M/s Core Objects India Private Limited, Bangalore V. ITO, Bangalore

ITA 1229/BANG/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0269 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R REDDY I
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Transfer pricing
• Section: 143(3); 234B; 133(6); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IT (TP) A NO.1229 (BANG) 2011 (ASSESSMENT YEAR : 2007-08) M/S CORE OBJECTS INDIA PRIVATE LIMITED., SYMPHONY EXCELLENCE AND INNOVATION CENTRE, SY.NO.13/1, KADUBESANAHALLI VILLAGE, OUTER RING ROAD, VARTHUR HOBLI, BANGALORE-560 087 NO.AACCC2040B APPELLANT VS THE INCOME TAX OFFICER, WARD-11(1), BANGALORE RESPONDENT ASSESSEE BY: SHRI K.R.VASUDEVAN, ADVOCATE REVENUE BY: SHRI G.R.REDDY, CIT-DR-I DATE OF HEARING : 11-07-2016 DATE OF PRONOUNCEMENT: : 15-07-2016 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) R.W.S.144C OF THE IT ACT, 1961, AS PER THE DIRECTION OF THE DRP FOR THE ASSESSMENT YEA R 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER ; IT(TP)A NO.1229(B)2011 2 TRANSFER PRICING THE HONOURABLE DRP AND THE LEARNED AO GROSSL Y ERRED I N UPHOLDIN G THE INCOME ADJUSTMENT PROPOSED B Y THE LEARNED TPO IN ARRI V IN G AT THE ARM ' S LENGTH PRICE [ALP] OF THE INTERNATIONAL TRANSACTI ONS ENTERED INTO B Y THE APPELLANT IN RESPECT TO PRO V ISION OF SOFTWARE SERVICES . THE APPELLANT IS IN APPEAL BEFORE THE HONOURABLE BE NCH OF THE INCOME TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS HONOURABLE ' ITAT ') UNDER SECTION 253 (1) (D) AGAINST THE ORDER PASSED BY THE LEARNED AO IN PURSUANCE OF THE DIRECT IONS OF THE HONOURABLE DRP . A. SOFTWARE SERVICES- TRANSFER PRICING: THE GROUNDS MENTIONED HEREINAFTER ARE WITHOUT PREJU DICE TO ONE ANOTHER . 1.THE LEARNED DRP AND THE LEARNED TPO GROSSLY ERRED IN LAW AND FACTS OF THE CASE IN DETERMINING THE ALP OF THE INT ERNATIONAL TRANSACTION OF THE APPELLANT ON ACCOUNT OF P R O V ISION OF SOFTWARE SERVICES AND PROPOSING A TRANSFER PRICING ADJUSTMEN T OF RS . 20 , 362 , 735. 2.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED DRP AND THE LEARNED AO ERRED IN UPHOLDING THE REJECTION OF TRANSFER PRICING ( ' TP ') DOCUMENTATION BY THE LEARNED TPO WITHOUT APPRECIATING THE CONTENTIONS , ARGUMENTS , AND E V IDENTIARY DATA PUT FORWARD BY THE APPELLANT DURING THE COURSE OF THE P ROCEEDINGS BEFORE THEM , AND IN DOING SO HAVE GROSSLY ERRED: 2 .1 IN UPHOLDING THE REJECTION OF COMPARABILIT Y ANALYSIS CARRIED IN THE TP DOCUMENTATION AND CONDUCTING A FRESH COMP ARABILIT Y ANAL Y SIS FOR DETERMINING THE ARM ' S LENGTH PRICE BY THE LEARNED TPO. 2 . 2 IN ADOPTING THE ARM ' S LENGTH MARK UP TO BE 2 8 . 44 % [WORKING CAPITAL ADJUSTED MARGIN] IN RESPECT OF INT ERNATIONAL TRANSACTIONS OF THE APPELLANT . 2.3 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN COMPLETELY RELYING ON THE UNAUDITED DATA REQUISITIONED AND CON SEQUENTLY OBTAINED BY T A KING RECOURSE TO THE PRO V ISIONS OF SECTION 133 ( 6 ) OF THE INCOME-TAX ACT , 1961 ( ' THE ACT ' ) , WHICH IN MAN Y IN S TANCES ARE INCONSI S TENT W ITH THE DAT A DISCLOSED IN AUDITED REPORTS. 2.4 IN CON S IDERIN G 25 PERCENT A S TH E THRESH O LD L I MIT F O R TH E R E L A TED P A R TY TR A NS A CTIONS F ILTER A S TH I S NUMBER I S AN ARBITR A R Y NUMBER TH A T H AS B EE N A D O PTED WITHOUT A N Y JUDICIAL PR E CEDENCE OR R E ASONABL E BA S I S . IT(TP)A NO.1229(B)2011 3 2 . 5 IN UPHOLDIN G THE ACTIONS OF THE LE AR NED T PO IN REJECTIN G THE UPPER L I MIT FOR SALES TURNO V ER FILTER PROPOSED BY THE ASSE S SEE W I T HOUT PRO V IDIN G AN Y EMPIRICAL ANALYSIS . IN DOING SO , THE LEARNED TPO ERRED IN NOT APPRECIATING THAT THE SOFTWARE INDUSTR Y IS CLEARLY DEMARCATED BASED ON SIZE. 2.6 IN NOT MAINTAINING CONSISTENCY IN APPLYING THE FILTERS OF REJECTING COMPANIES WITH SOFT W ARE DEVELOPMENT REVENUE LESS THAN 75% OF THE TOTAL REVENUE AND COMPANIES WITH DIFFERENT YEAR END FOR PREPARING FINANCIAL STATEMENTS . 2.7 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN APPLYING THE ONSITE FILTER FOR SELECTION O F SOFTWARE COMPARABLES WITH THE USE OF THE DATA OBTAINED UNDER SECTION 133(6) OF THE ACT . IN DOING SO THE LEARNED TPO ERRED IN REJECTING AKSHAY SOFTWARE TECH NOLOGIES LIMITED AND VJIL CONSULTING LIMITED. 2.8 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING CO.S LIKE INFOSYS LIMITED AND WIPRO LIMITED AS COMPARABL E COMP A NIES E V EN THOUGH THE SALES OF INFOSYS AND WIPRO ARE DRIVEN BASED ON BRAND DEVELOPED BY THEM , AND DOING SO THE LEARNED DRP AND LEARNED AO HAVE INCORRECTLY APPLIED THE RATIONALE P ROVIDED IN THE JURISDICTIONAL DELHI INCOME TA X APPELLATE TRIBUNAL (ITAT ) RULING IN AGNITY INDIA TECHNOLOGIES INDIA P V T. LTD. ( REFERENCE: ITA NO . 3856(DEL) / 2010). 2 . 9 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN AC CEPTING TATA E L XS I LIMITED AS A COMPARABLE COMPANY EVEN THOU G H THE COMPANY IN ITS REPLY TO THE LEARNED TPO UNDER SECTION 133(6) H AD MENTIONED THAT THE COMPANY PRO V IDES PRODUCT DESIGN SERVICES, WHICH IS FUNCTIONALL Y NOT COMPARABLE TO THE ASSESSEE ' S BUSINESS. 2 . 10. IN UPHOLDING THE ACTIONS OF THE LEARNED TPO IN ACCEPTING COMPANIES ENGAGED IN THE PROVISION OF SOFTWARE PROD UCT DEVELOPMENT LIKE MEGASOFT LIMITED , FLEXTRONICS SOFTWARE SYSTEMS LIMITED , KALS INFORMATION SYSTEMS LIMITED , A VAN I CIMCON TECHNOLOGIES LIMITED , LUCID SOFT W ARE LIMITED , ISHIR IN F OTECH LIMITED , E - Z EST SOLUTIONS LIMITED , PERSISTENT S Y STEMS LIMITED AND R S Y STEMS INTERNATIONAL LIMITED WHICH ARE FUNCTIONALL Y NOT COMPARABLE TO THE ASSESSEE ' S BUSINESS . 2.11 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO I N ACCEPTING CELESTIAL LABS LIMITED A S A COMPARABLE COMPANY EVEN THOUGH IT IS A CONTRACT RESEARCH COMPAN Y WHICH ALSO ENGAGED IN BIO-INFORMATICS AND HENCE F UNCTION A LLY DISSIMILAR TO THE ASSES S EE. 2 .12 IN UPHOLDIN G THE ACTION S OF THE LEARNED T PO IN ACCEPT ING COMP A NIE S LIKE ME G A S OFT LIMIT E D , F LE X TRONIC S SO FTWA R E S YST EM S LIMITED AND H E LIO S & MATHE S ON IN F ORMATION TECHNOLO GY LIMIT E D W HICH HA V E A B N ORM A L / F LUCTUATING PROFIT MARGINS. IN DOING SO THE LEARNED DRP AND LEARNED AO HA V E DISREGARDED THE JURISDICTIONAL IT AT RULING IN THE CASE OF SAP LABS INDIA P V T . LTD . V S. ACIT (REFERENCE ITANO . 398 / BANG / 2008) AND E-GAIN IT(TP)A NO.1229(B)2011 4 COMMUNICATION PRI V ATE LIMITED (REFERENCE: ITA NO . 1685 1 PN / 07 - PUNE) . 2.13 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO I N REJECTING THINKSOFT GLOBAL SERVICES LIMITED BY STATING THAT I T IS NOT FUNCTIONALLY COMPARABLE , 2.14 IN UPHOLDING THE ACTIONS OF THE LEARNED TPO I N CONCLUDING THAT MAARS SOFTWARE INTERNATIONAL LIMITED IS NOT FU NCTIONALLY COMPARABLE WITHOUT EVEN CONSIDERING THE FACT THAT T HE IT CONSULTANCY SERVICES FORMS AN INTEGRAL PART OF THE SOFTWARE DEV ELOPMENT SERVICES AND CANNOT BE CLASSIFIED AS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. 3.THAT THE LEARNED TPO AND THE LEARNED DRP ERRED IN DISREGARDING THE USE OF MULTIPLE YEAR DATA AND HAVE CONSIDERED O NLY CURRENT YEAR DATA BASED ON SEARCH CONDUCTED AT THE TIME OF THE A SSESSMENT, IGNORING NON-AVAILABILITY OF CURRENT YEAR DATA IN T HE PUBLIC DOMAIN AT THE TIME OF PREPARING THE DOCUMENTATION. 4.THAT THE LEARNED TPO, THE LEARNED AO AND THE LEAR NED DRP ERRED IN DISREGARDING THE FACT THAT THE ASSESSEE DID NOT HAVE ANY INTENTION TO SHIFT PROFITS BEING ELIGIBLE FOR DEDUCTION UNDER SECTION LOA. THEREFORE THE ADJUSTMENT PROPOSED IS NOT CALLED FOR AND IS HENCE MISPLACED. 5.THE LEARNED AO AND THE LEARNED DRP ERRED IN UPHOL DING THE ACTIONS OF THE LEARNED TPO IN CONCLUDING THAT THE A SSESSEE IS EXPOSED TO SINGLE CUSTOMER RISK WITHOUT EVALUATING THE BUSINESS ARRANGEMENT OF THE ASSESSEE. 6.THE LEARNED TPO , THE LEARNED AO AND THE LEARNED DRP HAS ERRED IN NOT APPRECIATING THAT ACCORDING TO APPELLANT'S TRANSFER PRICING POLICY , 88% OF END CUSTOMER REVENUE IS RECEIVED BY THE APPELLANT E VEN WHEN THE ASSOCIATED ENTERPRISE IS AT NET OPERATING LOSS. 7.THAT THE LEARNED TPO, LEARNED AO AND THE HONOURAB LE DRP ERRED IN NOT ALLOWING THE BENEFITS OF MARKET RISK ADJUSTM ENT TO THE APPELLANT . 8.THAT THE LEARNED TPO, LEARNED AO AND THE LEARNED DRP ERRED IN NOT ALLOWING THE BENEFIT OF RANGE OF +/- 5% AS PROV IDED IN PROVISO TO SECTION 92C(2) OF THE ACT TO THE APPELLANT , WHILE DETERMINING THE ARM ' S LENGTH PRICE . 9.THE APPELLANT CRAVES TO LEAVE/ TO ADD TO / TO ALT ER/ TO AMEND! TO RESCIND! TO MODIFY THE GROUNDS HEREIN ABOVE OR PROD UCE FURTHER DOCUMENTS , FACTS AND EVIDENCE BEFORE OR AT THE TIME OF HEARING THIS APPEAL . II. CORPORATE TAX 10. COMPUTATION OF DEDUCTION UNDER SECTION LOA OF THE ACT A . REDUCTION OF LEASE LINE CHARGES FROM THE EXPORT TUR NOVER THE LEARNED AO AND THE HONOURABLE DRP ERRED IN REDU CING LEASE LINE CHARGES, AMOUNTING TO RS . 3,160,668 , FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 1OA OF THE ACT . IT(TP)A NO.1229(B)2011 5 THE LEARNED AO AND THE HONOURABLE DRP ERRED IN DISR EGARDING THE SUBMISSION MADE BY THE APPELLANT THAT THE LEASE LIN E EXPENSES ARE NOT WHOLLY ATTRIBUTABLE TO DELIVERY OF COMPUTER SOF TWARE OUTSIDE INDIA AND HENCE, THE SAME SHOULD NOT BE REDUCED FRO M THE EXPORT TURNOVER OF THE COMPANY . B . REDUCTION OF EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER THE LEARNED AO AND THE HONOURABLE DRP ERRED IN REDU CING EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNTING TO RS . 1,639,970 FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUT ING DEDUCTION U/S 1OA. THE LEARNED AO AND HONOURABLE DRP ERRED IN DISREGAR DING THE SUBMISSION MADE BY THE APPELLANT THAT NO PART OF TH E EXPENSES INCURRED IN FOREIGN CURRENCY WAS INCURRED TOWARDS P ROVIDING TECHNICAL SERVICES OUTSIDE INDIA AND HENCE, THE SAM E SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER OF THE COMPANY. C. NO CORRESPONDING REDUCTION OF EXPENSES FROM THE TOT AL TURNOVER WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO AND THE HONOURABLE DRP ERRED IN REDUCING SUMS OF RS. 3,160,668 TOWARDS LEASE LINE CHARGES AND RS. 1 , 639,970 TOWARDS EXPENSES INCURRED IN FOREIGN CURRENCY ONLY FROM EXPORT TURNOVER WITHOUT REDUCING THE SAME FROM TOTAL TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 1OA OF THE ACT. THE LEARNED AO HAS ERRED IN NOT RELYING UPON THE DE CISION OF THE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF KPIT CUMMINS INFOSYSTEMS (BANGALORE)(P) LTD. V. ACIT - 2 6 SOT 529 , WHEREIN IT HAS BEEN HELD THAT SHOULD THE EXPENSES B E REDUCED FROM EXPORT TURNOVER THEN THE EXPENSES OUGHT TO BE REDUC ED FROM TOTAL TURNOVER ALSO. FURTHER , THE LEARNED AO HA S ALSO ERRED I N NOT R EL Y ING ON THE DECISION OF THE SPECIAL BENCH OF THE CHENNAI TRIBUN AL IN THE CASE OF SAK SOFT LIMITED V. ITO (ITA NO. 691 & 19531MDS/2007) WHEREIN IT HAS BEEN HELD THAT IF THE TELECOMMUNICATION , FREIGHT AND INSURANCE EXPENSES ARE REDUCED FROM THE EXPORT TURNO V ER THEN THE SAME WOULD A L SO HA V E TO BE REDUCED FROM THE TOTAL TURNOVER IN ORDER TO COMPUT E THE DEDUCTION UNDER SECTION 10A . FURTHER , RECENTLY THE HIGH COURT OF KARNATAKA HAS DECIDED THE MATTE R IN FAVOUR OF T HE ASSESSE IN THE CASE OF HONEYWELL TECHNOLOGIES SOLUTIONS LAB PVT. LTD. ( ITA NO. 820 OF 2009). 11. SET OFF OF LOSSES INCURRED IN PUNE AND NOIDA U NITS DURING THE AY 2007-08 , THE COMPANY HAD THREE UNITS AT BANGALORE , PUNE AND NOIDA RESPECTIVELY. THE BANGALORE UNIT HAD EARNED PROFIT IT(TP)A NO.1229(B)2011 6 OF RS . 55 , 255 , 951 DURING THE CONCERNED YEAR AND THE PUNE AND NOIDA UNITS HAD INCURRED LOSSES AMOUNTING TO RS. 6 , 677 , 387 AND 3,721 , 094 RESPECTIVELY. IN ITS RETURN OF INCOME FILED BY THE COMPANY FOR A Y 2007-08 , THE COMPANY HAD SET OFF SUCH LOSSES OF THE PUNE AND NOI DA UNITS AGAINST THE PROFITS OF THE BANGALORE UNIT AND CLAIMED 10A D EDUCTION ONLY ON THE PROFITS OF THE BANGALORE UNIT OF RS . 44 , 857,470 REMAINING AFTER SUCH SET OFF . THE LEARNED ASSESSING OFFICER , IN HIS ORDER , HAS CORRECTLY GIVEN 10A DEDUCTION ON THE PROFITS OF THE BANGALORE UNIT BEFO RE SET OFF OF THE LOSSES OF THE OTHER TWO UNITS. THEREAFTER THE LEARNED ASSESSING OFFICER HAS MADE A TRANSFER PRICING ADJUSTMENT AND COMPUTED THE TAXABLE INCOME OF THE COMPANY ACCORDINGL Y . HOWEVER, THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT GIVING THE BENEFIT OF THE SET OFF OF THE LOSSES OF THE PUNE AN D NOIDA UNITS AGAINST SUCH TAXABLE INCOME AS COMPUTED BY HIM. 12. LEVY OF INTEREST THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN L EVYING INTEREST AMOUNTING TO RS. 3,611,790 UNDER SECTION 234B OF TH E ACT . LEVY OF INTEREST UNDER SECTION 234B IS CONSEQUENTIAL IN NAT URE . THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN L EVYING INTEREST AMOUNTING TO RS . 86 , 572 UNDER SECTION 234D OF THE ACT . LEVY OF INTEREST UNDER SECTION 234D IS CONSEQUENTIAL IN NAT URE. 13.THE APPELLANT CRAVES LEAVE TO ADD , TO ALTER OR AMEND ALL OR A GROUNDS OF APPEAL . 3. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE T HAT THE ASSESSEE IS PRESSING ONLY GROUND NO.2.8, 2.10, 2.11 AND GROUND NO.10 AND THE REMAINING GROUNDS ARE NOT PRESSED. ACCORDI NGLY, REMAINING GROUNDS ARE REJECTED AS NOT PRESSED. 4. REGARDING GROUND NO.10, HE SUBMITTED THAT THIS I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF M/S TA TA ELXSI LTD., IT(TP)A NO.1229(B)2011 7 REPORTED IN 349 ITR 98. RESPECTFULLY FOLLOWING THI S JUDGMENT, GROUND NO.10 OF THE ASSESSEES APPEAL IS ALLOWED BECAUSE L EARNED DR OF THE REVENUE COULD POINT OUT ANY BASIS ON WHICH, THIS IS SUE IS NOT COVERED IN FAVOUR OF THE ASSESSEE. 5. REGARDING REMAINING GROUNDS BEING PRESSED, IT WA S SUBMITTED THAT THESE GROUNDS ARE IN RESPECT OF TP ISSUE. HE SUBMITTED A CHART, AS PER WHICH, THE ASSESSEE IS REQUESTING FOR EXCLUSION OF 12 COMPARABLE COMPANIES AND IN SUPPORT OF THIS CONTENTION, RELIAN CE HAS BEEN PLACED ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S H EWLETT-PACKARD (INDIA) GLOBALSOFT PVT.LTD., VS DCIT IN IT(TP)A NO. 1031(BANG)/2011 (M/S HPPLTD.,). HE SUBMITTED A COPY OF THIS TRIBUNA L ORDER. HE ALSO SUBMITTED THAT IN THIS CASE, THE TRIBUNAL HAS HELD THAT THESE 12 COMPARABLES ARE TO BE EXCLUDED BECAUSE, THESE ARE F UNCTIONALLY DISSIMILAR. 6. IN REPLY, IT WAS SUBMITTED BY THE LD. DR OF THE REVENUE THAT ON PAGE-17 OF THE ORDER OF DRP, THE FINDING HAS BEEN G IVEN BY THE DRP THAT THE ASSESSEE COULD NOT JUSTIFY AS TO HOW THESE ENTI TIES ARE FUNCTIONALLY DIFFERENT FROM THE ELIGIBLE ASSESSEE BECAUSE, AS PE R THE RESPECTIVE ANNUAL REPORTS OF EACH OF COMPARABLE ENTITIES THE A SSESSEE SEEKS TO REJECT AND AS PER THE SAME THEY HAVE SIMILAR FUNCTI ON PROFILE AS THAT OF THE ASSESSEE. HE ALSO SUBMITTED THAT IT IS ALSO T O BE SEEN AS TO WHETHER THE ASSESSEE COMPANY AND THE PROFILE OF M/S HPP LTD .,(SUPRA) ARE SAME OR NOT AND ONLY AFTER THAT, THE TRIBUNAL ORDER REND ERED IN THE CASE OF IT(TP)A NO.1229(B)2011 8 M/S HPPLTD., (SUPRA) CAN BE CONSIDERED AS APPLICABL E IN THE PRESENT CASE. 7. IN THE REJOINDER, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT SINCE THE SAME COMPARABLE COMPANIES ARE BEING CONSIDERED IN BOTH THE CASES BY THE TPO, IT STANDS ACCEPTED BY TH E TPO HIMSELF THAT THE FUNCTIONAL PROFILE OF THE PRESENT ASSESSEE AND M/S HPP LTD(SUPRA) IS SAME. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND FORCE IN THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE THAT SINCE THE SAME COMPARABLES ARE BEING CONSIDERED IN THE PRESENT CAS E AND IN THE CASE OF M/S HPP LTD. (SUPRA), IT CANNOT BE SAID THAT THE FU NCTIONAL PROFILE OF THE ASSESSEE COMPANY AND THAT COMPANY I.E. M/S HPP LTD. ,(SUPRA) IS NOT COMPARABLE UNLESS SPECIFIC DIFFERENCE IN FACTS IS P OINTED OUT BY ANY SIDE. SINCE IN THE PRESENT CASE, LD. DR OF THE REVE NUE COULD NOT POINT OUT ANY SPECIFIC DIFFERENCE IN FACTS IN THE PRESENT CASE AND IN THE CASE OF M/S HPP LTD., (SUPRA), WE FEEL THAT THIS TRIBUNAL O RDER SHOULD BE CONSIDERED AND FOLLOWED IN THE PRESENT CASE TO THE EXTENT RELEVANT. 9. NOW, WE EXAMINE THE CLAIM OF THE ASSESSEE REGARD ING EACH COMPARABLE COMPANIES FOR WHICH EXCLUSION IS BEING R EQUESTED BY THE LD.AR OF THE ASSESSEE. REGARDING M/S AVANI CIMCON TECHNOLOGIES LTD., DISCUSSION IS ON PAGES 14-15 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPPLTD., (SUPRA), WHEREIN THE TRIBUNAL HAS N OTED THAT BASED ON INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, IT IS REVEALED THAT THIS IT(TP)A NO.1229(B)2011 9 COMPANY HAS DEVELOPED SOFTWARE PRODUCT BY THE NAME DXCHANGE AND THEREFORE, THE REVENUE OF THIS COMPANY INCLUDES REV ENUE FROM SOFTWARE PRODUCT SALES, APART FROM RENDERING OF SOFTWARE SE RVICES AND THEREFORE, THIS IS FUNCTIONALLY DIFFERENT FROM ASSESSEE COMPAN Y. IN THE PRESENT CASE ALSO, THE ASSESSEE COMPANY IS RENDERING ONLY S OFTWARE SERVICES AND NOT ENGAGED IN SOFTWARE PRODUCT AS SUCH AND THEREFO RE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY I.E. M/S AVANI CIMCON TECHNOLOGIES LTD., FR OM THE FINAL LIST OF COMPARABLES. 10. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S CELESTIAL LABS LTD. AND THE RELEVANT DISCUSSION REGARDING THIS COMPANY IS AVAILABLE ON PAGES 16 TO 19 OF THE TRIBU NALS ORDER RENDERED IN THE CASE OF M/S HPPLTD., (SUPRA). THE TRIBUNAL H AS NOTED ON THESE PAGES THAT THIS COMPANY WAS BASICALLY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO-PRODUCTS AND OTHER PRODUCTS. UNDER THESE FACTS, WE FIND NO REASON TO HAVE A CONTRARY VIEW IN THE PRESENT CASE, AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBU NALS ORDER, WE DIRECT THE AO/TPO IN THE PRESENT CASE ALSO TO EXCLUDE THIS COMPANY I.E. M/S CELESTIAL LABS LTD., (SUPRA) FROM THE FINAL LIST OF COMPARABLES. 11. THE THIRD COMPANY FOR WHICH EXCLUSION IS BEING REQUESTED IS M/S E-ZEST SOLUTIONS LTD, AND THE DISCUSSION ABOUT THIS COMPANY IS AVAILABLE ON PAGES 19-20 OF THE TRIBUNAL ORDER REND ERED IN THE CASE OF M/S HPP LTD., (SUPRA). IT IS NOTED BY THE TRIBUNAL ON PAGE-20 OF THE IT(TP)A NO.1229(B)2011 10 TRIBUNAL ORDER THAT M/S E-ZEST SOLUTIONS LTD., IS R ENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEEN HE LD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S CAPITAL I -Q INFORMATION SYSTEMS (INDIA) (P) LTD., IN ITA NO.1961/HYD/2011 D ATED 23-11-2012 THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DE VELOPMENT SERVICES. IN THE PRESENT CASE, LD. DR OF THE REVENUE COULD NO T PINT OUT ANY DIFFERENCE IN FACTS AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DIRECT THE TPO/AO IN THE PRESENT CASE ALS O THAT THIS COMPANY I.E. M/S E-ZEST SOLUTIONS LTD. SHOULD NOT BE EXCLUD ED FROM THE LIST OF FINAL COMPARABLES. 12. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG.) AND THE DISCUSSION ABOUT THIS COMPANY IS AVAILABLE ON PAGES 37 TO 38 OF TRIB UNALS ORDER RENDERED IN THE CASE OF M/S HPP LTD., (SUPRA). ON PAGE-38 OF THE TRIBUNALS ORDER, IT IS NOTED BY THE TRIBUNAL THAT IN THE CASE OF M/S FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.), THE ANNUA L REPORT FOR THE YEAR ENDING 31-03-2007 IS ONLY FOR NINE MONTHS PERIOD AN D NO RECONCILIATION WAS ATTEMPTED BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WITH THE FIGURES WHICH WERE MADE AVAILABLE BY THE SAID COMPANY TO THE TPO PURSUANT TO NOTICE ISSUED T O THEM U/S 133(6) OF THE ACT. UNDER THESE FACTS, IT WAS HELD BY THE TRIBUNAL IN THAT CASE THAT M/S FLEXTRONICS SOFTWARE SYSTEMS LTD., (SEG.) (SUPRA) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. IN THE PRESENT CASE ALSO, THE IT(TP)A NO.1229(B)2011 11 ASSESSMENT YEAR IS SAME I.E. AY: 2007-08 AND THEREF ORE, RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER, WE DIRECT THE AO/TP O IN THE PRESENT CASE ALSO THAT THIS COMPANY I.E. MS/S FLEXTRONIS SOFTWAR E SYSTEMS LTD.,(SEG.)