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29. The ld. DR submitted that the issue of brand of this company is similar to the contentions of the revenue in Infosys Ltd. As regards the argument that it was a product company, the ld. DR submitted that from the annuals of the company it is evident that the company is in software development. On perusal of the 'Director's Report' (as in the Annual Report), under the sub head 'Performance of the Company', it is observed that the company is operating in the sector of 'IT services'. The IT service sector revenue is categorized into three parts on the basis of the nature of business of the clients. Of the total IT services revenue, 43.5% comes from the clients from services sector, 48.6% from clients operating in manufacturing sector and 7.9% (for nine months) from clients operating in the Telecom sector. The basic work of L&T remains the same i.e. providing software development services to its clients operating in different business segments. Earnings in foreign currency (Notes forming part of accounts annual report) also shows the major earnings are from software export. The revenue recognition method in the 'Notes forming part of Accounts' also refers to services performed on 'fixed price basis' or 'time and material basis'. Thus the functional profile of the company is same as that of the & IT(TP)A No.370/Bag/2019 assessee company. The ALP in the case of the assessee has been determined by treating TNMM as the most appropriate method. This method requires broad comparability of the functionality of the comparables. So in case the company is in Software Development, it would not matter as to what kind of customer it serves as the broad range of services remain the same and that is the development of software. Further, it will not matter whether the comparable develops complete software for its client e.g. develops a final product as per demand of the client or develops only some software modules, as per the requirements of its client. The function remains same. A company can be considered in the business of Software Products only if it is itself developing and selling the products developed by it and not if its client is selling the products developed for it by such company. The appellant is also similarly placed as it is providing services to its AE, which uses the same in its own products. So these arguments of the appellant do not have any merit as the company is functionally similar to the appellant. As there is no revenue stream on account of product sales, there is no merit in the argument of the appellant that the company is engaged in product sales.

33. Further, L&T was considered to be functionally comparable to a software service provider company by the ITAT Bangalore in the case of M/s. Advice America Software Development Centre Private Limited (in ITA & IT(TP)A No.370/Bag/2019 (TP) No. 2531/Bang/2017 dated 23.05.2018 relating to A.Y. 2013-14. In the case of DCIT Vs. Target Corporation of India Pvt. Ltd. IT(T.P.)A. No.343/Bang/2015 (Assessment Year : 2010-11) too ITAT had observed that the said company was functionally comparable for software development services. Considering above, the ld. DR submitted that the ground of appeal in relation to Larsen and Toubro Infotech has to be rejected.

41. The ld. DR submitted that the reference of assessee to website of the company is misplaced, as the same relates to entire group of Persistent Systems. Further, the annual report of the company is more reliable than the website as the latter is dynamic in nature and may represent the status at the time of accessing the same rather than the status during the relevant financial year. Further the purpose of website is to advertise and to attract more clients and thus it may reflect the capabilities of the group rather than the actual functioning during a specific year. On perusal of the annual report of this company, it is observed that at page 158 [clause (iv)] of the unconsolidated annual report, it is mentioned that the activities of the company do not involve purchase of inventory and sale of goods, and its nature of business was rendering of services. The reference of appellant to pages 59, 60, 77 and 105 of annual report is also misplaced, as the same relate to entire group of Persistent Systems and unconsolidated report starts from page 155 of the annual report. The revenue recognition method in the 'Notes forming part of financial statements' on page 166 of the Annual Report also refers to 'income from software services'. It refers to services performed on 'fixed price basis or 'time and material basis'. As per page 181, Note 21 of the Annual Report, the revenue from operations is stated to be on account of sale of software services amounting Rs.11,841.16 million. As per page 195 of the annual report, the earnings in foreign currency of Rs.10,606.23 million, (constituting 89.57%) was from sale of software; and there is no reference to sale of products. Thus it is evident that this company's revenue from operation was predominantly on account of services rendered. There is no mention of any revenue stream & IT(TP)A No.370/Bag/2019 from sale of products in the P& L account or balance sheet. At page 183 of the Annual Report, it is given that the company's operations predominantly relate to providing software products services and technology innovation covering full life cycle of products to its customers. The primary reporting segments are identified based on review of market and business dynamics based on risk and returns affected by the type of class of customers for the services provided. As per page 164 (Note 1) of the Annual Report, the company is specializing in software products services and technology innovation and offers complete product life cycle services. This indicates that the company is developing software for its customers, who in turn are in business of software product development and outsourcing the work of software development to this company. Thus the appellant has wrongly inferred that M/s Persistent Systems Ltd itself is in software product development. In fact, the appellant itself is similarly placed as it is developing software for its AE, which in turn is finally using it in its own products. Although the 'Nature of operations ' of the company use the words 'specializing in software products', `services and technology innovation', 'complete product life cycle services' etc., however as brought out by the TPO in his order, the company is developing products for its customers and not itself selling the products. This is also confirmed by the company in the information provided under Section 133(6) of the Act. In fact, the business strategy of the entire group is to provide services to the clients, which are software product companies. Thus the functional profile of the company is same as that of the appellant. The ALP in the case of the appellant has been determined by treating TNMM as the most appropriate method. This method requires broad comparability of the functionality of the comparables. So in case the company is in Software Development, it would not matter as to what kind of customer it serves as the broad range of services remain the same and that is the development of software. Further, & IT(TP)A No.370/Bag/2019 it will not matter whether the comparable develops complete software for its client e.g. develops a final product as per demand of the client or develops only some software modules for as per the requirements of its client. The function remains same. Thus, a company can be considered in the business of Software Products only if it is itself developing and selling the products developed by it and not if its client is selling the products developed for it by such company. The appellant is also similarly placed as it is also into software development for the products for its AE. So these arguments of the appellant do not have any merit as 'the company is functionally similar to the appellant. In Agnity India Technologies Pvt. (supra) the ITAT held Persistent Systems Ltd to be a proper comparable for software development activities.

& IT(TP)A No.370/Bag/2019

44. On the scale of operations, the ld. DR submitted that the TPO has used employee cost filter of 25% to exclude the companies not in the Software Development segment. The appellant has not explained as to how more number of employees affects the margins of this company.

45. The ld. DR further submitted that this company was upheld to be functionally comparable to a software service provider company by the Hon'ble ITAT Bangalore in the case of M/s. Advice America Software Development Centre Private Limited (in ITA (TP) No. 2531/Bang/2017 dated 23.05.2018 (A.Y. 2013-14). In Agnity India Technologies Pvt. Ltd. (supra) also the ITAT had held Persistent Systems Ltd to be a proper comparable for software development activities.