M/s. Mindteck (India) Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle-4(1)(1), Bangalore

MA 47/BANG/2023

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The case involves M/s. Mindteck (India) Limited seeking rectification of an earlier Tribunal order concerning transfer pricing adjustments for the assessment year 2017-18. The Tribunal had previously dismissed certain grounds as not pressed and did not address others, leading to the filing of this miscellaneous petition. The Tribunal reviewed the log books and records of the previous hearings and found that many of the grounds were indeed not argued or were not permissible to be reargued. However, some issues regarding the comparability of certain companies for transfer pricing purposes were remitted back for fresh evaluation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129989 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 08-06-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 28-02-2023
• Other Referred Cases: Yahoo Software Development India P. Ltd. v JCIT [(2020) 115 taxmann.com 60 (Bangalore \\u2013 Trib.) \\u2013 Para 41-42 of the order]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Transfer pricing; International transaction
• Section: 254(2)

Judgement Text

MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P No.47/Bang/2023 (In IT(TP)A No.211/Bang/2022) Assessment year: 2017-18 M/s Mindteck (India) Ltd., M/s AMR Tech Park, Block-1, 3 rd Floor, #664, 23/24, Hosur Main Road, Bommanahalli, Bangalore-560 068. PAN – AAACH1072Q Vs. The Dy. Commissioner of Income Tax, Circle-4(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Padam Chand Khincha, A.R. Respondent by : Shri Sankar Ganesh K., D.R. Date of hearing : 09.06.2023 Date of Pronouncement : 12.06.2023 O R D E R Per Chandra Poojari, Accountant Member: By this Miscellaneous Petition assessee seeks rectification of the Tribunal order in IT(TP)No.211/Bang/2022 vide order dated 30/11/2022. MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 2 of 10 2. The ld.AR submitted that the assessee raised ground No.4 in original ground and ground No.2 in concise ground as follows: Ground No.4 (In original Ground) Concise Ground No.2 “The ld. TPO erred in not relying upon the segmental profit and loss account.” 2.1 According to the ld.AR, the assessee raised this ground before this Tribunal as above, which are dismissed by the Tribunal in para 4 at page no.7 and held as under:- “4. Ground Nos.2, 2.1 & 2.2 are not pressed before us. Accordingly, these grounds of appeal are dismissed as not pressed” 2.2 The ld.AR submitted that these grounds were argued before this Tribunal, however, Tribunal failed to give any finding on this ground. 3. We have heard the rival submissions and perused the materials available on record. We have gone through the log book maintained by both the Members and both the Members recorded in their respective log books that ‘these grounds were not pressed’ and also made a marking in the grounds of appeal in the appeal file that ‘these grounds are not pressed’. Now the assessee’s counsel wants to reargue these grounds though on earlier occasion these grounds were not argued before this Tribunal, which cannot be permitted. As such, the Tribunal has not committed any error in dismissing these grounds as not pressed. 3.1 Accordingly, this issue in miscellaneous petition is dismissed. 4. Next ground in miscellaneous petition is that in the original ground No.8.3(c) and (e), the assessee sought for exclusion of Tata Elxsi and Mind Tree Ltd., from the final set of comparable MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 3 of 10 companies on the basis of turnover filter exceeding more than Rs.200 crores. However, the Tribunal failed to adjudicate these issues. 4.1 We have heard the rival submissions and perused the materials available on record. The assessee raised concise ground in Software Development Segment in ground is 3.1, which reads as follows:- “3.1 The learned TPO/Hon’ble DRP erred in including the following companies, even though they fail the higher threshold limit of INR 200 crores for turnover filter: a) Infosys Ltd. b) Larsen & Toubro Infotech Ltd. c) Persistent Systems Ltd. d) Aspire Systems (India) Pvt. Ltd. e) Thirdware Solution Ltd. f) Cybage Software Pvt. Ltd. g) Nihilent Ltd. h) R Systems International Limited i) Tech Mahindra Lmited” 4.2 In the appeal, if the assessee once filed concise grounds in the place of original grounds, original ground replaces by concise grounds. 4.3 In the above comparables, we do not find Tata Elxsi and Mind Tree Ltd., and as such, there is no question of adjudicating these 2 comparables on the basis of turnover filter exceeding more than Rs.200 corers. MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 4 of 10 4.4 Now the assessee cannot seek to adjudicate the original ground raised before us. Hence, this issue in this miscellaneous petition is dismissed. 5. Next argument of the ld.AR is that the assessee sought exclusion of Mind Tree Ltd. in ground No.8.4(b) in the original ground, whereas the Tribunal failed to adjudicate the same. 6. We have heard the rival submissions and perused the materials available on record. The assessee has raised ground No.3.2 as concise ground in the place of original ground in ground No.8.4, which is as under:- “3.2 The Learned TPO/Hon’ble DRP erred in including the following companies, even though they are not functionally comparable to the appellant: a) Great Software Laboratory Pvt. Ltd. b) Mindtree Ltd. c) Persistent Systems Ltd. d) Aptus Software Labs Pvt. Ltd. e) Consilient Technologies Pvt. Ltd f) L&T Infotech Ltd.” 6.1 The Tribunal adjudicated this issue in para No.10 to 12 at page No.17 to 20 of its order, which is as under:- “(b) Mind Tree Ltd. 10. The Ld. A.R. submitted that this company is functionally different on the following reasons: 10.1 He referred page 14 of the annual report of the company, wherein the key products/services of the company are highlighted, the extract of which is as follows: List three key products/services that the Company manufactures/provides (as in balance sheet) Digital: Cloud, Data Analytics. The other services include Application Development & MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 5 of 10 Maintenance, Infrastructure Management, EAI, R&D, Testing, Consulting, Salesforce and SAP. 10.2 Further, he referred page 115 of the annual report, wherein the overview of the company is highlighted, the relevant extract of which is as follows: The Company offers services in the areas of agile, analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, digital business, independent testing, infrastructure management services, mobility, product engineering and SAP services. 10.3 He further referred an extract from page 93 of the Annual report which shows the revenue spread from various services that the company offers 10.4 As it may be observed, the ld. AR submitted that Mindtree has income from various business lines apart from software development. These functions are not performed by the assessee. Software development constitute only 22% of the revenue whereas the balance 78% relate to those functions that are not comparable to the assessee. 10.5 The above submissions were made before the TPO by the ld AR in response to the show cause notice and the same is available at page 541-542 of the paperbook. 10.6 Further, this company was held to be not a comparable company to the case of a software development services provider in Yahoo Software Development India P. Ltd. v JCIT [(2020) 115 taxmann.com 60 (Bangalore – Trib.) – Para 41-42 of the order]. In view of the above, the ld AR for the assessee requested for exclusion of Mindtree from the final set of comparable companies. Incidentally, the turnover of this company is more than Rs. 200 crores. 11. The Ld. D.R. submitted that on perusal of the annual report of this company by the Ld. DRP, he noted that this company is engaged in rendering of software development services in different verticals and comparable to the assessee. As seen from the annual report of this company (refer page 115), it is engaged in international information technology consulting and implementation delivering business solutions through global software development. Further, as per Note 3.12 of the annual report, the company's earnings in foreign currency from software development services was Rs.42.73 millions. As per the Note on MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 6 of 10 Revenue Recognition, it has stated the principles adopted in recognizing revenue from software development services. Thus, the Ld. DRP stated that it is evident that the company is engaged in software development services and functionally comparable to the assessee. Further, it was noted that the IP led revenue constituted meagre 1% of the consolidated revenue of the company for the F.Y. 2016-17, 1% for the F.Y. 2015-16 & 2% for F.Y. 2014-15 (He referred page 93 of the annual report). Considering these information in the annual report, Ld. DRP noted that this company is predominantly (i.e., 99%) engaged in software development activity IT(TP)A No.211/Bang/2022 M/s. Mindteck (India) Limited, Bangalore Page 20 of 53 and is functionally comparable to the assessee. Having considered the submissions of the assessee, the Ld. DRP noted that M/s Mindtree Ltd has acquired 3 companies Bluefin Sol, Relational Sol and Magnet 360 LLC all of which provide software development services. Thus, he concluded that this acquisition will not have any effect on the comparability of M/s Mindtree Ltd. Against this assessee is in appeal before us. 12. We have heard the rival submissions and perused the materials available on record. The Ld. A.R. furnished the details of functionality before us. These facts are not at all commented by the AO/TPO or by Ld. DRP. Hence, the issue is remitted back to the file of AO/TPO for fresh consideration in the light of above functionality of Mind Tree Ltd. company.” 6.2 As seen from the above, the Tribunal fairly considered the argument of the assessee’s counsel and remitted the above issue raised in ground No.3.2 to the file of AO for fresh consideration. Hence, it cannot be said that there is any mistake apparent on record on this issue so as to rectify the same. Accordingly, this argument of the ld. A.R. is dismissed. 7. The next argument of the ld.AR is that the assessee raised additional ground in ground No.1(a) and (b) with regard to exclusion of Infobeans Technologies and OFS Technologies Ltd., on the basis of its functional dissimilarity. MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 7 of 10 7.1 We have heard the rival submissions and perused the materials available on record. The Tribunal recorded this issue in para 40 and 40.1 as follows:- “40. In the last additional ground the assessee wants exclusion of following companies as being functionally different in software development: a) Infobeans Technologies Ltd. b) OFS Technologies Ltd. c) Cygnet Infotech Pvt. Ltd. 40.1 After hearing both the parties, we are of the opinion that the AO/TPO have no occasion to examine these comparables. Hence, in the interest of justice, we remit these 3 comparables to the file of AO/TPO for fresh consideration so as to conduct TP study on these comparables and decide accordingly.” 7.2 As seen from the above, the Tribunal considered this issue and remitted these two comparables to the file of the AO/TPO for fresh consideration. The assessee wanted to reargue the case, which is not permissible u/s 254(2) of the Act. Accordingly, this argument of the assessee is rejected. 7.3 The ld. A.R. submitted that the Tribunal has not adjudicated the additional ground of appeal in ground Nos.1(e) and 1(f) filed on 27.10.2022 with regard to Kumaran Systems Pvt. Ltd. and Synerzip India Pvt. Ltd. 8. We have heard the rival submissions and perused the materials available on record. The assessee has raised ground No.1 in additional ground of appeal, which reads as follows:- “38. The assessee wants inclusion of following comparables: a) ACE Software Exports Ltd. b) Sagarsoft India Ltd. c) Issumation Technologies Pvt. Ltd. MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 8 of 10 d) Inteq Software Private Ltd. e) Kumaran Systems Private Ltd. f) Synerzip Softech India Pvt. Ltd.” 8.1 The Tribunal recorded in para 38.1 as under:- “38.1 At the time of hearing, the assessee has pressed only inclusion of following 3 comparables: (a) ACE Software Exports Ltd. (b) Issumation Technologies Pvt. Ltd. (c) Inteq Software Private Ltd.” 8.2 After considering this, the Tribunal at page No.38.2 held as under:- “38.2 After hearing both the parties, we are of the opinion that this issue is appropriate to remit to the file of AO/TPO for fresh consideration as we have no occasion to examine these comparables at the time of passing the order. Hence, this issue is remitted to the file of AO/TPO for fresh consideration.” 9. As seen from the log book, the assessee has not pressed ground No.1 with regard to exclusion of Kumaran Systems Pvt. Ltd. and Synerzip Softech India Pvt. Ltd. while arguing the case on earlier occasion on 21.11.2022. As such, the Tribunal has not considered these two comparables while adjudicating this additional ground. Now the ld. A.R. wanted to reargue this issue, which cannot be permitted under the provisions of section 254(2) of the Act. Accordingly, this argument of ld. A.R. is dismissed. 10. Next argument of the assessee company is that the assessee raised ground No.4.4(d) in revised ground with regard to exclusion of iSN Global Solutions Pvt. Ltd., as it satisfies the export filter. However, this Tribunal given finding in para 31 as under:- MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 9 of 10 “31. We have heard the rival submissions and perused the materials available on record. In this case, the AO/TPO has applied filter that minimum 75% of operating revenue should be from exports. However, this comparable fails this test. Hence, in our opinion, the AO/TPO is justified excluding this company ISN Global Solutions Pvt. Ltd. (ISN Global) from the list of comparables in ITeS segment. Accordingly, rejection of this company in the list of comparables by the Ld. AO/TPO is justified.” 10.1 According to the ld.AR, this comparable passed through export turnover filer and has to be considered as a comparable. 10.2 We have heard the rival submissions and perused the materials available on record. In the interest of justice, the issue regarding to inclusion of iSN Global Solution Pvt. Ltd., as comparable while determining the ALP of international transaction after considering the export turnover filters. 10.3 Accordingly, this issue is remitted to the file of AO/TPO for fresh consideration. 11. The next issue of the ld.AR is that the assessee has raised ground No.4.5 in concise ground as under:- “4.5 The learned TPO/Hon’ble TPO erred in facts and in law:- (a) by modifying the comparable filter of persistent losses filter by excluding companies with operating losses in at least two out of three years as against the filter adopted by the Appellant of excluding companies with operating losses in all the three years. (b) by excluding Cyfuture India Pvt. Ltd. on the basis of the persistent losses filter.” 11.1 However, the Tribunal dismissed this ground as not pressed. MP No.47/Bang/203 M/s. Mindteck (India) Limited Bangalore Page 10 of 10 11.2 We have heard the rival submissions and perused the materials available on record. In this case. We have gone through the log book and both the members have recorded that ground No.4.5 is not pressed as such, this ground is dismissed by the Tribunal. 11.3 Now the assessee wants to reargue the issue, which cannot be permitted u/s 254(2) of the Act. Accordingly, this argument of the assessee is rejected. 12. In the result, the miscellaneous petition filed by the assessee is partly allowed. Sd/- Sd/- (BEENA PILLAI) (CHANDRA POOJARI) Judicial Member Accountant Member Bangalore, Dated, 12 th June, 2023 / vms /VG Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore