Etisalat Software Solutions Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-2(1)(1), Bangalore

ITA 240/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5324 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 07-04-2022
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Assessee Lawyers: BHARADWAJ SHESHADRI
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Services rendered outside India; Additional evidence; Question of law; TDS
• Section: 143(3); 92D; 133(6); 72; 13; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER IT(TP)A No.240/Bang/2022 Assessment year : 2017-18 Etisalat Software Solutions Pvt. Ltd., (through Liquidator Shri Balady Shekar Shetty), E-98, 7A Cross, Manyata Residency, Nagavara, Bengaluru – 560 045. PAN: AABCE 7261M Vs. The Deputy Commissioner of Income Tax, Circle 2(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by :Shri Bharadwaj Sheshadri, CA Respondent by :ShriPraveen Karanth, CIT(DR)(ITAT), Bengaluru. Date of hearing :06.09.2022 Date of Pronouncement:20.09.2022 O R D E R Per Padmavathy S., Accountant Member This appeal is against the final assessment order passed by National Faceless Assessment Centre u/s. 143(3) r.w.s. 144C(13) of the IT Act dated 10.2.2022 for the ay 2017-18. 2.The assessee raised the following concise grounds:- “1. The learned Assessing Officer/ Transfer Pricing Officer/ DRP (hereafter, "the learned Authorities Below") erred in adding the sum of `38,26,58,668 to the Appellant's total income. IT(TP)A No.240/Bang/2022 Page 2 of 24 2. The learned Authorities Below erred in rejecting the Appellant's transfer pricing documentation maintained in accordance with rule 10D of the Income-tax Rules, 1962 read with section 92D of the Income-tax Act, 1961 and ought to have considered the merit of comparables irrespective of whether they figured in the TPO's search database. 3. The learned Authorities Below erred in their computation of the profit-level indicators of the comparables. (Additional Ground 2) 4. The learned Authorities Below erred in not following rule 10B(1)(e)(ii) of the Income-tax Rules 1962 in computing the Arm's Length Price. 5. The learned Authorities Below adopted the wrong turnover filter. 6.The learned Authorities Below adopted the wrong related party transactions filter. (Additional Ground 1) 7.The learned Authorities Below erred in rejecting the following comparables: 7.1. Akshay Software Technologies Ltd., 7.2. ASM Technologies Ltd., 7.3. Benchmark IT Solutions India Pvt. Ltd., 7.4. Evoke Technologies Pvt. Ltd., 7.5. E-Zest Solutions Ltd., 7.6. Globant India Pvt. Ltd., 7.7. Harbinger Systems Pvt. Ltd., 7.8. Infomile Technologies Ltd., 7.9. Inteq Software Pvt. Ltd., 7.10. ITC Infotech India Ltd., 7.11. Kals I nformation Systems Ltd., 7.12. KMG Infotech Ltd., 7.13. Rheal Software Pvt. Ltd., 7.14. Sasken Technologies Ltd., and 7.15. XPanxion International Pvt. Ltd. 8. The learned Authorities Below erred in selecting the following comparables: 8.1. Aptus Software Labs Pvt. Ltd., 8.2. Consilient Technologies Pvt. Ltd., 8.3. Cybage Software Pvt. Ltd., 8.4. Cygnet Infotech Pvt. Ltd., 8.5. Great Software Laboratory Pvt. Ltd., IT(TP)A No.240/Bang/2022 Page 3 of 24 8.6. Infobeans Technologies Ltd., 8.7. Infosys Ltd., 8.8. Larsen & Toubro Infotech Ltd., 8.9. Mindtree Ltd., 8.10. Nihilent Ltd., 8.11. OFS Technologies Ltd., 8.12. Orion India Systems Pvt. Ltd., 8.13. Persistent Systems Ltd., 8.14. Tata Elxsi Ltd., and 8.15. Threesixty Logica Testing Services Pvt. Ltd. 9. The directions of the Dispute Resolution Panel constitute a non- speaking” 3.The assessee is a subsidiary of Emirates UAE and is engaged in the provision of software development services to its Associated Enterprise [AE]. For the AY 2017-18, the assessee filed the return of income on 28.11.2017 declaring a total income of Rs.22,43,89,580. The case was selected for scrutiny under CASS and a notice u/s. 143(2) was duly served on the assessee. Since the assessee had international transactions with its AE within the meaning of section 92B of the Act, the case was referred to the Transfer Pricing Officer [TPO] in order to determine the Arm’s Length Price [ALP] of the international transaction. The TPO vide order dated 24.1.2021 made an adjustment of Rs.38,26,58,668. The AO passed a draft assessment order incorporating the Transfer Pricing [TP] adjustment. The assessee raised objections before the DRP against the TP adjustment. The DRP confirmed the TP adjustment and the AO passed the final order of assessment as per the directions of the DRP. Aggrieved, the assessee is in appeal before the Tribunal. IT(TP)A No.240/Bang/2022 Page 