TaxTMI 
TaxTMI 
2026 (7) TMI 675
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....he sake of brevity and convenience are not inclined to reproduce here. 3. The assessee has also filed additional grounds of appeal dt. 30.10.2025, number as additional ground No. 6A, 16 and 17 on the issue of inclusion & exclusion of certain comparables in transfer pricing study while determining the ALP. 4. The assessee, in the application for admission of additional grounds, argued that the issues raised are arising from the appellate order (learned DRP) and for the adjudication of the same, there is no requirement for any fresh examination of facts. The issue raised in the additional grounds are fundamental to the resolution of the case and necessary to correctly assessee the tax liability. Consequently, the assessee's learned AR requested that the additional ground be admitted for adjudication. 5. On the other hand, the learned (DR) opposed the admission of the additional grounds of appeal, arguing that these grounds had not been raised before the lower authorities. 6. We have heard the rival submissions of both the parties and perused the materials available on record. The Hon'ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT reported ....
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....ssee, a Private Limited company, is engaged in providing software development services and engineering design services, analytical support services and engineering consultancy services to it associated enterprises. The assessee divided its transactions in three segments namely: 1. SWD Division 2. GEM & GEMHQS Division 3. EA & SE Division. 9. There is no dispute regarding the ALP of the other two division being GEM & GEMHQS Division and EA & SE Division. The dispute is confined to extent of SWD division only. The assessee benchmarked its transaction under SWD segment adopting TNNM as most appropriate method and further PLI as OP/OC which arrived at 13.67%. The assessee for the comparability analysis selected 12 comparables. 9.1 The TPO during the assessment proceedings rejected 6 comparables out of 12 assessee's comparables. The assessee's comparables accepted by the TPO are detailed as under: 1. Mindtree Ltd 2. Persistent Systems Ltd 3. R S Software India Ltd 4. Sasken Communication Technology Ltd 5. Tata Elxsi Ltd 6. Larsen and Tourbro Infotech Ltd 10. Thereafter, the TPO applied own filter a....
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....onomic and market conditions. The learned DRP also rejected the assessee's ground of objection for inclusion of new comparable company, namely Silverline Technologies suggested by the assessee on the same reasoning that the financial year ending is different. 15.1 Furthermore, the learned DRP rejected the assessee's objection for exclusion of TPO's comparables namely Persistent Systems Ltd, Persistent Systems & Solutions Ltd and Sasken Technologies Ltd. 15.2 However, the learned DRP accepted the objection raised by the assessee with respect to certain comparables companies selected by the TPO which are detailed as under: 1. Acropetal Technology Ltd 2. eZest Solution Ltd 3. ICRA Techno Analytics Ltd 4. Infosys technologies Ltd 5. Tata Elxsi Ltd. 15.3 The learned DRP found that the company Acropetal Technology Ltd is engaged in providing services such ERP, IT infrastructure management, cloud services, greenhouse gas management etc which are functionally different from software development services. Further the said company is predominantly engaged in onsite activities. The breakup of export turnover is also not available. Hence, t....
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....any is having significant on-site revenue and expenditure. Mindtree was also directed to be excluded on the ground of functional dissimilarities. 16. Being aggrieved by the direction of learned DRP both the assessee and the revenue are in appeal before us. The assessee and the revenue both are in appeal against the direction of learned DRP for exclusion Evoke Technologies Limited, R S Software India Private Limited and Mindtree Limited from the final comparable set. The revenue is in appeal in ITA No. 253/Bang/2016 and vide ground Nos. 1 to 6 and 8 of the memos of appeal. 17. The assessee is separately in appeal against its (assessee's) comparables companies, namely Helios and Matheson Information Technology Ltd., R Systems International Ltd. not included in the final set of comparables as well as in appeal against certain TPO's comparables, namely Persistent Systems and Solutions Limited, Persistent Systems Limited and Sasken Communication Technologies Limited. 18. Whereas the revenue is separately in appeal against the direction of the ld. DRP for the exclusion of comparables which were included by the TPO. 19. The Ld. AR before us filed a paper book running from page....
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....de and the same be directed to be considered in accordance with law. 19.4 Furthermore the Ld. AR before us requested for exclusion of Persistent Systems and Solutions Limited, Persistent Systems Limited and Sasken Communication Technologies Limited as these companies are engaged in development of software products with software development services. However, there is no segmental information available for the same. The assessee relied on judicial precedence of Harman Connected Services Corporation India (P.) Ltd. vs. Deputy Commissioner of Income-tax reported in [2022] 140 taxmann.com 68 (Bangalore - Trib.)/[2022] 95 ITR(T) 1 (Bangalore - Trib.) dated [07-02-2022] wherein these three companies were excluded on the grounds that they are into diversified activities and there is no segmental information available for the same. 19.5 In addition to the above, the learned AR supported the finding of the learned DRP with respect to certain TPO's comparables namely Acropetal Technology, eZest Solution, ICRA Techno Analytics, Infosys Technology and Tata Elxsi which was directed to be excluded by the learned DRP on account of functional dissimilarities. 20. On the contrary, the lear....
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....e DRP deserve to be upheld. 21. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee is engaged in providing software development services to its associated enterprises. The dispute before us is confined only to the SWD segment. The assessee adopted TNMM as the most appropriate method with OP/OC as the PLI. Therefore, the core requirement is that the selected comparables should be functionally similar, operate under similar economic conditions, and should not possess significant intangibles, diversified operations, or abnormal risk profiles. 21.1 We first deal with the companies excluded by the learned DRP on functional grounds. 21.2 The learned DRP excluded Acropetal Technology Ltd. on the basis that it is engaged in diversified services such as ERP implementation, IT infrastructure management, cloud services and greenhouse gas management, and is also predominantly involved in onsite activities. Further, the absence of clear export revenue bifurcation renders it incomparable with a captive offshore software development service provider. We find no infirmity in this reasoning and uphold its exclusion. We furthe....
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....Evoke Technologies Pvt. Ltd., R S Software India Ltd. and Mindtree Ltd., even though these companies were originally accepted by both the assessee and the TPO. The reason assigned was abnormal margins or onsite revenue profile. 23. We find merit in the contention of the assessee that when both parties have accepted certain companies as comparables, the DRP cannot exclude them suo-motu without strong and cogent reasons. Mere presence of onsite revenue or relatively low margins, by itself, is not a valid ground for exclusion unless it is demonstrated that such factors materially affect comparability. Following consistent Tribunal decisions, we hold that the ld. DRP was not justified in excluding these companies in the absence of any objection from either side. Accordingly, Evoke Technologies Pvt. Ltd., R S Software India Ltd. and Mindtree Ltd. are directed to be included in the final set of comparables. Now coming to Rejection of Assessee's Comparables Due to Different Financial Year 24. We now turn to the assessee's grievance regarding rejection of Helios & Matheson Information Technology Ltd., R Systems International Ltd. and Silverline Technologies Ltd. solely on the grou....
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....cted Services Corporation India (P.) Ltd. v. DCIT reported in [2022] 140 taxmann.com 68 / [2022] 95 ITR (T) 1 (Bangalore - Trib.), vide order dated 07.02.2022, on identical facts, has directed exclusion of Persistent Systems and Solutions Limited, Persistent Systems Limited and Sasken Communication Technologies Limited on the ground that they are functionally dissimilar and lack segmental information. 24.8 Consistent with settled judicial principles, we direct that Persistent Systems Ltd., Persistent Systems & Solutions Ltd. and Sasken Communication Technologies Ltd. be excluded from the final set of comparables. 24.9 In view of the above discussion, we hold that Companies functionally dissimilar, owning significant intangibles, engaged in diversified or product-based activities, or lacking segmental data are liable to be excluded. Companies accepted by both the assessee and the TPO cannot be excluded suo motu by the ld. DRP without compelling reasons. Mere difference in accounting year is not a valid ground for rejection when reliable quarterly data is available. 24.10 Accordingly, the final set of comparables shall be reconstituted by the TPO in line with the above di....
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....iries into motive. 28.3 We also note that the legislature has consciously addressed the very situation relied upon by the assessee. The proviso to section 92C(4) provides that no deduction under section 10A/10AA/10B (and certain other provisions) shall be allowed in respect of the amount of income by which the total income is enhanced on account of determination of ALP. This statutory embargo makes it evident that Parliament contemplated TP adjustments even in the case of tax-holiday units and, additionally, intended that the increment attributable to ALP adjustment should not enjoy the tax holiday, for the reason that such increment represents notional enhancement to align profits to arm's length and not necessarily profits "actually derived" from the eligible undertaking's operations. 28.4 In this view of the matter, the plea of the assessee that it had "no reason or motive" to shift profits, even if assumed to be factually correct, does not take the case outside the scope of Chapter X, nor does it dilute the obligation to benchmark international transactions and compute income having regard to ALP. The determination of ALP is to be done on the basis of prescribed methods, ....
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.... to levy of interest under 234A, 234B and 234C of the Act and initiation of penalty proceeding under section 271(1)(c) of the Act which are either consequential or premature. Hence we dismiss the same as infructuous. 33. In the result, the appeal of the assessee is hereby partly allowed for statistical purposes. Coming to Revenue's appeal in IT(TPA)A NO. 253/Bang/2016 34. The issue raised by the Revenue through Ground No. 1 to 6 pertains to exclusion of TPO's comparables by the learned DRP. 35. At the outset, we note that issues raised by the Revenue through caption grounds of appeal have been adjudicated along with the assessee grounds of appeal in IT(TP)A No. 293/Bang/2016. The relevant Grounds of appeal raised by the Revenue have been adjudicated by us vide paragraph Nos. 21 to 25 of this order, wherein we have decided the issue favouring the assessee and against the Revenue. Hence, the grounds of appeal raised by the revenue are hereby dismissed. 36. The issues raised by the Revenue through Ground Nos. 7 and 10 are general grounds which do not require any separate adjudication. Hence, we dismiss the same as infructuous. 37. The issue raised by Revenue through ....
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....the other hand, the Ld. AR of the assessee submitted that the said issue is now settled by the decision of Hon'ble Supreme Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd. reported in [2018] 93 taxmann.com 33 (SC)/[2018] 255 Taxman 313 (SC)/[2018] 404 ITR 719 (SC)/[2018] 302 CTR 191 (SC)[24-04-2018] where it has been held that expenses excluded from export turnover ought to be excluded from total turnover also, otherwise, any other interpretation makes the formula absurd. Hence the deduction shall be allowed from total turnover as well. 46. We have heard the rival contentions of both the parties and perused the materials available on record. The issue for our consideration is whether telecommunication expenses, which have been excluded from export turnover while computing deduction under section 10A of the Act, are also required to be excluded from total turnover. 46.1 We note that the Hon'ble DRP has rightly relied upon the judgment of the Hon'ble jurisdictional High Court in CIT v. Tata Elxsi Ltd., wherein it was categorically held that whatever is excluded from export turnover has to be excluded from total turnover as well, failing w....