Income Tax Appellate Tribunal - Bangalore
Intuit India Product Development ... vs Deputy Commissioner Of Income Tax, ... on 29 April, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH : BANGALORE
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT BEENA PILLAI, JUDICIAL MEMBER
IT(TP)A No. 956/Bang/2022
Assessment Year : 2017-18
M/s. Intuit India
Product Development
The Deputy
Centre Pvt. Ltd.,
Commissioner
7th Floor, Campus 4A,
of Income Tax,
Pritech Park (Ecospace),
Circle - 3(1)(1),
Bellandur,
Bangalore - 560 103. Vs. Bangalore.
PAN: AACCI4391P
APPELLANT RESPONDENT
Smt. Tanmayee Rajkumar,
Assessee by :
Advocate
Revenue by : Shri G. Manoj Kumar, CIT - DR
Date of Hearing : 30-01-2024
Date of Pronouncement : 29-04-2024
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER
Present appeal arises out of order dated 29.07.2022 passed by the Ld.DCIT, Circle - 3(1)(1), Bangalore for A.Y. 2017-18 on following grounds of appeal:
Page 2 of 46IT(TP)A No. 956/Bang/2022 Page 3 of 46 IT(TP)A No. 956/Bang/2022 Page 4 of 46 IT(TP)A No. 956/Bang/2022 Page 5 of 46 IT(TP)A No. 956/Bang/2022
2. Brief facts of the case are as under:
2.1 The assessee was a subsidiary of Intuit Singapore, while the ultimate holding company was Intuit Inc. The assessee is currently a subsidiary of Intuit Inc. Further, the assessee is Page 6 of 46 IT(TP)A No. 956/Bang/2022 engaged in the provision of software development services to Intuit Group companies as per the specifications of the AEs.
2.2 During the previous year relevant to the assessment year under consideration, the Ld.AO observed that the international transactions that took place between the assessee and its AE was provision of SWD services.
2.3 The Ld.AO accordingly referred the issue to the Ld.TPO for computation of ALP of the transaction. On receipt of the reference, the Ld.TPO called for the economic details of the international transaction in form 3CEB. The Ld.TPO noted that assessee undertook following international transaction with its associated enterprise.
Particulars Amount
Provision of SWD services
Rs. 655,45,51,676/-,
Reimbursement of expenses Rs. 54,04,286/-
Payment of Interest on loan
Rs. 80,31,070/-
Repayment of loan Rs. 22,50,00,000/-
Recovery of expenses
Rs. 23,11,63,972/-
Facility management services Rs. 6,74,58,658/-
2.4 The Ld.TPO noted that assessee used TNMM as the most appropriate method and OP/OC as the PLI to compute its margin at 15.25%. The assessee selected 12 comparables with a median of 7.37%, the details of which are as under:Page 7 of 46
IT(TP)A No. 956/Bang/2022 Weighted Sl.
Name of the company unadjusted
No.
average (in %)
1. Evoke Technologies Pvt. Ltd. 4.77
Harbinger Systems Private
2. 9.17
Limited
Threesixty Logica Testing
3. 44.04
Services Pvt. Ltd.
4. Maveric Systems Ltd. 0.37
5. CG-VAK Software 8.65
6. OFS Technologies Ltd. 32.53
7. Isummation Technologies 3.20
8. Rheal Software Ltd. 2.80
9. Sagarsoft (India) Ltd. 4.17
10. Cigniti Technologies Ltd. 17.50
R Systems International Ltd.
11. 25.48
- Seg
Sasken Technologies Ltd. -
12. 6.09
Seg
35th Percentile 4.77
Median 7.37
65 Percentile
th 9.17
2.5 Based on the above, the assessee treated its transaction with AE to be at arms length.
2.5.1 The Ld.TPO dissatisfied with the above analysis carried out fresh search and shortlisted the set of 20 comparables with a median of 26.18%, the details of which are as under:
Sl.
Weighted
No. Name of the Company
average (in %)
1. Rheal Software Ltd. -1.85
2. Kals Information Systems Ltd. 3.62
3. Infomile Technologies Ltd. 10.43
4. Harbinger Systems Pvt. Ltd. 14.1
5. CG-VAK Software & Exports Ltd. 15.09
6. Larsen & Toubro Infotech Ltd. 21.14
7. Great Software Laboratory Pvt. Ltd. 21.24
8. Mindtree Ltd. 24.17
Page 8 of 46
IT(TP)A No. 956/Bang/2022
9. R Systems International Ltd. 24.40
10. Persistent Systems Ltd. 26.17
11. Tata Elxsi Ltd. 26.19
12. Infobeans Technologies Ltd. 26.44
13. Aptus Software Labs Pvt. Ltd. 26.46
14. Nihilent Ltd. 29.82
15. OFS Technologies Ltd. 29.93
16. Cygnet Infotech Pvt. Ltd. 30.19
17. Infosys Ltd. 39.50
18. Threesixty Logica Testing Services 41.94
Pvt. Ltd.
19. Cybage Software Pvt. Ltd. 57.82
20. Consilient Technologies Pvt. Ltd. 65.14
35th Percentile 21.24
Median 26.18
65 Percentile
th 26.46
2.6 The Ld.TPO thereafter proposed the transfer pricing
adjustment being the shortfall at Rs.81,27,50,580/-.
2.7 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 23.09.2021. The Ld.AO proposed disallowance of Rs.11,88,28,769/- u/s. 10AA of the act.
2.8 Aggrieved by the draft assessment order, the assessee filed objections before the DRP. The DRP after going through the details filed by the assessee, accepted inclusion of Ace Software Exports Ltd, Nintec Systems Ltd. and Synfosys Business Solutions Ltd.
2.8.1 Other comparables that were sought for exclusion were rejected. Thus, post the DRP directions, the final set of comparables were as under:Page 9 of 46
IT(TP)A No. 956/Bang/2022 Sl.
Name of the Company No.
1. Rheal Software Pvt. Ltd. -1.85% Synfosys Business Solutions
2. -0.08% Limited
3. Kals Information Systems Ltd 3.62%
4. Ace Software Exports Limited 3.68%
5. Infomile Technologies Ltd. 10.43%
6. Harbinger Systems Pvt Ltd 14.10%
7. C G-V A K Software & Exports Ltd. 15.09%
8. Nintec Systems Ltd. 15.15%
9. Larsen & Toubro Infotech Ltd. 21.14%
10. Great Software Laboratory Pvt. Ltd. 21.24%
11. Mindtree Ltd. 24.17%
12. R Systems International Ltd. 24.40%
13. Persistent Systems Ltd. 26.17%
14. Tata Elxsi Ltd. 26.19%
15. Aptus Software Labs Pvt. Ltd. 26.32%
16. Cygnet Infotech Pvt. Ltd. 28.55%
17. Infobeans Technologies Ltd. 28.92%
18. Nihilent Ltd. 29.84%
19. OFS Technologies Ltd. 30.80%
20. Infosys Ltd. 39.74% Threesixty Logica Testing Services
21. 36.64% Pvt. Ltd.
