Hewlett- Packard Globalsof Private Limited, Bangalore V. DCIT, Bangalore

ITA 1031/BANG/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1504 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Capital asset; Depreciation; Transfer pricing; International transaction; Revenue expenditure
• Section: 133(6)

Judgement Text

IT(TP)A.1031/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T(TP).A NO.1031/BANG/2011 (ASSESSMENT YEAR : 2007-08) HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD, PLOT NO.39/40, ELECTRONIC CITY PHASE-II HOSUR ROAD, BANGALORE 560 100 ..APPELLANT PAN : AAACD4078L V. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -11(4), BANGALORE .. RESP ONDENT ASSESSEE BY : SHRI. AJIT KUMAR JAIN, CA REVENUE BY : SHRI. G. R. REDDY, CIT DR-I HEARD ON : 01.09.2015 PRONOUNCED ON : 23.09.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, DIRECTED AGA INST AN ORDER DT.30.08.2011 OF THE AO PASSED PURSUANT TO THE DIRE CTIONS U/S.144C OF DRP, IT HAS FILED A SET OF CONCISE GROUNDS IN LIEU OF THE O RIGINAL GROUNDS. ASSESSEE HAS ALSO FILED A SET OF ADDITIONAL GROUNDS IN WHICH IT SEEKS EXCLUSION OF CERTAIN COMPARABLES APPEARING IN THE LIST OF COMPARABLES BY THE TPO, SELECTED FROM ASSESSEES OWN COMPARABLES APPEARING IN ITS TP STUD Y. IT(TP)A.1031/BANG/2011 PAGE - 2 02. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE CONCISE GROUNDS OF APPEAL AND THE ADDITIONAL GROUNDS ARE CONSIDERED TH EN THE ORIGINAL GROUNDS NEED NOT BE RECKONED. FOR THE ADMISSION OF ADDITIONAL G ROUND, LD. AR RELIED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT V. QU ARK SYSTEMS P. LTD [(2011) 42 DTR 414]. ACCORDING TO HIM, FOUR OF THE COMPARA BLES CONSIDERED BY THE TPO, NAMELY, ACCEL TRANSMATICS LTD (SEG), QUINTEGRA SOLUTIONS LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) AND TATA ELXSI LTD (SEG), REQUIRED TO BE EXCLUDED THOUGH THESE APPEARED IN THE ORIGINAL LIST OF THE ASSESSEE ITSELF. AS PER THE LD. AR, TP ISSUES BEING EVOLVING IN NATURE, BY VIRTUE OF THE DECISION OF SPECIAL BENCH IN QUARK SYSTEMS P. LTD (SUPRA), ASSE SSEE COULD NOT BE DISABLED FROM PLEADING EXCLUSION OF CERTAIN COMPARABLES ONLY FOR A REASON THAT IT APPEARED IN ITS OWN LIST. 03. PER CONTRA, LD. DR SUBMITTED THAT THE ADDITIONA L GROUNDS SOUGHT EXCLUSION OF COMPARABLE SELECTED BY THE ASSESSEE IT SELF AND IF ADMITTED, REQUIRED TO BE REMITTED BACK TO THE AO. 04. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS THE ADDITIONAL GROUNDS ARE CONCERNED, IN OUR VIEW, DECISION OF QUARK SYSTEMS P. LTD, WOULD GO IN FAVOUR OF THE ASSESSEE. IT WAS HE LD THEREIN THAT TRANSFER PRICING WAS AN EVOLVING AREA AND THEREFORE AN ASSESSEE, JUS T BECAUSE IT HAD INCLUDED CERTAIN COMPARABLES IN ITS OWN LIST, COULD NOT BE H ELD BACK FROM SEEKING EXCLUSION OF SUCH COMPARABLES, ONCE PROPER REASONS FOR SEEKING SUCH EXCLUSION WERE SHOWN BY IT. ACCORDINGLY WE ARE INCLINED TO A DMIT THE ADDITIONAL GROUNDS. IT(TP)A.1031/BANG/2011 PAGE - 3 05. AS TO THE QUESTION WHETHER IT IS REQUIRED TO RE MIT THE ISSUE OF COMPARABILITY OF ABOVE MENTIONED FOUR COMPANIES BAC K TO THE FILE OF AO / TPO, WE SHALL CONSIDER IT WHEN WE CONSIDER THE GENERAL G ROUNDS OF EXCLUSION OF COMPARABLES TAKEN BY THE ASSESSEE, THROUGH ITS CONC ISE GROUNDS. WE ALSO FIND THAT ASSESSEE HAS IN THE ADDITIONAL GROUND SOUGHT C ORRECTION OF THE CALCULATION OF ITS DEDUCTION U/S.10A OF THE ACT ON A REASONING THA T AO HAD CONSIDERED SOME AMOUNTS TWICE. 06. COMING TO THE CONCISE GROUNDS TAKEN BY THE ASSE SSEE, LD. AR SUBMITTED THAT GROUNDS 1, 11 AND 12 ARE GENERAL NEEDING NO SP ECIFIC ADJUDICATION. TP ISSUES ARE COVERED IN GROUNDS 2 AND 3. OUT OF THES E, LD. AR SUBMITTED THAT HE IS NOT CONTESTING GROUNDS 2.1, 2.2, 2.3 AND 2.6. GRO UND 4 ACCORDING TO HIM WAS ONLY CONSEQUENTIAL. ACCORDINGLY WE DISMISS GROUNDS 2.1, 2.2, 2.3 AND 2.6. 07. GROUNDS 2.4 AND 2.5 ARE ON EXCLUSION OF CERTAIN COMPARABLES CONSIDERED BY THE TPO, FOR A REASON THAT THEY WERE FUNCTIONALL Y DISSIMILAR, HAD PRODUCT LED REVENUES, HAD EXTRA ORDINARY EVENTS, HAD DIFFERENT RISK PROFILE AND GENERALLY FOR APPLICATION OF WRONG FILTERS. 08. FACTS APROPOS ARE THAT ASSESSEE IS A PART OF HE WELETT PACKARD COMPANY, USA. FUNCTIONS AND PROFILE OF THE ASSESSEE AS IT A PPEAR AT PARA 6 OF THE TP ORDER READS AS UNDER : FUNCTIONS : HPGS OFFERS A WIDE RANGE OF PROFESSIONAL SOFTWARE D EVELOPMENT SERVICES AND IT SERVICES THROUGH 4 DISTINCT SERVICE OFFERINGS; IT(TP)A.1031/BANG/2011 PAGE - 4 APPLICATION SERVICES THE APPLICATION SERVICES BUSINESS UNIT OFFERS SOLUT IONS DESIGNED TO LEVERAGE THE INTERNET TO LOWER COSTS OF DOING BUSIN ESS AND SPECIALIZES IN PROVIDING WEB-CENTRIC APPLICATION DE VELOPMENT AND MANAGEMENT SERVICES. THE BUSINESS UNIT'S OFFERINGS ARE TO DEVELOP 'GROUND UP' APPLICATIONS, ENHANCE CURRENT A PPLICATIONS, PROVIDE ROUND THE CLOCK SUPPORT THROUGH A MIX OF ON -SITE AS WELL AS OFF-SHORE MAINTENANCE MODELS, AND PROVIDE A RANGE O F SKILLS TO SUIT EVERY NEED. THE SERVICES OF APPLICATIONS SERVICES BUSINESS UNIT CAN BE BROADLY CATEGORIZED INTO CUSTOMER APPLICATION DEVELOPMENT, PACKAGED APPLICATION SERVICES, APPLICATION MANAGEMENT, AND A PPLICATION INTEGRATION. TECHNOLOGY SERVICES: HPGS ALSO PROVIDES TECHNOLOGY SERVICES IN THE FOLLO WING AREAS: PLATFORM AND MIDDLEWARE ENGINEERING, VIRTUAL R&D, EMBEDDED SYSTEMS ENGINEERING AND QUALITY PROCESS CONSULTANCY. HIGH END SKILLS, PROCESSES, TOOLS, AND , METHODOLOGIES FUEL THE SERVICE OFFERINGS. IT OPERATIONS: HPGS HELPS CUSTOMERS IN BUILDING INFRASTRUCTURE, NE TWORK MANAGEMENT, NETWORK DEPLOYMENT, SECURITY SYSTEMS AN D DATABASE MANAGEMENT. THIS GROUP SUPPORTS OVER 5.500 PRODUCTS AND IS GEARED TO MEET STRINGENT SERVICE LEVEL EXPEC TATIONS OF ITS CUSTOMERS. HPGS HAS EXPERTISE IN THE NETWORKING ARENA AND THE CAPABILITY TO IMPLEMENT AND MANAGE TECHNICAL-ASSISTANCE CENTRES ( 'TAC5'), REMOTE MANAGEMENT CENTRES ('RMCS') AND SATALLITE DA TA CENTRES ('SDCS'). DURING THE FINANCIAL YEAR 2004-05, HP DECIDED TO CR EATE A CONSOLIDATED INDIA BASED GLOBAL DELIVERY MODEL FOR IT SERVICES. HPGS WAS MADE PALL OF THE HP GLOBAL DELIVERY ORGANI SATION PURSUANT TO THIS DECISION. CONSEQUENTLY, HPGS NOW F UNCTIONS AS A CONTRACT SERVICE PROVIDER TO HP AS OPPOSED TO AN INDEPENDENT RISK BEARING ENTITY. HPGS PROVIDES THE ABOVE SERVICES TO ITS ASSOCIATED ENTERPRISES UNDER A GENERAL SERVICES AGREEMENT BETW EEN FIPGS AND HP CO. WHILE PROVIDING THE ABOVE SERVICES , HPGS UNDERTAKES THE FOLLOWING FUNCTIONS: IT(TP)A.1031/BANG/2011 PAGE - 5 MANAGEMENT TOP LEVEL MANAGEMENT FUNCTIONS INCLUDING DETERMINAT ION OF BUSINESS ACTIVITIES,PREPARATION OF STRATEGIES, ESTA BLISHMENT OF OPERATING PROCEDURES, ETC ARE PERFORMED BY HPGS ASSOCIATED ENTERPRISES. HPTS'S ROLE IS LIMITED TO M ANAGEMENT OF ITS DAY TO DAY OPERATIONS. MARKETING & BUSINESS DEVELOPMENT THE MARKETING AND BUSINESS DEVELOPMENT FUNCTION OF HPGS IS LIMITED TO ITS CUSTOMER RELATIONSHIP GROUP WHICH COORDINATES WITH THE SALES TEAM OF ITS ASSOCIATED E NTERPRISES TO SECURE BUSINESS ASSIGNMENTS. THE SALES TEAMS APPROA CH THE HPGS CUSTOMER RELATIONSHIP GROUP FOR HELP IN PRICIN G AND BIDDING FOR ASSIGNMENTS ONLY WHEN THEY CONSIDER THA T HPGS MAY ADD VALUE TO A BID. HPGS DOES NOT ATTEMPT TO ID ENTIFY OR SECURE NEW PROJECTS INDIVIDUALLY. INTELLECTUAL PROPERTY HPGS ASSOCIATED ENTERPRISES RETAIN OWNERSHIP OF ALL INTELLECTUAL PROPERTY THAT MAY HE DEVELOPED BY HPGS IN THE COURS E OF ITS SOFTWARE DEVELOPMENT FUNCTION. FIPGS IS NOT COMPENS ATED SEPARATELY. OTHER SUPPORT FUNCTION OTHER SUPPORT FUNCTIONS SUCH AS ADMINISTRATION, HUM AN RESOURCES, FINANCE, ACCOUNTING FOR TREASURY FUNCTIO NS, ADMINISTRATION, INFRASTRUCTURE MANAGEMENT, ETC ARE UNDERTAKEN BY HPGS. HOWEVER, THESE ARE INTEGRATED WITH HP'S ST RUCTURE AND ENTAIL SOME AMOUNT OF REPORTING WITHIN H P. 09. FINANCIAL RESULT OF THE ASSESSEE FOR THE RELEVA NT PREVIOUS YEAR WAS AS FOLLOWS: IT(TP)A.1031/BANG/2011 PAGE - 6 10. ITS INTERNATIONAL TRANSACTIONS AS REPORTED IN I TS AUDIT REPORT PREPARED U/S.92CE OF THE ACT, READ AS UNDER : 11. TPO HAD RECOMMENDED ADJUSTMENT FOR ALP ONLY WIT H REGARD TO THE SOFTWARE MAINTENANCE AND DEVELOPMENT SERVICES AND T ECHNICAL CALL CENTER SERVICES. ACCORDINGLY THE ISSUES RAISED BY THE ASS ESSEE AND ADJUDICATED BY US ARE CONFINED TO THESE SEGMENTS ONLY. 12. SOFTWARE DEVELOPMENT AND MAINTENANCE SEGMENT IS FIRST CONSIDERED BY US. ASSESSEE HAD SELECTED TNMM FOR ITS TP STUDY AND HAD SELECTED 46 COMPARABLES THROUGH A SEARCH DONE UNDER PROWESS AND CAPITALINE DATA BASE. AVERAGE PLI OF THESE 46 COMPARABLES CAME TO 12.52% AND AS PER ASSE SSEE, PROFIT MARGIN OF 7.46% WAS FALLING WITHIN + / - 5% OF THE PLI OF THE COMPARABLES, AFTER ADJUSTMENT FOR WORKING CAPITAL. TPO WHILE ACCEPTIN G TNMM AS THE MOST APPROPRIATE METHOD FOR ANALYSING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE, HOWEVER HELD THAT OUT OF THE 46 COMPARABLES CONSIDE RED BY THE ASSESSEE, 38 WERE TO BE REJECTED FOR A REASON THAT THEY EITHER F AILED CRITERION LIKE RPT, E- REVENUE FILTER, ON-SITE REVENUE FILTER AND FUNCTION AL DISSIMILARITIES. EIGHT COMPARABLES ACCEPTED OUT OF THE LIST PROVIDED BY TH E ASSESSEE INCLUDED ACCEL TRANSMATICS LTD (SEG), QUINTEGRA SOLUTIONS LTD, SAS KEN COMMUNICATION TECHNOLOGIES LTD (SEG) AND TATA ELXSI LTD (SEG), WH ICH ASSESSEE IS NOW SEEKING EXCLUSION. TPO THEREAFTER MADE HIS OWN ANALYSIS OF THE DATA BASES MENTIONED IT(TP)A.1031/BANG/2011 PAGE - 7 ABOVE AND ZEROED IN ON 26 COMPARABLES INCLUDING THE EIGHT SELECTED FROM THE LIST OF ASSESSEE. LIST OF SUCH COMPARABLES AND THEIR AV ERAGE PLI IS GIVEN BELOW : 13. ON THE ARITHMETIC MEAN PLI OF 25.14%, TPO RECOM MENDED NEGATIVE WORKING CAPITAL ADJUSTMENT OF 1.88% WHICH RESULTED IN ADJUSTED ARITHMETIC MEAN PLI OF 23.26%. THEREAFTER HE COMPUTED THE ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS IN THE SOFTWARE SEGMENT AS UNDER : IT(TP)A.1031/BANG/2011 PAGE - 8 THUS TPO RECOMMENDED AN ADJUSTMENT OF RS.1,51,26,13 ,104/-. WHEN A PROPOSAL ON THE ABOVE LINES WAS MADE BY THE AO. AS SESSEE CHOSE TO MOVE THE DRP. 14. BEFORE THE DRP, ASSESSEE ARGUED FOR EXCLUSION O F VARIOUS COMPARABLES FOR VARIOUS REASONS LIKE FUNCTIONAL DISSIMILARITY, EXTRA ORDINARY EVENTS IN THE COMPARABLE COMPANIES, FLUCTUATING MARGINS, EMPLOYEE COST FILTER, ETC., HOWEVER, THE DRP DID NOT ACCEPT ANY OF THESE CONTEN TIONS AND AFFIRMED THE ADDITION PROPOSED BY THE AO / TPO. ACCORDINGLY, AS SESSMENT WAS COMPLETED MAKING AN ADDITION OF RS.1,51,26,13,104/- IN THE SO FTWARE DEVELOPMENT SERVICES SEGMENT. 15. NOW BEFORE US, LD. AR SUBMITTED THAT OUT OF THE 26 COMPARABLES CONSIDERED BY THE AO / TPO, ASSESSEE HAD NO GRIEVAN CE WITH REGARD TO DATAMATICS FINANCIAL SERVICES LTD (SEG), GEOMETRIC SOFTWARE LTD (SEG), IGATE GLOBAL SOLUTIONS LTD, LGS GLOBAL LTD, MEDIA SOFT SO LUTIONS P. LTD, MINDTREE LTD, R S SOFTWARE (INDIA) LTD AND SIP TECHNOLOGIES & EXPORTS LTD, TOTALLING TO IT(TP)A.1031/BANG/2011 PAGE - 9 EIGHT COMPANIES. AS FOR THE BALANCE 18 COMPARABLES , LD. AR SUBMITTED THAT EXCEPT FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), R. S YSTEMS INTERNATIONAL (SEG) AND SASKEN COMMUNICATION TECHNOLOGIES LTD, ALL OTHE RS WERE CONSIDERED BY THIS TRIBUNAL IN THE CASE OF NXP SEMI CONDUCTORS IN DIA P. LTD V. ACIT [IT(TP)A 1174/BANG/2011, DT.14.11.2014]. AS PER TH E LD. AR, THE SAME SET OF 26 COMPARABLES WERE TAKEN BY THE TPO IN THE SAID CA SE ALSO FOR SIMILAR SOFTWARE DEVELOPMENT SERVICES SEGMENT. IT WAS ALSO FOR THE VERY SAME ASSESSMENT YEAR. HENCE ACCORDING TO HIM THE DECISION OF THE COORDINA TE BENCH IN THE SAID CASE COULD BE TAKEN AS A GOOD PRECEDENCE FOR EXCLUSION O F ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD, CELESTIAL LAB S LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS L TD (SEG), LUCID SOFTWARE LTD, MEGASOFT LTD, PERSISTENT SYSTEMS LTD, QUINTEGR A SOLUTIONS LTD, TATA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG). COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF NXP SEMI CONDUCTOR S INDIA P. LTD (SUPRA) WAS PLACED ON RECORD. 16. LD. AR ALSO SUBMITTED THAT THOUGH MEGA SOFT LTD WAS CONSIDERED A GOOD COMPARABLE IN THE CASE OF NXP SEMI CONDUCTORS INDIA P. LTD (SUPRA), COORDINATE BENCH HAD DIRECTED REWORKING ITS SEGMENT AL RESULTS. HOWEVER, LD. AR POINTED OUT THAT THE ANNUAL REPORT OF THE SAID C OMPANY WAS PREPARED ON CALENDAR YEAR BASIS AND THAT TOO AFTER AN AMALGAMAT ION WHICH HAPPENED DURING IT(TP)A.1031/BANG/2011 PAGE - 10 THE RELEVANT PREVIOUS YEAR. THUS ACCORDING TO HIM, MEGA SOFT LTD WAS TO BE EXCLUDED. 17. FOR SEEKING EXCLUSION OF FLEXTRONICS SOFTWARE S YSTEMS LTD (SEG) AND SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG), LD. A R PLACED RELIANCE ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOTORALA SOLUTIONS (INDIA) P LTD V. ACIT [ITA.5637/DEL/2011, DT.14.08. 2014]. LD. AR SUBMITTED THAT THE SAID DECISION WAS FOR THE VERY SAME ASSESS MENT YEAR AND FOR THE VERY SAME SOFTWARE DEVELOPMENT SEGMENT. FURTHER ACCORDI NG TO HIM, WHILE SELECTING FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), TPO HAD REL IED ON INFORMATION RECEIVED FROM THE SAID COMPANY BASED ON A SUMMONS I SSUED U/S.133(6) OF THE ACT. ACCORDING TO HIM, THE INFORMATION PROVIDED WE RE CONTRADICTORY TO THE RESULTS AS PER THE ANNUAL REPORT OF THE SAID COMPAN Y. RELYING ON THE ANNUAL REPORT OF THE SAID COMPANY PLACED AT PAPER BOOK PAG E 124, VOL-II, LD. AR SUBMITTED THAT THE AUDITED ACCOUNTS OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) WAS FOR NINE MONTHS PERIOD, ENDING ON 31.03.2007. ACCORDING TO HIM WHEN THERE WERE DIFFERENCES BETWEEN THE AUDITED ACCOUNTS GIVEN IN ANNUAL REPORT WHICH WERE AVAILABLE IN PUBLIC DOMAIN AND REPLIES G IVEN TO NOTICE U/S.133(6), THE FORMER ALONE COULD BE GIVEN CREDENCE. ACCORDIN G TO HIM FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) ALSO HAD CONSIDERABLE PR ODUCT DEVELOPMENT ACTIVITIES. IT HAD NOT SEGMENTED ITS SOFTWARE DEVE LOPMENT SERVICE AND PRODUCTS AND WITHOUT SUCH SEGMENTATION ACCORDING TO HIM, IT WOULD BE INAPPROPRIATE TO CONSIDER FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) AS A PROPER COMPARABLE. IT(TP)A.1031/BANG/2011 PAGE - 11 18. VIS-A-VIS R SYSTEMS INTERNATIONAL LTD (SEG), RE LIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF ACIT V. HAP AG LLYOD GLOBAL SERVICES P. LTD [ITA.8499/MUM/2010, DT.28.02.2013]. ACCORDI NG TO HIM THE SAID COMPANY WAS ALSO FOLLOWING CALENDAR YEAR AS ITS FIN ANCIAL YEAR AND HENCE COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. RELIANCE WAS PLACED ON THE COPY OF ANNUAL REPORT OF THE SAID COMPANY PLACED AT PAGE 59 9. 19. PER CONTRA, LD. DR SUBMITTED THAT IN SO FAR AS FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) WAS CONCERNED, ITS PRODUCT REVENU E PRIMA FACIE WAS VERY MINIMAL. THOUGH SEGMENTAL RESULT MIGHT NOT BE THER E, AS PER THE LD. DR, TPO HAD OBTAINED THE REQUIRED INFORMATION, ON 133(6) NO TICE ISSUED BY HIM AND THIS WAS REPRODUCED BY THE TPO AT PAGE 123 OF HIS ORDER. SERVICES INCOME CAME TO RS.7368 MILLIONS WHEREAS THE PRODUCT REVENUES WERE ONLY RS.896 MILLIONS. THUS ACCORDING TO HIM THE ARGUMENT OF ASSESSEE THAT SEGMENTAL RESULTS WERE UNAVAILABLE FOR THE SAID COMPANY WAS INCORRECT. FU RTHER ACCORDING TO HIM, ONCE INFORMATION RECEIVED ON ISSUE OF NOTICE U/S.133(6) WAS PUT TO THE ASSESSEE AND ASSESSEE WAS GIVEN A CHANCE TO ANSWER THE QUERIES R AISED, IT COULD NOT SAY THAT ONLY THE ANNUAL REPORTS AND AUDITED ACCOUNTS SHOULD BE CONSIDERED FOR THE COMPARABILITY ANALYSIS. 20. VIS-A-VIS MEGA SOFT LTD, LD. DR SUBMITTED THAT THE TRIBUNAL DECISION RELIED ON BY THE ASSESSEE ITSELF HAD RECOMMENDED TH E INCLUSION OF THE SAID COMPANY AS A GOOD COMPARABLE, AFTER SEGMENTING ITS RESULT. IT(TP)A.1031/BANG/2011 PAGE - 12 21. AS FOR R SYSTEMS INTERNATIONAL LTD (SEG), LD. D R SUBMITTED THAT THE DECISION OF MUMBAI BENCH IN THE CASE OF ACIT V. HAP AG LLYOD GLOBAL SERVICES P. LTD [ITA.8499/MUM/2010, DT.28.02.2013] (SUPRA) R ELIED ON BY THE ASSESSEE WAS FOR F. Y. 2005-06. 22. CONTINUING HIS ARGUMENTS, LD. DR SUBMITTED THAT ASSESSEE WAS SEEKING EXCLUSION OF FOUR OF THE CONCERNS CONSIDERED BY ITS ELF AS PROPER COMPARABLES AND THEREFORE COMPARABILITY OF THESE HAD TO BE LOOKED I NTO BY THE AO / TPO FOR PROPER ANALYSIS. RELIANCE WAS PLACED ON THE JUDGME NT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. QUARK SYST EMS P. LTD [(2011) 62 DTR 0182]. 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGI ES LTD, CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFOR MATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTIONS LTD, TATA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) ARE CONCERNED, THE ISSUE OF COMPARABILITY OF THESE COMP ANIES HAD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF NXP SEMICONDUCTORS IND IA P. LTD (SUPRA). ANALYSIS DONE IN THE SAID DECISION WAS ALSO FOR SOFTWARE DEV ELOPMENT SERVICES SEGMENT AND THE TPO IN THE SAID CASE HAD ALSO SELECTED THE VERY SAME SET OF 26 COMPANIES. SAID DECISION BEING FOR THE VERY SAME A SSESSMENT YEAR 2007-08, WE ARE OF THE OPINION THAT IT CAN BE TAKEN AS A GOOD P RECEDENCE FOR DECIDING THE IT(TP)A.1031/BANG/2011 PAGE - 13 ISSUE OF COMPARABILITY RAISED BY THE ASSESSEE HEREI N, IN SO FAR AS THESE COMPANIES ARE CONCERNED. THIS TRIBUNAL HAD OBSERVE D AS UNDER : I) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMEN T SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF THE ASSESSEE THA T ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RE LEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE SUBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THA T THE BUSINESS ACTIVITIES OF THE COMPANY WERE AS UNDE R. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENT RE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTER PRISE SYSTEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASS ET DEVELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASS ESSEE COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FO RM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND THEREFORE ASSESSEES CLAIM THAT TH IS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DR P THEREFORE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF IT(TP)A.1031/BANG/2011 PAGE - 14 COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THI S COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN THE P ERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. TH E LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUN AL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFE RRED TO BY THE LD. COUNSEL FOR THE ASSESSEE, HAS ACCEPTED THAT THIS CO MPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGU MENT OF THE LD. COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE AFORESAI D COMPANY SHOULD BE EXCLUDED AS COMPARABLES. 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN SIMILAR SET OF FACTS, THESE COMPANIES ARE DIRECTED TO BE EXCLUDE D FROM THE LIST OF COMPARABLES. II) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFEREN T FROM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN TH E COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELO PED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT T HIS COMPANY WOULD HAVE REVENUE FROM SOFTWARE PRODUCT SALES APAR T FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUN CTIONALLY DIFFERENT FROM THE ASSESSEE. IT WAS FURTHER SUBMIT TED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTW ARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAI LS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE AS SESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AN D IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ) : IT(TP)A.1031/BANG/2011 PAGE - 15 HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT R ATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDED BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT AS COMPARABLE PART Y. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWARE EXPORTS, HOWEVER, THE DETAILS OF PERCENTAG E OF EXPORT OF PRODUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INT O CONSIDERATION FOR COMPARABILITY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS. THE FOLLOWING FIGURES WERE PLACED BEFORE US:- PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 280398 51 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (3069098 ) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERAT ING REVENUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXT RAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDU STRY FOR THE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH R ATE OF THIS COMPANY WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW O F THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJ ECTED AS A COMPARABLE. 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COMPANY AS COMPARABLE A RE FOUND TO BE ACCEPTABLE. THE DECISION OF ITAT (MUMBAI) IN THE C ASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. IT(TP)A.1031/BANG/2011 PAGE - 16 III) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT C OMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR IN-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENTIONED THAT, EXPENDITURE INCURRED ON RESEARC H AND DEVELOPMENT OF NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISI ON OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 20 07-08) IN WHICH THE COMPARABILITY OF THIS COMPANY FOR CLINICA L TRIAL RESEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDI NG THIS COMPANY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOOL CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTI SE (APPLYING BIO-INFORMATICS TOOLS). THE COMPANY HAS IT(TP)A.1031/BANG/2011 PAGE - 17 DEVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFI CIALS AND THE RESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES ARE UNDER PRO GRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGN ED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS . THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FA CILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CA RRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDA TES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARM A AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERAB AD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AN D SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT O F A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TO OLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AN D THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS B EEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFER ENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, T HE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARC H IN PHARMACEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT TH IS COMPANY IS OWNER OF IPR, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS IT(TP)A.1031/BANG/2011 PAGE - 18 DEVELOPED MOLECULE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASON THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJ ECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45.FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSP IRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS C LASSIFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWA RE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROW ESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. T HE TPO HAS RELIED ON THE RESPONSE FROM THIS COMPANY TO A NOTIC E U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSI NESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE IN REP LY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HA S POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVIC ES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE AND THEREFORE THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSE SSEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THIS COMPANY WAS DEVELOP S BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL F ROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SO FTWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETA ILS OF EMPLOYEES WORKING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY SEGMENTAL DATA WAS GIVEN OR NOT. BESID ES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPOS ORDER AS TO T HE NATURE OF SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRH P) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CL INICAL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BU SINESS OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS IN DICATED IN THE ANNUAL REPORT FOR FY 06-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS AS STATED IN THE DR HP. THERE IS NO REFERENCE TO ANY REPLY BY CELESTIAL LABS TO THE ABO VE CLARIFICATION OF THE TPO. THE TPO WITHOUT ANY BASIS HAS HOWEVER CO NCLUDED THAT THE BUSINESS MENTIONED IN THE DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTILIZING THE FUNDS GARNER ED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNE CTED WITH IT(TP)A.1031/BANG/2011 PAGE - 19 BUSINESS OPERATIONS OF THE COMPANY DURING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITT EDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT T HIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DE VELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSE SSEE THAT THIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPAR ABLE. IV) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSIO N OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS EN GAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASS ESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COM PANY IS ENGAGED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SE RVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END IT ES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO ) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDE D SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENT ATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CON TAIN DETAILED DESCRIPTIVE INFORMATION ON THE BUSINESS OF THE COMP ANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COM PANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHOR ISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DE VELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERV ICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961 (HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., OUGHT TO BE OMI TTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S BY THE TPO. IT(TP)A.1031/BANG/2011 PAGE - 20 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLYCONSIDERED THE MATERIAL ON RECORD. IT IS S EEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARBALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY I N ITS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GI VE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVI CES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF CAPITAL I-Q INFORMATIONSYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED. V) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WITH REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION S OLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO A SSAIL THE INCLUSION OF THE AFORESAID TWO COMPANIES FROM THE LIST OF COMPAR ABLES IS TO BE EFFECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFO RE, ARE LIABLE TO BE EXCLUDED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE ENGAGED IN DEVELOPM ENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT F ROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGME NT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORD ER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYST EMS LTD., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFT WARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCER N IS ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AN D TRAINING. AS PER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FU NCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS E NGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUS AL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR F.Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESSEE POINTE D OUT THIS TO THE IT(TP)A.1031/BANG/2011 PAGE - 21 TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PL ACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER P OINTED OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS O F SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGME NT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT- SERVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THO UGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MA Y BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF S OFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PRO FIT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE F ROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STA TEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEES SEGMENT OF IT-SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RA ISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMMEDIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CON CERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPAR ABLE. FOR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 42 1 TO 542 OF THE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICI NG STUDY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTIC ULAR, ATTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 2006-07 AND THEREFORE, THERE WAS NO JUSTIFICATION F OR THE TPO TO CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABL E IN THE INSTANT ASSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CON CERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESS EE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PR ESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HA S CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVIT Y UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AU THORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONC ERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING IT(TP)A.1031/BANG/2011 PAGE - 22 REGARD TO THE FACTUAL ASPECTS BROUGHT OUT BY THE AS SESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTWARE SEGMENT OF T HE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES . 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHES ON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISED SIMILAR AR GUMENTS AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG). WE H AVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONC ERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006-07 TH E SAID CONCERN WAS FOUND FUNCTIONALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY TH E TPO. THE RELEVANT PORTION OF THE TRANSFER PRICING STUDY, PLACED AT PA GE 432 OF THE PAPER BOOK HAS BEEN POINTED OUT IN SUPPORT. CONSIDERED IN THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO WE F IND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF C OMPARABLES. VI) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJE CTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE S OFTWARE DEVELOPMENT SEGMENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THI S CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPANY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GRO WTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSUR ES AND FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DA TE THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT APPLICATIONS ( PENDING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SO FTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES I S NOT AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CR ORES. IT(TP)A.1031/BANG/2011 PAGE - 23 (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWAR E PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTE MS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS :- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010 ) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (I TA NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFER ENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDIN G RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE TO THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TE CHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICA NT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS AL SO SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFT WARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE H OLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARA BLE COMPANIES. IT IS ORDERED ACCORDINGLY. VII) & VIII) M/S.ISHIR INFOTECH LTD. AND LUCID SO FTWARE LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL. NO.11 & 14 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TP O VIZ., M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED, THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SE RVICES PVT.LTD. VS. DCIT IT (TP) NO.1086/BANG/2011 FOR AY 07-08 HEL D THAT THE AFORESAID COMPANIES ARE NOT COMPARABLE COMPANIES IN THE CASE OF IT(TP)A.1031/BANG/2011 PAGE - 24 SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE NATURE OF SERVICES RENDERED BY THE ASSESSEE IN THIS APPEAL AND THE ASS ESSEE IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA ) ARE ONE AND THE SAME. THIS FACT WOULD BE CLEAR FROM THE FACT T HAT THE VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA). THE FOLLOWING WERE THE R ELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVANTAGE OFFSHOR E SERVICES PVT.LTD.(SUPRA): 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CA SE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22. 2.2013, WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINC TIONS AS TO WHY THESE COMPANIES SHOULD BE EXCLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CASE BEFORE US ARE SIMILAR AN D, THEREFORE, THE SAID DECISION IS APPLICABLE TO THE ASSESSEE'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSIO N OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A C AREFUL PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNA L IN THE CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD . (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE ASSESSEE THEREIN AND LUCID SOFTWARE LTD. AS OBSERVED THEREI N LUCID SOFTWARE LTD. COMPANY IS ALSO INVOLVED IN THE DEVEL OPMENT OF SOFTWARE AS COMPARED TO THE ASSESSEE, WHICH IS ONLY INTO SOFTWARE SERVICES. SIMILARLY, AS REGARDS ISHIR INFOTECH LTD ., THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNAL IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD THAT ISHIR INFOTECH IS ALSO OUT-SOURCIN G ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. A S THE FACTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESA ID COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. IT(TP)A.1031/BANG/2011 PAGE - 25 IX) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDE S THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED I N PROVIDING TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE AN NUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILT ER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNA LS DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNC TIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXT RACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATI ON SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUS ION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY I S ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HA S SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT I T IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND TH AT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUC TS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBU TTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJ ECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HA S DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPA NY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21. 6.2010 TO THE IT(TP)A.1031/BANG/2011 PAGE - 26 TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND N OT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE T HEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE. X) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A CO MPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. T HE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHED IN REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT , SOFTWARE DEVELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THI S VIEW OF THE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUAL IFIED THE FUNCTIONALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPANY IS FUN CTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FACTORS ON WH ICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, TH E LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING S ERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FO R F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAG ED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPEND ENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD.(SUPRA) WHILE DISCUSSING THE COMPARA BILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUAR ELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INT O PRODUCT IT(TP)A.1031/BANG/2011 PAGE - 27 DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHI CH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTE D FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THA T, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN S EPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES IND IA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMAT ION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, W E HOLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OM ITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. XI) QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS F UNCTIONALLY DIFFERENT AND ALSO THAT THERE WERE PECULIAR ECONOMI C CIRCUMSTANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUA LIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF ACQUISITIONS, T HE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT THE ASSESSEE H AS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INFLUENCE ON THE PRICING OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIFFERENT AN D ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONS IDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CON SIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. THE ANNUAL REPORT OF THIS COM PANY ALSO STATES THAT IT IS ENGAGED IN PREPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE ON HAND. IT(TP)A.1031/BANG/2011 PAGE - 28 (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERED BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PRO VIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTIN G, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEM ENT SERVICES), PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELL ECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMEN TS MADE IN THE ANNUAL REPORT OF THE COMPANY FOR THE PERIOD UNDER C ONSIDERATION, WHICH IS AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRODUCTS DEVELOP ED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHT S. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATIO N FOR ONE OF ITS PRODUCTS, VIZ. INVESTOR PROTECTION INDEX FUND (IPIF ). THESE MEASURES WILL HELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AN D ALSO MITIGATE RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDING CO MPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS TH E TPOS OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIO D UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA , THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIONALLY DIFFERE NT AND POSSESSING ITS OWN INTANGIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSID ERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E.QUINTEGRA SOLUTIONS LT D. IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND IS NOT PURELY A SO FTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SO FTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. IT(TP)A.1031/BANG/2011 PAGE - 29 HAVING APPLIED FOR TRADE MARK REGISTRATION OF ITS P RODUCTS, IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THECASE OF 24/7 CUSTOMER. COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD THAT IF A C OMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONS IDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGI BLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARABLES, AS IN T HE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINT EGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MADE BY IT I N THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE E XTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFOR MANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM TH E LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS L TD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE I T IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTA NGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERV ICE PROVIDER. 27. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESA ID COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. XII) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY , BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTI ON PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET O F COMPARABLES. 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFO RMS A VARIETY OF FUNCTIONS UNDER THE SOFTWARE DEVELOPMENT AND SERVIC ES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS. IT(TP)A.1031/BANG/2011 PAGE - 30 IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFEC T. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPM ENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGM ENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AN D ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE A SSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF T ELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEV ELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPA RABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRA CTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFEREN T FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE O F PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE N OT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPA RABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT A ND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO T REAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETER MINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPO RT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO AS SESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPAN Y IS NOT TO BE IT(TP)A.1031/BANG/2011 PAGE - 31 CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 25. RESPECFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESA ID COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. XIII) THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSE E OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COM PARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CR ORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPM ENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACC OUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (2008-TII- 04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT TH IS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PRO VIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (S UPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPAR ABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LOS S ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT ARE NOT IT(TP)A.1031/BANG/2011 PAGE - 32 GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LE ARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCO ME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABL E FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE M ATTER AND FOLLOWING THE AFORE CITED DECISION OF THE PUNE TRIB UNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIS T OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. XIV) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES OR SEVER AL GROUNDS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESS EE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEV ERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIA L STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MA RGINS, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTI NG COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPA NY IS ENGAGED IT(TP)A.1031/BANG/2011 PAGE - 33 BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMEN T SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATIO N OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TP O APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FIL TER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALY SIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF TH E CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPR IATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PAT ENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS H ELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DOES NOT OWN AN Y INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF T HE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. L TD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSI NG OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COM PANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 24. NO DOUBT IF WE FOLLOW THE ABOVE DECISION M/S. A CCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD, CELESTIAL LAB S LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS L TD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTIONS L TD, TATA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) H AVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. HOWEVER OUT OF THESE, M/S . ACCEL TRANSMATICS LTD IT(TP)A.1031/BANG/2011 PAGE - 34 (SEG), QUINTEGRA SOLUTIONS LTD AND TATA ELXSI LTD ( SEG) WERE A PART OF ASSESSEES OWN TP STUDY. HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V. QUARK SYSTEMS INDIA (P) LTD (SUPRA), UPHELD THE SPECIAL B ENCH DECISION IN DCIT V. QUARK SYSTEMS (P) LTD [(2010) 42 DTR 414], NOTING T HAT LATTER HAD ONLY REMITTED THE ISSUE OF COMPARABILITY OF COMPARABLES CONSIDERED IN ASSESSEES OWN TP STUDY, BACK TO TPO. HENCE WE ARE OF THE OPINION THAT THE ISSUE OF COMPARABILITY OF THESE THREE COMPANIES HAVE TO GO B ACK TO AO / TPO FOR CONSIDERATION AFRESH. HOWEVER M/S. AVANI CIMCON TE CHNOLOGIES LTD, CELESTIAL LAB LTD, E-ZEST SOLUTIONS LTD, HELIOS & MATHESON IN FORMATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS L TD, THIRDWARE SOLUTION LTD (SEG) AND WIPRO LTD (SEG) HAVE TO BE EXCLUDED BY VI RTUE OF COORDINATE BENCH DECISION IN THE CASE OF NXP SEMICONDUCTORS INDIA LT D (SUPRA). COMPARABILITY OF M/S. ACCEL TRANSMATICS LTD (SEG), M/S. QUINTEGRA SOLUTIONS LTD AND M/S. TATA ELXSI LTD (SEG) IS REMITTED BACK TO THE AO / T PO FOR CONSIDERATION AFRESH AS PER LAW. ORDERED ACCORDINGLY. 25. VIS-A-VIS MEGASOFT LTD, WE FIND THAT COORDINATE BENCH OF THIS TRIBUNAL IN THE VERY CASE CASE OF NXP SEMI CONDUCTORS INDIA LTD (SUPRA) RELYING ON ITS OWN EARLIER DECISION IN TRILOGY E-BUSINESS SOFTWARE IND IA PVT.LTD. VS. DCIT [ITA NO.1064/BANG/2011 FOR AY 07-08 ORDER DATED 23.11.20 12] HELD IT TO BE A GOOD COMPARABLE, BUT HAD DIRECTED SEGMENTATION OF ITS RE SULTS. THIS TRIBUNAL HAD DIRECTED THAT ONLY THE BLUE ALLY SEGMENT OF THE SAI D COMPANY COULD BE IT(TP)A.1031/BANG/2011 PAGE - 35 CONSIDERED FOR COMPARISON. RELEVANT FINDINGS OF TH E TRIBUNAL AS IT APPEARS IN THE DECISION OF NXP SEMICONDUCTORS INDIA LTD (SUPRA ) IS REPRODUCED HEREUNDER: MEGASOFT LTD. : 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THE TPO. THE OBJECTION OF THE ASSESSEE IS THAT THERE ARE TWO SEG MENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SOFTWARE PRODUCT SEGMENT. THE ASSESSEE IS A PURE SOFTWARE S ERVICES PROVIDER AND NOT A SOFTWARE PRODUCT DEVELOPER. ACC ORDING TO THE ASSESSEE THERE IS NO BREAK UP OF REVENUE BETWEEN SO FTWARE PRODUCTS AND SOFTWARE SERVICES BUSINESS ON A STANDA LONE BASIS OF THIS COMPARABLE. THE TPO RELIED ON INFORMATION WH ICH WAS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE. THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PR ODUCTS ARE SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENT ING THESE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE CO MPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT I NTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JO B OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALS O EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE WOULD CONSTI TUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUST OMIZED CAPABILITIES AND EXPENSES RELATED TO TRAVELLING, BO ARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO CU STOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO P RODUCT SOFTWARE) INTERNALLY AND THAT THE PORTION OF THE RE VENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZA TION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFOR E HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPO S FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THE BASIS ON WHICH THE TPO ARRIVED AT THE PLI OF 60 .23% IS GIVEN AT PAGE-115 AND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF THE SAME THAT THE TPO HAS PROCEEDED TO D ETERMINE THE PLI AT THE ENTITY LEVEL AND NOT ON THE BASIS OF SEG MENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSESSEE THAT THE OPERATING MARGINS HAVE BEEN COMPUTED AT ENTITY LEVE L COMBINING IT(TP)A.1031/BANG/2011 PAGE - 36 SOFTWARE SERVICES AND SOFTWARE PRODUCT SEGMENTS. I T WAS SUBMITTED THAT THE PRODUCT SEGMENT OF MEGASOFT IS SUBSTANTIAL LY DIFFERENT FROM ITS SOFTWARE SERVICE SEGMENT. THE PRODUCT SEGMENT H AS EMPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SERVICE SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117.95% AND IN CASE OF SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEGMENTS ARE SUBSTAN TIALLY DIFFERENT AND THEREFORE COMPARISON AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPARABILITY (SUBMISSIONS ON PAGE 381 TO 383 OF THE PB-I). IT WAS FURTHER SUBMITTED THAT MEGASOFT LIMI TED HAS PROVIDED SEGMENTAL BREAK-UP BETWEEN THE SOFTWARE SE RVICES SEGMENT AND SOFTWARE PRODUCT SEGMENT (PAGE 68 OF PB -II), WHICH WAS ALSO ADOPTED BY THE TPO IN HIS SHOW CAUSE NOTIC E (PAGE 84 OF PB-I). THE SEGMENTAL RESULTS I.E., RESULTS PERTAIN ING TO SOFTWARE SERVICES SEGMENT OF THIS COMPANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTAN CES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SELECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO IN CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGI NS OF ONLY THE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURPOSES . CONSISTENT WITH SUCH STAND, IT WAS SUBMITTED THAT THE MARGINS OF THE SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGAS OFT ALSO, IN CONTRAST TO THE ENTITY LEVEL MARGINS. 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LT D. IS THEREFORE REMITTED TO THE FILE OF THE TPO TO COMPUTE THE CORR ECT MARGIN BY FOLLOWING THE DIRECTION OF THE TRIBUNAL IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT.LTD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO COMPUTE THE CORRECT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. (SUPRA). ACCORDINGLY WE HOLD THAT MEGASOFT LTD CAN BE CONSID ERED AS A GOOD COMPARABLE AFTER SEGMENTATION AS DIRECTED IN THE ABOVE ORDER I S DONE. IT(TP)A.1031/BANG/2011 PAGE - 37 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLEX TRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DECISION OF MOTOROLA SOLUTIONS (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE VERY SAME YEAR AND ALSO ON SOFTWAR E DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE AB OUT THE COMPANY. UNLESS THIS BASIC REQUIREMENT IS FULFILLED, THE COM PANY CANNOT BE TAKEN AS A COMPARABLE. IT IS TRUE THAT LD. TPO IS ENTITLE D TO OBTAIN INFORMATION US/ 133(6), THE OBJECT OF WHICH IS PRIMARILY ONLY T O SUPPLEMENT THE INFORMATION ALREADY AVAILABLE ON RECORD, BUT NOT, A S RIGHTLY SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE, TO REPLACE THE INFORM ATION. IF THERE IS A COMPLETE CONTRADICTION BETWEEN THE INFORMATION OBTA INED U/S 133(6) AND ANNUAL REPORT THEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFO RE, ARE IN ITA NO. 5637/D/2011 149 AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY CANNOT BE INCLUDED AS A COMPARABLE IN THE S ET OF COMPARABLES SELECTED BY LD. TPO ON ACCOUNT OF CLEAR CONTRADICTI ON BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6 ). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCUM ENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING INTO INTERNA TIONAL TRANSACTIONS. THESE ARE OFFICIAL PUBLICATIONS, PUBLISHED ACCOUNTS OR TH OSE WHICH ARE IN PUBLIC DOMAIN EXCEPT FOR AGREEMENTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY. ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFER ENT FROM THE FINANCIAL YEAR ENDING 31 ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLESS THE INFORMATION RECEIVED IN PURSUANCE TO A N OTICE U/S.133(6) OF THE ACT FROM SUCH COMPANY, IS RECONCILED WITH THE FIGURES A VAILABLE IN SUCH ANNUAL REPORT. IT(TP)A.1031/BANG/2011 PAGE - 38 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31.03.2007. HOWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO RECONCILIATION WAS ATTEMPTE D BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WIT H THE FIGURES WHICH WERE MADE AVAILABLE BY THE SAID COMPANY TO THE TPO PURSU ANT TO NOTICE ISSUED TO THEM U/S.133(6) OF THE ACT. NO DOUBT AT PAGE 123 O F TP ORDER, TPO HAS STATED THAT THE SOFTWARE DEVELOPMENT SERVICE REVENUES WERE MORE THAN 75% BASED ON THE FOLLOWING FIGURES : BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE ANNUAL REPORT OF THE ASS ESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF THE OPINION TH AT FLEXTRONICS SOFTWARE SOLUTIONS LTD (SEG) COULD NOT BE CONSIDERED AS A PR OPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. 29. VIS-A-VIS R SYSTEMS INTERNATIONAL LTD (SEG), MU MBAI BENCH OF THIS TRIBUNAL HAD HELD AS UNDER AT PARA 7.1 AND 7.2 IN T HE CASE OF HAPAG LLOYD GLOBAL SERVICES PVT. LTD (SUPRA) : 7.1 THIS CASE WAS INCLUDED BY THE ASSESSEE IN ITS T RANSFER PRICING STUDY. THE TPO EXCLUDED THIS CASE BECAUSE OF DIFFER ENT FINANCIAL YEAR ENDING IN THAT CASE. THE LEARNED CIT(A) ORDERED FOR THE INCLUSION IT(TP)A.1031/BANG/2011 PAGE - 39 OF THIS CASE BY RECORDING THAT EVEN THOUGH THIS COM PANY WAS FOLLOWING DIFFERENT FINANCIAL YEAR ENDING BUT THE F OLLOWING DIFFERENT FINANCIAL YEARS COULD NOT BE A REASON TO EXCLUDE THIS CASE. 7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEND ED THAT UNLESS THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WITH THAT OF THE ASSESSEE, IT CANNOT BE CONSIDERED AS COMPARA BLE BECAUSE THE FIGURES OF DIFFERENT FINANCIAL YEAR ENDINGS ARE DIS TORTED. HE RELIED ON AN ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVISORS PRIVATE LIMITED V. ACJT IN ITA NO.6315/MUM! 2012. VIDE ITS ORDER DATED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING THE PRESCRIPTION OF RULE IOB(4) A ND AN ANOTHER CASE OF PUNE BENCH OF THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LTD., HAS HELD THAT IT IS MANDATORY FOR THE PURPOSES OF C OMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNA TIONAL TRANSACTION THAT THE SAME MUST RELATE TO THE FINANCIAL YEAR END ING SIMILAR TO THAT OF THE ASSESSEE. THE ID. DR CONTENDED THAT SINCE THE C ASE OF CMC LIMITED HAS A DIFFERENT FINANCIAL YEAR ENDING VIS-A-VIS THAT OF THE ASSESSEE, THE SAME OUGHT TO HAVE BEEN EXCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ARGUMENT ADVANCED BY THE ID. DR IN THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE ID. AR. RESPECTFULLY FOLLOWING TH E PRECEDENT, WE HOLD THAT THIS CASE SHOULD BE EXCLUDED FROM THE LIS T OF COMPARABLES. 30. NO DOUBT THE ABOVE DECISION WAS FOR A. Y. 2005- 06, BUT THE ANNUAL REPORT OF THE SAID COMPANY PLACED BY THE ASSESSEE AT PAPER BOOK PAGE NO.599 SHOW THAT ITS FINAL ACCOUNTS WERE BEING PREPARED ON A CA LENDAR YEAR BASIS EVEN AFTER THAT. PROFIT AND LOSS ACCOUNT IS FOR CALENDAR YEAR ENDING 31.12.2008 FOR THE SAME REASON AS MENTIONED BY THE COORDINATE BENCH OF MUMBAI IN THE CASE OF HAPAG LLOYD GLOBAL SERVICES P. LTD (SUPRA), WE AR E OF THE OPINION THAT R SYSTEMS INTERNATIONAL LTD (SEG) COULD NOT BE CONSID ERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. IT(TP)A.1031/BANG/2011 PAGE - 40 31. AS FOR SASKEN COMMUNICATION TECHNOLOGIES LTD (S EG), THIS TRIBUNAL IN THE CASE OF MOTOROLA SOLUTIONS (INDIA) P LTD (SUPRA ), HELD AS UNDER AT PARA 12 ITS ORDER : 12. SASKIN COMMUNICATION TECHNOLOGIES LTD.: 109. LD TPO NOTICED THAT THE COMPANY WAS REJECTED I N THE TP DOCUMENT ON THE GROUND THAT THE COMPANY FAILS IT S FILTER OF BUSINESS REVIEW AND R&D TO SALES WAS MORE THAN 3 %. HOWEVER, NO REASONS WERE GIVEN FOR THE BUSINESS REV IEW. 109.1 LD. TPO POINTED OUT THAT R&D TO SALES BEING M ORE THAN 3% IS NOT ACCEPTABLE FOR WHICH DETAILED DISCUS SION HAS ALREADY BEEN MADE EARLIER. HE FURTHER NOTICED THAT THE COMPANY HAS SOFTWARE SERVICES SEGMENT AND SEGMENTAL RESULTS ARE AVAILABLE FOR SOFTWARE SERVICES. HE FUR THER POINTED OUT THAT ON THE BASIS OF INFORMATION OBTAIN ED U/S 133(6), THE COMPANY QUALIFIES ONSITE REVENUE FILTER (ONSITE REVENUES WERE TO THE EXTENT 27.27% OF ITS EXPORT RE VENUES). AFTER CONSIDERING THE ASSESSEES REPLY, LD. TPO INC LUDED THIS COMPANY IN THE LIST OF COMPARABLES. LD. COUNSEL POI NTED OUT THAT THIS COMPANY HAS INCURRED SIGNIFICANT EXPENDIT URE ON RESEARCH AND DEVELOPMENT ACTIVITY THE SAME BEING 6. 07% OF SALES. HE FURTHER SUBMITTED THAT THE COMPANY HAD SI GNIFICANT INTANGIBLE INASMUCH AS IT DEVELOPS SISKIN BRANDED P RODUCTS. THE COMPANY OWNS IPR FURTHER IT WAS POINTED OUT BEF ORE TPO THAT DURING THE YEAR THE COMPANY HAD ACQUIRED B OTNIA HIGHTECH F. AND ITS TWO SUBSIDIARIES AND THUS, IT H AD UNDER GONE SIGNIFICANT RESTRUCTURING. HOWEVER, LD. TPO IG NORED THESE FACTS HE RELIED ON THE FOLLOWING DECISIONS: IQ INFORMATION SYSTEM (I) PVT. LTD., ITA NO. 1961/HYD./2012 (PARA NO. 11 & 23, PAGE 25); AMERSON PROCESS MANAGEMENT INDIA PVT. LTD., ITA N O. 8118/MUM./2010 (PARA 16 PAGE 15). 110. LD. DR RELIED ON THE ORDER OF TPO AND SUBMITTE D THAT TPO CONSIDERED THE COMPANIES SOFTWARE SERVICES SEGM ENT DETAILS ONLY. WE HAVE CONSIDERED THE RIVAL SUBMISSI ONS AND HAVE PERUSED THE RECORD OF THE CASE. 111. LD. TPO HAS COMPLETELY IGNORED THE EXTRAORDINA RY BUSINESS CIRCUMSTANCES POINTED OUT BY ASSESSEE FOR WHICH NECESSARY ADJUSTMENT WAS REQUIRED TO BE MADE IN ACCORDANCE WITH RULE 10B(3) OF INCOME TAX RULES. IT(TP)A.1031/BANG/2011 PAGE - 41 HOWEVER, SINCE THIS ADJUSTMENT WAS NOT POSSIBLE, TH EREFORE, THIS COMPANY SHOULD NOT HAVE BEEN INCLUDED IN THE L IST OF COMPARABLES. FURTHER, WE FIND THAT THE COMPANY OWNS IPR AND HAS BRANDED PRODUCTS WHICH ALSO DISTINGUISHES I T FROM THE ASSESSEE AND, THEREFORE, KEEPING IN VIEW THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDI A TECHNOLOGIES PVT. LTD.(SUPRA), WE DIRECT THE LD. TP O TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLE S. IF WE FOLLOW THE COORDINATE BENCH DECISION IN THE C ASE OF MOTORALA SOLUTION (INDIA) P. LTD, SASKEN COMMUNICATION TECHN OLOGIES LTD NEEDS TO BE EXCLUDED. HOWEVER, AS MENTIONED BY US AT PAR A 24 ABOVE, WHERE THE CONTESTED COMPARABLE FORMED PART OF ASSESSEES OWN STUDY, THEN THE AO / TPO HAS TO BE GIVEN A CHANCE FOR VERIFICATION, IN V IEW OF JUDGMENT OF HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF QUARK SYSTEMS INDIA P. LTD (SUPRA). ACCORDINGLY WE REMIT THE IS SUE OF COMPARABILITY OF SASKEN COMMUNICATION TECHNOLOGIES LTD BACK TO THE A O / TPO FOR CONSIDERATION AFRESH AS PER LAW. ORDERED ACCORDING LY. 32. ONCE THE ABOVE COMPANIES ARE EXCLUDED WHAT WOUL D BE DIRECTLY LEFT IN THE LIST OF COMPARABLES AND DATAMATICS FINA NCIAL SERVICES LTD (SEG), GEOMETRIC SOFTWARE LTD (SEG), IGATE GLOBAL S OLUTIONS LTD, LGS GLOBAL LTD, MEDIA SOFT SOLUTIONS P. LTD, MINDTREE L TD, R S SOFTWARE (INDIA) LTD, SIP TECHNOLOGIES & EXPORTS LTD AND MEG A SOFT LTD. LAST OF THESE, VIZ MEGA SOFT LTD, HAS TO BE CONSIDERED AFTE R PROPER SEGMENTATION, MENTIONED BY US AT PARA 25 ABOVE. AO / TPO WILL AL SO HAVE TO DECIDE ON IT(TP)A.1031/BANG/2011 PAGE - 42 THE COMPARABILITY OF M/S. ACCEL TRANSMATICS LTD (SE G), QUINTEGRA SOLUTION LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) AND TATA ELXSI LTD (SEG), CONSIDERING THE JUDICIAL PRECEDENC E RELATED TO THE COMPARABILITY OF THESE COMPANIES. WE DIRECT THE AO / TPO TO REWORK THE AVERAGE PLI OF THE COMPARABLES, AS PER THE DIRE CTIONS IN THE PRECEDING PARAS AND DECIDE ON THE QUESTION OF ALP ADJUSTMENT ACCORDINGLY. 33. NOW WE TAKE UP ITES SEGMENT. FOR JUSTIFYING TH E PRICING OF ITS INTERNATIONAL TRANSACTIONS UNDER THE ITES SEGMENT, ASSESSEE HAD ADOPTED THE TNMM ITSELF AND SELECTED 13 COMPARABLE COMPANIE S WHICH GAVE AN AVERAGE PROFIT MARGIN OF 12.06%. SINCE THIS WAS WI THIN + / - 5% OF ITS OWN PROFIT MARGIN OF 9.53%, AS PER THE ASSESSEE TH ERE WAS NO REQUIREMENT FOR ANY ADJUSTMENT IN THE PRICING OF THESE TRANSACT IONS. AS PER THE ASSESSEE ITES SEGMENT COMPRISED OF TECHNICAL CALL CENTRE SERVICES. TPO THOUGH HE ACCEPTED HE THE ASSESSEE TO BE A CALL CENTER SERVICE PROVIDER, REJECTED SEVEN COMPANIES OUT OF THE 13 SE LECTED BY THE ASSESSEE. THEREAFTER HE MADE HIS OWN STUDY UNDER PROWESS AND CAPITALINE DATA BASE AND ZEROED IN ON 27 COMPARABLES, INCLUDING THE SEVE N IN THE ASSESSEES OWN LIST. 27 COMPARABLES CONSIDERED BY THE TPO AN D THEIR AVERAGE PLI IS GIVEN HEREUNDER : IT(TP)A.1031/BANG/2011 PAGE - 43 34. ON THE ARITHMETIC MEAN PLI OF 30.21%, AO MADE A NEGATIVE WORKING CAPITAL ADJUSTMENT OF 1.60% AND ARRIVED AT ADJUSTED MEAN PLI OF 28.61%. SHORTFALL IN THE VALUE OF THE INTERNATIONAL TRANSAC TIONS WAS WORKED OUT BY THE AO AS UNDER : OPERATING COST RS.258,89,21,986/- ARMS LENGTH MARGIN 28.61% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 128.61% RS.332,96,12,56 6/- PRICE SHOWN BY THE ASSESSEE RS.279,24,76,527/- SHORTFALL BEING ADJUSTMENT U/S.92CA RS.53,71,36,039 /- IT(TP)A.1031/BANG/2011 PAGE - 44 35. TPO RECOMMENDED AN ADJUSTMENT OF RS.5,37,36,019 /- IN THE ITES SEGMENT. WHEN A PROPOSAL ON THE ABOVE LINES WAS MA DE ASSESSEE CHOSE TO MOVE THE DRP. HOWEVER THE DRP REJECTED ITS CONTENTIONS AND CONFIRMED THE RECOMMENDATIONS OF THE TPO. ASSESSMENT WAS COMPLET ED MAKING AN ADDITION OF RS.52,71,36,039/- IN THE ITES SEGMENT. 36. NOW BEFORE US, LD. AR SUBMITTED THAT OUT OF THE 27 COMPARABLE COMPANIES CONSIDERED BY TPO, ACCENTIA TECHNOLOGIES LTD, ASIT C MEHTA FINANCIAL SERVICES LTD, INFORMED TECHNOLOGIES INDIA LTD, SPANCO LTD (SEG) AND VISHAL INFORMATION TECHNOLOGIES LTD, FAILED THE EMPLOYEE COST FILTER AND HAD TO BE EXCLUDED. RELIANCE WAS PLACED ON THE FOL LOWING DECISIONS OF THE TRIBUNAL : I) FIRST ADVANTAGE OFFSHORE SERVICES P. LTD V. DCIT [IT(TP)A NO.1086/BANG/2011, DT.30.04.2013]. II) STREAM INTERNATIONAL SERVICES P. LTD V. ACIT [I TA.8290/MUM/2011, DT.10.10.2014] LD. AR SUBMITTED THAT IN THE CASE OF FIRST ADVANTAG E OFFSHORE SERVICES P. LTD (SUPRA), THIS TRIBUNAL HAD CLEARLY HELD THAT 25% EM PLOYEE COST FILTER HAD TO BE APPLIED FOR ITES SEGMENT. 37. VIS-A-VIS, BODHTREE CONSULTING LTD, APPEARING I N THE LIST OF TPO, LD. AR SUBMITTED THAT THE SAID COMPANY HAD WIDE FLUCTUATIN G MARGIN. RELYING ON THE DECISION OF PUNE BENCH OF THE ITAT IN THE CASE OF D CIT V. AFFINITY EXPRESS INDIA P. LTD [ITA NO.595/PN/2013, DT.29.04.2015], L D. AR SUBMITTED THAT THE SAID COMPANY HAD TO BE EXCLUDED FROM THE LIST OF CO MPARABLES. IT(TP)A.1031/BANG/2011 PAGE - 45 38. VIS-A-VIS, ECLERX SERVICES LTD, INFOSYS BPO LTD AND MOLD-TEK TECHNOLOGIES LTD, LD. AR SUBMITTED THAT THEY WERE I NTO KNOWLEDGE PROCESS OUT- SOURCING SERVICES AND WERE NOT COMPARABLE WITH THE ASSESSEE WHICH WAS DOING TECHNICAL SUPPORT SERVICES THROUGH ITS CALL CENTRES . RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD V. CIT [ITA.102/2015, DT.10.08.2015], COORDINAT E BENCH DECISION IN THE CASE OF SYMPHONY MARKETING SOLUTIONS INDIA P. LTD V . ITO [IT(TP)A NO.1316/BANG/2012, DT.14.08.2013], AND DELHI BENCH DECISION IN THE CASE OF IQOR INDIA SERVICES P. LTD V. ITO [ITA.6034/DEL/201 2, DT.27.04.2015]. FURTHER AS PER THE LD. AR, INFOSYS BPO LTD HAD TO BE EXCLUD ED DUE TO ITS GIANT SIZE AND OWNERSHIP OF INTELLECTUAL PROPERTY. ACCORDING TO H IM FOR THE VERY SAME REASON M/S. WIPRO LTD (SEG) ALSO HAD TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. RELIANCE WAS ALSO PLACED ON THE DECISION OF MUMBAI TRIBUNAL IN STREAM INTERNATIONAL SERVICES P. LTD (SUPRA). 39. CONTINUING HIS ARGUMENTS, THE LD. AR SUBMITTED THAT M/S MAPLE E SOLUTIONS LTD AND TRITON CORP LTD HAD TO BE EXCLUDE D SINCE PROMOTERS /DIRECTORS OF THESE COMPANIES WERE INVOLVED IN FRAUDS DURING T HE PREVIOUS YEAR RELEVANT TO A. Y. 2007-08, RENDERING THEIR ANNUAL REPORTS UNRE LIABLE. RELIANCE WAS PLACED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF IQ OR INDIA SERVICES P LTD (SUPRA) AND THAT OF COORDINATE BENCH IN THE CASE OF FIRST ADVANTAGE OFF SHORE SERVICES P. LTD (SUPRA). IT(TP)A.1031/BANG/2011 PAGE - 46 40. IN ADDITION TO THE ABOVE, AS PER THE LD. AR, CA LIBER POINT BUSINESS SOLUTIONS LTD, H C L COMNET SYSTEMS & SERVICES LTD (SEG) AND R SYSTEMS INTERNATIONAL (SEG), HAD TO BE EXCLUDED SINCE THEI R ANNUAL REPORTS WERE FOR DIFFERENT YEAR THAN FINANCIAL YEAR AND THUS NOT AME NABLE FOR COMPARISON. RELIANCE WAS PLACED ON MUMBAI BENCH DECISION IN SAN DSTONE CAPITAL ADVISORS P. LTD V. ACIT [ITA.6315/MUM/2012, DT.06.12.2013], SAVAN TECHNOLOGIES P. LTD V. ACIT [ITA NO.1456/HYD/2010, DT.10.01.2014 AN D TELELOGIC INDIA P. LTD V. DCIT [ITA.166/MUM/2011, DT.18.05.2015]. 41. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF LOWE R AUTHORITIES. ACCORDING TO HIM, GROUNDS RAISED BY ASSESSEE FOR EXCLUSION OF COMPANIES WHICH IT HAD NOT SOUGHT EXCLUSION AT LOWER LEVELS, REQUIRED A FRESH CONSIDERATION BY THE AO / TPO. 42. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. COORDINATE BENCH OF THIS TRIBUNAL HAS HELD IN FIRST ADVANTAGE OFFSHORE SERVICES P. LTD (SUPRA) THAT EMPLOYEE COST FILTER IS ONE WHICH HAD TO BE APPLIED WHILE SELECTING COMPARABLES IN ITES SEGMENT. TRIBUNAL HELD AS UNDE R IN ITS ORDER : 32. THE GROUP 2 CONSISTS OF THE COMPANIES WHICH ARE TO BE EXCLUDED BY APPLYING THE EMPLOYEE COST FILTER, T HESE COMPANIES ARE - 1) ACCENTIA TECHNOLOGIES LTD. 2) INFORMED TECHNOLOGIES INDIA 3) VISHAL INFORMATION TECHNOLOGIES LTD. 33. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESS EE, THESE COMPANIES DO NOT SATISFY THE EMPLOYEE COST FILTER O F BEING MORE THAN 25%. HE SUBMITTED THAT IN THE ASSESSEE'S OWN CASE FOR TH E ASSESSMENT YEAR 2006-07, THE TRIBUNAL HAS HELD THAT THE TPO CANNOT IT(TP)A.1031/BANG/2011 PAGE - 47 PICK AND CHOOSE EMPLOYEE FILTER' FOR EACH SECTOR W HEN THE SAME SET OF FACTS ARE AVAILABLE. 34. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE EMPLOYEE COST FILTER OF BEING MORE THAN 25% IS APPLICABLE ONLY TO THE SOFTWARE DEVELOPMENT AND NOT TO ITES SECTOR. HE SUBMITTED TH AT AS FAR AS SOFTWARE DEVELOPMENT IS CONCERNED, THE COMPANY WOUL D REQUIRE HIGHLY SKILLED EMPLOYEES RESULTING IN HIGH COST OF EMPLOYE ES, WHEREAS IN THE ITES WHICH IS A 'CALL CENTRE', IT WOULD REQUIRE ONL Y GRADUATES AND NOT VERY SKILLED PERSONNEL RESULTING; IN LOW EMPLOYEE C OST AND, THEREFORE, 'THE EMPLOYEE COST FILTER' CANNOT BE UNIFORMLY APPL IED FOR BOTH THE SECTORS. 35. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THA T THIS ISSUE HAD ARISEN IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMEN T YEAR 2006-07. THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FILTER IS TO BE THE SAME EVEN FOR ITES SEGMENT ALSO. THE LEARNED DR'S ARGUMENT TH AT THE EMPLOYEE COST FILTER IS APPLICABLE ONLY TO SOFTWARE DEVELOPMENT SEGMENT AND NOT TO ITES SEGMENT IS NOT ACCEPTABLE. THOUGH IT IS WITHOUT ANY DISPUTE THAT THE SOFTWARE DEVELOPMENT W OULD REQUIRE SKILLED EMPLOYEES AND, THEREFORE, THE EMPLOYEE COST WOULD DEFINITELY BE MORE THAN 25% OF THE TOTAL EXPENSES, IT CANNOT BE S AID THAT THE SAID FILTER IS APPLICABLE TO ITES SEGMENT, WHERE COMPARABLY LE SS SKILLED EMPLOYEES ARE EMPLOYED. IN THE ITES SEGMENT, THE EN TIRE WORK IS TO BE DONE BY THE EMPLOYEES AND, THEREFORE, EVEN THOUGH T HEY MAY BE LESS SKILLED COMPARED TO SOFTWARE DEVELOPMENT SEGMENT, T HE NUMBER OF EMPLOYEES WOULD DEFINITELY BE MORE AND TH US THE EMPLOYEE COST WOULD BE HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER TO THE ITES SECTOR IS ALSO JUSTIFIED. IN VIE W OF THE SAME, WE DIRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COMPANIES WITH EMPLOYEE COST OF LESS THAN 25% FROM THE LIST OF COMPARABLES FOR THE COMPUTATION OF ALP. ABOVE DECISION WAS ALSO FOR A. Y. 2007-08. THUS TH ERE IS DOUBT THAT EMPLOYEE COST FILTER NECESSARILY HAS TO BE APPLIED FOR ITES SEGMENT. HOWEVER, WHAT WE FIND IS THAT LOWER AUTHORITIES HAD NOT APPLIED THIS FILTER AT ALL AND ALSO NOT WORKED OUT PROPORTION OF THE EMPLOYEE COST WITH THE TOTAL COST AND TOTAL REVENUE. AS PER IT(TP)A.1031/BANG/2011 PAGE - 48 THE ASSESSEE, IF THE EMPLOYEE COST FILTER OF 25% IS APPLIED, ACCENTIA TECHNOLOGIES LTD, ASIT C MEHTA FINANCIAL SERVICES L TD, INFORMED TECHNOLOGIES INDIA LTD, SPANCO LTD (SEG) AND VISHAL INFORMATION TECHNOLOGIES LTD, WOULD GO OUT OF THE LIST OF COMPARABLES. WE ARE OF THE OPIN ION THAT THIS REQUIRES A FRESH LOOK BY THE AO / TPO. WE THEREFORE SET ASIDE THE I SSUE OF COMPARABILITY OF THE ABOVE FIVE COMPANIES IN THE ITES SEGMENT AND REMIT IT BACK TO THE AO / TPO FOR CONSIDERATION OF THE EMPLOYEE COST FILTER AFTER VERIFYING THE WORK OUT SUBMITTED BY THE ASSESSEE IN THIS REGARD. ORDERED ACCORDINGLY. 43. AS FOR BODHTREE CONSULTING LTD (SEG), PUNE BENC H OF THE TRIBUNAL IN THE CASE OF AFFINITY EXPRESS INDIA P. LTD (SUPRA) HAD H ELD AS UNDER AT PARA 5 TO 8 : 5. BEFORE CIT(A) THE ASSESSEE VEHEMENTLY CHALLENGED THE INCLUSION OF M/S. BODHTREE CONSULTING LTD., AS A COMPARABLE. IT WAS ARGUED THAT THE COMPANY IS INTO THE BUSINESS OF SOFTWARE D EVELOPMENT SERVICES AND HENCE NOT FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. IT WAS ARGUED THAT AS PER THE BUSINESS DESCRIPTION IN ITS ANNUAL REPORT FOR THE YEAR ENDED 31- 4 03-2007 NOT ONLY ITS LINE OF BUSINESS IS COMPLETELY DIFFERENT BUT ALSO ITS FAR IS DIFFERENT THAN THAT OF THE ASSESSEE AND CONSEQUENTLY IT IS NOT A COMPARABLE CO MPANY FOR BENCHMARKING INTERNATIONAL TRANSACTION OF THE ASSES SEE. IT WAS ARGUED THAT M/S. BODHTREE CONSULTING LTD. HAD HIVED OF ITS E-PAPER BUSINESS TO ITS SUBSIDIARY COMPANY VIZ., PRESSMART MEDIA LTD. FOR THE YEAR ENDED MARCH 2007. SINCE THE BUSINESS OF PM L IS IN THE FIELD OF E-PAPER WHICH IS IN THE INDUSTRY OF INFORM ATION TECHNOLOGY ENABLED SERVICES (ITES), IT WOULD BE APPROPRIATE TO CONSIDER THE SUBSIDIARY COMPANY AS COMPARABLE IN THE ASSESSEES CASE WHICH IS ALSO IN ITES INDUSTRY. HOWEVER, THE ARGUMENT OF THE ASSESSEE THAT M/S. BODHTREE CONSULTING LTD. IS NOT FUNCTIONALLY C OMPARABLE WAS NOT ACCEPTED BY THE TPO AND WAS RETAINED AS A COMPA RABLE. 6. THE ASSESSEE BROUGHT TO THE NOTICE OF THE LD.CIT (A) THE FOLLOWING PARAGRAPH IN THE DIRECTORS REPORT IN THE ANNUAL REPORT OF THE COMPANY: IT(TP)A.1031/BANG/2011 PAGE - 49 BODHTREE HAS ONLY ONE SEGMENT, NAMELY SOFTWARE DEVELOPMENT. BEING A SOFTWARE SOLUTIONS COMPANY, IT IS ENGAGED IN PROVIDING OPEN AND END-TO-END WEB SOLUTI ONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS, USING THE LATEST TECHNOLOGIES. 7. THE ASSESSEE ALSO DREW THE ATTENTION OF THE LD.C IT(A) TO THE DIFFERENT PARTS OF THE ANNUAL REPORT AND INFORMATIO N PROVIDED ON THE WEBSITE OF THE COMPANY TO CONTEND THAT M/S. BODHTRE E CONSULTING LTD. IS CLEARLY INTO SOFTWARE DEVELOPMENT WHEREAS T HE ASSESSEE COMPANY PROVIDES ITES, THEREFORE, M/S. BODHTREE CON SULTING LTD. CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSE E. 8. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DIRECTED THE AO TO EXCLUDE M/S. BODHTREE CONSULTING LTD. FROM THE LIST OF COMPARABLES. WHILE DOING SO, HE OBSERVED TH AT THE VARIOUS PARTS OF THE DIRECTORS REPORT AS WELL AS OTHER REFE RENCES IN THE ANNUAL REPORT MAKE 5 IT CLEAR THAT M/S. BODHTREE CONSULTIN G LTD. IS INTO SOFTWARE DEVELOPMENT AND THEREFORE THIS COMPANY CAN NOT BE TREATED AS COMPARABLE WITH THE ASSESSEE COMPANY WHICH RENDE RS ITES. CONCERNED ASSESSMENT YEAR BEING THE VERY SAME, WE A RE OF THE OPINION THAT BODHTREE CONSULTING LTD (SEG) HAS TO BE EXCLUDED FR OM THE LIST OF COMPARABLES. 44. VIS-A-VIS ECLERX SERVICES LTD, INFOSYS BPO LTD AND MOLD-TEK TECHNOLOGIES LTD, ARGUMENT OF THE ASSESSEE IS THAT THEY WERE INTO KNOWLEDGE PROCESS OUTSOURCING WHICH CANNOT BE COMPARED WITH A SSESSEE WHO WAS ONLY PROVIDING LOWER END CALL CENTRE SERVICES. IN THIS REGARD, IT WOULD BE APPROPRIATE TO REPRODUCE THE ANALYSIS BY THE ASSESSEE OF ITSELF , ON ITS OWN CALL-CENTRE WORK, APPEARING AT PARA 25.1 TO 25.3 OF TP ORDER : 25 FUNCTIONS, ASSETS AND RISKS ANALYSIS DONE BY THE TAXPAYER 25.1 FUNCTIONS CURRENTLY. . THE SERVICES OFFERED BY IIPGS THROUGH THE GLOBAL SOLUTIONS CENTRE BANGALORE ('GSCB') ARE VOICE AND E -MAIL SUPPORT. HPGS HAS ENTERED INTO A GENERAL SERVICES A GREEMENT WITH IT(TP)A.1031/BANG/2011 PAGE - 50 ITS ASSOCIATED ENTERPRISES, FOR PROVISION OF TECHNI CAL CALL CENTRE SERVICES THROUGH VOICE AND EMAIL SUPPORT. THE FUNCTIONS PERFORMED BY HPGS IN RELATION TO THE PROVISION OF TECHNICAL CALL CENTRE SERVICES RENDERED BY IT ARE S UMMARIZED BELOW. PROVISION OF SERVICES BASED ON THE SERVICE REQUIREMENTS, THE ACTUAL SERVI CES ARE PROVIDED BY HPGS THROUGH ITS CONTACT CENTRE IN INDIA, WHICH IS EQUIPPED WITH THE NECESSARY INFRASTRUCTURE AND PERSONNEL. ASSOCIATED ENTERPRISES PROVIDE TRAINING TO HPGS FOR RENDERING THE TECHNICAL CALL CENTRE SERVICES AT THE REQUIRED QUAL ITY LEVELS. TECHNOLOGY TRANSITION AND INFRASTRUCTURE SET UP ASSOCIATED ENTERPRISES ARE RESPONSIBLE FOR ESTABLIS HING PROCESSES FOR IDENTIFICATION AND ROUTING OF EMAIL SERVICE REQUEST S OR INQUIRIES TO HPGS. THEY ARE RESPONSIBLE FOR ENSURING COMPATIBILI TY BETWEEN HPGS'S EQUIPMENT AND SOFTWARE AND ITS HARDWARE AND DATABASES. HPGS TAKES SUPPORT CALLS ON WINTEL-BASED PORTABLES, DESKTOPS, AND SERVERS THAT ARE REDIRECTED FROM HP'S CUSTOMER SUPP ORT CENTRES. HPGS ESTABLISHES CONNECTIVITY WITH HP'S ELECTRONIC SUPPORT RESOURCES BY INSTALLING INTERNATIONAL PRIVATE LEASE D CIRCUITS WITH ADEQUATE BANDWIDTH TO SUPPORT THE REQUIREMENT. HPGS HAS SET UP TELECOM INFRASTRUCTURE THAT IS APPROVED BY HP AND T HAT HAS THE CAPABILITY OF SUPPORTING THE SERVICES AND COMPLYING WITH HP'S ROUTING NORMS. QUALITY CHECK AND REVIEW ASSOCIATED ENTERPRISES MONITOR AND REVIEW THE TECHN ICAL CALL CENTRE SERVICES PROVIDED BY HPGS. THEY ALSO HAVE CERTAIN S ATISFACTION LEVEL PARAMETERS ON THE BASIS OF WHICH THEY UNDERTAKE QUA LITY CHECKS AND REVIEW THE SERVICES PROVIDED FOR QUALITY LEVELS. HPGS ASSISTS ASSOCIATED ENTERPRISES IN THE QUALITY CHECK AND REVIEW PROCESS. HPGS' CONTACT CENTER PROVIDES SUPPORT SERVICES TO HP'S CUSTOMERS WORLDWIDE. THIS CENTER PROVIDES REMOTE MANAGEMENT, MAIL-BASED SUPPORT, CHAT-BASED SUPPORT AND VOICE-BASED SUPPOR T TO A NUMBER OF CUSTOMERS. IT HAS AN EXCELLENT SOFT-SKILLS AND TECH NICAL TRAINING PROGRAM, AS WELL AS WORLD-CLASS INFRASTRUCTURE FACI LITATE AND QUALITY SUPPORT SERVICES. DURING THE FINANCIAL YEAR 2004-05, THE HP DECIDED T O CREATE A CONSOLIDATED INDIA BASED GLOBAL DELIVERY MODEL FOR IT SERVICES. HPGS WAS MADE PART OF THE HP GLOBAL DELIVERY ORGANI ZATION IT(TP)A.1031/BANG/2011 PAGE - 51 PURSUANT TO THIS DECISION. CONSEQUENTLY, HPGS NOW F UNCTIONS AS A CONTRACT SERVICE PROVIDER TO HP AS OPPOSED TO AN IN DEPENDENT RISK BEARING ENTITY. 25.2 ASSETS THE TAXPAYER GIVEN THE DETAILS OF ASSETS UTILISED F OR RENDERING TECHNICAL CALL CENTRE SERVICES AS UNDER IN ITS TP R EPORT. 11.1. ASSETS UTILIZED THE NET ASSETS UTILIZED BY HPGS FOR PROVISION OF TE CHNICAL CAL CENTRE SERVICES AS ON MAICH 31, 2007 ARE AS FOLLOWS LAND LEASEHOLD 3,246,431 COMPUTER EQUIPMENT 90,793,667 ELECTRICAL FITTINGS 3,608,674 FURNITURE AND FIXTURES 18.927,861 VEHICLES 21,704,134 PLANT AND MACHINERY 8,461.043 OFFICE EQUIPMENT 44,079,779 COMPUTER SOFTWARE 2,336,578 25.3 RISKS THE TAXPAYER HAS GIVEN ITS RISK PROFILE AS UNDER IN ITS TP REPORT. '4.1.2 RISKS ASSUMED SERVICE DELIVERY RISK IN THIS CASE, IF THE SERVICES RENDERED BY HPGS DO N OT MEET THE EXPECTATIONS OF THE ASSOCIATED ENTERPRISES. IIPGS I S NOT DIRECTLY RESPONSIBLE. ASSOCIATED ENTERPRISE BEAR THE SERVICE DELIVERY RISK, AS IT ENTERS INTO CONTRACTS WITH CUSTOMERS AND ARE RESPONSIBLE JAR AN Y LIABILITY FAR DEFECTIVE SERVICES. MARKET RISK. THE ASSOCIATED ENTERPRISES WOULD BE RESPONSIBLE FOR IDENTIFYING AND RETAINING CLIENTS AND THEREFORE THE MARKET RISK WOU LD LIE WITH THEM. THUS, HPGS ASSUMES NO MARKET RISK. FOREIGN EXCHANGE RISK HPGS EARNS ITS REVENUES IN USD WHEREAS IT INCURS EX PENSES IN THE INR. ASSOCIATED ENTERPRISES MAKE ALL PAYMENTS T O HPGS IN IT(TP)A.1031/BANG/2011 PAGE - 52 USD WHICH IS ITS LOCAL CURRENCY. ANY . ADVERSE MOVEMENT IN THE EXCHANGE RATE WOULD DIRECTLY IMPACT THE PROFITABILI TY OF HPGS. THUS THE RISK ASSOCIATED WITH ADVERSE MOVEMENTS OF EXCHA NGE RATES IS BORNE IN HPGS. CREDIT RISK HPGS INVOICES ASSOCIATED ENTERPRISES FAR THE PERFOR MANCE OF PROJECTS AND SERVICES ON A MONTHL Y BASIS AND RECEIVES ITS PAYMENTS WITHIN THE CREDIT PERIOD OF 30 DAYS. THE RISK OF NO N PAYMENT BY ASSOCIATED ENTERPRISES IS MITIGATED JAR HPGS SINCE THEY ARE RELATED ENTERPRISES. ASSOCIATED ENTERPRISES . FACE SUCH RISKS SINCE IT DEALS WITH THIRD PARTIES. CAPACITY UTILIZATION RISK PROVISION OF TECHNICAL CALL CENTRE SERVICES REQUIRE S SIZEABLE INVESTMENT IN INFRASTRUCTURE, IN TERMS OF PREMISES, EQUIPMENT, CONNECTIVITY, PERSONNEL, ETC. GENERALLY, THE RISK O F UNDER UTILIZATION OF CAPACITY IS TO BE BORNE BY THE ENTIT Y MAKING THE INVESTMENT I.E., HPGS. HOWEVER, SINCE HPGS IS COMPE NSATED ON A COST PLUS BASIS JAR DIRECT AND INDIRECT COSTS OF OP ERATION INCLUDING IDLE TIME COST, THE CAPACITY UTILIZATION RISK IS EF FECTIVELY BORNE BY ITS ASSOCIATED ENTERPRISE. GOVERNMENT POLICY RISK SINCE HPGS OPERATES AS A CONTRACT SERVICE PROVIDER TO HP, ANY CHANGES IN THE US GOVERNMENT POLICY REGARDING OFFSH ORE SERVICE PROVIDERS WOULD AFFECT BOTH THE ENTITIES. IN THIS RESPECT BOTH HPGS AND HP FACE SUFFICIENT RISKS. THE ABOVE RISKS ARE SUMMARIZED IN THE TABLE BELOW: SERVICE LIABILITY RISK NO YES MARKET RISK NO YES FOREIGN EXCHANGE RISK YES NO CREDIT RISK NO YES CAPACITY UTILIZATION RISK NO YES GOVERNMENT POLICY RISK YES YES THE RISK PROFILE OF THE TAXPAYER VIS-A-VIS OTHER CO MPARABLES HAS BEEN DEALT WITH IN DETAIL LATER IN THIS ORDER UNDER THE HEAD 'RISK ADJUSTMENT' AND IN THE ORDERS PASSED FOR THE EARLIE R ASSESSMENT YEAR(S). IT(TP)A.1031/BANG/2011 PAGE - 53 45. IN OUR OPINION, CLAIM OF THE ASSESSEE THAT TECH NICAL SERVICES RENDERED BY IT TO THE HP GROUP ENTITIES WERE ALL OF LOWER END HAS NOT BEEN SUCCESSFULLY DEMONSTRATED BY IT. IT IS ALSO TRUE THAT TPO HAD N OT GONE DEEPER INTO THIS PARTICULAR CLAIM OF THE ASSESSEE. NO DOUBT HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD [SUPRA] HELD THAT EC LERX SERVICES LTD WAS TO BE EXCLUDED FROM BEING CONSIDERED AS A COMPARABLE TO A N ASSESSEE DOING LOWER END CALL CENTRE WORK. THIS TRIBUNAL IN THE CASE OF SYM PHONY MARKETING SOLUTIONS INDIA P. LTD (SUPRA) HAD ALSO CONSIDERED COMPARABI LITY OF INFOSYS BPO LTD AND MOLD-TEK TECHNOLOGIES LTD. IT WAS HELD THAT THESE COMPANIES WERE PROVIDING MARKET ANALYTICS AND DATA MANAGEMENT SERVICES. HOW EVER AS MENTIONED BY US AO / TPO HAD NOT VERIFIED WHETHER THE SERVICES PROV IDED BY ASSESSEE FELL WITHIN LOWER END OR UPPER END. WE THEREFORE SET ASIDE THE ISSUE OF COMPARING ECLERX SERVICES LTD, INFOSYS BPO LTD AND MOLD-TEK TECHNOLO GIES LTD BACK TO THE AO / TPO FOR CONSIDERING AFRESH AFTER PROPERLY ANALYSI NG THE SERVICES RENDERED BY THE ASSESSEE TO ITS AES IN THE ITES SEGMENT. ORDER ED ACCORDINGLY. 46. VIS-A-VIS WIPRO LTD (SEG) NO DOUBT, MUMBAI BENC H OF THIS TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES P. LTD, H ELD AS UNDER AT PARA 13 (XIV) : (XIV) WIPRO LTD (SEG ) : THE FACTS OF THIS COMPANY ARE SI MILAR TO THE FACTS OF INFOSYS BPO LTD. CONSIDERED BY US AT SL.NO.(VI). FOR THE SIMILAR REASON, THIS COMPANY IS ALSO DIRECTED TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. WHAT WE FIND IS THAT COORDINATE BENCH HAD FOLLOWED ITS OWN DIRECTIONS IN THE CASE OF INFOSYS BPO LTD. IN SO FAR AS COMPARABILIT Y OF INFOSYS BPO LTD IS IT(TP)A.1031/BANG/2011 PAGE - 54 CONCERNED, WE HAVE IN THE PRECEDING PARA REMITTED B ACK TO THE AO / TPO FOR CONSIDERATION AFRESH. HENCE CONSISTENCY REQUIRES T HAT COMPARABILITY OF WIPRO LTD (SEG) ALSO GO BACK TO THE AO / TPO, FOR CONSIDE RATION AFRESH IN ACCORDANCE WITH LAW. ORDERED ACCORDINGLY. 47. VIS-A-VIS MAPLE ESOLUTIONS LTD AND TRITON CORP LTD, IN THE VERY SAME DECISION OF STREAMLINE INTERNATIONAL SERVICES P. LT D (SUPRA), THIS TRIBUNAL HAD HELD AS UNDER AT PARA 13(I) AND 13(II) : (I) MAPLE ESOLUTIONS LTD.: - THE OP/TC OF THIS COMPANY IS 34.32%. IT IS THE SAY OF THE ID. COUNSEL FOR THE ASSESSEE THAT TH IS COMPANY WAS UNDER SERIOUS INDICTMENT IN FRAUD CASES. A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 IN ITA NO. 8997/MUM/2 010 SHOW THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COM PARABLES. RESPECTFULLY FOLLOWING THE PRECEDENT, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. (II) TRITON CORP. LTD.:- THE OP/TC OF THIS COMPANY IS 32 .36%. IT IS THE SAY OF THE ID. COUNSEL FOR THE ASSESSEE THAT TH IS COMPANY ALSO DESERVES TO BE EXCLUDED AS THE DIRECTORS OF THIS CO MPANY WERE INVOLVED IN FRAUD. THEREFORE, FINANCIAL RESULTS OF THE COMPANY ARE NOT RELIABLE. IN SUPPORT.. RELIANCE WAS PLACED ON THE D ECISION OF THE TRIBUNAL IN THE CASE CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO 1961/HYD/2011, CRM SERVICES INDIA (P) LTD. IN ITA NS 4068/(DEL)/2009, AVINCON INDIA PVT. LTD. IN ITA NO. 1989/MUM/2011 AN D MARKET TOOLS RESEARCH PVT. LTD. ON ITA NO. 2066/HYD /201L. WE HAVE PERUSED THE DECISIONS RELIED UPON BY THE I D. COUNSEL FOR ASSESSEE. WE FIND THAT WHENEVER A COMPANY OR IT S DIRECTORS ARE FOUND TO BE INVOLVED IN FRAUD, THE CO-ORDINATE BENCHES HAVE TAKEN A CONSISTENT VIEW OF EXCLUDING SUCH COMP ANY FROM THE FINAL LIST OF COMPARABLES AS THE FINANCIAL RESULTS ARE NOT RELIABLE. RESPECTFULLY FOLLOWING THIS CONSISTENT VI EW TAKEN BY THE TRIBUNAL, WE DIRECT THE EXCLUSION OF THIS COMPANY F ROM THE FINAL LIST OF COMPARABLES. IT(TP)A.1031/BANG/2011 PAGE - 55 SINCE THE PROMOTERS AND DIRECTORS OF THESE COMPANIE S WERE INVOLVED IN FRAUDS THERE IS MUCH STRENGTH IN THE ARGUMENT OF THE LD. A R THAT THEIR RESULTS WERE UNRELIABLE. HOWEVER, WE FIND THAT MAPLE E SOLUTION S LTD FORMED A PART OF ASSESSEES OWN TP STUDY. THEREFORE WHILE WE DIRECT EXCLUSION OF M/S. TRITON CORP LTD FROM THE LIST OF COMPARABLES, THE QUESTION OF EXCLUSION OF M/S. MAPLE E SOLUTION LTD IS REMITTED BACK TO THE AO / TPO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ORDERED ACCORDINGLY. 48. COMING TO CALIBER POINT BUSINESS SOLUTIONS LTD, H C L COMNET SYSTEMS & SERVICES LTD (SEG) AND R SYSTEMS INTERNATIONAL LT D (SEG), IT IS NOT DISPUTED THAT ACCOUNTING YEAR OF THESE COMPANIES WERE NOT FI NANCIAL YEAR, OR IN OTHER WORDS THE AUDITED ACCOUNTS AND ANNUAL REPORTS WERE NOT FOR AN YEAR ENDING 31.03.2007. COMPARABILITY OF A COMPANY HAVING A DI FFERENT YEAR THAN THE ONE FOLLOWED BY THE ASSESSEE, WAS AN ISSUE WHICH HAD CO ME UP BEFORE VARIOUS COORDINATE BENCHES OF THIS TRIBUNAL. IN THE CASE O F SANDSTONE CAPITAL ADVISORS P. LTD V. ACIT [ITA.6315/MUM/2012, DT.06.02.2013], MUMBAI BENCH OF THIS TRIBUNAL HAD HELD AS UNDER : 9.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE COMPANYS FINANCIAL ACCOUNTS ARE PREPARED ON 30.6.2 007; THEREFORE, THE DATA FOR THE ENTIRE FINANCIAL YEAR A RE NOT AVAILABLE AND ONLY FOR 3 MONTHS DATA WERE AVAILABLE. THEREFOR E, IN VIEW OF THE DECISION OF THE PUNE BENCHES OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD VS DCIT IN ITA NO. 4 /PN/08 VIDE ORDER DATED 10TH FEB 2009. THIS COMPANY MAY NO T BE CONSIDERED AS A COMPARABLE FOR WANT OF FINANCIAL RE SULTS FOR THE ENTIRE YEAR. 10 WE HAVE CONSIDERED THE RIVAL SUBMIS SIONS AND RELEVANT MATERIAL ON RECORD. THE TPO HAS REJECTED T HIS COMPARABLE BECAUSE THE FINANCIAL DATA FOR THE FINAN CIAL YEAR 2007-08 WERE NOT AVAILABLE IN THE PUBLIC DOMAIN AND HENCE, IT WAS HELD THAT THIS COMPANY IS NOT A SUITABLE COMPAR ABLE. THERE IS IT(TP)A.1031/BANG/2011 PAGE - 56 NO DISPUTE THAT THE DATA FURNISHED BY THE ASSESSEE ARE REGARDING THE FINANCIAL RESULTS AS ON 30.6.2007. THEREFORE, A S FAR AS THE FINANCIAL YEAR 2007-08 IS CONCERNED, THE DATA AVAIL ABLE WERE ONLY FOR 3 MONTHS. 10.1 AS PER RULE 10B(4), THE DATA TO BE USED IN ANALYSING THE COMPARABILITY OF AN UNCONTROLLED TRAN SACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELA TING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. THEREFORE, IT IS MANDATORY FOR THE PU RPOSE OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION W ITH AN INTERNATIONAL TRANSACTION THAT THE SAME SHOULD BE R ELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTI ON HAS BEEN ENTERED INTO. THE INFORMATION, DATA AND DOCUMENTS S HOULD BE CONTEMPORANEOUS. 49. THE VERY SAME BENCH IN THE CASE OF ACIT V. HAPA G LLOYD GLOBAL SERVICES P. LTD (SUPRA) HELD AS UNDER : 7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEND ED THAT UNLESS THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WITH THAT OF THE ASSESSEE, IT CANNOT BE CONSIDERED AS COMPARABLE BEC AUSE THE FIGURES OF DIFFERENT FINANCIAL YEAR ENDINGS ARE DISTORTED. HE RELIED ON AN ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVISORS PRIVATE LIMITED V. ACIT IN ITA NO.6315/MUM/ 2012. VIDE ITS ORDER DATED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING THE PRESCRIPTION OF RULE 10B(4) A ND AN ANOTHER CASE OF PUNE BENCH OF THE TRIBUNAL IN HONEYWELL AUT OMATION INDIA LTD., HAS HELD THAT IT IS MANDATORY FOR THE PURPOSE S OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNA TIONAL TRANSACTION THAT THE SAME MUST RELATE TO THE FINANCIAL YEAR END ING SIMILAR TO THAT OF THE ASSESSEE. THE LD. DR CONTENDED THAT SINCE TH E CASE OF CMC LIMITED HAS A DIFFERENT FINANCIAL YEAR ENDING VIS-A -VIS THAT OF THE ASSESSEE, THE SAME OUGHT TO HAVE BEEN EXCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ARGUMENT ADVANCED BY THE LD. DR IN THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE LD. AR. RESPECTFULLY FOLLOWING TH E PRECEDENT, WE HOLD THAT THIS CASE SHOULD BE EXCLUDED FROM THE LIS T OF COMPARABLES. IN THE CASE OF TELELOGIC INDIA P. LTD V. DCIT [ITA NO.166/MUM/2011, DT.18.05.2015, ALSO A SIMILAR VIEW WAS TAKEN. IT(TP)A.1031/BANG/2011 PAGE - 57 50. IN LINE WITH THE ABOVE ORDERS, WE DIRECT THE E XCLUSION OF CALIBRE POINT BUSINESS SOLUTIONS LTD, HCL COMNET SYSTEMS & SERVI CES LTD AND R. SYSTEMS INTERNATIONAL LTD, FROM THE LIST OF COMPARABLES IN ITES SEGMENT. 51. ACCORDINGLY WE DIRECT THE AO / TPO TO REWORK TH E AVERAGE PLI OF THE COMPARABLES AFTER CONSIDERING OUR DIRECTIONS AT PAR A 42 TO 49 ABOVE AND THEREAFTER MAKE AN ANALYSIS OF THE PRICING OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN THE ITES SEGMENT. ORDERED ACCORDIN GLY. 52. NOW WE SHALL CONSIDER THE CORPORATE TAX ISSUES RAISED VIDE GROUNDS 5 TO 10. IN GROUNDS 5 & 6 ASSSESSEE ASSAILS EXCLUSION O F EXPENDITURE INCURRED IN FOREIGN CURRENCY EXPENDITURE OF RS.3,361,467,945/-, WHILE WORKING OUT THE ELIGIBLE RELIEF U/S.10A OF THE ACT. ALTERNATIVELY IT PLEADS THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER HAS TO BE EXCLUDE D FROM THE TOTAL TURNOVER. 53. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. AS FOR THE CONTENTION OF THE ASSESSEE FOREIGN CURRENCY EXPENDI TURE OUGHT NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER, WE ARE UNABLE TO ACCEDE TO. THIS IS BECAUSE OF THE DEFINITION OF EXPORT TURNOVER GIVEN IN EXP LANATION 2 (IV) TO SECTION 10A DOES NOT WARRANT SUCH AN INTERPRETATION. HOWEVER I N RESPECT OF PARITY BETWEEN THE EXPORT TURNOVER AND TOTAL TURNOVER, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TAT A ELXSI LTD [349 ITR 98], ASSESSEE HAS TO SUCCEED. WE DIRECT THE AO / TPO TO EXCLUDE WHAT HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER FROM THE TOTAL TU RNOVER ALSO WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. GROUNDS 5 AND 6 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. IT(TP)A.1031/BANG/2011 PAGE - 58 54. VIDE ITS GROUND 7, GRIEVANCE OF THE ASSESSEE IS THAT SECTION 10A DEDUCTION WAS GIVEN TO IT AFTER SETTING OFF OF LOSS INCURRED BY CERTAIN UNDERTAKINGS, AGAINST THE PROFITS OF THE UNITS ON WHICH DEDUCTION U/S.10A WAS AVAILABLE. WE ARE OF THE OPINION THAT IN VIEW OF THE JUDGMENT OF HONBLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT (LTU) V. YOKOGAWA INDIA LTD [(2013) 341 ITR 0385], DEDUCTION / EXEMPTION GIVEN U/S.10A OF THE ACT HAS TO BE CONSIDERED INDEPENDENTLY WITHOUT SETTING OFF OF LOSS INCURRED IN OTHER UNDERTAKINGS OF THE ASSESSEE. ORDERED ACCORDINGLY. GROUND 7 IS TREATE D AS ALLOWED. 55. VIDE ITS GROUNDS 8 AND 9 GRIEVANCE RAISED BY TH E ASSESSEE IS THAT COST OF COMPUTER SOFTWARE AND HARDWARE WHICH WERE NOT OF EN DURING NATURE WAS STILL CONSIDERED AS ACQUISITION OF CAPITAL ASSET BY THE L OWER AUTHORITIES. ALTERNATIVELY ASSESSEE SUBMITS THAT IF THESE ARE CONSIDERED AS CA PITAL ASSET THEN DEPRECIATION HAD TO BE GIVEN. 56. WE HAVE HEARD THE RIVAL CONTENTIONS. ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT COMPUTER SOFTWARE AND RELATED HARDWA RE ACQUIRED BY IT DID NOT GIVE IT THE BENEFIT OF ENDURING NATURE. HOWEVER WE ARE OF THE OPINION THAT ONCE IT WAS TREATED AS A PART OF COMPUTER, ASSESSEE WAS ELIGIBLE FOR DEPRECIATION AT 60%. ORDERED ACCORDINGLY, GROUNDS 8 AND 9 ARE TREA TED AS PARTLY ALLOWED. 56. GRIEVANCE RAISED BY THE ASSESSEE IN ITS GROUND 10 IS THAT INTEREST INCOME EARNED BY IT WAS CONSIDERED AS INCOME FROM OTHER SO URCES REJECTING ITS CONTENTION THAT IT WAS NOTHING BUT PROFITS AND GAIN S FROM BUSINESS OR PROFESSION. IT(TP)A.1031/BANG/2011 PAGE - 59 58. WE HAVE HEARD THE LD. AR. ASSESSEE IN OUR OPIN ION HAS NOT BEEN ABLE TO SHOW THE NEXUS OF ITS INTEREST INCOME WITH ITS BUSI NESS ACTIVITIES. UNLESS NEXUS WITH BUSINESS IS SHOWN BY THE ASSESSEE, INTEREST IN COME WILL ALWAYS FALL UNDER THE HEAD INCOME FROM OTHER SOURCES. WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDERS OF LOWER AUTHORITIES IN THIS ASPECT . GROUND 10 IS DISMISSED. 59. GROUNDS 4, 11 AND 12 OF THE ASSESSEE ARE CONSEQ UENTIAL AND DO NOT NEED ANY SPECIFIC ADJUDICATION. 60. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD DAY OF S EPTEMBER, 2015. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTA NT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR