SAS Research and Development (India) Pvt. Ltd , Pune V. Additional / Joint/ Deputy/Asistant Commissioner Of Income Tax (Int Tax), Delhi Additional / Joint/ Deputy/Asistant Commissioner Of Income Tax (Int Tax), Delhi

ITA 255/PUN/2021

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9234 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 02-08-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 03-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Rule of consistency; Wholly owned subsidiary; Scheme of amalgamation
• Section: 143(3); 48; 13

Judgement Text

आयकर अपीलीय अिधकरण “सी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No.255/PUN/2021 िनधाᭅरणवषᭅ / Assessment Year : 2016-17 SAS Research and Development(India) Private Limited, Level 1, 2A and 3, Tower 5, Cybercity, Magarpatta City, Hadapsar, Pune – 411013. PAN: AAECS 8099 L Vs The additional / Joint / Deputy / Assistant Commissioner of Income Tax / Income-tax Officer, National e-Assessment Centre, Delhi. Appellant/ Assessee Respondent /Revenue Assessee by Shri Rajendra Agiwal– AR Revenue by Shri Shivraj B Moray – DR Date of hearing 03/08/2022 Date of pronouncement 01/11/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld. Additional/Joint/ Deputy/Assistant Commissioner of Income Tax, National e-Assessment Centre, Delhi, dated 06.04.2021for the A.Y. 2016-17 emanating from the order of the Dispute Resolution Panel-3, Mumbai, dated 24/03/2020. The Assessee has raised the following grounds of appeal: “Based on the facts and circumstances of the case, SAS Research and Development (India) Private Limited (‘Appellant’) respectfully craves leave to prefer an appeal against the order passed by the National e- Assessment Center, Delhi under section 143(3) r.w.s 144C(13),144C(13),143(3A) & 143(3B) of the Income-tax Act, 1961 (‘the Act’) dated 6 April 2021 pursuant to the directions issued by Hon’ble Dispute Resolution Panel - 3 (‘Hon’ble DRP’), Mumbai, under section 144C(5) of the Act dated 19 February 2021, on the following ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 2 grounds, which are independent of and without prejudice to each other: Grounds of appeal pertaining to transfer pricing adjustment: 1. Inappropriate transfer pricing adjustment of INR 8,25,09,762 even though the pricing of all international transactions of the Appellant was at arm’s length Erred on the facts and in circumstances of the case and in law by making/ confirming transfer pricing adjustment by rejecting the analysis undertaken by the Appellant to determine arm’s length price of its international transactions pertaining to rendering of software development support, consultancy and training services to the AEs. 2. Inappropriate rejection of the transfer pricing documentation appropriately maintained by the Appellant Erred on the facts and in circumstances of the case and in law by inappropriately rejecting the transfer pricing documentation appropriately maintained by the Appellant and by inappropriately conducting a fresh search for benchmarking the Appellant’s international transactions. 3. Inappropriate rejection of certain comparable companies identified in the transfer pricing study report Erred on the facts and in circumstances of the case and in law by rejecting following company identified by the Appellant in its transfer pricing study report for benchmarking its international transaction pertaining to rendering of software development support, consultancy and training services even though it satisfied all the comparability criteria/ filters applied while conducting the transfer pricing study. • Maveric Systems Limited 4. Inappropriately considering additional companies as comparable to the Appellant Erred on the facts and in circumstances of the case and in law by identifying following functionally different and non-comparable companies as comparable to the Appellant: i. Inteq Software Private Limited; ii. Aspire Systems (India) Private Limited; iii. Infobeans Technologies Limited; iv. Thirdware Solutions Limited; and v. E-Infochips Limited. 5. Inappropriate modification of export earning filter applied by the Appellant ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 3 Erred on the facts and in circumstances of the case and in law by inappropriately modifying export earnings filter applied by the Appellant by rejecting companies having export earnings less than 75% of operating revenue as against the filter of 25% applied by the Appellant. 6. Inappropriate rejection of the turnover filter applied by the Appellant Erred on the facts and in circumstances of the case and in law by inappropriately rejecting the turnover filter of Rs 1 crore to Rs 200 crores applied by the Appellant while conducting its transfer pricing study for FY 2015-16 and inappropriately applying a turnover filter of Rs 11.47 crores to Rs 1146.59 crores. 7. Inappropriately applying employee cost filter while identifying comparable companies Erred on the facts and in circumstances of the case and in law by inappropriately applying a filter wherein companies with employee costs of less than 25% of its total costs are rejected while identifying comparable companies. 