TaxTMI 
TaxTMI 
2021 (4) TMI 297
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....(1)(2) (hereinafter referred to as "learned Assessing Officer" or the "learned AO"), dated 28 December 2018 for the Assessment Year ("AY") 2007-08, under section 143(3) read with section 254 of the Income Tax Act, 1961 (the Act") pursuant to the directions issued by Dispute Resolution Panel (hereinafter referred to as the "Hon'ble DRP"), Bangalore dated 20 December 2018 under section 144C(5) read with section 254 of the Act ('impugned order") inter-alia on the following grounds which are without prejudice to each other: That on the facts and circumstances of the case and in law: 1. The impugned order of the learned AO pursuant to the directions of the Hon'ble DRP, erred in assessing the total income at INR 2,27,63,060 as against the returned income of INR 2,12,644; 2. The learned AO/DRP/Transfer Pricing Officer ('TPO") have erred in making addition of INR 2,25,50,416 to total income of Appellant on pretext that price charged was lower than arm's length price determined for IT enabled services transactions rendered by Appellant to its AE(s); 3. The learned AO/DRP/TPO have erred, in law and in facts, by not accepting economic analysis un....
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....rable he here the financials of such companies were subject to fraud and subject to indictment for FY 2006-07:- * Maple eSolutions Ltd.: * Trinton Corp Ltd. 9. The learned AO/DRP/TPO erred in by selecting the following companies which are functionally dissimilar by using unreasonable comparability criteria- * Bodhtree Consulting * Maple eSolutions Ltd., * Triton Corp Ltd., * Vishal Information Technologies Ltd., * Asit C Mehta Financial Services Ltd., * Spanco Ltd., * Accurate Data Converters Pvt. Ltd., * Iservices India Pvt. Ltd. 10. The learned AO/DRP/ITPO have erred in computing the working capital adjustment of the Appellant y not considering advances received from customer; 11. The learned AO/DRP/TPO erred in not making suitable adjustments on account of differences in the risk profile of the Appellant vis-à-vis the comparables, while conducting comparability analysis; 12. The learned AO/DRP/TPO erred in computing the arms length price without giving benefit of +1-5 percent under the proviso to section 92C of the Act; General grounds: ....
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....oldstone Technologies Limited 12.59 3 Lanco Global Systems Limited 8.53 4 Ace Software Exports Limited 12.22 Arithmetical Mean 10.51% 4. In order to select the above comparables assessee used following filters: Step Description 1 Companies for non-availability of sales were excluded; 2 Companies having manufacturing and trading sales more than 25 percent were eliminated; 3 Companies with advertisement expense of more than 5 percent were excluded; and 4 Companies undertaking significantly different functions compared to the Assessee was rejected; 5. The Ld. TPO dissatisfied with the comparables selected applied following filters and selected set of following 28 comparables having average mean of 30.55%. Filters used by the Ld. TPO: Step Description 1 Companies whose financial data was not available for FY 2006-07 were excluded. 2 Companies whose ITeS income < Rs. 1 Crore were excluded; 3 Companies whose ITeS revenue was < 75% of the total operating revenues were excluded; 4 Companies who have more than 25% related party transactions (sales as well a....
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....uded by the Ld. TPO. Against the final assessment order passed by the Ld. AO on receipt of the DRP direction, assessee preferred appeal before this Tribunal wherein, this (Tribunal) vide order dated 22/09/2017 passed in IT(TP)A No. 1238/Bang/2011, remanded the matter back to the DRP for fresh decision. 8. In the remand proceedings, the DRP excluded 7 comparables being; Eclerx services Ltd., Mold Tek Technologies Ltd., Accentia Technologies Ltd., Infosys BPO Ltd., Wipro Ltd., Informed Technologies India Ltd. and HCL Comnet Systems and Services Ltd. 9. Post DRP directions, following comparables were retained in the final list: SI. No Company name TPO's order 1. Aditya Birla Minacs Worldwide Limited 11.98% 2. Allsec Technologies Limited 27.31% 3. Apex Knowledge Solutions Limited 12.83% 4. Apollo Healthstreet Limited -13.55% 5. Asit C Mehta Financial Services Limited 24.21% 6. Bodhtree Consulting Limited 29.58% 7. Caliber Point Business Solutions Limited 21.26% 8. Cosmic Global Limited 12.40% 9. Datamatics Financial Services Limited 5.07% 0. Flextronics Software Systems Limited ....
