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TMI Blog2019 (3) TMI 1928X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrary selecting comparables companies based on incorrect appreciation of functional asset and risk profile in relation to the IT Segment of the appellant. 3. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily rejecting certain functionally comparable companies selected by the Appellant in respect of its IT segment on a subjective basis. 4. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily rejecting certain functionally comparable companies selected by the Appellant in respect of its ITes segment on a subjective basis. 5. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in holding CRISIL Limited as a valid comparable for the Appellant's BSS Segment. 6. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily selecting Agrima Consultants Ltd. as a comparable in relation to the Appellant's BSS Segment. 7. That on the facts and circumstances and in law, the AO/DRP/TPO have erred in arbitrarily selecting Agrima Consultants as comparable in relation to the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and training receipts. None of which are comparable to assessee's IT support services segment thus, completely different profile in terms of the profile of the assessee. There is no bifurcation of software services and sale of software products. This is provided at page 471 of Volume-2 of the paper book. The Ld. AR further submitted that the TPO in the show cause notice had merely selected this company alleging that the assessee has itself selected the said company in assessment year 2008-09. This position taken by the TPO is factually incorrect as KALS was not considered as comparable for the previous year by the assessee and the TPO did not make any adjustment to the arm's length price (ALP) of IT segment of the assessee in the said year. With this regard, TPO's order for assessment year 2008-09 and final set of comparable in TP study for assessment year 2008-09 are annexed at page 64 of the paper book. 5.1 The Ld. AR of the assessee has placed reliance on the decision in the case of CIT Vs. PTC Software India (Pvt.) Ltd. in ITA No.732 of 2014 ( Bombay High Court) wherein it has been held by the Hon'ble Jurisdictional High Court that on account of functionally not compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rables. 5.2 In view of the matter and following the decision of the Hon'ble Bombay High Court, KALS Information Systems Ltd. cannot be treated as comparable company and the TPO is directed to exclude KALS from final list of comparable companies with regard to IT Segment. (B) Compucom Software Ltd. ("Compucom") : 6. The Ld. AR of the assessee submitted that Compucom is engaged in diversified services such as ready-made software products, Learning Solutions, Wind power generation and Treasury. Website extracts are annexed at page 477 of Volume-2 of the paper book and annual report is annexed at page 478 of Volume-2 of the paper book. The Ld. AR further stated that even under the software services segment it is engaged in ITes/BPO services. This has been clearly stated in annual report of the company on page 29 of the annual report compilation wherein under software services the company has stated a contract with JDVVNL has been extended for rendering IT enabled call center services. Further, on page 42 of the annual report compilation under business environment outlook, it has clearly stated that it renders customer support out sourcing in telecommunication, BPO services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable at entity level. Meaning thereby, even though it was comparable as segmental legal however, Mindtree is not a comparable according to the assessee at entity level. 7.1 The Ld. AR of the assessee has placed reliance on the decision of Principal Global Services Vs. DCIT (supra.). We observe that the Pune Bench of the Tribunal in the aforesaid case has held as under: "26. with respect to the dispute in the software services segment, another point made out by assessee was that the margin of Mindtree Consulting Ltd. considered by the TPO at 27.60% was wrong. In this context, the Ld. Representative for the assessee pointed out that before the TPO, assessee had asserted that only the IT services segment of the said concern be considered as a comparable and not the entire entity and therefore the margin relatable to the IT services segment of the said concern at 5.52% be alone considered for the purposes of the comparability analysis. The Ld. Representative submitted that the TPO has considered the margin at the entity level and not the segmental level, which was required to be done. 27. In this context, the Ld. CIT-DR referred to the discussion made by the TPO in para 10(5) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgins relatable to the R&D services segment of the said concern and consider only the margin relatable to the IT services segment alone to benchmark assessee's activity of Provision of software services to its associated enterprises. Therefore, Mindtree Ltd. has to be also excluded from the final list of comparables. (D) F.C.S Software Solutions Ltd. ( "FCS Software") : 8. The Ld. AR of the assessee submitted that FCS Software is engaged in the business of Software Development & IT enables Services. As per the annual report of the company for F.Y.2008-09, it is engaged in (i) IT Consultancy (ii) E-learning division and (c) Infra management. The Company is also engaged in product development. Website extract is placed at page 490, 491 and 494 of Volume-2 of the paper book. The same is evident from the annual report at page 100, 146 and 147 of the annual report compilation wherein under segment wise/product wise performance of the company has given various services provided. The Ld. AR further submitted that the company does not have any separately reported segments in the financial statements and has only one segment viz. 'software development and other services'. The TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that for assessment year 2010-11 in assessee's own case the said concern has been excluded from the final set of comparables as per the order of the DRP, a copy of which has been placed in the paper book at pages 1674 to 1738. 13. The Ld. CIT-DR appearing for the Revenue has not contested the assertions of the assessee that under similar circumstances, the said concern has been directed to be excluded from the final set of comparables by the Tribunal in the assessee's own case vide order dated 11.02.2015 (supra). 14. We have carefully considered the rival submissions. In this context, we have perused the order of the Tribunal in assessee's own case dated 11.02.2015 (supra.) wherein the following discussion is relevant: 23. We have carefully considered the rival submissions. In fact the TPO has reproduced in para 15.7 the written submissions of the assessee on this aspect. The first plea raised by the assessee was that income earned by the said concern from rendering of application support services and infrastructure management services, which constitute 11% and 15% respectively or the total revenue, are in the nature of IT enabled services and not linked to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order. Therefore, even the said segment is not to be included as part of the software development services, as asserted by the assessee. Once the segment of application support and infrastructure management services are removed along with the exclusion of E- learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. Thus, on this aspect, assessee succeeds.' 15. Ostensibly, the Tribunal has excluded the said concern on the ground that its income from software development services was below 75% of the total income. The fact-situation noted by the Tribunal in its order dated 11.02.2015 (supra) continues to hold in the present year also. For this, the Ld. Representative for the assessee has referred to the submissions made before the lower authorities based on the relevant extract of the Annual Report of the said concern placed at pages 1739 to 1742 of the Paper Book. In terms of the aforesaid, it is noticed that the proportionate income of the said concern in various segments is as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparable or not, needs verification by the TPO and therefore, the matter is restored to the file of TPO for verification and adjudication after providing reasonable opportunity of hearing to the assessee. (F) Reliance Infosolutions Private Limited ( "Reliance Infosolutions") 11. The Ld. AR of the assessee submitted that the company is functionally comparable to the assessee. The company is sought to be included on the facts that Reliance Infosolutions Ltd. is engaged in Information Technology (IT) services and solutions. It offers software development and customization, software consultancy. The TPO has not objected to the functional comparability of the comparable, the limited challenge is on the ground that the company is a subsidiary of Motech Software Pvt. Ltd. on which allegations of tax evasion were leveled and that the employees were previously working in some other Reliance concerns and they seem to have been shifted on the payroll of peer. During the year under consideration, Reliance Solutions was not a subsidiary of Motech Software Private Limited as is evident from the annual report of the company for F.Y. 2008-09. Further, the TPO have not been able to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k. 13.1 We have perused the case records and order of TPO. The TPO has observed that Bells Softtech is selling its services in the domestic market only whereas the assessee is providing services abroad. On this ground, TPO rejected the Bells Softtech to be comparable to that of the IT segment of assessee. However, the Ld. AR submits that the TPO has not categorically objected to the functional profile of the company and domestic operations of Bells Softtech do not result in distorting the functional comparability. These are the issues which the TPO should verify and adjudicate upon. Therefore, we remand the matter to the file of TPO to verify and adjudicate after providing reasonable opportunity of hearing to the assessee. Hence, ground No. 3 raised in appeal by the assessee is allowed for statistical purposes. 14. Ground No.4 pertains to ITes segment. In this ground, the assessee has contended the exclusion of certain companies as comparable and at the same inclusion of company in the list of comparables. EXCLUSION OF COMPARABLES TO INFORMATION TECHNOLOGY ENABLED SERVICES SEGMENT (I) Infosys BPO Ltd. ( "Infosys") 15. The Ld. AR of the assessee submitted that Infosys BPO Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd.'s spending on such activities was NIL. Agnity India Technologies Pvt. Ltd. was a captive service provider for its associated enterprises, which was not the case of Infosys Technologies Ltd. Under these circumstances, the Hon'ble Delhi High Court approved the decision of the Tribunal which held that Infosys Technologies Ltd. could not be compared with M/s Agility India Technologies Pvt. Ltd. having regard to the financial data etc. of the two concerns. Considering the aforesaid parity of reasoning, it has to be appreciated in the present case that the activities undertaken by Infosys BPO Ltd. cannot be qualitatively compared with the activities being carried out by the assessee in its back office support services segment. Undoubtedly, Infosys BPO Ltd. owns significant intangibles and eminent brand value whereas in the case of the assessee before us there is no such situation. The turnover achieved by Infosys BPO Ltd. is many times higher in comparison to the assessee; the said concern is a giant in comparison to the assessee. In our view, the presence of the aforesaid factors justify assessee's assertion that the said concern be excluded from the list of comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said concern if the assessee is otherwise able to justify it on facts. Quite clearly, the difference in the business model undertaken by the assessee vis-a-vis the said concern cannot be denied. In the case of Maersk Global Service Center (India) (P) Ltd. (supra), the Mumbai Bench of the Tribunal noted that a concern which was outsourcing most of its work could not be construed to be a good comparable with an assessee who was carrying out the work by itself. To the similar effect is also the decision of the Bangalore Bench of the Tribunal in the case of 2417 Customer.Com (P) Ltd. v. Dy. CIT [2013] 140 ITD 344/[2012] 28 taxmann.com 258.The decision of the Pune Bench of the Tribunal in the case of PTC Software (India) (P) Ltd. (supra) is also to the similar effect. Therefore, in our considered opinion, having regard to the difference in the business model brought out by the assessee, M/s. Cosmic Global Services Ltd. is liable to the excluded from the final set of comparables. We hold so." That on perusal of the findings, it is evident that there is difference in the business model brought out by the assessee and that of the Cosmic Global Services Ltd. Therefore, respectful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not commented adversely on the reliability of the data. Healthcare division of the company is engaged in healthcare BPO services and hence is considered as a comparable to the Appellant's ITeS segment and the same can be evidenced from the annual report for FY 2008-09 which is placed at page 561 of the paper book Volume 2 for segmental result. The Ld. AR further submitted that this issue was not adjudicated by the DRP and therefore matter may be set aside to the file of TPO for verification. 18.1 On perusal of the records with regard to this issue, we accept the prayer of the Ld.A.R. and thereby we set aside this issue to the file of the TPO for verification and adjudication after providing reasonable opportunity of hearing to the assessee. (M) Galaxy Commercial Ltd.- BPO Segment ( "Galaxy"): 19. The Ld. AR of the assessee submitted that Galaxy Commercial Ltd is engaged in providing BPO services in the area of call center, accounting, telecom and billing, services. The finding of the TPO that Galaxy is a consistent loss maker is factually incorrect. Galaxy has made profits both at entity as well as segmental level for the previous two years ended March 31, 2008 and Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered a loss. For the aforesaid purpose, we deem it fit and proper to restore the matter back to the file of hall allow a reasonable opportunity the assessee of being heard and thereafter pass an order afresh as per law on this aspect." From the above, it is evident that this matter was remand back to the file of TPO for verification and adjudication. Respectfully following the same, we set aside this issue to the file of TPO for verification and thereafter, he shall pass a speaking order on this aspect after providing reasonable opportunity of hearing to the assessee. (N) Cameo Corporate Services Ltd. ("Cameo") : 20. The Ld. AR of the assessee submitted that Cameo is engaged in providing Registry and Transfer agency services, archival and retrieval services and medical transcription services all services being in the nature of back office support services, hence should be considered as comparable. The Ld. AR further submitted that not having being exchange earnings cannot be a ground for rejecting an otherwise functionally comparable company. The Ld. AR of the assessee referred page 577 of Volume-2 of the paper book. 20.1 We have perused the case records on the issue. We are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore it could not be said that the financial data of the said concern was not available in public domain. The activities rendered by the said concern have also been detailed in the submissions before the DRP and it was asserted that the said concern is functionally comparable to assessee's activities of providing back office support services to the associated enterprises. Thus, assessee justified the inclusion of the said concern in the final set of comparables. In our considered opinion, the assertions made by the assessee before the lower authorities and as well as before us are borne out of the material on record. In-fact, in the face of the detailed submissions made by the assessee before the lower authorities, there is no repudiation emerging from the orders of the authorities below. Therefore, in the absence of any adverse finding that the activities of the said concern are not comparable to assessee's activity of rendering back office support services to its associated enterprises, we deem it fit and proper to direct the lower authorities to include the said concern in the final set of comparables as was contended by the assessee in the course of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra) as a comparable. for the reason that It had RPT of 44.51 %. The Ld. A.R further drew our attention to the segment reporting of the aforesaid comparable' (Page 649 of the APB), which therein revealed that the advisory segment comprising international advisory and risk management practice had been transferred to a wholly owned subsidiary with effect from 01.04.2004. Thus, on the basis of the aforesaid facts it was averred by the Ld. A.R that the aforesaid comparable so adopted by the TPO was even otherwise functionally different. The Ld. A.R in support of his contention therein relied on the order of the ITAT, Delhi in the case of Avenue Asia Advisors (P) Ltd. v. Dy. CIT [2016] 66 taxmann.com 267. and therein averred that in the case of the aforesaid assessee which too was engaged in the business on investment advisory services, the aforesaid comparable, viz M/s Crisil Ltd. (supra) which was taken by the assessee as one of the comparable, was however excluded by the TPO for the reason that the RPT in the case of the said comparable was more than 25%. The Ld. A.R further relied on the order of the /TAT, Mumbai in the case of: IIML Asset Advisors Ltd. v. Asstt. CIT [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment with the contention of the Ld. A.R that the TPO had wrongly selected the aforesaid comparable. We thus in light of our aforesaid observations are thus of the considered view that the aforesaid party, viz M/s. Crisil Ltd. (supra) has to be excluded from the list of the comparables selected by the TPO and thus direct accordingly." That on perusal of the order of the Mumbai Bench of the Tribunal with regard to CRISIL Ltd, it has been held by the Tribunal that it had RPT of 44.51 % and therefore, the said company was excluded from the list of comparables selected by the TPO. Respectfully, following the same in the case of assessee also, we direct the TPO to exclude CRISIL Ltd. from BSS segment. EXCLUSION OF AGRIMA CONSULTANT'S FROM BSS & MSS SEGMENT (Q) Agrima Consultant's Limited : 24. The Ld. AR of the assessee submitted that Agrima is engaged in providing technical and technology related consultancy. The website also confirms the fact that the company is approved consultant to leading financial institutions, indicating that it is into financial consultancy. On the other hand assessee's BSS segment is engaged in providing services in nature of routine market research and fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 (P&H). The learned Authorized Representative for the assessee further placed reliance on the decision of Pune Bench of Tribunal in Dover India (P) Ltd. Vs. DCIT (supra), wherein the said concern was excluded being not functionally comparable to a concern providing market support services. 23. The learned Departmental Representative for the Revenue has strongly objected to the said issue raised by assessee for the first time before the Tribunal. 24. We find no merit in the stand of learned Departmental Representative for the Revenue especially in view of the ratio laid down by Special Bench of Chandigarh Tribunal in DCIT Vs. Quark Systems Pvt. Ltd. (supra), which has been approved by the Hon'ble High Court of Punjab and Haryana. In view thereof, the assessee can raise the issue of inclusion / exclusion of any concern during any stage and hence, we admit the additional ground of appeal raised by assessee. 25. Now, coming to merits of the issue raised, wherein the assessee is engaged in marketing support services and is also providing business support services to its associated enterprises. The concern which has been picked up during TP study report was Agrima Consultants ..... X X X X Extracts X X X X X X X X Extracts X X X X
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