Pr. Commissioner of Income Tax, Bengaluru-2, Bengaluru v. Eds Electronics Date System India Pvt. Ltd. (Now Merged With Mphasis Limited)

O R D E R %

01.05.2024

CM APPL 18257/2023 (delay of 235 days in filing appeal)

Bearing in mind the disclosures made, the delay of 235 days in filing the appeal is condoned. The application shall stand disposed of.

ITA 219/2023

¶1The Principal Commissioner questions the correctness of the judgment rendered by the Income Tax Appellate Tribunal ["ITAT"] dated 30 July 2021 and has principally assailed the exclusion of The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. Vishal Information Technologies Ltd. and Nucleus Netsoft & GIS (India) Ltd. Dealing with the aforesaid two comparables and the justification for their exclusion, the ITAT has in terms of the impugned order rendered the following conclusions:-"7. We have heard both the parties and perused the material on record. As far as Vishal Information Technologies Ltd. is concerned, on the business mode, we find that the employee cost of this company is 47.39% as against 47.39% of the assessee as per the following details:-

Assessee Employee Cost 13,26,998 32,01,756 Total Cost 28,00,186 17,41,957 Employee Cost/ Total Cost

47.39%

1.84%

¶8The assessee does not outsource the work, while Vishal Information Technologies Ltd. has major operating expenses of Rs.11.49 crores towards Data entry charges and Vendor payments which comes to 75% of the total expenses as under:- Data entry charges and vendor payments 11,49,14,563 Total operating expenses 15,35,64,263 Data entry charge / Total expenses 75%

¶9The services rendered by the assessee and the comparables are functionally different. The assessee provides services including voice and communication, data entry and financial management. On other hand, Vishal Information Technologies Ltd. is engaged in data conversion and digitization of documents i.e., text conversion and e-publishing which is functional different.

¶10The onsite expenses of the comparable company is substantial as follows:- Onsite expenditure 14,42,81,708 Total expenditure 17,41,71,957 Onsite expenditure / Total expenditure 83% The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.

¶11As against the above, the assessee is mainly engaged in offshore activities and does not have any onsite expenditure.

¶12The comparability of this company also came up for consideration before the Mumbai Tribunal in the case of ACIT v. Maersk Global Service Center (India) (P.), 14 ITR (Trib.) 541 (Mumbai) and the Tribunal upheld the exclusion of Vishal Information Technologies Ltd. observing as under:-

"48. Insofar as the cases of Tulsyan Technologies Limited and Vishal Information Technologies Limited are concerned, it is noticed from their annual accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded. Coming to the cases of Cepha Imaging Private Limited and Asian Cerc Information Technology Ltd. (Seg.), we find that these companies are engaged in providing software development services as is evident from their annual reports available on pages 52 onwards and 64 onwards of the paper book. Thus these companies become functionally different. Insofar as WIPRO BPO Solutions Limited is concerned, we find that their turnover is eleven times greater than that of the assessee. This company having such a high brand value along with much higher turnover, in our considered opinion, has been rightly excluded by the ld. CIT(A). The last case being that of Airline Financial Support Services (I) Ltd. has 31.76% of the total service fees received from the controlled transactions with the related parties. This fact is evident from pages 62 of the paper book, which makes it incomparable with the assessee"

¶13In view of the above reasons, Vishal Information Technologies Ltd. is directed to be excluded from the list of comparables.

¶14The next comparable for consideration is Nucleus Netsoft & GIS Ltd. We are of the opinion that this company is also to be excluded on account of different business model, export revenue filter, extra ordinary events and segmental details. The assessee does not outsource work. Whereas this company has outsourced most of its business activities. Major operating expenses of Rs.1.04 crores are with regard to data processing charges. The company has a different business model than that of assessee. The details of the company in this regard are as follows:- Data processing charges 1,04,65,002 Total operating expense 2,41,72,840 The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. Data processing charge / Total operating expense

43.29%

¶15The export revenue of this company is at 67.32% which is less than 75%, compared to the assessee"s 92.35 as can be seen from the following: Assessee Export revenues 29,73,183 3,70,99,448 Total ITeS revenue 32,19,408 5,51,06,523 Data process charge/Total operating expense

92.35%

67.32%

¶16Further there is no extra ordinary event of amalgamation in the case of assessee. But this company had extra ordinary events. The scheme of amalgamation was approved by the Bombay High Court on 22.2.2006 without appointed date 01.04.2005. The financial results of the transferor company have been incorporated as per the disclosure given by the company. The figures given in the annual report are not comparable with those of the previous year.

¶17The segmental details of the assessee company are available and the TPO has made adjustment to the arm"s length price in the ITeS segment. In the case of the comparable, the company has both IT and ITeS segments which are considered by the company as one segment and the segmental details are not available. Therefore, this company is not comparable with assessee on this count also.

¶18Accordingly, the above two comparables i.e., Nucleus NetSoft & GIS Ltd. and Vishal Information Technologies Ltd. cannot be compared to the assessee company and be excluded from the list of comparables for determination of the arm"s length price of international transactions."

¶2In view of the aforesaid, we find that no substantial question of law can be said to arise. Consequently, we see no reason to interfere with the findings rendered by the ITAT.

¶3The appeal fails and shall stand dismissed on the aforesaid terms.

YASHWANT VARMA, J.

PURUSHAINDRA KUMAR KAURAV, J. MAY 01, 2024/RW The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above.

* IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 219/2023 PR. COMMISSIONER OF INCOME TAX, BENGALURU-2, BENGALURU ..... Appellant Through: Mr. Puneet Rai, SSC along with Mr. Ashvini Kumar and Mr. Rishabh Nangia, SCs. versus EDS ELECTRONICS DATA SYSTEM INDIA PVT. LTD. (NOW MERGED WITH MPHASIS LIMITED) ..... Respondent Through: Mr. T. Surya Narayan, Sr. Adv. with Ms. Mahima Goud, Mr. Kunal Verma, Ms. Y. Pawar Jha, Mr. Ritik Gupta, Ms. Lavanya Dhawan and Mr. Shivraj Pawar, Advs. CORAM: HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV