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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri S.Rifaur Rahman
Per Smt. P. Madhavi Devi, J.M.
This is assessee’s appeal for the A.Y 2007-08. In this appeal, the assessee is aggrieved by the order of the learned CIT (A)-1, Hyderabad, dated 21.03.2017. The assessee has raised the following grounds of appeal: “Each of the grounds and/or sub-grounds of the appeal are independent and without prejudice to the others.
On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals)-1 ('Ld. CIT(A)') erred in upholding the action of the Ld. Assessing Officer (Ld. AO)/ Ld. Transfer Pricing Officer (Ld. TPO) in making an adjustment to the extent of Rs.1,09.45,524 to the international
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transaction of provision of software development services by the Appellant to its Associated Enterprise ('AE').
In doing so, the Ld. CIT(A)/Ld. AO/Ld. TPO erred in:
2.1. rejecting the transfer pricing ('TP') documentation which was maintained in good faith and with due diligence;
2.2. rejecting the search process followed by the Appellant in the TP documentation and carrying out a fresh comparability analysis for determining the arm's length price;
2.3. using the data available at the time of assessment proceedings instead of those available as on the date of preparing the TP documentation;
2-4. rejecting multiple year data and relying on contemporaneous information which was not available at the time of preparation of TP documentation;
2.5. including companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile;
2.6. not considering companies similar to the Appellant in functions, asset base and risk profile while performing comparability analysis;
2.7. not granting risk adjustment; and 2.8. not granting benefit of +/- 5% under the proviso to section 92C(2) of the Act”
Brief facts of the case are that the assessee company, engaged in the business of exporting software development services exclusively to its 100% holding company at USA, filed its return of income for the A.Y 2007-08 electronically on 30.10.2017
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declaring a total income of Rs.10,51,628. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has rendered software development services to its AE in USA and has received compensation for such services and therefore, it is an international transaction with its AE. Therefore, he referred the determination of the ALP of the international transaction to the TPO u/s 92CA of the Act.
The TPO considered the business profile of the assessee as a software development service provider to its AE and after considering that the assessee’s operating profit to the cost ratio is 16.99%, he proceeded to consider the comparables adopted by the assessee. He rejected all the comparables selected by the assessee except two companies i.e. SIP Technologies & Exports Ltd; and MindTree Ltd. Thereafter, he proceeded to adopt a total of 26 companies as comparable to the assessee and arrived at the arithmetic mean margin of the comparables at 25.14%. He thus, proposed the adjustment of Rs.1,25,45,497 after allowing the working capital adjustment.
The AO, accordingly, passed a draft assessment order . On receipt of the same, the assessee preferred to file an appeal before the CIT (A). Therefore, the final assessment order, dated 9.2.2011 was passed by the AO. Aggrieved, the assessee preferred an appeal before the CIT (A) who granted partial relief to the assessee by deleting 3 comparables from the list of comparables which are (1)Flextronics Software Systems Ltd (2) Infosys Technologies Ltd and (3) Tata Elxsi Ltd. Against the order of the
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CIT (A), the assessee is in appeal before us seeking exclusion of the following seven companies from the list of comparables: i) Megasoft Ltd ii) Accel Transmatic Ltd iii) Avani Cimcon Technologies Ltd iv) Celestial Labs Ltd v) KALS Information Systems Ltd vi) Lucid Software Ltd vii) Wipro Ltd
The assessee has filed a chart showing the companies which are remaining after giving effect to the order of the CIT (A) and the companies which are challenged by the assessee and the grounds on which they are challenged along with the list of the decisions on which the assessee is relying upon for their exclusion.
The learned DR, on the other hand, relied upon the orders of the authorities below.
Having regard to the rival contentions, the appeal is disposed of on the basis of the material available in the paper books and those documents which are specifically referred to by the assessee and the Revenue.
The first company challenged by the assessee is M/s. Megasoft Ltd. According to the assessee, the said company is functionally different as it is into software development and also
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product development. The learned Counsel for the assessee fairly conceded that in all the decisions relied upon by him, the said company has been retained as a comparable but a direction was given to the AO/TPO to consider only the segmental results of software development. He prayed that similar direction may be given in the case of the assessee as well.
We have gone through the decisions relied upon by the learned Counsel for the assessee and find that the Tribunal in the cases cited by him, have directed that only segmental details of the software development services to be considered for comparability. Therefore, similar direction is given in this case also.
