9911796707
TMI Blog2022 (11) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... the exact nature of expenses incurred by the assessee for Doctors from all angles. Therefore, for substantial question and cause, the additional evidence are taken on record. Since the additional evidence is taken on record, necessarily, the matter needs fresh verification by the A.O., especially in the light of the recent judgment of the Hon ble Supreme Court in the case of M/s. Apex Laboratories Pvt. Ltd. [ 2022 (2) TMI 1114 - SUPREME COURT ] For the aforesaid purpose, the issues raised are allowed for statistical purposes. Adjustment in respect of IT support services - Companies functinally dissimilar with that of assessee need to be deselected - we direct the AO/TPO to exclude M/s. Infosys Ltd., M/s. L T Infotech Ltd., M/s. Persistent Systems Ltd. and M/s. Thirdware Solutions Ltd. from the lists of comparables and to recompute the ALP of international transactions with A.E. Ordered accordingly. X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. the learned AO / TPO and the learned DRP have erred, in law and in facts, by considering 'distributor's commission', 'sales promotion expenses'. 'seminar and conventions expenses' and 'travelling and conveyance', incurred in respect of the distribution segment, as part of AMP expenditure while computing the compensation for the alleged DEMPE function performed by the Appellant: 8. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, in treating the sales and distribution expenses incurred as a separate international transaction to benchmark it independently from distribution activity, as in the absence of any computation mechanism prescribed under the Act, the machinery provision fails; 9. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, by alleging that the Appellant has not been compensated for the sales and distribution expenditure incurred: 10. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, by erroneously computing the compensation for the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the issue, the TPO has discussed and considered the submissions made by the assessee. Before the DRP, the assessee has made similar submissions. We are in complete agreement with the conclusions drawn in para 10.8 of the TP order. However, considering the submissions of the assessee that routine expenditure has beer? treated as AMP by the TPO, we have sought Remand Report (RR) from the TPO after giving an opportunity to the assessee. After giving an opportunity to the assessee, the TPO submitted RR dated 06.12.2016; the relevant extract is reproduced below: "5. The TPO is of the view that there may be different forms of distribution channels adopted by tax payers wherein some companies may adopt direct selling of products to end customers (or) some companies may use retails chains to distribute end products to consumers. In the taxpayer's case, it has adopted the consignment model to distribute its products. Further, as per the website of M/s Parekh Integrated Solutions Ltd, it offers consignment services to various companies. This being the case, the taxpayer may have to provide required incentives to M/s Parekh Integrated Solutions Ltd to distribute its products, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; commission could be treated as towards the cost relating to provision of warehousing facility, which may be excluded for AMP purposes. Accordingly, we direct the AO to reduce 25% of the distributors' commission from the AMP. " 2.4 Consistent with the view taken by the Ld. DRP for 2012-13, Ld. DRP directed the AO to reduce 25% of the distributors' commission from the AMP. Against this assessee is in appeal before us. 3. We have heard the rival submissions and perused the materials available on record. In our opinion, this issue was considered by the Tribunal in assessee's own case in assessment year 2012-13 in IT(TP)A No.726/Bang/2017 vide order dated 29.4.2022 and decided the issue in favour of the assessee by observing as under:- "9.1 The Ld.AR submitted that, the assessee purchases ophthalmic pharmaceuticals and ophthalmic surgical products from its AE is for distribution in India. It was submitted that assessee also renders services in relation to the products during and after warranty period. The Ld.AR submitted that, on one hand the revenue accepts the distribution activities and marketing activities carried on by assessee to be at arm's length whereas on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court. 9.8 It is not the case of the revenue that assessee is mandated to incur such expenditure as per any agreement between the assessee and a. It is also not disputed that these expenditures incurred by assessee or towards its own business promotion in India as assessee is a distributor further from the transfer pricing study report we note that assessee operates in limited risk environment in respect of the distribution and marketing segment. As per the TP study the description of activities carried on by the assessee that has been allegedly characterised by the Ld. TPO towards the promotion of brand are as under: Sl. No. Nature of sales and distribution expenditure Brief description 1. Distributor's commission Comprises of commission paid to the third party distributor of ophthalmic surgical and ophthalmic pharmaceutical products on the basis of sales effected by them. The amount of commission includes consideration for various services provided by consignment agents to Alcon India like warehouse charges, collection charges, charges for distribution activities in 38 locations across India. 2. Sales promotion This predominantly comprises of educa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of ALP on such transaction does not arise. However, the transaction of expenditure on AMP should 'co treated as a part of aggregate of bundle of transactions on which TNMM should be applied in order to determine the ALP of its transactions with its AE. In other words, the transaction of expenditure on AMP cannot be treated as a separate transaction. In the present case, we find from the TP study that the operating profit cost to the total operating cost was adopted as Profit Level Indicator which means that the AMP expenditure was not considered as a part of the operating cost. This goes to show that the AMP expenditure was not subsumed in the operating profitability of the assessee-company. Therefore, in order to determine the ALP of international transaction with its AE, it is sine qua non that the AMP expenditure should be considered a part of the operating cost Therefore, we restore the issue of determination of ALP, on the above lines, to the file of the AO/TPO. The grounds of appeal raised by the assessee-company on this issue are partly allowed." 13. The ld. counsel for the assessee pointed out that none of the reasons given by the TPO in the order f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht line test which was applied by the AO in the present case was also applied by the AO in the aforesaid cases. The bright line test which was accepted by the Special Bench of ITAT in the case of L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 (Del)(SB) was held by the Hon'ble Delhi High Court to be not correct. In the case of Maruti Suzuki (supra), the facts were Maruti Suzuki India Ltd. (MSIL) was engaged in the manufacture of passenger cars in India. It was a subsidiary of SMC, a Japanese company. MSIL started its business in 1982 as a Government of India owned company. SMC was selected as the business partner independently by MSIL. The co-branded trade mark "Maruti-Suzuki" was used since the inception of MSIL. A licence agreement was entered into between MSIL and SMC in October 1982 for its models M-800, Omni and Gypsy. By the agreement, MSIL was permitted to use the co-branded trade mark "Maruti- Suzuki" on the vehicles. In the assessment of MSIL for assessment year 2005-06, the AO invoked the provisions of section 92CA(1) of the Act and referred the case to the Transfer Pricing Officer for determination of the arm's length price in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure. The advertisement, marketing and sales promotion expenses incurred by MSIL could not be treated and categorised as an international transaction under section 92B of the Act." 18. In the case of Whirlpool of India Ltd. (supra), it was held that there had to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. The transfer pricing adjustment was not expected to be made by deducing from the difference between the excessive advertising, marketing and sales promotion expenditure incurred by the assessee and the advertising, marketing and sales promotion expenditure of a comparable entity that an international transaction existed and then proceeding to make the adjustment of the difference in order to determine the value of such advertising, marketing and sales promotion expenditure incurred for the associated enterprise. Thus, the bright line test had been rejected as a valid method for either determining the existence of an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of determination of ALP of AMP expenses in AY 2011-12 to 2014-15 is directed to be deleted." 10. In our view the above view by the coordinate bench requires to be followed, and there are no reasons whatsoever to take a different view. Respectfully following the above view, we redirect the Ld.AO/TPO to delete the addition made towards AMP expenses. 3.1 In view of the above order of the Tribunal, taking a consistent view, we allow these grounds taken by the assessee in both the appeals for the assessment years 2013-14 & 2014-15. 4. Next common ground is with regard to disallowance of Seminars, Conventions and sales promotion expenses. The relevant grounds in assessment year 2013-14 are reproduced below:- Grounds relating to disallowance of seminars and conventions and sales promotion expenses 11. The learned AO/ DRP has erred. in law and on facts, in disallowing an amount of Rs. 9.57.25.000 in respect of seminar and convention and sales promotion expenses without appreciating the fact that the same is incurred wholly and exclusively for the purpose of business: 12. The learned AO/ DRP has erred. in law and on facts. in applying the CBDT Circular No. 5/2012 ("CBDT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or which is prohibited under law shall not be allowed as deduction due to restriction contained under section 37(1) read with explanation. The said circular dated 1-8-2012 issued by the CBDT was subject to challenge in writ petition filed in Himachal Pradesh High Court' in the case of Confederation of Pharmaceutical Industry v. CBDT writ petition No. 10793 of 2012J wherein validity of ,the said CBDT circular was challenged, the Himachal Pradesh High Court held that the said circular is valid and the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 governing professional ethics of Doctors issued is salutary which is in the interest of public and patient. The Punjab and Haryana High Court has vide decision in CIT vs. M/s. Kap Scan and Diagnostic Centre (P.) Ltd. [2012] 25 taxmann.com 92/344 ITR 476 has confirmed disallowance of commission as not allowable under section 37(1) being against public policy prohibited by law. Based on factual matrix of the case as emerging from the records, the expenses incurred by the assessee company were in the form of seminar and conventions which bears the cost of doctors to undertake foreign tours in the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of seminars and conventions and sales promotion expenses. Therefore, 50% of Seminars and conventions amounting to Rs.796 Lakhs and 25 % of sales promotions amounting to Rs.161.25 Lakhs are disallowed by the Ld. AO under section 37 of the IT Act. Similar is the facts in assessment year 2014-15 and only change in amount of disallowance. 5. We have heard the rival submissions and perused the materials available on record. In our opinion, similar issue came for consideration before this Tribunal in the case of Astra Zeneca Pharma India Ltd. in IT(TP)A No.82/Bang/2015 dated 14.10.2022 for the AY 2010-11 wherein held as under: 14. During the relevant financial year, the assessee had incurred the following expenditure:- Particulars Amount (Rs.) Cost of samples distributed 3,71,20,122 Travel and conveyance provided to Doctors 11,04,735 Gifts and donation provided to Doctors which includes the following expenses- -Publicity and literature amounting to Rs.22,19,263 - Conference and symposium amounting to Rs.50,94,395 - Other marketing expenses amounting to Rs.38,25,933. 1,11,39,591 Total 4,93,64,448 15. The A.O. disallowed the above-mentioned expenses amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Without prejudice to above. during the course of assessment proceedings for assessment year 2016-17. AO specifically raised a query in relation to expenses incurred on doctors (notice enclosed as Annexure 6 to application for admission of additional evidences @ Pg 65-67) and Appellant filed details/ information in response to such notice/query (submission enclosed as Annexure 6 to application for admission of additional evidences @ Pg 69-77). It may kindly be appreciated that the assessing officer after analysing the nature of expenses (similar to expenses incurred in assessment year 2010-11) in the context of MCI guidelines and the CBDT Circular 05/2012 dated 01.08.2012 accepted the claim of the assessee and did not make any disallowance in the assessment order (enclosed as Annexure 7 to application for admission of additional evidences @ Pg 78-86). This is because even if criteria as laid down in CBDT circular as also MCI regulation (as now affirmed in decision by Hon'ble Supreme Court) is applied. expenditure incurred towards contractual obligation with doctors and employee doctors of pharma companies does not call for disallowance. It is pertinent to point out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. • Travel and conveyance expense was incurred majorly for doctors. who are on the payroll of Appellant and a declaration from the Appellant confirming the same has been enclosed as Annexure 3 to application for admission of additional evidences @ Pg 50. • Considering the above, Appellant wishes to mention that any expenditure like travel etc incurred on doctors in the capacity of them being employees/ contractual service providers of the Appellant and not 'delegates' would not be violative of MCI regulations and deserves to be allowed as business expenditure. • Even otherwise, Appellant also submits that travelling and accommodation facility is provided to certain doctors under agreement (apart from the employees) are not in the nature of freebies as the same have been incurred for availing the services of the doctors under a contractual obligation/ arrangement MCI regulation itself allows medical practitioners to work for pharmaceutical and allied healthcare industries in advisory capacities, as consultants and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodation, travel, conveyance, etc. incurred on doctors are covered under the contractual agreement entered with them or are expenses incurred on employee doctors who are otherwise not covered within the prohibitions imposed under the MCI regulations. That apart. expenses in the nature of books, literature, sponsorship, audio visual set up, etc. are not incurred on any doctor in order to promote the Applicant's products. These expenses are incurred in the course of business and cannot be treated as freebies. • Publicity and literature expenses also includes webcast charges. which are not specifically prohibited under the MCI regulations. Sample copy of invoices are enclosed as Annexure 5 to application for admission of additional evidences @ Pg 6364. In Appellant's own case for A Y 2011-12 (Page 816 to 859 of the paper book) and AY 2012-13 (Page 860 to 881 of the paper book). DRP has directed the learned AO to allow deduction of expenses pertaining to Publicity and Literature. basis the reason that such expenses are not specifically covered by the MCI Regulations (i.e. cannot be categorised as Gift. Travel facility. Hospitality. Cash or Monetary grant) and such ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal no. 7: Without prejudice to the above, Amendment to IMC Regulations are not applicable prior to 10 December 2009 Hon'ble ITAT in Assessee's own case for A Y 2009-10 has held that no disallowances of expenditure incurred by the Assessee on doctors prior to the amendment of IMC regulations i.e. prior to 10 December 2009 can be made (Page 1251 of Legal Paperbook - IV) Assessee submits that the CBDT Circular dated should not be applied retrospectively as the amendment to the IMC Regulations was effective from 10 December 2009. The breakup of expenses are as follows (refer page 1500 of Legal Paperbook Vol 5): Particulars Pre Amendment Post Amendment Total Travel Conveyance provided and doctors 7,64,447 3,40,288 11,04,735 Conference & Sympos and other marketing expenses 14,16,528 75,03,799 89,20,327 Publicity and 8,54,977 13,64,286 22,19,263 Total 30,35,953 92,08,373 1,22,44,3 Reliance in this regard is placed on the below decisions: • ACIT vs M/s. Geno Pharmaceuticals Limited (ITA No. 12/PJ12014) (Page 1088 of the Legal Paperbook - III) • State of Bombay vs Vishnu Ramachandra (AIR 1961 SC 307) (Page 1094 of Legal Paperbook ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders or required to be admitted for any other substantial cause, it would rather be the duty of the Tribunal to admit them. Learned Judicial Member has rightly made reference to the Tribunal's decision in Rajmoti Industries' case (supra) wherein on an analysis of various decisions, it was held that is the receipt or admission of additional evidence was vital and essential for the purpose of consideration of the subject-matter of appeal and arrive at a final and ultimate decision, the Tribunal was amply empowered to admit additional evidence under rule 29 referred to supra." (emphasis supplied). The Hon'ble ITAT of Delhi in the case of Sikander Publishing (P) Ltd vs DCIT (81 TTJ 249), held that, if the evidence is genuine, reliable and proves the assessee's case, then the assessee is not to be denied the opportunity to produce the same before the appellate authority, as an additional evidence." 18. The learned DR, on the other hand, submitted that the issue raised is squarely covered by the judgment of the Hon'ble Apex Court in the case of M/s. Apex Laboratories Pvt. Ltd. v. DCIT (supra). The learned DR, however, submitted that since the detailed break-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance. In the present case, the A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of the latest judgment of the Hon'ble Apex Court, which has examined the very same issue, it becomes necessary to examine the exact nature of expenses incurred by the assessee for Doctors from all angles. Therefore, for substantial question and cause, the additional evidence are taken on record. Since the additional evidence is taken on record, necessarily, the matter needs fresh verification by the A.O., especially in the light of the recent judgment of the Hon'ble Supreme Court in the case of M/s. Apex Laboratories Pvt. Ltd. v. DCIT (supra). For the aforesaid purpose, the issues raised in grounds 4 to 8 are allowed for statistical purposes. It is ordered accordingly." 6. In view of the above order, taking a consistent view on the impugned issue, we remit this issue for the AYs 2013-14 & 201415 to the file of AO for fresh consideration to decide in the light of the judgement of Hon'ble Supreme Court in the case of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenues as a comparability criterion: 21. The learned AO / TPO and the Hon'ble DRP have erred, in law and in facts, by determining the arm's length margin/ price using only FY 2013-14 data: 22. The learned AO / TPO and the Hon'ble DRP have erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparable" 8. At the time of hearing, the Ld. A.R. made submission that the assessee wants to exclude following comparables from the list of comparables:- a) Infosys Ltd. b) L&T Infotech Ltd. c) Persistent Systems Ltd. d) Thirdware Solutions Ltd. Ld. AR's submissions: (a) Infosys Ltd. 8.1 Further, with regard to Infosys Ltd., the Ld. A.R. stated that this company may be excluded from the list of comparables due to following reasons: a) The company is engaged into providing business consulting. technology, engineering and outsourcing services. The company offers software products and platforms b) Infosys offers digital services such as cloud. big data, mobility and functional areas such as HR and Commerce are the focus areas for the products and solutions. c) Product offerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious platforms / products or solutions. These platforms / products and solutions are not off the shell products as argued by the assessee. It is also noted by the Ld. DRP that as per the P&L account, the company has revenue from software services of Rs.42,531/- crores and from software products of Rs.18,101/- crores, and that the product revenue constitute meagre 4.08% of total operating revenue. Therefore, taking into consideration the various information available in the annual report, and the fact that the company in predominately having revenue from software services, Ld. DRP was of the considered view that this company can be considered as functionally comparable to the assessee. 8.2.1. Ld. D.R. stated that the Ld. A.R. also pleaded before the Ld. DRP that this company witnessed high growth during the year and has to be excluded. However, the assessee failed to point out any information in the TP report to indicate any abnormal event leading to high growth. The growth is on account of business dynamics. Therefore, the pleas are rejected by the Ld. DRP. 8.2.2 It was also pleaded by the Ld. AR before Ld. DRP that this company has a huge brand which has contributed to its grow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that this company is functionally different due to following reasons: a) The company is engaged in provision of wide range of services to Banking, Financial services, Insurance, Media & Entertainment, Travel, Logistics and Healthcare sectors. b) The company is engaged in trading of goods which is apparent from "cost of bought-out items for resale". c) The company is specifically engaged in building brand image. The company has earned various awards and Recognitions whereas the Assessee does not involve nor has any brand image like that of L&T. d) The company owns huge intangibles. e) The turnover of L&T Infotech is INR 4643.94 Crores, which is much higher when compared to the assessee's turnover of INR 24.26 crores. f) The product engineering services business has been transferred to L&T Technology Services Ltd. w.e.f. 1.1.2014 which clearly have an impact on revenues which in turn effects the margin of the company. 8.3.1 In this regard, the ld. AR relied on the following judgements in support of his arguments: Functionally different a) ARM Embedded Technologies Pvt. Ltd. [IT(TP)A No.3374/Bang/2018 for AY 2014-15] b) Salesforce.com India Private Limited [IT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en market. Hence, these pleas were rejected by the Ld. DRP. 8.4.1 It was also pleaded that this company is engaged in trading of goods, with reference to a debit, 'cost of bought out items for resale' in the profit and loss account. However, careful perusal of the entries in the P&L A/c would show that the software expenses incurred were classified into two categories - 'software packages used for own use'- referring to the packages installed in the assessee's systems for running its activity; and 'bought out items for resale'-referring to the items used in the software development of the customers. This do not in any way indicate that this company is engaged in trading activity. Accordingly, this plea is rejected. 8.4.2 Further, it is seen that this company was held to be engaged in software development and not a product company and hence, functionally comparable to a software service provider company, by the Bangalore Tribunal in the case of M/s. Advice America Software Development Centre Private Limited (in I T A (TP) No. 2531/Bang/2017 dated 23.05.2018 relating to A.Y. 2013-14). In view of the above, Ld. DRP upheld the selection of M/s. L&T Infotec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot involve purchase of inventory and sale of goods, and its nature of business was rendering of services. As per page 164 of the Annual Report, the company is specializing in software products services and technology innovation and offers complete product life cycle services. As per page 181, Note 21 of the Annual Report, the revenue from operations is stated to be on account of sale of software services amounting Rs.11,841.16 million. At page 183 of the Annual Report, it is given that the company's operations predominantly relate to providing software products services and technology innovation covering fall life cycle of products to its customers. The primary reporting segments are identified based on review of market and business dynamics bard on risk and returns affected by the type of class of customers for the services provided. As per page 195 of the annual report, the earnings in foreign currency of Rs.10,606.23 million, (constituting 89.57%) was from sale of software; and there is no reference to sale of products. Thus, it is evident that this company's revenue from operation was predominantly on account of services rendered. There is no mention of any revenue stre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33(6) of the IT, and. in response this company has clarified, 'that it is predominantly engaged in the business of rendering software development services across its business segments Telecom & wireless, Life science and Health care, Infrastructure & systems'. As to the query on IP led business activity, it clarified that, 'the overseas subsidiary companies of Persistent group have acquired certain Intellectual property products and generating some revenue from licensing and support of these products. The Indian company PSL India is predominantly engaged in the business of rendering software development services, the revenue reported is primarily on account of rendering of software development services only'. 8.6.5 In the light of these clarifications, Ld. DRP has not hesitated in upholding this company as functionally comparable to the assessee's software development activity. 8.6.6 The Ld. D.R. stated that the Ld. DRP observed that the expenditure incurred towards R&D as per page 195 of the annual report was Rs.39.61 million, which constitute meagre 0.33% of operating revenue. The value of intangible assets was only Rs.162.85 million constituting 1.36% of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known as no break-up of the same is available. The company earns revenues from sale of software licenses by delivering the software license key, which further substantiates it to be a product company. c) No segmental information available. d) Thirdware provides world class solutions in the form of products, making it functionally different form the assessee who is involved in sale of services alone. e) The turnover of Thirdware is INR 206.76 crores, which is much higher when compared to the Assessee's turnover of INR 24.26 crores. 8.7.1 In this regard, the ld. AR relied on the following judgements in support of his arguments: Functionally different a) ARM Embedded Technologies Pvt. Ltd. Vs. ITO (IT(TP)A No.3374/Bang/2018 for AY 2014-15) b) Salesforce.com India Private Limited [IT(TP)A No 3286/Bang/2018 for AY 2014-15] c) Microsoft Research Lab India Pvt. Ltd. Vs. DCIT [IT(TP)A No. 3131/Bang/2018 for AY 2014-15] d) EMC Software and Services India Pvt. Ltd.[IT(TP)A. No.3375/Bang/2018 for AY 2014-15] e) LSI India Research & Development Pvt. Ltd [IT(TP)A No.3170/Bang/2018] f) Hewlett Packard (India) Software Operation Pvt. Ltd. [ITA No.3400/Bang/2018] 8.8 On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Tribunal in the case of M/s. ARM Embedded Technologies Pvt. Ltd. Vs. ITO in IT(TP)A No.3374/Bang/2018 dated 24.11.2020 wherein held as under:- 8. We heard the rival contentions and perused the material on record. The assessee has adopted TNMM and determined the PLI i.e. OP/OC @ 15.04%. The Ld AR submitted that (i) Infosys Ltd. (ii) Persistent Systems Limited, (iii) L & T Infotech Limited and (iv) Thirdware Solutions Ltd. are to be excluded on the turnover criteria and supported her submissions, relying on the catena of judicial decisions. We find, i) Infosys Technologies Ltd. - The Company is not functionally comparable as it has diversified operations and no segmental data is available, and does end to end business solutions like business consulting, technology, engineering and outsourcing services. Further, Lack of segmental details in respect of services and investment in products and focuses on immense brand building. The company owns significant brand value, significant amount of IPR and brand value, and involved in R & D activities and incurred significant expenditure. During the year the company has amalgamated its wholly owned subsidiary Infosys Consulting Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in A.Y 2008-09, we direct exclusion of M/s. Infosys Ltd." We found that the Infosys Ltd. has significant intangibles and huge revenues from software products and was considered by the co-ordinate Bench of the Tribunal for exclusion in the Assessment Year 2014-15. Accordingly, we direct the TPO to exclude the Infosys Ltd. from the final list of comparables for determination of ALP." In the present case also, we find that the comparable has significant intangibles, and therefore, we direct the TPO to exclude Infosys Technologies Ltd. from the final list of comparables in determination of ALP. ii) L & T Infotech Limited - The company is not functionally comparable, as it has high brand value and market leader and also benefit from its parent brand. It has proprietary business and during the year extraordinary events like product engineering services business of the company was transferred to its subsidiary and has incurred expenses in foreign currency being 57.13% of its total expenditure. The company was excluded as comparable in the decision of co-ordinate Bench in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0A.1 We heard Ld D.R and perused the record. We notice that M/s L & T Infotech Ltd has been excluded by the co-ordinate bench in the case of Metric Stream Infotech P Ltd (supra) for AY 2013-14 and also in the case of Electronics for Imaging India P Ltd (supra) for AY 2011-12. The Ld A.R submits that there is no change in facts prevailing in the current year visa-vis the years considered by the co-ordinate benches in the above said cases. Accordingly, following the above said decisions, we direct exclusion of M/s L & T Infotech Ltd." We considering the functional dissimilarity and judicial decisions and various facts which are not similar to the assessee functional profile, Accordingly, we direct the TPO to exclude M/s. L & T Infotech Limited from the final list of comparable in determining the ALP. iii) Persistent Systems Ltd. - The company is not functionally comparable as it has diverse business operations including IP led business, extraordinary events and is engaged in R & D activities and large scale of operations. The company was excluded as comparable in the decision of co-ordinate Bench in the case of EMC Software and Services Pvt. Ltd. Vs. JCIT (supra) at para 6(iii) p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised Representative also relied on Lime Labs (India) Pvt. Ltd. Vs. ITO 101 Taxman.com 201 (Delhi Trib.). We found the co-ordinate Bench of the Tribunal in the case of LG Software India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 dt.28.05.2019 for the Assessment Year 2014-15 has excluded the comparable as observed at paras 8 & 8.1 at page 4 as under : "8. We also notice that in A.Y 2008-09, the co-ordinate bench has excluded M/s. Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s. Thirdware Solutions Ltd. is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in A.Y 2008-09, we direct exclusion of M/s. Thirdware Solutions Ltd." The comparable Thirdware Solutions Ltd. has to be excluded as it is predominant in activity and segmental details are not available. Accordingly we direct the TPO/A.O to exclude this comparable from the list of comparables for determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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