TMI Blog2023 (4) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... TNMM makes room for broad comparability. Considering the fact that this company is earning revenue from only one segment, viz., software services, we hold that it can be treated as a comparable to the assessee. Therefore, we do not find merit in the submissions of the assessee. Infosys BPO cannot be treated as comparable to the assessee.Undisputedly, the assessee is a purely captive service provider and minimal risk bearing entity. Whereas, Infosys BPO is a risk bearing entity having diversified activities. It has the advantage of Infosys brand name and has established itself as a front runner in the BPO sector - turnover of Rs.2323 crores reported by Infosys BPO compared to turnover of Rs.96 crores reported by the assessee makes the assessee a pigmy qua Infosys BPO. MPS Limited (MPS) - No doubt, this company forms part of the list of comparables selected by the assessee in its TP study report - in course of the proceedings before learned DRP, the assessee in its submissions has sought exclusion of this company citing various reasons. As could be seen from the directions of learned DRP, no discussion has been made on acceptability or otherwise of this company as comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outset, we will deal with comparables objected in software services segment. As could be seen from the facts on record, in respect of international transactions relating to provision of software development services, assessee benchmarked the transaction applying Transactional Net Margin Method (TNMM) as the most appropriate method. For comparative analysis, assessee selected 22 companies as functionally comparable. Since, the margin shown by the assessee at 15.01% was found to be within the arm s length range of the average profit margin of the comparables, the transaction with the AE was claimed to be at arm s length. However, the Transfer Pricing Officer (TPO) did not accept the TP analysis of the assessee after pointing out various deficiencies with regard to selection of comparables. After carrying out Function, Asset and Risk (FAR) analysis the TPO rejected 14 comparables selected by the assessee while retaining 8. Additionally, he introduced 8 fresh comparables selected by him. The average margin of the comparables selected by the TPO worked out to 29.07% as against assessee s profit margin of 15.00%. Accordingly, TPO suggested upward adjustment to the Arm s Length Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n reply, learned Departmental Representative drew our attention to the TP study report of the assessee and submitted that the software development services as well as ITES segments of the assessee are similar in all respect. He submitted, the assessee is doing various activities, including manufacturing as it is engaged into chip production and products designing. Drawing our attention to the financial statements of Infobeans, learned Departmental Representative submitted that it does not reveal that the company is into sale of software products. Further, he submitted, the quantum of sales tax and VAT liability does not make out a case that this company is a product company. 8.4 We have considered rival submissions and perused the materials on record. The main plank of assessee s contention for removal of this company is to the effect that it is engaged in diversified activities, including, sale of products. Whereas, segmental details relating to income and expenditure of various segments are not available. On perusal of materials on record, including financial statement of Infobeans, it is observed that in the statement of profit and loss account the company has shown revenue f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, data modeling, statistical analysis, machine learning technique, etc. Considering the fact that Infobeans Technologies Ltd. is engaged in diversified activities and segmental details are not available, the Tribunal, Pune Bench, in Pubmatic India Pvt. Ltd. (supra) has held that this company cannot be treated as comparable. In case of M/s. Emersion Electric Co. India Pvt. Ltd. (supra) which is for the very same assessment year, the Coordinate Bench following the decision rendered in case of Pubmatic India Pvt. Ltd. (supra) has held that Infobeans Technologies Ltd. cannot be considered as comparable to a routine software development service provider. The same view was again expressed by the Tribunal, Delhi Bench, in M/s. Abhay India Pvt. Ltd. (supra). Keeping in view the consistency in the decisions of the Tribunal with regard to the comparability of Infobeans Technologies Ltd. with a routine software development service provider, we hold that this company cannot be a comparable to the assessee. Accordingly, we direct the Assessing Officer to remove this company from the list of comparables and determined the arm s length price. 