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TMI Blog2019 (11) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... ed October 26, 2015 of the Dispute Resolution Panel ("DRP"), made a transfer pricing adjustment of Rs. 1,05,70,181/- to the appellant's income. Being aggrieved, the appellant preferred the instant appeal before this Hon'ble Tribunal. 2. The appellant in its Transfer Pricing Study Report had benchmarked the transactions with its AE by applying "Comparable Uncontrolled Price" method ("CUP") and in this regard used the transaction between its AE and Inteq Software Ltd. as an Internal CUP [Reference- Pgs 10-13 of CUP Compilation Paperbook]. However, the Transfer Pricing Officer ("the TPO") rejected CUP as the most appropriate method and instead applied the Transactional Net Margin Method ("TNMM") (Pg 241 of PB 1); and selected certain companies as comparables (Pg 242 of PB 1). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems (India) Ltd. he relied on the decision of the ITAT Delhi Bench in the case of Alcatel-Lucent India Ltd. vs. DCIT, Circle-2(1), New Delhi, order dated 24.08.2016 and submitted that the company is functionally different and also fails to Employee Cost Filter ('ECF' for short) of 20%, as the filter of a minimum ECF of 25% was applied by the TPO. 6. In the case of 8K Miles Software Services Ltd. he submitted that, the functional profile of the company is stated as providing cloud consulting, cloud regulations, cloud application development etc., which requires specialised skill set and are materially and functionally different from the services provided by the assessee. He further contended that in this case it was an exceptional year of operation, as this company had made numerous acquisitions as it is seen in Annual Report, and that it has to be excluded from the list of comparables. 7. The ld. Sr. Advocate further requested for inclusion of the following companies as comparables for the purpose of computation of the ALP: i) Akshay Software Technologies Limited, ii) Maveric Systems Limited, iii) Thinksoft Global Services Limited and for this proposition he relied on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAM for determination of ALP for the assessee company's international transactions in this appeal and that the issue may be let open for adjudication in an appropriate year. Thus we proceed to consider the issue of inclusion and exclusion of companies from the list of comparable companies determined by the TPO for the determination of the ALP. i. Lucid Software Ltd.: This comparable has to be excluded as it is engaged in both development of software products as well as services and as the segmented data is not available. Thus the functional profile is different from the functional profile of the assessee. This Bench of the Tribunal under identical circumstances, in the case of Nomura Research Institute Financial Technologies India (P) Ltd. (supra), has directed exclusion of this company as a comparable on the ground that its main stream of revenue was out of sale of software products in addition as to software development. Consistent with the view taken therein we direct the TPO to exclude this company from the list of comparable companies. ii. Sagarsoft (India) Limited: Consistent with the view taken therein by the coordinate Bench of the Tribunal in the case of Nomura Resear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while a filter of 20% has been applied by the TPO. The TPO wrongly applied the entire revenue of Rs.37.16 crores as from software services whereas the fact is that only Rs.3.01 crores was from software services and the balance is Rs.34.15 crores from engineering design charges. vii. Zylog Systems (India) Ltd.: Consistent with the view taken by the coordinate Bench of the Tribunal in the case of Alcatel-Lucent India Ltd. (supra) we direct this company be excluded from the list of comparable companies for the reason that this company provides broadband services and wireless internet-based communication 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%. viii. 8K Miles Software Services Limited: Consistent with the view taken by the coordinate Bench of the Tribunal in the case of Alcatel-Lucent India Ltd. (supra) we direct this company be excluded from the list of comparable companies for the reason that its functional profile of this company is cloud consulting, cloud regulations, cloud application development etc. Such functions require a totally different set of skills as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the ground that it is engaged in software services and not in development activity and hence not functionally comparable. We find that this company is a software service provider primarily delivering software validation and verification services to the banking and financial services industry worldwide. This Bench of the Tribunal in the case of Nomura Research Institute Financial Technologies India (P) Ltd. (supra) has held that this company can be included as a comparable company as the function of the company is recognized as software development services. Consistent with the view taken therein we direct the TPO to include this company as a comparable company while computing the ALP. 15. We now take up the issue of working capital adjustment. The DRP has directed the AO/TPO to provide the benefit of WCA to the assessee. It is well settled that such directions are binding on the TPO. Hence we direct the TPO to implement the DRP directions in this regard. The assessee shall provide the necessary data to the TPO in this regard. In the result this ground of the assessee is allowed for statistical purposes. 16. All the other grounds of the assessee are not adjudicated as it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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