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Showing contexts for: software in Sharp Software Development India ... vs Dcit, Bangalore on 9 December, 2016Matching Fragments
Sl Name Assessee's reasons TPO's reasons
No
1 Avani Cimcon Super-normal profits, Based on
Technologies Ltd Functionally different, information received
Revenue from software u/s.133(6), it
services & software qualifies all the
products and no filters applied by the
segmental information TPO
available
2 Celestial Labs Ltd Functionally different, Based on
Company is into information received
Bioinformatics and has u/s.133(6), it is
earned super normal mainly a R & D
profit company and
qualifies all the
filters applied by the
TPO
3 Kals Infosystems Functionally different, As per the reply
Ltd Revenue from software received u/s.
services & software 133(6), it qualified
products and no all filters applied by
segmental information the AO
available
4 Mega Soft Ltd Functionally different, As per information
Revenue from software u/s.133(6), its
services & software consulting division is
products and TPO has into software
disregarded the development
segmental information services and its SWD
provided and taken the segment qualifies all
company as comparable the filters applied by
at enterprise level the TPO
IT(TP)A.1102/Bang/2011 Page - 9
5 E-Zest Solutions Functionally different, Based on the
Ltd Company is into high information
end technical services u/s.133(6), it is
which comes under the engaged in software
nature of Knowledge development
Process Outsourcing services and
services qualifies all the
filters applied by the
TPO
6 Helios& Matheson Functionally different, Qualifies all the
Information Company is engaged in filters applied.
Techno-logy Ltd development and sale of Hence to be
software products accepted as
comparable
7 Quintegra Functionally different, It is in to software
Solutions Ltd Company is into development
preparatory software services and
products, owns qualified all the
intangibles. Also filters applied by the
engaged in R & D TPO
activities and hence
creation of IPR
8 Thirdware Functionally different, Based on the
Solutions Ltd company is engaged in information u/s
product development 133(6), it qualified
and earns revenue from all the filters applied
sale of licences & by the TPO
subscription. Segmental
information for product
development and
software development
not given in P & L A/c.
9 Ishir Infotech Outsources the work, As per the reply
Ltd fails employee cost ˃ received u/s 133(6),
25% filter it qualifies all filters
applied by the AO
IT(TP)A.1102/Bang/2011 Page - 10
10 Lucid Software Functionally different. Pure software
Ltd Company deals with development service
software products provider. It is
considered
comparable as it
qualified all the
filters applied by the
TPO
11 Flextronics Soft- Turnover filter. Qualified all the
ware Systems Ltd Contradiction between filters applied hence
(seg) 133(6) reply and annual to be accepted as
report comparable
12 Infosys Turnover filter. It is into software
Technologies Ltd Functionally different, development
develops software services and
products. Owns qualified all the
significant intangibles, filters applied hence
brand value, market to be accepted as
leader, substantial R & D comparable
expenses
13 Persistent Turnover filter. As per reply
Systems Ltd Functionally different, received u/s
engaged in software 133(6), it qualifies
product designing and all filters applied by
analytical services the AO
14 Sasken Turnover filter. Qualified all the
Communication Functionally different, filters applied hence
Technologies Ltd substantial R & D to be accepted as
expenses, significant comparable
intangibles, owns IPRs,
underwent restructuring
during the year
15 Tata Elxsi Ltd Turnover filter. Company satisfies
(seg Functionally different, all filters. TPO has
software segment considered the
consists of product software
design services. development &
Innovation design services segment of
engineering and visual the company as a
computing labs. comparable
Significant R & D, brand
value, size
IT(TP)A.1102/Bang/2011 Page - 11
16 Wipro Ltd TO filter. Functionally As the segmental
different, both SWD and details are available
product development for SWD segment
(no segmental), on standalone basis
significant intangibles & the same is
market leader considered as a
comparable
17 iGate Global TO filter
Solutions Ltd
(seg)
18 Mindtree TO filter
Consulting Ltd
9. In the case of Meritor LVS (India) P Ltd v. ACIT in
45. From the material available on record, it transpires that the TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07- 08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company. The TPO has relied on the response from this company to a notice u/s.133(6) of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the IT(TP)A.1102/Bang/2011 Page - 15 segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to several references in the annual report for 31.3.2007 highlighting the fact that this company was develops biotechnology products and provides related software development services. The TPO called for segmental data at the entity level from this company. The TPO also called for description of software development process. In response to the request of the TPO this company in its reply dated 29.3.2010 has given details of employees working in software development but it is not clear as to whether any segmental data was given or not. Besides the above there is no other detail in the TPO's order as to the nature of software development services performed by the Assessee. Celestial labs had come out with a public issue of shares and in that connection issued Draft Red Herring Prospectus (DRHP) in which the business of this company was explained as to clinical research. The TPO wanted to know as to whether the primary business of this company is software development services as indicated in the annual report for FY 06-07 or clinical research and manufacture of bio products and other products as stated in the DRHP. There is no reference to any reply by Celestial labs to the above clarification of the TPO. The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07. We are of the view that in the light of the submissions made by the Assessee and the fact that this company was basically/admittedly in clinical research and manufacture of bio products and other products, there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software development services. We therefore accept the plea of the Assessee that this company ought not to have been considered as comparable."
25. In the order of the TPO, operating margin was computed for this company at 60.23%. It is the complaint of the assessee that the operating margins have been computed at entity level combining software services and software product segments. It was submitted that the product segment of Megasoft is substantially different from its software service segment. The product segment has employee cost of 27.65% whereas the software service segment has employee cost of 50%. Similarly, the profit margin on cost in product segment is 117.95% and in case of software service segment it is 23.11%. Both the segments are substantially different and therefore comparison at entity level is without basis and would vitiate the comparability (submissions on page 381 to 383 of the PB-I). It was further submitted that Megasoft Limited has provided segmental break-up between the software services segment and software product segment (page 68 of PB-II), which was also adopted by the TPO in his show cause notice (Page 84 of PB-I). The segmental results i.e., results pertaining to software services segment of this company was:
17. As per the discussion in para 6.3.2. of the order of the TPO, the reason advanced for including KALS Information Systems Ltd., is to the effect that the said concern's application software segment is engaged in the development of software which can be considered as comparable to the assessee company. The said concern is engaged in two segments namely application software segment and Training. As per the TPO, the application software segment is functionally IT(TP)A.1102/Bang/2011 Page - 20 comparable to the assessee as the said concern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed out that there was no bifurcation available between the business of sale of software products and the business of software services, and therefore, it was not appropriate to adopt the application software segment of the said concern for the purposes of comparability with the assessee's IT-Services Segment. The TPO however, noticed that though the application software segment of the said concern may be engaged in selling of some of the software products which are developed by it, however, the said concern was not into trading of software products as there were no cost of purchases debited in the Profit & Loss Account. Though the TPO agreed that the quantum of revenue from sale of products was not available as per the financial statements of the said concern, but as the basic function of the said concern was software development, it was includible as it was functionally comparable to the assessee's segment of IT-Services.