Appeal details
Counselvise Citation
122722514 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 10 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-05-2015
Appeal Filed By
Assessee
Bench Allotted
A
Next Hearing Date
05-05-2015
Assessment Year
2005-2006
Appeal Filed On
24-06-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 1227/HYD/11 2005 - 06 BROADCOM INDIA TECHNOLOGIES PRIVATE LIMITED, (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PRIVATE LIMITED) MADHAPUR, HYDERABAD [PAN: AABCL0010D] THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD 1631/HYD/10 2006 - 07 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(3), HYDERABAD 2098/H YD/11 2007 - 08 FOR ASSESSEE : SHRI SIVAM SUBRAMANIAN & SHRI ASHIK SHAH, ARS FOR REVENUE : S MT G. APARNA RAO & SHRI RAMA KRISHNA, BANDI, DRS DATE OF HEARING : 05 - 0 5 - 201 5 DATE OF PRONOUNCEMENT : 08 - 0 5 - 2015 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : ALL ARE ASSESSEE'S APPEALS FOR THE RESPECTIVE ASSE SSMENT YEARS. ITA NO. 1227/HYD/2011 IS AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERABAD DATED 21-03-201 1 FOR THE ASSESSMENT YEAR (AY) 2005-06, CONFIRMING THE INCLUS ION OF CERTAIN COMPANIES AS COMPARABLES FOR DETERMINATION OF ARM'S LENGTH PRICE [ALP] OF THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASSES SEE AND ITS ASSOCIATED ENTERPRISE [AE]. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 2 -: 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, FORMERLY KNOWN AS M/S. LVL7 SYSTEM P LTD., FILED ITS RETURN OF INCOME FOR THE AY 2005-06. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF TH E INCOME TAX ACT (ACT), ASSESSING OFFICER (AO) NOTICED THAT THE ASSE SSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS AE. THEREFORE, HE MADE A REFERENCE TO THE TRANSFER PRICING OFFICER [TPO] U/S. 92CA(1) OF THE ACT FOR DETERMINATION OF THE ALP. THE ASSESSEE ALSO FURNIS HED THE TRANSFER PRICING STUDY CONDUCTED BY IT FOR DETERMINATION OF THE ALP. DURING THE PROCEEDINGS U/S. 92CA(1) OF THE ACT, TPO ACCEPTED T HE TRANSACTIONAL NET MARGIN METHOD [TNMM] AS THE MOST APPROPRIATE METHOD . BUT AS FAR AS THE COMPARABLES ARE CONCERNED, HE REJECTED CERTAIN COMPARABLES ADOPTED BY THE ASSESSEE AND INCLUDED CERTAIN OTHER COMPARAB LES AND ARRIVED AT THE ALP AND MADE AN ADJUSTMENT OF RS. 65,50,659/- T O THE RETURNED INCOME OF THE ASSESSEE. CONSEQUENTLY, AO PASSED AS SESSMENT ORDER, AGAINST WHICH ASSESSEE PREFERRED AN APPEAL BEFORE C IT(A), WHO PARTLY ALLOWED THE SAME AND AGAINST THE RELIEF DENIED BY T HE CIT(A), ASSESSEE IS IN FILE BEFORE US. BEFORE US, THE ASSESSEE HAS FIL ED CONCISE GROUNDS OF APPEAL WHICH ARE SEVEN IN NUMBER. ASSESSEE HAS ALS O FILED ADDITIONAL GROUNDS OF APPEAL CHALLENGING THE CONSIDERATION OF SATYAM COMMUNICATION SERVICES LTD., AND BODH TREE CONSULTI NG LTD., AS COMPARABLES TO THE ASSESSEE. AT THE TIME OF HEARIN G, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND NO. 3 & 5 OF CONCISE GROUNDS OF APPEAL. THEREFORE, THE SE TWO GROUNDS ARE REJECTED AS NOT PRESSED. WE FIND THAT GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 3. AS REGARDS GROUND NOS. 2 & 4 AND THE ADDITIO NAL GROUNDS RAISED BY THE ASSESSEE, WE FIND THAT THEY ARE AGAINST THE COM PARABLES ADOPTED BY THE TPO FOR DETERMINATION OF ALP, IT IS THE CASE OF THE ASSESSEE THAT THE TPO HAS FINALLY ADOPTED 17 COMPARABLES AS COMPARABL ES, OUT OF WHICH, I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 3 -: ASSESSEE IS NOW CHALLENGING NINE COMPANIES. THE CO MPARABLES WHICH ARE CHALLENGED BY ASSESSEE ARE: I. BODHTREE CONSULTING LTD II. EXENSYS SOFTWARE SOLUTIONS LTD III. SANKHYA INFOTECH LTD IV. FOURSOFT LTD V. THIRDWARE SOLUTIONS LTD VI. TATA ELXSI LTD VII. FLEXITRONICS LTD VIII. SATYAM COMMUNICATION SERVICES LTD., IX. INFOSYS TECHNOLOGIES LTD 4. AS REGARDS THE ADOPTION OF BODHTREE CONSULTING L TD., IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THI S COMPANY WAS ADOPTED BY THE ASSESSEE ITSELF IN ITS TP STUDY, BUT HAS LATER CHALLENGED IT BEFORE CIT(A), ON THE BASIS OF VARIOUS DECISIONS OF THIS TRIBUNAL. IT IS STATED THAT BODHTREE CONSULTING LTD IS NOT A COMPAR ABLE COMPANY AS IT IS A PRODUCT ORIENTED COMPANY AND THEREFORE IS FUNC TIONALLY DISSIMILAR TO THE ASSESSEE COMPANY AND FURTHER THAT IT ALSO FAILS RPT FILTER. 5. AS REGARDS SATYAM COMMUNICATION SERVICES LTD., I S CONCERNED, IT IS STATED THAT THOUGH THE ASSESSEE ITSELF HAD ADOPT ED IT AS ONE OF THE COMPARABLE COMPANIES, THE ASSESSEE IS NOW CHALLENGI NG IT SINCE IT HAS COME TO LIGHT SUBSEQUENTLY THAT THE FINANCIAL STATE MENTS OF SATYAM COMMUNICATION SERVICES LTD., ARE NOT RELIABLE AND T HEREFORE, THE SAID COMPANY IS NOT COMPARABLE AND THE ASSESSEE HAS CHAL LENGED IT BEFORE THE CIT(A). HE PLACED RELIANCE UPON THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL AT CHANDIGARH IN THE CASE OF DCIT VS. QUARK SYSTEMS INDIA (P) LTD., [38 SOT 307] WHICH WAS AFFIRMED BY THE HO N'BLE HIGH COURT OF I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 4 -: PUNJAB & HARYANA IN THE CASE OF CIT VS. QUARK SYSTE MS INDIA (P) LTD., [244 CTR 542], WHEREIN IT WAS HELD THAT THE TAX PAY ER IS NOT ESTOPPED FROM POINTING OUT A MISTAKE IN THE ASSESSMENT THOUG H SUCH MISTAKE IS THE RESULT OF EVIDENCE ADDUCED BY THE TAX PAYER EVE N IF THE SAID PLEA IS RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE REFORE, THE LD. COUNSEL FOR THE ASSESSEE PRAYED THAT THE ADDITIONAL GROUNDS OF APPEAL BE ADMITTED AND THE ISSUE BE CONSIDERED ON MERITS. 6. LD. DR OPPOSED THE ADMISSION OF THE ADDITIONAL G ROUNDS. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD AND THE DECISION OF THE SPECIAL BENCH OF THE TRIBUN AL WHICH IS CONFIRMED BY THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN QU ARK SYSTEMS INDIA (P) LTD., (CITED SUPRA), WE ADMIT THESE TWO ADDITIO NAL GROUNDS OF APPEAL OF THE ASSESSEE. 8. COMING TO THE MERITS OF THE ISSUE, THE LD. COUNS EL FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF DE SHAW INDIA SOFTWARE PVT. LTD., FOR E XCLUSION OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. BEFORE APP LYING THE SAID DECISION TO THE CASE BEFORE US, WE HAVE TO FIRST EX AMINE WHETHER THE NATURE OF ACTIVITIES OF BOTH THE COMPANIES IS SIMIL AR AND WHETHER THEY ARE COMPARABLE. WE FIND THAT THE ASSESSEE IS A 100 % CAPTIVE SOFTWARE SERVICE PROVIDER AS IN THE CASE OF DE SHAW INDIA SO FTWARE PVT. LTD., AND THE ASSESSMENT YEAR IN BOTH THE CASES ALSO IN AY.20 05-06. THEREFORE, THE DECISION OF THE TRIBUNAL IN THE CASE OF DE SHAW INDIA SOFTWARE PVT. LTD., IS VERY MUCH APPLICABLE TO THE FACTS OF THE C ASE BEFORE US. THE TRIBUNAL IN THE CASE OF DE SHAW INDIA SOFTWARE PVT. LTD., IN ITA NO. 1302/HYD/2010 DT. 21-01-2015 HAS CONSIDERED THE COM PARABILITY OF ALL THE ABOVE COMPANIES AND HAS HELD THEM AS NOT COMPAR ABLE WITH THE I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 5 -: ASSESSEE THEREIN. THE RELEVANT PORTION OF THE TRIB UNAL'S ORDER AT PARAS 7 TO 10 ARE REPRODUCED HEREIN UNDER FOR READY REFEREN CE: '7. THE SUBMISSIONS OF THE LEARNED AR AGAINST SELE CTION OF THESE COMPARABLES, IN BRIEF, ARE AS UNDER: 1. BODHTREE CONSULTING LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED ON THE BASIS OF FILTERS APPLIED BY TPO HIM SELF, WHICH ARE AS UNDER: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDULE 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIG ON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE COMPANY HAS EXPORT SALES TO PERIGON LIC, USA OF RS. 133.90 LAKH S, BEING 34.68% OF THE TOTAL TURNOVER. FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS R ESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAP ER SOLUTIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOP MENT AND OTHER CUSTOMIZED SOFTWARE AND ALSO STATE THAT THE E -PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UN DER THE CATEGORY OF IT ENABLED SERVICES. II) HE SUBMITTED, FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS: 1. INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) 2. INVENSYS DEVELOPMENT CENTRE (INDIA) PVT. LTD. (I TA NO. 1256/H/2010) 3. NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 2. EXENSYS SOFTWARE SOLUTIONS LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED FOR THE FOLLOWING REASONS: A) FUNCTIONALLY DIFFERENT: THE COMPANY IS A SOFTWARE P RODUCT AND ITES COMPANY. THE COMPANY OWNS SIGNIFICANT BRAN D INTANGIBLES (ALMOST 60% OF ITS NET BLOCK OF ASSETS) , UNLIKE THE APPELLANT, WHICH IS A CONTRACT CAPTIVE SERVICES PRO VIDER. FURTHER, VARIOUS DISCLOSURES ON THE SITE OF THE COM PANY ALSO INDICATE THAT IT IS INTO PRODUCT DEVELOPMENT. B) EXCEPTIONAL