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2019 (7) TMI 664

..... of the filters applied by the ld. TPO was to consider the companies whose turnover is more than One Crore. We find that assessee also has considered the same filter in his TP study report with regard to turnover, but the assessee had considered the comparables which are reasonable and comparable with the size and scale of operations with that of the assessee, whereas the TPO by considering the comparable like TCS E-serve ltd with that of assessee had practically considered the comparable whose turnover is several times more than that of the assessee. We hold that the giant size ITES provider like TCS E-serve ltd cannot be compared with routine ITES / BPO service provider like that of the assessee. ITES company would then get compared with top giants like TCS E-serve ltd and others with the same high turnover, which would in turn result 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 reasonab .....

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..... 00/- 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 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. Deduction u/s.10A - TDS not deducted u/s 195 on payments made to foreign parties - disallowance made u/s.40(a)(i) - whether the said disallowance would consequently increase the claim of the deduction u/s.10A? - Circular No.37/2016 dated 02/11/2016 - HELD THAT:- 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 is 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 t .....

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..... limit / Safe Harbour limit. Hence, with the consent of both the parties, we proceeded to adjudicate the issue of exclusion of comparable, TCS E-serve ltd. 3.1. It would be pertinent to understand the basic services rendered by the assessee herein. We find that the ld. TPO has observed in his order that assessee had during the year provided the routine back office support services such as account payable services, nostro reconciliation, trade finance back office, data processing, accounting controls, financial reporting, performance management, capital market and client management operations, reconciliation of IT applications, reconciliation and access right management. The ld TPO observed 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 financi .....

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..... S E-serve ltd would be significantly less compared to that of the assessee. These are crucial factors which have been ignored by the ld. DRP and the ld. TPO despite raising specific objections before them. The significant differences pointed out by the assessee with regard to exclusion of these comparables are as under:- (a) Presence of intangible with TCS E-serve ltd - i.e. the said comparable belongs to Tata Group of companies and has significant Tata Brand which would enable it to secure big business together with lesser risks. It also goes to prove that the said company possesses significant intangibles in the form 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 pleade .....

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..... o the Asseessee. We, accordingly, direct the AO to exclude this company out of the comparables. (ii) Infosys BPO Ltd. :- In this case also we noted the turnover in respect of this Company is ₹ 649.56 crores while the turnover of the Asseessee 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 Commun .....

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..... ngth adjustment made in the sum of ₹ 11,76,40,805/- relating to international transaction of software support 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 .....

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..... ied activities for which segmental data is also not available 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 .....

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..... oth 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 disallowance u/s.40(a)(i) of the Act is to be made for non-deduction of tax at .....

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