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TMI Blog2016 (3) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO - Held that:- Since the issue is covered in favour of assessee in earlier years, the claim of assessee as revenue expenditure is acceptable. However, as seen from the order of Ld.CIT(A), even after noticing the judgment of jurisdictional High Court he did not grant the benefit in the absence of details. Before us, Learned Counsel submitted that most of the expenditure is on microsoft licenses which are renewable on an yearly basis. This aspect require examination by AO. Consequently, while accepting the principle that software licenses are revenue in nature, examination of expenditure claim is restored to the file of AO. AO after due verification should allow the expenditure accordingly For claim of tds credit pursuant to decision in COURT ON ITS OWN MOTION VERSUS COMMISSIONER OF INCOME TAX AND OTHERS 2,61,44,238/- as claimed by the company in its return of income. Since the issue is one of verification, we direct the AO to undertake the exercising of verification and allow credit. X X X X Extracts X X X X X X X X Extracts X X X X ..... ds on use of data, filters, functionality etc. Ld.CIT(A) accepted turnover filter and excluded Infosys in soft ware division where as on different turnover filter of (1 to 200 crores) excluded two companies (1) Aditya Birla Minacs Worldwide Ltd., and (2) Infosys BPO Ltd. He rejected the contentions on reducing the RPT filters to 15% and on comparability of some companies in two divisions. He also rejected the contentions on inclusion of two companies (Thinksoft Global Services Private Limited and FCS Software Solutions Private Limited). He also rejected the contentions on software license fee being revenue in nature. CIT(A) directed the AO to exclude the same from total turnover u/s. 10A. 7. Both Revenue and assessee are aggrieved on the order of Ld.CIT(A). Revenue's Appeal in IT(TP)A No. 1664/Bang/2014: 8. In the Revenue appeal, the grounds 2 & 3 are on exclusion of certain expenses for both export turnover and total turnover. 8.1. This issue is already decided in favour of assessee in various decisions. AO has disallowed certain expenditure pertaining to delivery of goods outside India and re-worked out the export turnover while calculating deduction u/s. 10A. However, he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Tribunal in Minteck (India) Ltd., Vs. DCIT [IT(TP)A No. 70/Bang/2014]. Also, Aditya Birla Minacs Ltd's related party transactions for FY. 2008-09 constituted 15.68% of its total revenues for that year and, accordingly, in the light of this Tribunal's decision in 24/7 customer.com Vs. DCIT [ITA No. 227/Bang/2010], it ought to stand excluded from the final list of comparables. In view of the above, we reject the Revenue's grounds. Assessee's Appeal in IT(TP)A No. 1621/Bang/2014: 10. In assessee's appeal, assessee has raised grounds on TP issues as well as corporate issues. In the TP issues, the contentions are confined to selection of certain comparables and in corporate tax issues, the claim of software license expenditure as revenue. These are dealt with as under. In the course of present appeal, assessee's contentions on RPT filter are not pressed. Consequently, rejection of L&T Infotech and Allsec Technologies Ltd., were not pressed. Software Devolopement Services: 11. The final list of comparables after Ld.CIT(A)'s order is as under: Sl No. Name of the company Margin % 1. Akshay Software Technologies Ltd 9.05 2. Bodhtree Consulting Ltd 62.03 3. KALS Info Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances as it prevailed in AY 08-09 IT(TP)A No.271/Bang/2014 Page 18 of 61 as far as this comparable company is concerned. Following the aforesaid decision of the Mumbai Bench of the Tribunal, we hold that Bodhtree Consulting Ltd. cannot be regarded as a comparable. In this regards, the fact that the assessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company. 26.2 Infosys Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a company providing simple software development services, as this company owns significant intangibles and has huge revenues from software products. In this regard, we find that the Bangalore Bench of the Tribunal in the case of M/s. TDPLM Software Solutions Ltd. v. DCIT, ITA No.1303/Bang/2012, by order dated 28.11.2013 with regard to this comparable has held as follows:- "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the said company is into development of software products, etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds." Based on all the above, it was submitted on behalf of the assessee that KALS Information Systems Limited should be rejected as a comparable. 47. We have given a careful consideration to the submission made on behalf of the Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, AEs had provided the funds for operations and thus assessee did not have to rely on working capital funding from banks. In any event, merely because of a working capital impact of over 4%, the said companies cannot be characterized as being engaged in the provision of financing activities, as has been held by the TPO in her order. It is submitted that Thinksoft and FCS Software are comparable companies which ought not have been excluded from the list of comparables. Moreover, the TPO has, vide the TP order, accepted that they are functionally comparable to assessee. Since they are comparables which were proposed by the TPO herself, it is evident that the said companies have passed all the filters applied by the TPO in her study. Thus, for the foregoing reasons, it is submitted that the said companies ought to be considered as comparables to assessee. 11.5. Inclusion of these two companies on similar submissions was already considered in the decision of ARM Embedded Technologies Pvt. Ltd., in ITA No. 1659/Bang/14 dt. 31-08-2015 for the same assessment year as under: "20. Coming to the ground for inclusion of M/s. Thinksoft Global Solutions Ltd and FCS Software Solutions Ltd, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services income. The amount, in our opinion, was insignificantly small and not enough to warrant a conclusion that its operating margins had come not from its core operational activities. 22. Coming to FCS Software Solutions Ltd, profit and loss account placed at paper book page 321 shows that its revenue from software development and other services was ₹ 1902547907/-. As against this, miscellaneous income was only ₹ 7875588/-. Break-up of such miscellaneous income as given at schedule M, placed at paper book page. 328 reads as under : Interest .. 2,875,685 Rent income .. 4,515,000 Amount W/Back .. 484,902 7,875,588 23. Compared to the software development services income, interest received by M/s. FCS Software Solutions Ltd, was in our opinion, insignificantly small. Thus the reasoning given by TPO for rejecting these two companies as proper comparables, was in our opinion, incorrect. We set aside the orders of the lower authorities in this regard and direct these two companies to be included in the list of comparables for working out the average PLI". Respectfully following the above decision we direct the TPO to include them in the list of comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded it at the outset. In view of this, we direct the Assessing Officer/TPO to exclude this comparable, from the list of comparables selected. (ii) Cosmic Global Ltd. The main objection of assessee with reference to the inclusion of this company is with reference to outsourcing of its main activity. Even though this company is in assessee's TP study, it has raised objection before the TPO that this company's employee cost is less than 21.30% and most of the cost is with reference to the outsourcing charges or translation charges,and as such this is not a comparable company. The TPO, though considered these submissions, rejected the same, on the reason that this does not impact the profit margin of the company. Opposing the view taken by the TPO, it is submitted that this company cannot be selected as comparable, as similar issue was discussed by the coordinate Bench of the Tribunal(Delhi) in the case of Mercer Consulting (India) P. Ltd. (supra), vide paras 13.2 to 13.3 which read as under- "13.2. Now coming to the factual matrix of this case, we find from the material on record that outsourcing charges of this case constitute 57.31% of the total operating costs. This does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd direct the Assessing Officer/TPO to exclude this comparable for the same reasons. iii. Eclerx Services Ltd. 18. The objection of assessee to this comparable is that this company is functionally dissimilar. It is in the business of consultancy and advisory service and provides only analytical data. It is also involved in quality monitoring. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end KPO. In support of the stand of the assessee, extracts from the annual report of this company have been pointed out. Therefore, the functions of the above company are dissimilar to assessee, which is a captive service provider. On the principles laid down by the Hon'ble Special Bench of the ITAT (Mumbai) in the case of Maersk Global Centres (India) Pvt. Ltd. V/s. ACIT (ITA No.7466/Mum/2012 for assessment year 2008-09 dated 7.3.2014) and the principles laid down by the coordinate bench of the Tribunal(Delhi) in the case of M/s. Mercer Consulting (India) Pvt. Ltd., (supra), assessee submits that this company cannot be selected as a comparable. 18.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in paras 42 to 46 at pages 47-48, has set aside the assessment order and remanded the issue for fresh consideration in the light of the principles laid down by the Special Bench in Amway India Enterprises Vs. DCIT. Thereafter, the AO asked assessee to make submissions justifying the claim of software expenses as revenue expenditure. Assessee made various submissions as required by the AO. On perusal of the submissions, the AO in the final assessment order, in paras 6.1 to 6.6 at pages 6 to 9, allowed the claim of software expenses as revenue expenditure. Also, the Hon'ble Tribunal in IT(TP)A No. 1192/Bang/2012, in paras 5 to 6 at pages 3 and 4, in assessee's own case for AY. 2008-09 has held that the software expense incurred by assessee in the relevant assessment year are similar to the expenses claimed by assessee during the AY. 2007-08 and hence are revenue in nature. 14.1. Since the issue is covered in favour of assessee in earlier years, the claim of assessee as revenue expenditure is acceptable. However, as seen from the order of Ld.CIT(A), even after noticing the judgment of jurisdictional High Court he did not grant the benefit in the absence of details. Before us, L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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