JCIT, Bangalore V. M/s Dell international Services India Pvt. Ltd., Bangalore

ITA 593/BANG/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7816 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-08-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 24-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Transfer pricing; Double taxation relief; International transaction; TDS
• Section: 143(3); 13

Judgement Text

IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.593/BANG/2016 ASSESSMENT YEAR: 2011-12 JCIT (LTU), BANGALORE VS. M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD. (FORMERLY PEROT SYSTEMS TSI (INDIA) PVT. LTD. 12/1, 12/2A, 13/1A, DIVYASHREE GARDENS CHALLAGUTTA VILLAGE VARTHURHOBLI BANGALORE -71 PAN NO.AAACH1925Q APPELLANT RESPONDENT IT(TP)A NO.638/BANG/2016 ASSESSMENT YEAR: 2011-12 M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD. (FORMERLY PEROT SYSTEMS TSI (INDIA) PVT. LTD. 12/1, 12/2A, 13/1A, DIVYASHREE GARDENS CHALLAGUTTA VILLAGE VARTHURHOBLI BANGALORE -71 VS. JCIT (LTU), BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI MUZAFFAR HUSSAIN, D.R. RESPONDENT BY : SHRI T. SURYA NARAYANA, A.R. DATE OF HEARING : 12.08.2021 DATE OF PRONOUNCEMENT : 01.09.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 27.1.2016 PASSED BY THE A.O. FOR ASSESS MENT YEAR 2011-12 U/S 143(3) R.W.S. 144C(13) OF THE INCOME-TA X ACT,1961 ['THE IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 2 OF 14 ACT' FOR SHORT] IN PURSUANCE OF DIRECTIONS GIVEN BY LD. DISPUTE RESOLUTION PANEL (DRP). 2. THE ASSESSEE HAS RAISED GROUNDS WITH REGARD TO (A) THE TP ADJUSTMENT MADE IN SOFTWARE DEVELOPMENT SEGMENT (B) SHORT CREDIT OF TDS &ADVANCE TAX AND (C) DENIAL OF SETTING OFF OF BROUGHT FORWARD BUSINE SS LOSS. 3. THE REVENUE HAS RAISED GROUNDS RELATING TO (A) TP ADJUSTMENT MADE IN RESPECT OF SOFTWARE DEVEL OPMENT SEGMENT (B) TP ADJUSTMENT MADE IN RESPECT OF ITES SEGMENT AND (C) THE ISSUE RELATING TO DEDUCTION U/S 10A OF THE ACT. 4. THE ASSESSEE HEREIN IS ENGAGED IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SERVIC ES TO ITS ASSOCIATED ENTERPRISES (AE). THIS ASSESSEE IS AN AM ALGAMATING ENTITY AND HAS GOT A HISTORY. INITIALLY TWO COMPAN IES NAMED M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD. AND PER OT SYSTEMS BUSINESS PROCESS SOLUTIONS PVT. LTD. GOT AMALGAMATE D WITH M/S. PEROT SYSTEMS TSI (INDIA) PVT. LTD., VIDE ORDER PAS SED BY HONBLE HIGH COURT OF KARNATAKA U/S 391 TO 394 OF THE COMPA NIES ACT. THE AMALGAMATING COMPANY M/S. PEROT SYSTEMS TSI (INDIA) PVT. LTD IS THE ASSESSEE HEREIN, WHOSE NAME NOW STANDS CHANGED TO M/S. DELL INTERNATIONAL SERVICES PVT. LTD. 5. WE SHALL TAKE UP FIRST THE APPEAL FILED BY THE A SSESSEE. THE FIRST ISSUE URGED BY THE ASSESSEE RELATES TO TRANSF ER PRICING ASSESSMENT MADE IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES (ALSO REFERRED AS INFORMATION TECHNOLOGY SERVICES). TH E TURNOVER OF THE ASSESSEE IN SOFTWARE DEVELOPMENT SEGMENT IS RS.1197 .60 LAKHS. IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 3 OF 14 THE ASSESSEE ADOPTED TNM METHOD AS MOST APPROPRIATE METHOD AND OPERATING PROFIT BY OPERATING COST (OP/OC) AS P ROFIT LEVEL INDICATOR (PLI). THE ASSESSEE DECLARED PLI OF 15.0 5%. THE ASSESSEE SELECTED 13 COMPARABLE COMPANIES WHOSE AVERAGE MARG IN WAS 13.71%. ACCORDINGLY, THE ASSESSEE CLAIMED THAT INT ERNATIONAL TRANSACTION OF EXPORT OF SOFTWARE IS AT ARMS LENGT H. 6. THE LD. TPO REJECTED THE TP STUDY OF THE ASSESSE E AND HE SELECTED 13 COMPARABLES. AFTER GIVING CREDIT FOR W ORKING CAPITAL ADJUSTMENT, THE AVERAGE MARGIN OF THE COMPARABLE CO MPANIES SELECTED BY TPO WAS DETERMINED AT 23.55%. ACCORDIN GLY, THE TPO MADE TRANSFER PRICING ADJUSTMENT OF RS.88.46 CRORES . THE LD. DRP EXCLUDED 10 COMPARABLE COMPANIES AND RETAINED 3 COM PARABLE COMPANIES, VIZ., PERSISTENT SYSTEMS & SOLUTIONS LTD ., PERSISTENT SYSTEMS LTD. AND SASKEN COMMUNICATION TECHNOLOGIES LTD. IT IS PERTINENT TO NOTE THAT THE LD DRP SUO MOTU EXCLUDED THREE COMPANIES VIZ., R.S SOFTWARE (INDIA) LTD, EVOKE TEC HNOLOGIES P LTD AND MIND TREE LTD. PURSUANT TO THE DIRECTIONS OF TH E LD. DRP, THE TP ADJUSTMENT WAS REWORKED TO RS.87.90 CRORES IN TH E FINAL ASSESSMENT ORDER. 7. IN ITS APPEAL, THE ASSESSEE SEEKS EXCLUSION OF ALL THE THREE COMPANIES RETAINED BY LD DRP AND INCLUSION OF FOLLO WING FIVE COMPANIES:- (A) R.S SOFTWARE (INDIA) LTD (B) EVOKE TECHNOLOGIES P LTD (C) MIND TREE LTD. (D) AKSHAY SOFTWARE TECHNOLOGIES LTD AND (E) LGS GLOBAL LTD. IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 4 OF 14 8. THE LD A.R FIRST INVITED OUR ATTENTION TO TH E ADDITIONAL GROUND RAISED BY THE ASSESSEE, WHICH READS AS UNDER:- THE APPELLANT SUBMITS THAT THE ARMS LENGTH MARK-U P ON COST ARRIVED AT DURING THE MAP RESOLUTION BETWEEN THE U/S. AND INDI AN COMPETENT AUTHORITIES FOR TRANSACTIONS WITH AES BASED IN USA FOR THE IT SEGMENT, OUGHT TO BE ACCEPTED AS THE ARMS LENGTH MARK-UP ON COST FOR INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE NON-USA BASED AE S FOR THE IT SEGMENT THE LD A R SUBMITTED THAT THE ABOVE SAID ADDITIONAL GROUND HAS BEEN RAISED CONSEQUENT TO THE SETTLEMENT OF USA BAS ED TRANSACTIONS UNDER MUTUAL AGREEMENT PROCEDURE (MAP) RESOLUTION P ROCESS. HE SUBMITTED THAT THE ASSESSEE HAS WITHDRAWN THE GROUN DS IN SO FAR AS IT IS RELATED TO SWD SERVICES PROVIDED TO USA BASED ENTITIES. ACCORDINGLY, HE SUBMITTED THAT ONLY INTERNATIONAL T RANSACTIONS WITH NON-USA BASED ENTITIES IN RESPECT OF SWD SERVICES ( ALSO KNOWN AS IT SERVICES) REQUIRES TO BE TESTED UNDER ARMS LE NGTH PRINCIPLES. 9. THE LD A.R SUBMITTED THAT, UNDERMAP RESOLUT ION, THE MARGIN HAS BEEN FIXED AT 16.99%, WHILE THE MARGIN SHOWN BY THE ASSESSEE FOR ENTIRE INTERNATIONAL TRANSACTIONS RELATING TO S WD SEGMENT WAS 15.05%. HE FURTHER SUBMITTED THAT CONTENTION OF TH E ASSESSEE FOR INCLUSION AND EXCLUSION AND INCLUSION OF COMPARABLE COMPANIES ARE FULLY SUPPORTED BY THE DECISIONS RENDERED BY THE TR IBUNAL, IN WHICH CASE, FOLLOWING FIVE COMPARABLE COMPANIES WILL REMA IN:- (A) R.S SOFTWARE (INDIA) LTD - 7.78 (B) EVOKE TECHNOLOGIES P LTD - 9.03 (C) MIND TREE LTD. - 15.98 (D) AKSHAY SOFTWARE TECHNOLOGIES LTD - 14.21 (E) LGS GLOBAL LTD. - 3.62 --------- 50.62 ======= HE SUBMITTED THAT THE AVERAGE MARGIN OF ABOVE SAID COMPANIES WOULD WORK OUT TO 10.12% ONLY AND HENCE PROFIT MARG IN DECLARED BY THE ASSESSEE WOULD BE AT ARMS LENGTH. HE FAIRLY AG REED THAT THE REVENUE WOULD DISPUTE THE PRAYER OF THE ASSESSEE AN D FURTHER THE IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 5 OF 14 REVENUE HAS ALSO RAISED OBJECTIONS TO THE DECISION RENDERED BY LD DRP IN RESPECT OF SOME OF THE COMPANIES. ACCORDING LY, ALL THOSE COMPANIES ARE REQUIRED TO BE EXAMINED VIS--VIS THE TRIBUNAL DECISIONS AND FACTS RELATING TO EACH OF THE COMPARA BLE COMPANIES. 