Bangalore ITAT Excludes Infosys, L&T Infotech, Persistent from TP Comparables

AMD India Private Limited Vs ACIT (ITAT Bangalore)

The Income Tax Appellate Tribunal (ITAT), Bangalore, considered the appeal filed by AMD India Private Limited against the final assessment order passed under Sections 143(3), 144C(13), 143(3A) and 143(3B) of the Income-tax Act, 1961 for Assessment Year 2018-19. The assessee, a wholly owned subsidiary of AMD Inc., provided software development services and marketing support services to its associated enterprises on a cost-plus basis. The Assessing Officer referred the international transactions to the Transfer Pricing Officer (TPO) for determination of the arm’s length price. The TPO rejected the transfer pricing study, selected fresh comparables, proposed transfer pricing adjustments for the software development segment, marketing support services segment, and notional interest on trade receivables, and the Assessing Officer also disallowed depreciation on goodwill. After directions of the Dispute Resolution Panel (DRP), the final assessment order incorporated transfer pricing adjustments of ₹50.82 crore and disallowance of goodwill depreciation.

The Tribunal recorded that the grounds challenging the legality of the transfer pricing reference and alleging absence of tax evasion motive were not argued and were left open. The ground challenging the fresh transfer pricing analysis in the software development segment was not pressed.

On the related party transaction (RPT) filter, the Tribunal followed its decisions in the assessee’s own cases for Assessment Years 2016-17 and 2017-18. It directed the Assessing Officer/TPO to compute the RPT ratio on an aggregate basis by considering both related party income and related party expenses as a proportion of sales and to apply the RPT filter in accordance with the directions contained in those earlier orders.

Regarding computation of the assessee’s operating margin, the Tribunal held that the DRP had already directed the TPO to treat the adjustment relating to interest-free deposits as non-operating, but the direction had not been implemented. It directed the Assessing Officer/TPO to follow the DRP’s direction. As regards interest on TDS/service tax, the Tribunal upheld the DRP’s treatment after noting that the assessee did not dispute that direction during hearing.

The Tribunal examined the inclusion and exclusion of numerous comparables in the software development services segment. Following earlier decisions in the assessee’s own cases and other cited precedents where applicable, it directed exclusion of Larsen & Toubro Infotech Ltd., Persistent Systems Ltd. and Infosys Ltd. It also directed exclusion of Nihilent Ltd., Infobeans Technologies Ltd., Elveego Circuits Pvt. Ltd., Mindtree Ltd., Acewin Agritek Ltd., Tata Elxsi Ltd. and Wipro Ltd. on the grounds recorded in the order, including functional dissimilarity and other relevant considerations. Cybage Software Pvt. Ltd. and Aptus Software Labs Pvt. Ltd. were remitted to the Assessing Officer/TPO for fresh examination in light of the Tribunal’s observations and cited decisions. Black Pepper Technologies Pvt. Ltd. was not pressed.

The Tribunal also considered other transfer pricing issues raised by the assessee, including computation of margins, cash profit level indicator (Cash PLI), risk adjustment, marketing support services comparables, notional interest on trade receivables, depreciation on goodwill, depreciation relating to GST capitalised on capital assets, and consequential grounds. Wherever applicable, it followed its earlier decisions in the assessee’s own cases or issued directions to the Assessing Officer/TPO for fresh consideration or recomputation in accordance with those decisions and the DRP’s directions. It also directed implementation of the DRP’s direction regarding inclusion of Concept Public Relations India Ltd. in the marketing support services segment where applicable. The grounds relating to levy of interest under Sections 234B and 234D were consequential.

Ultimately, the Tribunal partly allowed the assessee’s appeal and dismissed the stay petition.

Cases Discussed

• PCIT v Novell Software Development India (P.) Ltd. (Karnataka High Court), [2021] 126 taxmann.com 29
• Capco Technologies India P. Ltd., IT(TP)A No.204/Bang/2021
• Wipro HR Services India (P.) Ltd. (Bangalore – Trib.), [2023] 147 taxmann.com 569
• NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru, TS-239-ITAT-2023 Bang-TP
• Sprinklr India Pvt Ltd. vs DCIT, Circle 6(1)(1) Bengaluru, TS-25-ITAT-2023 Bang-TP
• Huawei Technologies India Pvt. Ltd., TS-855-ITAT-2022 Bang-TP
• Yahoo Software Development India Pvt. Ltd., IT(TP)A No.178/Bang/2022
• Etisalat Software Solutions (P.) Ltd. v DCIT (Bangalore – Trib.), [2022] 144 taxmann.com 162
• ANSR Global Corporation (P.) Ltd. vs ACIT (Bangalore – Trib.), [2022] 139 taxmann.com 283
• ADP Pvt. Ltd. Hyderabad vs DCIT-1(1), Hyderabad (Hyderabad – Trib.), [2022] 135 taxmann.com 44
• Autodesk India (P.) Ltd. (Bangalore – Trib.), [2018] 96 taxmann.com 263
• JCIT, LTU (OSD), Circle-1, Bangalore vs M/s. Toyota Kirloskar Motors Private Limited, ITA No.2016/Bang/2018
• CGI Information Systems & Management Consultants (P.) Ltd. v. Asstt. CIT, [2018] 94 taxmann.com 97
• Agilis Information Technologies India (P.) Ltd. v. ACIT, [2018] 89 taxmann.com 440
• CIT v. Agnity India Technologies (Delhi High Court), [2013] 36 taxmann.com 289
• Saxo India (P.) Ltd. v. ACIT (Delhi Tribunal), [2016] 67 taxmann.com 155
• Cash Edge India (P.) Ltd. v. ITO, ITA No.64/Del/2015
• LG Soft India (P.) Ltd. v. DCIT, IT(TP) Appeal No.3122/Bang/2018
• OLF (India) Software Pvt. Ltd. vs ACIT
• LSI India Research Development (P.) Ltd. v. DCIT, [2021] 124 taxmann.com 83
• Infor (India) Pvt. Ltd. (Hyderabad – Trib.), [2022] 143 taxmann.com 68
• Haworth India Pvt Ltd. v DCIT, [2011] 131 ITD 215 (Delhi)
• BA Continuum India (P.) Ltd., TS-490-HC-2014 (TELandAP)-TP
• BA Continuum India (P.) Ltd. v. Asstt. CIT, [2013] 40 taxmann.com 311
• Market Tools Research India (P.) Ltd. v. Asstt. CIT, [2013] 32 taxmann.com 358 / [2014] 150 ITD 296
• Altair Engineering India Limited vs ACIT, Circle 1(1)(1), Bengaluru, TS-24-ITAT-2023 Bang-TP
• Analog Devices India P. Ltd. v. DCIT, TS-816-ITAT-2016-Bang
• Intellinet Technologies India P. Ltd. v. ITO, TS-228-ITAT-2012(Bang)

Five Alternative SEO Titles

• ITAT Partly Allows TP Appeal by Excluding Multiple Software Comparables
• ITAT Directs Fresh TP Analysis for Selected Comparables in Software Services Case
• ITAT Excludes Several TP Comparables and Remands Limited Issues
• ITAT Grants Partial Relief on Transfer Pricing Adjustments and Comparable Selection
• ITAT Revises Transfer Pricing Comparables and Partly Allows Software Services Appeal

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal by the assessee is against the order DIN: ITBA/AST/S/143(3)/2022-23/1044378372(1) dated 31.07.2022 of the Assessing Officer passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 [the Act]. The appeal & Stay petition filed by the assessee were heard together and disposed of by this consolidated order for the sake of convenience.

2. The assessee is engaged in the business of providing software development services and marketing support services to its Associated Enterprises (AE). The services are provided on cost plus basis. A reference was made to the TPO for determining ALP of international transactions entered into by the assessee.

3. The assessee has raised the following grounds of appeal:-

“GENERAL GROUND

1. The Orders passed by learned Assistant Commissioner of Income Tax, Circle – 1(1)(1), Bangalore (hereinafter referred as “AO” for brevity), learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) – 1(1)(1), Bangalore (hereinafter referred as “TPO” for brevity) and the Honourable DRP-1, Bengaluru (“AO”, “TPO” and DRP collectively referred as “lower authorities” for brevity) are bad in law and liable to be quashed.

GROUNDS RELATING TO TRANSFER PRICING – LEGAL ISSUES

2. The learned AO has erred in making a reference for the determination of the Arm’s Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so.

3. The lower authorities have erred in passing the Order without demonstrating that the Appellant had any motive of tax evasion.

GROUNDS RELATING TO TP ADJUSTMENT IN SOFTWARE DEVELOPMENT SEGMENT

4. The learned AO has erred in making transfer pricing adjustment of Rs. 38,21,44,103/- towards international transactions in software development segment.

5. The learned DRP has erred in confirming the action of the TPO in:

(i) Conducting a fresh TP analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant;

(ii) Adopting inappropriate filters like 25% RPT filter, etc. in the process of selecting comparables and not adopting appropriate filters like onsite revenue filter, etc;

(iii) Treating IND AS adjustment towards interest free deposit (prepaid expenses) and Interest on TDS/Service Tax as operating in nature while computing operating margins of the Appellant;

(iv) Selecting inappropriate comparables and selecting companies as comparables even though they are not comparable in terms of functions performed, assets utilized, risks assumed, size, one sided turnover, unusual business circumstances, high margin, etc. The lower income tax authorities have erred in adopting the following companies as comparables:

• • • Aptus Software Labs Private Limited
    • Acewin Agriteck Ltd
    • Black Pepper Technologies Pvt Ltd
    • Cybage Software Pvt. Ltd
    • Elveego Circuits Pvt. Ltd
    • Infobeans Technologies Limited
    • Infosys Ltd
    • Larsen & Toubro Infotech Ltd
    • Mindtree Ltd
    • Nihilent Ltd
    • Persistent Systems Ltd
    • Tata Elxsi Ltd
    • Threesixty Logica Testing Services Pvt. Ltd.
    • Wipro Ltd

(v) Rejecting the following comparables selected/proposed by the Appellant for unjustified reasons:

• • • Evoke Technologies Private Limited
    • E-Zest Solutions Limited
    • Kals Information Systems Limited
    • Toxsl Technologies Pvt Ltd
    • Sankhya Infotech Limited
    • Rheal Software Ltd.

6. The lower authorities have erred in incorrectly computing the operating profit margin of following comparables:

• • Harbinger Systems Pvt Ltd

7. The lower authorities have erred in:

(i) Not adopting Cash PLI for computation of ALP; and

(ii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account.

GROUNDS RELATING TO TP IN SALES AND MARKETING SUPPORT SERVICES SEGMENT

8. The learned AO has erred in making transfer pricing adjustment of Rs. 2,18,85,265/- towards Marketing Support Segment.

9. The learned DRP has erred in confirming the action of the TPO in:

(i) Conducting a fresh transfer pricing analysis despite absence of any defects in the transfer pricing analysis submitted by the Appellant;

(ii) Adopting inappropriate filters like one sided turnover filter, 25% RPT filter, etc. in the process of selecting comparables and not adopting appropriate filters like onsite revenue filter, etc and

(iii) Selecting inappropriate comparables and selecting companies as comparables even though they are not comparable in terms of functions performed, assets utilized, risks assumed, size, one sided turnover, unusual business circumstances, high margin, etc. The lower income tax authorities have erred in adopting the following companies as comparables:

• • • Axience Consulting Pvt. Ltd
    • Cheil India Pvt. Ltd.
    • Dun & Bradstreet Information Services India Pvt. Ltd.
    • Lintas India Pvt. Ltd.
    • Majestic Research Services & Solutions Limited
    • Pressman Advertising Limited and

(iv) Rejecting the following comparables selected/proposed by the Appellant for unjustified reasons:

• • Hansa Research Group Pvt Ltd
  • ICRA Management Consulting Services Ltd.
  • Spectrum Business Solutions Ltd
  • Technicom Chemie India Ltd
  • BNR Udyog Limited
  • Cyber Media Research & Services Ltd.
  • HT Mobile Solutions Ltd
  • Killick Agencies & Marketing Ltd.
  • Paradigm Plus Marketing Communication Pvt Ltd
  • Priya International Ltd.

10. The learned AO/TPO has erred in not including M/s Concept Public Relations India Ltd in the final list of the comparables despite directions of DRP to include it.

11. The lower authorities have erred in:

(i) Not adopting Cash PLI for computation of ALP; and

(ii) Not recognizing that the Appellant was insulated from risks, as against comparables, which assume these risks and therefore have to be credited with a risk premium on this account

GROUND RELATING TO NOTIONAL INTEREST ON TRADE RECEIVABLES

12. The lower authorities have erred in:

(i) Not appreciating that the receivable from AE is not a separate international transaction from the provision of services from which it is arising;

(ii) Not appreciating that under TNMM, working capital adjustment subsumes receivables/payables and separate adjustment for notional interest on receivables is not required.

13. Without prejudice to above, the lower authorities have erred in:

• • Adopting 30 days as reasonable credit period without considering any comparables. The Appellant submits that credit period should be based on the debtor turnover ratio of final comparables.
  • Adopting SBI short term deposit rate for AY 2018-19 for computing ALP; and
  • Not adopting only LIBOR as arm’s length interest rate.

GROUND RELATING TO DISALLOWANCE OF DEPRECIATION ON GOODWILL

14. The learned DRP/AO have erred in

(i) Making addition of Rs.19,68,97,682/- by disallowing the depreciation claimed on Goodwill;

(ii) Not appreciating that the difference between Purchase consideration and the value of net assets acquired constitute an intangible asset;

(iii) Not appreciating that Goodwill is a business asset and falls within the meaning of “other business or commercial right of similar nature” Explanation 3(b) to section 32 of the Act and is eligible for depreciation; and

(iv) Not following the binding judicial precedents of Hon’ble Supreme Court.

GROUND RELATING TO CLAIM OF DEPRECIATION ON GST CAPITALISED

15. The learned AO has erred in not allowing depreciation on GST related to capital assets purchased during the year under consideration despite clear directions of DRP to allow the depreciation.

OTHER GROUND

16. The lower authorities have erred in levying interest of interest u/s 234B of Rs. 13,77,26,040/- and u/s 234D of Rs.8,440/-. On the facts and circumstances of the case, interest u/s 234B and 234D of the Act is not leviable.

The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another.

The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law.

The Appellant prays accordingly.”

4. The brief facts of the case are that the assessee filed its return of income on 29.11.2018 declaring income of Rs.63,54,08,550. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed reply. The AO observed that the assessee had international transactions with its AE for more than Rs.15 crores, therefore the case was referred to the TPO for determination of the ALP on the international transaction with its AE after obtaining approval from the competent authority.

5. After the receipt of the reference, the TPO issued notice to the assessee and details were filed by the assessee. From the details it was observed that the assessee is a wholly owned subsidiary of AMD Inc. The assessee is engaged in software development services in the area of semiconductor products and processor chips and rendering services to AMD Inc. It is also engaged in providing marketing support services [MSS] to AMDISS. The TP study filed by the assessee was rejected and the TPO made fresh search after applying certain filters. Initially the TP selected 26 comparables and calculated median at 22.27 for SWD segment and for MSS segment 13 comparables were selected and median calculated at 19.94. Accordingly the TPO issued show cause notice and assessee filed objections. Finally, for SWD segment 20 comparables were retained and median was calculated at 23.60% and for MSS segment 13 comparables were retained and median was calculated at 19.94%. The ld. TPO also calculated notional interest on trade receivables after allowing 30 days credit period. Accordingly, the adjustments were made as under:-

Name of the Segment	Segmental revenue of Appellant	Average margin	TP Adjustment
Software development segment	Rs.5,29,02,48,483	20 comparables with median of 23.60%	Rs.55,23,15,881
Marketing Support segment	Rs.23,96,97,235	13 comparables with median of 19.94%	Rs.2,30,24,295
Notional Interest on Trade Receivables	–	Interest rate    at 6.57% PA	Rs.17,37,78,640
Total			Rs.74,91,18,816/-

6. The AO passed a draft assessment order under section 143(3) r.w.s. 144C of the Act on 01.09.2021 incorporating the TP adjustment of Rs. 74,91,18,816. The AO also made addition of Rs.19,68,97,682 by disallowing the depreciation claimed on Goodwill arising out of merger. Aggrieved, the assessee filed its objections before DRP. Pursuant to the directions of the DRP, an order giving effect to DRP directions was passed by the TPO dated 22.07.2022 after considering 27 comparables for SWD segment and calculating median at 20 and for MSS segment there were 9 comparables and median calculated at 19.4. The notional interest on receivables from AE was revised to Rs.10,41,85,660 making total TP adjustment of Rs.50,82,15,028 as follows:-

Name of the Segment	Average margin	TP Adjustment
Software development segment	27 comparables with median of 20%	Rs. 38,21,44,103
Marketing Support segment	9 comparables with median of 19.42%	Rs. 2,18,85,265
Notional Interest on Trade Receivables	Interest rate at SBI short term rate	Rs.10,41,85,660
Total		Rs.50,82,15,028

7. Subsequently the AO passed the final assessment order dated 31.07.2022 incorporating the TP adjustment as per TP OGE to DRP directions and corporate tax addition of Rs.19,68,97,782 towards disallowance of depreciation on Goodwill as per discussion in para 4 to 7 in the final assessment order. Aggrieved by the final assessment order, the assessee is in appeal before the Tribunal.

8. Ground No. 1 is general in nature. Grounds No. 2 & 3 were not argued at the time of hearing and hence it is left open.

SOFTWARE DEVELOPMENT SEGMENT

9. Ground No. 4 is general in nature.

10. Ground No.5(i) is not pressed and dismissed as not pressed.

11. Ground No.5(ii) is relating to RPT filter. In this regard, the ld. AR of the assessee has filed written synopsis which is as under:-

5. “The Appellant submits that RPT ratio has to be calculated on aggregate basis taking ratio of RPT incomes plus RPT expenses by sales. If the RPT ratio is not applied on aggregate basis, the whole purpose of applying RPT filter would be lost because companies having substantial RPT will be selected. For example, related party purchases may be sold to third parties and thus profits from such transactions may be tainted. Similarly, purchases from third parties may be sold to related parties, and profits from such transactions may be tainted. This would mean that approx. half of profit of such company may come from tainted transactions (Submission at Pages 1332-1336 of PB-I). In support of this contention, the Appellant relies on the decision of the Coordinate Bench in the case of JCIT, LTU (OSD) Circle-1, Bangalore vs M/s.Toyota Kirloskar Motors Private Limited (ITA No.2016/Bang/2018) for AY 2013-14 wherein the A.O. was directed to calculate RPT ratio on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales across the board for all the comparable companies (Para 7.4 at Pg 2340 of Paper Book III-Case law Compilation). This view has been upheld in Appellant’ s own case for AY 2016-17 in IT(TP)A Nos. 238/Bang/2021(para 10.6 on pg2548 of Paper Book IV-Case law Compilation)

6. Further, in the TP order, the learned TPO has applied RPT of “25%” of sales as threshold limit for related party transactions. In this regard, the Appellant submits that RPT should be “15%” of the sales instead of “25%” of the sales. This would result in selection of better uncontrolled comparable transactions as envisaged in the Indian TP regulations (Submission at Pg 1336-1337 of PB I). In this regard, the Appellant relies on its own decision for AY 2016-17 in IT(TP)A Nos. 238/Bang/2021 (para 10.7 on pg2548 of Paper Book IV-Case law Compilation), wherein it was held that RPT > 15% of sales is an appropriate filter. Following other decisions are also relied upon:

> Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore – Trib.) for AY 2017-18 (Para 22 at Pg 2133 of PB III of Case Law Compilation)

> ANSR Global Corporation (P.) Ltd vs ACIT [2022] 139 taxmann.com 283 (Bangalore – Trib.) for AY 2016-17 (Para 17 at Pg 2359 of Paper Book III-Case law Compilation)

> Autodesk India (P.) Ltd. [2018] 96 taxmann.com 263 (Bangalore – Trib.)

7. Therefore, based on above the Appellant submits that the RPT filter of 15% over sales should be applied on an aggregate basis.”

11.1 The ld. DR relied on the orders of the lower authorities and submitted that the RPT filter should be taken at 25%. He referred to the DRP order at para 2.6.7 and submitted that for adopting 25% RPT filter, the ld. TPO has given the reasons.

11.2 Considering the rival submissions, we note that in assessee’s own case for AY 2016-17 & 2017-18 in IT(TP)A No.238/Bang/2021 & 262/Bang/2022, the issue has been decided by this Tribunal as under:-

“10.5 We have heard both the sides and perused the material on record. The coordinate Bench of the Tribunal in the case of JCIT, LTU (OSD) v. Circle-1, Bangalore vs M/s.Toyota Kirloskar Motors Private Limited (ITA No.2016/Bang/2018) dated 18.8.2021 has held that the RPT ratio has to be consistently calculated on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales. The relevant observations are as follows:-

“7.4 We have heard rival submissions and perused the material on record. There is nothing on record to suggest how RPT ratio has been calculated for all the comparable companies. The learned AR has argued that the TPO in order to retain Tata Motors Ltd. and Maruti Suzuki India Limited has deviated and adopted a new mechanism for computing RPT ratio. On a query from the Bench how RPT ratio has been calculated for other comparables, the learned AR has unable to point out the same. The RPT ratio has to be consistently calculated on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales. The said position was adopted by the Revenue in the past years. In this regard, the TPOs order in assessee’s own case for assessment year 20072008 has been placed on record. A perusal of the same it is clear that RPT ratio has been calculated taking both RPT income transactions plus RPT expenses transactions on aggregate basis. On the facts of this case, it is not clear how RPT ratio has been calculated for Tata Motors Limited vis-à-vis other comparable companies. Therefore, this issue is restored to the files of the A.O. The A.O. is directed to calculate RPT ratio on an aggregate basis taking the ratio of RPT income plus RPT expenses by sales across the board for all the comparable companies (including Tata Motors Ltd. and Maruti Suzuki India Limited.

Therefore, ground No.2 is allowed for statistical purposes.”

10.6 Following the above decision, we direct the AO to calculate RPT ratio on aggregate basis considering the RPT income plus RPT expenses by sales for all the comparable companies.

10.7 The issue regarding adoption of rate of RPT filter was considered by the Hon’ble High Court of Karnataka in PCIT v. Yodlee Infotech P. Ltd. in ITA NO.685/2017 dated 28.6.201. The AO/TPO is directed to follow the above judgment for applying the RPT filter rate.”

11.3 Following the above decision of the Tribunal in assessee’s own case for the AYs 2016-17 & 2017-18, the AO/TPO is directed to calculate the RPT filter as per para 10.6 & 10.7 of the said order extracted above.

Ground No.5(iii) – Margin Computation of the Appellant

12. The ld. AR has filed written synopsis on this issue as follows:-

8. The learned TPO has modified segmental results of the Appellant without giving any reasons or opportunity of hearing. The learned TPO identified the difference between total expenses as per P&L and operating expenses as per TP study as Rs.2.22 crores and allocated the same to both the segments on the basis of turnover of segments(Pg 209-210 of Appeal papers). Due to this, the TPO has considered IND AS adjustment towards interest free deposit (prepaid expenses) and Interest on TDS/Service Tax as operating in nature, while computing operating margins of the Appellant.

9. In this regard, the Appellant submits that interest on TDS is disallowed in the tax computation and is not connected with the rendering of services to the associated enterprises. Therefore, it should be treated as non-operating in nature(Pg 1342-1343 of PB-I). In this regard, the Appellant relies on the Tribunal decision in the case of Haworth India Pvt Ltd. v DCIT [2011] 131 ITD 215 (Del), wherein it is held that expenses disallowed should be excluded from the operating cost. Even otherwise the TPO himself has treated interest as non-operating in nature in case of all comparables. Therefore, even in case of Appellant, interest on TDS should be considered as non-operating in nature.

10. Further, a provision of Rs. 33,11,319/- was made on interest free deposits as per IND AS provisions(Pg 380 of PB I). The TPO has treated it as operating in nature. Such deposits are assumed to yield interest income and notional interest income of Rs. 32,49,582 was recognised as “Other income” in the profit and loss account(Pg 383 of PB I). The TPO has treated the same as non-operating in nature. There is inconsistency in the treatment of the TPO. Both interest income and notional provision were disallowed, while computing the taxable income of the Appellant. As submitted above, expenses disallowed cannot be considered as operating in nature. Even otherwise, these are notional entries made to comply with the IND-AS and therefore have no relationship with the rendering of services to the associated enterprises. Therefore, the Assessee submits that Rs. 33,11,319 should be considered as non-operating in nature (Pg 1343-1345 of PB I).

Therefore, the Appellant requests the Honourable ITAT to direct the TPO to give correct treatment to interest on TDS and interest free deposits as non-operating while computing the segmental margins of the Appellant.”

13. The ld. DR relied on the orders of the lower authorities.

12.1 After considering the rival submissions, in this ground the assessee has raised two issues. First is in respect of adjustment towards interest free deposit (pre-paid expenses) and interest on TDS/ service tax should be considered as operating in nature. In this regard, the interest on deposits has been dealt by the ld. DRP at para 2.6.12.1 in which it has directed the TPO to consider it as non-operating in nature, which has not been given effect by the TPO in the OGE to DRP directions. We therefore direct the AO/TPO to follow the directions of the DRP.

12.2 Further, in respect of interest on TDS/service tax, the ld. DRP has confirmed the order of TPO as non-operating income. During the course of hearing, the ld. AR did not dispute the directions of the DRP. Therefore, we therefore uphold the order of DRP on this issue.

Ground No.5(iv)

14. The assessee seeks exclusion of the following companies:-

(i) Larsen & Toubro Infotech Ltd.

(ii) Aptus Software Labs Pvt. Ltd.

(iii) Elveego Circuits Pvt. Ltd.

(iv) Mindtree Ltd.

(v) Acewin Agritek Ltd.

(vi) Persistent Systems Ltd.

(vii) Tata Elxsi Ltd.

(viii) Infobeans Technologies Ltd.

(ix) Wipro Ltd.

(x) Nihilent Ltd.

(xi) Infosys Ltd.

(xii) Threesixty Logica Testing Services Pvt. Ltd.

(xiii) Cybage Software Pvt. Ltd.

13.1 The exclusion of Black Pepper Technologies Pvt. Ltd. was not pressed.

13.2 The ld. AR made the following submissions with regard to three companies viz., Larsen & Toubro Ltd., Persistent Systems Ltd. & Infosys Ltd.as under:-

Larsen & Toubro Ltd.

15. The ld. AR submitted that this company is functionally different as it is engaged in diversified business activities like infrastructure management services, digital consultation, data and analytics and is not a pure software development company. The services are provided under two segments, namely Services cluster and Industrial cluster. Software service segmental data is not available in the AR. The Company has global brand value and has business spread across borders. AugmentIQ Data Sciences Private Limited amalgamated with L&T in FY 2017-18. This company has substantial onsite operations for all 3 FY’s i.e., FY2017-18 (54.17%), FY 2016-17 (53.32%) & FY 2015-16 (57.20%). Thus, business model is different from Appellant. Reliance is placed on the decision of this Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 in IT(TP)A Nos. 238 & 262 /Bang/2021 dated 26.06.2023 and other decisions in M/s. Huawei Technologies India Pvt. Ltd. (TS-855-ITAT-2022 Bang-TP) for AY 2018-19 and M/s. Yahoo Software Development India Pvt. Ltd. in IT(TP)A No. 178/Bang/2022 for AY 2017-18.

Persistent Systems Ltd.

16. The ld. AR submitted that Persistent Systems Ltd. substantial RPT transaction for all 3 years i.e., FY 17-18- 41.63%, FY 16-17­39.91% and FY 2015-16-32.16%. Thus, it fails RPT filter. The Company is functionally different as it is engaged in both rendering software services & developing software products. Segmental information pertaining to software development services is not available for all 3 years. The Company has incurred substantial R&D expenditure which reflects that it is not a pure software development company. The Company has acquired PARX Werk AG along with its fully owned subsidiary PARX Consulting GmbH in FY 2017-18 and therefore should be rejected. Reliance is placed on the decision of this Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 (supra). The ld AR submitted that since profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. He also relied on other decisions as follows:-

• M/s. Subex Ltd. vs DCIT, Bengaluru [TS-853-ITAT-2022 Bang-TP] for AY 2017-18
• M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru in IT(TP)A No. 178/Bang/2022 for AY 2017-18
• ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 [2022] 135 com 44 (Hyderabad – Trib)

Infosys Ltd.

17. The ld. AR submitted that this company is functionally different as it is very large company engaged in diversified business activities including software products and not a pure software development company. The Company has global brand image and owns intangible assets worth Rs.130 crores. There is vast difference between the profile of Infosys and the Appellant. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (69.19%), FY 2016-17 (67.01%) & FY 2015-16 (67.44%). Thus, different business model when compared to Appellant. It was further submitted that in assessee’s own case for AYs 2016-17 & 2017-18 (supra), this company was excluded by this Tribunal. He also relied on the following decisions:-

• M/s. Huawei Technologies India Pvt. Ltd. vs ACIT, Bengaluru (TS-855-ITAT-2022 Bang-TP) for AY 2018-19
• M/s. Yahoo Software Development India Pvt. Ltd. in IT(TP)A No. 178/Bang/2022 for AY 2017-18

16.1 The ld. DR relied on the orders of the lower authorities and vehemently argued that the assessee is a software development company and the ld. DRP has examined the issue in detail and observed from the financial statements that Cybage Software Ltd. is similar with the assessee’s functional profile. He also submitted that the website information cannot be relied because it is not based on audited financial statements. He further submitted that the ld. AR of the assessee has not furnished complete financial statements of the comparable company to rebut the DRP’s findings.

16.2 We have considered the rival submissions and perused the material on record. This Tribunal in the assessee’s own case for AYs 2016-17 & 2017-18 (supra) considered this issue in respect of the above 3 comparables and held as under:-

“11.7. ……………. The coordinate Bench of the Tribunal in the assessee’s own case for AY 2012-13 (supra) in respect of the above 3 comparables held as under:-

“8. The learned counsel for the brought to our notice a decision of the ITAT Bangalore Bench in the case of CGI Information Systems & Management Consultants (P.) Ltd. v. Asstt. CIT [2018] 94 taxmann.com 97 wherein 4 out of the aforesaid five comparable companies viz., (a) Genesys International Corpn. Ltd. (b) Infosys Ltd., (c) Larsen and Toubro Infotech Ltd. and ( d) Persistent Systems Ltd. were excluded by the ITAT. The functional profile of the Assessee in this appeal and that of the Assessee in the decision cited by the learned counsel for the Assessee is the same. The following were the relevant observations of the Tribunal:—

“28. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 4 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz., Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Information Technologies India (P) Ltd. v. ACIT (2018) 89 taxmann.com 440 (Delhi-Trib.) for the same AY 2012-13. In this regard it was submitted that the functional profile of the Assessee is same as that of the Assessee in the case of Agilis Information Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen 16 comparable companies out of which 6 companies chosen by the TPO in the case of the Assessee for the purpose of comparability were the same. His submission was that the decision rendered by the Tribunal in the case of Agilis Information Technologies India (P) Ltd., (supra) would be equally applicable to the Assessee in the present case also. The learned DR submitted that the DRP in its directions has merely accepted with the reasoning of the TPO and therefore the issue of exclusion of these companies should be directed to be examined afresh by the DRP.

29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd., (supra), this Tribunal considered the comparability of the 3 companies which the Assessee seeks to exclude from the final list of comparable companies chosen by the TPO. The functional profile of the Assessee and that of the Assessee in the case of Agilis Technologies India (P) Ltd., is identical in as much as the said company was also involved in providing SWD services to its AE and the TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows:

(a) Infosys Ltd., was excluded from the list of comparable companies by following the decision of the Hon’ble Delhi High Court in the case of CIT v. Agnity India Technologies (2013) 36 com 289 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal’s order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case.

(b) Larsen & Toubro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. v. ACIT (2016) 67 com 155 (Del-Tri). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal’s order. The Tribunal held that L & T Infotech Ltd., was a software product company and segmental information on SWD services was not available. The Tribunal also noticed that the appeal filed by the revenue against the tribunal’s order was dismissed by the Hon’ble Delhi High Court in ITA No.682/2016.

(c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India (P.) Ltd. v. ITO ITA No.64/Del/2015 order dated 23.9.2015 and the decision of Hon’ble Delhi High Court in the case of Saxo India Pvt. Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order.

30. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with the profit margins. In this regard we are also of the view that the plea of the learned DR for a remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP has endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP.”

11.8 The coordinate Bench Tribunal considered the issue in respect of the above companies in the case of SanDisk India Device Design Centre Pvt. Ltd. in ITA No.288/Bang/2021 dated 30.6.2022 for AY 2016-17 and it was held to exclude the same. The relevant observations are as under:-

“17.6 We have perused the submissions advanced by both sides in the light of records placed before us.

17.7 He placed reliance on the decision of Coordinate Bench of this Tribunal in case of OLF (India) Software Pvt. Ltd. vs. ACIT (supra) wherein this Tribunal following its decision in case of LSI India research development (P.) Ltd. vs. DCIT reported in [2021] 124 taxmann.com 83, excluded Persistent Systems Ltd., L&T Infotech Ltd., Thirdware Solutions and Infosys Ltd. by observing as under:

“3.2 This Tribunal in LSI India research development (P.) Ltd. v. DCIT (supra) observed in respect of persistent systems, L & T Infotech, Thirdware Solutions, Infosys Ltd. as under:

16. As far as the challenge by the assessee on exclusion of aforesaid 5 companies in ground No. 2(f), the ld. counsel for the assessee has brought to our notice a decision of Bangalore Bench of ITAT for the very same Assessment Year 2014-15 in the case of LG Soft India (P.) Ltd. v. DCIT [IT(TP) Appeal No. 3122 (Bang.) of 2018, dated 28-5-2019]. In this order rendered in a case of assessee rendering SWD services such as the assessee, the Tribunal excluded 3 out of 5 companies referred to in the earlier paragraph and remanded 1 company for fresh consideration with the following observations:-

*******

6. We notice that the co-ordinate bench has excluded M/s Infosys Ltd in AY 2008-09 by following the decision rendered by another co-ordinate bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No. 1303/Bang/2012 dated 28-11-2013, wherein the decision rendered in the case of Triology E Business Software India P Ltd (ITA No. 1054/Bang/2011) was followed and it was held that M/s Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was further observed that the break-up of revenue from software services and software product is not available.

6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee’s own case in AY 2008-09, we direct exclusion of M/s Infosys Ltd.

7. In AY 2008-09, the co-ordinate bench has excluded M/s Persistent Systems Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s Persistent Systems Ltd is engaged in product development and product design services while the assessee is a software development service provider. Further, the segmental details were not available. 7.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee’s own case in AY 2008-09, we direct exclusion of M/s Persistent Systems Ltd.

*****

17. As far as exclusion of Larsen & Toubro Infotech Ltd., is concerned, the Tribunal in the very same case of LG Soft (P.) Ltd. (supra) in another order dated 27-9-2019 in MP No. 95/Bang/2019 held that exclusion of Larsen & Toubro Infotech Ltd., was omitted to be adjudicated in the original order dated 28­5-2019 passed by the Tribunal referred in the earlier paragraph and held that Larsen & Toubro Infotech Ltd., is also not a comparable company because there were extraordinary events that occurred in the relevant previous year and that it possessed brand and intangibles and there was no segmental information of sub-contracting expenses”.

3.3 There is nothing on record brought by the Ld.CIT.DR in order to establish that these are comparable with assessee that is a captive service provider which functions at the strict supervision and instructions by the AE’s. Further we note that turnover criteria has to be applied with an upper limit which is not been considered by the Ld. TPO. The TPO has applied less than 1 crore turnover limit to eliminate the comparables however it failed to apply upper limit considering the functions performed assets owned and risk assumed by assessee under this segment for the year under consideration.”

17.8 Before us, the Ld.AR has not been able to place anything on record contrary to the above observation. We therefore respectfully following the above view, direct the Ld.AO/TPO to exclude Persistent Systems Ltd., L& T Infotech Ltd., Thirdware Solutions and Infosys Ltd. from the final list.”

11.9 Respectfully following the above decisions of the coordinate Bench of the Tribunal in assessee’s own case for AY 2012-13 and SanDisk India Device Design Centre Pvt. Ltd. (AY 2016-17), we direct exclusion of these 3 companies i.e., Larsen & Toubro Ltd., Persistent Systems Ltd. & Infosys Ltd. from the final list of comparables.”

16.3 In the income tax proceedings for determining the ALP of international transactions with its AE, FAR analysis is carried out every year independently. This Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 has considered this issue and directed exclusion of the above three companies from the comparables. Since the facts remain for the present AY 2018-19, following the earlier decision of the Tribunal cited supra, the above three companies are directed to be excluded from the list of comparables.

Nihilent Ltd.

18. The ld. AR for the assessee submitted that that The company is functionally different as it is engaged software product development. It renders software services, business consulting in the area of enterprise transformation, change and performance management and providing related IT services. This company is into diversified business and is therefore functionally different to pure software development companies. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (40.57%), FY 2016-17 (43.34%) & FY 2015-16 (43.64%). Thus, Nihilent has different business model when compared to the Appellant. He relied on the decision of this Tribunal in assessee’s own case for AYs 2016-17 & 2017-18 (supra) and submitted that Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable. He further relied on the following decisions wherein it was held that Nihilent Ltd is functionally different:-

• • M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT-2022 Bang-TP-for AY 2017-18
  • Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 com 162 (Bangalore – Trib.) for AY 2017-18

17.1 The ld. DR relied on the orders of lower authorities.

17.2 Considering the rival submissions, we note from the financial statements placed at page 1882-1889 of PB that the core activity of Nihilent Ltd. as per NIC Code No.99831319 allotted, “other professional, technical and business services” and the turnover is Rs.2800.62 crores during the year from the core activity of “other IT consultancy services”. The comparable company is engaged in global business consulting and IT services solutions, the major revenue is received from South Africa. In the annual report, it is stated as under:-

“Our customer engagements comprise holistic analysis of problems which span across people, process, technology, as well as learning and innovation. Our service offerings include:

Consulting: Nihilent partners with businesses in transforming their organizations with solutions using a holistic design-thinking led approach to problem solving. Our suite of consulting-led offerings include customer driven digital transformation, industry transformation and organizational change management services We have deep expertise and several person-years or experience in strategy alignment and execution, organizational design and process restricting, balanced scorecards, customer loyalty evaluation among others.

Analytics : We help enterprises answer complex business questions of the day by getting them to make sense of all the data they have. Our leading-edge analytics solutions include predictive analytics techniques like fraud analytics, churn analytics, market basket analysis among others, data visualization and dashboards, and data enrichment and insight offerings including sentiment analysis, data abstraction, deep learning & artificial intelligence.

Technology : Our technology-driven service offerings help business achieve greater agility in the digital era and enable systems to be future-ready, using a holistic design-thinking approach. Some of our most important technology offerings include product development, user experience testing, technology re-engineering, cloud-based services, blockchain, Internet of Things, SAP S4 HANA implementation & consulting, among others.”

17.3 Considering the above activity undertaken by Nihilent Ltd., it cannot be considered as a comparable with assessee company. Therefore, the AO/TPO is directed to exclude this company on the basis of functional dissimilarity.

Infobeans Technologies Ltd.

19. It was submitted that this Company is functionally different as it is engaged in providing diversified services in the areas of Product engineering, Digital Transformation and Automation and DevOps for clients across the globe. It is not a pure software development company. He relied on the decision of the Tribunal assessee’s own case for AY 2016-17 in IT(TP)A Nos. 238/Bang/2021 (supra) and other following decisions, in which it is held that Infobeans is into diversified software services and cannot be considered as a comparable to pure software development companies like the Appellant:-

• • M/s. NTS Technology Services Pvt Ltd. (TS-239-ITAT-2023 Bang-TP for AY 18-19)
  • M/s Radisys India Limited (TS-823-ITAT-2022Bang-TP) for AY 2017-18
  • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad [2022] 135 com 44 (Hyderabad – Trib.) for AY 2016-17

18.1 The ld. DR relied on the orders of lower authorities.

18.2 We have considered the rival submissions and perused the material on record. We note from the financial statements placed at page 1830-1837 of PB that the company’s overview is as under:-

“Our company is leading playing in offering, Product engineering, Digital Transformation and Automation and DevOps for clients across the globe. With two state-of-the-art facilities in India, the CMMI level 3 certified company caters to Fortune 500 clients in USA, Germany and Middle East markets. The Company caters to a wide range of segments in the industry, including Healthcare, Compliance, Storage and Virtualization, Media and Publishing and eCommerce. The company’s efficient operations professional team of over 700+ employees and high customer-focus has enabled it to grow blue-chip client base with high amount of repeat business.”

18.3 On going through the above activity, the company is functionally different from the assessee. Further, we note from the financial statements that the revenue is generated from sale of services but not from sale of products. We therefore direct the AO/TO to exclude this company from the comparables.

Cybage Software Pvt. Ltd

20. The ld. AR submitted that The Company is functionally different as it is engaged in diversified activities and deals with other computer related activities. The Company has abnormally high margin. Reliance is placed on assessee’s own case for AY 2016-17 (supra) where this company was excluded on the ground of functional differences as it is rendering software services as well as developing software products. He also relied on the decision in Etisalat Software Solutions (P.) Ltd, 144 taxmann.com 162 (Bangalore – Trib.) for AY 2017-18 and submitted that since profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable.

19.1 The ld. DR relied on the orders of the lower authorities and vehemently argued that the assessee is a software development company and the ld. DRP has examined the issue in detail and observed from the financial statements that Cybage Software Ltd. is similar with the assessee’s functional profile. He also submitted that the website information cannot be relied because it is not based on audited financial statements. He further submitted that the ld. AR of the assessee has not furnished complete financial statements of the comparable company to rebut the DRP’s findings.

19.2 We have considered the rival submissions and perused the material on record. From the details furnished by the assessee, the ld. DRP has observed this company is into software development services. However, ld. AR has submitted that the company is functionally different as it is engaged in diversified activities and deals with other computer related services, but the same is not substantiated through submission of credential documents. The ld. AR further contended that this company has abnormally high margin, but from the financial results it is observed that for the FY 2016-17, 2017-18 & 2018-19 the OP/OC is 62.04%, 61.4% & 47.78% respectively with average of 56.81%. However, there is no much fluctuation in the financial results which is declining over the years. We further notice that the coordinate Bench of the Tribunal in the case of Wipro HR Services India (P.) Ltd. [2023] 147 taxmann.com 569 (Bangalore – Trib.) for AY 2018-19 has remitted the issue to the AO/TPO by observing as under:-

“34. We heard the rival submission and perused the material on record. We notice that the main contention of the assessee with regard to exclusion of the company is that the company is functionally dissimilar having diversified activities including ITeS and BPO services. On perusal of records, it is noticed that the segmental information is not available though it is mentioned as per the website of the company that it is involved in various other activities including order management, research & analysis, social media management and monitoring, etc. (page 761 & 762 of paper book Vol III) It is further noticed that the functionality of the company is not coming out clearly from the financials. In view of this discussion, we are of the considered view that the issue should go back to the AO/TPO for a fresh examination of facts. The AO/TPO is directed to verify the nature of activity of the company and the availability of segmental details and decide the inclusion in accordance with law.”

19.3 We note further that in Textual Information “36” the company is engaged in Software Development Services. Since in the above judgement the issue has been remitted back to the AP/TPO, accordingly. Following the above decision, we remit this issue to the AO/TPO for verification in the same terms and the assessee is directed to furnish necessary documents to substantiate its claim. The decision relied by the ld. AR in assessee’s own case for AY 2016-17 and decision in Etisalat Software Solutions (P.) Ltd (supra) for 2017-18 is not applicable in present facts of the case as discussed above.

Aptus Software Labs Pvt. Ltd.

21. The ld. AR made the following submissions for exclusion of this company.

Reasons for rejection	Reference & case laws
Functionally Different The Company is functionally different as it is engaged in rendering of Network operations center (NOC) 24X7 services, Cloud computing services, Infrastructure Management services and product engineering services.	1. Relevant extract of website and submission at Pg 1411-1414 of PB I. 2. Relevant extract of AR at Pg 1794-1798 of PB II
Employee Cost Filter The Company’s employee cost ratio for FY 15-16 is 16.04%and fails employee cost filter of 25% for FY 2015-16 as applied by the TPO.	1. Relevant extract of website and submission at Pg 1415 of PB I.

The ld. DR relied on the orders of lower authorities.

Considering the rival submissions, the ld. AR seeks exclusion of this company on the basis of functional dissimilarity as well as that it does not employee cost filter for AY 2015-16 as applied by the TPO. However, we note that in the case of NTS Technologies Ltd. (supra) for the very same AY 2018-19 , the coordinate Bench has given direction to AO/TPO for retaining this company as under:-

“11.4.1 The Ld.AR submitted that, the nature of business of this company is not available in the public domain. It is submitted that from the annual report of the company, the NIC code of the product/ service is mentioned to be 6201 which includes computer programming, consultancy and related activities.

11.4.2 Reliance was placed on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. (supra). The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.

11.4.3 We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable was remanded for want of sufficient information in annual reports filed by the assessee therein before this Tribunal. However, in the present case, the Ld.AR has filed complete annual report.

11.4.4 We notice that this company is deriving revenue from both domestic as well as foreign company. The notes to the account being note 24 reveals the revenue is recognised by this comparable from service transactions. The NIC code being 6201 as appearing at page 3383 of paper book reveals the description Page 21 IT(TP)A No. 940/Bang/2022 to be information technology services as against computer programming, consultancy and related activities as submitted by the assessee in the synopsis. We therefore do not find any reason to exclude this company from the final list. We direct the Ld.AO/TPO to retain this company in the list.”

Considering the totality of facts, we remit this issue to the AO/TPO for fresh consideration in the light of the submissions of the assessee and above decision in NTS Technologies Ltd. (supra).

Elveego Circuits Pvt. Ltd.

The ld. AR submitted the following reasons for exclusion of this company.

Reasons for rejection

Reference & case laws

Functionally Different 1. The Company is functionally different as it is engaged in the business of electronics and semiconductor design services.

1.Relevant extract of website and submission at Pg 1398-1400 of PB I & Relevant extracts of AR at Pg 1825, 1828 of PB II. 2. Reliance is placed on the following decision of Coordinate Bench, wherein Elveego is excluded on the ground that it is functionally different. NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru (TS-239-ITAT-2023 Bang-TP)for AY 2018-19(para 11.2 on page 2640of PB IV-Case law Compilation) Sprinklr India Pvt Ltd. vs DCIT, Circle 6(1)(1) Bengaluru (TS-25-ITAT-2023 Bang-TP) for AY 2018-19 (Para 12C at Pg 2732-2733 of PB IV of Case Law Compilation),

20.1 The ld. DR relied on the orders of lower authorities.

20.2 Considering the rival submissions, this company has been excluded in the case of NTS Technology Services Pvt Ltd v DCIT, Circle 3(1)(1) Bengaluru (TS-239-ITAT-2023 Bang-TP)for AY 2018-19 observing that this company is engaged in the business of chip & semiconductor design services whereas the assessee is engaged in basic SWD services and observed as under:-

11.2.1 The Ld.AR submitted that this company is engaged in the business of electronics and semiconductor design services which is no way comparable to the captive software development activities as provided by the assessee. It is submitted that the company specialises in the design of Analog, Mixed-Signal and RF Integrated Circuits, and that no segmental details are available.

11.2.2 It is also submitted that, this company invested significantly in intangible assets, during the financial years 2016­16, 2016-17 and 2017-18. She thus submitted that this comparable is functionally not similar with that of the assessee. Reliance was placed on the decision of Coordinate Bench of this Tribunal in case of Sprinklr India Pvt. Ltd. (supra).

The Ld.DR relied on the orders passed by the authorities below

We have perused the submissions advanced by both sides in the light of records placed before us.

11.2.3 We note that in case of Sprinklr India Pvt. Ltd. (supra), this comparable was excluded by observing as under:

“C.3. We note that this company is in the business of Chip and semiconductor design services where as the assessee before us is into basic SWD services of coding an documentation, Testing and quality assurance, software patches and maintenance. There is no similarity between the functions performed by the assessee vis-à-vis that of this company. We therefore at the threshold reject this company being functionally not similar with that of the assessee. Accordingly, the Ld.TPO is directed to exclude this company from the final list of comparables.”

Respectfully following the same, we direct the Ld.AO/TPO to exclude this company from the final list.”

22. Respectfully following the above decision, we direct the AO/TPO to exclude this company from list of comparables.

Mindtree Ltd.

23. The ld. AR referred to the following written submissions for exclusion of this company which is as under:-

Reasons for rejection	Reference & case laws
Functionally Different 1. The company is functionally different as it is engaged in IT consulting and implementation. Mindtree is engaged in diversified operations and Segmental information is not available in the AR. 2. The company has global brand and owns Intellectual Property and therefore, cannot be compared to captive service provider like Appellant.	1. Submission at Pg 1405­1410 of PB I& Relevant extracts of AR at Pg 1864, 1869 1872-1873, 1881 of PB II. 2. Reliance is placed on following decision: Appellant’s own case for AY 2017-18 in IT(TP)A No.s 238/Bang/2021 (para 40.27 & 40.28 on page 2645-2646of PB IV-Case law Compilation) M/s. Yahoo Software Development India Pvt. Ltd. vs JCIT, Special Range – 7, Bengaluru IT(TP)A No. 178/Bang/ 2022 for AY 2017-18(Para 5 at Page 2241 of PB-III-Case law compilation). Since, profile of this company remain same for all the 3 years, ratio of decision of earlier year is applicable.
Substantial Onsite Operations 3.The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18 (59.67%), FY 2016-17 (60.83%) & FY 2015-16 (52.70%). Thus, has different business model when compared to Appellant.	1. Submission at Pg 1403-1405 of PB I& Relevant extracts of AR at Pg 1865-1867 of PB II.
Extraordinary event 4.The company during the FY 2017-18 has entered into various high value acquisition and merger transaction. Such extraordinary events have an effect on the profitability.	1. Submission at Pg 1410 of PBI & Relevant extracts of AR at Pg 1879 of PB II.

23.1 The ld. DR relied on the orders of lower authorities.

23.2 Considering the rival submissions, the ld. AR contested that this company is functionally different as it is engaged in IT consulting and implementation, diversified operations and segmental information is not available. The company carries global brand and owns intellectual property and there is substantial onsite operations and extraordinary events for acquisition and merger transactions.

23.3 We note from the financial statements from page 1872 the company’s overview is as under:-

“Mind tree Limited …………  is an international Information Technology consulting and implementation company that delivers business solutions through global software development. The Company is structured into four industry verticals – Retail, CPG and Manufacturing (RCM), Banking Financial Services and Insurance (BFSI), Technology, Media and Services (TMS) and Travel and Hospitality (TH). 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.”

23.4 The company has also spent significant amount of Rs.396 million on research & development during the FY 2017-18.

23.5 The assessee company is a captive services provider and therefore considering the overview of Mindtree Ltd., it cannot be considered as functionally comparable. In the assessee’s own case for AY 2016-17 this company was excluded by the coordinate Bench of the Tribunal. Therefore, AO/TPO is directed to exclude this company.

Acewin Agritek Ltd.

24. The ld. AR referred to the following written submissions for exclusion of this company which is as under:-

Reasons for rejection

Reference & case laws

Functionally Different 1. The Company is functionally different as it has revenue from software products. The company has developed food processing ERP product. Further, the company is into diverse business activities and segmental results related to software development business is not available. It has substantial revenue from Aquaculture. Whereas the Appellant is a captive software development service provider.

1. Relevant extract of website and submission at Pg 1416-1418 of PB I & Relevant extract of AR at Pg 1799-1802 of PB II. 2. The Appellant relies on the following decisions of the Honourable ITAT wherein it was held that Acewin Agriteck Ltd is functionally different: M/s. NTS Technology Services Pvt Ltd. Vs DCIT, Bengaluru TS-239-ITAT-2023 Bang-TP for AY 18-19 (Para 11.5.5 on Page 2684 of PB IV-Case law Compilation) M/s. Subex Ltd. vs DCIT, BengaluruTS-853-ITAT-2022 Bang-TP-for AY 2017-18(Para 15 at Page 2179 of PB III-Case law Compilation).

24.1 The ld. DR relied on the orders of lower authorities.

24.2 Considering the rival submissions, this company has been excluded in the case of NTS Technology Services Pvt Ltd (supra) by the coordinate Bench of the Tribunal and observed as under:-

11.5 Acewin Agritech Ltd.

11.5.1 The Ld.AR submitted that this company is engaged in software development and information technology outsourcing company, wherein the core business of this company is Enterprise Application Development, Mobile Applications Development, Cloud Enablement, UI Development and DevOps Implementation. In addition, she submitted that this company is developing on the leading Blockchain platforms and widening its service offerings and domains more specifically in Healthcare, Media, and Financial Services. The Ld.AR also submitted that in terms of product offerings, the company enhanced the Food processing ERP product with predictive analytics. No segmental details are available.

11.5.2 She further submitted that, in the software services outsourcing business, this company does designing, building, testing and maintaining commercial products and digital solutions. Further, she submitted that, this company has significant R&D expenses.

11.5.3 She thus prayed for exclusion of this comparable as it is into varied activities for which there is no segmental details. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us.

11.5.4 In the annual report of this comparable at page 2854 of the paper book, we note that the NIC code is 8920 at the description of the project / services is software development. At page 2879, the business overview of the company has been described to be as under:

“OFS Technologies is a leading software development and information technology outsourcing company. In the last financial year, we intensified our technology expertise with latest technologies in our core business – Enterprise Application Development, Mobile Applications Development, Cloud Enablement, UI Development and DevOps Implementation. In addition, we are technically developing on the leading Blockchain platforms, widening our service offerings and domains more specifically in Healthcare, Media, and Financial Services. In terms of product offerings, we enhanced the Food processing ERP product with predictive analytics.”

11.5.5 It is also revealed at page 2881 that this company has invested in enlarging its business development team and also has the product development vertical the income recognition is only from the sale of services being export and therefore this company does not have a segmental details of the variety of services rendered by it. Moreover, the company is a leading software development and information technology outsourcing company and therefore as the entire revenue is categorised under one single segment, it is not comparable with the captive service provider like that of assessee before us that renders its services on a cost plus model with its AE. We accordingly reject this comparable and direct the Ld.AO/TPO to exclude from the final list ……………………..”

24.3 Respectfully following the above decision, we direct the AO/TPO to exclude this company from the comparables list.

Tata Elxsi Ltd.

25. The ld. AR referred to the following written submissions for exclusion of this company which is as under:-

Reasons for rejection	Reference & case laws
Functionally Different 1. The Company is functionally different as it is engaged in Embedded product design, Industrial design, Visual Computing Labs, and Systems Integration. 2. The Company has global brand image and has paid brand fees of Rs.417.48 lakhs to Tata Sons Limited for AY 2018-19. 3. There is vast difference between the profile of Tata Elxsi and the Appellant.	1. Submission at Pg 1428-1436 of PB I& Relevant extracts of AR at Pg 1907-1908, 1913-1914, 1917-1919 of PB II. 2. The Appellant relies on the following decisions of the Honourable ITAT wherein, it was held that Tata Elxsi Ltd is functionally different: Appellant’s own case for AY 2017-18 in IT(TP)A No.s 238/Bang/2021 (para 40.32-40.34 on page 2647of PB IV-Case law Compilation) Etisalat Software Solutions (P.) Ltd v DCIT [2022] 144 taxmann.com 162 (Bangalore – Trib.) for AY 2017-18 (Para 26&27 at Pg 2134-2136 of PB III of Case Law Compilation) ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 [2022] 135 taxmann.com 44 (Hyderabad – Trib.)(Para 5.2 & 5.3 at Pg2252 of PB-III-Case law Compilation) Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable.
Substantial Onsite Operations 4. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017­18 (39.97%), FY 2016-17 (38.03%) & FY 2015-16 (36.85%). Thus, Tata Elxsi has different business model, when compared to Appellant.	1. Submission at Pg 1427­1428 of PB I& Relevant extracts of AR at Pg 1909 of PB II

26. The ld. DR relied on the orders of lower authorities.

26.2 Considering the rival submissions, we note from financial statements at page No.1913, corporate information is that the company provides product design and engineering services to the consumer electronics, communications & transportation industries and systems integration and support services for enterprise customers. It also provides digital content creation for media and entertainment industry. The assessee is a captive services provider, therefore functional different from comparable company. Further, this company was excluded in the assessee’s own case for AY 2016-17 observing as under:-

“40.32 The ld. AR submitted that the Company is functionally different as it is engaged in Embedded product design, Industrial design, Visual Computing Labs, Systems Integration. The Company has global brand image and has paid brand fees of Rs. 344.98 lakhs to Tata Sons Limited for AY 2017-18. There is vast difference between the profile of Tata Elxsi and the Appellant. Reliance is placed on the following decisions:-

• • ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 (TS-63-ITAT-2022 Hyd)

40.33 The ld. DR relied on the orders of lower authorities.

40.34 We have considered the rival submissions and perused the material on record. The ld. DRP has discussed the issue in detail. We hold that his company is functionally dissimilar following the decision of the coordinate Bench of the ITAT Hyderabad in the case of Infor (India) Pvt. Ltd. [2022] 143 taxmann.com 68 (Hyderabad – Trib.) noted supra. The AO/TPO is directed to exclude this company.”

26.3 In view of the above, and since the facts are same as in the AY 2016-17, following the above decision, we direct the AO/TPO to exclude this company from the comparables.

Wipro Ltd.

27. The ld. AR referred to the following written submissions for exclusion of this company which is as under:-

Reasons for rejection	Reference & case laws
Substantial related party transactions 1. The Company has substantial RPT for FY2017-18 (15.97%)and thus fails RPT filter of 15%.	1. Submission at Pg 1422-1423 of PB I& Relevant extracts of AR at Pg 1935, 1942-1949 of PB II(Computation of RPT is given at Pg 30 of the Note).
Functionally Different 2. The Company is functionally different as it is not engaged in rendering of pure software development services. Wipro is engaged in diversified businesses like information technology, consulting and business process outsourcing. 3. The Company has global brand image and has high R&D Expenses. 4. There is vast difference between the profile of Wipro and the Appellant.	1. Submission at Pg 1423­1425 of PB I& Relevant extracts of AR at Pg 1951­1957 of PB II. 2. The TPO has himself not considered Wipro as comparable in his list of comparables for AY 2017­18. Further, the Appellant relies on the following decisions of the Honourable ITAT wherein, it was held that Wipro Ltd is functionally different: ADP Pvt. Ltd., Hyderabad vs DCIT-1(1), Hyderabad for AY 2016-17 [2022] 135 taxmann.com 44 (Hyderabad – Trib.)(Para 5.2 & 5.3 at Pg2252 of PB-III-Case law Compilation) Since, profile of this company remains same for all the 3 years, ratio of decision of earlier year is applicable.
Substantial Onsite Operations 5. The Company has substantial onsite revenue for all 3 FYs i.e., FY 2017-18-56.17%, FY 2016-17-56.24% & FY 2015-16-56.42%. Thus, Wipro has different business model, when compared to Appellant.	1. Submission at Pg 1426-1427 of PBI & Relevant extracts of AR at Pg 1955 of PB II.

27.1 The ld. DR relied on the orders of lower authorities.

27.2 Considering the rival submissions, we note from the company’s overview that Wipro Ltd. is a leading global information technology (IT) consulting and business process services. It is clear that the company is engaged in diversified activities and not a pure software development company like the assessee and hence functional profile is different. Therefore, this company is directed to be excluded from comparables list.

Threesixty Logica Testing Services Pvt. Ltd.

28. The ld. AR referred to the following written submissions for exclusion of this company which is as under:-

Reasons for rejection	Reference & case laws
Substantial related party transactions 1. The Company has substantial RPT for FY2017-18 (30.42%) & FY 2016-17 (18.23%) and this fails RPT filter of 15%.	1.Submission at Pg 1449-1450 of PB I& Relevant extracts of AR at Pg 1924­1931 of PB II.(Computation of RPT is given at Pg 29 of the Note) 2. Reliance is placed on decision of Altair Engineering India Limited vs ACIT, Circle 1(1)(1), Bengaluru (TS-24-ITAT-2023 Bang-TP), wherein Threesixty Logica has been rejected as it fails RPT filter. (Para 23 on pg 2762 of of PB-IV-Case law Compilation)
Functionally Different 2. The Company is functionally different as it is engaged in rendering only “software testing services” which is not comparable to the “software development services” rendered by the Appellant. 3. The Company renders services such as Quality Assurance, Quality Engineering, Digital Innovation, Automated Solutions and Transformations.	1. Submission and website extracts at Pg 1451-1450 of PB I& Relevant extracts of AR at Pg 1920, 1923 of PB II. 2.The Appellant relies on the following decisions of the Honourable ITAT wherein, it was held that Threesixty Logica Testing Services Ltd is functionally different: M/s. NTS Technology Services Pvt Ltd. vs DCIT, Bengaluru (TS-239-ITAT-2023 Bang-TP) for AY 18-19 (Para 11.7.5 at Page 2689 of PB-IV-Case law Compilation)

28.1 The ld. DR relied on the orders of lower authorities.

28.2 Considering the rival submissions, we note this company has been excluded by the Tribunal in the case of NTS Technology Services Pvt Ltd (supra) observing as under:-

11.7 Threesixty Logica Testing Services Pvt. Ltd.

11.7.1 The Ld.AR submitted that this company derives revenue primarily from software testing, quality assurance and related services. Further, the company also earns revenue from sale of third party software products and hardware. No segmental details are not available.

11.7.2 She submitted that this company has invested significantly in intangible assets during the financial years 2015-16, 2016-17 and 2017-18.

11.7.3 It is submitted that this company has incurred significant marketing expenditure and this company has significant RPT transactions during the year. It was thus submitted that the comparable may be excluded.

11.7.4 The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 by order dated 09.01.2023.

The Ld.DR on the contrary relied on the orders passed by the authorities below.

We have perused the submissions advanced by both sides in the light of records placed before us.

11.7.5 From the annual reports filed by the Ld.AR in the paper book, we note that this company derives 100% income from writing, modifying, testing of computer program to meet the needs of a particular client excluding webpage and designing. In the annual report, the revenue recognition by this company is stated to be primarily from software testing, QA and related services which is also supported from the notes to account being note 1 wherein the company overview also states that it is primarily engaged in providing information technology services being software testing and QA services and it also stated in the segmental report and operating segmental details that there are no other reportable segments. We therefore see merit in the arguments of the Ld.AR that this company is not comparable functionally since the assessee is a contract service provider rendering limited services to its AE alone. Accordingly, this comparable is directed to be excluded …………………………………. . ”

28.3 Respectfully following the above decision, this company is directed to be excluded from the list of comparables.

29. Ground No. 05(v) : During the course of hearing the ld. AR of the assesses sought for inclusion of the following companies.

1. Evoke Technologies Private Ltd.

2. E-Zest Solutions Limited

3. Toxl Technologies Pvt. Ltd.

4. Rheal Software Ltd.

29.1 Before us, the ld. AR submitted that these above companies or functionally similar to the assessee’s business and passes all the filers applied by the TPO therefore be included. The DRP did not consider the request made by the assessee during the proceedings before the DRP. Considering the rival submissions we remit this issue to the ld. TPO for examination a fresh and assessee is directed to furnish necessary documents in support of its claim, since the other issues are also remitted to TPO. Ground No. 5(v) is allowed for statistical purposes.

29.2 The other two companies i.e., Kals Information Systems Ltd. and Sankhya Infotech Ltd. were not pressed by the ld. AR.

30. Ground No.6: The ld. AR submitted that the TPO has wrongly computed the margin in the case of Harbinger Systems P. Ltd. and submitted that the TPO has given incorrect treatment of forex gain, bad debts, donation, etc. and submitted that the correct margin is 7.37% instead of 11.65%. Considering the submissions, we remit this issue to the TPO for calculation of the correct margin.

Market Support Service Segment

31. Ground No.9(iii) : The ld. AR submitted that six companies i.e., Axience Consulting P. Ltd., Cheil India P. Ltd., Dun & Bradstreet Information Services (I) P. Ltd., Lintas (I) P. Ltd., Majestic Research Services & Solutions Ltd. and Pressman Advertising Ltd; are not comparable in terms of functions performed, asset utilized, risk assumed, one sided turnover, unusual business circumstances, high margins, etc. and further submitted that in the case of M/s. Tivo Tech P. Ltd. v. ACIT in IT(TP)A No.862/Bang/2022, order dated 30.03.2023 for AY 2018-19, these companies were held to be not comparable in Marketing Support Service segment. The functions performed by the assessee in the present case are quite similar as in the case of M/s. Tivo Tech P. Ltd. (supra).

31.1 The ld. DR relied on the orders of lower authorities.

31.2 After considering the rival submissions, we note that the coordinate Bench in the case of M/s. Tivo Tech P. Ltd. (supra) has excluded these companies by observing as under:-

“(i) Axience Consulting Pvt. Ltd.

It is submitted that Axience is engaged in providing consultancy and advisory services in the field of Finance, Market Research and Business Administration which are different from the services provided by the assessee under the MSS segment. Further, from the Company’s website, it is clear that it is engaged in financial analytics and research, business intelligence, business and market research and strategic human capital services, which services are more in the nature of knowledge process outsourcing services (‘KPO’) rather than marketing services.

Reliance in this regard is placed on the decision of coordinate bench of this Tribunal in the case of Lloyds Offshore Global Services (P.) Ltd. v. Dy. CIT [2023] 146 taxmann.com 226 (Nang. –  Trib.), wherein on functional dissimilarly for the assessment year 2015-16 and 2016-17, this company came to be excluded.

The Ld.DR relied on the orders passed by the authorities below.

We have perused the submissions advanced by both sides in light of records placed before us.

We note that the background of the company as described in the annual report at page 4548 of paper book under note 26 reveals that this company is in the business of providing consultancy and advisory services in the field of finance, market research and business administration to corporate and non-corporates. Further the revenue from operations have been segmented under one heading at page 4540 without giving any segmental details. The only bifurcation of revenue in schedule 20 at page 4546 gives is service charges (local) and service charge (export). From the above it is clear that all the revenue earned by this company from consultancy and advisory charges in the field of market research, business administration and finance are clubbed together. The assessee before us is only providing marketing services to its AEs in respect of the presales activities as per the functions reproduced hereinabove which has not been disputed by the Ld.TPO as observed from para 10 of the 92CA order. The DRP included this comparable by observing that assessee also undertakes similar services in advertising, marketing, consulting in creating awareness of the product and therefore is functionally similar with the company. This observation of the DRP is contrary to the functions described at page 761 of the paper book carried out by assessee under the marketing support service segment. We therefore hold this comparable to be not functionally similar with that of assessee.

Accordingly, this comparable is directed to be excluded from the final list.

(ii) Dun & Bradstreet Information Services India Pvt. Ltd.

It is submitted that Dun & Bradstreet is engaged in providing services in the nature of credit reporting, risk management, learning and economic insights, etc. The company provides credit risk and financial analysis data insights for businesses, which are different from that of the functions performed by the Assessee in its MSS segment. Further, the company is also not a pure service provider as it also offers technology products. It has earned revenue from sale of products during FY 2017-18 and as per the revenue recognition policy, the company earns revenue from subscription or retainership arrangements as well as royalty income which is not comparable to the services rendered by the Assessee. It is submitted that no segmental details are available as regards the varied services provided by the Company. It is evident from the Company’s website that the company is engaged in providing varied products/services such as Business Information Report, Credibility & Business Insights Solutions, Supply Management Solutions, etc. These suites of services are in the nature of credit risk solutions and trading exchange solutions, which are not comparable to the activities undertaken by a routine MSS provider. Therefore, the company ought to be excluded from the final list of comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

We note that as per the annual report placed at page 4556, the description of the project or services provided by this company is mentioned to be credit reporting services. At page 4662, we note that this company is engaged primarily in the business of providing risk management and sales and marketing solutions. The background of the company also describes to be providing learning and economic insight services. The company offers a wide suite of information solutions and its services are used extensively by banks, financial institutions, multi nationals, corporate entities, public sector undertaking, exporters and importers. It also describes itself to be in the field of market analysis, locate prospects and incurs revenue from new and existing customers. The sales and marketing solutions offered by this company also include sale of data and related services. In our considered opinion, these functions cannot be compared with the limited services rendered by assessee to its AEs.

We accordingly direct this comparable to be excluded. (iii) Pressman Advertising Ltd.

It is submitted that the primary business activity of Pressman is providing advertising services, selling of space for advertisement in print media. It has earned revenue solely from advertising services (such as corporate advertising, brand advertising, financial advertising, social advertising, government advertising, media buying). This being the case, the company cannot be comparable to marketing support functions provided by the Assessee.

Reliance in this regard is placed on the decisions of coordinate bench of this Tribunal in case of Radisys India Ltd. v. Dy. CIT [2022] 145 taxmann.com 294 (Bang. – Trib.) for the AY 2017­18. The assessee therein was engaged in providing similar service as the assessee before us. This Tribunal directed exclusion of this company from the final list of comparables. It is submitted that since the profile for the assessment year 2018-19 is same, the company ought to be excluded from the final list of comparables. The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

At page 4818 of the annual report placed in the paper book, we note that this company is providing services in the field of advertising, PR and allied services. Further in the notes to the financial statements at page 4843, this company is said to be engaged in selling of space for advertisement in print media and public relations business. At page 4844, income from services has been said to be recognised from advertising, public relations and allied services however in the profit and loss account at page 4840, the entire income has been categorised to be under revenue from operations with the segmental details available as advertising services and other operating income under schedule 18. In note 28 at page 4855, it has been stated that the company’s business activity falls within a single business segment i.e. advertising, selling of space for advertisement in print media and public relations and hence no additional disclosure other than those made in the financial statements are required under indas 108 “operating segments”. Thus it is clear that under the advertising services, this company also earns revenue from selling of space for advertisement in print media and public relations for which no bifurcation has been provided. In any event, advertisement services provided by this company also cannot be compared to the services rendered by assessee to its AE under the marketing support services which is limited to presale support activities.

Accordingly, we direct this comparable to be excluded from the final list.

(iv) Lintas India Pvt. Ltd.

It is submitted that Lintas is engaged in providing advertising services and as per its revenue recognition policy, the company earns revenue from advertisement published or displayed or aired, retainer fees, client agency commission, etc. which are different from the services rendered by the Assessee. Therefore, this company ought to be excluded from the final list of the comparables.

The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

We note that this company is providing advertising services and the principle business activity has been described at page 4868 of the paper book in the annual report to be advertising and marketing communications. The revenue recognition by this company has been mentioned to be an advertising agency catering services to much number of clientele. We therefore do not find this comparable to be functionally similar with that of assessee who is a captive service provider.

Accordingly, this comparable is directed to be excluded from the final list.

(v) Majestic Research Services & Solutions Ltd.

It is submitted that Majestic is engaged in market research services. It offers customer service evaluation, mobile analytics, eye tracking, agricultural research etc. It offers a suite of customized solutions that cater to business at various stages of product development or launch across the product life cycle. It offers a wide range of qualitative and quantitative research services. It is involved in high-end services like research services, data analytics, product development and testing, etc. market scoping etc. It also focuses on market research, advertising research, and brand research and to deliver powerful insights into the effectiveness of branding, advertising and consumer choices relies on high level technologies such as eye tracking, mobile analytics, video analysis, facial recognition, digital tracking, online communities, neuroscience, emotional analysis, automated audience measurement, sensory sciences, etc., which is functionally different as compared to the Assessee.

Reliance is placed on following decisions of coordinate bench of this Tribunal:

– Lloyds Offshore Global Services (P.) Ltd. (supra), wherein for the assessment year 2016-17, this company was excluded;

– Epson India (P.) Ltd. v. Dy. CIT [2022] 144 taxmann.com 63 (Bang. – Trib.), wherein for the assessment year 2016-17, this company was excluded; and

– Radisys India Ltd. (supra), wherein for the assessment year 2017-18, this company was excluded.

Therefore, it is submitted that the company ought to be excluded from the final list of comparables.

The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

The annual report of the company placed at page 5353 reveals this company is engaged in digital marketing research. At page 5391 in the company overview, we note that this company deliver critical media and marketing information, analytics. Further, it is noted that this company is also doing significant investments in resource and associates all over India supported by strength of Majestic MRSS. In the notes forming part to financial statements at page 5401, under the head corporate information, this company is said to be first Indian market research company to be listed on BSE on SME platform and is engaged in providing market research services offering a wide range of qualitative and quantitative research services. The only segment under which the revenue is revealed is under sale of services in note 17 at page 5409 of the paper book. In our view this company cannot be held to be functionally similar with that of assessee.

Accordingly, we direct this comparable to be excluded from the final list.

(vi) Cheil India Pvt. Ltd.

It is submitted that Cheil is engaged in providing digital solutions, analytical solutions (data analytics) which are not akin to the services rendered by the Assessee. It derives its income primarily from advertising, communication, publicity and merchandising and undertakes consultancy services and training. It is submitted that an advertising agency undertakes functions such as attracting clients who are advertisers, developing an advertising strategy, creation of advertisements by a creative team consisting of writers, designers and copy writers. They also undertake research activities to understand a client’s market situation, competition, customers in the process of planning an advertisement campaign etc. Therefore, the aforementioned activities are not similar to the functions performed by the Assessee in the nature of product marketing, targeted campaign creation and management, public relations, customer and associate lead generation and distribution, etc. Further, it also uses a separate charging mechanism for services rendered by it to its customers, and revenue is recognised based on such charging mechanism (outsourcing in nature). The company has also entered into an agreement with its customers under which it procures advertising services on behalf of the customers and bills the customers on cost-to-cost basis without charging any mark­up. The company earns revenue from commission income, fee from production job, transaction processing job, etc. which is different from the services rendered by the assessee.

The Ld.DR relied on the orders passed by the authorities below. We have perused the submissions advanced by both sides in light of records placed before us.

From the annual report placed at page 5447 of the paper book, this company is described to be a full-fledged advertising service company. It is only the entire revenue earned by this company is from advertising services as observed at page 5485. The general information provided at page 5582 of the paper book reveals that this company is engaged in the business of advertising, communication, publicity and merchandising including undertaking market research, planning and providing consultancy services and training in the same field. There is no segmental details available and the entire revenue is disclosed as revenue from sale of services. In light of the above, we do not find this company to be functionally similar with that of assessee.

Accordingly, we direct this comparable to be excluded.”

31.3 Respectfully following the above decision, we direct to exclude these companies from the comparables list.

32. Ground No.9 (iv) : The ld. AR of the assessee seeks inclusion of following 5 companies which were rejected by TPO/DRP:-

(i) BNR Udyog Ltd.

(ii) HT Mobile Solutions Ltd.

(iii) Killick Agencies & Marketing Ltd.

(iv) Paradigm Plus Marketing Communication P. Ltd.

(v) Priya International Ltd.

32.1 The ld. AR of the assessee submitted as under:-

Companies	Arguments of lower authorities	Contention of Appellant
BNR Udyog Limited	TPO & DRP The learned TPO has rejected this company on the ground of functionality (Pg 223 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 130 of Appeal Papers).	1. The company offers Investment, Business Support services and Medical transcription/ IT/ITES services which is similar to marketing support services. 2. The company passes all filters applied by the TPO. (Relevant extract of AR at Pg 2049-2056 of PB II &submission at Pg 1514-1517 of PB I).
HT Mobile Solutions Ltd	TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers).	1. The financial data relating to the company is available in the public domain. 2. The company is functionally similar as it providing digital marketing services and enterprise solutions to brands and businesses. The company also provides services such as mobile marketing, social media marketing, advertising, mobile CRM and loyalty campaigns. 3. The company passes all filters applied by the TPO. (Relevant extract of AR at Pg 2059, 2057- 2064 of PB II & submission at Pg 1513-1514 of PB I)
Killick Agencies & Marketing Ltd.	TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers).	1. The company is functionally similar as it is acting as agent for various foreign principals for sale of various equipments and offers after sales services. 2. The company passes all filters applied by the TPO.(Relevant extract of AR at Pg 2065-2069 of PB II, submission & website extract at Pg 1522-1524 of PB I)
Paradigm Plus Marketing Communication Pvt Ltd	TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers).	1. The financial data relating to the company is available in the public domain. 2. The company is functionally similar as it providing Brand Strategy, Branding & Messaging, Digital strategy, media planning which are in the nature of sales and marketing services. 3. The company passes all filters applied by the TPO. (Submission at Pg 1511-1512 of PB I and Relevant extract of AR at Pg 2070-2073 of PB II)
Priya International Ltd.	TPO & DRP The learned TPO rejected this company as it does not appear in the search matrix of the TPO (Pg 282 of Appeal Papers). The DRP upheld the contention of the TPO (Pg 131 of Appeal Papers).	1.The company is functionally similar as it is operates in two business segments viz., (i) Indenting business and (ii) Trading of Chemicals. The indenting business segment has income wholly from commission based which is to be considered. 2. The company passes all filters applied by the TPO. (Relevant extract of AR at Pg 2081, 2074-2080 of PB II and submission at Pg 1520-1523 of PB I).

32.2 Considering the rival submissions, we remit this issue to the AO/TPO for fresh consideration and decision as per law and assessee is directed to file necessary documents.

32.3 The other companies raised in the grounds were not pressed during the course of hearing.

33. Ground No.10 : The ld. AR submitted that in case of M/s. Concept Public Relations India Ltd., which has been accepted by the ld. DRP that it is functionally comparable and satisfies all the filters adopted by the TPO and has directed for inclusion of this company. However, the TPO has not considered it and in this regard a rectification application was also filed which is pending. After considering the rival contentions, we direct the TPO for inclusion of the company in line with the directions of DRP as per para 2.9.9.1 and 2.9.9.2.

34. Ground No.7(i) & 11(1) : The ld. AR submitted that Cash PLI or depreciation should be granted. The details were submitted before the TPO and DRP. He further submitted that depreciation claimed by the assessee is substantially more than the comparable companies/ sector industry norms. The depreciation cost is around 4.07% which is higher than the average of 3 years of final comparables which is at 3.21%. He relied on the following decision in support of its contention:

• Appellant’s own case for AY 2016-17 in IT(TP)A No.s 238/Bang/2021 & AY 2017-18 in IT(TP)A No.s 238/Bang/2021
• PCIT v Novell Software Development India (P.) Ltd [2021] 126 com 29 (Karnataka) – The Karnataka HC directed to exclude depreciation from operating cost.

34.1 In AY 2010-11, the ITAT in appellant’s own case has upheld the direction of DRP to grant depreciation adjustment –

34.2 Considering the rival submissions, similar issue in assessee’s own case for AY 2016-17 & 2017-18 (supra) was decided by coordinate Bench of the Tribunal as under::-

“17.4 In assessee’s own case for AY 2010-11, [2015] 64 taxmann.com 468 (Hyd. – Trib.) the Hyderabad Tribunal on this issue held as under :-

“9.3 As regards ground No. 4, Ld. AR submitted that depreciation adopted by assessee was at higher side due to the fact that the estimated life of the assets are 3 years and 5 years. The cost of depreciation is high compared to other comparable companies. He submitted that the depreciation shall be excluded from the variable cost of all the comparable companies including assessee to determine the ALP. He relied on the following case laws:

1. BA Continuum India (P.) Ltd. TS-490-HC-2014 (TELandAP)-TP

2. BA Continuum India (P.) Ltd. Asstt. CIT [2013] 40 taxmann.com 311 (Hyd.)

3. Market Tools Research India (P.) Ltd. Asstt. CIT [2013] 32 taxmann.com 358/[2014] 150 ITD 296 (Hyd.)

9.4 Ld. AR also submitted the comparative tables on depreciation as below:

…………..

…………..

9.5 In our considered view, the method of depreciation adopted by the various comparable companies has an impact on the operating result of the respective comparable companies, which is highlighted in the above charts. The assessee company’s percentage of depreciation to total expenditure is 12.80% whereas the mean of the comparable companies are 5.26%. We notice, there is considerable impact on the operating result. Hence, we agree with the DRP that the depreciation should be considered for evaluating the operating results of the comparables.

11.3 In the result, revenue ground No. 4 is dismissed.”

34.3 Further, the jurisdictional High Court in the case of PCIT v Novell Software Development India (P.) Ltd [2021] 126 taxmann.com 29 (Karnataka) while considering similar issue held as follows:-

“7. Now we may advert to the third substantial question of law. Rule 10B of the Income-tax Rules, 1962 provides the method in which comparability analysis is to be conducted under transactional net margin method. Under sub-clause (i) of rule 10B(l)(e), the net profit margin realized by the tax payer from an international transaction is computed having regard to the relevant base that is costs incurred and sales effected, etc. Under sub-clause (ii) of rule 10B(l)(e), the net profit margin is realized by an unrelated enterprise/comparable company is computed having regard to the same relevant base as was selected in sub-clause (i). Sub-clause (iii) of said Rule specifies that before a comparison of net margins realized under sub-clauses (1) and (ii) is done, the net margin realized under sub-clause (ii) must be adjusted to take into account the differences which could materially affect the net profit margin in the open market. So also, in terms of Rule 10B(3), an uncontrolled transaction shall be considered comparable if none of the differences between the comparable companies and the controlled transaction are likely to materially affect the profit arising from such transactions in the open market or reasonably accurate adjustments can be made to eliminate the material effect of such differences. Since the respondent has a policy of charging a higher rate of depreciation as compared to the companies selected by the TPO, there is a definite impact on the net margins of the respondent as compared to the comparable companies. Thus, there is a need for making an adjustment to eliminate the differences in the accounting policies of the appellant and the comparable companies, in terms of the above Rules, especially given that in the bench marked international transaction is the sales by a captive service provider to its associated enterprises, on which depreciation would have no bearing and thus can be excluded altogether.

8. The Tribunal, by placing reliance on the Hyderabad Bench of the Tribunal in the case of MARKET RESEARCH TOOLS PVT. LTD. has held that the Dispute Resolution Panel erred in directing to exclude depreciation from the cost of tax payer as well as comparables. The aforesaid finding cannot be said to be perverse warranting interference of the Court in this appeal.

9. In view of preceding analysis, the third substantial question of law is answered against the revenue and in favour of the assessee.”

17.6 Respectfully following the above decisions, we direct the AO/TPO to adopt the Cash PLI. Theses grounds are allowed.”

34.4 Considering the above decision in assessee’s own case (supra), we direct the AO/TPO to consider the cash PLI/depreciation in terms of decision of Tribunal in assessee’s own case for AY 2016-17 & 2017-18 (supra).

35. Ground No.7(ii) & 11(ii) – Risk adjustment : The ld. AR submitted that this issue was raised before the TPO and DRP, however, it was not accepted/. He further submitted that in assessee’s own case for AY 2016-17 & 2017-18 (supra), similar issue was decided by coordinate Bench of the Tribunal as under::-

“18.2 After hearing both the parties, we note that in the recent judgement in Capco Technologies India P. Ltd. in IT(TP)A No.204/Bang/2021 dated 18.11.2021 relied by the ld. AR, it has been held as under:-

“28. The last issue which was argued before us is with regard to not granting risk adjustment. The submissions made in this regard were that Rule 10B(3) of the IT Rules provides that an adjustment ought to be provided for any differences in the economic factors between the tested party and the comparables. A risk adjustment is one such adjustment which is to be applied in order to adjust for the differences between the risk undertaken by the tested party vis-a-vis the comparable companies. Being a low risk service provider, the Assessee is devoid of any significant risks relating to its business operations whereas the comparable companies operate under uncontrolled conditions bearing risks, as a result of which the companies earn a risk premium which is not earned by a contract service provider like the assessee. Therefore, the profits of a contract service provider would be lesser than the companies selected as comparables, and in that view of the matter, it is humbly submitted that an adjustment to minimise the risk differential would be warranted. Reliance in this regard was placed on this Hon’ble Tribunal’s decisions in Analog Devices India P. Ltd. v. DCIT [TS-816-ITAT-2016-Bang] and Intellinet Technologies India P. Ltd. v. /TO [TS-228-ITAT-2012(Bang)] where, in the cases of similar placed assessees, this Hon’ble Tribunal directed that a risk adjustment be granted. The Assessee has prayed for a direction to the TPO/AO to recompute the margins of the companies selected as comparables after taking into account the differences in the risks assumed by the Assessee and the said companies on the basis of the material that is and that may additionally be placed on record.

29. We find that the DRP has primarily rejected the plea of the Assessee in this regard on the ground that quantification of risk adjustment has not been given and in the absence of such quantification, the plea cannot be accepted. Besides the above, the DRP has also placed reliance on judicial pronouncements holding that risk adjustment cannot be allowed in the absence of proper and reliable computation of risk adjustment. We are in agreement with the conclusions of the DRP in this regard and find no grounds to interfere with its conclusions.”

18.3 Respectfully following the above judgment, we remit this issue to the AO/TPO for fresh examination and direct the assessee to provide the details of quantification of risk adjustment in above terms. ”

35.1 Considering the above decision in assessee’s own case (supra), we direct the AO/TPO to consider risk adjustment in terms of decision of Tribunal in assessee’s own case for AY 2016-17 & 2017-18 (supra).

36. Ground No.12 & 13 – Notional interest on trade receivables: The ld. AR reiterated the submissions made before the lower authorities and further submitted that the trade receivables is not an international transaction and while adopting TNMM it takes care of all adjustments. Therefore, no separate adjustment should be made for notional interest on trade receivables. He further submitted that lower authorities have adopted 30 days credit period without considering any comparable companies. The ld. AR further submitted that credit period should be based on debt turnover ratio of final comparables. The ld. DRP directed the TPO to recompute the interest adjustment by adopting SBI short term deposit interest rate after granting 30 days credit period and has restricted the interest till 31.3.2018. Accordingly the TPO has interest adjustment of Rs.10,41,85,660 which is not correct. He further stated that even if receivable is to be regarded as a separate international transaction, it is closely linked transaction as per Rule 10A(d). The ld. AR submitted that 90 days may be considered as reasonable credit period. Therefore the transaction of receivables has to be evaluated along with price received for services.

36.1 The ld. DR relied on the order of lower authorities and submitted that the TPO has discussed the issue in detail. He further submitted that interest on receivables is a separate international transaction as held by various courts, therefore the contention of the assessee cannot be accepted. He submitted that the asse is contending that bills have been realized within 180 days and the TPO noted that such long delayed payment is not allowable and restricted to 30 days.

36.2 Considering the rival submissions, we note that in assessee’s own case for AY 2016-17 & 2017-18 (supra), similar issue was decided in assessee’s own case by coordinate Bench of the Tribunal as under::-

“23.5 We have heard both the parties and perused the material on record. After considering the order of the lower authorities, we are of the view that the notional interest on receivable is an international transaction, therefore this argument of the assessee is rejected. The TPO has applied 6 months LIBOR + 300 basis points whereas the ld. DRP has directed for applying SBI fixed deposit rate. During the course of hearing, it was brought to the notice of both the parties that while calculating the notional interest on receivables, 6 months LIBOR + 300 basis points beyond the credit period shall be considered by the TPO for giving effect on this issue.

36.3 Following the above decision in assessee’s own case (supra), we hold that notional interest on receivables is an international transaction. In view of the above, we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the working capital adjustment (WCA) subsumes the outstanding receivables, no separate characterization is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points by considering a credit period of 60 days. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.

37. Ground No.14 – Disallowance of depreciation on goodwill: The ld. AR has filed detailed written synopsis which is as under:-

“52. AMD Research & Development Centre India Pvt Ltd (Transferee Company) had acquired M/s AMD India Private Limited (Transferor Company). The scheme of amalgamation was approved by the Honourable High Court of Karnataka on 24.04.2017 and the appointed date was 01.04.2015. The purchase consideration for such acquisition was Rs.24,01,01,11,194/-. As per the books, the value of net asset taken over was at Rs. 1,00,08,49,898/- of the Transferor Company. Therefore, the difference between the two was considered as goodwill and depreciation on same was accordingly claimed.

37.1 In the Draft assessment order, the learned AO has incorporated disallowance of depreciation on goodwill amounting to Rs. 196,897,68/- by placing reliance on the sixth proviso to section 32(1)(ii) of the Act(Page 204 of Appeal Papers). The DRP upheld that the Order of the AO and held that claim is not in accordance with the provisions contained in Explanation 7 to section 43(1) read with Explanation 2 to section 43(6)(c) of the Act read with sixth proviso to section 32(1) of the Act(Page 155 of Appeal Papers). The same addition was incorporated in the final assessment order (Page 35 of Appeal Papers).

37.2 In this regard, the Appellant submits that goodwill qualifies to be an intangible asset under Explanation 3 to section 32(1)(ii) of the Act. In the instant case, goodwill has arisen on account of amalgamation in the books of the Appellant and did not pre-exist. Further the Appellant, who acquired Goodwill becomes the owner, which has been generated as a result of years of reputation, which has been reflected in the valuation of business. Therefore, Goodwill acquired on amalgamation qualifies as an intangible, having been used for the purpose of business, the prerequisites for availing depreciation are satisfied.

37.3 In support of the above contention, the Appellant relies on the following decisions:

• Smifs Securities Ltd. (2012) 348 ITR 302 (SC)-Pg 2451­2452 of PB-III-Case law compilation
• Mylan Laboratories Ltd [2020] 113 com 6 (Hyderabad – Trib.)- Pg 2455of PB-III-Case law compilation
• Padmini Products (P.) Ltd vs DCIT, Circle 12(2), Bangalore [2020] 121 com 237 (Karnataka)- Pg 2487-2488 of PB-III-Case law compilation
• Foodworld Supermarket vs DCIT, Circle-3(1)(1), Bangalore ITA Nos.2071, 2072, 2074 & 2075/Bang/2017

37.4 The Appellant relies on the decision of the Coordinate bench in the case of M/s. Altimetrik India Pvt. Ltd vs DCIT, Circle 1(1)(1), Bangalore (IT(TP)A No. 2511/Bang/2019)(Pg 2496 of PB-III- Case Law Compilation). It was held that the depreciation claimed by the assessee on goodwill acquired deserves to be allowed in accordance with law and the learned AO was directed to compute the depreciation.

37.5 The Appellant further submits that the Regional Director, Ministry of Corporate Affairs, South-East Region, Hyderabad represented by Registrar of Companies had filed a joint affidavit dated 28th October 2016 before the Hon’ble NCLT, stating that it had issued notice dated 16.08.2016 to the Income-tax department giving 15days time to offer comments/objections if any. In response to the said notice the DCIT, Circle – 1(1),Bengaluru vide letter in F.No. AMD India Private Limited/DCIT-C-1(1)(1)/2016-17 dated 26th September 2016 had raised the sole issue in relation TDS/TCS credit (submissions at pages 1599-1601 of PB-I). No other objection was raised.

37.6 All the facts related to the Amalgamation were provided to the learned AO at the time of Amalgamation itself. If AO had any objections, same should have provided at the time, when opportunity was provided to him. But once the consent has been provided by the AO, it cannot be objected unless there has been concealment or misrepresentation of facts, which are absent in the present case. In this regard, the Appellant relies on the decision of DCIT Circle 4(1)(1) vs. Urmin Marketing (P.) Ltd [2020] 122 taxmann.com 40 (Ahmedabad – Trib.)(Pg 2526 to 2528 of PB-III- Case Law Compilation).

37.7. With respect to objections raised by the AO on valuation of goodwill, the Appellant submits as follows:

Objections by the AO	Response of the Appellant
1.Scope of amalgamation was nothing but consolidation of group companies to take tax advantages.	The objectives of amalgamation have been extensively listed in para 2.3 of Preamble of the scheme (submissions at Pg 1601-1603 of PB-I).
2. Consideration is in form of exchange of shares which is mere restructuring to reduce taxes.	Consideration can be in any form whether monetary or not. The law laid down in section 47(vii) also mandates issue of shares in lieu of purchase consideration to avail the benefit of non-taxable transfer (Submissions at Pg 1603-1604 of PB-I).
3. The shares valued at Rs.240 crores (apprx) have been issued to a company whose net assets have been valued at Rs.140 crores (apprx) and fair value of fixed assets at Rs.25.14 crores. The method of valuation of the shares by discounting cash flow (‘DCF’) has been doubted by the AO.	The Appellant submits that purchase consideration based on book values cannot be adopted as its purely historical values. The company is taken over on going concern basis and DCF method is more appropriate. The Appellant has justified all the 3 components of DCF, namely cash flows. discounting factor and terminal value. In fact, actual sales are greater than estimated profits. This method is also listed in the Technical Guide on Valuation by the ICAI (submissions at Pg 1604-1606 of PB-I).
4.Valuation was solely based on information given by management.	The Valuer is an independent entity and free to consider the reliability and creditability of the information provided to him. He is free to make necessary modifications if required. Therefore, it is incorrect to say valuation is solely based on management’s information (submissions at Pg 1610-1611of PB-I).
5. There is no justification in lieu of brand name to claim such high goodwill.	The Appellant submits that valuation of goodwill was not based on brand name of the company but various other factors (submissions at Pg 1611-1612 of PB-I).
6. The valuation report does not separately delve upon the components of goodwill. The goodwill valuation is not justified separately.	The Appellant submits that goodwill arising on amalgamation is anticipation of future income. The goodwill has been recognized as per the AS-14 issued by ICAI (submissions at Pg 1612-1613 of PB-I)

37.8 Further, with respect to DCF method of valuation of shares, the Appellant submits that there are three important inputs necessary. These are detailed below:

37.9 Step 1: Cash Flow Projections-The cash flows should reflect the best estimates of the management after taking into account various factors affecting the business. In the given case, the actual revenue of the Appellant are far more than the projected estimates used to determine the value (submissions at Pg 1606-1607of PB-I).

37.10 Step 2: Discount Rate- This rate is aggregate of risk-free rate and risk premium. The valuer has adopted 13.5%, which is similar to discount rate of 13% provided by EY cost of capital survey(submissions at Pg 1607-1608 of PB-I).

37.11 Step 3: Terminal Value- Terminal value is determined by dividing the perpetuity cash flows with the discount rate as reduced by the stable growth rate, which is generally the inflation rate to reflect the value of the cash flows arising after the forecast period. The valuer has adopted 3% as terminal value which is reasonable when compared to growth rate of that period and lower than India’s inflation rate (submissions at Pg 1608-1609 of PB-I).

37.12 Based on all of the above, the Appellant submits that there is no manipulation in share valuation as per DCF method. In case, the learned AO was dissatisfied, he had all the liberty to sought for information by issuing notice u/s 133(6) of the Act. The valuation adopted is fair and reasonable and cannot be questioned. Same basis if valuation is adopted for amalgamating and resulting company.

37.13 Therefore, the Appellant submits that claim of depreciation on goodwill arising on account of amalgamation is in accordance with law and addition should be deleted.

37.14 The ld. AR further relied on the decision of Empire Jute Co. Ltd. v. CIT [1980] 3 Taxman 69 (SC).

37.15 The ld. DR reiterated the submissions in assessee’s own case for AYs 2016-17 & 2017-18 from para 30 to 30.30 and 31.14 to 31.15. He further relied on the order of the lower authorities. The ld. DR strongly submitted that the decision in Smiffs Securities (supra) which was without considering the provisions ………………  5^th proviso to section 32(1), section 49(1)(iii)(e), Explanation 7 to section 43(1) and/or Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) which were relevant to the issue in hand, given the fact that these were not argued before the court, could not be extended on the points which were not argued or evaluated at all. He relied on the judgments of Hon’ble Supreme Court in the case of CIT v. UP State Industrial Development Corpn. [1997] 225 ITR 703 (SC) and CIT v. Woodward Governor India (P) Ltd. [2009] 312 ITR 254 (SC).

37.16 Considering the rival submissions, we note that the AO has not granted depreciation on goodwill. Since this is the third year of claim of depreciation on goodwill, in the first AY 2016-17 the AO has also not allowed depreciation on goodwill. The issue was dealt by this Tribunal in para 24 to 32.1. The relevant part of the findings is as under:-

“32. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we note that, goodwill has arisen because of amalgamation scheme. The ld. AR submitted that assessee has recorded goodwill in the books of accounts on the difference between the net assets (total assets – liabilities) taken over by the assessee and consideration paid to the amalgamating company. The assessee claimed depreciation on the goodwill treating it as intangible asset. The AO and DRP did not accept the claim of depreciation on goodwill. During the course of hearing on different dates, both the parties argued extensively and filed written synopsis which are stated hereinabove. In the written submissions filed by the assessee, it is stated that the goodwill has arisen for the excess consideration paid and it has been recorded as per the scheme approved by the Hon’ble High Court. We further note from the rejoinder dated 26.12.2022 filed by the ld. AR that at para No.13, it is stated as under:-

“As per Scheme approved by NCLT, various intangibles like licences, registrations, copyrights, patents, trade names, trademarks, other rights, domain/website, all staff, workmen, trained employees, documentation, information, computer programs, manual data, catalogs, quotation, sales advertising material, list of present and former customers, suppliers, customer pricing information, and other records etc are transferred. These intangibles are collectively reflected as goodwill. ”

32.1 We note that the assessee has stated that goodwill is recorded in the books of accounts on the difference between the net assets (total assets – liabilities) taken over by the assessee and consideration paid to the amalgamating company on the one hand, and on the other, it is stated that the intangibles are collectively reflected as goodwill. This aspect requires verification at the end of the AO. We also note that no separate value has been assigned to these intangibles as per para 13 of the rejoinder extracted above. It is also not clear whether the amalgamating company has claimed revenue expenditure or depreciation on these intangibles. We therefore remit this issue to the AO to verify the above aspects and also examine that no double benefit is given to the amalgamating/amalgamated company. Accordingly, the AO shall decide the issue afresh as per law, after giving proper opportunity of being heard to the assessee. This issue is allowed for statistical purposes.”

37.17 Following the above decision in assessee’s own case (supra), we remit this issue to the AO in the same terms as in AYs 2016-17 & 2017-18 (supra) for fresh decision as per law.

38. GROUND 15 – RELATING TO CLAIM OF DEPRECIATION ON GST CAPITALISED

38.1 The Appellant requested the DRP to claim proportionate depreciation on the value of GST capitalised in the books by filing revised return. The DRP accepted the same and directed the AO to allow deprecation on GST related capital assets purchased during the year (Pg 167 of Appeal papers). The computation is available at Pg1769-1789 of PB I. Therefore, it was submitted that the AO be directed to follow the DRP directions.

38.2 Considering the findings of DRP at para 2.14.1 directing the AO to allow depreciation on GST related capital assets purchased during the year, we direct the AO to follow the directions of the DRP.

39. Ground No.26 is of consequential effect.

40. In view of the disposal of the appeal of the assessee, the stay petition has become infructuous and dismissed as such.

41. In the result, the appeal by the assessee is partly allowed and the stay petition is dismissed.

Pronounced in the open court on this 11^th day of September, 2023.