Novell Software Development (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 1106/BANG/2013

• Counselvise Citation: 110621114 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Scheme of amalgamation
• Section: 92D; 92E; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT (TP) A NO.1223/BANG/2013 ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. VS. M/S. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., LAUREL, BLOCK-D, 65/2, BAGMANE TECH PARK, C V RAMAN NAGAR, BYRASANDRA POST, BANGALORE 560 093. PAN : AAACN 6992K APPELLANT RESPONDENT IT (TP) A NOS.1106/BANG/2013 ASSESSMENT YEAR : 2008-09 M/S. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., BANGALORE 560 093. PAN : AAACN 6992K VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT REVENUE BY : SHRI G.R. REDDY, CIT-I(DR) ASSESSEE BY : SHRI T. SURYANARAYANA, ADVOCATE DATE OF HEARING : 30.09.2015 DATE OF PRONOUNCEMENT : 30.09.2015 IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 2 OF 36 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THESE ARE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE AGAINST THE ORDER DATED 9.5.2013 OF CIT(APPEALS)-IV , BANGALORE RELATING TO ASSESSMENT YEAR 2008-09. 2. THE ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS ARE RELATING TO THE ADDITION MADE TO THE TOTAL INCOME CONSEQUENT TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONA L TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRIS ES (AE) U/S.92 OF THE INCOME TAX ACT, 1961 [THE ACT]. THE ADDITION MADE CONSEQUENT TO DETERMINATION OF ALP BY THE TPO AND ADDITION ON ACC OUNT OF TRANSFER PRICING ADJUSTMENT WAS A SUM OF RS.7,20,13,370 WHIC H WAS SUBSTANTIALLY REDUCED BY THE CIT(A) IN THE APPEAL FILED BY THE A SSESSEE. TO THE EXTENT THE TRANSFER PRICING ADJUSTMENT SURVIVES PURSUANT T O THE IMPUGNED ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TR IBUNAL. THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE RELIE FS ALLOWED BY THE CIT(A). 3. THE ASSESSEE, NOVELL INDIA, IS A SUBSIDIARY OF NOVELL, USA AND IS A CAPTIVE SERVICE PROVIDER. IT IS ENGAGED IN THE BUSI NESS OF PROVIDING SOFTWARE DEVELOPMENT AND SUPPORT SERVICES TO NOVELL, USA. DU RING THE FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008- 09, T HE ONLY INTERNATIONAL TRANSACTION THAT TOOK PLACE BETWEEN NOVELL INDIA AN D NOVELL US WAS IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 3 OF 36 PROVISION OF SOFTWARE DEVELOPMENT AND SUPPORT SERVI CES TO NOVELL US AT A PRICE OF RS. 82,78,21,000/-. 4. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRIC E CHARGED BY IT FOR SERVICES RENDERED TO ITS AE WAS AT ARMS LENGTH, TH E ASSESSEE FILED A REPORT AS REQUIRED BY THE PROVISIONS OF SECTION 92E OF THE ACT IN FORM 3EB TOGETHER WITH DETAILED ANALYSIS. THE ASSESSEE ADOP TED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFITS TO COST WAS ADOPTED AS THE PROFIT LEVEL INDICATOR ( PLI ). THE PLI OF THE ASSESSEE WAS ARRIVED AT AS FO LLOWS: OPERATING REVENUE RS.82,78,21,000 OPERATING COST RS.74,93,00,000 OPERATING PROFIT RS.7,85,21,000 OP.PR/COST% 10.48% 5. THE TRANSFER PRICING OFFICER ( TPO ) ARRIVED AT A FINAL SET OF 20 COMPARABLE COMPANIES. THE SET OF 20 COMPARABLE COM PANIES AND THE ARITHMETIC MEAN OF THE PROFIT MARGINS CHOSEN BY THE TPO WERE AS FOLLOWS: SL. NO NAME OF COMPANY OP / TC % 1 AVANI CINCOM TECHNOLOGIES LTD. 25.62 2 BODHTREE CONSULTING LTD. 18.72 3 CELESTIAL BIOLABS 87.94 4 E-ZEST SOLUTIONS LTD. 29.81 5 FLEXITRONICS (ARICENT) 7.86 6 IGATE GLOBAL SOLUTION LTD. 13.99 7 INFOSYS 40.37 8 KALS INFORMATION SYSTEMS LTD. (SEG.) 41.94 9 LGS GLOBAL LTD. 27.52 IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 4 OF 36 10 MINDTREE LTD. (SEG) 16.41 11 PERSISTENT SYSTEMS LTD. 20.31 12 QUINTEGRA SOLUTION LTD. 21.74 13 R SYSTEMS INTERNATIONAL (SEG) 15.30 14 R S SOFTWARE (INDIA) LTD. 7.41 15 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 7.5 8 16 TALA ELXSI (SEG) 18.97 17 THIRDWARE SOLUTION LTD. 19.35 18 WIPRO LTD. (SEG) 28.45 19 SOFTSOL INDIA LTD. 17.89 20 LUCID SOFTWARE LTD. 16.50 ARITHMETIC MEAN 23.65 6. THE TPO COMPUTED THE ALP AND CONSEQUENT ADDITION TO THE TOTAL INCOME AS FOLLOWS: 4.3 COMPUTATION OF ARMS LENGTH PRICE : THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. BASED ON THIS, THE ARMS LENGTH PRICE OF THE SOFTWARE SERVICES RENDERED BY THE TAXPAYER TO ITS A E IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 23.65% LESS: WORKING CAPITAL ADJUSTMENT(ANNEXURE-C) 3.56% ADJ.ARITHMETIC MEAN PLI 20.09% OPERATING COST 74,93,00,000 ARMS LENGTH MARGIN 120.09% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 120.09% OF OPERATING COST RS.89,98,34,370 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS.82,78,21,000 SHORTFALL BEING ADJUSTMENT U/S.92CA RS.7,20,13,370 IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 5 OF 36 THE ABOVE SHORTFALL OF RS.7,20,13,370/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN RESPECT OF THE SOFTW ARE DEVELOPMENT SEGMENT OF THE TAXPAYERS INTERNATIONAL TRANSACTION. 7. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) A CCEPTED SOME OF THE CONTENTIONS PUT FORTH BY THE ASSESSEE WITH REGARD T O THE APPLICATION OF TURNOVER FILTER AND EXCLUDED 8 COMPANIES WHOSE TURN OVER WAS MORE THAN RS.200 CRORES. THE CIT(A) APPLIED HIGH PROFIT MAR GIN CRITERIA AND EXCLUDED CELESTIAL BIO LABS LTD., AS IT HAD PROFIT BEYOND 50 % DURING THE RELEVANT PREVIOUS YEAR. TWO COMPANIES VIZ., AVANI CINCOM TE CHNOLOGIES LTD., AND KALS INFORMATION SYSTEMS LTD., WERE EXCLUDED AS FUN CTIONALLY NOT COMPARABLE. AS A RESULT OF SUCH EXCLUSION, THE FO LLOWING COMPANIES ALONE WERE RETAINED FOR THE PURPOSE OF DETERMINING THE PR OFIT MARGIN (ARITHMETIC MEAN):- SL. NO NAME OF COMPANY OP ON COST AS PER OGE TO CIT(A) ORDER ADJUSTED MARGIN 1 BODHTREE CONSULTING LTD. 19.14% 20.15% 2 E-ZEST SOLUTIONS LTD. 28.97% 29.22% 3 LGS GLOBAL LTD. 26.66% 25.93% 4 QUINTEGRA SOLUTION LTD. 23.06% 20.35% 5 R S SOFTWARE (INDIA) LTD. 6.46% 7.73% 6 R SYSTEMS INTERNATIONAL LTD. (SEG.) 16.87% 15.02% 7 THIRDWARE SOLUTION LTD. 21.92% 20.11% 8 SOFTSOL INDIA LTD. 15.16% 13.22% 9 LUCID SOFTWARE LTD. 16.88% 16.79% AVERAGE 19.36% 15.92% IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 6 OF 36 8. ON GIVING EFFECT TO THE CIT(A)S ORDER, THE ASS ESSEES MARGIN OF 10.48% WOULD BE WITHIN THE RANGE OF + / - 5% OF TH E WORKING CAPITAL ADJUSTED ARITHMETIC MEAN OF THE COMPARABLES. 9. THE GROUNDS PRIMARILY URGED IN THE ASSESSEES AP PEAL ARE AS FOLLOWS:- (I) THE CIT(A) ERRED IN NOT REJECTING THOSE COMPAN IES WHICH ARE FUNCTIONALLY DISSIMILAR TO THE ASSESSEE; AND (II) THREE COMPANIES I.E., INFOSYS LTD., TATA ELXS I LTD. AND WIPRO LTD. OUGHT NOT TO HAVE BEEN HELD TO BE FUNCTIONALLY DISSIMILAR EVEN APART FROM THE FACT THAT THEY HAD TURNOVER > R S.200 CRORES. 10. THE GROUNDS IN THE REVENUES APPEALS ARE AS FOL LOWS:- (I) THE CIT(A) ERRED IN REJECTING EIGHT COMPANIES O N APPLICATION OF TURNOVER FILTER. (II) THE CIT(A) ERRED IN EXCLUDING CELESTIAL BIOLAB S LTD. ON THE BASIS OF HIGH PROFIT MARGIN. (III) THE CIT(A) ERRED IN REJECTING :- - DIMINISHING REVENUE FILTER - DIFFERENT YEAR ENDING FILTER - EMPLOYEE COST FILTER (IV) THE CIT(A) ERRED IN DIRECTING EXCLUSION OF AV ANI CINCOM TECHNOLOGIES AND KALS INFORMATION SYSTEMS LTD. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. C OUNSEL FOR THE ASSESSEE FILED BEFORE US A CHART SHOWING AS TO HOW COMPANIES EXCLUDED BY THE CIT(A) WAS VALID AND AS TO HOW ONE OF THE COMPA NIES E-ZEST SOLUTIONS IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 7 OF 36 LTD., A COMPARABLE CHOSEN BY THE TPO WHICH WAS RETA INED BY THE CIT(A), HAS TO BE EXCLUDED. THE LEARNED DR RELIED ON THE O RDER OF THE TPO. WE SHALL DEAL WITH THIS ARGUMENT BY TAKING UP INDIVIDU AL COMPANIES CHOSEN BY THE TPO AND EXCLUDED BY THE CIT(APPEALS). 12. AS FAR AS ASSESSEES APPEAL IS CONCERNED, THE FIRST GRIEVANCE IS REGARDING THE ACTION OF THE CIT(A) IN NOT EXCLUDING E-ZEST SOLUTIONS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT (201 4) 42 TAXMANN.COM 333 (BANG.) (ITAT) WAS PLEASED TO EXCLUDE THE AFORE SAID COMPANY (FOR AY 08-09) AS A COMPARABLE COMPANY IN SOFTWARE DEVELOPM ENT SERVICES SEGMENT. THE FOLLOWING WERE THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL. 14. E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS F UNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT AS PER TH E INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SER VICES 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 FUNCTIONALLY D IFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISE D REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN E-B USINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SE RVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVIC ES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIG H END ITES IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 8 OF 36 NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCI NG (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE AN NUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIV E INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHIC H SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONA L PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOP MENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERV ICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVE LOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDI NATE 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 SOLU TIONS LTD., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY 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 COMPANY IN TH E LIST OF COMPARABLES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 13 3(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVIC ES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVIC ES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOP MENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON REC ORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMEN T SERVICES, THIS 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 BE EN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KP O SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUT IONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 9 OF 36 CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 13. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 14. AS FAR AS THE NEXT GRIEVANCE OF THE ASSESSEE IS CONCERNED, THE PLEA IS THAT INFOSYS LTD., TATA ELXSI LTD., AND WIPRO LT D., HAVE BEEN EXCLUDED BY THE CIT(A) FROM THE LIST OF COMPARABLE COMPANIES BA SED ON THE FACT THAT THEIR TURNOVER WERE MORE THAN RS.200 CRORES AND THE REFORE CANNOT BE COMPARED WITH A COMPANY LIKE THE ASSESSEE WHOSE TUR NOVER IS ONLY AROUND RS.83 CRORES. ACCORDING TO THE ASSESSEE, THESE THR EE COMPANIES HAVE BEEN HELD TO BE FUNCTIONALLY ALSO NOT COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE I N THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND HENCE ON THIS G ROUND ALSO, THE AFORESAID THREE COMPANIES SHOULD BE EXCLUDED. 15. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT THESE THREE COMPANIES HAVE BEEN HELD TO BE FUNCTIONALLY NOT COM PARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE A SSESSEE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA). THE FOLLOWI NG WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: 11.0 INFOSYS TECHNOLOGIES LTD. IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 10 OF 36 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. B EFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJE CTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE S OFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENT ATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IS MER ELY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AN D DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIB LE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY T HE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN 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 INTAN GIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET . IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HENCE INF OSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSES SEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2 010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIA NT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDE RS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTION S AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 11 OF 36 (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQU ISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORISE D REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFOSYS TECHNOLOGIE S LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGINS OF THIS COMPA NY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPART MENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFER ENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDIN G RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGUMENT PUT FORTH BY T HE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPAR ABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES F ROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REV ENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. I N THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITT ED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY . 13. TATA ELXSI LTD. 13.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY , BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTI ON PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET O F COMPARABLES. 13.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIO NS UNDER SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) V ISUAL IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 12 OF 36 COMPUTING LABS AS IS REFLECTED IN THE ANNUAL REPORT OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUB MITTED THAT, (I) THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS HELD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARABLE FOR A SOFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HAVE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMPANY THE DESCRIPTION OF THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS IN R ESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN TH E EMBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. THE LEARNED AUTHORISED REPRESENTATIVE PLEADS T HAT IN VIEW OF THE ABOVE REASONS, TATA ELXSI LTD. IS CLEARLY FUNCT IONALLY DIFFERENT / DIS-SIMILAR FROM THE ASSESSEE AND THEREFORE OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS CO MPANY IN THE LIST OF COMPARABLES. 13.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 13 OF 36 DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPM ENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGM ENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AN D ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 13.5 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEV ELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONAL LY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVID ED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAV E BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DET AILS FOR REVENUE SALES 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 T HESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT F OR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH 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 FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO AS SESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPAN Y IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. WIPRO LTD. : AS FAR AS THIS COMPANY IS CONCERNED, THIS TRIBU NAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) HELD THAT THIS COMPANY IS NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. THE RELEVANT OBSERV ATIONS ARE AS FOLLOWS:- IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 14 OF 36 12. WIPRO LTD. 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S ON SEVERAL GROUNDS LIKE FUNCTIONAL DIS-SIMILARITY, BRA ND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJ ECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SE T OF COMPARABLES. 12.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. WIPRO LTD., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOLLOWING REASONS:- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN THE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENTS AND HAS 62 PENDING APPLICATIONS AND ITS ANNUAL REPORT CONFIRMS THAT IT OWNS PATENTS AND INTANGIBLES. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS, CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK; (III) THE CO-ORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT FUNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PURSUANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. (V) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 15 OF 36 SERVICES. NO INFORMATION IS AVAILABLE ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 12.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 12.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUS ED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MER IT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF TH IS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN TH AT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMAT ION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF P RODUCT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADO PTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALE S 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. AN OTHER MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OU T BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDAT ED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPR IATE COMPARISON. 12.5 WE ALSO FIND THAT THIS COMPANY OWNS INTELLECTU AL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVE RAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS 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 ASSESSE E IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWIN G THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 16 OF 36 I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD T HAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFI CER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 16. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE DIRECT THAT THE AFORESAID THREE COMPANIES BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE GROUND THAT THEY ARE NOT FUNCTIONALLY COMPARABLE ALSO. 17. AS FAR AS REVENUES GRIEVANCE IN ITS APPEAL ARE CONCERNED, THE FIRST GRIEVANCE OF THE REVENUE AS PROJECTED IN GROUND NO. 2 OF ITS APPEAL IS THAT THE CIT(A) WAS NOT RIGHT IN APPLYING TURNOVER FILTE R AND EXCLUDING 8 COMPANIES CHOSEN AS COMPARABLE BY THE TPO. THE FOL LOWING WERE THE COMPANIES SO EXCLUDED BY THE CIT(A): TURNOVER RS. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CRO RES (2) IGATE GLOBAL SOLUTIONS LTD. 747.27 CRORES (3) MINDTREE LTD. 590.39 CRORES (4) PERSISTENT SYSTEMS LTD. 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 343.57 CRORES (6) TATA ELXSI LTD. 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES. (8) INFOSYS TECHNOLOGIES LTD. 13149 CRORES 18. THE BANGALORE BENCH OF ITAT HAS BEEN CONSISTEN TLY FOLLOWING THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 17 OF 36 V. DCIT, ITA NO.1054/BANG/2011 DATED 23.11.2012 WHE REIN A VIEW HAS BEEN TAKEN THAT HUGE TURNOVER MAKES A COMPANY NOT C OMPARABLE WITH A COMPANY HAVING SMALLER TURNOVER. FOR THE SAKE OF REFERENCE, WE MAY REFER TO THE DECISION OF THIS BENCH IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V. DCIT, ITA NO.1054/BANG/2011 DATE D 23.11.2012 , THE RELEVANT OBSERVATIONS THEREIN ARE AS FOLLOWS:- (1) TURNOVER FILTER 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TPO HAS APPLIED A LOWER TURNOVER FILTER OF RS. 1 CRORE, BUT HAS NOT CHOSEN TO APPLY ANY UPPER TURNOVER LIMIT. IN THIS REGARD, IT WAS SUBMITTED BY HIM THAT UNDER RULE 10B(3) TO THE INCO ME-TAX RULES, IT WAS NECESSARY FOR COMPARING AN UNCONTROLLED TRAN SACTION WITH AN INTERNATIONAL TRANSACTION THAT THERE SHOULD NOT BE ANY DIFFERENCE BETWEEN THE TRANSACTIONS COMPARED OR THE ENTERPRISES ENTERING INTO SUCH TRANSACTION, WHICH ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID OR PROFIT ARISING FROM SUCH TRANSACTION IN THE OPEN MARKET. FURTHER IT IS ALSO NECESSARY TO SEE THAT WHEREVER THERE ARE SOME DIFFERENCES SUCH DIFFE RENCES SHOULD BE CAPABLE OF REASONABLE ACCURATE ADJUSTMENT IN MON ETARY TERMS TO ELIMINATE THE EFFECT OF SUCH DIFFERENCES. IT WA S HIS SUBMISSION THAT SIZE WAS AN IMPORTANT FACET OF THE COMPARABILI TY EXERCISE. IT WAS SUBMITTED THAT SIGNIFICANT DIFFERENCES IN SIZE OF THE COMPANIES WOULD IMPACT COMPARABILITY. IN THIS REGA RD OUR ATTENTION WAS DRAWN TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT CHANDIGARH BENCH IN THE CASE OF DCIT V. QUARK SYSTEMS PVT. LTD. 38 SOT 207 , WHEREIN THE SPECIAL BENCH HAD LAID DOWN THAT IT IS IMPROPER TO PROCEED ON THE BASIS OF LOWE R LIMIT OF 1 CRORE TURNOVER WITH NO HIGHER LIMIT ON TURNOVER, AS THE SAME WAS NOT REASONABLE CLASSIFICATION. SEVERAL OTHER DECIS IONS WERE REFERRED TO IN THIS REGARD LAYING DOWN IDENTICAL PR OPOSITION. WE ARE NOT REFERRING TO THOSE DECISIONS AS THE DECISIO N OF THE SPECIAL BENCH ON THIS ASPECT WOULD HOLD THE FIELD. REFEREN CE WAS ALSO MADE TO THE OECD TP GUIDELINES, 2010 WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS:- IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 18 OF 36 SIZE CRITERIA IN TERMS OF SALES, ASSETS OR NUMBER OF EMPLOYEES: THE SIZE OF THE TRANSACTION IN ABSOLUTE VALUE OR IN PROPORTION TO THE ACTIVITIES OF THE PAR TIES MIGHT AFFECT THE RELATIVE COMPETITIVE POSITIONS OF THE BUYER AND SELLER AND THEREFORE COMPARABILITY. 12. THE ICAI TP GUIDELINES NOTE ON THIS ASPECT LAY DOWN IN PARA 15.4 THAT A TRANSACTION ENTERED INTO BY A RS. 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENT ERED INTO BY A RS. 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASON S ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIE S OF SCALE UNDER WHICH THEY OPERATE. THE FACT THAT THEY OPERA TE IN THE SAME MARKET MAY NOT MAKE THEM COMPARABLE ENTERPRISES. T HE RELEVANT EXTRACT IS AS FOLLOWS [ON RULE 10B(3)]: CLAUSE (I) LAYS DOWN THAT IF THE DIFFERENCES ARE NOT MATERIAL, THE TRANSACTIONS WOULD BE COMPARABLE. THESE DIFFERENCES COULD EITHER BE WITH REFERENCE TO THE TRANSACTION OR WITH REFERENCE TO THE ENTERPRISE. FOR INSTANCE, A TRANSACTION ENTERED INTO BY A RS 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INTO BY A RS 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. 13. IT WAS FURTHER SUBMITTED THAT THE TPOS RANGE ( RS. 1 CRORE TO INFINITY) HAS RESULTED IN SELECTION OF COMPANIES LIKE INFOSYS WHICH IS 277 TIMES BIGGER THAN THE ASSESSEE (TURNOV ER OF RS. 13,149 CRORES AS COMPARED TO RS. 47.47 CRORES OF AS SESSEE). IT WAS SUBMITTED THAT AN APPROPRIATE TURNOVER RANGE S HOULD BE APPLIED IN SELECTING COMPARABLE UNCONTROLLED COMPAN IES. 14. REFERENCE WAS MADE TO THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010 , WHEREIN RELYING ON DUN AND BRADSTREETS ANALYSIS, THE TURNO VER OF RS. 1 CRORE TO RS. 200 CRORES WAS HELD TO BE PROPER. THE FOLLOWING RELEVANT OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE JUDIC IAL PRECEDENTS ON THE ISSUE, WE FIND THAT THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH .IRE (SIC) IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 19 OF 36 MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A POSITION TO BARGAIN THE PRICE AND ALS O ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNAL, WHEN COMPANIES WHICH ARC LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. 15. IT WAS BROUGHT TO OUR NOTICE THAT THE ABOVE PRO POSITION HAS ALSO BEEN FOLLOWED BY THE HONOURABLE BANGALORE ITAT IN THE FOLLOWING CASES: 1. M/S KODIAK NETWORKS (INDIA) PRIVATE LIMITED VS. ACIT (ITA NO.1413/BANG/2010) 2. M/S GENESIS MICROCHIP (I) PRIVATE LIMITED VS. D CIT (ITA NO.1254/BANG/20L0). 3. ELECTRONIC FOR IMAGING INDIA PRIVATE LIMITED (I TA NO. 1171/BANG/2010). IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 20 OF 36 IT WAS FINALLY SUBMITTED THAT COMPANIES HAVING TURN OVER MORE THAN RS. 200 CRORES OUGHT TO BE REJECTED AS NOT COM PARABLE WITH THE ASSESSEE. 16. THE LD. DR, ON THE OTHER HAND POINTED OUT THAT EVEN THE ASSESSEE IN ITS OWN TP STUDY HAS TAKEN COMPANIES HA VING TURNOVER OF MORE THAN RS. 200 CRORES AS COMPARABLES . IN THESE CIRCUMSTANCES, IT WAS SUBMITTED BY HIM THAT THE ASS ESSEE CANNOT HAVE ANY GRIEVANCE IN THIS REGARD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE PROVISIONS OF THE ACT AND THE RULES THAT ARE RELEVANT FOR DECI DING THE ISSUE HAVE TO BE FIRST SEEN. SEC.92. OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SEC.92-B PROVIDES THAT INTERNATIONAL TRANSACTION MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR L ENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTER PRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED O R TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERP RISES. SEC.92- A DEFINES WHAT IS AN ASSOCIATED ENTERPRISE. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE TRANSACTION BETWEEN TH E ASSESSEE AND ITS AE WAS AN INTERNATIONAL TRANSACTION ATTRACTING THE PROVISIONS OF SEC.92 OF THE ACT. SEC.92C PROVIDES THE MANNER OF COMPUTATION OF ARMS LENGTH PRICE IN AN INTERNATION AL TRANSACTION AND IT PROVIDES:- (1) THAT THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY AN Y OF THE FOLLOWING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 21 OF 36 ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOARD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN DOES NOT EXCEED FIVE PER CENT OF THE LATTER, THE PR ICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BE EN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR T HE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE OPINION THAT ( A ) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRANSACTION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2); OR ( B ) ANY INFORMATION AND DOCUMENT RELATING TO AN INTERNATIONAL TRANSACTION HAVE NOT BEEN KEPT AND MAINTAINED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SECTION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR ( C ) THE INFORMATION OR DATA USED IN COMPUTATION OF TH E ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR ( D ) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SPECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED TO FURNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D, IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 22 OF 36 THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNAT IONAL TRANSACTION IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: 18. RULE 10B OF THE IT RULES, 1962 PRESCRIBES RULES FOR DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 9 2C:- 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SE CTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTER NATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLO WING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A). TO (D).. ( E ) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB- CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 23 OF 36 IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 24 OF 36 PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH TH E INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALS O BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD H AVE AN INFLUENCE ON THE DETERMINATION OF TRANSFER PRICE S IN RELATION TO THE TRANSACTIONS BEING COMPARED. 19. A READING OF THE PROVISIONS OF RULE 10B(2) OF T HE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPA RED WITH INTERNATIONAL TRANSACTION HAVING REGARD TO THE FACT ORS SET OUT THEREIN. BEFORE US THERE IS NO DISPUTE THAT THE TN MM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE I NTERNATIONAL TRANSACTION. THE DISPUTES ARE WITH REGARD TO THE C OMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO. 20. IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLE ARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSING THE COMPARABLES. THE ASSESSEES TURNOVER I S RS. 47,46,66,638. IT WOULD THEREFORE FALL WITHIN THE C ATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010) . THUS, COMPANIES HAVING TURNOVER OF MORE THAN 200 CRORES H AVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOW N IN SEVERAL DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE AS SESSEE. APPLYING THOSE TESTS, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCLUDED FROM THE LIST OF 26 COMPARABLES DRAWN BY T HE TPO VIZ., IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 25 OF 36 TURNOVER RS. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CR ORES (2) IGATE GLOBAL SOLUTIONS LTD. 747.27 CRORES (3) MINDTREE LTD. 590.39 CRORES (4) PERSISTENT SYSTEMS LTD. 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 343.57 CRORES (6) TATA ELXSI LTD. 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES. (8) INFOSYS TECHNOLOGIES LTD. 13149 CRORES. 19. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE CIT(A) EXCLUDING THE AFORESAID COMPANIES FROM T HE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 20. THE NEXT GRIEVANCE OF THE REVENUE PROJECTED IN GROUND NO.3 OF ITS APPEAL IS EXCLUSION OF CELESTIAL BIOLABS LTD., AS A COMPARABLE COMPANY BY THE CIT(A). ON THIS ISSUE THIS TRIBUNAL HAS ALREAD Y TAKEN A VIEW (FOR AY 08- 09) THAT CELESTIAL BIOLABS LTD. IS NOT A COMPARABLE COMPANY WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE I N THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA). THE FOLLOWING WER E THE RELEVANT OBSERVATIONS: 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INC LUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LI ST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FI LTER. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTIONAL DISSIMILA RITY HAS BEEN DEALT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSME NT YEAR 2007- 08. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY OBSERVING IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 26 OF 36 THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE, AS THE COMPANY IS INTO BIO-INFORMATICS SOFTWARE PRODUC T / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED. IT WAS SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF PRODUCTS IN THE FIELD OF BIO-TECHNOLOGY, PHARMACEUTICALS, ETC. AND THEREFORE IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE; (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY INCOMPARABLE TO SOFTWARE SERVICE PROVIDERS BY THE DECISION OF TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 (SUPRA); (III) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AT PARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THA T .. AS EXPLAINED EARLIER, IT IS A DIVERSIFIED COM PANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY, 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 ADJUSTMENTS, THE TPO HAS RENDER ED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS R EGARD. (IV) THE REJECTION / EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2007-08 FOR SOFTWARE SERVICE PR OVIDERS HAS BEEN UPHELD BY THE CO-ORDINATE BENCHES OF THIS TRIB UNAL IN THE CASES OF LG SOFT INDIA PVT. LTD. IN ITA NO.112/BANG /2011, CSR INDIA PVT. LTD. IN IT(TP)A NO.1119/BANG/2011 AND BY THE ITAT, DELHI BENCH IN THE CASE OF TRANSWITCH INDIA PVT. LT D. IN ITA NO.6083/DEL/2010. (V) THE FACTS PERTAINING TO THIS COMPANY HAS N OT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 27 OF 36 COMPARABILITY IN THE INSTANT CASE AND HENCE OUGHT T O BE REJECTED. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS ALS O REFERRED TO AND QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF T HE COMPANY. 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED AND RELIED ON BY THE ASSES SEE ARE FOR ASSESSMENT YEAR 2007-08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS TR UE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THIS YEAR AS WELL, THE SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A C OMPARABLE BASED ON THE REASONING GIVEN IN THE TPOS ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TP O HAS NOT CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY F OR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THAT EXTENT, IN O UR CONSIDERED VIEW, THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIV E AND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICI AL DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON REC ORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSE SSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FU NCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS ALSO BEEN SO H ELD BY CO- ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AS WELL AS IN THE C ASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) . IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER P ARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDE RATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESS EE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIB UNAL IN THE IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 28 OF 36 ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRILOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT THIS CO MPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 21. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE UPHOLD THE ORDER OF THE CIT(A) EXCLUDING THE AFORESAID COMPANIES FROM T HE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 22. GROUNDS NO.4 TO 6 RAISED BY THE REVENUE DO NOT ARISE FOR CONSIDERATION AT ALL BECAUSE THE CIT(A) DID NOT EXC LUDE ANY OF THE COMPARABLE CHOSEN BY THE TPO BY APPLYING ANY OF THE CRITERIA AS CONTENDED IN THE AFORESAID GROUNDS BY THE REVENUE. HENCE, THESE GROUNDS ARE HELD TO BE NOT ARISING OUT OF THE ORDER OF THE CIT(A). 23. AS FAR AS GROUND NOS. 7 & 8 RAISED BY THE REVEN UE ARE CONCERNED IT PROJECTS THE GRIEVANCE OF THE REVENUE IN THE ACTION OF THE CIT(A) IN EXCLUDING AVANI CINCOM TECHNOLOGIES AND KALS INFORM ATION SYSTEMS LTD., FROM THE LIST OF COMPARABLE CHOSEN BY THE TPO. TH E COMPARABILITY OF THESE COMPANIES WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE WAS CONSIDERED IN SEVERAL DECISIONS OF THE ITAT. THESE HAVE BEEN LISTED IN THE CHART FILED BY THE ASSESSEE BEFO RE US. WE, HOWEVER, FIND THAT MAKING A REFERENCE TO ALL THOSE DECISIONS WILL NOT BE OF ANY HELP AND MAKING A REFERENCE TO ONE SUCH DECISION WOULD BE SU FFICIENT. IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. V. DCIT, IT(TP)A NO.1 303/BANG/2012 FOR IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 29 OF 36 A.Y. 2008-09, ORDER DATED 28.11.2013 , THIS TRIBUNAL HAS HELD AS UNDER ON CHOOSING THIS COMPANY AS A COMPARABLE:- 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPA NY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT F UNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE P RODUCTS WHEREAS THE ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES T O ITS AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSE E ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AN D HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, TH E TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE A CT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUS ION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON TH E GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMIT TED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6) OF THE ACT, ON THE BASIS OF WH ICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARAB LE COMPANIES, HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE P LACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS : I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DC IT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT ( ITA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HE LD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY A CO -ORDINATE IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 30 OF 36 BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER S UBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT C HANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007-08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSMENT YEAR 2008-09). IN S UPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLE ARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPMENT OF SOFT WARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS COMPANY OFFERS CUSTO MISED SOLUTIONS AND SERVICES IN DIFFERENT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT TH IS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE, CARMA, ETC. 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER IN C URRAM SOFTWARE INTERNATIONAL PVT. LTD., IN ITS ORDER IN ITA NO.128 0/BANG/2012 DT.31.7.2013 HAS REMANDED THE MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILIT Y OF THIS COMPANY AFRESH, BY MAKING THE FOLLOWING OBSERVATION S AT PARAS 9.5.2 AND 9.5.3 THEREOF :- 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE T HAT THIS COMPANY HAS TO BE DELETED FROM THE LIST OF COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM T HE SET OF COMPARABLES IN THE CASE OF TRILOGY E-BUSINES S SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUBT THIS CO MPANY HAS BEEN DELETED AS A COMPARABLE IN THE CASE OF TRI LOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND THI S CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY I N THE CASE ON HAND ALSO. THIS ALONE, HOWEVER, WILL NOT S UFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRILOGY CA SE ARE EQUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE'S C ASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS OF TRILOGY CA SE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON H AND, COMPARISON BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE COMPARABILITY BETWEEN THE ASSESSEE AND THE TRILOGY CASE, IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 31 OF 36 THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT THE FAC TS APPLICABLE TO THE ASSESSMENT YEAR 2007-08, THE YEAR FOR WHICH THE DECISION IN CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE A LSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE A SSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERE NT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE AP PLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEA RS. TO DO THAT, IT IS NECESSARY TO FIRST ESTABLISH THAT THE FACTS AND ATTENDANT FACTORS HAVE REMAINED THE SAME SO THA T THE FACTORS OF COMPARABILITY ARE THE SAME. VIEWED IN THAT CONTEXT, THE ASSESSEE HAS NOT DISCHARGED THE O NUS UPON IT TO ESTABLISH THAT THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUP RA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TO O OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08. THE AS SESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT THE FACTS OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007 -08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATION S. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESS EE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE AC T AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WH ICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THER EON. IT IS ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCESS CONDUCTED BY THE TPO, BUT ONLY AS AN ADDITIONAL COMPARABLE FOR THE REASON THAT IT WAS SELECTED AS A COMPARABLE IN THE EARLIER YEAR I.E. A SSESSMENT YEAR 2007-08 ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THIS REGARD, THE LEARNED AUT HORISED REPRESENTATIVE TOOK US THROUGH THE RELEVANT PORTION S OF THE TP IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 32 OF 36 ORDER UNDER SECTION 92CA OF THE ACT AND THE SHOW CA USE NOTICES FOR BOTH THE EARLIER YEAR I.E. ASSESSMENT YEAR 200 7-08 AND FOR THIS YEAR AND CONTENDED THAT THE SELECTION OF THIS COMPANY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED IN CUR RAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THAT A COMPANY CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS OF FAR ANALYSIS CONDUC TED FOR THAT YEAR AND THEREFORE PLEADED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT HE HA S BROUGHT ON RECORD SUFFICIENT EVIDENCE TO SHOW THAT THE FUNCTIO NAL PROFILE OF THIS COMPANY REMAINS UNCHANGED FROM THE EARLIER YEA R AND HENCE THE FINDINGS RENDERED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 -08 (SUPRA) AND IN OTHER CASES LIKE TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSI DERATION AS WELL. 7.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULL Y CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAIN ED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORM ATION SO GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPA NY IN ITS FINAL LIST OF COMPARABLES. NON-FURNISHING THE INFORMATIO N OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASSESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARABLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONL Y ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIE R YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY THE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUDICIAL D ECISION CITED ABOVE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08, THE ASSESSEE HAS BROUGHT ON RECORD EVIDENC E THAT THIS IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 33 OF 36 COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFORE TH E FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES RENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YE AR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONS IDERATION WHICH FACT HAS BEEN DEMONSTRATED BY THE ASSESSEE, F OLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUN AL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013, AND IN THE CASE OF T RILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG /2011), WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE L IST OF COMPARABLES. .. 10. KALS INFORMATION SYSTEMS LTD. 10.1 THIS IS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON GROUNDS OF FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVID ED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWA RE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HO WEVER, REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING T HAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.24% OF TOT AL REVENUES AND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR T HE F.Y. 2007- 08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INC OME FILTER. 10.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE AND OUGHT TO BE REJECTED / EXCLUDED FROM T HE LIST OF COMPARABLES FOR THE FOLLOWING REASONS :- (I) THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF THE ASSESSEE AS IT IS INTO SOFTWARE PRO DUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONA LLY NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS FOR ASSESS MENT YEAR 2007-08 BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE ASSESSEE'S OWN CASE. THIS COMPANY HAS BEEN HELD TO BE DIFFERENT FROM A SOFTWARE DEVELOPMENT COMPANY IN THE DECISION OF THE IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 34 OF 36 TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. V DCIT IN ITA NO.1386/PN/2010. (III) THE REJECTION OF THIS COMPANY AS A COMPAR ABLE HAS BEEN UPHELD BY CO-ORDINATE BENCHES OF THE TRIBUNAL IN TH E CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011). LG SOFT INDIA PVT. LTD. (IT (TP) A NO.112/BANG/2011 ) CSR INDIA PVT. LTD. (IT (TP) A NO.1119/BANG/2011) A ND TRANSWITCH INDIA PVT. LTD. (IA NO.6083/DEL/2010) (IV) THE FACTS PERTAINING TO THIS COMPANY HAS N OT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE CASE ON HAND AND HENCE OUGHT T O BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF THIS C ONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY. (V) THIS COMPANY IS ENGAGED NOT ONLY IN THE DEVELOP MENT OF SOFTWARE PRODUCTS BUT ALSO IN THE PROVISION OF TRAI NING SERVICES AS CAN BE SEEN FROM THE WEBSITE AND THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAMELY, A) APPLICATION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES FROM TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION AND B) THE TRAINING SEGMENT WHICH DOES NOT HAVE ANY PRODUCT REVENUES. 10.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE CONTENDED THAT THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y.2006- 07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOU LD CONTINUE TO BE APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. A.Y. 2008-09. TO THIS, THE COUNTER ARGUMENT OF THE LEARNED AUTHOR ISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF TH IS COMPANY IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 35 OF 36 CONTINUES TO REMAIN THE SAME FOR THE YEAR UNDER CON SIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CULLE D OUT FROM THE ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM TH E RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILI TY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATION OBTAIN ED U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USED BY THE TP O, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HE COMPANY, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTA TIVE. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AND IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APAR T FROM RELYING OF THE ABOVE CITED DECISIONS OF CO-ORDINATE BENCHE S OF THE TRIBUNAL (SUPRA), THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANN UAL REPORT TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FORM THE ASSESSEE AND THAT SINCE THE FIND INGS RENDERED IN THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRI BUNAL FOR ASSESSMENT YEAR 2007-08 (CITED SUPRA) ARE APPLICABL E FOR THIS YEAR I.E. ASSESSMENT YEAR 2008-09 ALSO, THIS COMPAN Y OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN THIS VIE W OF THE MATTER, WE HOLD THAT THIS COMPANY I.E. KALS INFORMATION SYS TEMS LTD., IS TO BE OMITTED FORM THE LIST OF COMPARABLE COMPAN IES. IT IS ORDERED ACCORDINGLY. 24. RESPECTFULLY FOLLOWING THE AFORESAID DECISION R ENDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL, WE UPHOLD THE OR DER OF CIT(A) DIRECTING EXCLUSION OF THE AFORESAID TWO COMPANIES FROM THE L IST OF COMPARABLE COMPANIES CHOSEN BY THE TPO. 25. THE TPO/AO IS DIRECTED TO COMPUTE THE ARITHMET IC MEAN OF THE REMAINING COMPARABLE COMPANIES AND ALLOW ADJUSTMENT OF + / - 5% OF THE IT(TP)A NOS.1106 & 1233/BANG/2013 PAGE 36 OF 36 NET MARGIN AS CONTEMPLATED BY THE PROVISIONS OF SEC .92C OF THE ACT, IF THE ASSESSEE IS ENTITLED TO SUCH ADJUSTMENT AS A RESULT OF EXCLUSION OF THE COMPARABLE COMPANIES. 26. IN THE RESULT THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED WHILE THE APPEAL BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 30 TH SEPTEMBER, 2015. /D S/ COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.