Open Solutions Software Services Pvt. Ltd., New Delhi V. Addl. CIT, Special Range- 7, C.R. Building , New Delhi

MA 277/DEL/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0554 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 04-08-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 03-12-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 92D; 250; 254(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘FRIDAY- I-2’, NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. KUL BHARAT, JUDICIAL MEMBER MA Nos. 250 & 277/Del/2020 (Arising out of ITA No.6692/Del/2018) (for Assessment Year 2014-15) Open Solutions Software Services Pvt. Ltd. 30, Annexe Building, First Floor, Nizamuddin East New Delhi PAN No. AAACO 7542 G Vs. ACIT Special Range-7 New Delhi (APPELLANT) (RESPONDENT) Assessee by Shri Sachit Jolly, Adv. Revenue by Shri Sanjay Kumar, Sr. D.R. Date of hearing: 05.08.2022 Date of Pronouncement: 18.10.2022 PER ANIL CHATURVEDI, AM : The present Miscellaneous Applications (MA) are filed by the assessee in respect of the order of Tribunal dated 29.09.2020 in ITA No.6692/Del/2018 for A.Y. 2014-15. 2. Before us, at the outset, Learned AR submitted that MA No.277/Del/2020 be treated as withdrawn by the assessee since same MA is numbered as MA No.250/Del/2020. In view of the aforesaid submission of Learned AR, MA No.277/Del/2020 is dismissed as withdrawn. Page 2 of 10 3. Before us, Learned AR submitted that in the appeal filed by the assessee one of the ground i.e. ground no.10 was raised on account of erroneous inclusion of few companies as comparable by the TPO for benchmarking the international transactions entered by the assessee which were further approved by the DRP. 4. He submitted that during the course of hearing, before the Tribunal, the Learned AR had submitted that AO/TPO/DRP have erred in selecting Persistent Systems Ltd. and Sasken Communication Technologies Ltd. as comparable companies. It was his contention that during the course of hearing, it was pointed out before the Hon’ble Tribunal that the said Companies are not comparable and for which apart from the other contentions, support was also drawn from the audited financial statements of those companies. He submitted that certain inadvertent errors have crept in order of the Tribunal in respect of Persistent Systems Ltd. and Sasken Communication Technologies Ltd. 5. With respect to the Persistent Systems Ltd., Learned AR pointed to para 12 of the order which is the finding of Hon’ble ITAT. He submitted that at Para 12 of the order, the Hon’ble ITAT had relied on the order of the Co-ordinate Bench of Tribunal in assessee’s own case for A.Y. 2010-11 and had noted that in A.Y. 2010-11 Persistent Systems Ltd. was engaged in software services and products and there was no segmental information. He submitted that the Tribunal also noted that the DR could not show any reason that FAR of the assessee in A.Y. 2010-11 was different in the year under consideration and therefore directed the AO/TPO to exclude Persistent Systems from the set comparable companies. He submitted Page 3 of 10 that however in para 21 of the order, by referring to the reasoning given in para 13 to 20, the Hon’ble Tribunal has recorded completely contrary findings and upheld the inclusion of Persistent Systems Ltd. as a comparable company. He therefore submitted that Para 12 & 21 being diametrically opposite cannot co-exist. 6. With respect to the inclusion of Sasken Communication Technologies Ltd. as comparable, he submitted that in Para 23 of the order the Tribunal had noted the contention of the assessee that the margin of Sasken Technologies Ltd. in the show-cause notice issued by the TPO was different from the margin finally included in the TPO’s order and also that Sasken Technologies Ltd. has been excluded in the case of Saxo India on identical facts. He thereafter submitted that however in para 25 of the order, the Hon’ble Tribunal has stated that the only objection of the assessee was that Sasken Technologies Ltd. had different margin noted by the TPO and shown in the show-cause notice. He submitted that ITAT had not returned any findings on the second aspect i.e., that Sasken has been excluded as a comparable company in the case of Saxo India on identical facts. He submitted that non-adjudication of the said issue constitutes as error apparent on the face of the record and the order may be recalled back and rectified to the extent of the mistake as pointed in the Misc. Application. 7. Learned DR pointed to the findings of the Tribunal from para 15 to 25 and submitted that the Hon’ble Tribunal after considering the submissions of both the parties has decided the issue. He submitted that there is no apparent error as contemplated u/s 254(2) of the Act in the order of ITAT and assessee is seeking a review of the order Page 4 of 10 which is not permissible under the provisions of the Act therefore, the MA of the assessee be dismissed. 8. We have heard the rival submissions and perused the material on record. According to the assessee, there are certain errors in the order of Tribunal which needs rectification. It is the submission of the assessee that with respect to the findings of the inclusion of Persistent Systems as a comparable company, Para 12 & 21 are contradictory. For the sake of completeness, we reproduce herein the relevant para: “12. We have carefully considered the rival contentions with respect to the above comparable and find that the orders of the coordinate bench in ITA No. 7078/Del/2014 for AY 2010-11 vide para No. 8 has excluded the Persistent Systems Pvt. Ltd from the comparable analysis. In that order it was held that Persistent Systems as software services and products in its income segment, however, there is no segmental information available. The ld DR could not show us any reason that FAR of the assessee for AY 2010-11 is different in this year. Therefore, respectfully following the decision of the coordinate bench in assessee’s own case we direct the ld TPO/AO to exclude the Persistent Systems Ltd. from the comparable analysis. “8. Before us the Ld, Counsel submitted that Persistent Systems Ltd. (PSL) is functionally dissimilar from the assessee, because this company is not only into software development services but also into software products like, Wave Relay (R), Android Kit, Integration Board Gen4, Quad Radio Router, Tracking Antenna System, Management Tools, Cloud Relay, Firefighting Kit etc. Moreover no segmental details are available in the annual report of the said company for both the activities. Apart from that the 1TA 7078/Del/2014 A. Y. 2010-11 M/s Open Solutions Sendees Pvt. Ltd. domestic sales of this company is Rs.30.4 crores as compared to 'nil' of the assessee and. commission paid to agents on sales is at Rs.3.31 crores, which indicates or demonstrate that, this company has substantial income from sales. Further in the case of group company of the assessee which is in the same line of business, i.e., Fiserve India in ITA 6737/Del/2014 the Page 5 of 10 Tribunal has excluded this comparable and such an order of the Tribunal has now been confirmed by the Hon'hle Delhi High Court vide judgment dated 07.10.2016 in ITA 602/2016. Further in another group company's case, ie. Cash Edge India Pvt. Ltd. (order dt. 23.09.2015 in ITA 64/Del/15) for the A.Y. 2010-11 again this company was held to be incomparable. This judgement of the Tribunal too has been confirmed by Hon'ble High Court vide order in ITA 279/2015. 8.1 On the other hand the Ld. D.R. drew our attention to functional analysis of PSL pointing out that in the course of its software development functions it gets into product development segment also. Here in case of assessee also once the concept of the product is determined, then A.E. contracts with the assessee to execute the design and software development products on a module/part of the final product. Thus, to say that during the course of its providing software development services there is no element of product would not be a correct 'statement. The overall functions performed by the PSL is exactly the same and there is no trading by the said company. This company is also into outsource software product development. Hence, this comparable company has rightly been included by the TPO.” 13. The Ld AR submitted before us that the identical facts extend in this year also. He referred to page No. 636 of the Paper Book which shows that the Persistent Systems Ltd has a product; he also referred to page No. 644 of the Paper Book which is report of the directors wherein, the business profile showed that company is specialized in building computer software products. He further referred to page No. 704 of the paper book which is the business responsibility report of Persistent Systems Ltd. At SI No. 8 he submitted that the company is engaged in outsourced software product development and IT Products. Therefore, he submitted that this issue is squarely covered in favour of the assessee. 14. The learned departmental representative vehemently supported the order of the learned TPO and direction of the learned dispute resolution panel with respect to this comparable. 15. We have carefully considered the rival contentions and found that Page No. 636, 646 and 704 referred to by the Ld AR are belonging to the consolidated financial statement of Persistent Page 6 of 10 Systems Ltd which has not at all were used by the ld TPO for comparable analysis. In fact the TPO has used Persistent Systems Ltd on standalone basis as comparable. It clearly shows that the revenue from operation at page No. 778 and further corresponding note No. 21 at page No. 798 clearly show that revenue is only derived from sale of software services. Therefore, it is apparent that there is no sale of any product in this year. Therefore, the finding of the coordinate bench in assessment year 2010-11 that income stream of the company is software services and product is not applicable in the current year. As there is no product sale but only services there is only one segment hence, there is no requirement of any segmental information, as held by the coordinate bench for that year. Further, with respect to the commission paid which is also referred to page No. 799 under Note No. 24 read with Note No. 30 clearly shows that it is also paid to a related party and with respect to sales only. Therefore, there is no reference to any commission on sale of product. The reference made by the ld AR at page No. 636 of Accelerite Products with related to Santa Clara, California relates to US subsidiary Persistent Systems incorporated. Page No. 644 is an overview business of the Persistent Systems Ltd including its subsidiary and not of Persistent Systems only. Page NO. 704 is also related to the consolidated financial statements. Hence, these are not related to the comparability analysis hence rejected. Therefore, for this year we are not inclined to note that persistent Systems Ltd is functionally not comparable to the assessee. Therefore, the coordinate bench in assessee's own case for assessment year 2010 - 11 excluded this company on altogether different facts, for this year we have noted the facts on the standalone financial statements of persistent Systems Ltd which does not support its exclusion. 16. Ld DRP has considered this issue at page No. 5 and 6 of its direction. The finding of the ld DRP is as under: - ........... 17. The learned dispute resolution panel has clearly given the reasons why it is held that the above comparable is a good comparable. None of the arguments were advanced before us to show that the finding of the learned dispute resolution panel in its direction is incorrect/erroneous. 18. Assessee has also relied upon the decision of the honourable coordinate bench in case of Saxo India private limited in ITA number 6148/del/2015 for assessment year 2011 - 12 dated 5 Page 7 of 10 February 2016 wherein the persistent Systems Ltd is dealt with at para number 14 and it has been directed to be excluded from the comparability analysis in case of that company. The order of the coordinate bench when challenged by the revenue has been upheld before the honourable High Court as per order dated 28 September 2016 in ITA number 682/2016. No doubt, for the comparability analysis in case of that assessee, persistent Systems Ltd was held to be not a good comparable and therefore same was excluded. 19. On comparing the functions of the assessee in that case we note that it was engaged in the business of design and development of customized software application and was also providing technical support services. The assessee is engaged in providing software development research and related services to its associated enterprises. From the above observation of the coordinate bench in that case as well as the functional profile of the assessee available before us, we do not find any similarity. Further the issue was decided in ITA number 6148/del/2015 for assessment year 2011 - 12, we do not have any financial statements are available of assessee in that case or of persistent Systems Ltd for that financial year i.e. 2010 - 11. 20. Further, the comparability analysis is always required to be decided on the basis of the functions performed by the assessee, assets employed by the assessee to perform those functions and risk assumed by the assessee for those functions which is resulted into the revenue/profitability of the appellant. To test such revenue/profitability of the assessee, the comparability has to be tested of another entity that entered into uncontrolled transaction performing similar functions, employing similar assets and also assuming similar risk. Therefore, irrespective of the judicial precedent which is held that comparable X is not comparable with Y assessee, is not at all comparable with all other assessees for the reason that it was held to be not comparable with assessee Y. If that is presumed to be the law, then all the requirement of maintaining information and documents to be kept in maintain u/s 92D with respect to the international transaction is futile. Then for the comparability analysis, only the judicial precedents where the comparable having the higher margin is excluded is required to be maintained for its exclusion. That is not the mandate of the law. The mandate of the law clearly provides that FAR should be compared for this reason also we reject the reliance placed by the assessee on other judicial precedents, as there was no comparability made of the functional profiles of the assessee with Page 8 of 10 the assessee in whose case such comparables are held to be excluded or included. 21. In view of the above facts, we do not find any infirmity in the order of the learned transfer pricing officer as well as the direction of the learned that DRP in holding that persistent Systems Ltd is a good comparable. Therefore, we reject the argument for its exclusion. 9. Thus we find force in the submission of Learned AR that the findings of the Tribunal in para 12 and 21 are contradictory to each other. We, therefore, recall the ITAT order in ITA No.6692/Del/2018 dated 29.09.2020 for a limited extent to decide on the issue of comparability of Persistent Systems Ltd. as a comparable company with that of assessee. 10. As far as the issue of comparability of Sasken Technologies Ltd. as a comparable company is concerned, the relevant observation of the Tribunal are as under: 23. The third comparables is with respect to Sasken Communication Technology Ltd. the learned authorised representative referred to para No. 7 of the order of the ld TPO stating that the Sasken Communication and Technology Ltd was taken as comparable by the ld TPO further the margin of the same were 7.28%. He submitted that however when the IT segment services were computed at Sl. NO. 11 at Page No. 52 the margin of this company taken at 33.20%. He further submitted that in the decision of coordinate bench in case of another assessee Saxo India, the coordinate bench has deleted, excluded the above comparable company and therefore it should also be excluded in case of the assessee. 24. The learned DR submitted that assessee has not objected this comparable company before the learned DRP and therefore there is no direction of the learned dispute resolution panel with respect to above comparable. 25. We have carefully considered the rival contention and find that only objection of the assessee is that above comparable company Page 9 of 10 has different margin shown in the show cause notice and order of the TPO. In the show was notice at page number four of the order the margins of this comparable was shown to be 7.28% whereas in the TP order as well as the effect order passed by the TPO on direction of the learned dispute resolution panel the margin of this comparable were taken at 33.2%. There is no justification or reasons were found in the TP order for change in the margins and the basis of such changes. Therefore, we set aside this comparable to the file of the learned transfer pricing officer to show assessee how he has changed the above margin and on what basis the margins have gone up to 33.2% from 7.28%.” 11. We find that vide para 25 of the order, the matter was set aside to TPO to show as to how he has charged the margin and on what basis the margins have gone up to 33.2% from 7.28%. Since the matter has been restored to TPO, we, considering the submissions of Learned AR, direct the TPO to also consider the submissions of the assessee regarding the comparability of Sasken Technologies Ltd. to that of assessee in the light of the decision in the case of Sexo India, cited by Learned AR to decide the issue of its comparability. 12. In the result, the MA No.277/Del/2020 of the assessee is dismissed and MA No.250/Del/2020 is disposed off in the terms indicated above. Order pronounced in the open court on 18.10.2022 Sd/- Sd/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 18.10.2022 PY* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI