M/S. TRICOM INFOTECH SOLUTIONS LTD,MUMBAI vs. DCIT 3(3) (1), `MUMBAI

This appeal is filed by Tricom Infotech solutions Limited [ Assessee/ Appellant] for assessment year 2012 – 13 against the order of The Commissioner Of Income Tax, (Appeals) – 55, Mumbai ( the Ld. CIT (A) ) dated 27/9/2021 wherein the appeal filed by the assessee against the assessment order passed by The Assistant Commissioner Of Income Tax, Circle – 14 (3) (1), Mumbai (the learned AO) passed u/s 143 (3) read with Section

Assessee aggrieved with the appellate order has preferred appeal before us on following grounds “1. The CIT(A) erred on facts in law and under the circumstances in not deleting the addition made by the AO of ₹ 3,09,13,399/- in the assessment order passed u/s 143(3) rws 144C (3) of the IT Act 1961 dated 04/05/2016. ” 03. In short, the fact shows that assessee is a company engaged in the business of providing services of IT enabled services [ ITes] and sale of software. It filed its return of income on 30 November 2012 declaring total income of Rs. 1,74,42,014/–.

As assessee has entered international transaction of business process outsourcing payments of ₹ 56,672568/–, provision of IT enabled service income of ₹ 187,175,972/– and commission paid on sales of Rs. 1 88,18,901/–.Sale of software is not an international Transaction. As these international transactions were to be benchmarked at Arm’s length, Ld. assessing officer made a reference to The Deputy Commissioner Of Income Tax, Transfer Pricing – 4 (2) (2), Mumbai [ the ld. TPO] for verification of ALP.

Assessee benchmarked these transactions,Considering, assessee as tested party adopting transactional net margin method [ TNMM] as the most appropriate method by computing profit level indicator [ PLI] of operating

The learned transfer pricing officer examined the benchmarking analysis of the assessee. He did not accept the benchmarking analysis by the assessee for the reason that according to him, assessee has not considered in profit level indicator revenue, cost and profitability in respect of trading in software, as no segmental accounts were furnished. Further the entire revenue has been shown Under the head income from services. Thus, there is no bifurcation of sale of software in it. if the revenue and cost is considered in respect of Software trading account, the PLI of the assessee would be turning in to a loss of 0.87%. Accordingly, the learned transfer pricing officer the PLI of the assessee would be 8.93%. TPO also made an independent search, by rejecting 3 comparable of the selected by assessee and included 2 comparable, retained 9 comparable companies whose profit level indicator was determined at 21.75%. Accordingly, he determined the adjustment of ₹

Assessee aggrieved with the assessment order preferred an appeal before the learned Commissioner Of Income Tax, (Appeal) – 55, Mumbai (The learned CIT – A) who passed an order on 27/9/2021. According to the appellate order, he held that learned TPO

The learned authorized representative referred to the paper book containing 275 pages wherein he mostly relied

The learned departmental representative vehemently supported the orders of the lower authorities.

We have carefully considered the rival contention and perused the orders of the lower authorities as well as the

Coming to the comparable companies exclude by the learned transfer pricing officer, we find that Aurum software systems Ltd was excluded by the learned transfer pricing officer for the reason that it did not have complete information. There is no finding that what is the information that is lacking in that comparable. Compared to this, the learned authorized representative submitted that the capitaline database correctly shows the complete information and before us the learned authorized representative has also submitted the annual account of that company placed at page number 255 – 275 of the paper book for the comparable period i.e. assessment year 2012 – 13. The learned departmental representative could not show us that what is the incomplete information in such annual account. It was also not denied that it is functionally comparable. The learned CIT – A confirmed

Similarly, the assessee has included cybermate Infotech Ltd (-13.71%) and info drive software Ltd (-17.52%), which were excluded by the learned transfer pricing officer without giving any reasoning. Before us the learned authorized representative has produced annual account of this company is placed at page number 176 – 254 of the paper book and submitted that both are functionally comparable, merely because they have negative margin in the last year, the learned transfer pricing officer excluded the same.

On careful analysis of the annual accounts of Cybermate Infotech Ltd and info drive software Ltd, we do not find any support for finding of the learned CIT – A. Cybermate Infotech Ltd has revenue from operation according to schedule 18 and such is only ITeS segment. Further info drive software Ltd is also from ITeS segment. Accordingly, both are functionally comparable.

The learned departmental representative could not show that these companies are not functionally comparable with the assessee. He also could not show anything to support the finding of the learned CIT – A. Therefore, we do not have any other alternative but to direct the learned AO/TPO to include both these companies in the comparability analysis. The learned CIT – A despite having the annual accounts before him did not comment that why he is upholding the action of the learned transfer pricing officer in excluding the above comparable.

In the result appeal filed by the assessee is allowed.