YEAR OF OPERATIONS: THERE WAS AMALGAMAT ION OF THE COMPANY WITH HOLOOL INDIA LTD. WITH RETROSPECTI VE EFFECT FROM APRIL 01, 2004, WHICH HAD A MATERIAL/SIGNIFICA NT IMPACT ON THE RESULTS OF THE COMPANY FOR FINANCIAL YEAR EN DED MARCH I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 6 -: 31, 2005 AND CONFIRMED BY THE COMPANY IN ITS RESPON SE TO 133(6) NOTICE. C) ERROR IN MARGIN COMPUTATION: THE LD TPO HAS EXCLUDE D THE DEFERRED REVENUE EXPENDITURE WHILE COMPUTING THE NE T MARGIN OF THE COMPANY. IF THE SAME IS INCLUDED, THE NET MARGIN OF THE COMPANY WOULD BE 32.68%. II) IT WAS SUBMITTED THAT THE FOLLOWING RULINGS HAV E ANALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS A ND HELD AS NOT COMPARABLE TO A SERVICE PROVIDER: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/ 2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) 3. SANKHYA INFOTECH LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM THE FOLLOWIN G: VARIOUS DISCLOSURES IN THE ANNUAL REPORT AND RESPON SE TO 133(6) NOTICE INDICATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS (SERVICES ARE SUPPLEMENTARY TO PR ODUCTS LICENSING) THE TPO HAS IN SUBSEQUENT YEAR REJECTED THIS COMPAN Y AS COMPARABLE RELYING ON THE SAME 133(6) RESPONSE. II) THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTE D THIS COMPANY AS IT HAS SOFTWARE PRODUCTS : - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/ 2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) 4. FOURSOFT LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM VARIOUS DISC LOSURES IN THE ANNUAL REPORT (DIRECTORS REPORT, MANAGEMENT DISCUSS ION AND WEBSITE INFORMATION) INDICATING CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS. THE FOLLOWING RULINGS HAVE ANALYSED AND R EJECTED THIS COMPANY AS IT HAS DERIVED INCOME FROM SOFTWARE LICE NSE AND AMCS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 7 -: - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/ 2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) 5. THIRDWARE SOLUTIONS LTD.: I) LD. COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCT IONALLY DIFFERENT FOR THE FOLLOWING REASONS: AS PER REPLY TO NOTICE ISSUED U/S 133(6), THE COMPA NY INFORMED THAT IT IS ENGAGED IN IMPLEMENTATION AND C USTOMER SERVICES WHICH INCLUDE TRAINING, CUSTOMIZED DEVELOP MENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND DISTRIBUTIO N OF PRODUCTS OF QUAD INC. AND HYPERION SOLUTIONS CORPOR ATION. VARIOUS NEWS ARTICLES AVAILABLE ON THE INTERNET HTTP://WWW.HINDUONNET.COM/2001/07/11/STORIES/061100 0H .HTMSTATED THAT THE COMPANY IS A DISTRIBUTOR OF PRO DUCTS; AS PER THE COMPANYS WEBSITE WWW.THIRDWARE.NET/ OURCAPABILITIES.HTM. HAS STATED THE COMPANY HAS PARTNERED WITH QAD INC TO DELIVER THE E NTIRE BUSINESS CYCLE OF MGF/PRO, A PRODUCT OF QAD INC. FR OM PRE- SALES, SALES, TRAINING, CONSULTING, IMPLEMENTATION AND SUPPORT TO APPLICATION MANAGEMENT SERVICES. HE SUBMITTED, THE FOLLOWING RULINGS HAVE ANALYSED A ND REJECTED THIS COMPANY AS IT IS INTO TRADING OF SOFT WARE LICENSES: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/ 2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) 6. TATA ELXSI LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHALL BE REJECTED AS COMPARABLE SINCE IT IS A SPECIALIZED EM BEDDED SOFTWARE DEVELOPMENT COMPANY AND THIS COMPANY HAS IN FACT CL EARLY STATED IN ITS RESPONSE TO 133(6) NOTICE THAT DUE TO THE COMPL EX SEGMENTS IN I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 8 -: WHICH THEY ARE OPERATING, IT IS NOT COMPARABLE TO A NY OTHER SOFTWARE SERVICES COMPANY. II) HE SUBMITTED, THE FOLLOWING RULINGS HAVE ANALYS ED THIS COMPANY AND RELYING ON THE SAME 133(6) RESPONSE, REJECTED I T AS A COMPARABLE TO SOFTWARE SERVICES PROVIDER: - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/ 2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 7. INFOSYS TECHNOLOGIES LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCTS, CONSULTA NCY & SOLUTIONS AND THIS COMPANY COMMANDS A PREMIUM IN THE PRICING OF I TS PRODUCTS AND SERVICES DUE TO ITS GOODWILL, REPUTATION AND BRAND VALUE. FURTHER DUE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SCALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACILITIES AND OVERHEADS. II) FURTHER, HE SUBMITTED THAT THE ISSUE OF COMPARA BILITY OF INFOSYS TO A SMALL CAPTIVE SERVICE PROVIDER IS NO LONGER RE S-INTEGRA. THE FOLLOWING CASES HAVE SPECIFICALLY ANLAYSED IN DETAI L THE COMPARABILITY OF INFOSYS ON VARIOUS PARAMETERS TO A SIMILAR SIZE SOFTWARE SERVICE PROVIDER AND REJECTED IT: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - PATNI TELECOM SOLUTIONS PVT. LTD. VS. ACIT (ITA NO. 1846/HYD/2012) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD/2 010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (ITA NO. 472/HYD/2011) 8. FLEXITRONICS LTD. I) OBJECTING TO THIS COMPANY, THE LEARNED AR SUBMIT TED THAT THE SAID COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT BUT IT CANNOT BE TREATED AS A COMPARABLE BECAUSE IT IS INTO DEVELOPM ENT OF PRODUCT. IT WAS SUBMITTED THAT THE COMPANY HAS ALSO REPORTED VE RY HIGH MARGIN OF PROFIT. THE LEARNED AR SUBMITTED THAT THE TPO HI MSELF HAVING CLASSIFIED THE ASSESSEE AS PURELY SOFTWARE DEVELOPM ENT SERVICE I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 9 -: PROVIDER, HE COULD NOT HAVE TREATED FLEXTRONICS SOF TWARE SYSTEMS LIMITED (SEG) AS A COMPARABLE AS IT IS INTO PRODUCT DEVELOPMENT. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED U PON THE FOLLOWING RULINGS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) 8. THE LEARNED DR, THOUGH, AGREED THAT ISSUE OF SEL ECTION OF COMPARABLES ARE COVERED BY THE DECISIONS OF ITAT RE FERRED TO BY LEARNED AR, BUT, HE NEVERTHELESS SUPPORTED THE REAS ONING OF TPO AND LEARNED CIT(A). 9. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES AND EXAMINED THE RECORD, WE FIND MERIT IN THE SUBMISSIONS OF LEA RNED AR WITH REGARD TO NON-COMPARABILITY OF VARIOUS COMPARABLE C OMPANIES SELECTED BY THE TPO. ON A PERUSAL OF THE FACTS ON R ECORD AS WELL AS ORDER OF TPO IT IS CLEAR THAT ASSESSEE IS PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER, THAT TOO TO ITS AE ONLY. THUS, AS SESSEE IS A CAPTIVE/CONTRACT SERVICE PROVIDER. AS CAN BE SEEN, COMPARABILITY OF AFORESAID COMPARABLES WERE CONSIDERED IN CASES OF VARIOUS OTHER PURELY SOFTWARE DEVELOPMENT SERVICE PROVIDERS LIKE ASSESSEE FOR THE SAME ASSESSMENT YEAR. COORDINATE BENCHES OF THIS TR IBUNAL IN THE ABOVE REFERRED CASES AFTER EXAMINING DIFFERENT ASPE CTS HAVE HELD THESE COMPANIES AS UNCOMPARABLE TO A PURELY SOFTWARE DEVE LOPMENT SERVICE PROVIDER. THE FINDING OF THE COORDINATE BENCH IN CA SE OF NESS INNOVATIVE BUSINESS P. LTD. VS. DCIT IN ITA NO. 472 , 553 & 1775/HYD/2011, DATED 18/06/2014 WITH REGARD TO SOME OF THE COMPARABLES FOR THE SAME ASSESSMENT YEAR IS EXTRACT ED HEREUNDER FOR READY REFERENCE: 9.1 FOR THE SAKE OF RECORD, THE DECISION IN THE CASE OF NESS INNOVATIVE BUSINESS SERVICES P. LTD., VS. DCIT, CIR CLE 16(1), HYDERABAD VIDE ITA.NO.472, 553 & 1775/HYD/2011 DATED 18.06.20 14 ON THE ABOVE 7 COMPARABLES ARE EXTRACTED AS UNDER: 1. BODHTREE CONSULTING LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHO ULD BE REJECTED UNDER THE FOLLOWING TPOS FILTERS: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDULE 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIG ON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE COMPANY HAS EXPORT SALES TO PERIGON LIC, USA OF RS. 133.90 LAKH S, BEING 34.68% OF THE TOTAL TURNOVER. FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS R ESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAP ER SOLUTIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOP MENT AND OTHER CUSTOMIZED SOFTWARE AND ALSO STATE THAT THE E -PAPER I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 10 -: SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UN DER THE CATEGORY OF IT ENABLED SERVICES. 