TMI Blog2019 (8) TMI 1868X X X X Extracts X X X X X X X X Extracts X X X X ..... o remit this aspect also to the TPO for factual verification and order accordingly. Cigniti Technologies Ltd. is engaged in software testing services and the same has been found to be functionally different from software development services in the aforesaid case law. Following the precedents as above, we direct that the above comparable should be excluded. - I.T.A. No. 6791/Mum/2018 - - - Dated:- 2-8-2019 - SHRI SHAMIM YAHYA (AM) AND SHRI AMARJIT SINGH (JM) For the Assessee : Shri Danesh Bafna Shri Pratik Shah For the Department : Shri Anand Mohan ORDER Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the order of Assessing Officer passed pursuant to direction of learned Dispute Resolution Panel (DRP) dated 4.9.2018 and pertains to A.Y. 2014-15. 2. Grounds of appeal read as under :- 1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel-1, Mumbai ('Ld. DRP') erred in confirming the action of the Asst. Commissioner of Income-tax 15(2X1), Mumbai ('Ld. AO')/Dy. Commissioner of Income-tax, Transfer Pricing - 3(i)(i), Mumbai ('Ld. TPO') in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf with respect to related party transaction. Further, on the facts and circumstances of the case and in law, the Ld. TPO erred in retaining Aspire Systems in its comparability analysis even though it does not fulfill the filter applied by Ld. TPO himself in rejecting companies having extra-ordinary events during the year. It is prayed that Aspire Systems be excluded from the set of comparables considered by the Ld. TPO for comparability analysis. 4. Though the assessee has raised various grounds, learned Counsel of the assessee has confined his arguments for inclusion of three comparables which have been rejected. 5. Brief facts of the case are as under :- Lionbridge Technologies Private Limited ('LB India' or 'the Assessee' or 'the Company') is a wholly owned subsidiary of LB Mauritius Limited ('LB Mauritius'), which holds 99.96 per cent of the shares. The company is engaged in the business of providing routine, low-end software development and related services [i.e. IT and ITES] and export thereof. The Company has filed its return of income for assessment year ('AY') 2014-15 on 27 November 2014, declaring a total income of INR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particular Amount in INR Operating Revenue 98,50,80,576 Add: Foreign Exchange Gain 4,91,89,455 Total Operating Revenue (A) 1,03,42,70,031 Cost of Sales 77,44,02,501 Add : Outsourcing Cost to third party's and AE's 12,92,54,059 Total Operating Expenditure (B) 90,36,56,560 Operating margin (A-B) = (C) 13,06,13,471 Margin 14.45% 9. Further the Id. TPO introduced additional comparables and rejected some of the assessees. The summary of the final set of comparables as per the Id, TPO's order is as below:- Sr.No. Comparables Operating margin OP/TC (%) 1. Accentia Technologies Limited ('Accentia') -17.11 2. Cigniti Technologies Limited ('Cigniti') 27.62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of foreign exchange income of the company is not available it is seen that the TPO had rightly rejected the comparable. 5.2.2 We have also gone through the further submission made by the assessee and it is observed that the TPO has selected the below given companies as comparables: (a) Aspire Systems India Private Limited Assessee has rejected the said comparable as it is not functionally comparable. However, we have gone through the TP Order and also the submission of the assessee and it is noted that the assessee has accepted that Aspire systems is into software development as compared to low end development of the assessee hence, from the same it is evident that Aspire systems is also into software development services. Further there is no merit in the claim of the assessee that there was extraordinary event as this is not borne from record. Since the company is functionally comparable, the objection of the assessee is rejected. (b) Cignity Technologies ltd. Assessee has rejected the said comparable as it is not functionally comparable. Further it is stated that there is an extraordinary event during the year. However, we have gone through the TP Order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel of the assessee submitted that this company is not functionally comparable. The said company is engaged into software technology and the assessee engaged in software development. In this connection, learned counsel referred to the ITAT Bangalore Bench decision in the case of Advice America Software Development Center (P) Ltd. Vs. ITO (94 taxamnn.com 179). Learned counsel made further written submission. Learned Counsel submitted following conclusion :- 5.2 If the above arguments of the Appellant are accepted, then the arithmetic mean of the remaining comparables would be as follows:- Sr.No. Name of Company OP/TC (post WCA) 1 R S Software (India) Ltd. 24.33% 2. Accentia Technologies Ltd. -17.11% 3- Infobeans Technologies Pvt. Ltd. 41.85% ARITHMETIC MEAN 16.36% C. +/- 3% of the Net Margin of the Appellant: Particulars Margin Net Margin of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t service unless segmental data is available: CIT vs. PTC Software (I) Pvt. Ltd. (2017) 395 ITR 176 (Bom HC) CIT vs. Intoto Software India Private Limited-ITA No. 233/2014-(AP HC) 15. Respectfully following the above we direct that Thirdware Solutions Ltd. should not be considered as comparable. 16. As regards exclusion of Aspire Systems India Pvt. Ltd., we note that it is the plea of the assessee that the TPO has himself applied quantitative filter for excluding those companies whose Relates Party Transaction (RPT) is greater than 25%. This aspect has arising out para 5 to 6 of the TPO s order. Further learned Counsel of the assessee has given following working for the proposition that RTP is greater than 25% :- Particulars Amount (Rs.) Rendering of services 22,34,17,070 Purchase of services 18,82,53,307 Expenses reimbursed 96,50,786 Total related party transaction 42,13,21,163 Total Sales 156,52,92,158 Related party tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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