2017 (1) TMI 1490 - AT - Income Tax

TPA - comparable section criteria - Held that - assessee was engaged in the business of providing software consultancy services in the field of Enterprise Resource Planning, Customer Relationship Management, Supply chain management, Business intelligence, Business integration, Human Resource Management, Infrastructure management services and strategic sourcing, thus companies functionally dissimilar with that of assessee need to be deselected from final list of comparable.

Issues Involved:
1. Inclusion of M/s CG-VAK Software and Exports Ltd. as a comparable.
2. Inclusion of M/s Eforce India Pvt. Ltd. as a comparable.
3. Exclusion of Infosys while benchmarking software consultancy services.
4. Exclusion of Infosys & Wipro on turnover grounds.
5. Exclusion of M/s Persistent Systems Limited on grounds of functional incomparability.
6. Exclusion of Accentia while benchmarking BPO services on grounds of functional incomparability.
7. Exclusion of Acropetal while benchmarking BPO services on the ground of functional incomparability.

Issue-Wise Detailed Analysis:

1. Inclusion of M/s CG-VAK Software and Exports Ltd. as a Comparable:
The Revenue contended that the Hon'ble DRP erred in including M/s CG-VAK Software and Exports Ltd. as a comparable for benchmarking the software consultancy services transaction, arguing that the company is primarily into software development activities. However, the Tribunal upheld the DRP's decision, emphasizing that the turnover filter is crucial in selecting comparables. The Tribunal referenced the Pune Bench decision in ITO Vs. Avalara Technologies (P) Ltd., which established that concerns with turnover exceeding ?200 crores should be excluded.

2. Inclusion of M/s Eforce India Pvt. Ltd. as a Comparable:
The Revenue argued against the inclusion of M/s Eforce India Pvt. Ltd. due to its operating loss of 55.27% during AY 2010-11, depicting an unusual state of affairs. The Tribunal did not specifically address this issue separately but upheld the DRP's overall approach to comparables, implying agreement with the DRP's decision.

3. Exclusion of Infosys While Benchmarking Software Consultancy Services:
The Revenue contended that Infosys should be considered in benchmarking, noting its consistent profitability trend. However, the Tribunal upheld the DRP's exclusion of Infosys, citing its high turnover of ?21,140 crores compared to the assessee's ?64 crores, making it incomparable.

4. Exclusion of Infosys & Wipro on Turnover Grounds:
The Revenue challenged the exclusion of Infosys and Wipro based on turnover grounds, referencing decisions from the Mumbai ITAT and Delhi ITAT that did not support high turnover as a reason for exclusion. The Tribunal, however, upheld the DRP's exclusion, emphasizing the importance of turnover comparability and referencing the Pune Bench decision in Avalara Technologies.

5. Exclusion of M/s Persistent Systems Limited on Grounds of Functional Incomparability:
The Revenue argued that Persistent Systems Ltd. should be considered, noting its primary provision of software services. The Tribunal upheld the DRP's exclusion, noting Persistent's high turnover and extensive product development activities, making it functionally incomparable to the assessee.

6. Exclusion of Accentia While Benchmarking BPO Services on Grounds of Functional Incomparability:
The Tribunal referenced its earlier decisions, including in M/s. Aptara Technologies Pvt. Ltd. Vs. ACIT, to exclude Accentia Technologies Ltd. due to its involvement in KPO services and extraordinary events like amalgamation during the year. The Tribunal reiterated that Accentia's functional differences and extraordinary events rendered it incomparable.

7. Exclusion of Acropetal While Benchmarking BPO Services on the Ground of Functional Incomparability:
The Tribunal upheld the exclusion of Acropetal Technologies Ltd., referencing decisions from various Benches, including the Pune Bench in Vistcon Engineering Centre (India) (P.) Ltd. Vs. ACIT, which held that Acropetal's design engineering activities were not comparable to the assessee's BPO services. The Tribunal emphasized that engineering design services are akin to KPO services, not BPO services.

Conclusion:
The Tribunal upheld the DRP's decisions on the inclusion and exclusion of various companies as comparables, emphasizing the importance of functional similarity and turnover comparability in benchmarking international transactions. The appeal of the Revenue was dismissed, and no further adjustments were warranted in the hands of the assessee.

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