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.... owns intangible assets in the form of software amounting to Rs. 7,13,093/- Risk: 17. The transfer pricing report states that assessee undertakes operational risks and obsolescence risk relating to hardware Based on the above we shall carry out the comparability analysis of the alleged comparables in Ground No. 8-9 referred to herein above: Bodhtree Consulting Ltd. (Seg.): 18. The Ld. AR referring to the annual report submitted that this company provides open to end web solutions, software consultancy, design and development of solutions which cannot be compared to a BPO company. It has been submitted that this company provides data cleansing services to those companies for which they have developed a software. Placing reliance on observations of this tribunal in case of Global e-Business Operations Pvt. Ltd. vs. DCIT) in (IT(TP)A No. 1092/B/2011 for assessment year 2007-08) the Ld. AR submitted that this company had peculiar circumstances during the year under consideration. He submitted that the company has hived of certain businesses without hiving of the revenue stream. It has also been submitted that there is an absence of segmental results and the company operates....
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....e order held that the promoters of these two companies were involved in fraud for earlier years and hence the financial results of these companies are distorted and cannot be relied upon and in this regard relied on several decisions rendered by the various benches of ITAT. Respectfully following the same, we direct the aforesaid two companies be excluded from the list of comparable companies chosen by the TPO." Learned Standing Counsel has not brought anything controverting the findings of the Tribunal in the above case. Therefore, we have no reason to differ with the reasoning adopted by the co-ordinate bench in the case of e4e Business Solutions India (P.) Ltd. (supra). Therefore, we direct the AO/TPO to exclude these companies form the list of comparables Before us nothing contrary to the above findings has been brought on record by revenue. Ld. DR do not have any objection in exclusion of this comparable. Respectfully following the same, we therefore direct Ld. TPO to exclude these comparables from final list." Respectfully following the above stated view, we direct these comparables to be excluded from the finalist. Vishal Information Technolo....
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....tionally not comparable with the assessee, as it has outsourcing of significant portion of its business as the employee cost of this company is 31.372% of the total cost and outsourcing cost 24.75% of the total costs. It is submitted that this comparable provides services under three segments being ITES, software development, portfolio management services and investment activities. The Ld. AR submitted that there are no segmental details in respect of the revenue recognition is and therefore income earned by this comparable under ITES segment is unascertainable. He also submitted that, this comparable is functionally different, as it is engaged in portfolio management services which are not comparable to the functions of the assessee. In support of the submission he relied on Magma Design Automation India (P.) Ltd. v. Asstt. CIT ITA No. 1214/Bang/2011, dated 29-8-2016. The Ld. AR also placed reliance on Global E Business Operations Pvt. Ltd. in ITA (TP) A No. 1092/B/2011 for assessment year 2007-08 by order dated 16/01/2017. 29. On the other hand, the Ld. DR placed reliance on orders passed by authorities below. 30. We have perused submissions advanced by both sides in light ....
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....d employee cost at 1.61% which shows a different business model. Ld. AR further submitted that this company outsources its business and provides software development services. 37. On the other hand the Ld. DR placed reliance upon orders of authorities below. 38. We have perused submissions advanced by both sides in the light of records placed before us. 39. The Ld. AR placed reliance upon decision of coordinate bench of this Tribunal in case of Siemens Information Processing Services (P.) Ltd. v. Dy. CIT (2016) 71 taxmann.com 281, wherein this company was considered for comparability analysis under ITeS segment. It has been observed by the Tribunal that employee cost is at 1.61% and this company also outsources its business to outside vendors. We are observant that Ld. TPO has not used employee cost filter in the present case before us. It is also been observed by the Tribunal therein that in information sought by Ld. TPO under section 133(6) it was found that this company provides software development services. However, before us Ld. TPO has not verified the functions performed by this company. We are therefore inclined to set aside this comparable to Ld. TPO for verifica....