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Income Tax Appellate Tribunal, DELHI BENCH “I-2”, NEW DELHI
Before: SHRI R. K. PANDA & SHRI KULDIP SINGH
"10.2 After considering the rival submissions and perusing the relevant material on record, we find that the Annual report of this company is available in the paper book with its Profit and loss account at page 1025, Schedule of Income indicates its operating revenue from software development, hardware maintenance, 1006/Mum/2016 (Assessment Year 2011-12) information technology, consultancy etc. Revenue from hardware maintenance stands at Rs.3.92 crore, which has been considered by the Transfer Pricing Officer himself as sale of products. Such sale of products constitutes 15% of total revenue. There is no segmental information available as regards the revenue from sale of products and revenue from software development segment. As the assessee is simply engaged in rendering software development services and there is no sale of any software products, this company, in our considered opi8nion, ceases to be comparable. It is obvious that from the common pool of income from both the streams of software products and software services, one cannot deduce the revenue from software services and no one knows the impact of revenue from Products on the overall kitty of profit, which may be significant. Since no segmental data of this company is available indicating operating profit from software development services, we order to exclude this company from the list of comparables."
8.1 It is also pertinent to note that the aforesaid observations of our Co-ordinate bench are in relation to the assessment year 2011-12, which is also the assessment year under consideration before us.
8.2 On the basis of the aforesaid discussion, in our view, the said concern cannot be considered as a good comparable and deserves to be excluded from the final set of comparables for benchmarking the international transactions of Provision of software development services undertaken by the assessee. Thus, on this aspect we uphold the stand of assessee and Ground of appeal no. 15 is allowed.”
Following the decision of the Tribunal cited (supra) and in view of our above discussion, we hold that the E-Infochips Limited is not a good comparable. We accordingly direct the TPO/Assessing Officer to exclude this company from the list of comparables.
So far as Wipro Technology Services Limited is concerned, we find this company was included by the TPO on the ground that it passes all the filters and accordingly it is robust comparable. The DRP upheld the action of the TPO on the ground that it passes the filter and is functionally comparables. It is the submission of the ld. counsel for the assessee that this company is engaged in IT software solutions/maintenance and technology infrastructure support services and has got high brand value. Similarly, it’s related party transaction are more than 25%. It is also his submission that this company was rejected by the Tribunal in assessee’s own case for assessment year 2010-11 and by the Co- ordinate Bench of the Tribunal in the case of Equant Solutions India Pvt. Ltd. vide Ness Technologies Private Limited (supra) and Orange Business Services India Solutions Pvt. Ltd. vide ITA No.869/Del/2016.
It is the submission of the ld. DR since this company passes all the filters, therefore, it is a robust comparable and, therefore, it should be reopened as a comparable.
We have considered the rival arguments made by both the sides and perused the material available on record. We find the Tribunal in assessee’s own case for assessment year 2010-11 vide at para 6 had directed the TPO to exclude Wipro Technology Services Limited from the list of comparables. While doing so, the Tribunal relied on the decision of the Co- ordinate Bench of the Tribunal in the case of Agnity India Technologies Pvt. Ltd. (supra) where it has been held that Wipro Technology Services Limited is not a good comparable. Since one of the ground for exclusion of this company from the list of comparable was related party transaction apart from PLI, we therefore, restore this issue to the file of the TPO to find out the RPT and if it is more than 25% to exclude this company from the list of comparables.
So far as E-zest Solutions Limited is concerned, the TPO included this company as a comparable on the ground that it passes all the filters and, therefore, it is a robust comparable which has been upheld by the DRP. It is the submission of the ld. counsel for the assessee that the broad portfolio of services which are into KPO services and outsourced product development services and, therefore, cannot be considered as comparable. For the above proposition, he relied on the decision of the Madras Bench of the Tribunal in the case of Symnatec Software and Services Pvt. Ltd. vide for assessment year 2011-12 and the Bangalore Bench of the Tribunal in the case of Electronic Imaging India Pvt. Ltd. vide ITA No.1506/Bang/2015.
It is the submission of the ld. DR that since this company passes all the filters, therefore, it is good comparable.
In our opinion, the matter needs to go back to the TPO/Assessing Officer on this issue to give an opportunity to the assessee to substantiate as to how this company is functionally different from that of the assessee company. The Assessing Officer/TPO shall decide the issue afresh after giving due opportunity of being heard to the assessee.
So far as Igate Global Solutions Ltd. is concerned, the TPO included this company on the ground that it passes all the filters which was upheld by the DRP. It is the submission of the ld. counsel for the assessee that Igate Global Solutions Ltd. is engaged in IT and ITeS services. Referring to various pages from the annual report, he submitted that there is insufficient segmental information and, therefore, the same should be excluded from the list of comparables.
It is the submission of the ld. DR that this issue may be set-aside to the extent of verification of segment details.
We find merit in the argument of the ld. counsel of the ld. DR that this issue may be set-aside to the file of the TPO/Assessing Officer to the extent of verification of segmental details. Accordingly, the comparable Igate Global Solutions Ltd. is allowed for statistical purposes.
So far as certain companies erroneously rejected by the TPO is concerned, ld. counsel for the assessee challenged the order of the TPO/DRP to the extent of the following comparable.
So far as Cat Technologies Limited is concerned, the TPO rejected the same on the ground that it fails RPT filters and it is functionally dissimilar.
However, the DRP held that the TPO/Assessing Officer shall verify the submission of the assessee that the comparable passes the filters. Further, it was accepted as comparable by the TPO in assessment year 2010-11 in assessee’s own case. It is the submission of the ld. counsel for the assessee that non- disclosure of RPT data does not clearly indicate that it has significant RPT in the absence of supporting evidence thereof. It is also his submission that it is engaged in software development and consultancy activities and more than 75% of operating revenues were derived from comparable activities, as per page 35 of the annual report. Further it passes services revenue filter. In view of the above submission, we find merit in the observation of the DRP that the TPO/Assessing Officer shall verify the submission of the assessee that it passes all the filters. We restore this issue to the file of the Assessing Officer/TPO to verify the details and decide the inclusion of this company as comparable.
While doing so, the TPO/Assessing Officer shall also keep in mind the order for assessment year 2010-11 in assessee’s own case. We hold and direct accordingly.
So far as Caliber Point Business Solutions Limited is concerned, the TPO rejected the claim of the assessee to include the company as comparable on account of different financial year ending and functionally dissimilar which has been upheld by the DRP. We find the above company was considered by the Tribunal in assessee’s own case in the immediately preceding assessment year and the issue was restored to the file of the TPO with certain direction.
Following the order of the Tribunal, we restore this issue to the file of the Assessing Officer/TPO to decide the issue afresh in the light of the direction of the Tribunal. While doing so, he shall also keep in mind the decision in the case of McKinsey Knowledge Centre India Pvt. Ltd. vs. CIT vide and the decision of the Special Bench of the Tribunal in the case of Sun Life India Service Centre Pvt. Ltd. vide ITA No.750/Del/2015. We hold and direct accordingly. This issue is accordingly allowed for statistical purposes.
So far as R Systems International Limited is concerned, it was rejected by the TPO on account of different financial year ending which has been upheld by the DRP. It is the submission of the ld. counsel for the assessee that since quarterly results of the company are available in public domain, therefore, margin computation for the period ended on 31.03.2011 is possible. Further it was accepted by the Tribunal in assessee’s own case for assessment year 2010-11.
After hearing both the sides, we find the Tribunal in assessee’s own case at para 8.11 had directed the TPO to consider the allowability of this company as comparable with certain direction. We, therefore, restore this issue to the file of the TPO with the same direction.
So far as Helios & Matheson Information Technology Limited is concerned, the TPO excluded the same from the list of comparables on the ground that it has different financial year ending and fails export turnover filters. The DRP upheld the action of the TPO. It is the submission of the ld. counsel for the assessee the different financial year ending is not an appropriate filter and the company passes export earnings filter of 76.31%. Further, the TPO himself has accepted this company in assessee’s own case in assessment year 2007-08 and was accepted by the Tribunal in assessee’s own case for assessment year 2010-11.
After hearing both the sides, we find this company was considered by the Tribunal in assessee’s own case in the immediately preceding assessment year and the Tribunal has restored this issue to the file of the TPO/Assessing Officer with certain direction for inclusion of this company. We, therefore, restore this issue to the file of the TPO/so with a direction to decide the issue afresh in the light of the direction of the Tribunal in assessee’s own case in immediately preceding year. This issue is accordingly allowed for statistical purposes.
So far as CG-VAK Software & Exports Limited is concerned, here also the TPO rejected this company from the list of comparables on the ground that it fails turnover filter and persistent operating losses which has been upheld by the DRP. It is the submission of the ld. counsel for the assessee that it is having turnover of 6.33 crores which is more than 5 crores turnover adopted by the TPO and, there is no persistent losses as it has earned profit in financial year 2010-11 and 2008-09, therefore, we restore the issue to the file of the TPO with a direction to verify the same. The TPO shall also keep in mind the order of the Tribunal in assessee’s own case for rejection of this company. The TPO shall also keep in mind the functional similarity/dissimilarity while deciding the issue. This company is accordingly allowed for statistical purposes.
So far as Goldstone Technologies Limited is concerned, we find the same was rejected by the TPO on the ground that both the companies fails export revenue filter and that segmental information is not available in the case of Goldstone Technologies Ltd. which is engaged in both IT and IT Enabled Services. Similarly, in the case of Maveric Systems Limited it has high indirect cost resulting in negative impact on net margins for which reasonably accurate adjustment cannot be made. It is the submission of the ld. counsel for the assessee that both the companies passes the export earning filters and were accepted as comparable by the TPO in assessment year 2010-11 in assessee’s own case. Since there are certain infirmities pointed out by the ld. DR, therefore, we deem it proper to restore the issue of the above two comparables for deciding the issue afresh after affording due opportunity to the assessee.
The grounds raised by the assessee on account of exclusion/inclusion are accordingly allowed for statistical purposes.
In the result, the appeals filed by the assessee as well as the Revenue are partly allowed for statistical purposes. Order pronounced in the open Court on this 06th day of July, 2018.