Actiance India Private Limited, Bangalore V. ITO, Bangalore

ITA 1186/BANG/2012

• Counselvise Citation: 118621114 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: CHAVALI S NARAYAN
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Scheme of amalgamation
• Section: 92C; 143(3); 92E; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER IT( TP )A NO.1186/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S. ACTIANCE INDIA PRIVATE LIMITED (FORMERLY KNOWN AS FACETIME COMMUNICATIONS INDIA PRIVATE LIMITED), LE PARC RICHMONDE, 51, RICHMOND ROAD, BANGALORE 560 025. PAN : AABCV2926N VS. THE INCOME TAX OFFICER, CIRCLE 11(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI CHAVALI S.NARAYAN, C.A. RESPONDENT BY : SHRI C.H. SUNDAR RAO CIT-((DR) DATE OF HEARING : 07.04.2015 DATE OF PRONOUNCEMENT : 10.04.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 31.7.2012 OF THE ITO, WARD 11(2), BANGALORE PASSED U/S. 143(3) R .W.S. 144C OF THE ACT, IN RELATION TO A.Y.2008-09. IT(TP)A NO.1186/BANG/2012 PAGE 2 OF 28 2. GROUND NO.1 IS GENERAL IN NATURE AND CALLING F OR NO SPECIFIC ADJUDICATION. GROUNDS NO.2 TO 4 RAISED BY THE ASSE SSEE PROJECT THE GRIEVANCE OF THE ASSESSEE REGARDING THE ACTION OF T HE LEARNED ASSESSING OFFICER AND HONORABLE DISPUTE RESOLUTION PANEL EXCL UDING EXPENSES INCURRED ON TRAVEL EXPENSES IN FOREIGN CURRENCY AND EXPENSES INCURRED TOWARDS TELECOMMUNICATION EXPENSES FROM EXPORT TURN OVER ON THE GROUND THAT THESE EXPENSES ARE INCURRED IN RENDERING TECHN ICAL SERVICES RENDERED TO CLIENTS OUTSIDE INDIA, WHILE COMPUTING DEDUCTION UNDER SECTION 10A. IT IS THE PLEA OF THE ASSESSEE THAT AT ALL TIMES DURING T HE RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERING ANY TECHNICAL SERVICES. WITHOUT PREJUDICE TO ITS C ONTENTION THAT THE AFORESAID SUMS SHOULD NOT BE EXCLUDED FROM THE EXPO RT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT, THE ASSESSE E HAS ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT ARE REDUCED FRO M THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) . 3. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE A ND THE LD. DR ON THE ISSUES RAISED IN GROUND NOS.2 TO 4. TAKING INT O CONSIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSI NG OFFICER TO EXCLUDE EXPENSES INCURRED IN FOREIGN CURRENCY TOWARDS TRAVE LLING AND EXPENSES IT(TP)A NO.1186/BANG/2012 PAGE 3 OF 28 INCURRED TOWARDS TELECOMMUNICATION BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER, AS HAS BEEN PRAYED FOR BY THE ASSESSEE IN GROUND NO.4. IN VIEW OF THE ACCEPTANCE OF THE ALTERNATIVE PRAYER IN GROU ND NO.4, WE ARE OF THE VIEW THAT NO ADJUDICATION IS REQUIRED ON GROUND NO. 2 & 3. 4. GROUND NO.5 TO 13 RAISED BY THE ASSESSEE ARE WIT H REGARD TO THE ADDITION TO THE TOTAL INCOME BY WAY OF ADJUSTMENT T O THE ARMS LENGTH PRICE ( ALP ) TO AN INTERNATIONAL TRANSACTION CARRIED OUT BY TH E ASSESSEE U/S. 92CA OF THE ACT. AT THE TIME OF HEARING OF THE APP EAL IT WAS SUBMITTED THAT GROUND NO.10 RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL CHALLENGING THE COMPARABILITY OF COMPARABLE COMPANIES WITH THAT OF THE ASSESSEE ALONE NEED BE ADJUDICATED AND THE OTHER GROUNDS OF APPEAL MAY NOT REQUIRE ADJUDICATION AND KEPT OPEN. THE COMPARABLE COMPANI ES CHOSEN BY THE TPO AND THE ADDITION MADE BY THE AO IN THE DRAFT AS SESSMENT ORDER WHICH WAS CONFIRMED BY THE DRP ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL IN ITA NO.1303/BANG/2012 FOR AY 08-09 IN M/S.3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT ORDER DATED 28.11.2013. IT WAS ALSO SUBMITTED THAT THE BUSINESS PROFILE OF THE ASSESSEE AND THAT OF THE AS SESSEE IN THE CASE OF M/S.3DLPM SOFTWARE SOLUTIONS LTD. (SUPRA) ARE ALSO IDENTICAL. THIS SUBMISSION WAS FOUND TO BE CORRECT AT THE TIME OF H EARING. WITH THIS BACKGROUND WE WILL NOW CONSIDER THE FACTUAL BASIS O F THE PRESENT CASE AND THE DECISION RENDERED IN THE CASE OF M/S.3DLPM (SUP RA). IT(TP)A NO.1186/BANG/2012 PAGE 4 OF 28 5. THE ASSESSEE IS A COMPANY. IT IS A WHOLLY OWNED SUBSIDIARY OF M/S.FACE TIME USA. IT RENDERED SOFTWARE DEVELOPMEN T RESEARCH AND DEVELOPMENT SERVICES TO ITS HOLDING COMPANY. IT WA S REMUNERATED ON A COST PLUS 10% MARK UP FOR SERVICES RENDERED TO ITS HOLDING COMPANY. IT IS NOT IN DISPUTE BEFORE US THAT THE TRANSACTION OF PR OVIDING SOFTWARE RESEARCH & DEVELOPMENT SUPPORT SERVICES BY THE ASSESSEE TO I TS HOLDING COMPANY WAS AN INTERNATIONAL TRANSACTION WITH THE ASSOCIATE D ENTERPRISE ( AE ) AND THEREFORE THE PRICE AT WHICH THE ASSESSEE RENDERS S ERVICES TO ITS AE HAS TO PASS THE ARMS LENGTH PRICE (ALP) TEST AS LAID DOWN BY SECTION 92C OF THE ACT. DURING THE FINANCIAL YEAR 2008-09, THE ASSES SEE PROVIDED SOFTWARE RESEARCH & DEVELOPMENT SUPPORT SERVICES TO ITS AE A ND WAS REMUNERATED ON A COST PLUS BASIS. THE TOTAL VALUE OF INTERNA TIONAL TRANSACTION WITH RESPECT TO THE PROVISION OF SOFTWARE RESEARCH & DEV ELOPMENT SUPPORT SERVICES BY THE ASSESSEE TO ITS AE WAS RS. 15,54,90 ,786. 6. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRI CE 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:- IT(TP)A NO.1186/BANG/2012 PAGE 5 OF 28 OPERATING REVENUE RS.15,54,90,786 OPERATING COST RS.13,52,09,383 OPERATING PROFIT RS.2,02,81,403 OP.PR/COST% 15.00% 7. THE TPO ARRIVED AT A FINAL SET OF 20 COMPARABLES . THE SET OF 20 COMPARABLES IS AS FOLLOWS:- SL. NO. NAME OF THE COMPANY OP/TC % 1 AVANI CINCOM TECHNOLOGIES 25.62 2 BODHTREE CONSULTING LTD 18.72 3 CELESTIAL BIOLABS 87.94 4 E-ZEST SOLUTIONS LTD. 29.81 5 FLEXTRONICS (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 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 COMMUNICATIONTECHNOLOGIES LTD. (SEG) 7.58 16 TATA 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 AVERAGE 23.65 8. THE ASSESSEE RAISED VARIOUS OBJECTIONS TO THE ME THODOLOGY ADOPTED AND THE REASONS ASSIGNED BY THE TPO FOR REJECTING T HE COMPARABLES IT(TP)A NO.1186/BANG/2012 PAGE 6 OF 28 CHOSEN BY THE ASSESSEE IN ITS TP STUDY. IN THE CO URSE OF PROCEEDINGS BEFORE THE TPO, NOTICE U/S. 133(6) HAS BEEN ISSUED TO THE COMPANIES THAT WERE CHOSEN AS COMPARABLE BY THE ASSESSEE AS WELL A S THE TPO AND ON THE BASIS OF THE REPLIES RECEIVED IN RESPONSE TO SU CH NOTICES, CERTAIN INFERENCES WERE DRAWN BY THE TPO. THE ACTION OF TH E TPO IN RELYING ON SOME OF THOSE INFORMATION WAS ALSO CHALLENGED BY TH E ASSESSEE. THE TPO FINALLY PASSED AN ORDER U/S. 92CA OF THE ACT AND ON THE BASIS OF THE COMPARABLES SET OUT AS AFOREMENTIONED, ARRIVED AT A RITHMETIC MEAN OF 23.65%. AFTER FACTORING THE WORKING CAPITAL ADJUST MENT OF 0.39%, THE ADJUSTED ARITHMETIC MEAN WAS DETERMINED AT 23.26%. THE COMPUTATION OF THE ALP BY THE TPO IN THIS REGARD WAS AS FOLLOWS:- 4.4. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER:- ARMS LENGTH MEAN MARGIN ON COST 23.65% LESS: WORKING CAPITAL ADJUSTMENT (AS PER ANNEXURE-C ) 0.39% ADJUSTED MEAN MARGIN OF THE COMPARABLES 23.26% OPERATING COST 13,52,09,383 ARMS LENGTH PRICE (ALP @ 123.26% OF OPERATING COST) 16,66,59,085 PRICE RECEIVED 15,54,90,786 SHORTFALL BEING ADJUSTMENT U/S. 92CA 1,11,68,299 THE ABOVE SHORTFALL OF RS.1,11,68,299 IS TREATED A S TRANSFER PRICING ADJUSTMENT U/S. 92CA IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT OF THE TAXPAYERS INTERNATIONAL TRANSACTION S. IT(TP)A NO.1186/BANG/2012 PAGE 7 OF 28 9. AGAINST THE SAID ADJUSTMENT PROPOSED BY THE TPO WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE A O, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP REJECTED THOSE O BJECTIONS AND CONFIRMED THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO. THE ADJUSTMENT CONFIRMED BY THE DRP WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE BY THE AO IN THE FAIR ORDER OF ASSESSMENT. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRE D THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OU R NOTICE THAT OUT OF THE 20 COMPARABLE COMPANIES CHOSEN BY THE TPO, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCLUDED. 11. IT WAS POINTED OUT THAT AVANI CIMCON TECHNOLOG IES LTD., HAS TO BE EXCLUDED AS NOT FUNCTIONALLY COMPARABLE WITH A SOFT WARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. IN THIS REG ARD, OUR ATTENTION WAS DRAWN TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD., (SUPRA): 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. IT(TP)A NO.1186/BANG/2012 PAGE 8 OF 28 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 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; IT(TP)A NO.1186/BANG/2012 PAGE 9 OF 28 (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, 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 IT(TP)A NO.1186/BANG/2012 PAGE 10 OF 28 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 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. IT(TP)A NO.1186/BANG/2012 PAGE 11 OF 28 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 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. IT(TP)A NO.1186/BANG/2012 PAGE 12 OF 28 12. THE LEARNED DR RELIED ON THE ORDERS OF THE REVE NUE AUTHORITIES. IN OUR VIEW THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE TRIBUNAL. RESPECTFULLY F OLLOWING THE AFORESAID DECISION, WE DIRECT THE AO TO EXCLUDE AVANI CIMCON TECHNOLOGIES LTD., FROM THE LIST OF COMPARABLE COMPANIES FOR ARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPANIES PROFIT MARGIN WHILE DETERMININ G ALP. 13. THE LEARNED COUNSEL FOR THE ASSESSEE NEXT POINT OUT THAT CELESTIAL BIOLABS LTD., KALS INFORMATION SYSTEMS LTD. (SEG.), INFOSYS TECHNOLOGIES LTD., WIPRO LIMITED AND TATA ELXSI LTD., CHOSEN AS COMPARABLE COMPANIES BY THE TPO SHOULD BE EXCLUDED AS FUNCTIONALLY NOT C OMPARABLE WITH A COMPANY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES SU CH AS THE ASSESSEE, AS LAID DOWN BY THE HONBLE ITAT, BANGALO RE BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WHEREIN I T WAS HELD AS FOLLOWS: 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 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 IT(TP)A NO.1186/BANG/2012 PAGE 13 OF 28 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 FUNCTI ONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENTS, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. (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 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. IT(TP)A NO.1186/BANG/2012 PAGE 14 OF 28 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 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 IT(TP)A NO.1186/BANG/2012 PAGE 15 OF 28 OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 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 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) IT(TP)A NO.1186/BANG/2012 PAGE 16 OF 28 (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 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 IT(TP)A NO.1186/BANG/2012 PAGE 17 OF 28 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. 11.0 INFOSYS TECHNOLOGIES LTD. 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 COM PARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORIS ED REPRESENTATIVE 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, W HEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER OPER ATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTA TIVE 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 IT(TP)A NO.1186/BANG/2012 PAGE 18 OF 28 SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE A SSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HENCE INFOSYS 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)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADIN G TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTI VE SERVICE PROVIDERS 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 A VAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (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 AUTHORIS ED REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COM PARABLE 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 OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGIN S OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF TH IS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE D ECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMP ARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED 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 D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FI NDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. IT(TP)A NO.1186/BANG/2012 PAGE 19 OF 28 LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICA BLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGU MENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NO T FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN T HAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PROD UCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THA T THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMP ANIES. IT IS ORDERED ACCORDINGLY. 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 IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON SEVERAL GROUN DS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESS EE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 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 FOL LOWING REASONS:- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN T HE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENT S 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 AG NITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIA NT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING TO H IGHER PROFITS, CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVI CE 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 F UNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PU RSUANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. IT(TP)A NO.1186/BANG/2012 PAGE 20 OF 28 (V) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVEL OPMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION IS AV AILABLE ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGIN S, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJECTI NG 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. 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PE RUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPA NY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMEN T SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATIO N OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TP O APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FIL TER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALY SIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF TH E CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPR IATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INT ELLECTUAL 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 CAPTIV E SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND H ENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, F OLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT T HIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSE E. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY IT(TP)A NO.1186/BANG/2012 PAGE 21 OF 28 FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 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 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 TRIBUNA L IN THE CASE OF TELECORDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS H ELD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARABLE FOR A S OFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HA VE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 AN D THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE T O THE ASSESSEE IN THE CASE ON HAND. (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEV ELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMP ANY THE DESCRIPTION OF THE SEGMENT SOFTWARE DEVELOPMENT SE RVICES RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS I N RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN THE E MBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. IT(TP)A NO.1186/BANG/2012 PAGE 22 OF 28 THE LEARNED AUTHORISED REPRESENTATIVE PLEADS THAT IN VIEW OF THE ABOVE REASONS, TATA ELXSI LTD. IS CLEARLY FU NCTIONALLY DIFFERENT / DIS-SIMILAR FROM THE ASSESSEE AND THERE FORE 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. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULL Y PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT 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. 13.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE O F 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 HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTA L DETAILS 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 SERVICE S. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS C OMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING T HE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REP ORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINI NG TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IT(TP)A NO.1186/BANG/2012 PAGE 23 OF 28 IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 14. THE LEARNED DR RELIED ON THE ORDERS OF THE REVE NUE AUTHORITIES. IN OUR VIEW THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE TRIBUNAL. RESPECTFULLY F OLLOWING THE AFORESAID DECISION, WE DIRECT THE AO TO EXCLUDE CELESTIAL BIO LABS LTD., KALS INFORMATION SYSTEMS LTD., INFOSYS TECHNOLOGIES LTD. , WIPRO LTD., AND TATA ELXSI LTD., FROM THE LIST OF COMPARABLE COMPANIES F OR ARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPANIES PROFIT MARG IN WHILE DETERMINING ALP. 15. THE LEARNED COUNSEL FOR THE ASSESSEE NEXT POINT OUT THAT THIRDWARE SOLUTIONS LTD., LUCID SOFTWARE LTD., CHOSEN AS COMP ARABLE COMPANIES BY THE TPO SHOULD BE EXCLUDED AS FUNCTIONALLY NOT COMP ARABLE WITH A COMPANY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES SU CH AS THE ASSESSEE, AS LAID DOWN BY THE HONBLE ITAT, BANGALO RE BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WHEREIN I T WAS HELD AS FOLLOWS:- 15. THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COM PARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CR ORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPM ENT AND TRADING IT(TP)A NO.1186/BANG/2012 PAGE 24 OF 28 IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACC OUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LT D. (2008-TII- 04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT TH IS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PRO VIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE A BOVE FACTS AND IN VIEW OF THE AFORECITED DECISION OF THE TRIBU NAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPAR ABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LO SS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVEL OPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY T HE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCO ME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABL E FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASS ESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FA CTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OM ITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERAT ION IN THE CASE ON HAND. IT(TP)A NO.1186/BANG/2012 PAGE 25 OF 28 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSI ON OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIS ED REPRESENTATIVE SUBMITTED THAT (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY DIFFERENT AND THEREFORE NOT COMPARABLE TO SOFTWARE SERVICE PROVID ERS BY THE ORDER OF A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. L TD. (ITA NO.7821/MUM/2011). (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE TO SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA PVT. LT D. (ITA NO.1121/BANG/2011) AND CSR INDIA PVT. LTD. [ IT(TP) A NO.1119/BANG/2011 ] AND BY THE DELHI BENCH OF THE T RIBUNAL IN THE CASE OF TRANSWITCH INDIA PVT. LTD. (ITA NO.6083 /DEL/2010). (IV) THE FACTUAL POSITION AND CIRCUMSTANCES PERT AINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSE SSMENT YEAR 2008-09 AND THEREFORE ON THIS BASIS, THIS COMPANY C ANNOT BE CONSIDERED AS A COMPARABLE IN THE CASE ON HAND. (V) THE RELEVANT PORTION OF THE ANNUAL REPORT OF THIS COMPANY EVIDENCES THAT IT IS IN THE BUSINESS OF PRODUCT DEV ELOPMENT. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND THE D ECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE 'S OWN CASE FOR ASSESSMENT YEAR 2007-08 AND OTHER CASES CITED ABOVE , IT IS CLEAR THAT THIS COMPANY BEING INTO PRODUCT DEVELOPMENT CA NNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE C ASE ON HAND IT(TP)A NO.1186/BANG/2012 PAGE 26 OF 28 WHO IS A SOFTWARE SERVICE PROVIDER AND THEREFORE TH IS COMPANY I.E. LUCID SOFTWARE LTD., OUGHT TO BE OMITTED FROM THE L IST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCL UDING THIS COMPANY IN THE LIST OF COMPARABLES. 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTW ARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHE REAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. ( SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNO LOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE C ASE OF TRANSWITCH INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOP MENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONAL LY DIFFERENT AND DIS-SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVID ERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMO NSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO T HIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUN AL AND OF THE ITAT, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT T HAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 16. THE LEARNED DR RELIED ON THE ORDERS OF THE REVE NUE AUTHORITIES. IN OUR VIEW THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE TRIBUNAL. RESPECTFULLY F OLLOWING THE AFORESAID DECISION, WE DIRECT THE AO TO EXCLUDE THIRDWARE SOL UTIONS LTD., AND LUCID IT(TP)A NO.1186/BANG/2012 PAGE 27 OF 28 SOFTWARE LTD., FROM THE LIST OF COMPARABLE COMPANIE S FOR ARRIVING AT THE ARITHMETIC MEAN OF COMPARABLE COMPANIES PROFIT MARG IN WHILE DETERMINING ALP. 17. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT IF THE AFORESAID 8 COMPARABLE COMPANIES ARE EXCLUDED FROM THE LIST OF 20 COMPARABLE COMPANIES CHOSEN BY THE TPO, THEN THE PR OFIT MARGIN OF THE ASSESSEE WOULD BE WELL WITHIN THE (+) (-) 5% RANGE OF THE ARITHMETIC MEAN OF THE REMAINING COMPARABLE COMPANIES AND THEREFORE THE PRICE RECEIVED BY THE ASSESSEE WOULD BE CONSIDERED AS AT ARMS LEN GTH. HE PRAYED FOR A LIMITED DIRECTION TO THE TPO ON THE LINES SET OUT A BOVE AND DETERMINE THE ALP. IT ALSO SUBMITTED THAT THE OTHER ISSUES RAISE D BY THE ASSESSEE IN THE GROUNDS OF APPEAL NEED NOT BE GONE INTO. 18. WE ARE OF THE VIEW THAT THE PRAYER SOUGHT FOR BY THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCEPTABLE AND ACCORDINGLY, THE TPO IS DIRECTED TO COMPUTE ALP AFTER EXCLUDING THE 8 COMPARABLE COMPAN IES DEALT WITH IN THIS ORDER. 19. THE OTHER GROUNDS OF APPEAL REGARDING CHARGING OF INTEREST IS PURELY CONSEQUENTIAL AND THE GROUND OF APPEAL REGARDING IN ITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C ) OF THE ACT IS NOT APPEAL ABLE. THESE GROUNDS ARE DECIDED ACCORDINGLY. IT(TP)A NO.1186/BANG/2012 PAGE 28 OF 28 20. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF APRIL , 2015 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 10 TH APRIL , 2015 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.