TaxTMI 
TaxTMI 
2022 (8) TMI 893
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.... certain international transactions with its AE, the AO referred the matter to the TPO u/s 92CA of the IT Act for determination of the ALP of the international transaction entered into by the assessee with its AEs. During the course of TP assessment proceedings, the TPO noted that the assessee has entered into the following international transactions as mentioned in the TP study report:- Nature of transaction Value of international transaction Provision of information technology enabled services 1,654,155,070 Provision of software development services 363,519,061 Cost recharges 8,766,863 2.1 The TPO observed that the financial results of the tax payer and the method of benchmarking as reported in the transfer pricing report is as under:- Particulars Software ITES Operating revenues 363,519,061 1,694,228,110 Operating expenses 321,015,223 1,544,710,632 Operating profit 42,503,838 149,517278 NCP (percent) 13.24 9.68 Method used TNMM TNMM PLI NCP(%) NCP(%) No. of comparables 16 07 Mean margin of comparables 13.06 14.62 No. of comparables for which data used for the fina....
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....rdingly, in the final order passed by TPO, he computed the ALP of the international transaction in respect of the Software Development Segment at Rs.2,56,47,695/- by retaining the following revised list of 18 comparables whose average OP/OC was at Rs.21.85%:- S.No. Name of the Company OP/OC (%) 1. Avani Cimcon 21.65 2. Bodhtree Consulting Limited 19.14 3. e-zest Solution Limited 28.95 4. Flextronics (Ancient Technologies Limited) 8.07 5. Igate Global Solution Limited 13.9 6. Infosys 40.41 7. LGS Global Limited 41.94 8. Kals Information System Limited (Seg) 26.64 9. Mindtree Limited (Segment) 15.51 10. President System Limited 27.23 11. Quintegra International Limited (Seg) 21.74 12. R System International Limited (Seg) 15.3 13. R.S. Software 6.46 14. Sasken Communications Technologies Limited (Seg) 13.44 15. Tata Elxsi 18.97 16. Thirdware Solutions Limited 18.01 17. Wipro Limited (Seg) 28.38 18. Sofitel India Limited 25.59 Average 21.85 4.1 After allowing the working capital adjustment at 0.62%,....
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....arately, and may kindly be considered independent of each other. That, on the facts and circumstances of the case and in law, 1. the AO / DRP has erred in making an addition of Rs. 251,958,313 to the total income of the Appellant on account of adjustment in the arm's length price (ALP) of the international transactions related to contract ITenabled services and contract software developments services entered into by the Appellant with its associated enterprises (collectively referred to as 'impugned transactions'). 2. the DRP has erred in concurring with findings of the AO/ TPO and disregarding, without appropriate justification, the economic analysis undertaken by the Appellant for establishing the ALP of the impugned transactions. 3. the AO/ TPO has erred in conducting a fresh economic analysis for determination of the ALP of the impugned transactions and holding that the Appellant's international transaction pertaining to provision of contract software development services and contract IT-enabled services are not at arm's length. 4. the AO/ TPO has erred by: a) not accepting the use of multiple year data, as adopted by th....
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....s erred by disallowing freight charges and hotel expenses under section 40(a)(ia) of the Act without appreciating the fact that the Appellant was not required to deduct tax on the payment of such expenses. Without prejudice to this fact, AO has erred by not enhancing the deduction under section 10A of the Act to the extent of the above disallowances as the same increased the income of the STP undertaking, despite clear directions from DRP in this regard. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and facts and circumstances of the case." 5. The Tribunal, vide order dated 14th June, 2013, partly allowed the appeal of the assessee for statistical purposes. Against the order of the Tribunal, the assessee went to the Hon'ble High Court. The Hon'ble High Court, vide order dated 2nd July, 2015, restored the issue to the file of the Tribunal for fresh adjudication by observing as under:- "1. This is an appeal against the order of the Tribunal dated 14.06.2013 r....
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....ounsel for the appellant contended that the Tribunal had wrongly recorded that the assessee's counsel had confined the grievance on behalf of the assessee to the inclusion of four comparables in software service segment and that it had only been argued that the comparables mentioned therein had been wrongly included by the TPO. Learned counsel for the appellant has invited our attention to the written submissions filed before the Tribunal. This contention must at least, in the first instance, be raised by the appellant before the Tribunal. The appellant is at liberty to do so. In the event of the Tribunal not entertaining the application, the appellant is at liberty to adopt appropriate proceedings including in any appeal that may be filed against the main order. 5. The second issue has been decided against the appellant. We clarify that we are not considering the same at this stage. The matter before the Tribunal remains inconclusive at this stage in view of what we have mentioned regarding the first question namely that the order of the Tribunal is not capable of being implemented on account of ITA No. 5924/DEL/2012 having been withdrawn and the Special Bench in that....
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.... of comparables. Referring to the following decisions, he submitted that Eclerx Services Limited has been excluded from the list of comparables on account of various reasons:- i) Appellant own case AY 2011-12 and 2012-13 (ITA Nos. 477 & 6420 Del/2016); ii) Rampgreen Solutions Pvt. Ltd. v. CIT (ITA No. 102/2015) - Delhi High Court; iii) Mercer Consulting (India) Pvt. Ltd. (ITA No. 101/HC/Pun & Har/ 2015) - Punjab and Haryana High Court; iv) John Deere India Pvt. Ltd. (ITA No. 63/Mum/ 2017) - Mumbai High Court; v) BC Management Services (P.) Ltd. v. DCIT Circle 4(1), New Delhi (ITA Nos. 5829/Del/2015, 6134/Del/2015 and 6572/Del/2016); & vi) Mercer Consulting (India) Pvt. Ltd. (ITA No.101/2015) - Punjab and Haryana High Court. 8. He submitted that Eclerx Services is not comparable to the assessee which is a captive service provider which by itself performs merely back office support functions. He submitted that the ITAT had sought to include this comparable on the basis of the decision of the coordinate Bench of the Tribunal in the case of Rampgreen Solutions Pvt. Ltd. Vs. CIT, ITA No.6286/Del/2012. However, the decision of the ....
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.... ii) John Deere India Pvt. Ltd. (ITA No. 63/Mum/ 2017) - Mumbai High Court iii) IHG IT Services (India) Pvt. Ltd. (ITA No. 6381/Del/ 2012) iv) Cengage Learning India Pvt. Ltd. (ITA No. 6484/Del/ 2012) v) Amba Research (India) P. Ltd. (ITA No. 622/Bang/2012); and vi) Flextronics Technologies (India) Private Limited (ITA No.1559/Bang/2012) 11. So far as Infosys BPO is concerned, the ld. Counsel for the assessee submitted that Infosys BPO Limited is a giant company with huge turnover. The revenue of Infosys is 5 times that of the assessee company. Further, the assessee company has a brand value which has a significant role on its profits. The ld. Counsel for the assesee referred to the amount of revenue, expenditure on brand building along with the asset base the details of which are as under:- PARTICULARS AGILENT INTERNATIONAL INFOSYS BPO FY 2007-08/AY 2008-09 FY 2007-08/AY 2008-09 TURNOVER INR 169.41 crores @ pg 42 of Appeal set INR 825 crore @ pg 20 of Annual Report BRAND EXPENSE NIL @pg 319 of PB II INR 78.32 lacs (@ pg 25 of Annual Report ASSET BASE INR 54 crore @pg 315 of PB II INR 1....
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....y is also not comparable as an extraordinary event happened during the subject assessment year. The company was merged with two other companies which can be verified from the annual accounts of the said company placed at paper book Volume-I. Referring to the order of the Tribunal in Assessee's own case for AY 2007-08, vide ITA No.1084/Del/2016 order dated 18.11.2019 he submitted that the Tribunal has held that Accentia is not a suitable comparable on the ground of amalgamation of subsidiaries resulting into growth of revenue by 100683% and on ground of functional dissimilarity. The ld. Counsel for the assessee, referring to the following table, drew the attention of the bench to the effect of extraordinary event on the profitability of the company:- Accentia Technologies Limited FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 Particulars Amount (INR) Amount (INR) Amount (INR) Amount (INR) - (Refer page 51 of FY 0607 annual report) Refer page 51 of FY 07-08 annual report) Refer page 69 of FY 09-10 annual report Revenue 285.000.00 287,231.664.00 509,346,944.00 801,440,931.00 100683.04% 77.33% 57.35% ....
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.... the ld. Counsel for the assessee requested for exclusion of the following comparables:- i) InfosysTechnologies Ltd.; ii) Wipro Limited; iii) Kals Info System Limited (Seg); iv) Persistent Systems Ltd., v) Avani Cimcon Technologies Limited; vi) LGS Global Limted; & vii) Quintegra Solutions Limited. 21. So far as Infosys Technologies Limited is concerned, the ld. Counsel for the assessee submitted that Infosys is not comparable as it is a huge company with very high turnover having diversified software services and products and having substantial intangibles, etc. It is a product development company which incurs R&D and marketing expenditure. It is a super normal profit making company. Referring to the decision of the Tribunal in assessee's own case for AY 2007-08 vide ITA No. 1084/Del/2016 and ITA No. 477/Del/2016 for AY 2011-12, he submitted that Infosys Technologies Ltd., was excluded from the list of comparables by following the decision of the jurisdictional High Court in the case of Agnity India Technologies Pvt Ltd. Further, coordinate Bench of the Tribunal in the case of Alcatel Lucent India Limited vide ITA N....
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.... vi) Pentair Water India Pvt. Ltd. v. CIT (ITA No. 18/2015); vii) Alcatel Lucent India Limited, Delhi High Court ITA 515/2017; viii) Aircom International (India) Pvt. Ltd. (ITA No.6402/Del/2012) 23. So far as Kals Info Systems Limited (seg) is concerned, the ld. Counsel for the assessee submitted that Kals is a functionally different company mainly engaged in Software Development, training, consulting, and Equipment development. Referring to the following decisions, he submitted that Kals Info Systems Ltd. (Seg) has been excluded from the list of comparables:- 1) Aircom International (India) Pvt. Ltd. (ITA No.6402/Del/2012); 2) UT Starcom Inc. (India Branch) (ITA No.5848/Del./2011) has been upheld by the Hon'ble Delhi High Court vide its order dated 25.09.2017 in ITA 767/2017; & 3) AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 & 279/Del/2013) 24. He further submitted that Kals Info Systems Ltd., has shown inventory of INR 85 lacs which can be verified from page 13 of the annual report). He submitted that this company is engaged in trading function as a pure software services provider will not have inventory in it....
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.... the matter back to the file of the TPO to verify the facts whether the company is a product company or not Referring to the decision of the coordinate Bench of the Tribunal in the case of Aircom International (India) Pvt. Ltd. Vide ITA No.6402/Del/2012,he submitted that the Tribunal has excluded this comparable by observing as under:- "This company clearly described its business activity as: "providing software development and consulting IT services" to its international clients. It is obvious from the reply tendered by this company that it is engaged in providing software development and also consulting IT services. In opposition, the assessee company is engaged in providing software development services alone and is not rendering consulting IT services. The effect of the revenue from consulting IT services in the overall financials of the company is not available. As this company is also providing consulting IT services, which is an essential ingredient of its revenues from 'Software development services', we cannot treat it as comparable , with the assessee company, which is not providing any consulting IT services. The same is, therefore, directed to be excluded. " ....
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....Mentor Graphics (India) Private Limited (ITA No. 2587/Del/2014); & ii) Novell Software Development India Private Limited (ITA No. 1287/Bang/2011) 30. He accordingly submitted that LGS Global Limited should be excluded from the list of comparables. 31. So far as Quintegra Solutions Limited ("Quintegra") is concerned, the ld. Counsel for the assessee submitted that Quintegra is engaged in rendering diversified services like product engineering, development of proprietary software products, and infrastructure managements services which are different from that of the assessee which is a captive services provider rendering software services. The company does not have separate segmental accounts for rendering software services. Referring to the decision of the Bangalore Bench of the Tribunal in the case of AMD India Pvt. Ltd., vide ITA No. 437/Bang/2013, he submitted that Quintegra Solutions Ltd., was excluded from the list of comparables on the ground that it is engaged in proprietary software products and have its own intangibles. Referring to the Bangalore Bench of the Tribunal in the case of 3DPLM Software Solutions Limited, vide ITA No.1303/Bang/2012, he submitted tha....
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....ed by the department that the assessee on the other hand conducts its activities itself without outsourcing any part of it. There can be no comparison between an enterprise that conducts its business activities itself with one that outsources its activities although the activities pertain to the same field. The entire administrative set up of such enterprises would be different. An entity that outsources most of its work is not required to maintain a large establishment. For instance, it would be necessary for such an enterprise to have large premises and a large number of employees. Even the material it uses and the equipment that it installs from minor items such as stationery and telephones to electrical fittings and even machinery are bound to be far less than the material and equipment that an enterprise which conducts its activities itself would of necessity be required to maintain. 38. This in turn would also have consequences upon the legal requirements to be fulfilled by the two enterprises. There are several enactments that bring within its ambit, establishments or undertakings that employ a certain number of persons. There are enactments that also bring within t....
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....high end services. We, accordingly, direct for exclusion of this company from the list o f comparables. " 38. We find, for the same AY, the Hon'ble High Court in the case of Rampgreen Solutions Limited (ITA No. 102/2015) rejected the comparable on having different business model as the company outsource its work. The relevant extract is as under:- "38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brushing aside this vital difference by observing that the outsourcing was common in ITeS industry and the same would not have a bearing on the profitability. Plainly, a business model where services are rendered by employing own employees and using one's own infrastructure would have a different cost structure as compared to a business model where services are outsourced. There was no material for the Tribunal to con....
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....ial Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bundling optimization, content operation, sales and marketing support, product data management, revenue management. In addition, eClerx also offered financial services such as real-time capital markets, middle and back-office support, portfolio risk management services and various critical data management services. Clearly, the aforesaid services are not comparable with the services rendered by the Assessee. Further, the functions undertaken (i.e. the activities performed) are also not comparable with the Assessee. In our view, the Tribunal erred in holding that the functions performed by the Assessee were broadly similar to that of eClerx or Vishal. The operating margin of eClerx, thus, could not be included to arrive at an ALP of controlled transactions, which were materially different in its content and value. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted the same and had, thus, excluded eClerx as a comparable. It is further observed that the comparability of eClerx had also been examined by the Hyderabad Ben....
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....aving different business spheres and distinct mode of operation. Accordingly, we direct the TPO/AO to exclude the company from the list of comparable entities. " 43. Further, we find merit in the argument of the ld. Counsel for the assessee that Eclerx is not comparable to the appellant as it follows a different business model, i.e., the outsourcing model. The two Models are very different and have a significant impact on the FAR of the companies and hence, companies following an outsourcing model cannot be compared with the appellant which performs its functions through its own employees, the details of which are as under:- PARTICULARS AGILENT INTERNATIONAL ECLERX FY 2007-08/AY 2008-09 FY 2007-08/AY 2008-09 Other Total Expenses INR 82.99 Cr @pg 319 of PB II INR 276.62 Cr @pg 37 of Annual Report Outsourcing (Contract for Services) NIL @pg 319 of PB II INR 142.43 Cr @pg 43 of Annual Report (to be handed over by the counsel) 44. We further find that the issue of comparability of Eclerx to captive back-office service providers is covered in assessee's own case for AY 2011-12 & 2012-13 by the decision dated 17.02.2018 of the co-ordinate Bench of t....
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....ent from the fact that the expenses under the head 'contract for the services' is more than Rs. 43.71 Crores during the year out of total expenses debited to profit & loss account of Rs. 91.29 Crores. The major operations appears to be based on outsource model, which is evident from the quantum of expenditure and notes to the financial account (the copy of which is appearing at page 840 of the assessee's paper book). In an outsourcing model, the assets deployed in the form of human resources, infrastructure and other intangibles differ from an entity which operates from its own resources. Whence, in the case of E-clerx, substantial work has been outsourced to various parties, as compared to the assessee, where the entire back office support services have been provided by the assessee itself, then on this ground alone, it would be very difficult to put E-clerx in the comparable basket. Another important fact which is borne out from the annual accounts is that, E-clerx is performing financial services as well as sales and marketing services for which there is no separate segmental information. It reflects only one primary segment which is data analytics and process outsou....
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.... bound to be far less than the material and equipment that an enterprise which conducts its activities itself would of necessity be required to maintain. 38. This in turn would also have consequences upon the legal requirements to be fulfilled by the two enterprises. There are several enactments that bring within its ambit, establishments or undertakings that employ a certain number of persons. There are enactments that also bring within their ambit enterprises that use power. This in turn would require an enterprise carrying on its own activities to maintain staff along with attendan t facilities to ensure compliance with such legislation. The financial difference between such enterprises is bound to be enormous. ....... 40. The Tribunal's decision not to consider this case is, therefore, correct." 47. Further Eclerx is also not comparable to the assessee since the appellant is a captive service provider while Eclerx is a full risk bearing entity. In view of the above discussion, we hold that E-clerx is not a valid comparable. We, therefore, direct the AO/TPO to exclude the same. 48. So far as exclusion of Genesys International Corporation Limited ....
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.... is functionally different with that of assessee as it is mainly engaged in the area of Geographical Information Systems services company provides services in the field of Cadastral Mapping, Navigation Maps, 3-D Mapping, Photogrammetry/remote sensing services, power, etc. In our view these services are highly skilled and knowledgebased services which cannot be compared with a back-office support service as that of assessee. Respectfully following the same we direct this company to be excluded from the list of comparables. " 52. We further find during the subject year, is an extraordinary event has taken place i.e. the company has acquired 100% stake in Ladya Systech Limited. As a result, there has been a substantial increase in the revenue of the company, the details of which are as under:- Genesys International Corporation Limited FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 Particulars Amount (INR) Amount (INR) Amount (INR) 4 > Amount (INR) Refer internal page 29 for FY 2006-07 Annual Report Refer internal page 33 of FY 08-09 Annual Report Revenue as per financials 139,681,688.00 191,750,101.00 471,630,415.00 831,753,8....
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....he case that scale of operation of comparable vis-a-vis tested party is a factor requires to be kept in mind. So, keeping in view the size and scale of Infosys BPO vis-a-vis the taxpayer, it is not a suitable comparable. .............................................. 26. In view of the facts and circumstances of the case discussed above and following the decision rendered by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2014-15 (supra) and decisions supra rendered by Hon'ble Delhi High Court, we are of the considered view that Infosys BPO is not a suitable comparable vis-a-vis the taxpayer, hence ordered to be excluded" 56. In relation to the point of asset base, we find that Hon'ble Delhi High Court in the case of Avuya India Pvt. Ltd. (ITA No. 532/2019) after considering the impact of assets has given due consideration for excluding a comparable. The relevant observations of Hon'ble High Court is as under:- "27. There is merit in the contention of the Assessee that the scale of operations of the comparables with the tested entity is a factor that requires to be kept in view. TCS E-Serve has a turnover of 'Rs. 1359 crores and ....
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....rvices to both horizontal and vertical focus areas. The horizon'tal solutions comprises of sourcing and procurement, customer services, finance and accounting, legal process outsourcing, sales and fulfillment, analytics, business platform, business transformation services, human resources outsourcing, technology' solution optimization. While vertical solution included financial services and insurance, manufacturing, energy utilities, communication and services, retail, consumer packaged goods, logistics and life sciences. On looking at the horizontal services, which comparable company provides it is apparent that on this ground itself the same is not comparable with the assessee company. On looking at page number 64 of the annual accounts, it is apparent that comparable company has contributed INR 50,000,000 towards brand building and advertisement expenditure. Admittedly the company does not have any goodwill which can impact the profitability of the price of the business of it services because the goodwill is recorded on amalgamation in the nature of purchase only. This is mentioned at page number 51 in para number 1.5 of the annual report and corroborated by page number 58 o....
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....as under:- "We have considered the submissions of both the parties and have perused the record of the case. In assessment year 2008-09, this comparable was excluded as an extraordinary event took place that year. Infosys BPO Limited acquired skill sets in the finance, administration space as well as enhanced its global presence with centers at Thailand and Poland. In course of hearing, Id. counsel for the assessee filed the news item in the Economic Times, wherein, as regards the acquisition of Australia-based Portland Group for AUD 37 mn, it is pointed out that the deal would essentially enable Infosys BPO to have a reach into the Australian market and will enhance their sourcing and procurement capabilities. It is further stated that Infosys' focus on value-added services and this will add to it. Further, it was stated that Portland Group has over 100 employees with a reported revenue of approximately A$31.3 million for the fiscal year ended June 30, 2011. Further, Portland Group has over 100 procurement specialists with domain expertise and some 40-odd clients. Thus, the deal certainly helped Infosys BPO to intensity its services offerings and took sourcing and proc....
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....tion for excluding a comparable. 65. We find the Hon'ble Delhi High Court in the case of New River Software Services Pvt. Ltd. (ITA No. 924/2016) has observed as under:- "Wipro BPO is more or less on the same footing as Infosys BPO as far as the size and scale are concerned. Consequently the Court finds no legal infirmity in the impugned order of the ITAT, which has, apart from excluding the above comparables, remanded the matter to the TPO on the question of working capital adjustment. " 66. In view of the above discussion and considering our findings while excluding Infosys BPO whose facts are more or less similar to that of Wipro BPO, we hold that Wipro BPO is not a valid comparable. We, therefore, direct the AO/TPO to exclude Wipro BPO from the list of comparables. 67. In so far as exclusion of Acropetal Technologies Ltd., is concerned, we find for the year under assessment, the income from Engineering Design Services of Acropetal Technologies is INR 21.80 crores out of total income of INR 60.31 crores (page 21 of annual report) which is 36.13%. Therefore, it is amply clear that the income from ITeS services is less than 75% of total revenues and consequently ....
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.... Profit/Loss as per financials 43,164,681.00 66,771,702.00 152,336,854.00 252,670,608.00 54.69% 128.15% 65.86% 72. We find, the Tribunal in the first round has remanded the matter back to the file of the TPO to verify the facts whether the merger has any effect on the comparability of this company. Since it is seen that due to amalgamation of subsidiaries there is growth of revenue by 100683% and there is financial dissimilarities, we hold that Accentia Technologies Ltd., is not a valid comparable. We, therefore, direct the AO/TPO to exclude this company from the list of comparables. 73. So far as exclusion of HCL Comnet is concerned, we find the subject comparable has already been remanded back by the Tribunal before the TPO/AO for verifying the RPT/ sales computation of the company. We, therefore, deem it proper to restore the issue to the file of the AO/TPO for verifying the RPT/sales computation and decide the issue as per fact and law after giving due opportunity of being heard to the assessee. 74. The AO/TPO shall recompute the ALP in ITeS segment on the basis of exclusion of these comparables. 75. Now, we are taking up th....
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....ision of the jurisdictional High Court in the case of Agnity India Technologies Pvt. Ltd. v. CIT (ITA No. 1204/2011). 79. We find the Hon'ble Delhi High Court vide ITA No.515/2017 upheld the decision of the Tribunal excluding Infosys Ltd. from the list of comprables in the case of Alcatel Lucent India Ltd. where the Tribunal vide ITA No.6856/Del/2015 has held as under:- "We find that Infosys has been rejected as a comparable by the ITAT in the case of assessee's predecessor company Alcatel - Lucent Technologies India P. Ltd. for AY 2003-04 and 2004-05 in ITA No. 2297/Del/2008 and 2298/Del/2008. The Hon 'ble Delhi High Court in the case of M/s Agnity India Technologies P. Ltd. (ITA No. 1204/2011) has held that companies with high turnover have to be rejected. Respectfully following the ratio, we direct the TPO to exclude this company from the final list of comparables.'' 80. We find the decision in Agnity India Technologies (P) Ltd. has been relied upon by the co-ordinate Bench of the Tribunal in the case of UT Starcom Inc. (India Branch) vide ITA No.5848/Del./2011 which has been upheld by the Hon'ble Delhi High Court vide its order dated 25.09.2017 in ITA 767/2017 wh....
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....dha Fiscal Services Limited and Future Capital Holdings Limited. Clearly therefore none of the comparables involved was a 'giant corporation ' like Infosys. Consequently, this Court is not persuaded that the ITAT erred in the present case in excluding Infosys BPO Limited relying on the decision of this Court in Agnity India Technologies Pvt. Ltd. (supra) " 83. In view of the above discussions, we hold that Infosys Technologies Ltd., should be excluded from the list of comparables. We hold and direct accordingly. 84. Now, coming to exclusion of Wipro Limited we find Wipro is engaged in the business of IT services and trading of IT products to its clients and there is no breakup of revenue between IT Service and Products. Further, the company has also undergone an amalgamation which has resulted in an exceptional performance of the company during the year. We find, Wipro is a product company having sold goods under IT segment of Rs.6,313 crores and being a giant company cannot be a suitable comparable vis-a-vis the taxpayer who is a captive SDS provider. We find merit in the argument of ld. Counsel for the assessee that Wipro Limited is not comparable to the appellant due to in....
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.... has upheld the exclusion of this company also from the list of comparables on the basis of certain parameters, which are fully applicable to the instant assessee as well. It is, therefore, directed to exclude this company from the list of comparables. The assessee succeeds. " 87. We further find the turnover of the company is very high vis-a-vis the assessee. The company has a turnover which is 345 time of the appellant the details of which are as under:- PARTICULARS AGILENT INTERNATIONAL WIPRO LTD FY 2007-08/AY 2008-09 FY 2007-08/AY 2008-09 TURNOVER INR 36.35 crores @pg 42 of Appeal set INR 12,569 crores @pg 212 of Annual Report 88. We find, the Hon'ble Supreme Court has dismissed the special leave petition file by the Revenue against the decision of Hon'ble High Court in the case of Oracle (OFSS) BPO Services Pvt. Ltd.. The Hon'ble High Court vide ITA No. 124/2018 has observed as under:- "As to the exclusion of M/s Wipro Limited, here too, the Court is of the opinion that the brand value of an entity has a significant role in its ability to garner profits and negotiate contracts. Thus, while considering the comparables, the likelihood o....
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....e expunged from the set of comparables. " 91. We find the company has shown inventory of INR 85 lacs (page 13 of the annual report). The company is also engaged in trading function as a pure software services provider will not have inventory in its books of accounts. The company also states that it is engaged in production and supply of software product (page 19 of annual report). Even the segmental accounts do not provide the bifurcation of software services and products separately. We, therefore, are of the opinion that this company should not be included in the final comparable list. We find, the coordinate Bench of the Tribunal in case of UT Starcom Inc. (India Branch) vide ITA No.5848/Del./2011, has directed exclusion of Kals Info System Ltd. by observing as under:- "17. ....KALS has undisputedly drawn its income from software product and is engaged in executing end to end project through the entire value chain of software development life cycle and this issue has been determined by the coordinate Bench in the order (supra). 18. Moreover, when KALS has not prepared segment-wise data to prove its customized software development services and sale of pr....
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....ssment year provides that the company's revenue comprises of sale of products and services (internal page 71 of annual report). The company also maintains the segmental accounts on consolidated basis only (internal page 83 of annual report). Further, the major revenue is from outsourced product development (page 118 of Annual report). The segmental reporting policy of the company reads as under:- "L : Segment Reporting Policies In accordance with paragraph 4 of Notified Accounting Standard 17 (AS17) "Segment reporting", the company has disclosed segment information only on the basis of the consolidated financial statements which shall be presented together with the unconsolidated financial statements." 96. We further find the Tribunal in assessee's own case for AY 2007-08 (ITA No. 1084/DeI/2016), has rejected this comparable from the list of final comparables by observing as under:- "54. So, in view of the matter, we are of the considered view that Persistent being a product company with no separate segmental accounts, has undergone merger during the year under assessment and having revenue from the outsources product development; having R&D expe....
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....t the revenues and expenses have been shown in a consolidated manner and no segmented disclosure has been made. He further pointed out to the relevant pages in the annual report, wherein it has been stated that this company has acquired ownership of intangibles of around 50 crores. The Ld. AR submitted that since the company is engaged both in rendering software development services as well as sale of software products, in absence of segmental details, this company could not be selected as a comparable. The Ld. AR also submitted that this company has made significant acquisitions during the year thereby failing TPO's peculiar economic circumstances filter. The Ld. AR submitted that this company has been rejected on the ground that it earns income from software froducts and services and that no segmental data is available in the following cases - Saxo India Private Limited (ITA No. 6148/DeI/2015), Ciena India Pvt. Ltd. (ITA No. 3324/Del/2013), Planet Online Pvt. Ltd. (ITA No. 464 and 608/Hyd./2014), 3D PLM Software Solutions Ltd. (ITA No. 13 03/Bang/2 012). " 99. In view of the above discussion, we hold that Persistent System Ltd. is not a good comparable. We, therefore, direct t....
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....ee's own case for Assessment Year 2007-08, the assessee has brought on record evidence that this company is functionally dissimilar, and different from the assessee and hence is not comparable. Therefore the finding excluding it from the list of comparables rendered in the immediately preceding year is applicable in this year also. Since the functional profile and other parameters by this company have not undergone any change diming the year under consideration which fact has been demonstrated by the assessee, following the decisions of the coordinate benches of this Tribunal in the- assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 dt. 22.2.2013, and in the case of Triology E-Business Software India Pvt. Ltd. (ITA No. 1054/Bang/2011), we direct the A.O./TPO to omit this company from the list of comparables." 102. Further, in the case of ST Microelelctronics Pvt Ltd. (IT(TP)A No.949/Bang/2011) the Bangalore bench of the Tribunal has rejected this comparable on the ground of being a company engaged in software product where there is no bifurcation of revenue from sale of export and services. The relevant extract of the decision reads as under:- ....
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....ny) 105. We further find the company has intangible in the nature of goodwill amounting to INR 3.67 crores. However, the Appellant does not have any goodwill nor it has any other intangible. (page 57 of the Annual Report of the company) 106. We find the issue of comparability of LGS to captive service provider is covered in the favour of the appellant for the same AY by the co-ordinate Bench of the Tribunal vide ITA Nos. 5848/Del/2012 in the case of Cash Edge India Pvt. Ltd. v. ITO Ward 3(2), New Delhi wherein it has been held as follows: "18 ......similarly, Assessing Officer will only take segmental results relating to services only for comparing the companies M/s Kals Information Systems, Avani Cincon, LGS Global Ltd. and Bothtree Consulting Systems as the consolidated results of these companies cannot be compared with the assessee, as assessee is admittedly into service providing activities. It is further directed that if segmental results of the above companies relating to similar services as being provided by assessee are not available, then these companies will have to be excluded as comparables as held in various judicial pronouncements relied upon by Ld. A.R....
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....r rendering software services. (page 17 of the Annual Report of the company) 110. We find during FY 06-07 (page 10 of annual report) and 07-08 ( page 8 of the annual report) the company has made acquisitions due to which the revenue of the company has increased substantially. The relevant extract of the same is as under:- Quintegra Solutions Limited FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 Particulars Amount (INR million) Amount (INR million) Amount (INR million) Amount (INR million) Refer internal page 37 for FY 2006-07 Annual Report Refer internal page 35 for FY 2007-08 Annual Report Refer internal page 21 for FY 2008-09 Annual Report Revenue as per financials 202,990,361.00 627,216,924.0 0 881.093,586.00 772,009,878.00 208.99% 40.48% -12.38% 111. We find the Bangalore Bench of the Tribunal in the case of AMD India Pvt. Ltd., vide ITA No.437/Bang/2013 has observed as under:- "18.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is....
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....it is the submission of the ld. Counsel for the assessee that the TPO while giving effect to the DRP directions has erred in computation of the margin of Softsol India Limited. The correct margin of the comparables is 15% as given in submission filed before the Ld. DRP (page 144 of the PB I). However, the TPO has computed the margin as 25.59%. For computation of margin, the Appellant has relied upon the Safe Harbor Rules notified by CBDT which specifies the operating and non-operating items while computing the margin. We therefore remit this issue to the file of the AO/TPO for computing the correct margin after giving the opportunity of being heard to the assessee. We hold and direct accordingly. The AO/TPO shall recompute the ALP of the international transactions in the light of our above directions. The grounds raised by the assessee are accordingly partly allowed. 115. So far as ground of appeal No.16 is concerned, the same relates to the disallowance of expenses on non-deduction of tax. 116. Facts of the case, in brief, are that a TDS survey was conducted on 17th February, 2010 and order dated 25th March, 2010 was passed u/s 201 of the Act by the ITO, TDS. Following the o....
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....s from the assessee) with Lamba's House and Park Residency for them to provide specified rooms to the employees of the assessee for any specified period. The rooms used by the employees are not earmarked and the same are provided to the employees of the assessee company only on availability basis. There is no obligation on these vendors to provide for any room and the stay at the hotel was casual and not on regular basis. 120. The ld. Counsel for the assessee referred to the circulars issued by the Central Board of Direct Taxes ('CBDT'): i) Circular No. 715 dated August 8, 1995 and 13 Circular no. 5/2002 dated July 30, 2002 and submitted that the provisions of section 194C and 194I of the Act would not apply and hence no disallowance is warranted u/s 40(a)(ia). 121. Without prejudice to the above, he submitted that even if the amount of Rs.7,07,962/- is not allowed as deduction while computing the business income, the same needs to be taken into account for computation of profits of the business eligible for deduction u/s 10A of the IT Act. Referring to the following decisions, he submitted that deduction u/s 10A of the Act shall be computed on the assessed income after consi....