XORIANT SOLUTIONS PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER,-8(3)(4), MUMBAI

ITA 4546/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8323 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 21-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UDAL RAJ SINGH
• Keywords: Transfer pricing; International transaction; Rule of consistency; Set aside
• Section: 201; 13

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4546/MUM/2017 (ASSESSMENT YEAR 2010-11) XORIANT SOLUTIONS PVT. LTD WINDCHESTER, 4 TH FLOOR, HIGH STREET, HIRANANDANI CORPORATE PARK, POWAI, MUMBAI-4007076. P AN: AAACX0146P VS. ITO-8(3)(4) AAYAKAR BHAVAN, MUMBAI-400020. APPELLANT RESPONDENT ITA NO.4274/MUM/2017 (ASSESSMENT YEAR 2010-11) ITO-11(3)(4) ROOM NO. 429, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400020. VS. XORIANT SOLUTIONS PVT. LTD WINDCHESTER, 4 TH FLOOR, HIGH STREET, HIRANANDANI CORPORATE PARK, POWAI, MUMBAI-4007076. P AN: AAACX0146P APPELLANT RESPONDENT APPELLANT BY : SHRI PANKAJ R. TOPRANI WITH MISS. KRUPA P. TOPRANI (AR) RESPONDENT BY : SHRI UDAL RAJ SINGH (DR) DATE OF HEARING : 09.01.2020 DATE OF PRONOUNCEMEN T : 15.01.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE CROSS APPEAL ARE DIRECTED AGAINST THE ORDER O F LD. COMMISSIONER OF INCOME-TAX (APPEALS)-58, MUMBAI [THE LD. CIT(A)] DA TED 20.03.2017 FOR ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 2 I. UPWARD ADJUSTMENT IN THE ARM'S LENGTH PRICE 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A), THE LD. TRANSFER PRICING OFFICER (TPO) AND THE LD. ASSESSIN G OFFICER (A.O), ERRED IN MAKING ADJUSTMENT OF RS.2,34,30,468/- TO THE TOTAL INCOME OF THE APPELLANT IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A),LD.TPO/A.O ERRED IN DISREGARDING THE COST PL US METHOD FOLLOWED BY THE APPELLANT IN RESPECT OF ITS INTERNATIONAL TRANS ACTIONS ENTERED INTO WITH ITS ASSOCIATED ENTERPRISES, AND INSTEAD FOLLOWED TNMM M ETHOD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A), THE LD.TPO/A.O ERRED BY DISREGARDING THE FACT THAT FOR PREVIOUS TWO ASSESSMENT YEARS 2007-08 AND 2008-09, CPM METHOD WAS FOLLOWED BY THE APPELLANT AND WAS ACCEPTED BY THE DEPARTMENT AND THEREFORE, ON TH E PRINCIPLE OF CONSISTENCY, CPM METHOD SHOULD HAVE BEEN ACCEPTED AS THERE ARE N O CHANGE IN THE FACTS. FURTHER, WE WOULD LIKE TO DRAW YOUR KIND ATTENTION TO THE FACT THAT IN ASST YEAR 2008-09, THE CASE WAS HANDLED BY THE SAME A.O AND T HE ALP WAS DULY ALLOWED BY HIM. THUS, IN THE GIVEN YEAR THERE ARISES NO QUE STION OF ANY DISALLOWANCE SINCE THE TOTAL FACTS REMAINS THE SAME. FURTHER WE WOULD ALSO LIKE TO BRING TO YOUR NOTICE THAT THERE HAS NO ADDITION / ADJUSTMENT DONE BY THE TPO SINCE ASST YEAR 2002-03. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A),THE LD.TPO/A.O ERRED BY NOT GIVING ANY REASONS AS TO WH Y CPM METHOD WAS NOT ACCEPTED AND TNMM METHOD WAS ACCEPTED WITHOUT GIVIN G ANY REASONS FOR DEVIATING FROM THE IMMEDIATELY TWO PRECEDING ASSESS MENT YEARS WHEREIN CPM METHOD WAS ACCEPTED. THE PRINCIPLE OF CONSISTENCY TO BE FOLLOWED BY THE DEPARTMENT HAS BEEN ACCEPTED BY THE SUPREME COURT IN THE CELEBRATED CAS E OF RADHA SAOMI SATSANG VIS. CIT (193 ITR 321). 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, WHILE AP PLYING TNMM METHOD, TO EXCLUDE THE PLI OF THE FOLLOWING MULTINATIONALS AS THEY CANNOT BE CONSIDERED AS COMPARABLE WITH THE APPELLANT: ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 3 SR. NO. NAME OF THE COMPANY PLI% 1 M/S INFOSYS TECHNOLOGIES LTD. 45.01 4 M/S. PERSISTENT SYSTEMS LTD. 28.87 5 M/S. SONATA SOFTWARE 35.20 6 M/S. TATA CONSULTANCY SERVICES LTD. 36.52 11 M/S. VISHWAVIKAS SERVICES LTD. 65.87 13 M/S. THIRDWARE SOLUTIONS LTD. 33.72 14 M/S. MINDTREE LTD. (SEGMENTAL) 65.87 15 M/S. WIPRO LTD. 25.88 16 M/S. I-GATE GLOBAL SOLUTIONS LTD. 31.40 17 M/S. SASKEN COMMUNICATION TECHNOLOGIES LTD 26. 50 18 M/S. CORNPUCOM SOFTWARE LTD. (SEGMENTAL) 94.2 1 18 M/S. KALS INFORMATION SYSTEMS LTD. 34.31 ARITHMETIC MEAN 43.62% 6. THE APPELLANT RELIES ON THE BOMBAY HIGH COURT IN THE CASE OF CIT VIS. PENTAIR WATER INDIA PVT. LTD. 381 ITR 216 AND CLAIMS THAT T HE AFORESAID COMPANIES ARE NO DOUBT LARGE AND DISTINCT COMPANIES AND AS SUCH T HE PROFIT EARNED THERE FROM CANNOT BE BENCHMARKED OR EQUATED WITH THE APPELLANT . 7. FURTHER. THE APPELLANT HUMBLY NOTES THAT IN ASST . YEAR 2009-10, THE HON'BLE ITAT VIDE ITS ORDER DATED 22.4.2016 HAS SENT THE MA TTER BACK TO THE AO/TPO. IT IS PERTINENT TO NOTE THAT WORDINGS OF ITAT IN ITS O RDER 'THE TPO CHANGED THE METHOD TO TNMM WITHOUT GIVING PROPER REASONING AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. IT HAD BEEN BROUGHT TO OUR NOTICE THAT DURING THE TRANSFER PRICING PROCEEDINGS FOR THE PRECEDING YEARS I.E. 20 07-08 AND 2008-09, CPM HAS BEEN ACCEPTED AS THE MOST APPROPRIATE METHOD BY THE TPO IN THE TRANSFER PRICING ORDERS PASSED FOR THESE TWO YEARS. IT WAS SUBMITTED THAT NO REASON HAS BEEN GIVEN BY THE LOWER AUTHORITIES TO JUSTIFY AS TO WHY A DEVIATION IN THE YEAR WAS NEEDED IN THE FACTS OF THIS CASE AND ESPECIALLY WHE N THE BUSINESS WAS SAME IN ALL THESE YEARS.' 8. THE COSTING FIGURES ARE VERY WELL DERIVED FROM T HE COSTING DATA MAINTAINED BY THE APPELLANT. THUS, IN THE EVENT OF COST RECORDS A VAILABLE BY THE APPELLANT, CPM IS BELIEVED TO BE THE MAM. THE APPELLANT RELIES ON THE HON'BLE MUMBAI ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 4 IT AT DECISION IN THE CASE OF DIAMOND DYE CHEM LTD. V. DY. CIT [ITA O. 6873 OF 2006, MAY I, 2011] HELD THAT 'IN CASES WHERE COS T DATA IS AVAILABLE, CPM IS THE MOST APPROPRIATE METHOD. THE TRIBUNAL REJECTED APPLICATION OF TNMM ON GROUNDS THAT THERE WAS 110 SUBSTANTIAL DIFFERENCE I LL THE JUNCTIONS AND RISK PROFILES OF THE ACTIVITIES UNDERTAKEN BY THE APPELL ANT IN CASE OF EXPORTS MADE TO AES AND NON-AES. SINCE THE COST DATA WAS AVAILABLE AS PER COST AUDIT REPORT, THE RELIABILITY OF DATA WAS ASSURED AND CPM WAS TO BE U PHELD.' II. LEVY OF INTEREST UNDER SECTION 234B, 234C & 234 D OF THE ACT 1. THE APPELLANT SUBMITS THAT AFTER GIVING RELIEF O N THE GROUNDS RAISED IN THIS APPEAL, THE INTEREST LEVIED IN THE IMPUGNED ORDER W OULD UNDERGO A CHANGE. 2. THE APPELLANT PRAYS THAT IT BE GRANTED RELIEF IN RESPECT OF THE ABOVE GROUNDS AND CONSEQUENTLY DIRECTIONS BE GIVEN TO REDUCE THE INTEREST LEVIED UNDER SECTION 234B, 234C & 2340 OF THE ACT. THE APPELLANT PRAYS THAT RELIEFS ON THE AFORESAID G ROUNDS BE ALLOWED AND THE ORDER OF THE CIT(A)/ TPO/A.O. BE SET ASIDE/QUASHED/ MODIFIED ACCORDINGLY. 2. THE REVENUE IN ITS CROSS APPEAL HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. (A) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING SEVERAL COMPARABLES SELEC TED BY THE TPO BY APPLYING TURNOVER FILTER. ' (B) 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING COMPUSOM SOFTWARE LTD (SE GMENTAL) AS A COMPARABLE BY HOLDING THAT IT IS IN THE FIELD OF SU PPLYING EDUCATIONAL PRODUCTS.' 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT ( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SOLELY FOR ITS ASS OCIATES ENTERPRISES (AES) BASED IN USA & UK. THE ASSESSEE WHILE FILING RETURN OF INCOME REPORTED INTERNATIONAL TRANSACTION WITH ITS ASSOCIA TED ENTERPRISES (AE) IN ITS REPORT FURNISHED UNDER SECTION FORM 3CEB ON ACCOUNT OF SOFTWARE DEVELOPMENT PROJECT APPLICATION. CONSEQUENT UPON RE PORTING THE ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 5 INTERNATIONAL TRANSACTION THE ASSESSING OFFICER MAD E REFERENCE TO TRANSFER PRICING OFFICER (TPO) FOR DETERMINING OF ARMS LENGT H PRICE (ALP) OF INTERNATIONAL TRANSACTION. THE ASSESSEE REPORTED TH E FOLLOWING INTERNATIONAL TRANSACTIONS: SR. NO. NAME OF THE AE NATURE OF THE INTERNATIONAL TRANSACTION VALUE OF THE INTERNATIONAL TRANSACTION (IN RS.) PAID/RECEI VED METHOD ADOPTED BY THE ASSESSEE 1 XORIANT CORPORATION USA SOFTWARE DEVELOPMENT OF PRODUCTS AND APPLIANCES 308700000 RECEIVED CPM 2 Y. POINT UK LTD. SOFTWARE DEVELOPMENT OF PRODUCTS AND APPLIANCES 3900000 RECEIVED CPM 4. THE ASSESSEE ADOPTED COST PLUS METHOD (CPM) FOR BEN CHMARKING ITS INTERNATIONAL TRANSACTION WITH ITS AES. ON RECEIPT OF REFERENCE, THE TPO REQUIRED THE ASSESSEE TO FURNISH CERTAIN INFORMATIO N AND TO JUSTIFY THE CPM AS MOST APPROPRIATE METHOD ADOPTED BY ASSESSEE. THE TPO OFFICER AFTER RECEIVING THE EXPLANATION FROM ASSESSEE TOOK THE VI EW THAT THE COST CLAIMED BY ASSESSEE ATTRIBUTABLE TOWARDS RENDERING SOFTWARE SERVICES TO ITS AE ARE NOT CERTIFIED BY WAY OF SEGMENTAL ACCOUNT AUDITED A ND DULY CERTIFIED BY AUDITOR AND CLAIM OF ASSESSEE IS NOT VERIFIABLE. TH E TPO VIDE SHOW-CAUSE NOTICE DATED 05.12.2013 SHOW-CAUSED THE ASSESSEE AS TO WHY INTERNATIONAL TRANSACTION ENTERED BY ASSESSEE WITH ITS AE SHOULD NOT BE BENCHMARKED UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM) IN PLA CE OF CPM. THE ASSESSEE OBJECTED FOR SUBSTITUTION OF MOST APPROPRI ATE METHOD VIDE ITS REPLY ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 6 DATED 12.12.2013. THE CONTENTION OF ASSESSEE WAS NO T ACCEPTED BY TPO BY TAKING VIEW THAT THE ASSESSEE HAS NOT ESTABLISHED I TS COST UNDER CPM AND HAS NOT PRODUCED INTERVAL AND EXTRAORDINARY COMPARABLE TRANSACTION HAVING SIMILAR SERVICES RENDERED BY THEM. THE TPO AFTER RE JECTING THE OBJECTION OF THE ASSESSEE CARRIED OUT ITS INDEPENDENT INVESTIGAT ION AND SELECTED 22 FOLLOWING COMPARABLE COMPANIES FOR BENCHMARKING THE INTERNATIONAL TRANSACTION. SR.NO. NAME OF THE COMPANY THE PLI(OP/OC)% 1 M/S. INFOSYS TECHNOLOGIES LTD. 45.01 2 M/S. ONWARD ESERVICES LTD. - 2.97 3 M/S. NUCLEUS SOFTWARE EXPORTS LTD. 17.82 4 M/S. PERSISTENT SYSTEMS LTD. 28.87 5 M/S. SONATA SOFTWARE LTD. 35.20 6 M/S. TATA CONSULTANCY SERVICES LTD. 36.52 7 M/S. DIGICOMP COMPLETE SOLUTIONS LTD. 12.22 8 M/S. INDUS NETWORKS LTD. 2.44 9 M/S. POWERSOFT GLOBAL SOLUTIONS LTD. 11.86 10 M/S. TE1EDATA MARINE SOLUTIONS LTD.(SEGMENTAL) - 2.72 11 M/S. VISHWA VIKAS SERVICES LTD. 65.87 12 M/S. WINFOWARE TECHNOLOGIES LTD. 4.81 13 M/S. THIRDWARE SOLUTIONS LTD 33.72 14 M/S. MINDTREE 1TD(SEGMENTAL) 65.87 15 M/S. WIPRO LTD 25.88 16 M/S. I - GATE GLOBAL SOLUTIONS LTD 31.40 17 M/S. SASKEN COMMUNICATION TECHNOLOGIES LTD 26.50 18 M/S. COMPUCOM SOFTWARE LTD (SEGMENTAL) 94.21 19 M/S. KALS INFORMATION SYSTEMS LTD. (SEGMENTAL) 34.41 20 M/S. KERALA AYURVEDA LTD. (SEGMENTAL) 13.77 21 M/S. SQL STAR INTERNATIONAL LTD. (SEGMENTAL) 0.84 22 M/S. MUKTA ARTS LTD. (SEGMENTAL) -13.15 ARITHMETIC MEAN 25.84 THE TESTED PARTY 17.62% 5. THE TPO ADOPTED TNMM, THE MOST APPROPRIATE METHOD. THE TPO CONCLUDED THAT ARITHMETICAL MEAN MARGIN OF 22 COMPA RABLE IS AT 25.84%. ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 7 THE PLI OF ASSESSEE IS 17.62% AND MADE THE ARMS LEN GTH ADJUSTMENT IN THE FOLLOWING MANNER: THE SALE VALUE OF THE INTERNATIONAL TRANSACTIONS AS REPORTED BY THE ASSESSEE (A) RS.31,26,00,000 OPERATING COST (AS CALCULATED ABOVE) RS.26,70,29,933 THE ARMS LENGTH MARGIN 125.84% OF COST THE ARMS LENGTH PRICE (B) RS. 33,60,30,467 THE ARMS LENGTH ADJUSTMENT (C)=(B)-(A) RS. 2,34,30 ,468 105% OF THE SALE VALUE OF THE INTERNATIONAL TRANSAC TIONS RS. 32,82,30,000 6. ON RECEIPT OF REPORT OF TPO, THE ASSESSING OFFICER MADE ADJUSTMENT OF RS. 2.34 CRORE IN RESPECT OF ALP WITH REGARD TO INTERNA TIONAL TRANSACTION REPORTED BY ASSESSEE. THE ASSESSEE EXERCISED ITS OP TION TO FILE APPEAL BEFORE THE LD. CIT(A), THEREFORE, THE ASSESSING OFFICER ON THE BASIS OF REPORT OF TPO, PASSED THE FINAL ASSESSMENT ORDER DATED 10.04. 2014. AGGRIEVED BY THE ADDITION/UPWARD ADJUSTMENT, THE ASSESSEE FILED APPE AL BEFORE THE LD. CIT(A). THE LD. CIT(A) GRANTED THE PARTIAL RELIEF TO THE AS SESSEE IN DELETING CERTAIN COMPARABLE. THE LD. CIT(A) DIRECTED TO RETAIN THE F OLLOWING SET OF COMPARABLE. SR. NO. NAME OF THE COMPANY PLI(OP/OC) % FY 2009-10 7 DIGICOMP COMPLETE SOLUTIONS LTD. 12.22 9 POWERSOFT GLOBAL SOLUTIONS LTD. 11.86 11 VISHWA VIKAS SERVICES LTD. 65.87 12 WINFOWARE TECHNOLOGIES LTD. 4.81 13 THIRDWARE SOLUTIONS 33.72 14 MINDTREE SEGMENTAL 65.87 19 M/S KALS INFORMATION SYSTEMS LTD. 34.41 20 M/S KERALA AYURVEDA LTD. (SEGMENTAL) 13.77 21 SQL STAR INTERNATIONAL LTD. 0.84 7. FURTHER, AGGRIEVED BY THE ORDER OF LD. CIT(A), BOTH THE PARTIES HAVE FILED THEIR APPEAL BY RAISING GROUNDS OF APPEAL AS NARRAT ED ABOVE. ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 8 8. AT THE OUTSET OF HEARING, THE LD. AR OF THE ASSESSE E SUBMITS THAT HE IS PRESSING ONLY GROUND NOS. 4 & 5 AND NOT PRESSING AN Y OTHER GROUND MAY BE DISMISSED AS NOT PRESSED. THE LD. AR OF THE ASSESSE E IN HIS ALL FAIRNESS FURTHER SUBMITS THAT HE IS CONFINING HIS SUBMISSION FOR EXCLUSION OF COMPARABLE NOS. 11, 13, 14, 18 & 19 I.E. VISHWA VIK AS SERVICES LTD., THIRDWARE SOLUTIONS, COMPUCOM SOFTWARE LTD. (SEGMEN TAL), M/S KALS INFORMATION SYSTEMS LTD. AND MINDTREE LTD. (SEGMENT AL) ONLY. IT WAS SUBMITTED THAT INCLUSION OF COMPUCOM SOFTWARE LTD., THE REVENUE HAS FILED ITS CROSS APPEAL. IF THE EXCLUSION OF THIS COMPARAB LE IS UPHELD, THE APPEAL FILED BY REVENUE WOULD BECOME INFRUCTUOUS. 9. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT ASS ESSEE IS A CAPTIVE SOFTWARE PROVIDER OFFERING SERVICES TO ITS TWO AES ONLY. M/S VISHWA VIKASH SERVICES LTD. (VISHWA VIKASH) IS NOT FUNCTIONALLY C OMPARABLE WITH THE ASSESSEE. VISHWA VIKASH IS ENGAGED IN THE BUSINESS OF PROVIDING COMPUTER RELATED ACTIVITIES LIKE MAINTAINING WEBSITE FOR ITS CLIENTS, CREATION OF MULTIMEDIA PRESENTATION TO ITS CLIENTS AND THE SAME IS NOT COMPARABLE WITH THE ASSESSEE. FOR THIRDWARE SOLUTIONS , THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS COMPARABLE IS A PRODUCT COMPANY. THIS COM PARABLE WAS EXCLUDED BY DELHI TRIBUNAL IN AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. DCIT (147 ITD 0417) WHILE CONSIDERING ITS COMPARABILITY WITH SOFTWARE PROVIDER ASSESSEE. FOR COMPUCOM SOFTWARE LTD . (SEGMENTAL). THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS COMPARABLE COMPANY IS IN THE BUSINESS OF ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 9 PROVIDING SOFTWARE FOR EDUCATION. THE LD. AR OF THE ASSESSEE ALSO PLACED THE COPY OF PART OF ANNUAL REPORT FOR THIS COMPARABLE F OR A.Y. 2009-10 SHOWING THE FUNCTIONS PERFORMED BY THIS COMPARABLE. THE LD AR FOR THE ASSESSEE PRAYED FOR AFFIRMING THE EXCLUSION OF THIS COMPARAB LE. FOR M/S KALS INFORMATION SYSTEMS LTD., THE LD. AR OF THE ASSESSEE SUBMITS THAT THIS COMPARABLE IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE; THIS COMPARABLE IS A PRODUCT COMPANY AND ENGAGED IN THE BUSINESS OF SOFTWARE SERVICES AND SOFTWARE PRODUCT. THIS COMPARABLE WAS EXECUTED BY DELHI TRIBUNAL IN AGNITY INDIA TECHNOLOGIES PVT. LTD. (S UPRA) WHILE COMPARING ITS COMPARABILITY WITH SOFTWARE PROVIDER (ASSESSEE). FO R MINDTREE (SEGMENTAL), THE LD. AR OF THE ASSESSEE SUBMITS THAT TURNOVER OF THIS COMPARABLE COMPANY IS ABOUT RS. 700 CRORE AND IS LIABLE TO BE EXCLUDED ON THE BASIS OF TURNOVER FILTER. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF BANGALORE TRIBUNAL IN BEARING POINT BUSINESS CONSULTING (P.) LTD. VS. DCIT (57 SOT 0244 (BANGALORE TRIB.). 10. IN ALTERNATIVE SUBMISSION, THE LD. AR OF THE ASSESS EE SUBMITS THAT CPM WAS ACCEPTED BY REVENUE IN EARLIER AYS. THE ASSESSING O FFICER MADE SIMILAR TREATMENT IN AY 2009-10, AS DONE IN THE YEAR UNDER CONSIDERATION, BY REJECTING CUP METHOD AND ADOPTING TNMM AND ON APPEA L BEFORE THE TRIBUNAL, THE MATTER WAS REMANDED BACK TO THE FILE OF ASSESSING OFFICER IN ITA NO. 1840/MUM/2014 DATED 22.04.2016. ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 10 11. THE LD. AR OF THE ASSESSEE FINALLY SUBMITS THAT IF FOUR COMPARABLE COMPANIES ARE EXCLUDED AND EXCLUSION OF COMPUCOM SO FTWARE LTD. (SEGMENTAL) IS UPHELD BY TRIBUNAL, THE OTHER GROUND S OF APPEAL RAISED BY ASSESSEE WOULD BECOME INFRUCTUOUS. 12. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE SUBMITS TH AT CASE FOR EARLIER YEAR I.E. AY 2009-10 HAS BEEN RESTORED TO THE FILE OF ASSESSI NG OFFICER FOR BENCHMARKING OF INTERNATIONAL TRANSACTION AFRESH. T HEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER. FOR C OMPARABILITY OF VARIOUS COMPARABLE, THE LD. DR FOR THE REVENUE SUPPORTED TH E ORDER OF LD. CIT(A) AND INCLUSION OF COMPUCOM SOFTWARE LTD., THE LD. DR RELIED UPON THE ORDER OF ASSESSING OFFICER. 13. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE AL SO DELIBERATED ON VARIOUS CASE LAW RELIED BY LD. AR OF THE ASSESSEE. THERE IS NO DISPUTE THAT THE ASSESSEE IS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS AES IN USA & UK. THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPO RT HAS ADOPTED CPM AS MOST APPROPRIATE METHOD FOR BENCHMARKING OF ITS TRA NSACTION. THE CPM WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OF FICER BENCHMARKED THE TRANSACTION BY ADOPTING TNMM AND SELECTED THE 22 CO MPARABLE AS MENTIONED IN PARA 4 (SUPRA). ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 11 14. THE PLI OF 22 COMPARABLE WAS AT 25.84% WHEREAS PLI OF TESTED PARTY (ASSESSEE) WAS AT 17.62% ACCORDINGLY, THE ASSESSING OFFICER SUGGESTED UPWARD ADJUSTMENT OF RS. 2.34 CRORE BEFORE THE LD. CIT(A), THE ASSESSEE NOT ONLY OBJECTED ABOUT THE REJECTION OF CPM AND ADOPTI ON OF TNMM METHOD. THE ASSESSEE ALSO URGED THAT CPM HAS BEEN ACCEPTED BY DEPARTMENT IN AY 2007-08 & 2008-09 ONLY IN AY 2009-10, 2010-11 & 201 1-12. THE ASSESSING OFFICER HAS TAKEN A DIFFERENT VIEW AND FO LLOWED TNMM METHOD. IT WAS ALSO STATED THAT FOR A.Y. 2009-10, THE TRIBU NAL HAS RESTORED THE MATTER BACK TO FILE OF ASSESSING OFFICER/TPO ON THE GROUND THAT METHOD OF TNMM WAS TAKEN WITHOUT GIVING PROPER REASONING AND EFFEC TIVE OPPORTUNITY. THE LD. CIT(A) WHILE REFERRING THE PARAGRAPH NO. 3.4 OF THE ORDER OF TRIBUNAL FOR AY 2009-10 TOOK HIS VIEW THAT THE TRIBUNAL HAS NOT MERELY FAULTED WITH THE FINDING OF AO/TPO BUT WHEN THE ASSESSEE ALSO WHILE REMITTING BACK THE MATTER TO THE FILE OF ASSESSING OFFICER. THE LD. CI T(A) AFTER REFERRING THE CERTAIN OECD GUIDELINES CONCLUDED THAT CPM IS SUITA BLE ONLY IN CASES WHERE GROSS MARGIN IS SUFFICIENT TO COMPENSATE THE PARTIES AND THAT ASSESSEE WAS NOT ABLE TO JUSTIFY THE SELECTION OF COMPARABLE IN TRANSFER PRICING STUDY REPORT. THE LD. CIT(A) AFTER CONSIDERING THE SUBMIS SION OF ASSESSEE EXCLUDED 13 COMPARABLE AND RETAINED ONLY 9 FOLLOWIN G COMPARABLE AND DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE AL P ACCORDINGLY. 15. NOW BEFORE US, THE LD. AR OF THE ASSESSEE CONFINED HIS SUBMISSION FOR THE EXCLUSION OF COMPARABLE NO. 11,13,14 & 19 TO SUPPOR T THE EXCLUSION OF ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 12 COMPUCOM SOFTWARE LTD. (SEGMENTAL) (SUPRA). FOR EX CLUSION OF COMPUCOM SOFTWARE LTD. (SEGMENTAL) (SUPRA), THE LD. AR OF TH E ASSESSEE VEHEMENTLY SUBMITTED THAT THIS COMPARABLE IS ENGAGED IN THE BU SINESS OF PROVIDING SOFTWARE FOR EDUCATION. THE LD. AR OF THE ASSESSEE PLACED THE EXTRACT OF ANNUAL REPORT FOR AY 209-10 OF THIS COMPARABLE SHOW ING SEGMENTAL INFORMATION FOR PROVIDING SOFTWARE FOR EDUCATION. T HE LD. DR HAS NOT DISPUTED THE SEGMENTAL INFORMATION ABOUT PROVIDING SOFTWARE FOR EDUCATION. CONSIDERING THE FACT THAT THIS COMPARABLE IS NOT FU NCTIONALLY COMPARABLE WITH THE ASSESSEE, THEREFORE, WE AFFIRMED THE EXCLU SION OF THIS COMPARABLE. 16. NOW ADVERTING TO THE EXCLUSION OF COMPARABLE IN ASS ESSEES APPEAL. (1) VISHWA VIKAS SERVICES LTD. THIS COMPARABLE WAS INCL UDED BY ASSESSING OFFICER. THE LD. CIT(A) AFFIRMED THIS INCLUSION OF THIS COMPARABLE. THE LD. AR OF THE ASSESSEE CLAIMED THAT THIS COMPARABLE IS ENGAGED IN PROVIDING COMPUTER RELATED ACTIVITIES LIKE MAINTENANCE OF WEB SITE FOR ITS CLIENTS, CREATION OF MULTIMEDIA PRESENTATION OF ITS CLIENT. THIS FACT IS NOT DISPUTED BY LD. DR FOR THE REVENUE. IN OUR VIEW THIS COMPARABLE IS NOT FUNCTIONALLY COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES O F ASSESSEE, THEREFORE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COM PARABLE FROM FINAL SET OF COMPARABLE. 17. NOW COMING TO THIRDWARE SOLUTIONS & M/S KALS INFORM ATION SYSTEMS LTD., THESE COMPARABLE WERE INCLUDED/SELECTED BY ASSESSIN G OFFICER AND THEIR INCLUSION WERE AFFIRMED BY LD. CIT(A). BOTH THE COM PARABLE ARE A PRODUCT ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 13 COMPANY WERE EXAMINED BY CO-ORDINATE BENCH OF MUMBA I TRIBUNAL IN AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) WHEREIN BOTH THE COMPANY WERE HELD TO BE PRODUCT COMPANY. CONSIDERING THE DECISIO N OF TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE BOTH THE CO MPARABLE FROM FINAL SET OF COMPARABLE. 18. MINDTREE LTD. (SEGMENTAL). THIS COMPARABLE WAS SELE CTED/INCLUDED BY ASSESSING OFFICER AND INCLUSION OF THIS COMPARABLE WAS AFFIRMED BY LD. CIT(A). THE LD. AR OF THE ASSESSEE WHILE MAKING SUB MISSION VEHEMENTLY ARGUED THAT THIS COMPARABLE IS NOT COMPARABLE DUE T O HIGH TURNOVER HAVING SALES OF ABOUT RS. 700 CRORE. WE HAVE NOTED THAT CO -ORDINATE BENCH OF BANGALORE TRIBUNAL IN BEARING POINT BUSINESS CONSUL TING (P.) LTD. (SUPRA), THIS COMPARABLE WAS REJECTED/EXCLUDED DUE TO HIGH T URNOVER FILTER. CONSIDERING THE DECISION OF TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE MINDTREE LTD. (SEGMENTAL) FROM FINAL SET OF COMPARABLE. 19. IN VIEW OF THE AFORESAID DISCUSSION, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE VISHWA VIKAS SERVICES LTD. (SUPRA), THIRDWA RE SOLUTIONS, M/S KALS INFORMATION SYSTEMS LTD. (SUPRA) & MINDTREE LTD. (S EGMENTAL) AND RE- COMPUTE THE ALP OF INTERNATIONAL TRANSACTION AFRESH . IN THE RESULT, GROUND NO. 4 & 5 OF THE APPEAL ARE ALLOWED. CONSIDERING TH E FACTS THAT WE HAVE ACCEPTED THE PRIMARY CONTENTIONS/ SUBMISSIONS OF TH E LD AR FOR THE ASSESSEE ON EXCLUSIONS AND AFFIRMED THE EXCLUSION OF COMPARA BLE, EXCLUDED BY LD ITA NO. 4546 & 4274 MUM 2017-XORIANT SOLUTIONS PVT. LTD. 14 CIT(A), THEREFORE, OTHER GROUNDS OF APPEAL RAISED B Y THE ASSESSEE HAVE BECOME ACADEMIC. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ITA NO. 4274/MUM/2017 BY REVENUE 21. AS NOTED ABOVE THAT WHILE DISCUSSING THE COMPARABIL ITY OF COMPARABLE, WE HAVE AFFIRMED THE EXCLUSION OF COMPUCOM SOFTWARE LT D. (SEGMENTAL) DIFFERENCE, THEREFORE, APPEAL OF THE REVENUE IS DIS MISSED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/ 01/2020. SD/ SD/- R.C. SHARMA PAWAN SINGH ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATE: 15.01.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI