9911796707
TMI Blog2023 (12) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... s not to consider the claim of the Assessee for inclusion of comparable companies. TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in public domain. Re- computation of margins of CG-VAK Software Exports Ltd. and Kals Information Systems Pvt. Ltd. - Findings recorded by the ld. DRP we also giving direction to the AO/TPO for computation of correct margin in the line of the direction given by the Ld. DRP. Accordingly this ground is allowed for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h consideration in the light of information available in public domain in above terms. Deduction u/s 80G - Assessing Officer did not allow the same while computing the total income without any reason - we direct to the AO for giving deduction after verifying the documents as per law. Accordingly, this ground is allowed for statistical purpose. - SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Smt. Tanmayee Rajkumar, Advocate For the Respondent : Shri Manjunath Karkihalli, CIT (D.R) ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the assessment order passed by the AO dated 25-03-2021 with the following grounds of appeal :- The grounds mentioned herein by the Appellant are without prejudice to one another. 1. That the order of the Assistant Commissioner of Income-tax, Special Range-2, Bangalore (the Assessing Officer' or the 'Learned AO') dated March 25, 2021, passed under Section 143(3) read with section 144C(13) of the Income Tax Act 1961 ('the Act'), pursuant to the directions of the Learned Dispute Resolution Panel-1, Bangalore (the 'Learned Panel') t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omain while preparing the TP documentation for the relevant financial year. 3.7 Application of related party transaction filter by applying an inappropriate interpretation of computing the filter and thereby accepting Persistent Systems Ltd and Aspire Systems (India) Pvt. Ltd. as comparable companies to the provision SWD Segment of the Appellant. SWD Segment: 3.8. Including the following companies even though such companies are functionally different (such as engaged in R D activities, presence of intangibles, significant onsite revenue, etc.) from the Appellant: R S Software (India) Limited Larsen Toubro Infotech Ltd. Nihilent Limited Inteq Software Pvt. Ltd. Persistent Systems Ltd. Infobeans Technologies Ltd. Thirdware Solution Ltd. Infosys Ltd. Aspire Systems (India) Pvt. Ltd. Cybage Software Pvt. Ltd. 3.9. The Learned TPO erred in excluding the following companies even though the same are functionally comparable to the Appellant, and the Learned Panel further erred in upholding their exclusion on the ground that the companies not having featured in the search matrix of the TPO, their inclusion would amount to cherry picking: Akshay Software Technologies Ltd Sasken Communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or produce further documents before or at the time of hearing of this appeal. 2. The brief facts of the case are that the assessee is a subsidiary of EMC Corporation, USA. and is engaged in the business of rendering contract SWD and ITE services to the EMC Group companies. For the year under consideration, the Appellant, inter alia, provided contract SWD services to its AEs for a consideration of Rs. 5,44,88,09,165/- and ITeS for a consideration of Rs. 9,78,84,20,470/-. The assessee filed revised return of income electronically for the assessment year 2016-17 on 29/11/2016 declaring income of Rs. 114,58,13,730/- after claiming a deduction under Chapter VI-A of Rs. 54,16,090/-. The case was selected for scrutiny through CASS for complete scrutiny. Accordingly, statutory notices were issued to the assessee and various details were called for. In response to notice issued, the assessee company submitted details from time to time which were examined from documents submitted. It was noted that the company had international transaction exceeding Rs. 10 crores, therefore, the case was referred to the TPO u/s 92CA of the Act for determination of arms length price for international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total operating revenues - excluded. 5. Companies which have more than 25% related party transactions of the sales or expenses - excluded. 6. Companies which have export service income less than 75% of the sales - excluded. 7. Companies with employee cost less than 25% of turnover - excluded. 8. Companies having negative net worth 9. Companies having persistent losses for any 2 out of 3 years 2.4 After applying the above filters selected by the assessee from 9 comparable companies in respect of software development services, only 2 companies named C.G Vak Software and Exports Ltd., and Cigniti Technologies Ltd., were accepted. Further, the assessee had selected 12 companies as comparable companies for ITES segment and all the 12 companies were rejected by the TPO. The ld. TPO after applying certain filters noted above, selected 15 companies and calculated median at 25.64% for the SWD segment and in the case of ITES segments, 10 companies were selected by the TPO and calculated median at 23.92%. The assessee was issued show cause notice and the assessee filed objections for both the segments. The ld. TPO also relied on some judgments. Finally in the case of SWD segment, 13 comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of the order of the DRP, passed final assessment order on 25/03/2021. 2.10 Aggrieved from the order of the AO, the assessee filed appeal before the ITAT. 2.11 The ld.AR of the assessee filed written synopsis, which is as under:- C. APPELLANT S SUBMISSIONS: Ground No. 3.8: Vide this ground, the Appellant is seeking exclusion of R S Software (India) Ltd., Larsen Toubro Infotech Ltd., Nihilent Ltd., Inteq Software Pvt. Ltd., Persistent Systems Ltd., Infobeans Technologies Ltd., Thirdware Solution Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd. and Cybage Software Pvt. Ltd. a) R S software (India) Ltd.- Functionally different: The company is engaged in diversified activities which are not similar to the services rendered by the Appellant. The company renders custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which diverse services, segmental details are unavailable. The company is engaged in development of platform services and is rendering data analytics services, which are different from the routine SWD services rendered by the Appellant. The data analytics services rendered by the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficant foreign branch expenses. It is submitted that the company has significant onsite operations. The company incurred expenses in respect of its foreign branch of 81.64% of operating cost during the FY 2013-14, 68.82% during the FY 2014-15 and 57.41% during the FY 2015-16, which demonstrates that the company operates in a different business model. Detailed submissions in this regard are placed at pages 39-50 and 479-496 of the paperbook. As regards application of RPT filter at 15%, reliance is placed on the decision of this Hon ble Tribunal in the case of 24/7 Customer.Com (P.) Ltd. v. DCIT reported in [2012] 28 taxmann.com 258 (Bangalore). As regards functional comparability, reliance is placed on the decision of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) for assessment year 2016-17. b) Larsen Toubro Infotech Ltd. ( L T ) Functionally different: It is submitted that the company is engaged in diversified business which are not comparable to that of the Appellant. Further, segmental details as regards the same are not available. Further, the company owns proprietary software products which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Hon ble High Court of Delhi in the case of PCIT v. Saxo India P. Ltd. (reported in (2016) 74 taxmann.com 88)) for AY 2011-12, the decision of the Hyderabad Bench of the Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227 228/Hyd/2021), the decision of the Delhi Bench of the Hon ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17. Thus, the Appellant submits that L T ought to be excluded from the final list of comparables. c) Nihilent Ltd. ( Nihilent ) Functionally different: It is submitted that the company is engaged in diversified activities. Nihilent renders services in the nature of consulting, software development and product development, provision of business consulting in the area of the enterprise transformation, change and performance management, digital transformation, business intelligence and data science services and also providing related IT services. The services rendered by the company are wide in range and diversified. It is submitted that software-consulting services include end-to-end solutions, onsite management and IT functions, and planning system designing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... healthcare BPO services, and in respect of the diverse services, no segmental details are available. Significant related party transactions: The company s related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded. While the DRP had directed exclusion of the margin of the company for the financial year 2013-14, the TPO did not give effect to the same. Wide fluctuation in the margin: It is submitted that the company s margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company s margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%. Detailed submissions in this regard are placed at pages 419-436 of the paperbook. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables. Reliance is placed on the decision of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and the decision of the Delhi Bench of the Hon ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions are placed at pages 72-81 and 465-478 of the paperbook. This company is consistently excluded from the final list of comparables in cases of similarly placed assessees. Reliance is placed on the decision of this Hon ble Tribunal in the Appellant s own case for the AY 2014-15. Further reliance is placed on the decision of Hon ble Delhi Court in the case of PCIT v. Cashedge India Pvt. Ltd. (Order dated 04.05.2016 passed in ITA No. 279/2016) for AY 2010-11, the decisions of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021), SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021) and OLF (India) Software Pvt. Ltd. (order dated 28.09.2021 passed in IT(TP)A No. 182/Bang/2021), the decisions of the Hyderabad Bench of the Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227 228/Hyd/2021) and Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed in IT(TP)A No. 198/Hyd/2021) for AY 2016-17. Therefore, it is submitted that this company ought to be excluded from the final list of comparables. f) Infobeans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al list of comparables. g) Thirdware Solution Ltd. ( Thirdware ) Functionally different: The company is engaged in development of software products and earns revenues from sale of user licenses for software applications apart from rendering software development services, implementation services, application management services and other related services. These diverse services are reported under one segment without any details being available as regards these services. The company also purchased stock-in-trade during the year under consideration. The company also owns intangibles. Significant related party transactions greater than 25% i.e 25.34% for FY 2015-16 Significant expenses in foreign currency of 16.98% of the total sales for the FY 2015-16. Fluctuation in margin: The margins of the company fluctuate on a year-on-year basis due to the different revenue recognition model that the company follows. The company earned super normal profits. Detailed submissions are placed at pages 89-95 and 510-525 of the paperbook. This company is consistently excluded from the final list of comparables in cases of similarly placed assessees. Reliance is placed on the decision of this Hon ble T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s significant subcontracting charges, which suggests that the business model of the company is different from that of the Appellant s. Onsite expenses: The company has significant onsite revenue amounting to 51.10%, 50.40% and 52.70% of the total sales for the FYs 2013-14, 2014-15, and 2015-16, respectively. Further, owing to the size, stature, reputation and IPs, Infosys earned abnormally high margins for the said years, as represented below: Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/ OC 36.28 41.30 38.22 Detailed submissions are placed at pages 95-111 and 396-418 of the paperbook. It is submitted that this company is consistently excluded from the final list of comparables in cases of assessees placed similar to the Appellant. Reliance is placed on the decision of this Hon ble Tribunal in the Appellant s own case for the AY 2014-15. Further reliance is placed on the decisions of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021), in SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021) and in OLF (India) Software Pvt. Ltd. v. ACIT (order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paperbook. Reliance in this regard is placed on the decisions of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and in SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021); the decisions of the Hyderabad Bench of this Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 in ITA Nos. 227 228/Hyd/2021) and Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed by this Hon ble Tribunal in IT(TP)A No. 198/Hyd/2021) for AY 2016-17. In view of the above, it is submitted that the Company is functionally not comparable to the Appellant and ought to be excluded from the final list of comparables. j) Cybage Software Pvt. Ltd. ( Cybage ) Functionally different: It is submitted that Cybage is engaged in the provision of diversified services which include product engineering, testing quality assurance services, specialized services, support services, etc. Further from the website of Cybage, it is evident that it is engaged in product development and has developed a product called excelshore apart from providing spectrum of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company to the notice issued under Section 133(6) of the Act for AY 2016-17. It is submitted that in the absence of response to notice by the Company for AY 2016-17, the TPO erred in considering the information received for AY 2015-16 and holding that the company is functional comparable for the assessment year in question when the details available in the public domain illustrate otherwise. It is submitted that in the case of Barracuda Networks India Pvt. Ltd., the Tribunal upheld the inclusion of the aforesaid company on the ground that the Company cannot be excluded basis non receipt of response to the notice issued under Section 133(6) of the Act. In this regard, it is submitted that the Appellant herein is seeking exclusion of the aforesaid company on the basis of its functional dissimilarity and not for the reason that no response was received from the company under Section 133(6) of the Act. In fact, in Barracuda/BORQS, this Hon ble Tribunal proceeded on the basis that the Assessee therein had not placed material to doubt the functional comparability of the company whereas, the submissions above in the instant case clearly show that the Company is not similar coupled with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the annual report clearly reflects that the Company renders diverse services which are high end and not comparable to the software development services rendered by the Appellant. In Airlinq Technology Pvt. Ltd. v. DCIT (Order dated 28.07.2022 passed by this Hon ble Tribunal in IT(TP)A No. 231/Bang/2021) at para 15 , infact, this Hon ble Tribunal has distinguished BORQS for this precise reason. Therefore, it is submitted that Infobeans ought to be excluded from the final list of comparables. Detailed submissions are made at pages 380-395 of the paperbook. Reliance is placed on the following decisions where the company was directed to be excluded on functional comparability. 1. Airlinq Technology Pvt. Ltd. v. DCIT (Order dated 28.07.2022 passed by this Hon ble Tribunal in IT(TP)A No. 231/Bang/2021) at paras 13-15 for AY 2016- 17; 2. Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon ble Tribunal in IT(TP)A No. 235/Bang/2021]) at paras 16-18 for AY 2016-17; 3. SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021) at paras 17.9-17.10 for AY 2016-17; 4. ADP Pvt. Ltd. v. DCIT [Order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in respect of diverse activities carried on by it. He relied on pages 1334, 1341 of the annual report paper book. He thus preyed for this comparable to be excluded from the final list due to lack of segmental data. 13. Larsen and Toubro Infotech Ltd. : It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it renders application development maintenance, enterprise solutions, testing and validation, digital solutions, infrastructure management services, platform-based service which cannot be equated to the routine software service provider like the assessee. The Ld.AR submitted that this company is also engaged in activities such as cloud computing, infrastructure management, analytics information management, etc., and that No segmental details are available. The Ld.AR submitted that this company is also engaged in trading IT related products has cost of brought out items and has won awards and recognitions for innovative products. He relied on pages 969, 979, 922, 986 of the annual report paper book in supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. He placed reliance on page 1825, 1834, 1857 of annual report paper book. The Ld.AR submitted that this company deals in product also and segmental details of diverse services are not available. He relied on page 2508 of annual report paper book. He thus prayed for exclusion of this company from the final list. It is submitted by the Ld.AR that, Inteq Software Pvt.Ltd, L T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. excluded by Hon ble Delhi Tribunal in case of Global Logic India Ltd., reported in (2022) 134 taxmann.com 35 for functional dissimilarities. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 16. We note that the decision of Hon ble Delhi Tribunal in case of Global Logic India Ltd.,(supra) considered these comparables for assessment year 2016-17 and has held them to be functionally not similar with a captive service provider like that of the assessee before us. Further The assessee in Global Logic India Ltd.,(supra) is also as captive service provider as observed by Hon ble Delhi Tribunal therein. Hon ble Tribunal observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tune of Rs. 7.42 millions, as is evident from its financials at pages 8 and 103 of the paper book. 18. Co-ordinate Bench of the Tribunal rejected L T in taxpayer's own case for AY 2014-15 (supra), available at pages 61 to 63 of the case law paper book, by returning following findings : 6.6 The next objection of the assessee is regarding multiple segments. From segment reporting on page S-1258 of the Annual Report (page 129 of PB-2), we find that the assessee has reported three business segments. The first segment is service cluster which includes banking, financial services, insurance, media and entertainment, travel and logistics and healthcare. The second segment industry cluster which includes Hi Tech and consumer electronics, consumer, retail and Pharma, energy and process, auto Mobile and aerospace, plant equipment and industrial machinery, utilities and E C. The third segment, is telecom segment which refers to product engineering services (PES) which has been discontinued in this year. Regarding the PES, in Director's report, (available on page S-1225 of the Annual Report or page 96 of PB-2), it is reported as under : TRANSFER OF PRODUCT ENGINEERING SERVICES (PES) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -6-2020] L T was excluded by the coordinate Bench of the Tribunal by returning following findings : 20. The Tribunal in assessee's own case in ITA No. 4740/Del/2018 relating to Assessment Year 2014-15 vide order dated 1-5-2020 has directed the exclusion of the said concern from the final list of comparables while benchmarking the ALP of the international transaction by the assessee with its AE. Before parting, we may also refer to an extraordinary event under which Larsen Toubro Infotech Ltd. initiated and completed transfer of its Product Engineering Services Business (PES) Unit to L T Technology Services Ltd. w.e.f. January 1, 2014 as part of the business restructuring undertaken within the Larsen Toubro group. Though the initiation started from 1-1-2014 but the whole effect of the transaction was during the year under consideration. Further, Larsen Toubro Infotech Ltd. during the year under consideration acquired Information Systems Resource Centre Private limited ( ISRC ) thereby making it wholly owned subsidiary and because of such extraordinary event of acquisition, the said concern cannot be held to be a valid comparable and thus has to be excluded from the final set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of licence and software services export from SEZ unit and revenue from subscription and training etc. and it is also into sale of licence and its segmental financials are not available. 43. Thirdware has been ordered to be excluded by the coordinate Bench of the Tribunal in case of Fiserve India (P.) Ltd. v. ITO [2015] 60 taxmann.com 48 (Delhi - Trib.) on ground of dissimilarity to routine software development service provider which has been affirmed by Hon'ble Delhi High Court in ITA 17/2016 order dated 6-1-2016. So, we order to exclude Thirdware from the final set of comparables. INFOBEANS TECHNOLOGIES LTD. (INFOBEANS) 44. The taxpayer sought exclusion of Infobeans as a comparable again on ground of functional dissimilarity, it also being into providing services viz. software engineering services primarily in Custom Application Development (CAD), Content Management Systems, Enterprise Mobility, Big Data Analytics, UX UI, Automation Engineering Services, as is evident from its financials, available on page 123 of the annual report paper book. 45. The taxpayer also brought on record profile of the Infobeans at pages 58 to 60 of the appeal memo wherein it is claimed by the Infob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems Ltd. : It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it is engaged in, rendering Enterprise Digital Transformation, product engineering and solutioning for Internet of Things (IoT), product engineering and professional services to ISVs and enterprises, IP products, services, development of software products and offers complete product life cycle services without there being separate segmental information disclosed in its Annual Report for such activities . He placed reliance on page 1421, 1592, 1608, 1641 of the annual report paper book. It is submitted that Persistent Systems made significant investments towards research and development activities in the relevant previous year. Persistent has collaborated with researchers from IGIB, JNU, IISER-Pune and NCL to develop SanGeniX - an DNA sequencing using Next Generation Sequencing (NGS) technology), eSkIN-will help discovery of new pharmaceutical and cosmetic products to empower pharmaceuticals and cosmetic companies to predict the effects of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wns seven Edge products/platforms and six other product based solutions. The Ld.AR submitted that, this company does not have segmental data in respect of rendering software services and development of products. It is submitted that this company has significant intangibles as a part of its fixed assets in the nature of intellectual property. He placed reliance on 1904, 1944, 1984 of annual report paper book. The company owns significant brand value and focuses immensely on brand building. The Ld.AR submitted that, this company heavily focuses on research and development activity and incurs significant expenditure for this account and for the financial year relevant to assessment year under consideration, the company incurred research and development expenses of Rs. 415 crores. He placed reliance on page 1942 of annual report paper book. The Ld.AR submitted that, this company for the year under consideration has earned abnormally high profit with margin of 38.61%, which makes it incomparable with the assessee. The Ld.AR submitted thus submitted that this company is not functionally similar with that of assessee who is a captive service provider to its AE. It is also submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Software Development India Pvt. Ltd. reported in TS-191-ITAT-2020(Bang) On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. We note that this company earns its revenue from power generation and it has nothing to do with the rendering of software development service. In fact, we note that this company is a full fledged entrepreneur in the business of power generation and therefore is not comparable functionally with a captive software service provider like assessee. Nothing is been placed by the Revenue contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Aspire System India Pvt. Ltd. from the final list. 23. Nihilent Technologies Limited It is submitted that, this company is functionally dissimilar to the assessee and therefore ought to be rejected from the final list of comparables. It is submitted that, services rendered by this company are wide in range and diversified. The Ld.AR submitted that, the company is engaged in diversified activities. It is submitted that, it renders services in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook shows that Page 33 of 51 IT(TP)A No. 235/Bang/2021 Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable vis- -vis assessee, who is a low risk entity working on cost + markup model. Hence, Nihilent is ordered to be excluded as a comparable. Nihilent Ltd. 46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis- -vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A 412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 A413 of the paper book. When this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the above view, we direct the Ld.AO/TPO to exclude Cybage Software Pvt.Ltd., from the final list. 25. R.S Software (I) Pvt. Ltd: It is submitted that, this company is engaged in diversified activities, which are not similar to the services rendered by the assessee. The company is into custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which, segmental details are unavailable. The company is engaged in development of platform services and is rendering data analytics services, which are different from the routine SWD services rendered by the assessee. The data analytics services rendered by the company will fall within the definition of KPO services, which are incomparable to the services rendered by the assessee. It is submitted that this company conducts research and development work in the areas of real time analytics, MDM, proximity, payments, digital commerce, mobile payments, testing, automation, personalised loyalty in payments and merchant management in payments laboratory. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunication Technologies Pvt. Ltd. the TPO rejected the company on the ground that the segmental details are unavailable. The DRP upheld its rejection on the ground that the company did not feature in the search matrix of the TPO. The ld, AR submitted that the segmental details of the company are available and furnished before the lower authorities (refer page 134 of the paperbook). Further, it is submitted that the company is functionally comparable to the Appellant and passes all the filters applied by the TPO. Submissions in this regard are placed at pages 134-136 and 533-539 of the paperbook. Reliance is placed on the decisions of this Hon ble Tribunal in the Appellant s own case for the AY 2014-15 and in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) for AY 2016-17, wherein the company came to be remanded. Further reliance is placed on the decision of the Hyderabad Bench of the Hon ble Tribunal in Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed by in IT(TP)A No. 198/HYD/2021), wherein the company was included. 6. The ld. DR. relied on the order of the lower authorities. 7. Considering the rival submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed for statistical purposes. Respectfully following the above view, we remit the comparables back o the Ld.AO/TPO for fresh consideration in the light of information available in public domain. Accordingly this ground stands allowed for statistical purposes. 7.1 Respectfully following the above view, we remit the comparable back to the Ld.AO/TPO for fresh consideration in the light of information available in public domain in above terms. Accordingly this ground No, 3.9 stands allowed for statistical purposes Ground No.4: 8. Vide this ground, the Appellant is seeking the re- computation of margins of CG-VAK Software Exports Ltd. and Kals Information Systems Pvt. Ltd. Further, without prejudice to the above submissions, the margins of Inteq Software Pvt. Ltd, and Aspire Systems (India) Pvt. Ltd. also ought to be rectified. - CG VAK: It is submitted that the correct weighted average margin of the company is 12.03% and not 18.50% as adopted by the TPO (refer submission at page 38 of the paperbook); - Kals: It is submitted that the correct weighted average margin of the company is 8.11% and not 8.60% as adopted by the TPO (refer submission at page 37 of the paper book); - Inteq: I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent from the Appellant s functional profile. Brand value: Infosys BPO enjoys huge brand value and has also made significant investments in creating intangibles and owns significant intangible assets. In view of its substantial brand value, the company enjoys an advantage in the market and has high bargaining power. As a result of the brand value, the company receives a premium in the market. Outsourcing costs: Further, the company has incurred significant expenses towards subcontracting charges, which demonstrates that the business model followed by the company is different from that of the Appellant. It is, therefore, submitted that Infosys BPO is not comparable to the Appellant. Significant related party transactions: The company entered into related party transactions of exceeding 15% i.e. 18.42% over sales during FY 2013-14, 20.88% during the FY 2014-15, 20.42% during the FY 2015-16. Therefore the company ought to be excluded from the final list of comparables. Submissions in this regard are placed at pages 142-151 and 570-583 of the paperbook. It is submitted that this company is consistently excluded from the final list of comparables in cases of similarly placed assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015-16. Submissions in this regard are placed at pages 151-163 and 593-610 of the paperbook. It is submitted that this company is consistently excluded from the final list of comparables in cases of similarly placed assessees. Reliance is placed on the decisions of this Hon ble Tribunal in the Appellant s own case for the AY 2014-15 and in NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in IT(TP)A No. 297/Bang/2021) for AY 2016-17. Further reliance is placed on the decisions of the Hon ble High Court of Bombay in PCIT v. PTC Software (I) (P.) Ltd. (reported in [2019] 101 taxmann.com 117 (Bombay)) and PCIT v. BNY Mellon International Operations (India) (P.) Ltd. (reported in [2018] 93 taxmann.com 363 (Bombay)), and decision of the Hyderabad Bench of this Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227 228/Hyd/2021). In view of the above, it is submitted that this company ought to be excluded from the final list of comparables. Thus, Eclerx Solutions Ltd. is liable to be excluded from the list of comparables. 11. The ld. DR. relied on the order of the lower authorities. 12. Considering the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any brand. IV Sub-contracting Infosys operates on a different business model as it has incurred Rs. 157 Crores towards cost of technical sub-contractors. 7.2.2 In support of the assessee's contentions, the learned AR submitted and took us through the relevant pages of the Annual Report of 'Infosys'. It was submitted that for the reasons given above, it has been consistently held by various benches of the Tribunal over the years that this company cannot be considered as a comparable to companies leading ITES. In this regard, the learned AR placed reliance on the following decisions: CGI Information Systems Management Consultants (P.) Ltd. v. Asstt. CIT [2018] 94 taxmann.com 97 (Bang. - Trib.). Mobily Infotech India (P.) Ltd. v. Dy. CIT [2018] 97 taxmann.com 2 (Bang. - Trib.). 7.3 Per contra, the learned DR for Revenue supported the orders of the authorities below. 7.4.1 We have considered the rival contentions/submissions and perused the material on record; including the judicial decisions cited. We find from a perusal of the Annual Report at page 14 thereof, under the head 'Managements Discussion and Analysis', it has been stated that this company provides ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company was excluded for the Assessment Year 2014-15 in the case of Hyundai Motor India Engineering Pvt. Ltd. Vs. ACIT 109 taxmann.com 429 at para 32 which read as under : 32. Thus, on a comparison of the functions of the assessee and other companies reproduced above, we find that E-Clerx Ltd is not only into ITeS services, but is also rendering KPO services and therefore, it cannot be compared to the assessee. In the decisions of the ITAT where it has been held to be a comparable to the assessee, we find that ITAT has held that the services provided by the assessee company and E-Clerx Ltd are similar and that the extra-ordinary event of winding up of the subsidiary company has not been proved to have any bearing on the assessee's profits and that super normal profit may not be a basis for exclusion of this company. However, we find that the Coordinate Benches of the Tribunal nor the Revenue Officers have not brought out functions which are similar to both the companies. The decision of the ITAT for year AY 2011-12 was followed in the AY 2012-13. Therefore, we are of the opinion that these decisions cannot exactly be binding on this Tribunal for the relevant AY, where the AO/TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the company had abnormal growth patterns - during FY 2015-16 32.97% and during the FY 2014-15 66.64%, which is not in line with the average industry growth rate of 11-12%. Substantial intangibles: 13.3 The company owned intangibles representing 27.11% of the total fixed assets for the FY 2015-16, 10.16% in the FY 2014-15 and 11.56% in the FY 2013-14. Related party transactions: 13.4 The company entered into substantial related party transactions exceeding 15% i.e. 16.46% during the FY 2014-15 and 17.03% during the FY 2015-16. Submissions in this regard are placed at pages 151-154 and 584-592 of the paper book. 13.5 Reliance is placed on the decision of this Hon ble Tribunal in NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in IT(TP)A No. 297/Bang/2021) for AY 2016-17. In view of the above, SPI Technologies is liable to be excluded from the list of comparables. 14. The ld. DR relied on the order of the lower authorities. 15. Considering the rival submissions we noted that the co-ordinate bench has excluded this company in the case of NTT Data Information Processing Services Pvt. Ltd. v. DCIT (order dated 07.07.2022 passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct will show the functionality of the company in the relevant financial year i.e., 19-20 which may be much different than the FY 15-16 which is actually under consideration. Having said that, the functionality of the company is analysed with reference to the annual report for F.Y. 2015-16. It is reported in page Nos. 119 120 of the annual report that the company is engaged in data processing and related services primarily in the typesetting business, including transformation of unedited manuscripts into final print ready files, supply of structured (data for electronic publishing and providing end-to-end project management services , all these activities are in the nature of ITeS and hence, is held to be functionally comparable. Further, the company is in single segment of ITeS as per ITC 4 digit code reported in the Annual Report at page no. 1. Accordingly, the company is Functionally comparable. 10.1 The assessee contended based on the information collected under section 133(6) of. the Act by the TPO that this company is involved in provision of diversified KPO services and hence cannot he considered as ITES comparable. There is a thin line of difference between BPO and KPO servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16.1 The company owns significant intangibles 16% during the FY 2015-16 and 32% during the FY 2014-15, as opposed to the Appellant which has marginal intangible assets. Significant expenses in foreign currency: 16.2 Further, considering its expenses in foreign currency towards onsite operations, it is evident that Tech Mahindra has a different business model, wherein the delivery of the services is undertaken from its Indian as well as overseas offices. Peculiar economic circumstances: 16.3 During the FY 2014-15, Tech Mahindra had started operations in Waterford, Ireland. It is submitted that Tech Mahindra was involved in extraordinary events of amalgamation and acquisition in one of the years under consideration i.e., FY 2014-15 and as a result, the company reaps benefits of the acquired company which in-turn leads to higher revenue and profits. It is submitted that this acquisition is likely to have a material impact on the margin of the company, in respect of which no reasonably accurate adjustments can be made to mitigate the impact thereof. 16.4 The detailed submissions are placed at pages 139-142 and 550-556 of the paper book, which is placed on record. Thus, Tech Mahindra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s company for the reason that the financial data is not available in the public domain. The DRP upheld its exclusion on the basis that the company filed the different FY filter and that its data was not available. 19.2 As regards non-availability of data, it is submitted that as per Rule 10B(5)(i) of the Income Tax Rules, 1962 read with second proviso to Rule 10CA(2), in case of a comparable company for which data relating to the current year is unavailable, then for the purpose of comparability analysis, the data for the immediately preceding two financial years preceding to the current year shall be adopted for the purpose of comparability. Accordingly, the data for AY 2015-16 and AY 2014-15 of Microgenetics ought to be considered for its comparability study. Further, as regards the DRP s finding that the company files the different FY ending filter, it is submitted that the finding is erroneous in as much as the company follows the year ending on 31st March. 19.3 The assessee submits that Microgenetic is engaged in providing ITeS which are in the nature of medical transcription services. The said services would fall under the category of ITeS and, therefore, it is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R submitted that this company was rejected by the TPO on the ground that it is functionally dissimilar. The DRP upheld its inclusion on the ground that the company did not feature in the search matrix of the TPO, which is incorrect. 20.6 In this regard, it is submitted that the company is rendering business process outsourcing services, which are similar to the services rendered by the assessee. Further, the company passes all the filters applied by the TPO. Submissions in this regard are placed at pages 663-666 of the paper book. Therefore the company ought to be included in the final list of comparables. 21. The ld. DR relied on the order of the lower authorities. 22. Considering the submission of the assessee, we remit the comparables back to the Ld.AO/TPO as sought by the assesee for inclusion and fresh consideration in the light of information available in public domain in above terms. Accordingly, this ground No.3.11 stands allowed for statistical purposes. Ground No. 5 : 23. The ld. AR of the assessee submitted that during the year under consideration, the assessee made various donations amounting to Rs. 99,93,586/-, which was eligible for deduction under Section 80G of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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