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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
Before: SHRI P. MADHAVI DEVI & D.S. SUNDER SINGH
ORDER PER D.S. SUNDER SINGH, A.M. This appeal of the assessee is directed against the order passed u/s 143(3) rws 92CA(3) & 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’) dated30/102017 for the AY 2013-14.
The assessee has raised as many as 20 grounds in this appeal. When the appeal was taken up for hearing, ld. AR of the assessee has pressed only ground Nos. 3, 9 and 12 and all other grounds are not pressed. Therefore, except ground Nos. 3, 9 & 12, all other grounds are dismissed as not pressed.
In this case, the assessee filed its return of income for AY 2013-14 declaring total income of Rs. 33,46,12,040/- under normal
2 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. provisions of the IT Act and a book profit of Rs. 25,76,48,522/- on 21/11/2013 and, subsequently, filed a revised return of income on 27/11/2013 declaring income of Rs. 33,88,64,490/- under normal provisions of the Act and a book profit of Rs. 25,76,48,522/-.
3.1 During the course of assessment proceedings, the AO found that the assessee had entered into international transactions, hence, referred the case to TPO for determining Arm’s Length price (ALP).
3.2 The assessee is engaged in the development of software and provision of software services to its holding company. The taxpayer is wholly owned subsidiary of DE Shaw & Co., L.P. USA. For the AY 2013-14, as per Form 3CEB report/TP document, the assessee had entered into international transactions in respect of software development services to the extent of Rs. 219,56,93,803/- and the margin being 12.27%. As per the economic analysis carried out by the assessee the margin of the comparables was worked out to 13.81% and since, the software development services transaction is within the arithmetic mean (OP/OC) of 13.81% and within the range, it was stated that the SDS transactions are at arm’s length and no adjustment was made by the assessee.
3.3 The TPO analysed the Balance Sheet and statement of account and its financials and viewed that method of seach process conducted by the assessee suffers from the defects and hence rejected the T.P. document and conducted the independent search process finally selected 9 comparables, as per page 24 of TPO’s order and arrived at the margin of 19.96% and allowed the working capital adjustment of 4.12% and determined the ALP margin @15.83%. The adjustment of Rs.8,08,91,308/- was 3 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. proposed by the TPO. TPO held that TNMM as the most appropriate method
The AO issued draft assessment order, against which, the assessee filed objections before the DRP and the DRP considered the objections of the assessee and passed order u/s 144C(13) of the Act, dated 25/07/2017 and the AO( passed final order u/s 143(3) read with 144C(13) of the Act by making TP adjustment at Rs. 8,08,91,308/-. Against the order passed by the AO u/s 143(3) rws 92C and 144C(13) of the act, the assessee has filed appeal before us.
At the time of hearing before us, the ld. AR of the assessee assailing ground No. 3 pressed for exclusion of the following comparables:
1. 1. Persistent Systems Ltd.
2. Infobeans Technologies Ltd.
3. Larsen & Toubro Infotech Ltd. Though, in ground No. 3, the assessee challenged the inclusion of Mindtree Ltd., as comparable, during the appeal hearing, ld. AR did not press Mindtree ltd. Hence, we dismiss the appeal of the assessee on inclusion of Mind Tree Ltd., and take up the other inclusions company wise as under:
5.1 Persistent Systems Ltd.(in short ‘Persistent’) – Ld. AR submitted that this company is functionally dissimilar to the assessee company. As per the profile the company is engaged in specializing in software products, services and technology innovation. The Ld. A.R argued that the segmental data with respect to the activities of the company is not available in the annual report of the company and hence argued that this company needs to be excluded from the list of comparables. The ld. AR relied on the decision of this Tribunal in assessee’s own case for 4 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. AY 2008-09 in and also in the case of M/s EPAM Systems India Pvt. Ltd. in ITA No. 2122/Hyd/2017 for AY 2013-14 and argued that Persistent Systems Ltd. is functionally different and dissimilar, therefore, required to be excluded from the list of comparables.