8. Inappropriately applying foreign exchange spending filter while identifying comparable companies Erred on the facts and in circumstances of the case and in law by inappropriately applying a filter wherein companies with foreign exchange spending is more than 75 % of its operating costs are rejected while identifying comparable companies. 9. Inappropriately rejecting adjustment to account for differences in the risk profile of the Appellant vis-a-vis the comparable companies Erred on the facts and in circumstances of the case and in law by comparing full-fledged risk bearingentities with the Appellant’s captive operations without making any risk adjustment for differencesbetween the risk profile of comparable companies vis-a- vis the risk profile of the Appellant. Other Grounds of appeal: 10. Deduction in respect of education cess Erred on the facts and circumstances of the case and in law in not considering the additional claim of deduction of the liability for education cess on income-tax paid for the year while computing the total income. 11. Inappropriate levy of interest and initiation of penalty proceedings Erred in levying interest under Section 234A, 234B, 243C and ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 4 243D of the Act and initiating penalty proceedings under Section 271(l)(c) of the Act. 2. Brief facts of the case are that the appellant assessee company filed its return of income on 29/11/2016 declaring total income of Rs.18,28,30,770/-. The Assessing Officer(AO) issued notice u/s.143(2) dated 11/09/2017. The AO made a reference to the Transfer Pricing Officer (TPO). The TPO passed an order u/s.92CA(3) on 30/10/2019 making a Transfer pricing Adjustment of Rs.8,69,53,667/- to the International transaction of Software Development Service. Then the Assessing Officer passed a Draft Assessment Order u/s.144C r.w.s 143(3) on 06/12/2019. Aggrieved by the Draft Assessment Order, the appellant assessee filed an appeal before the Dispute resolution Panel (DRP). The DRP vide its order dated 19/02/2021 upheld the draft assessment order. Then the Assessing Officer passed assessment order dated 06/04/2021. Aggrieved by the said order the assessee filed appeal before this Tribunal. 2.1 The Assessee is a wholly owned subsidiary of SAS USA. The assessee was incorporated on 28/07/2000. During the year under consideration the assessee was primarily engaged in providing Software Development Service, Software Consultancy and Training Services to its Associated Enterprises (AE). In the Transfer Pricing ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 5 Study report and Form 3CEB the assessee has reported following International transactions: Nature of Transaction Amount Method applied by Assessee for benchmarking Rendering of Software development Support, Consultancy, Training Services to AEs. 114,65,02,548/- TNMM Reimbursement of postage & Courier 1,49,816/- TNMM Recovery of expenses 1,05,68,472/- TNMM 2.2 The Assessee has applied Transaction net margin Method (TNMM) for benchmarking the said international transactions to arrive at Arm’s length Price of the services. The TPO has accepted the method TNMM as the most appropriate method for benchmarking. The Assessee in the Transfer Pricing Study Report has finally arrived at following Comparables companies based on the Functions performed, asset, and Risk (FAR) analysis. (page 87 of PB): Sr.No. Name of the company Weighted average of operating profits on operating cost (%) 1 R S Software (India) Limited -2.00% 2 Akshay Software Technologies Limited -1.02% 3 Sagar Soft India Limited 1.52% 4 Maveric Systems Limited 9.27% 5 InfoMile Technologies Limited 10.87% 6 CG-VAK Software & Exports Limited 12.35% 7 Mudunuru Limited 13.18% Data place Range 3 35 th percentile 1.52% 5 65 th percentile 10.87% ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 6 2.3 In the Transfer Pricing Study Report (TPSR) the assessee concluded that the Operating Profit margin on Operating Cost (OP/OC) of the assessee was 10.96% which was higher than the comparables hence the International transactions were at Arm’s Length. 2.4 The TPO carried out fresh search for comparables. The TPO arrived at the following Comparables after giving opportunity to the assessee: Company Name WCA_OP/OC Comb Sagarsoft (India) Ltd. 14.24 -0.37% Evoke Technologies Pvt. Ltd., 75.83 3.00% Sasken Technologies Ltd-Seg 400.09 4.25% E-Zest Solutions Ltd. 56.62 6.03% Great Software Laboratory Pvt. Ltd. 86.99 9.97% Ingenuity Gaming Pvt. Ltd. 20.17 10.54% Exilant Technologies Pvt. Ltd. 375.95 14.13% Puresoftware Pvt. Ltd. 26.51 15.98% Bhilwara Infotechnology Ltd- Seg 29.69 19.05% Harbinger Systems Pvt. Ltd. 72.29 19.36% R S Software (India) Ltd. 171.76 20.58% Nihilent Ltd. 251.36 22.22% Inteq Software Pvt. Ltd. 17.38 24.73% Aspire Systems (India) Pvt. Ltd. 231.17 28.59% ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 7 Infobeans Technologies Ltd. 61.61 30.00% Thirdware Solution Ltd-seg 192.85 36.05% Cybage Software Pvt. Ltd. 722.52 62.17% Dun & Bradstreet Technologies & Data Services Pvt. Ltd. 122.80 63.31% E-Infochips Ltd. 269.06 79.25% PLI of tested party 10.95% 35th percentile 14.13%, Median 19.36% 65th percentile 24.73% 2.5. Thus the mean of Comparables Margin of OP/OC was 24.73 % where as that of the assessee was only 10.95%. Therefore, the TPO concluded that the Assessee’s margin of OP/OC is lower than that of comparables, the Transactions were not at Arm’s Length. Hence the TPO proposed an adjustment of Rs.8,69,53,667/-. 2.6. Aggrieved by this Transfer pricing Adjustment the assessee is in appeal before us. Thus the only issue is transfer pricing adjustment. 3. Submission of Ld.AR: Ground No.3: Modified ground of appeal filed on 9 May 2022 Akshay Software Technologies Limited (‘Akshay’)  The Appellant would like to mention that Akshay should be age included as comparable on the following account: ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 8  The company is engaged in rendering software development services and the same is evident from Note 18 'Revenue from operations' as it derives revenue from services.  The above fact is also affirmed in Note 26 'Earnings in foreign currency' as it earns revenue from export of software services.  Akshay is engaged in providing services for both on-shore and off-shore clients. In this regard, the Appellant would like to submit that even if a company is engaged in providing onsite software development services, it does not imply that the company does not render software development services. Nature of services and functions performed remain the same irrespective of whether the service provider undertakes the development activity at a remote location (off shore) or at the client place.(onsite).  The information about onsite/offshore split is not available in the databases/ annual reports in case of all companies and hence, application of this criteria to reject the companies would not be objective and appropriate.  Hence, this company should be included in set of comparables. Maveric Systems Limited (‘Maveric’) The Appellant would like to mention that Maveric should be included as comparable on the following account:  The company earns revenue from software testing services which is a part of software development lifecycle (refer page no 432 & 434 of paperbookI)  Onsite Development is a part of software development activity. (refer page 340 of paperbook I)  As per website of Maveric, It offers Product Implementation, Integration and Quality Engineering services across Digital platforms, Banking Solutions and Regulatory systems which forms part of the software development life cycle, (refer page 343 and 344 of paperbook I)  The Assessee also undertakes testing activity as a part of software development process. The same is evident from the functions given in the TP Study, (refer page 75 of paperbook I) Ground No.4: Modified ground of appeal filed on 9 May 2022 Inappropriate considering additional companies as comparable Exilant Technologies Private Limited (Exilant) ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 9 The Appellant would like to mention that Exilant should be rejected as comparable on account of the following reasons:  Exilant is a private limited company incorporated and headquartered in India and has registered office in Banglore, Karnataka Apart from having offices in India, the company has offices in United States of America, United Kingdom and Singapore. The company also has wholly owned subsidiary in Switzerland and Singapore, (refer page 1372 of paperbook II)  Along with its subsidiaries, Exilant provides/ delivers business solutions through global software development, Business IT services, application development and maintenance, business process management, business technology consulting, cloud and product engineering, (refer page 1372 of paperbook II). The company is into diversified business activity and segmental details are not available.  The company is also into research and development work and possess intangibles in the form of patents and also develops intagibles.(refer page 1277 and 1327 of paperbook II).  The business model of this company is different from the appellant company as it provides on-site software services. Accordingly, the companies having different business model cannot be called as comparable to the Appellant. The learned TPO/ Hon'ble DRP proposed to reject Maveric since its into onsite activity and hence the same principle should be applied for rejection of said company. Case laws relied upon: M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016- 17 (Refer para 19 of the order on page nos 1629 to 1631 of paperbook III) Aspire Systems (India) Private Limited (‘Aspire’)  The Appellant would like to mention that Aspire should berejected as comparable on account of the following reasons:  The company fails related party transactions filter applied by the learned TPO as its RPT/ sales ratio is 36.25% (the total value of related party transactions is Rs 83,67,20,801 and total value of sales is Rs 230,80,61,232) (refer page 680 to 688 of paperbook 1 for RPT transactions and total sales is on page 694).  During the year Aspire has amalgamated with Applied Development Software (India) Private Limited and Pure Apps Consulting Services Private Limited w.e.f 1 April 2015. Further the financials statements have been prepared by taking in to consideration the effect of the amalgamation (refer page 494 and 495 of paperbook I)  Aspire is an outsourced technology services company focused on helping software companies create innovative products through its onsite and ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 10 offshore model (refer page 652 of paperbook I)  The business model of this company is different from the appellant company as it provides on-site software services. Accordingly, the companies having different business model cannot be called as comparable to the Appellant. The learned TPO/ Hon'ble DRP proposed to reject Maveric since its into onsite activity and hence the same principle should be applied for rejection of said company. Case laws relied upon:  M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016-17 (Refer para 14 of the order on page nos 1619 to 1622 of paperbook III);  M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 40 of the order on page no 1665 of paperbook III); and  Infor (India) Private Limited (ITA No. 198/HYD/2021) order dated 6 October 2021 for AY 2016-17 (Refer para 4.4 of the order on page no 1699 of paperbook III) Puresoftware Private Limited (‘Puresoftware’) The Appellant would like to mention that Puresoftware should be rejected as comparable on account of the following reasons:  Puresoftware is engaged in Software testing, testing training and testing outsourcing. (Refer page 1419 of paperbook II)  The principal business activity of the company states that it is into design and development services of software applications including customized and packaged software. (Refer page 1405 of paperbook II)  The website extracts shows that it provides digital and engineering services to the clients, (refer page no 285 of the paperbook I)  Maveric is also in the business of software testing, however the same has been rejected as comparable by the learned TPO/ Hon'ble DRP. Accordingly, following the principle of consistency Puresoftware should also be rejected from the final set of comparables. Infobeans Technologies Limited (‘Infobeans’) The Appellant would like to mention that Infobeans should be rejected as comparable on account of the following reasons:  The company is engaged in providing business IT services such as Custom Application Development (CAD), Content Management system (CMS), Enterprise mobility and Big data analystics. (refer page 737 of paperbook I). ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 11  Further, from the website extract of Infobeans it is clear that it provides high end services such as Automation (RPA and CICD), CLoud, UX, Data Storage and Standards Publishing, (refer page no 295 and 296 of paperbook I). Infobeans provides high end services and cannot be compared with the Assessee who provides routine software development services.  During the year, the company has extra ordinary event of acquisition of Infobeans Technologies DMCC and divestment of Save time Technologies Limited and due to the said mentioned extra ordinary activity the revenue of the company has also increased by 76% (refer page no 744 and 747 of paperbook I).  I The Hon'ble ITAT in Assessee's own case for AY 2012-13 and AY 2013-14, upheld exclusion of Infobeans from final set of comparable companies. Case laws relied upon:  Assessee's own case (ITA No 632/PUN/2017) order dated 10 May 2021 for AY 2012-13 (Refer para 25 and 26 of the order on page nos 1759 to 1761 of paperbook III);  Assessee's own case (ITA No 2315/PUN/2017) order dated 8 December 2021 for AY 2013-14 (Refer para 10 of the order on page nos 1774 to 1775 of paperbook III);  M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 49 and 50 of the order on page nos 1669 to 1670 of paperbook III); and  ADP Pvt Ltd (ITA No. 227 & 228/HYD/2021) order dated 3 February 2022 for AY 2016-17 (Refer para 7 of the order on page nos 1800 to 1802 of paperbook III. E-Infochips Limited (‘E-Infochips’) The Appellant would like to mention that E-Infochips should be rejected as comparable on account of the following reasons:-  The website extracts of E-Infochips shows that it is engaged in sale of product, product engineering and semi conductor design services. It has significant competencies in Hardware design, Coud, Data Analytics, and Design verification, (refer page no 302 of paperbook I)  Further, the company's annual report shows that it carries inventories of raw materials and finished goods, (refer page no 1110 of paperbook I)  The company is also engaged in Product engineering services, (refer page 964 of paperbook I)  The company derives revenue from sale of products, (refer page 1,155 of paperbook I) ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 12  The company also owns significant intangibles, (refer page 1,064 of paperbook I)  The segmental information of the company states that it is primarily engaged in Software development and IT enabled services and products, (refer page no 1135 of paperbook I)  Additionally, the company has an extra ordinary event of Acquisition of Smart guard Systems Private Limited and nGin Technologies Private Limited as per order of Hon'ble Gujrat High Court dated 29 March 2016. The merger took effect from 1st April 2021. (refer page no 964 and 1127 of paperbook I)  The amalgamation has channelized the synergies and lead to optimum utlization of available resources and result in greater economies of scale, (refer page no 1127 of paperbook I)  The company's margin is also abnormally high i.e. 79.25%. Case laws relied upon:  M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016-17 (Refer para 18 of the order on page nos 1627 to 1629 of paperbook II);  John Deere India (P) Ltd. (ITA No. 2663/PUN/2016 & 2775/PUN/2016) order dated 29 January 2020 for AY 2011-12 (Refer para 13 of the order on page nos 1868 to 1869 of paperbook III); and  Redknee (India) Technologies Private Limited (ITA No. 486/PUN/2016) order dated 29 June 2018 for AY 2011-12 (Refer para 6 of the order on page nos 1882 to 1884 of paperbook III) Dun & Bradstreet Technologies & Data Services Private Limited (‘Dun & Bradstreet’)  The Appellant would like to mention that Dun &Bradstreet should be rejected as comparable on account of the following reasons:  The company is engaged in providing data analytics services- cum- predective analytics and also engaged in diversified activities which is totally different from software development services (refer page 1457 of paperbook II)  The company renders services to its parent company as well to its affiliate companies.  Dun & Bradstreet website extracts shows that the companyprovides various services which include risk management solutions, sales and marketing solutions, corporate datanbases, etc. (refer page 379 of paperbook I) ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 13  Further, the company's margin is abnormally high i.e. 63.31%.  In view of the above Dun &Bradsteet cannot be held as comparable with the Assessee who is a routine software development service provider. Case laws relied upon:  M/s Veritas Software Technologies India Private Limited (ITA No 207/Pun/2021) order dated 31 December 2021 for AY 2016- 17 (Refer para 17 of the order on page nos 1625 to 1626 of paperbook III); and  M/s Red Hat India Private Limited (ITA No 1379/Mum/2021) order dated 25 February 2022 for AY 2016-17 (Refer para 48 of the order on page no 1669 of paperbook III) 4. Submission of Ld.DR: The Ld.DR relied on the orders of the Lower authorities. We have discussed the submission of the Ld.DR at the discussions of comparables. 5. Findings : We have considered the submission of both the parties and perused the records. 5.1 At the outset, the ld.AR submitted that he is not pressing for Ground Numbers 1,2,5,6,7,8,9,10,11. Hence, these grounds are dismissed as not pressed. 5.2 Therefore, the only effective grounds are Ground Nos.3 & 4. 5.3 Before, we start discussing the comparables, we will like to discuss the FAR of the Assessee and AE as emanating from the orders of the Lower authorities and Transfer Pricing Study Report submitted by the assessee. ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 14 The holding structure of the Assessee company is as under : Functions performed as per the assessee’s submission are as under : Software development support services: The AE of SAS R&D i.e. SAS US is involved in core research and development of SAS Software products. It performs end to end development of majority software products and reviews and approves the development of all the Software products developed by the SAS Group. SAS R&D is engaged in rendering software development support services to its AEs. SAS R&D works under the direction and supervision of its AEs. SAS R&D supports the development center of its AE, SAS US which has been established more than 30 years ago. Under the software development support activity, SAS R&D supports the development of SAS software products by assisting in development of certain SAS Software Products based on the specifications of AE. AEs of SAS R&D are responsible for directing SAS R&D and allocating work to SAS R&D. Consultancy and training services: Consultancy Services - PSCC: SAS R&D is engaged in supporting SAS US on consulting projects i.e., installations, writing of routines/ codes, ETL, data management, data warehousing/ business intelligence and analytics. PSCC team of SAS R&D works closely with the Professional services team of SAS US. This team primarily provides offshore software delivery and support to SAS US. Considering the fact that SAS R&D provides offshore support, the main activities in relation to installation and configuration of the Software products are performed by teams from AE at customer location. Training services: SAS R&D is engaged in rendering trainings to the employees and customers of SAS Group in relation to the SAS Software products. In certain situations, ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 15 Software developers apart from the above mentioned team may provide training in relation to the Software products on which they were involved. Software development support services (product development) Conceptualization and design of the product The AEs which outsource software development support services are primarily responsible for the conceptualization and design of the product. Normally, the AEs provide the basic design software product to be developed. SAS R&D, in discussion with the AEs, confirms its understanding of the design, on the basis of which the development work is carried out. In case of manufacturing and certain other solutions, SAS R&D, under the guidance, review and sign off from AE, undertakes the design and other services in the entire software development life cycle Also, the employees engaged in upgrading/ enhancing and maintaining/ supporting the products /solutions suggest new and innovative ways of improving the products/ solutions of SAS, if any, based on their experience in the development process. SAS R&D undertakes the software coding according to the functional specifications provided by the AEs. SAS R&D receives technical assistance, if required, from the overseas AEs during the coding coupled with regular feedback. SAS R&D undertakes the initial testing during the development process and also on completion of the development ensures that the code generated meets the specifications/ requirements provided by the AEs. The AEs are responsible for final testing (user acceptance testing) of the software product before releasing the same in the market. Certain product documentation may be maintained/ developed by SAS R&D. However, the ultimate responsibility for all work in relation to software products including maintaining appropriate product documentation is with the AE. Quality control Quality control is driven and supervised by the quality engineering team of AE for all products. SAS R&D undertakes quality control as defined by the AE. 5.4 Here onwards we will discuss the various comparable challenged by the Assessee, either to be excluded or included MAVERIC SYSTEMS LTD : ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 16 6. In the Ground No.3 the appellant assessee has challenged the rejection of the comparable Maveric Systems Ltd which according to the assessee is functionally comparable. 6.1 The TPO and DRP has held that the said comparable is in the business of Software testing services where as the assessee is in the business of Software Development Services. The TPO, DRP has also observed that the said comparable is mainly “Onshore” service provider. Therefore, the TPO and DRP held that this comparable is functionally not comparable. 6.2 The Ld.AR has mainly submitted that Software testing is part of the life cycle process of Software Development. Therefore, he submitted that its is comparable. 6.3 We have already reproduced functions carried out by the assessee company in earlier paragraphs. It has been accepted by the assessee in the transfer Pricing Study report that assessee does Software development as per the basic design provided by its AEs. It is also mentioned in the TPSR that assessee also undertakes the design and other services in the entire Software development life cycle. Assessee also undertakes software coding. 6.4 Whereas, the Maveric Systems Ltd is only providing Testing Services. It is mentioned in the Annual report of Maveric Systems ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 17 Ltd that it is providing Software testing services withing India and Outside India (page 440 of PB) . As per Annual report of the Maverick Systems Ltd the Segmental of revenue earned is as under (page 440 of PB) : Segment Reporting for India Region FY 2015-16 APAC 31,06,12,246/- Europe 14,13,04,995/- India 5,81,91,362/- Middle east 62,16,49,163/- UK 3,35,51,210/- USA 1,74,41,228/- Total 1,18,27,50,204/- 6.5 This, as submitted by the Ld.CIT(DR) that the 90% revenue of the Maveric Systems Ltd is from Off-Shore onsite services, whereas the Assessee is only providing services from India. Ld.CIT(DR) also submitted that the testing services are not comparable with the Complete process of research and Development. Ld.CIT(DR) read out “Note 1” of the Annual report of maverick which is as under : “Maveric Systems Limited was incorporated in India on 19.06.2000 to carry on the business of Software Testing Services for Onshore and Off shore clients.” 6.6 Thus, on perusal of the Annual Report of the Maveric Systems Ltd, it is clearly observed that Maverick is only providing testing Services. Testing Services is merely one small component of the Research And development. Therefore, the Testing Services provided by Maveric are not functionally comparable to the Software ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 18 Development services, Coding, Designing services provided by the assessee. The assessee is engaged in supporting SAS USA on consulting projects, i.e. Installation, writing of routine, writing of codes, ETL, Data Management, Data warehousing, etc. (page 76 PB). Assessee is also engaged in providing training to the Customers of SAS Software Products and employee of SAS Group in relation to the functionalities of the SAS Software Products. Also, the Off-shore component of the Mavric services are substantial. Therefore, the wide range of Functions performed by the assessee cannot be compared with the “Testing” services provided by Maveric. Also the Risk, Asset of Onshore model of Maveric cannot be compared with Assessee. Therefore, we are of the opinion that the Maveric Systems Ltd is not a comparable to the assessee taking into consideration FAR of both the companies. 6.7 Ld.AR has relied on the order of ITAT Pune in the case of Xpanxion International Pvt Ltd., in ITA No.666/PUN/2016 for A.Y. 2011-12. In the said order in para 8 the ITAT has cryptically mentioned that Maveric Systems Ltd was engaged in Software Development Services. However, the Ld.CIT(DR) has relied on the Order of ITAT Pune in the case of PTC Software India Ltd where in the ITAT held that Maverick is not comparable to companies providing Software development services. ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 19 6.8 We have gone through both the orders of ITAT quoted by both the parties. We have already reproduced the Functions of the Maveric Systems Ltd as mentioned in the Annual Report for FY 2015-16, that maverick is in the business of Software Testing. Therefore, we find that the case law relied by the Ld.AR is of no help to the assessee. 6.9 Therefore, on facts and circumstances of this case and based on FAR we hold that Maverick Systems Ltd is not comparable to the Assessee. 6.10 Accordingly, the Ground No.3 of the Assessee is dismissed. AKSHAY SOFTWARE TECHNOLOGIES LTD (Akshay) 7. The TPO has excluded this comparable because as per TPO the comparable Akshay is providing professional services in the nature of Staffing Services by which the company employees IT Professionals and provides them to various clients in the IT Industry on contract staffing / permanent staffing basis. 7.1 The DRP has upheld the exclusion of Akshay Software on the ground mentioned by TPO. The DRP also held that Akshay is providing staffing services i.e. it is providing technical personnel to various clients. ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 20 7.2 The Ld.AR mainly stated that the company is engaged in rendering software development services and the same is evident from Note 18 'Revenue from operations' as it derives revenue from services. 7.3 We have heard both the parties and perused the records. In the Annual report of Akshay it is mentioned as under : “Akshay Software Technologies Limited ('the Company') is engaged in providing professional services and procurement, implementation and support of ERPproducts and services in India and Dubai” 7.4 on the Web Site of Akshay it is mentioned as under : “ We have over three decades of presence in the UAE market of sourcing contract staffing for clients. With deep consideration of UAE rules & laws we manage outsourced staff in a professional manner .We have immense experience to source candidate of all nationalities in all verticals............ Start-ups to unicorn companies require skilled candidates. Our professional staffing solution provides staffing in IT, Sales, Marketing etc. Our solution adheres to matching employer’s requirements with top candidates. Akshay’s professional staffing solution has a decade of experience in recruiting for various professional niches in India and abroad..............Improve the organization’s productivity by outsourcing payroll management to Akshay’s payroll management services. We follow strict payroll and compliance practices & make sure that each and every employee gets paid on time. Outsourcing payroll management to Akshay’s team would streamline your entire payroll management process.” 7.5 On the website of Akshay testimonial of HDFC is mentioned which says that Akshay Software Technologies Ltd has been their preferred IT manpower vendor since 2010. Aksahy is also trading in SAP. ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 21 7.6 All these things explains that Akshay Software technologies Ltd is mainly in the business of supplying skilled manpower to clients, along with payroll services. It is also in SAP business. These activities are not Software Development. Therefore, Akshay Software Technologies Ltd is not functionally comparable to the Assessee company. 7.7 In addition to this in FY 2015-16, there has been a special event in Akshay which is mentioned in the Annual report. Quote, “Revenue from operations for FY 2015-16 at ` 2484.67 lacs was higher by 14.04% over last year(FY 2014-15 ` 2178.73 lacs).Earnings before interest, tax, depreciation and amortisation (EBITDA)decreased from ` 6.82 lacs in FY 2014-15 to negative (` 126.21 lacs) in FY 2015-16 due to reductionin export income on account disinvestment of the subsidiary... In FY 2015-16 there is one time credit (net)` 447.13 lacs on account of net gain on sale of investment in wholly owned subsidiary” Unquote 7.8 This disinvestment and net gain of Rs.447 lacs is one time event, has affected profit. But as mentioned in the Annual report the disinvestment has affected export income also. Therefore, considering this onetime event, the Akshay Software Technologies Ltd is not comparable to the assessee. Hence for all the reasons discussed above, we hold that Akshay Software Technologies Ltd is not functionally comparable to the assessee. 