9911796707
TMI Blog2022 (8) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing ('TP') documentation by the Deputy Commissioner of Income tax, Transfer Pricing - Range 1(1)(2), Bangalore (Teamed TPO') and in upholding the adjustment to the transfer price of the Appellant in respect of Software Development services (`SWD') & Information Technology enabled services ('ITeS') segments. 3. That on the facts and circumstances of the case, the Learned TPO along with the Learned AO, pursuant to the directions issued by the Learned Panel, erred in rejecting the comparability analysis in the TP documentation undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962, (`the Rules') and also erred in rejecting companies functionally akin to the Appellant while performing the comparability analysis. 4. That on the facts and in the circumstances of the case, the Learned Panel and the Learned AO erred in upholding the Learned TPO's approach of determining the arm's length price for the provision of SWD services and ITeS of the Appellant by conducting a fresh comparability analysis by rejecting certain filters applied by Appellant in the TP documentation and applying additional / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted l) Care Risk Solutions Private Limited II. IT enabled Services Segment a) Sundaram Business Services Limited b) Informed Technologies India Limited c) ACE Software Exports Limited d) Allsec Technologies Limited e) Jindal Intellicom Private Limited f) Cosmic Global Limited g) Suprawin Technologies Limited h) Cyfuture India Private Limited i) ACE BPO Services Private Limited 11. The Learned TPO has erred in not considering the following comparables which are functionally comparable to the Appellant and pass all the filters as adopted by the Learned TPO - I. Software Development Services Segment a) Yudiz Solutions Private Limited b) E-Zest Solutions Limited c) Benchmark IT Solutions India Private Limited d) Smartcloud Infoservices Private Limited II. IT enabled Services Segment a) Hello Information Services Private Limited b) Digicall Global Private Limited Other than Transfer Pricing - 12. That the Learned DRP erred in confirming the action of the Learned AO in disallowing deduction claimed under section 35AC and 8oG of the Act amounting to INR 7,50,00o. 13. That the Learned AO & Learned DRP failed to appreciate the fact that no restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76,89,935 3. Cost reimbursement by Citrix R&D India to Citrix group companies 3,90,30,428 4. Cost reimbursement by Citrix group companies to Citrix R&D India 13,51,19,065 5. Payment of interest on ECB- 3 month LIBOR 76,43,107 6. Payment of interest on ECB- 6 month LIBOR 75,63,742 2.3 The Ld.TPO noted that the assessee used TNMM as the most appropriate method and OP/TC as PLI to compute its margin under SWD and ITES segment. The assessee computed its margin at 15.29% for SWD segment and 13.31% for ITES segment. The assessee used following comparables under both the segments having SWD Segment: Sl.No. Company Name Weighted Average % OP/OC 1 Kals Information System 0.06% 2 Akshay Software Technologies Limited 1.01% 3 Sagar Soft India Limited 1.17% 4 Accel Frontline Ltd. (Seg.) 3.53% 5 Sasken Communication Technologies Limited (Segmental) 6.98% 6 Maveric Systems Limited 9.46% 7 Mudumuru Systems Limited 9.66% 8 CG-VAK Software & Exports Limited 10.91% 9 Infomile Technologies Ltd. 13.97% 10 Cigniti Technologies Ltd. 17.57% 11 R S Software (India) Limited 20.65% 12 R Systems International Limited (Seg.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. 3.50% ITES Segment: Sl.No. Company Name Weighted Average % OP/OC 1. Bhilwara Info Technology Limited 9.13% 2. One Touch Solutions India Private Limited 15.57% 3. Microland Ltd. (Seg.) 13.62% 2.6 The Ld.TPO after considering the submissions, shortlisted following comparables under both the segment: SWD Segment: Sl. No Comparable Company OP/OC 1. Kals Information Systems Ltd. 8.60% 2. Rheal Software Pvt. Ltd. 14.50% 3. Harbinger Systems Pvt. Ltd. 15.06% 4. CG-VAK Software & Exports Ltd. 18.50% 5. R S Software (India) Ltd. 20.87% 6. Larsen & Tourbo Infotech Ltd. 24.83% 7. Nihilent Technologies Ltd. 26.36% 8. Inteq Software Pvt. Ltd. 28.20% 9. Persistent Systems Ltd. 30.89% 10. Infobeans Technologies Ltd. 32.42% 11. Thirdware Solutions Ltd. 36.90% 12. Infosys Ltd. 38.61% 13. Aspire Systems (India) Pvt. Ltd. 39.28% 14. Cybage Software Pvt. Ltd. 66.45% 35th Percentile 24.83% Median 27.28% 65th Percentile 32.42% ITES Segment: Sl. No Comparable Company OP/OC 1. Supra Technologies Ltd. 10.26% 2. Tech Mahindra Business Services Ltd. 20.44% 3. Infosys BPM Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not wish to press Ground No.6, 8, 10 (g) partly and 10(h) partly. He submitted that in Ground 10(h) assessee do not wish to press inclusion of following comparables: In SWD segment, Harbinger Systems Pvt.Ltd., Synfosys Business Solutions Ltd, Onject One Information Ltd., and Care Risk Solutions Pvt.Ltd. In ITeS segment, Sundram Business Services Ltd., Informed Technologies India Ltd., ACE Software Exports Ltd., Allsec Technologies Ltd., Jindal Intellicom Pvt.Ltd., Cosmic Global Ltd., Suprawin Technologies Limited, Cyfuture India Private Ltd., ACE BPO Services Private Ltd. He also submitted that in Ground 10(h) in SWD- Benchmark IT Solutions India Pvt.Ltd., and in ITeS- Hello Information Services Pvt.Ltd., Digicall Global Pvt.Ltd., were sought for inclusion. He submitted that these comparables have been raised by the assessee vide Ground no.11. The Ld.AR has filed written submissions in the form of synopsis highlighting the comparables that the assessee wish to argue for inclusion/exclusion. Accordingly, the issue alleged in Ground No.6, 8, and comparables sought for exclusion/inclusion in 10 (g) partly and 10(h) partly not mentioned hereinabove are dismissed as not presse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable. uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the, international transaction [or the specified domestic transaction]; (f) ...... (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) the specific characteristics of the property transferred or services provided in either transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that: * None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or * Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments. 