TMI Blog2022 (8) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... t of disallowance made by the AO is eligible for deduction u/s 10A. Since the assessee is entitled to deduction u/s 10A of the Act, therefore, the assessee is entitled to deduction u/s 10A of the Act on such enhanced assessed income due to disallowance of the expenditure on account of freight charges and expenses on hotel accommodation. We, therefore, allow the ground of appeal by the assessee. - ITA No.6047/Del/2012 - - - Dated:- 5-5-2022 - Shri R.K. Panda, Accountant Member And Ms Astha Chandra, Judicial Member For the Assessee : S/Shri Rohit Tiwari And Shrey Chakarborty, Advocates For the Revenue : Shri Surender Pal, CIT-DR ORDER PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 25 th October, 2012 passed u/s 144C/143(3) of the IT Act, 1961 for the assessment year 2008-09. 2. Facts of the case, in brief, are that the assessee, Agilent Technologies (International) Private Limited is a 100% subsidiary of Agilent Technologies International Europe, BV which in turn is a wholly subsidiary of Agilent Technologies, Inc. The assessee is engaged in the provision of Software Development (IT) services and Information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables:- SI. No. Particulars 1 Companies, for which financial data was available only up to March, 2005 were excluded. 2 Companies having zero sales or sales less than Rs. 1 crore in the latest year for which the financial data available were rejected. 3 Companies whose manufacturing sales were equal to or greater than 50 per cent. of their total sales in the latest year for which financial data was available were rejected companies whose trading sales were equal to or greater than 50 per cent. of their total sales in the latest year for which the financial data was available were rejected. 4 Companies having substantial related party transaction were rejected 5 Restructuring sick companies, abnormal financials/operations were rejected 6 Scale of operations not comparable to the tested party was rejected. 3. Accordingly, the assessee has selected 16 comparables with an average profit margin @ 13.06% on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.74 12. R System International Limited (Seg) 15.3 13. R.S. Software 6.46 14. Sasken Communications Technologies Limited (Seg) 13.44 15. Tata Elxsi 18.97 16. Thirdware Solutions Limited 18.01 17. Wipro Limited (Seg) 28.38 18. Sofitel India Limited 25.59 Average 21.85 4.1 After allowing the working capital adjustment at 0.62%, the arm s length margin was determined at 21.23%. The operative para of the AO at page 3 of his order reads as under:- Total Operating Cost (A) 321,015,223 Arm s Length Operating Profit @21.23% 389,166,755 Price charged in International transaction 363,519,061 105% of International Transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charged in International Transaction 1,694,228,110 105% of International Transaction 1,778,939,516 Shortfall being adjustment u/s 92CA 226,310,619 4.4 Against the order of the AO, the assessee approached the Tribunal by raising the following grounds:- The learned Assessing Officer ( AO ) has erred in passing the assessment order dated 25 October 2012 under section 143(3) read with section 144C of the Income-tax Act, 1961 ('the Act ) after considering the initial adjustments proposed by the learned Transfer Pricing Officer ( TPO ) in his order passed under section 92CA(3) of the Act and the directions of the Hon ble Dispute Resolution Panel ( DRP ) in that respect. Each of the ground is referred to separately, and may kindly be considered independent of each other. That, on the facts and circumstances of the case and in law, 1. the AO / DRP has erred in making an addition of Rs. 251,958,313 to the total income of the Appellant on account of adjustment in the arm s length price (ALP) of the international transactions related to contract ITenabled services and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t accounting year than the Appellant (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months). 13. the TPO has passed an order under section 92CA (3) which has computational errors in the margin of certain comparables used in determination of ALP. 14. the AO/ DRP has erred, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables. 15. the AO/ DRP has erred in not providing the benefit of the arm s length range as provided under proviso to Section 92C of Act for purposes of computing the arm s length price under Section 92F of the Act. 16. the AO has erred by disallowing freight charges and hotel expenses under section 40(a)(ia) of the Act without appreciating the fact that the Appellant was not required to deduct tax on the payment of such expenses. Without prejudice to this fact, AO has erred by not enhancing the deduction under section 10A of the Act to the extent of the above disallowances as the same increased the income of the STP undertaking, despite clear directions from DRP in this regard. The Appellant craves l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remitted the issue of comparison on these comparables to the files of the Transfer Pricing Officer (in short 'TPO) and directed the TPO to consider the same afresh after the decision of the Special Bench. We are informed that the Special Bench has been dissolved on account of that matter, being ITA No. 5924/DEL/2012, having been withdrawn by the assessees. Obviously, therefore, the Tribunal would have to decide the matter either itself or by having the same referred to another Special Bench. The application in this regard must, in the first instance, be made by the appellant before the Tribunal. 