AI Drafter 
TaxTMI 
TaxTMI 
2025 (10) TMI 1363
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....o the Appellant's total income of Rs. 9,49,81,245 based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act'). 2. The TPO/AO/DRP approached the entire issue with a prejudiced mindset with an intention of making an adjustment and the same is in clear violation of the principles of natural justice. 3. The Hon'ble DRP erred on facts and in law in confirming the approach adopted by the learned AO/TPO, who disregarded the various submissions made by the Appellant without assigning any cogent reasons therefor and also rejected the benchmarking analysis and comparable companies selected by the Appellant without appreciating the fact that such selection was based on the contemporaneous data and the transfer pricing study report prepared and maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('the Rules'). 4. The Hon'ble DRP erred on facts and in law in upholding the action of the learned TPO of conducting a fresh benchmarking analysis using non contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis on his own conjectures and surmises. T....
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....nchmarking analysis based on his own conjectures and surmises. Thus the Appellant prays that the fresh benchmarking analysis conducted by the learned TPO is liable to be quashed. 4. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in applying an arbitrarily prepared set of ITES companies to determine the arm's length nature of the international transaction of the Appellant relating to provision of ITES services, without taking into consideration the differences in the functions performed, assets employed and risks undertaken between the Appellant and the set of comparables considered by the TPO and without finding any material deficiencies in the benchmarking analysis undertaken by the Appellant. 5. The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in using data obtained using powers available under Section 133(6) which was not shared with the Appellant, and which, based on the principle of 'impossibility of performance', the Appellant could not possibly have access to as the same was not available in public domain either at the time of carrying out the benchmarking exercise....
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....mstances of the case, the learned AO has erred in law in initiating penalty proceedings under Section 271(1)(c) of the Act. The Appellant prays that the penalty proceedings be dropped in the matter. Ground V-Consequential reliefs The Appellant prays that the AO be directed to grant all consequential reliefs arising out of reliefs from this appeal." 2. The Ld. AR submitted that the assessee has raised legal issue vide additional grounds for both assessment years under consideration. He referred to application dated 03/01/2022 for AY 2007-08 and application dated 16/11/2022 for AY 2008-09.The Ld.AR submitted that the issues raised therein is to challenging validity and legality of the draft assessment order, DRP directions and final assessment order. 2.1 The Ld.AR at the outset submitted that, these issues may be treated as academic and is not pressed by the assessee. 2.2 Considering the submissions of the Ld.AR, additional grounds raised by the assessee vide application dated 03/01/2022 for assessment year 2007-08 and application dated 16/11/2022 for assessment year 2008-09are treated as academic and not adjudicated at this stage. However, these g....
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....he submissions advanced by both sides in the light of the record space before us. 2.10 In our considered opinion comparables alleged in additional grounds raised by assessee arises out of the records and was subject matter of consideration before the Ld. TPO. These comparables are nothing but elaboration of transfer pricing ground already raised by the assessee in the main grounds of appeal. Considering inadvertent omission on behalf of assessee in raising these grounds before this Tribunal, respectfully following the decision of Hon'ble Chandigarh Special Bench in case of Quark Systems Private Limited (supra), we admit additional ground raised vide application dated 20/07/2017 before this Tribunal. Accordingly, additional grounds raised by assessee vide application dated 20/07/18 stands allowed. 3. The Ld.AR submitted that facts and circumstances for both the assessment years under consideration are identical. The Ld.AR submitted assessee is seeking exclusion of common comparable under data processing service segment for both the years under consideration. He submitted that, the assessee is alleging one extra comparable for exclusion for assessment year 2008-09. It is....
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.... 2,26,83,813 Total 83,21,59,988 4.5 From the transfer pricing study report, the Ld. TPO noted that, assessee used TNMM as the most appropriate method and OP/OC as PLI to compute its margin under both segment as under: Particulars ITES Software Total Operating Income 443,412 392,282 834,694 Other Income 20,930 Total Income 443,412 392,282 856,624 Expenditure 388,260 331,896 720,156 Net reconciliation items 14 Total Expenditure 388,260 331,896 720,170 Net Profit 55,152 60,386 136,773 NCP (%) 14.20 18.19 18.99 Data Processing Service Segment: 4.5.1 The Ld. TPO noted that assessee computed its margin at 14.2%. It was noted that the assessee used following comparable with average margin at 12.51%: SI. No. Name of the Company Wtd. Avg. 1 Allsec Technologies Ltd. 27.89 2 Ask Me Info Hubs -1.75 3 B2 K Corp Put. Ltd. -18.89 4 B NR Udyog 25.85 5 CM....
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.... 28.78% 20 Iservices India Ltd. 50.27% 21 Mold-Tek Technologies Ltd. - (segmental) 113.49% 22 R Systems Internationl Ltd. 20.18% Arithmetic mean 11.80% 27.30% The Ld. TPO thus proposed adjustment, being the difference at Rs. 6,42,37,956/-. Software Development Service Segment: 4.5.3 The Ld. TPO noted that the assessee computed its margin at 18.19%. Assessee used following 29 comparable with average margin at 8.81%: SI. No. Name of the company Wtd. Avg. Margin (%) 1 Akshay Software Technologies Ltd. 7.36 2 A S M Technologies Ltd. 7.46 3 Bodhtree Consulting Ltd. 18.12 4 B T TechNet Ltd. -1.55 5 Computech International Ltd. 6.65 6 Essel Software & Services Lyd. -0.95 7 Exensys Software Solutions Ltd. 23.10 8 Goldstone Technologies Ltd. 9.78 9 ICSA (India) Ltd. 31.36 10 Intertec Communication Ltd. 7.18 11 Lanco Global System Ltd. 10.63 12 Maars Software International Ltd. 5.36 13 Melstar Information Technologies Ltd. -1.10 14 Nav Parva Technologies Ltd. 1....
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....rts Ltd. 13.90% 24 Tata Elxsi Ltd. 26.51% 25 Thirdware Solutions Ltd. 25.12% 26 TVS Infotech Ltd. 11.61% 27 Wipro Ltd. 33.65% Arithmetic mean 11.46% 27.96% The Ld. TPO thus proposed adjustment, being the difference at Rs. 3,24, 12,813/-. 5. Upon receipt of the order passed under section 92CA(3), the Ld.AO passed draft assessment order by making further disallowance of Rs. 9,02,067/- under section 14A of the act. The Ld. AO also made similar disallowance under section 115JB of the act for the purpose of calculating book profit. Upon the receipt of the draft assessment order, assessee preferred objections before the DRP. 6. Before the DRP assessee sought exclusion of some of the comparables under both the segment. In respect data processing service segment, the DRP accepted the plea of assessee against 13 comparables and directed the same to be excluded from the final list. Thus the comparable is that remained under data processing service segment post DRP direction are as under: Sr. No. Company Name Sales in ....
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....PO) Mold-tech technologies Ltd (SEG-IT) Eclerx services Ltd I services India Ltd HCL Comnet systems and services Ltd (SEG-ITS) Triton Corp Ltd Comparable alleged for exclusion under Software Service Segment: Celestial Labs Ltd., Lucid Software Ltd., Bodhtree Consulting Ltd., Infosys Technologies Ltd., Wipro Ltd., 7.2 Before we undertake the comparability analysis, it is sine qua non to understand the functions performed, assets owned and risk assumed by the assessee under both the segments. "4 Functional Analysis 4.1 Functions performed FTIS undertakes back office transaction processing, data processing, business support services and software development services for overseas FTI Group entities. These services are provided by various units set up by FTIS. Services rendered by various units of FTIS to the overseas FTI Group entities are discussed below: 4.1.1 Data Management and Security Services Global RFP Management Unit: This unit provides online data requested by the Franklin Templeton Institutional, LLC ('FTI LLC') FTI LLC is provi....
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....ncy risk is the risk of any adverse fluctuation in exchange rates, which would eventually have a negative impact on the profitability. FTIS receives service fee from overseas FTI Group entities in foreign exchange but incurs expenses in Indian Rupees. Accordingly it bears normal foreign exchange currency risks. 4.2.7 Risk of disruption of infrastructure Outsourcing business models rely heavily on the internet/telecommunications infrastructure. Accordingly, FTIS faces the risk of a disruption in the infrastructure. 4.2.8 Database maintenance risk Since the processes carried out by FTIS are system driven, i.e., all the transactions have to be processed on computer systems, there is a threat of loss of data. However, the same are mitigated by ensuring planned and periodic back ups. Summary of key business risks faced by FTIS and overseas FTI Groupe tabulated below Type of risk FTIS Overseas FTI Group entities Contract risk X Idle time risk X V Attrition risk V X Market risk X V Credit risk X V Currency risk V X Risk of disruption of infrastructure X ....
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....PO for the assessment year 2006-07 in support. The Ld. DR on the contrary, relied on the orders passed by the authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. 8.5 It is noted that this comparable was excluded by coordinate of this Tribunal in case of ACIT vs. Tech Book Electronics Services Put. Ltd for assessment year 2008-09 in ITA no.1061/Del/2013 vide order dated 15/02/2015, placed at page B1-B26 of the paper book. After analyzing the functionality in case of captive service provider similar to the assessee, this Tribunal observed as under: "When undisputedly, the comparable company has two segments one ITES and another Plastic Divisions and ITES division is having 100% exemption and the company has only to pay tax on the profits of its plastic division and thus earning profits @ 106.82% for the financial year 2007-08 it falls in the category of units earning extra ordinary profits. Even otherwise, comparable company is functionally dissimilar to the assessee company because comparable company is dealing in engineering designs and detailing services, web designing services, software testing, in hou....
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....C32 -C34 of the paper book. After analyzing the functionality in case of captive service provider like assessee. This Tribunal observed as under: "32. As noted earlier the Id AR for the assessee submitted that the assessee submits that Eclerx Services Ltd. has not considered as a comparable in earlier years. Eclerx Services Ltd. is a Knowledge Process Outsourcing (KPO) Service provider which is not comparable to assessee; assessee is engaged in providing back office support services. In support of his submission, the Id. AR of the assessee relied upon the decision of Delhi High Court in Rampgreen Solution P Ltd Vs CIT (2015) ITR 533 (Delhi). The TPO included this comparable by taking his view that this company is in date process and analytical services. The Id CIT(A) confirmed the action of the TPO by taking his view that this comparable company is into the health care receivable management and therefore renders ITeS services. The Hon'ble Delhi Court in Rampgreen Solution (P) Ltd (supra) held entities rendering voice call center services for customer support and a KPO service provider employ IT-based delivery systems, but characteristics of services, functional aspects....
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....Y 2009-10, the DRP as well as the Tribunal had held that companies engaged in KPO services cannot be compared to the routine BPO services provided by the assessee. That still further the Tribunal while disposing of the appeal of the assesses for AY 2010-11 had held that as the assessee was a routine BPO service provider, therefore it cannot be compared to high end KPO service providers such as Eclerx Service Limited. We further find that the 'Special bench' of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra), had specifically rejected the aforesaid comparable, viz. Eclerx Services Limited, on the basis that companies predominantly engaged in KPO services cannot be considered as a comparable to a company predominantly engaged in BPO activities. We are thus of the considered view that in the backdrop of the view taken by the Tribunal while disposing of the appeals of the assessee for A.Y(s): 2009-10 & 2010-11, therein concluding that the aforesaid comparable, viz. Eclerx Services Limited which was a KPO could not be taken as a comparable as against the assessee company which is providing BPO services, coupled with the fact that in the assesses own c....
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..../Mum/ 2012 vide order dated 10/07/2019. 8.13 On the contrary Ld. CIT DR placed reliance on orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 8.14 It is noted that this comparable was excluded by coordinate of this Tribunal in case of DCIT vs. Morgan Stanley Advantages Put. Ltd for assessment year 2007-08 in ITA no. 4406/Mum/2012 vide order dated 10/07/2019 placed at page C38 -C43 of the paper book. After analyzing the functionality in case of captive service provider like assessee. This Tribunal observed as under: "37. The Id. AR submitted that this comparable is into divergent high end services like web hosting, email services spam filtering domain names and DNS hosting, web hosting, email services and are mainly in a product services and cannot be compared. The TPO included this comparable by taking view that this comparable company is in software services and product. The Id. CIT(A) confirmed the inclusion holding that TPO conducted bench marking after calling information under section 133(6). The TPO exercise has helped in authenticating and validating the date. We have noted that the D....
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.... of this Tribunal in case of ICICI Bank Ltd vs. DCIT (supra) placed at page C 62 of the paper book. This Tribunal observed as under: "HCL Comnet Systems and Services Ltd. The exclusion of this company is contended on the ground that the company has prepared the financial statements for the year ended 30.06 whereas the assessee is financial year ended is 31.03. It is also contended that the company is having large scale operations as compared to the assessee and therefore, the same is to be excluded. In this regard, we noticed that from the perusal of the P&L A/c of the company. The company is having revenue of Rs. 314 crores which is significantly higher than the turnover of the assessee from back office support services. Further, it is noted that the Jurisdictional High Court in the case of CIT Vs. Pentair Water India Pvt. Ltd. (ITA No.18/2015) had rejected the inclusion of the company for the reason that the company is having large turnover. On perusal of the annual accounts of the company (page 887 of PB) we noticed that in ITES Segment, the company is rendering services to data centre management, individual computer managed securities services and tool and pro....
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....ton Corp is also a part of is part and parcel of Rastogi Group which was under serious indictment and its financials were distorted and cannot be relied. However, the Id. DR for the revenue supported the inclusion of this comparable. The Id. TPO included this comparable by taking his view that this company is in the call centre services. The Id CIT(A) upheld the action of Id TPO by taking view that benchmarking was conducted by calling information under section 133(6). We have seen that Mumbai Tribunal in Stream International (P) ltd (supra) held that, a Company under serious indictment in fraud cases is to be excluded from list of comparables on ground of unreliability of data. Thus, following the order of the Tribunal we direct to exclude this company from the comparable." 8.24 It is noted that segmental details are also not available in respect of ITeS services rendered by this comparable. Similar view has been taken by coordinate bench of this Tribunal in case of ICICI Bank Ltd vs. DCIT (supra). Revenue has not been able to bring out any factual differences between the year under consideration or any decision contrary to the view taken by the coordinate bench in a border for....
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.... 9.3 In respect of Bodhtree consulting Ltd., The Ld.AR submitted that this company is also into development of software products and no segmental details are available in the annual report. It is submitted that this company has hived of some of its business during the year under consideration having a revenue stream. It is also submitted that this company is exponentially grown by 91.63% as that of the past years and therefore it is a full-fledged entrepreneur. 9.4 The Ld.AR has placed reliance on the decision of coordinate Bench of this Tribunal in case of Dun& Bradstreet Information Services India Pvt. Ltd., vs DCIT in ITA No.3593/Mum/2012,vide order dated 06/06/2019. He submitted that, the said order is placed at page C 47, wherein all the above comparable were excluded, as not functionally similar to a captive service provider. 9.5 On the contrary, Ld. CIT DR placed reliance on orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 9.6 It is noted that coordinate Bench of this Tribunal in case of Dun& Bradstreet Information Services India Pvt. Ltd., vs DCIT (supra) excluded Lucid software Ltd by....
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.... Celestial Labs Ltd. It has been submitted that this entity is not functionally comparable as it was engaged in development of drug discovery tool and was a research & development company as against the assessee's functions i.e. software development services. Reliance has been placed on the following decisions :- i) Trilogy E-Business Software India P. Ltd. [Bangalore Tribunal ITA No.1054/Bang/2011] [confirmed by Hon'ble Karnataka High Court vide ITA No. 151/2015] ii) Witness System Software India P. Ltd. (Bangalore Tribunal IT(TP)A No. 948/Bang/2011] iii) Transwitch India P. Ltd. (Bangalore Tribunal IT(TP)A No. 1366/Bang/2011] The decision listed at serial no. 1 is for same AY and rendered in case of assessee having similar functional profile. The co-ordinate bench has held that the aforesaid entity was engaged in clinical research and manufacturing of bio products and other products and hence, not functionally comparable. The other decisions also support the case of the assessee for exclusion of this comparable. Respectfully following the consistent view, we direct for exclusion of the same. 3.5 No other arguments/ gro....
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....risk. Similar views have been expressed in other decisions. Keeping in view the same, we confirm exclusion of the same. 4.4 Wipro Limited It has been submitted by Ld. Sr. Counsel that this entity is not functionally comparable due to various factors viz. its size, turnover, brand value, scale of operations, diversified activities and owning of intangibles. Reliance has been placed on the following judicial pronouncements in support of exclusion of the same: - i) Telcordia Technologies India P. Ltd. [supra] ii) Sumtotal Systems India P. Ltd. [supra] iii) DE Shaw India Software Put. Ltd. [supra] iv) Virtusa India Pvt. Ltd. [ITA No. 1962/Hyd/2011 30/08/2013 AY 2007-08] Similar is the situation for this comparable. In decision listed at serial no. 1, the co-ordinate bench has directed for exclusion of this entity on the same reasoning as given for exclusion of Infosys Tech. Ltd. The other decisions also support the submissions. Keeping in view the same, we confirm exclusion of the same." 10.1 Revenue has not been able to bring out any factual differences between the year under consideration or any decision contrary to th....
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.... of Maple Esolutions Ltd Asit C Mehta Financial Services Ltd (SEG-IT), Spanco Ltd (SEG-BPO), Mold-tech technologies Ltd (SEG-IT), Eclerx services Ltd., I services India Ltd., HCL Comnet systems and services Ltd (SEG-ITS)., Triton Corp Ltd., will apply mutatis mutandis for assessment year 2008-09. Acropetal Technologies Ltd., 11.4 The Ld.AR submitted that this company is engaged in the development of computer software and also owns its revenue from export of software services. Either submitted that this company is not at all cup functionally similar with the ITeS segment carried out by the assessee it is also submitted that this comparable has substantial intangibles by placing reliance on page 468 of the paper book. The Ld.AR relied on the decision of coordinate bench of this Tribunal in case of ICICI Bank Ltd vs. DCIT (supra) for assessment year 2008-09. 11.5 On the contrary the Ld. CIT DR relied on the orders passed by the authorities. We have perused the submissions advanced by both sides in the light of the records placed before us. 11.6 It is noted that, this Tribunal in case of ICICI Bank Ltd vs. DCIT (supra) observed as under: "6.4. Accropetal Technol....