22. Cybage Software Pvt. Ltd. 64.79%
23. Consilient Technologies Pvt. Ltd. 65.14% 35th Percentile 21.14% Median 24.40% 65th Percentile 26.32% 2.9 Upon receipt of the DRP directions, the Ld.AO passed the final assessment order by making the TP adjustment at Rs.70,88,21,288/-.
2.10 Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal.Page 10 of 46
IT(TP)A No. 956/Bang/2022
3. At the outset, the Ld.AR submitted that in respect of the transfer pricing adjustment, assessee wish to argue following comparables for exclusion in ground no. 2.13.
a) Larsen & Toubro Infotech Ltd.
b) Great Software Laboratory Pvt. Ltd.
c) Mindtree Ltd.
d) Persistent Systems Ltd.
e) Tata Elxsi Ltd.
f) Infobeans Technologies Ltd.
g) Aptus Software Labs Pvt. Ltd.
h) Nihilent Ltd.
i) Cygnet Infotech Pvt. Ltd.
j) Infosys Ltd.
k) Cybage Software Pvt. Ltd.
l) Consilient Technologies Pvt. Ltd.
3.1 Assessee also wish to argue only following comparables for inclusion in ground no. 2.14.
a) Batchmaster Software Pvt. Ltd.
b) Indianic Infotech Ltd.
3.2 The Ld.AR submitted that, the assessee also seeks working capital adjustment in ground no. 2.11.
Accordingly, the above three grounds are only being adjudicated and the other grounds raised by assessee under transfer pricing adjustment becomes academic at this stage.
Page 11 of 46IT(TP)A No. 956/Bang/2022
4. Ground no. 2.11 - Non-grant of working capital adjustment The Ld.AR submitted that Rule 10B(3) of the Income-tax Rules, 1962, itself categorically provides that an adjustment ought to be provided for any differences in the economic factors between the tested party and the comparables. It is submitted that a working capital adjustment is one such adjustment which is to be applied in order to adjust for the differences between the working capital positions of the tested party and of the comparable. It is submitted that Working capital adjustment is made for the time value of money lost when credit time is given to the customers. She submitted that the assessee is not an entrepreneur but a captive service provider which is entirely funded by the AEs. The assessee is running the business without any working capital risk as compared to the comparables and therefore an adjustment is warranted for the differences in working capital.
4.1 Reliance is placed by the Ld.AR on following decisions.
a) Brocade Communications Systems (P.) Ltd. v. DCIT Order dated 19.06.2020 passed by this Tribunal in IT(TP)A No. 79/Bang/2019 and
b) Bearing Point Business Consulting (P.) Ltd. vs. DCIT reported in (2013) 33 taxmann.com 92 4.2 It is thus submitted that, it is now a settled proposition of law that, necessary adjustments are to be made to the Page 12 of 46 IT(TP)A No. 956/Bang/2022 margins of comparables to give effect to the differences in the working capital positions of the tested party and of the comparables.
4.3 The assessee is challenging the action of the Ld.TPO in determining a negative working capital adjustment, which was upheld by the DRP.
4.4 It is submitted that, working capital adjustment is made for the time value of money lost when credit time is given to the customers. The assessee is not an entrepreneur but a captive service provider which is entirely funded by the AEs. This being so, the assessee is compensated on a cost plus basis. It is submitted that, the assessee is running the business without any working capital risk as compared to the comparables. Therefore, requirement for adjustment of negative working capital does not arise.
4.5 The Ld.AR in support of the contention relied on the decisions of this Tribunal in the cases of
(i) Lam Research (India) Pvt. Ltd. v. DCIT by order dated 30.04.2015 in ITA No. 1473 and 1385/Bang/2014);
(ii) DCIT v. Software AG Bangalore Technologies Pvt. Ltd.
by order dated 31.03.2016 passed in ITA No. 1628/Bang/2014) and
(iii) Tivo Tech Private Limited [Formerly Veveo (India) Pvt.
Ltd.] v. DCIT by order dated 12.06.2020 in IT(TP)A No.1619/Bang/2017.
Page 13 of 46IT(TP)A No. 956/Bang/2022 She submitted that in the above decisions, it has been held that, negative working capital adjustment shall not be made in case of a captive service provider, as there is no risk and it is compensated on a total cost plus basis.
4.6 On the contrary, the Ld.DR placed reliance on orders passed by authorities below.
4.7 We have heard the rival submissions and perused the materials available on record.
4.8 After hearing both the parties, we are of the opinion that this issue came for consideration before this Tribunal in the case of Lam Research (India) (P.) Ltd. (supra) wherein held as under:
"25. We have perused the orders and considered the rival contentions. In the case of Adaptec (India) (P.) Ltd., (supra), for A. Y. 2009-10, this Tribunal held as under at para 10 and 11 of its order:
"10. Ground No. 8 pertains to the issue of negative working capital. As briefly stated above, after arriving at the arithmetic mean of all comparables at 22.03%, the A.O. worked out negative working capital adjustment of 3.22% thereby, making arms' length price at 25.25%. Even though, DRP refused to interfere with the objections of the assessee in its order, we were informed that DRP has directed the TPO/A.O. not to make any negative working capital adjustment in some of the cases in the next assessment year, in the cases of Market Tools Research P. Ltd., and Mega Systems Worldwide India P. Ltd., assessee placed on record copies of orders of DRP, In that DRP considered the issue and directed the TPO as under: "14. Ground No. 11 : Negative Working Capital adjustment Making a negative working capital adjustment without appreciating the fact that Page 14 of 46 IT(TP)A No. 956/Bang/2022 the company does not bear any working capital risks. On this issue, the assessee submitted as under: "The learned TPO determined the ALP for the international transactions with A.Es by making a negative working capital adjustment for the differences in working capital between the assessee and the companies considered as comparables. The assessee does not agree with the learned TPO as the company does not bear any working capital risk since it is been fully funded by it's A.E. from its inception and has no working capital contingencies. The company has never taken any loans till date from the date of incorporation nor has incurred any expense for meeting the working capital requirement."
We have gone through the submissions and the order of the TPO. The assessee pleaded that the DRP has acceded such a plea in some other case. On examination, we find that the DRP, Hyderabad in-the case of Cordys Software India P. ltd., for A.Y. 2008-09 in its directions dated 3-8-2012 has given a finding as under:
"7.7.4 Thus, working capital adjustment is made for the time value of money lost when credit time is provided to the customers. The applicant is not an entrepreneur but a captive service provider. Its entire funding needs are provided by the A.E. This being so, the applicant does not stand to lose anything as it is compensated on a total cost plus basis. The TPO probably was carried away by the large amount of receivables appearing in the books of the applicant. But the applicant is running its business without any working capital risk while comparable companies have such a risk for them. If at all any working capital adjustment is to be made to t his situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made."
In view of the above, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made."
11. In view of the above, we are of the opinion that assessee's case being similar, there is no need for making any negative working capital adjustment when Page 15 of 46 IT(TP)A No. 956/Bang/2022 assessee does not carry any working capital risk. In fact, TPO should have done necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to the ITA.No.206/Hyd/20 Adaptec (India) P. Ltd., Hyderabad.
In view of this, we direct the TPO not to make negative working capital adjustment."
26. This Tribunal had held that negative working capital adjustment cannot be carried out, where the assessee was a captive service provider. Here also it is an admitted position that assessee was a captive service provider and its services are entirely rendered to its AE abroad. Its share capital was entirely sourced from its AE abroad. Therefore, in our opinion, the view taken by this Tribunal in the case of Adaptec (India) P. Ltd., will squarely apply here. We, therefore, direct that no negative working capital adjustment shall be carried out on the average PLI of the final set of comparables."
In view of the above order, we direct the Ld.AO that no negative working capital adjustment shall be carried out in the light of above order of the Tribunal. Ordered accordingly. Accordingly, ground no. 2.11 raised by assessee stands allowed.
5. Ground no. 2.13 has been raised seeking exclusion of the comparables.
5.1 Before we undertake the comparability analysis it is sinequa non to understand the functions performed, assets owned and the risks assumed by the assessee in provision of software development services to its AE. The transfer pricing study report has been placed at page 732 and the functional analysis of the assessee are recapitulated as under:
Page 16 of 46IT(TP)A No. 956/Bang/2022 Page 17 of 46 IT(TP)A No. 956/Bang/2022 Page 18 of 46 IT(TP)A No. 956/Bang/2022 Page 19 of 46 IT(TP)A No. 956/Bang/2022 5.2 From the above, it is seen that assessee has been characterized as a captive service provider bearing minimum risk associated with business of providing software development services to the AE.
5.3 Based on the above, we shall undertake the comparability analysis in respect of the comparables sought for inclusion / exclusion.Page 20 of 46
IT(TP)A No. 956/Bang/2022 A) Larsen & Toubro Infotech Ltd.
The Ld.AR submitted that this company is functionally not comparable with assessee as it is involved in diversified activities like banking financial services, analytics, automation, artificial intelligence, infrastructure management services etc. It is submitted that segmental details are not available in respect of the industry clauses and the services rendered by this company under various segments. It is also submitted that this company is a market leader and owns intangibles and thus enjoys the benefits of ownership of marketing intangibles, intellectual property rights and business rights. The Ld.AR submitted that this company owns proprietary software products which are developed in-house and is also involved in R&D activities that leads to the new intangibles coming into existence. She submitted that this comparable has been consistently excluded from the list of comparables in case of a captive service provider like that of assessee. She relied on the following decisions in support of her submissions.
- Mavenir Systems Pvt. Ltd. v. DCIT by order dated 23.03.2023 passed by this Tribunal in IT(TP)A No. 453/Bang/2022 for the assessment year 2017-18
- Carl Zeiss India (Bangalore) Pvt. Ltd. v. DCIT by order dated 16.06.2023 passed by this Tribunal in IT(TP)A No. 192/Bang/2022 for assessment year 2017-18
- Sabre Travel Technologies Pvt. Ltd. v. DCIT by order dated 02.02.2023 passed by this Tribunal in IT(TP)A No. 212/Bang/2022 for assessment year 2017-18 Page 21 of 46 IT(TP)A No. 956/Bang/2022
- Yahoo Software Development India Pvt. Ltd. vs. JCIT by order dated 11.07.2022 passed by this Tribunal in IT(TP)A No. 178/Bang/2022 for assessment year 2017-18
- Infor (India) Pvt. Ltd. v. ACIT by order dated 25.08.2022 passed by the Hyderabad Bench of this Tribunal in ITA-TP No. 228/Hyd/2022 for the assessment year 2017-18
- PCIT v. Saxo India P. Ltd. reported in (2016) 74 taxmann.com 88 B) Infosys Ltd.
The Ld.AR submitted that this 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. She submitted that despite rendering diverse services, there are no segmental details in respect of the services rendered. The company also heavily focuses on research and development activity for developing new functionalities and patenting innovative technologies and incurred significant expenditure for this account, amounting to around Rs. 351 Crore during FY 2016-17. The Ld.AR thus submitted that the services rendered by the company are not functionally comparable to the routine SWD services rendered by the assessee.
The Ld.AR submitted that Infosys owns significant brand value and focuses on immense brand building. For this purpose, it incurs significant brand building expenses, which goes to help the company have a premium pricing for its services. The company owns non- routine intangibles which are different from the intangibles owned by the assessee. The company also invests in products which helped Page 22 of 46 IT(TP)A No. 956/Bang/2022 the company establish itself as a credible IP Owner. The company owns several Edge products/platforms and six other product-based solutions.
It is submitted that this company has significant activities based on onsite business model, generating around 54.2% of its revenue vide onsite location during FY 2016-17.
Relying on the following decisions of Coordinate Bench of this Tribunal, the Ld.AR submitted that this company has been consistently excluded for the above reasons.
- Mavenir Systems Pvt. Ltd. v. DCIT (supra)
- Yahoo Software Development India Pvt. Ltd. vs. JCIT (supra)
- Carl Zeiss India (Bangalore) Pvt. Ltd. v. DCIT (supra)
- Sabre Travel Technologies Pvt. Ltd. v. DCIT (supra)
- Infor (India) Pvt. Ltd. v. ACIT (supra)
- Arris Group India Pvt. Ltd.v. DCIT by order dated 20.01.2023 passed by this Tribunal in IT(TP)A No. 177/Bang/2022 for assessment year 2017-18
- CIT v. Agnity India Technologies P. Ltd. reported in (2013) 36 taxmann.com 289 (Delhi) On the contrary, the Ld.CIT.DR submitted that assessee is a product company and that assessee before us is also into a software development consultancy. Referring to various extracts from an internet search engines, the Ld.DR argued that the functions carried out by the assessee is similar to that of L&T and therefore cannot be excluded. The Ld.DR relied on the decision of Coordinate Bench of this Tribunal in case of Blue Coat Network (India) Pvt. Ltd. vs. DCIT in IT(TP)A No. 78/Bang/2019 by order dated 23.11.2020 for A.Y. 2014-15.
Page 23 of 46IT(TP)A No. 956/Bang/2022 In respect of Infosys Ltd., the Ld.DR submitted that as assessee is a product company for the above reasons, the comparable should not be excluded.
We have perused the submissions advanced by both sides in the light of records placed before us.
We note that, the objections raised by the Ld.DR are based on the general industry classifications. The primary objection raised by the DR is that the assessee is a product company. However from the TP transfer pricing order, we note that the Ld.TPO has not categorised assessee to be a product company. We refer to page 44 of the TP order wherein the TPO himself prays the distinction between a software product company and a software service company and has concluded by observing that a product company should have off the shelf products which are commercially saleable. Further, the Ld.TPO himself has observed in page 41 that website is not a proper source of information and is only a tool being used by the company to attract new clients and customers. Further, the Ld.TPO referring to the annual reports of the comparables selected the companies that mentioned its activities to be in the nature of software development. We therefore do not find it appropriate to go by the website search carried out by the DR that is filed before us. Coming to the decision of Coordinate Bench of this Tribunal in case of Blue Coat Network (India) Pvt. Ltd. vs. DCIT (supra), we note that L&T Infotech Ltd. was remanded to the Ld.TPO in the said decision by placing reliance on the decision of Goldman Sachs Pvt. Ltd. v. JCIT by order dated 29.01.2020 passed in ITA No.3244/Bang/2018. On perusal of the said decision, in case of Page 24 of 46 IT(TP)A No. 956/Bang/2022 Goldman Sachs Pvt. Ltd. v. JCIT (supra), we note that no argument was in respect of non availability of segmental details in case of L&T Infotech and therefore it was remanded, which was followed in case of Blue Coat Network (India) Pvt. Ltd. vs. DCIT (supra).
In the present facts, the Ld.AR categorically took us to the annual reports wherein this revenue from operations at page 911 has been shown to be from software services and Note no. 26 at page 932 reveals that, there is revenue generated by this company from sale of products. Further at page 916, the value of intangibles reveals the amount of products i.e. generated and owned by this company which is not the case in the present assessee. The present assessee is found to be a captive service provider who carries out software development services in accordance with the direction of its associated enterprises and is compensated on a cost+mark-up basis. Therefore in our considered opinion, both the comparables cannot be considered to be fit for being included.
Based on the above observations, we do not find any reason to uphold the inclusion of L&T Infotech Ltd. and Infosys Ltd. Accordingly we direct the Ld.AO/TPO to exclude L&T Infotech Ltd. and Infosys Ltd. from the final list.
C) Persistent Systems Ltd.
It is submitted that Persistent is functionally dissimilar to the assessee and hence cannot be considered as a comparable. The company is engaged in licensing and sale of products, technology innovation and also earns royalty income. However, segmental Page 25 of 46 IT(TP)A No. 956/Bang/2022 details as regards its diverse services are unavailable. Considering the same, it can be observed that Persistent is engaged in software product development unlike the assessee which is a low-risk captive SWD service provider. Even going by the company's reply to the TPO's notice under Section 133(6) of the Act, the company is predominantly engaged in the business of providing outsourced product development services, which are vastly different from the services rendered by the assessee.
The company undertakes significant R&D activities to develop technologies and intellectual property to differentiate themselves form the industry and has established 'Persistent Labs' to focus on R&D activities. Moreover, 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 assessee's.
Reliance was placed by Ld.AR on following decisions in support of the above submissions.
- Mavenir Systems Pvt. Ltd. v. DCIT (supra)
- Carl Zeiss India (Bangalore) Pvt. Ltd. v. DCIT (supra)
- Yahoo Software Development India Pvt. Ltd. vs. JCIT (supra)
- Sabre Travel Technologies Pvt. Ltd. v. DCIT (supra)
- Infor (India) Pvt. Ltd. v. ACIT (supra)
- PCIT v. Cashedge India Pvt. Ltd. by order dated 04.05.2016 passed by the Hon'ble Delhi Court in ITA No. 279/2016
- PCIT v. Saxo India P. Ltd. reported in (2016) 74 taxmann.com 88 On the contrary, the Ld.DR relied on the orders passed by authorities below.
We note that this company is mostly into product development and owns huge intellectual properties. It is also noted that there Page 26 of 46 IT(TP)A No. 956/Bang/2022 is no segmental details available in respect of the various systems of revenue earned by this company. Under such circumstances, we do not find it appropriate to be included in the final list. Accordingly we direct the Ld.AO/TPO to exclude this company.
D) Infobeans Technologies Ltd.
It is submitted that Infobeans is functionally dissimilar to the assessee. The Ld.AR submitted that this company is engaged in providing software engineering services, primarily in Custom application development ("CAD"), Content Management Systems ("CMS"), Enterprise Mobility, big data analytics. She submitted that, though the annual report of the company mentions that the company is earning 100% revenues from sale of software services, such services are in the nature of CAD,CMS etc., which are not pure software development. It is submitted that the software services provided by Infobeans are in the nature of KPO services and not pure software development services as defined in the safe harbour rules. Further, it is submitted that Infobeans has not provided any segmental information bifurcating revenue generated from SWD services and that of KPO services.
Further, the Ld.AR submitted that this company owns significant intangible assets, and the revenue increased from Rs. 35 crore (FY 2014-15) to Rs. 62 crore (FY 2015-16) in a period of 1 year (76%). This demonstrates that the company does not reflect the market standard, and therefore, the company ought to be excluded from the final list of comparables.
Page 27 of 46IT(TP)A No. 956/Bang/2022 The Ld.AR placed reliance on the following decisions in support of the above submissions.
- Mavenir Systems Pvt. Ltd. v. DCIT (supra)
- Varian Medical Systems International (India) Private Limited v. DCIT by order dated 27.12.2023 passed in ITA No. 510/Mum/2022 for assessment year 2017-18 On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We note that for the above submitted objections by the Ld.AR, this company has been excluded by Coordinate Bench of this Tribunal in case of Airlinq (supra) by observing as under:
"13. We have heard rival submissions and perused the material on record. On perusal of the financial of Infobean Technologies Limited (the relevant portion of financial are placed on record), it is clear that the said company is engaged in providing software engineering services primarily in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics (The company's overview is annexed to this order as Annexure-A) (placed at page 1130 of the paper book submitted by the assessee). The above services rendered by the company are vastly different from the services rendered by routine software development companies like that the assessee in the instant case. Further, the segmental details for these diverse services are not available and therefore the company cannot be selected as a comparable. The other reason for not considering Infobean TechnologiesLtd. as comparable are as under:--
(i) Significant Intangible assets:
During the FYs 2013-2015 to 2015-2016, the company owned intangible assets representing around 7% of the total fixed assets held by the company.
(ii) Export of goods:
The annual report of the company at Note 33 under the head earnings in foreign currency shows export of goods calculated on F.O.B. basis. In the absence of segmental details, the company cannot be selected as a comparable.
(iii) Expenses in foreign currency:Page 28 of 46
IT(TP)A No. 956/Bang/2022 It also incurred significant expenditure in foreign currency, in the nature of onsite activities representing around 1.5% of the total sales.
(iv) Abnormal increase in revenue and fluctuation in margin:
The revenue increased from Rs. 35 crore (F.Y.2014-2015) to Rs. 62 crore (FY 2015-2016) in a period of 1 year (76%). Also, the company's profitability increased by 147%. Also, the company's margin fluctuates widely (34.98% - F.Y.2015-016, 20.78% -F.Y. 2014-2015, 41.95% - F.Y.2013-2014) which demonstrates that there exists some factor having an impact on the margin, and therefore the company cannot be selected as a comparable.
(v) Sales Tax:
The annual report of the company shows that it incurs Central Sales Tax liability, which demonstrates that the company is not a pure software development company.
14. This company is being consistently excluded from the final set of comparables. Reference is made to the following orders of the ITAT :--
(i) San disk India Device Design Centre (P.) Ltd. v. Jt.CIT [IT (TP) Appeal No. 288 (Bang.) of 2021, dated 30-6-2022] for AY 2016-
17)- at paras 17.9 and 17.10 (on account of functional dissimilarity as company renders diverse services and lack of segmental details);
(ii) ADP (P.) Ltd. v. Dy. CIT [2022] 135 taxmann.com 44 (Hyd. -
Trib.) - at para 7.4 (on account of functional dissimilarity as company earns revenue from export of goods and segmental details are unavailable).
(iii) Global Logic India (P.) Ltd. v. Dy. CIT [2022] 134 taxmann.com 35 (Delhi - Trib.) (on account of functional dissimilarity as the company is into diversified activities which are not comparable to routine SWD service provider)
(iv) Red Hat India (P.) Ltd. (supra) (Order dated 25-5-2022 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 1379/Mum/2021 for AY 2016-17)- at paras 49 and 50 (on account of functional dissimilarity as company renders diverse services and lack of segmental details).
(v) Skillnet Solution India (P.) Ltd. v. Dy. CIT [IT Appeal No. 6570 (Mum.) of 2017, dated 24-2-2021] (Order passed by the Mumbai Bench of this Hon'ble Tribunal for the AY 2013-14) - at para 6 (on account of functional dissimilarity as the company renders diverse services and segmental details are unavailable)
(vi) Alcated Lucent India Ltd. v. Addl. CIT [IT Appeal No. 4706 (Delhi) of 2018, dated 29-11-2019] (Order passed by the Delhi Page 29 of 46 IT(TP)A No. 956/Bang/2022 Bench of this Hon'ble Tribunal in for AY 2014-15) - at para 15 (on account of functional dissimilarity as the company was engaged in providing custom development services to offshore customers and was engaged in software engineering services in different fields and segmental details were unavailable)
(vii) Kony IT Services (P.) Ltd. v. Dy. CIT [2020] 113 taxmann.com 214 (Hyd. - Trib.) (Order passed by the Hyderabad Bench of this Hon'ble Tribunal in for AY 2014-15)- at para (iii) on page 15 (on account of functional dissimilarity as it has earning from export of goods and has deposited MODVAT and sales tax).
(viii) Avaya India (P.) Ltd. v. Addl. CIT [IT Appeal No. 7290 (Delhi) of 2018, dated 24-9-2019] (Order passed by the Delhi Bench of this Hon'ble Tribunal in for the A Y 2014-15) - at para 7.4 (on account of functional dissimilarity as the company has earnings from export of goods).
(ix) PubMatic India (P.) Ltd. v. Asstt. CIT [2018] 91 taxmann.com 356 (Pune - Trib.) (Order passed by the Pune Bench of this Hon'ble Tribunal in for the AY2012-13)-at para 18 (on account of functional dissimilarity as the company has earnings from export of goods).
15. In the case law relied on by the learned DR, namely, BORQS Software Solutions (P.) Ltd. (supra), the Tribunal merely affirmed the findings of the DRP, which in turn relied on the reply filed by the company in response to notice u/s 133(6) of the I.T. Act. Further, the Tribunal held the finding of DRP has not been countered by the assessee in the said case. However, the company's response to the notice u/s 133(6) of the I.T. Act is contrary to the functions set out in the audited financial statements (enclosed as Annexure-A), and therefore, the same cannot be relied upon. Moreover, the website of the company shows that the company is engaged in diverse services, which are not similar to the functions of the assessee in the instant case. Since the learned AR has been able to clearly establish that Infobean TechnologiesLtd. is not functionally comparable to that of the assessee, we follow the orders of the ITAT referred in para 14 (supra) and direct the AO/TPO to exclude Infobean TechnologiesLtd. from the comparable list. It is ordered accordingly."
Nothing contrary to the above has been placed on record by the Ld.DR. From the aforesaid findings of the coordinate bench of this Tribunal, we are satisfied that the reasons assigned to excluding the aforesaid comparable deserves to be accepted by Page 30 of 46 IT(TP)A No. 956/Bang/2022 us. We are therefore directing the Ld.AO to exclude this comparable from the final list.
Accordingly, we direct the Ld.AO/TPO to exclude this company from the final list.
E) Tata Elxsi Ltd.
It is submitted that Tata Elxsi is functionally dissimilar to the assessee and cannot be accepted as a comparable. The company is engaged in providing high end services in the nature of technology consulting, product design, development and testing services, design and technology services for consumer goods sector, high-end content development and 3D animation services for media and entertainment industry. It is submitted that the services rendered in the SWD segment are in the nature of embedded product design, industrial design and visual computing labs, which are not comparable to the services rendered by the assessee. Further, it is submitted that, the company renders services in niche areas as opposed to routine SWD services rendered by the assessee. The Ld.AR submitted that Tata Elxsi is focused on research and development activities and incurs expenses for developing new functionalities and patenting innovative technologies. Reliance was placed by the Ld.AR on the following decisions in support of her contentions.
- Mavenir Systems Pvt. Ltd. v. DCIT (supra)
- Infor (India) Pvt. Ltd. v. ACIT (supra)
- Sabre Travel Technologies Pvt. Ltd. v. DCIT (supra) On the contrary, the Ld.DR relied on the orders passed by authorities below.
Page 31 of 46IT(TP)A No. 956/Bang/2022 We have perused the submissions advanced by both sides in the light of records placed before us.
Admittedly this company is into research and development activities and has developed various product design, industrial design etc. It is also noted that though this company is into software development services, in the process has developed various products that has been sold and revenue has been generated from sale of products. The segmental details in respect of software services rendered and product sale is not available in the financials of this company. It is noted that Hon'ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. ACIT (supra) for similar reason has excluded this company from the final list. We therefore direct this comparable to be excluded from the final list as it is not comparable with a captive service provider like that of assessee.
F) Mindtree Ltd. & Nihilent Ltd.
It is submitted that these comparables are functionally not similar and also that it does not satisfy the turnover filter. The Ld.AR at the outset submitted that these are full-fledged entrepreneur in the field of software development service segment and delivers variety of services to its client for which no segmental details are available in respect of functionally dissimilarity, the Ld.AR relied on the following decisions wherein these comparables were directed to be eliminated:
- Carl Zeiss India (Bangalore) Pvt. Ltd. v. DCIT by order dated 16.06.2023 passed by this Tribunal in IT(TP)A No. 192/Bang/2022 for assessment year 2017-18 Page 32 of 46 IT(TP)A No. 956/Bang/2022
- Sabre Travel Technologies Pvt. Ltd. v. DCIT by order dated 02.02.2023 passed by this Tribunal in IT(TP)A No. 212/Bang/2022 for assessment year 2017-18
- Yahoo Software Development India Pvt. Ltd. vs. JCIT by order dated 11.07.2022 passed by this Tribunal in IT(TP)A No. 178/Bang/2022 for assessment year 2017-18
- Infor (India) Pvt. Ltd. v. ACIT by order dated 25.08.2022 passed by the Hyderabad Bench of this Tribunal in ITA-TP No. 228/Hyd/2022 for the assessment year 2017-18
- Varian Medical Systems International (India) Private Limited v. DCIT by order dated 27.12.2023 passed in ITA No. 510/Mum/2022 for assessment year 2017-18 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 the light of records placed before us.
It is noted that Coordinate Bench of this Tribunal in case of Carl Zeiss India (Bangalore) Pvt. Ltd. vs. DCIT (supra) has excluded Mindtree Ltd. by placing reliance on the decision of Coordinate Bench of this Tribunal in case of Yahoo Software Development India Pvt. Ltd. vs. JCIT in IT(TP)A No. 178/Bang/2022 by observing as under:
"The relevant extract of the observation by Coordinate Bench of this Tribunal in case of Yahoo Software Development India Pvt. Ltd. vs. JCIT (supra) in respect of Larsen & Toubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd. and Infosys Ltd. is as under:
.........................
.........................
........................
41. The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:-
"Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles.Page 33 of 46
IT(TP)A No. 956/Bang/2022
- Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue during FY 2014-15.
- Diversified operation i.e. engaged in infrastructure management services, business process management, technology consulting, product engineering and SAP services. Also lacks segmental data.
- Significant research & development activity. By incurring R&D expenses, it was able to deliver IP based video surveillance management, recording and analytic products and solutions. It has filed 4 patents in India and US so far in the area of Video analysis.
- Ownership of intangibles in the form of intangible property.
Significant onsite activity:
- 46% of revenue earned under Onsite model.
- Incurred overseas branch office expenses amounting to INR 1582 crores
- Receives incentives from State of Florida in relation to the development center located overseas. Lack of segmental data
- Does not maintain segmental information in respect of profitability reported from business activities in the nature of infrastructure management services, technology consulting and SAP services.
- Acquisition of subsidiary - Discoverture Solutions LLC.
42. The DRP while dealing with the aforesaid objections has merely taken the view that the presence of IPR revenue was insignificant and so also expenses of brand value, R&D & intangibles. More importantly, the DRP did not dispute the presence of 46% of revenue from onsite model, but went on to hold that the presence of revenue is not sufficient to exclude a company, when it is otherwise functionally comparable. On this aspect, we have already referred to the decision of the ITAT Bangalore Bench in the case of Trilogy e-business Software India P. Ltd. (supra) and in the light of this decision and the admitted factual position regarding presence of onsite revenue over and above the threshold limit of 25% of total revenue, we are of the view that this company should be excluded from the list of comparable companies. We hold and direct accordingly."
5. The revenue has not placed anything on record contrary to the above observations. Further admittedly the functions, assets owned and risks assumed by the assessee under the segment is similar with A.Ys. 2014-15 & 2015-16 (supra). Respectfully following the above view, Page 34 of 46 IT(TP)A No. 956/Bang/2022 we direct the Ld.AO to exclude Infosys Ltd., Persistent Systems Ltd., Mindtree Ltd. and L&T Infotech Ltd. from the final list."
Respectfully following the above, we direct exclusion of Larsen & Toubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd. and Infosys Ltd. from the final list."
We also note that the Coordinate Bench of this Tribunal in case of Carl Zeiss India (Bangalore) Pvt. Ltd. vs. DCIT (supra) excluded Nihilent Ltd. by following the decision of Coordinate Bench of this Tribunal in case of Subex Ltd. vs. DCIT in IT(TP)A No. 282/Bang/2022 for A.Y. 2017-18 by order dated 30.11.2022. This Tribunal observed and held as under:
"8.5 The decision of Coordinate Bench of this Tribunal in case of Subex Ltd. vs. DCIT (supra) for A.Y. 2017-18 by order dated 30.11.2022 has considered Nihilent Ltd. and OFS Technologies Ltd.
"Nihilent Ltd.
10. The ld AR for the assessee submitted that this company Nihilent Ltd. is predominantly engaged in rendering of software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. Nihilent in engaged in rendering diverse services. The Company intends to diversify and expand into various other areas such as analytics, big data, internet of things, etc. In this regard he referred page nos. 763 to 767 of the paperbook. 10.1 The assessee relied on the following rulings, wherein Nihilent Ltd. has been excluded as a comparable:
- SanDisk India Device Design Centre Pvt. Ltd., vs. JCIT IT(TP)A No. 288/Bang/2021dated 30.6.2022
- Extracts from the annual report are provided below by the ld AR:
(Page 73 of Annual report - FY 2016-17) (Page 20 of Annual report - FY 2016-17) Page 35 of 46 IT(TP)A No. 956/Bang/2022 (Page 20 of Annual report - FY 2016-17) (Page 20 of Annual report - FY 2016-17) 10.2 The Appellant also submitted screenshots from the official website of Nihilent Ltd., which evidences the fact that it is engaged into diverse activities other than software development services.
11. The Ld. D.R. submitted that the ld DRP, on perusal of the annual report, noted that this company is engaged primarily in rendering software services and other related IT services. As per information at page 73 the company is a service company primarily rendering software services. Accordingly, it does not hold any physical inventories. As per the background information given at page123 of the annual report, the company is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT Services. This fact is further supported by the information disclosed at page 50 and 51 of the annual report that the whole revenue of the company is derived from IT consultancy, software development and related services. Further at page 82 & 83 of the consolidated annual report, it is stated that "The group's activities involve predominantly providing software related Page 36 of 46 IT(TP)A No. 956/Bang/2022 services, which is considered to be a single business segment since these are subject to similar risks and returns. Accordingly, software services comprise the primary basis of segmental information as set out in these financial statements, which therefore reflect the information required by AS 17 -- Segment". Thus, the ld DRP opined that it is functionally comparable to the assessee which renders software development services and other allied services. Thus, the contentions of the assessee that it is engaged in diverse 'activities and not functionally comparable is without merit. Besides, there is no information in the annual report to indicate that this company is engaged in product development or to indicate that it has revenue stream from product sales.
The assessee also could not point to any such information in the annual report. The ld DRP also noted at page 73 of the annual report, the independent auditor has certified, 'the company does not have any purchase of inventories or sales of goods since it is a service company primarily rendering software services'. In view of these, the ld DRP held that this company is functionally comparable to the assessee and the pleas raised in this regard were rejected by him. As the company is primarily engaged in software development services and earns the revenue from this activity there is no need of providing segmental information as per AS 17. 11.1 The ld DR further stated that the assessee has argued before the ld DRP that the Company acquired G Net Group LLC in the US and Intellect Bizware Services Pvt Ltd, which are engaged and specialised in ERP and SAP. On careful perusal of the information in the annual report, the ld DRP noted that "during the year, Gnet Group LLC, USA ("Gnet") has merged with its holding Company -- Nihilent Technologies Inc.. USA ("NTI"), with effect from 1 January 2017 vide the Article of Merger filed in the State of Minnesota. As this merger was between a holding company and its wholly owned subsidiary, no consideration was payable". This acquisition was not made by Nihilent, which is being compared. During the year the Group through holding company i.e., Nihilent Technologies Limited has acquired 100% stake in a India base subsidiary Analytics Nihilent with effect from 8t h October 2016. The acquisition by a subsidiary will not have any impact on the profitability of this company especially when it is acquired from O8 October 2016. Further, the group company through the holding company has acquired 51% stake in case of Intellect Bizware Services Page 37 of 46 IT(TP)A No. 956/Bang/2022 pvt Ltd, which would not affect the profitability of the company in the near term. Further, the assessee also could not point to any information to show, that on account of such acquisition, the profit margin of this company was materially affected. The increase in business or turnover on account of such acquisition will be reflected in the financial statement of such subsidiary. Thus, the ld DRP was of the view that the acquisition as such has not materially affected the profitability of the company, and hence, it cannot he excluded as comparable.
11.2 The ld DR further stated that with regard to pleas of R&D, the ld DRP noted that the R&D activities are in the nature of routine activities to improve service delivery and there is no specific debit towards R & D in the P & L --account. These indicate that the R&D activities are towards routine business activity. The company does not own intangibles except for computer software licenses. Therefore, the ld DRP was of the view that this company is comparable to the assessee company. The ld DRP also noted that the assessee has failed to establish that such differences, if any, on account of R & D / 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. In view of the above, the ld DRP upheld the selection of this comparable.
12. We have heard the rival submissions and perused the materials available on record. This comparable fails the functionality test and this company Nihilent Ltd. is not functionally similar to assessee's case as held by the coordinate bench of the Tribunal in the case of M/s. SanDisk India Device Design Centre Pvt. Ltd. in IT(TP)A No.288/Bang/2021 dated 30.6.2022, wherein held as under:
"17.9 In respect of Nihilent Ltd., Infobeans Technologies Ltd. and Aspire Systems (India) Pvt. Ltd., Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. Addl. CIT (supra) observed as under:
"Comparable Sought to be excluded by the assessee Page 38 of 46 IT(TP)A No. 956/Bang/2022 Aspire System India Pvt. Ltd. (Aspire) ..........................
........................
........................
Nihilent Ltd.
44. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-à-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 A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-à-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded."
There is nothing on record i.e. placed by the Ld.DR contrary to the above observations by this Tribunal in respect of both the comparables.
Respectfully following the same, we direct the exclusion of Mindtree Ltd. and Nihilent Ltd. from the final list.
G) Great Software Laboratory Pvt. Ltd.
The Ld.AR submitted that this company is engaged in the business of design and development services of software applications including customisation and packaged software. She further submitted that the primary service of the Company are cloud Page 39 of 46 IT(TP)A No. 956/Bang/2022 products and operations management, IDM and connected experience practice, big data analytics and support services. The Company has also earned revenue from sale of products. The company is engaged in diverse activities for which no segmental details is available. It is further submitted that the company owns significant intangibles and that this company earned significant onsite revenue which demonstrates that it operates on a different model and therefore functionally not comparable with the assessee. The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. in IT(TP)A No. 713/Bang/2022 by order dated 11.01.2023. The Ld.DR on the contrary, relied on the observations of the authorities below.
We have perused the submissions advanced by both sides in the light of records placed before us.
The Ld.DR placed reliance on the decision of Coordinate Bench of this Tribunal in case of NTS Technology Services Pvt. Ltd. vs. DCIT in IT(TP)A No. 940/Bang/2022 vide order dated 27.03.2023. We note that in the annual report placed at page 233 of the paper book, and this company works in different portal. The Ld.TPO retained this company only for the reason that it has earned its entire operations from software development services and that this company only renders services under SWD category. The Ld.AR brought to our notice the nature of operations carried out by this company at page 323 of the paper book. It is noted that this company is engaged in the business of providing software development services, with expertise into cloud applications, communication, identity management and system technologies.
Page 40 of 46IT(TP)A No. 956/Bang/2022 Further at page 325, it is noted that the revenue recognition is from software development however revenue is also generated from sale of software products. However, at page 308, we note that this company has huge intangibles and therefore in our considered opinion cannot be considered to be a fit comparable with that of assessee which is a captive service provider. Accordingly, we direct this comparable to be excluded from the final list.
H) Cygnet Infotech Pvt. Ltd.
The Ld.AR submitted that this comparable is functionally not similar to that of assessee as it is engaged in diversified services including rendering solutions in the nature of blockchain, AI, robotic process automation, cloud, IoT, tax technology, augmented/ virtual realty; engineering services of Digital transformation, consulting, product engineering, application testing and development, content management and implementation; technology services. Cygnet has products portfolio such as R7VAT Solution for GCC, TestingWhiz, Cygnature, ePUBHub, eShabda, CYGNETO which makes the functional profile of Cygnet significantly different from a pure- play software development service provider. It is submitted that the company is also engaged in providing information technology enabled services and staff augmentation services. It is submitted that segmental information regarding the diverse activities are not available, and there is a presence of intangibles owned by the company. She placed reliance on the decision of Hon'ble Mumbai Tribunal in case of Varian Medical Systems Page 41 of 46 IT(TP)A No. 956/Bang/2022 International (India) Pvt. Ltd. vs. DCIT in ITA No. 510/Mum/2022 vide order dated 27.12.2023.
On the contrary, the Ld.DR placed reliance on orders passed by authorities below.
We note that the Ld.TPO has considered this comparable by simply holding that entire income has been earned by this company on the software development service segment. However, the Ld.TPO failed to note that this company is not captive service provider like that of assessee and is an independent entrepreneur owning intangibles. Under such circumstances, it is not appropriate to consider this comparable with that of assessee. We direct the Ld.AO/TPO to exclude this company from the final list.
I) Cybage Software Pvt. Ltd.
The Ld.AR submitted that this company provides services which includes architectural services, application development and maintenance, outsourced product engineering services. It is submitted that Cybage provides diversified services which include architectural services, application development and maintenance, outsourced product engineering services, testing & QA, digital services, MIS and Data analytics, transformation services, support services, UX design, and technical documentation. Further from the website of Cybage, it is evident that it is engaged in product development apart from providing spectrum of services including ITeS and BPO services. The financials of Cybage do not provide for segmental information in Page 42 of 46 IT(TP)A No. 956/Bang/2022 respect of the diverse business functions undertaken by the company.
She submitted that this comparable has been excluded by Coordinate Bench of this Tribunal in following decisions.
- Infor (India) Pvt. Ltd. v. ACIT (supra)
- Sabre Travel Technologies Pvt. Ltd. v. DCIT (supra)
- Varian Medical Systems International (India) Private Limited v. DCIT (supra) On the contrary, the Ld.DR placed reliance on orders passed by authorities below.
We have perused the submissions advanced by both sides in the light of records placed before us.
We note that Hon'ble Hyderabad Tribunal in case of Infor (India) Pvt. Ltd. vs. ACIT has excluded this comparable by observing as under:
"16. As far as Cybage Software Private Limited is concerned, before the Ld.TPO, assessee raised objections for its inclusion in the list of comparables basing on functionally not comparable -- diversified activities, product company, marketing services, presence of intangibles, lack of segmental data, abnormal margins, onsite revenue and non-contemporaneous data. Ld. TPO brushed aside the contentions of assessee and basing on the annual report, observed that the revenue of Cybage Software Private Limited from operations is derived from software development services and also observed that the assessee did not demonstrate the impact of intangibles on profit margins. Further it was observed by the Ld. TPO that over all averaging of profit margins has also been done by taking median of all the weighted average margins. Thus, fluctuation in profit margins cannot be a valid reason for rejecting a comparable when measures to ensure averaging out of fluctuations are already in-built in the overall process. Further, Ld. TPO relying on the decision of ITAT, Mumbai in the case of Capgemini and considering the CBDT Notification No. 83/2015 (F.No.142/25/2015- TPL) rejected the contentions of assessee. Ld. DRP considering the contentions of the assessee and judicial Page 43 of 46 IT(TP)A No. 956/Bang/2022 precedents in the cases of Trilogy E-Business Software India Private Limited Vs. DCIT (2013) 29 taxmann.com 310 (Bangalore Tribunal), Autodesk (India) Pvt. Ltd. Vs. DCIT in ITA No. 1108/Bang/2010, Yodlee Infotech Pvt. Ltd., Vs. ITO (2013) 31 taxmann.com 230 (ITAT, Bang). ITAT, Mumbai in the case of M/s. BP India Services Private Limited (ITA No. 4425/Mum/2010) did not reject companies having margin of 75.6% (Datamatics Technologies Limited) and 68.7% (Hinduja TMT Ltd) and in the case of Exxon Mobil, upheld selection of Alpha Geo India Ltd., having margin of 47.79% and Vimta Lab having margin of 57.68%. The Hon'ble Delhi High Court (TS173-
HC-2015 (Delhi)-TP) in its verdict in the case of Chryscapital Investment Advisors (India) Private Limited (the appellant), emphasised functional analysis as the key comparability criterion, and inter alia held that -- mere earning of high profits/losses could not be a reason to exclude a company as a comparable. In view of the above, Ld. DRP did not find merit in the plea of exclusion of certain companies on the ground of its high profit margin and uphold the selection of Cybage Software Private Limited as a comparable."
Nothing contrary has been placed on record by the Ld.DR. Accordingly, we direct the Ld.AO/TPO to exclude this comparable from the final list.
J) Consilient Technologies Pvt. Ltd. & Aptus Software Labs Pvt. Ltd.
The Ld.AR submitted that this company is into diversified activities as per the website information however the annual report does not provide sufficient information regarding the nature of the operations of the company. We note that all the above comparables requires to be considered afresh by the Ld.AO/TPO in the light of the respective annual reports. Needless to say that the FAR analysis has to be verified with that of the assessee in order to come to a conclusion of the same being functionally similar with that of assessee.
Page 44 of 46IT(TP)A No. 956/Bang/2022 Accordingly we remand the above comparables sought for inclusion by the assessee to the Ld.AO/TPO to carry out necessary verification.
Accordingly, ground no. 2.13 stands allowed.
6. Ground no. 2.14 - Assessee is seeking inclusion of the following two comparables.
A) Batchmaster Software Pvt. Ltd.
The Ld.TPO rejected this comparable as it did not appear in the search matrix carried out by the TPO. Reliance in this regard is placed on the Coordinate Bench of this Tribunal in case of Prism Networks (P.) Ltd. vs. ACIT reported in (2022) 141 taxmann.com 163 wherein it has been held that the company not figuring in the Ld.TPO's search matrix, cannot be a ground for not considering the same. Based on the above proposition, we remand this comparable back to the Ld.TPO to consider the comparability analysis based on the FAR of the assessee in accordance with law.
B) Indianic Infotech Ltd. ("Indianic") It is submitted that, the said company was rejected by the Ld.TPO merely holding that the company is functionally different, without assigning reasons as to how the company was incomparable to the assessee. The DRP rejected it for the reasons that the company failed the export turnover filter and the related party transaction information of the company was not available. In this regard, at the outset, it is submitted that, the action of the DRP in upholding the exclusion of the company on an altogether Page 45 of 46 IT(TP)A No. 956/Bang/2022 new basis without putting the assessee to notice is wholly erroneous and unsustainable.
It is submitted by the Ld.AR that Indianic is primarily engaged in providing software development services in the nature of design and development of software applications similar to that of the assessee. Therefore, it is submitted that the company is functionally similar to the assessee.
We note that the above comparable needs to be verified based on the annual reports and the filters in accordance with law. we remand this comparable back to the Ld.TPO for necessary verification and to consider the claim of assessee in accordance with law.
Accordingly, ground no. 2.14 stands partly allowed for statistical purposes.
7. Ground nos. 3.1, 3.2, 4-6 On the corporate tax issues, the Ld.AR submitted that necessary verifications are to be carried out based on the evidences filed by the assessee as there is computational errors that has crept in.
The Ld.AR submitted that the returned income has been considered wrongly vis-à-vis that has been declared by the assessee.
In respect of the deduction u/s. 10AA, the Ld.AR submitted that assessing officer failed to include the deduction claimed even though the same was not disputed in the draft assessment order. She further submitted that there is an erroneous levy of interest u/s. 234A of the act even though Page 46 of 46 IT(TP)A No. 956/Bang/2022 assessee had filed the return of income before the due date and there is an erroneous levy of interest u/s. 234B, C of the act as a consequence of the same. We note that all the above issues raised by assessee deserves necessary verification at the end of the Ld.AO. Assessee is directed to furnish details / evidences in respect of the same and the Ld.AO is directed to consider the claim of assessee in accordance with law.
Accordingly, ground nos. 3.1, 3.2 and 4-6 raised by the assessee stands partly allowed for statistical purpose. Accordingly, the appeal filed by the assessee stands partly allowed.
In the result, the appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 29th April, 2024.
Sd/- Sd/-
(CHANDRA POOJARI) (BEENA PILLAI)
Accountant Member Judicial Member
Bangalore,
Dated, the 29th April, 2024.
/MS /
Copy to:
1. Appellant 2. Respondent
3. CIT 4. DR, ITAT, Bangalore
5. Guard file 6. CIT(A)
By order
Assistant Registrar,
ITAT, Bangalore