MINDTECK (INDIA) LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER IT(TP)A No.252/Bang/2021 Assessment Year : 2016-17 M/s. Mindteck India Ltd., Vs. DCIT, A.M.R. Tech Park, Block 1, 3rd Floor, Circle – 4(1)(1), No.664, 23/24, Hosur Main Road, Begur, Bengaluru. Bengaluru-560 068. PAN : AAACH 1072 Q APPELLANT RESPONDENT Assessee by : Shri. Padam Chand Khincha, CA Revenue by : Shri. V. S. Chakrapani, CIT(DR)(ITAT), Bengaluru. Date of hearing : 20.06.2022 Date of Pronouncement : 27.06.2022 O R D E R Per N V Vasudevan, Vice President

This appeal by the assessee is directed against the order dated 26.4.2021 of National e-Assessment Centre, Delhi (hereinafter referred to as the Assessing Officer, “AO” in short) passed u/s.143(3) read with Section 144C(13) of the Income Tax Act, 1961 (Act) in relation to AY 2016-2017. 2. The assessee in engaged in the business of provision of Software Development Services (SWD services), and Information Enabled Technology Services (ITeS) to its wholly owned holding company. In terms of the provisions of Sec.92-A of the Act, the assessee and its wholly owned

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holding company were Associated Enterprises ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing SWD Services and ITeS was an “international transaction” i.e., a transaction between two or more associated enterprises, either or both of whom are nonresidents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, the any income arising from an international transaction shall be computed having regard to the arm’s length price. In this appeal by the assessee, the dispute is with regard to determination of Arms’ Length Price (ALP) in respect of the international transaction of rendering SWD services and ITeS to the AE.

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and the Operating Cost was Rs.71,35,24,740/-. The Operating profit (Operating income – Operating cost was Rs.11,17,37,529/-. Thus the OP/TC was arrived at 15.66%. The assessee chose companies who are engaged in providing similar services such as the assessee. The assessee identified 7 companies whose average arithmetic mean of profit margin was comparable with the Operating margin of the assessee. The assessee therefore claimed that the price it charged in the international transaction should be considered as at Arm’s Length.

Sl. Financial Year wise OP/OC (%) Company Name No. 2015-16 2014-15 2013-14 Average 1. Kals Information 3.97% 5.77% 16.94% 8.60% Systems Pvt. Ltd. 2. Rheal Software Pvt. 3.20% 2.76% 36.64% 14.50% Ltd. C G-V A K Software & 3. Exports Ltd. 19.60% 19.87% 13.81% 18.50% 4. R S Software (India) -2.09% 32.75% 24.14% 20.87% Ltd. 5. Larsen & Toubro 26.29% 24.22% 23.54% 24.83% Infotech Ltd.

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Arm's Length Price ALP=(1+M)*OC 91,47,38,717 Price Received OR 82,52,62,269 Shortfall being adjustment 8,94,76,448 ALP-OR Revenue from AE 52,47,47,888 Revenue from AE as % of total Revenue 60.56 Proportionate Adjustment 5,41,86,937 22.4.2 The above shortfall of Rs. 5,41,86,937/-is treated as transfer pricing adjustment u/s 92CA in respect ,-of software development segment of the taxpayer's international transactions. Thus, a sum of Rs.5,41,86,937/- was added to the total income of the assessee on account of determination of ALP for provision of SWD services by the assessee to its AE. 6. The assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment consequent to determination of ALP was added to the total income of the assessee by the AO. The DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the assessee did not get relief from the DRP, the assessee has preferred appeal before the Tribunal. 7. The main grievance of the assessee projected in the concise grounds of appeal filed before the Tribunal which was argued before us was (i) choice of comparable companies by the TPO which was affirmed by the DRP (Ground No.4 & 5) (ii) Inclusion of certain companies set out in Ground No.8. These grounds read as follows: 4. The Learned TPO/Hon"ble DRP erred in including the following companies, even though they fail the higher threshold limit of INR 200 crores for turnover filter: (a) Infosys Ltd. (b) Larsen & Toubro Infotech Ltd

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(c) Persistent Systems Ltd (d) Aspire Systems (India) Pvt Ltd (e) Thirdware Solution Ltd. (f) Cybage Software Pvt Ltd. (g) Nihilent Ltd. 5. The Learned TPO/Hon'ble DRP erred in including the operating income and operating expense of FY 2014-15 and FY 2013- 14 in computing the weighted average margin for R S Software Ltd even though the same fails the upper turnover limit of Rs. 200 crores for the above-mentioned years. 8. The Learned TPO/Hon'ble DRP erred in excluding the following companies, even though they are functionally comparable to the appellant: (a)Akshay Software Ltd. (b)Sagarsoft (India) Limited. (C) Evoke Technologies Limited. (d) Sankya lnfotech Limited.

