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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the assessment order passed by the AO on 13.07.2017 u/s. 143(3) r.w.s. 144C (13) of IT Act, 1961 as per the directions of DRP.
The grounds raised
by the assessee are as under. “1. The Assessment Order dated July 13, 2017 (served on August 1, 2017), issued by the learned Deputy Commissioner of Income-tax, Circle -1(1)(2), Bangalore ("learned AO") under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 ("the Act"), the Directions issued by the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") and the Order of the learned Transfer Pricing Officer ("learned TPO") issued under Section 92CA of the Act are not in accordance with the law, made in violation of the principles of equity and natural justice and are contrary to the facts and circumstances of the present case.
2. Transfer pricing adjustment of INR 99,984,156 The Hon'ble DRP and learned AO / TPO have erred in law and on facts in making Transfer Pricing ("TP") adjustment of INR 99,984,156 to the returned income of the Appellant and in holding that the international IT(TP)A No. 1929/Bang/2017 Page 2 of 16 transactions between the Appellant and its associated enterprises ("AEs") were not at arm's length.
3. Rejection of transfer pricing documentation of the Appellant 3.1. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in rejecting the TP documentation which had been prepared by the Appellant, in the manner contemplated under the relevant provisions of the Act and the Income-tax Rules, 1962 ("the Rules"). 3.2. The Hon'ble DRP has erred in law and facts in upholding the learned TPO's finding that the information or data used in computation of arm's length price is "unreliable or incorrect", under Section 92C (3) of the Act.
Use of multiple year data 4.1. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in rejecting the use of multiple year data, without considering that the past year's data had an influence on the determination of arm's length price and that the Appellant had considered contemporaneous data available at the time when it carried out the benchmarking study having regard to the statutory requirement to maintain the TP documentation by the specified date. 4.2. The Hon'ble DRP and the learned AO / TPO have erred in law, on facts and circumstances of the case by ignoring the provision of the Rule 108(4) of the Rules, international commentaries and judicial pronouncements, which advocate usage of multiple year data of comparable companies for the purpose of determination of the arm's length price.
Computation of operating profit margins of comparable companies The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in considering provision for doubtful debts to be non-operating in nature while computing the operating profit margins of the comparable companies overlooking the fact that the same resulted from company's normal business operations.
Comparable companies 6.1. The Hon'ble DRP and the learned AO / TPO have erred in law by conducting a fresh search for comparable companies and by rejecting the search process carried out by the Appellant, without giving justifiable reasons under the law including Section 92C (3) for the rejection. 6.2. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in adopting additional filters and modifying the filters adopted by the Appellant for conducting TP analysis, without appreciating the TP documentation prepared by the Appellant. 6.3. The Hon'ble DRP and the learned AO / TPO have erred in IT(TP)A No. 1929/Bang/2017 Page 3 of 16 selecting following companies which are not comparable to the Appellant for reason including functional dissimilarity, non- availability of segmental information, diverse set of activities, presence of intangibles etc.: Larsen & Toubro Infotech Limited CG - VAK Software Exports Limited 6.4. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in rejecting the following Appellant's TP documentation companies which are comparable to the Appellant: Helios & Matheson Information Technologies Limited R Systems International Limited Onward Technologies Limited Melstar Information Technology Limited Akshay Software Technologies Limited 6.5. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts in rejecting the following additional comparable companies proposed by the Appellant during the course of TP proceedings, without considering the detailed submissions of the Appellant: Evoke Technologies Limited Spry Resources India Private Limited 6.6. The Hon’ble DRP has erred in law and on facts in suo-moto rejecting the following company which was considered as comparable by the TPO and not objected to by the Appellant. ICRA Techno Analytics Limited 7. Information gathered under Section 133(6) of the Act is inappropriate for the purposes of disturbing the TP documentation undertaken by the Appellant 7.1. The Hon'ble DRP and the learned AO / TPO have erred in law and in facts by gathering information from various companies under Section 133(6) of the Act, which were not available with the Appellant at the time of preparing its TP documentation. 7.2. The Hon'ble DRP and the learned AO / TPO have erred in law by relying upon the information not available in public domain while carrying out the benchmarking analysis under the Act.
8. Comparability adjustments 8.1. The Hon'ble DRP and the learned AO / TPO have erred in not making a risk adjustment reducing the arm's length margin determined by the Appellant, disregarding the judicial precedents on the said aspect. 8.2. The Hon'ble DRP and the learned AO / TPO have erred in not appreciating that the Appellant, being a captive service provider IT(TP)A No. 1929/Bang/2017 Page 4 of 16 operates at lower risk levels as compared to comparable companies, which carry higher risks and accordingly, erred in not granting appropriate risk adjustments.
9. Other transfer pricing related grounds 9.1. The Hon'ble DRP and the learned AO / TPO have failed to appreciate Appellant's commercial judgment about the application of arm's length principle which is tied to the business realities. 9.2. The Hon'ble DRP and the learned AO / TPO have erred in law and on facts, in making several observations and findings which are based on incorrect interpretations of law and contrary to facts of the case. 9.3. The Hon'ble DRP and the learned AO / TPO have erred in not carrying out the determination of arm's length price as required under Section 92C of the Act read with Rule 10D of the Rules. 9.4. The Hon'ble DRP and the learned AO / TPO have erred in not following the process specified under Section 92C (3) of the Act, for rejection of TP analysis of the Appellant and for independent determination of arm's length price. 9.5. The learned AO has erred in law and on facts in initiating penalty proceedings under section 271(1)(c) of the Act. 9.6. The learned AO has erred in computing interest under Section 234B on the assessed income. Each of the above objections is independent and without prejudice to the other grounds of objections preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing of the appeal. Each of the above objections is independent and without prejudice to the other grounds preferred by the appellant.”
The assessee has also raised some additional grounds which are as under. “Based on the facts and circumstances of the case, Broadcom Communications Technologies Private Limited (in the case of erstwhile Broadcom India Research Private Limited) ("Appellant"), respectfully submits the following additional grounds of appeal for admission before Your Honours: 6.7 The learned Transfer Pricing Officer ("TPO"), having applied the minimum service revenue of Rs 1 crore, erred in not applying a cap on upper limit on the turnover/service revenue while selecting the companies comparable to the Appellant for the purpose of determining the Arm's Length Margin of the international transactions of the Appellant with its Associated Enterprises outside India in the software
IT(TP)A No. 1929/Bang/2017 Page 5 of 16 development segment; 6.7.1 The lower Authorities have erred in not appreciating that the Appellant was a mid-sized company with turnover of Rs 234 crores and therefore companies having turnover of less than Rs 200 crores and more than Rs 2000 crores should be excluded while conducting the benchmarking analysis; 6.7.2 Without prejudice to the above, the lower Authorities have erred in selecting companies with turnover less than 1/10th the turnover of the Appellant and also selecting companies with turnover more than 10X the turnover of the Appellant while determining the Arm's Length Margin of the international transactions of the Appellant with its Associated Enterprises outside India in the software development segment; The said grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal according to law. The Appellant does not have a Managing Director and hence these additional grounds of appeal are signed by the Director of the Company in accordance with the provisions of the Act.”
4. The assessee has also submitted an application for admission of additional grounds in which it is stated that before the TPO, the assessee made request for application of turnover filter. But this request of assessee was rejected by the TPO and the assessee did not raise any objection in this regard before the DRP. But later on, as per the judgement of Hon'ble Karnataka High Court rendered in the case of Acusis Software India P. Ltd. Vs. ITO as reported in 98 taxmann.com 183, Hon’ble Karnataka High Court has upheld the application of turnover filter. It is also submitted in the application that as per two Tribunal orders rendered in the case of Autodesk India Pvt. Ltd. (98 taxmann.com 263) and in the case of Northern Operating Services Private Limited in IT(TP)A No. 101/Bang/2016, application of turnover filter has been upheld. One more Tribunal order has been cited having been rendered in the case of DCIT Vs. EMC Software and Services (India) P Ltd. in IT(TP)A No. 875/Bang/2013 and it was submitted that in this case also, it is held that various Tribunal order has upheld the turnover filter range of 1/10th and 10X times of the turnover. He submitted that under these facts, the additional IT(TP)A No. 1929/Bang/2017 Page 6 of 16 grounds should be admitted because it is purely a legal issue. The ld. DR of revenue although raised the objection against the admission of additional grounds but in the facts of present case, we admit the additional grounds because the issue raised is a purely legal issue and the relevant facts are available on record i.e. turnover of the tested party and of the comparables.
5. In course of hearing, ld. AR of assessee submitted a big chart containing arguments and it was submitted that issue may be decided on the basis of this chart. It was pointed out that as per this chart, the assessee is requesting for exclusion of two comparables i.e. CG-VAK Software Exports Limited and Larsen & Toubro Infotech Limited. He also pointed out that as per this chart, the assessee is requesting for inclusion of five comparables i.e. i) Evoke Technologies Ltd. ii) Spry Resources India Private Limited iii) Helios & Matheson Information Technology Limited iv) R Systems International Limited v) Akshay Software Technologies Limited 6. He submitted that assessee does not want to press for inclusion of one comparable i.e. Spry Resources India Pvt. Ltd. The assessee is only pressing inclusion of four comparables out of 5 comparables as per this chart. Regarding the exclusion of two comparables i.e. CG-VAK Software Exports Limited and Larsen & Toubro Infotech Limited, this is the first contention that these two comparable should be excluded by applying the turnover filter alone. It was pointed out that the turnover of CG-VAK Software Exports Limited is only Rs. 8.84 Crores which is less than 1/10th of the assessee’s turnover being Rs. 234.38 Crores. In support of his contention reliance was placed on Tribunal order rendered in the case of DCIT Vs. EMC Software and Services (India) P Ltd. (supra), copy filed. Our attention was drawn to paras 8 to 12 of this Tribunal order wherein the Tribunal approved the applicability of turnover filter by following the judgment of Hon'ble Karnataka High Court rendered in the case of Acusis Software India P. Ltd. Vs. ITO (supra) and in the case of Pr. CIT Vs. Softbrands India P. Ltd. (94 taxmann.com 426). For the sake of ready reference, we reproduce paras 8 to 12 of this Tribunal order which are as under. “8. Before us, the Ld. DR had submitted that the order of CIT (A) is IT(TP)A No. 1929/Bang/2017 Page 7 of 16 required to be recalled and the matter is required to be sent back to the CIT (A) in the light of the decision of the Hon’ble Delhi High Court in the matter of Chryscapital Investment Advisors (India) P. Ltd v. DCIT [56 taxmann.com 417, and our attention was drawn to paras 32 to 36, 43 and 44 9. On the other hand, the Ld. AR has drawn our attention to the recent judgment of the Hon’ble jurisdictional High Court in the matter of Pr. CIT v. Softbrands India P. Ltd [94 taxmann.com 426] and also in the matter of Acusis Software India P. Ltd v. ITO [98 taxmann.com 183], wherein at para 14 and 15, it had approved the filter applied by the Tribunal i.e., the turnover of ten times of both sides of the assessee’s turnover.
10. In rebuttal the Ld. DR submitted that the CIT (A) had not examined the functional profile of any of these comparables and had merely excluded them on the basis of turnover filter of 1 to 200 crores. It was also contended that the profile of these companies should be examined by the CIT (A), hence matter is required to be sent back to the file of the CIT (A) with a direction to examine the functional profile of these companies, 11. We have heard the rival submissions and perused the record. The Hon’ble jurisdictional High Court in the matter of Acusis Software India p. Ltd (supra) had approved the order passed by the tribunal wherein it has applied the filter of ten times of both sides of the assessee. As this Tribunal falling within the territorial jurisdiction of the Karnataka High Court, hence it is bound by the judgment passed by High Court of Karnataka , hence we are bound to apply the ratio of Acusis Software India p. Ltd (supra), in the present matter.
In view of the above, this ground of the revenue appeal is required to be allowed with respect to the following comparables, namely, iGate Global Solutions Ltd (turnover 406 cr), Flextronics Software Systems Ltd (turnover 457.45 crores) and L & T Infotech Ltd (turnover Rs.562.45 crores) as the turnover of these companies fall broadly within the range of ten time of the turnover of the assessee company. Accordingly the matter is remanded back to the file of CIT(A) with a direction to examine the functional profile of all the comparable on the touch stone of FAR and decide the comparability of these comparables, as the Ld. CIT (A) had not examined the functional profile of these companies while excluding these comparables.”
From the above paras reproduced from this Tribunal order, it is seen that in this case, the Tribunal has approved the applicability of turnover filter of 1/10th or 10 times of the turnover of the tested party. In holding so, the Tribunal has followed the binding judgment of Hon'ble Karnataka High Court rendered in the case of Acusis Software India P. Ltd. Vs. ITO (supra). The Tribunal has IT(TP)A No. 1929/Bang/2017 Page 8 of 16 also noted about the judgment of Hon’ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) P. Ltd. Vs. DCIT as reported in 56 taxmann.com 417. But we are bound by the judgment of Hon'ble Karnataka High Court and hence, we respectfully follow this Tribunal order and in turn follow the judgment of Hon'ble Karnataka High Court rendered in the case of Acusis Software India P. Ltd. Vs. ITO (supra) and hold that these two comparables should be excluded by applying the turnover filter because the turnover of CG-VAK Software Exports Limited is less than 1/10th of the assessee company’s turnover and the turnover of Larsen & Toubro Infotech Limited is more than 10 times of assessee company’s turnover. The turnover of Larsen & Toubro Infotech Limited is said to be Rs. 3,609.32 Crores and hence, it is more than 10 times of the turnover of assessee company of Rs. 234.38 Crores. By applying the turnover filter, we direct the TPO/AO to exclude these two comparables from the final list. In view of this, we feel that other arguments in respect of exclusion of these two comparables are not required to be discussed and decided.
Now we decide about the assessee’s request for inclusion of four comparables i.e. i) Evoke Technologies Ltd. ii) Helios & Matheson Information Technology Limited iii) R Systems International Limited iv) Akshay Software Technologies Limited
In support of the assessee’s request for inclusion of these four comparables, the ld. AR of assessee in this chart has placed reliance on two judicial pronouncements being a Tribunal order rendered in the case of Capco Technologies Pvt. Ltd. (97 taxmannn.com 71) and a judgment of Hon’ble Punjab & Haryana High Court rendered in the case of CIT Vs. Mercer Consulting (India) (P) Ltd.,390 ITR 615. Copy of this Tribunal order in the case of Capco Technologies Pvt. Ltd. is available on pages 1068 to 1085 of the case law compilation. Our attention was drawn to paras 17 to 19 for Akshay Software Technologies Limited, paras 20 to 22 in respect of Evoke Technologies Ltd. and para 24 in respect of R Systems International Limited and it was pointed out that regarding all these three comparables, the Tribunal
IT(TP)A No. 1929/Bang/2017 Page 9 of 16 in this case has restored the matter back to the file of TPO for fresh decision. For ready reference, we reproduce paras 17 to 22 & 24 of this Tribunal order. These are as under. Akshay Software Technologies Ltd. (“Akshay”) 17. The assessee has submitted that Akshay Software is one of the comparable companies selected by the Assessee in the TP documentation. It was further submitted that The Ld. TPO rejected Akshay as a comparable on the ground of functional dissimilarity saying that the company is engaged in providing professional services, procurement, installation, implementation, support and maintenance of ERP products and services in India and overseas on the basis of reply to notice u/s 133(6) received by Ld. TPO from Akshay Software. The submitted that the services rendered by Akshay were forming part of the subset of software development services and all the functions mentioned in Annual Report such as installation, support and maintenance of ERP products and services are with regard to software services. Similarly, it was submitted Enterprise resource planning or ERP systems are software systems that are used for operations planning, administration and for optimizing internal business processes. A typical ERP software helps in integrating all data and processes of an organization into a single unified system. ERP is a category of business-management software and the installation/maintenance/support would come under the purview of software development activities. The assessee, relied upon the report submitted by Rangachary Committee (“Rangachary Report”), “Support for existing (software) systems”, “Adaptation of existing software” falls under the purview of “software-related activities of a routine nature”. 17.1 Further our attention was drawn to Note 20 of Annual Report 2013, where it is clearly mentions that it derives about 99% of its total income is from software development services.
Note 20 – Revenue From Operations Income from Software Services 19,83,23,358 14,62,02,053 (Refer Note 29) 5,68,699 4,92,447 Commission Received 5,21,730 382,800 Sale of software licences 19,94,13,787 14,70,77,300 17.2 Our attention was drawn to the Annual Report of Akshay Software where it is mentioned that it is predominantly engaged in providing IT related services to the following effect : Conservation of energy, Research and Development, Technology absorption and Foreign exchange i. The operations of the company being IT related require normal consumption of electricity. However the Company is taking every necessary step to reduce the consumption of energy.
IT(TP)A No. 1929/Bang/2017 Page 10 of 16 On the basis of the above, it was submitted that Akshay Software is functionally comparable to the assessee and it further fulfilled all the quantitative filters applied by the TPO. Hence, the company is functionally comparable to the Assessee. The Ld. AR relies upon the decision rendered by the Tribunal in the assessee’s own case for the asst.year 2007-08 bearingITA.1340/Bang/2011 and Arowana Consulting P. Ltd in IT(TP)A.157/Bang/2016, for AY 2011-12.
Per contra, the Ld. DR, relies upon the order of the DRP at page 24-25 and has submitted that the company is functionally not comparable with the assessee and the decision relied upon are distinguishable on facts.
We have heard the rival contentions and perused the record. As per the TP study of the assessee the software development services rendered by the assessee to its AE involved various steps including banking, capital markets, finance, risk and compliances, package integration, technology, wealth and investment management. Whereas the comparable Akshay Software Technologies Ltd, is into different category of software development and further Akshay Software Technologies Ltd, is into providing professional services, procurement and installation, implementation, support and maintenance, ERP products and services in India and overseas. On account of that, the comparable is attending the business operation of AE by rendering the above said services to the clients of AE both in India and outside India. Thus the revenue of the comparable had been consolidated and disclosed under the income under the head ‘income from software services’. In fact, when the comparable rendering services outside India, then it is rendering services onsite and therefore the segregation of financials is required for making it comparable with the assessee company. Further the assessee was shared with the response received by the TPO from the comparable u/s.133(6) of the Act and the assessee was given the opportunity. Further in our considered opinion, the financial of the comparable clearly shows that Akshay Software Technologies Ltd is primarily earning its revenue from onsite services as mentioned at page 86 of the DRP order and Note 28 of the P & L account. Thus in the considered opinion of the Bench, Akshay Software Technologies Ltd is not comparable with the assessee. The reliance on the decision of the Tribunal in the matter of the assessee for AY 200708 is unfounded as the decision was for the earlier year and no reasoning was given by the Tribunal while directing the TPO to include Akshay Software Technologies as comparable. Further in the matter of Arowana Consulting P. Ltd (supra), the Tribunal in para 9 has mentioned that the DRP has not given any independent finding for arriving at the conclusion that this company is not comparable with the assessee. In the light of the above, we restore the matter back to the file of TPO for examining afresh. EVOKE TECHNOLOGIES LTD (EVOKE) 20. Evoke is one of the comparable companies selected by the Assessee
IT(TP)A No. 1929/Bang/2017 Page 11 of 16 in the TP documentation. Evoke is engaged in software development services. The Ld. TPO has rejected Evoke on the following grounds: No Data in prowess database The relevant extract of the TP order is as below: This comparable is not Evoke Technologies Ltd 9.86 available in prowess database. Hence rejected.
Assessee’s contentions: 20.1. Company selected from Capitaline Database : The Assessee herein submits that the said comparable company is selected from Capitaline Database. The complete qualitative and quantitative information of Evoke Technologies is available for FY 2012-13. Also, the annual report of the company is available in public domain i .e. Ministry of Corporate Affairs, wherein it has been clearly mentioned that the company is engaged in provision of software development services. The assessee has furnished the relevant screenshot in this regard, as under: h) Segment Reporting: There are no separate reportable segments as per Accounting Standards 17, as the entire operations of the company relate to one segment namely, Software development. 20.2 Functionally Comparable – Engaged in software development services The Company is engaged in software development services. Refer below the screenshot from annual report: h) Segment Reporting: There are no separate reportable segments as per Accounting Standards 17, as the entire operations of the company relate to one segment namely, Software development. Even the Ld. TPO has not objected on the functional comparability of Evoke Technologies. 20.3 Accepted by Ld. TPO in Assessee’s own case for AY 2011 -12 : The Assessee would like to bring to the notice of Ld. TPO that Evoke Technologies Ltd . was selected as a comparable to the Assessee by TPO in its final set of comparables of TP order for AY 2011-12. There is no change in functional profile of the company from AY 2011-12. Hence, the Assessee humbly submits that Evoke technologies should be accepted as a comparable.
Per contra, the Ld. DR, relies upon the order of the DRP at page 20 & 21 and has submitted that the company is functionally not comparable with the assessee and the decision relied upon are IT(TP)A No. 1929/Bang/2017 Page 12 of 16 distinguishable on facts.
We have heard the rival contentions and perused the record. The primary reason for not including Evoke Technologies Ltd was that the data were not available in public domain when search was conducted by the TPO. However the assessee has submitted that data was available and the same was submitted to the authorities below. The DRP, has recorded that were various contradictions in the director’s report and P & L account and further it was mentioned that there were abnormal expenses debited under other expenses on account of consultancy charges and the comparable Evoke Technologies Ltd was into IT services and end to end IT services, which were akin to ITES and there were the same is not comparable. However, in the considered view of the Tribunal all these aspects are required to be examined by the TPO at the first instance and the assessee should be given a chance to explain the same. In the light of the above, we remand the matter for a fresh examination to the file of the TPO with a direction to decide the inclusion of Evoke Technologies Ltd after giving due opportunity to the assessee.
R Systems is one of the comparable companies selected by the Assessee in the fresh search given during TP Assessment proceedings. The Ld. TPO has rejected R Systems on the ground of "different financial year no data available". The relevant extract of the TP order is as below: R Systems International Pvt Fails the filter no data & Ltd (IT Segmental) Diff year ending, hence rejected by the TPO.
In para 3 of this Tribunal order, it is noted by Tribunal that assessee is engaged in the provision of software development services to its AEs. In the present case also, the TPO has noted on page 2 of his order that the assessee is engaged in software development services for the projects of its AE. Hence the functional profile is similar and therefore, this Tribunal order is applicable in the present case. In this case, the Tribunal has examined the issue regarding inclusion of these three comparables i.e. Akshay Software Technologies Limited, Evoke Technologies Ltd. and R Systems International Limited and in respect of these three comparables, the issue was restored back to the file of TPO for a fresh decision with the direction to decide the issue about the inclusion of these three comparables afresh after giving due opportunity to the assessee. Respectfully following this Tribunal order, we hold that in the present case also, this issue is restored back to the file of TPO with similar directions.
IT(TP)A No. 1929/Bang/2017 Page 13 of 16 11. Regarding the request for inclusion of Helios & Matheson Information Technology Limited, it was submitted that this is the only objection of TPO and DRP that the Financial Year of this company is different. In this regard, our attention was drawn to page no. 7 of the order of TPO and pages 5 to 7 of the order of DRP. On page no. 7 of the order of TPO, it is noted by TPO that the accounts of this company is prepared for the period from 01.10.2012 to 30.09.2013 while the accounts of tested party is prepared for the period from 01.04.2012 to 31.03.2013. As per para 24 of the Tribunal order in the case of Capco Technologies Pvt. Ltd. as reproduced above, it is noted that M/s. R Systems International Limited was rejected by the TPO on the ground of different Financial Year and the Tribunal has considered the judgment of Hon’ble Punjab & Haryana High Court rendered in the case of CIT Vs. Mercer Consulting (India) (P) Ltd. (supra) and decided the issue as per para no. 24.3 of the order which is reproduced below because in this para, the Tribunal has reproduced the relevant portion of the judgment of Hon’ble Punjab & Haryana High Court. This para is as under. “24.3 We have heard the rival contentions and perused the record. At the outset we may record that in the matter of Mercer Consulting (India) (P.) Ltd. [2016] 76 taxmann.com 153 the Hon’ble High court of Punjab & Haryana has held as under : “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. Ist 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 Asstt. CIT v. Hapag Lloyd Global Services Ltd. [2014] 62 SOT 8/[2013] 34 taxmann.com 241 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 of comparables would be served. The question in each case is whether despite the financial years 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.
IT(TP)A No. 1929/Bang/2017 Page 14 of 16
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 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.
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". 31. 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, if 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. 32. 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.” In view of the authoritative pronouncement of the Hon’ble High Court we do not find the reason for excluding R. System International Ltd, is now available with the Revenue. In the light of the above, we direct the TPO to examine the functional profile on the touchstone of FAR analysis of R System International Ltd and after giving opportunity to the assessee. In the light of the above, the comparability / inclusion of R System International Ltd is remanded back to the TPO for examining afresh without being influenced by the fact that the year ending is different for this comparable vis-a-vis, the assessee.” 12. From the above para of this Tribunal order and the relevant portion of the judgment of Hon’ble Punjab & Haryana High Court reproduced above, we find that Hon’ble Punjab & Haryana High Court has noted in para 31 of its IT(TP)A No. 1929/Bang/2017 Page 15 of 16 judgment that if it is possible to obtain the reliable data for the relevant Financial Year then such data can be used and the relevant comparable is not required to be excluded. We therefore, respectfully follow this Tribunal order and in turn follow this judgment of Hon’ble Punjab & Haryana High Court and restore this matter back to the file of TPO for fresh decision regarding Helios & Matheson Information Technology Limited with this direction that if assessee can establish that reliable data for the Financial Year 2012-13 for this comparable company is available, then this comparable should be included and such reliable data should be used.
Regarding the assessee’s request for exclusion of two comparables i.e. CG- VAK Software Exports Limited and Larsen & Toubro Infotech Limited and also for assessee’s request for inclusion of various comparables, the ld. DR of revenue has filed written submissions which are as under. “May It Please Your Honours, I. GOA No. 6.3 - LAT IINFOTECH LIMITED - TO BE REMANDED In the following case the Hon'ble ITAT has restored the matter back to the file of TPO: Capco Technologies (P) Ltd. Vs ITO [2018] 97 taxmann.com 71 (Bang. Trib.) (A.Y.2013-14) (Pg.10, Para 14 -15) (Para 16 - 23.3) M/s Technotree Convergence Pvt. Ltd. IT(TP)A No. 1616/B/17 dtd. 27.06.2018 (A.Y.2013-14) (Pg.37, Para 27) II. GOA No. 6.3 - CG-VAK SOFTWARE EXPORTS LIMITED - "GOOD COMPARABLE" In the following case CG-VAK Software Exports Ltd. is held to be a good comparable : M/s Technotree Convergence Pvt. Ltd. IT(TP)A No. 1616/6/17 dtd. 27.06.2018) (A.Y.2013-14) (Pg.35, Para 23) III. GOA No. 6.4 & GOA No. 6.5 - R SYSTEMS INTERNATIONAL LTD., AKSHAY SOFTWARE TECHNOLOGIES LIMITED AND EVOKE TECHNOLOGIES LIMITED- TO BE REMANDED BACK In the following case the Hon'ble ITAT has restored the matter back to the file of TPO to consider all decisions and render a finding: Capco Technologies (P) Ltd. Vs ITO [2018] 97 taxmann.com 71 (Bang. Trib.) (A.Y.2013-14) (Pg. 11, Para 16 - 23.3) IV. FOR OTHER COMPARABLES - Reliance placed on orders of TPO & DRP Submitted”
IT(TP)A No. 1929/Bang/2017 Page 16 of 16 14. We have considered these submissions filed by ld. DR of revenue and we find that regarding inclusion of various comparables, ld. DR of revenue has also placed reliance on the same Tribunal order rendered in the case of Capco Technologies (P) Ltd. Vs. ITO and submitted that the issue may be restored back and hence, our decision in above paras regarding inclusion of these comparables is in line with this submission of ld. DR of revenue also.
Regarding the assessee’s request for exclusion of two comparables i.e. CG- VAK Software Exports Limited and Larsen & Toubro Infotech Limited, various submissions were made by ld. DR of revenue as per written submissions reproduced above, but we have decided the issue regarding exclusion of these two comparables by applying the turnover filter as has been approved by Hon'ble Karnataka High Court and hence, these submissions of ld. DR of revenue are not relevant regarding this issue because in the written submissions, there is no argument regarding the applicability of turnover filter which we have applied by following the binding judgment of Hon'ble Karnataka High Court.
In the result, the appeal filed by the assessee is partly allowed in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.