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IT(TP)A No.67/Bang/2019 Page 5 of 23 The TPO has no alternative other than to allocate this expense shown under "OTHERS" to the IT Services and BPO sectors in the ratio of income. Therefore, the TPO has recomputed the segmental allocation as below – BPO Particulars IT Services Total in (INR) (ITES) Income 31579293132 Revenue from Operations 27966385354 3612907778 Total operating Income (A) 27966385354 3612907778 31579293132 Expenditure Employee benefits expense 13268955028 1808398605 15077353633 Depreciation and amortization 556929373 75902760 632832133 Expenses Other expenses 9329528487 1271502260 10601030747 Total operating Expenses (B) 23155412889 3155803624 26311216513 Operating Profit (C=A-B) 4810972465 457104154 5268076619 Net Operating Margin on Cost 20.02% 20.77% 14.48%
It can be seen from the aforesaid action of the TPO that the operating margins of the assessee in SWD services segment and the ITES segment came down drastically from 31.88% to 20.77% as shown by the Assessee in its Transfer Pricing Study to 24.41% to 14.48% respectively. The TPO thereafter chose comparable companies in the SWD services segment and ITES segment and ultimately determined the ALP in the SWD services segment and the ITES segment as follows:
“23. FINAL SET OF COMPARABLES CONSIDERED BY THE TPO: 23.1 After considering the objections of the taxpayer to the comparable proposed in the show-cause notice, perusal of relevant annual reports and examination of additional comparable suggested by the taxpayer on the touchstones of filters and functionality, the final set of comparable companies considered by the TPO, is as under.
IT(TP)A No.67/Bang/2019 Page 6 of 23 SWD Segment Amounts in Rs. Lakh SL NO NAME OF TAX PAYER OR/SALES OC OP OP/OC (in %) 1 46,91,700 32,77,700 11,84,200 36.13% Infosys Ltd. Larsen & Toubro 2 4,54,360 3,64,619 89,741 24.61% Infotech Ltd. 3 Mindtree Ltd. 2,99,010 2,48,290 5,072 20.43% 4 Persistent Systems Ltd. 1,18,412 87,649 3,07,625 35.10% 5 35,188 28,321 6,867 24.25% R S Software (India) Ltd. 6 5,563 4,359 1,204 Cigniti Technologies Ltd. 27.62% 7 SQSIndiaBFSILtd. 20,061 16,394 3,667 22.37% 8 Thirdware Solution Ltd. 19,883 13,742 6,140 44.68% 29.40% Average ITeS segment Amounts in Rs. Lakh SL OP/OC Company Name OR/SALES OC OP NO. (in %) 1 Infosys 13 P 0 Ltd. 2,30,900.00 1,81,200.00 49,700.00 27.43% 2 Microgenetic Systems 225.97 191.41 34.56 18.06% Ltd. 3 Microland Ltd. 34,471.00 28,709.00 5,762.00 20.07% 4 B N R Udyog Ltd. (Seg) 142.59 114.00 28.59 25.08% Crossdomain Solutions 5 7,462.75 6,164.00 1,298.76 21.07% Pvt Ltd Average 22.34% 24. DETERMINATION OF ARMS LENGTH PRICE Based on the detailed discussion held in various parts of this order, the arm's length price of the international transactions entered into by the taxpayer is computed as under: 24.1 Method Used: TNMM is used as the most appropriate method both by the taxpayer as well as the TPO. 24.2 Comparable: The comparable are as discussed above. The computation of the PLI of the comparable is as per Annexure 'A' & 'Annexure B'. 24.3 Data used: Data pertaining to the FY 2013-14 as mandated under Rule 10B (4).