Income Tax Appellate Tribunal - BangaloreM/S Vwr Lab Products Pt Ltd , Bangalore vs Deputy Commissioner Of Income Tax ... on 25 May, 2023IN THE INCOME TAX APPELLATE TRIBUNAL\n                         "C" BENCH : BANGALORE\n\n           BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT\n         AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER\n\n                          IT(TP)A No.92/Bang/2023\n                          Assessment year : 2012-13\n\n  VWR Lab Products Pvt. Ltd.,              Vs.   The Deputy Commissioner\n  139, 6th Main, BDA Industrial Suburb,          of Income Tax,\n  Peenya Post, Tumkur Road,                      Circle 7(1)(1),\n  Bangalore - 560 058.                           Bangalore.\n  PAN: AACCV 3080E\n              APPELLANT                                RESPONDENT\n\nAppellant by      : Shri Aliasgar Rampurwala, CA\nRespondent by     : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru.\n\n                  Date of hearing       : 24.05.2023\n                  Date of Pronouncement : 25.05.2023\n\n                                  ORDER\n\n  Per Chandra Poojari, Accountant MemberThis appeal by the assessee is directed against the final assessment\n  order of the DCIT, Circle 7(1)(1), Bangalore passed u/s. 143(3) r.w.s. 254\n  r.w.s. 144C(13) of theIncome-tax Act, 1961[the Act] dated 27.12.2022 for\n  the assessment year 2012-13.2.      The assessee has raised the following grounds:-"1.    On the facts and in circumstances of the case and in law,\n         the assessment order framed undersection 143(3)read withsection 144C(13)of the Income-tax Act, 1961 (`the Act') passed\n         by the Assessment Unit, Income-tax Department (learned\n         Assessing Officer' or 'learned AO') dated 27 December 2022, to\n                                              IT(TP)A No.92/Bang/2023Page 2 of 29the extent prejudicial to the Appellant, is bad in law, contrary to\nthe facts and circumstances of the case and is liable to be\nquashed.Transfer Pricing (TP) Grounds2.     On the facts and in circumstances of the case and in law,\nthe Hon'ble Dispute Resolution Panel -2, Bengaluru (`Hon'ble\nPanel' or `DRP') erred in not appreciating that the order of the\nlearned Deputy Commissioner of Income-tax (Transfer Pricing) -\n2(2)(2), Bangalore (learned Transfer Pricing Officer' or 'learned\nTPO') passed underSection 92CAof the Act is contrary to law\nand thus liable to be quashed.3.     Back Office Support Service segment3.1. On the facts and in circumstances of the case and in law,\nthe Hon'ble DRP/ learned AO/ TPO erred in making an\nadjustment of INR 18,792,715 to the transfer price of the\nAppellant's international transactions in respect of Back office\nsupport service segment by way of comparability analysis.3.2. On the facts and in circumstances of the case and in law,\nthe Hon'ble DRP/ learned AO/ TPO erred in including company\nUniversal Print Systems Limited (`UPS') as a comparable to the\nAppellant. In doing so, Hon'ble DR / learned AO TPO erred in:3.2.1. Disregarding that UPS is functionally dissimilar to the\nAppellant;3.2.2. Disregarding that UPS fails service revenue filter (i.e.,\nService Revenue < 75% to be excluded) applied by the Ld. TPO;3.2.3. Retaining UPS as comparable company even though no\nresponse is received by Ld. TPOu/s. 133(6)of the Act on\ninformation regarding functionality of UPS;3.2.4. Ignoring the fact that UPS has unallocated expenses\namounting to INR 89.67 lacs which would distort the segmental\nprofits and therefore, the segmental results would not be reliable.3.3. On the facts and in circumstances of the case and in law, the\nHon'ble DRP/ learned AO/ TPO erred in including company\n                                                    IT(TP)A No.92/Bang/2023Page 3 of 29BNR Udyog Ltd. (`BNR') as a comparable to the Appellant. In\n      doing so, Hon'ble DRP/ learned AO/TPO erred in:3.3.1. Disregarding the fact that BNR fails RPT filter of 25%;3.3.2. Disregarding the fact that BNR fails service revenue filter\n      (i.e., Service Revenue < 75% to be excluded) applied by the Ld.\n      TPO.3.3.3. using the information undersection 133(6)of the Act,\n      which tantamount to choosing secret comparable companies\n      whose information was not available in public domain.4. Corporate Tax grounds:4.1. That on the facts and circumstances of the case, the Ld. AO\n      has erred in levying consequential interest undersection 234A.4.2. That on the facts and circumstances of the case, the Ld. AO\n      has erred in granting short credit of taxes paid under protest\n      amounting to INR 53,79,565 on February 17, 2018 and May 11,\n      2020.That the Appellant craves leave to add to and/or to alter, amend,\n      rescind, modify the grounds herein below or produce further\n      documents before or at the time of hearing of this Appeal."3.    The crux of ground No.3 is with regard to exclusion of UPS Print\nSystems Ltd. and BNR Udyog Ltd. from the list of comparables for the\npurpose of determining the ALP of the international transactions.          The\nfacts of the case are that the assessee originally came in appeal before this\nTribunal in ITA No.779/Bang/2017 for AY 2012-13. The Tribunal vide order\ndated 20.9.2019 inter alia remitted the issue with regard to UPS Print\nSystems Ltd. to the TPO as follows:-"(a) Universal Print Systems Ltd (segmental) (BPO)\n\n      Assessee sought to exclude this comparable for the reason that, it\n      fails employee cost filter and has insufficient company\n      information. It is also been submitted that, functionally this\n                                              IT(TP)A No.92/Bang/2023Page 4 of 29company is providing integrated print solution to its customers\nand does not provides routine ITEs services like that of assessee.It has been submitted that this company is not a captive service\nprovider like that of assessee and has products sale as well as\nservices sale, which is evident from page 1360 of paper book\nvolume 1 (Index for Annual Reports).Ld.CIT DR placed reliance upon orders of authorities below and\nsubmitted that this comparable is functionally comparable with\nthat of assessee.We have heard submissions advanced by both sides in light of\nrecord placed before us. On perusal of annual report of this\ncompany placed in paper book, we are of considered opinion that\nthis comparable is basically into sale of products and services\nunlike a captive service provider such as assessee, who works on\ncost plus basis, providing services only to its AE's. It is also\nobserved that this comparable is basically providing BPO\nservices from its Prepress units. In written submission filed,\nassessee placed reliance upon decision of this Tribunal in case of\nZyme Solutions (P.)Ltd. v. ACIT[2019] 101 taxmann.com 292\n(Bang. - Trib.), wherein this comparable has been excluded by\nobserving as under:'10.4 We heard rival submissions and perused the material on\nrecord. The issue of comparability of universal Print Systems Ltd.\nwith that of the assessee-company has been duly considered by\nTPO after referring to information contained in Annual Report.