DCIT CIR 3(1), MUMBAI vs. GLOBE OP FINANCIAL SERVICES (INDIA) P. LTD, MUMBAI

Brief facts are, the assessee an Indian company is a wholly owned subsidiary of GlobeOp Financial Services S.A., Luxemburg. Assessee is primarily engaged in the business of providing middle and back office service, fund administration for age fund, etc. Assessee also provides independent service essential to the launch and operation of private investment entities with activities ranging across and wide spectrum of traded instruments. During the relevant previous year, the assessee had entered into international transactions with its Associate Enterprise (A.E) abroad. For bench marking its international transactions, assessee had engaged independent external agency and transfer pricing study prepared by the said external agency was also submitted along with the return of income. As per the said transfer pricing study, the assessee classified its activities in two segments; (i) provisions of I.T. enabled services; (ii) provisions of software development services. For bench marking the price charged under both the segments, the assessee has followed Transaction Net Margin Method (TNMM) as most appropriate method with operating profit to total cost as the Profit Level Indicator (PLI). While bench marking the price charged for the international transactions, the assessee identified companies in both the segments, which according to the assessee were found to be functionally similar on the basis of multiple year data. On an analysis of average OP/TC of the comparable companies,

As far as software segment is concerned, the Transfer Pricing Officer selected 19 companies as comparables with average operating profit to cost ratio of 27.88% as against 15% of the assessee which resulted in adjustment of ` 39,90,598. Thus, the total transfer pricing adjustment proposed under both the segments was ` 2,62,84,830. In terms with the adjustment recommended by the Transfer Pricing Officer, the Assessing Officer completed the assessment under section 143(3) adding the amount of ` 2,62,84,830. Being aggrieved of the assessment order so passed, the assessee preferred appeal before the first appellate authority.

The learned Commissioner (Appeals), after considering the submissions of the assessee and on a perusal of the material on record, accepted the contention of the assessee that two companies selected by the assessee viz. (i) ICRA Online Ltd. (BPO Service Segment); and (ii) National Securities Depository Ltd., are functionally comparable to the assessee, hence, should be included in the list of comparables. He also accepted the contention of the assessee that four of the comparable selected by the Transfer Pricing Officer viz. Data Matrix Technologies Pvt. Ltd. Tricom India Ltd., Ultramarine &

As far as comparable selected by the Transfer Pricing Officer and disputed by the assessee, the learned Commissioner (Appeals) directed exclusion of the following comparables.

Thus, the learned Commissioner (Appeals) retained 15 companies as comparable with average arithmetic mean of 17.32% as against the margin shown by the assessee at 15% thereby requiring no further adjustment to the price charged to the A.Es as far as software development service segments is concerned. Being aggrieved of the aforesaid order of the learned Commissioner (Appeals), the Revenue is in appeal before us.

We have considered the submissions of the parties and perused the material available on record in the light of relevant case laws. The dispute in the present appeal is confined to selection / rejection of comparables by the learned Commissioner (Appeals). Hereinafter, we will deal with the contentions of the parties in relation to selection / rejection of comparables under both the segments and record our findings. At first, we will deal with the Department’s objections with regard to selection / rejection of the comparables in the ITES segment.

Though, this company was selected by the assessee in its transfer pricing study, the Transfer Pricing Officer rejected it for the 8 M/s. GlobeOp Financial Services India Pvt. Ltd.

Learned Authorised Representative on the other hand submitted, since the company is otherwise functionally comparable only because it has made loss earlier, it cannot be excluded. He submitted, even otherwise also, the company cannot be treated as consistent loss

We have considered the submissions of the parties and perused the material available on record insofar as this comparable is concerned. As could be seen, the Transfer Pricing Officer excluded this comparable solely for the reason that it is a consistent loss making company. The learned Commissioner (Appeals), however, accepted this company as a comparable by taking into account the fact that the company has made profit in subsequent assessment year i.e., assessment year 2006–07 and 2007–08. In our view, the first appellate authority was not justified in considering the financials of subsequent assessment year while analysing the comparability of the company. As per rule 10B(4), contemporaneous data relating to financials of a company can be considered for comparability analysis. However, proviso to rule 10B(4) carves out an exception to the effect that in a case where data of the relevant year is not available in public

As could be seen, though the assessee had selected this company as a comparable but the Transfer Pricing Officer rejected it by stating that the company’s ITES segment is engaged in providing Demat services. Hence, I.T. services are incidental and is accordingly provided on a marginal cost basis rather than full fledged profit contributing segment. The learned Commissioner (Appeals), however, accepted this company as a comparable observing that as per segmental information in the notes to account ITES is a business segment, hence, according to the learned Commissioner (Appeals) company being functionally similar to assessee is a comparable. He also observed that nowhere in the annual report it has been stated that ITES is incidental and is accordingly provided on a marginal cost basis than full fledged profit contributing segment. While coming to such conclusion, the learned Commissioner (Appeals) referring to the financial result of subsequent years observed that share of revenue from ITES service in the total revenue of the company shows increasing trend which proves that ITES segment is a significant

Learned Departmental Representative submitted that the revenue earned from ITES segment during the relevant previous year constitute only 11.09% of the total revenue earned by the company. Learned Departmental Representative submitted while applying any filter generally benchmark of 25% is applied. Therefore, since the revenue earned from ITES segment is less than 25%, the company cannot be considered as comparable. He submitted, learned Commissioner (Appeals) also while considering the comparability of the aforesaid company has relied upon financial results of subsequent assessment years which is against the statutory provisions. He, therefore, submitted, this company should be excluded from the list of comparables.

Learned Authorised Representative on the other hand submitted that there is no dispute to the fact that the company is functionally similar to the assessee. He submitted, only because the Transfer Pricing Officer assumes that its revenue from ITES segment is marginal, on that basis alone it cannot be excluded. The learned counsel drawing the attention of the Bench to the segmental results of the company submitted the revenue earned by the company is ` 21.90

We have considered the submissions of the parties and perused the material available on record. As could be seen the Transfer Pricing Officer has rejected this company as a comparable on the reason that ITES segment is only incidental to the main activity and provided on a marginal cost basis. Further, it is the contention of the learned Departmental Representative that the Revenue earned from ITES segment is only 11.09% of the total revenue earned. On a perusal of the order passed by the Transfer Pricing Officer it is noticed that he has not applied any specific filter while selecting comparables. Therefore, the argument of the Department that only those companies having more than 25% revenue from ITES segment can be treated as comparable is not acceptable. Moreover, it is noticed that this company has earned revenue from ITES segment of ` 21.90 crore. Thus, it cannot be considered as insignificant so as to treat the ITES segment as incidental to its main activity. Even otherwise also, if the company is functionally similar to assessee, there is no reason for not treating the company as a comparable. As the reasons on which the Transfer Pricing Officer has excluded this company are not good and valid reasons, we are inclined to uphold the order of the learned Commissioner (Appeals) on this issue.

These two companies were selected by the Transfer Pricing Officer and objected to by the assessee before the learned Commissioner (Appeals). While objecting to the aforesaid companies, it was submitted by the assessee that these two companies are having substantial related party transactions, hence, cannot be treated as comparable. The learned Commissioner (Appeals) after examining the financial results of both the companies found that related party transactions of Data Matrix Technologies Ltd., for the relevant year is 62%, whereas, that of Tricom India Ltd. is 58%. He, therefore, held that these two companies cannot be treated as comparable in view of substantial related party transactions.

Learned Departmental Representative while objecting to the decision of the learned Commissioner (Appeals) relied upon the reasoning of the Transfer Pricing Officer.

Learned Authorised Representative on the other hand strongly supporting the decision of the learned Commissioner (Appeals) submitted that as the Related Party Transaction (RPT) is substantially high. These two companies cannot be treated as comparable.

We have considered the submissions of the parties and perused the material available on record. The fact that RPT of Data Matrix Technologies Pvt. Ltd. is 62% and that of Tricom India Ltd. is 58% has not been controverted by the learned Departmental Representative. As per the generally accepted norms, even followed by the Department a company having RPT of more than 25% is not treated as comparable. As this view is supported by a number of decisions of the Tribunal, there is no necessity to repeat them here. For the aforesaid reasons, these two companies have been rightly excluded from the list of companies. In fact. For this very reason, these two companies have not been considered as comparable in a number of decisions cited before us by the learned Authorised Representative. Therefore, respectfully following the consistent view of the Tribunal, we uphold the decision of the learned Commissioner (Appeals) on this issue.

When the Transfer Pricing Officer proposed this company as a comparable, the assessee objected stating that the company has reported abnormally high margin of 155.70% and the ITES segment of the company comprising of Lapiz Digital Services is also rendering engineering services. Thus, it was submitted by the assessee as the ITES segment consist of engineering services, the company should be 16 M/s. GlobeOp Financial Services India Pvt. Ltd.

Learned Departmental Representative submitted, simply relying upon the decision of the Tribunal in assessment year 1996–97, company cannot be rejected. He further submitted, since in the annual report of the company, there is no qualification by the auditor, it cannot be concluded that the extra ordinary profit is not a normal incidence. He, therefore, submitted that the rejection of comparable is not correct.

Learned Authorised Representative on the other hand supported the decision of the learned Commissioner (Appeals) for the reasons stated therein. Further, referring to the chart showing comparative figures of sales and cost incurred he submitted that though the sales have increased by 50%, the cost has not gone up which is quite abnormal. Further referring to the director’s report forming part of annual report, the learned Authorised Representative submitted that the growth recorded by the company compared to previous year is abnormal, hence, financial result cannot be relied upon. He, therefore, submitted the company had been rightly rejected as a comparable.

We have considered the submissions of the parties and perused the material available on record. Though, as it appears, the assessee

This company was not selected by the assessee. In the course of proceedings before him, the Transfer Pricing Officer proposed this company as a comparable. Though, the assessee objecting to inclusion of this company as a comparable had contended that during the previous relevant previous year another company Tutis Technologies Ltd. has brought 68.23% stake in Vishal Information Technologies Ltd., thereby, resulting in exercise of control over pricing decisions which has an influence on profit / loss, hence, it cannot be considered as a comparable. However, the Transfer Pricing Officer rejecting the objections of the assessee selected the company as a comparable.

Before the first appellate authority, the assessee objecting to the selection of this company submitted, as per the information available in the annual report the company is engaged in providing technical services and developing I.T. solution and agency services by outsourcing its work to third party vendor and not rendering the ITES services itself. The learned Commissioner (Appeals) after examining the director’s report forming part of annual report found that the company had tied up with various institutions for visually impaired to make knowledge available and over the net. It is closely working with CDAC to introduce text to speech solution for the blind to hear the 20 M/s. GlobeOp Financial Services India Pvt. Ltd.

Learned Departmental Representative contesting the decision of the learned Commissioner (Appeals) in excluding Vishal Information Technologies Ltd. as a comparable submitted the company is functionally similar to the assessee. Only because it has outsourced part of its activity, it cannot be said that it is not comparable to the assessee.

Learned Authorised Representative on the other hand strongly supporting the decision of the learned Commissioner (Appeals) submitted, the company cannot be treated as a comparable not only because of the fact that it is providing technical services and developing I.T. solutions but also for the fact that almost entire ITES segment is outsourced to third party vendor.

We have considered the submissions of the parties and perused the material available on record. On analysis of facts placed on record, it is noticed that personnel cost incurred by Vishal Information Technologies Ltd. during the year constitutes 1.38% of the total cost. Whereas, the personnel cost incurred by the assessee constitutes 56.94% of the total cost. This fact proves that this company is not carrying out the ITES activities on its own but is employing third party vendors to carry out the work on behalf of the customers, thus, this company is acting as a mere intermediary between its customer and the third party vendors. In other words, the entire ITES work was outsourced to others. It is also observed, considering the aforesaid facts, different benches of the Tribunal have held that Vishal Information Technologies Ltd., cannot be considered as a good comparable as far as ITES segment is concerned. A few of the decisions are as under:–

In fact, the Hon'ble Delhi High Court in Ramp Green Solutions Pvt. Ltd. v/s CIT, 377 ITR 533 (Del.), while dealing with the comparability aspect of Vishal Information Technologies Ltd., considering the fact that it is outsourcing its work to other vendors /

As far as software development services segment is concerned, the Department has challenged selection of four comparables by learned Commissioner (Appeals) and rejection of eight comparables selected by Transfer Pricing Officer. Hereinafter, we will deal with the objections raised by the Department with regard to the selection / rejection of each comparable.

Though, the assessee selected this company as a comparable under the software development services segment, however, the Transfer Pricing Officer rejected it stating that company is also engaged in ITES and segmental results are not available. Challenging the rejection of the aforesaid company, the assessee submitted before the learned Commissioner (Appeals) that the company is primarily

The learned Commissioner (Appeals), after considering the submissions of the assessee observed that as per business profile of the company mentioned in the annual report, it is engaged in software development services. On going through the financial statements as submitted in the annual report, the learned Commissioner (Appeals) found that the major portion of the revenue earned by the company during the relevant previous year is from software development services. He, therefore, held that the company being functionally similar is to be treated as a comparable.

The learned Departmental Representative referring to the annual report of the company submitted that the company is engaged in ongoing application maintenance which cannot be treated as software development services. He submitted, the company is also engaged in diversified activities which makes it incomparable to the assessee.

Learned Authorised Representative on the other hand reiterating the stand taken before the learned Commissioner (Appeals) submitted, the company being engaged in software development services is comparable to the assessee.

We have considered the submissions of the parties and perused the material available on record. As could be seen from the order of the Transfer Pricing Officer, he has rejected this company primarily for the reason that segmental results were not available. However, as could be seen from the observations made by the learned Commissioner (Appeals) in Para–27.2 of the order, as per the annual report of the company segmental results are not only available but it indicates that it is primarily and fundamentally engaged in the activity of software development services. Further, on a reference to the annual report of the company, a copy of which is placed at Page–57 of the paper book, the aforesaid conclusion drawn by the learned Commissioner (Appeals) appears to be correct. That being the case, we do not find any reason to disturb the findings of the learned Commissioner (Appeals) on this issue.

As could be seen, this company was rejected by the Transfer Pricing Officer for the reason that income earned from foreign exchange is less than 25% of the total sales. In other words, the company earns its income from local sales, hence, cannot be a comparable with companies deriving income from export sales.

Before the first appellate authority, it was submitted by the assessee that there is no empirical data to suggest that companies with higher foreign exchange earnings have higher profitability. Further placing reliance on the annual report of the company, it was submitted that the company earns 100% of its service revenue from export, therefore, functional comparability should take precedence. The learned Commissioner (Appeals), after considering the submissions of the assessee, found that the entire software and service income is earned through exports. Therefore, finding that observation made by the Transfer Pricing Officer is factually incorrect, he included the company as a comparable.

Learned Departmental Representative while upon the observations of the Transfer Pricing Officer, learned Authorised Representative relied upon the observations of the learned Commissioner (Appeals).

Having considered the submissions of the parties and perusing the material on record, we are of the view that Goldstone Technologies Ltd. is comparable to the assessee. As could be seen, the Transfer Pricing Officer had rejected this company solely for the reason that its foreign exchange earning is less than 25%. However, the learned Commissioner (Appeals) has given a factual finding by referring to the 26 M/s. GlobeOp Financial Services India Pvt. Ltd.

The Transfer Pricing Officer rejected this company by stating that the company is also engaged in software product and engineering services. Further, segmental information is not available.

Before the first appellate authority, it was submitted by the assessee that as per the information available in the data bases company primarily offers off–shore and outside development services. It was submitted, the term “Engineering Services” is widely used and essentially means software development and I.T. solutions. The learned Commissioner (Appeals) agreeing with the assessee that the term “Engineering Services” has no other context other than in the context of software related services, the company should be treated as a comparable to the assessee.

The learned Departmental Representative objecting to the selection of the company submitted, the learned Commissioner

Learned Authorised Representative on the other hand reiterating the stand taken before the Departmental Authorities submitted the company being engaged in software services has rightly been treated as comparable. In this context, he referred to the annual report of the company as placed in the paper book.

We have considered the submissions of the parties and perused the material available on record. On a perusal of the order of the Transfer Pricing Officer and learned Commissioner (Appeals), prima– facie we are of the opinion that neither of the authorities have properly analysed the business model of this company. From the extracts of annual report of the company placed in the paper book, though, it appears that the company is engaged in software development services but at the same time, it appears that the company is proposing to consolidate its position in various software development segment by launching innovative products and services catering to niche segment. Whether these services can be classified under the software development service segment requires thorough examination

It is observed, though, this company was selected by the assessee but the Transfer Pricing Officer rejected this company by stating that it is engaged in functionally dissimilar activities like application development, research and development service, engineering service and BPO, etc. and the segmental turnover in relation to different segment are not available. Challenging the rejection of this company before the learned Commissioner (Appeals) the assessee submitted that the company is primarily engaged in the business of development and customization which is based on information technology. The assessee also referred to annual report of the company to indicate that company is engaged in software development activities.

The learned Commissioner (Appeals), after considering submissions of the assessee in the light of facts and material on record

Learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, as segmental details of the activities carried on by the company are not available in the annual report, it cannot be treated as comparable.

Learned Authorised Representative on the other hand submitted, as all services rendered by the company is in relation to software development, the observations of the Transfer Pricing Officer that segmental details are not available is totally irrelevant.

We have considered the submissions of the parties and perused the material available on record. As per the extracts of annual report of the company, a copy of which is placed at Page–90 of the paper book, it is noticed that the company itself has mentioned that it provides services in three segments i.e., software services, GIS services and engineering solutions. That being the case, in our view, it requires examination whether segmental details relating to each of the segment are available. The learned Commissioner (Appeals) while

This company was proposed as a comparable by the Transfer Pricing Officer in the course of proceedings. Though, the assessee objected selection of the company by stating that the company is into diversified operations such as software products, software services, etc., but the Transfer Pricing Officer rejecting the contention of the assessee selected it as a comparable. Objecting to the selection of the company as a comparable, the assessee submitted before the learned Commissioner (Appeals) that as the company is into diversified operations it cannot be treated as a comparable. The learned Commissioner (Appeals) on a perusal of the annual report of the financial year 2004–05 and 2005–06, noticed that it has two business segments namely; (i) product license and related activities; and (ii) software development services and project management training and consultancy services. From the segmental report, it was found by the learned Commissioner (Appeals) that the company is earning revenue primarily from the sale of software products and related activities. He,

Learned Departmental Representative submitted that the segmental details are available in the annual report. Hence, the observation of the learned Commissioner (Appeals) that segmental details are not available is incorrect.

Learned Authorised Representative on the other hand submitted the Transfer Pricing Officer has considered the sales at entity level and not segment–wise. Further, he submitted, as per the annual report, segmental details are not available. He, therefore, submitted that the company cannot be treated as a comparable.

We have considered the submissions of the parties and perused the material available on record. On a reference to the annual report of the company, it is noticed that it is engaged in the software development service as well as development of products and project management training and consultancy. Thus, as could be seen, it has three segments. Further, perusal of the annual report, reveals that there is no segmental reporting of revenue earned and expenditure incurred for each segment. It is also noticed that the Assessing Officer has taken the sales at entity level. For the aforesaid reasons, in our view, the company cannot be treated as a comparable.

Though, the assessee objected to the selection of the aforesaid company on the reason that it is mainly into products and consultancy, further it had abnormal gain on account of amalgamation but the Transfer Pricing Officer overruling the objections of the assessee selected the company. The learned Commissioner (Appeals), after considering the submissions of assessee in the context of facts and material on record found that as per the annual report of the company, the increase in earning of high margin during the relevant previous year was as a result of amalgamation of Holool India Ltd. He, therefore, held that the company cannot be treated as comparable.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, during the relevant previous year, another company namely Holool India Ltd. amalgamated with the assessee company. It is also a fact on record that the increase in income is due to amalgamation of Holool India Ltd. as revealed from the annual report of the company. It is noticed that for this reason alone various Benches of the Tribunal for the very same assessment year have held that this company cannot be treated as a comparable. For ready reference a few of the decisions are referred to herein below:–

Therefore, following the consistent view of the co–ordinate bench and also for the reason that amalgamation effected during the year might have impacted the margin of this company, we agree with the learned Commissioner (Appeals) that it cannot be treated as a comparable.

Before the Transfer Pricing Officer, assessee objected to selection of this company on the reason that company’s operations are based on hybrid model of supplying products and services to the customers. The Transfer Pricing Officer, however, not agreeing with the objections of the assessee treated the company as a comparable.

The learned Commissioner (Appeals), after considering the submissions of the assessee and on a perusal of the annual report of the company found that the company’s operations are based on a hybrid model, hence, it is not functionally comparable to a software development service provider.

We have considered the submissions of the parties and perused the material available on record. It is revealed form the annual report of this company that it is engaged in product development. Considering the aforesaid fact in a number of cases, different Benches of the Tribunal have excluded this company from the comparability analysis. In this context, we may refer to the following decisions:–

Facts being identical, respectfully following the consistent view of the Co–ordinate Bench of the Tribunal, we uphold the decision of the learned Commissioner (Appeals) on this issue.

Before the Transfer Pricing Officer, the assessee objected to selection of the company as a comparable stating that it is engaged in diversified activities, no break–up of revenue earned is available and company owns substantial trade–marks which indicate its into product development. The Transfer Pricing Officer, however, rejected the claim of the assessee.

When the matter came up before the learned Commissioner (Appeals), accepting assessee’s claim, the learned Commissioner (Appeals) held that as majority of the revenue earned by the company is from sale of trademark product and related activities, it is not functionally comparable to the assessee, hence, cannot be treated as comparable.

We have considered the submissions of the parties and perused the material available on record. On a perusal of the annual report of the company, it is noticed that as per its own admission company is engaged in development of product. That being the case, the business model of the company being different from the assessee, it cannot be treated as a comparable.

Before the Transfer Pricing Officer, though the assessee objected to selection of this company citing various reasons such as diversified activities owning of substantial intangibles, brand value, size, ets., however, Transfer Pricing Officer did not accept the contention of the assessee and selected the company as a comparable. The learned Commissioner (Appeals), however, accepting the contention of the assessee rejected the company as a comparable by observing that the company is engaged in diversified operations including development of 36 M/s. GlobeOp Financial Services India Pvt. Ltd.

The learned Departmental Representative submitted that only because of turnover and size of the Infosys Technologies Ltd., it cannot be rejected as a comparable, if otherwise it is functionally similar to the assessee. He also submitted that the turnover has no impact on the profitability of an entity. He, therefore, submitted that Infosys Technologies Ltd., should be considered as a comparable. In this regard, the learned Departmental Representative relied upon the decision of the Hon'ble Delhi High Court in Chrys Capital Investment Advisors Pvt. Ltd. (supra).

Learned Authorised Representative on the other hand reiterating the stand taken before the learned Commissioner (Appeals) submitted, under no circumstances, Infosys Technologies Ltd., can be considered as comparable. In this context, he relied upon the following decisions:–

We have considered the submissions of the parties and perused the material available on record. In our view, considering the nature of activities of Infosys Technologies Ltd., its brand value size, economy of scales, ownership of intangibles, it cannot be considered as a comparable to a captive service provider like the assessee. Judicial opinion on the issue of treating Infosys Technologies Ltd. as comparable is consistent in holding that Infosys Technologies Ltd. being a giant company with diversified activities cannot be treated as a comparable to small company. The decisions relied upon by the learned Authorised Representative also support this view. In view of the aforesaid, we uphold the rejection of Infosys Technologies Ltd. as comparable.

The assessee objected to the selection of this company as a comparable stating that it is engaged in diversified activities segmental details are not available and revenue earned is predominantly from software product. Though, the Assessing Officer rejected the objections of the assessee but the learned Commissioner (Appeals) having found merit in the submissions of the assessee held that the company cannot be treated as comparable as the company is engaged in development of software product.

We have considered the submissions of the parties and perused the material available on record. The fact that the company is engaged in development and sale of products has not been controverted by the Department with cogent evidence. Further, it is noticed that considering the fact that this company is engaged in development of product, different Benches of the Tribunal in case of some other assessees for the very same assessment year have held that aforesaid company cannot be treated as comparable. In this context, we may refer to the following decisions:–

Therefore, consistent with the view of the Co–ordinate Bench of the Tribunal referred to above, we uphold the rejection of the aforesaid company as a comparable.

As far as this company is concerned, the assessee objected to the inclusion of it before the Transfer Pricing Officer on the ground that the company is into diversified business activities but the Transfer

Before the first appellate authority, reiterating the objections raised against the company, it was submitted by the assessee that the company cannot be treated as comparable as it is engaged in diversified business activities. Moreover, it owns substantial intangible assets. The learned Commissioner (Appeals), after considering the submissions of the assessee and perusing the annual report of the company for the financial year 2004–05, agreed that this company cannot be treated as comparable to the assessee.

While the learned Departmental Representative relied upon the observations of the Transfer Pricing Officer, the learned Authorised Representative supported the order of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. On a perusal of the annual report of the company as submitted in the paper book it is observed that the company is into diversified business activities and owns substantial intangible assets. Moreover, it is noticed that in case of Synopsys India Pvt. Ltd., 64 Taxmann.com 110 and Textron Global Technology Centre Pvt. Ltd., 56 Taxmann.com 465, for the same assessment year i.e.,

Though, before the Transfer Pricing Officer, the assessee objected to inclusion of this company on the ground that it is primarily engaged in development of software products but the Transfer Pricing Officer rejecting the objections of the assessee, included it as a comparable.

The learned Commissioner (Appeals), however, on a perusal of the annual report of the company for the current financial year as well as two previous financial years and analysing the details of revenue earned by the company found that it carries out activities in the nature of trading / resale of software products. Further, he also observed that the company has substantial related party transactions. Accordingly, he held that it cannot be treated as comparable to the assessee.

We have considered the submissions of the parties and perused the material available on record. As could be seen from the order of the learned Commissioner (Appeals), on a perusal of the annual report of the company for the current year as well as two previous years, he has given a factual finding that the company is engaged in resale / trading of software products. Aforesaid factual finding of the first appellate authority has not been controverted by the Department with cogent evidence or reasoning. Moreover, it is seen that in a number of decisions different Benches of the Tribunal in case of various software development service, companies for the very same assessment year have held that this company cannot be treated as a comparable to a software development services provider as the company is engaged in development of software products. The decisions which can be referred to in this context are as under:–

Respectfully following the consistent view of different Benches of the Tribunal, we hold that the learned Commissioner (Appeals) was correct in excluding this company from the list of comparables. Accordingly, we direct the Assessing Officer / Transfer Pricing Officer

In the result, Department’s appeal is partly allowed for statistical purposes.