Appeal details
Counselvise Citation
[2019] 113 COUNSELVISE.COM (IT) 6377 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 8 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-11-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
30-06-2015
Assessment Year
2009-2010
Appeal Filed On
26-02-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K.PRADHAN , ACCOUNTANT MEMBER IT (TP) A NO. 1576 / BANG ./201 3 ( ASSESSMENT YEAR : 20 0 5 06 ) 3DPLM SOFTWARE SOLUTIONS LTD. (SUCCESSOR TO DELMIA SOLUTIONS PVT. LTD.) NO.680, 8 TH MAIN, 15 TH CROSS J.P. NAGAR, 2 ND PHASE BANGALORE 560 078 PAN AABCD0394C . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 11(1), BANGALORE . RESPONDENT ITA NO.6732/MUM./2013 ( ASSESSMENT YEAR : 2005 06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 10(2), BANGALORE . APPELLANT V/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUCCESSOR TO DELMIA SOLUTIONS PVT. LTD.) NO.680, 8 TH MAIN, 15 TH CROSS J.P. NAGAR, 2 ND PHASE BANGALORE 560 078 PAN AABCD0394C . RESPONDENT ASSESSEE BY : SHRI KETAN VED A/W MS. URVI A. MEHTA REVENUE BY : SHRI SUHAS KULKARNI DATE OF HEARING 21 .08 .2019 DATE OF ORDER 19.11.2019 2 3DPLM SOFTWARE SOLUTIONS LTD. O R D E R PER SAKTIJIT DEY, J.M. THE CAPTION CROSS APPEALS ARISE OUT OF ORDER DATED 18 TH SEPTEMBER 2013, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IV, BANGALORE, PERTAINING TO THE ASSESSMENT YEAR 2005 06. IT(TP)A NO.1576/BANG./2013 APPEAL BY THE ASSESSEE 2. THOUGH , THE ASSESSEE HAS RAISED VARIOUS ISSUES IN THE GROUNDS , HOWEVER, THEY BASICALLY RELATE TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF SOFTWARE DEVELOPMENT SERV ICES PROVIDED TO THE OVERSEAS ASSOCIATED E NTERPRISE S (AES) . NOTABLY, SUBSEQUENTLY, THE ASSESSEE HAS FILED AMENDED GROUNDS OF APPEAL AND AS PER THE SAID AMENDED GROUNDS, THE DISPUTE HAS BEEN NARROWED DOWN TO SELECTION OF SEVEN COMPARABLES. THEREFORE, WE WILL RESTRICT OUR FINDING TO THE AFORESAID ISSUE ALONE. 3. THE ASSESSEE IS A SUCCESSOR TO DELMIA SALES PVT. LTD., WHICH WAS A SUBSIDIARY OF SOMERO ENTERPRISES INC., MAURITIUS. SO MERO ENTERPRISES INC., IN TURN, IS A SUBSIDIARY OF DELMIA CORPORATION, USA. THE ASSESSEE BASICALLY IS ENGAGED IN PROVIDING SOFTWARE DEVE LOPMENT SERVIC ES TO THE A E. DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED REVENUE OF ` 17,02,81,992 , TOWARDS PROVISION OF SOFTWARE DEVELOPMENT AN D CONSULTANCY SERVICES TO THE A E. IN THE TRANSFER PRI CING REPORT, THE 3 3DPLM SOFTWARE SOLUTIONS LTD. ASSESSEE BENCH MARKED THE A FORESAID TRANSACTION WITH THE AE BY ADOPTING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD. BY APPLYING CERTAIN FILTERS, THE ASSESSEE UNDERTOOK A SEARCH PROCESS TO SELECT COMPARABLES AND ULTIMATELY SHORTLISTED SEVEN COMPANIES AS COMPARABLE WITH AVERAGE PROFIT MARG IN OF 9.7% . S INCE THE MARGIN SHOWN BY THE ASSESSEE @ 10.9% WAS HIGHER THAN THE MARGIN OF THE COMPARABLE S, THE PRICE CHARGED TO THE A ES TOWARDS SERVICES RENDERED WAS CLAIMED TO BE AT ARM'S LENGTH. THOUGH , THE TRANSFER PRICING OFFICER AGREED WITH THE ASSESSE E THAT TNMM IS THE M OST APPROPRIATE METHOD TO BENCH MARK THE TRANSACTION, HOWEVER, HE DID NOT FIND THE SEARCH PROCESS ADOPTED BY THE ASSESSEE TO SELECT COMPARABLES APPROPRIATE . HE OBSERVED , WHILE COMPUTING THE MARGIN OF THE COMPARABLES, THE ASSESSEE HAS CON SIDERED MULTIPLE YEAR DATA IN RESPECT OF MAJORITY OF THE COMPARABLES. HE ALSO POINTED OUT VARIOUS DEFECTS AND DEFICIENCIES IN THE TRANSFER PRICING STUDY REPORT. AFTER REJECTING THE TRANSFER PRICING STUDY REPORT, THE TRANSFER PRICING OFFICER BY APPLYING CER TAIN ADDITIONAL FILTERS PROCEEDED TO SELECT COMPARABLES INDEPENDENTLY . IN THE PROCESS, HE SELECTED SEVENTEEN COMPANIES AS COMPARABLE WITH AVERAGE MARGIN (OPERATING PROFIT TO TOTAL COST) OF 26.59% AND BY APPLYING THE AVERAGE MARGIN OF THE COMPARABLES TO THE OPERATING COST, HE DETERMINED THE ARMS LENGTH PRICE AT ` 20,96,60,978. THEREBY, SUGGESTING AN UPWARD ADJUSTMENT OF ` 2,66,90,108, TO THE ARMS LENGTH PRICE SHOWN BY THE ASSESSEE. T HE 4 3DPLM SOFTWARE SOLUTIONS LTD. TRANSFER PRICING ADJUSTMENT WAS ULTIMATELY ADDED TO THE INCOME OF THE AS SESSEE WHILE FRAMING THE ASSESSMENT ORDER. THE ASSESSEE CHALLENGED THE AFORESAID ADDITION BEFORE THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED COMMISSIONER (APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE REMOVED FOUR OUT OF THE SEVENTEEN COMPARA BLES SELECTED BY THE TRANSFER PRICING OFFICER. STILL , AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAS FILED THE PRESENT APPEAL. 5. BEFORE US, THE ASSESSEE IS OBJECTING TO THE SELECTION OF THE FOLLOWING COMPARABLES: I) THIRDWAR SO LUTIONS LTD; II) TATA ELXSI LTD ; III) FOURSOFT LTD; IV) EXENSYS SOFTWARE SOLUTIONS LTD; V) SANKHYA INFOTECH LTD; VI) GEOMETRIC SOFTWARE SOLUTIONS LTD; AND VII) BODHTREE LTD. HEREAFTER WE WILL DEAL WITH EACH OF THE COMPARABLES OBJECTED BY THE ASSESSEE. I) THIRDWARE SOLUTIONS LTD. 6. OBJECTING TO THE SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS ENGAGED IN MULTIPLE ACTIVITIES , SUCH AS , SOFTWARE DEVELOPMENT SERVICES, SALE OF 5 3DPLM SOFTWARE SOLUTIONS LTD. PRODUCTS AND RELATED SERVICE. HE SUBMITTED , THE COMPANY HAS EARNED SUBSTANTIAL REVENUE FROM PRODUCT LICENSE AND HAS EARNED EXTRA ORDINARY PROFIT DUE TO INTANGIBLE OWNED BY IT. THUS, HE SUBMITTED , THE COMPANY BEING FUNCTIONALLY DIFFERENT FROM THE ASSESSEE CANNOT BE TREATED AS COMPARABLE. HE SUBMITTED , FOR THE AFORESAID REASONS, THE COMPANY WAS NOT CONSIDERED AS A COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008 09. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL. FURTHER, HE SUBMITTED , THE TR IBUNAL IN SAPLABS INDIA PVT. LTD. V/S ADIT, [2017] 87 TAXMANN.COM 316, WHILE CONSIDERING THE ISSUE RELATING TO COMPARABILITY OF THIS COMPANY WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER FOR THE VERY SAME ASSESSMENT YEAR , HAS HELD THAT THIS COMPANY CANNOT B E TREATED AS COMPARABLE. THUS, HE SUBMITTED , THIS COMPANY SHOULD BE EXCLUDED AS A COMPARABLE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE ASSESSEE CANNOT SELECTIVELY SEEK EXCLUSION OF CERTAIN COMPARABLES BY RAISING THE ISSUE OF FUNCTIONAL DISS IMILARITY. HE SUBMITTED , WHEN THE ASSESSEE IS NOT OBJECTING TO SOME OT HER COMPARABLES SELECTED WITH SA ME FUNCTIONS, IT CANNOT OBJECT TO SPECIFIC COMPARABLES. HE SUBMITTED , SINCE THE OTHER COMPANIES NOT OBJECTED BY THE ASSESSEE STAND ON SAME FOOTING THEY SH OULD ALSO HAVE TO BE EXCLUDED ON ACCOUNT OF FUNCTIONAL DISSIMILARITY AND THE MATTER SHOULD BE RE STORED TO 6 3DPLM SOFTWARE SOLUTIONS LTD. THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER FOR SELECTING FRESH COMPARABLES. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECO RD. WE HAVE ALSO EXAMINED THE JUDICIAL PRECEDENTS CITED BEFORE US. THE MAIN OBJECTION OF THE ASSESSEE IS, THIS COMPARABLE IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT IS OBSERVED , IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008 09, THE TRIBUNAL HAVI NG EXAMINED THE FINANCIALS OF THE COMPANY HAS FOUND THAT IT IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSE AND SUBSCRIPTIONS WHICH COULD BE A REASON FOR EARNING HIGH PROFIT. ACCORDINGLY, THE COMPANY WAS EXCLUDED FROM THE LIST OF C OMPARABLES. IT IS ALSO RELEVANT TO OBSERVE , THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA), WHILE EXAMINING THE COMPARABILITY ISSUE OF THIS COMPANY IN THE VERY SAME ASSESSMENT YEAR HAS HELD THAT THE COMPANY CANNOT BE TREATED AS COMPARABLE AS IT IS ENGAGED IN SALE OF PRODUCTS, LICENSE, AND OWNS INTANGIBLES. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE . THEREFORE, TAKING NOTE OF THE OBSERVATIONS MADE BY THE BENCH IN THE AFORESAID JUDICIAL PRECEDENTS, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE. I I) TATA ELXSI LTD. 9. OBJECTING TO SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS ENGAGED IN VARIOUS 7 3DPLM SOFTWARE SOLUTIONS LTD. ACTIVITIES , SUCH AS , PRODUCT ENGINEERING AND DESIGN SERVICE. HE SUBMITTED , THE COMPANY OPERATES IN TWO SEGMENTS AND THE SOFTWARE DEVELOPMENT SERVICE SEGMENT ITSELF COMPRISE S OF T HREE SUB SERVICES NAMELY PRODUCT DESIGN SERVICE, DESIGN ENGINEERING SERVICE AND VISUAL COMPUTING LABS. HE SUBMITTED , THE SEGMENTAL RESULT OF THE VARIOUS SERVICES PROVIDED BY THE COMPANY IS ALSO NOT AVAILABLE. HE SUBMITTED , CONSIDERING THE AFORESAID FACTS , IN ASSESSEES OWN CASE IN ASSE SSMENT YEAR 2008 09 AND 2009 10 THE COMPANY WAS REJECTED AS A COMPARABLE. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE OR DERS PASSED BY THE TRIBUNAL IN ITA NO.1303/BANG./2012, DATED 28 TH NOVEMBER 2013, AND ITA NO.634/MUM./2014, DATED 7 TH SEPTEMBER 2015. FURTHER, HE SUBMITTED , IN CASE OF GOOGLE INDIA PVT. LTD. V/S DCIT, ITA NO.1298/BANG./2013, DATED 3 RD MARCH 2017, WHICH IS F OR THE VERY SAME ASSESSMENT YEAR, THE TRIBUNAL HAVING FOUND THE COMPANY TO BE FUNCTIONALLY DIFFERENT EXCLUDED IT FROM THE LIST OF COMPARABLES. THUS, HE SUBMITTED , THIS COMPANY CANNOT BE SELECTED AS A COMPARABLE. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE REL IED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) / TRANSFER PRICING OFFICER. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS PLACED ON RECORD, IT APPEARS THAT THIS COMPANY HAS MORE THAN ONE SEGMENT AN D FURTHER , THE SOFT WARE 8 3DPLM SOFTWARE SOLUTIONS LTD. DEVELOPMENT SERVICE SEGMENT ALSO HAS MORE THAN ONE SUB SEGMENTS. WHEREAS, THE SEGMENTAL DETAILS ARE NOT AVAI LABLE. CONSIDERING THESE ASPECTS, THE TRIBUNAL IN ASSESSEES OWN CASE REJECTED THIS COMPANY AS A COMPARABLE. FURTHER, IN CAS E OF GOOGLE INDIA PVT. LTD. (SUPRA) THE TRIBUNAL WHILE EXAMINING THE COMPARABILITY OF THIS COMPANY IN THE VERY SAME ASSESSMENT YEAR HAS HELD THAT THIS COMPANY IS NOT A COMPARABLE. TAKING NOTE OF THE JUDICIAL PRECEDENTS CITED ABOVE, WE HOLD THAT THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. II I) FOURSOFT LTD. 12. OBJECTING TO SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , RELATED PARTY TRANSACTION (RPT) AS A PERCENTAGE OF TOTAL TURNOVER WORKS OUT TO 19.9%. THUS, IT EXCEEDS THE RPT FILTER OF 15%. HE SUBMITTED , IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2006 07 AND 2007 08, THE TRIBUNAL HAS APPLIED RPT FILTER OF 15%. IN THIS CONTEXT, HE RELIED UPON THE ORDERS PASSED BY THE TRIBUNAL IN ITA NO.1109/BANG./2010, DATED 10 TH MAY 2031 AN D ITA NO. 845/BANG./2011, DATED 22 ND FEBRUARY 2013. FURTHER, HE SUBMITTED , THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT IS DEVELOPING SOFTWARE PRODUCTS. THUS, HE SUBMITTED , THE COMPANY CANNOT BE TREATED AS COMPARABLE. IN SUPPORT, HE RELIED UPON THE FOLLOWING DECISIONS: 9 3DPLM SOFTWARE SOLUTIONS LTD. I) SAPLABS INDIA PVT. LTD. V/S ADIT, [2017] 87 TAXMANN.COM 316 (BANG.); AND II) GOOGLE INDIA PVT. LTD. V/S DCIT, ITA NO.1298/BANG./2013, DATED 03.03.2017. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO TAKEN NOTE OF THE DECISIONS RELI ED UPON. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE FOR REMOVAL OF THE COMPANY ON ACCOUNT OF RPT IS UNACCEPTABLE. IT IS NOTICED THAT THE AS SESSEE DID NOT APPLY RPT FILTER WHILE SELECTING COMPARABLE. THE TRANSFER PRICING OFFICER HAS APPLIED RP T FILTER OF MORE THAN 25% FOR REJECTING COMPANIES. IN OUR VIEW, THE RPT FILTER OF MORE THAN 25% APPLIED BY THE TRANSFER PRICING OFFICER IS CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN MANY CASES. THOUGH, IT MAY BE A FACT THAT IN ASSESSEES OWN CASE IN SOME OTHER ASSESSMENT YEARS, RPT FILTER OF MORE THAN 15% WAS APPLIED BUT THAT CANNOT BE CONSIDERED AS THE YARDSTICK IN EVERY ASSESSMENT YEAR. BE THAT AS IT MAY, ON FACTUAL EXAMINATION OF THE FUNCTIONALITY OF THIS COMPARABLE, IT IS NOTICED THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT. THAT BEING THE CASE, IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. CONSIDERING THE FACT THAT THIS COMPANY IS A PRODUCT DEVELOPMENT COMPANY, THE CO ORDINATE 10 3DPLM SOFTWARE SOLUTIONS LTD. BENCH IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA) HAVE EXCLUDED THIS COMPANY AS A COMPARABLE. THE AFORESAID DECISIONS OF THE TRIBUNAL BEING FOR THE VERY SAME ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THEM, WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S . IV ) EXENSYS SOFTWARE SOLUTIONS LT D. 15. OBJECTING TO THE SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AS IT IS ENGAGED IN MULTIPLE ACTIVITY INCLUDING SOFTWARE PRODUCT DEVELOPMENT. HE SUBMITTED , THE BUSINESS OF THE COMPANY IS PRI MARILY RELATED TO ERP SUITE OF PRODUCTS OWNED BY IT. HE SUBMITTED , THE COMPANY OWNED SIGNIFICANT INTANGIBLE INCLUDING MARKETING INTANGIBLE CON SISTING 60% OF ITS GROSS ASSETS. HE SUBMITTED , THE COMPANY IS INVOLVED IN COMPLEX OPERATIONS OF DEVELOPING PROPRIETARY TECHNOLOGIES AND MARKETING THE SAME. FURTHER, HE SUBMITTED , DURING THE YEAR THERE WAS A AMALGAMATION OF ANOTHER COMPANY BY NAME HOLOOL INDIA LTD. WITH THIS COMPANY. THEREFORE, THE YEAR UNDER CONSIDERATION BEING AN EXCEPTIONAL YEA R OF OPERATION, THE COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IN SUPPORT OF HIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE DECISION OF THE TRIBUNAL, BANGALORE BENCH, IN SAPLABS INDIA PVT. LTD. (SUPRA). 11 3DPLM SOFTWARE SOLUTIONS LTD. 16. THE LEARNED DEPARTMENTAL R EPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 17. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD, IT IS NOTICED THAT THIS COMPANY IS ENGAGED IN VARIOUS ACTIVITIES INCLUDING DEVELOPMENT OF SOFTWARE PRODUCTS. THE COMPANY OWNS A PRODUCT IN THE NAME OF ERP SUITE. FURTHER, IT OWNS SIGNIFICANT INTANGIBLE WHICH PROVIDES THAT IT IS A PRODUCT COMPANY. FURTHER, DURING THE YEAR UNDER CONSIDERATION, THE ANOT HER COMPANY , NAMELY , HOLOOL INDIA LTD. HAS MERGED WITH THIS COMPANY. THUS, EXTRA ORDINARY EVENT OF MERGER / AMALGAMATION MIGHT HAVE IMPACTED THE PROFITABILITY OF THE COMPANY. CONSIDERING THE AFORESAID FACTS, THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. EXCLUDED THIS COMPANY AS A COMP ARABLE. SUBSCRIBING TO THE VIEW EXPRESSED BY THE CO ORDINATE BENCH IN THE AFORESAID DECISION, WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE. V ) SANKHYA INFOTECH LTD. 18. OBJECTING TO THE SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AS I T IS ENGAGED IN DEVELOPMENT OF NICHE S OFTWARE PRODUCT AND TRAINING. HE SUBMITTED , THE COMPANY F OCUSES ON 12 3DPLM SOFTWARE SOLUTIONS LTD. DEVELOPMENT OF N ICHE PRODUCTS FOR THE TRANSPORT AND AVIATION I NDUSTRIES . W HEREAS , SEGMENTAL INFORMATION IN RELATION TO THE AFORESAID ACTIVITIES IS NOT AVAILABLE IN PUBLIC DOMAIN. THUS, HE SUBMITTED , THE COMPANY CANNOT BE SELECTED AS A COMPARABLE. IN SUPPORT, HE RELIED UPON THE DECISION OF THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD, IT IS NOTICED THAT APART FROM PROVIDING SOFTWARE DEVELOPMENT SERVICE, THE COMPANY IS ALSO ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND TRAINING. HOWEVER, SEGMENTAL DETAILS RELATI NG TO ALL ITS ACTIVITIES ARE NOT AVAILABLE IN PUBLIC DOMAIN . CONSIDERING THE ABOVE, THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THESE COMPANIES AS COMPARABLE. NO CONTRARY FACTS OR MATERIAL HAS BE EN BROUGHT TO OUR NOTICE BY THE REVENUE TO TAKE A DIFFERENT VIEW OTHER THAN THE VIEW TAKEN BY THE BENCH IN THE DECISIONS REFERRED TO ABOVE. ACCORDINGLY, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. 13 3DPLM SOFTWARE SOLUTIONS LTD. V I) GEOMATRIC SOFTWARE SOLUTIONS LTD. 21. OBJECTING TO THE SELECTION OF THIS COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AS IT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCT AND SEGMENTAL DETAILS OF SOFTWARE SERVICE AN D SOFTWARE PRODUCT SEGMENT S ARE NOT AVAILABLE. THUS, HE SUBMITTED , THE COMPANY CANNOT BE TREATED AS COMPARABLE. IN SUPPORT, HE RELIED UPON THE DECISION OF THE TRIBUNAL IN SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 22. THE LEARNED DEPA RTMENTAL REPRESENTATIV E STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE MATERIALS AVAILABLE ON RECORD, IT IS NOTICED THAT APART FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES, THE COMPANY I S ALSO ENGAGED IN DEVELOPING SOFTWARE PRODUCTS . W HEREAS , SEGMENTAL DETAILS RELATING TO THE AFORESAID ACTIVITIES ARE NOT AVAILABLE. CONSIDERING THE ABOVE, THE CO ORDINATE BENCH IN SAPLABS INDIA PVT. LTD. AND GOOGLE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THIS COMPANY AS A COMPARABLE. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE TO DEVIATE FROM THE VIEW TAKEN BY THE CO ORDINATE BENCH IN 14 3DPLM SOFTWARE SOLUTIONS LTD. THE DECISIONS REFERRED TO ABOVE . THEREFORE, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. VI I) BODHTREE CONSULTING LTD. 24. OBJECTING TO THE SELECTION OF THIS COMPANY AS A COMPARABLE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH , THE TRANSFER PRICING OFF ICER HAS MENTIONED THAT THE COMPANY DOES NOT HAVE ANY RPT, HOWEVER, IN REALITY RPT OF THIS COMPANY EXCEEDS MORE THAN 25% RPT FILTER APPLIED BY THE TRANSFER PRICING OFFICER. HE SUBMITTED , THE RPT OF THIS COMPANY CONSTITUTE S 34.68% OF THE TOTAL TURNOVER. FUR THER, HE SUBMITTED , THERE IS EXTREME FLUCTUATION IN MARGIN OF THE COMPANY OVER THE YEARS REFLECTS THAT THE REVENUE R ECOGNITION POLICY FOLLOWED BY THE COMPANY IS IMPROPER AND IS RESULTING IN CONSISTENT CHANGE IN MARGIN. HE SUBMITTED , THE GROWTH RATE OVER TH E YEARS IS ALSO FLUCTUATING TO EXTREME AND THE GROWTH IN REVENUE IS NOT SUPPORTED BY GROWTH IN EXPENDITURE. THUS, HE SUBMITTED , DUE TO HUGE FLUCTUATION IN THE MARGIN OF THE COMPANY, IT CANNOT BE REGARDED AS A COMPARABLE WITHOUT PROPERLY ANALYZING THE REASO NS LEADING TO SUCH FLUCTUATIONS. IN SU PPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF THE TRIBUNAL IN HIS OWN CASE IN ASSESSMENT YEAR 2006 07 AND 2007 08 AS WELL AS THE DECISION S OF THE TRIBUNAL IN CASE OF SAPLABS INDIA PVT. LTD. (SUPRA) AND GOOGLE INDIA PVT. LTD. (SUPRA). 15 3DPLM SOFTWARE SOLUTIONS LTD. 25. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS). 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE TRANSFER PRICING OFFICER HAS APPLIED RPT FILTER OF MORE THAN 25% TO REJECT COMPARABLES. THOUGH, THE TRANSFER PRICING OFFICER HAS TAKEN A RPT OF THIS COMPANY AS ZERO PERCENTAGE, HOWEVER, IT IS THE CONTENTION OF THE ASSESSEE THAT THE RPT OF THE COMPANY IS ACTUALLY 34.68%, HENCE, IT FAILS THE RPT FILTER APPLIED BY THE TRANSFER PRICING OFFICER. IT IS NOTICED THAT IN CASE OF GOOGLE INDIA PVT. LTD. (SUPRA) WHICH IS FOR THE VERY SAME ASSESSMENT YEAR, THE TRIBUNAL HAVING FACTUALLY FOUND THAT RPT O F THE COMPANY CONSTITUTE S 34.68% OF THE TOTAL TURNOVER EXCLUDED IT AS A COMPARABLE. MOREOVER, IN CASE OF SAPLABS INDIA PVT. LTD. (SUPRA), THE TR IBUNAL EXCLUDED IT DUE TO EXTRA ORDINARY AND EXTREMELY FLUCTUATING MARGINS OVER THE YEARS. SINCE , THE AFORESAID DECISION S OF THE TRIBUNAL ARE FOR THE VERY SAME ASSESSMENT YEAR AND THE REVENUE HAS FAILED TO BRING TO OUR NOTICE ANY CONTRARY FACT OR MATERIAL TO DEVIATE FROM THE VIEW EXPRESSED BY THE BENCH IN THESE DECISIONS, RESPECTFULLY FOLLOWING THEM, WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE ARMS LENGTH PRICE AFRESH AFTER EXCLUDING THE COMPARABLES AS DIRECTED HEREIN ABOVE. 16 3DPLM SOFTWARE SOLUTIONS LTD. 27. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ITA NO.6732/MUM ./2013 APPEAL BY THE REVENUE 28. THE ONLY GROUND RAISED BY THE REVENUE IS AGAINST A PPLICATION OF TURNOVER FILTER THE L EARNED COMMISSIONER (APPEALS) WHILE EXCLUDING SOME COMPARABLES SELECTED BY THE TRANSFER PRICING OFFICER. 29. AS DISCUSSED EARLIER IN THIS ORDER, OUT OF 17 COMPARABLES SELECTED BY T HE TRANSFER PRICING OFFICER, LEARNED COMMISSIONER (APPEALS) REJECTED FOUR COMPARABLES , NAMELY , FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEGMENTAL), L&T INFOTECH LTD., SATYAM COMPUTER SERVICE LTD. AND INFOSYS TECHNOLOGIES LTD., DUE TO THEIR HIGH TURNOVER. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , HIGH TURNOVER IS NOT A CRITERIA TO REJECT COMPARABLES IF THE COMPARABLE IS OTHERWISE FUNCTIONALLY SIMILAR TO THE ASSESSEE. HE SUBMITTED , THE COMPANIES REJECTED BY LEARNED COMM ISSIONER (APPEALS) ON T HE GROUND OF HIGH TURNOVER ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE. THUS, HE SUBMITTED , MERELY BECAUSE THE TURNOVER OF THE COMPANY IS HIGH, IT CANNOT BE REJECTED AS A COMPARABLE. 31. THE LEARNED AUTHORISE D REPRESENTATIVE STRONGLY RELYI NG UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS) SUBMITTED , TURNOVER IS ALSO A CRUCIAL FACTOR IN SELECTING COMPARABLES. HE SUBMITTED , IF THE 17 3DPLM SOFTWARE SOLUTIONS LTD. COMPANIES HAVING SUBSTANTIAL LY LOW TURNOVER CAN BE EXCLUDED , APPLYING THE SAME LOGIC, COMPANIES HAVING SU BSTANTIALLY HIGH TURNOVER ALSO HAVE TO BE REJECTED. HE SUBMITTED , IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2005 06 AND 2007 08, THE TRIBUNAL APPLYING THE TURNOVER FILTER HAS DIRECTED EXCLUSION OF COMPANIES HAVING TURNOVER OF MORE THAN ` 200 CRORE. HE SUBMITTED , THE SAME PRINCIPLE WOULD ALSO APPLY TO THE IMPUGNED ASSESSMENT YEAR. 32. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTS ON RECORD, IT IS OBSERVED THA T AS AGAINST THE TURNOVER OF ASSESSEE SHOWN AT ` 17.30 CRORE, THE TURNOVER OF THE COMPANIE S REJECTED BY LEARNED COMMISSIONER (APPEALS) ARE AS UNDER: FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) ` 652.45 CRORE L&T INFOTECH LTD. ` 562.45 CRORE SATYAM COMPUTERS SERVICE LTD. ` 3464.20 CRORE INFOSYS TECHNOLOGIES LTD. ` 6859.70 CRORE 33. IT IS RELEVANT TO OBSERVE , THE ASSESSEE WHILE SELECTING COMPARABLES HAD APPLIED BOTH UPPER AND LOWER TURNOVER FILTER BY FIXING RANGE OF ` 5 TO 250 CRORE. WHEREAS, THE TRANSFER PRICING OFFICER , THOUGH , HAS APPLIED THE LOWER TURNOVER FILTER BY EXCLUDING COMPANIES HAVING LESS THAN ` 1 CRORE INCOME, HOWEVER, IT DID NOT APPLY UPPER TURNOVER FILTER. THIS, IN OUR VIEW, IS A WHOLLY INCORRECT APPROACH. UNDISPUTEDLY, COMPAR ED TO ASSESSEES TURNOVER OF ` 17.30 CRORE, THE 18 3DPLM SOFTWARE SOLUTIONS LTD. TURNOVER OF THE EXCLUDED COMPANIES ARE SUBSTANTIALLY HIGHER AND FAR AHEAD OF THE ASSESSEE. COMPARED TO THESE COMPANIES AND MORE PARTICULARLY , INFOSYS TECHNOLOGIES AND SATYAM COMPUTER SERVICE LTD. , THE ASSESSEE HAS TO BE CONSIDERED AS A PI GMY . FURTHER, IT CANNOT BE SAID THAT THE TURNOVER IN ALL CASES DO NOT IMPACT THE PROFITABILITY. PERTINENTLY, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006 07, THE TRIBUNAL IN ITA NO.1109/ BANG./2010, DATED 10 TH MAY 2013, HAS HELD THAT UPPER TURNOVER FILTE R IS A CRUCIAL FACTOR IN SELECTING COMPARABLES. THE SAME VIEW WAS EXPRESSED BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IN IT(TP)A NO.845/BANG./2011, DATED 22 ND FEBRUARY 2013. IN VIEW OF THE AFORESAID, WE DO NOT FIND AN Y INFIRMITY IN THE DECISION OF LEARNED COMMISSIONER (APPEALS) IN EXCLUDING COMPANIES HAVING TURNOVER OF MORE THAN ` 200 CRORE. GROUND RAISED IS DISMISSED. 34. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.2019 SD/ - N.K.PRA DHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 19.11.2019 19 3DPLM SOFTWARE SOLUTIONS LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI
