M/s Robert Bosch Engineering and Business Solutions Private Limited, Bangalore V. DCIT, Bangalore

ITA 608/BANG/2016

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 2260 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMER SINGH MEENA
• Assessee Lawyers: PERCY PADIWALA
• Keywords: Double taxation relief; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1); 234B; 14A; 115JB; 139(5); 10B; 144C; 143(2); 13; 22; 92CA

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. 608/Bang/2016 Assessment Year : 2011-12 M/s. Robert Bosch Engineering and Business Solutions Pvt. Ltd., #123, Industrial Layout, Hosur Road, Koramangala, Bangalore – 560095. PAN: AAACR7108R Vs. The Deputy Commissioner of Income Tax, Large Tax Payers Unit, Circle 1, Bangalore. APPELLANT RESPONDENT & IT(TP)A No. 445/Bang/2016 Assessment Year : 2011-12 (By Revenue) Assessee by : Shri Percy Padiwala, Sr. Advocate Revenue by : Shri Sumer Singh Meena, CIT DR (OSD) Date of Hearing : 20-12-2021 Date of Pronouncement : 02-02-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present cross appeals are filed by assessee as well as revenue against the final assessment order dated 28.01.2016 by the Ld.DCIT, LTU, Circle -1, Bangalore u/s. 143(3) r.w.s. 144C of the Act for Assessment Year 2011-12. In revenue’s appeal, the following grounds are raised. “1. The directions of DRP is opposed to law and facts of the case. Page 2 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 2. The Hon'ble DRP has erred in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding the comparables, in software development segment. 3. The Hon'ble DRP has erred in excluding uncontrolled comparables having turnover more that Rs.200 crores in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin. 4. Whether the decision of Hon'ble DRP is within the purview of Sec.144C of the IT Act. 5. For these and such other grounds that may be urged at the time of hearing.” In assessee’s appeal, the assessee has filed following grounds. “The grounds of appeal raised by the Appellant are without prejudice to one another. 1. That the order passed by the learned Deputy Commissioner of Income-tax, Circle 1, Bengaluru (`Assessing Officer' or `A0')/the learned Additional Commissioner of Income-tax (Transfer Pricing —2(2)), Bangalore (`Transfer Pricing Officer' or 'TP0') and the learned Dispute Resolution Panel (the `Panel'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. Corporate Tax related Matters (Other than Transfer Pricing) 2. The Learned AO erred in not accepting the Appellant's contention that expenditure incurred in foreign currency need not be reduced from Export proceeds from export of Computer Software while computing deduction under section 10A of the Act, since Clause (iv) in Explanation 2 to Sec 10A contemplates such exclusion of expenditure in foreign currency only in the case of Export Proceeds from providing Technical Services outside India. 3. The Learned DRP erred in not adjudicating the Appellant's contention that expenditure incurred in foreign currency need not be reduced from Export proceeds from export of Computer Software while computing deduction under section 10A of the Act, since Clause (iv) in Explanation 2 to Sec 10A contemplates such exclusion of expenditure in foreign currency only in the case of Export Proceeds from providing Technical Services outside India. 4. Having regard to the facts in Appellant's case that the Export Turnover represented export of computer of software, the Learned DRP ought to have directed the AO not to reduce expenditure in foreign currency from Export Page 3 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 of Computer Software while computing deduction under section 10A of the Act. 5. The Learned AO and the Learned DRP erred in not granting deduction u/s 80JJAA in full as claimed by the Appellant. 6. The Learned AO and the Learned DRP erred in excluding wages paid to regular workmen who have resigned during the year from the qualifying amount of additional wages paid to new regular workmen employed during the year. 7. The learned AO and Learned DRP, having regard to the facts in the Appellant's case, ought not to have invoked the provisions of Rule 8D of the Income Tax Rules, 1962. 8. The Learned AO and Learned DRP erred in making additional disallowance under section 14A when the Appellant himself had disallowed actual expenditure incurred in earning exempt income. 9. The Learned AO and Learned DRP erred in making additional disallowance under section 14A by invoking rule 8D of the Income Tax Rules, 1962, without demonstrating as to how the claim of the Appellant regarding identification/allocation of expenses relatable to income not chargeable to tax is incorrect/insufficient. 10. The Learned DRP without examining the method and manner of computation of expenses attributed by the Appellant to the Investment activity erred in concluding that the expense ted by the Appellant to the Investment activity is without documentary evidence. 11. The AO ought to have granted TDS credit of a sum of Rs 66,094,921 as claimed by the Appellant as against a sum of Rs 65,488,691 as granted by the AO. 12. The Learned AO has erred in charging interest under section 234B and 234D of the Act 13. The Learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act disregarding the fact that all the adjustments carried out by the Learned AO are on account of difference on opinion in interpretation of various provisions of the Act and none of the adjustments are as a result of any wrong claim made by the Appellant or due to inaccurate particulars furnished by the Appellant. 14. The Learned DRP erred in not adjudicating the Grounds 12 and 13. Transfer Pricing Related 15. That the learned AO/TPO failed to follow the directions provided by the learned Panel and erred in: a) Issuing notice for Rectification under section 154 to reject a comparable company, which is otherwise accepted by the learned Panel, on the ground that it does not clear Page 4 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 the export turnover filter > 75% of total sales as applied by the learned TPO at the time of Assessment Proceedings b) Not considering corrected operating profit mark-up and working capital adjustment for computing the average operating profit mark-up earned by comparable companies, and thereby erred in computing the transfer pricing adjustment 16. That on the facts and circumstances of the case, the learned AO/TPO and the learned Panel erred in; a) Upholding the rejection of economic/comparability analysis of the Appellant in the TP documentation and accepting the economic/comparability analysis performed by the learned TPO in the TP Order b) Upholding rejection of comparable companies which passes the TPO's own test of comparability c) Upholding companies as comparable that are functionally different from the Appellant, and rejecting companies that are otherwise functionally comparable to the Appellant d) Disregarding the application of multiple year/prior year data applied by the Appellant in the TP documentation and holding that the current year (i.e., Financial Year 2010-11) data, available at the time of transfer pricing assessment proceedings, instead of that available as on the date of preparing the TP documentation e) Upholding the learned TPO's approach of not considering certain expenses/income while computing the operating profit mark-up on cost of comparable companies f) Not providing any adjustment towards the difference in risk profile between the Appellant and the entrepreneur companies selected as comparable while determining the arm's length price 17. That the learned AO/TPO and learned Panel erred in determining the arm's length price for receipt of services from its Associated Enterprises amounting to Rs. 69,448,424 to be NIL. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.” Additional grounds by assessee vide application dated 18.11.2021. “Statement of Facts relating to Supplementary/ Additional Grounds of Appeal: 1. The Appellant is engaged in the business of Software Development and IT enabled services. During the year, the Appellant had entered into International Transactions and Page 5 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 therefore as required under Chapter X of the Income Tax Act, 1961 ['the Act'], had conducted Transfer Pricing study on its own. Transfer Pricing: 2. During the Transfer Pricing Proceedings, the Appellant had made submissions for exclusion of Companies that do not satisfy the test of comparability in respect of the Software Development ("IT") and IT enabled services ("ITeS") segment of the Appellant. However, the Dispute Resolution Panel ("DRP" or "the learned Panel") did not accept the Appellant's submissions for some comparables and for the remaining comparables the learned DRP excluded the comparables on the basis of turnover filter. 3. The above issue is specifically dealt by the Transfer Pricing Officer in his order dated January 30, 2015 and the DRP Directions dated December 17, 2015. Other Corporate Tax Matters - A. Additional Foreign Tax Credit Claim: 4. The Appellant has been filing its return of income in India and in all the other counties where a Permanent Establishment ("PE) / Branch is established as per the applicable local laws. The taxes paid by the P Es / Branch in those countries are claimed by way of Foreign Tax Credit by the Appellant in its Indian income-tax return. In the Return of Income filed by the Appellant's German PE for the Calendar Years 2007 to 2011, the Appellant had followed Cost Plus Method for arriving at the taxable German PE profits. However, the German tax authorities completed the assessment by computing the taxable income based on actual profitability of German PE resulting in assessment of higher taxes by the German Tax Authorities. Consequently, the Appellant's incurred additional tax liability for calendar years 2007 to 2011 in Germany. Thus, the Appellant is entitled for additional Foreign Tax Credit on account of additional taxes paid in Germany. 5. The assessment of German Tax Returns was completed by the German Tax Authorities during October 2014. The Appellant made payment of additional taxes in Germany in two tranches on 26 November 2014 and 4 December 2014. The time limit for furnishing Revised Returns of Income in India for AY 2011-12 expired on 31st March 2013 by which time the German Tax Assessment was not completed. Accordingly, the Appellant was unable to furnish a Revised Return of Income in India for the revised Foreign Tax Credit claim considering the payment of additional German Income Tax as per provisions of section 90 of the Act read with section 139(5) Page 6 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 of the Act and Article 23(2) of India-Germany Double Taxation Avoidance Agreement. 6. The details of Income offered under Original returns filed by German PE, Original Tax Demand, Assessed Income and Revised tax demand is given in the below table: Calendar Year Wise Particulars 2010 2011 As per Original ROI As per German Tax Assessment As per Original ROI As per German Tax Assessment Revenue as per ROI filed 20,636,218 33,787,112 31,066,345 51,548,169 Cost as per ROI (without allocation of Corporate overheads in case of Original ROI) 19,298,209 31,725,987 29,057,901 48,128,078 Profit as per ROI 1,338,010 2,061,125 2,008,444 3,420,091 Corporation Income Tax Paid 201,567 307,448 301,266 511,871 Trade Income Tax Paid 162,250 268,316 267,117 494,600 Total Income Tax Paid in Germany 363,817 575,764 568,383 1,006,471 Additional Corporate income tax paid 105,881 210,605 Additional Trade income tax paid 106,066 227,483 Total Additional Taxes Paid 211,947 438,088 7. Consequent to additional income tax payout by the Appellant's German PE, the Appellant is entitled for additional Foreign Tax Credit of Rs 23,901,067 for AY 2011-12 relevant to FY 201011. The Computation of the Revised Foreign Tax Credit, Foreign Tax Credit claimed in Original Return of Income filed in India and the additional Foreign Tax Credit that the Appellant is entitled to, is enclosed in Exhibit A. B. Dividend Distribution Tax 8. The Appellant is engaged in the business of rendering Software Development Services to its Group companies and third parties. The Appellant is a wholly owned subsidiary of Robert Bosch GmbH, Germany (hereinafter referred to as "RB GmbH"). 9. During Assessment Year 2011-12, the Appellant declared final dividend of Rs 101,82,71,680 on 2 June 2010. The Appellant paid dividend distribution tax of Rs 16,91,22,198 on 9 June 2010 at the rate of 16.6088% by applying the provisions of section 115-0 of the Act. The rate of 16.6088% comprised of tax rate of 15% as per section 115-0 of the Act plus applicable surcharge at rate Page 7 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 of 7.5% and education cess at the rate of 3%. The Appellant furnishes copy of Form 26AS for AY 2011-12 in Exhibit B evidencing payment of Dividend Distribution Tax amounting to Rs. 16,91,22,198. 10. The Appellant has furnished to the Assessing Officer, a copy of Audited Financial Statements for the year ended 31 March 2011 which contains the details of the dividend and dividend tax thereon, vide its letter dt. 30 August 2012 during the assessment proceedings. Copy of letter dt.30th August 2012 is enclosed herewith in Exhibit C. The Appellant encloses extract of Audited Financial Statements for the year ended 31st March 2011 in Exhibit D. 11. As stated earlier, the Appellant is a wholly owned subsidiary of RB GmbH which is a tax resident of Germany. Therefore, the Appellant submits that dividend received by Robert Bosch GmbH is subject to Article 10 of the Double Taxation Avoidance Agreement between India and Germany. For ready reference, the Appellant extracts below the relevant provisions of Article 10 of DTAA between India and Germany: 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. 12. The Appellant submits that having regard to the provisions of Article 10 of the Double Taxation Avoidance Agreement between India and Germany read with section 90 of the Act, dividends declared by the Appellant is subject to dividend tax rate of 10% as opposed to effective tax rate of 16.6088% discharged by the Appellant. 13. The Appellant further submits that RB GmbH does not have any PE in India. The AO makes a fact finding to this effect in the assessment order of RB GmbH for AY 2011- 12. The assessment order for AY 2011-12 of RB GmbH is enclosed herewith in Exhibit E. C. Education Cess and Higher and Secondary Education Cess 14. During the Assessment Year 2011-12, the Appellant paid Education Cess and Higher and Secondary Education Cess ("cess"), being cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act.” “Supplementary/ Additional Grounds of Appeal: TP Grounds: Page 8 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 1. Referring the Grounds of Appeal originally filed by the Appellant in Form 36B on March 28, 2016, wherein the Appellant has pleaded in Ground No. 16 and 17, respectively: I. Ground 16: "That on the facts and circumstances of the case, the learned AO/TPO and the learned Panel erred in; a) Upholding the rejection of economic/comparability analysis of the Appellant in the TP documentation and accepting the economic/comparability analysis performed by the learned TPO in the TP Order b) Upholding rejection of comparable companies which passes the TPO's own test of comparability c) Upholding companies as comparable that are functionally different from the Appellant, and rejecting companies that are otherwise functionally comparable to the Appellant." Further, the learned AO/TPO and the learned Panel has erred in accepting the companies that are functionally not akin to the Appellant while performing the comparability analysis of the IT and ITeS services. The Appellant would like to plead for the exclusion of the following companies that are not functionally comparable to the Appellant: IT Segment i.Acropetal Technologies Ltd (Seg- IT Tech services) ii. e - zest Solutions iii. E - infochips Ltd iv. ICRA Techno Analytics Ltd v. Infosys Ltd vi. Persistent Systems & Solutions Ltd. vii. Persistent Systems Ltd. viii. Sasken Communication Technologies Ltd ix. Tata Elxsi Ltd (seg) ITeS Segment i.Accentia Technologies Ltd. ii. Acropetal Technologies Ltd . (seg: engineering design) iii. Jeevan Scientific Technology Ltd.(seg) iv. iGate Global Solutions Ltd. The Appellant would also like to plead for the inclusion of L G S Global Ltd. that is functionally comparable to the Appellant. The comparable formed a part of the Transfer Pricing Study ("TP Study") which was rejected by the TPO applying the filter of Employee cost to sales of 25%. The Appellant had pleaded before the learned Panel for inclusion of the same (page 35 of Annexure to Form 35A filed on April 16, 2015) on the ground that the Employee Cost to sales is 83.69% and hence it passes the filter. However, no specific mention of the same has been made in the DR P Directions for rejection of the same. Page 9 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Other Corporate Tax Matters - Additional Foreign Tax Credit Claim: 2. Having regard to the facts and circumstances, the Appellant pleads the Hon’ble Bench to direct the AO to grant additional Foreign Tax Credit of Rs 23,901,067. Dividend Distribution Tax 3. Having regard to the facts and circumstances in the instant case and having regarding to the provisions of law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant relief by way of restricting the levy of the dividend distribution tax, on the dividend distributed/paid to RB GmbH, Germany, to 10% in terms of Article 10 of the Double Taxation Avoidance Agreement between India and Germany, instead of 16. 6088% charged in terms of section 115-0 of the Act. 4. The Appellant pleads the Hon'ble ITAT to direct the AO to refund the excess Dividend Distribution Tax paid by the Appellant as per section 237 of the Act. Education Cess and Higher and Secondary Education Cess 5. Whether on the facts and in the circumstances of the case and in law, the Education Cess and Higher and Secondary Education Cess, being cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act is allowable as a deduction? 6. Having regards to the facts and in the circumstances of the case and in law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant deduction of Education Cess and Higher and Secondary Education Cess, being cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act. General Grounds: 7. The Appellant craves leave to add to, amend or alter the ground herein. 8. For these and other grounds that may be urged at the time of hearing, the appellant prays for appropriate relief.” 2. We note that above admission of additional grounds is necessary for computing the correct income in the hands of assessee. It is also noted that no new facts are required to be looked into for adjudicating the same. These grounds are purely legal in nature. Therefore respectfully the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT Page 10 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 reported in 229 ITR 383 and Jute Corporation of India reported in 187 ITR 688, we admit the above ground. Accordingly the application dated 18/11/2021 stands allowed. 3. Brief facts of the case are as under: The assessee is in the business of manufacture of development of software, dealing in automotive components, developing mechanical and electronic designs, translations, documentation etc. It filed its return of income for the Assessment Year 2011-12 on 25.11.2011 admitting an income of Rs.62,89,17,687/-. The case was taken up for scrutiny under Cass selection. A notice u/s. 143(2) was issued to the assessee on 06.08.2012 and duly served. Notice u/s 142(1) were issued and duly served. As international transaction exceeded Rs.15 crores the case was referred to the Ld.TPO to determine the Arm’s length price vide this office letter dated 12.12.2013. 3.1. Upon receipt of the reference, the Ld.TPO called upon assessee to file the economic details in respect of the international transaction entered by assessee with the associated enterprise. From the details filed by assessee, the Ld.TPO observed that assessee had following international transactions: Particulars Amt Purchase of Accessories for Lab Equipment' 10,67,53,197 Software Expenditure 9,65,62,889 Sale of Traded goods 47,93,977 Purchase of capital assets 9,50,45,386 Receipt from software development services 962,42,27,601 Receipt from ITES 84,82,84,423 Page 11 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Receipt of services 6,94,48,424 Reimbursement of expenses 79,68,57,809 3.2. The Ld.TPO observed that assessee benchmarked the software development segment and ITES segment as under: International Transaction MAM PLI(OP/OC) SWD TNMM 14.84% ITeS TNMM 12.67% It was noticed that assessee selected 16 comparables with average margin of 12% under the SWD segment and 12 comparables under ITeS segment with average margin of 13%. As assessee has better margin that the comparables under the segments, the transactions were held to be at arms length in the TP study by assessee. 3.3. Dissatisfied with the comparables selected by assessee, the Ld.TPO applied certain filters and finalised following comparables under both the segments: SWD Segment: Sl.No. Companies OP/TC (as per TPO) Pre WCA Post WCA 1. Acropetal Technologies Ltd (Seg-IT Tech services) 31.98% 29.18% 2. e-zest Solutions 21.03% 19.44% 3. E-infochips Ltd 56.44% 56.64% 4. Evoke Technologies Pvt Ltd. 8.11% 8.45% 5. ICRA Techno Analytics Ltd 24.83% 23.30% 6. Infosys Ltd 43.39% 43.95% 7. Larsen & Toubro Infotech Ltd 19.83% 20.34% 8. Mindtree Ltd-Seg 10.66% 9.70% 9. Persistent Systems & Solutions Ltd. 22.12% 21.65% 10. Persistent Systems Ltd. 22.84% 22.09% Page 12 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 11. R S Software (India) Ltd. 16.37% 16.68% 12. Sasken Communication Technologies Ltd. 24.13% 24.99% 13. Tata Elxsi Ltd (seg) 20.91% 19.42% Average 24.82% 24.29% ITES Segment Sl.No. Companies OP/TC (as per TPO) Pre WCA Post WCA 1. Accentia Technologies Ltd. 28.89% 28.53% 2. Acropetal Technologies Ltd. (seg: engineering design) 26.86% 25.19% 3. Cosmic Global Ltd. 9.81% 12.91% 4. e4e Healthcare Business Services Pvt Ltd. 12.38% 16.27% 5. ICRA Online Ltd. (seg) ,......• 34.21% 35.14% 6. Jeevan Scientific Technology Ltd.(seg) •---- 70.66% 73.55% 7. Infosys BPO Ltd. 17.89% 18.32% 8. Jindal Intellicom Ltd. 11.13% 14.03% 9. Mindtree Ltd. (seg) 10.76% 11.21% 10. iGate Global Solutions Ltd. 25.07% 26.83% Average 24.77% 26.20% 3.4. The Ld.TPO observed that assessee aggregated the receipt of services under the two segments, and the same was rejected being intra-group service. The Ld.TPO applied CUP to evaluate the transaction and computed the ALP at NIL. The total adjustment proposed by the Ld.TPO are as under: SI.No. Description Amount in Rs. a) Shortfall being adjustment made u/s 92CA in Software development segment Rs.87,76,48,058/- b) Shortfall being adjustment made u/s 92CA in ITES segment Rs.11,23,65,385 /- c) Adjustment in Intragroup service payment for Receipt of services Rs. 6,94,48,424/-. d) Total adjustment made u/s 92CA {c=(a+b+C} Rs.105,94,61,867/ Page 13 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 3.5. The Ld.AO while passing the draft assessment order made further disallowance u/s. 80JJA of the Act as well as disallowed expenses while computing 10A deduction in respect of telecommunication charges. The Ld.AO also computed the 14A disallowance by computing the disallowance under Rule 8D(ii). Aggrieved by the order of the Ld.AO, assessee filed objections before the DRP. 4. The DRP in respect of the comparables challenged by the assessee under SWD segment, upheld the application of turnover filter and excluded 9 comparables, by the Ld.TPO. One comparable was excluded for having extraordinary event and one comparable was excluded during rectification under section 154, vide order dated 09/03/2016. Under ITeS segment, the DRP on application of Turnover filter upheld exclusion of comparables under both the segments and also excluded comparables on functional dissimilarities. 5. The Ld.AO on receipt of the DRP direction, passed the impugned order making addition in the hands of the assessee amounting to Rs.1,11,18,31,613/-. Aggrieved by the order of the Ld.AO, assessee as well as revenue are in appeal. First we take up the appeal filed by revenue: 6. In Ground no.2, revenue is seeking to challenge the exclusion of following 9 comparables on turnover filter in the SWD segment. i) Acropetal Technologies Ltd. ii) e-zest Solutions iii) E-infodrips Ltd. Page 14 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 iv) Evoke Technologies Pvt. Ltd. v) ICRA Techno Analytics vi) Infosys Ltd. vii) Larsen & Toubro Infotech Ltd. viii) Persistent Systems Solutions Ltd. ix) R.S. Software (I.) Ltd. Challenges exclusion of 3 comparables on application of turnover filter under ITES segment: (i) Infosys BPO (ii) Mindtree Ltd. (iii) iGate Global Solutions Ltd. Before we undertake the comparability analysis, it is sine qua non to understand the Functions performed Assets owned and Risks assumed by assessee under the two segments. Functions: SWD Segment: Robert Bosch India provides software development and application engineering services (herein after for the purposes of this report referred to as " software development") to Bosch Group operating as an independent contractor. The software designed, developed, amended, tested or modified is the property of Bosch Group and at no point in time, such ownership vests with Robert Bosch India either wholly or in part. Robert Bosch India receives compensation for the said services based on man month rates. In addition, Robert Bosch India also procured lab equipments and related accessories for software testing and simulation from AEs. Further, Robert Bosch India also provides IT enabled shared services to Bosch Group. The services offered under this category include accounts receivable, accounts payable, general ledger and fixed assets. Further, it also offers services in the area of designs and translation including web designing and documentation, mechanical and electronic design and shared services. Robert Bosch India undertakes distribution of certain testing equipments at a lower scale (both in terms of volume as well as in value). These testing equipments are usually procured from local independent third party vendors. The testing equipments are developed based on the specifications received from Bosch Group. These products are generally used for small applications and are meant for internal consumption within the Bosch Group. Page 15 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Software development services: The results of the analysis in the above Table show that Robert Bosch India is required to earn a total cost plus mark-up of 12% or more for providing software development services to confirm that its transactions with Group Companies comply with the arm's length standard prescribed by the Indian Regulations. The mark-up on total cost of 15% earned by Robert Bosch India (summarised in Appendix J) for the year 2010-11, for undertaking software development services is higher than the arithmetic mean of comparable companies, hence the transfer price is considered to be at arm's length. IT Enabled Services: The results of the analysis in the above Table show that Robert Bosch India is required to earn a total cost plus mark-up of 13% or more for providing IT enabled services provided to confirm that its transactions with Group Companies comply with the arm's length standard prescribed by the Indian Regulations. The mark-up on total cost of 13% earned by Robert Bosch India (summarised in Appendix J) for the year 2010-11, for undertaking IT enabled services is at par with the arithmetic mean of comparable companies, hence the transfer price is considered to be at arm's length. The functions addressed below are common functions that are carried out by any business irrespective of their size and type. These functions are drivers of every business and are indispensable in the economic environment.  Corporate Strategy Determination: Generally, all policies within Robert Bosch India are determined by its own management who continuously monitor the economic environment surrounding the Indian entity, assess their strategic position within the industry and target to achieve its corporate objective with guidance from the Bosch Group.  Finance, Accounting, Treasury and Legal Function: The management in Robert Bosch India is responsible for managing the finance, treasury, legal and accounting functions. In certain areas, wherever necessary, Robert Bosch India is guided by the Bosch Group. Robert Bosch India is also responsible for all local statutory compliance.  Human Resource Management Function: The HR function at Robert Bosch India is coordinated by its management, which is responsible for recruitment, development and training of the personnel including the emolument structure. In this respect, where appropriate, it is guided by Bosch Group policies. ITES: Assets Owned: Any business requires assets (tangible or intangible) for undertaking its operations. Bosch Group owns all the valuable intellectual property rights Page 16 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 and other commercial or marketing intangibles and is involved in complex operations of developing proprietary technologies and marketing of the same. Robert Bosch India does not own any significant intangibles. Robert Bosch India uses the process, technical data software, quality standards etc. owned by the Bosch Group for its provision of services. Risks assumed: Robert Bosch India does not bear market risk as it renders these services to Bosch Group on a project basis Robert Bosch India does not have any risk on this count because it renders these services to Bosch Group on a project basis and has not direct interaction with customers Robert Bosch India operates in the IT Sector, which is highly sensitive to new technologies. Hence, Robert Bosch India bears limited risk of technology obsolescence on this count. However, its risk is mitigated as the technology is owned by the parent and its services are performed at the behest of the Bosch Group. Robert Bosch India being a service provider, renders its software development and application engineering services on a project basis, undertaking no R&D activities or incurring costs on such initiatives on its own accord. It does not bear this risk as its activities are based on the requirement analysis undertaken by Bosch Group. Robert Bosch India being generally paid as per the terms of the Software Projects Agreement, which inter-alia states the receipt of payment within thirty days from raising of invoice and therefore, it bears limited, risks on this account. Robert Bosch India bills Bosch Group in foreign currency and thus bears gain or loss arising on account of exchange fluctuation. Robert Bosch India has the risk of recruiting, retaining, and utilizing key technical personnel in India therefore, it bears risks on this account. Being compensated on a man-month basis, it bears resource utilization risk. Robert Bosch India enters into a Service Agreement at negotiated rates thereby does assume limited price risk. Robert Bosch India has to be competitive in its pricing vis-à-vis the market rates to get a contract/ project relating to software development and application engineering services, hence Robert Bosch India undertakes limited risks on this account. It also bears estimation risk, since its projected profitability is dependent on the budget estimates converging with the actuals. Robert Bosch India is entirely responsible for the legal and statutory compliance with respect to its operations within India. Robert Bosch India operates on time and material based billing model and consequently bears a risk on account of under utilization of available personnel / resources. Characterisation: Based on the facts as presented in the above analysis of functions performed, assets employed and risks assumed by Robert Bosch India, it is possible to characterize Robert Bosch India as a routine software Page 17 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 development and IT enabled service provider, which assumes routine risks associated with carrying out such business. Further, Robert Bosch India operates on Time and Material ("T&M") based billing model, consequently it has to account for certain risks such as Technology, Service liability, Price, Utilization, Credit Manpower and Foreign Exchange risks. Compensation for these risks is inherently built in the man- month rate based billing model. 6.1. It is been submitted by both sides that the issue of applicability of turnover filter was considered by Coordinate Bench of this Tribunal in assessee’s own case in IT(TP)A Nos. 1565 & 1575/Bang/2013 by order dated 01.09.2021 for Assessment Year 2008-09. Following are the comparables for which the revenue seeks inclusion under SWD segment. Acropetal Technologies Ltd., e-zest Solutions E-infochips Ltd Evoke Technologies Pvt.Ltd ICRA Techno Analytics Ltd. Infosys Ltd. L&T Infotech Ltd. Persistant Systems & Solutions Ltd. R S Software (India)Ltd. Under ITES segment, the revenue seeks inclusion of following comparables as it was rejected by the DRP on non fulfilment of turnover filter: Infosys BPO Mindtree Ltd. iGate Global Solutions Ltd Page 18 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 6.1. In assessee’s own case for Assessment Year 2008-09(supra) this Tribunal held as under. “(c) In respect of application of turnover filter, we notice that the co-ordinate bench has followed the classification of companies on the basis of turnover criteria by the study of Dun 8, Brads Street, in its decision rendered in the case of Genisys Integrated System (India) P Ltd (supra). Following the same, we hold that the Ld CIT(A) was justified in applying turnover filter. Accordingly, the companies having turnover of below 200 crores and above 2000 crores are liable to be excluded.......” The Ld.AR further submitted that the above comparables were excluded by coordinate bench of this Tribunal in following cases also on functional dissimilarities: AMD India (P.) Ltd. v. Asstt. in IT(TP)A No.1487/Bang..2015, by order dated 06/042017 Applied Materials India (P.) Ltd. v. Asstt. CIT in IT(TP)A No.17/ Bang./2016, by order dated 21/09/2016 LG Soft India (P.) Ltd. vs. DCIT reported in (2020) 118 taxmann.com 313 We note that this Tribunal in case of LG Soft India (p.) Ltd.,(supra) observed and held as under: “10. With regard to the other 7 comparable companies, whose exclusion is challenged by the revenue in ground No.2 of its appeal, we find that exclusion of these comparables from the list of companies selected by the TPO had come up for consideration before the Bangalore ITAT in the case of Electronic for Imaging (I) Pvt. Ltd. v. DCIT [2017] 85 taxmann.com 124 [Bang. Trib]. ; Symantech Software & Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016; DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015; Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 which are also decisions rendered in relation to AY 2011-12 in the case of a companies providing SWD services such as the assessee in the present appeal. It is also relevant to point out that the very same comparable companies chosen by the TPO in the present appeal IT(TP)A Nos.52 & 97/Bang/2016 had been chosen by the TPO as comparable companies in the case of Electronic for Imaging (I) Pvt. Ltd. (supra). The Tribunal in its order dated 14.7.2017 in the aforesaid case dealt with the comparability of these companies. 11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was Page 19 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software products and though the break-up of revenue from the two segments were available, but the break-up of Operating Cost and Net Operating revenue and segmental details were not available. 12. As regards e-Zest Solutions Ltd., in the case of Symantech Software & Services (I) Pvt. Ltd. v. DCIT, ITA No.614/Mds/2016, this company was held to be engaged in Knowledge Process Outsourcing (KPO) and cannot be regarded as a SWD services company. 13. The Tribunal in the case of DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015 excluded the company, ICRA Techno Analytics Ltd., on the ground that it was engaged in engineering and consulting services, besides licensing and sub-licensing and no segmental information was available to compare the margins of SWD services segment. 14. The Mumbai Tribunal in the case of Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 held Infosys Ltd. to be not comparable for the reason that this company was engaged in manufacturing of software products and was a giant company assuming various risks. As far as Larsen & Toubro Infotech Ltd., is concerned, vide paragraph-8 page-16 of the order in the case of Electronics for imaging India Pvt. Ltd., (supra) this tribunal excluded this company on the ground of presence of onsite revenue of more than 50% and that the related party transaction was more than 15% (18.66%).” Revenue has not been able to place on record any distinguishing feature in respect of these comparables. Therefore respectfully following the above view, all comparables are upheld to be rejected. Accordingly, the appeal filed by revenue stands dismissed. Assessee’s appeal:- 8. Ground no. 1 is general in nature and therefore do not require adjudication. 9. Ground nos.2 to 4 is raised challenging the exclusion of expenditure incurred in foreign currency in respect of Page 20 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 telecommunication expenses / insurance / freight etc. It is submitted that the Ld.AO excluded Rs. 5,01,86,593/- from export turnover for computing the deduction u/s. 10A of the Act. It has been submitted that this issue has been decided in assessee’s own case for Assessment Year 2008-09 (supra). The Coordinate Bench followed the observation of this Tribunal in assessee’s own case for Assessment Year 2009-10 in ITA No. 1688/Bang/2017 dated 28.06.2021 by observing as under: “4.2 We notice that an identical issue has been restored to the file of Ld CIT(A) by the co-ordinate bench in the assessee’s own case in AY 2009-10 in ITA No.1688/Bang/2017 order dated 28-06-2021. For the sake of convenience, we extract below the discussions made by the co-ordinate bench in Assessment Year 2009- 10:- “10. We heard the parties on this issue and perused the record. We notice that the issue whether the expenditure incurred in foreign currency is required to be excluded from the export turnover or not when the assessee is exporting only software, was examined by the coordinate bench in the assessee’s own case in assessment year 2007-08 and the matter was restored to the file of the Ld. CIT(A) with the following observations: “16. We have considered the rival submissions. It is clear from the decision of the Hyderabad Bench of the ITAT that to exclude expenses incurred in foreign currency from the export turnover, the assessee should have obtained the benefit of section 10A on income from rendering technical services outside India. The admitted factual position in the present case is that the assessee is in the business of exporting computer software and therefore the expenses incurred in foreign exchange cannot be said to be one incurred by the assessee in connection with providing technical services outside India. The assessee does not claim exclusion of telecommunication charges or insurance attributable to the delivery of software outside India. The claim for exclusion from the export turnover is made by the assessee only in respect of expenses incurred in foreign currency in providing technical services outside India. We however do not have the break-up of the item of expenditure incurred in foreign currency outside India. A copy of the agreement between the Assessee and Robert Bosch, Germany titled software project agreement (SPA) Page 21 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 has been filed before us. We do not know as to whether the entire export turnover is in relation to this client alone or there were other clients for whom the Assessee rendered computer software development services. A perusal of the SPA filed before us shows that the Assessee agreed to carry out software development work for Robert Bosch Germany at Germany also. The terms of the agreement for rendering services on-site at clauses-5.2 to 5.2.6 of the agreement does not involve rendering of any technical services. The question as to whether the entire expenditure incurred in foreign exchange outside India relates to providing technical services outside India cannot be decided in the absence of the required information as stated above. If the claim of the Assessee that the entire expenditure incurred in foreign exchange outside India does not relate to providing technical services outside India, then the same cannot be excluded from the export turnover. Since the factual verification is required for adjudicating the aforesaid issue, we deem it appropriate to set aside the order of the CIT(A) and remand the issue to him with a direction to decide the issue with regard to Gr.No.2 and 3 raised by the Assessee before him. We accordingly allow the appeal of the assessee for statistical purpose.” 11. In assessment year 2004-05 also, the coordinate bench restored the issue to the file of the Ld. CIT(A) for examining this issue in the light of decision rendered by Hon’ble jurisdictional High Court in the case of Infosys Ltd. (supra). Consistent with the view taken in the above said two years in the assessee’s own case, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to his file for examining it afresh on similar lines.” 4.3 Consistent with the view taken by the Tribunal in Asst. Year 2007-08 and 2009-10, we restore this issue to the file of Ld CIT(A) for examining it afresh. 4.4 The second ground relate to exclusion of telecommunication charges from export turnover and total turnover while computing deduction u/s 10A of the Act. The Ld CIT(A), after deciding the issue relating to “expenditure incurred in foreign currency” in favour of the assessee, has held that the telecommunication charges and expenditure incurred in foreign currency should be deducted both from export turnover and total turnover. In any case, it is now settled that the amount reduced from the export turnover has to be reduced from the total turnover also as held by Hon’ble Supreme Court in the case of HCL Technologies Ltd, (404 ITR 179)(SC). Page 22 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Accordingly, the decision rendered by Ld CIT(A) on this issue does not require interference.” Respectfully following the above view, we remand this issue to the Ld.AO to compute the deduction u/s. 10A in accordance with the principles laid down by the Hon’ble Supreme Court in case of HCL Technologies Ltd. reported in 404 ITR 179. Accordingly, the above grounds raised by assessee stands allowed for statistical purposes. 10. Ground Nos. 5-6 has been raised by assessee for non- granting deduction u/s. 80JJAA of the Act. The Ld.AR submitted that the additional wages are paid to the new regular workmen by the assessee which is in accordance with the provisions that were applicable to assessee during the relevant Assessment Year. The Ld.AO observed that assessee had strength of 2783 at the beginning of the year and at the end of the year the strength increased to 3582. The Ld.AO noted that there was an increase in the strength by 799 workmen. The Ld.AO was therefore of the opinion that assessee was not eligible for deduction u/s.80JJAA of the Act, for following reasons: 1. that, 544 workmen left during the year; 2. that assessee did not fulfil the requirement of minimum 100 additional regular workmen The Ld.AR submitted that legislative intent behind the provisions of 80 JJAA of the Act is to grant incentive in respect of the new regular workmen during the year. On the contrary the Ld.Sr.DR relied on the orders passed by the authorities below: Page 23 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 We have perused the submissions advanced by both sides in light of records placed before us. On bare reading of section 80JJ AA of the Act, following requirements emerges to be fulfilled in order to claim deduction under the section: 1. The Assessee should be an Indian Company and the gross total income of the Assessee should include profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing. Admittedly this condition is satisfied in the case of the Assessee. 2. There are certain prohibition laid down in Sec. 80JJAA(2) of the Act and it is not the case of the Ld.AO that these prohibitions are applicable in the case of the Assessee. 3. The new workmen employed must be a regular workmen and the number of such new workmen employed should be in excess of one hundred workmen employed during the previous year. 4. The increase in the number of regular workmen employed during the year should not be less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; 5. If the above conditions are satisfied then 30% of the additional wages paid to new regular workmen employed by the assessee in the previous year, shall be allowed as deduction for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Page 24 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Therefore, if some workmen were employed for a period of less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such work men in the present year even if such workmen was employed in the preceding year for more than 300 days but in the present year, such workmen was not employed for 300 days or more. By the very same reasoning the fact that in the first year of employment the additional wages paid is not allowed deduction for the reason that the workmen did not work for 300 days or more but if the next two Assessment years, if he works for more than 300 days each, then the deduction u/s.80JJAA of the Act has to be allowed. It is not proper to say that if the deduction is refused in the first year of employment of the new employee then for the next two succeeding Assessment Years also, the benefit of deduction will not be available. Such an approach defeats the very purpose for which deduction u/s.80JJAA of the Act is allowed for three consecutive Assessment years. This aspect has now been clarified in the Finance Act, 2018 by adding a second proviso to the definition of additional employee in Explanation (ii) to Sec.80JJAA of the Act. Even prior to such curative or clarificatory amendment, we are of the view that the claim for deduction u/s.80JJAA of the Act ought not have been disallowed. The Ld.AO is therefore directed to verify the details and consider the claim of assessee in accordance with law. Accordingly, this ground raised by assessee stands remanded to the Ld.AO for due verification. 11. Ground nos. 7 to 10 are in respect of the disallowance computed by the Ld.AO u/s. 14A. Page 25 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 The Ld.Counsel submitted that assessee had disallowed Rs.2,23,20,919/- against exempt income earned being Rs.3,63,96,471/- u/s. 14A of the Act. He submitted that during the year under consideration, the investments made by assessee were only fixed. He submitted that assessee is not into buying and selling of shares / investments but is carrying on software development businesses. The Ld.Counsel submitted that assessee has computed disallowance at Rs. 36,01,783/- as under: The disallowance as per Rule 8D(iii) is worked out as below: Average value of investments Rs 103,45,40,304 Disallowance of other Expenses= One half percent of average value of investments =0.5 % x Rs 103,45,40,304 = Rs 51,72,702 Disallowance u/s 14A = Rs 51,72,702 This amount, Rs 51,72,702 is telescoped into the amount of Rs 15,70,919 already admitted as allocation of common costs and a balance amount of Rs 36,01,783 is therefore added back to the income admitted. 12. The Ld.Counsel submitted that the entire investments cannot be taken into consideration for disallowance under Rule 8D(2)(iii) at 0.5%. The Ld.DR on the contrary relied on the orders passed by the authorities below. We note that on identical issue, the Coordinate Bench of this Tribunal in assessee’s own case observed for Assessment Year 2008-09(supra) as under: “9.1 We heard the parties on this issue. The Ld A.R invited our attention to page 521 of the paper book, wherein the details of investments are given. He submitted that the assessee has made investments only in units of various mutual funds. The aggregate amount of investments made during this year was Rs.90.59 crores. He further submitted the assessee has also invested a sum of Rs.15.00 crores in growth scheme and a sum of Rs.20.26 crores in dividend reinvestment scheme. The assessee has made investments in six schemes only during the year under consideration and it has encashed investments Page 26 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 made in the earlier years in four schemes. He submitted that the assessee has not really incurred any expenditure in earning the dividend income. On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 9.2 We heard the parties on this issue and perused the record. We notice that opening balance of investments stood at Rs.25.59 crores in four schemes of mutual funds. During the year under consideration, the above investments have been realised. The assessee has made fresh investments in six schemes of mutual funds during this year, out of which three schemes fall under Growth/reinvestment schemes. Considering the less number of schemes, in our view, it may not be proper to apply Rule 8D mechanically. Accordingly, we are of the view that the disallowance may be estimated to meet the requirements of sec.14A of the Act. Accordingly, we estimate the disallowance u/s 14A at Rs.2.00 lakhs and in our view, the same would meet the requirements of the provisions of sec.14A of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance u/s 14A to Rs.2.00 lakhs.” 13. In the above observations for Assessment Year 2008-09, there no disallowance was made by assessee this Tribunal deem it appropriate to restrict the disallowance to Rs.2 Lakhs considering the less number of schemes that fall under growth / investment schemes. Going by the above principle and also observing the fact that the Ld.AO has not expressly mentioned any dissatisfaction in the suomoto disallowance computed by assessee we hold that the disallowance computed by the assessee is appropriate. Accordingly, this ground raised by assessee stands allowed. Additional Grounds A. Foreign Tax Credit: Additional ground raised by assessee is in respect of foreign tax credit not granted to assessee against the tax paid by assessee in Germany. The Ld.AR submitted that the foreign tax credit may Page 27 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 be granted to assessee as per the provisions of section 90 of the Act on the taxes that are paid by assessee. Assessee is directed to file relevant document in support of the claim. The Ld.AO shall verify the evidences / documents in respect of FTC and consider the claim of assessee in accordance with law. B. Dividend distribution Tax: We have already admitted this issue. First time this ground has been raised before us and Ld.AO had no occasion to examine this issue. In the interest of justice, we remit this issue to be decided in accordance with law. C. Educational Cess: The assessee has raised additional ground seeking deduction of Education cess and Higher secondary Education cess. With respect to the deduction of education cess paid by the assessee on the total income, we find that this ground of appeal can be admitted, as there are no fresh facts required to be investigated. The requisite facts are already on record. Hence, we admit the same. On the merits of the claim the learned authorized representative submitted that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in case of Sesa Goa Ltd. v. Jt.CIT reported in [2020] 117 taxmann.com 96/423 ITR 426 and the host of the other decisions. The Ld.DR submitted that education cess is a tax and therefore it cannot be granted as deduction to the assessee by the virtue of the provisions of Section 40(a)(ii) of the Act. We find that assessee has raised the additional ground claiming deduction of education cess paid by the assessee on the total income as well as dividend distribution tax. On careful analysis, we find that the issue of deduction of education cess as an allowable deduction is covered in favour of the assessee by the decision of the Hon’ble Page 28 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Bombay High Court in Sesa Goa Ltd. (supra) and therefore we direct the Ld.AO to consider the claim afresh. Accordingly, this all additional grounds raised by assessee stands remanded as per the directions hereinabove. Supplementary / Additional Ground: The assessee has raised supplementary grounds in support of Ground no. 16, wherein assessee is seeking exclusion of following comparables: SWD: Persistant Systems & Solutions Ltd. Persistant Systems Ltd. Sasken Communications Technologies Ltd ITEs: Ascentia Technologies Ltd Acropetal Technologies(Seg.Engineering design) Jeevan Scientific Technologies Ltd(Seg.) iGate Global Soltions Ltd Mindtree Ltd It has been submitted that Ground no. 16, the comparables were not detailed for exclusion of SWD and ITES segment. The assessee has therefore filed additional ground seeking exclusion of specific comparables on functional dissimilarities under both the segments. We note that this Tribunal in case of LG Soft India (p.) Ltd.,(supra) observed and held as under: 16. Now we shall take up the appeal of the assessee. The assessee in ground No.13 seeks exclusion of 3 companies viz., Persistent Systems & Solutions Ltd., Sasken Communication Technologies Ltd. and Persistent Systems Ltd. Exclusion of these 3 companies was considered by the Tribunal in the case of Electronics for Imaging (I) Pvt. Ltd. (supra). In para 8 of the order, this Tribunal held that Persistent Systems & Solutions Ltd. was a company engaged in SWD services and products with no segmental details and excluded it. Similarly, Persistent Systems Ltd. was also excluded on the ground that it was engaged in diverse Page 29 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 activities with no segmental break-up. As far as Sasken Communication Technologies Ltd. is concerned, this Tribunal in the case of Symantech Software & Services (I) Pvt. Ltd. (supra) has excluded this company on the ground of functional IT(TP)A Nos.52 & 97/Bang/2016 dissimilarity viz., dealing with multimedia products and R&D activities with no break-up of segmental information. 17. Following the aforesaid decisions, we direct exclusion of the aforesaid 3 comparable companies. The TPO is directed to compute the ALP of the international transaction in accordance with the directions given above in this order, after affording Assessee opportunity of being heard. Revenue has not been able to place on record any distinguishing feature in respect of these comparables. Therefore respectfully following the above view, above comparables under SWD segment are upheld to be excluded from final list. We also note that M/s.TRX Technologies India Pvt. Ltd in IT(TP)A No. 487/Bang/2016 for assessment year 2011-12 by order dated 25/09/2020 had considered Ascentia Technologies Ltd., Acropetal Technologies Ltd.,(Seg.Engineering design), Jeevan Scientific Technology Ltd. and iGate Global solutions Ltd. under ITES Segment as follows: 10. We have heard both the parties and perused the material on record. In the TP Study, the assessee has selected 3 comparables i.e. M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited and M/s. Mindtree Limited (Seg.). In appeal before us, assessee contents (through additional grounds) that the above comparables are to be excluded, because these comparables were included on inappropriate appreciation of facts during the TP Study. The co- ordinate Bench of Bangalore Tribunal in case of Aspect Technology Centre (India) Pvt. Ltd. (supra) and in the case of M/s. Swiss Re Shared Services India Pvt. Ltd. Vs. ACIT reported in 76 taxmann.com 22 had directed to exclude M/s. Acropetal Technologies Ltd. and Accentia Technologies Limited from the list of comparables as these companies were functionally different from ITES segment. Further, in light of jurisdictional Tribunal order in case of ITO Vs. Maxim India Integrated Circuits Design Pvt. Ltd. in ITA No.28/Bang/2012 dt.13.03.2016, M/s. Mindtree Limited does not pass the turnover filter of Rs.1 to 200 Crores as well as 10 times multiple. Page 30 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 12. The assessee is contending to exclude from the list of comparables M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited, ICRA Online Ltd. and Jeevan Scientific Technology Limited. In similar circumstances and for the same assessment year, the jurisdictional Tribunal in the case of Aspect Technology Centre (India) Pvt. Ltd. Vs. ITO (supra) has held that the above companies are functionally dissimilar and cannot be taken as a comparable. The relevant finding of the Tribunal in the case of Aspect Technology Centre (India) Pvt. Ltd. Vs. ;ITO (supra) reads as follows : " 41. We have heard the rival submissions of the parties. As far as Gr.No.14 of the revenue's appeal is concerned, the Revenue is seeking the inclusion of Acropetal Technologies Ltd., Jeevan Scientific Technology Ltd., Accentia Technologies Ltd., iGate Global Solutions Ltd. and ICRA Online Ltd. We find that the above companies were rightly rejected by the DRP and the same requires no interference from this Hon'ble Tribunal. We find that Acropetal Technologies Ltd., is engaged in the business of software development and services, contract centre service and IT enabled services and the same are reported together as one segment. In the absence of segmental details made available, the company could not be treated as a comparable. The TPO, while choosing the company as a comparable, has selected its Engineering Design Segment ('EDS' for short) which is in the nature of high end IT enabled services which are in the nature of Knowledge Process IT(TP)A No.487/Bang/2016 outsourcing ("KPO"). The high end services provided by the company cannot be compared with the routine services provided by the Assessee. This Is a settled position and reliance can be placed on the decision of this Hon'ble Tribunal's in the case of Symphony Marketing Solutions India Pvt. Ltd.(ITA No. 1316/Bang/2012) where it was held that Acropetal cannot be considered as a comparable to assessees performing routine low end IT enabled services function. As far as exclusion of company Jeevan Scientific Technology Ltd., we find that this company was rejected by the DRP for the reason that it was engaged in diverse functions and the same were reported under one segment without segmental details regarding the same being made available. The DRP is right in excluding the company as without segmental details, the comparability of the company cannot be determined. In any event, the ERP segment of the company is not comparable to the assessee, the BPO segment of the company fails the filter of service income being greater than 75% of total revenue, and the company suffers from huge fluctuations which indicate that certain peculiar circumstances influencing the profit margin of the company exist, for which appropriate adjustments cannot be made to balance the effect. It is submitted that the ERP implementation services are not in the nature of IT enabled Page 31 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 services which were notified by CBDT vide Notification No. SO 890(E) dated 26.09.2000. If the BPO segment is considered, the company fails to satisfy the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BPO segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee. This Tribunal in the case of Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016) directed the TPO to verify as to whether the TPO's filter of Sales > 1 Crore is satisfied by this company. In the present case, as can be seen from the annual report of the company the sale of the company in respect of the BPO segment amounts to only 79 lakhs, and therefore it fails the TPO's filter. As far as exclusion of Accentia Technologies Ltd., is concerned, we find that this company was excluded by the DRP for the reason that the details regarding its diverse functions were reported under one segment, without segmental details regarding the same being made available. In the absence of segmental details being made available, the comparability of the company with that of the assessee cannot be determined. In any event, Accentia is engaged in providing high end services in the nature of Knowledge Process Outsourcing ('KPO') which is evident from its annual report, whereas, the assessee is engaged in rendering routine low end information technology enabled services. Further, the said company not only does medical transcriptions, but has also ventured into healthcare receivables cycle management and high end consultancy to start-ups requiring field experts. As can be seen from the annual report, coding income is contributing 15% of the total income which activities are akin to software development activity while the assessee is a mere provider of IT enabled services. The company has invested huge sums in the development of EMR software. Segmental details of its various activities are unavailable. The company further owns significant intangibles. This Tribunal in the case of Swiss Re Shared India Pvt. Ltd. v. ACIT [TS-598- ITAT-2016(Bang)-TP at paras 9-20 on pages 7-21] where, in similar circumstances and for the same assessment year, this Hon'ble Tribunal directed the exclusion of this company from the list of comparables. Accentia Technologies Ltd. is, therefore, not comparable to the Assessee and was rightly rejected as a comparable. As far as iGate Global Solutions Ltd., is concerned, DRP rejected this company as comparable company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. It is seen that iGate is engaged in provision of varied services and no segmental breakup of the same is available IT(TP)A No.487/Bang/2016 in its Annual Page 32 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Report. Further, the company's' software services segment is clubbed with its ITES segment and there is no breakup between the revenues generated from the two segments. During the year under consideration, the company has acquired majority equity interest in Patni Computer Systems Ltd. rendering it incomparable due to it failing the TPO's own filter of having peculiar economic circumstances. In addition, the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 2010- 11. For the reasons above, the company is not comparable to the Assessee and the DRP's findings on exclusion of iGate is right in law. As far as the company ICRA Online Ltd., is concerned, the DRP excluded this company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. In any event, this company is functionally dissimilar for the reason that the outsourced services segment of the company is engaged in the provision of high end consultancy services which cannot be compared to the assessee who is into provision of low end IT enabled services which are routine in nature. Further, the company fails the TPO's own filter of export turnover in excess of 75% of total sales as the export turnover of the company amount to only 61.88% of its sales. Therefore, the company cannot be held as a comparable to the assessee." On perusal of the decision by Coordinate Bench, we note that assessee therein was a performing BPO services like assessee. Revenue has not been able to place on record any distinguishing feature in respect of these comparables. Therefore respectfully following the above view, all above comparables under ITeS are upheld to be excluded from final list. Assessee is also seeking inclusion of LGS Global Ltd. and Mindtree Ltd. that formed part of TP Study, however it was rejected by the Ld.TPO. It is the submission of the Ld.AR that these companies are functionally similar. We note that there is no observation by the Ld.TPO regarding any functional dissimilarity. We therefore direct the Ld.TPO to verify the same in accordance with law. Page 33 of 33 IT(TP)A Nos. 445 & 608/Bang/2016 Accordingly this additional ground raised by assessee stands allowed for statistical purposes. Ground no.11 is in respect of TDS credit not granted to assessee. We direct the Ld.AO to grant the TDS credit on verification in accordance with law. Accordingly, this ground raised by assessee stands allowed for statistical purposes. Ground no. 12 is consequential in nature and ground no. 13 is premature and accordingly, these grounds need not be adjudicated at this stage. In the result, the appeal filed by assessee stands allowed as indicated above and the appeal filed by revenue stands dismissed. Order pronounced in the open court on 02 nd February, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 02 nd February, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore