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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member These cross appeals emanate from the order of the AO dated 30.12.2014 passed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [the Act] in consequence of the directions of the DRP u/s. 144C(5) of the Act dated 28.11.2014 for the assessment year 2010-11.
Assessee’s appeal
Ground Nos.1 & 2 are general in nature and does not require any adjudication.
Ground No.3 by the assessee reads as follows:-
In this ground, the assessee pressed only inclusion of the comparable, R Systems International Ltd. in the above ground. The ld. AR submitted that this company was considered as a comparable in the case of Indecomm Global Services India Pvt. Ltd. in IT(TP)A Nos. 404 AND 553/BANG/2015 & C.O. NO. 123/BANG/2015 for the AY 2010-11 and vide Order dated 13.02.2019 the Tribunal remanded the matter of comparability of this company to the AO for fresh decision. The relevant observations of the Tribunal are as follows:-
“19.2.1 We have considered the rival submissions/contentions and carefully perused the material on record; including the judicial pronouncements cited. We find that the Hon'ble Punjab and Haryana
IT(TP)A Nos.178 & 335/Bang/2015 Page 3 of 23 High Court in the case of Mercer Consulting (P.) Ltd. (supra) has held that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then its comparability ought to be examined/considered. In this regard, the Hon'ble High Court at paras 27 to 32 of its order (supra) has held as under: Re: R Systems International Limited 27. The TPO excluded the case of R Systems International Limited from the list of comparables. The ITAT included the same. The TPO excluded the case of R Systems International Limited on the ground that it follows the calendar year i.e. 1st January to 31st December for maintaining its annual account whereas the accounting year of the assessee is 1st April to 31st March. The TPO followed an order passed by the Mumbai Bench of the Tribunal in ACIT v. Hapag Lloyd Global Services Ltd. [2013-TII-68-ITAT-MUM-TP] in which it had been held that a company with a different financial year ending cannot be compared.
We are unable to agree with the decision of the TPO and of the DRP that affirmed it. The view taken by the Tribunal commends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different, it would make no difference. If it is possible to determine the value of the transactions during the corresponding periods, the purpose or comparables would be served. The question in each case is whether despite the financial year of the assessee and of the other enterprise being different, the financials of the corresponding period of each of them are available. If they are, the TPO must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP.
29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending 31.12.2008 had been given under one column and the data for the quarter ending 31.03.2009 and 31.03.2008 (both audited) had been given in two other columns. Thus, as rightly held by the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded
IT(TP)A Nos.178 & 335/Bang/2015 Page 4 of 23 and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009.
30. This view is not contrary to Rule 10(B)(4) which reads as under:- "10B(4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into".
The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus so long as the data relating to the financial year is available, it matters not, it the financial year followed is different. In the case before us the data relating to the relevant financial year of R Systems International Limited is available.
We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule (4) of rule 10B. 19.2.2 Respectfully following the decision of the Hon'ble Punjab and Haryana High Court in the case of Mercer Consulting (P.) Ltd. (supra), we also deem it appropriate to follow the principle that if data, relating to the financial year in which the international transaction has been entered into, is directly available from the annual accounts of that company, then the company ought be examined/considered for comparability. We, accordingly, remand the matter of comparability of R Systems International Ltd., back to the file of the AO to examine/decide the same in the light of the decision of the Hon'ble Punjab and Haryana High Court (supra). We hold and direct accordingly.”
IT(TP)A Nos.178 & 335/Bang/2015 Page 5 of 23
Being so, in our opinion, through R Systems International Ltd. is following the calendar year i.e. 1st Jan. to 31st Dec for maintaining their accounts, whereas the assessee follows 1st Apr. to 31st March, still it could be a comparable to the assessee’s case and be included as a comparable in the list of comparables as decided by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra). Accordingly, we remit the matter of comparability of this company to the file of AO/TPO to examine and decide it afresh in the light of the directions contained in the order of Tribunal in Indecomm Global Services India Pvt. Ltd. (supra). This ground of assessee is allowed for statistical purposes.
Ground No.4 of the assessee reads as follows:-
In the above ground, the assessee has pressed for inclusion of only the following companies:-
(1) Accentia Technologies Ltd. (2) Fortune Infotech Ltd., and (3) Jeevan Scientific Technology Ltd.
Accentia Technologies Ltd.: The ld. AR submitted that this company should be excluded for the following reasons:-
(i) The company has significant income from software products and services. (ii) Segment data in relation to software services and product and ITeS are not available in the annual report. (iii) The company owns intangibles. (iv) The company has extra-ordinary events of amalgamation/ acquisition during the year.
IT(TP)A Nos.178 & 335/Bang/2015 Page 6 of 23
However, the lower authorities observed that Accentia Technologies Ltd. is engaged in medical transcription, medical coding, billing & receivable management which are all individual part of healthcare BPO services termed as HRCM Services. In regard to the revenue recognition, the objection of the assessee was not accepted by the DRP in view of financial reporting in which it is clearly mentioned that the company shall prepare and maintain its accounts fairly and accurately in accordance with the Accounting & Financial Reporting. The question of segmental information does not arise, as the company has only one segment. Hence it shall be considered as a comparable with the assessee.
We have heard both the parties and perused the material on record. This comparable has been excluded by the Tribunal as a comparable in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was observed as under:-
“16.4.1 We have considered the rival contentions and submissions and perused the material on record; including the judicial pronouncement cited. We find that a Co-ordinate Bench of this Tribunal in the case of Tesco Hindustan Service Centre (P.) Ltd. (supra) has held that this company, 'Accentia' is not functionally comparable to an assessee rendering ITES and in this regard at para 13 of its order, the Co-ordinate Bench held as under: '13. As regards Accentia Technologies Ltd. and ICRA Online Ltd. this Tribunal in the assessee's own case for Assessment Year 2008-09 has excluded these two companies from the set of comparables in para 5 as. "5. Thereafter he submitted that the following companies should be excluded on the basis of functional dissimilarity and in support of his contention, he placed reliance on the Tribunal order rendered in the case of M/s. Flextronics Tech. (India) Pvt. Ltd. v. DCIT in IT(TP)A No.1559(B)/2012 dated 23.10.2015, copy available on page Nos.17 to 38 of IT(TP)A Nos.178 & 335/Bang/2015 Page 7 of 23 compilation of case laws submitted before the Tribunal. (a) Accentia Tech. Ltd. (Seg.) (b) Acropetal Tech. Ltd. (Seg.) (c) Coral Hubs Ltd. (d) Crossdomain Solutions Ltd. (e) Eclerx Services Ltd. (f) Genesys International Corpn. Ltd. (g) Mold Tek Technologies Ltd." We further note that the functional comparability has been examined in detailed by the co-ordinate bench of this Tribunal in the case of Equant Solutions India (P.) Ltd. v. Dy. CIT [2016] 157 ITD 292/66 taxmann.com 2 (Delhi - Trib.) as well as in the case of ITO v. Interwoven Software Services (India) (P.) Ltd. [2016] 74 taxmann.com 103 (Bang. - Trib.). Further in the case of Acropetal Technologies Ltd. (Seg), the co- ordinate bench of this Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. v. Dy CIT [IT(TP)A No. 1540 (Bang) of 2012] has considered the functional comparability and found that this company is not comparable with a captive service provider. Accordingly we direct the Assessing Officer/TPO to exclude these companies from set of comparables.' 16.4.2 Respectfully following the above decisions of the Co- ordinate Bench in the case of Tesco Hindustan Service Centre (P.) Ltd. (supra), we hold and direct that Accentia Technologies Ltd., be excluded from the list of comparable companies on grounds of functional dissimilarity.”
In view of the above order of the co-ordinate Bench of the Tribunal, we direct the AO/TPO to exclude this company from the list of comparables.
Fortune Infotech Ltd. : The ld. AR submitted that this company uses web based software unique technology and technical know-how imparted from its business partners for providing BPO services.
IT(TP)A Nos.178 & 335/Bang/2015 Page 8 of 23
The ld. DR submitted that this company has developed its own software called ‘Finetran’ and ‘Impact Index’ for performing services in medical transcription and patent record management. Further it was submitted that on examination of annual accounts of the said company, it was found that there was no mention in the annual report about the import of the unique technology and technical know-how from the business partners. Even otherwise, every company is required to use the software and technology for providing ITeS services and therefore on the basis of annual report it cannot be compared with the assessee.
We have heard both the parties and perused the material on record. As rightly pointed out by the ld. AR, Fortune Infotech Ltd. has been excluded as a comparable by the coordinate Bench of the Tribunal in the case of Outsource Partners International P. Ltd. v. DCIT in IT(TP)A No. 337/Bang/2015 vide order dated 06.02.2017 wherein it was held as under:-
“On perusal of the details furnished and submissions made, it is seen that this company has developed its own software called "Finetran" and "image index" for performing specialized services in medical transcription and patient record management. On appraisal of the same, we are of the opinion that this comparable company has developed unique software from which it would derive substantial benefits/advantages when compared with the assessee which is undertaking pure call centre services. Applying the principle that companies which are. on similar standards only should be taken as comparables, we hold that this company which has unique intangibles cannot be taken as a comparable for the assessee and accordingly direct the Assessing Officer/TPO to exclude it from the list of comparables in this case. • Hence based on the above facts, Fortune should not be selected as a comparable company However, the company is currently known as CSC BPS India Ltd.”
IT(TP)A Nos.178 & 335/Bang/2015 Page 9 of 23
Following the above ratio laid down by the co-ordinate Bench of the Tribunal, we direct the AO/TPO to exclude the Fortune Infotech Ltd. from the list of comparables.
Jeevan Scientific Technology Ltd.: The ld. AR submitted that this employee cost in the case of this company is less than 25% and as per the annual report, the IT enabled Services constitute both BPO operation and enterprise solution and therefore needs to be excluded from the comparables.
The ld. DR submitted that the details relating to segmental employee cost is not available in the annual report, however, in reference to total revenue, the employee cost is more than 25%. Further, there is a functional dissimilarity between the assessee and the comparable.
We have heard both the parties. This comparable has been excluded by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was observed as under:-
“18.3 We have considered the rival submissions and carefully perused the material on record. The assessee's contentions are that 'Jeevan' fails the employee cost filter of 25% applied by DRP. The issue of applying the employee cost filter at 25% of sales, suo motu, by the DRP has been discussed earlier in this order, while dealing with the comparability of 'Acropetal Technologies Ltd.,' at paras 10 to 10.5.2 of this order (supra). From the record, it is seen that neither the assessee nor the TPO have applied the employee cost filter while determining the ALP. As such, the DRP has applied this filter suo motu. When new filters are applied, it is necessary to examine whether such an application of a new filter has any impact on the inclusion or exclusion of other companies. In view of the above, we deem it appropriate to remand the issue of comparability of this company back to the file of the TPO with the direction that the new filters applied suo motu may be applied on the other comparable companies as well and then the inclusion/exclusion of this company as a comparable be decided.”
IT(TP)A Nos.178 & 335/Bang/2015 Page 10 of 23
In view of the above order of the coordinate Bench of this Tribunal, we direct the AO/TPO to exclude Jeevan Scientific Technologies Ltd. from the list of comparables.
Ground No.13 by the assessee reads as follows:-
After hearing both the parties, we find that that this issue came up for consideration before the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT, [2021] 125 taxmann.com 42 (SC) judgment dated 02-03-2021, wherein it was held that transaction relating to software are in the nature of sale and not license, no copyright or part of any copyright is licensed to the assessee. The non- resident owner continues to have proprietary rights in the software and use of software by the Indian company is limited to making back-up copy and redistribution. So payment received for sale of computer software is business income. As such, software purchased is in the nature of purchase and sale of product and no TDS is deductible. Being so, it is IT(TP)A Nos.178 & 335/Bang/2015 Page 11 of 23 allowable as expenditure and there is no question of deduction of any TDS on the same. Accordingly, this ground of assessee is allowed.
Ground No.14 was not pressed, as such it is dismissed.
Ground No.15 reads as follows:-
We remit the issue to the AO and direct to give correct TDS credit after examination.
Ground No.16 reads as under:-
The AO is directed to give MAT credit in accordance with law.
In the result, the appeal by the assessee is partly allowed.
Revenue’s appeal
28. Ground No.2 by the revenue reads as follows:-
IT(TP)A Nos.178 & 335/Bang/2015 Page 12 of 23
The DRP observed that it was noticed from the Profit & Loss account that out of total expenses of Rs.87.26 crores, expenses of RS.55.85 crores incurred onsite development of software which works out to 64% of the total expenses which makes it clear that the company is predominantly in providing onsite services and therefore not comparable with assessee. It was also observed that employee cost filter needs to be applied in ITS segment also, on that count also employee cost is less than 25% and cannot be retained as comparable. Against this, the revenue is in appeal before us.
We have heard both the parties on this issue. This company was considered as a comparable by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was observed as under:-
“10.5.1 We have considered the rival contentions on this issue and carefully perused the material on record; including the judicial pronouncements cited. From the details on record, we find that the assessee has objected to the inclusion of 'Acropetal' in the set of comparables on the ground that it is not functionally comparable to the assessee; both before the TPO and the DRP. However, it is seen that the DRP has not adjudicated on the functional comparability of 'Acropetal' vis-à-vis the assessee in the case on hand. Instead, the DRP has rendered a finding that the services rendered by 'Acropetal' are predominantly on-site services and applied the on-site filter. The DRP further directed that 'Acropetal' needs to be excluded from the set of comparables as its employee cost is less that 25% and employee cost filter should be applied.
IT(TP)A Nos.178 & 335/Bang/2015 Page 13 of 23 10.5.2 In this regard, it is seen that neither the assessee in its TP study nor the TPO has applied the on-site filter while determining the ALP. Similar is the case with employee cost filter; which has neither been applied by the assessee nor by the TPO while determining the ALP. As such the DRP has applied these filters suo motu. When new filters are applied, it is necessary to examine whether such an application of a new filter has any impact on the other companies about their inclusion or exclusion. It is also seen that the DRP has not rendered a finding on the functional comparability of 'Acropetal' even though a specific ground has been raised and the judicial decisions in this regard have been brought to the notice of the DRP. In view of the above, we deem it appropriate to remand the issue of comparability of Acropetal Technologies Ltd., back to the file of the TPO with a direction that the two filters i.e., on-site filter and employee cost filter, applied by the DRP suo motu, may be applied to the other comparable companies as well and functional capacity be decided in the light of the judicial pronouncement cited by the assessee (supra).”
31. In view of the above order of the Tribunal, we are inclined to remit this issue to the file of AO/TPO with similar directions.
32. Ground No.3 by the revenue is as follows:-
ICRA Online Ltd. : The DRP observed that the total foreign currency earnings during the year is 11.14 crores as against the total service revenue of 18.35 crores which indicates that only 60% revenue is coming from export as against the 100% export of the assessee company. In view of this, 75% export earning filter needs to be applied as against the 25% applied by the TPO. Hence the DRP observed that it cannot be retained as a comparable. Against this, the revenue is in appeal before us.
IT(TP)A Nos.178 & 335/Bang/2015 Page 14 of 23
After hearing both the parties, we find that this company was considered in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein this issue was remitted back to the file of AO/TPO observing as follows:-
“11.3.1 We have considered the rival contentions and carefully perused the material on record. We find that the assessee has objected to the inclusion of 'ICRA' on the ground that it is not functionally comparable to the assessee; both before the TPO as well as the DRP. The DRP, however, has not adjudicated on its functional comparability of 'ICRA', but instead proceeded to render a finding that this company requires to be excluded by applying 75% export earning filter. In this regard, it is seen that the TPO applied the filter of 25% of export earnings. The DRP order however states that "In the preceding paras, it has been held by us that 75% export earning filter needs to be applied consistently for the ITES segment also as against the 25% export earning filter applied by the TPO." But, we find that there is no such discussion or decision been rendered by the DRP as claimed. In the absence of any such discussion or decision being rendered, as claimed, applying the 75% export earning filter suo motu is not tenable. Further, if any new filters are applied, it is imperative to examine whether the application of such a filter has any impact on the other companies about their inclusion or exclusion in the set of comparables. That 'ICRA' was not selected as a comparable by TPO's in other cases cannot be a valid ground for exclusion in this case also, unless the reasons for such exclusion in other cases are known. In view of the above, we deem it appropriate to remand the issue of comparability of this company i.e., ICRA Online Ltd., to the file of the TPO with the direction that the filter applied suo motu by the DRP in the case of 'ICRA' be applied to the entire set of comparable companies.”
In view of the above order of the Tribunal, this issue is remitted back to the AO with similar directions.
Sundaram Business Services Ltd. : The DRP observed that the annual report of this company shows that total revenue was Rs.19.34 crores from BPO services out of which only Rs.7.14 crores (36.91%) is IT(TP)A Nos.178 & 335/Bang/2015 Page 15 of 23 from export. Since 75% export earning filter has to be applied for ITeS segment also, the company fails the said filter. Hence it was excluded. Against this, the revenue is in appeal before us.
We have heard both the parties. This comparable was considered by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra) and remitted back to AO/TPO for fresh consideration, wherein it was observed as under:-
“11.4.3 We have considered the rival contentions and carefully perused the material on record. This company, 'Sundaram', was selected as a comparable by the TPO and the assessee had accepted the same without any objection. We find that the DRP suo motu examined the comparability of this company and directed its exclusion from the set of comparables on the ground that it fails the 75% export earning filter, a new filter introduced by the DRP, which was not applied either by the TPO or the assessee. The DRP order, in this regard, states that "It has already been held in the preceding paras that 75% export earning filter has to be consistently applied for ITES segment also". We, however, find that there is no such discussion or decision rendered by DRP, as claimed. In the absence of any such discussion or decision, as claimed, applying the 75% export earning filter suo motu is not tenable. Also, if any new filters are applied, it is necessary to examine whether the application thereof has any import on the other comparables companies regarding their inclusion or exclusion from/into the final set of comparables. Since we have taken the stand that if any new filter is applied, it should be applied uniformly on the entire set of comparable companies, we deem it appropriate to remand the issue of comparablity of this company, Sundaram Business Services Ltd., back to the file of the TPO with a direction that the 75% export earning filter, applied, suo motu, by the DRP, be applied on the entire set of comparable companies.”
Taking a consistent view, we remit this issue to the AO/TPO with similar directions.
Ground No.4 by the revenue reads as under:-
IT(TP)A Nos.178 & 335/Bang/2015 Page 16 of 23
With regard to Eclerx Services Ltd., the DRP observed that this company is engaged in provision of IT enabled Services [ITeS] which are in the nature of KPO. It was seen from the annual report that the company is KPO company which cannot be compared to the assessee company. The assessee company is engaged in routine ITeS. Hence the DRP excluded the same. Against this, the revenue is in appeal before us.
We have heard the rival submissions. This company was considered by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was excluded from the comparables observing as under:-
“13.4.1 We have considered the rival contentions and carefully perused the material on record; including the judicial pronouncements cited. The DRP has rendered a clear finding that the functions performed by 'Exlerx' are not similar to that of assessee in the case on hand and therefore cannot be as comparable and has given its detailed reasoning for arriving at this decision; including placing reliance on certain judicial pronouncements. We find that, as pointed out by the learned AR of the assessee, the Co- ordinate Bench of this Tribunal in the case of Tesco Hindustan Service Centre (P.) Ltd. (supra) has held that this company cannot be compared with a company rendering ITES. The relevant portion of the order at para 14.1 and 14.2 thereof is extracted hereunder: "E-clerx Services Limited. 14.1 We have considered the rival submissions and relevant record. At the out set, we note that the ..31- pparability of M/s. Eclerx Services Ltd. has been examined by the Special Bench of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. v. Asstt. CIT [2014] 43 taxmann.com 100/147 ITD 83 (Mum.) (SB) in paras 82 and 83 as under:
IT(TP)A Nos.178 & 335/Bang/2015 Page 17 of 23
"82. In so far as M/s. eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at pages 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s. eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s. eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high- end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is IT(TP)A Nos.178 & 335/Bang/2015 Page 18 of 23 mainly engaged in providing low-end services to the group concerns.
For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s. eClerx ServicesPLtd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entitles cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP." 14.2 As discussed by the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd. (supra), this company provides data analysis, operating management, audits, reconciliation, metrics management and operating services, it has two business verticals - financial services, retail and manufacturing. It was found to have being providing complete business solutions in the nature of high end services. The nature and different field of services provided by this company clearly show that it is not functionally comparable with the ITES. Accordingly, we direct the TPO/AO to exclude this company from the set of comparables.' 13.4.2 In view of the above, we find no infirmity in the order of the DRP and the direction of the DRP to exclude 'Eclerx ServicesLtd.,' from the set of comparables is upheld, since this company 'Eclerx' is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, there is no need to remand the matter to the TPO, as sought for by the learned DR. Consequently ground No.9 of Revenue's appeal is dismissed.”
Following the order of the coordinate Bench of this Tribunal, we find no infirmity in the order of the DRP. This ground of the revenue is dismissed.
IT(TP)A Nos.178 & 335/Bang/2015 Page 19 of 23
Ground No.5 of the revenue reads as follows:-
This company was excluded by the DRP on the reason that it is an established player in the market having tremendous brand value which has a great impact on the pricing in the market. Its margin is very high. Hence it was excluded from the comparables. Against this revenue is in appeal before us.
We have heard both the parties. This company was considered in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein the Tribunal observed as under:-
“12.4.1 We have considered the rival contentions and carefully perused the material on record; including the judicial pronouncements cited. The DRP has rendered a clear finding that this company 'Infosys' cannot be considered as functionally comparable and have given their detailed reasoning for arriving at the decision, including reliance on various judicial pronouncements. Further, as submitted by the learned AR of the assessee, the Co- ordinate Bench of this Tribunal in the case of Tesco Hindustan Service Centre (P.) Ltd. (supra) has held that this company cannot be compared with a company rendering ITES. The relevant portion of the order at para 15.4 thereof is extracted hereunder: "15.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dissimilar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy E-Business Software India (P.) Ltd. v. Dy. CIT [2013] 29 taxmann.com 310/140 ITD 540 (Bang.) for Assessment Year 2007-08 is applicable to this year also. We are inclined to concur with the argument put forth by the assessee that Infosys BPO
IT(TP)A Nos.178 & 335/Bang/2015 Page 20 of 23 Ltd. is not functionally comparable since it has the benefit of market value as well as brand value. This company enjoys the benefits of scale and market leadership. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly." 12.4.2 In view of the above, we find no reason to interfere with the order of the DRP and consequently the DRP's direction to exclude this company, 'Infosys' is upheld. Since this company, 'Infosys' is excluded on grounds of functional dissimilarity, the application of new filters by the DRP will have no bearing on its exclusion or inclusion as it would continue to remain excluded on grounds of functional comparability. Therefore, we find there is no need to remand the comparability of this company to the file of the TPO, as sought for by the learned DR. Consequently, ground No. 8 of Revenue's appeal is dismissed.”
We have gone through the findings of the Tribunal in the aforesaid order. On similar reasoning, the exclusion of this company by the DRP is confirmed. This ground of revenue is dismissed.
Ground no. 6 by the revenue reads as follows:-
The TPO has applied an upper cap for allowing working capital adjustment without providing any rationale and applied PLR rate at 11.75% p.a. as against 11.87% for computing working capital adjustment. However, the DRP observed that assessee while working out the PLR rate has taken into consideration the data for FY 2008-09 instead of FY 2009-10 which was not acceptable. However, the DRP directed the AO to compute the mean of working capital adjustment in respect of comparables retained after giving effect to the directions of the DRP order.
IT(TP)A Nos.178 & 335/Bang/2015 Page 21 of 23
We have heard both the parties. We do not find any infirmity in the findings of the DRP. However, the AO is directed to compute the mean of working capital adjustment in respect of comparables retained after giving effect to this order of the Tribunal. It is ordered accordingly.
Ground Nos. 7 & 8 by the revenue read as under:-
This issue is squarely covered by the judgment of the Hon’ble Supreme Court in the case of Yokogawa India Ltd., 391 ITR 274 wherein it was held as follows:-
“That from a reading of the relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794, dated 9-8-2000.
IT(TP)A Nos.178 & 335/Bang/2015 Page 22 of 23 If the specific provisions of the Act provide [first proviso to sections 10A(1); 10A(1A) and 10A(4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 9-8-2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, "immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. ”
In view of the above judgment of Hon’ble Supreme Court, this issue is decided in favour of assessee.
Ground Nos. 9 & 10 by the revenue are as follows:-
IT(TP)A Nos.178 & 335/Bang/2015 Page 23 of 23
This issue is decided in favour of assessee in view of the DRP following the judgment of the Hon’ble High Court of Karnataka in CIT v. Tata Elxsi Ltd., 349 ITR 98 (Karn) which is confirmed by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. in Civil Appeal No.8489- 8490 of 2013 & Ors. dated 24.04.2018.
In the result, the revenue’s appeal is partly allowed.
Thus, both the appeals by the revenue and assessee are partly allowed.
Pronounced in the open court on this 11th day of March, 2021.