McAfee Software (India) Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 11/BANG/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9493 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Transfer pricing; International transaction; Revenue expenditure
• Section: 143(3); 234B; 133(6); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT (TP) A NO.11 (BNG.)/2012 (ASSESSMENT YEAR : 2007-08) M/S MCAFEE SOFTWARE INDIA LTD., EMBASSY GOLF LINKS, BUSINESS PARK, PINE VALLEY-2 ND FLOOR, OFF: INDIRANAGAR, KORAMANGALA INTERMEDIATE RING ROAD, BANGALORE-560 071 PAN NO.AABCN3175H APPELLANT VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(1), BANGALORE RESPONDENT ASSESSEE BY : SHRI K.R. VASUDEVAN, ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT DATE OF HEARING : 23-06-2016 DATE OF PRONOUNCEMENT : 11-08-2016 O R D E R PER SHRI A.K GARODIA, AM THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDE R OF THE LD. CIT(A). THE ASSESSMENT ORDER WAS PASSED BY THE AO U/S 143(3) R. W.S.144C OF THE IT ACT, 1961 FOR AY: 2007-08, AS PER THE DIRECTIONS OF DRP. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL ARE AS UNDER; TRANSFER PRICING THE HONOURABLE DRP AND THE LEARNED AO GROSSLY ERRE D IN UPHOLDING THE INCOME ADJUSTMENT PROPOSED BY THE LEA RNED TPO IN ARRIVING AT THE ARMS LENGTH PRICE [ALP] OF THE INTERNATIONAL 2 IT(TP)A NOS.11(B)/12 TRANSACTIONS ENTERED INTO BY THE APPELLANT IN RESPE CT TO PROVISION OF SOFTWARE SERVICES. THE APPELLANT IS IN APPEAL BEFORE THE HONOURABLE B ENCH OF THE INCOME TAX APPELLATE TRIBUNAL (HEREINAFTER R EFERRED TO AS HONOURABLE ITAT) UNDER SECTION 253 (1) (D) AGAINS T THE ORDER PASSED BY THE LEARNED AO IN PURSUANCE OF THE DIRECT IONS OF THE HONOURABLE DRP. A. SOFTWARE SERVICES- TRANSFER PRICING: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER. 1.THE LEARNED DRP AND THE LEARNED TPO GROSSLY ERRE D IN LAW AND FACTS OF THE CASE IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF THE APPELLANT ON ACCOU NT OF PROVISION OF SOFTWARE SERVICES AND PROPOSING A TRAN SFER PRICING ADJUSTMENT OF RS.86,490,148/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED DRP AND THE LEARNED AO ERRED IN UPHOLDING T HE REJECTION OF TRANSFER PRICING (TP) DOCUMENTATION BY THE LEARNED TPO WITHOUT APPRECIATING THE CONTENTIONS, ARGUMENTS , AND EVIDENTIARY DATA PUT FORWARD BY THE APPELLANT DURIN G THE COURSE OF THE PROCEEDINGS BEFORE THEM, AND IN DOING SO HAV E GROSSLY ERRED: 3 IT(TP)A NOS.11(B)/12 2.1. IN UPHOLDING THE REJECTION OF COMPARABILITY AN ALYSIS CARRIED IN THE TP DOCUMENTATION AND CONDUCTING A FR ESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH PRICE BY THE LEARNED TPO. 2.2 IN ADOPTING THE ARMS LENGTH MARK UP TO BE 22.8 8% [WORKING CAPITAL ADJUSTED MARGIN] IN RESPECT OF INT ERNATIONAL TRANSACTIONS OF THE APPELLANT. 2.3 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN COMPLETELY RELYING ON THE UNAUDITED DATA REQUISITIONED AND CON SEQUENTLY OBTAINED BY TAKING RECOURSE TO THE PROVISIONS OF SE CTION 133(6) OF THE INCOME-TAX ACT, 1961 (THE ACT), WHICH IN M ANY INSTANCES ARE INCONSISTENT WITH THE DATA DISCLOSED IN AUDITED REPORTS. 2.4 IN CONSIDERING 25 PERCENT AS THE THRESHOLD LIMI T FOR THE RELATED PARTY TRANSACTIONS FILTER AS THIS NUMBER IS AN ARBITRARY NUMBER THAT HAS BEEN ADOPTED WITHOUT ANY JUDICIAL P RECEDENCE OR REASONABLE BASIS. 2.5 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN REJECTING THE UPPER LIMIT FOR SALES TURNOVER FILTER PROPOSED BY THE ASSESSEE WITHOUT PROVIDING ANY EMPIRICAL ANALYSIS. IN DOING SO, THE LEARNED TPO ERRED IN NOT APPRECIATING THAT THE SOFTWARE INDUSTRY IS CLEARLY DEMARCATED BASED ON SIZE. 2.6 IN NOT MAINTAINING CONSISTENCY IN APPLYING THE FILTERS OF REJECTING COMPANIES WITH SOFTWARE DEVELOPMENT REVEN UE LESS THAN 75% OF THE TOTAL REVENUE AND COMPANIES WITH DI FFERENT YEAR END FOR PREPARING FINANCIAL STATEMENTS. 4 IT(TP)A NOS.11(B)/12 2.7 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN APPLYING THE ONSITE FILTER FOR SELECTION OF SOFTWARE COMPARA BLES WITH THE USE OF THE DATA OBTAINED UNDER SECTION 133(6) OF TH E ACT. IN DOING SO THE LEARNED TPO ERRED IN REJECTING AKSHAY SOFTWARE TECHNOLOGIES LIMITED AND VJIL CONSULTING LIMITED. 2.8 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES LIKE INFOSYS LIMITED AND WIPRO LIMITED AS COMPARABLE COMPANIES EVEN THOUGH THE SALES OF INFOS YS AND WIPRO ARE DRIVEN BASED ON BRAND DEVELOPED BY THEM, AND DOING SO THE LEARNED DRP AND LEARNED AO HAVE INCORRECTLY APPLIED THE RATIONALE PROVIDED IN THE JURISDICTIONAL DELHI INCO ME TAX APPELLATE TRIBUNAL (ITAT) RULING IN AGNITY INDIA TE CHNOLOGIES INDIA PVT. LTD. (REFERENCE: ITA NO. 3856(DEL)/2010) . 2.9 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING TATA ELXSI LIMITED AS A COMPARABLE COMPANY EVENTHOU GH THE COMPANY IN ITS REPLY TO THE LEARNED TPO UNDER SECTI ON 133(6) HAD MENTIONED THAT THE COMPANY PROVIDES PRODUCT DES IGN SERVICES, WHICH IS FUNCTIONALLY NOT COMPARABLE TO T HE ASSESSEES BUSINESS. 2.10 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES ENGAGED IN THE PROVISION OF SOFTWARE PROD UCT DEVELOPMENT LIKE MEGASOFT LIMITED, FLEXTRONICS SOFT WARE SYSTEMS LIMITED, KALS INFORMATION SYSTEMS LIMITED, AVANI CIMCON TECHNOLOGIES LIMITED, LUCID SOFTWARE LIMITED , ISHIR INFOTECH LIMITED, E-ZEST SOLUTIONS LIMITED, PERSIST ENT SYSTEMS LIMITED AND R SYSTEMS INTERNATIONAL LIMITED, ACCEL TRANSMATICS 5 IT(TP)A NOS.11(B)/12 LIMITED WHICH ARE FUNCTIONALLY NOT COMPARABLE TO TH E ASSESSEES BUSINESS. 2.11 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING CELESTIAL LABS LIMITED AS A COMPARABLE COMPANY EVEN THOUGH IT IS A CONTRACT RESEARCH COMPANY WHICH ALSO ENGAGED I N BIO- INFORMATICS AND HENCE FUNCTIONALLY DISSIMILAR TO TH E ASSESSEE. 2.12 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES LIKE MEGASOFT LIMITED, FLEXTRONICS SOFTW ARE SYSTEMS LIMITED AND HELIOS & MATHESON INFORMATION TECHNOLOG Y LIMITED WHICH HAVE ABNORMAL/FLUCTUATING PROFIT MARGINS. IN DOING SO THE LEARNED DRP AND LEARNED AO HAVE DISREGARDED THE JURISDICTIONAL ITAT RULING IN THE CASE OF SAP LABS INDIA PVT. LTD. VS. ACIT (REFERENCE ITANO. 398/BANG/2008) AND E-GAI N COMMUNICATION PRIVATE LIMITED (REFERENCE: ITA NO. 1 685/PN/07 - PUNE). 2.13 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN REJECTING THINKSOFT GLOBAL SERVICES LIMITED BY STATING THAT I T IS NOT FUNCTIONALLY COMPARABLE. 2.14 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN CONCLUDING THAT MAARS SOFTWARE INTERNATIONAL LIMITE D IS NOT FUNCTIONALLY COMPARABLE WITHOUT EVEN CONSIDERING TH E FACT THAT THE IT CONSULTANCY SERVICES FORMS AN INTEGRAL PART OF THE SOFTWARE DEVELOPMENT SERVICES AND CANNOT BE CLASSIF IED AS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. 3. THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN DISREGARDING THE USE OF MULTIPLE YEAR DATA AND HAVE CONSIDERED 6 IT(TP)A NOS.11(B)/12 ONLY CURRENT YEAR DATA BASED ON SEARCH CONDUCTED AT THE TIME OF THE ASSESSMENT, IGNORING NON-AVAILABILITY OF CURREN T YEAR DATA IN THE PUBLIC DOMAIN AT THE TIME OF PREPARING THE DOCU MENTATION. 4. THAT THE LEARNED TPO, THE LEARNED AO AND THE LE ARNED DRP ERRED IN DISREGARDING THE FACT THAT THE ASSESSE E DID NOT HAVE ANY INTENTION TO SHIFT PROFITS BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. THEREFORE THE ADJUSTMENT PROPOSE D IS NOT CALLED FOR AND IS HENCE MISPLACED. 5.THE LEARNED AO AND THE LEARNED DRP ERRED IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN CONCLUD ING THAT THE ASSESSEE IS EXPOSED TO SINGLE CUSTOMER RISK WITHOUT EVALUATING THE BUSINESS ARRANGEMENT OF THE ASSESSEE. 6. THAT THE LEARNED TPO, LEARNED AO AND THE HONOUR ABLE DRP ERRED IN NOT ALLOWING THE BENEFITS OF MARKET RI SK ADJUSTMENT AND WORKING CAPITAL ADJUSTMENT ON ACTUAL / CORRECT BASIS TO THE APPELLANT. 7. THAT THE LEARNED TPO, LEARNED AO AND THE LEARNE D DRP ERRED IN NOT ALLOWING THE BENEFIT OF RANGE OF + /- 5% AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT TO THE APPELLANT, WHILE DETERMINING THE ARMS LENGTH PRICE. 8. THE APPELLANT CRAVES TO LEAVE/ TO ADD TO / TO A LTER/ TO AMEND/ TO RESCIND/ TO MODIFY THE GROUNDS HEREIN ABO VE OR 7 IT(TP)A NOS.11(B)/12 PRODUCE FURTHER DOCUMENTS, FACTS AND EVIDENCE BEFOR E OR AT THE TIME OF HEARING THIS APPEAL. 8 IT(TP)A NOS.11(B)/12 NON-TRANSFER PRICING ADJUSTMENTS 9. COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT A. REDUCTION OF TELECOMMUNICATION CHARGES FROM THE EXP ORT TURNOVER THE LEARNED AO ERRED IN REDUCING THE TELECOMMUNICAT ION CHARGES, AMOUNTING TO RS. 36,436,996/-, FROM THE EX PORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTIO N 10A OF THE ACT. THE LEARNED AO ERRED IN DISREGARDING THE SUBMISSION MADE BY THE APPELLANT THAT THE TELECOMMUNICATION EX PENSES SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER OF T HE COMPANY SINCE THE COMPANY RAISED INVOICES TOWARDS EXPORTS O F SOFTWARE AND NO AMOUNT WAS SEPARATELY RECOVERED FROM THE CUS TOMER TOWARDS ANY EXPENSES ATTRIBUTABLE TO THE DELIVERY O F SOFTWARE. B. REDUCTION OF TRAVELLING EXPENSES INCURRED IN FOREIG N CURRENCY FROM THE EXPORT TURNOVER THE LEARNED AO ERRED IN REDUCING TRAVELLING EXPENSE S INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS. 22,72 9,507/- FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUT ING DEDUCTION U/S 10 A. THE LEARNED AO ERRED IN DISREGARDING THE SUBMISSION MADE BY THE APPELLANT THAT NO PART OF THE EXPENSES INCURRED IN FOREIGN CURRENCY WAS INCURRED TOWARDS PROVIDING TEC HNICAL SERVICES OUTSIDE INDIA AND HENCE, THE SAME SHOULD N OT BE REDUCED FROM THE EXPORT TURNOVER OF THE COMPANY. 9 IT(TP)A NOS.11(B)/12 C. NO CORRESPONDING REDUCTION OF EXPENSES FROM THE TOT AL TURNOVER NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO ERRED IN REDUCING SUMS OF RS. 36,436,996 /- TOWARDS TELECOMMUNICATION CHARGES AND RS. 22,729,50 7/- TOWARDS EXPENSES INCURRED IN FOREIGN CURRENCY ONLY FROM EXPORT TURNOVER WITHOUT REDUCING THE SAME FROM TOTAL TURNO VER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE AC T. THE LEARNED AO HAS ERRED IN NOT CONSIDERING THE DEC ISION OF THE JURISDICTIONAL HIGH COURT KARNATAKA IN THE C ASE OF TATA ELXSI LTD. (ITA NO. 70 OF 2009), DATED 30TH AUGUST, 2011, WHEREIN IT HAS BEEN HELD THAT IF THE TELECOMMUNICAT ION, FREIGHT AND INSURANCE EXPENSES ARE REDUCED FROM THE EXPORT TURNOVER THEN THE SAME WOULD ALSO HAVE TO BE REDUCED FROM TH E TOTAL TURNOVER IN ORDER TO COMPUTE THE DEDUCTION UNDER SE CTION10A. THE LEARNED AO ALSO ERRED IN NOT RELYING ON THE DEC ISION OF THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL IN THE CASE OF SAK SOFT LIMITED V. ITO (ITA NO. 691 & 1953/MDS/2007) W HEREIN IT HAS BEEN HELD THAT IF THE TELECOMMUNICATION, FREIGH T AND INSURANCE EXPENSES ARE REDUCED FROM THE EXPORT TURN OVER THEN THE SAME WOULD ALSO HAVE TO BE REDUCED FROM THE TOT AL TURNOVER IN ORDER TO COMPUTE THE DEDUCTION UNDER SECTION 10A . FURTHER, THE APPELLANT HAS RECEIVED A FAVOURABLE DE CISION FROM THE COMMISSIONER OF INCOME TAX (APPEALS) WITH REGARD TO THE ABOVE ISSUE FOR AY 2005-06. 10 IT(TP)A NOS.11(B)/12 1. LEVY OF INTEREST THE LEARNED AO IS NOT JUSTIFIED IN LEVYING INTEREST AMOUNTING TO RS. 17,377,910/- UNDER SECTION 234B OF THE ACT. LEVY OF INTEREST UNDER SECTION 234B IS CONSEQUENTIA L IN NATURE. THE LEARNED AO IS NOT JUSTIFIED IN LEVYING INTEREST AMOUNTING TO RS. 8,064/- UNDER SECTION 234D OF THE ACT. LEVY OF INTEREST UNDER SECTION 234D IS CONSEQUENTIAL IN NAT URE. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEN D ALL OR ANY OF THE AFORE-STATED GROUNDS OF APPEAL. 3. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS WHICH ARE AS UNDER; GROUND NO.2.15 THIRDWARE SOLUTIONS LTD., (THIRDWAR E) SHOULD BE REJECTED AS A COMPARABLE THE APPELLANT SUBMITS THAT HELD. TPO HAS ERRED IN I NCLUDING THIRDWARE AS A FUNCTIONALLY COMPANY COMPARABLE TO T HE APPELLANT, WHILE DOING THE COMPARABILITY ANALYSIS. 4. IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESS EE THAT IN RESPECT OF TP ISSUES, HE HAS SUBMITTED A CHART AND A COPY OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF HEWLETT- PACKARD (IN DIA) GLOBALSOFT P. LTD,( M/S HPGS) IN IT(TP).A NO.1031/BANG/2011. HE FURTHER SUBMITTE D THAT AS PER THIS CHART, THE TPO HAS SELECTED 26 COM PARABLES AND THE ASSESSEE IS SEEKING EXCLUSION OF 16 COMPARABLES OUT OF THESE 26 11 IT(TP)A NOS.11(B)/12 COMPARABLES. HE ALSO SUBMITTED THAT THE REQUEST FO R EXCLUSION IS ON THIS BASIS THAT THESE COMPANIES ARE FUNCTIONALLY DISSIMI LAR AND AS PER THIS TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPGS VS DCIT (SUPRA), THE ENTIRE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE B ECAUSE IN THIS TRIBUNAL ORDER ALSO, ALL THESE COMPARABLES WERE CONSIDERED B Y THE TRIBUNAL AND IT WAS HELD THAT THESE COMPARABLES ARE NOT GOOD COMPAR ABLES. HE ALSO SUBMITTED THAT ON PAGES -13 TO 39 OF THE TRIBUNAL O RDER, THE DISCUSSION AND DECISION ABOUT ALL THE COMPARABLES IS AVAILABLE . 5. REGARDING THE NON TP ISSUES, HE SUBMITTED THAT T HE ONLY ISSUE IS REGARDING COMPUTATION OF TAX ALLOWABLE U/S 10A OF T HE IT ACT, 1961 AND THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F M/S TATA ELXSI LTD., AS REPORTED IN 349 ITYR 98. AS AGAINST THIS, LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. A SPECIFIC QUERY WAS RAISED BY THE BENCH WHETHER THERE IS ANY DIFFERENCE IN FACTS IN THE PRESENT CASE AND IN THE CASE OF M/S HPGS (SUPRA) AND IN REPLY, THE LD. DR OF THE REVENUE COU LD NOT POINT OUT ANY DIFFERENCE IN FACTS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. 12 IT(TP)A NOS.11(B)/12 8. REGARDING NON-TP ISSUES IN RESPECT OF COMPUTATIO N OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 10A OF THE ACT, WE FI ND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF M/S TA TA ELXSI LTD.(SUPRA.). IN THIS CASE, IT WAS HELD BY THE HONBLE KARNATAKA HIGH COURT THAT TOTAL TURNOVER IS SUM TOTAL OF EXPORT TURNOVER AND DOMEST IC TURNOVER AND THEREFORE, IF ANY AMOUNT IS REDUCED FROM THE EXPORT TURNOVER, THE TOTAL TURNOVER ALSO WILL BE AUTOMATICALLY REDUCED BY THE SAME AMOUNT. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT. 9. REGARDING THE TP ISSUES, WE FIND THAT OUT OF 26 COMPARABLES SELECTED BY THE TPO, THE ASSESSEE IS REQUESTING FOR EXCLUSION OF 16 COMPARABLES AND OUT OF THAT, REQUEST FOR EXCLUSION OF 15 COMPARABLES IS ON THIS BASIS THAT THESE COMPANIES ARE FUNCTIONALLY DISSIMILAR AND FOR EXCLUSION OF ONE I.E. M/S R. SYSTEMS INTERNATIONAL LTD(SEG.), THE REQUEST IS ON THIS BASIS THAT THIS COMPANY IS HAVING DIFFERENT FINANCIAL YEAR ENDING. THE REQUEST OF THE ASSESSEE FOR EXCLUSION OF 16 COM PARABLES IS COVERED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL DECISION RENDERE D IN THE CASE OF M/S HPGS VS DCIT (SUPRA) AND PAGE NO.13 -39 OF THIS TRI BUNAL ORDER ARE 13 IT(TP)A NOS.11(B)/12 RELEVANT FOR TAKING DECISION ABOUT EXCLUSION OF TH ESE 16 COMPARABLES. HENCE, FOR THE SAKE OF READY REFERENCE, WE RE-PRODU CE THE CONTENTS OF PAGE-13-39 OF THIS TRIBUNAL ORDER AS UNDER; 13. ON THE ARITHMETIC MEAN PLI OF 25.14%, TPO RECOMMENDED NEGATIVE WORKING CAPITAL ADJUSTMENT OF 1.88% WHICH RESULTED IN ADJUSTED ARITHMETIC MEAN PLI OF 23.26%. THEREAFTER HE COMPUTED THE ARMS LENGTH PRICE OF INTERNATIONAL TRA NSACTIONS IN THE SOFTWARE SEGMENT AS UNDER : THUS TPO RECOMMENDED AN ADJUSTMENT OF RS.1,51,26,13 ,104/-. WHEN A PROPOSAL ON THE ABOVE LINES WAS MADE BY THE AO. ASSESSEE CHOSE TO MOVE THE DRP. 14. BEFORE THE DRP, ASSESSEE ARGUED FOR EXCLUSION O F VARIOUS COMPARABLES FOR VARIOUS REASONS LIKE FUNCTIONAL DIS SIMILARITY, EXTRA ORDINARY E VENTS IN THE COMPARABLE COMPANIES, FLUCTUATING MARG INS, EMPLOYEE COST FILTER, ETC., HOWEVER, THE DRP DID NOT ACCEPT ANY OF THESE CONTENTIONS AND AFFIRMED THE ADDITION PROPOSED BY T HE AO / TPO. 14 IT(TP)A NOS.11(B)/12 ACCORDINGLY, ASSESSMENT WAS COMPLETED MAKING AN ADD ITION OF RS.1,51,26,13,104/- IN THE SOFTWARE DEVELOPMENT SER VICES SEGMENT. 15. NOW BEFORE US, LD. AR SUBMITTED THAT OUT OF THE 26 COMPARABLES CONSIDERED BY THE AO / TPO, ASSESSEE HA D NO GRIEVANCE WITH REGARD TO DATAMATICS FINANCIAL SERVICES LTD (S EG), GEOMETRIC SOFTWARE LTD (SEG), IGATE GLOBAL SOLUTIONS LTD, LGS GLOBAL LTD, MEDIA SOFT SOLUTIONS P. LTD, MINDTREE LTD, R S SOFT WARE (INDIA) LTD AND SIP TECHNOLOGIES & EXPORTS LTD, TOTALING TO EIG HT COMPANIES. AS FOR THE BALANCE 18 COMPARABLES, LD. AR SUBMITTED THAT EXCEPT FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), R. SYSTEMS INTERNATIONAL (SEG) AND SASKEN COMMUNICATION TECHNOLOGIES LTD, AL L OTHERS WERE CONSIDERED BY THIS TRIBUNAL IN THE CASE OF NXP SEMI CONDUCTORS INDIA P. LTD V. ACIT [IT(TP)A 1174/BANG/2011, DT.14 .11.2014]. AS PER THE LD. AR, THE SAME SET OF 26 COMPARABLES WERE TAKEN BY THE TPO IN THE SAID CASE ALSO FOR SIMILAR SOFTWARE DEVE LOPMENT SERVICES SEGMENT. IT WAS ALSO FOR THE VERY SAME ASSESSMENT YEAR. HENCE ACCORDING TO HIM THE DECISION OF THE COORDINATE BEN CH IN THE SAID CASE COULD BE TAKEN AS A GOOD PRECEDENCE FOR EXCLUS ION OF ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD , CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFOR MATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INF OTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, MEGASOFT LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTIONS LTD, TA TA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG). COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF NXP SEMI CONDUCTOR S INDIA P. LTD (SUPRA) WAS PLACED ON RECORD. 15 IT(TP)A NOS.11(B)/12 16. LD. AR ALSO SUBMITTED THAT THOUGH MEGA SOFT LTD WAS CONSIDERED A GOOD COMPARABLE IN THE CASE OF NXP SEM I CONDUCTORS INDIA P. LTD (SUPRA), COORDINATE BENCH HAD DIRECTED REWORKING ITS SEGMENTAL RESULTS. HOWEVER, LD. AR POINTED OUT THA T THE ANNUAL REPORT OF THE SAID COMPANY WAS PREPARED ON CALENDAR YEAR BASIS AND THAT TOO AFTER AN AMALGAMATION WHICH HAPPENED D URING THE RELEVANT PREVIOUS YEAR. THUS ACCORDING TO HIM, MEG A SOFT LTD WAS TO BE EXCLUDED. 17. FOR SEEKING EXCLUSION OF FLEXTRONICS SOFTWARE S YSTEMS LTD (SEG) AND SASKEN COMMUNICATION TECHNOLOGIES LT D (SEG), LD. AR PLACED RELIANCE ON THE DECISION OF DELHI BENCH OF T HE TRIBUNAL IN THE CASE OF MOTORALA SOLUTIONS (INDIA) P LTD V. ACIT [I TA.5637/DEL/2011, DT.14.08.2014]. LD. AR SUBMITTED THAT THE SAID DEC ISION WAS FOR THE VERY SAME ASSESSMENT YEAR AND FOR THE VERY SAME SOF TWARE DEVELOPMENT SEGMENT. FURTHER ACCORDING TO HIM, WHI LE SELECTING FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), TPO HAD REL IED ON INFORMATION RECEIVED FROM THE SAID COMPANY BASED ON A SUMMONS ISSUED U/S.133(6) OF THE ACT. ACCORDING TO HIM, TH E INFORMATION PROVIDED WERE CONTRADICTORY TO THE RESULTS AS PER T HE ANNUAL REPORT OF THE SAID COMPANY. RELYING ON THE ANNUAL REPORT OF THE SAID COMPANY PLACED AT PAPER BOOK PAGE 124, VOL-II, LD. AR SUBMITTED THAT THE AUDITED ACCOUNTS OF FLEXTRONICS SOFTWARE S YSTEMS LTD (SEG) WAS FOR NINE MONTHS PERIOD, ENDING ON 31.03.2007. ACCORDING TO HIM WHEN THERE WERE DIFFERENCES BETWEEN THE AUDITED ACCOUNTS GIVEN IN ANNUAL REPORT WHICH WERE AVAILABLE IN PUBL IC DOMAIN AND REPLIES GIVEN TO NOTICE U/S.133(6), THE FORMER ALON E COULD BE GIVEN CREDENCE. ACCORDING TO HIM FLEXTRONICS SOFTWARE SY STEMS LTD (SEG) 16 IT(TP)A NOS.11(B)/12 ALSO HAD CONSIDERABLE PRODUCT DEVELOPMENT ACTIVITIE S. IT HAD NOT SEGMENTED ITS SOFTWARE DEVELOPMENT SERVICE AND PROD UCTS AND WITHOUT SUCH SEGMENTATION ACCORDING TO HIM, IT WOUL D BE INAPPROPRIATE TO CONSIDER FLEXTRONICS SOFTWARE SYST EMS LTD (SEG) AS A PROPER COMPARABLE. 18. VIS-A-VIS R SYSTEMS INTERNATIONAL LTD (SEG), RE LIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF ACIT V. HAPAG LLYOD GLOBAL SERVICES P. LTD [ITA.8499/MUM/20 10, DT.28.02.2013]. ACCORDING TO HIM THE SAID COMPANY WAS ALSO FOLLOWING CALENDAR YEAR AS ITS FINANCIAL YEAR AND H ENCE COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. RELIANCE WAS PL ACED ON THE COPY OF ANNUAL REPORT OF THE SAID COMPANY PLACED AT PAGE 599. 19. PER CONTRA, LD. DR SUBMITTED THAT IN SO FAR AS FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) WAS CONCERNE D, ITS PRODUCT REVENUE PRIMA FACIE WAS VERY MINIMAL. THOUGH SEGME NTAL RESULT MIGHT NOT BE THERE, AS PER THE LD. DR, TPO HAD OBTA INED THE REQUIRED INFORMATION, ON 133(6) NOTICE ISSUED BY HI M AND THIS WAS REPRODUCED BY THE TPO AT PAGE 123 OF HIS ORDER. SE RVICES INCOME CAME TO RS.7368 MILLIONS WHEREAS THE PRODUCT REVENU ES WERE ONLY RS.896 MILLIONS. THUS ACCORDING TO HIM THE ARGUMEN T OF ASSESSEE THAT SEGMENTAL RESULTS WERE UNAVAILABLE FOR THE SAI D COMPANY WAS INCORRECT. FURTHER ACCORDING TO HIM, ONCE INFORMAT ION RECEIVED ON ISSUE OF NOTICE U/S.133(6) WAS PUT TO THE ASSESSEE AND ASSESSEE WAS GIVEN A CHANCE TO ANSWER THE QUERIES RAISED, IT COU LD NOT SAY THAT ONLY THE ANNUAL REPORTS AND AUDITED ACCOUNTS SHOULD BE CONSIDERED FOR THE COMPARABILITY ANALYSIS. 17 IT(TP)A NOS.11(B)/12 20. VIS-A-VIS MEGA SOFT LTD, LD. DR SUBMITTED THAT THE TRIBUNAL DECISION RELIED ON BY THE ASSESSEE ITSELF HAD RECOMMENDED THE INCLUSION OF THE SAID COMPANY AS A GOOD COMPARA BLE, AFTER SEGMENTING ITS RESULT. 21. AS FOR R SYSTEMS INTERNATIONAL LTD (SEG), LD. D R SUBMITTED THAT THE DECISION OF MUMBAI BENCH IN THE CASE OF ACIT V. HAPAG LLYOD GLOBAL SERVICES P. LTD [ITA.8499/MUM/20 10, DT.28.02.2013] (SUPRA) RELIED ON BY THE ASSESSEE WA S FOR F. Y. 2005- 06. 22. CONTINUING HIS ARGUMENTS, LD. DR SUBMITTED THAT ASSESSEE WAS SEEKING EXCLUSION OF FOUR OF THE CONCE RNS CONSIDERED BY IT AS PROPER COMPARABLES AND THEREFORE COMPARABI LITY OF THESE HAD TO BE LOOKED INTO BY THE AO / TPO FOR PROPER AN ALYSIS. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT V. QUARK SYSTEMS P. LTD [( 2011) 62 DTR 0182]. 23. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN SO FAR AS ACCEL TRANSMATIC LTD (SE G), AVANI CIMCON TECHNOLOGIES LTD, CELESTIAL LABS LTD, E-ZEST SOLUTI ONS LTD,, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNO LOGIES LTD, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (S EG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SO LUTIONS LTD, TATA ELXSI LTD (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND WIPRO LTD (SEG) ARE CONCERNED, THE ISSUE OF COMPARABILITY OF THESE COMPANIES HAD COME UP BEFORE THIS TRIBUNAL IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD (SUPRA). ANALYSIS DONE IN THE SAID DE CISION WAS ALSO FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT AND THE TPO I N THE SAID CASE 18 IT(TP)A NOS.11(B)/12 HAD ALSO SELECTED THE VERY SAME SET OF 26 COMPANIES . SAID DECISION BEING FOR THE VERY SAME ASSESSMENT YEAR 2007-08, WE ARE OF THE OPINION THAT IT CAN BE TAKEN AS A GOOD PRECEDENCE F OR DECIDING THE ISSUE OF COMPARABILITY RAISED BY THE ASSESSEE HEREI N, IN SO FAR AS THESE COMPANIES ARE CONCERNED. THIS TRIBUNAL HAD O BSERVED AS UNDER : I) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOF TWARE DEVELOPMENT SERVICE COMPANY. IT IS FURTHER SUBMITT ED THAT IN A MUMBAI TRIBUNAL DECISION OF CAPGEMINI IND IA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTE D THE CONTENTION OF THE ASSESSEE THAT ACCEL TRANSMATI C SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE SUBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPANY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VENDING SYSTEM 19 IT(TP)A NOS.11(B)/12 (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS)- TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND THEREFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. 20 IT(TP)A NOS.11(B)/12 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THI S COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MOR E THAN THE PERMITTED LEVEL AND THEREFORE SHOULD NOT B E TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. TH E LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF T HE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARAB LES WAS CONSIDERED BY THE TRIBUNAL IN CAPGEMINI INDIA L TD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFERRED TO BY THE L D. COUNSEL FOR THE ASSESSEE, HAS ACCEPTED THAT THIS CO MPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENG AGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPT ING THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, W E HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED AS COMPARABLES. 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN SIMILAR SET OF FACTS, THESE COMPANIES ARE DIRE CTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 2. II) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS 21 IT(TP)A NOS.11(B)/12 FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHI CH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT T HIS COMPANY WOULD HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIFFERENT FROM THE ASSESS EE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/20 11 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTEN TION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAI LS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM) : HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPERATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDED BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO 22 IT(TP)A NOS.11(B)/12 INCLUDE IT AS COMPARABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWARE EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPORT OF PRODUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COMPARABILITY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COMPANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS. THE FOLLOWING FIGURES WERE PLACED BEFORE US:- PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 28039851 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (306909 8) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87 % 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UNUSUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06- 07. THE OPERATING REVENUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXTRAORDINARY YEAR FOR THI S COMPANY. EVEN THE GROWTH OF SOFTWARE INDUSTRY FOR THE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH RATE OF THIS COMPANY WAS DOUBLE THE INDUSTRY AVERAG E. 23 IT(TP)A NOS.11(B)/12 IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THIS COMPA NY OUGHT TO HAVE BEEN REJECTED AS A COMPARABLE. 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. THE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORT S THE PLEA OF THE ASSESSEE. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. III) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- I. IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR IN-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF THE INCOME TAX ACT. II. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENTIONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT OF NEW 24 IT(TP)A NOS.11(B)/12 PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFTWARE DEVELOPMENT ACTIVITIES AND IS NO T ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHICH THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RE SEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDI NG THIS COMPANY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: 25 IT(TP)A NOS.11(B)/12 THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOOL CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC (OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND TECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BIO-INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERMA AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D 26 IT(TP)A NOS.11(B)/12 ACTIVITIES TO DEVELOP NEW CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALSO IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE 27 IT(TP)A NOS.11(B)/12 THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE ABOVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS I NTO RESEARCH IN PHARMACEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IPR, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOP ED MOLECULE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASON THAT THIS CO MPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEV ER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPA NY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDING LY, THIS COMPANY SHOULD BE REJECTED AS A COMPARABLE BEI NG FUNCTIONALLY DIFFERENT. 45.FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSPIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06- 07 THIS COMPANY WAS CLASSIFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07 - 08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROW ESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM T HIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PROVIDING SOFTWA RE DEVELOPMENT SERVICES. THE ASSESSEE IN REPLY TO THE 28 IT(TP)A NOS.11(B)/12 PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HA S POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICE S AND THAT THE SEGMENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE AND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSE SSEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL R EPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THIS COMPA NY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. THE TPO CAL LED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SOFTWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORKING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHET HER ANY SEGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE A BOVE THERE IS NO OTHER DETAIL IN THE TPOS ORDER AS TO T HE NATURE OF SOFTWARE DEVELOPMENT SERVICES PERFORMED B Y THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A P UBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINICAL RESEARCH. TH E TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINE SS OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REPORT FOR FY 06-07 OR CLIN ICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER 29 IT(TP)A NOS.11(B)/12 PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERE NCE TO ANY REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICAT ION OF THE TPO. THE TPO WITHOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN THE DRHP A RE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTILIZING THE FUNDS GARNERED THOUGH THE INITIAL PUB LIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSIN ESS OPERATIONS OF THE COMPANY DURING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THE RE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. IV) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJEC TED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON TH E GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE A SSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS 30 IT(TP)A NOS.11(B)/12 COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTI ONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE L EARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGA GED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CON SULTING SERVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING S ERVICES. THESE SERVICES, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDED SEGMEN TAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIVE INFOR MATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE W HICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEA RNED AUTHORISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THE REFORE COMPANIES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDI NATE 31 IT(TP)A NOS.11(B)/12 BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E . E-ZEST SOLUTIONS LTD., OUGHT TO BE OMITTED FROM THE LIST O F COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE INCLUSION OF THIS COMP ANY IN THE LIST OF COMPARABLES BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMP ANY IN THE LIST OF COMPARABLES ONLY ON THE BASIS OF THE ST ATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDE R SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FIND ING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY T HE ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THI S COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PR ODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEE N HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THA T KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWIN G THE 32 IT(TP)A NOS.11(B)/12 AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD T HAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED. V) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WITH REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NA MELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION SOLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESA ID TWO COMPANIES FROM THE LIST OF COMPARABLES IS TO BE EFF ECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFORE, A RE LIABLE TO BE EXCLUDED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE EN GAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT FROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORD ER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYSTEMS LTD., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFTWARE SEGMENT IS ENGAGED I N THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCER N IS 33 IT(TP)A NOS.11(B)/12 ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AND TRAINING. AS PER THE TPO, THE APPLICATI ON SOFTWARE SEGMENT IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES . THE STAND OF THE ASSESSEE IS THAT A PERUSAL OF THE ANNU AL REPORT OF THE SAID CONCERN FOR F.Y. 2006-07 REVEALS THAT T HE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSI NESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. TH E ASSESSEE POINTED OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PLACED IN THE PAPER B OOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER POINTED O UT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSI NESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTW ARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FO R THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT-SE RVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THOUGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MA Y BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROFIT & LOSS ACCOUNT. THO UGH THE TPO AGREED THAT THE QUANTUM OF REVENUE FROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STA TEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF T HE SAID CONCERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT 34 IT(TP)A NOS.11(B)/12 WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEES SEGME NT OF IT-SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RA ISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITT ED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 200 6-07, THE SAID CONCERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. FOR THE SAID PURPO SE, OUR REFERENCE HAS BEEN INVITED TO PAGES 421 TO 542 OF T HE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STU DY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006-07, AN D IN PARTICULAR, ATTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REF LECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONAL LY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 2006-07 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO TO CONSIDER THE SAID CONC ERN AS FUNCTIONALLY COMPARABLE IN THE INSTANT ASSESSMENT Y EAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDEN T THAT THE SAID CONCERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE IN THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR AND IN THE PRESENT YEAR ALSO, ON TH E BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SU BMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HA S CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS IN TER ALIA 35 IT(TP)A NOS.11(B)/12 ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUI TE DISTINCT FROM THE ACTIVITY UNDERTAKEN BY THE ASSESS EE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHE R IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS TH ERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AU THORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONCERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGAR D TO THE FACTUAL ASPECTS BROUGHT OUT BY THE ASSESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTWARE SEGMENT OF T HE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES. 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHES ON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISE D SIMILAR ARGUMENTS AS IN THE CASE OF KALS INFORMATIO N SOLUTIONS LTD. (SEG). WE HAVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHIC H THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONCERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CA SE ALSO FOR A.Y. 2006-07 THE SAID CONCERN WAS FOUND FUNCTIONALL Y INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICIN G STUDY AND THE SAID POSITION WAS NOT DISTURBED BY THE TPO. THE RELEVANT PORTION OF THE TRANSFER PRICING STUDY, PLA CED AT PAGE 432 OF THE PAPER BOOK HAS BEEN POINTED OUT IN SUPPORT. CONSIDERED IN THE AFORESAID LIGHT, ON THE BASIS OF THE 36 IT(TP)A NOS.11(B)/12 DISCUSSION IN RELATION TO KALS INFORMATION SOLUTION S LTD. (SEG), IN THE INSTANT CASE ALSO WE FIND THAT THE SA ID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABL ES. VI) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROF IT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTION S RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSE SSEE AND IN THIS CONTEXT HAS CITED VARIOUS PORTIONS OF T HE ANNUAL REPORT OF THIS COMPANY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER O F IP FOR THEIR GROWTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AND FILED AN AGGREGATE 10 PAT ENTS IN INDIA AND THE USA. TILL DATE THIS COMPANY HAS F ILED AN AGGREGATE OF 119 PATENT APPLICATIONS (PENDING) I N INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN T HE US. 37 IT(TP)A NOS.11(B)/12 (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NOT AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND DEVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATEL Y RS.200 CRORES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS :- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (I TA NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE ASSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERE LY ON THE BASIS OF SCALE OF OPERATIONS AND THE OPERATI NG MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY . IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 38 IT(TP)A NOS.11(B)/12 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERE D IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE T O THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPAR ABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN T HAT THE BREAKUP OF REVENUE FROM SOFTWARE SERVICES AND SOFTW ARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MAT TER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY . VII) & VIII) M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL.NO.11 & 14 OF THE FINAL LIST OF COMPARABLE COMPA NIES CHOSEN BY THE TPO VIZ., M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED, THIS TRIBUNAL IN THE C ASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. VS. DCI T IT (TP) NO.1086/BANG/2011 FOR AY 07-08 HELD THAT THE AFORESAID COMPANIES ARE NOT COMPARABLE COMPANIES IN THE CASE OF SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE 39 IT(TP)A NOS.11(B)/12 NATURE OF SERVICES RENDERED BY THE ASSESSEE IN THIS APPEAL AND THE ASSESSEE IN THE CASE OF FIRST ADVANT AGE OFFSHORE SERVICES PVT. LTD.(SUPRA) ARE ONE AND THE SAME. THIS FACT WOULD BE CLEAR FROM THE FACT THAT THE VER Y SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF FIRST ADVANT AGE OFFSHORE SERVICES PVT. LTD.(SUPRA). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVA NTAGE OFFSHORE SERVICES PVT. LTD.(SUPRA): 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CASE OF MERCEDES BE NZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.201 3, WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINC TIONS AS TO WHY THESE COMPANIES SHOULD BE EXCLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CA SE BEFORE US ARE SIMILAR AND, THEREFORE, THE SAID DECI SION IS APPLICABLE TO THE ASSESSEE'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSION OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A CAREFUL PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN THE CASE OF ME RCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE 40 IT(TP)A NOS.11(B)/12 ASSESSEE THEREIN AND LUCID SOFTWARE LTD. AS OBSERV ED THEREIN LUCID SOFTWARE LTD. COMPANY IS ALSO INVOLVE D IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE ASSESSEE, WHICH IS ONLY INTO SOFTWARE SERVICES. SI MILARLY, AS REGARDS ISHIR INFOTECH LTD., THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNAL IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD THAT ISHIR INFOTECH IS AL SO OUT- SOURCING ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDE D FROM THE LIST OF COMPARABLES. AS THE FACTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE D ECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANIES FROM THE FINAL LIST OF COMPARAB LE COMPANIES FOR THE PURPOSE OF DETERMINING ALP. IX) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT THE AFORESAID CO MPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDI NG TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE AN NUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45,93,351. THE SAME 41 IT(TP)A NOS.11(B)/12 WAS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006 - 07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FR OM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOL LOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED 42 IT(TP)A NOS.11(B)/12 FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMIT ED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN P UBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN TH E SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPA NY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21. 6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFE RRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAIN LY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFOR E ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE. X) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT T HIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING 43 IT(TP)A NOS.11(B)/12 AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. T HE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND TH AT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHED IN REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DEVELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THI S VIEW OF THE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IN THE LIST O F COMPARABLES AS IT QUALIFIED THE FUNCTIONALITY CRITE RION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THI S COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THE RE ARE SEVERAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE A SSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FO R F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOM INANTLY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDORS AND ENTE RPRISES. 44 IT(TP)A NOS.11(B)/12 (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD.(SUPRA) WHILE DISCUSSIN G THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFT WARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCO UNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERA TION, WHICH IS INTO PRODUCT DEVELOPMENT AND PRODUCT DESIG N SERVICES AND FOR WHICH THE SEGMENTAL DATA IS NOT AV AILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYS TEMS LTD. BE OMITTED FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT THE ACTION OF THE TPO IN INC LUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. P ERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE ASSESSEE IS A SOF TWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THAT, AS SUB MITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN S EPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN TH E DECISION 45 IT(TP)A NOS.11(B)/12 OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THAT IN THE AB SENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD TH AT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OM ITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. XI) QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, THE ASSESSEE OBJECTED T O THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. ON TH E ISSUE OF ACQUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJEC TIONS OBSERVING THAT THE ASSESSEE HAS NOT ADDUCED ANY EVI DENCE AS TO HOW THIS EVENT HAD AN ANY INFLUENCE ON THE PR ICING OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONA LLY DIFFERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, 46 IT(TP)A NOS.11(B)/12 (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SE RVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. TH E ANNUAL REPORT OF THIS COMPANY ALSO STATES THAT IT I S ENGAGED IN PREPARATORY SOFTWARE PRODUCTS AND IS THE REFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE ON HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERED BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROVIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES) , PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATI ON OF INTELLECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EV IDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF TH E COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH I S AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRO DUCTS DEVELOPED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VIZ. INV ESTOR 47 IT(TP)A NOS.11(B)/12 PROTECTION INDEX FUND (IPIF). THESE MEASURES WILL H ELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AND ALSO MITIGAT E RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDING COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS THE TPOS OWN FILTER SINCE THERE HA VE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIO D UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THA T INTER ALIA, THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE ING FUNCTIONALLY DIFFERENT AND POSSESSING ITS OWN INTAN GIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO TH E ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIO D UNDER CONSIDERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN I NCLUDING THIS COMPANY IN THE SET OF COMPARABLES TO THE ASSES SEE FOR THE PERIOD UNDER CONSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THI S COMPANY I.E.QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT 48 IT(TP)A NOS.11(B)/12 ENGINEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND HAS SUBSTANTIA L R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS . HAVING APPLIED FOR TRADE MARK REGISTRATION OF ITS PRODUCTS , IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBL E ASSETS. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HECAS 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 A S A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGI BLES AND REQUIRES TO BE OMITTED FROM THE LIST OF COMPARA BLES, AS IN THE CASE ON HAND. 18.3.2 W E ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUI SITIONS MADE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKE N PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPA NY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE C O- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE IT IS ENGAGED IN 49 IT(TP)A NOS.11(B)/12 PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTA NGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SO FTWARE SERVICE PROVIDER. 27. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANIES FROM THE FINAL LIST OF COMPARAB LE COMPANIES FOR THE PURPOSE OF DETERMINING ALP. XII) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARA BLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSES SEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDER THE SOF TWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED RELEVANT PORTIONS FROM THE ANNUAL REPORT OF THE COM PANY 50 IT(TP)A NOS.11(B)/12 TO THIS EFFECT. IN VIEW OF THIS, THE LEARNED AUTHOR ISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDE D FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RE CORD. FROM THE DETAILS ON RECORD, WE FIND THAT THIS COMPA NY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMEN T SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V A CIT (ITA NO.7821/MUM/2011) HAS HELD THAT TATA ELXSI LTD . IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN TH IS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRA CTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS 51 IT(TP)A NOS.11(B)/12 ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALE S HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT F OR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPORT OF THIS COMPANY PRODUCED BEFORE US, THE FACT S PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 25. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANIES FROM THE FINAL LIST OF COMPARAB LE COMPANIES FOR THE PURPOSE OF DETERMINING ALP. XIII) THIRDWARE SOLUTIONS LTD. (SEGMENT) 52 IT(TP)A NOS.11(B)/12 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT ITS TURN OVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSE SSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PROD UCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (2008-TII-04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECT ED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENSES WHICH HAS INCREASED TH E MARGINS OF THE COMPANY. 53 IT(TP)A NOS.11(B)/12 THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE ABOVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA), THIS COMPANY OUGHT TO BE OMIT TED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 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 SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIV E, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAI N COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FR OM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMP ARABLE 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 O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE 54 IT(TP)A NOS.11(B)/12 OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. XIV) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE THE TPO, THE ASSESSE E HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN TH E LIST OF COMPARABLES OR SEVERAL GROUNDS LIKE FUNCTIO NAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESS EE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES . 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEVERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN THE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 55 IT(TP)A NOS.11(B)/12 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAG ED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON T HE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FIL TER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS T HAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISO N. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERE D PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. 56 IT(TP)A NOS.11(B)/12 (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CA SE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING TH E AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 24. NO DOUBT IF WE FOLLOW THE ABOVE DECISION M/S. A CCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD , CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD,, HELIOS & MATHESON INFOR MATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LTD, ISHIR INF OTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTIONS LTD, TATA ELXSI LT D (SEG), THIRDWARE SOLUTIONS LTD (SEG) AND W IPRO LTD (SEG) HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. HOWEVER OUT OF THESE, M/S. ACCEL TRANSMATICS LTD (SEG), QUINTEGRA SOLUTIONS LT D AND TATA ELXSI LTD (SEG) WERE A PART OF ASSESSEES OWN TP STUDY. HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V. QUARK SYSTEMS INDIA (P ) LTD (SUPRA), UPHELD THE SPECIAL BENCH DECISION IN DCIT V. QUARK SYSTEMS (P) LTD [(2010) 42 DTR 414], NOTING THAT LATTER HAD ONLY RE MITTED THE ISSUE 57 IT(TP)A NOS.11(B)/12 OF COMPARABILITY OF COMPARABLES CONSIDERED IN ASSES SEES OWN TP STUDY, BACK TO TPO. HENCE WE ARE OF THE OPINION TH AT THE ISSUE OF COMPARABILITY OF THESE THREE COMPANIES HAVE TO GO B ACK TO AO / TPO FOR CONSIDERATION AFRESH. HOWEVER M/S. AVANI CIMCO N TECHNOLOGIES LTD, CELESTIAL LAB LTD, E-ZEST SOLUTIONS LTD, HELIO S & MATHESON INFORMATION TECHNOLOGY LTD, INFOSYS TECHNOLOGIES LT D, ISHIR INFOTECH LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFT WARE LTD, PERSISTENT SYSTEMS LTD, THIRDWARE SOLUTION LTD (SEG ) AND WIPRO LTD (SEG) HAVE TO BE EXCLUDED BY VIRTUE OF COORDINATE B ENCH DECISION IN THE CASE OF NXP SEMICONDUCTORS INDIA LTD (SUPRA). COMPARABILITY OF M/S. ACCEL TRANSMATICS LTD (SEG), M/S. QUINTEGRA SO LUTIONS LTD AND M/S. TATA ELXSI LTD (SEG) IS REMITTED BACK TO THE A O / TPO FOR CONSIDERATION AFRESH AS PER LAW. ORDERED ACCORDING LY. 25. VIS-A-VIS MEGASOFT LTD, WE FIND THAT COORDINATE BENCH OF THIS TRIBUNAL IN THE VERY CASE OF NXP SEMI CONDUCTO RS INDIA LTD (SUPRA) RELYING ON ITS OWN EARLIER DECISION IN TRIL OGY E-BUSINESS SOFTWARE INDIA PVT. LTD. VS. DCIT [ITA NO.1064/BANG /2011 FOR AY 07- 08 ORDER DATED 23.11.2012] HELD IT TO BE A GOOD COM PARABLE, BUT HAD DIRECTED SEGMENTATION OF ITS RESULTS. THIS TRI BUNAL HAD DIRECTED THAT ONLY THE BLUE ALLY SEGMENT OF THE SAI D COMPANY COULD BE CONSIDERED FOR COMPARISON. RELEVANT FINDINGS OF THE TRIBUNAL AS IT APPEARS IN THE DECISION OF NXP SEMICONDUCTORS IN DIA LTD (SUPRA) IS REPRODUCED HEREUNDER: 3. MEGASOFT LTD. : 58 IT(TP)A NOS.11(B)/12 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THE TPO. THE OBJECTION OF THE ASSESSEE IS THAT THE RE ARE TWO SEGMENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SOFTWARE PRODUCT SEGM ENT. THE ASSESSEE IS A PURE SOFTWARE SERVICES PROVIDER A ND NOT A SOFTWARE PRODUCT DEVELOPER. ACCORDING TO THE ASSESSEE THERE IS NO BREAK UP OF REVENUE BETWEEN SOFTWARE PRODUCTS AND SOFTWARE SERVICES BUSINESS ON A STANDALONE BASIS OF THIS COMPARABLE. THE TPO RELI ED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHIC H THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISION S VIZ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. X IUS- BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE . THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOLD AS PACKAGED PRODUCTS TO CUSTOMERS . WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUC T SOFTWARE WOULD CONSTITUTE PACKAGED PRODUCT AND AROU ND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES RELATED TO TRAVELLING, BOARDING AND LO DGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEED ED TO HOLD THAT THE COMPARABLE COMPANY WAS MAINLY INTO 59 IT(TP)A NOS.11(B)/12 CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO PRODUCT SOFTWARE) INTERNALLY AND THAT T HE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS THAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE REVENUES OF THE COMPARABLE ARE FROM SOFT WARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPO S FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THE BASIS ON WHICH THE TPO ARRIVED AT THE PLI OF 60.23% IS GIVEN AT PAGE-115 A ND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF THE SAME THAT THE TPO HAS PROCEEDED TO DETERMINE THE PLI AT THE ENTITY LEVEL AND NOT ON THE BASIS OF SEG MENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSESSEE THAT THE OPERATING MARGIN S HAVE BEEN COMPUTED AT ENTITY LEVEL COMBINING SOFTWA RE SERVICES AND SOFTWARE PRODUCT SEGMENTS. IT WAS SUBMITTED THAT THE PRODUCT SEGMENT OF MEGASOFT IS SUBSTANTIALLY DIFFERENT FROM ITS SOFTWARE SERVICE SEGMENT. THE PRODUCT SEGMENT HAS EMPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SERVICE SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117.95% AND IN CASE OF 60 IT(TP)A NOS.11(B)/12 SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEG MENTS ARE SUBSTANTIALLY DIFFERENT AND THEREFORE COMPARISO N AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPARABILITY (SUBMISSIONS ON PAGE 381 TO 383 OF TH E PB-I). IT WAS FURTHER SUBMITTED THAT MEGASOFT LIMI TED HAS PROVIDED SEGMENTAL BREAK-UP BETWEEN THE SOFTWAR E SERVICES SEGMENT AND SOFTWARE PRODUCT SEGMENT (PAGE 68 OF PB-II), WHICH WAS ALSO ADOPTED BY THE TPO IN HIS SHOW CAUSE NOTICE (PAGE 84 OF PB-I). THE SEGMENTAL RESU LTS I.E., RESULTS PERTAINING TO SOFTWARE SERVICES SEGMENT OF THIS COMPANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTANCES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SELECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO IN CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGINS OF ONLY THE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURPOSES. CONSISTENT WITH SUCH STAND, IT WAS SUBMITTED THAT THE MARGINS OF TH E 61 IT(TP)A NOS.11(B)/12 SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGASOFT ALSO, IN CONTRAST TO THE ENTITY LEVEL MARG INS. 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LTD. IS THEREFORE REMITTED TO THE FILE OF THE TPO T O COMPUTE THE CORRECT MARGIN BY FOLLOWING THE DIRECTI ON OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFT WARE INDIA PVT. LTD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO T O COMPUTE THE CORRECT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FIRST ADVAN TAGE OFFSHORE SERVICES PVT. LTD. (SUPRA). ACCORDINGLY WE HOLD THAT MEGASOFT LTD CAN BE CONSID ERED AS A GOOD COMPARABLE AFTER SEGMENTATION AS DIRECTED IN T HE ABOVE ORDER IS DONE. 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLEX TRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DEC ISION OF MOTOROLA SOLUTIONS (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE V ERY SAME YEAR AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF COMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMAT ION IS AVAILABLE ABOUT THE COMPANY. UNLESS THIS BASIC REQU IREMENT IS FULFILLED, THE COMPANY CANNOT BE TAKEN AS A COMP ARABLE. IT IS TRUE THAT LD. TPO IS ENTITLED TO OBTAIN INFOR MATION US/ 133(6), THE OBJECT OF WHICH IS PRIMARILY ONLY TO SU PPLEMENT 62 IT(TP)A NOS.11(B)/12 THE INFORMATION ALREADY AVAILABLE ON RECORD, BUT NO T, AS RIGHTLY SUBMITTED BY LD. COUNSEL FOR THE ASSESSEE, TO REPLACE THE INFORMATION. IF THERE IS A COMPLETE CONTRADICTI ON BETWEEN THE INFORMATION OBTAINED U/S 133(6) AND ANNUAL REPO RT THEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFO RE, ARE IN ITA NO. 5637/D/2011 149 AGREEMENT WITH LD. COUNS EL FOR THE ASSESSEE THAT THIS COMPANY CANNOT BE INCLUDED A S A COMPARABLE IN THE SET OF COMPARABLES SELECTED BY LD . TPO ON ACCOUNT OF CLEAR CONTRADICTION BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCUM ENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERI NG INTO INTERNATIONAL TRANSACTIONS. THESE ARE OFFICIAL PU BLICATIONS, PUBLISHED ACCOUNTS OR THOSE WHICH ARE IN PUBLIC DOM AIN EXCEPT FOR AGREEMENTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY . ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFERENT FROM THE FINANCIAL YEAR ENDING 31 ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLESS THE INFORMATION REC EIVED IN PURSUANCE TO A NOTICE U/S.133(6) OF THE ACT FROM SU CH COMPANY, IS RECONCILED WITH THE FIGURES AVAILABLE IN SUCH ANNUA L REPORT. 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31.03.2007. HOWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO RECONCILIATION WAS ATTEMPTED BY THE LOWER AUTHOR ITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WIT H THE 63 IT(TP)A NOS.11(B)/12 FIGURES WHICH WERE MADE AVAILABLE BY THE SAID COMPA NY TO THE TPO PURSUANT TO NOTICE ISSUED TO THEM U/S.133(6 ) OF THE ACT. NO DOUBT AT PAGE 123 OF TP ORDER, TPO HAS STA TED THAT THE SOFTWARE DEVELOPMENT SERVICE REVENUES WERE MORE THAN 75% BASED ON THE FOLLOWING FIGURES : BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE AN NUAL REPORT OF THE ASSESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF THE OPINION THAT FLEXTRONICS SOFTWARE SOLUTIONS LTD (SEG) COULD NOT BE CONSIDERED AS A PR OPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. 29. VIS-A-VIS R SYSTEMS INTERNATIONAL LTD (SEG), MU MBAI BENCH OF THIS TRIBUNAL HAD HELD AS UNDER AT PARA 7.1 AND 7.2 IN THE CASE OF HAPAG LLOYD GLOBAL SERVICES PVT. LTD (SUPRA) : 7.1 THIS CASE WAS INCLUDED BY THE ASSESSEE IN ITS T RANSFER PRICING STUDY. THE TPO EXCLUDED THIS CASE BECAUSE O F DIFFERENT FINANCIAL YEAR ENDING IN THAT CASE. THE LEARNED CIT (A) ORDERED FOR THE INCLUSION OF THIS CASE BY RECORDING THAT EV EN THOUGH THIS COMPANY WAS FOLLOWING DIFFERENT FINANCIAL YEAR ENDI NG BUT THE FOLLOWING DIFFERENT FINANCIAL YEARS COULD NOT BE A REASON TO 64 IT(TP)A NOS.11(B)/12 EXCLUDE THIS CASE. 7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEND ED THAT UNLESS THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WITH THAT OF THE ASSESSEE, IT CANNOT BE CONSIDERED AS CO MPARABLE BECAUSE THE FIGURES OF DIFFERENT FINANCIAL YEAR END INGS ARE DISTORTED. HE RELIED ON AN ORDER PASSED BY THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF SANDSTONE CAPITAL ADVIS ORS PRIVATE LIMITED V. ACJT IN ITA NO.6315/MUM! 2012. VIDE ITS ORDER DATED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING T HE PRESCRIPTION OF RULE IOB(4) AND AN ANOTHER CASE OF PUNE BENCH OF THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LTD., HAS HE LD THAT IT IS MANDATORY FOR THE PURPOSES OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION THAT THE SAME MUST RELATE TO THE FINANCIAL YEAR ENDING S IMILAR TO THAT OF THE ASSESSEE. THE ID. DR CONTENDED THAT SINCE TH E CASE OF CMC LIMITED HAS A DIFFERENT FINANCIAL YEAR ENDING V IS-A-VIS THAT OF THE ASSESSEE, THE SAME OUGHT TO HAVE BEEN E XCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ARGUMENT ADVANCED BY THE ID. DR IN THI S REGARD WAS NOT SERIOUSLY CHALLENGED BY THE ID. AR. RESPECTFULL Y FOLLOWING THE PRECEDENT, WE HOLD THAT THIS CASE SHOULD BE EXCLUDE D FROM THE LIST OF COMPARABLES. 65 IT(TP)A NOS.11(B)/12 30. NO DOUBT THE ABOVE DECISION WAS FOR A. Y. 2005- 06, BUT THE ANNUAL REPORT OF THE SAID COMPANY PLACED BY THE ASSESSEE AT PAPER BOOK PAGE NO.599 SHOW THAT ITS FINAL ACCOUNTS WERE BEING PREPARED ON A CALENDAR YEAR BASIS EVEN AFTER THAT. PROFIT AND LOSS ACCOUNT IS FOR CALENDAR YEAR ENDING 31.12.2008 FOR THE SAME REASON AS MENTIONED BY THE COORDINATE BENCH OF MUMBAI IN T HE CASE OF HAPAG LLOYD GLOBAL SERVICES P. LTD (SUPRA), WE AR E OF THE OPINION THAT R SYSTEMS INTERNATIONAL LTD (SEG) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. 31. AS FOR SASKEN COMMUNICATION TECHNOLOGIES LTD (S EG), THIS TRIBUNAL IN THE CASE OF MOTOROLA SOLUTIONS (IN DIA) P LTD (SUPRA), HELD AS UNDER AT PARA 12 ITS ORDER : 12. SASKIN COMMUNICATION TECHNOLOGIES LTD.: 109. LD TPO NOTICED THAT THE COMPANY WAS REJECTED IN THE TP DOCUMENT ON THE GROUND THAT THE COMPANY FAILS ITS FILTER OF BUSINESS REVIEW AND R&D TO SALES WAS MORE THAN 3%. HOWEVER, NO REASONS WERE GIVEN FOR THE BUSINESS REVIEW. 109.1 LD. TPO POINTED OUT THAT R&D TO SALES BEING MORE THAN 3% IS NOT ACCEPTABLE FOR WHICH DETAILED DISCUSSION HAS ALREADY BEEN MADE EARLIER. HE FURTHER NOTICED THAT THE COMPANY HAS SOFTWARE SERVICES SEGMENT AND SEGMENTAL RESULTS ARE AVAILABLE FOR SOFTWARE SERVICES. HE FURTHER POINTED OUT THAT ON THE BASIS OF INFORMATION OBTAINED U/S 133(6), THE COMPANY QUALIFIES ONSITE REVENUE FILTER 66 IT(TP)A NOS.11(B)/12 (ONSITE REVENUES WERE TO THE EXTENT 27.27% OF ITS EXPORT REVENUES). AFTER CONSIDERING THE ASSESSEES REPLY, LD. TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. LD. COUNSEL POINTED OUT THAT THIS COMPANY HAS INCURRED SIGNIFICANT EXPENDITURE ON RESEARCH AND DEVELOPMENT ACTIVITY THE SAME BEING 6.07% OF SALES. HE FURTHER SUBMITTED THAT THE COMPANY HAD SIGNIFICANT INTANGIBLE INASMUCH AS IT DEVELOPS SISKIN BRANDED PRODUCTS. THE COMPANY OWNS IPR FURTHER IT WAS POINTED OUT BEFORE TPO THAT DURING THE YEAR THE COMPANY HAD ACQUIRED BOTNIA HIGHTECH F. AND ITS TWO SUBSIDIARIES AND THUS, IT HAD UNDER GONE SIGNIFICANT RESTRUCTURING. HOWEVER, LD. TPO IGNORED THESE FACTS HE RELIED ON THE FOLLOWING DECISIONS: IQ INFORMATION SYSTEM (I) PVT. LTD., ITA NO. 1961/HYD./2012 (PARA NO. 11 & 23, PAGE 25); AMERSON PROCESS MANAGEMENT INDIA PVT. LTD., ITA NO. 8118/MUM./2010 (PARA 16 PAGE 15). 110. LD. DR RELIED ON THE ORDER OF TPO AND SUBMITTED THAT TPO CONSIDERED THE COMPANIES SOFTWARE SERVICES SEGMENT DETAILS ONLY. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD OF THE CASE. 111. LD. TPO HAS COMPLETELY IGNORED THE EXTRAORDINARY BUSINESS CIRCUMSTANCES POINTED OUT BY ASSESSEE FOR WHICH NECESSARY ADJUSTMENT WAS 67 IT(TP)A NOS.11(B)/12 REQUIRED TO BE MADE IN ACCORDANCE WITH RULE 10B(3) OF INCOME TAX RULES. HOWEVER, SINCE THIS ADJUSTMENT WAS NOT POSSIBLE, THEREFORE, THIS COMPANY SHOULD NOT HAVE BEEN INCLUDED IN THE LIST OF COMPARABLES. FURTHER, WE FIND THAT THE COMPANY OWNS IPR AND HAS BRANDED PRODUCTS WHICH ALSO DISTINGUISHES IT FROM THE ASSESSEE AND, THEREFORE, KEEPING IN VIEW THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD.(SUPRA), WE DIRECT THE LD. TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. IF WE FOLLOW THE COORDINATE BENCH DECISION IN THE C ASE OF MOTORALA SOLUTION (INDIA) P. LTD, SASKEN COMMUNICAT ION TECHNOLOGIES LTD NEEDS TO BE EXCLUDED. HOWEVER, AS MENTIONED BY US AT PARA 24 ABOVE, WHERE THE CONTESTED COMPARA BLE FORMED PART OF ASSESSEES OWN STUDY, THEN THE AO / TPO HAS TO BE GIVEN A CHANCE FOR VERIFICATION, IN VIEW OF JUDG MENT OF HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF QUARK SYSTEMS INDIA P. LTD (SUPRA). ACCORDINGLY WE REMI T THE ISSUE OF COMPARABILITY OF SASKEN COMMUNICATION TECHNOLOGI ES LTD BACK TO THE AO / TPO FOR CONSIDERATION AFRESH AS PE R LAW. ORDERED ACCORDINGLY. 32. ONCE THE ABOVE COMPANIES ARE EXCLUDED WHAT WOULD BE DIRECTLY LEFT IN THE LIST OF COMPARABLES A ND DATAMATICS FINANCIAL SERVICES LTD (SEG), GEOMETRIC SOFTWARE 68 IT(TP)A NOS.11(B)/12 LTD (SEG), IGATE GLOBAL SOLUTIONS LTD, LGS GLOBAL L TD, MEDIA SOFT SOLUTIONS P. LTD, MINDTREE LTD, R S SOFTWARE ( INDIA) LTD, SIP TECHNOLOGIES & EXPORTS LTD AND MEGA SOFT LTD. LAST OF THESE, VIZ MEGA SOFT LTD, HAS TO BE CONSIDERED AFTE R PROPER SEGMENTATION, MENTIONED BY US AT PARA 25 ABOVE. AO / TPO WILL ALSO HAVE TO DECIDE ON THE COMPARABILITY OF M/ S. ACCEL TRANSMATICS LTD (SEG), QUINTEGRA SOLUTION LTD, SASK EN COMMUNICATION TECHNOLOGIES LTD (SEG) AND TATA ELXSI LTD (SEG), CONSIDERING THE JUDICIAL PRECEDENCE RELATED TO THE COMPARABILITY OF THESE COMPANIES. WE DIRECT THE AO / TPO TO REWORK THE AVERAGE PLI OF THE COMPARABLES, AS PER T HE DIRECTIONS IN THE PRECEDING PARAS AND DECIDE ON THE QUESTION OF ALP ADJUSTMENT ACCORDINGLY. 33. NOW WE TAKE UP ITES SEGMENT. FOR JUSTIFYING TH E PRICING OF ITS INTERNATIONAL TRANSACTIONS UNDER THE ITES SEGMENT, ASSESSEE HAD ADOPTED THE TNMM ITSELF AND S ELECTED 13 COMPARABLE COMPANIES WHICH GAVE AN AVERAGE PROFI T MARGIN OF 12.06%. SINCE THIS WAS WITHIN + / - 5% O F ITS OWN PROFIT MARGIN OF 9.53%, AS PER THE ASSESSEE THERE WAS NO REQUIREMENT FOR ANY ADJUSTMENT IN THE PRICING OF TH ESE TRANSACTIONS. AS PER THE ASSESSEE ITES SEGMENT COM PRISED OF TECHNICAL CALL CENTRE SERVICES. TPO THOUGH HE ACCE PTED HE THE ASSESSEE TO BE A CALL CENTER SERVICE PROVIDER, REJE CTED SEVEN COMPANIES OUT OF THE 13 SELECTED BY THE ASSESSEE. THEREAFTER HE MADE HIS OWN STUDY UNDER PROWESS AND CAPITALINE DATA BASE AND ZEROED IN ON 27 COMPARABLES, INCLUDING THE SEVEN IN 69 IT(TP)A NOS.11(B)/12 THE ASSESSEES OWN LIST. 27 COMPARABLES CONSIDERE D BY THE TPO AND THEIR AVERAGE PLI IS GIVEN HEREUNDER : 34. ON THE ARITHMETIC MEAN PLI OF 30.21%, AO MADE A NEGATIVE WORKING CAPITAL ADJUSTMENT OF 1.60% AND AR RIVED AT ADJUSTED MEAN PLI OF 28.61%. SHORTFALL IN THE VALU E OF THE INTERNATIONAL TRANSACTIONS WAS WORKED OUT BY THE AO AS UNDER : 70 IT(TP)A NOS.11(B)/12 OPERATING COST RS.258,89,21,986/- ARMS LENGTH MARGIN 28.61% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) @ 128.61% RS.332,96,12,566/ - PRICE SHOWN BY THE ASSESSEE RS.279,24,76,527/ - SHORTFALL BEING ADJUSTMENT U/S.92CA RS.53,71,36,039 /- 35. TPO RECOMMENDED AN ADJUSTMENT OF RS.5,37,36,019 /- IN THE ITES SEGMENT. WHEN A PROPOSAL ON THE ABOVE LIN ES WAS MADE ASSESSEE CHOSE TO MOVE THE DRP. HOWEVER THE D RP REJECTED ITS CONTENTIONS AND CONFIRMED THE RECOMMEN DATIONS OF THE TPO. ASSESSMENT WAS COMPLETED MAKING AN ADD ITION OF RS.52,71,36,039/- IN THE ITES SEGMENT. 36. NOW BEFORE US, LD. AR SUBMITTED THAT OUT OF THE 27 COMPARABLE COMPANIES CONSIDERED BY TPO, ACCENTIA TECHNOLOGIES LTD, ASIT C MEHTA FINANCIAL SERVICES L TD, INFORMED TECHNOLOGIES INDIA LTD, SPANCO LTD (SEG) AND VISHAL INFORMATION TECHNOLOGIES LTD, FAILED THE EMP LOYEE COST FILTER AND HAD TO BE EXCLUDED. RELIANCE WAS P LACED ON THE FOLLOWING DECISIONS OF THE TRIBUNAL : I) FIRST ADVANTAGE OFFSHORE SERVICES P. LTD V. DCIT [IT(TP)A NO.1086/BANG/2011, DT.30.04.2013]. II) STREAM INTERNATIONAL SERVICES P. LTD V. ACIT [ITA.8290/MUM/2011, DT.10.10.2014] LD. AR SUBMITTED THAT IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES P. LTD (SUPRA), THIS TR IBUNAL 71 IT(TP)A NOS.11(B)/12 HAD CLEARLY HELD THAT 25% EMPLOYEE COST FILTER HAD TO BE APPLIED FOR ITES SEGMENT. 37. VIS-A-VIS, BODHTREE CONSULTING LTD, APPEARING I N THE LIST OF TPO, LD. AR SUBMITTED THAT THE SAID COMPANY HAD WIDE FLUCTUATING MARGIN. RELYING ON THE DECISION OF PUN E BENCH OF THE ITAT IN THE CASE OF DCIT V. AFFINITY EXPRESS IN DIA P. LTD [ITA NO.595/PN/2013, DT.29.04.2015], LD. AR SUBMITT ED THAT THE SAID COMPANY HAD TO BE EXCLUDED FROM THE LIST O F COMPARABLES. 38. VIS-A-VIS, ECLERX SERVICES LTD, INFOSYS BPO LTD AND MOLD-TEK TECHNOLOGIES LTD, LD. AR SUBMITTED THAT TH EY WERE INTO KNOWLEDGE PROCESS OUT-SOURCING SERVICES AND WE RE NOT COMPARABLE WITH THE ASSESSEE WHICH WAS DOING TECHNI CAL SUPPORT SERVICES THROUGH ITS CALL CENTRES. RELIANC E WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS P. LTD V. CIT [ITA.102/2015, DT.10.08.2015], COORDINATE BENCH DECISION IN THE CA SE OF SYMPHONY MARKETING SOLUTIONS INDIA P. LTD V. ITO [I T(TP)A NO.1316/BANG/2012, DT.14.08.2013], AND DELHI BENCH DECISION IN THE CASE OF IQOR INDIA SERVICES P. LTD V. ITO [ITA.6034/DEL/2012, DT.27.04.2015]. FURTHER AS PER THE LD. AR, INFOSYS BPO LTD HAD TO BE EXCLUDED DUE TO ITS G IANT SIZE AND OWNERSHIP OF INTELLECTUAL PROPERTY. ACCORDING TO HIM FOR THE VERY SAME REASON M/S. WIPRO LTD (SEG) ALSO HAD TO BE EXCLUDED FROM THE LIST OF COMPARABLES. RELIANCE WAS ALSO 72 IT(TP)A NOS.11(B)/12 PLACED ON THE DECISION OF MUMBAI TRIBUNAL IN STREAM INTERNATIONAL SERVICES P. LTD (SUPRA). 39. CONTINUING HIS ARGUMENTS, THE LD. AR SUBMITTED THAT M/S MAPLE E SOLUTIONS LTD AND TRITON CORP LTD HAD TO BE EXCLUDED SINCE PROMOTERS /DIRECTORS OF THESE COMPAN IES WERE INVOLVED IN FRAUDS DURING THE PREVIOUS YEAR RELEVAN T TO A. Y. 2007-08, RENDERING THEIR ANNUAL REPORTS UNRELIABLE . RELIANCE WAS PLACED ON THE DECISION OF DELHI TRIBUNAL IN THE CASE OF IQOR INDIA SERVICES P LTD (SUPRA) AND THAT OF COORD INATE BENCH IN THE CASE OF FIRST ADVANTAGE OFF SHORE SERVICES P . LTD (SUPRA). 10. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER OF THE TRIBUNAL RENDERED IN THE CASE OF M/S HPGS (SUPRA), IT IS SEE N THAT ALL THESE 16 COMPARABLES WERE CONSIDERED BY THE TRIBUNAL IN THAT CASE AND IT WAS HELD BY THE TRIBUNAL THAT THESE 16 COMPARABLES ARE NOT GOOD COMPARABLE. SINCE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT CASE, WE DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER AND THE AO/TPO IS DIRECTED TO EXCLUDE THESE 16 COMPARABLES FROM THE FINAL LIST OF COMPARABLES. THE AO 73 IT(TP)A NOS.11(B)/12 SHOULD RE-CALCULATE THE TP ADJUSTMENT, IF ANY, AFTE R EXCLUDING THESE 16 COMPARABLES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (VIJAYPAL RAO) (A.K.GARODIA) JUDICIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 11-08-2016 AM COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER AR, ITAT, BANGALORE 74 IT(TP)A NOS.11(B)/12 1. DATE OF DICTATION . . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH T HE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER