M/S. METRICSTREAM INFOTECH (INDIA) PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 4(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

IT(TP)A No.827/Bang/2022 Assessment year : 2018-19

Metricstream Infotech (India) Vs. The Deputy Commissioner of Private Limited, Income Tax, # 23 & 24, AMR Tech Park 4B, Circle 4(1)(1), Hongasandra Village, Bangalore. Begur Hobli, Bengaluru – 560 068. PAN: AACCM 4991K APPELLANT RESPONDENT

Appellant by : Shri Padam Chand Khincha, CA & Shri Narendra Kumar Jain, Advocate Respondent by : Smt. S. Praveena, CIT-3, DRP-2, (DR)(ITAT), Bengaluru.

Date of hearing : 09.11.2023 Date of Pronouncement : 15.12.2023 O R D E R Per Laxmi Prasad Sahu, Accountant Member This appeal is filed by the assessee against the DRP-2, Bengaluru Order dated 16.6.2022 for the assessment year 2018-19 on the following grounds of appeal:-

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“GENERAL GROUND 1. The Orders passed by learned Deputy Commissioner of Income Tax, Circle – 4(1)(1), Bangalore (hereinafter referred as “AO” for brevity), learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) – 2(1)(1), Bangalore (hereinafter referred as “TPO” for brevity) and the Honourable DRP-2, Bengaluru (“AO”, “TPO” and DRP collectively referred as “lower authorities” for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO TRANSFER PRICING – LEGAL ISSUES 2. The learned AO has erred in making a reference for the determination of the Arm’s Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so. 3. The lower authorities have erred in passing the Order without demonstrating that the Appellant had any motive of tax evasion. GROUNDS RELATING TO TP ADJUSTMENT IN SOFTWARE DEVELOPMENT SEGMENT 4. The lower authorities have erred in: (i) Modifying the segmental results of the Appellant without appreciating the facts and circumstances of the case. The Appellant submits that segmental results as given in TP study report should be adopted. (ii) Treating Service tax refund received as non-operating in nature without appreciating that when Service tax was paid, same was considered as operating in nature. Accordingly, refund received should also be considered as operating in nature; and (iii) Treating Miscellaneous income consisting of insurance money received on damage of laptops as non-operating in nature without appreciating the insurance premium for the same is considered as operating in nature.

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• Athena Global Technologies Ltd • Data Collection Infotech (India) Pvt Ltd • Evoke Technologies Private Ltd • Kals Information Systems Limited • Sankhya Infotech Limited • Toxsl Technologies Pvt Ltd 7. The learned TPO has erred in not including M/s Sasken Technologies Ltd as a comparable in the final list of comparables despite clear directions of DRP to include it. 8. The lower authorities have erred in incorrectly computing the operating profit margin of following comparables: • Black Pepper Technologies Pvt Ltd • Harbinger Systems Pvt Ltd • Infobeans Technologies Limited • Mindtree Consulting Limited • Nihilent Limited 9. The lower authorities have erred in: (i) Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; and (ii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account. GROUNDS RELATING TO TP ADJUSTMENT IN MARKETING SUPPORT SEGMENT 10. The learned AO has erred in making transfer pricing adjustment of Rs. 2,77,85,446/- towards international transactions for marketing support segment. 11. The learned DRP has erred in confirming the action of the TPO in: i) Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant;

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ii) Adopting inappropriate filters like one sided turnover filter, 25% RPT filter, etc, in the process of selecting comparables and not adopting appropriate filters like onsite revenue filter etc; iii) Adopting following companies as comparables even though they are not comparable in respect of functions performed, risks assumed, assets utilized, size, turnover, despite having unusual business circumstances or high margins, substantial RPT, etc. • Adfactors P R Pvt. Ltd. • Axience Consulting Pvt. Ltd. • Cheil India Pvt. Ltd. • Dun & Bradstreet Information Services India Pvt. Ltd. • EgonZehnder International Pvt. Ltd • Focus Suites Solutions & Services Ltd • Lintas India Pvt. Ltd. • Majestic Research Services And Solutions Limited • Pressman Advertising Limited • Ugam Solutions Private Limited iv) Rejecting the following comparables selected/proposed by the Appellant for unjustified reasons: • Hindustan Field Services Pvt Ltd • HT Mobile Solutions Ltd • Paradigm Plus Marketing Communication Pvt Ltd • BNR Udyog Limited • Cyber Media Research & Services Ltd. • ICRA Management Consulting Services Limited • Killick Agencies & Marketing Ltd. • Priya International Ltd. 12. The lower authorities have erred in incorrectly computing the operating profit margin of following comparables: • Confluence Integrated Services Pvt. Ltd. 13. The lower authorities have erred in: i) Not making proper adjustment for enterprise level and transactional level differences between the Appellant and the comparable companies; and

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ii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account. GROUND RELATING TO NOTIONAL INTEREST ON TRADE RECEIVABLES 14. The lower authorities have erred in: i) Not appreciating that the receivable from AE is not a separate international transaction, from the transaction of provision of services from which it is arising; and ii) Not appreciating that under TNMM, working capital adjustment subsumes receivables/payables and separate adjustment for notional interest on receivables is not required. 15. Without prejudice to above, the lower authorities have erred in: i) Adopting 6 months LIBOR at 2.224% without appreciating that the correct LIBOR rate is 1.661%; ii) Not adopting only LIBOR as arm’s length interest rate; iii) Adopting mark-up of 450 basis point. The mark-up adopted is excessive. iv) Adopting 30 days as reasonable credit period without considering any comparables; and v) The Appellant submits that credit period should be based on any reasonable basis or based on the debtor turnover ratio of final comparables CORPORATE TAX 16. The DRP/learned AO have erred in making addition of Rs. 19,73,554/- on the ground that interest on Income Tax Refund for AY 2009-10 is appearing in Form 26AS without appreciating that the Appellant has not received such interest on Income Tax

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refund and entire refund of AY 2009-10 is set off against demand of other years. 17. The DRP/learned AO have erred in making disallowance of Rs. 97,67,868/- towards ESOP expenditure, on the grounds that same is notional expenditure and capital in nature. OTHER GROUND 18. The lower authorities have erred in levying interest of interest u/s 234B of Rs. 4,60,50,416/-. On the facts and circumstances of the case, such interest is not leviable. The Appellant submits that each of the above grounds/ sub- grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The Appellant prays accordingly.” The assessee company is a wholly owned subsidiary of MetricStream Inc, USA, engaged in the business of providing software development services and marketing support services to its associated enterprises. The services are provided on cost plus basis.” 2. A reference was made to the learned TPO for determining ALP of international transactions entered into by the assessee. The learned TPO vide order dated 31.07.2021 u/s 92CA of the Act proposed the following TP adjustments :-

Name of the Segment Segmental Revenue Average TP Adjustment of Appellant margin Software development Rs. 2,06,79,02,055/- 20 comparables Rs.21,29,29,322/- segment with median of 23.60%.

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Marketing support Rs. 39,51,95,849/- 13 comparables Rs.2,77,85,446/- services segment with median of 19.94% Notional Interest on - Interest rate at Rs.3,33,37,897/- Trade 6.724% PA Receivables Total Rs.27,40,52,665/-

Name of the Segment Average margin TP Adjustment Software development segment 27 comparables with Rs.15,79,38,403/- median of 20.62% Marketing support services 13 comparables with Rs.2,77,85,446/- segment median of 19.94% Notional Interest on Trade Interest rate at 6.724% Rs.3,33,37,897/- Receivables PA Total Rs.21,90,61,746/-

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adjustments as per the Draft assessment order. (Aggrieved by the final assessment order, the assessee is in appeal before the Tribunal.

Ground No 4- Relating to Segmental Results Ground 4(i) - Allocation of costs on turnover basis 6. The ld. AR submitted that the TPO has modified segmental profit and loss account by allocating all costs in the ratio of turnover of both the segments. No reason for rejection of assessee’s segmental profit and loss account is provided either by TPO or DRP. Neither any reason for adopting sales as a basis of allocation has been detailed in the orders of lower authorities. He submitted that such modification of segmental P&L account is bad in law and it should be adopted as given in the TP Report. In this regard, the Appellant submits as follows.

6.1 The Company maintains its accounts in ERP system. The expenses are identified to both the segments based on general ledger code. The employees for both the segments are different and their cost is directly identified in the respective segment. All direct expenses are directly accounted in the respective cost centre. Common General and administrative expenses are allocated to both the segments on the basis of employee head count. This exercise is done every month. Post identifying cost for respective segment, mark-up is applied and revenue is computed. Then, invoice is raised on the AE. The Company has robust system in place to capture each expense in respective GL.

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6.2 The ld. AR further submitted that the approach of the TPO of allocating all expenses on the basis of turnover is bad in law. In this regard, reliance is placed on the following decisions, wherein it is held that turnover cannot be adopted for allocating direct as well as indirect cost:

• 3D Networks Pte Ltd vs ACIT, Range-12(5), Bangalore [2018] 100 taxmann.com 514 (Bangalore - Trib.) – Para 11 on pg. 1227 of Paper Book II-Case law Compilation) • Allegis Services India (P.) Ltd vs DCIT Circle-11(1), Bangalore [2017] 86 taxmann.com 63 (Bangalore - Trib.) 6.3 Further, it was submitted that the Company has revenue from the associated enterprises, which is being disputed by the TPO. Therefore, adopting same revenue as a basis of allocation is bad in law. Therefore segmental profit and loss account submitted by it should be adopted for computing the arm’s length price.

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Ground 4(ii) - Service Tax Refund Received 9. During FY 2017-18, the assessee received service tax refund amounting to Rs. 1,19,57,936/-. The same was credited to the profit and loss account. The refund of service tax related to FY 2011-12, FY 2012-13, FY 2013-14 & FY 2014-15 were written off and formed part of operating cost. Since cost was considered as operating while computing the operating margins for FY 2017-18, the assessee considered service tax refund received as operating in nature and reduced the same from operating cost. Reliance in this regard in placed on the decision of the Coordinate bench in the case of M/s Global E-Business Operations Pvt. Ltd. (TS-796-ITAT-2022 Bang-TP) - Para 5.1 wherein it was held that “if service tax payment or provisions considered as an operating expenditure related to ITES segment on same analogy the refund of service tax relating to the ITES segment to be considered as operating income”.

9.1 The ld. AR further submits that service tax refund is an export incentive given by the Government. The incentive is directly linked to operations of the assessee of rendering services to AEs. There is direct nexus and therefore, same should be considered as part of operating revenue. Reliance is placed on the following cases wherein it is held that export incentive should be considered as operating in nature:

• M/s Reitzel India Pvt. Ltd. vs The Dy. Commissioner of Income- tax, Circle-5(1)(1), Bengaluru [IT(TP)A No.3329/Bang/2018]- Para 9 on pg. 1230 of Paper Book II-Case law Compilation)

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• Cummins India Ltd. vs DCIT, Circle-1(1), Pune [2019] 101 taxmann.com 325 (Pune - Trib.)- 9.2 Based on the above, the ld. AR submitted that service tax refund should be considered as operating in nature.

“6.2 After hearing both the sides and perused the material available on record and orders of the authorities below, we observed that the similar issue has been raised in the preceding Assessment Year (AY) in Global E. Business Operations (P.) Ltd. v. Dy. CIT [2023] 147 taxmann.com 174 [IT(TP) Appeal No. 174 (Bang) of 2022, dated 16-11-2022]. The co-ordinate bench observed in assessee's own case as under: 3.2 Accounting of ServiceTax cost by the Assessee upto 31st March 2016 - The ld. A.R. submitted that the Assessee used to do the accounting for expenses inclusive of ServiceTax. Thus, the ServiceTax amount used to get accounted as regular operating expenses. He stated an example of accounting as below: Rental Invoice amount XYZ as below: Monthly Rent Payable =INR 100,000 ServiceTax @12.36% = INR 1,236 INR101,236

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Accounting in Books of Appellant as below:

Credit - Payable to XYZ INR 101,236

Entry 2 Debit - Payable to XYZ INR 101,236 Credit - Bank Account INR 101,236 3.2 Treatment of Service Tax cost in the billing by the Assessee- The ld. A.R. submitted that the Assessee is a captive service provider entity which provide services to its group affiliates outside India on cost plus basis. For the purposes of billing all costs accounted in books are considered. As the Service Tax is being accounted as expenditure (as explained in the example above) the same is included as operating cost in billing by the assessee to its group affiliates. He stated that if we go with above example in point 1 the rental expenses included in cost base by the assessee would be INR 101,236 (inclusive of Service Tax). 3.3 Service Tax Refund receipt by the Appellant - The ld. A.R. further submitted that the Assessee being an Export service provider filed claims for Service Tax refund on input services for multiple earlier years. The Appellant accounted for Service Tax Refund only upon actual receipt thereof. The said amount was credited to P&L by debiting the Bank. As can be inferred from the Financial Statements (FS) that on April 1, 2016 (at the beginning of FY 2016-17) there was no assets in the books of the assessee towards Service Tax Refund receivable. 3.4 The ld. A.R. submitted that during FY 2016-17 the assessee received multiple Service tax Refunds for earlier periods totalling to INR 201,899,422. Further, some more Service Tax refund amounting to INR 276,491,677 (Refund application amount INR 282,417,014) for earlier periods were received beyond March 2017 but before finalising the statutory financials of FY 2016-17. 3.5 The above amounts of Service Tax Refunds received were accounted in the Financial Statements (FS) of year ended March 2017 as below:

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3.6 Service Tax Refund Amount Received during FY 2016-17 (upto March 2017) Debit GL 10710160 - Bank Account (BS) - INR 201,899,422 Credit GL 37090000 - Other Income (P&L)- INR 201,899,422 Service Tax Refund Amount Received in June 2017 (before signing of audited FS of FY 2016-17) Debit GL 12900000 - Balances with statutory/government authorities - INR 282,417,014 Credit GL 37090000 - Other Income (P&L)-INR 282,417,014 3.7 The ld. A.R. further submitted that the Service Tax refund received during FY 2016-17 was directly credited to the P&L (as there was no receivable against the same). For the Service Tax Refund received post March 2017 but before signing of the audited financials for FY 2016-17 a Journal Entry was posted to record accrual of Service Tax Refund. This was done in accordance with generally accepted accounting practices wherein significant events occurring after Balance Sheet date are to be reported in the Financial Statement if the same come to notice before signing of the audited FS. This is mandated as per Accounting Standard 10 "Events occurring post Balance Sheet Date". Thus, there was a total credit of INR 484,316,435 in the FY 2016-17 P&L of the assessee towards receipt of Service Tax Refund which was disclosed in FS as "Other Income". 3.8 Treatment of Service Tax Refund receipt by the assessee in billing - The ld. A.R. stated that as explained in para 3.2 above, the assessee used to bill the Service Tax amount alongwith relevant expenses to its affiliates on cost plus basis. On receipt of refund, the cost base for billing had to be reduced by crediting the relevant expenses. As these refund receipts were for specific period and not for individual input services, the receipt was credited to P&L as "Other Income". In essence, the effect was to reverse the service tax amount debited to relevant expense accounts in earlier periods which was already billed to affiliates on cost plus basis. 3.9 He stated that as the ServiceTax amount when debited to P&L as part of relevant expenses was considered as "Operating Expenses" while determining the cost base for cost

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plus billing by the assessee, the receipt of same being credited to P&L has to be considered "Operating Income" to ensure consistency in treatment for transfer pricing purposes. 3.10 The ld. A.R. submitted that the assessee has followed a consistent approach of adding the service tax cost as incurred in the cost base for cost plus billing. The Transfer Pricing Officer (TPO) had consistently accepted the treatment in earlier years' transfer pricing assessment. Accordingly, the TPO should not change the approach in current year when the same cost has been reversed due to receipt of service tax refund. 3.11 Further, he submitted that the service tax refund receivable is arising in the normal course of business operations and has a direct nexus to the export of services undertaken by the Assessee. In the TP order, learned TPO has adopted export service filter to identify the companies comparable to the business of the Assessee. The application of such filter would result in set of companies which are also exporter of services, such companies would also be similarly claiming a refund of the servicetax on such input services. 3.12 The ld. A.R. submitted that several judicial precedents have held that any expenses or provision for expenses if those are related to business activity would be considered "Operating Expenses". Further, he submitted that if there is any reversal of any expenses (debit to P&L) which was considered "Operating Expenses" in nature earlier, the reversal thereof has to be considered "Operating Income" in nature. 3.13 In this regard, he placed reliance on the following decisions:

(a) IT(TP)A No. 113/Bang/2018- AMD India Private Limited Relying on other jurisprudences in the matter the Tribunal held that provision written back should be regarded as part of the operating revenue of the Assessee while determining PLI. (b) ITA No. 2016 and 1972/Bang/2018- Toyota Kirloskar Motors Private Limited. Relying on other jurisprudences in the matter the Tribunal held that when in the year of creating the provision the same was

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treated as operating expense in nature, reversal of the same should also be treated as operating revenue in nature. 4. The Ld. D.R. submitted that it is admitted by the assessee that the service tax refund pertains to the service tax amounts of earlier years. The assessee also admitted that these service tax amounts were expensed off along with the operating costs in the respective years. The assessee contended that since such service tax forms part of the operating cost of the previous year's refund has to be considered as part of operating income in the current year. The income received as refund on account of excess taxes paid in previous years cannot be part of operating income of the current year. Such amount paid back can be considered as income from other sources. Further, Ld. D.R. stated that the assessee has disclosed the main revenue from IT enabled services at Rs. 99,217 lakhs from exports and Rs. 8168 lakhs as other income. The Ld. D.R. further submitted that the assessee in its submissions stated that the service tax refund of Rs. 4736 lakhs has been shown under other income in the audited financial statements for the F.Y. 2016-17. Therefore, the service tax refund content has not been disclosed as operating revenue by the assessee itself in its financials. This shows that such income is not operating income of the current year as the income has no direct relation with the current year earning machinery of the assessee. Therefore, Ld. D.R. stated that the TPO has correctly treated service tax refund as non-operating income. Accordingly, objection is disposed of. 4.1 The ld. D.R. further submitted that the other item of remeasurement loss on defined benefit plans has been disclosed below the profit line in its profit and loss account for the F.Y. 2016- 17. This item has been specifically classified under the head other comprehensive income that will not be classified to profit and loss in subsequent periods. This itself explains that this item of laws will not be part of profit and loss account of the assessee. Therefore, the nature of this item is not directly related to the operating part of the assessee and hence TPO has correctly treated service tax refund as non-operating income. 4.2 The ld. D.R. submitted that in the Transfer Pricing (TP) study done by the Transfer Pricing Officer (TPO), he has excluded the other income of the assessee as well as all the comparables while

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working out the operating margins. This action is uniform and as such the assessee and the comparables are on the same footing. The assessee has itself shown 'service tax refund' as non- operating income in its financials and so the same has been excluded by the TPO. 4.3 The ld DR further submitted that now in this case assessee is arguing that the income, which it shown as non-operating, is actually operating income. Accepting this contention of the assessee would lead to a lopsided result as similar information is not available from the other comparables. The other comparables might also be having similar income which they might have declared as 'other income' or non-operating income. So after excluding the same the TPO has adopted their operating margins at lower level. So allowing this amount to be included in the operating margins of the assessee alone would not give the correct state of affairs as the comparison with the comparables would become lopsided i.e at one end the income is not being considered for computing margins of comparables but it is being considered for computing margins of the assessee. As such the assessee gets double benefit leading to its operating margin being increased and that of comparables remaining at reduced level due to non-consideration of such income in their cases. In view of above the ld DR stated that the arguments of the assessee need to be rejected. 4.4 The ld DR further stated that alternatively, the TPO should be allowed to collect information regarding breakup of 'other income from the selected comparables and give same treatment of such income for the assessee as well as the comparables. This aspect that the other comparables would also be having similar service tax refund is also admitted by the assessee in para 2.4 of its written submissions filed during hearing on 10-11-2022. 4.5 He stated that the operating income/revenue of the assessee is only that which it receives from its AE on cost plus basis and not anything else. Service tax refund is not the operating income for the year under consideration but relates to some other years. Merely because it has been received during the year, it does not become operating income of the year under consideration as it is neither connected with any revenue of the year under

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consideration nor is it related to any expenditure of the year under consideration. So the same needs to be treated as non-operating in nature. 4.6 He further stated that the assessee has itself claimed that it is charging the AE on cost plus basis. This service tax was treated as cost in earlier years and profit margin on the same was earned by the assessee in such year. So its profits got enhanced during that year and it got the benefit of such enhanced profit in its TP study for that year. Now in the year under consideration, it has received the refund and thus its cost is effectively reduced and to that extent its profit received on cost plus basis gets reduced if such refund has been taken into account by the assessee while reporting its cost to the AE (as argued in written submission by the assessee). So naturally in one year it has already benefitted by showing higher profit and in the year under consideration (in year of refund) it has received lesser profits from AE so the same only can be considered. The actual operating income is what it has received and the same cannot be artificially inflated now by adding service tax refund to its operating income. 4.7 He stated that the reliance of the assessee on the decisions in the cases of AMD India Private Ltd and. Toyota Kirloskar Motors Pvt Ltd is misplaced as the issue of treatment of 'service tax refund' was never under consideration in either of those cases. The issue adjudicated was the treatment of provisions. In AMD India too, the TPO had never commented specifically that the provision was being disallowed the same related to service tax refund. The issue was that of a mere provision as the same cannot be treated as same as the dispute in the appeal under consideration. 4.8 The assessee is claiming that it is accounting service tax refund in the year of actual receipt (para 2.3 of the written submissions). But at the same time, it is accounting for the service tax refund (Rs 2,76,491,677/-) received in the FY 2017-18 also in the year under consideration by relying on the accounting practices. This is self-contradictory as the assessee is just trying various means in order to show higher profit margins. 4.9 The ld DR stated that the assessee is well aware that it is eligible for service tax refund. So, in actual it is not a cost for it

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and as such it should not have claimed it as expenditure while getting remunerated from AE on cost plus basis. So, by doing so neither it would have had higher profit in one year nor lower in another year i.e. on receipt of refund. However, it has planned its ways to have the advantage twice i.e. able to show more profits from the AE by charging cost plus on the service tax and then again showing higher profit in the year of tax refund by treating it as operating income. The operating income of the assessee is only that which it receives from its AE on cost plus basis and not anything else. If such income gets enhanced due to service tax payment or gets reduced due to service tax refund (as corresponding expenditure gets increased or reduced), that only is its operating income on cost plus basis. 5. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the payment of servicetax has been considered as a part of operating expenses and on refund of the same by the authorities to be considered as operating income. In this regard, the ld. A.R. placed reliance on the following two judgments:

(a) Order of the Delhi Bench of Tribunal in the case of Sony India (P) Ltd. v. Deputy Commissioner of Income-tax (114 ITD 448) (Delhi) (b) Order of the Bangalore Bench of the Tribunal in the case of Logical Private Limited v. ACIT (36 taxmann.com 374)(Blr.) 5.1 On the other hand, ld. D.R. made a contention that the payment of service tax is not relating to the ITES segment and that part of the cost cannot be considered as a part of the Operating expenses. Similarly, refund of the service tax cannot be considered as part of the Operating income of the assessee. The reliance placed by the assessee on various judgements misplaced. In our opinion, if service tax payment or provisions considered as an operating expenditure related to ITES segment on same analogy the refund of service tax relating to the ITES segment to be considered as operating income. In other words, if the service tax payment/provisions relate to the ITES segment and that has gone into the computation of income in any assessment year, refund of same relating to the ITES segment is

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to be considered as operating profit. With this observation, we remit this issue to the file of AO/TPO for fresh consideration. 6.3 In the above judgment, it has been observed that if service tax payment or provisions considered as an operating expenditure related to ITES segment on same analogy, the refund of service tax relating to the ITeS segment to be considered as operating income. Respectfully following the above judgment in assessee's own case, we are allowing this ground raised by the assessee in the above terms.” 11.1 Following the above decision, we also hold that refund of service tax as export incentive is operating in nature. During the course of hearing, specific question was put by Bench to the assessee that if the refund of service tax includes any interest, but the ld. AR could not reply. Accordingly, we direct the TPO/AO to consider it as operating income and exclude the interest portion included in the service tax refund, if any. The assessee is also directed to submit the necessary documents before the TPO/AO. Accordingly, we remit this issue back to the TPO/AO for verification and fresh consideration.

Ground No.6(ii) & 11(ii) : GROUNDS RELATING TO TP ADJUSTMENT Calculation and application of RPT Filter 14. The ld. AR submitted that RPT ratio has to be calculated on aggregate basis taking ratio of RPT incomes plus RPT expenses by

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sales. If the RPT ratio is not applied on aggregate basis, the whole purpose of applying RPT filter would be lost because companies having substantial RPT will be selected. For example, related party purchases may be sold to third parties and thus profits from such transactions may be tainted. Similarly, purchases from third parties may be sold to related parties, and profits from such transactions may be tainted. This would mean that approx. half of profit of such company may come from tainted transactions (Submission at Pg 828- 832 of PB I). In support of this contention, the Appellant relies on the decision of the Coordinate Bench in its own case for AY 2017-18 in IT(TP)A No.153/Bang/2022, following the decision of JCIT, LTU (OSD) Circle-1, Bangalore vs M/s.Toyota Kirloskar Motors Private Limited (ITA No.2016/Bang/2018) for AY 2013-14 has directed the AO to calculate RPT ratio on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales across the board for all the comparable companies.

14.1 Further, in the TP order, the learned TPO has applied RPT of “25%” of sales as threshold limit for related party transactions. In this regard, it is submitted that RPT should be “15%” of the sales instead of “25%” of the sales. This would result in selection of better uncontrolled comparable transactions as envisaged in the Indian TP regulations. Reliance is placed on the decision in assessee’s own case for AY 2017-18 via IT(TP)A No.153/Bang/2022 (para 10.6 on pg. 1165 of Paper Book II-Case law Compilation), wherein it was held that RPT > 15% of sales is an appropriate filter.

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14.2 Further, the Appellant relies on the decision in the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 9 to 12 of the decision) wherein it is held that RPT ratio of 15% should be applied on aggregate basis.

14.3 Following other decisions are also relied upon:

- Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 - ANSR Global Corporation (P.) Ltd vs ACIT [2022] 139 taxmann.com 283 (Bangalore - Trib.) for AY 2016-17 - Autodesk India (P.) Ltd. [2018] 96 taxmann.com 263 (Bangalore - Trib.) 14.4 Therefore, based on above, the ld. AR submits that the RPT filter of 15% over sales should be applied on an aggregate basis.

“9.4 After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we notice that The coordinate Bench of the Tribunal in the case of JCIT, LTU (OSD) v. Circle-1, Bangalore vs M/s.Toyota Kirloskar Motors

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Private Limited (ITA No.2016/Bang/2018) dated 18.8.2021 has held that the RPT ratio has to be consistently calculated on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales. The relevant observations are as follows:- “7.4 We have heard rival submissions and perused the material on record. There is nothing on record to suggest how RPT ratio has been calculated for all the comparable companies. The learned AR has argued that the TPO in order to retain Tata Motors Ltd. and Maruti Suzuki India Limited has deviated and adopted a new mechanism for computing RPT ratio. On a query from the Bench how RPT ratio has been calculated for other comparables, the learned AR has unable to point out the same. The RPT ratio has to be consistently calculated on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales. The said position was adopted by the Revenue in the past years. In this regard, the TPOs order in assessee’s own case for assessment year 20072008 has been placed on record. A perusal of the same it is clear that RPT ratio has been calculated taking both RPT income transactions plus RPT expenses transactions on aggregate basis. On the facts of this case, it is not clear how RPT ratio has been calculated for Tata Motors Limited vis-à-vis other comparable companies. Therefore, this issue is restored to the files of the A.O. The A.O. is directed to calculate RPT ratio on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales across the board for all the comparable companies (including Tata Motors Ltd. and Maruti Suzuki India Limited. Therefore, ground No.2 is allowed for statistical purposes.” 9.5 Following the above decision, we direct the AO to calculate RPT ratio on aggregate basis considering the RPT income plus RPT expenses by sales for all the comparable companies. 9.6 The issue regarding adoption of 15% RPT filter was considered by the coordinate Bench of the Tribunal in the case of Barracuda Networks India Pvt Ltd. in paras 21 to 22 wherein it was noted that the Hon’ble High Court of Karnataka in PCIT v. Yodlee Infotech P. Ltd. in ITA NO.685/2017 dated 28.6.2018 had upheld the application of 15% RPT filter. Similarly, 15% RPT

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filter was upheld in the decision cited by the ld. AR in the case of Autodesk India (P) Ltd. [2018] 96 taxmann.com 263 (Bang. Trib). It is ordered accordingly. Ground No.5(ii) is allowed.” 16.1 Following the above decision in assessee’s own case for AY 2017-18, we allow this ground of the assessee in the same terms.

Ground No.6(iii) – Comparables selected by the TPO 17. Exclusion of Black Pepper Technologies is not pressed.

Larsen & Toubro Infotech Ltd 18.1 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1. Submission & website extracts at 1.The Company is functionally different Pg 881-889 of PB I. as it is engaged in diversified activities 2. Reliance is placed on the decision: like infrastructure management services, • In the case of AMD India Pvt digital consultation, data and analytics Ltd v ACIT IT(TP)A No. and is not a pure software development 775/Bang/2022 for AY 2018-19 company.

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2.The services are provided under two (Page 23 of the decision), this segments, namely Services cluster and company is rejected as Industrial cluster. Software service comparable. • M/s. Huawei Technologies India segmental data is not available. 3. The Company has global brand value Pvt. Ltd. vs ACIT, Bengaluru for and has business spread across borders. AY 2018-19 (TS-855-ITAT-2022 Bang-TP) (Para 28 on page 1251 of PB-II-Case law Compilation). • M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru IT(TP)A No. 178/Bang/2022 for AY 2017-18). 4.The Company has substantial onsite 1.Submission at Pg 882-883 of PB I. operations for all 3 FY’s i.e., FY2017- 18 (54.17%), FY 2016-17 (53.32%) & FY 2015-16 (57.20%). Thus, L&T business model is different from Appellant. 5. AugmentIQ Data Sciences Private 1.Submission at Pg 888-889 of PB I. Limited amalgamated with L&T in FY 2.The Appellant relies on the 2017-18. following decisions, wherein companies have been excluded if there is an extra-ordinary event because it will have an effect on the profitability of the company in the financial year in which such event takes place. • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad (TS-63- ITAT-2022 Hyd) for AY 2016-17 (Para 4.3 & 4.4 at Page 1507 of PB-II-Case law compilation).

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Infosys Limited 18.2 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1. Submission at Pg 946-955 of PB I. 1.The Company is functionally 2.The Appellant relies on the different as it is much larger following decisions of the Honourable company engaged in diversified ITAT wherein, it was held that Infosys activities and not a pure software Ltd is functionally different: • In the case of AMD India Pvt development company. 2.The Company has global brand Ltd v ACIT IT(TP)A No. image and owns intangible assets 775/Bang/2022 for AY 2018-19 worth Rs.130 crores. (Page 23 of the decision). 3. There is vast difference between • M/s. Huawei Technologies India the profile of Infosys and the Pvt. Ltd. vs ACIT, Bengaluru for Appellant. AY 2018-19 (TS-855-ITAT-2022 Bang-TP) (Para 18 on pg 1243 of PB-II-Case law Compilation) • M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru IT(TP)A No. 178/Bang/2022 for AY 2017-18 (Para 5 at Page 1497 of PB-II- Case law Compilation) • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd) (Para 9.3 & 9.4 at Page 1512 of

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PB-II-Case law Compilation) 4.The Company has substantial 1. Submission at Pg 953-954 of PB I. onsite revenue for all 3 FYs i.e., FY 2017-18 (69.19%), FY 2016-17 (67.01%) & FY 2015-16 (67.44%). Thus, Infosys has different business model when compared to Appellant.

Persistent Systems Limited 18.3 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws 1.The Company has substantial RPT 1.Submission at Pg 911-912 of PB I & transaction for all 3 years i.e., FY 17- (Computation of RPT is given at Pg 18- 41.63%, FY 16-17- 39.91% and FY 35 of the Note). 2015-16-32.16%. Thus, it fails RPT filter. Functionally Different 1.Submission at Pg 912-914 of PB I. 2.The Company is functionally different 2.Reliance is also placed on the as it is engaged in both rendering following decisions wherein Persistent software services & developing Systems Ltd is held to be functionally software products. different: • In the case of AMD India Pvt 3.Segmental information pertaining to software development services is not Ltd v ACIT IT(TP)A No. available for all 3 years. 775/Bang/2022 for AY 2018-19 4.The Company has incurred substantial (Page 23 of the decision), this R&D expenditure company is rejected as comparable. • M/s. Radisys India Ltd. (formerly

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known as Radisys India Pvt. Ltd.), Vs The DCIT, Circle – 3(1)(1), Bengaluru (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 8.3.2 to 8.3.5 on Pg 1802 of PB-III-Case Law Compilation) • M/s. Subex Ltd. vs DCIT, Bengaluru TS-853-ITAT-2022 Bang-TP-for AY 2017-18 (Para 9.1 at Pg 1424 of PB-II-Case law Compilation). • M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru IT(TP)A No. 178/Bang/2022 for AY 2017-18 (Para 5 at Page 1497 of PB-II- Case law Compilation). • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 [2022] 135 taxmann.com 44 (Hyderabad - Trib.) (Para 6.2 & 6.3 on Pg 1508-1509 PB-II- Case Law Compilation) 5. The Company has acquired PARX 1. Submission at Pg 914-915 of PB I. Werk AG along with its fully owned subsidiary PARX Consulting GmbH in FY 2017-18 and therefore should be rejected.

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analysis the above companies are comparable with the assessee company. During the course of proceedings before the DRP, the assessee could not controvert the findings of the TPO.

“16.2 We have considered the rival submissions and perused the material on record. This Tribunal in the assessee’s own case for AY AYs 2016-17 & 2017-18 (supra) considered this issue in respect of the above 3 comparables and held as under:- “11.7 ……………………. The coordinate Bench of the Tribunal in the assessee’s own case for AY 2012-13 (supra) in respect of the above 3 comparables held as under:- “8. The learned counsel for the brought to our notice a decision of the ITAT Bangalore Bench in the case of CGI Information Systems & Management Consultants (P.) Ltd. v. Asstt. CIT [2018] 94 taxmann.com 97 wherein 4 out of the aforesaid five comparable companies viz., (a) Genesys International Corpn. Ltd. (b) Infosys Ltd., (c) Larsen and Toubro Infotech Ltd. and ( d) Persistent Systems Ltd. were excluded by the ITAT. The functional profile of the Assessee in this appeal and that of the Assessee in the decision cited by the learned counsel for the Assessee is the same. The following were the relevant observations of the Tribunal:— "28. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 4 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz., Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Information Technologies India (P) Ltd. v. ACIT (2018) 89 taxmann.com 440 (Delhi-Trib.) for the same AY 2012-13. In this regard it

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was submitted that the functional profile of the Assessee is same as that of the Assessee in the case of Agilis Information Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen 16 comparable companies out of which 6 companies chosen by the TPO in the case of the Assessee for the purpose of comparability were the same. His submission was that the decision rendered by the Tribunal in the case of Agilis Information Technologies India (P) Ltd., (supra) would be equally applicable to the Assessee in the present case also. The learned DR submitted that the DRP in its directions has merely accepted with the reasoning of the TPO and therefore the issue of exclusion of these companies should be directed to be examined afresh by the DRP. 29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd., (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of the Assessee and that of the Assessee in the case of Agilis Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows:

(a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (2013) 36 taxmann.com 289 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case.

(b) Larsen & Toubro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. v. ACIT (2016) 67 taxmann.com 155 (Del-Tri). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L & T Infotech Ltd., was a software product company and segmental information on SWD services was not available. The Tribunal also noticed that the appeal filed by the revenue against the tribunal's order was dismissed by the Hon'ble Delhi High Court in ITA No.682/2016.

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(c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India (P.) Ltd. v. ITO ITA No.64/Del/2015 order dated 23.9.2015 and the decision of Hon'ble Delhi High Court in the case of Saxo India Pvt. Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order. 30. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. In this regard we are also of the view that the plea of the learned DR for a remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP has endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP.” 11.8 The coordinate Bench Tribunal considered the issue in respect of the above companies in the case of SanDisk India Device Design Centre Pvt. Ltd. in ITA No.288/Bang/2021 dated 30.6.2022 for AY 2016-17 and it was held to exclude the same. The relevant observations are as under:-

“17.6 We have perused the submissions advanced by both sides in the light of records placed before us. 17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under: “3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under: 16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier

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paragraph and remanded 1 company for fresh consideration with the following observations:- *******

3.3 There is nothing on record brought by the Ld.CIT.DR in order to establish that these are comparable with assessee that is a captive service

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provider which functions at the strict supervision and instructions by the AE’s. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration.” 17.8 Before us, the Ld.AR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list.” 11.9 Respectfully following the above decisions of the coordinate Bench of the Tribunal in assessee’s own case for AY 2012-13 and SanDisk India Device Design Centre Pvt. Ltd. (AY 2016-17), we direct exclusion of these 3 companies i.e., Larsen & Toubro Ltd., Persistent Systems Ltd. & Infosys Ltd. from the final list of comparables.” 16.3 In the income tax proceedings for determining the ALP of international transactions with its AE, FAR analysis is carried out every year independently. This Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 has considered this issue and directed exclusion of the above three companies from the comparables. Since the facts remain for the present AY 2018-19, following the earlier decision of the Tribunal cited supra, the above three companies are directed to be excluded from the list of comparables.”

20.1 Respectfully following the above judgment, the three companies viz., Larsen & Toubro Infotech Ltd., Infosys Ltd. and Persistent Systems Ltd. are directed to be excluded from the list of comparables.

Acewin Agriteck Ltd (formerly known as OFS Technologies Ltd) 21. The TPO proposed this company as comparable. The assessee filed reply seeking for rejection of this company based on various reasons. However, the TPO included this company in the final list of

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comparables. The DRP upheld the contention of the TPO and retained the above company in the final list. The assessee seeks exclusion of Acewin Agriteck Ltd based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1.Relevant submission & website 1. The Company is functionally extracts at Pg 909-911 of PB I. different as it has revenue from software 2. The Appellant relies on the products. The company has developed following decisions of the ITAT food processing ERP product. Further, wherein it was held that Acewin the company is into diverse business Agriteck Ltd is functionally activities and segmental results related different: • AMD India Pvt Ltd v ACIT to software development business is not IT(TP)A No. 775/Bang/2022 for available. It has substantial revenue AY 2018-19 (Page 35 to 38 of the from Aquaculture. Whereas the decision) Appellant is a captive software • M/s. NTS Technology Services development service provider. Pvt Ltd. Vs DCIT, Bengaluru TS- 239-ITAT-2023 Bang-TP for AY 18-19 (Para 11.5.1-11.5.5 at Pg 1284-1285 of PB-II-Case law Compilation) • M/s. Etisalat Software Solutions Pvt. Ltd. Vs The DCIT, Circle 2(1)(1), Bengaluru (IT(TP)A No. 224/Bang/2023) for AY 2018-19 (Para 10 at Page 1716-1720 of PB-III-Case law Compilation) • M/s. Subex Ltd. vs DCIT, Bengaluru TS-853-ITAT-2022 Bang-TP-for AY 2017-18 (Para 15 at Page 1435 of PB-II-Case law Compilation)

Aptus Software Labs Private Limited 21.1 The TPO proposed this company as a comparable. The assessee sought reasons for rejection of this company. However, the TPO

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included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of Aptus Software Labs Pvt. Ltd based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1.Submission & website extracts at Pg The Company is functionally different 904-907 of PB I. Relevant Extracts of as it is engaged in rendering of Annual Report at Pg 1815-1821 of PB Network operations center (NOC) IV. 2. In the case of AMD India Pvt Ltd v 24X7 services, Cloud computing services, Infrastructure Management ACIT IT(TP)A No. 775/Bang/2022 for services and product engineering AY 2018-19 (Page 29 to 30 of the services. decision), this company is remitted to TPO. Employee Cost filter 1.Relevant extract of submission at Pg The Company fails employee cost 908 of PB I. filter of minimum 25% as applied by the TPO for FY 2015-16 (16.04%)

Cybage Software Private Limited 21.2 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of Cybage Software Pvt. Ltd based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1.Relevant extract of website and 1.The Company is functionally different submission at Pg 955-957 of PB I. as it is engaged in diversified activities 2. In the case of AMD India Pvt and deals with other computer related Ltd v ACIT IT(TP)A No. activities. 775/Bang/2022 for AY 2018-19 2.The Company has abnormally high (Page 26 to 28 of the decision),

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margins. this company is remitted to TPO. 3. Reliance is placed on the decision of Coordinate Bench in the case of Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 (Para 18 & 19 on page 1387 of PB II of Case Law Compilation), wherein Cybage Software Private limited was excluded as it has abnormally high margins. Since, profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable.

Infobeans Technologies Limited 21.3 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:-

Reasons for rejection Reference & case laws Functionally Different 1. Relevant submission and website 1.The Company is functionally different extracts at Pg 930-935 of PB I. as it is engaged in providing diversified 2. Following cases are relied upon services in the areas of Product in which it is held that Infobeans is engineering, Digital Transformation and into diversified software services Automation and DevOps for clients and cannot be considered as a

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across the globe. It is not a pure comparable to pure software software development company. development companies like the Appellant: • In the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018- 19 (Page 25-26 of the decision). • M/s. NTS Technology Services Pvt Ltd. vs DCIT, Bengaluru (TS-239-ITAT-2023 Bang-TP for AY 18-19)(Para 11.6-11.6.6 at Pg 1285-1288 of PB-II-Case law Compilation) • M/s.Tangoe India Softek Services Private Limited vs The Assessment Unit, NFLA, (TS- 199-ITAT-2023 Bang-TP) for AY 18-19 • Appellant’s own case for AY 2015-16 in IT(TP)A No.2347/Bang/2019, (Para 14.3 on Pg 1208-1210 of PB-II Case law Compilation) • M/s Radisys India Limited vs DCIT (TS-823-ITAT- 2022Bang-TP) for AY 2017-18 (Para 8.2-8.4 on Pg 1460-1463 of PB II-Case law Compilation) • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad (TS-63- ITAT-2022 Hyd) for AY 2016- 17 (Para 7.4 on Pg 1510 of PB II-Case law Compilation).

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Mindtree Consulting Limited 21.4 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1. Submission at Pg 898-903 of PB I. 1.The company is functionally different as it is engaged in IT 2. Reliance is placed on following consulting and implementation. decision: • In the case of AMD India Pvt 2.Mindtree is engaged in diversified operations and Segmental information Ltd v ACIT IT(TP)A No. is not available in the AR. 775/Bang/2022 for AY 2018-19 3.The company has global brand and (Page 34-35 of the decision), this owns Intellectual Property and company is rejected as therefore, cannot be compared to comparable. captive service provider like • M/s. Yahoo Software Appellant. Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru IT(TP)A No. 178/Bang/2022 for AY 2017-18 (Para 5 at Page 1497 of PB-II- Case law compilation). Since, profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable. Substantial Onsite Operations 1. Submission at Pg 896-898 of PB 3.The Company has substantial onsite I. revenue for all 3 FYs i.e., FY 2017-18 (59.67%), FY 2016-17 (60.83%) & FY 2015-16 (52.70%). Thus, Mindtree has different business model when

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compared to Appellant. Extraordinary event 1. Submission at Pg 903 of PB I. 4.The company, during the FY 2017- 18 has entered into various high value acquisition and merger transaction. Such extraordinary events have an effect on the profitability.

Nihilent Limited 21.5 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1. Submission at Pg 937-940 of PB I. 1. The company is functionally 2. The Appellant relies on the different as it is engaged software following decisions of the Honourable product development. It renders ITAT wherein it was held that Nihilent software services, business consulting Ltd is functionally different: • in the area of enterprise In the case of AMD India transformation, change and Pvt Ltd v ACIT IT(TP)A No. performance management and 775/Bang/2022 for AY 2018-19 providing related IT services. (Page 23-25 of the decision), this The Appellant submits that this company is rejected as comparable. • M/s. company is into diversified business Subex Ltd. vs DCIT, and is therefore functionally different Bengaluru TS-853-ITAT-2022 to pure software development Bang-TP-for AY 2017-18 (Para 12 companies. & 12.1 on Page 1429-1430 of PB- II-Case law Compilation). • Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 (Para 23-25

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on pg 1390 of PB II of Case Law Compilation) Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. Substantial Onsite Operations 1. Submission at Pg 935-936 of PB I. 2. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (40.57%), FY 2016-17 (43.34%) & FY 2015-16 (43.64%). Thus, Nihilent has different business model when compared to Appellant.

Tata Elxsi Limited 21.6 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1.Submission at Pg 922-930 of PB I. 1.The Company is functionally 2.The Appellant relies on the different as it is engaged in Embedded following decisions of the Honourable product design, Industrial design, ITAT wherein, it was held that Tata Visual Computing Labs, Systems Elxsi Ltd is functionally different: • In the case of AMD India Pvt Ltd Integration. 2.The Company has global brand v ACIT IT(TP)A No. image and has paid brand fees of 775/Bang/2022 for AY 2018-19 Rs.417.48 lakhs to Tata Sons Limited (Page 38-40 of the decision), this for AY 2018-19. company is rejected as comparable. • Etisalat Software Solutions (P.) 3. There is vast difference between the profile of Tata Elxsi and the Ltd v DCIT [2022] 144 Appellant. taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 (Para 26-27 on pg 1390-1392 of PB II of Case

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Law Compilation). • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd) (Para 5 – 5.3 on Page 1507-1508 of PB-II-Case law Compilation). Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. Substantial Onsite Operations 1. Submission at Pg 920-922 of PB I. 4. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (39.97%), FY 2016-17 (38.03%) & FY 2015-16 (36.85%). Thus, Tata Elxsi has different business model, when compared to Appellant.

Threesixty Logica Testing Services Limited 21.7 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:-

Reasons for rejection Reference & case laws 1. Submission at Pg 943-944 of PB I & Substantial related party transactions 1. The Company has substantial RPT (Computation of RPT is given at Pg for FY 2017-18 (30.42%) & FY 2016- 32 of the Note) 17 (18.23%) and thus fails RPT filter 2.Reliance is placed on decision of of 15%. Altair Engineering India Limited vs ACIT, Circle 1(1)(1), Bengaluru (TS- 24-ITAT-2023 Bang-TP), wherein Threesixty Logica has been rejected as it fails RPT filter. (Para 21-23 on pg

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1366-1368 of of PB-II-Case law Compilation). Functionally Different 1. Submission and website extracts at 2. The Company is functionally Pg 944-946 of PB I. different as it is engaged in rendering 2.The Appellant relies on the following only “software testing services” which decisions of the ITAT wherein, it was is not comparable to the “software held that Threesixty Logica Testing development services” rendered by the Services Ltd is functionally different: • In the case of AMD India Pvt Ltd Appellant. v ACIT IT(TP)A No. 775/Bang/2022 3. The Company renders services such for AY 2018-19 (Page 42-45 of the as Quality Assurance, Quality decision), this company is rejected as Engineering, Digital Innovation, comparable. Automated Solutions and • M/s. NTS Technology Services Pvt Transformations. Ltd. vs DCIT, Bengaluru (TS-239- ITAT-2023 Bang-TP) for AY 18-19 (Para 11.7-11.7.5 at Page 1288-1290 of PB-II-Case law Compilation).

Wipro Ltd 21.8 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Substantial related party transactions 1. Submission at Pg 915-916 of PB I 1. The Company has substantial RPT & (Computation of RPT is given at for FY 2017-18 (15.97%) and thus Pg 33 of the Note). fails RPT filter of 15%. Functionally Different 1. Submission at Pg 916-918 of PB I. 2.The Company is functionally 2. The TPO has himself not considered different as it is not engaged in Wipro as comparable in his list of rendering of pure software comparables for AY 2017-18. Further, development services. Wipro is an the Appellant relies on the following

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information technology, consulting decisions of the Honourable ITAT and business process services wherein, it was held that Wipro Ltd is company. functionally different: • In the case of AMD India Pvt 3.The Company has global brand image and has high R&D Expenses. Ltd v ACIT IT(TP)A No. 4. There is vast difference between the 775/Bang/2022 for AY 2018-19 profile of Wipro and the Appellant. (Page 41-42 of the decision), this company is rejected as comparable. • Wipro HR Services India (P.) Ltd vs ACIT, Bangalore ([2023] 147 taxmann.com 569 (Bangalore – Trib.)) for AY 2018-19 (Para 15 at Page 1759 of of PB-III-Case law Compilation) • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd) (Page 1528-1529 of PB-II-Case law Compilation) Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. Substantial Onsite Operations 1. Submission at Pg 918-920 of PB I. 5.The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017- 18-56.17%, FY 2016-17-56.24% & FY 2015-16-56.42%. Thus, Wipro has different business model when compared to Appellant.

Elveego Circuits Pvt. Ltd 21.9 The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables

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which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1. Reliance is placed on the following decision of Coordinate Bench, wherein 1. The Company is functionally Elveego is excluded on the ground that different as it is engaged in the business it is functionally different. of electronics and semiconductor design • In the case of AMD India Pvt Ltd services. v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 30-31 of the decision), this company is rejected as comparable. • NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru (TS-239-ITAT-2023 Bang-TP) for AY 2018-19 (para 11.2 on page 2640 of PB IV-Case law Compilation) • Sprinklr India Pvt Ltd. vs DCIT, Circle 6(1)(1) Bengaluru (TS-25- ITAT-2023 Bang-TP) for AY 2018-19 (Para 12C at Pg 2732- 2733 of PB IV of Case Law Compilation).

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“ Nihilent Ltd. The ld. AR for the assessee submitted that that The company is functionally different as it is engaged software product development. It renders software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. This company is into diversified business and is therefore functionally different to pure software development companies. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (40.57%), FY 2016-17 (43.34%) & FY 2015-16 (43.64%). Thus, Nihilent has different business model when compared to the Appellant. He relied on the decision of this Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 (supra) and submitted that Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. He further relied on the following decisions wherein it was held that Nihilent Ltd is functionally different:- M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT-2022 Bang- TP-for AY 2017-18 Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore - Trib.) for AY 2017-18 17.1 The ld. DR relied on the orders of lower authorities. 17.2 Considering the rival submissions, we note from the financial statements placed at page 1882-1889 of PB that the core activity of Nihilent Ltd. as per NIC Code No.99831319 allotted,

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“other professional, technical and business services” and the turnover is Rs.2800.62 crores during the year from the core activity of “other IT consultancy services”. The comparable company is engaged in global business consulting and IT services solutions, the major revenue is received from South Africa. In the annual report, it is stated as under:- “Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and innovation. Our service offerings include: Consulting: Nihilent partners with businesses in transforming their organizations with solutions using a holistic design-thinking led approach to problem solving. Our suite of consulting-led offerings include customer driven digital transformation, industry transformation and organizational change management services We have deep expertise and several person-years or experience in strategy alignment and execution, organizational design and process restricting, balanced scorecards, customer loyalty evaluation among others. Analytics : We help enterprises answer complex business questions of the day by getting them to make sense of all the data they have. Our leading-edge analytics solutions include predictive analytics techniques like fraud analytics, churn analytics, market basket analysis among others, data visualization and dashboards, and data enrichment and insight offerings including sentiment analysis, data abstraction, deep learning & artificial intelligence. Technology : Our technology-driven service offerings help business achieve greater agility in the digital era and enable systems to be future-ready, using a holistic design-thinking approach. Some of our most important technology offerings include product development, user experience testing, technology re-engineering, cloud-based services, blockchain, Internet of Things, SAP S4 HANA implementation & consulting, among others.” 17.3 Considering the above activity undertaken by Nihilent Ltd., it cannot be considered as a comparable with assessee

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company. Therefore, the AO/TPO is directed to exclude this company on the basis of functional dissimilarity. Infobeans Technologies Ltd. It was submitted that this Company is functionally different as it is engaged in providing diversified services in the areas of Product engineering, Digital Transformation and Automation and DevOps for clients across the globe. It is not a pure software development company. He relied on the decision of the Tribunal assessee’s own case for AY 2016-17 in IT(TP)A Nos. 238/Bang/2021 (supra) and other following decisions, in which it is held that Infobeans is into diversified software services and cannot be considered as a comparable to pure software development companies like the Appellant:- M/s. NTS Technology Services Pvt Ltd. (TS-239-ITAT-2023 Bang-TP for AY 18-19) M/s Radisys India Limited (TS-823-ITAT-2022Bang-TP) for AY 2017-18 ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad [2022] 135 taxmann.com 44 (Hyderabad - Trib.) for AY 2016-17 18.1 The ld. DR relied on the orders of lower authorities. 18.2 We have considered the rival submissions and perused the material on record. We note from the financial statements placed at page 1830-1837 of PB that the company’s overview is as under:- “Our company is leading playing in offering, Product engineering, Digital Transformation and Automation and DevOps for clients across the globe. With two state-of-the-art facilities in India, the CMMI level 3 certified company caters to Fortune 500 clients in USA, Germany and Middle East markets. The Company caters to a wide range of segments in the industry, including Healthcare, Compliance, Storage and Virtualization, Media and Publishing and eCommerce. The company’s efficient operations professional team of over 700+ employees and high

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customer-focus has enabled it to grow blue-chip client base with high amount of repeat business.” 18.3 On going through the above activity, the company is functionally different from the assessee. Further, we note from the financial statements that the revenue is generated from sale of services but not from sale of products. We therefore direct the AO/TO exclude this company from the comparables. Cybage Software Pvt. Ltd The ld. AR submitted that The Company is functionally different as it is engaged in diversified activities and deals with other computer related activities. The Company has abnormally high margin. Reliance is placed on assessee’s own case for AY 2016- 17 (supra) where this company was excluded on the ground of functional differences as it is rendering software services as well as developing software products. He also relied on the decision in Etisalat Software Solutions (P.) Ltd, 144 taxmann.com 162 (Bangalore – Trib.) for AY 2017-18 and submitted that since profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable. 19.1 The ld. DR relied on the orders of the lower authorities and vehemently argued that the assessee is a software development company and the ld. DRP has examined the issue in detail and observed from the financial statements that Cybage Software Ltd. is similar with the assessee’s functional profile. He also submitted that the website information cannot be relied because it is not based on audited financial statements. He further submitted that the ld. AR of the assessee has not furnished complete financial statements of the comparable company to rebut the DRP’s findings. 19.2 We have considered the rival submissions and perused the material on record. From the details furnished by the assessee, the ld. DRP has observed this company is into software development services. However, ld. AR has submitted that the company is functionally different as it is engaged in diversified activities and deals with other computer related services, but the same is not substantiated through submission of credential documents. The ld. AR further contended that this company has

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abnormally high margin, but from the financial results it is observed that for the FY 2016-17, 2017-18 & 2018-19 the OP/OC is 62.04%, 61.4% & 47.78% respectively with average of 56.81%. However, there is no much fluctuation in the financial results which is declining over the years. We further notice that the coordinate Bench of the Tribunal in the case of Wipro HR Services India (P.) Ltd. [2023] 147 taxmann.com 569 (Bangalore - Trib.) for AY 2018-19 has remitted the issue to the AO/TPO by observing as under:- “34. We heard the rival submission and perused the material on record. We notice that the main contention of the assessee with regard to exclusion of the company is that the company is functionally dissimilar having diversified activities including ITeS and BPO services. On perusal of records, it is noticed that the segmental information is not available though it is mentioned as per the website of the company that it is involved in various other activities including order management, research & analysis, social media management and monitoring, etc. (page 761 & 762 of paper book Vol III) It is further noticed that the functionality of the company is not coming out clearly from the financials. In view of this discussion, we are of the considered view that the issue should go back to the AO/TPO for a fresh examination of facts. The AO/TPO is directed to verify the nature of activity of the company and the availability of segmental details and decide the inclusion in accordance with law.” 19.3 We note further that in Textual Information “36” the company is engaged in Software Development Services. Since in the above judgement the issue has been remitted back to the AP/TPO, accordingly. Following the above decision, we remit this issue to the AO/TPO for verification in the same terms and the assessee is directed to furnish necessary documents to substantiate its claim. The decision relied by the ld. AR in assessee’s own case for AY 2016-17 and decision in Etisalat Software Solutions (P.) Ltd (supra) for 2017-18 is not applicable in present facts of the case as discussed above. Aptus Software Labs Pvt. Ltd. The ld. AR made the following submissions for exclusion of this company.

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……………….. The ld. DR relied on the orders of lower authorities. Considering the rival submissions, the ld. AR seeks exclusion of this company on the basis of functional dissimilarity as well as that it does not employee cost filter for AY 2015-16 as applied by the TPO. However, we note that in the case of NTS Technologies Ltd. (supra) for the very same AY 2018-19 , the coordinate Bench has given direction to AO/TPO for retaining this company as under:- “11.4.1 The Ld.AR submitted that, the nature of business of this company is not available in the public domain. It is submitted that from the annual report of the company, the NIC code of the product/ service is mentioned to be 6201 which includes computer programming, consultancy and related activities. 11.4.2 Reliance was placed on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. (supra). The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 11.4.3 We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable was remanded for want of sufficient information in annual reports filed by the assessee therein before this Tribunal. However, in the present case, the Ld.AR has filed complete annual report. 11.4.4 We notice that this company is deriving revenue from both domestic as well as foreign company. The notes to the account being note 24 reveals the revenue is recognised by this comparable from service transactions. The NIC code being 6201 as appearing at page 3383 of paper book reveals the description Page 21 IT(TP)A No. 940/Bang/2022 to be information technology services as against computer programming, consultancy and related activities as submitted by the assessee in the synopsis. We therefore do not find any reason to exclude this company from the final list. We direct the Ld.AO/TPO to retain this company in the list.”

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Considering the totality of facts, we remit this issue to the AO/TPO for fresh consideration in the light of the submissions of the assessee and above decision in NTS Technologies Ltd. (supra). Elveego Circuits Pvt. Ltd. The ld. AR submitted the following reasons for exclusion of this company. …………… 20.1 The ld. DR relied on the orders of lower authorities. 20.2 Considering the rival submissions, this company has been excluded in the case of NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru (TS-239-ITAT-2023 Bang- TP)for AY 2018-19 observing that this company is engaged in the business of chip & semiconductor design services whereas the assessee is engaged in basic SWD services and observed as under:- 11.2.1 The Ld.AR submitted that this company is engaged in the business of electronics and semiconductor design services which is no way comparable to the captive software development activities as provided by the assessee. It is submitted that the company specialises in the design of Analog, Mixed-Signal and RF Integrated Circuits, and that no segmental details are available. 11.2.2 It is also submitted that, this company invested significantly in intangible assets, during the financial years 2016- 16, 2016-17 and 2017-18. She thus submitted that this comparable is functionally not similar with that of the assessee. Reliance was placed on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. (supra). The Ld.DR relied on the orders passed by the authorities below We have perused the submissions advanced by both sides in the light of records placed before us. …………..

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11.2.3 We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable was excluded by observing as under: “C.3. We note that this company is in the business of Chip and semiconductor design services whereas the assessee before us is into basic SWD services of coding an documentation, Testing and quality assurance, software patches and maintenance. There is no similarity between the functions performed by the assessee vis-à-vis that of this company. We therefore at the threshold reject this company being functionally not similar with that of the assessee. Accordingly, the Ld.TPO is directed to exclude this company from the final list of comparables.” Respectfully following the same, we direct the Ld.AO/TPO to exclude this company from the final list.”

Respectfully following the above decision, we direct the AO/TPO to exclude this company from list of comparables. Mindtree Ltd. The ld. AR referred to the following written submissions for exclusion of this company which is as under:- …………… 23.1 The ld. DR relied on the orders of lower authorities. 23.2 Considering the rival submissions, the ld. AR contested that this company is functionally different as it is engaged in IT consulting and implementation, diversified operations and segmental information is not available. The company carries global brand and owns intellectual property and there is substantial onsite operations and extraordinary events for acquisition and merger transactions. 23.3 We note from the financial statements from page 1872 the company’s overview is as under:- “Mind tree Limited ……… is an international Information Technology consulting and implementation company that

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delivers business solutions through global software development. The Company is structured into four industry verticals – Retail, CPG and Manufacturing (RCM), Banking Financial Services and Insurance (BFSI), Technology, Media and Services (TMS) and Travel and Hospitality (TH). The Company offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services.” 23.4 The company has also spent significant amount of Rs.396 million on research & development during the FY 2017-18. 23.5 The assessee company is a captive services provider and therefore considering the overview of Mindtree Ltd., it cannot be considered as functionally comparable. In the assessee’s own case for AY 2016-17 this company was excluded by the coordinate Bench of the Tribunal. Therefore, AO/TPO is directed to exclude this company. Acewin Agritek Ltd. The ld. AR referred to the following written submissions for exclusion of this company which is as under:- …………. 24.1 The ld. DR relied on the orders of lower authorities. 24.2 Considering the rival submissions, this company has been excluded in the case of NTS Technology Services Pvt Ltd (supra) by the coordinate Bench of the Tribunal and observed as under:- 11.5 Acewin Agritech Ltd. 11.5.1 The Ld.AR submitted that this company is engaged in software development and information technology outsourcing company, wherein the core business of this company is Enterprise Application Development, Mobile Applications Development, Cloud Enablement, UI Development and DevOps Implementation. In addition, she submitted that this company is

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developing on the leading Blockchain platforms and widening its service offerings and domains more specifically in Healthcare, Media, and Financial Services. The Ld.AR also submitted that in terms of product offerings, the company enhanced the Food processing ERP product with predictive analytics. No segmental details are available. 11.5.2 She further submitted that, in the software services outsourcing business, this company does designing, building, testing and maintaining commercial products and digital solutions. Further, she submitted that, this company has significant R&D expenses. 11.5.3 She thus prayed for exclusion of this comparable as it is into varied activities for which there is no segmental details. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 11.5.4 In the annual report of this comparable at page 2854 of the paper book, we note that the NIC code is 8920 at the description of the project / services is software development. At page 2879, the business overview of the company has been described to be as under: “OFS Technologies is a leading software development and information technology outsourcing company. In the last financial year, we intensified our technology expertise with latest technologies in our core business - Enterprise Application Development, Mobile Applications Development, Cloud Enablement, UI Development and DevOps Implementation. In addition, we are technically developing on the leading Blockchain platforms, widening our service offerings and domains more specifically in Healthcare, Media, and Financial Services. In terms of product offerings, we enhanced the Food processing ERP product with predictive analytics.” 11.5.5 It is also revealed at page 2881 that this company has invested in enlarging its business development team and also has the product development vertical the income recognition is only from the sale of services being export and therefore this company

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does not have a segmental details of the variety of services rendered by it. Moreover, the company is a leading software development and information technology outsourcing company and therefore as the entire revenue is categorised under one single segment, it is not comparable with the captive service provider like that of assessee before us that renders its services on a cost plus model with its AE. We accordingly reject this comparable and direct the Ld.AO/TPO to exclude from the final list.………………………….. …………………………..” 24.3 Respectfully following the above decision, we direct the AO/TPO to exclude this company from the comparables list. Tata Elxsi Ltd. The ld. AR referred to the following written submissions for exclusion of this company which is as under:- ……….. 26. The ld. DR relied on the orders of lower authorities. 26.2 Considering the rival submissions, we note from financial statements at page No.1913, corporate information is that the company provides product design and engineering services to the consumer electronics, communications & transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry. The assessee is a captive services provider, therefore functional different from comparable company. Further, this company was excluded in the assessee’s own case for AY 2016-17 observing as under:- “40.32 The ld. AR submitted that the Company is functionally different as it is engaged in Embedded product design, Industrial design, Visual Computing Labs, Systems Integration. The Company has global brand image and has paid brand fees of Rs. 344.98 lakhs to Tata Sons Limited for AY 2017-18. There is vast difference between the profile of Tata Elxsi and the Appellant. Reliance is placed on the following decisions:-

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• ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd) 40.33 The ld. DR relied on the orders of lower authorities. 40.34 We have considered the rival submissions and perused the material on record. The ld. DRP has discussed the issue in detail. We hold that his company is functionally dissimilar following the decision of the coordinate Bench of the ITAT Hyderabad in the case of Infor (India) Pvt. Ltd. [2022] 143 taxmann.com 68 (Hyderabad - Trib.) noted supra. The AO/TPO is directed to exclude this company.” 26.3 In view of the above, and since the facts are same as in the AY 2016-17, following the above decision, we direct the AO/TPO to exclude this company from the comparables. Wipro Ltd. The ld. AR referred to the following written submissions for exclusion of this company which is as under:- ………….. 27.1 The ld. DR relied on the orders of lower authorities. 27.2 Considering the rival submissions, we note from the company’s overview that Wipro Ltd. is a leading global information technology (IT) consulting and business process services. It is clear that the company is engaged in diversified activities and not a pure software development company like the assessee and hence functional profile is different. Therefore, this company is directed to be excluded from comparables list. Threesixty Logica Testing Services Pvt. Ltd. The ld. AR referred to the following written submissions for exclusion of this company which is as under:- ……………. 28.1 The ld. DR relied on the orders of lower authorities.

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28.2 Considering the rival submissions, we note this company has been excluded by the Tribunal in the case of NTS Technology Services Pvt Ltd (supra) observing as under:- 11.7 Threesixty Logica Testing Services Pvt. Ltd. 11.7.1 The Ld.AR submitted that this company derives revenue primarily from software testing, quality assurance and related services. Further, the company also earns revenue from sale of third party software products and hardware. No segmental details are not available. 11.7.2 She submitted that this company has invested significantly in intangible assets during the financial years 2015-16, 2016-17 and 2017-18. 11.7.3 It is submitted that this company has incurred significant marketing expenditure and this company has significant RPT transactions during the year. It was thus submitted that the comparable may be excluded. 11.7.4 The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 by order dated 09.01.2023. The Ld.DR on the contrary relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 11.7.5 From the annual reports filed by the Ld.AR in the paper book, we note that this company derives 100% income from writing, modifying, testing of computer program to meet the needs of a particular client excluding webpage and designing. In the annual report, the revenue recognition by this company is stated to be primarily from software testing, QA and related services which is also supported from the notes to account being note 1 wherein the company overview also states that it is primarily engaged in providing information technology services being software testing and QA services and it also stated in the

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segmental report and operating segmental details that there are no other reportable segments. We therefore see merit in the arguments of the Ld.AR that this company is not comparable functionally since the assessee is a contract service provider rendering limited services to its AE alone. Accordingly, this comparable is directed to be excluded ………………………….. …………………………..” 28.3 Respectfully following the above decision, this company is directed to be excluded from the list of comparables.”

23.1 Respectfully following the above decision in the case of AMD India Pvt. Ltd. (supra), we direct to exclude Nihilent Ltd., Infobeans Technologies Ltd., Aptus Software Labs P. Ltd., Elveego Circuits P. Ltd., Mindtree Ltd., Acewin Agritek Ltd., Tata Elxsi Ltd., Infobeans Technologies Ltd., Wipro Ltd., Nihilent Ltd., Threesixty Logica Testing Services P. Ltd. from the list of comparables.

23.2 In case of Cybage Software Ltd., the coordinate Bench in the case of AMD India Pvt. Ltd. (supra) has remitted the issue of comparability to the AO/TPO for verification. Accordingly we also remit this company to the AO/TPO in the same terms.

Tech Mahindra Ltd 24. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

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Reasons for rejection Reference & case laws 1.The Company has substantial RPT 1. Computation of RPT is given at Pg transaction for all 3 years i.e., FY 17- 37 of the Note. 18- 40.75%, FY 16-17- 38.51% and FY 2015-16-37.62%. It fails RPT filter of 15%. Functionally Different 1. Submission at Pg 878-880 of PB I. 2.The Company is functionally 2. Reliance is also placed on the different as it is engaged in providing following decisions wherein Tech integrated portfolio services to Mahindra Ltd is held to be different industry verticals. functionally different: • M/s. Radisys India Ltd. (formerly 3.The services rendered by Tech known as Radisys India Pvt. Ltd.), Mahindra can be broadly classified Vs The DCIT, Circle – 3(1)(1), into IT and ITeS segments and no Bengaluru (IT(TP)A No. segmental data is available. 739/Bang/2022) for AY 2018-19 4.The Company has global brand (Para 8.3.2 to 8.3.5 on Pg 1801- image and has businesses spread 1802 of PB-III-Case Law across border and cannot compared to Compilation) captive service provider like Appellant. Substantial Onsite Operations 1. Submission at Pg 877-878 of PB I. 5. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (65.32%), FY 2016-17 (65.66%) & FY 2015-16 (64.75%). Thus, Tech Mahindra Ltd has different business model when compared to Appellant. 6. The Company has acquired and sold 1. Submission at Pg 881 of PB I. subsidiaries during FY 2017-18.

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“ 8.3.5.3 In respect of Tech Mahindra Ltd., we note that though the RPT is more than 25%, it is functionally not similar with that of assessee as it is a multinational company and has a huge brand value in the industry. The turnover of this comparable is also huge and is engaged in providing technical services in the areas of mobility, network, cloud security etc. The annual report of this comparable is placed at pages 1675 & 1676. At page 1689, we note that this company is engaged in a varied line of business such as telecom services, BPO services, consultancy services, infrastructure outsourcing, information technology including ITeS. Under such circumstances, we do not find this comparable to be comparable with that of a captive service provider like assessee. Accordingly this comparable is directed to be excluded from the final list.”

26.1 Respectfully following the above decision, we direct that this company has to be excluded from the list of comparables.

Thirdware Solutions Limited 27. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws 1. Computation of RPT is given at 1.The Company has substantial RPT Pg 36 of the Note. transaction for all 3 years i.e., FY 17- 18- 24.20%, FY 16-17- 21.79% and 2.Reliance is placed on decision of FY 2015-16-24.87%. It fails RPT M/s. Sprinklr India Pvt Ltd vs DCIT filter. circle-6(1)(1), Bengaluru for AY 2018-19 [TS-25-ITAT-2023(Bang)-

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TP] (Para 12.4-12.4.2 at Page 1329- 1330 of PB-II-Case law Compilation), wherein Thirdware Solutions Ltd has been rejected as it fails RPT filter. Functionally Different 1. Submission and website extracts at 2.The Company is functionally Pg 940-943 of PB I. different as it is engaged in Software 2. The Appellant relies on the Product/License sales. 3.It has revenue following decisions of the from various sources like Product Honourable ITAT wherein, it was Sale, Software Implementation, held that Thirdware Solutions Ltd is Software Consolidation, Analytics etc. functionally different: • M/s. Sprinklr India Pvt Ltd vs DCIT circle-6(1)(1), Bengaluru for AY 2018-19 [TS-25-ITAT- 2023(Bang)-TP] (Para 12.4- 12.4.2 at Page 1339-1340 of PB- II-Case law Compilation) • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd) (Para 10 & 10.2 at Page 1513 of PB-II-Case law Compilation)

“12.4. Thirdware Solutions Ltd.: It is submitted by the Ld.AR that this company has multiple activities and segmental financials are not available. The Ld.AR submitted that, in the absence of segmental details, this company cannot be selected. He relied on the decision of coordinate bench of this Tribunal in case of

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Yahoo Software Development India Pvt. Ltd vs. JCIT reported in (2020) 115 taxmann.com and 3DPLM Software Solutions Ltd. vs. DCIT reported in (2014) 42 taxmann.com 333. 12.4.1. The Ld.DR placed reliance on the observations of the authorities below. We have perused the submission advanced by both sides in light of records placed before us. 12.4.2. We note that the revenue recognition of this company is from consulting, design, implementation and support of Enterprise Application and Cloud Applications and other related serviced. It is noted that this company also earns revenue from sale of licence and subscription for software products. These details are available at page 614 of paper book in the Annual report of this company. The Present assessee before us is a captive service provider catering to the needs and at the direction its AE under the SWD segment. As there is no segmental details available, we cannot consider this company to be a good comparable as the entire revenue is categorised under one head i.e., ‘Revenue from Operation’. Even on RPT filter we note that this company has RPT of more that 25% which does fails the filter applied by the Ld.TPO. We therefore direct Thirdware Solutions Ltd., to be excluded from the final list.” 29.1 Respectfully following the above decision of the coordinate Bench, we direct exclusion of Thirdware Solutions Ltd. from the final comparables.

Ground No 6(iv)- Comparables selected/proposed by the Appellant 30. Out of inclusions sought in the Grounds of Appeal, at the time of hearing the following companies are not pressed: a) Athena Global; b) Data Collection Infotech (India) Pvt Ltd; c) Kals Information Systems Ltd; and d) Sankhya Infotech Limited. Hence these grounds are dismissed.

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Companies Arguments of lower Contention of Appellant authorities TPO & DRP 1.The company is functionally similar as it is primarily 1.The TPO rejected engaged in rendering software this company on the development services. ground it shows 2.The company has operating persistent losses in two profits for FY 2015-16 and out of three years (Pg passes other filters as applied 124 & 52 of Appeal by the TPO. Further, the Papers). Appellant relies on the following decisions of the Honourable ITAT wherein, it is held that Rheal Software Ltd. cannot be excluded if it has profit in one of the three years and directed to be included: Rheal Software Ltd • In the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 45-46 of the decision), the ITAT remanded this company to TPO for fresh consideration. • M/s. Etisalat Software Solutions Pvt. Ltd. vs DCIT Circle 2 (1)(1), Bengaluru. (IT(TP)A No. 224/Bang/2023) for AY 18- 19 (Para 5.4.1 -5.4.2 at Page 1709-1710 of PB-III- Case law Compilation). • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY

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2018-19 (Para 4.2.3 of Page 1796 of PB-III-Case law Compilation). (Submission at Pg 839-841 of PB I).

Ground No.7 – Inclusion of M/s Sasken Technologies Ltd as a comparable 35. The ld. AR submits that the TPO has inadvertently excluded M/s Sasken Technologies Ltd in the final list of the comparables despite directions of DRP to include it on the ground that it fails export turnover filter. It is further submitted that this company’s operating

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income in foreign currency is Rs.331.22 crores (i.e. Income from sale of software services), which amounts to 78.60% of the total operating revenue (Rs. 421.39 crores). Therefore, it passes export filter of 75% applied by the TPO and the same has been accepted by the DRP. Thus, this company should be accepted as per the directions of DRP and it is submitted that the TPO may be directed to include M/s Sasken Technologies Ltd in the final list of comparables.

Ground No.8 – Incorrect computation of certain comparables 37. The ld. AR submits that the TPO has computed incorrect margin of some comparables. The variation is due to incorrect treatment by the TPO of certain items such as forex gain, bad debts, donation, rent & rates, commission, etc. The assessee has submitted the below table with corrected margins of the comparables.

SL Name of the Company Margins as Corrected No. per TP Margins Order 1 Harbinger Systems Private 11.65% 7.37% Limited

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the decision). Therefore, it is requested that the TPO may be directed to adopt correct margin after examination of the Annual reports of the comparables. After considering the rival submissions, we direct the TPO to verify the margins and adopt the correct margin of the above comparable.

GROUNDS RELATING TO TP ADJUSTMENT IN MARKETING SUPPORT SEGMENT – Grounds 11 & 12 41. Ground No.11(i) is general in nature.

Ground No.11(iii) – Comparables selected by the TPO 42. The assessee is also engaged in Marketing Support Services. As per Master Service Agreement placed at page 337 of PB, clause A(ii)(b). “this activity comprises of advertising and sales promotion on behalf of Metric Stream to promote the products of Metric Stream”. The assessee is compensating for the services rendered on cost + 11% on monthly basis. Metric Stream, USA formulates the overall marketing strategy and is responsible for marketing the products/services.. As per page 303 of PB, the functions performed in relation to Marketing Sales & Support services by assessee is as under:-

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“7.21 The sales and marketing services provided by the Company principally involves assisting MetricStream USA in identifying potential customers. The work also involves educating potential users on the benefits and features of MetricStream USA’s range of products. MetricStram India organized seminars, conferences in India and arranges for speakers, books hall and allied activities. The sales and marketing department comprises of three teams. a. Product marketing team - MetricStream USA, is involved in identifying the potential customers for the products of MetricStream. MetricStream USA manages all the client interactions. On receiving the request for proposal from the client for MetricStream’s product, the product marketing team highlights the capabilities of the MetricStream’s products by way of organizing seminars, presentations, webinars, etc. MetricStream India undertakes pre-sales consultancy for the identified potential customers, understands how the group product offerings of MetricStream USA can benefit the prospective clients. Based on the overall marketing objectives of MetricStream USA, MetricStream. India advertises the products and services for MetricStream USA. A technical team of MetricStream. India is responsible for providing brief information on MetricStream USA’s product offerings that can fit into the requirement of the potential customers. All the presentations and marketing efforts are aligned with the overall marketing strategy defined by MetricStreamUSA. b. Marketing Program team – The marketing program team of MetricStream. India is responsible for coordinating the efforts required for a successful conduct of a marketing program. On the basis of the requirements of product marketing team, the MetricStream India executes the requirements and ensures that the marketing program to be conducted in an organized manner. For instance, if a seminar is to be conducted by MetricStream. India for a group of identified customers, the marketing program team would be responsible for coordinating the efforts of different work groups responsible for organizing the seminar (including sending seminar remainder mails, etc).

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c. Corporate management team – This is like an internal sales team, providing support services to the sales team. For instance, where a particular seminar is to be covered in the newspaper, the corporate management team is responsible for engaging a public relations agency for coverage of the event.

42.1 During the TP proceedings the TPO selected 13 companies and calculated median @ 9.94% and ALP was calculated at Rs.42,29,95 and price received by the assessee is Rs.39,51,95,849. Accordingly, there was a shortfall noted by the TPO of Rs.2,77,85,446.

42.2 During the course of hearing, the ld. AR submitted that in final set comparables, the TPO has retained companies even though they are not comparables in terms of functions performed, assets utilized, risks assumed, etc. He further submitted that Axience Consulting Pvt. Ltd., Cheil India P. Ltd., Dun & Bradstreet Information Services India P. Ltd., Lintas India P. Ltd., Majestic Research Services & Solutions Ltd. and Pressman Advertising Ltd. are covered by the judgment of coordinate Bench of the Tribunal in the case of AMD India P. Ltd. (supra). He further submitted that these companies are not engaged in the functions performed by assessee company. However, the learned TPO included these companies in the final list of comparables which was upheld by the DRP. Therefore, these companies do not pass the FAR analysis and filed written synopsis as follows:-

Axience Consulting Pvt. Ltd. Reasons for rejection Reference & case laws Functionally Different 1.Relevant extract of submission 1.The Company is functionally different at Pg 1004-1006 of PB I.

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as it primarily renders Consultancy and 2.Reliance is place on following advisory services in the field of finance, decision, wherein Axience market research and business Consulting Pvt. Ltd. is held administration. functionally not comparable: • In the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018- 19 (Page 47-54 of the decision), the ITAT has rejected this comparable. • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018- 19 (Para 12.8.1 of Page 1805- 1806 of PB-III-Case law Compilation) • M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT- 2023(Bang)-TP] for AY 2018- 19 (Para 9(i) of Pg 1567-1569 PB II- Case Law Compilation). • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 926 & 927/Bang/2022 for AY 2017-18 & 2018-19 (Para 16.2 of Page 1750 of PB III- Case Law Compilation) • Appellant’s own case for AY 2015-16, vide IT(TP)A No. 2347/Bang/2019 (Para 16.2 of Pg 1213-1214 of PB II Case Law Compilation).

Cheil India Pvt. Ltd. Reasons for rejection Reference & case laws

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Functionally Different 1. Submission at Pg 1027-1032 of PB I. 1.The Company is functionally different 2.Reliance is placed on following as it is engaged in Advertising services. decision, wherein Cheil India Pvt Ltd. is held functionally not comparable: 2.The Company has earned abnormal • In the case of AMD India Pvt Ltd v margins for FY 2017-18. ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 47-54 of the decision), the ITAT has rejected this comparable. • M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT-2023(Bang)-TP] for AY 2018-19 (Para 9(vi) of Pg 1574- 1576 PB II- Case Law Compilation). • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 927/Bang/2022 for AY 2018-19 (Para 16.2 of Page 1750 of PB III- Case Law Compilation) & IT(TP)A Nos. 926 /Bang/2022 for AY 2017-18 (Page 1738 of PB III- Case Law Compilation) • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 12.8.1 of Page 1804- 1806 of PB-III-Case law Compilation).

Dun & Bradstreet Information Services India Pvt. Ltd.

Reasons for rejection Reference & case laws Functionally Different 1. submission at Pg 1007-1008 of PB I. 2.Reliance is place on following 1.The Company is functionally different decision, wherein Dun & Bradstreet as it primarily renders risk management Information Services India Pvt. Ltd. is services. held functionally not comparable: • In the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 47-54 of the

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decision), the ITAT has rejected this comparable. • M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT-2023(Bang)-TP] for AY 2018-19 (Para 9(ii) of Pg 1569- 1570 PB II- Case Law Compilation). • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 926 & 927/Bang/2022 for AY 2017- 18 & 2018-19 (Para 16.4 of Page 1751-1752 of PB III- Case Law Compilation) • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 12.8.1 of Page 1805-1806 of PB-III-Case law Compilation).

Lintas India Private Limited Reasons for rejection Reference & case laws Substantial related party transactions 1. Submission at Pg 1018-1019 of PB I 1. The Company has substantial RPT (Computation of RPT is given at Pg for FY 2017-18 (20.24%), FY 2016-17 34 of the Note). (23.70%) & FY 2015-16 (46.67%) and thus fails RPT filter. 1. Submission at Pg 1019-1022 of PB I. Functionally Different 2.The Company is functionally different 2.Reliance is place on following as it engaged in the business of decision, wherein Lintas India Pvt Ltd. Advertising & Marketing is held functionally not comparable: • In the case of AMD India Pvt Ltd v Communication services. ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 47-54 of the decision), the ITAT has rejected this comparable. • M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT-2023(Bang)-TP] for AY 2018-19 (Para 9(iv) on Pg 1572- 1573 of PB II- Case Law

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Compilation). • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 927/Bang/2022 for 2018-19 (Para 16.2 of Page 1750 of PB III- Case Law Compilation) & IT(TP)A Nos. 926 /Bang/2022 for AY 2017-18 (Para 10.5 of Page 1741 of PB III- Case Law Compilation) • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 12.8.1 of Page 1805-1806 of PB-III-Case law Compilation)

Majestic Research Services And Solutions Limited Reasons for rejection Reference & case laws Functionally Different 1.Submission at Pg 1024-1027 of PB I. 1.The Company is functionally 2.Reliance is placed on the decision of different as it is independent Market Coordinate bench, wherein the Research Agency in India relying Company has been held to be exhaustively on usage of technology functionally different: • In the case of AMD India Pvt Ltd v for data acquisition. It provides qualitative and quantitative Research ACIT IT(TP)A No. 775/Bang/2022 Services. for AY 2018-19 (Page 47-54 of the 2. The Company operates only in one decision), the ITAT has rejected this segment namely market research comparable. services. • Levi Strauss (India) Pvt. Ltd. vs 3. The Company has abnormal and DCIT Circle 4(1)(1) IT(TP)A Nos. peculiar growth as its revenue 927 /Bang/2022 for AY 2018-19 increased by 101% during FY 2017- (Para 16.2 of Page 1750 of PB III- 18. 4. In FY 2020-21, the revenue of Case Law Compilation) & IT(TP)A the Company reduced dramatically to Nos. 926 /Bang/2022 for AY 2017- Rs.57.24 lakhs 18 (Para 10.6 of Page 1741 of PB III- Case Law Compilation)

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• M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT-2023(Bang)-TP] for AY 2018-19 (Para 9(v) of Pg 1573- 1574 of PB II- Case Law Compilation). • M/s.EIT Services India Pvt. Ltd vs DCIT [TS-60-ITAT-2023(Bang)-TP] for AY 2017-18 (Para 6 of Pg 1591- 1593 of PB II- Case Law Compilation). • Radisys India Limited, Bangalore (TS-823-ITAT-2022 Bang-TP) for AY 2017-18 (Para 13 to 13.2 of Pg 1467-1468 of PB II Case Law Compilation) • Epson India Pvt. Ltd. vs DCIT, Circle-2(1)(1), Bengaluru (IT(TP)A No.821/Bang/2022) AY 2017-18 (Para 19 & 20 of Pg 1615 of PB II Case Law Compilation)

Pressman Advertising Limited Reasons for rejection Reference 1. Submission at Pg 1009-1011 of Functionally Different 1.The Company is functionally different PB I. as it engaged into Advertising, Public 2. Reliance is placed on the Relation, Design and Digital services. following decisions of Coordinate bench wherein the ITAT held that the Company’s main stream of revenue is for providing services pertaining to advertisement on radio, television and public relation and cannot be compared to business support services: • In the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19

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(Page 47-54 of the decision), the ITAT has rejected this comparable. • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 927/Bang/2022 for AY 2018-19 (Para 16.2 of Page 1750 of PB III- Case Law Compilation) & AY 2017-18 (Para 10.2 of Page 1737-1738 of PB III- Case Law Compilation) • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 12.3 of Page 1804 of PB- III-Case law Compilation) • M/s.Tivo Tech Pvt. Ltd vs ACIT [TS-35-ITAT-2023(Bang)-TP] for AY 2018-19 (Para 9(iii) of Pg 1570-1572 PB II- Case Law Compilation). • Radisys India Limited, Bangalore for AY 2017-18 (TS- 823-ITAT-2022 Bang-TP) (Para 12.1 to 12.3 of Pg 1466-1467 of PB II Case Law Compilation) • Epson India Pvt. Ltd. vs DCIT, Circle-2(1)(1), Bengaluru (IT(TP)ANo.821/Bang/2022) AY 2017-18 (Para 29 of Pg 1619 of PB II Case Law Compilation) 43. The ld. DR relied on the orders of the lower authorities.

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in the case of AMD India P. Ltd. (supra) in the Marketing Support Segment. The ld. DR has not disputed the similar functions performed by the assessee and AMD India P. Ltd. The relevant observations of the coordinate Bench in the case of AMD India P. Ltd. are as under:-

“31.2 After considering the rival submissions, we note that the coordinate Bench in the case of M/s. Tivo Tech P. Ltd. (supra) has excluded these companies by observing as under:- “(i) Axience Consulting Pvt. Ltd. It is submitted that Axience is engaged in providing consultancy and advisory services in the field of Finance, Market Research and Business Administration which are different from the services provided by the assessee under the MSS segment. Further, from the Company's website, it is clear that it is engaged in financial analytics and research, business intelligence, business and market research and strategic human capital services, which services are more in the nature of knowledge process outsourcing services ('KPO') rather than marketing services. Reliance in this regard is placed on the decision of coordinate bench of this Tribunal in the case of Lloyds Offshore Global Services (P.) Ltd. v. Dy. CIT [2023] 146 taxmann.com 226 (Nang. - Trib.), wherein on functional dissimilarly for the assessment year 2015-16 and 2016-17, this company came to be excluded. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. We note that the background of the company as described in the annual report at page 4548 of paper book under note 26 reveals that this company is in the business of providing consultancy and advisory services in the field of finance, market research and business administration to corporate and non-corporates. Further the revenue from operations have been segmented under one heading at page 4540 without giving any segmental details. The only bifurcation of revenue in schedule 20 at page 4546 gives is

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service charges (local) and service charge (export). From the above it is clear that all the revenue earned by this company from consultancy and advisory charges in the field of market research, business administration and finance are clubbed together. The assessee before us is only providing marketing services to its AEs in respect of the presales activities as per the functions reproduced hereinabove which has not been disputed by the Ld.TPO as observed from para 10 of the 92CA order. The DRP included this comparable by observing that assessee also undertakes similar services in advertising, marketing, consulting in creating awareness of the product and therefore is functionally similar with the company. This observation of the DRP is contrary to the functions described at page 761 of the paper book carried out by assessee under the marketing support service segment. We therefore hold this comparable to be not functionally similar with that of assessee. Accordingly, this comparable is directed to be excluded from the final list. (ii) Dun & Bradstreet Information Services India Pvt. Ltd. It is submitted that Dun & Bradstreet is engaged in providing services in the nature of credit reporting, risk management, learning and economic insights, etc. The company provides credit risk and financial analysis data insights for businesses, which are different from that of the functions performed by the Assessee in its MSS segment. Further, the company is also not a pure service provider as it also offers technology products. It has earned revenue from sale of products during FY 2017-18 and as per the revenue recognition policy, the company earns revenue from subscription or retainership arrangements as well as royalty income which is not comparable to the services rendered by the Assessee. It is submitted that no segmental details are available as regards the varied services provided by the Company. It is evident from the Company's website that the company is engaged in providing varied products/services such as Business Information Report, Credibility & Business Insights Solutions, Supply Management Solutions, etc. These suites of services are in the nature of credit risk solutions and trading exchange solutions, which are not comparable to the activities undertaken

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by a routine MSS provider. Therefore, the company ought to be excluded from the final list of comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. We note that as per the annual report placed at page 4556, the description of the project or services provided by this company is mentioned to be credit reporting services. At page 4662, we note that this company is engaged primarily in the business of providing risk management and sales and marketing solutions. The background of the company also describes to be providing learning and economic insight services. The company offers a wide suite of information solutions and its services are used extensively by banks, financial institutions, multi nationals, corporate entities, public sector undertaking, exporters and importers. It also describes itself to be in the field of market analysis, locate prospects and incurs revenue from new and existing customers. The sales and marketing solutions offered by this company also include sale of data and related services. In our considered opinion, these functions cannot be compared with the limited services rendered by assessee to its AEs. We accordingly direct this comparable to be excluded. (iii) Pressman Advertising Ltd. It is submitted that the primary business activity of Pressman is providing advertising services, selling of space for advertisement in print media. It has earned revenue solely from advertising services (such as corporate advertising, brand advertising, financial advertising, social advertising, government advertising, media buying). This being the case, the company cannot be comparable to marketing support functions provided by the Assessee. Reliance in this regard is placed on the decisions of coordinate bench of this Tribunal in case of Radisys India Ltd. v. Dy. CIT [2022] 145 taxmann.com 294 (Bang. - Trib.) for the AY 2017- 18. The assessee therein was engaged in providing similar service as the assessee before us. This Tribunal directed exclusion of this

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company from the final list of comparables. It is submitted that since the profile for the assessment year 2018-19 is same, the company ought to be excluded from the final list of comparables. 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. At page 4818 of the annual report placed in the paper book, we note that this company is providing services in the field of advertising, PR and allied services. Further in the notes to the financial statements at page 4843, this company is said to be engaged in selling of space for advertisement in print media and public relations business. At page 4844, income from services has been said to be recognised from advertising, public relations and allied services however in the profit and loss account at page 4840, the entire income has been categorised to be under revenue from operations with the segmental details available as advertising services and other operating income under schedule 18. In note 28 at page 4855, it has been stated that the company's business activity falls within a single business segment i.e. advertising, selling of space for advertisement in print media and public relations and hence no additional disclosure other than those made in the financial statements are required under Ind AS 108 "operating segments". Thus it is clear that under the advertising services, this company also earns revenue from selling of space for advertisement in print media and public relations for which no bifurcation has been provided. In any event, advertisement services provided by this company also cannot be compared to the services rendered by assessee to its AE under the marketing support services which is limited to presale support activities. Accordingly, we direct this comparable to be excluded from the final list. (iv) Lintas India Pvt. Ltd. It is submitted that Lintas is engaged in providing advertising services and as per its revenue recognition policy, the company earns revenue from advertisement published or displayed or aired, retainer fees, client agency commission, etc. which are different from the services rendered by the Assessee. Therefore,

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this company ought to be excluded from the final list of the comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. We note that this company is providing advertising services and the principle business activity has been described at page 4868 of the paper book in the annual report to be advertising and marketing communications. The revenue recognition by this company has been mentioned to be an advertising agency catering services to much number of clientele. We therefore do not find this comparable to be functionally similar with that of assessee who is a captive service provider. Accordingly, this comparable is directed to be excluded from the final list. (v) Majestic Research Services & Solutions Ltd. It is submitted that Majestic is engaged in market research services. It offers customer service evaluation, mobile analytics, eye tracking, agricultural research etc. It offers a suite of customized solutions that cater to business at various stages of product development or launch across the product life cycle. It offers a wide range of qualitative and quantitative research services. It is involved in high-end services like research services, data analytics, product development and testing, etc. market scoping etc. It also focuses on market research, advertising research, and brand research and to deliver powerful insights into the effectiveness of branding, advertising and consumer choices relies on high level technologies such as eye tracking, mobile analytics, video analysis, facial recognition, digital tracking, online communities, neuroscience, emotional analysis, automated audience measurement, sensory sciences, etc., which is functionally different as compared to the Assessee. Reliance is placed on following decisions of coordinate bench of this Tribunal:

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- Lloyds Offshore Global Services (P.) Ltd. (supra), wherein for the assessment year 2016-17, this company was excluded; - Epson India (P.) Ltd. v. Dy. CIT [2022] 144 taxmann.com 63 (Bang. - Trib.), wherein for the assessment year 2016-17, this company was excluded; and - Radisys India Ltd. (supra), wherein for the assessment year 2017-18, this company was excluded.

Therefore, it is submitted that the company ought to be excluded from the final list of comparables. 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. The annual report of the company placed at page 5353 reveals this company is engaged in digital marketing research. At page 5391 in the company overview, we note that this company deliver critical media and marketing information, analytics. Further, it is noted that this company is also doing significant investments in resource and associates all over India supported by strength of Majestic MRSS. In the notes forming part to financial statements at page 5401, under the head corporate information, this company is said to be first Indian market research company to be listed on BSE on SME platform and is engaged in providing market research services offering a wide range of qualitative and quantitative research services. The only segment under which the revenue is revealed is under sale of services in note 17 at page 5409 of the paper book. In our view this company cannot be held to be functionally similar with that of assessee. Accordingly, we direct this comparable to be excluded from the final list. (vi) Cheil India Pvt. Ltd. It is submitted that Cheil is engaged in providing digital solutions, analytical solutions (data analytics) which are not akin to the services rendered by the Assessee. It derives its income

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primarily from advertising, communication, publicity and merchandising and undertakes consultancy services and training. It is submitted that an advertising agency undertakes functions such as attracting clients who are advertisers, developing an advertising strategy, creation of advertisements by a creative team consisting of writers, designers and copy writers. They also undertake research activities to understand a client's market situation, competition, customers in the process of planning an advertisement campaign etc. Therefore, the aforementioned activities are not similar to the functions performed by the Assessee in the nature of product marketing, targeted campaign creation and management, public relations, customer and associate lead generation and distribution, etc. Further, it also uses a separate charging mechanism for services rendered by it to its customers, and revenue is recognised based on such charging mechanism (outsourcing in nature). The company has also entered into an agreement with its customers under which it procures advertising services on behalf of the customers and bills the customers on cost-to-cost basis without charging any mark- up. The company earns revenue from commission income, fee from production job, transaction processing job, etc. which is different from the services rendered by the assessee. 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. From the annual report placed at page 5447 of the paper book, this company is described to be a full-fledged advertising service company. It is only the entire revenue earned by this company is from advertising services as observed at page 5485. The general information provided at page 5582 of the paper book reveals that this company is engaged in the business of advertising, communication, publicity and merchandising including undertaking market research, planning and providing consultancy services and training in the same field. There is no segmental details available and the entire revenue is disclosed as revenue from sale of services. In light of the above, we do not find this company to be functionally similar with that of assessee. Accordingly, we direct this comparable to be excluded.

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Respectfully following the above decision, we direct to exclude these companies from the comparables list.” 44.1 Accordingly following the above decision, we direct the AO/TPO to exclude the above six companies from the comparables list.

Adfactors P R Pvt. Ltd. 45. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference Functionally Different 1.Relevant extract of website and submission is at Pg 1022-1024 of PB I. 1.The Company is functionally different as it primarily renders Public Relations Relevant Extracts of Annual Report at Services. 2. The company has expertise Pg 1822 of PB IV. in the field of corporate reputation building, media relations, strategic communications, issues and crises communications, IPO and capital markets, investor relations, public affairs and organizing PR events. 46. The ld. DR relied on the orders of the lower authorities.

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assessee has relied on the website of the company. Considering the above, this company cannot be considered as comparable with the functions performed by the assessee company as a captive service provider. Accordingly, this company is excluded from the comparables list.

EgonZehnder International Pvt. Ltd 48. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws 1. Submission at Pg 1016-1018 of Functionally Different PB I. 1.The Company is functionally different as it is engaged in providing Executive 2. Relevant Extracts of Annual search and recruitment services. Report at Pg 1829 of PB IV. 49. The ld. DR relied on the orders of the lower authorities.

“..... The Company is primarily engaged in carrying business of executive search, recruitment and consultancy services for all categories of professionals in India and overseas.” 50.1 Further, the NIC code of this company is 9983 and description of product and service is Executive Search, Recruitment Services.

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Considering the company’s overview, this company is not comparable with the assessee company. However, we note from page No.1835 of PB, which is observation of statutory auditor of the company that, under the head conversion of energy, it is noted as under:-

“Conservation of energy: The Company is in the business of providing Information technology enabled services which is not an energy consuming business. Thus the particulars as required under the provisions of Section 134(3)(m) of the Companies Act, 2013 in respect of conversation of energy is not applicable to the company. Technology Absorption The Company is in the business of Management Consultancy and IT enabled services utilising technology to render the services to its customers. During the year, company had incurred an amount of Rs.19,16,198 towards technology resources required to rendered the services by the company.” 50.2 We note from the above that the functions performed by this company as per overview and statutory auditor’s report are not similar. Therefore, this issue is remitted to the AO/TPO for ascertaining the exact nature of business activity carried out by this company after obtaining information u/s. 133(6) of the Act and decide the issue as per law.

Focus Suites Solutions & Services Limited 51. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables

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which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference Functionally Different 1.Extract of website and submission 1.The Company is functionally different at Pg 1011-1013 of PB I. as it provides database management 2. Relevant Extracts of Annual services, predictive analytic services Report at Pg 1843 of PB IV. and related technology services and solutions. 2. The Company operates in data acquisition and data analytics field generally known as data mining and not market research services. Extraordinary event 1.Extract of website and submission 1.During FY 2016-17, the company has extract at Pg 1013-1016 of PB I. acquired 100% equity share capital in Pure Online Panel Research Services Pvt Ltd and Genpop Consumer Research Pvt Ltd.

“(A) Market Research (B) Market Research”

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53.1 Considering the above, this issue is remitted to the AO/TPO for ascertaining the exact nature of business activity carried out by this company after obtaining information u/s. 133(6) of the Act and decide the issue as per law. The ld. AR submitted that there is extraordinary event of acquisition in FY 2016-17 therefore this company should be excluded. We reject this argument since the present appeal is for FY 2017-18.

Ugam Solutions Private Limited 54. The TPO proposed this company as comparable for which the assessee sought reasons for rejection of this company. However, the learned TPO included this company in the final list of comparables which was upheld by the DRP. The Appellant seeks exclusion of this company based on the following reasons:

Reasons for rejection Reference & case laws Functionally Different 1.Submission at Pg 1002-1004 of PB I. 1.The Company is functionally 2.Reliance is place on following different as it is engaged in the decision, wherein Ugam Solutions is business of managed analysis. held functionally not comparable: • Annual report extract at page 1854 of PB IV. • Levi Strauss (India) Pvt. Ltd. vs DCIT Circle 4(1)(1) IT(TP)A Nos. 927/Bang/2022 for AY 2018-19 (Para 16.2 of Page 1750 of PB III- Case Law Compilation) • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Para 12.8.1 of Page

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1805-1806 of PB-III-Case law Compilation) • M/s.EIT Services India Pvt. Ltd vs DCIT [TS-60-ITAT-2023(Bang)-TP] for AY 2017-18 (Para 6 of Pg 1591- 1593 PB II- Case Law Compilation). • Levi Strauss (India) (P.) Ltd vs ACIT [2022] 144 taxmann.com 161 (Bangalore - Trib.) for AY 2016-17 (Para 25- 28 on pg 1630-1631 of PB II- Case Law Compilation) 55. The ld. DR relied on the orders of the lower authorities.

“10.1 The Ld.AR submitted that Ugam Solutions Pvt. Ltd., Axience Consulting Pvt. Ltd. and Platinum Advertising Pvt. Ltd. has already been excluded in assessee's own case for A.Y. 2016-17 in Levi Strauss (India) (P.) Ltd.'s case (supra) by observing as under: "Ugam Solutions Private Limited (assessee seeking exclusion) [Ground 5(b)] 23. The assessee is seeking exclusion of the above company for the reason that the said company is functionally different from the assessee. The assessee submits that Ugam 24. Solutions Private Limited is engaged in provision of managed analytics services. It provides services to Global Market Research firms and the services include research operations, technology infrastructure transition, data warehousing, aggregation and visualization, sample management optimization, global program management, custom panel solutions, reporting solutions and mobile solutions. Whereas assessee is engaged in assistance of sourcing of materials, the chemicals used in dying colours etc. which is completely different from the services provided by Ugam. Ugam is engaged more on the technology front by doing the analysis of data gathered by it and then selling the result of their analysis. Ugam requires personnel of different technical competence more

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so on the information technology side and deals with gathering data of wide range of different industries which is completely different from the services rendered by the assessee. Hence the same should be rejected as functionally different criteria. 25. 26. The DRP held that the said company is functional comparable as the assessee assisted in identifying suppliers and monitoring the progress of pre-production and production activities of the identified suppliers. It gives assistance in inspection of the sourced goods. Ugam passes through all the filters applied by the TPO and has been correctly included in the set of comparables. 26. We have heard rival submissions and perused the material on record. This company is engaged into business of managed analytical services, which is clear from annual report placed at page 941 of paper book. Our view is also supported by the decision of the Bangalore Tribunal in the case of M/s.Epson India Pvt. Ltd. v. DCIT, in IT(TP)A No. 206/Bang/2021 for A.Y. 2016-2017, wherein it was observed as followed with respect of Ugam Solutions:- "20.1.3 We have perused submissions advanced by both sides on the basis of records placed before us. Admittedly this company is into managed analytical services and provides solutions to global market research firms, retailer, leading brands as has been observed by DRP in para 8.2.1. On comparing the functions rendered by the assessee to the associated enterprise, this company cannot be a fit comparable, due to functional dissimilarities and risk assumed by this company." 28. Therefore, we direct the TPO to exclude this company from the comparable list as it is functionally different from the assessee.”

56.1 Respectfully following the above decision, we direct the AO/TPO to exclude Ugam Solutions P. Ltd. from the list of comparables.

Ground No 11(iv)- Comparables & Additional Comparables selected/proposed by the Appellant 57. Out of inclusions sought in the Grounds of Appeal, following companies are not pressed: a) Hindustan Field Services Pvt Ltd; b) Cyber Media Research & Services Ltd; and c) ICRA Management Consulting Services Ltd.

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Companies Arguments of lower Contention of Appellant authorities TPO & DRP 1.The financial data relating The TPO rejected this to the company is available company on the ground that in the public domain. the financial data is not 2.The company is available (Pg 127 of Appeal functionally similar as it Papers). providing digital marketing services and enterprise The DRP rejected this solutions to brands and HT Mobile Solutions company on the ground that businesses. The company Ltd it does not appear in the also provides services such search matrix of the TPO. as mobile marketing, social (Pg 74-75 of Appeal media marketing, Papers). advertising, mobile CRM and loyalty campaigns. 3.The company passes all filters applied by the TPO. (Relevant submission at Pg 980-982 of PB I) TPO & DRP 1.The financial data relating The TPO rejected this to the company is available company on the ground that in the public domain. the financial data is not 2.The company is available (Pg 127 of Appeal functionally similar as it Papers). providing Brand Strategy, Paradigm Plus Branding & Messaging, Marketing The DRP rejected this Digital strategy, media Communication Pvt company on the ground that planning which are in the Ltd it does not appear in the nature of sales and search matrix of the TPO. marketing services. (Pg 74-75 of Appeal 3.The company passes all Papers). filters applied by the TPO. (Relevant submission at Pg 984-986 of PB I)

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TPO & DRP 1.The company offers The learned TPO has Business Support services rejected this company on and Medical the ground that the data for transcription/IT/ITES this company is not services. Revenue from available in the public Business support services domain. BNR Udyog Limited constitute 96.69% of total (Seg) revenue. The DRP has rejected this company on the ground that 2. The company passes all it fails export revenue filter filters applied by the TPO. (Pg 74-75 of Appeal (Submission at Pg 987-989 Papers). of PB I).

TPO & DRP 1.The company is The TPO has rejected this functionally similar as it is company on the ground that acting as agent for various it is does not appear in the foreign principals for sale search matrix. of various equipments and Killick Agencies & offers after sales services. Marketing Ltd The DRP has confirmed the 2. The company passes all same (Pg 78 of Appeal filters applied by the TPO. Papers). (Relevant submission & website extract at Pg 997- 999 of PB I). TPO & DRP 1.The company is The TPO has rejected this functionally similar as it is company on the ground that operates in two business it is does not appear in the segments viz., (i) Indenting search matrix. business and (ii) Trading of Chemicals. Priya International The DRP has confirmed the The indenting business Limited (Seg) same (Pg 76-77 of Appeal segment has income wholly Papers). from commission based. 3.The company passes all filters applied by the TPO. (Relevant submission at Pg 993-995 of PB I).

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58.1 The ld. AR submitted that the above companies are remitted back to the TPO for fresh consideration in the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 56-57 of the decision).

Ground No.12 – Incorrect computation of Confluence Integrated Services Pvt. Ltd 61. The ld. AR submits that the TPO has computed incorrect margin of Confluence Integrated Services Pvt. Ltd. The variation is due to incorrect treatment by the TPO of certain items such as bad debts, interest on TDS, bank charges etc. The corrected margins of the comparable is furnished by the assessee as under:-

SL Name of the Company Margins as Corrected No. per TP Margins Order 1 Confluence Integrated 16.66% -2.12% Services Pvt. Ltd

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GROUNDS RELATING TO NOTIONAL INTEREST ON TRADE RECEIVABLES – Grounds 14 & 15 63. During the course of proceedings, the TPO observed that the Appellant had not charged interest to its AE in respect of unrealised amounts and made an adjustment of Rs.3,33,37,896/- by computing arm’s length interest rate at 6.724%. The DRP upheld the contention of the TPO that notional interest should be charged on trade receivables.

Ground No 14- Receivable is not a separate transaction 64. The Appellant submits that ‘receivable’ is not a separate transaction from sale or provision of service. It emanates from sale or service transaction. The international transaction is that of `service’, the ALP is determined qua the `price for service’. While determining the ALP in a sale transaction, all the relevant aspects including the credit period allowed are taken into account. Once, the ALP in respect of the provision of service transaction is determined, it would be deemed to cover all the elements and consequences of the transaction of provision of service. Once it is held that “sale or service transaction is at arm’s length”, separate addition for receivables is not required to be made (Page 1046-1064 of PB I).

64.1 Even if receivable is to be regarded as a separate international transaction, it is closely linked transaction. Rule 10A(d) states that transaction includes closely linked transactions. Closely linked transactions have to be evaluated together. Therefore, transaction of receivable has to be evaluated along with the price received for services under TNMM.

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64.2 The Appellant has adopted TNMM to benchmark the transaction of rendering of services to AE, in which process the receivables were considered as closely linked transaction and hence were subsumed and accordingly already benchmarked. Once the working capital adjustment, it subsumes the receivable adjustment and no separate characterization is to be made. The Appellant relies on the following decisions in support of its contention:

• PCIT vs Kusum Health Care Pvt. Ltd [2018] 99 taxmann.com 431 (Delhi) (Para 11 of Pg 1639 of PB-II-Case Law Compilation). • Kusum Health Care Pvt Ltd. v. ACIT [2015] 62 taxmann.com 79 (Delhi - Trib.) (Para 12 and 17 at Pg 1647-1648 of PB-II-Case Law Compilation]. • M/s. Radisys India Ltd. vs DCIT Circle – 3(1)(1), Bengaluru. (IT(TP)A No. 739/Bang/2022) for AY 2018-19 (Page 1813 of PB- III-Case law Compilation) • M/s. Etisalat Software Solutions Pvt. Ltd., vs DCIT Circle 2(1)(1), Bengaluru (IT(TP)A No. 224/Bang/2023) for AY 2018-19 (Page 1706 of PB-III-Case law Compilation) • Millipore (India) Ltd [2017] 80 taxmann.com 12 (Bengaluru – Trib); and • Avnet India (P.) Ltd [2016] 65 taxmann.com 187 (Bangalore - Trib.) Ground No 15-Methodology adopted by the TPO - Arm’s Length Interest Rate 65. Without prejudice to the above, the Appellant submits that the TPO has adopted incorrect LIBOR to compute the notional interest. The learned TPO has adopted 6-month LIBOR at 2.224% + 450 basis

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points for determining arm’s length interest rate at 6.724% after allowing 30 days of credit period.

65.1 In this regard, the Appellant submits that TPO has adopted 6- month LIBOR at 2.224% whereas the correct 6-monyh LIBOR for USD is 1.661% (Pg 1117 of PB-I). Further, only LIBOR without basis points should be adopted as a basis for benchmarking (Pg 1064-1066 of PB-I). In support the above contention, the Appellant relies on the following decisions:

• Huawei Technologies India Pvt. Ltd [TP-731-ITAT-2022(Bang) [Para 33 at Pg 1261 of PB-II-Case Law Compilation] • Techbooks International P Ltd v DCIT (2015) 63 taxmann.com 114 (Delhi Trib) • Indegene Lifesystems (P.) Ltd. [2017] 85 taxmann.com 60 (Bangalore – Trib). • Tata Autocomp Systems Ltd. [2012] 21 taxmann.com 6 (Mum.) 65.2 In the alternative, the Appellant submits that LIBOR plus 200 BPS should be taken as arm’s length interest rate. In this regard, the Appellant relies on the following decisions:

• Maxim Integrated Products India Sales Pvt. Ltd vs DCIT, Circle 4(1)(1), Bangalore IT(TP)A No.208/Bang/2022 for AY 2017-18 • Swiss Re Global Business Solutions India Pvt. Ltd. in IT(TP)A No.397/Bang/2021 Reasonable Credit Period 66. In the TP order, the learned TPO has allowed a credit period of 30 days. No basis for adopting 30 days as reasonable credit period has been given. In this regard, the Appellant submits that the average

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debtor holding period of comparables should be allowed as credit period while computing the notional interest on trade receivables.

66.1 The Appellant also submits that various Tribunal decisions have considered 90 days as reasonable credit period. Reliance is placed on following:

• Xchanging Solutions Ltd vs DCIT, 7(1)(2), Bengaluru IT(TP)A No. 2570/Bang/2019 (Para 12 at Pg 1658 of PB-II-Case law compilation); • AB INBEV GCC Services India Pvt Ltd vs DCIT [TS-795-ITAT- 2022(Bang)-TP] (Para 4.1 at Pg 1673 of PB-II-Case law compilation); • Applied Materials India Pvt Ltd vs DCIT [TS-840-ITAT- 2022Bang-TP]; • Medreich Ltd vs ACIT [TS-761-ITAT-2022Bang-TP]; and • GSS Infotech Ltd. v. ACIT [2016] 70 taxmann.com 356 (Hyderabad - Trib.). 66.2 The Appellant relies on the decision in the case of AMD India Pvt Ltd v ACIT IT(TP)A No. 775/Bang/2022 for AY 2018-19 (Page 64 of the decision), wherein the Tribunal held that in the event the working capital adjustment (WCA) subsumes the outstanding receivables, no separate characterization is to be made. However, for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points by considering a credit period of 60 days.

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that interest on receivable is a separate internasal transaction. On going through the Master Agreement placed at page No.337 to 342 of PB and page 338 of PB, the credit period is 60 days from the date of invoice. This issue was considered by the coordinate Bench of the Tribunal in the case of AMD India (P) Ltd. (supra) wherein it was observed as under:-

36.2 Considering the rival submissions, we note that in assessee’s own case for AY 2016-17 & 2017-18 (supra), similar issue was decided in assessee’s own case by coordinate Bench of the Tribunal as under::- “23.5 We have heard both the parties and perused the material on record. After considering the order of the lower authorities, we are of the view that the notional interest on receivable is an international transaction, therefore this argument of the assessee is rejected. The TPO has applied 6 months LIBOR + 300 basis points whereas the ld. DRP has directed for applying SBI fixed deposit rate. During the course of hearing, it was brought to the notice of both the parties that while calculating the notional interest on receivables, 6 months LIBOR + 300 basis points beyond the credit period shall be considered by the TPO for giving effect on this issue. 36.3 Following the above decision in assessee’s own case (supra), we hold that notional interest on receivables is an international transaction. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the working capital adjustment (WCA) subsumes the outstanding receivables, no separate characterization is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points by considering a credit period of 60 days. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.

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68.2 Following the above decision, we hold that interest on trade receivables is a separate international transaction and remit this issue to the AO/TPO for fresh consideration in the same terms as per above decision, allowing a credit period of 60 days.

GROUNDS RELATING TO CORPORATE TAX – 16 & 17 69. Ground No 16 relating to Income Tax Refund is not pressed and hence dismissed.

Ground No 17- Relating to ESOP expenditure 70. In the final assessment order, the AO has disallowed Rs. ESOP expenditure of Rs.97,67,868/-, on the grounds that same is notional expenditure and capital in nature. In this regard, the Appellant submits that an offer made to employee under ESOP is a mode of employee remuneration. The stock options are generally in appreciation of the past performances of the employees and an incentive to stay with the organization on its growth path. These represent payment for services of the employees which are borne by the employer. The discounts offered in the course of employment form part of salary payments for the services rendered. Thus, by undertaking to issue shares at discounted premium, the company does not pay anything to its employees but incurs obligation of issuing shares at a discounted price on a future date in lieu of their services, which is nothing but an expenditure u/s 37(1) of the Act.

70.1 The Karnataka High Court in CIT v Biocon Ltd [2020] 121 taxmann.com 351 (Para 10 of PB II-Case Law Compilation) confirmed

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the decision of the Special Bench Honourable ITAT in Biocon Ltd v DCIT [2013] 35 taxmann.com 335 (Bangalore - Trib.) (SB) and recognized that ESOP is simply one of the modes of compensating the employees for their services and is a part of their remuneration. The High Court observed that the primary object to issue shares at discount is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital. Following decisions are also relied upon:

• Aricent Technologies (Holdings)Limited vs Addl. CIT, Special Range-1, New Delhi TS-17-ITAT-2022 DEL • M/s. Global E-Business Operations Pvt. Ltd. (TS-796-ITAT-2022 Bang-TP) 70.2 Further, the stock compensation is a cross charge made by the parent company. The sum so reimbursed by the Appellant is claimed as deduction and question of notional expense does not arise. The ESOP cost is part of operating cost for TP mark-up. Copy of agreement which states that MetricStream Infotech (India) Pvt Ltd will have to reimburse the ESOP expense to MetricStream Inc is available at Pg 338 of PB I. All other documents such as details of stock compensation charged, copy of debit note and ESOP scheme are available at Pg 745-761 of PB I.

70.3 Based on the above, the Appellant submits that expenditure incurred in relation to ESOP is a revenue expenditure and it satisfies the conditions as laid down u/s 37 of the Act. The same needs to be allowed while computing the total income of the Appellant. In the

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alternative, if the same is disallowed, then it needs to be excluded from the operating cost for ALP computation.

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“The cost for the purpose of billing will include ESOP costs and excludes income tax and interest on income tax. Cost related to employee stock option of MetricStream India, which has been accounted in the books of MetricStream Inc. during the vesting period would be cross charged to MetricStream Infotech (India) Pvt. Ltd. in the year in which employee’s exercise the options granted under ESOP.” 72.1 This issue is considered by the coordinate Bench in the case of Novo Nordisk India (P) Ltd. [2014] 42 taxmann.com 168 (Bang. Trib.) and it was held as under:-

“18. We have considered the rival submissions. It is clear from the facts on record that there was an actual issue of shares of the parent company by the assessee to its employees. The difference, between the fair market value of the shares of the parent company on the date of issue of shares and the price at which those shares were issued by the assessee to its employees, was reimbursed by the assessee to its parent company. This sum so reimbursed was claimed as expenditure in the profit & loss account of the assessee as an employee cost. The law by now is well settled by the decision of the Special Bench of the ITAT Bangalore in the case of Biocon Ltd. v. Dy. CIT [2013] 35 taxmann.com 335 and other connected appeals, by order dated 16.07.2013, wherein it was held that expenditure on account of ESOP is a revenue expenditure and had to be allowed as deduction while computing income. The Special Bench held that the sole object of issuing shares to employees at a discounted premium is to compensate them for the continuity of their services to the company. By no stretch of imagination, we can describe such discount as either a short capital receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbursing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted. 19. In the present case, there is no dispute that the liability has accrued to the assessee during the previous year. The only question to be decided is as to whether it is the expenditure of the

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assessee or that of the parent company. We are of the view that the observations of the CIT(A) in para 5.6 of his order that these expenses are the expenses of the foreign parent company is without any basis and lie in the realm of surmises. The foreign parent company has a policy of offering ESOP to its employees to attract the best talent as its work force. In pursuance of this policy of the foreign parent company, allowed its subsidiaries/affiliates across the world to issue its shares to the employees. As far as the assessee in the present case which is an affiliate of the foreign parent company is concerned, the shares were in fact acquired by the assessee from the parent company and there was an actual outflow of cash from the assessee to the foreign parent company. The price at which shares were issued to the employees was paid by the employee to the Assessee who in turn paid it to the parent company. The difference between the fair market value of the shares of the price at which shares were issued to the employees was met by the Assessee. This factual position is not disputed at any stage by the revenue. In such circumstances, we do not see any basis on which it could be said that the expenditure in question was a capital expenditure of the foreign parent company. As far as the assessee is concerned, the difference between the fair market value of the shares of the parent company and the price at which those shares were issued to its employees in India was paid to the employee and was an employee cost which is a revenue expenditure incurred for the purpose of the business of the company and had to be allowed as deduction. There is no reason why this expenditure should not be considered as expenditure wholly and exclusively incurred for the purpose of business of the assessee. 20. We fail to see any basis for the observation of the CIT(A) that the obligation to issue shares at a discounted price to the employees of the Assessee was that of the foreign parent company and not that of the Assessee. Admittedly, the shares were issued to employees of the Assessee and it is the Assessee who has to bear the difference in cost of the shares. The expenditure is necessary for the Assessee to retain a health work force. Business expediency required that the Assessee incur such costs. The parent company will be benefitted indirectly by such a motivated work force. This will be no ground to deny the deduction of a legitimate business expenditure to the Assessee as

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laid down by the Hon'ble Supreme Court in the case of Sassoon J. David& Co. (P.) Ltd. (supra).” 72.2 Respectfully following the above decision, we allow this ground of the assessee.

Pronounced in the open court on this 15th day of December, 2023.

Sd/- Sd/- ( GEORGE GEORGE K. ) (LAXMI PRASAD SAHU ) VICE PRESIDENT ACCOUNTANT MEMBER

Bangalore, Dated, the 15th December, 2023. /Desai S Murthy / Copy to:

Assistant Registrar ITAT, Bangalore.