M/S IHS PARTS MANAGEMENT PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE

1. This is an appeal filed by the assessee against the order u/s.143(3) r.w.s. 144C of the IT Act, of the DCIT, Circle -11(4), Bengaluru, dated.30.09.2011, for the assessment year 2007-08, in pursuance to the directions of the DRP, dt.26.09.2011.

The assessee has raised the following grounds of appeal:

IHS Parts Management P. Ltd was incorporated on October 3, 2005, under the Companies Act. 1956. IHS India is engaged in providing data sourcing services and building up databases for IHS, US. Its activities are predominantly related to the engineering and technical spheres. The activities carried out by IHS India are highly technology driven. IHS US is a global provider of critical technical information, decision support tools and related information based services to customers in the energy, defence, aerospace. construction, electronics and automotive industries. The information tools offered by IHS US provides its users quick access to a wide database that provides timely and relevant information and knowledge-based application tools. IHS-US maintains the most comprehensive databases and employs proprietary processes and technology to collect, manage and deliver a vast inventory of information. Ownership structure of JHS Parts as on 31st March, 2007 is as follows: IHS Parts Management Inc., USA - 99.99% and IHS Parts Management. India Pvt.Ltd. - 00.0 1%

International Transactions (as mentioned in the 92 CE report)

The TPO after issuing the show cause notice and after considering the objection of the assessee, compared the price charged by the assessee from its AE with the independent comparables and thereafter had made a recommendation for adjustment u/s.92CA of Rs.14,08,76,642/-.

The TPO has treated 28 comparables as under, as good comparables after analysing the data base, annual reports and objection raised by the assessee : 1. Accentia Technologies Ltd (seg) 2. Aditya Birla Minacs Worldwide Ltd 3. Allsec Technologies Ltd 4. Apex Knowledge Solutions P. Ltd 5. Appollo Healthstreet Ltd 6. Asit C. Mehta Financial Services Ltd 7. Bodhtree Consulting Ltd (Seg) 8. Caliber Point Business Solutions Ltd 9. Cosmic Global Ltd IT(TP)A.1171/Bang/2011 Page - 5

The DRP passed an order on 26.09.2011, giving part relief to the assessee, against which the assessee is in appeal before us.

At the outset, the Ld. AR submitted that the assessee had filed the revised grounds before the Tribunal and even as per the revised grounds; the assessee is not pressing ground nos.7 and 10. Hence we are left with effective ground nos.1 to 6, 8 and 9. Ground 11 is only consequential and needs no adjudication.

As per the grounds the assessee has sought exclusion of the following comparables :

The Ld. AR has submitted that Accentia Technologies Ltd, (Medical Transcription segment), Bodhtree Consulting Ltd (Data cleansing Service segment), Eclerx Services Ltd, HCL Comnet Systems & Services Ltd, Informed Technologies, Infosys BPO Ltd, Mold-Tek Technologies Ltd and Wipro Ltd (BPO service segment) were considered by the Tribunal in the matter of AOL Online India P. Ltd v. DCIT [ITA.1036/Bang/2011 and also in the matter of Magma Design Automation India P. Ltd v. ACIT [ITA.1214/Bang/2011] and after considering the functional profile, extraordinary events etc., the Tribunal had excluded these companies from the list of comparables.

Per contra the Ld. DR had submitted that though the Tribunal had passed the order of exclusion of these companies, however in the matter of Tesco Hindustan Service Centre P. Ltd v. DCIT [ITA.1285/Bang/2011], Tribunal in respect to Bodhtree Consulting IT(TP)A.1171/Bang/2011 Page - 7 Ltd as well as Informed Technologies Ltd, had remanded the matter back to the file of the AO / TPO to re-examine these comparables. For this purpose our attention was drawn to para 36 and 46 of the order of Tribunal in Tesco Hindustan Service Centre P. Ltd (supra).

We have heard the rival contentions and perused the record and the decisions cited before us. With respect to the other six companies, namely, (i) Accentia Technologies Ltd, (Medical Transcription segment), (ii) Eclerx Services Ltd, (iii) HCL Comnet Systems & Services Ltd, (iv) Mold-Tek Technologies Ltd, (v) Infosys BPO Ltd and (vi) Wipro Ltd (BPO service segment), since the Tribunal has already examined the comparability of these companies under similar set of facts, and the facts of the present case are similar to the facts and function in the case of Magma Design Automation India P. Ltd (supra), we find no reason to take a contrary view. Accordingly, following the orders of the Tribunal in AOL Online India P. Ltd v. DCIT [supra] and Magma Design Automation India P. Ltd [supra], we direct the TPO to exclude these six companies from the list of comparables.

With respect to Bodhtree Consulting Ltd we have considered the objection raised by the Revenue for sending this company back to the TPO. We find that with respect to Bodhtree Consulting, the Tribunal in the case of TESCO had mentioned that segmental data are not available and therefore the matter has been referred back to the file of TPO. However the Tribunal in the matter of Pole to Win IT(TP)A.1171/Bang/2011 Page - 8 India P Ltd v. DCIT [IT(TP)A.1053/Bang/2011, dt.08.06.2016] for A. Y. 2007-08, has held as under : 8. Bodhtree Consultancy Ltd. 8.1 The learned Authorised Representative of the assessee submitted that this company is engaged in the business of development of software product and highly fluctuating margin, this company is also functionally dis-similar to the assessee as it is engaged in providing open and end-to-end web solution, software consultancy, design and development of solution by using latest technology. This company is also engaged in the development of software products. He has referred to the Annexure to the Directors Report and submitted that this company is following the method of revenue recognition from software development based on software developed and billed to client whereas the expenditure is recognized when it is incurred towards software development. Therefore, there is no match between the expenditure and the revenue from software development segment. Thus once this company is in the software development, the same cannot be compared with the assessee being ITES provided to its AEs. 8.2 On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and further submitted that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India (P.) Ltd. (supra) found this company to be comparable. 8.3 We have considered the rival submissions and the relevant material on record. In case of Ariba Technologies India (P.) Ltd. (supra), the objections against this company was on the ground of extra-ordinary profit and therefore the Tribunal has no occasion to examine the functional comparability of this company except the ground raised by the assessee regarding extra-ordinary profit margin. The learned Authorised Representative of the assessee has referred to the Annexure to the Directors Report wherein segment-wise and product-wise performance has been reported as under : "Segment-wise and product-wise performance Bodhtree has only one segment, namely software development, being a software solutions company, it is engaged in providing open and end-to-end web solutions, software consultancy, design and development of solutions, using the latest technology.

With respect to Informed Technologies Ltd, we have considered the objection raised by the Revenue for sending them back to the TPO in the light of decision of Tribunal in the matter of TESCO(supra). We find that with respect to Informed Technologies Ltd, the Tribunal had mentioned that segmental data is not available and therefore the matter has been referred back to the file of TPO. However the Tribunal in the matter of Pole to Win India P Ltd v. DCIT [IT(TP)A.1053/Bang/2011, dt.08.06.2016] for A. Y. 2007-08, has held as under : (xvi) Informed Technologies Ltd. : This company was selected by the TPO/A.O and the assessee did not contest the inclusion of this company either before the TPO/A.O or before the CIT (Appeals). However, the CIT (Appeals) excluded this company on RPT filter. We find that the RPT revenue of this company is 15.93%. Therefore this company fails RPT filter of 15% and accordingly, we upheld the exclusion of this company from the list of comparables. We are of the considered view that the Tribunal while adjudicating Informed Technologies , did not have the benefit of appreciating the decision of the coordinate bench in the matter of Pole to Win India P. Ltd (supra), wherein elaborate detailed discussions and examination of facts have taken place at the level of the Tribunal and hence the Tribunal excluded these comparables. In view of the above, we direct exclusion of Informed Technologies Ltd.