M/s Synopsys (India) Private Limited, Bangalore V. Addl.C.I.T., Bangalore

ITA 1095/BANG/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8506 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 31-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN; LTU
• Keywords: Related party transaction; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ASSESSEES APPEAL IT(TP)A NO. 1095/BANG/2012 ASSESSMENT YEAR : 2007-08 M/S. SYNOPSIS (INDIA) PVT. LTD., RMZ INFINITY, TOWER A, 4 TH & 5 TH FLOOR, MUNICIPAL NO. 3, OLD MADRAS ROAD, BENNIGANAHALLI, BANGALORE-560016. PAN:AABCS 8847 D VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE. APPELLANT RESPONDENT REVENUES APPEAL IT(TP)A NO. 1274/BANG/2012 ASSESSMENT YEAR : 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE. VS. M/S. SYNOPSIS (INDIA) PVT. LTD., RMZ INFINITY, TOWER A, 4 TH & 5 TH FLOOR, MUNICIPAL NO. 3, OLD MADRAS ROAD, BENNIGANAHALLI, BANGALORE-560016. PAN:AABCS 8847 D APPELLANT RESPONDENT REVENUE BY : SHRI. MUZAFFAR HUSSAIN, CIT LTU ASSESSEE BY : SHRI. P. K. PRASAD, ADVOCATE DATE OF HEARING : 15.12.2016 DATE OF PRONOUNCEMENT : 08.03.2017 IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 2 OF 25 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AS WELL AS ASSESSEE COMPANY DIRECTED AGAINST THE ORDER OF LEAR NED CIT(A)-4, BANGALORE DATED 05.07.2012 FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPA NIES ACT, 1956. IT IS A WHOLLY OWNED SUBSIDIARY OF SYNOPSIS INC., USA. IT IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES TO ITS AE. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-0 8 WAS FILED BY THE ASSESSEE COMPANY ON 31.10.2007. AFTER PROCESSING T HE RETURN OF INCOME, THE CASE WAS SELECTED FOR SCRUTINY ASSESSME NT BY ISSUING THE REQUISITE NOTICE UNDER SECTION 143(2). THE ASSESSE E COMPANY ALSO REPORTED IN FORM NO. 3CEB THE FOLLOWING INTERNATION AL TRANSACTIONS: PARTICULARS AMOUNT IN RS. PROVISION OF SOFTWARE DEVELOPMENT SERVICES 1,09,36,10,969/- ADMINISTRATIVE SERVICE 5,23,662/- 3. THE ASSESSEE COMPANY SOUGHT TO JUSTIFY CONSIDERA TION RECEIVED FOR INTERNATIONAL TRANSACTIONS ENTERED WITH ITS ASS OCIATED ENTERPRISES (AE) TO BE AT ARMS LENGTH PRICE (ALP). THE ASSESS EE COMPANY HAD IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 3 OF 25 ALSO SUBMITTED TRANSFER PRICING STUDY REPORT ADOPTI NG OPERATING PROFIT TO TOTAL COST (OP/TC) AS A PROFIT LEVEL INDICATOR, FOR THE TRANSFER PRICING STUDY. THE ASSESSEE COMPANY APPLIED TRANSACTION NE T MARGIN METHOD (TNMM) WHICH WAS CONSIDERED TO BE THE MOST APPROPRI ATE METHOD FOR THE PURPOSE OF BENCH MARKING ITS INTERNATIONAL TRAN SACTIONS. THE ASSESSEE COMPANYS PROFIT MARGIN WAS COMPUTED AT 11 .04% AND THE ASSESSEE COMPANY CLAIMED THAT THE SAME WAS COMPARAB LE TO OTHER COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICES. FOR THE PURPOSE OF TRANSFER PRICING STUDY, THE ASSESSEE COMPANY HAD CHOSEN 18 COMPARABLES WHOSE PROFIT WAS COMPUTED AT 13%. ACCO RDING TO THE ASSESSEE COMPANY, ITS PLI WAS WITHIN THE RANGE OF 5% OF THE ARITHMETIC MEAN OF THE COMPARABLE ENTITIES. HENCE IT WAS CLAIMED THAT THE TRANSACTION WITH ITS AE ARE AT ARMS LENGTH. T HE ASSESSEE COMPANY HAD CHOSEN THE FOLLOWING ENTITIES: WHOSE PROFIT MAR GIN WAS COMPUTED AT 13%. 1. BODHTREEE CONSULTING LIMITED 2. FCS SOFTWARE SOLUTIONS LIMITED 3. GOLDSTONE TECHNOLOGIES LIMITED 4. LARSEN & TORBO INFOTECH LIMITED 5. MELSTAR INFORMATION TECHNOLOGIES LIMITED 6. ORIENT INFORMATION TECHNOLOGY LIMITED 7. POWERSOFT GLOBAL SOLUTIONS LIMITED 8. SIP TECHNOLOGIES & EXPORTS LIMITED 9. SONATA SOFTWARE LIMITED 10. SYNETARIOS TECHNOLOGIES LIMITED 11. TRIDENT INFOTECH CORPORATION LIMITED IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 4 OF 25 12. VJIL CONSULTING LIMITED 13. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 14. CAMBRIDGE TECHNOLOGY ENTERPRISES LIMITED 15. ICRA TECHNO ANALYTICS LIMITED 16. MINDTREE CONSULTING LIMITED 17. COMPUTECH INTERNATIONAL LIMITED 18. KARUTURI NETWORKS LIMITED 4. THE AO REFERRED THE MATTER TO THE TPO/AO FOR THE PURPOSE OF BENCH MARKING THE TRANSACTION WITH ITS AE. THE TPO BY ORDER DATED 15.09.2010 COMPUTED THE TRANSFER PRICING ADJUSTMENT AT RS.12,92,41,607/-. THE TPO ACCEPTED THE TNMM ADOPT ED BY THE ASSESSEE COMPANY AS THE MOST APPROPRIATE METHOD AND ALSO THE OPERATING PROFIT TO TOTAL COST AS A PROFIT LEVEL IN DICATOR BUT REJECTED THE TRANSFER PRICING REPORT SUBMITTED BY THE ASSESSEE C OMPANY. THE TPO PROCEEDED TO IDENTIFY THE DIFFERENT SET OF COMPARAB LES FOR THE PURPOSE OF DETERMINING THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE COMPANY WITH ITS AE. WHILE DOING S O, THE LEARNED TPO APPLIED THE FOLLOWING FILTERS: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 5 OF 25 5. THE TPO REJECTED 16 COMPARABLES SELECTED BY THE ASSESSEE COMPANY IN ITS TRANSFER PRICING REPORT AND ACCEPTED 2 COMPARABLES AND INTRODUCED 24 NEW COMPARABLES. THE LEARNED TPO FIN ALLY SELECTED THE FOLLOWING COMPARABLES: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 6 OF 25 6. THE TPO COMPUTED THE AVERAGE PROFIT MARGIN OF TH E COMPARABLES FINALLY SELECTED AT 25.14% AND AFTER GI VING THE WORKING CAPITAL ADJUSTMENT OF 0.97%, THE ADJUSTED ARITHMETI C MEAN WAS IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 7 OF 25 DETERMINED AT 24.17%. ON THE ABOVE SAID BASIS, THE TPO COMPUTED THE TRANSFER PRICING ADJUSTMENT AS FOLLOWS: 7. THE AO PASSED ORDER UNDER SECTION 143(3) R.W.S. 144C(3) OF THE ACT INCORPORATING THE ABOVE TRANSFER PRICING ADJUST MENT AND ALSO RESTRICTING THE DEDUCTION UNDER SECTION 10A OF THE ACT, BY REDUCING THE FOREIGN TRAVEL EXPENDITURE AND COMMUNICATION EXPEND ITURE INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER. 8. BEING AGGRIEVED, THE APPEAL WAS PREFERRED BEFORE THE LEARNED CIT (A) WHEREIN IT WAS INTERALIA CONTENDED THAT (A) THE TPO WAS NOT JUSTIFIED IN REJECTING THE TRANSFER PRICING STUDY A ND THE TRANSFER PRICING DOCUMENTATION SUBMITTED BY THE ASSESSEE COMPANY (B) THE TPO WAS NOT JUSTIFIED IN ADOPTING 0% RPT FILTER; AND IT WAS FURTHER CONTENDED THAT THE CELESTIAL LABS LTD., SHOULD NOT BE CONSIDE RED AS A COMPARABLE ON FUNCTIONALITY DIFFERENCES. THE LEARNED CIT(A) F INALLY UPHELD THE APPLICATION OF ONSITE REVENUE FILTER IN EXCESS OF 2 5% OF THE EXPORT REVENUES AS OPPOSED TO THE TPO HAVING APPLIED AT 75 % OF THE EXPORT EARNINGS. CONSEQUENTLY, AS A RESULT OF THIS, THE C IT(A) DIRECTED THE IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 8 OF 25 TPO/AO TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES: HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. IGATE GLOBAL SOLUTIONS LTD. INFOSYS LIMITED LGS GLOBAL LTD MEGASOFT LTD MINDTREE QUINTEGRA SOLUTIONS LTD R.S. SOFTWARE INDIA LTD SIP TECHNOLOGIES & EXPORTS LTD WIPRO LTD (SEG) 9. THE LEARNED CIT(A) ALSO UPHELD THE APPLICATION O F 0% OF RPT FILTER AND THE CIT(A) DIRECTED THE AO/TPO TO EXCLUD E THE FOLLOWING 18 COMPANIES ON APPLICATION OF RPT FILTER OF 0%. 1. ACCEL TRANSMATIC LTD., 2. AVANI CIMCOM TECHNOLOGIES LTD., 3. DATAMATICS LTD., 4. FLEXTRONICS SOFTWARE SYSTEMS LTD. 5. GEOMETRIC LTD., 6. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 7. IGATE GLOBAL SOLUTIONS LTD. 8. INFOSYS TECHNOLOGIES LTD. 9. ISHIR INFOTECH LTD. 10. LGS GLOBAL LTD 11. MEGASOFT LTD. 12. PERSISTENT SYSTEMS LTD. 13. R S SOFTWARE (INDIA) LTD. 14. R SYSTEMS INTERNATIONAL LTD. 15. SASKEN COMMUNICATION TECH LTD. 16. TATA ELXSI LTD. 17. THIRDWARE SOLUTIONS LTD. 18. WIPRO LTD. IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 9 OF 25 10. FURTHER, THE CIT(A) ACCEPTED THE SUBMISSION OF THE ASSESSEE COMPANY THAT CELESTIAL LABS LTD., IS NOT FUNCTIONAL LY COMPARABLE AND ACCORDINGLY DIRECTED TO EXCLUDE IT FROM THE LIST OF COMPARABLES. THE CIT(A) SUO MOTO DELETED THE MEDIASOFT SOLUTIONS LTD, BY OBSERVING THAT THE OPERATING PROFIT WAS ABNORMALLY LOW. THE CIT(A) FINALLY HELD THAT THE HELIOS AND MATHESON SHOULD BE EXCLUDED AS ITS EXPORT TURNOVER OF SALES IS LESS THAN 75% OF THEIR OPERATING REVENU ES. WITH REGARD TO THE ISSUE OF REDUCTION OF TRAVEL EXPENDITURE AND TE LECOMMUNICATION EXPENDITURE INCURRED ON FOREIGN CURRENCY, THE CIT(A ), FOLLOWING THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN T HE CASE OF TATA ELXSI, HELD THAT THE SAME SHOULD BE REDUCED FROM TH E EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER. 11. AS A RESULT OF THE ABOVE ORDER OF THE CIT(A), O NLY THE FOLLOWING COMPARABLES HAD REMAINED IN THE LIST OF COMPARABLES , WHOSE ARITHMETIC MEAN WAS 26.53%. 1. E-ZEST SOLUTIONS LTD. 2. KALS INFORMATION SYSTEMS LTD. 3. LUCID SOFTWARE LTD. 12. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US IN APPEAL NO. 1274/B/2012 RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW A ND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN HOLDING THAT TRAVEL EXPENSES AMOUNT ING TO IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 10 OF 25 RS. 1,97,78,697 AND TELECOMMUNICATION EXPENSES AMOU NTING TO RS. 66,14.727 ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL, FOR COMPUTATION OF DEDUCTION U/S 10A OF THE I T ACT WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT TH E EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVEN IN SECTI ON 10A OF THE IT ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN SECTION 10A OF THE ACT. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DECIS ION OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD. ON THE ISSUE OF COMPUTING DEDUCTION U/S 10A BY EXCLUDING THE ABOVE EXPENSES FROM EXPORT TURNOVER A ND TOTAL TURNOVER AS WELL, HAS NOT REACHED FINALITY IN VIEW OF THE PENDING DEPARTMENT'S SLP BEFORE THE HON'BLE SUPREME COURT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN HOLDING THAT THE TPO OUGHT TO HAVE EXCLUDED COMPARABLES HAVING ANY RELATED PARTY TRANSACTIONS, NOT ONLY THOSE WITH MORE THAN 25% RELATED PARTY TRANSACTIONS ON SALES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN HOLDING THAT M/S CELESTIAL LABS BEI NG FUNCTIONALLY DIFFERENT CANNOT BE TAKEN AS A COMPARA BLE. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT TH E TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 13. GROUND NOS. 1 AND 6 ARE GENERAL IN NATURE, DO N OT REQUIRE ANY ADJUDICATION. GROUND NOS. 2 AND 3 CHALLENGES THE D IRECTION OF THE CIT(A) TO EXCLUDE THE EXPENDITURE INCURRED IN FOREI GN CURRENCY AND TRAVEL AND TELECOMMUNICATION FROM BOTH TOTAL TURNOV ER AND EXPORT TURNOVER FOR THE PURPOSE OF CALCULATING THE BENEFIT UNDER SECTION 10A. IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 11 OF 25 THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF TATA ELXSI AS UNDER. HENCE GROUND NOS. 2 AND 3 ARE DISMISSED. AS REGARDS PORTION OF THE EXPENSES INCURRED IN FOR EIGN EXCHANGE TOWARDS INSURANCE, TRAVELLING AND COMMUNIC ATION IS CONCERNED, IN THE CASE OF CIT VS. TATA ELXSI (349 I TR 98), THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT THE SAM E IS REQUIRED TO BE REDUCED FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT WE DIRECT THAT EXPENSES I NCURRED IN FOREIGN EXCHANGE TOWARDS INSURANCE, TRAVELLING AND COMMUNICATION ARE TO BE REDUCED BOTH FROM EXPORT TU RNOVER AS WELL AS TOTAL TURNOVER. THEREFORE, THE GROUNDS OF A PPEAL FILED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED. 14. GROUND NO. 4 CHALLENGES THE DIRECTION OF THE CI T(A) APPLYING THE FILTER OF RELATED PARTY TRANSACTIONS AT 0%. NO W THE LAW IS WELL SETTLED THAT AN ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTION DOES NOT EXCEED 15% OF THE TOTAL REVENU E. HENCE, WE DIRECT TPO/AO TO ADOPT RPT FILTER AT 15%. HENCE THE GROUN D NO. 4 IS PARTLY ALLOWED. 15. GROUND NO. 5 CHALLENGES THE DIRECTION OF CIT(A) TO EXCLUDE THE COMPANY CELESTIAL LABS LTD., FROM THE LIST OF COMPA RABLES. THE LEARNED DR VEHEMENTLY CONTENDED THAT THIS COMPANY S HOULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLES AND HE PLACED RELIANCE ON THE ORDERS OF THE TPO. THE AUTHORIZED REPRESENTATIVE V EHEMENTLY CONTENDED THAT THIS COMPANY IS FUNCTIONALLY DIFFERE NT AS IT IS ALSO ENGAGED IN THE DEVELOPMENT OF PRODUCTS AND SOFTWARE TOOLS, NEW DRUG DESIGN TOOL CALLED CELSUITE. IN THIS CONNECTION, H E DRAWN OUR ATTENTION TO PAGES 1240-1251 OF THE PAPER BOOK WHER EIN THE IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 12 OF 25 DESCRIPTION/ACTIVITIES OF THE COMPANY IS GIVEN AS U NDER, AND HE ALSO PLACED RELIANCE ON THE FOLLOWING 3 DECISIONS: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 13 OF 25 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE COMPARABILITY OF THIS COMPANY HAS COME BEFORE THE COORDINATE BENCH IN THE CASE OF TRILOGY WHEREIN IT HAS BEEN HELD THAT SINCE THE COMPANY WAS ENGAGED IN CLINICAL RESEARCH AND MANUFACTURE OF OTHER PRODUCTS. THIS COMPANY CANNOT BE COMPARED WITH THAT OF ASSESSEE COMPANY WHICH IS ENGAGED IN THE SOFTWARE D EVELOPMENT BUSINESS. THE RELEVANT PARA IS AS UNDER: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 14 OF 25 IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 15 OF 25 17. THE LEARNED DR HAD NOT BROUGHT ANY EVIDENCE ON RECORD CONTRADICTING THE FINDINGS GIVEN BY THE COORDINATE BENCH IN THE ABOVE DECISION. THUS WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE WITH THAT OF ASSESSEE COMPANY AND THEREF ORE WE UPHOLD THE FINDINGS OF THE CIT(A). HENCE THIS GROUND OF APPEA L BY THE REVENUE IS DISMISSED. 18. IN THE RESULT, THE APPEAL FILED BY REVENUE IS P ARTLY ALLOWED. 19. ASSESSEES APPEAL: THE ASSESSEE CAME BEFORE US BEING AGGRIEVED BY THAT PART OF ORDER OF THE CIT (A) WHICH IS AGAINST IT, IN IT(TP) A IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 16 OF 25 NO.1274/BANG/2012. THE ASSESSEE COMPANY RAISED THE FOLLOWING GROUNDS OF APPEAL: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 17 OF 25 20. THE MAIN GROUND OF APPEAL RAISED BY THE ASSESSE E COMPANY CHALLENGES THAT EVEN THE FOLLOWING COMPANIES ARE RE QUIRED TO BE EXCLUDED, AS FUNCTIONALLY DISSIMILAR: 1. AVANI CIMCON TECHNOLOGIES LTD. 2. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG) 3. ISHER INFOTECH LTD. 20. WE UPHELD THE EXCLUSION OF THOSE COMPANIES FROM LIST OF COMPARABLES ON THE APPLICATION OF RPT FILTER OF 15% . THEREFORE, WE CONSIDER IT UNNECESSARY TO ADJUDICATE ON THE GROUND S OF FUNCTIONALITY DIFFERENCES. HENCE GROUNDS APPLIED ON THE ABOVE C OMPARABLES ARE DISMISSED. NOW WE SHALL DEAL WITH OTHER COMPARABLE S. 21. E-ZEST SOLUTIONS : IT IS THE CONTENTION OF THE LEARNED AR THAT THIS COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCT DEVELOPMENT SERVICES AND TECHNICAL SERVICES FALLING UNDER THE C ATEGORY OF KPO SERVICES AND THEREFORE THIS COMPANY CANNOT BE CONSI DERED TO BE COMPARABLE WITH THAT OF THE ASSESSEE COMPANY AND RE LIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS: 1. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., [ TS-257- ITAT-2016 (BANG)-TP] (AY 2007-08) 2. CORE OBJECTS INDIA PVT. LTD., [IT(TP)A NO. 1229( BANG) 2011 (AY 2007-08) 3. TRILOGY E BUSINESS SOFTWARE ITA NO. 1054/BANG/20 11 (AY 2007-08) IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 18 OF 25 THIS COMPANY WAS ACCEPTED BEFORE THE TPO EVEN BEFOR E THE CIT(A), IT WAS NOT CONTENDED FOR THE EXCLUSION FROM THE LIST OF COMPARABLES. IT IS ONLY BEFORE US THAT AN ADDITION AL GROUND WAS FILED PLEADING FOR THE EXCLUSION OF THIS COMPANY ON THE G ROUND OF FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN PRODUCT DEVELOPMENT AND PROVIDING TECHNICAL SERVICES FALLING UNDER THE CATE GORY OF KPO SERVICES. THE ADDITIONAL GROUND OF APPEAL IS ADMIT TED. WE RESTORE THIS GROUND TO THE FILE OF TPO/AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 22. KALS INFORMATION SYSTEM: THIS COMPARABLE WAS INCLUDED BY THE TPO AND OBJECTED BY THE ASSESSEE COMPANY BEFORE THE TPO ITSELF AND BEFORE THE CIT(A) IT WAS CONTENDED THAT THIS CO MPANY DERIVED SIGNIFICANT REVENUES FROM SALE OF THE PRODUCTS AND NO SEGMENTAL DETAILS WERE AVAILABLE. HOWEVER, CIT(A) HAS INCLUDED THIS IN THE FINAL LIST OF COMPARABLES. EVEN BEFORE US, THE SAME SUBMISSIONS WERE REITERATED AND THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWI NG DECISIONS. IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 19 OF 25 23. THIS COMPARABLE WAS CONSIDERED BY THE HYDERABAD BENCH IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD., WHEREIN IT WAS HELD AS FOLLOWS: IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 20 OF 25 IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 21 OF 25 IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 22 OF 25 24. THE LEARNED DR HAD NOT BROUGHT ANY EVIDENCE ON RECORD CONTRADICTING THE FINDINGS GIVEN IN THE ABOVE CITED DECISIONS. HENCE, RESPECTIVELY FOLLOWING THE DECISION, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 25. AS REGARDS LUCID SOFTWARE LTD., THIS COMPANY WA S INTRODUCED BY THE TPO AND CONTESTED BY THE ASSESSEE COMPANY. HOWEVER, THE ASSESSEE COMPANY ACCEPTED FOR INCLUSION BEFORE THE CIT(A). IT IS ONLY BEFORE US THAT THE ASSESSEE COMPANY IS SEEKING EXCL USION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY. 26. IT IS THE CONTENTION OF THE ASSESSEE THAT IT IS ENGAGED IN THE DEVELOPMENT OF PRODUCTS AND SHOULD BE EXCLUDED. WE FIND THAT THERE IS NO FINDINGS OF THE CIT(A) ON THIS COMPARABLE. WE T HEREFORE RESTORE THIS ISSUE BACK TO THE FILE OF THE TPO FOR FRESH AD JUDICATION IN ACCORDANCE WITH LAW. 27. AS REGARDS MEDIASOFT SOLUTIONS LTD., THE CIT(A) SUO MOTO INCLUDED THIS COMPANY ON GROUND OF ABNORMALLY LOW P ROFITS. IT IS IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 23 OF 25 SUBMITTED THAT THE SAID COMPANY HAS SATISFIED ALL T HE FILTERS APPLIED BY THE TPO AND THEREFORE THIS COMPANY CANNOT BE EXCLUD ED MERELY ON THE GROUND THAT THIS COMPANY IS MAKING LOW PROFITS AND RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS: 28. NOW THE LAW IS SETTLED THAT NO COMPANY CAN BE E XCLUDED ON THE GROUND OF LOW PROFIT AND RELIANCE IN THIS REGARD CA N BE PLACED ON THE DECISION OF CHRYSCAPITAL INVESTMENT ADVISORS INDIA PVT LTD. THEREFORE, WE DIRECT THE TPO/AO TO INCLUDE THIS COM PANY IN THE FINAL LIST OF COMPARABLES. 29. PERSISTENT SOFTWARE INDIA PVT LTD : THIS COMPANY WAS INTRODUCED BY THE TPO WHICH HAS NOT BEEN CONTENDED BY THE ASSESSEE COMPANY, BUT THE CIT(A) REJECTED THIS COMPANY ON TH E GROUND OF RPT>0%. NOW WE UPHELD THE APPLICATION OF RPT FILT ER OF 15%. THIS COMPANY CANNOT BE EXCLUDED AS ITS RPT IS ONLY 9.7% WHICH IS LESS THAN 15% OF PRT FILTER. HOWEVER, THE ASSESSEE COMPANY H AD FILED ADDITIONAL GROUND SEEKING THE EXCLUSION OF THIS COM PANY ON THE GROUND OF FUNCTIONALITY DIFFERENCES. IT IS A MATTER OF RE CORD THAT BEFORE THE TPO IT IS HELD TO BE FUNCTIONALLY COMPARABLE AND QU ALIFIED ALL THE FILTERS AND IT IS ONLY BEFORE US THAT IT WAS CONTENDED IT I S FUNCTIONALLY DIFFERENT. IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 24 OF 25 IN THE FITNESS OF THINGS, WE RESTORE THIS ISSUE TO THE FILE OF AO/TPO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 30. TATA ELXSI : THIS COMPANY WAS INCLUDED BY THE TPO AND CONTENDED BEFORE THE TPO ON THE GROUND THAT IT IS F UNCTIONALLY DIFFERENT AS IT IS ENGAGED IN THE DEVELOPMENT OF SPECIALIZED EMBEDDED SOFTWARE DEVELOPMENT SERVICES AND FAILS THE RPT FILTER APPLI ED BY THE TPO. THIS COMPANY WAS REJECTED BY THE CIT(A) AS IT IS HAVING RPT OF 1.27%. SINCE WE UPHELD THE RPT FILTER OF 15%, IN THE REVEN UES APPEAL. THIS COMPANY CANNOT BE EXCLUDED ON THE GROUND OF RPT FIL TER OF 0%. HOWEVER, IT IS SUBMITTED BY THE ASSESSEE COMPANY TH AT THIS COMPANY IS ENGAGED IN SPECIALIZED EMBEDDED SOFTWARE SERVICES W HICH CANNOT BE COMPARED WITH THAT OF PURE SOFTWARE DEVELOPMENT COM PANY AS HELD BY THE COORDINATE BENCH IN THE CASE OF TELCORDIA TECHN OLOGIES INDIA PVT. LTD., ITA NO.7821/MUM/2011 (AY2007-08). ACCORDINGL Y, WE DIRECT THE AO/TPO TO DELETE 31. AS REGARDS THE THIRDWARE SOLUTIONS , THIS COMPANY WAS CONTESTED BEFORE THE TPO. HOWEVER, IT WAS EXCLUDED BY THE CIT(A) BY APPLYING THE RPT FILTER OF MORE THAN 0%. SINCE IN THE REVENUE APPEAL, WE UPHELD THE RPT FILTER OF MORE THAN 15%, THE FIND INGS OF THE CIT(A) CANNOT BE EXCLUDED. HOWEVER, THE ASSESSEE COMPANY SOUGHT EXCLUSION OF THIS COMPARABLE ON THE GROUND THAT IT IS FUNCTIO NALLY DIFFERENT AS IT IS ENGAGED IN THE TRADING OF SOFTWARE LICENSES AND SEG MENTAL INFORMATION WAS AVAILABLE FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES AND RELIANCE IN THIS REGARD WA S PLACED ON NOVELL SOFTWARE INDIA LTD. SINCE THE TPO HAD NO OCCASION TO UNDERTAKE THE IT(TP)A NO. 1095/BANG/2012 & IT(TP)A NO. 1274/BANG/2012 PAGE 25 OF 25 COMPARABILITY ANALYSIS, WE DEEM IT FIT TO RESTORE T HIS GROUND TO THE FILE OF TPO/AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 32. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF MARCH, 2017. SD/- SD/- (VIJAY PAL RAO) (INTURI R AMA RAO) JUDICIAL MEMBER ACCOU NTANT MEMBER BANGALORE. DATED:10 TH MARCH, 2017. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.