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Income Tax Appellate Tribunal, BANGALORE BENCHES “ C ” BENCH: BANGALORE
Before: SHRI A.K. GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
PER SHRI PAVAN KUMAR GADALE, JM :
The assessee has filed an appeal against the order under Section 143(3) r.w.s. 144C r.w.s. 254 of the Income Tax Act, 1961 (in short 'the Act') passed in pursuance to the directions of the Dispute Resolution Panel (DRP) order under Section 144C(5) Dt.25.09.2018.
At the time of hearing, the learned Authorized Representative has pressed Grounds of appeal Nos.14, 16 & 17 only and made endorsement in the appeal memo. Hence, other grounds of appeal are not pressed and treated as withdrawn and dismissed. The effective grounds of appeal are as under:
3. The Brief facts of the case are that the assessee company is engaged in business of providing software development services of electric integrated circuits to its parent company and filed the Return of Income for the Asst. Year 2006-07 on 30.11.2006 with total income of Rs.24,52,123/-.Subsequently,the case was selected for scrutiny. The Assessing Officer found that the assessee has international transactions of software development services, hence with the prior approval of CIT, Bangalore-1, the matter was referred to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) and the TPO has passed order under Section 92CA of the Act dt.29.10.2009 with Transfer Pricing Adjustment of Rs.13,57,27,982/- and the draft assessment order was passed under Section 143(3) r.w.s. 144C of the Act dt.24.12.2009. Aggrieved by the draft assessment order, the assessee filed objections before the DRP and the DRP has passed the order under Section 144C(5) r.w.s. 144C(8) of the Act Dt.20.09.2010 with directions to TPO, in respect of M/s. Megasoft Limited which has abnormal fluctuation of margins therefore to be rejected as comparable company and rejected the other objections of the assessee. The final assessment order was passed under Section 143(3) r.w.s. 144C of the Act dt.11.10.2010 with total income including Transfer Pricing Adjustment. Aggrieved by the final assessment order, the assessee has filed an appeal with the Hon'ble ITAT, Bangalore. The ITAT by order dt.3.11.2016, remitted the entire disputed issues to the file of Assessing Officer on transfer pricing adjustments and other isssues for fresh consideration and to afford an opportunity of being heard to the assessee. As per the directions, the assessee has filed submissions to exclude comparables Tata Elxsi Limited, Flextronics, R.R. International Limited, Kals Information Systems Ltd., Infosys Limited, Accel Transmatics Limited and Mega Soft Limited and sought for marked risk adjustments. Whereas the TPO has selected the final list of comparables as under :
The TPO computed the ALP in order at page 6 Para 4 as under :
The TPO has passed the order under Section 92CA r.w.s. 254 of the Act dt.20.10.2017 and the draft assessment order was passed by the Assessing Officer under Section 143(3) r.w.s. 144C r.w. 254 of the Act along with Transfer Pricing Adjustment and the addition in respect of software expenditure and assessed the Rs.13,76,81,822. Aggrieved by the order, the assessee has filed objections in Form 35A before the DRP, whereas the DRP has passed the order under Section 144C (5) of the Act dt.25.09.2019. Further, the final assessment order was passed under Section 143(3) r.w.s. 144C of the Act with total income of Rs.9, 86,91,148/- after considering the relief granted by the DRP in Transfer Pricing Adjustment. Aggrieved by the order, the assessee has filed an appeal before the Tribunal.
At the time of hearing, the learned Authorized Representative has argued only Ground Nos.14, 16 & 17. Whereas Ground No.14 relates to exclusion of comparables in the software development segment and ld. AR prayed for exclusion of the following six comparables – a) Infosys Limited b) Tata Elxsi Limited c) Kals Information Systems Limited d) Persistent Systems Limited e) Aztec Soft Limited f) Bodhtree Consulting Limited The learned Departmental Representative supported the orders of lower authorities and filed written submissions.
The learned Authorized Representative filed chart and paper book to support the submissions on the comparables to be excluded on the functional dissimilarity and turnover filter. – a) Infosys Limited - The company.s turnover is Rs.9,028 Crores and has a brand value and also engaged in diversified operations apart from Software Development Services, R&D Activities and fails the uppeer turnover filter. b) Aztec Software Limited - The company sales are Rs.128.61 Crores and fails the RPT filter and functionally dissimilar. c) Kals Information Systems Limited - The company sales turnover is Rs.1.96 Crores and is functionally different and engaged in software products and training apart from provision of Software Development Services. d) Persistent Systems Limited - The company turnover is Rs.2.917 Crores and it is functionally dissimilar and fails the upper turnover filter. e) Tata Elxsi Limited - The company has turnover of Rs.235.63 Crores and functionally dissimilar, and is engaged in product development activity which include Multi Media Imaging Process and involved in activities such as hardware design, industrial design, engineering design and visual computing.
Further the learned Authorized Representative submitted that these comparable companies were excluded by the co-ordinate bench of this Tribunal in the case of Novell Software Development Pvt. Ltd. Vs. DCIT in IT(TP)A No.1483/Bang/2010 Dt.29.11.2016 observed at pages 9, 10 & 11 in respect of above comparables as under :
We considering the functional dissimilarities and failure of upper turnover filters, judicial decision of the co-ordinate bench of the Tribunal for the assessment year 2006-2007, direct the TPO to exclude a) Infosys Limited b) Tata Elxsi Limited c) Kals Information Systems Limited d) Persistent Systems Limited e) Aztec Soft Limited from the final list of comparables for determination of ALP.
The comparable(f) Bodhtree Consulting Limited, whose the turnover is Rs.5.31 Crores and functionally dissimilar and is also engaged in product sales. The learned Authorized Representative submitted that the co-ordinate bench of this Tribunal in the case of ACIT Vs. Electronics Imaging Pvt. Ltd. in IT(TP)A No.1725/Bang/2017 dt.31.10.2018 has dealt on the issue of exclusion of Bodhtree Consulting Ltd at page 15 para 16 as under :