some difference. The ld. D.R therefore, supported the order of the T.P.O in selecting Puresoftware Pvt. Ltd. as a comparable company with that of the assessee. (b) Having heard the rival contentions, we find that as evident from the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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