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TMI Blog2021 (3) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems International Limited, Caliber Point Business Solutions Limited, Ultramarine & Pigments Limited. and Jindal Intellicom Private Limited, which are functionally comparable to the Appellant. 4. In this ground, the assessee pressed only inclusion of the comparable, R Systems International Ltd. in the above ground. The ld. AR submitted that this company was considered as a comparable in the case of Indecomm Global Services India Pvt. Ltd. in IT(TP)A Nos. 404 AND 553/BANG/2015 & C.O. NO. 123/BANG/2015 for the AY 2010-11 and vide Order dated 13.02.2019 the Tribunal remanded the matter of comparability of this company to the AO for fresh decision. The relevant observations of the Tribunal are as follows:- "19.2.1 We have considered the rival submissions/contentions and carefully perused the material on record; including the judicial pronouncements cited. We find that the Hon'ble Punjab and Haryana High Court in the case of Mercer Consulting (P.) Ltd. (supra) has held that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then its comparability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which the international transaction has been entered into". 31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus so long as the data relating to the financial year is available, it matters not, it the financial year followed is different. In the case before us the data relating to the relevant financial year of R Systems International Limited is available. 32. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule (4) of rule 10B. 19.2.2 Respectfully following the decision of the Hon'ble Punjab and Haryana High Court in the case of Mercer Consulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services. In regard to the revenue recognition, the objection of the assessee was not accepted by the DRP in view of financial reporting in which it is clearly mentioned that the company shall prepare and maintain its accounts fairly and accurately in accordance with the Accounting & Financial Reporting. The question of segmental information does not arise, as the company has only one segment. Hence it shall be considered as a comparable with the assessee. 10. We have heard both the parties and perused the material on record. This comparable has been excluded by the Tribunal as a comparable in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was observed as under:- "16.4.1 We have considered the rival contentions and submissions and perused the material on record; including the judicial pronouncement cited. We find that a Co-ordinate Bench of this Tribunal in the case of Tesco Hindustan Service Centre (P.) Ltd. (supra) has held that this company, 'Accentia' is not functionally comparable to an assessee rendering ITES and in this regard at para 13 of its order, the Co-ordinate Bench held as under: '13. As regards Accentia Technologies Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that on examination of annual accounts of the said company, it was found that there was no mention in the annual report about the import of the unique technology and technical know-how from the business partners. Even otherwise, every company is required to use the software and technology for providing ITeS services and therefore on the basis of annual report it cannot be compared with the assessee. 14. We have heard both the parties and perused the material on record. As rightly pointed out by the ld. AR, Fortune Infotech Ltd. has been excluded as a comparable by the coordinate Bench of the Tribunal in the case of Outsource Partners International P. Ltd. v. DCIT in IT(TP)A No. 337/Bang/2015 vide order dated 06.02.2017 wherein it was held as under:- "On perusal of the details furnished and submissions made, it is seen that this company has developed its own software called "Finetran" and "image index" for performing specialized services in medical transcription and patient record management. On appraisal of the same, we are of the opinion that this comparable company has developed unique software from which it would derive substantial benefits/advantages when compared with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direction that the new filters applied suo motu may be applied on the other comparable companies as well and then the inclusion/exclusion of this company as a comparable be decided." 19. In view of the above order of the coordinate Bench of this Tribunal, we direct the AO/TPO to exclude Jeevan Scientific Technologies Ltd. from the list of comparables. 20. Ground No.13 by the assessee reads as follows:- 13. Disallowance under section 40(a)(i) for software expenses - INR 1,21,37,277 13.1 The learned Assessing Officer (AO) and the learned Dispute Resolution Panel ('DRP') have erred in disallowing software expense amounting to INR 1,21,37,277 for non-deduction of tax at source. 13.2 The learned AO/DRP ought to have observed that on the said expense, no TDS was required to be deducted as per the tax treaty of India with the respective countries of payees. Notwithstanding and without prejudice to the above, 13.3 The learned AO/DRP ought to have appreciated that an expense cannot be disallowed under section 40(a) when TDS liability on such expenses has arisen due to retrospective amendment. 