3. In Paragraph 13 to 16 of the aforesaid OECD guidelines, need for working capital adjustment has been explained as follows: "13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts. It would need to borrow money to fund the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise have available to invest. In a competitive environment, the price should therefore include an element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables. 15. In the present case the TPO allowed working capital adjustment accepting the calculation given s by the Assessee. The CIT(A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons: (i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year. (ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made. (vi) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (vii) Cost of capital would be different for different companies and therefore wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on working adjustment based on unavailable daily working capital requirements data. There is Also no merit in the objection of the CIT(A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT(A) is also not sustainable. 17. In the light of the above discussion we are of the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at page 173 & 192 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayed that the issue may be remitted for re-commutating correct margins in respect of following comparables:- SWD Segment: As most of the comparables in respect of which the assessee is seeking exclusion on functional dissimilarities, we direct the Ld.AO/TPO to correct the margin of the comparables that will be retained in the final list on order giving effect to this order. Accordingly, this ground of appeal is allowed for statistical purposes. 7. Before we undertake the comparability analysis of the comparables sought for exclusion /inclusion, it is sine qua non to understand the FAR of the assessee under both SWD and ITES segment. Functions: SWD segment: Citrix R&D India is not involved in the conceptualisation and design of the product / solution. Based on customer interaction and market assessment, the AE decides the product / features to be developed. The AEs also determine the requirement analysis and functional specification of the software module to be developed by Citrix R&D India. Based on the design and functional specifications provided by its AEs, Citrix R&D India confirms its understanding of the design and the functional specifications and requirements with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct and indirect cost of each of the group entities party to the inter-company Agreement are pooled in and a mark-up of 5% is applied on the same. Assets employed (Common for both segments): Citrix R&D India procures the necessary support and relevant resources from its AEs for executing the software development activities in India. The AEs of Citrix R&D India function as the principal / entrepreneur for its business. AEs and Citrix R&D India have entered into the service agreement for providing the IT enabled services (order processing and technical support). Citrix R&D India has not developed any intangibles in any form such as unique processes; service delivery methodologies etc. in carrying out its operations with respect to the IT enabled services. Even in the event Citrix R&D India is able to develop any such unique capabilities, the ownership rights in this with respect to such capabilities would rest with the AEs by virtue of the inter-company agreements. The AEs are responsible for marketing their products and services worldwide. Citrix R&D India does not engage in marketing or sales of Citrix products and services and hence does not own any marketing, customer, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 LdAR 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 page 1171, 1214 and 1276 of the annual report paper book in support. The Ld.AR submitted that this company is a market leader and enjoys significant benefits on account of ownership of marketing intangibles, intellectual property rights and business rights and brand value. As a result of this high brand value, the company enjoys a high bargaining power in the market. He relied on page 1190 & 1216, 1249 of the annual report paper book in support. Referring to page 1226 the Ld.AR submitted that this company has significant onsite activities. Further, he submitted that during the year under consideration, this company ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional dissimilarities. He submitted that in assessee's own case for assessment year 2015-16, coordinate bench of this Tribunal reported in [2022] 141 taxmann.com 3, excluded these comparables on 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. 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 as under: COMPARABLE COMPANIES SOUGHTTO BE EXCLUDED BY THE TAXPAYER LARSEN & TOUBRO INFOTECH LTD. (L&T) 14. The taxpayer sought to exclude L&T from the final set of comparables chosen by the ld. TPO for the purpose of benchmarking its international transactions qua SDS on the grounds inter alia that it is functionally dissimilar; that its segmental data is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) BUSINESS TO L&T TECHNOLOGY SERVICES LIMITED (LTTSL) AND WINDING UP OF GDA TECHNOLOGIES INC. (GDA INC.) As part of business restructuring undertaken within L&T Group, it was decided to consolidate the engineering services business under a separate subsidiary of L&T, L&T Technology Services Ltd. (LTTSL). Pursuant to this, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 comparable. Accordingly, we hold so." 20. In view of the facts inter alia that L&T is into various segments having no segmental financials, having huge brand value and intangibles is not a suitable comparable vis-à-vis taxpayer which was working as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Infobeans that it is providing wide range of services under four verticals i.e. services, automation, enterprise and industries and under the automation services verticals, the company is providing advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Thirdware Solutions Ltd. from the final list of comparable for SWD segment. 8.5 Persistent 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, IT 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 1670, 1706 1793, 1876 and 1881 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 pharmaceu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpared to the assessee that renders routine software services. It is submitted that the company owns 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 page 2275 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 2286 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies (P.) Ltd. reported in (2021) 129 taxmann.com 263 Coordinate bench of this Tribunal in case of Yahoo 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. 8.8 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business analytics and business process outsourcing and financials of Nihilent available at page No. A304, A405-A406 of the paper book shows that 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-à-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-à-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held tobe functionally comparable with that of assessee which is a captive service provider that caters only to its AE. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Cybage Software Pvt.Ltd., from the final list. 9. The Ld.AR submitted that, the assessee seeks exclusion of following comparables under the ITES Segment: * Tech Mahindra Business Services Ltd., * Infosys BPM Ltd., * SPI Technologies India Pvt.Ltd., * eClerx Services Ltd. The Ld.AR submitted that these comparables have very high turnover as compared to that of assessee under ITES segment which is INR 110 crores: S.No. Comparable Turnover in Crores Page reference of ARC 1. Tech Mahindra Business Services 722 3011 2. Infosys BPM Ltd. 2,849 3101 3. SPI Technologies India Private Limited 327 3174 4. eClerx Services Limited 1,106 3440 10. Reliance is placed on the decision of coordinate bench of this Tribunal in case of Autodesk India (P.) Ltd. reported in (2018) 96 taxmann.com 263. The Ld.AR also submitted that these companies are consistently excluded from the final list of comparables in similarly placed assessee's as the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ann.com 180/381 ITR 216 (Bom.) wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water India (P.) Ltd. (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International Services (P.) Ltd. (supra): '41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) (P.) Ltd. v. DCIT, ITA No. 1231/Bang/2010, relying on Dun and Bradstreet's analysis, held grouping of companies having turnover of Rs. 1 crore to Rs. 200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:- "9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther considered a situation, whether this company should also be excluded on the application of turnover filter by reason of its turnover in the earlier two years being more than Rs. 200 crores in the light of Rule 10CA of the rules which were applicable from AY 2014-15 onwards or whether in computing the weighted average profit margin of this company, the earlier two years profit margins have to be ignored because they fail the test of comparability in those two earlier years by reason of the application of the Rs. 200 Crore turnover filter. This Tribunal observed as under: 16. To answer the above question, we need to look at the amendment to the rules that allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysis in transfer pricing cases. The provisions of the Income-tax Act were amended through the Finance (No.2) Act, 2014 to facilitate alignment of Indian transfer regime with international best practices. The manner of computation of ALP is laid down under the Income-tax Rules. The Government has notified the amended Rules for determining ALP vide S.O. No. 2860 (E) dated 19/10/2015. The amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the current year and the enterprise undertaking the said uncontrolled transaction, [not being the enterprise undertaking the international transaction or the specified domestic transaction referred to in sub-rule (1)], has in either or both of the two financial years immediately preceding the current year undertaken the same or similar comparable uncontrolled transaction then,- (i) the most appropriate method used to determine the price of the comparable uncontrolled transaction or transactions undertaken in the aforesaid period and the price in respect of such uncontrolled transactions shall be determined; and (ii) the weighted average of the prices, computed in accordance with the manner provided in sub-rule (3), of the comparable uncontrolled transactions undertaken in the current year and in the aforesaid period preceding it shall be included in the dataset instead of the price referred to in sub-rule (1): Provided further that in a case referred to in clause (ii) of sub-rule (5) of rule 10B, where the comparable uncontrolled transaction has been identified on the basis of the data relating to the financial year immediately preceding the current year and the enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the weighted average of the prices shall be computed with weights being assigned to the quantum of costs which has been considered for arriving at the respective prices; (iii) where the prices have been determined using the method referred to in clause (e) of sub-rule (1) of rule 10B, the weighted average of the prices shall be computed with weights being assigned to the quantum of costs incurred or sales effected or assets employed or to be employed, or as the case may be, any other base which has been considered for arriving at the respective prices " ** 17. Let us apply the above rules to the comparable company R.S. Software (India) Ltd. As per Rule 10CA(2), the dataset of comparable companies chosen has to be arranged in ascending order. As per the 1st proviso to Rule 10CA(2), R.S. Software (India) Ltd., was chosen as a comparable company based on the data relating to the current year and in the earlier two financial years immediately preceding the current financial year. In all the financial years the said company has undertaken similar comparable uncontrolled transaction. Clause (i) to 1st proviso to section 10CA(2) mandates that the same MAM has to be used to arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both of the two financial years immediately preceding the current year undertaken the same or similar comparable uncontrolled transaction") undertaking uncontrolled transaction during the relevant previous year and if this condition is satisfied then the profit margin of R.S. Software for the 2 financial years immediately prior to the current financial year has to be taken. A plain reading of the 1st proviso would show that the question of comparability is not to be seen while applying the 1st and 2nd proviso to Rule 10CA(2) of the Rules. The provisions of Rule 10CA(2) have to be read harmoniously with the other provisions of Rule 10B: "Determination of arm's length price under section 92C . 10B . (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d). ** (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specified domestic transaction] if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction [or a specified domestic transaction] shall be the data relating to the financial year [(hereafter in this rule and in rule 10CA referred to as the 'current year')] in which the international transaction [or the specified domestic transaction] has been entered into : Provided that data relating to a period not being more than two years prior to [the current year] may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared:" A reading of Rule 10B(3) shows that comparison of an uncontrolled transaction to an international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.10 is in respect of the comparables sought for inclusion by the assessee under both SWD and ITES segments. It is submitted that the assessee wish to press only following comparables under SWD segment: * Akshay Software Technologies Ltd., * Sagar Soft India Ltd., * Sasken Communication Technologies Ltd, * Maveric Systems Ltd., * InfoMile Technologies Ltd., * Evoke Technologies Ltd., * Celstream Technologies Pvt.Ltd., * Isummation Technologies Pvt.Ltd It is submitted that this company is engaged in providing software development services. It is submitted that these comparables were not considered by the Ld.TPO as they did not appear in the search matrix carried out by him, which has been upheld by the DRP. He placed reliance on the decisions of coordinate bench of this Hon'ble Tribunal in the case of Prism Networks Pvt. Ltd. reported in (2022) 141 taxmann.com 163. 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 Tribunal in case of Prism Networks Pvt. Ltd.(supra) observed and held as under: 18. We heard the rival submissions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2 of section 37 of the Act. He placed reliance on page 819 page 794 of PB where in the Computation of income and return of income are placed. The Ld.AR submitted that, the CSR expenditure of Rs.10,00,000/- was made to the eligible entity registered under section 35AC/80G of the Act. It is submitted that, the assessee claimed Rs. 5,00,000 under section 35AC which was contributed to Karunashraya, receipt of which is placed at page 1160 of PB and Rs. 2,50,000 (being 50% of Rs. 5,00,000) under section 80G which was donated to Spastics Society of Karnataka, receipt of which is placed at page 1159 of the PB. It is the submission of the Ld.AR that section 35AC and section 80G (except for sub section 2) nowhere restricts the Assessee to claim deduction which respect to CSR expenditure. He placed reliance on following decisions in support of this contention: Goldman Sachs Services (P.) Ltd. [2020] 117 taxmann.com 535 (Bangalore- Trib.) at para 16 page 17-18 (page 3925 to 3942 of CLC, relevant page 3941), FNF India (P.) Ltd. ITA No. 1565/Bang/2019 at para 10 page 8 (page 3952 to 3961 of CLC, relevant page 3959). Allegis Services (India) (P.) Ltd. ITA No. 1693/Bang/2019 at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, assessee cannot be denied the benefit of claim under Chapter VI A, which is considered for computing 'Total Taxable Income". If assessee is denied this benefit, merely because such payment forms part of CSR, would lead to double disallowance, which is not the intention of Legislature. 20. On the basis of above discussion, in our view, authorities below have erred in denying claim of assessee under section 80G of the Act. We also note that authorities below have not verified nature of payments qualifying exemption under section 80G of the Act and quantum of eligibility as per section 80G(1) of the Act. 21. Under such circumstances, we are remitting the issue back to Ld. AO for verifying conditions necessary to claim deduction under section 80G of the Act. Assessee is directed to file all requisite details in order to substantiate its calim before Ld. AO. Ld. AO is then directed to grant deduction to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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