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TMI Blog2020 (3) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... 229 ITR 383 (SC) where the ITAT is empowered to admit such additional ground. The Ld. AR of the assessee submitted that the additional ground does not require any fresh verification of facts since the issue involved therein is purely a question of law and the same reads as under: "Additional ground: 13.1 On the facts and circumstances of the case and in law, the Appellant prays that the liability for education cess of income tax paid for the year ought to be allowed as a deduction while computing the total income." 4. The Ld. DR did not raise any objection with regard to admission of additional ground for adjudication. 5. Having heard the submissions of both the parties herein, we find the additional grounds raised by assessee are legal in nature, hence, the same is admitted in line with the decision of Hon'ble Supreme court of India in the case of NTPC Ltd. Vs. CIT (supra.) Adjudication of additional ground 6. At the time of hearing, the Ld. AR of the assessee submitted that the issue of "deduction of liability of education cess" is squarely covered by the following decisions of the Pune Bench of the Tribunal: (i) DCIT Vs. Bajaj Allianz General Insurance Company Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure for Rajasthan Bench at Jaipur, ground of Cross objection No.4 is allowed." Respectfully, following the decision of the Co-ordinate Bench of the Tribunal, Pune in the above referred case, we allow this additional ground in favour of the assessee. Thus, additional ground raised in appeal by the assessee is allowed. Adjudication of the grounds in appeal memo 8. The brief facts involve in this case are that the assessee company was incorporated on 12.09.1995 as a subsidiary of Symantec Operating Corporation USA. The ultimate parent company is Symantec Corporation, USA. The assessee has two units registered with Software Technology Park of India (STPI), Pune viz. Unit A and Unit B. The assessee company is engaged in the business of Software Development, Consultancy Services, and Technical Support Services. The assessee electronically filed its revised return of income for assessment year 2014-15 on 22.01.2016 declaring total income of Rs. 1,28,03,08,180/-. During the assessment year 2014-15, the assessee company has undertaken the following international transactions: Nature of transaction Nature of services Amount (Rs.) Method Adopted Symantec Corporation, USA Software Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its contention that the OPD (Outsourced Software Product Development) business operations carried out by Persistent Systems are different from the IT/Software Development Services. It may be mentioned that the above company is included in the list of functionally comparable entities finalized by the assessee himself for the assessment year 2013-14 and was considered functionally comparable by the assessee in A.Y.2009-10, 2010-11 and 2011-12 as well. The TPO further observed that the assessee has given no reason as to how without there being any change in the functions of the Persistent Systems Limited over the years, the entity is considered functionally incomparable. The assessee also has not demonstrated as to how Persistent Systems Limited should be excluded because of F.Y. 2012-13 being and exceptional year of operation and has impacted upon the profitability of the company. Accordingly, the TPO concluded his findings by providing final set of comparables in Software Development Service segment of the Persistent Systems Limited as under: Name of the Company Turnover FY 2013-14 OP/OC % Working capital adjusted margin as per SCN (%) 1. R.S. Software (India) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany but not stand alone financials of the India Company which is being compared with the assessee company. Therefore, we do not agree with the assessee‟s arguments that acquisition of US company by Persistent will make it incomparable with the assessee company. The TPO has correctly noted that entire revenue as per details is from software services only. Perusal of the Annual Report of the company shows that company is in to software development. Its turnover is also comparable with the assessee company‟s turnover. Therefore, we confirm the decision of the TPO to accept Persistent Systems Ltd. and Larsen & Toubro Infotech Ltd. as comparable." 10. The Ld. AR of the assessee also submitted that on account of functionally not comparable, Persistent Systems Limited should be excluded from the list of comparable companies. The issue of non-comparable of Persistent Systems Limited is squarely covered by the decisions of Hon‟ble High Courts and Tribunals. With regard to inappropriate acceptance of Persistent Systems Limited as functionally comparable, the Ld. AR of the assessee placed strong reliance on the following decisions: (i) EMC Software and Services India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of EMC Software and Services India Private Limited Vs. JCIT (ITA No.3375/Bang/2018), the Co-ordinate Bench of the Tribunal, Bangalore has directed the Assessing Officer to exclude the Persistent Systems Limited from the final list of comparable for determination of ALP by observing as follows: "(iii) Persistent Systems Ltd. : The company is functionally different as it is engaged in rendering IT services and in the development of software products without there being support segmental information and engaged in IP led solutions and undertakes significant R & D activities, owns IP. During the year the company made acquisitions. The company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The learned Authorised Representative relied on decision of Tribunal in the case of CGI Information & Management Systems Pvt. Ltd. Vs. ACIT 94 Taxman.com 97 and PCIT Vs. Saxo India Pvt. Ltd. 74 taxmann.com 88 (Delhi). We relied on the decision of CGI Information Systems & Management Consultants Pvt. Ltd.(supra) at paras 28 to 30 as under : We rely on judicial decisions and facts in respect of comparable Persiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Recognition Policy in notes of accounts and segmental information is available in respect of infrastructure and systems, telecom and wireless life sciences and Health care. Further, it renders services in cost plus to its Associate Enterprise and sail with partnership and alliances, intellectual property led solutions and end-to end solutions, strategic acquisitions and financial year 2010-11 is an exceptional year of operation of Persistent Systems. We find support from the decision of 3DPLM Software Solutions Ltd. (supra) at para 17 Page 13 of the paper book as under: "17. Persistent Systems Ltd. 17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reason that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee‟s objections on the ground that as per the Annual Report for the company for Financial Year 2007-08, it is mainly a software development company and as per the details furnished in reply to the notice u/s. 133(6) of the Act, software deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the absence of segmental details/information a company cannot be taken into account for comparability analysis. We hold that this company, i.e., Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly." We rely on the above facts and Tribunal decision and we direct the TPO to exclude Persistent Systems Ltd. from the list of comparable companies". 10.2 Further, the Ld. AR relied on the order of the ITAT, Delhi in the case of M/s. Alcatel-Lucent India Ltd. vs. Addl. CIT in ITA No.6979/Del/2017 dated 09/05/2019 wherein it was held as under: "We are of the view that a company engaged in development of the software products cannot be compared with the assessee who is engaged in contract software development services. Accordingly, we direct the Ld.A.O./TPO to exclude the company from the final set of the comparables. 10.3 Further, the Ld. AR relied on the on the order of the ITAT, Bangalore in the case of GXS India Technology Centre vs. ITO in ITA No. IT(TP)A No. 1444/Bang/2012 dated 31/07/2015 wherein it was held as follows: "13.2 We have considered the rival submissions as well as the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are products and hence, is not functionally comparable to the software development service segment of the assessee. Thirdware Solutions Limited is engaged in providing high end comprehensive application implementation and application management support service in enterprise application space and implementation of high and ERP solutions for various companies which is a distinct activity from software development and it has been rejected as comparable to software development service provider by various ITAT in various judicial pronouncement. With regard to the TPO‟s comments that the assessee itself has considered Thirdware Solutions Limited functionally comparable in its own set while carrying out its benchmarking analysis for AY. 2013-14, the Ld. AR of the assessee submitted, the TPO himself has stated in the TP order that companies having revenue from software products more than 25% cannot be said to be engaged in software development services and hence, Thirdware Solutions Limited ought to be rejected. Thirdware Solutions Limited is engaged in non comparable activities like consultancy services and the breakup of the same is not available in its annual report for FY 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odel which the company has adopted. The above comparable was excluded in assessee's own case on functional dissimilarity in the Assessment Years 2005-06 and 2007-08 and learned Authorised Representative also relied on Lime Labs (India) Pvt. Ltd. Vs. ITO 101 Taxman.com 201 (Delhi Trib.). We found the co-ordinate Bench of the Tribunal in the case of LG Software India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 dt.28.05.2019 for the Assessment Year 2014-15 has excluded the comparable as observed at paras 8 & 8.1 at page 4 as under : "8. We also notice that in A.Y 2008-09, the co-ordinate bench has excluded M/s. Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s. Thirdware Solutions Ltd. is engaged in product development and earns revenue from sale of licenses and subscription. Further, the segmental details were not available. 8.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in A.Y 2008-09, we direct exclusion of M/s. Thirdware Solutions Ltd." The comparable Thirdware Solutions Ltd. has to be exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses towards import of software services, evidencing outsourcing of software services unlike the assessee. Since it is also engaged in outsourcing its activities as it has incurred expenses towards imports of software services, evidencing outsourcing of software services unlike the appellant company. Hence, it is functionally not comparable and cannot be treated as a comparable to assessee. We order accordingly." Respectfully, following the plethora of decisions of various Tribunals as referred hereinabove, Thirdware Solutions Limited cannot be treated as comparable company and the AO/TPO is directed to exclude Thirdware Solutions Limited from final list of comparable companies with regard to its software development service segment. EXCLUSION OF MPS LIMITED AS COMPARABLE TO TECHNICAL SUPPORT SERVICE SEGMENT (C) MPS LIMITED : 19. The Ld. AR of the assessee submitted that MPS Limited is engaged in carrying out content development activity which is in the nature of KPO service and therefore, is functionally non comparable to the technical support service segment of the assessee. With regard to the TPO‟s comments, the company is engaged in data digitization and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-ordinate Bench of the Tribunal, Mumbai held the MPS Limited as functionally not comparable by observing as follows: "9.3. From the perusal of the annual report for the year ended 31/03/2014 of the said comparable, we find from page 707 of the paper book that the said comparable had incurred outsourcing cost ofRs. 1078.76 Crores which is included under the head "miscellaneous expenses" which goes to prove that it has got a different business model. From the various functions performed by MPS Ltd., we find that the said comparable is predominantly in the business of digital publishing which cannot be treated at par with ITeS which is the case of the assessee in ITeS segment. In this regard, we find that the reliance placed by the ld.AR on the Co-ordinate Bench decision of Bangalore Tribunal in the case of M/s. Google (India) Pvt. Ltd., vs. DCIT in ITA No.1368/Bang/2010 for A.Y.2006-07 dated 19/10/2012 is well founded wherein it was held asunder:- 16. As far as (4) Apex Knowledge Solutions Pvt. Ltd., is concerned, we find that the assessee had taken objections before the TPO that it is functionally different, as it is provides services such as E-publishing knowledge based servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments scanning & Indexing. It can be seen from the financial results of this company that both the segments viz., e-publishing and Documents scanning etc. have been combined and there are no separate financial results in respect of Documents scanning work, which may be comparable with the assessee to some extent. As the assessee is not engaged in any e-publishing business and the financials given by this company are on consolidated basis, we direct to exclude this company from the list of comparables. The assessee succeeds." 22. We further observe that the Ld. DRP held MPS Limited as BPO Company and is engaged in ITes only. In this regard, the Pune Bench of the Tribunal in the case of Macom Technology Solutions (India) Private Limited Vs. DCIT in ITA No.2393/PUN/2017 for A.Y.2013-14 vide its order dated 08.08.2019 discussed the definitions as provided under Rule 10TA of Part-II DB wherein the definition of Information Technology Enabled Services are provided the business process outsourcing is defined under clause (e) which provides mainly with assistance or use of Information Technology which as back office operations, call centre, data processing or insurance claim processing. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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