TMI Blog2020 (11) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... are while selecting comparable. - ITA No. 512 & 511/Del/2016 - - - Dated:- 17-11-2020 - Shri N.K. Billaiya, Accountant Member And Shri K. Narasimha Chary, Judicial Member For the Appellant : Sh. Anupam Kant Garg, CIT/DR For the Respondent : Sh. Neeraj Jain, Advocate And Sh. RamitKatyal, Advocate ORDER PER K. NARASIMHA CHARY, J.M. Challenging the final assessment orders dated 30.11.2015 u/s. 143(3) read with section 144C and directions of DRP dated 20.10.2015 in the case of M/s. Steria India Pvt. Ltd. ( the assessee ), Revenue filed these appeals for assessment years 2010-11 and 2011-12. Since identical issues are involved in both these appeals, we deem it just and convenient to dispose of these appeals by way of this common order. 2. Brief facts of the case, as could be culled out from the record are that, the assessee is a subsidiary of Steria UK Corporate Ltd., UK, an I.T. service company in the United Kingdom. The assessee provides both software and ITES services to its associated enterprises. For the assessment years under consideration, the assessee reported international transactions inter-alia on account of provision of IT enabled services an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es from the list of comparables. Ld. DRP, after considering the submissions made on behalf of the assessee, vide order dated 20.10.2015, directed the TPO to consider FOREX fluctuation as operating income/expense and to exclude the following companies from the set of comparables: a) Infosys BPO Ltd. b) TCS E-Serve Ltd. c) TCS E-Serve International Ltd d) Accentia Technologies Ltd. 7. Pursuant to the directions of the ld. DRP, Ld. Assessing Officer passed the final assessment order considering the following companies as comparables: S. No. Company Name (Adjusted OP/OC FOREX as operating) (%) 1. Cosmic Global Ltd. 22.94% 2. E4e Healthcare 35.87% 3. Fortune Infotech Ltd 20.91% 4. I_Gate Global Ltd 20.46% 5. Jindal Intellicom Ltd. 18.17% 6. Omega Heatlhcare 17.43% 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-serve Ltd. 71.05 % 9. Acropetal Technologies Ltd.(seg.) 13.06 % Average 27.12 % 10. Ld. TPO accordingly proposed an adjustment of ₹ 27,13,56,000 in the impugned order, on account of the difference in the arm s length price of the international transaction of provision of IT Enabled Service segment. 11. When the assessee filed objections disputing the proposed upward adjustment on the ground that certain companies were to be excluded, for this year also ld. DRP, vide order dated 20.10.2015, directed the TPO to to consider FOREX fluctuation as operating income/expense, and also to exclude ICRA Techno Analytics Ltd.; TCS E-Serve Ltd.; Eclerx Services Ltd; and Accentia Technologies Ltd. from the final set of comparables in respect of the international transaction of provision of IT Enabled Service segment. Post the directions of the ld DRP, ld. TPO considered the following companies, S. no. Company name WC Adjusted Margin/Cost 1. E4e Heal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of unascertained liability as it is made of estimate basis and at the time of provision, accounts of debtors have not with a certain amount; that, therefore, the expense is still uncertain and ad hoc expense; that the creation of provision is dependent on the risk perception of the business operation by the management; that for the same risk some comparable may create provision at the rate of X% while another comparable may create the provision at Y%; that the sales price is adjusted to include the effect of such provisions; that different risk perception would lead to different quantum of provisions leading to inaccurate comparability, incase such provisions are treated as operating; that safe Harbour rules provide for treatment of unascertained liability to be treated as non-operational; and that to eliminate uncertainty and be in line with safe Harbour Rules, this item is required to be treated as non-operational; that the same treatment is being given to item is the assessee s case and, therefore, no prejudice is caused to the assessee, which position is in accordance with the safe harbor rules. 15. With reference to the request of the assessee to treat the forex gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign exchange fluctuations incurred by the assessee relate to the trading items emanating from the international transactions or not. Therefore, for the limited purposes of verifying that the foreign exchange fluctuations of the assessee relate to the trading activities of the assessee, the issue is restored to the file of the Assessing Officer/Ld. TPO to verify the same and if it is found that the foreign exchange fluctuation relate to trading with the associate enterprises the Assessing Officer/Ld. TPO is directed to treat the same as operating item. Thus, this issue stands allowed for statistical purposes. 18. Since the Tribunal dealt with this issue in assessee s own case for the AY 2015-16 with the above observations and no change of circumstances are brought to our notice to take any different view, while respectfully following the above view taken by the Tribunal in assessee s own case, we restore the issue to the file of the ld AO/ld TPO to comply with the above directions in respect of the AY 2010-11 and 2011-12 also. 19. After the issue relating to the forex fluctuation, what remains to be decided is the comparability of the entities under challenge. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable companies. Reason for the Ld. DRP to direct the ld. TPO to exclude the company is that it is a giant in the industry and enjoys the benefits associated with such size. 23. On this, aspect, learned DR invited our attention to certain extracts of annual report of this comparable, wherein, in respect of the Segment reporting at page No 56 of the Annual report, it was stated that the company's operations primarily relate to providing business process management services to organizations that outsource their business processes, and the Services Offered are Contact Centre, Data Capture/Management, Human Resource Services, Technical Support, Equity Research, Fixed Income Research, Financial Analysis, Market Research Analysis, Retail Analytics, Legal Research, Litigation, Strategy Consulting Service Lin. He, therefore, submitted that the assessee s argument in respect of functionally different is not acceptable . 24. Ld. DR further submitted that this comparable was proposed by the assessee itself in TP documentation. According to him, though the DRP by relying on the judgment of Hon ble High Court of Delhi in the case of Aginity India Ltd has observed that the court had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other 100% offshore( from India) 25. He further submitted that the difference in risk profile applies to even those comparables selected by the assessee; that Infosys BPO Ltd is not engaged in carrying out different kind of activities; that there is not much difference in the turnover of the assessee and the comparables as was in that case; that the Hon ble Delhi High Court on the issue of super normal profits and turnover, in case of Chrys Capitaql Investment advisors(India) Pvt. Ltd rejected the taxpayers arguments by holding that once the comparables are found to functionally similar to the assessee, they would be required to be included as comparable, notwithstanding their high profit margins or turnover; that in case of Infosys BPO Ltd. there are no propriety products as were in the case of Infosys Technologies Ltd.; that the TPO has also mentioned that the intangible expenditure incurred was only 0.06% of revenue; and that, therefore, it is seen that the fact of Infosys BPO Ltd are different from Infosys Technologies Ltd . He, therefore, submitted that the argument of the assessee is not tenable. 26. Per contra, ld. AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the decisions referred to above. We, therefore, in the light of these facts, accept the finding of the ld. DRP in excluding this company from the list of comparables. 2. TCS E Serve International Ltd. 30. Information given at page 336 of the annual report paper book in respect of ITES segment for the relevant year, shows the broad range of process management services rendered by this company to various industries and that this company is a part of TATA group and is backed by TCS s scale and large client base. So also the information at page 336 of the annual report paper book speaks that the association with TATA group has enhanced the company s services offerings and as a result the company has started serving new clients during the year under consideration. Ld. TPO with reference to the contents of the annual report observed that the company is engaged in provision of BPO services to banking and financial industry and tourism and hospitality, and therefore, the company is functionally comparable to the assessee. According to the Ld. DRP, the company needs to be excluded on account of difference in FAR profile. 31. Ld. DR submitted that in the economic ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2469/2018. Further, the Hon ble Delhi High Court in the case of PCIT vs B.C. Management Services (P.) Ltd (ITA No. 1064 1083 of 2017)for AY 2011-12,upheld the ITAT finding of exclusion of the company on account of the brand value associated with TCS consultancy reflected/ impacted TCS E-Serve profitability in a very positive manner. 34. Apart from that, a coordinate Bench of this Tribunal in appellant s own case for AY 2015-16 (ITA No. 6687/Del/2019) rejected Infosys BPO Ltd. on account of brand presence. There is no explanation as why the decisions of Hon ble High Court and the view taken by the Tribunal in assessee s own case should not be followed this year also. We therefore, agree with the ld. DRP that TCS E-Serve International Ltd. too deserves to be excluded from the final list of comparable companies. 3. TCS E Serve Ltd. 35. As could be found from page 295 of the annual report paper book in respect of ITES segment, the profile of this company is that the company is engaged in providing technical services such as software testing, verification and validation of software and data centre management activities. According to the Ld. TPO, the company provides a broad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed TCS E-Serve in increasing its number of clients retention of existing clients and thus an increase in its market share, but it has not necessarily resulted in better profit margins, because Brand may bring more revenues but not necessarily higher margins, whereas conversely some companies despite having brand name have earned lower margins. Further according to him, any brand comes with a cost i.e. huge expenses are required to be incurred to build brand value, which shows that a brand may generate revenue but with a cost compensating any extra benefit, if any derived from such effort. He placed reliance on the decision of the Visakhapatnam Bench of Tribunal in the case of LG Polymers India Pvt. Ltd. (2011-TII-97-ITAT-vizag-TP) wherein it was held that brand name is only one of the factors but not the only factor which affects profitability, and several other factors go into the profitability of a concern. He submits that in this case, the assessee has also failed to establish that the payment of TATA brand equity and ownership of intangibles is leading to high profit margin earned by the company and these kinds of intangibles are available in almost all the comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies having significant brand presence cannot be regarded as appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider and the said decision is upheld by the Hon ble Supreme Court in SLP (CC) No. 32469/2018. 42. This company was directed to be excluded by the Hon ble Delhi Bench of the Tribunal in the case of Smart Cube India Pvt Ltd. (ITA No. 1178/Del/2019) on account of its association with the Brand name of TATA s. Pertinently, a coordinate Bench of this Tribunal in the appellant s own case for AY 2015-16 (ITA No. 6687/Del/2019) rejected Infosys BPO Ltd. which stands on the same footing of TCS E-Serve Ltd. on account of brand presence. In this set of facts, we are of the considered opinion that the decisions of the Hon ble High Court are applicable to the facts of this case for this year on all fours and renders this company non comparable to the assessee. We, therefore, direct the exclusion of this company from the final list of comparable companies for both the AYs 2010-11 and 2011-12 on account of association with brand TATA. 4. Accentia Technologies Ltd. 43. According to the information furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... billing is a billing on insurance companies by hospitals for and on behalf of the patients medical care expenses; that all these services are interlinked and are just extensions of the work done in the medical transcription segment; that medical transcription from which Accentia earns maximum revenue is an ITES service; whereas the taxpayer has defined only one segment ie., Health Care Receivable Management. Ld. TPO maintained that there is no distinction between the transcription services and coding services, and, even if a distinction is made between the transcription services and coding services, it is clear that more than 86 % of the receipt is from ITES services and a small portion (12.56%) is from the coding activity. 45. While drawing our attention to the margins of Accentia from FY 2007-08 to F.Y 2009-10, ld. DR submitted that the merger has not significantly influenced the business of Accentia. 46. With reference to the website of the company where assessee contends that it is developing proprietary software products, ld TPO observed that there is no reference of the same in the annual report relevant to the period under consideration and the company has shown its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Evalueserve SEZ (Gurgaon) Pvt Ltd (ITA No 241/2018) (for AY 2010-11), and the decisions of the coordinate benches of this Tribunal in Smart Cube India Pvt Ltd (ITA No. 6078/Del/2015), Cognizant Technology Services Pvt. Ltd. vs. ACIT (ITA No. 2106 1864/Hyd/2011) and ACIT vs. NIT Ltd. [ITA no. 1844/Del/2009]. 51. We have carefully considered the submissions on behalf of either side. From the material papers on record, we notice that in respect of the argument of the assessee that Accentia has undertaken extraordinary events namely, amalgamation with Asscent Infoserve Private Limited during the year, ld. TPO observed that the acquisitions are made by companies to benefit from each other's strengths, but the acquisitions in themselves do not become extraordinary events, except when the company's functions change substantially after an acquisition the same may become non-comparable; also that when the acquisitions have abnormal impact on normal operations of the business, it will be considered a peculiar circumstance. According to the ld. TPO, assessee failed to point out how acquisition has affected the operations of the company. However, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or losses. (iii) Whether companies have gone for business re-structuring. (iv) Whether companies have shown high growth. (v) Whether companies are having high turnover. (vi) Whether companies are having larger inventory. (vii) Whether companies are having high marketing expenses. 