TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1728
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....on the grounds of functional dissimilarity when on adequately considering the fact that these companies' core operations involve ITeS, which is the primary function of the assessee. 3) Whether the CIT (A) is right in excluding companies such as Accentia Technologies Limited, Acropetal Technologies Limited, ICRA Online Limited based on the fact that they operated in multiple segments. The core activities of these companies, including software development, are highly comparable to the tested entity, and the presence of additional segments should not lead to automatic exclusion. 4) Whether the CIT(A) is right in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the income tax Act. 5) Whether the CIT(A) is right in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that not two companies can ever be same. 6) Whether the CIT(A) is right in trying to find out exact replica of the assessce for determining the Arm's length price based on such replica, even when the law and the international jurisprudence itself....
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....mited, no evidence has been provided to suggest that turnover affects its ITeS margins to the extent that it becomes incomparable with assessee. 15) Whether the learned CIT(A) is right in excluding Igate Global Solutions Ltd solely on the grounds of absence of segmental data. This exclusion disregards the fact that functional comparability is the primary criterion for determining the suitability of comparables in transfer pricing analysis 16) Whether the learned CIT(A) is right to not give due consideration to the functional comparability of the excluded companies, when functional comparability is the cornerstone of transfer pricing analysis, and companies should not be excluded solely due to the absence of segmental data if their core operations are comparable to those of the tested entity. 17)Whether the learned CIT(A) is right in not demonstrating that the excluded comparables were having extraordinary functional non-comparability that would justify their exclusion due to the lack of segmental data. 18) Whether the exclusion of comparables due to lack of segmental data has resulted in an unreasonably narrow pool of comparables, which skews the transfer pricing analysis. ....
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....A) are also not correct since the companies are comparable to the core activities of the assessee company. The Ld.DR strongly relied on the grounds raised by the revenue and prayed that the appeal may be allowed. 6. The Ld.AR filed two paper books and also filed a synopsis of arguments in support of their case. In one of the paper books, the Ld.AR filed the annual reports of the six companies which are sought to be excluded for the purpose of determining the arms length price. In the other paper book, the assessee submitted the notices as well as their replies and the financial statements. The assessee also relied on the judgment of the Hon'ble Bombay High Court in ITA No. 1120/2014 dated 16/12/2016 in support of their case. The assessee also filed a chart in support of their pleadings. 7. We have heard the arguments of both sides and perused the materials available on record. 8. The Ld.CIT(A) had analysed the every company and compared them with the assessee company and excluded the said companies which are not comparable to the assessee company. The Ld.CIT(A) had given a clear finding with regard to each company and how it could not be taken as a comparable to the assessee com....
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....e comparables." 5.1.1.2 The appellant further relied on the decision of ITAT, Bengaluru in the case of Finastra Software Solutions (India) (P.) Ltd. vs. ACIT for A.Y.2011-12 wherein it is held that: "25. As far as Accentia Technologies Ltd., Accropetal Technologies Ltd., and Jeevan Scientific Technology Ltd., are concerned, ITAT Bangalore Bench in the case of Swiss Re Shared India Pvt. Ltd. v. Asstt. CIT [2016] 76 taxmann.com 22 (Bang-Trib), (a company which is also engaged in providing ITES such as the Assessee), was pleased to hold that these three companies cannot be regarded as comparable companies with companies providing ITES. Following the said decision, we hold that these three companies have to be excluded from the comparable companies." 5.1.1.3 The appellant also relied on the decision of ITAT, Bengaluru in the case of ACIT vs. AON Specialist Services (P.) Ltd. for A.Y.2011-12 wherein it is held that: "13. As far as exclusion of the comparable company Jeevan Scientific Technologies Ltd. ("Jeevan") is concerned, we find that this company was excluded by the DRP for the reasons that (a) the ERP segment of the company is not comparable to the assessee, (b) the BPO se....
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....gies Limited 5.1.2.1 The appellant contended that this comparable is functionally different and relied on the decision of ITAT, Bengaluru in the case of Amba Research (India) (P.) Ltd. vs. DCIT for A.Y.2011-12 wherein it is held that: "Accentia Technologies Limited 12. As regards the selection of Accentia Technologies Limited as comparable, the learned counsel for the assessee has relied on the decisions of this Tribunal in the cases of Capital IQ Information Systems (India) Pvt. Ltd. v. Addl./Dy. Commissioner of Income-tax, Circle 1(2), Hyderabad and vice versa (ITA No. 124 and 170/Hyd/2014 dated 31.7.2014); Excellence Data Research Pvt. Ltd., Hyderabad v. ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyundai Motors India Engineering P. Ltd., Hyderabad v. DCIT, Circle 2(2), Hyderabad (ITA No.255/Hyd/2014 dated 31.7.2014), wherein M/s. Accentia Technologies Limited(Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition, and the company was also found to be functionally different. The relevant observations of the Tribunal as recorded in para 19.2 of the order passed in the case of Excelle....
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....d v. ITO Ward 2(1), Hyderabad (ITA No.159/Hyd/2014 dated 31.7.2014); and Hyundai Motors India Engineering P. Ltd., Hyderabad v. DCIT, Circle 2(2), Hyderabad (ITA No.255/Hyd/2014 dated 31.7.2014), wherein M/s. Accentia Technologies Limited(Seg) was excluded by the Tribunal from the list of comparables on the ground that it was a case of mergers and acquisition, and the company was also found to be functionally different. The relevant observations of the Tribunal as recorded in para 19.2 of the order passed in the case of Excellence Data Research Pvt. Ltd., Hyderabad (supra), being relevant in this case, are reproduced below- "19.2 We have considered the rival contentions and noticed that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy. In earlier years on the reason of acquisition of various companies, being an extraordinary event, which had an impact on the profit, this company was excluded. As submitted by the learned counsel, this year also, the acquisition of some companies by that company may have impact on the profit. Considering the profit margins of the company and insufficient segmental data, we are of IT(....
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.... hold that this company could not have been selected as comparable, especially when it performs engineering design services which only a knowledge processing outsourcing (KPO) would do and not a business processing outsourcing (BPO).' Similar View was taken by Hon'ble Bangalore ITAT in the case of - Symphony Marketing Solutions India Pvt. Ltd. v. ITO (IT (TP) A No. 1316/Bang/2012), held that Acropetal cannot be considered as comparable as it performs engineering design services accordingly, we direct the assessing officer to exclude the company from the comparables." AON Specialist Services(P) Ltd "11. As far as Ground No. 2 in the Revenue's appeal regarding exclusion of Acropetal Technologies Ltd. ('Acropetal') by the DRP is concerned, the learned DR reiterated the stand of the revenue as reflected in the order of the TPO and in the grounds of appeal which is to the effect that there cannot be any difference between Knowledge Process Outsourcing (KPO) and Business Process Outsourcing (BPO). The learned counsel for the Assessee placed reliance on the decision of this Hon'ble Tribunal in Swiss Re Shared Services (India) (P.) Ltd. v. Asstt. CIT [2016] 76 t....
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....s functionally different and relied on the decision of ITAT, Bengaluru in the case of M/s Acusis Software India Pvt Ltd. for A.Y.2011-12 wherein it is held that: "31 .... (ii) ICRA Online Limited : The company is having turnover of Rs. 15.67 Crores and has three business segments namely, Information Services, Software Services and Outsourced Services and the TPO has considered the 'Outsourced Services' segment as comparable. Further the Annual Report of the company does not provide any description as to the nature of the services contained in the segment and the outsourcing segment of the company contains KPO services. Further functionally different as the company is engaged in provision of high end KPO services. Further margin error occurred due to the unallocated depreciation amount which was not considered by the learned TPO and relied on decision of Sitel India (P.) Ltd. (supra) at page 10 paras 5.1 to 5.4 as under: "5.1 The TPO included ICRA Online Ltd. (Seg) (in short 'ICRA')on the ground that it is engaged in data processing and data mining and accordingly it is providing similar services (ITeS). The DRP upholds the order of the TPO, whic....
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....olding company of ICRA from where it can be seen that the outsourced segment of the company relates to KPO and online software services. Also, page 8 of the annual report of ICRA Ltd. delineates the business of ICRA stating that the company is engaged in providing KPO and online software services. As per the description at page 532 of the P/B, the knowledge process outsourcing division provides financial and analytical services and support to clients in the area of data extraction, aggregation, electronic conversion of financial statements, validation and analysis, accounting and finance, research and analytics. Thus, the appellant in the instant case performs routine ITeS comprising of contact/call centre services and hence is a routine BPO service provider and cannot be compared to a company providing KPO services such as ICRA. Also, we find that the TPO has wrongly computed the margin of the company as 33.54% instead of the correct margin 22.32%, because the TPO has excluded foreign exchange income and other receipts (allocated basis revenue in each segment), whereas, the same is to be added for information service, outsource service and software service to arrive at the cor....
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....ler companies like the assessee in the present case. Respectfully following the decision of the Hon'ble Delhi High Court in the case of Agnity Technologies P. Ltd. (supra), we direct the Assessing Officer/TPO to exclude Infosys BPO from the list of comparables." 5.1.5.2 The appellant further relied on the decision of ITAT Bengaluru in the case of DCIT vs. M/s CGI Information Systems and Management Consultation Pvt Ltd for A.Y.2011-12 wherein it is held that: "6.11 For the reason that DRP there in noted the comparables having segmental details which was opposed by assessee. We have perused annual reports of these comparables in detail and are of opinion that segmental informations are not available. We therefore do not find force in argument raised by Ld. CIT DR. Infosys BPO In so far as Infosys BPO is concerned, this company has huge brand value. Tribunal in case of Zyme Solutions (P.) Ltd. v. Asstt. CIT [2019] 108 taxmann.com 495 (Bang. - Trib.) vide order dated 28/06/19 wherein this comparable has been excluded by observing as under: - '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case ....
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....xclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider and hence deservs to be excluded. We are therefore do not find any infirmity in exclusion of these comparables for high turnover. However, we have analysed the alledged comparable to be functionally not comparable with that of assessee. Accordingly, we direct Ld. AO/TPO to exclude, Acropetal Technologies Ltd, eZest Solutions Ltd., Elnfochips Ltd, Evoke Tech Pvt.Ltd, ICRA Techno Analytics Ltd, Larsen and Toubro Infotech Ltd, Persistent Systems and Solutions Ltd., in SWD segment. And Infosys BPO Ltd., Mindtree Ltd, iGate Global Soutions Ltd., in ITES Segment. 5.1.5.3 Respectfully following the jurisdictional ITAT, Bengaluru decisions for the same A.Y.2011-12 in the above cases, this comparable is excluded from the list of comparables. 5.1.6 Exclusion of comparable iGate Global solutions Limited 5.1.6.1 The appellant contended that this comparable has no segmental information, exceptional year due to acquisitions and relied on th....
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.... this Tribunal in case of Autodesk India (P.) Ltd. (supra), where this Tribunal followed similar view to exclude identical comparables by applying turnover filter, wherein all decisions relied upon by Ld. CIT DR has been considered and dealt with. 6.9 However, we have also analysed functional similarities/dissimilarities of these comparables with assessee having regard to annual reports placed in Index to Annual report paper book Volume I & II. Comparables like Acropetal Technologies Ltd., e-zest Solutions Ltd., E-Infichips, ICRA Techno Analytics Ltd., Larsen and Toubro Infotech Ltd., Persistant Systems and solutions Ltd., Mindtree Ltd., iGate Global Solutions Ltd., do not have segmental details available. Also, that these comparables are either having diversified functions with no segmental details or into product sales or into consultancy services. Further, where the comparables are into product sales, there is presence of huge intangibles, which is not at all the case with assessee. 6.10 We have perused view of co-ordinate bench of this Tribunal in case of Mercedes-Benz Research and Development India (P.) Ltd. (supra) in respect of Accropatel Technologies Ltd and L&T Infotec....
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....d for the purpose of calculating the arms length price. 12. The synopsis of the arguments filed by the assessee is as follows: "D. Assessee's submissions on Revenue's appeal.. (i) Acropetal Technologies Ltd. ("Acropetal"): It is submitted that the exclusion of this company was sought for the reasons that it was functionally dissimilar to the Assessee, since under the engineering design segment selected by the TPO for comparability analysis, the company renders services which are in the nature of KPO, which are incomparable to the ITE services of the Assessee. The CIT(A) rightly accepted the contention of the Assessee, and rightly relied on the decisions of this Hon'ble Tribunal in DCIT v. C-Cube Solutions (P.) Ltd. (reported in [2019] 109 taxmann.com 293 (Bangalore -Trib.)), ACIT v. AON Specialist Services Pvt. Ltd. (reported in [2020] 116 taxmann.com 368 (Bangalore - Trib.)), and Software Paradigms lnfotech (P.) Ltd. v. ACTT (reported in [2020] 116 taxmann.com 923 (Bangalore -Trib.)), wherein this company was directed to be excluded, and therefore, no interference is warranted. As per the Annual Report of the company for the year ending 31st March 2010, ....
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.... (Bangalore - Trib.)); * e4e Business Solutions India P. Ltd v. DCIT [Order dated 13.01.2017 in IT(TP)A No.1397/Bang/2016] * Finastra Software Solutions (India) (P. ) Ltd. v. Assistant Commissioner of Income-tax (reported in [2018] 93 taxmann.com 460 (Bangalore- Trib)). In view of the above, the decision of the CIT(A) in this regard ought to be affirmed by this Hon'ble Tribunal and the exclusion ought to be upheld. (ii) Accentia Technologies Ltd (Accentia): The Assessee sought exclusion of Accentia on the grounds that (i) the company is functionally different; (ii) while it renders varied services, segmental details are not available; (iii) revenue recognition is different; (iv) the company has faced inorganic growth; and (iv) the company owns significant intangible assets. The CIT(A) rightly accepted the contention of the Assessee, and rightly relied on the decisions of this Hon'ble Tribunal in Amba Research (India) (P.) Ltd. v. DCIT (reported in (2016] 67 taxmann.com 342 (Bangalore - Trib.)); Finastra (supra), wherein this company was directed to be excluded, and therefore, no interference is warranted. Pertinently, while this company was excluded on ....
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....firmed by this Hon'ble Tribunal and Accentia ought to remain excluded from the final list of comparables. (iii) ICRA Online Ltd ("ICRA"): The Assessee sought exclusion of ICRA from the final list of comparables on the ground that the company is not comparable to the Assessee. The CIT(A) rightly accepted the contention of the Assessee, and rightly relied on the decision of this Hon'ble Tribunal in Acusis Software India (P.) Ltd. v. ITO (reported in [2020] 115 taxmann.com 479 (Bangalore -Trib.)) wherein this company was directed to be excluded, and therefore, no interference is warranted. ICRA ought to remain excluded from the final list of comparables as it is not comparable to the Assessee. ICRA has three business segments - Information Services, Software Services and Outsourced Services. It is submitted that the TPO has considered the outsourced service segment as a comparable to the Assessee. While the annual report of ICRA does not provide for any description as to the nature of the services in the said segment, a reading of the annual report leads to the reasonable inference that KPO services are rendered under the said segment, which is not comparable to the s....
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....es a peculiar economic circumstance. Since no reasonably accurate adjustments can be made to eliminate the material effects thereof on the margin of the company the company ought to remain excluded from the final list of comparables. Moreover, the turnover of this company of Rs. 1129 crores is far in excess of the Assessee's turnover of Rs. 61 crores. This company is consistently excluded in the case of similarly placed service providers as that of the Assessee. Reliance in this regard is placed on the following decisions: * JCIT v. Dell International Services India P. Ltd. (reported in (2021) 133 taxmann.com 532 (Bang.- Trib.)); * PCIT v. H & S Software Development and Knowledge Management Centre Pvt. Ltd. (Order dated 03.01.2018 passed by the Hon'ble Delhi High Court in ITA No. 912/2017); * Assessee's own case for the assessment years 2008-09 and 2010-11 (Order dated 18.03.2016 passed by this Hon'ble Tribunal in 1T(TP)A No. 622/Bang/2013 and Order dated 09.03.2016 passed by this Hon'ble Tribunal in IT(TP)A No. 268/Bang/2015, respectively); * Zyme Solutions (P.) Ltd. v. ACTT (repor ted in [2019] 108 taxmann.com 495 (Bangalore - Tr ib.) ) ; * D....
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....e ERP implementation services are not in the nature of IT enabled services which were notified by CBDT vide Notification No. SO 890(E) dated 26.09.2000. If the BPO segment is considered. the company fails to satisfy the turnover filter from the relevant segment having revenue of Rs. 79 lakhs only which is less than Rs. 1 crore. Further, the Assessee submits that the foreign exchange earnings of Rs. 79.21 lakhs is only from the BPO operations and there is no foreign exchange earning in respect of the ERP segment, and therefore, the company fails the export earnings filter. This company is consistently excluded in the case of similarly placed service providers as that of the Assessee. Reliance in this regard is placed on the following decisions: * JCIT v. Dell International Services India P. Ltd. (reported in (2021) 133 taxmann.com 532 (Bang.-Trib.)); * Aspect Technology Centre (India) P. Ltd. v. ITO (reported in (2020) 118 taxmannn.com 398 (Bangalore-Trib.)); * DCIT v. C-Cube Solutions P. Ltd. (reported in [2019] 109 taxmann.com 293 (Bangalore - Trib.)); * Finastra Software Solutions (India) (P.) Ltd. v. ACIT (reported in 12018193 taxmann.com 460 (Bangalore - Trib.));....
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....ot be selected as a comparable. In addition. the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 2010-11. Moreover, the turnover of the company is Rs. 1184 crores which is far in excess of the Assessee's turnover of 61 crores. This company is consistently excluded in the case of similarly placed service providers as that of the Assessee. Reliance in this regard is placed on the following decisions: * Aspect Technology Centre (India) P. Ltd. v. ITO (reported in (2020) 118 taxmannn.com 398 (Bangalore-Trib.)); * DCIT v. CGI Information Systems & Management Consultation (P.) Ltd. (reported in [2020] 115 taxmann.com 214 (Bangalore - Trib.)); * ACIT v. AON Specialist Services Pvt. Ltd. (reported in [2020] 116 taxmann.com 368 (Bangalore - Trib.)). Therefore the company ought to remain excluded." 13. We have also given our careful consideration to the facts and circumstances in which the Ld.CIT(A) had accepted the arguments advanced by the assessee that the companies ought to be excluded for the purpose of determining the arms length price. We have also perused the chart filed by the ass....
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.... Software as a Service (SaaS) model of service delivery. The annual report also says that the company had invested large amount in the development of EMR software and SaaS model and marketing of the same in the US. Therefore apart from the medical transcriptions, the said company is doing other development of software which will be very useful to the doctors and therefore the said company could not be taken as a comparable to the assessee company for the purpose of arriving the arms length price. The Ld.CIT(A) considered the said facts and also followed the earlier orders of this Tribunal and on that basis, the Ld.CIT(A) has rightly excluded the company from the comparables. 17. The revenue had challenged the exclusion of the company ICRA online Ltd. We have considered the submissions made by the assessee that the said company is rendering services in three segments and in fact, the exact nature of the services rendered by the said company are not available. Further, as seen from the three segments, i.e. the information services, software services and outsourced services, it seems that the said company is in the service of KPO and therefore the said company is functionally differe....
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....ave also gone through the audit report of the said company and also the name of the company itself indicates that the said company is having brand value and they are supposed to be the market leader. The revenue had also not disputed the acquisition made by the assessee and the functional dissimilarity between the assessee and the company. 24. In such circumstances, we are of the view that even though, there are several reasons for excluding the said company from the comparables, the revenue's grievance that the company should not be excluded based on the huge turnover is not correct. The other reasons for excluding the said company were not disputed by the revenue and therefore on the other reasons, the said company could be excluded from the comparables. We, therefore, find that the order of the Ld.CIT(A) is in order and requires no interference insofar as the exclusion of M/s. Infosys BPO Ltd. is concerned. 25. The next company which was deleted by the Ld.CIT(A) for the purpose of taking the same as comparables is M/s. Jeevan Scientific Technology Ltd. We have considered the submission made by the assessee that the said company is also functionally different since they derive ....
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.... considered the fact that the company owns significant intangible assets. We have also gone through the annual report of the said company in which the annual turnover of the said company is Rs. 1184 crores which is very high when compared with the assessee company. Therefore, considering the entire facts, the Ld.CIT(A) had excluded the said company. The revenue had contended that the said company could not be excluded only on account of lack of segmental details. It shows that the revenue had accepted the other reasons on which the company was excluded. When the Ld.CIT(A) had considered the said facts and the audit report of the said company also exhibits the said reasons and the several orders of this Tribunal had excluded the said company as comparables in respect of the similarly placed assessees, we do not find any reason to take a contrary view. We, therefore, accept the order of the Ld.CIT(A) in which the company was excluded as comparables. 30. In view of the above said reasons and also in view of the materials placed before us, we came to the conclusion that the order of the Ld.CIT(A) in excluding the above said companies from the list of comparables are in order and does ....