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domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction [or the specified domestic transaction];

(f)…… (2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:— (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;

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(c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 9. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. 10. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the “TPG”) contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines, it has been explained as to what is

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comparability adjustment. The guideline explains that when applying the arm’s length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that:  None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or  Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called “comparability adjustments. 11. As far as comparability of companies listed as (a) to (g) in Grd.No.4 raised by the assessee is concerned, the admitted factual position is that the turnover of these companies is more than Rs.200 Crores and the assessee’s turnover is only Rs. 82,52,62,269/-. The TPO excluded from the list of comparable companies chosen by the assessee in its TP study companies whose turnover was less than Rs.1 Crore. The contention of the assessee before the DRP was that while the TPO excluded companies with low turnover, he failed to apply the same yardstick to exclude companies with high turnover compared to the assessee. The reason for excluding companies with low turnover was that such companies do not reflect the industry trend as their low cost to sales ratio made their results less reliable. The contention of the assessee was that there would be effect on profitability wherever there is high or low turnover and therefore companies with high turnover should also be excluded from the list of comparable companies. The DRP primarily relied on the decision rendered by the Hon’ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt.Ltd Vs. DCIT 82 Taxmann.com 167(Del), wherein it was held that high turnover ipso facto does not lead to the conclusion that a company

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which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd.No.4 before the Tribunal challenging the aforesaid view of the DRP.

“41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No.1231/Bang/2010, relying on Dun and Bradstreet’s analysis, held grouping of companies having

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turnover of Rs. 1 crore to Rs.200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:-

“9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which .ire (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs.1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study.”

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for the Assessee, there are two views expressed by two Hon’ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs.200 crores from the list of comparable companies is held to correct and such action does not call for any interference.”

17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold

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the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.

17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon’ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon’ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).

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attracting the provisions of Rule 10B(2) or 10B(3) then the data for those years will not have any influence on the determination of transfer prices in relation to the transactions being compared for the current year and hence have to be ignored. On a harmonious reading of the provisions of Rule 10CA, 10B(3) (4) of the Rules, we agree with the stand taken by the learned counsel for the Assessee. Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly.

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consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:- "7. We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. At the outset, we note that the TPO has applied the filter of 25% RPT whereas the assessee has contended that the filter of revenue from RPT should be applied at 15% instead of 25% applied by the TPO. The learned Departmental Representative has submitted that there is no standard rule for applying the filter of 15% regarding the RPT. It is pertinent to note that the ALP as per the provisions of the TP has to be determined by considering uncontrolled comparable prices and therefore only unrelated prices have to be taken into account to bench marked international transactions. However, 0% RPT of the comparable price is an impossible situation and therefore a reasonable tolerance range from revenue from RPT can be considered for selecting uncontrolled comparables. There is no dispute that there cannot be a single criteria/parameter to be applied as a general rule in all the cases. The tolerance range varies from case to case and depending upon the availability of comparables for a particular case. Thus if the comparables of an international transactions are easily available in sufficient number then this tolerance range of RPT should be restricted to minimum. Though there is no specified range in the provisions of Act or Rules, however, in due course of discussion and adjudication of this issue in a series of decisions of this Tribunal, tolerance range of 5% to 25% of total revenue from RPT has been considered as reasonable depending upon the facts and circumstances of each case. In the case of the assessee before us, the TPO/A.O. selected 17 comparables. Therefore, the availability of the comparables of the international transactions of the assessee is not a difficult task. Thus, when a good number of comparables are available then the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the controlled and related prices. This Tribunal in the series of decisions has taken a view that when good number

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of comparables are available, then the threshold limit of RPT shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the case of the assessee. By applying this filter of 15% RPT, we modify the impugned order of the CIT (Appeals) and therefore only one company namely Four Soft Limited will be excluded from the said comparable having more than 15% RPT. Accordingly, we direct the A.O./TPO to exclude the Four Soft Ltd. having 19.89% of RPT." …….. 4. This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. ………………… 5. The relevant portion of the said judgment is quoted below for ready reference: " Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial

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question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."

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Hon’ble Karnataka High Court, the RPT filter has to be applied adopting the threshold limit of 15%. We hold and direct accordingly. Respectfully following the aforesaid decision, Therefore, if at all R.S.Software Ltd., is to be regarded as a comparable company, then the margins for AY 2014-15 and 2015-16 of the company have to be ignored because in those years they are to be regarded as not comparable. We hold accordingly. We hold that the RPT filter has to be applied adopting the threshold limit of 15%

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notes forming financial information of the annual report revenue mainly represent income from professional services from Dubai.

2.5.1.2 In this regard, it is relevant to note that ERP is a multi- layered software that integrates all the different functions within an organization. The ERP implementation requires professionals who have expertise in: - Functional domain (i.e. domain knowledge of 1) the business, its operations & management). Software domain (i.e. technology expertise in software 2) development)

2.5.1.3 Thus, ERP implementation & support involves personnel from professional domain and technology or software domain. Therefore, such services cannot be strictly said to be software services as non-software personnel may play a dominant role in the implementation. The very fact that this company has described that it had rendered professional services in Dubai, indicate that it pertained to the non-software services; or it is also possible it may be a mix of software services and professional services. As segmental information is not available for the same, we consider it appropriate to hold that this company is not functionally comparable to the assessee. Accordingly. fire exclusion of this company is upheld.”

 Global Logic India Ltd. vs. ACTT [2020] 117 taxmann.com 640 (Delhi - Trib.)-AY 2015-14

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 LSI India Research & Development (P.) Ltd. vs. DCIT [2021] 124 taxmann.com 83 (Bangalore - Trib.)-AY 2014-IS  ARM Embedded Technologies (P.) Ltd.-es. DCIT [2021] 129 taxmann.com 263 (Bangalore - Trib.)-AY 2013-14

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appeal in relation to Assessment Year 2016-17, the Tribunal held that the comparability of the company requires to be examined afresh. It was submitted by the learned Counsel for the assessee that this company did not suffer losses in all the 3 years and submitted that in one of the 3 Financial Years, the assessee made profit. The learned Counsel placed reliance on the decision of the Bengaluru Bench of the Tribunal in the case of KBACE Technologies Pvt. Ltd., Vs. DCIT (2020) 118 taxmann.com 231 (Bengaluru) wherein it was held that for a company to be excluded on the ground that it was persistently making losses, the comparable company should have suffered losses in all the 3 previous Financial Years and even if in one Financial Year it makes a profit, then that company has to be regarded as a comparable company if it is otherwise a comparable company. In the light of the aforesaid decision and in the light of the facts brought to our notice, we are of the view that the comparability of this company has to be considered afersh by the AO/TPO in the light of the facts brought to our knowledge as above. The TPO will verify if this company suffered financial loss in all the earlier Financial Years and even if in one Financial Year, the company has made a profit, it has to be regarded as a comparable company.

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that availability unaudited accounts cannot be the reason to reject the comparability of the company which satisfies all filters. Reliance was also placed on the decision of the ITAT, Bengaluru Bench in the case of Zynga Game Network India Pvt. Ltd., Vs. DCIT in IT(TP)A No.2573/Bang/2019, order dated 23.03.2021 for Assessment Year 2015-16 in which the comparability of this company was remanded to the TPO for fresh consideration. We are of the view that the comparability of this company has to be remanded to the TPO for fresh consideration in the light of the decision brought to our notice as above.

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the following comparables as comparable companies and determined the ALP as follows: Financial Year wise OP/OC (%) Sl.No Company Name 2015- 16 2014-15 Average 2013-12 Bhilwaralnfotechnology Limited (Seg) ** 12.32% 7.95% 20.57% 13.39% 1 One Touch Solutions (India) Private Limited 12.23% 14.87% 18.29% 15.33% ** 2 Tech Mahindra Business Services Ltd. 19.71% 29.53% 13.33% 3 20.44% Infosys B P M Ltd. 25.34% 26.80% 27.43% 26.44°)o 4 S P I Technologies India Pvt, Ltd. 40.70% 32.18% 42.48% 37.77% 5 Eclerx Services Ltd 57.75% 44.39% 70.72% 56.44% 6 35th Percentile 20.44% 23.44% Median 65th Percentile 26.44%

**These two comparables were pari of the search matrix enclosed With the Show cause notice and were rejected as functionally not comparable. However based on other taxpayer's submissions and on perusal of annual reports and functional profile of the companies they are found to be functionally comparable and included in the final list of comparables.

ITeS SEGMENT Particulars Formula Amount (in Rs.) Taxpayers operating revenue OR 4,11,99,837 Taxpayers operating cost OC 3,66,17,122 Taxpayers operating profit OP 45,82,715 Taxpayers PLI PLI-OP/OC 12.52% 35th Percentile Margin of comparable set 20.44% Adjustment Required (if PLI< 35th Percentile) Yes Median Margin of comparable set M 23.44% ALP = Arm’s Length Price 4,52,00,175 (1+M)*OC

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Price Received OR 4,11,99,837

Shortfall being adjustment 40,00,338 ALP-OR

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“2.9.2 The assessee has without prejudice has asked for the exclusion of Bhilwara Info Technology Ltd as a comparable, stating that it fails the export filter. It has contented that as per

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note 39 segmental information to financial statements, the total income from software and IT related services is of Rs. 31, I 6,69,226/- is from domestic customers and • total income 110m medical transcription from foreign customers is Rs. 10,79,54,632/-. The AO/TPO is directed to verify the same and should exclude this comparable if he finds that it fails the export filter of > 75%.”

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re-examination by the AO in the light of the directions given above after affording due opportunity to the assessee.

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15.2 The Learned AO erred in making an erroneous interpretation of the fact that the equipmet received from its customer (RDT) was a benefit/ perquisite envisaged in section 28(1)(iv) the Act without understanding the nature of the service. 15.3 The Learned AO erred in understanding the fact that the appellant has received the equipment from RDT for testing the functionality of IT services provided to RDT. and it has to be returned back to RDT after completion of the respective project which is clearly mentioned in the tax invoices. 7. The Learned AO erred in making an adjustment of Rs. 3,76,735 contending absence of supporting documents and the same is to be quashed, for the below mentioned reasons: 16.1 The Learned AO erred in disallowing the import of equipment to the tune of Rs.3,76,735/-under the surmise that there were no supporting documents to prove its genuinity, despite having the valid supporting document by AO herself.(i.e. CBEC-Import and Export data). which itself proves the genuineness of the transaction. 16.2 The Learned AO and DRP erred in not considering the relevant documents that were duly submitted before the Hon'ble DRP vide Exhibit' 14 of Annexures to Form 35A.

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Act. Before the DRP, assessee submitted that it had no right whatsoever over the machineries supplied and therefore the very basic presumption of the AO in considering that the assessee received the benefit or perquisite is itself erroneous and therefore the addition should be deleted. The DRP however rejected the claim of the assessee on the ground that no evidence was placed on record to show that the assessee returned back the equipment. We are of the view that this approach of the DRP is incorrect because the question of return of the equipment will arise only when there is evidence to show that the assessee received the benefit in the form of benefit or perquisite from the RDT. The Revenue cannot place negative onus on assessee and seek to make impugned addition. The impugned addition is therefore directed to be deleted.

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actual value of imports made during the AY 2016-17 was Rs.13,16,225 and the duty paid was Rs.3,58,429. Given this, the assessee provided below the import information for the balance assessable value of Rs.4,48,109 along with the purpose for which these have been imported before the DRP.

Purpose of Import Name of Assessable Description of Date the Supplier Value (Rs) Goods/Equipment All these equipment's are received from PC BD Assy respective suppliers for Teledyne Heater controller, testing the functionality 31/03/2016 2,21,748 instruments cable ASSY MDL of IT services provided 4060 GC-PRO to respective suppliers by Mindteck India and Model 4060 these equipments have Analyzer Teledyne to be returned back to 21/11/2015 instruments 1,05,606 the suppliers after completion of the Battery pack LI-ION project. Hence, this transaction has not Industrial recognised in assessee's 23/05/2015 scientific 1,07,675 books of accounts. corporation 12C Isolator, Micorpower reference wit Analog 11/06/2015 13,080 Devices

TOTAL 4,48,109

IT(TP)A No.252/Bang/2021 Page 33 of 33

that the equipments in question were received from respective suppliers for testing and functionality of IT services provided by the Assessee to them. The issue therefore is identical to ground No.15 and for the reasons stated while deciding those grounds, we are of the view that the addition made cannot be sustained and the same is directed to be deleted.

Pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (PADMAVATHY S) (N.V. VASUDEVAN) Accountant Member Vice President Bangalore, Dated: 27.06.2022. /NS/*

Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.