54. This company was also directed to be excluded by by a coordinate Bench of this Tribunal in the case of Smart Cube India Pvt Ltd (ITA No. 6078/Del/2015) on the basis that it is engaged in provision of medical transcription services and sale of software and therefore cannot be regarded as comparable to a ITES service provider. It is pertinent to note that these observations are in respect of the AY 2011-12. We find it necessary and convenient to extract the relevant observations of the Tribunal: 46. Now we take up the issue of selection of various comparable companies. With respect to Accentia Technologies Ltd., it is seen that it provides service to healthcare industry in the nature of medical transcription, medical coding etc. and revenue s earning from those fields are more than 75%. Before us, Learned AR has pointed to the fact that it owns significant intangible a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee this entity is engaged in providing software development services. Ld. TPO examined this contention and found not to be acceptable on the ground that the services offered by this company are broadly very much similar to that of assessee. In this regard ld. DR placed reliance on the CBDT notification SO 2810(E) dated 19.9.2013, and submitted that this notification gave a detailed list of products or services and that assessee s functions and this comparable company functions falls under one segment only. 58. Ld. AR submitted that this company is functionally different, engaged in provision of KPO services and sale of software products. He submitted that the company is engaged in provision of KPO services such as Business Intelligence and Analytics and also trades in computed software and on that ground, it cannot be regarded as an appropriate comparable for benchmarking the transaction of routine BPO services provided by theassessee. With reference to the contents of the Annual Report, he demonstrates that the revenue of the company comprises of software development consultancy, licensing sub-licensing fee, annual maintenance charges for software support, web developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) for AY 2011-12 held that the company is engaged in the business ofsoftware development and consultancy, engineering services aswell as business analytics and due to non availability of segmental data, it is not a good comparable with the assessees who are merely captive service providers. Relevant observations are as follows: 48. As far as the Ld AR s plea of exclusion of ICRA Techno Analytics Ltd as a comparable company is concerned, learned AR has pointed that it is engaged in a diverse set of activities. As per its annual report, the company is engaged in the business of software development and consultancy, engineering services as well as business analytics. The aforesaid contentions of the Ld AR has not been controverted by Revenue. We find that the Co ordinate Bench of Tribunal in the case of B. C. Management Services (P.) Ltd. (supra) for AY 2011-12 has held it to be not a comparable on account of functional dissimilarity and on account of non availability of segmental data. Against the order of Tribunal, the matter was carried by the Revenue before the Delhi High Court. Hon ble Delhi High Court dismissed the appeal of Revenue [(2018) 89 Taxmann.com 68 (Del)]. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which segmental reporting is not available; that in profit and loss account, income has been received from services and sales, without there being bifurcation in order to understand component of income earned by this company from software development exclusively. It further makes it clear that since this company is engaged in diversified activities of software development for which segmental reporting are available, this company is not a good comparable with the companies which are captive service providers like the assessee. Hence, we decline to interfere with the findings of the ld. DRP in excluding this comparable. 6. Eclerx Services Ltd. 65. Assessee s contention for rejection of this company was based on the functional dissimilarity and its engagement in provision of KPO services. Annual Report of this company reveals that the Company s Income from operations consist of revenue from data analytics services and process solutions which comprises of both time/unit price and fixed fee based service contracts. In respect of the Segmental reporting, the Annual Report says that the Company operates under a single primary segment i.e. data analytics and process outsourcing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. 69. Assessee s prayer for rejection of this company is again based on functional dissimilarity and that it is engaged in provision of KPO services. Ld. AR submitted that Page No 6 of annual report of eClerx Services Ltd. reveals that this company is engaged in the business of providing Knowledge Process Outsourcing ( KPO ) services, namely, providing data analytics, search engine analytics, competitive intelligence, channel analytics, etc. making it clear that the specific characteristics of KPO services rendered by eClerx Services and characteristics of ITES services rendered by the assessee are not similar and do not satisfy the test of comparability as provided in clause (a) of sub rule (2) of rule 10B of the Rules. 70. He placed reliance on the decisions of the Hon ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT (ITA No. 102/2015), PCIT vs. Evalueserve SEZ (Gurgaon) Pvt Ltd (ITA No 241/2018), PCIT vs B.C. Management Services (P.) Ltd (ITA No. 1064 1083 of 2017) for AY 2011-12 in support of his request for exclusion of this company on account of high value financial services relating to consultancy business and solution testing besides the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On a perusal of all these decisions in the light of the profiles of the assessee and eClerx Services Ltd. in juxtaposition, the irresistible inference is that eClerx Services Ltd is providing KPO services and on that ground, it is not a good comparable to the assessee who is a captive service provider to its AEs. We, therefore, find that the finding of the ld. DRP is proper and does not invite any interference by this Tribunal. 