4 of 24 4. The assessee has entered into the following international transactions with its AE:- (i)Software development services – Rs.2,848,331,417 (ii)Reimbursement of expenses – Rs. 153,481,812 5.The assessee has applied Transactional Net Margin Method [TNMM] as the most appropriate method and the Profit Level Indicator [PLI] is taken as the Operating Profit / Operating Cost. The assessee’s PLI as per the TP study is computed at 10.92% as per Table below:- Particulars Amount Total Revenue 2,84,83,31,417 Employee Benefits 2,23,98,04,589 Project Cost 15,19,23,277 Depreciation and amortization2,00,79,599 Other expenses17,00,48,037 Less: Net loss on foreign currency transactions and translation (12,309,888) Less: Loss on sale of assets (1,724,020) Less: Prior period expenses (17,435) Less: Interest on TDS Delayed Payments (2,513) Total Expenses 2,567,801,646 Operating Profit 280,529,711 OP/OC 10.92% 6.The assessee chose the following comparables in the TP study. Determination of Arm’s Length Range Sl. No. Company Database Operating Margin 1 Akshay Software Technologies Ltd. Prowess -3.29% 2 Rheal Software Pvt. Ltd. Prowess -1.81% 3 Evoke Technologies Pvt. Ltd. Prowess 4.92% 4 Sasken Technologies Ltd. ACE TP 6.18% 5 Harbinger Systems Pvt. Ltd. Prowess 7.86% 6 K M G Infotech Ltd. Prowess 7.93% IT(TP)A No.240/Bang/2022 Page 5 of 24 7 Inteq Software Pvt. Ltd. Prowes 8.31% 8 C G –V K Software & Exports Ltd. Prowess 8.49% 9 ITC Infotech India Ltd. ACE TP 9.22% 10 e-Zest Solutions Ltd. ACE TP 9.83% 11 A S M Technologies Ltd. Prowess 10.56% 12 Globant India Pvt. Ltd. ACE TP 11.43% 13 Benchmark IT Solutions India Pvt. Ltd. Prowess 11.48% 14 Xpanxion International Pvt. Ltd. Prowess 15.38% 15 R System International Ltd. Prowess 18.46% 16 Orion India Systems Pvt. Ltd. ACE TP 21.70% 17 Tata Elxsi Ltd. ACE TP 25.68% Arm’s Length Range Percentile Result Value to be selected Value 35 th 5.95 6 th value 7.93% 65 th 11.05 12 th value 11.43% Median (50 th ) 8.50 9 th value 9.22% 7.The operating margin of the comparable is in the range of 7.93% to 11.43% with the median of 9.22%. Therefore, the assessee concluded that the operating margin of the assessee 10.92% is within the arm’s length. During the TP proceedings, the TPO rejected 12 of the 17 comparables selected by the assessee. The TPO conducted independent search to include 15 fresh comparables. The TPO computed the revised margin at 26.18% as per the following computation :- Sl.No. Company Name F. Year wise OP/OC (%) Wt. Average 2016-17 2015-16 2014-15 1 Rheal Software Pvt. Ltd. -12.27 3.28 3.01 -1.85 2 Kals Information Systems Ltd. 1.37 3.97 5.77 3.62 3 Infomile Technologies Ltd. 10.22 9.91 11.12 10.43 4 Harbinger Systems Pvt Ltd. 12.28 12.69 17.18 14.1 5C G-V AK Software & Exports Ltd.11.6516.9517.315.09 6Larsen & Toubro Infotech Ltd.20.7819.2123.9821.14 7 Great Software Laboratory Pvt. Ltd. 27.18 20.24 10.67 21.24 8 Mindtree Ltd. 20.12 26.11 27.51 24.17 9 R Systems International Ltd. 16.74 31.05 26.44 24.40 IT(TP)A No.240/Bang/2022 Page 6 of 24 10Persistent Systems Ltd.25.0523.9530.3926.17 11 Tata Elxis Ltd. 24.90 29.13 24.45 26.19 12 Infobeans Technologies Ltd. 23.89 34.98 20.46 26.44 13 Aptus Software Labs Pvt. Ltd. 24.83 27.67 26.72 26.46 14 Nihilent Ltd. 34.26 24.46 30.80 29.82 15OFS Technologies Ltd.19.8826.4767.5729.93 16Cygnet Infotech Pvt. Ltd.25.2430.4536.6130.19 17 Infosys Ltd. 38.79 38.30 41.40 39.50 18 Threesixty Logica Testing Services Pvt. Ltd. 36.63 48.46 42.02 41.94 19Cybage Software Pvt. Ltd.41.8962.9068.6857.52 20 Consilient Technologies Pvt. Ltd. 54.85 71.82 69.51 65.14 35 th Percentile 21.24 Median 26.18 65 th Percentile 26.46 8.Based on the same, the TPO worked out a TP adjustment of Rs.38,26,58,668 as computed below:- SWD SEGMENT Particulars Formula Amount (In Rs.) Taxpayers Operating Revenue OR 2,84,83,76.417 Taxpayers Operating Cost OC 2,56,06,55,481 Taxpayers Operating Profit OP 28,77,20,936 Tax Payers PLI PLI=OP/OC 11.24% 35 th Percentile Margin of comparable set 21.24% Adjustment Required (if PLI < 35 TH Percentile Yes Median Margin of comparable setM26.18% Arm’s Length Price ALP = 1+M)*OC 3,23,10,35,085 Price Received OR 2,84,83,76,417 Shortfall being adjustment ALP-OR 38,26,58,668 9.On further objections, the DRP upheld the comparables selected by the TPO and thereby confirmed the TP adjustment. 10.Before us, the ld. AR submitted that out of the 20 final set of comparables, 15 comparables should be excluded based on turnover IT(TP)A No.240/Bang/2022 Page 7 of 24 filter. The ld. AR submitted that the assessee’s turnover is Rs.284 crores and the TPO did not apply the upper turnover filter for Rs.200 crores to Rs.2000 crores while selecting the fresh set of comparables and therefore these companies need to be excluded based on the turnover filter. The ld. AR submitted that the list of 15 comparables and the turnover details of these comparables is extracted below:- Sl.No.Company Name Turnover – Rs. In crores 1 Aptus Software Labs Pvt. Ltd. 3.86 2 C G-V AK Software & Exports Ltd 11.62 3 Consilient Technologies Pvt. Ltd. 4.15 4 Cygnet Infotech Pvt. Ltd 1.49 5 Great Software Laboratory Pvt. Ltd. 132.82 6 Harbinger Systems Pvt Ltd. 63.75 7Infobeans Technologies Ltd.67.46 8Infomile Technologies Ltd.2.23 9 Infosys Ltd. 59,289.00 10 Kals Information Systems Ltd. 2.11 11 Larsen & Toubro Infotech Ltd. 6,182.90 12Mindtree Ltd.4,752.60 13 OFS Technologies Ltd. 9.38 14 Threesixty Logica Testing Services Pvt. Ltd. 32.11 15 Rheal Software Pvt. Ltd. 5.22 11.The ld. AR in this regard placed reliance on the decision of coordinate Bench of Tribunal in the case of Autodesk India Pvt.Ltd. v. DCIT, [2018] 96 taxmann.com 263 (Bang.Trib.)and Dell International Services India Pvt.Ltd. v. DCIT [2018] 89 taxmann.com 44 (Bang.Trib.). 12.The ld. DR relied on the orders of the lower authorities. 13.We have considered the rival submissions and perused the material on record. The Tribunal in the case of Autodesk India IT(TP)A No.240/Bang/2022 Page 8 of 24 Pvt.Ltd. (supra) took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations: 17.7. We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt.Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non- jurisdiction High Court, even though the said decision is of a non- jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt.Ltd. Tax Appeal No.18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking IT(TP)A No.240/Bang/2022 Page 9 of 24 a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt.Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon’ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon’ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). 14.Respectfully following the above decision, we exclude the companies whose turnover is not within the range of Rs.200 crores to 2000 crores. IT(TP)A No.240/Bang/2022 Page 10 of 24 15.The ld. AR further prayed for exclusion of the following 5 comparables. Cybage Software Pvt.Ltd. 16.The ld. AR submitted that Cybage Software P. Ltd. is not a captive service provider like the assessee and hence not functionally comparable to the assessee. The risk profile is not comparable and this company has geographical presence in Australia, Ireland, Canada, UK, USA & Singapore. Therefore, the same cannot be compared with assessee who has operations only in India and UAE. The ld. AR further submitted that the Hyderabad Bench of the ITAT in the case of Infor India Pvt. Ltd. V. ACIT (ITA No.1689/HYD/2019 dated 19.10.2020) has held that Cybage Software P.Ltd. is to be excluded on the basis it has abnormally high margin. The ld. AR relied on other decisions to submit that comparables with abnormal profits should be excluded. 17.The ld. DR relied on the orders of the lower authorities. 18.We have considered the rival submissions and perused the material on record. We notice that the Hyderabad Bench of ITAT in Infor India Pvt. Ltd. (supra) has considered the issue of exclusion of Cybage Software P. Ltd. as a comparable and held that – “6.4. Ld.AR requested for exclusion of Cybage Software Pvt. Ltd. from the final list of comparables and argued that though Cybage Software Pvt. Ltd. is comparable functionally, the profit margin is very high as much as 60.81 to 68.17% which is not possible in normal conditions. Ld.AR submitted that the assessee company's margin is 15.32% against the average margin of comparables selected by the assessee at 10.70%. Therefore, requested to exclude the Cybage Software Pvt. Ltd. from the IT(TP)A No.240/Bang/2022 Page 11 of 24 final list of comparables. The Ld.AR argued that the average margin of other companies is ranging from 11.88% - 41.12% as evidenced from the final list of comparables selected by TPO and average of Cybage Software Pvt. Ltd. worked out to 66.27% which is more than 1/3 rd average of the rest of the companies. Therefore, argued that Cybage Software Pvt. Ltd. is not a comparable in view of highest margins. The assessee also objected before the AO for taking Cybage Software Pvt. Ltd. as comparable stating that it is functionally dissimilar and diversified activities engaged in product development and insufficient information available in the public domain. Both the Ld.TPO and he Ld.DRP rejected the contentions of the assessee. The Ld.DR supported the orders of the lower authorities. 6.4.1. We have considered the rival submissions and observe that Cybage Software Pvt. Ltd., though comparable company, the margin declared by the Cybage Software Pvt. Ltd. is abnormally high which is as much as 68.17% in the year under consideration and average margin is at 66.27%. The Ld. TPO has excluded the loss companies and also the companies which are with lowest margins as argued by the Ld.AR and which was not disputed by the department. Following the same analogy Cybage Software Pvt. Ltd. required to be excluded. The TPO or DRP has not gone into the reasons for such huge margins. Without having complete information we are unable to accept the contention of the Ld.TPO and DRP to include Cybage Software Pvt. Ltd. as comparable, therefore we direct the TPO / AO to exclude Cybage.” 19.Respectfully following the above decision, we exclude this company from the comparables list. Persistent Systems Ltd. 20.The ld. AR submitted that the TPO has adopted a 25% related party transaction [RPT] filter. The ld. AR submitted that the coordinate Bench of ITAT in the case of ANSR Global Corporation (P.) Ltd vs ACIT (2022) 139 taxmann.com 283 has held that RPT filter has to be applied adopting threshold limit of 15 per cent when good number of comparables are available. The ld. AR submitted that if 15% RPT filter IT(TP)A No.240/Bang/2022 Page 12 of 24 is applied, then Persistent Systems Ltd. will fail the filter as RPT percentage of Persistent Systems Ltd. as per the financials (page 1568 of PB-IV & pg. 1528 of PB-IV). 21.We have heard the ld. DR As far as exclusion of this company Persistent Systems Ltd., on the ground that the related party transaction is more than 15% is concerned, we find that the admitted position with regard to related party transaction in this case of Persistent Systems Ltd., is 39.15%. The DRP in its order proceeded on the basis that the threshold limit for application of the Related Party Transaction filter (RPT filter) would be 25% of the total transaction. The Hon'ble Karnataka High Court in its Judgment 28-6-2018 in Pr. CIT v. Yodlee Infotech (P.) Ltd. [IT Appeal Nos. 684 and 685 of 2017, dated 28-6- 2018] had to consider among other questions of law the following questions of law with regard to application of RPT filter, viz., Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified by not acknowledging its own orders where the Tribunal has held in stretching RPT% from 15-20% in case of Katera Software India Pvt Ltd? and Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that RPT filters should be 15% and not 25%, taken by the TPO?. The Hon'ble Court held as follows: '3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfer Pricing Adjustments' made by the concerned authorities below. We consider it IT(TP)A No.240/Bang/2022 Page 13 of 24 appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:- "7. We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. At the outset, we note that the TPO has applied the filter of 25% RPT whereas the assessee has contended that the filter of revenue from RPT should be applied at 15% instead of 25% applied by the TPO. The learned Departmental Representative has submitted that there is no standard rule for applying the filter of 15% regarding the RPT. It is pertinent to note that the ALP as per the provisions of the TP has to be determined by considering uncontrolled comparable prices and therefore only unrelated prices have to be taken into account to bench marked international transactions. However, 0% RPT of the comparable price is an impossible situation and therefore a reasonable tolerance range from revenue from RPT can be considered for selecting uncontrolled comparables. There is no dispute that there cannot be a single criteria/parameter to be applied as a general rule in all the cases. The tolerance range varies from case to case and depending upon the availability of comparables for a particular case. Thus if the comparables of an international transactions are easily available in sufficient number then this tolerance range of RPT should be restricted to minimum. Though there is no specified range in the provisions of Act or Rules, however, in due course of discussion and adjudication of this issue in a series of decisions of this Tribunal, tolerance range of 5% to 25% of total revenue from RPT has been considered as reasonable depending upon the facts and circumstances of each case. In the case of the assessee before us, the TPO/A.O. selected 17 comparables. Therefore, the availability of the comparables of the international transactions of the assessee is not a difficult task. Thus, when a good number of comparables are available then the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the controlled and related prices. This Tribunal in the series of decisions has taken a view that when good number of comparables are available, then the threshold limit of RPT IT(TP)A No.240/Bang/2022 Page 14 of 24 shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the case of the assessee. By applying this filter of 15% RPT, we modify the impugned order of the CIT (Appeals) and therefore only one company namely Four Soft Limited will be excluded from the said comparable having more than 15% RPT. Accordingly, we direct the A.O./TPO to exclude the Four Soft Ltd. Having 19.89% of RPT."........ 4. This Court in ITA No. 536/2015 C/w ITA No. 537/2015 delivered on 25-6-2018 (Prl. Commissioner of Income Tax & Anr. v. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. ... ... ... ... ... ... ... 5. The relevant portion of the said judgment is quoted below for ready reference: "Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the IT(TP)A No.240/Bang/2022 Page 15 of 24 requirements of section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs." 6. Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present cases also. The appeals filed by the Appellants-Revenue are liable to be dismissed and are dismissed accordingly.' 22.We are of the view that the facts of the Assessee's case is similar to the case decided by the Hon'ble High Court and in the light of the aforesaid decision of the Tribunal which has been upheld by the Hon'ble Karnataka High Court, the RPT filter has to be applied adopting the threshold limit of 15%. We hold and direct accordingly. Nihilent Ltd. 23.The ld. AR submitted that Nihilent Ltd. is not functionally comparable to the assessee as it is engaged in rendering software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services and is deriving majority of its revenue from South Africa IT(TP)A No.240/Bang/2022 Page 16 of 24 having plans to expand operations to other geographies (pg. 1302 & 1307 PB Vol.III]. Considering the wide scope of services none of which are relevant to assessee’s services, the ld.AR submitted that Nihilent Ltd. is not a comparable functionally to the assessee. In this regard, the ld. AR relied on the decision of Mumbai ITAT in the case of Red Hat Pvt.Ltd. v. NFAC(2022) 139 taxmann.com 62 (Mum. Trib.). 24.We notice that the Mumbai Tribunal in the case of Red Hat Pvt.Ltd. (supra) has held that – “46. The assessee sought exclusion of Nihilent Ltd. as a comparable on the ground that it is functionally dissimilar vis-a-vis assessee. This objection was also raised before the Ld. DRP but rejected. The assessee relied upon website of the company which is made available at page A412 of the paper book wherein Nihilent Ltd. is shown to be engaged in providing advanced analytics, artificial intelligence, blockchain, business intelligence, data signs, cloud services etc. The annual financials of this company available at page A412 & A413 of the paper book shows that it is rendering Enterprise transformation and change management, Digital transformation services and Enterprise IT services but segmental financials are not available as is apparent from its financials available at page A305, A412 & A413 of the paper book. When this company is into various segments but segmental financials are not available it cannot be a valid comparable vis-a-vis assessee which is a routine software development service provider working on cost + markup model, hence ordered to be excluded.” 25.Considering the fact that Nihilent Ltd. is not functionally comparable to the assessee and the decision of the Mumbai Tribunal in the case Red Hat Pvt.Ltd. (supra), we hold that Nihilent Ltd. should be excluded. IT(TP)A No.240/Bang/2022 Page 17 of 24 Tata Elxsi Ltd. 26.The ld. AR submitted that Tata Elxsi Ltd. is not a pure software development company like the assessee and provides product design & engineering services to consumer electronics, communication, transportation industry, system integration and support services for enterprise customers. Tata Elxsi Ltd. also provides wide range of other services and therefore not functionally comparable with that of the assessee. In this regard, our attention was drawn to the decision of the coordinate Bench of the Tribunal in the case of Infinera India Pvt.Ltd. v. ITO [2016] 72 taxmann.com 68 (Bang.Trib.). 3. M/s Tata Elxsi Ltd., For exclusion of this company also, reliance has been placed on the same Tribunal order rendered in the case of M/s Cisco Systems (Ind.) Pvt.Ltd.,(Supra) and our attention was drawn to para26.4 to 26.5 of the order available on pages 103 to 105 of the case law compendium. For the sake of ready reference these paras are reproduced hereunder; “26.4 Tata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee’s own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the segments of software development services which comprises of embedded product design services, industrial design and engineering services and visual computing labs and system integration services segment. There is no sub-services break up/information provided in the annual report or the databases based on which the margin from software services activity IT(TP)A No.240/Bang/2022 Page 18 of 24 only could be computed. The company has also in its response to the notice u/s.133(6) stated that it cannot be considered as comparable to any other software services company because of its complex nature. Hence, Tata Elxsi Ltd., is to be excluded from the list of comparables. (ii) Flextronics Software Systems Ltd. : The learned TPO has considered this company as a comparable based on 133(6) reply wherein this company reflected its software development services revenues to be more than 75% of the "software products and services" segment revenues. Flextronics has a hybrid revenue model and hence should be rejected as functionally different. Based on the information provided under "Revenue recognition" in its annual report, it can be inferred that the software services revenues are earned on a hybrid revenue model, and the same is not similar to the regular models adopted by other software service providers. The learned representative pleaded that a regular software services provider could not be compared to a company having such a unique revenue model, wherein the revenues of the company from software/product development services depends on the success of the products sold by its clients in the marketplace. Hence, it would be inappropriate to compare the business operations of the assessee with that of a company following hybrid business model comprising of royalty income as well as regular software services income, for which revenue break-up is not available. He finally submitted that this was a good reason to exclude this company also from the list of comparables. 20. On the other hand, the learned DR supported the order of the lower authorities regarding the inclusion of Tata Elxsi and Flextronics Software Systems Ltd., in the list of comparables. He reiterated the contents of para 14.2.25 of the TPO's order. He also read out the following portion from the TPO's order : "Thus as stated above by the company, the following facts emerge : 1. The company's software development and services segment constitutes three sub-segments i) product design services; ii) engineering design services and iii) visual computing labs. 2. The product design services sub-segment is into embedded software development. Thus this segment is into software development services. 3. The contribution of the embedded services segment is to the tune of Rs.230 crores in the total segment revenue of Rs.263 crores. Even if we consider the other two sub-segments pertain to IT enabled services, IT(TP)A No.240/Bang/2022 Page 19 of 24 the 87.45% (›75%) of the segment's revenues is from software development services. 4. This segment qualifies all the filters applied by the TPO." Regarding Flextronics Software Systems, the following extract from page 143 of TPO's order was read out by him as his submissions : "It is very pertinent to mention here that the company was considered by the taxpayer as a comparable for the preceding assessment year i.e., AY 2006-07. When the same was accepted by the TPO as a comparable, the same was not objected to it by the taxpayer. As the facts mentioned by the taxpayer are the same and these were there in the earlier FY 2005-06, there is no reason why the taxpayer is objecting to it. How the company is functionally similar in the earlier FY 2005-06 but the same is not functionally similar for the subsequent FY 2006-07 even when no facts have been changed from the preceding year. Thus the taxpayer is arguing against this comparable as the company was not considered as a comparable by the taxpayer for the present FY 2006-07." 21.We have heard the rival submissions and considered the facts and materials on record. After considering the submissions, we find that Tata Elxsi and Flextronics are functionally different from that of the assessee and hence they deserve to be deleted from the list of six comparables and hence there remains only four companies as comparables, as listed below:” 26.5. Following the aforesaid decision of the Tribunal, we hold that M/S.Tata Elxsi Ltd. should not be regarded as a comparable”. 15. Since ld. DR of the revenue could not point out any difference in facts, respectfully following these Tribunal orders, we direct the AO/TPO to exclude this company also from the list of final comparables.” 27.Respectfully following the above decision, we exclude this company from the comparables list. R Systems International Ltd. 28.With regard to R Systems International Ltd., the ld. AR submitted that the financial year of the comparable ends on 31 st December and therefore fails the different financial year filter adopted IT(TP)A No.240/Bang/2022 Page 20 of 24 by both the assessee and TPO. The ld. AR submitted that there are decisions of the coordinate Bench of the Tribunal and also the judgment of two High Courts where it is held that comparables with different financial years can be considered where quarterly results are available and the margins for the financial year ended 31 st March can be extrapolated from the quarterly results. The ld. AR submitted additional evidence with quarterly results of R Systems International Ltd. and prayed for the admission of the same. The ld. AR further submitted that with the additional evidence containing the quarterly results of R Systems International Ltd. can be extrapolated and compared with that of the assessee. 29.The ld. DR objected to the admission of additional evidence and submitted that the assessee in the TP study has already included R Systems International Ltd. and therefore cannot now ask for recomputation of margin of the comparable. 30.We have heard the rival submissions and perused the material on record. We notice that the financial year of R Systems International Ltd. is year ending 31 st December and therefore the same cannot be considered as a comparable with the assessee having the year end as on 31 st March. We also notice that the coordinate Bench of the Tribunal in the case of Autodesk India Pvt. Ltd. v. DCIT [2020] 119 taxmann.com 265 (Bang. Trib.) has held that – “13. The Ld A.R submitted that the TPO has rejected M/s R systems International Ltd., only for the reason that it adopts different accounting year. The Ld A.R submitted that the Hon'ble Punjab & Haryana High Court has held in the case of CIT v. Mercer Consulting (India) (P.) Ltd. [2016] 76 taxmann.com 153/[2017] 390 TTR 615 has IT(TP)A No.240/Bang/2022 Page 21 of 24 held that so long as the data relating to the relevant financial year is available, companies ought not to be rejected merely because they follow a different financial year. The Ld A.R submitted that the data relating to this company for each quarter is available in public domain and it can be collated to arrive at the financials relating to the financial year adopted by the assessee company. She submitted that the assessee has already collated the details. Accordingly she prayed for inclusion of this company. 14. We heard Ld D.R, who submitted that this company may be restored to the file of AO/TPO for examining it afresh. In the written submissions, the Ld A.R has collated the financial details of this company for the four quarters ending 31-3-2013 in accordance with the submissions made by her. The said financial details relate to the financial year adopted by the assessee. In view of the decision of Hon'ble Punjab & Haryana High Court in the case of Mercer Consulting (India) (P.) Ltd. (supra), the AO/TPO is directed to examine this company by examining the correctness of collation of financial data and also by undertaking FAR analysis. Accordingly we restore this company to the file of AO/TPO for examining the same.” 31.The assessee has now submitted additional evidence which goes to the root of the issue of inclusion of R Systems International Ltd. as a comparable and therefore admitted for adjudication. Respectfully following the decision of the coordinate bench of the Tribunal in the case of Autodesk India Pvt. Ltd. (supra), we remit the issue back to AO/TPO, who is directed to examine the comparable by verifying the correctness of the financial data for the four quarters as submitted by the assessee as additional evidence, after giving reasonable opportunity of being heard to the assessee. It is ordered accordingly. Sasken Technologies Ltd (Sasken) 32.The ld. AR submitted that Sasken. is selected by the assessee but rejected by the TPO on the ground of turnover and functionality and the DRP confirmed the exclusion based on functionality. The ld.AR IT(TP)A No.240/Bang/2022 Page 22 of 24 submitted that Sasken. is engaged in providing software services and is functionally similar to the assessee. In this regard, the ld.AR relied on the decision of the coordinate Bench of the Tribunal in the case of Brocade Communication Systems Ltd. v. DCIT [2020] 117 taxmann.com 439 and EMC Software & Services India P. Ltd. v. JCIT [2020] 115 taxmann.com 293 33.We heard the rival submissions and perused the material on record. We notice that the issue of exclusion of Sasken has been considered by the coordinate bench of the Tribunal in the case of Brocade Communication Systems Ltd(supra) where it has been held that 22. This company was selected by the assessee and came to be rejected by the TPO for the reason that the company was functionally dissimilar. The exclusion of the company came to be upheld by the DRP on the grounds that (i) the company fails export turnover filter; (ii) the company earns revenue from licensing, SWD and royalty; and (iii) the company offers R&D consultancy, wireless and software products. 23. In this regard, it was submitted by the Id. AR that the company is functionally similar to the Appellant as the services rendered by the company predominantly are in the nature of SWD services, with 99.12% of its revenue for the year being generated from rendering the said services. The income from software products constitutes a meagre 0.88% of total revenue, which would not have any impact on the profitability of the company's SWD services segment. Detailed submissions in this regard are placed at pages 169 and 429 of the paperbook. Further, the services rendered by the company predominantly fall within the ambit of SWD services as per the Safe Harbour rules prescribed by the CBDT and therefore the company is comparable to the assessee. Further, it was submitted that the DRP erred in taking into account only the revenues earned from services rendered to customers in North America, Europe and Asia Pacific region while determining whether the company passes the export revenue filter applied by the TPO. It was submitted that if the entire IT(TP)A No.240/Bang/2022 Page 23 of 24 foreign exchange earned by the company during the year is taken into consideration, it would pass the export revenue filter applied by the TPO. Therefore, it was submitted that the company ought to be included in the final list of comparables. 24. In any event, it was submitted that the DRP upheld the rejection of this company as its income from export of services as a percentage of total revenue was 74.35%, i.e. for the reason that it fails the export revenue filter by a meagre .65%. In this regard it was submitted that the DRP has proceeded on a hyper- technical basis to exclude the company, without appreciating the object behind application of the said filter. The export revenue filter was applied by the TPO to exclude predominantly domestic companies which cannot be compared with the assessee having major earnings from export. Therefore, while the objective stands complied substantially, the company cannot be excluded for failing the threshold marginally. 25. It was submitted that this company was selected by the TPO and its inclusion was upheld by the DRP for the assessment year 2011-12 in the assessee's own case. Therefore this company ought to be included in the final list of comparables. 26. Reliance was also placed on the decision of this Hon'ble Tribunal in the case of EMC Software and Services India (P.) Ltd. (supra) wherein in the case of an assessee placed similar to the assessee, the comparability of the company was remanded to the TPO. 27. The Id. DR relied on the order of DRP. 28. In the light of the submissions made as above and as directed by the Tribunal in the case of EMC Software and Services India (P.) Ltd. (supra), we are of the view that the comparability of the this company should be considered afresh by the TPO after affording assessee opportunity of being heard. We hold accordingly.” 34.Respectfully following the decision of the coordinate bench of the Tribunal we remit the issue of considering the comparability of Sasken back to the TPO for fresh consideration. Needless to say that an opportunity of being heard should be given to the assessee. It is ordered accordingly. IT(TP)A No.240/Bang/2022 Page 24 of 24 35.The TPO is directed to re-compute the ALP in accordance with the above directions given in this order. 36.In the result, the appeal is allowed for statistical purposes. 37. Pronounced in the open court on this 20 th day of September, 2022. Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, 20 th September, 2022. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.