TMI Blog2019 (7) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... ult in mandatory ALP adjustment in all the cases. That cannot be certainly the intention of the legislature. In order to avoid any absurdity in this regard, the test of reasonableness should be applied by the TPO by comparing the cases whose turnover is either 10 times below or 10 times above the turnover with that of the assessee which would be reasonable for the purpose of comparison. Hence, the argument advanced by the ld. DR in this regard is not appreciated. Accordingly, we hold that this comparable i.e. TCS E-serve ltd deserves to be excluded due to huge turnover. TCS E-serve ltd is excluded the mean margin of the comparables would be 16.21% as against the assessee s margin of 12% and accordingly, the assessee would fall within +/-5% tolerance limit. We direct the TPO to verify the said workings given by the ld. AR and if the contention of the ld. AR is found to be correct, then no adjustment to ALP need to be made in respect of ITES segment of the assessee. Since, we directed the TPO to exclude TCS E-serve ltd from the list of comparables, the adjudication of other comparables, both inclusion / exclusion become academic in nature and no opinion is rendered by us herein. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible. It is now well settled that even if disallowance u/s.40(a)(i) is to be made for non-deduction of tax at source, still it would only result in enhancement on business income of the eligible unit of the assessee which would inturn consequently increase the claim of deduction u/s.10A for the assessee, thereby making it revenue neutral. We find that the ld. AR in this regard had rightly placed reliance on the decision of Hon ble Jurisdictional High Court in the case of PCIT vs. Lionbridge Technologies (P) Ltd., [ 2017 (9) TMI 1410 - BOMBAY HIGH COURT] . We also find that recently, the CBDT had also issued a Circular No.37/2016 dated 02/11/2016 wherein it has been categorically stated that disallowances made u/s.32, 40(a)(ia), 40A(iii), 43D of the Act etc., and other specific disallowances related to the business activity against which Chapter VIA deduction has been claimed result in enhancement of the profits of the eligible business and that deduction in Chapter VIA is admissible on the profits so enhanced by the disallowance. The same analogy would apply for deduction u/s.10A of the Act also. Respectfully following the aforesaid decision of Hon ble High Court reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the back office support services rendered by the assessee are standardised commoditized process roles which do not require any professional / skilled labour with domain expertise. The assessee had objected before the ld. TPO as well as the ld. DRP for exclusion of TCS E-serve ltd on the ground that it is functionally not comparable, among others. In this regard, we find that TCS E-serve ltd is engaged in the business of providing business process management services in the banking and financial services vertical. 3.2. On the contrary, the assessee is a mere service provider involved in providing back office services like data entry, data processing and reconciliation. It was further submitted that TCS E-serve ltd operations particularly comprises of transaction processing and technical services primarily to Citi Group entities globally. From the annual report of TCS E-serve ltd, we find that the said company is engaged in the business of providing ITes / business process outsourcing services primarily to Citi Group entities globally. Its operations particularly comprises of transaction processing and technical services. Transaction processing includes the broa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Brand which assessee herein does not process, thereby making it incomparable. (b) The turnover of the said comparable is 48 times more than the total value of the nominal transactions of the assessee. The turnover of TCS E-serve ltd for the A.Y.2011-12 was 1442 Crores, whereas the turnover of the assessee herein was ₹ 29.56 Crores. (c) The said comparable was having super normal profits in the last two years and during the year under consideration as under:- Financial Year Ending OP/OC 31/03/2009 10.05% 31/03/2010 67.58% 31/03/2011 76.82% The assessee pleaded that the aforesaid comparable has earned super normal profits thereby making it incomparable with the assessee. The assessee also stated that this comparable was considered by it in accept / reject matrix in TP study report and was ignored by it based on the aforesaid parameters. 3.3. Segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sseessee company is around ₹ 11 crores which is much more than 65 times of the Assessee's turnover. We, therefore, do not find any illegality or infirmity in the order of CIT(A) in excluding this Company out of the comparables. Accordingly, we confirm the order of the CIT(A). (iii) Wipro Ltd. :- After hearing the rival submissions, we noted that the CIT(A) applying the turnover filter has excluded this company out of the comparables. The turnover reported in the case of Wipro Ltd. Is ₹ 939.78 crores while in the case of the Asseessee the turnover is around ₹ 11 crores. Therefore, on the basis of the turnover filter itself this company cannot be regarded to be comparable to the Asseessee company and accordingly, we do not find any infirmity in the finding of CIT(A) while he excluded this company on the turnover criteria following the decision of this tribunal in : Sony India (P) Ltd. vs. DCIT, 114 ITD 448 Delhi, E-Gain Communication, 2008 TIOL 282 ITAT (Pune) Deloittee Consulting India Pvt. Ltd. vs. DCIT, ITA No. 1082/Hyd/2010 Genisys Integrating System (India)(P.) Ltd. vs DCIT,, 53 Sot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort services (IT segment). 4.1. We have heard rival submissions and perused the materials available on record including the judicial pronouncements that were relied upon before us by the Counsels of both the sides. With the consent of both the parties, we proceeded to adjudicate the exclusion of Infosys Ltd., and Wipro Technologies Ltd., from the list of comparables as either one or both are excluded, the ld. AR stated that the assessee would be through and no adjustment to ALP would be warranted. We find that assessee in its IT segment had provided software services to its AEs. The services provided in the software support services segment primarily include routine software development services as well as related IT services. These services typically require a number of steps such as system and requirement analysis, system architecture, coding, testing and implementation. The functions of BNPP ISPL include participating in various parts of the software development life cycle, which are routine in nature. The AEs are involved in the conceptualization of the software based on the business requirement. The AEs provide specifications to BNPP ISPL and monitor the progr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, we hold that the said comparable deserves to be excluded due to functional dissimilarities as well as for the absence of segmental data. Accordingly, we direct the ld. TPO to exclude the same from the list of comparables. 4.4. Exclusion of Infosys Limited:- The turnover of this comparable is ₹ 25,385 Crores. From para 52 of the order of the ld. TPO it is found that assessee is engaged into routine software support services which are only the basic works which are not capable of creating any intangibles. We hold that Infosys by its mere presence in the field for several years had created a mark and possesses huge intangibles in the form of Brand and the risk of the said comparable also would be very minimal. It is well settled that Infosys would be able to penetrate into the IT market and obtain bigger clients which would fetch them higher revenues. These huge advantages possessed by Infosys Ltd., are not admittedly available to the assessee herein. Hence, we hold that Infosys Ltd., cannot be accepted as a comparable. 4.5. We find that the ld DR argued that turn over filter adopted by the ld. TPO was only for the minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings. Hence, with the consent of both the parties, we hereby direct the ld. AO to verify whether this sum of ₹ 9,99,600/- representing house property income was at all considered by him in the draft assessment order. If it is so considered, then, the ld. AO is justified in considering the same in final assessment order pursuant to direction of the ld. DRP. If from verification, it is proved otherwise, then the said addition requires to be deleted. With these observations, the ground No.5 raised by the assessee is disposed off. 6. The ground No.6 7 are to be dealt together as it involves disallowance made u/s.40(a)(i) of the Act in the sum of ₹ 31,59,524/- for non-withholding of tax on payments made to foreign parties. The interconnected issue involved therein is whether the said disallowance would consequently increase the claim of the deduction u/s.10A of the Act. 7. We have heard rival submissions. It is not in dispute that assessee had made certain payments to foreign parties in the sum of ₹ 31,59,524/- relating to the unit for which deduction u/s.10A of the Act is eligible. It is now well settled that even if disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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