Aithent Technologies Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1020/DEL/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8349 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 22-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Related party transaction; Business income; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Wholly owned subsidiary; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1286/DEL./2016 (ASSESSMENT YEAR : 2011-12) M/S. AITHENT TECHNOLOGIES PVT. LTD., VS. ITO, WARD 1 (3), A 16/9, VASANT VIHAR, NEW DELHI. NEW DELHI 110 057. (PAN : AAACS2319H) ITA NO.1020/DEL./2017 (ASSESSMENT YEAR : 2012-13) M/S. AITHENT TECHNOLOGIES PVT. LTD., VS. ACIT, CIRC LE 2 (1), A 16/9, VASANT VIHAR, NEW DELHI. NEW DELHI 110 057. (PAN : AAACS2319H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL NINAWAT, CA MS. SHREYA SINGHAL, CA REVENUE BY : SHRI SURENDER PAL, CIT DR DATE OF HEARING : 07.01.2020 DATE OF ORDER : 21.01.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEALS, THE SAME ARE BEING D ISPOSED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCU SSION. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 2 2. APPELLANT, M/S. AITHENT TECHNOLOGIES PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 28.01.2016 & 19. 12.2016 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) QUA THE ASSESSMENT YE ARS 2011-12 & 2012-13 RESPECTIVELY ON THE GROUNDS INTER ALIA TH AT :- AY 2011-12 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IS BA D IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. TRANSFER PRICING OFFICER/ LD. ASSESSING OFFICER HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARM'S LENGTH ADJUSTMENT TO THE APPELLANT'S INTE RNATIONAL TRANSACTION FROM ASSOCIATED ENTERPRISES AND THEREBY RESULTING IN THE ENHANCEMENT OF RETURNED INCOME OF THE APPELLANT BY RS.1,57,79,500/-. 3. THE LD. ASSESSING OFFICER HAS COMPLETELY IGNORED THE FACTS IN THE SUBMISSIONS MADE BEFORE HIM AND PROCEE DED TO MAKE TRANSFER PRICING ADJUSTMENT ON THE BASIS OF TPO'S O RDER. 4. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN FA CTS AND IN LAW TO REJECT, BASED ON HIS SUBJECTIVE GROUNDS AND PRESUMPTIONS, THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT FO R DETERMINATION OF THE ARM'S LENGTH PRICE. 5. IN RELATION TO QUANTITATIVE SEARCH FILTERS APPLI ED IN BENCHMARKING ANALYSIS, THE LD. TPO HAS ERRED IN FAC TS AND CIRCUMSTANCES BY: A) REJECTING/MODIFYING THE FILTERS APPLIED BY THE A PPELLANT IN ITS TP STUDY AND THEREBY ERRONEOUSLY HOLDING THAT T HE TP STUDY IS DEFECTIVE AND UNRELIABLE; B) ERRONEOUS UNDERSTANDING OF THE PURPOSE OF APPELL ANT'S USAGE OF MULTIPLE YEAR DATA AND ERRONEOUSLY STATING HAD OBJECTED TO USING CONTEMPORANEOUS DATA, WHEREAS THE APPELLAN T HAS USED ONLY CURRENT YEAR IN RESPECT OF COM PARABLES; C) ERRONEOUSLY REJECTING THE TURNOVER FILTER APPLIE D BY THE APPELLANT AND DISREGARDING THE CONTENTIONS RAISED B Y APPELLANT ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 3 W.R.T DIFFERENCES IN SCALE OF OPERATIONS BETWEEN TH E APPELLANT AND THE COMPANIES SELECTED BY LD. TPO AS COMPARABLES; D) ERRONEOUS APPLICATION OF TURNOVER FILTER APPLIED BY LD. TPO OF RS 5 CRORES WITHOUT PROVIDING ANY EVIDENCE T O SUPPORT HIS RATIONALE FOR APPLYING THIS FILTER AND NOT APPLYING ANY UPPER CAP FILTER, THEREBY COMPARING APPELLANT HAVING TURNOVER OF RS. 20 CRORE WITH GIANTS LIKE INFOSYS HAVING TURNOVER OF T HOUSANDS OF CRORES; E) ERRONEOUS MODIFICATION OF MANUFACTURING AND TRAD ING SALES TO TOTAL SALES FILTER OF 33% AS APPLIED BY AP PELLANT TO 75% OF SALES FROM SOFTWARE DEVELOPMENT ACTIVITIES WITHOUT PROVIDING ANY LOGICAL REASON FOR SUCH A MODIFICATION; F) ERRONEOUS COMPUTATION OF RELATED PARTY TRANSACTI ONS TO SALES RATIO OF COMPARABLE COMPANIES BY INCLUDING BO TH REVENUE AND EXPENSE TRANSACTIONS TOGETHER IN NUMERATOR AND DISREGARDING THE APPELLANT'S CONTENTION REGARDING C ALCULATION OF EXPENSE AND REVENUE SIDE RELATED PARTY TRANSACTIONS SEPARATELY USING APPROPRIATE BASE AS DENOMINATOR; G) ERRONEOUS APPLICATION OF EXPORT SALES TO TOTAL S ALE FILTER BY IGNORING APPELLANT'S CONTENTIONS ON RELIABILITY OF EXPORT SALES DATA, EFFECT OF OUTSTANDING RECEIVABLES AND GEOGRAP HICAL DIFFERENCES IN MARKETS TO WHICH EXPORTS ARE BEING M ADE; 6. IN RELATION TO COMPANIES SELECTED/REJECTED AS CO MPARABLES, LD. TPO HAS ERRED IN FACTS AND CIRCUMSTANCES BY: A) ERRONEOUSLY ALL THE FOUR COMPARABLES MENTIONED I N TP STUDY HAVE BEEN REJECTED; B) ERRONEOUSLY REJECTING CG VAK SOFTWARE & EXPORTS LTD ON GROUND THAT IT FAILS EMPLOYEE COST FILTER APPLIED B Y LD. TPO AND IGNORED APPELLANT'S CONTENTION THAT THE SAID COMPAN Y CLEARS THE EMPLOYEE COST FILTER APPLIED BY LD. TPO; C) ERRONEOUSLY REJECTING KALS INFORMATION SYSTEMS L TD. BY STATING THAT SEGMENTAL INFORMATION IS NOT RELIABLE AND IGNORED THE APPELLANT'S CONTENTION REGARDING SELECTION OF COMPA NY AS A WHOLE AS A COMPARABLE COMPANY; D) ERRONEOUSLY REJECTING VIRINCHI TECHNOLOGIES LTD. ON EMPLOYEE COST FILTER AND BY FAILING TO APPRECIATE F UNCTIONAL PROFILE OF THE COMPARABLE COMPANY; E) ERRONEOUSLY REJECTING MELSTAR INFORMATION TECHNO LOGIES LTD. ON EXPORT SALES FILTER AND IGNORED APPELLANT'S CONTENTION ON RELIABILITY OF EXPORT SALES DATA, EFFECT OF OUTSTAN DING RECEIVABLES ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 4 AND GEOGRAPHICAL DIFFERENCES IN MARKETS TO WHICH EX PORTS ARE BEING MADE; F) ERRONEOUSLY ACCEPTING IGATE GLOBAL SOLUTIONS LTD IN FINAL COMPARABLE SET USED BY LD. TPO AFTER ACCEPTING APPE LLANT'S CONTENTIONS REGARDING ITS EXCLUSION ON THE BASIS OF DISSIMILAR BUSINESS ACTIVITIES AS MENTIONED IN THE ANNUAL REPO RT AND ALSO EXPRESSLY STATING IN HIS ORDER THAT THIS COMPANY SH OULD BE REJECTED; G) ERRONEOUSLY ACCEPTING COMPANIES (I.E. INFOSYS LT D, PERSISTENT SYSTEMS LTD, SASKEN COMMUNICATION TECHNO LOGIES LTD AND ZYLOG SYTEMS LTD) WHICH ARE HAVING HIGH TURNOVE R AND DISREGARDING THE APPELLANT'S CONTENTIONS W.R.T DIFF ERENCES IN FUNCTIONAL PROFILE ARISING DUE TO DIFFERENCES IN SC ALE OF OPERATIONS; H) ERRONEOUSLY ACCEPTING COMPANIES (I.E. INFOSYS LT D, SASKEN COMMUNICATION TECHNOLOGIES LTD) HAVING INTAN GIBLES/ INTELLECTUAL PROPERTY/PATENTS IN HIS FINAL COMPARAB LE SET; I) ERRONEOUSLY ACCEPTING COMPANIES WHICH ARE FUNCTI ONALLY DIFFERENT OR HAVING VERY LESS REVENUE FROM SOFTWARE DEVELOPMENT ACTIVITIES (I.E. WI PRO TECHNOLOGIES LTD AND ZYLOG SYSTEMS LTD.) IN HIS FINAL COMPARABLE SET. 7. THE LD. TPO HAS ERRED IN CONSIDERING OPERATING M ARGIN OF THE APPELLANT AS 10.62% AND DISREGARDED THE CORR ECT MARGIN OF THE APPELLANT I.E. 12.62% WITHOUT PROVIDING ANY REA SON FOR NOT CONSIDERING THE CORRECT MARGIN. 8. THE LD. TPO/ LD. AO HAS NOT REJECTED OUR TP STUD Y BUT HAS IN UNLAWFUL MANNER CHERRY PICKED COMPANIES DISR EGARDING THEIR FAR AND HAVING HIGH MARGINS AND VERY HIGH TUR NOVER, PRODUCTS/INTANGIBLES, SOFTWARE SUPPORT ACTIVITIES I N COMPARABLE SET, WHICH ARE COMPLETELY DIFFERENT FROM THE PROFIL E OF THE APPELLANT COMPANY. 9. THE LD. TPO HAS ERRED IN LAWS AND FACTS OF THE C ASE BY IGNORING THE IDLE CAPACITY ADJUSTMENT MADE ON ACCOU NT OF IDLE CAPACITY. 10. THE LD. TPO HAS ERRED IN LAWS AND FACTS OF THE CASE BY IGNORING THE DIFFERENCES BETWEEN RISK PROFILE OF AP PELLANT AND COMPANIES SELECTED BY HIM AS COMPARABLES AND DENYIN G ADJUSTMENT ON ACCOUNT OF SUCH DIFFERENCES IN RISK D IFFERENCES. 11. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN L AW BY TREATING FOREIGN EXCHANGE INCOME/ EXPENSE AND MISCE LLANEOUS INCOME AS NON- OPERATING, WHILE LD. TPO HIMSELF HAS CONSIDERED ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 5 THE MISCELLANEOUS INCOME AS OPERATING WHILE CALCULA TING THE OPERATING MARGINS OF THE COMPARABLE COMPANIES. 12. HONOURABLE DRP HAS COMPLETELY IGNORED THE ENTIR E SUBMISSION MADE BY THE APPELLANT AND PASSED THE ORD ER IN A MECHANICAL MANNER WITHOUT CONSIDERING ANY OF THE SUBMISSION/FACT PLACED BEFORE IT. AY 2012-13 1. THE ASSESSMENT ORDER OF THE LEARNED ASSESSING O FFICER (AO) IS BAD IN LAW AND ON THE FACTS AND CIRCUMSTANC ES OF THE CASE. 2. THE LD. AO HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARM'S LENGTH ADJUSTMENT TO THE APPELLANT'S INTERNATIONAL TRANSACTION WITH RESPECT TO SOFTWARE DEVELOPMENT SERVICES RENDERED TO ASSOCIATED ENTERPR ISE AND THEREBY RESULTING IN THE ENHANCEMENT OF RETURNED IN COME OF THE APPELLANT BY RS.1,26,10,260/-. 3. THE LD. TRANSFER PRICING OFFICER (TPO) HAS ERRED ON FACTS AND IN LAW TO REJECT, BASED ON HIS SUBJECTIVE GROUNDS AND PRESUMPTIONS, THE ECONOMIC ANALYSIS CONDUCTED BY TH E APPELLANT FOR DETERMINATION OF THE ARM'S LENGTH PRICE. 4. THE LD. TPO/ AO/DRP HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE APPROPRI ATE FILTERS AS APPLIED BY THE APPELLANT AND FURTHER MODIFYING THE FILTERS ARBITRARILY WITHOUT PROPER APPRECIATION OF THE FACT S, LAW AND COMMERCIAL REALITY. 5. IN RELATION TO QUANTITATIVE SEARCH FILTERS APPLI ED IN BENCHMARKING ANALYSIS, THE LD. TPO/DRP HAS ERRED IN FACTS AND CIRCUMSTANCES BY: A) REJECTING/MODIFYING THE FILTERS APPLIED BY THE A PPELLANT IN ITS TP STUDY AND THEREBY ERRONEOUSLY HOLDING THAT T HE TP STUDY IS DEFECTIVE AND UNRELIABLE; B) ERRONEOUS UNDERSTANDING OF THE PURPOSE OF APPELL ANT'S USAGE OF MULTIPLE YEAR DATA AND ERRONEOUSLY STATING HAVING OBJECTED TO USING CONTEMPORANEOUS DATA, WHEREAS THE APPELLANT HAS USED ONLY CURRENT YEAR IN RESPECT OF COMPARABLE S; C) ERRONEOUSLY REJECTING THE TURNOVER FILTER APPLIE D BY THE APPELLANT AND DISREGARDING THE CONTENTIONS RAISED B Y APPELLANT W.R.T DIFFERENCES IN SCALE OF OPERATIONS BETWEEN TH E APPELLANT AND THE COMPANIES SELECTED BY LD. TPO AS COMPARABLES; ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 6 D) ERRONEOUS APPLICATION OF TURNOVER FILTER APPLIED BY LD. TPO WITHOUT PROVIDING ANY EVIDENCE TO SUPPORT HIS R ATIONALE FOR NOT APPLYING ANY UPPER CAP FILTER, THEREBY COMPARIN G APPELLANT HAVING TURNOVER OF RS. 19.57 CRORES WITH GIANTS HAV ING TURNOVER OF THOUSANDS OF CRORES; E) ERRONEOUS MODIFICATION OF MANUFACTURING AND TRAD ING SALES TO TOTAL SALES FILTER OF 33% AS APPLIED BY AP PELLANT TO 25% OF TOTAL SALES WITHOUT PROVIDING ANY LOGICAL REASON FO R SUCH A MODIFICATION; F) LD. TPO HAS ERRED IN FACTS AND CIRCUMSTANCES BY ERRONEOUS APPLICATION OF EMPLOYEE COST TO TOTAL COS T FILTER BY IGNORING APPELLANT'S CONTENTION OF TAKING TOTAL SAL ES AS THE APPROPRIATE DENOMINATOR. G) ERRONEOUS COMPUTATION OF RELATED PARTY TRANSACTI ONS TO SALES RATIO OF COMPARABLE COMPANIES BY INCLUDING BO TH REVENUE AND EXPENSE TRANSACTIONS TOGETHER IN NUMERATOR AND DISREGARDING THE APPELLANT'S CONTENTION REGARDING C ALCULATION OF EXPENSE AND REVENUE SIDE RELATED PARTY TRANSACTIONS SEPARATELY USING APPROPRIATE BASE AS DENOMINATOR; H) ERRONEOUS APPLICATION OF SERVICE INCOME FROM EXP ORTS TO TOTAL SALE FILTER OF 75% BY IGNORING APPELLANTS CON TENTIONS ON RELIABILITY OF EXPORT SALES DATA, EFFECT OF OUTSTAN DING RECEIVABLES AND GEOGRAPHICAL DIFFERENCES IN MARKETS TO WHICH EX PORTS ARE BEING MADE; 6. IN RELATION TO COMPANIES SELECTED/REJECTED AS CO MPARABLES, LD. TPO HAS ERRED IN FACTS AND CIRCUMSTANCES BY: A) ERRONEOUSLY REJECTING THREE OUT OF FOUR COMPARAB LES OF APPELLANT I.E. BELLS SOFTECH LIMITED, INFOMILE TECH NOLOGIES LIMITED AND KALS INFORMATION SYSTEMS LTD. WITHOUT G IVING ANY EXPLANATION OR WORKING FOR THEIR REJECTION EVEN AFT ER BEING DIRECTED BY HON'BLE DRP TO ACCEPT THESE AS VALID CO MPARABLES ON PASSING THE FILTERS APPLIED BY LD. TPO; B) ERRONEOUSLY ACCEPTING COMPANIES (I.E. INFOSYS LT D, L& T INFOTECH LTD, PERSISTENT SYSTEMS LTD, R S SOFTWARE( LNDIA) LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD, TATA ELXSI L TD AND ZYLOG SYTEMS LTD) WHICH ARE HAVING HIGH TURNOVER AN D DISREGARDING THE APPELLANT'S CONTENTIONS W.R.T DIFF ERENCES IN FUNCTIONAL PROFILE ARISING DUE TO DIFFERENCES IN SC ALE OF OPERATIONS; C) ERRONEOUSLY ACCEPTING COMPANIES (I.E., INFOSYS L TD, LUCID SOFTWARE LTD., PERSISTANT SYSTEMS LTD., SASKEN COMM UNICATION ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 7 TECHNOLOGIES LTD) HAVING INTANGIBLES/ INTELLECTUAL PROPERTY/PATENTS IN HIS FINAL COMPARABLE SET; D) ERRONEOUSLY ACCEPTING COMPANIES (LE. INFOSYS LTD , PERSISTANT SYSTEMS LTD. AND ZYLOG SYSTEMS LTD.) HAV ING PECULIAR OR ABNORMAL BUSINESS CONDITIONS LIKE MERGERS/ACQUIS ITION ETC. DURING THE YEAR UNDER CONSIDERATION AND FOR WHICH A PPROPRIATE ADJUSTMENTS CANNOT BE TAKEN OUT; E) ERRONEOUSLY ACCEPTING COMPANIES WHICH ARE FUNCTI ONALLY DIFFERENT OR HAVING VERY LESS REVENUE FROM SOFTWARE DEVELOPMENT ACTIVITIES (I.E., INFOSYS LTD, L& T INFOTECH, R S S OFTWARE(INDIA) LTD., SASKEN COMMUNICATION TECHNOLOGIES LTD, SPRY R ESOURCES PVT. LTD., TATA ELXSI LTD., THIRDWARE SOLUTION LTD. AND ZYLOG SYSTEMS LTD.) IN HIS FINAL COMPARABLE SET. 7. THE LD. AO/TPO/DRP HAS ERRED IN LAWS AND FACTS O F THE CASE BY IGNORING THE APPELLANT'S CONTENTION WITH RE SPECT TO ERRONEOUS COMPUTATION OF TRANSFER PRICING ADJUSTMEN T BY MAKING THE ADJUSTMENT AT ENTITY LEVEL INSTEAD OF THE ADJUS TMENT BEING MADE ONLY IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT. 8. THE LD. AO/TPO/DRP HAS ERRED IN LAWS AND FACTS O F THE CASE BY IGNORING THE IDLE CAPACITY ADJUSTMENT CLAIM ED BY THE APPELLANT ON ACCOUNT OF THE UNUTILIZED CAPACITY DUR ING THE YEAR. 9. THE LD. AO/TPO/DRP HAS ERRED IN LAWS AND FACTS O F THE CASE BY IGNORING APPELLANT'S CONTENTION AS TO THE R EQUIREMENT OF SUITABLE ADJUSTMENT FOR DIFFERENCE IN RISK UNDERTAK EN BY APPELLANT AND COMPARABLE COMPANIES. ' 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. AITHENT TECHNOLOGIES PVT. LTD. (ATPL), THE TAXPAYER INCORPORATED IN INDIA ON NOVEMBER 3, 2 000 IS ENGAGED INTO THE DEVELOPMENT OF COMPUTER SOFTWARE. THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY IN USA, NAMELY, AITHEN INC. (AI), A BRAN CH OFFICE IN CANADA AND SALES & MARKETING OFFICES IN JAPAN. THE TAXPAY ER ACQUIRED 100% OF THE EQUITY CAPITAL OF SOFTWARE SERVICES INTERNATIO NAL INCORPORATED AFTER OBTAINING APPROVAL FROM RESERVE BANK OF INDIA. THE REAFTER, THE NAME OF ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 8 SOFTWARE SERVICES INTERNATIONAL INCORPORATED WAS CHANGED TO AITHENT INC. IN THE YEAR 2001. DURING THE YEARS UNDER ASSE SSMENT I.E. 2011-12 & 2012-13, THE TAXPAYER ENTERED INTO INTERNATIONAL TR ANSACTIONS AS UNDER :- AY 2011-12 S.NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) 1 SOFTWARE DEVELOPMENT SERVICES 8,71,62,752 AY 2012-13 S.NO. INTERNATIONAL TRANSACTION AMOUNT (IN RS.) 1 SOFTWARE DEVELOPMENT SERVICES BY ATPL TO AI 12,61,36,720 2 SOFTWARE DEVELOPMENT SERVICES BY AC TO AI 48,56,264 4. FOR BOTH AYS 2011-12 & 2012-13, THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS USED TRANS ACTIONAL NET MARGIN METHOD (TNMM) AS OPERATING PROFIT/OPERATING COST (OP/OC) AS PROFIT LEVEL INDICATOR (PLI) AS THE MOST APPROPRIATE METHOD (MAM). THE TAXPAYER CHOSEN 4 COMPANIES AND 6 COMPANIES AS COMPARABLES TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS WITH AVERAGE MARGIN OF 6.80% AND 4.50% BY USING MULTIPLE YEAR DATA AS AGAINST ITS OWN MARGIN AT 10. 62% AND 10.13% FOR AY 2011-12 & 2012-13 RESPECTIVELY. 5. FOR AY 2012-13, TRANSFER PRICING OFFICER (TPO) R EJECTED ALL THE 4 COMPARABLES BY APPLYING VARIOUS FILTERS DETAI LED IN PARA 2.1 OF THE TP ORDER, SELECTED 6 NEW COMPARABLES WITH AVERA GE MARGIN OF ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 9 32.97% AND PROPOSED THE ADJUSTMENT ON ACCOUNT OF AR MS LENGTH AS UNDER :- OPERATIONAL COST 78,792,386 ARMS LENGTH PRICE AT A MARGIN OF 32.97% 104,770,23 6 PRICE RECEIVED 87,162,752 105% OF THE PRICE RECEIVED 91,520,890 PROPOSED ADJUSTMENT U/S 92CA 17,607,484 THE ABOVE SHORTFALL OF RS.1,76,07,484/- IS BEING PR OPOSED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAXPAYER UNDER THE IT SEGMENT IN ITS BOOKS OF ACCOUNT. THE ASSESSING WIL L ACCORDINGLY ENHANCE THE INCOME OF THE ASSESSEE BY RS.1,76,07,48 4/-. THIS SHALL BE TREATED AS THE CUMULATIVE ADJUSTMENT U/S 9 2CA. 6. FOR AY 2012-13, THE LD. TPO IN ORDER TO BENCHMAR K THE INTERNATIONAL TRANSACTIONS APPLIED VARIOUS FILTERS DETAILED IN PARA 2.1 OF T.P. ORDER REJECTED 12 COMPARABLES OUT OF 13 COM PARABLES CHOSEN BY THE ASSESSEE, INTRODUCED 13 NEW COMPARABL ES AND ARRIVED AT THE AVERAGE MARGIN OF 18.74% AND COMPUTE D THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS A S UNDER :- OPERATING COST 18,33,62,071 ARMS LENGTH MARGIN (%) 18.74% ARMS LENGTH PRICE (ALP) 21,77,24,123 PRICE RECEIVED 20,19,41,697 SHORTFALL BEING ADJUSTMENT U/S 92CA 1,57,82,426 THE ABOVE SHORTFALL OF RS.1,57,82,426/- IS BEING PR OPOSED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAXPAYER U/S 92CA. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. DRP B Y FILING OBJECTIONS WHO HAS CONFIRMED PROPOSED ADJUSTMENTS M ADE BY THE LD. TPO FOR AY 2011-12 BY DISMISSING THE OBJECTIONS . HOWEVER, FOR AY 2012-13, LD. DRP DIRECTED THE LD. TPO TO COR RECT ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 10 COMPUTATIONAL ERROR AND TO REWORK THE OP/OC MARGIN OF TAXPAYER AS WELL AS COMPARABLES BY REMOVING COMPUTATIONAL ER RORS IN VIEW OF THE SAFE HARBOUR RULES NOTIFIED BY CBDT, GRANTED WORKING CAPITAL ADJUSTMENT AND THEREBY AVERAGE MARGIN OF CO MPARABLES HAS BEEN REDUCED TO 17.01% AS AGAINST 18.74% COMPUTED B Y THE LD. TPO. CONSEQUENTLY, TP ADJUSTMENT PROPOSED BY TPO A S RS.1,57,82,426/- HAS BEEN REDUCED TO RS.1,26,10,260 /-. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIB UNAL BY WAY OF FILING THE PRESENT APPEALS IN BOTH THE AYS 2011-12 & 2012-13. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. UNDISPUTEDLY, TNMM WITH OP/OC AS PLI AS THE MAM APPLIED BY THE TAXPAYER HAS BEEN ACCEPTED BY THE LD . TPO AS WELL AS LD. DRP. IT IS ALSO NOT IN DISPUTE THAT LD. DRP HAS NOT INTERFERED IN THE FINAL SET OF COMPARABLES CHOSEN BY THE TPO F OR BOTH THE AYS 2011-12 & 2012-13 TO BENCHMARK THE INTERNATIONAL TR ANSACTIONS QUA SOFTWARE DEVELOPMENT SERVICES. 10. NOW, THE ONLY CHALLENGE MADE BY THE TAXPAYER IS SELECTION AND REJECTION OF COMPARABLES MADE BY THE TPO AS WEL L AS LD. DRP. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 11 WE WOULD EXAMINE THE SUITABILITY OF COMPARABLES REJ ECTED AS WELL AS SELECTED BY THE TPO FOR AYS 2011-12 & 2012-13 SE PARATELY. ITA NO.1286/DEL/2016 (AY 2011-12) 11. THE TAXPAYER CHALLENGED REJECTION OF ITS COMPAR ABLES BY THE LD. TPO AND THEREBY SOUGHT INCLUSION OF ITS 4 COMPA RABLES VIZ. CG VAK SOFTWARE & EXPORTS LTD., KALS INFORMATION SYSTE MS LTD., MELSTAR INFORMATION TECHNOLOGIES LTD. & VIRNICHI TE CHNOLOGIES LTD. FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS AN D FURTHER SOUGHT EXCLUSION OF 5 COMPARABLES VIZ. WIPRO TECHNOLOGIES SERVICES LTD., INFOSYS LTD., I GATE GLOBAL SOLUTION S LTD., PERSISTENT SYSTEMS LTD. & SASKEN COMMUNICATION TECH NOLOGIES LTD. TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA SO FTWARE DEVELOPMENT SERVICES. 11.1 LD. TPO AFTER APPLYING TNMM WITH OP/OC AS PLI AS MAM CHOSEN 6 COMPARABLES WITH AVERAGE MARGIN OF 32. 97%, WHICH ARE AS UNDER :- S.NO. COMPANY NAME OP/OC 1 I GATE GLOBAL SOLUTION LTD. 23.71% 2 INFOSYS LTD. 43.53% 3 PERSISTENT SYSTEMS LTD. 23.08% 4 ZYLOG SYSTEMS LTD. 28.74% 5 SASKEN COMMUNICATION TECHNOLOGIES LTD. 24.36% 6 WIPRO TECHNOLOGIES LTD. 54.42% AVERAGE 32.97% ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 12 12. LD. TPO REJECTED 4 COMPARABLES OF TAXPAYER VIZ. CG VAK SOFTWARE & EXPORTS LTD., KALS INFORMATION SYSTEMS L TD., MELSTAR INFORMATION TECHNOLOGIES LTD. & VIRNICHI TECHNOLOGI ES LTD. AND SUITABILITY THEREOF IS BEING EXAMINED AS UNDER. CG VAK SOFTWARE & EXPORTS LTD. (CG VAK) 13. LD. TPO REJECTED CG VAK AS A COMPARABLE ON THE GROUND THAT IT FAILS EMPLOYEE COST FILTER (6%). LD. DRP C ONFIRMED THE REJECTION OF CG VAK BY TPO. 14. HOWEVER, WHEN WE EXAMINE THE FILTERS APPLIED BY THE TPO TO BENCHMARK THE INTERNATIONAL TRANSACTIONS DETAILED I N PARA 2.1, THERE IS NO SUCH FILTER SUCH AS EMPLOYEE COST FILTER APPL IED BY THE TPO. EVEN OTHERWISE, WHEN WE EXAMINE ANNUAL REPORT OF CG VAK FOR AY 2011-12 AT PAGE 23 OF THE PAPER BOOK-2 ALONG WIT H NOTES ANNEXED FORMING PART OF ACCOUNTS EMPLOYEE COST IS RS.4,73,01,685/- WHICH IS 70.50% OF THE TOTAL OPERA TING EXPENSES OF RS.6.7 CRORES. FUNCTIONALITY OF CG VAK VIS--VI S TAXPAYER HAS NOT BEEN DISPUTED BY THE LD. TPO. IN VIEW OF TH E FINANCIALS OF CG VAK, WE HEREBY DIRECT TPO/AO TO VERIFY EMPLOYEE COST OF CG VAK WITH REFERENCE TO NEXT YEAR ANNUAL REPORT SO AS TO DECIDE THE SUITABILITY OF CG VAK AS A COMPARABLE. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 13 KALS INFORMATION SYSTEMS LTD. (KALS) 15. LD. TPO REJECTED KALS AS A COMPARABLE CHOSEN BY THE TAXPAYER ON THE GROUND THAT SEGMENTAL INFORMATION I S NOT MATCHING WITH ENTITY LEVEL FINANCIALS. THERE IS NO DISPUTE AS TO THE FUNCTIONAL SIMILARITY BETWEEN TAXPAYER AND KALS. LD. TPO ALSO APPLIED TAXPAYERS LOWER TURNOVER CAP AND APPLIED LOWER TUR NOVER CAP OF RS.5 CRORES. HOWEVER, IN AY 2012-13, AO ACCEPTED L OWER TURNOVER CAP OF RS.1 CRORE AND TPO HIMSELF APPLIED LOWER TURNOVER CAP OF RS.1 CRORE IN TAXPAYERS OWN CASE FOR AY 200 9-10. 16. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF M/S. MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. VS. ACI T IN IT(TP) A.NO.291/BANG/2015 ORDER DATED 28.04.2017 EXAMINED THE ISSUE AS TO HOW THE TURNOVER FILTER IS APPLICAB LE FOR INCLUSION AND EXCLUSION OF ANY COMPANY AS COMPARABLE BY RETUR NING FOLLOWING FINDINGS :- 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE LEARNED DR IS OBJECTING TO THE APPLICATION OF T URNOVER FILTER AND THE LEARNED AR OF THE ASSESSEE IS ALSO NOT INSI STING ON APPLYING OF TURNOVER FILTER. BUT WHEN THE ASSESSEE IS REQUESTING FOR EXCLUSION OF THIS COMPANY AND IF IT IS SEEN THA T THIS COMPANY HAS TO BE EXCLUDED BY APPLYING TURNOVER FILTER, THE N THERE IS NO REASON FOR IGNORING THE TURNOVER FILTER MERELY ON T HIS BASIS THAT IN A GIVEN CASE, THERE MAY BE OTHER REASONS OF EXCLUSI ON. REGARDING THE OBJECTION OF LEARNED DR OF THE REVENUE THAT SIZ E OF TURNOVER IN THE CASE OF A COMPANY RENDERING SOFTWARE DEVELOP MENT SERVICES DOES NOT AFFECT THE PROFIT MARGIN AND THER EFORE, IN SUCH CASES, TURNOVER FILTER SHOULD NOT BE APPLIED, WE FI ND THAT ON THIS ASPECT, WE MAY DRAW SUPPORT FROM THE SAFE HARBOUR R ULES FRAMED U/S 92CB OF THE I. T, ACT. IN PARTICULAR, RU LE 10TC STATES THAT SOFTWARE DEVELOPMENT SERVICES ARE ELIGIBLE INT ERNATIONAL ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 14 TRANSACTION FOR SAFE HARBOUR RULES AND AS PER RULE 10TD (2), RATE OF 20% IS PRESCRIBED FOR THOSE ENTITIES WHERE THE TURNOVER IS BELOW RS.500 CRORES AND IN CASES WHERE TURNOVER EXC EEDS RS. 500 CRORES, THE PRESCRIBED RATE IS 22%. IT IMPLIES THAT AS PER THESE RULES, SIZE OF TURNOVER HAS IMPACT ON PROFIT MARGIN IN CASES OF COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICES A LSO. THESE RULES ARE NOT APPLICABLE IN THE PRESENT CASE BUT AN INFERENCE CAN BE DRAWN THAT SIZE OF TURNOVER HAS IMPACT ON PROFIT MARGIN IN CASES OF COMPANIES RENDERING SOFTWARE DEVELOPMENT S ERVICES ALSO. THEREFORE, THIS ARGUMENT OF THE LEARNED DR OF THE REVENUE IS REJECTED. MOREOVER, THIS TRIBUNAL IS CONSISTENTL Y HOLDING THAT TURNOVER FILTER IS APPLICABLE TO SOFTWARE DEVELOPME NT SERVICE COMPANY ALSO AND SUCH FILTER APPLIED IS 1/10 TH OF THE TURNOVER OF THE TESTED PARTY OR 10 TIMES OF THE TURNOVER OF THE TESTED PARTY. IN THE PRESENT CASE, THE TURNOVER OF INFOSYS LTD. IS R S. 21,140 CRORES WHICH IS MANY TIMES MORE THAN THE TURNOVER OF THE A SSESSEE COMPANY OF RS.108 CRORES. UNDER THESE FACTS, IN OUR CONSIDERED OPINION, THE TURNOVER FILTER IS APPLICABLE AND BY A PPLYING THE TURNOVER FILTER, THIS COMPANY HAS TO BE EXCLUDED. W E DIRECT THE AO/TPO ACCORDINGLY. 17. SO, FOLLOWING THE AFORESAID ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIE W THAT LOW TURNOVER CAP APPLIED BY THE TPO IN CASE OF TAXPAYER IS REQUIRED TO BE RESTRICTED TO RS.1 CRORE INSTEAD OF RS.5 CRORES. 18. EVEN BY APPLYING THE RULE OF CONSISTENCY, WE AR E OF THE CONSIDERED VIEW THAT WHEN THERE IS NO CHANGE IN THE BUSINESS MODEL OF THE TAXPAYER IN AYS 2008-09, 2009-10 & 2012-13 A S WELL AS YEAR UNDER ASSESSMENT FOR AY 2011-12, RULE OF CONSI STENCY HAS TO BE FOLLOWED AND TPO IS DIRECTED TO APPLY THE TURNOV ER CAP OF RS.1 CRORE AS AGAINST CAP OF RS.5 CRORES APPLIED BY HIM. SO FAR AS, QUESTION OF SEGMENTAL INFORMATION BEING NOT MATCHIN G WITH ENTITY LEVEL FUNCTIONS AS HAS BEEN HELD BY LD. TPO IS CONC ERNED, AS PER AS-17 ON SEGMENT REPORTING, REVENUE DERIVES FROM RE PORTABLE ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 15 SEGMENTS SHOULD BE AT LEAST 75% OF THE TOTAL EXTERN AL REVENUE AS SEGMENTAL RESULTS ARE NOT EXPECTED TO MATCH WITH EN TITY-WISE RESULTS. SO, IN THESE CIRCUMSTANCES, KALS IS ORDER ED TO BE INCLUDED IN THE FINAL SET OF COMPARABLES. MELSTAR INFORMATION TECHNOLOGIES LTD. (MELSTAR) 19. LD. TPO REJECTED MELSTAR AS A COMPARABLE ON THE GROUND THAT IT FAILS EXPORT FILTER. HOWEVER, IT IS FAIRLY CONC EDED BY LD. ARS FOR THE PARTIES TO THE APPEALS THAT DETAIL OF EXPORT SA LES WAS NOT AVAILABLE IN PUBLIC DOMAIN. SO, WHEN DETAIL OF EXP ORT SALES IS NOT AVAILABLE MELSTAR CANNOT BE REJECTED JUST LIKE THAT . SO, WE DIRECT THE LD. TPO TO REWORK THE SUITABILITY OF MELSTAR AS A COMPARABLE VIS--VIS TAXPAYER BY SUPPLYING THE COPY OF DETAILS OF EXPORT SALES OF MELSTAR RELIED UPON BY HIM. VIRNICHI TECHNOLOGIES LTD. (VIRNICHI) 20. LD. TPO REJECTED VIRNICHI WHICH IS TAXPAYERS C OMPARABLE ON THE GROUND THAT IT FAILS EMPLOYEE COST FILTER. HOWEVER, WHEN WE EXAMINE FILTERS APPLIED BY THE LD. TPO TO BENCHMARK THE INTERNATIONAL TRANSACTION, THERE IS NO SUCH FILTER SUCH AS EMPLOYEE COST FILTER APPLIED BY THE LD. TPO. IN THESE CIRCU MSTANCES, LD. TPO ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 16 IS DIRECTED TO REEXAMINE THE VIRNICHI SO AS TO FIND OUT THE SUITABILITY AS A COMPARABLE VIS--VIS THE TAXPAYER. EXCLUSION OF COMPARABLES SOUGHT FOR BY THE TAXPAYER WIPRO TECHNOLOGIES SERVICES LTD. (WIPRO) 21. THIS IS TPOS COMPARABLE. THE TAXPAYER SOUGHT ITS EXCLUSION ON THE GROUND THAT IT IS FUNCTIONALLY DIS SIMILAR AND THAT IT DOES NOT QUALIFY FOR AN INDEPENDENT COMPARABLE ON A CCOUNT OF ITS RELATED PARTY TRANSACTIONS. WHEN WE EXAMINE THE DI RECTORS REPORT OF WIPRO FOR FY 2009-10 IT HAS COME ON RECORD THAT WIPRO HAS ENTERED INTO MASTER SERVICES AGREEMENT WITH CITI GR OUP INC. FOR A PERIOD OF 6 YEARS AND THE TERMS OF THE MASTER SERVI CES AGREEMENT WITH CITI GROUP WAS DETERMINED BY THE WIPRO LTD., T HE HOLDING COMPANY OF WIPRO TECHNOLOGIES SERVICES LTD.. SO, T HE TRANSACTIONS UNDERTAKEN BY WIPRO WITH CITI GROUP AM OUNT TO DEEMED INTERNATIONAL TRANSACTIONS U/S 92B(2) OF THE ACT. SO, WE ARE OF THE CONSIDERED VIEW THAT DUE TO RELATED PART Y TRANSACTIONS, WIPRO IS NOT A SUITABLE INDEPENDENT COMPARABLE. 22. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF CADENCE DESIGN SYSTEMS (I) (P.) LTD. VS. ACIT (2018) 93 TAXMANN.CO M 227 (DELHI-TRIB.) FOR AY 2011-12 EXAMINED THE SUITABILITY OF WIPRO AS A COMPARABLE VIS--VIS SOFTWARE DEVELOPMENT SERVICE S PROVIDER AND ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 17 ORDERED TO EXCLUDE THE SAME ON GROUND OF RELATED PA RTY TRANSACTIONS ON THE BASIS OF MASTER SERVICE AGREEMENT WITH CITI GROUP FOR DELIVERY OF TECHNICAL INFRASTRUCTURE SERVICES LTD. AND APPLICATION OF MAINTENANCE SERVICES FOR A PERIOD OF 6 YEARS. S O, IN VIEW OF THE MATER, WE ARE OF THE CONSIDERED VIEW THAT WIPRO IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER FOR BENCHMARKING THE INTERNATIONAL TRANSACTION QUA SOFTWARE DEVELOPMENT SERVICES. INFOSYS LTD. (INFOSYS) 23. THE TAXPAYER SOUGHT EXCLUSION OF INFOSYS ON THE GROUNDS INTER ALIA THAT INFOSYS ALSO DEALS IN SOFTWARE PROD UCTS; THAT IT IS HAVING HUGE BRAND VALUE AND HAVING PATENTS; THAT IT S R&D EXPENDITURE IS RS.527 CRORES I.E. 2.1% OF THE REVEN UE; THAT INFOSYS HAS GOODWILL WORTH RS.916 CRORES AND INTELLECTUAL P ROPERTY RIGHTS WORTH RS.12 CRORES. ALL THE AFORESAID FACTS HIGHLI GHTED BY THE TAXPAYER FINDS MENTION IN THE ANNUAL REPORT, AVAILA BLE AT PAGES 432, 438 & 470 OF THE PAPER BOOK, AND HAS NOT BEEN REFUT ED BY THE LD. DR FOR THE REVENUE. FROM THE PERUSAL OF ANNUAL REP ORT AT PAGES 431 & 436 OF THE PAPER BOOK, IT HAS COME ON RECORD THAT INFOSYS ALSO DEALS IN SOFTWARE PRODUCTS, NAMELY, FINNACLE' . IN THESE CIRCUMSTANCES, INFOSYS, A GIANT COMPANY, CANNOT BE A SUITABLE COMPARABLE VIS--VIS TAXPAYER WHO IS A CAPTIVE SERV ICE PROVIDER ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 18 HAVING NO EXPENDITURE ON R&D, HAVING NO GOODWILL AN D INTELLECTUAL PROPERTY RIGHTS AS WELL AS PATENTS. 24. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF CLEAR 2 PAY INDIA (P.) LTD. VS.ITO (2018) 95 TAXMANN.COM 284 (D ELHI) EXAMINED THE COMPARABILITY OF INFOSYS VIS--VIS THE ROUTINE SOFTWARE DEVELOPMENT SERVICE PROVIDER IN AYS 2011-1 2 & 2012-13 AND ORDERED TO EXCLUDE THE SAME BY RELYING UPON THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES (P.) LTD. (2013) 36 T AXMANN.COM 289 RENDERED BY HONBLE DELHI HIGH COURT. OPERATIVE P ART OF THE FINDINGS RETURNED BY THE HONBLE DELHI HIGH COURT I N THE AFORESAID JUDGMENT EXCLUDING INFOSYS IS AS UNDER :- 5. THE TRIBUNAL HAS OBSERVED THAT THE ASSESSEE WAS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD., AS INFOS YS TECHNOLOGIES LTD. WAS A LARGE AND BIGGER COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWARE AND, THEREFORE, THE PROFITS EARNED CANNOT BE A BENCH MARKED OR EQUATED WITH THE RESPONDENT, T O DETERMINE THE RESULTS DECLARED BY THE RESPONDENT-ASSESSEE. IN PARAGRAPH 3.3 THE TRIBUNAL HAS REFERRED TO THE DIFFERENCE BETWEEN THE RESPONDENT-ASSESSEE AND INFOSYS TECHNOLOGIES LTD. F OR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING THE SAME: BASIC PARTICULAR INFOSYS TECHNOLOGIES LTD. AGNITY INDIA RISK PROFILE OPERATE AS FULL- FLEDGED RISK TAKING ENTREPRENEURS OPERATE AT MINIMAL RISKS AS THE 100% SERVICES ARE PROVIDED TO AES NATURE OF SERVICES DIVERSIFIED- CONSULTING, APPLICATION DESIGN, DEVELOPMENT, REENGINEERING AND MAINTENANCE SYSTEM CONTRACT SOFTWARE DEVELOPMENT SERVICES. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 19 INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION AND BUSINESS PROCESS MANAGEMENT, ETC. (REFER PAGE 117 OF THE PAPER BOOK) REVENUE RS.9, 028 CRORES RS.16.09 CRORES OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS DEVELOPS/OWNS PROPRIETARY PRODUCTS LIKE FINACLE, INFOSYS ACTICE DESK, INFOSYS IPROWE, INFOSYS MCONNECT, ALSO, THE COMPANY DERIVES SUBSTANTIAL PORTION OF ITS PROPRIETARY PRODUCTS (INCLUDING ITS FLAGSHIP BANKING PRODUCT SUITE FINACLE ) ONSITE VS. OFFSHORE AS MUCH AS HALF OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY INFOSYS ARE ONSITE (I.E., SERVICES PERFORMED AT THE CUSTOMERS LOCATION OVERSEAS). AND OFFSHORE (50.20%)(REFER PAGE 117 OF THE PAPER BOOK) THAN HALF OF ITS SERVICE, INCOME FROM ONSITE SERVICES. THE APPELLANT PROVIDES ONLY OFFSHORE SERVICES (I.E., REMOTELY FROM INDIA) EXPENDITURE ON ADVERTISING/SALES PROMOTION AND BRAND BUILDING RS.61 CRORES RS. NIL (AS THE 100% SERVICES ARE PROVIDE TO AES) EXPENDITURE ON RESEARCH & DEVELOPMENT RS. 102 CRORES RS. NIL OTHER 100% OFFSHORE (FROM INDIA) ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 20 6. LEARNED COUNSEL FOR THE REVENUE HAS SUBMITTED T HAT THE TRIBUNAL AFTER RECORDING THE AFORESAID TABLE HAS NO T AFFIRMED OR GIVEN ANY FINDING ON THE DIFFERENCES. THIS IS PARTL Y CORRECT AS THE TRIBUNAL HAS STATED THAT INFOSYS TECHNOLOGIES LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASO N LATTER WAS A GIANT COMPANY IN THE AREA OF DEVELOPMENT OF SOFTWAR E AND IT ASSUMED ALL RISKS LEADING TO HIGHER PROFITS, WHEREA S THE RESPONDENT-ASSESSEE WAS A CAPTIVE UNIT OF THE PAREN T COMPANY AND ASSUMED ONLY A LIMITED RISK. IT HAS ALSO STATED THAT INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARED WITH THE RESPO NDENT ASSESSEE AS SEEN FROM THE FINANCIAL DATA ETC. TO TH E TWO COMPANIES MENTIONED EARLIER IN THE ORDER I.E. THE CHART. IN T HE GROUNDS OF APPEAL THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT OR DENY THE DATA AND DIFFERENCES MENTIONED IN THE TABULATED FOR M. THE CHART HAS NOT BEEN CONTROVERTED. 7. LEARNED COUNSEL FOR THE APPELLANT REVENUE DURIN G THE COURSE OF HEARING, DREW OUR ATTENTION TO THE ORDER PASSED BY THE TPO AND IT IS POINTED OUT THAT BASED UPON THE FIGUR ES AND DATA MADE AVAILABLE, THE TPO HAD TREATED A THIRD COMPANY AS COMPARABLE WHEN THE WAGE AND SALE RATIO WAS BETWEEN 30% TO 60%. BY APPLYING THIS FILTER, SEVERAL COMPANIES WER E EXCLUDED. THIS IS CORRECT AS IT IS RECORDED IN PARA 3.1.2 OF THE ORDER PASSED BY THE TPO. TPO, AS NOTED ABOVE, HOWEVER HAD TAKEN THREE COMPANIES, NAMELY, SATYAM COMPUTER SERVICE LTD., L& T INFOTECH LTD. AND INFOSYS TECHNOLOGIES AS COMPARABL E TO WORK OUT THE MEAN. 8. IT IS A COMMON CASE THAT SATYAM COMPUTER SERVIC ES LTD. SHOULD NOT BE TAKEN INTO CONSIDERATION. THE TRIBUNA L FOR VALID AND GOOD REASONS HAS POINTED OUT THAT INFOSYS TECHN OLOGIES LTD. CANNOT BE TAKEN AS A COMPARABLE IN THE PRESENT CASE . THIS LEAVES L&T INFOTECH LTD. WHICH GIVES US THE FIGURE OF 11.1 1 %, WHICH IS LESS THAN THE FIGURE OF 17% MARGIN AS DECLARED BY T HE RESPONDENT-ASSESSEE. THIS IS THE FINDING RECORDED B Y THE TRIBUNAL. THE TRIBUNAL IN THE IMPUGNED ORDER HAS ALSO OBSERVE D THAT THE ASSESSEE HAD FURNISHED DETAILS OF WORKABLES IN RESP ECT OF 23 COMPANIES AND THE MEAN OF THE COMPARABLES WORKED OU T TO 10%, AS AGAINST THE MARGIN OF 17% SHOWN BY THE ASSESSEE. DETAILS OF THESE COMPANIES ARE MENTIONED IN PARA 5 OF THE IMPU GNED ORDER. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 21 25. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT INFOSYS IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. I GATE GLOBAL SOLUTIONS LTD. (I GATE) 26. THE TAXPAYER SOUGHT EXCLUSION OF I GATE ON THE GROUND THAT THE LD. TPO HAS ERRONEOUSLY EXCLUDED THE SAME FROM THE FINAL SET OF COMPARABLES DESPITE THE FACT THAT FINDINGS HAVE BEE N RETURNED AGAINST ITS INCLUSION. I GATE HAS PRESENCE OF INTA NGIBLES IN THE SHAPE OF GOODWILL WORTH OF RS.225.99 CRORES AND IT HAS HIGH TURNOVER OF RS.1184.55 CRORES WHICH IS 59 TIMES OF THE TAXPAYER. WHEN WE EXAMINE DISCUSSION MADE BY THE LD. TPO AS T O THE SUITABILITY OF I GATE AS A COMPARABLE IN THE LIGHT OF THE ARGUMENT ADDRESSED BY THE TAXPAYER IN PARA 8.2 AT PAGE 25 OF THE TP ORDER, HE HAS ORDERED TO EXCLUDE THE SAME AS A COMPARABLE BY RETURNING FOLLOWING FINDINGS :- ASSESSEE OBJECTED ON THE INCLUSION OF THIS COMPARA BLE SUBMITTING THAT THIS IS AN ITES COMPANY AND PRODUCE D VARIOUS SNAP SHOTS FROM THE ANNUAL REPORT OF THE COMPANY PR OVING THAT DOMINATENTLY IT IS AN ITES COMPANY. ASSESSEES CLA IM IS VERIFIED FROM THE ANNUAL REPORT AND THIS COMPANY IS TAKEN OU T FROM THE FINAL LIST OF COMPARABLES IN ASSESSEES CASE. 27. WHEN LD. TPO HIMSELF HAS VERIFIED THE CLAIM OF THE TAXPAYER AS TO NON-SUITABILITY OF I GATE AS A COMPARABLE VIS --VIS THE TAXPAYER AND ORDERED TO KEEP THE SAME OUT OF THE FI NAL LIST, IT ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 22 APPEARS THAT IT HAS BEEN ERRONEOUSLY INCLUDED IN TH E FINAL SET OF COMPARABLES. EVEN OTHERWISE, WHEN WE EXAMINE PAGE 229 OF THE PAPER BOOK VOLUME-3 WHICH IS FIXED ASSETS SCHEDULE, IT HAS COME ON RECORD THAT I GATE HAS GOODWILL WORTH RS.225.99 CRORES. SIMILARLY, PERUSAL OF PROFIT & LOSS STATEMENT, AVAI LABLE AT PAGES 300 TO 302 OF THE PAPER BOOK VOL.III, SHOWS THAT I GATE IS HAVING TURNOVER OF RS.1184.55 CRORES WHICH IS 59 TIMES OF THE TAXPAYER. 28. HONBLE DELHI HIGH COURT IN AGNITY INDIA TECHNOLOGIES PVT. LTD. TS-189-HC-2013 (DEL.)-TP AFFIRMED THE FINDING RETURNED BY THE TRIBUNAL THAT A LARGE AND BIGGER GIANT COMPA NY IN THE AREA OF SOFTWARE DEVELOPMENT CANNOT BE COMPARED WITH SMALL COMPANIES LIKE I GATE AND CONFIRMED THE EXCLUSION OF SAME BY THE TRIBUNAL. 29. IN VIEW OF THE MATTER, WE ARE OF THE CONSI DERED VIEW THAT I GATE IS NOT A SUITABLE COMPARABLE VIS--VIS TAXPA YER WHO IS A CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER HAVIN G MEAGER TURNOVER VIS--VIS I GATE AND HAVING HUGE INTANGIBL ES IN THE FORM OF GOODWILL OF RS.225.99 CRORES AS AGAINST NIL OF TAXP AYER, HENCE ORDERED TO BE EXCLUDED. PERSISTENT SYSTEMS LTD. (PERSISTENT) 30. THIS IS TPOS COMPARABLE THE TAXPAYER SOUGHT E XCLUSION OF PERSISTENT ON THE GROUNDS INTER ALIA THAT PERSISTEN T IS HAVING HUGE FIXED ASSETS IN THE FORM OF SOFTWARE AND OTHER INTA NGIBLES ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 23 AMOUNTING TO RS.10.7 MILLION WHICH IS 7.90% OF THE TURNOVER; THAT PERSISTENT HAS CREATED SEVERAL IPS, SUCH AS, CHEMLM S, VIEWMO, ETC.; THAT ITS REVENUE IS ALSO FROM LICENCING OF PR ODUCTS AND ROYALTIES; THAT IN FEBRUARY 2011, PERSISTENT HAS AC QUIRED THE BUSINESS OF INFOSPECTRUM INDIA PVT. LTD. AND THAT I T IS HAVING HIGH TURNOVER OF RS.645.39 CRORES WHICH IS 32 TIMES OF T HE TAXPAYER. PERUSAL OF THE ANNUAL REPORT SHOWS THAT THE AFORESA ID OBJECTIONS RAISED BY THE TAXPAYER AGAINST INCLUSION OF PERSIST ENT AS A COMPARABLE BY THE LD. TPO ARE CORRECT HAVING NOT BE EN CONTROVERTED BY THE LD. DR FOR THE REVENUE. WHEN P ERSISTENT IS HAVING HUGE SOFTWARE AND OTHER INTANGIBLES AND HAVI NG INVESTED IN IPR AND HAS CREATED SEVERAL IPS AND IS HAVING REVEN UE FROM LICENCING OF PRODUCT AND ROYALTIES AND HAVING HUGE TURNOVER OF RS.645.39 CRORES WHICH IS 32 TIMES OF THE TAXPAYER, IT CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER WHO IS A CAPTIVE SOFTWARE SERVICE PROVIDER, HENCE ORDERED TO BE EXCL UDED. SASKEN COMMUNICAITON TECHNOLOGIES LTD. (SASKEN 31. THIS IS AGAIN TPOS COMPARABLE. THE TAXPAYER S OUGHT ITS EXCLUSION ON THE GROUNDS INTER ALIA THAT IT IS FUNC TIONALLY DIFFERENT; THAT IT IS INTO TRADEMARK PRODUCTS/PATENTS; AND THA T ITS SEGMENTAL DATA IS NOT AVAILABLE. PERUSAL OF THE ANNUAL REPOR T AT PAGES 841, ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 24 850, 873, 911 & 922 OF THE PAPER BOOK SHOWS THAT IT IS INTO TRADEMARK PRODUCTS/PATENTS FOR WHICH SEGMENTAL DATA IS NOT AVAILABLE FOR STANDALONE FINANCIALS AS IS EVIDENT F ORM PAGE 946 OF THE PAPER BOOK VOL.IV. 32. SUITABILITY OF SASKEN HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CLEAR 2 PAY INDIA (P.) LTD. (SUPRA) FOR AYS 2011-12 & 2012-13 AND HAS BEEN ORDERED TO BE EX CLUDED AS A COMPARABLE VIS--VIS ROUTINE SOFTWARE DEVELOPMENT S ERVICE PROVIDER BY RETURNING FOLLOWING FINDINGS :- 41. THE LD.DR CHALLENGED EXCLUSION OF SASKEN BY LD. CIT (A) FOR THE REASON THAT THE TAXPAYER HAS SIGNIFICANT IN TANGIBLES AND RESEARCH AND DEVELOPMENT ACTIVITIES, LD.DR CONTENDE D THAT THE SASKEN IS HAVING NO INCOME FROM SALE OF LICENCE AND DREW OUR ATTENTION TOWARDS PAGE 324 OF THE PAPER BOOK. HOWEV ER, WHEN WE EXAMINE DIRECTORS REPORT AVAILABLE AT PAGE 300 OF THE ANNUAL REPORT OF SASKEN, THE CONTENTION RAISED BY LD. DR I S NOT SUSTAINABLE. OPERATIVE PART OF THE DIRECTORS REPOR T IS EXTRACTED AS UNDER :- ON THE HARDWARE SIDE WE WILL LEVERAGE OUR EXTENSIV E UNDERSTANDING AND KNOWLEDGE OF THIS OEMS ECOSYSTEM AND CAPITALIZE ON THE DELIVERY CENTERS IN EUROPEAN UNION AND CHINA REGIONS. THIS GEOGRAPHICAL SPREAD ENABLES A COST EFFICIENT SERVICE MIX TO SERVICE OPPORTUNITIES IN RF / ANTENNA DESIGN. THE COMBINATION OF OUR HARDWARE AND SOFTWARE KNOWLEDGE GIVES US A COMPETITIVE EDGE. SASKEN KEY DIFFERENTIATORS : SOME OF THE UNIQUE CAPABILITIES OF SASKEN INCLUDE I TS ABILITIES TO TAKE A LEADERSHIP POSITION IN : ANDROID SOFTWARE PLATFORM SERVICES FULL PHONE (DEVICE) DESIGN SERVICES INTELLECTUAL PROPERTY (IP) LED SERVICES OPERATOR SPECIFIC SERVICES ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 25 42. SO, ON THE BASIS OF FUNCTIONAL DISSIMILARITY A LONE, SASKEN IS NOT A VALID COMPARABLE VIS--VIS THE TAXPAYER. M OREOVER, ITS SEGMENTAL FINANCIALS ARE NOT AVAILABLE AND IT IS HA VING SIGNIFICANT INTANGIBLES AND RESEARCH AND DEVELOPMENT ACTIVITIES . SO, LD. CIT (A) HAS RIGHTLY EXCLUDED SASKEN FROM THE FINAL SET OF COMPARABLES. 33. SO, IN VIEW OF THE MATTER, WE ARE OF THE CONSID ERED VIEW THAT SASKEN IS NOT A SUITABLE COMPARABLE VIS--VIS THE T AXPAYER ON GROUND OF FUNCTIONAL DISSIMILARITY AND BEING INTO T RADEMARK PRODUCTS/PATENTS HAVING NO SEGMENTAL FINANCIALS, HE NCE ORDERED TO BE EXCLUDED AS A COMPARABLE. ITA NO.1020/DEL/2017 (AY 2012-13) INCLUSION OF COMPARABLES SOUGHT FOR BY THE TAXPAYER CG VAK SOFTWARE EXPORT LTD. (CG VAK) 34. THIS IS TAXPAYERS COMPARABLE. LD. TPO REJECTE D CG VAK AS A COMPARABLE CHOSEN BY THE TAXPAYER ON THE GROUND T HAT IT IS HAVING DIFFERENT FUNCTIONAL PROFILE, BUT THESE FINDINGS HA VE BEEN OVERTURNED BY THE LD. DRP AND HELD THAT CG VAK IS F UNCTIONALLY SIMILAR TO THE TAXPAYER. HOWEVER, LD. DRP REJECTED THIS COMPARABLE ON THE GROUND OF INCURRING PERSISTENT OV ERALL LOSS IN FYS 2009-10, 2010-11 & 2011-12. HOWEVER, LD. AR FO R THE TAXPAYER COME UP WITH THE ARGUMENT THAT CG VAK IS N OT INCURRING PERSISTENT OVERALL LOSSES AND REFERRED TO PROFIT & LOSS STATEMENT FOR ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 26 THE YEAR ENDING 31.03.2012, AVAILABLE AT PAGE 901 O F THE PAPER BOOK VOL.III, WHEREIN CG VAK IS SHOWN TO HAVE THE P ROFIT OF RS.1,39,70,696/- FOR FY ENDING 31.03.2012 AND RS.9, 64,864/- FOR THE YEAR ENDING 31.03.2011. SO, IT HAS COME ON REC ORD THAT LD. DRP HAS LOST SIGHT OF THE ACTUAL FIGURE SHOWING PROFIT BY CG VAK AND PROCEEDED TO REJECT THE SAME ON THE BASIS OF INCORR ECT FACTS. SO, THE AO/TPO IS DIRECTED TO VERIFY THE FACTS AND INCLUDE CG VAK AS A VALID COMPARABLE VIS--VIS THE TAXPAYER. KALS INFORMATION SYSTEMS LTD. (KALS) 35. THIS IS TAXPAYERS COMPARABLE WHICH THE LD. TPO HAS REJECTED ON THE BASIS OF DIFFERENT FUNCTIONAL PROFI LE. WHEN WE EXAMINE ORDER PASSED BY THE LD. DRP AT PAGE 22 OF T HE DRP ORDER, KALS HAS BEEN FOUND TO BE SIMILAR AND ORDERED TO IN CLUDE KALS AS A VALID COMPARABLE BY RETURNING FOLLOWING FINDINGS :- 7 KALS INFORMATION SYSTEMS LTD. THE COMPANY IF FUNCTIONALLY COMPARABLE AND SATISFIES ALL FILTERS PROPOSED BY THE TPO. MOREOVER 80.86% OF REVENUE IS DERIVED FROM SOFTWARE EXPORT DIFFERENT FUNCTIONAL PROFILE. HENCE REJECTED (PAGE NO.5 OF THE SHOW CAUSE NOTICE ISSUED BY THE LD. TPO DATED 07.12.2015). FUNCTIONALLY SIMILAR. KALS INFORMATION SYSTEMS LTD. IS AN ESTABLISHED SOFTWARE PRODUCTS & SERVICES ORGANIZATION IN BANGALORE, WITH A SUCCESSFUL, INTERNATIONAL, PAN-ASIAN EXPERIENCE IN SOFTWARE DEVELOPMENT & TECHNOLOGY SERVICES. WE OFFER UNIQUE RANGE OF SOFTWARE DEVELOPMENT, TRANSITION AND MIGRATION SOLUTIONS ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 27 TO HELP LARGE END-USER ORGANIZATIONS MEET A VARIETY OF CHALLENGES. WE HAVE GOT A 15 YEAR SUCCESSFUL TRACK RECORD IN SERVICING INDUSTRIES SUCH AS FINANCIAL SERVICES, GOVERNMENT TELECOM, SECURITY, MANUFACTURING & DISTRIBUTION. HTTP://WWW.KALSINFO.COM/ IF IT MEETS FILTERS APPROVED BY DRP, TPO TO INCLUDE AS A VALID COMPARABLE. 36. LD. AR FOR THE TAXPAYER HAS CONTENDED THAT KALS SATISFIED ALL THE FILTERS APPLIED BY THE LD. TPO AND PROVIDED APP LICATION OF FILTERS IN TABULATED FORM AS UNDER :- DATA AVAILABILITY OF FY 2011- 12 YES SOFTWARE DEVELOPMENT SERVICES INCOME > 1 CR. YES (INR 2,21,00,000) PAGE 1405, PB VOL-V SERVICES REVENUE > 75% OF TOTAL OPERATING REVENUE YES (80.86% = 2.21 CR / 2.73 CR) PAGE 1405, PB VOL-V EXPORT SALES > 75% YES (80.86% = 2.21 CR / 2.73 CR) PAGE 1405, PB VOL-V RPT 0.00% PERSISTENT LOSSES NO PAGE 1399, PB VOL-V EMPLOYEE COST > 25% OF TOTAL COST YES (44.18% = INR 1.10 CR / 2.50 CR) PAGE 1405, PB VOL-V FINANCIAL YEAR ENDING MAR-12 37. AFORESAID FACTS DETAILED IN THE TABLE WHEN VERI FIED WITH ANNUAL REPORT SHOW THAT ALL THE FILTERS APPLIED BY THE LD. TPO STOOD SATISFIED. SO, IN THESE CIRCUMSTANCES, THE LD. TPO /AO IS DIRECTED TO INCLUDE KALS AS A VALID COMPARABLE. ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 28 INFOMILE TECHNOLOGIES (INFOMILE) 38. THIS IS TAXPAYERS COMPARABLE REJECTED BY THE L D. TPO ON THE GROUND OF FUNCTIONAL DISSIMILARITY. HOWEVER, LD. D RP HELD INFOMILE FUNCTIONALLY SIMILAR TO THE TAXPAYER AND D IRECTED THE TPO TO INCLUDE THE SAME AS A VALID COMPARABLE IF IT MEE TS THE FILTER APPROVED BY THE LD. DRP. SO, WE DIRECT LD. TPO TO RECONSIDER INFOMILE AS A COMPARABLE VIS--VIS THE TAXPAYER BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. BELLS SOFTWARE LTD. (BELLS) 39. THIS IS TAXPAYERS COMPARABLE REJECTED BY THE L D. TPO ON THE GROUND OF FUNCTIONAL DISSIMILARITY. HOWEVER, LD. D RP HELD BELLS FUNCTIONALLY SIMILAR TO THE TAXPAYER AND DIRECTED T HE TPO TO INCLUDE THE SAME AS A VALID COMPARABLE IF IT MEETS THE FILT ER APPROVED BY THE LD. DRP. SO, WE DIRECT LD. TPO TO RECONSIDER BELLS AS A COMPARABLE VIS--VIS THE TAXPAYER BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. EXCLUSION OF COMPARABLES SOUGHT FOR BY THE TAXPAYER INFOSYS LTD. (INFOSYS) PERSISTENT SYSTEMS LTD. (PERSISTENT) 40. SINCE THERE IS NO CHANGE IN THE BUSINESS MODEL OF TAXPAYER SINCE 2011-12 IN YEAR UNDER CONSIDERATION, WE ORDER TO EXCLUDE ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 29 INFOSYS & PERSISTENT AS A COMPARABLE CHOSEN BY THE TPO FOR THE REASONS DISCUSSED IN DETAIL IN THE PRECEDING PARA N OS.23 TO 25 AND PARA 30 OF THIS ORDER QUA AY 2011-12. LARSEN & TOUBRO INFOTECH LTD. (L&T) 41. THE TAXPAYER SOUGHT EXCLUSION OF L&T ON THE GRO UND THAT THE TAXPAYER IS HAVING HIGH SALE TURNOVER OF RS.295 9.55 CRORES WHICH IS 140 TIMES OF THE TAXPAYER, AS IS EVIDENT F ORM STATEMENT OF PROFIT & LOSS ACCOUNT AVAILABLE AT PAGE 1419 OF THE PAPER BOOK, AND AS SUCH IS LIABLE TO BE EXCLUDED BEING A GIANT COMP ANY IN VIEW OF THE DECISION RENDERED BY THE HONBLE HIGH COURT IN CASE OF AGNITY INDIA TECHNOLOGIES LTD. (SUPRA). MOREOVER, L&T IS HAVING HUGE INTANGIBLES OF RS.51.15 CRORES, AS IS EVIDENT FROM NOTES FORMING PART OF ACCOUNTS, AVAILABLE AT PAGE 1427 OF THE PAP ER BOOK. EVEN OTHERWISE, L&T IS HAVING DISSIMILAR FUNCTIONAL PROFILE VIS--VIS THE TAXPAYER AS IT IS PROVIDING WIDE RANGE OF SERVI CES INCLUDING DATA & ANALYTICS, ARTIFICIAL INTELLIGENCE & COGNITI VE, CLOUD & INFRASTRUCTURE SERVICES (CIS), CYBER DEFENSE RESILI ENCY SERVICES, ETC. IT ALSO OWNS PRODUCTS, NAMELY, UNITRAX & ICEO N. ALL THESE FACTS HAVE BEEN HIGHLIGHTED BY THE LD. TPO AT PAGE 45 OF THE TP ORDER. 42. IN VIEW OF THE FACT THAT L&T IS A GIANT COMPANY HAVING HUGE INTANGIBLES AND HAVING DISSIMILAR FUNCTIONAL PROFIL E BEING INTO WIDE ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 30 RANGE OF SERVICES AND ALSO INTO PRODUCTS, CANNOT BE A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER. 43. COORDINATE BENCH OF THE TRIBUNAL HAS CONFIRMED THE EXCLUSION OF L&T BY THE LD. CIT (A) IN CASE OF CLEAR 2 PAY INDIA (P.) LTD. (SUPRA) FOR AY 2011-12 BY RETURNING FOLLOWING FIND INGS :- 48. THE LD. DR FOR THE REVENUE CHALLENGED THE EXCL USION OF L&T BY THE LD. CIT (A) ON THE GROUND THAT NO INCOME FROM LICENCE OF PRODUCT HAS BEEN SHOWN RATHER 100% INCOM E IS FROM THE SOFTWARE EXPORT. HOWEVER, WHEN WE EXAMINE PROFI T & LOSS ACCOUNT OF L&T AT PAGE 238 OF THE PAPER BOOK-1, L&T HAS SHOWN THIS ENTIRE INCOME FROM SOFTWARE DEVELOPMENT SERVIC ES AND PRODUCTS. HOWEVER, COMPLETE SEGMENTAL FINANCIALS AR E NOT AVAILABLE. FURTHERMORE, THE TAXPAYER IS HAVING INTA NGIBLES OF RS.37,78,99,720/- DURING THE YEAR UNDER ASSESSMENT AS AGAINST NIL INTANGIBLES WITH THE TAXPAYER. SO, IN THESE CIR CUMSTANCES, L&T CANNOT BE A VALID COMPARABLE VIS--VIS THE TAXP AYER WHICH IS A ROUTINE CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROV IDER AND LD. CIT (A) HAS RIGHTLY EXCLUDED THE SAME. 44. IN VIEW OF THE MATTER, L&T IS NOT A SUITABLE CO MPARABLE VIS- -VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. 45. RESULTANTLY, BOTH THE APPEALS FILED BY THE TAXP AYER ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF JANUARY, 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 21 ST DAY OF JANUARY, 2020. TS ITA NO.1286/DEL./2016 ITA NO.1020/DEL./2017 31 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.