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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 : These are the cross appeals filed by the assessee and revenue against the order of Assessing Office under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 ('the Act') in pursuance to the directions of Dispute Resolution Panel (DRP) order dt.9.10.2015. For the sake of convenience, we shall take up the 2 IT(TP)A Nos.64 & 73/Bang/2016 assessee's appeal and facts narrated therein. The assessee has raised 19 grounds of appeal whereas at the time of hearing, the learned Authorised Representative has pressed Ground Nos.14, 15 & 16 of exclusion of comparables and has not pressed other grounds of appeal and accordingly made endorsement and the same treated as not maintainable and dismissed. The effective grounds of appeal are as under :
The Brief facts of the case are that the assessee is established as 100% EOU (STPI) under Software Technology Scheme, Bangalore and is primarily engaged in design and development software for its parent company and filed the Return of Income for Assessment Year 2011-12 on 28.11.2011 with total income of Rs.4,76,68,748 and subsequently the case was selected for scrutiny and Notices under Section 143(2) & 142(1) of the Act were issued. In compliance, the learned Authorised Representative of the assessee appeared form time to time, furnished the details and produced the Books of Accounts. The Assessing Officer has verified the financial statements and found that there are international transactions exceeding Rs.15 Crores and with prior approval of CIT, Bangalore, reference was made to the Transfer Pricing Officer (TPO) under the provisions of Section 92CA of the Act. The TPO has considered the financial profile of the assessee where the assessee is a leading worldwide provider of business communication, synchronization and collaboration services and operates on a highly reliable secure 3 IT(TP)A Nos.64 & 73/Bang/2016 global services. The PLI of the assessee op/oc is 17% and the assessee has international transactions as per 92CA Report of Software Development Services Segment of Rs.39,35,58,553. The TPO has called for documents as per Form 92D along with financial reports, copies of Agreements, etc. The assessee has selected13 comparables for Software Development segment with filters and adopted TNMM as Most Appropriate Method. Whereas the TPO applied the filters and rejected the TP Study and selected final list of comparables at page 18 para 9 of the order as under :
4 IT(TP)A Nos.64 & 73/Bang/2016 The TPO granted Working Capital Adjustment and determined the Arm’s Length Price and computed the ALP at page 22 para 12.4 of order as under :
The TPO has passed the order under Section 92CA of the Act dt.28.11.2014 with TP Adjustment of Rs.3,49,69,123. The Draft Assessment order was passed under Section 144C(1) of the Act on 22.01.2015. Aggrieved by the Draft Assessment Order, the assessee filed objections in Form 35A with DRP, Bangalore. The Hon'ble DRP after considering the objections and findings of the TPO has passed the order with directions under Section 144C(5) dt.9.10.2015. Subsequently, the Assessing Officer considering the adjustments under Section 92CA as per the directions of DRP of Rs.2,96,90,753 determined the total income of the assessee at Rs.7,73,59,501 and passed order under Section 143(3) r.w.s. 144C(13) of the Act dt.27.11.2015. Aggrieved by the order of the Assessing 5 IT(TP)A Nos.64 & 73/Bang/2016 Officer, the assessee has filed an appeal before the Tribunal. At the time of hearing, the learned Authorized Representative has restricted his arguments to the extent of exclusion of comparables on functional dissimilarity and filed chart and Paper Book to substantiate the arguments. Contra, the learned Departmental Representative supported the orders of the lower authorities.
We heard the rival contentions and perused the material on record. The learned Authorized Representative substantiated his arguments for exclusion of comparables(i) Persistent Systems & Solutions Limited has to be excluded on the functional dissimilarity and also engaged into sale of software services and products and no segmental data. Further relied on the decision of co-ordinate Bench in the case of ACIT Vs. AT & T Global Business Services India Pvt. Ltd. in IT(TP)A No.171/Bang/2016 and 190/Bang/2016 dt.31.08.2018.We found the co-ordinate Bench has dealt on this issue along with other comparables at page 7 paras 5 & 6 of the order which is read as under : “ 5. We have considered the rival submissions, gone through the orders of the lower authorities and the judgments cited by the learned AR of the assessee. Various grounds not pressed by the learned AR of the assessee are rejected as not pressed. As per the appeal of the revenue, the revenue has challenged the exclusion of 10 comparables as per the directions of DRP. Out of this, the assessee has conceded that 3 comparables may be included i.e. 1) Evoke Technologies Pvt. Ltd., 2) Mindtree Limited (Seg.) and 3) R S Software (India) Ltd. To this extent, the order of DRP is reversed and the AO/TPO are directed to include these three comparables in the final list of comparables. Regarding the request of the revenue to include remaining seven comparables excluded by DRP and 3 more comparables which are not excluded by DRP but being requested by the assessee for exclusion i.e. for total 10 exclusions, Para 9 of the tribunal order rendered in the case of Commscope Networks India Pvt. Ltd. (Supra) is relevant and therefore, the same is reproduced here in below from pages 2364 & 2365 of the Case law Compendium for ready reference. This Para reads as under:- “9. Now we decide about the remaining 6 comparables excluded by DRP and 4 comparables retained by DRP but for which the assessee is seeking exclusion. Out of these 6 comparables excluded by DRP, one 6 IT(TP)A Nos.64 & 73/Bang/2016 comparable ICRA Techno Analytics Ltd. is having RPT in excess of 15% and therefore, for this reason alone, this comparable has to be excluded although DRP has excluded it for a different reason that it is having various activities and segmental data are not available. We uphold its exclusion on account of RPT filter. Exclusion of Acropetal Technologies Ltd. (Seg) is covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT (Supra). Respectfully following the same, we uphold its exclusion. Exclusion of 1) e – Zest Solutions Ltd., 2) Infosys Ltd., 3) Larsen & Toubro Infotech Ltd., 4) Persistent Systems & Solutions Ltd., 5) Persistent Systems Ltd., 6) Sasken Communication Technologies Ltd. and 7) Tata Elxsi Ltd. are also covered in favour of the assessee by the same tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT (Supra). Respectfully following the same, we uphold the exclusion of these Seven comparables also. Exclusion of E – Infochips Ltd. is covered in favour of the assessee by the tribunal order rendered in the case of Saxo India Pvt. Ltd. vs. ACIT in dated 05.02.2016 Para 10.1 & 10.2 available at pages 221 to 223. Respectfully following the same, we uphold its exclusion. In this manner, we uphold the exclusion of six comparables excluded by DRP out of 9 comparables excluded by DRP and exclude 4 comparables retained by DRP and we have already held that out of 9 comparables excluded by DRP, 3 have to come back being 1) Evoke Technologies Pvt. Ltd., 2) Mindtree Ltd. (Seg) and 3) R S Software (India) Ltd. Now, we decide about LGS Global Ltd. As per the tribunal order rendered in the case of Applied materials India Pvt. Ltd. vs. ACIT (Supra), this is a good comparable and therefore, we direct the A.O. and TPO to include this comparable. So, there should be 4 comparables in the final list of comparable and on the basis of that, the AO/TPO should work out the ALP.”
6. Respectfully following this tribunal order, we exclude these 10 comparables i.e. 1) Accropetal Technologies Ltd. (Seg.), 2) E – Zest Solutions Ltd., 3) E – Infochips Ltd., 4) ICRA Techno Analytics Ltd., 5) Infosys Ltd., 6) Larsen & Toubro Infotech Ltd., 7) Persistent System & Solutions Ltd., 8) Persistent Systems Ltd., 9) Sasken Communication Technologies Ltd. and 10) Tata Elxsi Ltd.” Accordingly, following the judicial precedence, we direct the Assessing Officer to exclude the comparable for determination of ALP. 5. (ii) Sasken Communication Pvt. Ltd, adjusted margin is 28.09% ,and the functions are dissimilar and also has presence of brand value with higher turnover and no segmental information. The learned Authorised Representative relied on the decision of ACIT Vs. AT & T Global Business Services Pvt. Ltd. (supra) as discussed in paragraph 4 . Accordingly, we direct the TPO/A.O to exclude Sasken Communication Technologies Ltd from the list of comparables in determination of ALP.
In the result, the assessee appeal is partly allowed.
7 IT(TP)A Nos.64 & 73/Bang/2016 7. Now we shall take up the Revenue’s appeal in IT(TP)A No.64/Bang/2016. The Revenue has raised the following grounds of appeal :
8 IT(TP)A Nos.64 & 73/Bang/2016
The learned Departmental Representative argued that the DRP has erred in exclusion of comparable M/s. e-Zest Solutions, Infosys Technologies Limited, Tata Elxsi Ltd., Icra Techno Analytics Ltd. on the ground of functional dissimilarity. Whereas the learned Authorised Representative controvert the submissions of the learned Departmental Representative and submitted that the DRP was correct in exclusion of (i) e-Zest Solutions Ltd. which is functionally dissimilar and is engaged in product development and KPO services.(ii) Infosys Technologies Ltd. has high margins and presence of brand value and higher turnover and was correctly excluded for determination of ALP.(iii)Tata Elxsi Ltd. has a margin of 22.49% and is functionally dissimilar and engaged in the diversified activities of product design, services and engineering services.(iv) ICRA Techno Analytics Ltd,has revenue from software development consultancy, designs and sub-licensing and maintenance charges and no segmental data is available and relied on the decision of ACIT Vs. AT & T Global Business 9 IT(TP)A Nos.64 & 73/Bang/2016 Services India Pvt. Ltd. (supra) as discussed in the assessee's appeal in para Nos.4 & 5.
The learned Departmental Representative argued that the Hon'ble DRP was not correct in exclusion of comparables RS Software (India) Ltd., Acropetal Technologies Limited, Mindtree Ltd., L & T InfoTech Ltd. and Evoke Technologies Ltd. Contra, the learned Authorized Representative supported the Drp order and submitted that Acropetal Technologies Ltd and L&T InfoTech ltd and was rightly rejected on functional dissimilarity, and relied on the decision of ACIT Vs. AT & T Global Business Services India Pvt. Ltd. (supra).The LdAr accepts the Revenue’s contention of inclusion of Evoke Technologies Ltd, Mindtree Limited and RS Software India Ltd. Accordingly, we direct the TPO to include these three comparables for determination of ALP and partly allowed the grounds of appeal
of revenue. In the result, the Revenue’s appeal is partly allowed.
10. In the result, the assessee appeal and Revenue appeal are partly allowed. Pronounced in the open court on the date mentioned on the caption page.