As regards Accel Transmatic Ltd is concerned, the learned Counsel for the assessee submitted that the said company is also functionally different and no segmental details as to the product development and I.T. services are available in public domain and therefore, it should be excluded from the list of comparables. In support of his contention, he has placed reliance upon the following decisions: i) Conexant Systems India (P) Ltd in ITA No.1429/Hyd/2010 and ITA No.1978/Hyd/2011.
ii) DE Shaw India Software Pvt. Ltd in ITA No.2071/Hyd/2011, (TS-348-ITAT-2013(HYD)-TP)
iii) NTT Data India Enterprises Application Services P Ltd in ITA No.2190/Hyd/2011.
iv) ADP Pvt. Ltd in ITA No.1711/Hyd/2011.
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He also referred to pages 259 and 262 of the paper book to demonstrate that it is also into the product development.
The learned DR, however, supported the orders of the authorities below.
We have gone through the material on record and we find that the business division of Accel Transmatic Ltd i.e. Ushas Technology, is into development of products such as embedded network systems; imaging technologies and outsourced product development etc., The Coordinate Bench of this Tribunal in the case of NTT Data India Enterprises Application Services Pvt. Ltd in ITA No.2190/Hyd/2011 has considered this issue at length and at Para 7.8 of its order has held as under: “7.8. With regard to this company, the complaint of Assessee is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd. v. Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of Assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: "In regard to Accel Transmatics Ltd. Assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under.
(i) Transmatic system - design, development and manufacture of multi-function kiosks Queue management system, ticket vending system. (ii) Ushus Technologies - offshore development centre for embedded software, network system, imaging technologies, outsourced product development. (iii) Accel IT Academy (the net stop for engineers)— training services in hardware and networking, enterprise system
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management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development." 7.8.1. On careful perusal of the business activities of Accel Transmatic Ltd. DRP agreed with Assessee that the company was functionally different from Assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee's claim that this company was functionally different was accepted. It directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin. A similar view was taken in the following cases : (a) M/s. Conexant System India P. Ltd. ITA. No. 1978/Hyd/2011. (b) Intoto Software India P. Ltd. ITA. 2102/H/2010 (c) Bearing Point Business ITA. No. 1124/Bang/2011 (d) LG Soft India P. Ltd. ITA. 1121/Bang/2011 (e) Transwitch India P. Ltd. ITA. 948/Bang/2011 (f) Mercedes Benz Research & Development ITA. No. 1222/Bang/2011 (g) CSR India P. Ltd. ITA. No. 1119/Bang/2011 (h) HCL EAI Services Ltd. ITA. No. 1348/Bang/2011. Respectfully following the decisions of the Coordinate Benches of the Tribunal, we direct that this company should be excluded from the list of comparables”. 14. Since the above order is for A.Y 2007-08 and the facts and circumstances of the case are the same, respectfully following the above decision, we direct the AO to exclude this company from the final list of comparables.
As regards Avani Cimcon Technologies Ltd is concerned, the assessee submitted that this company is also into the product development and that no segmental details as to
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product development and IT Services are available and therefore, this should be excluded from the list of comparables. He has drawn our attention to the financial results of this company which are from page 309 of the Paper Book. We have gone through the financials of the said company and we do not find any reference to development of software products. In reply to the proceedings u/s 92CA of the Act, the said company has replied that it is pure Software Development Service Provider and that the expenditure incurred by the company is only to improve the processes and that it has not created any intangible assets nor capitalized the same. The assessee is relying upon the information available on the Website of M/s Avani Cimcon Technologies Ltd to contend that this company is also into development of software products. However, the financial results of the company, which are audited and certified by the Auditors, do not contain any information with regard to the development of software products. Therefore, we do not see any strength in the contention of the assessee to accept that this company is functionally different. In the cases relied upon by the assessee, we find that the Tribunal has directed exclusion of this company mainly on the ground of its abnormal circumstances and profits. However, the assessee has not raised such a ground before us and therefore, we do not see any reason to interfere with the order of the AO/TPO in taking this company as a comparable. Assessee’s objections to this company are therefore, rejected.