\nThe relevant findings of the TPO had not been countenanced by\nlearned AR of the assessee. However, the issue of comparability\nof Universal Print Systems Ltd. has also been considered by the\nco-ordinate bench of this Tribunal in the case ofCGI Information\nSystems & Management Consultants Pvt. Ltd.(supra) wherein it\nwas held as follows:"47. The next submission of the learned counsel for the Assessee\nwas with regard to exclusion of 2 comparable companies from\nthe list of 7 comparable companies that remain after the order of\nthe DRP. The first comparable company sought to be excluded is\nUniversal Print Systems Ltd. This company was chosen as a\ncomparable company by the TPO. In reply to the proposal of the\nTPO to include this company as a comparable company, the\n                                             IT(TP)A No.92/Bang/2023Page 5 of 29Assessee vide its letter dated 22.12.2015 had pointed out its\nobjections to including this company as a comparable company.\nA copy of the said objection is at page-785 of the Assessee's\npaper book. The Assessee pointed out that the OP TC of this\ncompany as worked out by the TPO at 59.40% was wrong and\nunallocated costs as per the annual report should be allocated to\nBPO segment and if that is done then the OP TC of this company\nwill be only 51.80%. The Assessee further pointed out (Page 764\nof paper book) that the TPO had applied revenue filter of more\nthan 75% being from non-financial service income. The Assessee\npointed out that the percentage of income from ITES was only\n21.6% of the total revenue from operations of this company as\nper its annual report. The .Assessee also pointed out that in the\nPre-press BPO segment this company was providing integrated\nprint solutions to its customers, which includes scanning,\ndesign/layout, trapping, hand-outlined clipping path and image\nmasking and magazine and catalogue publishing. The Assessee\nsubmitted that the aforesaid services are not in the nature of\nITES. The Assessee pointed out that as per the safe harbour rules\nintroduced by the CBDT ITES has been defined as business\nprocess outsourcing services provided mainly with the assistance\nor use of information technology. It was also submitted that this\ncompany does not satisfy the definition of ITES as contained in\nRule IOTA(e) of the Rules. Since use of information technology\nis absent .in the various services provided by this company, it\ncannot be regarded as ITES company. The Assessee also\nsubmitted that this company fails the employee cost filter. The\nemployee cost filter requires that the employees cost incurred by\nthe company must be more than 25% of its revenue.48. The TPO at page-20 of his order has dealt with the above\nobjections by observing as follows:(a) Pre-Press BPO unit provides back office support services.(b) This company has four major segments viz., Repro, Label\nPrinting, Offset Printing and pre-press BPO. The employee cost\nof pre-press BPO was more than 25% of the revenue from pre-press BPO and therefore the employee cost filter is satisfied in\nthe case of this company.IT(TP)A No.92/Bang/2023Page 6 of 29(c) On the service revenue filter viz., the requirement that a\ncomparable company must have revenue from rendering services\nof more than 75% of its total revenue, the TPO again held that the\npre-press BPO segment's entire income is from services and\ntherefore this objection is not to be accepted.49. On objections by the Assessee before the DRP, the DRP\nconfirmed the action of the TPO. One of the objection before the\nDRP was that this company did not figure in the list of companies\nengaged in ITES. On this objection the DRP held that though this\ncompany did not figure in the list of companies in 1TES in the\nmain search of capital line and prowess database but on a\nsegmental search these two companies satisfied the requirement\nof being considered as companies engaged in providing ITES.Aggrieved by the directions of the DRP, the Assessee is in appeal\nbefore the Tribunal. The learned counsel for the Assessee\nreiterated submissions that were made before the TPO/DRP. In\nparticular it was submitted that the service revenue filter was\napplied by the TPO himself at the entity level and on such search\nthis company was not regarded as engaged in providing ITES. At\nthis stage the TPO ought to have dropped this company as a\ncomparable company because this filter has to be applied at the\nentity level and not at the segmental level. The learned DR\nsubmitted that if the service revenue filter is applied at the\nsegmental level there can be no objection by the Assessee. She\nrelied on the order of the DRP/TPQ.50. The requirements of Rule 10B(1)(2) & (3) of the Rules in the\nmatter of comparability of companies under TNMM needs to be\nseen. The same reads as follows:"10B. (1) For the purposes, of sub-section (2) ofsection 92C, the\narm's length price in relation to an international transaction shall\nbe determined by any of the following methods, being the most\nappropriate method, in the following manner, namely: --(a) to (d)**   **    **(e) transactional-margin method, by which,\n                                              IT(TP)A No.92/Bang/2023Page 7 of 29(i)    the net profit margin realised by the enterprise from an\ninternational transaction entered into with an associated\nenterprise is computed in relation to costs incurred or sales\neffected or assets employed or to be employed by the enterprise\nor having regard to any other relevant base;(ii)   the net profit margin realised by the enterprise or by an\nunrelated enterprise from a comparable uncontrolled transaction\nor a number of such transactions is computed having regard to the\nsame base;(iii) the net profit margin referred to in sub-clause (if) arising\nin comparable uncontrolled transactions is adjusted to take into\naccount the differences, if any, between the international\ntransaction and the comparable uncontrolled transactions, or\nbetween the enterprises entering into such transactions, which\ncould materially affect the amount of net profit margin in the\nopen market;(iv)    the net profit margin realised by the enterprise and\nreferred to in sub-clause (i) is established to be the same as the\nnet profit margin referred to in sub-clause (iii):(v)     the net profit margin thus established is then taken into\naccount an arm's length price in relation to the international\ntransaction.(2) For the purposes of sub-rule (1), the comparability of an(a) the specific characteristics of the property transferred or\nservices provide: either transaction;(b) the functions performed, taking into account assets employed\nor to be employed and the risks assumed, by the respective\nparties to the transactions(c) the specific characteristics of the property transferred or\nservices provide: either transaction;(d) the functions performed, taking into account assets employed\nor to be employed and the risks assumed, by the respective\nparties to the transactions\n                                               IT(TP)A No.92/Bang/2023Page 8 of 29(e) the contractual terms (whether or not such terms are formal or\nin writing) of the transactions which lay down explicitly or\nImplicitly how the responsibilities, risks and benefits are to be\ndivided between the respective parties to the transactions:(d) conditions prevailing in the markets in which the respective\nparties to the transactions operate, including the geographical\nlocation and size of the markets, the laws and Government orders\nin force, costs of labour and capital in the markets, overall\neconomic development and level of competition and whether the\nmarkets are wholesale retail\n\n(3) An uncontrolled transaction shall be comparable to an\ninternational(i) none of the differences, if any, between the transactions being\ncompared or between the enterprises entering into such\ntransactions are likely materially affect the price or cost charged\nor paid in, or the profit arising from such transactions in the open\nmarket; or(ii) reasonably accurate adjustments can be made to eliminate the\nmaterial effects of such differences."5.2 There appears to be no bar in the Rulesreferred to aboveto\nconsidering segmental data under TNMM because the\ncomparison is of "net profit margin realized by the enterprise\nfrom an international transaction" with the "net profit realized\nfrom a comparable uncontrolled transaction". Therefore\ncomparison is of similar transaction. When segmental\ninformation is available and is not disputed, it cannot be argued\nthat filters have to be applied at entity level. It cannot be argued\nthat when the TPO himself applied the filters at the entity level he\nwas not entitled to apply the filters at segmental level. As we\nhave already stated if clear segmental information is available the\nfilters can be applied at the segmental level in TNMM. Therefore\nthe objection with regard to this company failing the employee\ncost filter and service revenue filter in our view was rightly\nrejected by the TPO and DRP. It is however seen that this\ncompany has four segments viz., Repro. Label Printing, Offset\nPrinting and Pre-press BPO. Whether the label printing and offset\nprinting segments supplement the functions performed in the Pre-IT(TP)A No.92/Bang/2023Page 9 of 29press BPO segment has to be seen. We therefore set aside the\n      order of the DRP in this regard and remand for fresh\n      consideration by the TPO the comparability of this company. In\n      terms of Rule 10B(3) of the rules the profit margins of Pre-Press\n      BPO have to be adjusted taking into account the fact that two\n      other segments supplement the pre-press BPO segment. If such\n      adjustment cannot be reasonably or accurately made then this\n      company has to be excluded from the list of comparable\n      companies. The TPO for this purpose can use his powersu/s.\n      133(6)of the Act to get required details from this company. As\n      far as the argument that this company fails functional\n      comparability, we find that none of the objections raised the\n      Assessee in this regard about lack of information about allied\n      services performed by the pre-press BPO segment of this\n      company and the break-up of the revenue from such allied\n      services have been dealt with specifically by the TPO or DRP.\n      Since the comparability of this company is being remanded to be\n      TPO for consideration of adjustments as mentioned above, the\n      objection with regard to functional comparability should also be\n      looked into by the TPO in the remand proceedings on the basis of\n      materials which he may gatheru/s. 133(6)of the Act, The\n      Assessee should be given opportunity of being heard by the TPO\n      before the issue is decided by the TPO.'\n\n      Respectfully following the decision, we remand this comparable\n      to the file of the TPO/AO for fresh adjudication on the above\n      lines.'\n\n      Respectfully following aforesaid decision, we remand this\n      comparable to file of Ld.AO/TPO, for fresh adjudication, on the\n      basis of directions reproduced hereinabove. Needless to say that\n      proper opportunity shall be granted to assessee as per law.Accordingly we set aside this comparable back to Ld.TPO."4.     Before the lower authorities, the assessee pleaded that UPS Print\nSystems Ltd. is not functionally comparable to assessee's case and the\nsame is to be excluded from the list of comparables. However the DRP\nobserved that that the functional profile of the company is same as that of\nthe assessee and similar in the sense that the pre-press BPO unit provides\n                                                    IT(TP)A No.92/Bang/2023Page 10 of 29back office support services. The ALP in the case of the assessee has\nbeen determined by treating TNMM as the most appropriate method. This\nmethod requires broad based comparability of the functionality of the\ncomparables. So, in case the company is in ITES/BPO it would not matter\nas to what kind of customer it serves as the broad range of services remain\nthe same and that is the back end support. So, this objection of the\nassessee does not have any merit as the company is functionally similar to\nthe assessee.5.    Assessee further contended that the company UPS fails service\nrevenue filter applied by the TPO. As regards to this contention, TPO has\nstated, "it is pertinent to note here that the company had contended against\nthe service revenue filter and not the employee cost filter. However, given\nthat similar response has been provided against the same contention for\nBNR, it would be presumed that this mistake is typographical". The DRP\nupheld the action of the AO.6.    As regards contention of assessee that Employee cost filter to be\ncalculated only at the segment level and not on the entire revenue, the\nDRP observed that the employee cost is found to be 44% in relation to this\nsegment and the company operates in four major segments viz., Epro,\nLabel Printing, Offset Printing and pre-press BPO and as verified from the\nP&L A/c of the assessee. It is found from the records that the employee\ncost of Rs.268.76 (lacs) on a turnover of Rs.611.96(lacs) works out to 44%.\nHence this comparable clears the employee cost filter and there was no\ninfirmity in the action of the AO. The DRP on verification of records also\nupheld the TPO reducing the mark up cost from 52.46% to 51.80%.7.    Accordingly, the objections of the assessee were rejected by the\nDRP. Against this, the assessee is in appeal before us.IT(TP)A No.92/Bang/2023Page 11 of 298.    The ld. AR submitted that this issue came up for consideration\nbefore the Tribunal in the case of Credit Points Services (P.) Ltd. in ITA\nNo.377/PUN/2017 dated 12.3.2019 wherein it was held as under:-"8. We have perused the case records and heard the rival\n      contentions and have given considerable thought on the records\n      and relevant documents placed before us. From the facts on\n      record and more specifically from the Transfer Pricing Index and\n      report of the assessee, the details of functional structure is\n      provided and after perusal of the orders of the TPO and the Ld.\n      CIT(A), we find that there is no specific findings as to the\n      analysis regarding the functioning of Universal Print Systems Ltd\n      vis a vis the function of the assessee company before holding it to\n      be a comparable company. In the decision of the Bangalore\n      Tribunal in the case of XL Health Corporation India (P.) ltd.\n      (supra) it was held as under :--C. Universal Print Systems Ltd.:--This company was selected by the TPO by obtaining information\n      by exercising of the power vested with him under the provisions\n      ofsection 133(6)of the IT Act. The TPO held that this company\n      satisfies all the filters selected by him. However this company\n      was objected by the assessee-company before the TPO on the\n      grounds of functional differences as it is engaged in the business\n      activities such as printing and allied activities, high profit making\n      company and also fails the employee cost filter, the objections of\n      the assessee-company were over ruled by the TPO by holding as\n      under:Counter to the objection on Functional Comparability:The functions of the comparable are similar in the sense that the.\n      Pre-Press BPO unit provides back office support services.Counter to the objection on High Margins:Reliance is placed on the decisions of the Hon'ble Delhi High\n      Court in the case of Chryscapital Investment Advisors and the\n      Delhi Tribunal in Nokia India Pvt Ltd (ITA No. 24210/2010).IT(TP)A No.92/Bang/2023Page 12 of 29Counter to the objection on Employee Cost Filter:The company operates in four major segments viz., Repro, Label\nPrinting, Offset Printing and Pre-press BPO and for our study,\nonly the Pre-press BPO segment has been considered. Therefore,\nfilters are to be applied only on the figures of this segment. The\ncompany was specifically asked to furnish the details of\nemployee cost U/S 133(6) of the Act. Vide its' letter dated\n18/12/2015, the company has furnished P&L a/c of Pre press\nBPO segment, from which it is seen that the 'employee cost\nrelating to Pre-Press BPO segment is Rs. 268. 76 (Lacs). The\nemployee cost of Rs 268.76 (Lacs) turnover of Rs 611.96 (Lakhs)\nworks out to 44%. Therefore, this comparable clears the\nemployee- cost filter.The response received from the companyu/s 133(6)of the Act\nhas been attached with this order. (Annexure-G) The TPO has\nused only current data for the F.Y 2011-12. The corrected margin\nis 52.46%. The Hon'ble DRP also confirmed the findings of TPO.(ii) Being aggrieved, the assessee-company is before us. It is\ncontended by the assessee that this company fail revenue filter\nmore than 75% from ITES segment and also functionally not\ncomparable with that of the assessee-company and also fails the\nfilter of earnings from export against 75% of the total revenue\nand also fails the employee cost filter as employee cost is only\n18.56% of the sales.(iii) We heard the rival submissions and perused the material on\nrecord. We have perused the Annual Report of this company\nplaced at pages 352 to 463 of paper book. From the page no. 354\nit is stated as under."In 2011-12, Your Company faced many challenges ranging from\nhistorically steep fuel price increases, non-availability of power\nthroughout the year and high raw material costs.The Labels and Offset divisions in particular were negatively\nimpacted due to non-availability of power. Tamil Nadu on the\nwhole, faced drastic power outages and restrictions, which were\nmainly directed at industries in order to keep the vote banks\nhappy. The two divisions saw as much as 6 hours of power cuts\n                                                     IT(TP)A No.92/Bang/2023Page 13 of 29in a day in addition to two days of ''power holidays" in a week.\n      Although this situation is expected to ease in the coming months,\n      it has had an adverse impact on operations in 2011-12.The periodic fuel price increases through our 2011-12 not just\n      ensured high inflation cutting across every input element, but also\n      adversely affected our cost of captive power generation which\n      became the only source of power during certain periods in 2011-12. In addition, procurement cost of raw materials such as paper,\n      film and ink rose substantially along with, market expectation\n      regarding price reduction of printed products."From this it is very clear that this company is into the business of\n      printers whereas the assessee-company is into the Business\n      Process Outsourcing. Therefore by no structure of imagination\n      these two companies can be considered to be functionally similar\n      and therefore we direct the AO I TPO to exclude this company\n      from the list of comparables.9. Therefore respectfully following the decision of the coordinate\n      Bench of Bangalore Tribunal in the aforesaid case, we direct the\n      AO/TPO to exclude the Universal Print System Ltd from the list\n      of comparables with regard to the assessee herein."9.    The ld. AR also relied on the following case laws:-"GTS e-Services (P.) Ltd. [2019] 108 taxmann.com 604 (Mumbai\n      Trib.)\n\n      Eaton Technologies (P) Ltd. [2020] 115 taxmann.com 341 (Pune\n      Trib)10.    The ld. DR relied on the order of lower authorities.11.   We have heard both the parties and perused the material on record.\nAs rightly pointed out by the ld. AR, this issue came up for consideration\nbefore the coordinate Bench of the Tribunal in the case of GTS e-Services\n                                                           IT(TP)A No.92/Bang/2023Page 14 of 29(P.) Ltd. for the AY 2012-13, [2019] 108 taxmann.com 604 (Mumbai Trib.)\nand the Tribunal held as under:-"(ii) Universal Print Solutions Ltd.The Ld. AR disputed the inclusion of this entity on similar\n      ground of functional dissimilarity by drawing our attention to the\n      fact that this entity was an integrated print solution provider and\n      operates in the segment of Repro, Label Printing, Offset Printing\n      and Pre-Press BPO. The Ld. TPO picked up the pre-press BPO\n      segment for the purpose of comparison. In this segment, the\n      entity provides services in the nature of scanning, layouts,\n      trapping, hand-outlined clipping path and image masking &\n      magazine/catalogue publishing. Another point to which our\n      attention is drawn is the fact that this entity has unallocated\n      expenses of Rs. 89.67 Lacs which would distort the segmental\n      profits and therefore, the segmental results would not be reliable.Upon perusal, we find that Bangalore Tribunal in the case of\n      XLHealth Corpn. India (P.)Ltd. v. Asstt. CIT[2018] 91\n      taxmann.com 310 for very same AY 2012-13 directed for\n      exclusion of this entity in case of assessee having similar\n      functional profile on the ground that an entity which is engaged\n      in the business of printing could be, by no structure of\n      imagination, be considered as comparable entity. Secondly, as\n      rightly pointed out by Ld. AR, the segmental results of the said\n      entity would not be reliable in view of the fact that it has\n      unallocated expenditure of Rs. 89.67 Lacs which would surely\n      distort the segmental results. Keeping in view the said factors, we\n      direct for exclusion of this entity."12.    Further, the coordinate Bench of the Tribunal in the case of\nSoftware   Paradigms    Infotech   Pvt.      Ltd.   for    AY   2012-13   in   ITA\nNo.59/Bang/2023 dated 17.5.2023 held as under:-"14. We have heard the rival submissions and perused the\n      materials available on record. On earlier occasion, the assessee\n      came in appeal before this Tribunal for this assessment year\n      2012-13 and on this issue the Tribunal held as under:IT(TP)A No.92/Bang/2023Page 15 of 29"9. We have heard submissions advanced by both sides in\nlight of record placed before us. On perusal of annual report\nof this company placed in paper book, we are of considered\nopinion that this comparable is basically into sale of products\nand services unlike a captive service provider such as\nassessee, who works on cost plus basis, providing services\nonly to its AE's. It is also observed that this comparable is\nbasically providing BPO services from its Prepress units.In\nwritten submission filed, assesseeplaced reliance upondecision of this Tribunal in case ofZyme Solutions Pvt Ltd.,\nvs ACITreported in (2019) 101 taxman.com 292, wherein\nthis comparable has been excluded by observing as under:10.4 We heard rival submissions and perused the material\n  on record. The issue of comparability of universal Print\n  Systems Ltd. with that of the assessee-company has been\n  duly considered by TPO after referring to information\n  contained in Annual Report. The relevant findings of the\n  TPO had not been countenanced by learned AR of the\n  assessee. However, the issue of comparability of Universal\n  Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case ofCGI\n  Information Systems & Management Consultants Pvt. Ltd.(supra) wherein it was held as follows:"47. The next submission of the learned counsel for\n     the Assessee was with regard to exclusion of 2\n     comparable companies from the list of 7 comparable\n     companies that remain after the order of the DRP.\n     The first comparable company sought to be excluded\n     is Universal Print Systems Ltd. This company was\n     chosen as a comparable company by the TPO. In\n     reply to the proposal of the TPO to include this\n     company as a comparable company, the Assessee\n     vide its letter dated 22.12.2015 had pointed out its\n     objections to including this company as a comparable\n     company. A copy of the said objection is at page-785\n     of the Assessee's paper book. The Assessee pointed\n     out that the OP TC of this company as worked out by\n     the TPO at 59.40% was wrong and unallocated costs\n     as per the annual report should be allocated to BPO\n                                         IT(TP)A No.92/Bang/2023Page 16 of 29segment and if that is done then the OP TC of this\ncompany will be only 51.80%. The Assessee further\npointed out (Page 764 of paper book) that the TPO\nhad applied revenue filter of more than 75% being\nfrom nonfinancial service income. The Assessee\npointed out that the percentage of income from ITES\nwas only 21.6% of the total revenue from operations\nof this company as per its annual report. The\n.Assessee also pointed out that in the Pre-press BPO\nsegment this company was providing integrated print\nsolutions to its customers, which includes scanning,\ndesign/layout, trapping, hand-outlined clipping path\nand image masking and magazine and catalogue\npublishing. The Assessee submitted that the\naforesaid services are not in the nature of ITES. The\nAssessee pointed out that as per the safe harbour\nrules introduced by the CBDT ITES has been defined\nas business process outsourcing services provided\nmainly with the assistance or use of information\ntechnology. It was also submitted that this company\ndoes not satisfy the definition of ITES as contained in\nRule IOTA(e) of the Rules. Since use of information\ntechnology is absent .in the various services provided\nby this company, it cannot be regarded as ITES\ncompany. The Assessee also submitted that this\ncompany fails the employee cost filter. The employee\ncost filter requires that the employees cost incurred\nby the company must be more than 25% of its\nrevenue.48. The TPO at page-20 of his order has dealt with\nthe above objections by observing as follows:(a) Pre-Press BPO unit provides back office support\nservices.(b) This company has four major segments viz.,\nRepro, Label Printing, Offset Printing and pre-press\nBPO. The employee cost of pre-press BPO was more\nthan 25% of the revenue from pre-press BPO and\ntherefore the employee cost filter is satisfied in the\ncase of this company.IT(TP)A No.92/Bang/2023Page 17 of 29(c )On the service revenue filter viz., the requirement\nthat a comparable company must have revenue from\nrendering services of more than 75% of its total\nrevenue, the TPO again held that the pre-press BPO\nsegment's entire income is from services and\ntherefore this objection is not to be accepted.49. On objections by the Assessee before the DRP,\nthe DRP confirmed the action of the TPO. One of the\nobjection before the DRP was that this company did\nnot figure in the list of companies engaged in ITES.\nOn this objection the DRP held that though this\ncompany did not figure in the list of companies in\n1TES in the main search of capital line and prowess\ndatabase but on a segmental search these two\ncompanies satisfied the requirement of being\nconsidered as companies engaged in providing ITES.Aggrieved by the directions of the DRP, the Assessee\nis in appeal before the Tribunal. The learned counsel\nfor the Assessee reiterated submissions that were\nmade before the TPO/DRP. In particular it was\nsubmitted that the service revenue filter was applied\nby the TPO himself at the entity level and on such\nsearch this company was not regarded as engaged in\nproviding ITES. At this stage the TPO ought to have\ndropped this company as a comparable company\nbecause this filter has to be applied at the entity level\nand not at the segmental level. The learned DR\nsubmitted that if the service revenue filter is applied\nat the segmental level there can be no objection by\nthe Assessee. She relied on the order of the\nDRP/TPQ.50. The requirements of Rule 10B(1)(2) & (3) of the\nRules in the matter of comparability of companies\nunder TNMM needs to be seen. The same reads as\nfollows:"10B. (1) For the purposes, of sub-section (2) ofsection 92C, the arm's length price in relation to an\ninternational transaction shall be determined by any\n                                           IT(TP)A No.92/Bang/2023Page 18 of 29of the following methods, being the most\nappropriate method, in the following manner,\nnamely: --(a) to (d). ******(e) transactional-margin method, by which,(i) the net profit margin realised by the enterprise\nfrom an international transaction entered into with\nan associated enterprise is computed in relation to\ncosts incurred or sales effected or assets employed or\nto be employed by the enterprise or having regard to\nany other relevant base;(ii) the net profit margin realised by the enterprise or\nby an unrelated enterprise from a comparable\nuncontrolled transaction or a number of such\ntransactions is computed having regard to the same\nbase;(iii) the net profit margin referred to in sub-clause (if)\narising in comparable uncontrolled transactions is\nadjusted to take into account the differences, if any,\nbetween the international transaction and the\ncomparable uncontrolled transactions, or between\nthe enterprises entering into such transactions,\nwhich could materially affect the amount of net\nprofit margin in the open market;(iv) the net profit margin realised by the enterprise\nand referred to in sub-clause (i) is established to be\nthe same as the net profit margin referred to in sub-clause (iii):(v) the net profit margin thus established is then\ntaken into account an arm's length price in relation to\nthe international transaction.(2) For the purposes of sub-rule (1), the comparability\nof an\n                                         IT(TP)A No.92/Bang/2023Page 19 of 29(a) the specific characteristics of the property\ntransferred or services provide: either transaction;(b) the functions performed, taking into account\nassets employed or to be employed and the risks\nassumed, by the respective parties to the\ntransactions(c) the specific characteristics of the property\ntransferred or services provide: either transaction;(d) the functions performed, taking into account\nassets employed or to be employed and the risks\nassumed, by the respective parties to the\ntransactions(e) the contractual terms (whether or not such terms\nare formal or in writing) of the transactions which lay\ndown explicitly or Implicitly how the responsibilities,\nrisks and benefits are to be divided between the\nrespective parties to the transactions:d)conditions prevailing in the markets in which the\nrespective parties to the transactions operate,\nincluding the geographical location and size of the\nmarkets, the laws and Government orders in force,\ncosts of labour and. capital in the markets, overall\neconomic development and level of competition and\nwhether the markets are wholesale retail\n\n(3) An uncontrolled transaction shall be comparable\nto an international(i) none of the differences, if any, between the\ntransactions being compared or between the\nenterprises entering into such transactions are likely\nmaterially affect the price or cost charged or paid in,\nor the profit arising from such transactions in the\nopen market; or(ii) reasonably accurate adjustments can be made to\neliminate the material effects of such differences."IT(TP)A No.92/Bang/2023Page 20 of 295.2. There appears to be no bar in the Rulesreferred\nto aboveto considering segmental data under TNMM\nbecause the comparison is of "net profit margin\nrealized by the enterprise from an international\ntransaction" with the "net profit realized from a\ncomparable uncontrolled transaction". Therefore,\ncomparison is of similar transaction. When segmental\ninformation is available and is not disputed, it cannot\nbe argued that filters have to be applied at entity\nlevel. It cannot be argued that when the TPO himself\napplied the filters at the entity level he was not\nentitled to apply the filters at segmental level. As we\nhave already stated if clear segmental information is\navailable the filters can be applied at the segmental\nlevel in TNMM. Therefore the objection with regard\nto this company failing the employee cost filter and\nservice revenue filter in our view was rightly rejected\nby the TPO and DRP. It is however seen that this\ncompany has four segments viz., Repro. Label\nPrinting, Offset Printing and Pre-press BPO. Whether\nthe label printing and offset printing segments\nsupplement the functions performed in the Pre-press\nBPO segment has to be seen. We therefore set aside\nthe order of the DRP in this regard and remand for\nfresh consideration by the TPO the comparability of\nthis company. In terms of Rule 10B(3) of the rules the\nprofit margins of Pre-Press BPO have to be adjusted\ntaking into account the fact that two other segments\nsupplement the pre-press BPO segment. If such\nadjustment cannot be reasonably or accurately made\nthen this company has to be excluded from the list of\ncomparable companies. The TPO for this purpose can\nuse his powersu/s. 133(6)of the Act to get required\ndetails from this company. As far as the argument\nthat this company fails functional comparability, we\nfind that none of the objections raised the Assessee\nin this regard about lack of information about allied\nservices performed by the pre-press BPO segment of\nthis company and the break-up of the revenue from\nsuch allied services have been dealt with specifically\nby the TPO or DRP. Since the comparability of this\ncompany is being remanded to be TPO for\n                                               IT(TP)A No.92/Bang/2023Page 21 of 29consideration of adjustments as mentioned above,\n       the objection with regard to functional comparability\n       should also be looked into by the TPO in the remand\n       proceedings on the basis of materials which he may\n       gatheru/s. 133(6)of the Act, The Assessee should be\n       given opportunity of being heard by the TPO before\n       the issue is decided by the TPO.'\n\n       Respectfully following the decision, we remand this\n       comparable to the file of the TPO/AO for fresh\n       adjudication on the above lines. Respectfully\n       following aforesaid decision, we remand this\n       comparable to file of Ld.AO/TPO, for fresh\n       adjudication, on the basis of directions reproduced\n       hereinabove. Needless to say that proper\n       opportunity shall be granted to assessee as per law.Accordingly we set aside this comparable back to Ld.\n       TPO."14.1 While giving effect to the order, TPO issued noticeu/s\n133(6)of the Act vide letter dated 30.12.2021 to M/s. Universal\nPrint Systems Ltd. to furnish the required information on or\nbefore 7.1.2022. The requisite information is not received by the\nTPO. Hence, he passed the orderu/s 92CA(3)of the Act on\n16.12.2022 by observing as under:"The company operates in four major segments viz. Repro,\n  Label Printing, Offset Printing, and Pre-press BPO and for\n  our study. only the pre-press BPO has been considered.\n  Therefore, filters are to be applied only on the figures of this\n  segment. The employee cost of pre-press BPO is more than\n  25% of the revenue from pre-press BPO. Therefore, the\n  employee cost filter is satisfied in the case of this company.Further, on the service revenue filter, the requirement that a\n  comparable company must have revenue from rendering\n  services of more than 75% of its total revenue, the Pre-press\n  BPO segment's entire income is from services. Therefore,\n  the service income filter is satisfied in the case of this\n  company.IT(TP)A No.92/Bang/2023Page 22 of 29On the issue of export filter being more than 75%, the filter\nare to be applied only on the figures of this segment. The\ntotal revenue from Pre-press BPO segment is from exports\nonly. Therefore. the export filter is satisfied in the case of\nthis company.On the issue adopting segmental data for applying filter. the\nHon'ble ITAT in the case of Zyme Solutions Pvt. Ltd.. vs\nACTT reported in (2019) 101 taxman.com 292 itself upheld\nthat if clear segmental information is available the filters can\nbe applied at the segmental level in TNMM. The relevant\nextracts of the order is reproduced as under:"5.2 There appears to be no bar in the Rules referred to\nabove to considering segmental data under TNMM\nbecause the comparison is of "net profit margin realized\nby the enterprise from an international transaction" with\nthe "net profit realized from a comparable uncontrolled\ntransaction". Therefore comparison is of similar\ntransaction. When segmental information is available and\nis not disputed. it cannot be argued that filters have to be\napplied at entity level. it cannot be argued that when the\nTPO himself applied the filters at the entity level he was\nnot entitled to apply the filters at segmental level. as we\nhave already stated if clear segmental information is\navailable the filters can be applied at the segmental level\nin TNMM. Therefore, the objection with regard to this\ncompany failing the employee cost filter and service\nrevenue filter in our view was rightly rejected by the TPO\nand DRP........"In view of the above. the objection raised regarding failing\nfilters are not acceptable. On the issue of functionally\ndissimilar:The TPO has applied TNMM method as most appropriate\nmethod to determine the ALP in this case. This method\nrequires broad comparability of the functionality of the\ncomparable. So, in the case. the company is into ITES/BPO,\nit would not matter as to what kind of customer it serves as\nthe broad range of services remain the same and that is back\nend support. The functions of the comparable are similar in\n                                              IT(TP)A No.92/Bang/2023Page 23 of 29the sense that the Pre-press BPO unit provides back office\n  support services. As seen from page 70 of annual report of\n  the company for AY 2012-13, the business segregation is\n  provided segment wise:a). This business segregation forms the basis for review of.operational performance by the management\n\n  The Repro business comprises two repro houses which are\n  engaged in PrePress activities.The Label business comprises a Label printing unit.\n  The Offset Printing business comprises Offset Printing\n  Machine alongwith all standard Finishing Equipments\n  The Pre-press BPO business unit is engaged in Pre-press\n  Services Export\n\n  As seen from the above. it is clear that the comparable is\n  engaged in pre-press BPO services which is similar as\n  backoffice support services. As seen from the activities of\n  Label and -Offset printing segment. it can be seen that the\n  both the segments supplement the functions performed in the\n  Pre-press BPO segment. Hence, the claim of the taxpayer is\n  rejected and this company is considered as comparable to the\n  taxpayer."14.2 Against this the assessee is in appeal before us. In our\nopinion, Tribunal on earlier occasion given the finding that if the\nadjustment cannot be made reasonable or accurately, this\ncompany M/s. Universal Print Systems Ltd. to be excluded from\nthe list of comparable companies. For this purpose, the TPO\nshould exercise poweru/s 133(6)of the Act. Actually the AO\nissued a noticeu/s 133(6)of the Act to M/s. Universal Print\nSystems Ltd. and no reply has been received from them. Having\nno option, he considered this company as comparable to the\nassessee company and included in the lists of comparables. In\nour opinion, the required informationu/s 133(6)of the Act is not\nmade available to the TPO, in such circumstances, T.P.\nadjustment on this count cannot be made reasonable or accurately\nmade in this regard. Accordingly, this company is to be excluded\nfrom the list of comparable companies as reliance placed by this\nTribunal while deciding this issue in assessee's own case on the\ndecision ofZyme Solutions Pvt. Ltd. Vs. ACIT(2019) 101\n                                                    IT(TP)A No.92/Bang/2023Page 24 of 29Taxmann.com 292. Accordingly, we direct the AO/TPO to\n      exclude this company M/s. Universal Print Systems Ltd. from the\n      list of comparables."13.   In view of the above order, we direct the AO/TPO to exclude\nUniversal Print Systems Ltd. from the list of comparables. This ground is\nallowed.BNR Udyog Ltd.14.   The Tribunal in the first round of appeal set aside the issue of BNR\nUdyog Ltd. to the TPO with the following observations:-"We have perused submissions advanced by both sides in the\n      light of the records placed before us.Assessee is challenging functional dissimilarity of this company\n      with that of assessee as it is into medical transcription. We have\n      our reservation to consider medical transcription services to be\n      one of KPO services. In our considered opinion medical\n      transcription services is basically back-office services provided\n      by graduates who are trained for short period of 6 months to one\n      year. These are short crash courses undertaken by graduates who\n      are trained to understand and speak English. There is no value\n      addition in the services rendered by people in medical\n      transcription. To our understanding, basically these people who\n      carry out medical transcription services are trained to understand\n      language spoken by doctors, outside India to whom medical\n      reports of patience are sent for expert opinion. Medical\n      transcriptionist simply reproduces opinion expressed by Doctor,\n      which is then communicated to the patients.It is observed from annual report placed at page 745 of paper\n      book Volume (Index to Annual Reports) that this company has\n      segmental information of medical transcription and revenue\n      earned under this segment is Rs.147.40 Lacs. It is also been\n      observed that various other decisions by co-ordinate Benches of\n      this tribunal has remanded this comparable back to Ld.TPO, for\n      proper analysis and fresh consideration. We draw support for\n      same from Indegene (P.)Ltd. v. Asstt. CIT[2017] 85\n                                                    IT(TP)A No.92/Bang/2023Page 25 of 29taxmann.com 60 (Bang. - Trib.), wherein it has been held as\n      under:"9.3.1 We have heard the rival contentions and perused and\n      carefully considered the material on record including the judicial\n      pronouncements cited. From the details on record we observe that\n      while the assessee has contended that the services rendered by\n      this company M/s TCS E-serve Ltd are high end KPO services, it\n      has not brought out as to which of these are the services that\n      would come under technical services. On the other hand, we also\n      notice that that the TPO has held all the services rendered by the\n      assessee to be BPO services with any proper analysis.In this\n      factual matrix of the case, we find that on similar facts, the co-\n      ordinate Bench o ITAT Bangalore in the case ofIndegene (P)\n      Ltd., (supra) has remanded the matter of comparability of this\n      company to the file of the TPO for fresh consideration.In view of\n      the factual matrix of the case on hand, as laid out above and\n      following the decision of the co-ordinate Bench in the case ofIndegene (P) Ltd.(Supra) which is also rendered on similar facts,\n      we deem it appropriate to remand the matter of the comparability\n      of this company, TCS E-serve Ltd. To the file of the TPO for\n      fresh consideration in the light of out above observations.\n      Needless to add, the TPO shall afford the assessee adequate\n      opportunity of being heard and to file details/submissions in this\n      regard.It is also been observed that similar view has been taken by\n      decision of this Tribunal in case of Nielson Sports India (P.) Ltd.\n      v. ACIT [IT(TP) Appeal No.196(Bang.) of 2017, dated 28-06-\n      2019].Respectfully following the same, we set aside this comparable\n      back to Ld.TPO for considering it afresh. Needless to say that\n      proper opportunity shall be granted to assessee as per law.Accordingly we set aside this comparable back to Ld.TPO."15.   In the set aside proceedings, the TPO observed as follows:-"7.1 The taxpayer has contended that comparable M/s BNR\n      Udyog Ltd. fails the related party transaction ('RPT') filter. The\n      taxpayer has calculated the RPT/Sales by including purchases,\n                                                     IT(TP)A No.92/Bang/2023Page 26 of 29sales and services together in the numerator but not included the\n      expenditure in the denominator. Taxpayer contention of RPT\n      failure is not appropriate as applied by the TPO.7.2   Taxpayer contention that comparable fails the service\n      revenue filter is not accepted as the service revenue filter should\n      be applied only to the specific segment's revenue not on entire\n      company's revenue.7.3    Taxpayer contention that comparable is functionally\n      incomparable as it has significant inventories is not accepted as\n      inventories are for obvious reasons not linked to ITES segment.\n      Moreover the presence of inventory is not relevant and it does not\n      affect margins of ITES segment."16.   The DRP observed as follows:-"4.4 The BNR Udyog retained after the order of the DRP\n      which the Assessee seeks to exclude is BNR Udyog Ltd. As far\n      as this company is concerned, it was the objection of the\n      Assessee before the TPO that the TPO ought not to have selected\n      this company as comparable company for the reason that the\n      related party transaction of this company at the entity level was\n      49.60% of the total revenue and that this company has less than-\n      75%-of its revenue from providing TTES. The TPO rejected the\n      above contention by holding that this company has 3 major\n      business segments and the segmental results of medical\n      transcription business which is providing ITES alone was\n      considered for the purpose of comparison. When the segmental\n      results are considered the related party transaction is nil. 100% of\n      the segmental income was from providing ITES, i.e., IT(TP)A\n      No.2297/Bang/2016 medical transcription and therefore 75%\n      revenue is from providing ITES and therefore the company\n      passes the test of income from providing ITES being more than\n      75% of the total income. The DRP accepted the view of the TPO.4.5    The, submission of the Assessee was identical as were\n      made before the TPO and DRP. We have while deciding the\n      objection with regard to excluding Universal Print Systems Ltd.,\n      already held that when clear segmental information is available\n      then there is no bar in applying filters at the segmental level. The\n      reasons given while coming to the above conclusion will equally\n                                                      IT(TP)A No.92/Bang/2023Page 27 of 29apply to including BNR Udyog Ltd., as a comparable. Since this\n      company passes RPT filter as well as income from providing\n      ITES being more than 75% of its revenue, this company has to be\n      regarded as comparable company. No other arguments were\n      advanced for exclusion of this company. Hence this company is\n      held to be comparable with that of the Assessee.4.6      We found BNR Udyog Ltd., is providing IT enabled\n      services of more than 75% of its revenue and whereas the learned\n      AR could not substantiate with evidence in respect of other\n      filters. Therefore, we are not inclined to interfere with the action\n      of the AOITPO in including the comparable company for transfer\n      pricing adjustment. Accordingly, the ground of objection is\n      therefore rejected."17.   Against this, the assessee is in appeal before us.18.   We have heard both the parties and perused the material on record.\nThe main argument of the ld. counsel is that this company fails RPT filter\nand also fails the functionality test. Regarding functionality test, this has\nalready been decided by the Mumbai Bench of the Tribunal in the case of\nGTS e-Services (P.)Ltd.(supra) where it is held as under:-"(iii) BNR Udyog Ltd.Similar arguments of functional dissimilarity have been raised for\n      this entity by drawing our attention to the fact that this entity was\n      engaged in medical transcription, medical coding and medical\n      billing etc. As observed by us in the case of Accentia\n      Technologies Ltd., the low-end support services, in our opinion,\n      could not be compared with services in the nature of medical\n      transcription services, medical coding, medical billing etc. which\n      are services of specialized kind. This is further fortified by the\n      fact this Tribunal in Maersk Global Centers (India) (P.)Ltd.(supra) has observed that this entity has been excluded by Ld.\n      DRP on functional dissimilarity. Further, Delhi Tribunal in BT e-\n      Serv (India) (P.)Ltd. v. ITO[2019] 101 taxmann.com 275 in case\n      of assessee having similar functional profile directed for\n      exclusion for aforesaid entity on the ground that medical\n      transcription would not be, at all, functionally similar to BPO\n                                                        IT(TP)A No.92/Bang/2023Page 28 of 29service provider. Keeping in view the said factors, we direct for\n          exclusion of this entity."19.       In view of the above order of the Tribunal, we direct the AO/TPO to\nexclude this company as it fails the functionality test since the assessee is\nengaged only in trading, distribution of laboratory products and chemicals,\nstrategy sourcing, ITeS, etc. This ground is allowed.20.       The ground regarding levy of interestu/s. 234Ais consequential.21.       The assessee has raised a ground regarding short credit of taxes\npaid of Rs.53,79,565. The AO is directed to verify the same and give credit\nof taxes in accordance with law.22.       The other grounds are general in nature.23.       In the result, the appeal by the assessee is partly allowed.Pronounced in the open court on this 25th day of May, 2023.Sd/-                                    Sd/-\n             ( MAHAVIR SINGH )                      ( CHANDRA POOJARI )\n               VICE PRESIDENT                      ACCOUNTANT MEMBER\n\nBangalore,\nDated, the 25th May, 2023.\n\n/Desai S Murthy /\n                                              IT(TP)A No.92/Bang/2023Page 29 of 29Copy to:\n\n1. Appellant    2. Respondent      3. CIT       4. CIT(A)\n5. DR, ITAT, Bangalore.\n\n\n                                         By order\n\n\n\n                                  Assistant Registrar\n                                   ITAT, Bangalore.