2. EXENSYS SOFTWARE SOLUTIONS LTD., THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHO ULD BE REJECTED UNDER THE FOLLOWING TPOS FILTERS: D) FUNCTIONALLY DIFFERENT: THE COMPANY IS A SOFTWARE P RODUCT AND ITES COMPANY. THE COMPANY OWNS SIGNIFICANT BRAND INTANGIBLES (ALMOST 60% OF ITS NET BLOCK OF ASSETS) , UNLIKE THE APPELLANT, WHICH IS A CONTRACT CAPTIVE SERVICES PRO VIDER. FURTHER, VARIOUS DISCLOSURES ON THE SITE OF THE COM PANY ALSO INDICATE THAT IT IS INTO PRODUCT DEVELOPMENT. E) EXCEPTIONAL YEAR OF OPERATIONS: THERE WAS AMALGAMAT ION OF THE COMPANY WITH HOLOOL INDIA LTD. WITH RETROSPECTI VE EFFECT FROM APRIL 01, 2004, WHICH HAD A MATERIAL/SIGNIFICA NT IMPACT ON THE RESULTS OF THE COMPANY FOR FINANCIAL YEAR EN DED MARCH 31, 2005 AND CONFIRMED BY THE COMPANY IN ITS RESPON SE TO 133(6) NOTICE. F) ERROR IN MARGIN COMPUTATION: THE LD TPO HAS EXCLUDE D THE DEFERRED REVENUE EXPENDITURE WHILE COMPUTING THE NE T MARGIN OF THE COMPANY. IF THE SAME IS INCLUDED, THE NET MA RGIN OF THE COMPANY WOULD BE 32.68%. IT WAS SUBMITTED THAT THE FOLLOWING RULINGS HAVE AN ALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS A ND HELD AS NOT COMPARABLE TO A SERVICE PROVIDER: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 3. SANKHYA INFOTECH LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM THE FOLLOWIN G: VARIOUS DISCLOSURES IN THE ANNUAL REPORT AND RESPON SE TO 133(6) NOTICE INDICATES CLEARLY THAT THE COMPANY IS INTO I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 11 -: SOFTWARE PRODUCTS (SERVICES ARE SUPPLEMENTARY TO PR ODUCTS LICENSING) THE TP OFFICE HAS IN SUBSEQUENT YEAR REJECTED THIS COMPANY AS COMPARABLE RELYING ON THE SAME 133(6) RESPONSE. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED TH IS COMPANY AS IT HAS SOFTWARE PRODUCTS : - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 4. FOURSOFT LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM VARIOUS DISC LOSURES IN THE ANNUAL REPORT (DIRECTORS REPORT, MANAGEMENT DISCUSS ION AND WEBSITE INFORMATION) INDICATES CLEARLY THAT THE COM PANY IS INTO SOFTWARE PRODUCTS. THE FOLLOWING RULINGS HAVE ANALY SED AND REJECTED THIS COMPANY AS IT HAS DERIVED INCOME FROM SOFTWARE LICENSE AND AMCS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 5. THIRDWARE SOLUTIONS LTD.: LD. COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTION ALLY DIFFERENT FOR THE FOLLOWING REASONS: AS PER REPLY TO NOTICE ISSUED U/S 133(6), THE COMPA NY INFORMED THAT IT IS ENGAGED IN IMPLEMENTATION AND C USTOMER SERVICES WHICH INCLUDE TRAINING, CUSTOMIZED DEVELOP MENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND DISTRIBUTIO N OF PRODUCTS OF QUAD INC. AND HYPERION SOLUTIONS CORPOR ATION. VARIOUS NEWS ARTICLES AVAILABLE ON THE INTERNET HTTP://WWW.HINDUONNET.COM/2001/07/11/STORIES/061100 0H. HTMSTATED THAT THE COMPANY IS A DISTRIBUTOR OF PROD UCTS; I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 12 -: AS PER THE COMPANYS WEBSITE WWW.THIRDWARE.NET/ OURCAPABILITIES.HTM. HAS STATED THE COMPANY HAS PARTNERED WITH QAD INC TO DELIVER THE E NTIRE BUSINESS CYCLE OF MGF/PRO, A PRODUCT OF QAD INC. FR OM PRE- SALES, SALES, TRAINING, CONSULTING, IMPLEMENTATION AND SUPPORT TO APPLICATION MANAGEMENT SERVICES. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED TH IS COMPANY AS IT IS INTO TRADING OF SOFTWARE LICENSES: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - E-GAIN COMMUNICATIONS (P) LTD. VS. ITO, 23 SOT 385. 6. TATA ELXSI LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHA LL BE REJECTED AS COMPARABLE SINCE IT IS A SPECIALIZED EM BEDDED SOFTWARE DEVELOPMENT COMPANY AND THIS COMPANY HAS I N FACT CLEARLY STATED IN ITS RESPONSE TO 133(6) NOTICE THA T DUE TO THE COMPLEX SEGMENTS IN WHICH THEY ARE OPERATING, IT IS NOT COMPARABLE TO ANY OTHER SOFTWARE SERVICES COMPANY. THE FOLLOWING RULINGS HAVE ANALYSED THIS COMPANY AN D RELYING ON THE SAME 133(6) RESPONSE, REJECTED IT AS A COMPARABLE TO SOFTWARE SERVICES PROVIDER: - CONEXANT SYSTEMS INDIA PVT. LTD. (ITA NO. 1429/HYD/ 2010 AND 1978/HYD/2011) - TELCORDIA TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011) - LOGICA PVT. LTD. (IT(TP)A NO. 1129/BANG/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 7. INFOSYS TECHNOLOGIES LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCT S, CONSULTANCY & SOLUTIONS AND THIS COMPANY COMMANDS A PREMIUM IN THE PRICING OF ITS PRODUCTS AND SERVICES DUE TO ITS GOO DWILL, I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 13 -: REPUTATION AND BRAND VALUE. FURTHER DUE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SCALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACILITIES AND OVERHEADS. FURTHER, HE SUBMITTED THAT THE ISSUE OF COMPARABILI TY OF INFOSYS TO A SMALL CAPTIVE SERVICE PROVIDER IS NO L ONGER RES- INTEGRA. THE FOLLOWING CASES HAVE SPECIFICALLY ANLA YSED IN DETAIL THE COMPARABILITY OF INFOSYS ON VARIOUS PARAMETERS TO A SIMILAR SIZE SOFTWARE SERVICE PROVIDER AND REJECTED IT: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - VIRTUSA INDIA PVT. LTD. VS. DCIT (ITA NO. 1962/H/20 10) - PATNI TELECOM SOLUTIONS PVT. LTD. VS. ACIT (ITA NO. 1846/HYD/2012) - ADAPTEC (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1801/HY D/2009) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645 /HYD/09) - TRILOGY E BUSINESS SERVICES SOFTWARE LTD. VS. DCIT (ITA NO. 1054/BANG/2011 PARA 20) - TELCORDIA TECHNOLOGIES INDIA P LTD. (ITA NO. 7821/M UM/2011 PARA 7.4) - CORDYS SOFTWARE INDIA PVT. LTD. VS. ACIT (ITA NO. 1972/H/2011) - AGNITY INDIA TECHNOLOGIES VS. ITO (ITA NO. 3856/DEL /2010) - AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. ITO (HIGH C OURT DECISION ITA 1204/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECORD INCLUDING PAPER BOOKS PLACED ON RECORD. THER E IS A MERIT IN ASSESSEES CONTENTIONS ABOUT NON-COMPARABILITY O F VARIOUS COMPARABLE COMPANIES SELECTED BY THE TPO. 7. AS REGARDS THE EXENSYS SOFTWARE SOLUTIONS LTD., AS SEEN FROM THE PAPER BOOK PLACED ON RECORD, THERE IS A MERGER OF HOLOOL INDIA LTD. AND IN THE DIRECTORS REPORT (PB- 951), THERE IS A CLEAR MENTION THAT THE COMPANYS INCOME OF RS. 737. 79 LAKHS IS POSSIBLE WITH THE AMALGAMATION OF HOLOOL INDIA LTD. IT WAS FURTHER MENTIONED THAT ASSESSEE COMPANY HAS GOT BEN EFIT BY ADVANCED LATEST TECHNICAL EXPERTISE ON VARIOUS TECH NOLOGY I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 14 -: DOMAINS OF THE TRANSFEROR COMPANY. FURTHER, THAT CO MPANY HAS CHARGED DEFERRED EXPENDITURE AND THE AMOUNT CLAIMED IN THIS YEAR IS RS. 1.22 CRORES AS AGAINST RS. 30.21 LAKHS IN EARLIER YEAR. THIS WAS CLEARLY STATED IN NOTES THAT CLAIM W AS WITH REFERENCE TO THE AS-14 AND ALSO DUE TO AMALGAMATION OF TWO COMPANIES. VIDE PAGE 957 OF PAPER BOOK, IT WAS SEEN THAT OUT OF GROSS ASSETS OF RS. 7.95 CRORES, BRANDS ALONE CONSI ST OF RS. 5 CRORES, THEREFORE, INTANGIBLE ASSETS COMPRISING OF SUBSTANTIAL PART OF THIS COMPANYS ASSETS. NOT ONLY IN THE CORRESPO NDENCE WITH THE TPO THAT ASSESSEE EXPRESSED ITS INABILITY TO FU RNISH SEPARATE ACCOUNTS FOR TWO AMALGAMATED COMPANIES BUT ALSO FU RTHER IT HAS CLEARLY MENTIONED VIDE LETTER DATED 26-04-2007 TO T HE TPO THAT THERE IS A GAP IN THE EXPENDITURE EXPECTED TO INCUR AND ACTUAL EXPENDITURE INCURRED WHICH MADE THE COMPANY RECORD HIGH OPERATING MARGIN ON COST. THESE FACTORS INDEED SUPP ORT ASSESSEES CONTENTION THAT THIS EXCEPTIONAL PROFIT WITH THE FACT OF AMALGAMATION AFFECTED OPERATING PROFIT OF THE COMPA NY AND THIS CANNOT BE TAKEN AS COMPARABLE. OTHER ISSUES WERE AL SO ANALYSED AND ACCEPTED IN VARIOUS CASES AS RELIED UPON BY THE LEARNED COUNSEL. IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD.,(SUPRA) THIS COMPARABLE CASE WAS ANALYSED AND HELD AS UNDER: 17. HAVING HEARD BOTH PARTIES AND HAVING CONSIDERE D THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT ASSESSEE HAS ACCEPTED THE EXENSYS SOFTWARE SOLUTION S LIMITED AS ONE OF THE COMPARABLE COMPANIES WHEN PROPOSED BY THE TPO. HOWEVER, THE FACT THAT THERE IS AN AMALGAMATION OF TWO COMPANIES I.E., EXENSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED, THE RESULTS OF WHICH, HAS RESULTED IN HIGH OPERATING MARGIN CANNOT BE LOST SIGHT FOR. IT HAS BEEN HELD I N MANY CASES BY THIS TRIBUNAL AS WELL AS THE HIGHER FORUMS THAT TO COMPARE A COMPANY WITH ANOTHER COMPANY, BOTH THE COMPANIES HA VE TO BE BROUGHT ON PAR WITH EACH OTHER AFTER MAKING THE NEC ESSARY ADJUSTMENTS WHEREVER NECESSARY AND POSSIBLE. HOWEVE R, WHERE THERE ARE EXTRAORDINARY EVENTS SUCH AS THIS, THEN THOSE EVENTS HAVE TO BE TAKEN NOTE OF AND WHERE NO ADJUSTMENT CA N BE MADE ON ACCOUNT OF THIS EXTRAORDINARY EVENT, THEN SUCH C OMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE OBJECTIO NS TO THIS COMPANY BY ASSESSEE ARE MADE FOR THE FIRST TIME BEF ORE THE TRIBUNAL. THE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY IS BOUND TO TAKE NOTE OF THE OBJECTIONS OF ASSESSEE. A S THE MATERIAL RELIED UPON BY THE LEARNED COUNSEL FOR ASSESSEE CL EARLY DENOTES THAT THERE IS AN EXTRAORDINARY EVENT WHICH HAS RES ULTED IN THE HIGH OPERATING MARGIN OF THE COMPANY, WE DEEM IT FI T AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE ASSESSING O FFICER/TPO FOR RECONSIDERATION. IF IT IS FOUND THAT THERE IS AN AM ALGAMATION OF EXENSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED A ND FORMED AS ONE ENTITY VIZ.,EXENSYS SOFTWARE SOLUTIONS LIMIT ED. DURING THE RELEVANT PREVIOUS YEAR AND THE FINANCIAL RESULT IS THE COMBINED RESULT OF THESE TWO COMPANIES, THEN, WE DIRECT THE ASSESSING I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 15 -: OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST O F COMPARABLES. 8. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T THERE IS AN EXTRA-ORDINARY EVENT WHICH RESULTED IN HIGH O PERATING MARGIN OF THAT COMPANY AND WE, THEREFORE, DIRECT TH E AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. IN THE ABOVE REFERRED CASE OF INTOTO SOFTWARE INDIA PVT. LTD., C OMPLETE DETAILS WERE NOT PLACED ON RECORD, THEREFORE, THE MATTER WA S SENT TO AO FOR VERIFICATION WHEREAS IN THIS CASE ASSESSEE HAS OBJECTED EVEN BEFORE THE AO/ CIT(A), THEREFORE, THERE IS NO NEED TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR EXAMINATION AS WAS DONE IN THE CASE OF INTOTO SOFTWARE(SUPRA). WE ARE, THEREFORE, OF THE OPINION THAT ON THE BASIS OF FACTS PLACED ON RECORD, THE CA SE OF EXENSYS SOFTWARE SOLUTIONS LTD. CANNOT BE TAKEN AS COMPARAB LE. 9. SIMILARLY, THE OTHER CASES, BODHTREE CONSULTING LTD, FOUR SOFT LTD, INFOSYS,., SANKHYA INFOTECH LTD., TH IRDWARE SOLUTIONS LTD, TATA ELEXI (SEG) ETC, ARE ALSO TO BE EXCLUDED AS THEY ARE CONSIDERED AND ANALYSED IN VARIOUS CASES R ELIED ON ABOUT FUNCTIONALITY AND WHY THE SAME ARE NOT COMPAR ABLE TO THE COMPANIES LIKE ASSESSEE. BODHTREE CONSULTING LTD AL SO FAILS RPT FILTER AS CONTENDED. IN VIEW OF THIS, WE ARE NOT DI SCUSSING ABOVE COMPARABLES IN DETAIL, BUT, SUFFICE TO SAY THAT ASS ESSEES SUBMISSIONS ARE VALID. THE AO IS DIRECTED TO EXCLUD E THE ABOVE COMPARABLES AND RE-WORK OUT THE ARMS LENGTH MARGIN ACCORDINGLY. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN OTHER DECIS IONS REFERRED TO HEREINABOVE. THEREFORE, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE ITAT, WE EXCLUDE, BODHTREE CONSULTING LTD., EXE NSYS SOFTWARE SOLUTIONS LTD., SANKHYA INFOTECH LTD., FOUR SOFT LT D., THIRDWARE SOLUTIONS LTD., TATA ELXSI LTD AND INFOSYS TECHNOLO GIES LTD. FROM THE LIST OF COMPARABLES. 10. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONC ERNED, WE FIND THAT IN CASE OF INTOTO SOFTWARE INDIA PVT. LTD., (S UPRA) THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAVING FOUND IT TO BE FUNCTI ONALLY DIFFERENT AS IT IS INTO PRODUCT DEVELOPMENT HAS DIRECTED EXCLUDI NG IT FOR COMPARABILITY ANALYSIS. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S IN TOTO SOFTWARE INDIA PVT.LTD. (SUPRA) WE ALSO DIRECT THE ASSESSING OFFIC ER/ TPO TO EXCLUDE THIS COMPANY'. 9. WE FIND THAT THE CONTENTIONS OF THE ASSESSEE IN THE CASE BEFORE US ARE SIMILAR TO THE CONTENTIONS RAISED BY THE ASSESS EE IN THE CASE OF DE SHAW INDIA SOFTWARE PVT. LTD., AND SINCE FACTS AND CIRCUMSTANCES ARE I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 16 -: SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THE COMPANIES CHALLENGED BY THE ASSESSEE BEFORE US ARE NOT TO BE CONSIDERED AS COMPARABLES. AS REGARDS SATYAM CO MMUNICATIONS SERVICES LTD., IS CONCERNED, WE FIND THAT THE HON'B LE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES LTD., REPORTED IN 262 CTR 291 HAS UPHELD ITS EXCLUSION FROM THE LIST OF COMPA RABLES FOR THE SAME REASONS AS CANVASSED BY THE ASSESSEE BEFORE US. TH EREFORE, WE HOLD THAT THIS COMPANY ALSO HAS TO BE EXCLUDED. THUS, GROUND S 3, 5 AND ADDITIONAL GROUNDS ARE ALLOWED. 10. THE ASSESSEE HAS GIVEN THE WORKING OF THE AVERA GE MARGINS OF THE COMPARABLE COMPANIES AFTER EXCLUSION OF THESE NINE COMPANIES WHICH WORKS OUT TO 10.43% AS AGAINST THE MARGIN COMPUTED BY THE TPO AT 22.02%. THE ALP DETERMINED BY ASSESSEE WAS 9.97% W HICH IS WITHIN (+)/(-) 5% OF THE ALP OF THE COMPARABLE COMPANIES A FTER EXCLUSION OF THE ABOVE NINE COMPANIES. THEREFORE, WE ARE OF THE OPI NION THAT THE ASSESSEE'S MARGIN IS AT ALP AND THEREFORE NO ALP AD JUSTMENT IS REQUIRED. GROUND NO.6 IS ACCORDINGLY ALLOWED. GROUND NO. 7 I S AGAINST THE LEVY OF INTEREST U/S. 234B & 234D OF THE ACT AND IS CONSEQU ENTIAL IN NATURE. THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF TO THE ASSESSEE. 11. ASSESSEE'S APPEAL IS ACCORDINGLY, PARTLY ALLOWE D. I.T.A. NO. 1631/HYD/2010 (AY. 2006-07) 12. IN THIS APPEAL ALSO ASSESSEE HAS RAISED AS MANY AS EIGHT CONCISE GROUNDS OF APPEAL, OUT OF WHICH, GROUND NO.1 IS G ENERAL IN NATURE AND NEEDS NO ADJUDICATION AND GROUND NOS. 3 & 5 ARE NOT PRESSED AND THEREFORE THEY ARE REJECTED AS NOT PRESSED. AS REG ARDS GROUND NOS. 2 & 4 ARE CONCERNED, WE FIND THAT THEY ARE AGAINST THE CO MPARABLES SELECTED BY I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 17 -: THE TPO FOR DETERMINATION OF THE ALP ADJUSTMENT. THE ASSESSEE IS CHALLENGING THE FOLLOWING COMPANIES AS COMPARABLES: X. INFOSYS TECHNOLOGIES LTD. XI. KALS INFORMATION SYSTEMS LTD. XII. PERSISTENT SYSTEMS LTD. XIII. TATA ELXSI LIMITED. XIV. ACCEL TRANSMATIC LIMITED. XV. MEGASOFT LIMITED. 13. THE LD. COUNSEL FOR ASSESSEE HAS PLACED RELIANC E UPON THE DECISIONS OF THIS TRIBUNAL IN THE CASE OF 1) UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., IN ITA NO. 1500/HYD/ 2010 DT. 20-06- 2014; 2) M/S NTT DATA INDIA ENTERPRISE APPLICATION SERVICES P. LTD., IN ITA NO. 1613/HYD/2010 DT. 02-01-2015 AND 3) CES PVT . LTD., IN ITA NO.1445/HYD/2010 DT. 29-11-2013 IN SUPPORT OF HIS CONTENTION THAT ALL THESE COMPANIES HAVE TO BE EXCLUDED FROM THE LIST O F COMPARABLES. THE COPIES OF SUCH ORDERS ARE FILED BEFORE US IN THE FO RM OF PAPER BOOK. 14. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATE RIAL ON RECORD, WE FIND THAT THE FACTS OF THE CASE BEFORE US ARE SIMIL AR TO THE FACTS IN THE CASES RELIED UPON BY THE ASSESSEE AND CITED SUPRA. THE CO-ORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF UNITED ONLIN E SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., (CITED SUPRA) HAS HE LD THAT INFOSYS TECHNOLOGIES LTD., HAVING A HUGE TURNOVER AND NOT B EING A CAPTIVE SERVICE PROVIDER, CANNOT BE CONSIDERED AS A COMPAR ABLE TO THE ASSESSEE THEREIN AND THEREFORE, IT HAS TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 18 -: FOR SIMILAR REASONS, KALS INFORMATION SYSTEMS LTD., HAS ALSO BEEN DIRECTED TO BE EXCLUDED, BY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL OF BANGALORE IN THE CASE OF H UAWEI TECHNOLOGIES INDIA PVT. LTD., VS. ITO IN ITA NO. 1338/BANG/2010 DT. 30-04-2013. SIMILARLY, IN THE CASE OF M/S NTT DATA INDIA ENTERP RISE APPLICATION SERVICES P. LTD., (SUPRA), THE COMPARABILITY OF ALL THESE COMPANIES EXCEPT PERSISTENT SYSTEMS LTD. HAS CONSIDERED BY THE TRIBU NAL AND HAVE BEEN DIRECTED TO BE EXCLUDED. THE RELEVANT PORTION OF T HE ORDER OF THE TRIBUNAL AT PARAS 8 & 9 IS REPRODUCED HERE UNDER FO R READY REFERENCE: '8. OUT OF THE COMPARABLES, ASSESSEE HAS OBJECTED TO SL. NO. 15 TO 20 COMPARABLES REFERRED ABOVE. AMONG THE SIX COMPANIES , FIVE COMPANIES ARE ALREADY CONSIDERED BY COORDINATE BENCH DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF UNITED ONLINE SOFTWARE DEVELOPMENT (IND IA) P. LTD., HYDERABAD VS. ITO, WARD 3 (2), HYDERABAD ITA.NO.1500/ HYD/ 2010 D ATED 20.06.2014 AND THE FINDINGS ARE AS UNDER : I. ACCEL TRANSMATIC LTD. II . KALS INFO. SYSTEMS LTD I. OBJECTING TO SELECTION OF THIS COMPANY, THE LEARNED AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT. IT WAS SUBMITTED THAT DURING THE YEAR THE COMPANY HAD SOLD IP RIGHTS IN T HE SOFTWARE DEVELOPED BY IT, WHICH HAS IMPACTED ITS PROFITABILI TY OF THE YEAR. HENCE, THE COMPANY NOT ONLY DOES NOT SATISFY THE 75 % SERVICE REVENUE FILTER APPLIED BY THE TPO, BUT, HAS AN EXCE PTIONAL YEAR OF OPERATIONS. IT WAS SUBMITTED THAT THE PERFORMANCE O F THE SOFTWARE SEGMENTS CLEARLY INDICATE THAT THE COMPANY HAS INCO ME FROM SALE OF PRODUCTS. THE LEARNED AR FURTHER SUBMITTED THAT TH E COMPANY HAS A NEGATIVE OPERATING MARGIN OF 18.73% FOR FY 2004-0 5. FURTHER, THE LEARNED AR SUBMITTED THAT AS PER THE ANNUAL REPORT SUBMITTED BY THE COMPANY IN RESPONSE TO 133(6) RELATED PARTY TRA NSACTION (RPT) ALSO FAILS THRESHOLD LIMIT APPLIED BY THE TPO HIMSE LF. IN THIS REGARD, THE LEARNED AR SUBMITTED THE FOLLOWING COMPUTATION: PARTICULARS AE RENDERING OF SERVICES 56,274,970 RECEIVING OF SERVICES 10,011,622 INTEREST PAID 1,513,025 LEASE PAYMENTS 1,830,084 TOTAL RPT 69,629,701 RPT/SALES 60.60% I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 19 -: II. IT WAS THEREFORE SUBMITTED THAT THIS COMPANY UNDER NO CIRCUMSTANCES CAN BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE, WHICH IS A PURELY SOFTWARE DEVELOPMENT SERVICE PROV IDER. THE LEARNED AR SUBMITTED THAT ITAT, BANGALORE BENCH IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. ITO (ITA NO . 1338/BANG/2010 DATED 30/04/2013 HAS HELD THE AFORES AID COMPANY NOT TO BE A COMPARABLE IN RESPECT OF A PURE LY SOFTWARE DEVELOPMENT SERVICE PROVIDER. FOR THE SAME REASON L D. AR SOUGHT EXCLUSION OF KALS INFOSYSTEMS LTD. HE ALSO RELIED U PON THE FOLLOWING OTHER DECISIONS: 1. TRILOGY E BUSINESS SERVICES SOFTWARE LD. VS. DCIT ( ITA NO. 1054/BANG/2001. 2. CSR INDIA PVT. LTD. (TS-68-ITAT-2013(BANG.-TP) 3. INTOTO SOFTWARE INDIA PVT. LTD., (ITA NO. 1196/H YD/2010) 4. TRANSWHICH INDIA PVT. LTD. VS. DCIT (ITA NO. 94 8/BANG/2011) III. THE LEARNED DR, ON THE OTHER HAND, SUPPORTING REASO NING OF THE TPO AND DRP SUBMITTED THAT THERE IS NO NEED TO EXCLUDE THE ABOVE SAID COMPANY. IV. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN, THE TPO AT PAG E 53 OF HIS ORDER HAS CATEGORIZED THE ASSESSEE AS A PURE SOFTWA RE DEVELOPMENT SERVICE PROVIDER. THE COMMENTS OF THE T PO IN THIS REGARD ARE EXTRACTED HEREUNDER FOR THE SAKE OF CONV ENIENCE: SOFTWARE PRODUCT COMPANY A COMPANY WHO DEVELOPS A SOFTWARE PRODUCT BY FOLLOW ING ALL THE STEPS INVOLVED IN CREATING SOFTWARE AS EXPLAINED ABOVE FR OM DOMAIN ANALYSIS TO TESTING. IN THIS CASE, INTELLECTUAL PROPERTY BELONG S TO THE COMPANY. THE PRODUCTS ARE SOLD GENERALLY ON LICENSE BASIS WHEREI N THE RIGHT TO USE THE SOFTWARE IS TRANSFERRED WITHOUT GIVING THE SOURCE C ODE. THESE TYPES OF COMPANIES ARE NOT SIMILAR TO THE TAXPAYER, WHO IS A PURE SERVICE PROVIDER. PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER DOES A PORTION OF THE DESCRIBED SOFTWARE DEVELOPMENT LIFE CYCLE. IT DOES NOT GENERATE ANY INTELLECTUAL PROPERTY FOR ITS OWN. THE INTELLECTUAL PROPERTY GENERATED BELONGS TO THE CUSTOMER AND NOT TO THE SERVICE PROV IDER. THE TAXPAYER FALLS IN THIS CATEGORY. THUS COMPARABLES ARE ALSO TO BE C HOSEN FROM COMPANIES WHOSE SIGNIFICANT ACTIVITIES (> 75% OF THE OPERATIN G REVENUES) ARE IN THE NATURE OF OR RELATE TO SOFTWARE DEVELOPMENT SERVICE S. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 20 -: AS CAN BE SEEN FROM THE ABOVE EXTRACTED PORTION, TH E TPO HAS HIMSELF MENTIONED THAT A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER DOES NOT GENERATE ANY INTELLECTUAL PROPERTY FOR ITS OWN. HE HAS FURTHER STATED THAT, THE COMPANIES WHICH SELL THEIR PRODUCTS GENERALLY O N LICENSE BASIS WHEREIN THE RIGHT TO USE THE SOFTWARE IS TRANSFERRED WITHOU T GIVING SOURCE CODE CANNOT BE COMPARABLE TO PURE SOFTWARE DEVELOPMENT S ERVICE PROVIDER LIKE ASSESSEE. IT IS THE SPECIFIC CONTENTION OF THE LEAR NED AR THAT ACCEL TRANSMATIC LTD., HAS SOLD IP RIGHTS FOR THE SOFTWA RE DEVELOPED BY IT. FURTHER, IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY FAILS THE RPT FILTER OF MORE THAN 25% APPLIED BY THE TPO HIMSELF. IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. ITO (SUPRA) , THE ITAT BANGALORE BENCH WHILE EXAMINING THE ISSUE OF COMPARABILITY OF THE AFORESAID COMPANY TO A PURELY SOFTWARE DEVELOPMENT SERVICE PR OVIDER HAS HELD AS UNDER: IN SO FAR KALS INFO SYSTEMS LTD., AND ACCEL TRANS MATICS LTD., CHOSEN BY THE TPO AS COMPARABLES, THIS TRIBUNAL IN THE CASE O F TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAS TAKEN A VIEW T HAT THESE COMPANIES ARE NOT COMPARABLE TO THE SOFTWARE SERVICE PROVIDER COMPANIES AS THEY ARE FUNCTIONALLY DIFFERENT. THE FOLLOWING ARE THE RELEV ANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD:- 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTENT ION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDING TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE ANNU AL REPORT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS.45, 93,351. THE SAME WAS LESS THAN 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 TR IBUNAL'S DECISION OF THE ITA T IN THE CASE OF BIND VIEW INDI A PRIVATE LIMITED VS. DC/, ITA NO. ITA NO 1386/PN/10 WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: '16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM L TD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCT S AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPME NT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS 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 ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPM ENT OF SOFTWARE PRODUCTS, ETE. ALL THESE ASPECTS HAVE NOT B EEN FACTUALLY REBUTTED AND, IN OUR VIEW THE SAID CONCERN IS LIABL E TO BE EXCLUDED I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 21 -: 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 SHOU LD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SUBMIS SION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TP O HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT THIS INFORMATION WHICH WAS NO T AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, W HEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPA NY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21. 06.2010 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 THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND N OT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE TH EREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT C OMPARABLE. (E) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF T HE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMEN T SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. C/T 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF THE ASSESSEE THA T ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RE LEVANT 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 FINAN CIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPANY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFACTURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEME NT SYSTEM, TICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENT RE FOR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOL OGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL LT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYS TEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/8PO I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 22 -: (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEV ELOPMENT 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES O F ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT T HE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPAN Y AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND A CC EL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND THER EFORE ASSESSEE'S CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED DRP THEREFORE DIRECTED THE ASSESSING OFFIC ER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL/IST OF COMPARA BLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. ' 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THIS COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN T HE PERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN TOR COMPARABILITY PURPOSES. THE SUBMISSION OF THE ID. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPA RABLE. THE ID. DR, ON THE OTHER HAND RELIED ON THE ORDER O F THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHOULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUN AL IN CAPGEMINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFER RED TO BY THE ID. COUNSEL FOR THE ASSESSEE, HAS ACCEPTED THAT THIS CO MPANY WAS NOT COMPARABLE IN THE CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUME NT OF THE ID. COUNSEL FOR THE ASSESSEE, WE HOLD THAT THE AFORESAI D COMPANY SHOULD BE EXCLUDED AS COMPARABLES. ' 13. IN VIEW OF THE AFORESAID DECISION OF THE TRIB UNAL, KALS INFO SYSTEMS LTD., AND ACCEL TRANSMATICS LTD. ARE TO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERMINING THE ALP OF TH E IMPUGNED TRANSACTION IN THIS APPEAL. IT IS ORDERED ACCORDING LY. FACTS BEING MATERIALLY SAME AND SINCE IT PERTAINS T O THE SAME ASSESSMENT YEAR, FOLLOWING THE VIEW ADOPTED BY THE ITAT, BANGA LORE BENCH IN THE AFORESAID CASE, WE ARE ALSO OF THE VIEW THAT THIS C OMPANY CANNOT BE COMPARABLE TO THE ASSESSEE. FOR THE VERY SAME REASONS, II. KALS INFO. SYSTEMS L TD. ALSO CANNOT BE A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT T HE AO/TPO TO EXCLUDE THE AFORESAID COMPANIES FROM THE LIST OF COMPARABIL ITY ANALYSIS. III. MEGASOFT LTD. I. OBJECTING TO THE AFORESAID COMPANY BEING TREATE D AS COMPARABLE, THE LEARNED AR SUBMITTED THAT AS PER THE INFORMATIO N OBTAINED FROM THE SAID COMPANY U/S 133(6) OF THE ACT, THE ANNUAL REPO RT OF THE COMPANY I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 23 -: CLEARLY INDICATES THAT IT IS ALSO ENGAGED IN SELLIN G OF PRODUCTS, NAMELY, XIUS SUIT OF PACKAGED PRODUCTS. IT WAS SUBMITTED THAT SI NCE SEGMENTAL FINANCIAL RESULTS IN RESPECT OF PRODUCT AND SERVICES ARE AVAI LABLE IN RESPECT OF THIS COMPANY, IF AT ALL THIS COMPANY IS TO BE TREATED AS COMPARABLE, THE TPO MAY BE DIRECTED TO CONSIDER THE PROFIT MARGIN OF SO FTWARE DEVELOPMENT SERVICES SEGMENT ALONE WHICH IS 16.97%, IN RESPECT OF SUCH CONTENTION, THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: 1. TRILOGY E BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO . 1054/BANG/2011) 2. LG SOFT INDIA P. LTD. (TS-64-ITAT-2013(BANG.-TP ) 3. BEARING POINT BUSINESS CONSULTING PVT. LTD. (ITA NO. 1124/BANG/2011) 4. INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO.1196/HYD /2010) 5. TRANSWHICH INDIA PVT. LTD. VS. DCIT (ITA NO.948/ BANG/2011) 6. MERCEDEZ BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD., (ITA. NO. 1222/BANG/2011). 7. HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. ITO (ITA NO. 1338/BANG/2010) II. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE TPO HAVING CORRECTLY CONSIDERED THE PROFIT MARGIN OF THE COMPA NY BY EXAMINING THE ANNUAL REPORT THERE IS NO NEED TO MODIFY THE ORDER OF THE TPO IN THIS REGARD. III. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIALS ON RECORD. ON A CONSIDERATION OF THE CONTENTIONS RAISED BY THE AS SESSEE VIS--VIS MATERIALS ON RECORD AS WELL AS DECISIONS OF DIFFER ENT BENCHES OF THE TRIBUNAL PLACED BEFORE US, IT IS QUITE EVIDENT THAT THIS COMPANY HAS TWO SEPARATE SEGMENTS I.E. PRODUCT AND SERVICES. THEREF ORE, IF AT ALL, THE AO/TPO CONSIDERS THE AFORESAID COMPANY TO BE A COMP ARABLE, THEN, HE IS DIRECTED TO CONSIDER SOFTWARE DEVELOPMENT SERVICES SEGMENT ALONE FOR COMPARABILITY ANALYSIS. IV, INFOSYS TECHNOLOGIES LTD. I. OBJECTING TO THIS COMPANY, THE LEARNED AR SUBMI TTED THAT UNDER NO CIRCUMSTANCES, THIS COMPANY CAN BE CONSIDERED AS CO MPARABLE, TO A SMALL CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. IT WAS SUBM ITTED THAT INFOSYS IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCT S, CONSULTANCY & SOLUTIONS. IT COMMANDS A PREMIUM IN THE PRICING OF ITS PRODUCTS AND SERVICES DUE TO ITS GOODWILL, REPUTATION AND BRAND VALUE. FURTHER, DUE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SC ALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACILITIES AND OVERHE ADS. FINALLY, THE LEARNED I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 24 -: AR SUBMITTED THAT THE ISSUE OF COMPARABILITY OF INF OSYS TO A CAPTIVE SERVICE PROVIDER IS NO LONGER RES INTEGRA, DUE TO FOLLOWING DECISIONS OF THE DIFFERENT BENCHES OF THE TRIBUNAL: 1. TELCORDIA TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011-PARA 7.4) 2. ADAPTEE (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1801/HYD/2009) 3. PATNI TELECOM SOLUTIONS PVT. LTD., VS. ACIT (ITA NO . 1846/HYD/2012) 4. TRILOGY E BUSINESS SERVICES SOFTWARE LTD. VS. DCIT (ITA NO. 1054/BANG/2011 PARA 20) 5. AGNITY INDIA TECHNOLOGIES VS. ITO (ITA NO.3856/DEL/ 2010) 6. AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. ITO (HIGH C OURT DECISION) ITA NO. 1204/2011 7. HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. IT) (ITA NO . 1338/BANG/2010) (AY 2006-07 8. CINCOM SYSTEMS INDIA P. LTD., VS. ACIT (ITA NO. 761/DEL/2012 (AY 2006-07) 9. ADOBE SYSTEMS INDIA PVT. LTD. (TS-320-ITAT-2011 (DE L.) 10. VIRTUSA INDIA PVT. LTD., VS. DCIT (ITA NO.1962/ H/2011) 11. INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/H /2010) II. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE DRP & TPO. III. WE HAVE HEARD THE PARTIES AND PERUSED THE MAT ERIALS ON RECORD AS ACCEPTED THE FACT THAT THE ASSESSEE IS PURELY A SOF TWARE DEVELOPMENT SERVICE PROVIDER TO ITS AE WHEREAS INFOSYS IS NOT A CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. IT IS A FACT THAT INFOSYS IS ENGAGE D IN DIVERSIFIED ACTIVITIES AND ALSO ENGAGED IN DEVELOPMENT OF PRODUCTS CONSULT ANCY AND SOLUTION. THAT APART, THE SIZE, REPUTATION AND BRAND VALUE O F INFOSYS, IN NO WAY MAKES IT COMPARABLE TO A SMALL CAPTIVE SERVICE PROV IDER LIKE ASSESSEE. THEREFORE, FOLLOWING CONSISTENT VIEW OF DIFFERENT B ENCHES OF TRIBUNAL, WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. V. TATA ELXSI LTD. (SEG.) I. OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS COMPARABLE, THE LEARNED AR SUBMITTED THAT THE SAID COMPANY SHAL L BE REJECTED AS COMPARABLE SINCE IT IS A SPECIALIZED EMBEDDED SOFTW ARE DEVELOPMENT COMPANY. FURTHER, HE SUBMITTED THAT AS PER THE INF ORMATION OBTAINED FROM THE SAID COMPANY U/S 133(6) OF THE ACT, IT WAS STAT ED THAT DUE TO THE COMPLEX SEGMENTS IN WHICH THEY ARE OPERATING, IT IS NOT COMPARABLE TO ANY OTHER SOFTWARE SERVICES COMPANY. THE AR RELIED ON THE FOLLOWING PRECEDENTS IN SUPPORT OF HIS SUBMISSIONS: 1. CONEXANT SYSTEMS INDIA PT. LTD., (ITA NO. 1429/HYD/2010 AND 1978/HYD/2011) I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 25 -: 2 TELCORDIA TECHNOLOGIES INDIA P. LD., (ITA NO.7821 /MUM/2011) 3. LOGICA PVT. LTD. (IT(TP)A NO. 1129/BANG/2011) 4. HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. IT) (ITA NO. 1338/BANG/2010) AY 2006-07 II. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE DRP & TPO. III. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIALS ON RECORD AS WELL AS DECISIONS RELIED UPON BY THE LEARNED AR. W E FIND THAT IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. VS. ITO (SUPRA), ITAT BANGALORE BENCH EXCLUDED THIS COMPANY RELYING UPON T HE DECISION OF ITAT, MUMBAI BENCH IN CASE OF TELCORDIA TECHNOLO GIES INDIA PVT. LTD. (SUPRA) PERTAINING TO THE SAME ASSESSMENT YEAR I .E. 2006-07. IV. FOLLOWING THE VIEW EXPRESSED BY BANGALORE AND MUMBAI BENCHES, OF THE TRIBUNAL, WHICH IS IN RELATION TO A .Y. 2006-07, WE ARE OF THE VIEW THAT TATA ELXSI LTD. IS ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES WHILE DETERMINING THE, ALP OF T HE INTERNATIONAL TRANSACTION 8.1. RESPECTFULLY FOLLOWING THE ANALYSIS MADE BY V ARIOUS COORDINATE BENCHES, WE DIRECT THE AO/TPO TO EXCLUDE THE ABOVE FIVE COMPANIES AS THEY ARE NOT COMPARABLE TO THE FUNCTIONS OF ASSESSEE. 8.2. WITH REFERENCE TO VI. FLEXTRONICS SOFTWARE SYSTEMS LTD., (SEG) , IT WAS SUBMITTED THAT THIS WAS NOT CONSIDERED IN THE D ECISION OF UNITED ONLINE AND IT WAS EXCLUDED IN A.Y. 2007-08 IN THE CASE OF INTOTO SOFTWARE INDIA P. LTD., IN ITA.NO.1196/H/2010, 1197/HYD/2010 (A.Y. 2005-06) & 2102/HYD/2011 DATED 24.05.2013 (A.Y. 2007-08) ON THE REASON OF IN CURRING EXPENDITURE ON SELLING PRODUCTS AND R & D AND NOT A COMPUTER SOFTW ARE DEVELOPMENT COMPANY. THE FINDING OF THE COORDINATE BENCH IN A.Y . 2005-06 IN FLEXTRONICS SOFTWARE SYSTEMS LTD., (SUPRA) IS AS UNDER : 27. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONC ERNED, WE FIND THAT AT PAGE 20 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THA T THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRODUCTS AN D HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE AB OVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPANIES AND WITHOUT MAKING ADJUSTMENT F OR THE DISSIMILARITIES BROUGHT OUT BY THE TPO HIMSELF, THE SE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED B Y THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFTWAR E DEVELOPMENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREVER, THE A.O./TPO CANNOT MAKE SUITABLE ADJUSTM ENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH THE ASSESS EE COMPANY TO BRING THEM ON PAR WITH THE ASSESSEE, THESE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE A .O./TPO TO EXCLUDE THESE THREE COMPANIES FROM THE LIST OF COMPARABLES. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 26 -: 9. LIKEWISE, IN A.Y. 2007-08 ALSO THE COORDINATE BENCH HAS CONSIDERED THIS COMPARABLE COMPANY AND STATED THAT FLEXTRONICS SOFTWARE IS FUNCTIONALLY DIFFERENT AND A.O. COULD NOT HAVE TAKE N THIS COMPANY AS COMPARABLE COMPANY WITHOUT MAKING SUITABLE ADJUSTME NTS FOR THE DIFFERENCES. THEREFORE, THIS COMPARABLE HAS TO BE EXCLUDED. HOWE VER, SINCE, THIS ASPECT WAS NOT EXAMINED BY ANY COORDINATE BENCH IN A.Y. 2006-0 7 AND NO ORDER OF COORDINATE BENCH WAS BROUGHT TO OUR NOTICE RELEVANT TO THIS YEAR. WE, IN THE INTEREST OF JUSTICE, RESTORE THIS TO THE FILE OF TP O TO EXAMINE THE FUNCTIONS OF THE ABOVE COMPANY AND DETERMINE WHETHER THAT IS COMPARA BLE OR NOT, KEEPING IN MIND THE DECISION OF COORDINATE BENCH OF EARLIER A. Y. AND LATER A.Y. ABOUT THE FUNCTIONAL DIFFERENCES. THE ISSUE IS RESTORED TO TH E FILE OF TPO'. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH IN SIMILAR SET OF CIRCUMSTANCES, ALL THESE COMPANIES A RE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES EXCEPT PERSIS TENT SYSTEMS AND MEGASOFT. AS REGARDS PERSISTENT SYSTEMS LTD., IS C ONCERNED, WE FIND THAT THE TRIBUNAL IN THE CASE OF CES PVT. LTD., HAD CONS IDERED THE EXTRAORDINARY EVENT OF THE ACQUISITION OF ANOTHER COMPANY BY NAME NORWEST CAPITAL PARTNERS BY THE SAID COMPANY ON 22 -11-2005 FOR DIRECTING IT TO BE EXCLUDED. SINCE THE EVENT HAS T AKEN PLACE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR BEFOR E US, WE ALSO DIRECT THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. FURTHER, AS REGARDS MEGASOFT, WE CONFIRM ITS INCLUS ION IN THE LIST OF COMPARABLES BUT WE DIRECT THE AO TO CONSIDER ITS SE GMENTAL DATA FOR DETERMINING THE AVERAGE MARGIN OF THE COMPARABLES. IN THE RESULT, ALL THE COMPARABLES EXCEPT MEGASOFT CHALLENGED BY THE A SSESSEE ARE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 17. AS REGARDS GROUND NO. 6, WE FIND THAT THE ALP D ETERMINED BY THE ASSESSEE IS 12.06% WHILE THE AVERAGE MARGIN OF THE COMPARABLES AFTER EXCLUSION OF THE ABOVE COMPANIES IS 11.05% AND THER EFORE THE MARGIN OF THE ASSESSEE IS WHICH IS WITHIN (+)/(-) 5% OF THE A VERAGE MARGIN OF THE COMPARABLES SUBJECT TO THE SEGMENTAL MARGIN OF MEGA SOFT BEING WITHIN THE RANGE. THEREFORE WE DIRECT THE AO/TPO TO RE-DET ERMINE THE ALP. GROUND NO. 6 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 27 -: 18. AS REGARDS GROUND NOS. 7 & 8 ARE CONCERNED, WE FIND THAT THESE GROUNDS ARE AGAINST THE EXCLUSION OF TELECOMMUNICA TION EXPENSES, LEASE LINE CHARGES AND CERTAIN OTHER EXPENSES INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER FOR THE P URPOSE OF COMPUTATION OF RELIEF U/S.10A OF THE INCOME TAX ACT . 19. THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT IF THESE EXPENSES ARE EXCLUDED FROM THE EXPORT TURNOVER, THEN THE SAME SH OULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S.10A. HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LIMITED, WHEREIN IT WAS HELD THAT, IF ANY EXPENDITURE IS EXCLUDED FROM THE EXPORT TURNOVER, T HE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A. RESPECTFULLY FOLLOWING THE DECI SION OF THE HONBLE HIGH COURT, WE DIRECT THE AO TO EXCLUDE THE EXPENDI TURE BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER WHIL E COMPUTING THE DEDUCTION U/S.10A. THESE GROUNDS ARE ACCORDINGLY A LLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. I.T.A. NO. 2098/HYD/2011 (AY. 2007-08) 21. IN THIS APPEAL ALSO, THE ASSESSEE HAS FILED CON CISE GROUNDS OF APPEAL. WE FIND THAT GROUND NO.1 IS GENERAL IN NAT URE AND NEEDS NO ADJUDICATION. GROUND NOS. 3 & 5 ARE NOT PRESSED AT THE TIME OF HEARING AND THEREFORE, THEY ARE REJECTED AS NOT PRESSED. A S REGARDS GROUND NOS. 2 & 4 ARE CONCERNED, THEY ARE AGAINST THE COMPARABL ES SELECTED AND ADOPTED BY TRANSFER PRICING OFFICER [TPO] AND THE A RMS LENGTH PRICE I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 28 -: [ALP] ADJUSTMENT MADE BY THE TPO. IN THIS APPEAL, THE ASSESSEE IS CHALLENGING THE FOLLOWING COMPARABLES: I. ACCEL TRANSMATIC LTD. II. AVANI CIMEON TECHNOLOGIES LTD. III. CELESTIAL LABS LTD. IV. FLEXTRONICS SOFTWARE SYSTEMS LTD. V. GEOMETRIC SOFTWARE LTD. VI. INFOSYS TECHNOLOGIES LTD. VII. ISHIR INFOTECH LTD. VIII. KALS INFO SYSTEMS LTD. IX. LUCID SOFTWARE LTD. X. MEGASOFT LTD. XI. THIRDWARE SOLUTIONS LTD. XII. WIPRO LTD. 22. AT THE TIME OF HEARING, THE LD. COUNSEL FOR ASS ESSEE SUBMITTED THAT DISPUTE RESOLUTION PANEL [DRP] HAS REJECTED CELESTI AL LABS LTD., AND GEOMETRIC SOFTWARE LTD., AS COMPARABLES AND THAT T HE ASSESSEE HAS INCLUDED THEM IN THEIR CHART INADVERTENTLY. THEREF ORE, THERE IS NO NEED TO ADJUDICATE ABOUT THESE TWO COMPANIES. AS REGARD S OTHER COMPANIES, THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT IN SIMI LAR SET OF FACTS ALL THESE COMPANIES WERE DIRECTED TO BE EXCLUDED BY THI S TRIBUNAL ON THE GROUND OF FUNCTIONAL DISSIMILARITY OR FAILING OF EM PLOYEE COST FILTER IN THE CASE OF 1) LGS GLOBAL LTD., IN ITA NO. 1885/HYD/201 1, 2) M/S. TECUMSEH PRODUCTS INDIA P. LTD., IN ITA NO. 2228/HY D/2011 DT. 28-05- 2014 AND 3) M/S. AXSYS HEALTHTECH LTD., IN ITA NO. 2076/HYD/2011 DT. 28-05-2014. WE FIND THAT THE TRIBUNAL IN THE CASE OF M/S. AXSYS HEALTHTECH LTD., (CITED SUPRA) HAS CONSIDERED THE C OMPARABILITY OF ALL THE ABOVE COMPANIES EXCEPT MEGASOFT AND THIRDWARE SOLUT IONS LTD. AT PARAS I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 29 -: 14 TO 16 OF ITS ORDER. . THE SAID PARAS ARE REPROD UCED HERE UNDER FOR READY REFERENCE: '14. AFTER HEARING RIVAL CONTENTIONS, WE AGREE THA T THE FOLLOWING COMPARABLES WERE EXCLUDED BY THE COORDINA TE BENCHES CONSIDERING THE SIMILAR FACTS AND ARGUMENTS RAISED BEFORE US: 1. FUNCTIONALLY DISSIMILAR. 1.ACCEL TRANSMATIC LTD.- ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF A CCEL 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 ANIMATION AND THEREFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FU NCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF COMPAR ABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. 2. AVANI CINCOM TECHNOLOGIES LTD. HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEE N PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESS EE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDED BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT AS COMPARABLE PARTY. LEARNED CIT DR H AS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EAR NING IS FROM SOFTWARE EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPO RT OF PRODUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COMPARABILITY ANALYSI S. 3. KALS INFORMATION SYSTEMS LTD: . WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DR AWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTIC E U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFER RED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PU RELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE. 4. LUCID SOFTWARE LIMITED: THE OBJECTIONS RAISED BY THE ASSESSEE FOR INCLUSIO N OF LUCID SOFTWARE LTD. AS A COMPARABLE IS PLACED AT PAGES 244 TO 248 OF TH E PAPER BOOK FILED BY THE ASSESSEE. WE FIND IDENTICAL OBJECTION HAS BEEN RAISED AGAINST THE INCLUSION OF LUCID SOFTWARE IN CASE OF TELCORDIA TE CHNOLOGIES. SINCE THE I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 30 -: FACTS AND THE ASSESSMENT YEAR ARE IDENTICAL, FOLLOW ING THE ORDER OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO NOT TO INCLUDE LUC ID SOFTWARE LIMITED AS A COMPARABLE. 2.EMPLOYEE COST FILTER: 5. ISHIR INFOTECH LTD: SO FAR AS THIS COMPANY IS CONCERNED, THE ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY ON T HE GROUND THAT THIS COMPANY FAILS EMPLOYEE COST FILTER AS ITS EMPLOYEE COST WAS ONLY 3.96%. IN THIS CONTEXT, THE LEARNED AR HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIB UNAL IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON A PERUSA L OF THE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD.((SU PRA)), WE FIND THAT THE CO-ORDINATE BENCH HAS HELD THAT ISHIR INFO TECH LIMITED CANNOT BE TREATED AS COMPARABLE AS IT DOES NOT QUAL IFY THE EMPLOYEE COST FILTER AS WELL AS RPT FILTER. THIS VI EW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFERENT B ENCHES OF THIS TRIBUNAL AS STATED BELOW : A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 D) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 I) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. 3. HIGH TURNOVER- FUNCTIONALLY DISSIMILAR: 6. FLEXITRONICS SOFTWARE LIMITED : AS FAR AS FLEXITRONICS SOFTWARE LIMITED IS CONCER NED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THA T THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRODUCTS AN D HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE AB OVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPANIES AND WITHOUT MAKING ADJUSTMENT F OR THE DISSIMILARITIES BROUGHT OUT BY THE TPO HIMSELF, THE SE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED B Y THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFTWAR E DEVELOPMENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREVER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUI TABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES W ITH THE ASSESSEE- COMPANY TO BRING THEM ON PAR WITH THE ASSESSEE, THE SE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE , WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE FROM THE LIST OF C OMPARABLES. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 31 -: 7. INFOSYS TECHNOLOGIES LTD.: WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT INFO SYS TECHNOLOGIES LTD., THOUGH, IS INTO THE SIMILAR BUSINESS OF THE ASSESSE E AS SOFTWARE DEVELOPMENT, CANNOT BE CONSIDERED AS A COMPARABLE T O ANY OTHER COMPANIES WHICH ARE ALSO INVOLVED IN SIMILAR ACTIVI TIES. IT IS NOT ONLY A GIANT COMPANY BUT IS ALSO ENGAGED IN DEVELOPMENT OF VARIOUS NICHE PRODUCTS. IT CANNOT BE COMPARED TO THE ASSESSEE IN ANY MANNER. SIMILAR DIRECTIONS HAVE BEEN GIVEN BY THE TRIBUNAL AT DELHI AND HYDERABAD BENCHES IN THE CASES CITED (SUPRA). 8. TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, THE LEARNED COUNSEL APPE ARING ON BEHALF OF THE ASSESSEE, FILED BEFORE US THE REPLY OF TATA ELXSI L IMITED TO THE ADDL. CIT (TRANSFER PRICING), HYDERABAD, WHEREIN THE CONCERNE D OFFICER HAS BEEN INFORMED THAT TATA ELXSI LIMITED IS SPECIALISED EMB EDDED SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE DEVELOPMENT COMPANY. IT WAS SUBMITTE D THAT BECAUSE OF THE SPECIALISATION AND ALSO BECAUSEOF DIVERSE NATUR E OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCALE-UP THE OPERATIONS OF TATA E LXSI LIMITED. IN VIEW OF THIS, TATA ELXSI LIMITED HAS INFORMED THAT IT IS NO T FAIR TO USE ITS FINANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMPANY. THE C OMMUNICATION DATED 25 TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS TH IS COMMUNICATION WAS NOT BEFORE THE TPO AT THE TIME OF TRANSFER PRIC ING ADJUSTMENT WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RECONSIDER ADOPTING THIS COMPANY AS THE COMPARABLE IN THE LIGHT OF OBSERVATIONS OF THIS COMPANY TO THE TPO IN THE CASE OF ANOTHER ASSESSEE. IN THE RESULT, THE ASSESSING OFFICER/TPO IS DIRECTE D TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. WIPRO LIMITED : . AS FAR AS (INFOSYS TECHNOLOGIES LIMITED AND) WI PRO LIMITED ARE CONCERNED, WE FIND THAT BOTH ARE GIANT COMPANIES AN D ARE INTO DIVERSIFIED ACTIVITIES AND FOR THE DETAILED REASONS GIVEN BY US IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06 EVEN DATED, WE DIRECT THAT THE SE TWO COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.1. IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMITED VS. DCIT REPORTED IN 140 ITD 540, COORDINATE BENCH DECIDED COMPANIES AS NOT COMPARABLE ON HIGH TURNOVER, WITH RESPECT TO 10. IGATE GLOBAL SOLUTIONS LTD. (747.27 CRORES), 11. MINDTREE LTD. (590.39 CRORES), 12. PERSISTENT SYSTEMS LTD. (293.74 CRORES), 13. SASKEN COMMUNICATION TECHNOLOGIES LTD. 34 3.57 CRORES). THE BANGALORE BENCH OF THE TRIBUNAL HELD AS UNDER : I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 32 -: 20. IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE DECISIONS R EFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLEARLY LAY DOWN THE PRINC IPLE THAT THE TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSING THE COM PARABLES. THE ASSESSEES TURNOVER IS Q 47,46,66,638. IT WOULD THEREFORE FALL WITHIN THE CATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEM S (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010) . THUS, COMPANIES HAVI NG TURNOVER OF MORE THAN 200 CRORES HAVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOWN IN SEVERAL DECISIONS REFERRED TO BY TH E LD. COUNSEL FOR THE ASSESSEE. APPLYING THOSE TESTS, THE FOLLOWING COMPA NIES WILL HAVE TO BE EXCLUDED FROM THE LIST OF 26 COMPARABLES DRAWN BY T HE TPO. 14. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD THIS COMPARABLE IS OBJECTED ON THE REASON OF LOW EM PLOYEE COST OF 1.36%. THUS IT FAILS THE EMPLOYEE COST FILTER. THER EFORE, NOT COMPARABLE. ASSESSEE RELIED ON THE JUDGMENT OF MENTOR GRAPHICS P. LTD. VS. DCIT 109 ITD 101 (DEL.) WITH REFERENCE TO THIS COMPARABL E. 15. AFTER CONSIDERING THE CONTENTIONS, WE ARE OF T HE OPINION THAT THESE 14 COMPARABLES ARE REQUIRED TO BE EXCLUDED BY THE T PO. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIB UNAL, WE DIRECT THAT THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES AS ASSESSEE TURNOVER IS ONLY 2.18 CRORES AND EMPLOYEE COST IS M ORE. MANY OF THE COMPANIES ARE ALSO FOUND TO BE NOT FUNCTIONALLY SIMILAR. THE VARIOUS FILTERS AND REASONS ACCEPTED IN OTHER CASES DO APPLY TO THE ASSESSEE AS TPO SELECTED SAME 26 COMPARABLES IN ALL THE CASES RELIED ON AND DECIDED EARLIER IN VARIOUS CASES. 16. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DE CISIONS IN THE ABOVE COMPANIES, WE DIRECT THAT THESE 14 COMPANIES SHOULD BE EXCLUDED FROM THE COMPUTATION OF PLI. IT WAS SUBMITTED THAT THE M EAN PLI OF THE REST OF THE COMPARABLES SELECTED BY THE TPO WOULD COME TO 18.66 % AND THIS IS WITHIN THE MARGIN AS ARRIVED AT BY THE ASSESSEE. AFTER EXCLUD ING THE R&D COST CONTESTED ABOVE. HOWEVER, THESE ASPECTS REQUIRE EXAMINATION B Y THE TPO AS THE ISSUE OF OPERATING COST HAS A BEARING ON WORKING THE ALP. THE AO/TPO IS DIRECTED TO DETERMINE THE OPERATING COST AS DIRECTED ABOVE AND THEN WORKOUT THE ARITHMETIC MEAN OF THE COMPARABLES ACCEPTED ABOVE AFTER REJECT ING THE COMPARABLES AS DISCUSSED IN THE ABOVE PARAS. THEREAFTER, A.O/TPO I S DIRECTED TO EXAMINE WHETHER ANY ADJUSTMENT IS REQUIRED UNDER THE PROVIS IONS OF THE ACT TOWARD WORKING CAPITAL. EVENTHOUGH, ASSESSEE HAS NOT RAISE D SPECIFIC OBJECTIONS ABOUT NEGATIVE WORKING CAPITAL ADJUSTMENT BEFORE US, THOU GH A GROUND WAS RAISED, IN THE CHARTS IT TAKEN THE NEGATIVE WORKING CAPITAL AS SUCH. HOWEVER, IN THE REVISED T.P. COMPUTATION IF REQUIRED A.O. CAN ALSO EXAMINE THIS ASPECT OF NEGATIVE WORKING CAPITAL ADJUSTMENT WHICH WAS DULY OBJECTED BEFORE THE DRP. WITH THESE OBSERVATIONS, GROUNDS ARE CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES'. I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 33 -: SINCE THE FACTS AND CIRCUMSTANCES BEFORE US ARE SIM ILAR, WE DIRECTED THAT THESE COMPANIES TO BE EXCLUDED FROM THE LIST OF COM PARABLES BEFORE US ALSO. 23. AS REGARDS MEGASOFT LTD., IS CONCERNED, WE FIND THAT THE TRIBUNAL IN THE CASE OF LGS GLOBAL LTD. HAS HELD THAT THE SA ME IS COMPARABLE TO THE ASSESSEE COMPANY BUT HAS DIRECTED THAT THE SEGM ENTAL MARGIN BE APPLIED. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH ON SIMILAR SET OF FACTS, WE DIRECT THE AO TO CONSIDER THE MEGASOFT AS COMPARABLE PROVIDED, THE SEGMENTAL DETAILS OF THE S AID COMPANY ARE AVAILABLE. 24. AS REGARDS THIRDWARE SOLUTIONS LTD., WE FIND TH AT THE TRIBUNAL, IN THE CASE OF INTOTO SOFTWARE INDIA PRIVATE LTD., HAS HELD THE SAID COMPANY TO BE NOT COMPARABLE ON THE GROUND OF FUNCTIONAL DI SSIMILARITY AND THE SAID ORDER HAS BEEN UPHELD BY THE JURISDICTIONAL HI GH COURT VIDE ORDER DT. 27-03-2014. RESPECTFULLY FOLLOWING THE SAME, W E DIRECT THE AO TO EXCLUDE THE SAID COMPANY ALSO FROM THE LIST OF COMP ARABLES. THUS GROUNDS 2 & 4 ARE ALLOWED. 25. COMING TO GROUND NO. 6, WE FIND THAT THE ALP A S DETERMINED BY ASSESSEE WAS 14.53% WHEREAS THE AVERAGE MARGIN AFTE R EXCLUSION OF THE ABOVE COMPARABLES IS 16.68% SUBJECT TO THE SEGMENTA L MARGIN OF MEGASOFT BEING WITHIN THE RANGE. WE THEREFORE DIRE CT THE AO TO RE-DETERMINE THE AFTER CONSIDERING THE SEGMENTAL MA RGIN OF MEGASOFT. IN THE RESULT, GROUND NO. 6 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 26. AS REGARDS CONCISE GROUNDS OF APPEAL NO. 7 & 8 ARE CONCERNED, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF TATA EL XSI LIMITED REPORTED I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 34 -: AS [349 ITR 98 (KARN)]. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DIRECT THE AO TO EXCLUDE THE EXPENDITURE BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.10A. IN THE RESULT, GROUND NOS. 7 & 8 ARE ALLOWED FOR ST ATISTICAL PURPOSES. 27. GROUND NO.9 IS CONSEQUENTIAL IN NATURE. AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF, IF ANY, TO THE ASSESSEE. 28. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 29. IN THE RESULT, APPEALS IN ITA NO. 1227/HYD/2011 (AY.2005-06) IS PARTLY ALLOWED, ITA NO. 1631/HYD/2010 (AY.2006-07) AND ITA NO. 2098/HYD/2011 (AY.2007-08) ARE PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 8 TH MAY, 2015 SD/- SD/- (P.M. JAGTAP) (P. MADHAVI D EVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 8 TH MAY, 2015 TNMM I.T.A. NOS. 1631/HYD/10 1227 & 2098/HYD/11 BROADCOM INDIA TECHNOLOGIES PVT. LTD (FORMERLY KNOWN AS LVL7 SYSTEMS INDIA PVT. LTD) :- 35 -: COPY TO : 1. BROADCOM INDIA TECHNOLOGIES PRIVATE LIMITED, OFFICE NO. 3 & 4, 9 TH FLOOR, BUILDING NO.9, RAHEJA MIND SPACE, HI-TECH C ITY, MADHAPUR, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1( 3), HYDERABAD. 3. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16 (1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. DIRECTOR OF INCOME TAX (IT & TP), HYDERABAD. 5. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICI NG), HYDERABAD. 6. D.R. ITAT, HYDERABAD.
Mehul