7.9 The Ld.AR has relied on various ITAT decisions but none of the decision has brought on record the fact of one time Disinvestment leading to profit and reduction of export, the manpower supply ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 22 activity of the Akshya Software Technologies Ltd, hence all the case law relied by the AR are distinguishable on facts. Exilant Technologies Private Limited (Exilant) 8. The DRP has not discussed anything about FAR of this comparable. The TPO has also not discussed anything about the submission of the assessee that the comparable have Intangible assets. Therefore, we set aside the issue of comparability of this comparable to the file of the DRP. The DRP shall provide opportunity to the assessee and pass a speaking order. 8.1 Accordingly, this additional ground of the assessee is allowed for statistical purpose. Aspire Systems India Pvt Ltd : 9. The Ld.AR brought to our notice that there was amalgamation with effect from 1/4/2015. We have observed that in the Explanatory statement of Annual report (page 494-495 of PB) it is mentioned as under : “The audited profit and loss account for the year ended March 31, 2016 incorporating the effect of the Scheme of Amalgamation with effect from April 1, 2015 and the Balance sheet as at that date ......” ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 23 9.1 Thus, the Profit and loss account for the year under consideration was affected by the onetime event of amalgamation. Neither the TPO nor the DRP has discussed this fact in the order. 9.2 Since, there was amalgamation w.e.f 01/04/2015, we hold that this comparable is not comparable to the Assessee, hence shall not be considered in the benchmarking analysis. Reliance is placed on PCIT v. J.P.Morgan India (P) Ltd (2019) 261 Taxman 404/ 180 DTR 179 (Bom) (HC). 9.3 Accordingly, this modified ground of appeal is allowed. Pure software Private Limited (‘Puresoftware’) 10. The TPO observed that the company is in the business of Software Testing, Services, Software development. Therefore, the TPO held that it is comparable to the assessee. 10.1 The Ld.AR submitted that the company is in the business of Software Testing, Test Consultancy, software development. 10.2 We have perused the Annual Report filed by the LD.AR in the paper book On page 1433 of Paper Book note 26 shows the Revenue from “Software Development, Testing, Consultancy services, ARTHA, Mobile Top up of Rs. 22,05,88,150/-. However, on the assessee’s web site description of “Artha” is as under: ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 24 “Arttha’ is PureSoftware’s award winning Unified Fintech Platform that enables financial institutions to accomplish their journey of digital transformation to promote financial inclusion. It uniquely offers propositions of Virtual Banking, Mobile Wallets, Digital Customer On-boarding, Agent Banking and Micro-Lending through a single converged platform based on a completely modular and microservices architecture.” 10.3 Thus, the company has a digital valet platform. The segmental are not available. Therefore, it is not functionally comparable to the assessee. Hence, this comparable is rejected. 10.4 Accordingly, this additional ground is allowed. Infobeans Technologies ltd: 11. The TPO has observed that the company is software Service Company specialising in business IT services. It provides software engineering services primarily in Custom Application development, Content management, Big Data Analytics. 11.1 These services are not functionally comparable to the software development services performed by the assessee. We are of the opinion that the services performed by the company are not comparable to the services of the assessee. Hence this comparable is rejected. 11.2 Hence, this ground of the assessee is allowed. ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 25 E-InfochipsLtd : 12. The TPO has stated that the company is primarily in software development. 12.1 We have observed from the annual report (page 964) that there was merger w.e.f 01/04/2015. Thus there was an extraordinary event in the year under consideration. Hence this company is not comparable. Accordingly this ground of the assesses is allowed. Dun & Bradstreet Technologies & Data services P Ltd : 13. The TPO contended that it is in software development. 13.1 We have gone through the Annual report of the company. It is mentioned that the company is in the business of “Predictive Analytics” Predictive Analytics is a different function as compared to Software development of the Assessee. The Annual report mentions Principal Business activity as Computer Programming, Consultancy. Even this is functionally not comparable to the assessee. Hence, this comparable is to be rejected as functionally not comparable. 14. In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 1 st November, 2022. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 1 st Nov, 2022/ SGR* ITA No.255/PUN/2021 SAS Research and Development (India) Pvt. Ltd., [A] 26 आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “सी” बᱶच, पुणे / DR, ITAT, “C” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.