M/s IMS Health Technology Solutions India Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-3(1)(1), Bangalore

ITA 490/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7203 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-06-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction
• Section: 92C; 234B; 143(2); 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.490/BANG/2017 ASSESSMENT YEAR : 2012-13 M/S IMS HEALTH ANALYTICS SERVICES PVT. LTD., (IMS HEALTH TECHNOLOGY SOLUTIONS INDIA PVT. LTD., MERGED WITH M/S IMS HEALTH ANALYTICS SERVICES PVT. LTD.,) EMBASSY TECH SQUARE, OMEGA, EMBASSY TECHSQUARE, MARATHAHALLI, SARJAPUR RING ROAD, KADUBEESANAHALLI, BENGALURU-560 103. PAN : AABCD 9297 J VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R VASUDEVAN, ADVOCATE RESPONDENT BY : MS. NEERA MALHOTRA, CIT (DR) DATE OF HEARING : 23-06-2020 DATE OF PRONOUNCEMENT : 04-09-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 29/12/2016 PASSED BY LD.AO UNDER SECTION 143( 3) PAGE 2 OF 15 IT(TP)A NO.490/BANG/2017 R.W.S 144C(13) OF THE ACT, FOR ASSESSMENT YEAR 2012 -13, ON FOLLOWING REVISED GROUND OF APPEAL: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJ UDICE TO ONE ANOTHER. 1. THE LEARNED ASSESSING OFFICER ('LEARNED AO'), LE ARNED TRANSFER PRICING OFFICER ('LEARNED TPO') AND THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') GROSSLY ERRED IN ADJUSTING TH E TRANSFER PRICE BY INR 3,55,53,274/- WITH RESPECT TO THE INTERNATIONAL TRANSACTIONS RENDERED BY THE TAXPAYER U/S 92CA OF THE INCOME-TAX ACT, 1961. 2. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN REJECTING THE TP DOCUMENTATION MAINTAINED BY THE APPELLANT BY INV OKING PROVISIONS OF SUB-SECTION (3) OF 92C OF THE ACT. 3. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN REJECTING COMPARABILITY ANALYSIS CARRIED IN THE TP DOCUMENTAT ION AND IN CONDUCTING A FRESH COMPARABILITY ANALYSIS BY INTROD UCING VARIOUS FILTERS WHILE DETERMINING THE ARM'S LENGTH PRICE (' ALP'). 4. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN NOT CONSIDERING THE PREVIOUS TWO YEARS FINANCIAL DATA O F THE COMPARABLE COMPANIES WHILE DETERMINING THE ALP. 5. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN APPLYING DIFFERENT FINANCIAL YEAR ENDING FILTER WHILE SELECT ING THE COMPARABLE COMPANIES, THEREBY NOT CONSIDERING THE FACT THAT TH E RELEVANT DATA FOR THE CONCERNED FINANCIAL YEAR COULD BE DEDUCED FROM THE CORRESPONDING FINANCIALS 6. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN APPLYING EXPORT EARNING FILTER OF 75% INSTEAD OF 25% OF THE TOTAL SALES, LEADING TO A NARROWER COMPARABLE SET. 7. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN APPLYING RELATED PARTY FILTER OF 25% WITHOUT GIVING ANY COGE NT REASON FOR DOING SO. 8. THE LEARNED AU/LEARNED TPO/HON'BLE DRP ERRED IN NOT APPLYING THE UPPER LIMIT ON TURNOVER WHILE SELECTING THE COM PARABLE COMPANIES. 9. THE LEARNED AO/LEARNED TPU/HON'BLE DRP ERRED IN NOT APPRECIATING THE FACT THAT SINCE THE LOWER LIMIT ON TURNOVER HAS ALREADY BEEN APPLIED MUTUALLY BY THE APPELLANT AS W ELL AS THE LEARNED TPO WHILE CARRYING OUT THEIR RESPECTIVE COM PARABILITY ANALYSIS, UPPER LIMIT ON TURNOVER SHOULD ALSO HAVE BEEN PROVIDED BASED ON THE SIMILAR PRINCIPLE. 10. HON'BLE DRP HAS GIVEN CONFLICTING DIRECTIONS WH ILE ADJUDICATING ON THE ACCEPT/REJECT OF THE COMPARABLE COMPANIES, B EING, DATAMATICS GLOBAL SERVICES LTD., GENESYS INTERNATIONAL SERVIC ES LTD., ICRA TECHNO ANALYTICS LTD.,INFOSYS LTD., SASKEN COMMUNIC ATION TECHNOLOGIES LTD. AND SPRY RESOURCES INDIA PVT. LTD .. IN DOING SO, THE HON'BLE DRP HAS ERRED IN: A. NOT APPRECIATING THE FACT THAT ALP CAN BE COMPUT ED EVEN ON THE BASIS ON A SMALLER SET OF COMPARABLES. PAGE 3 OF 15 IT(TP)A NO.490/BANG/2017 B. HOLDING THAT A LARGER SET OF COMPARABLES TAKES C ARE OF THE DIFFERENCES BETWEEN THE COMPARABLES AS COMPARED TO A SMALLER SET OF THE COMPARABLES SELECTED BASED ON STRICT COMPARABIL ITY C. HOLDING THAT THE COMPANIES SELECTED BY THE LEARN ED TPO ARE APPROPRIATE COMPARABLES FOR DETERMINATION OF THE AL P. 11. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GRO SSLY ERRED IN NOT REJECTING THE FOLLOWING COMPANIES THE LIST OF C OMPARABLE COMPANIES: LARSEN AND TOUBRO INFOTECH LTD. PERSISTENT SYSTEMS LTD. R S SOFTWARE LTD. MINDTREE LTD. 12. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS GROS SLY ERRED IN REJECTING COMPANIES THAT OUGHT TO HAVE BEEN INCLUDE D AS COMPARABLES: ACROPETAL TECHNOLOGIES LTD. AKSHAY SOFTWARE TECHNOLOGIES PVT. LTD. CAT TECHNOLOGIES LTD. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. MAVERIC SYSTEMS LTD. SILVERLINE TECHNOLOGIES LTD. CHERRYTEC INTCLLISOLVE PVT. LTD. TECHNOSOFT ENGINEERING PROJECTS LTD. KALS INFORMATION SYSTEMS LTD. EVOKE TECHNOLOGIES PVT. LTD. 13. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS ERRE D IN MAKING THE FOLLOWING ERRORS IN THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT: A. BY NOT PROVIDING THE BASIS OF COMPUTATION OF MAR GIN OF THE APPELLANT B. IN CONSIDERING THE WRONG SBI PLR WHILE COMPUTING THE WORKING CAPITAL ADJUSTMENT 14. THE HON'BLE DRP ERRED IN DIRECTING THE LEARNED AO TO CONSIDER FOREX GAIN OR LOSS AS OPERATING IN NATURE WHILE COM PUTING THE MARGIN OF THE APPELLANT. 15. THE LEARNED AO/LEARNED TPO/HON'BLE DRP ERRED IN NOT ALLOWING APPROPRIATE ADJUSTMENT TOWARDS TO THE RISK DIFFEREN TIAL EXISTING BETWEEN THE APPELLANT VIS--VIS INDEPENDENT COMPARA BLE COMPANIES. 16. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS ERRE D IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 17. THE LEARNED AO/LEARNED TPO/HON'BLE DRP HAS ERRE D IN LEVYING INTEREST UNDER SECTION 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, RESCIND A ND MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING OF THIS A PPEAL. FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY BE RA ISED AT THE TIME OF HEARING, IT IS PRAYED THAT NECESSARY RELIEF MAY BE PROVIDED. PAGE 4 OF 15 IT(TP)A NO.490/BANG/2017 BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY, ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES. IT FILED I TS RETURN OF INCOME FOR YEAR UNDER CONSIDERATION ON 28/11/2012 DECLARING TOTAL INCOME OF RS.9,12,52,550/-. THE CAS E WAS SELECTED SCRUTINY AND NOTICE UNDER SECTION 143(2) W AS ISSUED TO ASSESSEE IN RESPONSE TO WHICH REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS A S CALLED FOR. 3. LD.AO OBSERVED THAT, ASSESSEE HAD INTERNATIONAL TRANSACTION EXCEEDING RS.15CRORE, AND THEREFORE, TH E ISSUE WAS REFERRED TO TRANSFER PRICING OFFICER FOR DETERM INING ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. 4. ON RECEIPT OF REFERENCE UNDER SECTION 9CA, LD.TPO I SSUED NOTICE TO ASSESSEE CALLING UPON TO FILE THE ECONOMI C ANALYSIS OF INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESS EE WITH ITS ASSOCIATED ENTERPRISES IN FORM 3 CEB. LD.TPO OBSERVED THAT, ASSESSEE HAS ENTERED INTO FOL LOWING INTERNATIONAL TRANSACTION: PAGE 5 OF 15 IT(TP)A NO.490/BANG/2017 5. LD.TPO NOTED THAT, ASSESSEE EARNED MARGIN OF 13.38 % BY USING OP/OC AS PLI AND TNMM AS MOST APPROPRIATE METHOD. IT WAS NOTED THAT IN TP DOCUMENTATION, ASSE SSEE USED 9 COMPARABLES WITH AVERAGE ARITHMETIC MEAN OF 11.22% AND THEREBY HELD TRANSACTION TO BE AT ARMS LENGTH. 6. LD.TPO DISAGREED WITH COMPARABLES ADOPTED BY ASSES SEE AND SHORTLISTED SET OF FOLLOWING 10 COMPARABLES HAV ING AVERAGE MARGIN OF 22.63%. 7. LD.TPO THUS COMPUTED SHORTFALL BEING, ADJUSTMENT UN DER SECTION 92CA AMOUNTING TO RS.3,55,53,274/-. 8. AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE RAISED OBJECTIONS BEFORE DRP. DRP IN PARA 2.9, 2.10, 2.11, 2.12, 2.15, 2.16 DIRECTED LD.AO TO EXCLUDE DATAMATICS GLO BAL SERVICES LTD, GENESIS INTERNATIONAL CORPORATION LTD , ICRA TECHNO ANALYTICS LTD, INFOSYS LTD, SASKEN COMMUNICA TIONS TECHNOLOGIES LTD, SPRY RESOURCES INDIA LTD., FROM F INAL LIST OF PAGE 6 OF 15 IT(TP)A NO.490/BANG/2017 COMPARABLES. HOWEVER, IN THE CONCLUSION DRP ULTIMAT ELY HELD THAT A LARGER SET OF COMPARABLE TAKES CARE OF THE DIFFERENCES BETWEEN THE COMPARABLES AS COMPARED TO BE SMALLER SET SELECTED BASED ON STRICT COMPARABILITY AND ACCORDINGLY HELD THE COMPARABLES SELECTED BY LD.TPO TO BE APPROPRIATE. 9. LD.AO ON RECEIPT OF DRP DIRECTIONS PASSED FINAL ASSESSMENT ORDER MAKING TRANSFER PRICING ADDITION I N HANDS OF ASSESSEE AT RS.3,55,53,274/-. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE IS IN APPEAL BEFORE US NOW. 10. AT THE OUTSET, LD.AR SUBMITTED THAT, ASSESSEE WISHE S TO RESTRICT ITS ARGUMENT IN RESPECT OF FOLLOWING 5 COM PARABLES RAISED IN GROUND 10 AND GROUND 11 FOR EXCLUSION: GENESIS INTERNATIONAL SERVICES LTD ICRA TECHNO ANALYTICS LTD INFOSYS LTD LARSEN AND TOUBRO INFOTECH LTD PERSISTENT SYSTEMS LTD. 11. HE SUBMITTED THAT, IN THE EVENT THESE COMPARABLES A RE EXCLUDED ASSESSEE IS WELL WITHIN THE MARGIN OF +/ - 5% AND NO ADJUSTMENT WOULD REQUIRED TO BE MADE IN THE HAND S OF ASSESSEE. 12. ACCORDINGLY, ALL OTHER COMPARABLES MENTIONED IN THE SE GROUNDS, ALONG WITH OTHER GROUNDS, STANDS DISMISSED AS NOT ARGUED. ASSESSEE IS HOWEVER GRANTED LIBERTY TO CONT EST THESE GROUNDS/COMPARABLES IN APPROPRIATE YEARS. PAGE 7 OF 15 IT(TP)A NO.490/BANG/2017 LD.AR SUBMITTED THAT, THESE COMPARABLES DESERVES TO BE EXCLUDED FOR BEING FUNCTIONALLY DIFFERENT AND/OR HA VING HIGH TURNOVER. 13. BEFORE WE UNDERTAKE COMPARABILITY ANALYSIS OF THES E LTD COMPARABLES WITH ASSESSEE, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED BY ASSESSEE UNDER TH IS SEGMENT. FUNCTIONS: 14. LD.TPO HAS OBSERVED THAT ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH ITS AE FOR PROVISION OF SOFTWARE DEV ELOPMENT SERVICES ON A COST PLUS BASIS IT IS ALSO BEEN RECOR DED BY LD.TPO THAT, AS PER AGREEMENT ASSESSEE IS SUPPOSED TO PROVIDE TO ITS AES WITH SERVICES IN THE NATURE OF CUSTOMISED SERVER SOFTWARE DEVELOPMENT AND TESTING SERVICES AS REQUESTED BY THE AE GROUP. LD.TPO NOTED THAT, ASSES SEE OPERATES IN CAPACITY OF CAPTIVE SERVICE PROVIDER. I N TP STUDY AT PAGE 694, IT IS NOTED THAT, ASSESSEE UNDERTAKES CODING ACCORDING TO SPECIFICATIONS PROVIDED BY AES AND IS RESPONSIBLE FOR INITIAL UNIT TEST OF MODULES DEVELO PED BY IT TO ENSURE THAT THE ACTIVITY UNDERTAKEN MEET THE SPECIF ICATIONS REQUIREMENTS AGREED. FURTHER, IT IS ALSO RECORDED T HAT, AE IS RESPONSIBLE FOR THE FINAL TESTING AND QUALITY CONTR OL OF FINAL SOFTWARE MODULE OR SOLUTIONS DELIVERABLE TO THE CUS TOMER. ASSETS: 14.1. ASSETS OWNED BY ASSESSEE ARE ONLY COMPUTER EQUIPMENTS AND ACCESSORIES, FURNITURE FIXTURES OFFI CE EQUIPMENTS ANOTHER LEASEHOLD IMPROVEMENTS. IT IS AL SO BEEN PAGE 8 OF 15 IT(TP)A NO.490/BANG/2017 NOTED THAT ALL INTANGIBLE AND NON-ROUTINE ASSETS AR E OWNED BY THE AE. RISKS: 14.2. IT HAS BEEN NOTED IN TP STUDY THAT ALL MAJOR RISKS ARE UNDERTAKEN BY A EXCEPT FOR THE FOREIGN EXCHANGE FLU CTUATION RISK SINCE ASSESSEE EARNS ITS REVENUE IN FOREIGN EX CHANGE RATES. TP DOCUMENTATION, THUS CHARACTERISES ASSESSEE IS A CAPTIVE SERVICE PROVIDER THAT ASSUMES MINIMAL RISK ASSOCIAT ED WITH THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES. THIS POSITION HAS NOT BEEN DISPUTED BY LD.TPO 15. BASED ON ABOVE FAR ANALYSIS, WE SHALL NOW ANALYSE COMPARABLES ALLEGED FOR EXCLUSION AND ARGUED BEFORE US. LD.AR SUBMITTED THAT 5 COMPARABLES ALLEGED BY ASSES SEE FOR EXCLUSION HAVE BEEN CONSIDERED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AMD INDIA PVT. LTD VS ITO REPORTED IN (2020) 114 TAXMANN.COM 703 . HE SUBMITTED THAT, ASSESSEE THEREIN, HAS ALSO BEEN CHARACTERISED TO BE RENDERIN G CONTRACT SOFTWARE DEVELOPMENT SERVICES TO ITS AE. IT HAS ALS O BEEN STATED THAT, FUNCTIONAL PROFILE OF ASSESSEE PRESENT APPEAL AND THAT IN DECISION CITED BY LD.AR ARE SAME, AND FOLLO WING IS RELEVANT OBSERVATIONS THEREIN: 8 . THE LEARNED COUNSEL FOR THE BROUGHT TO OUR NOTICE A DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF CGI INFORMA TION SYSTEMS & MANAGEMENT CONSULTANTS (P.) LTD. V. ASSTT. CIT [2 018] 94 TAXMANN.COM 97 WHEREIN 4 OUT OF THE AFORESAID FIVE COMPARABLE COMPANIES VIZ., (A) GENESYS INTERNATIONAL CORPN. LT D. (B) INFOSYS LTD., (C) LARSEN AND TOUBRO INFOTECH LTD. AND ( D) PERSISTENT SYSTEMS LTD. WERE EXCLUDED BY THE ITAT. THE FUNCTIO NAL PROFILE OF THE ASSESSEE IN THIS APPEAL AND THAT OF THE ASSESSE E IN THE DECISION CITED BY THE LEARNED COUNSEL FOR THE ASSES SEE IS THE PAGE 9 OF 15 IT(TP)A NO.490/BANG/2017 SAME. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: '28. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE COMPARABILITY OF THE 3 COMPANIES OUT OF THE AFORESAID 4 COMPANIES WHICH THE ASSESSEE SEEKS TO E XCLUDE FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., INFOSYS LTD., LARSEN & TOUBRO INFOTECH LTD. A ND PERSISTENT SYSTEMS LTD., WERE CONSIDERED BY THE ITA T DELHI BENCH IN THE CASE OF AGILIS INFORMATION TECHNOLOGIE S INDIA (P) LTD. V. ACIT (2018) 89 TAXMANN.COM 440 (DELHI-T RIB.) FOR THE SAME AY 2012-13. IN THIS REGARD IT WAS SUBMITTE D THAT THE FUNCTIONAL PROFILE OF THE ASSESSEE IS SAME AS T HAT OF THE ASSESSEE IN THE CASE OF AGILIS INFORMATION TECHNOLO GIESINDIA (P) LTD., IS IDENTICAL IN AS MUCH AS THE SAID COMPA NY WAS ALSO INVOLVED IN PROVIDING SWD SERVICES TO ITS AE A ND THE TPO HAD CHOSEN 16 COMPARABLE COMPANIES OUT OF WHICH 6 COMPANIES CHOSEN BY THE TPO IN THE CASE OF THE ASSE SSEE FOR THE PURPOSE OF COMPARABILITY WERE THE SAME. HIS SUBMISSION WAS THAT THE DECISION RENDERED BY THE TR IBUNAL IN THE CASE OF AGILIS INFORMATION TECHNOLOGIES INDI A (P) LTD., (SUPRA) WOULD BE EQUALLY APPLICABLE TO THE ASSESSEE IN THE PRESENT CASE ALSO. THE LEARNED DR SUBMITTED THAT TH E DRP IN ITS DIRECTIONS HAS MERELY ACCEPTED WITH THE REAS ONING OF THE TPO AND THEREFORE THE ISSUE OF EXCLUSION OF THE SE COMPANIES SHOULD BE DIRECTED TO BE EXAMINED AFRESH BY THE DRP. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN TH E CASE OF AGILIS INFORMATION TECHNOLOGIES INDIA(P) LTD., ( SUPRA), THIS TRIBUNAL CONSIDERED THE COMPARABILITY OF THE 3 COMP ANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE FROM THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. THE FUNCTIO NAL PROFILE OF THE ASSESSEE AND THAT OF THE ASSESSEE IN THE CASE OF AGILIS TECHNOLOGIESINDIA (P) LTD., IS IDENTICAL IN AS MUCH AS THE SAID COMPANY WAS ALSO INVOLVED IN PROVIDING SWD SERVICES TO ITS AE AND THE TPO HAD CHOSEN SOME COMPARABLE COMPANIES WHICH WERE ALSO CHOSEN BY THE TPO IN THE CASE OF THE ASSESSEE FOR THE PURPOSE OF COMP ARABILITY. IN THE AFORESAID DECISION THE TRIBUNAL HELD ON THE COMPARABILITY OF THE 3 COMPANIES WHICH THE ASSESSEE SEEKS TO EXCLUDE AS FOLLOWS: (A) INFOSYS LTD., WAS EXCLUDED FROM THE LIST OF COM PARABLE COMPANIES BY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (2013) 36 TAXMANN.COM 289 (DELHI). THE DISCUSSION IS CONTAINE D IN PARAGRAPHS 4.5 TO 4.7 OF THE TRIBUNAL'S ORDER. THE PAGE 10 OF 15 IT(TP)A NO.490/BANG/2017 TRIBUNAL ACCEPTED THAT INFOSYS LTD. IS A GIANT RISK TAKING COMPANY AND ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND ALSO OWNS INTANGIBLE ASSETS A ND THEREFORE NOT COMPARABLE WITH A SOFTWARE DEVELOPMEN T SERVICE PROVIDER SUCH AS THE ASSESSEE IN THAT CASE. (B) LARSEN & TOUBRO INFOTECH LTD., WAS EXCLUDED FRO M THE LIST OF COMPARABLE COMPANIES BY RELYING ON THE DECI SION OF THE DELHI BENCH OF ITAT IN THE CASE OF SAXO INDI A (P) LTD. V. ACIT (2016) 67 TAXMANN.COM 155 (DEL-TRI). T HE DISCUSSION IS CONTAINED IN PARAGRAPHS 4.8 TO 4.10 O F THE TRIBUNAL'S ORDER. THE TRIBUNAL HELD THAT L & T INFO TECH LTD., WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTAL INFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL ALSO NOTICED THAT THE APPEAL FILED BY THE REVENUE AGAINST THE TRIBUNAL'S ORDER WAS DISMISSED BY THE HON'BLE DELHI HIGH COURT IN ITA NO.682/2016. (C) PERSISTENT SYSTEMS LTD., WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPAN Y WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTAL INFORMATION ON SWD SERVICES WAS NOT AVAILABLE. THE TRIBUNAL IN COMING TO THE ABOVE CONCLUSION REFERRED TO THE DECISION RENDERED BY ITAT DELHI BENCH IN THE CA SE OF CASH EDGE INDIA (P.) LTD. V. ITO ITA NO.64/DEL/2 015 ORDER DATED 23.9.2015 AND THE DECISION OF HON'BLE D ELHI HIGH COURT IN THE CASE OF SAXOINDIA PVT. LTD. (SUPR A). THE FINDINGS IN THIS REGARD ARE CONTAINED IN PARAGRAPHS 4.14 TO 4.16 OF ITS ORDER. 30. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL WE HOLD THAT THE AFORESAID 3 COMPANIES BE EXCLUDED FRO M THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF ARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPA NIES FOR THE PURPOSE OF COMPARISON WITH THE PROFIT MARGINS. IN THIS REGARD WE ARE ALSO OF THE VIEW THAT THE PLEA OF THE LEARNED DR FOR A REMAND OF THE ISSUE TO THE DRP ON THE GROU ND THAT THE DRP HAS NOT GIVEN ANY REASONS IN ITS DIRECTIONS CANNOT BE ACCEPTED. THE DRP HAS ENDORSED THE VIEW OF THE T PO IN ITS DIRECTIONS AND THEREFORE THE REASONS GIVEN BY T HE TPO SHOULD BE REGARDED AS THE CONCLUSIONS OF THE DRP. 31. THE LEARNED DR NEXT SUBMITTED THAT GENESYS INTERNATIONAL CORPORATION LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE COMPARABILITY OF THIS COMPANY WITH THE ASSESSEE HAS BEEN DISCUSSED BY THE TPO IN PAGE-11 OF HIS ORDER. THE ASSESSEE OBJECTED TO I NCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND OWNS INTANGIBLE ASSETS WHICH ARE PECULIAR ONLY WHEN THE PAGE 11 OF 15 IT(TP)A NO.490/BANG/2017 ASSESSEE OWNS SOFTWARE PRODUCTS. THE OBJECTIONS OF THE ASSESSEE ARE CONTAINED IN ITS LETTER DATED 22.12.20 15 ADDRESSED TO THE TPO AND IN ANNEXURE-B TO THE SAID LETTER. THE RELEVANT PORTION OF THE OBJECTION IS AT PAGE 71 1-713 OF THE ASSESSEE'S PAPER BOOK. ACCORDING TO THE ASSESSE E THIS COMPANY IS ENGAGED IN PROVIDING GEOGRAPHICAL INFORM ATION SERVICES COMPRISING OF PHOTOGRAMMETRY, REMOTE SENSI NG, CARTOGRAPHY, DATA CONVERSION, STATE OF THE ART TERR ESTRIAL AND 3D GEOCONTENT INCLUDING LOCATION BASED AND OTHE R COMPUTER BASED RELATED SERVICES. PAGE-38 OF THE ANN UAL REPORT 2012 CONTAINING THE ABOVE DESCRIPTION WAS BR OUGHT TO THE NOTICE OF THE TPO. ATTENTION OF THE TPO WAS INV ITED TO THE DIRECTORS REPORT TO THE SHAREHOLDERS AT PAGE II OF THE ANNUAL REPORT 2012, WHEREIN THE DIRECTORS HAVE INFORMED TH E SHAREHOLDERS THAT THE COMPANY CONTINUED IN ITS JOUR NEY TO BE INNOVATORS AND LEADERS IN THE FIELDS OF LOCATION BASE SERVICES RELATED GEO PLATFORMS AND ADVANCED SURVEY TECHNIQUES. THERE IS NO SEGMENTAL REPORTING BECAUSE IT IS STATED IN THE ANNUAL REPORT THAT THIS COMPANY IS ON LY IN ONE SEGMENT VIZ., GIS BASED SERVICES AND THEREFORE THER E IS NO REQUIREMENT OF SEGMENTAL REPORTING. IT WAS ALSO SUB MITTED THAT THIS COMPANY OWNS SUBSTANTIAL INTANGIBLES EQUI VALENT TO 10.42% OF ITS TOTAL TURNOVER. 32. THE TPO HOWEVER HAS REGARDED THIS COMPANY AS A COMPARABLE COMPANY BY OBSERVING THAT THIS COMPANY DEVELOPS SOFTWARE FOR MAPPING AND GEOSPATIAL SERVIC ES AND OPERATES A FEW DEVELOPMENT CENTRES IN INDIA. THE CO MPANY IS PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES . THE INTANGIBLES IN THE POSSESSION F THE COMPANY ARE ONL Y THE GIS DATABASE WHICH IS ONLY DEPRECIATION. IT DOES NO T ADD SIGNIFICANT VALUE TO THE COMPANY. 33. THE OBJECTIONS AS PUT FORTH BEFORE THE TPO WERE REITERATED BEFORE THE DRP. THE DRP IN PARAGRAPH 6.2 .2 & 6.2.3 OF ITS DIRECTIONS DEALT WITH THIS ISSUE AS FO LLOWS: '6.2.2 THE FUNCTIONS OF THE ASSESSEE COMPANY HAVE BEEN EXAMINED IN DETAIL. A FINANCIAL PRODUCT ON WHI CH THE SETTLEMENT SYSTEM OF BANK RUNS IS A REAL TIME SYSTEM. IT IS VERY COMPLEX. ANY BUG OR PROBLEM IN I T CAN CRASH THE ENTIRE BANKING SYSTEM OF SEVERAL NATIONS. THE ASSESSEE'S CLAIM OF PROVIDING ONLY BAS IS SOFTWARE SERVICES IS REJECTED. 6.2.3 THE PANEL HOLDS THAT THE SOFTWARE FOR FINANCI AL PRODUCT IS MUCH MORE COMPLEX THAN A GEOSPATIAL SOFTWARE. THEREFORE, THE PANEL HOLDS THAT THE GENES YS IS A VALID COMPARABLE.' PAGE 12 OF 15 IT(TP)A NO.490/BANG/2017 34. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DRP HAS COMPLETELY PROCEEDED ON WRONG FACTS WHICH D OES NOT EITHER EMANATE FROM THE ORDER OF THE TPO OR THE SUBMISSIONS OF THE ASSESSEE. HE REITERATED SUBMISSI ONS MADE BEFORE THE TPO AND DRP. THE LEARNED DR RELIED ON THE ORDER OF THE DRP/TPO. 35. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IT IS CLEAR FROM THE MATERIAL BROUGHT TO THE NOTICE OF THE TPO BY THE ASSESSEE THAT THIS COMPANY RENDERS MAPPING AND GEOSPATIAL SERVICES. IN RENDERI NG SUCH SERVICES IT DEVELOPS SOFTWARE. BUT THAT DOES N OT MEAN THAT THIS COMPANY IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE BUSINESS PROFILE OF THIS COMPANY A S PER THE ANNUAL REPORT DOES NOT SHOW THAT THIS COMPANY I S INTO SOFTWARE DEVELOPMENT SERVICE. THE ONLY LINE OF BUSI NESS THAT THIS COMPANY CARRIES ON IS RENDERING GIS BASED SERVICES AND THIS IS CLEAR FROM THE ANNUAL REPORT W HICH SPECIFIES THAT SINCE THE COMPANY CARRIES ON ONLY ON E LINE OF BUSINESS VIZ., GIS BASED SERVICES THERE IS NO NEED TO GIVE ANY SEGMENTAL RESULTS. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO BASIS FOR THE TPO TO CONCLUDE THAT THIS COMPANY IS PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES. THE PRESENCE OF INTANGIBLE AS SETS IS INDICATIVE OF THE FACT THAT THIS COMPANY IS NOT IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. THE TPO HAS OVERLOOK ED THIS ASPECT AND PROCEEDED ON THE BASIS THAT THE PRE SENCE OF INTANGIBLE ASSETS WOULD NOT BE SIGNIFICANT. RULE 10 B(2) OF THE INCOME TAX RULES, 1962 (RULES) SPECIFICALLY PRO VIDES THAT FOR THE PURPOSES OF SUB-RULE (1) OF RULE 10B, THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY: (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS; IN THE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT GENESYS INTERNATIONAL CORPORATION LTD., CANNOT BE C ONSIDERED AS A COMPARABLE COMPANY AND THE SAID COMPANY SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIE S. WE HOLD ACCORDINGLY.' 9. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL WE HOLD THAT THE AFORESAID 4 COMPANIES BE EXCLUDED FROM THE FINA L LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF ARRIVING AT THE ARITHMETIC PAGE 13 OF 15 IT(TP)A NO.490/BANG/2017 MEAN OF COMPARABLE COMPANIES FOR THE PURPOSE OF COM PARISON WITH THE PROFIT MARGINS. 10. AS FAR AS THE COMPARABLE COMPANY ICRA TECHNO AN ALYTICS LTD., IS CONCERNED THE SAID COMPANY WAS EXCLUDED BY THE DRP ON THE GROUND OF FUNCTIONAL COMPARABILITY. BESIDES THE ABOVE, THE RELATED PARTY TRANSACTION IN THE CASE OF THE AFORES AID COMPANY WAS MORE THAN 25% AS IS EVIDENT FROM PAGE 1129 & 11 30 OF ASSESSEE'S PAPER BOOK CONTAINING THE FINANCIAL STAT EMENT OF THIS COMPANY FROM CAPITALINE DATABASE, WHICH DETAILS ARE EXTRACTED AT PAGE 863 OF ASSESSEE'S PAPER BOOK WHICH IS OBJECTIO NS FILED BY THE ASSESSEE BEFORE THE DRP. IN THE CIRCUMSTANCES, THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIE S. WE HOLD ACCORDINGLY. 20. RESPECTFULLY FOLLOWING DECISION OF THIS TRIBUNAL , WE HOLD THAT, AFORESAID 5 COMPARABLES ARE TO BE EXCLUDED FR OM FINALIST. ACCORDINGLY, THESE GROUNDS RAISED BY ASSESSEE STAND S PARTLY ALLOWED. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDI CIAL MEMBER BANGALORE, DATED, THE 4 TH SEPTEMBER, 2020. /VMS/* PAGE 14 OF 15 IT(TP)A NO.490/BANG/2017 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME -TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 15 OF 15 IT(TP)A NO.490/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -09-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -09-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -09-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -09-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -09-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -09-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -09-2020 SR.PS 9. FILE SENT TO THE BENCH CLERK -09-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS