CNO IT Services (India) Private Limited., Hyderabad V. Asst. Commissioner of Income Tax, Circle-1(2)., Hyderabad

ITA 1114/Hyd/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2663 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D PRASADA RAO
• Assessee Lawyers: ABHIROOP BHARGAV
• Keywords: Transfer pricing; International transaction; Revenue expenditure
• Section: 143(3)

Judgement Text

ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 1 OF 21 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1114/HYD/2017 (ASSESSMENT YEAR: 2007-08) M/S. CNO IT SERVICES (INDIA) P. LTD (EA RLIER KNOWN AS CONSECO DATA SERVICES (INDIA) P LTD HYDERABAD PAN: AABCC 3575 G VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 1(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI ABHIROOP BHARGAV FOR REVENUE : SHRI D. PRASADA RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2007-08. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE LEARNED CIT (A)-1, HYDERABAD, DATED 21.03.2017. THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS OF APPEAL: EACH OF THE GROUNDS AND/OR SUB-GROUNDS OF THE APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO THE OTHERS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-1 ('LD. CIT(A)') ERRED IN UPHOLDING THE A CTION OF THE LD. ASSESSING OFFICER (LD. AO)/ LD. TRANSFER PRICING OFFICER (LD. TPO) IN MAKING AN ADJUSTMENT T O THE EXTENT OF RS.1,09.45,524 TO THE INTERNATIONAL DATE OF HEARING: 17.01.2018 DATE OF PRONOUNCEMENT: 24 . 0 1 .2018 ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 2 OF 21 TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE APPELLANT TO ITS ASSOCIATED ENTERPR ISE ('AE'). 2. IN DOING SO, THE LD. CIT(A)/LD. AO/LD. TPO ERRED IN: 2.1. REJECTING THE TRANSFER PRICING ('TP') DOCUMENT ATION WHICH WAS MAINTAINED IN GOOD FAITH AND WITH DUE DILIGENCE; 2.2. REJECTING THE SEARCH PROCESS FOLLOWED BY THE APPELLANT IN THE TP DOCUMENTATION AND CARRYING OUT A FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARM'S LENGTH PRICE; 2.3. USING THE DATA AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS INSTEAD OF THOSE AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION; 2-4. REJECTING MULTIPLE YEAR DATA AND RELYING ON CONTEMPORANEOUS INFORMATION WHICH WAS NOT AVAILABLE AT THE TIME OF PREPARATION OF TP DOCUMENTATION; 2.5. INCLUDING COMPANIES IN THE COMPARABILITY ANALYSIS WHICH ARE DIFFERENT FROM THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE; 2.6. NOT CONSIDERING COMPANIES SIMILAR TO THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE WHILE PERFORMING COMPARABILITY ANALYSIS; 2.7. NOT GRANTING RISK ADJUSTMENT; AND 2.8. NOT GRANTING BENEFIT OF +/- 5% UNDER THE PROVI SO TO SECTION 92C(2) OF THE ACT 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, ENGAGED IN THE BUSINESS OF EXPORTING SOFTWARE DEVEL OPMENT SERVICES EXCLUSIVELY TO ITS 100% HOLDING COMPANY AT USA, FILED ITS RETURN OF INCOME FOR THE A.Y 2007-08 ELECTRONICALLY ON 30.10.2017 ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 3 OF 21 DECLARING A TOTAL INCOME OF RS.10,51,628. DURING TH E ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS RENDERED SOFTWARE DEVELOPMENT SERVICES TO ITS AE IN USA AND HAS RECEIVED COMPENSATION FOR SUCH SERVICES AND THEREFORE, IT IS AN INTERNATIONAL TRANSACTION WITH ITS AE. THEREFORE, HE REFERRED THE DETERMINATION OF THE ALP OF THE INT ERNATIONAL TRANSACTION TO THE TPO U/S 92CA OF THE ACT. 3. THE TPO CONSIDERED THE BUSINESS PROFILE OF THE ASSESSEE AS A SOFTWARE DEVELOPMENT SERVICE PROVIDER TO ITS AE AND AFTER CONSIDERING THAT THE ASSESSEES OPERATING PRO FIT TO THE COST RATIO IS 16.99%, HE PROCEEDED TO CONSIDER THE COMPA RABLES ADOPTED BY THE ASSESSEE. HE REJECTED ALL THE COMPAR ABLES SELECTED BY THE ASSESSEE EXCEPT TWO COMPANIES I.E. SIP TECHN OLOGIES & EXPORTS LTD; AND MINDTREE LTD. THEREAFTER, HE PROCE EDED TO ADOPT A TOTAL OF 26 COMPANIES AS COMPARABLE TO THE ASSESS EE AND ARRIVED AT THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES AT 25.14%. HE THUS, PROPOSED THE ADJUSTMENT OF RS.1,25,45,497 AFT ER ALLOWING THE WORKING CAPITAL ADJUSTMENT. 4. THE AO, ACCORDINGLY, PASSED A DRAFT ASSESSMENT O RDER . ON RECEIPT OF THE SAME, THE ASSESSEE PREFERRED TO F ILE AN APPEAL BEFORE THE CIT (A). THEREFORE, THE FINAL ASSESSMENT ORDER, DATED 9.2.2011 WAS PASSED BY THE AO. AGGRIEVED, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO GRANTED PARTIAL RE LIEF TO THE ASSESSEE BY DELETING 3 COMPARABLES FROM THE LIST OF COMPARABLES WHICH ARE (1)FLEXTRONICS SOFTWARE SYSTEMS LTD (2) I NFOSYS TECHNOLOGIES LTD AND (3) TATA ELXSI LTD. AGAINST T HE ORDER OF THE ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 4 OF 21 CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US SEEKIN G EXCLUSION OF THE FOLLOWING SEVEN COMPANIES FROM THE LIST OF COMP ARABLES: I) MEGASOFT LTD II) ACCEL TRANSMATIC LTD III) AVANI CIMCON TECHNOLOGIES LTD IV) CELESTIAL LABS LTD V) KALS INFORMATION SYSTEMS LTD VI) LUCID SOFTWARE LTD VII) WIPRO LTD 5. THE ASSESSEE HAS FILED A CHART SHOWING THE COMP ANIES WHICH ARE REMAINING AFTER GIVING EFFECT TO THE ORDE R OF THE CIT (A) AND THE COMPANIES WHICH ARE CHALLENGED BY THE ASSES SEE AND THE GROUNDS ON WHICH THEY ARE CHALLENGED ALONG WITH THE LIST OF THE DECISIONS ON WHICH THE ASSESSEE IS RELYING UPON FOR THEIR EXCLUSION. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS, THE APPE AL IS DISPOSED OF ON THE BASIS OF THE MATERIAL AVAILABLE IN THE PAPER BOOKS AND THOSE DOCUMENTS WHICH ARE SPECIFICALLY RE FERRED TO BY THE ASSESSEE AND THE REVENUE. 8. THE FIRST COMPANY CHALLENGED BY THE ASSESSEE IS M/S. MEGASOFT LTD. ACCORDING TO THE ASSESSEE, THE SAID C OMPANY IS FUNCTIONALLY DIFFERENT AS IT IS INTO SOFTWARE DEVEL OPMENT AND ALSO ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 5 OF 21 PRODUCT DEVELOPMENT. THE LEARNED COUNSEL FOR THE AS SESSEE FAIRLY CONCEDED THAT IN ALL THE DECISIONS RELIED UPON BY H IM, THE SAID COMPANY HAS BEEN RETAINED AS A COMPARABLE BUT A DIR ECTION WAS GIVEN TO THE AO/TPO TO CONSIDER ONLY THE SEGMENTAL RESULTS OF SOFTWARE DEVELOPMENT. HE PRAYED THAT SIMILAR DIRECT ION MAY BE GIVEN IN THE CASE OF THE ASSESSEE AS WELL. 9. WE HAVE GONE THROUGH THE DECISIONS RELIED UPON B Y THE LEARNED COUNSEL FOR THE ASSESSEE AND FIND THAT THE TRIBUNAL IN THE CASES CITED BY HIM, HAVE DIRECTED THAT ONLY SEGMENT AL DETAILS OF THE SOFTWARE DEVELOPMENT SERVICES TO BE CONSIDERED FOR COMPARABILITY. THEREFORE, SIMILAR DIRECTION IS GIVE N IN THIS CASE ALSO. 10. AS REGARDS ACCEL TRANSMATIC LTD IS CONCERNED, T HE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID COMPANY IS ALSO FUNCTIONALLY DIFFERENT AND NO SEGME NTAL DETAILS AS TO THE PRODUCT DEVELOPMENT AND I.T. SERVICES ARE AV AILABLE IN PUBLIC DOMAIN AND THEREFORE, IT SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF HIS CONTENTION, HE HAS P LACED RELIANCE UPON THE FOLLOWING DECISIONS: I) CONEXANT SYSTEMS INDIA (P) LTD IN ITA NO.1429/HYD/2010 AND ITA NO.1978/HYD/2011. II) DE SHAW INDIA SOFTWARE PVT. LTD IN ITA NO.2071/HYD/2011, (TS-348-ITAT-2013(HYD)-TP) III) NTT DATA INDIA ENTERPRISES APPLICATION SERVICE S P LTD IN ITA NO.2190/HYD/2011. IV) ADP PVT. LTD IN ITA NO.1711/HYD/2011. ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 6 OF 21 11. HE ALSO REFERRED TO PAGES 259 AND 262 OF THE PA PER BOOK TO DEMONSTRATE THAT IT IS ALSO INTO THE PRODUC T DEVELOPMENT. 12. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 13. WE HAVE GONE THROUGH THE MATERIAL ON RECORD AND WE FIND THAT THE BUSINESS DIVISION OF ACCEL TRANSMATIC LTD I.E. USHAS TECHNOLOGY, IS INTO DEVELOPMENT OF PRODUCTS SUCH AS EMBEDDED NETWORK SYSTEMS; IMAGING TECHNOLOGIES AND OUTSOURCE D PRODUCT DEVELOPMENT ETC., THE COORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF NTT DATA INDIA ENTERPRISES APPLICATION SERV ICES PVT. LTD IN ITA NO.2190/HYD/2011 HAS CONSIDERED THIS ISSUE A T LENGTH AND AT PARA 7.8 OF ITS ORDER HAS HELD AS UNDER: 7.8. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISIO N OF CAPGEMINI INDIA (F) LTD. V. AD. CIT 12 TAXMAN.COM 51 , THE DRP ACCEPTED THE CONTENTION OF ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXT RACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: 'IN REGARD TO ACCEL TRANSMATICS LTD. ASSESSEE SUBMI TTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 20 05 -06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPA NY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFAC TURE OF MULTI-FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, T ICKET VENDING SYSTEM. (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FO R EMBEDDED SOFTWARE, NETWORK SYSTEM, IMAGING TECHNOLO GIES, OUTSOURCED PRODUCT DEVELOPMENT. (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) TRAI NING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYS TEM ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 7 OF 21 MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT.' 7.8.1. ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIE S OF ACCEL TRANSMATIC LTD. DRP AGREED WITH ASSESSEE THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT FROM ASSESSEE COMPANY AS IT WAS ENGAGED I N THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2 D AND 3D ANIMATION AND THEREFORE ASSESSEE'S CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. IT DIRECTED TH E ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST O F COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. A SIMILAR V IEW WAS TAKEN IN THE FOLLOWING CASES : (A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA. NO. 1978/HY D/2011. (B) INTOTO SOFTWARE INDIA P. LTD. ITA. 2102/H/2010 (C) BEARING POINT BUSINESS ITA. NO. 1124/BANG/2011 (D) LG SOFT INDIA P. LTD. ITA. 1121/BANG/2011 (E) TRANSWITCH INDIA P. LTD. ITA. 948/BANG/2011 (F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA. NO. 1222/ BANG/2011 (G) CSR INDIA P. LTD. ITA. NO. 1119/BANG/2011 (H) HCL EAI SERVICES LTD. ITA. NO. 1348/BANG/2011. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATE BENCHES OF THE TRIBUNAL, WE DIRECT THAT THIS COMPANY SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES. 14. SINCE THE ABOVE ORDER IS FOR A.Y 2007-08 AND TH E FACTS AND CIRCUMSTANCES OF THE CASE ARE THE SAME, RESPECT FULLY FOLLOWING THE ABOVE DECISION, WE DIRECT THE AO TO EXCLUDE THI S COMPANY FROM THE FINAL LIST OF COMPARABLES. 15. AS REGARDS AVANI CIMCON TECHNOLOGIES LTD IS CONCERNED, THE ASSESSEE SUBMITTED THAT THIS COMPANY IS ALSO INTO THE PRODUCT DEVELOPMENT AND THAT NO SEGMENTAL DETAI LS AS TO ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 8 OF 21 PRODUCT DEVELOPMENT AND IT SERVICES ARE AVAILABLE A ND THEREFORE, THIS SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE S. HE HAS DRAWN OUR ATTENTION TO THE FINANCIAL RESULTS OF THI S COMPANY WHICH ARE FROM PAGE 309 OF THE PAPER BOOK. WE HAVE GONE T HROUGH THE FINANCIALS OF THE SAID COMPANY AND WE DO NOT FIND A NY REFERENCE TO DEVELOPMENT OF SOFTWARE PRODUCTS. IN REPLY TO THE P ROCEEDINGS U/S 92CA OF THE ACT, THE SAID COMPANY HAS REPLIED THAT IT IS PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT THE EXPENDITURE INCURRED BY THE COMPANY IS ONLY TO IMPROVE THE PROC ESSES AND THAT IT HAS NOT CREATED ANY INTANGIBLE ASSETS NOR C APITALIZED THE SAME. THE ASSESSEE IS RELYING UPON THE INFORMATION AVAILABLE ON THE WEBSITE OF M/S AVANI CIMCON TECHNOLOGIES LTD TO CONTEND THAT THIS COMPANY IS ALSO INTO DEVELOPMENT OF SOFTW ARE PRODUCTS. HOWEVER, THE FINANCIAL RESULTS OF THE COMPANY, WHIC H ARE AUDITED AND CERTIFIED BY THE AUDITORS, DO NOT CONTAIN ANY I NFORMATION WITH REGARD TO THE DEVELOPMENT OF SOFTWARE PRODUCTS. THE REFORE, WE DO NOT SEE ANY STRENGTH IN THE CONTENTION OF THE ASSES SEE TO ACCEPT THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT. IN THE CASES RELIED UPON BY THE ASSESSEE, WE FIND THAT THE TRIBUNAL HAS DIRECTED EXCLUSION OF THIS COMPANY MAINLY ON THE GROUND OF I TS ABNORMAL CIRCUMSTANCES AND PROFITS. HOWEVER, THE ASSESSEE HA S NOT RAISED SUCH A GROUND BEFORE US AND THEREFORE, WE DO NOT SE E ANY REASON TO INTERFERE WITH THE ORDER OF THE AO/TPO IN TAKING THIS COMPANY AS A COMPARABLE. ASSESSEES OBJECTIONS TO THIS COMP ANY ARE THEREFORE, REJECTED. 16. AS REGARDS CELESTIAL LABS LTD IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT THIS COMPANY IS ENGAGED IN ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 9 OF 21 R&D ACTIVITIES AND IS THEREFORE, FUNCTIONALLY DIFFE RENT. HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION: I) HEWLETT-PACKARD (INDIA) GLOBALSOFT P LTD V. DCIT (ITA 1031/BANG/2011) II) SAP LABS INDIA P LTD (IT(TP)A NO.1006/BANG/2011 ) III) TRIOLOGY E BUSINESS SOFTWARE INDIA P LTD VS. D CIT (ITA NO.10545/BANG/2011) IV) TEVAPHARM P LTD VS. DCIT (ITA NO.6623/MUM/2011) . 17. WE FIND THAT IN THE CASE OF SAP LABS INDIA PRIV ATE LTD (CITED SUPRA), THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED THE ISSUE AT LENGTH AT AT PARA 8 AND HAS REPRODUCED THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES (P) LTD V. DY.CIT (IT(TP) NO.1086/BANG/2011) FOR THE A.Y 2007-08 WHEREIN THE DECISION WITH REGARD TO CELESTIAL LAB IS GIVEN AS UNDER: (C) 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:- IN THE DIRECTOR'S REPORT (PAGE 20 OF PB-II), IT IS STATED THAT 'THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR IN- HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SEC TION 35(2AB) OF THE INCOME TAX ACT.' AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER ' DEFERRED REVENUE EXPENDITURE' (PAGE 31 OF PB-II), IT IS MENT IONED THAT, 'EXPENDITURE INCURRED ON RESEARCH AND DEVELOP MENT OF NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 10 OF 21 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-H). 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 NOT 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 RESEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPANY IS AS FOLLOWS: 'THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E- 389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTO RS REPORT WHICH READS AS FOLLOWS: 'THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TO OL 'CELSUITE' TO DRUG DISCOVERY IN, FINDING THE LEAD M OLECULES 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) BAS ED ON OUR INSILICO EXPERTISE (APPLYING BIO-INFORMATICS TO OLS). THE COMPANY HAS DEVELOPED A. MOLECULE TO TREAT LEUCODER MA 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 PRO GRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MIC ROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGNED THE TECH NOLOGY TRANSFER AGREEMENT WITH IMTECI-L CHANDIGARI-L (A VE RY REPUTED CSIR ORGANIZATION) TO MANUFACTURE AND MARKE T INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE P ROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO S ET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL EN ZYMES. THIS ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 11 OF 21 FACILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORI ES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NE W CANDIDATES' DRUG MOLECULES AND LICENSE THEM TO INTE RESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY A T HYDERABAD IN ANDHRA PRADESH' ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD B E CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY T HE 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 REFERE NCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO - INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS A LSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED C OMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTI ONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMP T MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE P ROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPAR ABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS O F MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NO T QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT T HE 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 INTO RESEARCH IN PHARMACEUTICAL PRODUCTS. THE IT AT CONCLUDED THAT THIS COMPANY IS OWNER OF IPR, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASON THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45. FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSPIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY V06-07 THIS COMPANY WAS CLASSIFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 12 OF 21 AY 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM THIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HAS POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE AND THEREFORE THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THIS COMPANY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION O F 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 WHETHER ANY SEGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPO'S ORDER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC 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. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REPORT FOR FY 0 6- 07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERENCE TO ANY REPLY BY CELESTIAL LAB S TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WITHOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN THE DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTILIZING THE ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 13 OF 21 FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO ) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY DURING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THERE 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. 18. WE HAVE ALSO GONE THROUGH THE FINANCIAL RESULTS OF THIS COMPANY WHICH ARE FILED IN THE PAPER BOOK FILED BY THE ASSESSEE AND WE FIND THAT THE ASSESSEE IS INTO RESEARCH FOR A DRUG AND THEREFORE, IS FUNCTIONALLY NOT COMPARABLE TO THE AS SESSEE WHICH IS INTO SIMPLE SOFTWARE DEVELOPMENT SERVICES. RESPECTF ULLY FOLLOWING THE ABOVE DECISION, WE DIRECT THE AO TO EXCLUDE THI S COMPANY FROM THE FINAL LIST OF COMPARABLE. 19. AS REGARDS KALS INFORMATION SYSTEMS LTD, THE LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS COMPAN Y IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN DEVELOPM ENT AND SALE OF PRODUCTS. HE DREW OUR ATTENTION TO PAGE NO.526 OF T HE PAPER BOOK, WHEREIN THE COPY OF SCHEDULE-6 FORMING PART O F THE BALANCE SHEET AS ON 31.3.2017 IS FURNISHED. IN SCHEDULE-6, THE INVENTORIES IS SHOWN AT THE VALUE OF THE SOFTWARE DEVELOPMENT A S CERTIFIED BY THE MANAGEMENT AT THE COST OR REALIZABLE VALUE WHIC HEVER IS LESS. EVEN BEFORE THE TPO, THE SAID COMPANY HAS ACCEPTED THAT IT IS INTO SOFTWARE PRODUCTS DEVELOPMENT. BUT THE TPO HOL D IT TO BE ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 14 OF 21 PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES AN D HAS ACCORDINGLY TREATED IT AS A COMPARABLE TO THE ASSES SEE. 20. THE LEARNED DR HAS ALSO BROUGHT TO OUR NOTICE T O PAGE 534 OF THE PAPER BOOK TO SUBMIT THAT THE REFERENCE IS ONLY TO SOFTWARE DEVELOPMENT SERVICES AND NOT DEVELOPMENT O F SOFTWARE PRODUCTS. WE FIND THAT FOR THE VERY SAME A.Y, THE C OORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF NTT DATA INDIA ENTERPRISES APPLICATION SERVICES (P) LTD HAS CONSIDERED ITS COM PARABILITY AND AT PARA 7.9 OF ITS ORDER HAS HELD IT TO BE NOT COMP ARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARAGRAPH IS REPRODUCED BEL OW: 7.9. AS FAR AS KALS INFORMATION SYSTEM LIMITED IS CONCERNED, LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT IT IS FUNCTIONALLY DIFFERENT FROM ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL FOR ASSESSEE RELIED UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE M/S. TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED (SUPRA) WHEREIN AT PARAS 46 AND 47 OF ITS ORDER, THE TRIBUNAL HAS DISCUSSED THE FUNCTIONAL DISSIMILARITY WITH ASSESSEE THEREIN AND HAS DIRECTED THAT THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. SIMILARLY, THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S.HCL EAI SERVICES LTD. V. DCIT- IT (TP) A. NO. 13481BANG12011 AT PARA 17 AT PAGES 24 TO 26 OF ITS ORDER HAS DISCUSSED AT LENGTH THE REASONS FOR NOT CONSIDERING THE SAID COMPANY AS COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES COMPANY. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: (D) KALS INFORMATION 'SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTEN TION OF ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BE SIDES ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 15 OF 21 THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPAN Y IS ENGAGED IN PROVIDING TRAINING. IT WAS ALSO SUBMITTE D THAT AS PER THE ANNUAL REPORT, THE SALARY COST DEBITED UNDE R THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS.45,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REV ENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNAL'S DEC ISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PVT. LIMI TED V. DCIT ITA NO.1386/PN/2010 WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006.07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: ' 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPAR ABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185 I 86 OF THE PAPER BOOK, IT IS EXPLAIN ED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY ASSESSEE. THE APPE LLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PA PER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH T HAT IT IS ENGAGED IN PROVIDING OF IT ENABLED SERVICES AND THA T THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS. E TC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FRO M THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESS EE SUCCEEDS.' BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF ASSESSEE. WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.L33(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY TH E ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 16 OF 21 LEARNED COUNSEL FOR ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE' . 7.9.1. WE FIND THAT BOTH M/S. HCL EAI SERVICES LTD. ITA. NO. 1348/BANG/2011 AS WELL AS M/S. TRIOLOGY E-BUSINESS SOLUTIONS ITA. NO. 1 054/BANG/20 11 ARE INTO SOFTWARE DEVELOPMENT SERVICES TO ITS PARENT COMPANIES. ASSESSEE IS ALSO INTO SIMILAR TYPE OF ACTIVITY. THEREFORE, THE DECIS ION TAKEN IN M/S. TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED AS WELL AS M/S. HCL EAI SERVICES LTD. TO EXCLUDE KA1S INFORMATION SYSTEMS LTD. APPLIES TO THE FACTS OF THE CASE BEFORE US ALSO. SIMILAR VIEW HAS BEEN EXPRESSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE FOLLOWING CASES: (A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA. NO. 1 978/HYD120 11. (B) INTO TO SOFTWARE INDIA P. LTD. ITA. 2102/H12010 (C) BEARING POINT BUSINESS ITA. NO. 1124/BANG/2011 (D) LG SOFT INDIA P. LTD. ITA. 1121/BANG/2011 (E) TRANSWITCH INDIA P. LTD. ITA. 948/BANG12011 (F) CSR INDIA P. LTD. ITA. NO. 1119/BANG12011 (G) FIRST ADVANTAGE ITA. NO. 1086/BANG/2012 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCHES (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THE COMPANY FROM THE LIST OF COMPARABLES. ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 17 OF 21 21. RESPECTFULLY FOLLOWING THE SAME, THE AO IS DIRE CTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 22. AS REGARDS LUCID SOFTWARE LTD IS CONCERNED, IT IS THE CASE OF THE ASSESSEE THAT THIS COMPANY IS ALSO ENGA GED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS AND SALE THEREOF. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE P&L A/C FOR THE YEAR ENDED ON 31.3.2006 AND 31.3.2007 TO DE MONSTRATE THAT THE PRODUCT DEVELOPMENT EXPENSES HAVE BEEN AMO RTIZED AND UNAMORTIZATION DEVELOPMENT EXPENSES HAS BEEN SHOWN IN THE BALANCE SHEET ALSO. HE SUBMITTED IN THE CASE OF VIR TUSA (INDIA) PVT. LTD IN ITA NO.1962/HYD/2011, THE COORDINATE BENCH O F THIS TRIBUNAL HAS CONSIDERED THIS ASPECT TO DIRECT THE A O TO EXCLUDE THE SAID COMPANY FROM THE FINAL LIST OF COMPARABLES . ON PERUSAL OF THE ORDER OF THE TRIBUNAL, WE FIND THAT AT PARA 4 O F ITS ORDER, THE TRIBUNAL HAS HELD AS UNDER: 4. LUCID SOFTWARE LTD. 4.1 OBJECTING TO THE AFORESAID COMPANY BEING TREATE D AS COMPARABLE, THE LEARNED AR SUBMITTED THAT THE AFORE SAID COMPANY CANNOT BE TREATED AS COMPARABLE AS IT HAS REVENUE FROM PRODUCTS ALSO. IT WAS FURTHER SUBMITTE D THAT SEGMENTAL FINANCIALS OF THE COMPANY ARE ALSO NOT AVAILABLE. IN SUPPORT OF SUCH CONTENTION, THE LEARN ED AR RELIED ON THE FOLLOWING DECISIONS OF COORDINATE BEN CHES OF THE TRIBUNAL. 1. INTOTO SOFTWARE INDIA PVT. LTD., ITA NO. 1196,1197/HYD/10. 2. LG SOFT INDIA PVT. LTD., ITA NO. 1121/BANG/11 3. TRANSWITCH INDIA PVT. LTD., ITA NO. 948/BANG/11 ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 18 OF 21 4. MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT L TD., ITA NO. 1222/BANG/11. 5. CSR INDIA PVT. LTD., ITA NO. 1119/BANG/11. 6. FIRST ADVANTAGE, ITA NO. 1086/BANG/12 7. HCL EAI SERVICES LTD., ITA NO. 1348/BANG/11 8. TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011. 4.2 THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE DRP AS WELL AS TPO. 4.3 WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIALS ON RECORD. ON PERUSAL OF THE ORDER PASSED BY THE COORDINATE BENCH IN CASE OF INTOTO SO FTWARE (SUPRA), IT IS TO BE SEEN THAT THIS BENCH OF THE TR IBUNAL FOLLOWING TWO OTHER DECISIONS OF THE TRIBUNAL HELD AS UNDER: '36. WE FIND THAT BOTH M/S. HCL EAI SERVICES LTD. A S WELL AS M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMI TED ARE INTO SOFTWARE DEVELOPMENT SERVICES TO ITS PARENT COMPANI ES. THE ASSESSEE IS ALSO INTO SIMILAR TYPE OF ACTIVITY. THE REFORE, THE DECISION TAKEN IN M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED AS WELL AS M/S. HCL EAI SERVICES LTD. TO EX CLUDE LUCID SOFTWARE AND KALS INFORMATION SYSTEMS LTD. APPLIES TO THE FACTS OF THE CASE BEFORE US ALSO. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCHES (SUPRA), WE DIRE CT THE ASSESSING OFFICER/TPO TO EXCLUDE THESE TWO COMPANIE S ALSO FROM THE LIST OF COMPARABLES.' 4.4 RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE COORDINATE BENCH IN CASE OF INTOTO SOFTWARE (SUPRA) , WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES WHILE DETERMINING THE ALP. 23. SINCE THE FACTS AND CIRCUMSTANCES ARE SIMILAR A ND ARE FOR THE VERY SAME A.Y, RESPECTFULLY FOLLOWING THE D ECISION OF THE ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 19 OF 21 COORDINATE BENCH, WE DIRECT THAT THIS COMPANY IS EX CLUDED FROM THE FINAL LIST OF COMPARABLES. 24. AS REGARDS WIPRO LTD, THE ASSESSEE IS SEEKING I TS EXCLUSION NOT ONLY ON THE FUNCTIONAL DIFFERENCE, BU T ALSO ON THE GROUND OF INCOMPARABLE SCALE OF OPERATIONS AND SEGM ENTAL DATA NOT BEING AVAILABLE. THE LEARNED COUNSEL FOR THE AS SESSEE PLACED RELIANCE UPON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION: I) AGNITY INDIA TECHNOLOGIES PVT LTD (TS 180 HIGH C OURT 2013 DEL T.P, HIGH COURT DELHI) II) CONEXANT SYSTEMS INDIA P LTD (ITA NO.1429/HYD/2010 & ITA NO.1978/HYD/2011) III) DE SHAW INDIA SOFTWARE P LTD (ITA NO.2071/HYD/2011 IV) VORTISA (INDIA) PVT LTD (ITA NO.1962/HYD/2011 V) NTT DATA INDIA ENTERPRISES APPLICATION SERVICES P LTD IN ITA NO.2190/HYD/2011 VI) ADP PVT. LTD IN ITA NO.1711/HYD/2011. 25. WE FIND THAT THE HON'BLE DELHI HIGH COURT IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD (SUPRA) HAS H ELD THAT BIG COMPANIES LIKE INFOSYS LTD CANNOT BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT SERVICE PROVIDERS LIKE AGNITY. FOLLOWING THE SAME ANALOGY, THE COORDINATE BENCH OF THIS TRIBUNAL HAVE DIRECTED EXCLUSION OF WIPRO LTD ALSO FROM THE FINAL LIST OF COMPARABLES. FOR THE SAKE OF READY REFERENCE, THE R ELEVANT PARAGRAPHS OF THE DIRECTIONS OF THE TRIBUNAL IN THE CASE OF VIRTUSA (INDIA) (PVT.) LTD IS REPRODUCED HEREUNDER: ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 20 OF 21 7. WIPRO LTD. 7.1 WHILE OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS COMPARABLE, THE LEARNED AR SUBMITTED THAT THE TPO O NLY ON CONSIDERING SEGMENTAL DETAILS SUBMITTED BY THE SAID COMPANY FOR IT SERVICES, IN RESPONSE TO NOTICE ISSUED U/S 1 33(6), HAS CONSIDERED IT AS A COMPARABLE. IT WAS SUBMITTED THA T THE AFORESAID COMPANY IS A DIVERSIFIED COMPANY AND DISC LOSES SEGMENTAL INFORMATION FOR IT SERVICES AND PRODUCTS AS ONE SEGMENT IN ITS ANNUAL REPORT. IT WAS SUBMITTED THAT THE TPO HAS NOT PROVIDED ANY OTHER DOCUMENTS EXCEPTING SEGMENTA L INFORMATION OBTAINED FROM TP REPORT OF WIPRO, WHICH IS UNAUDITED, MANUALLY CORRECTED AND UNVERIFIED. IT WA S SUBMITTED THAT WIPRO IS ALSO CONSIDERED TO BE A GIANT IN ITS FIELD ASSUMING ALL THE RISKS AND CANNOT BE COMPARED TO CAPTIVE SER VICE PROVIDER LIKE THE ASSESSEE. TO SUPPORT HIS CONTENTIONS WITH REGARD TO NON- COMPARABILITY OF THE SAID COMPANY, HE RELIED UPON T HE FOLLOWING DECISIONS: 1. TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011. 2. TRINITI ADVANCES SOFTWARE P. LTD., ITA NO. 1129/ H/2005. 7.2 THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE DRP AS WELL AS TPO SO FAR AS THE SELECTION OF T HE AFORESAID COMPANY AS COMPARABLE WHILE DETERMINING ALP. 7.3 WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. THE ITAT MUMBAI BENCH IN CA SE OF TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011, WHILE CONSIDERING THE OBJECTION OF T HE ASSESSEE FOR TREATING THE AFORESAID COMPANY AS COMPARABLE HE LD AS FOLLOWS: '7.5 THIS COMPANY IS ALSO A GLOBAL IT COMPANY HAVIN G VARIETIES OF SERVICE AND PRODUCTS AND LOOKING TO THE MAGNITUDE O F ITS OPERATIONS, SALES AND EXPENSES, THE SAME CANNOT BE TAKEN INTO C ONSIDERATION FOR COMPARABILITY ANALYSIS. MOREOVER, 67% OF ITS SALES RELATES TO ITS PRODUCT WHICH ARE SOLD ON PREMIUM RESULTING INTO HIGHER PRO FITABILITY, THEREFORE, CANNOT BE COMPARED WITH THE ASSESSEE COMPANY AT ALL . THERE ARE SEVERAL JUDGMENTS OF ITAT WHICH HAVE BEEN REFERRED IN PARA 6.5 ABOVE, THAT WIPRO CANNOT BE TAKEN AS COMPARABLE CASE FOR COMPAR ABLE CASE WITH THE COMPANY LIKE ASSESSEE. IN VIEW OF THESE FACTS AND T HE REASONING GIVEN IN THE CASE OF INFOSYS, WE HOLD THAT WIPRO ALSO CANNOT BE CONSIDERED AS A COMPARABILITY ANALYSIS, HENCE, WOULD NOT BE INCLUDE D IN THE LIST OF THE COMPARABLE ENTITIES AS IDENTIFIED BY THE TPO.' ITA NO.1114 OF 2017CNO IT SERVICES INDIA P LTD HYD ERABAD . PAGE 21 OF 21 7.4. AS CAN BE SEEN FROM THE FACTS AND MATERIALS O N RECORD DURING THE YEAR UNDER CONSIDERATION, THE SEGMENTAL TURNOVER OF THE WIPRO LTD. IS 9616.09 CRORES. THEREFORE, CONSID ERING THE TURNOVER, BRAND VALUE AS WELL AS OTHER DYNAMICS OF WIPRO LTD., IT COMES IN THE SAME CATEGORY AS INFOSYS AND CERTAI NLY CANNOT BE COMPARED WITH THE ASSESSEE. THEREFORE, FOLLOWING OU R REASONING IN CASE OF INFOSYS TECHNOLOGIES LTD. WE HOLD THAT W IPRO LTD. CANNOT BE TREATED AS COMPARABLE WITH THE ASSESSEE. 26. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO EXCLUDE THIS COMPANY ALSO FROM THE FINAL LIST OF CO MPARABLES. 27. EXCEPT SEEKING THE EXCLUSION OF THE ABOVE COMPARABLES, THE LEARNED COUNSEL FOR THE ASSESSEE H AS NOT ADVANCED ANY ARGUMENTS ON ANY OF THE OTHER GROUNDS OF APPEAL RAISED BY IT. THEREFORE, THEY ARE REJECTED AS NOT S PECIFICALLY CONTESTED. 28. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 24 TH JANUARY 2018. VINODAN/SPS COPY TO: 1 M/S. CNO IT SERVICES (INDIA) PVT. LTD, OFFICE NO. 208, OVAL BUILDING, ILABS CENTRE, HI-TECH CITY, MADHAPUR, HYD ERABAD 500081 2 ACIT, CIRCLE 1(2) HYDERABAD 3 CIT (A) - 1, HYDERABAD 4 PR. CIT 1, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER