TMI Blog2023 (12) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the Assessee for inclusion of comparable companies. TPO excluded these companies only on the ground that information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in public domain. Re- computation of margins of CG-VAK Software Exports Ltd. and Kals Information Systems Pvt. Ltd. - Findings recorded by the ld. DRP we also giving direction to the AO/TPO for computation of correct margin in the line of the direction given by the Ld. DRP. Accordingly this ground is allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh consideration in the light of information available in public domain in above terms. Deduction u/s 80G - Assessing Officer did not allow the same while computing the total income without any reason - we direct to the AO for giving deduction after verifying the documents as per law. Accordingly, this ground is allowed for statistical purpose. - SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Smt. Tanmayee Rajkumar, Advocate For the Respondent : Shri Manjunath Karkihalli, CIT (D.R) ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the assessment order passed by the AO dated 25-03-2021 with the following grounds of appeal :- The grounds mentioned herein by the Appellant are without prejudice to one another. 1. That the order of the Assistant Commissioner of Income-tax, Special Range-2, Bangalore (the Assessing Officer' or the 'Learned AO') dated March 25, 2021, passed under Section 143(3) read with section 144C(13) of the Income Tax Act 1961 ('the Act'), pursuant to the directions of the Learned Dispute Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 133(6) of the Act, which tantamount to choosing secret comparable companies whose information was not available in public domain while preparing the TP documentation for the relevant financial year. 3.7 Application of related party transaction filter by applying an inappropriate interpretation of computing the filter and thereby accepting Persistent Systems Ltd and Aspire Systems (India) Pvt. Ltd. as comparable companies to the provision SWD Segment of the Appellant. SWD Segment: 3.8. Including the following companies even though such companies are functionally different (such as engaged in R D activities, presence of intangibles, significant onsite revenue, etc.) from the Appellant: R S Software (India) Limited Larsen Toubro Infotech Ltd. Nihilent Limited Inteq Software Pvt. Ltd. Persistent Systems Ltd. Infobeans Technologies Ltd. Thirdware Solution Ltd. Infosys Ltd. Aspire Systems (India) Pvt. Ltd. Cybage Software Pvt. Ltd. 3.9. The Learned TPO erred in excluding the following companies even though the same are functionally comparable to the Appellant, and the Learned Panel fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the Learned AU has erred in serving notice under section 271(1)(c) of the Act and initiating penalty proceedings for concealment of income and for furnishing inaccurate particulars of such income. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this appeal. 2. The brief facts of the case are that the assessee is a subsidiary of EMC Corporation, USA. and is engaged in the business of rendering contract SWD and ITE services to the EMC Group companies. For the year under consideration, the Appellant, inter alia, provided contract SWD services to its AEs for a consideration of Rs. 5,44,88,09,165/- and ITeS for a consideration of Rs. 9,78,84,20,470/-. The assessee filed revised return of income electronically for the assessment year 2016-17 on 29/11/2016 declaring income of Rs. 114,58,13,730/- after claiming a deduction under Chapter VI-A of Rs. 54,16,090/-. The case was selected for scrutiny through CASS for complete scrutiny. Accordingly, statutory notices were issued to the assessee and various details were called for. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- Step Description 1. Companies whose data is not available for FY 2015-16 - excluded. 2. Companies having different financial year ending (i.e., not March 31 2016) or data of the company does not fall within 12 month period i.e., 01-04-2015 to 31-03-2016 - excluded. 3. Companies whose income was less than Rs. 1 Crore - excluded. 4. Companies whose software development service income is less than 75% of the total operating revenues - excluded. 5. Companies which have more than 25% related party transactions of the sales or expenses - excluded. 6. Companies which have export service income less than 75% of the sales - excluded. 7. Companies with employee cost less than 25% of turnover - excluded. 8. Companies having negative net worth 9. Companies having persistent losses for any 2 out of 3 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free company and no adjustment can be made. After considering the submission of the assessee and relying on some case law, no adjustment was made towards the interest on delayed trade receivables. Accordingly, the ld. TPO proposed to adjustment for arms length price of Rs. 145,80,20,000/- for SWD ITeS segments and passed order. The AO after receipt of the TPO s order passed order u/s 92CA(3) of the Act. He proceeded to complete the draft assessment order. The AO added the adjustment proposed by the TPO and assessed income at Rs. 260,38,33,730/- and passed order on 07/12/2019. 2.8 Aggrieved from the above order, the assessee filed objections before the ld. DRP and raised various objections. After considering the submissions of the assessee, the ld.DRP without granting any relief passed order on 18/02/2021. 2.9 The AO after receipt of the order of the DRP, passed final assessment order on 25/03/2021. 2.10 Aggrieved from the order of the AO, the assessee filed appeal before the ITAT. 2.11 The ld.AR of the assessee filed written synopsis, which is as under:- C. APPELLANT S SUBMISSIONS: Ground No. 3.8: Vide this ground, the Appellant is seeking exclusion of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Operating revenue 171.41 345.50 351.89 Operating cost 175.07 260.26 283.47 Operating profit -3.66 85.24 68.42 OP/OC -2.09% 32.75% 24.14% The reason for decline in margin is attributable to the strategic shift made by the company as it is making substantial investments in a) developing tools and platforms and b) sales and marketing to enhance its customer base. Further, there is a significant drop in revenue (51 percent) vis- -vis the previous year. Further, the company recognizes that this shift has impact on the margin of the company. In view of the same, the company ought to be excluded. Presence of intangibles. It is submitted that the company owns significant intangible assets. The company is also developing further intangible assets. The total value of intangible assets as a percentage of fixed assets is 17.3%, which is significantly high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic circumstances: The company suffers from peculiar economic circumstance during the FYs 2013-14, 2014-15 and 2015-16. During the FY 2015-16, pursuant to the amalgamation of GDA Technologies Ltd., and Information Systems Resource Centre Pvt. Ltd. into the company, the entire business, assets, liabilities, duties and obligations stood vested in the company. During the FY 2014-15, the company had acquired Information Systems Resource Centre Pvt. Ltd., which was completed during the FY 2015-16. During the FY 2013-14, the company transferred its Product Engineering Services business to L T Technology Services Ltd. and wound up its subsidiary GDA Technologies Inc. Detailed submissions are placed at pages 50-59 and 437-451 of the paperbook. It is submitted that this company is consistently excluded from the final list of comparables in cases of assessee s placed similar to the Appellant. Reliance is placed on the decision of this Hon ble Tribunal in the Appellant s own case for the assessment year ( AY ) 2014-15. Further reliance is placed on the decisions of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted that during the FY 2015-16, Nihilent had acquired GNet Group LLC - a business intelligence and analytical company, and Intellect Bizware Services Pvt. Ltd. specialising in ERP and enterprise innovation. The acquisitions are bound to have a significant impact on the financials of the company, and thus it cannot be considered for the comparability analysis. Detailed submissions are placed at pages 64-71 and 452-464 of the paperbook. Reliance in this regard is placed on the decisions of this Hon ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and in SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021); and the decision of the Mumbai Bench of this Hon ble Tribunal in Red Hat India Pvt. Ltd. v. NFAC (order dated 25.02.2022 passed in ITA No. 1379/Mum/2021) for AY 2016-17. In view of the above, it is submitted that Nihilent ought to be excluded from the final list of comparables. d) Inteq Software Pvt. Ltd. ( Inteq )- Functionally different: It is submitted that the company is engaged in outsourced product deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and has established Persistent Labs to focus on R D activities. Significant intangibles: The company also owns significant intangibles of 5.99%, 6.42% and 5.01% of net block of assets during the FYs 2013-14, 2014-15 and 2015-16, respectively. Significant foreign currency expenses: The company has also incurred significant expenses in foreign currency, demonstrating that it renders significant onsite services, which business model is different from that of the Appellant s. The expenses incurred by the company as a percentage of its total sales is 13.41%, 15.03% and 18.40% for the FYs 2013-14, 2014-15, and 2015-16, respectively. Significant related party transactions: The RPT sales of the company as a percentage of total sales stand at 19.48% for the FY 2014-15 and 17.29% for the FY 2015-16. Further the RPT expenses as a percentage of operating expenses stand at 15.46% for the FY 2014-15 and 19.07% for the FY 2015-16. Marketing expenses: The company has incurred significant amounts of marketing expenses in the nature of advertisement and sponsorship fees, as opposed to the Appellant which incurred marginal expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as being functionally different. Further, the segmental details for these diverse services are not available and therefore the company cannot be selected as a comparable. Significant intangible assets: During the FYs 2013-14 to 2015-16, the company owned intangible assets representing around 7% of the total fixed assets held by the company. Expenses in foreign currency: It also incurred significant expenditure in foreign currency, in the nature of onsite activities representing around 1.5% of the total sales. Abnormal increase in revenue : The revenue increased from Rs. 35 crore (FY 2014-15) to Rs. 62 crore (FY 2015-16) in a period of 1 year (76%). Also, the company s profitability increased by 147%. Detailed submissions in this regard are placed at pages 81-89 and 360- 395 of the paperbook. Reliance in this regard is placed on the decisions of this Hon'ble Tribunal in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) and in SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021); the decision of the Hyderabad Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227 228/Hyd/2021) and Infor (India) Pvt. Ltd. v. DCIT (order dated 06.10.2021 passed in IT(TP)A No. 198/Hyd/2021); the decision of the Delhi Bench of the Hon ble Tribunal in GlobalLogic India (P.) Ltd. V. DCIT (reported in [2022] 134 taxmann.com 35)) for AY 2016-17. Therefore, it is submitted that the company ought to be excluded from the final list of comparables. h) Infosys Ltd. ( Infosys ) Functionally different: The company earns income from both rendering software services and development of products. The company provides end-to-end business solutions like business consulting, technology, engineering and outsourcing services. In addition, the company offers software products and platforms. Despite rendering diverse services, there are no segmental details in respect of the services rendered. Further, the services rendered by the company are not functionally comparable to the routine SWD services rendered by the Appellant. The company also invests in products which helped the company establish itself as a credible IP Owner. The company owns several Edge produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2006-07 and on the decision of the Hyderabad Bench of this Hon ble Tribunal in ADP Pvt. Ltd. v. DCIT (order dated 03.02.2022 passed in ITA Nos. 227 228/Hyd/2021). Therefore, it is submitted that the company ought to be excluded from the final list of comparables. i) Aspire Systems (India) Pvt. Ltd. ( Aspire ) Functionally different: The company is engaged in diversified business activities of providing integration platform services using its platforms in addition to software development services. It also provides services in the nature of product engineering, enterprise solutions, independent testing services, engineering services, infrastructure application support services, business intelligence analytics, etc and is also into IT infrastructure support services, and outsourced technology services. Significant intangible assets: It is submitted that Aspire owns non-routine intangible assets such as trademarks, customer contracts and goodwill which cannot be compared to the Appellant. The company also incurred significant expenses in relation to onsite services of approximately 20 percent of its total revenue. Significan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DCIT (order dated 06.10.2021 passed by this Hon ble Tribunal in IT(TP)A No. 198/Hyd/2021) for AY 2016-17. In view of the above, it is submitted that the Company is functionally not comparable to the Appellant and ought to be excluded from the final list of comparables. j) Cybage Software Pvt. Ltd. ( Cybage ) Functionally different: It is submitted that Cybage is engaged in the provision of diversified services which include product engineering, testing quality assurance services, specialized services, support services, etc. Further from the website of Cybage, it is evident that it is engaged in product development and has developed a product called excelshore apart from providing spectrum of services including ITeS and BPO services. The financials of Cybage do not provide for segmental information in respect of the diverse business functions undertaken by the company. Moreover, the company renders diverse range of marketing services like content marketing, creative production and marketing operations. The company earns significant onsite revenue. Super normal profits: The company is making super normal profits (details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information received for AY 2015-16 and holding that the company is functional comparable for the assessment year in question when the details available in the public domain illustrate otherwise. It is submitted that in the case of Barracuda Networks India Pvt. Ltd., the Tribunal upheld the inclusion of the aforesaid company on the ground that the Company cannot be excluded basis non receipt of response to the notice issued under Section 133(6) of the Act. In this regard, it is submitted that the Appellant herein is seeking exclusion of the aforesaid company on the basis of its functional dissimilarity and not for the reason that no response was received from the company under Section 133(6) of the Act. In fact, in Barracuda/BORQS, this Hon ble Tribunal proceeded on the basis that the Assessee therein had not placed material to doubt the functional comparability of the company whereas, the submissions above in the instant case clearly show that the Company is not similar coupled with the website extracts (placed at pages 420-426 of the paperbook), it is evident that the company is not a pure software developer. It is submitted that annual report of Inteq for AY 2016-17 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware development services rendered by the Appellant. In Airlinq Technology Pvt. Ltd. v. DCIT (Order dated 28.07.2022 passed by this Hon ble Tribunal in IT(TP)A No. 231/Bang/2021) at para 15 , infact, this Hon ble Tribunal has distinguished BORQS for this precise reason. Therefore, it is submitted that Infobeans ought to be excluded from the final list of comparables. Detailed submissions are made at pages 380-395 of the paperbook. Reliance is placed on the following decisions where the company was directed to be excluded on functional comparability. 1. Airlinq Technology Pvt. Ltd. v. DCIT (Order dated 28.07.2022 passed by this Hon ble Tribunal in IT(TP)A No. 231/Bang/2021) at paras 13-15 for AY 2016- 17; 2. Arm Embedded Technologies Pvt. Ltd. v. DCIT (Order dated 30.08.2022 passed by this Hon ble Tribunal in IT(TP)A No. 235/Bang/2021]) at paras 16-18 for AY 2016-17; 3. SanDisk India Device Design Centre Pvt. Ltd. v. JCIT (order dated 30.06.2022 passed in IT(TP)A No. 288/Bang/2021) at paras 17.9-17.10 for AY 2016-17; 4. ADP Pvt. Ltd. v. DCIT [Order dated 03.02.2022 in ITA Nos. 227 228/Hyd/2021 at para 7] for AY 2016-17; 5. GlobalLogic I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal data is not available in respect of diverse activities carried on by it. He relied on pages 1334, 1341 of the annual report paper book. He thus preyed for this comparable to be excluded from the final list due to lack of segmental data. 13. Larsen and Toubro Infotech Ltd. : It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it renders application development maintenance, enterprise solutions, testing and validation, digital solutions, infrastructure management services, platform-based service which cannot be equated to the routine software service provider like the assessee. The Ld.AR submitted that this company is also engaged in activities such as cloud computing, infrastructure management, analytics information management, etc., and that No segmental details are available. The Ld.AR submitted that this company is also engaged in trading IT related products has cost of brought out items and has won awards and recognitions for innovative products. He relied on pages 969, 979, 922, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are not akin to the captive services rendered by the assessee. He placed reliance on page 1825, 1834, 1857 of annual report paper book. The Ld.AR submitted that this company deals in product also and segmental details of diverse services are not available. He relied on page 2508 of annual report paper book. He thus prayed for exclusion of this company from the final list. It is submitted by the Ld.AR that, Inteq Software Pvt.Ltd, L T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. excluded by Hon ble Delhi Tribunal in case of Global Logic India Ltd., reported in (2022) 134 taxmann.com 35 for functional dissimilarities. On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us. 16. We note that the decision of Hon ble Delhi Tribunal in case of Global Logic India Ltd.,(supra) considered these comparables for assessment year 2016-17 and has held them to be functionally not similar with a captive service provider like that of the assessee before us. Further The assessee in Global Logic India Ltd.,(supra) is also as captive service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icate profit earned from provisions of SDS. Apart from it, L T is a huge brand having ownership of significant intangibles to the tune of Rs. 7.42 millions, as is evident from its financials at pages 8 and 103 of the paper book. 18. Co-ordinate Bench of the Tribunal rejected L T in taxpayer's own case for AY 2014-15 (supra), available at pages 61 to 63 of the case law paper book, by returning following findings : 6.6 The next objection of the assessee is regarding multiple segments. From segment reporting on page S-1258 of the Annual Report (page 129 of PB-2), we find that the assessee has reported three business segments. The first segment is service cluster which includes banking, financial services, insurance, media and entertainment, travel and logistics and healthcare. The second segment industry cluster which includes Hi Tech and consumer electronics, consumer, retail and Pharma, energy and process, auto Mobile and aerospace, plant equipment and industrial machinery, utilities and E C. The third segment, is telecom segment which refers to product engineering services (PES) which has been discontinued in this year. Regarding the PES, in Director's report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be excluded from the set of the comparable. 19. In taxpayer's own case in Global Logic India (P.) Ltd. v. DCIT [IT Appeal No. 8726 (Delhi) of 2019, dated 29-6-2020] L T was excluded by the coordinate Bench of the Tribunal by returning following findings : 20. The Tribunal in assessee's own case in ITA No. 4740/Del/2018 relating to Assessment Year 2014-15 vide order dated 1-5-2020 has directed the exclusion of the said concern from the final list of comparables while benchmarking the ALP of the international transaction by the assessee with its AE. Before parting, we may also refer to an extraordinary event under which Larsen Toubro Infotech Ltd. initiated and completed transfer of its Product Engineering Services Business (PES) Unit to L T Technology Services Ltd. w.e.f. January 1, 2014 as part of the business restructuring undertaken within the Larsen Toubro group. Though the initiation started from 1-1-2014 but the whole effect of the transaction was during the year under consideration. Further, Larsen Toubro Infotech Ltd. during the year under consideration acquired Information Systems Resource Centre Private limited ( ISRC ) thereby making it whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess Automation, Big Data Analytics Cloud Computing. 42. From the profile of Thirdware it has come on record that Thirdware is functionally dissimilar vis- -vis the taxpayer as it has been deriving income from sale of licence and software services export from SEZ unit and revenue from subscription and training etc. and it is also into sale of licence and its segmental financials are not available. 43. Thirdware has been ordered to be excluded by the coordinate Bench of the Tribunal in case of Fiserve India (P.) Ltd. v. ITO [2015] 60 taxmann.com 48 (Delhi - Trib.) on ground of dissimilarity to routine software development service provider which has been affirmed by Hon'ble Delhi High Court in ITA 17/2016 order dated 6-1-2016. So, we order to exclude Thirdware from the final set of comparables. INFOBEANS TECHNOLOGIES LTD. (INFOBEANS) 44. The taxpayer sought exclusion of Infobeans as a comparable again on ground of functional dissimilarity, it also being into providing services viz. software engineering services primarily in Custom Application Development (CAD), Content Management Systems, Enterprise Mobility, Big Data Analytics, UX UI, Automation Eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view taken by the coordinate bench of this Tribunal in Global Logic India Ltd. (supra), we direct Ld. AO/TPO to exclude Inteq Software Pvt.Ltd, L T Infotech Ltd., Infobean Technologies Ltd., Thirdware Solutions Ltd. from the final list of comparable for SWD segment. 19. Persistent Systems Ltd. : It is submitted that this company is functionally dissimilar to the assessee on various counts and therefore deserves to be rejected. The Ld.AR submitted that, this comparable is functionally not similar with that of assessee, as it is engaged in, rendering Enterprise Digital Transformation, product engineering and solutioning for Internet of Things (IoT), product engineering and professional services to ISVs and enterprises, IP products, services, development of software products and offers complete product life cycle services without there being separate segmental information disclosed in its Annual Report for such activities . He placed reliance on page 1421, 1592, 1608, 1641 of the annual report paper book. It is submitted that Persistent Systems made significant investments towards research and development activities in the relevant previous year. Persistent has collaborated w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, and Digital Transformation He placed reliance on page 1901, 1903, 1949, 2013 of annual report paper book. It is submitted that this company is a full-fledged risk bearing entrepreneur who cannot be compared to the assessee that renders routine software services. It is submitted that the company owns seven Edge products/platforms and six other product based solutions. The Ld.AR submitted that, this company does not have segmental data in respect of rendering software services and development of products. It is submitted that this company has significant intangibles as a part of its fixed assets in the nature of intellectual property. He placed reliance on 1904, 1944, 1984 of annual report paper book. The company owns significant brand value and focuses immensely on brand building. The Ld.AR submitted that, this company heavily focuses on research and development activity and incurs significant expenditure for this account and for the financial year relevant to assessment year under consideration, the company incurred research and development expenses of Rs. 415 crores. He placed reliance on page 1942 of annual report paper book. The Ld.AR submitted that, this company for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or India Pvt. Ltd. in IT(TP)A No. 198/Hyd/2021 by order dated 06.10.2021 for A.Y. 2016-17. Decision of Hon ble Punjab Haryana in Equant Solutions India (P.) Ltd. reported in (2020) 113 taxmann.com 517 Coordinate bench of this Tribunal in case of ARM Embedded Technologies (P.) Ltd. reported in (2021) 129 taxmann.com 263 Coordinate bench of this Tribunal in case of Yahoo Software Development India Pvt. Ltd. reported in TS-191-ITAT-2020(Bang) On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. We note that this company earns its revenue from power generation and it has nothing to do with the rendering of software development service. In fact, we note that this company is a full fledged entrepreneur in the business of power generation and therefore is not comparable functionally with a captive software service provider like assessee. Nothing is been placed by the Revenue contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Aspire System India Pvt. Ltd. from the final list. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es etc. 45. Perusal of the disclosure of enterprise's reportable segment explanatory available at page No. A406 of the paper book shows that Nihilent is engaged in software development and consultancy, engineering services, web development and hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing and financials of Nihilent available at page No. A304, A405-A406 of the paper book shows that Page 33 of 51 IT(TP)A No. 235/Bang/2021 Nihilent has only one business segment and in the absence of segmental financials, as it is into diversified business, this company cannot be a valid comparable vis- -vis assessee, who is a low risk entity working on cost + markup model. Hence, Nihilent is ordered to be excluded as a comparable. Nihilent Ltd. 46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis- -vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A 412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Pvt. Ltd. v. DCIT (supra). On the contrary, the Ld.DR relied on the orders passed by the authorities below. We have perused the submissions of both sides in light of records placed before us. Primarily we note that this company is a product company and has diversified business segments. We note that this company is a full fledged entrepreneur and assumes all the risks attributable to the various business segments for which details are not available. In our view, under such circumstances, this company cannot be held tobe functionally comparable with that of assessee which is a captive service provider that caters only to its AE. Respectfully following the above view, we direct the Ld.AO/TPO to exclude Cybage Software Pvt.Ltd., from the final list. 25. R.S Software (I) Pvt. Ltd: It is submitted that, this company is engaged in diversified activities, which are not similar to the services rendered by the assessee. The company is into custom application development, quality assurance and testing, application maintenance and support, strategic consulting, in respect of which, segmental details are unavailable. The company is engaged in development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which are in the nature of SWD. Further, it is submitted that the income from SWD services is 96.5% of total sales and the income from sale of software licenses constitutes a meagre 3.4% of the total revenue and therefore the same would not have any impact on the profitability of the company. Further the company passes all the filters applied by the TPO. Details submissions in this regard are placed at pages 131-133 and 526-529 of the paperbook. Reliance is placed on the decisions of this Hon ble Tribunal in the Appellant s own case for the AY 2014-15 and in Arm Embedded Technologies Pvt. Ltd. v. DCIT (order dated 30.08.2022 passed in IT(TP)A No. 235/Bang/2021) for AY 2016-17, where in the company came to be remanded. 5.3 In regard to Sasken Communication Technologies Pvt. Ltd. the TPO rejected the company on the ground that the segmental details are unavailable. The DRP upheld its rejection on the ground that the company did not feature in the search matrix of the TPO. The ld, AR submitted that the segmental details of the company are available and furnished before the lower authorities (refer page 134 of the paperbook). Further, it is submitted that the company is functional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information related to these companies was not available in the public domain and this fact was shown to be an incorrect assumption by the Assessee in the submissions before the DRP. In such circumstances, it was incumbent on the part of the DRP to have adjudicated the question of inclusion of these companies as comparable companies. The fact that these companies do not figure in the search matrix of the TPO is not and cannot be a ground not to consider inclusion of these companies as comparable companies. Since the DRP has failed to do so, we are of the view that the issue regarding inclusion of the aforesaid companies as comparable companies should be set aside to AO/TPO for fresh consideration in the light of the information available in public domain. Thus ground No. 7 is treated as allowed for statistical purposes. Respectfully following the above view, we remit the comparables back o the Ld.AO/TPO for fresh consideration in the light of information available in public domain. Accordingly this ground stands allowed for statistical purposes. 7.1 Respectfully following the above view, we remit the comparable back to the Ld.AO/TPO for fresh consideration in the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solutions comprise of Sourcing and Procurement (S P), Customer Service (CS), Finance Accounting (F A), Legal Process Outsourcing (LPO), Sales Fulfillment (S F), Analytics (AT), Business Platform(BP), Business Transformation Services (BTS), Human resources Outsourcing (HRO), Technology Solution Optimization (TSO), while Vertical (Industry) solutions include FSI (Financial Services Insurance), MFG (Manufacturing), ECS (Energy, Utilities, Communication and Services) and RCL (Retail, Consumer packaged goods, Logistics and Life Sciences). These services cannot be compared to the routine back-office services provided by the Appellant. The company focuses of delivering solutions to its clients which goes beyond rendering routine ITe services. From the above, it is evident that Infosys BPO is engaged in rendering business solutions and consultancy to its customers which is different from the Appellant s functional profile. Brand value: Infosys BPO enjoys huge brand value and has also made significant investments in creating intangibles and owns significant intangible assets. In view of its substantial brand value, the company enjoys an advantage in the market and has hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the year under consideration, the company acquired a European based company which significantly contributed to its customers and revenue base. It is submitted that this acquisition is a peculiar economic circumstance, which is bound to have an impact on the margin of the company. In the absence of any reasonably accurate adjustments capable of being made to mitigate the impact, the company ought to be excluded from the final list of comparable. Abnormal profits: The company has shown abnormal growth patterns from FY 2005-06 to FY 2014-15, and has grown inorganically. The operating profit of the company during the aforesaid years fluctuates between 41 crores to 408 crores, demonstrating that the company is growing rather inorganically and therefore cannot be selected as a comparable. Significant related party transactions: The company had related party transactions (expenses) of 27.80% of total operating expenses during the FY 2013-14, 27.18% during the FY 2014-15, 23.26% during the FY 2015-16. Submissions in this regard are placed at pages 151-163 and 593-610 of the paperbook. It is submitted that this company is consistently excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es below rejected the assessee's objections to its inclusion. 7.2.1 Before us, the assessee objected to the inclusion of this company, 'Infosys' on the following grounds: I Functionally Different It is engaged in diversified activities and provides services in the area of Analytics, Legal process outsourcing, etc., unlike the assessee in the case on hand which provides low end ITES. It provides business process management services, consultancy and management services and end-to- end outsourcing, as can be seen from pages 5, 14 and 33 of its Annual Report. It is engaged in research and development. II Ownership of intangible assets This company, Infosys, owns intangible assets worth Rs. 19 Crores during the year as can be seen from pages 16, 47 and 58 of its Annual Report; whereas the assessee does not possess any intangible asset. III Brand Value 'Infosys' has brand value; having incurred Rs. 5 Crores for its brand building and advertisement, as can be seen from pages 24, 29, 47, 58 and 64 of its Annual Report; whereas the assessee does not have any brand. IV Sub-contracting Infosys operates on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, 'Infosys' has consistently been rejected as a comparable to companies rendering routine back office services in various judicial pronouncements of the Tribunal; including the two decisions cited by the assessee (supra). In the case of CGI Informaiton Systems Management Consultants (P.) Ltd. (supra) cited by the assessee, this company 'Infosys' has been excluded from the list of comparables for the reason that it has brand value which had an impact on its pricing and margins. As the facts of the year under consideration are similar, the decision rendered in the earlier year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys BPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly. (ii) E-Clerx Services Limited has a margin of 70.26% and engaged in both rendering KPO and BPO services and no segmental information is available and the company has acquired entire share holding of Agilyst Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this company is functionally not comparable to the Appellant. The company is engaged in data processing and related services, primarily in the typesetting business, including transformation of unedited manuscripts into final print- ready files, supply of structured data for electronic publishing and providing end to end project management services. The services of the company as described on the website are content solutions data processing, customer relationship management, KPO services, etc., which are not entirely comparable to the services of the Appellant. Segmental details as regards the varied services rendered by the company are not available, and therefore the company ought to be excluded from the final list of comparables. Peculiar economic circumstances: 13.1 Further, during the FY 2014-15, the Hon ble Madras High Court passed the order confirming the amalgamation of SPI Technologies India Private Limited and Laserwords Private Limited, a wholly owned subsidiary of SPI Technologies. This constitutes a peculiar economic circumstance which has an impact on the margin of the company, in respect of which no reasonably accurate adjustments can be made to mitiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 133(6) 9.2 Basis the response received u/s 133(6) of the Act from SPI Technologies, the company has claimed that it is operating in knowledge process outsourcing.. . Considering that SPI technology provides KPO services, the same is uncomparable to the Assessee's business of routine BPO services. Sub-contracting cost 9.3 The company incurs subcontracting charges which indicates it outsources part of its activity. The cost of such subcontracting charges is INR 20.88 crores for FY 2015-16 hence, SPI's business model is different from NTT Data IPS as it does not outsource its work. Presence of inventories 9.4 SPI has inventories for INR 68.69 crores (which works out as 20.43% of turnover) in its Balance Sheet unlike the Assessee that is a pure service provider with no inventories. Judicial precedents relied upon: High-end KPO service uncomparable- Rampgreen Solutions (P.) Ltd. (supra) 10. The Ld. D.R. submitted that for functional differences, the assessee has relied on the website extract of this company. The discussion on the comparability should be based on the Annual Report of the company for the relevant financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company has, disclosed that the entire revenue is from data processing and related services only. 10.4 Therefore, all these objections are to be rejected and this company is to be a comparable. 11. We have heard the rival submissions and perused the materials available on record. The main contention of the Ld. A.R. is that TPO rejected the NPS Ltd. which is engaged in the business of providing publishing solutions namely typesetting, data digitisation commission for overseas publisher and support international publisher through every stage of the author to reader publishing process and provides the digital first strategy for publishing contents, production and transformation, delivery and customer support. Thus, NPS Ltd. Has been rejected based on functional incomparability. Hence, on the same logic SPI Technologies Ltd. to be excluded. 15.1 Respectfully following the above judgement we also direct to the AO/TPO for exclusion of SPI Technologies Ltd. From the final list of the comparables. d) Tech Mahindra Business Services Ltd. ( Tech Mahindra ) Functionally different: 16. The ld. AR submitted that Tech Mahindra is a Business Process Outsou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (g) Informed Technologies India Limited (h) B N R Udyog Ltd 20.1 Since the Assessee's margin would be within the arm's length range of remaining comparables, the international transaction of provision of IT enabled services by the Assessee to its AEs would be at arm's length. 20.2 The argument of Ld. D.R. is that the assessee has not produced the physical copy of annual report and hence it has not been considered by the lower authorities. 20.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if all the filters are satisfied, these comparables to be included. Accordingly, this issue is remitted back to the file of the AO/TPO with a direction to the assessee to furnish the copy of the annual report and if furnished, the AO/TPO to apply the filters at segmental level to decide accordingly. Accordingly, these comparables are remitted to file of AO/TPO for fresh consideration 18.1 Respectfully following the above judgment, we are remitting Tech Mahindra Business Services Ltd., to the file of ld.AO/TPO to consider in the above terms cited in para No.18 in the case of NTT Data Informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 In this regard, it is submitted that the margin of the company for the 3 financial years under consideration are as under: FY 2013-14: 0.95%, FY 2014-15: 1.99%, FY 2015-16: -0.27%. 20.2 It is clear that the company is not making persistent losses. 20.3 As regards its functional comparability, it is submitted that the company is rendering health care, call centre, management service and transcription, which are in the nature of ITeS. Under the healthcare services, the company provides insurance eligibility, demographics, medical coding, charge posting, quality audits, claims transmission, payment posting, accounts receivables analysis, collection follow up and monthly reconciliation statement. Under the call centre services, the company renders insurance coverage verification, benefits verification, insurance follow ups, denials management, credit balance resolution, appointment scheduling etc. Under management services, the company provides collection services, trend analysis and process improvement. All the services rendered by the companies are comparable to the services rendered by the assessee. Further, the company passes all the filters applied by the TPO. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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