(SUPRA) SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. 13. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S INFOSYS LTD. AND THE DISCUSSION ABOUT THIS COMP ANY IS AVAILABLE ON PAGES 20 TO 22 OF THE TRIBUNALS ORDER RENDERED IN THE CASE OF M/S HPP LTD., (SUPRA). IN THIS CASE, IT IS NOTED BY THE T RIBUNAL THAT THIS COMPANY OWNS SIGNIFICANT INTANGIBLES AND HAS HUGE R EVENUES FROM SOFTWARE PRODUCTS AND THEREFORE, BY RESPECTFULLY FO LLOWING THIS TRIBUNAL ORDER, WE HOLD THAT THIS COMPANY I.E. M/S INFOSYS L TD., (SUPRA) ALSO SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABL ES. 14. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S ISHIR INFOTECH LTD. AND THE DISCUSSION ABOUT TH IS COMPANY IS AVAILABLE ON PAGES 23-24 OF THE TRIBUNALS ORDER RE NDERED IN THE CASE OF M/S HPOP LTD., (SUPRA). IT IS NOTED BY THE TRIBUN AL ON THESE PAGES THAT M/S ISHIR INFOTECH LTD., IS OUTSOURCING ITS WO RK AND HAS NOT SATISFIED 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DIRECT THE TPO/AO IN THE PRESENT CASE ALSO TO EXCLU DE THIS COMPANY FROM THE LIST OF FINAL COMPARABLES. 15. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S KALS INFORMATION SYSTEMS LTD., REGARDING THIS C OMPANY, IT WAS IT(TP)A NO.1229(B)2011 12 SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT RELEVA NT DISCUSSION IS ON PAGE 25 TO26 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPP LTD., (SUPRA). ON THESE PAGES, IT IS NOTED BY THE TRIBUNAL THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PU RELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. THEREFORE, RESPECTFULLY FOLLOWING THIS TRIBUNALS ORDER, WE DIRECT THE AO/TPO IN THE PRESENT CASE ALSO THAT THIS COMPANY I.E. M/S KALS INFORMATION SYSTEMS LTD (SUPRA) SHOULD BE EXCLUDE FROM THE LIST OF FINAL COMPARABLE S. 16. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S LUCID SOFTWARE LTD. REGARDING THIS COMPANY ALSO , IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THE DISCUSSION A BOUT THIS COMPANY IS AVAILABLE ON PAGES 23-24 OF THE TRIBUNALS ORDER REN DERED IN THE CASE OF M/S HPP LTD., (SUPRA). ON THESE PAGES, IT IS NOTED BY THE TRIBUNAL THAT M/S LUCID SOFTWARE LTD.,(SUPRA) IS INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE ASSESSEE WHICH IS ONLY INTO SOFTWARE SERVICES. THEREFORE, IN THE PRESENT CASE ALSO, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DIRECT THE AO/TPO TO EXCLUD E THIS COMPANY I.E. M/S LUCID SOFTWARE LTD., FROM THE LIST OF FINAL COM PARABLES. 17. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S MEGASOFT LTD. IT IS SUBMITTED BY THE LD.AR OF T HE ASSESSEE THAT ABOUT THIS COMPANY, THE DISCUSSION IS AVAILABLE ON PAGES 34 TO 36 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPP LTD. , (SUPRA). WE FIND THAT IN THIS CASE, IT WAS HELD BY THE TRIBUNAL THAT M/S MEGASOFT LTD. IT(TP)A NO.1229(B)2011 13 SHOULD BE CONSIDERED AS A GOOD COMPARABLE AFTER SEG MENTATION AND THEREFORE, IN THE PRESENT CASE, WE DIRECT THE AO/TP O TO CONSIDER THIS COMPANY I.E. M/S MEGASOFT LTD., (SUPRA) AS A COMPAR ABLE AFTER SEGMENTATION OF ITS RESULT. 18. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S R SYSTEMS INTERNATIONAL LTD.,(SEG.). IT WAS SU BMITTED BY THE LD. AR OF THE ASSESSEE THAT THE DISCUSSION ABOUT THIS COMP ANY IS AVAILABLE ON PAGES 38-39 OF THE TRIBUNALS ORDER RENDERED IN THE CASE OF M/S HPPLTD. (SUPRA). IN PARA-30 OF THE TRIBUNAL ORDER, IT IS NOTED BY THE TRIBUNAL THAT AS PER THE ANNUAL REPORT OF THE SAID COMPANY PLACED BY THE ASSESSEE IN PAPER BOOK , IT IS SEEN THAT FINAL ACCOUNTS ARE BEING PREPARED ON CALENDAR YEAR BASIS AND THE P&L ACCOUNT IS FOR CALENDAR YEAR ENDING 31-12-2008 AND UNDER THESE FACTS, BY RE SPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, IT WAS HELD THAT THIS COMPANY CANNOT BE CONSIDERED AS A PROPER COMPARABLE. 19. THE LD. DR OF THE REVENUE COULD NOT POINT OUT A S TO HOW THE TRIBUNAL ORDER ON THIS ISSUE IS NOT TO BE FOLLOWED IN THE PRESENT CASE AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBU NAL ORDER, WE DIRECT THE AO/TPO THAT THIS COMPANY I.E. R SYSTEMS INTERNA TIONAL LTD.,(SEG.) SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABL ES. 20. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S WIPRO LTD., IT IS SUBMITTED BY THE LD. AR OF TH E ASSESSEE THAT DISCUSSION ABOUT THIS COMPANY IS AVAILABLE ON PAGES 32 TO33 OF THE IT(TP)A NO.1229(B)2011 14 TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPP LTD. , (SUPRA). ON THESE PAGES, IT IS NOTED BY THE TRIBUNAL THAT THIS COMPA NY OWNS INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVE RAL PENDING APPLICATIONS FOR GRANT OF PATENTS. THEREFORE, RES PECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE DIRECT THE AO/TPO THAT IN THE PR ESENT CASE ALSO, THIS COMPANY I.E. M/S WIPRO LTD., SHOULD BE EXCLUDED FRO M THE FINAL LIST OF COMPARABLES. 21. THE NEXT COMPANY FOR WHICH EXCLUSION IS BEING R EQUESTED IS M/S PERSISTENT SYSTEMS LTD., IT WAS SUBMITTED BY TH E LD. AR OF THE ASSESSEE THAT THE DISCUSSION ABOUT THIS COMPANY IS AVAILABLE ON PAGES 26 TO 27 OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S HPP LTD. (SUPRA). ON PAGE 27 OF THIS TRIBUNAL ORDER, IT IS NOTED BY THE TRIBUNAL THAT THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES, WHILE THE ASSESSEE IS A SOFTWARE D EVELOPMENT SERVICE PROVIDER. FACTS BEING SIMILAR, RESPECTFULLY FOLLOW ING THIS TRIBUNAL ORDER, WE DIRECT THE AO/TPO THAT IN THE PRESENT CASE ALSO, THIS COMPANY I.E. M/S PERSISTENT SYSTEMS LTD., SHOULD BE EXCLUDED FRO M THE LIST OF FINAL COMPARABLES. 22. AS PER THE ABOVE DISCUSSION, WE HAVE HELD THAT ONE COMPANY I.E. M/S MEGASOFT LTD., (SUPRA) SHOULD BE CONSIDERE D AS A COMPARABLE BUT AFTER SEGMENTATION OF ITS PROFIT AND THE REMAIN ING ELEVEN COMPANIES FOR WHICH EXCLUSION WAS BEING REQUESTED BY THE ASSE SSEE ARE DIRECTED TO BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. THE AO/TPO SHOULD DETERMINE THE PLI AFTER GIVING EFFECT TO THESE DIRE CTIONS AND IF THE SAME IT(TP)A NO.1229(B)2011 15 IS WITHIN +/- 5% RANGE OF ASSESSEES PROFIT, THEN N O TP ADJUSTMENT SHOULD BE MADE AND IN CASE, THE SAME EXCEEDS +/- 5% RANGE THEN THE TP ADJUSTMENT SHOULD BE MADE AS PER LAW. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ASHA VIJAYARAGHAVAN) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 15/ 07/2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE IT(TP)A NO.1229(B)2011 16 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTA NT REGISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER