TMI Blog2018 (4) TMI 1817X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions of the learned Dispute Resolution Panel (learned Panel') to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. [corresponding to ground no. 1] 2. That the learned AO and the learned Panel erred in upholding the rejection of Transfer Pricing ('TP') documentation by the learned Deputy Commissioner of Income tax, Transfer Pricing --Range 1(1)(2) (learned TPO') and in upholding the adjustment to the transfer price of the Appellant in respect of Software development services and IT enabled services. [corresponding to ground no. 2] 3. That on the facts and circumstances of the case, the learned AO/learned Panel erred in upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the fresh comparability analysis performed by the learned TPO. [corresponding to ground no.3 (a)] 4. That on the facts and circumstances of the case, the learned AO/learned Panel erred in disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. Financial Year 2011-12) data for companies should be used for comparabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable in respect of its IT enabled services segment whereas the same should have been excluded for the reasons of huge brand value Market leading capacity, etc. [corresponding to ground no. 3(e)] 12. The learned AO in pursuance of the order of the learned TPO and the directions of the learned Panel erred on facts and law while including BNR Udyog Limited as a comparable in respect of its IT enabled services segment whereas the same should have been excluded because it fails the related party filter. [corresponding to ground no. 3(e)] 13. The learned AO in pursuance of the order of the learned TPO and the directions of the learned Panel erred on facts and law while including TCS e-serve Limited as a comparable in respect of its IT enabled services segment whereas the same should have been excluded for the reasons of functional dissimilarity, huge brand value, etc. [corresponding to ground no. 3(e)] 14. The learned AO in pursuance of the order of the learned TPO and the directions of the learned Panel erred on facts and law while excluding Akshay Software Technologies Limited as a comparable in respect of its software development services segment whereas the same should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two charts for each of these two segments. In respect of request for exclusion of Persistent Systems Ltd., reliance has been placed on two Tribunal orders i.e. Tribunal order rendered in the case of Electronic Arts Games (India) Pvt. Ltd. vs. ACIT in ITA No. 444/Hyd/2017 for the same Assessment Year, copy of relevant pages available on pages 2502 to 2504 of the paper book and in the case of Agilis Information Technologies India Pvt. Ltd. vs. ACIT in ITA No. 555/Del/2017 for same Assessment Year, copy of relevant pages available on pages 2484 to 2485 of the paper book. In respect of request for exclusion of Infosys Ltd., reliance has been placed on the same Tribunal order of Delhi Bench rendered in the case of Agilis Information Technologies India Pvt. Ltd. Vs. ACIT (supra), copy of relevant pages available on pages 2479 to 2481 of the paper book and on another Tribunal order rendered in the case of Alcatel-Lucent India Ltd. Vs. Addl. CIT in ITA No.1112/Del/2017 for the same Assessment Year, copy of relevant pages available on pages 2518 2519 of the paper book. In respect of request for exclusion of Genesys International Services Ltd., reliance has been placed on two Tribunal orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.47% 24.22% 2 Mindtree Ltd. 15.01% 13.45% 3 Persistent Systems Ltd. 27.20% 25.64% 4 R S Software (India) Ltd. 15.34% 16.29% Mean margin 20.75% 19.90% The above adjusted mean margin of 19.90%, based on the strict comparability of the comparables, works out more than the adjusted mean margin of @ 19.40% in the TP order, based on the 10 comparables selected by the TPO. It is clear from the above that the larger set of the comparables takes care of the differences between the comparables as compared to a smaller set of the comparables selected based on the strict comparability. Accordingly, we are of the view that the comparables selected by the TPO are appropriate for determination of the Arm's Length Margin. Accordingly the set of the comparables selected by the TPO is upheld by approving the adjusted margin of @ 19.40% instead of 19.90%, from the above exercise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case is similar and therefore, in our considered opinion, this Tribunal order is applicable in the present case. But as per Para nos. 3, 4 and 5 of this Tribunal order Larsen Toubro Infotech Ltd. was excluded by applying the turnover filter but without considering the judgment of Hon'ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) (P.) Ltd. vs. DCIT as reported in 376 ITR 183 in which it was held that huge profit or huge turnover, ipso facto does not lead to exclusion of a comparable and the TPO first, has to be satisfied that such differences do not materially affect the price or cost and secondly, an attempt should be made to make reasonable adjustment to eliminate the material effect of such differences. Hence, if only this tribunal order is considered, the matter has to go back to the file of AO/TPO for fresh decision in the light of this judgment of Hon'ble Delhi High Court. Hence, we examine the applicability of another Tribunal order rendered in the case of Agilis Information Technologies India Pvt. Ltd. vs. ACIT (supra). As per Para no. 2 of this Tribunal order, it is noted that this company is engaged in the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables. Thus, we direct the TPO to exclude this comparable. 6. From the above paras reproduced from this Tribunal order, it is seen that this company was excluded by the Tribunal in that case on this basis that this company is earning revenue from two business segments i.e. software development and software product and separate segmental data is not available in the Annual Report of that company. Respectfully following this Tribunal order, we hold that in the present case also, this company Larsen Toubro Infotech Ltd. should be excluded from the list of final comparables. 7. Now we discuss and decide about Infosys Ltd. In support of this request for exclusion of Infosys Ltd. also, reliance has been placed by ld. AR of assessee in the chart on the same Tribunal order rendered in the case of Agilis Information Technologies India Pvt. Ltd. Vs. ACIT (supra) which is for same Assessment Year and we have already seen that this Tribunal order is applicable in the present case. Para nos. 4.5 to 4.7 of this Tribunal order are relevant in respect of Infosys Ltd. and hence, these paras are also reproduced herein below from paper book pages 2478 to 2481 of paper book. The same are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in the case of AVL India Software Pvt. Ltd. vs. DCIT (ITA No, 6454/Del/2012) directed to exclude Infosys holding that the assessee providing services to its AE on a cost plus basis without having any intangible assets cannot be compared with a giant company like Infosys. The Ld. AR relied upon the following decisions, wherein, Infosys Technologies Ltd, was directed to be excluded holding that the company is a giant company having significant intangibles: i. Nokia Siemens Networks India Pvt. Ltd vs. ACIT (ITA No. 5837/Del/2011) ii. FIL India Business Services Pvt. Ltd. vs. DCIT (ITA No. 6867/Del/2014) iii. Sony Mobile Communications International AB (India Branch Office) vs. DDIT (ITA No. 769/Del/2014) iv. Headstrong Services (India) Pvt. Ltd vs. DCIT (ITA No. 714/Del/2015) v. Bentley Systems India Pvt. Ltd. vs, ACIT (ITA No. 6161/Del/2013) vi. Sun Life India Service Centre Pvt. Ltd. vs. DCIT (ITA No. 1489/Del/2014) vii. Avaya India (P) Ltd. vs. ACIT (ITA No. 5528/Del/2011) viii. Alcatel-Lucent Technologies vs. DCIT (ITA No, 2298/Del/2008) ix. DCIT vs. Mentor Graphics (ITA No. 2634/Del/2011) The Ld. AR also relied upon the following decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclude Infosys Ltd. also from the list of final comparables. 9. As per above discussion, we have held that as per page no. 22 of the order of DRP, only four comparables are to be considered and out of that we have decided about exclusion of two companies in software development segment. So in the final list of comparables for this segment, there will be only two comparables i.e. Mindtree Ltd. and R S Software (India) Ltd. In addition to this now, we decide about the assessee's request for inclusion of one comparable i.e. Akshay Software Technologies Ltd. In respect of assessee's request for inclusion of this comparable, ld. AR of assessee has placed reliance on two Tribunal orders i.e. the Tribunal order rendered in the case of M/s. Citrix R D India Pvt. Ltd. Vs. DCIT in IT(TP)A No. 1289/Bang/2014 for Assessment Year 2009-10 and the Tribunal order rendered in the case of DCIT Vs. M/s. Wabco TVS Ltd. in ITA No. 883/Mds/2015 for Assessment Year 2010-11 and since, the Assessment Years in both these two Tribunal orders is different, these two Tribunal orders are not relevant for the purpose of inclusion of this comparable. The DRP has decided the issue against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in providing integrated IT and BPO solutions across a variety of verticals like Banking, Communication, Media and Entertainment, Manufacturing, Retail and Energy sectors. It is also contended that this company has diversified activities, owns IPR's and has tremendous brand value. In support of its claims/contentions, this assessee placed reliance on the decision of the coordinate bench in the assessee's own case for Asst. year 2011-12 in IT (TP) A No.1397/Bang/2016 dated 13/1/2017. 12.2 Per contra, the ld DR for Revenue supported the orders of the authorities below. 12.3.1 We have been heard the rival contentions and perused and carefully examined the material on record, including the judicial pronouncement cited. We find that the coordinate bench of this Tribunal in its order in the asseesse's own case for asst year 2011-12 in IT (TP) A No. 1397/Bang/2016 dated 13/1/2017has excluded this company, 'Infosys', from the set of comparables for the reason that it is functionally different; being an established market leader, enjoying immense brand value and goodwill, with huge economies of scale and geographical dispersion of customers. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as this company is concerned, it is the submission of the ld. counsel for the assessee that this company has a brand value and therefore there would be significant influence in the pricing policy which will impact the margins. Schedule 13 to the profit loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The brand value of the Assessee and Infosys has been valued at ₹ 31,863 Crores. Infosys BPO, being a subsidiary of Infosys, has an element of brand value associated with it. This is also clear from the presence of brand related expenses incurred by this company. Presence of a brand commands premium price and the customers would be willing to pay, for the services/products of the company. Infosys BPO is an established player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck office services i.e. ITES and therefore, in the present case, this Tribunal order is applicable. As per Para nos. 5 to 8 of this Tribunal order, the issue was decided regarding exclusion of this company on this basis that it does not pass through the turnover filter because the turnover of this segment of BNR Udyog Ltd. is ₹ 1.47 Crores whereas the turnover of that assessee was ₹ 71.37 Crores and therefore, it was less than 10% of turnover of turnover of that company but while deciding the issue, the judgment of Hon'ble Delhi high Court rendered in the case of Chryscapital Investment Advisors (India) (P.) Ltd. Vs. DCIT (supra) was not considered and therefore, the assessee could not make out a case for exclusion of this company. At the best, this issue may be restored back to the file of AO/TPO for fresh decision in the light of this judgment of Hon'ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) (P.) Ltd. Vs. DCIT (supra). We hold accordingly and restore this matter back to the file of AO/TPO for fresh decision in the light of this judgment of Hon'ble Delhi High Court rendered in the case of Chryscapital Investment A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is engaged in services like software testing, verification and validation and data centre management services which falls under software development services, different from low end, low risk ITES segment. He further ... should be excluded. 24. We have carefully considered the rival submissions and also referred to page No. 247 of the paper book filed before us wherein relevant extracts from annual reports shows that it includes technical services like software testing, verification and validation of software at the time of implementation and data center management activities. It is engaged in BPO segment to the banking and financial service industries. Therefore, it is apparent that the assessee is engaged in BPO services. The coordinate Bench in the case of Equant Solutions India Pvt. Ltd. vs. CIT in ITA No. 120210el./2015 for A. Y. 2010-11 has held that it has used intangibles and use of data brand. Vide Para No. 24 of that order, it was held to be excluded compared to low risk ITES company like Appellant. Further, the decision of the coordinate Bench in the case of Ameriprise India Pvt. Ltd. has considered in ITA No. 701410el.l2014 at Para No. 12 has excluded this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct accordingly. 22. Respectfully following the decision of the order of the Tribunal in assessee's own case in the immediately preceding assessment year and in absence of any distinguishable features brought to our notice by ld. DR, we direct the TPO/Assessing Officer to exclude the TCS e-Serve Ltd. from the list of comparables while computing the average margin of the comparables. We hold and direct accordingly. 14. From the above paras reproduced from this Tribunal order, it is seen that the Tribunal has decided this issue in favour of the assessee by following the Tribunal order in the case of the same assessee for Assessment Year 2011-12 with a further finding that there was no distinguishable features brought to the notice of Tribunal by ld. DR of revenue in the present year. Hence by respectfully following this Tribunal order, we direct the AO/TPO to exclude TCS e-Serve Ltd. from the final list of comparables for ITES segment. In this manner, ground nos. 11 and 13 are allowed whereas ground no. 12 is allowed for statistical purposes. 15. In the result, the appeal filed by the assessee is partly allowed in the terms indicated above. Order pronounced in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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