75. This brings our discussion to an end in respect of the sustainability of the exclusion of comparables by the ld. DRP in the segment of ITES. We shall now proceed to deal with a similar question in respect of Software Services Segment. 76. During the financial year relevant for the AY 2010-11, assessee entered into the international transaction of provision of software development services with its associated enterprise amounting to ₹ 3,31,67,83,807.The functional profile of the company as could be gathered from page 60 of the paperbook is that the software services are provided by the assessee in relation to end customer contracts entered into by the associated enterprises. Part execution of contracts is sub contracted by the associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 42.65 16. Wipro Technology Services Ltd. 74.28 Average 33.45 77. Consequently, Ld. TPO, proposed an adjustment of ₹ 93,53,35,000/- on account of the difference in the arms length price of the international transaction of provision of software development services and draft assessment order was passed accordingly. When the assessee, aggrieved by the said action of the upward adjustment, filed objections before the ld. DRP, by order dated 20.10.2015, ld. DRP directed the TPO to exclude four companies, Persistent Systems Ltd.; Infosys Technologies Ltd.; Infinite Data Systems Ltd; and Wipro Technologies Services Ltd from the set of comparables. Following the said directions, Ld. TPO recomputed the adjustment and reduced the same to ₹ 75,47,44,000/-. 78. Challenging the directions of the DRP, Revenue is in appeal, and during the course of arguments, Ld. DR prayed the inclusion of Persistent Systems Ltd.; Infosys Technologies Ltd.; Infinite Data Systems Ltd; and Wipro Technologies Services Ltd in the list of comparables reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (segmental) 21.13 % 15. Mindtree Ltd. (segmental) 11.01 % 16. Sankhya Infotech Limited (Segmental) 23.92 % 17. Tata Elxsi Limited 13.13 % 18. Thirdware Solutions Ltd. 19.33 % 19. Zylog Systems Limited 27.35 % Average 24.41 % On this basis, ld. TPO made an adjustment of ₹ 56,05,77,000 on account of the difference in the arm s length price of the international transaction of provision of software development services, and a draft assessment order was proposed on the same lines. 80. Aggrieved by said proposed adjustment, assessee filed objections and the ld. DRP vide order dated 20.10.2015 held that DRP directed the TPO to consider the FOREX fluctuation as operating in nature directed the TPO to exclude Persistent Systems Ltd.; Infosys Technologies Ltd.; E Infochips Ltd; Wipro Technologies Services Ltd; E Zest Solutions; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Consultancy services in Segment Reporting portion of the annual report. Further, as per company website, company is providing IT Services, Application Services, IT Infrastructure Services, Product Engineering Solutions, Mobility Messaging Solutions Platforms , and all the services are referred primarily as IT services. He, therefore, submitted that this company is functionally similar to the assessee. Further according to him, this company have exceptional sales growth in business operation over the last four years i.e. 908% growth rate in sales over previous year, which belies the argument of the assessee. He argued that since the company sales for F.Y. 2008-09 were 4.74 cr. and for F.Y. 2009-10, it was 38.31 Cr. and, therefore, the actual company sales growth was only of ₹ 33.57 Cr. (38.31 4.74), which is a very normal growth pattern for a software development company and percentage (%) growth in sales is not presenting true and logical growth pattern in this case. He submits that in various cases, the judicial authorities held that a comparable cannot be eliminated just because it is a loss making unit and similarly a higher profit making company or higher sales g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sole customer, namely, Fujitsu Services Ltd. but a perusal of record reveals that Fujitsu Services Ltd is a unrelated entity and the assessee company is also providing services primarily to one customer, i.e. its AE, and to that extent the company is comparable to the assessee company. 88. Submissions of assessee in support of exclusion of this company are three-fold, namely, High Related Party Transactions, Extra-ordinary year of operation and Functional dissimilarity. Ld. AR invited our attention to the annual report of this company for financial year 2008-09, wherein it is informed that the company was formed to execute the contract entered into by the parent company with Fujitsu Service Ltd. and submitted that Fujitsu Service Ltd. is an associated enterprise of Infinite Data Systems Ltd in terms of section 92B(2) of the Act. He, therefore, argues that since the company has provided the entire services to Fujitsu Services Ltd., Infinite Data Systems cannot be regarded as an uncontrolled comparable for the purpose of benchmarking analysis. 89. His next contention is that the company is not comparable to the assessee because of the incomparable financial results arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld also be in the companies engaged in the similar sector. We find that this company is having a different business model and engaged in providing entire gamut of solutions comprising of technical consulting, design and development of software, maintenance, system integration, implementation, testing and infrastructure management services. We find from the paper book that the revenue is primarily derived from technical support and infrastructure management services. We find that Infinite Data Systems Pvt Ltd commenced its operations on 1st January 2009 and as per segment reporting disclosure, the company's operations predominantly relate to providing software technical consultancy services to its sole customer Fujitsu Services Limited. Further, as per the Annual Report of 2009, at Page 1, it is stated that the Holding Company M/s Infinite Computer Solutions (India) Limited signed an agreement (Build, Operate and Transfer - BOT Model) with Fujitsu Services Limited to set up Global Delivery Centers in India to provide offshore delivery capabilities to Fujitsu Fujitsu's associated companies. We find that these facts have also been acknowledged by the ld TPO at page 77 of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement services. These services except infrastructure management services have also been referred to a technical support services in revenue recognition portion and has a software technical consultancy services in segment reporting portion of the annual report. According to the assessee all the services are in the nature of the software development services. The Ld. transfer pricing officer as well as the ld. DRP panel has rejected the objection of the assessee stating that this is functionally comparable with the assessee. Assessee neither design and develop a software but is providing a low end chip services where infrastructure and architect everything is provided by the group company. It does not have any research and development activities whereas in the case of the comparable company it provides that services to Fujitsu services Ltd and also maintains and design and develop a software. In view of this this comparable company cannot be said to be in the same functions as it is performed by the assessee. 94. Infinite Data Systems Private Ltd is rejected to be a good comparable for the AY 2010-11 to the assessee who provides captive software services to its AEs, in Lime Lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Saxo India Pvt. Ltd. vs. ACIT (ITA No. 6148/Del/2015) directed to exclude the companies having undertaken significant related party transactions under section 92B(2) of the Act during the year, which finding in respect of such company was not challenged by the Revenue in appeal before the Hon ble Delhi High Court while preferring appeal in ITA No. 682/2016.In the case of NEC Technologies India Pvt Ltd (ITA No. 6283/Del/2015) also a coordinate Bench rejected a company on the basis that it was providing services to an associated enterprise in terms of section 92B(2) of the Act. In the case of Sapient Corporation Pvt Ltd vs DCIT (ITA No 5263/Del/2010) it was held that in cases where loss making companies are being rejected, in order to perform an objective and unbiased benchmarking analysis it is imperative that high profit companies should also be rejected. 96. There is no dispute in respect of the volume of Related Party Transactions, Extra-ordinary year of operation and Functional profile of the assessee as spoken by the assessee and Infinite Data Systems Pvt Ltd as delineated from the judicial findings. The discussion in the decisions relied upon by the assessee, on the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Design Systems (I) Pvt Ltd vs ACIT (ITA No. 6315/Del/2015) and ACIT vs Mobileum (India) Pvt Ltd (ITA No. 945/Mum/2016) to say that when segmental information is not available, comparability cannot be resorted to. 99. From the contentions of the parties, it is clear that the bone of contention is only in respect of availability or non-availability of segmental data of E-Infochips Ltd. It is only a matter of fact to be demonstrated with reference to the Annual report for the AY 2011-12 for which year this dispute is concerned. However, unfortunately no attempt is made to establish this fact with reference to the Financials/Annual report of this company. No such material is produced. Only reliance on the decisions where this comparable is discussed is made. Though the discussion on this comparable in Alcatel Lucent India Pvt Ltd (ITA No 6856/Del/2015) ( AY 2011-12) andCadence Design Systems (I) Pvt Ltd vs ACIT (ITA No. 6315/Del/2015) does not clinch the issue, Tribunal recorded in ACIT vs Mobileum (India) Pvt Ltd (ITA No. 945/Mum/2016) that on perusal of the financials, it was found that the quantum of the ITeS and other services is more than 25%, however, segmental data is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts. On this score, Ld. TPO rejected the contention of the assessee that this entity is not a good comparable with the assessee. 104. Ld. DRP, however, did not agree with the findings of the Ld. TPO and held that the FAR of this company is different from the assessee and, therefore, this entity needs to be excluded from the list of comparables. 105. Ld. DR heavily relied on the reasoning and findings of the Ld. TPO in respect of this company. He placed reliance on the decisions in Cadence Design Systems (I) Pvt Ltd vs ACIT (ITA No. 6315/Del/2015), ACIT vs Mobileum (India) Pvt Ltd (ITA No. 945/Mum/2016) and Clear 2 Pay India Pvt Ltd vs ITO (ITA No. 2788/Del/2017) (AY 2011-12). 106. Insofar as the profile of E Zest Solutions is concerned, it is a matter of record and borne by the annual report of the company. Further it is noted in the decisions relied upon, that E Zest Solutionsis engaged into diversified range of software activities and its annual report shows that this company is an SEI-CMMi level III and ISO 9001:2008 certified product engineering and software development company, having special expertise in emerging technologies such as cloud, SAAS, business intelligen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rking capital presumably since the adjustment is adverse in its case, but for carrying out the adjustment the average working capital is calculated and the same is allocated to IT segment in the ratio of the turnover. Ld. DRP in their order observed that this company needs to be excluded due to a different FAR. 110. Ld. DR placed reliance on the observations of the Ld. TPO and while inviting our attention to the order of the Ld. TPO submitted that the inclusion of this entity is justified; whereas it is the contention of the Ld. AR that company is engaged in development and sale of software products; that the employee cost of this company of ₹ 13.51 crores which constitutes only 9.53% of the turnover of this company of 141.66 crores, that the company does not satisfy the filters applied by the TPO and therefore, deserves to be excluded from the list of comparable companies. He further submitted that from schedule 9 of the annual report of this company it is clear that the company has outsourced significant portion of its business and has paid an amount of ₹ 55.77 crore to outside technical sub-contractors. Since this company has outsourced a major part of it s busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving brand name have earned lower margins. Further, Ld. TPO contended that, any brand comes with a cost i.e. huge expenses are required to be incurred to build brand value, that, therefore, a brand may generate revenue but with a cost compensating any extra benefit, if any derived from such effort. Ld. DR submitted that the ITAT, Vizag in the case of LG Polymers India Pvt. Ltd. (2011-TII-97-ITAT-vizag-TP) has held that brand name is only one of the factors but not the only factor which affects profitability, several other factors go into the profitability of a concern. He therefore submits that since the assessee has also failed to establish that the payment of TATA brand equity and ownership of intangibles is leading to high profit margin earned by the company and these kinds of intangibles are available in almost all the comparables. 114. Per contra, in respect of the ownership of intangibles/brand, Ld. ARsubmitted that the company owns and exploits a valuable trade mark namely Infosys and therefore, cannot be regarded as an appropriate comparable for the purpose of benchmarking the international transactions undertaken by a captive service provider; that companies owning/e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No change in the facts and circumstances from those involved in the assessment year 2015-16 to the present assessment year are brought to our notice and there is no reason as to why a different conclusion could be reached for this assessment year. While respectfully following the view taken in assessee s own case for the assessment year 2015-16, we hold that Infosys Technologies Ltd. And Wipro Technologies Services Ltdare not at all a proper comparable with the assessee and their exclusion by the Ld. DRP is justified. We declined to interfere with the same. 7. Persistent Systems Ltd 118. Persistent systems pvt. Ltd is predominantly in outsourced product development services for independent software vendors and enterprises. OPD services include research, engineering services such as development, testing quality assurance, performance tuning, usability engineering, porting, documentation services, deployment, services including on-site professional services, pre-sales and after services including support maintenance etc 119. Stating that this company is functionally dissimilar and is engaged in the sale of software products assessee prayed to exclude this company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies India Pvt Ltd (ITA No 6283/Del/2015) respectively the coordinate Bench of this Tribunal considered the comparability of these entities with Persistent Systems Ltd, and rejected the Persistent Systems Ltd as a good comparable. 123. On a careful consideration of these decisions, we find that there is no dispute that the functions performed by Persistent systems pvt. Ltd include outsourcing of product development services for independent software vendors and enterprises, and such OPD services include research, engineering services such as development, testing quality assurance, performance tuning, usability engineering, porting, documentation services, deployment, services including on-site professional services, pre-sales and after services including support maintenance etc which are nowhere comparable to the functions performed by the assessee. Further, there is no dispute that the segmental profitability of Persistent systems pvt. Ltd from provision of software services is not available. As a matter of facton these two grounds, namely, functional dissimilarity and non-availability of segmental figures is a good ground to reject this entity from the list of comparabl ..... 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