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TMI Blog2020 (11) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... Support Services in the order of the Transfer Pricing Officer (TPO). The assessee also provides Marketing and Sales Support Services (MSS) to its wholly owned holding company. In terms of the provisions of Section 92A of the Act, the assessee and its wholly owned company were Associated Enterprises ("AEs"). In terms of Sec. 92B(1) of the Act, the transaction of providing SWD Services and MSS were "international transactions" i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec. 92(1) of the Act, any income arising from an international transaction shall be comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able companies chosen by the TPO and retained only the following three companies as comparable companies viz., (i) Persistent Systems Ltd., (ii) Sasken Communication Technologies Ltd., and (iii) Persistent Systems & Solutions Ltd., on the application of various filters. To the extent the assessee did not get relief from the DRP, the assessee has preferred CO before the Tribunal. The specific grounds of CO preferred for adjudication in SWD Services are contained in ground No.6(b) in which the assessee has projected grievance with regard to nonexclusion of the three companies by the DRP viz., Persistent systems Ltd., Persistent Systems & Solutions Ltd., and Sasken Communication Technologies Ltd. The assessee has also challenged exclusion of Evoke Technologies Ltd., and RS Software (I) Ltd., by DRP in ground No.7. 8. The Revenue is aggrieved by the order of the DRP by which the DRP directed exclusion of the following 7 comparable companies viz., (i) Acropetal Technologies Ltd., (ii) L&T Infotech Ltd., (iii) RS Software (I) Ltd., (iv) E-Infochips Ltd., (v) ICRA Techno Analytics Ltd., (vi) e-Zest Solutions Ltd. (vii) Infosys Technologies Ltd. and (viii) Tata Elxsi Ltd. 9. The grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncomparable, thereby seeking exact comparability by imposing condition beyond law whereas requirement of law is to acknowledge only those differences that are likely to materially affect the margin. The DRP ought to have appreciated that the comparable qualified all the qualitative and quantitative filters applied by the TPO and in a computer software services, if considered as a sector of business, the 15 different lines prevailing in the business cannot be considered functionally different from each other. 9. The DRP erred in directing exclusion of M/s. Infosys Technologies Ltd., from the list of comparables holding it to be functionally uncomparable, without appreciating that the primary source of income of the comparable is from provision of software development services. Also, the DRP erred in imposing a condition beyond law in seeking exact comparability, whereas requirement of law is to acknowledge only those differences that are likely to materially affect the margin. 10. The DRP erred in disregarding the position of law that there could be differences between the enterprises compared under TNMM method that are not likely to materially affect the price or cost charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eek exclusion of this company, the DRP ought not to have suo motu applied onsite revenue filter to exclude this company. Facts being identical in this appeal, following the aforesaid decision, we hold that this company shall be retained as a comparable company. The relevant grounds of appeal of Revenue and assessee are accordingly allowed. 13. As far as the CO of the assessee is concerned, the ground of appeal in the CO relevant to SWD Software segment which was pressed for adjudication is ground No.6 (b) and 7 which reads as follows:- "TP GROUNDS (IT SUPPORT SEGMENT) 6(b) :- Adopting turnover filter of Rs.1 crore to infinity without appreciating that companies having large turnover are not comparable to the Respondent. ........ 7. The Hon'ble DRP has erred in rejecting Evoke Technologies Ltd. and R.S. Software India Ltd. as comparables on unjustified grounds and without appreciating that they pass all filters applied by the TPO." 14. As for the plea of assessee to exclude the following 3 companies which were chosen as comparable companies by the TPO and retained by the DRP viz., Persistent Systems Ltd., Persistent Systems & Solutions Ltd., and Sasken Communication Techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparability of these two companies have examined by the co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd. (supra) in para 60 and 61 & paras 24 to 26 as under : "Persistent Systems & Solutions Ltd. 60. The assessee has the grievance against rejection of this company by the DRP. The Id. AR has submitted that assessee did not raise any objection against this company, however, the DRP has rejected the said company. Therefore, the said company should be retained in the list of comparables. 61. Having considered the rival submissions as well as relevant material on record, at the outset, we note that the DRP has examined the functional comparability of this company by considering the relevant details as given in the annual report of this company. The DRP has given the finding that the entire revenue has been earned by this company from the sale of software services and products and in the absence of segmental details, it cannot be considered as comparable with software services segment. We find that this company has shown the income from sale of software services and products to the tune of Rs.6.67 crores. We further note that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no change in the activity and functions of these companies during the year under consideration in comparison to the Assessment Year 2010- 11. Accordingly, following the decisions of the co-ordinate benches of this Tribunal (supra), we direct the A.O./TPO to exclude these two companies from the set of comparables.' (iv) Sasken Communication Technologies Ltd. 9.3.1 The Id. AR of the assessee has submitted that this company is engaged in the development of software products as it has inventories, intangible assets as well as high expenditure on R&D. Therefore this company is functionally not comparable to the assessee. The Id. AR has referred to the Annual Report of this company and submitted that it derives income from software products specifically new products launched called 'Vyaparaseva' during F.Y. 2010-11. Thus this company is engaged in product development cannot be compared with the assessee when segmental details are not available. He has relied upon the decision dt.24.2.2016 of the co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd. (supra). 9.3.2 On the other hand, the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable companies. We direct reexamination of comparability of M/s Sasken Communication Technologies Ltd. to TPO/AO for fresh consideration on the lines indicated in the aforesaid decision. 16. As far as inclusion of Evoke Technologies Ltd. as comparable company sought by assessee in ground No.7 of CO is concerned, the ld. counsel for assessee has drawn our attention to decision of ITAT, Bangalore Bench in the case of Applied Materials(I) Pvt. Ltd., (supra) wherein vide para 14.1 the Tribunal directed retaining Evoke Technology Pvt. Ltd. as comparable company for the reason that when both assessee and revenue wanted this company as comparable company, the DRP ought not to have excluded this company as comparable company. Following the said decision, we direct inclusion of this company as a comparable company. 17. The TPO is directed to compute the ALP in SWD Services Segment directions contained in this order after affording assessee opportunity of being heard. MARKETING SUPPORT SERVICES SEGMENT (MSS) 18. As far as the provision of MSS is concerned, the assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground of non-availability of information regarding nature of services, when the primary activity of the comparable involves processing orders including for its principal concern also the DRP erred in imposing conditions beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that no two companies can ever be the same." 22. As far as exclusion of ICC International Agencies Ltd. by the DRP is concerned, it was brought to our notice by the learned counsel for the assessee that in the case of AMD India Pvt. Ltd., Vs. ACIT in IT(TP)A No.1487 & 1496/Bang/2015 order dated 06.04.2017 ITAT Bangalore Bench for the very same segment for AY 2011-12 was pleased to hold that this company was not comparable with MS Services providing company. The relevant observations are as follows:- "2. ICC International Agencies Ltd : The assessee submitted before the DRP that this company is functionally not comparable since it is engaged in trading activity and thereby functionally different. The DRP rejected this company for the reason that this company is functionally dissimilar and for incorrect margin computation made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that an assessee cannot be precluded from seeking exclusion of a company selected by it in its TP study, when the company is otherwise not comparable to the assessee. We therefore reject that argument of the learned DR in this regard. 24. As far as the plea of the assessee to exclude Asian Business Exhibition and Conference Ltd., is concerned, the ld. counsel for assessee has brought to our notice a decision of ITAT in the case of AMB (I) Pvt. Ltd. (supra) wherein this Tribunal directed exclusion of this company with the following observation:- "12. In respect of marketing support segment, the gist of the AR's submissions are extracted as under : 1. Asian Business Exhibition & Conferences Ltd : The assessee submitted before the DRP that this company is functionally not comparable since it earns income from exhibitions and events, sponsorship income, income and delegate fee and entry charges as per Annual Report. Further, the company operates in a single segment i.e., income from exhibitions and events. The DRP did not accept the assessee's plea. Before us, the assessee submitted that this company be rejected as it is functionally not comparable based on : * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record it is very much clear that the business model of the assessee and Asian Business Exhibition and Conferences Limited are totally different. While assessee undoubtedly is providing support services to its overseas AE's, Asian Business Exhibition and Conferences Limited is primarily and fundamentally engaged in event management. Thus, under no circumstances it can be considered as a comparable to the assessee. Therefore, for the aforestated reasons the DRP, in our view, was justified in excluding this company as a comparable. As far as the contention of learned DR that reasons on which this company was excluded equally applies to other comparables retained by the DRP, we may observe, such argument of learned DR is not at all relevant as the issue raised by the department in the present appeal is confined to exclusion of Asian Business Exhibition and Conferences Limited as a comparable. As far as objection of learned departmental representative that assessee itself has selected this company as a comparable, we may observe, that cannot be the sole criteria to reject assessee's objection with regard to selection of a comparable. At the time of preparing T.P. Stu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for AY 2010-11 in IT(TP)A No. 391/B/15 and this Tribunal by its order dated 21.11.2017 upheld the action of the DRP in deleting the addition made by AO with the following observations:- "13. Regarding the corporate tax issue as per ground no. 5 of the appeal of revenue, Learned DR of the revenue supported the draft assessment order passed by the AO. Learned AR of the assessee supported the order of DRP. He also submitted that after passing of the order by DRP, on 17.05.2016, CBDT has passed an order u/s 119, copy on pages 437 to 439 of the paper book and as per the same, delay committed by the assessee's trust in filing the relevant information with jurisdictional CCIT/CIT was condoned and thereafter, as per order dated 27.10.2016, copy on pages 440 & 441 of the paper book, approval was granted to M/s Alcom laboratories (India) Private Limited Employees Gratuity Fund Trust w.e.f. 01.01.2006 and therefore, now the relevant trust stands approved and therefore, the order of DRP is proper. 14. In this regard, we find that although the basis of the order of DRP is different but in view of this subsequent development, the objection of the AO for which, he made this disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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