NESS TECHNOLOGIES (INDIA) PVT. LTD.,MUMBAI vs. DCIT CENT. CIR. 6(1), MUMBAI

The learned Counsel for the assessee stated that this company i.e. Thirdware Solutions Limited is engaged in the sale of software products and profession of IT support services in connection with the products sold by it. No segmental information is available to determine the profitability from sale 3 | P a g e of products and profession of services respectively. According to assessee, in the absence of segmental data, Thirdware solutions Limited cannot be considered as comparable and hence, this should not be included while computing the assessee’s margin of ALP. The learned Counsel for the assessee stated that the Transfer Pricing Officer included this as comparable and DRP also confirmed the action of the AO by observing in Para 24.1.3 as under: - “We have examined the submissions of the assessee. It is seen that the Transfer Pricing Officer has considered the company as a comparable on the basis of the revenue recognition policy which states that the company has earned income from provision of software development services. We have gone through the revenue recognition policy of the company and it is seen that the license sold by the company are for software application. Software applications are nothing but end product of software development.”

by Assessee are considered as allowed.” 6 | P a g e

5. After hearing both the sides and going through the facts and circumstances of the case, we are noted that this issue is squarely covered by Tribunal’s decision in assessee’s own case as cited (supra), hence, we direct the Transfer Pricing Officer to exclude this as comparable being Thirdware Solutions Limited. The learned Counsel for the assessee also filed the details of ALP which are as under: - Sr. Name of the Company DRP order Rejecting N. thirdware 1. Maveric System Limited 7.64% 7.64% 2. Sasken Communication technogies 10.28% Limited 3. Zylog system limited -13.49% 4. Personal System Limited 35.10% 5. RS Software (India) Limited 24.23% 6. Thirdware Solutions Ltd. 44.68% 7. Tata Elxsi Limited 18.43% 8. Average 18.12% 9. Nees India’s margin 11.58% 10. Range (+3%) 11.58% 11. If at arm’s length ALP 6. From the above chart, it is clear that in case Thirdware Solutions Ltd is excluded, assessee goes within the range of ±3% for computing ALP as detailed in the above chart. Hence, this issue of assessee’s appeal is allowed. We also find that the assessee has raised various grounds on the issue i.e. raising from Ground 1 to 19 as under: - “1. General Ground erred in assessing the total income of the Appellant at INR 49,50,52,230 against INR 31,83,30,750 as computed by the Appellant in its return of income: 7 | P a g e Transfer Pricing Grounds 2. erred in making a transfer pricing adjustment of INR 17,67,21,477 to the total income of the Appellant on the premise that the international transactions entered by the Appellant with its associated enterprises ('AE') were not at arm's length; Reference made to the Transfer Pricing Officer 3. erred in referring the Appellant's case to the Learned Transfer Pricing Officer ('TRO') under Section 92CA( I) of the act, without satisfying the conditions specified therein; Rejection of economic analysis undertaken In tile Appellant and using single Near data 4. erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act using 3 year weighted average data of comparables and determining the arm's length margin/ price using data only for financial year ('FY') 2013-14; 8 | P a g e Selection/ Rejection of comparables 5. erred in applying certain rejection criteria/ filters, in an arbitrary, subjective and erroneous manner for the purpose of selection of comparable companies; 6. erred in rejecting certain comparables selected by the Appellant by arbitrarily applying an upper turnover filter often times the Appellant's turnover and lower turnover filter of one tenth of the Appellant's turnover 7. erred in applying a filter of rejecting companies following a financial year other than April t March; 8. erred in revising the threshold of the export turnover filter applied by the Appellant from 25 to 75% of the revenue for selection of comparables; Appellant's comparable company rejected by the learned TPO/ Hon'ble DRP 9. erred in rejecting Akshay Software Technologies Limited. Cat Technologies Limited. CG VAK Software and Exports Limited and Lucid Software Limited on the basis that the companies fail the 9 | P a g e minimum turnover filter applied by the learned IPO without appreciating that the companies are functionally comparable to the Appellant: 10. erred in rejecting Caliber Point Business Solutions Limited on the basis that the company follows a financial year other than April-March: 11. erred in rejecting Goldstone Technologies limited as a comparable company on the basis that the said company fails the export turnover filter: Additional comparables introduced by the learned TPO 12. Erred in considering Thirdware Solutions Limited as a comparable without appreciating that it is not comparable due to difference in the function, asset and risk profile of the company vis-a-vis the Appellant and also the company is engaged in sale of software products and provision of IT support in connection with the product sold by it for which no segmental information is available: 10 | P a g e 13. erred in considering Tata Elxsi as a comparable without appreciating that it is not comparable due to difference in function, asset and risk profile of the company vis-ã-vis the Appellant and also in the software development' segment considered by the TPOIDRP as comparable, the company provides various other services such as product design, engineering design and visual computing lab services which are not comparable to Appellant who is only into provision of software development services: 14. erred in considering Persistent Systems limited as a comparable without appreciating it is not comparable due to difference in function, asset and risk profile of the company vis-â-vis the Appellant and also the company is engaged in sale of software products and provision of software services for which no separate segmental information is available and hence not comparable to the Appellant; 15. erred in considering RS Software India Limited as a comparable w ithout 11 | P a g e appreciating it is not comparable due to difference in Function, asset and risk profile of the company vis-ã-vis the Appellant and also the company is mainly engaged in providing onsite activities which would be different from a company like the Appellant which is mainly engaged into providing services from India: 16. Erroneous margin computation erred in computing the operating margin of Zylog Systems Limited at (-)13.49% instead of (-)25.20% by considering expense on account of had debt written off as non-operating in nature; Working Capital adjustment 17. erred in not granting the benefit of working capital adjustment to the Appellant while determining the margins of comparable companies in terms of Rule 1C(2)(e) of the Rules; Risk Adjustment 18. erred in not granting the Appellant the benefit of risk adjustments which is required 10 be undertaken to account for the differences in level of risks assumed 12 | P a g e between the comparable companies and the Appellant iii terms of Rule I OC(2Xe) of the Rules; Benefit of +/- 3% 19. Benefit of +/-3% under proviso to Section 92C(2) of the Act be granted to the Appellant if the adjustment under transfer pricing falls within the range specified therein;”