5.2 On the other hand, ld. DR vehemently opposed to exclusion of the said company and argued that Persistent Systems Ltd. is functionally similar to the assessee company. Merely on the basis of notes mentioned in P&L Account, the same cannot be held as functionally different. Ld. DR relied on the decision of the ITAT, Bangalore Bench in the case of Advice America Software Development Center Pvt. Ltd., 94 taxmann.com 179 wherein the coordinate bench has rejected assessee’s contention to exclude this company from the list of comparables. Similarly, ld. DR also relied on the decision of ITAT Bangalore in the case of CGI Information Systems and Management Consultants (P) Ltd. in IT(TP)A No. 2460/Bang/2017, dated 12/09/2018 wherein assessee’s contention of exclusion of the Persistent Systems Ltd. was rejected. The ld. DR further argued that the DRP has given clear finding that Persistent Systems Ltd. is engaged in the software development services and relied heavily on the DRP’s findings in its order at page 8 and argued that acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be a criteria to determine its comparability. The comparability of a company has to be determined with reference to the functions performed, assets deployed, risks undertaken by the comparable company in the relevant year to that of the assessee company. The ld. DR argued that DRP has perused the annual report of the Persistent Systems Ltd. for FY 2012-13 and observed that the company’s core activity was product engineering and providing services to develop software services. Ld. DR further argued that DRP observed that 5 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. as per the consolidated P&L account of Persistent Systems Ltd., the revenue from the operations of the group companies was given to be Rs. 12,945.12 million and the said revenue was to be from sale of software services. The stand alone P&L Account of the Indian company was given at page 145, as per which, the revenue from operations was Rs. 9,967.51 million from sale of software services. Therefore, the ld. DR argued that there is no merit in the argument of ld. AR that the company was functionally dissimilar and it is predominantly engaged in the software development services and is comparable to assessee company. He, therefore, submitted that Persistent Systems Ltd. should be retained as comparable in the list of comparables and no interference is called for in the order of the DRP/TPO.
5.3 We have considered the rival submissions and perused the material on record. This Tribunal in the case of EPAM Systems India Pvt. Ltd. (supra) examined the issue for the same AY 2013- 14 and given a finding that Persistent Systems Ltd. is engaged in the software product services, technology innovation and segmental details are not available. For the sake of clarity and convenience, we extract relevant part in this order of Tribunal, which reads as under: “12. Having regard to the rival contentions and the material on record, we find that the assessee is into software development services, whereas Persistent Systems Limited is into both the software products, services and technology innovation; and the segmental details are not available. This is evident from the financials of Persistent Systems Limited and the report of the Director at page 918 of the paper book. At page 1039, it has been clearly mentioned that the Persistent Systems Limited is a global company specializing in software products, services and technology innovation. From the list of intangible assets at page 1051 of the paper book, we find that the assessee has been claiming depreciation both on tangible and intangible assets for the periods ending 31.03.2012 and 31.03.2013. From page 1059 of the paper book, we find that the final segmental results of each segment is not available and therefore, we are of the opinion that the TPO ought to have excluded this company from the final list of comparables.
6 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad.
5.4 The DRP has gone into the details and observed that the company Persistent Systems ltd. is in sale of software services. The DRP verified the annual report of Persistent Systems ltd. and observed that the revenue from the operations from group companies of Rs. 12,945.12 was from sale of software services. The DRP has perused the entire details in its order and stated that the stand alone P&L account of Indian company, was given at page 145 of the paper book, as per which, the revenue from operations was 9,967.51 Million, which is stated to be from sale of software services. For the sake of clarity, we extract the relevant para of the order of DRP, which read as under:
“At the outset, we are of the view that the acceptance or rejection of a company as a comparable by the ITAT or any other appellate body in a particular year cannot be a criteria to determine its comparability. The comparability of a company has to be determined with reference to the functions performed, assets deployed, risks undertaken by the comparable company in the relevant year to that of the assessee company. Accordingly we have carefully perused the annual report of Persistent Systems Limited for FY 2012- 13 and our observations on the same are here under. From the perusal of the annual report it is seen that the Company's core activity was product engineering and providing services to develop software products. The strength of the company lies in its experience and ability to build and service products as noted in the Chairman's report. The details of the group companies given in the annual report are: Persistent Systems Inc., Persistent Systems Pte Ltd, Persistent Systems France SAS;, and Persistent Telecom Solutions Inc. USA. As per the consolidated P & LAic (at Pg. 99 of Annual report), the revenue from operations of the group companies was given to be Rs. 12,945.12 million and the said revenue was given to be from sale of software services. The nature of revenue stream of the entire group companies were given at pg. 89 as under: Particulars Revenues in FY 2012-13 T Product Engineering 8,915.09 Platform solutions 1,801.09