10. THE LD A.R SUBMITTED THAT THE ASSESSEE IS MAKING AN ALTERNATIVE PRAYER IN THE ADDITIONAL GROUNDS IN ORD ER TO PUT QUIETUS TO THIS MATTER, I.E., THE ASSESSEE IS AGREEABLE FOR ADOPTING THE MARGIN AT 16.99% IN RESPECT OF NON-USA BASED TRANSA CTIONS ALSO. HE SUBMITTED THAT THE NON-USA BASED TRANSACTIONS CO NSTITUTE MAJOR PORTION OF THE TRANSACTIONS, STILL THE MAP SE TTLED RATE OF 16.99% MAY BE ADOPTED TO THOSE TRANSACTIONS ALSO, A S NEITHER THE ASSESSEE NOR TPO TREATED THE USA AND NON-USA TRANSA CTIONS SEPARATELY. IN THIS REGARD, HE PLACED HIS RELIANC E ON THE DECISION DATED 03.08.2021 RENDERED BY CO-ORDINATE BENCH IN T HE CASE OF ASSESSEES OWN CASE FOR AY 2010-11 IN IT(TP)A NO.63 7/BANG/2016, WHEREIN THE ASSESSEE HAD SETTLED UNDER MAP SOLUTION IN RESPECT OF ITES SERVICES FOR USA BASED TRANSACTIONS AT 15.69% AND THE TRIBUNAL HAS DIRECTED FOR ADOPTION OF THE SAME RATE FOR NON-USA BASED TRANSACTIONS ALSO. 11. WE HEARD LD D.R ON THIS ADDITIONAL GROUND AND PERUSED THE RECORD. WE NOTICE THAT THE CO-ORDINATE BENCH HAS G IVEN DIRECTION TO ADOPT THE RATE DETERMINED UNDER MAP RESOLUTION FOR USA BASED TRANSACTIONS TO OTHER NON-USA BASED TRANSACTIONS AL SO IN THE ASSESSEES OWN CASE FOR AY 2010-11 (REFERRED SUPRA) FOR ITES SEGMENT. THE RELEVANT OBSERVATIONS MADE BY THE CO- ORDINATE BENCH ARE EXTRACTED BELOW:- 37. IN ITS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING ISSUES WITH REGARD TO THE DETERMINATION OF ALP IN THE ITES SEGMENT. TH AT THE ARM'S LENGTH MARK-UP ON COST ARRIVED UNDER THE MUTUAL AGREEMENT PROCEDURE RESOLUTION TO BE APPLIED FOR TRANSACTIONS WITH NON- US BASED ENTITIES FOR THE IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 6 OF 14 ITES SEGMENT. (ADDITIONAL GROUND). THE DRP ERRED IN SUO MOTO EXCLUDING SUNDARAM BUSINESS SERVICES LTD. FROM THE LIST OF CO MPARABLE COMPANIES. (GROUND NO. 1.4). THE DRP ERRED IN INCLUDING FORTUN E INFOTECH LIMITED, ICRA ONLINE LIMITED AND INFORMED TECHNOLOGIES INDIA LIMITED FROM THE LIST OF COMPARABLE COMPANIES. (GROUND NO. 2.14). 38. IN ITS APPEAL, THE REVENUE HAS CHALLENGED THE O RDER OF DRP IN EXCLUDING CERTAIN COMPARABLES CHOSEN BY THE TPO VIZ ., INFOSYS BPO LTD., E-CLERX SERVICES LTD., ACROPETAL TECHNOLOGIES LTD., JEEVAN SCIENTIFIC TECHNOLOGY LIMITED AND ACCENTIA TECHNOLOGIES LTD. ( GROUND NOS. 1 TO 5) 39. THE ADDITIONAL GROUND IS A LEGAL GROUND AND HAS A BEARING ON DETERMINATION OF TAX LIABILITY OF THE ASSESSEE AND HENCE THE SAME IS ADMITTED FOR ADJUDICATION. 40. AS FAR AS THE ADDITIONAL GROUND IS CONCERNED, I T IS SEEN THAT SUBSEQUENT TO FILING OF THE PRESENT APPEAL, THE ASSESSEE'S AE LOCATED IN THE UNITED STATES OF AMERICA ('US') OPTED FOR THE MUTUAL AGREE MENT PROCEDURE ('MAP') PROCEEDINGS PURSUANT TO ARTICLE 25 OF THE INDIA-US DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') WITH RESPECT TO THE TRANSFER PRICING ADJUSTMENT MADE TO THE ITES REVENUE EARNED BY THE ASSESSEE FROM ITS AE LOCATED IN THE US. THEREAFTER, THE ASSESSEE HAS ACCEPTED THE TERMS OF THE MAP RESOLUTION UNDER ARTICLE 27 OF THE INDIA-US DTAA ON 13.07.2020 WITH RESPECT TO ITS ITES RENDERED TO THE AES BASED IN THE US AT A MARGIN OF 15.69%. ACCORDINGLY, THE IT(TP)A NOS.637 AND 639/BA NG/2016 ASSESSEE HAS WITHDRAWN THE GROUNDS IN THE APPEAL INSOFAR AS IT RELATED TO THE ITES PROVIDED BY THE ASSESSEE TO ITS AE BASED IN THE US. 41. IT IS THE PLEA OF THE ASSESSEE IN THE ADDITIONA L GROUND OF APPEAL FILED ALONG WITH APPLICATION DATED 24.02.2021 FOR ADMITTI NG ADDITIONAL GROUND THAT THE PROFIT MARGIN OF THE ASSESSEE ADOPTED IN M AP OUGHT TO BE ADOPTED AS ALP MARK-UP FOR NON-US BASED AE TRANSACTIONS ALS O. IT IS SUBMITTED THAT THE TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS U S BASED AE IS SIMILAR TO THE TRANSACTIONS ENTERED INTO WITH THE NON-US BASED AES AND THAT NO DISTINCTION HAS BEEN MADE BY THE ASSESSEE BETWEEN T HE TWO IN ITS TP STUDY AND WHILE PREPARING ITS AUDITED FINANCIAL STATEMENT S. IT HAS FURTHER BEEN SUBMITTED THAT NO DISTINCTION HAS BEEN MADE BY THE TPO ALSO IN THE COMPARABILITY ANALYSIS CARRIED OUT BY HIM. THEREFOR E, THE ASSESSEE PRAYS THAT THE TRIBUNAL MAY ADOPT THE SAME ARM'S LENGTH M ARK-UP COST FOR THE INTERNATIONAL TRANSACTIONS ENTERED INTO WITH THE NO N-US AES AS WELL AND, ACCORDINGLY, DISPOSE OF THE TP GROUNDS WITH RESPECT TO THE ITES REVENUE EARNED BY THE ASSESSEE FROM ITS NON-US BASED AE TRA NSACTIONS. 42. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS RE GARD PLACED RELIANCE ON THE DECISIONS OF THIS TRIBUNAL IN THE CASE OF CGI I NFORMATION SYSTEM & MANAGEMENT CONSULTANTS (P.) LTD V. DCIT ([2017] 81 TAXMANN.COM 169 (BANGALORE - TRIB.)) AND THE HON'BLE TRIBUNAL - MUM BAI BENCH IN J.P MORGAN SERVICES (P.) LTD. V. DCIT ([2016] 70 TAXMANN.COM 228 (MUMBAI - IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 7 OF 14 TRIB.)) WHEREIN, THE SAME MARGIN AS THE US TRANSACT IONS WAS DIRECTED TO BE APPLIED FOR THE NON-US TRANSACTIONS. THE LEARNED CO UNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT THE COMMISSIONER OF INCOME-TA X (APPEALS) IN ITS OWN CASE FOR THE AYS 2005-06, 2007-08 AND 2008-09, ADOP TED THE ARM'S LENGTH PRICE DETERMINED IN THE MAP RESOLUTION FOR THE INTE RNATIONAL TRANSACTIONS ENTERED INTO WITH THE NON- US AES. THE LEARNED DR C OULD NOT POINT OUT ANY INFIRMITY IN THE SUBMISSIONS ON THE ADDITIONAL GROU ND OF APPEAL MADE BY THE LEARNED COUNSEL FOR ASSESSEE. 12. THOUGH THE ABOVE SAID DECISION HAS BEEN REN DERED BY THE CO- ORDINATE BENCH IN RESPECT OF ITES SEGMENT, WE ARE O F THE OPINION THAT THE RATIO OF ABOVE SAID DECISION MAY CONVENIEN TLY BE ADOPTED FOR SWD SEGMENT ALSO. ACCORDINGLY, WE DIRECT THE A O/TPO TO ADOPT THE NET MARGIN RATE OF 16.99% FOR NON-USA BASED TRA NSACTIONS ALSO AND COMPUTE THE TRANSFER PRICING ADJUSTMENT FOR SWD SEGMENT (IT SERVICES SEGMENT) ACCORDINGLY. 13. IN VIEW OF THE ABOVE, THE GROUNDS NO.1.4 AND 1.5 URGED BY THE ASSESSEE AND GROUNDS (I) TO (XII) URGED BY THE REVE NUE UNDER THE HEADING SOFTWARE DEVELOPMENT WOULD STAND ADJUDICAT ED BY THE ABOVE SAID DECISION. 14. THE GROUND NOS. 1.1 TO 1.3 ARE GENERAL IN NA TURE AND NO ARGUMENTS WAS ADVANCED IN RESPECT OF THESE GROUNDS. 15. IN GROUND NUMBERS 2.1 TO 2.10 AND GROUNDS 3 -5, THE ASSESSEE IS CONTESTING THE DECISION OF LD DRP IN RE SPECT OF CERTAIN COMPARABLES UNDER ITES SEGMENT. THE LD A.R SUBMITT ED THAT THE T.P ADJUSTMENT AFTER THE ORDER OF LD DRP HAS BECOME NIL. HE SUBMITTED THAT THE REVENUE HAS APPEAL CHALLENGING T HE ORDER PASSED BY LD DRP AND HENCE THE GROUNDS URGED BY THE ASSESS EE WOULD BE RELEVANT DEPENDING UPON OUTCOME OF THE REVENUES AP PEAL. ACCORDINGLY HE DID NOT ADVANCE HIS ARGUMENTS AT THI S STAGE. IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 8 OF 14 16. THE NEXT GROUND URGED BY THE ASSESSEE RELATE S TO THE GRIEVANCE OF NON-GRANTING OF PROPER CREDIT FOR TDS AND ADVANCE TAX. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS CLAIMED CREDIT OR PAYMENT OF ADVANCE TAX OF RS.74.53 CRORES AND TDS O F RS.7.39 CRORES. HOWEVER, THE AO HAS ALLOWED CREDIT OF RS.4 3.00 CRORES AND RS.3.04 CRORES RESPECTIVELY AS AGAINST THE ABOVE SA ID CLAIM. THE LD A.R SUBMITTED THAT THE TDS DEDUCTION AS WELL AS ADV ANCE TAX PAYMENT HAS HAPPENED UNDER PAN NUMBER OF MERGED ENT ITIES. ACCORDINGLY HE SUBMITTED THAT THE AO MAY BE DIRECTE D TO ALLOW CREDIT FOR CORRECT AMOUNT. 17. WE HEARD THE PARTIES ON THIS ISSUE AND PER USED THE RECORD. IT APPEARS THAT THE AO HAS GIVEN CREDIT FOR THE AMO UNTS WHEREIN THE PAN NUMBER OF THE PRESENT ASSESSEE IS SHOWN. IT IS THE CASE OF THE ASSESSEE THAT THE PAYMENTS MADE UNDER THE NAME AND PAN NUMBER OF MERGED ENTITIES ALSO SHOULD BE GIVEN CREDIT, WHE N THE CORRESPONDING INCOME IS ASSESSED IN THE HANDS OF TH E PRESENT ASSESSEE. WE FIND MERIT IN THE SAID CONTENTIONS. HOWEVER, THIS ISSUE REQUIRES FACTUAL VERIFICATION. ACCORDINGLY W E RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE CLAIM OF TH E ASSESSEE IN ACCORDANCE WITH LAW. 18. THE LAST ISSUE URGED BY THE ASSESSEE RELATES TO THE ISSUE OF REJECTION OF SET OFF OF BROUGHT FORWARD BUSINESS LO SS OF RS.16.60 CRORES CLAIMED IN THE RETURN. WE NOTICE THAT THE A O HAS NOT ASSIGNED ANY REASON FOR NOT ALLOWING SET OFF OF BRO UGHT FORWARD BUSINESS LOSS. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE CLAIM OF THE ASSESSEE IN ACCOR DANCE WITH LAW. IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 9 OF 14 19. WE SHALL NOW TAKE UP THE APPEAL OF THE REV ENUE. THE GROUNDS URGED BY REVENUE IN SOFTWARE DEVELOPMENT SE GMENT HAVE BEEN COVERED BY OUR DECISION RENDERED FOR THIS SEGM ENT IN ASSESSEES APPEAL. 20. THE NEXT ISSUE URGED BY THE REVENUE RELATES TO THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF ITES SEGMENT. THE ASSESSEE HAD DECLARED OPERATING INCOME OF RS.1009.28 CRORES AND PLI OF 14.14% UNDER ITES SEGMENT. IT SELECTED 7 COMPARABL ES WHOSE ARITHMETIC MEAN WAS 14.38%. ACCORDINGLY, THE ASSES SEE CLAIMED ITS INTERNATIONAL TRANSACTIONS RELATED TO IT ENABLED SE RVICES AT ARMS LENGTH. THE TPO REJECTED TRANSFER PRICING STUDY CO NDUCTED BY THE ASSESSEE UNDER IT ENABLED SERVICES. THE TPO SELECTE D 10 COMPARABLES COMPANIES. THE ADJUSTED MEAN MARGIN OF THOSE COMPANIES WAS 23.85% AND ACCORDINGLY THE TPO MADE T RANSFER PRICING ADJUSTMENT OF RS.85.88 CRORES. 21. THE LD. DRP DIRECTED EXCLUSION OF 8 COMPARABL E COMPANIES AND RETAINED 2 COMPARABLE COMPANIES. AS A RESULT, THE TP ADJUSTMENT UNDER IT ENABLED SERVICES SEGMENT BECAME NIL WHILE PASSING THE FINAL ASSESSMENT ORDER. THE REVENUE IS CHALLENGING THE DECISION OF LD. DRP IN RESPECT OF THE FOLLOWING 3 C OMPANIES. A) ACROPETAL TECHNOLOGIES LIMITED B) JEEVAN SCIENTIFIC TECHNOLOGY LIMITED C) INFOSYS BPO LIMITED. 22. THE DECISION RENDERED BY LD. DRP IN RESPECT OF THE ABOVE SAID 3 COMPANIES ARE EXTRACTED BELOW: IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 10 OF 14 ACROPETAL TECHNOLOGIES LIMITED (SEGMENTAL): IT IS SUBMITTED THAT THE COMPANY IS NOT FUNCTIONALL Y COMPARABLE, TO SUPPORT THE EXCLUSION OF THE ABOVE C OMPANY FROM THE COMPARABLES, THE ASSESSEE RELIED ON SEVERAL JUDICIA L PRONOUNCEMENTS. HAVING CONSIDERED THE SUBMISSIONS , ON PERUSAL OF THE ANNUAL REPORT, IT IS NOTICED BY US THAT THE ASSESSING OFFICER HAS CONSIDERED THE REVENUE FROM THE ENGINEERING DESIGN SEGMENT. HON'BLE ITAT, BENGALURU IN IT(TP)/A/1678/BANG/2012 IN THE CASE OF GLOBAL E BUSINESS OPERATIONS, DIRECTED TO EXCLUDE THE ABOVE COMPANY BY OBSERVING THAT 'WE HAVE CONSIDERED THE SUBMISSION O F THE LEARNED COUNSEL FOR THE ASSESSEE, ON PERUSAL OF NOTE NO.15 OF NOTES TO ACCOUNTS, WHICH GIVES SEGMENTAL REVENUE OF THIS COM PANY, IT IS CLEAR THAT THE MAJOR SOURCE OF THE INCOME FOR THIS COMPAN Y IS FROM PROVIDING ENGINEERING DESIGN SERVICES AND INFORMATI ON TECHNOLOGY SERVICES. THE FUNCTION PERFORMED BY THE ENGINEERING DESIGN SERVICES OF THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE T O THE ITES /BP0 FUNCTION PERFORMED BY THE ASSESSEE. THE PERFOR MANCE OF THE ENGINEERING DESIGN SERVICES IS REGARDED AS PROVIDIN G HIGH END SERVICES AMONGST THE BPO WHICH REQUIRE HIGH SKILL W HEREAS THE SERVICES PERFORMED BY THE ASSESSEE ARE ROUTING LOW END ITES FUNCTION. WE THEREFORE HOLD THAT THIS COMPANY COULD NOT HAVE BEEN SELECTED AS COMPARABLE, ESPECIALLY WHEN IT PERFORMS ENGINEERING DESIGN SERVICES WHICH ONLY A KNOWLEDGE PROCESSING O UTSOURCING (KPO) WOULD DO AND NOT A BUSINESS PROCESSING OUTSOU RCING (BPO).' SIMILAR VIEW WAS TAKEN BY HON'BLE BENGALURU ITAT IN THE CASE OF - SYMPHONY MARKETING SOLUTIONS INDIA PVT, LTD. VS. IT O (IT (TP) A NO. 1316/BANR: 1 2012), HELD THAT ACROPETAL CANNOT BE CONSIDERED AS COMPARABLE AS IT PERFORMS ENGINEERING DESIGN SERVIC ES ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE COMPANY FROM THE COMPARABLES. INFOSYS BPO LIMITED HAVING CONSIDERED THE SUBMISSIONS , IT IS NOTICED BY US THAT THE HON'BLE ITAT, BENGALURU IN THE CASE OF SYMPHONY MAR KETING SOLUTIONS INDIA PVT LTD (PRESENTLY MERGED WITH GENP ACT INDIA) [(IT(TP)A NO.1316/BANG/2012, TS-234-ITAT-2013 (BANG ) TP ITAT BENGALURU ] AND THE HONBLE HYDERABAD ITAT IN THE C ASE OF INTERNATIONAL SPECIALITY PRODUCTS (I) PVT LTD IN IT A NO.210/HYD/2014 FOR A.Y. 2009-10 HAS EXCLUDED THE C OMPANY BY OBSERVING THAT 'WE ARE OF THE VIEW THAT IT CANNOT A T ALL BE CONSIDERED AS COMPARABLE TO THE ASSESSEE NOT ONLY B ECAUSE OF ITS SIZE BUT ALSO DUE TO ITS BRAND VALUE, DIVERSIFIED A CTIVITIES AND OTHER FUNCTIONAL DISABILITIES. DIFFERENT BRANCHES OF THIS TRIBUNAL ARE CONSISTENT IN THEIR VIEW THAT THE COMPANY CANNOT BE TREATED AS A COMPARABLE TO A CAPTIVE SERVICE PROVIDER LIKE THE A SSESSEE 'SIMILAR IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 11 OF 14 VIEW WAS TAKEN BY HON'BLE HYDERABAD ITAT IN THE CAS E OF EXCELLENCE DATA RESEARCH PVT LTD IN ITA NO.159/HYD /2014, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DIRE CT THE ASSESSING OFFICER TO EXCLUDE THE ABOVE COMPANY FROM THE COMPA RABLES.) JEEVAN SCIENTIFIC TECHNOLOGIES LIMITED: HAVING CONSIDERED THE SUBMISSIONS, IT IS NOTICED BY US FROM THE PERUSAL OF ANNUAL REPORT THAT THE FOREIGN EXCHANGE EARNING OF RS.79.21 LAKH IS ONLY FROM BPO OPERATIONS AND THERE IS NO FOREIGN EXCHANGE EARNING IN RESPECT OF ERP SEGMENT. THEREFO RE, THE ERP SEGMENTS CANNOT BE CONSIDERED AS IT DOES NOT HAVE A NY REVENUE FROM THE EXPORT. IT IS ALSO NOTICED BY US THAT THE ERP SEGMENT IS NOT OTHERWISE COMPARABLE TO THE FUNCTIONS OF THE ASSESS EE COMPANY. THE BPO SEGMENT ALONE CANNOT BE CONSIDERED AS COMPA RABLE AS THE REVENUE TO THE TOTAL REVENUE RATIO IS ONLY 32.28%. IT IS ALSO NOTICED BY US THAT THERE IS A HUGE FLUCTUATION IN THE MARGI N OF THE COMPANY FROM F.Y. 2008-09 TO 2012-13 VIZ., IN BPO SEGMENT 1 5.66%, 18.22%, 6.24%, 14.42% AND (-)56.89%, WHICH INDICATE THAT CERTAIN PECULIAR CIRCUMSTANCES INFLUENCING THE PROFIT MARGI N OF THE COMPANY AND THE COMPANY FAILS THE REVENUE EARNING F ILTER OF 75% APPLIED BY THE TPO, IN VIEW OF THE ABOVE DIFFERENCE S, WE DIRECT THE A.O. TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARAB LES. 23. IN RESPECT OF M/S. ACROPETAL TECHNOLOGIES LTD. WE NOTICE THAT THE LD. DRP HAS TAKEN NOTE OF THE FACT THAT MAJOR S OURCE OF INCOME FOR THIS COMPANY IS FROM ENGINEERING DESIGN SERVICE S WHICH IS AN ACTIVITY FALLING UNDER THE CATEGORY OF KNOWLEDGE P ROCESS OUTSOURCING (KPO) WHILE THE ACTIVITIES CARRIED ON BY THE ASSESSEE FALLS UNDER THE CATEGORY OF BUSINESS PROCESS OUTSO URCING (BPO). FURTHER, THE LD. DRP HAS FOLLOWED THE DECISION REND ERED BY THE COORDINATE BENCH IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SURPA). HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD. DRP ON THIS COMP ARABLE COMPANY. 24. IN RESPECT OF JEEVAN SCIENTIFIC TECHNOLOGIES LT D., THE LD. A.R. PLACED HIS RELIANCE ON THE DECISION RENDERED BY COO RDINATE BENCH IN THE CASE OF DCIT VS. C-CUBE SOLUTIONS PVT. LTD. (10 9 TAXMANN.COM 293) AND FINASTRA SOFTWARE SOLUTIONS (INDIA) PVT. L TD. (93 IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 12 OF 14 TAXMANN.COM 460). IN THE CASE OF C-CUBE SOLUTIONS PVT. LTD. THE COORDINATE BENCH HAS EXCLUDED THIS COMPANY WITH THE FOLLOWING OBSERVATIONS: 5.3 .1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE DRP HAS DEALT WITH THE COMPARABILITY OF THE COMPANY 'JEEVAN' AT PAGES 7 AN D 8 OF ITS ORDER AND EXCLUDED IT FROM THE LIST OF COMPARABLES TO THE ASS ESSEE, BY HOLDING AS UNDER: 'JEEVAN SCIENTIFIC TECHNOLOGY LTD: THE OBJECTION AG AINST THE WRONG PLI BECOMES ACADEMIC IN NATURE IN VIEW OF OUR FINDI NGS IN THE SUBSEQUENT PARA WHEREIN THIS COMPANY HAS BEEN REJEC TED ON FUNCTIONAL ANALYSIS. 2.6 GROUND OF OBJECTION 7: THE LEARNED TRANSFER PRI CING OFFICER AND IN TURN THE ASSESSING OFFICER ERRED IN ITS FUNC TIONAL ANALYSIS OF JEEVAN SCIENTIFIC TECHNOLOGIES LTD, AND WENT ON TO WRONGLY CONSIDER THE SAME AS A COMPARABLE COMPANY. HAVING CONSIDERED THE SUBMISSIONS, IT IS NOTICED BY US FROM THE PERUSAL OF ANNUAL REPORT THAT THE FOREIGN EXCHANGE EARNINGS OF 79.21 LAKHS IS ONLY FROM BPO OPERATE AND THERE IS N O FOREIGN EXCHANGE EARNING IN RESPECT OF ERP SEGMENT. THEREFO RE, THE ERP SEGMENTS CANNOT BE CONSIDERED AS IT DOES NOT HAVE A NY REVENUE FROM THE EXPORT. IT IS ALSO NOTICED BY US THAT THE ERP S EGMENT IS NOT OTHERWISE COMPARABLE TO THE FUNCTIONS OF THE ASSESS EE COMPANY. THE BPO SEGMENT ALONE CANNOT BE CONSIDERED AS COMPARABL E AS THE REVENUE TO THE TOTAL REVENUE RATIO IS ONLY 32.28%. IT IS ALSO NOTICED BY US THAT THERE IS A HUGE FLUCTUATION IN THE MARGI N OF THE COMPANY FROM F.Y. 2008-09 TO 2012-13 VIZ., IN BPO SEGMENT 1 5.66%, 18.22%, 6.24%, 14.42% AND (-)56,89%, WHICH INDICATE THAT CERTAIN PECULIAR CIRCUMSTANCES INFLUENCING THE PROFIT MARGI N OF THE COMPANY AND THE COMPANY FAILS THE REVENUE EARNING F ILTER OF 75% APPLIED BY THE TPO, IN VIEW OF THE ABOVE DIFFERENCE S, WE DIRECT THE A.O. TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARAB LES.' 5.3 . 2 ON A CAREFUL CONSIDERATION OF THE DRP'S ORDER AND T HE FACTS ON RECORD, WE FIND THAT REVENUE HAS CHALLENGED THE EXC LUSION OF 'JEEVAN' FROM THE LIST OF COMPARABLES TO THE ASSESSEE BY THE DRP ON GROUNDS OF APPLICATION OF SERVICE INCOME FILTER OF 75%; WHICH WAS INFACT A FILTER APPLIED BY THE TPO. APART FROM RAISING THIS GROUND (SUPRA), REVENUE HAS NOT PLACED ON RECORD ANY FACTUAL MATERIAL EVIDENCE TO CONTROVERT THE DRP'S FINDING THAT THIS COMPANY 'JEEVAN' HAD PASSED THE 7 5% REVENUE FILTER APPLIED BY THE TPO. EVEN OTHERWISE, THE DRP HAS, IN TER ALIA, EXCLUDED 'JEEVAN' ON GROUNDS OF ITS HUGE FLUCTUATING MARGINS OVER THE LAST FEW YEARS WHICH HAS NOT BEEN CHALLENGED BY REVENUE. IN THIS F ACTUAL MATRIX OF THE CASE, AS DISCUSSED ABOVE, WE UPHOLD THE ACTION OF T HE DRP OF EXCLUDING THIS IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 13 OF 14 COMPANY 'JEEVAN SCIENTIFIC TECHNOLOGY LTD.,' FROM T HE LIST OF COMPARABLES FOR FAILING THE 75% REVENUE FILTER APPLIED BY THE T PO AND ON ACCOUNT OF ITS HUGELY FLUCTUATING MARGINS OVER THE LAST FEW YEARS WHICH INDICATE THAT THERE WERE CERTAIN PECULIAR CIRCUMSTANCES INFLUENCING THE PROFIT MARGINS OF THE COMPANY. CONSEQUENTLY, GROUNDS 2(A TO C) RAISED BY REVENUE (SUPRA) ARE DISMISSED. WE NOTICE THAT THE LD. DRP HAS GIVEN IDENTICAL REAS ONING FOR EXCLUDING THIS COMPANY IN THIS CASE ALSO. ACCORDIN GLY, FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH IN THE CA SE OF C-CUBE SOLUTIONS PVT. LTD., WE CONFIRM EXCLUSION OF THIS C OMPANY. 25. THE REVENUE IS CHALLENGING EXCLUSION OF INFOSYS BPO LIMITED BY LD DRP. BEFORE US THE LD. A.R. PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF PCIT VS. H&S SOFTWARE DEVELOPMENT AND KNOWLEDGE MANAGEMENT CENTR E PVT. LTD. (ORDER DATED 3.1.2018 PASSED IN ITA NO.912/2017). WE NOTICE THAT THE LD. DRP HAS FOLLOWED THE DECISIONS RENDERED BY THE COORDINATE BENCHES IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA PVT. LTD. (SUPRA) AND IN THE CASE OF INTERNATIONAL SPECI ALITY PRODUCTS PVT. LTD. (ITA NO.218/HYD/2014), WHEREIN IT IS OBSERVED THAT INFOSYS BPO LIMITED CANNOT AT ALL BE CONSIDERED AS COMPARAB LE TO THE ASSESSEE NOT ONLY BECAUSE OF ITS SIZE BUT ALSO DUE TO ITS BRAND VALUE, DIVERSIFIED ACTIVITIES AND OTHER FUNCTIONAL DISABIL ITIES. THE HONBLE DELHI HIGH COURT IN THE CASE OF H & S SOFTWARE DEVE LOPMENT AND KNOWLEDGE MANAGEMENT CENTRE PVT. LTD. (SUPRA) HAS E XPRESSED THE VIEW THAT THE ITAT HAS CORRECTLY HELD THAT THE CORP ORATE ENTITIES HAD A SIGNIFICANT BRAND PRESENCE FOR PROFITS AND LARGE CORPORATE SIZE, WHICH COULD NOT BE COMPARED WITH THE ASSESSEE BEFOR E THE HONBLE HIGH COURT OF DELHI. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT LD. DRP HAS RIGHTY EXCLUDED THIS COMPANY. IT(TP)A NO.593 & 638/BANG/2016 M/S. DELL INTERNATIONAL SERVICE INDIA PVT. LTD., BA NGALORE PAGE 14 OF 14 26. THE NEXT ISSUE URGED BY THE REVENUE RELATES TO COMPUTATION OF DEDUCTION U/S 10A OF THE ACT. THE REVENUE IS AGGRI EVED BY THE DECISION OF LD. DRP IN DIRECTING THE A.O. TO EXCLUD E CERTAIN EXPENDITURE BOTH FROM EXPORT TURNOVER AND TOTAL TUR NOVER WHILE COMPUTING DEDUCTION U/S 10A OF THE ACT. THIS ISSUE IS NOW SETTLED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL TECHNOLOGIES LTD. (404 ITR 179) SC AND THIS DECISION SUPPORT TH E VIEW TAKEN BY THE LD. DRP. ACCORDINGLY, WE UPHOLD THE DECISION O F DRP ON THIS ISSUE. 27. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST SEPT, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 1 ST SEPT, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.