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TMI Blog2021 (12) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act towards Software development services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. b) The addition of Rs. 8,90,749/- being adjustment under section 92CA of the Act towards IT Enabled Services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. 4. The authorities below erred in selecting the following functionally dissimilar companies as comparables for Software Development Services segment under the facts and circumstances of the case: * C G - VAK Software & Exports Ltd. * Larsen & Toubro Infotech Ltd. * Mindtree Ltd.(Seg) * Persistent Systems Ltd. (Seg) * Tech Mahindra Ltd. (Seg) 5. The authorities below further erred in rejecting Akshay Software Technologies Limited and Evoke Technologies Pvt. Ltd. from the list of comparables for Software Development Services segment although they were functionally comparable to the appellant company and was part of the appellant's original set of comparables under the facts of the case. 6. The authorities below erred in selecting the following, functionally dissimilar companies as comparables for IT Enabled Services segment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 2.5% of sales. 12. a) The order of the assessment is bad in law as the mandatory conditions to invoke the jurisdiction under section 92CA of the Act did not exist, or having not been complied with and consequently the order of the assessing officer is bad in law for want of requisite jurisdiction. b) The assessing officer erred in not providing the copy of the approval granted by the Commissioner which is in violation of the settled principles of natural justice and thus the order of assessment needs to be set aside. 13. The authorities below failed to understand the spirit and intent of Rule 10B(1)(e)(ii) as per which even if one of the comparables selected by the appellant satisfies the computation mechanism for determination of the Arm's Length Price, the determination of Arm's Length Price by using arithmetic mean of different comparables is not warranted. 14. The TPO, DRP and the assessing officer failed to appreciate that the appellant runs single customer risk and erred in not providing risk adjustment under the facts and circumstances of the case. 15. The TPO, DRP and the Assessing Officer erred in not granting the benefit of the proviso to section 92C(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average arithmetic mean of their profit margins as follows: Name of the taxpayer OP/OC 1 CG-VAK Software Exports Ltd 20.45% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen & Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 18.19% 5 Persistent Systems Ltd. 28.27% 6 R S Software (India) Pvt Ltd 17.41% 7 Tech Mahindra Ltd (Seg) 18.72% Unadjusted average margin 20.90% The Ld.TPO proposed the adjustment to ALP being shortfall at Rs. 2,98,47,287/- under SWD segment. 6.1 The final set of comparables selected by the Ld.TPO under ITeS services segment are as under: S.No. Company Name PLI(OP/OC) 1 Acropetal Technologies Ltd. 24.16% 2 Microgenetic Systems Ltd. 16.34% 3 Jindal Intellicom Ltd. -3.00% 4 Hartron Communications Ltd. (seg) 44.07% 5 Microland Ltd. 8.62% 6 Capgemini Business Services (India) Pvt. Ltd. 26.78% 7 Tech Mahindra Ltd. (seg) 22.27% 8 E4E Healthcare Business Pvt. Ltd. 17.26% 9 Infosys BPO Ltd. 29.28% Average 20.64% The Ld.TPO proposed adjustment of Rs. 8,90,749/- under ITeS segment. 7. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into contracts for maintenance of application software projects. During the course of maintenance the following activities are commonly undertaken: (a) problem reporting (b) problem resolution (c) solution distribution and (d) proactive defect prevention. SPI India uses its proprietary Enterprise Project management system - spiProject to capture and track problems and their resolutions. SPI India provides continuous phone support to all software maintenance projects. Other methods of communication available include video and data conferencing facilities to ensure prompt communication. Enterprise Solution: SPI India offers enterprise solutions and services to its customers. The range of the solutions and services includes: * Mainframes -Development, Maintenance and Support; * Data migration, application porting and system integration; * Data warehousing and Business Intelligence applications, * Client/server solutions on various platforms; * Multi-tier J2EE and .NET applications; * Web Services; * Mobile Applications; and * Network Design and Monitoring. SPI India provides insights into Enterprise Application Integration that allow companies to leverage their in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that assessee acted merely as sub contractor of services and therefore it bears limited contract risk as compared to SPI LLC. Assessee however assumes substantial foreign currency fluctuation risk, as it deals with customers in various countries. As assessee works on an assured markup on all cost incurred towards rendering services and there is no price risk bone by assessee. Thus assessee has been concluded to be not assuming any unique or extraordinary risk in course of providing IT enabled services. Based upon above FAR analysis of assessee, we shall consider comparables alleged by assessee for exclusion/inclusion. Summary Based on the above, it may be concluded that SPI India is a risk insulated captive service provider. Ground No. 4: 10. Ld.AR submitted that CG Vak software exports Ltd, Larsen & Toubro Infotech Ltd., Mindtree Ltd. (seg), Persistent Systems Ltd. (seg), Tech Mahindra Ltd. (seg) on turnover filter. It has been submitted that Ld.TPO while applying the turnover filter failed to apply the upper limit of Rs.200 crores. RS software (India) Pvt.Ltd. Mindtree Ltd. Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. Tech Mahindra Ltd. 11. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a nonjurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 IT(TP)A No.2490/Bang/2017 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 5 15. Assessee seeks inclusion of only 2 comparables being, Akshay Software Technologies Ltd. and Evoke Technologies Pvt. Ltd. It has been submitted that, the Ld.TPO and DRP accepted this comparable in the final list in previous years, however for the year under consideration the same has been excluded. Ld.AR placed reliance on coordinate bench of this Tribunal in case of M/s NXP India Pvt Ltd. vs DCIT in IT(TP)A No. 692 & 2861/B/2017 for assessment year 2012-13 and 2013-14 for Akshay Software Technologies Ltd. In case of Evoke Technologies, Ld.AR submitted that the Ld.TPO excluded this company as it reported loss from a discontinued business during F.Y. 2012-13 and that no details were available on this respect. Ld.AR submitted that this cannot be a valid reason to reject the comparable. 16. On the contrary, the Ld.CIT.DR submitted that DRP for excluding this comparable during the year under consideration has held that the on-site revenue filter of this comparable is less than 75% and hence rejected it from the finalist. He submitted that in the preceding years this observation was not recorded by the authorities below and hence factually cannot be considered identical. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing India Pvt. Ltd. vs. DCIT in ITA No.336/Chny/2018 dated 16/10/2018 has observed at para 7 which read as under: "7. Ground No.2.3: M/s. Hartron Communications as the comparable company:- The Ld.AR submitted before us that M/s. Hartron Communications had diversified operations amongst which many relates to activities that are not similar to the activity of the assessee company. Further it was submitted that the company M/s. Hartron Communication's profit from BPO business both export and domestic for the current year is 18.43 crores while as for the previous year the profit was 3.81 crores which shows an increase of profit to the tune of 483.72%. Therefore in the relevant assessment year there was extraordinary operations and hence 8 ITA No.336/Chny/2018 cannot be taken as comparable company. Before us the facts presented by the Ld.AR could not be disputed by the Ld.DR. After considering the issue, we are of the view that when the company is functionally dissimilar and when in a particular year there is an extraordinary profit, then the company cannot be taken as a comparable company. In the case of M/s. Hartron Communication, it is apparent that the company has ach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement of expenditure (Others) 15,89,465 41,07,56,814 Total RPT 4,24,96,19,244 Total revenue from operations 5,16,22,18,012 RPT % 82.32% Whereas the RPT is 82% which does not satisfy the assessee's profile and above and it is functional different and accordingly, we direct TPO for exclusion of M/s.Capegemini Business Services from the list of comparables for determining the ALP. Similarly, the learned AR submitted for exclusion of M/s.Infosys BPO stating that this company cannot be comparable considering the brand value, functional dissimilarity and the company's turnover is Rs.1831.36 crores which is 10 times more than turnover filter and works as under: 1. The company earns revenue from provision of high end ITES in the nature of both KPO Et BPO, whereas the Appellant provides low end ITES in the nature of BPO. Therefore, the company is functionally different. 2. The company is an established player a market leader and also operates as a full fledged risk bearing entrepreneur. 3. It has significant selling, marketing & brand building expenses. 4. It commands a very high brand value as it enjoys premium pricing. 5. It owns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s BPO was dealt by the co- ordinate bench in above case for the assessment year 2009- 10 at page 21 at para. 11.3(ii) which reads as under: ii) We have considered the rival submissions as well as relevant material on record. We note that in para 16.2.15 of the Annual Report of this company, it has been reported that there was amalgamation w.e.f 1/4/2008. The relevant part of the information provided in the Annual Report reads as under: Amalgamation of PAN Financial Services India Private Limited The Board of Directors in their meeting held on October 6. 2008. approved, subject to the approval of the Honorable High Courts of Karnataka and Chennai, a Scheme of amalgamation ("the Scheme") to amalgamate PAN Financial Services India Private Limited (-PAN Financial"), a wholly owned subsidiary of the Company engaged in providing business process management of services, with the Company with effect from April 1. 2008 ("effective date"). The approval of the High Court was received on April 6, 2009 and filed with the respective Registrar of Companies of Karnataka and Tamilnadu on April 6, 2009 and March 10, 2009 respectively. Accordingly on the scheme becoming effective, the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision, we direct the Ld.AO to exclude Hartron Communications Ltd. (seg), Capgemini Business Services (I) Pvt. Ltd. and Infosys BPO Ltd., from the final set of comparables. 18.2 In case of Microland Ltd. and Tech Mahindra, Ld.AR relied on following decision on Autodesk India Pvt. Ltd. vs. DCIT reported in (2018) 96 taxmann.com 263, wherein comparables having turnover more than 200 crores have not been regarded as comparables with companies having turnover less than 200 crores. Admittedly these companies have turnover more than 200 crores. The Ld.CIT.DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides based on records placed before us. The Ld.AR submitted that this Tribunal has, considered various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd., reported in (2012) 20 taxman.com 175. Following the view taken therein, excluded comparable that did not satisfy the turnover filter. This Tribunal in the case of Dell International reported in (2018) 89 taxmann.com 44 took note of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that 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 (su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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