4. As regards the third question, learned counsel for the appellant contended that the Tribunal had wrongly recorded that the assessee's counsel had confined the grievance on behalf of the assessee to the inclusion of four comparables in software service segment and that it had only been argued that the comparables mentioned therein had been wrongly included by the TPO. Learned counsel for the appellant has invited our attention to the written submissions filed before the Tribunal. This contention must at least, in the first instance, be raised by the appellant before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Hub Limited 7. So far as Eclerx Services Limited is concerned, the ld. Counsel for the assessee submitted that this company should be excluded from the list of comparables on account of non-comparable services since it is engaged in operations, management and audit and reconciliation services. It has engaged high skilled set of employees which is evident from pages 191-192 of the paper book. Further, it has earned super normal profit since its profit range is 66.50%. Referring to the decision of the Tribunal in assessee s own case for AY 2011-12 and 2012-13, he submitted that Eclerx Services Limited was excluded by the Tribunal vide ITA Nos.477 6420/Del/2016 from the list of comparables. Referring to the following decisions, he submitted that Eclerx Services Limited has been excluded from the list of comparables on account of various reasons:- i) Appellant own case AY 2011-12 and 2012-13 (ITA Nos. 477 6420 Del/2016); ii) Rampgreen Solutions Pvt. Ltd. v. CIT (ITA No. 102/2015) - Delhi High Court; iii) Mercer Consulting (India) Pvt. Ltd. (ITA No. 101/HC/Pun Har/ 2015) - Punjab and Haryana High Court; iv) John Deere India Pvt. Ltd. (ITA No. 63/Mum/ 2017) - Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computer based services and other related services during the year under consideration. Further, during the impugned assessment year, there is an extraordinary event i.e., the company has acquired 100% stake in Ladya Systech Limited. As a result, there has been a substantial increase in the revenue of the company. Further, this company has intangibles of Rs.1.26 crores during the year. Referring to the following decisions, he submitted that Genesys International Corporation Limited should be excluded from the list of comparables:- i) Mercer Consulting (India) Pvt. Ltd. (ITA No. 101/HC/Pun Har/ 2015) - Punjab and Haryana High Court ii) John Deere India Pvt. Ltd. (ITA No. 63/Mum/ 2017) - Mumbai High Court iii) IHG IT Services (India) Pvt. Ltd. (ITA No. 6381/Del/ 2012) iv) Cengage Learning India Pvt. Ltd. (ITA No. 6484/Del/ 2012) v) Amba Research (India) P. Ltd. (ITA No. 622/Bang/2012); and vi) Flextronics Technologies (India) Private Limited (ITA No.1559/Bang/2012) 11. So far as Infosys BPO is concerned, the ld. Counsel for the assessee submitted that Infosys BPO Limited is a giant company with huge turnover. The revenue of Infosys is 5 times that of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the income from Engineering Design Services is INR 21.80 crores out of total income of INR 60.31 crores which can be verified from page 21 of the annual report of the said company. Thus, the income from engineering design services is 36.13% of the total income. Thus, it is amply clear that the income from ITeS services is less than 75% of total revenues and consequently this company does not satisfy the filter of ITeS services revenue being more than 75% of total revenues, applied by the TPO himself. Relying on the decision of the coordinate Bench of the Tribunal in the case of IHG IT Services (India) Pvt. Ltd. and various other decisions filed in the case law compilation, he submitted that Acropetal Technologies Limited cannot be included in the list of comparables. 15. So far as Accentia Technologies Limited is concerned, he submitted that this company is also not comparable as an extraordinary event happened during the subject assessment year. The company was merged with two other companies which can be verified from the annual accounts of the said company placed at paper book Volume-I. Referring to the order of the Tribunal in Assessee s own case for AY 2007-08, vide ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing an outsourcing model cannot be compared with the assessee which itself performs its functions. Referring to the following decisions, he submitted that Coral Hub should be excluded from the list of comparables:- i) Mercer Consulting India Pvt. Ltd. (101/2015) - Punjab and Haryana High Court; ii) New River Software Services Pvt. Ltd. v. Pr. CIT Income Tax(l), New Delhi (ITA Nos. 924/ 2016) - Delhi High Court; iii) Rampgreen Solutions Limited (ITA No. 102/2015); iv) UT Starcom Inc. (India Branch) (ITA No.5848/Del./2011) has been upheld by the Hon ble Delhi High Court vide its order dated 25.09.2017 in ITA 767/2017; v) John Deere India Pvt. Ltd. (ITA No. 63/Mum/2017 of HC); vi) Copal Research India Pvt. Ltd. (ITA No. 6410/Del/2016); vii) IHG IT Services (India) Pvt. Ltd. (ITA No. 638 l/Del/2012); and viii) Corporate Executive Board India Pvt. Ltd. (ITA No. 6328/Del/2012) 19. The ld. Counsel for the assessee, accordingly, submitted that if the aforementioned comparables are excluded from the list of comparables, the assessee would be at arm s length as the margin of the assessee is 9.68% while the average of the margin of the comparables is 14.28% and it wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and super normal profits were also brought to the notice of the lower authorities. However, the same were not considered. Referring to the decision of the Tribunal in assessee s own case for AY 2007-08 vide ITA No.1084/Del/2016, order dated 18.11.2019 copy of which is placed in the paper book, he submitted that this company was excluded from the list of comparables on the ground that Wipro is a product company having sold goods under IT segment of Rs.6,313 crores and being a giant company cannot be a suitable comparable vis-a-vis the taxpayer with a captive SDS provider. Referring to the following decisions, he submitted that Wipro Limited has been excluded from the list of comparables. He accordingly submitted that Wipro Ltd., should be excluded from the list of comparables:- i) AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 279/Del/2013); ii) Toluna India (P.) Ltd. v. ACIT, Circle 12 (1), New Delhi (ITA 5645/Del/2011); iii) Agnity India Technologies Pvt. Ltd. v. CIT (ITA No. 1204/2011); iv) AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 279/Del/2013); v) Toluna India (P.) Ltd. v. ACIT, Circle 12 (1), New Delhi (ITA 5645/Del/2011); vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having revenue from the outsources product development; having R D expenditure and having revenue from licence of products and is also earning royalty from the sale of products. 26. The ld. Counsel for the assessee further submitted that for the same AY, Persistent has been held to be incomparable to the Software Development Services companies due to an extraordinary event, i.e. a merger w.e.f. AY 2007-08 in the case of AVL India Software (P.) Ltd. v. DCIT vide ITA 6454/Del/2012 279/Del/2013. He also referred to the decision of the Tribunal in Alcatel Lucent India Limited vide ITA No. 6856/Del/2015 which has been upheld by the Hon ble Delhi High Court vide its order dated 18.07.2017 in ITA 515/2017. 27. So far as Avani Cimcon Technologies Limited is concerned, the ld. Counsel for the assessee submitted that Avani is not a comparable as the information is unreliable and there is non-availability of information in public domain. Further, there are super natural profits of the company in the respective year. Referring to the decision of the Tribunal in assessee s own case in the first round, he submitted that the Tribunal had remanded the matter back to the file of the TPO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at page 26 of the Annual Report of the company placed in the paper book. Further, the company does not have separate segmental accounts and operates under one segment only which is verifiable from page 26 of the Annual Report of the company. Referring to page 57 of the Annual Report of the company, the ld. Counsel for the assessee submitted that LGS Global Limited has intangible in the nature of goodwill amounting to INR 3.67 crores where as the assessee does not have any goodwill nor it has any other intangibles. Referring to the decision of the coordinate Bench of the Tribunal in the case of Cash Edge India Pvt. Ltd. v. ITO vide ITA No. 5848/Del/2012, he submitted that this company was excluded from the list of comparables. Referring to the following decisions, he submitted that LGS Global Limited was excluded from the list of comparables on account of non-comparable services: diversified services like product evaluation, design and development, business process outsourcing and intangibles: i) Saxo India Private Limited (ITA No.6148/Del/2015) which has been upheld by the Delhi High Court (ITA No. 682/2016); ii) Mentor Graphics (India) Private Limited (ITA No. 2587/Del/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the exclusion of Coral Hub Limited is concerned, we are of the considered opinion that Coral Hub is not comparable as it follows an outsourcing model of business while the assessee is a captive service provider which by itself performs its back office support functions. The two models in our opinion are very different and have a significant impact on the FAR of the companies and hence, companies following an outsourcing model cannot be compared with the assessee which itself performs its functions. (Page 189 of the PB I) 36. We find the issue of outsourcing has been dealt with by the Hon ble Punjab Haryana High Court in the case of Mercer Consulting India Pvt. Ltd. (101/2015) wherein it was held that: The next question is whether Coral Hub Limited ought to be included in the list of comparables. The ground on which the assessee contends that Coral Hub Limited ought to be excluded from the list of comparables is also well founded. Coral Hub Limited outsources a significant portion of its work. The finding is that the outsourcing charges constitute 90% of the total operating costs. It is admitted by the department that the assessee on the other hand conducts its act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l cost which was 85.58% as noted earlier. Therefore, the business model of this company cannot be compared with the business model of assessee where salary cost was 54.67% of the total cost. When the business operations are out sourced, the profit margins are bound to increase substantially as compared to a business which is carried on through employees. Therefore, this company cannot be included in the list of comparables, though it might be carrying on the similar functions which asesssee was carrying on. The functional profile no doubt is one of the major criteria but not the sole criteria for deciding whether the said company can be included in the list of comparables or not. The assets and risk profile also has to be taken into consideration. This company was selected by TPO and, therefore, the submissions of Id. Standing Counsel on the ground of functional profile cannot be accepted. Moreover, we note that Id. Counsel has pointed out that data entry charges were 84.5% of total expenditure and, therefore, this cannot be- compared to assessee which was primarily imparting high end services. We, accordingly, direct for exclusion of this company from the list o f comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed opinion that Coral Hub Limited cannot be considered as a comparable. 40. So far as exclusion of Eclerx Services Limited is concerned, this in our opinion has also to be excluded. In our opinion Eclerx is not comparable to the appellant which is a captive service provider which by itself performs merely back office support functions. We find, the Tribunal in first round included this comparable on the basis of the decision of the coordinate Bench of the Tribunal in the case of Rampgreen Solutions Pvt. Ltd. Vs. ACIT (ITA No.6286/Del/2012). However, the decisions of the Tribunal in Rampgreen Solutions has been set aside by the Hon ble Delhi High Court in Rampgreen Solutions Pvt. Ltd. v. CIT (ITA No. 102/2015). The relevant observations of the Hon ble High Court reads as under:- 37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not he taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data processing services, pricing analytics, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of determining the ALP in respect of the assessee's international transactions. The circular is issued for entirely different reasons viz to enable an assessee to avail deductions in respect of certain activities. The sections do not contemplate or even remotely indicate that the activities referred to therein are comparable to each other. Much less do these provisions indicate that the activities included therein have any relevance to the transfer pricing mechanism for the purpose of determination of the ALP of international transactions. 26. The tribunal rightly rejected this case from the list of comparables. 42. We find the Mumbai Bench of the Tribunal in the case of John Deere India Pvt. Ltd. (ITA No.2236/PN/2012) which was upheld by the Mumbai HC (ITA No. 63/Mum/2017), has observed as under:- We are of the considered view that the assessee company is functionally different from Coral Hub Limited. Both the companies have different operating models, thus there cannot be any comparison between two entities having different business spheres and distinct mode of operation. Accordingly, we direct the TPO/AO to exclude the company from the list of comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parability of Eclerx to captive back-office service providers is also covered in favour of the assessee in the decision of the coordinate Bench of the Tribunal vide ITA Nos. 5829/De//2015, 6134/Del/2015 and 6572/Del/2016 in the case BC Management Services (P.) Ltd. v. DCIT Circle 4(1), New Delhi under similar circumstances where the Tribunal has observed as under:- 12. However without entering into the semantics of arguments as to what kind of functions constitutes low-end ITeS service provider or high-end ITeS or KPO service provider, we would like to confine our finding on FAR analysis. Because, at times when host of services are performed under ITeS, likes of assessees , there becomes very thin line distinction between functions performed by the low-end ITeS service provider and high-end ITeS service provider and it is quite difficult to analyse in such situations as to how much value additions are there in deliverables in rendering of such kind of host of services. At the outset, on a perusal of the Financials and annual report of E-clerx for the relevant financial year as pointed out to us during the course of the hearing, we find that the E-clerx has outsourced most of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. The relevant observations of the Hon ble High Court are as under:- 37. The next question is whether Coral Hub Limited ought to be included in the list of comparables. The ground on which the assesse contends that Coral Hub Limited ought to be excluded from the list of comparables is also well founded. Coral Hub Limited outsources a significant portion of its work. The finding is that the outsourcing charges constitute 90% of the total operating costs. It is admitted by the department that the assessee on the other hand conducts its activities itself without outsourcing any part of it. There can be no comparison between an enterprise that conducts its business activities itself with one that outsources its activities although the activities pertain to the same field. The entire administrative set up of such enterprises would be different. An entity that outsources most of its work is not required to maintain a large establishment. For instance, it would be necessary for such an enterprise to have large premises and a large number of employees. Even the material it uses and the equipment that it installs from minor items such as stationery and telephones to electrical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d both the parties, have gone through the records and gone through the Annual Report of Genesys International Corporation Ltd. We find that the assessee is engaged in the back office support 1TES system for its AE in respect of accounting support for hotels and its corporate offices whereas we find that Genesys International Corporation Ltd. is into mapping business and it provides geographical information services comprising Photogrammetry, Remote Sensing, Cartography, Data Conversion, related Computer based Services and Information Technology enabled and other related services, which cannot be by any stretch of imagination be said to be comparable to that of the assessee. Since Genesys International Corporation Ltd. is functionally dis-similar with that of the assessee, we direct the TPO to exclude the said company from the list of comparables. 51. Similarly, the co-ordinate Bench of the Tribunal in the case of Cengage Learning India Pvt. Ltd. (ITA No. 6484/Del/2012), while excluding Genesis has observed as under:- (iv) Genesis International Corp. Ltd. This company has been selected by Ld.TPO in the final list of comparables. Ld. Counsel submits that it is functionall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is mentioned that the revenue of Infosys BPO Limited is 5 times of Agilent. Further, the company has a brand value which has a significant role on its profits. From the details, we find the amount of revenue, expenditure on brand building along with the asset base is as under:- PARTICULARS AGILENT INTERNATIONAL INFOSYS BPO FY 2007-08/AY 2008-09 FY 2007-08/AY 2008-09 TURNOVER INR 169.41 crores (@ pg 42 of Appeal set INR 825 crore (@ pg 20 of Annual Report BRAND EXPENSE NIL @pg 319 of PB II INR 78.32 lacs @pg 25 of Annual Report ASSEST BASE INR 54 crore @pg 315 of PB II INR 130.8 crore @pg 19 of Annual report 55. We find the co-ordinate Bench of the Tribunal in Assessee s own case for AY 2007-08 (ITA No. 1084/Del/2016) has observed as under:- 23. Undisputedly, there is no change in the business model of the taxpayer. Moreover, when we examine scale of business of Infosys BPO vis-a-vis the taxpayer, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the domain of assets and this also would make both these companies as unsuitable comparables. 57. So far as brand is concerned, we find the co-ordinate Bench of the Tribunal in assessee s own case for AY 2014-15 (ITA No. 4191/Del/2018) has removed the comparable by observing as under:- 17. We have carefully considered the rival contention and perused the orders of the lower authorities wherein the reasons given for inclusion of the above comparable company for the purpose of benchmarking of the arm s-length price of the international transaction of the ITeS segment of the assessee. The assessee has also placed before us the annual report of lnfosys BPO Ltd for 2013 - 14. On looking at the annual report itself it is clear that the company has an imprint of Infosys brand all over it. In the companies overview at page number 4 of the annual accounts as mentioned that this company is the business process outsourcing subsidiary of Infosys and is engaged as outsourcing service provider. In the management discussion and analysis placed at page number 14 of the annual report, it is stated that Infosys BPO provides business process management services to organizations tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 420/Del/2019) wherein it has been held as under:- 8. It appears that the comparable discussed in Agnity India Technologies Pvt. Ltd. (supra) which was sought to be excluded was an Infosys Group Company which undoubtedly was a giant corporation . On the other hand, in Chrys Capital Investment Advisors India (P.) Ltd. the three comparables included were Brescon Corporate Advisors Limited, Keynote Corporate Services Limited and Khandwala Securities Limited and the rejected comparables were IDFC Investment Advisors Ltd., Sumedha Fiscal Services Limited and Future Capital Holdings Limited. Clearly therefore none of the comparables involved was a giant corporation like Infosys. Consequently, this Court is not persuaded that the ITAT erred in the present case in excluding Infosys BPO Limited relying on the decision of this Court in Agnity India Technologies Pvt. Ltd. (supra) 59. We find Infosys BPO has been rejected by the co-ordinate Bench of the Tribunal in the same AY, in the case of IHG IT Services (India) Pvt. Ltd. (ITA No. 6381/Del/2012) wherein it has been held as under:- We take note that the aforesaid extra ordinary event of amalgamation during the year has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO/TPO to exclude Infosys BPO Ltd. from the list of comparables. 62. So far as exclusion of Wipro Limited (BPO segment) is concerned, we are of the considered opinion that Wipro BPO is not comparable to the appellant due to incomparable scale of operations and presence of huge intangibles and the brand value of Wipro. We find the turnover of the company is very high vis-a-vis the appellant. The company has a turnover which is more than 6 times of the appellant which can be verified from the details filed in the paper book. PARTICULARS AGILENT INTERNATIONAL WIPRO BPO FY 2007-08/AY 2008-09 FY 2007-08/AY 2008-09 TURNOVER INR 169.41 crores @pg 42 of Appeal set INR 1,058 crores @pg 212 of standalone Annual Report 63. We find the co-ordinate Bench of the Tribunal in Assessee s own case for AY 2007-08 (1TA No. 1084/Del/2016) has observed as under:- 22. Similarly, Hon ble Delhi High Court in H S Software Development and Knowledge Manager Centre Pvt. Ltd. (supra) has confirmed the exclusion of Wipro by the Tribunal on ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Therefore, we order exclusion of this comparable from the set of comparables. 69. In view of the above discussion and in view of various other decisions relied on by ld. Counsel for the assessee, we are of the considered opinion that Acropetal Technologies is not a valid comparable. We, therefore, direct the AO/TPO to exclude this company from the list of comparables. 70. Now, coming to exclusion of Accentia Technologies Limited is concerned, we find Accentia is not comparable as an extraordinary event has taken place during the subject assessment year. The company was merged with two other companies (page 187 of the paperbook I). We find the co-ordinate Bench of the Tribunal in Assessee s own case in AY 2007-08 (ITA No. 1084/Del/2016) has held as under:- 33. So, in view of the facts and circumstances of the case and following the decision (supra) rendered by the coordinate Bench of the Tribunal, we are of the considered view that Accentia is not a suitable comparable on ground of amalgamation of subsidiaries resulting into growth of revenue by 100683% and on ground of functional dissimilarity, hence ordered to be excluded. 71. The relevant details regarding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver. It also has a brand associated with it which impacts the profitability of the company. Further, it is a product development company which incurs R D and marketing expenditure. 76. We find, the Tribunal in Assessee s own case for AY 2007-08 (ITA No. 1084/Del/2016), has rejected Infosys Technologies Ltd. From the list of comparables by observing as under:- 40. So, by following the ratio laid down by the Hon ble High Court in Agnity India Technologies Pvt Ltd. (supra) and order passed by the coordinate Bench of the Tribunal in taxpayer s own case for AY 2011-12 (supra), we are of the considered view that Infosys Technologies having turnover of Rs.13,149 crores with asset base of Rs.2150 crores having brand expenditure of Rs. 69 lakhs as against turnover of Rs. 32 crores of taxpayer with nil brand expenditure and asset base of Rs.29 crores; and that Infosys Technologies has also incurred Rs.49 crores on the R D expenditure and its revenue from the software product has increased to 67.6% whereas segmental financials are not available, so Infosys is not a suitable comparable. So, in these circumstances, we are of the considered view that Infosys Technologies is not a suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny vis-avis Infosys Technologies Limited in the light of the judgmen t in CIT vs. Agnity India Technologies Pvt. Ltd. (supra), there is no comparability for benchmarking the international transactions for the reasons inter alia that Infosvs Technologies Limited is a giant risk taking company whereas, on the other hand, the assessee is a captive unit of its parent company and 'prone to minimum/ limited risk; that the Infosys Technologies Limited is having huge significant intangibles and having huge assets leading to the exorbitant turnover; that it is not in dispute that functional profile of assessee company and CIT vs. Agnity India Technologies Pvt. Ltd. is similar; that moreover, in the SDS segment, numerous companies are. available for comparability. So, in the given circumstances, we are of the considered view that Infosys Technologies Limited is not a valid comparable in this case, hence ordered to be excluded. 81. We find the facts in the relevant AY are similar which was demonstrated by the ld. Counsel for the assessee as under:- PARTICULARS AGILENT INTERNATIONAL INFOSYS TECHNOLOGIES LIMITED F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f operations and presence of huge intangibles and the brand value of Wipro. We find Wipro has been excluded, in the same assessment year, on the basis of incomparable size and scale by the co-ordinate Bench of the Tribunal in AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 279/Del/2013) and Toluna India (P.) Ltd. v. ACIT, Circle 12 (1), New Delhi (ITA 5645/Del/2011). While doing so the co-ordinate Bench has followed the decision of the Hon ble Delhi High Court in the case of Agnity India Technologies Pvt. Ltd. V. C1T (ITA No. 1204/2011). 85. We find the Tribunal in the case of AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 279/Del/2013) has observed as under:- 41. We find that in the case of Toluna India Pvt. Ltd. (supra), the Tribunal has excluded this comparable from the list of comparables by observing as under: 41. After considering the rival submissions and perusing the relevant material on record, we have absolutely no doubt in our mind that this company cannot be considered as comparable to the assessee inasmuch as it is a giant company in terms of parameters discussed above while dealing with the case of Infosys Ltd. The Hon 'ble Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and negotiate contracts. Thus, while considering the comparables, the likelihood of profits derived or attributable to the brand having regard to the consistency of the quality of services that an entity is able to offer would be relevant; although functionally, the two entities may be similar in terms of the services or products they offer, brand does play its own role in price or cost determination. If this singular aspect is kept in mind, the ITA T s approach cannot be faulted with. 89. In view of our above discussion, we hold that Wipro cannot be compared with that of the assessee company. We, therefore, direct the AO/TPO to exclude Wipro from the list of comparables. 90. So far as Kals Info Systems Limited (seg) is concerned, we find Kals is a functionally different company mainly engaged in Software Development, training, consulting, and Equipment development. We find the co-ordinate Bench of the Tribunal in the case of Aircom International (India) Pvt. Ltd. vide ITA No.6402/Del/2012 has observed as under:- The TPO s inclusion of this company in the list of comparables is that the software products and training constitute only 4.24% of its revenue. This inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts customized software development services and sale of proprietary products, it is difficult to fathom as to what extent the overall profit of this company have been impacted by the revenue from software products. So, we are of the considered view that KALS is also not a valid comparable, hence ordered to be excluded from the final list of comparables. 92. We find the above decision of the Tribunal has been upheld by the Hon ble High Court vide ITA No.767/2017 order dated 25.9.2017. 93. We find the above comparable has also been excluded in the case of AVL India Software (P.) Ltd. v. DCIT (ITA 6454/De//2012 279/Del/2013) which is involved in software development services as the appellant herein for the same AY. It has been held as under:- 33. We find that in the case of Toluna India (P.) Ltd. (supra), the Tribunal has excluded this comparable from the list of comparables by observing as under: 27.1. The TPO observed that this company was engaged in Software development and training. As the software products constituted only 3% of its revenue and training revenue constituted 8.56%, the TPO held that this segment of KALS Information Systems Limited was rightly inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; having R D expenditure of Rs.2.71 crores as against nil of the taxpayer, having revenue from licence of products and is also earning royalty from the sale of products, is not a suitable comparable vis-a-vis taxpayer which is a routine SDS provider, hence ordered to be excluded. 97. We find, for the same AY, Persistent has been held to be incomparable to the Software Development Services companies due to an extraordinary event, i.e. a merger w.e.f. AY 2007-08 as held in the case of AVL India Software (P.) Ltd. v. DCIT (ITA 6454/Del/2012 279/Del/2013). The relevant extract of the judgement is reproduced below: 36. We find that in the case of Toluna India Pvt. Ltd. (supra), the Tribunal has excluded this comparable from the list of comparables by observing as under: 33. After considering the rival submissions and perusing the relevant material on record, we hold that this company also cannot be considered as comparable because of merger of another company into it, which fact is evident from page 196, of @ the paper book. It can be seen that a subsidiary company was merged into this company pursuant to judgment of Hon'ble Bombay High Court w.e.f 1.4.06. Because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the list of final comparable. 100. So far as exclusion of Avani Cimcon Technologies Limited is concerned, we find Avani is not a comparable as the information is unreliable and there is non-availability of information in public domain. Further, there are super normal profits of the company in the respective year. We find the Tribunal in the first round has remanded the matter back to the file of the TPO to verify the facts whether the company is a product company or not. We find the co-ordinate Bench of the Tribunal in the case of Aircom International (India) Pvt. Ltd. (ITA No.6402/Del/2012) has observed as under:- This company clearly described its business activity as: providing software development and consulting IT services to its international clients. It is obvious from the reply tendered by this company that it is engaged in providing software development and also consulting IT services. In opposition, the assessee company is engaged in providing software development services alone and is not rendering consulting IT services. The effect of the revenue from consulting IT services in the overall financials of the company is not available. As this company is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a of the Assessee has been that this company is functionally different from the assessee. Based on the information available in the company's web site, which reveals that this company has developed a software product by name ,DXchange , it was submitted that this company would have revenue from software product sales apart from rendering of software services and therefore is functionally different from the assessee. It was further submitted that the Mumbai Bench of the Tribunal to the decision in the case of Telcordia Technologies Pvt. Ltd. v. ACIT - ITA No.78211Muml2011 wherein the Tribunal accepted the assessee's contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only. .. 41.We have given a careful consideration to the submissions made on behalf of the Assessee and are of the view that the same deserves to be accepted. The reasons given by the Assessee for excluding this company as comparable are found to be acceptable. The decision of ITAT (Mumbai) in the case of Telcordia Technologies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Saxo India Private Limited (ITA No.6148/Del/2015) has been upheld by the Hon ble Delhi High Court vide ITA No. 682/2016. The relevant extract of the Hon ble High Court reads as under:- 10. On a comparison with the data available and made available, undoubtedly, the object of the statute is to pull in transactions which otherwise escaped the radar of tax assessment under one head or the other. The transfer pricing methodology - shorn of its details is an attempt by each nation to locate the incidents of income which would be subjected to levy within its jurisdiction where international transactions are involved. This exercise does not compare with other income assessments where the methodology adopted in their domestic jurisdiction will differ . The TNMM method depends on accurate data with respect to all the three elements - wherever they apply. In the Comparable Uncontrolled Price (CUP) method - which is premised upon the elements in Rule lOB(l)(a), the methodology adopted is the price charged or paid for property transfer or services provided in the Comparable Uncontrolled transaction. Therefore, the nature of the transaction and the appropriate filter determines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g/2013 has observed as under:- 18.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer. Com Pvt. Ltd. (ITA No.227/Bang/2010 dt. 9.11.2012) has held that if a company possesses or owns intangibles or IPRs then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted from the list of comparables, as in the case on hand. 18.5 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n non-deduction of tax. 116. Facts of the case, in brief, are that a TDS survey was conducted on 17th February, 2010 and order dated 25th March, 2010 was passed u/s 201 of the Act by the ITO, TDS. Following the order of the ITO, TDS, the AO held that the assessee failed to deduct TDS on expenses of Rs.7,07,962/- debited to P L Account, the details of which are as under:- Freight charges Sec.194C INR 104,599 Expense on hotel accommodation Sec.194I INR 603,363 117. The AO, accordingly, disallowed the above expenses under the provisions of section 40(a)(ia) of the IT Act for which the assessee is in appeal before the Tribunal. 118. The ld. Counsel for the assessee submitted that the AO has grossly erred both on facts and in law in proposing to disallow freight charges and hotel expenses under section 40(a)(ia) of the Act without appreciating the fact that the assessee was not required to deduct tax on the payment of such expenses. So far as expenses on freight - Rs. 104,599 is concerned, he submitted that during the subject year, the assessee incurred expenses of Rs. 104,599 on account of freight charges payable to Dell Pacific SDN ( Dell ) (company situated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of the business eligible for deduction u/s 10A of the IT Act. Referring to the following decisions, he submitted that deduction u/s 10A of the Act shall be computed on the assessed income after considering all the allowances/disallowances made by the AO during the assessment proceedings: i) ITO Vs Sahasra Electronics Private Limited (2010-TIOL-89- ITAT-Del); ii) Gemplus Jewellery India Limited (2009-TIOL-212-ITAT-MUM); iii) DCIT vs. Planet Online Pvt. Ltd (2008) (ITA No. 1016/Hyd/07) (Hydrabad ITAT); iv) ACIT vs. Zavala India Private Limited (2010) (ITA No. 1100/Hyd/2009) (Hydrabad ITAT); v) CIT vs Virinchi Technologies Ltd (2011) (ITA No. 209/Hyd/2010) (Hydrabad ITAT) 122. The ld. DR, on the other hand, heavily relied on the orders of the AO/TPO/DRP. 123. We have considered the rival arguments made by both the sides perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, on the basis of the TDS Survey, conducted on 17th February, 2010 and order passed by the ITO, TDS on 25th March, 2010, made addition of Rs.7,07,962/- on account of Frei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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