Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 8696 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 year(s) 2 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-01-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
30-11-2015
Assessment Year
2006-2007
Appeal Filed On
11-11-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I.T . (T.P) A. NO. 1228 /BANG/20 1 0 (ASSESSMENT YEAR : 200 6 - 07) M/S. TEXTRON INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS TEXTRON GLOBAL TECHNOLOGY CENTRE PVT. LTD.) GLOBAL VILLAGE, RVCE POST, MYLASANDRA, OFF MYSORE ROAD, BANGALORE - 560 0 59 . APPELLANT. PAN AACCT 0118M VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 12 ( 4 ), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI P.K. PRASAD. R E SPONDENT BY : SMT. NEERA MALHOTRA, CIT (D.R) DATE OF H EARING : 30.11.2015. DATE OF P RONOUNCEMENT : 13.1. 201 6 . O R D E R PER SHRI VIJAYPAL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.13.9.2010 PASSED UNDER SECTION 143(3) RWS 144C OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL ( DRP ) DT.31.8.2010 FOR THE ASSESSMENT YEAR 2006 - 07. 2 . IN THE MEMO OF APPEAL IN FORM 36, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : 2 IT(TP)A NO.1228/BANG/2 010 TRANSFER PRICING RELATED . THAT THE ORDER OF THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX. CIRCLE 12(4), BANGALORE ('ASSESSING OFFICER' OR 'AO') TO THE EXTENT PREJUDICIAL TO THE A PPELLANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THAT THE LEARNED AO AND THE LEARNED DISPUTE RESOLUTION PANEL (,PANEL') ERRED IN UPHOLDING THE REJECTION OF TRANSFER PRICING (TP) DOCUMENTATION BY THE LEARNED DEPUTY DIRECTOR OF INCOME - TAX (TRANSFER PRICING OFFICER - V) (TPO') AND THEREBY ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD PREPARED THE TP DOCUMENTATION BONA FIDE AND IN GOOD FAITH AND CONDUCTED THE COMPARABLE ANALYSIS BASED ON THE DETAILED FUNCTIONAL ASSET AND RISK ANALYSIS PERFORMED WITH DUE DILIGENCE AND THE DATA AVAILABLE AT THE TIME OF CONDUCTING THE COMPARABILITY ANALYSIS. 3. THAT THE LEARNED AO AND THE LEARNED PANEL ERRED IN IGNORING THE LIMITED RISK NATURE OF THE SERVICES PROVIDED BY THE A PPELLANT AS DETAILED IN THE TP DOCUMENTATION AND IN UPHOLDING THE CONCLUSION OF THE LEARNED TPO THAT NO ADJUSTMENT ON ACCOUNT OF RISK DIFFERENTIAL IS REQUIRED WHILE DETERMINING THE ARM'S LENGTH PRICE O F THE INTERNATIONAL TRANSACTIONS OF THE APPELL ANT, BUT FOR AN ADJUSTMENT TOWARDS .. DIF FE RENCES WORKI N G CAPITAL POSITION BETWEEN THE APPELLANT AND THE ENTREPRENEURIAL COMPARAB LE COMPANIES. 4. THAT THE LEARNED AO AND THE LEARNED PANEL ERRED BOTH IN FACTS AND LAW IN CONFIRMING THE ACTION O F THE LEARNED TPO OF MAKING AN ADJUSTMENT TO THE TRANSFER PRICE OF THE APPELLANT AND THEREBY ADJUSTING THE TRANSFER PRICE BY RS.13,325,968 HOLDING THAT THE INTERNATIONAL TRANSACTIONS DO NOT SATISFY THE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT AN D IN DOING SO GROSSLY ERRED IN: 4.1. UPHOLDING THE ACT OF THE LEARNED TPO OF COLLECTING SELECTIVE INFORMATION OF THE COMPANIES BY EXERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE ACT. THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES IN DENIAL OF NATURAL JUSTICE TO BE OBSERVED IN THE ASSESSMENT PROCEEDINGS. 4.2. DISREGARDING APPLICATION OF MULTIPLE YEARS PRIOR YEAR DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2005 - 06) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING THE TP DOCUMENTATION, A ND IN DOING SO HAVE GROSSLY ERRED IN: 4.2.1. INTERPRETING THE REQUIREMENT OF 'CONTEMPORANEOUS' DATA IN THE RULES TO NECESSARILY IMPLY CURRENT YEAR S SINGLE YEAR (I.E. FY 2005 - 06) DATA; AND 4.2.2. EXPECTING THE APPELLANT TO PERFORM ACT OF IMPOSSIBI LITY IN TERMS OF BEING ABLE TO USE DATA SUBSEQUENTLY AVAILABLE (I.E. DURING AUDIT PROCEEDINGS). 4.3. UPHOLDING THE REJECTION OF COMPARABILITY ANALYSIS OF THE APPELLANT IN THE TP DOCUMENTATION AND CONFIRMING THE COMPARABILITY ANALYSIS A S ADOPTED BY THE LEARNED TPO IN THE TP ORDER BY APPLYING ADDITIONAL FILTERS AND INTRODUCTION OF COMPANIES AS COM PARABLES THAT ARE EITHER FUNCTIONALLY DISSIMILAR OR HAVE DIFFERING ASSET BASE AND RISK PROFILE, AND ALSO REJECTIONOF OTHER POT ENTIALLY COMPARABLE COMPANIES. 4.4. CONCLUDING THAT THE AMENDED PROVISO TO SECTION 92C(2) OF THE ACT UNDER FINANCE (NO 2) ACT, 2009, WOULD BE APPLICABLE FOR ASSESSMENT YEAR 2006 - 07 AND IN NOT APPRECIATING THAT EVEN IF THE ARMS' LENGTH PRICE FALLS OUTSIDE THE 5% TOLERANCE BAND THE ADJUSTMENT WOULD HAVE TO BE RECKONED AFTER ALLOWING THE BENEFIT OF +/ - 5% VARIATION AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT, WHILE DETERMINING THE ARMS' LENGTH PRICE. OTHER THAN TRANSFER PRICING RELAT ED 5. THAT THE LEARNED AO ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION LOA OF THE ACT OF THE ENTIRE PROFITS OF THE UNDERTAKING REGISTERED WITH THE SOFTWARE TECHNOLOGY PARK OF INDIA. 3 IT(TP)A NO.1228/BANG/2 010 6. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEA RNED AO HAS ERRED IN NOT ALLOWING THE REDUCTION IN TELECOMMUNICATION CHARGES INCURRED OUTSIDE INDIA AMOUNTING TO RS 16,880,900 IN COMPUTING THE TOTAL TURNOVER OF THE COMPANY FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE A CT. 7, (I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN REDUCING THE TELECOMMUNICATION CHARGES INCURRED IN INDIA AMOUNTING TO RS 2.735,887 FROM 'EXPORT TURNOVER' WHILE COMPUTING DEDUCTION UNDER SECTION LOA OF THE ACT AS 'EXPENDITURE ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA' UNDER EXPLANATION 2(IV) TO SECTION LOA OF THE ACT. (II) THAT THE LEARNED AO HAS ERRED IN NOT ALLOWING THE REDUCTION OF TELECOMMUNICATION EXPENSES OF RS 2,735,887 IN COMPUTIN G THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION LOA OF THE ACT. 8. (I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN CONSIDERING THE INSURANCE EXPENSES OF RS 29.995, WHICH COMPRISES OF Y'~HICLE. INSURANCE, AS 'EXPENDITURE ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA' UNDER E.G~$FLATION 2(IV) TO SECTION LOA OF THE ACT AND REDUCING THE SAME FROM 'EXPORT TURNOVER' WHILE COMPUTING DEDUCTION UNDER SEC TION LOA OF THE ACT. (II) THAT THE LEARNED AO HAS ERRED IN NOT ALLOWING THE REDUCTION OF INSURANCE EXPENSES OF RS 29,995 IN COMPUTING THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION LOA OF THE ACT. 9. (I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN REDUCING THE EXPENSES INCURRED IN FOREIGN CURRENCY TOWARDS TRAVELLING AND CONVEYANCE OF RS 4,602,235 FROM 'EXPORT TURNOVER' WHILE COMPUTING DEDUCTION UNDER SECTION 1 0A OF THE ACT, MERELY BECAUSE THESE EXPENSES WERE INCURRED IN FOREIGN CURRENCY. (II) THAT THE LEARNED AO HAS ERRED IN NOT ALLOWING THE REDUCTION OF TRAVELLING AND CONVEYANCE INCURRED IN FOREIGN EXCHANGE OF RS 4,602,235 IN COMPUTING THE TOTAL TURN OVER OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION LOA OF THE ACT. 10. (I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN CONSIDERING THE PROFESS IONAL FEES OF RS 1,160,711, WHICH COMPRISES OF EXPENSES INCURRED IN LOCAL CURRENCY, AS . EXPENDITURE ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA INCLUDING TECHNICAL SERVICES' UNDER EXPLANATION 2(IV) TO SECTION LOA OF THE ACT AND REDUCING THE SAME FROM 'EXPORT TURNOVER' WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. (II) THAT THE LEARNED AO HAS ERRED IN NOT ALLOWING THE REDUCTION OF PROFESSIONAL FEES INCURRED IN LOCAL CURRENCY OF RS 1,160,711 IN COMPUTING THE TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSE OFCOMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AD ERRED IN NOT APPRECIATING THE FACT THAT THE COMPANY IS NOT ENGAGED IN THE BUSINESS OF PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 12. THAT THE LEARNED AD ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT, BEFORE SET - OFF OF BROUGHT FORWARD BUSINESS LOSS, IN COMPUTING THE TOTAL INCOME OF THE COMPANY. 13. CON SEQUENTLY, THE LEARNED AO ERRED IN CHARGING INTEREST UNDER SECTION 2348 AND 2340 OF THE ACT. 14. NOTWITHSTANDING THE ABOVE, THE LEARNED AO HAS ERRED IN NOT GIVING CREDIT FOR SELF ASSESSMENT TAX OF RS 311,065 PAID BY THE COMPANY THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS VIDE PETITION DT.26.6.2015. THE AD DITIONAL GROUNDS SOUGHT TO BE ADMITTED ARE AS UNDER : - 4 IT(TP)A NO.1228/BANG/2 010 1. TO REJECT AZTEC SOFTWARE & TECHNOLOGY SERVICES LIMITED ('AZTEC SOFTWARE') FROM THE FINAL LIST OF COMPARABLES, EVEN THOUGH AZTEC SOFTWARE WAS SELECTED AS COMPARABLE BY THE APPELLANT IN ITS TRANSFER PRICING REPORT ('TP REPORT'). 2. TO REJECT MEGASOFT LIMITED ('MEGASOFT') FROM THE FINAL LIST OF COMPARABLES, EVEN THOUGH MEGASOFT WAS SELECTED AS A COMPARABLE BY THE APPELLANT IN ITS TP REPORT. 3. TO REJECT A CCEL TRANSMATIC LIMITED ('ACCEL') FROM THE FINALIST OF COMPARABLES, EVEN THOUGH ACCEL WAS SELECTED BY THE APPELLANT AS A COMPARABLE IN ITS TP REPORT. 4. TO REJECT GEOMETRIC SOFTWARE LIMITED ('GEOMETRIC SOFTWARE') FROM THE FINAL LIST OF COMPARABLES, EVEN THOUGH THE APPELLANT HAD ACCEPTED FOR ITS INCLUSION BEFORE THE LOWER AUTHORITIES. 5. TO ALLOW THE APPELLANT TO CONTEST THE EXCLUSION OF THE BELOW MENTIONED COMPARABLES ON THE BASIS OF APPLICATION OF T URNOVER FILTER OF INR 1 - 200 CRORES, THOUGH THE APPLICATION OF THIS FILTER WAS NOT PUT FORWARD BEFORE THE LOWER AUTHORITIES: A. IGATE GLOBAL SOLUTIONS LIMITED B. INFOSYS LIMITED C. MINDTREE LIMITED D. PERSISTENT SYSTEMS LIMITED E. SASKEN COMMUNICATION LIMITED. F. FLEXTRONICS SOFTWARE SYSTEMS LIMITED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDER ED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. FURTHER, THIS GROUND OF APPEAL IS INDEPENDENT OF THE GROUNDS OF APPEAL ALREADY FILED BY THE APPELLANT. 4. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE HAS STATED THAT THE GROUND NOS.1, 4, 4.1, 4.2, 4.2.1, 4.2.2 AND 4.4 ARE NOT PRESSED BY THE ASSESSEE AND THE SAME MAY BE DISMISSED. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION IF THESE GROUNDS OF THE ASSESSEE'S APPEAL ARE DISMISSED AS NOT PRESSED. ACCORDINGLY, THE GROUND NOS.1, 4, 4.1, 4.2, 4.2.1, 4.2.2 AND 4.4 ARE DISMISSED BEING NOT PRESSED. 5. THE GROUND NOS.2, 3 & 4.3 ARE RELATING TO THE TRANSFER PRICING ADJUSTMENTS AND COMPARABILITY OF THE COMPANIES SELECTED BY THE TRANSFER PRICI NG OFFICER (TPO). 5 IT(TP)A NO.1228/BANG/2 010 THEREFORE, THESE GROUNDS ARE DISCUSSED AND DISPOSED OFF IN THE COMPOSITE FINDING IN THE SUBSEQUENT PARAGRAPHS. 6. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT ON 2.4.2004 AND IS SUBSIDIARY OF TEXTRON INC, USA. T HE ASSESSEE HAS REPORTED ITS FINANCIAL RESULTS FROM TWO SEGMENTS OF SERVICES AS UNDER : - DESCRIPTION SOFTWARE DEVELOPMENT SERVICES SOURCING OF MATERIAL SERVICES AMOUNT OPERATING REVENUE RS. 18,74,21,22/ - RS. 60,18,597/ - RS. 19,34,39,869/ - OPERATING COS T RS. 16,79,75,266/ - RS. 55,46,333/ - RS. 17,29,78,707/ - OPERATING PROFIT (PBIT) RS. 1,94,46,006/ - RS. 4,72,264/ - RS. 2,04,61,162/ - OPERATING PROFIT TO COST RATIO 12% 9% 11.82% THE ASSESSEE IS PROVIDING SOFTWARE - DESIGN AND DEVELOPMENT SERVICE TO ITS GRO UP COMPANIES AS A CONTRACTOR. THE ASSESSEE PROVIDES THE SERVICE OF SOFTWARE DESIGNED, DEVELOPED, AMENDED, TESTED OR MODIFIED IS THE PROPERTY OF TEXTRON GROUP AND AT NO POINT IN TIME, SUCH OWNERSHIP VESTS WITH TEXTRON INDIA (ASSESSEE) EITHER WHOLLY OR IN P ART. THE ASSESSEE UNDERTAKES CONTRACT SOFTWARE DESIGN & DEVELOPMENT SERVICES TO THE PARENT COMPANY AND RECEIVED A FIXED MARK UP OF THE COST S INCURRED FOR THE SAID SERVICES. THE PRIMARY WORK OF THE ASSESSEE IS TO UNDERTAKE CONTRACT SOFTWARE DESIGN AND DEVE LOPMENT SERVICE S TO VARIOUS UNITS OF TEXTRON GROUP. THE ASSESSEE ALSO PROVIDES RESOURCES OF MATERIAL SERVICE TO OTHER UNITS OF TEXTRON GROUP. THE ASSESSEE REPORTED THE INTERNATIONAL TRANSACTIONS DURING THE YEAR AS UNDER : - 1. RECEIPTS FOR SOFTWARE DEVEL OPMENT SERVICES RS. 18,74,21,274/ - READJUSTMENT DONE BY TPO 2. RECEIPTS FOR SOURCING RS. 60,18,598/ - TREATED AT ARM S LENGTH 6 IT(TP)A NO.1228/BANG/2 010 OF MATERIALS SERVICES BY THE TPO 3. REIMBURSEMENT OF EXPENSES - PAID RS. 48,35,170/ - 7 . AS REGARDS THE RECEIPT FOR SOURCING OF MATERIAL SERVICE, THE TPO ACCEPTED THE SAME AT ARM S LENGTH. THEREFORE THERE IS NO DISPUTE REGARDING THE INTERNATIONAL TRANSACTIONS IN RESPECT OF SOURCING OF MATERIAL SERVICES PROVIDED TO ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE HAS BENCH MARKED FOR ITS INTERNATIONAL TRANSACTIONS BY ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD (MAM) AND PROFIT LEVEL INDICATOR (PLI) AS OP/TC. THE ASSESSEE HAS SELECTED IN ITS TP ANALYSIS 44 COMPARABLES AND ARRIVED AT MEAN MARGIN OF 11 % IN COMPARISON TO THE ASSESSEE'S PRICE CHARGED TO AES AT 10.45%. THEREFORE, THE ASSESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARM S LENGTH. THE ENTITY SELECTED BY THE ASSESSEE AS ITS COMPARABLES FOR DETERMINATION OF ARM S LENGTH PRICE ARE AS UNDER : - SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARKUP ON TOTAL COST 1. AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD. 9% 2. BLUE STAT INFOTECH LTD. 23% 3. C G - V AK SOFTWARE & EXPORTS LTD. 3% 4. CALIFORNIA SOFTWARE CO. LTD 9% 5. COMPUCOM SOFTWARE LT D. 20% 6. E. STAR INFOTECH LTD 19% 7. FCS SOFTWARE SOLUTIONS LTD. 13% 8. GOLDSTONE TECHNOLOGIES LTD. 7% 9. KPIT CUMMINS INFO SYSTEMS LTD. 14% 10. LARSEN TOUBRO INFOTECH LTD. 8% 11. MASON GLOBAL LTD 8% 12. MASTEK LTD. 20% 13. MEGASOFT LTD - 4% 14. MELSTAR INFORMATION TECHNOLOGIES LTD. 2% 15. NIIT TECHNOLOGIES LTD. 20% 16 NETVISTA INFORMATION 17% 7 IT(TP)A NO.1228/BANG/2 010 SL. NO COMPARABLE COMPANY WITHOUT ADJS. MARKUP ON TOTAL COST TECHNOLOGIES LTD. 17 ONTRACK SYSTEMS LTD. 4% 18 ORIENT INFORMATION TECHNOLOGY LTD. 15% 19 PENTAMEDIA GRAPHICS LTD. 21% 20 SATYAM COMPUTERS SERVICES L TD. 28% 21 SHREE TULSI ONLINE COM LTD. 2% 22 SONATA SOFTWARE LTD. 15% 23 SUN BEAM INFOTECH LTD. 6% 24 SYNERGY LOG - IN SYSTEMS LTD. - 11% 25 TRANSWORLD INFOTECH LTD. 32% 26 VJIL CONSULTING LTD. 7% 27 VMF SOFT TECH LTD. 17% 28 ZENSAR TECHNOLOGIES LTD. 9% 29 ONWARD TECNOLOGIES LTD. 12% 30 AKSHAY SOFTWARE TECHNOLOGIES LTD. 8% 31 JAYAMARUTHI SOFTWARE SYSTEMS LTD. 30% 32 KALE E TRAVEL TECHNOLOGIES LTD. 3% 33 PENTAGON GLOBAL SOLUTIONS LTD. 10% 34 POWERSOFT GLOBAL SOLUTIONS 22% 35 QUINTEGRA SOLUTIONS L TD. 8% 36 SYSTEMLOGIC SOLUTIONS LTD. 30% 37 ACCEL TRANSMATIC LTD. - 18% 38 ADVANCED MICRONIC DEVICES LTD. 7% 39 SOFTWARE TECHNOLOGY GROUP INTERNATIONAL LTD. 9% 40 TATA INFOTECH LTD. 10% 41 CMC LTD 17% 42 COMPUTECH INTERNATIONAL LTD 4% 43 INDUS NETWO RKS LTD - 4% 44 ORG INFORMATICS LTD 1% 8 . THE TPO REJECTED 41 COMPARABLES SELECTED BY THE ASSESSEE AND ACCEPTED ONLY THREE COMPANIES NAMELY AZTEC SOFTWARE & TECHNOLOGY SERVICES LTD., MEGASOFT LTD. AND ACCEL TRANSMATIC LTD. HOWEVER, THE OPERATING PR OFIT OF THESE COMPANIES WERE REVISED BY THE TPO BY CONSIDERING THE CURRENT YEAR DATA. THE TPO HAS UNDERTAKEN FRESH SEARCH FOR SELECTING SEPARATE SET OF COMPARABLES AND ADDED 17 MORE COMPANIES FOR DETERMINING THE ALP BY CONSIDERING 20 COMPARABLES AS UNDER : - 8 IT(TP)A NO.1228/BANG/2 010 SL. NO . COMPARABLE COMPANY NAME OP TO TOTAL COST % AS PER TP ORDER (PRE WC ADJ) 1. AZTEC SOFTWARE LIMITED 18.09 2. GEOMETRIC SOFTWARE LIMITED 6.70 3. IGATE GLOBAL SOLUTIONS LIMITED 15.61 4. INFOSYS LIMITED 40.38 5. KALS INFO SYSTEMS LIMITED 39.7 5 6. MINDTREE CONSULTING LIMITED 14.67 7. PERSISTENT SYSTEMS LIMITED 24.67 8. R SYSTEMS INTERNATIONAL LIMITED 22.20 9. SASKEN COMMUNICATION LIMITED (SEG.) 13.90 10. TATA ELXSI LTD (SEG.) 27.65 11. LUCID SOFTWARE LIMITED 8.92 12. MEDIASOFT SOLUTIONS PRIVATE LIMITED 6.29 13. R S SOFTWARE (INDIA) LIMITED 15.69 14. SIP TECHNOLOGIES & EXPORTS LIMITED 3.06 15. BODHTREE CONSULTING LIMITED 15.99 16. ACCEL TRANSMATICS LIMITED (SEG) 44.07 17. SYNFOSYS BUSINESS SOLUTIONS LIMITED 10.61 18. MEGASOFT LIMITED 52.74 19. LANCO GLOBAL SOLUTIONS LIMITED 5.27 20. FLEXTRONICS SOFTWARE SYSTEMS LIMITED 27.24 ARITHMETIC MEAN MARK - UP OF COMPARABLES BEFORE WORKING CAPITAL ADJUSTMENT 20.68 ARITHMETIC MEAN MARK - UP OF COMPARABLES AFTER WORKING CAPITAL ADJUSTMENT OF 1.11 % AS DETERMINED BY THE TPO 19.57 APPELLANT S MARGIN : 11.58 9 IT(TP)A NO.1228/BANG/2 010 9 . THE TPO HAS COMPUTED THE ARITHMETIC MEAN OF THE SELECTED COMPANIES AT 20,68% BEFORE WORKING CAPITAL ADJUSTMENT AND AT 19.57% AFTER WORKING CAPITAL ADJUSTMENT. THE TPO APPLIED VARIOUS FILTERS FOR SELECTION OF THE COMPARABLE COMPANIES AS UNDER : - SS COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 2005 - 06 WERE EXCLUDED. SS COMPANIES WHOSE SOFTWARE DEVELOPMENT SERVICE REVENUE
