TMI Blog2022 (8) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and with extraordinary events need to be deselected from final list. Infosys BPO - Considering the financial report that there was extraordinary events occurred during the financial year we direct AO/TPO exclude this company as comparable. Excel Infoways Ltd (Seg) (IT/BVPO) company as engaged in software testing, verification and validation of software and also on the basis that it had huge turnover and was engaged in providing KPO services. should be excluded from the final list of comparable companies. TCS E-serve Ltd. company be excluded on the basis that it was engaged in software testing, verification and validation of software and also on the basis that it had huge turnover and was engaged in providing KPO services. BNR Udyog Ltd., (Seg) (Medical Transcription) - RPT filters applied by the TPO is a 25% but the RPT turnover ratio works out to 49.60%, therefore, on the basis of RPT filter, the assessee cannot be considered as good comparable for the relevant assessment year. Therefore, the AO/TPO to is directed to exclude this comparable for computation of ALP. Informed Technologies Pvt. Ltd. - TPO has considered it while calculating PLI and the ld.AR has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a regular workman in the subsequent year as well. The learned CIT(A) ought to have appreciated that the benefit of hiring new workmen should be available in subsequent year for claim of deduction under section 80JJAA of the Act on the basis that such workmen are employed for 300 days. 6. Notwithstanding and without prejudice to Ground No. 4 and 5, the learned CIT(A) has erred in not appreciating that employees employed in the relevant assessment year who had not completed 300 days in that year should be considered for computing deduction under section 80JJAA in the subsequent year when he completes 300 days. 7. The learned CIT(A) has erred in facts, by contending that the appointment letters have not been submitted, without appreciating the fact that the same were duly submitted. 8. The learned CIT(A) has erred, in law and in facts, in concluding that the deduction under section 80JJAA of the Act is available only on additional wages paid to new regular workmen over and above 100 workmen employed during the year and such deduction is not available for initial 100 workmen. Disallowance of expense on annual maintenance contract and software 9. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 15. The learned CIT(A) has erred in law in mentioning that software expenditure needs to be disallowed as prior period expenditure if the invoice relates to earlier year without appreciating that the expenditure has to be accounted on accrual basis irrespective of the year in which invoice has been raised. Disallowance of legal and professional fee 16. The learned CIT(A) has erred in law and in facts, in upholding the disallowance of Rs. 46,05,273 made by the learned assessing officer ( AG ) under section 40(a)(i) of the Act on account of non-withholding of taxes under section 195 of the Act. 17. The learned CIT(A) has erred in facts, in contending that no documentary evidences were produced in relation to the services provided by non-resident partnership firms, without appreciating the fact that sample invoices were duly submitted. The learned CIT(A) further erred in contending that no service agreement and other documents were provided without requesting for the same. 18. The learned CIT(A) erred in not appreciating that the payment for legal and professional fee is not taxable in terms of the Act as well as the India USA DTAA, and thereby does not warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned AO I TPO I CIT(A) have erred, in law and in facts, in computing the ALP without giving benefit of +1-5 percent under the proviso to section 920(2) of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. 2. The assessee has also filed additional grounds on 02.08.2021 and 01/04/2021, which are as under:- On the facts and in the circumstances of the case and in law: 26. The learned AO/ TPO erred, in law and in fact, by applying only the lower turnover filter of less than INR 1 crore as a comparability criterion and not applying a higher threshold limit for turnover filter; 27. The Appellant additionally craves leave to select an additional comparable company, Crystal Voxx Private Limited that is engaged in provision of BPO services and hence functionally comparable to the Information Technology enabled Services segment of the Appellant The Appellant craves leave to add, alter, amend, vary, omit or substitute the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 14,99,01,61,043/-,The above revenue is from Both Software development services and Information Technology enabled services. The breakup of the 2 segments is mentioned below. However, the transfer pricing document furnished by the taxpayer on 08/10/2014 in response to the notice u/s 92CA issued on 20/08/2014 stated that the taxpayer had entered into international transaction being provision of software development services to its associated enterprises along with other transactions. 6) The transfer pricing study had benchmarked the international transaction pertain to software development services of Rs 1492,82,63,132/ using the TNMM method. For this the taxpayer had selected 11 comparable after conducting a search based on the functional profile of the taxpayer and applying certain qualitative and quantitative filters.(Jhe profit margin of the taxpayer was 19.70% for the segment. However, there was no separate benchmarking of the international transactions pertain to the information technology enabled services which had revenue of Ks 767804892/ as mentioned in the profit and loss account. 7) During the course of proceedings u/s 92CA the authorised repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort for the FY 2011-12. It is well established that Information Technology Services (Software Development Services) are totally different from information technology enabled services. The functions performed in Information Technology Services is different from functions performed in Information Technology Enabled Services. The assets employed for Information Technology Services is different from the functions performed in Information Technology Enabled services. The risks assumed in Information Technology Services is different from risks assumed Information Technology Enabled Services. The rules governing determining the arm's length is different and dependent or governed by the provisions of the accounting standards or companies act. 11) The taxpayer was given the opportunity to establish that the provision of IT Enabled Services were in relation to and integrated to the services provided in the Information Technology services whose revenues have been offered as iiieutue fot the financial year. The taxpayer did not furnish any evidence to prove that the it enabled services provided were an extension or part of the same contracts from which the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation or documents in the possession of TPO, if he is of the opinion that the information or data used in computation of the arm's length price is not reliable or correct, the TPO may proceed to determine the arm's length price in relation to the international transactions in accordance with Sec. 92C(1) and 92C(2) on the basis of such material or information or document available with him. The following pertinent defects have been found in the TP analysis carried on by the tax payer. 1. As per Rule 1013(4), it is mandatory to the use the current financial year data i.e. the financial year in which the international transactions took place (FY 2011-12) but the taxpayer has computed the 3 year average of the data for the last three years. The taxpayer has selected cases even where no current year data is available and has based its analysis on earlier year's data. 2. The taxpayer has used the earlier year data pertaining to the FYs 2009-10,2010-11 besides the current year ending 2012 wherever available but no reasons are given as to how the earlier year data has influence over the price either of the taxpayer or of the comparable so to attract the proviso to Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) and CIT(A) partly allowed the appeal of the assessee. 9. Aggrieved from the order of the CIT(A), the assessee filed appeal before Income Tax Appellate Tribunal. 10. At the outset of hearing the ld.AR submitted that the issue raised in ground No.9, 10, 12, 13 and 14 in relation to disallowance of software expenses u/s 40a/40a(ia) have been settled down under VSVS and Form No.5 has also issued by the department. In pursuance of this submission, the scanned copy is as under:- 11. Considering to the above letter, we dismiss the ground Nos.9,10, 12, 13 and 14 as not pressed. 12. She further submitted that the disallowance of deduction claimed u/s 80JJA which relates ground No.2 to 8, the identical issue has been decided by the coordinate bench of the Tribunal in assesasee s own case for the assessment year 2011-12 in ITA No.2890/Bang/2018 vide order dated 30/05/2022 and the matter has been remitted back to the AO for examining the issue afresh. Accordingly, she requested that the issue for the impugned assessment year may also be send back to the AO for fresh consideration. She has filed written submission which is as under:- We refer to the above-mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the year 2007-2008, the said curative or clarificatoty amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13. We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying Section 80JJ-AA of the Act. If the submission of Sri. K. V. Aravind is accepted, then no employer/assessee would be able to fulfil the requirement of employing its labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJ-AA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that Section 80JJ-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service co-operative Bank Ltd's case (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and facts noted by the lower authorities we observe that the similar issue has been decided by the coordinate bench of the Tribunal in assesses s own case for the assessment year 2011-12 and the matter has been sent back to the AO for fresh consideration. On perusal of the facts for the impugned assessment year the issue before us is similar as for as the previous assessment year. The relevant paras of the order is as under:- 4. The first issue relates to the disallowance of deduction claimed u/s 80JJAA of the Act. The facts are that the assessee claimed a deduction of Rs.26.87 crores u/s 80JJAA of the Act, under which additional deduction of 30% of the additional wages paid to new regular workmen employed by the assessee in a previous year is allowed for three assessment years. The AO disallowed the claim holding that:- (a) the business of software development will not fall under the category of industrial undertaking. (b) assessee is not engaged in the business of manufacturing or production of articles or things. (c) the employees, being software engineers, would not fall under the definition of workmen as defined u/s 80JJAA of the Act. 4.1 In the appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2. As regards the first contention of the Revenue, the same does not require much examination by this Court inasmuch as at the first instance; the Assessing Officer had held that the Assessee's employees would not come within the purview of workman under Section 2(s) of the I.D. Act and disallowed the claim, on an appeal filed by the Assessee, the Commissioner, Income-tax (Appeals) CIT(A) accepted the Assessee's contention and held that the Assessee's employee would come within the purview of Section 2(s) of the ID Act. This aspect was not challenged by the Revenue, although the Revenue had filed an appeal against the order of the CIT(A). Having accepted the said finding of the CIT(A) and not having filed any appeal, the Revenue cannot now seek to challenge the said finding in the present appeal. 16.3. Section 2(s) of the ID Act is reproduced hereunder for easy reference: workman means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is engaged by the employer for hire or reward. Therefore, all the said persons would satisfy the requirement of being a workman in terms of Section 2(s) of the I.D. Act. In our considered view, the concept of the workman has undergone a drastic change and is no longer restricted to a blue collared person but even extends to whitecollared person. A couple of decades ago, an industry would have meant only a factory, but today industry includes software and hardware industry, popularly known as the Information technology industry. Thus the undertaking of the Assessee being an industrial undertaking, the persons employed by the Assessee on this count also would satisfy the requirement of a workman under Section 2(s) of the ID Act. 16.7. Sri. Aravind, learned Senior Panel counsel of the Revenue, has strenuously argued that the period of 300 days in a year I.T.A. NO.141 OF 2020 c/w I.T.A. NO.151 OF 2020 would mean 300 days in the financial year alone, not in the calendar year or otherwise. He has submitted that if the period of 300 days is not satisfied, no such deduction could be allowed. 16.8. Admittedly, the provisions concerned, i.e. Section 80JJ-AA, comes under Chapter-VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year or financial year, the Assessee would be entitled to the benefit of Section 80JJ-AA in the next assessment year and so on so forthwith for a period of three years. The Income-tax Appellate Tribunal, having held to that effect, in our considered opinion, it would not be open for the Revenue to now contend otherwise, more so since the said order has attained finality on account of the Revenue not having filed an appeal. 16.12. It is sought to be contended by Sri. K V Aravind, learned Senior Panel counsel that the fact that such an interpretation could not be given is established by the curative amendment carried out in the year 2018 wherein it is clarified that an assesses whose employee completes 300 days in a second year would also be entitled to a deduction for three years therefrom. Thus he submits that the amendment having been brought into force in the year 2018 the present matter relating to the year 2007-2008, the said curative or clarificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13. We are unable to agree with such a submission- the amendment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial Disputes Act so long as the Software engineer does not discharge any supervisory role. 16.17. The period of 300 days as mentioned under Section 80JJAA of the Act could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under Section 80JJAA. It is not required that the workman works for entire 300 days in the previous year. 16.18. Hence, in the facts and circumstances of the case, the software engineer being workman having satisfied the period of 300 days, the assessee is entitled to claim deduction under Section 80JJAA. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining this issue afresh. The assessee is free to raise all contentions and accordingly all contentions on this issue is left open. 15. Considering to the above decisions in the assessee s own case, the issue for the impugned assessment year is also sent back to the file of AO for denovo assessment as per law. The assessee is free to raise all contentions and accordingly all contentions of this issue are left open. 16. In the result, ground No.2 to 8 are allowed for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. 