DCIT, BANGALORE vs. M/S LOGICA PVT. LTD.,, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B” , BANGALORE Before Shri B.R.Baskaran, AM & Smt.Beena Pillai, JM

IT(TP)A No.505/Bang/2016 : Asst.Year 2011-2012 The Dy.Commissioner of M/s CGI Information Systems & Management Consultation Pvt. Income-tax, Circle 2(1)(1) Vs. Ltd. (Formerly M/s.Logica Pvt. Bangalore. Ltd.) No.95/1 & 95/2, Electronic City, Tower-2, Phase-1, Bangalore-560 100. PAN : AAACL3330M (Appellant) (Respondent)

IT(TP)A No.626/Bang/2016 : Asst.Year 2011-2012 M/s CGI Information Systems & The Dy.Commissioner of Management Consultation Pvt. Ltd. Vs. Income-tax, Circle 2(1)(1) (Formerly M/s.Logica Pvt. Ltd.) Bangalore. No.95/1 & 95/2, Electronic City, Tower-2, Phase-1, Bangalore-560 100. (Appellant) (Respondent)

CO No.146/Bang/2018 : Asst.Year 2011-2012 (Arising out of IT(TP)A No.505/Bang/2016) M/s CGI Information Systems & The Dy.Commissioner of Management Consultation Pvt. Ltd. Vs. Income-tax, Circle 2(1)(1) (Formerly M/s.Logica Pvt. Ltd.) Bangalore. No.95/1 & 95/2, Electronic City, Tower-2, Phase-1, Bangalore-560 100. (Cross Objector) (Respondent)

Revenue by : Ms.Neera Malhotra, CIT-DR Assessee by : Sri.T.Suryanarayana, Advocate

Date of Date of Hearing : 04.12.2019 Pronouncement : 30.01.2020.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12

O R D E R Per Smt.Beena Pillai, JM : Present cross appeals cross objection arises out of order dated 22/01/16 passed by Ld.Dy.CIT under section 143 (3) read with section 144C of the act filed by assessee and revenue on following grounds of appeal: ITA (TP)A No. 626/B/2016 (assessee’s appeal) The grounds mentioned herein are without prejudice to one another: 1. That the order of the learned Deputy Commissioner of Income Tax, Circle- 2(1)(1), Bangalore ("the learned Assessing Officer" or "the learned AO") pursuant to the direction of the learned Dispute Resolution Panel ("the learned Panel" or "the learned DRP"), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. Transfer Pricing Related 2. That the learned AO and the learned DRP erred in upholding the rejection by the learned Transfer Pricing Officer ("the learned TPO") of the analysis undertaken by the Appellant in its Transfer Pricing ("TP") documentation, and thereby erred in not appreciating that the Appellant had prepared the TP documentation with bona fide and in good faith. 3. The learned AO and the learned DRP erred in law and on facts in disregarding application of multiple year / prior year data as used by the Appellant in the TP documentation and holding that only current year (i.e. financial year 2010- 11 relevant to assessment year 2011-12) data for comparable companies should be used. 4. The learned AO and the learned DRP erred on facts 2

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 and in law in upholding the acts of the learned TPO: (a) in conducting a fresh benchmarking analysis using non-contemporaneous data and substituting the Appellant's analysis with fresh benchmarking analysis based on his own conjectures and assumptions. (b) in rejecting the comparability analysis of the Appellant in the TP documentation and in submissions provided during the assessment proceedings, and confirming the comparability analysis as adopted by the learned TPO in the transfer pricing order, which is based on inappropriate filters and application of inconsistent comparability criteria. 5. That the learned AOI learned TPO/ learned DRP, while computing the Transfer Pricing adjustment, erred in computing the operating revenues and operating cost of the Appellant in respect of both the Software Development Services segment and the Information Technology enabled Services (ITeS) segment, consequently leading to a reduction in the effective mark-up earned by the Appellant, thereby resulting in an incremental transfer pricing adjustment. 6. Based on the above facts and in the circumstances of the case. the learned AO / the learned TPO / learned DRP erred in making adjustment to the transfer price of the Appellant’s international transactions with its related parties by INR 496,406,627. 7. That the learned AO / learned TPO erred in considering companies in the comparability analysis (for software development services segment and Information Technology enabled services segment) which do not satisfy the test of comparability. 8. That the learned AO / learned TPO erred in rejecting

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 companies similar to the Appellant while performing the comparability analysis (for software development services segment and Information Technology enabled services segment). 9. That the learned AO / learned TPO / learned DRP erred in computation of working capital adjustment while determining the arm's length margin. 10. That on the facts and in the circumstances of the case the learned AO / learned TPO / learned DRP erred in levying notional interest amounting to INR 74,808,532 on the outstanding debtors of INR 555,784,049 by re-characterising the outstanding debtors to be a loan transaction. 11. That the learned AO / learned TPO / learned DRP, notwithstanding that interest ought not to be levied, has erred in computing the interest on an annual basis, without considering the ageing analysis of the total amount of outstanding debtors exceeding 6 months. Other than Transfer Pricing Related 12. That the learned AO erred in granting the TDS credit of Rs 11,482,278 as against an amount of Rs 19,312,904 which was claimed by the company while filing its Income-tax return. 13. Consequently, the learned AO erred in charging interest under section 234B of the Act. 14. Consequently, the learned AO erred in charging interest under section 234C of the Act. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.” ITA (TP) A No. 505/B/2016 (revenue’s appeal) 4

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 “1. On the issue of excess claim u/s 10A and 10AA, whether the DRP was right in relying on the decision of the Hon’ble High Court of Karnataka in the case of Tata Elxsi & Others v. CIT (349 ITR 98) and in allowing the claim in favour of the assessee and against the Revenue. The decision is not accepted in principle but due to low tax effect, further appeal is suggested. 2. On the issue of disallowance of software expenses whether the DRP was right in relying upon the decision of the Hon’ble ITAT in assessee’s own case for A.Y. 2008-09 and in allowing the appeal. AO has not accepted the decision. 3. Whether ld.DRP has erred in granting 1% risk adjustment arbitrarily without appreciating the facts of the case and its comparables. 4. Whether Hon’ble DRP erred in fact in rejecting the company as a comparable on the grounds that it is functionally different when the primary source of income of the comparable is from provision of software development services. 5. Whether while seeking the exact comparability as mentioned above the DRP was right in fact and in law in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin.” CO No.146/B/2018 (by assessee in revenue’s appeal) “The Respondent - Cross-Objector most humbly submits as under: 1. That, even apart from having turnovers of less than Rs.200 crores and thus having rightly been directed to be excluded from the list of comparables to the Respondent's Software Development Services ('SWD' for short) segment, Acropetal Technologies Ltd., e-Zest Solutions Ltd., E- Infochips Ltd., ICRA Techno Analytics Ltd., and Persistent Systems and Solutions Ltd. ought to remain excluded from the list of comparables as the functions performed, assets 5

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 employed and risks assumed by the said companies are entirely dissimilar and incomparable to those of the Respondent's SWD segment. 2. That, even apart from having turnovers of more than Rs.200 crores and thus having rightly been directed to be excluded from the list of comparables to the Respondent's Information Technology enabled Services ('ITeS' for short) segment, Infosys BPO Ltd. and iGate Global Solutions Ltd. ought to remain e eluded from the list of comparables as the functions performed, assets employed and risks assumed by the said companies are entirely dissimilar and incomparable to those of the Respondent’s ITeS segment. The Respondent submits that the above grounds are independent of and without prejudice to one another. The Respondent also craves leave of this Hon’ble Tribunal to add to and / or amend all or any of the abovementioned grounds of cross objections at any time before the final hearing and disposal of the present case.” Brief facts of the case are as under: 2. Assessee is a company engaged in business of development of computer software consultancy, IT enabled services and in developing, distributing and maintaining information technology related products and services. Assessee filed its return of income for year under consideration declaring total income of Rs.52,22,33,025/-. The return was processed under section 143 (1) of the Act, and was selected for scrutiny. Consequentially, notices under section 143 (2), 142 (1) along with questionnaire was issued to assessee. In response to statutory notices, representative of assessee appeared before Ld.AO and filed requisite details as called for.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 2.1. From details filed by assessee, Ld.AO observed that assessee has entered into international transaction with its associated enterprise that exceeds Rs.15 crores. Accordingly, case was referred to transfer pricing officer to determine arm’s length price under section 92CA of the Act. Upon receipt of reference, Ld.TPO called for economic details in respect of international transaction entered into by assessee. Ld.TPO observed that assessee had following international transactions with its associated enterprises: Particulars Amount in Rs. Provision of services, SWD 3,86,63,46,033/- Provision of services, ITES 1,17,69,82,795/- Management fees paid 19,44,47,584/- Reimbursement of expenses paid 2,59,69,337/-

Ld.AO observed that assessee under provision of software development services and ITES segment used TNMM as most appropriate method and OP/OC as PLI to compute the margin at 13.29% and 13.66% respectively. Assessee used following comparables to determined the transaction to be at arms length. Comparables used by assessee for Provision of services, SWD S.No. Comparables selected Margin 1. Akshay Software Technologies 3.63%

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 2. Bells Softech Ltd 4.94% 3. FCS Software Solutions Ltd 30.08% 4. Helios & Matheson 16.47% Information Technology Ltd 5. LGS Global Ltd 15.40% 6. Mindtree Ltd 20.94% 7. Omni Ax’s Software Ltd 1.63% 8. Persistent Systems and 20.31% Solutions Ltd 9. Quinnox Consultancy Services Ltd 14.16% 10. Reliance Infosolutions Pvt.Ltd 8.60% 11. Spry Resources India Pvt.Ltd 27.54% 12. CCE Software Pvt.Ltd 15.46% 13. Allied Digital Services Ltd 13.38% 14. Octant Industries Ltd 1.48% 15. Techprocess Solutions Ltd 10.16% 16. Maximaa Systems Ltd 5.05% Average Margin 13%

Comparables used by assessee for Provision of services, ITES S.No. Comparables selected Margin 1. A O K In-House BPO Services Ltd 5.21% 2. Cameo Corporate Services Ltd 9.95% 3. Cosmic Global Ltd 30.20%

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 4. Dealt are Services (I) Pvt.Ltd 3.84% 5. Informed Technologies India Ltd 22.44% 6. Infosys BPO Ltd 27.74% 7. Jindal Intellicom Pvt.Ltd. 9.22% 8. Professional Management 3.22% Consultants Pvt.Ltd. 9. Spanish BPO Services Ltd 3.34% 10. In House Productions Ltd- 11.84% Healthcare division 11. Microland Ltd-IT Enabled Services -9.82% 12. Techprocess Solutions Ltd- 33.50% Processing services Average Margin 13%

As assessee’s margin was more than the average margin of comparables selected under respective segments, the transaction with AE was treated to be at arms length. 2.2. Ld.TPO upon analysing comparables selected by assessee under both segments, rejected certain comparables on the basis of certain filters applied. Ld.TPO carried out fresh search and finalised following set of 13 comparables for software development segment and a set of 10 comparables for ITES segment with an average margin of 24.82% and 24.77% respectively: Comparables selected by learnt TPO for SWD segment

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 S.No. Comparables selected Margin 1. Acropetal Technologies Ltd (SEG) 31.98% 2. eZest Solutions 21.03% 3. E Infochips Ltd 56.44% 4. Evoke 8.11% 5. ICRA Techno Analytics Ltd 24.83% 6. Infosys Ltd 43.39% 7. Larsen and Toubro Infotech Ltd 19.83% 8. Mindtree Ltd 10.66% 9. Persistent Systems and Solutions 22.12% Ltd 10. Persistent Systems Ltd 22.84% 11. RS Software (India) Ltd 16.37% 12. Sask and Communications 24.13% Technologies Ltd 13. Tata Elxsi Ltd (SEG) 20.91% Average Margin 24.82%

Comparables selected by Ld.TPO under ITES Segment S.No. Comparables selected Margin 1. Accentia Technologies Ltd 28.89% 2. Acropetal Technologies 26.86% 3. Cosmic Global Ltd 9.81% 4. e4e Healthcare 12.38%

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 5. ICRA Online Ltd (SEG) 34.1% 6. Jeevan Scientific Technologies Ltd 70.66% 7. Infosys BPO Ltd 17.89% 8. Jindal Intellicom 11.13% 9. Mindtree Ltd (SEG) 10.76% 10. IGate Global Solutions Ltd 25.07% Average Margin 24.77%

Ld.TPO thus proposed shortfall as adjustment under both segments as under: S.No Particulars Proposed adjustment 1. Provision of SWD services Rs.48,03,26,838/- 2. Provision of ITES services Rs.14,23,71,346/-

2.3. Ld.TPO restricted working capital adjustment to 1.63%. He also denied any risk adjustment for the reason that assessee failed to establish the difference in risk level of the tested party and uncontrolled comparables and that no reasonably accurate adjustments could be made for want of a scientific method for computing the quantum of risk adjustment. The Ld.TPO did not consider certain expenses as operating in nature while computing the margins of comparables like, provision for doubtful debts, provision for warranty etc. Ld.TPO levied interest on outstanding debtors and proposed adjustment amounting to Rs.7,48,08,532/-.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Ld.AO/TPO reduced export turnover with telecommunication charges while computing 10 A/AA deduction without reducing the same from total turnover. Ld.AO/TPO disallowed computer software expenses by holding it to be capital in nature ignoring the decisions of coordinate bench of this Tribunal in assessee’s own case for assessment year 2007-08 2008-09. 2.4. Aggrieved by proposed adjustment, assessee raised objections before DRP. DRP in respect of in appropriate selection of comparables by Ld.TPO, upheld certain exclusion on turnover filter, and others were confirmed. Insofar as issues pertaining to working capital adjustment, interest on receivables computing the margins of the comparables are concerned, DRP upheld Ld.TPO’s observations. In respect of objections for not granting risk adjustment DRP directed Ld.AO/TPO to provide 1% risk adjustment to assessee. Insofar as computation of deduction under section 10 A/AA concerned DRP directed to follow ratio by Hon’able Karnataka High Court in case of CIT vs Tata Elxsi Ltd., reported in (2012) 349 ITR 98 and insofar as considering software expenses as capital, DRP directed Ld.AO to follow view taken by this Tribunal in assessee’s own case for assessment year 2007-08 and 2008-09. 2.5.Upon receipt of directions from DRP, Ld.AO passed impugned assessment order by making an ad addition of Rs.49,46,06,672/-.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Aggrieved by impugned order passed by Ld.AO, assessee, as well as revenue, is in appeal before us. Assessee has also filed cross objection against the additional ground raised by revenue subsequently. 2.6. Revenue in their appeal raised following Revised Additional ground vide Application dated 20.11.2018 in respect of rejecting comparables on the basis of high turnover by DRP: “Revised Additional grounds: 1. Hon’ble DRP erred in directing AO/TPO to exclude the software development companies whose turnover is below 200 crores and DRP further erred in directing the AO/TPO to exclude IT enabled services companies whose turnover is more than 200 crores whereas in case of Chriscapital Investment Advisory (India) Pvt.Ltd vs DCIT, 56 Taxmann.com 417 (2015) (12) it was held that turnover cannot be the sole criteria to reject comparables.” 2.6.1. Ld.CIT DR submitted that the issue arises from the records and there is no need to consider any fresh evidences for adjudicating the additional ground raised. Ld.CIT DR submitted that DRP erred in directing exclusion of companies whose turnover is more than 200 crores in respect of segments under consideration. She submitted that turnover cannot be the only criteria for exclusion. She submitted that t was an inadvertent omission for raising grounds in respect of the same. 2.6.2. On the contrary, Ld.AR submitted that assessee strongly objects for Additional ground to be admitted as, by way of additional ground revenue is seeking to challenge what is already settled by various decisions of this Tribunal. However Ld.AR also submitted that assessee has filed cross objection against the additional ground 13

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 raised by revenue in support of all those comparables excluded by DRP by applying turnover filter. Ld.AR submitted that even apart from not satisfying the turnover filter, these comparables so excluded by DRP are functionally also not similar captive service provider like assessee. 2.6.3. We have perused submissions advanced by both sides in light of records placed before us. It is observed that issue alleged by revenue in additional ground arises from the order passed by DRP and that no new records needs to be looked into to adjudicate the ground. Therefore, following decision of Hon’ble Supreme Court in case of NTPC Ltd Vs CIT reported in 229 ITR 383, we are of considered opinion that, issue emanates from records placed before us, and therefore deserves to be admitted. Respectfully following the above, we do not find any reason not to admit additional ground. Accordingly, revised additional ground raised by assessee stands admitted. 2.7. All issues raised by assessee and revenue intermingle with each other. We therefore take up assessee’s appeal wherein certain comparables included/excluded by DRP are under challenge in assessee’s as well as revenue’s appeal. The cross objection filed by assessee is in support of exclusion of comparables by DRP which revenue challenges by way of additional ground admitted hereinabove.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 3. Ld.AR submitted that Ground No. 1 to 6 in assessee’s appeal are general in nature and therefore do not require adjudication. Ground No.7-8 (assessee appeal) are in respect of inclusion/exclusion of comparables under software development segment and ITES segment. Software development service segment (SWD) Comparable sought for exclusion:  Persistent Systems Ltd  Sasken Communications Technologies Ltd Comparables sought for inclusion:  LGS global Ltd  FCS software solutions Ltd ITES segment Comparables sought for exclusion  Accentia technologies Ltd  Acropetal Technologies Ltd  ICRA Online Ltd  Jeevan Scientific Technology Ltd 3.1. Before we undertake comparability analysis, it is sine qua non to understand functions performed, assets owned and risks assumed by assessee under both these segments. Transfer pricing study shows that assessee provides software development services and IT enabled services as a captive service provider. It has been recorded that assessee undertakes software

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 development and sales as an enterprise providing services to the third-party customer located domestically. It has been submitted in TP study that operations of assessee can be broken down under 2 categories viz; export and domestic service segment. Under the export services development Centre performs contract software development for the group companies on several financial software products and is compensated on a cost plus markup basis. The group company has the required infrastructure with skilled resources in all areas of project management and development, resources with specialised skills to meet the project needs are recruited locally by assessee on a case to case basis. It has been submitted in the TP study that assessee follows a structured set of guidelines and procedures developed by the group companies which is the management of outsourced project or product development. FAR analysis of SWD segment: 3.1.1 Functions performed: Assessee provides post sales services of maintenance support to third-party customers of group companies within India which includes provision of new releases of software modules, resolution of reported problems and provision of helpdesk services. For this purpose assessee imports basic software from its group company in UK. Customisation is carried out through a third-party contract service provider. Assessee come with staff provided by the UK group companies undertakes software implementation. Assessee also

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 provides post warranty maintenance services to the third-party customers of group companies in India. ITES segment 3.1.2. Functions performed: Under this segment, assessee provides infrastructure management services like it remotely manages computers, networks, servers etc., for clients and others. It enters into fixed fee contracts with the clients to provide infrastructure management services which includes monitoring activity, support activity and changes of any modification request from the clients. Assessee operates on a cost centre model it also provides services to its counterparts in Netherlands, Europe and located in other countries. 3.1.2.1 Among the security measures biometric access control, continuous CCTV monitoring and strict procedures for the disposal of waste, using shredders and secure waste containers are being followed. The BPO team located in Bangalore is part of outsourcing division which provides end to end accounting solutions including individuals and non-core business processes like finance and accounting and procurement, HR and payroll services, training and learning services and document management services. 3.1.2.2 The above services under ITES segment are provided largely to group affiliates. Majority of the work is being outsourced from the Netherland group company. The group caters to the needs of external clients by providing same business process outsourcing services to them as well through the group. 17

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 3.1.3. Assets employed As noted hereinabove, assessee owns routine assets like plant and machinery, computer, office equipments, furniture fixtures, motor vehicles etc. It has also been recorded that assessee does not own any intellectual property arising from the development activity. 3.1.4.Risks assumed: It has been recorded that this activities carried out at a minimal risk to assessee. 3.1.5. Characterisation: In TP study, based on above FAR, assessee is characterised as a captive, contract service provider in respect of SWD and ITES service segment with assuming less than normal risk associated with carrying out such services and enterprise in respect of software development and sales activity wherein certain risk is associated with activity. 3.2. Based upon above FAR analysis, we shall consider the comparables alleged for inclusion/exclusion by assessee under both segments. Software development service segment (SWD) Comparable sought for exclusion: Persistent Systems and Solutions Ltd This comparable has been included by Ld.TPO though it has been objected by assessee on functional dissimilarities. It has been submitted that segmental information is in respect of this company is not available in the annual report. 18

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Ld. CIT DR placed reliance upon orders of authorities below. We have perused submissions advanced by both sides in light of the records placed before us. Annual report of this company is placed at page 1011 to 1022 of paper book Index to Annual Reports Volume 1. We find that this company earned income from sale of software services and products and no segmental details are available in respect of the same. It is also observed that income generated under both these segments cumulatively amounts to tune of Rs.6.67 crores and in schedule 11, entire revenue has been shown under one segment. It is also observed that this company is rendering software development services and licensing, and earns royalty of software products. Therefore in our considered opinion, in the absence of segmental details we cannot appreciate the view taken by authorities below. Accordingly we direct Ld.TPO to exclude this company from the final list. Sasken Communications Technologies Ltd Assessee seek exclusion of this comparable for the reason that it is engaged in development of software products and has inventory is an intangible assets. It has been submitted by Ld.AR that this company is also having huge expenditures under R&D head. He further submitted that during the year under consideration revenue from software products is more and it launched a new product called VYAPAR SEVA. Ld.AR submitted that this company has significant intangibles and inventory is and therefore should be rejected to be 19

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 compared with a captive service provider like assessee. In support of his contentions he placed reliance upon decision of this Tribunal in case of Comscope Networks (I) Pvt.Ltd. vs ITO in IT(TP)A No.166 & 181/B/2016, vide order dated 22/02/2017. On the contrary Ld. CIT DR placed reliance upon orders passed by authorities below. She submitted that though there is revenue from 3 separate segments however segmental information are available. She also submitted that the product launched is for a future period and has not generated any revenue during the year under consideration. There is no impact of this launch on the financials of this company for year under consideration. In all fairness she submitted that the comparable nay be set aside to Ld.AO/TPO for verification of the same. We have perused submissions advanced by both sides in light of records placed before. At page 1304 of the annual report placed in Volume 1 of Index to Annual Reports it is observed that segmental details has been provided. All details relevant for computing the margin of this comparable are available at page 1304-1305 of paper book. We are therefore unable to appreciate arguments advanced by Ld.AR regarding segmental details not available. Further it is observed that Ld.TPO considered the consolidated figure appearing in profit and loss account, instead of considering segmental profits from software services of this company. We therefore set aside this comparable to 20

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Ld.AO/TPO to verify relevant observations recorded herein above and to recompute margins of this comparable. Accordingly this comparable is set aside to learnt AO/TPO. 3.2.1. Comparables sought for inclusion: LGS global Ltd & FCS software solutions Ltd Assessee is seeking inclusion of these comparable. It has been submitted that LGS Global Ltd., was submitted as an addition to original list of comparables during TP assessment. Ld.AR submitted that Ld.TPO rejected this company on the ground that annual report did not give breakup of employee cost. As regards FCS Software Solutions Ltd, Ld.AR submitted that this comparable was initially proposed by Ld.TPO in the show cause notice but subsequently not included on the sole ground that impact of its working capital on profit was more than 4%, despite the fact that Ld.TPO categorically held it is functionally similar to assessee. Ld.CIT DR placed reliance upon decision of coordinate bench of this Tribunal, wherein this comparable is held to be not a good comparable in case of ACIT vs AT& T Global Business Services India (P) Ltd reported in (2019) 101 Taxmann.com 10. However in all fairness she submitted that in case of Finestra software solutions (India) Pvt Ltd vs ACIT reported in (2018) 93 Taxmann.com 460 wherein these comparables have been set aside. She therefore submitted that these comparables may be set aside to Ld.AO/TPO for due verification. 21

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 We have perused submissions advanced by both sides in light of records placed before us. It is observed that in case of Finestra software solutions (India) Pvt Ltd vs ACIT (supra), it has been observed that both these companies have been held functionally similar with captive service provider like assessee. However since working capital adjustments are not provided these comparables have been held to be not included in the finalist. We do not subscribe to such observations of Ld. TPO/DRP. We direct Ld. AO/TPO to consider these comparables by providing proper working capital adjustments in accordance with law. Accordingly these comparables are set aside to Ld.AO/TPO. 3.3. ITES segment 3.3.1. Comparables sought for exclusion Accentia technologies Ltd Assessee had objected for inclusion of this company before authorities below. Ld.AR submitted that this company is engaged in services are akin to knowledge process outsourcing, which is evident from annual report. It has been submitted that under this segment assessee is rendering back-office services, which is merely supportive in nature. He also submitted that further this company does only medical transcription but has also ventured into healthcare receivable cycle management and high end consultancy to start-ups requiring field experts. Ld.AR submitted that segmental details of various activities carried out by this company is not available and also has significant intangibles. In support of his contentions he 22

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 placed reliance on decision of coordinate bench of this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT reported in (2016) 76 Taxmann.com 22. On the contrary, Ld. CIT DR placed reliance upon the orders of authorities below. We have perused submissions advanced by both sides in light of records placed before us it is observed that though this company was into medical transcription and other services. It can neither be held to be a high-end activity, nor can be held to be low-end services. However it is observed that this company had undergone acquisition, which is an extraordinary event and can impact profits for year under consideration. Under such circumstances we are of the opinion that this company cannot be considered to be comparable with that of assessee for the year under consideration. Accordingly direct this company to be deleted from the finalist. ICRA Online Ltd Assessee objected for inclusion of this comparable. Ld.AR submitted that this company is functionally not comparable under this segment as it is providing high-end KPO services, whereas assessee is carrying out back office services. He also submitted that this company fails RPT filter applied by Ld.TPO. On the contrary Ld. CIT DR placed reliance on view taken by this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra).

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 We have perused submissions advanced by both sides in light of records placed before us. The annual report of this company is placed at page 1738-1760 of Index to Annual Reports Paper Book Volume 2. It is observed that this company has 3 reportable segments being information services, outsourced services, software services. Further it is observed that, this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra) and M/s Zyme Solutions Pvt.Ltd vs ACIT in ITA (TP) A No. 85/B/2016 for assessment year 2011-12 remanded this company for fresh consideration to Ld. AO/TPO. Following the same, we also direct this company to be set- aside to Ld.AO/TPO for fresh consideration of comparability the lines indicated in these cases. Accordingly this comparable stand set aside for fresh consideration. Jeevan Scientific Technology Ltd This company was objected by assessee for its inclusion before Ld.TPO for the reason that service income is from BPO and does not satisfy the filter used by Ld.TPO of sales more than Rs.1 crore. It is also also been submitted that this company does not satisfy the service income filter of more than 75% of total operating revenue as applied by Ld.TPO. Ld.AR submitted that the segmental details of this company are unavailable and therefore it cannot be ascertained whether the services provided by this company in BPO segment is similar to that of assessee. 24

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 We have perused submissions advanced by both sides in light of records placed before us. The annual report of this company is placed at page 1761-1831 of Index to Annual Reports Paper Book Volume 2. It is observed that this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra) and M/s Zyme Solutions Pvt.Ltd vs ACIT in ITA (TP) A No. 85/B/2016 for assessment year 2011-12 remanded this company for fresh consideration to Ld. AO/TPO. Following the same, we also direct this company to be set-aside to Ld.AO/TPO for fresh consideration of comparability the lines indicated in these cases. Accordingly this comparable stand set aside for fresh consideration. 3.4. Ground no.9 (Aeessee appeal) &Ground no.3 (Revenue appeal): As these grounds raised by assessee as well as revenue are in relation to same issue they are taken up together. Ld.AR also submitted that upholding working capital adjustment being restricted at 1.63% is against view taken by various decisions of this Tribunal. He submitted that Ld.TPO is duty bound to give adjustment based on difference in economic, geographical condition, compared with that of assessee in actual is without any. He placed reliance on various decisions of coordinate bench of this Tribunal where, Ld.TPO is directed to provide working capital adjustment by taking actual data, without putting any upper limit.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 3.4.1. Ld.CIT DR submitted that DRP provided risk adjustment at 1% on ad hoc basis without having a scientific approach. She submitted that there are various factors that needs to be considered for providing risk adjustment which assessee has to establish in its case having regards to comparables finally selected. She placed reliance upon VM global Technology Services (India) Pvt.Ltd vs ACIT reported in (2018) 91 taxman.com 403 in support of her contention. We have perused submissions advanced by both sides in light of records placed before us. 3.4.2.We have perused orders passed by authorities below on the basis of records placed before us. It is noted that working capital adjustment has been restricted by Ld.TPO and upheld by DRP at 1.63% which is contrary to provisions of transfer pricing rules. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm’s length margin as per the view expressed by this Tribunal in case of Huawei Technologies India Pvt. Ltd vs JCIT reported in (2019) 101 taxman.com 313. 3.4.3 As regards the risk adjustment on ad hoc basis at 1%, it is observed that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company for ITES segment and bears certain amount of entrepreneurial risk under SWD segment. Therefore while computing risk adjustment risks assumed by the comparables for earning revenue under particular segment 26

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 needs to be analysed. Assessee is directed to provide for necessary details in respect of all the comparables finally selected. If that information is insufficient, it is beyond the power of Assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital/risk differences. Ld.AO/TPO shall then compute risk as adjustment in accordance with law. Accordingly, Ground No. 9 of assessee’s appeal and Ground No. 3 of revenue’s appeal stands allowed for statistical purposes. 3.5. Ground no.10-11(assessee appeal) These grounds are in respect of interest on receivables outstanding as on 31/03/11 for a period of more than 6 months amounting to Rs.55,57,84,049/- in relation to transaction with AE. Ld. AO/TPO characterised the outstanding receivables to be loan transaction on which no to notional interest to the extent of Rs.7,48,08,532/-was charged. 3.5.1. From TP study, it is observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.Counsel submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such 27

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 transaction have already been accounted for. Alternatively, he submitted that working capital subsumes sundry creditors and therefore separate addition is not called for. 3.5.1. Ld.TPO computed interest on outstanding receivables at the rate equal to 13.46 % on the receivables that exceeded 6 months. It has been argued by Ld.AR that authorities below disregarded business/commercial arrangement between the assessee and its AE’s, by holding outstanding receivables to be an independent international transaction. 3.5.2. Ld.AR placed reliance on decision of Delhi Tribunal in Kusum Healthcare Pvt.Ltd vs. ACIT reported in (2015) 62 Taxmann.com 79, deleted addition by considering the above principle, and subsequently Hon’ble Delhi High Court in Pr. CIT vs. Kusum Health Care Pvt. Ltd. (2017) 398 ITR 66 (Del), held that no interest could have been charged as it cannot be considered as international transaction. He also placed reliance upon decision of Delhi Tribunal in case of Bechtel India vs DCIT reported in (2016) 66 taxman.com 6 which subsequently upheld by Hon’able Delhi High Court vide order dated 21/07/16 in ITA No. 379/2016, also upheld by Hon’ble Supreme Court vide order dated 21/07/17, in CC No. 4956/2017. 3.5.3. It has been submitted by Ld.AR that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in 28

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 3.5.4. On the contrary Ld.CIT.DR submitted that interest on receivables is an international transaction and Ld.TPO rightly determined its ALP. In support of her contentions, she placed reliance on decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015- TII-347-ITAT-DEL-TP) wherein it is held that, interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expression "international transaction" shall include— …… (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;….’ . 3.5.5. Ld.CIT DR submitted that expression ‘debt arising during the course of business’ refers to trading debt arising from sale of goods or services rendered in course of carrying on business. Once any debt arising during course of business is an international transaction, he submitted that any delay in realization of same needs to be considered within transfer pricing adjustment, on account of interest income short charged or uncharged. It was

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 argued that insertion of Explanation with retrospective effect covers assessment year under consideration and hence under/non- payment of interest by AEs on debt arising during course of business becomes international transactions, calling for computing its ALP. He referred to decision of Delhi Tribunal in Ameriprise (supra), in which this issue has been discussed at length and eventually interest on trade receivables has been held to be an international transaction. Referring to discussion in said order, it was stated that Hon’ble Delhi Bench in this case noted a decision of the Hon’ble Bombay High Court in the case of CIT vs. Patni Computer Systems Ltd., (2013) 215 Taxmann 108 (Bom.), which dealt with question of law: (c) `Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises?’ 3.5.6. She submitted that, while answering above question, Hon’ble Bombay High Court referred to amendment to section 92B by Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside view taken by Tribunal, Hon’ble Bombay High Court restored the issue to file of Tribunal for fresh decision in light of legislative amendment. It was thus argued that non/under-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such 30

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 international transaction has to be determined by Ld.TPO. In so far as charging of rate of interest is concerned, he relied on decision of the Hon’ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. 3.5.7. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15- 7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR. 3.5.7. Alternatively, it has been argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. Hon’ble Delhi Tribunal in case of Orange Business Services India Solutions

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Pvt. Ltd. vs. DCIT in ITA No. 6570/Del/2016 vide its order dated 15.2.2018 has observed that: “There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which would have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee would have to be studied. It went on to hold that, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-à-vis the receivables for the supplies made to an AE, the arrangement reflected an international transaction intended to benefit the AE in some way. Similar matter once again came up for consideration before the Hon’ble Delhi High Court in Avenue Asia Advisors Pvt. Ltd. vs. DCIT (2017) 398 ITR 120 (Del). Following the earlier decision in Kusum Healthcare (supra), it was observed that there are several factors which need to be considered before holding that every receivable is an international transaction and it requires an assessment on the working capital of the assessee. Applying the decision in Kusum Health Care (supra), the Hon’ble High Court directed the TPO to study the impact of the receivables appearing in the accounts of the assessee; looking into the various factors as to the reasons why the same are shown as receivables and also as to whether the said transactions can be characterized as international transactions.” 3.5.8. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. Accordingly these ground raised by assessee stands allowed for statistical purposes.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 3.6.Ground No. 12 is against non-granting of TDS credit claimed by assessee while filing its return of income. Ld.TPO/AO is directed to verify the same and granted accordance with law. Assessee is directed to furnish requisite information/details in support of its claim. Needless to say that proper opportunity in accordance with law shall be granted to assessee. Accordingly, this ground raised by assessee stands allowed for statistical purposes. 3.7. Ground No. 13-14 raised by assessee are consequential in nature and therefore do not require adjudication. Accordingly appeal filed by assessee stands allowed as indicated hereinabove.

Revenue’s appeal 4. Ground no 1 (Revenue appeal) This ground is in respect of excluding expenses incurred in foreign currency from export turnover while computing deduction under section 10A/AA of the Act. 4.1. Ld.AR submitted that, consistently this Tribunal following decision of Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT reported in 349 ITR 98 has been granting deduction. Ld.CIT DR placed reliance upon orders passed by authorities below. 4.2. We have perused submissions advanced by both sides in light of records placed before us. 33

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 It is observed that DRP while considering the issue referred to view of Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra), directed Ld.AO to follow the view taken therein, while computing deduction under section 10 A of the Act. 4.3. We do not find any infirmity in such directions. Ld.AO to recompute export turnover in the light of ratio laid down by Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra). Accordingly this ground raised by revenue stands dismissed. 5. Ground No. 2 (revenue appeal) Assessee claimed deduction of Rs.94,53,053/- as expenses towards purchase of licenses for computer software used primarily as application software for various projects undertaken by it. It was submitted that assessee treated the expenses as revenue in nature and claimed deduction of entire amount. But authorities below did not agree and held that expenses are capital and therefore deserves to be disallowed. Ld.AR submitted that DRP observed that identical issue was considered during assessment years 2007-08 and 2008- 09 wherein similar expenses on identical facts have been held to be revenue in nature. DRP accordingly directed Ld.AO to grant the claim as expenditure under section 37 of the Act. 5.1. Ld. CIT DR placed reliance upon orders of authorities below. 5.2. We have perused submissions advanced by both sides in light of records placed before us. It is observed that DRP directed Ld.AO to grant the deduction claimed by assessee as revenue, however Ld.AO failed to follow the directions. 34

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 It is observed that DRP following the view taken by this Tribunal in preceding years in assessee’s own case held the expenditure to be allowable in the hands of assessee. It has been submitted by Ld.AR that this view is supported by another decision of coordinate benches of this Tribunal in case of IBM India Pvt.Ltd. vs CIT reported in (2007) 290 ITR (AT) 183 (Bang) and Amway India Enterprises vs DCIT reported in (2008) 301 ITR (AT) 1 (Del). Respectfully following the same, we direct Ld.AO to grant deduction claimed by assessee under section 37 of the Act. Accordingly, this ground raised by revenue stands dismissed.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Infotech Ltd, Persistent Systems and Solutions Ltd., RS Software (India) Ltd. ITES Segment Infosys BPO Ltd., Mindtree Ltd, iGate Global Soutions Ltd

6.2. Ld.CIT DR at the outset submitted that DRP rejected comparables by following certain decisions without considering the FAR analysis. Ld.CIT DR placing reliance on decision of Hon’ble Delhi High Court in case of Chryscapital Investment Advisory (India) Pvt.Ltd vs DCIT, reported in 56 Taxmann.com 417 (2015) submitted that, this filter cannot be the sole criteria to reject comparables. She submitted that such filter is not prescribed under IT Rules, as one, which is to be applied while determining arms length price of international transaction. Ld.CIT DR placed reliance on orders passed by Ld.AO/TPO. She relied upon following decisions of this Tribunal in support of her contention:  NTT Data Global Delivery Services Ltd. vs ACIT reported in (2016) 59 Taxmann.com 7;  LSI Technologies India Pvt.Ltd vs ITO reported in (2016) 70 Taxmann.com 189;  Societe Generale Global Solutions Centre Pvt.Ltd vs DCIT reported in (2016) 69 Taxmann.com 336;  Capgemini India Pvt.Ltd vs ACIT reported in (2015) 58 Taxmann.com 175;  Wills Processing Services India Pvt.Ltd vs DCIT reported in (2013) 30 Taxmann.com 350.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 6.3. Ld.CIT DR relied upon decision of co-ordinate Bench of this Tribunal in case of Mercedes-Benz research and development India private limited vs ACIT reported in (2018) 90 Taxmann.com 300 and submitted that these comparables were sent back to Ld.TPO for re- examination. She thus submitted that, the view taken by coordinate bench of this Tribunal in Mercedes-Benz research and development India private limited vs ACIT (supra) may be followed. 6.4. On the contrary Ld.AR placed reliance upon decision of coordinate bench of this Tribunal in case of Genesis Integrating Systems India (P) Ltd vs DCIT reported in (2012) 20 taxman.com 715. He submitted that this Tribunal in case of Autodesk India (P) Ltd vs DCIT reported in (2018) 96 Taxmann.com 263 (Bang) expressed a view that turnover is a relevant criteria for determining comparability of comparable entity and the tested party. He also relied upon decision of Hon’able Karnataka High Court in case of Acuses software India (P) Ltd vs ITU reported in submitted by (2018) 98 Taxmann.com 183, wherein applicability of turnover filter has been upheld. 6.5. We have perused submissions advanced by both sides in light of records placed before us. It is observed that companies engaged in software development services are treated by both sides as comparables irrespective of various verticals of software. Ld.TPO as well as assessee searched for comparables, which are engaged in software development services, but has not consider verticals/functional or service lines, in which the company is engaged. Thus it is observed that comparables 37

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 selected are into different verticals and functional lines, though assessee is catering to software development and maintenance needs of the group and has been characterized as captive software development service provider. In Genesis Integrating Systems India (P) Ltd vs DCIT (supra), this Tribunal observed as under:

“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 are 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 are 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 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 core 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.” 6.6. In facts of present case, assessee is doing part of software development cycle under the guidance of its AE’s and therefore has been categorised as a captive software development service provider catering to needs of the group. Assessee in TP study held to be comprise of Software Engineers, who develop project based on inputs

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 received from AE. Engineers employed by assessee designs functional specifications for the project identification of interfaces components coding and bug fixing. Ultimate approval and owner of project developed is the AE. In our view, by involving itself in process of Software development for AE, assessee cannot be held to be fulfledged Software Development Company. One has to look into transaction in regards to services rendered and FAR, which catagorises it to be a captive service provider, working on business model of cost plus margin. 6.7. It is observed that comparables sought to be excluded are 100 % Software Development Companies, having high turnover and therefore respectfully following aforestated view in case of Genesis Integrating Systems India Pvt. Ltd., vs DCIT (supra) these comparables are to be excluded on both the counts of functionally not being similar with that of assessee and also because they have a high turnover. It is submitted that subsequently this Tribunal in case of Yodlee Infotech Pvt. Ltd vs ITO in IT(TP)A no. 108/Bang/2014 For assessment year 2009-10, vide order dated 12/12/14, excluded these companies following Genesis Integrating systems Indi Pvt.Ltd vs.DCIT(supra). Hon’ble Delhi High Court in case of Chriscapital (supra), Hon’ble Court was of the opinion that assessee could not challenge functional differences before the court for first time and that assessee had included one of the companies in its earlier year. In the present case facts are not similar to that of Chriscapital (supra).

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 6.8. Reliance is placed on decision of this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT reported in (2018) 96 Taxmann.com 263, where this Tribunal followed similar view to exclude identical comparables by applying turnover filter, wherein all decisions relied upon by Ld. CIT DR has been considered and dealt with. 6.9. However, we have also analysed functional similarities/dissimilarities of these comparables with assessee having regard to annual reports placed in Index to Annual report paper book Volume I & II. Comparables like Acropetal Technologies Ltd., e-zest Solutions Ltd., E-Infichips, ICRA Techno Analytics Ltd., Larsen and Toubro Infotech Ltd., Persistant Systems and solutions Ltd., Mindtree Ltd., iGate Global Solutions Ltd., do not have segmental details available. Also that these comparables are either having diversified functions with no segmental details or into product sales or into consultancy services. Further, where the comparables are into product sales, there is presence of huge intangibles, which is not at all the case with assessee. 6.10. We have perused view of co-ordinate bench of this Tribunal in case of Mercedes-Benz research and development India private limited (supra) in respect of Accropatel Technologies Ltd and L&T Infotech Ltd. It is observed that these comparables were sent back to Ld.TPO 6.11. For the reason that DRP there in noted the comparables having segmental details which was opposed by assessee. We have perused annual reports of these comparables in detail and are of opinion that

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 segmental informations are not available. We therefore do not find force in argument raised by Ld.CIT DR.

Infosys BPO In so far as Infosys BPO is concerned, this company has huge brand value. Tribunal in case of Zyme Solutions Pvt Ltd., vs ACIT vide order dated 28/06/19 in ITA (TP) a No. 1661/Bang/2016, wherein this comparable has been excluded by observing as under:

‘5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ACIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- “23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the submissions of the ld. counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPQ Ltd. in the market, the company incurs substantial selling and marketing expenditure whereas the assessee being a contract service provider does not incur such expenses to maintain its brand has not been controverted by them. Further, Infosys BPO Ltd. being a subsidiary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s Portland 41

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin.” It was also brought to our notice that the Hon’ble Delhi High Court in ITA No.260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider and hence deservs to be excluded. We are therefore do not find any infirmity in exclusion of these comparables for high turnover. However we have analysed the alledged comparable to be functionallt not comparable with that of assessee. Accordingly we direct Ld.AO/TPO to exclude, Acropetal Technologies Ltd, eZest Solutions Ltd., E-Infochips Ltd, Evoke Tech Pvt.Ltd, ICRA Techno Analytics Ltd, Larsen and Toubro Infotech Ltd, Persistent Systems and Solutions Ltd., in SWD segment. And Infosys BPO Ltd., Mindtree Ltd, iGate Global Soutions Ltd., in ITES Segment.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12

RS software (India) Ltd It is observed that RS software (India) Ltd, has been excluded by DRP for high turnover. However we find that turnover of this company is less than 200 crores. Ld.AR did not object this comparable to be included and no submissions has been advanced for its exclusion. Under such circumstances, we direct Ld.AO/TPO to include this comparable in the final list. Accordingly, Ground no, 4-5, Revised additional ground and Cross objection filed by assessee stands disposed off as indicated above.

In the result appeal and cross objection filed by assessee stands allowed as indicated hereinabove. Appeal filed by revenue stands dismissed. Order pronounced in open court on 30.01.2020. Sd/- Sd/- (B.R.Baskaran) (Smt.Beena Pillai) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore ; Dated : 30.01.2020.

ITA No.505/B/2016 ITA no.626/B/2016 CO No.146/B/2016 A.Y:2011-12 Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-II, Bengaluru. 4. The Pr.CIT-2, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File.

Asst.Registrar/ITAT Bangalore