TMI Blog2021 (12) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer in so far as they are against the appellant, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies itself to be assessed on a total income of Rs. 10,50,75,429/- as against income of Rs. 6,77,58,220/- as declared by the appellant. 3. a) The addition of Rs. 3,64,26,460/- being adjustment under section 92CA of 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 Softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP are bad in law as the orders are hit by the doctrine of impossibility of performance on the facts of the case e) Rejecting companies having different financial year ending. f) Rejecting companies with export sales less than 75% of the total sales. g) Rejecting companies with service income less than 75% of the total income. h) Rejecting companies that have employee cost less than 25% of the sales. i) Applying related party filter at 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 determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Average (CA) 1 Akshay Software Technologies Limited 6.11% 2 Helios Matheson Information Technology Ltd. 17.33% 3 RS Software (India) Ltd. 16.36% 4 Goldstone Technologies Ltd. 11.29% 5 Sasken Communication Technologies Ltd. 16.72% 6 R Systems International Ltd. 7.62% 7 Mindtree Ltd. 14.37% 8 Evoke Technologies P. Ltd. 10.84% 9 Thirdware Solutions Ltd. 18.06% 5.1 The comparables selected by assessee under ITeS segment are as under: 6. Ld.TPO did not approve the selection criteria of comparables by assessee. The Ld.TPO on his own identified companies as comparable with the Assessee company and worked out the average arithmetic mean of their profit margins as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functional dissimilarities under SWD segment. Based on the directions of the DRP, the Ld.AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP. The DRP proposed an upward TP adjustment of Rs.3,73,17,209/-. On receipt of DRP directions, the Ld. AO passed final assessment order making addition of Rs. 3,73,17,209/-. Aggrieved by the final assessment order, assessee is in appeal before us. 8. At the time of hearing, the Ld.AR submitted that grounds 4-8 were only pressed. 9. The Ld.AR submitted that Grounds 1-3 are general in nature and grounds 9 to 17 are not pressed by assessee. Accordingly, these grounds are not adjudicated herewith. Ld.AR raised argument only in respect of following grounds adjudicated herein above. Before we undertake the functionality analysis of alleged comparables with assessee, it is sine qua non to understand the FAR of assessee under SWD ITeS service segment. FUNCTIONS: In the TP study, it is observed that assessee is categorised under broad head of medical transcription. It has been submitted therein that assessee serves various industries like medical, legal, business, education. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware Project Management: SPI India delivers project management services to its customers. The project managers have experience in delivering software projects on many platforms and in many architecture from Java to mainframe COBOL. SPI India uses a methodology that removes the risks from project delivery and is supported by web-based tools that provide complete visibility to all project stakeholders. SPl India also trains the staff of their customers to successfully manage projects. Project management services are available for both onsite projects as well as offshore based projects. Customized Software: Application Software Development is one of the core offerings of SPI India. Starting from Project Initiation, continuing with project planning and tracking and finally through to the Closure process, SPI India employs techniques to help meeting the business needs of each customer. SPI India also offers Application Software Development services on most common software and hardware platforms. SPI India also undertakes project planning and execution for development by the use of their proprietary enterprise project management tools. Managed Services: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of records placed before us. 13. One of the arguments by the assessee before the Ld.TPO as well as DRP was that these companies had turnover which was in excess of Rs. 200 crores and therefore these companies cannot be regarded as a comparable in the case of the assessee whose turnover was only Rs. 64 crores. The Ld.TPO as well as DRP took the view that the functional comparability of the companies were alone to be seen and turnover was not an important criterion. In ground No. 5(iv), the assessee has challenged the order of DRP in holding that higher turnover is not a relevant criterion for disregarding a company, when it is functionally found to be comparable. The question boils down on application of turnover filter in choosing comparable companies. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263. This Tribunal in case of Autodesk India (P.) Ltd. v. Dy. CIT (supra) decision after review of entire case laws on the subject, considered the question, whether compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 coordinate 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 decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs DCIT (supra) this Tribunal had analysed this aspect of on-site revenue filter in the following manner: IV Akshay software technologies Ltd 32. It was rejected by the TPO for the reason that the function of this company appears to be more in the nature of support services and I T enabled services. However this company is engaged in providing professional services, implementation, support and maintenance of ERP products and other services. These are nothing but software development services, as is evident from the notes forming part of financial statements which is placed in paper book at page 1825. Further the revenue from software services accounts for 99.45% of the total revenue of the company is evident from the financial statements placed on record of paper book at page No. 1831. Being so, we direct TPO to consider this company as comparable to assessee's case while selecting the comparables. Based on the above observation the objection raised by DRP cannot be upheld. We also direct the Ld.TPO to verify the segmental details of this company as no functional dissimilarities has been observed by the authorities below. Accordingly we direct Ld. AO/TPO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her it has diversified activities and therefore functionally dissimilar to that of the assessee company. Hence as pleaded by the Ld.AR, we are of the considered view that M/s. Hartron Communication cannot be accepted as a comparable company. We, considering the submissions of the learned AR and the decision of co-ordinate bench of Tribunal in the case of M/s.Cameron Manufacturing India Pvt .Ltd.(supra) are of the opinion the company has extraordinary profits/losses in subsequent years. We are of the substantive opinion that this company cannot be considered as comparable to the assessee's functional profile and accordingly, direct the AO/TPO to exclude this this comparable for determining ALP. M/s.Capegemini Business Services (India) Pvt. Ltd.,: The learned AR submitted that this comparable company has revenue from business process management services and assurances and Compliance Services which include operational control, assessments, and also turnover is around Rs.518.19 crores as against the assessee's turnover of Rs.108 crores and RPT transactions are very much higher and also widened scope of services in supply chain, procurement and technical publications se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 significant intangibles in the form of goodwill. 6. Extraordinary event occurred during the year under consideration (i.e, acquisition of Marsh BPO). 7. It fails export earning filter of 75% (i.e, 74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 financial statement of PAN Financial has been merged with the company. It is clear that there was extraordinary event of amalgamation during the year under consideration. Therefore, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision of coordinate Bench in the case of Sysarris Software (P.) Ltd. v. Dy. CIT reported in (2016) 67 taxmann.com 24 wherein the Tribunal after noticing the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue 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 (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 Proces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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