Transfer Pricing: Functionally dissimilar comparable cannot be adopted

M/s. Blue Yonder India Private Limited, (Formerly JDA Software India Private Limited) Vs DCIT (ITAT Bangalore)

E-INFOCHIPS LIMITED- The Annual Report of e-Zest Solutions Limited for assessment year 2010-2011 (placed at page 527 to 534 of the paper book) clearly demonstrates that it is engaged in end to end product development, including product design and development. Thus, it is clearly incomparable to the assessee. Further it has significant inventory (nearly 15% of the income from its operations) which substantiates the assessee’s contention that it is a product development company, and thus incomparable to the assessee which is engaged in rendering routine IT services. In addition, the services rendered by e-Zest Solutions Limited are diverse such as product development, software services, web development, and support services. The company is also engaged in rendering business intelligence and analytical services, which are akin to IT enabled services / Knowledge Process Outsourcing (KPO) services. Since there are no segmental details available in its Annual Report for the above diverse activities, it is apparent that the company is not comparable and the same needs to be excluded from the final list of comparables. In this context, we rely on the order of the Bangalore Bench of the Tribunal in the case of 3DPLM Software Solutions Ltd. v. DCT [(2014) 42 taxmann.com 333 (Bangalore­Trib.)] wherein it has been held that e-Zest Solutions Limited is rendering product development and end to end technical services which comes under the category of KPO services and this cannot be compared to software development providers. The Bangalore Bench of the Tribunal in the case of 3DPLM Software Solutions Ltd. was dealing with the assessment year 2009-2009. However, identical situation remains for this assessment year also viz., 2011-2012. On perusal of activities mentioned in financial of e-Zest Solutions Limited, it is clear that the company continued to come under the KPO services. Therefore, the said company is directed to be excluded from the final list of comparables.

ICRA TECHNO ANALYTICS LIMITED- A perusal of the Annual Report of ICRA Techno Analytics Limited (page 538 to 544 of the paper book), it is clear that the company has significant growth in the business intelligence and analytics space which shows that the activities carried out by ICRA Techno Analytics Limited are different from that the assessee. The revenue recognition policy of the company also shows that the company is engaged in rendering diverse services. The services rendered by the company as per its website also include services akin to IT enabled services / KPO services. The Bangalore Bench of the Tribunal in the case of Applied Materials India Pvt. Ltd. v. ACIT (supra) had excluded the company from the final list of comparables.

PERSISTENT SYSTEMS & SOLUTIONS LIMITED- The TPO in the order passed u/s 92CA of the I.T.Act had admitted that the said company is engaged in development products. However, he brushed aside by stating that the product development is nothing but software development services. The Bangalore Benches of the Tribunal in the case of Applied Materials India Pvt. Ltd. v. ACIT (supra) had directed the exclusion of the above company from the final list of comparables.

FULL TEXT OF THE ITAT JUDGEMENT

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