7 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. IP Led 2,229.94 Total 12,945.12 The stand-alone P & L A/c of the Indian company which is being compared was given at pg. 145, as per which the revenue from operations was Rs. 9,967.51 million and at pg. 166 this was stated to be from sale of software services. It was sought to be argued that the company has made acquisitions & its revenue growth was driven by IP. In this regard, it is relevant to note that the details of acquisition was given at pg. 25 as under: During the year your company expanded the business presence by setting up the branch offices in Bangalore India and Sydney, Australia. Through Acquisitions, your company established two development centers in the United States in Seattle, Washington and in Chariotte, North California. Acquisition of IBM’s TNPM product roadmap Your company successfully concluded a contract to take over IBM TNPM product roadmap. This was a strategic multi-year deal which would help your company consolidate and strengthen its position in relation to its IP led business. Acquisition of Cloud from Doyenz.Inc. Persistent Systems Inc. (PSI) a wholly owned subsidiary of your company acquired an innovative cloud platform called Cloud from a privately held company viz. Doyenz. Inc. This acquisition furthers your company’s objectives in growing its IP-led business and strengthens its cloud computing and SMB offerings. Strategic agreement with Helwett Packard (HP) for licensing client automation software. PSI further entered into a strategic agreement with HP to license its client automation software. This acquisition underscores your company’s commitment to expand its IP portfolio and further strengthen its expertise in PC lifestyle Management (PCLCM) Virtual Desktop Infrastructure (VDI) and MDM. Acquisition of certain assets from Nova Quest. Persistent Telecom Solutions Inc. (PTSI) a wholly owned step down subsidiary of PSI acquired certain assets from a NovaQuest a leading value added reseller(VAR) and services provider of Dassault Systems. SDS experience platform and applications. This acquisition furthers the operatives of your company in expanding its PLM practice
8 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. strengthening its existing partnership with Dassault Systems and growing its North America Development. A careful perusal of the above would show that there was no acquisition during the year by the Indian Company which is being compared. At pg.88 it was stated that the increase of intangible block of assets during the year of Rs. 262.84 million was mainly on account of acquisition of various IPs during the year and the same is shown in the intangible Asset schedule of the consolidated financial statement at pg.115 as under: (in Rs. Million) Softw Acquired Total are contractu al rights Gross Block (at cost) 1287.49 281.63 1569.12 as at April 1, 2012 Additions 94.03 261.23 355.26 Disposals 116.10 116.10 Other adjustments 23.86 (0.18) 23.68 Exchange differences
The intangible Asset schedule of the Indian company as per the standalone financial statement at pg. 160 shows the following position: (in Rs. Million) Softw Acquired Total are contractu al rights Gross Block (at cost) as at April 1, 2012 928.21 232.54 1160.75 Additions 90.90 261.23 90.90 Disposals 116.10 116.10 Other adjustments Exchange differences 903.01 232.54 1135.55
A comparison of the above Asset schedules would clearly show that there was no acquisition of IPs by the Indian company during the year and which go to show that the accretion of IPs and corresponding revenue pertain to the other group companies. The growth in IP driven revenue does not pertain to the Indian company, which is compared. In the earlier year, the Indian company amalgamated two subsidiaries PeBS and PSSL, which were engaged in Software development services, as stated at pg. 179; which show that even such acquisition has not resulted in IP based revenue. It is further noted that there was increase in India based head count from 6245 to 6429 & increase in onsite head count from 383 to 541 which again shows that the company is predominately into software development
9 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. service. In the light of the above information contained in the annual report, we are of the view that this company is predominately engaged in software development service and is comparable to the assessee company. It is also seen that for the AY 2012-13, the DRP has held in the assessee's case that this company can be taken as comparable as it was a software development service provider. Accordingly, the objection raised by the assessee is found unacceptable.”
5.5 As seen from the DRP’s order, the company Persistent Systems ltd. is predominantly engaged in the software development services and is comparable to the assessee company.
5.6 The ld. DR relied on the decision of coordinate bench of Bangalore Tribunal in the case of Advice America Software Development Center Pvt. Ltd. (supra) wherein the coordinate bench has also taken the similar view after going into the details of financials and observed that the segmental details are available in the case of Persistent Systems Ltd. and upheld the orders of revenue authorities for inclusion of this company in the list of final comparables. For the sake of clarity, we extract para 21 of Bangalore ITAT order in the case of Advice America Software Development Center Pvt. Ltd.,( supra), as under: “21. Persistent Systems Ltd.: The objection of the Assessee for excluding this company from the list of comparable companies is on the ground that this company is also engaged in making software products and is not only in providing SWD services and that the segmental details of revenue from sale of Software Products and revenue from rendering SWD services are not available. This objection is examined in the light of the Annual Report of this company for 2013 which is at pages 648 to 841 of Paper Book filed by the Assessee. The learned AR pointed out that even in the annual report this company is stated to be in the business of developing software products. The reference by the learned AR is to the consolidated Accounts, i.e., inclusive of the activities of the group (AE companies). The unconsolidated accounts of this company is at page 787 of Volume-III paper book filed by the Assessee. The profit & Loss account is at page-793 of Volume-III paper book filed by the Assessee. Income from operation is Rs.9967.53 million. Note 21 to the note on 10 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. accounts gives the break of this revenue which is at page- 814 and it is fully from providing software development services. This revenue has been compared with costs and the OP/OC of this company arrived at by the TPO. Note 26 to the notes on accounts gives the segmental break-up and the segments are all software services segment and there is no product segment at all. The learned AR placed reliance on decisions where this company was excluded from the list of comparable companies. These decisions do not relate to AY 13-14. We can therefore safely proceed on the basis that those decisions are rendered on their facts prevailing in the relevant AY. As far as the present AY 13-14 is concerned, the plea of the Assessee for exclusion of this company on the ground that it is a software product company is held to be without any basis and is rejected. No other arguments were advanced for exclusion of this company. Hence, we uphold the orders of the revenue authorities including this company in the list of comparable companies.” 5.7 On perusal of DRP’s order and the ITAT, Bangalore’s order in the case of Advice America Software Development Center Pvt. Ltd., (supra), it is found that segmental details are available in the financials of Persistent Systems Ltd and the company is engaged in the software development services and, therefore, this company is comparable. These facts and relevant material was not made available to the ITAT, Hyderabad Bench, while passing the order in the case of EPAM Systems India Pvt. Ltd. (supra) and hence, held that in the absence of segmental details, Persistent Systems Ltd. is functionally dissimilar and directed the AO/TPO to exclude this company from the list of comparables. Since the details are available as per the order of the ITAT, Bangalore in the case of Advice America Software Development Centre Pvt. Ltd. and in the order of DRP, we are of the view that this issue needs verification by AO/TPO to decide whether the company is comparable or not with the segmental details. Therefore, we deem it fit to remit the matter back to the file of TPO/AO to examine financials of the Persistent Systems Ltd., and decide the issue afresh on merits whether to include or exclude the Persistent Systems Ltd. from the list of final comparables. Accordingly, this issue is allowed for statistical purposes.
11 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad.
Infobeans Technologies Ltd. – The ld. AR challenging the inclusion of this company from the list of comparables, submitted that this company is functionally dissimilar, hence, argued that the same needs to be excluded from the list of comparables. The ld. AR relied on the decision of M/s Kony India Pvt Ltd. in for AY 2014-15.
6.1 On the other hand, the ld. DR vehemently opposed for exclusion of Infobeans Technologies Ltd. as comparable.
6.2 We have heard both the parties and perused the material on record. The TPO has rejected the exclusion of Infobeans Technologies Ltd. as comparable on the ground that the company is found to be functionally similar. The DRP rejected the submission of the assessee observing that annual report clearly depicts that the revenue of the company was from the provision of software services and has qualified all the filters applied by the TPO. It was also observed by the DRP that no reference was made with regard to software products developed by the company. The case law relied on by the ld. AR is pertaining to AY 2014-15 and not related to the impugned AY. Though, ld. DR submitted that the company Infobeans is functionally similar, no material was placed before us to substantiate the contention of the DRP/TPO. The Ld.AR also except stating that the company engaged in providing high end software services no other information was provided. As observed from the order of the DRP, we find that the company Infobeans satisfies all the filters and engaged in software services. Since, both the parties failed to substantiate their claim for inclusion or exclusion, we remit this issue back to the file of the AO/TPO to examine the contention of the ld. AR and DR with regard to functions/financials for exclusion/inclusion of comparable in the final list and decide the issue on merits after
12 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. giving opportunity of being heard to the assessee. This issue is allowed for statistical purposes.
