Income Tax Appellate Tribunal - Hyderabad
Wissen Infotech Private Limited, ... vs Dcit., Circle-17(2), Hyderabad, ... on 28 February, 2017
ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri B. Ramakotaiah, Accountant Member
ITA No.99/Hyd/2015
(Assessment Year: 2010-11)
M/s. Wissen Infotech Vs Dy. Commissioner of Income Tax
Private Limited Circle 17 ( 2 )
Hyderabad Hyderabad
PAN: AAACW 3027 G
ITA No.311/Hyd/2015
(Assessment Year: 2010-11)
Dy. Commissioner of Vs M/s. Wissen Infotech Private Limited
Income Tax Hyderabad
Circle 17 ( 2 ) PAN: AAACW 3027 G
Hyderabad
For Assessee : Shri P.V.S.S. Prasad
For Revenue : Smt. U. Mini Chandran, DR
Date of Hearing: 18.01.2017
Date of Pronouncement: 28.02.2017
ORDER
Per Smt. P. Madhavi Devi, J.M.
Both are cross appeals by the assessee as well as the Revenue for the A.Y 2010-11 against the assessment order passed u/s 143(3) r.w.s. 144C(13) of the I.T. Act, 1961 dated 31.12.2014. In the assessee's appeal in ITA No.99/Hyd/2016, the assessee has raised the following grounds of appeal:
"1. The Learned(Ld) Assessing Officer (AO)/Ld Dispute Resolution Panel Page 1 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad (DRP) are erroneous in law and on the facts of the case.
2. The Ld DRP/ Ld AO ought to have accepted the Profit margin of 3.09% adopted by the appellant as having complied with the arms length principle.
3. The Ld DRP/ Ld AO are not justified in law in considering wrong comparables and consequently arriving at a high arithmetic mean of 18.84% as a ratio of OP/OC.
4. The Ld DRP /Ld AO is not justified in law in making an adjustment u/s 92CA of Rs. 3,81,82,837/- to the price received by the appellant.
5. The Ld DRP erred in not accepting the assessee's contention of rejecting 12 companies on the grounds of functional comparability, Super Profit, High turnover companies.
6. Any other ground that may be urged at the time of hearing with the prior approval of the Hon'ble Tribunal".
Additional Grounds
1. The learned TPO/DRP erred in making/ confirming an adjustment when the appellant company was claiming exemption u/s 10A and hence there is no intention to shift profits outside India and more so when the tax rates in USA where the AE is located were higher than those prevailing in India.
Page 2 of 19ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
2. The learned AO as well as the CIT (A) failed to apply their mind to the TP study report of the appellant company, while making reference to the learned TPO u/s 92CA(1) of the I.T. Act, 1961 and also failed in giving an opportunity of hearing to the appellant company before making such reference to Learned TPO".
2. It is submitted by the learned Counsel for the assessee that the additional grounds raised by the assessee are not emanating from the order of the DRP but are purely legal questions to be adjudicated and hence prayed for their admission. We find that these additional grounds are not arising out of the order of the DRP, but are raised for the first time before us as additional grounds and being legal in nature, we are inclined to admit and adjudicate the same as under.
3. The learned Counsel for the assessee submitted that the assessee is a concern which is eligible for claiming exemption u/s 10A of the Act and therefore, all of its income is exempt from tax in India and hence there is no intention to shift its profit outside India and more so, when the tax rates in USA, where the AEs are located, is higher than in India. In support of the contention that the AO as well as the CIT(A), have to apply their mind to the TP study before making a reference to the TPO u/s 92CA of the Act, the learned Counsel for the assessee has placed reliance on the decision of the Coordinate Bench of the Tribunal at Mumbai in the case of Tata Consultancy Services Ltd in ITA No.7513/Mum/2010. Further, he also placed reliance upon the Page 3 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad article on principles of natural justice by Shri Brijesh Kumar, Hon'ble Judge of the Hon'ble Allahabad High Court wherein it has been stated that the principles of natural justice requires that no man should be condemned unheard and that both the sides must be heard before passing any orders. Therefore, the opportunity of hearing before making any decisions, was considered to be a basic requirement. It was observed that the application of principles of natural justice varies from case to case depending upon the facts and circumstances of the case.
4. The learned DR, on the other hand, supported the orders of the AO and the DRP, on merits and as regards the additional grounds, the assessee's reliance on the decision in the case of Tata Consultancy Services (cited Supra), she submitted that the decision of the Tata Consultancy Services (cited Supra) has been considered by the Coordinate Bench of the Tribunal at Delhi in the case of Gruner India Pvt. Ltd vs. DCIT in ITA No.6794/Del/2015 dated 29.04.2016 and it has been held that the said decision is not applicable.
5. She also placed reliance upon the decision of the Hon'ble Punjab & Haryana High Court in the case of Coco Cola Ltd vs. ACIT reported in (2009) 309 ITR 0194 wherein it was held that it is sufficient if opportunity is given by the TPO before making any ALP adjustment and it is not necessary that the AO should give an opportunity before making reference to the TPO. As regards the assessee's contention that the tax rates are very high in USA as compared to the tax rates in India, the learned DR has placed before us a document stating that in USA the Page 4 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad statutory and corporate income tax rate is ranging from 15 to 35%. Therefore, according to her, the tax rates in US are not higher than in India and therefore, the assessee's contention that it cannot have any intention to shift profit from India to US cannot be accepted. The learned DR also submitted that the decision in the case of Aztech Software & Technology Services Ltd & Anr. Vs. ACIT covers the issue as the Special Bench of the Tribunal at Bangalore, has clearly held that before referring to the TPO, the AO need not give any hearing to the assessee. She submitted that the decision of the Special Bench still holds the ground and therefore, the decision of the Income Tax Appellate Tribunal, Mumbai Bench, in the case of Tata Consultancy Services Ltd (cited Supra) is against the principles laid down by the Special Bench and hence is not to be applied to the facts of the case before us.
6. Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of the Tribunal in the case of Tata Consultancy Services Ltd has held that the AO is required to give the assessee an opportunity of hearing before making any reference to the TPO. In the said case, we find that the facts and circumstances are distinguishable from the facts of the case before us. The Coordinate Bench of the Tribunal at Delhi in the case of Gruner India Pvt. Ltd vs. DCIT in ITA No.6794/Del/2015 has clearly brought out the distinction in Paras 9.1 to 9.5 of its order. For the sake of clarity and ready reference, the relevant portion is reproduced as under:
"V. Whether the TP provisions apply when deduction is available under the Act ?Page 5 of 19
ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad 9.1. The ld. AR argued that its profit is deductible u/s 80IC of the Act. He vehemently submitted that once the profit from rendering of software development services is deductible, then, no motive can be attributed for artificially reducing the profit by manipulating the price with its AE. It was elaborated that the profit of an assessee, eligible for deduction under section 80IC, becomes tax neutral irrespective of its quantum. He, therefore, urged that either the international transaction should not be processed in terms of Chapter-X of the Act or higher amount of deduction should be allowed corresponding to the amount of addition on account of transfer pricing adjustment. This was forcefully contested by the ld. DR.
9.2. Having heard the rival submissions and perused the relevant material, we find ourselves unable to accept both the submissions advanced by the ld. AR on this aspect of the matter. In so far as the first submission for not carrying out any transfer pricing adjustment in view of the benefit enjoyed by it u/s 80IC of the Act is concerned, we find that no exception has been carved out by the statute for non- determination of the ALP of an international transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter-VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm's length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 80IC or any other such relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary, we find that sub- section (4) of section 92C plainly stipulates that where an ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction, is required to be necessarily computed having regard to its ALP without any exception.
Thus, the ld. AR's argument that since its income is subject to deduction u/s 80IC, the provisions of the Chapter-X of the Act should not be applied, in our considered opinion, Page 6 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad has no force in view of the clear statutory mandate contained in proviso to section 92C(4), which reads as under:-
`Provided that no deduction under section 10A or section 10AA or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section:'.
9.3. A circumspect perusal of this proviso read along with sub-section (4) of section 92C divulges that when the total income of an assessee from an international transaction is computed having regard to its ALP, then, no deduction u/s 10A or any other section including those covered under Chapter VIA of the Act shall be allowed in respect of the amount of income by which the total income of the assessee has been enhanced after computation of income determined on the basis of the ALP of an international transaction. The legislature has unconditionally provided for not allowing the benefit of deduction under any section in respect of the addition made on account of transfer pricing adjustment. Not allowing of any benefit u/s 80IC in respect of an addition on account of transfer pricing adjustment pre-supposes the existence of transfer pricing addition in the first instance to an assessee who is otherwise eligible to the benefit of deduction under this section. If one was to presume that no addition towards transfer pricing adjustment is comprehensible in the case of an assessee enjoying the benefit of deduction u/s 80IC, then there was no need to enshrine an express provision forbidding the grant of deduction under this section in respect of enhancement of income due to transfer pricing adjustment. Once the legislature has engrafted an unambiguous provision explicitly spelling out the non-
granting of deduction u/s 80IC on the enhanced income due to transfer pricing addition, we are afraid to accept the assessee's contention, which runs diagonally opposite to the unequivocal language of proviso to section 92C(4). This contention, if taken to a logical conclusion, would amount to obliterating the provisio itself, which is patently incorrect. 9.4. Our view is fortified by the Special Bench order in the case of Aztech Software and Technology Services Ltd. vs. ACIT (2007) 107 ITD 141 (SB) (Bangalore) in which similar issue has been decided by the Special Bench by holding that availability of exemption u/s 10A to the assessee is no bar to applicability of sections 92C and 92CA. Similar view has been taken by Page 7 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad Pune Bench of the Tribunal in the case of ACIT vs. MSS India (P) Ltd. (2009) 123 TTJ 657 (Pune) and several other orders. The reliance of the ld. AR on the order of the Mumbai Bench of the Tribunal in the case of DCIT vs. Tata Consultants Services Ltd. (ITA No. 7513/M/2010) dated 4.11.2015, in our considered opinion is misconceived, because, in that case, the Tribunal primarily found that the AO erred in not himself examining the issue of TP and failed to apply his mind to the TP report filed by the assessee. The last sentence in para 54 of the order upholding the assessee's contention that no TP adjustment can be made where the assessee enjoys benefit of deduction u/s 10A or 80HHE, etc., is only obiter dicta inasmuch as the addition was found to be not sustainable on the other main grounds as discussed in the body of the order. On the contrary, we find that the decision of the Special bench in Aztech Software (supra) permitting the applicability of sections 92C and 92CA to an assessee availing the benefit of section 80IC etc. of the Act is its ratio decidendi. The ld. AR has not pointed out any judgment of some Hon'ble High Court deciding this point either way. In view of the fact that there is already a Special Bench decision in the case of Aztech Software (supra) which supports the making of transfer pricing adjustment notwithstanding the availability of deduction under such sections to the assessee, apart from clear statutory mandate contained in proviso to section 92C(4), we are more inclined to go with the view of the Special Bench.
9.5. It is, therefore, held that the eligibility of the assessee to deduction u/s 80IC of the Act does not operate as a bar on determining the ALP of international transaction undertaken by it and further the enhancement of income due to such transfer pricing addition cannot be considered for allowing the benefit of deduction under this section. Similar view has been taken by the Delhi bench of the tribunal in Headstrong Services India Pvt. Ltd. VS. DCIT (in ITA No. 6200/Del/2012) vide its order dated 11.2.2016. This contention is, therefore, jettisoned"
7. Facts and circumstances in the case before us are similar to the above and respectfully following the decision of the Page 8 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad Coordinate Bench at Delhi, we dismiss the additional ground of appeal raised by the assessee.
8. As regards the other grounds of appeal, we find that the assessee is challenging the ALP adjustment made by the TPO. Brief facts leading to this issue are that the assessee, who is engaged in the business of rendering I.T. enabled services to its AEs, filed its return of income for the A.Y 2010-11 on 14.10.2010 admitting an income of Rs.1,00,475 after claiming exemption of Rs.72,49,133 u/s 10B of the Act. The assessee admitted an income of Rs.68,89,180 u/s 115JB of the Act. During the scrutiny proceedings u/s 143(3) of the Act, the AO observed that the assessee has entered into international transactions with its AEs and therefore, he referred the determination of the ALP in respect of the international transactions to the TPO u/s 92CA of the Act. The TPO issued a notice u/s 92CA of the Act to the assessee on 6.3.2013. The assessee filed its reply on 23.7.2013 and 5.12.2013. After considering the T.P. report filed by the assessee and also the assessee's submissions at length, the AO observed that the assessee is offering span technology consulting, application services, systems integration, software development, maintenance, re-engineering, independent testing services, IT Infrastructure services and business process outsourcing. He observed that the services include maintenance, re-engineering technology, architecture, designing, testing, and implementation Technology and broad functional demeanor. Therefore, according to the TPO, the assessee is providing wide range of services to its AEs. The international transactions reported by the assessee are for an amount of Rs.25,02,22,520 from the provision of software Page 9 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad development services. The assessee has reported a margin of 3.09% by adopting the TNMM method. The assessee had adopted 5 companies as comparables and since the ALP of the assessee was within ±5% range of the arithmetic mean margin of the comparables, the assessee treated the international transaction to be at ALP. The TPO, however, observed that the mode of search adopted by the assessee suffers from defects which resulted in selection of inappropriate comparables and rejection of companies that are appropriate comparables. He therefore, rejected the TP study of the assessee and conducted independent analysis under the TNMM. He accepted 3 comparable companies adopted by the assessee and rejected 2 companies. Further, the AO also arrived at other companies and the final list of comparables is as under:
S.No Name of the company OP/OC
1 Avani Cimcon Technologies Ltd 3.39
2 CAT Technologies Ltd 13.04
3 Comp-U-Learn Tech India Ltd 19.96
4 E-Infochips Bangalore Ltd 72.32
5 Evok Tech 18.61
6 E-Zest Solutions Ltd 22.1
7 Infosys Technology Ltd 45.44
8 Kals Information Systems Ltd (Seg) 22.05
9 Kuliza Tech 19.97
10 L&T Infotech Ltd 19.97
11 Mindtree Ltd (Seg.) 20.47
12 Persistent Systems & Solutions Ltd 11.37
(Merged)
13 RS Software (India)Ltd 9.88
14 Sasken Communication Technologies 25.23
Ltd
15 Tata Elxsi Ltd 17.24
16 Thinksoft Global Services Ltd 11.22
17 Zylog Systems Ltd 18.62
18 Persistent Systems Ltd 31.57
9. Against this final list, the assessee preferred its objections before the DRP and the DRP directed the AO/TPO to exclude Infosys Technologies Ltd and L&T Infotech Ltd from the Page 10 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad final list of comparables. Against this direction of the DRP, the Revenue is in appeal before us while the assessee is in appeal against the comparables confirmed by the DRP. Thus, in effect, the assessee is in appeal against the companies included by the TPO while the Revenue is in appeal against the exclusion of only Infosys Technologies Ltd and L&T Infotech Ltd. The companies which are challenged by the assessee before us are as under:
a) Comp-U-Learn Tech India Ltd b) E-Infochips Bangalore Ltd c) Evok Tech d) E-Zest Solutions Ltd e) Infosys Technologies Ltd f) Kals Information Systems Ltd (Seg.) g) Kulzia Tech h) L&T Infotech Ltd i) Mindtree Ltd (Seg.) j) Sasken k) Tata Elxsi (Seg.) l) Zylog m) Persistent Systems Ltd
10. The learned Counsel for the assessee submitted that the assessee's turnover from the international transaction is only a sum of Rs.25,02,22,520 whereas the turnover of the following 5 companies is more than 300 crores as given below:
S.No Name of the company Operating Revenue OP/OC 1 Mindtree Ltd (Seg.) 7,38,41,68,041 20.47 2 Sasken 4,19,37,03,000 25.23 3 Tata Elxsi (Seg.) 3,37,77,99,096 17.24 4 Zylog 7,83,64,08,467 18.62 5 Persistent Systems Ltd 5,09,12,50,000 31.57
11. The learned Counsel for the assessee submitted that the turnover of these companies was more than 12 times the assessee's turnover and therefore, applying the turnover filter, Page 11 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad these companies should be excluded. In support of the high turnover filter, the learned Counsel for the assessee placed reliance upon the following decisions:
1. Genisys Integrating Systems (India) (P) Ltd v. DClT [2012) 20 taxmann.com 715 (Bang.)
2. CIT Pentair Water India P. ltd (2016)69 taxmann.com 180 (Bombay) (HC)
3. Agnity India Technologies (P)Ltd vs. CIT [2013) 36 taxmann.com 289 (Delhi) (HC)
4. Obopay Mobile Technlogy India (P) Ltd v. DClT [2016) 66 Taxmann.com 119 (Bang Trib)
5. ITO v. Avalara Technologies (P) Ltd [2016] 69 Taxmann.com 453 (Pune _ Trib)
6. Sysarris Software P. Ltd v. DCIT (2016) 67 Taxmann.com 243 (Bang Trib)
7. Starent Networks India (P.) Ltd 69 taxmann.com 434 (Pune-Trib.)
8. PMC-Sierra India (P.) ltd. [2016) 74 Taxmann.com 110 (Bangalore _ Trib.)
9. Capital IQ Information Systems (India) (P) Ltd v. DClT [2013) 32 taxmann.com 21 (Hyderabad - Trib.)
10. Teva India (P.) ltd. v. DCIT [2011) 44 SOT 105 (Mum.)
11. Electronic Arts Games (India) Pvt. Ltd vs ACIT [2015) 58 taxmann.com 13 (Hyderabad Trib.)/[2015]69 SOT 2 (Hyderabad Trib.){URO)
12. Google India (P.) ltd. [2013]25 Taxmann.com 412 (Bangalore-Trib.) Page 12 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
12. The learned DR, however, supported the orders of the AO and submitted that the high or low turnover does not affect the profit margin and therefore, the turnover filter is not to be adopted.
13. Having regard to the rival contentions and the material on record, we find that in the case of Genesys Integrating Systems (India) P Ltd (Supra), the Coordinate Bench of the Tribunal at Bangalore has held that the turnover filter is an appropriate filter for arriving at the comparable companies. Further, other Benches have also upheld the exclusion of the companies on the basis of the turnover where it was more/less than 10 times the turnover of the assessee. We find that in the case before us, the assessee's turnover is only Rs.25.00 crores as compared to the companies selected by the TPO which have more than 12 times the assessee's turnover. Therefore, we are satisfied that these 5 companies are to be excluded from the final list of comparables on the ground of high turnover. The AO is directed to exclude them from the final list of comparables.
14. Further, we also find that the Coordinate Bench of the Tribunal in the case of Pegasystems Worldwide (P) Ltd and also Symphony Services Pune (P) Ltd, Pune, have also held these companies to be functionally dissimilar as well. On this account also, these companies are liable to be excluded.
15. As regards E-Infochips Bangalore Ltd, it is the case of the assessee that this company is engaged in software product design for ISVs for semiconductor vendors and also in GUI Page 13 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad software design for managing devices in medical, aerospace and defence, media and broadcasting and security & surveillance industry verticals. Therefore, this company is having super profit of 73.2% and apart from this, the activities carried out by the said company are functionally dissimilar to that of the assessee company. It is also submitted that the Coordinate Bench of this Tribunal in the case of Electronic Arts Games (India) Pvt. Ltd vs. ACIT (TS-195-Income Tax Appellate Tribunal-2015(Hyd) has remitted the matter of inclusion of E-Infochips Bangalore Ltd as a comparable for the A.Y 2010-11 for fresh investigation. Therefore, the learned Counsel for the assessee submitted that this company may be remitted to the file of the AO for reconsideration. We find that the Coordinate Bench of this Tribunal in the case of Pegasystems Worldwide (Supra) and also Google India (P) Ltd (Supra) has held that the super profit companies are to be excluded from the final list of comparables as compared to the assessee. However, this Tribunal had remitted its consideration to the AO in the case of Electronic Arts Games (India) Pvt. Ltd (Supra). Respectfully following the same, we remit the consideration of this company as a comparable to the assessee to the TPO. Needless to mention that the assessee shall be given a fair opportunity of hearing.
16. As regards Comp-U-Learn Tech India Ltd, the learned Counsel for the assessee submitted that this company is functionally dissimilar as it is engaged in internet based solution, education and training, e-commerce solutions, software design/development, web designing/development and therefore, it is different in line from the activities of the assessee company. It Page 14 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad is also submitted that this company has been directed to be excluded in the cases of Pegasystems Worldwide, Symphony Services (P) Ltd, and E-Infochips Bangalore Ltd and also in the case of 3 Global Services at Mumbai. The learned DR however, supported the orders of the authorities below.
17. Having regard to the rival contentions and the material on record, we find that in the case of Pegasystems Worldwide, the Coordinate Bench of Income Tax Appellate Tribunal has considered similar issue and has directed for exclusion of is company. Respectfully following the said decision, we direct the exclusion of this company from the final list of comparables.
18. As regards E-Zest Solutions Ltd and Kals Information Systems Ltd, the assessee's submissions is that these companies are functionally dissimilar as E-Zest Solutions Ltd is into the product engineering services like Kals Information Systems Ltd and various Benches of this Tribunal have considered these contentions and directed that these companies is to be excluded from the final list of comparables. Assessee also placed reliance upon the decision of the Pegasystems Worldwide (Supra) in support of its contention.
19. Having regard to the rival contentions and the material on record, we find that the Coordinate Bench of this Tribunal in the case of Pegasystems Worldwide has in fact observed and directed that these companies are functionally dissimilar to the software development companies like the assessee and have directed their exclusion from the final list of comparables.Page 15 of 19
ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad Respectfully following the same, we direct that these 2 companies are to be excluded.
20. The other two companies which are sought to be excluded are Evok Tech and Kuliza Tech on the ground of functional dissimilarities. According to the learned Counsel for the assessee, Evok Tech is engaged in activities such as application, development and maintenance, quality assurance and software testing, e-commerce, Product Engineering, Oracle EBS & Analytics Big Data, Business Process Management etc., as is evident from the website. Therefore, according to the assessee, it is engaged in activities different in line to the activities of the assessee company and is therefore, to be rejected as a comparable.
21. As regards Kuliza Tech is concerned, it is the submission of the learned Counsel for the assessee that the said company is more into cloud consulting, cloud migration and maintenance service etc., which is different from the line of activities of the assessee's business and therefore, is functionally different and cannot be selected as a comparable. In support of his contention that the companies which are functionally dissimilar are to be excluded from the final list of comparables and particularly where the segmented break-up or information in the case of such companies is not available, they are to be excluded, the learned Counsel for the assessee placed reliance upon the following decisions:
(a) Google India (P) Ltd (2013) 29 taxman.com 412 (Bang. Trib) Page 16 of 19 ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
(b) 3 Global Services (P) Ltd (2011) 11 taxmann.com 136 (Mum.)
(c) SAP Labs India (P) Ltd (2011) 44 SOT 156 (Bang.)
(d) ITAT decision in the case of Pegasystems Worldwide (P) Ltd (Supra).
22. The learned DR, on the other hand, submitted that as per the website information available, the assessee also is into software and commerce, system integration, re-engineering, independent testing services, etc. and therefore, it cannot be considered as a simple software service provider as claimed by the assessee. Therefore, according to the learned DR, these two companies are also comparable to the assessee.
23. Having regard to the rival contentions and the material on record, we find that the assessee had challenged the comparability of the above two companies before the TPO on the ground of functional dissimilarity, but the TPO held that the assessee has not substantiated its objection with any evidence and hence rejected assessee's objections. The assessee objected to their comparability before the DRP along with the relevant material, but the DRP has not made any comments about the similarity between the assessee and these companies nor has it given any reasons for brushing aside the assessee's objections. Therefore, we deem it fit and proper to refer the issue of comparability of these two companies to the TPO for de novo consideration after giving the assessee a fair opportunity of hearing.
Page 17 of 19ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
24. In addition to the above, the assessee also wants inclusion of India Comnet Intl. Pvt. Ltd and Intertech Technologies Ltd as comparable to the assessee. According to the learned Counsel for the assessee, the filters adopted by the TPO for rejection of these two companies are not satisfied as the AO/TPO applied incorrect information to reject these 2 companies. The learned DR however, submitted that the TPO/AO have clearly brought out the distinguishing features particularly that these two companies are into development of products and therefore, have rejected the same.
25. Having regard to the rival contentions and the material on record, we find that the assessee has filed all the details relating to these two companies both before the TPO as well as the DRP. The TPO has rejected the companies on the ground that India Commet Intl. Pvt. Ltd fails diminishing revenue and persistent loss filter applied by the TPO, while Intertech Technologies Ltd failed the forex filter adopted by the TPO. We find that the assessee filed all the details before the DRP to substantiate its claim, but the DRP has failed to consider the same. In view of the same, we deem it fit and proper to remit the issue of comparability of these two companies also to the file of the TPO with a direction to consider the same de novo after giving the assessee a fair opportunity of hearing.
26. In the result, assessee's appeal is treated as partly allowed for statistical purposes.
Page 18 of 19ITA Nos 99 and 311 of 2015Wissen Infotech P Ltd Hyderabad
27. As regards Revenue's appeal against the exclusion of Infosys Technologies Ltd & L&T Infotech Ltd, we find that in several cases, the Coordinate Benches of this Tribunal have directed exclusion of these companies as they are having super profit and very high turnover and we find that the order of the DRP is in accordance with the said decisions. Therefore, we see no reason to interfere with the order of the DRP on these 2 companies and the Revenue appeal is accordingly dismissed.
28. In the result, assessee's appeal is partly allowed and the Revenue's appeal is dismissed.
Order pronounced in the Open Court on 28th February, 2017.
Sd/- Sd/-
(B. Ramakotaiah) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 28th February, 2017.
Vinodan/sps
Copy to:
1 Prasad & Prasad, CAs, Flat No.301, MJ Towers, 8-2-698 Road No.12, Banjara Hills, Hyderabad 500034 2 DCIT Circle 17(2) Hyderabad 3 DRP Hyderabad 4 Director of Income Tax (International Taxation) Hyderabad 500004 5 CIT-III Hyderabad 6 The DR, ITAT Hyderabad 7 Guard File By Order Page 19 of 19