M/s Emulex Communications Pvt. Ltd., Bangalore V. DCIT, Bangalore

CO 99/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2684 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 20-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; TDS
• Section: 144C

Judgement Text

IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES : B, BANGALORE BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SMT.BEENA PILLAI, JUDICAL MEMBER SL. NO . ITA/IT(TP)A NO. ASSESSMENT. YEAR APPELLANT RESPONDENT 1 IT(TP)A NO.267(B)/2016 2011 - 12 DCIT, CIRCLE - 2(1)(2), BANGALORE M/S EMULEX COMMUNICATIONS PVT. LTD., BANGALORE 4 C.O.NO.99(B)/2018 (IN IT(TP)A NO.267(B)/2016 2011 - 12 M/S EMULEX COMMUNICATIONS PVT. LTD., BANGALORE DCIT, CIRCLE - 2(1)(2), BANGALORE REVENUE BY : MISS. NEERA MALHOTRA, CIT APPELLANT BY MISS. TANMAYEE RAJKUMAR, ADVOCATE DATE OF HEARING : 18 - 07 - 2019 DATE OF PRONOUNCEMENT : 28 - 09 - 2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEALS HAS BEEN FILED BY REVENUE AND CROSS OBJECTION BY ASSESSEE AGAINST ORDER DATED 28/12/15 PASSED BY LD.AO UNDER SECTION 143 (3) READ WITH 144C (5) READ WITH SECTION 144C (13) OF THE ACT FOR ASSESSMENT YEAR 2011 - 12 ON FOLLOWING GROUNDS OF APPEA L: IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 2 IT(TP)A NO.267/BANG/2016(AY: 2011 - 12) 1.WHETHER THE HON'BLE DRP IS CORRECT IN LAW AND FACT IN EXCLUDING COMMUNICATION TRAVEL EXPENDITURE FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER. 2.WHETHER THE HON'BLE DRP IS CORRECT IN APPLYING 'ONSITE REVENUE FILT ER' WITHOUT APPRECIATING THE FACT THAT THE FUNCTION CARRIED OUT IS 'SOFTWARE DEVELOPMENT' IRRESPECTIVE OF WHETHER ONSITE OR OFFSHORE. 3.WHETHER THE HON'BLE DRP IS CORRECT IN EXCLUDING M/S RS SOFTWARE PVT. LTD. AND M/S. ACROPETAL TECHNOLOGIES AND M/S. L&T INFOTECH LTD ON THE GROUND THAT THEY HAVE SIGNIFICANT ONSITE REVENUE WITHOUT APPRECIATING THE FACT THAT ONSITE DEVELOPMENT OF SOFTWARE ENTAILS MORE COST AND THEREBY RESULTS IN LOWER PROFIT MARGINS. 4.WHETHER THE HON'BLE DRP IS RI GHT IN SEEKING EXACT COMPARABILITY WHILE SEARCHING FOR COMPARABLE COMPANIES OF THE ASSESSEE UNDER TNMM METHOD WHEREAS REQUIREMENT OF LAW AND INTERNATIONAL JURISPRUDENCE REQUIRE SEEKING SIMILAR COMPARABLE COMPANIES. 5.WHETHER THE HON'BLE DRP ERRED IN FACT IN REJECTING THE COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS FUNCTIONALLY DIFFERENT WHEN THE PRIMARY SOURCE OF INCOME OF THE COMPARABLE IS FROM PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 6.WHETHER WHILE SEEKING THE EXACT COMPARABI LITY, THE DRP IS RIGHT IN FACT AND IN LAW IN IMPOSING CONDITION BEYOND LAW WHEREAS THE REQUIREMENT OF LAW IS TO ACKNOWLEDGE ONLY THOSE DIFFERENCES THAT ARE LIKELY TO MATERIALLY AFFECT THE MARGIN. 7.WHETHER THE HON'BLE DRP IS CORRECT IN LAW & FACT IN DISR EGARDING THE POSITION OF LAW THAT THERE COULD BE IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 3 DIFFERENCES BETWEEN THE ENTERPRISES - COMPARED UNDER THE TNMM METHOD THAT ARE NOT LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR THE PROFITS ACCRUING TO SUCH ENTERPRISES. 