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TMI Blog2021 (3) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Elxsi Ltd.[ 2011 (8) TMI 782 - KARNATAKA HIGH COURT] . We do not find any infirmity in such view taken by Ld. CIT(A) and the same is upheld. - ITA No. 536/Bang/2017 - - - Dated:- 11-3-2021 - Chandra Poojari, Member (A) And Beena Pillai, Member (J) For the Appellant : Pradeep Kumar, CIT ( DR ) For the Respondents : Aliasgar Rampurawala, C. A. ORDER Beena Pillai, Member (J) 1. Present cross appeals has been filed by revenue and assessee against order dated 03/11/2016 passed by Ld. CIT(A)-1, Bangalore for assessment year 2010-11 on following grounds of appeal: ITA No. 536/B/2070 1. The order of the Learned CIT(Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. CorDorate tax issue: (i) The Ld. CIT(A) erred in directing the AO to exclude expenses incurred in foreign currency on travel etc., of ₹ 1,13,46,602/- and Communication charges (internet) of ₹ 18,10,315/- from the Total Turnover also for computing the deduction allowable u/s. 10A of the Act following the ratio laid down by the Hon'ble High Court of Karnataka in the case of Tata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other benches of ITAT instead of deciding the comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee. (iii) The Ld. CIT(A) erred in fact and in law in demanding that a comparable may be considered as engaged in Software Product business merely because it has developed software product by following software development process without having legal ownership on such software product. 4. ITES Segment: (Eclerx Services Ltd. and Infosys BPO Ltd.) (I) The Ld. CIT(A) erred in fact and in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the I.T. Act. (ii) The Ld. CIT(A) erred in trying to find out exact replica of the assessee for determining the ALP based on such replica, even when the law and the international jurisdictional jurisprudence itself recognize that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method. (iii) The Ld. CIT(A) erred in fact and law in disregarding the position of law that there could be difference between the enterprises compared under the TNMM m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not providing any specific direction and upholding the learned TPO's approach for applying the persistent loss filter and thereby rejecting Alisec Technologies which is otherwise functionally comparable to the Respondent. Software development segment 6. That the decision of the learned CIT(A) is appropriate based on the facts and in law in rejecting Infosys Ltd. since it has presence of significant intangibles assets and brand and is engaged in product development and is functionally not comparable to the Respondent. 7. That the decision of the learned CIT(A) is appropriate based on the facts and in law in rejecting KALS Information Systems Limited since it is engaged in development of product and has significant inventory and is functionally not comparable to the Respondent. 8. That the decision of the learned CIT(A) is appropriate based on the facts and in law in rejecting Tata Elxsi Limited since it is engaged in performing varied services which is functionally not comparable to the Respondent. 9. That the learned CIT(A) erred in not providing any direction to the contentions of the Respondent, thereby upholding the learned TPO's approach of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned TPO's approach of including Acropetal Technologies Limited (Seg) as it is engaged in product development and is functionally not comparable to the Respondent. 17. That the learned CIT(A) erred in not providing any direction to the contentions of the Respondent, thereby upholding the learned TPO's approach of including Fortune Infotech Limited as it is engaged in design and development of application which is in nature of IT services and is functionally not comparable to the Respondent. 18. That the learned CIT(A) erred in not providing any direction to the contentions of the Respondent, thereby upholding the learned TPO's approach of including ICRA Online Limited (seg) as it is engaged in KPO activities and is functionally not comparable to the Respondent. 19. That the learned CIT(A) erred in not providing any direction and upholding the approach of the learned TPO approach in respect of the negative working capital adjustment granted. Corporate Tax 20. That the decision of the learned CIT(A) is appropriate in directing the AO to exclude expenses incurred in foreign currency towards travel and communication from the export turnover an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OP/TC as the PLI thereby computing its margin at 15% under software development service segment and 18% under IT enabled service segment. Assessee used following filters to shortlist the comparables under both the segments: Sl No Filter adopted in TP Study 1 Companies with a ratio of R D expenses to sales of less than 3% were selected 2 Companies with a ratio of net fixed assets to sales less than 200% were selected 3 Companies that had average sales less than INR 1 crore were rejected 4 Companies with networth less than zero were rejected 5 Companies with a ratio of the sum of advertising, marketing and distribution expenses to sales of less than 3% were selected 7. Assessee used 16 comparables having 13% as the average margin for software development service segment and 15 comparables having 14% as average margin under ITES service segment thereby holding the transactions under both the segments to be at arms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed Technologies India Ltd .12% 7. Infosys B P 0 Ltd 24% 8. K N M Services Pvt Ltd 14% 9. Optimus Global Services Ltd -2% 10. Sparsh B P 0 Services Ltd 6% 11. Crossdomain Solutions Pvt Ltd 28% 12. Omega Healthcare Management services 9%. 13. B N R Udyog Ltd 38% 14. In House Productions Ltd 4% 15. Timex Group India Pvt. Ltd. 8% Mean 14% 8. Dissatisfied with the comparability analysis in the trans-apprising study by assessee, the Ld. TPO adopted following filters to reject most of the comparables selected by assessee: Companies whose current year data is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.05% AVERAGE MARGIN 22.71% Comparables selected by TPO under ITES segment: SL.NO NAME PLI 1 ACCENTIA TECHNOLOGIES LTD 43.06% 2 ACROPETAL TECHNOLOGIES LTD (SEG.) 22.27% E-CLERX SERVICES LTD 55.97% 4 FORTUNE INFOTECH LTD 22.80% 5 ICRA ONLINE LTD(SEG) 43.39% 6 INFORMED TECHNOLOGIES INDIA LTD 26.15% 7 IN FOSYS BP 31.23% 8 COSMIC GLOBAL LTD 14.97% 9 SUN DARAM BUSINESS SERVICES LTD -12 . 31% 10 J EEVAN SCIENTIFIC TECHNOLOGY LTD.(SEG.) 21.05% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignificant intangibles. Assessee uses process, technical data software, quality standards etc., owned by the AE for provision of services. Other than that, assessee owns furniture fixtures office equipments computer is except rougher purposes of carrying out its business activity. Risks assumed: It is submitted in the TP study that assessee do not undertake any market risk any product/service liability risk any technology risk any credit risk research and development risk is also not undertaken by assessee. The only minimal risk that is borne by assessee is towards the manpower risk with respect to the segments as assessee has to recruit and retained key technical personnel. Assessee also incurs the foreign exchange risk as the remuneration is received by assessee under foreign currency. Assessee is compensated on a cost plus model and is categorised as a contract service provider that does not assume any price risk in case of development. Based on the above, we shall undertake the comparability analysis of the comparables sought for inclusion by revenue. 15. Ground No. 3-4 15.1. Revenue is aggrieved by the exclusion of Infosys Technologies Ltd., Kals Informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts as has been observed by coordinate bench of this Tribunal in case of DCIT vs Electronics for Imaging India Pvt. Ltd., reported in (2016) 70 Taxmann.com 299 for assessment year 2010-11, and various other decisions in support of his contentions. 16. We have perused submissions advanced by both sides in light of records placed before us. 16.1. Decision of coordinate bench of this Tribunal in case of Autodesk India Pvt. Ltd., vs DCIT reported in (2018) 96 Taxmann.com 263 has analysed every conflict in view and concluded that the law laid down in case of Genesis integrating systems India private limited (supra) has to be followed. The relevant observations of this Tribunal are as under: 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra), we proceed to examine the said iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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