TaxTMI 
TaxTMI 
2020 (3) TMI 244
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....India in the case of NTPC Vs. CIT reported in 229 ITR 383 (SC) where the ITAT is empowered to admit such additional ground. The Ld. AR of the assessee submitted that the additional ground does not require any fresh verification of facts since the issue involved therein is purely a question of law and the same reads as under: "Additional ground: 13.1 On the facts and circumstances of the case and in law, the Appellant prays that the liability for education cess of income tax paid for the year ought to be allowed as a deduction while computing the total income." 4. The Ld. DR did not raise any objection with regard to admission of additional ground for adjudication. 5. Having heard the submissions of both the parties herein, we find the additional grounds raised by assessee are legal in nature, hence, the same is admitted in line with the decision of Hon'ble Supreme court of India in the case of NTPC Ltd. Vs. CIT (supra.) Adjudication of additional ground 6. At the time of hearing, the Ld. AR of the assessee submitted that the issue of "deduction of liability of education cess" is squarely covered by the following decisions of the Pune Bench of the T....
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....ed nature of the issue as per the ratio laid down in the above referred case by the Hon‟ble High Court of Judicature for Rajasthan Bench at Jaipur, ground of Cross objection No.4 is allowed." Respectfully, following the decision of the Co-ordinate Bench of the Tribunal, Pune in the above referred case, we allow this additional ground in favour of the assessee. Thus, additional ground raised in appeal by the assessee is allowed. Adjudication of the grounds in appeal memo 8. The brief facts involve in this case are that the assessee company was incorporated on 12.09.1995 as a subsidiary of Symantec Operating Corporation USA. The ultimate parent company is Symantec Corporation, USA. The assessee has two units registered with Software Technology Park of India (STPI), Pune viz. Unit A and Unit B. The assessee company is engaged in the business of Software Development, Consultancy Services, and Technical Support Services. The assessee electronically filed its revised return of income for assessment year 2014-15 on 22.01.2016 declaring total income of Rs. 1,28,03,08,180/-. During the assessment year 2014-15, the assessee company has undertaken the following international tr....
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....lopment services by various Hon‟ble High Court and ITAT in various judicial precedents. The TPO observed that the assessee has relied upon the annual report for FY 2009-10 to support its contention that the OPD (Outsourced Software Product Development) business operations carried out by Persistent Systems are different from the IT/Software Development Services. It may be mentioned that the above company is included in the list of functionally comparable entities finalized by the assessee himself for the assessment year 2013-14 and was considered functionally comparable by the assessee in A.Y.2009-10, 2010-11 and 2011-12 as well. The TPO further observed that the assessee has given no reason as to how without there being any change in the functions of the Persistent Systems Limited over the years, the entity is considered functionally incomparable. The assessee also has not demonstrated as to how Persistent Systems Limited should be excluded because of F.Y. 2012-13 being and exceptional year of operation and has impacted upon the profitability of the company. Accordingly, the TPO concluded his findings by providing final set of comparables in Software Development Service segme....
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....nual Report and has stated that acquisition of US Company has contributed to the assessee company‟s growth. In this connection, it may be mentioned that the acquisition of the US company, if at all, will affect the growth of US company and at most would affect consolidated financials of the company but not stand alone financials of the India Company which is being compared with the assessee company. Therefore, we do not agree with the assessee‟s arguments that acquisition of US company by Persistent will make it incomparable with the assessee company. The TPO has correctly noted that entire revenue as per details is from software services only. Perusal of the Annual Report of the company shows that company is in to software development. Its turnover is also comparable with the assessee company‟s turnover. Therefore, we confirm the decision of the TPO to accept Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. as comparable." 10. The Ld. AR of the assessee also submitted that on account of functionally not comparable, Persistent Systems Limited should be excluded from the list of comparable companies. The issue of non-comparable of Persistent Sy....
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....ective, the revenue‟s contention that segmental data was available cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption that segmental data for relevant fats was available to determine the profitability of the concerned comparable." 12. We further find in the case of EMC Software and Services India Private Limited Vs. JCIT (ITA No.3375/Bang/2018), the Co-ordinate Bench of the Tribunal, Bangalore has directed the Assessing Officer to exclude the Persistent Systems Limited from the final list of comparable for determination of ALP by observing as follows: "(iii) Persistent Systems Ltd. : The company is functionally different as it is engaged in rendering IT services and in the development of software products without there being support segmental information and engaged in IP led solutions and undertakes significant R & D activities, owns IP. During the year the company made acquisitions. The company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The learned Authorised Representative relied on decision of Tr....
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.... the ITAT, Chennai in the case of Symantec Software & Services India (P) Ltd. vs. DCIT 79 taxmann. com (Chennai-Trib.) wherein it was held as follows: "10. We heard the rival submissions, perused the material on record. We found that the company is engaged in product development and cannot be comparable to the software development services and has income from license fee. The Revenue Recognition Policy in notes of accounts and segmental information is available in respect of infrastructure and systems, telecom and wireless life sciences and Health care. Further, it renders services in cost plus to its Associate Enterprise and sail with partnership and alliances, intellectual property led solutions and end-to end solutions, strategic acquisitions and financial year 2010-11 is an exceptional year of operation of Persistent Systems. We find support from the decision of 3DPLM Software Solutions Ltd. (supra) at para 17 Page 13 of the paper book as under: "17. Persistent Systems Ltd. 17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reason that this company being engaged i....
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....ord. It is seen from the details on record that this company i.e., Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details/information a company cannot be taken into account for comparability analysis. We hold that this company, i.e., Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly." We rely on the above facts and Tribunal decision and we direct the TPO to exclude Persistent Systems Ltd. from the list of comparable companies". 10.2 Further, the Ld. AR relied on the order of the ITAT, Delhi in the case of M/s. Alcatel-Lucent India Ltd. vs. Addl. CIT in ITA No.6979/Del/2017 dated 09/05/2019 wherein it was held as under: "We are of the view that a company engaged in development of the software products cann....
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....ngalore." 14. In view of the matter and following the decisions of the Hon'ble Delhi High Court as well as various Tribunals, Persistent Systems Limited cannot be treated as comparable company and the AO/TPO is directed to exclude Persistent Systems Limited from final list of comparable companies with regard to its software development service segment. (B) Thirdware Solutions Limited : 15. The Ld. AR of the assessee submitted that Thirdware Solutions Limited has generated its entire revenue from sale of software products and hence, is not functionally comparable to the software development service segment of the assessee. Thirdware Solutions Limited is engaged in providing high end comprehensive application implementation and application management support service in enterprise application space and implementation of high and ERP solutions for various companies which is a distinct activity from software development and it has been rejected as comparable to software development service provider by various ITAT in various judicial pronouncement. With regard to the TPO‟s comments that the assessee itself has considered Thirdware Solutions Limited functionally ....
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....ench of the Tribunal, Bangalore exclude Thirdware Solutions Limited from the list of comparable for determining the ALP by observing as follows: "(iv) Thirdware Solutions Ltd. the company is functionally dissimilar and is engaged in rendering software development implementation and support services and engaged in the development of software products and earns revenue from sale of user licenses and purchase stock in trade during the year and has intangibles. Further the margins of the company fluctuate year on year basis due to different revenue recognition model which the company has adopted. The above comparable was excluded in assessee's own case on functional dissimilarity in the Assessment Years 2005-06 and 2007-08 and learned Authorised Representative also relied on Lime Labs (India) Pvt. Ltd. Vs. ITO 101 Taxman.com 201 (Delhi Trib.). We found the co-ordinate Bench of the Tribunal in the case of LG Software India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 dt.28.05.2019 for the Assessment Year 2014-15 has excluded the comparable as observed at paras 8 & 8.1 at page 4 as under : "8. We also notice that in A.Y 2008-09, the co-ordinate bench has ex....
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....xcluded." 18. We also observed in the case of M/s. ION Trading India Private Limited Vs. ITO (supra.) wherein the Co-ordinate Bench of the Tribunal, Delhi has exclude Thirdware Solutions Limited from the list of comparable for determining the ALP by observing as follows: "56. We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the functions of Thirdware are in contrast with the assessee which only provides software development in the finance domain as per the instruction of its AE. Also, Thirdware has incurred expenses towards import of software services, evidencing outsourcing of software services unlike the assessee. Since it is also engaged in outsourcing its activities as it has incurred expenses towards imports of software services, evidencing outsourcing of software services unlike the appellant company. Hence, it is functionally not comparable and cannot be treated as a comparable to assessee. We order accordingly." Respectfully, following the plethora of decisions of various Tribunals as referred hereinabove, Thirdware Solutions Limited cannot be treated as comparabl....
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....20. We have perused the case records and heard the rival contentions. We find from the annual report of MPS Limited is engaged in high end activity i.e. type-setting, data digitization, content and product development for learners which is in the nature of "knowledge processing outsourcing services. From the various functions performed by MPS Limited, we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITes which is in the name of the assessee in ITes segment. In this regard, we find in the case of Emerson Electric Company (India) Private Limited Vs. ACIT (supra.) wherein the Co-ordinate Bench of the Tribunal, Mumbai held the MPS Limited as functionally not comparable by observing as follows: "9.3. From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost ofRs. 1078.76 Crores which is included under the head "miscellaneous expenses" which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comparabl....
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....mited, on same issue, the Co-ordinate Bench of the Tribunal, Delhi has held as follows: "Vishal Informatics 12.1. The TPO included this company in the list of comparables by noticing that it was engaged in providing BPO services. The assessee failed to convince him and the DRP that it was incomparable. 12.2. Having heard the rival submissions and perused the relevant material on record, we find from the Annual report of this company that it is mainly engaged in e-publishing business. It has more than 10,000 classic books to its credit which are also converted into large font titles for visually challenged. Apart from e-publishing, this company is also engaged in Documents scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., e-publishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the financials given by this company are on consolidated basis, we direct to exclude this company from the list of comp....
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....) MPS Limited from the final list of comparables, the rest of the grounds raised in appeal by the assessee becomes academic in nature. 24. In the result, appeal of the assessee is allowed. Order pronounced on 17th day of February, 2020. ============= Document 1 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd. (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of me Assessee and that of the Assessee in the case of Agilis Information Technologies India (P) Ltd. (supra), is identical inasmuch as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) (b) (c) Infosys Ltd., was excluded from the list of comparable companies by following the decision ....