8.WHETHER THE HON'BLE DRP H AS ERRED ON FACT IN DELETING M/S E - INFOCHIPS AS A COMPARABLE ON THE GROUND THAT IT FAILS THE FILTER OF SERVICE INCOME LESS THAN 75% OF THE SALES, WHEN THE SAID COMPANY HAS SERVICE INCOME BEING 100% OF THE SALES. CO NO.99/BANG/2018(IN IT(TP)A NO.267(B)/2016 (AY: 2011012) THE RESPONDENT SUBMITS AS UNDER: THE GROUNDS STATED HERE UNDER ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. THAT THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE 2(1)(2) ('ASSESSING OFFICER' OR 'AO') AND THE DISPUTE RESOLUTION PANEL ('DRP') TO THE EXTENT QUESTIONED HEREIN ARE CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND THUS LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO/DRP ERRED IN UPHOLDING THE ACTIONS O F THE TRANSFER PRICING OFFICER ('TPO') IN: A. INVOKING THE PROVISIONS OF SECTION 92C(3) READ WITH SECTION 92CA OF THE INCOME - TAX ACT, 1961 ('THE ACT') CONTENDING THAT THE INFORMATION OR DATA USED IN THE COMPUTATION OF THE ARM'S LENGTH PRICE IS NOT RELIABLE OR CORRECT; B. DISREGARDING APPLICATION OF MULTIPLE YEAR/PRIOR YEAR DATA AND HOLDING THAT CURRENT YEAR (I.E. FINANCIAL YEAR 2010 - 11) DATA FOR COMPANIES SHOULD BE USED FOR IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 4 COMPARABILITY AND USING DATA AS AT THE TIME OF ASSESSMENT PROCEEDINGS; C. CONDUCTING A FRESH COMPARABILITY ANALYSIS BASED ON APPLICATION OF ADDITIONAL/MODIFIED FILTERS WHICH ARE ARBITRARY; D. HOLDING THAT THERE IS NO CORRELATION BETWEEN THE MARK - UP ON COST AND TURNOVER OF A COMPANY AND THUS NOT REJECTING COMPANIES HAVING LARGE SCALE OF OPERATIONS. E. NOT PROVIDING APPROPRIATE ADJUSTMENT TOWARDS RISK DIFFERENTIAL BETWEEN THE RESPONDENT AND THE COMPANIES SELECTED AS COMPARABLE, WHILE DETERMINING THE ARM'S LENGTH PRICE; F. REJECTING COMPANIES WHICH PASS THE TEST OF COMPARABILITY AND ARE FUNCTIONALLY COMPARAB LE TO THE RESPONDENT; AND G. INTRODUCING ADDITIONAL PURPORTED COMPANIES WHICH FAIL THE TEST OF COMPARABILITY. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO/DRP ERRED IN SUO MOTO REJECTING RS SOFTWARE PVT. LTD., EVOKE TECHNOLOGIES PVT. LTD. , MINDTREE LTD. FROM THE FINAL LIST OF COMPARABLE COMPANIES, ALTHOUGH THE SAID COMPANIES WERE COMPARABLE TO THE RESPONDENT AND THE RESPONDENT HAD NOT OBJECTED TO THE SAME. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO/DRP ERRED IN UPHOLDING THE INCLUSION OF PERSISTENT SYSTEMS LTD. AND SASKEN COMMUNICATIONS TECHNOLOGIES LTD., IN THE LIST OF COMPARABLE COMPANIES ALTHOUGH THEY FAIL THE TEST OF COMPARABILITY. IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 5 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO/DRP ERRED IN UPHOLDING THE ACTION OF THE TPO IN REJECTING LGS GLOBAL LTD., SPRY RESOURCES INDIA P. LTD., AKSHAY SOFTWARE TECHNOLOGIES LTD., THINKSOFT GLOBAL SERVICES LTD. AND FCS SOFTWARE SOLUT IONS LTD. AS COMPARABLE COMPANIES, DESPITE THE SAID COMPANIES BEING COMPARABLE TO THE RESPONDENT. 6. THAT FURTHER, THE AO/DRP ERRED IN UPHOLDING THE ACTION OF THE TPO IN EXCLUDING FCS SOFTWARE SOLUTIONS LTD. SOLELY FOR THE REASON THAT AS A RESULT OF THE IMPAC T OF THE WORKING CAPITAL ADJUSTMENT ON ITS MARGIN, THE MARGIN OF THE COMPANY STOOD REDUCED. 7. THAT THE AO/TPO ERRED IN NOT GRANTING APPROPRIATE WORKING CAPITAL ADJUSTMENT WHILE COMPUTING THE MARGINS OF THE COMPANIES. 8. THAT THE AO ERRED IN REDUCING COMMUNICATI ON EXPENSES OF RS. 13,12,380/ - AND TRAVEL EXPENDITURE INCURRED IN FOREIGN CURRENCY OF RS. 35,02,120/ - FROM THE EXPORT TURNOVER IN THE FIRST PLACE WHILST COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. THE RESPONDENT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROUNDS, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 6 RELIEF. THE RESPONDENT PRAYS THAT THE CROSS - OBJECTIONS RAISED BY THE RESPONDENT BE ALLOWED AND THE APPEAL FILED BY THE REVENUE BE DISMISSED. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: A SSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED IN INDIA AND IS WHOLLY OWNED SUBSIDIARY OF EMULEX INTERNATIONAL LTD. IT HAS BEEN RECORDED BY LD. TPO THAT AS PER TRANS - APPRISING DOCUMENTATION ASSESSEE IS ENGAGED IN SOFTWARE DESIGN AND DEVELOPMENT OF SOFTWARE FOR THE EMULEX GROUP. IT HAS BEEN OBSERVED BY LD. TPO THAT ASSESSEE RENDERS SOFTWARE DEVELOPMENT SERVICES TO EMULEX INTERNATIONAL LTD AND THAT ASSESSEE IS A CONTRACT SERVICE PROVIDER. LD. TPO OBSERVED THAT ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION FOR THE YEAR UNDER CONSIDERATION: INTERNATIONAL TRANSACTION AMOUNT(IN RS.) OUTCOM E OF TP ORDER INCOME FROM SOFTWARE DEVELOPMENT SERVICES 34,41,32,856 TPO MADE AN ADJUSTMENT OF RS.3,79,25,998. THE SAME WAS DELETED POST DRPS DIRECTIONS PAYMENT OF EMPLOYEE STOCK COMPENSATION COST 2,54,27,195 ACCEPTED AS BEING AT ARMS LENGTH PAYMENT FOR SECONDMENT OF EMPLOYEES (REIMBURSEMENT EXPENSES) 1,76,88,297 ACCEPTED AS BEING AT ARMS LENGTH IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 7 3. LD. TPO OBSERVED THAT ASSESSEE HAS COMPUTED THE MARGIN AT TNMM AS MOST APPROPRIATE METHOD BY USING OP/OC AS PLI THEREBY DETERMINED 11.37%. FOR CARRYING OUT THE ANALYSIS, ASSESSEE HAD USED 16 COMPARABLES WITH THE MARGIN OF 13% AND THEREFORE CONCLUDED THE TRANSACTION TO BE AT ARMS LENGTH PRICE AS ASSESSEES MARGIN WAS WITHIN PERMISSIBLE RANGE OF +/ - 5%. NAME OF THE COMPANY MARK UP ON TOTAL COST (WITHOUT ADJUSTMENT) AKSHAY SOFTWARE T ECHNOLOGIES LTD. 4% BELLS SOFTECH LTD 5% FCS SOFTWARE SOLUTIONS LTD 30% HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 16% LGS GLOBAL LTD 15% MINDTREE LTD. 21% OMNI XIS SOTWARE LTD. 2% PERSISTENT SYSTEMS & SOLUTIONS LTD. 20% QUINNOX CONSUTLANCY SERVICES LTD 14% RELIANCE INFOSOLUTIONS PVT.LTD 9% SPRY RESOURCES INDIA PVT.LTD 28% CCE SOFTWARE PVT.LTD 15% ALLIED DIGITAL SERVICES LTD. 13% OCTANT INDUSTRIES LTD 1% TECHPROCESS SOLUTINS LTD. 10% MAXIMA SYSTEMS LTD. 5% NUMBER OF C OMPANIES 16 MEAN 13% IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 8 3.1 LD.TPO THEREAFTER APPLIED SEVERAL FILTERS AND REJECTED/ACCEPTED CERTAIN COMPARABLES AND DETERMINED A SET OF 13 COMPARABLES WITH AN AVERAGE MARGIN OF 23.5% SL.NO. COMPARABLES SELECTED TED BY TPO NCP MARGINS AS PER TPO ORDER (%) (WC - UN - ADJ) NC P MARGINS AS PER TPO ORDER (%) (WC - UN - ADJ, AS PER TP ORDER) 1 ACROPETAL TECHNOLOGIES LTD ( S E G.) 31.998 28.32 2 E - ZEST SOLUTIONS LTD 21.03 18.63 3 E - INFICHIPS LTD 56.44 55.64 4 EVOKE TECHNOLOGIES LTD., 8.11 7.69 5 ICRA TECHNO ANALYTICS LTD. 24.83 22.46 6 INFOSYS LTD 43.39 43.02 7 LARSEN & TOUBRO INFOTECH LTD. 19.83 19.50 8 MINDTREE LTD 10.66 8.94 9 PERSISTENT SYSTEMS & SOLUTIONS LTD 22.12 20.82 10 PERSISTENT SYSTEMS LTD 22.84 21.27 11 R S SOFTWARE (INDIA) LTD. 16.37 15.88 12 SASKEN COMMUNICATION TECHNOLOGIES LTD 24.13 24.14 13 TATA ELXSI LTD.(SEG.) 20.91 18.59 ARITHMETIC MEAN 24.82 23.05 LEARN ED TPO THUS COMPUTED THE PROPOSED ADJUSTMENT AT RS. 3, 79, 25, 989/ - . 4. AGGRIEVED BY THE PROPOSED ADJUSTMENT ASSESSEE RAISED OBJECTIONS BEFORE DRP. 5. DRP WHILE CONSIDERING THE OBJECTIONS RAISED BY ASSESSEE DIRECTED EXCLUSION OF FOLLOWING COMPARABLES: ACCROPATEL TECHNOLOGIES LTD E - INFOCHIPS LTD IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 9 ICRA TECHNO ANALYTICS LTD INFOSYS LTD LARSEN AND TOUBRO INFOTECH LTD AND TATA ELXSI LTD A PART FROM ABOVE COMPARABLES DRP SUO MOTO EXCLUDED RS SOFTWARE INDIA LTD, E - BOOK TECHNOLOGIES LTD AND MIND 3 LTD FROM THE FINAL LIST OF COMPARABLES. DRP ALSO APPLIED A NEW FILTER BEING, ON - SITE REVENUE FILTER FOR EXCLUSION OF RS SOFTWARE I NDIA LTD, LARSEN AND TOUBRO INFOTECH LTD AND ACCROPATEL TECHNOLOGIES LTD. LD. AO UPON RECEIPT OF DRP DIRECTIONS PASSED FINAL ASSESSMENT ORDER BY MAKING ADDITIONS IN THE HANDS OF ASSESSEE. 6. AGGRIEVED BY ORDER OF LD.AO, REVENUE IS IN APPEAL AND ASSESSEE HAS FILED CROSS OBJECTION BEFORE US. 7. IN REVENUES APPEAL, GROUNDS RAISED PERTAINS TO APPLICATION OF ON - SITE REVENUE FILTER SELECTIVELY TO FEW COMPARABLES FOR REJECTING THE SAME AND FOR EXCLUDING E - INFOCHIPS LTD., ON THE GROUND OF HAVING SERVICE INCO ME LESS THAN 75% OF THE SALES WHICH IS ALLEGED TO BE CONTRARY TO OBSERVATIONS OF LD.TPO. 8. IN CROSS OBJECTION FILED BY ASSESSEE IT IS OBSERVED THAT A SSESSEE IS CHALLENGING EXCLUSION OF CERTAIN COMPARABLES ON THE BASIS OF BY LD.TPO. WE FIRST TAKE UP APPEAL FILED BY REVENUE IN ITA NO. 267/BANG/2016 9. GROUND NO.1 IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 10 THIS GROUND HAS BEEN RAISED IN RESPECT OF EXCLUDING COMMUNICATION TRAVEL EXPENDITURE FROM BOTH EXPORT TURNOVER AND TOTAL TURNOVER. AT THE OUTSET BOTH PARTIES SUBMITTED THAT THE ISSUE NOW SQUARELY COVERED WITH THE DECISION OF HONABLE KARNATAKA HIGH COURT IN CASE OF TATA ELXSI LTD., VS CIT , REPORTED IN ______________ ________ WHEREIN HONBLE COURT HELD THAT, WHAT IS REDUCED FROM EX PORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER. IT IS OBSERVED THAT LD. CIT (A) GRANTED RELIEF TO ASSESSEE FOLLOWING THE AFORESTATED VIEW EXPRESSED BY HONBLE KARNATAKA HIGH COURT . WE DO NOT FIND ANY INFIRMITY IN THE VIEW TAKEN BY LD. CIT (A ) AND THE SAME IS UPHELD. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 10. GROUND NO.2 - 4 LD.CIT DR SUBMITS THAT, DRP SELECTIVELY APPLIED ON - SITE REVENUE FILTER ON FOLLOWING COMPARABLES BY: RS SOFTWARE PVT. LTD., ACROPETAL TECHNOLOGIES LTD L &T INFOTECH LTD., SHE SUBMITTED THAT DRP APPLIED ON - SITE REVENUE FILTER SELECTIVELY INSTEAD OF APPLYING 8 IN RESPECT OF ALL COMPARABLES. IT HAS BEEN ARGUED BY HER THAT APPLICATION OF A FILTER DETERMINED IS WHAT SET OF COMPARABLES WOULD BE DISPLAYED ON THE DATABASE ON WHICH THE SEARCH IS CARRIED OUT. APPLICATION OF FILTER TO SHORTLIST COMPANIES UNDER A PARTICULAR SEGMENT IS THE 1 ST STEP TO CONDUCT TRANSFER PRICING ANALYSIS. WOULD SHE PAYMENT CLAY ARGUED THAT WOULD ONCE THE COMPARABLES ARE SHORTLISTED DRP HAS SUO MOTO APPLIED ON - SITE IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 11 REVENUE FILTER AND EXCLUDED 3 COMPARABLES, WHICH IS NOT AS PER PROCEDURES LAID DOWN UNDER LAW. SHE SUBMITTED THAT ON - SITE REVENUE FILTER APPLIED BY DRP, NEITHER BEEN APPLIED BY ASSESSEE IN THE TRANS - APPRISING STUDY NOT BEEN CONSIDERED BY LD.TPO, WHILE CONDUCTING ANALYSIS UNDER SECTION 92CA OF THE ACT. PLACING RELIANCE UPON THE DECISION OF THIS TRIBUNA L IN CASE OF ACIT VS BROADCOM COMMUNICATION TECHNOLOGIES PVT. LTD. , REPORTED IN (2017) 88 TAXMANN.COM 309 , SHE SUBMITTED THAT NEW FILTER SUO MOTO CANNOT BE APPLIED BY DRP SELECTIVELY, BUT SHOULD BE APPLIED TO ALL COMPARABLES. SHE FURTHER SUBMITTED THAT RS SOFTWARE INDIA LTD REJECTED BY DRP WAS ACCEPTABLE TO ASSESSEE AS WELL AS LD.TPO. IN SUPPORT OF THE AFORESTATED VIEW SHE PLACED RELIANCE UPON DECISIONS OF DELHI TRIBUNAL IN CASE OF DCIT VS VERTEX CUSTOMER SERVICES IN ITA NO.5228/DEL/2018 VIDE ORDER DATED 0 6/11/17 AND AIRCOM INTERNATIONAL INDIA PVT. LTD., IN ITA NO. 04/04/03/DEL/2012 WIDE ORDER DATED 19/05/17 . IT HAS BEEN CONTENDED BY HER THAT ENTIRE ANALYSIS NEEDS TO BE REVISITED BASED UPON THE NEW FILTER THAT HAS BEEN APPLIED BY DRP AND THEREFORE NEEDS TO BE SET - ASIDE TO LD.TPO. 11. ON THE CONTRARY LD.AR SUBMITTED THAT ISSUE OF SUO MOTO APPLICATION OF ON - SITE REVENUE FILTER BY DRP HAS BEEN ADDRESSED BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PRIVATE LIMITED VS ACIT IN ITA(TP)A NO.156/B ANG/2016 FOR ASSESSMENT YEAR 2011 - 12 V IDE ORDER DATED 21/12/18 . HE FURTHER SUBMITTED THAT IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 12 ASSESSEE DO NOT HAVE ANY OBJECTION OF RS SOFTWARE INDIA PRIVATE LIMITED IS INCLUDED AS THEY ARE FUNCTIONALLY SIMILAR. 12. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. THE MAIN GRIEVANCE OF REVENUE IS IN RESPECT OF ON - SITE REVENUE FILTER BE APPLIED BY DRP SUO MOTO SELECTIVELY ON CERTAIN COMPARABLES THEREBY EXCLUDING THEM. ON THIS ASPECT WE AGREE WITH CONTENTION RAISED BY LD. CIT DR. HOWEVER ON PERUSAL OF OBSERVATIONS RECORDED BY DRP TO EXCLUDE ACROPETAL TECHNOLOGIES LTD., L&T INFOTECH LTD., ON THE BASIS OF FUNCTIONAL DISSIMILARITIES BROUGHT AND THAT SEGMENTAL INFORMATIONS ARE NOT AVAILABLE IN RESPECT OF WHICH COMPARABI LITY CANNOT BE ANALYSED. DRP FURTHER OBSERVED THAT THESE COMPARABLES ARE NOT A CONTRACT SERVICE PROVIDER LIKE ASSESSEE. DECISIONS RELIED UPON BY LD. CIT DR OF DELHI TRIBUNAL IN CASE OF DCIT VS VERTEX CUSTOMER SERVICES IN ITA NO.5228/DEL/2018 (SUPRA) AND AI RCOM INTERNATIONAL INDIA PVT. LTD., (SUPRA) DOES NOT DEAL WITH ON - SITE REVENUE FILTER AS HAS BEEN SUBMITTED BY LD. CIT DR. THEREFORE, IN OUR CONSIDERED OPINION, THESE GROUNDS RAISED BY REVENUE BECOMES ACADEMIC 13. ON MERITS, LD.CIT DR ON ISSUE OF FUNCTIONAL SIMILARITIES OF THESE COMPANIES WITH ASSESSEE RELIED UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF MERCEDES - BENZ RESEARCH AND DEVELOPMENT INDIA PRIVATE LIMITED VS ACIT REPORTED IN (2018) 90 TAXMAN N.COM 300 AND SUBMITTED THAT THESE COMPARABLES WERE SENT BACK TO LD.TPO FOR RE - EXAMINATION. SHE THUS SUBMITTED THAT, THE VIEW TAKEN BY IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 13 COORDINATE BENCH OF THIS TRIBUNAL IN MERCEDES - BENZ RESEARCH AND DEVELOPMENT INDIA PRIVATE LIMITED VS ACIT (SUPRA) MAY BE FOLLOWED. 14. WE HAVE PERUSED VIEW OF CO - ORDINATE BENCH OF THIS T RIBUNAL IN CASE OF MERCEDES - BENZ RESEARCH AND DEVELOPMENT INDIA PRIVATE LIMITED (SUPRA) IN RESPECT OF ACCROPATEL TECHNOLOGIES LTD AND L&T INFOTECH LTD. IT IS OBSERVED THAT THESE COMPA RABLES WERE SENT BACK TO LEARN TPO BY OBSERVING AS UNDER: 13. ACROPETAL TECHNOLOGIES LTD. ('ACROPETAL') .. 13.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. W E FIND THAT THE DRP HAS OBSERVED THAT THIS COMPANY, 'ACROPETAL', OPERATES IN THREE SEGMENTS AND THE SEGMENTAL RESULTS ARE AVAILABLE; WHILE ON THE CONTRARY THE ASSESSEE CONTENDS THAT 'ACROPETAL' OPERATES IN FOUR SEGMENTS. FURTHER, IT IS SEEN THAT EVEN THOUG H THE ASSESSEE HAS RAISED THE OTHER ISSUES BEFORE THE DRP, AS LAID OUT IN PARA 13.1 OF THIS ORDER, THE DRP HAS NOT RENDERED ANY FINDING THEREON. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF AMD INDIA (P.) LTD. ( SUPRA ) RELIED ON BY THE ASSESSEE HAS EXCLUDED 'ACROPETAL' ON THE GROUND THAT IT FAILS THE SERVICE INCOME FILTER OF 75%; A GROUND APPARENTLY NOT PUT FORTH BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. 13.3.2 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, A S DISCUSSED ABOVE; THAT THE DRP HAS NOT RENDERED FINDINGS ON SOME OF THE ISSUES RAISED BY THE ASSESSEE BEFORE IT AND THERE IS A CONTRADICTION IN THE NUMBER OF SEGMENTS THAT THIS COMPANY 'ACROPETAL' OPERATES IN, WE ARE OF THE OPINION THAT IT IS NECESSARY TO REMAND THE ISSUE OF COMPARABILITY OF THIS COMPANY BACK TO THE FILE OF THE DRP FOR EXAMINING AND ADJUDICATION OF THE ISSUES RAISED BY THE ASSESSEE, AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER AND TO FILE DETAILS /SUBMISSI ONS IN THIS REGARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 14 . 16.2 DURING PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE STATED THAT THE ASSESSEE DOES NOT WISH TO PRESS THE GROUND RELATED TO EX CLUSION OF SASKEN COMMUNICATION TECHNOLOGIES LIMITED; THEREFORE THIS GROUND IS DISMISSED AS NOT PRESSED AND CONSEQUENTLY SASKEN COMMUNICATION TECHNOLOGIES LTD. IS RETAINED IN THE FINAL LIST OF COMPARABLES. 16.3 ACCORDING TO THE LEARNED AUTHORISED REPRESENT ATIVE, THE OTHER TWO COMPANIES WERE CHOSEN AS COMPARABLES BY THE ASSESSEE IN ITS TP STUDY ITSELF. THE LEARNED AUTHORISED REPRESENTATIVE HOWEVER SUBMITS THAT THE ASSESSEE SEEKS EXCLUSION OF L & T INFOTECH LIMITED AND PERSISTENT SYSTEMS LIMITED, DUE TO MORE DETAILS BEING NOW AVAILABLE IN THE PUBLIC DOMAIN WHICH RENDER THESE TWO COMPANIES AS NOT COMPARABLE TO THE ASSESSEE AND THEREFORE PRAYS THAT THEY BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 16.4 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE FO R REVENUE OBJECTED TO THE ADMISSION OF THIS ADDITIONAL GROUND STATING THAT WHEN THE ASSESSEE ITSELF HAS SELECTED THESE TWO COMPANIES, THE AUTHORITIES BELOW HAD NO OCCASION TO CONSIDER THE OBJECTIONS NOW RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL. 16.5 AFTE R HAVING HEARD BOTH PARTIES AND PERUSED AND CONSIDERED THE MATERIAL ON RECORD, WE FIND THAT THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIES I.E. (I) L & T INFOTECH LIMITED AND (II) SASKEN COMMUNICATION TECHNOLOGIES LIMITED HAVE BEEN CONSIDERED BY BENCH ES OF THIS TRIBUNAL IN VARIOUS CASES, INCLUDING THOSE CITED BY THE LD.AR. BY WAY OF THIS ADDITIONAL GROUND, THE ASSESSEE IS RAISING OBJECTIONS TO THE INCLUSION OF THESE COMPANIES ON THE ISSUE OF FUNCTIONAL DISSIMILARITY AND OTHER GROUNDS. IN OUR CONSIDERED VIEW, THE ASSESSEE CANNOT BE PRECLUDED FROM RAISING AN OBJECTION AGAINST INCLUSION OF A COMPANY EVEN IF THE SAID COMPANY WAS SELECTED BY THE ASSESSEE IN ITS TP STUDY. THIS VIEW WAS TAKEN BY THE SPECIAL BENCH OF ITAT, CHANDIGARH IN THE CASE OF DY. CIT V. Q UARK SYSTEMS (P.) LTD. [2010] 38 SOT 307 . AS PER THE PRINCIPLES LAID DOWN IN THE AFORESAID DECISION OF THE SPECIAL BENCH (SUPRA), WE ADMIT THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE SEEKING EXCLUSION OF THESE TWO COMPANIES (I) L & T INFOTECH LIMITED (II) SASKEN COMMUNICATION IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 15 TECHNOLOGIES LIMIT ED WITHOUT COMMENTING ON THE MERITS OF THE CASE AND REMIT THE MATTER OF THEIR COMPARABILITY ANALYSIS TO THE FILE OF THE TPO/A.O. FOR EXAMINATION OF THE ASSESSEE'S CLAIM AND TO ADJUDICATE THEREON AFTER PROVIDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HE ARD, WHICH SHALL BE DULY CONSIDERED. WE HOLD AND DIRECT ACCORDINGLY. ON PERUSAL OF AFORESTATED OBSERVATIONS BY COORDINATE BENCH OF THIS TRIBUNAL, IT IS VERY CLEAR THAT COMPARABLES WERE REMANDED FOR THE REASON THAT IN CASE OF ACCROPATEL, DRP RENDERED FINDI NG THAT SEGMENTAL DETAILS WERE AVAILABLE WHICH WAS CONTRARY TO THE MATERIALS THAT WERE PLACED ON RECORD. IN CASE OF L & T, COORDINATE BENCH SENT BACK THE COMPARABLE FOR REASON THAT FINANCIAL DETAILS WHICH WERE INITIALLY NOT AVAILABLE ON PUBLIC DOMAIN WAS S UBSEQUENTLY AVAILABLE FOR CONSIDERATION. IN THE FACTS OF PRESENT CASE THERE IS NO SUCH DISPUTE BETWEEN PARTIES AND FINDINGS OF DRP ARE CONCURRENT WITH ANNUAL REPORTS PLACED IN PAPER BOOK FILED BEFORE US. THUS IN OUR CONSIDERED OPINION THESE COMPARABLES AR E NOT FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE WHO IS A CONTRACT SERVICE PROVIDER WORKING ON A COST PLUS BUSINESS MODEL. IT IS OBSERVED THAT RS SOFTWARE (INDIA) LTD, HAS BEEN EXCLUDED BY DRP ON APPLICATION OF ON - SITE REVENUE FILTER. 15. BOTH PARTIES DO NOT HAVE OBJECTION FOR INCLUSION OF THIS COMPANY. WE ARE THEREFORE OF THE VIEW THAT THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 16 ACCORDINGLY , LD. TPO IS DIRECTED TO CONSIDER THIS COMPARABLE IN THE LIST. ACCORDINGLY G ROUNDS 2 - 4 RAISED BY REVE NUE STANDS DISMISSED. 16. GROUND NO.8 IS IN RESPECT OF EXCLUDING M/S.E - INFOCHIPS, BY DRP AS COMPARABLE ON THE GROUND THAT IT FAILS SERVICE INCOME FILTER. LD. CIT DR SUBMITTED THAT TPO WHILE ANALYSING THE COMPARABLES HAS OBSERVED THAT THIS COMPANY HAS REVEN UE FROM SOFTWARE DEVELOPMENT UP TO 88% WHEREAS DRP OBSERVES THAT REVENUE EARNED BY THIS COMPANY IS LESS THAN 75% AND THEREFORE CANNOT BE INCLUDED. SHE SUBMITTED THAT THE BASIS OF DETERMINED IN REVENUE BY DRP BEING LESS THAN 75% HAS NOT BEEN DEMONSTRATED AN D THEREFORE NEEDS TO BE RECONSIDERED. 17. LD.AR PLACED RELIANCE UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) WHEREIN, E - INFOCHIPS LTD HAS BEEN EXCLUDED FOR FAILING IN SERVICE INCOME FILTER. 18. WE H AVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT LTD. VS ACIT (SUPRA) EXCLUDED E - INFOCHIPS LTD., BY FO LLOWING THE VIEW TAKEN BY THIS T RIBUNAL IN CASE OF COMMS CO - OPP NETWORK (INDIA) PRIVATE LIMITED VS IT OH IN IT (TP) A/BANG/2016 DATED 22/02/17 WHEREIN, THIS COMPANY WAS EXCLUDED FOR THE REASON THAT THERE IS NO SEGMENTAL INFORMATION REGARDING THE DIVERSE FUNCTIONS PERFORMED BY THIS COMPAN Y AND THAT THERE WAS A MAJOR FLUCTUATION IN ITS PROFITS WHICH INFLUENCED THE IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 17 TURNOVER OF THIS COMPANY. FURTHER IT IS OBSERVED THAT IN CASE OF DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PRIVATE LIMITED IN ITA NO. 502/BANG/2016 FOR ASSESSMENT YEAR 2011 - 12 WIDE ORDER DATED 06/04/18 HAS DEALT WITH THE IDENTICAL OBJECTION RAISED BY LD. CIT DR BEFORE AS UNDER: 24. AS FAR AS GROUND NO. 4 RAISED BY REVENUE IS CONCERNED, THE SAID GROUND OF APPEAL IS WEAK AND AN Y EVENT COMPARABILITY OF COMPANIES THAT WERE EXCLUDED BY THE DRP WERE ON VALID GROUNDS CONTEMPLATED BY THE RELEVANT STATUTORY PROVISIONS OF THE ACT AND RULES. AS FAR AS GROUND NO. 5 IN REVENUES APPEAL IS CONCERNED, THE REVENUE SEEKS TO CHALLENGE THE EXCLU SION OF AE INFOTECH LTD. ON THE GROUND THAT IT FAILED DIRECT SOFTWARE SERVICE INCOME FILTER AT 75%. AT THE OUTSET, THE ASSESSEE SUBMITS THAT E INFOTECH LTD WAS EXCLUDED BY THE DRP ON THE GROUND THAT: (I) NO SEGMENTAL INFORMATION IS REGARDING ITS DIVERSE FU NCTIONS IS AVAILABLE; (II) IT FAILED THE SOFTWARE SERVICE INCOME FILTER AND 75%; (III) THERE WERE MAJOR FLUCTUATIONS IN PROFIT AND TURNOVER EVERY YEARS WHICH SEEMS TO BE INFLUENCED BY EXTRAORDINARY/PECULIAR CIRCUMSTANCES; AND (IV) THERE IS A PRESENCE OF IN VENTORY (PAGE 10 AND 11 OF THE DRPS DIRECTIONS). THE REVENUE, IN ITS APPEAL HAS CHALLENGED ITS EXCLUSION ONLY ON THE 2 ND GROUND. IN OTHER WORDS, THE REVENUE HAS NOT CHALLENGED ITS EXCLUSION ON THE OTHER GROUNDS STATED HEREINABOVE AND THUS ITS EXCLUSION ON THESE GROUNDS HAVE ATTAINED FINALITY AND CANNOT BE DISTURBED BY THIS HONBLE TRIBUNAL. EVEN OTHERWISE, WE ARE IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 18 OF THE VIEW THAT THE DRP RIGHTLY ARRIVED AT THE FINDING THAT COMPANIES SOFTWARE DEVELOPMENT SERVICE REVENUE FOR FY 2010 - 11 WAS LESS THAN 75% O F ITS TOTAL OPERATING REVENUE FOR THE YEAR. THUS THE ABOVE ACTION OF THE DRP IN REJECTING THE ABOVE COMPANIES CORRECT. IN THE FACTS BEFORE US REVENUE IS CHALLENGING EXCLUSION OF THIS COMPARABLE AS DRP RECORDED FINDING IN RESPECT OF SERVICE INCOME BEING LE SS THAN 75%. OTHER ISSUES CONSIDERED BY DRP IN RESPECT OF EXTRAORDINARY EVENT AND NO SEGMENTAL INFORMATION IS AVAILABLE HAS NOT BEEN CHALLENGED BEFORE US (PAGE 11 OF DRP ORDER). RESPECTFULLY FOLLOWING THE VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN DCIT VS M/S CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTATIONS PRIVATE LIMITED (SUPRA) , WE DIRECT LD. TPO TO EXCLUDE THIS COMPANY. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 19. GROUND NO. 6 - 7 HAS BEEN STATED TO BE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 20. IN THE RESULT APPEAL FILED BY REVENUE STANDS DISMISSED. 21. CO NO .99/BANG/16 AS APPEAL FILED BY REVENUE STANDS DISMISSED THE CROSS OBJECTION FILED BY ASSESSEE DOES NOT SURVIVE. HOWEVER, LIBERTY IS GRANTED TO ASSESSEE TO CHALLENGE INCLUSION OF CERTAIN COMPARABLES THEREIN IN AN APPROPRIATE YEAR. ACCORDINGLY CROSS OBJECTIONS FILED BY ASSESSEE STANDS DISMISSED. IT( TP)A NO.267(B)/2016 & CO NO.99(B)/2018 19 22. IN THE RESULT APPEAL FILED BY REVENUE AND CROSS OBJECTIO N FILED BY ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 - 08 - 2019 SD/ - SD/ - ( J.SUDHAKAR REDDY ) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 28 TH AUGUST, 2019. *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FIL E BY ORDER ASST.REGISTRAR