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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI S.K.YADAV & SHRI A. K. GARODIA
per the Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd., in IT(TP)A No.212(Bang)/2015. He submitted that para-14 to 33 of this Tribunal order are relevant for deciding the issue regarding these six comparables.
In respect of ITES (Seg.), he submitted that out of 10
9 IT(TP)A No.461(B)2015 & 535/B/2015 comparables selected by the TPO, five comparables were rejected by the DRP out of which, for one comparable, appeal is filed by the revenue i.e. M/s Infosys BPO and for one comparable i.e. M/s Sundaram Business Services Ltd., the revenue and the asseseee both are in appeal for its inclusion and the revenue is also in appeal for inclusion of three more comparables i.e. M/s Acropetal Tech. Ltd., (Seg.), 2) M/s E-Clerx Services Ltd., and 3) M/s ICRA Online Ltd., (Seg.) Learned AR submitted that M/s ICRA Online Ltd., (Seg.) (Supra) was excluded by the DRP by applying the export revenue filter of 75% and the assessee has no objection if the order of DRP is reversed regarding this comparable company.
Regarding M/s Acropetal Tech. Ltd., (Seg.), he submitted that this comparable has been rejected by DRP on this basis hat this company fails employee cost filter of 25%. He supported the order of DRP regarding this comparable.
Regarding M/s E-Clerx Services Ltd., he placed reliance on the judgment of Hon’ble Delhi High Court rendered in the case of M/s Rampgreen Solutions (P)Ltd., as reported in 377 ITR 533(Del.) and it was also pointed out that para-37 of the judgment is relevant.
Regarding M/s Sundaram Business Services Ltd., he submitted that this company is having negative margin as per TPO also of 10.65% and therefore, he has no objection if this comparable is reinstated by allowing the appeal of revenue on this issue.
Regarding assessee’s appeal in respect of M/s Informed Tech.
10 IT(TP)A No.461(B)2015 & 535/B/2015 India Ltd., he submitted that the asseSsee is not pressing for exclusion of this company.
Regarding M/s Accentia Tech. Ltd., he submitted that this issue is covered in favour of the assessee by the Tribunal order rendered in the case of M/s Novo Nordisk India Pvt. Ltd., in IT(TP)A No.146(Bang)/2015 and he pointed out that para-30 to 33 of the Tribunal order are relevant.
He further submitted that the assessee is requesting for inclusion of one comparable i.e. M/s Microland Ltd. and he submitted that this company had profits in the earlier two years and incurred a loss only in the financial year 2009-10 and therefore, this company is not incurring persistent losses and therefore, this should not be excluded. He has drawn our attention to para-983,989 & 990 of the paper book containing annual report of this company.
Regarding the third segment i.e. marketing support services segment, he submitted that out of additional five comparables, the DRP has directed for exclusion of two comparables for which the revenue is in appeal and the issue regarding both these comparables is covered in favour of assessee by the Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd. (Supra). He further submitted that the assessee is seeking exclusion of two comparables i.e. M/s Asian Business Exhibition & Conference Ltd. and 2) M/s ICC International Agencies Ltd. For the first company i.e. M/s Asian Business Exhibition & Conference Ltd., he submitted that this company is also covered by 11 IT(TP)A No.461(B)2015 & 535/B/2015 the same Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd. (Supra).
Regarding the second company i.e. M/s ICC International Agencies Ltd., he has drawn our attention to page-1105 to 1104 of the paper book containing the annual report of the company.
The ld. DR of the revenue supported the order of the TPO.
We have considered the rival submissions. We decide the issue in dispute segment wise. First segment is software development segment. The turnover of the assessee for this segment is Rs. 20.56 Crores and OP/OC percentage of this segment is 15% as noted by the TPO on page-2 of his order. The TPO has selected 11 comparables for this segment and out of it, six comparables are rejected by the DRP for which the revenue is in appeal before us. Out of these six comparables rejected by the DRP, the issue in respect of five comparables is covered by the Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd. (Supra). These five comparables are 1) M/s ICRA Techno Analytic Ltd(Seg.) 2) M/s Infosys Ltd., 3) M/s Kals Information Systems Ltd., (Seg.) 4) M/s Persistent Systems Ltd., 5) M/s Tata Elxsi Ltd., 17. The ld DR of the revenue could not point out any difference in facts in the present case and in the case of M/s Electronics for Imaging India (P)Ltd. (Supra). Therefore, respectfully following this Tribunal order, we hold that these five companies were rightly excluded by the 12 IT(TP)A No.461(B)2015 & 535/B/2015 DRP from the list of final comparables.
Regarding sixth company i.e. M/s R.S.Software (India) Ltd., it was submitted by the ld. AR of the assessee in the chart furnished before us that the in the argument before DRP on page-239 of the paper book was to re-consider the margin of this company at 9.58% but the DRP suo-moto excluded this company. We find that on page-14 of its order, it is noted by the DRP that as per the note H to Schedule-15 in regard to revenue recognition that the company in addition to software services also earns income from licensing of products, royalty on sale of products, income from maintenance contract etc., It is also noted by the DRP that there is no segment information available for sale of software services and product. In the light of these facts, it was held by DRP that this company should be excluded from the list of final comparables. Under these facts, we find no infirmity in the order of the DRP for directing exclusion of this comparable. Accordingly, appeal of the revenue in respect of this segment i.e. software development segment is dismissed.
Now we take up the second segment i.e. ITES segment. In this segment, the TPO has adopted10 comparables out of which DRP has rejected 4 comparables for which the revenue is in appeal before us and the assessee is in appeal for exclusion of one comparable i.e. M/s Acentia Technologies Ltd., and inclusion of one comparable i.e. M/s Microland Ltd., and the assessee has not pressed its ground regarding exclusion of M/s Informed Technologies Ltd.,
13 IT(TP)A No.461(B)2015 & 535/B/2015
Regarding revenue’s appeal for this segment, we find that one comparable M/s Acentia Technologies Ltd.(Seg.) has been rejected by the DRP on this basis that this company fails employees cost filter of 25%. AS per page-21 of its order, the DRP has noted that it is noticed from the P&L account of this company that out of the total expenses of Rs.87.26 Crores, the expenses of 58.85 Crores was incurred on onsite development of software which works out to 64% of the total expenses which makes it clear that the company is predominantly engaged in providing services onsite and therefore, not comparable with the assessee. The DRP has also stated that this company is also failing the employees cost filter of 25% but the predominant reason for exclusion of this company was this that this company is predominantly engaged in providing service onsite. For this reasoning of the DRP that this company is predominantly engaged in providing services onsite, we decline to interfere with the order of DRP regarding exclusion of this company.
Regarding the revenue’s appeal for exclusion of second company i.e. M/s Eclerx Services Ltd., we find that the issue for exclusion of this company is covered in favour of the assessee by the judgment of the Hon’ble Delhi High Court rendered in the case of M/s Rampgreen Solutions (P) Ltd., (Supra) and since the ld., DR of the revenue could not point out any difference in facts, we decline to interfere with the order of the DRP regarding exclusion of this company by respectfully following this judgment of the Hon’ble Delhi High Court.
14 IT(TP)A No.461(B)2015 & 535/B/2015
The third company for which exclusion was directed by the DRP and the revenue is in appeal is for M/s ICRA Online Ltd (Seg.).
Exclusion of this company was directed by DRP by applying export revenue filter of 75% and it was submitted by the ld. AR of the assessee before us that he has no objection if this filter of 75% export is not applied. Accordingly, we reverse the order of the DRP regarding exclusion of this company and direct the AO/TPO to include this company i.e. M/s ICRA Online Ltd (Seg.)as a good comparable.
The next company for which exclusion was directed by the DRP and the revenue is in appeal..is M/s Sundaram Business Services Ltd. Regarding this comparable, we find that this is noted by the DRP on page-24 of its order that only 36.91% of the turnover is from exports and therefore, this company is failing 75% export earning filter since both sides agreed that this filter i.e. 75% export earning filter should not be applied, we reverse the order of DRP on this comparable and hold that this comparable company i.e. M/s Sundaram Business Services Ltd., should be reinstated as a comparable. Accordingly, the appeal of the revenue regarding this segment is partly allowed.
Regarding this segment i.e. ITES, the assessee is seeking exclusion of one comparable i.e. M/s Acentia Technologies Ltd., and it has been stated that this issue regarding this company is covered in favour of the assessee by the Tribunal order rendered in the case of M/s Novo Nordisk India Pvt. Ltd., (Supra). Since the ld. DR of the revenue could not point out any difference in facts, by respectfully following this 15 IT(TP)A No.461(B)2015 & 535/B/2015 Tribunal order, we hold that this company should be excluded from the list of final comparables.
Regarding this segment, the assessee has also raised a ground for exclusion of M/s Informed Technologies Ltd. but in course of hearing before us, it was submitted by the ld. AR of the assessee that this ground is not pressed and accordingly, this ground of the assessee is rejected as not pressed.
For this segment, the assessee is seeking exclusion of one comparable i.e. M/s Microland Ltd. and it has been stated before us that the TPO has initially included this company in show cause notice but later, he did not include the same in the list of final comparable and the claim of the assessee was rejected by DRP also but this company should be included in the list of final comparables. We find that it is noted by the DRP on page-125 of its order that from the perusal of the annual report of this company i.e. M/s Microland Ltd., it is seen that out of total revenue of Rs.135.00 Crores, the revenue from ITES is only Rs.31.73 Crores which is around 23% of revenue and hence this company is not predominantly engaged in ITES and therefore, cannot be considered as a good comparable. Nothing is stated by the ld. AR of the assessee regarding this objection of the DRP in respect of this comparable. Hence, we find no merit in the claim of the assessee.
Accordingly, the appeal of the assessee regarding ITES is also partly allowed.
The third segment is market support services segment. In this 16 IT(TP)A No.461(B)2015 & 535/B/2015 segment, there is appeal of revenue against exclusion of two comparables i.e. a) HCCA Business Service Pvt. Ltd., and b) M/s Killick Agencies and Marketing Ltd. and as per the chart of the assessee, the issues regarding both these comparables is covered in favour of the assessee by the Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd.,(Supra) and since the ld. DR of the revenue could not point out any difference in facts, we decline to interfere with the order of the DRP in respect of exclusion of both these companies by respectfully following this Tribunal order.
For this segment, the assessee is seeking exclusion of two comparables i.e. M/s Acentia Technologies Ltd., and M/s ICC International Agencies Ltd., The claim of assessee regarding exclusion of M/s Acentia Technologies Ltd. is also covered in favour of the assessee by the same Tribunal order rendered in the case of M/s Electronics for Imaging India (P)Ltd.,(Supra) and respectfully following the same Tribunal order, we direct the AO/TPO to exclude this company from the list of final comparable because the ld. DR of the revenue could not point out any difference in facts.
Regarding exclusion of second company, it was submitted by the learned AR of the assessee that i.e. M/s ICC International Agencies Ltd., (Supra) this is the claim of the assessee that annual report of this company available on page-1100 & 1104 of the paper book. As per the same, we find that this company is deriving income from trading activity and also maintaining inventories. Both these arguments are supported
17 IT(TP)A No.461(B)2015 & 535/B/2015 by annual report of this company available on page-1100 & 1104 of the paper book. Since the assessee is not engaged in trading activity, in our considered opinion, this company cannot be considered as good comparable in the present case and hence, we direct the AO/TPO to exclude his company from the list of final comparable.
In the combined result, the appeal of the assessee and revenue are partly allowed.
Order pronounced in the open court on the date mentioned on the caption page.