M/s. Schneider Electric IT Business India Private Limited (Formerly known as American Power Conversion (India) Private Limited), Bangalore V. Addl.C.I.T., Bangalore

MA 34/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2950 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 05-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 28-07-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURESH RAO
• Section: 133(6); 113; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) Assessment Year : 2008-09 M/s. Schneider Electric IT Business India Pvt. Ltd., [formerly known as American Power Conversion (India) Pvt. Ltd.] 187/3 & 188/3, Jigani, Bangalore – 562 106. PAN: AACCA6398Q Vs. The Additional Commissioner of Income Tax, LTU, Bangalore. APPELLANT RESPONDENT Assessee by : Shri Ketan Ved, CA Revenue by : Shri Suresh Rao, Addl. CIT DR Date of Hearing : 29-07-2022 Date of Pronouncement : 06-09-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present miscellaneous petition is filed by assessee seeking certain typographic issues and non-adjudication of two comparables alleged by assessee in order dated 28/02/2022. 2. The Ld.AR submitted that assessee had raised Ground no. 1.2.10 seeking exclusion of comparables wherein two comparables being Quintegra Solutions Ltd. and Softsol India Ltd. along with other comparables, that were inadvertently Page 2 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) missed to be adjudicated. He submitted that the list of comparables sought for exclusion has been reproduced by this Tribunal in para 8.1 in the impugned order. Thereafter in the following paragraph the Tribunal has referred to the below decisions.  Assessee's own case in Schneider Electric IT Business India (P.) Ltd. v. Dy.CIT reported in (2019) 109 taxmann.com 187,  Schneider Electric IT Business India (P.) Ltd. vs. JCIT reported in (2019) 106 taxmann.com 70 and  Schneider Electric IT Business India (P.) Ltd. v. ACIT(LTU) reported in (2020) 113 taxmann.com 215, wherein these comparables stood excluded. The Ld.AR submitted that the decision of this Tribunal in case of Infinera India (P.) Ltd. vs. ITO reported in (2016) 72 taxmann.com 68. 3. We note that all these comparables have been held functionally not comparable with assessee in assessee’s own case for A.Y. 2007-08 as has been recorded in para 8.2. On perusal of the record, we observe that this submission of the assessee are correct and that this Tribunal while passing the impugned order has not adjudicated the above two alleged comparables. The Ld.DR did not object for the same to be adjudicated herein. 4. We accordingly consider the two comparables as under. Following paragraphs shall be read after the paragraph wherein Thirdware Solutions Ltd. has been adjudicated at page 33 of the order passed by this Tribunal. Page 3 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) “This Tribunal in the case of Infineon Technologies India (P.) Ltd. v. ACIT, reported in (2016) 71 taxmann.com 139 considered these comparables under similar FAR like that of present assessee for assessment year AY 2008-09. In the aforesaid decision the issue raised was against including these companies as comparable companies. The plea of the Assessee was that the aforesaid five companies are not functionally comparable with the Assessee who was engaged in the business of providing SWD services to AE. It is also not in dispute before us that the functional profile of the Assessee in this appeal and the Assessee in the decision rendered in the case of Infineon Technologies India (P.) Ltd (supra) are identical. In the case of Infineon Technologies India (P.) Ltd., (supra) this Tribunal held these companies are not functionally comparable with a company rendering captive SWD services. The Ld. DR could not point out any difference in facts. Hence, we hold these companies be excluded from the list of comparable companies as functionally not comparable Page 4 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) with the Assessee company. The Ld. DR could not point out any difference in facts. We note that these comparables were excluded by this Tribunal in Infineon Technologies India (P.) Ltd(supra) by observing as under: 18. Quintegra Solutions Ltd. 18.1 This case was selected by the TPO as a comparable. Before the TPO, the assessee objected to the inclusion of this company in the set of comparables on the ground that this company is functionally different and also that there were peculiar economic circumstances in the form of acquisitions made during the year. The TPO rejected the assessee's objections holding that this company qualifies all the filters applied by the TPO. On the issue of acquisitions, the TPO rejected the assessee's objections observing that the assessee has not adduced any evidence as to how this event had an any influence on the pricing or the margin earned. 18.1.2 Before us, the assessee objected to the inclusion of this company for the reason that it is functionally different and also that there are other factors for which this company cannot be considered as a comparable. It was submitted that, (i) Quintegra solutions Ltd., the company under consideration, is engaged in product engineering services and not in purely software development services. The Annual Report of this company also states that it is engaged in preparatory software products and is therefore not similar to the assessee in the case on hand. (ii) In its Annual Report, the services rendered by the company are described as under : "Leveraging its proven global model, Quintegra provides a full range of custom IT solutions (such as development, testing, maintenance, SAP, product engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies." Page 5 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) (iii) This company is also engaged in research and development activities which resulted in the creation of Intellectual Proprietary Rights (IPRs) as can be evidenced from the statements made in the Annual Report of the company for the period under consideration, which is as under : "Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company... have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks." (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO's own filter since there have been acquisitions in this case, as is evidenced from the company's Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the submissions made above, it is clear that inter alia, this company i.e. Quintegra Solutions Ltd. being functionally different and possessing its own intangibles/IPRs, it cannot be considered as a comparable to the assessee in the case on hand and therefore ought to be excluded from the list of comparables for the period under consideration. 18.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the set of comparables to the assessee for the period under consideration. 18.3.1 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details brought on record that this company i.e. Quintegra Solutions Ltd. is engaged in product engineering services and is not purely a software development service provider as is the assessee in the case on hand. It is also seen that this company is also engaged in proprietary software products and has substantial R&D activity which has resulted in creation of its IPRs. Having applied for trade mark registration of its products, Page 6 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) it evidences the fact that this company owns intangible assets. The co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010 dt.9.11.2012) has held that if a company possesses or owns intangibles or IPRs, then it cannot be considered as a comparable company to one that does not own intangibles and requires to be omitted form the list of comparables, as in the case on hand. 18.3.2 We also find from the Annual Report of Quintegra Solutions Ltd. that there have been acquisitions made by it in the period under consideration. It is settled principle that where extraordinary events have taken place, which has an effect on the performance of the company, then that company shall be removed from the list of comparables. 18.3.3 Respectfully following the decision of the co- ordinate bench of the Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we direct that this company i.e. Quintegra Solutions Ltd. be excluded from the list of comparables in the case on hand since it is engaged in proprietary software products and owns its own intangibles unlike the assessee in the case on hand who is a software service provider. 19. Softsol IndiaLtd. 19.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable on the grounds that this company is functionally different and dis- similar from it. The TPO rejected the assessee's objections on the ground that as per the company's reply to the notice under section 133(6) of the Act, the company has categorized itself as a pure software developer and therefore included this company as a comparable as the assessee was also a provider of software development services. Before us, in addition to the plea that the company was functionally different, the assessee submitted that this company was excluded from the list of comparables by the order of the co ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No.845/Bang/2011) on the ground that the 'Related Party Transactions (RPT) is in excess of 15%. The learned Authorised Representative submitted that for the current period under consideration, the RPT is 18.3% and therefore this company requires to be omitted from the list of comparables. Page 7 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) 19.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables as this company was a pure software development service provider like the assessee. 19.3 We have heard both parties and perused and carefully considered the material on record. We find that the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 has excluded this company from the set of comparables for the reason that RPT is in excess of 15% following the decision of another bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2011. As the facts for this year are similar and material on record also indicates that RPT is 18.3%, following the afore cited decisions of the co-ordinate benches (supra), we hold that this company is to be omitted from the list of comparables to the assessee in the case on hand.' Following the decision of the co-ordinate bench of this Tribunal in the case of Sonus Networks India (P.) Ltd. (supra) for Assessment Year 2008-09, we direct the Assessing Officer/TPO to exclude the aforesaid 12 companies from the list of comparables to the assessee in the case on hand. Respectfully following the above, in our opinion, these comparables, are not functionally similar with that of assessee, who is a contract service provider, working on a cost plus business model. Accordingly, these comparables are directed to be excluded from the final list.” 5. The next issue alleged by the assessee in the present miscellaneous petition is regarding computation of notional interest on delayed receivables. The Ld.AR at the time of submission, argued that the issue has not been adjudicated. However, on perusal of the impugned order, we note that this Tribunal at pages 38 to 42 have considered this issue at length Page 8 of 8 M.P. No. 34/Bang/2022 (in IT(TP)A No. 1111/Bang/2012) and has been remanded to the Ld.AO to consider the claim afresh in the light of various decisions referred to therein. In our view, this claim of the Ld.AR is rejected. Accordingly, the M.P. filed by the assessee stands partly allowed. In the result, the M.P. filed by the assessee stands partly allowed. Order pronounced in the open court on 06 th September, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 06 th September, 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