TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 600
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....by the Commissioner of Income Tax (Appeals) -12, Bangalore (hereinafter referred to as "CIT(A)"), under section 250 of the Income Tax Act, 1961 ("the Act") dated 29 September 2023 for the Assessment Year ("AY") 2017-18 ("impugned order"), on the following grounds which are without prejudice to each other: That on the facts and circumstances of the case and in law, General Ground 1. Impugned order passed by the Ld. CIT(A) and the Ld. AO pursuant to the order of the Transfer Pricing Officer - 2(1)(1), Bengaluru are based on incorrect appreciation of facts and incorrect interpretation of law, and therefore, bad in law 2. The Ld. AO/ TPO, erred in assessing the total income of the Appellant at INR 2,85,51,87,200 including erroneous computation of income from Business / Profession by INR 12,70,33,506 and short deduction of donation/80G deduction by INR 13,95,853 Grounds relating to transfer pricing matters - General The Ld. CIT(A) has erred in law and in facts by upholding the action of the Ld. AO/ TPO in: 3. rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection 3 of 92C of the Act c....
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....ro Infotech Limited • Nihilent Limited • Infobeans Technologies Limited • Persistent Systems Limited • Aptus Software Labs Private Limited • Cygnet Infotech Private Limited • OFS Technologies Limited • Cybage Software Private Limited • Consilient Technologies Private Limited 14. rejecting the following comparable companies based on unreasonable comparability criteria for SWD segment: • Celstream Technologies Private Limited • Intelligrape Software Private Limited • Blive Web Solutions Private Limited • E-Zest Solutions Limited • Maveric Systems Limited • Akshay Software Technologies Limited • Jindal Intellicom Limited 15. incorrectly computing the operating margins of some of the comparable companies considered in the TP order for the SWD segment Grounds relating to transfer pricing matters - EDS segment The Ld. CIT(A) has erred in law and in facts by upholding the action of the Ld. AO/ TPO in: 16. accepting the following companies as comparable ....
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.... determination of ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly same. iv. Whether the CIT(A) was right in fact and in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Income Tax Act. 1) Whether in the facts and circumstances of the case ånd in law the CIT(A) erred in directing the TPO to include Yudiz Solutions Pvt. Ltd. and Evoke Technologies Ltd. as comparable when the data provided in the annual report is doubtful? 2) Whether in the facts and circumstances of the case and in law the CIT(A) erred in directing the TPO to include Indianic Infotech Ltd as comparable when it was found to fail the export filter by the TPO and the application of export filter has not been contested by the taxpayer. II. Whether the CIT(A) was right in directing to exclude Cadsys (India) Pvt Ltd as comparable due to functional dissimilarity and not appreciating the fact that transfer pricing is not an exact science and no two entities can be exact replicas. III. Whether the CIT(A) is right i....
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.... Main vehicle Module (MVM) o MVM Cars & Vans (MVM-CV) o MVM Trucks (MVM-T) o MVM Interior/Exterior (MVM-IE) Products design and development typically involves the following stages. While the process described below is sequential in nature, MRDIPL could assist DAG in all or only some of the activities. o Execution of Engineering design and software development activities o Project set-up and monitoring o Budget set-up and budget control o Quality control o Procurement o Strategic management functions o Administrative service function. 4.2 The assessee applied Transaction Net Margin Method (TNMM) as the most appropriate method (MAM) and the Profit Level Indicator (PLI) is considered at Operating Profit by Operating Cost (OP/OC). The operating profit of the assessee in EDS segment is 13.92%. The TPO rejected the TP study and applied revised filters to arrive at fresh set of comparables. After issuing show cause notice to the assessee and considering the responses from the assessee, the TPO arrived at the following final set of comparables - SI. No Company Name Financial Year wise ....
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....gin would still be at arm's length. Accordingly, the ld. A.R. submitted that the even if the ground raised by the revenue is allowed in this regard, it will not result in any TP adjustment in the hands of the assessee. The ld AR also submitted that consequently the grounds raised by the assessee with regard to EDS segments would become academic. 5. The ld. D.R. on the other hand, submitted that the ld. CIT(A) is not correct in excluding CADSYS (India) Pvt. Ltd. on the ground of functional dissimilarity. 6. We have heard the rival submissions and perused the materials available on record. During the course of hearing, our attention was drawn to the following working of the ALP even after inclusion of CADSYS (India) Pvt. Ltd., which was excluded by the ld. CIT(A). # Name of the company Impact after taking into account the comparables mentioned in previous column 1 Tata Elxsi Limited 7.04% 2 Taal Tech India Limited 8.47% 3 Prothious Engineering Services Private Limited 13.17% 4 Axiscades Engineering Technologies Limited 15.92% 5 Neilsoft Private Limited Excluded by CIT(A) 6 Devita Engineering (India) Private Limited ....
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.....3 15.09 6 Larsen & Toubro Infotech Ltd. 20.78 19.21 23.98 21.14 7 Great Software Laboratory Pvt. Ltd. 27.18 20.24 10.67 21.24 8 Mindtree Ltd. ~ 20.12 26.11 27.51 24.17 9 R Systems International Ltd. 16.74 31.05 26.44 24.40 10 Persistent Systems Ltd. 25.05 23.95 30.39 26.17 11 Tata Elxsi Ltd. 24.90 29.13 24.45 26.19 12 Infobeans Technologies Ltd. 23.89 34.98 20.46 26.44 13 Aptus Software Labs Pvt. Ltd. 24.83 27.67 26.72 26.46 14 Nihilent Ltd. 34.26 24.46 30.80 29.82 16 OFS Technologies Ltd. 19.88 26.47 67.57 29.93 15 Cygnet Infotech Pvt. Ltd. 25.24 30.45 36.61 30.19 17 Infosys Ltd. 38.79 38.30 41.40 39.50 18 Threesixty Logica Testing Services Pvt. Ltd. 36.63 48.46 42.02 41.94 19 Cybage Software Pvt. Ltd. 41.89 62.90 68.68 57.82 20 Consilient Technologies Pvt. Ltd. 54.85 71.82 69.51 65.14 35th Percentile 21.24 Median 26.18 ....