8.6 Similar view has been expressed in various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any placed in the paper-book, it is observed that the company is engaged into diversified activities, including provision of software services. However, the segmental details relating to various segments are not available in public domain. Further, unlike this company, the assessee is not providing technical services. While examining the comparability of this company to a routine software service provider, the Coordinate Bench in case of M/s. Emerson Electric Company (India) Pvt. Ltd. Vs. ACIT (supra) has held as under: 13.5. Exclusion of Cybercom Datamatics Information Solutions Ltd - Margin of 76.21% It was pleaded that this company is engaged in sale of software and hardware products, rendering of consultancy / advisory services on information / internet systems and surveyors of information services in the nature of strategic advice, security solutions which are in the nature of high end consultancy services. The assessee pleaded that the segmental data in respect of aforesaid diversified activities are not available and hence not comparable apart from functional dissimilarities, in view of the fact that assessee is engaged into routine software development services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. In view of the aforesaid fact-finding of the learned ^burial, this Court cannot re-appreciate the same. Accordingly, the appeal is dismissed. Miscellaneous petitions pending, if any, shall stand closed. No order as to costs. 13.5.1. We have already placed reliance on the decision of Pune Tribunal in the case of Pubmatic India Pvt. Ltd. supra which had also endorsed a similar proposition. Respectfully following the same, we direct the ld. TPO to exclude this company from the list of comparables. Accordingly, the ground No.4 raised by the assessee with regard to software development services stand disposed off in the aforesaid manner. 9.3 In view of the discussion made above, we direct the Assessing Officer to exclude this company as a comparable. Octaware Technologies Limited (Octaware) 10. Objecting to selection of this company as a comparable, learned counsel submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er service outsourcing, legal process outsourcing to digital business services business, travelling services and robotic process automation. She submitted, the company renders legal process outsourcing services using its own technology tools and is also involved in digital content creating and designing. She submitted, the company is an established player in BPO industry and has positioned itself amongst the top 10 BPO companies in India and is an industries giant in BPO sector. She submitted, the company operates as full-fledged risk bearing entity and owns substantial intangibles. She submitted that the company has incurred sales and marketing expenditure of more than 100 crores which demonstrate that it has brand value. Proceeding further, she submitted, the company has a huge turnover of Rs.2323 crores as compared to meager turnover of Rs.90 crores of assessee. Thus, she submitted, under no circumstances the company can be regarded as a comparable to the assessee. In support, she relied upon the following decisions: i. Avaya India Private Ltd. Vs. ACIT [ITA No.532/2019] (Delhi HC) ii. Agilent Technologies (International) Pvt. Ltd. Vs. ACIT [ITA No.4191/Del/2018] (Delhi IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han one segment, whereas, segmental information is not available. She submitted, the financial statements also reveal that this company has a different business model as it has outsourced its activities. Further, she submitted, the company has reported abnormal increase in profit rate. Finally, she submitted, since, the DRP has not made any discussion on the comparability of this company, the issue can be restored back to the Assessing Officer. 12.1 Learned Departmental Representative submitted, it is a company selected by the assessee itself. He submitted, before DRP, the assessee had not raised any ground against selection of this company as a comparable. Thus, he submitted, the plea of the assessee in exclusion of the comparable should not be entertained. 12.2 In rejoinder, learned counsel submitted, the assessee did object to selection of this company as comparable in submissions made before learned DRP. 12.3 We have considered rival submissions and perused materials on record. No doubt, this company forms part of the list of comparables selected by the assessee in its TP study report. However, in course of the proceedings before learned DRP, the assessee in its submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2015-16, the issue has to be restored back to the Assessing Officer. Having considered the submissions of the parties, we find, while dealing with identical issue in assessment year 2015-16, the Tribunal has restored the matter to the Assessing Officer with following directions: 9 The TPO Erred in not giving effect to the directions of Id. DRP who directed to verify and take correct margins of the comparables and adopted and inconsistent approach while computing operating margin of the comparable companies used in the determination of the ALP resulting in incorrect margins of the comparable companies. Detailed computation of margins of comparables provided to TPO pursuant to Id. DRP directions. We have perused the same in the paper book at page nos. 1709 to 1747. The AO is directed to re-compute the margins. The assessee would furnish the clarifications promptly, if any, required by the Assessing Officer. 20. Accordingly, we restore the issue to the Assessing Officer for deciding afresh following the aforesaid directions of the Tribunal. Ground is allowed for statistical purposes. 21. No specific argument having been advanced in respect of rest of the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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