TMI Blog2020 (3) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... Resources India P Ltd has been taken as a comparable company. All these aspects show that there is no clarity on the factual aspects relating to this company. Accordingly, we are of the view that this company also requires fresh examination at the end of AO/TPO. Accordingly we restore this company to the file of the AO/TPO for examining it afresh. TP made in respect of I.T. enabled services - M/s Universal Print Systems Ltd (seg.)(BPO) was restored back to the file of AO/TPO in the case of CGI Information Systems Management Consultants P Ltd [ 2018 (4) TMI 1755 - ITAT BANGALORE] M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd. be excluded.from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. Exclusion of M/s BNR Udyog Ltd from the list of comparable companies. Inclusion of M/s Informed Technologies India Ltd as a comparable company. Disallowance u/s 14A - submission of the assessee that it did not earn any exempt income during the year under consideration - HELD THAT:- We agree with the contentions of Ld A.R, as the claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Datamatics Global Services Ltd. 14.57 2 Genesys International Corpn. Ltd. 30.09 3 ICRA Techno Analytics Ltd. 17.24 4 Infosys Ltd. 43.10 5 Larsen Toubro Infotech Ltd. 25.47 6 Mindtree Ltd. 15.01 7 Persistent Systems Ltd. 27.20 8 RS Software (India) Ltd. 15.34 9 Sasken Communication Technologies Ltd. 12.15 10 Spry Resources India Pvt. Ltd. 26.18 AVERAGE MARK-UP 22.63 Accordingly, the T.P. made an adjustment of Rs.10.15 crores in software segment. The DRP also confirmed the order passed by TPO. 5. The Ld. A.R. submitted that the assessee seeks exclusion of following six companies: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 36 taxmann.com 289/219 Taxman 26 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case. (b) Larsen Tourbro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P.) Ltd. v. Asstt. CIT [2016] 67 taxmann.com 155 (Delhi - Trib.). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L T Infotech Ltd., was a software product company and segmental inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related services. Pagc-38 of the Annual report 2012 containing the above description was brought to the notice of the TPO, Attention of the TPO was invited to the directors report to the shareholders at page ii of the annual report 2012, wherein the Directors have informed the shareholders that the company continued in its journey, to be innovators and leaders in the fields of location based services related geoplatforms and advanced survey techniques. There is no segmental reporting because it is stated in the annual report that this company is only in one segment viz., GIS based services and therefore there is no requirement of segmental reporting. It was also submitted that this company owns substantial intangibles equivalent to 10.42% of its total turnover. 32. The TPO however has regarded this company as a comparable company by observing that this company develops software for mapping and geospatial services and operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession of the company are only the GIS database which is only depreciation. It does not add significant value to the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the following, namely: (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; In the given facts and circumstances, we are of the view that Genesys International Corporation Ltd., cannot be considered as a comparable company and the said company should be excluded from the final list of comparable companies. We hold accordingly. 7. In respect of ICRA Techno Analytics Ltd, it is the submission of the Ld A.R that this company was excluded in AY 2011-12 in the case of Applied Materials India P Ltd (supra) by holding that it is providing various types of services and segmental information thereof is not available. He invited our attention to the annual report of this company pertaining to the year relevant to AY 2012-13 and submitted that, in the year under consideration also, the facts are identical. Accordingly, he sought exclusion of this company. 8 We heard Ld D.R and have gone through the Annual Report of this company. It is stated in page 44 of the Annual r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought by the Ld A.R to be excluded is M/s Spry Resources P Ltd. It is the submission of the assessee that this company is engaged in the development of software products and outsourcing activities. The segmental details are also not available. It was further submitted that this company is engaged in rendering onsite activities. Accordingly he sought for exclusion of this company. 10. We have heard Ld D.R and gone through the Annual Report of this company. The Revenue recognition policy given under Significant Accounting policies (Page 2790 of paper book) states that the assessee is recognizing revenue from software consultancy and also from sale of products. This company is possessing inventories also, which is shown in Note no. 18 (page 2787 of paper book). The revenue from operations, however, consists of Income from software development. Hence it is not clear as to whether this company has sold any of its inventories or not during the year under consideration. We notice that the TPO has not examined the aspects relating to software products. We notice that in the case of CGI information systems Management Consultants (P) Ltd (supra), M/s Spry Resources India P Ltd has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Prepress BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbour rules introduced by the CBDT ITES has been defined as business proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections raised by the Assessee in this regard about lack of information about allied services performed by die pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO. Following the same, we restore this comparable to the file of AO/TPO for examining it afresh. 13. M/s Infosys BPO Ltd, TCS E-serve Ltd and M/s Excel Infoway Ltd., were excluded by the co-ordinate bench in the case of CGI Information Systems Management Consultants P Ltd (supra) 44-46. The coordinate bench had followed the decision rendered by another co-ordinate bench in the caseof Baxter (I) (P) Ltd vs. A.CIT (2017)(85 taxmann.com 285 (Delhi-Trib.). The relevant observations made by the co-ordinate bench in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve said three companies. 14. M/s BNR Udyog Ltd was held to be not a good comparable in the case of M/s Zyme Solutions P Ltd (Order dated 28-06-2019 passed in IT(TP)A No.1661/Bang/2016) with the following observations:- 8. We have heard the rival submissions on the comparability of the aforesaid company. The Delhi ITAT in the case of BT e-service (India) Ltd vs. ITO (ITA No.6690/Del/2016 for AY 2012-13 order dated 19-6-2018 considered the comparability of this company and came to the conclusion that this company was carrying out medical transcription, medical billing and coding whereas the Assessee was a captive service provider. The Tribunal followed its own ruling in the same assessee s case in AY 201112 in ITA No.99/Del/2016 reported in (2017) 87 taxmann.com 251 (Del) in BT e-serve (India) P Ltd vs. ITO giving identical reasons for excluding BNR Udyog Limited from the list of comparable companies in the field of companies rendering ITES such as the Assessee. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. Respectfully following the above said decision of coordinate benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed to the Assessee the DRP has proceeded on irrelevant grounds to exclude this company. At best the DRP ought to have directed the TPO to give proper adjustment in terms of Rule 10B (3) of the rules for impact, if any, to this company's policy. No purpose would be served by remanding the issue to the DRP. In the given facts and circumstances, we are of the view that this company should be included in the list of comparable companies because it is not disputed by the DRP that this company is functionally comparable and that in the past AYs this company was regarded as a comparable company and generally regarded as comparable company providing ITES. Respectfully following the above said decision of the coordinate bench, we direct inclusion of M/s Informed Technologies India Ltd as a comparable company. 16. The next issue contested by the assessee is disallowance made u/s 14A of the Act. The AO disallowed a sum Rs.8,24,996/- u/s 14A of the Act. It is the submission of the assessee that it did not earn any exempt income during the year under consideration. Accordingly, by placing reliance on the decision rendered by Hon'ble Delhi High Court in the case of Cheminvest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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