Income Tax Appellate Tribunal - Hyderabad
Invensys Development Centre India ... vs Dcit, Circle-2(1), Hyd, Hyderabad on 23 February, 2017
ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd
Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.329/Hyd/2015
(Assessment Year: 2010-11)
AND
C.O. 23/Hyd/2015
(Arising out of ITA No.318/Hyd/2015)
(A.Y. 2010-11)
Invensys Development Vs Dy.CIT Circle 2(1)
Centre India Pvt. Ltd 8th Floor, IT Towers,
Hyderabad AC Guards, Hyderabad
PAN: AABCI 1140 F
ITA No.318/Hyd/2015
(Assessment Year: 2010-11)
Dy.CIT Circle 2(1) Vs Invensys Development Centre
8th Floor, IT Towers, India Pvt. Ltd
AC Guards, Hyderabad Hyderabad
PAN: AABCI 1140 F
For Assessee : Shri Raghunathan Sampath
For Revenue : Shri P. Chandra Sekhar, DR
Date of Hearing: 12.01.2017
Date of Pronouncement: 23.02.2017
ORDER
Per Smt. P. Madhavi Devi, J.M.
The above cross appeals are filed by both the assessee as well as the Revenue against the assessment order passed u/s 143(3) r.w.s. 92CA(4) r.w.s. 144C of the I.T. Act, 1961, dated 21.09.2015.
Page 1 of 19ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad
2. Brief facts of the case are that the assessee company, engaged in the business of providing software development, quality assurance and support services to its AE, filed its return of income for the A.Y 2010-11 on 14.10.2010 admitting total income of Rs.10,20,36,700. During the assessment proceedings, the AO observed that the assessee, who is engaged in providing software development services to its AEs, has received consideration for the services rendered by it. Therefore, he observed that these international transactions fall within the ambit of the transfer pricing provisions of section 92C of the Act. He also observed that the assessee has filed an audit report in Form No.3CEB containing the details of the transactions with its Associated Enterprises (AEs), as per which, the value of the transactions exceeded Rs.15.00 crores. He therefore, referred the determination of the Arms' Length Price (ALP) of the international transactions to the TPO u/s 92CA of the Act. The TPO initiated proceedings by issuance of notice u/s 92C of the Act dated 14.2.2013. The assessee filed its replies on 28.2.2013 and 13.07.2013 and also explained the facts of the case.
3. The TPO observed that the assessee i.e. M/s. Invensys Development Centre (India) Pvt Ltd, incorporated on June 2003, was set up to cater to the software development, quality assurance and support services needed for the products of Invensys Group and that the assessee has two centres, one located in Hyderabad and the other in Mumbai. He observed that the Invensys Dev. Centre (P) Ltd is headquartered in London and is a global technology group providing software solutions, products and services to control, optimize and automate Page 2 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad equipment and processes in a broad range of industries and environments. He also observed that the group has facilities in more than 50 countries and its products and solutions are used in over 180 countries. He observed from the 3CEB report that the assessee has entered into international transactions with some of its group companies and the financials of the taxpayer for the financial year 2009-10 is as under:
Description Amount (Rs.)
Operating Revenue 67,91,24,540
Operating Cost 61,37,37,099
Operating Profit 6,53,87,441
OP/OR (%) 9.63
OP/OC% 10.65
4. Further, the AO observed that the assessee has shown a sum of Rs.3,31,14,045 as contract termination fees received from its AEs also as part of the operating income. Vide submissions dated 30.07.2013, the assessee submitted as under:
"Firstly, we would like to humbly submit that the Company in its TP documentation considered the contract termination fees of Rs.3,31,14,045/- received from AEs. Since, the Company is a captive service provider and to mitigate any loss of not providing services, the contract termination fee was received. As the same is in relation to the software services provided to the AEs, it was included in the operating income while computing the net margin under TNMM method. The same has been disclosed in the audited financial statements submitted to your good-self vide submission dated 28th February, 2013. We request your good self to consider the same for determination of arm's length price of the international transactions with the AEs)".
5. The TPO however, held that the contract termination fee is not part of the operating revenue since it does not relate to Page 3 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad software development activity. He was of the opinion that the said termination fee is not received by the taxpayer in lieu of the provisions of software services by the assessee but is received in lieu of termination of the contract and consequential losses and therefore, it is in the nature of the non operating income and can only be listed as other income. He therefore, excluded the same from the receipts from provisions of software services and thereafter proceeded to compute the ALP.
6. On going through the T.P. document, the AO observed that the method of search process adopted by the assessee suffers from defects which have resulted in use of inappropriate comparables and rejection of companies that are appropriate comparables. He, therefore, rejected the assessee's T.P. documentation and proceeded to conduct his own search for the comparables. The assessee had adopted 21 companies as comparable to the assessee out of which the TPO has accepted only 7 companies as comparable to the assessee and rejected the remaining companies. Thereafter, he has arrived at the final list of comparables which is as under:
S.No Name of the company OR OP/OC
1 Accelya Kale Solutions Ltd 1,27,05,82,108 28.42
2 Avani Cimcon Technologies Ltd 2,83,06,444 3.39
3 CAT Technologies Ltd 8,15,37,696 13.04
4 Comp-U-Learn Tech India Ltd 14,31,03,387 19.96
5 E-Infochips Bangalore Ltd 43,04,89,804 72.32
6 Evok Tech 10,86,33,823 18.61
7 E-Zest Solutions Ltd 10,35,93,830 22.1
8 Infosys Technology Ltd 2,12,06,00,00,000 45.44
9 Kals Information Systems Ltd 2,16,92,935 34.41
(Seg)
10 Kuliza Tech 9,91,21,132 25.92
11 L&T Infotech Ltd 17,89,50,41,004 21.2
12 Mindtree Ltd (Seg.) 7,38,41,68,041 20.47
13 Persistent Systems & Solutions 6,67,28,828 11.37
Ltd (Merged)
14 RS Software (India) Ltd 1,61,83,71,419 9.88
Page 4 of 19
ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad 15 Sasken Communication 4,19,37,03,000 25.23 Technologies Ltd 16 Tata Elxsi Ltd (Seg.) 3,37,77,99,096 18.02 17 Thinksoft Global Services Ltd 74,55,94,965 11.22 18 Zylog Systems Ltd 7,83,64,08,467 18.62 19 Persistent Systems Ltd 5,09,12,50,000 31.57
7. The assessee had also asked for risk adjustment while determining the ALP. However, the TPO rejected the assessee's contentions holding that the assessee is also undertaking certain risks which he enumerated at pages 21 and 22 of his order. Thereafter, the TPO has arrived at the Arithmetic Mean Margin of the comparables at 22.69% and after giving the working capital adjustment, he arrived at the average mean margin at 19.7%. He therefore, proposed the adjustment of shortfall of Rs.5,60,71,131 u/s 92CA of the Act.
8. On the basis of the TPO's order, the AO proposed the draft assessment order dated 4.3.2014 against which the assessee preferred its objections before the DRP. The DRP rejected the assessee's objections except for directing the exclusion of M/s Infosys Technologies Ltd and M/s L&T Infotech from the final list of comparables. In consonance with the directions of the DRP, the AO has passed the final assessment order against which the assessee is in appeal before us in ITA No.329/Hyd/2015. Against the direction of the DRP to exclude L&T Infotech from the final list of comparables, the Revenue is in appeal before us in ITA No.318/Hyd/2015. Assessee's cross objection is only in support of the findings of the DRP that L&T Infotech is not comparable to the assessee by applying various parameters. We shall take up the assessee's appeal first.
Page 5 of 19ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad
9. In the assessee's appeal, the assessee has raised the following grounds:
"TRANSFER PRICING MATTERS - Relating to determination of Arm's Length Price (" ALP") in respect of provision of software services provided to the Associated Enterprises (" AEs") under Transactional Net Margin Method ("TNMM") Based on the facts and circumstances of the case and in law, the learned Assessing Officer ("
AO")/learned Transfer Pricing Officer ("TPO") and the Hon'ble Dispute Resolution Panel CDRP') erred in:
Rejection of transfer pricing documentation maintained
1. Rejecting the transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ('Rules') and making adjustment of Rs 4,72,33,317.
Rejection of use of contemporaneous data and multiple year data
2. Using single year data of companies to determine the arm's length price of the international transactions without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price.
Use of additional filters
3. Inter-alia use of the following additional filters in undertaking the comparative analysis to reject comparable companies having:
a) Diminishing revenue;Page 6 of 19
ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad
b) Persistent Losses;
c) Different financial year-end; and
d) Export Sales Less than 75% of the sales.
Selection of comparables
4. Not undertaking an objective comparative analysis and interalia selecting the following companies as comparable to the software services of the Appellant:
i. Camp U Learn Tech India Ltd;
ii. E lnfochips Bangalore Ltd;
iii. Kals Infosystems Ltd.; and iv. Tata Elxsi Ltd. (Seg).
Rjection of comparables
5. Not undertaking an objective comparative analysis and interalia rejecting the following comparable companies:
i. Akshay Software Technologies Ltd;
ii. CG- V AK Software Exports Ltd ;
iii. Satyam Computers Services Ltd;
Contract Termination Fees
6. Considering Contract Termination fees as non- operating revenue in nature:
Error in Margin Computation
7. Computation of Net Margins of the following companies selected as com parables:
i. CAT Technologies Ltd;
ii. E-Infochips Bangalore Ltd.
iii. E-Zest Solutions Ltd;
iv. Kuliza Technologies Private Limited v. Kals Information Systems Ltd (Seg); and vi. Tata Elxsi Ltd (Seg) Adjustment for risk differences
8. Not adjusting the net margins of the comparable companies taking into account the functional and risk differences between the international transaction of the Appellant and Page 7 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad the comparable companies in accordance with the provisions of Rule 10B(1)(e);
Applicability of proviso to Section 92C(2)
9. Not allowing the option under the proviso to section 92C(2) of the Act in limiting the adjustment at a variation of 5 percent to the arm's length price;
Levy of interest under section 234B
10. Imposing interest u/s 234B of the Act on the transfer pricing adjustments;
Initiating Penalty Proceedings
11. Initiating the penalty proceedings u/s 271(1(C) of the Act.
The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.".
10. At the time of hearing, the learned Counsel for the assessee, initially argued on grounds No. 4 & 6. Therefore, we shall first deal with these grounds.
11. As regards ground of appeal No.6 relating to the nature of the contract termination fees, whether forms operating or non operating revenue, the learned Counsel for the assessee submitted that the Software Development Agreement with the AE itself provided for a clause for termination of the contract and the payments to be made on such termination. He has drawn our attention to the Software Development and Support Agreement between various group companies and the assessee before us, which is placed at Page No.901 of the paper book filed before us.
Page 8 of 19ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad As per clause 3 of the said agreement, the assessee is required to meet the staffing requirement as per the docket arrived at, between the parties within 90 days of the commencement of the agreement and as per clause 12 of the agreement which deals with the term and termination, the contract can be terminated by both the parties. Clause 12.2 provides that where the contract is terminated for convenience by the group company, then it shall pay to the developer a termination fee in respect thereof. Clause 12.3 provided for termination cost. It is submitted that the AE has terminated the contract and since the assessee is being compensated on cost plus margin basis, for the services rendered by it, the contract termination fee is also in the nature of the operating income and should be taken into consideration for determination of the ALP of the international transactions undertaken by the assessee. Regarding the items of expenditure considered towards the payment of contract termination fee, the learned Counsel for the assessee has drawn our attention to Page 925 of the paper book wherein the expenditure relating to training and also other expenditure is given.
12. The learned DR, however, supported the orders of the authorities below and submitted that though the agreement contains the clause for contract termination fee, the assessee has not been compensated in accordance with the said agreement and therefore, this amount cannot be treated as such. Further, he submitted that the assessee had itself, in its books of account, shown it as the exceptional item and not as operating income. Therefore, according to him, the assessee itself has not treated it Page 9 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad as operational income in its books and hence should not be treated as operating income for determination of ALP.
13. Having regard to the rival contentions and the material on record, we find that the assessee has entered into a contract for rendering software development services to its group companies and one of the group company has terminated the contract and has paid the contract termination fee as per the agreement. The nature of the said contract termination fee is, in our opinion, operating revenue. On execution of a contract, the assessee is receiving the consideration on a cost plus margin basis. The contract termination fee is also being paid on similar lines but proportionately. It is only that the contract is being terminated prematurely. Had the contract been executed completely, the assessee would have received the full consideration at cost plus method for the entire period of the contract and it would form part of operating income. The contract termination fee is in effect compensating the assessee for the expenses incurred by it for executing the contract partially. Therefore, we are of the opinion that the contract termination fee also partakes the character of the contract receipt and is to be treated as operating revenue of the international transactions more particularly since the expenses incurred by the assessee on such contract has been taken as operating cost. In view of the same, we direct the AO/TPO to consider the contract termination fee also as a part of the operational income for computing the ALP of the international transactions.
Page 10 of 19ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad
14. As regards Ground No.4, the assessee is seeking the exclusion of the following 4 companies from the final list of comparables:
i) Comp-U-Learn Tech India Ltd;
ii) E Infochips Bangalore Ltd;
iii) Kals Info Systems Ltd;
iv) Tata Elxsi Ltd (Seg.)
15. However, at the time of hearing, the learned Counsel for the assessee submitted that the assessee is not seeking the exclusion of Comp-U-Learn Tech India Ltd from the final list of comparables. In view of the same, the assessee's ground on this company is rejected.
16. As regards, E Infochips Bangalore Ltd is concerned, the argument of the assessee is that it is functionally different as it is into the business of software and I.T. enabled services as stated in its Annual Report and further that the said company has not provided any segmental information in relation to the two services. He has also referred to the Annual Report of the said company to demonstrate his point. The learned Counsel for the assessee further submitted that the said company has also been rejected by the tax authorities themselves due to lack of availability of segmental information. Further, it is submitted that the said company has abnormal financials with significant fluctuation in its margins on a year to year basis. The learned Counsel for the assessee has drawn our attention to the fact that this company has been taken as a comparable by the TPO in the cases of companies which are also into similar business as the assessee herein, and its comparability with such companies had Page 11 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad come for consideration before the Coordinate Bench of this Tribunal for the very same A.Y and in the following cases, ITAT has directed the exclusion of the same from the final list of comparables on the ground of lack of availability of segmental data between the I.T. and I.T. enabled services.
i) Pegasystems Worldwide India Pvt Ltd vs. ACIT in ITA No.1758 and 1936/Hyd/2014, dated 16.10.2015
ii) Oakton Global Technology Services Centre (India) Pvt.
Ltd vs. ACIT in ITA No.434/Hyd/2015 dated 5.8.2016
iii) Parexel International (India) Pvt. Ltd vs. ACIT in ITA No.1918/Hyd/2014 dated 08.01.2016.
17. The learned DR, however, supported the orders of the authorities below.
18. Having regard to the rival contentions and the material on record, we find that this company has been taken as a comparable in many other companies which are into similar business as the assessee. The Coordinate Bench of this Tribunal in ITA No.1758 & 1936/Hyd/2014, dated 16.10.2015 in the case of M/s. Pegasystems Worldwide India Pvt Ltd has directed that this company be excluded on the ground of lack of segmental data. For the sake of convenience and ready reference, the relevant paragraph is reproduced hereunder:
"E Infochips Bangalore Ltd:
8.3. After considering the rival contentions and perusing the annual reports placed on record, we are of the opinion that this company cannot be selected as comparable company for TP analysis. First of all, this company is engaged in both software development as well as ITES. Assessee being only captive service provider, the above company cannot be considered as comparable on functional basis. Not only that, as pointed out, segmental information pertaining to the above company is not Page 12 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad available. As seen from the TP orders, documents placed on record, TPO relied on later year's annual report in extracting the information. Variation in profitability over the years alone cannot be a reason to exclude the company from comparability analysis but as rightly pointed, the absence of segmental information, how much profit earned was on the software development or ITES cannot be examined. In the absence of clarity on operational details and comparable company having diversified activities, we are of the opinion that this company cannot be chosen as a comparable company in Assessee's case in this assessment year. We are also aware of the decision of the Co-ordinate Bench given in earlier assessment year on the reason that segmental reporting was not available. Be that as it may, since the said company is functionally different from Assessee's activities and in the absence of segmental information, we direct AO/TPO to exclude the above while working out the comparability analysis. We uphold the plea of Assessee in this regard".
19. In other cases cited by the assessee as reproduced above also, similar direction was given. Respectfully following the same, we direct the AO/TPO to exclude this company from the final list of comparables.
Kals Information Systems Ltd:
20. The learned Counsel for the assessee submitted that this company is also to be excluded from the final list of comparables as it is not functionally similar and further that the company is engaged in the business of software products and that the website of the company shows the product owned by Kals information Systems Ltd and it has inventories equivalent to 27% of the total sale. Further, he also submitted that the issue of comparability to this company to the assessee has also arisen in the assessee's own case for the A.Ys 2008-09 and 2009-10 and the said company was rejected by the Income Tax Appellate Tribunal in its own case. He also submitted that in the cases Page 13 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad referred to in Para 15 above, the Income Tax Appellate Tribunal has directed the exclusion of this company also.
21. The learned DR, however, supported the orders of the authorities below.
22. Having regard to the rival contentions and the material on record, we find that the TPO has taken note of the assessee's objections that this company has inventories and has observed that the inventory is only of computers and not of any products. On the other hand, the assessee has stated that the website of the company shows various products. We find that these facts were considered by the Coordinate Bench of this Tribunal in the case of M/s. Pegasystems Worldwide India Pvt Ltd (cited Supra) and at Para 10.1, the Tribunal has held as under:
"Kals Information Systems Ltd:
10.1. Assessee's main objection before us is on functionality of the comparable company. As seen from the annual report of 2008-09 and 2009-10 and comparative statement placed by Assessee, the company classified itself as 'the company engaged in development of software and software products since its inception'. The company consisting of STPI unit engaged in development of software and software products and a training centre engaged in training of software professionals on on-line projects. This indicates that company is engaged in development of software and products and its inventory also indicates that Assessee has been using its readymade libraries for sales. This company was rejected in earlier year on functional analysis by ITAT in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 where in it was held that company is engaged in development of software products. Since its annual report states the same facts in this assessment year also, we are of the opinion that the company cannot be selected as a comparable as it was engaged in development of software and software products. Accordingly, Page 14 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad Assessee's objections are accepted and AO is directed to exclude the company".
23. Since the facts and circumstances are similar, we direct that this company be excluded from the final list of comparables.
Tata Elxsi Lgd (Seg.):
24. The assessee's objection to this company is that it is functionally not similar as it is specialized in embedded software development technology and cannot be considered as comparable to the assessee. It is also submitted that in response to the notice u/s 133(6) of the Act, the said company itself has stated that it is into diverse nature of business and its services are complex and cannot be compared to routine software development companies. It is submitted that in assessee's own case for the A.Y 2005-06 to 2009-10, Income Tax Appellate Tribunal has taken note of these facts to direct exclusion of the company from the list of comparable. He submitted that in the cases referred to above also, the Tribunal has directed its exclusion.
25. The learned DR, however, supported the orders of the authorities below.
26. We find that in the case of M/s. Pegasystems Worldwide India Pvt Ltd, the Coordinate Bench of this Tribunal has considered all these facts as under:
"Tata Elxsi Ltd (Seg) 12.1. It was the objection of Assessee that above company is predominantly into product design services, Innovation Design Engineering and visual computing labs division which are specialized services. He referred to the order of Page 15 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad ITAT in AY. 2009-10 in the case of Planet Online Pvt. Ltd., in ITA No. 464/Hyd/2014 (supra), wherein this company was rejected on the reason that it is engaged in multiple segments. There is no break-up in the annual report and data on which margin from software services activity only can be computed is also not available. Moreover, the company itself has indicated that it cannot be compared with any other software service company because of its complex nature. Similar view was taken by many of the Co- ordinate Benches in earlier years that Tata Elxsi Ltd., cannot be selected as comparable company. Consistent with the above view, we are of the opinion that a company like Tata Elxsi Ltd., which has complex activities and segmental information of which is not available cannot be selected as comparable company to Assessee. Moreover, as seen from the turnover as reported by TPO itself, it was many times Assessee's turnover and therefore cannot be exactly considered as a similar company unless the nature of activity, the incomes are analysed in detail. Since no segmental data is available, considering the software development services as a segment by TPO cannot be considered as segmental data, unless the services rendered by that company are similar to the services rendered by Assessee. In view of this, we are of the opinion that this company cannot be selected as comparable. AO is directed to exclude the same.
27. As the facts and circumstances are similar, respectfully following the same, we direct the AO/TPO to exclude this company also from the final list of comparables. Thus, ground of appeal No.4 of the assessee is treated as partly allowed.
28. As regards grounds 1 to 3 are concerned, we find that these issues are covered against the assessee by various decisions of the Income Tax Appellate Tribunal and the assessee is raising its objections only to keep the issue live. Therefore, these grounds are rejected.
29. As regards Ground No.5 relating to inclusion of these companies, in reply to our query, the learned Counsel for the Page 16 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad assessee stated that if the contract termination fee is taken as part of the operating revenue and also the companies mentioned at Ground No.4 are excluded from the final list of comparables, then the margin of the assessee would fall within ±5% of the average mean margin of the comparables and therefore, there would be no ALP adjustment. In view of the same, we do not see any reason to adjudicate the Ground of appeal No.5, at this stage as it would only result in an academic exercise. Ground No.5 is accordingly rejected.
30. As regards Grounds of appeal No.7 to 9 are concerned, we find that they need no adjudication in view of our decision on ground of appeal No.4. These grounds are also rejected, if any to the assessee.
31. With regard to Ground No.10, we find that it is consequential in nature and therefore, we direct the AO to give consequential relief.
32. Ground No.11 is only against the initiation of penalty proceedings u/s 271(1)(c) of the Act and therefore is premature. Hence rejected.
33. In the result, assessee's appeal is partly allowed.
ITA No.318/Hyd/201534. Coming to the Revenue's appeal which is against exclusion of L&T Infotech Ltd from the final list of comparables on the ground of exceptionally large scale of operation, it is the case of the Revenue that the assessee has itself taken this company as Page 17 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad a comparable and therefore, it cannot challenge the same before the higher authorities. We find that though the assessee has taken this company as comparable in its TP study, has challenged its comparability before the TPO itself. Further, in the case of Kenexa Systems, this Tribunal has held that it is open to the assessee to challenge the comparability of a company taken by itself as a comparable in its TP study. Therefore, we do not agree with the contentions of the learned DR that the assessee having considered the same as comparable cannot challenge it before the authorities below.
35. As regards its comparability to the assessee, we find that the Coordinate Bench of this Tribunal in the case of M/s. Pegasystems Worldwide Pvt. Ltd and Others (cited Supra) has considered its comparability and held as under:
"L&T Infotech Ltd 14.3. After considering the objections of Assessee and perusing the order of DRP in the case of M/s. Sumtotal Systems India Pvt. Ltd., (supra), as extracted above, we are of the opinion that this company cannot be selected as comparable by the same reasons which DRP in the above referred case accepted. Moreover, there are no segmental details and as seen from the annual report, revenues are reported from software development services and products, how much is from services and how much is from products could not be analysed. Even though TPO considered the software exports reported in earning in foreign currency as that of software development services, we are not sure whether the software exports reported therein exclusively pertain to services or products. As there are no segmental details, it is very difficult to analyse whether the incomes earned by the said company do really pertain to the similar services rendered by Assessee. As also seen from the income schedules, engineering services reported in earlier year were not there in this year, therefore, it is very difficult to analyse whether the company is functionally similar or not? Keeping in view of the above difficulties in analyzing the data and considering the reasons given by DRP in the case of M/s. Sumtotal Systems India Pvt. Ltd., (supra), we are of the opinion that L&T Infotech Ltd., cannot be selected as a comparable company. AO/TPO is directed to exclude the same Page 18 of 19 ITA Nos 329 318 of 2015 and CO 23 of 2015Invensys Dev Centre India P Ltd Hyderabad from the list of comparables. Ground No.4 is allowed for statistical purposes".
36. As the order of the DRP is in consonance with the order of the Income Tax Appellate Tribunal, we do not see any reason to adjudicate the same.
37. In the result, Revenue's appeal is dismissed. C.O. 23/Hyd/2015
38. The cross objection filed by the assessee is only in support of the orders of DRP and therefore, we see no reason to entertain it. It is accordingly dismissed.
39. In the result, assessee's appeal is partly allowed and the Revenue's appeal and Cross Objection of the assessee are dismissed.
Order pronounced in the Open Court on 23rd February, 2017.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 23rd February, 2017.
Vinodan/sps
Copy to:
1 Infensys Development Centre India Pvt Ltd, Plot No.17, Vanenburg, I.T. Park, Software Units Layout, Madhapur, Hyderabad 500081 2 DCIT, Circle 2(1), 8th Floor, IT Towers, AC Guards, Hyderabad 3 DRP Hyderabad 4 CIT - (International Taxation) IT Towers, 10-2-3, AC Guards, Hyderabad 500004 5 CIT-2 Hyderabad 500004 6 T.P.O (Addl. CIT (T.P) Hyderabad 500004 7 DR Income Tax Appellate Tribunal Hyderabad 6 Guard File By Order Page 19 of 19