TMI Blog2020 (1) TMI 1628X X X X Extracts X X X X X X X X Extracts X X X X ..... n services as well as enterprise computing, mobile computing. Employee cost filter of 25% is not met as the assessee s employee cost percentage is only 20.14%. E-infochips Bangalore Ltd.this company is primarily engaged in software development and IT enabled services and products and no further segmental break up between two functions is provided in the annual report and it is also involved in the R D activities. This company has incurred significant expenditure of approximately ₹2 crores on account of research and development activities. Therefore it is directed to be excluded. Thirdware Solutions Ltd was engaged in the provision of software development services and also involved in the provision of other information technology enabled services. The segmental break up of revenue attributable to software development services and ITeS is not available in the case of Thirdware - segmental break up not available has been taken note of and the said company was excluded from the comparables. Therefore we also direct this exclusion of this company from the comparables. Infinite Computer Solutions (India) Ltd company is involved in the provision of information technology se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( CUP ) and in this regard used the transaction between its AE and Inteq Software Ltd. as an Internal CUP. However, the Transfer Pricing Officer ( the TPO ) rejected CUP as the most appropriate method and instead applied the Transactional Net Margin Method ( TNMM ); and selected certain companies as comparables. In the proceedings before the DRP, the appellant objected to the adoption of TNMM as the most appropriate method and reiterated its submissions on CUP as being the most appropriate method. Without prejudice, the appellant also objected to the comparables selected by the TPO and proposed other comparables. The DRP rejected the submissions of the appellant on the selection of the most appropriate method but gave limited relief with regard to selection of comparables and computation of margin. 3. The contentions in the appeal, inter alia, are that CUP is the most appropriate method; in any event, the revenue s comparables under TNMM should be rejected, the assessee s comparables be accepted and the arm s length price be correctly determined. 2. The ld. Counsel Sr. Advocate, Mr. J.P. Khaitan submitted that, the transfer pricing adjustment cannot be sustained, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the same from the list of comparable companies and drew our attention to page no. 71 of the paper book(13 of the order) and therefore, he pleaded that the said company should be excluded from the comparables. 7. In the case of Thirdware Solutions Limited he submitted that the said company is also functionally different and there is unavailability of segmental information. It is also involved in the sale of products other than software development services. Thus the functional profile of the assessee is different and drew our attention to the annual report page 381 of paper book vol. 1 and page 35 of CPB (Convenience Paper Book) to show that segmental break up of revenue attributable to software development services and ITeS is not available in the case of Thirdware. Therefore, he prays for exclusion of this company also and he drew our attention to the decision in the case of Philips India Limited [ITA No. 2489/Kol/2017 AY 2013-14] wherein Tribunal taking note that segmental break up of revenue is not available in the case of Thirdware Solutions Limited at page no. 49 50 of the order and ordered its exclusion. 8. In the case of Infinite Computer Solutions (India) Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consistent with the view taken by the coordinate Bench of the Tribunal in the case of Nomura Research Institute Financial Technologies India (P) Ltd. (supra) we direct this company be excluded from the list of comparable companies for the reason that this company provides software services. The RPT is 43.18% of the operating revenue while a filter of 20% has been applied by the TPO. The TPO wrongly applied the entire revenue of ₹37.16 crores as from software services whereas the fact is that only ₹3.01 crores was from software services and the balance is ₹34.15 crores from engineering design charges. 12. Moreover, we also note that this company has stopped its software business from December, 2010. Therefore this company is any way functionally different (page no. 7 of printed accounts) for this assessment year. Respectfully following the decision of this Tribunal in assessee s own case for AY 2011-12 and since no change in facts of law could be brought to our notice, we direct that this company be excluded from the list of comparable companies. ii. Zylog Systems (India) Ltd.: We note that Tribunal has in assessee s own case for AY 2010-11 held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solutions (India) Ltd.: As per the annual report this company is involved in the provision of information technology services of Application management, Infrastructure management, Product engineering services, Next-generation messaging platforms, Enterprise mobility solutions to the telecom, Healthcare and Financial services sectors, R D and Intellectual property leveraged solutions and related IT services. Therefore this company is functionally different and also it fails in the RPT percentage on total operating revenue of 47.01%. So we direct as per the aforesaid discussion, the exclusion of the following companies from the list of comparable companies: 1. Axit IT T Ltd. 2. Zylog Systems (India) Ltd. 3. E-infochips Bangalore Ltd. 4. Thirdware Solutions Ltd. 5. Infinite Computer Solutions (India) Ltd. 13. Ground no. 4-The working capital adjustment: We note that the DRP has directed the AO/TPO to provide the benefit of working capital adjustment to the assessee. However it was brought to our notice while giving effect the DRP order to AO/TPO has not given effect to it. It is well settled that the direction of DRP is binding on the TPO and we d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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