Income Tax Appellate Tribunal Bangalore Teenotree Convergence Pvt Ltd, ... vs Deputy Commissioner Of Income Tax, ... on 27 June, 2018 IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT(TP)A No.1616/Bang/2017 Assessment Year :201314 M/s. Tecnotree Convergence Pvt. Ltd., No. 65/2, BBlock, 6th Floor, The Deputy Level7, BagmaneTridib, Commissioner of Bagmane Tech Park, CV Raman Nagar, vs. Income Tax, Byrasandra, Circle 7 (1) (1), Bangalore 560 093. Bangalore. PAN: AAACL7345L APPELLANT RESPONDENT Appellant by : Shri Bharadwaj Sheshadri, CA Respondent by : Shri D. Sudhakara Rao, CIT (DR) Date of hearing : 14.05.2018 Date of Pronouncement : 27.06.2018 ORDER Per Shri A.K. Garodia, Accountant Member This appeal is filed by the assessee and the same is directed against the assessment order dated 29.05.2017 for Assessment Year 201314 passed by the AO u/s. 143(3) r.w.s. 144C(13) of IT Act, 1961 as per the directions of DRP. 2. The grounds raised by the assessee are as under. "1. General 1.1 The assessment order dated 29 May 2017 passed by the Ld. Deputy Commissioner of Incometax Circle 7(1) (1) ['Ld. AO'] under section 143(3) read with section 144C (13) of the Incometax Act, 1961 ( 'Act') is not in accordance with the law and is contrary to the facts and circumstances of the present case and is in any case violative of principles of equity and natural justice. GROUNDS OF APPEAL ON TRANSFER PRICING ISSUES 2. Assessment and reference to Transfer Pricing Officer are bad in law 2.1 The Ld. AO has erred in law in making a reference to the IT (TP) A No. 1616/Bang/2017 Page 2 of 42 learned Deputy Commissioner of Income Tax (Transfer Pricing) 2(2)(2) ['Ld. TPO'], inter alia, since he has not recorded an opinion that any of the conditions in section 92C(3) of the Act, were satisfied in the instant case. 3. The Ld. TPO has erred in justifying the motive of shifting of profits 3.1 On the facts and in the circumstances of the case and in law, the Ld. TPO / AO erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions which is a pre requisite condition to make any adjustment under the provision of Chapter X of the Act. 4. Comparability Analysis and Determination of Arm's Length Price Grounds of Appeal for rejection of comparables selected by the Ld. TPO in the order issued u/s 92CA of the Act 4.1 The Ld. AO/ TPO grossly erred on facts in benchmarking the transactions of the captive information technology services ('IT services') of the Appellant with companies operating as fullfledged entrepreneurs without considering the differences in the functions performed, assets employed and risk undertaken by the Appellant vis avis comparable companies. 4.2 The Ld. TPO erred in selecting CGVAK Software Exports Limited as comparable in the order u/s 92CA of the Act, despite the business of the company being functionally not comparable to the IT services rendered by the Appellant. CGVAK Software Exports Limited is involved in product development during the Financial Year ('FY') 201213. It is also involved in the business of providing Software Development and BPO services and there is no segmentation available in respect of revenue earned by the said company on account of rendering of software development and BPO services. Accordingly, the said company cannot be compared to the Appellant, being a risk insulated captive IT service provider. 4.3 The Ld. TPO erred in selecting Larsen & Toubro Infotech Limited, Mindtree Limited (Seg.) and Persistent Systems Limited as comparables in the order u/s 92CA of the Act, despite their turnover being more than ten times of the turnover of the Appellant for the FY 201213. The said companies are functionally not comparable to the IT services rendered by the Appellant. The said companies have significant profitability on account of their brands, own intangibles and incur significant onsite expenses. Larsen & Toubro Infotech Limited and Persistent Systems Limited have significant related party transactions for the FY 201213. Accordingly, the said companies cann