HERE SOLUTIONS INDIA PRIVATE LIMITED,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 10 (1)(1), MUMBAI

ITA 5919/MUM/2024

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HERE Solutions India Pvt. Ltd., a subsidiary of HERE Pte Ltd, Singapore, engaged in developing and distributing map-related data and services, appealed against the transfer pricing adjustments made by the Assistant Commissioner of Income Tax, which were upheld by the Commissioner of Income Tax (Appeals). The adjustments were based on the comparison of profit margins of selected companies deemed comparable by the Transfer Pricing Officer. The Tribunal's decision focused on the functional comparability of these companies, leading to the exclusion of four companies from the benchmarking analysis, thereby reducing the transfer pricing adjustments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470808 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Other Referred Cases: Lanxess India Private Limited v/s ACIT, DCIT v/s Quark Systems Private Limited, CIT v/s Quark Systems Private Limited, CIT v/s Tata Power Solar Systems Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN SALUNKHE
• Assessee Lawyers: KETAN VED
• Keywords: Transfer pricing; International transaction; Related party transaction
• Section: 143(3); 142(1); 143(2); 250; 271(1)(c); 274; 92D; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.5919/MUM/2024 (Assessment Year : 2013–14) HERE Solutions India Pvt. Ltd., 11 Floor, B Wing, Nesco IT Park, Tower 4 Western Express Highway Goregoan (East) Mumbai -400063, Maharashtra PAN – AACCN7231R ……………. Appellant v/s Assistant Commissioner of Income Tax, Circle – 10(1)(1), Room No.209, Aaykar Bhavan, Maharishi Karve Road, Mumbai - 400020 Maharashtra ……………. Respondent Assessee by : Shri Ketan Ved Revenue by : Shri Pravin Salunkhe, Sr. DR Date of Hearing – 10/03/2025 Date of Order – 17/03/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned order dated 19/09/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals) - 56, Mumbai, [“learned CIT(A)”], for the assessment year 2013-14. 2. The brief facts of the case are that the assessee is a subsidiary of HERE Pte Ltd, Singapore, and is engaged in the business of developing, marketing, licensing and distribution of map and related location-based data, software ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 2 and services for the use in mobile navigation systems and other navigation and GIS applications and devices in India. For the year under consideration, the assessee filed its return of income on 26/11/2013, declaring a total income of INR 11,64,62,570. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer (“AO”) under section 92CA(1) of the Act, the Transfer Pricing Officer (“TPO”) proposed a total transfer pricing adjustment of INR 9,90,90,367 vide order dated 28/10/2016, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 03/12/2016, under section 143(3) r.w. section 144C(1) of the Act after incorporating the transfer pricing adjustment proposed by the TPO. Since the assessee chose not to file the objections against the draft assessment order, the AO passed the final assessment order on 05/01/2017 under section 143(3) r.w. section 144C(3) of the Act, assessing the total income of the assessee at INR 21,55,52,940. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. 3. In this appeal, the assessee has raised the following grounds: – “The grounds hereinafter taken by the Appellant are without prejudice to one another: 1:0 On the facts and in the circumstances of the case, and in law, the learned Assistant Commissioner of Income Tax Mumbai (the 'AO') erred in making an addition of Rs. 9,90,90,367 to the total income and assessing the total income of the Appellant for the captioned AY at Rs. 21,55,52,940. Transfer pricing issues: ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 3 2:0 Transfer Pricing Adjustment of Rs. 7,78,33,860 in relation to the international transaction of receipt from production services ['ITeS services']: 2:1 The AO / Learned Transfer Pricing Officer (the 'TPO') / Learned Commissioner of Income Tax Appeals [the 'CIT (A)] have erred on the facts of the case and in law in making an upward adjustment of Rs. 7,78,33,860 to the total income of the Appellant by holding that the international transaction relating to ITeS services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 2:1 The learned AO/TPO/CIT (A) erred on facts and in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report ('TP Study Report') maintained as per Section 92D of the Income Act 1962 (the 'Act*) read with Rule 10D of the Income-tax Rules, 1962 (the 'Rules'). 2:3 The AO/ TPO / CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the ITeS services rendered by the Appellant. 2:4 The AO / TPO / CIT (A) has determined the arm's length price of the Appellant's international transactions without undertaking any scientific search process in violation of sections 92C(1) and 92C(2) and resorting to cherry picking of comparable companies. 2:5 The AO/ TPO / CIT (A) erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting / rejecting comparable companies. 2:6 The AO/ TPO / CIT (A) erred in applying an inappropriate filter of including companies having export earnings less than 75% of total turnover. 2:7 The AO/ TPO/ CIT (A) has resorted to the use of single year data of the alleged comparable companies instead of multiple year data, as permissible under Rule 10B(4) of the Rules. 2:8 The AO/ TPO / CIT (A) have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2012 to 31 March 2013. 2:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions. 2:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk. 2:11 The AO / TPO/ CIT (A) has erred in computation of margins of comparables i.e. Excel Infoways Limited and Iris Business Services Limited. 2:12 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 4 i. Caliber Point Business Solutions ii. Cosmic Global Limited iii. ICRA Techno Analytics Limited iv. Informed Technologies India Limited v. Tech Process Solutions 2:13 The AO / TPO / CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies: i. Accentia Technologies Limited ii. Genesys International Corporation Ltd iii. IRIS Business Services Limited iv. Excel Infoways Limited® v. MPS Limited. vi. Omega Healthcare Management Services Pvt. Ltd. 3:0 Transfer Pricing Adjustment of Rs. 2,12,56,507 in relation to the international transaction of receipt from software development services [\"IT services\"]: 3:1 The AO / TPO/ CIT (A) have erred on the facts of the case and in law in making an upward adjustment of Rs. 2,12,56,507 to the total income of the Appellant by holding that the international transaction relating to IT services provided by the Appellant to its associated enterprises ('AEs') is not at arm's length. 3:2 The AO / TPO/ CIT (A) erred on facts and in law in disregarding the benchmarking analysis conducted by the Appellant based on the contemporaneous data in the Transfer pricing study report (TP Study Report) maintained as per section 92D of the Act read with Rule 10D of the Rules. 3:3 The AO/ TPO / CIT (A) have erred in rejecting the economic analysis and methodical search process undertaken by the Appellant to identify comparable companies providing services similar to the IT services rendered by the Appellant. 3:4 The AO / TPO / CIT (A) has determined the arm's length price of the Appellant's international transactions without undertaking any scientific search process in violation of sections 92C(1) and 92C(2) and resorting to cherry picking of comparable companies. 3:5 The AO/ TPO / CIT (A) erred in law and in facts of the case in applying inappropriate qualitative and quantitative criteria for accepting / rejecting companies. 3:6 The AO/ TPO / CIT (A) erred in applying an inappropriate filter of including companies having export earnings less than 75% of total turnover. 3:7 The AO/ TPO/ CIT (A) has resorted to the use of single year data of the alleged comparable companies instead of multiple year data, as permissible under Rule 10B(4) of the Rules. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 5 3:8 The AO/ TPO / CIT (A) have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2012 to 31 March. 3:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions. 3:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk. 3:11 The AO / TPO/ CIT (A) has erred in computation of margins of comparables i.e. Thirdware Solutions Ltd and CG - Vak Software and Exports Ltd. 3:12 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. Akshay Software Technologies Limited ii. AvaniCimcon Technologies iii. E-zest Solution Limited iv. Helios & Matheson Technologies Limited v. Tata Elxsi Ltd. vi. Mindtree Ltd. vii. Persistent Systems & Solutions Ltd 3:13 The AO / TPO / CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies which have an entirely different functionally and risk profile and are not comparable to the Appellant with respect to provision of IT services: i. Aspire Systems (India) Private Limited ii. Cyber Infrastructure Pvt Ltd. iii. Infobeans Technologies Ltd. 4.0 Re: General 4:1 On the facts and circumstances of the case, and in law, the AO erred in initiating penalty proceedings under section 271(1)(c) r.w.s. 274 of the Act.” 4. Ground No. 1, is general in nature, and therefore, the same needs no separate adjudication. 5. The issue arising in Ground No.2, raised in assessee’s appeal, pertains to transfer pricing adjustment in relation to the international transaction pertaining to “Receipt from Production Services”. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 6 6. The brief facts of the case pertaining to this issue, as emanating from the record, are: Under this segment, the assessee provides digital map data for vehicle navigation, internet and wireless applications and business solutions to its associated enterprises. In its Transfer Pricing Study Report, the following functions have been stated to have been performed by the assessee in relation to the international transaction pertaining to “Receipt from Production Services”: - “5.1.1. Production Services The production activity mainly comprises of the following: • Core map production - digitizing (i.e., converting source material into an electronic format) and attributing (i.e., assigning items such as points-of- interest and traffic coding) portions of the AE's Database: • Content production - activities that translate, expand, and update AEs look-aside table products (e.g., Discover Cities, landmarks, 3D city models, etc.); and • Map Reporter production - database and content correction using AE's Map Reporter (i.e., user community tool for suggesting changes to the AEs Database). The production team is involved in the digitizing activity, wherein the source material i.e. the satellite images are converted into an electronic format and loaded onto the server of the AEs. Thereafter the activities that follow digitizing activity viz. data mapping, data correction and quality control activities are carried out directly on the server by the respective teams of HERE India. After digitization of the maps, the electronic format of the maps are forwarded to the field department for collection of further attributes required for the purposes of creating meaningful maps. The Production activity mainly includes mapping attributes or information received from the field department on to the maps digitized earlier. The unit receives the data from the field department which is utilized for digital mapping onto the maps / server of the AFs. In a situation where HERE India does not have a bandwidth to execute the production activity, the job may be assigned to an external Outsourced Production Centers ('OPC'). These OPCs are identified by HERE India and a contract for undertaking the production activity is entered into between the AEs and the OPCs. The payment to the OPCs towards the outsourced production activity is made by the AEs. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 7 However, the production activity undertaken by the OPCs will be verified by the Production team of HERE India to confirm if the mapping jobs executed by the OPCs are as per the specifications and standards laid down by NAVTEQ.” 7. For benchmarking the international transaction pertaining to “Receipt from Production Services”, the assessee adopted the Transactional Net Margin Method (“TNMM”) as the most appropriate method with the Profit Level Indicator (“PLI”) of Operating Profit to operating Cost (“OP/OC”). By considering itself the tested party, the assessee identified seven comparable companies with a weighted average margin of 13.37%. As the assessee computed its own PLI at 15.42%, accordingly, it claimed that the international transaction pertaining to “Receipt from Production Services” is at arm’s length price (“ALP”). 8. During the transfer pricing assessment proceedings, the TPO by applying additional filters rejected five comparable companies selected by the assessee, finding them to be not satisfying one or the other filter or being functionally not comparable to the assessee. The TPO also introduced five new comparable companies, i.e. Accentia Technologies Ltd., Excel Infoways Ltd., Genesys International Corporation Ltd, IRIS Business Services Ltd., and MPS Ltd. By rejecting the contentions raised by the assessee against the selection of new filters as well as the companies included/excluded, the TPO, vide order dated 28/10/2016 passed under section 92CA(3) of the Act, arrived at a set of following seven comparable companies for benchmarking the international transaction of “Receipt from Production Services”: - ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 8 Sr. No. Company Name NCP F.Y. 2012-13 (%) 1 Accentia Technologies Ltd. 13.90 2 Excel Infoways Ltd 75.90 3 Genesys International Corporation Ltd. 24.72 4 IRIS Business Services Limited 27.29 5 MPS Ltd 29.71 6 e4e Healthcare Business Services ltd. 17.36 7 Omega Healthcare Management Services Pvt Ltd 22.51 Average 30.20 9. Since the average OP/TC of the aforesaid comparable companies selected by the TPO was 30.20%, therefore the TPO by applying the arm’s length margin, inter-alia, proposed an upward adjustment of INR 7,78,33,860, in respect of international transaction pertaining to “Receipt from Production Services”. 10. During the hearing, the learned AR, by referring to the written submission, submitted that if the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., are directed to be excluded, then the international transaction pertaining to “Receipt from Production Services” will be at arm’s length and the entire transfer pricing adjustment made in respect thereof will be deleted. Accordingly, in view of the submissions made by the learned AR, we have confined our findings in Ground No.2 only in respect of the aforesaid four comparable companies. Further, the other issues raised in Ground No.2 are treated as not pressed and are kept open for adjudication if they arise in the assessee’s case in the future. (i) Excel Infoways Ltd. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 9 11. The first comparable challenged by the assessee is Excel Infoways Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is engaged in ITeS BPO services and since, only ITeS BPO services segment was considered as comparable to the assessee, the revenue from that segment alone was subjected to service revenue filter. The TPO further held that the entire revenue of this segment is out of BPO services. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company has low employee cost, diminishing revenue over the years and abnormal profits. Further, the assessee submitted that the company is engaged in IT and BPO services and the relevant segmental information of BPO services is not available. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to “Receipt from Production Services” on the basis that the TPO considered the relevant segmental information for margin working. The learned CIT(A) further held that employee’s cost is not the filter applied by the TPO and a comparable cannot be rejected due to high profit. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 12. During the hearing, the learned AR reiterated the submissions made before the lower authorities and placed reliance upon the decisions of the coordinate bench of the Tribunal, wherein this company was excluded for benchmarking the international transaction pertaining to ITeS, inter alia, on ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 10 the basis that the company is showing fluctuating margins from year-on-year and has closed down its ITeS segment. 13. On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the orders passed by the lower authorities and submitted that this company is functionally comparable to the assessee and even if the margins are coming down year-on-year, margin for the year under consideration is considered for the purpose of benchmarking analysis. 14. We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of Excel Infoways Ltd., as reproduced on page 729 of the paper book, we find that Excel Infoways Ltd. is engaged in Information Technology/BPO related services. Further, we find that as at 31/03/2013, Excel Infoways Ltd. has declared revenue from Information Technology/BPO related services and Infra Projects. As per the segment reporting of revenue, the company has only two business segments, i.e. Information Technology/BPO related services and Infra Activity. Therefore, it is evident that there is no separate segmental information for BPO related services. Since this company is earning revenue from various streams, in the absence of relevant segmental information, it cannot be said to be functionally comparable to the assessee. It is also evident that the revenue from Information Technology/BPO related services declined over the years and the margin reduced from 228% in the financial year 2009-10 to 71.17% in the financial year 2012-13. We find that the coordinate bench of the Tribunal in Lanxess India Private Limited v/s ACIT, in ITA No. 7220/Mum./2017, for the ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 11 assessment year 2013-14, vide order dated 31/10/2023, directed exclusion of Excel Infoways Ltd. on the basis that it has fluctuating margins. Accordingly, we direct the TPO/AO to exclude Excel Infoways Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”. (ii) MPS Ltd. 15. The next comparable challenged by the assessee is MPS Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is carrying out activities which are functionally similar to the assessee and also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is engaged in various activities without availability of relevant segmental information. The assessee further submitted that this company undertakes extensive R&D activity and is also engaged in developing cloud-based publishing platforms. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to “Receipt from Production Services”. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 16. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities and submitted that ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 12 data digitalisation is the primary activity of this company and no R&D expenditure was incurred. 17. We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of MPS Ltd., as reproduced on page 736 of the paper book, we find that MPS Ltd. provides publishing services relating to typesetting of books and journals, composing of yellow page advertisements and catalogues, data coding, conversion, indexing, editing, editorial services, software development, maintenance and support to global publishers. As regards the segmental information, the company claims that it operates in one business segment of providing publishing solutions, viz. typesetting and data digitalisation services and the same is considered to constitute a single segment in the context of primary segment reporting. Further, this company has claimed to have developed an end-to-end cloud-based publishing platform, MPS DigiCore, which addresses the need for an integrated workflow. Further, this company also has a product named MPS Digitrak, which it claims to be a production tracking system developed by MPS Ltd. This company also claims to have developed other solutions through its R&D activities. Therefore, from the details of this company as available in its annual report, it is evident that this company is not merely a provider of typesetting and data digitalisation services, but also offers various products through extensive R&D activities carried out by it, as noted on page 737 of the paper book. Hence, we are of the considered view that this company cannot be said to be functionally comparable to the assessee, since despite having revenue ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 13 earnings from multiple streams, it does not have the relevant segmental information for the benchmarking analysis. Accordingly, we direct the TPO/AO to exclude MPS Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”. (iii) IRIS Business Services Ltd. 18. The next comparable challenged by the assessee is IRIS Business Services Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is carrying out activities which are functionally similar to the assessee and this company also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is functionally not comparable. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to “Receipt from Production Services”. Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 19. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities. 20. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of IRIS Business Services Ltd. for the year under consideration, forming part of the annual report paper book from pages 1-106, we find that this company is ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 14 engaged in the business of supply of software and providing software related services. As per the profit and loss account, the revenue from sale of products is declared at INR 37,66,834 and the revenue from the sale of services is declared at INR 61,96,19,344. However, there is no further sub-classification of the revenue earned from various segments, which the company has recognised, as noted on page 86 of the paper book, i.e., the revenue from services rendered in connection with the advertisement and data conversion, sale of software/software licenses, subscription income, development or customisation of software, hosting and maintenance contracts. Since this company is earning revenue from various streams, in the absence of relevant segmental information, it cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude IRIS Business Services Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”. (iv) Omega Healthcare Management Services Pvt. Ltd. 21. The next comparable challenged by the assessee is Omega Healthcare Management Services Pvt. Ltd. This company was selected as a comparable by the assessee in its Transfer Pricing Study Report, and the same was retained as a comparable by the TPO, vide order passed under section 92CA(3) of the Act. Before us, the assessee has challenged the inclusion of this company as a comparable for the first time on the basis that this company fails the Related Party Transactions (“RPT”) filter. On the other hand, the learned DR submitted that this company was selected by the assessee as comparable, and the same was not challenged at any stage of the appellate ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 15 proceedings till now. The learned DR submitted that the objection that this company fails the RPT filter was neither raised before the TPO nor the learned CIT(A). 22. Insofar as the submission of the learned DR that the assessee is seeking exclusion of its own comparable, it is pertinent to note that the Special Bench of the Tribunal in DCIT v/s Quark Systems Private Limited, reported in [2010] 38 SOT 307 (Chd.) (SB), held that there is no estoppel on the taxpayer from pointing out that a particular company has been wrongly taken as a comparable. We further find that the aforesaid decision rendered by the Special Bench of the Tribunal has been affirmed by the Hon’ble Punjab and Haryana High Court in CIT v/s Quark Systems Private Limited, reported in [2011] 244 CTR 542 (P&H). Similarly, it was held by the Hon’ble Jurisdictional High Court in CIT v/s Tata Power Solar Systems Ltd, reported in [2017] 245 Taxman 93 (Bombay). 23. As regards the objections raised by the assessee that Omega Healthcare Management Services Pvt. Ltd. fails RPT filter, from the perusal of the annual report of Omega Healthcare Management Services Pvt. Ltd., forming part of the paper book from pages 107-196, we find that the entire revenue from product or services amounting to INR 139,10,73,488 was earned from the transaction with related party. Thus, it is evident that this company fails the filter of RPT more than 25% of the operating revenue applied by the TPO. Accordingly, we direct the TPO/AO to exclude Omega Healthcare Management Services Pvt. Ltd. while benchmarking the international transaction pertaining to “Receipt from Production Services”. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 16 24. To sum up, we direct that the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to “Receipt from Production Services”. Ground No.2 raised in assessee’s appeal is decided accordingly. 25. The issue arising in Ground No.3, raised in assessee’s appeal, pertains to transfer pricing adjustment in relation to the international transaction pertaining to “Receipt from Software Development Services”. 26. The brief facts of the case pertaining to this issue, as emanating from the record, are: In its Transfer Pricing Study Report, the following functions have been stated to have been performed by the assessee in relation to the international transaction pertaining to “Receipt from Software Development Services”: - “5.1.4. Software Development Services The Software Development group ('Group') at Mumbai is a part of global team responsible for supporting the production team in developing maps. The group generates content (Maps, Traffic, Points of Interest and Dynamic Content) and connects people to content. The group's goals are to build new Map and Content features, automate and scale data management, tools to improve data quality, and deliver data to customers quickly and frequently, and improve on-time software delivery and software quality. • The group is engaged in the foundation of platforms to build navigable maps and associated content; • They modify and enhance Maps of the AEs with new features defined by product / sales teams; ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 17 • They are engaged in automating and scaling the data collection, integration, management, validation and delivery of Maps of the AEs and associated content products; and • The group follows industry standards in development of software tools. The group also collaborates with other centers to build software platforms, tools and applications for building maps and content. The software built is utilized by the AE's Production and Field teams in creation, correction and building of data for maps. Using the software tools built by development teams, various data products are extracted for automotive (in car navigation), internet platform (yahoo and bing maps) and PND (Garmin) development customers.” 27. For benchmarking the international transaction pertaining to “Receipt from Software Development Services”, the assessee adopted the TNMM as the most appropriate method with the PLI of OP/OC. By considering itself the tested party, the assessee identified 14 comparable companies with a weighted average margin of 10.40%. As the assessee computed its own PLI at 15%, accordingly, it claimed that the international transaction pertaining to “Receipt from Software Development Services” is at ALP. 28. During the transfer pricing assessment proceedings, the TPO by applying additional filters rejected seven comparable companies selected by the assessee, finding them to be not satisfying one or the other filter or being functionally not comparable to the assessee. The TPO also introduced three new comparable companies, i.e. Aspire Systems (India) Pvt. Ltd., Cyber Infrastructure Pvt. Ltd., and Infobeans Technology Ltd. By rejecting the contentions raised by the assessee against the selection of new filters as well as the companies included/excluded, the TPO, vide order passed under section 92CA(3) of the Act, arrived at a set of following ten comparable companies ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 18 for benchmarking the international transaction of “Receipt from Software Development Services”: - Sr. No. Company Name Margins 1 Aspire Systems (India) Pvt. Ltd. 34.94 2 CG Vak software and export Itd 15.84 3 Cyber Infrastructure Pvt ltd 41.70 4 Infobeans Technology Ltd 30.04 5 RS Software (India) Ltd. 17.41 6 Thirdware Solution Ltd. 30.92 7 Sasken Communication Technology Ltd 10.21 8 Evoke Technologies Pvt Ltd 4.65 9 R Systems International Ltd.* 13.25 10 Goldstone Technologies Ltd 15.16 Arithmetic Mean 21.41 29. Since the average OP/TC of the aforesaid comparable companies selected by the TPO was 21.41%, therefore the TPO by applying the arm’s length margin, inter-alia, proposed an upward adjustment of INR 2,12,56,507, in respect of international transaction pertaining to “Receipt from Software Development Services”. 30. During the hearing, the learned AR, by referring to the written submission, submitted that if the two companies, i.e., Aspire Systems (India) Pvt. Ltd. and Cyber Infrastructure Pvt. Ltd., are directed to be excluded, then the international transaction pertaining to “Receipt from Software Development Services” will be at arm’s length and the entire transfer pricing adjustment made in respect thereof will be deleted. Accordingly, in view of the submissions made by the learned AR, we have confined our findings in Ground No.3 only in respect of the aforesaid two comparable companies. Further, the other issues raised in Ground No.3 are treated as not pressed and are kept open for adjudication if they arise in the assessee’s case in the future. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 19 (a) Aspire Systems (India) Pvt. Ltd. 31. The first comparable challenged by the assessee under this segment is Aspire Systems (India) Pvt. Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is functionally comparable to the assessee. Before the learned CIT(A), the assessee challenged the inclusion of this company as a comparable on the basis that financial statements of this company are insufficient and the information relating to the business activities undertaken by this company is not included in its financial statements for the financial year 2012-13. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and held that this company is functionally comparable to the assessee and satisfies all the filters of the TPO. Being aggrieved, the assessee is in appeal before us. 32. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR relied upon the orders passed by the lower authorities. 33. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the profit and loss account of this company is not available, and accordingly, the financial statements of this company are insufficient for any benchmarking analysis. We find that the coordinate bench of the Tribunal in Lionbridge Technologies Private Ltd v/s ACIT, in ITA No. 7304/Mum/2017, for the assessment year 2013-14, vide order dated 20/02/2023, while excluding this company observed as follows:– ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 20 “016. With respect to the aspire system India Ltd, this comparable was prayed for rejection by the assessee, this was rejected by the ITAT as per order dated 21 May 2018. In the miscellaneous application dated 27 May 2019 the ITAT recalled order to that extent for adjudication on comparability of this comparable. 017. The argument of the learned authorized representative is that this comparable company should be rejected for the reason that it is engaged in IT consulting and outsourced product development, which has over 20 years of experience in developing software products. The learned authorized representative also referred to various products of that company. Further, in the annual report it has made addition to its intangible assets, which were developed internally to show that it is developing products also. It was further contended that segmental details between product development and software services are not available. Further, the coordinate bench for the same year has already rejected companies, which are into outsourced product development. The assessee referred to the appellate order in case of aspire systems India private limited for assessment year 2009 – 10 dated 25/2/2015 wherein in paragraph number 2 it is stated that assessee is in the business of providing outsourced Product services. The website extract of expired products was also demonstrated which itself shows that it is a software product development company. 018. The learned departmental representative vehemently supported the orders of the learned transfer pricing officer and learned dispute resolution panel 019. We have carefully considered the rival contention and perused the orders of the lower authorities. Assessee argued before the learned transfer-pricing officer that this company is functionally not comparable because it is providing services including outsourced product development, software testing and infrastructure application support and Oracle services. It also contended that the operation of the software segment and the nature of IT consulting services and outsource software development. The learned transfer-pricing officer rejected the same for the reason that companies engaged in providing software development and outsourced solution is comparable functionally. Before the dispute resolution panel the assessee challenged the above comparable that the segment, which is compared with the margins of the assessee, is in the nature of IT consulting services and outsource software development. The learned dispute resolution panel also held that it is functionally comparable to the functions of the assessee. Before us, the assessee has submitted a detailed chart. It was submitted that the complete annual report and financial data of the company is not available and only the balance sheet and notes to the accounts are available. The profit and loss account of this company is also not available. On these ground itself the learned transfer-pricing officer has rejected the companies selected in the transfer pricing study report. Further, the learned transfer pricing officer himself used information available in the profit and loss account in order to reject the assessee's other comparables. Therefore, on the same reasoning, this comparable company should also be excluded. We find that if the annual accounts in its all completeness are not available, it cannot be included in the comparability analysis. In the present case, the argument of the learned ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 21 authorized representative is that profit and loss account of the company is not available. Therefore in absence of the profit and loss account the margin, income stream, nature of functions performed resulting into expenditure incurred are not known to the assessee. In such circumstances, this comparable company should be excluded from comparability analysis. We direct the learned transfer-pricing officer accordingly.” 34. Therefore, respectfully following the decision of the coordinate bench of the Tribunal cited supra, we direct the TPO/AO to exclude Aspire Systems (India) Pvt. Ltd. while benchmarking the international transaction pertaining to “Receipt from Software Development Services”. (b) Cyber Infrastructure Pvt. Ltd. 35. The next comparable challenged by the assessee is Cyber Infrastructure Pvt. Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is functionally comparable to the assessee. Before the learned CIT(A), the assessee challenged the inclusion of this company as a comparable on the basis that relevant segmental information for benchmarking analysis is not available for this company. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and held that this company is functionally comparable to the assessee. Being aggrieved, the assessee is in appeal before us. 36. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR relied upon the orders passed by the lower authorities. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 22 37. We have considered the submissions of both sides and perused the material available on record. From the perusal of relevant extracts of the annual report of Cyber Infrastructure Pvt. Ltd., as reproduced on page 756 of the paper book, we find that this company is engaged in the development of software and providing BPO services to customers based outside India. Further, we find that the company earned revenue amounting to INR 15,02,48,654, during the year under consideration, from software exports and BPO services. However, there is no segmental information pertaining to BPO services. Since this company is earning revenue from multiple streams, in the absence of relevant segmental information, it cannot be said to be functionally comparable to the assessee. Accordingly, we direct the TPO/AO to exclude Cyber Infrastructure Pvt. Ltd. while benchmarking the international transaction pertaining to “Receipt from Software Development Services”. 38. To sum up, we direct that the two companies, i.e., Aspire Systems (India) Pvt. Ltd. and Cyber Infrastructure Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to “Receipt from Software Development Services”. Ground No.3 raised in assessee’s appeal is decided accordingly. 39. Ground No. 4 raised in assessee’s appeal pertains to levy of penalty under section 271(1)(c) r.w. Section 274 of the Act, which is premature in nature. Therefore, the same is dismissed. ITA No. 5919 -Mum-2024 (A.Y. 2013-14) 23 40. The application dated 10/02/2025 filed by the assessee, seeking admission of additional ground of appeal, was not pressed during the hearing. Therefore, the same is dismissed as not pressed. 41. In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 17/03/2025 Sd/-/- -AMARJIT SINGH ACCOUNTANT MEMBER Sd/-/-Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 17/03/2025 Divya Nandgaonkar (Stenographer) Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Assistant Registrar ITAT, Mumbai "