EMC SOFTWARE AND SERVICES INDIA PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, SPECIAL RANGE- 2, BANGALORE

PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER:

“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

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Page 2 of 61 to the directions of the Learned Dispute Resolution Panel- 1, Bangalore (the 'Learned Panel') to the extent prejudicial to the Appellant, is bad in law and liable to be quashed.

2. That on the facts and in the circumstances of the case, the Learned AO and the Deputy Commissioner of Income-tax (Transfer Pricing) - 1(2)(1), Bangalore (the 'Learned Transfer Pricing Officer' or the 'Learned TPO') erred in not conforming with the directions of the Learned Panel in entirety and making an adjustment to the transfer price of the Appellant.

3. 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 software development services ('SWD') and provision of information technology enabled services ('ITeS') segments of the Appellant by: 3.1. Rejecting the value of international transaction of provision of SWD and provision of ITeS, as recorded in the books of account, as the arm's length price. 3.2. Rejecting the Transfer Pricing ('TP') documentation maintained by the Appellant under Section 92D of the Act, in good faith and with due diligence.

3.3. Applying the provisions of Rule 10B() read with Rule 10CA(2) and Rule 10CA(4) of the Income-tax Rules, 1962 ('the Rules') while undertaking the fresh benchmarking analysis. 3.4. Conducting a fresh comparability analysis by rejecting certain filters applied by Appellant in the TP documentation and applying additional / modified filters. The Learned AO and the Learned Panel further erred in:

• Accepting companies without considering the turnover and size of the Appellant vis-à-vis, comparable companies;

• Rejecting companies having different financial year ending or data of the company not falling within the 12 month period although being functionally comparable with the Appellant;

• Not applying related party transaction filter of 15% on sales while accepting/ rejecting comparables companies; and IT(TP)A No.191/Bang/2021

Page 3 of 61 • Rejecting companies by applying persistent loss filter wherein the comparable companies had losses only in two out of latest three years.

3.5. Using data, which was not contemporaneous and which was not available in the public domain at the time of preparing the TP documentation.

3.6. Using information under section 133(6) of the Act, which tantamount to choosing secret comparable companies whose information was not available in public domain 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 Technologies Ltd. - Software Services segment ITeS Segment:

3.10. Including the following companies even though such companies are functionally different (such as - engaged in KPO activities,

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Page 4 of 61 diversified activities with no segmentation, extra ordinary event, etc.) from the Appellant:

• Tech Mahindra Business Services Ltd. • Infosys BPM Ltd. • SPI Technologies India Pvt. Ltd. • Eclerx Services Ltd.

3.11. Excluding the following companies even though the same are functionally comparable to the Appellant: • Microgenetics Systems Ltd • Ace BPO Services Pvt. Ltd.

3.12. The Learned Panel erred in upholding the exclusion of Suprawin Technologies Ltd. on the ground that the company not having featured in the search matrix of the TPO, its inclusion would amount to cherry picking.

3.13. Not providing working capital adjustment for determining the arm's length price while relying on the judicial precedents based on a fact pattern, which is not applicable to the Appellant

3.14. Not providing suitable adjustment to account for differences in the risk profile of the Appellant vis-à-vis the comparable companies.

3.15. The Learned Panel grossly erred in observing that (i) decisions of this Hon'ble Tribunal cannot be relied upon while adjudicating the comparability of certain companies and (ii) companies cannot be rejected for non-availability of segment information.

4. That on the facts and in the circumstances of the case, the Learned AU and the Learned TPO erred in not conforming with the directions of the Learned Panel while computing the operating mark-up on cost of certain comparable companies.

5. That on the facts and in the circumstances of the case, the Learned AU erred in not granting deduction under section 8oG of the Act amounting to INR 54,16,090 while computing the tax payable.

7. That on facts and in the circumstances of the case, the Learned AU has erred in serving notice under section 271(1)(c) of the Act and IT(TP)A No.191/Bang/2021

Page 5 of 61 initiating penalty proceedings for concealment of income and for furnishing inaccurate particulars of such income. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this appeal.”

Page 6 of 61 engaged in developing, delivering and supporting the information technology.

2.1 On perusal documents submitted by the assessee, the functional profile was observed by the TPO as under:- “2. FUNCTIONAL ANALYSIS OF THE TAXPAYER 2.1. EMC Corporation headquartered in Massachusetts was incorporated develops, delivers and support the information technology industry's broad information infrastructure and virtual infrastructure technologies, solution and designed to help individual and organizations handle their digital information need. EMC Group helps individual and organization to store, manage, protect, secure , move and share information to collaborate, solve problems, save money, exploit new opportunities, comply with regulations and policies and improve operational result from a known strategy as information lifecycle management ('ILM'). As of December 31,2015, EMC Group employed approximately 72000 people worldwide. The group is represented by approximately 400 sale offices and score of partners in 86 countries around the world. EMC Corporation operates primarily in three businesses. • EMC Information Infrastructure; • VMware Virtual Infrastructure business; and • Pivotal business.

2.2 Further, it was noticed from the Form No.3ECB that the following international transactions were done by the assessee.

The financial results of the assessee is as under:- IT(TP)A No.191/Bang/2021 The segmental financials applied by the TPO is as under:-

IT(TP)A No.191/Bang/2021 2.3 During the course of analysis of the transfer pricing study report, the ld.TPO observed some defects on the filters applied by the assessee for selection of the comparables. Accordingly, he rejected the TP study report and he started fresh search after adoption of appropriate filters as under:-

Step Description 1. Companies whose data is not available for FY 2015-16 - excluded. 2. Companies having different financial year ending (i.e., not March 31 2016) or data of the company does not fall within 12 month period i.e., 01-04- 2015 to 31-03-2016 - excluded. 3. Companies whose income was less than Rs. 1 Crore - excluded. 4. Companies whose software development service income is less than 75%

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Page 9 of 61 of the 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 comparables were selected by the TPO and median was calculated at 28.20% and applied TNMM method and computed arms length price as under:-

IT(TP)A No.191/Bang/2021 2.5 The ld.TPO in the case of ITeS segment, finally selected six companies and calculated median at 23.44% after applying the TNMM method as at arms length price was calculated as under:-

2.6 The ld.TPO also observed that delayed receivables are reflected at Rs.3595.44 Million. However, no interest was charged by the taxpayer on delayed receivable. Therefore, vide show cause notice dated 28/05/2019, the taxpayer was IT(TP)A No.191/Bang/2021

Page 11 of 61 requested to furnish invoice wise aging details of outstanding receivables, in respect of all invoices raised during the F.Y. 2015-16 as well as the invoices which were raised in previous year but remained unpaid on the opening day of current F.Y. 2015-16 is-a-vis credit period as per the service agreement with the AEs . The above information was called from the taxpayer to calculate the interest chargeable on delayed receivables as the delayed receipts are proposed to be treated as 'unsecured loans'. In response to that the taxpayer vide reply dated 30/09/2019 has contested that it's a debt free company and has not incurred any interest expenditure, accordingly, no notional adjustment can be made on account of interest on any delayed payment if any, for collection of receivable from its AEs. To raise the above argument, the taxpayer has relied on judgment – Pr.CIT-2 Vs. M/s Bechtel India Pvt. Ltd.-(CC No(s) 4956/2017) Supreme Court – A.Y 2010-11, dated 21/07/2017.

2.7 The assessee is debt free company and no adjustment can be made. After considering the submission of the assessee and relying on some case law, no adjustment was made towards the interest on delayed trade receivables. Accordingly, the ld. TPO proposed to adjustment for arms length price of Rs.145,80,20,000/- for SWD & ITeS segments and passed order. The AO after receipt of the TPO’s order passed order u/s 92CA(3) of the Act. He proceeded to complete the draft assessment order. The AO added the adjustment proposed by IT(TP)A No.191/Bang/2021

Page 12 of 61 the TPO and assessed income at Rs. 260,38,33,730/- and passed order on 07/12/2019.

2.8 Aggrieved from the above order, the assessee filed objections before the ld. DRP and raised various objections. After considering the submissions of the assessee, the ld.DRP without granting any relief passed order on 18/02/2021.

2.9 The AO after receipt 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 IT(TP)A No.191/Bang/2021

Page 13 of 61 company will fall within the definition of KPO services, which are incomparable to the services rendered by the Appellant.

The company also owns stock in trade

Significant research and development activities:

It is submitted that the 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.

Significant related party transactions: It is submitted that during the year under consideration, the company has related party transactions in excess of 15%. In view of presence of significant related party transactions, the company’s transaction cannot be termed as an uncontrolled transaction, and therefore the company ought to be excluded from the final list of comparables.

Wide fluctuation in margin: It is submitted that the company, during the FY 2013-14 and 2014-15 had a turnover of Rs. 351.88 crores and 345.51 crores, and profit margin of 24.14% and 32.75%, respectively. However, during the FY 2015-16, the company realised a turnover of Rs. 171.41 crores, leading to loss of -2.09%. It is submitted that there is an apparent wide fluctuation in the margin of the company. The relevant details as computed by the TPO is provided hereunder:

*figures in crores FY 2015-16 FY 2014-15 FY 2013-14 Operating 171.41 345.50 351.89 revenue Operating cost 175.07 260.26 283.47 Operating profit -3.66 85.24 68.42 OP/OC -2.09% 32.75% 24.14%

The reason for decline in margin is attributable to the strategic shift made by the company as it is making substantial investments in a) developing tools and platforms and b) sales and marketing to enhance its customer base. Further, there is a significant drop in revenue (51 percent) vis-à-vis the previous year. Further, the company recognizes that this shift has impact on the margin of the company. In view of the same, the company ought to be excluded. Presence of intangibles. It is submitted that the company owns significant intangible assets. The company is also developing further intangible assets. The total value of intangible assets as a percentage of fixed assets is 17.3%, which is significantly higher than the intangible assets owned by the Appellant, which IT(TP)A No.191/Bang/2021

Page 14 of 61 is 0.04% of its fixed assets. Further, the company also owns stock in trade, unlike the Appellant. Significant 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 developed in-house. Accordingly, it is submitted that L&T is a product company and is thus not comparable to captive SWD service providers such as the Appellant.

Significant brand value and intangible assets: The company is a market leader and thus enjoys significant benefits on account of high brand value, ownership of marketing intangibles, intellectual property rights and business rights. As a result of high brand value, the company enjoys a high bargaining power in the market.

The company also undertakes R&D activities. Significant expenses in foreign currency:

The company incurred significant overseas cost and office expenses of 46.90%, 47.92% and 47.01% of its total expenditure during the FYs 2013-14, 2014-15 and 2015-16, respectively, which suggests that is engaged in provision of onsite services. Hence, it operates on a business model different from that of the Appellant and is thus incomparable to it.

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Page 15 of 61 Peculiar economic circumstances:

The company suffers from peculiar economic circumstance during the FYs 2013-14, 2014-15 and 2015-16. During the FY 2015-16, pursuant to the amalgamation of GDA Technologies Ltd., and Information Systems Resource Centre Pvt. Ltd. into the company, the entire business, assets, liabilities, duties and obligations stood vested in the company. During the FY 2014-15, the company had acquired Information Systems Resource Centre Pvt. Ltd., which was completed during the FY 2015-16. During the FY 2013-14, the company transferred its Product Engineering Services business to L&T Technology Services Ltd. and wound up its subsidiary GDA Technologies Inc. Detailed submissions are placed at pages 50-59 and 437-451 of the paperbook. It is submitted that this company is consistently excluded from the final list of comparables in cases of assessee’s placed similar to the Appellant. Reliance is placed on the decision of this Hon’ble Tribunal in the Appellant’s own case for the assessment year (‘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), 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 by this Hon’ble Tribunal in IT(TP)A No. 182/Bang/2021) for AY 2016-17, the decision 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 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, which are in no way comparable to the captive software development activities as provided by the Appellant.

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Page 16 of 61 The company undertakes R&D activities. Significant marketing expenses: The company has incurred marketing expenses of 2.11% (of total sales) during the FY 2013-14, 1.65% during the FY 2014-15 and 0.69% during the FY 2015-16. On the contrary the Appellant’s marketing expenses are marginal (0.13%) Significant expenses in foreign currency: The company has incurred significant expenses in foreign currency of 37.68%, 33.27% and 37.47% of its total expenditure during the FYs 2015-16, 2014-15 and 2013-14, respectively, which suggests that is engaged in provision of onsite services. Hence, it operates on a business model different from that of the Appellant and is thus incomparable to it. Peculiar economic circumstances: It is submitted that during the FY 2015-16, Nihilent had acquired GNet Group LLC - a business intelligence and analytical company, and Intellect Bizware Services Pvt. Ltd. specialising in ERP and enterprise innovation. The acquisitions are bound to have a significant impact on the financials of the company, and thus it cannot be considered for the comparability analysis. Detailed submissions are placed at pages 64-71 and 452-464 of the 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); and the decision of the Mumbai Bench of this Hon’ble Tribunal in Red Hat India Pvt. Ltd. v. NFAC (order dated 25.02.2022 passed in for AY 2016-17. In view of the above, it is submitted that Nihilent ought to be excluded from the final list of comparables. d) Inteq Software Pvt. Ltd. (‘Inteq’)-

Functionally different: It is submitted that the company is engaged in outsourced product development for small, medium corporation and emerging technology businesses. The company undertakes all the process of product development life cycles, which is a high end product development, which is incomparable to the SWD services rendered by the Appellant. As per the website of the company, the company renders data warehousing services, consulting services, EI and EDI services, testing services healthcare BPO services, and in respect of the diverse services, no segmental details are available.

Significant related party transactions:

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Page 17 of 61 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 2016-17. e) Persistent Systems Ltd. (‘Persistent’) – Functionally different: It is submitted that the company is engaged in licensing and sale of products and also earns royalty income. The company is engaged in development of proprietary software products under ‘Accelerite’, ‘Penlist’, ‘PSEnsure’ and ‘PSEnquire’ brands. However, segmental details as regards its diverse services are unavailable. Even going by the company’s reply to the TPO’s notice under Section 133(6) of the Act, the company is predominantly engaged in the business of providing outsourced product development services, which are vastly different from the services rendered by the Appellant.

Further, it is submitted that the company undertakes significant R&D activities and has established ‘Persistent Labs’ to focus on R&D activities. Significant intangibles: The company also owns significant intangibles of 5.99%, 6.42% and 5.01% of net block of assets during the FYs 2013-14, 2014-15 and 2015-16, respectively. Significant foreign currency expenses: The company has also incurred significant expenses in foreign currency, demonstrating that it renders significant onsite services, which business model is different from that of the Appellant’s. The expenses incurred by the company as a percentage of its total sales is 13.41%, 15.03% and 18.40% for the FYs 2013-14, 2014-15, and 2015-16, respectively. Significant related party transactions:

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Page 18 of 61 The RPT sales of the company as a percentage of total sales stand at 19.48% for the FY 2014-15 and 17.29% for the FY 2015-16. Further the RPT expenses as a percentage of operating expenses stand at 15.46% for the FY 2014-15 and 19.07% for the FY 2015-16.

Marketing expenses: The company has incurred significant amounts of marketing expenses in the nature of advertisement and sponsorship fees, as opposed to the Appellant which incurred marginal expenses.

Peculiar economic circumstances: The company suffers from peculiar economic circumstances in as much as during the FY 2015-16, the company has acquired the assets of Aepona IoT platform from Intel and the CloudPlatform assets from Citrix. As a part of the acquisition, the company acquired development centres in Belfast, UK and Srilanka. This acquisition is bound to have an effect on the margin of the company, in respect of which no reasonably accurate adjustments can be made to eliminate the material effects thereof.

Detailed submissions 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 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 Technologies Ltd. (‘Infobeans’) - Functionally different: The company is engaged in providing software engineering services primarily in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics. Though the annual report of the company mentions that the company is earning 100% revenues from sale of software services, such services are in the nature of IT(TP)A No.191/Bang/2021

Page 19 of 61 CAD,CMS etc., which are in the nature of KPO services. The above services rendered by the company are vastly different from the SWD services rendered by the Appellant, and therefore the company ought to be excluded as being functionally different. Further, the segmental details for these diverse services are not available and therefore the company cannot be selected as a comparable. Significant intangible assets: During the FYs 2013-14 to 2015-16, the company owned intangible assets representing around 7% of the total fixed assets held by the company. Expenses in foreign currency: It also incurred significant expenditure in foreign currency, in the nature of onsite activities representing around 1.5% of the total sales. Abnormal increase in revenue: The revenue increased from Rs. 35 crore (FY 2014-15) to Rs. 62 crore (FY 2015-16) in a period of 1 year (76%). Also, the company’s profitability increased by 147%. Detailed submissions in this regard are placed at pages 81-89 and 360- 395 of the 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 decision of the Hyderabad Bench of this Hon’ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in 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)); and the decision of the Mumbai Bench of this Hon’ble Tribunal in Red Hat India Pvt. Ltd. v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021) for AY 2016-17, wherein, in the case of similarly placed assessees, the Hon’ble Tribunal directed exclusion of Infobeans from the list of comparables for AY 2016-17. Thus, it is submitted that Infobeans ought to be excluded from the final 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-

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Page 20 of 61 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 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), 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 this Hon’ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in and Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed in IT(TP)A No. 198/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. Therefore, it is submitted that the company ought to be excluded from the final list of comparables. h) Infosys Ltd. (‘Infosys’) –

Functionally different: The company earns income from both rendering software services and development of products. The company provides end-to-end business solutions like business consulting, technology, engineering and outsourcing services. In addition, the company offers software products and platforms. Despite rendering diverse services, there are no segmental details in respect of the services rendered. Further, the services rendered by the company are not functionally comparable to the routine SWD services rendered by the Appellant. The company also invests in products which helped the company establish itself as a credible IP Owner. The company owns several Edge products/platforms and six other product based solutions.

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Page 21 of 61 Also, the company owns non-routine intangibles which are different from the intangibles owned by the Appellant. The company also heavily focuses on research and development activity and incurs significant expenditure for this account. Brand value: The company owns significant brand value and focuses on immense brand building. For this purpose, it incurs significant brand building expenses, which goes to help the company have a premium pricing for its services. The company incurred expenses of 77 crores during the FY 2013-14, 94 crores during the FY 2014-15 and 178 crores during the FY 2015-16. The company also incurred significant selling and marketing expenses. The company also incurs 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 dated 28.09.2021 passed in IT(TP)A No. 182/Bang/2021) and for AY 2016-17; the decision of the Hon’ble Delhi High Court in the case of CIT v. Agnity India Technologies P. Ltd. (reported in (2013) 36 taxmann.com 289 (Delhi)) for AY 2006-07 and on the 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).

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Page 22 of 61 Therefore, it is submitted that the company ought to be excluded from the final list of comparables. i) Aspire Systems (India) Pvt. Ltd. (‘Aspire’) – Functionally different: The company is engaged in diversified business activities of providing integration platform services using its platforms in addition to software development services. It also provides services in the nature of product engineering, enterprise solutions, independent testing services, engineering services, infrastructure & application support services, business intelligence & analytics, etc and is also into IT infrastructure support services, and outsourced technology services. Significant intangible assets: It is submitted that Aspire owns non-routine intangible assets such as trademarks, customer contracts and goodwill which cannot be compared to the Appellant. The company also incurred significant expenses in relation to onsite services of approximately 20 percent of its total revenue. Significant related party transactions: Further, the company fails the RPT filter applied by the TPO. The computation of related party transactions is given below:

Nature of the Transaction FY 2013-14 FY 2014-15 FY 2015-16 Rendering of services 223,417,070 298,621,389 544,052,341 Purchase of services 188,253,217 214,308,033 283,206,248 Expenses Reimbursed 9,650,786 26,519,375 25,773,664 Remuneration to KMP 61,447,016 83,854,419 95,990,266 Reimbursement of Income 2,224,914 Electricity Charges Paid 9,462,212 Total RPT 482,768,179 623,303,216 960,709,645 Total Sales 1,565,292,158 1,791,127,395 2,308,061,232 RPT 30.84% 34.80% 41.62% Source Note.31 of AR Note.31 of AR Pg.195 of AR

Peculiar economic circumstance: It is also submitted that the company has entered into amalgamations during the relevant FY. The extra ordinary event of the company will have an impact on its profitability as the revenue of the amalgamated company is now included in the revenue of Aspire.

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Page 23 of 61 Detailed submissions are placed at pages 111-121 and 323-326 of the 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 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 including ITeS and BPO services. The financials of Cybage do not provide for segmental information in respect of the diverse business functions undertaken by the company. Moreover, the company renders diverse range of marketing services like content marketing, creative production and marketing operations. The company earns significant onsite revenue. Super normal profits: The company is making super normal profits (details of which are as under) and the same is not reflective of the performance of the industry in which the assessee operates.

Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/OC 62.82% 68.68% 62.90%

Detailed submissions are placed at pages 121-130 and 362-380 of the paper book. Reliance in this regard is placed on 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 Hyderabad Bench of the Hon’ble Tribunal in 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.

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Page 24 of 61 In view of the above, it is submitted that the Cybage ought to be excluded from the final list of comparables.

2.13 The ld. AR of the assessee also filed additional written synopsys in case of Inteq Software Pvt. Ltd. & Infobeans Technologies Ltd which is as under:-

Inteq Software Pvt Ltd. (“Inteq”): The company is engaged in the business of computer programming, consultancy and related activities (page 1545 of the annual report compilation – vol I). Thus, it is submitted that the company is not a pure software development company like the Appellant. The presence of assets such as data processing equipment and electrical installations denote the diversified business segments of the company (page 1569 of the annual report compilation – vol I). It is submitted that the company earns revenue from software development services and service charges and the same is shown in the annual report of the company in a composite manner with no segmental profitability and therefore, it is submitted that the company is not comparable to a routine software development service provider (page 1565 of the annual report compilation – vol I). The TPO has relied on the information received under Section 133(6) of the Income tax Act, 1961 (“the Act”) for the assessment year 2015-16 on the ground that no response was received from the 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 the website extracts (placed at pages 420-426 of the paperbook), it is evident that the company is not a pure software developer. It is submitted that annual report of Inteq for AY 2016-17 clearly shows that the company is engaged in consultancy services and therefore is not into pure software development services like the Appellant.

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Page 25 of 61 Detailed submissions are available at pages 419-436 of the paperbook. Reliance is placed on the decision of this Hon’ble Tribunal in the case of 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 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)) at paras 46-47 for AY 2016-17.

Infobeans Technologies Ltd. (“Infobeans”): It is submitted that the company is primarily engaged in software engineering services in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics (page 1899 of the annual report compilation – vol III). It is submitted that the services rendered by the Company is vastly different from that of the Appellant and thus, it is not comparable to the Appellant. The annual report of the company at Note 33 (page 1913 of the annual report compilation – vol III) under the head earnings in foreign currency shows export of goods/services calculated on F.O.B basis, which indicate that the Company has product sales as well. In the absence of segmental details, the company cannot be selected as a comparable. Further, it is submitted that the company has incurred significant brand promotion expenses during FY 2014-15 and FY 2015-16 which effects the profitability of the company (page 1912 of the annual report compilation – vol III). During the FYs 2013-14 to 2015-16, the company owned intangible assets representing around 7% of the total fixed assets held by the company (page 1907 of the annual report compilation – vol III). The DRP has proceeded to reject the contention of the Appellant relying on information received under Section 133(6) of the Act that the Company renders software development services, whereas the annual report is reflecting a contrary position. It is now settled that a response to Section 133(6) notice cannot take precedence over the annual report. In the present case, as stated 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.

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Page 26 of 61 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 dated 03.02.2022 in at para 7] for AY 2016-17; 5. GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) at paras 44-45 for AY 2016-17.

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Page 27 of 61 companies. We further noted that from the submissions of the AR that in case of Arm Embeded Technologies Pvt. Ltd. Vs. DCIT in IT(TP)A No. 235/Bang/2021 order dated 30.08.2022 in which it has been held that in case of captive software development service the following companies can not be considered as comparable. The assessee is also providing the same functions as relied by the ld. AR. The observations of the co-ordinate bench are as under:-

11. Ground No.2.10: is raised by the assessee seeking exclusion of following comparables for functional dissimilarities: • RS 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.

IT(TP)A No.191/Bang/2021 Page 28 of 61 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 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 pages 943, 946, 920, 1011 of the annual report paper book in support. Referring to page 1023, 1015 the Ld.AR submitted that this company has significant onsite activities. Further, he submitted that during the year under consideration, this company has extraordinary event, whereby Information Systems Resources Centre Private Limited amalgamated with the Company. He thus prayed for exclusion of this company from the final list.

14. Infobeans Technologies 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 specialised in business applications development for web and mobile. This company provides software engineering services primarily in Custom Application Development, Content Management Systems, Enterprise Mobility, Big Data Analytics. He placed reliance on page 1668 of annual report paper book. The services rendered by this company are different from the routine low end software development services rendered by the assessee as a captive service provider to its AE. The Ld.AR further submitted that, segmental details of such diverse activities carried on by this company are not available. He thus prayed for exclusion of this company from the final list.

15. Thirdware Solutions Limited 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 software and consultancy. The Ld.AR submitted that this company has significant competencies in transaction systems, Analytics and Cloud applications. Further, the company has earned revenue from software development, implementation services, application management services, and other related services and from sale the sale of license and subscription for software application, which are not akin to the captive services rendered by the assessee. 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.

IT(TP)A No.191/Bang/2021 Page 29 of 61 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 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 not available; that L&T is a huge brand with ownership of intangibles and on account of extra ordinary event; and on the ground that this company was rejected in taxpayer's own case in Global Logic India Ltd. v. Dy. CIT [2020] 117 taxmann.com 39 (Delhi - Trib.).

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Page 30 of 61 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) 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 Company initiated and completed transfer of its Product Engineering Services (PES) Business Unit to LTTSL effective January 1, 2014, PES Business Unit was transferred by way of slump sale for total sales consideration of Rs. 489.53 crs based on ITA No. 4740/Del./2018 fair valuation, GDA Technologies Inc., USA (GDA Inc.), a wholly owned subsidiary of the Company was part of PES business with synergy in terms of the end customers they serve, primarily the semiconductor companies. Over last few years, the performance of GDA Inc. was adversely affected resulting in falling revenues and operational losses. Consequent to the transfer of PES business, certain IPs (Intellectual Properties) owned by GDA Inc. were transferred to LTTSL, the Company was wound up during the year." 6.7 In view of the above reporting, it is clear that under the telecom segment, the assessee was engaged in providing engineering services, which is distinct from the services of the software development. Thus, at entity level, the company cannot be considered functionally similar to the assessee. The company cannot be considered comparable at the segment level also because of there are expenses of Rs. 205,80,17,445/- ( page 129 of PB-2) , which has not been allocated into three segments, and thus the segmental result are distorted. 6.8 During the year, the extraordinary event of demerger of product engineering service business (PES) has occurred with effect from 01/01/2014, which has also impacted the profit of the company at the IT(TP)A No.191/Bang/2021 Page 31 of 61 entity level. In the decision of the Tribunal in case of Xchanging Technology Service India Private Limited (ITA No. 1897/Del./2004), which has been approved the Hon'ble High Court in , the company is held to be not valid comparable on account of extraordinary events. Thus, In view of the extraordinary event in the year under consideration also, this company is liable to be excluded from the set of the comparable."

19. In taxpayer's own case in Global Logic India (P.) Ltd. v. DCIT [IT Appeal No. 8726 (Delhi) of 2019, dated 29-6-2020] 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 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 a captive entity and that contention raised by the ld. DR that under TNMM minor dissimilarities do not affect the overall comparability is not sustainable because though it is a taxpayer's own comparable but there being no estoppel against statute and that taxpayer can rectify its mistake at any stage of the proceedings. Secondly, it is not a case of minor dissimilarities rather it is a case of functional dissimilarity and non-availability of segmental financials to provide the clear picture qua profit earned by the company from provisions of SDS. L&T is a big brand having ownership of huge intangibles which ought to provide competitive advantage to the taxpayer in the form of premium pricing and huge volume of business ultimately leading to the higher profitability. So,

IT(TP)A No.191/Bang/2021 Page 32 of 61 we are of the considered view that L&T is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. THIRDWARE SOLUTION LTD. (THIRDWARE) 40. The taxpayer sought exclusion of Thirdware on the ground that it is functionally dissimilar vis-à-vis the taxpayer. However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the ld. TPO/ld. DRP to retain this comparable.

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 robotic process automation services. Since

IT(TP)A No.191/Bang/2021 Page 33 of 61 Infobeans is into diversified activities it cannot be a suitable comparable vis- àvis the taxpayer which is a routine software development services provider. Infobeans has been excluded as a comparable on account of functional dissimilarity vis-à-vis routine software development service provider by the coordinate Bench of the Tribunal in case of Pub Matic India (P.) Ltd. (supra). So, in view of the matter, we order to exclude Infobeans from the final set of comparables. INTEQ SOFTWARE LTD. (INTEQ) 46. The taxpayer sought exclusion of Inteq again on account of functional dissimilarity being into providing outsourced product development services and Healthcare BPO services to its customers as per website extracted at pages 83 to 85 of the appeal memo set. It being a private limited company its financials are not available in the public domain. Its annual report made available at pages 848 to 909 of the annual reports paper book does not provide segmental profitability earned from software development services, outsourced product development services and Healthcare BPO services.

17. We note that the assessee in Global Logic India Ltd. (supra) was a captive service provider to its AE for assessment year 2016-17. Nothing has been placed by the Revenue to deviate from the above view taken by the coordinate bench of this Tribunal in Global Logic India Ltd. (supra).

18. Respectfully following the view taken by the coordinate bench of this Tribunal in Global Logic India Ltd. (supra), we direct Ld. AO/TPO to exclude Inteq Software Pvt.Ltd, L&T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. from the final list of comparable for SWD segment.

19. 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, 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

IT(TP)A No.191/Bang/2021 Page 34 of 61 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 their products on human skin). He placed reliance on page 1421 of the annual report paper book. Persistent has established “persistent labs” which focuses on latest technologies viz., gesture computing, machine learning etc. Using the innovations of Persistent labs. The Ld.AR further submitted that this company partnered with IBM and have added an engineering team that is building products and tools for continuous lifecycle management and for digital transformation and has partnerships with various leading platform providers in Analytics, Big Data, Cloud, Mobile, Machine Learning, and IoT. He placed reliance on page 1420, 1421, 1422, 1391 of the annual report paper book. The Ld.AR submitted that as a part of Aepona acquisition, this company acquired development centers in Belfast, UK and in Colombo, Sri Lanka during the year under consideration. He placed reliance on page 1420, 1421 of the annual report paper book. He thus prayed for exclusion of this company from the final list. The Ld.AR submitted thus submitted that Persistant Systems Ltd, is not functionally similar with that of assessee who is a captive service provider to its AE.

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Page 35 of 61 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 these comparables are not functionally similar with that of the assessee as has been observed by Coordinate Bench of this Tribunal in following cases:

1. 1. Decision of Hon’ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT reported in (2022) 136 taxmann.com 52.

2. Decision of coordinate bench of this Tribunal in case of OLF India Software Pvt.Ltd. vs. ACIT in IT(TP)A No.182/2021 by order dated 28/09/2022 for A.Y. 2016-17.

3. Decision of Hon’ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. DCIT in ITA-TP.No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016- 17 On the contrary, the Ld.CIT.DR placed reliance on orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.

21. Before us, the Ld.DR has not been able to place anything on record contrary to the above submissions by the Ld.AR. We of the view that with such varied functions, these companies cannot be compared with assessee before us, which is a captive service provider. We accordingly direct the Ld.AO/TPO to exclude Persistent Systems Ltd., and Infosys Ltd. from the final list.

22. Aspire Systems (India) Pvt. It is submitted that, this company is functionally not comparable with the assessee as it earns income from power generation. The Ld.AR placed reliance on page 127 of Annual Report. The Ld.AR submitted that, the company owns significant intangibles in form of goodwill, customer contracts. He placed reliance on page 2077 & 2087 of annual report paper book in support. It is submitted that Applied Development Software (India) Pvt.Ltd., and Pure Apps Consulting Services Pvt. Ltd., amalgamated with the company that lead to acquisition of assets. He placed reliance on page 2056 of annual report paper book. The Ld.AR placed reliance on following decisions in support: Decision of Hon’ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT reported in (2022) 136 taxmann.com 52 Decision of Hon’ble Hydrabad Tribunal in case of Infor India Pvt. Ltd. in IT(TP)A No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016-17. Decision of Hon’ble Punjab & Haryana in Equant Solutions India (P.) Ltd. reported in (2020) 113 taxmann.com 517

IT(TP)A No.191/Bang/2021 Page 36 of 61 Coordinate bench of this Tribunal in case of ARM Embedded 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.

IT(TP)A No.191/Bang/2021 Page 37 of 61 The assessee sought exclusion of Nihilent on ground of its functional dissimilarity vis-à-vis assessee. We have examined the website information of Nihilent, made available by the assessee at page No. 405 of the paper book, wherein it is mentioned that it is engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data science, cloud services etc.

24. Cybage Software Pvt.Ltd. It is submitted that this company is engaged in the provision of diversified services which include product engineering, testing & quality assurance services,

IT(TP)A No.191/Bang/2021 Page 38 of 61 specialized services, support services, etc. It is submitted that this company is engaged in product development and has developed a product called ‘excelshore’ apart from providing spectrum of services including ITeS and BPO services and that segmental information of the diverse business functions undertaken by the company is not available. The Ld.AR submitted that this company is making super normal profits and that it is not reflective of the performance of the industry in which it operates. Particulars FY 2013-14 FY 2014-15 FY 2015-16 OP/OC 68.82% 67.75% 62.04% Reliance in this regard is placed on the decision of the Hon’ble Hyderabad Tribunal in Infor (India) Pvt. Ltd. v. DCIT (supra). 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. Primarily we note that this company is a product company and has diversified business segments. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this company cannot be held tobe functionally comparable with that of assessee which is a captive service provider that caters only to its AE. Respectfully following the above view, we direct the Ld.AO/TPO to exclude Cybage Software Pvt.Ltd., from the final list.

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Page 39 of 61 We have perused the submissions of both sides in light of records placed before us. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this company cannot be held to be functionally comparable with that of assessee which is a captive service provider that caters only to its AE. We therefore direct the Ld.AO/TPO to exclude R.S Software (I) Pvt.Ltd, from the final list. Accordingly this ground raised by the assesse stands allowed. 4.1 Respectfully following the judgment of co-ordinate bench of the Tribunal cited supra all the above ten companies noted supra are to be excluded for computation of ALP in the final set of comparables. Accordingly this ground No. 3.8raised by the assessee stands allowed in above terms .

Ground No. 3.9:

5.1 In regards to Akshay Software Technologies Ltd, it is submitted that the TPO rejected this company on the ground that it is functionally different from the Appellant. The DRP upheld its rejection on the ground that the company did not feature in the search matrix of the TPO which is incorrect.

5.2 In this regard, the ld, AR submitted that a perusal of the functions of the company listed in its annual report shows that the IT(TP)A No.191/Bang/2021

Page 40 of 61 company is functionally similar to the Appellant. The website of the company states that the company is engaged in rendering IT services, which are in the nature of SWD. Further, it is submitted that the income from SWD services is 96.5% of total sales and the income from sale of software licenses constitutes a meagre 3.4% of the total revenue and therefore the same would not have any impact on the profitability of the company. Further the company passes all the filters applied by the TPO. Details submissions in this regard are placed at pages 131-133 and 526-529 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, where in the company came to be remanded.

5.3 In regard to Sasken Communication 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

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Page 41 of 61 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.

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Page 42 of 61 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. Thus ground No. 7 is treated as 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: It is submitted that the correct weighted average margin of the company is 20.05% and not 28.20% as adopted by the TPO (refer submission at page 71 of the paperbook);

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Page 43 of 61 - Aspire: It is submitted that the correct weighted average margin of the company is 32.97% and not 39.28% as adopted by the TPO (refer submission at pages 120-121 of the paperbook);

ITeS SEGMENT Ground No. 3.10 – 10. The assessee raised issue that the TPO erred in including Tech Mahindra Business Services Ltd., Infosys BPM Ltd., SPI Technologies India Pvt. Ltd., and Eclerx Services Ltd. which ought to be excluded from the final list of comparable as the companies are functionally dissimilar to the Appellant . In this regard the appellant has submitted as under:- a) Infosys BPM Ltd. (‘Infosys BPO’)– Functionally different: Infosys BPO provides integrated IT and end-to-end business process outsourcing solutions across a variety of verticals and horizontals. The company caters to industry segment comprising of customers relating to financial services and insurance (FSI), manufacturing (MFG), enterprises in energy, utilities and telecommunication services (ECS) and retail, logistics, consumer product group, life sciences and health care enterprises (RCL). The horizontals solutions comprise of Sourcing and Procurement (S&P), Customer Service (CS), Finance & Accounting (F&A), Legal Process Outsourcing (LPO), Sales & Fulfillment (S&F), Analytics (AT), Business Platform(BP), Business Transformation Services (BTS), Human resources Outsourcing (HRO), Technology Solution Optimization (TSO), while Vertical (Industry) solutions include FSI (Financial Services & Insurance), MFG (Manufacturing), ECS (Energy, Utilities, Communication and Services) and RCL (Retail, Consumer packaged goods, Logistics and Life Sciences). These services cannot be compared to the routine back-office services provided by the Appellant.

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Page 44 of 61 The company focuses of delivering solutions to its clients which goes beyond rendering routine ITe services. From the above, it is evident that Infosys BPO is engaged in rendering business solutions and consultancy to its customers which is different 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 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 order dated 03.01.2018 of the Hon’ble High Court of Delhi in PCIT v. H & S Software Development and Knowledge Management Centre Pvt. Ltd. (ITA No.912/2017 at internal page 2 of the order) upholding its exclusion, and on 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). Thus, Infosys BPO is liable to be excluded from the list of comparables. b) Eclerx Services Ltd.(‘Eclerx’) – Functionally different: It is submitted that the company ought to be excluded as it is engaged in providing high end Knowledge Process Outsourcing services, which cannot be compared to routine ITeS rendered by the Appellant. The company provides data

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Page 45 of 61 management, analytics solutions and process outsourcing services, which are not comparable to the services rendered by the Appellant. Significant intangibles: The company is engaged in developing its own intangible assets. During the assessment year under consideration, the company has recognized as amount of Rs. 56.31 million as ‘computer software’. Peculiar economic circumstances: During the year under consideration, the company acquired a European based company which significantly contributed to its customers and revenue base. It is submitted that this acquisition is a peculiar economic circumstance, which is bound to have an impact on the margin of the company. In the absence of any reasonably accurate adjustments capable of being made to mitigate the impact, the company ought to be excluded from the final list of comparable. Abnormal profits: The company has shown abnormal growth patterns from FY 2005-06 to FY 2014- 15, and has grown inorganically. The operating profit of the company during the aforesaid years fluctuates between 41 crores to 408 crores, demonstrating that the company is growing rather inorganically and therefore cannot be selected as a comparable. Significant related party transactions: The company had related party transactions (expenses) of 27.80% of total operating expenses during the FY 2013-14, 27.18% during the FY 2014-15, 23.26% during the FY 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.

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The ld. DR. relied on the order of the lower authorities. 11. 12. Considering the rival submissions we noted that the above two companies Infosys BPM Ltd. & Eclerx Services ltd. Have been excluded by the co-ordinate bench of the Tribunal in the assesse’s own case for the AY 2014-15 in IT(TP)A No. 3375.Bang/2018 order dated 18.12.2019 by observing as under:-

(i) Infosys BPO Limited - The comparable is functionally dissimilar as it is engaged in provision of Integrated IT and end to end business process, outsourcing solutions and has high brand value and also made significant investment creating intangibles and made several IPs. The comparable also engaged in cloud based services as e- dictionary. The learned Authorised Representative supported his stand relying on the decisions of CGI Information Systems & Management 25 IT(TP)A No.3375/Bang/2018 Consultants (P) Ltd. Vs. ACIT 94 taxman.com 97 and PCIT Vs. Saxo India P. Ltd. on the constitution. We found that the co-ordinate Bench of Tribunal in the case of Ocwen Financial Solutions Pvt. Ltd. Vs. JCIT (2019) 108 taxman.com 306 where at paras 7 to 7.41 and dealt on comparable Infosys BPO Ltd. at para 7.4.1 and held as under : 7. Infosys BPO Ltd., ('Infosys') 7.1 This company 'Infosys' was selected as a comparable company by the TPO. The assessee objected to its inclusion both before the TPO as well as the DRP, but both the authorities below rejected the assessee's objections to its inclusion. 7.2.1 Before us, the assessee objected to the inclusion of this company, 'Infosys' on the following grounds:— I Functionally Different It is engaged in diversified activities and provides services in the area of Analytics, Legal process outsourcing, etc., unlike the assessee in the case on hand which provides low end ITES. It provides business process management services, consultancy and management services and end-to-

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Page 47 of 61 end outsourcing, as can be seen from pages 5, 14 and 33 of its Annual Report. It is engaged in research and development. II Ownership of intangible assets This company, Infosys, owns intangible assets worth Rs. 19 Crores during the year as can be seen from pages 16, 47 and 58 of its Annual Report; whereas the assessee does not possess any intangible asset. III Brand Value 'Infosys' has brand value; having incurred Rs. 5 Crores for its brand building and advertisement, as can be seen from pages 24, 29, 47, 58 and 64 of its Annual Report; whereas the assessee does not have 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 services to both horizontal and vertical focus areas. The Horizontal focus areas are Sourcing and Procurement (S & P), Customer Services (CS), Finance and Accounting (F & A), Legal Process Outsourcing (LPO), Sales and Fulfillment (S & F), Analytics (AT), Business Platform (BP), Business Transformation Services (BTS), Human Resources Outsourcing (HRO) and Technology Solution Optimization (TSO). The Vertical focus areas of services are Financial Services & Insurance (FSI) Manufacturing (MFG), Energy, Utilities Communication & Services (ECS) and Retail, Consumer Packaged Foods, Logistics & Life Services (RCL). From the above, it is clear that 'Infosys' offers a gamut of different and diversified services

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Page 48 of 61 which cannot be compared with routine back office services provided by the assessee. In fact, it is mentioned at page 14 of the Annual Report that the company 'Infosys' provides business process management services which are different from routine back office services. It is also seen that this company enjoys significant brand value and owns intangible assets which clearly establish that Infosys is different from the assessee in the case on hand. 7.4.1 We also further observe that this company, 'Infosys' has consistently been rejected as a comparable to companies rendering routine back office services in various judicial pronouncements of the Tribunal; including the two decisions cited by the assessee (supra). In the case of CGI Informaiton Systems & Management Consultants (P.) Ltd. (supra) cited by the assessee, this company 'Infosys' has been excluded from the list of comparables for the reason that it has brand value which had an impact on its pricing and margins. As the facts of the year under consideration are similar, the decision rendered in the earlier year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys BPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly. (ii) E-Clerx Services Limited has a margin of 70.26% and engaged in both rendering KPO and BPO services and no segmental information is available and the company has acquired entire share holding of Agilyst Inc. The 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/TPO have considered the assessee as an ITeS service provider and not as a KPO. Further, as pointed out by the ld Counsel for the assessee, The TPO has himself has not taken E-Clerx Ltd as a comparable for the AY 2013-14. Therefore, we direct the TPO/AO to exclude this company from the final list of comparables to the assessee.

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Page 49 of 61 We found the decision of the co-ordinate Bench of Tribunal where the said comparable is in KPO services and accordingly we direct the TPO to exclude the comparable from the final list of comparables for determination of ALP. Respectfully following the decision of the co-ordinate bench of the Tribunal we direct to the AO/TPO for exclusion of these two companies from the- list of the comparable. 12.1 We find the judicial decisions, applicable for the Assessment Year 2014-15 and based on the observations of the co-ordinate Bench, we consider the company Infosys BPO Limited & E-Clerx Services Ltd. comparable has to be excluded and accordingly direct the TPO to exclude this company form the final list of comparable. c) SPI Technologies India Pvt. Ltd. (‘SPI Technologies’) –

Functionally different: 13. The ld. AR. submitted that this company is functionally not comparable to the Appellant. 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. The services of the company as described on the website are content solutions data processing, customer relationship management, KPO services, etc., which are not entirely comparable to the services of the Appellant. Segmental details as regards the varied services rendered by the company are not available, and therefore the company ought to be excluded from the final list of comparables.

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Page 50 of 61 Peculiar economic circumstances: 13.1 Further, during the FY 2014-15, the Hon’ble Madras High Court passed the order confirming the amalgamation of SPI Technologies India Private Limited and Laserwords Private Limited, a wholly owned subsidiary of SPI Technologies. This constitutes a peculiar economic circumstance which has an impact on the margin of the company, in respect of which no reasonably accurate adjustments can be made to mitigate such impact.

Abnormal growth patterns: 13.2 It is also 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

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Page 51 of 61 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.

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 IT(TP)A No. 297/Bang/2021) for AY 2016- 17.The relevant part of the order is as under:-

(c) SPI Technologies India Pvt. Ltd. Functionally dissimilar 9. As per the annual report of the company, the company is engaged in 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. These services are not comparable to the services rendered by the Assessee. 9.1 Further, the learned TPO in the order has rejected MPS Limited which is engaged in "the business of providing publishing solutions viz., type setting and data digitization services for overseas publishers and supports international publishers through every stage of the author-to-reader publishing process and provides a digital-first strategy for publishers across content production, enhancement and transformation, delivery and customer support. MPS Limited has been rejected basis functional incomparability. KPO service company basis response received u/s 133(6) 9.2 Basis the response received u/s 133(6) of the Act from SPI Technologies, the company has claimed that it is "operating in knowledge process outsourcing..". Considering that SPI technology provides KPO services, the same is uncomparable to the Assessee's business of routine BPO services. Sub-contracting cost 9.3 The company incurs subcontracting charges which indicates it outsources part of its activity. The cost of such subcontracting charges is IT(TP)A No.191/Bang/2021 Page 52 of 61 INR 20.88 crores for FY 2015-16 hence, SPI's business model is different from NTT Data IPS as it does not outsource its work. Presence of inventories 9.4 SPI has inventories for INR 68.69 crores (which works out as 20.43% of turnover) in its Balance Sheet unlike the Assessee that is a pure service provider with no inventories. Judicial precedents relied upon: High-end KPO service uncomparable- Rampgreen Solutions (P.) Ltd. (supra) 10. The Ld. D.R. submitted that for functional differences, the assessee has relied on the website extract of this company. The discussion on the comparability should be based on the Annual Report of the company for the relevant financial year. As For example, in the present case, we are considering the Annual Report of 2015-16 whereas when the submission is made by the assessee before the TPO in FY 2019-20, the web site extract 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.

IT(TP)A No.191/Bang/2021 Page 53 of 61 On page 163 of the Annual report, the company has, disclosed that the entire revenue is from data processing and related services only. 10.4 Therefore, all these objections are to be rejected and this company is to be a comparable.

15.1 Respectfully following the above judgement we also direct to the AO/TPO for exclusion of SPI Technologies Ltd. From the final list of the comparables. d) Tech Mahindra Business Services Ltd. (‘Tech Mahindra’) – Functionally different: 16. The ld. AR submitted that Tech Mahindra is a Business Process Outsourcing service provider delivering high end diversified support services across various industries, unlike the Appellant which is engaged in rendering captive ITeS to its AE. Further, segmental details as regards the varied services are unavailable.

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

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Page 54 of 61 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 is liable to be excluded from the list of comparables.

17. The Ld. DR relied on the order of the lower authorities.

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Page 55 of 61 20. On acceptance of the afore-mentioned submissions, the final list of comparables would be as follows : (a) Bhilwara Infotechnology Limited (b) One touch Solutions India Private Limited (c) TechMahindraBusinessServicesLtd. (d) Hartron Communications Limited (e) Ace Software Exports Ltd (f) Sundaram BusinessServices Limited (g) Informed Technologies India Limited (h) B N R Udyog Ltd 20.1 Since the Assessee's margin would be within the arm's length range of remaining comparables, the international transaction of provision of IT enabled services by the Assessee to its AEs would be at arm's length.

20.2 The argument of Ld. D.R. is that the assessee has not produced the physical copy of annual report and hence it has not been considered by the lower authorities.

20.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if all the filters are satisfied, these comparables to be included. Accordingly, this issue is remitted back to the file of the AO/TPO with a direction to the assessee to furnish the copy of the annual report and if furnished, the AO/TPO to apply the filters at segmental level to decide accordingly. Accordingly, these comparables are remitted to file of AO/TPO for fresh consideration 18.1 Respectfully following the above judgment, we are remitting Tech Mahindra Business Services Ltd., to the file of ld.AO/TPO to consider in the above terms cited in para No.18 in the case of NTT Data Information Processing Services Pvt. Ltd. v. DCIT.

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Page 56 of 61 18.2 To sum up the Ground No. 3.10 is partly allowed for statistical purpose, Ground No. 3.11:

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 IT(TP)A No.191/Bang/2021

Page 57 of 61 said services would fall under the category of ITeS and, therefore, it is submitted that Microgenetic is comparable to the functional profile of ITeS rendered by the assessee.

19.4 Submissions in this regard are placed at pages nos.164-166 and 650-654 of the paper book. It is submitted that the company qualifies all the quantitative filters applied by the TPO.

19.5 Pertinently, this company was included in the final list of comparables by the TPO in the Assessee’s own case for the AY 2014- 15.

19.6 In view of the above, the company ought to be included in the final list of comparables.

Ace BPO Services Pvt. Ltd: 20. The ld. AR submitted that the company was excluded by the TPO on the ground that it is suffering from persistent losses. The DRP upheld the company’s exclusion on the ground that it was not possible to ascertain the functions performed by the company.

20.1 In this regard, it is submitted that the margin of the company for the 3 financial years under consideration are as under:

FY 2013-14: 0.95%, FY 2014-15: 1.99%, FY 2015-16: -0.27%.

20.2 It is clear that the company is not making persistent losses.

IT(TP)A No.191/Bang/2021 20.3 As regards its functional comparability, it is submitted that the company is rendering health care, call centre, management service and transcription, which are in the nature of ITeS. Under the healthcare services, the company provides insurance eligibility, demographics, medical coding, charge posting, quality audits, claims transmission, payment posting, accounts receivables analysis, collection follow up and monthly reconciliation statement. Under the call centre services, the company renders insurance coverage verification, benefits verification, insurance follow ups, denials management, credit balance resolution, appointment scheduling etc. Under management services, the company provides collection services, trend analysis and process improvement. All the services rendered by the companies are comparable to the services rendered by the assessee. Further, the company passes all the filters applied by the TPO.

20.4 Submissions in this regard are placed at pages 167-170 and 655-659 of the paper book. Reliance in this regard 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 this Hon’ble Tribunal in IT(TP)A No. 198/HYD/2021). Therefore the company ought to be included in the final list of comparables. Suprawin Technologies Ltd.:

20.5 The ld. AR submitted that this company was rejected by the TPO on the ground that it is functionally dissimilar. The DRP

IT(TP)A No.191/Bang/2021

Page 59 of 61 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.

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 Act. Accordingly, the assessee claimed deduction of Rs. 54,16,090/-.

23.1 During the course of assessment proceedings, the assessee filed its submissions along with the details of the donations in respect of which, it had claimed the deduction. The details are placed at pages 713-739 of the paper book, which is placed on IT(TP)A No.191/Bang/2021

Page 60 of 61 record. However, the Assessing Officer did not allow the same while computing the total income without any reason. It is submitted that the deduction was rightly claimed by the assessee and ought to be allowed.

23.2 In this regard, we direct to the AO for giving deduction after verifying the documents as per law. Accordingly, this ground is allowed for statistical purpose.

23.3 We have decided only those grounds which were argued by the ld.AR of the assessee.