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TMI Blog2019 (7) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of a company as a comparable. In view of the aforesaid, we direct the Assessing Officer to exclude this company from the list of comparables. CROSSDOMAIN SOLUTIONS LTD. - This company has been held to be incomparable to a BPO service provider. In view of the aforesaid, we direct the Assessing Officer to exclude this company from the list of comparables. R. Systems International Ltd. - in assessee s own case in assessment years 2007 08 and 2008 09 the Transfer Pricing Officer himself has accepted this company as a comparable in spite of the fact that its financial year was not matching with that of the assessee. The reason for which the Transfer Pricing Officer accepted the company as comparable in those years is, the financial results of the company corresponding to the financial year followed by the assessee were available with him. Factual position is no different in the impugned assessment year. In view of the aforesaid, we do not find any infirmity in the decision of learned DRP in accepting this company as a comparable. Therefore, Revenue s ground on the issue is dismissed. Whether service provided to the AE under intellectual property service agreement (IPSA) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO to compute deduction u/s 10A / 10AA in respect of IPSA income following the direction of the Tribunal and DRP as referred to above TP Adjustment to be restricted only to the international transaction - HELD THAT:- No infirmity in the decision of learned DRP on the issue as the arm's length price of the transaction which requires adjustment is the international transaction with the AE. Therefore, any adjustment on account of arm's length price has to be restricted to the international transaction with AE. This view has also been approved by the Hon'ble Jurisdictional High Court in CIT v/s Hindustan Unilever Ltd. [ 2016 (7) TMI 1245 - BOMBAY HIGH COURT] In view of the above, ground raised is dismissed. TP adjustment on IT segments - selection / rejection of certain comparables - TNMM - HELD THAT:- In course of hearing learned Sr. Counsel has submitted, on exclusion of Thirdware Solutions Ltd., Persistent Systems Ltd. and FSC Solutions Ltd. and inclusion of CAT Technologies Ltd., assessee s margin would fall within 5% range of the arithmetic mean of the rest of the comparables in software development (IT) service segment. In view of the aforesaid, we do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, these grounds are dismissed. 3. Further, on the instructions of the assessee he submitted that grounds no.3, 4, 7, 8, 9, 12, 13, 14, 16, 17, 18, 20 and 21 are not to be pressed. Considering the aforesaid submissions of the learned Sr. Counsel for the assessee, all these grounds are dismissed as not pressed. 4. Thus, the surviving grounds which need to be adjudicated are, grounds no.6, 10, 15, 19, 22 and 23. The major issue pertaining to the transfer pricing adjustment arises in grounds no.10 and 15 relating to selection/rejection of certain comparables for benchmarking the international transaction with Associated Enterprises (AEs)relating to provision of Information Technology Enabled Services (ITES). 5. Brief facts relating to this issue are, the assessee, an Indian company, is a subsidiary of M/s. Beaumont Development Centre Holding Ltd. and part of Accenture Group. The assessee basically provides services to its AEs across the globe under three segments viz. software development service (SDS), ITES, consultancy Services under IPSA. As stated, the dispute in these grounds is basically confined to the adjustment made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef to the assessee by accepting assessee s claim to include R. Systems International Ltd. as a comparable. 7. Before us, though, the assessee has challenged selection / rejection of eight comparables, however, the Learned Sr. Counsel put much stress for rejection of two comparables viz. Genesis International Corporation Ltd. and Cross Domain Solutions Ltd. At the outset, we will deal with the acceptability or otherwise of these two comparables. i) GENESYS INTERNATIONAL CORPORATION LTD. 8. This company, though, was selected by the assessee as a comparable in the transfer pricing study report by using multiple year data, however, before the Transfer Pricing Officer, the assessee objected to selection of the company due to functional difference and exceptional year of performance. However, rejecting the objections of the assessee, the Transfer Pricing Officer selected this company as a comparable. Learned DRP also upheld the decision of the Transfer Pricing Officer by holding that once the company was selected as comparable by the assessee, it cannot be excluded. 9. Objecting to the selection of this company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctionally dissimilar to the assessee. Further, he submitted, the aforesaid factual position is vindicated from the fact that the assessee itself had selected it as a comparable in transfer pricing study report. Thus, he submitted, it cannot be rejected as a comparable. 12. In rejoinder, the learned Sr. Counsel for the assessee submitted, merely because the company was wrongly selected as a comparable in the transfer pricing study report, it cannot be retained as a comparable even if it is functionally dissimilar to the assessee. He submitted, though, the assessee might have selected it as a comparable initially, however, if subsequently information available in the public domain indicate that the company is functionally different, assessee cannot be prevented from objecting to the selection of the company as a comparable. For such proposition, he relied upon the following decisions: i) Tata Power Solar Systems Ltd., ITA no.1120/2014 (Bom.); ii) M/s. Quark Systems India Pvt. Ltd., ITA no.594/2010 (P H); iii) M/s. Symantec Software Solutions Pvt. Ltd., ITA no.7623/Mum./2012; iv) M/s. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year, it has been held that the company being a KPO service provider is not comparable to a BPO service provider. Therefore, in our considered view, due to functional difference alone, the company cannot be a comparable to the assessee. As regards the reasoning of the Department that the company was selected by the assessee as a comparable in the transfer pricing study report, we must observe, the comparables selected by the assessee in the transfer pricing study report are not sacrosanct. Had it been the case, all companies selected by the assessee have to be accepted by the Transfer Pricing Officer. After all, the purpose of comparative analysis is to find out suitability of a company as a comparable. In fact, the duty of the assessee and the Transfer Pricing Officer is to find out comparables which are functionally similar. If the company, though, is selected by the assessee is not found to be functionally similar it has to be rejected. Applying the aforesaid principle, in many cases the Transfer Pricing Officer does not accept the comparables selected by the assessee, as, in his view they are functionally dissimilar to the assessee. Therefore, only because assessee has sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) BNY Mellon International Operations, ITA no.23/Pun./2014; and viii) Dialogic Networks India Pvt. Ltd., ITA no.7280/Mum./2012. 17. The learned Departmental Representative, though, agreed that the Profit Loss account of the company for the assessment year 2008 09 is not available in public domain, however, he submitted that the functional profile of the company is available in the annual report clearly reveals that it is functionally similar to the assessee. Therefore, it was rightly included as a comparable. 18. We have considered rival submissions and perused material on record. As could be seen from the material placed before us, the company is engaged in rendering services relating to software development and maintenance, software testing, infrastructure set up and management, consulting service, architecture, configuration and installation, etc. Many of such services are in the nature of KPO services. Further, though, the company has earned revenue from various services provided by it, however, the segmental details are not available. In fact, the Transfer Pricing Officer himself has admitted that the Profit Loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year followed by the assessee are not ascertainable. Therefore, the company cannot be treated as comparable. In support of such contention, the learned Departmental Representative relied upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s PTC Software India Pvt. Ltd., [2017] 395 ITR 176 (Bom.). Thus, he submitted, the company cannot be treated as comparable to the assessee. 22. The learned Sr. Counsel for the assessee submitted, in pursuance to the query raised by the Transfer Pricing Officer under section 133(6) of the Act, the company has furnished its financial results for the financial year 2008 09 and 2009 10. In this context, he drew our attention to the financial results for March ending 2008 and 2009 as found place in the annual report of the company placed at Page 638 of the paper book. The learned Sr. Counsel submitted, the aforesaid information was obtained by the Transfer Pricing Officer himself in course of proceedings. Therefore, it cannot be said that the financial results of the company for the financial year followed by the assessee are not available. The learned Sr. Counsel submitted, even otherwise also if the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are satisfied. Further, in case of Mercer Consulting(India) Pvt. Ltd . (supra) the Hon ble Punjab Haryana High Court has held that if the financial results of the comparable relating to the financial year followed by the assessee are available and the comparable is otherwise functionally similar, there is no reason to reject it merely because it has a different financial year ending. The same view has been expressed in many other judicial pronouncements, some of which have been cited before us by the learned Sr. Counsel. As regards the decision of the Hon'ble Jurisdictional High Court in PTC Software India Pvt. Ltd. (supra) cited by the learned Departmental Representative, a reading of the judgment would reveal that the financial results of the comparable corresponding to the financial year followed by the assessee was not available, hence, it was rejected. It is relevant to observe, in assessee s own case in assessment years 2007 08 and 2008 09 the Transfer Pricing Officer himself has accepted this company as a comparable in spite of the fact that its financial year was not matching with that of the assessee. The reason for which the Transfer Pricing Officer accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification no.890(E) dated 26th September 2010 and benchmarked it along with the ITES segment. Learned DRP also endorsed the aforesaid action of the Transfer Pricing Officer. 28. The learned Sr. Counsel for the assessee fairly submitted that identical issue arose in assessee s own case for the assessment year 2008 09. He submitted, while deciding the issue, the Tribunal held that services rendered under IPSA are akin to ITES, however, the Tribunal directed the Assessing Officer to benchmark the arm's length price of such services rendered under IPSA agreement by aggregating with ITES segment and applying the same set up comparables. Thus, he submitted, similar direction may be given in this year also. The learned Sr. Counsel further submitted, if the services provided under IPSA are considered as part of BPO service segment, the operating margin for combined BPO service segment for the impugned assessment year would stand revised to 18.33%. 29. The learned Departmental Representative agreed that the issue is covered by the decision of the Tribunal in assessment year 2008 09. 30. We have considered rival submissions and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has not benchmarked this particular transaction by aggregating it with other ITES, we are inclined to restore the issue to the Assessing Officer for undertaking the necessary exercise of benchmarking the transaction by aggregating with other ITES and determine the arm's length price by applying the average margin of the comparables selected under the ITES segment, subject to our direction contained in this order with regard to the comparables under ITES segment. 31. Facts being identical, we direct the Assessing Officer to decide the issue following the direction of the Tribunal in assessment year 2008 09, as reproduced hereinbefore. This ground is allowed for statistical purposes. 32. In ground no.19, the assessee has raised the issue of working capital adjustment. 33. We have considered rival submissions and perused the material on record. It has been brought to our notice by the learned Sr. Counsel for the assessee that while deciding similar issue in assessee s own case for the A.Y. 2008 09 in ITA no.7686/Mum./ 2012, dated 20th July 2018, the Tribunal has issued the following directions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units against the income of all eligible units. In other words, the Assessing Officer discarded the unit wise computation of deduction under sections 10A / 10AA of the Act followed by the assessee. Learned DRP also approved the decision of the Assessing Officer. The learned Sr. Counsel submitted, while deciding identical issue in assessee s own case for assessment year 2008 09 cited supra, the Tribunal has accepted assessee s claim of deduction under section 10A / 10AA of the Act. 37. The learned Departmental Representative fairly agreed that in assessment year 2008 09, the Tribunal has decided the issue in favour of the assessee. 38. We have considered rival submissions and perused the material on record. As could be seen, while deciding identical issue arising in assessee s own case for the assessment year 2008 09, the Tribunal following the decision of the Hon'ble Supreme Court in Yokogawa India Ltd., 391 ITR 274 (SC) has allowed assessee s claim of deduction under section 10A of the Act unit wise. The observations of the Tribunal in his regard are as under: 58. We have considered rival submissions and peruse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w assessee s claim of deduction under section 10A / 10AA in respect of IPSA revenue by holding that they are not in the nature of ITES. While doing so, he followed his decision in assessment year 2007 08 and 2008 09. 42. The DPR also upheld the decision of the Assessing Officer. 43. The learned Sr. Counsel for the assessee submitted, while deciding identical issue in assessment year 2008 09, the Tribunal has held that the services rendered under IPSA being in the nature of ITES, the assessee is eligible to claim deduction under section 10A of the Act. Further, he submitted, insofar as SEZ units are concerned, the assessee is eligible to claim deduction under section 10AA of the Act in respect of all revenue earned under IPSA including ITES. He submitted, this is because, section 10AA of the Act does not restrict only to income earned from ITES. He submitted, the aforesaid claim of the assessee has been accepted by the DRP in assessment year 2013 14 and 2014 15. 44. The learned Departmental Representative also agreed that the issue is covered by the decision of the Tribunal. 45. We have considered rival submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per grounds raised before us. 46. It is also noticed that learned DRP in assessee s own case for assessment year 2013 14 and 2014 15, has directed the Assessing Officer to allow assessee s claim of deduction under section 10AA of the Act in respect of revenue earned under IPSA. In view of the aforesaid, we direct the Assessing Officer to compute deduction under section 10A / 10AA in respect of IPSA income following the direction of the Tribunal and DRP as referred to above. This ground is allowed. 47. Grounds no.24, 25, 26 and 27 are not pressed, hence, dismissed. 48. In view of our decision in ground no.23, the additional grounds being grounds no.28 and 29, have become infructuous, hence, dismissed. 49. In the result, assessee s appeal is partly allowed. ITA no.1110/Mum./2014 Revenue s Appeal A.Y. 2009 10 50. Ground no.1, has already been dealt with while deciding grounds no.10 and 15 of assessee s appeal in ITA no.1671/Mum./2014, in the earlier part of the order. Therefore, separate adjudication is not required. 51. In ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58. Before us, the learned Sr. Counsel submitted, though in the grounds raised the assessee has raised dispute against a number of comparables, however, if three of the comparables selected by the Transfer Pricing Officer viz. Thirdware Solutions Ltd., Persistent Systems Ltd. and CAT Technologies Ltd., are accepted and further if DRP s order rejecting FCS Software Solutions Ltd. is upheld, the issue relating to other comparables would become academic as the assessee s margin would fall within 5% of the remaining comparables. Considering the aforesaid submissions of the learned Sr. Counsel, at the outset, we proceed to examine the comparability of the aforesaid four comparables. i) THIRDWARE SOLUTIONS LTD. 59. This company was introduced by the Transfer Pricing Officer as a fresh comparable and upheld by learned DRP. Objecting to the selection of this company, learned Sr. Counsel for the assessee submitted, the company is functionally different from the assessee as it is engaged in trading of software product apart from rendering software services. He submitted, considering the fact that the company is engaged in multiple ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Pricing Officer the assessee sought exclusion of this company as a comparable on account of functional differences and exceptional year of performance. The Transfer Pricing Officer rejecting the objections of the assessee selected the company as a comparable which was upheld by learned DRP. 63. The learned Sr. Counsel for the assessee submitted, before the DRP, the assessee had specifically contended that apart from sale of software services the company is also engaged in sale of software products and no segmental details are available. In this context, he drew our attention to the objections raised before learned DRP as well as the annual report of the company. Further, he submitted, learned DRP has not at all dealt with assessee s submissions. Thus, he submitted, the company being functionally dissimilar to the assessee cannot be treated as comparable. In support, he relied upon the following decisions: i) Cash Edge India Pvt. Ltd., ITA no.279/2016 (Del. HC); ii) PCIT v/s Finserv India Pvt. Ltd., ITA no.602/2016 CM no.30032/2016 (Del. HC); iii) Open Solutions Software Services v/s DCIT, IT Ano.7078/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude this company as a comparable. iii) CAT TECHNOLOGIES LTD. 66. Though, this company was not selected by the assessee in the transfer pricing study report due to functional difference and unavailability of data for the financial year 2010 11, however, in course of proceedings before the Transfer Pricing Officer, the assessee offered it as a comparable on the basis of current year data. However, the Transfer Pricing Officer rejected the company as a comparable since it was not selected by the assessee in the transfer pricing study report. 67. Learned DRP also agreed with the aforesaid decision of the Transfer Pricing Officer. 68. The learned Sr. Counsel for the assessee submitted, assessee had initial rejected this company as a comparable as data relating to the financial year relevant to the assessment year under dispute was not available. He submitted, subsequently, since the data relating to the current year was available, the assessee had proposed it as a comparable in the course of proceeding before the TPO. 69. Drawing our attention to the annual report of the company the learned Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. Undisputedly, assessee initially had not selected this company, as explained by the learned Sr. Counsel, was due to unavailability of data of the impugned assessment year. However, before the Transfer Pricing Officer, the assessee proposed it as a comparable on the basis of single year data available in public domain. Both, the Transfer Pricing Officer and learned DRP rejected the company as a comparable primarily on the reasoning that it was not selected by the assessee as comparable in the transfer pricing study report. Further, learned DRP has also observed that the company falls the diminishing revenue filter. On a perusal of the Profit Loss Account of the company forming part of the annual report, it is noticed that a substantial part of the revenue earned by the company during the year is from software development and consulting services. Thus, prima facie it appears that the company is functionally similar to the assessee. In case of ACIT v/s M/s. Synechron Technologies Pvt. Ltd., ITA no.536/Pun./2015, dated 16th June 2017, the Tribunal while considering the comparability of this company to an assessee engaged in software development (IT) service found that, tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gments viz. IT, consulting, education and infrastructure management. Further, referring to the annual report of the company, it was submitted, 37% of the total revenue for the year is earned from education service segment. Thus, he submitted, the company fails 75% of IT income filter applied by the Transfer Pricing Officer. Further, drawing our attention to the website extract of the company, he submitted, it provides digital content service which is in the nature of ITES as per CBDT Notification no.S.O. 890(E) dated 26th September 2000. Thus, he submitted, the company being functionally different cannot be treated as comparable. In support of such contention, he relied upon the following decisions: i) Exfo Electro Optical Engineering India Pvt. Ltd. v/s DCIT, ITA no.1347/Pun./2015; ii) M/s. Bristlecone India Ltd/ v/s ACIT, ITA no.1670/Mum./ 2015; iii) Barclays Technology Centre India Pvt. ltd. v/s DCIT, ITA no.1251/Pun./2015, etc.; iv) ACIT v/s M/s. AT T Global Business Service India Pvt. Ltd., IT(TP)A no.171 190/Bang./2016; v) ITO v/s Magic Software Enterprises India Pvt. Ltd., I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report assessee had accepted it as a comparable using multiple year data, however, in course of proceedings before the Transfer Pricing Officer assessee sought exclusion of the company on account of functional difference and extra ordinary event taking place during the year. Rejecting the claim of the assessee, the Transfer Pricing Officer accepted the company as a comparable. Learned DRP also upheld the decision of the Transfer Pricing Officer on the reasoning that the assessee having selected it a comparable, cannot seek exclusion of the same. 80. Drawing our attention to the annual report of the company placed in the paper book, the learned Sr. Counsel for the assessee submitted, the company is engaged in providing healthcare revenue cycle management services, legal process outsourcing services and provisions of software as a service (SaaS), he submitted, separate segmental information relating to the aforesaid services are also unavailable. He submitted, the company also has software product which renders it incomparable to the assessee. He submitted, due to the aforesaid functional dissimilarity, the company was rejected as a comparable in assessee s own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we direct the Assessing Officer to exclude this company as a comparable. 83. Considering the submissions of the learned Sr. Counsel for the assessee that with exclusion of this company, operating margin of the assessee would fall within 5% of the arithmetic mean of the rest of the comparables selected by the Transfer Pricing Officer, we do not intend to deal with the acceptability or otherwise of the rest of the comparables disputed before us under ITES segment and leave the issue relating to comparability of these comparables open for adjudication if they arise in any other assessment year in future. 84. Ground no.7, of this appeal is identical to ground no.6 of ITA no. 1671/Mum./2014. Our decision therein will apply mutatis mutandis to this appeal as well. 85. In ground no.20, the assessee has raised the issue of working capital adjustment. This ground is identical to the ground no.19 of ITA no.1671/Mum./2014. Our decision therein will apply mutatis mutandis to this appeal also. 86. In ground no.23, the assessee has challenged disallowance of deduction claimed under section 10A / 10AA of the Act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds are not pressed, hence, dismissed. 94. In the result, appeal is partly allowed. ITA no.459/Mum./2015 Revenue s Appeal A.Y. 2010 11 95. Ground no.1, is identical to ground no.1 of ITA no.1110/Mum./ 2014. Following our decision therein, we uphold the decision of the DRP in including R. Systems Ltd. as a comparable. 96. Ground no.2, is against rejection of FCS Software Solutions Ltd. as a comparable. 97. We have dealt with this issue while deciding ground no.13 of assessee s appeal being ITA no.501/Mum./2015. Accordingly, ground is dismissed. 98. Ground no.3 of this appeal is identical to ground no.2 of ITA no.1110/Mum./2014. Following our decision therein, we uphold the decision of learned DRP. Accordingly, ground is dismissed. 99. Grounds no.4 and 5, being general in nature, do not require adjudication. 100. In the result, Revenue s appeal is dismissed. 101. To sum up, assessee s appeals are partly allowed and Revenue s appeals are dismissed. Order pronounced in the op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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