DCIT, Bangalore V. M/s Independent Technology Systems (India) Pvt. Ltd., Bangalore

ITA 1086/BANG/2013

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2168 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Assessee Lawyers: P K PRADEEP
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Question of law
• Section: 92; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER IT (TP) A NO. 1086/BANG/2013 ASSESSMENT Y EAR : 2008 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), BANGALORE. VS. M/S. CSG SYSTEMS INTERNATIONAL PVT. LTD., [FORMERLY KNOWN AS M/S. INDEPENDENT TECHNOLOGY SYSTEMS (INDIA) PVT. LTD.], DIVYASHREE TOWER, 4 TH FLOOR, NO.55, GURUPPANNA PALYA, MADIVALA RANGE, BANGALORE 560 029. PAN: AABCI 2954B APP E LL ANT RESPONDENT CO NO.159/BANG/2015 [IN IT(TP)A NO.1086/BANG/2013] ASSESSMENT YEAR : 2008 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), BANGALORE. VS. M/S. CSG SYSTEMS INTERNATIONAL PVT. LTD., BANGALORE 560 029. PAN: AABCI 2954B CROSS OBJECTOR RESPONDENT REVENUE BY : SMT. SREENANDINI DAS, ADDL.CIT(DR)(ITAT), BENGALURU . ASSESSEE BY : SHRI P.K. PRADEEP, ADVOCATE DATE OF HEARING : 30.10 .201 8 DATE OF PRONOUNCEMENT : 16 .11. 201 8 IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 2 OF 40 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT(TP)A NO.1086/BANG/2013 IS AN APPEAL BY THE RE VENUE, WHILE CO NO.159/BANG/2015 IS A CROSS OBJECTION FILED BY THE ASSESSEE. THE APPEAL BY THE REVENUE AND THE CO BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDER OF THE CIT(APPEALS)-IV, BENGALURU DATED 22.04.2013 RELATING TO ASSESSMENT YEAR 2008-09. 2. GROUNDS NO.1 TO 8 RAISED BY THE REVENUE IN ITS APPEAL AND GROUNDS NO.1 TO 13 RAISED BY THE ASSESSEE IN ITS CO ARE WIT H REGARD TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPEC T OF AN INTERNATIONAL TRANSACTION OF RENDERING SOFTWARE DEVELOPMENT SERVI CES BY THE ASSESSEE TO ITS AE. THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE WAS A SUM OF RS.47,9 1,29,509. SINCE THE TRANSACTION BETWEEN THE ASSESSEE AND ITS AE WAS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92 OF THE INCOME-TAX ACT, 1961 [THE ACT], THE CONSIDERATION RECEIVED BY THE ASSE SSEE IN THE SAID INTERNATIONAL TRANSACTION HAS TO PASS THE ARMS LEN GTH TEST. TO JUSTIFY THE PRICE RECEIVED IN THE INTERNATIONAL TRANSACTION AS AT ARMS LENGTH, THE ASSESSEE FILED A TRANSFER PRICING STUDY IN WHICH IT ADOPTED TNMM AS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP. T HE PROFIT LEVEL INDICATOR (PLI) CHOSEN FOR THE PURPOSE OF COMPARISO N WAS OP TO OC. THE OP TO OC IN THE SOFTWARE DEVELOPMENT SEGMENT WAS AS FOLLOWS:- DESCRIPTION SOFTWARE DEVELOPMENT (RS.) OPERATING REVENUE (OR) 479579514 OPERATING COST (OC)_ 456566084 OPERATING PROFIT (OP) 23013430 OP / OC 5% IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 3 OF 40 3. THE ASSESSEE CHOSE 16 COMPARABLE COMPANIES WHOSE ARITHMETIC MEAN OF PROFIT MARGIN WAS 12%. THE AO MADE A REFER ENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ALP IN A CCORDANCE WITH THE PROVISIONS OF SECTION 92CA OF THE ACT. THE TPO REJ ECTED THE TP STUDY FILED BY THE ASSESSEE. THE TPO ACCEPTED 3 OF THE COMPARAB LE COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP STUDY AND ON HIS O WN MADE A SEARCH OF THE DATABASE AND IDENTIFIED 17 MORE COMPANIES RESUL TING IN A SET OF 20 COMPARABLE COMPANIES. THE AVERAGE ARITHMETIC MEAN OF THE 20 COMPARABLE COMPANIES CHOSEN BY THE TPO WAS AS FOLLO WS:- SL. NO. NAME OF THE COMPANY OP/TC % 1 AVANI CINCOM TECHNOLOGIES 25.62 2 BODHTREE CONSULTING LTD. 18.72 3 CELESTIAL BIOLABS 87.94 4 E - ZEST SOLUTIONS LTD. 29.81 5 FLEXTRONICS (ARICENT) 7.86 6 IGATE GLOBAL SOLUTION LTD. 13.99 7 INFOSYS 40.37 8 KALS INFORMATION SYSTEMS LTD. (SEG) 41.94 9 LGS GLOBAL LTD. 27.52 10 MINDTREE LTD. (SEG) 16.41 11 PERSISTENT SYSTEMS LTD. 20.31 12 QUINTEGRA SOLUTIONS LTD. 21.74 13 R SYSTEMS INTERNATIONAL (SEG.) 1 5.30 14 R S SOFTWARE (INDIA) LTD. 7.41 15 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 7.58 16 TATA ELXSI (SEG) 18.97 17 THIRDWARE SOLUTION LTD. 19.35 18 WIPRO LTD. (SEG) 28.45 19 SOFTSOL INDIA LTD. 17.89 20 LUCID SOFTWARE LTD. 16.50 AVERAGE 23 .6 5 IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 4 OF 40 4. AFTER PROVIDING FOR WORKING CAPITAL ADJUSTMENT, THE TPO COMPUTED THE SHORTFALL IN THE PRICE CHARGED ON THE BASIS OF ARMS LENGTH PRICE AND SUGGESTED AN ADDITION OF RS.5,42,83,208 TO THE TOTA L INCOME OF THE ASSESSEE ON ACCOUNT OF ADJUSTMENT U/S. 92CA OF THE ACT. THE FOLLOWING WAS THE MANNER OF COMPUTATION OF THE ADDITION BY TH E TPO:- '4.4. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER: ARM'S LENGTH MEAN MARGIN ON COST 23.65% LESS: WORKING CAPITAL ADJUSTMENT (AS PER AN NE XURE - C) 6.72% ADJUSTED MEAN MARGIN OF THE COMPARABLES 16.93% OPERATING COST 45,65,66,084 ARMS LENGTH PRICE(ALP) 116.93% OF OPERATING COST 53,38,62,722 PRICE RECEIVED 47,95,79,515 SHORT FALL BEING ADJUSTMENT U/S.92CA 5,42,83,208 THE ABOVE SHORTFALL OF RS.5,42,83,208/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT OF THE TAXPAYER'S INTERNATIONAL TRANSACTION S. 5. AGGRIEVED BY THE AFORESAID ADDITION MADE CONSEQU ENT TO THE DETERMINATION OF ALP, THE ASSESSEE FILED APPEAL BEF ORE THE CIT(APPEALS). THE CIT(APPEALS) EXCLUDED 9 OUT OF 20 COMPARABLE CO MPANIES, CHOSEN BY THE TPO, THE DETAILS OF WHICH ARE AS FOLLOWS:- IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 5 OF 40 SL. NO. NAME OF THE COMPANY TURNOVER (RS.CRORE) OP/TC ( % ) 1 CELESTIAL BIOLABS LTD. 20.21 87 .9 4 2 FLEXTRONICS LTD. 954.42 7.86 3 IGATE GLOBAL SOLUTIONS LTD. 781.56 13.99 4 INFOSYS TECHNOLOGIES LTD. 15,672.00 40.37 5 MINDTREE CONSULTING LTD. (SEGMENT) 572.97 16.41 6 PERSISTENT SYSTEMS LTD. 383.41 20.31 7 TATA ELXSI LTD. 342.86 18.97 8 WIPRO L IMITED (SEGMENT) 1,955.56 28.45 9 SASKEN COMMUNICATION TECH. LTD. (SEGMENT) 335.80 7.58 6. OUT OF THE AFORESAID 9 COMPANIES, CELESTIAL BIO LABS LTD. WAS EXCLUDED FOR THE REASON THAT IT HAD ABNORMAL PROFIT S. THE REMAINING 8 COMPANIES WERE EXCLUDED FOR THE REASON THAT THEY HA D TURNOVER OF ABOUT 200 CRORES AND IN VIEW OF THEIR SIZE, THEY WERE NOT COMPARABLE WITH THE ASSESSEE. THE CIT(APPEALS) IN COMING TO THE AFORES AID CONCLUSION ON THE APPLICATION OF HIGH TURNOVER OF COMPARABLE COMPANY BEING A REASON FOR EXCLUDING COMPANIES WITH HIGH TURNOVER OF OVER RS.2 00 CRORES COMPARED TO TURNOVER OF THE ASSESSEE WHICH WAS ONLY RS.48 CRORE S, THE CIT(A) OBSERVED THAT THE TPO HAS ON HIS OWN APPLIED A FIL TER OF EXCLUDING COMPANIES WHOSE TURNOVER WAS LESS THAN RS.1 CRORES ON THE GROUND THAT THESE COMPANIES DID NOT REPRESENT THE INDUSTRY TREN D AS THEIR LOW COST TO SALES RATIOS MADE THEIR RESULTS UNRELIABLE. CONTRA RY TO THIS STAND THE TPO HAS SELECTED CERTAIN COMPANIES FOR COMPARISON, HOLD ING THAT HIGHER TURNOVER DOES NOT HAVE A BEARING ON PROFITABILITY. THE CIT(A) WAS OF THE VIEW THAT CONTRADICTORY POSITION TAKEN BY THE TPO W AS UNACCEPTABLE. HE HELD THAT A TRANSACTION ENTERED INTO BY A RS 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THAT ENTERED INTO BY A RS. 10 CRORE C OMPANY, AS THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIES OF SCA LE UNDER WHICH - THEY OPERATE MAKE A SIGNIFICANT DIFFERENCE TO THEIR BUSI NESSES. THE CIT(A) IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 6 OF 40 PLACED RELIANCE ON THE DECISION OF THE JURISDICTION AL BENCH OF THE ITAT IN THE CASE OF GENISYS INTEGRATING SYSTEMS (INDIA) (P.) LT D. V. DCIT [20121 53 SOT 159 (BANG) WHERE IT HAS BEEN HELD THAT WHEN THE RE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES, THERE IS NO REASON WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO, AS SIZE MATTERS IN BUSINESS. HE ALSO RELIED ON THE ITAT'S OBSERVATION IN THE ABOVE CASE WHEREIN IT WAS HELD THAT WHILE A BIG COMPANY WOULD BE IN A POSITION TO BARGA IN THE PRICE, ATTRACT MORE CUSTOMERS AND HAVE A BROAD BASE OF SKILLED EMP LOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT, A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCI NG PROFIT MARGIN. HE ALSO RELIED ON THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF SONY INDIA (P.) LTD. V. DCIT 120081 114 ITD 448 (DEL) WHEREIN IT WAS HELD THAT THE OBJECTION OF ASSESSEE ON INCLUSION OF A COMPARABLE WHEN THE DISTINCTIVE DIFFERENCES LIKE SIZE AND TURNOVER MATERIALLY AFFEC T PERFORMANCE OR PRICES OF PRODUCTS, SHOULD BE ACCEPTED. RELIANCE WAS ALSO PL ACED ON THE DECISION IN THE CASE OF DELOITTE CONSULTING INDIA PVT. LTD. V. DCIT (ITA NO 1082/HYD/2010) WHEREIN IT WAS HELD THAT IN THE EVEN T OF USE OF THE TPO'S FILTER OF A TURNOVER OF LESS THAN RS. 1 CRORE, IT W OULD BE APPROPRIATE TO REJECT COMPANIES HAVING HIGHER SALES TURNOVER AS WELL TO N EUTRALISE THE IMPACT OF BOTH LOW AND HIGH TURNOVER COMPANIES AND TO PROVIDE A MORE RELIABLE RESULT. 7. WITH REGARD TO COMPANIES WHICH WERE LOSS MAKING OR MAKING SUPER PROFITS, HE HELD THAT SUCH COMPANIES SHOULD ALSO BE EXCLUDED, AS THESE LOSSES OR PROFITS COULD BE DUE TO OTHER FACTORS. 8. THE CIT(APPEALS) ALSO EXCLUDED M/S. INDUS NETWO RKS LTD. AS A COMPARABLE COMPANY. THIS COMPANY WAS CHOSEN AS COM PARABLE COMPANY BY THE ASSESSEE IN ITS TP STUDY, BUT WAS REJECTED B Y THE TPO AS A COMPARABLE COMPANY FOR THE REASON THAT IT FAILS THE FILTER OF EMPLOYEE COST IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 7 OF 40 BEING GREATER THAN 25% OF THE REVENUE OF THE ASSESS EE. THE CIT(APPEALS) HELD THAT WHEN THE ALP IS DETERMINED USING TNMM, CO ST IS NOT A RELEVANT FACTOR AND ONLY THE NET MARGIN OF THE TESTED PARTY HAS TO BE CONSIDERED WITHOUT LOOKING TO THE NEW ELEMENT OF COST. THE CI T(A) GAVE THE FOLLOWING REASONS FOR NOT ACCEPTING THE AFORESAID FILTER, (I) EMPLOYEE COST MAY VARY FROM YEAR TO YEAR DEPENDING ON A VARIETY OF FACTORS LIKE COMPETITION IN THE LABOUR AND SERVICES MARKETS, SUPPLY OF SKILLED MANP OWER IN THE INDUSTRY AS A WHOLE AND TO THE APPELLANT'S COMPANY IN PARTICULA R, DEMAND FOR THE COMPANY'S SERVICES, THE GEOGRAPHIC LOCATION OF THE COMPANY'S CLIENTS, THE NATURE OF PROJECTS UNDERTAKEN, ETC. THUS NO PARTICU LAR LEVEL OF EMPLOYEE COST CAN BE HELD AS A STANDARD OR A NORMAL LEVEL AN D COMPANIES WHICH ARE FUNCTIONALLY SIMILAR MAY HAVE DIFFERING LEVELS OF E MPLOYEE COSTS. (II) SECONDLY, IN THE ABSENCE OF ANY GENERAL ACCOUNTING NORMS GOVERNING THE DISCLOSURE OF EMPLOYEE COSTS IN THE PROFIT AND LOSS ACCOUNT, SOME COMPANIES MAY SHOW EMPLOYEE COSTS AS A SEPARATE ITE M IN THEIR FINANCIAL STATEMENTS, WHILE SOME OTHERS MAY AGGREGATE IT UNDE R OTHER HEADS SUCH AS ADMINISTRATIVE EXPENSES, SALES AND MARKETING EXPENS ES, ETC., AND YET OTHER COMPANIES MAY CLASSIFY EMPLOYEE-RELATED EXPENSES LI KE STAFF WELFARE, ETC., UNDER VARIOUS OPERATING, ADMINISTRATIVE, OR SOFTWAR E DEVELOPMENT EXPENSES, AND NOT NECESSARILY AS PERSONNEL EXPENSES . AS COMPANIES FOLLOW DIFFERENT OPERATING MODELS TO CARRY ON BUSIN ESS, MANY OF THEM MAY CHOOSE TO OUTSOURCE THEIR SERVICES RATHER THAN EMPL OY THEIR OWN PERSONNEL AND THE OUTSOURCING COSTS MAY BE REFLECTED IN FINAN CIAL STATEMENTS AS LIKE LEGAL AND PROFESSIONAL SERVICES COSTS, CONTRACT CHA RGES, ETC. THERE IS NO COMPREHENSIVE AND EXHAUSTIVE WAY OF ENSURING THAT A LL EMPLOYEE COSTS ARE TRACKED AND IDENTIFIED AS SUCH. (III) THE RATIO OF WAGES TO TOTAL COST MAY VARY FOR VARIOUS REASONS LIKE INDUSTRY OR COMPANY P OLICY, PHASE IN WHICH A COMPANY IS CURRENTLY OPERATING, ITS BUSINESS STRATE GY, ETC. THE RATIO MAY IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 8 OF 40 NOT ALWAYS HAVE A DIRECT CORRELATION WITH THE NATUR E OF BUSINESS ACTIVITIES OR PROFITABILITY OF COMPANIES. HE ALSO RELIED ON THE D ECISION OF ITAT DELHI IN THE CASE OF MENTOR GRAPHICS (NOIDA) PVT. LTD'S CASE (2007-TIOL-382-ITAT- DEL), WHEREIN IT WAS HELD THAT INSISTING ON LOW EMP LOYEE COST IS NOT A VERY CREDIBLE OR RATIONAL SELECTION CRITERION AND. AS EM PLOYEE COST IS LOW OR SIMILAR THROUGHOUT INDIA, THIS IS NOT A FACTOR WHIC H WOULD MAKE A MATERIAL DIFFERENCE. HE WAS OF THE VIEW THAT WHEN TNMM IS A DOPTED AS THE MOST APPROPRIATE METHOD FOR DETERMINATION OF ALP, ONLY T HE NET MARGIN OF THE TESTED PARTY HAS TO BE CONSIDERED RELATIVE TO AN AP PROPRIATE BASE (TOTAL COST IN THIS CASE), WITHOUT LOOKING INTO INDIVIDUAL ELEM ENTS OF COST, AS ALL DIRECT AND INDIRECT COSTS OF OPERATION ARE AGGREGATED, IRR ESPECTIVE OF THEIR CLASSIFICATION AND COMPOSITION. 9. THE CIT(APPEALS) ALSO HELD THAT AVANI CINCOM TEC HNOLOGIES LTD. AND KALS INFORMATION SYSTEMS LTD. CANNOT BE TAKEN A S A COMPARABLE COMPANY BY FOLLOWING THE DECISION OF THE ITAT BANGA LORE BENCH IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE (I) P. LTD. V. DCIT IN ITA NO.1054/BANG/2011 AND THE REASON GIVEN IN THE SAID ORDER OF THE TRIBU NAL IS THAT BOTH THE AFORESAID COMPANIES WERE SOFTWARE SERVICES COMPANY AS WELL AS SOFTWARE PRODUCTS COMPANY AND THE SEGMENTAL DETAILS OF SOFTWARE SERVICES AND SOFTWARE PRODUCTS WAS NOT AVAILABLE. 10. THE CIT(APPEALS) ALSO EXCLUDED BODHTREE CONSULT ING LTD. AS A COMPARABLE COMPANY FOR THE REASON THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT AND WAS IN INFORMATION TECHNOLOGY ENABLE SERVICES (ITES). HE HELD THAT THIS COMPANY WAS ENGAGED IN PRODUCT DEVEL OPMENT, AS EVIDENCED BY THE DISCLOSURES AVAILABLE ON ITS WEBSITE WWW.BODBTREE.COM AND THAT THE WEBSITE MENTIONS THAT THE COMPANY OFFERS PRODUCT SO LUTIONS IN THE AREAS OF DATA QUALITY, BUSINESS INTELLIGENCE, AND LIFE SCIEN CES TO A REPUTED IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 9 OF 40 CUSTOMER BASE WORLDWIDE AND ITS PRODUCTS INCLUDE SP END DATA MANAGEMENT SOLUTION (SDMS), MULTI INDUSTRY DATA ANO MALY SOLUTION (MIDAS), DATA CLEANSING AND INTEGRATION SOFTWARE, P ATENT ASSET MANAGEMENT (PAM), AND PATENT SEARCH AND PATENT ANAL YSIS TOOL (PSPAT). HE ALSO RELIED ON THE REPLY OF THIS COMPA NY IN RESPONSE TO THE NOTICE UNDER SECTION 133(6) ISSUED BY THE TPO THAT ITS SERVICES CAN BE CATEGORIZED AS SOFTWARE DEVELOPMENT AND INFORMATION TECHNOLOGY ENABLED SERVICES (ITES), AS IT PROVIDES DATA CLEANSING SERV ICES TO ITS CLIENTS. THE CIT(A) RELIED ON THE CBDT NOTIFICATION NO: SO 890(E ), DATED 26.09.2000, WHICH SPECIFIES AS ITES SERVICES SUCH AS BACK-OFFIC E OPERATIONS, CALL CENTRES, CONTENT DEVELOPMENT, ANIMATION, DATA PROCE SSING, ENGINEERING AND DESIGN, GEOGRAPHIC INFORMATION SYSTEM, HUMAN RESOUR CE, INSURANCE CLAIMS PROCESSING, LEGAL DATABASES, MEDICAL TRANSCRIPTION, PAYROLL, REMOTE MAINTENANCE, REVENUE ACCOUNTING, SUPPORT CENTRES, A ND WEB-SITE SERVICES. GIVEN THESE FACTS AND IN THE LIGHT OF THE FACT THAT NO BREAK UP OF SEGMENTAL REVENUE WAS AVAILABLE, THE CIT(A) HELD THAT THIS CO MPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE APPELLANT AND FAILS THE FUNCTIONALITY FILTER SET BY THE TPO. 11. AGAINST EXCLUSION OF THE AFORESAID COMPANIES A ND INCLUSION OF INDUS NETWORKS LTD., THE REVENUE HAS RAISED GROUND NOS. 1 TO 8 BEFORE THE TRIBUNAL WHICH READS AS FOLLOWS:- 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN ERRED IN EXCLUDING M /S. CELESTIAL BIOLABS LTD., M/S. FLEXTRONICS LTD., IGAT E GLOBAL SOLUTIONS LTD., M/S. INFOSYS TECHNOLOGY LTD., MINDT REE LTD., PERSISTENT SYSTEMS LTD., SASKEN COMMUNICATION TECHN OLOGIES IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 10 OF 40 LTD., TATA ELXSI LTD AND WIPRO LTD AS COMPARABLES H OLDING THAT THE SIZE AND TURNOVER OF THE COMPANY ARE DECIDING FACTO RS FOR TREATING A COMPANY AS A COMPARABLE 3. THE LD.CIT(A) ERRED IN REJECTING THE DIMINISHING REVENUE FILTER USED 1W THE I-130 TO EXCLUDE COMPANIES THAT DO NOT REFLECT THE NORMAL INDUSTRY TREND. 4. THE LD.CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE DIFFERENT YEAR ENDING FILTER APPLIED BY THE TPO IS NECESSARY TO EXCLUDE COMPANIES WHICH DO NOT HAVE THE SAME OR COM PARABLE FINANCIAL CYCLE AS THE TESTED PARTY . 5. THE LD. CIT(A) ERRED IN INCLUDING M/S. INDUS NET WORKS LTD AS A COMPARABLE REJECTING THE EMPLOYEE COST FIL TER APPLIED BY THE TPO TO SELECT COMPANIES WHICH ARE PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES. 6. THE LD. CIT(A) ERRED IN REJECTING THE EMPLOYEE C OST FILTER APPLIED BY THE TPO) TO SELECT COMPANIES WHICH ARE P REDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES . 7. THE LEARNED CIT (A), ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE. ERRED IN HOLDING THAT M/S. AVANI CIMCO N TECHNOLOGIES AND KA LS INFORMATION SYSTEMS CANNOT BE TAKEN AS C OMPARABLES. 8. THE LEARNED CIT (A). ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE. ERRED IN HOLDING THAT M/S. BODHTREE CO NSULTING LTD BEING FUNCTIONALLY DIFFERENT. CANNOT BE TAKEN AS CO MPARABLES. 12. AS FAR AS THE ASSESSEES CO IS CONCERNED, GROUN DS NO. 1 TO 8 RAISED IN THE CO ARE GENERAL AND NO ARGUMENTS WERE RAISED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING AND THEREFORE T HESE GROUNDS DO NOT REQUIRE ANY ADJUDICATION. 13. IN GROUND NOS. 9 TO 13, THE ASSESSEE HAS CHALLE NGED THE ACTION OF THE CIT(APPEALS) IN ACCEPTING THE FOLLOWING COMPANI ES AS COMPARABLE IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 11 OF 40 COMPANIES BY THE CIT(APPEALS). VIZ., LUCID SOFTWARE LTD., QUINTEGRA SOLUTIONS LTD., THIRDWARE SOLUTIONS LTD. AND E-ZEST SOLUTIONS LTD. THE ASSESSEE HAS ALSO CHALLENGED THE NON-INCLUSION OF C OMPUTECH INTERNATIONAL LTD. AS A COMPARABLE COMPANY. GROUND NOS. 9 TO 13 RAISED BY THE ASSESSEE IN ITS CO READS AS FOLLOWS:- 9. THAT THE DECISION OF THE LEARNED CIT(A) IS BAD IN LAW AND ON FACTS WHILE UPHOLDING THE ACTION OF THE LEARNED TPO OF ACCEPTING CERTAIN COMPANIES (LUCID SOFTWARE LIMITED , QUINTEGRA SOLUTION LIMITED AND THIRDWARE SOLUTIONS LIMITED) T HAT FAIL THE TEST OF COMPARABILITY, AS COMPARABLE TO THE RESPOND ENT IN RESPECT OF ITS SOFTWARE DEVELOPMENT SERVICES. 10. THAT THE LEARNED TPO ERRED IN ACCEPTING E-ZEST SOLUTIONS LIMITED, WHICH FAILS THE TEST OF COMPARABILITY, AS COMPARABLE TO THE RESPONDENT IN RESPECT OF ITS SOFTWARE DEVELOPMENT S ERVICES. 11. THAT THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT CERTAIN COMPANIES (FLEXTRONICS LTD, INFOSYS TECHNOLOGIES LT D, PERSISTENT SYSTEMS LTD, SASKEN COMMUNICATION TECH LTD, WIPRO L IMITED (SEG) AND TATA ELXI LIMITED) FAIL THE TEST OF COMPA RABILITY, EVEN APART FROM HAVING A TURNOVER > RS. 200 CRORES AND T HUS NOT COMPARABLE TO THE RESPONDENT IN RESPECT OF ITS SOFT WARE DEVELOPMENT SERVICE SEGMENT. 12. THAT THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT CELESTIAL BIOLABS LTD FAILS THE TEST OF COMPARABILITY, EVEN A PART FROM HAVING ABNORMALLY HIGH MARGIN AND THUS NOT COMPARABLE TO T HE RESPONDENT IN RESPECT OF ITS SOFTWARE DEVELOPMENT S ERVICE SEGMENT. 13. THAT THE LEARNED CIT(A) OUGHT TO HAVE HELD COMP UTECH INTERNATIONAL LIMITED AS A COMPARABLE ON THE REJECT ION OF THE EMPLOYEE COST FILTER AS APPLIED BY THE LEARNED TPO. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 12 OF 40 14. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE AND THE LD. DR ON THE GROUNDS OF APPEAL IN THE REVE NUES APPEAL AND GROUNDS RAISED BY THE ASSESSEE IN ITS CO. 15. AS FAR AS GROUNDS BY THE REVENUE ARE CONCERNED, THE FIRST OBJECTION OF THE LD. DR WAS THAT TURNOVER CANNOT BE A RELEVAN T CRITERION IN CHOOSING COMPARABLE COMPANIES AND IN THIS REGARD PLACED RELI ANCE ON THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CHRYS CAPITAL LTD.,82 TAXMANN.COM 167(DEL). SIMILAR OBJECTION WAS RAISED BY THE REVENUE IN ONE OF THE CASE DECIDED BY THIS TRIBUNAL IN AUTODESK INDIA PVT.LTD. VS. DCIT IN IT IT(TP)A NOS. 540 & 541/BANG/2013 ORDER D ATED 06.2018 . THE FOLLOWING DISCUSSION ON THE ISSUE OF APPLICATIO N OF TURNOVER FILTER, WOULD BE SOME RELEVANCE. ON THE VARIOUS ASPECTS OF APPLIC ATION OF TURNOVER FILTER, THIS TRIBUNAL HAS ALREADY PRONOUNCED A DECISION WHI CH IS AS FOLLOWS:- 17. THE FIRST ISSUE TO BE DECIDED IN REVENUES AP PEAL IS THE APPLICATION OF TURNOVER FILTER FOR EXCLUSION OF COM PANIES THAT ARE OTHERWISE FOUND TO BE FUNCTIONALLY COMPARABLE. THE GRIEVANCE OF THE REVENUE IN THIS REGARD IS PROJECTED IN GR.NO.2 OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITS APPEAL. THE BA SIC FACTS TO BE NOTICED WITH REGARD APPLICATION OF TURNOVER FILTER ARE THAT THE ASSESSEES TURNOVER FOR THE RELEVANT PREVIOUS YEAR WAS RS.10.65 CRORES. THE TPO EXCLUDED FROM THE LIST OF COMPARAB LE COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP STUDY COMPANIES WH OSE TURNOVER WAS LESS THAN RS.1 CRORE. THE CONTENTION OF THE AS SESSEE BEFORE THE CIT(A) WAS THAT WHILE THE TPO EXCLUDED COMPANIE S WITH LOW TURNOVER, HE FAILED TO APPLY THE SAME YARDSTICK TO EXCLUDE COMPANIES WITH HIGH TURNOVER COMPARED TO THE ASSESS EE. THE REASON FOR EXCLUDING COMPANIES WITH LOW TURNOVER WA S THAT SUCH COMPANIES DO NOT REFLECT THE INDUSTRY TREND AS THEI R LOW COST TO SALES RATIO MADE THEIR RESULTS LESS RELIABLE. THE CONTENTION OF THE ASSESSEE WAS THAT THERE WOULD BE EFFECT ON PROFITAB ILITY WHEREVER THERE IS HIGH OR LOW TURNOVER AND THEREFORE COMPANI ES WITH HIGH TURNOVER SHOULD ALSO BE EXCLUDED FROM THE LIST OF C OMPARABLE IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 13 OF 40 COMPANIES. THE CIT(A) AGREED WITH THE SUBMISSION OF THE ASSESSEE AND HE EXCLUDED THE FOLLOWING 5 COMPANIES WHOSE TURNOVER WAS ABOVE RS.200 CRORES FROM THE LIST OF C OMPARABLE COMPANIES, VIZ., (I) FLEXTRONICS LTD., (II) L & T I NFOTECH LTD., (III) M/S. INFOSYS TECHNOLOGIES LTD., (IV) SATYAM COMPUTE R SERVICES LTD., (V) IGATE GLOBAL SOLUTIONS LTD. THE CIT(A) IN COMING TO THE ABOVE CONCLUSION PLACED RELIANCE ON THE DECISION OF THE ITAT BANGALORE IN THE CASE OF GENISYS INTEGRATING SYSTEM S (INDIA) (P) LTD. VS. DCIT (2012) 53 SOT 159 (BANG.) WHEREIN IT WAS HELD WHEN THERE IS A LIMIT FOR THE LOWER END FOR IDENTIF YING THE COMPARABLE COMPANIES, THERE IS NO REASON WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO, AS SIZE MATTERS IN BUSINESS. 17.1. THE LEARNED DR SUBMITTED THAT HIGH TURNOVER IS NOT A RELEVANT CRITERION TO REGARD A COMPANY AS NOT COMPA RABLE, SO LONG AS THE TWO COMPANIES ARE FUNCTIONALLY COMPARABLE. IF FUNCTIONS BY TWO COMPANIES ARE IDENTICAL THEN THEY HAVE TO BE RE GARDED AS COMPARABLE. ACCORDING TO HIM THEREFORE THE CIT(A) WAS NOT JUSTIFIED IN EXCLUDING 5 COMPANIES ON THE GROUND TH AT THEIR TURNOVER WAS ABOVE RS.200 CRORES AND CANNOT BE COMP ARED WITH THE ASSESSEE WHOSE TURNOVER WAS AROUND RS.10.65 CRO RES. IN SUPPORT OF HIS CONTENTION THE LEARNED DR PLACED REL IANCE ON THE FOLLOWING DECISIONS: SL. NO. NAME OF THE CASE CITATION RELEVANT PARAGRAPH 1. M/S.NTT DATA GLOBAL DELIVERY SERVICES LTD. VS. ACIT IT(TP)A NO. 1487/BANG/2013 AY 2005-06 ORDER DATED 6.4.2016 23 & 24 2. LSI TECHNOLOGIES INDIA PVT. LTD. VS. THE ITO IT(TP)A.NOS. 1380 & 1381/BANG/2010, AY 2006-07 ORDER DATED 13.5.2016 14.3 2. M/S. SOCIETE GENERALE GLOBAL SOLUTION CENTRE PVT.LTD. VS. DCIT IT(TP) A.NO.1188/BANG/2011 FOR AY 2007-08 ORDER DATED 22.4.2016 10 5. WILLIS PROCESSING SERVICES (I) (P)LTD. VS. DCIT (2013)30 TAMANN.COM 350 (MUMBAI-TRIBUNAL) FOR AY 2007-08 ORDER DATED 1.3.2013 47 6. CAPGEMINI INDIA ITA NO.7861/MUM/2011 FOR 4.3 IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 14 OF 40 PVT. LTD. VS. ACIT AY 2007-08 ORDER DATED 28.2.2013 17.2. THE LEARNED DR ALSO FILED BEFORE US A NOTE CONTENDING THAT IN SOFTWARE INDUSTRY, SIZE HAS NO INFLUENCE ON THE MARGINS EARNED BY AN ENTITY. ACCORDING TO HIM ECONOMIES OF SCALE ARE RELEVANT ONLY IN CAPITAL INTENSIVE COMPANIES WHICH HAVE SUBS TANTIAL FIXED ASSETS IN THE FORM OF PLANT AND MACHINERY. ACCORDI NG TO HIM, IN SOFTWARE INDUSTRY, SIZE DOES NOT MATTER, WHAT MATTE RS IS THE HUMAN CAPITAL. ACCORDING TO HIM APPLICATION OF THE FILTE R OF TURNOVER MIGHT BE JUSTIFIED FOR EXCLUDING COMPANIES WITH LOW TURNOVER OF SAY RS.1 CRORE OR LESS BECAUSE THE MARGIN EARNED BY THESE COMPANIES MIGHT WIDELY FLUCTUATE DUE TO NARROW CAPI TAL BASE AND LACK OF COMPETITIVE STRENGTH, LACK OF OPERATIONAL E FFICIENCIES AND ALSO LACK OF HUMAN RESOURCES. THEY ALSO ESCAPE THE EYES OF REGULATORS. HE DREW OUR ATTENTION TO THE TURNOVER AND PROFIT MARGINS OF COMPANY INFOSYS TECHNOLOGIES LTD. FOR FY 1997 TO 2010 AND SUBMITTED THAT IN FY 1997 THE COMPANY HAD TURNOVER OF RS.139 CRORES AND ITS PROFIT MARGIN WAS 34.95% WHER EAS IN FY 2010 ITS TURNOVER WAS RS.21140 CRORES BUT ITS PROFI T MARGIN WAS ONLY 44.91%. ACCORDING TO HIM THEREFORE THE PROFIT MARGINS HOVER BETWEEN 35% AND 40% OVER THE PERIOD OF 15 YEARS AND THEREFORE HIGH TURNOVER DOES NOT NECESSARILY MEAN HIGH PROFIT MARGINS. HE ALSO GAVE A CHART SHOWING TURNOVER AND MARGIN OF 20 COMPANIES IN THE IT-BPO INDUSTRY FOR THREE YEARS. ACCORDING TO HIM THE CHART WOULD SHOW THAT FOR THE SAME RANGE OF TURNOVER COMP ANIES EARNED DIFFERENT PROFIT MARGINS. THEREFORE ACCORDING TO H IM THERE IS NO RELATION BETWEEN THE MARGINS EARNED AND THE TURNOVE R OF A COMPANY. ACCORDING TO HIM SOFTWARE INDUSTRIES OPER ATE ON THE BASIS OF COST PLUS MARGIN OF PROFITS AND THEREFORE TURNOVER WOULD BE IRRELEVANT AND HAVE NO IMPACT OF THE PROFIT MARG INS. HIS FURTHER SUBMISSION WAS THAT UNDER RULE 10B(3) OF THE INCOME TAX RULES, 1962 (RULES) IT IS ONLY FUNCTIONS PERFORMED, ASSETS EMPLOYED AND THE RISKS ASSUMED THAT ARE RELEVANT CRITERIA FOR CO MPARISON AND TURNOVER IS NOT A PRESCRIBED CRITERION FOR THE PURP OSE OR COMPARISON. HE FAIRLY ADMITTED THAT THERE ARE DIFFE RENCES OF OPINION AMONGST VARIOUS BENCHES OF THE TRIBUNAL ON THE APPLICATION OF TURNOVER FILTER AND THAT SOME BENCHE S HAVE HELD THAT IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 15 OF 40 HIGH TURNOVER WAS RELEVANT CRITERIA FOR EXCLUDING C OMPARABLE COMPANIES. HIS PRAYER IN THE ALTERNATIVE WAS FOR C ONSTITUTION OF A SPECIAL BENCH TO RESOLVE THE CONFLICT. 17.3. PER CONTRA THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT ITAT BANGALORE BENCH IN THE CASE OF DELL INTER NATIONAL SERVICES INDIA (P) LTD. VS. DCIT (2018) 89 TAXMANN. COM 44 (BANG-TRIB) ORDER DATED 13.10.2017, CONSIDERED THE VARIOUS ASPECTS OF APPLICATION OF TURNOVER FILTER FOR EXCLUDING COM PANIES AND HAS NOTED THAT THE FIRST DECISION RENDERED ON APPLICATI ON OF THIS FILTER WAS IN THE CASE OF GENISYS INTEGRATING SYSTEMS (I)( P) LTD. VS. DCIT (2010) 20 TAXMANN.COM 715 RENDERED ON 5.8.2011 . IN THE CASE OF DELL INTERNATIONAL (SUPRA), THE TRIBUNAL TO OK NOTE OF A DIVERGENT VIEW EXPRESSED BY ITAT BANGALORE BENCH IN THE CASE OF ROBERT BOSCH ENGINEERING AND BUSINESS SOLUTIONS LTD . VS. DCIT ITA NO.1519/BANG/2013 ORDER DATED 13.9.2017 AFTER CONSIDERING THE DECISION RENDERED BY THE HONBLE DELHI HIGH COU RT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS INDIA PVT.LTD V S. DCIT 82 TAXMANN.COM 167(DEL), THAT HIGH TURNOVER IPSO FACTO DOES NOT LEAD TO THE CONCLUSION THAT A COMPANY WHICH IS OTHERWISE COMPARABLE ON FAR ANALYSIS CAN BE EXCLUDED AND THAT THE EFFECT OF SUCH HIGH TURNOVER ON THE MARGIN SHOULD BE SEEN. THE TRIBUNA L IN THE CASE OF DELL INTERNATIONAL (SUPRA) ALSO TOOK NOTE OF THE DE CISION OF THE ITAT BANGALORE BENCH IN THE CASE OF SYSARRIS SOFTWA RE PVT.LTD. VS. DCIT (2016) 67 TAXMANN.COM 243 (BANGALORE-TRIB) WHEREIN THE TRIBUNAL AFTER NOTICING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITAL (SUPRA) AND THE D ECISION TO THE CONTRARY IN THE CASE OF CIT VS. PENTAIR WATER INDI A PVT.LTD., TAX APPEAL NO.18 OF 2015 DATED 16.9.2015 WHEREIN IT WAS HELD THAT HIGH TURNOVER IS A GROUND TO EXCLUDE A COMPANY FROM THE LIST OF COMPARABLE COMPANIES IN DETERMINING ALP, HELD THAT THERE WERE CONTRARY VIEWS ON THE ISSUE AND HENCE THE VIEW FAVO URABLE TO THE ASSESSEE LAID DOWN IN THE CASE OF PENTAIR WATER (SU PRA) SHOULD BE ADOPTED. THE FOLLOWING WERE THE CONCLUSIONS OF THE TRIBUNAL IN THE CASE OF DELL INTERNATIONAL (SUPRA): 41. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. ITAT BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010, RELYING ON DUN AND BRADSTREET S IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 16 OF 40 ANALYSIS, HELD GROUPING OF COMPANIES HAVING TURNOVE R OF RS. 1 CRORE TO RS.200 CRORES AS COMPARABLE WITH EAC H OTHER WAS HELD TO BE PROPER. THE FOLLOWING RELEVAN T OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE JUDIC IAL PRECEDENTS ON THE ISSUE, WE FIND THAT THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH .IRE (SIC) MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO BARGAIN THE PRICE AND ALS O ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETT ER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHICH ARC LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATI ON, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VE RY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RAN GE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 17 OF 40 SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. 42. THE ASSESSEES TURNOVER WAS AROUND RS.110 CRORES. THEREFORE THE ACTION OF THE CIT(A) IN DIRE CTING TPO TO EXCLUDE COMPANIES HAVING TURNOVER OF MORE TH AN RS.200 CRORES AS NOT COMPARABLE WITH THE ASSESSEE WA S JUSTIFIED. AS RIGHTLY POINTED OUT BY THE LEARNED CO UNSEL FOR THE ASSESSEE, THERE ARE TWO VIEWS EXPRESSED BY TWO HONBLE HIGH COURTS OF BOMBAY AND DELHI AND BOTH AR E NON-JURISDICTIONAL HIGH COURTS. THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IS IN FAVOUR OF THE ASSESSEE A ND THEREFORE FOLLOWING THE SAID VIEW, THE ACTION OF TH E CIT(A) EXCLUDING COMPANIES WITH TURNOVER OF ABOVE RS.200 CRORES FROM THE LIST OF COMPARABLE COMPANIES IS HEL D TO CORRECT AND SUCH ACTION DOES NOT CALL FOR ANY INTER FERENCE. 17.4. HIS SUBMISSION WAS THAT THE DECISION RENDERE D BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L (SUPRA) WAS NOT ON THE APPLICATION OF TURNOVER FILTER. HE BROU GHT TO OUR NOTICE THAT THE RELEVANT SUBSTANTIAL QUESTION OF LAW IN TH E CASE OF CHRYSCAPITAL DECIDED BY THE HONBLE DELHI HIGH COUR T WAS (I) WHETHER COMPARABLES CAN BE REJECTED ON THE GROUND T HAT THEY HAVE EXCEPTIONALLY HIGH PROFIT MARGINS AS COMPARED TO TH E ASSESSEE IN TRANSFER PRICING ANALYSIS.(II) WHETHER FACTORS LIKE DIFFERENTIAL FUNCTIONAL AND RISK PROFILE COUPLED WITH HIGH DEGRE E OF VOLATILITY IN OPERATING PROFIT MARGINS IS SUFFICIENT GROUND TO RE JECT COMPARABLES FOR TRANSFER PRICING ANALYSIS. IN ANSWERING THE AB OVE QUESTION, THE HONBLE COURT HOWEVER AT PAGE 218 OF THE REPORT (TH E SAID DECISION IS REPORTED AS 376 ITR 183 (DEL)) OBSERVED THAT THE MERE CIRCUMSTANCE THAT A COMPANY-OTHERWISE CONFIRMING TO THE STIPULATIONS IN RULE 10B(2) OF THE RULES IN ALL DET AILS, PRESENTING A PECULIAR FEATURE- SUCH AS A HUGE PROFIT OR A HUGE T URNOVER, IPSO FACTO DOES NOT LEAD TO ITS EXCLUSION. THE COURT FU RTHER OBSERVED THAT THE TRANSFER PRICING OFFICER, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENCES DO NOT MATERIALLY AFFECT THE PRICE . OR COST. SECONDLY, AN ATTEMPT TO MAKE REASONABLE ADJ USTMENT TO ELIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES H AS TO BE MADE. ACCORDING TO HIM THEREFORE THE OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN SO FAR AS IT RELATES TO APPLICATION O F TURNOVER FILTER ARE IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 18 OF 40 OBITER DICTUM. OBITER DICTUM THOUGH IS ENTITLED TO A WEIGHT CANNOT BE EQUATED WITH RATIO DECIDENDI OF A CASE. IN SUPPO RT OF HIS CONTENTION AS ABOVE, HE RELIED ON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF DIRECTOR OF SETTLEMENT S A.P. AND OTHERS VS. M.R. APPARAO AND ANOTHER (2002) 4 SCC 63 8. COUNTERING THE SUBMISSION OF THE LEARNED DR THAT TH E DECISION OF THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF PENTAIR (SUPRA) IS NOT RATIO DECIDENDI AS IT WAS MERELY DIS MISSAL OF APPEAL U/S.260A OF THE ACT ON THE GROUND THAT NO SUBSTANTI AL QUESTION OF LAW AROSE FOR CONSIDERATION, LEARNED COUNSEL DREW O UR ATTENTION TO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (SUPRA) PARAGRAPH 9, WHEREIN THE HONBLE BOMBAY HIG H COURT AFTER REFERRING TO A DECISION OF THE HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. AGNITY INDIA TECHNO LOGIES (P) LTD. (2013) 36 TAXMANN.COM 289 (DELHI), CLEARLY OBSERVE D THAT TURNOVER IS OBVIOUSLY A RELEVANT FACT TO CONSIDER T HE COMPARABILITY. OUR ATTENTION WAS ALSO DRAWN TO PARAGRAPH-3 OF THE DECISION RENDERED IN THE CASE OF PENTAIR (SUPRA) WHEREIN THE DEPARTMENT SPECIFICALLY CONTENDED THAT THE TRIBUNAL ERRED IN H OLDING THAT SIZE AND TURNOVER OF A COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS COMPARABLE. ACCORDING TO HIM THEREFORE IT WAS NOT A CASE OF MERELY DISMISSAL OF APPEAL U/S.260A OF THE ACT AS UNADMITTED ON THE GROUND THAT NO SUBSTANTIAL QUESTI ON OF LAW AROSE FOR CONSIDERATION BUT WAS PRECEDENT IN SO FAR AS TH E HONBLE COURT HAS EXPRESSED A CLEAR OPINION ON THE ISSUE. 17.5. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DR EW OUR ATTENTION TO A DECISION OF THE HONBLE DELHI HIGH COURT RENDE RED IN THE CASE OF PCIT VS. NEW RIVER SOFTWARE SERVICES (P) LTD. IN ITA NO.924/2016 ORDER DATED 22.8.2017 WHEREIN THE HONB LE DELHI HIGH COURT FOLLOWED THE DECISION OF THE HONBLE BOM BAY HIGH COURT RENDERED IN THE CASE OF PENTAIR (SUPRA) AND H ELD THAT INFOSYS BPO WAS RIGHTLY EXCLUDED AS NOT BEING A COMPARABLE COMPANY. OUR ATTENTION WAS ALSO DRAWN BY HIM TO A DECISION O F THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MERCER CONSULTING (I) (P) LTD. (2016) 76 TAXMANN.COM 153 ( PUNJAB & HARYANA) WHEREIN THE HONBLE COURT HELD THAT A GIAN T COMPANY CANNOT BE COMPARED WITH A COMPANY WHICH WAS A CAPTI VE SERVICE PROVIDED ASSUMING LIMITED RISKS. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 19 OF 40 17.6. AS FAR AS THE DECISIONS OF THE TRIBUNAL REND ERED ON THE APPLICATION OF TURNOVER FILTER THAT ARE CONTRARY TO THE DECISION RENDERED IN THE CASE OF M/S. GENISYS INTEGRATING SY STEMS (SUPRA), THE FIRST SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THOSE DECISIONS WERE RENDERED AT A LATER POINT OF TIME AND WERE TO BE REGARDED AS PER INCURIUM SINCE THESE DECISION S WERE ALSO RENDERED BY A BENCH OF EQUAL STRENGTH AND EITHER TH E SUBSEQUENT DECISIONS REFUSED TO FOLLOW OR WERE RENDERED IN IGN ORANCE OF AN EARLIER BINDING PRECEDENT. HE SUBMITTED THAT IF A BENCH OF EQUAL STRENGTH DIFFERS WITH A VIEW TAKEN EARLIER, THE PRO PER COURSE FOR THEM IS TO MAKE A REFERENCE TO LARGER BENCH. THEY CANNOT REFUSE TO FOLLOW A BINDING DECISION. IF THEY DO SO, THE DECI SIONS SO RENDERED HAVE TO BE REGARDED AS PER INCURIUM. EVEN IF THEY ARE RENDERED IN IGNORANCE OF THE EARLIER BINDING PRECEDENT, THEY HA VE TO BE REGARDED AS PER INCURIUM. IN THIS REGARD THE LEARN ED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF HONBL E SUPREME COURT IN THE CASE OF UNION OF INDIA VS. RAGHUBIR S INGH AIR 1989 SC 1933, UNION OF INDIA VS. S.K. KAPOOR (2011) 4 SC C 589 AND SUNDEEP KUMAR BAFNA VS. STATE OF MAHARASHTRA AND AN OTHER (2014) 16 SCC 623. IN THE AFORESAID DECISIONS THE HONBLE SUPREME COURT HELD THAT IN A SITUATION WHERE THERE ARE CONFLICTING DECISIONS OF HIGH COURT ON AN ISSUE WHICH ARE IRREC ONCILEABLE AND PRONOUNCED BY JUDGES OF CO-EQUAL STRENGTH, THEN THE EARLIER VIEW HAS TO BE FOLLOWED AS THE LATER DECISION HAS TO BE REGARDED AS PER INCURIAM. THE HONBLE SUPREME COURT IN THE CASE OF SUNDEEP KUMAR BAFNA VS. STATE OF MAHARASHTRA & ANOTHER (201 4) 16 SCC 623 (AT PAGE-642 (PARA-19) HELD THAT A DECISION OR JUDGMENT CAN ALSO BE PER INCURIAM IF IT IS NOT POSSIBLE TO RECON CILE ITS RATIO WITH THAT OF A PREVIOUSLY PRONOUNCED JUDGMENT OF A CO-EQ UAL OR LARGER BENCH AND WHEN HIGH COURTS ENCOUNTER TWO OR MORE MU TUALLY IRRECONCILABLE DECISIONS OF THE SUPREME COURT CITED AT THE BAR, THE INVIOLABLE RECOURSE IS TO APPLY THE EARLIEST VIEW A S THE SUCCEEDING ONES WOULD FALL IN THE CATEGORY OF PER INCURIAM. T HE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE HONBLE SUPRE ME COURT: 19. IT CANNOT BE OVER-EMPHASISED THAT THE DISCIP LINE DEMANDED BY A PRECEDENT OR THE DISQUALIFICATION OR DIMINUTION OF A DECISION ON THE APPLICATION OF THE PER INCURIAM RULE IS OF GREAT IMPORTANCE, SINCE WITHOUT IT, IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 20 OF 40 CERTAINTY OF LAW, CONSISTENCY OF RULINGS AND COMITY OF COURTS WOULD BECOME A COSTLY CASUALTY. A DECISION O R JUDGMENT CAN BE PER INCURIAM ANY PROVISION IN A STA TUTE, RULE OR REGULATION, WHICH WAS NOT BROUGHT TO THE NO TICE OF THE COURT. A DECISION OR JUDGMENT CAN ALSO BE PER INCURIAM IF IT IS NOT POSSIBLE TO RECONCILE ITS RAT IO WITH THAT OF A PREVIOUSLY PRONOUNCED JUDGMENT OF A CO-EQUAL O R LARGER BENCH; OR IF THE DECISION OF A HIGH COURT IS NOT IN CONSONANCE WITH THE VIEWS OF THIS COURT. IT MUST IMMEDIATELY BE CLARIFIED THAT THE PER INCURIAM RULE IS STRICTLY AND CORRECTLY APPLICABLE TO THE RATIO DECI DENDI AND NOT TO OBITER DICTA. IT IS OFTEN ENCOUNTERED IN HIG H COURTS THAT TWO OR MORE MUTUALLY IRRECONCILABLE DECISIONS OF THE SUPREME COURT ARE CITED AT THE BAR. WE THINK THAT T HE INVIOLABLE RECOURSE IS TO APPLY THE EARLIEST VIEW A S THE SUCCEEDING ONES WOULD FALL IN THE CATEGORY OF PER INCURIAM. IT WAS THEREFORE SUBMITTED BY HIM THAT THE EARLIEST VIEW RENDERED BY THE ITAT BANGALORE BENCH IN THE CASE OF GENISYS INTEGRATING (SUPRA) SHOULD BE FOLLOWED. 17.7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TH E SUBSTANTIAL QUESTION OF LAW (QUESTION NO.1 TO 3) WHICH WAS FRAM ED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS (INDIA) PVT.LTD., (SUPRA) WAS AS TO WHETHE R COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPT IONALLY HIGH PROFIT MARGINS OR FLUCTUATION PROFIT MARGINS, AS CO MPARED TO THE ASSESSEE IN TRANSFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HE OBSERVATIONS OF THE HON'BLE HIGH COURT, IN SO FAR AS IT REFERS T O TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDICIAL DISCIPLINE RE QUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISION OF A NON-JURISD ICTION HIGH COURT, EVEN THOUGH THE SAID DECISION IS OF A NON-JU RISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PENTAIR WATER INDIA PVT.LTD. TA X APPEAL NO.18 OF 2015 JUDGMENT DATED 16.9.2015 HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRITERION FOR CHOOSING COMPANIES AS C OMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICI NG CASES. THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOLLOWING THE PRINCIPLE THAT WHERE T WO VIEWS ARE IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 21 OF 40 AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE A SSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON 'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE BASIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO THAT THE ASSESSEE. 17.8. IN VIEW OF THE ABOVE CONCLUSION, THERE MAY N OT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION REN DERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) BY THE ITAT BAN GALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WE RE ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THA T TAKEN IN THE CASE OF GENISYS INTEGRATING (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIRST ASPECT W HICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISYS I NTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDERED ON THE I SSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED AS EARLY AS 5.8.2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI BENCHES C ITED BY THE LEARNED DR BEFORE US IN THE CASE OF WILLIS PROCESSI NG SERVICES (SUPRA) AND CAPEGEMINI INDIA PVT.LTD. (SUPRA) ARE T O BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING CO -ORDINATE BENCH DECISION. IN THIS REGARD THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE PLEA OF THE L EARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS RENDERED IN THE CA SE OF M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOBAL SOLUTIONS (SU PRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT O F TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROC ESSING SERVICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. T HESE THREE DECISIONS ALSO PLACE RELIANCE ON THE DECISION OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF CHRISCAPITAL INVESTMENT ( SUPRA). WE HAVE ALREADY HELD THAT THE DECISION RENDERED IN THE CASE OF CHRISCAPITAL INVESTMENT (SUPRA) IS OBITER DICTA AND THAT THE RATIO DECIDENDI LAID DOWN BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF PENTAIR (SUPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TUR NOVER IS NOT IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 22 OF 40 RELEVANT CRITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFER PRICING REG ULATIONS UNDER THE ACT. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISSUE OF APPLICATION OF TURNOVER FILT ER AND HIS ACTION IN EXCLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF GENISYS INTEGRATING (SUPRA). 16. FOLLOWING THE AFORESAID DECISION OF THE TRIBUN AL, WE UPHOLD THE ORDER OF THE CIT(A) EXCLUDING COMPANIES BY APPLICAT ION OF TURNOVER FILTER. WE ALSO OBSERVE THAT THE TPO HAS HIMSELF APPLIED LO WER TURNOVER FILTER OF EXCLUDING COMPANIES WITH TURNOVER OF LESS THAN RS.1 CRORE AND IN SUCH CIRCUMSTANCES, THERE IS NO REASON AS TO WHY HE SHOU LD NOT APPLY THE HIGHER TURNOVER LIMIT. FOR THE REASONS GIVEN ABOVE, WE UP HOLD THE ORDER OF THE CIT(A). 17. THE NEXT ISSUE TO BE CONSIDERED IS EXCLUSION OF CELESTIAL BIOLABS LTD. THE ONLY REASON GIVEN BY THE CIT(APPEALS) FOR EXCLU DING THIS COMPANY IS THAT THE PROFIT MARGINS ARE VERY ABNORMAL. THIS BY ITSELF CANNOT BE A GROUND TO EXCLUDE A COMPANY WHICH IS OTHERWISE FUNCTIONALL Y COMPARABLE, UNLESS THERE ARE EXTRA-ORDINARY EVENTS THAT HAS TAKEN PLAC E DURING THE RELEVANT ACCOUNTING PERIOD WHICH HAS RESULTED IN THE ABNORMA L PROFITS. ON EXCLUSION OF THIS COMPANY, IN THE CO THE ASSESSEE HAS IN GROU ND NO.12 SUBMITTED THAT COMPARABILITY OF THIS COMPANY FAILS ON OTHER P ARAMETERS ALSO. SINCE THIS ASPECT HAS NOT BEEN CONSIDERED BY THE CIT(APPE ALS) THOUGH SUBMISSIONS WERE MADE BY THE ASSESSEE IN THIS REGAR D BEFORE CIT(A), WE DEEM IT FIT AND APPROPRIATE TO REMAND THE ISSUE TO THE CIT(APPEALS) TO CONSIDER THE COMPARABILITY OF THIS COMPANY ON OTHER PARAMETERS. 18. AS FAR AS INCLUSION OF INDUS NETWORKS LTD. IS C ONCERNED, THE LD. DR HAS FILED BEFORE US A DECISION OF ITAT BANGALORE BE NCH IN THE CASE OF DCIT V. MISYS SOFTWARE SOLUTIONS (I) P. LTD. (2017) 87 T AXMANN.COM 170 (BANG. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 23 OF 40 TRIB.) WHEREIN THE TRIBUNAL TOOK THE VIEW THAT COMP ANIES HAVING LESS THAN 25% EMPLOYEE COST CANNOT BE CONSIDERED AS A GOOD CO MPARABLE TO SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT INDUS NETWORKS LTD. CANNOT BE REGARDED AS A COMPARABLE AS IT FAILS THE EMPLOYEE COST FILTER. T HE REASONS GIVEN BY THE CIT(A) FOR NOT APPLYING THIS FILTER ARE GENERAL AND NO INSTANCES OF SPECIFIC DISTORTION OF REAL EMPLOYEE COST IN THE COMPARABLE COMPANIES HAVE BEEN BROUGHT OUT. GROUND NOS. 5 & 6 RAISED BY THE REVEN UE ARE ACCORDINGLY ALLOWED, WHILE GROUND NO.2 RAISED BY THE REVENUE IS PARTLY ALLOWED. 19. GROUND NOS.3 & 4 RAISED BY THE REVENUE DO NOT R EQUIRE ANY ADJUDICATION AS BY APPLICATION OF THE FILTERS REFER RED TO IN THOSE GROUNDS, NONE OF THE COMPANIES WERE EXCLUDED OR INCLUDED BY THE CIT(APPEALS). 20. GROUND NO.7 RAISED BY THE IS WITH REGARD TO EXC LUSION OF COMPARABLE M/S. AVANI CINCOM TECHNOLOGIES AND KALS INFORMATION SYSTEMS LTD. THESE COMPANIES HAVE BEEN EXCLUDED BY THE CIT(APPEA LS) BY FOLLOWING THE DECISION OF TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE (I) P. LTD. (SUPRA) . THESE COMPANIES WERE FOUND TO BE ENGAGED IN BOTH THE SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS AND SEGM ENTAL DETAILS OF THESE COMPANIES WERE NOT AVAILABLE. WE THEREFORE U PHOLD THE ORDER OF CIT(APPEALS) IN THIS REGARD. 21. IN GROUND NO.8 RAISED BY THE REVENUE, THE CHALL ENGE IS TO THE EXCLUSION OF BODHTREE CONSULTING LTD. FROM THE LIST OF COMPARABLE COMPANIES. IT IS CLEAR FROM A READING OF PARA 128 OF THE CIT(APPEALS) ORDER THAT THIS COMPANY IN ITS REPLY TO THE TPO U/S. 133( 6) OF THE ACT HAS ACCEPTED THAT IT IS IN ITES AND SOFTWARE DEVELOPMEN T. IN VIEW OF THE ABOVE, IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 24 OF 40 WE FIND NO INFIRMITY IN THE CONCLUSIONS OF CIT(APPE ALS) AND GROUND NO.8 RAISED BY THE REVENUE IS DISMISSED. 22. GROUND NOS.9 TO 12 RAISED BY THE REVENUE READS AS FOLLOWS:- 9. THE CIT (A) ERRED IN DIRECTING THE AO TO RECOMP UTE THE DEDUCTION ALLOWABLE U/S 10A OF THE 1. T. ACT AFTER REDUCING THE TELECOMMUNICATION EXPENSES OF RS. 67,67,964/- AND F OREIGN CURRENCY EXPENSES AMOUNTING TO RS. 2.38.00.502- FRO M THE TOTAL TURNOVER ALSO. 10. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT THERE IS NO PROS HON IN SECTION 10A WHICH REQUIRES THE CONCERNED EXPENSES: WHICH ARE REQUIRED TO BE REDUCED FROM THE EXPORT TURNOVER AS PER CLAUSE (IV) OF THE EXPLANATION TO S ECTION 10A, TO BE REDUCED FROM THE TOTAL TURNOVER ALSO. 12. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FA CT THAT THE JURISDICTIONAL HIGH COURT DECISION RELIED UPON BY H IM HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A SLP HAS BEEN FILED BEFORE HON'BLE SUPREME COURT. 23. THE ISSUE RAISED IN THE AFORESAID GROUNDS OF AP PEAL IS WITH REGARD TO TELECOMMUNICATION EXPENSES AND FOREIGN CURRENCY EXP ENSES REDUCED FROM THE TOTAL TURNOVER WITHOUT REDUCING THE SAME FROM T HE EXPORT TURNOVER. THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. 249 ITR 50 (KARN.) ON THIS ISSUE HOLDING THAT WHATEVER IS EXCLUDED FRO M THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S. 1 0A OF THE ACT HAS SINCE BEEN CONFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. IN CIVIL APPEAL NO.8489-98490 OF 2013 & ORS. DATED 24.04.2018 . IN VIEW OF THE ABOVE, THERE IS NO MERIT IN GROUN D NOS. 9 TO 12 RAISED BY THE REVENUE. 24. THUS, THE APPEAL BY THE REVENUE IS DISMISSED. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 25 OF 40 25. AS FAR AS CO BY THE ASSESSEE IS CONCERNED, WE H AVE ALREADY HELD THAT GROUND NOS.1 TO 8 ARE GENERAL IN NATURE AND CA LLS FOR NO ADJUDICATION. 26. GROUND NO.9 RAISED BY THE ASSESSEE IN ITS CO IS WITH REGARD TO EXCLUSION OF LUCID SOFTWARE LTD., QUINTEGRA SOLUTIO NS LTD. AND THIRDWARE SOLUTIONS LTD. AS FAR AS THESE COMPANIES ARE CONC ERNED, THE CIT(APPEALS) DID NOT AGREE WITH THE PLEA OF THE ASS ESSEE FOR EXCLUSION OF THESE COMPANIES FOR THE FOLLOWING REASONS:- (I) M/S. LUCID SOFTWARE LTD. THE ASSESSEE HAD PLEADED FOR EXCLUSION OF THIS COMP ANY ON THE GROUND THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT AS THIS COMPANY WAS A PRODUCT COMPANY FOCUSING ON ADVANCED NON DESTRUCTIVE TESTING (NDT) TECHNOLOGIES AND THAT IT WAS ACTIVELY INVOLVED IN R&D ACTIVITIES WITH LEADING SCIENTIFIC AND EDUCATIONAL INSTITUTIONS AND THAT THE ANNUAL REPORT OF THE COMP ANY SHOWED THAT IT HAD BEEN CLAIMING DEPRECIATION ON THE SOFTWARE P RODUCTS DEVELOPED BY IT AND WAS AMORTISING THE EXPENSES INC URRED ON PRODUCT DEVELOPMENT. IN THE SEARCH STRATEGY ADOPTED BY THE ASSESSEE, IN THE TP DOCUMENTATION, ALL COMPANIES WH ICH WERE INCURRING ADVERTISING, MARKETING, AND DISTRIBUTION EXPENSES OF MORE THAN 3% OF THEIR TOTAL SALES HAD BEEN ELIMINATED IN ORDER TO SELECT COMPARABLES WHICH DID NOT HOLD MARKETING INTANGIBLE S. IT WAS THE PLEA OF THE ASSESSEE THAT LUCID HAD INCURRED SELLIN G, MARKETING, AND DISTRIBUTION EXPENSES TO THE TUNE OF RS. 12.11 LAKH, WHICH CONSTITUTED 5.95% OF ITS TOTAL SALES, WHICH CLEARLY ESTABLISHED THAT LUCID HAD INVESTED AMOUNTS IN BRAND BUILDING AND MA RKETING WHICH MADE IT INCOMPARABLE TO THE APPELLANT. THESE ARGUMENTS WERE REJECTED BY THE CIT(A) AS FOLLOWS: 134. I AM UNABLE TO AGREE WITH THE APPELLANT'S CONTENTIONS. THE COMPANY'S TOTAL TURNOVER FOR FY 20 07-08 WAS RS. 2,34,71,583 AND TOTAL COST WAS RS. 2,01,46, 551. SCHEDULE-E TO THE BALANCE SHEET SHOWS THAT OF THE T OTAL COST, THE COMPANY SPENT RS. 11,41,177 OR 6% ON PROD UCT DEVELOPMENT, WHICH IS NOT ABNORMALLY HIGH. IT IS CL EAR IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 26 OF 40 FROM THE SCHEDULE THAT THE EXPENDITURE AMORTISED AT RS. 24,47,822 WAS OUT OF THE CUMULATIVE EXPENDITURE OF RS. 58,55,960 NOT PERTAINING TO THIS YEAR ALONE, LEAVIN G AN UNAMORTISED EXPENDITURE OF RS. 34,08,138. THESE FIG URES CANNOT LEAD ONE TO THE CONCLUSION THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE APPELLANT. 135. SECONDLY, THE TPO HAS NOT ACCEPTED THE SELLING , MARKETING, AND DISTRIBUTION EXPENSES FILTER ADOPTED BY THE APPELLANT AND I FIND NO EXPLANATION OR RATIONALE FO R EITHER THE FILTER OR THE 3% THRESHOLD THE APPELLANT HAS AD OPTED. MOREOVER, A 5.95% EXPENDITURE ON SALES, MARKETING, AND DISTRIBUTION, DOES NOT MEAN THAT THE COMPANY IS INCOMPARABLE TO THE APPELLANT AND IT IS NOT THE TPO 'S CASE THAT IT WAS A CAPTIVE SERVICE PROVIDER LIKE THE APP ELLANT. IN THESE FACTS AND CIRCUMSTANCES, I UPHOLD THE SELECTI ON OF THIS COMPANY BY THE TPO AS A COMPARABLE. (II) M/S. QUINTEGRA SOLUTION LTD. THE PLEA OF THE ASSESSEE FOR EXCLUSION OF THIS COMP ANY WAS THAT THIS COMPANY UNDERTOOK RESEARCH AND DEVELOPMENT ACT IVITY, AS REFLECTED IN ITS ANNUAL REPORT FOR THE YEAR ENDED 3 1.03.2008. THE ANNUAL REPORT SHOWED THAT R&D EXPENDITURE WAS 3.80% OF SALES AND THE COMPANY FAILED THE R&D FILTER APPLIED BY TH E APPELLANT. ANOTHER ARGUMENT ADVANCED WAS THAT THIS COMPANY WAS INTO A NICHE AREA OF INFORMATION TECHNOLOGY AS AGAINST THE APPELLANT, WHICH PROVIDED ONLY ROUTINE SOFTWARE DEVELOPMENT SE RVICES INVOLVING LOW LEVEL CODING, TESTING AND DOCUMENTATI ON. THESE ARGUMENTS WERE REBUTTED BY THE CIT(A) BY HOLDING TH AT THIS COMPANY IN RESPONSE TO THE NOTICE BY THE TPO UNDER SECTION 133(6) REPLIED THAT IT WAS INTO SOFTWARE DEVELOPMEN T SERVICES. THE CIT(A) ALSO HELD THAT THE 3% R&D FILTER SOUGHT TO B E USED BY THE ASSESSEE CANNOT BE ACCEPTED. THE CIT(A) ALSO HELD T HAT THERE IS NO SCOPE TO DIFFERENTIATE BETWEEN HIGH-END AND LOW-END SERVICES WITHIN THE SAME SEGMENT OF BUSINESS. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 27 OF 40 (VII) M/S THIRDWARE SOLUTIONS LTD. THE ASSESSEE HAD OBJECTED TO THE SELECTION OF M/S T HIRDWARE SOLUTIONS LTD. ON THE GROUND THAT IT WAS FUNCTIONAL LY DIFFERENT AND THE COMPANY EARNED REVENUE BY RENDERING SOFTWARE DE VELOPMENT SERVICES, SALE OF USER LICENCES FOR SOFTWARE APPLIC ATIONS, AND SALE OF INVESTMENTS. IT HAD NOT PROVIDED SEGMENTAL INFORMAT ION IN ITS ANNUAL REPORT AND THEREFORE, CONSIDERING IT AS A CO MPARABLE WOULD NOT BE APPROPRIATE. THIS PLEA WAS REJECTED BY THE C IT(A) ON THE GROUND THAT REVENUE FROM SALE OF LICENCES WAS A MER E RS. 39,16,427, WHICH WAS LESS THAN 1% OF THE TOTAL REVE NUE. THE CIT(A) ALSO HELD THAT THERE WAS NO BASIS TO SAY THA T SALE OF SOFTWARE LICENCES OR OF INVESTMENT WAS THE PRIMARY ACTIVITY OF THE COMPANY OR THAT IT IS FUNCTIONALLY DIFFERENT FROM T HE ASSESSEE. 27. THE LD. COUNSEL FOR THE ASSESSEE, BROUGHT TO O UR NOTICE THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF SAP LABS (I) P. LTD. V. ACIT FOR AY 2008-09 IN ITA NO.981/BANG/2013 , ORDER DATED 06.04.2008, WHEREIN THESE THREE COMPANIES VIZ., LUCID SOFTWARE LTD., QUINTEGR A SOLUTIONS LTD., AND THIRDWARE SOLUTIONS LTD., WERE EXCLUDED FROM THE LI ST OF COMPARABLE COMPANIES IN THE CASE OF A SOFTWARE DEVELOPMENT SER VICE PROVIDER SUCH AS THE ASSESSEE. FOLLOWING WERE THE RELEVANT OBSERVAT IONS OF THE TRIBUNAL:- 48.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. THE COMPARABILITY OF LUCID SOF TWARE LTD. HAD COME UP FOR CONSIDERATION BEFORE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. HEWLETT-PACKARD (INDIA ) SOFTWARE OPERATION P. LTD. (SUPRA). THE RELEVANT PORTION IS EXTRACTED HEREUNDER: 11. LUCID SOFTWARE LTD. 11.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE THE DRP, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY IN THE LIST OF COMPARABLES BUT THE DRP RETA INED THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT IS A PURE SOFTWARE IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 28 OF 40 DEVELOPMENT SERVICES PROVIDER AND DOES NOT HAVE ANY REVENUES BY WAY OF SALE OF PRODUCTS/LICENSES. 11.2 BEFORE US ALSO, THE ASSESSEE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND IS THEREFORE FUNCT IONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND. I N THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-0-9 HAS OMITTED THIS COMPANY FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS AND THEREFORE IS F UNCTIONALLY DIFFERENT FROM PROVIDER OF SOFTWARE DEVELOPMENT SER VICES. 11.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN IN CLUDING THIS COMPANY AS A COMPARABLE. 11.4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE DECISION RELIED ON BY THE ASSESSEE. WE FIND THAT THE CO-ORDI NATE BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES OBSERVING THAT THIS COMPANY, BEING INTO DEVELOPMENT OF A SOFTWARE PRODUCTS, IS FUNCTIONALLY DIFFERENT F ROM A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES, AS IS THE ASSESSEES IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LI ST OF COMPARABLES. AT PARA 16.3 OF THIS ORDER THE CO-ORD INATE BENCH HELD AS UNDER:- 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTW ARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHE REAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT IN DIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. (SUPRA); THE ITAT , MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 29 OF 40 (SUPRA) AND THE DELHI ITAT IN THE CASE OF TRANSWITC H INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOPMENT AND NOT SOFTWARE DEVEL OPMENT SERVICES, IT IS FUNCTIONALLY DIFFERENT AND DIS-SIMI LAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFT WARE DEVELOPMENT SERVICE PROVIDERS. THE ASSESSEE HAS AL SO BROUGHT ON RECORD DETAILS TO DEMONSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO THIS COMPANY HAVE NOT C HANGED MATERIALLY FROM THE EARLIER YEAR I.E. ASSESSMENT YE AR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED D ECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL AND OF THE ITA T, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER C ONSIDERATION IN THE CASE ON HAND. 11.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIO NS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST O F COMPARABLES IN THE CASE ON HAND. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S. HEWLETT-PACKARD (INDIA) S OFTWARE OPERATION P. LTD. (SUPRA) WE DIRECT THE AO/TPO TO E XCLUDE LUCID SOFTWARE LTD FROM THE LIST OF COMPARABLES. QUINTEGRA SOLUTIONS LTD. 43. THIS COMPANY WAS SELECTED BY THE TPO, BUT CONTE STED BY THE ASSESSEE-COMPANY BEFORE THE TPO ON THE GROUND THAT THE COMPANY IS HAVING PECULIAR ECONOMIC CIRCUMSTANCES AND AS AN EXTRAORDINARY EVENT OF ACQUISITION OF ANOTHER COMPANY. 43.1 ON APPEAL, THE LD.CIT(A) DELETED THIS COMPANY FROM THE LIST OF COMPARABLES BY APPLYING TURNOVER FILTER OF RANGE OF RS.200 CRORES TO RS.2000 CRORES. BEING AGGRIEVED BY THIS R EVENUE WAS IN APPEAL BEFORE US IN IT(TP)A NO.1070/BANG/2013 WHERE IN WE HELD THAT TURNOVER IS NOT AN APPROPRIATE FILTER. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 30 OF 40 43.2 HENCE, THE ASSESSEE-COMPANY IS CHALLENGING THE INCLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY ON THE GROUND THAT THE COMPANY PROVIDES A FULL RANGE OF CUSTOM HI GH END IT SOLUTIONS SUCH AS DEVELOPMENT, TESTING, MAINTENANCE , SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES) , PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVICES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. DURING THE YEAR UNDER C ONSIDERATION, THE COMPANY HAS DEVELOPED CERTAIN PROPRIETARY PRODU CTS PORTFOLIO AND ACQUIRED COPY RIGHTS FOR THE SAME IN FLEXIBLE H OME BUILDING (HBFX), HOSPITAL MANAGEMENT AND INFORMATION SYSTEM (HMIS) IN HEALTHCARE AND EDUCAMPUS IN EDUCATION VERTICALS AS PRODUCTS. DURING THE YEAR, THE COMPANY MADE A KEY STRATEGIC A CQUISITION OF PA CORPORATION INC. ('PAC'), A US-BASED INFORMATION TECHNOLOGY CORPORATION PROVIDING A BROAD RANGE OF SERVICES. PA C HAS CORE COMPETENCIES IN HIGH-END IT CONSULTING AND LEADERSH IP IN MIDDLE SPACE IT SERVICES, ENABLING QUINTEGRA TO LEVERAGE A CROSS MULTIPLE POINTS IN THE VALUE CHAIN. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SOFTWARE OPERATION P.LT D. VS. ASST.CIT IN IT(TP)A NO.1682/BANG/2012 DATED 26/08/2 015. 43.4 WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE COMPARABILITY OF QUINTEGRA SOLUTIONS LT D. HAD COME UP FOR CONSIDERATION BEFORE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SOFTWARE OP ERATION P.LTD (SUPRA). THE RELEVANT PORTION IS EXTRACTED HEREUNDE R: '26. VIS-A-VIS M/S. QUINTEGRA SOLUTIONS LTD, FINDIN GS OF THIS COORDINATE BENCH IN THE CASE OF M/S. BROADC OM COMMUNICATIONS TECHNOLOGIES P. LTD (SUPRA), APPEARS AT PARA 13 WHICH IS REPRODUCED HEREUNDER : 13. QUINTEGRA SOLUTIONS LTD. 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO INSPITE OF THE OBJECTION OF THE ASSESSEE TO ITS INCLUSION IN THE LIST OF COMPARABLES ON THE GROUND THAT THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE F ORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUA LIFIES ALL THE FILTERS APPLIED. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 31 OF 40 13.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN SOFTWARE DEVELOPMEN T SERVICES. IT WAS ALSO SUBMITTED THAT THIS COMPANY W AS ENGAGED IN DEVELOPING PROPRIETARY SOFTWARE PRODUCTS AND HAS IPR'S AND IS FUNCTIONALLY DIFFERENT FROM A PROV IDER OF SOFTWARE DEVELOPMENT SERVICES, AS IS THE ASSESSEE I N THE CASE ON HAND. IN SUPPORT OF ITS CONTENTIONS, THE AS SESSEE RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PV T. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 WHERE IT WA S HELD THAT THIS COMPANY WAS TO BE OMITTED FROM THE L IST OF COMPARABLES. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORIT IES IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 13.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; IN CLUDING THE JUDICIAL DECISION RELIED ON BY THE ASSESSEE. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAS HELD THAT THIS COMPANY, BEING ENGAGED IN PRODUCT ENGINEERING SERVICES, HAVI NG SUBSTANTIAL R&D ACTIVITY RESULTING IN THE CREATION O F PROPRIETARY SOFTWARE PRODUCTS AND IPR'S, IS FUNCTIO NALLY DIFFERENT FROM A MERE PROVIDER OF SOFTWARE DEVELOPM ENT SERVICES IS TO BE OMITTED FROM THE SET OF COMPARABL ES; OBSERVING AS UNDER AT PARAS 18.3.1 TO 18.3.3 OF THE ORDER:- 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECO RD THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS I S THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN T HAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SOFTWAR E PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FO R IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 32 OF 40 TRADE MARK REGISTRATION OF ITS PRODUCTS, IT EVIDENC ES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD THAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARABLES, AS IN THE CASE ON HAN D. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MADE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.3 .3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE O N HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER.- 13.4.2 FOLLOWING THE DECISION OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF 3DPLIVI SOFTWARE SO LUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09, WE DI RECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPARABLES IN THE CASE ON HAND. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SO FTWARE OPERATION P.LTD (SUPRA) WE DIRECT THE AO/TPO TO EXC LUDE QUINTEGRA SOLUTIONS LTD. FROM THE LIST OF COMPARABL ES. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 33 OF 40 THIDWARE SOLUTIONS LTD. 45. THIS COMPANY WAS SELECTED BY THE TPO, BUT CONTE STED BY THE ASSESSEE-COMPANY BEFORE THE TPO ON THE GROUND T HAT IT ITS TURNOVER IS MORE THAN RS.,500 CRORES. 45.1 ON APPEAL, THE ID.CIT(A) DELETED THIS COMPANY FROM THE LIST OF COMPARABLES BY APPLYING TURNOVER FILTER OF RANGE OF RS.200 CRORES TO RS.2000 CRORES. BEING AGGRIEVED BY THIS R EVENUE WAS IN APPEAL BEFORE US IN IT(TP)A NO.1070/BANG/2013 WHERE IN WE HELD THAT TURNOVER IS NOT AN APPROPRIATE FILTER. 45.2 HENCE, THE ASSESSEE-COMPANY IS CHALLENGING THE INCLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY ON THE GROUND THAT THE COMPANY IS ENGAGED IN IMPLEMENTATION AND C ONSULTING SERVICES OF SOFTWARE BASED ON ERP AND BUSINESS INTE LLIGENCE. M/S.THIRDWARE ALSO EARNS REVENUES FROM SALE OF USER LICENSES AND SUBSCRIPTION. SOFTWARE DEVELOPMENT SERVICES RENDERE D BY THE COMPANY COMPRISE OF IMPLEMENTATION AND CONSULTING S ERVICES OF DEVELOPED AND TRADED SOFTWARE. THERE ARE NO SEGMENT ALS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES AND THE FINANCIALS INDICATE THAT THE PRODUCTION AND SALE OF DEVELOPED AND TRADED SOFTWARE CANNOT BE EXPRESSED I N ANY GENERIC UNIT AND THEREFORE, SEGMENTAL DATA IS NOT AVAILABLE . RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE CO-ORDINAT E BENCH OF TRIBUNAL IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SOFTWARE OPERATION P.LTD. VS. ASST.CIT IN IT(TP)A NO.1682/BA NG/2012 DATED 26/08/2015. 45.3 WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE COMPARABILITY OF THIRDWARE SOLUTIONS LT D. HAD COME UP FOR CONSIDERATION BEFORE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SOFTWARE OP ERATION P.LTD (SUPRA). THE RELEVANT PORTION IS EXTRACTED HEREUNDE R: '28. VIS-A-VIS M/S. THIRDWARE SOLUTIONS LTD, FINDIN GS OF THIS COORDINATE BENCH IN THE CASE OF M/S. BROADCOM COMMUNICATIONS TECHNOLOGIES P. LTD (SUPRA), APPEARS AT PARA 16 WHICH IS REPRODUCED HEREUNDER : IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 34 OF 40 16. THIRDWARE SOLUTIONS LTD. 16.1 THIS COMPANY WAS INCLUDED IN THE LIST OF COMPARABLES DESPITE THE OBJECTIONS OF THE ASSESSEE TO ITS INCLUSION IN THE LIST OF COMPARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. 16.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BU SINESS OF PRODUCT DEVELOPMENT, TRADING IN SOFTWARE, GIVING LICENSES FOR USE OF SOFTWARE AND THAT SEGMENTAL DET AILS ARE NOT AVAILABLE. IT WAS ALSO SUBMITTED THAT A CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS LTD. (SUPRA) IN ITS ORDER FOR ASSESSMENT Y EAR 2008-09 HAS HELD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABLES FOR PROVIDERS OF SOFTWARE DEVELOPMENT SERVICES. 16.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 16.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON R ECORD; INCLUDING THE JUDICIAL DECISION RELIED UPON. WE FIN D THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3 DPLM SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAD HELD THAT SINCE THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES IT IS TO BE OMITTED FROM THE LIST OF COMPA RABLES FOR SOFTWARE DEVELOPMENT SERVICES, HOLDING AS UNDER AT PARA 15.3 OF THE ORDER: 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTIO N. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 35 OF 40 POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIR ECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND.' 16.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2008 -09, WE DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COM PANY FROM THE LIST OF COMPARABLES IN THE CASE ON HAND.' RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SO FTWARE OPERATION P.LTD (SUPRA) WE DIRECT THE AO/TPO TO EXC LUDE THIRDWARE SOLUTIONS LTD., FROM THE LIST OF COMPARAB LES. 28. FOLLOWING THE DECISIONS OF THE TRIBUNAL REFERRE D TO ABOVE, WE HOLD THAT THE ABOVE SAID 3 COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 29. AS FAR AS GROUND NO.10 RAISED BY THE ASSESSEE I N THE CO IS CONCERNED, THE SAME RELATES TO EXCLUSION OF E-ZEST SOLUTIONS LTD. AGAIN IN THE CASE OF SAP LABS. (I) P. LTD. (SUPRA) , THIS TRIBUNAL HAS HELD THAT THIS COMPANY HAS TO BE EXCLUDED FORM THE LIST OF COMPARA BLE COMPANIES WITH THE FOLLOWING OBSERVATIONS:- IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 36 OF 40 E-ZEST SOLUTIONS LTD.: 38. THIS COMPANY WAS SELECTED BY THE TPO, BUT CONTE STED BY THE ASSESSEE-COMPANY BEFORE THE TPO ON THE GROUND T HAT IT FUNCTIONALLY DIFFERENT. 38.1 ON APPEAL, THE ID.CIT(A) DELETED THIS COMPANY FROM THE LIST OF COMPARABLES BY APPLYING TURNOVER FILTER OF RANGE OF RS.200 CRORES TO RS.2000 CRORES. BEING AGGRIEVED BY THIS R EVENUE WAS IN APPEAL BEFORE US IN IT(TP)A NO.1070/BANG/2013 WHERE IN WE HELD THAT TURNOVER IS NOT AN APPROPRIATE FILTER. 38.2 HENCE, THE ASSESSEE-COMPANY IS CHALLENGING THE INCLUSION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY ON THE GROUND THAT THE COMPANY IS INTO DIVERSIFIED ACTIVITIES SUC H AS OUTSOURCED PRODUCT ENGINEERING, PRODUCT DEVELOPMENT, TECHNOLOG Y CONSULTING, BUSINESS CONSULTING WHICH ARE NORMALLY REGARDED AS HIGH-END ITES SERVICES. THE SERVICES FALL UNDER THE CATEGORY OF K PO SERVICES. THEREFORE, SHOULD BE EXCLUDED. FURTHER, NO SEGMENTAL DATA IS PROVIDED IN THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR UNDER CONSIDERAT ION. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE CO-OR DINATE BENCH OF TRIBUNAL IN THE CASE OF M/S. HEWLETT-PACKARD (INDIA ) SOFTWARE OPERATION P. LTD. VS. ASST.CIT IN IT(TP)A NO.1682/B ANG/2012 DATED 26/08/2015. 38.3 WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE COMPARABILITY OF M/S.E-ZEST SOLUTIONS L TD., HAD COME UP FOR CONSIDERATION BEFORE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S. HEWLETT-PACKARD (INDIA) SOFTWARE O PERATION P.LTD (SUPRA). THE RELEVANT PORTION IS EXTRACTED HEREUNDE R: '22. VIS-A-VIS M/S. E-ZEST SOLUTIONS LTD, FINDINGS OF THIS COORDINATE BENCH IN THE CASE OF M/S. BROADCOM COMMU NICATIONS TECHNOLOGIES P. LTD (SUPRA), APPEARS AT PARA 8 WHIC H IS REPRODUCED HEREUNDER : IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 37 OF 40 8. E-ZEST SOLUTIONS LTD. 8.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE INSPITE OF THE ASSESSEE'S OBJECTIONS TO ITS INCLUSI ON AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE G ROUND THAT AS PER THE INFORMATION RECEIVED UNDER SECTION 133(6) O F THE ACT THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND QUALIFIES ALL THE FILTERS APPLIED. 8.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY D IFFERENT TO THE ASSESSEE. IT WAS SUBMITTED THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA ) FOR A.Y. 200809, HAS HELD THAT THIS COMPANY IS TO BE EXCLUD ED FROM THE LIST OF COMPARABLES TO A PROVIDER OF SOFTWARE DEVELOPMEN T SERVICES AS IT IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HI GH AND TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. 8.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDER OF THE TPO INCLUDING THIS COMPA NY IN THE LIST OF COMPARABLES. 8.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED. WE FIND THAT A COORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA ) FOR ASSESSMENT YEAR 2008-09 HAS HELD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABLES TO A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES AS IT IS INTO PRODUCT DEVELOPM ENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER TH E CATEGORY OF KPO SERVICES; HOLDING AS UNDER AT PARA 14.4 THEREOF :- 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES ONLY ON THE BASI S OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO N OTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT TH E TPO IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 38 OF 40 HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPA NY TO GIVE A FINDING WHETHER THE SERVICES PERFORMED-BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SER VICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON RECO RD, 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 CATEGOR Y OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMA TION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES A RE 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 C OMPANY, 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 DIRECTE D.' 8.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LT D. (SUPRA) FOR ASSESSMENT YEAR 2008-09, WE DIRECT THE ASSESSING OF FICER / TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPARABLES I N THE CASE ON HAND.' RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S.HEWLETT-PACKARD (INDIA) SO FTWARE OPERATION P.LTD (SUPRA) WE DIRECT THE AO/TPO TO EXC LUDE E-ZEST SOLUTIONS LTD., FROM THE LIST OF COMPARABLES. 30. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNA L, WE DIRECT EXCLUSION OF E-ZEST SOLUTIONS LTD. 31. GROUND NO.11 BECOMES ACADEMIC IN VIEW OF THE EX CLUSION OF THE COMPANY STATED IN THE SAID GROUND BY APPLICATION OF TURNOVER FILTER. 32. GROUND NO.12 IN THE CO HAS ALREADY BEEN SET ASI DE FOR RECONSIDERATION BY THE CIT(APPEALS). IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 39 OF 40 33. AS FAR AS GROUND NO.13 IN CO IS CONCERNED, THE SAME RELATES TO REJECTION OF EMPLOYEE COST FILTER BY THE CIT(APPEAL S) AND CONSEQUENT EXCLUSION OF COMPUTECH INTERNATIONAL LTD. BY THE CI T(APPEALS) FROM THE LIST OF COMPARABLE COMPANIES. 34. WE HAVE ALREADY HELD THAT EMPLOYEE COST FILTER OF MORE THAN 25% OF THE REVENUE IS A VALID FILTER. FOLLOWING THE AFORE SAID VIEW, WE ARE OF THE VIEW THAT INCLUSION OF THIS COMPANY SHOULD BE DIREC TED TO BE CONSIDERED AFRESH BY THE CIT(APPEALS) AND IF THE ASSESSEE SATI SFIES THIS FILTER AND OTHERWISE FOUND TO BE FUNCTIONALLY COMPARABLE AND N OT EXCLUDIBLE ON APPLYING OTHER FILTERS, THEN THIS COMPANY BE ADOPTE D AS A COMPARABLE. IT IS DIRECTED ACCORDINGLY. 35. GROUND NO.14 RAISED IN THE CO IS WITH REGARD TO DISALLOWANCE OF SOFTWARE EXPENSES ON THE GROUND THAT WHILE MAKING P AYMENT FOR USE OF SOFTWARE, NO TAX WAS DEDUCTED AT SOURCE. WE FIND N O MERITS IN THIS GROUND RAISED BY THE ASSESSEE IN VIEW OF THE DECISION OF T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS LTD. 320 ITR 209(KARN.) WHEREIN IT WAS HELD THAT PAYMENTS MADE FOR RIGHT TO USE SOFTWARE WAS PAYMENT IN THE NATURE OF ROYALTY AND T HEREFORE THERE WAS OBLIGATION TO DEDUCT TAX AT SOURCE WHILE MAKING PAY MENT FOR SUCH USE AND THAT THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE WAS PROPER. CONSEQUENTLY THE DISALLOWANCE OF EXPENSES IS UPHELD . 36. ACCORDINGLY, THE CO BY THE ASSESSEE IS PARTLY A LLOWED. IT(TP)A NO. 1086/BANG/2013 & CO NO.159/BANG/2015 PAGE 40 OF 40 37. IN THE RESULT, THE APPEAL BY THE REVENUE IS PAR TLY ALLOWED AND THE CO BY THE ASSESSEE IS ALSO PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF NOVEMBER, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 16 TH NOVEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.