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....evenue's ground 10. The TPO included above comparable stating that the Infosys is functionally similar. The TPO while doing so, did not accept the contention of the assessee that Infosys is engaged in the business of consulting Technology, engineering and outsourcing services, which is not comparable to the functions of the assessee, which is a captive service provider. The TPO also did not accept the submission of the assessee that the brand value and the expenditure incurred by Infosys are not comparable with that of the assessee. On further appeal, the ld. CIT(A) accepted the exclusion by placing reliance on the decision of the coordinate bench in various cases, where it is held that the revenue of Infosys Ltd. from SWD is very high and cannot be compared to a captive service provider like the assessee. 11. We heard the parties and perused the materials on record. We notice that in the case of Infinon Technologies India Pvt. Ltd. Vs. DCIT (2024) 159 Taxmann.com 245 (Bang. Trib), the coordinate bench has considered the exclusion of Infosys Ltd., wherein it was held as under: 17. The Id. A.R. submitted that M/s. Infosys Limited is functionally dissimilar to the ....
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....substantial pre-dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R&D have all been brushed aside. In our view, the difference pointed out by the Id. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before as. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessce." 18.2 Accordingly, we direct the Id. AO/TPO to exclude this company on the basis of functionality as well as on turnover basis. 11.1 We further notice that a similar view has been taken by the coordinate bench in various other cases. For the year under consideration, the turnover of the assessee is Rs. 620 crores whereas the turnover of Infosys Ltd. is Rs. 59,829 Crores, which is more than 95 times. Therefore, we are of the considered view that the ratio laid down by the coordinate bench in the above case stating that Infosys Ltd. should be excluded on the basis of turnover filter is applicable to assessee's case als....
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....d in providing information technology services viz. software testing and QA services. 7.2 The Ld.AR submitted that, this company also earns revenue from sale of third party software product and hardware for which there is no segmental data available. 7.3 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of NTS Technology Services (P.) Ltd. v. Dy. CIT [2023] 153 taxmann.com 57 in [IT (TP) Appeal No. 940 (Bang) of 2022, dated 27-3-2023] where this comparable was excluded for the above reason. 7.4 On the contrary, the Ld. DR placed reliance on orders passed by authorities below. 7.5 We have perused the submissions advanced by both sides in the light of records placed before us. 7.6 We note that this Tribunal in case of NTS Technology Services (P.) Ltd. (supra) directed the exclusion of this comparable by observing as under : "11.7.5 From the annual reports filed by the Ld.AR in the paper book, we note that this company derives 100% income from writing, modifying, testing of computer program to meet the needs of a particular client excluding webgage and designing. In the annual report, the revenue recog....
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.... branch cannot be relied upon since the same is unaudited. Accordingly, the ld. D.R. supported the order of the TPO. 19. We heard the parties and perused the materials on record. We notice that in the case of Infor India Pvt. Ltd. Vs. ACIT (2019) 109 Taxmann.com 435, the Hyderabad Bench of the Tribunal has considered the similar issue of exclusion based on the foreign branch income being unaudited and held as follows: 73. As regards Evoke Technologies is concerned, the contentions of the assessee are that this company is functionally similar to the assessee, whereas the TPO & DRP have held that the financials of this company include the revenue of one branch outside India which are unaudited and hence are not reliable. The learned Counsel for the assessee however, drew our attention to page 963 of the Paper Book, which is part of the Annual Report of Evoke Technologies Ltd wherein the revenue of Indian Branch of assessee is separately shown. Taking the same into consideration, we direct the AO/TPO to reconsider the comparability of this company by taking the revenue from Indian Branch only. Thus, the ground for Maveric Systems Ltd is rejected and for Evoke Technologies ....
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....ed in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. The TPO also rejected the submissions of the assessee with regard to no segment information/no breakup of revenue being available and also extraordinary events happening during the year under consideration in the comparable company. The ld. CIT(A) upheld the inclusion of the company by holding that the assessee has claimed functional dissimilarity based on the information available in the company's website, which cannot be completely relied on. The ld. CIT(A) further held that as per the annual report, the functions of the company are similar to that of the assessee and therefore, the company cannot be excluded. 24. The ld. AR. Submitted that the assessee is a captive software R&D provider and primarily undertakes SAP and non-SAP software support and maintenance services. The ld. A.R. further submitted that the company is involved in other services such as enterprise transformation and change management services, which is evidenced from the annual report. The ld. A.R. also submitted that as per the website of the co....
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....y available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded." 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld. TPO. Nothing has been placed before us by the Ld. DR in order to take a different view. Respectfully following the Hon'ble Mumbai Tribunal, we direct the Ld. TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set." We thus direct the Ld.TPO/AO to exclude Persistent Syst....
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....terials India Pvt. Ltd. (supra), wherein it has been held as under: 48. We have heard both the parties and perused the material on record. We find that this company was excluded by this Tribunal in assessee's own case for carlier years (supra) where it was held as under :- 20"8. It is submitted by the Ld.AR that in the similar circumstances, in case of ARM Embedded Technologies Pvt. Ltd. v. DCIT in IT(TP)A No. 2353/Bang/2021, Coordinate Bench of this Tribunal vide order dated 30/08/2022 had analysed all the above alleged comparables on functionality and had excluded them from being compared with a captive service provider. 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....