9911796707
TMI Blog2019 (1) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... ending. In fact, the Transfer Pricing Officer has not at all gone into far analysis of the foreign comparables proposed by the assessee since he treated the assessee as the tested party and, therefore selected separate sets of comparables. Therefore, we are unable to accept the submissions of the learned Departmental Representative for restoring the issue to the Assessing Officer / Transfer Pricing Officer for reconsideration. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on these issues by dismissing the grounds raised. Contract migration cost not be considered for calculating the operating margin - CIT-A held that the migration cost relating to Travelocity contract being an exceptional and onetime cost, should not be treated as part of operating cost for computing the profitability of the assessee - Held that:- Notably, identical issue came up for consideration before the Tribunal in assessee’s own case for assessment year 2004–05 and Tribunal while deciding the issue has held that the cost incurred by the assessee is purely in the nature of reimbursement without any mark–up. Hence, cannot be treated as part of operating cost. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of policy, the assessee does not charge any interest either from the AEs or from the third parties towards extended credit period. Allowance of assessee’s claim of deduction u/s 10A - scope of omission in act - Held that:- The omission of section 10A(9) of the Act will operate retrospectively as if the said sub–section never existed in the statute. It is relevant to observe, when identical issue came up for consideration before the Tribunal in assessee’s own case in assessment year 2003–04, the Tribunal in the order passed [2016 (3) TMI 24 - ITAT MUMBAI] has held that the omission of sub–section (9) of section 10A of the Act, would effectively mean that the said provision never existed in the statute and accordingly allowed assessee’s claim under section 10A - Tribunal in its order passed in [2012 (8) TMI 432 - ITAT MUMBAI] upheld the decision of the Assessing Officer in allowing assessee’s claim of deduction under section 10A of the Act by holding that omission of sub–section (9) of section 10A of the Act by Finance Act, 2003, would effectively mean that the provision never existed in the statute. Facts being identical, respectfully following the decisions of the Co–ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses relating to other non–eligible units - Held that:- The issue does not required deliberation at length in view of the ratio laid down by the Hon'ble Supreme Court in Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT]. In fact, the DRP following the aforesaid decision of the Hon'ble Supreme Court has decided the issue in favour of the assessee stating that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. Ad–hoc disallowance made out of administrative expenses - Held that:- Disallowance to 10% of the total expenditure claimed by the assessee under the head “Others” to be confirmed. Disallowance of set–off and carry forward of unabsorbed loss and depreciation of earlier years - Held that:- The aforesaid dispute arose for the in assessee’s own case in assessment years 2001–02 2002–03 and 2003–04. The Tribunal, while deciding the issue held that the provisions of section 10A(6)(ii) of the Act are applicable only after the holiday period is over and directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led its return of income on 30th October 2005, declaring loss of ₹ 81,35,80,754. Noticing that in the relevant previous year the assessee has entered into a number of international transactions with its AEs, the Assessing Officer made a reference to the Transfer Pricing Officer for determining the arm's length price of the international transactions with AEs. In course of proceedings before him, the Transfer Pricing Officer while examining the transfer pricing study report submitted by the assessee found that WNS U.K. is providing marketing, account handling and sale support for the assessee in European Market, whereas, WNS North America is providing similar services to the assessee in North American markets. From the transfer pricing study report he found that WNS U.K. and WNS N.A. identify and pursue potential customers for the assessee, negotiate terms on behalf of the assessee and enter into contract with the customers. They perform on going customer relationship, management and business development for identifying more business opportunities for the assessee. They provide management services to the assessee. For rendering such services, WNS U.K. and WNS N.A. received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submissions of the assessee in the context of facts and material on record as well as the appeal order passed for the assessment year 2004 05, held that the contract revenue earned by the assessee from a third / independent / unaffiliated party is functionally different from marketing and management fees paid to the two AEs, hence, because of difference in nature of the two transactions they cannot be clubbed. Further, the learned Commissioner (Appeals) after analyzing in detail the functions, assets and risk (FAR) held that the AEs carry out simpler function, employ lesser assets and assume lower risk as their activities are limited to marketing and account management, whereas, the activities of the assessee are more complex. Thus, he held that in the given circumstances, the AEs have to be treated as tested parties and accordingly upheld selection of foreign comparables by the assessee considering the fact that they are situated in same geographical location as the tested parties. The learned Commissioner (Appeals) observed that since the margin at which the assessee pays fees to the AEs are lesser than the average margin of the comparables selected by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years the Transfer Pricing Officer himself has not only accepted the AEs as the tested party but has also accepted the foreign comparables proposed by the assessee for benchmarking purpose. In this context, he drew our attention to the Transfer Pricing Officer s order for assessment years 2011 12 to 2014 15. He submitted, even in the advance pricing agreement dated 3rd August 2015, the Department has accepted the AEs as the tested parties. Without prejudice to the aforesaid submissions, the learned Sr. Counsel submitted, while deciding identical issue in assessee s own case for assessment year 2004 05, the Tribunal in ITA no.2318 and 1886/Mum./2009, dated 4th May 2018, has not only accepted the approach of the assessee in treating the AEs as tested party but also separately benchmarking the transactions with the A.Es. In this content, he drew our attention to the relevant observations of the Tribunal. 8. We have considered rival submissions and perused materials on record. As could be seen from the order of the Transfer Pricing Officer, primarily relying upon his decision in assessment year 2004 05, he has held that the assessee has to be treated as tested party and all internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AEs, the Tribunal has held as under: 21 We have considered rival contentions and find from the nature of the transactions mentioned above that they are not interlinked as the various transactions form part of different business models adopted by the assessee. Thus, the learned TPO's approach of aggregating these international transactions and benchmarking the assessee at an entity level is not appropriate since the FAR profile of WNS India is different in both the transactions and hence, aggregating these international transactions and considering WNS India as the tested party is wholly misplaced and contrary to the TP regulations. In view of these factual position, the Hon ble CIT(A) has correctly upheld the benchmarking approach adopted by the assessee. 22. For this purpose reliance may be placed on decision of the Hon ble High Court of Punjab Haryana in the case of Knorr Bremse India Pvt. Ltd., ITA No.172 182 of 2013) wherein the Hon ble Court has upheld the principle that only closely linked transactions which are components of single composite transaction can constitute a transaction. 23. In view of the above, we observe that the aforesaid transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner (Appeals) on these issues by dismissing the grounds raised. 12. In ground no.3, the Department has challenged the decision of the learned Commissioner (Appeals) in holding that the contract migration cost should not be considered for calculating the operating margin. 13. Brief facts are, in course of proceedings before him, the Transfer Pricing Officer noticed that the assessee has paid an amount of ₹ 90,44,55,398 to WNS N.A. in respect of Travelocity contract. After verifying the details, he found that WNS N.A. has entered into a contract with Travelocity.com L.P. to outsource their back office and contract centre operation. The aforesaid contract entered into in January 2004, was to subsist for a period of seven years. However, Travelocity desired that certain non core operations and functions currently performed internally be performed and managed by a third party experienced in such operations and functions to achieve economic efficiencies and other advantages from outsourcing. Thus, it was agreed between WNS N.A. and Travelocity that WNC N.A. would reimburse Travelocity for the cost associated with the use of Travelocity assets and Travelo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of operating cost for computing the profitability of the assessee. 15. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, learned Commissioner (Appeals) without properly analysing the issue has held that the migration cost will not form part of the operating cost. He submitted, if the learned Commissioner (Appeals) was unable to accept the benchmarking of the Transfer Pricing Officer, he himself should have done the correct benchmarking. The learned Departmental Representative submitted, learned Commissioner (Appeals) s reasoning for excluding the migration cost is not on sound basis. 16. The learned Sr. Counsel for the assessee submitted, from assessment year 2004 05 onwards all the contracts were assigned to the assessee and the assessee became the major entrepreneur, whereas, the AEs were only supporting the assessee. He submitted, earlier the assessee was only rendering BPO services to British Airways which completely changed after assignment of all contracts to the assessee. He submitted, since the Travelocity contract was a big contract and the assessee initially did not have the infrastructure to execute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of guarantee commission computed @ 1.5% of the guarantee amount. Being aggrieved of the aforesaid Transfer Pricing adjustment, the assessee preferred appeal before the first appellate authority. 20. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts on record, restricted the guarantee commission to 0.5% of the guarantee amount. Thus, he sustained the addition of ₹ 21,86,515. 21. The learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted that the guarantee commission computed @ 1.5% of the guarantee value by the Transfer Pricing Officer is reasonable, hence, should be restored. 22. The learned Sr. Counsel for the assessee, though, strongly supported the decision of the learned Commissioner (Appeals) insofar as it relates to determination of arm's length price of guarantee commission @ 0.5%, however, he submitted that in the facts of the present case guarantee commission is not at all chargeable considering the fact that the assessee itself utilised the loan for its own benefit. Further, he submitted, it is not an international transaction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receives money from the AEs as and when they receive money from the third party. It was submitted, the delay in making payment on some instances may be for the reason that the AEs must not have realised money from the clients in time. It was submitted, no extended credit period was granted to the AEs apart from those arising in course of business. It was submitted, the debt collection period in respect of AEs is 24 days which is within the usual industry norm. After considering the submissions of the assessee as well as material on record, the Transfer Pricing Officer noted that the assessee has allowed excess credit period to the AEs for 149 days. Accordingly, he charged interest @ 5.9% by applying LIBOR plus 250 basis point as on 31st March 2005. This resulted in adjustment of ₹ 4,02,55,828. The assessee challenged the aforesaid transfer pricing adjustment before the first appellate authority. 26. The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record observed that the assessee has not only received contract revenue from the AEs but it has also paid marketing fees to them. He observed, while cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AEs there is no loss to the assessee in real terms. As could be seen, the Transfer Pricing Officer while charging notional interest on the extended credit facility to the AEs has completely ignored the delayed payment made by the assessee to the AEs. Thus, as could be seen, no extra benefit has been provided to the AEs on account of extended credit facility. Further, it is the contention of the assessee before us that as a matter of policy, the assessee does not charge any interest either from the AEs or from the third parties towards extended credit period. Therefore, on over all consideration of facts and materials on record we do not find any reason to interfere with the decision of the learned Commissioner (Appeals). Ground raised is dismissed. 29. In grounds no.6, 7 and 11, the Department has challenged allowance of assessee s claim of deduction u/s 10A of the Act. 30. Brief facts are, during the assessment proceedings, the Assessing Officer found that during the financial year relevant to assessment year 2003 04, WNS Mauritius Ltd., the holding company of the assessee had acquired the entire share capital of the assessee from British Airways resulting in change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue came up for consideration before the Tribunal in assessee s own case in assessment year 2003 04, the Tribunal in the order passed in ITA no.4520/Mum./2013, dated 17th February 2016, has held that the omission of sub section (9) of section 10A of the Act, would effectively mean that the said provision never existed in the statute and accordingly allowed assessee s claim under section 10A of the Act. Further, while deciding assessee s appeal against order passed under section 263 of the Act for assessment year 2004 05, the Tribunal in its order passed in ITA no.2566/Mum./2009 dated 10th August 2012, upheld the decision of the Assessing Officer in allowing assessee s claim of deduction under section 10A of the Act by holding that omission of sub section (9) of section 10A of the Act by Finance Act, 2003, would effectively mean that the provision never existed in the statute. Facts being identical, respectfully following the decisions of the Co ordinate Bench in assessee s own case, we uphold the decision of the learned Commissioner (Appeals) on the issue. Grounds raised are dismissed. 35. In grounds no.8 and 9, the Department has challenged the decision of the learned Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition took place by virtue of an agreement executed on 13th January 2004. It is also a fact on record that in assessment year 2004 05, the assessee for the first time claimed depreciation by treating the capitalized value of the amount paid towards acquiring M/s. Town and Country Assistance Ltd., as an intangible asset and claimed depreciation @ 25%. Notably, the Assessing Officer while completing assessment under section 143(3) of the Act also allowed assessee s claim of depreciation. However, learned Commissioner of Income Tax revised the assessment order under section 263 of the Act. Subsequently, while deciding assessee s appeal against the said order the Tribunal quashed the order passed under section 263 of the Act and restored the assessment order. Thus, in effect, assessee s claim of depreciation in respect of intangible asset became final. In any case of the matter, there is no dispute that by acquiring M/s. Town and Country Assistance Ltd. the assessee has also acquired contractual rights which, no doubt, is a valuable commercial right. Therefore, it comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Hence, depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the issue has been decided in favour of the assessee by the Tribunal in assessment year 2004 05, however, he relied upon the observations of the Assessing Officer. 45. The learned Sr. Counsel for the assessee relying upon the observations of the learned Commissioner (Appeals) submitted that the issue stands decided in favour of the assessee by the Tribunal in assessee s own case for assessment year 2004 05. 46. We have considered rival submissions and perused materials on record. It is clear from the assessment order, the Assessing Officer has made the disallowance under section 40(a)(i) of the Act simply on the reasoning that the marketing and management fee paid by the assessee to the overseas AEs are in the nature of fees for technical services requiring deduction of tax under section 195(1) of the Act. It is relevant to observe, the aforesaid issue came up for consideration before the Tribunal for the first time in ITA no.5451 and 5452/Mum/2005, while deciding an appeal filed by the Department arising out of orders passed under section 195 of the Act. The Tribunal while deciding the aforesaid appeal of the Revenue held that the payments made by the assessee are not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that deduction under section 10A of the Act is to be granted at the source and not after computing gross total income. Accordingly, he allowed assessee s claim of deduction u/s 10A of the Act without setting off the losses of other units. 50. The learned Departmental Representative relied upon the observations of the Assessing Officer. 51. The learned Sr. Counsel for the assessee submitted, the issue has now been settled by the decision of the Hon'ble Supreme Court in CIT v/s Yokogawa India Ltd., [2016] 97 CCH 144 (SC). He also relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s J.P. Morgan Services India Pvt. Ltd., in ITA no.2188/2013, dated 21stMarch 2016. Further, the learned Sr. submitted that in assessee s own case for assessment year 2012 13, the DRP has expressed similar view as has been expressed by the learned Commissioner (Appeals). 52. We have considered rival submissions and perused materials on record. In our considered opinion, the issue does not required deliberation at length in view of the ratio laid down by the Hon'ble Supreme Court in Yokogawa India Ltd. (supra). In fact, the DRP following the aforesaid decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue s appeal in ITA no.631/Mum./2011. In view of our decision therein in the earlier part of the order, separate adjudication of the ground raised by the assessee is not required. Accordingly, learned Commissioner (Appeals) s decision on this issue is upheld. 61. In the result, assessee s appeal is partly allowed. ITA no.7378/Mum./2012 Assessee s Appeal A.Y. 2008 09 62. Ground no.1, relates to disallowance of deduction claimed under section 10A of the Act by referring to the provisions of section 10A(9) of the Act. 63. This issue is identical to the issues raised by the Department in ground nos.6, 7 and 11 of ITA no.631/Mum./2011. Following our decision therein, we allow assessee s claim of deduction. 64. In grounds no.2, the assessee has challenged disallowance of depreciation on intangible asset. 65. This ground is similar to ground no.8 and 9 of Revenue s appeal in ITA no.631/Mum./2011. Following our decision therein, we allow assessee s claim of depreciation. 66. In view of our decision in ground no.2 above, ground no.3, having become redundant is dismissed. 67. Grounds no.4 and 5, are identical to ground no.12, of Revenue s appeal in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us by the assessee, it is necessary to briefly discuss the factual background relating to the issue. 77. As stated earlier, in the relevant previous year, since, the assessee had entered into international transactions, the Assessing Officer made a reference to the Transfer Pricing Officer for determining the arm's length price of the international transaction. During the proceedings before him, the Transfer Pricing Officer on examining the transfer pricing study of the assessee found that the assessee has provided services to its overseas AEs in two segments viz. Information Technology Enabled Services (ITES) and Software Development Services (SDS). He observed that the assessee has benchmarked the international transaction by applying transactional net margin method (TNMM) as the most appropriate method with operating profit / operating cost (OP/OC) as the profit level indicator (PLI). He found that in the ITES segment, the assessee has selected 14 comparables with average margin of 14.91%. As against the margin shown by the assessee @ 9.82%, since, the margin shown by the assessee is within 5% of the average margin of the comparables, the assessee has treated the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icing Officer, the Assessing Officer made addition to the income of the assessee. Though, the assessee challenged the aforesaid addition before the DRP contesting them on various ground, however, it did not get the desired result and in pursuance to the directions of the DRP, the Assessing Officer completed the final assessment order. 78. Before us, the major issue relating to transfer pricing adjustment is, with regard to selection / rejection of comparables under both the segments. At first, we will deal with assessee s objections with regard to selection / rejection of comparables under ITES segment. COMPARABLES UNDER ITES SEGMENT i) HCL COMNET SYSTEMS AND SERVICES LTD. (SEGMENT) 79. Objecting to the selection of the aforesaid company, the learned Sr. Counsel for the assessee submitted, the Transfer Pricing Officer while selecting / rejecting comparables has applied related party transaction (RPT) filter and has rejected all companies which has RPT of more than 25% of the Revenue. He submitted, applying the aforesaid filter the Transfer Pricing Officer has rejected some of the comparables selected by the assessee. He submitted, applying the same logic, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year ending. Since, the aforesaid decisions of the Tribunal pertain to the very same assessment year, respectfully following the ratio laid down therein, we exclude this company from the list of comparables. ii) GENESYS INTERNATIONAL CORPORATION LTD. 82. Objecting to the selection of this company learned Sr. Counsel for the assessee submitted that it is engaged in engineering (CAD/CAM) and geographic Information Services (GIS) which are in the nature of Knowledge Process Outsourcing (KPO) services. Further, he submitted, the company also deals in computer software which is its only segment i.e., GIS. He submitted, as per the Safe Harbour Rule notified by the CBDT vide notification no. S.O. 2810(E), dated 18th September 2013, GIS services has been classified as KPO service requiring application of knowledge and advanced analytical and technical skill. In support of his contention, the learned Sr. Counsel relied upon the following decisions: i) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018; ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; iii) HSBC Electronic Data Processing Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vider. In support of such contention, he relied upon the following decisions: i) Rampgreen Solutions Pvt. Ltd. v/s CIT, ITA no.102/2015 (Del.), dated 10.08.2015; ii) Maersk Global Centres India Pvt. Ltd. v/s ACIT, ITA no.7466/ Mum./2012, dated 07.03.2014; iii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018; iv) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; v) Goldman Sachs (I) Securities Pvt. Ltd. v/s ACIT, ITA no.6912/ Mum./2012, daed 29.07.2016; vi) HSBC Electronic Data Processing India Pvt. Ltd., order dated 24.10.2014, A.Y. 2008 09; vii) H S Software Development Knowledge Management Centre Pvt. Ltd. v/s DCIT, ITA no.436 496/Del./2013, dated 20.03.2018; viii) Lionbridge Technologies Pvt. Ltd. v/s ITO, ITA no.7498/ Mum./2012, dated 09.07.2014; ix) Symphony Marketing Solutions India Pvt. Ltd., 37 CCH 253; x) Stream International Services Pvt. Ltd. v/s ACIT, ITA no. 8290/ Mum./2011, dated 10.10.2014. 86. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 87. We have considered rival submissions and perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ix) M/s. Capital IQ Information Systems Pvt. Ltd. v/s DCIT, ITA no.196/Hyd./2011, dated 23.11.2012; x) Symphony Marketing Solutions India Pvt. Ltd. v/s ITO, ITA no.1316/Bang./2012; dated 14.08.2013; xi) Stream International Services Pvt. Ltd. v/s ACIT, [2015] 53 taxmann.com 19 (Mum.); xii) Willis Processing Services India Pvt. Ltd. v/s ACIT, [2017] 83 taxmann.com 198; xiii) H S Software Development and Knowledge Management Centre Pvt. Ltd., ITA no.436 and 496/Del./2013, dated 20.03.2018; and xiv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann. com 150. 89. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 90. We have considered rival submissions and perused material on record. From the materials placed in the factual paper book including the annual report of the company, it appears that this company outsources most of its work to third party vendors. Therefore, the business model of the company is totally different from the assessee. Considering the aforesaid aspect, the Hon'ble Delhi High Court in R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt engineering and GIS service. These services certainly cannot be categorized as routine BPO service as they require different skill set. Thus, from the aforesaid facts it is evident that the company is functionally different from the assessee as it provides high end services which are in the nature of KPO services. The decisions cited by the learned Sr. Counsel for the assessee, many of which pertain to the impugned assessment year, expresses similar view. Thus, respectfully following the consistent view expressed by the different benches of the Tribunal in the decisions referred to above, we hold that this company cannot be a comparable to the assessee. vi) ACCENTIA TECHNOLOGIES LTD. 94. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the company had an exceptional year of operation, as in the relevant previous year, two other companies viz. Geosoft Technologies (Trivandrum) Ltd. and Iridium Technologies India Pvt. Ltd. merged with the company. Further, the company also purchased businesses of various other companies as mentioned in Schedule 10(B)(3) of the annual report. Thus, he submitted, since such merger / acquisition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing them, we hold that this company cannot be treated as comparable. vii) ACROPETAL TECHNOLOGIES LTD. (SEGMENT) 97. Objecting to the selection of this company learned Sr. Counsel for the assessee submitted, as per the information available in the annual report, the company is engaged in the development of computer software. Further, it is also engaged in the business of engineering design services and information technology services. He submitted, the Transfer Pricing Officer has selected the engineering design segment as comparable to the assessee which is totally incorrect. Further, he submitted, about 71% of the total expenditure of the company is in foreign currency under the head Employee Related and On site Development Expenses which indicate that the company provides substantial on site services and could also have outsourced the services. He submitted, as per the safe harbour rules notified by the CBDT, engineering and design services have been classified as KPO services. Therefore, the company being functionally different cannot be a comparable. In support, he relied upon the following decisions: i) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of complete annual report, the assessee cannot verify comparability of this company, hence, it should be rejected. In support of his contention, the learned Sr. Counsel relied upon the following decisions: i) PCIT v/s Aptara Technology Pvt. Ltd., ITA no.1209 of 2015, (Bom.); ii) PCIT v/s BNY Mellon International Operations India Pvt. Ltd., [2018] 93 taxmann.com 363 (Bom.); iii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/ Mum./2012, dated 27.07.2018; iv) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/ Mum./2012, dated 20.07.2018; v) H S Software Development Knowledge Management Centre Pvt. Ltd. v/s DCIT, ITA no.436 496/Del./2013, dated 20.03.2018; vi) Symphony Marketing India Pvt. Ltd., ITTPA no.1316/ Bang/2012, dared 14.08.2013; vii) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann. com 150 (Mum.); viii) CIT v/s Tata Power Solar Systems Ltd., ITA no.1120/ 2014, dated 16.12.2016; ix) M/s. Quark Systems India Pvt. Ltd. v/s DCIT, [2010] 38 SOT 307 (Chandi.); and x) Tata Power Solar Systems Ltd. v/s DCIT, ITA no. 6657/Mum./2012, dated 15.01.2014. 