TaxTMI 
TaxTMI 
2023 (12) TMI 89
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.... Panel-1, Bangalore (the 'Learned Panel') to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. That on the facts and in the circumstances of the case, the Learned AO and the Deputy Commissioner of Income-tax (Transfer Pricing) - 1(2)(1), Bangalore (the 'Learned Transfer Pricing Officer' or the 'Learned TPO') erred in not conforming with the directions of the Learned Panel in entirety and making an adjustment to the transfer price of the Appellant. 3. That on the facts and in the circumstances of the case, the Learned Panel and the Learned AO erred in upholding the Learned TPO's approach of determining the arm's length price for the provision of software development services ('SWD') and provision of information technology enabled services ('ITeS') segments of the Appellant by: 3.1. Rejecting the value of international transaction of provision of SWD and provision of ITeS, as recorded in the books of account, as the arm's length price. 3.2. Rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under Section 92D of the Act, in good....
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....ugh the same are functionally comparable to the Appellant, and the Learned Panel further erred in upholding their exclusion on the ground that the companies not having featured in the search matrix of the TPO, their inclusion would amount to cherry picking: Akshay Software Technologies Ltd Sasken Communication Technologies Ltd. - Software Services segment ITeS Segment: 3.10. Including the following companies even though such companies are functionally different (such as - engaged in KPO activities, diversified activities with no segmentation, extra ordinary event, etc.) from the Appellant: * Tech Mahindra Business Services Ltd. * Infosys BPM Ltd. * SPI Technologies India Pvt. Ltd. * Eclerx Services Ltd. 3.11. Excluding the following companies even though the same are functionally comparable to the Appellant: * Microgenetics Systems Ltd * Ace BPO Services Pvt. Ltd. Suprawin Technologies Ltd. 3.12. The Learned Panel erred in upholding the exclusion of Suprawin Technologies Ltd. on the ground that the company not having featured in the search matrix of the TPO, its inclusion wou....
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....The case was selected for scrutiny through CASS for complete scrutiny. Accordingly, statutory notices were issued to the assessee and various details were called for. In response to notice issued, the assessee company submitted details from time to time which were examined from documents submitted. It was noted that the company had international transaction exceeding Rs. 10 crores, therefore, the case was referred to the TPO u/s 92CA of the Act for determination of arms length price for international transactions, the reference was made with prior approval from the competent authority. The ld.TPO after receipt of reference, called for documents maintained u/s 92D(3) of the Act. From the documents submitted, the ld.TPO noticed that the assessee company is engaged in developing, delivering and supporting the information technology. 2.1 On perusal documents submitted by the assessee, the functional profile was observed by the TPO as under:- "2. FUNCTIONAL ANALYSIS OF THE TAXPAYER 2.1. EMC Corporation headquartered in Massachusetts was incorporated develops, delivers and support the information technology industry's broad information infrastructure and virtual ....
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.....G Vak Software and Exports Ltd., and Cigniti Technologies Ltd., were accepted. Further, the assessee had selected 12 companies as comparable companies for ITES segment and all the 12 companies were rejected by the TPO. The ld. TPO after applying certain filters noted above, selected 15 companies and calculated median at 25.64% for the SWD segment and in the case of ITES segments, 10 companies were selected by the TPO and calculated median at 23.92%. The assessee was issued show cause notice and the assessee filed objections for both the segments. The ld. TPO also relied on some judgments. Finally in the case of SWD segment, 13 comparables were selected by the TPO and median was calculated at 28.20% and applied TNMM method and computed arms length price as under:- 2.5 The ld.TPO in the case of ITeS segment, finally selected six companies and calculated median at 23.44% after applying the TNMM method as at arms length price was calculated as under:- 2.6 The ld.TPO also observed that delayed receivables are reflected at Rs. 3595.44 Million. However, no interest was charged by the taxpayer on delayed receivable. Therefore, vide show cause notice dated 28/05/2019, the taxpayer wa....
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....ution Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd. and Cybage Software Pvt. Ltd. a) R S software (India) Ltd.- Functionally different: The company is engaged in diversified activities which are not similar to the services rendered by the Appellant. The company renders custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which diverse services, segmental details are unavailable. The company is engaged in development of platform services and is rendering data analytics services, which are different from the routine SWD services rendered by the Appellant. The data analytics services rendered by the company will fall within the definition of KPO services, which are incomparable to the services rendered by the Appellant. The company also owns stock in trade Significant research and development activities: It is submitted that the company conducts research and development work in the areas of real time analytics, MDM, proximity, payments, digital commerce, mobile payments, testing, automation, personalised loyalty in payments and mercha....
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....trates that the company operates in a different business model. Detailed submissions in this regard are placed at pages 39-50 and 479-496 of the paperbook. As regards application of RPT filter at 15%, reliance is placed on the decision of this Hon'ble Tribunal in the case of 24/7 Customer.Com (P.) Ltd. v. DCIT reported in [2012] 28 taxmann.com 258 (Bangalore). As regards functional comparability, reliance is placed on the decision of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) for assessment year 2016-17. b) Larsen & Toubro Infotech Ltd. ('L&T')- Functionally different: It is submitted that the company is engaged in diversified business which are not comparable to that of the Appellant. Further, segmental details as regards the same are not available. Further, the company owns proprietary software products which are developed in-house. Accordingly, it is submitted that L&T is a product company and is thus not comparable to captive SWD service providers such as the Appellant. Significant brand value and intangible assets: The c....
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....f the Hyderabad Bench of the Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227&228/Hyd/2021), the decision of the Delhi Bench of the Hon'ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17. Thus, the Appellant submits that L&T ought to be excluded from the final list of comparables. c) Nihilent Ltd. ('Nihilent') - Functionally different: It is submitted that the company is engaged in diversified activities. Nihilent renders services in the nature of consulting, software development and product development, provision of business consulting in the area of the enterprise transformation, change and performance management, digital transformation, business intelligence and data science services and also providing related IT services. The services rendered by the company are wide in range and diversified. It is submitted that software-consulting services include end-to-end solutions, onsite management and IT functions, and planning & system designing, which are in no way comparable to the captive software development activities as provided by the Appellant. ....
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....althcare BPO services, and in respect of the diverse services, no segmental details are available. Significant related party transactions: The company's related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded. While the DRP had directed exclusion of the margin of the company for the financial year 2013-14, the TPO did not give effect to the same. Wide fluctuation in the margin: It is submitted that the company's margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company's margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%. Detailed submissions in this regard are placed at pages 419-436 of the paperbook. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables. Reliance is placed on the decision of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and the decision of the Delhi Bench of the Hon'ble Tribunal in GlobalLogic India (P.) Ltd. V....
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....isition is bound to have an effect on the margin of the company, in respect of which no reasonably accurate adjustments can be made to eliminate the material effects thereof. Detailed submissions are placed at pages 72-81 and 465-478 of the paperbook. This company is consistently excluded from the final list of comparables in cases of similarly placed assessees. Reliance is placed on the decision of this Hon'ble Tribunal in the Appellant's own case for the AY 2014-15. Further reliance is placed on the decision of Hon'ble Delhi Court in the case of PCIT v. Cashedge India Pvt. Ltd. (Order dated 04.05.2016 passed in ITA No. 279/2016) for AY 2010-11, the decisions of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021), SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021) and OLF (India) Software Pvt. Ltd. (order dated 28.09.2021 passed in IT(TP)A No. 182/Bang/2021), the decisions of the Hyderabad Bench of the Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227&228/Hyd/2021) and Infor (India) Pvt....
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..... v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021) for AY 2016-17, wherein, in the case of similarly placed assessees, the Hon'ble Tribunal directed exclusion of Infobeans from the list of comparables for AY 2016-17. Thus, it is submitted that Infobeans ought to be excluded from the final list of comparables. g) Thirdware Solution Ltd. ('Thirdware') - Functionally different: The company is engaged in development of software products and earns revenues from sale of user licenses for software applications apart from rendering software development services, implementation services, application management services and other related services. These diverse services are reported under one segment without any details being available as regards these services. The company also purchased stock-in-trade during the year under consideration. The company also owns intangibles. Significant related party transactions greater than 25% i.e 25.34% for FY 2015-16 Significant expenses in foreign currency of 16.98% of the total sales for the FY 2015-16. Fluctuation in margin: The margins of the company fluctuate on a year-on....
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.... Brand value: The company owns significant brand value and focuses on immense brand building. For this purpose, it incurs significant brand building expenses, which goes to help the company have a premium pricing for its services. The company incurred expenses of 77 crores during the FY 2013-14, 94 crores during the FY 2014-15 and 178 crores during the FY 2015-16. The company also incurred significant selling and marketing expenses. The company also incurs significant subcontracting charges, which suggests that the business model of the company is different from that of the Appellant's. Onsite expenses: The company has significant onsite revenue amounting to 51.10%, 50.40% and 52.70% of the total sales for the FYs 2013-14, 2014-15, and 2015-16, respectively. Further, owing to the size, stature, reputation and IPs, Infosys earned abnormally high margins for the said years, as represented below: Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/ OC 36.28 41.30 38.22 Detailed submissions are placed at pages 95-111 and 396-418 of the paperbook. It is submitted that this company is consistently excluded from ....
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....75 25,773,664 Remuneration to KMP 61,447,016 83,854,419 95,990,266 Reimbursement of Income 2,224,914 Electricity Charges Paid 9,462,212 Total RPT 482,768,179 623,303,216 960,709,645 Total Sales 1,565,292,158 1,791,127,395 2,308,061,232 RPT 30.84% 34.80% 41.62% Source Note.31 of AR Note.31 of AR Pg.195 of AR Peculiar economic circumstance: It is also submitted that the company has entered into amalgamations during the relevant FY. The extra ordinary event of the company will have an impact on its profitability as the revenue of the amalgamated company is now included in the revenue of Aspire. Detailed submissions are placed at pages 111-121 and 323-326 of the paperbook. Reliance in this regard is placed on the decisions of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and in SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021); the decisions of the Hyderabad Bench of this Hon'ble Tribunal in ADP Pvt. ....
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....tancy and related activities (page 1545 of the annual report compilation - vol I). Thus, it is submitted that the company is not a pure software development company like the Appellant. The presence of assets such as data processing equipment and electrical installations denote the diversified business segments of the company (page 1569 of the annual report compilation - vol I). It is submitted that the company earns revenue from software development services and service charges and the same is shown in the annual report of the company in a composite manner with no segmental profitability and therefore, it is submitted that the company is not comparable to a routine software development service provider (page 1565 of the annual report compilation - vol I). The TPO has relied on the information received under Section 133(6) of the Income tax Act, 1961 ("the Act") for the assessment year 2015-16 on the ground that no response was received from the company to the notice issued under Section 133(6) of the Act for AY 2016-17. It is submitted that in the absence of response to notice by the Company for AY 2016-17, the TPO erred in considering the information received for....
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....arnings in foreign currency shows export of goods/services calculated on F.O.B basis, which indicate that the Company has product sales as well. In the absence of segmental details, the company cannot be selected as a comparable. Further, it is submitted that the company has incurred significant brand promotion expenses during FY 2014-15 and FY 2015-16 which effects the profitability of the company (page 1912 of the annual report compilation - vol III). During the FYs 2013-14 to 2015-16, the company owned intangible assets representing around 7% of the total fixed assets held by the company (page 1907 of the annual report compilation - vol III). The DRP has proceeded to reject the contention of the Appellant relying on information received under Section 133(6) of the Act that the Company renders software development services, whereas the annual report is reflecting a contrary position. It is now settled that a response to Section 133(6) notice cannot take precedence over the annual report. In the present case, as stated above, the annual report clearly reflects that the Company renders diverse services which are high end and not comparable to the software....
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....able companies. We further noted that from the submissions of the AR that in case of Arm Embeded Technologies Pvt. Ltd. Vs. DCIT in IT(TP)A No. 235/Bang/2021 order dated 30.08.2022 in which it has been held that in case of captive software development service the following companies can not be considered as comparable. The assessee is also providing the same functions as relied by the ld. AR. The observations of the co-ordinate bench are as under:- 11. Ground No.2.10: is raised by the assessee seeking exclusion of following comparables for functional dissimilarities: * RS Software (India) Ltd., * Larsen & Toubro Infotech Ltd., * Nihilent Ltd., * Inteq Software Pvt. Ltd. * Persistent Systems Ltd., * Infobeans Technologies Ltd., * Thirdware Solution Ltd., * Infosys Ltd., * Aspire Systems (India) Pvt. Ltd. and * Cybage Software Pvt. Ltd. 12. Inteq Software Pvt. Ltd.: It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that o....
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....e engineering services primarily in Custom Application Development, Content Management Systems, Enterprise Mobility, Big Data Analytics. He placed reliance on page 1668 of annual report paper book. The services rendered by this company are different from the routine low end software development services rendered by the assessee as a captive service provider to its AE. The Ld.AR further submitted that, segmental details of such diverse activities carried on by this company are not available. He thus prayed for exclusion of this company from the final list. 15. Thirdware Solutions Limited It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it is engaged software and consultancy. The Ld.AR submitted that this company has significant competencies in transaction systems, Analytics and Cloud applications. Further, the company has earned revenue from software development, implementation services, application management services, and other related services and from sale the sale of license and subscription....
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....e and it is also a global brand having presence in many countries and relied upon the order passed by the ld. TPO/ld. DRP. 16. When we examine profile of L&T from its financials, available at pages 6, 7 & 11 of the paper book, it is into providing application development and maintenance services providing digital solutions such as big data analytics, enterprise computing, cognitive computing, infrastructure management services and enterprise solutions. It has also been awarded and recognized by various forums for providing such niche services in the field of innovation in information technology category, analytics solutions/services etc., explained at page 11 of the paper book. 17. When we examine Notes forming Parts of Accounts at page 116 of the paper book, it is evident that L&T is having two segment accounts, namely, (i) Services Cluster Segment which includes Banking and Financial Services, Insurance, Media & Entertainment, Travel & Logistics and Healthcare, and (ii) Industrial Cluster Segments which consists of Hi Tech and Consumer Electronics, Consumer Retail & Pharma, Energy & Process, Automobile & Aerospace, Plant Equipment & Industrial Machinery, Utiliti....
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....Ps (Intellectual Properties) owned by GDA Inc. were transferred to LTTSL, the Company was wound up during the year." 6.7 In view of the above reporting, it is clear that under the telecom segment, the assessee was engaged in providing engineering services, which is distinct from the services of the software development. Thus, at entity level, the company cannot be considered functionally similar to the assessee. The company cannot be considered comparable at the segment level also because of there are expenses of Rs. 205,80,17,445/- ( page 129 of PB-2) , which has not been allocated into three segments, and thus the segmental result are distorted. 6.8 During the year, the extraordinary event of demerger of product engineering service business (PES) has occurred with effect from 01/01/2014, which has also impacted the profit of the company at the entity level. In the decision of the Tribunal in case of Xchanging Technology Service India Private Limited (ITA No. 1897/Del./2004), which has been approved the Hon'ble High Court in ITA No. 813/2015, the company is held to be not valid comparable on account of extraordinary events. Thus, In view of the extraordinary ....
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....the form of premium pricing and huge volume of business ultimately leading to the higher profitability. So, we are of the considered view that L&T is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. THIRDWARE SOLUTION LTD. (THIRDWARE) 40. The taxpayer sought exclusion of Thirdware on the ground that it is functionally dissimilar vis-à-vis the taxpayer. However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the ld. TPO/ld. DRP to retain this comparable. 41. Perusal of Notes - Additional Information and Profit & Loss account, available at page 570 of the annual reports paper book, shows that it has income earned from sale of licence and provision of training services also under the head 'software services from local unit', 'export of software services', 'revenue from subscription & training' and 'sale of licence' to the tune of Rs. 2809.62 lakhs, Rs. 19285.11 lakhs, Rs. 32.59 lakhs & Rs. 8.77 lakhs respectively. The taxpayer has also brought on record website of the company, available at pages 71 to 73 of the appeal memo, which shows that Thirdware is h....
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....gain on account of functional dissimilarity being into providing outsourced product development services and Healthcare BPO services to its customers as per website extracted at pages 83 to 85 of the appeal memo set. It being a private limited company its financials are not available in the public domain. Its annual report made available at pages 848 to 909 of the annual reports paper book does not provide segmental profitability earned from software development services, outsourced product development services and Healthcare BPO services. 47. When we examine profit & loss account at page 873 of the annual report paper book, software development and service charges are shown in composite manner with no segmental profitability. In these circumstances, we are of the considered view that Inteq is not a suitable comparable vis-à-vis the taxpayer which is a routine software development service provider working on cost-plus mark up model, hence ordered to be excluded from the final set of comparables. 17. We note that the assessee in Global Logic India Ltd. (supra) was a captive service provider to its AE for assessment year 2016-17. Nothing has been placed by th....
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....any acquired development centers in Belfast, UK and in Colombo, Sri Lanka during the year under consideration. He placed reliance on page 1420, 1421 of the annual report paper book. He thus prayed for exclusion of this company from the final list. The Ld.AR submitted thus submitted that Persistant Systems Ltd, is not functionally similar with that of assessee who is a captive service provider to its AE. 20. Infosys Ltd.: It is submitted that this company is functionally dissimilar to the assessee on various counts, and therefore, it ought to be rejected from the final list of comparables. It is submitted that the Ld.TPO erred rejected contentions of the assessee and upheld the inclusion of the company in the final list of comparables. It is submitted that this company renders services like business IT services comprising of application development and maintenance, independent validation, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; Consulting and systems integration services comprising consulting, enterprise solutions, systems integration and advanced technologies; Products, busines....
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.... We have perused the submissions advanced by both sides in the light of records placed before us. 21. Before us, the Ld.DR has not been able to place anything on record contrary to the above submissions by the Ld.AR. We of the view that with such varied functions, these companies cannot be compared with assessee before us, which is a captive service provider. We accordingly direct the Ld.AO/TPO to exclude Persistent Systems Ltd., and Infosys Ltd. from the final list. 22. Aspire Systems (India) Pvt. It is submitted that, this company is functionally not comparable with the assessee as it earns income from power generation. The Ld.AR placed reliance on page 127 of Annual Report. The Ld.AR submitted that, the company owns significant intangibles in form of goodwill, customer contracts. He placed reliance on page 2077 & 2087 of annual report paper book in support. It is submitted that Applied Development Software (India) Pvt. Ltd., and Pure Apps Consulting Services Pvt. Ltd., amalgamated with the company that lead to acquisition of assets. He placed reliance on page 2056 of annual report paper book. The Ld.AR placed reliance on following decisions in suppor....
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....ther submitted that, this company has incurred significant expenses in foreign currency of 37.68%, 33.27% and 37.47% of its total expenditure during the FYs 2015-16, 2014-15 and 2013-14, respectively, which suggests that is engaged in provision of onsite services. And that, during the FY relevant to assessment year under consideration, this company acquired GNet Group LLC, a business intelligence and analytical company, and Intellect Bizware Services Pvt. Ltd., specialising in ERP and enterprise innovation. The Ld.AR submitted that, these acquisitions are bound to have a significant impact on the financials of the company. The Ld.AR thus submitted that, for all the above reasons this company cannot be considered to be comparable with. He relied on the decision of Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. v. ACIT (supra) On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihi....
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....rdinate bench of this Tribunal in Red Hat India Pvt. Ltd. v. ACIT (supra). We are of the view that, based on the functions performed by this company as submitted by the Ld.AR and the observations of Hon'ble Mumbai Tribunal, this comparable deserves to be excluded from the final list. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Nihilent Technologies Ltd from the final list. 24. Cybage Software Pvt.Ltd. It is submitted that this company is engaged in the provision of diversified services which include product engineering, testing & quality assurance services, specialized services, support services, etc. It is submitted that this company is engaged in product development and has developed a product called 'excelshore' apart from providing spectrum of services including ITeS and BPO services and that segmental information of the diverse business functions undertaken by the company is not available. The Ld.AR submitted that this company is making super normal profits and that it is not reflective of the performance of the industry in which it operates. Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/OC ....
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....sessee which is a captive service provider that caters only to its AE. We therefore direct the Ld.AO/TPO to exclude R.S Software (I) Pvt. Ltd, from the final list. Accordingly this ground raised by the assessee stands allowed. 4.1 Respectfully following the judgment of co-ordinate bench of the Tribunal cited supra all the above ten companies noted supra are to be excluded for computation of ALP in the final set of comparables. Accordingly this ground No. 3.8raised by the assessee stands allowed in above terms . Ground No. 3.9: 5. Vide this ground, the Appellant is seeking the inclusion of Akshay Software Technologies Ltd. ('Akshay') and Sasken Communication Technologies Pvt. Ltd. ('Sasken') even though the company is functionally comparable. 5.1 In regards to Akshay Software Technologies Ltd, it is submitted that the TPO rejected this company on the ground that it is functionally different from the Appellant. The DRP upheld its rejection on the ground that the company did not feature in the search matrix of the TPO which is incorrect. 5.2 In this regard, the ld, AR submitted that a perusal of the functions of the company listed in its annual repo....
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....sideration by observing as under:- 26. Ground No. 2.11: That the Ld.TPO erred in excluding Akshay Software Technologies Ltd, Sasken Communication Technologies Ltd. and Evoke Technologies Pvt. Ltd., even though the same are functionally comparable to the assessee. It is submitted that this company is engaged in providing software development services. It is submitted that these comparables were not considered by the Ld.TPO as they did not appear in the search matrix carried out by him, which has been upheld by the DRP. He placed reliance on the decisions of coordinate bench of this Hon'ble Tribunal in the case of Prism Networks Pvt. Ltd. reported in (2022) 141 taxmann.com 163. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. We note that this Tribunal in case of Prism Networks Pvt. Ltd.(supra) observed and held as under: 18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the TPO rejected the TP study ....
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....re: It is submitted that the correct weighted average margin of the company is 32.97% and not 39.28% as adopted by the TPO (refer submission at pages 120-121 of the paperbook); 9. Considering the above submission of the assessee and findings recorded by the ld. DRP we also giving direction to the AO/TPO for computation of correct margin in the line of the direction given by the Ld. DRP. Accordingly this ground is allowed for statistical purpose. ITeS SEGMENT Ground No. 3.10 - 10. The assessee raised issue that the TPO erred in including Tech Mahindra Business Services Ltd., Infosys BPM Ltd., SPI Technologies India Pvt. Ltd., and Eclerx Services Ltd. which ought to be excluded from the final list of comparable as the companies are functionally dissimilar to the Appellant . In this regard the appellant has submitted as under:- a) Infosys BPM Ltd. ('Infosys BPO')- Functionally different: Infosys BPO provides integrated IT and end-to-end business process outsourcing solutions across a variety of verticals and horizontals. The company caters to industry segment comprising of customers relating to financial services and insurance (FSI), manufacturin....
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....ble Tribunal in the Appellant's own case for the AY 2014-15 and in NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in IT(TP)A No. 297/Bang/2021) for AY 2016-17. Further reliance is placed on the order dated 03.01.2018 of the Hon'ble High Court of Delhi in PCIT v. H & S Software Development and Knowledge Management Centre Pvt. Ltd. (ITA No.912/2017 at internal page 2 of the order) upholding its exclusion, and on decision of the Hyderabad Bench of this Hon'ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227&228/Hyd/2021). Thus, Infosys BPO is liable to be excluded from the list of comparables. b) Eclerx Services Ltd.('Eclerx') - Functionally different: It is submitted that the company ought to be excluded as it is engaged in providing high end Knowledge Process Outsourcing services, which cannot be compared to routine ITeS rendered by the Appellant. The company provides data management, analytics solutions and process outsourcing services, which are not comparable to the services rendered by the Appellant. Significant intangibles: The company is en....
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....les. 11. The ld. DR. relied on the order of the lower authorities. 12. Considering the rival submissions we noted that the above two companies Infosys BPM Ltd. & Eclerx Services ltd. Have been excluded by the co-ordinate bench of the Tribunal in the assesse's own case for the AY 2014-15 in IT(TP)A No. 3375.Bang/2018 order dated 18.12.2019 by observing as under:- (i) Infosys BPO Limited - The comparable is functionally dissimilar as it is engaged in provision of Integrated IT and end to end business process, outsourcing solutions and has high brand value and also made significant investment creating intangibles and made several IPs. The comparable also engaged in cloud based services as e-dictionary. The learned Authorised Representative supported his stand relying on the decisions of CGI Information Systems & Management 25 IT(TP)A No.3375/Bang/2018 Consultants (P) Ltd. Vs. ACIT 94 taxman.com 97 and PCIT Vs. Saxo India P. Ltd. on the constitution. We found that the co-ordinate Bench of Tribunal in the case of Ocwen Financial Solutions Pvt. Ltd. Vs. JCIT (2019) 108 taxman.com 306 where at paras 7 to 7.41 and dealt on comparable Infosys BPO Ltd. at para 7.4.1 and held a....
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.... rival contentions/submissions and perused the material on record; including the judicial decisions cited. We find from a perusal of the Annual Report at page 14 thereof, under the head 'Managements Discussion and Analysis', it has been stated that this company provides services to both horizontal and vertical focus areas. The Horizontal focus areas are Sourcing and Procurement (S & P), Customer Services (CS), Finance and Accounting (F & A), Legal Process Outsourcing (LPO), Sales and Fulfillment (S & F), Analytics (AT), Business Platform (BP), Business Transformation Services (BTS), Human Resources Outsourcing (HRO) and Technology Solution Optimization (TSO). The Vertical focus areas of services are Financial Services & Insurance (FSI) Manufacturing (MFG), Energy, Utilities Communication & Services (ECS) and Retail, Consumer Packaged Foods, Logistics & Life Services (RCL). From the above, it is clear that 'Infosys' offers a gamut of different and diversified services which cannot be compared with routine back office services provided by the assessee. In fact, it is mentioned at page 14 of the Annual Report that the company 'Infosys' provides business process....
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....of the Tribunal nor the Revenue Officers have not brought out functions which are similar to both the companies. The decision of the ITAT for year AY 2011-12 was followed in the AY 2012-13. Therefore, we are of the opinion that these decisions cannot exactly be binding on this Tribunal for the relevant AY, where the AO/TPO have considered the assessee as an ITeS service provider and not as a KPO. Further, as pointed out by the ld Counsel for the assessee, The TPO has himself has not taken E-Clerx Ltd as a comparable for the AY 2013-14. Therefore, we direct the TPO/AO to exclude this company from the final list of comparables to the assessee. We found the decision of the co-ordinate Bench of Tribunal where the said comparable is in KPO services and accordingly we direct the TPO to exclude the comparable from the final list of comparables for determination of ALP. Respectfully following the decision of the co-ordinate bench of the Tribunal we direct to the AO/TPO for exclusion of these two companies from the- list of the comparable. 12.1 We find the judicial decisions, applicable for the Assessment Year 2014-15 and based on the observations of the co-ordinate Ben....
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....ng/2021) for AY 2016-17. In view of the above, SPI Technologies is liable to be excluded from the list of comparables. 14. The ld. DR relied on the order of the lower authorities. 15. Considering the rival submissions we noted that the co-ordinate bench has excluded this company in the case of NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in IT(TP)A No. 297/Bang/2021) for AY 2016- 17.The relevant part of the order is as under:- (c) SPI Technologies India Pvt. Ltd. Functionally dissimilar 9. As per the annual report of the company, the company is engaged in typesetting business, including transformation of unedited manuscripts into final print-ready files, supply of structured data for electronic publishing and providing end-to-end project management services. These services are not comparable to the services rendered by the Assessee. 9.1 Further, the learned TPO in the order has rejected MPS Limited which is engaged in "the business of providing publishing solutions viz., type setting and data digitization services for overseas publishers and supports international publishers through every stag....
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....e in the nature of ITeS and hence, is held to be functionally comparable. Further, the company is in single segment of ITeS as per ITC 4 digit code reported in the Annual Report at page no. 1. Accordingly, the company is Functionally comparable. 10.1 The assessee contended based on the information collected under section 133(6) of. the Act by the TPO that this company is involved in provision of diversified KPO services and hence cannot he considered as ITES comparable. There is a thin line of difference between BPO and KPO services. KPO is termed as an upward shift of. the BPO industry in the value chain. Thus, BPO trying to upgrade itself as KPO is likely to render both BPO as well as KPO services in the process of evolution and therefore, such an entity cannot be considered strictly as either BPO or KPO. In view of the above, ITeS services cannot be further classified as BPO and KPO services for the purpose of comparability analysis. Under the TNMM, functional similarity is more relevant than product similarity. 10.2 As discussed by the TPO, the company in response to the notice u/s 133(6) of the Act, has stated that the company and Lambda tent Pvt 1,1d had ent....
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..... It is submitted that Tech Mahindra was involved in extraordinary events of amalgamation and acquisition in one of the years under consideration i.e., FY 2014-15 and as a result, the company reaps benefits of the acquired company which in-turn leads to higher revenue and profits. It is submitted that this acquisition is likely to have a material impact on the margin of the company, in respect of which no reasonably accurate adjustments can be made to mitigate the impact thereof. 16.4 The detailed submissions are placed at pages 139-142 and 550-556 of the paper book, which is placed on record. Thus, Tech Mahindra is liable to be excluded from the list of comparables. 17. The Ld. DR relied on the order of the lower authorities. 18. Since the assessee has relied in the judgment of co-ordinate bench in the case of NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in IT(TP)A No. 297/Bang/2021) for AY 2016-17 which is engaged in the ITeS and SPI Technologies Ltd has not been considered as comparable company whereas TechMahindra Business Services Ltd. has been considered comparable company at para No. 20 it is observed as under:- ....
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....e current year is unavailable, then for the purpose of comparability analysis, the data for the immediately preceding two financial years preceding to the current year shall be adopted for the purpose of comparability. Accordingly, the data for AY 2015-16 and AY 2014-15 of Microgenetics ought to be considered for its comparability study. Further, as regards the DRP's finding that the company files the different FY ending filter, it is submitted that the finding is erroneous in as much as the company follows the year ending on 31st March. 19.3 The assessee submits that Microgenetic is engaged in providing ITeS which are in the nature of medical transcription services. The said services would fall under the category of ITeS and, therefore, it is submitted that Microgenetic is comparable to the functional profile of ITeS rendered by the assessee. 19.4 Submissions in this regard are placed at pages nos.164-166 and 650-654 of the paper book. It is submitted that the company qualifies all the quantitative filters applied by the TPO. 19.5 Pertinently, this company was included in the final list of comparables by the TPO in the Assessee's own case for the AY 2014-15. 19.6 In vi....
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....rvices rendered by the assessee. Further, the company passes all the filters applied by the TPO. Submissions in this regard are placed at pages 663-666 of the paper book. Therefore the company ought to be included in the final list of comparables. 21. The ld. DR relied on the order of the lower authorities. 22. Considering the submission of the assessee, we remit the comparables back to the Ld.AO/TPO as sought by the assesee for inclusion and fresh consideration in the light of information available in public domain in above terms. Accordingly, this ground No.3.11 stands allowed for statistical purposes. Ground No. 5 : 23. The ld. AR of the assessee submitted that during the year under consideration, the assessee made various donations amounting to Rs. 99,93,586/-, which was eligible for deduction under Section 80G of the Act. Accordingly, the assessee claimed deduction of Rs. 54,16,090/-. 23.1 During the course of assessment proceedings, the assessee filed its submissions along with the details of the donations in respect of which, it had claimed the deduction. The details are placed at pages 713-739 of the paper book, which is placed on record. However, the Assessi....