TaxTMI 
TaxTMI 
2023 (1) TMI 1200
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....t and an adjustment of Rs. 6,63,44,460/- to the Information Technology enabled Services ('ITeS') segment] 2. The learned AO has made an error in mentioning adjustment on account of IT enabled services as interest on delayed receivables. 3. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 4. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters while determining the Arm's Length Price ('ALP'). 5. The learned AO/ learned TPO/ Hon'ble DRP erred on facts and law in not considering the financial data of the preceding two years in case of the comparable companies wherein the data for the current year is unavailable, while determining the ALP. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in arbitrarily rejecting companies merely on the ground that they have a different financial year ending (i.e. other than 31st March 2016) or the data which do....
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....learned AO/ learned TPO erred in computing the operating margins of the following comparable companies: SWD comparable companies * CG VAK Software and Exports Limited; * Kals Information Systems Limited; * Larsen & Toubro Infotech Limited; * Aspire Systems (India) Private Limited; and * Cybage Software Private Limited * Orion India Systems Private Limited 16. The learned AO/ learned TPO/ Hon'ble DRP has erred in not allowing appropriate adjustments towards working capital. 17. The learned AO/ learned TPO/ Hon'ble DRP erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-a-vis the comparable companies. II. Corporate Tax and other grounds 18. The learned AO has erred in law and on facts by levying interest under section 234A of the Act amounting to INR 1,143,238 even though the Assessee filed its return within the due date prescribed under Section 139(1) of the Act i.e. 30 November 2016. 19. The learned AO has erred in law in levying interest under Section 234C of the Act of INR 4,588,402 as against INR 3,875,685 determined as per the return of income. 20. The learned AO has erred in law and o....
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....ate method in the facts and circumstances of the case. The operating profit to operating cost ratio has been taken as the profit level indicator (PLI) in TNMM analysis. 2.6 Assessee used following comparables under both segments that had an average margin of 11.55% and 6.64% for SWD & ITES segment as under: SWD S.no. Company Name 2013-14 2014-15 2015-16 Weighted Average 1. I2T2 India Limited 3.82% 5.52% -36.60% -0.09% 2. Minvesta Infotech Limited 2.33% 3.25% 6.78% 4.04% 3. Sasken Communication Technologies Limited 7.65% 3.32% 7.26% 6.11% 4. KALS Information Systems Limited 16.57% 4.82% 3.67% 8.05% 5. Bells Softech Limited 25.03% -0.35% 1.05% 10.37% 6. E-Zest Solutions Ltd 15.90% 12.38% 8.48% 12.24% 7. CG-VAK Software & Exports Limited 9.49% 13.67% 13.50% 12.30% 8. Exilant Technologies Private Limited 10.00% 16.62% 25.56% 17.72% 9. Otco International Limited 5.55% 15.54% 18.73% 17.83% 10. Agilisys IT Services India Private Limited 17.85% 19.48% 15.60% 17.54% 11. RS Software India Limited 24.34% 32.81% -2.09% 20.97% Average Margin 11.55% 35th Percentile 8.05% ....
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....t. Ltd. 6. Nihilent Ltd 7. Thirdware Solution Ltd. 8. Exilant Technologies Pvt.Ltd. 9. Infobeans Technologies Ltd IT Segment 1. Infosys BPO Ltd. 2. SPI Technologies India Pvt.Ltd. 3. Eclerx Services Ltd. 4. Tech Mahindra Business Services Ltd. 2.11 Ground No. 13 - The assessee seeks exclusions of following Comparables SED Segment: 1. Sagarsoft (India) Ltd. 2. Evoke Technologies Ltd. 3. Isummation Technologies Pvt.Ltd. 4. Batchmaster Software Pvt.Ltd. 5. DCIS DOT COM Solutions Pvt.Ltd. 6. Ace Software Exports Ltd. ITeS Segment 1. Informed Technologies India Ltd. 2. Ace BPO Services Pvt.Ltd. 3. Crystal Voxx 2.12 Before we undertake to examine the comparibility of the above companies under both the segment with that of assessee it is sine qua non to understand the FAR of assessee under both the segments. Functions: SWD Low Level Design and software coding are undertaken by HPIT service entities; Based on the project description and complexity involved, software development is undertaken applying either Agile or Waterfall Methodology depending on the functionality and complexity of the software; Unit testing and Integr....
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....h necessary infrastructure and personnel. The AEs provide training to HP PPS Services for rendering the IT enabled services at the agreed/ required levels of quality. HP PPS Services renders Level 0 ('L0'), Level 1 ('L1') and Level 2 ('L2') support, while L3 services are provided by the AEs. a. L0 technical support team facilitates guiding the customer to the service desk and is the first point of contact for the customers. The LO team routes calls to the L1 teams. b. L1 technical support team provides troubleshooting services through phone, web chat and Email. c. L2 support team handles escalation from Level 1 i.e. open issues from Level 1 and provides technical support to the customer. d. For both L1 and L2 queries, there are standard responses available which could be referred to for resolving queries. In some cases though, they may require to refer to data sources to facilitate resolving the issues. e. The teams refer to L3 support, based at the AE locations for any unresolved technical issues. L3 support involves simulation and interaction with engineering resolution team which provides system level support. HP PPS Services does not provide L3 sup....
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....us basis for all direct and indirect costs of operation including idle time cost, the capacity utilization risk is effectively borne by its AEs. Technology risk HP PPS Services provides services on the basis of the requirements of its AEs, any change in technology will have a limited impact on the profitability of HP PPS Services. HP Group is exposed to higher technology risk, being the technology owner. Due to market competition and an everPage changing technology scenario, HP Group needs to continuously upgrade its existing technology and develop new technology. Conclusion (both segments) Based on the functional and risk analysis, it can be concluded that HP PPS Services is a captive service provider bearing substantially lower risks as against the AEs. 2.13 Ground No.12: It is submitted that the turnover of the assesseet is 127 crores for the SWD Segment, and the turnover of Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd., Cybage Software Pvt. Ltd., Nihilent Ltd., Thirdware Solution Ltd., Exilant Technologies Pvt.Ltd., are more than 200 crores and hence fails the turnover filter of 200 crore as under: 1. Larsen & To....
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..../s.SanDisk India Device Design Centre Pvt. Ltd. vs. JCIT (supra) observed and held as under: "17.3 At the outset, the Ld.AR submitted that the above comparables have been considered by Coordinate Bench of this Tribunal, Hon'ble Hyderabad Tribunal as well as Hon'ble Mumbai Tribunal in other cases having similar facts it is also been submitted by Ld.AR that these comparables do not satisfy the turnover filter that has been applied by the Ld.TPO and at the outset deserves to be eliminated. The Ld.AR referring to the annual reports, placed in the paper books filed before this Tribunal reveals that turnover is more than Rs.200 crores and does not match even 10 times the turnover of assessee. The Ld.AR thus submitted that applying either the turnover filter of Rs. 1 crore to Rs. 200 crores or 10 times the assessee's turnover to 1/10th , these comparables deserves to be excluded. 17.4 It is also submitted that these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tribunal in following cases: 1. Decision of Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT in ITA No. 1379/M/2021 by order date....
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....tionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available. 6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd. 7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd. We also notice that in AY 2008-09, the co-ordinate bench has excluded M/s Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd. (supra),....
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....ion (RPT) filters as its RPT/ sales ratio is more than 25%. The assessee computed the significant related party transactions at 37.58% whereas the Ld. TPO computed it at 23.55%. The TPO is directed to recalculate the RPT/sales ratio by providing opportunity of being heard to the assessee. So this comparable is remitted back to the Ld. TPO to decide afresh." "Nihilent Analytics Ltd. (Nihilent) 44. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No.405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc. 45. Perusal of the disclosure of enterprise's reportable segment explanatory available at page No.A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at p....
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....uded as a comparable being not a comparable to the assessee." 17.10Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon'ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set." 7. We also note that the Ld.DR placed reliance on the decision of Coordinate Bench of this Tribunal in the case of BORQS Software Solutions Private Limited v. ACIT (supra). 8. We have heard rival submissions and perused the material on record. On perusal of the financial of Infobean Technologies Limited placed at pg 1676 of AR, it is clear that the said company is engaged in providing software engineering services primarily in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics (The company's overview is annexed to this order as Annexure....
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....Hon'ble Tribunal in IT(TP)A No. 288/Bang/2021 for AY 2016-17)- at para 17.9 and 17.10 (on account of functional dissimilarity as company renders diverse services and lack of segmental details); (ii) ADP Pvt. Ltd. v. DCIT [Order dated 03.02.2022 in ITA Nos. 227&228/Hyd/2021 for A Y 2016-17]- at para 7.4 (on account of functional dissimilarity as company earns revenue from export of goods and segmental details are unavailable). (iii) GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35- for AY 2016-17) (on account of functional dissimilarity as the company is into diversified activities which are not comparable to routine SWD service provider) (iv) Red Hat India Pvt. Ltd. v. ITO, NFAC (Order dated 25.05.2022 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 1379/Mum/2021 for AY 2016-17)- at paras 49 and 50 (on account of functional dissimilarity as company renders diverse services and lack of segmental details). (v) Skillnet Solutions India Pvt. Ltd. v. DCIT (Order dated 24.02.2021 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 6570/Mum/2017 for the AY 2013-14)- at para 6 (on account of functional dissimilarit....
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....ologies Limited from comparable list. It is ordered accordingly. Accordingly, we direct the Ld.TPO to exclude the above comparables from the Final list of SWD segment for failing in TO criteria as well as functionality tests. 11. For ITeS Segment, the Ld.AR submitted that the Turnover of the assessee is 92 crores and therefore Infosys BPO Ltd., SPI Technologies India Pvt.Ltd., Eclerx Services Ltd., Tech Mahindra Business Services Ltd., are not comparable with that of the assessee as they have turnover more that 200 crores. The Ld.AR submitted that these comparables have turn over as under: Infosys BPO Ltd., Turn over of Rs. 305 crores SPI Technologies India Pvt.Ltd., Turn over of Rs. 347.68 crores Eclerx Services Ltd., Turn over of Rs. 114.24 crores Tech Mahindra Business Services Ltd., Turn over of Rs. 722.80 crores 12. The Ld.AR relied on the decision of coordinate bench of this Tribunal in case of Mindteck India Limited in IT(TP) No 252/Bang/2021 for AY 2016-2017 by order dated 27/06/2022, wherein the above companies were excluded for having turnover of more than 200 crores. It is also submitted that these comparables are functionally not similar to the assessee....