TaxTMI 
TaxTMI 
2025 (8) TMI 824
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....of Income Tax (Appeals)-XX, New Delhi [hereinafter, the "CIT(A)"] respectively. 3. Grounds taken by the Revenue and assessee in the above captioned appeals & COs raise the sole issue that whether the TPO was justified on facts and in law in excluding and or including certain comparables by applying additional & modified filters, which resulted upward adjustment? ITA No.5939/Del/2012 & CO No.03/Del/2013 AY 2007-08: 4. The relevant facts giving rise to these appeals and COs are that the assessee; FIS Global Business Solutions India Private Limited (earlier known as "eFunds International India Private Limited") is engaged in providing software development services and IT enabled services to its Associated enterprises (eFunds corporation US). Its business has two segments: (i) Software Development Services (SDS) (ii) IT enabled services (ITeS) The ITeS consist of three types services; viz, (i) financial shared services (FSS), (ii) data entry services and (iii) call center services. The Associated enterprises (hereinafter, the "AE"); eFunds corporation is a US based company engaged in business of providing integrated information, payment and technology solu....
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.... CIT(A) had failed to establish/demonstrate that how the amalgamation of Visual Software Technologies Ltd. into Megasoft had impacted the profitability of the company particularly when the assessee itself had proposed Visualsoft Technologies Ltd. (which was acquired by Megasoft) as a valid comparable in the SDS segment. The Ld. CIT-DR argued that the assessee had not raised these issues of different financial year ending and extraordinary event before the TPO and therefore, the TPO had no occasion to examine these issues. He further, submitted that the TPO gathered information under Section 133(6) of the Income-tax Act, 1961 (hereinafter, the 'Act')to recast the financials of the Company for year ending March 31, 2007.It was further contended by the Ld. CIT-DR that there was nothing wrong in using information gathered information under Section 133(6) of the Act and recasting the financial for the relevant period. To buttress this argument, the Ld. CIT-DR placed reliance on the decision of the Tribunal in the case of Steria (India) Ltd.[2020] 122 taxmann.com 267 (Del.). 6. On the other hands, the Ld. Counsel contended that Megasoft had been rightly excluded from the list of compa....
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....matter irrespective of the fact that whether a particular ground has been raised at earlier stage or not. To buttress his argument, the Ld. Counsel relied upon the decision of the Hon'ble Delhi High Court in the case of Mentor Graphics (India) Pvt. Ltd. [ITA 787/2019] rendered on September 05, 2023. The Ld. Counsel further submitted that the powers of the Ld. CIT(A), being co-terminus with those of the TPO, had decided the appeal after examining these issues in-depth. The Ld. Counsel, placing reliance on the decision of Mumbai Tribunal in the case of Maersk Global Service Center (India) (P.) Ltd. [2011] 16 taxmann.com 47, submitted that the Ld. CIT-DR should not be allowed to set up a new case at the fag end of the proceedings after more than a decade. 8. The Ld. Counsel further submitted that the Revenue had raised the issue inclusion of Megasoft as one of the comparables and not the Visualsoft. After acquisition of Visual soft by Megasoft, Visualsoft ceased to exist as a separate entity. This acquisition, an extraordinary event, had materially impacted the profitability of Megas of trendering it an unsuitable comparable. Since this acquisition/amalgamation had not impacted....
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....xcluded as a comparable on the ground that it was functionally different from the assessee who was engaged in software development services. The Tribunal, in the case of Kaplan India (supra), observed that the Company was engaged in multifarious activities including sale of software developments and had undergone the extraordinary event of amalgamation, though the impact of this extraordinary event was not possible to be measured/quantified for adjustment. The Ld. Counsel also relied upon the following decisions for exclusion of Megasoft from the list of comparables: • Infogain India (P.) Ltd. (2020) 116 taxmann.com 386 (Del. Trib) • Hewitt Associates (India) (P) Ltd. (2022)142 taxmann.com 322 (Del.Trib.) 11. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this issue is squarely covered by the decision of the coordinate bench of Tribunal in the case of Kaplan India Pvt. Ltd. (ITA No. 2907/Del/2014). The relevant part of this case (Kaplan India Pvt. Ltd.) reads as under: "5.4 Megasof....
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....mitted that the extraordinary event of amalgamation also cannot be a reason to exclude this company from the set of comparable companies unless taxpayer could demonstrate that such amalgamation impacted the margin earned by the company. Ld. Sr. DR further argued that consultancy provided by this company for software product development etc., will have to be considered as part of Assessment year 2007-08 software development services and absence of segmental information should not lead to exclusion of this company. We have carefully considered the rival contentions, the material available on record and also the decisions of the coordinate benches for the very same year. We are inclined to agree with the submissions of the Ld. Counsel for the assessee as this company is clearly engaged in multifarious activities including sale of software products. Further, the impact of the extraordinary event of amalgamation is also not possible to be quantified and adjusted. We also notice that the TPO himself has accepted that 19% of the revenue earned by this company is from software products. Submissions of the Ld. Sr. DR on this aspect are thus contrary to findings of the TPO. The Ld. ....
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....on; i.e. the Annual report of the Company showing segmental revenue from the IT Division at INR 114 million out of the total revenue of INR 958 million (11.89% of the total revenue). Thus, it was contended that this Company was rightly excluded by the Ld. CIT(A). Further, the Ld. Counsel contended that this Company was functionally different as it was engaged in the business of Knowledge Process Outsourcing (KPO); whereas the assessee was a BPO. The Ld. Counsel further submitted that this Company had two segments: • Plastic Division is engaged in manufacturing of lube & oils. paints, pet products, consumer products, etc. • IT Division provides structural design and detailing services (Page 59 of the Convenience Compilation) 16. The Ld. Counsel submitted that the assessee had provided Back Office Support services (BPO services) like data entry services and call center services; whereas Mold-Tek was KPO. The functional profiles, risk exposures, and economic contributions of KPOs and BPOs were distinct and consequentially their profitability and cost structures were also different and distinct. In support of the above arguments, the Ld. Counsel placed reli....
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.... company. To strengthen his arguments, the Ld. Counsel placed reliance on the decision of the Hon'ble Delhi High Court in the case of Honeywell International (India) (P). Ltd. 158 taxmann.com 376. In this case, the Hon'ble High Court, in an appeal for AY 2007-08, excluded Mold-Tek on the ground that it was a KPO service provider and thus, the same could not be compared to the assessee of that case, who was engaged in provision of low-end services. The Ld. Counsel further submitted that the facts of the instant case were identical, and therefore, following the order of the Hon'ble Delhi High Court in the case of Honeywell International (India) (P). Ltd., Mold-tek should be excluded as a comparable. 18. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this issue is squarely covered by the decision of the Hon'ble Delhi High Court in the case of Honeywell International (India) (P). Ltd. We therefore, are of the considered view that this issue is squarely covered by the decision of the Hon'ble Delhi Hig....
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....t that Infosys Ltd. was excluded by the Ld. CIT(A) in AY 2008-09 on similar grounds. 22. The Ld. CIT-DR, on the issue of exclusion of Infosys, submitted that high turnover or brand value could not be the reason for exclusion of this comparable as the assessee had failed to demonstrate how the brand name, high R&D expenditure had impacted the margins of Infosys Tech. The Ld. CIT-DR, emphasizing the Rule 10(B)(3) of Income-tax Rules, argued that an uncontrolled transaction should be comparable if the differences between the comparables did not have any material impact on the profit margins. To buttress his submission, the Ld. CIT-DR relied upon the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) (P) Ltd. [2015] 56 taxmann.com 417 where it was observed that huge profit or huge turnover, ipso facto did not lead to its exclusion. Further, he also placed reliance on the decisions of the ITAT in the cases of Willis Processing Services (I) (P.) Ltd. [2013] 30 taxmann.com 350 (Mum.), Deloitte Consulting India (P.) Ltd. [2011] 12 taxmann.com 500 (Hyd.) and Capgemini India (P.) Ltd. [2013] 33 taxmann.com (Mum.) to submit that the orders ....
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....he final set of comparables. ii) Wipro Ltd. (segmental) 25. The Ld. Counsel sought exclusion of Wipro Ltd. (segmental) on the reasoning; that it had (i) High turnover, (ii) large scale operations, (iii) Brand value, (iv) Significant R& D expenses and (v) intellectual property rights (Page 65 and 70 of the Convenience Compilation). The Ld. Counsel, in principle, reiterated almost all arguments/submissions/contentions as mentioned above in the case of Infosys Tech. The Ld. Counsel drew our attention to the decision of the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. [2016] 69 taxmann.com 180; wherein the Hon'ble High Court had directed for exclusion of Wipro Ltd. on the ground of high turnover. The Ld. Counsel also relied upon the Ld. CIT(A)'s order in assessee's own case for the AY 2008-09 wherein the Ld. CIT(A) had excluded Wipro Ltd. 26. We have heard both parties and have perused the material available on the record. The assessee is a captive service provider to one and only one AE. Its scale of operation is limited to one party and it has no brand value of its own in the market. The reasoning for exclusion Wipro Ltd. given by th....
