Ita/547/2017 Of Pr. Commissioner Of Income Tax, Gurgaon v. M/S Comverse Network Systems India Pvt Ltd

ITA No.547 of 2017 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA|AT CHANDIGARH ITA No.547 of 2017 (O&M)Date of Decision : 05.02.2020 The Pr. Commissioner of Income Tax, Gurgaon ...... Appellant VerTSu M/s Comverse Network Systems India Pvt Ltd. ...... Respondent CORAM: HON'BLE MR.JUSTICEK AJAY TEWARIHON'BLE MR.JUSTICEAVNEESH JHINGAN --- Present: Mr. Tajender K. Joshi, Sr. Standing Counsel for the appellant, Shri Deepak Chopra, Advocate Shri Deepak Agrawal, Advocate with Shri Rohan Khare, Advocatefor the respondent --- AJAY TEWARI, J. (Oral) 1. The present appeal is directed against the Order of the Income TaxAppellate Tribunal (ITAT’), I-2 Bench, New Delhi dated 20.01.2017 for theassessment year 2008-09. The Revenue has raised the following question of law:-| “Whether in the facts and circumstances of the case and in law, theHon’ble ITAT was correct in excluding M/s Avani CimonTechnologies Ltd, M/s Celestial Lab Ltd., M/s Infosys Ltd., M/sKALS Information Systems Ltd., M/s WIPRO Ltd, M/s AlphaoeoIndia Limited, M/s Mahindra Consulting Engineers Limited, M/sKirloskar Consultants Limited, M/s Stup Consultants Private Limitedand M/s Smac Limited, and included M/s Himachal FuturisticCommunication Ltd used as a comparable for determining the ALPin the case of the assessee company, since the TPO had madedetailed findings by analyzing functionality, turnover and profile ofvarious comparables considered in his order. Further the ITAT wasnotjustified to consider issues pertaining to earlier years, since eachyear 1s a separate assessment year and should be considered independently. The comparables has been selected by the TPO byapplying suitable and relevant parameters. 2. The Respondent assessee, M/s Comverse Network Systems IndiaPvt. Ltd. is a wholly owned subsidiary of M/s. Comverse Network Systems Inc.,USA. The assessee is engaged in the provision of sales and post-sales supportservices, software development services, professional and maintenance servicesto its Associated Enterprises (‘AEs’). — 3. For assessment year 2008-09, the Respondent assessee filed its|return of income on 30.09.2008, declaring a loss of INR 6,44,33,875 which wasrevised to INR 7,28,17,072 on 31.03.2010. The case of the assessee wasselected for scrutiny under ‘Computerized Assisted Selection of Scrutiny’(CASS) and notice under section 143(2) of the Income Tax Act, 1961 (‘Act’)was issued and complied with. The Assessing Officer made a reference to theTransfer Pricing Officer (‘TPO’) under section 92CA(1) of the Act fordetermining the Arm’s Length Price (‘ALP’) under section 92CA(3) of the Actin respect of the International Transactions entered into by the assessee.According to the transfer pricing study report submitted by the assessee undersection 92E of the Act, following services were provided by the assessee to its AE: ITA No.547 of 2017 (O&M) 3 4. The TPO aggregated the results of software development,professional and maintenance services into a single segment namely ‘softwaredevelopment’. Thus, ALP was computed by the TPO for two segments namely‘software development’ segment and ‘sales and post sale support services’segment. The TPO carried out fresh search for both segments having results asunder: A.software Development Services The TPO selected 4 out of the 16 comparables selected by the assessee andidentified 15 new companies (totalling 19). The TPO computed the averageOP/OC of these 19 companies at 26.20 percent, and applying this benchmarkagainst the assessee’s margin of 11.54 percent, worked out transfer pricingadjustment of Rs.2,92,33,284/- under this segment, B.Sales and Post2sales Support Services The TPO rejected 3 companies which were selected by the assessee andidentified 5 companies and computed their average OP/OC at 26.70 percent, asagainst the assessee’s margin of 9.60 percent on cost. By applying thisbenchmark, the TPO worked out the transfer pricing adjustment for this segmentamounting to Rs.2,24,83,680/- A.software Development Services The TPO selected 4 out of the 16 comparables selected by the assessee andidentified 15 new companies (totalling 19). The TPO computed the averageOP/OC of these 19 companies at 26.20 percent, and applying this benchmarkagainst the assessee’s margin of 11.54 percent, worked out transfer pricingadjustment of Rs.2,92,33,284/- under this segment, B.Sales and Post2sales Support Services The TPO rejected 3 companies which were selected by the assessee andidentified 5 companies and computed their average OP/OC at 26.70 percent, asagainst the assessee’s margin of 9.60 percent on cost. By applying thisbenchmark, the TPO worked out the transfer pricing adjustment for this segmentamounting to Rs.2,24,83,680/- 5. The TPO vide his order dated 27.10.2011 determined adjustment/difference on account of ALP at INR 5,17,16,964/- as under: 6. After incorporating the adjustment proposed by the TPO, theAssessing Officer issued a draft assessment order on 23.12.2011 to the assessee.Against the draft assessment order, the assessee filed its objection before the Dispute Resolution Panel ((DRP’), New Delhi. In compliance to the direction ofthe DRP vide order dated 06.09.2012, the TPO recomputed the adjustment asunder: 1. Software development service INR 2,74,97,397/-2. sales and post-sales support services |INR 2,24,83,680/-2. sales and post-sales support services |INR 2,24,83,680/- Total INR 4,99,81,078/- 7. After taking into account the adjustment to ALP, as directed by theDRP, the Assessing Officer passed the impugned order under section 144C readwith section 143(3) of the Act on 23.10.2012, 8. Aggrieved by the final assessment order dated 23.10.2012, theassessee preferred an appeal before the ITAT. The ITAT, vide its order dated20.01.2017, accepted the submissions of the assessee that the comparableschosen by the TPO were functionally dissimilar and were liable to be rejected.9. Being aggrieved by the impugned order dated 20.01.2017 of theHon’ble ITAT, the Revenue has preferred the present appeal for consideration.10. Only one question has been proposed by the Revenue whichencompass all the comparables rejected by the Tribunal by analyzing thefunctionality, turnover and profile of the various comparables now beingimpugned before us. We may note that apart from generally challenging therejection of comparables, no grounds of perversity in the order of the ITAT hasbeen raised in the Revenue’s appeal. We propose to deal with the samesequentially as under: SOFTWARE DEVELOPMENT SEGMENT Avani Cincom Technologies Limited ll. The TPO had adopted Avani Cincom Technologies Limited having!an operating profit of 21.65% holding that the company is engaged in softwaredevelopment services. The DRP has rejected the claim of the assessee for itsexclusion. Before the ITAT, the assessee submitted that this company is ITA No.547 of 2017 (O&M) 5 functionally dissimilar to the profile of the assessee since it was engaged in widearray of services including development software products and back officesupport services. Additionally, it was submitted that even though Avani CincomTechnologies Limited was engaged in provision of wide arrange of services, itdid not maintain separate segmental information. The assessee further submittedthat a bare perusal of the Profit & Loss Account would evidence that AvaniCincom Technologies Limited was engaged in sale of products as well asrendition of Services. 12. The finding of the ITAT for exclusion of Avani CincomTechnologies Limited is as under: F4.3.3 We have heard the rival submissions on the issue ofinclusion/rejection of this comparable. We find that for theassessment year under consideration 1.e. AY 2008-09, in the caseof Sun Life India Service Centre Private Limited (supra) thecomparable has been held to be a software product companyhaving intellectual property rights or some of the productsdeveloped by it. 12. The finding of the ITAT for exclusion of Avani CincomTechnologies Limited is as under: F4.3.3 We have heard the rival submissions on the issue ofinclusion/rejection of this comparable. We find that for theassessment year under consideration 1.e. AY 2008-09, in the caseof Sun Life India Service Centre Private Limited (supra) thecomparable has been held to be a software product companyhaving intellectual property rights or some of the productsdeveloped by it. 4.3.5 We are not in agreement with the contention of the learnedCIT (DR) in not allowing the learned counsel to raise objectionregarding functional dissimilarity. It is well within his right toraise such issue before the appellate authority. Further, we findthat the assessee does not own any intangible/ technical know-how of its own and rendered software development services to itsAE on cost plus basis. In view of the above, in our opinion thefunctions carried out by the comparable are dissimilar and itcannot be included as a comparable. Accordingly, we direct theTPO/AO to eliminate this company from the list ofcomparables. 13. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. But the said finding of fact has not been shown to be perverseby the Revenue and thus, the finding of facts that the comparable is functionallydissimilar and in the absence of segmental details of revenue generated from itsservices and sale of products, has rightly been excluded by the ITAT. ITA No.547 of 2017 (O&M) 6 Celestial Labs Limited 14. The TPO has selected this company on the basis that it was engagedin software development activities and passed all the filters applied. The saidfinding was upheld by the DRP. Before the ITAT, the assessee submitted thatCelestial Labs Limited was functionally dissimilar to the profile of the assessee,being a product company engaged in both development of software and bio-informatic products. Additionally, it was submitted before the ITAT that thecompany being own significant IPR which had let out on license basis.Furthermore, it was submitted before the ITAT that the said company wasundertaking significant research and development of products by incurringsubstantial R&D expenses. The ITAT recorded the following finding whileexcluding the said comparable:- F4.3.85 We have considered the rival submission of the partiesand perused the relevant material on record. On perusal of theAnnual Report of the company available on page 423 to page 464of the Annual Report compilation of the assessee, wefind that thecompany was engaged in the field of IT/bio informatics,biotechnology and consultancy work and offered enterpriseresource planning’ solutions, data warehousing, businesintelligence solutions and bio services like clinical datamanagement, gene sequence analysis, molecular modeling, designand development of drug molecules dedicated to health sector togovernment, institution pharma and biotech companies, hospitalsand medical centers. On page 431 of the Annual Reportcompilation, the intellectual property rights of the company invarious software like RATNA, VYASA, DHANVANTRI, SAHKARare mentioned. 4.3.9 From the above, we find that the above company isengaged in diverse field of bio-informatics and related fields inaddition to the ERP solutions and, thus, it cannot be said to befunctionally similar to the software development segment of theassessee. The relevant finding of the Tribunal is reproduced asunder.. 4.3.10 In view of the above discussion, we are of opinionthat this company cannot be considered as functionally similar tothat of the assessee, therefore, accordingly, we direct forelimination of this companyfrom the list of comparables. ” 4.3.9 From the above, we find that the above company isengaged in diverse field of bio-informatics and related fields inaddition to the ERP solutions and, thus, it cannot be said to befunctionally similar to the software development segment of theassessee. The relevant finding of the Tribunal is reproduced asunder.. 4.3.10 In view of the above discussion, we are of opinionthat this company cannot be considered as functionally similar tothat of the assessee, therefore, accordingly, we direct forelimination of this companyfrom the list of comparables. ” 15. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. From the order of the ITAT it is clear that this Company isengaged in diverse field of bio-informatics and related fields in addition to theERP solutions and is functionally not similar to the software developmentsegment of the assessee. The above finding of fact has not been shown to beperverse in any manner and hence Celestial Labs Limited has rightly beenexcluded by the ITAT. Infosys Limited 16. The TPO selected the said company as comparable while stating thatit passed all the filters and was engaged in the business of software developmentservices. The said finding was confirmed by the DRP. Before the ITAT, theassessee submitted that Infosys Limited could not be retained as a comparableowing to the fact that the company was engaged in wide range of services frompackage evaluation and infrastructure management to development of softwareproducts. It was further submitted before the Tribunal that Infosys Limited didnot have adequate segmentation of the revenue earned from provision ofservices and sale of products, in addition to the fact that the said services werewidely varied and dissimilar to the services rendered by the assessee. Variousother contentions such as Infosys only maintain segmental information on thebasis of its geographical/industry segment, being an industry leader havingsignificantly large scale of operations (turnover Rs.15,648 crores), havingsignificant brand value, intangible assets were raised before the ITAT. TheITAT while excluding the said comparable has observed as under: F4.3.13 We have heard the rival submissions of the parties and perused the relevant material on record. On perusal of the AnnualReport of the Company, which is available on pages 465 to 515 ofthe Annual Report compilation, we find that the company hasrevenue from software services as well as products and nosegmental detail of revenue from software services and sale ofsoftware products is available, and thus the result of thecomparable company cannot be compared with the softwaredevelopment services segment of the assessee company. Perusalof the Annual Report of the company has also revealed that it hasincurred substantial expenditure on _ the research adevelopment, as against the assessee, who is a captive serviceprovider to its AE. In the case of Sun Life India Services CenterIndia Private Limited for AY 2008-09 (supra), the Tribunal hasrejected the Infosys as a comparable to a captive service provider.The relevant finding of the Tribunal is reproduced as under.. A"" 4.314 In view of our discussion above, we are of the opinion thatthe company is functionally dissimilar to the assessee, andaccordingly, we direct the AO/Transfer Pricing Officer to excludethe above companyfrom the list ofcomparables. ” 17. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The ITAT has given detailed reasons while passing the orderand the said finding of facts has not been shown to be perverse and thus theexclusion of the said comparable is completely justified on facts.Kals Information Systems Limited A"" 4.314 In view of our discussion above, we are of the opinion thatthe company is functionally dissimilar to the assessee, andaccordingly, we direct the AO/Transfer Pricing Officer to excludethe above companyfrom the list ofcomparables. ” 17. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The ITAT has given detailed reasons while passing the orderand the said finding of facts has not been shown to be perverse and thus theexclusion of the said comparable is completely justified on facts.Kals Information Systems Limited 18. The TPO selected the said company at segmental level as it passed allthe filters and was engaged in the business of software development activities.The said finding was confirmed by the DRP. Before the ITAT, the assesseewhilst referring to various pages of the Annual Report submitted that thesegmental details i.e. application software as selected by the TPO alsocomprised of revenue from both provision of services as well as sale of products products and services was available. The ITAT while directing exclusion of thiscomparable has observed as under: F4.3.17 We have considered the rival submission of the partiesand perused the relevant material on record. On perusal of theAnnual Report of the comparable company which ts available onpage 7/06 to page 726 of the Annual Report compilation, we finthat the company earned revenue from two segments namelyapplication software and training. Further on perusal of clause 2(b) of schedule No.16 (notes to the financial statement) of theAnnual Report, we find that application software segmentconsisted of both software services and software products. Therelevant clause reproduced as under..... 4.3.18 Further we find that in the case of Sun Life India ServiceCenter Private Limited (supra) also the revenue under applicationsoftware segment of comparable company has been held to beconsisted offrom development ofsoftware as well asfrom sale ofsoftware products. The relevant part of the finding of the Tribunalis reproduced as under.. 4.3.19 In view of the above, we are of the considered opinion that thesegment of comparable company, compared with the assessee companyis functionally dissimilar and accordingly, we direct the AO/TPO toexclude the above companyfrom the list of comparables.” 19. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The ITAT has given detailed reasons while passing the orderand also relied upon its decision in Sun Life India Service Center PrivateLimited case. We find no infirmity in the finding of fact by the ITAT since noperversity has been brought to our attention and hence the said comparable wasrightly excluded from the list of comparables. Wipro Limited ITA No.547 of 2017 (O&M) 10 the assessee that Wipro Limited, similar to Infosys Limited, was engaged inproviding wide range of IT services along with trading of products.Additionally, it was submitted that there was no break-up of profitability 1.e,segmental from such activities. The assessee pleaded for the exclusion of WiproLimited on the ground that it was engaged in significant R&D activities, owningintangible assets and functionally dissimilar to the assessee. The finding of theITAT for its exclusion are as under: Wipro Limited ITA No.547 of 2017 (O&M) 10 the assessee that Wipro Limited, similar to Infosys Limited, was engaged inproviding wide range of IT services along with trading of products.Additionally, it was submitted that there was no break-up of profitability 1.e,segmental from such activities. The assessee pleaded for the exclusion of WiproLimited on the ground that it was engaged in significant R&D activities, owningintangible assets and functionally dissimilar to the assessee. The finding of theITAT for its exclusion are as under: F4.3.22 We have heard the rival submissions and perused therelevant material on record. We find from the Annual Report ofthe comparable company which 1s placed on page 516 to 612 ofthe Annual Report compilation, that the revenue consist of salesand services and no separate segmental results for softwaredevelopment services are available. On perusal of the page 560 ofthe Annual Report compilation, we find that the company wasengaged in research and development and activities having focusto strengthen the portfolio of Centre of Excellence (COE) andinnovation projects and part of this focus, over 600 people wereengaged. On perusal of page 561 of the Annual Reportcompilation, we find that the company has been granted 40registered patent and 62 pending applications. As against theintellectual property rights owned by the company and R&Dactivities, the assessee was only a captive service provider to itsAk. In the case of 3-D PLM Software Solutions (supra), theTribunal has observed as under.... 4.3.23 Since the instant assessee does not own any intangibles,respectfully following the decision of the coordinate bench of theTribunal in the case of 3-D Software Solutions (supra), we holdthat the company cannot be considered as a comparable to theassessee and accordingly we direct the AO/TPO to eliminate thiscompany from the set of comparable company for the year underconsideration. ITA No.547 of 2017 (O&M) 11 given by the TPO. The ITAT has given detailed reasons while passing the orderand also came to conclusion that as against the intellectual property rightsowned by the company and R&D activities, the assessee was only a captiveservice provider to its AE. The ITAT further followed the decision of thecoordinate bench of the Tribunal in the case of 3-D Software Solutions. The saidfinding of facts have not been shown to be perverse and thus, the exclusion iscompletely justified on facts. SALES AND POST SALES SUPPORT SEGMENT Alphageo India Limited 22. The TPO selected the said comparable while stating that since theassessee had adopted TNMM as most appropriate method, the services renderedby Alphageo “broadly similar” to the technical services provided by the assesseefor the valid comparable. The said finding was confirmed by the DRP. Beforethe ITAT, the assessee contended that Alphageo was functionally dissimilarowing to the fact that Alphageo was an integrated seismic service provider andoffers various topographical survey, tape transcription, digitalization, seismicsections and well logs into various formats for oil exploration companies.Additionally it was submitted that Alphageo used advanced technology such asstate of the art software for 2D and 3D seismic data interpretation, distortionfree 24 sensors and it deployed the latest seismic data analysis with advgancedinteractive work stations. It was further submitted by the assessee that the saidcompany had huge asset base of Rs.705 crores, incurring substantial expenseson survey and drilling. The [TAT while directing its exclusion has held asunder:| F5.7 We heard the rival submissions ofthe parties andperused therelevant material on record. On perusal of the page 7, of thecompilation of the annual reports, we find that M/s Alphageo F5.7 We heard the rival submissions ofthe parties andperused therelevant material on record. On perusal of the page 7, of thecompilation of the annual reports, we find that M/s Alphageo India Ltd was engaged in providing 2D and 3D seismic servicesfor design and preplanning of 2-D and 3-D surveys, seismic dataacquisition, seismic data — processing/reprocessing/speciprocessing, seismic data interpretation, generation, evolution andranking of prospectus, reservoir data acquisition, reservoiranalysis etc. This company has also been held as engaged inseismic research activity by the Tribunal in the case of SyngentaBioscience Private Limited (supra). :"5AAAA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. 23. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The said finding of facts by the ITAT has not been shown tobe perverse and thus, the exclusion is completely justified in facts and in law.Mahindra Consulting Engineers Limited 24. The TPO selected the said company as being functionally comparableto the profile of the assessee which finding was confirmed by the DRP. Beforethe ITAT the assessee contended that the said company was functionallydissimilar owing to the fact that it was engaged in infrastructure consultancyservices and providing services in multi-disciplinary projects such as SpecialEconomic Zone, water supply, sewage, solid waste management, urbaninfrastructure, agricultural and horticultural infrastructure, social infrastructure,ports, harbor and offshore terminals, industrial infrastructure etc. Additionally, itwas submitted by the assessee that the said company owned technical know-howand operated in single business segment. The ITAT recorded the followingfindings while excluding the said comparable: F:"BAA" On perusal ofpage 119 of the compilation of the annual reports, we find that M/s Mahindra Consulting Engineers Ltd. is engagedin infrastructure sector by providing consultancy services in theareas of Special Economic Zone, water supply, sewage, solidwaste management, urban infrastructure, agricultural andhorticultural infrastructure, social infrastructure, ports, harborand offshore terminals, industrial infrastructure etc.:"5AAAA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. 25. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The ITAT has held that the said company was functionallydissimilar owing to the fact that it was engaged in infrastructure consultancyservices and providing services in multi-disciplinary projects such as SpecialEconomic Zone, water supply, sewage, solid waste management etc. The saidfinding of facts by the ITAT has not been shown to be perverse and thus, theexclusion is completely justified in facts and in law. Kirloskar Consultants Limited 26. The TPO had accepted the said comparable as being appropriatehaving passed all the filters. The said finding was confirmed by the DRP. Beforethe ITAT, the assessee submitted that the said company was functionallydissimilar owing to the fact that it was engaged in engineering consultancy,project management services and architectural consultancy services. TheTribunal while directing its exclusion has observed as under: F:"BAAAAA On perusal ofpage 97 of the compilation of the Annual Report,we find that M/s Kirloskar Consultants Ltd was engaged in thearea of engineering consultancy, project management Services,architectural consultancy. The major assignment executed by thecompany are mentioned on page 98 of the compilation ofAnnualReport, which are reproduced as under.. :"5AA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. F:"BAAAAA On perusal ofpage 97 of the compilation of the Annual Report,we find that M/s Kirloskar Consultants Ltd was engaged in thearea of engineering consultancy, project management Services,architectural consultancy. The major assignment executed by thecompany are mentioned on page 98 of the compilation ofAnnualReport, which are reproduced as under.. :"5AA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. 27. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observationsgiven by the TPO. The ITAT has held that M/s Kirloskar Consultants Ltd wasengaged in the area of engineering consultancy, project management services,architectural consultancy and thus functionally dissimilar to the assessee. Thesaid finding of facts have not been shown to be perverse and thus, the exclusionis completely justified in facts and in law. stup Consultants Limited 28. The TPO selected the said company as being functionally comparablesince it was engaged in providing consultancy both in civil engineering andarchitectural. The TPO further observed that owing to the fact that the saidcompany was deriving majority of its income from professional fee on accountof technical consultancy, it was functionally comparable to the assessee. Thesaid finding was confirmed by the DRP. The ITAT while directing its exclusionon account of Stup Consultants Limited being functionally dissimilar observedas under: FOn perusal ofsegment information available on page 148 of theannual report compilation, we find that M/s Stup ConsultantsPrivate Limited was engaged in the profession of civil engineeringand architectural consultancy. Accordingly, we _ direct thAO/TPO to exclude above company from the list of comparablesfor sale andpost sale support segment of the assessee. :"5AA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. 29. The said finding of facts have not been shown to be perverse and ITA No.547 of 2017 (O&M) 15 thus, the exclusion is completely justified in facts and in law.| Semac Private Limited 30. The TPO selected the said company as being functionally comparablesince it derived all its income from professional fee on account of technicalconsultancy. The said finding was confirmed by the DRP. Before the ITAT itwas submitted by the assessee that the said company was functionally dissimilarowing to the fact that it was engaged in providing engineering consultancyservices which was absolutely different from the sales and post sales supportservices rendered by the assessee. The ITAT while directing its exclusion hasobserved as under: F:"BAAAAA"" Further, on perusal of para-2 of the Annexure to the auditor’sreport, which is available on page 161 of the compilation of theAnnual Report, we find that M/s Semac Pvt. Ltd. was engaged inproviding engineering consultancy Services. :"5AA"" Accordingly, we direct the AO/TPO to exclude above companyfrom the list of comparables for sale and post sale supportsegment of the assessee. 31. The ITAT while concluding on the comparable of the sales and postsales support services held as under:sales support services held as under: F5.8 Thus, we find that the comparables chosen by the TPO areengaged in thefunctions altogether differentfrom the functions inthe nature of sales and post sales support services. Therequirement of human resources competence for providingconsultancy in the field of engineering is all together differentfrom the manpower required for providing sales and post salessupport services. In view of our discussion. Above, we are of theconsidered opinion that above five companies chosen by the TPO,cannot be selected as comparables.” 32. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observations ITA No.547 of 2017 (O&M) 16 F5.8 Thus, we find that the comparables chosen by the TPO areengaged in thefunctions altogether differentfrom the functions inthe nature of sales and post sales support services. Therequirement of human resources competence for providingconsultancy in the field of engineering is all together differentfrom the manpower required for providing sales and post salessupport services. In view of our discussion. Above, we are of theconsidered opinion that above five companies chosen by the TPO,cannot be selected as comparables.” 32. The counsel for the revenue relies upon the order passed by the TPOand argued that the ITAT failed to appreciate the findings and observations ITA No.547 of 2017 (O&M) 16 given by the TPO. The ITAT has held that the said company was functionallydissimilar owing to the fact that it was engaged in providing engineeringconsultancy services which was absolutely different from the sales and postsales support services rendered by the assessee. The ITAT further held that therequirement of human resources competence for providing consultancy in thefield of engineering is all together different from the manpower required forproviding sales and post sales support services. The said finding of facts havenot been shown to be perverse and thus, the exclusion is completely justified infacts and in law.| Himachal Futuristic Communication Limited. 33. The next challenge of the Revenue is against the “inclusion” ofHimachal Futuristic Communication Limited by the ITAT. The counsel of theassessee drew our attention to para 4.7.7 wherein the Tribunal has held asunder:| FWe have heard the rival submissions and perused the relevantmaterial on record. We find that the assessee has compared the‘turnkey contract and service’ segment of the company with thesales and post sales support segment of the assessee company.However, we do not agree with the contention of the assessee thatthe company segment of turnkey contract & service wasfunctionally similar to the segment of the assessee undercomparison. The segment of the company compared is turnkeycontract and services. No information is available in respect ofthe turnkey contract executed by the company and, therefore, theresult of turnkey contract and service segment are not comparablewith the sales and post sale support services in respect ofsoftwareproducts. Normally, the turnkey contracts include executing of allcomponent of contracts, 1.e., from start to the end including civil,electrical, transportation etc. kind of work. In the Annual Reportof the company, no information in respect of turnkey contractexecuted by the company, is available. In our opinion, thesegment of the company inclusive of turnkey contract, cannot be compared functionally with the sales and post sale supportsegment of the assessee. Further, the argument of the learnedcounsel that it was considered as comparable in preceding yearalso cannot be accepted because the functional comparability hasto be made in the current year only and preceding year resultscannot be precedent in Transfer Pricing comparison. Further,since the company has not been foundfunctionally comparable atsegment level, we are not adjudicated on the other argumentsargued by the Ld. CIT (DR) on the issue ofpersistent loss-makingcompany etc. Accordingly, we direct exclusion of the companyfrom the set ofcomparables. ” 34. Hence, what is evident from the above is that the Tribunal has upheldthe action of the TPO and directed “exclusion” of the said company and notinclusion of the same and the ground of appeal raised by the revenue in respectof this comparable is factually incorrect. 35. Be that as it may, the findings of facts regarding exclusion of theabove comparables are upheld and thus do not merit any interference. Thequestion of law are answered against the revenue and in favour of the Assessee.The said factual findings have not been shown to be perverse in any manner norany material has been placed before us by the revenue to allege any perversity inthe decision of the ITAT. 34. Hence, what is evident from the above is that the Tribunal has upheldthe action of the TPO and directed “exclusion” of the said company and notinclusion of the same and the ground of appeal raised by the revenue in respectof this comparable is factually incorrect. 35. Be that as it may, the findings of facts regarding exclusion of theabove comparables are upheld and thus do not merit any interference. Thequestion of law are answered against the revenue and in favour of the Assessee.The said factual findings have not been shown to be perverse in any manner norany material has been placed before us by the revenue to allege any perversity inthe decision of the ITAT. 30. We are supported by our decision in the case ofPCIT Vs. M/s.Equant SolutionsIndia Pvt. Ltd. GTA No. 419 of 2016 order dated30.10.2019). Similar view have been taken by the Bombay High Court in thecase oftCIT Vs. PTC Software(395 ITR 176) and in the case ofPrincipalCommissioner of Income Tax vs. Barclays Technology Centre India Pvt.Ltd.(409 ITR 108) and by the Karnataka High Court inPrincipalCommissioner of [Income Tax vs. Softbrands India Pvt. Ltd.(406 ITR5013). 37. The appeal stands disposed of in the above terms. © 38|Since the main case has been decided, the pending Miscellaneous Application, if any, also stands disposed of, (AJAY TEWARI )JUDGE 05.02.2020pooja sharma-l ( AVNEESH JHINGAN)JUDGE Whether speaking/reasonedWhether Reportable | Yes/NoYes/No