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TMI Blog2019 (3) TMI 1928X X X X Extracts X X X X X X X X Extracts X X X X ..... Services ( ITeS ), Business Support Service ( BSS ) and Marketing Support Services ( MSS ), alleging that the same to be not at arm's length in terms of the provisions of section 92C(1) and 92C(2) of the Act read with Rule 10D of the Income Tax Rules, 1961 ( the Rules ). 2. That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrary selecting comparables companies based on incorrect appreciation of functional asset and risk profile in relation to the IT Segment of the appellant. 3. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily rejecting certain functionally comparable companies selected by the Appellant in respect of its IT segment on a subjective basis. 4. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily rejecting certain functionally comparable companies selected by the Appellant in respect of its ITes segment on a subjective basis. 5. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in holding CRISIL Limited as a valid comparable for the Appellant s BSS Segment. 6. That on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. This is also clear from the annual report of the company wherein it has been clearly stated that company is engaged in software development and software products. This document is placed at page 470 of Volume-2 of the paper book. The company has reported three segment viz. software development segment, translation interpretation and training receipts. None of which are comparable to assessee s IT support services segment thus, completely different profile in terms of the profile of the assessee. There is no bifurcation of software services and sale of software products. This is provided at page 471 of Volume-2 of the paper book. The Ld. AR further submitted that the TPO in the show cause notice had merely selected this company alleging that the assessee has itself selected the said company in assessment year 2008-09. This position taken by the TPO is factually incorrect as KALS was not considered as comparable for the previous year by the assessee and the TPO did not make any adjustment to the arm s length price (ALP) of IT segment of the assessee in the said year. With this regard, TPO s order for assessment year 2008-09 and final set of comparable in TP study for assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) In the above view, as the findings of the Tribunal being one of the fact which has not been shown to be perverse, the question as proposed does not give The Hon'ble Bombay High Court upheld the findings of Tribunal wherein KALS Ltd. is functionally not comparable and therefore, has to be excluded from the list of comparables. 5.2 In view of the matter and following the decision of the Hon'ble Bombay High Court, KALS Information Systems Ltd. cannot be treated as comparable company and the TPO is directed to exclude KALS from final list of comparable companies with regard to IT Segment. (B) Compucom Software Ltd. ( Compucom ) : 6. The Ld. AR of the assessee submitted that Compucom is engaged in diversified services such as ready-made software products, Learning Solutions, Wind power generation and Treasury. Website extracts are annexed at page 477 of Volume-2 of the paper book and annual report is annexed at page 478 of Volume-2 of the paper book. The Ld. AR further stated that even under the software services segment it is engaged in ITes/BPO services. This has been clearly stated in annual report of the company on page 29 of the annual report compilatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D Services. Mindtree was selected as comparable as segmental level i.e. software segment of Mindtree was comparable to the assessee s IT segment. Segmental data in case of Mindtree is readily available and thus, merely because assets and liabilities cannot be bifurcated on segmental basis cannot be a reason for taking Mindtree as a comparable at entity level. Meaning thereby, even though it was comparable as segmental legal however, Mindtree is not a comparable according to the assessee at entity level. 7.1 The Ld. AR of the assessee has placed reliance on the decision of Principal Global Services Vs. DCIT (supra.). We observe that the Pune Bench of the Tribunal in the aforesaid case has held as under: 26. with respect to the dispute in the software services segment, another point made out by assessee was that the margin of Mindtree Consulting Ltd. considered by the TPO at 27.60% was wrong. In this context, the Ld. Representative for the assessee pointed out that before the TPO, assessee had asserted that only the IT services segment of the said concern be considered as a comparable and not the entire entity and therefore the margin relatable to the IT services segment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gin relatable to the IT services segment alone to benchmark assessee's activity of Provision of software services to its associated enterprises. Thus, on this aspect also assessee succeeds. Therefore, as observed in the aforesaid case by the Pune Bench of the Tribunal, similarly it is directed that the lower authorities to exclude the margins relatable to the R D services segment of the said concern and consider only the margin relatable to the IT services segment alone to benchmark assessee's activity of Provision of software services to its associated enterprises. Therefore, Mindtree Ltd. has to be also excluded from the final list of comparables. (D) F.C.S Software Solutions Ltd. ( FCS Software ) : 8. The Ld. AR of the assessee submitted that FCS Software is engaged in the business of Software Development IT enables Services. As per the annual report of the company for F.Y.2008-09, it is engaged in (i) IT Consultancy (ii) E-learning division and (c) Infra management. The Company is also engaged in product development. Website extract is placed at page 490, 491 and 494 of Volume-2 of the paper book. The same is evident from the annual report at page 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities was less than 75% of the total revenue and therefore it was excludible from the list of comparables. The Ld. Representative pointed out that the Tribunal in the assessee's own case for assessment year 2008-09 vide its order dated 11.02.2015 (supra) has excluded the said concern from the final set of comparables. It has also been pointed out that for assessment year 2010-11 in assessee's own case the said concern has been excluded from the final set of comparables as per the order of the DRP, a copy of which has been placed in the paper book at pages 1674 to 1738. 13. The Ld. CIT-DR appearing for the Revenue has not contested the assertions of the assessee that under similar circumstances, the said concern has been directed to be excluded from the final set of comparables by the Tribunal in the assessee's own case vide order dated 11.02.2015 (supra). 14. We have carefully considered the rival submissions. In this context, we have perused the order of the Tribunal in assessee s own case dated 11.02.2015 (supra.) wherein the following discussion is relevant: 23. We have carefully considered the rival submissions. In fact the TPO has reproduced in para 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and service technicians on product knowledge, concepts, strategies, risk and finance, compliance and technology. 25. Ostensibly, the aforesaid services involve setting up of support centres and remote maintenance, which have been duly categorized as ITES by the CBDT's Circular dated 26.09.2000 itself, which has been reproduced by the TPO in the impugned order. Therefore, even the said segment is not to be included as part of the software development services, as asserted by the assessee. Once the segment of application support and infrastructure management services are removed along with the exclusion of E- learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. Thus, on this aspect, assessee succeeds.' 15. Ostensibly, the Tribunal has excluded the said concern on the ground that its income from software development services was below 75% of the total income. The fact-situation noted by the Tribunal in its order dated 11.02.2015 (supra) continues to hold in the present year also. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the company on the ground that the said company provides services to only banking industry. However, he has not doubted the functional comparability of the comparable because it caters to a certain industry even though it performs the same functions as that of the assessee. 10.1 We have perused the case records and have given considerable thought to the order of TPO/DRP and submissions of the assessee. In this respect, whether Techprocess Software Solutions Ltd should be included as comparable or not, needs verification by the TPO and therefore, the matter is restored to the file of TPO for verification and adjudication after providing reasonable opportunity of hearing to the assessee. (F) Reliance Infosolutions Private Limited ( Reliance Infosolutions ) 11. The Ld. AR of the assessee submitted that the company is functionally comparable to the assessee. The company is sought to be included on the facts that Reliance Infosolutions Ltd. is engaged in Information Technology (IT) services and solutions. It offers software development and customization, software consultancy. The TPO has not objected to the functional comparability of the comparable, the limited challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book Volume-2. The TPO has not objected to the functional profile of the company, however, the limited challenge is that the company operates in domestic market. Domestic operations of Bells Softtech would not result in distorting the functional comparability. Further, on the facts it is pertinent to mention that the company does not operate in the export segment although the earning from exports is low. The Ld. AR of the assessee in this regard referred page 523 of Volume-2 of the paper book. 13.1 We have perused the case records and order of TPO. The TPO has observed that Bells Softtech is selling its services in the domestic market only whereas the assessee is providing services abroad. On this ground, TPO rejected the Bells Softtech to be comparable to that of the IT segment of assessee. However, the Ld. AR submits that the TPO has not categorically objected to the functional profile of the company and domestic operations of Bells Softtech do not result in distorting the functional comparability. These are the issues which the TPO should verify and adjudicate upon. Therefore, we remand the matter to the file of TPO to verify and adjudicate after providing reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a concern with a turnover of ₹ 9028 crores whereas the assessee before it i.e. Agnity India Technologies Pvt. Ltd. was having a turnover of ₹ 16.09 crores. The Hon'ble High Court also noted the difference in spending on advertisement, sales promotion and Research 'Development by Infosys Technology Ltd. and Agnity India Technologies Pvt. Ltd. Whereas Infosys Technologies Ltd. was s end in substantial sums on advertisement, sales, promotions, brand, building and R D activity, and Agnity India Technologies Pvt. Ltd.'s spending on such activities was NIL. Agnity India Technologies Pvt. Ltd. was a captive service provider for its associated enterprises, which was not the case of Infosys Technologies Ltd. Under these circumstances, the Hon'ble Delhi High Court approved the decision of the Tribunal which held that Infosys Technologies Ltd. could not be compared with M/s Agility India Technologies Pvt. Ltd. having regard to the financial data etc. of the two concerns. Considering the aforesaid parity of reasoning, it has to be appreciated in the present case that the activities undertaken by Infosys BPO Ltd. cannot be qualitatively compared with the activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of PTC Software (India) (P) Ltd. (supra). 36. On the other hand, the Ld CIT-DR referred to the discussion made by the TPO in para 11(1) of the order by pointing out that the said concern was a part of the search conducted by the assessee also. Therefore, according to her, the said concern cannot be excluded at the present stage. 37. In our considered opinion, the point made out by the Ld. CIT-OR that the assessee had initially selected the said concern as comparable cannot be the sole basis to reject assessee plea for exclusion of the said concern if the assessee is otherwise able to justify it on facts. Quite clearly, the difference in the business model undertaken by the assessee vis-a-vis the said concern cannot be denied. In the case of Maersk Global Service Center (India) (P) Ltd. (supra), the Mumbai Bench of the Tribunal noted that a concern which was outsourcing most of its work could not be construed to be a good comparable with an assessee who was carrying out the work by itself. To the similar effect is also the decision of the Bangalore Bench of the Tribunal in the case of 2417 Customer.Com (P) Ltd. v. Dy. CIT [2013] 140 ITD 344/[2012] 28 taxmann.com 258 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (L) In House Productions Ltd.- Healthcare Segment ( In House ) : 18. The Ld. AR of the assessee submitted that the company provides medical BPO services. The same is evident from the segmental information provided in Schedule 12 of the balance sheet which is placed at Page 556 of Volume 2 of the Paper book. The TPO has not challenged the functional comparability of the company, however, the limited challenge is that the financials are unreliable as there was a fire in the company. Financial statements of the company have been audited and the Auditors have also not commented adversely on the reliability of the data. Healthcare division of the company is engaged in healthcare BPO services and hence is considered as a comparable to the Appellant's ITeS segment and the same can be evidenced from the annual report for FY 2008-09 which is placed at page 561 of the paper book Volume 2 for segmental result. The Ld. AR further submitted that this issue was not adjudicated by the DRP and therefore matter may be set aside to the file of TPO for verification. 18.1 On perusal of the records with regard to this issue, we accept the prayer of the Ld.A.R. and thereby we set aside thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we deem it fit and proper to restore the matter back to the file of the TPO, who shall examine the financial results of the said concern for two years prior and subsequent to the assessment year under consideration so as to formulate a belief as to whether or not it is a consistently loss-making concern. If the Assessing Officer/TPO comes to conclude, having regard to the aforesaid trend analysis that it is a consistently loss-making unit then the same is liable to be excluded otherwise the said concern cannot be excluded merely because in the year under consideration it has suffered a loss. For the aforesaid purpose, we deem it fit and proper to restore the matter back to the file of hall allow a reasonable opportunity the assessee of being heard and thereafter pass an order afresh as per law on this aspect. From the above, it is evident that this matter was remand back to the file of TPO for verification and adjudication. Respectfully following the same, we set aside this issue to the file of TPO for verification and thereafter, he shall pass a speaking order on this aspect after providing reasonable opportunity of hearing to the assessee. (N) Cameo Corporate Services L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper Book wherein is placed a copy of the Annual Report of the said concern for the relevant period. By referring to page 477 of the Paper Book which deals the business operations of the said concern it is pointed out that the said concern was engaged in rendering back office support services and therefore it was a good com parable. 41. In this context, we have considered the submissions made by the assessee before the DRP also which are emerging from page 116 of the appeal Paper Book. Even before the DRP, assessee had asserted that the Annual Report of the said concern was duly submitted to the TPO and therefore it could not be said that the financial data of the said concern was not available in public domain. The activities rendered by the said concern have also been detailed in the submissions before the DRP and it was asserted that the said concern is functionally comparable to assessee's activities of providing back office support services to the associated enterprises. Thus, assessee justified the inclusion of the said concern in the final set of comparables. In our considered opinion, the assertions made by the assessee before the lower authorities and as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h RPT for assessment year 2009-10 has been discussed by the Hon'ble Mumbai Bench of the Tribunal in the case of TPG Capital India Pvt. Ltd. Vs. DCIT in ITA No.7594/MUM/2014. In this case, the Mumbai Bench of the Tribunal has observed and held as under: (1) Crisil Ltd. (Segment Research Service) The Ld. A.R at the very outset submitted that the co-ordinate bench of the Tribunal while disposing of the appeal of the revenue so filed in the case of Dy. CIT v. Temasek Holding Advisors (P) Ltd. [2014] 47 taxmann.com 311/151 ITD 458 (Mum. - Trib.). had therein upheld the order of the DRP who had excluded Crisil Ltd. (supra) as a comparable. for the reason that It had RPT of 44.51 %. The Ld. A.R further drew our attention to the segment reporting of the aforesaid comparable' (Page 649 of the APB), which therein revealed that the advisory segment comprising international advisory and risk management practice had been transferred to a wholly owned subsidiary with effect from 01.04.2004. Thus, on the basis of the aforesaid facts it was averred by the Ld. A.R that the aforesaid comparable so adopted by the TPO was even otherwise functionally different. The Ld. A.R in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Crisil Ltd. (supra) had been transferred to its wholly owned subsidiary. coupled with the fact that a coordinate benches of the Tribunal in the case of: Temasek Holdings Advisors (P) Ltd. (supra) and Avenue Asia Advisors (P) Ltd. (supra) taking cognizance of the RPT of more than 25% in the case of the said comparable had upheld the exclusion of the said comparable. viz Crisil Ltd. (supra). as well as the observations of another coordinate bench of the Tribunal in the case of: IIML Asset Advisors Ltd. (supra) therein observing that the aforesaid comparable was functionally incomparable, we are persuaded to be in agreement with the contention of the Ld. A.R that the TPO had wrongly selected the aforesaid comparable. We thus in light of our aforesaid observations are thus of the considered view that the aforesaid party, viz M/s. Crisil Ltd. (supra) has to be excluded from the list of the comparables selected by the TPO and thus direct accordingly. That on perusal of the order of the Mumbai Bench of the Tribunal with regard to CRISIL Ltd, it has been held by the Tribunal that it had RPT of 44.51 % and therefore, the said company was excluded from the list of comparables select ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of assessee before us is that Agrima Consultants International Ltd. was functionally not comparable as it was providing technical and technology related consultancy and was consultant to leading financial institutions, hence it was engaged into financial consultancy. The learned Authorized Representative for the assessee pointed out that inclusion / exclusion of a concern can be raised at any stage as held by Special Bench of Chandigarh Tribunal in DCIT Vs. Quark Systems Pvt. Ltd. (2010) 38 SOT 307 (CHD) (SB), which has been approved by the Hon ble High Court of Punjab and Haryana in CIT Vs. Quark Systems Pvt. Ltd. (2011) 244 CTR 542 (P H). The learned Authorized Representative for the assessee further placed reliance on the decision of Pune Bench of Tribunal in Dover India (P) Ltd. Vs. DCIT (supra), wherein the said concern was excluded being not functionally comparable to a concern providing market support services. 23. The learned Departmental Representative for the Revenue has strongly objected to the said issue raised by assessee for the first time before the Tribunal. 24. We find no merit in the stand of learned Departmental Representative for the Revenue espec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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