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5.1. The brief facts of this issue is that the Labvantage Solutions Private Limited (" LVS India" ) and Labvantage Solutions inc. ("LVS US" / "AE") are group companies as both ITA No. 599, 1051 & 617/Kol/2015 Labvantage Solution Pvt. Ltd. AY 2009-10 & 2010-11 are directly or indirectly held by TCG Lifesciences Ltd. LVS US is a global solutions provider that helps companies optimize their laboratory productivity, and leverage the latest information management and communication technologies in order to effectively share analytical data throughout their worldwide organizations. LVS US is engaged in development, marketing of Laboratory Information Management Systems (LIMS) Software , testing and customer configuration services, provision of local sales and customers support services. The proprietary software is conceptualized and owned by LVS US. LVS India is engaged in the development and customization of LIMS for its AE. The software development and customization work is sub-contracted by LVS US to the assessee. The assessee vis a vis the group is involved in the execution of the software development and coding of software service ("software services") outsourced to it by LVS US. Further, LVS India, in the domestic sector, caters to the laboratory requirements of process industries, pharmaceutical companies and contract laboratory organizations. It has licensed LIMS product called 'Sapphire' to the domestic customers and has undertaken customization of the software for these customers according to their requirements. It was submitted that LVS India is independently responsible for rendering services to the domestic customers. LVS Inc. is not involved in any manner for provision of services to domestic customers. Thus, LVS India is also engaged in selling software licenses to customers for which it pays a royalty to LVS US.

3.3 The learned AO, DRP and TPO erred in not appreciating that the Appellant did not pay any price to its AE for purchase of software, licensed to third party customers. Further, the Appellant was also allowed a license free period, wherein, the entire revenues generated from such sale was retained by the Appellant. Also, the updates in relation to such software is provided free of cost by the AE to the Appellant.

3.4 The learned AO, DRP and TPO erred in not taking cognizance of the benefits derived by the Appellant on account of such royalty payments.

We also find that as stated earlier, the other decisions relied upon by the ld AR also had held that this comparable is functionally not comparable. We deem it fit and appropriate to consider the recent decision rendered in this regard. In view of the aforesaid finding and judicial precedent relied upon, we hold that the comparable chosen by ld TPO i.e E- Infochips Bangalore Ltd is functionally not comparable with the assessee company.

8.3. Exclusion of Infinite Data Systems Pvt Ltd (Merged) We find that this company had reported NCP of 88.25% . It is not in dispute that the assessee is engaged in software development. Hence comparable should also be in the companies engaged in the similar sector. We find that this company is having a different business model and engaged in providing entire gamut of solutions comprising of technical consulting, design and development of software, maintenance, system integration, implementation, testing and infrastructure management services. We find from the paper book that the revenue is primarily derived from technical support and infrastructure management services. We find that Infinite Data Systems Pvt Ltd commenced its operations on 1st January 2009 and as per segment reporting disclosure, the company's operations predominantly relate to providing software technical consultancy services to its sole customer Fujitsu Services Limited. Further, as per the Annual Report of 2009, at Page 1, it is stated that the Holding Company M/s Infinite Computer Solutions (India) Limited signed an agreement (Build, Operate and Transfer - BOT Model) with Fujitsu Services Limited to set up Global Delivery Centers in India to provide offshore delivery capabilities to Fujitsu & Fujitsu's associated companies. We find that these facts have also been acknowledged by the ld TPO at page 77 of his order. The ld AR stated that it would be worthwhile to note that Infinite Data Systems Pvt Ltd completed its three years contract with Fujitsu, post which, the business was transferred to Fujitsu and thus the company has been merged with its Holding Company - Infinite ITA No. 599, 1051 & 617/Kol/2015 Labvantage Solution Pvt. Ltd. AY 2009-10 & 2010-11 Computer Solutions (India) ltd during the financial year 2011-12. We are inclined to agree with the submissions of the ld AR that this Comparable Infinite Data Systems Pvt Ltd was created for purposes of transfer of business. Hence the nature of services and business model of assessee company and comparable company are entirely different. Apart from this, we also find that there exist abnormal circumstances in the said comparable. During the last 3 years, variations in margins earned show an abnormal circumstances leading to huge fluctuations and supernormal profit , the margin earned by Infinite is 88.25% which is abnormally high. It was argued that such companies which are making more than twice the arithmetical mean margin as computed by the ld TPO should not be considered as comparable. The ld AR referred to page 591 of the Paper Book where the details of the fluctuation in the revenue, profit and margins has been provided. It is true that where company in which extraordinary events had taken place during the year like major acquisitions which had impact on profits of company, it could not be selected as comparable to assessee engaged in software development. We place reliance in this regard on the decision of Hyderabad Tribunal in the case of Excellence Data Research (P) Ltd vs ACIT reported in ( 2016) 74 taxmann.com 13 (Hyd Trib) dated 12.9.2016 for Asst Year 2010-11 , wherein it was held that :-

9. Determination of ALP for Royalty at Rs Nil We find that the assessee had paid royalty of Rs. 72,84,012/- to its AE on the license sales made by it to the third party customers as well as on the maintenance revenue generated from such licenses earlier sold to third party customers. We find that the assessee had carried out trading in software by purchasing the same from its AE and selling it locally to third party customers. We find in the instant case, the assessee had paid 40% of its local sales as royalty to its AE. This is duly supported by a Royalty Agreement which is part of the records and was filed before the lower authorities. We find that the assessee had not paid any royalty to its AE for the first four years in view of specific waiver obtained from its AE for the same. We find that this payment was ITA No. 599, 1051 & 617/Kol/2015 Labvantage Solution Pvt. Ltd. AY 2009-10 & 2010-11 integral to the operations of assessee, and in the nature of operating expenses, such transaction was aggregated with the provision of software design and development services transaction and benchmarked using TNMM as the Most Appropriate Method. We find that the table mentioned in the arguments of ld AR hereinabove would prove that the assessee had derived benefits of around 90% in terms of additional revenue and minimal / no cost by virtue of paying royalty to its AE. Admittedly, LVS Inc had granted the license to the assessee for which royalty payment has been made, pursuant to which the assessee was able to derive such revenues from third party customers. Hence the argument of the ld AR that under comparable circumstances, no third party would have given such license free of cost or allowed assessee to retain majority share of the revenue, is well founded and deserves to be accepted. It is true that there has been increase in the revenues and profitability post addition of this software sales and maintenance revenue as detailed hereinbelow:-