Income Tax Appellate Tribunal - Delhi
St- Ericsson India Pvt. Ltd., New Delhi vs Dcit, New Delhi on 3 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'I-1' : NEW DELHI)
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.609/Del./2015
(ASSESSMENT YEAR : 2010-11)
ST-Ericsson India Pvt. Ltd., vs. DCIT, Circle 24 (2),
S - 327, Lower Ground Floor, New Delhi.
Greater Kailash - II,
New Delhi - 110 048.
(PAN : AAMCS1022K)
ITA No.168/Del./2015
(ASSESSMENT YEAR : 2010-11)
DCIT, Circle 24 (2), vs. ST-Ericsson India Pvt. Ltd.,
New Delhi. S - 327, Lower Ground Floor,
Greater Kailash - II,
New Delhi - 110 048.
(PAN : AAMCS1022K)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri S.D. Kapila, Advocate
REVENUE BY : Shri Sanjay Kumar Yadav, Senior DR
Date of Hearing : 09.05.2018
Date of Order : 03.07.2018
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
Present cross appeals filed by the assessee as well as by the revenue are being disposed of by way of consolidated order to avoid repetition of discussion.
2 ITA No.609/Del./2015
ITA No.168/Del./2015 Appellant, ST-Ericsson India Pvt. Ltd. (STE India) (for short 'the taxpayer'), by filing the present appeal sought to set aside the impugned order dated 28.11.2014, passed by the AO under section 144C read with section 143 (3) of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2010-11 in consonance with the orders passed by the ld. DRP/TPO on the grounds inter alia that :-
"1. The order passed by the learned Joint Director of Income Tax, Transfer Pricing-III (1),New Delhi (erstwhile Transfer Pricing-II (2) ("the TPO"), draft and final assessment order passed by Deputy Commissioner of Income Tax, Circle - 24(2) (erstwhile Circle 9(1 )), New Delhi ("the AO") pursuant to the directions of the Hon'ble Dispute Resolution Panel - III ("the DRP"), are bad in law and void ad-initio.
2. The AO has erred in law and on the facts of the case in determining the total income of the Appellant at Rs.479,668,511 as against returned income of RS.197,866,765 and thereby made an upward adjustment of RS.281 ,801 ,746.
Part I - Transfer Pricing Grounds
3. That on facts of the case and in law, the DRPI TPO/AO have erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions as envisaged under provisions of Chapter X of the Act.
4. That on facts of the case and in law, the DRPI TPO/AO have erred in rejecting certain companies and adding certain companies to the final set of alleged comparable companies on an ad-hoc basis, thereby resorting to cherry picking of comparable companies for benchmarking the international transaction pertaining to IC design and software development services ("impugned transaction")
5. That on facts of the case and in law, the DRP/TPO/AO have erred in law and in facts by selecting certain companies which are functionally non-comparable to the Appellant.3 ITA No.609/Del./2015
ITA No.168/Del./2015
6. That on facts of the case and in law, the DRP/TPO/AO have failed to consider the foreign exchange gain and provisions/liabilities no longer required written back as operating in nature and consequently treated it as non-operating item and erroneously treated non-operating costs as operating while calculating the operating margin of the Appellant as well of the alleged comparable companies.
7. That on facts of the case and in law, the TPO has erroneously treated amortization of goodwill as an operating expense while calculating the operating margin of the Appellant.
8. That on facts of the case and in law, the TPO has erred in computation of the operating margin and working capital adjusted margin of alleged comparable companies
9. That on fact of the case and in law, the DRP/TPO/AO have erred in conducting a fresh economic analysis by using arbitrary filters for identifying companies comparable to the Appellant. The arbitrary filters applied by the TPO and confirmed by the DRP/AO are based on turnover, different accounting year, export revenue, employee cost and peculiar economic circumstances.
10. That on the facts and in law, TPO has erred in adding certain companies from the list of companies rejected by the Appellant without undertaking detailed economic analysis and not providing a detailed accept-reject matrix for selection of comparable companies. Further, the TPO has erred by not performing any quantitative analysis I applying filters while selecting the comparable companies.
11. That on facts of the case and in law, the DRP/TPO/AO have erred in law and in facts by selecting certain companies which are earning super normal profits as comparable to the Appellant.
12. That on facts and in law, the DRP and TPO/AO have failed to make appropriate adjustments to account for varying risk profiles of the Appellant vis-a-vis the alleged com parables and in the process inter-alia neglected the Indian transfer pricing regulations, international guidelines on transfer pricing and judicial precedence.
13. That on facts and in law, the DRP and TPO/AO have erred by not considering that the adjustment to the arm's length price, if any, should be limited to the lower end of the 5 percent range as the Appellant has the right to exercise this option under the second proviso to section 92C(2) of the Act.4 ITA No.609/Del./2015
ITA No.168/Del./2015
14. That on facts of the case and in law, the DRP/TPO/AO have erred in using single year data for financial year ("FY") 2009-10 of alleged comparable companies without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing documentation requirements and disregarding the Appellant's claim for use of multiple year data for computing the arm's length price.
15. That on facts and in law, the DRP/AO has erred in confirming that TPO has discharged his statutory onus by establishing that the conditions specified in clause (a) to (d) of Section 92C (3) of the Act have been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price.
Part II - Corporate Tax Grounds
16. That the DRP and learned AO has erred on facts and in law in treating the software expenses amounting to Rs.1,227,686 as capital in nature.
17. Without prejudice to the above and assuming without accepting the above revenue expenditure is to be capitalized, the DRP and learned AO has erred on facts and in law in not allowing depreciation on written down value of the amount expended, on software expense capitalized in the assessment order passed in relation to the A Y 2009-10.
18. That the DRP and learned AO has erred in law and in facts, in proposing that expenditure on training of employees amounting to Rs 1,384,084 leads to enduring benefit to the Appellant and is capital in nature.
19. Without prejudice to the above and assuming without accepting that the above revenue expenditure is to be capitalized, the DRP and learned AO has erred in not allowing depreciation on the same.
20. Without prejudice to the above, the learned AO has erred on facts and in law in not allowing depreciation on training expenses held as capital expense in the assessment order passed in relation to the AY 2009-10.
21. The DRP and learned AO has erred on facts and in law in not granting depreciation on goodwill amounting to Rs 26,453,670 which was claimed by the Appellant during the 5 ITA No.609/Del./2015 ITA No.168/Del./2015 course of assessment proceedings in accordance with the decision of Hon'ble Supreme Court in the case of Smifs Securities Ltd.
Part III - General Grounds
22. That on facts of the case and in law, the AO has erred in levying interest under section 234B and 234D of the Act while completely disregarding the provisions of the Act and the judicial precedence in this regard.
23. That on facts of the case and in law, the AO has grossly erred in initiating penalty proceedings under section 271 (1)(c) of the Act."
2. Appellant, Deputy Commissioner of Income-tax, Circle 24 (2), New Delhi (for short 'the Revenue'), by filing the present appeal sought to set aside the impugned order dated 28.11.2014, passed by the AO under section 144C read with section 143 (3) of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2010-11 in consonance with the orders passed by the ld. DRP/TPO to the extent of seeking inclusion of Infosys Ltd. as comparable for benchmarking the international transactions on the grounds inter alia that :-
"1. "Whether on the facts and in circumstances of the case, the Hon'ble DRP has erred in directing the Assessing Officer/Transfer pricing Officer (AO/TPO) to exclude M/s. Infosys Technologies Ltd. from the list of comparables for the purpose of benchmarking the International Transaction and computation of Arm's length price in relation to software development services.
2. Whether the decision of the Hon'ble DRP to exclude M/s. Infosys Technologies Ltd. is unsustainable in law, being cryptic and having been given without any cogent reasons in the face of 6 ITA No.609/Del./2015 ITA No.168/Del./2015 detailed analysis given by the TPO for selecting the company as a comparable in benchmarking the international transaction.
3. Whether the Hon'ble DRP has erred in summarily holding that M/s.Infosys Technologies Ltd. is not a proper comparable ignoring the TPO's detailed analysis of the company on all the relevant parameters in support of his finding as to how M/s. Infosys Technologies Ltd. qualifies as a comparable for benchmarking the translation.
4. Whether the Hon'ble DRP has erred in mechanically and selectively relying upon the decision in the case of M/s. Agnity India Technologies Pvt. Ltd. without appreciating that the decision in the said case turned on the specific fact-situation involved therein as the Hon'ble ITAT had rendered an uncontroverted finding regarding the difference in the functional & risk profiles between the assessee and M/s. Infosys Technologies Ltd. in the case under consideration, the TPO has given a detailed analysis as to how the assessee and M/s. Infosys Technologies are not different functionally and therefore the case of M/s. Agnity India Technologies Pvt. Ltd. is distinguishable."
3. Briefly stated the facts necessary to adjudicate the issues in controversy are : According to the Transfer Pricing Report, ST Ericsson is into integrated circuit design development, verification, maintenance and software development related to the communication devices. The taxpayer, one of the design centers for STE Group, works only on the specifications given to it by the STE Group and its limited functions in the design and development stage of the semi-conductor products is merged with the rest of the implementation performed by the other centers of STE Group in order to complete the designing and development of particular product. The taxpayer claimed its role to be that of a contract 7 ITA No.609/Del./2015 ITA No.168/Del./2015 captive design centre. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprise (AE) tabulated as under :-
S.No. Type of International Method selected Total value of transaction MAM PLI transaction (Rs.) 1 Provision of IC Design and TNMM OP/OC 1,663,523,492 Software Development services 2 Purchase of equipment TNMM OP/OC 26,722,373
4. The taxpayer in order to benchmark its international transaction in its TP study chosen 20 comparables on the basis of three years data and computed OP/OC of comparables at 4.99% and found its international transaction at arm's length. TPO on the basis of audited financials proceeded to hold that the assessee is not merely a service provider but carried out whole range of software development services to carry out the main work of its AE and for that, set out the filters inter alia that use of current year's data excluding the company's different financial years; rejecting the companies having turnover of less than Rs.5 crores; selecting companies having ratio of service income to total income of at least 75%; select companies having export income of at least 75% of the total income excluding companies having related party transaction exceeding 25% of sales; rejecting companies having employee cost 8 ITA No.609/Del./2015 ITA No.168/Del./2015 of less than 25% of the total cost; excluding companies affected by some peculiar circumstances like persistent losses, declining sales, extra ordinary income or expenses, mergers and acquisition. By applying the aforesaid filters, Transfer Pricing Officer (TPO) rejected 7 comparables chosen by the taxpayer and has selected 20 comparables having average OP/OC of 27.88% and working capital adjusted OP/OC at 22.47% for benchmarking the international transactions, detailed as under :-
S.No. Company Name OP/OC Working
Capital
(%)
adjusted
OP/OC
(%)
i. Akshav Software Technologies Ltd. -1.04 -3.77
ii. E-Infochips Bangalore Ltd. 72.69 62.79
iii. Evoke Technologies Pvt Ltd 19.02 16.32
iv. E-Zest Solutions Ltd. 18.66 11.46
v. Infinite Data Systems Pvt. Ltd. 88.25 81.39
vi. Infosys Ltd. 45.08 43.05
vii. Larsen & Toubro Infotech Ltd. 20.48 17.63
viii. LGS Global Ltd. 12.79 5.11
ix. Mindtree Ltd. 16.62 12.14
x. Persistent Systems Ltd. 30.50 25.50
xi. R S Software (India) Ltd. 10.29 7.82
xii. Sasken Communication 17.54 15.51
xiii. Tata Elxsi Ltd. 19.82 14.68
xiv. Thinksoft Global Services Ltd. 17.35 11.27
xv. Thirdware Solutions Ltd 41.63 35.70
xvi. CAT Technologies 11.48 1.29
9 ITA No.609/Del./2015
ITA No.168/Del./2015
xvii. Maveric Systems Ltd. 16.17 12.35
xviii. Persistent Systems & Solutions Ltd. 15.38 9.49
(Merged)
xix. Sankhya Infotech 11.44 2.36
xx. Wipro Technology Services Ltd. 73.35 67.32
Average 27.88% 22.47%
5. TPO also treated foreign exchange gain and provisions/ liabilities no longer required written back as non-operating in nature thus treated non-operating cost as operating while calculating operating margin of the assessee as well as comparable companies. TPO also treated amortization of goodwill as operating expenses while calculating the operating margin of the assessee. TPO has also computed operating margin and working capital adjusted margin of the comparable company. AO proposed expenditure on training of employees as enduring benefit to the assessee as capital in nature.
6. On the basis of TP analysis carried out by the TPO, Arm's Length Price (ALP) of the international transactions related to IC design and software development services is computed as under:-
Particulars Amount (INR)
Operating Cost 1,613,801,867
Arm's Length margin (%) 22.47%
Arm's length margin (Rs.) 362,621,280
Arm's length price 1,976,423,147
Price charged by the assessee 1,677,615,077
105% of price charged in 1,761,495,831
10 ITA No.609/Del./2015
ITA No.168/Del./2015
international transaction
Difference between ALP and price 298,808,070
charged by assessee
7. The taxpayer carried the matter before the ld. DRP who has disposed of the objections. Feeling aggrieved, the taxpayer as well as Revenue have come up before the Tribunal by way of filing cross appeals.
8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
9. Undisputedly the facts of the case under consideration are identical to that of AY 2009-10. In an order passed by the Tribunal in assessee's own case in ITA No.1672/Del/2014 for AY 2009-10 order dated 22.02.2017, available at pages 1966 to 2001of Vol.5 of the paper book, relevant page 1982, assessee has been treated as a captive service provider involved at the design and development stage only with a limited scope of work and is not involved in the process of conceptualization of any product or works and works only on the specification provided by the STE Group for the implementation of IC design, its maintenance, verification and software development. So, for the purpose of benchmarking the 11 ITA No.609/Del./2015 ITA No.168/Del./2015 international transactions, the assessee is to be treated as a contract captive design centre.
10. TPO has accepted TNMM as Most Appropriate Method (MAM) with OP/OC as PLI adopted by the assessee for TP analysis. The major dispute raised by assessee is inclusion of certain companies in the final set of comparables which are functionally dissimilar; treating the foreign exchange gain and provisions/liability as non-operating in nature; treating amortization of goodwill as operating expenses. To arrive at the logical conclusion qua TP adjustment made by the TPO/DRP/AO, we would discuss grounds no.6, 7 and 12 first. TAXPAYER'S APPEAL (ITA No.609/Del./2015) GROUNDS NO.1, 2 & 3
11. Grounds No.1, 2 & 3 are general in nature, hence do not require any specific adjudication.
GROUND NO.6
12. It is the case of the assessee that foreign exchange and provision of doubtful debts are operating items for the purpose of computing the operating margin of the assessee as well as comparables. However, ld. TPO rejected the arguments raised by 12 ITA No.609/Del./2015 ITA No.168/Del./2015 the assessee and treated the foreign exchange gain and provision of doubtful debts as non-operating item for the purpose of computing the operating margin of the assessee as well as comparables. Ld. DRP also ratified findings returned by the ld. TPO.
13. Ld. AR for the assessee contended that this issue is already covered in assessee's own case in AY 2009-10 (supra). For ready perusal, operative part of the findings returned by the coordinate Bench of the Tribunal are extracted as under :-
"15. Ld. TPO as well as ld. DRP have treated foreign exchange gain/loss as non-operating in nature by relying upon Notification of CBDT issued on 18.09.2013, which is a notification on 'Safe Harbour Rules'. Ld. DRP has categorically held as under :-
"However, the position has changed since the notification of CBDT issued on 18.09.2013. This is the notification on 'Safe Harbour Rules'. Rule 10TA(j)(k) and (l) define the concept of "operating expense", "operating revenue" and "operating profit" respectively. According to this Rule, loss or income arising on account of foreign currency fluctuations are excluded from the calculation of "operating expense" and "operating income" respectively. Therefore, the TPO was correct in excluding forex items from the calculation of operating profit. This objection of the assessee is rejected."
16. However, as is apparent from the date of Notification of the Rule relied upon by the ld. DRP dated 18.09.2013, the same is not applicable to the case of the assessee which is qua Assessment Year 2009-10. This identical issue has also been dealt with by the coordinate Bench of the Tribunal in case cited as Westfalia Separator India (P.) Ltd. vs. ACIT - (2014) 52 taxmann.com 381 (Delhi - Trib.) by making following observations :-
"4.8 The ld. AR relied on Rule 10T(j) to contend that loss arising on account of foreign currency fluctuations cannot be included in the operating expense. We are not persuaded to give any mileage to the ld. AR on this count for the simple reason that Rule 10T is a part of Safe harbor rules notified on 18.09.2013 which are not applicable to the assessment year under consideration."13 ITA No.609/Del./2015
ITA No.168/Del./2015
17. So, in view of the matter, order passed by TPO/DRP in not considering the foreign exchange gain / loss as operating in nature is not tenable in the eyes of law, hence hereby set aside. Ld. TPO is directed to treat the foreign exchange gain / loss as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. So, ground no.6 is determined in favour of the assessee."
14. So, by following the decisions rendered by the coordinate Bench of the Tribunal, we direct the ld. TPO to treat foreign exchange gain/loss and provision of doubtful debt as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. So, ground no.6 is determined in favour of the assessee.
GROUND NO.7
15. Assessee has challenged the findings returned by TPO/DRP treating amortization of goodwill as not extra ordinary in nature. It is the case of the assessee that goodwill is on account of acquisition of units through slump sale under Business Transfer Agreement and in these circumstances, amortization of goodwill is an extra ordinary item and is not pertaining to the regular operation of the taxpayer, hence non-operating in nature.
16. Ld. AR for the assessee contended that ld. DRP in assessee's own case in AYs 2011-12 and 2012-13 and ld. TPO in AY 2013-14 14 ITA No.609/Del./2015 ITA No.168/Del./2015 has already amortized goodwill as extra ordinary in nature by excluding the same by computing operating margin of the taxpayer and order thereof is available at pages 2681 to 2695, 2696 to 2713 and 2718 and 2764 of the paper book. It is also not in dispute that there is no change in the facts of AYs 2010-11, 2011-12, 2012-13 and 2013-14. Perusal of the order passed by ld. DRP available at page 2681 relevant portion at page 2691, shows that amortization of goodwill is an extra ordinary item and is not pertaining to the regular operation of the assessee, and hence non-operating in nature. So, in these circumstances, we direct the TPO to verify the facts and treat the amortization of the goodwill as non-operating expenditure in order to compute the operating margin of the assessee. So, ground no.7 is determined in favour of the assessee. GROUND NO.12
17. Assessee claimed risk adjustment on account of differences between the assessee and comparable companies which has been denied by TPO/DRP on the ground that the assessee has only a single customer risk. Assessee claimed risk adjustment of 13.89% to be applied to the margin of the comparable companies for benchmarking the international transaction computed as under : 15 ITA No.609/Del./2015
ITA No.168/Del./2015 Particulars Margin (in %) Rate of return on 5 year Government securities as 7.25% on March 2010 (A) Credit spread between 5 year Government 1.17% securities and AAA rated corporate bond as on 31 March 2010 (B) Rate of return on AAA rated corporate bonds C = 8.42% (A + B) Risk Adjustment to be made on margin earned by 13.89% comparables (B/A)
18. Assessee relied upon Rule 10B (2) and decision rendered by Delhi Bench of the Tribunal in Hyundai Rotem Company vs. ACIT in ITA No.510/Del/2016 order dated 22.11.2017 available at pages 2667 to 2680 of Vol.V of the paper book, relevant page 2678.
19. Ld. DRP rejected the claim of the assessee for risk adjustment on the ground that the mechanical adjustment cannot be made to the margin of the comparables without knowing which risk was taken by the entity concerned and how its profitability was affected. Ld. DRP further stated that this exercise requires robust and reliable data available with the assessee as well as for the comparables and in the absence of which, risk adjustment cannot be considered for enhancing comparability and thereby rejected the objection. Finding of the ld. DRP shows that the ld. DRP has not denied the risk adjustment but requires robust and reliable data to quantify the risk adjustment. It is settled principle of law that 16 ITA No.609/Del./2015 ITA No.168/Del./2015 claim cannot be rejected merely on the ground that it cannot be quantified.
20. Coordinate Bench of the Tribunal in case cited as Hyundai Rotem Company vs. ACIT (supra) decided the issue in favour of the assessee by returning following findings :-
"18. Ld. DRP for the Revenue contended that the risk has to be explained in case of each comparable and economic analysis cannot be the basis for risk adjustment in the absence of complete data provided by the taxpayer. However, the ld. AR for the taxpayer contended that the risk adjustment is required to be given on each comparable as has been held by the coordinate Bench 'A', Pune Bench of the Tribunal in case of Honeywell Turbo Technologies (India) Pvt. Ltd. vs. DCIT in ITA No.2584/PUN/2012 order dated 10.02.2017 by following the case of Sony India Pvt. Ltd. cited as 114 ITD 448 by making following observation:-
"33. Further, the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448 has allowed 20% risk adjustment considering the fact that it may not be possible to quantify risk adjustments. The assessee applying the said ratio in the case of Sony India Pvt. Ltd. (supra) has worked out the risk adjustment on the operating margins of comparables to be allowed when computed @ 20%. We direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee."
19. Similar view has been taken by the coordinate Bench of the Tribunal in case of ITO vs. M/s. Supportsoft India Pvt. Ltd. in IT (TP) A.No.1372/Bang/2011 order dated 28.03.2013 by returning following findings :-
"27. Having heard both the parties and having considered the rival contentions, we find that the Tribunal in the case of M/s. Intellinet Technologies India Pvt. Ltd. vs. ITO in ITA 1237/Bang/2007 dated 30-3-2012 has considered this contention of the assessee and has held that the single customer risk attributable to the assessee is only an anticipated risk whereas the risk attributed by the 17 ITA No.609/Del./2015 ITA No.168/Del./2015 assessee to the comparables is existing risk and in such situation the TPO ought to have given the risk adjustment to the net margin of the comparable for bringing them on par with the assessee-company. In the said case also, the assessee had claimed risk adjustment at 5.5% and the Tribunal has directed the TPO to consider the contention of the assessee and decide the percentage on risk adjustment to be made in accordance with law. As both of us are Signatories to the said order, we respectfully following the decision in the case of M/s.Intellinet Technologies India Pvt. Ltd. (supra) remit this issue also to the file of the AO/TPO for re-consideration of the issue in accordance with law and in the light of our observations above."
20. So, following the decision rendered by coordinate Bench of the Tribunal in case of M/s. Supportsoft India Pvt. Ltd (supra), we are of the considered view that the taxpayer in this case is entitled for risk adjustment to the net margin of comparables for bringing them at par with the taxpayer. So, ground no.4 is determined in favour of the assessee.
21. So, following the decision rendered by the coordinate Bench of the Tribunal, we are of the considered view that the assessee is entitled for risk adjustment to the net margin of the comparables for bringing them at par with the taxpayer on supplying the complete data by the assessee. So, ground no.12 is determined in favour of the assessee for statistical purposes. GROUND NO.11, 13, 14 & 15
22. Grounds No.11, 13, 14 & 15 are dismissed having not been pressed during the course of arguments.
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ITA No.168/Del./2015 GROUNDS NO.4, 5, 9 & 10
23. TPO has accepted the TNMM as most appropriate method with OP/OC as the PLI adopted by the taxpayer. The taxpayer in order to benchmark the international transactions sought exclusion of 9 comparables chosen by TPO/DRP viz. (i) E-Infochips Bangalore Ltd., (ii) Infinite Data Systems Pvt. Ltd., (iii) Wipro Technology Services Ltd., (iv) Larsen & Toubro Infotech Ltd., (v) Mindtree Ltd., (vi) Tata Elxsi Ltd., (vii) Thirdware Solutions Ltd.,
(viii) Persistent Systems Ltd. and (ix) E-Zest Solutions Ltd. The taxpayer also sought inclusion of 4 comparables excluded by TPO/DRP viz. (i) R System International Ltd., (ii) Caliber Point Business Solutions Ltd. (Seg), (iii) SIP Technologies & Exports Ltd. and (iv) CG-Vak Software & Exports Ltd.. First of all, we would examine the comparables sought to be excluded by the taxpayer one by one as under.
COMPARABLES SOUGHT TO BE EXCLUDED BY THE TAXPAYER E-INFOCHIP BANGALORE LTD. (E-INFOCHIP)
24. Assessee sought exclusion of E-Infochip on the ground that IT Enabled Services (ITES) segment is not a comparable services 19 ITA No.609/Del./2015 ITA No.168/Del./2015 vis-à-vis taxpayer in the absence of insufficient segmental information. When we examine annual report of E-Infochip, relevant page 930 of the paper book, sufficient segmental information is not available. For ready perusal, relevant portion regarding segment information is extracted as under :-
"16. SEGMENT INFORMATION Information about Primary Segments The Company is primarily engaged in Software Development and I.T. enabled Services which is considered the only reportable business segment as per Accounting Standard-AS 17 'Segment Reporting' issued by mandatory Accounting Standard prescribed in Companies (Accounting Standard) Rules, 2006 and the relevant provisions of Companies Act, 1956.
Information about Secondary Segment Sales by market - the company has only one geographical segment i.e. USA."
25. Hon'ble High Court in case cited as United Health Group Information Services (P) Ltd. in ITA 1180/2017 for AY 2010-11 available at page 2034 to 2037, relevant page 2035, confirmed the exclusion of E-Infochip made by the Tribunal on the ground that E- Infochip being primarily engaged with the technology and software development vis-à-vis United Health Group Information Services 20 ITA No.609/Del./2015 ITA No.168/Del./2015 Pvt. Ltd. which is a software development services like the taxpayer.
26. Coordinate Bench of the Tribunal in case cited as Sun Life India Service Centre Pvt. Ltd. in ITA No.750/Del/2015 for AY 2010-11 available at page 2038 to 2080, a routine software development service provider has ordered to exclude the E- Infochip being not valid comparable for TP analysis.
27. Ld. DR for the Revenue by relying upon the TP order contended that except in segmental information, nowhere in the annual report ITES has been mentioned nor any income has been attributed to it. However, we are of the considered view that when company has categorically claimed to be primarily engaged in software development and ITES and considered the same as the only reportable business segment, the same cannot be taken as a valid comparable particularly under TNMM under which large pool of comparable is available.
28. In view of the matter, we are of the considered view that when E-Infochip is engaged into software development as well as ITES and segmental information is not available, the same cannot be a valid comparable vis-à-vis the taxpayer which is a routine 21 ITA No.609/Del./2015 ITA No.168/Del./2015 software development service provider, hence we order to exclude E-Infochip from the final set of comparables. INFINITE DATA SYSTEMS PRIVATE LTD. (INFINITE)
29. The taxpayer sought to exclude Infinite on three grounds inter alia it provides services to Fujitsu Services Ltd. (Fujitsu), UK under contract with the holding company; that it earns revenue from Fujitsu Services Ltd. under Build, Operate and Transfer (BOT) model and Infinite has provided services to Fujitsu under contract between Infinite and Fujitsu Services Ltd., UK and the said contract is not available in the public domain. Ld. DR filed comprehensive written submissions opposing the exclusion of Infinite.
30. It is not in dispute that Infinite is a 100% subsidiary of Infinite Computer Solutions (India) Limited (ICS) which had signed agreement with Fujitsu Services Ltd., a company incorporated in UK to set up Global Delivery Center in India in order to render service to Fujitsu Services Ltd. and its associate with effect from January 1, 2009 on BOT model, as is evident form Director's report, available in the annual report lying at page 1048 of PB-3.
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31. In the Notes to Financial Statement, available at page 1063, it is categorically mentioned that Infinite provides solutions that encompass technical consulting, design and development of software, maintenance, system integration, implementation, testing and infrastructure management services being wholly owned subsidiary of ICS. When the Infinite is working for ICS in terms of the agreement of BOT model as per agreement with Fujitsu Services Ltd to provide offshore delivery capabilities, it cannot be a valid comparable vis-à-vis the taxpayer which is a routine captive software development service provider. The company working under uncontrolled business environment cannot be compared with company working under controlled business environment.
32. Moreover, when IDS has been providing services to Fujitsu Services Ltd. under the contract with IDS and Fujitsu Services Ltd., UK to which IDS is not a party and agreement is not available in the public domain, their entire transaction is opaque and cannot be a valid comparable. Hon'ble Delhi High Court in United Health Group Information Services (India) Pvt. Ltd. (supra), confirmed the exclusion of Infinite as comparable vis-à-vis United Health Group Information Services (India) Pvt. Ltd. which is a routine software development services provider. 23 ITA No.609/Del./2015
ITA No.168/Del./2015
33. Coordinate Bench of the Tribunal in case cited as Sun Life India Service Centre Pvt. Ltd. (supra) ordered the exclusion of Infinite as a comparable with routine software service provider. Moreover, when Infinite is dealing with sole customer, Fujitsu Services Ltd., the same is exposed to significant single customer risk.
34. Coordinate Bench of the Tribunal in Lab Advantage Solution Pvt. Ltd. vs. DCIT in ITA No.1051, 599, 617/Kol/2015 for AY 2010-11, also examined comparability of Infinite with Lab Advantage Solutions Pvt. Ltd., a software development service provider and ordered to exclude the same by returning following findings :-
"8.3. Exclusion of Infinite Data Systems Pvt Ltd (Merged) We find that this company had reported NCP of 88.25%. It is not in dispute that the assessee is engaged in software development."
Hence comparable should also be in the companies engaged in the similar sector. We find that this company is having a different business model and engaged in providing entire gamut of solutions comprising of technical consulting, design and development of software, maintenance, system integration, implementation, testing and infrastructure management services. We find from the paper book that the revenue is primarily derived from technical support and infrastructure management services. We find that Infinite Data Systems Pvt Ltd commenced its operations on 1st January 2009 and as per segment reporting disclosure, the company's operations predominantly relate to providing software technical consultancy services to its sole customer Fujitsu Services Limited. Further, as per the Annual Report of 2009, at Page l, it is stated that the Holding Company M/s Infinite Computer Solutions (India) Limited signed an agreement (Build, Operate and Transfer - BOT Model) with Fujitsu Services Limited to set up Global Delivery Centers in 24 ITA No.609/Del./2015 ITA No.168/Del./2015 India to provide offshore delivery capabilities to Fujitsu & Fujitsu's associated companies. We find that these facts have also been acknowledged by the ld TPO at page 77 of his order. The ld. AR stated that it would be worthwhile to note that Infinite Data Systems Pvt Ltd completed its three years contract with Fujitsu, post which, the business was transferred to Fujitsu and thus the company has been merged with its Holding Company - Infinite Computer Solution India) ltd during the financial year 2011-12. We are inclined to agree with the submission of the ld AR that this Comparable Infinite Data Systems Pvt Ltd was created for purposes of transfer of business. Hence the nature of services and business model of assessee company and comparable company are entirely different. Apart from this, we also find that there exist abnormal circumstances in the said comparable. During the last 3 years, variations in margins earned show an abnormal circumstances leading to huge fluctuations and supernormal profit, the margin earned by Infinite is 88.25% which is abnormally high. It was argued that such companies which are making more than twice the arithmetical mean margin as computed by the ld TPO should not be considered as comparable. The ld AR referred to page 591 of the Paper Book where the details of the fluctuation in the revenue, profit and margins has been provided. It is true that where company in which extraordinary events had taken place during the year like major acquisitions which had impact on profits of company, it could not be selected as comparable to assessee engaged in software development. We place reliance in this regard on the decision of Hyderabad Tribunal in the case of Excellence Data Research (P) Ltd vs ACIT reported in ( 2016) 74 taxmann.com 13 (Hyd Trib) dated 12.9.2016 for Asst Year 2010- 11 , wherein it was held that :-
8. Having regard to the rival contentions and the material on record, we find that the DRP has directed the AO to consider whether the extra ordinary event of amalgamation during the year is found to have an impact on the profits of the company. We find that instead of carrying out the exercise, the AO has simply followed the order of the TPO in holding that the fact of amalgamation on the margin of the said company has no effect on the margin of the said company. This, in our opinion, is not a correct approach a/the AO. Where a direction has been given by the DRP to follow a certain procedures, the AO has simply followed the TPO order.
Therefore, order of the AO on this issue needs to be set aside. In the case of Hyundai Motors India Engg. (P.) Ltd. (2015) 64 taxmann.com 442 (Hyd.-Trib.) which is also engaged in rendering of ITES to its AEs, the Tribunal has taken note of the same at para 9.1 and 9.3 of 25 ITA No.609/Del./2015 ITA No.168/Del./2015 its order. Therefore, the decision of the Tribunal in the said case is applicable to the case on hand, more particularly since the comparables adopted by the TPO in the said case are the same ill the assessee's case also. In the case of Hyundai Motors India Engg. (P.) Ltd. (supra) at Page 20, para 18, the Tribunal has held as under:
"18. As regards M/s. Accentia Technologies Ltd., is concerned, we find that the DRP has directed to exclude this company by placing reliance upon the order of the ITA T in the assessee's own case for the A. Y. 2009-10 by holding that this company operates in a different business strategy of acquiring companies for inorganic growth as its strategy and considering the profit margins of the company and insufficient segmental data, held that this company cannot be selected as a comparable. It was also held by the DRP that on the very same reason of acquisition of various companies, being an extraordinary event, it had an impact on the profit of the company and the said company was directed to be excluded.
18.1 For the relevant A.Y. 2010-11, the Ld. Counsel for the assessee has drawn our attention to the information available on Accentia Technologies Ltd., to demonstrate that the said company is into diversified knowledge process outsourcing activities. It is seen there from that the said company is involved in Healthcare documentation as well as receivables, management services including installation and maintenance of all software, hardware and band width infrastructure required for the same, deployment of man power and service delivery in all these areas. It is also seen that it is engaged in legal process outsourcing. From Schedule-OV showing the fixed assets of the assessee, it is also seen that the said company owns goodwillibrandl1PRs (Intellectual Property Rights). From the notes to the accounts, it is also seen that a subsidiary of the company Asscent Infoserve Pvt. Ltd., has been amalgamated with the company consequent to which, assets and liabilities of the erstwhile company were transferred and vested in the company w.e.f 1st April, 2008 and the scheme has been given effect to in the accounts of the year. Therefore, it is clear that there is an extraordinary 26 ITA No.609/Del./2015 ITA No.168/Del./2015 event in the case of Accentia Technologies Ltd., during the relevant financial year particularly since the approval for amalgamation has been given by the Hon'ble High Court of Mumbai vide orders dated 21st August, 2009 and by the Hon'ble Karnataka High Court vide orders dated 6th February, 2010. This event would definitely have an effect on the profit margins of the said company and therefore, has to be excluded from the list of comparables as rightly done by the DRP. Therefore, we do not see any reason to interfere with the order of the DRP on this company also. Accordingly, ground No. 3 of the Revenue is dismissed".
Since the order of the Tribunal in the case of Hyundai Motors India Engg. (P.) Ltd. (supra) for the same A. Y, we direct the AO;TPO to exclude this company from the final list of comparables.
11. TCS e-Serve International Ltd: As regards the comparability of this company with the assessee, the learned Counsel for the assessee submitted that the TCS international also provides software testing, verification and validation which are different from ITES services providers by the assessee. It is also submitted that the segmental information of TCS International are not available in the annual report. The exceptional circumstances of the company reported in annual report such as acquisition of India based captive business outsourcing arm, resulting in acquisition of an aggregate amount of $ 2.5 billion over a period of 9.5 years and its impact on the financial implications of the company also brought to our notice. It is submitted that these peculiar circumstances have been considered by the Coordinate Bench of this Tribunal in the case of Hyundai Motors India Engg. (P.) Ltd. (supra) for exclusion of the list of comparables.
Respectfully following the decision of the Bench, these two comparables TCS e-Serve International Ltd and TCS e-Serve Ltd directed to be excluded.
In view of the aforesaid findings and judicial precedent relied upon, we hold that the comparable chosen by ld TPO i.e Infinite Data Systems Pvt Ltd (Merged) is functionally not comparable with the assessee company."
27 ITA No.609/Del./2015
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35. In view of what has been discussed above, we are of the considered view that Infinite is not a valid comparable vis-à-vis the taxpayer for TP analysis. So, we order to exclude the same from the final set of comparables.
WIPRO TECHNOLOGY SERVICES LTD. (WIPRO)
36. The taxpayer sought exclusion of Wipro on the ground that it involved in providing software related services to its sole customer Citi Group entities which were acquired by Wipro and has signed a Master Service Agreement with Citi Group for the delivery of services for a period of six years; that Wipro's transaction with Citi Group falls within the ambit of section 92B (2) and as such, is deemed international transaction and has relied upon the decision of Hon'ble Delhi High Court in Cashedge India Pvt. Ltd. in ITA 279/2016 order dated 04.05.2015, decisions rendered by the Tribunal in Open Solutions Software Services Pvt. Ltd. for AY 2010-11 (ITA No.7078/Del/2014) and Equant Solutions India Pvt. Ltd. for AY 2010-11.
37. Bare perusal of the annual report of Wipro, available at page 1545 of Paper Book-III, shows that Wipro is providing software related services to its sole customer Citi Group as per Master Service Agreement (MSA) dated 21.01.2009. MSA provides for 28 ITA No.609/Del./2015 ITA No.168/Del./2015 the delivery of at least $ 500 million in service revenues over the period of the contract. So, the Wipro is into controlled transactions with its sole customer. Furthermore, when we examine business transactions between Wipro and Citi Group companies in the light of the MSA, such transactions are deemed international transactions u/s 92B (2) of the Act.
38. Hon'ble Delhi High Court in case of Cashedge India Pvt. Ltd. (supra) confirmed the findings returned by coordinate Bench of the Tribunal directing to exclude Wipro as a comparable vis-à- vis Cashedge which is also into business of software development by returning following findings :-
"6. ......as far as the Wipro Technology Services goes, it was part of the Citi Group and was during the financial year in question acquired on 21.01.2009 by the Wipro Ltd. as a subsidiary. As a part of the arrangement, the existing contracts pertaining to the work of the Citi Group continued to be with the newly created entity, i.e., Wipro Technology Services. Equally importantly, is that there was no published segmented data as far as software development or its finances were concerned with respect to Wipro Technology Services. In these circumstances, the findings of the ITAT are purely factual and cannot be gone into as no substantial question of law arises for consideration."
39. Similarly, coordinate Bench of the Tribunal in case cited as Open Solutions Software Services Pvt. Ltd. (supra) examined the comparability of Wipro avis-avis Open Solutions Software Services Pvt. Ltd. engaged in software development, research and other related services and found the same to be invalid comparable 29 ITA No.609/Del./2015 ITA No.168/Del./2015 in the light of the provisions contained u/s 92B(2) of the Act by returning following findings :-
"The aforesaid provision clearly envisages that, if a transaction has been entered into by an enterprise with unrelated party, then for the purpose of Section 92B(1) it is deemed to be transaction entered into between related parties (two A.Es) if there exists prior agreement in relation to the relevant transaction between third party and the A.E. In other words, as per terms of Section 92B(2), even if the transaction is between unrelated party and an enterprise, then, it would be deemed to be an international transaction if there was any prior agreement between the related parties on the basis of which present transaction is being undertaken."
40. So, when Wipro has received the revenue by virtue of MSA with Citi Group on account of pre-arrangement, it is deemed to be international transactions and in these circumstances, Wipro fails RPT filter applied by the TPO.
41. Ld. DR for the Revenue in order to repel the arguments addressed by the ld. AR for the assessee contended that in the annual report in the related party transactions, nowhere the name of Citi Group entities have been mentioned as related party and as such, this comparable does not fail RPT filter by virtue of provisions of section 92B(2) of the Act.
42. However, this contention of the ld. DR is not sustainable because this issue has already been examined at length by the coordinate Bench of the Tribunal in Open Solutions Software Services Pvt. Ltd. (supra) and in the light of the MSA entered into 30 ITA No.609/Del./2015 ITA No.168/Del./2015 between Wipro and Citi Group w.e.f. 21.01.2009, related party transaction is proved and provisions contained u/s 92B(2) are attracted. So, there is no cogent factual and legal reason to depart from the decision rendered by the coordinate Bench of the Tribunal in Open Solutions Software Services Pvt. Ltd. (supra).
43. So, when the entire Revenue is received by the taxpayer by virtue of MSA entered into with Citi Group services which is also its subsidiary, the benefit accruing to this company on the basis of brand name of Wipro cannot be denied. So, in these circumstances, we find Wipro as unsuitable comparable for benchmarking the international transactions and exclude the same from the final set of comparables.
TATA ELXSI LTD. (TATA ELXSI)
44. The taxpayer sought exclusion of Tata Elxsi on ground of functional dissimilarity and non-availability of segmental data. Perusal of the annual report, available at pages 1355 to 1420 of Paper Book - III, shows that the taxpayer is having wide range of segments viz. Product Design Services (PDS), Industrial Design & Engineering (IDE), Visual Computing Labs (VCL), Systems Integration (SI) and Software Development Services. At the same time, segmental data is not available.
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45. Keeping in view the functional dis-similarity and non- availability of segmental data, coordinate Bench of the Tribunal in taxpayer's own case for AY 2009-10 (supra), ordered to exclude Tata Elxsi from the final set of comparables by returning following findings :-
"45. Assessee raised objection before the TPO/DRP that this company is not a valid comparable as this is an IT enabled and software product company. TPO/DRP overruled this objection by observing that it can easily be included in the list of comparable as it is providing software services and only verticals are different.
46. From the annual report of this company, available at page 1465 to 1540 of the Paper Book, we can easily make out that this company is into software development services, product design services, innovation design engineering services, system integration and support services. But the TPO has taken software development services only for the purpose of comparability with the assessee. However, perusal of the detail segment goes to prove that design and development of hardware is also included in the software services. In other words, Tata Elexi Ltd. is into software produce as is evident from the annual report and as such, cannot be taken as a valid comparable. So, we order to exclude this company from the final list of comparables."
46. In view of what has been discussed above, we are of the considered view that Tata Elxsi is not a valid comparable vis-à-vis the taxpayer, hence we order to exclude the same from the final set of comparables.
32 ITA No.609/Del./2015
ITA No.168/Del./2015 THIRDWARE SOLUTIONS LTD. (THIRDWARE)
47. The taxpayer sought exclusion of Thirdware on ground of functional dissimilarity being engaged into sale of software products and on the ground that Thirdware has been ordered to be excluded by the coordinate Bench of the Tribunal in taxpayer's own case for AY 2009-10 (supra). Undisputedly, there is no change in the functional profile of the taxpayer since AY 2009-10. Coordinate Bench of the Tribunal in taxpayer's own case for AY 2009-10 ordered to exclude Thirdware by returning following findings :-
"47. This is again TPO's own comparable and assessee sought to exclude this company from the list of comparables on the ground of non-comparable services i.e application implementation, management and development services. TPO rejected objections raised by the assessee by observing that software development, implementation and support services are various sub-segments of software development services only and require employment of software engineers and retained this company as a comparable for benchmarking international transactions.
48. However, perusal of the annual report of this company, available at page 1735 to 1782 of the Paper Book Vol.IV, goes to prove that the substantial revenue of this company is from sales and operating sales of licence; software services, export from SEZ unit, export from STPI unit and revenue from subscription. It is also apparently clear that software services segment accounts for Rs.8.91 crores out of the total sales of Rs.77 crores whereas segmental results are not available. So, when this company's substantial revenue is from other various business segments like sale of licence, software services and segmental results are not available, this company cannot be a valid comparable for benchmarking the international transaction, hence ordered to be excluded."33 ITA No.609/Del./2015
ITA No.168/Del./2015
48. In view of what has been discussed above, in the face of the fact that Thirdware is having substantial revenue from sales and operating sales of licence; software services; export from SEZ Unit; export from STPI Unit; and revenue from subscription and its segmental results are not available, it is functionally incomparable, so it cannot be taken as a valid comparable. Hence, we order to exclude the same.
PERSISTENT SYSTEMS LTD. (PERSISTENT)
49. The taxpayer sought exclusion of Persistent on ground of functional dissimilarity being a software product company having significant IPs and earning its revenue from its monetization, having intangibles in the nature of software licenses.
50. When we examine profit & loss account for the year ending March 31, 2010 of Persistent, available at page 1848 of the Paper Book - IV, it shows that the substantial income of Persistent is from sale of software services and products and has earned its revenue from sale of licensing of products and royalty. For ready perusal, revenue recognition of Persistent, available at page 1858, is extracted as under :-
34 ITA No.609/Del./2015
ITA No.168/Del./2015 "H. Revenue recognition Revenue is recognised to the extent it is probable that the economic benefits will flow to the Company an revenue can be reliably measured.
I. Income from software services Revenue from time and material engagements is recognised on time basis in accordance with the terms contracts.
In case of fixed price contracts, revenue is recognised based on the milestones achieved as specified in the contracts on proportionate completion basis.
Revenue from licensing of products is recognised on delivery of products.
Revenue from royalty is recognised on sale of products in accordance with the terms of the relevant agreement.
Revenue from maintenance contracts are recognised on a pro- rata basis over the period of the contract as and services are rendered.
Unbilled revenue represents revenue recognised in relation to work done on time and material projects and price projects until the balance sheet date for which billing has not taken place.
Unearned revenue represents the billing in respect of contracts for which the revenue is not recognised as per the terms of contract."
51. It is also proved that Persistent is having huge intangible in the nature of software license.
52. Hon'ble Delhi High Court in case of Cashedge India Pvt. Ltd. (supra) upheld the exclusion of Persistent from the list of comparables vis-à-vis Cashedge India Pvt. Ltd. on the ground that Persistent is involved in software development, software products and marketing and its segmental data is not available. 35 ITA No.609/Del./2015
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53. Coordinate Bench of the Tribunal in case of NEC Technologies India Ltd. vs. DCIT in ITA No.1102/Del/2015 for AY 2010-11 order dated 27.10.2017 examined the comparability of Persistent vis-à-vis NEC Technologies Ltd. which was into providing software development services and ordered to exclude Persistent by returning following findings :-
"22. Furthermore when we examine annual report of Persistent, available at pages 120 to 209 of the paper book, relevant pages 170 to 173, it is amply clear that Persistent deals in software products and earned its income both from software services and product whereas the taxpayer deals in software services and as such cannot be compared with Persistent for benchmarking the international transaction.
23. In view of what has been discussed above, we direct to exclude Persistent from final set of comparables for benchmarking the international transaction."
54. In view of what has been discussed above, we are of the considered view that Persistent having a different business model with no segmental data available and having huge intangibles is not a valid comparables vis-à-vis the taxpayer which is a routine captive software development service providers, hence ordered to be excluded.
E-ZEST SOLUTIONS LTD. (E-ZEST)
55. The taxpayer sought exclusion of E-Zest on ground of functional dissimilarity being into broad portfolios of services 36 ITA No.609/Del./2015 ITA No.168/Del./2015 (diversified services) with no segmental reporting. Perusal of Profit & Loss account for the year ending 31.03.2010, available at page 1946 of the Paper Book - IV shows that the E-Zest has substantial income from operations whereas it has three business segments viz. Product engineering services/ outsourced product development services, Enterprise application development and IT services. However, no segmental information is available.
56. Comparability of E-Zest was examined by the coordinate Bench of the Tribunal in case of ST Microelectronics Private Ltd. (formerly Genesis Microchip (India) Pvt. Ltd. in IT (TP) A.No.949/Bang./2011 order dated 06.01.2017, available at page 2459 of Paper Book - V vis-à-vis ST Microelectronics Private Ltd., a software development service provider and ordered to exclude the same by returning following findings :-
"14.4 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the list of comparables only on the basis of the statement made by the company in its reply to the notice under section 133(6) of the Act. It appears that the TPO has not examined the services rendered by the company to give a finding whether the services performed by this company are similar to the software development services performed by the assessee. From the details on record, we find that while the assessee is into software development services, this company i.e. e-Zest Solutions Ltd., is rendering product development services and high end technical services which come under the category of KPO services. It has been held by the co- ordinate bench of this Tribunal in the case of Capital IQ Information Systems (India) (P) Ltd. Supra) that KPO services are not comparable to software development services and are therefore not comparable. Following the aforesaid decision of 37 ITA No.609/Del./2015 ITA No.168/Del./2015 the co-ordinate bench of the Hyderabad Tribunal in the aforesaid case, we hold that this company, i.e. e-Zest Solutions Ltd. be omitted from the set of comparables for the period under consideration in the case on hand. The A.O. / TPO is accordingly directed."
57. In view of what has been discussed above, we are of the considered view that E-Zest cannot be a valid comparable on ground of functional dissimilarity being into three segments with no segmental information available. So, we ordered to exclude E- Zest from the final set of comparables.
LARSEN & TOUBRO INFOTECH LTD. (L&T) MINDTREE LTD. (MINDTREE)
58. The taxpayer by moving an application under Rule 11 of the Income Tax (Appellate Tribunal) Rules sought to raise additional ground as under :-
"Additional Ground 1 :
On the facts and in the circumstance of the case the Ld. AO/DRP were not correct in including the following entities in the list of appropriate comparables
(i) Larsen & Toubro Infotech Ltd. and
(ii) Mindtree Ltd.
Additional Ground 2 :
Without prejudice to the additional ground 1, the Ld. TPO has erred in determining the PLI at entity level despite the fact that the Assessee had brought to his notice the segmental results of Mindtree Ltd. as has been noted by him in his order dated 25.11.2014 at page 197 (para 3.1 (i) of the Appeal Memo.
(Segmental results are at page 55 of the Annual Report at page 1251 of Volume III)"
38 ITA No.609/Del./2015
ITA No.168/Del./2015 on the ground that at the time of TP analysis on the basis of information then available in the data bases-prowess etc., certain comparables were taken for benchmarking the international transactions but subsequently form the annual report, it has come to the notice of the taxpayer that L&T and Mindtree are also not valid comparables since both these comparables are taxpayer's own comparables having been accepted and the taxpayer has now sought to challenge the same by way of additional evidence on the ground that TPO had no complete data at that time and there is no estoppel against statute as the issue can be challenged at any point of time during proceedings, the application for additional ground is allowed. Moreover no evidence is required to be brought on record to adjudicate the controversy raised by the taxpayer by way of additional evidence.
59. Keeping in view the fact that L&T and Mindtree taken as comparables for benchmarking the international transactions have not been analyzed for benchmarking the international transactions having been challenged now by way of additional grounds, we are of the considered view that the issue is required to be sent back to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer.
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ITA No.168/Del./2015 COMPARABLES SOUGHT TO BE INCLUDED BY THE TAXPAYER R. SYSTEMS INTERNATIONAL LTD. (R. SYSTESM) CALIBER POINT BUSINESS SOLUTIONS LTD. (CALIBRE)
60. The taxpayer sought inclusion of R. Systems on the ground that it is functionally similar. The TPO has excluded R. Systems on the sole ground that its financial year is calendar year and also on the ground that data for the quarter ending December 2009 was unaudited and as such quarterly result shall not be considered.
61. Identical issue has been decided by Hon'ble High Court of Punjab & Haryana High Court in CIT vs. M/s. Mercer Consulting (India) Pvt. Ltd. in ITA No.101 of 2015 (O&M) order dated 24.08.2016, available at page 2628 of Paper Book - V, relevant page 2637, which has been decided in favour of the assessee by returning following findings :-
"27. The TPO excluded the case of R. Systems International Limited from the list of comparables. The ITAT included the same. The TPO excluded the case of R. Systems International Limited on the ground that it follows the calendar year i.e. Ist January to 31st December for maintaining its annual account whereas the accounting year of the assessee is 1st April to 31st March. The TPO followed an order passed by the Mumbai Bench of the Tribunal in ACIT v. Hapag Lloyd Global Services Ltd. 2013-TII-68-ITATMUM-TP in which it had been held that a 40 ITA No.609/Del./2015 ITA No.168/Del./2015 company with a different financial year ending cannot be compared.
28. We are unable to agree with the decision of the TPO and of the DRP that affirmed it. The view taken by the Tribunal commends itself to us. It is not the financial year per se that is relevant. Even if the financial years of the assessee and of another enterprise are different, it would make no difference. If it is possible to determine the value of the transactions during the corresponding periods, the purpose of comparables would be served. The question in each case is whether despite the financial years of the assessee and of the other enterprise being different, the financials of the corresponding period of each of them are available. If they are, the TPO must refer to the corresponding period of both the entities in determining whether the two are comparable or not for the purpose of determining the ALP.
29. As noted by the Tribunal, the audit accounts of R System International Ltd. for the year ending 31.12.2008 had been given under one column and the data for the quarter ending 31.03.2009 and 31.03.2008 (both audited) had been given in two other columns. Thus, as rightly held by the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009.
30. This view is not contrary to Rule 10(B)(4) which reads as under:-
"10B(4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into".
31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus so long as the data relating to the financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial year of R.Systems International Limited is available.
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32. We are, therefore, entirely in agreement with the decision of the Tribunal that if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test of sub-rule(4) of rule 10B."
62. So, following the findings returned by Hon'ble High Court in CIT vs. M/s. Mercer Consulting (India) Pvt. Ltd. (supra), we are of the considered view that when data for the financial year is available, the comparable cannot be rejected merely on the ground that financial year followed is different. So, this issue is remitted back to the TPO to decide afresh in the light of the judgment in CIT vs. M/s. Mercer Consulting (India) Pvt. Ltd. (supra) by providing an opportunity of being heard to the taxpayer. CG VAK SOFTWARE & EXPORTS LTD. (CG VAK)
63. CG Vak has been excluded by the TPO on the ground that it fails employees cost filter of 25%. CG Vak was also excluded by TPO in Agilis Information Technologies International (P.) Ltd. (2015) 61 taxmann.com 127 (Delhi-Trib.) on failure of employees cost filter of 25%. However, coordinate Bench of the Tribunal has set aside the matter to the TPO to decide afresh in the light of new facts brought into the notice of the Tribunal by returning following findings :-
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ITA No.168/Del./2015 "8. Ground No. 2.8 of the Grounds of Appeal relates to the rejection of M/s. CG VAK Software & Exports Limited from final set of comparables by holding that such company is not passing the filter of employee cost to total cost less than 25%. 8.1 Having considered the rival submissions, we find that this issue has been considered by the Hyderabad Bench of the Tribunal in the case of Kenexa Technologies (P.) Ltd. v. Dy. CIT [2014] 51 taxmann.com 282/[2015] 67 SOT 195 (URO) for assessment year 2009-10 by observing as under:
"43. In ground No. 2, 6, 5, the assessee has objected to the rejection of comparable companies by TPO in the course of applying employee cost filter. The ITAT Bangalore Bench in the case of CISO Systems India Pvt. Ltd. has held with respect of CG-VaK Solutions & Exports Ltd. has held as under:
(ii) The submission of the ld. counsel for the assessee was that in the case of assessee, this test is satisfied. In this regard our attention was drawn to page 818 to 824 of the assessee's paper book wherein annual report of this company has been provided.
Attention was drawn to the fact that in the profit & loss account of the audited accounts, he cost of services has been shown as an expenditure and in Schedule 15 to the Notes to Accounts, it has been elaborated as follows:-
Cost of services Rs.
Cost of services - Overseas 2,77,32,337
Cost of services - Domestic 2,58,40,435
Transcription charges 3,97,389
Web Designing charges 1,64,602
Staff welfare 11,43,144
Staff training 3,63,496
Contribution to PF & ESI 15,47,906
Gratuity 13,04,894
Ex Gratia 0
HRD expenses 3,10,87
5,88,05,074
(iii) It was submitted by the ld. Counsel for the assessee that the TPO ignored the contribution to PF & ESI, Gratuity and Ex Gratia payments and arrived at the employee cost. According to the ld. Counsel for the assessee, doing so was not proper. If all the employee costs are properly considered, then this company can pass the filter applied by the TPO for excluding it. 43 ITA No.609/Del./2015
ITA No.168/Del./2015
(iv) We have considered the submission of the ld. counsel for the assessee and are of the view that prima facie the submission of the ld. counsel are acceptable. We, however, feel that it would be just and appropriate to direct the TPO to consider including this company as a comparable afresh in the light of the facts brought to our notice by the ld. counsel for the assessee. We hold and direct accordingly.
44. Following the decision cited above, we set aside the issue of comparability of CG-VAK Solutions & Exports Ltd. to the TPO for correct application of employee cost filter." 8.2 Having regard to the above, we set aside the said issue of comparables with M/s. CG VAK Software & Exports Limited to the TPO for correct application of employee cost filter. Ground raised is thus allowed for statistical purposes."
64. So, following the decision rendered by the coordinate Bench of the Tribunal in Agilis Information Technologies International (P.) Ltd. (supra), we set aside this issue to the TPO to decide afresh in the light of the data brought on record by the taxpayer. SIP TECHNOLOGIES & EXPORTS LTD. (SIP)
65. The taxpayer challenged inclusion of SIP by the TPO on the ground that its turnover is less than Rs.5 lakhs. The ld. AR for the taxpayer contended that SIP has been found to be functionally comparable vis-à-vis taxpayer in assessee's own case of AY 2009- 10 (supra).
66. Undisputedly, there is no difference in the business model of the taxpayer since AY 2009-10. Coordinate Bench of the Tribunal in taxpayer's own case found SIP as a valid comparable by returning following findings :-
44 ITA No.609/Del./2015
ITA No.168/Del./2015 "53. So far as question of low turnover of a company to be accepted as comparable is concerned, it is settled principle of law that turnover should not be the sole criteria to choose a particular company for comparability rather functional similarity is a fundamental requirement. Reliance in this regard is placed on the judgment cited as Chrys Capital - (2015) 376 ITR 183 and CIT vs. Mckinsy Knowledge Centre India Pvt. Ltd. - ITA No.217/2014 order dated 27.03.2015.
54. Since this company passes employee cost ratio and export cost ratio filter employed by the TPO, the turnover filters cannot be a ground for rejection of this comparable as discussed in the preceding para, so we hereby order to include this company in the list of comparable."
67. So, following the decision rendered by the coordinate Bench of the Tribunal, we order to include SIP in the final set of comparables for benchmarking the international transactions. GROUND NO.8
68. This issue was raised by the taxpayer before ld. DRP who has directed the AO/TPO to verify the correctness of the computation of operating margin of comparables and working capital adjustment margin of the alleged comparable companies for determining the ALP of the international transactions of the taxpayer in accordance with the provisions of the Act. AO/TPO has failed to comply with the directions. So, they are directed to comply with the directions issued by ld. DRP. Consequently 45 ITA No.609/Del./2015 ITA No.168/Del./2015 ground no.8 is determined in favour of the taxpayer for statistical purposes.
GROUND NO.16
69. Ld. DRP/AO has treated the software expenses amounting to Rs.12,27,686/- as capital in nature. The ld. AR for the taxpayer contended that software expenses cannot be capitalized and this issue is already decided in favour of the taxpayer in its own case for AY 2009-10 (supra). Operative part thereof is extracted as under:-
"55. Assessee in the profit and loss account has debited an amount of Rs.3,84,651/- being expenditure on time based licences. AO treated the software time based licence expenses of Rs.3,84,651/- as capital in nature and thereby disallowed the same. However, the AO allowed the assessee to depreciation thereon @ 60% which is Rs.2,30,791/- and added back the remaining amount of Rs.1,53,860/- to the returned income. DRP also affirmed the decision rendered by AO.
56. Ld. AR for the assessee contended that since one time revenue expenditure has been incurred by the assessee the same cannot be deferred and relied upon the judgment of Hon'ble Delhi High Court in case of Director of Income-tax vs. Infrasoft Ltd. - (2013) 39 taxmann.com 88 (Delhi). However, on the other hand, ld. DR for the revenue by relying upon the order passed by AO/DRP contended that since 60% depreciation has already been given to the assessee, the contention of the assessee is not sustainable.
57. Assessee has brought on record that assessee has incurred an amount of Rs.3,84,651/- for running the licence only and annual maintenance charges for operating, trouble shooting of the software and not for purchase/acquisition of the software and the period for running of these licences / AMC was mostly one year or less than one year.46 ITA No.609/Del./2015
ITA No.168/Del./2015
58. In the given circumstances, when the aforesaid fixed licences were rented for a limited period only which is less than one year, no enduring benefit accrues to the assessee nor any ownership right vests in the assessee. Issue in controversy has already been dealt with by the Hon'ble jurisdictional High Court in Director of Income-tax vs. Infrasoft Ltd. (supra), the ratio of which is that :-
"what is transferred is neither the copyright in the software nor the use of the copyright in software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the right in the copyright which is too for only limited period."
59. So, these expenses, to our mind, are in the nature of revenue expenses incurred for the purpose of business. Moreover, one time expenditure to purchase time based software licenses cannot be deferred and as such, are revenue expenses to run the business. So, the AO is directed to re-examine the issue accordingly and as such, this ground is determined in favour of the assessee."
70. So, following the decision rendered by the coordinate Bench of the Tribunal on the identical issue in taxpayer's own case for AY 2009-10 (supra), the amount of Rs.12,27,686/- on account of software expenses capitalized by the AO/DRP is ordered to be treated as Revenue in nature. Hence, ground no.16 is determined in favour of the taxpayer.
GROUND NO.17
71. Ground No.17 has become infructuous in view of our findings returned on ground no.16, hence dismissed. 47 ITA No.609/Del./2015
ITA No.168/Del./2015 GROUND NO.18
72. AO/DRP have treated expenditure of Rs.13,84,084/- claimed by the taxpayer as expenditure on training of employees as capitalized in nature being of enduring benefit to the taxpayer. The ld. AR for the taxpayer contended that this issue has already been decided in favour of the taxpayer in its own case for AY 2009-10 (supra). Operative part thereof is extracted as under:-
"60. Assessee debited an amount of Rs.38,09,220/- in his profit & loss account on account of training expenses and claimed the same as revenue expenditure. However, AO being not satisfied with the explanation given by the assessee came to the conclusion that these expenses have been incurred for providing various training which is in the nature of giving enduring benefit to the assessee and treated the same as capital expenditure and then added to the income of the assessee.
61. However, ld. AR for the assessee contended that the payment of training expenses is in the nature of revenue expenses and relied upon the decision rendered by Hon'ble High Court of Delhi in judgment cited as Commissioner of Income- tax-II vs. Munjal Showa Ltd. - (2010) 329 ITR 449 (Delhi).
62. The ratio of the judgment in case of Commissioner of Income-tax-II vs. Munjal Showa Ltd. (supra) rendered by Hon'ble Delhi High Court is that :-
"when the training of the personnel of the assessee was imperative to run the business and is in the nature of technical support to the assessee it will certainly enhance the profit of the company on which it will pay the taxes, such expenditure cannot be treated as capital in nature rather they are revenue in nature."
63. We are of the considered view that in the light of the judgment in case of Commissioner of Income-tax-II vs. Munjal Showa Ltd. (supra), the AO is directed to re-examine the issue afresh after providing an opportunity of being heard to the assessee."
48 ITA No.609/Del./2015
ITA No.168/Del./2015
73. Since, undisputedly, the taxpayer has not undergone any change in its business model and the issue is identical, the expenses of Rs.13,84,084/- are ordered to be treated as revenue in nature by following the decision of the coordinate Bench of the Tribunal rendered in taxpayer's own case in AY 2009-10 (supra). Hence, ground no.18 is determined in favour of the taxpayer. GROUNDS NO.19 & 20
74. Since training expenses claimed by the taxpayer are held to be of revenue in nature, grounds no.19 & 20 have become infructuous, hence determined against the taxpayer. GROUND NO.21
75. Ld. AO/DRP have denied the depreciation on goodwill amounting to Rs.2,64,53,670/- claimed by the taxpayer during the course of proceedings by relying upon the decision rendered by Hon'ble Supreme Court in Goetze India Limited - (2006) 284 ITR 323 (SC). However, the identical issue has already been decided by remanding the case back to the AO after providing an opportunity of being heard to the taxpayer in taxpayer's own case for AY 2009-10 by returning following findings :-
"64. Assessee claimed depreciation on goodwill amounting to Rs.1,38,93,062/- during the course of assessment proceedings by relying upon decisions rendered by Hon'ble Supreme Court in 49 ITA No.609/Del./2015 ITA No.168/Del./2015 case of Smifs Securities Ltd. - (TS-639-SC-2012) (Supreme Court) but the AO remained silent on this issue.
65. However, DRP by applying the decisions rendered by Hon'ble Supreme Court in Goetze (India) Ltd. - (2006) 284 ITR 323 (SC) rejected the claim of the assessee on the ground that assessee did not claim such depreciation on goodwill in its return of income. However, it has not been disputed by both the ld. Representatives of the parties that the judgment cited as Goetze (India) Ltd. as relied upon by DRP is not applicable to the facts and circumstances of the case and when the issue has been raised during assessment proceedings, though no depreciation was claimed in the return of income, AO was duty bound to decide this issue. So, we hereby restore this ground to the AO to decide afresh after providing an opportunity of being heard to the assessee. Accordingly, this ground is determined in favour of the assessee."
76. Following the findings returned by the coordinate Bench of the Tribunal in AY 2009-10 (supra), this issue is ordered to be remanded back to the AO to decide afresh after providing an opportunity of being heard to the taxpayer in the light of the directions issued in AY 2009-10.
GROUDS NO.22 & 23
77. Grounds No.22 & 23 9 being consequential in nature need no specific findings.
REVENUE'S APPEAL (ITA No.168/Del./2015)
78. Revenue has challenged exclusion of Infosys Technology Ltd. (Infosys) by ld. DRP. Ld. DRP has excluded Infosys by returning following findings :-
50 ITA No.609/Del./2015
ITA No.168/Del./2015 "In addition to the above, the assessee has objected to the inclusion of Infosys in the final set of comparables. The turnover of the assessee in Software Development Segment is Rs.29,88,08,070/-. In the case of Willis Processing Services (I) Pvt. Ltd. Vs Dy CIT [2013] 30 Taxmann.com 350, the Hon'ble ITAT, Murnbai has held that, the turnover criteria is not a valid criteria as per Rule 10B(2) and hence, cannot -be applied. The appellant has relied on the decision of the Hon'ble Delhi High Court in the case of Agnity India [2013] 36 taxmann.com 289 (Delhi) wherein it has been held that Infosys is not a proper comparable on account of (i) risk profile, (ii) revenue ownership of branded products, (iii) R & D expenses, (iv) On site v.
Offshore operations, (v) Expenditure on Advertisement / Sale promotion & brand building. Respectfully following the decision of the Hon'ble Delhi High Court in the Agnity India (supra) the AO JTPO is directed to exclude it from the final set of comparables. All other comparables included in the final set of comparables are retained."
79. Hon'ble High Court of Delhi in case of CIT vs. Agnity India Technologies Pvt. Ltd. in ITA 1204/2011 order dated 10.07.2013 while examining comparability of Infosys vis-à-vis Agnity India Technologies Pvt. Ltd. which is a contract software development services provider has upheld the findings returned by the Tribunal. Operative part of the judgment in CIT vs. Agnity India Technologies Pvt. Ltd. (supra) is extracted as under :-
"5. The tribunal has observed that the assessee was not comparable with Infosys Technologies Ltd., as Infosys Technologies Ltd. was a large and bigger company in the area of development of software and, therefore, the profits earned cannot be a bench marked or equated with the respondent, to determine the results declared by the respondent-assessee. In paragraph 3.3 the tribunal has referred to the difference between the respondent-assessee and Infosys Technologies Ltd. For the sake of convenience, we are reproducing the same:51 ITA No.609/Del./2015
ITA No.168/Del./2015 Basic Particular Infosys Technologies Agnity India Ltd.
Risk Profile Operate as full-fledged Operate at
risk taking minimal risks as
entrepreneurs the 100%
services are
provided to AEs
Nature of Services Diversified-consulting, Contract
application design, Software
development, re- Development
engineering and Services.
maintenance system
integration, package
evaluation and
implementation and
business process
management, etc.
(refer page 117 of the
paper book)
Revenue Rs.9, 028 Crores Rs.16.09 Crores
Ownership of Develops/owns
branded/proprietary proprietary products products like Finacle, Infosys Actice Desk, Infosys iProwe, Infosys mConnect, Also, the company derives substantial portion of its proprietary products (including its flagship banking product suite "Finacle‟) Onsite Vs. Offshore As much as half of the The appellant software development provides only services rendered by offshore services Infosys are onsite (i.e., (i.e., remotely services performed at from India) the customer's location overseas).
And offshore (50.20%) (Refer page 117 of the paper book) than half of its service, income from onsite services.
Expenditure on Rs.61 Crores Rs. Nil (as the
52 ITA No.609/Del./2015
ITA No.168/Del./2015
Advertising/Sales 100% services
promotion and are provide to
brand building AEs)
Expenditure on Rs. 102 crores Rs. Nil
Research &
Development
Other 100% offshore
(from India)
6. Learned counsel for the Revenue has submitted that the tribunal after recording the aforesaid table has not affirmed or given any finding on the differences. This is partly correct as the tribunal has stated that Infosys Technologies Ltd. should be excluded from the list of comparables for the reason latter was a giant company in the area of development of software and it assumed all risks leading to higher profits, whereas the respondent-assessee was a captive unit of the parent company and assumed only a limited risk. It has also stated that Infosys Technologies Ltd. cannot be compared with the respondent-
assessee as seen from the financial data etc. to the two companies mentioned earlier in the order i.e. the chart. In the grounds of appeal the Revenue has not been able to controvert or deny the data and differences mentioned in the tabulated form. The chart has not been controverted.
7. Learned counsel for the appellant Revenue during the course of hearing, drew our attention to the order passed by the TPO and it is pointed out that based upon the figures and data made available, the TPO had treated a third company as comparable when the wage and sale ratio was between 30% to 60%. By applying this filter, several companies were excluded. This is correct as it is recorded in para 3.1.2 of the order passed by the TPO. TPO, as noted above, however had taken three companies, namely, Satyam Computer Service Ltd., L&T Infotech Ltd. and Infosys Technologies as comparable to work out the mean.
8. It is a common case that Satyam Computer Services Ltd. should not be taken into consideration. The tribunal for valid and good reasons has pointed out that Infosys Technologies Ltd. cannot be taken as a comparable in the present case. This leaves L&T Infotech Ltd. which gives us the figure of 11.11 %, which is less than the figure of 17% margin as declared by the respondent-assessee. This is the finding recorded by the tribunal. The tribunal in the impugned order has also observed that the 53 ITA No.609/Del./2015 ITA No.168/Del./2015 assessee had furnished details of workables in respect of 23 companies and the mean of the comparables worked out to 10%, as against the margin of 17% shown by the assessee. Details of these companies are mentioned in para 5 of the impugned order."
80. In view of what has been discussed above and following the decision rendered by the Hon'ble Delhi High Court in case of CIT vs. Agnity India Technologies Pvt. Ltd. (supra), we are of the considered view that taxpayer is a captive service provider/slave of Globe ST Ericsson, which does not have its own branch cannot be a valid comparable. Infosys was ordered to be excluded in taxpayer's own case for AY 2009-10. However, it is brought to our notice that the Revenue has went in appeal against the order of the Tribunal passed in taxpayer's own case for AY 2009-10 (supra) in which question of law has been framed.
81. Hon'ble High Court of Delhi in case of Pr. CIT vs. Fiserv India P. Ltd. in ITA 602/2016 order dated 07.10.2016 also ordered to exclude Infosys as a comparable vis-à-vis Fiserv India P. Ltd. which was into software development on the ground that Infosys is having its own brand intangibles, an advantage which the taxpayer does not possess.
82. In view of what has been discussed above, we are of the considered view that ld. DRP has rightly excluded Infosys from the 54 ITA No.609/Del./2015 ITA No.168/Del./2015 final set of comparables. However, our findings are subject to the decision pending before Hon'ble High Court in assessee's own case for AY 2009-10 and as such, TPO/AO to proceed accordingly.
83. Resultantly, the appeal filed by the taxpayer is partly allowed for statistical purposes and the appeal filed by the Revenue is dismissed.
Order pronounced in open court on this 3rd day of July, 2018.
Sd/- sd/-
(CHANDRA POOJARI) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 3rd day of July, 2018
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT (A)
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.