M/s Thomson Reuters India Services Private Limited, Bangalore V. Addl.C.I.T., Bangalore

ITA 1206/BANG/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5548 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Unabsorbed depreciation; Revenue expenditure
• Section: 234B; 133(6)

Judgement Text

IT(TP)A.1206/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T (TP).A NO.1206/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. THOMSON REUTERS INDIA SERVICES P. LTD, (FORMERLY KNOWN AS THOMSON CORPORATION (INTERNATION AL) P. LTD,) DIVYASHREE TECHNONOPOLIS, 36/2 & 124, YAMALUR VILLAGE, VARTHUR HOBLI, OFF HAL AIRPORT ROAD, BENGALURU 560 047 .. APPE LLANT PAN : AAACW1663L V. ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE -12, BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. T. SURYANARAYANA, ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT - DR HEARD ON : 09.01.2017 PRONOUNCED ON : 06.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE ADDL. CIT, RANGE-II, BENGALURU, PASSED U/S.143(3) R.W.S.1 44C(13), DT.03.10.2011, IN PURSUANCE TO THE DIRECTIONS OF TH E DRP, FOR THE A Y 2007- 08. 02. M/S. THOMSON REUTERS INDIA SERVICES P. LTD, TH E ASSESSEE, A WHOLLY OWNED SUBSIDIARY OF WORLDSCOPE DISCLOSURE LL C, US, IS A IT(TP)A.1206/BANG/2011 PAGE - 2 PART OF THE WORLDWIDE THOMSON GROUP OF COMPANIES, P ROVIDING CONTRACT SOFTWARE DEVELOPMENT SERVICES (SWD SERVICE S FOR SHORT) AND INFORMATION TECHNOLOGY ENABLED SERVICES ('ITE SERVI CES' FOR SHORT) TO THOMSON FINANCIAL INC., US, ITS ASSOCIATED ENTERPRI SE . IT RUNS IT BUSINESS FROM TWO UNITS, VIZ PINNACLE UNIT & UB PLAZA UNIT. THE TPO REJECTED THE ASSESSEES TP STUDY AND MADE AN ADJUSTMENT OF RS. 1 2,61,34,044/- & RS.13,53,00,046/-TOWARDS PROVIDING SWD SERVICES & ITE SERVICES TO ITS AES, RESPECTIVELY. 03. ON THE DOMESTIC TAX FRONT, THE ASSESSEE DID NOT CLAIM DEDUCTION U/S 10A FOR THE PINNACLE UNIT FOR THE REASON THAT THE TAX HOLIDAY PERIOD ENDED LAST YEAR. IT ACQUIRED THE UB PLAZA UNIT IN BENGALURU WHICH IS REGISTERED WITH THE STPI AUTHORITIES, FROM THOMSON BUSINESS INFORMATION INDIA PRIVATE LIMITED (TBIIPL) WITH EFF ECT FROM 01.07.2005 PURSUANT TO A BUSINESS TRANSFER AGREEME NT DATED 15.06.2005 ON A SLUMP SALE BASIS. THE UB PLAZA UNIT WAS ADMITTEDLY, AN ELIGIBLE UNIT FOR DEDUCTION U/S 10A FROM ITS FORMAT ION, I.E. ON 24.03.2004, AND TBIIPL HAD BEEN ALLOWED THE DEDUCTION U/S 10A F ROM THE FIRST YEAR OF ITS FORMATION TILL IT HELD THE UNIT, I.E. TILL 30.0 6.2005. SINCE IT HAS ACQUIRED THAT UNIT, THE ASSESSEE CLAIMED DEDUCTION U/S 10A FOR THE BALANCE PERIOD OF ELIGIBILITY, I.E. FROM A Y 2006 -07 ONWARDS. THE AO DID NOT ALLOW THIS CLAIM FOR THIS A Y, ALTHOUGH ITS CLA IM IN A Y 2006-07 IE ., FOR THE IMMEDIATELY PRECEDING YEAR AND THE FIRST YEAR A FTER THE UNIT'S ACQUISITION, WAS ALLOWED BY THE A O IN HIS ORDER DA TED 13.09.2010. IT(TP)A.1206/BANG/2011 PAGE - 3 04. THE ASSESSEE CLAIMED LEGAL, PROFESSIONAL C HARGES, STAFF RECRUITMENT EXPENSES AND MANAGEMENT FEES AND APPOR TIONED THEM BETWEEN PINNACLE AND UB PLAZA UNITS BASED ON THE HE AD COUNT. THE AO EXAMINED AND FOUND THAT THE MANAGEMENT FEES HAS BEE N DEBITED AGAINST PINNACLE UNIT ALONE AND THE ASSESSEE COULD NOT EX PLAIN WHY THIS EXPENDITURE IS NOT APPORTIONED AT ALL AS PER ITS O WN METHOD. ON EXAMINATION, THE AO HELD THAT THE HEAD COUNT IS NO T A FAIR BASIS FOR APPORTIONMENT. SINCE THE TURNOVER INDICATED ACTIVIT Y LEVEL, HE APPORTIONED THEM ON THE BASIS OF TURNOVER WHICH RESULTED IN INCREASED INCOME OF THE PINNACLE UNIT AND REDUCTION OF INCOME OF UB PLAZA U NIT. 05. THE ASSESSEE CLAIMED BROUGHT FORWARD UNABSORBED DEPRECIATION RELATING TO AYS 1996-97 & 1999-2000, T OTALED AT RS.16,14,643/- AS A SET-OFF IN THIS A Y . THE A O DENIED IT ON THE GROUND THAT THE PINNACLE UNIT WAS A PROFIT MAKING UNIT IN ALL THE YEARS PRIOR TO A Y 2007-08 AND THEREFORE, THE ABOVE UNABSORBE D DEPRECIATION IS DEEMED TO HAVE BEEN SET-OFF IN THOSE YEARS WHEN THE DEDUCTION UNDER SECTION 10A WAS COMPUTED. FURTHER, THE A O HA S ALSO DENIED THE CLAIM FOR SET-OFF CONTENDING THAT THE SAME WAS ALLO WED IN THE ASSESSMENT ORDER FOR A Y 2006-07. 06. AGGRIEVED, THE ASSESSEE FILED ITS OBJECT IONS BEFORE THE DISPUTE RESOLUTION PANEL ('THE DRP'), WHICH, VIDE I TS DIRECTIONS DATED 26.09.2011, UPHELD THE DRAFT ASSESSMENT ORDER . THE REAFTER, THE A O PASSED THE FINAL ASSESSMENT ORDER DATED 03.10.2011 IN ACCORDANCE WITH IT(TP)A.1206/BANG/2011 PAGE - 4 THE DRPS DIRECTIONS IN WHICH THE ABOVE TP ADJUSTME NTS AS WELL AS WELL AS THE DISALLOWANCES U/S.10A AND OF THE SET OFF OF UNABSORBED DEPRECIATION WERE INCORPORATED. AGGRIEVED BY THE F INAL ASSESSMENT ORDER, THE ASSESSEE IS ON APPEAL WITH THE FOLLOWING GROUND S: IT(TP)A.1206/BANG/2011 PAGE - 5 10. THAT THE LEARNED ASSESSING OFFICER AND THE LEARN ED PANEL ERRED IN CONSEQUENTLY LEVYING INTEREST UNDER SECTION 234B AND 234D OF THE ACT. IT(TP)A.1206/BANG/2011 PAGE - 6 07. TRANSFER PRICING ISSUES : PROVISION OF SWD SERVICES SEGMENT : OUT OF THE 18 COMPARABLES SELECTED BY THE ASSESSEE, THE TPO ACCEPTED 2 COM PARABLES, NAMELY, SIP TECHNOLOGIES AND EXPORTS LTD & MINDTREE LTD AND REJ ECTED 16 COMPARABLES. THE TPO CHOSE THE FOLLOWING 26 COMPARABLES AS A FIN AL SET . SL.NO NAME OF THE COMPANY 1 ACCEL TRANSMATIC LTD (SEG) 2 AVANI CIMCON TECHNOLOGIES LTD (SEG) 3 CELESTIAL LABS LTD 4 DATAMATICS LTD 5 E-ZEST SOLUTIONS LTD 6 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) 7 GEOMETRIC LTD (SEG) 8 HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD 9 IGATE GLOBAL SOLUTIONS LTD 10 INFOSYS TECHNOLOGIES 11 ISHIR INFOTECH LTD 12 KALS INFORMATION SYSTEMS LTD (SEG) 13 LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD 14 LUCID SOFTWARE LTD 15 MEDIASOFT SOLUTIONS LTD 16 MEGASOFT LTD (SEG) 17 MINDTREE LTD 18 PERSISTENT SYSTEMS LTD 19 QUINTEGRA SOLUTIONS LTD 20 R S SOFTWARE (INDIA) LTD 21 R SYSTEMS INTERNATIONAL LTD (SEG) 22 SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) 23 SIP TECHNOLOGIES & EXPORTS LTD 24 TATA ELXSI LTD (SEG) 25 THIRDWARE SOLUTIONS LTD 26 WIPRO LTD (SEG) 08. OUT OF WHICH, THE ASSESSEE IS SEEKING REJEC TION OF 17 COMPARABLES AND INCLUSION OF MEGASOFT LTD . OUT OF THOSE 17 COMPARABLES, 15 ARE SOUGHT TO BE REJECTED ON THE BASIS FUNCTIONAL DISSI MILARITY, ONE ON THE BASIS OF THE RPT FILTER AND THE LAST ONE, BOTH ON THE BAS IS OF THE EMPLOYEE FILTER & THE RPT FILTER . FOURTEEN COMPARABLES AT SI. NO S. 1, 2, 3, 5, 6, 8, 10, 12, 14, 18, 22, 24, 25, AND 26 IN THE TABLE, SUPRA , ARE SOUGHT TO BE IT(TP)A.1206/BANG/2011 PAGE - 7 EXCLUDED ON THE BASIS OF THIS TRIBUNAL DECISION IN MERITOR LVS INDIA (P.) LTD. V. ACIT [(2015) 64 TAXMANN.COM 136 (BANG-TRIB.) AND ISHIR INFOTECH LTD IS BEING SOUGHT TO BE REJECTED AS IT IS FAILIN G THE TPOS OWN FILTER OF 25% EMPLOYEE COST RELYING ON THIS TRIBUNAL'S DECI SION IN MERITOR LVS INDIA (P.) LTD. V. ACIT [(2015) 64 TAXMANN.COM 136 (BANG-TRIB.)] AND ALSO IN VIEW OF ITS RPT EXCEEDING 15% OF SALES AS P ER THIS TRIBUNAL DECISION IN 24/7 CUSTOMER COM P LTD V DCIT 2012, 28 TAXMANN.COM 258 BANG.TRIB. QUINTEGRA SOLUTIONS LTD IS SOUGHT TO BE REJECTED AS A FUNCTIONALLY DISSIMILAR ONE BASED ON THIS TRIBUNAL 'S DECISION IN NXP SEMICONDUCTORS INDIA P. LTD V ACIT [ DATED 14.11.2014 IN IT(TP) A NO. 1174/BANG/2011]. GEOMETRIC LTD (SEG ) & ISHIR INFOTECH LTD , SUPRA, ARE BEING SOUGHT TO BE REJECTED AS ITS RPT EXCEEDS 15% AS PER THIS HON'BLE TRIBUNAL'S DECISION IN 24/7 CUSTOMER CORN PRIVATE LTD. V. DCIT[(2012) 28 TAXMANN.COM 258 (BANG-TRIB.)]. LET US EXAMINE THEM AS UNDER. THE RELEVANT PORTION FROM MERITOR LVS INDIA (P.) LTD. V. ACIT [(2015) 64 TAXMANN.COM 136 (BANG-TRIB.), FOR AY.2007-08 IS E XTRACTED AS UNDER : 12. WE HAVE PERUSED THE ORDERS AND HEARD THE R IVAL CONTENTIONS. ASSESSEE IS SEEKING EXCLUSION OF 16 COMPARABLES OUT OF 26 COMPANIES SELECTED BY THE TPO. FOR THIS IT HAS PLACED RELIAN CE ON THE DECISION OF COORDINATE BENCH IN THE CASE OF HEWLETT- PACKARD (I NDIA) GLOBALSOFT P. LTD, (SUPRA). WE FIND THAT ISSUES BEFORE THIS TRIBUNA L IN THE CASE OF HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD, (SUPRA) WAS ALS O WITH REGARD TO SOFTWARE DEVELOPMENT SERVICES SEGMENT, THAT TOO FOR THE VERY SAME ASSESSMENT YEAR. SERVICES RENDERED BY BOTH THE ASSESSEE AS WE LL AS HPIGPL FELL WITHIN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT, AND THER EFORE IN OUR OPINION THE DECISION OF THE COORDINATE BENCH IN HEWLETT- PA CKARD (INDIA) GLOBALSOFT P. LTD, (SUPRA) CAN BE TAKEN AS A GOOD PRECEDENT. FINDINGS OF THE TRIBUNAL IT(TP)A.1206/BANG/2011 PAGE - 8 IN THE CASE HEWLETT- PACKARD (INDIA) GLOBALSOFT P. LTD, (SUPRA) IN SO FAR AS THE COMPARABLES SOUGHT TO BE EXCLUDED BY THE ASSESS EE WERE AS UNDER : CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR I N-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF T HE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENT IONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT O F NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AND TH E SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISI ON OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHICH THE COMP ARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RESEARCH SEGMENT. THE RE LEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPANY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAGE -389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPO RT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TOO L CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR D RUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC ( OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND T ECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BI O-INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPON SE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES A RE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MICROBIO LOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOL OGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH I MTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MANUFACTURE A ND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN IND IA AND OVERSEAS. THE IT(TP)A.1206/BANG/2011 PAGE - 9 COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACIL ITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUD E THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVIT IES TO DEVELOP NEW CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTE RESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY W ILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALSO I N THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSI DERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED COMPANY A ND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTI ONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIF Y AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE D IFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING T O SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPAN Y AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IPR, I T HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE T O TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS C OMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASON THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELO PMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJECTED AS A C OMPARABLE BEING FUNCTIONALLY DIFFERENT. 45.FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANSP IRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS CLASS IFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN A Y 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE A NNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM T HIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID T HAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSES SEE IN REPLY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HA S POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIV ITY IS NOT AVAILABLE AND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COM PARABLE. BESIDES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERE NCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THI S COMPANY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWAR E DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SO FTWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THI S COMPANY IN ITS REPLY IT(TP)A.1206/BANG/2011 PAGE - 10 DATED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORK ING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY S EGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPOS ORDER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES P ERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLI C ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINIC AL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS O F THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE A NNUAL REPORT FOR FY 06- 07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PROD UCTS AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFERENCE TO AN Y REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WI THOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN TH E DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTI LIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN N O WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY DURING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSIONS MADE BY THE AS SESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL R ESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THERE IS NO CLE AR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE B USINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY OUGHT NOT TO HAVE BEEN C ONSIDERED AS COMPARABLE. 2) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE A SSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTW ARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPA RABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGA GED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SE RVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVICES INCLUDING PRO DUCT DEVELOPMENT CONSULTING SERVICES. THESE SERVICES, THE LEARNED AU THORISED REPRESENTATIVE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES. IT IS FURTHER SUBMITT ED THAT THIS COMPANY HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REPORT. T HE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIVE INFORMATION ON THE BUS INESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE O N THE COMPANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COM PANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPR ESENTATIVE THAT KPO IT(TP)A.1206/BANG/2011 PAGE - 11 SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERVICES OUGHT NOT TO BE CO NSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATIO N SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED T HAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS L TD., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARBALES ON LY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE N OTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER T HE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMEN T SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND T HAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I. E. E-ZEST SOLUTIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEE N HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q I NFORMATIONSYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABL E TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARAB LE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-Z EST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED . 3) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY I N THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE P ROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE AS SESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THI S CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPANY TO TH IS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GROWTH. IN 2 008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AND FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DATE THIS COMPANY HAS FILE D AN AGGREGATE OF 119 PATENT APPLICATIONS (PENDING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SO FTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NOT AV AILABLE. IT(TP)A.1206/BANG/2011 PAGE - 12 (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CRORES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS :- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (I TA NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARAB ILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF TH IS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS C OMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE I S NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE T O THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TE CHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN T HAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE O MITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 4) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONT ENTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH S OFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS A LSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDING TRAINING. IT WAS A LSO SUBMITTED THAT AS PER THE ANNUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45,93,351. THE SAME WAS LESS THA N 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILT ER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DEC ISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, IT A NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006 -07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIE S. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS IT(TP)A.1206/BANG/2011 PAGE - 13 EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVEL OPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HA S SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T EN ABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUC TS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS D RAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/ S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAI N COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE A NNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTE R DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THA T THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAIN LY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE. 5) & 6) M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL. NO.11 & 14 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S .ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED, THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. VS. DCIT IT (TP) NO.1086 /BANG/2011 FOR AY 07-08 HELD THAT THE AFORESAID COMPANIES ARE NOT COMPARABL E COMPANIES IN THE CASE OF SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE NAT URE OF SERVICES RENDERED BY THE ASSESSEE IN THIS APPEAL AND THE ASSESSEE IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA) ARE ONE AND THE S AME. THIS FACT WOULD BE CLEAR FROM THE FACT THAT THE VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS I N THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA). THE F OLLOWING WERE THE RELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVANTAGE OFFSHOR E SERVICES PVT.LTD.(SUPRA): 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLE S ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CASE OF MERCEDES BE NZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.2013, WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINCTIONS AS TO WHY THESE COMPANIES SHOULD BE EX CLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CASE BEFORE US A RE SIMILAR AND, THEREFORE, THE SAID DECISION IS APPLICABLE TO THE ASSESSEE'S C ASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSIO N OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A CAREF UL PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN THE CASE OF MERCEDES BENZ RESEARCH & IT(TP)A.1206/BANG/2011 PAGE - 14 DEVELOPMENT INDIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE ASSESSEE THEREIN AND LUCID SOFTWARE LTD . AS OBSERVED THEREIN LUCID SOFTWARE LTD. COMPANY IS ALSO INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE ASSESSEE, WHICH IS ONLY INTO SOF TWARE SERVICES. SIMILARLY, AS REGARDS ISHIR INFOTECH LTD., THE TRIBUNAL HAS CO NSIDERED THE DECISION OF THE TRIBUNAL IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD T HAT ISHIR INFOTECH IS ALSO OUT- SOURCING ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AS THE FACTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOL LOWING THE DECISION OF THE CO- ORDINATE BENCH, WE HOLD THAT THESE TWO COMPANIES AR E ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANI ES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINING ALP. 7) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES OR SEVERAL GROUNDS LIKE FUNCTIONAL D IS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJ ECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES . 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEV ERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIB LES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMI SSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIA L STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGIN S, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CO NSOLIDATED FINANCIAL STATEMENTS. 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTE NTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABL ES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATION 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 SOFTWARE DEVELOPMENT SALES 75% O F THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARAB ILITY ANALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CON SOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLE CTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF IT(TP)A.1206/BANG/2011 PAGE - 15 PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND H ENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSE E IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORES AID DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A CO MPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFI CER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 8) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAP GEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTI ON OF THE ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE S UBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 20 05-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPANY W ERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MAN UFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VEN DING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENT RE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OUTSOURCED P RODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEME NT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT THE COMPANY WAS FUNCT IONALLY DIFFERENT FROM THE ASSESSEE COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATIO N AND THEREFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFICER TO EXC LUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THI S COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN THE PERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSIO N OF THE LD. COUNSEL FOR IT(TP)A.1206/BANG/2011 PAGE - 16 THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD N OT BE CONSIDERED AS COMPARABLE. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUNAL IN CAPGE MINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRI BUNAL, IN THE SAID DECISION REFERRED TO BY THE LD. COUNSEL FOR THE ASS ESSEE, HAS ACCEPTED THAT THIS COMPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSES SEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE AFORESAI D COMPANY SHOULD BE EXCLUDED AS COMPARABLES. 20. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN SIMILAR SET OF FACTS, THESE COMPANIES ARE DIRECTED TO BE EXCLUDED FROM TH E LIST OF COMPARABLES. 9) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM TH E ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHI CH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME D XCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOULD HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THERE FORE IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT WAS FURTHER SUBMIT TED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELC ORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAI LS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOW S:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ) : HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEEN PROVIDE D SO AS TO SEE WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND O F DETAILS PROVIDED BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT AS COMPARABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS A CCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWARE EXPORTS, HOWEVE R, THE DETAILS OF PERCENTAGE OF EXPORT OF PRODUCTS OR SERVICES HAVE N OT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INT O CONSIDERATION FOR COMPARABILITY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS. TH E FOLLOWING FIGURES WERE PLACED BEFORE US:- IT(TP)A.1206/BANG/2011 PAGE - 17 PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 280398 51 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (3069098 ) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERATING REV ENUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXTRAORDINARY YEAR F OR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDUSTRY FOR THE PREVIOUS YEAR A S PER NASSCOM WAS 32%. THE GROWTH RATE OF THIS COMPANY WAS DOUBLE THE INDU STRY AVERAGE. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJECTED AS A COMPARABLE. 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXCLUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. THE DECI SION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACI T (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. 10) FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) : 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLE XTRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DECISION OF MOTOROLA SOLUTIONS (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE VERY SAME YEAR AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE ABOUT THE CO MPANY. UNLESS THIS BASIC REQUIREMENT IS FULFILLED, THE COMPANY CANNOT BE TAK EN AS A COMPARABLE. IT IS TRUE THAT LD. TPO IS ENTITLED TO OBTAIN INFORMATION US/ 133(6), THE OBJECT OF WHICH IS PRIMARILY ONLY TO SUPPLEMENT THE INFORMATI ON ALREADY AVAILABLE ON RECORD, BUT NOT, AS RIGHTLY SUBMITTED BY LD. COUNSE L FOR THE ASSESSEE, TO REPLACE THE INFORMATION. IF THERE IS A COMPLETE CON TRADICTION BETWEEN THE INFORMATION OBTAINED U/S 133(6) AND ANNUAL REPORT T HEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFORE, ARE IN ITA NO. 5637/D/2011 149 AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT THIS COMPANY CANNOT BE INCLUDED AS A COMPARABLE IN THE SET OF COMPARABLES SELECTED BY LD. TPO ON ACCOUNT OF CLEAR CONTRADICTION BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCUM ENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING INTO INTERNA TIONAL TRANSACTIONS. THESE ARE OFFICIAL PUBLICATIONS, PUBLISHED ACCOUNTS OR TH OSE WHICH ARE IN PUBLIC IT(TP)A.1206/BANG/2011 PAGE - 18 DOMAIN EXCEPT FOR AGREEMENTS AND CONTRACTS TO WHICH ASSESSEE IS PRIVY. ONCE THE ANNUAL REPORT OF A COMPANY IS FOR A YEAR DIFFER ENT FROM THE FINANCIAL YEAR ENDING 31 ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLESS THE INFORMATION RECEIVED IN PURSUANCE TO A N OTICE U/S.133(6) OF THE ACT FROM SUCH COMPANY, IS RECONCILED WITH THE FIGURES A VAILABLE IN SUCH ANNUAL REPORT. 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31.03.2007. HOWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO RECONCILIATION WAS ATTEMPTE D BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WIT H THE FIGURES WHICH WERE MADE AVAILABLE BY THE SAID COMPANY TO THE TPO PURSU ANT TO NOTICE ISSUED TO THEM U/S.133(6) OF THE ACT. NO DOUBT AT PAGE 123 O F TP ORDER, TPO HAS STATED THAT THE SOFTWARE DEVELOPMENT SERVICE REVENU ES WERE MORE THAN 75% BASED ON THE FOLLOWING FIGURES : BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE ANNUAL REPORT OF THE ASS ESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF T HE OPINION THAT FLEXTRONICS SOFTWARE SOLUTIONS LTD (SEG) COULD NOT BE CONSIDERE D AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. 11) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WIT H REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON I NFORMATION TECHNOLOGY LTD., AND KALS INFORMATION SOLUTIONS LTD. (SEG). TH E PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESA ID TWO COMPANIES FROM THE LIST OF COMPARABLES IS TO BE EFFECT THAT THEY ARE F UNCTIONALLY INCOMPARABLE AND THEREFORE, ARE LIABLE TO BE EXCLUDED. IN SUM AN D SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCE RNS ARE ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT FROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORD ER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYSTEMS LTD ., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCERN IS ENGAGED IN TW O SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AND TRAINING. AS PER T HE TPO, THE APPLICATION SOFTWARE SEGMENT IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A IT(TP)A.1206/BANG/2011 PAGE - 19 PERUSAL OF THE ANNUAL REPORT OF THE SAID CONCERN FO R F.Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESS EE POINTED OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH I S PLACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER POINTE D OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, I T WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT-SERVICES SE GMENT. THE TPO HOWEVER, NOTICED THAT THOUGH THE APPLICATION SOFTWARE SEGMEN T OF THE SAID CONCERN MAY BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE P RODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITE D IN THE PROFIT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE FROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STA TEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEES SEGMENT OF IT-SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RA ISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMME DIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CONCERN WAS EV ALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. F OR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 421 TO 542 OF T HE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STUDY UNDERTAKEN B Y THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTICULAR, ATTENTION WAS INVI TED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE ASSESSEE REF LECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED B Y THE TPO IN THE EARLIER A.Y. 2006-07 AND THEREFORE, THERE WAS NO JUSTIFICAT ION FOR THE TPO TO CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABL E IN THE INSTANT ASSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CONCER N HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESSEE IN THE IM MEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PRESENT YEAR ALSO, ON TH E BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDR ESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HAS CORRECTLY ASSERTED OU T THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS , WHICH WAS QUITE DISTINCT FROM THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE O RDERS OF THE LOWER AUTHORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PRO FILE OF THE SAID CONCERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BRO UGHT OUT BY THE ASSESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTW ARE SEGMENT OF THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES. 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHES ON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISED SIMILAR AR GUMENTS AS IN THE CASE OF IT(TP)A.1206/BANG/2011 PAGE - 20 KALS INFORMATION SOLUTIONS LTD. (SEG). WE HAVE PERU SED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF W HICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONCERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006-07 THE SAID CONCERN WAS FOUND FUNCTIO NALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY THE TPO. THE RELEVANT PORTION OF THE T RANSFER PRICING STUDY, PLACED AT PAGE 432 OF THE PAPER BOOK HAS BEEN POINT ED OUT IN SUPPORT. CONSIDERED IN THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTA NT CASE ALSO WE FIND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 12) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO REJECTED THE ASS ESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPAN Y FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEVELOPMENT COMPAN Y AND AS PER THE DETAILS FURNISHED IN REPLY TO THE NOTICE UNDER SECT ION 133(6) OF THE ACT, SOFTWARE DEVELOPMENT CONSTITUTES 96% OF ITS REVENUE S. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED TH E FUNCTIONALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPANY IS FUNCTI ONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, THE LEARNED AUTHOR ISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING S ERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FO R F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAGED IN OUT SOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTW ARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY I S IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORD IA TECHNOLOGIES INDIA PVT. LTD.(SUPRA) WHILE DISCUSSING THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING T HAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCO UNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INTO PRODUCT DEVELOPM ENT AND PRODUCT DESIGN SERVICES AND FOR WHICH THE SEGMENTAL DATA IS NOT AV AILABLE. IT(TP)A.1206/BANG/2011 PAGE - 21 THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTED FRO M THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAG ED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THAT, AS SUB MITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN SEPARATELY. THE REFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THA T IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD THAT THIS COMPANY I .E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE S FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 13) SASKEN COMMUNICATION TECHNOLOGIES LTD.: 109. LD TPO NOTICED THAT THE COMPANY WAS REJECTED IN THE TP DOCUMENT ON THE GROUND THAT THE COMPANY FAILS ITS FILTER OF BUS INESS REVIEW AND R&D TO SALES WAS MORE THAN 3%. HOWEVER, NO REASONS WERE GI VEN FOR THE BUSINESS REVIEW. 109.1 LD. TPO POINTED OUT THAT R&D TO SALES BEING M ORE THAN 3% IS NOT ACCEPTABLE FOR WHICH DETAILED DISCUSSION HAS ALREAD Y BEEN MADE EARLIER. HE FURTHER NOTICED THAT THE COMPANY HAS SOFTWARE SERVI CES SEGMENT AND SEGMENTAL RESULTS ARE AVAILABLE FOR SOFTWARE SERVIC ES. HE FURTHER POINTED OUT THAT ON THE BASIS OF INFORMATION OBTAINED U/S 133(6 ), THE COMPANY QUALIFIES ONSITE REVENUE FILTER (ONSITE REVENUES WERE TO THE EXTENT 27.27% OF ITS EXPORT REVENUES). AFTER CONSIDERING THE ASSESSEES REPLY, LD. TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES. LD. COUNSE L POINTED OUT THAT THIS COMPANY HAS INCURRED SIGNIFICANT EXPENDITURE ON RES EARCH AND DEVELOPMENT ACTIVITY THE SAME BEING 6.07% OF SALES. HE FURTHER SUBMITTED THAT THE COMPANY HAD SIGNIFICANT INTANGIBLE INASMUCH AS IT D EVELOPS SISKIN BRANDED PRODUCTS. THE COMPANY OWNS IPR FURTHER IT WAS POINT ED OUT BEFORE TPO THAT DURING THE YEAR THE COMPANY HAD ACQUIRED BOTNIA HIG HTECH F. AND ITS TWO SUBSIDIARIES AND THUS, IT HAD UNDER GONE SIGNIFICAN T RESTRUCTURING. HOWEVER, LD. TPO IGNORED THESE FACTS HE RELIED ON THE FOLLOW ING DECISIONS: IQ INFORMATION SYSTEM (I) PVT. LTD., ITA NO. 1961 /HYD./2012 (PARA NO. 11 & 23, PAGE 25); AMERSON PROCESS MANAGEMENT INDIA PVT. LTD., ITA N O. 8118/MUM./2010 (PARA 16 PAGE 15). 110. LD. DR RELIED ON THE ORDER OF TPO AND SUBMITTE D THAT TPO CONSIDERED THE COMPANIES SOFTWARE SERVICES SEGMENT DETAILS ONL Y. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD O F THE CASE. IT(TP)A.1206/BANG/2011 PAGE - 22 111. LD. TPO HAS COMPLETELY IGNORED THE EXTRAORDINA RY BUSINESS CIRCUMSTANCES POINTED OUT BY ASSESSEE FOR WHICH NEC ESSARY ADJUSTMENT WAS REQUIRED TO BE MADE IN ACCORDANCE WITH RULE 10B(3) OF INCOME TAX RULES. HOWEVER, SINCE THIS ADJUSTMENT WAS NOT POSSIBLE, TH EREFORE, THIS COMPANY SHOULD NOT HAVE BEEN INCLUDED IN THE LIST OF COMPAR ABLES. FURTHER, WE FIND THAT THE COMPANY OWNS IPR AND HAS BRANDED PRODUCTS WHICH ALSO DISTINGUISHES IT FROM THE ASSESSEE AND, THEREFORE, KEEPING IN VIEW THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD.(SUPRA), WE DIRECT THE LD. TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. IF WE FOLLOW THE COORDINATE BENCH DECISION IN THE C ASE OF MOTORALA SOLUTION (INDIA) P. LTD, SASKEN COMMUNICATION TECHNOLOGIES L TD NEEDS TO BE EXCLUDED. HOWEVER, AS MENTIONED BY US AT PARA 24 A BOVE, WHERE THE CONTESTED COMPARABLE FORMED PART OF ASSESSEES OWN STUDY, THEN THE AO / TPO HAS TO BE GIVEN A CHANCE FOR VERIFICATION, IN V IEW OF JUDGMENT OF HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF QUARK S YSTEMS INDIA P. LTD (SUPRA). ACCORDINGLY WE REMIT THE ISSUE OF COMPAR ABILITY OF SASKEN COMMUNICATION TECHNOLOGIES LTD BACK TO THE AO / TPO FOR CONSIDERATION AFRESH AS PER LAW. ORDERED ACCORDINGLY. 14) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS- SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER , REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDER THE SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFECT. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COMPANY IN TH E LIST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD , WE FIND THAT THIS IT(TP)A.1206/BANG/2011 PAGE - 23 COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNI NG SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICE S RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMEN T SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF T ELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVI CE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY 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 ASSES SEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRE SENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN P ROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARI NG THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETER MINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPO RT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA EL XSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLU SION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACC ORDINGLY. 15) THIRDWARE SOLUTIONS LTD. (SEGMENT) : 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN TH E LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO T HE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND TH AT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSESSEE HA S OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE R EASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINES S OF PRODUCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMI TTED THAT :- (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 ACCOUNT FOR SOFTWARE DEVELOPMENT SE RVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (2008-TII-04-ITAT-PUNE- TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS INCOME INCLU DES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COM PANY. IT(TP)A.1206/BANG/2011 PAGE - 24 THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA), T HIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY 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 PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, TH E SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT B Y THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT O UGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIRECT TH AT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 13. IN SO FAR AS MEGASOFT LTD, IS CONCERNED, FINDIN GS OF THE TRIBUNAL IN THE ABOVE CASE WAS AS UNDER : MEGASOFT LTD. : 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THE TPO. THE OBJECTION OF THE ASSESSEE IS THAT THERE ARE TWO SEGMENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SOFTWARE PRODUCT SEGM ENT. THE ASSESSEE IS A PURE SOFTWARE SERVICES PROVIDER AND NOT A SOFTWARE PRODUCT DEVELOPER. ACCORDING TO THE ASSESSEE THERE IS NO BREAK UP OF R EVENUE BETWEEN SOFTWARE PRODUCTS AND SOFTWARE SERVICES BUSINESS ON A STANDA LONE BASIS OF THIS COMPARABLE. THE TPO RELIED ON INFORMATION WHICH W AS GIVEN BY THIS COMPANY IN WHICH THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. XIUS-BCGI DIVISI ON DOES THE BUSINESS OF PRODUCT SOFTWARE. THIS COMPANY DEVELOPS PACKAGED P RODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS AR E SOLD AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE ST ANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE COMPANY TO CUSTOMIZE PROD UCTS OR RECONFIGURE PRODUCTS TO FIT INTO THEIR BUSINESS ENVIRONMENT. T HEREUPON THE COMPANY TAKES UP THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. T HE COMPANY ALSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE WOULD CONSTI TUTE PACKAGED PRODUCT AND AROUND 50% TO 60% WOULD CONSTITUTE CUSTOMIZED CAPAB ILITIES AND EXPENSES RELATED TO TRAVELLING, BOARDING AND LODGING EXPENSE . BASED ON THE ABOVE REPLY, IT(TP)A.1206/BANG/2011 PAGE - 25 THE TPO PROCEEDED TO HOLD THAT THE COMPARABLE COMPA NY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO PRODUCT SOFTWARE) INTERNALLY AND THAT THE PORTION OF THE RE VENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS T HAN 25% OF THE OVERALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25 % OF THE REVENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFT WARE DEVELOPMENT SERVICES. THE BASIS ON WHICH THE TPO ARRIVED AT THE PLI OF 60 .23% IS GIVEN AT PAGE-115 AND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF THE SAME THAT THE TPO HAS PROCEEDED TO DETERMINE THE PLI AT THE E NTITY LEVEL AND NOT ON THE BASIS OF SEGMENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSESSEE THA T THE OPERATING MARGINS HAVE BEEN COMPUTED AT ENTITY LEVEL COMBINING SOFTWARE SE RVICES AND SOFTWARE PRODUCT SEGMENTS. IT WAS SUBMITTED THAT THE PRODUC T SEGMENT OF MEGASOFT IS SUBSTANTIALLY DIFFERENT FROM ITS SOFTWARE SERVICE S EGMENT. THE PRODUCT SEGMENT HAS EMPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SE RVICE SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117.95% AND IN CASE OF SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEGMENTS ARE SUBSTANTIALLY DIFFERENT AND THEREFORE COMPARISON AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPARABILITY ( SUBMISSIONS ON PAGE 381 TO 383 OF THE PB-I). IT WAS FURTHER SUBMITTED THAT ME GASOFT LIMITED HAS PROVIDED SEGMENTAL BREAK-UP BETWEEN THE SOFTWARE SERVICES SE GMENT AND SOFTWARE PRODUCT SEGMENT (PAGE 68 OF PB-II), WHICH WAS ALSO ADOPTED BY THE TPO IN HIS SHOW CAUSE NOTICE (PAGE 84 OF PB-I). THE SEGMENTAL RESULTS I.E., RESULTS PERTAINING TO SOFTWARE SERVICES SEGMENT OF THIS COM PANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTAN CES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SEL ECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO IN CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGINS OF ONLY T HE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURPOSES. CONSISTENT WITH SUCH ST AND, IT WAS SUBMITTED THAT THE MARGINS OF THE SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGASOFT ALSO, IN CONTRAST TO THE ENTITY LEVEL MARG INS. 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LT D. IS THEREFORE REMITTED TO THE FILE OF THE TPO TO COMPUTE THE CORRECT MARGIN B Y FOLLOWING THE DIRECTION OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFT WARE INDIA PVT.LTD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO COMPUTE THE CORRECT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FIRST ADVAN TAGE OFFSHORE SERVICES PVT.LTD. (SUPRA). IT(TP)A.1206/BANG/2011 PAGE - 26 ACCORDINGLY WE HOLD THAT MEGASOFT LTD CAN BE CONSID ERED AS A GOOD COMPARABLE AFTER SEGMENTATION AS DIRECTED IN THE ABOVE ORDER I S DONE. 09. THUS, THIS TRIBUNAL IN MERITOR LVS INDIA P. LTD (SUPRA), CONCLUDED AS UNDER : 14. ACCORDINGLY, FOLLOWING THE ABOVE ORDER WE DIREC T EXCLUSION OF CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD, INFOSYS TECHNOLOGIES LTD , KALS INFORMATION SYSTEMS LTDE (SEG), LUCID SOFTWARE LTD, WIPRO LTD (SEG), AC CEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD, FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, ISHIR INFOTECH LTD, PERSISTENT SYSTEMS LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG), TATA E LXSI LTD (SEG) AND THIRDWARE SOLUTIONS LTD. IN SO FAR AS MEGASOFT SOL UTIONS LTD IS CONCERNED, WE DIRECT THE AO / TPO TO REWORK ITS SEGMENTAL RESULTS AND CONSIDER ITS COMPARABILITY ONLY WITH REGARD TO THE SOFTWARE DEVE LOPMENT SERVICES SEGMENT. ORDERED ACCORDINGLY. 10. THE RELEVANT PORTION FROM THIS TRIBUNAL'S DECIS ION IN NXP SEMICONDUCTORS INDIA P. LTD V ACIT [ DATED 14.11.2014 IN IT(TP) A NO. 1174/BANG/2011], FOR AY.2007-08 IS EXTRACTED AS UN DER : 18. QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIFFER ENT AND ALSO THAT THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQU ISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HO LDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. ON TH E ISSUE OF ACQUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT T HE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INFLUE NCE ON THE PRICING OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIFFERENT AND ALSO T HAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONSIDERED AS A COMPAR ABLE. IT WAS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CON SIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN PURELY SOFT WARE DEVELOPMENT SERVICES. IT(TP)A.1206/BANG/2011 PAGE - 27 THE ANNUAL REPORT OF THIS COMPANY ALSO STATES THAT IT IS ENGAGED IN PREPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO T HE ASSESSEE IN THE CASE ON HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERED BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PRO VIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTEN ANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES) , PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVICES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELLECTUAL PROPRIETAR Y RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMENTS MADE IN THE ANNUAL RE PORT OF THE COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH IS AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRODUCTS DEVELOPED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VIZ. INVESTOR PROTECTION INDEX FUND (IPIF). THESE MEASURES WILL HELP THE COMPANY ENHANCE ITS PR ODUCTS VALUE AND ALSO MITIGATE RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDING CO MPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS THE TPOS O WN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FRO M THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIOD UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA, THIS COMPA NY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIONALLY DIFFERENT AND POSSESSING ITS OWN INTANGIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN TH E CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COM PARABLES FOR THE PERIOD UNDER CONSIDERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E.QUINTEGRA SOLUTIONS LTD. IS E NGAGED IN PRODUCT ENGINEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT S ERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND HAS SUBSTANTIA L R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FO R TRADE MARK REGISTRATION OF ITS PRODUCTS, IT EVIDENCES THE FACT THAT THIS COMPANY O WNS INTANGIBLE ASSETS. THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THECASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD THAT IF A C OMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED A S A COMPARABLE COMPANY TO IT(TP)A.1206/BANG/2011 PAGE - 28 ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO B E OMITTED FORM THE LIST OF COMPARABLES, AS IN THE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINT EGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MADE BY IT IN THE PERI OD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS H AVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE C O-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED F ROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE IT IS ENGAGED IN PROPRIET ARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER. 11. THE RELEVANT PORTION FROM THIS TRIBUNAL'S DECIS ION IN 24/7 CUSTOMER.COM PRIVATE LTD. V. DCIT [(2012) 28 TAXMANN.COM 258 (BANG- TRIB.)], FOR AY.2004-05 IS EXTRACTED AS UNDER : RELATED PARTY TRANSACTIONS 13. IN RESPECT OF THE GROUND RAISED AT S.NO.1 REGAR DING ACCEPTANCE OF COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS AS PROP OSED BY THE TPO, THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE TRANSFER P RICING REGULATIONS DO NOT STIPULATE ANY MINIMUM LIMIT OF RELATED PARTY TRANSA CTIONS WHICH FORM THE THRESHOLD FOR EXCLUSION AS A COMPARABLE. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE OBJECTED TO THE TPO'S SETTING A LIMIT OF 25% ON REL ATED PARTY TRANSACTIONS. HE OBJECTED TO THE INCLUSION OF COMPARABLES BEING RELA TED PARTY TRANSACTIONS IN EXCESS OF 15% OF SALES/REVENUE. IN SUPPORT OF THIS PROPOSI TION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON 'BLE BENCH OF THE ITAT, DELHI IN THE CASE OF SONY INDIA (P) LTD. V. DY. CIT [2008] 114 ITD 448 . THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PARA 115.3 O F THE ORDER WHEREIN THE TRIBUNAL HAS HELD THAT '.....WE ARE FURTHER OF THE VIEW THAT AN ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTIONS DO NOT EXCEED 10 TO 15% OF TOTAL REVENUE. WITHIN THE ABOVE LIMIT, TRANSACTIONS CANNOT BE HELD TO BE SIGN IFICANT TO INFLUENCE THE PROFITABILITY OF THE COMPARABLES. FOR THE PURPOSE O F COMPARISON WHAT IS TO BE JUDGED IS THE IMPACT OF THE RELATED PARTY TRANSACTIONS VIS --VIS SALES AND NOT PROFIT SINCE PROFIT OF AN ENTERPRISE IS INFLUENCED BY LARGE NUMB ER OF OTHER FACTORS.....' RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD. (SUPRA), THE ASSESSING OFFICER/TPO ARE DIRECTED TO EXCLUDE AFTER DUE VERIFICATION THOSE COMPARABLES FROM THE LIST WITH RELATED PARTY TRANSACTIONS OR CONTROLLED TRANSACTIONS IN EXCESS OF 15% OF TOTAL REVENUES FOR THE FINANCIAL YEAR 2003-04. IT(TP)A.1206/BANG/2011 PAGE - 29 12. FROM THE ABOVE , IT CLEAR THAT THIS TRIBUNAL H AS EXAMINED THE ABOVE COMPARABLES ELABORATELY, SUPRA, IN THOSE DECISIONS, FOLLOWING THEM WE DIRECT EXCLUSION OF CELESTIAL LABS LTD, E-ZEST SOLU TIONS LTD, INFOSYS TECHNOLOGIES LTD, KALS INFORMATION SYSTEMS LTDE (SE G), LUCID SOFTWARE LTD, WIPRO LTD (SEG), ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TECHNOLOGIES LTD, FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), HELIOS & MATHESON INFORMATION TECHNOLOGY LTD, ISHIR INFOTECH LTD, PERSISTENT SYST EMS LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG), TATA ELXSI LT D (SEG) , THIRDWARE SOLUTIONS LTD AND QUINTEGRA SOLUTIONS LTD AS THE Y ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IN SO FAR AS MEGASOFT SOLUTIONS LTD IS CONCERNED, WE DIRECT THE AO / TPO TO REWORK ITS SEG MENTAL RESULTS AND CONSIDER ITS COMPARABILITY ONLY WITH REGARD TO THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. THE ASSESSING OFFICER/TPO IS ALSO DIRECTED TO EXCLUDE AFTER DUE VERIFICATION THOSE COMPARABLES FROM THE L IST WITH RELATED PARTY TRANSACTIONS OR CONTROLLED TRANSACTIONS IN EXCESS O F 15% OF TOTAL REVENUES . ORDERED ACCORDINGLY. 13. THE AR PLEADED THAT IF THE ABOVE 17 COMPAR ABLES ARE EXCLUDED , THE ARITHMETIC MEAN OF THE WORKING CAPITAL ADJUSTE D MARGINS OF THE REMAINING 9 COMPARABLES (10.73%) IS LOWER THAN THE NCP MARGIN OF THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION OF PROVI SION OF SWD SERVICES TO ITS AE IN A Y 2007-08 (10.85%), AND HENCE ITS INTERNATI ONAL TRANSACTION CAN BE CONCLUDED AS BEING AT ARM'S LENGTH. THUS, THE TP ADJUSTMENT MADE BY THE TPO IS LIABLE TO BE SET ASIDE. THEREFORE, THE O THER GROUNDS RAISED IN IT(TP)A.1206/BANG/2011 PAGE - 30 THE MEMORANDUM OF APPEAL WITH REFERENCE TO THE SWD SERVICES PROVIDED TO ITS AES IN A Y 2007-08 ARE NOT PRESSED A T THIS STAGE AND HENCE THEY ARE NOT DEALT WITH. 14. THE NEXT SEGMENT IS ON THE RECEIPTS FOR ITE SE RVICES AT RS.88,69,75,049/-. OUT OF 12 COMPARABLES SELEC TED BY THE ASSESSEE, THE TPO ACCEPTED 4 COMPARABLES, NAMELY, COSMIC GL OBAL LTD, MAPLE ESOLUTIONS LTD, TRANSWORKS INFORMATION SERVICES LTD AND TRITON CORP LTD AND REJECTED THE REMAINING EIGHT COMPARABLES. THE TPOS FINAL SET COMPRISED OF 27 COMPARABLES. OUT OF WHICH, THE ASS ESSEE IS SEEKING REJECTION OF 13 COMPARABLES , 6 BEING FUNCTIONALLY DISSIMILAR, THE RPTS EXCEED 15% ON 4 COMPARABLES & THREE COMPARABLES MAY BE REMANDED TO THE AO /TPO FOR FRESH EXAMINATION RELYING ON THI S TRIBUNALS DECISION IN THE CASE OF POLE TO WIN INDIA P. LTD V DCIT , IT(TP ) A NO 1053(BANG) 2011 DT 08.06.2016 , ( 2016) 70 TAXMANN.COM318 (BANG.TR IB) FOR AY 2007-08. LET US EXAMINE THEM BY EXTRACTING THE RELEVANT PORT ION AS UNDER: 8 . BODHTREE CONSULTANCY LTD. 8.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSES SEE SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT O F SOFTWARE PRODUCT AND HIGHLY FLUCTUATING MARGIN, THIS COMPANY IS ALSO FUNCTIONAL LY DIS-SIMILAR TO THE ASSESSEE AS IT IS ENGAGED IN PROVIDING OPEN AND END-TO-END WEB SOL UTION, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTION BY USING LATEST TECHNOLOGY. THIS COMPANY IS ALSO ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. HE HAS REFERRED TO THE ANNEXURE TO THE DIRECTORS REPORT AND SUBMITTED THAT THIS COMPAN Y IS FOLLOWING THE METHOD OF REVENUE RECOGNITION FROM SOFTWARE DEVELOPMENT BASED ON SOFTWARE DEVELOPED AND BILLED TO CLIENT WHEREAS THE EXPENDITURE IS RECOGNI ZED WHEN IT IS INCURRED TOWARDS SOFTWARE DEVELOPMENT. THEREFORE, THERE IS NO MATCH BETWEEN THE EXPENDITURE AND THE REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. THUS ONC E THIS COMPANY IS IN THE SOFTWARE DEVELOPMENT, THE SAME CANNOT BE COMPARED W ITH THE ASSESSEE BEING ITES PROVIDED TO ITS AES. IT(TP)A.1206/BANG/2011 PAGE - 31 8.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRES ENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITT ED THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) FOUND THIS COMPANY TO BE COMPARABLE. 8.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD. IN CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ), THE OBJECTIONS AGAINST THIS COMPANY WAS ON THE GROUND OF EXTRA-ORDINARY PROFIT AND THER EFORE THE TRIBUNAL HAS NO OCCASION TO EXAMINE THE FUNCTIONAL COMPARABILITY OF THIS COMPAN Y EXCEPT THE GROUND RAISED BY THE ASSESSEE REGARDING EXTRA-ORDINARY PROFIT MARGIN. TH E LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS REFERRED TO THE ANNEXURE TO THE DIRECTORS REPORT WHEREIN SEGMENT- WISE AND PRODUCT-WISE PERFORMANCE HAS BEEN REPORTED AS UNDER : 'SEGMENT-WISE AND PRODUCT-WISE PERFORMANCE BODHTREE HAS ONLY ONE SEGMENT, NAMELY SOFTWARE DEVE LOPMENT, BEING A SOFTWARE SOLUTIONS COMPANY, IT IS ENGAGED IN PROVIDING OPEN AND END-TO-END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOP MENT OF SOLUTIONS, USING THE LATEST TECHNOLOGY. OUTLOOK GIVEN THE STEADY GROWTH IN THE NICHE AREAS LIKE DAT A CLEANSING AND SOFTWARE DEVELOPMENT, AND THE NEW INITIATIVES IN THE AREAS O F E-PUBLICATION AND E-LEARNING, THE MANAGEMENT HAS REASON TO BE OPTIMISTIC ABOUT TH E FUTURE GROWTH. REVENUE RECOGNITION REVENUE FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BAS ED ON SOFTWARE DEVELOPED AND BILLED TO CLIENTS.' THUS IT IS CLEAR THAT THIS COMPANY IS HAVING ONE SE GMENT NAMELY SOFTWARE DEVELOPMENT UNDER WHICH THIS COMPANY IS PROVIDING SOFTWARE SOLU TIONS INCLUDING OPEN AND END-TO- END WEB SOLUTION, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTION. FURTHER, THE COMPANY IS ALSO PROVIDING DATA CLEANSING AND SO FTWARE DEVELOPMENT. THESE SERVICES ARE IN THE CATEGORY OF SOFTWARE DEVELOPMENT SERVICE S AND NOT IN ITES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SOFTWARE DEVELOPMENT SEGME NT CANNOT BE COMPARED WITH ITES SEGMENT AND HENCE THIS COMPANY CANNOT BE COMPARED W ITH THE ASSESSEE'S ITES SEGMENT. ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 9. E-CLERX SERVICES LTD. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE RE LEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE COMPARABILITY OF THIS COMP ANY HAS BEEN CONSIDERED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ). FROM THE FINDING OF THE CO-ORDINATE BENCH IT IS CLEAR THAT THE COMPARABILITY OF THIS COMPANY WAS ALSO CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. V. ASSTT CIT [2014] 43 TAXMANN.COM IT(TP)A.1206/BANG/2011 PAGE - 32 100/147 ITD 83 . THUS IN VIEW OF THE DECISION OF THE CO-ORDINATE B ENCH, WE FIND THAT THIS COMPANY IS ENGAGED IN PROVIDING DATA ANALYSIS AND P ROCESS SOLUTIONS AND RECOGNIZED AS EXPERT IN MARKET FINANCIAL SERVICES, RETAIL AND MAN UFACTURING. THUS THIS COMPANY WAS PROVIDING COMPLETE BUSINESS SOLUTIONS WHICH ARE IN DIFFERENT FIELD OF SERVICES. THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE WIT H THE LOW END SERVICE PROVIDER. ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ................................................... ................................................... ....................................... ........................ 10. INFOSYS LTD . : AS IT IS CLEAR FROM THE FINDING OF THIS TRIBUNA L IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD . ( SUPRA ), THIS COMPANY IS DERIVING REVENUE FROM THE SOFTWARE PRODUCT AND HAS A HUGE INTANGIBLE ASSETS A PART FROM THE BRAND VALUE AND A LEADER IN THE MARKET. ACCORDINGLY, BY FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM TH E LIST OF COMPARABLES. ................................................... ................................................... ....................................... ................................................... ................................................... ....................................... ................................................... .... 12.1 MOLD-TEK TECHNOLOGY LTD. (SEG.) : HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT TH E FUNCTIONAL COMPARABILITY HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DECISION INCLUDING THE DECISION OF SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. ( SUPRA ). THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) HAS HELD THAT THIS COMPANY IS ENGAGED IN THE ENGINEERING SER VICES BEING THE NATURE OF PRODUCING DESIGNS, DRAWINGS, DETAILED STRUCTURE OF ENGINEERIN G DRAWINGS USING 2D AND 3D SOFTWARE CANNOT BE COMPARED WITH THE ASSESSEE AND CONSEQUENT LY THE A.O./TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE SET OF COMPARABLES. ................................................... ................................................... ....................................... ................................................... ....... 14. VISHAL INFORMATION TECHNOLOGY LTD. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.)LTD . ( SUPRA ) AND IT WAS FOUND THAT THIS COMPANY WAS OUT SOURCING ITS JOB AND THEREFORE IT FAILS THE EMPLOYEE COST FILTER. EVEN OTHERWISE WHEN THIS IS GETTING ITS WORK DONE T HROUGH-OUT SOURCING THEN THE BUSINESS MODEL OF THIS COMPANY IS DIFFERENT FROM TH E ASSESSEE. ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 15. WIPRO LIMITED : WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.)LTD . ( SUPRA ), IT IS CLEAR FROM THE IT(TP)A.1206/BANG/2011 PAGE - 33 FINDING OF THE CO- ORDINATE BENCH THAT THIS COMPANY IS HAVING SIGNIFICANT INVESTMENT IN BUSINESS ACQUISITION AS WELL AS ENGAGED IN THE INNO VATION ACTIVITIES OF VARIOUS FIELDS INCLUDING TECHNOLOGY INNOVATION, THERE WAS INNOVATI ON AND DELIVERY INNOVATION. THIS COMPANY IS ALSO HAVING HUGE BRAND VALUE AND R&D ACT IVITY. THEREFORE IN VIEW OF THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. AGNITY INDIA TECHNOLOGIES (P.) LTD. [2013] 219 TAXMAN 26/36 TAXMANN.COM 289 , THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE WITH A LOW END AND CAPTIVE SERVICE PROVIDER IN ITES SEGMENT. ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXC LUDE THIS COMPANY FORM THE LIST OF COMPARABLES. 14.1 ON COMPARABLES EXCEEDING RPT AT 15% : 7.5 WE HAVE HEARD THE LD. A.R. & LD. D.R. AND CONSIDER ED CAREFULLY THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ), THE TPO HAS SELECTED THE SAME SET OF 27 COMPARAB LE COMPANIES AS IN THE CASE OF THE ASSESSEE BEFORE US. WE FURTHER NOTE THA T IN THE CASE OF THE ASSESSEE, THE TPO HAS ACCEPTED THAT THE ASSESSEE IS IN THE ITES SEGME NT WHICH WAS ALSO ACCEPTED IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ). WE FURTHER FIND THAT MOST OF THE COMPARABLE COMPANIES ARE REQUIRED TO BE EXCLUDED BY APPLYING THE FILTER OF RPT AT 15%. THEREFORE, TO THE EXTENT OF THE EXCLUSION OF T HE COMPANIES ON THE GROUND OF RPT FILTER. WE NEED NOT GO INTO THE FUNCTIONAL COMPARAB ILITY OF THOSE COMPANIES. THE TRIBUNAL WHILE CONSIDERING THE SAME SET OF 27 COMPA RABLES IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) HAS GIVEN THE FINDING IN PARA 15 AS UNDER : '15. WE SHALL DEAL WITH EACH AND EVERY COMPARABLE W HICH HAS BEEN CHALLENGED BY THE ASSESSEE AND EXCLUSION OF SOME OF THE COMPAR ABLES HAS BEEN CHALLENGED BY THE REVENUE ONE BY ONE AS UNDER : ................................................... ................................................... ............................ ................................................... ................................................... ............................ ................................................... ................................................... ............................ ............. ( V ) APOLLO HEALTH STREET LTD . : THIS COMPANY WAS SELECTED BY THE TPO/A.O THOUGH THE ASSESSEE DID NOT CONTEST THE INCLUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOWEVER, THE CIT (APPEALS ) EXCLUDED THIS COMPANY ON TURNOVER FILTER. WE FIND THAT THE RPT RE VENUE OF THIS COMPANY IS 17.77%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. ( VI ) ASIT C MEHTA FINANCIAL SERVICES LTD . : THIS COMPANY WAS SELECTED BY THE TPO/A.O THOUGH THE ASSESSEE DID NOT CONTEST THE INC LUSION OF THIS COMPANY EITHER BEFORE THE TPO/A.O OR BEFORE THE CIT (APPEALS). HOW EVER, THE CIT (APPEALS) EXCLUDED THIS COMPANY ON TURNOVER FILTER. WE FIND T HAT THE RPT REVENUE OF THIS COMPANY IS 15.76%. THEREFORE THIS COMPANY FAILS RPT FILTER OF 15% AND IT(TP)A.1206/BANG/2011 PAGE - 34 ACCORDINGLY, WE UPHELD THE EXCLUSION OF THIS COMPAN Y FROM THE LIST OF COMPARABLES. ................................................... ................................................... .............................. ................................................... ............................................. 9.1 M/S. HCL COMNET SYSTEMS & SERVICES LT D. AND INFORMED TECHNOLOGIES INDIA LTD. : THESE COMPANIES WERE FOUND TO BE HAVING MORE THAN 1 5% RPT REVENUE. ACCORDINGLY, WE DIRECT THE A.O./TPO TO EXCLUDE THES E COMPANIES FROM THE SET OF COMPARABLES. 14.2 ON 3 COMPARABLES BEING PLEADED FOR FRESH EXAMI NATION : 11.1 I-SERVICES INDIA PVT. LTD. : THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE HAS SUBMITTED THAT THE COMPLETE FINANCIAL DETAILS A RE NOT AVAILABLE IN THE PUBLIC DOMAIN IN RESPECT OF THIS COMPANY DESPITE THE TPO HAS SELE CTED THIS COMPANY FOR THE PURPOSE OF COMPUTING THE ALP. HE HAS POINTED OUT THAT AN IDENT ICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE I.E. E4E BUSINESS SOLUTIONS INDIA (P.) LTD. V. DY. CIT [2016] 69 TAXMANN.COM 73 WHEREIN THE TRIBUNAL HAS REMANDED THE ISSUE TO THE RECORD O F THE A.O./TPO. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE AS SESSEE BE GIVEN THE COMPLETE FINANCIAL INFORMATION OF THIS COMPANY FOR FILING IT S OBJECTIONS AND COMMENTS AGAINST THE COMPARABILITY OF THIS COMPANY. 11.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS CALLED THE RELEVANT INFORMATION UNDER SECTION 133(6) OF THE ACT. THUS T HE TPO HAS CONSIDERED THIS COMPANY AFTER EXAMINATION OF THE ENTIRE RELEVANT RE CORD. 11.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE TPO IN PARA 33.18 OF THE IMPUGNED ORDER HAS STATED THAT THE ANNUAL REPORT WAS NOT AVAILABLE FOR THE YEAR UNDER CONSIDERATION. THUS THE NOTICE UNDER SECTION 133(6) WAS ISSUED TO THE C OMPANY. THE COMPANY MADE AVAILABLE ITS ANNUAL REPORT TO THE TPO AND ON THE B ASIS OF THE INFORMATION RECEIVED UNDER SECTION 133(6), THE TPO HAS CONCLUDED THAT TH IS COMPANY IS COMPARABLE WITH THE ASSESSEE. THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF E4E BUSINESS SOLUTIONS INDIA (P.) LTD . ( SUPRA ) HAS CONSIDERED THIS ISSUE IN PARA 30 AS UNDER : ' 30. THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROU ND ON ADOPTING THIS COMPANY AS A COMPARABLE BEFORE THE DRP. BEFORE US, THE LEAR NED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE TPO DID NOT FURNISH THE INFO RMATION OBTAINED FROM THIS COMPANY IN EXERCISE OF HIS POWERS U/S.133(6) OF THE ACT. IT WAS FURTHER POINTED OUT THAT EVEN AS PER THE TPO, THE ANNUAL REPORT OF THIS COMPANY FOR F. Y. 2006- 07 WAS NOT AVAILABLE. THE TPO HAS GONE BY THE DATA AVAILABLE ON CAPITA LINE DATA BASE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFOR E MADE A PRAYER THAT THE QUESTION OF CONSIDERING THE AFORESAID COMPANY AS A COMPARABLE SHOULD BE IT(TP)A.1206/BANG/2011 PAGE - 35 REMANDED BACK TO THE TPO / ASSESSING OFFICER FOR FR ESH CONSIDERATION AND THE ISSUE DECIDED IN THE LIGHT OF THE PUBLISHED ANNUAL REPORT FOR F. Y. 2006-07 AND ALSO ON THE BASIS OF THE INFORMATION FURNISHED BY T HIS COMPANY TO THE ASSESSING OFFICER IN RESPONSE TO NOTICE U/S.133(6) OF THE ACT . WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE SAME DESER VES TO BE ACCEPTED. THE TPO / ASSESSING OFFICER WILL OBTAIN THE ANNUAL REPORT O F THE COMPANY FOR F. Y. 2006- 07 AND ALSO FURNISH THE ASSESSEE COPIES OF THE SAME TOGETHER WITH THE INFORMATION OBTAINED BY THE TPO PURSUANT TO ISSUE OF NOTICE U/S .133(6) OF THE ACT. THE ASSESSEE WILL THEREAFTER FURNISH ITS REPLY AS TO WH Y THIS COMPANY SHOULD NOT BE CONSIDERED AS A COMPARABLE COMPANY. THE TPO / ASSES SING OFFICER WILL THEREAFTER DECIDE THE QUESTION OF CONSIDERING THIS COMPANY AS A COMPARABLE COMPANY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE.' THUS THE TRIBUNAL HAS OBSERVED THAT THE TPO/A.O HAS TO FURNISH THE COPIES OF THE INFORMATION TO THE ASSESSEE AND THEREAFTER THE ASSE SSEE HAS TO FURNISH ITS REPLY AS TO WHY THIS COMPANY SHOULD NOT BE CONSIDERED AS A COMPARAB LE COMPANY. IN VIEW OF THE ORDER OF THE CO-ORDINATE BENCH, WE SET ASIDE THIS ISSUE T O THE RECORD OF THE A.O./TPO FOR DECIDING THE COMPARABILITY OF THE SAME AFTER CONSID ERING THE REPLY OF THE ASSESSEE ON FURNISHING OF THE INFORMATION RECEIVED UNDER SECTIO N 133(6) OF THE ACT. ................................................... ................................................... ....................................... ................................................... ................................................... ....................................... ............................................... ACCENTIA TECHNOLOGY LTD. : 13.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE HAS SUBMITTED THAT THERE IS AN EXTRA-ORDINARY EVENT OF AMALGAMATION DURING THE YEAR UNDER CONSIDERATION AS THIS COMPANY HAS AMALGAMATED ITS SUBSIDIARY NAMELY GEO S OFT TECHNOLOGIES LTD. AND IRIDIUM TECHNOLOGIES INDIA PVT. LTD. W.E.F. 1.4.200 6 AS PER THE RESPECTIVE ORDERS OF THE HON'BLE HIGH COURT. HE HAS FURTHER SUBMITTED THAT T HIS FACT HAS ALSO BEEN MENTIONED IN THE NOTES TO ACCOUNTS. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT DUE TO THE EXTRA-ORDINARY EVENT DURING THE YEAR UND ER CONSIDERATION, THIS COMPANY CANNOT BE CONSIDERED AS GOOD COMPARABLE. THE LEARNE D AUTHORISED REPRESENTATIVE HAS RELIED UPON THE DECISION DT.29.4.2016 OF DELHI BENC H OF ITAT IN THE CASE OF SONY MOBILE COMMUNICATIONS INTERNATIONAL AB LTD. V. DY. DIT [2016] 69 TAXMANN.COM 404 IN SUPPORT OF HIS CONTENTION. 13.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT RAISED THIS ISSUE BEFORE THE AUTHO RITIES BELOW. FURTHER IT IS NOT CLEAR WHETHER THE AMALGAMATION OF THE SUBSIDIARIES HAS CH ANGED BUSINESS PROFILE OF THIS COMPANY FROM ITS STAND ALONE. HE HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 13.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE RE LEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AS PER THE DIRECTORS REPORT OF THIS COMPANY, THERE WAS AN IT(TP)A.1206/BANG/2011 PAGE - 36 AMALGAMATION OF ITS TWO SUBSIDIARIES DURING THE YEA R UNDER CONSIDERATION W.E.F. 1.4.2006 WHICH IS REPORTED AS UNDER : ' COMPANY'S BUSINESS GROWTH AND PROSPECTS :- DURING THE YEAR MR. PRADEEP VISWAMBHARAN TOOK OVER THE MANAGEMENT OF THE COMPANY. AS PER THE BUSINESS PLANS TO CONSOLIDATE T HE COMPANY HAS FILED PETITION FOR AMALGAMATION OF TWO OF ITS SUBSIDIARIE S NAMELY GEOSOFT TECHNOLOGIES (TRIVANDRUM) LTD. AND IRIDIUM TECHNOLO GIES (INDIA) PVT. LTD. AND SUCCESSFULLY AMALGAMATED THEM WITH THE COMPANY WITH EFFECT FROM 1.4.2006 AS PER THE RESPECTIVE HIGH COURT ORDERS. THE COMPANY H AS WITH THE PERMISSION OF THE ROC MUMBAI HAS EXTENDED THE HOLDING OF THE AGM TO FACILITATE THE CONSOLIDATION OF ACCOUNTS.' THERE IS NO DISPUTE THAT AMALGAMATION, MERGER OR AC QUISITION IS CONSIDERED AS EXTRA- ORDINARY EVENT FOR THE PURPOSE OF CONSIDERING A PAR TICULAR ENTITY AS COMPARABLE. THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SONY MOBILE COMMUNICATIONS INTERNATIONAL AB (INDIA BRANCH OFFICE) ( SUPRA ) IN PARA 7.3 HAS OBSERVED AS UNDER : ' 7.3. SIGNIFICANTLY, PAGE 23 OF THE ANNUAL REPORT OF THIS COMPANY DIVULGES THAT: 'DURING THE YEAR 2008- 09, THE COMPANY HAS ACQUIRED CITIGROUP INC.'S (CITI) 96.26% INTEREST IN TCS E-SERVE LTD. (FORMERLY KNOWN AS CITIGROUP GLOBAL SERVICES LTD.), THE INDIA-BASED CAPITAL BPO, FOR A TOTAL CONSIDERATION OF USD 504.54 MILLION.' THIS INDICATES THAT THIS COMPANY M ADE ACQUISITION DURING THE YEAR IN QUESTION WHICH IS AN EXTRAORDINARY FINANCIA L EVENT. THE MUMBAI BENCH OF THE TRIBUNAL IN PETRO ARALDITE (P) LTD. V. DCIT (2013) 154 TTJ (MUM) 176 , HAS HELD THAT A COMPANY CANNOT BE CONSIDERED AS COM PARABLE BECAUSE OF EXCEPTIONAL FINANCIAL RESULTS DUE TO MERGERS/DEMERG ERS. SIMILAR VIEW HAS BEEN ADOPTED BY THE DELHI BENCH OF THE TRIBUNAL IN SEVER AL CASES INCLUDING CIENA INDIA PVT. LTD. V. DCIT (ITA NO.3324/DEL/2013) VIDE ITS ORDER DATED 23.4.2 015. THE LD. DR CONTENDED THAT THE MERE FACT OF ACQUISIT ION AND MERGER SHOULD NOT BE CONSIDERED AS A DECISIVE TEST FOR EXCLUSION OF A CO MPANY UNLESS IT HAS AFFECTED THE PROFITABILITY DUE TO SUCH MERGER ETC. WE ARE NOT IN CLINED TO ACCEPT THIS CONTENTION FOR THE OBVIOUS REASON THAT ONCE ACQUISITION AND ME RGER ETC. HAS TAKEN PLACE, IT IS ALWAYS LIKELY TO AFFECT THE PROFITABILITY OF SUCH A COMPANY IN THE YEAR OF ACQUISITION ETC. THERE CANNOT BE ANY STANDARD YARDS TICK TO MEASURE THE IMPACT OF SUCH A FACTOR ON THE OVERALL PROFITABILITY OF SUCH A COMPANY. IT IS RELEVANT TO HIGHLIGHT THAT WE ARE CONSIDERING THE EXCLUSION OF A COMPANY ON THIS SCORE. IN OUR CONSIDERED OPINION, WHEN OTHER COMPARABLES ARE AVAILABLE, THE EXCLUSION OF A PROBABLE COMPARABLE COMPANY CANNOT HAVE MUCH SIGNIF ICANCE IN CONTRAST TO A SITUATION OF INCLUSION OF A PROBABLE INCOMPARABLE. RESPECTFULLY FOLLOWING THE ABOVE REFERRED DECISIONS, WE HOLD THAT TCS LTD. CAN NOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE. THE SAME IS DIRECTED TO BE EXCLUDED.' THEREFORE, FOR LIMITED PURPOSE OF CONSIDERING THE S AID RECORD, WE SET ASIDE THIS ISSUE TO THE RECORD OF A.O/TPO AND THEN DECIDE THE ISSUE OF COMPARABILITY OF THIS COMPANY IN THE LIGHT OF THE ABOVE OBSERVATIONS. IT(TP)A.1206/BANG/2011 PAGE - 37 ................................................... ................................................... ....................................... ................................................... ................................................... ............................ 16. ACCURATE DATA CONVERTORS PVT. LTD. : 16.1 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE HAS REFERRED TO THE DIRECTORS REPORT OF THIS COMPANY AND SUBMITTED THAT THIS COMP ANY EARNS REVENUE FROM SOFTWARE DEVELOPMENT AS IT IS REPORTED IN THE DIRECTORS REPO RT. 16.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS SUBMITTED THAT NO SUCH OBJECTION WAS TAKEN BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND THEREFORE THE ASSESSEE IS BRINGING A NEW FACT AT THIS STAGE. 16.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THIS COMPANY WAS SELECTED BY THE TPO A ND ANNUAL REPORT AS WELL AS DIRECTORS REPORT ARE THE PRIMARY DOCUMENTS FOR ANAL YZING FUNCTIONAL COMPARABILITY OF A PARTICULAR COMPANY. THEREFORE, WE DO NOT FIND ANY S UBSTANCE IN THE OBJECTIONS RAISED BY THE D.R. WE NOTE THAT IN THE DIRECTORS REPORT, THE WORKING OF THE COMPANY IS REPORTED AS UNDER : 'WORKING OF THE COMPANY INCOME FROM SOFTWARE DEVELOPMENT DURING THE YEAR UN DER REVIEW WAS RS.4,33,46,996 AS AGAINST RS.431,71,568 FOR THE YEA R ENDED 31.3.2006. THE NET PROFIT AFTER TAXES AMOUNTED TO RS.66,87,665 AS AGAI NST RS.100,50,544 IN THE PREVIOUS YEAR.' THUS IT IS CLEAR THAT THIS COMPANY HAS EARNED INCOM E FROM SOFTWARE DEVELOPMENT DURING THE YEAR UNDER CONSIDERATION AND THE COMPOSITE DATA HAS BEEN CONSIDERED. IN VIEW OF THE ABOVE FACTS BROUGHT TO OUR NOTICE, WE SET ASIDE THI S ISSUE TO THE RECORD OF THE TPO/A.O FOR FURTHER VERIFICATION AND EXAMINATION OF THE REL EVANT RECORD AND FINANCIAL DATA OF THIS COMPANY. WE MAKE IT CLEAR THAT IF THIS COMPANY IS G ENERATING REVENUE FROM SOFTWARE DEVELOPMENT ACTIVITY WHICH IS PART OF THE OPERATING REVENUE / MARGINS OF THIS COMPANY CONSIDERED FOR THE PURPOSE OF ALP THEN THIS COMPANY SHALL BE EXCLUDED FROM THE SET OF COMPARABLES. 15. FROM THE ABOVE, IT IS CLEAR THAT THIS TRIBUNAL HAS EXAMINED AND EXCLUDED THE COMPARABLES BODHTREE CONSULTANCY LTD, E-CLERX SERVICES LTD, INFOSYS LTD, MOLD-TEK TECHNOLOGY LTD. (SEG.) , VISHAL INFORMATION TECHNOLOGY LTD AND WIPRO LIMITED . FOUND THAT TH E COMPARABLES , APOLLO HEALTH STREET LTD, ASIT C MEHTA FINANCIAL SERVICES LTD, M/S. HCL COMNET SYSTEMS & SERVICES LTD AND INFORMED TECHNOLOGIES I NDIA LTD EXCEEDED RPT IT(TP)A.1206/BANG/2011 PAGE - 38 AT 15% AND HENCE DIRECTED TO EXCLUDED THEM. SET AS IDE THE ISSUES IN CONNECTION WITH COMPARABLES I-SERVICES INDIA PVT. LTD, ACCENTIA TECHNOLOGY LTD. AND ACCURATE DATA CONVERTORS PVT. LTD TO THE A.O/TPO WITH A DIRECTION TO RE-EXAMINE THEM IN THE LIGHT OF THEI R OBSERVATIONS /DIRECTIONS, SUPRA. FOLLOWING THE ABOVE DECISION, THE ASSESSEE S PLEA IS ALLOWED IN RESPECT OF THE ABOVE 6+4 COMPARABLES ON FUNCTIONAL DISSIMILARITY + RPT EXCEEDING 15%. THE ISSUES IN CONNECTION WITH THE L AST 3 COMPARABLES ARE SET ASIDE FOR RE-EXAMINATION ON THE SIMILAR LINES I N WHICH THIS TRIBUNAL DIRECTED IN THE ABOVE CASE. 16. FOR THIS SEGMENT ALSO, THE AR PLEADED THAT IF THE ABOVE 17 COMPARABLES ARE EXCLUDED , THE ARITHMETIC MEAN OF THE WORKING CAPITAL ADJUSTED MARGINS OF THE REMAINING 14 COMPARABLES (1 6.56%) IS WITHIN + OR - 5% OF THE NCP MARGIN OF THE ASSESSEE (12.07%), AND HENCE ITS INTERNATIONAL TRANSACTION CAN BE CONCLUDED AS BEING AT ARM'S LENGTH. THUS, THE TP ADJUSTMENT MADE BY THE TPO TOWARDS THE ITE SERVICES TO ITS AE IN A Y 2007-08 IS LIABLE TO BE SET ASIDE. THERE FORE, THE OTHER GROUNDS RAISED IN THE MEMORANDUM OF APPEAL INSOFAR AS IT RELATES TO THE ITE SERVICES ARE NOT PRESSED AT THIS STAGE AN D HENCE THEY ARE NOT DEALT WITH. IT(TP)A.1206/BANG/2011 PAGE - 39 III. CORPORATE TAX ISSUES : A. DISALLOWANCE OF DEDUCTION CLAIMED U/S 10A OF THE PR OFITS OF BUSINESS OF UB PLAZA UNIT IN BANGALORE [GROUND NO .6 IN ITS APPEAL]- 17. THE ASSESSEE SUBMITTED THAT IT ACQUIRED THE UB PLAZA UNIT, WHICH IS REGISTERED WITH THE STPI AUTHORITIES, FROM TBIIP L WITH EFFECT FROM 01.07.2005 PURSUANT TO A BUSINESS TRANSFER AGREEMEN T DATED 15.06.2005 ON A SLUMP SALE BASIS. UB PLAZA UNIT WAS , ADMITTEDLY, A ELIGIBLE UNIT FOR DEDUCTION U/S 10A FROM ITS FORMATION, I.E. ON 24.03.2004, AND TBIIPL HAD BEEN ALLOWED THE DEDUCTION U/S.10A FROM THE FIRST YEAR OF ITS FORMATION TILL THE PERIOD IT HELD THE UNIT, I.E. TI LL 30.06.2005. ONCE IT ACQUIRED THE UB PLAZA UNIT, IT CLAIMED DEDUCTION U/ S 10A FOR THE BALANCE PERIOD OF ELIGIBILITY, I.E. FROM ASSESSMENT YEAR 20 06-07 ONWARDS. PERTINENTLY, ITS CLAIM FOR DEDUCTION U/S 10A FOR TH E SAID UNIT FOR THE IMMEDIATELY PRECEDING YEAR, BEING THE FIRST YEAR AF TER THE UNIT'S ACQUISITION, WAS ALLOWED BY THE A O VIDE THE ASSESSMENT ORDER D ATED 13.09.2010. ACCORDINGLY, IT CLAIMED IN ITS RETURN OF INCOME FOR THE PRESENT A Y RS.10,25,52,834/- AS THE DEDUCTION U/S 10A. DESPI TE, THE AO DISALLOWED ITS CLAIM ON THE GROUND THAT IT DID NOT FULFILL THE CONDITIONS NECESSARY FOR CLAIMING DEDUCTION U/S 10A(2)(III) AND ALSO ON THE GROUND THAT THE PROVISIONS OF SECTION 10A(7A) ARE APPLICABLE ONLY I N THE CASES OF AN AMALGAMATION OR DEMERGER AND THUS DO NOT APPLY IN C ASES OF A SLUMP SALE. THE DRP UPHELD THE DISALLOWANCE IN ITS ENTIRETY. IT(TP)A.1206/BANG/2011 PAGE - 40 18. THE ASSESSEE SUBMITTED THAT IT IS NOW A WELL -SETTLED POSITION IN LAW THAT THE DEDUCTION U/S 10A IS UNDERTAKING / UNIT SPECIFIC AND THAT, THEREFORE, AN UNDERTAKING OTHERWISE ELIGIBLE FOR DE DUCTION U/S 10A CANNOT BE DENIED ONLY BECAUSE ITS OWNERSHIP HAS CHANGED. FURTHER, AS REGARDS THE AO'S ACTION IN DENYING THE DEDUCTION ON THE GROUND THAT THE CONDITION STATED IN SECTION 10A (2)(III) HAS NOT BEEN FULFILL ED, IT IS SUBMITTED THAT THE WORD 'FORMED' IN THE SAID CLAUSE IS OF CRUCIAL IMPORTANCE. ONCE A UNIT HAS BEEN HELD TO BE ELIGIBLE IN THE YEAR OF ITS FOR MATION, THEN THE DEDUCTION UNDER THE SAID SECTION CANNOT BE DENIED. FURTHER, SINCE SECTION 10A IS AN INCENTIVE PROVISION, ITS PROVISIONS HAVE TO BE INTERPRETED IN A BENEFICIAL OR PURPOSIVE MANNER SO AS TO GIVE EFFECT TO THE BENEFIT SOUGHT TO BE CONFERRED THEREBY ON ASSESSEES. IT IS NOW SET TLED-LAW THAT THE PROVISIONS OF AN INCENTIVE PROVISION HAVE TO BE CON STRUED LIBERALLY AND THAT, FURTHERMORE IN CASES WHERE THERE IS AN AMBIGU ITY IN THE WORDING OF A SECTION, SUCH A PROVISION WOULD HAVE TO BE INTERP RETED IN SUCH A MANNER SO AS TO FAVOUR OF THE ASSESSEE. 19. FURTHER, AS FAR AS SECTION 10A (7A) IS CONCERN ED THAT THERE IS NOTHING IN LAW TO SUGGEST THAT AN UNDERTAKING WHICH IS SOLD ON SLUMP SALE BASIS CAN BE DENIED THE BENEFIT OF DEDUCTION U/S 1 0A. IN FACT, THE CBDT, HAVING REGARD TO THE TRUE PURPORT AND INTENTI ON BEHIND THE SAID SECTION, HAS VIDE ITS CIRCULAR NO. 1/2013 DATED 17. 01.2013, CATEGORICALLY CLARIFIED THAT THE CLAIM OF DEDUCTION UNDER THE SEC TION CANNOT BE DENIED PURELY BECAUSE OF CHANGE IN OWNERSHIP DUE TO A SLUM P SALE. THE IT(TP)A.1206/BANG/2011 PAGE - 41 ASSESSEE PLACED RELIANCE ON THE SAID CBDT CIRCULAR . RELIANCE IS ALSO PLACED ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN CIT V. SONATA SOFTWARE LTD., REPORTED IN [2012] 21 TAXMANN.COM 23 (BOMBAY), AS WELL AS THE DECISIONS OF THIS HON'BLE TRIBUNAL IN WOCO MOTHERSON ELASTOMER LTD. V. DCIT, REPORTED IN [2013] 36 TAXMANN.COM 534 (DELHI - TRIB.), AND /TO V. VETO ELECTROPOWERS, REPORTED IN [2012] 20 TAXMANN.COM 279 (JAIPUR)]. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND MERIT IN THE ASSESSEES PLEA. DEDUCTION U/S 10A CANNOT BE DENIED TO THE UB PLAZA UNIT, WHICH IS OTHERWISE UNDISPUTEDLY AN ELIGIBLE U NIT, MERELY ON THE GROUND THAT IT WAS ACQUIRED VIA A SLUMP SALE. DEDUC TION U/S 10A IS UNDERTAKING / UNIT SPECIFIC AND THAT, THEREFORE, AN UNDERTAKING O THERWISE ELIGIBLE FOR DEDUCTION U/S 10A CANNOT BE DENIED ONL Y BECAUSE ITS OWNER HAS CHANGED . THE AO HAS RIGHTLY ALLOWED THE DEDUCTIO N IN THE EARLIER YEAR. THE AO IS DIRECTED TO ALLOW THE DEDUCTION FOR THE BA LANCE PERIOD OF ELIGIBILITY. B. RE-COMPUTATION OF DEDUCTION CLAIMED U/S I0A BY R EDUCTION OF TELECOMMUNICATION CHARGES AND TRAVEL EXPENSES IN FO REIGN CURRENCY ONLY FROM EXPORT TURNOVER [GROUND NO.7 IN ITS APPEAL] - 21. AFTER DISALLOWING THE ENTIRE DEDUCTION CLAIMED U/S 10A , THE AO PROCEEDED TO STATE THAT SHOULD THE ASSESSEE BE GR ANTED THE DEDUCTION U/S 10A WITH RESPECT TO THE SAID UB PLAZA UNIT BY THE A PPELLATE IT(TP)A.1206/BANG/2011 PAGE - 42 AUTHORITIES, THE DEDUCTION SHOULD BE RE-COMPUTED BY : (1) REDUCING THE TRAVEL EXPENSES OF RS.3,02,64,964/- INCURRED IN FOREIGN CURRENCY; AND (2) TELECOMMUNICATION CHARGES OF RS.3 ,84,56,327/- FROM ONLY ITS EXPORT TURNOVER WITHOUT MAKING A CORRESPON DING REDUCTION IN ITS TOTAL TURNOVER OF THE SAID AMOUNTS. IN ITS OBJECTIONS BEFORE THE DRP, THE ASSESSEE CONT ENDED THAT, IN THE FIRST PLACE, SINCE IT WAS NOT ENGAGED IN THE PROVIS ION OF TECHNICAL SERVICES OUTSIDE INDIA, NO PART OF THE TRAVEL EXPENSES INCUR RED IN FOREIGN CURRENCY SHOULD BE REDUCED FROM ITS EXPORT TURNOVER WHILE CO MPUTING THE DEDUCTION ALLOWABLE TO IT U/S 1OA. SIMILARLY, IT CONTENDED T HAT NO PART OF THE TELECOMMUNICATION CHARGES WERE ATTRIBUTABLE TO THE DELIVERY OF COMPUTED SOFTWARE OUTSIDE INDIA AND, HENCE, THE SAID CHARGES OUGHT NOT TO BE REDUCED FROM ITS EXPORT TURNOVER. IN THE ALTERNATIVE, IT CO NTENDED THAT IF THE TRAVEL EXPENSES AND TELECOMMUNICATION CHARGES WERE TO BE R EDUCED FROM ITS EXPORT TURNOVER, THEN THEY SHOULD ALSO BE REDUCED F ROM ITS TOTAL TURNOVER. HOWEVER, THE DRP REJECTED THE ASSESSEE S CONTENTIONS IN TOTO. THE ASSESSEE SUBMITTED THAT FOR THE ABOVE REASONS , NEITHER THE TRAVEL EXPENSES IN FOREIGN CURRENCY NOR THE TELECOMMUNICATION CHARGES OUGHT TO BE REDUCED FROM ITS EXPORT TURNOVER. IN THE ALTERNATIVE, IT PLEADED THAT WHIL E COMPUTING THE DEDUCTION ALLOWABLE U/S 10A. IF ANY ITEM IS EXCLUDE D FROM THE EXPORT TURNOVER, THEN IT SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL. IT(TP)A.1206/BANG/2011 PAGE - 43 WE HEARD THE RIVAL SUBMISSIONS. THE ASSESSEES PLEA IS SUPPORTED BY THE BINDING DECISION OF THE HON'BLE HIGH COURT OF KARNA TAKA IN CIT V. TATA ELXSI LTD. [2012] 349 ITR 98 (KARN). HENCE, CONSISTENT WI TH THE ABOVE DECISION, THE AO IS DIRECTED TO EXCLUDE THE ABOVE EXPENDITURE BOTH FROM ETO AND TTO. THE ASSESSEES APPEAL IN THIS REGARD IS ALLOW ED. C. RE-COMPUTATION OF DEDUCTION ALLOWABLE U/S 10A BY T HE RE- APPORTIONMENT OF CERTAIN EXPENSES BETWEEN ITS UB PL AZA UNIT & ITS PINNACLE UNIT [GROUND NO.8 IN ITS APPEAL] :- 22. THE AO HELD THAT THE DEDUCTION U/S 10 SHOULD A LSO BE FURTHER RECOMPUTED BY THE RE-APPORTIONMENT OF CERTAIN EXPEN SES BETWEEN THE AFORESAID UB PLAZA UNIT AND ITS PINNACLE UNIT, BEIN G THE UNIT INELIGIBLE FOR DEDUCTION U/S 10A WITH EFFECT FROM AY 2007-08, ON THE GROUND THAT THE APPELLANT'S BASIS OF APPORTIONMENT WAS ERRONEOUS. T HE SAID EXPENSES ARE: (I) LEGAL AND PROFESSIONAL CHARGES; (II) STAFF RECRUITMENT EXPENSES; AND (III) MANAGEMENT FEES. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE ALLOCATION OF THE ABOVE EXPENSES IS DONE AS UNDER: THE INVOICES DIRECTLY IDENTIFIABLE TO A PARTICULAR UNIT (BASED ON THE NATURE OF SERVICES RECEIVED, PARTICULARS OF THE INVOICE, ADDRESS ON SUCH INVOICE, ETC.) ARE BOOKED AS COST OF THAT PART ICULAR UNIT; FOR COMMON INVOICES WHICH ARE NOT DIRECTLY IDENTIFI ABLE / ATTRIBUTABLE TO ANY ONE UNIT, THE SAME ARE APPORTIO NED BETWEEN THE UNITS ON THE BASIS OF AVERAGE HEAD COUNT IN EACH UN IT EVERY MONTH; BILL IT(TP)A.1206/BANG/2011 PAGE - 44 THE MANAGEMENT FEES HAVE BEEN ALLOCATED ENTIRELY TO WARDS THE PINNACLE UNIT I.E. THE INELIGIBLE 10A UNIT. THE AO , HOWEVER, REALLOCATED THE ABOVE EXPENSES IN THE RATIO OF THE TWO UNITS TURNOVERS. THE APPELLANT OBJECTE D TO THE SAME BEFORE THE DRP. HOWEVER, THE DRP REJECTED THE APPE LLANT'S CONTENTIONS IN TOTO AND THEREBY CONFIRMED THE AOS ABOVE PROTECTIVE DISALLOWANCE. THE APPELLANT SUBMITS THAT ITS ABOVE BASIS OF ALLOC ATION HAS BEEN CONSISTENTLY FOLLOWED BY IT AS IT IS CLEARLY INDICA TIVE OF THE SIZE OF ITS BUSINESS, BESIDES ALSO ENSURING THAT UNREPRESEN TATIVE FLUCTUATIONS IN THE AMOUNTS ALLOCATED ARE MITIGATED . ALSO, THIS BASIS OF ALLOCATION IS BASED ON SIMILAR INDUSTRY TRENDS W HICH ARE ON A SCIENTIFIC AND PRACTICAL BASIS. HENCE, IT IS SUBMIT TED THAT THE AO WAS NOT JUSTIFIED IN HOLDING THE BASIS OF ALLOCATIO N AS INCORRECT AND, FURTHER, THE DRP ERRED IN AGREEING WITH THE AO'S AP PROACH OF DISTRIBUTING THESE EXPENSES ON THE BASIS OF THE TWO UNITS' TURNOVERS. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT IN THE FINAL ASSESSMENT ORDER (PARA 10), THE AO HAS OBSERVED THAT , 'UNLIKE THE MANUFACTURING AND EXPORT OF TANGIBLE GOODS WHEREIN WHOLE OF THE C OSTS IN THE FORM OF RAW MATERIALS AND LABOUR INCURRED IN THE NATIVE COUNTRY ALONG WITH PROFIT ELEMENT ARE EMBEDDED IN THE INVOICE AMOUNT, SOFTWARE DEVELOPMENT AND EXPORT INVOLVES MAINLY EXPERTISE AN D TECHNICAL KNOWHOW OF SPECIALISED ENGINEERS WHO ARE EMPLOYED P ARTLY IN THE NATIVE COUNTRY AND PARTLY OVERSEAS'. THUS, IT IS CLEAR THAT THE AO HAS HIMSELF TACITLY ACCEPTED THAT NUMBER OF EMPLOYEES I S THE CORRECT BASIS FOR ALLOCATION OF SUCH EXPENSES IN THE SERVIC ES INDUSTRY. ALSO, THE APPELLANT SUBMITS THAT IT OPERATES ON A C OST PLUS MARK-UP MODEL. THEREFORE, SINCE THE REVENUE IS RECO GNIZED IN ITS BOOKS OF ACCOUNT ON THAT BASIS, THE LEGAL AND PROFE SSIONAL CHARGES, STAFF RECRUITMENT CHARGES AND MANAGEMENT FEES HAVE, ACCORDINGLY, BEEN ALLOCATED BETWEEN THE TWO UNITS ON THE SAME BA SIS WHILE ARRIVING AT THE TOTAL COST FOR THE PURPOSES OF APPLYING SUCH MARK-UP. THE TOTAL COSTS WOULD HAVE TO FIRST BE IDENTIFIED AND THE MAR K-UP WOULD THEN HAVE TO BE APPLIED ON THE SAME TO ARRIVE AT ITS REV ENUE. CONSEQUENTLY, AS ITS REVENUE IS DETERMINED ON THE BASIS OF THE TO TAL COSTS IDENTIFIED, THE ALLOCATION OF UNDERLYING COSTS ON THE BASIS OF ITS REVENUE / TURNOVERS WOULD BE IMPRACTICAL AND BASELESS. IN ANY EVENT, THE FACT THAT THE TPO HAS ACCEPTED TH E TOTAL COST COMPUTED BY THE APPELLANT FOR THE PURPOSES OF APPLY ING THE MARK-UP WOULD ITSELF GO TO SHOW THAT AN ADJUSTMENT FOR TH E SAME CANNOT BE MADE WHILE COMPUTING THE DEDUCTION UNDER SECTION 10 A OF THE ACT. IT(TP)A.1206/BANG/2011 PAGE - 45 IT IS TRITE THAT DIFFERENT BASES OF ALLOCATION OF E XPENSES CANNOT BE USED FOR TP PURPOSES AND FOR COMPUTATION OF THE DEDUCTIO N UNDER SECTION 10A OF THE ACT. FURTHER, WITHOUT PREJUDICE TO THE ABOVE, THE APPELL ANT SUBMITS THAT EVEN IF IT IS ASSUMED BUT NOT ADMITTED THAT TH E ABOVE EXPENSES HAVE BEEN ALLOCATED TO THE INELIGIBLE 10A UNIT IN E XCESS, THE APPELLANT SUBMITS THAT THE SAME HAS, IN TURN, RESUL TED IN ADDITIONAL REVENUE IN THE SAID UNIT GIVEN THAT THE APPELLANT O PERATES ON A COST PLUS MARK-UP MODEL WHICH, IN TURN, HAS RESULTE D IN AN INCREASE OF THE PROFITS OF THE SAID UNIT ON WHICH IT HAS DUT Y DISCHARGED TAX. IN THAT VIEW OF THE MATTER, IT IS SUBMITTED THAT IN CA SE THE ABOVE EXPENSES ARE RE-APPORTIONED BETWEEN THE AFORESAID U B PLAZA AND PINNACLE UNITS, THEN THE CORRESPONDING MARK-UP, I.E . THE PROFIT, SHOULD ALSO BE APPROPRIATELY ADJUSTED. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE CLAIMED LEGAL, PROFESSIONAL CHARGES, STAFF RECRUITMENT EXPE NSES AND MANAGEMENT FEES AND APPORTIONED THEM BETWEEN PINNACLE AND UB P LAZA UNITS BASED ON THE HEAD COUNT. THE AO EXAMINED AND FOUND THAT THE MANAGEMENT FEES HAS BEEN DEBITED AGAINST PINNACLE UNIT ALONE AND THE ASSESSEE COULD NOT EXPLAIN WHY THIS EXPENDITURE IS NOT APPORTIONED AT ALL AS PER ITS OWN METHOD. ON EXAMINATION, THE AO HELD THAT THE HEAD COUNT IS NOT A FAIR BASIS FOR APPORTIONMENT. SINCE THE TURNOVER INDICAT ED ACTIVITY LEVEL, HE APPORTIONED THEM ON THE BASIS OF TURNOVER WHICH RESULTED IN INCREASED INCOME OF THE PINNACLE UNIT AND REDUCTION OF INCOME OF UB PLAZA UNIT. THE DR SUBMITTED THAT THE ASSESSEE HAS TO ESTABLISH ITS CLAIM BEFORE THE AO . WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES MINUTES T EXAMINATION AND VERIFICATION OF FACTS, VIS A VIS UNITS AND HENCE RE MIT THE ISSUE TO THE AO/TPO. THE AO/TPO SHALL GIVE DUE OPPORTUNITY TO THE ASSES SSEE AND DECIDE THE ISSUES IN ACCORDANCE WITH LAW. IT(TP)A.1206/BANG/2011 PAGE - 46 D. DISALLOWANCE OF CLAIM FOR SET-OFF OF UNABSORBED DEPRECIATION : [GROUND NO.9 IN ITS APPEAL] - 24. THE ASSESSEE SUBMITTED THAT THE UNABSORBED DE PRECIATION OF RS.16,14,643/- CLAIMED AS A SET-OFF IN THIS ASSE SSMENT YEAR, AND AS WAS CARRIED FORWARD FROM AY 2006-07, PERTAINS TO A YS 1996-97 AND 1999- 2000. A TABLE INDICATING THE YEAR-WISE AMOUNT IS PR OVIDED BELOW FOR QUICK REFERENCE: PARTICULARS ASSESSMENT YEAR AMOUNT (RS.) UNABSORBED DEPRECIATION 1996-1997 3,58,207/- UNABSORBED DEPRECIATION 1999-2000 12,56,436/- HOWEVER, THE AO DENIED THE SET-OFF OF THE ABOVE UN ABSORBED DEPRECIATION ON THE GROUND THAT THE PINNACLE UNIT W AS A PROFIT MAKING UNIT IN ALL YEARS PRIOR TO A Y 2007-08 AND THAT, THEREFO RE, THE ABOVE UNABSORBED DEPRECIATION IS DEEMED TO HAVE BEEN SET-OFF IN SUCH YEARS OF PROFIT BEFORE COMPUTING THE DEDUCTION UNDER SECTION 10A FO R THOSE YEARS. FURTHER, THE A O HAS ALSO DENIED THE CLAIM FOR SET -OFF CONTENDING THAT THE SAME WAS ALLOWED IN THE ASSESSMENT ORDER FOR AY 200 6-07. THE DRP, TOO, UPHELD THE SAME. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT TH E UNABSORBED DEPRECIATION COULD NOT BE CLAIMED IN ANY OF THE PRE CEDING ASSESSMENT YEARS AS THERE WERE NO PROFITS AVAILABLE FOR SUCH SET-OFF AFTER COMPUTING DEDUCTION U/S 10A IN THOSE ASSESSMENT YEARS. FURTHER, IT S UBMITTED THAT THE AO , WHILE COMPUTING THE TAX PAYABLE FOR A Y 2006-07, HAD GIVEN EFFECT TO THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE IT(TP)A.1206/BANG/2011 PAGE - 47 ASSESSEE RELATING TO EARLIER ASSESSMENT YEARS BEFO RE GIVING EFFECT TO THE DEDUCTION U/S 10A . THE ASSESSEE SUBMITTED THA T THE ABOVE ACTION OF THE AO IN THE ASSESSMENT ORDER FOR A Y 2 006-07 IS LIABLE TO BE SET ASIDE IN VIEW OF THE BINDING DECISION PRONOUNCE D ON 16.12.2016 BY THE HON'BLE SUPREME COURT IN CIT V. YOKOGAWA INDIA LTD. IN C.A. NOS. 8498/2013 AND OTHERS. SINCE THE SET-OFF OF THE AB OVE UNABSORBED DEPRECIATION OF RS.16.14.6431- IN AY 2006-07 IS ERR ONEOUS AND ILLEGAL THE SAID AMOUNT IS AVAILABLE FOR SET-OFF IN THE PRE SENT ASSESSMENT YEAR. HENCE, THE FINAL ASSESSMENT ORDER, TO THE EXTENT IT DENIES THE SET-OFF OF THE ABOVE UNABSORBED DEPRECIATION OF RS.16,14,643/- IS ERRONEOUS AND LIABLE TO SET ASIDE BY THE TRIBUNAL. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TH OUGH THE ASSESSEE IS ENTITLED FOR SET OFF OF DEPRECIATION IN VIEW OF THE BINDING DECISION DT. 16.12.2016 OF THE HON'BLE SUPREME COURT IN CIT V. YOKOGAWA INDIA LTD. IN C.A. NOS. 8498/2013 AND OTHERS, IT APPEARS , THE A SSESSEE IS SEEKING RELIEF IN THE EARLIER ASSESSMENT YEAR ON WHICH APPEAL IS N OT LYING BEFORE THE TRIBUNAL. FROM THE ORDERS, IT IS SEEN THAT THE AO DENIED THE SET-OFF OF THE ABOVE UNABSORBED DEPRECIATION ON THE GROUND THA T THE PINNACLE UNIT WAS A PROFIT MAKING UNIT IN ALL YEARS PRIOR TO A Y 2007-08 AND THAT, THEREFORE, THE ABOVE UNABSORBED DEPRECIATION IS DEE MED TO HAVE BEEN SET- OFF IN SUCH YEARS OF PROFIT BEFORE COMPUTING THE DE DUCTION UNDER SECTION 10A FOR THOSE YEARS. FURTHER, THE A O HAS A LSO DENIED THE CLAIM FOR SET-OFF CONTENDING THAT THE SAME WAS ALLOWED IN THE ASSESSMENT ORDER FOR IT(TP)A.1206/BANG/2011 PAGE - 48 AY 2006-07. IN THE ABSENCE OF THE CORRESPONDING FAC TS AND FIGURES, IT IS APPARENT THAT AO HAS DECIDED THIS ISSUE ON SURM ISE. HENCE, THIS ISSUE IS REMITTED TO THE AO FOR RE-EXAMINATION AND DUE DEC ISION IN ACCORDANCE WITH THE HON'BLE SUPREME COURT DECISION IN CIT V. YOKOGAWA INDIA LTD. IN C.A. NOS. 8498/2013 AND OTHERS . 26. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOW ED/ TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 6 TH DAY OF APRIL, 2017. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (S. JA YARAMAN) JUDICIAL MEMBER ACCOU NTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR