TMI Blog2022 (12) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... es from the list of comparables. R Systems International Limited - The issue is restored to the files of the AO / TPO. The AO / TPO is directed to exclude M/s R Systems International Limited, if it is found the said company has prepared financials for the year ending December 2016. It is ordered accordingly. TP adjustment made under the MSS segment needs fresh TP analysis by the TPO. Accordingly, the issues restored to the files of the AO / TPO for conducting fresh TP study analysis in support services segment of the assessee. It is ordered accordingly - IT(TP)A No.250/Bang/2022 : - - - Dated:- 15-7-2022 - Shri George George K, JM Ms.Padmavathy S, AM Appellant by : Sri.Tata Krishna, Advocate Respondent by : Sri.Sumeer Singh Meena, CIT-DR O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 18.02.2022. The relevant assessment year is 2017-2018. 2. The brief facts of the case are as follows: The assessee is a wholly owned subsidiary of Sprinklr US. It provides software development services to its parent company. For the assessment year 2017-2018, the return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopt the upper turnover filter of Rs.200 crores that resulted in wrongful selection of 8 companies viz., Larsen Toubro Infotech Ltd., Mindtree Ltd., R Systems International Ltd., Persistent Systems Ltd., Tata Elxsi Ltd., Nihilent Ltd. Infosys Ltd., and Cybage Software Pvt. Ltd. selected by the TPO which even otherwise fail the test of comparability. 7. In the above ground, the assessee is seeking application of upper turnover filter and thereby exclusion of following seven companies:- (i) Larsen Toubro Infotech Limited (ii) Nihilent Limited (iii) Persistent Systems Limited (iv) Tata Elxsi Limited (v) Infosys Limited (vi) Mindtree Limited (vii) Cybage Software Private Limited. 8. According to the learned AR, since a lower turnover filter has been applied, the TPO / DRP ought to have applied a higher turnover filter to exclude the above seven companies. The DRP has rejected the objections of the assessee by observing that turnover does not have an influence on the margins of the company. The learned AR has placed reliance on the order of the Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under three major heads depending on the turnover of the company viz., a. Less than Rs 200 crores categorized as small size companies; b. Rs 200 crores to Rs 2000 crores categorized as medium size companies; c. More than Rs 2,000 crores categorized as large size companies. 12. The turnover of the assessee for the relevant assessment year is Rs 134 crores and therefore would fall under the category of small size company having turnover in the range of Rs 1 crore to Rs 200 crores. Therefore, the companies not falling within the range, i.e, companies having turnover less than Rs.1 crore or turnover more than Rs 200 crores deserves to be excluded. The Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO (supra) has considered various judicial pronouncements on this issue including that of the Hon ble High Courts wherein divergent views were taken with respect to the application of different filters. It was held by the Tribunal that application of turnover filter is justified on the basis of classification of companies as per the report of Dun and Bradstreet. As regards the specific plea of the learned DR that if turnover of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.76% 10 iGate Global Solutions Ltd. 11,845,540,000 9,47,11,65,000 25.07% He submitted that if such criterion is applied, then that would be the proper basis for excluding companies for the purpose of comparability based on turnover. 16. The ld. Counsel for the assessee, on the other hand, submitted that the Hon ble High Court of Karnataka in the case of Acusis Software (I) P. Ltd. (supra) merely dismissed the appeal of assessee on the ground that no substantial question of law arises for consideration. In particular, he drew our attention to the following paragraphs of the judgment of Hon ble High Court:- 14. The findings of the learned Tribunal as regards the comparable namely, Mercury Outsourcing Management Ltd., which too have been excluded by the Tribunal are quoted below for ready reference:- (ii) Mercury Outsourcing Management Ltd. 13.1 The learned Authorised Representative has submitted that the TPO has rejected this company on the similar reasoning of diminishing revenue and abnormal cost. 13.2 On the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon ble High Court. He pointed out that the Tribunal in excluding Mercury Outsourcing Management Ltd., had taken a view that its turnover was small compared to the assessee s turnover and therefore not comparable, even if the tolerance range of turnover of 10 times on both the sides of assessee s turnover is applied. There is no positive finding by the Tribunal that the company can be excluded for the purpose of comparability on the basis of turnover, only if the turnover is 10 times on both the sides of assessee s turnover. On the conclusions of the Tribunal, the Hon ble High Court only held that it is reasonable and deserves to be accepted. In para 16, the Hon ble High Court has clearly observed that the decisions rendered in other cases referred to by the ld. Counsel for the assessee would not render the findings of the Tribunal in the case before the High Court as negatory or perverse for the reason that analysing of the comparables may be in a different context. The same need not be blindly or generally adopted in all the cases, irrespective of the context or circumstances calling for exclusion/inclusion of the comparables. The finding in each case is therefore a finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ordered accordingly. 17. Since we have adjudicated ground 8.5.1, the other ground raised with regard to software development services segment is left open. TP Adjustment of Rs.74,16,128 (Grounds 9.1 to 9.8) 18. The other grounds for adjudication is with regard to the TP adjustment of Rs.74,16,128 in respect of MSS segment. The learned AR submitted that the TPO and the DRP had erred in characterizing the assessee s activities as Marketing Support Services (MSS), when the nature of work carried out by the assessee falls into Information Technology Enabled Services (ITES) segment. It was stated that objection of the assessee as regards re-characterisation of segment into MSS instead of ITES, was not considered by the TPO nor by the DRP. Therefore, it was prayed the matter may be restored to the files of the TPO to consider the claim of the assessee that characterization of the segment as MSS is wrong and the same ought to be treated as ITES segment. 19. The learned Departmental Representative supported the orders of the TPO and DRP. 20. We have heard rival submissions and perused the material on record. The functions of the assessee under the support service di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow end back office support services which are classifiable as back office services and sales marketing services. 5.13 It is submitted that even the sales marketing services provided are routine support services. 5.14 Hence, it is submitted that the aforesaid nature of support services provided by the Assessee is to be regarded as Information Technology Enabled Services (ITES). 22. From the above reply of the assessee it is clear, it was contended that the activities in support service segment falls under the activities of back office operation , call centre or contract centre services and for remote maintenance and support centres under Rule 10TA(e) that defines ITES. The TPO in his order dated 27.01.2021 has not conducted any study with respect to support services. In page 23 of the TPO s order, he had listed 11 companies (6 companies rejected by the TPO on the basis of assessee s objection and 5 companies retained), without conducting any study similar to the study made in para 10 with respect to software segment (page 17 to 19 of the TPO s order). Therefore, without a proper study, the TPO could not have selected 11 companies at the first instance, hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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