13.4 The learned AO/DRP erred in not granting deduction under section 10A on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that it was noticed from the Profit & Loss account that out of total expenses of Rs. 87.26 crores, expenses of RS.55.85 crores incurred onsite development of software which works out to 64% of the total expenses which makes it clear that the company is predominantly in providing onsite services and therefore not comparable with assessee. It was also observed that employee cost filter needs to be applied in ITS segment also, on that count also employee cost is less than 25% and cannot be retained as comparable. Against this, the revenue is in appeal before us. 30. We have heard both the parties on this issue. This company was considered as a comparable by the Tribunal in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein it was observed as under:- "10.5.1 We have considered the rival contentions on this issue and carefully perused the material on record; including the judicial pronouncements cited. From the details on record, we find that the assessee has objected to the inclusion of 'Acropetal' in the set of comparables on the ground that it is not functionally comparable to the assessee; both before the TPO and the DRP. However, it is seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as against the total service revenue of 18.35 crores which indicates that only 60% revenue is coming from export as against the 100% export of the assessee company. In view of this, 75% export earning filter needs to be applied as against the 25% applied by the TPO. Hence the DRP observed that it cannot be retained as a comparable. Against this, the revenue is in appeal before us. 34. After hearing both the parties, we find that this company was considered in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein this issue was remitted back to the file of AO/TPO observing as follows:- "11.3.1 We have considered the rival contentions and carefully perused the material on record. We find that the assessee has objected to the inclusion of 'ICRA' on the ground that it is not functionally comparable to the assessee; both before the TPO as well as the DRP. The DRP, however, has not adjudicated on its functional comparability of 'ICRA', but instead proceeded to render a finding that this company requires to be excluded by applying 75% export earning filter. In this regard, it is seen that the TPO applied the filter of 25% of export earnings. The DRP orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO or the assessee. The DRP order, in this regard, states that "It has already been held in the preceding paras that 75% export earning filter has to be consistently applied for ITES segment also". We, however, find that there is no such discussion or decision rendered by DRP, as claimed. In the absence of any such discussion or decision, as claimed, applying the 75% export earning filter suo motu is not tenable. Also, if any new filters are applied, it is necessary to examine whether the application thereof has any import on the other comparables companies regarding their inclusion or exclusion from/into the final set of comparables. Since we have taken the stand that if any new filter is applied, it should be applied uniformly on the entire set of comparable companies, we deem it appropriate to remand the issue of comparablity of this company, Sundaram Business Services Ltd., back to the file of the TPO with a direction that the 75% export earning filter, applied, suo motu, by the DRP, be applied on the entire set of comparable companies." 38. Taking a consistent view, we remit this issue to the AO/TPO with similar directions. 39. Ground No.4 by the revenue reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s. eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by the learned DR. Consequently ground No.9 of Revenue's appeal is dismissed." 42. Following the order of the coordinate Bench of this Tribunal, we find no infirmity in the order of the DRP. This ground of the revenue is dismissed. 43. Ground No.5 of the revenue reads as follows:- 5. The DRP erred in holding that M/s. Infosys Ltd. Cannot be taken as comparable, being functionally different, big brand value by relying on the its own decision in the case of Symphony Marketing Solutions India Pvt Ltd in ITA No. 1316/Bang/2012 without appreciating the fact that the company qualify all the qualitative and quantitative filters applied by the TPO. 44. This company was excluded by the DRP on the reason that it is an established player in the market having tremendous brand value which has a great impact on the pricing in the market. Its margin is very high. Hence it was excluded from the comparables. Against this revenue is in appeal before us. 45. We have heard both the parties. This company was considered in the case of Indecomm Global Services India Pvt. Ltd. (supra) wherein the Tribunal observed as under:- "12.4.1 We have considered the rival contentions and carefully perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows:- 6. The DRP erred in directing the AO to carry out the working capital adjustment as per the actual figures worked out by the assessee without putting any cap on the ground that there is time value of money without appreciating the fact that the TPO had put a cap on the basis of the average cost of working capital of the comparables selected by the TPO and that the accurate details of debtors and creditors of the assessee and the comparables were not available. 48. The TPO has applied an upper cap for allowing working capital adjustment without providing any rationale and applied PLR rate at 11.75% p.a. as against 11.87% for computing working capital adjustment. However, the DRP observed that assessee while working out the PLR rate has taken into consideration the data for FY 2008-09 instead of FY 2009-10 which was not acceptable. However, the DRP directed the AO to compute the mean of working capital adjustment in respect of comparables retained after giving effect to the directions of the DRP order. 49. We have heard both the parties. We do not find any infirmity in the findings of the DRP. However, the AO is directed to compute the mean of working capital adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. " 52. In view of the above judgment of Hon'ble Supreme Court, this issue is decided in favour of assessee. 53. Ground Nos. 9 & 10 by the revenue are as follows:- 9. The DRP erred in directing the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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