TaxTMI 
TaxTMI 
2020 (3) TMI 548
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....ell as comparable company were predominately software development service providers? 2. Whether in the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in excluding M/s Wipro Technology Services Limited used as a comparable for determining the ALP in the case of the assessee company when services provided by the assessee company and comparable company are similar in the nature of software development services? 3. Whether in the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in excluding M/s Zylog Systems Limited used as a comparable for determining the ALP in the case of the assessee company in the absence of any evidence that there is impact of amalgamation on the profitability of the comparable? 4. Whether in the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in excluding M/s Accentia Technologies Limited used as a comparable for determining the ALP in the case of the assessee company when the assessee company and comparable company are providing similar nature of services in the category of ITES as these services are notified in the category of ITES in notification of CBDT dated 20.09.2....
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....2%. The OP/TC earned by the assessee under both the segments was 15.02%. Thus, it was contended on behalf of the assessee that its transactions with the associated enterprises are at arms length. 4. A reference was made to the transfer pricing officer to determine the arms length price. The transfer Pricing officer passed an order under Section 19 CA(3) of the Income Tax Act, 1961 (for short the 'Act') on 9th January, 2014 accepting TNMM as the most appropriate method, however, the Transfer Pricing Officer chose certain comparables for IT services and ITES services with a mean "OP/TC" of 25.17 of IT services and 30.45% for IT enabled services and proposed transfer pricing adjustments at Rs. 23,57,03,932/-. The draft assessment order was passed by the Assessing Officer on 14th March, 2014 making additions Rs. 23,57,03,932/- on account of transfer pricing adjustment. 5. The assessee moved before the Dispute Resolution Panel, New Delhi contending that the comparables chosen by the Transfer Pricing Officer were functionally dissimilar and hence should be excluded. The Dispute Resolution Panel excluded only one comparable M/s. Infosys Ltd. from the list of comparable companies....
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....product development and product design services has been rightly excluded by the ITAT. Re: Question No.2 Wipro Technology Services 10. Transfer Pricing Officer had included Wipro Technology services having a margin of 73.35% which was upheld by the Dispute Resolution Panel before the Income Tax Appellate Tribunal, the assessee contended that this company had huge related party transactions as its total revenue was governed by Master Service Agreement with Citi Technology Services Ltd. where the equity was owned by Wipro. The turnover of the comparable was 24 times that of the assessee and had huge brand value of Wipro and therefore, it should be excluded. The ITAT recorded the following findings while excluding the said comparable: "We carefully considered that rival contention regarding exclusion of this comparable. This company had agreed an agreement with Citi Technology Services Ltd. which is 100% subsidiary of Wipro Technology Ltd. The entire revenue during the year is covered by a Master Service Agreement entered into by Wipro with Citi Group Services. Further, this company is also a subsidiary with Wipro Ltd. which company has a considerable brand name, therefore bene....
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....evelopment activity ownership significant intangibles cannot be held to be comparable with the assessee and therefore, on this ground too, this comparable with the assessee and therefore on this ground too this comparable is ordered accordingly to be excluded". 13. The said finding of the ITAT has not been shown to be perverse and thus, the exclusion of the comparable on the ground that the intangible assets owned by it are significant as compared to the assessee and it has also restructured its business is completely justified both in facts and in law. Re: Question No.4 IT Enabled Services Accentia Technologies Ltd. 14. The Transfer Pricing Officer while evaluating the information technology enabled services segment of the assessee had taken this comparable as it was functionally similar. The said inclusion was upheld by the Dispute Resolution Panel. Before the ITAT the assessee submitted that the com parable company provides high and functions such as knowledge process outsourcing, legal process outsourcing. Further, the company is providing software in a service in health care outsourcing area. The company also developed software products in BPO Management and Healthcare. T....
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.... thus, was dissimilar to the assessee and has been right excluded as a comparable. Re: Question No.6 Infosys BPO Ltd. 19. The Transfer Pricing Officer included Infosys BPO as a comparable which had a margin of 31.44%. Before the TPO, the assessee contended that this comparable had a very high turnover and had huge brand value. The TPO rejected the contention of the assessee holding that the assessed had failed to establish which brand has influenced the increased profitability of the comparable. Before the ITAT, the assessee submitted that the comparable was engaged in high and integrated services in improving the comparative position of the clients and managed their business process and provided value added services to them. The ITAT concluded as under:- "We have considered the rival contentions regarding exclusion of Infosys BPO which is engaged in high and integrated services and therefore it is functionally dissimilar. The Infosys Branch is indisputably a huge brand and definitely result of this brand goes to this comparable. Therefore, the brand of Infosys definitely results in opening higher profits to this company. In view of the following decision the same is required ....
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....ally. In addition to BPO Service is also engaged in technical service such as Software Testing, Verification and Validation. It has also developed software such as transport management Software. The ITAT concluded as under: "We have considered rival contention for exclusion of TCS E Serve Ltd. it is mainly involved in transaction processing and technology services. It carries on business of providing technology service such as software testing, verification and validation. It is also developed a software such as transport management software. Therefore, functionally this company is dissimilar to the assessee company. It also owns huge intangible and use of TATA brand which has definitely benefited this comparable. It is directed to be excluded". 24. The findings of facts regarding exclusion of the comparable have not been shown to be perverse in any manner. The ITAT has thus rightly concluded that the comparable is functionally dissimilar and thus, has to be excluded. 25. The findings of fact by the ITAT regarding exclusion of the comparables are thus upheld and thus the same do not merit any interference. The questions of law are answered against the revenue and in favour of t....
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....omparable company are providing similar nature of services in the category of ITES? 6. Whether in the facts and circumstances of the case and in law, the Hon'ble ITAT was correct in excluding M/s TCS E Service Ltd used as a comparable for determining the ALP in the case of the assessee company when the assessee company and comparable company are providing similar nature of services in category of ITES?" 28. The Income Tax Appellate Tribunal has followed its own order for A.Y. 2010-11 to exclude the comparables mentioned above. The order passed by the ITAT has been examined and upheld in ITA No. 419 of 2016 and the findings of fact recorded by the ITAT have not been shown to be perverse in any manner. 29. The questions of law thus raised in the present appeal are answered against the revenue and in favour of the assessee holding that the exclusion of comparables was correct both in law and in facts and merits no interferences. ITA No. 405 of 2018 30. The present appeal has been filed by the assessee for A.Y. 2013-14 raising the following substantial question of law:- "i) Whether the Hon'ble ITAT erred in rejecting the segmental information pertaining to IT and ITES presente....