TaxTMI 
TaxTMI 
2025 (1) TMI 900
X X X X Extracts X X X X
X X X X Extracts X X X X
....udicial decisions referred to during the course of the arguments duly considered. 4. Briefly stated the facts of the case are that the assessee electronically filed its return of income on 22/11/2012 declaring total income at Rs.7,96,47,469/-. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. 5. The assessee company is engaged in providing digital mapping services, marketing support services and business support services to its associated enterprises (AEs) outside India. During the year under consideration, the assessee has entered into international transactions with its AEs which exceeded Rs.15,00,00,000/-. Therefore, the international transactions of the assessee have been referred to the TPO for determination of ALP. 6. The business profile of the assessee can be classified as under:- "1.1. Overview of Production Services (Information Technology Enabled Services - 'ITES') 1.1.1. HERE India receives request from NAVTEQ North America, LLC ('NTNA') for converting source data i.e. satellite images into electronic format of maps which is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....defined by product / sales teams and technological innovations; • They are engaged in automating and scaling the data collection, integration, management, validation and delivery of NTNA Maps and associated content products; and • The group follows industry standards in design and development of software tools. The group also collaborates with other centers to build software platforms, tools and applications for building maps and content. The software built is utilized by NTNA's Production and Field teams in creation, correction and building of data for maps. Using the software tools built by development teams, various data products are extracted for automative (in car navigation), internet platform (yahoo and bing maps) and (Garmin) development customers. 1.2.4. NTNA will have the following role and responsibilities: • Developing, creating, maintaining and financing a worldwide digital geographic database, i.e. NTNA database, which includes related location-based content to be used for various purposes like vehicle navigation, route guidance, fleet management and GIS related applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....05% of Transaction Value 475,536,097 95% of Transaction Value 371,398,678 Difference in transaction value 3,91,92,178 9. The assessee raised strong objections before the ld. CIT(A) but could not find any favour from the ld. First Appellate Authority. 10. Before us, the ld. Counsel for the assessee fairly stated that if, out of the seven comparables selected by the TPO, two comparables are excluded, the assessee would not have any objection in respect of the others. The two comparables which need to be excluded are, Universal Print Systems Ltd. with margin at 52.46% and BNR Udyog Limited with margin at 41.58%. 11. We have carefully perused the orders of the authorities below vis-à-vis the judicial decisions brought to our notices. We find that the Coordinate Bench in the case of GTS e-services Private Ltd. vs. ITO Ward 15(1)(4) [ITA No. 1231/Mum/2017], had considered an identical business profile and held that Universal Print Systems Ltd., is not a good comparable. The relevant findings of the Co-ordinate Bench read as under:- "(ii) Universal Print Solutions Ltd. The Ld. AR disputed the inclusion of this e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the TPO and the Ld. CIT(A), we find that there is no specific findings as to the analysis regarding the functioning of Universal Print Systems Ltd vis a vis the function of the assessee company before holding it to be a comparable company. In the decision of the Bangalore Tribunal in the case of M/s XL Health Corporation India Pvt. ltd. Vrs. ACIT 2018 (4) TMI 82, it was held as under :- "C. Universal Print Systems Ltd.:- This company was selected by the TPO by obtaining information by exercising of the power vested with him under the provisions of section 133(6) of the IT Act. The TPO held that this company satisfies all the filters selected by him. However this company was objected by the assessee-company before the TPO on the grounds of functional differences as it is engaged in the business activities such as printing and allied activities, high profit making company and also fails the employee cost filter, the objections of the assessee-company were over ruled by the TPO by holding as under: "Counter to the objection on Functional Comparability: The functions of the comparable are similar in the sense that the. Pre- Press BPO unit p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....banks happy. The two divisions saw as much as 6 hours of power cuts in a day in addition to two days of ''power holidays" in a week. Although this situation is expected to ease in the coming months, it has had an adverse impact on operations in 2011-12. The periodic fuel price increases through our 2011-12 not just ensured high inflation cutting across every input element, but also adversely affected our cost of captive power generation which became the only source of power during certain periods in 2011-12. In addition, procurement cost of raw materials such as paper, film and ink rose substantially along with, market expectation regarding price reduction of printed products." From this it is very clear that this company is into the business of printers whereas the assessee-company is into the Business Process Outsourcing. Therefore by no structure of imagination these two companies can be considered to be functionally similar and therefore we direct the AO/TPO to exclude this company from the list of comparables. 9. Therefore respectfully following the decision of the coordinate Bench of Bangalore Tribunal in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e.com Pvt. Ltd. vs. Pr. Commissioner of Income Tax [ITA 127/2022], as under:- "BNR Udyog Ltd. 11. After considering the aforesaid submissions, we find that, first of all, on perusal of the annual report it is seen that apart from medical transcription activities, it is also into medical billing and coding services. The functional profile of the medical transcription segment is almost akin to functions of Accentia Technologies Ltd. and again for the various activities of medical transcription, medical billing and coding services there is no separate segment. In the case of Evalueserve SEZ, the Tribunal after detail analysis has excluded the said comparable. The finding of the Tribunal now stands confirmed by the Hon'ble Delhi High Court (supra). Accordingly, respectfully following the same, this comparable is also directed to be excluded." 15.2. Respectfully following the decisions of the Hon'ble High Court (supra), we direct for the exclusion of BNR Udyog Limited from the final set of comparable. 16. We will now address to the TP adjustment on account of receipt from software development services. 17. The assessee has ado....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the ld. AR is against the inclusion of Vama Industries Ltd. in the final set of comparables. In fact, the assessee chose this company as comparable. However, during the course of proceedings before the AO, it was contended that the same should be excluded. This contention did not find favour with the AO. The ld. CIT(A) upheld the inclusion of this company in the final set of comparables. The ld. AR submitted that this company should be excluded from the list of comparables on several reasons including different functional profile. The ld. DR raised a preliminary objection for non-exclusion of this company putting forth that it was a comparable chosen by the assessee itself and hence it cannot be allowed to resile from its own stand. 4. We are disinclined to sustain the preliminary objection taken by the ld. DR that the assessee should be prohibited from taking a stand contrary to the one which was taken at the stage of the T.P. study or during the course of proceedings before the AO/TPO. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to analyze the comparability of this company, it would be befitting to consider the functional profile of the assessee. At the cost of repetition, it is noted that the assessee is engaged in providing software development services and quality assurance (testing) services and the later are also admittedly in the nature of software development services. The nature of services has not been disputed by the AO. We have gone through the Annual report of Vama Industries Ltd. for the year under consideration, a copy of which has been placed on record. Profit and loss account of this company has been set out at page 29 of the Annual report, which indicates revenue from operations at Rs.14.01 crore. Bifurcation of such revenues is available in Note no. 20 as Sale of products (Domestic - Rs.9,55,70,528/- & Export - Rs. Nil) at Rs.9,55,70,528/- and Other operating revenues (Domestic - Rs.1,17,40,234/- & Export - Rs.3,28,66,174/-) at Rs.4,46,06,408/-. Further bifurcation of `Other operating revenues' from export is given in Note No.33 which shows revenue from export of Engineering services at Rs.3.22 crore and revenues from software development services at Rs.6.02 lakh. The segmental info....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are development services, it cannot be compared with a company rendering software and technical services, more so, when the percentage of software development services is minuscule, at just 1.86%. 8. It is further pertinent to note that the Directors' report of this company contains `Segment-wise performance' at page 11, which states that : "As of March 31, 2012 our main reportable segments are Software Development & Services (IT & ITeS) and Product/Hardware Sales & Services". It is, thus overt that the "Software Development & Services" segment of Vama Industries Ltd., which has been considered as comparable not only includes revenues from Software development services but also from I.T. enabled services as well. It goes without saying that I.T. services and I.T. enabled services are as distinct in connotation and nature as north pole is from the south pole. Whereas IT services include software development services, IT enabled services means services rendered with the already developed software. As IT and ITeS services are not comparable, the assessee rendering only IT services cannot be compared with a company which renders both IT and ITeS. In view of the f....