7.1 Before Ld CIT(A), the assessee reiterated that the services were provided outside India and the said services were consumed outside India. It was also contended that the said services cannot be considered as Fee for Technical Services or Fee for included Services . It also relied upon Article 15 of India USA DTAA and contended that the services provided by individual or firm of individuals would not attract TDS. 7.2 However, the Ld CIT(A) took the view that the assessee had not disputed that the nature of payments was FTS/FIS and it is making contrary contention only before him on the ground make available test fails in availing these services. With regard to the submission of the assessee that the services were availed to help its employees working in abroad on projects/assignments in connection with tax compliances in USA, the Ld CIT(A) took the view that it is an afterthought. He also expressed the view that the assessee has not provided exact nature of services provided by each of the service providers. The assessee had submitted a proof in respect of only one concern M/s Deloitte Tax LLP to show that it is a firm of individuals and did not furnish any docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional firms for complying with those requirements and the payments were made to the above said professional firms towards legal and professional fees. As submitted by the assessee before the tax authorities, the assessee has availed these services outside India and further these services have been used outside India. The assessee did not deduct tax at source from these payments. The assessee has raised many contentions with regard to its liability to deduct tax at source from these payments. 7.5 The assessee has contended that, as per Article 15 of India USA DTAA, these are independent personal services and hence not taxable in India. Since it is not taxable in India in the hands of recipients, there is no liability to deduct tax at source u/s 195 of the Act. Article 15 of DTAA read as under:- INDEPENDENT PERSONAL SERVICES 1. Income derived by a person who is individual or firm of individuals (other than a company) who is resident of a Contracting State from the performance in other Contracting Stateof professional services or other independent activities of a similar character shall be taxable only in the first mentioned State except in the following circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with proposals approved by the Central Government before that date. Explanation 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation. For the removal of doubts, it is hereby declared that for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted below:- 11. The learned counsel for the assessee submitted, out of the total disallowance of Rs. 65,94,145/-, the payment made towards reimbursement of amount recovered on behalf of the client in litigation, payment of official fee, payment for publication and trade fair services has to be deleted at the threshold itself as such payments do not attract the provisions of section 195 of the Act. Proceeding further, he submitted, the payments are not in the nature of Fees for Technical Services (FTS), hence, cannot be considered to be income chargeable to tax in India. Drawing our attention to section 9(1)(vii) of the Act, he submitted, the provision is applicable only to the payment made towards FTS. He submitted, payment made by the assessee to foreign attorneys/lawyers are not in the nature of FTS but are fees for professional services. He submitted, technical service is distinct from professional service. To emphasize further, he submitted, as per Explanation 2 to section 9(1)(vii) of the Act, FTS has been defined to mean consideration paid for rendering of any managerial, technical or consultancy services. He submitted, section 44AA of the Act, clearly distinguishes pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source on the payments made. In support, learned counsel relied upon the following decisions:- i. CIT vs. Dunlop Rubber Co. Ltd.: (1983) 142 ITR 493 (Cal) ii. . . 14. Strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals), the learned Departmental Representative submitted, undisputedly, the payer is located in India and carries on his ITA No. 2890/Bang/2018 M/s Honeywell Technolgoy Solutions Pvt. Ltd. 22 profession in India. He submitted, while carrying out his profession, the assessee has utilized the services of foreign attorneys to whom, payments have been made. Therefore, the payment made to the nonresidents is income deemed to accrue and arise in India. He submitted, in many cases, the non-residents, to whom payments have been made, are residents of countries which do not have DTAA with India. Therefore, in absence of any DTAA, the income is chargeable to tax in India, as per the Act. He submitted, even in respect of payees situated in countries with whom India has entered into DTAA, the assessee failed to furnish TRCs. Therefore, the disallowance made is justified. 15. We have considered rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts received by them cannot be treated as income received in India, or deemed to be received in India, or income which accrues or arises in India. Therefore, the only category, if at all, under which the payments can be chargeable to tax is, income deemed to accrue or arise in India. For this purpose, we have to look at the provisions contained under section 9 of the Act. A reading of section 9, as a whole, including, the Explanation under sub-section (2) to section 9 would make it clear that income by way of interest, royalty and FTS shall be deemed to accrue or arise in India, irrespective of the fact, whether the nonresident has a residence or place of business or business connection in India or it has rendered services in India. 19. Factually, the payments made to non-resident attorneys are neither in the nature of interest, nor in the nature of royalty. This is not even the case of the Revenue as well. Therefore, it has to be seen, whether the payment made comes within the ambit of FTS. Explanation 2 to Section 9(1)(vii) defines FTS to mean any consideration received for any managerial, technical or consultancy services, including provision of services by technical or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are required to be performed in foreign jurisdictions. There is no privity of contract between the assessee s clients and foreign attorneys. In fact, the clients are no way concerned, whether the assessee does the work himself or engages others. Thus, the source of income of the assessee through services rendered by nonresident attorneys in foreign jurisdictions is located outside India. That being the case, exception provided in clause (b) of section 9(1)(vii) would apply. Hence, the payments are not taxable as FTS. 22. In any case of the matter, the departmental authorities have disallowed a part of the expenditure for the only reason that assessee failed to furnish the TRC of the payees. The departmental authorities have not at all examined the taxability of payments under the applicable DTAAs. 23. Be that as it may, on overall analysis of facts and applicable statutory provisions as well as keeping in view the ratio laid down in the decisions cited before us, we hold that the payments made to foreign attorneys are not chargeable to tax under the provisions of the Act, in terms of section 195 of the Act. Therefore, the assessee was not required to withhold tax on the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has raised an additional ground, wherein it has claimed 18. On the other hand, the ld.DR relied on the order of the lower authorities and he could controvert the orders passed by the coordinate bench of the Tribunal. 19. Considering rival submission the issue involved is similar to the issue decided by the coordinate bench of the Tribunal in assessee s own case for previous assessment year i.e 2011-12 Therefore respectfully following the above decisions cited supra we also set aside the order of CIT(A) and direct the AO to delete the disallowance of legal and professional charges. 20. In the result, the ground Nos.16, 17 18 are allowed. 21. On the claim of expenses u/s 37(1) of education cess and secondary higher education cess on income-tax was paid during year, in view of the amendment brought in by Finance Act 2022 making it mandatory to disallow the claim of educational cess as deducting the additional ground No.26 and 26.1 raised on this issue is dismissed. Accordingly this additional ground of the assessee is dismissed. 22. In the result, the ground Nos.26 and 26.1 is dismissed. Transfer Pricing 23. The assessee has raised ground No.19 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latility of revenue of this company from 2009-10 to 2014-15 and therefore this company cannot be considered as comparable. c) TCS E-Serve Ltd: It was observed that, the company was engaged in software development services and the segmental details between IT enabled services and software development services were not there in the annual report. Moreover, from the annual report it was also observed that its brand value was also considerable, which added to it profitability sustainability. As compared to which the activities of the Appellant are very low-end services on which profit margin is derived by it was quite reasonable. Similar views were taken by the Hon'ble Bangalore ITAT in the following cases: . MIs Societe Generale Global Solution vs DCIT [IT(TP)A No. 22971Bang12016] . MIs Kodiak Networks India Pvt Ltd vs ACIT[IT(TP)A No. 2841Bang12017] . CGI Information Systems Management Consultants P Ltd (IT(TP)A No. 5861Bang12015 1831Ban g/201 7 1.2 BNR Udyog Ltd: Following the decision rendered in case of M/s Zyme Solutions P Ltd [IT(TP)A No 1661/Bang/2016], the Hon'ble ITAT observed as that the company (BNR Udyog ltd) was carrying out medical transc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BPO company and the results of the BPO which is the only segment ought to have weighed in the mind of the TPO to include this company as a comparable company. 9 25. We have considered the submission of the learned counsel for the Assessee and are of the view that the plea raised by the Assessee is correct and the TPO ought to have regarded this company as comparable company because the only reportable segment of this company was BPO. We direct the TPO to include this company as a comparable company. 10 Accordingly, Crystal Voxx Private Limited should also be included in the final list of comparable companies. 11 Conclusion: 12 Considering the above, the revised set of comparable companies will be as follows: Since the operating margin of HTSL for AY 2012-13, i.e. 19.62%, is higher than the arithmetic mean of operating margins of comparable companies, the entire TP adjustment if INR 8,47,56,617 should be deleted. Infosys BPO 25. In the case of Infosys BPO the ld.AR of the assessee contested that there was extraordinary events occurred during the year and it is also functionally different as well as the company does not possess turnover filter as appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. The ld.DR further submitted that the AR of the assessee could not controvert the findings recorded by the lower authorities and the case law relied by the ld.AR is not applicable in the present facts on hand. 30.2. After going through the documents and considering the entire submissions from both the sides, this company s turnover is volatility. The current year turnover is 8 crores approx. whereas previous year turnover is 20.36 crores. The ld.AR of the assessee has relied on the judgment of CGI Information Systems and Management Consultant Pvt. Ltd., the decision of the coordinate bench of the Bengluru in IT(TP)A No.586/Bang/2015 and 83/Bang/2017 vide order dated 11-04-2018, this company has not been considered as comparable for the following reasons, which is as under:- We have considered the rival submissions. In the case of Baxter (I) (P.) Ltd., (supra) the Delhi ITAT Bench considered comparability of the aforesaid three companies with a company engaged in providing ITBS such as the Assessee. The functional profile of the Assessee and the Assessee in the case of Baxter (I) (P.) Ltd. (supra) are identical inasmuch as 7 out of the 10 companies chosen by the TPO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles chosen in the case of the assessee in this appeal were also chosen as comparable in the case of the aforesaid assessee. On the comparability of Infosys BPO Ltd., and TCS e-Serve Ltd., the Hon'ble Tribunal held as follows: 13. On the segmentation of exclusion of Infosys BPO Ltd., the learned AR submitted that the turnover of said company is Rs.1316.75 crores and functionally not comparable to the assessee-company and has brand profits and owns significant intangibles to the extent of 7.55% and erroneous margin computation. The learned AR supported his argument of exclusion on the brand profit segment that the company is functionally not comparable as it owns brand intangibles and incurred huge advertisement expenditure of Rs.5.54 IT(TP)A No.308/Bang/2017 crores and marketing expenses of Rs.1.54 crores for brand building and referred to pages 930 and 931 of the paper-book. Similarly, peculiar economic circumstances being acquisition of 100% stake in Portland Group during the year and the forex is treated as non-operating and referred to page 932 of the paper-book and the turnover higher Rs.1316.75 crores which is outside 10 times range. Learned AR emphasized that Infosys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is engaged in ITES and hence functionally comparable. The TPO further mentioned that the Annual Report does not mention anything in regard to brand deriving its profitability. According to the TPO, the brand in service industry may derive revenue but does not affect the profitability. Ld. counsel for the assessee submitted that Infosys BPO Ltd. is functionally not comparable since the services are in the niche areas. He submitted that this company fails the TPO's own filter of rejecting companies with peculiar circumstances, since this company has acquired the Australian based company M/s. Portland Group Pty Ltd. during the financial year 2011-12. Further, the turnover of this company is more than 111 times than that of the assessee company and it has a presence of brand. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) for assessment year 2012-13, he submitted that this company was examined by the Tribunal and the Tribunal directed the Assessing Officer/TPO to exclude Infosys BPO Ltd. on account of high turnover. Referring to the decision of Delhi Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segmental information and considerable brand value. He submitted that the TCS e-Serve Ltd. is functionally different. The company is engaged in ITES and software development services. Further, the segmental information between ITES and software development services are not available. The company has presence of brand and the services are provided pre-dominantly to Citi Group company. So far as the employee base is concerned, TCS e-Serve Ltd. has more than 296 times of that of the assessee's employee base. The turnover is greater than 133 times of the assessee. Incomparable size of operations, abnormal profitability trend and super normal profits are the other grounds for rejection of TCS e-Serve Ltd. as a comparable. He submitted that this company was examined by the Delhi Bench of the Tribunal in assessee's own case in ITA No. 345/Del/2016 and company was excluded from the list of comparables while computing the average margin of comparables. 14.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 2315 (Bang.) of 2016, dated 13-4-2017] for the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation, then the AO/TPO shall consider it for calculating PLI. 35. Further, we observe that the ld.AR of the assessee has filed additional evidences as per Rule 29 of the ITAT Rules on 02/08/2021 for inclusion of Crystal Voxx Pvt. Ltd., which is engaged in the business of BPO services and the financial statements has also been provided and it has been incorporated in his written synopsis. He has also relied on the decision of the coordinate bench of this Tribunal in the case of FNP India Pvt. Ltd., in IT(TP)A No.195/Bang/2016 459/Bang/2017.on perusal of this company. Considering the prayer of the assessee, we direct we direct AO/TPO to consider this as comparable if it passes necessary filters applied by the TPO in the original proceedings. and if the AO/TPO finds that it is a good comparable for the assessee company then it may be considered as good comparable. Ground No.26 36. In respect fixing of higher turnover by the AO/TPO, we have already decided this issue in the above paragraphs. 37. In the combined result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 26th August, 2022. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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