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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI ANUBHAV SHARMA
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2015-16, arises out of the order of the Assessing Officer [hereinafter referred to as „ld. AO‟, in short] dated 30.10.2017 passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟).
At the outset, we find that this is a recalled matter only for the limited purpose of adjudication of ground No. 10(b) i.e. exclusion of one of the comparable company i.e. Persistent Systems Ltd. Fiserv India Private Limited 3. We find that this Tribunal had already disposed of the appeal in dated 29.09.2020, wherein, in para 12, this comparable company Persistent Systems Ltd was considered. This finding was later recalled in a miscellaneous application vide MA No. 250/Del/2020 dated 18.10.2022 and hence the present recalled proceedings before us. In the meanwhile, the revenue preferred an appeal before the Hon‟ble Delhi High Court challenging the MA order dated 18.10.2022. This appeal was dismissed vide order dated 21.02.2024.
We find that Persistent Systems Ltd during the relevant year was engaged in the business of providing of software products, services and technology innovation covering full life cycle of product to its customers. On perusal of page 781 of the Paper Book containing the annual report of Persistent Systems Ltd under the heading “Nature Of Operations”, the said comparable company has defined itself as “company is a global company specializing in software products, services and technology innovation. The company offers complete product life cycle services”. Further under the heading of “Research and Development Costs”, it was clearly stated that the expenditure incurred on a individual project is recognized as an intangible asset when the company can demonstrate that the product was developed and “will be available for use or sale”. Based on this observation, the assessee pleaded that the said comparable company is a not good comparable with that of the assessee due to functional dissimilarity.
The ld TPO had sought to include Persistent Systems Ltd in the final list of comparables on the ground that under Transactional Net Margin Method (TNMM), broader functionality is to be seen and the company may not be identical in its activities. The assessee submitted that the said comparable company was engaged in providing sale of software services and sale of software products. The ld DRP had also noted that this Fiserv India Private Limited comparable company is engaged in the business of sale of software products, services and technology innovation, however, the ld DRP having observed that, finally upheld the action of the ld TPO in including Persistent Systems Ltd as a good comparable by stating that the said comparable company has got only one stream of income i.e. software services and since the assessee company is engaged in software services, the same becomes a good comparable with that of the assessee.
We find that this Tribunal in AY 2010-11 in assessee‟s own case vide order dated 17.04.2017 had directed the exclusion of Persistent Systems Ltd from the final list of comparable on the ground that it is engaged in sale of software products and hence functionally dissimilar. The relevant observation of the Tribunal in this regard are reproduced herein:-
We have heard the rival submissions, perused relevant findings given in the impugned order as well as the material referred to before us. From a perusal of the annual report of PSL it is seen that this company deals with various products and it has been stated that it has realised more than 3000 products in the last five years and it is leader in the world of outsource software product development. The break-up of income under the head "software services and products" both exports and domestic, it is seen that there is no segmental information as to how much is the revenue from software services and how much is from the products. This is evident from a detailed report given at page 46 of the paper book. In absence of such segmental information it is very difficult to come to a conclusion as to whether the margin of this company also includes the sale of products. Moreover, as pointed out by Id. Counsel, commission paid to agents on sales is also indicative of the fact that there are sale of products. Thus, we find it very difficult to include such a comparable into the basket of comparables for bench marking the assessee's margin and, accordingly, we direct the TPO to exclude this comparable from the list of comparable companies." 7. It is pertinent to note that this order of the Tribunal have been upheld by the Hon‟ble Jurisdictional High Court in assessee‟s own case reported in 315 CTR (Del) 497.
Fiserv India Private Limited 8. The ld DR vehemently relied on the order passed by this Tribunal order dated 29.09.2020 in the first round to include the said comparable as a good comparable. But we find that this order qua Persistent Systems Ltd had been recalled by the Tribunal in MA No. 250/Del/2020 dated 18.10.2022 and the same had attained finality by dismissal of the appeal of the revenue vide order dated 21.02.2024. Moreover, once an order is recalled on a particular comparable, any finding given by this Tribunal in the original order qua the said comparable would have no legs to stand as it has to be construed as no order in the eyes of law. Hence, the arguments advanced by the ld DR are hereby dismissed.
9. In view of the aforesaid observations and respectfully following the decision of the Hon‟ble Jurisdictional High Court in assessee‟s own case, we hold that Persistent Systems Ltd is functionally not comparable with that of the assessee company and accordingly, we direct the ld TPO to exclude the same from the final list of comparables. Hence, the ground No. 10(b) raised by the assessee is hereby allowed. All other findings given in the original Tribunal order dated 29.09.2020 shall stand and this order should be read with the original Tribunal order dated 29.09.2020 and MA Order dated 18.10.2022.