TMI Blog2022 (11) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... use, the additional evidence are taken on record. Since the additional evidence is taken on record, necessarily, the matter needs fresh verification by the A.O., especially in the light of the recent judgment of the Hon ble Supreme Court in the case of M/s. Apex Laboratories Pvt. Ltd. [ 2022 (2) TMI 1114 - SUPREME COURT ] For the aforesaid purpose, the issues raised are allowed for statistical purposes. Adjustment in respect of IT support services - Companies functinally dissimilar with that of assessee need to be deselected - we direct the AO/TPO to exclude M/s. Infosys Ltd., M/s. L T Infotech Ltd., M/s. Persistent Systems Ltd. and M/s. Thirdware Solutions Ltd. from the lists of comparables and to recompute the ALP of international transactions with A.E. Ordered accordingly. - IT(TP)A No.2889/Bang/2017, IT(TP)A No.3376/Bang/2018 - - - Dated:- 16-11-2022 - SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For the Appellant : Shri Percy Pardiwala, Sr. A.R. For the Respondent : Shri Sankar Ganesh K., D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These two appeals by the assessee is directed against different asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO / TPO and the learned DRP have erred, in law and in facts, by considering 'distributor's commission', 'sales promotion expenses'. 'seminar and conventions expenses' and 'travelling and conveyance', incurred in respect of the distribution segment, as part of AMP expenditure while computing the compensation for the alleged DEMPE function performed by the Appellant: 8. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, in treating the sales and distribution expenses incurred as a separate international transaction to benchmark it independently from distribution activity, as in the absence of any computation mechanism prescribed under the Act, the machinery provision fails; 9. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, by alleging that the Appellant has not been compensated for the sales and distribution expenditure incurred: 10. Without prejudice to the above grounds, the learned AO / TPO and the learned DRP have erred, in law and in facts, by erroneously computing the compensation for the alleged DEMPE fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has discussed and considered the submissions made by the assessee. Before the DRP, the assessee has made similar submissions. We are in complete agreement with the conclusions drawn in para 10.8 of the TP order. However, considering the submissions of the assessee that routine expenditure has beer? treated as AMP by the TPO, we have sought Remand Report (RR) from the TPO after giving an opportunity to the assessee. After giving an opportunity to the assessee, the TPO submitted RR dated 06.12.2016; the relevant extract is reproduced below: 5. The TPO is of the view that there may be different forms of distribution channels adopted by tax payers wherein some companies may adopt direct selling of products to end customers (or) some companies may use retails chains to distribute end products to consumers. In the taxpayer's case, it has adopted the consignment model to distribute its products. Further, as per the website of M/s Parekh Integrated Solutions Ltd, it offers consignment services to various companies. This being the case, the taxpayer may have to provide required incentives to M/s Parekh Integrated Solutions Ltd to distribute its products, then that of its competitor& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as towards the cost relating to provision of warehousing facility, which may be excluded for AMP purposes. Accordingly, we direct the AO to reduce 25% of the distributors' commission from the AMP. 2.4 Consistent with the view taken by the Ld. DRP for 2012-13, Ld. DRP directed the AO to reduce 25% of the distributors' commission from the AMP. Against this assessee is in appeal before us. 3. We have heard the rival submissions and perused the materials available on record. In our opinion, this issue was considered by the Tribunal in assessee s own case in assessment year 2012-13 in IT(TP)A No.726/Bang/2017 vide order dated 29.4.2022 and decided the issue in favour of the assessee by observing as under:- 9.1 The Ld.AR submitted that, the assessee purchases ophthalmic pharmaceuticals and ophthalmic surgical products from its AE is for distribution in India. It was submitted that assessee also renders services in relation to the products during and after warranty period. The Ld.AR submitted that, on one hand the revenue accepts the distribution activities and marketing activities carried on by assessee to be at arm s length whereas on the other hand while makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. 9.7 We know that the DRP refused to follow the above decisions of Hon ble Delhi High Court by observing that these decisions have not been accepted by the Department and SLP has been filed before Hon ble Supreme Court. 9.8 It is not the case of the revenue that assessee is mandated to incur such expenditure as per any agreement between the assessee and a. It is also not disputed that these expenditures incurred by assessee or towards its own business promotion in India as assessee is a distributor further from the transfer pricing study report we note that assessee operates in limited risk environment in respect of the distribution and marketing segment. As per the TP study the description of activities carried on by the assessee that has been allegedly characterised by the Ld. TPO towards the promotion of brand are as under: Sl. No. Nature of sales and distribution expenditure Brief description 1. Distributor's commission Comprises of commission paid to the third party distributor of ophthalmic surgical and ophthalmic pharmaceutical products on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d agreement between the assessee-company and its foreign AE to incur AMP expenditure to promote brand value of its products on behalf of the foreign AE, merely because the assessee-company incurred more expenditure on AMP compared to the expenditure incurred by comparable companies, it cannot be inferred that there existed international transaction between assessee-company and its foreign AE. Therefore, the question of determination of ALP on such transaction does not arise. However, the transaction of expenditure on AMP should 'co treated as a part of aggregate of bundle of transactions on which TNMM should be applied in order to determine the ALP of its transactions with its AE. In other words, the transaction of expenditure on AMP cannot be treated as a separate transaction. In the present case, we find from the TP study that the operating profit cost to the total operating cost was adopted as Profit Level Indicator which means that the AMP expenditure was not considered as a part of the operating cost. This goes to show that the AMP expenditure was not subsumed in the operating profitability of the assessee-company. Therefore, in order to determine the ALP of international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in an other case of Maruti Suzuki India Ltd. Vs. CIT 381 ITR 117 (Delhi) held that the fact that the benefit of such AMP expenses would also ensure to the AE is itself insufficient to infer the existence of an international transaction. Similar decision was also rendered by the Hon'ble Delhi High Court in the case of CIT (LTU) v. Whirlpool of India Ltd., 381 ITR 154. The bright line test which was applied by the AO in the present case was also applied by the AO in the aforesaid cases. The bright line test which was accepted by the Special Bench of ITAT in the case of L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 (Del)(SB) was held by the Hon'ble Delhi High Court to be not correct. In the case of Maruti Suzuki (supra), the facts were Maruti Suzuki India Ltd. (MSIL) was engaged in the manufacture of passenger cars in India. It was a subsidiary of SMC, a Japanese company. MSIL started its business in 1982 as a Government of India owned company. SMC was selected as the business partner independently by MSIL. The co-branded trade mark Maruti-Suzuki was used since the inception of MSIL. A licence agreement was entered into between MSIL an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the foreign associated enterprise, i.e., SMC. Moreover as MSIL was concerned, its operating profit margin was 11.19 per cent. which was higher than that of the comparable companies whose profit margin was 4.04 per cent. Therefore, applying the transactional net margin method it must be stated that there was no question of a transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure. The advertisement, marketing and sales promotion expenses incurred by MSIL could not be treated and categorised as an international transaction under section 92B of the Act. 18. In the case of Whirlpool of India Ltd. (supra), it was held that there had to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. The transfer pricing adjustment was not expected to be made by deducing from the difference between the excessive advertising, marketing and sales promotion expenditure incurred by the assessee and the advertising, marketing and sales promotion expenditure of a comparable entity that an international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. In view of the above conclusions, the other aspects whether the comparable companies chosen by the TPO are in fact comparable in terms of Functions performed, Assets employed and Risks assumed (FAR) analysis and other aspects of determination of ALP does not require any consideration. Therefore the addition made on account of determination of ALP of AMP expenses in AY 2011-12 to 2014-15 is directed to be deleted. 10. In our view the above view by the coordinate bench requires to be followed, and there are no reasons whatsoever to take a different view. Respectfully following the above view, we redirect the Ld.AO/TPO to delete the addition made towards AMP expenses. 3.1 In view of the above order of the Tribunal, taking a consistent view, we allow these grounds taken by the assessee in both the appeals for the assessment years 2013-14 2014-15. 4. Next common ground is with regard to disallowance of Seminars, Conventions and sales promotion expenses. The relevant grounds in assessment year 2013-14 are reproduced below:- Grounds relating to disallowance of seminars and conventions and sales promotion expenses 11. The learned AO/ DRP has erred. in law and on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be inadmissible under section 3701) being an expense prohibited by the law. The law as stood during relevant previous year as per provisions of section 37(1) read with explanation inserted by Finance Act, 1998 with effect from 1-4-1962 clearly stipulates that if an expenditure is incurred for any purpose which is an offence or which is prohibited under law shall not be allowed as deduction due to restriction contained under section 37(1) read with explanation. The said circular dated 1-8-2012 issued by the CBDT was subject to challenge in writ petition filed in Himachal Pradesh High Court' in the case of Confederation of Pharmaceutical Industry v. CBDT writ petition No. 10793 of 2012J wherein validity of ,the said CBDT circular was challenged, the Himachal Pradesh High Court held that the said circular is valid and the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 governing professional ethics of Doctors issued is salutary which is in the interest of public and patient. The Punjab and Haryana High Court has vide decision in CIT vs. M/s. Kap Scan and Diagnostic Centre (P.) Ltd. [2012] 25 taxmann.com 92/344 ITR 476 has confirmed disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it has some connection with the business of the assessee. v. The ld. AO placed reliance on the decision of Tribunal Mumbai in the case of ACIT vs. M/s. Liva Healthcare Ltd dated September 12, 2016, [2016] 181 TTJ 433 (Mumbai - Trib.). 4.2 Since the assessee company has not produced the exact amount spent in relation doctors in the form of seminars and conventions and sales promotion expenses. Therefore, 50% of Seminars and conventions amounting to Rs.796 Lakhs and 25 % of sales promotions amounting to Rs.161.25 Lakhs are disallowed by the Ld. AO under section 37 of the IT Act. Similar is the facts in assessment year 2014-15 and only change in amount of disallowance. 5. We have heard the rival submissions and perused the materials available on record. In our opinion, similar issue came for consideration before this Tribunal in the case of Astra Zeneca Pharma India Ltd. in IT(TP)A No.82/Bang/2015 dated 14.10.2022 for the AY 2010-11 wherein held as under: 14. During the relevant financial year, the assessee had incurred the following expenditure:- Particulars Amount (Rs.) Cost of samples distributed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court in case of M/s Apex Laboratories Pvt. Ltd. v. DCIT (SLP No. 2320712019)) held that MCI Regulations are not applicable on Pharmaceutical companies and the expenses incurred by such companies are not violative of CBDT circular. During this phase assessments were on adhoc summary basis and critical evaluation of expenditure was not carried out in present appellant's case also. After decision of Hon'ble Supreme Court it has become necessary to critically evaluate each of the expenditure to see if disallowance is justified. Without prejudice to above. during the course of assessment proceedings for assessment year 2016-17. AO specifically raised a query in relation to expenses incurred on doctors (notice enclosed as Annexure 6 to application for admission of additional evidences @ Pg 65-67) and Appellant filed details/ information in response to such notice/query (submission enclosed as Annexure 6 to application for admission of additional evidences @ Pg 69-77). It may kindly be appreciated that the assessing officer after analysing the nature of expenses (similar to expenses incurred in assessment year 2010-11) in the context of MCI guidelines and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons highlighted herein below: MCI regulations only covers the expenses incurred for medical professionals who are delegates and not those who act as guest speakers. Relevant portion of the Regulations (enclosed as Annexure 2 to application for admission of additional evidences @ Pg 34-49) states as under: Travel Facilities - A medical practitioner shall not accept any travel facility inside the country or outside, including rail, air. ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme etc. as a delegate. Travel and conveyance expense was incurred majorly for doctors. who are on the payroll of Appellant and a declaration from the Appellant confirming the same has been enclosed as Annexure 3 to application for admission of additional evidences @ Pg 50. Considering the above, Appellant wishes to mention that any expenditure like travel etc incurred on doctors in the capacity of them being employees/ contractual service providers of the Appellant and not 'delegates' would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. Gifts donations Break-up of gifts donations expense reveals that it includes the following expenses: Conference expense of INR 50,94,395 Publicity and literature expense of INR 22,19,264 and Other marketing expense of INR 38,25,933. Conference expense includes expenses incurred on meals. accommodation, travel. conveyance. books and literature. sponsorship. audio visual set up hired. etc. On perusal of such details. it may kindly be appreciated that expenses in the nature of meals, accommodation, travel, conveyance, etc. incurred on doctors are covered under the contractual agreement entered with them or are expenses incurred on employee doctors who are otherwise not covered within the prohibitions imposed under the MCI regulations. That apart. expenses in the nature of books, literature, sponsorship, audio visual set up, etc. are not incurred on any doctor in order to promote the Applicant's products. These expenses are incurred in the course of business and cannot be treated as freebies. Publicity and literature expenses also includes webcast charges. which are not specifically prohibited under the MCI regulations. Sample copy of invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional evidence). It is settled law that decision of Courts has to be read in context of facts of the case. Expenses incurred in Appellant's case under a contractual obligation for receiving consultancy services of doctors are clearly distinguishable from facts of the case decided by Hon'ble Supreme Court (supra). Expenses incurred by appellant when examined in context would be clearly not in violation of the regulations framed by the Medical Council. Accordingly, it is prayed that the same deserve to be allowed. Ground of appeal no. 7: Without prejudice to the above, Amendment to IMC Regulations are not applicable prior to 10 December 2009 Hon'ble ITAT in Assessee's own case for A Y 2009-10 has held that no disallowances of expenditure incurred by the Assessee on doctors prior to the amendment of IMC regulations i.e. prior to 10 December 2009 can be made (Page 1251 of Legal Paperbook - IV) Assessee submits that the CBDT Circular dated should not be applied retrospectively as the amendment to the IMC Regulations was effective from 10 December 2009. The breakup of expenses are as follows (refer page 1500 of Legal Paperbook Vol 5): Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Rules, it was within the discretion of the Tribunal to allow the production of additional evidence and even if there was a failure to produce the documents before the Income-tax Officer and the Appellate Assistant Commissioner, the Tribunal had the jurisdiction in the interest of justice to allow the production of such vital documents. b) The Bangalore Tribunal in case of Tim ken Engineering Research India (P.) Ltd v DCIT (ITA No. 974/ Bang/2008) relied on the abovementioned decision. c)In the case of Abhay Kumar Shroff v ITO (63 ITO 144), the Hon'ble ITAT of Patna has held as follows: Tribunal Rules, 1963 discussed hereinbefore briefly. What I want to emphasize is that if the documents sought to be admitted even at the second appellate stage are of a nature and qualitatively such that they render assistance to the Tribunal in passing orders or required to be admitted for any other substantial cause, it would rather be the duty of the Tribunal to admit them. Learned Judicial Member has rightly made reference to the Tribunal's decision in Rajmoti Industries' case (supra) wherein on an analysis of various decisions, it was held that is the receipt or adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2016-2017, the A.O. had raised query in relation to the expenditure incurred on the Doctors by the assessee. The assessee filed detailed response to such notice and the A.O. after analyzing the nature of expenses (which is claimed by the assessee similar to the expenditure incurred for the relevant assessment year) in the context of MCI Guidelines and CBDT Circular No.5/2012 dated 01.08.2012 accepted the claim of the assessee. Copy of the order in assessee s own case for assessment year 20162017, is placed on record as additional evidence. Therefore, it was claimed that even if the criteria as laid down in CBDT Circular and also the MCI Regulation (as now affirmed by the Hon ble Apex Court is applied), the expenditure incurred towards contractual obligation with Doctors and employees of pharmaceutical companies does not call for disallowance. In the present case, the A.O. had primarily made disallowance by referring the CBDT Circular No.5/2012 dated 01.08.2012. The A.O. has not critically examined the nature of expenditure incurred by the assessee. In the larger interest of justice, in view of the latest judgment of the Hon ble Apex Court, which has examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout appreciating that such companies engaged in providing end-to-end software development services and are not functionally comparable to the Appellant, providing IT support services: 18. Without prejudice to the above grounds, the learned AO / TPO and the Hon ble DRP have erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant in the TP documentation as not comparable: 19. Without prejudice to the above grounds, the learned AO / TPO and the Hon'ble DRP have erred in law and in facts, by using employee cost greater than 25% of the total revenues as a comparability criterion: 20. Without prejudice to the above grounds. the learned AO / TPO and the Hon'ble DRP have erred in law and in facts, by rejecting certain comparable companies identified by the Appellant using export earnings greater than 75% of the total revenues as a comparability criterion: 21. The learned AO / TPO and the Hon'ble DRP have erred, in law and in facts, by determining the arm's length margin/ price using only FY 2013-14 data: 22. The learned AO / TPO and the Hon'ble DRP have erred, in law and facts, by not making suitable adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2573/Bang/2019) Ld. DR s submissions:- 8.2. On the other hand, the Ld. D.R. stated that on perusal of the annual report of the company, Ld. DRP noted that this company is engaged in providing IT technology services comprising Application Outsourcing, Infrastructure Management, Independent validation, Business service management, consulting and systems integration services. The service delivery is through various platforms and solutions such as Infosys IT Service Management Platform, Infosys Agile and Vscrum Methodology, Infosys command centre frame work, Infosys cloud and co-system hub, Infosys Big-data edge. (Ref. Executive Vice Chairman message in the annual report) As per the management report these accelerated and agile service delivery has enabled the company for better project execution, cost-reduction 'and enhanced business value. The company provides end to end solutions, to the clients through the various platforms / products or solutions. These platforms / products and solutions are not off the shell products as argued by the assessee. It is also noted by the Ld. DRP that as per the P L account, the company has revenue from software services of Rs.42,531 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment is not reflected in the Asset schedule. Thus, Ld. DRP inferred that the development of intangibles and its impact on the revenue and profitability is meagre. Further, the assessee has failed to establish that such differences, if any, on account of R D, brand and intangibles have material effect on the margin of the above company, in terms of clause (i) of subrule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, these pleas were rejected by the Ld. DRP. In view of the above, Ld. DRP upheld M/s. Infosys Ltd. as comparable to the assessee s company. (b) L T Infotech Ltd. Ld. A.R s submissions: 8.3 Further, with regard to exclusion of L T Infotech Ltd., the Ld. A.R. stated that this company is functionally different due to following reasons: a) The company is engaged in provision of wide range of services to Banking, Financial services, Insurance, Media Entertainment, Travel, Logistics and Healthcare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort only mentions that the company's cost-effective and agility in contributing value to clients have strengthened its brand. There is no information that the brand has impacted the revenue of the company. The intangibles referred in the Asset Schedule represent the computer software, and business rights and as such does not refer to any IPR owned by the said company during the year. Certain developments are under way which has not crystallized into an intangible to be a source of revenue. Thus, the assessee has failed to establish that such differences, if any, on account of IPR, brand or intangibles have material effect on the margin of the above company, in terms of clause (i) of sub-rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, these pleas were rejected by the Ld. DRP. 8.4.1 It was also pleaded that this company is engaged in trading of goods, with reference to a debit, 'cost of bought out items for resa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) ARM Embedded Technologies Pvt. Ltd. Vs. ITO (IT(TP)A No.3374/I3ang/2018 for AY 2014-15) b) Salesforce.com India Private Limited [IT(TP)A No 3286/Bang/2018 for AY 2014-15] c) Microsoft Research Lab India Pvt. Ltd. Vs. DCIT [IT(TP)A No. 3131/Bang/2018 for AY 2014-15] d) EMC Software and Services India Pvt. Ltd.[IT(TP)A. No.3375/Bang/2018 for AY 2014-15] e) LSI India Research Development Pvt. Ltd [IT(TP)A No.3170/Bang/2018 ] f) Hewlett Packard (India) Software Operation Pvt Ltd [ITA No. 3400/Bang/2018] g) M/s. Alcon Laboratories (India) Pvt. Ltd vs DCIT IT(TP)A No. 726/Bang/2017 Turnover a) Zynga Game Network India Private Limited [ITA No. 2573/Bang/2019 for AY 2015-16] b) Lam Research (India) Private Limited [IT(TP)A No 2490/Bang/2017 for AY 2013-14] Ld. DR s submissions: 8.6 On the other hand, the Ld. D.R. stated that on perusal of the annual report by the Ld. DRP, the Ld. DRP noted that at page 158 of the unconsolidated annual report, it is mentioned that the activities of the company do, not involve purchase of inventory and sale of goods, and its nature of business was rendering of services. As per page 164 of the Annual Report, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gross block (At cost) As at April 1. 2012 1.287 49 261.63 1 569 .1 2 Additions 94.03 261 23 355.26 Disposals 116.10 116.10 Other adjustments Exchange differences 23416 in 18) 23.68 As at March 31, 2013 1,289.28 -542.68 1.831.96 The intangible Asset Schedule of the Indian company, as per the standalone financial statement at page 160, shows the following position: (Intangible assets of Indian Company 2012-13) (In Million) Software Acquired contractual rights Total Gross block (At cost) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred unless the technical and commercial feasibility of-the project enable to use or sell the software, they are not capitalized. Such a development is not reflected in the Asset schedule. Thus, Ld. DRP inferred that the R D and intangible assets do not have impact on the revenue and profitability of the company. We also note that, the assessee has failed to establish that such differences, if any, on account of R D, brand and IRPs have material effect on the margin of the above company, in terms of clause (i) of sub-rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. The said company also clarified u/s 133(6) that its intangible assets are in the nature of software licenses acquired for use in the operation of the company and are not in the nature of inbuilt software product generating revenue for the company. Hence, these pleas were rejected by the Ld. DRP. 8.6.7 Further, Ld. DR stated that the Ld. DRP stated in his order tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mprises of software, development, implementation and support services. At page 13 of the annual report, the company's Revenue Recognition 'disclosure refers to revenue from services from software development and implementation. 8.8.1 The Ld. DRP further observed that though at page 2 of the P L A/c statement the company has mentioned revenue from sale of products at Rs.20675/- lakhs, in the foot note given at para-A, it is clearly mentioned that the revenue was on account of export of software services to the tune of Rs.20,194.37 lakhs, from software services Rs.414.07 lakhs, from subscription and training Rs.59.32 lakhs, from sale of licenses 7.98 lakhs. The revenue from software licence constitutes meagre 0.03% of total operating revenue. Thus, it is very clear that this company is predominantly into sale of software services and hence can be safely taken as a comparable. 8.8.2 The Ld. D.R. further stated that besides at page 7 of annual report, Ld. DRP observed that the company has acquired intangible asset relating to software purchased for company's internal use which was capitalized as the cost of acquisition. There is no information in the annual report to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : 6 (i) Infosys Limited : This company is functionally dissimilar and provides end to end business solutions like business consulting technology engineering and outsourcing services and no segmental details in respect of services are available and made investments and products to establish as a tradable IPO owner. Further the comparable owns significant brand value products and focus on brand building and incurred expenditure on R D. The company owns 7 edge products / platforms and six other product based solutions. The company leverages on its premium banking solution and during the year the company merged with its wholly owned subsidiary Infosys Consulting India Limited. We found that the company was excluded from the final list of comparables in assessee's own case for the Assessment Year 2011-12 by the DRP and revenue has accepted. The learned Authorised Representative supported his arguments relying on the decisions in the case of CIT Vs. Agnity (India) Technologies Pvt. Ltd. (2013); CGI Systems and Management Ltd. Vs. ACIT (2015) 94 taxman.com The learned Authorised Representative also substantiated that for the Assessment Year 201415, the co-ordinate Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the intangible income in proprietary products. Significant expenditure in foreign currency to the extent of 57.13%. During the year the product engineering business service of the company was transferred to its subsidiary. The company segments are divided into service cluster, industrial cluster and telecom business. As per the Annual Report of the company, the company has a significant capital work-in-progress and the company has developmental products. The comparable was excluded from the final list of comparable in assessee's own case for the Assessment Year 2011-12 by the DRP and further the comparable company was excluded by the co-ordinate Bench of Delhi Tribunal in the case of Pitney Bowes Software India Pvt. Ltd. Vs. ACIT 101 Taxman.com 350. The learned Authorised Representative also relied on CGI Information Systems Management Consultants (P) Ltd. Vs. ACIT (2018) 94 taxman.com 97 and DCIT Vs. Taxman India Pvt. Ltd. (2016) 74 Taxmann.com 88 (Del). We found that the co-ordinate Bench of Tribunal in M.P. No.95/Bang/2019 in IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 has dealt on the issue at page 2 para 4 as under : 4. We heard Ld D.R and perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and engaged in IP led solutions and undertakes significant R D activities, owns IP. During the year the company made acquisitions. The company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The learned Authorised Representative relied on decision of Tribunal in the case of CGI Information Management Systems Pvt. Ltd. Vs. ACIT 94 Taxman.com 97 and PCIT Vs. Saxo India Pvt. Ltd. 74 taxmann.com 88 (Delhi). We relied on the decision of CGI Information Systems Management Consultants Pvt. Ltd. (supra) at paras 28 to 30 as under : We rely on judicial decisions and facts in respect of comparable Persistent Systems Ltd. and direct the Assessing Officer to exclude from the final list of comparable for determination of ALP. We found there is a functional dissimilarity in comparison to assessee financial profile and accordingly, we direct the TPO to exclude the comparable from the final list for determination of ALP. iv) Third ware Solutions Ltd. - The company is not functionally comparable as it has different diversified activities, and derives income from software development, income from subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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