ITO, Ward-2(3), Hyd, Hyderabad V. Hello Soft India Pvt.Ltd., Hyd, Hyderabad

ITA 1131/HYD/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4428 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 31-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Keywords: Transfer pricing; Working capital adjustments; Wholly owned subsidiary; Bad and doubtful debts
• Section: 92C; 133(6); 10B

Judgement Text

1 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1131/HYD/2015 ASSESSMENT YEAR 2008-2009 THE INCOME TAX OFFICER, WARD-2(3), HYDERABAD. VS. M/S. HELLO SOFT INDIA P. LTD., HYDERABAD 500 034. PAN AAACZ0688E (APPELLANT) (RESPONDENT) FOR REVENUE : MR. MOHAN KUMAR SINGHANIA FOR ASSESSEE : MR. K. GOPAL DATE OF HEARING : 21.09.2016 DATE OF PRONOUNCEMENT : 08.11.2016 ORDER PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER PASSED BY CIT(A)-X, HYDERABAD AND IT PERTAINS TO THE A .Y. 2008-09. THE FOLLOWING GROUNDS WERE URGED BEFORE US. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD CIT(A) IS CORRECT IN REJECTING THE COMPARABLES ADOP TED BY THE TPO. THE CIT(A) ERRED IN IGNORING THE ANALYSIS OF T HE TPO THAT HIGH OR LOW TURNOVER DOES NOT AFFECT, THE MARGIN OF THE COMPANY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) IS CORRECT IN REJECTING THE COMPARABLES ADOP TED BY THE TPO BY APPLYING THE EMPLOYEE COST TO SALE FILTER IG NORING THE DETAILED ANALYSIS MADE BY THE TPO ? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID CIT(A) IS CORRECT IN REJECTING THE COMPARABLES ADOP TED BY THE 2 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. TPO BY APPLYING THE ONSITE INCOME FILTER IGNORING THE DETAILED ANALYSIS MADE BY THE TPO ? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID CIT(A) IS CORRECT IN REJECTING THE COMPARABLES ADOP TED BY THE TPO HOLDING THAT LOSS MAKING COMPANIES AND COMPANIE S HAVING SUPER NORMAL PROFITS CANNOT BE CONSIDERED AS COMPARABLES ? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) IS CORRECT IN ALLOWING ADDITIONAL BENEFIT OF RISK ADJUSTMENT OF 1% TO THE ASSESSEE ? 2. THE ASSESSEE-COMPANY I.E., HELLO SOFT INDIA IS P RESENTLY KNOWN AS IMAGINATION TECHNOLOGIES (HYDERABAD) P. LTD .,. IT IS A 100% SUBSIDIARY OF HELLO SOFT INC., USA (HEREINAFTER REFERRED TO AS HIS). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. IT EXCLUSIVELY DEALS WITH HIS. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH ITS HOLDING COMPANY IN 2002 WH EREBY IT WAS REQUIRED TO PROVIDE SERVICES IN THE FIELD OF WIRELESS COMMUNICATION LIKE GSM, GPRS AND VOIP. IN CONSIDERATION THEREOF, HIS WOU LD REIMBURSE ALL COST + 5% AS ITS PROFIT FOR RENDERING THE SERVIC ES. THE ASSESSEE IS REGISTERED UNDER THE SOFTWARE TECHNOLOGIES PARKS OF I NDIA SCHEME AND CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT. FOR TH E YEAR UNDER CONSIDERATION, THE ASSESSEE ADMITTED TOTAL INCOME OF RS. 76,35,060. IT IS NOT IN DISPUTE THAT DURING THE YEAR THE ASSESSEE COM PANY ENTERED INTO TRANSACTIONS WITH A.E. AND DECLARED THE TRANSACTION S WITH A.E. AT AN ARMS LENGTH PRICE OF RS.18.21. CRORES. 2.1. THE CASE HAVING BEEN SELECTED FOR SCRUTINY, FO R THE PURPOSE OF FIXATION OF ARMS LENGTH PRICE IN RELATION TO TRANSAC TIONS ENTERED INTO BY THE ASSESSEE WITH ITS A.E, THE MATTER WAS REFERRED TO THE TPO TOWARDS DETERMINATION OF THE ARMS LENGTH PRICE WHO, INTU RN, DETERMINED AT RS.21.81 CRORES AS AGAINST RS.18.21 CRO RES DECLARED BY 3 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. THE ASSESSEE. BASED ON THE ORDER FORWARDED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT THE ASSESSING OFFICER MADE FURTHER ADJUSTMENTS OF RS.3.60 CRORES TO THE RETURNED INCOME. AGGRIEVED BY T HE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CONTENDED THAT THE ASSESS ING OFFICER ERRED IN COMPUTING THE ALP BY APPLYING THE TNMM INST EAD OF CPM. IT WAS ALSO CONTENDED THAT THE COMPARABLES ADOPTED BY THE ASSESSING OFFICER UNDER TNMM ARE NOT COMPARABLES TO THE ASSESSEE S CASE AND THE ASSESSING OFFICER FAILED TO CONSIDER THE OBJECTIONS RAISED IN THIS REGARD. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEES FUNCTIONS AND RISKS (BAS ED ON FAR ANALYSIS) ARE ALTOGETHER DIFFERENT. IT WAS SPECIFICALLY MENTIONED THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY RISKS AND THERE FORE, THE PROFIT EARNED IS AT ARMS LENGTH. FINALLY, IT WAS CONTEN DED THAT THE ASSESSING OFFICER ERRED IN NOT REDUCING THE ADJUSTMENT OF +/- 5% RATE FROM THE AVERAGE PRICE ARRIVED BY HIM. 2.3. IN THE STATEMENT OF FACTS ANNEXED TO FORM-35 IT W AS SUBMITTED THAT THE ASSESSEE COMPANY CHOSE CPM (COST PLU S METHOD) IN ORDER TO AVOID FUNCTIONAL DIFFERENCES LIKE MARKETIN G, SIZE, FINANCES, INTANGIBLES ETC.; ALL THE ABOVE ADJUSTMENTS ARE INBUILT IN THE TNMM METHOD CALCULATION. IT IS DIFFICULT TO SEPARATE ALL THE SE FUNCTIONS AT THE NET PROFIT LEVEL AND BY ADOPTING TNMM IT LEADS TO ABSUR D RESULTS. IT WAS ALSO SUBMITTED THAT THE TP STUDY HAS BEEN CARRIED OU T BY THE ASSESSEE AFTER THOROUGH ANALYSIS OF THE CHARACTERISTI C OF THE SERVICES PERFORMED, CONTRACTUAL TERMS AND CONDITIONS, FUNCTIONS PERFORMED AND OTHER MARKET CONDITIONS. THE ASSESSEE APPLIED VAR IOUS QUANTITATIVE FILTERS IN ORDER TO REJECT COMPANIES WHICH DO NOT MEET THE REQUIRED CRITERIA. THE ASSESSING OFFICER PROCEEDED TO REJECT 16 OF THE COMPARABLES WITHOUT PROPERLY DEALING WITH THE OBJECTION S RAISED BY THE ASSESSEE. 4 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. 3. DURING THE COURSE OF HEARING BEFORE THE CIT(A), T HE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT IN ASSESSEES OWN CASE FOR THE A.YS. 2005- 06 AND 2006-07 THE ITAT VIDE ITS ORDER DATED 15.01.2013 (ITA.NO.645/ HYD/2009 AND ITA.NO.1411/HYD/2010) AND ALSO FOR THE A.Y. 2007-08 (ITA.NO.1716/HYD/2011) VIDE ORDER DATED 27.09.2013 I DENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE WHEREIN THE BEN CH REJECTED THE COST PLUS METHOD AND UPHELD THE CONTENTION OF THE REVENUE THAT TNMM IS THE MOST APPROPRIATE METHOD AND CONSIDERED SEV ERAL FILTERS SUCH AS ELIMINATION OF SUPER PROFIT/LOSS COMPARABLES, ALLOWING THE BENEFIT OF PROVISO TO SECTION 92C(2) I.E., + OR 5%, GRANTING OF BENEFIT OF RISK ADJUSTMENT OF 1%, ELIMINATION OF THE MULTIPLIER COST TO SALES FILTER ETC., 3.1. UPON CONSIDERING THE ISSUE IN THE BACKDROP OF TH E ORDERS OF THE ITAT THE LD. CIT(A) DISPOSED OF THE APPEAL BY OBSERVING AS UNDER : 7. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT . THE ISSUES RAISED BY THE APPELLANT IN THE PRESENT APPEA L ARE FULLY COVERED BY THE HON'BLE ITAT ORDER IN THE APPELLANT' S OWN CASE. RESPECTFULLY FOLLOWING THE HON'BLE ITAT ORDER AND A LSO MY PREDECESSORS CIT(A)-III ORDER, I APPLY THE FILTERS WHICH WERE UPHELD IN THE EARLIER ASSESSMENT YEARS TO THE PRESE NT APPEAL ALSO. THE TPO COMPARABLES AND ALSO THE APPELLANT'S COMPARABLES HAVE BEEN RE-ANALYSED ON THE BASIS OF T HE RATIO AND FILTERS APPLIED IN A.Y. 2005-06, 2006-07 & A.Y. 2007-08. THE AR HAS ALSO FILED THE DETAILED ANALYSIS OF THE TPO AND APPELLANT COMPARABLES BEFORE ME. AFTER APPLYING THE FILTERS, THERE ARE 9 TPO COMPARABLES AND 8 APPELLANT COMPARA BLES REMAIN. FURTHER, THE AR SUBMITTED THAT TPO HAS NOT COMPUTED THE OPERATING PROFIT RATIO CONSISTENTLY WHEN COMPAR ED WITH THE TP ORDER OF A.Y. 2005-06 TO 2007-08. THE TPO MAINLY HAS TREATED INCOME OR LOSS ARISING FROM FOREIGN EXCHANG E FLUCTUATIONS AS PART OF OPERATING INCOME AND ALSO T HE MISCELLANEOUS INCOME WHILE ARRIVING AT THE OPERATIN G PROFIT RATIO. THE TPO HAS MENTIONED THE BASIS OF COMPUTATI ON OF PROFIT 5 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. LEVEL INDICATOR IN HIS ORDER AT PAGE NO. 72. THE AR SUBMITTED THAT THE TPO IN THE APPELLANT'S EARLIER YEAR'S ORDE RS THAT WHILE ARRIVING AT THE OPERATING PROFIT MARGIN, THE FOREIG N EXCHANGE FLUCTUATIONS AND ALSO MISCELLANEOUS INCOME HAS BEEN ELIMINATED AND IN SUPPORT OF THE CLAIM, THE AR HAS TAKEN ME THROUGH THE EARLIER YEARS TPO ORDERS. ON PERUSAL OF THE SAME, I AGREE WITH THE APPELLANT'S CONTENTION AND UPHOLD TH E REVISED WORKING OF THE OPERATING PROFIT RATIO OF THE TPO CO MPARABLES. IN THE FOLLOWING TPO COMPARABLES THE OPERATING PROFIT MARGIN HAS BEEN REVISED :- SL.NO. PARTICULARS REVISED OP RATIO 1. AVANI CIMCOM 14.06% 2. BODH TREE CONSULTING LTD., 20.82% 3. QUINTEGRA SOLUTIONS LTD., 18.98% 4. R.S. SOFTWARE (INDIA) LTD., 6.08% 5. SOFT SOUL (INDIA) LTD., 17.89% 8. THE APPELLANT HAS ALSO FILED THE WORKING CAPITAL ADJUSTMENT AFTER APPLYING ALL THE FILTERS AS HELD BY THE HON'B LE ITAT. FURTHER, THE APPELLANT'S OPERATING PROFIT MARGIN RA TIO HAS ALSO BEEN REVISED TO 6.34% FROM 4.37% (AS PER TPO O RDER) DUE TO ADJUSTMENT FOR FOREX LOSS. 9. IN VIEW OF THE ABOVE, THE AVERAGE PROFIT MARGIN SHO ULD BE COMPUTED CONSIDERING THE FOLLOWING COMPARABLES :- SL.NO. COMPANY NAME PROFIT % 1. AVANI CIMCOM TECH LTD., 14.06% 2. BODH TREE CONSULTING LTD., 20.82% 3. E-ZEST SOLUTIONS LTD., 28.95% 4. LGS GLOBAL LTD., 26.64% 5. QUINTEGRA SOLUTIONS LTD., 18.98% 6. R.S. SOFTWARE (INDIA) LTD., 6.08% 7. R SYSTEM INTERNATIONAL 15.30% 8. SOFT SOUL INDIA LTD., 17.89% 9. THIRDWARE SOLUTIONS LTD., 18.01% 10. AKSHAY SOFTWARE 9.16% 11. ALLSOFT CORP. 4.67% 12. CAT TECH. 13.86% 13. COMPUTECH INTERNATIONAL 0.61% 14. MAARS SOFTWARE 0.41% 15. NET RIPPLES. COM 1.52% 6 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. 16. TUTIS TECHNOLOGIES 10.81% 17. SVAM SOFTWARE 2.76% TOTAL 210.53% NO. OF COMPANIES 17 AVERAGE 12.38% 11. FURTHER, THE A.O. IS DIRECTED TO COMPUTE THE ARMS LENGTH PRICE AFTER GIVING THE WORKING CAPITAL ADJUSTMENT A T 1.83% AND RISK ADJUSTMENT AT 1%. ON DETERMINATION OF THE ALP BY THE A.O. IF THE PRICE SHOWN BY THE APPELLANT IS WIT HIN THE +/- 5% OF THE ALP UNDER THE PROVISO TO SECTION 92C (2) OF THE ACT THEN NO ADJUSTMENT IS REQUIRED TO BE MADE. 4. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) REVEN UE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. AT THE OUTSET, IT MAY BE NOTICED THAT THE DIRECTION ISSUED UNDER SECTION 253(2) O F THE I.T. ACT, DID NOT INDICATE AS TO WHAT ARE THE GROUNDS AGAINST WHIC H THE ASSESSING OFFICER IS DIRECTED TO FILE AN APPEAL. IN FACT, THE GROUNDS OF APPEAL RAISED BY THE ASSESSING OFFICER DO NOT SPECIFI CALLY INDICATE AS TO WHAT ARE THE SPECIFIC ISSUES IN DISPUTE BEFORE US AN D WHICH WERE APPROVED BY THE COMMISSIONER OF INCOME TAX. WHEN THE LD. D.R. WAS CALLED-UPON TO EXPLAIN AS TO WHAT ARE THE SPECIFIC GR OUNDS WHICH WERE SOUGHT TO BE URGED, PARTICULARLY IN THE BACKDROP OF THE ORDERS OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, TH E LD. CIT (D.R.) SUBMITTED THAT IN GENERAL THE ISSUES URGED IN THIS APPEAL ARE SQUARELY COVERED BY THE ORDERS OF THE ITAT IN THE ASSESSEES OW N CASE FOR THE EARLIER YEARS. HOWEVER, HE STRONGLY RELIED UPON THE O RDER PASSED BY THE TPO AND THE ASSESSING OFFICER; AS PER THE DIRECTION S OF THE BENCH, THE WRITTEN SUBMISSIONS WERE FILED, THE GIST OF WHICH A RE AS UNDER : (A) EVEN THOUGH THE ITAT, IN ASSESSEES APPEAL FOR THE EA RLIER YEARS, HELD THAT THE COMPANYS WITH TURNOVER EXCEEDING RS.100 CRORES SHOULD NOT BE COMPARED, THIS PROPOSITION HAS 7 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. BEEN ABANDONED BY OTHER BENCHES OF THE ITAT IN VIEW OF THE FACT THAT THE TURNOVER IS NOT ONE OF THE CRITERIA PRESCRIB ED UNDER RULE 10B FOR SELECTION OF COMPANIES AND THAT IT IS NOT REALLY THE DETERMINANT OF PROFITABILITY OF THE COMPANIE S IN THE SERVICE SECTOR. (B) SUPERIOR PROFIT FILTER IS NOT APPLICABLE : AN ENTITY WH ICH MAKES HIGH PROFIT/LOSS DOES NOT LEAD TO ITS EXCLUSION FROM THE LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINATION OF ALP A ND THEREFORE, THE DECISION OF THE ITAT IN THE ASSESSEES O WN CASE FOR THE EARLIER YEARS IS NOT GOOD LAW IN THE LIGHT OF J UDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPI TAL INVESTMENT ADVISORS (I) P. LTD., VS. DCIT 376 ITR 183 (DEL.). (C) ONSITE REVENUE FILTER AND EMPLOYEE COST FILTER : TPOS APPLICATION OF THESE FILTERS WAS REJECTED SIMPLY BECA USE RELIABLE INFORMATION IN RESPECT OF THE COMPARABLE ENTITI ES WAS NOT AVAILABLE IN PUBLIC DOMAIN. BUT THIS CANNOT BE A PERMANENT INJUNCTION AGAINST THE APPLICATION OF THOSE FILTERS AND NO ATTEMPT WAS MADE BY THE LD. CIT(A) TO FIND-OUT WHETHER THERE WAS MATERIAL CHANGE IN THE SITUATION FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. (D) THE TPO HAD INCLUDED 19 COMPANIES IN ITS T.P. ANALY SIS. THE LD. CIT(A) REMOVED 10 OF THEM AND ADDED 07 COMPARABLES, OSTENSIBLY FOLLOWING THE RATIO OF THE DECI SIONS OF THE ITAT BUT THE SPECIFIC PARAMETER ON WHICH A PARTICU LAR COMPARABLE WAS REMOVED OR ADDED WAS NOT DISCUSSED IN THE ORDER. ACCORDING TO THE LD. CIT(A), THE ASSESSING OFFI CER MIGHT HAVE FILED AN APPEAL ON THESE ASPECTS ALSO AND THE LD. CIT(A) MIGHT HAVE GIVEN HIS AUTHORISATION TO PREFER AN APPEAL 8 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. CHALLENGING THE EXCLUSION OF SOME OF THE COMPARABLES AND INCLUSION OF SOME COMPANIES AS COMPARABLES. WITH REG ARD TO REMOVABLE OF TPOS COMPARABLES THEY APPEAR TO HAVE BE EN REMOVED BY APPLYING SUPER PROFIT FILTER OR TURNOVER FI LTER WHEREAS ACCORDING TO THE LD. CIT/D.R. EXCLUSION ON THO SE GROUNDS IS NOT VALID. (E) WITH REGARD TO INCLUSION OF ASSESSEES COMPARABLES, TH E LD. CIT/D.R. SUBMITS THAT THERE IS NOTHING TO SHOW THAT THE COMPARABLES TAKEN INTO CONSIDERATION SATISFY ANY OF THE REASONS GIVEN IN THE ITATS ORDER. HE WENT ON TO ADD TH AT ALL SOFTWARE COMPANIES ARE PERSISTENTLY LOSS MAKING COMPA NIES IN WHICH EVENT THEY SHOULD NOT HAVE BEEN INCLUDED. CAT TECHNOLOGIES COMPUTECH INTERNATIONAL LTD., AND TUTIS TECHNOLOGIES ARE REJECTED BY THE TPO FOR THE REASON THAT THEY WERE FUNCTIONALLY DIFFERENT (NOT BY APPLYING ANY FILTE R WHICH WAS NOT FOUND UNACCEPTABLE BY THE ITAT). SIMILARLY, TH E CIT(A)S INCLUSION OF SVAM SOFTWARE IS NOT COMPREHE NSIBLE. THE LD. CIT(A) HAS NOT ASSIGNED ANY SPECIFIC REASON FOR REMOVAL/INCLUSION OF A PARTICULAR COMPARABLE. IT WAS ALSO POINTED OUT THAT THERE WERE OTHER FLAWS IN THE ORDER OF THE CIT(A); THAT TPO HAD ALLOWED WORKING CAPITAL ADJUSTMEN T OF 1.19% WHEREAS, THE LD. CIT(A) SCALED-UP THIS ADJUSTME NT TO 1.83% WITHOUT ASSIGNING ANY REASON AND THE OPERATING PR OFIT MARGIN OF SOME OF THE COMPARABLES WERE SCALED-DOWN F OR THE REASON THAT FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS AND MISCELLANEOUS INCOME WERE NOT PART OF THE OPERATING REC EIPT HE ALSO SCALED-UP ASSESSEES OPERATING PROFIT MARGIN FROM 4.37% TO 6.34% FOR THE SAME REASON. BUT HOW THE CALCUL ATION WAS MADE IS NOT COMPREHENSIBLE. 9 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. AS HAS ALREADY BEEN STATED, NEITHER THE AUTHORISATION NO R THE GROUNDS OF APPEAL FILED BY THE ASSESSING OFFICER SPEAK OF THE ADDITIONAL POINTS WHICH WERE URGED BEFORE US BY THE CIT(D.R.) LEARNED COUNSEL FOR THE ASSESSEE HAD ALSO FILED WRITT EN SUBMISSIONS ON BEHALF OF THE ASSESSEE COMPANY. THE SALIENT POINTS ARE EXTRACTED FROM THE RELEVANT WRITTEN SUBMISSIONS (A) IN PARAGRAPH-1 OF THE WRITTEN SUBMISSIONS FILED BY TH E LD. D.R. IT WAS CONTENDED THAT THE LD. CIT(A) REJECTED THE T.P. ANALYSIS MADE BY THE TPO RELYING ON HONBLE TRIBUNAL DECISIONS IN ASSESSEES OWN CASE FOR THE EA RLIER YEARS BUT THE FACT REMAINS THAT THE ISSUE RAISED IN THESE WRITTEN SUBMISSIONS WERE NOT RAISED IN THE GROUNDS OF APPEAL FILED ALONG WITH FORM-36 BEFORE THE TRIBUNAL WHICH CAN BE ASCERTAINED FROM THE FACT THAT THE WRITTEN SUBMISSIONS OF THE REVENUE REFERS TO THE ISSUE OF ALLOWING TOLERANCE RANGE OF DEVIATION OF 5% OF THE ASSESSEES MARGIN WHEREAS, THIS ISSUE IS NOT IN DISPU TE. HENCE THE SUBMISSIONS OF THE LD. D.R. TRAVERSE BEYOND THE SCOPE OF GROUNDS OF APPEAL RAISED BEFORE THE TRIBUNAL. (B) THE REVENUE, IN ITS WRITTEN SUBMISSIONS, CHALLENGED THE INCLUSION OF COMPARABLES SELECTED BY THE ASSESSEE IN ITS T.P. STUDY BUT THIS OBJECTION HAS BEEN TAKEN FOR THE F IRST TIME IN THE WRITTEN SUBMISSIONS WITHOUT RAISING A SPECIFIC GROUND IN THIS REGARD. 10 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. (C) THE APPLICATION OF THE TURNOVER FILTER BY THE LD. CIT(A ) WAS OBJECTED TO ON THE GROUND THAT THIS FILTER IS NO MO RE VALID IN VIEW OF THE PROVISIONS OF RULE-10B. LEARNE D COUNSEL FOR THE ASSESSEE SUBMITS THAT THESE OBSERVATIONS MADE IN THE WRITTEN SUBMISSIONS ARE NOT CORRECT AND THE CONTENTION OF THE LD. D.R. THAT THE CIT(A) MECHANICALLY FOLLOWED THE EARLIER YEARS ORDER S OF THE TRIBUNAL IS NOT APPROPRIATE. ADVERTING OUR ATTENTION TO THE ORDER OF THE ITAT FOR THE A.Y. 2005-06, IT WAS SUBMITTED THAT THE TRIBUNAL HAD ELABORATELY CONSIDERED THIS ISSUE WHILE COMING TO THE CONCLUSION THAT THE TURNOVER FILTER IS ONE OF THE VALID FILTERS SINCE THE ASSESSEE COMPANY CANNOT BE COMPARED WITH THE GIANT COMPANIES AND IN THIS REGARD RELIED UPON THE DECISIO N OF THE ITAT, HYDERABAD BENCH IN THE CASE OF DELOITTE CONSULTING 61 DTR 101. WITH REFERENCE TO RELIANCE PLACED BY THE LD. D.R. ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHRIS CAPITAL INVESTMENT ADVISORS INDIA) P. LTD., VS. DCIT (2015) 37 6 ITR 183, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TS THAT CERTAIN OBSERVATIONS MADE IN THE AFORECITED JUDGMENT AT PARAS 217 AND 218 OF THE REPORT ARE IN LINE WITH THE OBSERVATIONS MADE BY THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEARS WHEREAS, TH E LD. D.R. HAD PICKED-UP ONLY PASSING OBSERVATIONS MAD E BY THE HONBLE COURT. IN FACT, THE COMPARABLES SELECTED BY THE TPO WERE NOT REJECTED MERELY ON THE GROUND OF LARGE TURNOVER AND SUPERIOR PROFITS. THE ASSESSEE IN THE EARLIER YEARS AS WELL AS THE IMPUGNED ASSESSMENT YEAR CATEGORICALLY MENTIONED THAT THE COMPARABLES EXCLUDED 11 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. ON VARIOUS GROUNDS ARE NOT SIMILAR TO THE ASSESSEE FUNCTIONALLY SINCE THEY HAD VARIOUS ACTIVITIES AND THE TRIBUNAL, IN ITS ORDER AT PAGE 118 (PARAGRAPH NO.7), OBSERVED THAT THE ASSESSEES FUNCTIONS AND RISKS WERE ALTOGETHER DIFFERENT FROM THE COMPARABLE CASES ADOPTED BY THE TPO; THE ASSESSEE IS A RISK FREE COMPANY AND A CAPTIVE SERVICE PROVIDER UNLIKE THE COMPARABLES SUGGESTED BY THE TPO. THUS THE CASE LAW REFERRED TO BY THE LD. D.R. IS DISTINGUISHABLE. (D) THE LD. D.R. MADE CERTAIN OBSERVATIONS WITH REGARD TO ONSITE REVENUE FILTER AND EMPLOYEE FILTER ; IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE REJECTING THE COMPARABLES ADOPTED BY THE ASSESSEE AND THE FILTER APPLIED BY THE ASSESSEE, THE LD . TPO WAS NOT ABLE TO PROVIDE ANY INFORMATION AND HENCE THE CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. EVEN IN THE WRITTEN SUBMISSIONS SUBMITTED BEFORE THE HONBLE BENCH, THE REVENUE FAILED TO FURNISH ANY INFORMATION WITH RESPECT TO THESE FILTERS. HENCE THE ALLEGATION MADE AGAINST THE CIT(A) THAT HE HAS NOT MADE ANY ATTEMPT TO COLLECT CERTAIN INFORMATION IS WITHOUT ANY BASIS. SINCE INFORMATION IS NOT AVAILABLE IN PUBLIC DOMAIN, THE CONTENTION OF THE DEPARTMENT IS NOT AT ALL JUSTIFIED AND THEREFORE, NEED NOT BE CONSIDERED. (E) THE LD. D.R. SUBMITTED THAT 10 OUT OF 19 COMPARABLES LISTED THEREIN WERE REJECTED BY THE CIT(A) WITHOUT ANALYSING EACH COMPARABLE SPECIFICALLY. BUT THIS ALLEGATION IS INCORRECT AND IN THIS REGARD HE REFERRED TO 12 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. THE BRIEF NOTE DATED 21.09.2016 GIVEN AT THE TIME OF HEARING AND IN PARTICULAR IN PARA-5 THEREOF. (I) CELESTIAL BIOLABS LTD., : COMPANY IS FUNCTIONALLY DIFFERENT AND THE COMPANY IS SUPERIOR COMPANY HAVING OPR 84.94%. RELYING ON THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS, THE CIT(A) REJECTED THE COMPARABLE. (II) FLEXTRONICS SOFTWARE SYSTEMS LTD., (NOW KNOWN AS ARICENT TECHNOLOGIES (HOLDING LIMITED) THE TURNOVER OF THIS COMPANY IS RS.953.35 CRORES WITH DIFFERENT FUNCTIONS. NO REPLY UNDER SECTION 133(6) HAS BEEN PROVIDED TO THE ASSESSEE. AFTER ELIMINATION OF EXCHANGE GAINS AND PROVISION FOR DOUBTFUL DEBTS, THE RE-WORKED PROFIT COMES TO 7.33%. THIS COMPARABLE WAS ALSO REJECTED SINCE TURNOVER WAS MORE THAN RS.200 CRORES, IN LINE WITH THE VIEW TAKEN BY THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS. (III) I-GATE GLOBAL SOLUTIONS LTD., : THIS COMPANY IS INVOLVED IN BOTH SOFTWARE DEVELOPMENT AS WELL AS I.T. ENABLED SERVICES AND SEGMENTAL DETAILS ARE NOT AVAILABLE. THE COMPANY IS ENGAGED IN ONSITE AND OFFSHORE DEVELOPMENT ACTIVITIES BUT THE DETAILS OF COST FROM THE VARIOUS ACTIVITIES ARE NOT AVAILABLE. THE LD. CIT(A) REJECTED THIS COMPARABLE AS THE TURNOVER WAS MORE THAN RS.200 CRORES. 13 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. (IV) INFOSYS TECHNOLOGIES LTD., : IT HAS HUGE TURNOVER OF RS.1564.80 CRORES AND IT IS A SUPER PROFIT COMPANY. AFTER ELIMINATION OF EXCHANGE GAINS AND PROVISION FOR DOUBTFUL DEBTS, THE PROFIT COMES TO 39.32%. IN VIEW OF THE HUGE TURNOVER THE CIT(A) FOLLOWED THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS REJECTED THIS COMPARABLE. (V) KALS INFO SYSTEMS LIMITED : THE TURNOVER HEREIN IS VERY LOW I.E., RS.2.05 CRORES. THE OTHER INCOME INCLUDED IN PROFITS CONSIST OF DIVIDEND, SALE OF ASSETS ETC., OF RS.18.29 CRORES AFTER REMOVING THE OTHER INCOME, THE PROFIT WORKS OUT TO RS.31,53,188 AND THE RATE WORKS OUT TO 15.35%. THE SEGMENT INCOME DOES NOT GIVE CLARITY ABOUT THE OPERATIONS AND IT IS DIFFICULT TO VERIFY THE EXPENSES. LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTIONS AND REJECTED THIS COMPARABLE AS SUPER PROFIT COMPANY AS OPR IS 41.94% ; BY RELYING ON THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS. (VI) MINDTREE LIMITED (SEG.) : SEGMENT DETAILS ARE AVAILABLE UP TO GP LEVEL AND ALL OTHER UNALLOCABLE EXPENSES CANNOT BE BIFURCATED ACCURATELY. THE LD. CIT(A) REJECTED THIS COMPARABLE AS THE TURNOVER WAS MORE THAN RS.200 CRORES. (VII) PERSISTENT SYSTEMS LIMITED THE ASSESSEES MAIN OBJECTION WAS ON THE GROUND OF HIGHER TURNOVER IN COMPARISON WITH THAT OF THE ASSESSEE. THE LD. 14 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. CIT(A) APPLIED THE TURNOVER FILTER AND REJECTED THIS AS COMPARABLE IN THE LIGHT OF DECISION OF THE ITAT. (VIII) SASKEN COMMUNICATION TECHNOLOGIES LTD., : THIS COMPANY IS A LEADER IN SOFTWARE INDUSTRY WITH HUGE TURNOVER OF RS.335.80 CRORES AND IT IS A SUPER PROFIT COMPANY. BASED ON THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS THIS WAS NOT CHOSEN AS A COMPARABLE BY THE CIT(A). (IX) TATA ELXSI LIMITED (SEGMENT) : THE ASSESSEES OBJECTION WAS THAT THE COMPANY OPERATES IN 02 SEGMENTS I.E., SOFTWARE DEVELOPMENT AND SERVICES AS WELL AS SYSTEM INTEGRATION AND SUPPORT. THE ENTIRE REVENUE FROM SOFTWARE DEVELOPMENT AND SERVICES WAS EARNED FROM PROVIDING SERVICES AND THERE IS NO SOFTWARE DEVELOPMENT ACTIVITY UNDERTAKEN BY THE COMPANY. HERE ALSO THE LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTION MAINLY ON THE GROUND THAT THE TURNOVER WAS MORE THAN RS.200 CRORES. (X) WIPRO LIMITED (SEGMENT) : THIS COMPANY IS LEADER IN THE SOFTWARE INDUSTRY WITH HUGE TURNOVER OF RS.11955.60 CRORES. APPLYING HUGE TURNOVER FILTER, IN THE LIGHT OF DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE. 15 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A ) WAS JUSTIFIED IN NOT TAKING THE AFOREMENTIONED COMPANIES AS COMPARABLES; IN THE LIGHT OF CONSISTENT VIEW TAKEN BY THE ITAT, THE O RDER OF THE LD. CIT(A), ON THIS ASPECT, DESERVES TO BE CONFIRMED. (F) LD. D.R. IN PARAGRAPH-3 AT PAGE-3 OF THE WRITTEN SUBMISSIONS MENTIONED THAT THE COMPARABLES CONSIDERED BY THE LD. TPO ARE EXCLUDED BY THE CIT(A) WITHOUT ANALYSING THE REASONS. LEARNED COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THE OBSERVATIONS AND SUBMITTED THAT THE CIT(A) IN PARAGRAPH-7 AT PAGE-9 HAS REFERRED TO THE SUBMISSIONS MADE BY THE ASSESSEE AND THE DETAILED ANALYSIS OF THE COMPARABLES SELECTED BY THE TPO AS WELL AS THE COMPARABLES CONSIDERED BY THE ASSESSEE. IN FACT THE ASSESSEE FILED DETAILED SUBMISSIONS DATED 03 RD JUNE, 2015 BEFORE THE CIT(A) WHEREIN DETAILED ANALYSIS WAS PLACED BEFORE THE CIT(A) WHICH WAS ACCEPTED DURING THE COURSE OF HEARING. HE ALSO ADVERTED OUR ATTENTION TO THE COMPREHENSIVE DATA ANALYSIS AND FINAL CONCLUSION GIVEN IN PAGE-206 OF THE PAPER BOOK. (G) ADVERTING OUR ATTENTION TO PAGE-4 OF THE REVENUES WRITTEN SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WERE SOME ALLEGATIONS AGAINST WORKING CAPITAL ADJUSTMENTS I.E., ADJUSTMENTS WERE SCALED-UP. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THESE OBSERVATIONS BY THE REVENUE ARE WITHOUT ANY APPLICATION OF MIND. EXPLAINING FURTHER IT WAS SUBMITTED THAT IN ANY T.P. 16 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. STUDY THE CHANGE OR REPLACING OF COMPARABLES WILL ENTAIL THE RE-WORKING OF THE WORKING CAPITAL ADJUSTMENTS AND THEREFORE, THE LD. CIT(A) IS JUSTIFIED IN DOING THE SAME AND IN FACT THIS WORKING CAPITAL ADJUSTMENT WAS ALSO PART OF THE SUBMISSIONS MADE BEFORE THE CIT(A) (PAGE 199 TO 205 OF THE PAPER BOOK). (H) LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THOUGH IN THE GROUNDS OF APPEAL THE DEPARTMENT HAS NOT RAISED ANY SPECIFIC GROUND WITH RESPECT TO COMPARABLES ADOPTED BY THE CIT(A), IT HAS CHOSEN TO COMMENT ON THE SAME IN THE WRITTEN SUBMISSIONS. THE ASSESSEE-COMPANY STRONGLY OBJECTED TO THE SAME BY STATING THAT THE SCOPE OF GROUNDS OF APPEAL HAS BEEN EXPANDED WITHOUT SEEKING LEAVE OF THE BENCH AND AS ALREADY OBSERVED BY US IT IS NOT KNOWN AS TO WHAT ARE THE GROUNDS WHICH WERE APPROVED BY THE COMMISSIONER AND THE GROUNDS URGED BEFORE US BY THE ASSESSING OFFICER DO NOT SPECIFY THESE ASPECTS. (1) LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER HAD GIVEN DETAILED ANALYSIS OF THE ASSESSEES COMPARABLES WITHOUT PREJUDICE TO HIS OBJECTION TO THE SCOPE OF GROUNDS OF APPEAL. (I) AKSHAY SOFTWARE TECHNOLOGIES LTD: THIS COMPARABLE IS REJECTED BY THE TPO FOR THE REASON THAT ITS ENTIRE INCOME IS FROM THE ONSITE OPERATIONS. HOWEVER THE CIT (A) IN ITS ORDER FOR AY 2005-06 AND HON'BLE ITAT IN ITS ORDER FOR THE AY 2005-06, 2006-07 AND 2007-08 HAS 17 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. REJECTED THE ONSITE INCOME OPERATIONS CRITERIA. HENCE IT HAS BEEN ADDED BACK TO THE COMPARABLES. (II) ALLSOFT CORPORATION LIMITED: THE ISSUE OF PERSISTENT LOSSES WAS NOT CONTESTED BY THE DEPARTMENT IN THE EARLIER APPEALS BEFORE THE ITAT EITHER IN THEIR APPEAL FOR AY 2005-06 OR IN THE ASSESSEE APPEAL FOR THE AY 2006-07 & 2007-08. THE COMPANY SATISFIES ALL OTHER FILTERS HENCE CONSIDERED BY THE CIT(A). FURTHER IT IS TO SUBMIT THAT THE TPO REJECTED THE COMPANY AT THE TIME OF SHOW-CAUSE NOTICE FOR THE REASON THAT THE COMPANY HAS NO EXPORT TURNOVER WHICH HAS REBUTTED VIDE REPLY DATED 12.09.2011 AT PAGE 91 OF THE PAPER BOOK WHEREAS IN THE ASSESSMENT ORDER A DIFFERENT REASON IS GIVEN. THE ABOVE SHOWS THAT THE TPO IS NOT CONSISTENT IN HIS APPROACH. (III) CAT TECHNOLOGIES LTD: THE TPO REJECTED THIS COMPANY BASED ON THE WRONG INFO THAT THE COMPANY IS INTO THE BPO AND LEGAL SERVICES. HOWEVER THERE IS ONE MORE COMPANY WITH THE NAME CATT LTD., WHICH IS INTO THE SOFTWARE DEVELOPMENT. (IV) COMPUTECH INTERNATIONAL LTD: THIS COMPANY IS INTO THE SOFTWARE DEVELOPMENT SERVICES. THE INFO GIVEN BY THE TPO IN THE ASSESSMENT ORDER 18 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. PERTAINS TO AY 2006-07 & AY 2007-08 AND NOT RELATING TO THE AY 2008-09. (V) TUTIS TECHNOLOGIES LTD: AS PER THE TPO COMMENTS AT PAGE 241 OF THE PAPERBOOK WHICH HAS BEEN REFERRED BY THE LD. DR, IT CAN BE OBSERVED THAT THE INCOME REPORTED BY THE COMPANY IS FROM THE SOFTWARE DEVELOPMENT AND BIOMETRIC SOLUTIONS. THE TPO WANTED THE BREAKUP OF THE INCOME. HOWEVER THE TPO HAS CONSIDERED THE MAJORITY OF INCOME FORM SOFTWARE DEVELOPMENT AND NOT ONLY FROM THE SOFTWARE DEVELOPMENT FOR ALL OTHER CASES. FOR EG. INFOSYS LTD WHICH HAS BEEN CONSIDERED AS ONE OF THE COMPARABLES IS INTO THE SOFTWARE DEVELOPMENT AND ALSO PRODUCT SALES ETC. THE COMPANY HAS NOT GIVEN THE BREAKUP OF ITS INCOME BUT THE TPO HAS CONSIDERED TOTAL TURNOVER AS THE BASIS FOR CALCULATING THE PROFIT. SIMILARLY AS PER THE TPO ORDER AT PAGE 246 OF THE PAPER BOOK FLEXTRONICS LTD REVENUE CONSISTS OF THE SOFTWARE AND PRODUCT INCOME. THE PRODUCT INCOME CONSISTS OF 117 CR OUT OF THE TOTAL TURNOVER 953 CR. FOR THE COMPARISON PURPOSES ENTIRE TOTAL REVENUE OF 953 CR IS CONSIDERED. HENCE, MAJORITY OF INCOME FROM SOFTWARE DEVELOPMENT IS CONSIDERED AND NOT ONLY FROM SOFTWARE DEVELOPMENT. 19 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. (VI) NET RIPPLES.COM LTD: IN THE SHOW CAUSE NOTICE THE TPO PROPOSES TO REJECT THE COMPANY FOR LACK OF EXPORT TURNOVER. HOWEVER IN THE TP ORDER IT IS REJECTED FOR EMPLOYEE COST FILTER. SINCE THE EMPLOYEE COST FILTER IS REJECTED BY THE HON'BLE IT AT THIS COMPANY IS CONSIDERED BY THE CIT (A). (VII) SVAM SOFTWARE LTD: THIS COMPARABLE HAS BEEN SELECTED BY THE ASSESSE IN ITS TP REPORT. BUT THE TPO HAS NOT COMMENTED ON IT. THE REFERENCE CAN BE MADE TO THE PAGE 169 OF THE PAPER BOOK. HENCE IT IS CONSIDERED BY THE CIT(A). 5. BOTH THE LD. D.R. AS WELL AS THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTED THE STAND TAKEN BY THE TPO /CIT(A) RESPECTIVELY. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. IT IS A FACT THAT THE REVENUE HAS NOT PLACED BEFORE US AS TO WHAT ARE THE GROUNDS WHICH ARE VETTED BY THE C OMMISSIONER BEFORE GIVING AUTHORISATION TO THE ASSESSING OFFICER TO FILE AN APPEAL AND HENCE WE ASSUME THAT THE ASSESSING OFFICER WAS GIV EN THE LIBERTY TO FILE ANY GROUNDS OF HIS CHOICE. EVEN IF IT IS ASSU MED THAT THE ASSESSING OFFICER IS PERMITTED TO FILE AN APPEAL OF H IS CHOICE, AN APPEAL BEING A STATUTORY RIGHT, AND NOT A CONSTITUTIONAL RIGHT, IT HAS TO BE EXERCISED PROPERLY WELL WITHIN THE CONFINES OF THE STATU TE AND ONCE SPECIFIC GROUNDS ARE RAISED, THEY HAVE TO CONFINE THEM SELVES TO THE GROUNDS URGED BEFORE US; UNLESS, WITH THE LEAVE OF TH E COURT, ADDITIONAL GROUNDS ARE RAISED. IN THE INSTANT CASE, NO SUCH ADDITIONAL 20 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. GROUNDS WERE FILED. AS COULD BE NOTICED FROM THE GROU NDS FILED BEFORE US, THE FIRST GROUND IS PRESUMABLY ON THE POINT THAT THE TURNOVER FILTER SHOULD NOT HAVE BEEN ADOPTED BY THE LD. CIT(A). THIS ASPECT HAS ALREADY BEEN CONSIDERED BY THE ITAT IN ASSESSEES OW N CASE FOR THE EARLIER YEARS VIDE ORDER DATED 15.01.2013 (ITA.NO.6 45/HYD/2009 AND C.O.NO.40/HYD/2009 IN ITA.NO.645/HYD/2009 DATED 15.0 1.2013) THE TRIBUNAL CONSIDERED THIS ISSUE IN DETAIL, VIDE PAR AGRAPHS 11 AND 12 AND OBSERVED AS UNDER : 11. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED T HE MATERIALS ON RECORD. THE ASSESSEE IN ITS TP STUDY, HAS SELECT ED 22 COMPANIES AS COMPARABLES FOR COMPUTING THE ALP. THE TPO HAS COME TO A CONCLUSION THAT TNMM IS THE MOST APPR OPRIATE METHOD TO COMPUTE THE ALP. THE TPO HAS ACCEPTED ONL Y 2 OUT OF 22 COMPANIES SELECTED BY THE ASSESSEE. THE T PO HAS SELECTED 15 ADDITIONAL COMPANIES IN ADDITION TO THE TWO FROM THE COMPANIES SELECTED BY THE ASSESSEE. WHEN T NMM IS ADOPTED FOR DETERMINING ALP ONE HAS TO BE EXTRA CAUTIOUS TO TAKE INTO ACCOUNT THE DIFFERENCES WHICH ARE LIKE LY TO MATERIALLY AFFECT THE PRICE, COST CHARGED OR PAID, THE PROFIT IN THE OPEN MARKET FOR ARRIVING AT A REASONABLE AND AC CURATE ADJUSTMENT. IF THE DIFFERENCES ARE SUCH THAT THEY C ANNOT BE SUBJECT TO EVALUATION OR LIKELY TO GIVE A UNREASONA BLE RESULT, THEN SUCH TRANSACTIONS SHOULD BE AVOIDED OR ELIMINA TED FOR THE PURPOSE OF COMPARISON. THE OECD IN ITS GUIDELIN ES HAS ALSO STATED THAT THOUGH TNMM MAY AFFORD A PRACTICAL SOLUTION TO OTHERWISE INSOLUBLE TRANSFER PRICING PR OBLEMS BUT, IT HAS TO BE USED SENSIBLY AND WITH APPROPRIAT E ADJUSTMENTS KEEPING IN VIEW THE DIFFERENCES BETWEEN THE COMPARABLES. IF THE DIFFERENCES IN THE CHARACTERIST ICS OF THE ENTERPRISES BEING COMPARED HAVE A MATERIAL EFFECT O N THE NET MARGINS BEING USED IT WOULD NOT BE APPROPRIATE TO APPLY THE TNMM WITHOUT MAKING ADJUSTMENTS FOR SUCH DIFFER ENCES. KEEPING IN VIEW THE ABOVE PRINCIPLES IT HAS TO BE S EEN WHETHER THE COMPARABLES SELECTED BY THE TPO ON APPLICATIONS OF DIFFERENT FILTERS IS APPROPRIATE. W HILE THE ASSESSEE WAS HAVING A TURNOVER OF ABOUT RS.13.57 CR ORES MANY OF THE COMPARABLES SELECTED BY THE TPO ARE HAV ING VERY HIGH TURNOVER OF MORE THAN RS.L00 CRORES. IN F ACT SATYAM COMPUTERS SERVICES AND INFOSYS LIMITED ARE G IANTS 21 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. IN COMPARISON TO THE ASSESSEE. THEREFORE, THOSE COM PANIES CANNOT BE CONSIDERED AS COMPARABLES. THE INCOME-TAX APPELLATE TRIBUNAL, HYDERABAD BENCH IN CASE OF DELO ITTE CONSULTING 61 DTR 101 HELD 'AS FOLLOWS :- NOW, WE DEAL WITH THE ISSUE WHETHER THE TPO WAS CORRECT IN SELECTING WIPRO BPO HAVING TURNOVER OF 20 TIMES MORE THAN THE ASSESSEE COMPANY AS COMPARABLE OR NOT. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F DELHI INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LIMITED (2010) ITA NO.3856/DEL/2010. WE FIND THAT THE WIPRO BPO IS NOT AT ALL COMPARABLE AS THE ASSESSEE COMPANY IS PIGMY COMPARED TO GIANT WIPRO. WIPRO COMPANY'S TURNOVER IS 20 TIMES MORE THAN THE ASSESSEE COMPANY. HENCE, THE ASSESSEE COMPANY IS NOT COMPARABLE WITH WIPRO BPO, THE REASONING BEING THAT THE LATTER IS A GIANT COMPANY HAVING 20 TIMES MORE TURNOVER THAN THE ASSESSEE COMPANY. IN VIEW OF THIS BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND FOLLOWING THE DECISION OF DELHI BENCH OF INCOME-TAX APPELLATE TRIBUNAL IN THE AFORESAID CASE, WE ARE OF THE VIEW THAT WIPRO BPO SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. HENCE, THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED.' THE SAME IS ALSO THE VIEW OF THE INCOME-TAX APPELLA TE TRIBUNAL BANGALORE BENCH IN CASE OF GENESIS INTEGRA TED SYSTEMS LIMITED (64 DTR (TRIB) (BANG.) 225). 12. IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISI ON OF THE CIT (A) IN EXCLUDING COMPANIES WHOSE TURNOVER IS MO RE THAN RS.L00 CRORES. SIMILARLY THE CIT(A) IS EQUALLY CORR ECT IN NOT SUSTAINING THE REJECTION OF COMPARABLES SELECTED BY THE ASSESSEE BY APPLYING 'EMPLOYEE COST TO SALE' FILTER AS RELEVANT DATA/INFORMATION FOR THIS FILTER ARE NOT A VAILABLE. MOREOVER, IT IS ALSO A FACT THAT PART OF THE EMPLOY EE COST IS INCLUDED BY MANY COMPANIES UNDER DIFFERENT OTHER HE ADS. SELECTION OF COMPARABLES APPLYING THE 'ONSITE INCOM E' FILTER ALSO STANDS ON THE SAME FOOTING AS RELEVANT DATA/ INFORMATION ARE NOT AVAILABLE IN RESPECT OF ALL THE COMPANIES 22 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. IN THE DATABASE. IT IS ALSO A FACT THAT THOUGH THE TPO HAS HIMSELF NOT APPLIED THIS FILTER BY OBSERVING THAT T HE COMPANIES HAVING ONSITE INCOME OF MORE THAN 75% CAN NOT BE TREATED AS COMPARABLES BUT TWO OF THE COMPANIES I.E. M/S FOURSOFT LIMITED AND SANKYA INFOTECH LIMITED SE LECTED AS COMPARABLES BY THE TPO WERE HAVING ONSITE INCOME/EXPENSES OF MORE THAN 75%. IN THIS VIEW OF T HE MATTER, THE CIT(A) WAS CORRECT IN HOLDING THAT REJE CTION OF COMPARABLES SELECTED BY THE ASSESSEE BY APPLYING TH IS FILTER IS NOT CORRECT. WE ALSO FULLY SUBSCRIBE TO THE VIEW OF THE CIT(A) THAT LOSS MAKING COMPANIES AND COMPANIES HAV ING SUPER NORMAL PROFITS CANNOT BE CONSIDERED AS COMPAR ABLES IN VIEW OF THE RATIO LAID DOWN IN CASE OF MENTOR GR APHICS (INDIA) PVT. LTD. VS. DCIT (109 ITD 101) AND PHILIP S SOFTWARE (119 TTJ 721). IN AFORESAID VIEW OF THE MATTER, THE COMPANIES SELECTED BY THE CIT(A) AS COMPARABLES IS RATIONAL AND APPROPRIATE IN THE FACTS OF THE PRESENT CASE. W E THEREFORE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTI NG THE ASSESSING OFFICER TO COMPUTE THE ARITHMETIC MEAN OF 11 COMPARABLES SELECTED BY HIM AND DETERMINE THE ALP A FTER COMPUTING THE ADJUSTED AVERAGE PLI. AS RESULT, GROU NDS NOS. 1,2 AND 3 ARE DISMISSED. 6.1. THE ABOVE VIEW WAS CONSISTENTLY FOLLOWED BY THE ITAT EVEN WHILE DISPOSING OF THE APPEAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 (ITA.NO.1716/HYD/2011 DATED 27.09.2013). SIN CE VIEW TAKEN BY THE CIT(A) IS IN CONSONANCE WITH THE VIEW TAKE N BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A) AND THERE FORE, WE REJECT GROUND NO.1 OF THE REVENUE. 7. VIDE GROUND NO.2, THE REVENUE SUBMITS THAT THE CIT( A) ERRED IN REJECTING THE COMPARABLES ADOPTED BY THE TPO B Y APPLYING THE EMPLOYEE COST TO SALES FILTER. THIS ISSUE WAS ALSO CONSIDERED BY THE ITAT FOR THE A.Y. 2005-06 IN PARAGRAPH-12 OF ITS ORDE R (SUPRA). THE CONTENTION OF THE ASSESSEE IS THAT THE DATA/INFORMATION WA S NOT AVAILABLE IN RESPECT OF SUCH COMPANIES IN THE DATA BAS E. NOTHING WAS PLACED ON RECORD TO CONTRADICT THE FINDINGS - OF THE TR IBUNAL IN THE 23 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. EARLIER YEARS AND OF THE CIT(A)S FOR THE YEAR UNDER C ONSIDERATION. WE, THEREFORE, UPHOLD THE ACTION OF THE CIT(A) AND REJECT G ROUND NO.2 OF THE REVENUE. 8. GROUND NO.3 REFERS TO REJECTION OF THE COMPARABLE S ADOPTED BY THE TPO BY APPLYING THE ONSITE INCOME FILTE R. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE EARLIER YEARS WHEREIN THE CASE OF THE ASSESSEE WAS THAT THE RELEVANT INFORMATION/MATERI AL REQUIRED FOR THE SAME ARE NOT AVAILABLE IN PUBLIC DOMAIN. EVEN FOR THIS ALSO, THE FACTS BEING SAME, THE LD. CIT(A) FOLLOWED THE DECIS ION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS. NO MATERIAL WAS PLACED BEFORE US TO CONTRADICT THE CONTENTION OF THE LEAR NED COUNSEL FOR THE ASSESSEE AND THEREFORE, WE DO NOT FIND ANY REA SON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDING LY, REJECT GROUND NO.3 OF THE REVENUE. 9. VIDE GROUND NO.4, THE REVENUE CONTENDS THAT THE CIT (A) OUGHT TO HAVE CONSIDERED LOSS MAKING COMPANIES AND CO MPANIES HAVING SUPER NORMAL PROFITS AS COMPARABLES. THIS ISS UE WAS ALSO SUBJECT MATTER OF CONSIDERATION BY THE ITAT IN THE EAR LIER YEARS AND THE LD. CIT(A) MERELY FOLLOWED THE SAID VIEW. CONSISTE NT WITH THE VIEW TAKEN THEREIN, WE UPHOLD THE ORDER OF THE CIT(A) AND RE JECT GROUND NO.4 OF THE REVENUE. 10. VIDE GROUND NO.5, THE REVENUE CHALLENGES THE ADD ITIONAL BENEFIT OF RISK ADJUSTMENT AT 1% TO THE ASSESSEE. AS NOTI CED FROM THE ORDERS OF THE TRIBUNAL (SUPRA), THE TRIBUNAL IN ASSES SEES OWN CASE FOR THE A.Y. 2005-06 HAD TAKEN INTO CONSIDERATION THE FACTUA L MATRIX OF THE CASE AND ARRIVED AT CONCLUSION THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF RISK ADJUSTMENT AT 1%. NOTHING HAS BEEN BROU GHT ON RECORD TO CHALLENGE THE ORDER PASSED BY THE CIT(A) WHICH INTU RN, WAS IN LINE 24 ITA.NO.1131/HYD/2015 M/S. HELLO SOFT INDIA P. LTD., HYDERABAD. WITH THE VIEW TAKEN BY THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS. SUCH BEING THE CASE, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THEREFORE, WE REJECT GRO UND NO.5 OF THE REVENUE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 08.11.2016. SD/- SD/- (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED 08 TH NOVEMBER, 2016 VBP/- COPY TO 1. THE INCOME TAX OFFICER, WARD-2(3), ROOM NO.826, B BLOCK, 8 TH FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 2. M/S. HELLO SOFT INDIA P. LTD., 8-2-703, ROAD NO.12 , BANJARA HILS, HYDERABAD 34. 3. CIT(A)-X, HYDERABAD. 4. CCIT-(IT) (SZ), BENGALURU. 5. CIT (IT & TP), HYDERABAD. 6. D.R. ITAT A BENCH, HYDERABAD. 7. GUARD FILE