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TMI Blog2022 (2) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The assessee is directed to substantiate its claim by way of documentary evidence before the AO. X X X X Extracts X X X X X X X X Extracts X X X X ..... Software Exports Limited • Sankhya Limited • Harbinger Systems Private Limited 5. Without prejudice to the above mentioned grounds, on the facts and circumstances of the case and in contrary to law, the Ld. TPO erred by incorrectly computing the margin of following comparable companies: • CG-V AK Software & Exports Limited • Larsen & Toubro Infotech Limited (segmental) • Aspire Systems (India) Private Limited • Infosys Limited 6. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in considering the facilitation cost of CDK Global (India) Private Limited incurred by the Appellant for transition of sale of dealer services division as the cost of the Appellant and thereby imputing a mark-up on such cost. Further, the Ld. TPO erred in holding this transaction as a deemed international transaction and the Hon'ble DRP erred in holding this transaction as an international transaction. B. Provision of Information Technology enabled Services ('ITeS') 7. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO has erred and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive unit, and those undertaken by the alleged comparables. 12. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding/confirming the action of the Ld. TPO in not allowing working capital adjustment, which was duly demonstrated before the Ld. TPO/the Hon'ble DRP, in accordance with the provisions of Rule 10B of the Rut to account for differences between the international transactions V undertaken by the Appellant, being a captive unit, and those undertaken by the alleged comparables. 13. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and the Hon'ble DRP further erred in upholding the action of the Ld. TPO in confirming the application/incorrect application of the following filters: • Rejection of companies with different financial year ending; • Rejection of companies with export revenue less than 75% of the total revenue; • Rejection of companies with peculiar economic circumstances. 14. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3B) of the Act for the AY 2016-17, determining a net taxable income of INR 1,57,81,26,170 and thereby determined a income-tax demand of INR 37,69,92,133 under the normal provisions of the Act and a tax demand towards dividend distribution tax ('DDT') amounting to INR 41,72,50,334 along with interest levied under Section 115P of the Act for an amount of INR 16,88,87,040, is contrary to the facts and circumstances of the case and in law and is liable to be quashed. 21. On the facts and circumstances of the case and in law the Ld. AO erred in not granting deduction claimed under Section 80G of the Act amounting to INR 10,43,860 and further erred in not granting an opportunity of being heard to the Appellant, to present its case on merits, before denial of such deduction. 22. On the facts and circumstance of the case and in law, the Ld. AO erred by granting credit of tax deducted at source ('TDS') of INR 3,08,05,249 as against the eligible TDS credit of INR 3,08,07,638 available to the Appellant, thereby resulting in short grant of credit of TDS of INR 2,389. 23. On the facts and circumstance of the case and in law, the ld. AO erred by granting credit of advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Briefly the facts of the case are that the assessee company M/s. ADP Private Limited with PAN of AAACW2655C is engaged in providing broad range of software development, maintenance & support services and Information Technology Enabled Services to its Associated Enterprises. It filed its Return of Income for the A.Y. 2016-17 on 30.11.2016 declaring an income of ₹ 1,07,39,06,220/- under normal provisions and book profits at ₹ 100,31,48,751/- u/s. 115JB. The case was selected for scrutiny and notices u/s. 143(2) dated 24.07.2017 & 09.08.2018 were issued and served on assessee electronically. Subsequently notices u/s. 142(1) were issued, calling for information electronically. In response, Assessee Company submitted the information electronically. 2.1. The AO observed that since the assessee had international transactions with Associate Enterprises, in accordance with the provisions u/s. 92CA of the IT Act, the case was referred to the Transfer Pricing Officer (TPO), Hyderabad with prior approval of Pr. CIT-1, Hyderabad. Order u/s. 92CA(3) was passed by TPO on 31-10-2019 by arriving at an adjustment of ₹ 27,83,27,552/- towards software development segment, an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authorities & submitted that L & T Infotech is engaged in rendering of software services and hence, functionally comparable to assessee. In this regard, he has drawn reference to Note T(3)(iii) pertaining to earnings in foreign exchange earnings, which are placed at page No. 1314 of the paper book volume No. 3 of assessee's paper book. 4.3. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We find substance in the submissions of the ld. AR and on going through the financial statements of Larsen & Toubro Infotech Ltd., in particular at page Nos. 1249 of paper book - Volume - 3 disclosure under the Companies Act, 2013, we observe that the company information system resource centre Pvt. Ltd. (ISRC) was amalgamated with the company with effect from September, 21, 2015 and the appointed for the scheme was October, 17, 2014, which reads as under: "Pursuant to the Scheme of Amalgamation sanctioned by the Hon'ble High Court of Bombay vide its order dated September 04, 2015, Information Systems Resource Centre Pvt. Ltd. (ISRC) was amalgamated with the Company with effect from September 21, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his company from the list of comparables for determining ALP by observing as under: "27. As regards Persistent Systems Ltd., the objections of the assessee are as under: a) The Company is functionally not comparable. It is engaged in selling of the following: i. Software products (IP); ii. Platforms (Solutions & Integration); and iii. services (product engineering) b. There are no segmental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corporate Information "Tata Elxsi Ltd. was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry." 29. We find that in the case of Infor (India) (P.) Ltd. vs. ACIT in ITA No. 2307/Hyd/2018, the Coordinate Bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental details between software products and services. 28. In the case of Tata Elxsi, the assessee has taken the following objections: a) It is not functionally comparable to the assessee. In the financial statements of the company, the nature of business carried out by Tata Elxsi is given below: i) Corporate Information "Tata Elxsi Ltd. was incorporated in 1989. The Company provides product design and engineering services to the consumer electronics, communications and transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry." 29. We find that in the case of Infor (India) (P.) Ltd. vs. ACIT in ITA No. 2307/Hyd/2018, the Coordinate Bench of the Tribunal has considered similar objections of the assessee therein and has held that these two companies along with Thirdware Solutions Ltd. is not comparable to the software development company like the assessee before us. The relevant portions has been reproduced by us in the above paras. Respectfully following the same, these two companies are also directed to be excluded from the final list of ITA No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in addition to providing software development services to its associated enterprises, it had also earned foreign exchange from export of goods on FOB basis. The event of export of goods was also mentioned in notes and also in the Profit and Loss Account, where revenue from sale of software was declared. The segmental details of two activities carried on by the said concern were not available and in the absence of the same, the concern could not be equated as functionally comparable to a concern which was providing software development services to its associated enterprises. Applying the same set of reasoning as in the paras hereinabove, we hold that Infobeans Systems Pvt. Ltd. is not comparable to the assessee". 22. Respectfully following the same, we direct that Infobeans be excluded from the final list of comparables in this case also. 7.4. On perusal of the order of the coordinate bench of this Tribunal and on perusal of the financial statements of Infobeans Technologies Ltd., we observe that the company is functionally not comparable and no segmental details are available. Therefore, the coordinate bench did not consider this company as comparable in assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the respective parties to the transactions. 4. Conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets the laws and govt. orders in force, cost of labour and capital in the markets, the laws and government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 9.1. He further submitted that this company offers end to end business solutions including product support, product engineering and lifecycle solutions, artificial intelligence, software products, business platforms and solutions. Further, he submitted that it has a turnover of ₹ 53,983 crores whereas assessee's turnover is ₹ 437 crores and the turnover of this company is 123 times more than assessee. He, therefore, submitted that this company cannot be compared as the different in its size and scale of operations have a direct impact on their profitability. He relied on various decisions of ITAT including the decision in ITA No. 2233/Hyd/2018 for AY 2014-15 wherein this company is excluded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services as well as diversified activities like artificial intelligence, products services, platforms, consulting etc. Also onsite revenue was 52.7% and no segmental details like services, consulting products are available. In view of the above observations, the coordinate bench in assessee's own case for AY 2014-15 directed to exclude this company as comparable. Respectfully following the said decision, we direct the AO/TPO to exclude this company as comparable from the list of comparables. 10. Thirdware Solutions Ltd.: The ld. AR submitted that this company is functionally different to assessee for the following reasons: 1. This company earns revenue from sale of products, evident form purchases of stock in trade of ₹ 39.88 crore as per P & L Account. 2. It is engaged in diversified activities, i.e. professional, technical and business and services and IT consulting services. 3. The segmental details between software services and consultancy services are not available. 4. It has revenue from subscripting and training ₹ 32.59 lakhs and also income from licensing amounting to ₹ 8.77 lakhs and, therefore, functionally not comparable. He relied various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnologies India Pvt. Ltd. vs. ITO, (2015) 60 taxmann.com 405; iv) PCIT vs. S.T. Ericsson India Pvt. Ltd. ITA No. 821/2017, dated 31.01.2018; v) S.T. Ericsson India Pvt. Ltd. vs. ACIT, ITA No. 1672/Del./2014; vi) Dialogic Networks India Pvt. Ltd. vs. ACIT, ITA No. 7280/Mum/2012, dated 27.07.2018; and vii) Accenture Services Pvt. Ltd. vs. ACIT, (2018) 96 taxmann.com 37. The learned Departmental Representative submitted, before the Transfer Pricing Officer the assessee has not objected to the selection of this company as a comparable. He submitted, only in subsequent stages, the assessee has objected to selection of the aforesaid company by raising new grounds. He submitted, since the issue of development of product by this company and unavailability of segmental details, were not raised before the Transfer Pricing Officer, it requires verification. 38. We have considered rival submissions and perused materials on record. Though, it may be a fact that the assessee may not have objected to selection of this company before the Transfer Pricing Officer, however, the assessee raised objections against selection of Infor Global Solutions India Pvt. Ltd. this company before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as comparables. For this purpose, he placed reliance upon the decision of the Bangalore Tribunal in the case of First Advantage Offshore Services Pvt. Ltd. vs. Dy. DCIT in ITA No. 1252/Bang/2010 wherein these companies were directed to be excluded from the list of comparables. 24. The learned D.R. however, supported the Orders of the authorities below. 25. Having heard both the parties and having gone through the material on record, we find that the TPO at page 37 of his order has brought out the differences between a product company and a software development services provider. Thus, it is clear that he is aware of the functional dissimilarity between a product company and a software development service provider. Having taken note of the difference between the two functions, the Assessing Officer ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available. Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are Software Solutions Limited:-The assessee has objected to these two companies to be treated as comparable mainly on the ground that both these companies are into product development. We find that in case of Intoto Software India (P.) Ltd. (Supra) the co-ordinate Bench of this Tribunal having found that these two companies are functionally different as they are into product development has directed excluding these companies for comparability analysis. Respectfully following the decision of the Coordinate Bench of this Tribunal in case of Intoto Software India (P.) Ltd. (supra) we also direct the Assessing Officer/TPO to exclude both these companies". (4) ITAT Delhi Bench (2017) 79 Taxmann.com 207 St. Ericsson India (P.) Ltd. vs. Addl. CIT "THIRD WARE SOLUTIONS LIMITED 47. This is again TPO's own comparable and assessee sought to exclude this company from the list of comparables on the ground of non-comparable services i.e. application implementation, management and development services. TPO rejected objections raised by the assessee by observing that software development, implementation and support services are various subsegments of software development service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, assessee has sought exclusion of the aforesaid company because it is into product development and purchase and sale of licences. It is further contention of assessee that though segmental details for sales is available but no expenditure bifurcation is available, which makes it impossible to correctly determine the operating margin of software services. On a perusal of the break-up of sales of this company as on 31 st March, 2009, the contention of assessee appears to be correct. Further, ITAT Bangalore Bench in case of 3DPLM Software Solutions Ltd. Vs. DCIT (supra), has held as under: "15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and subscription. However, the segmental profit and loss accounts for software development services and product development are not given separately. Further, as pointed out by the learned Authorised Representative, the Pune Bench of the Tribunal in the case of E-Gain Communications Pvt. Ltd. (supra) has directed that since the income ITA No. 2233 of 2018 ADP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of product development and trading in software and giving licenses for use of software. In this regard the learned Authorised Representative submitted that:- (i) This company is engaged in pro duct development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNE-TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company The ITA No. 2233 of 2018 ADP Private Ltd. Hyderabad Learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra) this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused and carefully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to KALS Information System Ltd., it was pointed out that the said company was earning income from sale of application software and segmental information with respect to software services were available. In respect of Thirdware Solution Ltd., it was pointed out that the said concern was engaged in software development, trading of software licences and training implementation activities apart from software development. Another contention was raised that Thirdware Solution Ltd. was super profit earning company and was also engaged in the business of software licences and trading of implementation activities. The Tribunal taking note of the Special Bench decision in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT vide ITA No. 7466/M/2012 in respect of super profits and inclusion of concern Thirdware Solution Ltd., held that the said concern was not comparable and observed as under:- "29. We have considered the rival arguments made by both the sides. We find the Special Bench of the Tribunal in the case of Maersk Global Centres (India) Pvt. Ltd. Vs. ACIT vide ITA No. 7466/Mum/2012 has observed as under: Schedule: Sales As on 31.3.2019 As on 31.3.2018 Sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the assessee is a software developer whereas Thirdware Solutions Ltd. is engaged in the business of sale-cum-licence of software which is available from the audited accounts, the details of which are as under: Apart from the above the company is also having dividend income, interest income and profit on sale of investment as well as premium of software contract totalling to ₹ 2,30,48,603/- which is as per Schedule-13 "other sources". From the various decisions relied on by the Ld. Counsel for the assessee we find Thirdware Solutions Ltd. has been rejected on the ground that it is functionally dissimilar. The Hyderabad Bench of the Tribunal in the case of Intoto Software India Pvt. Ltd. Vs. ACIT and Vice versa in consolidated order dated 24-05-2013 for A.Y. 2005-06 and 2007-08 at para 26 of the order has observed as under: "26. As far as Thirdware Software Solution Limited is concerned, we find from the information furnished by the said company that though the said company is also into product development, there are no software products that the company invoiced during the relevant financial 52 year and the financial results are in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Authorised Representative. Since, many of these decisions pertain to the impugned assessment year, respectfully ITA Nos. 161 and 2307 of 2018 Infor India P. Ltd. Hyderabad. following the aforesaid decisions of the Tribunal, we direct the Assessing Officer to exclude this company from the list of comparables. 35. We have considered rival submissions and perused materials on record. On a perusal of the documents placed in the paper book it appears that this company is engaged in various 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 Telcordia Technologies India (P.) 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 ITA No. 2233 of 2018 ADP Private Ltd. Hyderabad the learned Authorised Representative. Thus, keeping in view the decisions of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd., 5. Cybage Software Pvt. Ltd. 12. As regards ground No. 4, the ld. AR of the assessee requested the Bench to inclusion of the following comparables, which were rejected by the TPO/DRP: 12.1. Evoke Technologies Pvt. Ltd.: The ld. AR of the assessee submitted that this company may be included as comparable as it is functionally similar to assessee company and accepted in earlier years as comparable. He submitted that as per Directors report, there is no change in nature of business and engaged in IT decision and development services. He submitted that in assessee's own case for AY 2014-15 in ITA No. 2233/Hyd/2018 vide order dated 18/12/2020 the coordinate bench included this company as comparable for determining ALP. He also relied on the following cases: 1) Infor India (P.) Ltd. Vs. DCIT, ITA No. 161 and 2307/Hyd/2018 2) Conexant Systems Pvt. Ltd., ITA No. 464/Hyd/2016 12.2. The ld. DR, on the other hand, submitted that this company not appeared in TPO's search matrix and it is taken as a comparable, it amounts cheery picking and, therefore, the TPO/DRP has rightly rejected this company as comparable. 12.3. We have considered the rival submissions and peruse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Akshay Software Technologies Ltd. 2. Nucleus Software Exports Ltd. 3. ACE Software Exports Ltd. 4. Sasken Communication Technologies Ltd. 5. Infomile Technologies Ltd. 6. Sagarsoft India Ltd. 7. E-zest Solutions Ltd. 8. Sankhya Ltd. 9. Harbinger Systems Pvt. Ltd. 14. As regards ground No. 5 relating to the action of TPO that incorrectly computing the margin of the following comparable companies. 1. CG-VAK Software & Exports Ltd. 2. Larsen & Toubro Infotech Ltd. (Segmental) 3. Aspire Systems (India) Pvt. Ltd. 4. Infosys Ltd. 14.1. After hearing parties and considering the orders of TPO/DRP, it is observed that since we have excluded the said companies, namely, Larsen Toubro Infotech Ltd. and Infosys Ltd., there is no need to compute the margin in respect of these both the companies. In respect of companies M/s. CG-VAK Software & Exports Ltd. and Aspire Systems (India) Pvt. Ltd., the TPO and AR of the had computed PLI as under: PLI calculated by TPO Assessee M/s CG-VAK Software & Exports Ltd. 16.76% 12.03% Aspire Systems (India) Pvt. Ltd., 33.04% 32.00% 14.2. Since the PLI calculated by the TPO and assessee are having difference, we are of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd FY 2015-16 and the outsourcing cost incurred by this company reflects a different operating model and hence cannot be compared with the assessee company. Further, he submitted that while this company operates under various revenue model as per the assignments i.e., proportional completion method on rendering services, whereas the assessee charges a mark-up on the cost incurred to provide the services. Further, he submitted that since the cost structure and revenue model of this company is different with that of the assessee, this company ought to be rejected as a comparable company. He relied on the decision of the coordinate bench in assessee's own case for AY 2014-15 in ITA No. 2233/Hyd/2018 wherein the coordinate bench excluded this company as comparable. 16.2. The ld. DR, on the other hand, submitted that presence of outsourcing cost/subcontracting cost does not affect functional comparability. Further, it reduces the operating margin of the company, which is beneficial to the assessee. He, therefore, submitted that the TPO/DRP has rightly included this company as comparable. 16.3. We have considered the rival submissions and perused the material on record as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 2009-10 of ₹ 46,065 thousands and also that it possesses intangibles in the form of software licenses which have not been taken note of by the authorities below while adopting its margin. It is also the case of the assessee that this company has a turnover of ₹ 1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO's order in the case of M/s. IGS Imaging Services India Ltd., to hold that there are exceptional circumstances during the relevant financial year due to which this company is not comparable to the assessee. The Ld. Counsel for the assessee also submitted that the segmental details of this company are not available and hence, has to be excluded on this count also. 11.2.2. We find that the assessee's contentions about the presence of 'brand value' and owning of 'intangibles' is supported by the evidence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any as comparable for determining ALO. 17. Eclerx Services Ltd.: The ld. AR of the assessee submitted that this company may be excluded as comparable from the final set of comparables as this company is engaged in providing KPO services, different to low end BPO services provided by the assessee. He submitted that Safe Harbor Rules recognizes ITeS activities under tow distinct categories i.e., BPO and KPO and activities of this company falls under KPO services. He submitted that the services provided by this company of following: a) Contract Risk Review, b) Margin Exposure Management, c) Online Operations and web analytics, d) CRM and business intelligence, e) Content creation, f) business process consulting. 17.1. He further submitted that as per NIC code provided in the annual report, this company has been classified as KPO and has been awarded as leading KPO's in India, basis award and accolades received. He submitted that this company has undertaken the following extraordinary transactions thereby impacting the operating margins: a) Acquisition of CLX Europe b) Amalgamation of Agilest consulting (P.) Ltd. 17.2. He relied on the decision of the coordinate bench in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions of the Co-ordinate Benches in excluding the above three comparables. 8. We have considered the rival submissions and perused the order of the DRP and Co-ordinate Benches. As far as M/s. TCS e-Serve Ltd., is concerned, the Coordinate Bench of ITAT in the case of M/s. Hyundai Motors India Engineering P. Ltd. in ITA Nos. 1743/Hyd/2014 (A.Y. 2010-11) & ITA No. 1917/Hyd/2014 (A.Y. 2010-11) dt. 13-11-2015, has decided the issue as under: ITA No. 2233 of 2018 ADP Private Ltd. Hyderabad "TCS e-SERVE LIMITED 11.2.1. As regards TCS e-Serve Limited is concerned, we find that it possesses brand value as is evident from the Schedule-N (Operation and Other expenses) to the P & L A/c of the annual report for the financial year 2009-10 of ₹ 46,065 thousands and also that it possesses intangibles in the form of software licenses which have not been taken note of by the authorities below while adopting its margin. It is also the case of the assessee that this company has a turnover of ₹ 1405.10 crores which is 25 times of the turnover of the assessee and hence, is not comparable to the assessee. The Ld. Counsel for the assessee had also placed reliance upon the TPO' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the list of final comparables. Accordingly, assessee's grounds of appeal No. 6 is partly allowed. 8.1. Respectfully following the above decision of the Coordinate Bench, we confirm the order of DRP excluding the above company from the list of comparables. We observe from the financial statements that this company is functionally dissimilar and engaged in KPO and BPO services and amalgamation of Agilest Consulting Pvt. Ltd., vide page No. 23 of paper book volume-1 para 8 and acquisition of CLX Europe which impacts on the profits of the company. From the financial statements of the Chairman's message placed at page No. 18 of paper book volume - 1, it has been categorically stated that after acquisition of CLX Europe, the revenue has grown by 30%, which clearly shows that it impacts on the profitability of the company. These are extraordinary events. Therefore, If an extraordinary event has taken place by way of amalgamation in a company, that company cannot be considered as a comparable as held by the coordinate bench of ITAT, Pune, in the case of Entercoms Solutions (P.) Ltd. v. Assistant Commissioner of Income-tax [2022] 134 taxmann.com 59 (Pune - Trib.). Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany may be included in the list of comparables. 41. Similarly, as regards Ace BPO Services Ltd., the contentions of the assessee are that this company is functionally comparable and that it satisfies all the filters of the TPO and also that there are no related party transactions or the (RPT) of this company are negligible. It is also submitted that the financials of this company are very much available in the public domain and therefore, the findings of the TPO that the financial of the company are not available is not correct. He relied upon the decision of the Tribunal in the case Infor (India) (P.) Ltd. wherein the Tribunal directed the AO/TPO to adopt this company as a comparable and prayed for a similar direction in the case of the assessee also. 42. The learned DR relied upon the orders of the authorities below. 43. Having regard to the fact that the assessee has brought out that these two companies satisfies the filters adopted by the TPO and that the findings of the TPO with regard to the distinguishing factors are not correct, we deem it fit and proper to set aside the issue to the file of the AO/TPO with a direction to re-examine the above facts/contentions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee submitted that the assessee demonstrated the impact of working capital on profit of comparables adopted by the TPO. He submitted that the working capital adjustment is allowed in assessee's own case for AY 2015-16 in ITA No. 1611/Hyd/2019. 23.1. The ld. DR, on the other hand, submitted that the assessee has not demonstrated the impact of working capital differences on its profit. He submitted that average working capital will not reflect the actual capital employed during the year and the segmental working is not disclosed in annual reports, and therefore, the TPO/DRP has not allowed the working capital adjustment. 23.2. We have considered the rival submissions and perused the material on record as well as the orders of TPO/DRP. Following the decision of the coordinate bench in assessee's own case for AY 2015-16 in ITA No. 1611/Hyd/2019, vide Para No. 3, placed at page No. 2123 of paper book, we direct the AO/TPO to allow the working adjustment done by the assessee. Thus, this ground is allowed. 24. Ground No. 13 has not been pressed by the ld. AR of the assessee at the time of hearing, therefore, this ground is dismissed as not pressed. 25. Ground No. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee's own case for AY 2015-16 in ITA No. 1611/Hyd/2019 vide para No. 4 placed at page 2123 of assessee's paper book. Following the same, we direct the AO/TPO to delete the impugned adjustment on account of interest on outstanding receivables. 27. As regards ground Nos. 20 to 27, wherein, the assessee contended that the AO has grossly erred in not granting credit of DDT paid by the assessee on the dividends distributed to the shareholders and thereby determining a DDT liability of ₹ 41,72,50,334/- including levy of interest under section 115P of the Act amounting to ₹ 16,88,87,040/-. 27.1. The ld. AR of the assessee submitted that the entire DDT was paid within the due date and denies the interest liability u/s. 115P. He submitted that the assessee is entitled for deduction u/s. 80G, but the AO denied granting of deduction u/s. 80G of ₹ 10,43,860/-. He submitted that the AO not granted TDS of ₹ 2,389/-. He submitted that the AO granted short advance tax credit of ₹ 7,36,82,429/- as the assessee was paid for a sum of ₹ 35,66,82,429/- as advance tax. He submitted that charging of interest u/s. 234A, 234B and 234C by the AO is wrong. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in contrary to law, the Ld. TPO has erred and Hon'ble DRP further erred in in upholding/confirming the action of Ld. TPO in violating the principle of natural justice by passing the Order under section 92CA(3) of the Act dated 30 October 2019 without providing the appellant with an opportunity of being heard and accordingly order passed by Ld. TPO is bad in law and liable to be quashed. Transfer Pricing: A. Provisions of software development services 3. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO has erred and the Hon'ble DRP further erred in upholding/confirming the action of Ld. TPO in accepting the following inappropriate companies as comparable: • Rheal Software Private Limited • RS Software (India) Limited • Larsen & Toubro Infotech Limited (Segmental) • Tata Elxsi Limited (Segmental) • Nihilent Technologies Limited • Inteq Software Private Limited • Persistent Systems Limited • Infobeans Technologies Limited • Aspire Systems (India) Private Limited • Infosys Limited • Thirdware Solutions Limited • Cybage Software Private Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull; Tata Consulting Engineers Limited • Tata Elxsi Limited • ACE BPO Services Private Limited • Cameo Corporate Services Limited 8. Without prejudice to the above mentioned grounds, on the facts and circumstances of the case and in contrary to law, the Ld. TPO erred by incorrectly computing the margin of following comparable companies: • Microland Limited • Infosys BPO Limited • SPI Technologies India Private Limited C. Common Grounds to Provision of software development services and ITeS 9. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding/confirming the action of the Ld. TPO in rejecting the transfer pricing analysis/study prepared by the Appellant, without appreciating that none of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied. 10. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding/confirming the action of the Ld. TPO in not allowing risk adjustment, in accordance with the provisions of Rule 10B of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in contrary to law, the Ld. TPO/the Hon'ble DRP erred in not providing justification for selection of State Bank of India's ('SBI') short term deposit rates as an appropriate comparable uncontrolled price ('CUP') to benchmark the Appellant's outstanding receivables.. 17. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO/the Hon'ble DRP has failed to understand that outstanding receivables cannot be benchmarked using SBI short term deposit rates. Benchmarking exercise should be performed with another company operating in the similar industry, akin to Appellant. 18. Without prejudice to Ground No. 14 to 17 above, on the facts and in the circumstances of the case and in contrary to law, the Ld. TPO/the Hon'ble DRP has erred in not appreciating that the receivables due from overseas AEs are in foreign currency and hence, interest if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans, i.e., at USD LIBOR plus. Other grounds: 19. That the order passed by the Additional/Joint/Deputy/Assistant Commissioner of Income Taxi Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in vide para Nos. 4 to 10.3 supra, we direct the AO/TPO to exclude the following companies as comparable for determining ALP: • Larsen & Toubro Infotech Limited (Segmental) • Tata Elxsi Limited (Segmental) • Persistent Systems Limited • Infobeans Technologies Limited • Aspire Systems (India) Private Limited • Infosys Limited • Thirdware Solutions Limited 29.1. The ld. AR of the assessee has not pressed the following comparables at the time of hearing before us, hence, the same are dismissed as not pressed: 1. Rheal Software Pvt. Ltd. 2. RS Software (India) Ltd. 3. Nihilent Technologies Ltd., 4. Inteq Software Pvt. Ltd., 5. Cybage Software Pvt. Ltd. 30. As regards ground No. 4, the ld. AR of the assessee requested the Bench to inclusion of the comparable, i.e. Evoke Technologies Pvt. Ltd., which was rejected by the TPO/DRP. Since this ground is similar to ground No. 4 in ITA No. 227/Hyd/2021, following the decision therein vide paras No. 12 and 12.4 supra, we direct the AO/TPO to include this company as comparable to the assessee for determining ALP. 31. The ld. AR of the assessee not pressed the following comparables quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O/DRP in the ITeS domain. Since this ground is simpler to ground No. 8 in ITA No. 227/Hyd/2021, following the decision therein vide para Nos. 19.1 to 19.3, we direct the AO/TPO to include this company as comparable for determining ALO. 36. With regard to the following companies raised in Ground No. 7, the ld. AR of the assessee has not pressed, therefore, the same are dismissed as not pressed: 1. Suprawin Technologies Limited 2. Jindal Intellicom Limited 3. ACE BPa Services Private Limited 4. Sundaram Business services Private Limited 5. AXA Business Services Limited 6. R Systems International Limited 7. Tata Consulting engineers Limited 8. Tata Elxsi Limited 9. BNR Udyog Limited 10. Cosmic Global Limited 11. Allsec Technologies Limited. 12. Cameo Corporate Services Ltd. 37. As regards ground No. 8 relating to wrong computation of margins of the following comparabies in ITES domain: 1. Microland Ltd. 2. Infosys BPO Ltd. 3. SPI Technologies India Pvt. Ltd. 37.1. Since this issue is materially identical to the ground raised in ITA No. 227/Hyd/2021 as ground No. 9, following the decision therein vide para Nos. 21 & 21.1, we set aside these comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X
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