TMI Blog2021 (2) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant : K. R. Vasudevan , Advocate For the Respondents : Priyadarshi Mishra , Addl. CIT ( DR ) ORDER Beena Pillai , Member ( J ) Present cross appeals has been filed by assessee as well as revenue against order dated 17/09/2018 passed by the Ld. CIT(A)-7, Bangalore, for assessment year 2010-11 on following grounds of appeal: ITA No. 3119/B/2018 1. The order of the learned CIT(A) is opposed to facts of the case. 2. Whether on the facts and circumstances of the case, the CIT(A) was right in removing 4 comparable companies in software development segment viz. 1. Infosys Ltd., 2. Kals Information Systems Ltd., (seg) 3. Persistent Systems Ltd., and 4. Tata Elxsi Ltd., (seg) on grounds of functionally dissimilarity in software development segment? 3. Whether on the facts and circumstances of the case, the CIT(A) is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas? 4. Whether on the facts and circumstances of the case, the CIT(A) is right in trying to find out exact replica of the assessee for determining the Arm's length price based on such replica, even when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned AO/learned TPO/Hon'ble CIT(A) has grossly erred in not rejecting the following companies from the list of comparable companies: L T Infotech Ltd. Mindtree Ltd. Sasken Communication Technologies Ltd. 8. The learned AO/learned TPO/Hon'ble CIT(A) erred in not allowing the benefit of applying the range of +1-5% in determining the arm's length price. 9. The learned AO/learned TPO/Hon'ble CIT(A) has erred in not allowing appropriate adjustments towards working capital differential existing between the Appellant vis- -vis independent comparable companies. 10. The learned AO/learned TPO/Hon'ble CIT(A) erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis- -vis the comparable companies. Corporate taxes 11. The learned AO/Hon'ble CIT(A) erred in disallowing software expenses amounting to INR 2,690,426 by erroneously considering the same as software purchase and therefore that the same was ought to have been capitalized while in reality the same were in the nature o software expenses incurred for professional services. Further even considering but not admitting that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a company that provides software development services to its parent company being Verifone Singapore. It filed its return of income for year under consideration on 29/09/2009 declaring total income of ₹ 67,321/- after claiming deduction under section 10B of the Act amounting to ₹ 30,036,723/-. 3. The Ld. AO noted that assessee for the year under consideration has entered into international transaction with its associated enterprise exceeding ₹ 15 crores and therefore the matter was referred to the Transfer Pricing officer for computing the arm's length price of the international transaction. 4. Upon receipt of the reference, Ld. TPO called upon assessee to file economic details of the international transaction in Form 3 CD. 5. The Ld. TPO noted that assessee entered into following international transaction: Sl no Type of transaction Amount (Rs) 1 R D Services 19,19,57,973 2 Tech Support Services 3,81,89,551 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ICRA Techno Analytics Ltd. 7 Mindteck (India) Ltd. 8 Mindtree Wireless Pvt. Ltd., 9 Nucleus Software Exports Ltd., 10 RS Software (I) Ltd. 11 R Systems International Ltd., 12 Saksoft Ltd. 13 Sonata Software Ltd. 14 Thinksoft Global Services Ltd. 15 Aditya Birla Minacs IT Services Ltd 16 Aditya Birla Minacs Technologies Ltd 17 Bristlecone India Ltd. 18 CG-VAK Software Exports Ltd (Seg) 19 Sagarsoft (India) Ltd. 20 Sundaram Infotech Solutions Ltd 6. The Ld. TPO rejected the comparables selected by assessee by applying following filte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are having peculiar economic circumstances were excluded 9. Companies who have export sales less than 75 percent of the sales were excluded 10. Companies with employee cost less than 25 percent of turnover were excluded Sl. No Name PLI 1 IC R A Techno Analytics Ltd.(seg) 24.94% 2 Infosys Ltd 44.98% 3 Kals Information Systems Ltd.(seg) 34.41% 4 Larsen Toubro Infotech Ltd. 19.33% 5 Mindtree Ltd.(seg) 14.83% 6 Persistent Systems . Solutions Ltd. 15.38% 7 Persistent Systems Ltd. 30.35% 8 R S Software (India) Ltd. 10.29% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 6, 7, 9 in assessee's appeal. 15. The Ld. AR submitted that Ground No. 6-7 are in respect of comparables retained by the Ld. CIT(A), without considering the fact that, these comparables are functionally not similar with that of assessee and also that they fail the turnover filter. The Ld. AR submitted that applying the upper limit for turnover filter while carrying out the benchmarking analysis is necessary as the Ld. TPO excluded comparables which is less than ₹ 1 crore turnover. He submitted that, Larsen and Toubro Infotech Ltd., Mindtree Ltd., Sasken Communications Technologies Ltd. having high turnover of more than 200 crores deserves to be excluded by applying an upper turnover limit. 16. The Ld. AR placed reliance on the decision of coordinate bench of this Tribunal in case of DCIT vs Northern Operating Services reported in (2019) 108 taxmann.com 451 in support of its contention. He submitted that for the same year under consideration this Tribunal excluded the comparables for having high turnover. He submitted that, this coordinate bench of this Tribunal in case of Genesis Integrating systems vs. DCIT reported in (2012) 20 taxmann.com 715, suggeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incuriam as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incuriam. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O/TPO to grant working capital adjustment in actuals for determined in the profit margin of comparables. Accordingly this ground raised by assessee stands allowed for statistical purposes. 28. In respect of corporate tax issues raised by assessee being. 29. Ground No. 11-16 it has been submitted that the directions by the Ld. CIT(A) needs to be followed while considering the claim of assessee. The Ld. AR also submitted that, order giving effect to the order passed by the Ld. CIT(A) has not been passed by the Ld. AO. 30. Considering the submissions advanced by the Ld. AR, we direct the Ld. AO to follow the directions passed by the Ld. CIT(A) on these issues and to consider the claim of assessee in accordance with law. Accordingly these grounds raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed partly as indicated hereinabove. ITA No. 3119/B/2018 (revenue appeal). 31. The only issue alleged by revenue is against exclusion of following comparables by the Ld. CIT(A) on the ground of functional dissimilarities: 32. Infosys Ltd., Kals Information Systems Ltd. (SEG), Persistent Systems Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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