Appeal details
Counselvise Citation
[2021] 108 COUNSELVISE.COM (IT) 1361 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 5 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-06-2021
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
08-03-2021
Assessment Year
2010-2011
Appeal Filed On
13-01-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.38/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S ANALOG DEVICES INDIA PVT. LTD., SALARPURIA NOVA, NO.1, VARTHUR ROAD, NAGAVARAPALYA, OLD MADRAS ROAD, BENGALURU-560 093. PAN AABCA 1873 F VS. THE DY . COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(1), BANGALORE. APPELLANT RESPONDENT IT(TP)A NO.58/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(1), BANGALORE. VS. M/S ANALOG DEVICES INDIA PVT. LTD., SALARPURIA NOVA, NO.1, VARTHUR ROAD, NAGAVARAPALYA, OLD MADRAS ROAD, BENGALURU-560 093. PAN AABCA 1873 F APPELLANT RESPONDENT PAGE 2 OF 18 IT(TP)A NO.38 & 58/BANG/2015 A SSESSEE BY : S HRI DARPAN KIRPALANI, ADVOCATE RE VENUE BY : S HRI KANNAN NARAYANAN, JCIT DATE OF HEARING : 08 - 0 3 - 202 1 DATE OF PRONOUNCEMENT : 1 4 - 06 - 202 1 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT CROSS APPEALS HAVE BEEN FILED BY ASSESSEE A S WELL AS REVENUE AGAINST ORDER DATED 13/11/2014 PASSED BY LD .CIT(A)-4, BANGALORE FOR ASSESSMENT YEAR 2010-11. 2. AT THE OUTSET, IT IS SUBMITTED THAT, THE TAX EFF ECT INVOLVED APPEAL FILED BY REVENUE IS LOW AND THEREFORE NOT MA INTAINABLE. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 3. ADMITTEDLY THE TAX EFFECT IS LESS THAN RS.50 LAC S IN THE APPEAL FILED BY REVENUE AND THEREFORE PERSON TO CIRCULAR N O. 17/2019 DATED 8/8/2019 ISSUED BY CBDT, PRESENT APPEAL IS NOT MAI NTAINABLE. ACCORDINGLY WE DISMISS THE APPEAL FILED BY REVENUE EN ROUTE TAX EFFECT. ASSESSEES APPEAL: 4. ASSESSEE HAS FILED FOLLOWING REVISED GROUNDS OF APPEAL IN RESPECT OF ITA NO. 38/B/2015: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, ANALOG DEVICES INDIA PRIVATE LIMITED, (HEREINAFTER REFERRED TO AS 'ADI PL' OR TH E COMPANY' OR THE 'APPELLANT'), RESPECTFULLY PAGE 3 OF 18 IT(TP)A NO.38 & 58/BANG/2015 CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE APPEAL ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - IV [HEREINAFTER REFERRED TO AS THE 'LEARNED C LT(A)'] UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 ('ACT') ON THE FOLLOWIN G GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS, B Y UPHOLDING THE ADDITION OF RS. 52,712,412 MADE BY THE LEARNED ASSESSING OFFICER ('AO')/TRANSF ER PRICING OFFICER ('TPO') ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE PAYMENT S RECEIVED BY THE APPELLANT FROM ITS ASSOCIATED ENTERPRISE ('AE') TOWARDS SOFTWARE DEVEL OPMENT SERVICES AND MARKETING AND SALES SUPPORT SERVICES; A) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY NOT ACCEPTING THE APPELLANT'S PLEA IN ENTIRETY AND CONFIRMING WITH THE LEARNED ASSESSING OFFICER ( 'AO')ITRANSFER PRICING OFFICER ('TPO') ON NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE A PPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 ('R ULES'), AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE APPE LLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH; B) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY UPHOLDING THE ACTION OF AO/ TPO IN DETERMINATION OF THE ARM'S LENGTH MARGIN/ PRICE USI NG ONLY SINGLE YEAR DATA I.E. FOR FY 2009-10 AND NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS A PPLIED BY THE APPELLANT IN THE TRANSFER PRICING DOCUMENTATION; GROUND RELATING TO SOFTWARE DEVELOPMENT SERVICES TR ANSACTION; C) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY UPHOLDING THE ACTION OF AO/TPO IN REJECTING CERTAIN COMPARABLES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS: I. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT COMPANIES HAVING DIFFERENT ACCOUNTING YEAR (I.E. CO MPANIES HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMENTS WE RE FOR A PERIOD OTHER THAN 12 MONTHS) SHOULD NOT BE REJECTED. II. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FAC TS, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT COMPANIES SHOULD NOT BE REJECTED USING EMPLOYEE COS T GREATER THAN 25% OF THE TOTAL REVENUES AS A COMPARABILITY CRITERION. II. THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FAC TS, BY NOT ACCEPTING THE APPELLANT'S PLEA THAT REJECTING COMPANIES USING EXPORT SALES LESS THAN 75 % OF THE OPERATING REVENUES AS A COMPARABILITY CRITERION IN RESPECT OF THE SOFTWARE DEVELOPMENT SERVICES TRANSACTION, IS NOT APPROPRIATE. SAL DIGITALLY SIGNED PAGE 4 OF 18 IT(TP)A NO.38 & 58/BANG/2015 D) THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY UPHOLDING THE ACTION OF AOITPO IN ACCEPTING CERTAIN COMPARABLE COMPANIES BASED ON UNR EASONABLE COMPARABILITY CRITERIA. ICRA TECHNO ANALYTICS LTD. ()JJJL EI') 11 KALS INFORMATION SYSTEMS LTD. IIT PERSISTENT SYSTEMS & SOLUTIONS LTD. AND REJECTING CERTAIN COMPARABLE COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITERIA. I. AKSHAY SOFTWARE TECHNOLOGIES LTD. II. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. ILL. LGS GLOBAL LTD. IV. QUINTEGRA SOLUTIONS LTD. E) THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY UPHOLDING THE ACTION OF THE AOITPO IN RESTRICTING THE BENEFIT ON AN ADHOC BASIS TO THE AV ERAGE COST OF CAPITAL COMPUTED AT 1.98 PERCENT IN THE CASE OF COMPARABLE COMPANIES. F) THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS , BY NOT CONSIDERING FOREIGN EXCHANGE GAIN/LOSS AS OPERATING IN NATURE WHILE COMPUTING TH E OPERATING MARGIN OF THE APPELLANT AND COMPARABLE COMPANIES. G) THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLAN T VIS--VIS THE COMPARABLES AND CONCLUDING THAT ONCE THE WORKING CAPITAL ADJUSTMENT IS GRANTED, THE RE IS NO NECESSITY OF PROVIDING ANY FURTHER ADJUSTMENTS.; GROUNDS RELATING TO MARKETING AND SALES SUPPORT SER VICES TRANSACTION H) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY UPHOLDING THE ACTION OF AOITPO IN REJECTING THE FILTERS APPLIED BY THE APPELLANT IN THE TRANSFE R PRICING STUDY FOR THE COMPARABLE ANALYSIS I) THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY UPHOLDING THE ACTION OF AO/TPO IN ACCEPTING CERTAIN COMPARABLE COMPANIES BASED ON UNR EASONABLE COMPARABILITY CRITERIA. I. ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. II. HCCA BUSINESS SERVICES PVT. LTD. ILL. HINDUSTAN HOUSING CO. LTD. IV. KILLICK AGENCIES & MKTG LTD. PAGE 5 OF 18 IT(TP)A NO.38 & 58/BANG/2015 J) THE LEARNED CIT(A) HAS ERRED, IN LAW AND IN FACT S, BY UPHOLDING THE ACTION OF AO/TPO IN REJECTING CERTAIN COMPARABLE COMPANIES BASED ON UNR EASONABLE COMPARABILITY CRITERIA. I. CONCEPT COMMUNICATION LTD. II. INTERADS LTD. ILL. NEW AGE ENTERTAINMENT LTD. IV. INDIA & INFOLINE MEDIA & RESEARCH LTD. V. INDIA INFOLINE MARKETING SERVICES LTD. VI. MARKETING CONSULTANTS & AGENCIES LTD. GENERAL GROUNDS 2. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, IN COMPUTING THE ALP WITHOUT GIVING BENEFIT OF +/-5 PERCENT UNDER THE PROVISO TO SECTION 92C(2) OF THE ACT; 3. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, IN CONFIRMING THE IMPOSITION OF INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT BY THE LEARNED AO 4. THE LEARNED CIT(A) HAS ERRED, IN LAW AND FACTS, IN UPHOLDING INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BY THE LEARNED A O. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDA NCE WITH THE LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS AN WHOLLY OWNED SUBSIDIARY OF AN ALOG DEVICES HOLDING BV, NETHERLANDS. IT IS ENGAGED IN THE BUSIN ESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES AND MARKETING SUPPORT SERVICES TO ITS AE GROUP. IT FILED ITS RETURN OF INCOME FOR YEAR UN DER CONSIDERATION ON 04/11/2011 DECLARING TOTAL INCOME OF RS.4,85,18, 975/-. THE LD.AO WAS OBSERVED THAT, ASSESSEE CLAIMED DEDUCTIO N UNDER SECTION 80G OF THE ACT. THE RETURN WAS PROCESSED UN DER SECTION 143 (1) OF THE ACT AND THE CASE WAS SELECTED FOR SCRUTI NY. NOTICE UNDER PAGE 6 OF 18 IT(TP)A NO.38 & 58/BANG/2015 SECTION 143 (2) WAS ISSUED TO ASSESSEE IN RESPONSE TO WHICH, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE THE LD.A O. DURING THE ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT, AS SESSEE HAD INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES EXCEEDING RS.15 CRORES. LD.AO ACCORDINGLY, REFERRED THE ISSUE TO LD.TPO FOR COMPUTING ARMS LENGTH PRICE OF THE TRANSACTIONS. 3. ON RECEIPT OF REFERENCE, LD.TPO CALLED UPON ASSE SSEE TO FILE ECONOMIC DETAILS OF THE INTERNATIONAL TRANSACTION I N FORM 3CEB. 4. THE LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE: DESCRIPTIONS RECEIVED PAID PROVISION OF SOFTWARE SERVICES 468,071,011 - MARKET SUPPORT SERVICE 53,588,650 - RECOVERY OF EXPENSES 5,754,543 - REIMBURSEMENT OF EXPENSES - 879,132 TOTAL INTERNATIONAL TRNSACTIONS 528,293,336 5. THE LD.TPO OBSERVED THAT, ASSESSEE WAS IN RECEIP T OF SUM OF RS.46.80 CRORES ON ACCOUNT OF SOFTWARE DEVELOPMENT SERVICE (HEREINAFTER REFERRED TO AS SWD) AND RS.2,56,61,598 /- ON ACCOUNT OF MARKETING AND SALES SUPPORT SERVICES (HEREINAFTE R REFERRED TO AS MSS). ASSESSEE USED TNMM AS MOST APPROPRIATE METHOD TO COMPUTE THE ALP OF THE TRANSACTIONS AND OP/OC AS TH E PLI. ASSESSEE THUS COMPUTED ITS MARGIN AT 10% UNDER BOTH SWD AND MSS SEGMENTS. PAGE 7 OF 18 IT(TP)A NO.38 & 58/BANG/2015 6. THE LD.TPO OBSERVED THAT ASSESSEE USED 12 COMPAR ABLES FOR SWD SERVICE SEGMENT WITH AN AVERAGE MARGIN OF 27.71 % AND 6 COMPARABLES UNDER MSS SERVICE SEGMENT WITH AN AVERA GE MARGIN OF 24.48%. 7. THE LD.TPO DISSATISFIED WITH THE ANALYSIS CARRIE D OUT BY ASSESSEE APPLIED FOLLOWING COMPARABLES AND SHORTLIS TED A SET OF 11 COMPARABLES UNDER SWD SERVICE SEGMENT AND 9 COMPARA BLES FOR MSS SERVICES, BY USING FOLLOWING FILTERS: COMPANIES WITH LESS THAN 1 CRORE SERVICE INCOME WER E EXCLUDED COMPANIES WITH CURRENT YEAR DATA WERE ONLY CONSIDER ED EMPLOYEE COST LESS THAN 25% OF SALES COMPANIES WITH DIFFERENT FINANCIAL YEAR ENDING WERE REJECTED COMPANIES WITH PECULIAR ECONOMIC CIRCUMSTANCES WERE RATE REJECTED COMPANIES WITH EXPORT REVENUE GREATER THAN 75% OF S ALES WERE REJECTED SWD SERVICE SEGMENT ----THIS SPACE IS LEFT VACANT INTE NTIONALLY ----- MSS SERVICE SEGMENT . THE LD.TPO THUS PROPOSED THE ADJUSTMENT AS UNDER: PAGE 8 OF 18 IT(TP)A NO.38 & 58 /BANG/20 LD.TPO THUS PROPOSED THE ADJUSTMENT AS UNDER: /BANG/20 15 LD.TPO THUS PROPOSED THE ADJUSTMENT AS UNDER: 8. ON RECEIPT OF THE TRANSFER PRICING ORDER, LD. AO FO RWARDED THE DRAFT ASSESSMENT ORDER SEEKING FOR ANY OBJECTIONS. THE ASSESSEE V IDE LETTER DATED 21/03/2014 INFORMED THAT ASSESSEE WILL BE FILING APPEAL BEFORE THE LD.CIT(A). ACCORDINGLY THE LD.AO PASSED THE FINAL ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SE CTION 144C OF THE A CT ON 11/04/2014 BY MAKING FOLLOWING ADDITIONS IN T H OF ASSESSEE: 9. ADJUSTMENT AS PER ORDER UNDER SECTION 92CA: RS.5,27,12,412/-; DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D: RS.2,082/- 10. AGGRIEVED BY THE BEFORE THE LD.CIT (A) 11. THE LD.CIT(A) CONSIDERED OBJECTIONS RAISED BY ASSESSEE IN RESPECT OF THE COMPARABLES THAT WAS SOUGHT FOR EXCL USION BASED ON THE SUBMISSIONS AND DECISIONS RELIED. INFOSYS LTD., LARSEN AND TOUBRO INFOTECH LTD., PERSISTENT S YSTEMS LTD., SASK LTD., TATA ELXSI LTD. TURNOVER FILTER OF RS.1 C 12. THE LD. CIT (A) HOWEVER REJECTED THE COMPARABLES THAT W ERE SOUGHT FOR INCLUSION UPHELD THE COMPARABLES CONSIDERED BY THE LD. AO/TPO . PAGE 9 OF 18 IT(TP)A NO.38 & 58 /BANG/20 ON RECEIPT OF THE TRANSFER PRICING ORDER, LD. AO FO RWARDED THE DRAFT ASSESSMENT ORDER SEEKING FOR ANY OBJECTIONS. THE ASSESSEE IDE LETTER DATED 21/03/2014 INFORMED THAT ASSESSEE WILL BE FILING APPEAL BEFORE THE LD.CIT(A). ACCORDINGLY THE LD.AO PASSED THE FINAL ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SE CTION 144C OF CT ON 11/04/2014 BY MAKING FOLLOWING ADDITIONS IN T H ADJUSTMENT AS PER ORDER UNDER SECTION 92CA: DISALLOWANCE UNDER SECTION 14 A READ WITH RULE AGGRIEVED BY THE ADDITIONS MADE, ASSESSEE PREFERRED APPEAL CONSIDERED OBJECTIONS RAISED BY ASSESSEE IN RESPECT OF THE COMPARABLES THAT WAS SOUGHT FOR EXCL USION BASED ON THE SUBMISSIONS AND DECISIONS RELIED. THE LD. CIT(A) EXCLUDED INFOSYS LTD., LARSEN AND TOUBRO INFOTECH LTD., M IND YSTEMS LTD., SASK EN COMMUNICATIONS T LTD. IN THE SWD SERVICE SEGMENT BY APPLYING RS.1 C RORE TO RS.200 CRORE. LD. CIT (A) HOWEVER REJECTED THE COMPARABLES THAT W ERE SOUGHT FOR INCLUSION BY ASSESSEE UNDER MSS SERVICE SEGMENT, UPHELD THE COMPARABLES CONSIDERED BY THE LD. AO/TPO . /BANG/20 15 ON RECEIPT OF THE TRANSFER PRICING ORDER, LD. AO FO RWARDED THE DRAFT ASSESSMENT ORDER SEEKING FOR ANY OBJECTIONS. THE ASSESSEE IDE LETTER DATED 21/03/2014 INFORMED THAT ASSESSEE WILL BE FILING APPEAL BEFORE THE LD.CIT(A). ACCORDINGLY THE LD.AO PASSED THE FINAL ASSESSMENT ORDER UNDER SECTION 143 (3) READ WITH SE CTION 144C OF CT ON 11/04/2014 BY MAKING FOLLOWING ADDITIONS IN T H E HANDS ADJUSTMENT AS PER ORDER UNDER SECTION 92CA: DISALLOWANCE UNDER SECTION 14 A READ WITH RULE MADE, ASSESSEE PREFERRED APPEAL CONSIDERED OBJECTIONS RAISED BY ASSESSEE IN RESPECT OF THE COMPARABLES THAT WAS SOUGHT FOR EXCL USION BASED ON CIT(A) EXCLUDED IND TREE LTD., T ECHNOLOGIES THE SWD SERVICE SEGMENT BY APPLYING LD. CIT (A) HOWEVER REJECTED THE COMPARABLES THAT W ERE SERVICE SEGMENT, PAGE 10 OF 18 IT(TP)A NO.38 & 58/BANG/2015 13. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE I S IN APPEAL BEFORE US NOW. 14. AT THE OUTSET, LD.AR SUBMITTED THAT, ASSESSEE W ISH TO ARGUE FOLLOWING COMPARABLES FOR EXCLUSION/INCLUSION: 15. GROUND NO.1(D): UNDER SWD SEGMENT ASSESSEE SEEKS EXCLUSION OF: ICRA TECHNO ANALYTICS LTD. AND KALS INFORMATION SYSTEMS LTD. 16. THE LD.AR SUBMITTED THAT IN THE EVENT THE 2 COM PARABLES SOUGHT FOR EXCLUSION ARE UPHELD, ASSESSEE SHALL NOT PRESS FOR INCLUSION OF: AKSHAY SOFTWARE TECHNOLOGIES LTD., HA LIO& MATHESON INFORMATION TECHNOLOGY LTD., LGS GLOBAL LTD., QUINT EGRA SOLUTIONS LTD. 17. GROUND NO.1(I): UNDER MSS SEGMENT, ASSESSEE SEEKS EXCLUSION OF: ASIAN BUSINESS EXHIBITION AND CONFERE NCES LTD., HCCA BUSINESS SERVICES LTD., KILLICK AGENCIES AND M ARKETING LTD., HINDUSTAN HOUSING COMPANY LTD. 18. ASSESSEE SEEKS INCLUSION OF: CONCEPT COMMUNICAT IONS LTD., INTERADS LTD., NEW AGE ENTERTAINMENT LTD., INDIA IN FOLINE MARKETING SERVICES LTD., INDIA AND INFOLINE MEDIA AND RESEARC H LTD., MARKETING CONSULTANTS AND AGENCIES LTD. 19. IT IS SUBMITTED THAT, EXCEPT FOR THE ABOVE GROU NDS, OTHER GROUNDS ARE NOT PRESSED BY ASSESSEE. 20. BEFORE WE UNDERTAKE THE COMPARABILITY ANALYSIS IT IS SINE QUA NON TO UNDERSTAND THE FUNCTIONS PERFORMED, ASSETS OWNE D AND RISKS ASSUMED BY ASSESSEE UNDER BOTH THE SEGMENTS. 21. THE LD.TPO IN THE TRANSFER PRICING ORDER OBSER VED AS UNDER: PAGE 11 OF 18 IT(TP)A NO.38 & 58/BANG/2015 2. FUNCTIONAL ANALYSIS: THE FUNCTIONS OF THE TAXPAYER AS PER TP DOCUMENT: 7.2 SOFTWARE DEVELOPMENT SERVICES 7.2.1 FUNCTIONS ANALYSIS ADIPL HAS ENTERED INTO AN AGREEMENT WITH ADBV AND W ITH EFFECT FROM 1ST MAY 2001, ADIPL ASSUMES THE FOLLOWING RESPONSIBILITIES: PERFORM TECHNICAL SERVICES FOR THE DEVELOPMENT OF SOFTWARE APPLICATION TO BE DESIGNED ON CUSTOM MICROELECTRONICS CIRCUITS. EVALUATION OF PROTOTYPES. PROVIDE ALL REQUISITE SERVICES TO FACILITATE LOGI STICS FOR SOFTWARE DEVELOPMENT SERVICES. PROVIDE SUCH OTHER ANCILLARY OR RELATED SERVICES AS MAY BE REASONABLY BE REQUIRED AND REQUESTED BY ADBV. TO ENSURE THAT IT HAS THE REQUISITE EXPERTISE, IN FRASTRUCTURE AND PERSONNEL TO PROVIDE THE SERVICE AND TO PERFORM ITS OBLIGATIONS. ADIPL TO KEEP IN STRICT CONFIDENCE ALL CONFIDENTI AL INFORMATION INCLUDING INTELLECTUAL PROPERTY ACQUIRED DURING THE COURSE OF THE PROJECTS. INTELLECTUAL PROPERTY ADIPL SHALL ASSIGN ALL RIGHTS, TITLE AND INTEREST IN ANY/AL INVENTIONS (ALL PROPRIETARY RIGHTS WITH RESPECT TO INVENTIONS), INT ELLECTUAL PROPERTY RIGHTS IN THE WORK PRODUCT, SOFTWARE DEVELOPED OR SERVICES PROVID ED TO ADBV. 7.3 PROJECT MANAGEMENTS SERVICES ADIPL PROVIDES SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE. IN ADDITION, ADIPL ALSO PROVIDES PROJECT MANAGEMENT SE RVICES TO ANALOG DEVICES INC (AOL) ON BEHALF OF ADBV WHICH INCLUDES PROVIDING PR OGRAMMING LANGUAGE TRAINING, VALIDATION OF SOFTWARE DEVELOPED AND CO-O RDINATION BETWEEN AD! AND INDEPENDENT INDIAN SOFTWARE COMPANIES WITH WHOM AD! ENTERS INTO AGREEMENTS FOR SOFTWARE DEVELOPMENT. THE FUNCTIONS PERFORMED A ND RISKS ASSUMED BY THE ISO UNIT IN THE PROVISION OF PROJECT MANAGEMENT SER VICES ARE SIMILAR TO, TIIEPITQYSQRLQFJECHNTCAJ S_ERVICESJY THE !PLXDIVIS ION. 7. 4 MARKET-SUPPORT SERVICES ADIPL PROVIDES MARKETING SUPPORT FUNCTIONS TO ADBV 7.4.1 SUMMARY OF FUNCTIONS. THE PRIMARY MARKET SUPPORT FUNCTIONS PERFORMED BY A DIPL AND THE ASSOCIATED ARE SUMMARIZED BELOW : CUSTOMER INFORMATION TO CUSTOMERS PRICE INFORMATION TO CUSTOMER HUMAN RESOURCE RECRUITMENT AND TRAINING OF SUPPORT STAFF INFRASTRUCTURE MAINTENANCE OF OFFICE FACILITIES IN INDIA PAGE 12 OF 18 IT(TP)A NO.38 & 58/BANG/2015 22. FROM THE ABOVE IT IS CLEAR THAT ASSESSEE IS A C APTIVE SERVICE PROVIDER WITHOUT UNDERTAKING ANY RISKS ASSOCIATED W ITH THE ACTIVITIES CARRIED OUT UNDER BOTH THE SEGMENTS. GROUND NO.1(D): 23. AT THE OUTSET LD.AR SUBMITTED THAT IN A SIMILAR SITUATION OF A CAPTIVE SERVICE PROVIDER, THIS TRIBUNAL IN CASE OF VMWARE SOFTWARE INDIA PVT.LTD VS DCIT IN ITA NO. 322/B/2018 AND ITA NO. 417/B/2018 BY ORDER DATED 23/12/2020 CONSIDERED MOST OF THE COMPARABLES ALLEGED FOR INCLUSION/EXCLUSION BY ASSE SSEE UNDER SWD SEGMENT AS UNDER: ICRA TECHNO ANALYTICS LTD. 7. ICRA TECHNO ANALYTICS LTD: WE FIND THAT THIS CO MPANY WAS EXCLUDED BY THE CIT(A) FOR THE REASON THAT IT IS FUNCTIONALLY DISSI MILAR TO THAT OF THE ASSESSEE (PAGES 17-18 OF THE CIT(A)'S ORDER). IT HAS BEEN HE LD THAT THIS COMPANY IS ENGAGED IN A DIVERSE RANGE OF IT SOLUTION SERVICES. THE COMPANY IS NOT A FULL- FLEDGED SOFTWARE DEVELOPMENT COMPANY AND PROVIDES S UCH SERVICES AMONG ITS OTHER WIDE ARRAY OF IT SOLUTION SERVICES LIKE BUSIN ESS ANALYTICS, IT ENGINEERING AND BUSINESS PROCESS OUTSOURCING. THUS, FUNCTIONALL Y, THE COMPANY IS DIFFERENT FROM THE ASSESSEE. THE LEARNED COUNSEL FOR ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THIS HON'BLE TRIBUNAL IN DCIT V. ELECTR ONICS FOR IMAGING INDIA P. LTD [(2016) 70 TAXMANN.COM 299 (BANG - TRIB.)], ACIT V. BROADCOM INDIA RESEARCH (P.) LTD [2016] 72 TAXMANN.COM 77 (BANGALORE - TRIB.) AN D ITO V. INTERWOVEN SOFTWARE SERVICES (INDIA) (P.) LTD. [2016] 74 TAXMA NN.COM 103 (BANGALORE - TRIB.) WHEREIN THIS COMPANY WAS DIRECTED TO BE EXCLUDED AS A COMPARABLE IN THE CASE OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN. THEREF ORE, THIS COMPANY, IN OUR VIEW, WAS RIGHTLY EXCLUDED KALS INFORMATION SYSTEMS LTD: 9. KALS INFORMATION SYSTEMS LTD.: THIS COMPANY WAS EXCLUDED BY THE CIT(A) FOR REASON THAT IT WAS FUNCTIONALLY DISSIMILAR TO THE A SSESSEE, BY PLACING RELIANCE OF THE DECISION OF THIS HON'BLE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2009-10. THE COMPANY IS ENGAGED IN THE DEVELOP MENT OF SOFTWARE PRODUCTS AND PROVIDING RELATED SERVICES. IT ALSO PROVIDES IM PLEMENTATION AND MAINTENANCE OF SOFTWARE PRODUCTS. IT HAS DEVELOPED A RANGE OF P RODUCTS SUCH AS SHINE ERP SOFTWARE, DOCUFLO, DAC4CAST, CMSS, LA VISION, VIRTU AL INSURE AND ALDON. THE ANNUAL REPORT ALSO CONFIRMS THAT THE COMPANY IS ENG AGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. THE COMPANY HOLDS S IGNIFICANT INVENTORIES PAGE 13 OF 18 IT(TP)A NO.38 & 58/BANG/2015 WHICH ACCOUNT FOR 27% OF THE TOTAL CURRENT ASSETS W HICH DEMONSTRATES THAT IT IS A PRODUCT DEVELOPMENT COMPANY AS AGAINST A PURE SOFTW ARE SERVICE PROVIDER LIKE THE ASSESSEE. THE FUNCTIONS CARRIED OUT BY THE TWO COMPANIES BEING SUBSTANTIALLY DIFFERENT, THIS COMPANY OUGHT TO STAND REJECTED AS A COMPARABLE. THE COMPANY IS BEING CONSISTENTLY EXCLUDED FROM THE LIST OF COMPAR ABLES IN SIMILAR CASES. SINCE THE CIRCUMSTANCES LEADING TO IT BEING EXCLUDED AS B EING FUNCTIONALLY DISSIMILAR IN THE PREVIOUS ASSESSMENT CONTINUE TO REMAIN SAME, TH E COMPANY OUGHT TO REMAIN EXCLUDED IN THE CURRENT ASSESSMENT YEAR. THIS TRIBU NAL IN DOT V. ELECTRONICS FOR IMAGING INDIA P. LTD [(2016) 70 TAXMANN.COM 299 (BA NG - TRIB.)], ACIT V. BROADCOM INDIA RESEARCH (P.) LTD [2016] 72 TAXMANN. COM 77 (BANGALORE - TRIB.) AND ITO V. INTERWOVEN SOFTWARE SERVICES (INDIA) (P. ) LTD,[2016] 74 TAXMANN.COM 103 (BANGALORE - TRIB.), DIRECTED THIS COMPANY TO B E EXCLUDED IN THE CASE OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN. WE, THERE FORE, FIND NO GROUND TO INTERFERE WITH THE ORDER OF CIT(A). 24. WE NOTE THAT SIMILAR HAS BEEN THE SUBMISSION BY ASSESSEE BEFORE AUTHORITIES BELOW IN RESPECT OF THIS COMPARA BLE FOR BEING EXCLUDED FROM THE FINALIST. 25. WE NOTE THAT THIS COMPARABLE HAS BEEN CONSISTEN TLY EXCLUDED BY VARIOUS DECISIONS OF THIS TRIBUNAL CONSIDERED HEREIN ABOVE AND THAT THE CASE OF THOSE ASSESSEES ARE SIMILAR TO TH E ASSESSEE BEFORE US. FURTHER NOTHING CONTRARY TO THE WHAT HAS BEEN OBSERVED BY COORDINATE BENCH OF THIS TRIBUNAL HAS BEEN PLACED B EFORE US BY THE REVENUE. THEREFORE RESPECTFULLY FOLLOWING THE SAME IN OUR VI EW THIS COMPARABLE DESERVES TO BE EXCLUDED. 26. WE HAVE UPHELD ABOVE TWO COMPARABLES ALLEGED BY ASSESSEE FOR EXCLUSION AT THE BEGINNING IT WAS SUBMITTED BY LD.A R IN THE EVENT THESE 2 COMPARABLES ARE EXCLUDED ASSESSEE DOES NOT WISH TO ARGUE THE COMPARABLES SOUGHT FOR IN THIS GROUND. ACCORDINGLY THE REMAINING COMPARABLE COMPANIES ARE NOT CONSIDERED AS NOT PRESSED. ACCORDINGLY GROUND NO. 1(D) STANDS ALLOWED PARTLY. PAGE 14 OF 18 IT(TP)A NO.38 & 58/BANG/2015 GROUND NO. 1 (J): 27. AT THE OUTSET LD.AR SUBMITTED THAT IN A SIMILAR SITUATION OF A CAPTIVE SERVICE PROVIDER, THIS TRIBUNAL IN CASE OF VMWARE SOFTWARE INDIA PVT.LTD VS DCIT IN ITA NO. 322/B/2018 AND ITA NO. 417/B/2018 BY ORDER DATED 23/12/2020 CONSIDERED MOST OF THE COMPARABLES ALLEGED FOR EXCLUSION BY ASSESSEE UNDER MSS SEGMENT AS UNDER: ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. 20. ASIAN BUSINESS EXHIBITION & CONFERENCES LTD: T HE CIT(A) EXCLUDED ASIAN BU ESS EXHIBITION & CONFERENCES LTD., FOR THE REASON T HAT IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. THIS COMPANY IS AN EVENT MANAGEMEN T COMPANY ENGAGED IN ORGANIZING EXHIBITIONS AND EVENTS. REVENUE IS DERIV ED FROM SALE OF STALL SPACES, THROUGH SPONSORS BY DISPLAYING NAMES OF EXHIBITORS IN SIGNAGES, HOARDINGS AND BANNERS, INCOME FROM ENTRY CHARGES AND INCOME FROM DELEGATES ATTENDING CONFERENCES! EVENTS. THIS IS IN NO WAY COMPARABLE T O THE ASSESSEE'S MSS SERVICES SEGMENT UNDER WHICH IT ASSISTS ITS AES IN MARKETING AND SALES OF THEIR PRODUCTS IN INDIA. THIS TRIBUNAL IN DCIT V. ELECTRO NICS FOR IMAGING INDIA P. LTD [(2016) 70 TAXMANN.COM 299 (BANG - TRIB.)I AND ITO V. INTERWOVEN SOFTWARE SERVICES (INDIA) (P.) [2016] 74 TAXMANN.COM 103 (BA NGALORE - TRIB.) DIRECTED THIS COMPANY TO BE EXCLUDED AS A COMPARABLE IN THE CASE OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN. WE FIND NO GROUNDS TO INTERFERE WI TH THE FINDINGS OF THE CIT(A). HCCA BUSINESS SERVICES LTD. 21. CCA BUSINESS SERVICES P. LTD: THIS COMPANY WAS EXCLUDED BY THE CIT(A) FOR E REASON THAT IT IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. THIS COMPANY IS A SERVICE PROVIDER AND PROVIDES SERVICES IN THE GAMUT OF HR OPERATIONS AND ADMINISTRATION. IT PROVIDES HR OPERATIONS AND ADMIN ISTRATION SERVICES, OFFERING PAYROLL PROCESSING AND COMPENSATION RESTRUCTURING, MANAGEMENT OF LABOUR AND LEGAL COMPLIANCES, EMPLOYEE REIMBURSEMENT PROCESSIN G AND ACCOUNTING SERVICES. IT IS THUS CLEAR THAT THE ACTIVITIES OF HCCA ARE NO T SIMILAR TO MARKETING SUPPORT SERVICES PROVIDED BY THE ASSESSEE. THIS TRIBUNAL IN DCII V. ELECTRONICS FOR IMAGING INDIA P. LTD [(2016) 70 TAXMANN.COM 299 (BA NG - TRIB.)] AND ITO V. INTERWOVEN SOFTWARE SERVICES (INDIA) (P.) [2016] 74 TAXMANN.COM 103 (BANGALORE - TRIB.) DIRECTED THIS COMPANY TO BE EXCLUDED AS A COMPARABLE IN THE CASE OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN. THEREFORE , THIS COMPANY OUGHT TO REMAIN EXCLUDED FROM THE FINAL LIST OF COMPARABLES FOR THE MSS SEGMENT. PAGE 15 OF 18 IT(TP)A NO.38 & 58/BANG/2015 KILLICK AGENCIES AND MARKETING LTD., 22. KILLICK AGENCIES & MKTG. LTD.: THIS COMPANY WA S EXCLUDED BY THE CIT(A) FOR REASON THAT IT IS FUNCTIONALLY DISSIMILAR TO THE AS SESSEE, AND THEREFORE DOES NOT WARRANT ANY INTERFERENCE BY THIS HON'BLE TRIBUNAL. THIS TRIBUNAL IN DCIT V. ELECTRONICS FOR IMAGING INDIA P. LTD [(2016) 70 TAX MANN.COM 299 (BANG - TRIB.)] AND ITO V. INTERWOVEN SOFTWARE SERVICES (INDIA) (P. ) [2016] 74 TAXMANN.COM 103 (BANGALORE - TRIB.) DIRECTED THIS COMPANY TO BE EXC LUDED AS A COMPARABLE IN THE CASE OF ASSESSEES SIMILAR TO THE ASSESSEE HEREIN. 28. WE NOTE THAT SIMILAR HAS BEEN THE SUBMISSION BY ASSESSEE BEFORE AUTHORITIES BELOW IN RESPECT OF THIS COMPARA BLE FOR BEING EXCLUDED FROM THE FINALIST. 29. WE NOTE THAT THIS COMPARABLE HAS BEEN CONSISTEN TLY EXCLUDED BY VARIOUS DECISIONS OF THIS TRIBUNAL CONSIDERED HEREIN ABOVE AND THAT THE CASE OF THOSE ASSESSEES ARE SIMILAR TO TH E ASSESSEE HEREIN. RESPECTFULLY FOLLOWING THE SAME IN OUR VIEW THIS CO MPARABLE DESERVES TO BE EXCLUDED. HINDUSTAN HOUSING CO LTD. 30. THE LD.AR SUBMITTED THAT THIS COMPANY WAS INCLU DED BY THE LD. TPO AS IT PROVIDES SUPPORT SERVICES IN RESPECT OF SALES AND MARKETING. THE LD. TPO HAS WRONGLY OBSERVED THAT TH IS COMPARABLE HELPS TO RETAINED THE MARKET IN VIEW OF THE FACT TH AT AFTER SALES SUPPORT DETERMINED IS THE SALES. REFERRING TO THE A NNUAL REPORTS PLACED AT PAGE 202 OF PAPER BOOK, THE LD. AR SUBMIT TED THAT THIS COMPANY IS INTO PROVISION OF ADMINISTRATIVE AND ALL IED SERVICES WHICH INCLUDES AIR CONDITIONING SERVICE CHARGES, LI FT SERVICES ETC IT HAS BEEN SUBMITTED BY HIM THAT THESE SERVICES RENDE RED BY THIS COMPARABLE IS NOT AKIN TO TO THE MARKETING SERVICES PROVIDED BY ASSESSEE TO ITS AE. PAGE 16 OF 18 IT(TP)A NO.38 & 58/BANG/2015 31. ON THE CONTRARY LD.CIT DR RELIED ON ORDERS PASS ED BY THE LD. CIT (A). 32. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 33. WE NOTE THAT ENTIRE REVENUE OF THIS COMPARABLE HAS BEEN RECORDED UNDER ONE SEGMENT. THOUGH THE BIFURCATIONS OF THE VARIOUS REVENUES GENERATED FROM THE SERVICES PROVIDED AS PE R AVAILABLE IN SCHEDULE 7, THESE ARE NOT SIMILAR TO THE BACK-OFFIC E SUPPORT SERVICES RENDERED BY ASSESSEE. WE NOTE THAT ASSESSEE BASICAL LY PROVIDES INFORMATION TO CUSTOMERS, RECRUITMENT AND TRAINING OF SUPPORT STAFF, MAINTENANCE OF OFFICE FACILITIES IN INDIA FOR ITS A ES ETC WHICH IS NOT THE KIND OF SERVICES RENDERED BY THIS COMPARABLE. 34. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND IT FIT TO BE INCLUDED IN THE LIST. ACCORDINGLY WE DIRECT THE LD. AO/TPO TO EXCLUDE THI S COMPARABLE FROM THE FINAL LIST. 35. ASSESSEE HAS ALSO ALLEGED INCLUSION OF CONCEPT COMMUNICATIONS LTD., INTERADS LTD., NEW AGE ENTERTA INMENT LTD., INDIA INFOLINE MARKETING SERVICES LTD., INDIA AND I NFOLINE MEDIA AND RESEARCH LTD., MARKETING CONSULTANTS AND AGENCIES L TD. 36. WE NOTE THAT, THESE COMPARABLES HAVE NOT BEEN CONSIDERED/ANALYSED BY LD.AO/TPO. AS WE HAVE EXCLUD ED THE COMPARABLES ALREADY CONSIDERED BY THE LD.TPO THESE COMPARABLES NEEDS TO BE ANALYSED FOR INCLUSION BY LD.TPO DEPEND ING UPON THE FAR. PAGE 17 OF 18 IT(TP)A NO.38 & 58/BANG/2015 ACCORDINGLY THESE COMPARABLES ARE REMANDED TO LD.AO /TPO FOR RECONSIDERATION IN ACCORDANCE WITH LAW. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED AS INDICATED HEREINABOVE. 37. THE LD.AR SUBMITTED THAT GROUND NO. 1 (H) IS GE NERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. IN THE RESULT, APPEAL FILED BY ASSESSEE STANDS ALLO WED AND APPEAL FILED BY REVENUE STANDS DISMISSED AS INDICATED HERE INABOVE. ORDER PRONOUNCED IN OPEN COURT ON 14 TH JUNE, 2021. SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEM BER BANGALORE, DATED, THE 14 TH JUNE, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE
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