TMI Blog2019 (2) TMI 1890X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee is entitled for MAT credit u/s 115JAA which was not granted. Accordingly, we direct the AO to grant MAT credit as per provisions of law to the same. - IT(TP)A No.2297/Bang/2016 - - - Dated:- 22-2-2019 - Shri A.K. Garodia, Accountant Member And Shri Pavan Kumar Gadale, Judicial Member Appellant by : Shri Sampath Raghunathan, Advocate Respondent by : Shri Pradeep Kumar, CIT(DR) ORDER Pavan Kumar Gadale, The assessee has filed the appeal against the order of the Deputy Commissioner of Income-tax, Circle 6(1)(2), Bengaluru, u/s 143(3) r.w.s. 144C(13) of the Income-tax Act,1961 ['the Act' for short] dated 28/10/2016, passed in pursuance to the directions of the Dispute Resolution Panel (DRP) dated 31/08/2016. 2. The assessee has filed grounds of appeal with appeal memo and raised additional grounds of appeal before the Tribunal. At the time of hearing, the learned AR has not pressed grounds in respect of ground No.1 which are general in nature and whereas in respect of ground No.2 on determination of Arm s Length Price (ALP) of international transaction , learned AR has not pressed grounds No.2(a), 2(b), 2(e), 2(f), 2(g), 2(h), 2(i), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i. Universal Print systems Limited ii. Excel Infoways Ltd. b) Ref: Ground 2b 2m of original grounds of appeal The Ld. AO/TPO has erred in selecting the following comparable companies which are functionally not comparable to the Appellant. The Ld. Panel erred in confirming the same: i. Universal Print systems Limited ii. Infosys BPO Ltd. iii. TCS e-Serve Ltd., iv. BNR Udyog Ltd. (seg.) v. Excel Infoways Ltd. 4. The learned AR, at the time of hearing has made endorsement in the original grounds of appeal filed with the Form No.36 and on the additional grounds raised in respect of grounds of appeal was not pressed and as referred in para 2 they are accordingly dismissed. The learned AR prayed for admission of the effective additional grounds as the same could not be raised at the time of filing of the appeal with Tribunal for various reasons and the learned DR has no specific objections. Accordingly, we admit the additional grounds. 5. Brief facts of the case are that the assessee is a wholly owned subsidiary of Genefinance, Paris, France which is a subsidiary of SG France. Whereas the assessee-company provides service in the area of information tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,883,727 The TPO considered the provisions of the foreign exchange gain/loss and rejected the assessee s TP study and further determined the ALP and pointed out defects in para 6 page 5 of the order. The TPO also made fresh search for comparables and applied the filters to the IT enabled services segment (ITeS) and software development services (SDS). Whereas the TPO applied the filter on the use of current year, data and the companies having different financial year ending 31/03/2012 or data of the company which does not fall within 12 months period i.e. being 01/04/2011 to 31/03/2012 and the companies whose service income is less than ₹ 1 crore are excluded. 8. Similarly companies whose software development services/IT enabled services is less than 75% of the total operating revenue were excluded and the TPO excluded the companies which are having more than 25% Related Party Transactions (RPT) and also export service income less than 75% of the sales and companies with employees cost less than 25% of turnover were excluded. Finally, the TPO rejected the assessee s comparables referred at para 8 of the order. The TPO made analysis and considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2016. 11. Aggrieved by the order of the AO passed in pursuance of the directions of the DRP, the assessee has filed an appeal with the Tribunal. Before us, learned AR argued the effective grounds and reiterated the submissions made before the AO and the TPO and the DRP and submitted that the TPO has erred in including companies which does not satisfy the assessee s business profile and made submissions on the functional comparability and turnover and filed a chart supporting with judicial decisions to exclude comparables raised in the additional grounds. Further the TPO has not granted benefit of provisions of 92CA which is available to the assessee and the learned AR mentioned that the AO has erred in not giving MAT credit under the provisions of section 115JAA of the Act and prayed for allowing the assessee s appeal. Contra, learned DR supported the orders of the DRP and the AO/TPO and objected to the exclusion of comparables raised by the assessee. 12. We heard rival submissions and perused the material on record and also the chart filed. The learned AR s contention that the comparables selected by the TPO are functionally different and differs in functional analysis. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by die pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO. We found the co-ordinate bench decision pertains to assessment year 2012-13 and functional profile is similar to assessee-company. Therefore, the observations of the Tribunal are applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. (ii) In paragraphs 24 25 of its order the Tribunal held Excel Infoway Ltd., as not comparable because of consistent diminishing revenue. The figures of diminution revenue are given in paragraph 24 of its order. (iii) In paragraphs 21 22 of its order the Tribunal held that Excel Infoway Ltd., was liable to be excluded because it was also engaged in the business of software testing, Verification and validation of software at the time of implementation and data centre management activities. 46. Respectfully, following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. 14. The learned AR supported his argument with the decision of the Delhi Tribunal in the case of Baxter India Pvt Ltd. vs. ACIT (85 taxmann.com 285) para.16 which reads as under: 16. Coming to Infosys BPO Ltd. he submitted that this company also should be rejected from the list of comparables. He submitted that the TPO rejected the contention of the assessee stating that the company is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.44 crores and functionally not comparable as brand profits and also diversified activities of BPO and KPO and no segmentation information available. Further, TCS e Serve Ltd., is functionally not comparable as it enjoys more brand value and referred to pages 933 to 936 of the paper book and also engaged in KPO activities including delivery of core business processing services, analytics and insights. The turnover being ₹ 1578.44 crores which is outside the range being 10 times and ld. AR supported his submission with the decision of CGI Information Systems Management Consultants (P) Ltd. (supra) and referred to paras.45 46 of the order and para.14 of the Delhi Tribunal decision in the case of Baxter India Pvt Ltd. (supra) which reads as under: 14. So far as the TCS e-Serve Ltd. is concerned, he submitted that the TPO rejected the contention of the assessee stating that the company is engaged in ITES and high turnover does not have any correlation with the profitability. He submitted that this company was rejected as a comparable in assessee's own case for assessment year 2011-12 on the ground of absence of segmental information and considerable brand value. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is concerned, it was the objection of the Assessee before the TPO that the TPO ought not to have selected this company as comparable company for the reason that the related party transaction of this company at the entity level was 49.60% of the total revenue and that this company has less than-75%-of its revenue from providing TTES. The TPO rejected The above contention by holding that this company has 3 major business segments and the segmental results of medical transcription business which is providing 1TES alone was considered for die purpose of comparison. When the segmental results are considered the related party transaction is nil. 100% of the segmental income was from providing 1TES, i.e., emedical transcription and therefore 75% revenue is from providing ITES and therefore the company passes the test of income from providing ITES being more than 75% of the total income. The DRP accepted the view of the TPO. 54. The submission of the learned counsel for me Assessee was identical as were made before the TPO and DRP. We have while deciding the objection with regard to excluding Universal Print Systems Ltd., already held that when clear segmental information is availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions of the ld. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year. We find the decision of co-ordinate bench is for assessment year 2012-13 and matches with functional profile of the assessee-company and further the data of the company filed in the paper book is realistic and learned AR supported his arguments with practical aspects and the Tribunal decision cannot be overlooked. Accordingly, we direct the AO/TPO to exclude Excel Infoways Ltd., from the list of comparables for determination of ALP. 18. In respect of ground Nos.5 6, the learned AR argued that the TPO erred in determining TP adjustment of charging mark up of recovery transaction with its AE and the assessee s submissions were not considered and further no benefit was granted u/s 92C(2) of the Act. The learned AR filed the details on this aspect which were overlooked by the TPO. Whereas the learned DR supported the orders of the lower authorities and could not controvert the submissions of the learned AR. 19. We, on perusal of the material filed and the arguments of the learned AR a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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