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TMI Blog2020 (3) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... ce that in the case of CGI information systems Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has been taken as a comparable company. All these aspects show that there is no clarity on the factual aspects relating to this company. Accordingly, we are of the view that this company also requires fresh examination at the end of AO/TPO. Accordingly we restore this company to the file of the AO/TPO for examining it afresh. TP made in respect of I.T. enabled services - M/s Universal Print Systems Ltd (seg.)(BPO) was restored back to the file of AO/TPO in the case of CGI Information Systems Management Consultants P Ltd [ 2018 (4) TMI 1755 - ITAT BANGALORE] M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd. be excluded.from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. Exclusion of M/s BNR Udyog Ltd from the list of comparable companies. Inclusion of M/s Informed Technologies India Ltd as a comparable company. Disallowance u/s 14A - submission of the assessee that it did not earn any exempt income during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 30.09 3 ICRA Techno Analytics Ltd. 17.24 4 Infosys Ltd. 43.10 5 Larsen & Toubro Infotech Ltd. 25.47 6 Mindtree Ltd. 15.01 7 Persistent Systems Ltd. 27.20 8 RS Software (India) Ltd. 15.34 9 Sasken Communication Technologies Ltd. 12.15 10 Spry Resources India Pvt. Ltd. 26.18 AVERAGE MARK-UP 22.63 Accordingly, the T.P. made an adjustment of Rs.10.15 crores in software segment. The DRP also confirmed the order passed by TPO. 5. The Ld. A.R. submitted that the assessee seeks exclusion of following six companies: Sl. No. Name of the Company 1 Genesys International Corpn. Ltd. 2 ICRA Techno Analytics Ltd. 3 Infosys Ltd. 4 Larsen &Touibro Infotech Ltd. 5 Persistent Systems Ltd. 6 Spry Resources India Pvt. Ltd. The Ld. A.R. submitted that M/s Genesys International Corporation Ltd; M/s Infosys Ltd; M/s Larsen & Toubro Infotech Ltd and M/s Persistent Ltd were considered by the coordinate bench in the case of CGI Information Systems &Management Consultants Pvt. Ltd. (2018) 94 taxmann.com 97 by holding that they are not good comparables. He further submitted that the company M/s. ICRA Techno Analytics Ltd. was excluded in assessment year 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T in the case of Saxo India (P.) Ltd. v. Asstt. CIT [2016] 67 taxmann.com 155 (Delhi - Trib.). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L & T Infotech Ltd., was a software product company and segmental information on SWD services was not available. The Tribunal also noticed that the appeal filed by the revenue against the tribunal's order was dismissed by the Hon'ble Delhi High Court in ITA No.682/2016. (c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India (P.) Ltd. v. ITO ITA No.64/Del/2015 order dated 23.9.2015 and the decision of Hon'ble Delhi High Court in the case of Saxo India Pvt. Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order. 30. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession of the company are only the GIS database which is only depreciation. It does not add significant value to the company. 33. The objections as put forth before the TPO were reiterated before the DRP. The DRP in paragraphs 6.2.2 & 6.2.3 of its directions dealt with this issue as follows: "6.2.2 The functions of the Assessee company have been examined in detail. A financial product on which the settlement system of bank runs is a real time system. It is very complex. Any bug or problem in it can crash the entire banking system of several nations. The Assessee's claim of providing only basic software services is rejected. 6.2.3 The Panel holds that the software for financial product is much more complex than a geospatial software. Therefore, the panel holds that the Genesys is a valid comparable." 34. The learned counsel for the Assessee submitted that the DRP has completely proceeded on wrong facts which does not either emanate from the order of the TPO or the submissions of the Assessee. He reiterated submissions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to AY 2012-13 and submitted that, in the year under consideration also, the facts are identical. Accordingly, he sought exclusion of this company. 8 We heard Ld D.R and have gone through the Annual Report of this company. It is stated in page 44 of the Annual report (Running page 2364 of assessee's paper book) that this company is engaged in the software development & consultancy, engineering services, web development & hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing. It is further stated under the head "Revenue recognition" (page 45 of the Annual report) that a. the revenue from services consists of revenue earned from services performed for software development & consultancy, licensing & sublicensing fee, annual maintenance charges for software support, web development and hosting which is recognized to the extent services are performed. b. Revenue from sales is recognized as and when the delivery of branded software is made is booked net of trade discount….. Page no.2 of Annual Report (Running page 2379 of paper book) contains Profit and Loss account. The Revenue from sale of services is mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tories or not during the year under consideration. We notice that the TPO has not examined the aspects relating to software products. We notice that in the case of CGI information systems & Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has been taken as a comparable company. All these aspects show that there is no clarity on the factual aspects relating to this company. Accordingly, we are of the view that this company also requires fresh examination at the end of AO/TPO. Accordingly we restore this company to the file of the AO/TPO for examining it afresh. 11. We shall now take up the transfer pricing adjustment made in respect of I.T. enabled services. The assessee had selected 5 comparable companies. The arithmetic mean was worked out at 11.91% by the assessee. The PLI of the assessee was 10.04% and accordingly, it was submitted that the international transactions entered with the assessee with the A.E. under this segment is at arm's length. The TPO, however, rejected the TP study of the assessee and he selected 10 comparable companies with average mark up of 28.11%. Accordingly, the TPO made an adjustment of 1.04 crores under this segment. The Ld. DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48 to 51 …… 52. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant observations made by the co-ordinate bench in the case of CGI Information systems & management consultants P Ltd (supra) are extracted below:- "44. The learned counsel for the Assessee submitted before us that 3 out of the 5 companies which the Assessee seeks to exclude from the list of comparable companies viz., Infosys BPO Ltd. TCS B-service Ltd. and Excel Infoway Ltd., were considered for exclusion by the Tribunal in the case of a similar Assessee such as the Assessee engaged in providing ITES in the case of Baxter (I) (P.) Ltd. v. A.CIT [2017] 85 taxmann.com 285 (Delhi - Trib.). The learned DR relied on the order of the DRP/TPO. 45. We have considered the rival submissions. In the case of Baxter (I) (P.) Ltd., (supra) the Delhi ITAT Bench considered comparability of the aforesaid three companies with a company engaged in providing ITBS such as the Assessee. The functional profile of the Assessee and the Assessee in the case of Baxter (I) (P.) Ltd. (supra) are identical inasmuch as 7 out of the 10 companies chosen by the TPO in the case of the Assessee were chosen as comparable in the case of Baxter (I) (P.) Ltd. (supra). The Tribunal held on the comparability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the above said decision of coordinate bench, we direct exclusion of M/s BNR Udyog Ltd from the list of comparable companies. 15. The assessee seeks inclusion of M/s Informed Technologies India Ltd. In the case of CGI Information systems & management consultants P Ltd (supra), the above said company was directed to be included with the following observations:- "55. The next submission of the learned counsel for the Assessee was for inclusion of two companies viz., (i) Informed Technologies India Ltd., and (ii) Jindal Intellicom Ltd., in the final list of comparable companies. In this regard it was argued that both these companies were held to be comparable companies by the TPO and the Assessee did not object before the DRP to inclusion of these two companies as comparable companies. The DRP suo motu excluded these two companies from the list of comparable companies vide paragraphs 6.18 & 6.19 of its directions. On a perusal of the Order of the DRP it is clear that the DRP did not put the Assessee on notice as to its proposed action of excluding these two companies from the list of comparable companies. As far as the company Informed Technologies India Ltd., is concerned, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court in the case of Cheminvest Ltd vs. CIT (2015)(61 taxmann.com 118), the Ld A.R contended that no disallowance is called for.
17. We agree with the contentions of Ld A.R, as the claim of the assessee finds support from the decision rendered by Hon'ble Delhi High Court in the case of Cheminvest Ltd (surpa). Accordingly we direct the AO to delete this disallowance after satisfying himself that the assessee did not earn any exempt income.
18. The assessee has raised grounds on Non set-off of the entire brought forward losses, non-grantof MAT credit and short grant of TDS. All these issues require verification at the end of the AO. Accordingly we restore all these issues to the file of the assessing officer.
19. The assessee has also raised grounds regarding charging of interest u/s 234B and 234D of the Act. These are consequential in nature and hence these grounds do not require adjudication. The grounds relating to initiation of penalty proceedings is premature and hence does not require adjudication.
20. In the result, the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 17.03.2020. X X X X Extracts X X X X X X X X Extracts X X X X
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