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TMI Blog2022 (7) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... ovid-19 pandemic, the consultant's office was closed, thereby causing the delay. It is submitted that, the last date of filing the appeal falls during the period covered by the provision of section 3(1)(b) of the Taxation and Other Laws (Relaxation and Amendment to certain provisions) Act, 2020, read with the order of Hon'ble Supreme Court dated 23/03/2020 was effective. 2.2 The Ld.DR, could not controvert the submissions and prayer by the Ld.AR. 2.3 We note that the last date of filing the present appeal falls during the Covid -19 Pandemic. During the relevant period, the limitation stood automatically extended by virtue of order passed by Hon'ble Supreme Court (supra). Therefore, the delay in filing the present appeal stands condoned. 2.4 The extension of limitation period due to COVID-19 second wave was withdrawn by Hon'ble Supreme Court vide order dated 23.03.2020, with effect from 15/03/2020 till further order. 2.5 Hon'ble Supreme Court vide order dated 23.03.2020 has excluded limitation period expiring on or after 15.03.2020. Therefore the actual delay in filing present appeal by assessee is 36 days. 2.6 No delay can be attributed due to covid on assessee. Insofar as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO is justified in applying the turnover filter, he ought to apply the same objectively both for low and high turnover companies, as a one sided application of the turnover filter would render the analysis unreliable. In this context, I place reliance on the decision of the hon'ble jurisdictional Bench of ITAT in the case of Genisys Integrating Systems (India) CP.? Ltd. v. DCIT [20121 53 SOT 159 (Bang) where it has been held that when there is a limit for the lower end for identifying the comparables, there is no reason why there should not be an upper limit also, as size matters in business. 125. The hon'ble ITAT's observation in the above case is also true in the appellant's case. While a big company would be in a position to bargain the price, attract more customers and have a broad base of skilled employees who are able to give better output, a small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, companies which are loss making and the super profit making companies should Also be excluded. The hon'ble 1TAT has suggested that the classification made by Dun & Bradstreet should be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok wherein the relevant ground no. 6 raised by revenue challenging the exclusion of the comparables by the Ld.CIT(A) are alleged before this Tribunal in the 1st round. "1. The order of the learned CIT(A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the AO to exclude the reimbursement of expenses incurred in foreign currency both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause (4) of Explanation 2 below Subsection (8) of Section 10A and the total turnover has not been defined in this Section. 3. On the facts and in the circumstances of the case the learned CIT(A) erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity is not derived from operating activity. 11. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that domestic transaction should be excluded from the TP adjustments, in view an aggregate approach is adopted by the TPO wherein the transactions are so inextricably intermixed that the segregation of revenue and appropriate costs are impossible and the approach of the assessee to allocate costs on a ration would provide only distorted results. 12. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 13. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above." 3.2 We note that this Tribunal in the 1st round adjudicated the comparables alleged by the revenue by order dated 06/04/2018 in IT(TP)A Nos. 981 & 1070/Bang/2013 by observing as under: "19. Ground No.6 challenges the direction of the ld.CIT(A) excluding the following companies applying the turnover range for Rs.200 to Rs.2000 cr.: i. M/s. Avani Cimcom Technologies, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stial Biolabs Ltd. for A.Y. 2008-09 as revealed in the annual report: It is submitted that even functionally this comparable is not comparable with the assessee. 3.9 The Ld.AR submitted that the information provided by this company u/s. 133(6) reveals that, it is providing customized services to Biopharma companies, medical centres by using the tools & package developed through in-house research and development efforts. The company has also specified that it is engaged in undertaking R&D activities for development of the tools. It is not akin to the services rendered by the assessee to its AE. 3.10 Referring to page 303, we observe that this company is also engaged in in-house development of products for which there is no separate segmental results. 3.11 Based on the above, extracts placed at paper book pages 302-307, we are of the opinion that, this comparable cannot be compared with that of the assessee which is a captive service provider, as observed by this Tribunal vide order dated 06/04/2018. 3.12 It is also recorded by this Tribunal that, the assessee before us is engaged in the business of providing software development and other related support services to the SAP AG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding assessment years for computing the PLI. The Ld.TPO dissatisfied with the comparables considered by assessee conducted fresh search by applying various filters and it remained set of following 16 comparables with an average margin at 20.55% considering the preceding 3 assessment years. The details of the comparables are as under: 6.4 The Ld.TPO thus proposed adjustment of Rs. 11,99,81,486/- to be the shortfall. 6.5 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order by incorporating the transfer pricing adjustment. 6.6 On receipt of the draft assessment order dated 10/12/2018, assessee filed objections before the DRP. 6.7 The DRP upheld the proposed adjustment by the Ld.TPO however, reject the Thirdware Solutions Ltd. from the list of comparables. On receipt of the DRP directions, the Ld.AO recomputed the addition in the hands of the assessee at Rs.9,55,00,417/-. 6.8 Aggrieved by the impugned order, the assessee filed the present appeal before this Tribunal. At the outset, the Ld.AR submits that 7. Ground nos. 1 to 3 are general in nature and do not require adjudication. 8. Ground nos. 4 to 4.7, 4.10 & 4.12 are not pressed by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objected, could not controvert the observations of this Tribunal in case of NXP India Pvt. Ltd., (supra). 7. We have perused submissions advanced by both sides in light of records placed before us. We note that the functional profile of this assessee and the assessee in the decision cited by the Ld.AR are same. Above comparables have been dealt with by this Tribunal as under: PERSISTENT SYSTEMS LIMITED 6. The assessee objected for the exclusion of this company by the lower authorities in the tally of comparables by arguing that it is engaged in OPD and there is a difference in OPD and IT services and that the assessee is having revenue from other sources and no segmental data is available. It was also submitted that. in the assessment year 2012-2013, it is an abnormal year of operation and it is owning various intangibles. For this purpose, he relied on the order of the Bangalore Bench of the Tribunal in the case of NXP Semiconductor India Private Limited in IT(PA) No.1634/Bang/ 2014 for assessment year 2009-2010 - order dated 22nd July, 2015. 6.1 We have carefully gone through the order of the coordinate Bench in the case of NXP Semiconductor India Pvt. Ltd. (supra) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dates are identified, the budgets for the product are frozen. In product development projects, all requirements can never be completely fulfilled in a particular version. As a result, most product companies plan multiple product versions for their product. Every team member must contribute not only to building features for the .current release but must also contribute enhancements and provide feedback for future releases of the product." 6.2 Persystent Systems Limited having revenue of 8103.64 Million from software services and other income of 323.76 million from income from other sources. Assessment year 2012-2013 is an abnormal year of operation to Persystent Systems Limited, which is evident from the annual report placed on record by the assessee in its paper book. Further, Persystent Systems Limited is having intangibles to the tune of 2402.67 million as evident from its balance sheet ended on 31.03.2012. Being so, it is not comparable to assessee's case. We, therefore, direct the TPO to exclude Persystent Systems Limited from the list of comparables. LARSEN & TOUBRO INFOTECH LIMITED 7. The learned AR relied on the order of the ITAT Bangalore Benches in the case of CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her business also, with regard to its software development segment, this Tribunal held Bodhtree Consulting Ltd., Infosys Ltd., Kals Intbrmation Systems Ltd. and Tata Elxsi Ltd. to be not proper comparables. Relevant paras of the order dt.I4.8.2014 is reproduced hereunder :- 26.2 Infosys Technologies Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a company providing simple software development services, as this company owns significant intangibles and has huge revenues from software products. In this regard, we find that the Bangalore Bench of the Tribunal in the case of M/s. 3DPLM Software Solutions Ltd. v. DCIT, ITA No.1303/Bang/2012, by order dated 28.11.2013 with regard to this comparable has held as follows:- "11.0 Infosys Technologies Ltd. 11.1 This was a comparable selected by the TPO. Before the TPO, the assessee objected to the inclusion of the company in the set of comparables, on the grounds of turnover and brand attributable profit margin. The TPO, however, rejected these objections raised by the assessee on the grounds that turnover and brand aspects were not material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this. the learned is merely a software service provider operating its business in India and does not possess either any brand value or own any intangible or intellectual property rights (IPRs). It was also submitted by the learned Authorised Representative that :- (i) the co-ordinate bench of this Tribunal in the case of 24/7 Custonter.Com Pvt. Ltd. in ITA No.227/Bang/20I0 has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any intangible and hence does not have an additional advantage in the market. It is submitted that this decision is applicable to the assessee's case, as the assessee does not own any intangibles and hence Infosys Technologies Ltd. cannot be comparable to the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agility India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, we hold that Infosys Ltd. be excluded from the list of comparable companies." 10.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of Cisco Systems Services BE, India Branch (supra). we direct the Assessing Officer/1110 to omit this company from the final set of comparables as it is functionally different from the assessee in the case on hand, who is purely a software service provider." 8.2 In the present case also, Infosys Limited is engaged in a leading global technology services corporation. The company provides business consulting, technology, engineering and outsourcing services to help clients build tomorrows enterprise. In addition, the company offers software products for the banking industry. It owns high brand value at Rs.56,286 crore in the year 2012 and percentage of brand value to revenue is 1.67% and brand value as a percentage of market capitalization is 34.2%, and also incur huge amount for research and development at Rs.5 crore as a capital expenditure and Rs.655 crore as a revenue expenditure for the year ended 31st March, 2012. Therefore, it cannot be said to be a comparable. We, therefore, direct the TPO to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Bangalore Bench of Tribunal, wherein it was held as under:- "41. The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:- "Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles. - Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue during FY 2014- 15. - Diversified operation i.e. engaged in infrastructure management services, business process management, technology consulting, product engineering and SAP services. Also lacks segmental data - Significant research & development activity. By incurring R&D expenses, it was able to deliver IP based video surveillance management, recording and analytic products and solutions. It has filed 4 patents in India and US so far in the area of Video analysis. - Ownership of intangibles in the form of intangible property. Significant onsite activity: - 46% of revenue earned under Onsite model. - Incurred overseas branch office expenses amounting to INR 1582 crores - Receives incentives from State of Florida in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h performed in five different business verticals. As per the P&L account, the company has revenue from 'software services' of Rs.45,658/- crores and from software products of Rs.1642/-crores (refer page 61 of the annual report), and that the product revenue constitute meagre 3.6% of total operating revenue. Therefore, taking into consideration the various information available in the annual report, and the fact that the company is predominantly having revenue from software services, Ld. DRP was of the considered view that this company can be considered as functionally comparable to the assessee. Accordingly, the plea that the company is engaged in diversified activities was rejected by Ld. DRP. 7.2 A plea was raised before Ld. DRP by the assessee that this company also provides data analytic services which is high end and hence, cannot be compared to the assessee. Ld. DRP did not find merit in the plea, as undoubtedly, provision of data analytic services is not functionally different from software development activity. The data analytic services also use only certain software and tools, write codes to perform certain tasks. Like any other software application, these tools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utine for immediate business purposes for developing expertise and improved process execution. It was also pleaded that the company has significant intangibles. However, on perusal of the information at page 86 of the annual report, Ld. DRP noted that the value of intangible assets as on 31.03.2015 was Nil and as on 31.0.2014 was Rs.13 crore, which is insignificant considering its turnover of Rs.47,300 crore and Asset portfolio of Rs.7347 crore. Ld. DRP noted that, the assessee has failed to establish that such differences, if any, on account of brand and intangibles have material effect on the margin of the above company, in terms of clause (i) of sub-rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Further, as discussed in para 2.6.2.3 above, the assessee also performs R&D functions. Hence, these pleas were rejected by Ld. DRP. 7.5 On the plea as to difference in the scale & size of operations and consequent abnormal profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat turnover of this company is huge and more than 10 times that of the assessee." 7.9 In view of the above order of the Tribunal cited (supra) we direct the AO/TPO to exclude this company from the list of comparables." 12.3 Infobeans Technologies Ltd. We note that this comparable has been considered by Coordinate Bench of this Tribunal in case of EIT Services India Pvt. Ltd. vs. ACIT in IT(TP)A No. 2498/Bang/2019 by order dated 03.09.2021 for A.Y. 2015-16 observed as under: "8. We notice that M/s. Infobeans Technologies Ltd. have been directed to be excluded by the coordinate bench in the case of Metric Stream Infotech (India) Pvt. Ltd. with the following observations: "14.3. Infobeans Technologies Ltd., Ld.AR submitted that this comparable was selected by authorities below as it passes all filters, based upon response received from this company under section 133 (6) of the act. He submitted that this observation is contrary to the facts and figures appearing in annual report. Referring to page 1015 Ld.AR submitted that this company is operating at CMMI Level 3 and-is a software service company specialising in business application development for web and mobile. In the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Cypress Semiconductor Technology India Pvt. Ltd. vs. DCIT in IT(TP)A No. 2427/Bang/2019 by order dated 24/03/2022 for A.Y. 2015-16 observed as under: "(c) I2T2 India Limited and Infomile Technologies Limited: (i) The companies came to be rejected by the TPO for the reason that information regarding its related party transactions was not available in the annual report. The DRP further upheld the exclusion. (ii) It was submitted that if there is no disclosure with respect to the RPT made in the annual report, the presumption out to be that there is no RPT transaction. Further, it was submitted that these companies render SWD services and are functionally comparable to the assessee. This company also passes all the filters applied by the TPO. It was submitted that in cases of similar placed companies, this company is included in the final list of comparables. Reliance in this regard was placed on the decision of this Hon'ble Tribunal in the case of LG Soft India Pvt. Ltd. v. DCIT (Order dated 28.05.2019 passed by this Hon'ble Tribunal in IT(TP)A No. 3122/Bang/2018 for the assessment year 2014-15). (iii) We have considered the submission. We find that on identic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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