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TMI Blog2019 (7) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... h top giants like TCS E-serve ltd and others with the same high turnover, which would in turn result in mandatory ALP adjustment in all the cases. That cannot be certainly the intention of the legislature. In order to avoid any absurdity in this regard, the test of reasonableness should be applied by the TPO by comparing the cases whose turnover is either 10 times below or 10 times above the turnover with that of the assessee which would be reasonable for the purpose of comparison. Hence, the argument advanced by the ld. DR in this regard is not appreciated. Accordingly, we hold that this comparable i.e. TCS E-serve ltd deserves to be excluded due to huge turnover. TCS E-serve ltd is excluded the mean margin of the comparables would be 16.21% as against the assessee s margin of 12% and accordingly, the assessee would fall within +/-5% tolerance limit. We direct the TPO to verify the said workings given by the ld. AR and if the contention of the ld. AR is found to be correct, then no adjustment to ALP need to be made in respect of ITES segment of the assessee. Since, we directed the TPO to exclude TCS E-serve ltd from the list of comparables, the adjudication of other comparables, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 31,59,524/- relating to the unit for which deduction u/s.10A is eligible. It is now well settled that even if disallowance u/s.40(a)(i) is to be made for non-deduction of tax at source, still it would only result in enhancement on business income of the eligible unit of the assessee which would inturn consequently increase the claim of deduction u/s.10A for the assessee, thereby making it revenue neutral. We find that the ld. AR in this regard had rightly placed reliance on the decision of Hon ble Jurisdictional High Court in the case of PCIT vs. Lionbridge Technologies (P) Ltd., [ 2017 (9) TMI 1410 - BOMBAY HIGH COURT] . We also find that recently, the CBDT had also issued a Circular No.37/2016 dated 02/11/2016 wherein it has been categorically stated that disallowances made u/s.32, 40(a)(ia), 40A(iii), 43D of the Act etc., and other specific disallowances related to the business activity against which Chapter VIA deduction has been claimed result in enhancement of the profits of the eligible business and that deduction in Chapter VIA is admissible on the profits so enhanced by the disallowance. The same analogy would apply for deduction u/s.10A of the Act also. Respectfully fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re any professional / skilled labour with domain expertise. The assessee had objected before the ld. TPO as well as the ld. DRP for exclusion of TCS E-serve ltd on the ground that it is functionally not comparable, among others. In this regard, we find that TCS E-serve ltd is engaged in the business of providing business process management services in the banking and financial services vertical. 3.2. On the contrary, the assessee is a mere service provider involved in providing back office services like data entry, data processing and reconciliation. It was further submitted that TCS E-serve ltd operations particularly comprises of transaction processing and technical services primarily to Citi Group entities globally. From the annual report of TCS E-serve ltd, we find that the said company is engaged in the business of providing ITes / business process outsourcing services primarily to Citi Group entities globally. Its operations particularly comprises of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, calculations, customer care and payments in relation to the services offered by the Citi g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the assessee. The turnover of TCS E-serve ltd for the A.Y.2011-12 was 1442 Crores, whereas the turnover of the assessee herein was ₹ 29.56 Crores. (c) The said comparable was having super normal profits in the last two years and during the year under consideration as under:- Financial Year Ending OP/OC 31/03/2009 10.05% 31/03/2010 67.58% 31/03/2011 76.82% The assessee pleaded that the aforesaid comparable has earned super normal profits thereby making it incomparable with the assessee. The assessee also stated that this comparable was considered by it in accept / reject matrix in TP study report and was ignored by it based on the aforesaid parameters. 3.3. Segmental data not available for the comparable:- We find that both the ld. TPO as well as ld. DRP had not given any finding with regard to these specific objections raised by the assessee except stating that it had passed all the filters supplied by the ld. TPO and by the assessee. In this regard, we would like to specifically state that on verification of the filters applied by the ld TPO, we find that one of the filters applied by the ld. TPO was to consider the companies whose turnover is more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seessee the turnover is around ₹ 11 crores. Therefore, on the basis of the turnover filter itself this company cannot be regarded to be comparable to the Asseessee company and accordingly, we do not find any infirmity in the finding of CIT(A) while he excluded this company on the turnover criteria following the decision of this tribunal in : Sony India (P) Ltd. vs. DCIT, 114 ITD 448 Delhi, E-Gain Communication, 2008 TIOL 282 ITAT (Pune) Deloittee Consulting India Pvt. Ltd. vs. DCIT, ITA No. 1082/Hyd/2010 Genisys Integrating System (India)(P.) Ltd. vs DCIT,, 53 Sot 159 (Bang 3.4. Our observation with regard to existence of huge turn over in the hands of the comparable chosen by the ld. TPO i.e. TCS E-serve ltd is duly supported by the aforesaid decision of the Hon'ble Jurisdictional High Court. We find that the ld. DR argued that both the assessee as well as the ld. TPO had only applied the turn over filter specifying the minimum range and had not specified any maximum range thereon. Hence, the ld. TPO is at a liberty to take any comparable, whose turnover is more than ₹ 1 Crore. We are unable to persuade ourselves to accept to this proposition as this would lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... routine software development services as well as related IT services. These services typically require a number of steps such as system and requirement analysis, system architecture, coding, testing and implementation. The functions of BNPP ISPL include participating in various parts of the software development life cycle, which are routine in nature. The AEs are involved in the conceptualization of the software based on the business requirement. The AEs provide specifications to BNPP ISPL and monitor the progress of the activity based on the specifications given by the AEs, BNPP ISPL's role is generally restricted to specific portions of the software development life cycle. Hence, the services provided by BNPP ISPL to its AEs are process driven to a large extent and are performed using the group's standard systems. Though the said services require some technical knowledge/ expertise, they require no conceptualization and do not result in the creation of unique intangibles for the group. 4.2. From the aforesaid narration and functional profile as culled out from the order of the ld. TPO in page 10 of the order, we find that assessee is providing only routine software deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be very minimal. It is well settled that Infosys would be able to penetrate into the IT market and obtain bigger clients which would fetch them higher revenues. These huge advantages possessed by Infosys Ltd., are not admittedly available to the assessee herein. Hence, we hold that Infosys Ltd., cannot be accepted as a comparable. 4.5. We find that the ld DR argued that turn over filter adopted by the ld. TPO was only for the minimum range of the turnover and the ld. TPO had not specified the maximum range of the turnover of comparables in the filters applied by him. We also find that if the argument advanced by the ld. DR is to be accepted for both the comparables (i.e Infosys and Wipro) , filters adopted by the assessee as well as by the ld. TPO, then in every transfer pricing adjustment of any software company, Infosys Limited and Wipro Technologies Ltd, would be subject matter of comparability and adjustment to ALP would have to be made mandatorily, which is not the intention of the legislature as it would only result in absurdity. In view of the aforesaid observations we direct the ld. TPO to exclude both Infosys Ltd., as well as Wipro Technologies Ltd., from the final list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance would consequently increase the claim of the deduction u/s.10A of the Act. 7. We have heard rival submissions. It is not in dispute that assessee had made certain payments to foreign parties in the sum of ₹ 31,59,524/- relating to the unit for which deduction u/s.10A of the Act is eligible. It is now well settled that even if disallowance u/s.40(a)(i) of the Act is to be made for non-deduction of tax at source, still it would only result in enhancement on business income of the eligible unit of the assessee which would inturn consequently increase the claim of deduction u/s.10A of the Act for the assessee, thereby making it revenue neutral. We find that the ld. AR in this regard had rightly placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Lionbridge Technologies (P) Ltd., reported in 86 taxman.com 101(Bom) dated 18/09/2017. We also find that recently, the CBDT had also issued a Circular No.37/2016 dated 02/11/2016 wherein it has been categorically stated that disallowances made u/s.32, 40(a)(ia), 40A(iii), 43D of the Act etc., and other specific disallowances related to the business activity against which Chapter VIA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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