Income Tax Appellate Tribunal - Delhi
Tpg Software Pvt. Ltd., Delhi vs Dcit, Circle-25(2), New Delhi on 11 September, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I', NEW DELHI
Before Sh. Kul Bharat, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 6468/Del/2018: Asstt. Year: 2014-15
TPG Software Pvt. Ltd, Vs. DCIT,
Candor Techspace, B-2, Tower-3, Circle-25(2),
Sector-62, Noida New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AADCT8715F
Assessee by : Sh. Vishal Kalra, Adv.
Revenue by : Sh. Rajesh Kumar, CIT DR
Date of Hearing: 20.06.2023 Date of Pronouncement: 11.09.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the as sessee against the order dated 29.08.2018 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. The asse ssee has raised the following grounds of appe al:
"1. That on the facts and circumstanc es of the case and in law, the AO e rred in assessing the total Inco me of the Appellant under section 143(3) read w ith section 144C( 13) o f the Ac t at INR 6,51,03,510 as against returned Inco me of INR 4,24,39,400.
2. That on the facts and circumstanc es of the case and in law, the AO / DR P / TPO erred in re jecting the transfe r pricing study prepared by the Appe llant inv oking sectio n 92C (3)(c) of the Ac t.
3. That on the facts and circumstanc es of the case and in law, the AO / DRP/TPO erre d in making adjustment of INR 2,25,96,348 in re spect o f inter national transactio n pertaining to prov isio n of software develo pment se rvices ("SDS");2 ITA No. 6468/Del/2018
TPG Software Pvt. Ltd
3.1 That on the facts and circumstanc es of the case and in law, the AO/ DRP / TPO erred in no t accepting the quantitative filters selected by the A ppe llant in its trans fe r pric ing documentation and instead applied his o wn quantitati ve filters whic h lacke d valid and sufficient reasoning. 3.2 That on the facts and circumstanc es of the case and in law, the AO / DRP / TPO erred in ar bitrarily rejecting the set o f func tio na lly comparable companie s adopted by the Appellant to benchma rk t he transaction of provision of software develo pment ser vices.
3.3 T hat on the facts and circumstances of the c ase and in law, the AO / DR P / TPO erred in accepting companies, viz., Cybercom Datama tics I nfo rmation Solutions Ltd, Mindtree Ltd, Pers istent Systems Ltd, Tata Elxsi Ltd, and Comviva techno logies Ltd. which were functio nally not comparable to the Appellant in te rms of functions, asse ts and risk profile. 3.4 That on the facts and circumstanc es of the case and in law, the AO / DR P / TPO erre d in not providing the benefit o f economic adjustment on account of difference in r isk profile in arriv ing a t the a rm's length mean margin.
3.5 That on the facts and circumstanc es of the case and in law, the AO / DR P / TPO e rred in co nside ring the curr ent year data (i.e. FY 2013-14) for comparability despite the fact that the same was no t necessarily available to the Appellant at the time o f preparing its transfe r pr icing documentation. 3.6 That on the facts and circumstanc es of the case and in law, the AO / DR P / T PO erred in adopting inco nsis tencies in calculatio n of the operating margin o f the comparable companies a nd the Appe llant.
4. That on the facts and circumstanc es of the case and in law, the AQ e rre d in levying inte res t under sectio n 2348, 234C and 234D of the A ct.
5. That on the facts and circumstanc es of the case and in law, the AO e rre d in proposing to initia te penalty proceedings under section 271(1)(c) o f the Act mechanic ally witho ut recording any ade quate reasons for such initiation."
3. TPG Software Private Limited ("TPG India" ) is a private limited company incorporated on June 9th, 20 11 under the provision of the companies Act, 1956. The Compa ny's regis tered office is situa ted at New Delhi and unit office is situated at Noida, Uttar Pradesh. The company is a subsidiary of 3pillar 3 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd Holdings LLC , USA. The Company is involved in providing software deve lopment services to its customers in India and abroad. During the year under analysis, TPG India was engaged in provisioning of software development services to TPGI. The AE, TPGI was founded in 2006 and is based in Fa irfax, Vir ginia, 3Pillar Global, Inc. Operates as a products lifecycle management and softw are product deve lopment company. The company offers services in the areas of strategy and consulting, custo mer experience design, platfor m deve lopment, and software engineering aspects; and delivery, support, and testing solutio ns for a gile system administration ("DevOps"). It serves media /entertainment, financial service, information service, and health and wellness industries worldwide. TPGI is complete software development and engineering company which provides ser vices in the diverse sectors ranging from media/entertainment, financial services to health and other indus tries. TPG India is responsible for provisioning of software deve lopment and rela ted services under the projects sub- contracted to it by the AE as per the spec ifications and requirements provided by the AE TPG India employs the resources required for develo pment of software. While TPG India undertakes necessary software development activitie s, the AE monitors s uch activities of TPG India on an on-going basis.
4. In the TPSR, the assessee selected 8 comparables out of which 5 have been rejected by the TPO and 6 have been intro duced by the Revenue. The turnover of the company was Rs.43 .53 Cr.
5. The TPSR considered TNMM as the MAM.
4 ITA No. 6468/Del/2018TPG Software Pvt. Ltd
6. The OP/OC as per the asse ssee was 14.48% and as per the TPO was 12.82%. The ALP determined as the TPO post DR P was 18.79% resulting in adjustment of Rs.2.25 Cr.
7. The following comparables were contested by the assessee:
1. Cybercom Datamatics Information Solutio ns Ltd.
2. Mindtree Ltd.
3. Persistent Systems Ltd.
4. Tata Elxsi Ltd.
5. Comviva Technologies Ltd.
8. Heard the arguments of both the parties and peruse d the material available on record.
Cybercom Datamatics Information Solutions L td.
9. The TPO /DRP held that this company is primarily involved in software development services and all other activitie s are incidental to providing software services. The company is engaged in providing information Technology (IT), business process outso urcing (BPO) and consulting services .
10. The ld. AR submitted that the primary objective of Cybercom Datamatics is to act as consultants a nd advisors on infor mation/internet system and surveyors of information services. It also carried on the business of development, testing, imple mentatio n, migration of home grown and other applications, marketing and manufacturing of information technology products and ser vices, software and har dware syste ms to enterprise and embedded technologies in te lecom 5 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd and other industries. The assessee has submitted that the company needs to be excluded on the following gr ounds:
(i) Func tionally not comparable
(ii) Segmental information not available
(iii) Huge investment in fixed assets
(iv) Super normal profits
11. The ld. DR argued that the functional profile of Cybercom Datamatics as mentioned in page 10 of the Annual Report. It reveals that the principle obje ct of the company is to act as consultants and advisors on information/ internet and surveyors of informatio n services, and to carr y on the busine ss of deve lopment, testing, implementation, migration of home grown and other applicatio ns, marketing and manufacturing of infor mation technology products and services, software and hardware systems to enterprise s and embedded technologies in the telecom and other industries. It was argued tha t the functional pro file is similar to the functional profile of the assessee company i.e. both the assessee company as well as Cybercom Datametic deal in complete cycle of development of software. Further reference is also made to para c i.e. revenue recognition at page 10 of PB, w herein it is clearly provided that the revenue from technical and software services is recognized on a time and material basis. This is also similar to the software services and engineer ing services provided by the assessee company to its AE. Even though the word software pro ducts have been me ntioned, but it is not out o f place to mention that on page 17 at note 20/page 8, it is clearly mentioned that revenue from operations is only from sale of services and not of 6 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd products. Thus this company is functionally similar to the assessee company.
12. With regard to the segmental information, the ld. DR argued that se gmental information is no t available however it is seen that M/s Cyberco m Datamatic is involved in one segment. only which is mentioned at no te 23/page 18 which reads "t he Principle business of the Company is of pro viding of technical a nd softw are services . All o ther activitie s of the Company revolve around its main bus iness Hence no additio nal disclosure under Accounting standa rd -17, "Se gment Repor ting" are required in these financial statements." Hence, it was submitted that lack of segmental infor mation cannot be a criteria for rejection of the comparables.
13. With re gard to the Investment in fixe d assets , the assessee has submitted that M/s Cybercom Datamatie s has made huge investment in fixed assets as compared to assessee company. The ld. DR argued that from the perus al of the fixed asset schedule it is seen that out of ne t block R s.4.97 crores, the asset of lease hold premises comprise of Rs . 4.04 crores, thus the asssessee co ntention are clearly not tenable in the sense that there is no correlation between the leasehold premises and the ne t sales and assessee's c ontentions are superfluous and misplaced. The ld. DR argued that in fac t, the biggest asset in software service company is the employees and it is seen tha t the ratio of employee benefit expenses to the total revenue is Rs.13.69/Rs.43 .53 crores which is 70.5% in the case of assessee whereas in the case o f Cybercom Datamatics this ratio is Rs.5.15 crores/14.69 is 35.05% which c learly 7 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd prove s that assessee has major investment in e mployees then M/s C ybercom Datamatics.
14. With regard to the extraordinary/abnormal profits, the ld. AR sought exclusion based o n the fact that M/s Cybercom Datamatics earned super normal profit of around 87%. T he ld. DR argued that a company can't be excluded based on high profits/ fluctuating profits and this issue has already been decided by the Hon'ble Jurisdictional Delhi High Court in the case of ChrysCapital Investment advisers (India) Pvt. Ltd. v/s DCIT in 56 taxmann.com 417, 2015 (Delhi) (para 44) wherein Hon'ble High Court clearly he ld that only on the reason of high/extremely high, high/low, profit/lo ss, an entity can't be excluded as comparable.
15. Rebutting the case laws relied upon by the ld. AR, the Departmental Representative argued that M/s Cybercom Datamatics as a right comparable to M/s Steria India Ltd. for software deve lopment services and the facts of the instant case are identical to the facts of the Steria India Ltd.
16. Hence, based on the FAR, we hold that since the primary conditions are met with, we hold that Cybercom Datamatics Information Solutions Ltd. can be considered as a right comparable.
Mindtree Ltd.
17. The asse ssee has selected this comparable in the TPSR for the A.Y. 2012-13 and the company is generating revenue from software development and softw are services.
8 ITA No. 6468/Del/2018TPG Software Pvt. Ltd
18. The assessee has sought its exclusion based on the follow ing facts:
(i) Func tional dissimilar
(ii) Different business model
(iii) Research and development activity
(iv) Segment data not available
(v) High turnover
19. The ld. AR submitted that the comparable inc urred subco ntract e xpenses of Rs.140 Cr. and the ld. DR rebutted, arguing that this Rs.140 Cr. constitute 0.3% of the total turno ver and hence negligible.
20. With regard to the functional profile, the annual report (page 107/PB) reads "Mindtr ee Limite d (Mindtree' or the 'company') is an inter national informatio n Techno consulti ng and implementation C ompany that delivers business so lutions through global so ftw are development. The Company is struc tured into five verticals- manufacturing, BFSI Hitech, travel and transportation and others . The Company offers se rvices in the areas o f agile, analytics and information management, application development and mainte nance , business process management, busine ss technology consulting, c loud, digital business independent tes ting infrastructure management ser vices, mobility, product engineering and SAP Services."
21. The above functional profile, clearly shows tha t M/s Mindtree Ltd. is a software servicing var ious sectors and for the sake of s pecialization/convenience the company had divided/structured its software development ser vices functions in 5 sectors. This is nothing new, as all the companies for the 9 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd sake of conve nience /specialization /better productivity divides/ structures its functions. Also in the financial statement at page 63of PB, it is clearly mentioned that the entire income is from software development services only. This fact is further mentioned at page 123 of PB under the quantitative detail column. At page 123 in para 3.9 under the heading "quantitative details" it is clearly mentioned that the assessee is involved in software de velopment servic es only and accor dingly no other segment is applicable in the case of the assesee. Thus the assessee contentio n about no segmental infor mation is not tenable. Further, with regard to the intangible of Rs.6.7 crore co mes to 0.2% of turnover of Rs.3031.6 crore. Howe ver, the assessee also owns intangible of Rs.6.03 crore including goodwill, which is 13.85% of turnover of Rs. 43.53 crore. Thus this contention of assesssee is without any basis and thus ba sed on the above analysis , the assessee company is functionally similar comparable to M/s Mindtree Ltd.
Persistent Systems Ltd.
22. The Revenue held that this is functionally comparable as the companies found to be providing software services.
23. The ld. AR submitted that the company is mainly involved in so ftware product development and development of end to end solutions. The assessee, on the other hand, is engaged in providing software development services and does not develop software products or end to end solutions. The ld. AR submitted that this company is engaged in sale of software products and not software services. The ld. AR further argued that, 10 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd
1. Segmental financials are not available,
2. The comparable is involved in R&D activities and ha s intangibles,
3. The comparable had an extraordinary event namely acquisition of Cloud Squads Inc.
4. High turnover 27 times as that of the assessee
24. The ld. DR submitted his arguments in writing which are as under:
2. Persistanc e system s Ltd. (PSL)
(i) Functional profile: The assessee has requested for exclusion base d on the fact that it is functionally different.
The assesse has state d that this company is e ngaged in sale of softw are products and not software services. The assessee allegation has been duly answered by the TPO and DRP in page 40 and page 11 of respective orders.
Also whether this company is a software product development company or services company is a fact which has already been answered in judgments of the Hon'ble Delhi ITAT o nly whic h are mentioned below:
The Hon'ble ITAT in its order in the case of Steria India Ltd. v s. Addl. CIT in [2020] 122 taxm ann.com 267 (Delhi - Trib.) ha s treated M/s Persistent systems ltd a s comparable in software development services segm ent only. However more relevant are the comments about profile of Persistent systems Ltd, which has been mentioned in para 115 to 118, and for ready re ference is reproduced be low..........11 ITA No. 6468/Del/2018
TPG Software Pvt. Ltd
15. I n case of Persiste nt Systems, limited Id AR submitted that Persistent Systems Ltd. is engaged in the business o f deve lopment and sale of software products and therefore , cannot be re garded as comparable to the assessee, a routine softw are service provider. At page 27 (Pg 192 of Annual Repor t paper book) it is stated that the company specializes in building software products and the business of the company is inter-alia fo cused on products. Also, a t page 105 (Pg 270 of annual report paper book) of the annual report it is stated that the company derives significant portion of its revenue from export o f software services and products (IP based software products). It is further submitted that at Page 164 & 183 of the Annual report it is stated that the company specializes in software products, services and technolo gy innovations. It is further submitted tha t segmental profitability of this company from provision of software services is not available in the annua l report and accordingly, Persistent Systems Ltd cannot be regarded as an appropriate comparable for the purpose o f benchmarking analysis.
116. The lear ned departmental representative vehemently supported the order of the learned dispute resolution pane l and the learned transfer-pricing officer and submitted that they have discussed the functionality o f this co mpany in detail and therefore this company is functionally comparable.
117. We have carefully considered the rival conte ntions and perused the standalone financial statement of the above 12 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd company placed in the paper book at page number 110 - 153 (annual report page number 156 198). In its revenue strea m as per page no 166 of Standalone Financial state ments its revenue recognition shows that:-
"Income from software services Revenue from time and material engagements is recognize d on time proportion basis as and when the services are rendered in accordance with the terms o f the contracts with custo mers. In case o f fixed price contracts, revenue is recognized ba sed on the milestones achieved as s pecified in the contracts, on proportionate completion basis . Revenue from royalty is recognized in accordance with the terms o f the relevant agreements. Revenue from ma intenance contracts is re cognized on a pro-rata basis over the perio d of the contract. Unbilled revenue represents revenue recognized in relation to work done on time and material proje cts and fixed price proje cts until the balance sheet date for which billing has not taken place. Unearne d revenue represents the billing in respe ct of contracts for which the revenue is not recognized. The Company collects service tax and value added taxes (VAT) on behalf of the government and, therefore, these are not economic bene fits flowing to the Company. Hence, they are exclude d from revenue.
118. At note no 21 Page No 181 of Standalone Financia l state ments it has only one stream of Revenue i.e. Sale of Softw are services as under:13 ITA No. 6468/Del/2018
TPG Software Pvt. Ltd
21. Revenue from operations (net) [In Million) Fo r the year ende d March 31, 2014 March 31, 2013 Sale of software services 11,841.16 9,967.51 Therefore, we do not agree w ith the arguments of the assessee, and hold that Persistent Sys tem Ltd. does no t sale products, but it is engaged only in sale o f software services. No other reasons were given to us for its exclusion; hence, we are of the view that Persiste nt system has rightly been included as Comparable company by I d DRP and TPO.
Thus this company is clearly he ld to be involved in sale of software services only and not in sale of software products. Also in the case of Motherson Sumi infotech and Design Ltd. vs/ ACIT 112 Taxmann.com 300 (2019) again this company was held to be involve d in softw are serv ices only . The par a 32 of the Hon'ble ITAT order is very pertinent and reproduced be low for ready reference...
32. The Annual Report of this company is placed at pages 762 to 895 of the paper book. In its Profit and Los s account, sale of software services and products is at Rs.31 ,231/- a nd in Schedule 11, bifur cation is given for sale of software services and products - e xport and dome stic. Though segmental information is provided in the Annual Report, from w hich sale of softw are services can be separately known from the sale of products , but the infor mation re ceived by the TPO u/s 133 (6) of the Act, the 14 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd company has informe d that its software products sales constituted 0.73% of the Revenue which means that more than 99% of the Revenue is from software services.
33. The Id co unsel for the assessee vehemently s tated tha t this company is functionally dissimilar as it is e ngaged in outsourced software product development se rvices as inves tment in Intellectual property led sales . The Id. counsel for the assessee further stated that this company has undertake n significant restructuring and has very high turnover, but failed in convincing us the impac t of these things on the overall margin of the company. The refore, we are of the considered view that this company passes all the filters and has been rightly taken in the final set of comparables. No interference is called for.
Thus in view of the above, it is absolutely clear that this company is involved in sale of software services only for the same assessment year i.e. A.Y. 2014-15 only, like the assessee company and these are the findings/de cisions of Hon'ble Jurisdictional ITAT only, which have a binding prece dence. Also, the P&L account shows M/s PSL . has only one s tream of income (page 449) i.e. from sale of software services only.
The assessee has quo ted certain case laws inc luding the decis ion of the Hon'ble Delhi High Court in the case o f Microsoft India Ltd. however the facts of that case were different i.e. M/s Microsoft was found engaged in rendering software development services and ITES. Further the assessment year involved in that case was A.Y. 2011-12 15 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd and A.Y. 2012-13 which are different from the present appeal. Also, the other decisio ns cited are distinguishable and they were rendere d before the decis ion of Hon'ble ITAT in the case of case o f Steria India Ltd. vs. Addl.CIT in [2020] 122 taxmann.com 267 (Delhi - Tr ib.).
The assessee has further raised follow ing grounds whic h are mentioned below:-
(ii) Segmental information not availab le:- the segmental information is available in para 27/page 407 of PB, wherein it is clear ly mentio ned that company provides Softw are services only in 3 sectors namely Telecom + Wireless, Life sciences + Healthcare and infrastructure + Syste ms. As the software services are treated as a commo n and single segment only by the assessee company, accor dingly the assessee has treated it as single segment only. Thus the assessee conte ntions about no segmenta l infor mation are wrong and deserves to be rejected.
(iii) Occurrence of extraordinary ev ent/The assessee has also alleged opening of new offices by M/ s PSL.
a. Ac quisition of Cloud Squads. The PSL has acquired clouds Squa ds only in February 2014 (i.e. only in the end) and it is small company and the asse ssee has failed to mention the impact on financials /P&L on such ac quisitions. Also the allegation that assessee has opened new branch offices in Germany and South Africa will at best have negative impac t on P&L. because it is a established fact that whenever new office s are opened initially it has negative impact on profits 16 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd beca use it takes time to stabilize the business activitie s from new offices.
(iv) High turnover. The assessee has alleged that the PSL has turnover of 1184 crores i.e. high as compared to the assessee company and M/s PSL enjoys economic of scale. This fact has been answered by the TPO in detail in page 33 to 36 of his o rder and for the sake of brevity, arguments are not repeated. The TPO has clearly demons trated by comparing revenue/turnover with operating mar gins of all the 14 comparables and clearly demonstrated that there is no correlation between the high turno ver and the profit margins. Further it is established fact, that the turnover may have role in manufacturing industries but in service indus tries the criteria or the principle of eco nomics o f scales does no t work. The assessee has also place d reliance on the decisio n of Hon'ble Delhi High Court in the case o f Pr. C IT Delhi-1 vs. M/s Agnity India Technologie s Pvt. Ltd. In IT A No. 447/2018 to claim that co mpanies with high turno ver cannot be compared w ith low turnover c ompanies . The decision of the Hon'ble High Court has been perused and it is seen that in that case M/s Vipro Technology was excluded as a comparable on several grounds and the contentions of the asse ssee are not clear ly borne out of the decis ion of the Hon'ble Delhi High Court, a fact, which has been duly observed by the Hon'ble Benc h also. Further, the assessee relia nce on DRPS findings for A.Y. 201 2-13 with regar d to highturn over companies is also not mentioned in the order of the Hon'ble Delhi High court.
17 ITA No. 6468/Del/2018TPG Software Pvt. Ltd
(v) Intangibles: Further the assessee has alleged that M/s PSL owns intangibles of Rs.16 crores however if we compare it w ith sales of Rs.1184 crores then it is only 1.35% of the turnover which is negligible. It is also no t only of place to mention that asses see company has intangible including goodwill of Rs. 6.03 crore against sales of Rs . 43.53 crore, which comes out to 13.85% of turnover.
(vi) R & D activity: The assessee has also taken the ground that M/s PSL is involved in Research & Development activity. The details of Research and development expense s by M/s PSL is given on note 35 of notes forming part of financial state ments (page 195 Annual report/page 463 of PB). The total research and development expenses are Rs. 3 .61 cror e for F.Y . 2013-14 which comes to 0.30% of total turnover, which is negligible.
Thus based o n the above analysis, this company i.e. M/s PSL is functionally similar and also comparable on a ll parameters/aspects to the assessee company.
25. The ld. AR rebutted the submissio ns of the ld. DR. The salie nt feature s of the arguments of the ld. AR are as under:
While rejecting exclusion of Persistent Systems, the Hon'ble Tribunal in Steria's case has held that the said company is only into software development, however, did not consider the fact the company in its audited financials at page 164 (refer pg 432 of the annual report compilation). under Note 1: Nature of operations, itself classifie d as global company specializing in software products, services and technology 18 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd innovation. The Company offer s comple te product life cycle services.
26. The ld. AR argued that the following arguments was never prese nted before the Bench while dealing the case of Steria (supr a).
Revenue from time and material engagements is recognized on time pro portion basis as and when the services are rendered in accordance with the terms of the contracts with customers.
In case of fixe d price contracts, revenue is recognized base d on the milestones achieved as specified in the contracts, on proportio nate completion basis, Revenue from royalty is reco gnized in accordance with the terms of the relevant agreements. Revenue from maintenance contracts is recognize d on a pro-rata bas is over the period of the co ntract. Unbilled reve nue represents revenue recognized in relation to work done on time and material pro jects and fixed price projects until the balance sheet date for w hich billing has not taken place.
Un-earned revenue represents the billing in respe ct of contracts for which the revenue is no t recognized. The Company collects service tax and value added taxes (VAT) on behalf of the government and, there fore, these are not economic benefits flowing to the Company. Hence , they are excluded from revenue.
19 ITA No. 6468/Del/2018TPG Software Pvt. Ltd
27. The ld. AR argued that Persistent Systems has been held to be not co mparable to the Software Develo pment service provider in the absence of segmental and relied o n the following case laws:
EMC Software and Services India Pvt. Ltd. [IT(TP)A No . 3375/Bang/2018 CGI Information Systems and management co nsultants Private Limite d vs. ACIT: IT(TP)A No. 586/Bang/2015 Saxo India Pvt. Ltd. vs. ACIT: ITA No. 6148/Del/2015
28. The ld. AR argued that the companies having significantly higher turnover than the assessee is not a good comparable:
PCIT vs. Agnity India Technologies Pvt. L td.: ITA 447/2018 (Delhi High Co urt) Aggressive Digital Systems (P) Ltd. vs. ITO: [2022] 97 ITR (T) 687 (Delhi Trib.) Nuance Transcription Services India Private Limited vs .
ACIT : [IT(TP)A No. 3230/Bang/2018) Deliverhealth Solutions India Pvt. Ltd. vs The AO: [IT(TP)A No. 721/Bang/2021]
29. Having gone through the submissions, we find tha t the turno ver is within the acceptable range, the FAR matching, the segmental information is not required as there is single co mmon segment of revenue and in the absence of financ ial implication on the occurrence of extraordinary events and having found intangibles being 1.35% as negligible and same with the R&D activities whic h is 0.3% of the turnover and hence, we hold that 20 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd Persistent Systems Ltd. can be considered as a right comparable.
Tata Elxsi Ltd.
30. The TPO/DRP considered this company based on the broad functional similarities. The company is involve d in software deve lopment & services segment of Tata Elxsi consis ts of embe dded product design and engineering se rvices, digital content creation, industrial design and visual c omputing labs whereas, the assessee is a captive software develo pment services provider.
31. The assessee submitted that the company is not comparable owing to,
1. Softw are deve lopment and services
2. Syste ms integration and suppor t
3. Embedded product design
4. Industrial design
5. Visua l computing labs
32. The case was selected by the assessee itself in the A.Y. 2012-13. The turnover of the company's 20 times that of the company which is within the acceptable range and the FAR has been similar, hence, we hold that it can be considered as a right comparable.
Comviva Tec hnologies Ltd.
33. The assessee has also so ught the exclusio n of Comviva Technologies Ltd. By claiming that the company is not 21 ITA No. 6468/Del/2018 TPG Software Pvt. Ltd functionally c omparable to the assessee compa ny and also it has high turno ver. At the outset, it is seen from the records and the assessee written contentions that this company was in the list of assessee's own comparables and both at the stage of TPO as well as DR P. Since, this comparable has nor be examined by the authorities below, in the fitness o f things, the matter is referred to the file of the TPO/DRP to examine the issue afresh.
34. In the re sult, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 11/09/202 3.
Sd/- Sd/-
(Kul Bharat) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 11/09/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR