Income Tax Appellate Tribunal - Bangalore
Ntt Data Information Processing ... vs The Deputy Commissioner Of Income Tax, ... on 17 July, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH : BANGALORE
BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
IT(TP)A No. 922/Bang/2022
Assessment Year : 2018-19
M/s. NTT Data Information
Processing Services Pvt.
The Deputy
Ltd.,
Commissioner of
Plot No. 178, EPIP Phase II,
Income Tax,
Whitefield, Vs.
Circle - 3(1)(1),
Industrial Area,
Bangalore.
Bangalore - 560 066.
PAN: AADCD9895L
APPELLANT RESPONDENT
Assessee by : Shri Ketan Ved, CA
Revenue by : Ms. Neera Malhotra, CIT-DR
Date of Hearing : 06-06-2023
Date of Pronouncement : 17-07-2023
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER
Present appeal is filed by assessee against the order dated 28.07.2022 passed by the Assessment Unit for A.Y. 2018-19 on following grounds of appeal:
Page 2 IT(TP)A No. 922/Bang/2022 Page 3 IT(TP)A No. 922/Bang/2022 Page 4 IT(TP)A No. 922/Bang/2022 Page 5 IT(TP)A No. 922/Bang/2022 Page 6 IT(TP)A No. 922/Bang/2022 Brief facts of the case are as under:
2. Assessee is a company engaged in the business of designing, developing, analyzing and program administering of all kinds of software. During the year under consideration, assessee had undertaken international transaction with its AE and accordingly a reference was made u/s. 92CA of the act. 2.1 On receipt of the reference, the Ld.TPO noted that assessee had provided software development segment to its AE and IT consultancy services to the group companies. The functional analysis of assessee as carried out by the Ld.TPO is scanned and reproduced as under:
SWD and ITeS segment has been captured by the Ld.TPO. Page 7 IT(TP)A No. 922/Bang/2022 Page 8 IT(TP)A No. 922/Bang/2022 Page 9 IT(TP)A No. 922/Bang/2022 Page 10 IT(TP)A No. 922/Bang/2022 Page 11 IT(TP)A No. 922/Bang/2022 Page 12 IT(TP)A No. 922/Bang/2022 Page 13 IT(TP)A No. 922/Bang/2022 Page 14 IT(TP)A No. 922/Bang/2022 Page 15 IT(TP)A No. 922/Bang/2022 Page 16 IT(TP)A No. 922/Bang/2022 2.2. The Ld.TPO noted that assessee had following international transaction with its AE.
Page 17 IT(TP)A No. 922/Bang/2022 Page 18 IT(TP)A No. 922/Bang/2022 2.3. The Ld.TPO noted that assessee used TNMM as the most appropriate method for determining the arms length price and OP/OC as the PLI and computed its margin for both the segments to be at 15.2% 2.4. Under SWD segment, assessee selected following set of 13 comparables with average margin of 9.76%.
Page 19 IT(TP)A No. 922/Bang/2022 2.4.1 Under ITeS segment, assessee selected following set of six comparables with an average margin of 14.37%.
Weighted
Name of the
Sl.No Average
Company
(%)
IECS Consultancy
1 17.07%
Ltd.
Sundaram
2 Business Services 8.58%
Ltd
Tech Mahindra
3 Business Services 18.69%
Ltd.
I Services India
4 1.88%
Pvt Ltd.
R Systems
5 8.92%
International Ltd.
6 CES Ltd. 33.42%
Page 20
IT(TP)A No. 922/Bang/2022
The assessee thus held both the transaction to be at arms length. 2.5. The Ld.TPO dissatisfied with the comparables selected by the assessee, shortlisted a set of 20 comparables under SWD segment which is as under:
Comparables for SWD by TPO Sr. Comparables PLI No. 1 Infomile Technologies Ltd. 9.69% 2 Harbinger Systems Pvt. Ltd. 11.65% 3 Exilant Technologies Pvt. Ltd. 17.17% 4 Tech Mahindra Ltd. 18.57% 5 Larsen & Toubro Infotech Ltd. 18.94% 6 Great Software Laboratory Pvt. Ltd. 19.73% 7 Elveego Cicuits Pvt. Ltd. 20.19% 8 Black Pepper Technologies Pvt. Ltd. 20.62% 9 Mindtree Ltd. 21.21% 10 Aptus Software Labs Pvt. Ltd. 22.70% 11 AcewinAgriteck Ltd. 24.51% 12 Persistent Sytems Ltd. 24.98% 13 Wipro Ltd. 26.83% 14 Tata Elxsi Ltd. 28.24% 15 Infobeans Technologies Ltd. 28.52% 16 Nihilent Ltd. 30.17% 17 Thirdware Solutions Ltd. 30.94% 18 Threesixty Logica Testing Services Ltd. 36.58% 19 Infosys Ltd. 37.38% 20 Cybage Software Pvt. Ltd. 56.81% 35th percentile 20.19% Median 23.60% 65th percentile 26.83% Page 21 IT(TP)A No. 922/Bang/2022 2.5.1 Under ITeS segment, the Ld.TPO selected set of 17 comparables, the details of which are as under:
Page 22 IT(TP)A No. 922/Bang/2022 2.6 He thus computed the shortfall under both the segments as under:
Adjustment u/s S.No. Description 92CA(In Rs.)
1. SWD Segment 91,20,19,600
2. ITeS Segment 28,84,52,860 Total adjustment u/s 92 CA 120,04,72,460 2.7 On receipt of the transfer pricing order, the Ld.TPO in the draft assessment order was passed by the Ld.AO making further disallowance u/s. 36(1)(va) of the Act towards delayed payment of PF & ESI amounting to Rs.22,61,943/-. 2.8. On receipt of the draft assessment order, the assessee filed objections before the DRP.
2.8.1. The DRP while considering the objections of the assessee, accepted exclusion of Thirdware Solutions Ltd. under the SWD segment and few inclusions sought by assessee were also approved. In respect of ITeS segment, the DRP upheld the exclusion of A G S Health Pvt. Ltd., Ultramarine & Pigment Ltd.
and Access Healthcare Services Pvt. Ltd. The DRP also directed the recomputation of margin where there was arithmetical mistakes.
2.9. On receipt of the DRP directions, the Ld.AO passed the impugned order making addition under SWD and ITeS segment totaling to Rs.82,86,25,140/-. The Ld.AO also upheld the disallowance at Rs.22,61,943/-.
Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal.
3. At the outset, the Ld.AR has submitted that assessee is seeking inclusion / exclusion of certain comparables under SWD Page 23 IT(TP)A No. 922/Bang/2022 and ITeS segment. He submitted that Ground nos. 1 to 3 are general in nature and therefore do not require any adjudication. 3.1. The Ld.AR submitted that Ground no. 14 & 17 are in respect of computing the margin correctly. It is the submission of the Ld.AR that the assessing officer has not followed the directions of the DRP. In paras 40.01 & 56.01, wherein a direction has been given to correct any errors in the margin computation of the comparables.
We direct the Ld.AO to verify and correct the margins if there are any errors in those comparables that would now remain. Accordingly these grounds raised by assessee stands allowed for statistical purposes.
4. Ground no. 15 is in respect of exclusion sought by assessee. It is submitted that assessee has alleged 16 comparables seeking exclusion, however the Ld.AR submitted at the time of hearing that, if following comparables are considered for exclusion, assessee would be within the reasonable margin;
a) Larsen & Toubro Infotech Ltd.
b) Great Software Laboratory Pvt. Ltd.
c) Mindtree Ltd.
d) Persistent Systems Ltd.
e) Infobeans Technologies Ltd.
f) Threesixty Logica Testing Services Pvt. Ltd.
g) Infosys Ltd.
h) Cybage Software Pvt. Ltd.
i) Elveego Circuits Pvt. Ltd.
Page 24 IT(TP)A No. 922/Bang/2022 4.1. The Ld.AR submitted that in assessee's own case for A.Y. 2017-18 in IT(TP)A No. 239/Bang/2022 following comparables stood excluded:
a) Mindtree Ltd.
b) Larsen & Toubro Infotech Ltd.
c) Persistent Systems Ltd.
d) Infobeans Technologies Ltd.
e) Infosys Ltd.
nttHe referred to the above decision that placed at pages 191 to 236 of the paper book.
4.1.2. The Ld.DR on the contrary relied on the orders passed by the authorities below.
4.1.3 We note that these 5 comparables have been held to be functionally not similar with that of assessee in assessee's own case for A.Y. 2017-18 by observing as under:
"13. Software Development Segment Ground No.6.1(a) - The assessee has challenged 15 companies for exclusion. Since he has not contested all the 15 companies, we decide the comparables of the companies only the ld.AR contested which is as under:
13.1 The ld. AR of the assessee reiterated the submissions made before the lower authorities. The ld. AR of the assessee also contested in his written synopsis that the following companies are required to be excluded from software development(SWD) segment because these are not comparables on different grounds with the assessee company.
1. Infosys Limited.
1. Functionally different Inf osys ('the Company') is a leading provider of consulting, technology, outsourcing and next-generation services. Along with its subsidiaries, Infosys provides business IT services (comprising application development and maintenance, independent validation, infrastructure management,engineering services comprising product engineering and life-cycle solutions and business process management);
consulting and systems integration services (comprising consulting, enterprise solutions, systems integration and advanced technologies); products, business platforms and solutions to accelerate intellectual property-led innovation including Finacle®, Page 25 IT(TP)A No. 922/Bang/2022 its banking solution; and offerings in the areas of analytics, cloud, and digital transformation.(Page 2131 of PB-II- Part 2) These services are not comparable to the services provided by the Appellant.
2. Derives revenue from sale of products as well. The company has derived revenue from sale of productto the tune of INR 32 crores (Page 2161 of PB-II-Part 2), However, the Appellant does not derive any such revenue from sale of products implying that Infosys's business model different from the Appellant.
3. Revenue Recognition The Company derives revenues primarily from software development and related services and from the licensing of software products. Arrangements with customers for software related services are either on a fixed-price, fixed-timeframe or on a time-and-material basis.(Page 2132 of PB-II-Part 2).
On account that Infosys is engaged in sale of products it is clearly understood that the same is functionally different from Appellant which is engaged in rendering software development services to its AEs.
4. No segmental information Infosys has revenue from both software services and software products. Segment details areunavailable. Industry segments for the company are Financial Services (FS), Manufacturing(MFG), Energy, Utilities, Communication and Services (ECS), Retail, Consumer packagedgoods and Logistics (RCL), enterprise in Hi- Tech (Hi-Tech) and Life Sciences, Healthcareand Insurance (HILIFE). The segment details are based on industry they service andgeographical segments wise and not based on the nature of revenues/activities (businesssegments). The geographic segment is based on the business outsourcefrom both on-siteand offshore.(Page 2171 of PB-II-Part 2)
5. Brand Value Infosys brand is a key intangible asset of the company. It is observed that Infosys spent INR 276 crores in brand building and marketing exercise. (Page 2036 and 2162 of PB-II-Part 2).
6. Market Leader On a review of the annual report, we observe that Infosys is a market leader and has wonaccolades in almost every industry in which it provides its services.(Page 2036 of PB-II-Part 2)
7. Huge selling and marketing expenditure Infosys has incurred significant expenditure in relation to sales and marketing. In this regard, we wish to mention that the high selling and marketing expenditure has been substantiated by way of high revenue and profit margins for Infosys. On account of Infosys having significant selling and marketing expenditure, it is evident that the same cannot be comparable to Appellant which is a low-risk captive service provider to its AEs.(Page 2085 of PB-II-Part 2)
8. Full-fledged risk bearing entity On perusal of the annual report of Infosys, we note that Infosys is a high-risk bearingentrepreneur and the high revenues/ profits can be said to be commensurate to the kind ofrisks undertaken by Infosys. Hence,Infosys should not be compared to a risk mitigated entity like NTT Data IPS.(Page 2091 of PB-II-Part 2) Page 26 IT(TP)A No. 922/Bang/2022
9. Significant Foreign expenditure In this regard, we wish to submit that Infosys has incurred significant foreign expenditurewhich works out to 67%, 73.95% and 64.36% of total expenditure incurred for FY 2016-17, FY 2015- 16 and FY 2014-15 respectively. Considering this, it is clearly evident that Infosyshas significant onsite activities outside India. Accordingly, given that the Appellantpredominantly carries out its operations within India and does not incur any significantforeign expenses, it is evident that Infosys follows a different operating model (which alsoimpacts the profitability) and hence, could not be compared with the Appellant.(Page 2072 of PB-II-Part 2, Page 60 of AR for FY 2015-16 and Page54 of AR for FY 2014-15) Judicial precedents relied upon:
Functional comparability-
1) Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-18](Page 6268-6275 of Paperbook III)
2) SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17(Page 6306-6308 of Paperbook III)
3) ADP Pvt. Ltd Vs. DCIT [ITA Nos. 227 & 228 /H/2021 for AY 2016-17](Page 6341-6344 of Paperbook III)
4) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-17](Page 6426-6427 of Paperbook III)
5) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015- 6474-6475 of Paperbook III)
6) Cypress Semiconductor Technology India Pvt Ltd [IT(TP)A No.2427/Bang/2019 for AY 2015-16](Page 6495-6497 of Paperbook III)
7) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-15](Page 6521-6522 of Paperbook III)
8) M/s. Hewlett Packard (India) Software Operation Pvt. Ltd.,[IT(TP)A
9) ARM embedded Technologies Private Limited [IT(TP)A No 3374/Bang/2018 for AY 2014-15](Page 6660-6661 of Paperbook III)
2. Larsen & Turbo Infotech Limited.
1. Functionally dissimilar The Company is engaged in provision of wide range of services to Banking, Financialservices, Insurance, Media and Entertainment, Travel, Logistics and Healthcare sectors.(Page 3838 of PB-II-Part 4) L&T is engaged in providing a host of services and all these services are not comparable toAppellant's routine software development services.(Page 3767 of PB-II-Part 4)
2. Cost of Bought out items for resale The company is engaged in trading of goods which is apparent from its annual report.(Page 3817 of PB-II-Part 4)
3. No proper segmentation While L&T is engaged in host of services and also in sale of products (as discussed above),there is no segmental break-up for such services/ products.(Page 3838 of PB-II-Part 4) Page 27 IT(TP)A No. 922/Bang/2022
4. Brand Value The company is specifically engaged in building brand image and the relevant extract of thesame is as below:
Digital disruption is challenging enterprises the world over to transform to newer business models by leveraging emerging technologies. In line with the pioneering role which LTI plays in bridging the convergence of the physical and digital world, your Company has also undergone a brand reboot based on the brand idea 'Pioneering solutions in a converging world'. The tagline - 'Let's Solve' encapsulates the ability and willingness to solve complex challenges for the clients through your Company's real- word expertise and technological prowess. The new brand is truly a brand for the converging world.(Page 3722 of PB-II-Part 4) Whereas the Appellant, being a captive service provider, does not own any brand value likeL&T, the brand image if any is of the parent and the same has no impact on the revenue ofthe Appellant as the Appellant does not cater to 3rd parties. Further, the company ownshuge intangibles including intangibles under development.(Page 3789, 3799 and 3800 of PB-II-Part 4)
5.Acquisition and Amalgamation During the year, the scheme of Amalgamation for "GDA Technologies Limited" wassanctioned by the High Court. Thus, we believe that the synergies obtained through thisacquisition would have an impact on the overall margin of the company and thus L&T shouldnot be considered as comparable to the Appellant for the FY 2016-17. The company wasamalgamated with L&T with effect from September 2, 2016 and entire assets weretransferred with effect from April 1, 2016 (relevant extracts reproduced below) Pursuant to the Scheme of Amalgamation sanctioned by the Hon'ble High Court of Bombay vide its order dated April 01, 2016 and by the Hon'ble High Court of Madras vide its order dated August 3, 2016, GDA Technologies Limited ('GDA'), wholly-owned subsidiary of the Company was amalgamated with the Company with effect from September 2, 2016 with appointed date being April 01, 2016. Consequently, the entire business, assets, liabilities, duties and obligations of GDA have been transferred to and vested in the Company with effect from April 1, 2016.(Page 3732 of PB-II-Part 4)
6. Investment in technology absorption L&T has made great investment in technology absorption. It operates Centers of Excellencein emerging technologies such as Big Data, Analytics, Internet of Things, Cloud, UserExperience etc. This has in turn helped the company in improving the productivity of thecompany. Also, the benefits are achieved in the form of product improvement, whichindicates that the company is engaged in product development.(Page 3747&3748 of PB-II-Part 4) The company has also carried out extensive R&D in the areas of latest technologies such asmachine learning, Internet of things, Big Data, Analytics, Mobility, Cloud, Next generation. User Experience, service automation, manufacturing execution systems, etc. During the FY2016-17 the company has incurred R&D expenditure amounting to INR 270 million.(Page 3748 of PB-II-Part 4) Page 28 IT(TP)A No. 922/Bang/2022
7. Global presence The operations of L&T are spread across the globe and the same is validated by thecorporate governance report in page 83 of the annual report for FY 2016-17. (Page 3685 &3762 of PB-II-Part 4)
8. Significant foreign expenditure In this regard, we wish to submit that L&T has incurred significant foreign expenditure whichworks out to 53.32%, 55.02% and 56.08% of total expenditure incurred for FY 2016-17, FY2015-16 and FY 2014-15 respectively. Considering this, it is clearly evident that L&T hassignificant onsite activities outside India. Accordingly, given that the Appellant predominantlycarries out its operations within India and does not incur any significant foreign expenses, itis evident that L&T follows a different operating model (which also impacts the profitability)and hence, could not be compared with the Appellant. (Page 3748 of PB-II-Part 4). Judicial precedents relied upon:
Functional comparability-
1)Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-18](Page 6268-6272 of Paperbook III)
2) SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17(Page 6308 of Paperbook III)
3) ADP Pvt. Ltd Vs. DCIT [ITA Nos. 227 & 228 /H/2021 for AY 2016-17](Page 6331-6333 of Paperbook III)
4) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-17](Page 6416-6419 of Paperbook III)
5) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-16](Page 6452-6458 of Paperbook III)
6) Cypress Semiconductor Technology India Pvt Ltd [IT(TP)A No.2427/Bang/2019 for AY 2015-16](Page 6498-6499 of Paperbook III)
7) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-15](Page 6525-6526 of Paperbook III)
8) GlobalLogic India Pvt. Ltd. vs. DCIT [ITA No. 868 (Delhi) of 2021 for AY 2016-17]-(Page 6679-6681 of Paperbook III)
9) M/s. Hewlett Packard (India) Software Operation Pvt.
Ltd.,[IT(TP)A No.2866/Bang/2017 for AY 2013-141(Page 6585- 6595 of Paperbook III)
10) ARM embedded Technologies Private Limited [IT(TP)A No 3374/Bang/2018 for AY 2014-151(Page 6661-6662 of Paperbook III)
3. Mindtree Limited.
1. Functionally different Without prejudice to the transfer pricing report maintained by the Appellant, we wish to submit as below:
Based on a review of the company's annual report for FY 2016-17, it is seen that company offers services in wide areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services, which are not similar to the routine Page 29 IT(TP)A No. 922/Bang/2022 softwaredevelopment services provided by the Appellant. (Page 3536 of PB-II-Part 4) Additionally, Mindtree is also engaged in rendered business transformation, digitalization,automation and integrated services to its customers. From page 21 of the annual report forFY 2016-17, it is observed that Mindtree was ranked in Top 20 IT-BPM employers in India. (Page 3442 of PB-II-Part 4) Mindtree is also engaged in product development activities, the same is evident from page55 of the annual report for FY 2016-17. (Page 3476 of PB-II-Part 4)
2. Insufficient segmental information In the presence of diversified activities as above, including Business Process Managementrelated services, the company is structured into four reportable business segments based onthe industry, for the purpose of disclosure in the annual report viz. . However, though thecompany provides a wide range of services and solutions the annual report of the companyneither provides segmental break-up, nor provides the revenue break-up from the variousactivities undertaken.(Page 3533 of PB-II-Part 4)
3. Significant R&D activities Mindtree is engaged in performing significant R&D activities which has led to greaterprofitability. During the year 2016-17, Mindtree has spent INR 32.14 crores on research anddevelopment activities.(Page 3479 of PB-II-Part 4)
4. Mergers and Acquisitions During the years 2014-15 to 2016-17, Mindtree has undertaken several acquisitions, thesynergy from which has impacted the profitability for the respective years.(Page 3612-3614 of PB-II-Part
4) Given that no such transactions were undertaken in the case of NTT Data IPS which wouldimpact the margins earned by the Appellant, considering the tainted margins of Mindtreewould distort the benchmarking analysis. Accordingly, we humbly wish to submit thatMindtree be excluded from the final set of comparable companies.
5. Investment in Technology absorption We observed that Mindtree is focused on strategic and emerging technologies andinnovation and has continued to invest in technologies. During the FY 2016-17, these effortshave strengthened the Centre of Excellences ('CoEs') of Mindtree. In these CoEs, theemerging technologies such as Internet of Things, Cognitive Computing and Deep learning,Automation, Blockchain, Augmented/ Virtual Reality, Collaboration Solutions etc. wereexplored in depth and several re-usable assets were built to enable delivery (refer annualreport extracts below). However, we wish to submit that no such activities were undertakenby the Appellant, accordingly, given that the above investments in technology would impactthe profitability of Mindtree, the same could not be considered for comparability analysis.(Page 3474 to 3477 of PB-II-Part 4) In addition to the above, Mindtree also provides solutions/ platforms for various industriesand service lines which includes insurance, banking and financial services, infrastructureand Page 30 IT(TP)A No. 922/Bang/2022 managed services, digital solutions and integrated services. These solution/ platforms include digital engagementplatforms, IT infrastructure management and service delivery platforms, machine learningbased solutions, predictive analytics, automated platforms etc.(Page 3476 to 3478 of PB-II-Part 4) From the above, it is clear that Mindtree is engaged in provision of high-end solutions andplatforms, hence, could not be considered as a comparable to a routine softwaredevelopment services provider such as NTT Data IPS.
6. Significant foreign expenditure In this regard, we wish to submit that Mindtree has incurred significant foreign expenditurewhich works out to 68.86%, 57.82% and 56% of total expenditure incurred for FY 2016-17,FY 2015-16 and FY 2014-15 respectively. Considering this, it is clearly evident that Mindtreehas significant onsite activities outside India. Accordingly, given that the Appellantpredominantly carries out its operations within India and does not incur any significantforeign expenses, it is evident that Mindtree follows a different operating model (which alsoimpacts the profitability) and hence, could not be compared with the Appellant.(Page 3479 of PB-II-Part 4). Given the above, we humbly wish to submit that Mindtree be excluded from final set ofcomparable companies. Judicial precedents relied upon:
Functional comparability-
1)Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-181(Page 6268-6272 of Paperbook III)
2) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-171Page 6426-6427 of Paperbook III)
3) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-161(Page 6448-6452 of Paperbook III)
4) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-151(Page 6526-6527 of Paperbook III)
5) M/s. Hewlett Packard (India) Software Operation Pvt.
Ltd.,[IT(TP)A No.2866/Bang/2017 for AY 2013-141(Page 6595- 6599 of Paperbook III)
4.Persistent Systems Ltd.
1. Functionally different Persistent is not comparable to NTT Data IPS since it is predominantly engaged inoutsourced product development. The Annual Report of Persistent clearly mentions the keyproducts and services which company deals with, which includes (i) Enterprise DigitalTransformation (ii) Product engineering services and solutioning for Internet of things (iii)Product and Engineering services to ISV's and enterprises and (iv) IP products.(Page 1709 of PBII- Part 1) Given the above it is evident that the company's major portion of income is derived from bothsale of software services and products. Further, page 302 of Annual Report FY 2016-17also clarifies that the company specializes in software products, services and technologyinnovation and that the company offers complete Page 31 IT(TP)A No. 922/Bang/2022 product life cycle services, as opposed toAppellant's routine software development services.(Page 1850 of PB IIPart 1) The above extracts clearly distinguish Persistent's offerings vis-à-vis the Appellant'sofferings. From page 56 of the FY 2016-17 annual report, it is observed that Persistent haswitnessed good growth in the product suite on account of IBM Watson IoT Alliance(Page 1620 of PB-IIPart 1) As per page 55 of the FY 2016-17 annual report, Persistent has earned more than 50% ofits revenue for the year 2016-17 from Outsourced Product Development ('OPD') and IP Ledrevenues. (Page1619 of PB-IIPart 1) Based on the above differentiation provided by the company, we can conclude that theservices provided by Persistent are not software services, and hence cannot be compared tothe Appellant's activity profile.
2. Insufficient segmental information In this regard, while the segmental details are available in relation to the Services, Digital,Alliance and Accelerite (Products), however, the same are in relation to the consolidatedfinancials and not standalone financials (relevant extracts reproduced below). Further, theAnnual Report for FY 2015-16 and FY 2014-15 doesn't not provide details in terms ofrevenue derived from sale of services vis- à-vis products separately (even in the consolidatedfinancials). Accordingly, the company should also be rejected on account of insufficientsegmental information.(Page1892 of PB-IIPart 1) Page 205 of Annual Report FY 2016-17 It is important to note that Persistent has generated approximately 55% of its revenue for FY2016-17 from activities other than services. Accordingly, given the non-availability ofsegmental information at standalone level for FY 201617, FY 2015-16 and FY 2014-15,Persistent shall be excluded from the final set.
3. Acquisitions during the year During the FY 2016-17, Persistent has acquired one of the leading salesforce partner andcloud application development firm viz. PRM Cloud Solutions and a digital solutions-basedstart-up viz. GenWi, which has augmented the capabilities of Digital Unit. (Page 1620 of PB-II Part 1) Page 32 IT(TP)A No. 922/Bang/2022
4. Significant Foreign expenditure In this regard, we wish to submit that Persistent has incurred significant foreign expenditurewhich works out to 37.94%, 22.15% and 26.83% of total expenditure incurred for FY 2016-17, FY 2015-16 and FY 2014-15 respectively. Considering this, it is clearly evident thatPersistent has significant onsite activities outside India. Accordingly, given that the Appellantpredominantly carries out its operations within India and does not incur any significantforeign expenses, it is evident that Persistent follows a different operating model (which alsoimpacts the profitability) and hence, could not be compared with the Appellant.(Page 1641 of PB- IIPart 1)
5. Significant RPT With respect to modified application of the RPT filter. Please find below the workings of RPT filter below:
Particulars FY 2016-17 FY 2015-16 FY 2014-15 Total revenue (A) 17,329,640,000 14,471,360,000 12,424,980,000 Related party 6,576,800,000 4,636,950,000 3,891,930,000 transaction (B) Percentage to total 37.95% 32.04% 31.32% revenue (B/A) As captured above, during the FY 2016-17, FY 2015-16 and 2014-15, Persistent hasentered into related party transactions amounting to 37.95%, 32.04% and 31.32% on sales and accordingly, fails the RPT filter of less than 25% of Sales for all the years under consideration.
Thus, Persistent has to be excluded from the final set of comparables. Judicial precedents relied upon:
Functional comparability-
1) Yahoo Software Development India Pvt. Ltd.vs JCIT[IT(TP)A No. 178/Bang/2022 for AY 2017-18](Page 6268-6272 of Paperbook III)
2) SanDisk India Device Design Centre Pvt. Ltd vs JCIT [IT(TP)A No. 288/Bang/2021 for AY 2016-17(Page 6306-6308 of Paperbook III)
3) ADP Pvt. Ltd Vs. DCIT [ITA Nos. 227 & 228 /H/2021 for AY 2016- 17](Page 6336-6338 of Paperbook III)
4) Infor (India) Private Limited vs DCIT [I.T.A-TP. No. 198/HYD/2021 for AY 2016-17](Page 6426-6427 of Paperbook III)
5) Citrix R&D India Pvt Ltd vs DCIT [ IT(TP)A No.2428/Bang/2019 for AY 2015-16](Page 6461-6469 of Paperbook III)
6) Cypress Semiconductor Technology India Pvt Ltd [IT(TP)A No.2427/Bang/2019 for AY 2015-16](Page 6499-6501of Paperbook III)
7) M/s. Microsoft Research Lab India Pvt. Ltd.[IT(TP)A No.3131/Bang/2018 for AY 2014-15](Page 6524-6525 of Paperbook III)
8) Optiva India Technologies Pvt. Ltd. [ITA No. 194/PUN/2021 for AY 2016-17]6548-6550 of Paperbook III)
9) M/s. Hewlett Packard (India) Software Operation Pvt.
Ltd.,[IT(TP)A No.2866/Bang/2017 for AY 2013-14](Page 6600- 6613 of Paperbook III)
10) ARM embedded Technologies Private Limited [IT(TP)A No 3374/Bang/2018 for AY 2014-15](Page 6662-6665 of Paperbook III) ......................
14.3 Further in case of Infobeans Technologies Ltd. ld.AR submitted that the company is not functionally comparable since -
Page 33 IT(TP)A No. 922/Bang/2022
a) Functionally different - it is engaged in high end services such as custom application development, content management systems, enterprise mobility and data analytics which are classified as high-end KPO services not comparable to the assessee.
b) Investment in Technology absorption - High investment in technology investment in turn has helped the company in improving the productivity of the company. Also the benefits are achieved in the form of product improvement, which indicates that the company is engaged in product development.
c) Abnormal year of operations - FY 2015-16 - It has witnessed a growth in revenue around 76% and growth in PAT of around 14.7% in FY 2015-16
d) Full pledged risk bearing entity.
14.4 The ld.AR further submitted that Infobeans Technologies Ltd has launched 2 New Segments viz. Automation engineering and not functionally similar in FY 2015-16 and 2014-15.
14.5 Accordingly the Nihilent Technologies Private Limited & Infobeans Technologies Ltd should be excluded from the comparables. The ld. AR of the assessee also requested that the matter may be send back to the ld. TPO for re-examination on the basis of functional profile & in the light of the case law cited by him in his written synopsis and chart submitted." There is nothing brought on record by the Ld.DR contradicting the above observations.
Respectfully following the above view, we direct exclusion of the 5 comparables from the final list.
(A) Threesixty Logica Testing Services Pvt. Ltd. The Ld.AR submitted that, this comparable fails RPT filter as its RPT is 30.42%. It is also submitted that, this comparable is functionally not similar with that of assessee as it owns certain brand names "SAQAMA" & "STAQK". He referred to pages 1075 to 1252 of paper book in support, wherein the annual reports of this comparable is placed. Referring to page 1129, the Ld.AR submitted that the income has been declared by this company under the head "Revenue from operations". The company overview mentioned at page 1135 reveals that, this company is primarily engaged in providing information technology services viz. software testing and QA services.
Page 34 IT(TP)A No. 922/Bang/2022 The Ld.AR submitted that, this company also earns revenue from sale of third party software product and hardware for which there is no segmental data available.
He 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 where this comparable was excluded for the above reason.
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 this Tribunal in case of NTS Technology Services Pvt. Ltd. vs. DCIT (supra) directed the exclusion of this comparable by observing as under:
"11.7.5 From the annual reports filed by the Ld.AR in the paper book, we note that this company derives 100% income from writing, modifying, testing of computer program to meet the needs of a particular client excluding webgage and designing. In the annual report, the revenue recognition by this company is stated to be primarily from software testing, QA and related services which is also supported from the notes to account being note 1 wherein the company overview also states that it is primarily engaged in providing information technology services being software testing and QA services and it also stated in the segmental report and operating segmental details that there are no other reportable segments. We therefore see merit in the arguments of the Ld.AR that this company is not comparable functionally since the assessee is a contract service provider rendering limited services to its AE alone.
Accordingly, this comparable is directed to be excluded."
Revenue has not been able to bring on record any distinguishing facts. The assessee before us is a captive service provider.
Page 35 IT(TP)A No. 922/Bang/2022 Respectfully following the above view, we direct exclusion of this comparable from the final list for lack of segmental information and functional dissimilarities with assessee. (B) 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 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.
We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable was remanded for want of complete annual reports. However in the present case, the Ld.AR has filed the necessary details and complete annual report to verify the arguments advanced. On perusal of the detailed submissions, filed by the Page 36 IT(TP)A No. 922/Bang/2022 assessee at pages 141-145 of the appeal set as well as 820-822 of the paper book, we note that admittedly the TPO accepts that this comparable provides various services using the same platform of SWD. It is also an admitted fact that this company works in a different horizontal and this company has been retained by the Ld.TPO only because it renders services under the category SWD. It is also noted by the Ld.TPO that the operations of this comparable is from SWD segment without there being any segmental details, which according to the Ld.TPO is irrelevant. In our considered opinion, this Tribunal has been consistently rejecting the comparables whether there are no segmental information available in order to compare "an apple with an apple". Therefore the services rendered by the assessee under a contract with its AE cannot be compared with a company that renders various services under SWD segment. We do not find any reason to include this comparable in the final list. Accordingly we direct the Ld.AO/TPO to exclude Great software Laboratory Pvt. Ltd.
(C) Cybage Software Pvt. Ltd.
The Ld.AR submitted that this comparable is not functionally similar with that of assessee as it is providing IT consulting and related support services. It is also submitted that this comparable undertakes R&D activities involving developing new technologies under the software segment. Referring to the annual report at page 2018, the Ld.AR submitted that this company has R&D activities which are incorporated with software development process with the object of devising efficient method of product development. It is submitted by the Page 37 IT(TP)A No. 922/Bang/2022 Ld.AR that this comparable owns huge intangibles due to the R&D activities undertaken by it. It is also submitted that this comparable has a huge turnover of 7,000 crores and therefore is an entrepreneur by itself which cannot be compared with the captive service provider like assessee. The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Wipro GE Healthcare Ltd. in IT(TP)A No. 803/Bang/2022 by order dated 17.05.2023.
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 the Coordinate Bench of this Tribunal rejected this comparable by observing as under:
"14.10 Regarding the comparable Cybage Software Pvt. Ltd., the assessee had objected before the TPO and DRP that the same is not functionally comparable, lacks segmental information and has extra ordinary high margins. However, the TPO and DRP rejected the objections of the assessee. The Pune Tribunal in the case of Optiva India Technologies Pvt Ltd in ITA 194/Pun/2021 dt.21.07.2022 has directed to exclude comparable Cybage Software Pvt. Ltd on the ground of functional dissimilarity. Relevant portion is extracted hereunder:
"Cybage Software 17.1 The assessee contends that this company is mainly Onsite service provider whereas the assessee is offsite service provider and therefore, functionally different. Further, there is incorrect reporting figures which are unreliable. This company is product development as well as R & D Intensive Company. The arguments of the assessee were not accepted by the A.O/T.P.O and the company was held to be comparable. The ld. A.R demonstrated through Annual Report at page 1804, as per the description of the business of this company that it is onsite service provider. Furthermore at page 1796 of the Annual Report this company is doing other computer related activities but nowhere software services are Page 38 IT(TP)A No. 922/Bang/2022 mentioned. On the other hand, the assessee is offsite provider and thus functionally different. We direct the A.O/T.P.O to exclude this company from the list of comparables."
14.11Similarly, the Hyderabad Tribunal in the case of Infor (India) Pvt Ltd - IT(TP)A 198/Hyd/2021 dt.06.10.2021 has directed exclusion of Cybage Software. Relevant portion is extracted hereunder:
"4.3. Next come M/s.Thirdware Solution Limited and M/s.Cybage Software Private Limited which have already have been ordered to be excluded by the tribunal after holding the same to be functionally different than software development services and having abnormally average high margin; respectively."
14.12 The Tribunal in assessee's own case for AY 2016- 17 in ITA 285/Bang/2021 dated 03.02.2023 considering the above decisions in Optiva and Infor has rejected Cybage Software Pvt Ltd as comparable. The Tribunal in assessee's own case for AY 2017-18 in ITA 291/Bang/2022 dated 15.03.2023 has rejected this company as comparable. In consideration of the above, we direct the ld. DRP to remove the company Cybage Software Pvt Ltd. from the list of comparables for the impugned year."
The Ld.DR has not been able to produce any contrary to the above observation and therefore this comparable is directed to be excluded from the final list.
(D) Elveego Circuits Pvt. Ltd.
D.1. The Ld.AR submitted that this comparable has abnormally high margin for the year under consideration. He also contended that this company was considered by the Ld.TPO without furnishing the annual report. He also submitted that this company is engaged in the business of electronics and semiconductor design services, which is not similar to the SWD services rendered by the assessee. He submitted that this company is into chip and semiconductor designing services where as the assessee before this Tribunal is a captive service provider rendering limited SWD services to its AE. The Ld.AR Page 39 IT(TP)A No. 922/Bang/2022 thus submitted that this company is functionally not at all similar with that of the assessee.
D.2. On the contrary, the Ld.DR relied on the observations of the authorities below.
We have perused the submission advanced by both sides in light of records placed before us.
D.3. We note that this company is in the business of Chip and semiconductor design services where as the assessee before us is into basic SWD services of coding an documentation, Testing and quality assurance, software patches and maintenance. There is no similarity between the functions performed by the assessee vis-à-vis that of this company. We therefore at the threshold reject this company being functionally not similar with that of the assessee.
Accordingly, the Ld.TPO is directed to exclude this company from the final list of comparables.
Accordingly, ground no. 15 raised by assessee stands partly allowed.
5. In Ground no. 16 assessee seeks inclusion of only two comparables out of the 7 comparables raised as under:
1) Sasken Technologies Ltd. - seg
2) Evoke Technologies Pvt. Ltd.
5.1 The Ld.AR submitted that these comparables have not been disputed to be functionally not similar with that of assessee however they have been rejected for not satisfying certain criterias by the Ld.TPO. He submitted that all the details from the annual report are available in order to verify the filters applied by the Ld.TPO. He prayed for these comparables to be Page 40 IT(TP)A No. 922/Bang/2022 remanded in order to reverify these comparables vis-à-vis the filters applied. The Ld.DR did not object for the above prayer. We have perused the submissions advanced by both sides in the light of records placed before us.
5.2 We note that the submissions by the Ld.AR can be considered. We thereby remand these comparables to the Ld.AO/TPO with a direction to verify the financials vis-à-vis the filters applied by the Ld.TPO. In the event it satisfies all the filters, the same may be included unless there is any functional dissimilarities noted having regard to the FAR of assessee. Accordingly, ground no. 16 stands partly allowed for statistical purposes.
6. Ground no. 18 is in respect of comparables that is sought for exclusion under ITeS segment.
6.1 The Ld.AR submitted that assessee has alleged a total of 8 comparables out of which it is seeking exclusion of only following four comparables.
a) Manipal Digital Systems Pvt. Ltd.
b) Domex E Data Pvt. Ltd.
c) Eclerx Services Ltd.
d) MPS Ltd.
(A) The Ld.AR submitted that Eclerx Services Ltd. has been excluded by Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2016-17 in ITA No. 297/Bang/2021 for the reason hat it is functionally not similar and that this comparable is engaged in high end KPO services. The Ld.AR submitted that the said decision is placed at pages 151 and Page 41 IT(TP)A No. 922/Bang/2022 more particularly in para 8 at pages 159 to 160 of the paper book of case law compilation.
(B) Manipal Digital Systems Pvt. Ltd.
The Ld.AR submitted that this company is engaged in providing pre press services that includes premedia work and e-distribution services. Further it is submitted that this company is also engaged in variety of services including CGI, packaging pre press, image retouching, creating and branding etc and that these are high end activities under the ITeS segment. It is the submission of the Ld.AR that these functions are not comparable with the basic services rendered by assessee under the ITeS segment. The Ld.AR also relied on the decision of Hon'ble Pune Tribunal in case of Raga frameworks India Pvt. Ltd. vs. ACIT in ITA No. 674/PUN/2022 for A.Y. 2018-19 which is placed at pages 171 more particularly in para 6 at page 175 of paper book. It the observation of Hon'ble Pune Tribunal that this comparable is not functioning in ITeS segment.
(C) MPS Ltd.
The Ld.AR submitted that this comparable is functionally not similar with that of assessee as it is engaged in end to end publishing solutions and provides services including content development, print and digital publishing services etc. It is submitted that this comparable also undertakes R&D for development of tools and enhancement of cloud based digital publishing platform.
The Ld.AR submitted that this comparable owns intangibles in the form of computer software and therefore it cannot be considered to be a back end ITeS service provider. Further it is Page 42 IT(TP)A No. 922/Bang/2022 submitted that during the assessment years 2013-14 to 2018-19, this comparable has undertaken six acquisitions thereby announcing itself to be a full-fledged entrepreneur. He also placed reliance on the observations of Hon'ble Mumbai Tribunal in case of Red Hat India Pvt. Ltd. vs. NFAC reported in (2022) 136 taxmann.om 52.
(D) Domex E Data Pvt. Ltd.
The Ld.AR submitted that this comparable is not functionally similar with that of assessee as it is engaged in advertising activity under software development, KPO & BPO services. The primary objection of the Ld.AR is that there is no segmental data available providing the break-up of the revenue segments. He placed reliance on the decision of Coordinate Bench of this Tribunal in case of Marlabs Innovations Pvt. Ltd. vs. DCIT in ITA No. 963/Bang/2022 wherein this comparable was excluded for being involved in rendering KPO services under the ITeS segment. The relevant extract of the observation are as under:
"15. We heard both the parties and perused the material on record. We notice that the coordinate Bench in the case of Altair Engg (supra) has considered the exclusion of Domex E Data P. Ltd. and held that -
"34. In so far as comparability of Domex E Data Pvt. Ltd., is concerned, the argument was that this company is engaged in providing KPO and therefore cannot be compared with an ITeS such as the assessee. On this objection, the DRP again held that ITeS and KPO have to be regarded as one and the same. Learned Counsel has pointed out that in the following decisions, Tribunal has taken the view that companies rendering KPO services cannot be regarded as a comparable company with an ITeS company.
Transperfect Solutions India Pvt. Ltd vs ACIT [[TS-497- ITAT2022(PUN)-TP]] AY 2016-17 Schlumberger India Technology Centre (P.) Ltd. Vs DCIT [TS-473ITAT- 2022(PUN)-TP] AY 2016-17 Page 43 IT(TP)A No. 922/Bang/2022 Credence Resource Management (P.) Ltd vs ACIT [2022] 138 taxmann.com 543 (Pune - Trib.), for AY 2016-17
35. In the light of the aforesaid decisions, we are of the view that Domex E Data Pvt. Ltd., should be excluded from the list of comparable companies."
16. We notice that the profile of the assessee is providing SWD and ITeS services which is similar to Altair Engg. Therefore in our considered view, the ratio laid down by the coordinate Bench is applicable to assessee's case also and accordingly, we direct the TPO to exclude Domex E Data P. Ltd. from the list of comparables." 6.2. On the contrary, the Ld.DR placed reliance on orders passed by authorities below in respect of the four comparables. 6.3. We have perused the submissions advanced by both sides in the light of records placed before us.
We note that all the above four comparables contested for exclusion under the ITeS segment have been found to be engaged in high end services and these comparables are full-fleged entrepreneurs. The Ld.TPO while analyzing the functions of the assessee under ITeS segment has very categorically noted that assessee provides services to the insurance companies of the AE wherein it carries out filling up the claim entry form and patient registration, eligibility verification, claim submission and adjudication etc. under healthcare services under insurance and banking services, assessee provides record processing services, KYC update services accounting services etc. It has been observed by the Ld.TPO that assessee before us neither directly pitches nor provides support in pitching work from customers. It is noted that assessee only provides assistance / advise from operations stand point to the solutions team in USA who in turn approaches the customer for work. In our opinion, based on such limited functions of the assessee in ITeS segment all the Page 44 IT(TP)A No. 922/Bang/2022 above four comparables cannot be considered comparable with that of assessee with high end activities. Further nothing contrary has been brought to our notice by the revenue in order to deviate from the view taken by the Coordinate Benches hereinabove.
Accordingly, we direct the Ld.AO/TPO to exclude all the four comparables that are sought for exclusion by the Ld.AR. Accordingly, this ground raised by assessee stands partly allowed.
7. Ground no. 19 is not pressed by assessee and accordingly the same is dismissed as not pressed.
8. Ground no. 20 is in respect of the disallowance of employees contribution to provident fund amounting to Rs.22,61,943/-. Subsequently on the same issue, Hon'ble Supreme Court in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 in CIVIL APPEAL 2833/2016 vide its judgment dated 12 October 2022 held that allowablity/treatment of 'delayed' Employee PF Contribution payment to be taxable in hands of assessee under provisions of Income Tax Act. Hon'ble Supreme Court held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of the Act. It was held that result of any failure to pay within the prescribed dates also leads to different results. Hon'ble Supreme Court was of the opinion that in the case of employee's contribution, any failure to pay within the prescribed Page 45 IT(TP)A No. 922/Bang/2022 due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va) of the Act. On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B of the Act and is therefore not lost totally. Therefore, as per the above decision, the disallowance made by the Revenue authorities, were fully justified. 8.1. We note that this issue has been decided by the Hon'ble Supreme Court in the case of CIT Vs. Saurashtra Kutch Stock Exchange case 219 CTR (SC) 90 wherein it is held that non- consideration of the decision of the jurisdictional high court/Supreme Court constitutes mistake apparent from record and is rectifiable within the meaning of section 254(2) of the Act. In Honda Siel Power Products Ltd. v. CIT 295 ITR 466, the Hon'ble Supreme Court explained the scope of rectification powers u/s/254(2) of the Act, as follows:
"Scope of the Power of Rectification
12. As stated above, in this case we are concerned with the application under section 254(2) of the 1961 Act. As stated above, the expression "rectification of mistake from the record" occurs in section 154. It also finds place in section 254(2). The purpose behind enactment of section 254(2) is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. In the present case, the Tribunal in its Order dated 10.9.2003 allowing the Rectification Application has given a finding that Samtel Color Ltd. (supra) was cited before it by the assessee but through oversight it had missed out the said judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to Page 46 IT(TP)A No. 922/Bang/2022 the Tribunal is to see that no prejudice is caused to either of the parties appearing before it by its decision based on a mistake apparent from the record.
13. "Rule of precedent" is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the present case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Tribunal has acknowledged its mistake, it has accordingly rectified its order. In our view, the High Court was not justified in interfering with the said order. We are not going by the doctrine or concept of inherent power. We are simply proceeding on the basis that if prejudice had resulted to the party, which prejudice is attributable to the Tribunal's mistake, error or omission and which error is a manifest error then the Tribunal would be justified in rectifying its mistake, which had been done in the present case."
8.2 In the light of the law as explained above, there is a mistake apparent on record in view of the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt.Ltd. (supra) though rendered subsequent to the order passed by the Tribunal and has to be rectified by holding that the disallowance made by the revenue authorities u/s.36(1)(va) of the Act was justified. Accordingly, this ground raised by assessee stands dismissed.
9. Ground nos. 21 to 23 are in respect of whether assessee is seeking directions in not granting foreign tax credit while computing the assessed income and that computational errors in computing MAT liability. It is also submitted that the Ld.AO has Page 47 IT(TP)A No. 922/Bang/2022 not granted TDS credit and MAT credit while computing the taxable income in the hands of the assessee. 9.1. We direct the Ld.AO to carry out the computation of taxable income in accordance with law and to grant credit in respect of foreign tax credit, TDS credit and MAT credit in accordance with law.
Accordingly, these grounds raised by assessee stands allowed for statistical purposes.
10. Ground nos. 24-26 are consequential in nature and therefore do not require any adjudication. In the result, the appeal filed by assessee stands partly allowed.
Order pronounced in the open court on 17th July, 2023.
Sd/- Sd/-
(CHANDRA POOJARI) (BEENA PILLAI)
Accountant Member Judicial Member
Bangalore,
Dated, the 17th July, 2023.
/MS /
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Assistant Registrar,
ITAT, Bangalore