As regards Celestial Labs Ltd is concerned, the contention of the assessee is that this company is engaged in
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R&D activities and is therefore, functionally different. He placed reliance upon the following decisions in support of his contention:
i) Hewlett-Packard (India) Globalsoft P Ltd v. DCIT (ITA 1031/Bang/2011)
ii) SAP Labs India P Ltd (IT(TP)A No.1006/Bang/2011) iii) Triology E Business Software India P Ltd vs. DCIT (ITA No.10545/Bang/2011)
iv) Tevapharm P Ltd vs. DCIT (ITA No.6623/Mum/2011).
We find that in the case of SAP Labs India Private Ltd (cited Supra), the Coordinate Bench of the Tribunal has considered the issue at length at at Para 8 and has reproduced the decision of the Coordinate Bench of the Tribunal in the case of First Advantage Offshore Services (P) Ltd v. Dy.CIT (IT(TP) No.1086/Bang/2011) for the A.Y 2007-08 wherein the decision with regard to Celestial Lab is given as under: “(c) Celestial Labs Ltd.
As far as this company is concerned, the stand of the assessee is that it is absolutely a research & development company. In this regard, the following submissions were made:-
In the Director's Report (page 20 of PB-II), it is stated that "the company has applied for Income Tax concession for in- house R&D centre expenditure at Hyderabad under section 35(2AB) of the Income Tax Act."
As per the Notes to Accounts - Schedule 15, under "Deferred Revenue Expenditure" (page 31 of PB-II), it is mentioned that, "Expenditure incurred on research and development of new products has been treated as deferred revenue expenditure and the same has been written off in 10 years
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equally yearly installments from the year in which it is incurred."
An amount of Rs.11,692,020/- has been debited to the Profit and Loss Account as "Deferred Revenue Expenditure" (page 30 of PB-H). This amounts to nearly 8.28 percent of the sales of this company.
It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R&D activities is bad in law.
Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT -ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clinical trial research segment. The relevant extract of discussion regarding this company is as follows:
"The learned D.R. however drew our attention to page- 389 of the paper book which is an extract from the Directors report which reads as follows:
'The Company has developed a de novo drug design tool "CELSUITE" to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). The Company has developed a. molecule to treat Leucoderma and multiple cancer and protected the IPR by filing the patent. The patent details have been discussed with Patent officials and the response is very favorable. The cloning and purification under wet lab procedures are under progress with our collaborative Institute, Department of Microbiology, Osmania University, Hyderabad. In the industrial biotechnology area, the company has signed the Technology transfer agreement with IMTECI-l CHANDIGARI-l (a very reputed CSIR organization) to manufacture and market initially two Enzymes, Alpha Amylase and Alkaline Protease in India and overseas. The company is planning to set up a biotechnology facility to manufacture industrial enzymes. This
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facility would also include the research laboratories for carrying out further R & D activities to develop new candidates' drug molecules and license them to Interested Pharma and Bio Companies across the GLOBE. The proposed Facility will be set up in Genome Valley at Hyderabad in Andhra Pradesh'
According to the learned D.R. celestial labs is also in the field of research in pharmaceutical products and should be considered as comparable. As rightly submitted by the learned counsel for the Assessee, the discovery is in relation to a software discovery of new drugs. Moreover the company also is owner of the IPR. There is however a reference to development of a molecule to treat cancer using bio- informatics tools for which patenting process was also being pursued. As explained earlier it is a diversified company and therefore cannot be considered as comparable functionally with that of the Assessee. There has been no attempt made to identify and eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustment, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the Assessee in this regard.' "
It was submitted that the learned DR in the above case vehemently argued that this company is into research in pharmaceutical products. The IT AT concluded that this company is owner of IPR, it has software for discovery of new drugs and has developed molecule to treat cancer. In the ultimate analysis, the ITAT did not consider this company as a comparable in clinical trial segment, for the reason that this company has diverse business. It was submitted that, however, from the above extracts it is clear that this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different.
From the material available on record, it transpires that the TPO has accepted that up to AY V06-07 this company was classified as a Research and Development company. According to the TPO in
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AY 07-08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company. The TPO has relied on the response from this company to a notice u/s.133(6) of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to several references in the annual report for 31.3.2007 highlighting the fact that this company was develops biotechnology products and provides related software development services. The TPO called for segmental data at the entity level from this company. The TPO also called for description of software development process. In response to the request of the TPO this company in its reply dated 29.3.2010 has given details of employees working in software development but it is not clear as to whether any segmental data was given or not. Besides the above there is no other detail in the TPO's order as to the nature of software development services performed by the Assessee. Celestial labs had come out with a public issue of shares and in that connection issued Draft Red Herring Prospectus (DRHP) in which the business of this company was explained as to clinical research. The TPO wanted to know as to whether the primary business of this company is software development services as indicated in the annual report for FY 06- 07 or clinical research and manufacture of bio products and other products as stated in the DRHP. There is no reference to any reply by Celestial labs to the above clarification of the TPO. The TPO without any basis has however concluded that the business mentioned in the DRHP are the services or businesses that would be started by utilizing the
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funds garnered though the Initial Public Offer (IPO) and thus in no way connected with business operations of the company during FY 06-07. We are of the view that in the light of the submissions made by the Assessee and the fact that this company was basically/admittedly in clinical research and manufacture of bio products and other products, there is no clear basis on which the TPO concluded that this company was mainly in the business of providing software development services. We therefore accept the plea of the Assessee that this company ought not to have been considered as comparable”.
We have also gone through the financial results of this company which are filed in the paper book filed by the assessee and we find that the assessee is into research for a drug and therefore, is functionally not comparable to the assessee which is into simple software development services. Respectfully following the above decision, we direct the AO to exclude this company from the final list of comparable.
As regards KALS Information Systems Ltd, the learned Counsel for the assessee submitted that this company is functionally different as it is engaged in development and sale of products. He drew our attention to Page No.526 of the paper book, wherein the copy of schedule-6 forming part of the balance sheet as on 31.3.2017 is furnished. In Schedule-6, the inventories is shown at the value of the software development as certified by the management at the cost or realizable value whichever is less. Even before the TPO, the said company has accepted that it is into software products development. But the TPO hold it to be
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predominantly into software development services and has accordingly treated it as a comparable to the assessee.
The learned DR has also brought to our notice to page 534 of the paper book to submit that the reference is only to software development services and not development of software products. We find that for the very same A.Y, the Coordinate Bench of the Tribunal in the case of NTT Data India Enterprises Application Services (P) Ltd has considered its comparability and at Para 7.9 of its order has held it to be not comparable to a software development service provider. For the sake of ready reference, the relevant paragraph is reproduced below: “7.9. As far as Kals Information System Limited is concerned, learned counsel for Assessee submitted that it is functionally different from Assessee. In support of his contention, the learned Counsel for Assessee relied upon the decision of the Bangalore Tribunal in the case M/s. Triology E-Business Software India Private Limited (supra) wherein at paras 46 and 47 of its order, the Tribunal has discussed the functional dissimilarity with Assessee therein and has directed that the company should be excluded from the list of comparables. Similarly, the Tribunal at Bangalore in the case of M/s.HCL EAI Services Ltd. v. DCIT- IT (TP) A. No. 13481Bang12011 at para 17 at pages 24 to 26 of its order has discussed at length the reasons for not considering the said company as comparable to software development services company. The relevant portion of the order is reproduced hereunder:
(d) KALS Information "Systems Ltd.
As far as this company is concerned, the contention of Assessee is that the aforesaid company has revenues from both software development and software products. Besides
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the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was Rs.45,93,351. The same was less than 25% of the software services revenue and therefore the salary cost filter test fails in this case. Reference was made to the Pune Bench Tribunal's decision of the ITAT in the case of Bindview India Pvt. Limited v. DCIT ITA No.1386/PN/2010 wherein KALS as comparable was rejected for AY 2006.07 on account of it being functionally different from software companies. The relevant extract are as follows:
" 16. Another issue relating to selection of comparables by the TPO is regarding inclusion of Kals Information System Ltd. Assessee has objected to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185· I 86 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by Assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of IT enabled services and that the said company is into development of software products. etc. All these aspects have not been factually rebutted and, in our view, the said concern is liable to be excluded from the final set of comparables, and thus on this aspect, assessee succeeds."
Based on all the above, it was submitted on behalf of Assessee that KALS Information Systems Limited should be rejected as a comparable.
We have given a careful consideration to the submission made on behalf of Assessee. We find that the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.l33(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by Assessee in its letter dated 21.6.2010 to the TPO. We also find that in the decision referred to by the
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learned counsel for Assessee, the Mumbai Bench of ITAT has held that this company was developing software products and not purely or mainly software development service provider. We therefore accept the plea of Assessee that this company is not comparable" .
7.9.1. We find that both M/s. HCL EAI Services Ltd. ITA. No. 1348/Bang/2011 as well as M/s. Triology E-Business Solutions ITA. No. 1 054/Bang/20 11 are into software development services to its parent companies. Assessee is also into similar type of activity. Therefore, the decision taken in M/s. Triology E-Business Software India Private Limited as well as M/s. HCL EAI Services Ltd. to exclude Ka1s Information Systems Ltd. applies to the facts of the case before us also. Similar view has been expressed by the Coordinate Bench of the Tribunal in the following cases:
(a) M/s. Conexant System India P. Ltd. ITA. No. 1 978/Hyd120 11.
(b) Into to Software India P. Ltd. ITA. 2102/H12010
(c) Bearing Point Business ITA. No. 1124/Bang/2011
(d) LG Soft India P. Ltd. ITA. 1121/Bang/2011
(e) Transwitch India P. Ltd. ITA. 948/Bang12011
(f) CSR India P. Ltd. ITA. No. 1119/Bang12011
(g) First Advantage ITA. No. 1086/Bang/2012
Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude the company from the list of comparables”.
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Respectfully following the same, the AO is directed to exclude this company from the list of comparables.
As regards Lucid Software Ltd is concerned, it is the case of the assessee that this company is also engaged in the development of software products and sale thereof. The learned Counsel for the assessee has drawn our attention to the P&L A/c for the year ended on 31.3.2006 and 31.3.2007 to demonstrate that the product development expenses have been amortized and unamortization development expenses has been shown in the balance sheet also. He submitted in the case of Virtusa (India) Pvt. Ltd in ITA No.1962/Hyd/2011, the Coordinate Bench of this Tribunal has considered this aspect to direct the AO to exclude the said company from the final list of comparables. On perusal of the order of the Tribunal, we find that at Para 4 of its order, the Tribunal has held as under:
“4. Lucid Software Ltd. 4.1 Objecting to the aforesaid company being treated as comparable, the learned AR submitted that the aforesaid company cannot be treated as comparable as it has revenue from products also. It was further submitted that segmental financials of the company are also not available. In support of such contention, the learned AR relied on the following decisions of coordinate benches of the Tribunal. 1. Intoto Software India Pvt. Ltd., ITA No. 1196,1197/Hyd/10. 2. LG Soft India Pvt. Ltd., ITA No. 1121/Bang/11 3. Transwitch India Pvt. Ltd., ITA No. 948/Bang/11
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Mercedes Benz Research & Development India Pvt Ltd., ITA No. 1222/Bang/11.
CSR India Pvt. Ltd., ITA No. 1119/Bang/11.
First Advantage, ITA No. 1086/Bang/12 7. HCL EAI Services Ltd., ITA No. 1348/Bang/11 8. Telcordia Technologies India Pvt. Ltd., ITA No. 7821/Mum/2011. 4.2 The learned DR, on the other hand, supported the orders of the DRP as well as TPO. 4.3 We have heard the submissions of the parties and perused the materials on record. On perusal of the order passed by the coordinate bench in case of Intoto Software (supra), it is to be seen that this bench of the Tribunal following two other decisions of the Tribunal held as under: "36. We find that both M/s. HCL EAI Services Ltd. as well as M/s. Trilogy E-Business Software India Private Limited are into software development services to its parent companies. The assessee is also into similar type of activity. Therefore, the decision taken in M/s. Trilogy E-Business Software India Private Limited as well as M/s. HCL EAI Services Ltd. to exclude Lucid Software and Kals Information Systems Ltd. applies to the facts of the case before us also. Therefore, respectfully following the decision of the Coordinate Benches (supra), we direct the Assessing Officer/TPO to exclude these two companies also from the list of comparables." 4.4 Respectfully following the aforesaid decision of the coordinate bench in case of Intoto Software (supra), we direct the AO/TPO to exclude the aforesaid company from the list of comparables while determining the ALP”.
Since the facts and circumstances are similar and are for the very same A.Y, respectfully following the decision of the
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Coordinate Bench, we direct that this company is excluded from the final list of comparables.
As regards Wipro Ltd, the assessee is seeking its exclusion not only on the functional difference, but also on the ground of incomparable scale of operations and segmental data not being available. The learned Counsel for the assessee placed reliance upon the following decisions in support of his contention: i) Agnity India Technologies Pvt Ltd (TS 180 High Court 2013 Del T.P, High Court Delhi)
ii) Conexant Systems India P Ltd (ITA No.1429/Hyd/2010 & ITA No.1978/Hyd/2011)
iii) DE Shaw India Software P Ltd (ITA No.2071/Hyd/2011
iv) Vortisa (India) Pvt Ltd (ITA No.1962/Hyd/2011 v) NTT Data India Enterprises Application Services P Ltd in ITA No.2190/Hyd/2011
vi) ADP Pvt. Ltd in ITA No.1711/Hyd/2011.
We find that the Hon'ble Delhi High Court in the case of Agnity India Technologies Pvt. Ltd (Supra) has held that big companies like Infosys Ltd cannot be considered as comparable to software development service providers like Agnity. Following the same analogy, the Coordinate Bench of this Tribunal have directed exclusion of Wipro Ltd also from the final list of comparables. For the sake of ready reference, the relevant paragraphs of the directions of the Tribunal in the case of Virtusa (India) (Pvt.) Ltd is reproduced hereunder:
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“7. Wipro Ltd. 7.1 While objecting to the aforesaid company being treated as comparable, the learned AR submitted that the TPO only on considering segmental details submitted by the said company for IT services, in response to notice issued u/s 133(6), has considered it as a comparable. It was submitted that the aforesaid company is a diversified company and discloses segmental information for IT services and products as one segment in its annual report. It was submitted that the TPO has not provided any other documents excepting segmental information obtained from TP report of Wipro, which is unaudited, manually corrected and unverified. It was submitted that Wipro is also considered to be a giant in its field assuming all the risks and cannot be compared to captive service provider like the assessee. To support his contentions with regard to non- comparability of the said company, he relied upon the following decisions: 1. Telcordia Technologies India Pvt. Ltd., ITA No. 7821/Mum/2011. 2. Triniti Advances Software P. Ltd., ITA No. 1129/H/2005. 7.2 The learned DR on the other hand supported the orders of the DRP as well as TPO so far as the selection of the aforesaid company as comparable while determining ALP. 7.3 We have heard the submissions of the parties and perused the material on record. The ITAT Mumbai Bench in case of Telcordia Technologies India Pvt. Ltd., ITA No. 7821/Mum/2011, while considering the objection of the assessee for treating the aforesaid company as comparable held as follows: "7.5 This company is also a global IT Company having varieties of service and products and looking to the magnitude of its operations, sales and expenses, the same cannot be taken into consideration for comparability analysis. Moreover, 67% of its sales relates to its product which are sold on premium resulting into higher profitability, therefore, cannot be compared with the assessee company at all. There are several judgments of ITAT which have been referred in para 6.5 above, that Wipro cannot be taken as comparable case for comparable case with the company like assessee. In view of these facts and the reasoning given in the case of Infosys, we hold that Wipro also cannot be considered as a comparability analysis, hence, would not be included in the list of the comparable entities as identified by the TPO."
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ITA No.1114 of 2017CNO IT Services India P Ltd Hyderabad .
7.4. As can be seen from the facts and materials on record during the year under consideration, the segmental turnover of the Wipro Ltd. Is 9616.09 crores. Therefore, considering the turnover, brand value as well as other dynamics of Wipro Ltd., it comes in the same category as Infosys and certainly cannot be compared with the assessee. Therefore, following our reasoning in case of Infosys Technologies Ltd. we hold that Wipro Ltd. cannot be treated as comparable with the assessee”.
Respectfully following the same, we direct the AO to exclude this company also from the final list of comparables.
Except seeking the exclusion of the above comparables, the learned Counsel for the assessee has not advanced any arguments on any of the other grounds of appeal raised by it. Therefore, they are rejected as not specifically contested. 28. In the result, assessee’s appeal is partly allowed.
Order pronounced in the Open Court on 24th January, 2018.
Sd/- Sd/- (S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member
Hyderabad, dated 24th January 2018. Vinodan/sps Copy to: 1 M/s. CNO IT Services (India) Pvt. Ltd, Office No.208, Oval Building, ILabs Centre, Hi-tech City, Madhapur, Hyderabad 500081 2 ACIT, Circle 1(2) Hyderabad 3 CIT (A)-1, Hyderabad 4 Pr. CIT – 1, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File
By Order
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