NORMURA RESEARCH INSTITURE FINANCIAL TECHNOLOGIES INDIA PRIVATE LIMITED,KOLKATA vs. ACIT,CIRCLE-2(2), KOL, KOLKATA

Present for: Appellant by : Shri J. P. Khaitan, Sr. Counsel & Shri Protyush Jhunjhunwala, Advocate Respondent by : Shri Amal Kamat, CIT, DR Date of Hearing : 17.11.2022 Date of Pronouncement : 09.02.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Present appeal by the assessee is arising out of order passed by ACIT, Circle-11, Kolkata u/s. 144C read with section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.11.2016, pursuant to direction of the Ld. Dispute Resolution Panel- 2 (in short DRP) u/s. 144C(5) of the Act dated 22.09.2016, for AY 2012-13

“1. For that the Assessing Officer erred in assessing the total income of the Appellant at INR 23,101,704/- as against total income of INR 16,361,520/- computed by the Appellant as per normal provisions of the Act.

2. For that the Assessing Officer erred in assessing the Book Profits of the Appellant at INR 1,635,933/- as against Book Loss of INR 5,104,250/- computed by the Appellant as per provisions of section 115JB of the Act.

3. For that the Assessing Officer erred in allowing MAT credit of only INR 2,985,433/- in his final computation of tax as against MAT credit of INR 8,743,892/- claimed by the Appellant in its income tax return.

4. For that the Authorities below erred in rejecting the transfer pricing documentation prepared by the Appellant and maintained in accordance with the provisions of the Act read with the provisions of the Income Tax Rules, 1962 ('Rules') and in making an adjustment of INR 67,40,183/- (subsequently increased to INR 7,211,388 vide revised order effect dated 4 January 2017 passed by the Transfer Pricing Officer) to the international transactions with Associated Enterprises.

5. For that the Transfer Pricing Officer erred In not providing the detailed search process adopted by him for selecting his own set of companies which he considered as comparable to the Appellant and also erred in conducting fresh search and economic analysis.

6. For that the Authorities below erred in rejecting the use of multiple year data despite the Appellant demonstrating the circumstances warranting its use.

7. For that the Authorities below erred in wrongly applying related party transaction ("RPT") filter as a percentage of aggregate of sales and expenditure as against percentage of total sales only and thereby erred in not rejecting following comparables on the RPT filter: (a) E-infochips Limited (b) ASM Technologies Limited Rejection and inclusion of comparable companies 8. For that the Authorities below erred in including Acropetal Technologies Limited in the final set of comparables although the said company is not functionally comparable and fails service income filter applied by the Transfer Pricing Officer himself.

9. For that the Authorities below erred in including E-infochip Limited in the final set of comparables though the said company is not functionally comparable and also fails the RPT filter of 25% on sales.

iii) Ground no. 6 is in respect of use of multiple years data for bench-marking the international transactions of the assessee with its AE for arriving at ALP. In this respect, Ld counsel fairly submitted that this issue is covered against the assessee in assessee’s own case for the immediately preceding assessment year 2011-12 (supra) vide para 9 of the said order, which is extracted below: “We find that the Ground No. 6 raised by the assessee is with regard to use of multiple year data for benchmarking the international transactions of the assessee with its AE to be at arm’s length. We find that this issue has already been held against the assessee in its own case by this tribunal for the Asst Year 2010-11 dated 4.10.2017 reported in (2017) 87 taxmann.com 169 (Kolkata Trib.) wherein it was held as under:- 15. As far as ground no. 5 is concerned, the admitted position of law is that multiple data cannot be used in the transfer pricing analysis as per the law as it stood at the relevant point of time in A.Y.2010-11. Rule 10B(4) of the Income Tax Rules, 1962 (Rules) provides that the data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. This being the admitted position, we are of the view that there is no merit in ground no. 5 raised by the assessee and we hold that for the purpose of comparability, multiple year data i.e., the weighted average of three financial years of the Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 comparable companies cannot be used in TP Analysis as per the laws that existed for AY 2010-11. The ld AR also fairly agreed that this ground is to be decided against the assessee. Accordingly, the Ground No. 6 raised by the assessee is dismissed.”

Accordingly, following the above, this ground raised by the assessee is dismissed. iv) Ground no. 14 raised by the assessee has stated to be not pressed by the Ld. Counsel, therefore, the same is dismissed as not pressed. v) Ground no. 15 relates to rejecting the comparable while computing ALP for having different financial year with that of the assessee. Ld. Counsel submitted that this issue is also covered against the assessee by the same order referred above in assessee’s own case for AY 2011-12. Relevant para of the said order is extracted below: “11.5. Helios and Mathesan Information Technology Limited We find that this company has been rejected by the ld TPO in the list of comparables while computing the arm’s length margin for having different financial year with that of the assessee. We find that this issue has been the subject matter of adjudication by this tribunal in assessee’s own case for the Asst Year 2010-11 in dated 4.10.2017 wherein it was set aside to the file of ld TPO with some directions. But during the course of hearing, the ld AR stated that the rejection of this comparable would be in consonance with the filters applied by the ld TPO in his order. We find that the ld TPO had applied one of the filters that companies having different financial years with that of the assessee should be rejected. In order to maintain consistency in the said stand, the ld AR fairly agreed for dismissal of this ground raised by the assessee. Accordingly, the Ground No. 18 raised by the assessee is dismissed.’ Accordingly, in order to maintain consistency, following the above, this ground raised by the assessee is dismissed. vi) Ground no. 16 relates to non-adjustment of net margins by considering the functional and risk differences of the Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 comparables, when the assessee arrived at arm’s length margins. This issue is also covered by the aforesaid order in assessee’s own case wherein direction has been given to Ld. TPO to verify the difference in the functions and risk profile of the comparables and give suitable adjustments in the net margins of the final comparables, to arrive at arm’s length margins. Relevant para 13 is extracted below: “13. The Ground No. 21 & 22 raised by the assessee are with regard to nonadjustment of net margins by considering the working capital differences and functional and risk differences of the comparables with the assesee company while arriving at the arm’s length margins. We find that this issue has already been the subject matter of adjudication by this tribunal in assessee’s own case for the Asst Year 2010-11 in dated 4.10.2017 wherein it was held as under:- 41. As far as Gr. No. 15 and 16 are concerned, they project the grievance of the Assessee in the action of the TPO and DRP in not allowing adjustments to the arithmetic mean of profits of the final comparable companies towards working capital and other risks which according to the Assessee are required to be given under the provisions of Rule 10B(1)( e) of the Income Tax Rules, 1962 (Rules).

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13

This ground of appeal raised by the assessee is allowed for statistical purposes by giving similar direction to Ld. TPO as noted above.

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 vii) Ground nos. 18 and 19 are in respect of levy of interest u/s. 234B and 234C of the Act which are consequential in nature and do not need any specific adjudication.

4.1. Thus, in short, the following three comparable companies have been included by the Ld. TPO in the final set of comparables which are challenged by the assessee – (i) Acropetal technologies Ltd.; (ii) E-Infochip Ltd. (iii) ASM Technologies Ltd. The three comparable companies which have been excluded/rejected from the final set of comparables by the Ld. TPO for which assessee is in appeal are – (i) Goldstone Technologies Ltd. (ii) CAT Technologies Ltd. (iii) CG & VAK Software & Exports Ltd. 4.2. Before adverting on the above grounds, the brief facts of the case as culled out from records are that assessee is Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 engaged in the business of rendering software development services. Assessee erstwhile known as (Anshin Software Pvt. Ltd., in short ASPL) is a subsidiary of Anshinsoft Corp. USA, incorporated as a company under the laws of California. During the year, assessee has rendered software development and software services to its AEs which are Anshinsoft Corp. USA, Sysveda Information Technology Pte. Ltd., Singapore and Nomura Research Institute Pte. Ltd., Singapore. It is not undisputed that the assessee and these companies are its AEs. Assessee provided software development services only to its AEs which is tabulated as under:

Nature of Name of the AE Amount Method transaction received (Rs.) applied Development of Anshinsoft Corp. USA 10,80,35,012/ TNMM software - Do Sysveda 3,27,98,450/- TNMM Do NRI Singapore 61,43,338/- TNMM Total 14,69,76,800/ - 4.3. During the year under consideration, total turnover of the assessee was Rs.14,69,76,00/-, which entirely constitute export to its AEs. In Form no. 3CEB, assessee had determined ALP of its international transaction with the AEs at Rs.16,81,73,945/- by making a suo moto adjustment of Rs.2,11,97,154/-. Further, it is not in dispute that provisions of section 92 of the Act should be applicable in respect of transactions of rendering services of software development by the assessee to its AEs. The summary of international transactions reported in Transfer Pricing Study Report (TPSR) is tabulated as under:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 International Method Assessee Comparables Transaction selected (Tested party) Transfer Price Rate/m Type of Arm’s Difference (INR) argin companies length between price/ transfer price margin and ALP Provision for TNMM Rs.14,69,76,800 -4.94 Companies 7.88 Rs.2,11,97,154 software using percent engaged in percent development Operating providing and support profit/Ope similar services rating cost services as a PLI 4.4. In its TPSR, assessee adopted the Profit Level Indicator (PLI) of Operating Profit to Operating Cost and applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) for determination of ALP. The functions performed by the assessee and its AEs are summarized in the table below:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 4.5 Risk profile of the AEs and the assessee in respect of international transaction as noted in TPSR is tabulated below:

4.6. Details of assets employed by the assessee as on 31.03.2012 is as under:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 4.7. Assessee adopted the following parameters for rejecting the comparables to arrive at a list of finally selected comparables, for the purpose of its bench-marking: a) Companies for which sufficient financial or descriptive information is not available to undertake analysis; b) Companies that had ceased business operations or were currently inactive; c) Companies that had been declared sick or had persistent negative net worth; d) Companies undertaking significantly different functions compared to ASPL; e) Companies that do not have significant (less than 25 percent) foreign exchange earnings; f) Companies that had substantial (in excess of 25 percent) transactions with related parties; g) Companies that experienced persistent operating losses. h) Companies that have exceptional year(s) of operations; i) Companies that are duplicated in the databases with different names or merged to form another company; and j) Companies having turnover of more than Rs 500 crores 4.8. Assessee, on analysis of identified comparable companies who are engaged in providing software development services computed the margin to arrive at arithmetic mean of operating profit/operating cost. Margin

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 summary of the identified comparable companies is tabulated below:

4.9. Against this, margin of the assessee was computed at - 4.94% by applying the operating margin on cost (Operating Profit/operating Expenses). Details of this is also tabulated below:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 4.10. Based on the above margin computation of the comparable companies and the assessee the difference between transfer price and ALP was worked out at Rs.2,11,97,154/- and adjusted suo moto in the total income of the assessee reported in form 3CED.

4.11.Ld. TPO vide its order dated 31.12.2015 passed u/s. 92CA(3) of the Act, accepted TNMM as the MAM for determining ALP of the international transactions. Amongst

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 other things, Ld. TPO included three new comparables though they fail on service income filter and RPT filter of 25% of sales. Ld. TPO also rejected three comparable companies chosen by the assessee, one of which was accepted by the Ld. TPO in the show cause notice and the order itself but Ld. DRP voluntarily rejected stating that FAR is not similar to that of the assessee which is the case of Goldstone Technologies Ltd. For the other two comparables rejected, it was stated by Ld. TPO in the show cause notice that in one case it had continuously disclosed diminishing revenue and in the other it is into transcription services. Thus, the final list of comparables taken by Ld. TPO while passing the order, to arrive at Arms’ Length Margin of 20.98% is tabulated below:

4.12.On the basis of above final list of comparables with arms length margin computed at 20.98%, Ld. TPO arrived at an upward adjustment to be made for arriving at ALP of Rs.20,20,90,684/-, details of which is tabulated below:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 4.13. Aggrieved by the determination of ALP by the Ld. TPO as above, objections were filed by the assessee before the Ld. DRP. Ld. DRP held that certain comparables chosen by the Ld. TPO as well as the assessee needs to be included and excluded for which the assessee is in appeal before the Tribunal.

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 own case for AY 2011-12 (supra) holding it in favour of the assessee for their non-inclusion. The relevant extracts from the said order are as under:

“10.1. Acropetal Technologies Limited The ld. TPO pursuant to the directions of the ld. DRP included this company as a comparable for computing arms’ length margin. The assessee stated that it is engaged into simple programming, coding and testing falling within the am- bit of software development services. Whereas the said comparable is engaged into IT services, engineering design services and health care services as per their annual report. It was pleaded that IT services included variety of services such as IT life cycle, infrastructure management, cloud services, IT application management which are different from services provided by the assessee such as software development, testing and coding. It was also pleaded that the said comparable is exposed to various risks such as IT security risk, financial risk, computation risk and unlike the assessee which is not exposed to similar risk since it is a captive service provider. It was also pleaded that the said comparable undertakes intensive research and development ( R & D in short) and hence exposed to R & D risk unlike the assessee which does not under- take any R & D function. Further the said comparable has intangible in the na- ture of software application package. The ld. AR vehemently laid emphasis on non-application of employee cost filter by the ld. TPO with regard to this com- parable even though one of the parameters/ filters stated by the ld. TPO in his order is to reject companies having employee cost less than 20% of turnover. In the instant case, it is not in dispute that the employee cost percentage of Acro- petal is 11.51% of turnover (i.e less than 20% of turnover). The ld. AR has ar- gued that the ld. TPO applied the incorrect operating margin of this compara- ble. The assessee pleaded that this comparable is functionally different and hence requires to be excluded . It was submitted before the ld. TPO that for the assessment year 2010-11 i.e. immediately preceding year, this comparable, even though was sought to be included in the show cause notice to the asses- see , was later dropped by the ld. TPO himself from the list of comparables by applying the employee cost filter. This point was also brought to the notice of the ld. TPO by the assessee while filing its reply to the show cause notice be- fore the ld. TPO. Even though before the ld. TPO, the assessee had stated that the employee cost was 15.91% of turnover of this comparable and that the same has been reduced to 11.51% of turnover before us, in any case, we find that the total employee cost is less than 20% of turnover in the case of this comparable, which remain undisputed before us. We find that the ld. DR vehemently opposed to various objections raised by the assessee with regard to different functions undertaken by the said comparable, however did not make any submissions for the employee cost filter not applied by the ld. TPO with regard to this comparable. We hold that the ld. TPO having applied the employee cost filter less than 20% turnover to reject the companies, ought to have rejected Acropetal Technologies Limited also in view of the aforesaid facts. Hence we direct the ld. TPO to reject from the list of the comparable. Since this comparable is sought to be excluded on the employee cost filter, no opinion is given herein in respect of other objections raised by the assessee. Accordingly, the Ground No. 9 raised by the assessee is allowed.”

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 … …. 10.3. E-Infochips Bangalore Limited We find that the ld TPO had included this company in the final list of compa- rables for computing the arm’s length margin. We find that the inclusion of the said company was the subject matter of adjudication by this tribunal in as- sessee’s own case for Asst Year 2010-11 in dated 4.10.2017 wherein it was held as under:- 16. As far as ground no. 6 raised by the assessee is concerned, the same is with regard to the action of the TPO and the DRP in accepting E-Infochips Bangalore Limited and Inteq Software Limited as compara- ble companies with that of the assessee. As far as the aforesaid com- panies are concerned the facts are that admittedly the information re- garding the financial statement of these two companies were not avail- able in the public domain and the AO obtained the details about the fi- nancial results of these two companies by issuing notices u/s. 133(6) of the Act to these two companies. At the time of hearing the ld. Counsel for the assessee brought to our notice that E-Infochips Bangalore Li- mited was not considered as a comparable company by the Hon'ble ITAT in the case of another software development services company such as the assessee and that order of the tribunal is also in relation to A.Y.2010-11. Our attention was drawn to the decision of ITAT, Kolkata in the case of Labvantage Solution (P.) Ltd. v. Dy. CIT [2016] 76 tax- mann.com 152 wherein the tribunal held that this company cannot be compared with a software service provider as this company was into both the business of Software Development Services (IT) as well as pro- viding Information Technology Enabled Services (ITES) and also for the reason that segmental details of IT and ITES were not available. The following were the relevant observations of the Tribunal:— '8.3. Exclusion of Infinite Date Systems Pvt. Ltd. (Merged) We find that this company had reported NCP of 88.25%. It is not in dispute that the assessee is engaged in software develop- ment. Hence, comparable should also be in the companies en- gaged in the similar section. We find that this company is having a different business model and engaged in providing entire ga- mut of solutions comprising of technical consulting, design and development of software, maintenance, system integration, im- plementation, testing and infrastructure management services. We find from the paper book that the Revenue is primarily de- rived from technical support and infrastructure management ser- vices. We find that Infinite Date Systems Pvt. Ltd. commenced its operation on 1st January, 2009 and as per segment reporting disclosure, the company's operations predominantly relate to providing software technical consultancy services to its sole cus- tomer Fujitsu Services Limited. Further, as per the Annual Report of 2009, at Page 1, it is stated that the Holding Company M/s. Infinite Computer Solutions ((India) Limited signed an agreement (Build, Operate and Transfer - BOT Model) with Fujitsu Services Limited to set up Global Delivery Centers in India to provide off-

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 shore delivery capabilities to Fujitsu & Fujitsu's associated com- panies. We find that these facts have also been acknowledged by the Ld. TPO at page 77 of his order. The Ld. AR stated that it would be worthwhile to note that Infinite Date Systems Pvt. Ltd. completed its three years contract with Fujitsu, post which, the business was transferred to Fujitsu and thus the company has been merged with its Holding Company-Infinite Computer Solu- tions (India) Ltd. during the financial year 2011- 12. We are in- clined to agree with the submissions of the Ld. AR that this Comparable Infinite Date Systems Pvt. Ltd. was created for pur- pose of transfer of business. Hence, the nature of services and business model of assessee company and comparable company are entirely different. Apart from this, we also find that there ex- ist abnormal circumstances in the said comparable. During the last 3 years, variations in margins earned show an abnormal circumstances leading to huge fluctuations and supernormal profit, the margin earned by Infinite is 88.25% which is abnor- mally high. It was argued that such companies which are mak- ing more than twice the arithmetical mean margin as compared by the Ld. TPO should not be considered as comparable. The Ld. AR referred to page 591 of the Paper Book where the details of the fluctuation in the revenue, profit and margins has been pro- vided. It is true that where company in which extraordinary events had taken place during the year like major acquisitions which had impact on profits of company, it could not be selected as comparable to assessee engaged in software development. We place reliance in this regard on the decision of Hyderabad Tribunal in the case of Excellance Data Research (P.) Ltd. v. i re- ported in [2016] 74 taxmann.com 13 (Hyd. - Trib.) dated 12.09.2016 for Asst Year 2010-11, wherein it was held that: 8. Having regard to the rival contentions and the material on record, we find that the DRP has directed the AO to consider whether the extra ordinary event of amalgamation during the year is found to have an impact on the profits of the company. We find that instead of carrying out the exercise, the AO has simply followed the order of the TPO in holding that the fact of amalgamation on the margin of the said company has no effect on the margin of the said company. This, in our opinion, is not a correct approach of the AO. Where a direction has been given by the DRP to follow a certain procedures, the AO has simply fol- lowed the TPO order. Therefore, order of the AO on this issue needs to be set aside. In the case of Hyundai Motors India Engg. (P.) Ltd. (2015) 64 taxmann.com 442 (Hyd. - Trib.), which is also engaged in rendering of ITES to its AEs, the Tribunal has taken note of the same at para 9.1 and 9.3 of its order. Therefore, the decision of the Tribunal in the said case is applicable to the case on hand, more particularly since the comparables adopted by the TPO in the said case are the same in the assessee's case also. In the case of Hyundai Motors India Engg. (P.) Ltd. (supra) at page 20, para 18, the Tribunal has held as under:

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 "18. As regards M/s. Accentia Technologies Ltd., is con- cerned, we find that the DRP has directed to exclude this company by placing reliance upon the order of the ITAT in the assessee's own case for the A.Y. 2009-10 by holding that this company operates in a different business strate- gy of acquiring companies for inorganic growth as its strategy and considering the profit margins of the compa- ny and insufficient segmental data, held that his compa- ny cannot be selected as a comparable. It was also held by the DRP that on the very same reason of acquisition of various companies, being an extraordinary event, it had an impact on the profit of the company and the said com- pany was directed to be excluded. 18.1 For the relevant A.Y. 2010-11, the Ld. Counsel for the assessee has drawn our attention to the information available on Accentia Technologies Ltd. to demonstrate that the said company is not diversified knowledge process outsourcing activities. It is seen there from that the said company is involved in Healthcare documenta- tion as well as receivables, management services includ- ing installation and maintenance of all software, hard- ware and band width infrastructure required for the same, deployment of man power and service delivery in all these areas. It is also seen that it is engaged in legal process outsourcing. From Schedule-IV showing the fixed assets of the assessee, it is also seen that the said com- pany owns goodwill/brand/IPRS (Intellectual Property Rights). From the notes to the accounts, it is also seen that a subsidiary of the company Asscent Infoserve Pvt. Ltd., has been amalgamated with the company consequent to which, assets and liabilities of the erstwhile company were transferred and vested in the company w.e.f. 1st April, 2008 and the scheme has been given effect to in the accounts of the year. Therefore, it is clear that there is an extraordinary even in the case of Accentia Technologies Ltd., during the relevant financial year particularly since the approval of amalgamation has been given by the Hon'ble High Court of Mumbai vide orders dated 21st Au- gust, 2009 and by the Hon'ble Karnataka High Court vide orders dated 6th February, 2010. This event would defi- nitely have an effect on the profit margins of the said company and therefore, has to be excluded from the list of comparables as rightly done by the DRP. Therefore, we do not see any reason to interfere with the order of the DRP on this company also. Accordingly, ground no. 3 of the Revenue is dismissed." Since, the order of the Tribunal in the case of Hyundai Motors India Engg. (P) Ltd. (supra) for the same A.Y., we direct the AO/TPO to exclude this company from the final list of comparables.

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 11. TCS e-Serve International Ltd. As regards the compa- rability of this company with the assessee, the learned Counsel for the assessee submitted that the TCS interna- tional also provides software testing, verification and va- lidation which are different from ITES services providers by the assessee. It is also submitted that the segmental information of TCS international are not available in the annual report. The exceptional circumstances of the com- pany reported in annual report such as acquisition of In- dia based captive business outsourcing arm, resulting in acquisition of an aggregate amount of $ 2.5 billion over a period of 9.5 years and its impact on the financial implica- tions of the company also brought to our notice. It is sub- mitted that these peculiar circumstances have been consi- dered by the Coordinate Bench of this Tribunal in the case of Hyundai Motors India Engg. (P) Ltd. (supra) for exclu- sion of the list of comparables. Respectfully following the decision of the Bench, these two comparables TCS e-serve International Ltd. and TCS e-Serve Ltd. directed to be excluded. In view of the aforesaid findings and judicial precedent relied upon, we hold that the comparable chosen by Ld. TPO i.e. Infi- nite Data Systems Pvt. Ltd. (Merged) is functionally not compa- rable with the assessee company.' 17. Following the aforesaid decision of the Tribunal we are of the view that E-Infochips Bangalore Ltd., should be excluded from the list of comparable companies while working out the arithmetic mean of the comparable companies. We find that this tribunal had excluded the said company from the list of comparables on the ground that the same is not functionally compa- rable as the said company was involved in the business of providing IT as well as IT Enabled Services and that segmental details of IT and ITES were not available. We find that the same situation continues for the year under consideration also which remains undisputed before us. Apart from this, we also find that the said comparable has related par- ty transactions of 37.96% of operating revenue (171291331 / 451181724*100) . The evidences in this regard are enclosed in pages 1075 and 1082 of Paper Book Volume II. We find that the ld TPO had applied one of the filters for rejecting the comparables where related party transactions are more than 20% of sales. In the instant case, the said comparable is having related party transactions of 37.96% of sales. Hence the same even according to filters applied by the ld TPO ought to have been excluded from the final list of comparables. No opi- nion is hereby given on the other objections raised by the assessee with regard to this comparable except related party transactions filter. Hence we hold that E-Infochips Bangalore Limited should be excluded from the list of comparables for arriving at the arm’s length margin. Accordingly, the Ground No. 10(a) raised by the assessee is allowed.”

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 … …. 10.6. ASM Technologies Limited The Ground No. 10(d) raised by the assessee is with regard to erroneous in- clusion of ASM Technologies Limited as a comparable while arriving at the arm’s length margin. We find that the assessee had objected to the said inclu- sion on the ground that the same is functionally not comparable and the said comparable failing the related party filter. We find that the said comparable has purchases with related party to the tune of Rs 1196.06 lakhs out of total software development expenses of Rs 4904 lakhs which works out to 24.34% . This is only when the expenses considered separately vis a vis the related parties. But we find that the ld TPO had applied the filter for rejecting compa- nies where the related party transactions are more than 20% of sales. Hence we reject the contention of the ld AR in this regard and accordingly RPT filter cannot be applied in the instant case. With regard to inclusion of this compa- rable by the ld. TPO, we find that there is absolutely no discussion in the order of the ld. TPO. From the annual report of the said comparable, we find that the said company provides consulting services in Enterprise Solutions for the packaged ERP implementation, Enterprise Product Development , Engineering Services and in Technology Solutions covering Embedded Systems and Sys- tem Software to its global clientele. It also offers a broad spectrum of enteprise services such as configuration, implementation, customization , end-user train- ing and documentation, post implementation support and maintenance across leading commercial off-theshelf products like SAP, Oracle Applications, People- Soft, JD Edwards and Microsoft Dynamics. Service offerings include Enterprise Applications, Business Intelligence and Data Warehousing, Business Process Modelling tools , Embedded Technologies etc. The evidences in this regard are enclosed in pages 635 to 645 of Paper Book Volume IV. We find that the reve- nue is recognized from sale of services and software products as per page 675 of Paper Book Volume IV. But we find that no segmental data is available for the same. The said company was involved in acquisitions during the financial year 2010-11 as per evidence recorded in pages 641 and 652 of Paper Book Volume IV as under:- Extracts from CEO’s letter to the Shareholders of the company which are part of the Annual Report During the year the company signed a definitive agreement to acquire 100% of Abacus Business Solutions Inc., US Based firm in an all cash deal. The acquisition was through the company’s wholly owned subsid- iary, Advanced Synergic Pte Ltd, Singapore. Abacus has been in the business for more than a decade assisting large corporations and For- tuene 500 Companies with Enterprise Applications, Oracle Applications, Oracle Tools and Technology, E-Commerce, Reporting and Data ware- housing. The acquisition has afforded ASM an opportunity to expand its offerings to a larger ERP & Oracle client base in the US and thus broa- den its revenue margins.

Extracts from Directors’ Report to the Shareholders of the company

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 Future Outlook With the Global Economic trend looking positive and good, after two turbulent years, there is a greater learning and changes envisaged in the way the Business / Industries plan and execute their charter. This is good news for the IT industry in particular lending itself to provide so- lutions for the Growth Phase. ASM will leverage this phase in consolidating and growing the organi- zation by offering more services to the existing clients across other geo- graphies and new client acquisitions. This growth phase will also set a platform to have more long term strategic partnerships with the custom- ers moving up the value chain from project mode and center of excel- lence. The existing clients will be offered cross solutions across various tech- nologies thus moving from a Technology Competency to Industry Vertic- al Specialisation relationship thus aligning more deeply with the Client’s business. This model will be extended to the new Clients as the rela- tionship progresses. New client acquisitions will be through addition of specialized sales and delivery professionals across geographies, through new company acqu- sitions and specializations in more Industry Verticals which offer high growth. Hence we find that the said comparable was involved in acquisitions during the year under consideration and also in the process of acquiring more com- panies in future to expand its business horizons thereby making it strictly not comparable with the assessee company herein. Hence in view of these ex- traordinary factors; in the absence of segmental data with different streams of revenue and especially in the absence of any discussions in the order of the ld TPO with regard to this comparable, we have no hesitation in directing the ld TPO to exclude this company from the list of comparables while arriving at the arm’s length margin. Accordingly, the Ground No. 10(d) raised by the assessee is allowed.”

5.2. We note that there are no material changes in the facts and circumstances in respect of the above three comparable companies in the year under consideration vis-à-vis findings given by the coordinate bench in the immediately preceding year in assessee’s own case. Accordingly, respectfully following the above findings in respect of these three comparable companies, have no hesitation in directing the Ld. TPO to exclude these three comparable companies from Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 the list of final set of comparables while arriving at the arms length price/margin. Accordingly, ground nos. 7, 8, 9 and 10 raised by the assessee are allowed.

“11.1. Goldstone Technologies Limited The Ground No. 15 raised by the assessee is with regard to the comparable chosen by the assessee but rejected by the ld TPO in respect of Goldstone Technologies Limited. The ld TPO rejected this comparable stating that it is a loss making company ; that the company has significant exposure in the me- dia business and had incurred expenses on digital processing, movie etc. Thus the company was rejected both on financial parameters and functional compa- tibility. The ld AR argued that the company is engaged in the business of software services and more than 90% revenue is derived only from IT Services. He argued that as per annual report for the year under consideration, the company has made operating profits of Rs.1,31,24,482/-. It was also pointed out that in the financial years 2008-09 and 2009-10, it had earned operating profits of Rs 1,25,70,603/- and Rs 69,10,523/- respectively. It was also sub- mitted that the break up of revenue from IT and ITES was duly provided to the ld TPO. However segmental margins were not provided for want of segmental data. The ld AR fairly agreed that though this company was treated as func- tionally comparable by the order of this tribunal in assessee’s own case for Asst Year 2010-11, in that year also, there was no availability of segmental

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 data before the ld TPO and that this tribunal did not give any finding on the same. We have been consistently holding that in the absence of segmental data, the segmental margins related to software services segment could not be identi- fied thereby making it comparable with the related margins of the assessee. Hence we hold that Goldstone Technologies Limited had been rightly rejected by the ld TPO from the list of comparables. Accordingly, the Ground No. 15 raised by the assessee is dismissed.

6.2. Accordingly, ground no. 11 raised by the assessee is dismissed in view of the findings given by the coordinate bench in the immediately preceding year.

“11.2. CG-VAK Software and Exports Limited The Ground No. 16 raised by the assessee is with regard to the comparable chosen by the assessee but rejected by the ld TPO in respect of CG-VAL Soft- ware and Exports Limited. The ld TPO rejected this comparable stating that it is engaged into medical transcriptions which is different from the assessee and hence not functionally comparable. The ld AR argued that the company is engaged in the business of software services and also into medical transcrip- tion and that for the purpose of comparability, the assessee had only used the date for software segment of the said company. He referred to the relevant pages in the annual report of the said company in support of his contentions and pleaded that the same be included in the list of comparables while com- puting the arm’s length margin. We find that in Asst Year 2010-11 in asses- see’s own case, the ld TPO had accepted the said company as functionally comparable but had finally rejected on the ground that it was incurring persis- tent losses during the said time. It was also pleaded at that time that if the fo- rex gain is treated as part of operating revenue, then the said company’s op- erating margin would be 5.29% for financial year 2008-09 which argument was rejected by the ld DRP in Asst Year 2010-11. We find that this tribunal had gone deep into the computation mechanism of the operating margins of the said company in Asst Year 2010-11 and had held as under:-

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 31. We have considered the rival contentions. From a perusal of the or- der of the TPO it is clear that the claim of the Assessee that this compa- ny's operating profit to operating cost of the software development ser- vices segment for AY 2009-10, if expenses are allocated on the basis of revenues, is 5.29%. This chart is extracted by the TPO in page-50 of his order ( and also in paragraph 27 of this order) and even the TPO does not dispute this plea of the Assessee. The TPO has however proceeded on the basis that foreign exchange gain should not be regarded as part of the operating profit. Such approach of the TPO has not been accepted by the DRP in its order while dealing with the comparable company Ku- liza Technologies Pvt. Ltd. Therefore it appears that the plea of the As- sessee that the basis assumption of the TPO and DRP on the compara- bility of this company that it is a consistent loss making company is er- roneous and therefore their orders are set aside. However, the question still remains as to whether the allocation of expenses and the attribu- tion of the foreign exchange gain to the software development services segment of the comparable company CG-VAK software and Exports Ltd., has not been considered by the TPO or DRP. Further it has also to be seen as to what were the reasons for the losses in the case of this comparable company. If all these factors are considered and due ad- justment can be given to the operating margins of this company, than the same should be considered as comparable company and added to the list of comparables for determining Arithmetic mean of profits of comparable companies. The TPO is directed to consider the comparabili- ty of this company afresh in the light of the aforesaid observations and also taking note of decision rendered on this aspect by Tribunals and Hon'ble High Courts if any. Both the parties before us fairly agreed that let similar direction be given for the year under consideration also. Accordingly, the Ground No. 16 raised by the assessee is remanded to the file of ld TPO with similar directions that were given for Asst Year 2010-11 by this tribunal. Accordingly, the Ground No. 16 raised by the assessee is allowed for statistical purposes.”

7.1. In view of the above and there being no material change in the facts and circumstances in the present year, we also remand the matter to the file of Ld. TPO with similar above stated directions. Accordingly, ground no. 13 raised by the assessee is allowed for statistical purposes.

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 diminishing revenue. However, no such comments were made by the Ld. TPO in the final order passed by him. He also submitted that Ld. DRP also made no comments in its directions on the rejection of its identified comparable company. Ld. Counsel pointed out that this company does not have continuous diminishing revenue which decreased only in AY 2011-12 but subsequently in AY 2012-13, it increased. Ld. Counsel drew the attention of the fact on page 521 of the paper book to point out from the Note no. 22 forming part of statement of profit and loss for the year ending on 31.03.2012 for this company. From this, he pointed that selling, general and administrative expenses include an amount of Rs. 60 lakh towards loss on investment. When this loss is excluded as noted, the operating results turn into a profit scenario. He also submitted that during the year, the revenue of this comparable company has increased from Rs.7.35 Cr. to Rs.7.52 Cr. Ld. Counsel also submitted that this comparable company is engaged in development of computer software and exports and is functionally similar to the assessee and thus, pleaded that the same be included in the list of comparables while computing the arms length margin. We note that the premise adopted by the Ld. TPO for this company, disclosing continuously diminishing revenue has been factually countered by the Ld. Counsel by referring to its financial statement, against which nothing contrary has been brought on record. In view of this, we are inclined to direct the Ld. TPO to include this comparable company in the final set of comparables for the purpose of determining

Normura Research Institute Financial Technologies India Pvt. Ltd. AY 2012-13 arms length margin. Accordingly, ground no. 12 raised by the assessee is allowed.

Order pronounced in the open court on 09th February, 2023.