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....of the Hon'ble Delhi High Court in the case of Alcatel (supra) reads as under: "27. It is clear from the profit and loss account of Avani that its entire income from operations was Rs. 3,54,77,523/- (which included income from its software products). In addition to this income, Avani had also earned interest on deposit with banks amounting to Rs. 7,70,376/-; subsidy of Rs. 1,06,064/-; and, profit on sale of investment of Rs. 64,343/-. Concededly, the Tribunal had not bifurcated Avani's income, segment wise. As noted, the TPO proceeded on the basis that no part of the income of Avani was from product export. However, this assumption is not supported by the information as available on the website of Avani. The information available on the website of Avani indicates that it does provide "plug and play solutions" and it has developed various products including products named "DX change CARAMA, Content Management System, Business Rules Engine etc." 28. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that this ....
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....at the assessee had neither undertaken any R&D activities nor owned any intellectual property to its name. in support of his arguments for exclusion of this comparable, the Ld. Counsel placed reliance on the decision of the Hon'ble P & H High Court in the case of Comverse Network Systems India Pvt. Ltd. [ITA No. 547 of 2017 (O&M), wherein the Hon'ble High Court upheld the exclusion of Celestial Labs on similar grounds; i.e. functional dissimilarity and presence of intangibles. The relevant finding of the Hon'ble High Court reads as under: "15. The counsel for the revenue relies upon the order passed by the TPO and argued that the ITAT failed to appreciate the findings and observations given by the TPO From the order of the ITAT it is clear that this Company is engaged in diverse field of bio-informatics and related fields in addition to the ERP solutions and is functionally not similar to the software development segment of the assessee. The above finding of fact has not been shown to be perverse in any manner and hence Celestial Labs Limited has rightly been excluded by the ITAT." 31. The Ld. CIT-DR relied upon the Ld. TPO's order and submitted that inf....
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....ning. In the Application Software Segment, it was engaged in the business of sale of software products and services but no segmental details were available with regard to this division (Page 59 of the Convenience Compilation).The Ld. Counsel placed reliance on the decision of the Hon'ble Bombay High Court in the case of CTT PTC Software (P) Ltd. (2016) 75 taxmann.com 31, where the Hon'ble High Court, while dealing with an appeal for AY 2007-08 in the case of an assessee who was engaged in the provision of software services, had upheld the exclusion of Kals on similar grounds. On the other hand, the Ld. CIT-DR submitted that the company in its response to notice under section 133(6) of the Act had admitted that it was a pure software development service provider. The Ld. Counsel reiterated that the information obtained under section 133(6) of the Act was completely contrary to what was given in the annual report and therefore, the same required to be discarded. 34. We have heard both parties and have perused the material available on the record. In view of the fact that Kals Information Systems Ltd. is engaged in the business of sale of software products and services with....
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....nd had only one segment; Healthcare Receivables Management. There was no mention about any revenue derived or profits attributable to the segment (s) considered under ITes services and therefore, this company could not be considered as a valid comparable (Page 5 and 11 of the Convenience Compilation). The Ld. Counsel drew our attention to the fact mentioned in the TPO's order that the annual report of this company was not available and the TΡΟ's finding was based on the information obtained under section 133(6) of the Act. 38. On the other hand, the Ld. CIT-DR reiterated the submission made in respect of comparables discussed in the preceding paragraphs that the extraordinary event could not be the standalone reason for discarding a comparable and the assessee had to demonstrate how the margins of the company were impacted by that extraordinary event. On the issue of functional dissimilarity, the Ld. CIT-DR relied upon the Ld. TPO's finding and the information obtained under section 133(6) of the Act; wherein it was categorically mentioned that Accentia's ITeS segment was engaged in medical transcription services, medical billing services, medical coding serv....
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....gone into substantial business restructuring resulting into extraordinary circumstances during the FY 2009-10 subsidiary of Ascentia got amalgamated with this company and the figures of the business results for the year ending 31st March 2010. In this case also excluded the figures of amalgamated company and due to which the comparable has high OP by TC margin. The relevant observations of the Tribunal as recorded in para 19.2 of the order passed in the case of Excellence Data Research (P) Ltd. v. ITO 66 SOT 15 (URO) (Hyd.); 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 the opinion that this company cannot be selecte....
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....sion the TPO is directed to exclude M/s. Accentia from the final list of comparable companies." 40. After careful consideration of material on the record and facts in entirety, we find force in the argument of the Ld. Counsel that Accentia Technologies Ltd. is not a suitable comparable on the reasoning given above for exclusion of Accentia Technologies Ltd. in the order of the ITAT in the case of Reservation Data Maintenance India Pvt. Ltd., ITA No. 5351/Del/2017 (AY 2010-11). This comparable is found engaged in the process multiple acquisition and amalgamation in the relevant year also, which may likely affect its profitability. This amalgamation process makes it unsuitable comparable. In view of the above, we hold that the Ld. CIT(A) is not justified in retaining/including Accentia Technologies Ltd.in the final set of comparables. We therefore, direct the AO/TPO to exclude Accentia Technologies Ltd. from the final set of comparables. ii) Eclerx Services Ltd. 41. At the outset, the Ld. Counsel submitted that Eclerx should be excluded from the list of comparables because it was functionally different as it was engaged in providing KPO services such as data analytics, opera....
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....net from the final set of comparables for benchmarking the international transactions." 43. The Ld. Counsel further submitted that this company did not fulfill the conditions laid down to be an eligible comparable as it had a different financial year ending and therefore, it should be excluded from the list of comparables. The annual report of the company available in public domain showed results for the year end June 2007 (Page 22 of the Convenience Compilation) and there was no quarterly data available in the public domain which could enable the TPO to recast the financials of the company. The Ld. Counsel placed reliance on the decision of Hon'ble Delhi High Court in the case of McKinsey Knowledge Centre India Pvt. Ltd. [ITA 217/2014] where the Hon'ble High Court had held that comparables with different financial year ending could be selected if the quarterly data was available in public domain for reasonably extrapolation to reconstruct the financials of the company. Since the quarterly data was not available; therefore, he prayed for exclusion of the company from the list of comparables. 44. On the other hand, the Ld. CIT-DR submitted that the TPO gathered the dat....
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....vices Ltd. and HCL Comnet Systems & Services Ltd. from the final set of comparables. iv) Vishal Information Technologies Ltd. 47. The Ld. Counsel submitted that Vishal Information Tech had different business model compared to the assessee as it had outsourced its ITeS functions to third-party vendors, meaning its profit margins are primarily attributable to the services provided by those vendors (Pages 24-25 of the Convenience Compilation). In contrast, the assessee was a ITeS company and it had not outsourced its services. Hence, Vishal Information Tech was not a suitable comparable. In support of this argument, the Ld. Counsel relied on the Ld. CIT(A)'s order in the assessee's own case for AY 2008-09, where the Ld. CIT(A) had excluded this company on similar ground. The Ld. DR placed reliance on Ld. TPO's findings in respect of this company. 48. We have heard both parties and have perused the material available on the record. After careful consideration of material on the record and facts in entirety, we do not find force in the argument of the Ld. Counsel that Vishal Information Tech. Ltd. is having any functional dissimilarities. The dissimilarities pointed....
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....he AO/TPO, the assessee filed an appeal before the Ld. CIT(A), who rejected few comparables. SDS segment 52. In the SDS segment, the Revenue has challenged the exclusion of Infosys Technologies Ltd., Wipro Ltd. (seg), Celestial Biolabs, Flextronics Software Systems Ltd. and I-Gate Global Solutions Ltd., while the assessee, vide its CO, has challenged the inclusion of Avani Cimcom Technologies Ltd. and Kals Information Systems Ltd. Both Ld. Representatives were fare enough to admit that except Flextronics Software Systems Ltd. and I-Gate Global Solutions Ltd., the disputed comparables in AY 2008-09 were identical to those considered in AY 2007-08 and thus, they requested to consider their above-mentioned arguments/submissions/contentions of AY 2007-08 in AY 2008-09 as well. 53. We have heard both parties. The above findings in the comparables; namely, Infosys Technologies Ltd., Wipro Ltd. (seg), Celestial Biolabs, Avani Cimcom Technologies Ltd. and Kals Information Systems Ltd. are held applicable mutatis mutandis in these comparables in AY 2008-09also. We therefore, direct the AO/TPO to exclude these comparable from the final set of comparables accordingly. 54. The Reve....
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....tware Systems Ltd. and I-Gate Global Solutions Ltd. from the final set of comparables. Following the above findings in the cases of comparables under gone amalgamation, we do not find any infirmity in the impugned order in respect of these comparables. We therefore, decline to interfere with the finding of the Ld. CIT(A) in this regard. Accordingly, Flextronics Software Systems Ltd. and I-Gate Global Solutions Ltd. are held validly excluded from the list of final comparables. ITeS segment 60. In the ITeS segment, the Revenue has challenged the exclusion of Accentia Technologies Ltd., Coral Hub Ltd. (earlier known as Vishal Information Technologies Ltd.), and Mold-Tek Technologies Limited while the assessee, through its CO, has challenged the inclusion of Eclerx Services Ltd., HCL Comnet Systems & Services Ltd., Infosys BPO Limited and Wipro Ltd. (segmental). Both Ld. Representatives were fare enough to admit that except Infosys BPO Limited, the disputed comparables in AY 2008-09 were identical to those considered in AY 2007-08 and thus, they requested to consider their above-mentioned arguments/submissions/contentions of AY 2007-08 in AY 2008-09 as well. 61. We have heard ....