Larsen & Toubro Infotech Ltd. – The contention of the ld. AR is that this company is functionally dissimilar, hence, required to be excluded from the list of final comparables. The ld. DR’s contention is that this company is functionally similar. Ld. AR relied on the decision of this Tribunal in the case of EPAM Systems India Pvt. Ltd. (supra), whereas the ld. DR relied on the decision of ITAT Bangalore in the case of Advice America Software Development Center Pvt. Ltd., 94 taxmann.com 179 and in the case of CGI Information Systems and Management Consultants (P) Ltd. in IT(TP)A No. 2460/Bang/2017, dated 12/09/2018 and requested to retain L&T Infotech ltd. in the list of final comparables.
7.1 We have heard the submissions of both the parties and perused the material on record. We find that in the case of EPAM Systems India Pvt. Ltd. (supra), this Tribunal has considered the issue in detail and held that L&T Infotech Ltd. is functionally dissimilar. For the sake of clarity and convenience, we reproduce para 17 & 18 of the order as under: “17. As far as the L & T Infotech is concerned, the assessee’s objections are that the it is a giant company with a turnover of Rs. 3613 Crs and has a significant brand value and in RPT schedule there is revenue from sale of services as well as products. Further, under operating expenses there are costs of bought-out items for resale of products and therefore, in the absence of segmental details, it cannot be considered as a comparable. In support of this contention, Learned Counsel for the Assessee placed reliance upon the following decisions:- (i) Saxo India (P) Ltd vs. ACIT – (ii) Electronic Arts Games India (P) Ltd vs ACIT – ITA No.444/Hyd/2017 (iii) Agilis Information Technologies Intl. P. Ltd vs. ITO – ITA No. 1063/Del/2016 (iv) Alcatel-Lucent India Ltd vs. DCIT – ITA No.6856/De/2015 13 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad.
We have gone through the financial results of this company which are placed at 1116 of the paper book and find that the revenue from IT services of this company for the relevant assessment years is Rs. 3613 Crs and that it has huge 11 intangibles. This company has been considered by the coordinate Bench of the Tribunal at Delhi and also the Hon’ble High Court in various decisions and in the case of PCIT vs. Saxo India (P) Ltd (supra), the Hon’ble High Court has held that this company cannot be compared to the assessee therein, particularly when its segmental data was not available. The relevant para of Delhi High Court judgment is reproduced here under for ready reference: “10. On a comparison with the data available and made available, undoubtedly, the object of the statute is to "pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology - shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to levy within its jurisdiction where international transactions are involved. This exercise does not compare with other income assessments where the methodology adopted in their domestic jurisdiction will differ". The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule 1 OB(l )(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue's contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption that segmental data for relevant facts was available to determine the profitability of the concerned comparable.”
Respectfully following the same, we direct the TPO / A.O. to exclude L & T Infotech from the final list of comparables.” The Ld. DR relied on the decisions of ITAT, Bangalore bench and Ld.AR relied on the decision of this Tribunal in the case of EPAM Systems India Pvt. Ltd. The coordinate Bench of Bangalore taken the view against the assessee holding that the Brand, turnover, intangibles etc.. has no impact on profitability of the company. This Tribunal has also considered the turnover, intangibles and 14 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. held that L&T required to be deleted from the final list of comparables. Since the decision of this Tribunal is favourable to the assessee, respectfully following the view taken by this Tribunal, we hold that L&T Infotech Ltd. is functionally dissimilar to that of assessee company and not comparable. Accordingly, we direct the AO/TPO to exclude the L&T Infotech Ltd., from the final list of comparables. This issue is allowed.
In ground No. 9, assessee has requested for inclusion of following 5 companies:
1. 1. Acropetal Technologies Ltd.
2. Akshay Software Technologies Ltd.
3. Spry Resources India 4. CAT Technologies Ltd and 5. Sankhya Infotech Ltd. However, when the appeal was taken up for hearing, the ld. AR of the assessee pressed for inclusion of only CAT Technologies Ltd and did not press the remaining four comparables. Therefore, the assessee’s appeal on remaining four comparables, namely, 1. Acropetal Technologies Ltd.
2. Akshay Software Technologies Ltd.
3. Spry Resources India and 4 Sankhya Infotech Ltd. are dismissed as not pressed.
8.1 Assailing for inclusion of CAT Technologies Ltd. in the list of final comparables, the ld. AR argued that CAT Technologies Ltd. is functionally similar to that of the assessee company, therefore, requested to include the CAT Technologies Ltd. in the final list of comparables. Ltd. AR relied on the decision of ITAT, Bangalore in the case of NXP India Pvt. Ltd. Vs. DCIT in for AY 2013-14, and argued that the same is required to be included in the final list of comparables.
15 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. 8.2 The ld. DR, on other hand, relied on the paragraph 16 of DRP’s order and submitted that out of total revenue of Rs. 7,44,82,748/-, the revenue from software development is Rs. 5,52,21,160/-, which is less than 75%, hence, requested to uphold the order of DRP. The ld. DR further argued that ld. AR relied on the decision of NXP India Pvt. Ltd. (supra) wherein it was mentioned that the revenue from software development services was more than 93.93% but the same cannot be taken as revenue from software services, since, it includes consultancy fees receipts, medical transaction, which is to be examined by the AO. Hence, requested to remit the matter back to the file of AO/TPO for examining whether income from software services is 75% and more for inclusion in the final list of comparables.
8.3 We have considered the rival submissions and perused the material on record. The ld. TPO rejected assessee’s request to include the company observing that the company is functionally different. From the annual report of the company, the TPO held that this company is in SDS and ITES and the same are reported in only one segment and no separate segment was available with exact figures. On appeal, the DRP rejected assessee’s contention for inclusion of CAT Technologies Ltd observing that from the annual report, out of total revenue of Rs. 7,44,82,748/-, the revenue from software development was Rs. 5,52,21,160/-, which was about 74% of the total revenue and fails the filter of 75% or more of revenue applied by the TPO. The ld. AR relied on the decision of NXP India Pvt. Ltd. (supra) wherein the coordinate bench directed the TPO to include CAT Technologies Ltd. in the final comparables list observing as under:
“33. This company was rejected by the TPO for the reason that it is engaged in quality consultancy services in system analysis, system design and other related services. According to the TPO, it was functionally different from the assessee, and rejected the said company from the 16 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. comparables. As seen from the Notes relating to statement of profit and loss account as on 31.03.2013, along with sales and services as under:- Particulars As on 31.03.2013 (Rs.) Sales & Services EXPORT Consultancy Fees Receipts 14,630,808 Medical Transcription Receipts 4,342,700 Software Development Receipts 55,221,160 DOMESTIC Course Fees 178,350 Local Software Development Receipts 109,730 Total 74,482,748 33.1 As seen from the above, the company is engaged in software development services as per its annual report. Further, the revenue from the software development services is more than 93.93% of the total revenue. Being so, this company should be included in the list of comparables. Accordingly, we direct the TPO to include Cat Technologies Limited in the list of comparables.”
From the order of this Tribunal, it is observed that the revenue from software development services was more than 93.93%. Out of total receipts of Rs. 7.44 crores, as seen from the order of ITAT, software development receipts amounts to Rs. 5.5 crores and the remaining receipts were consultancy fee receipts and medical transcription receipts etc. Ld. DR objected for inclusion of consultancy receipts, medical transcription receipts as software development receipts and the Ld.AR did not place any material to support it’s claim. Therefore, this issue needs verification at the end of the AO/TPO whether the same constitutes SDS or not. Therefore, we remit the issue back to the file of AO/TPO to examine whether the receipts from software development services are more than 75% or not in the case of CAT Technologies Ltd. and in case, the revenue from software development services are more than 75%, the assessee succeeds in the filter and CAT technologies is required to be included in the final list of comparables. This issue is allowed for statistical purposes.
17 ITA.No. 2206/Hyd/2017 D.E. Shah India Pvt. Ltd., Hyderabad. 9. Ground No. 12 is related to adjustment of international transaction to the value of international transaction as against adjustment made by the AO at the entity level.
9.1 Both the parties have agreed to remit this issue to the file of AO to examine the issue and to make adjustment of transfer pricing to the value of international transaction. Accordingly, we remit this issue back to the file of AO/TPO to make appropriate adjustments. This ground is allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes. Pronounced in the open court on 30th September, 2020