M/s Software Paradigms Infotech Private Limited , Mysore V. Assistant Commissioner of Income Tax Circle-1(1), Mysore

ITA 2828/BANG/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5558 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Question of law; Set aside
• Section: 143(3); 234B; 64; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A No. 2828/Bang/2017 Assessment Year : 2013-14 M/s. Software Paradigms Infotech Pvt. Ltd., No. 316-318, SPI City, Hebbal Industrial Area, Mysuru – 570016. PAN: AALCS7583C Vs. The Assistant Commissioner of Income Tax, Circle – 1 (1), Mysuru. APPELLANT RESPONDENT Assessee by : Shri G.S. Prashanth, CA Revenue by : Shri Pradeep Kumar, CIT (DR) Date of Hearing : 29-11-2021 Date of Pronouncement : 27-12-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal by the assessee has been filed by assessee against the assessment order dated 24.10.2017 passed by the ACIT, Circle – 1 (1), Mysuru u/s. 143(3) r.w. 92CA r.w. 144C(5) of the Act for Assessment Year 2013-14 on following grounds of appeal. 1. The orders of the TPO / DRP / Assessing Officer in so far as they are against the appellant, are opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case. 2. The appellant denies itself to be assessed on a total income of Rs. 10,50,75,429/- as against income of Rs. 6,77,58,220/- as declared by the appellant. Page 2 of 24 IT(TP)A No. 2828/Bang/2017 3. a) The addition of Rs. 3,64,26,460/- being adjustment under section 92CA of the Act towards Software development services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. b) The addition of Rs. 8,90,749/- being adjustment under section 92CA of the Act towards IT Enabled Services is bad in law and therefore, needs to be deleted under the facts and circumstances of the case. 4. The authorities below erred in selecting the following functionally dissimilar companies as comparables for Software Development Services segment under the facts and circumstances of the case:  C G - VAK Software & Exports Ltd.  Larsen & Toubro Infotech Ltd.  Mindtree Ltd.(Seg)  Persistent Systems Ltd. (Seg)  Tech Mahindra Ltd. (Seg) 5. The authorities below further erred in rejecting Akshay Software Technologies Limited and Evoke Technologies Pvt. Ltd. from the list of comparables for Software Development Services segment although they were functionally comparable to the appellant company and was part of the appellant's original set of comparables under the facts of the case. 6. The authorities below erred in selecting the following, functionally dissimilar companies as comparables for IT Enabled Services segment under the facts and circumstances of the case:  Acropetal Technologies Ltd. (Seg.)  Hartron Communications Ltd (Seg)  Capgemini Business Services (India) Pvt. Ltd.  Tech Mahindra Ltd. (Seg)  e4e Healthcare Business Services Pvt. Ltd.  Infosys BPO Ltd. 7. The authorities below erred in selecting Hartron Communications Ltd. as a comparable for IT Enabled Services segment which earned super normal profits for the year under consideration. 8. a) The authorities below ought to have restricted the upper limit of turnover at 10 times that of the appellant under the facts and circumstances of the case. b) Without prejudice, the authorities below ought to have applied the turnover filter of Rs.1 crore to Rs.200 crores for selection of comparables as held by the Bombay High Court in the case of CIT vs. M/s. Pentair Water India Pvt. Ltd., reported in 381 ITR 216. 9. The authorities below erred in selecting external comparables over internal comparables for ITES segment on the facts of the case. Page 3 of 24 IT(TP)A No. 2828/Bang/2017 10. a) The working capital adjustment of 2.58% in SDS segment made to the ALP margin is very low and needs to be substantially enhanced on the facts of the case. b) The working capital adjustment of 2.11% in ITES made to the ALP margin is very low and needs to be substantially enhanced on the facts of the case. c) Without prejudice, the working capital adjustment of 2.58% for SDS segment and 2.11% for ITES segment made by the TPO need to be retained on the facts of the case. 11. The TPO, DRP and the Assessing Officer erred in- a) Rejecting the TP study of the appellant. b) Conducting the new study without rejecting all the comparables of the appellant. c) Rejecting the use of multiple year data while arriving at appropriate comparables. d) Using data of comparable companies which was not available in public domain at the time of preparing the transfer pricing documents. The orders of TPO, AO and DRP are bad in law as the orders are hit by the doctrine of impossibility of performance on the facts of the case e) Rejecting companies having different financial year ending. f) Rejecting companies with export sales less than 75% of the total sales. g) Rejecting companies with service income less than 75% of the total income. h) Rejecting companies that have employee cost less than 25% of the sales. i) Applying related party filter at 2.5% of sales. 12. a) The order of the assessment is bad in law as the mandatory conditions to invoke the jurisdiction under section 92CA of the Act did not exist, or having not been complied with and consequently the order of the assessing officer is bad in law for want of requisite jurisdiction. b) The assessing officer erred in not providing the copy of the approval granted by the Commissioner which is in violation of the settled principles of natural justice and thus the order of assessment needs to be set aside. 13. The authorities below failed to understand the spirit and intent of Rule 10B(1)(e)(ii) as per which even if one of the comparables selected by the appellant satisfies the computation mechanism for determination of the Arm's Length Price, the determination of Arm's Length Price by using arithmetic mean of different comparables is not warranted. 14. The TPO, DRP and the assessing officer failed to appreciate that the appellant runs single customer risk and erred in not providing risk adjustment under the facts and circumstances of the case. 15. The TPO, DRP and the Assessing Officer erred in not granting the benefit of the proviso to section 92C(2) of the Act which is mandatory under the scheme of the Act. Page 4 of 24 IT(TP)A No. 2828/Bang/2017 16. The appellant denies itself liable to be levied to interest under sections 234B and 234C of the Act and further the computation of interest under sections 234B and 234C was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. The appellant expressly urges that the period of levy of interest is not in accordance with sections 234B and 234C of the Act. 17. The appellant craves leave to add, alter, delete, modify any of the grounds which are urged above. 18. For the above and such other grounds as may be urged at the time of hearing, the appellant prays your Honours to consider the facts and circumstances of the case and justice be rendered. Brief facts of the case are as under: 2. The Assessee in engaged in the business of provision of Software Development Services (SWD services) and in development, design and implementation of software programmes. Assessee also acts as consultant on matters relating to IT enabled services to its wholly owned holding company. In terms of sec.92B(1) of the Act, the transaction of providing SWD Services and ITeS were "international transaction" i.e., a transaction between assessee and the associated enterprise, the details of which are as under: Particulars Amount Received (in Rs.) Software Development Services 64,54,53,564 IT Enabled Services 1,82,24,266 5. The Ld.TPO observed that assessee used TNMM as most appropriate method with OP/TC as PLI. It computed its margin at 13.90% under SWD segment and 13.1% for ITeS services. Assessee used following 9 comparables with an average of 13.78%. Sl.No. Name of the Company Weighted Average (CA) 1 Akshay Software Technologies Limited 6.11% Page 5 of 24 IT(TP)A No. 2828/Bang/2017 2 Helios & Matheson Information Technology Ltd. 17.33% 3 RS Software (India) Ltd. 16.36% 4 Goldstone Technologies Ltd. 11.29% 5 Sasken Communication Technologies Ltd. 16.72% 6 R Systems International Ltd. 7.62% 7 Mindtree Ltd. 14.37% 8 Evoke Technologies P. Ltd. 10.84% 9 Thirdware Solutions Ltd. 18.06% 5.1 The comparables selected by assessee under ITeS segment are as under: 6. Ld.TPO did not approve the selection criteria of comparables by assessee. The Ld.TPO on his own identified companies as comparable with the Assessee company and worked out the average arithmetic mean of their profit margins as follows: Name of the taxpayer OP/OC 1 CG-VAK Software Exports Ltd 20.45% 2 I C R A Techno Analytics Ltd. 17.10% 3 Larsen & Toubro Infotech Ltd. 26.06% 4 Mindtree Ltd. (Seg) 18.19% 5 Persistent Systems Ltd. 28.27% 6 R S Software (India) Pvt Ltd 17.41% 7 Tech Mahindra Ltd (Seg) 18.72% Unadjusted average margin 20.90% The Ld.TPO proposed the adjustment to ALP being shortfall at Rs. 2,98,47,287/- under SWD segment. 6.1 The final set of comparables selected by the Ld.TPO under ITeS services segment are as under: S.No. Company Name PLI(OP/OC) 1 Acropetal Technologies Ltd. 24.16% 2 Microgenetic Systems Ltd. 16.34% 3 Jindal Intellicom Ltd. -3.00% 4 Hartron 44.07% Page 6 of 24 IT(TP)A No. 2828/Bang/2017 Communications Ltd. (seg) 5 Microland Ltd. 8.62% 6 Capgemini Business Services (India) Pvt. Ltd. 26.78% 7 Tech Mahindra Ltd. (seg) 22.27% 8 E4E Healthcare Business Pvt. Ltd. 17.26% 9 Infosys BPO Ltd. 29.28% Average 20.64% The Ld.TPO proposed adjustment of Rs. 8,90,749/- under ITeS segment. 7. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the Ld.AO wherein the addition suggested by the Ld.TPO as adjustment to ALP was added to the total income of the assessee by the Ld.AO. The Assessee filed objections before the DRP and the DRP directions to exclude ICRA Techno Analytics Ltd. for functional dissimilarities under SWD segment. Based on the directions of the DRP, the Ld.AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP. The DRP proposed an upward TP adjustment of Rs.3,73,17,209/-. On receipt of DRP directions, the Ld. AO passed final assessment order making addition of Rs. 3,73,17,209/-. Aggrieved by the final assessment order, assessee is in appeal before us. 8. At the time of hearing, the Ld.AR submitted that grounds 4-8 were only pressed. Page 7 of 24 IT(TP)A No. 2828/Bang/2017 9. The Ld.AR submitted that Grounds 1-3 are general in nature and grounds 9 to 17 are not pressed by assessee. Accordingly, these grounds are not adjudicated herewith. Ld.AR raised argument only in respect of following grounds adjudicated herein above. Before we undertake the functionality analysis of alleged comparables with assessee, it is sine qua non to understand the FAR of assessee under SWD & ITeS service segment. FUNCTIONS: In the TP study, it is observed that assessee is categorised under broad head of medical transcription. It has been submitted therein that assessee serves various industries like medical, legal, business, education. SWD: SPI India renders software development services to SPI LLC. SPI India provides these services to SPI LLC in pursuance of the agreements entered into between them. SPI India performs various functions such as testing services and maintaining quality standards; executes additional tasks as required under the contracts; provides necessary services to facilitate logistics for software development services and also provides such other ancillary services as may be reasonably required. SPI India provides software development services to various sectors like retail, financial services, healthcare etc. The services performed by SPI India can be discussed broadly inter alia under the following heads. Page 8 of 24 IT(TP)A No. 2828/Bang/2017 Application Management: SPI India provides services to customers in the areas of application software maintenance, production support (including on-call) and enhancement services in various software and hardware platforms. The company also enters into contracts for maintenance of application software projects. During the course of maintenance the following activities are commonly undertaken: (a) problem reporting (b) problem resolution (c) solution distribution and (d) proactive defect prevention. SPI India uses its proprietary Enterprise Project management system – spiProject to capture and track problems and their resolutions. SPI India provides continuous phone support to all software maintenance projects. Other methods of communication available include video and data conferencing facilities to ensure prompt communication. Enterprise Solution: SPI India offers enterprise solutions and services to its customers. The range of the solutions and services includes:  Mainframes -Development, Maintenance and Support;  Data migration, application porting and system integration;  Data warehousing and Business Intelligence applications,  Client/server solutions on various platforms;  Multi-tier J2EE and .NET applications;  Web Services; Page 9 of 24 IT(TP)A No. 2828/Bang/2017  Mobile Applications; and  Network Design and Monitoring. SPI India provides insights into Enterprise Application Integration that allow companies to leverage their investments in legacy solutions. SPI India also provides services to harmonize enterprise systems with the supplier, client and business partners systems to allow for a seamless business experience. Software Project Management: SPI India delivers project management services to its customers. The project managers have experience in delivering software projects on many platforms and in many architecture from Java to mainframe COBOL. SPI India uses a methodology that removes the risks from project delivery and is supported by web-based tools that provide complete visibility to all project stakeholders. SPl India also trains the staff of their customers to successfully manage projects. Project management services are available for both onsite projects as well as offshore based projects. Customized Software: Application Software Development is one of the core offerings of SPI India. Starting from Project Initiation, continuing with project planning and tracking and finally through to the Closure process, SPI India employs techniques to help meeting the business needs of each customer. SPI India also offers Application Software Development services on most common software and hardware platforms. Page 10 of 24 IT(TP)A No. 2828/Bang/2017 SPI India also undertakes project planning and execution for development by the use of their proprietary enterprise project management tools. Managed Services: SPI India manages offshore based projects using multiple vendors and stakeholders in different locations. SPI India undertakes such activities in managed services assignments by building metrics-based consensus between all players and executing against those targets. ITeS: Medical transcription services has been further streamlined into to further division called medical transcription and medical coding. Under these segments assessee provides outsourcing services to companies in U.S. healthcare systems with assistance from companies in-house information technology division. Under medical coding segment assessee assists U.S. Healthcare Medical Billing Companies and medical providers to obtain proper reimbursement due for their services. Assets employed: It has been submitted that assessee owns routine assets like computer equipment, network equipment, software and applications. It is also been submitted that assessee does not own any nonroutine valuable intangible assets. Risks assumed: It has been submitted that assessee acted merely as sub contractor of services and therefore it bears limited contract risk as compared to SPI LLC. Assessee however assumes substantial foreign currency fluctuation risk, as it deals with customers in Page 11 of 24 IT(TP)A No. 2828/Bang/2017 various countries. As assessee works on an assured markup on all cost incurred towards rendering services and there is no price risk bone by assessee. Thus assessee has been concluded to be not assuming any unique or extraordinary risk in course of providing IT enabled services. Based upon above FAR analysis of assessee, we shall consider comparables alleged by assessee for exclusion/inclusion. Summary Based on the above, it may be concluded that SPI India is a risk insulated captive service provider. Ground No. 4: 10. Ld.AR submitted that CG Vak software exports Ltd, Larsen & Toubro Infotech Ltd., Mindtree Ltd. (seg), Persistent Systems Ltd. (seg), Tech Mahindra Ltd. (seg) on turnover filter. It has been submitted that Ld.TPO while applying the turnover filter failed to apply the upper limit of Rs.200 crores. RS software (India) Pvt.Ltd. Mindtree Ltd. Larsen and Toubro Infotech Ltd. Persistent Systems Ltd. Tech Mahindra Ltd. 11. On the contrary, Ld.CIT.DR relied on orders passed by authorities below. 12. We have perused submissions advanced both sides in light of records placed before us. 13. One of the arguments by the assessee before the Ld.TPO as well as DRP was that these companies had turnover which was in Page 12 of 24 IT(TP)A No. 2828/Bang/2017 excess of Rs. 200 crores and therefore these companies cannot be regarded as a comparable in the case of the assessee whose turnover was only Rs. 64 crores. The Ld.TPO as well as DRP took the view that the functional comparability of the companies were alone to be seen and turnover was not an important criterion. In ground No. 5(iv), the assessee has challenged the order of DRP in holding that higher turnover is not a relevant criterion for disregarding a company, when it is functionally found to be comparable. The question boils down on application of turnover filter in choosing comparable companies. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of Autodesk India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263. This Tribunal in case of Autodesk India (P.) Ltd. v. Dy. CIT (supra) decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores to 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover of less than 200 crores. The said decision has been followed in case of Lam Research (India) Pvt. Ltd. vs. DCIT in IT(TP)A No. 2490/Bang/2017 dated 03.02.2021 by coordinate bench by the Tribunal in case of Autodesk India (P.) Ltd. (supra) held as follows:- "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 Page 13 of 24 IT(TP)A No. 2828/Bang/2017 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 v. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 IT(TP)A No.2490/Bang/2017 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 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 coordinate 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)." Page 14 of 24 IT(TP)A No. 2828/Bang/2017 14. In the light of the aforesaid decision of the Tribunal, comparables sought for exclusion in Ground No.4 raised by the assessee is allowed. Accordingly this ground stands allowed partly. Ground No. 5 15. Assessee seeks inclusion of only 2 comparables being, Akshay Software Technologies Ltd. and Evoke Technologies Pvt. Ltd. It has been submitted that, the Ld.TPO and DRP accepted this comparable in the final list in previous years, however for the year under consideration the same has been excluded. Ld.AR placed reliance on coordinate bench of this Tribunal in case of M/s NXP India Pvt Ltd. vs DCIT in IT(TP)A No. 692 & 2861/B/2017 for assessment year 2012-13 and 2013-14 for Akshay Software Technologies Ltd. In case of Evoke Technologies, Ld.AR submitted that the Ld.TPO excluded this company as it reported loss from a discontinued business during F.Y. 2012-13 and that no details were available on this respect. Ld.AR submitted that this cannot be a valid reason to reject the comparable. 16. On the contrary, the Ld.CIT.DR submitted that DRP for excluding this comparable during the year under consideration has held that the on-site revenue filter of this comparable is less than 75% and hence rejected it from the finalist. He submitted that in the preceding years this observation was not recorded by the authorities below and hence factually cannot be considered identical. 17. In the reply by the Ld.AR, it was submitted that is in the decision relied in case of M/s NXP India Pvt Ltd. vs DCIT (supra) Page 15 of 24 IT(TP)A No. 2828/Bang/2017 this Tribunal had analysed this aspect of on-site revenue filter in the following manner: "IV Akshay software technologies Ltd 32. It was rejected by the TPO for the reason that the function of this company appears to be more in the nature of support services and I T enabled services. However this company is engaged in providing professional services, implementation, support and maintenance of ERP products and other services. These are nothing but software development services, as is evident from the notes forming part of financial statements which is placed in paper book at page 1825. Further the revenue from software services accounts for 99.45% of the total revenue of the company is evident from the financial statements placed on record of paper book at page No. 1831. Being so, we direct TPO to consider this company as comparable to assessee's case while selecting the comparables." Based on the above observation the objection raised by DRP cannot be upheld. We also direct the Ld.TPO to verify the segmental details of this company as no functional dissimilarities has been observed by the authorities below. Accordingly we direct Ld. AO/TPO to consider Akshay Software in the finalist and remand Evoke Technologies for fresh consideration. Accordingly, ground 5 raised by assessee stands allowed. 18. Ground nos. 6-8: Ld.AR submitted that following comparables are to be excluded as they are functionally not similar with assessee under ITeS segment. Microland Ltd. Hartron Communications Ltd. (seg) Capgemini Business Services (India) Pvt. Ltd. Tech Mahindra Ltd. Infosys BPO Page 16 of 24 IT(TP)A No. 2828/Bang/2017 Coordinate bench of this Tribunal in case of ISG Novasoft Technologies Ltd. vs. DCIT in IT(TP)A No. 42/Bang/2018 for A.Y: 2013-14 by order dated 29.04.2019 has considered following comparables as under: “Hartron Communications Ltd. Further the learned AR emphasized that this comparable company is also engaged in real estate activity. The learned AR referred to page 1344 and 1350 of the paper book 2 and emphasized the entry into real estate business. The learned AR made submissions on the trading of shares of this company and relied on the observations of the Auditors. We found that the Chennai Bench of Tribunal in the case of M/s.Cameron Manufacturing India Pvt. Ltd. vs. DCIT in ITA No.336/Chny/2018 dated 16/10/2018 has observed at para 7 which read as under: "7. Ground No.2.3: M/s. Hartron Communications as the comparable company:- The Ld.AR submitted before us that M/s. Hartron Communications had diversified operations amongst which many relates to activities that are not similar to the activity of the assessee company. Further it was submitted that the company M/s. Hartron Communication's profit from BPO business both export and domestic for the current year is 18.43 crores while as for the previous year the profit was 3.81 crores which shows an increase of profit to the tune of 483.72%. Therefore in the relevant assessment year there was extraordinary operations and hence 8 ITA No.336/Chny/2018 cannot be taken as comparable company. Before us the facts presented by the Ld.AR could not be disputed by the Ld.DR. After considering the issue, we are of the view that when the company is functionally dissimilar and when in a particular year there is an extraordinary profit, then the company cannot be taken as a comparable company. In the case of M/s. Hartron Communication, it is apparent that the company has achieved extraordinary profits during the relevant assessment year and further it has diversified activities and therefore functionally dissimilar to that of the assessee company. Hence as pleaded by the Ld.AR, we are of the considered view that M/s. Hartron Communication cannot be accepted as a comparable company." Page 17 of 24 IT(TP)A No. 2828/Bang/2017 We, considering the submissions of the learned AR and the decision of co-ordinate bench of Tribunal in the case of M/s.Cameron Manufacturing India Pvt .Ltd.(supra) are of the opinion the company has extraordinary profits/losses in subsequent years. We are of the substantive opinion that this company cannot be considered as comparable to the assessee's functional profile and accordingly, direct the AO/TPO to exclude this this comparable for determining ALP. M/s.Capegemini Business Services (India) Pvt. Ltd.,: The learned AR submitted that this comparable company has revenue from business process management services and assurances and Compliance Services which include operational control, assessments, and also turnover is around Rs.518.19 crores as against the assessee's turnover of Rs.108 crores and RPT transactions are very much higher and also widened scope of services in supply chain, procurement and technical publications services. is also engaged in procurement and technical publication services as under: Capgemini Business Services (India) Pvt Ltd for FY 2012- 13 Particulars Amount Amount Trade Mark, Methodology and Information Support 1,32,27,082 Other expenses (Bank Guarantee Charges) 4,58,647 Revenues Capgemini America Inc 1,38,34,00,945 Capgemini Outsourcing Services SAS 1,11,29,20,107 Capgemini UK PLC 56,38,85,986 Capgemini Canada Inc 51,76,50,927 Others 24,73,18,736 3,82,51,76,701 Expenditure Network related cost (Capgemini Services SAS, France) 6,44,33,165 Network related cost (Capgemini Outsourcing Services SAS) 8,35,22,704 Professional and consultancy (Capgemini Business Services (China) Ltd) 1,04,21,158 Page 18 of 24 IT(TP)A No. 2828/Bang/2017 Professional and consultancy (Capgemini Singapore Pte. Ltd.) 73,99,408 EDP Expenses (Capgemini India Pvt. Ltd) 6,07,22,526 Service fees (Capgemini Outsourcing Services SAS) 14,87,17,789 Service fees (Others) 1,42,30,206 Training charges (Capgemini Universite) 1,70,02,732 Reimbursement of expenditure (Capgemini Services SAS) 27,17,661 Reimbursement of expenditure (Others) 15,89,465 41,07,56,814 Total RPT 4,24,96,19,244 Total revenue from operations 5,16,22,18,012 RPT % 82.32% Whereas the RPT is 82% which does not satisfy the assessee's profile and above and it is functional different and accordingly, we direct TPO for exclusion of M/s.Capegemini Business Services from the list of comparables for determining the ALP. Similarly, the learned AR submitted for exclusion of M/s.Infosys BPO stating that this company cannot be comparable considering the brand value, functional dissimilarity and the company's turnover is Rs.1831.36 crores which is 10 times more than turnover filter and works as under: 1. The company earns revenue from provision of high end ITES in the nature of both KPO Et BPO, whereas the Appellant provides low end ITES in the nature of BPO. Therefore, the company is functionally different. 2. The company is an established player a market leader and also operates as a full fledged risk bearing entrepreneur. 3. It has significant selling, marketing & brand building expenses. 4. It commands a very high brand value as it enjoys premium pricing. 5. It owns significant intangibles in the form of goodwill. 6. Extraordinary event occurred during the year under consideration (i.e, acquisition of Marsh BPO). Page 19 of 24 IT(TP)A No. 2828/Bang/2017 7. It fails export earning filter of 75% (i.e, 74.06%) 8. Fails upper turnover filter of Rs.200 crores. 9. Incorrect margin computation. Further M/s. Infosys BPO Ltd., fails the revenue filter of 75% and functionally different and has large company intangibles brands and acquisition. The learned AR referred to Annual Report and the export turnover filter and emphasized on functionality and extraordinary filters and relied on assessee's own case for the assessment year 2009-10 on exclusion of the the company in IT(TP)A No.60/Bang/2014 dated 15/02/2019 which reads as under: "8. We heard the rival submissions and perused material on record. The learned AR has argued ground No.8 in respect of exclusion of comparables and other grounds as envisaged by learned AR shall become academic. Therefore, we consider it appropriate to deal with ground No.8 and exclusion of comparables. We found, the TPO has considered Infosys BPO for the TP study whereas the assessee-company is providing IT products and solutions catering to all aspects of Mortgage lending and also engaged in servicing the residential mortgage industry and also providing full spectrum of mortgage technology services for its group companies and adopted TNMM method for international transactions. The learned AR contention that Infosys BPO Ltd., is providing high end integrated services and also diversified services like business platforms, customer service outsourcing, finance and accounting, human resourcing outsourcing and whereas the assessee's functionality is ITES. The turnover of Infosys BPO is Rs.1081.5 croes and fails in the upper turnover filter of Rs.200 crores and has High brand value and enjoys premium which the assessee company does not own. The learned AR referred to relevant Extract of Annual Report of the said company placed at page No.657 of the paper book 2. Further similar exclusion considered by the co-ordinate bench of the Tribunal in the case of e4e Business Solutions India Pvt. Ltd., vs. Deputy Commissioner of Income-tax in IT(TP)A No.1845/Bang/2013 dated 10/11/2015. We find there is strength in the arguments of the learned AR duly supported with evidence on segmental details and functional dissimilarities. The Infosys BPO was dealt by the co- ordinate bench in above case for the assessment year 2009- 10 at page 21 at para. 11.3(ii) which reads as under: ii) We have considered the rival submissions as well as relevant material on record. We note that in para 16.2.15 Page 20 of 24 IT(TP)A No. 2828/Bang/2017 of the Annual Report of this company, it has been reported that there was amalgamation w.e.f 1/4/2008. The relevant part of the information provided in the Annual Report reads as under: Amalgamation of PAN Financial Services India Private Limited The Board of Directors in their meeting held on October 6. 2008. approved, subject to the approval of the Honorable High Courts of Karnataka and Chennai, a Scheme of amalgamation ("the Scheme") to amalgamate PAN Financial Services India Private Limited (-PAN Financial"), a wholly owned subsidiary of the Company engaged in providing business process management of services, with the Company with effect from April 1. 2008 ("effective date"). The approval of the High Court was received on April 6, 2009 and filed with the respective Registrar of Companies of Karnataka and Tamilnadu on April 6, 2009 and March 10, 2009 respectively. Accordingly on the scheme becoming effective, the financial statement of PAN Financial has been merged with the company. It is clear that there was extraordinary event of amalgamation during the year under consideration. Therefore, in view of the extraordinary development of amalgamation of another company, this company cannot be considered as a good comparable for the assessment year under consideration. Apart from this, we further note that as per the segment reporting in para.16.2.21 this company is providing business process management services as under: Segment reporting The company's operations primarily relate to providing business process management services to organizations that outsource their business processes. Accordingly. revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers. The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income in individual segments. These are set out in the note on significant accounting policies. Page 21 of 24 IT(TP)A No. 2828/Bang/2017 Thus it is clear that the revenue earned by this company is from the activity inclusive of operation primarily relates to providing business process management services to other organization engaged in outsourcing business process. This company is not engaged in direct activity of BPO but it provides service to BPOs and that too management service to BPO. Therefore, in our considered view, this company is engaged in a different nature of activity to that of the assessee provided to its AE. Accordingly, we direct the AO/TPO to exclude this company from the list of comparables." We found that there is similarity of the segmentation and the assessee company is engaged in ITES. Therefore, we, considering the turnover, functionality and brand value of the company, are of the view that the company cannot be chosen as a comparable to functional profile of the assessee company. Accordingly, we are of the substantive opinion that Infosys BPO Ltd., be excluded and direct the AO/TPO to exclude this company from the list of comparables for calculating adjustment of the ALP." We rely on factual aspect and judicial decision and direct the TPO to exclude M/s.Infosys BPO for determination of ALP.” 18.1 In the light of above decision, we direct the Ld.AO to exclude Hartron Communications Ltd. (seg), Capgemini Business Services (I) Pvt. Ltd. and Infosys BPO Ltd., from the final set of comparables. 18.2 In case of Microland Ltd. and Tech Mahindra, Ld.AR relied on following decision on Autodesk India Pvt. Ltd. vs. DCIT reported in (2018) 96 taxmann.com 263, wherein comparables having turnover more than 200 crores have not been regarded as comparables with companies having turnover less than 200 crores. Admittedly these companies have turnover more than 200 crores. The Ld.CIT.DR relied on orders passed by authorities below. We have perused the submissions advanced by both sides based on records placed before us. Page 22 of 24 IT(TP)A No. 2828/Bang/2017 The Ld.AR submitted that this Tribunal has, considered various aspects of application of turnover filter for excluding companies and has noted that the first decision rendered on application of this filter was in the case of Genisys Integrating Systems (I)(P) Ltd., reported in (2012) 20 taxman.com 175. Following the view taken therein, excluded comparable that did not satisfy the turnover filter. This Tribunal in the case of Dell International reported in (2018) 89 taxmann.com 44 took note of the decision of coordinate Bench in the case of Sysarris Software (P.) Ltd. v. Dy. CIT reported in (2016) 67 taxmann.com 24 wherein the Tribunal after noticing the decision of the Hon'ble Bombay High Court in the case of CIT v. Pentair Water India (P.)Ltd., reported in (2016) 69 taxmann.com 180, held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP This Tribunal also held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water India (P.) Ltd. (supra) should be adopted. Considering the above views, this Tribunal in case of Autodesk India Pvt.Ltd vs.DCIT(supra) held as under: “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 v. 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 Page 23 of 24 IT(TP)A No. 2828/Bang/2017 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 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).” Based upon above discussions we are of opinion that objection raised by revenue cannot withstand the test of law. We thus Page 24 of 24 IT(TP)A No. 2828/Bang/2017 direct the Ld.TPO to exclude Microland Ltd and Tech Mahindra Ltd., from the final list of comparables under ITeS segment. Accordingly Ground nos.6-8 raised by assessee stands allowed. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 27 th December, 2021. Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 27 th December, 2021. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order Assistant Registrar, ITAT, Bangalore