101. The learned Departmental Representative relied upon the observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the following decisions: i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ii) Hinduja Global Solutions Ltd.v/s DCIT, [2017] 78 taxmann.com 199 (Mum.); iii) Capgemini India Pvt. Ltd. v/s ITO, [2016] 66 taxmann.com 163 (Mum.); iv) B.P. India Services Pvt. Ltd. v/s ACIT, [2015] 55 taxmann.com 150 (Mum.); v) Sunquest Information Systems India Pvt. Ltd. v/s JCIT, [2017] 80 taxmann.com 42 (Bang.); vi) CIT v/s Pentair Water India Pvt. Ltd., ITA no.18 of 2015, dated 16.09.2015; and vii) PCIT v/s New River Software Services Pvt. Ltd., ITA no.924 of 2016, dated 22.08.2017. 104. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer. 105. We have considered rival submissions and perused material on record. No doubt, this company has a significant brand value associated with it. Further, the material placed on record including the annual report indicates that the company owns significant intangibles and is into multifarious activities. It has also been granted 40 registered patents which indicate that it is engaged in high end activity unlike the assessee. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pects, the Tribunal in a number of decisions, as cited by the learned Sr. Counsel, has held that this company cannot be a comparable to a routine ITE service provider. Following the consistent view of the Tribunal in the decisions referred to above, we hold that this company cannot be a comparable to the assessee. xi) DATAMATICS FINANCIAL SERVICES LTD. 109. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged as a registrar to the public issue and carries out registration and share transfer works. He submitted, as per the revenue details in the Profit Loss Account it earns revenue through processing and printing, export of ITES and other income. Drawing our attention to the working showing the percentage of different revenue streams to the total revenue earned during the year, the learned Sr. Counsel submitted, revenue earned from ITES is only 33.23%. Therefore, it fails the ITES revenue filter of less than 75% of the total revenue applied by the Transfer Pricing Officer. He submitted, the information provided by the company in pursuance to the notice issue under section 133(6) of the Act is not available in publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his company were indicted for fraud and misappropriation. Moreover, as per the working submitted by the assessee, the revenue earned from export of ITES works out to 52.80% which is less than export revenue filter of more than 75% applied by the Transfer Pricing Officer. For the aforesaid reasons, this company cannot be treated as comparable to the assessee. The decisions relied upon by the learned Sr. Counsel also support this view. Accordingly, we exclude this company as a comparable. COMPARABLES UNDER SOFTWARE DEVELOPMENT SERVICES SEGMENT i) LGS GLOBAL LTD. (FORMERLY LANCO GLOBAL SYSTEMS LTD. 114. The learned Sr. Counsel for the assessee submitted, this is one of the companies selected by the assessee also. He submitted, while examining the acceptability of assessee s comparables the Transfer Pricing Officer has found this company as a comparable, hence, accepted it. He submitted, while selecting his own additional comparables the Transfer Pricing Officer has again included this company as a comparable resulting in the company being considered twice in the final set of comparables. 115. The learned Departmental Representative also agreed with the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA no.5963/Del./ 2012, dated 29.10.2014; iii) PTC Software India Pvt. Ltd. v/s ACIT, ITA no.2546/Pn./2012, dated 11.09.2017; and iv) Barclays Technology Centre v/s ACIT, ITA no.2279/Pn./2012, dated 28.01.2015. 118. The learned Departmental Representative submitted, since this comparable is selected by the assessee himself and the Transfer Pricing Officer has accepted it, assessee s contention for rejecting the company as comparable should not be accepted. 119. In rejoinder, the learned Sr. Counsel for the assessee submitted, even if the assessee has selected it as a comparable in the transfer pricing study, however, it cannot be precluded from seeking removal of the company as a comparable if there are valid reasons for doing so. In support of such contention, he relied upon the following decisions: i) CIT v/s Tata Power Solar Systems Ltd., ITA no.1120/2014, dated 16.12.2016; and ii) DCIT v/s M/s. Quark Systems India Pvt. Ltd. [2010] 132 TTJ 001. 120. We have considered rival submissions and perused material on record. No doubt, this company was selected by the assessee itself in the transfer pricing study report and the Transfer Pricing Officer also accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do so. In support of his contention, the learned Sr. Counsel relied upon the following decisions: i) PCIT v/s Barclays Technology Centre India Pvt. Ltd., ITA no. 1384 of 2015, dated 07.08.2018; ii) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; iii) John Deere India Pvt. Ltd. v/s DCIT, ITA n o.827/Ph./2014, dated 27.10.2016; iv) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.); v) Nihilent Technologies Pvt. Ltd. v/s ITO, ITA no.2428/Pn./2012, dated 10.05.2018; vi) Aircom International India Pvt. Ltd. v/s DCIT, ITA no.6402/ Del./2012, dated 02.08.2017; vii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; viii) NTT DATA india Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015; ix) SAP Labs India Pvt. Ltd. v/s ACIT, ITA no.981/Bang./2013, dated 06.04.2018; x) Tata Power Solar Systems Ltd. v/s DCIT, ITA no.6657/Mum./ 2012, dated 15.01.2014. xi) M/s. Quark Systems India Pvt. Ltd. v/s DCIT, [2010] 38 SOT 307 (Chandi.); and xii) Tata Power Solar Systems Ltd. v/s DCIT, ITA no.6657/Mum./ 2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise also, the company owns substantial intangible asset which makes it functionally different from the assessee. For the aforesaid reasons, the Tribunal in the decisions cited by the learned Sr. Counsel has excluded this company as a comparable. Following the consistent view of the Tribunal in the aforesaid decisions, we exclude this company as a comparable. v) E ZEST SOLUTIONS LTD. 127. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, as per the information available in the website of the company it is engaged in product engineering, software development, CRM product development, ERP, web designing, wireless application, e business solutions, total development, etc. Whereas, segmental details are not provided. He submitted, due to the aforesaid activities carried out by the company, it is functionally dissimilar to the assessee. Further, he submitted, in the annual report of the company, details of related party transactions are not available which is absolutely necessary for evaluating the comparability of the company. He submitted, for the aforesaid reasons this company cannot be treated as a comparable. In support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, ITA no.2428/Pn./ 2012, dated 10.05.2018. 131. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 132. We have considered rival submissions and perused materials on record. The primary ground on which the assessee objects to selection of this company is, it is involved in development of products. Notably, in case of CIT v/s PTC Software India Pvt. Ltd. (supra), the Hon'ble High Court upheld the decision of the Tribunal rejecting this company as a comparable on the ground that it is involved in development of software products. The same view has been expressed by the Tribunal in various other decisions as cited by the learned Authorised Representative. Since, the majority of the aforesaid decisions, including the decision of the Hon'ble Jurisdictional High Court, pertain to the impugned assessment year, respectfully following the ratio laid down in these decisions, we exclude this company from the list of comparables. vi) INFOSYS TECHNOLOGIES LTD. 133. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the company is engaged in diversified operatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. ITA no.1204/2011, dated 10.07.2013; iii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./2012, dated 29.07.2016, [2016] 73 taxmann.com 389 (Mum.); iv) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015; v) Capgemini India Pvt. Ltd. v/s ITO, ITA no.7099/Mum./2012, dated 10.12.32015; vi) Invensys Development Centre India P. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014; vii) M/s. NTT Data India Enterprise Application Services Pvt. Ltd. v/s DCIT, ITA no.1862/Hyd./2012, dated 02.01.2015; viii) 3DPLM Software Solutions Ltd. v/s DCIT, ITA no.1303/Bang./ 2012, dated 28.11.2013; and ix) John Deere India Pvt. Ltd. v/s DCIT, ITA no.827/Ph./2014, dated 27.10.2016. 134. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and the DRP. 135. We have considered rival submissions and perused materials on record. After carefully examining the material on record, we are of the view that under no circumstances, this company can be held as comparable to the assessee. As could be seen from the facts on record, Infosys is involved in diversified operation and provides e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts such as CMSS, EDMS, Shine ERP, Virtual Insure. He submitted, as per the website, the company offers different products such as Virtual Insure, LA Vision, Consultant Management Sales System, Docuflo, Shine ERP etc. He submitted, since it is also a product company it cannot be treated as comparable to the assessee. In support, he relied upon the following decisions: i) Dialogic Network (I) Pvt. Ltd. v/s CIT, ITA no.7820/Mum./ 2012, dated 27.07.2018; ii) Accenture Services Pvt. Ltd. v/s ACIT, IT(TP)A no.7686/Mum./ 2012, dated 20.07.2018; iii) UCB India Pvt. Ltd. v/s ACIT, ITA no.7691/Mum./20112, 29.07.2016, [2016] 73 taxmann.com 389 (Mum.); iv) Net Cracker Technology Solutions India Pvt. Ltd. v/s ACIT, ITA no.86/Hyd./2013, dated 17.06.2015; v) Invensys Development Centre India Pvt. Ltd. v/s ACIT, ITA no. 1692/Hyd./2012, dated 12.11.2014; vi) CIT v/s PTC Software India Pvt. Ltd., ITA no. 732/2014, dated 26.09.2016; vii) PTC Software India Pvt. Ltd. v/s ACIT, ITA no.2546/Pn./2012, dated 11.09.2017; and viii) Nihilent Technologies Pvt. Ltd. v/s ITO, ITA no.2428/Pn./ 2012, dated 10.05.2018. 137. The learned Departmental Representative relied upon the obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The primary and fundamental reason on the basis of which assessee seeks rejection of the aforesaid comparable is, it is also engaged in the development of product and segmental details are not available. Notably, in case of Dialogic Networks (India) Pvt. Ltd. (supra), the Co ordinate Bench while examining the comparability of the aforesaid company to a software development service provider, has rejected this company as a comparable considering the fact that it is engaged in product development and product design services. The same view has been reiterated by the Tribunal in the other decisions cited by the learned Sr. Counsel. Since, many of these decisions pertain to the impugned assessment year, respectfully following the aforesaid decisions of the Tribunal, we direct the Assessing Officer to exclude this company from the list of comparables. ix) TATA ELXSI LTD. 142. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, it is engaged in the business of providing product design and engineering services to the consumer electronics, communication and transportation industry and systems integration and support services for enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activities including development of niche product and development services. Thus, the company is functionally different from the assessee. Considering the aforesaid aspect, the Co ordinate Bench in case of Dialogic Networks (India) Pvt. Ltd. (supra), which is for the very same assessment year, has excluded this company as a comparable. Similar view has also been expressed in the other decisions cited by the learned Sr. Counsel. Thus, keeping in view the decisions of the Tribunal referred to above, we hold that this company cannot be a comparable to the assessee. ix) THIRDWARE SOLUTIONS LTD. 145. Objecting to the selection of this company the learned Sr. Counsel for the assessee submitted, the annual report of the financial year 2007 08 does not provide a clear picture of the functional profile of the company. He submitted, as per the information available in the annual report, the company is engaged in implementation and consulting services of software based on ERP and business intelligence. He submitted, as per the annual report the company s operations comprise of three divisions i.e., software development, implementation and support services. However, the annual rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted, the company is a leading provider of information technology, business process outsourcing and product engineering services to customers globally. It provides integrated business technology and process solution on a global delivery platform and employs over 94,000 people across 56 nations. He submitted, as per information available in the annual report, the company offers consulting, package implementation, application development and maintenance, testing services, technology infrastructure, business process outsourcing and product engineering services. He submitted, in absence of suitable segmental details, the company cannot be considered as a comparable as software development and non software development services cannot be compared for benchmarking purposes. Further, he submitted, the turnover of Wipro Ltd. from I.T. services segment for financial year 2007 08 is ₹ 11955.06 crore as against ₹ 2.59 crore of the assessee. He submitted, the company with such a huge turnover cannot be compared to the assessee. He submitted, the company undertakes research and development activities and owns significant intellectual properties. Further, it has a huge brand value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is, its on site information is not available. He submitted, during the Transfer Pricing proceedings, in the show cause notice the Transfer Pricing Officer has not explained the rationale adopted by him to exclude this company. He submitted, in any case of the matter, the Transfer Pricing Officer has not applied the on site revenue filter. Therefore, for that reason alone the company cannot be rejected as a comparable. 152. The learned Departmental Representative submitted, no details were provided with regard to on site revenue earned by the company. He submitted, since there will be difference in cost between on site and off site development, relevant information is necessary for considering the comparability of this company. 153. We have considered rival submissions and perused material on record. As could be seen from Para 3 of the Transfer Pricing Officer s order, he has rejected this company on the reasoning that on site revenue information is not available in the annual report. It is a fact on record that the Transfer Pricing Officer has not applied on site revenue filter while selecting comparables. Therefore, in our view, for that reason only, the company can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view, it should not be considered for computing RPT. Only for the limited purpose of verifying this aspect, we restore the issue to the Assessing Officer / Transfer Pricing Officer for deciding afresh after due opportunity of being heard to the assessee. xiii) SIP TECHNOLGIES AND EXPORTS LTD. 157. Objecting to the rejection of this company the learned Sr. Counsel for the assessee submitted, the only reason on which this company has been rejected by the Transfer Pricing Officer is, it is a loss making company. The learned Sr. Counsel submitted, the reasoning of the Transfer Pricing Officer is factually incorrect as the net cost plus margins of the company for financial year 2005 06 is 21.14% and for financial year 2006 07 is ( 17.60%). Thus, he submitted, since the company has not incurred loss consistently in the impugned assessment year as well as the preceding two years, it cannot be rejected as a comparable. He submitted, since the Transfer Pricing Officer has not made any adverse comment with regard to functional similarity of the company with the assessee it should be included as a comparable. 158. The learned Departmental Representative relied upon the observ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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