Swiss Re Shared Services (India) Private Limited, Bangalore V. DCIT, Bangalore

ITA 1274/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9492 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Wholly owned subsidiary; Scheme of amalgamation
• Section: 234B; 92

Judgement Text

ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.1274(BANG)/2011 & IT(TP)A NO.111(BANG)2012 (ASSESSMENT YEARS : 2007-08 & 2005-06) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BANGALORE VS M/S SWISS RE-SHARED SERVICES (IND.) PVT. LTD., 2 ND & 3 RD FLOOR, NO.21,LANGFORDROAD, LANGFORD TOWN, BANGALORE PAN NO.AAECS8786L (RESPONDENT) (APPELLANT) AND IT(TP)A NO.172/(BANG)/2012 (ASSESSMENT YEAR 2005-06) M/S SWISS RE-SHARED SERVICES (IND.) PVT. LTD., 2 ND & 3 RD FLOOR, NO.21,LANGFORDROAD, LANGFORD TOWN, BANGALORE PAN NO.AAECS8786L VS DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-12(3), BANGALORE (RESPONDENT) (APPELLANT) SHRI SAMPATH RAGHUNATHAN, ADVOCATE ASSESSEE BY MS. NEERA MALHOTRA, CIT REVENUE BY 23/06/2016 DATE OF HEARING 11/08/2016 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, AM. OUT OF THESE THREE APPEALS, THERE ARE TWO CROSS APP EALS OF THE ASSESSEE AND THE REVENUE FOR AY: 2005-06 AND THERE IS ONE A PPEAL BY THE ASSESSEE FOR 2007- 2008. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 2 2. FIRST WE TAKE UP THE APPEALS FOR THE ASSESSMENT YEAR 2005-06 I.E. ITA NOS.172(B)/2012 AND IT(TP)A NO.111(B)/2012. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL NO.111(B)/2012 ARE AS UNDER; THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF , AND WITHOUT PREJUDICE TO ONE ANOTHER . THE APPELLANT SUBMITS AS UNDER : 1 ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICER ARE BAD IN LAW A) THE FINAL ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME-TAX , CIRCLE 12(3) [ ' DCIT ' OR 'AO'], IS BAD ON FACTS AND IN LAW, AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE . WITHOUT PREJUDICE TO THE ABOVE, THE ORDER ISSUED BY THE AO IS BAD IN LAW INSOFAR AS THE FACT THAT THE AO DID NOT ISSUE TO SWISS RE SHARED SERVICES (INDIA ) PRIVATE LIMITED ( ' THE APPELLANT OR ' THE COMPANY ' ) , A SHOW CAUSE NOTICE , AS PER PROVISO TO SECTION 92C(3) OF THE INCOME- TAX ACT , 1961 [ ' THE ACT ' ] . B) THE AO HAS ERRED IN LAW IN MAKING A REFERENCE TO TH E DEPUTY COMMISSIONER OF INCOME TAX - TRANSFER PRICIN G - V [ ' TPO ' ] , INTER ALIA , SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE ACT , WERE SATISFIED IN THE INSTANT CASE. THE AO ALSO ERRED IN NOT FOLLOWING THE PROVISION CONTAINED IN SECTION 92CA ( 1) OF THE ACT . 2. THE FRESH COMPA R ABLE SEARCH UNDE R TAKEN BY THE TPO IS BAD IN LAW A) THE AO / TPO ERRED ON FACTS AND IN LA W IN CONDUCTING FRESH BENCHMARKING ANALYSIS USING NON CONTEMPORANEOUS DAT A AND SUBSTITUTING THE APPELLANT ' S ANALYSIS WITH FRESH BENCHMARKING ANAL Y SIS ON HIS O W N CONJECTURES AND SURMISES . THUS THE APPELLANT PRAYS THAT THE FRESH BENCHMARKING ANAL Y SIS CONDUCTED B Y THE LEARNED TPO IS LIABLE TO BE QUASHED . B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW , THE LEARNED TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSID E OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATI ONAL TRANSACTIONS WHICH ARE A PRE-REQUISITE CONDITION TO MAKE ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 3 ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT . 3 COMPARAB ILIT Y AN AL YSIS AD OPTED B Y THE AO/T P O FOR DETERMINATION OF ARM'S LENGTH PRICE A) THE AO / TPO GROSSL Y ERRED ON FACTS IN BENCHMARKING THE TRANSACTIONS OF THE CAPTI V E INFORMATION TECHNOLOGY ENABLED ( , ITES ' ) SERVICES OF THE APPELLANT W ITH COMPANIES OPERATING AS FULLY FLEDGED ENTREPRENEURS WITHOUT CON S IDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED , ASSETS EMPLO Y ED AND RISK UNDERTAKEN B Y THE APPELLANT V I S - A - V I S COMPARABLE COMPANIES. B) THE AO / TPO ERRED ON FACTS IN REJECTING THE COMPARABLE C O MPANIES ARRIVED AT IN THE TRANSFER PRICING STUD Y WITHOUT CONSIDERING THE FUNCTIONAL AND RISK ANAL Y SIS OF THE APPELLANT . C) THE AO / TPO ERRED IN LAW IN APPLYING ARBITRARY FILTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COM PA RABLES TO THE APPELLANT, WITHOUT ESTABLISHING FUNCTIONAL COMPARABILITY. D) THE AO / TPO ALSO ERRED ON FACTS IN ARBITRARILY ACCEPTING COMPANIES WITHOUT CONSIDERING THE TURNOVER AND SI ZE OF THE APPEL L ANT AND COMPARABLES . E)THE AO I TPO GROSSLY ERRED IN LAW IN DEVIATING FROM THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER TH E INCOME- TAX RULES AND ARBITRARILY APPLYING A 25 % RELATED PARTY CRITERIA IN ACCEPTING I REJECTING COM PARABLES . F) THE AO / TPO ALSO ERRED ON FACTS AND IN LAW IN ARBITRARIL Y REJECTING COMPANIES WITH DIFFERENT Y EAR ENDING (I.E. OTHER THAN 31 MARCH 2007) AND INCONSISTENTLY APPLYING SUC H FILTER . G) THE AO / TPO GROSSLY ERRED ON FACTS IN ARBITRARILY REJECTING COMPANIES HAVING ITES REVENUES LESS THAN 75 % OF TOTAL OPERATING REVENUE AND INCONSISTENTLY APPLYING SUCH F I LTERS , WITHOUT CONSIDERING THE SPECIFIC SEGMENTAL RESULTS. H) TH E AO I TPO E RRED IN REJ ECT IN G CO MP A NI ES H AV IN G EX P ORT R EVE NU ES L ESS T H A N 25% OF T OTA L SA L ES . I) T H E A O / T PO A L SO E R RE D O N FAC T S IN A RB I TR A RIL Y R EJE C T IN G CO MP A N IES B ASE D I N T H E IR F IN A N C I A L R ES UL TS W ITH O U T CO N S ID ER IN G T H E F UN C TI O N A L C O MP A R A BILIT Y . ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 4 J) TH E AO / T P O E RR E D O N FACTS A ND IN LAW IN CO N SI D ER IN G A SET ' SECRET D ATA ', I . E . D ATA W HI C H WAS N O T AVA IL A BLE IN PUBLI C D O M A IN , I N A R R I V IN G AT A F R ES H S E T OF CO MPANI ES U S IN G HI S P OWER UND ER S EC T I O N 1 33(6), W HI C H I S G R OSS L Y UN J U S T IF I E D . K ) T H E AO / T PO A L SO E RR E D O N FACTS A ND IN LA W IN EXC LUDIN G T HE FO R E I G N EXCHA N GE GA IN OR LO SS W HIL E CALCUL A TIN G TH E N E T M A R G IN S OF TH E CO MP A R A BL E CO MP A NI ES . 4 ERRONEOUS DATA USED BY THE AO/TPO A) T H E A O / T PO H AS ERR E D IN L AW IN U S IN G D A T A , W H IC H W A S N OT CO N TE MP ORA N EO U S AND W H IC H WAS NOT A V AIL A BL E IN THE PUBLIC D O MAIN AT TH E TIM E OF CO ND U CTIN G T HE TR A N S F ER PRICIN G S TUD Y B Y THE A PP E LL A NT . B) TH E AO / T PO E RR E D IN L AW IN N OT A PPL Y IN G T H E M ULTIPL E - YEAR D A T A W H I L E CO MPU T IN G TH E M A R G IN OF A LL EGE D CO MP A R A BL E CO MP A NI ES AS S U C H D A TA H A D A N I N F LU E N CE IN D E T E RMININ G TH E PR I CIN G P O LIC Y OF TH E A PP E LL A NT . 5 NON-ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES , B Y THE AO/TPO TH E AO / T P O E RR E D IN L AW AND O N FAC T S I N N O T A LL OW IN G A PPR O P RIATE A DJU ST M E N TS UND ER RUL E 1OB TO A C CO UN T F OR , INTE R A LI A, DI FFE R E N CES IN (A) ACCOUNTI N G P RACTICES, ( B ) M AR K E TIN G EX P E NDITUR E, (C ) R ESE AR C H A ND D E V E L O PM E NT E X P E NDI T U RE AND ( D ) R I S K P ROF IL E BET WEE N T H E A PPELL A NT AND TH E C O MP A R A BL E CO MP A NI ES . 6 V ARIATION OF 5 % FROM THE ARITHMETIC MEAN T H E AO / T PO ER R E D IN L AW IN N OT G R A NTIN G TH E B E N EF I TS OF P ROV I SO T O SEC TI O N 9 2C(2) OF THE ACT AVA IL A BL E T O T H E A PP E LL A N T . 7 DEDUCTION UNDER SECTION 1OA OF THE INCOME-T AX ACT , 1961 ON TH E FAC T S A ND C IR C UM S T A N CES O F TH E C ASE , TH E L E ARN ED AO E RR E D IN CO MPUTIN G T H E D E DU C TI O N UND E R S E CT I ON 1 OA O F TH E INC O ME-T AX A CT , 19 61 (' TH E A CT ' ) A T RS. 53 , 6 33 , 7 66 . A) TH E L EA RN E D A O ER R E D IN R E DU C IN G E X P E NDITU RE IN C URRED IN FO R EIG N C URR E N CY OF R S . 5 , 521 , 806 F R O M TH E ' EX P O R T T URN OVE R ' AS EX P E NDITUR E H AV IN G B EE N I N C UR RE D B Y TH E A PP E LL A N T FOR R E ND E RIN G TEC HNI CA L SE R V I CES O UT S ID E INDI A. T H E L E ARNED APPRECIATE THAT THE COMPANY IS NOT ENGAGED IN RENDE RING TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE THE ADJUSTMENT WAS NOT WARRANTED IN THE FIRST PLACE. C) WITHOUT PREJUDICE TO THE GROUNDS IN (B) ABO V E , EVEN ASSUMING WHILE DEN Y ING , THAT REDUCTION OF EXPENDITURE IN ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 5 FOREIGN CURRENC Y FROM THE ' EXPORT TURNO V ER ' IS WARRANTED , A CORRESPONDING ADJUSTMENT OUGHT TO HAVE BEEN MADE EV EN FROM THE ' TOTAL TURNOVER ' . THE APPELLANT RELIES ON THE DECISION OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE C ASE OF CIT V . D E LL INT E RNATIONAL S E R V I CE PRIV A T E LIM I T E D AND OTH E R S [IT A NOS. 450 OF 200 8 1 4 51 OF200 8 } . 8 INTEREST UNDER SECTION 234B OF THE ACT THE LEARNED AO HAS ERRED IN LEV Y ING INTEREST UNDER SECTION 234B OF THE ACT OF RS . 7 , 268 , 642 . 9 DIRECTIONS ISSUED BY THE HONORABLE DISPUTE RESOL UTION PANEL ['DRP'] A) THE HONORABLE DRP HAS ERRED IN LAW AND ON FACTS IN NOT TAKING COGNIZANCE OF THE OBJECTIONS FILED BY THE AP PELLANT IN RELATION TO THE DRAFT ASSESSMENT ORDER / TP ORDER ISSUED BY THE AO I TPO IN THE PROCEEDINGS BEFORE THEM . B) THE HONORABLE DRP ERRED IN FACTS AND IN LAW IN CONF IRMING THE DRAFT ASSESSMENT ORDER OF THE AO. C) THE HONORABLE DRP ERRED IN CONCLUDING THAT COMMUNIC ATION EXPENSES OUGHT TO BE REDUCED FROM EXPORT TURNOVER D ESPITE THERE BEING NO SUCH ADJUSTMENT MADE B Y THE AO IN THE DRAFT ORDER . D) THE HONORABLE DRP ERRED IN MISINTERPRETING THE DEFI NITION OF ' EXPORT TURNOVER ' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A INSOFAR AS IT DIRECTED THAT TRAVE LLING EXPENSES INCURRED B Y THE APPELLANT HAS TO BE REDUCED FROM EXPORT TURNO V ER SINCE SUCH EXPENSES ARE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA . E) WITHOUT PREJUDICE TO THE ABOVE , HAVING GIVEN THE DIRECTIONS TO MAKE ADJUSTMENT TO ' EXPORT TURNOVER ', THE HONORABLE DRP ERRED IN NOT GIVING A DIRECTION FOR MAKING A CORRES PONDING ADJUSTMENT TO THE ' TOTAL TURNOVER ' AS WELL . 10 RELIEF A) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRA NT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO . B) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER , BY DELETION , SUBSTITUTION , MODIFICATION OR OTHERWISE , THE ABOVE GROUNDS OF APPEAL , EITHER BEFORE OR DURING THE HEARING OF THE APPEAL . C) FURTHER, THE APPELLANT PRAYS THAT THE ADJUSTMENT IN RELATION TO TRANSFER PRICING MATERS MADE BY THE LD.AO/TPO AND UPHELD BY HONBLE DRP IS BAD IN LAW AND LIABLE TO B E DELETED. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 6 4. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL NO.172 (B)/2012 ARE AS UNDER; 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CASE . 2. THE ID . CIT(A) ERRED IN HOLDING THAT TELECOMMUNICATION AND OTHER EXPENSES INCURRED IN FORE I GN CURRENCY AMOUNTING TO RS . 79 . 40 , 977/ - ARE TO BE EXCLUDED FROM TOTAL TURNOVER AS WELL WHEREAS SUCH E XCLUSION IS PERMITTED TO ARR I VE AT THE EXPORT TURNOVER ONLY AS PER THE DEF I NITIONS G I VEN IN SEC.10A OF THE ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SECTION . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E , THE LEARNED CIT(A) ERRED IN HOLDING THAT THE TPO ERRED IN NOT EXCLUDIN G COM PARABLES HAVING ANY RELATED PA R TY TRANSACT I ONS . 4 . THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SIZE A ND TURNOVER OF THE COMPANY ARE DECIDING FACTORS FOR TREATING A COMPANY AS A COMPARABLE , AND ACCORDINGLY ERRED IN EXCLUDING M/S INFOSYS TECHNOLO GIES LTD. , IN SOFTWARE SEGMENT AND M/S WIPRO BPO SOLUTIONS LTD ., IN ITES SEGMENT AS COM PARABLES . 5 . THE ID . CIT(A) ERRED IN HOLDING THAT PROFIT ON COST OF MORE THAN 50% OF THE COMPARABLE COMPANY(IES) IS ABNORMAL WITHOUT GIV ING REASONS HOW FUNCTIONS DISCHARGED , ASSETS DEPLOYED AND RISKS ASSUMED OF SUCH COMPANIES WERE DIFFERENT FROM THAT OF THE APPELLANT COMPANY . 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING , IT IS PRAYED THAT THE ORDE R OF THE CIT(A ) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFF I CER MAY BE RESTORED . 7. THE APPELLANT CRAVES LEAVE TO ADD , ALTER , AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. . 5. REGARDING REVENUES APPEAL, LD. DR OF THE REVENUE S UPPORTED THE ORDER OF THE A.O., WHEREAS THE LD. AR OF THE ASSESSEE SUP PORTED THE ORDER OF THE LD. CIT(A). HE ALSO SUBMITTED THAT THE FIRST ISSUE RAI SED AS PER GROUND NO.2 OF THE APPEAL OF THE REVENUE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CA SE OF M/S TATA ELXSI LTD., REPORTED IN 349 ITR 98. REGARDING OTHER GROUNDS IN REVENUES APPEAL, HE SUBMITTED THAT THESE ARE IN RESPECT OF TP ADJUSTMEN T AND HENCE, THE SAME WILL ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 7 BE ARGUED ALONG WITH THE ASSESSEES APPEAL. 6. REGARDING THE ISSUES INVOLVED IN RESPECT OF TP ADJUSTMENT IN THE APPEAL OF THE ASSESSEE AND REVENUE, HE SUBMITTED A CHART AND IT WAS POINTED OUT THAT THE TOTAL NINE COMPARABLES WERE SELECTED B Y THE TPO, OUT OF WHICH THE LD. CIT(A) REJECTED THE FIRST COMPARABLE I.E. M/S A LLSEC TECHNOLOGIES LTD. ON THIS BASIS THAT THIS COMPANY HAS FAILED 0% RPT FILTER. HE SUBMITTED THAT NOW THE SETTLED POSITION ON THIS ISSUE IS THAT ANY COMPANY HAVING RPT PERCENTAGE UP TO 15% IS A GOOD COMPARABLE. HE SUBMITTED THAT IN VIE W OF THIS, THIS COMPARABLE MAY BE REINSTATED. 7. REGARDING THE SECOND COMPARABLE M/S SAFRON GLOB AL LTD., HE SUBMITTED THAT THIS COMPARABLE WAS ACCEPTED BY T HE LD. CIT(A) AND THE ASSESSEE ALSO ACCEPTS IT. 8. REGARDING THIRD COMPARABLE I.E. M/S VISHAL INFO RMATION TECH. LTD., IT WAS SUBMITTED THAT THIS COMPARABLE WAS ACCEPTED BY THE LD. CIT(A), BUT THE ASSESSEE IS CONTENDING THAT THIS COMPARABLE SHOULD BE REJECTED BECAUSE THIS IS NOT FUNCTIONALLY COMPARABLE COMPANY. HE ALSO SUBMIT TED THAT THIS COMPANY FAILS EMPLOYEES COST FILTER ALSO BECAUSE THE EMPLOY EES COST IS ONLY 0.9% IN THIS CASE AND HENCE, MAJOR PORTION OF WORK IS OUT SOURCE D BY THIS COMPANY. 9. REGARDING THE FOURTH COMPARABLES M/S COSMIC GLO BAL LTD., (EARLIER KNOWN AS TULSYAN TECHNOLOGY), HE SUBMITTED THAT THI S COMPARABLE WAS ACCEPTED BY THE LD. CIT(A) AND THE ASSESSEE ALSO AC CEPTS IT. 10. REGARDING THE FIFTH COMPARABLES I.E. M/S TRANS WORKS INFORMATION SERVICES LTD., HE SUBMITTED THAT THE LD. CIT(A) HAS REJECTED THIS COMPARABLE BECAUSE IT FAILED 0% RPT FILTER BUT SINCE THIS COMP ANY SATISFIES THE CRITERIA OF ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 8 RPT FILTER OF 15%, THE ASSESSEE HAS NO OBJECTION IF THIS COMPARABLE IS REINSTATED. 11. REGARDING THE SIXTH COMPARABLE M/S WIPRO BPO S OLUTIONS LTD., IT WAS SUBMITTED THAT THIS COMPANY WAS REJECTED AS COM PARABLE BY THE LD. CIT(A) ON THIS BASIS THAT THIS COMPANY HAS FAILED 0% RPT FILTER. HE SUBMITTED THAT THIS COMPANY FAILS 15% RPT FILTER ALSO AND THEREFOR E, ON THIS ISSUE THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 12. REGARDING SEVENTH COMPARABLE I.E. M/S ACE SOFT WARE EXPORTS LTD., IT WAS SUBMITTED THAT THIS COMPARABLE WAS REJECTED BY THE LD. CIT(A) AS IT FAILS 0% RPT FILTER BUT SINCE THIS COMPANY IS SATISFYING 15% RPT FILTER, THIS COMPARABLE MAY BE REINSTATED. 13. REGARDING EIGHTH COMPARABLE M/S NUCLEUS NETSOF T & GIS LTD., HE SUBMITTED THAT THIS COMPARABLE WAS REJECTED BY THE LD.CIT(A) BECAUSE THE TPO HAS CONSIDERED THE PREVIOUS YEAR FINANCIALS TO CONC LUDE THAT THIS COMPANY PROVIDED ITES SERVICES AND THE LD. CIT(A) IN ASSESS EES OWN CASE FOR DIFFERENT YEAR HAS REJECTED THIS COMPARABLE AND THE DEPARTMEN T HAD NOT FILED ANY OBJECTION AGAINST THE SAME AND IN THE PRESENT YEAR ALSO, THERE IS NO SPECIFIC OBJECTION ABOUT THIS COMPARABLE IN THE GROUNDS OF A PPEAL RAISED Y THE REVENUE AND THEREFORE, REGARDING THIS COMPANY, ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED 14. REGARDING NINTH AND LAST COMPARABLE I.E. M/S MA PLE E-SOLUTIONS LTD., HE SUBMITTED THAT THIS COMPARABLE WAS REJECTE D BY THE LD. CIT(A) SINCE THIS COMPANY WAS OPERATIONAL ONLY FOR FOUR MONTHS. HE SUBMITTED THAT THIS COMPARABLE WAS REJECTED BY THE LD.CIT(A) IN ASSESSE ES OWN CASE IN DIFFERENT ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 9 YEAR AND THE DEPARTMENT HAS NOT FILED ANY OBJECTION AGAINST THE SAME IN THAT YEAR AND IN THE PRESENT YEAR ALSO, THERE IS NO SPEC IFIC OBJECTION RAISED AGAINST THIS COMPARABLE AS PER THE GROUNDS OF APPEAL RAISED BY THE REVENUE AND THEREFORE, ON THIS ISSUE, THE ORDER OF THELD.CIT(A) SHOULD BE CONFIRMED. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT OUT OF NINE COMPARABLES SELECTED BY THE TPO, SOME COMPARABLES W ERE REJECTED BY THE LD.CIT(A). OUT OF THESE COMPARABLE REJECTED BY THE LD. CIT(A), LD. AR OF THE ASSESSEE CONCEDED THAT THREE SUCH COMPARABLES SHOUL D BE REINSTATED BECAUSE, THE SAME WERE REJECTED BY THE LD. CIT(A) BY APPLYIN G 0% RPT FILTER AND NOW THE RPT FILTER SHOULD BE APPLIED AT 15% AND WHEN 15% FI LTER IS APPLIED, THESE THREE COMPANIES SATISFIES THE RPT FILTER. THESE THREE C OMPANIES ARE; A) M/S ALLSEC TECHNOLOGIES LTD., B) M/S TRANSWORKS INFORMATION SERVICES LTD., C) ACE SOFTWARE EXPORTS LTD., HENCE, WE HOLD THAT THESE THREE COMPARABLES REJECTE D BY THE LD. CIT(A) BY APPLYING 0% RPT FILTER ARE GOOD COMPARABLES BECAUSE THESE COMPANIES ARE SATISFYING 15% RPT FILTER AND THERE IS NO OTHER BAS IS POINTED OUT BY ANY SIDE TO REJECT ANY OF THESE COMPARABLES. 16. REGARDING M/S WIPRO BPO SOLUTIONS LTD., WHICH WAS REJECTED BY THE LD. CIT(A) BY APPLYING 0% RPT FILTER, WE FIND THAT THIS COMPANY FAILS EVEN 15% RPT FILTER AND THEREFORE, WE FIND NO REASON TO INTE RFERE WITH THE ORDER OF THE LD. CIT(A) REGARDING THIS COMPANY. 17. REGARDING M/S SAFFRON GLOBAL LTD., THE LD, CIT( A) HAS ACCEPTED THE COMPANY AS A GOOD COMPARABLE AND IS NOT BEING OBJEC TED BY THE ASSESSEE BEFORE US. HENCE, ON THIS ASPECT ALSO, NO INTERFER ENCE IS CALLED FOR IN THE ORDER ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 10 OF THE LD. CIT(A). 18. REGARDING M/S VISHAL INFORMATION TECH. LTD., WE FIND THAT THIS COMPARABLE WAS ACCEPTED BY THE LD. CIT(A) BUT THIS IS BEING DISPUTED BY THE ASSESSEE BEFORE US ON THIS BASIS THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO FAILS EMPLOYEES COST FILTER BECAUSE IN THIS CA SE, % OF EMPLOYEES COST TO REVENUE IS ONLY 0.9%. THIS IS BY NOW A SETTLED POS ITION THAT A COMPANY SHOULD NOT BE ACCEPTED AS A GOOD COMPARABLE, IF EMPLOYEES COST TO REVENUE IS BELOW 25%. BY APPLYING THIS FILTER, WE HOLD THAT THIS COM PANY IS NOT A GOOD COMPARABLE IN THE PRESENT CASE. 19. REGARDING COMPARABLE NO.8 & 9 I.E. M/S NUCLEUS NETSOFT & GIS LTD., AND M/S MAPLE E SOLUTIONS LTD., WE FIND THAT THESE COMPARABLES WERE REJECTED BY THE LD. CIT(A) AND NO SPECIFIC GROUND HAS BEEN R AISED BY THE REVENUE AGAINST REJECTION OF THESE TWO COMPARABLES AND IT I S THE CONTENTION OF THE LD.AR IN THE CHART THAT IN EARLIER YEARS ALSO, THESE TWO COMPANIES WERE REJECTED BY THE LD. CIT(A) IN ASSESSEES OWN CASE AND IN THAT YEAR ALSO, SUCH REJECTION BY THE LD. CIT(A) WAS NOT DISPUTED BY THE REVENUE BEFORE THE T RIBUNAL. THE LD. DR OF THE REVENUE COULD NOT CONTROVERT THESE SUBMISSIONS OF T HE LD. AR OF THE ASSESSEE AND THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THESE TWO COMPARABLES. AS PER THE ABOVE DISCUSSION, WE FIND THAT THE ORDER OF THE LD. CIT(A) IS REQUIRED TO BE MODIFIED BY REJECTING ONE COMPARABLE I.E. M/S VISHAL INFORMATION TECHNOLOGIES LTD., WHICH WAS ACCEPTED BY THE LD.CIT (A) AND BY INCORPORATING THREE COMPARABLES WHICH WERE REJECTED BY THE LD. CI T(A) BY APPLYING 0% RPT FILTER AND THESE THREE COMPARABLES ARE ; ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 11 A) M/S ALLSEC TECHNOLOGIES LTD., B) M/S TRANSWORKS INFORMATION SERVICES LTD., C) ACE SOFTWARE EXPORTS LTD., WE ORDER ACCORDINGLY. 20. IN THE RESULT, THE APPEAL OF THE REVENUE AND O F THE ASSESSEE FOR THE ASSESSMENT YEARS : 2005-06 ARE PARTLY ALLOWED. 21. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR AY: 2007-08 IN ITA NO.1274(B)/2011. THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF , AND WITHOUT PREJUDICE TO ONE ANOTHER . THE APPELLANT SUBMITS AS UNDER : 1 ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICER ARE BAD IN LAW C) THE FINAL ASSESSMENT ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME-TAX , CIRCLE 12(3) [ ' DCIT ' OR 'AO'], IS BAD ON FACTS AND IN LAW, AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE . WITHOUT PREJUDICE TO THE ABOVE, THE ORDER ISSUED BY THE AO IS BAD IN LAW INS OFAR AS THE FACT THAT THE AO DID NOT ISSUE TO SWISS RE S HARED SERVICES (INDIA) PRIVATE LIMITED ( ' THE APPELLANT OR ' THE COMPANY ' ) , A SHOW CAUSE NOTICE , AS PER PROVISO TO SECTION 92C(3) OF THE INCOME-TAX ACT , 1961 [ ' THE ACT ' ] . D) THE AO HAS ERRED IN LAW IN MAKING A REFERENCE TO TH E DEPUTY COMMISSIONER OF INCOME TAX - TRANSFER PRICIN G - V [ ' TPO ' ] , INTER ALIA , SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE ACT , WERE SATISFIED IN THE INSTANT CASE. THE AO ALSO ERR ED IN NOT FOLLOWING THE PROVISION CONTAINED IN SECTION 92 CA (1) OF THE ACT . 2 THE FRESH COMPA R ABLE SEARCH UNDE R TAKEN BY THE TPO IS BAD IN LAW B) THE AO / TPO ERRED ON FACTS AND IN LA W IN CONDUCTING FRESH BENCHMARKING ANALYSIS USING NON CONTEMPORANEO US DATA AND SUBSTITUTING THE APPELLANT ' S ANALYSIS WITH FRESH BENCHMARKING ANAL Y SIS ON HIS O W N CONJECTURES AND SURMISES . THUS THE APPELLANT PRAYS THAT THE FRESH BENCHMARKING ANAL Y SIS CONDUCTED B Y THE LEARNED TPO IS ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 12 LIABLE TO BE QUASHED . C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW , THE LEARNED TPO ERRED IN NOT DEMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSID E OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATI ONAL TRANSACTIONS WHICH ARE A PRE-REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT . 3 COMPARAB ILIT Y AN AL YSIS AD OPTED B Y THE AO/T P O FOR DETERMINATION OF ARM'S LENGTH PRICE B) THE AO / TPO GROSSL Y ERRED ON FACTS IN BENCHMARKING THE TRANSACTIONS OF THE CAPTI V E INFORMATION TECHNOLOGY ENABLED ( , ITES ' ) SERVICES OF THE APPELLANT W ITH COMPANIES OPERATING AS FULLY FLEDGED ENTREPRENEURS WITHOUT CON S IDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED , ASSETS EMPLO Y ED AND RISK UNDERTAKEN B Y THE APPELLANT V I S - A - V I S COMPARABLE COMPANIES. C) THE AO / TPO ERRED ON FACTS IN REJECTING THE COMPARABLE C O MPANIES ARRIVED AT IN THE TRANSFER PRICING STUD Y WITHOUT CONSIDERING THE FUNCTIONAL AND RISK ANAL Y SIS OF THE APPELLANT . C) THE AO / TPO ERRED IN LAW IN APPLYING ARBITRARY FILTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COM PA RABLES TO THE APPELLANT, WITHOUT ESTABLISHING FUNCTIONAL COMPARABILITY. D) THE AO / TPO ALSO ERRED ON FACTS IN ARBITRARILY ACCEPTING COMPANIES WITHOUT CONSIDERING THE TURNOVER AND SI ZE OF THE APPEL L ANT AND COMPARABLES . E)THE AO I TPO GROSSLY ERRED IN LAW IN DEVIATING FROM THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER TH E INCOME- TAX RULES AND ARBITRARILY APPLYING A 25 % RELATED PARTY CRITERIA IN ACCEPTING I REJECTING COM PARABLES . F) THE AO / TPO ALSO ERRED ON FACTS AND IN LAW IN ARBITRARIL Y REJECTING COMPANIES WITH DIFFERENT Y EAR ENDING (I.E. OTHER THAN 31 MARCH 2007) AND INCONSISTENTLY APPLYING SUC H FILTER . H) THE AO / TPO GROSSLY ERRED ON FACTS IN ARBITRARILY REJECTING COMPANIES HAVING ITES REVENUES LESS THAN 75 % OF TOTAL OPERATING REVENUE AND INCONSISTENTLY APPLYING SUCH F I LTERS , WITHOUT CONSIDERING THE SPECIFIC SEGMENTAL RESULTS. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 13 B) TH E AO I TPO E RRED IN REJ ECT IN G CO MP A NI ES H AV IN G EX P ORT R EVE NU ES L ESS T H A N 25% OF T OTA L SA L ES . C) T H E A O / T PO A L SO E R RE D O N FAC T S IN A RB I TR A RIL Y R EJE C T IN G CO MP A N IES B ASE D I N T H E IR F IN A N C I A L R ES UL TS W ITH O U T CO N S ID ER IN G T H E F UN C TI O N A L C O MP A R A BILIT Y . D) TH E AO / T P O E RR E D O N FACTS A ND IN LAW IN CO N SI D ER IN G A SET OF ' SECRET D ATA ', I . E . D ATA W HI C H WAS N O T AVA IL A BLE IN PUBLI C D O M A IN , I N A R R I V IN G AT A F R ES H S E T OF CO MPANI ES U S IN G HI S P OWER UND ER S EC T I O N 1 33(6), W HI C H I S G R OSS L Y UN J U S T IF I E D . T H E AO / T PO A L SO E RR E D O N FACTS A ND IN LA W IN EXC LUDIN G T HE FO R E I G N EXCHA N GE GA IN OR LO SS W HIL E CALCUL A TIN G TH E N E T M A R G IN S OF TH E CO MP A R A BL E CO MP A NI ES . 4 ERRONEOUS DATA USED BY THE AO/TPO C) T H E A O / T PO H AS ERR E D IN L AW IN U S IN G D A T A , W H IC H W A S N OT CO N TE MP ORA N EO U S AND W H IC H WAS NOT A V AIL A BL E IN THE PUBLIC D O MAIN AT TH E TIM E OF CO ND U CTIN G T HE TR A N S F ER PRICIN G S TUD Y B Y THE A PP E LL A NT . D) TH E AO / T PO E RR E D IN L AW IN N OT A PPL Y IN G T H E M ULTIPL E - YEAR D A T A W H I L E CO MPU T IN G TH E M A R G IN OF A LL EGE D CO MP A R A BL E CO MP A NI ES AS S U C H D A TA H A D A N I N F LU E N CE IN D E T E RMININ G TH E PR I CIN G P O LIC Y OF TH E A PP E LL A NT . 5 NON-ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES , B Y THE AO/TPO TH E AO / T P O E RR E D IN L AW AND O N FAC T S I N N O T A LL OW IN G A PPR O P RIATE A DJU ST M E N TS UND ER RUL E 10 B TO A C CO UN T F OR , INTE R A LI A, DI FFE R E N CES IN (A) ACCOUNTI N G P RACTICES, ( B ) M AR K E TIN G EX P E NDITUR E, (C ) R ESE AR C H A ND D E V E L O PM E NT E X P E NDI T U RE AND ( D ) R I S K P ROF IL E BET WEE N T H E A PPELL A NT AND TH E C O MP A R A BL E CO MP A NI ES . 6 V ARIATION OF 5 % FROM THE ARITHMETIC MEAN T H E AO / T PO ER R E D IN L AW IN N OT G R A NTIN G TH E B E N EF I TS OF P ROV I SO T O SEC TI O N 9 2C(2) OF THE ACT AVA IL A BL E T O T H E A PP E LL A N T . 7 DEDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT , 1961 B) ON TH E FAC T S A ND C IR C UM S T A N CES O F TH E C ASE , TH E L E ARN ED AO E RR E D IN CO MPUTIN G T H E D E DU C TI O N UND E R S E CT I O N 10 A O F TH E INC O ME-T AX A CT , 19 61 (' TH E A CT ' ) A T R S . 53 , 6 33 , 7 66 . C) TH E L EA RN E D A O ER R E D IN R E DU C IN G E X P E NDITU RE IN C URRED IN FO R EIG N C URR E N CY OF R S . 5 , 521 , 806 F R O M TH E ' EX P O R T T URN OVE R ' AS EX P E NDITUR E H AV IN G B EE N I N C UR RE D B Y TH E A PP E LL A N T FOR R E ND E RIN G TEC HNI CA L SE R V I CES O UT S ID E INDI A. T H E L E ARNED APPRECIATE THAT THE COMPANY IS NOT ENGAGED IN RENDE RING TECHNICAL SERVICES OUTSIDE INDIA AND THEREFORE THE ADJUSTMENT WAS NOT WARRANTED IN THE FIRST PLACE. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 14 WITHOUT PREJUDICE TO THE GROUNDS IN (B) ABO V E , EVEN ASSUMING WHILE DEN Y ING , THAT REDUCTION OF EXPENDITURE IN FOREIGN CURRENC Y FROM THE ' EXPORT TURNO V ER ' IS WARRANTED , A CORRESPONDING ADJUSTMENT OUGHT TO HAVE BEEN MADE EV EN FROM THE ' TOTAL TURNOVER ' . THE APPELLANT RELIES ON THE DECISION OF THE JURISDICTIONAL KARNATAKA HIGH COURT IN THE CASE OF E IT V . D E LL INT E RNATIONAL S E R V I CE PRIV A T E LIM I T E D AND OTH E R S [IT A NOS. 450 OF 200 8 1 4 51 OF200 8 } . 8 INTEREST UNDER SECTION 234B OF THE ACT THE LEARNED AO HAS ERRED IN LEV Y ING INTEREST UNDER SECTION 234B OF THE ACT OF RS . 7 , 268 , 642 . 9 DIRECTIONS ISSUED BY THE HONORABLE DISPUTE RESOLUTION PANEL ['DRP'] F) THE HONORABLE DRP HAS ERRED IN LAW AND ON FACTS IN NOT TAKING COGNISANCE OF THE OBJECTIONS FILED BY THE AP PELLANT IN RELATION TO THE DRAFT ASSESSMENT ORDER / TP ORDER ISSUED BY THE AO I TPO IN THE PROCEEDINGS BEFORE THEM . G) THE HONORABLE DRP ERRED IN FACTS AND IN LAW IN CONFIRMING THE DRAFT ASSESSMENT ORDER OF THE AO. H) THE HONORABLE DRP ERRED IN CONCLUDING THAT COMMUNICATION EXPENSES OUGHT TO BE REDUCED FROM EXP ORT TURNOVER DESPITE THERE BEING NO SUCH ADJUSTMENT MAD E B Y THE AO IN THE DRAFT ORDER . I) THE HONORABLE DRP ERRED IN MISINTERPRETING THE DEFI NITION OF ' EXPORT TURNOVER ' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10A INSOFAR AS IT DIRECTED THAT TRAVE LLING EXPENSES INCURRED B Y THE APPELLANT HAS TO BE REDUCED FROM EXPORT TURNO V ER SINCE SUCH EXPENSES ARE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA . WITHOUT PREJUDICE TO THE ABOVE , HAVING GIVEN THE DIRECTIONS TO MAKE ADJUSTMENT TO ' EXPORT TURNOVER ', THE HONORABLE DRP ERRED IN NOT GIVING A DIRECTION FOR MAKING A CORRESPONDING ADJUSTMENT TO THE ' TOTAL TURNOVER ' AS WELL . 10 RELIEF D) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRA NT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THERETO . E) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER , BY DELETION , SUBSTITUTION , MODIFICATION OR OTHERWISE , THE ABOVE GROUNDS OF APPEAL , EITHER BEFORE OR DURING THE HEARING OF THE APPEAL . C) FURTHER, THE APPELLANT PRAYS THAT THE ADJUSTMENT IN RELATION TO TRANSFER PRICING MATTERS MADE BY THE LD . AO/TPO AND UPHELD BY THE HONBLE DRP IS BAD IN LAW AND LIA BLE TO BE DELETED.. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 15 22. THE LD. AR OF THE ASSESSEE SUBMITTED A CHART AN D IT WAS AGREED BY BOTH SIDES THAT THE APPEAL OF THE ASSESSEE MAY BE DECIDE D ON THE BASIS OF THIS CHART. AS PER THIS CHART, 27 COMPARABLES ARE SELECTED BY T HE TPO WITH ADJUSTED AVERAGE MEAN OF 28.33%. OUT OF THESE 27 COMPARABLES, THE AS SESSEE IS SEEKING EXCLUSION OF 8 COMPARABLES WHICH ARE AS UNDER; 1) M/S ECLERZ SYSTEMS LTD., 2) M/S HCL COMNET SYSTEMS & SERVICES LTD., (SEG.) 3) M/S INFOSYS BPO LTD., 4) M/S MAPLE E-SOLUTIONS LTD., 5) M/S MOLDTEK TECHNOLOGIES LTD., (SEG.) 6) M/S TRITON CORP LTD., 7) M/S VISHAL INFORMATION TECHNOLOGIES LTD., 8) M/S WIPRO LTD., (SEG.) 23. THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON T HE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S FLEXTRONICS TECHNOLOGIE S INDIA (P)LTD., VS DCIT AS REPORTED IN 65 TAXMANN.COM 258. HE SUBMITTED A COP Y OF THIS TRIBUNAL ORDER AND POINTED OUT THAT THE RELEVANT PARA NOS. OF THIS TRIBUNAL ORDER IN SUPPORT OF HIS CONTENTION FOR EXCLUSION OF THESE 8 COMPARABLES . THESE PARAS ARE .8.1.2 TO 8.7.1 & 8.8.1 WHICH ARE REPRODUCED AS UNDER; 8.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. WE FIND THAT THE COMPANY ECLERX SERVICES LTD. IS ENGAGED IN DIVERSIFIED ACTIVITY OF PROVIDING SERVIC ES INCLUDING ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 16 ANALYTIC SERVICES AND DATA PROCESS SOLUTIONS TO ITS GLOBAL CLIENTS. THE SERVICE PROVIDED BY ECLERX SERVICES LTD., IS IN VAR IOUS AREAS INCLUDING CAPITAL MARKET AND THEREFORE, THE SERVICE S ARE IN THE NATURE OF CONSULTANCY AND END TO END SUPPORT THROUG H TRADE CENTRE INCLUDING TRADE CONFIRMATION, SETTLEMENT, TRANSACTI ON, MAINTENANCE AND ANALYTIC AND REPORTING. THUS IT IS APPARENT FRO M THE NATURE OF THE ACTIVITY OF THIS COMPANY THAT IT IS NOT PROVIDI NG A SIMPLE SERVICE OF DATA PROCESSING BUT IT IS ENGAGED IN THE ACTIVIT Y OF PROVIDING HIGH- END SERVICES INVOLVING DECISION MAKING ANALYSIS WHI CH REQUIRES THOUGHT PROCESS AND EVALUATION OF VARIOUS FACTS AND FACTORS. FUNCTIONAL COMPARABILITY OF THIS COMPANY WITH THAT OF SIMPLE BPO'S SERVICE PROVIDING COMPANY HAS BEEN EXAMINED BY THE SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL SERVICES CENTER (INDIA ) (P.) LTD. (SUPRA) IN PARAS. 82 & 83 AS UNDER : '82. INSOFAR AS M/S ECLERX SERVICES LIMITED IS CONC ERNED, THE RELEVANT INFORMATION IS AVAILABLE IN THE FORM OF AN NUAL REPORT FOR FINANCIAL YEAR 2007-08 PLACED AT PAGE 166 TO 183 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOWS THAT THE SAID COMPANY P ROVIDES DATA ANALYTICS AND DATA PROCESS SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORLD AND IS RECOGNIZED AS EXPERTS IN CHOSEN MA RKETS FINANCIAL SERVICES AND RETAIL AND MANUFACTURING. IT IS CLAIME D TO BE PROVIDING COMPLETE BUSINESS SOLUTIONS BY COMBINING PEOPLE, PR OCESS IMPROVEMENT AND AUTOMATION. IT IS CLAIMED TO HAVE E MPLOYED OVER ??? DOMAIN SPECIALISTS WORKING FOR THE CLIENTS. IT IS CLAIMED THAT ECLERX IS A DIFFERENT COMPANY WITH INDUSTRY SPECIAL IZED SERVICES FOR MEETING COMPLEX CLIENT NEEDS, DATA ANALYTICS KPO SE RVICE PROVIDER SPECIALIZING IN TWO BUSINESS VERTICALS FINANCIAL SE RVICES AND RETAIL AND MANUFACTURING. IT IS CLAIMED TO BE ENGAGED IN P ROVIDING SOLUTIONS THAT DO NOT JUST REDUCE COST, BUT HELP TH E CLIENTS INCREASE SALES AND REDUCE RISK BY ENHANCING EFFICIENCIES AND BY PROVIDING VALUABLE INSIGHTS THAT EMPOWER BETTER DECISIONS. M/ S ECLERX SERVICES PVT. LTD, IS ALSO CLAIMED TO HAVE A SCALABLE DELIVE RY MODEL AND ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 17 SOLUTIONS OFFERED THAT INCLUDE DATA ANALYTICS, OPER ATIONS MANAGEMENT, AUDITS AND RECONCILIATION, METRICS MANA GEMENT AND REPORTING SERVICES. IT ALSO PROVIDES TAILORED PROCE SS OUTSOURCING AND MANAGEMENT SERVICES ALONG WITH A MULTITUDE OF DATA AGGREGATION, MINING AND MAINTENANCE SERVICES. IT IS CLAIMED THAT THE COMPANY HAS A TEAM DEDICATED TO DEVELOPING AUTOMATION TOOLS TO SUPPORT SERVICE DELIVERY. THESE SOFTWARE AUTOMATION TOOLS INCREASE PRODUCTIVITY, ALLOWING CUSTOMERS TO BENEFIT FROM FURTHER COST SAV ING AND OUTPUT GAINS WITH BETTER CONTROL OVER QUALITY. KEEPING IN VIEW THE NATURE OF SERVICES RENDERED BY M/S ECLERX SERVICES PVT. LTD. AND ITS FUNCTIONAL PROFILE, WE ARE OF THE VIEW THAT THIS COMPANY IS AL SO MAINLY ENGAGED IN PROVIDING HIGH-END SERVICES INVOLVING SPECIALIZE D KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT B E COMPARED WITH THE ASSESSEE COMPANY WHICH IS MAINLY ENGAGED IN PRO VIDING LOW-END SERVICES TO THE GROUP CONCERNS. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AES ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECL ERX SERVICES PVT. LTD. AND MOLD-TEC TECHNOLOGIES LTD., IT IS DIFFICUL T TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SA ID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMIN ING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTION OF THE DRP.' THUS IT IS CLEAR THAT THE SPECIAL BENCH FOUND THAT THIS COMPANY IS NOT COMPARABLE WITH BPO COMPANY WHICH ARE ENGAGED ONLY IN LOW-END SERVICES OF DATA PROCESSING ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE ECLERX SERVICES LTD. FROM THE LIST OF COMPA RABLES FOR THE PURPOSES OF DETERMINING ALP. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 18 8.1.3 WE FURTHER NOTE THAT THE HON'BLE DELHI HIGH COURT IN ITA NO. 102 OF 2015 DATED 10/8/2015 HAS CONFIRMED THE VIEW TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERKS GLOBEL CENTERS INDIA (P.) LTD. (SUPRA). ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE ECIERX SERVICES LTD. FROM THE LIST OF COMPA RABLES FOR THE PURPOSE OF DETERMINING THE ALP. 8.2 HCL COMNET SYSTEM & SERVICES LTD. (SEG.): THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT T HE ACCOUNTING YEAR OF HCL COMNET SYSTEM & SERVICES LTD. (SEG.) IS ENDING AT DIFFERENT POINTS OF TIME OF YEAR AND THEREFORE, THE FINANCIAL DATA OF THE SAID COMPANY CANNOT BE CONSIDERED AS CONTEMPORA NEOUS TO THAT OF THE ASSESSEE WHICH IS FOLLOWING THE FINANCIAL YE AR AS THE ACCOUNTING YEAR. IN SUPPORT OF HIS CONTENTION, HE H AS RELIED UPON THE FOLLOWING DECISIONS: I. SANDSTONE CAPITAL ADVISORS (P.) LTD. V. ASSTT. C IT [2014] 147 ITD 240/[2013] 32 TAXMANN.COM 216 (MUM. - TRIB.) II. ASSTT. CIT V. HAPAG LLOYD GLOBAL SERVICES (P.) LTD. [2014] 62 SOT 8/[2013] 34 TAXMANN.COM 241 (MUM. - TRIB.) III. SAVEN TECHNOLOGIES LTD. V. ACIT [IT APPEAL NO. 1416 (HYD.) OF 2010, DATED 10-1-2014] IV. EVONIK INDIA (P.) LTD. V. DY. CIT [2014] 51 TAXMANN.COM 124 (MUM. - TRIB.) V. TELELOGIC INDIA (P.) LTD. V. DY. CIT [2015] 69 SOT 135/58 TAXMANN.COM 364 (MUM. - TRIB.) VI. HONEYWELL AUTOMATION INDIA LTD. V. DY. CIT (ITA NO. 4/PUNE/08, DATED 10-2-2009) ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS EXAMINED THE FUNCTIONAL COMPARABILITY O F THIS COMPANY ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 19 AND FOUND THAT THIS COMPANY COMPLIES WITH FILTERS A PPLIED BY THE TPO. ACCORDINGLY, THIS IS A GOOD COMPARABLE FOR DET ERMINING THE ALP IN RESPECT OF INTERNATIONAL TRANSACTIONS IN THE ITES SEGMENT. 8.2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT HCL COMNET SYSTEM & SERVICES LTD. (SEG.) IS FOLLOWING ITS ACCO UNTING YEAR FROM 1ST JULY TO 30TH JUNE. FOR THE YEAR UNDER CONSIDERA TION, THE FINANCIAL ACCOUNTS ARE PREPARED FOR THE YEAR ENDED ON 30TH JUNE, 2007. THEREFORE, IT IS CLEAR THAT FOR THE FINANCIAL YEAR UNDER CONSIDERATION, ONLY PARTIAL DATA ARE AVAILABLE FROM 1ST JULY 2006 TO 31ST MARCH 2007. AT THE OUTSET, WE NOTE THAT AN IDE NTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DEC ISIONS AS RELIED UPON BY THE ASSESSEE AND REFERRED (SUPRA). IN THE C ASE OF SANDSTONE CAPITAL ADVISORS (P.) LTD. (SUPRA), THE TRIBUNAL VI DE ITS ORDER DATED 6/2/2013 HELD IN PARA 10 TO 10.3 AS UNDER: '10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND R ELEVANT MATERIAL ON RECORD. THE TPO HAS REJECTED THIS COMPARABLE BEC AUSE THE FINANCIAL DATA FOR THE FINANCIAL YEAR 2007-08 WERE NOT AVAILABLE IN THE PUBLIC DOMAIN AND HENCE, IT WAS HELD THAT THIS COMPANY IS NOT A SUITABLE COMPARABLE. THERE IS NO DISPUTE THAT THE D ATA FURNISHED BY THE ASSESSEE ARE REGARDING THE FINANCIAL RESULTS AS ON 30.6.2007. THEREFORE, AS FAR AS THE FINANCIAL YEAR 2007-08 IS CONCERNED, THE DATA AVAILABLE WERE ONLY FOR 3 MONTHS. 10.1 AS PER RULE 10B(4), THE DATA TO BE USED IN ANA LYSING THE COMPARABILITY OF OR UNCONTROLLED TRANSACTION WITH A N INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINAN CIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO . THEREFORE, IT IS MANDATORY FOR THE PURPOSE OF COMPARING THE DATA OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION THAT THE SAME SHOULD RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 20 HAS BEEN ENTERED INTO. THE INFORMATION, DATA AND DO CUMENTS SHOULD BE CONTEMPORANEOUS. 10.2 UNDISPUTEDLY, THE FINAL ACCOUNTS OF ARIX CONSU LTANTS PVT. LTD. ARE PREPARED ON 30TH JUNE; THEREFORE, THE OBJECTION RAISED BY THE TPO HAS MERITS. THE PUNE BENCHES OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD IN ITA NO. 4/PN/08 V IDE ORDER DATED 10TH FEB 2009 HAS ALSO TAKEN A SIMILAR VIEW. 10.3 APART FROM THIS, AS IT HAS BEEN FAIRLY CONCEDE D BY THE LD SR COUNSEL FOR THE ASSESSEE THAT THERE ARE RELATED PAR TY TRANSACTION IN THE CASE OF ARIX CONSULTANTS PVT. LTD AS IT IS EVID ENT FROM THE NOTE ON ACCOUNT AT PAGE 89 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE FACT THAT THIS COMPANY IS HAVING RELATED PARTY TRANSACTI ONS, THE SAME CANNOT BE CONSIDERED AS A PROPER COMPARABLE. ' WE FURTHER NOTE THAT A SIMILAR VIEW HAS BEEN TAKEN IN ALL OTHER DECISIONS AS RELIED UPON BY THE TRIBUNAL IN THE CAS E OF ACIT V. LOYAL GROTH SERVICES (SUPRA) THE TRIBUNAL VIDE ITS ORDER DATED 26/02/2013 HAS HELD IN PARA. 7.2 AS UNDER: '7.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEN DED THAT THE FINANCIAL YEAR END OF A COMPARABLE CASE MATCHES WIT H ASSESSEE, IT CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF DIFFE RENT FINANCIAL YEAR ENDINGS ARE DISTORTED. HE RELIED PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CAPITAL ADVISORS. PR IVATE LIMITED V. ACIT IN ITA NO 2012. VIDE ITS ORDER DATED 06.02.201 3, THE TRIBUNAL, AFTER CONSIDERING THE PRESCRIPTION OF RULE I0B(4) A ND AN ANOTHER CASE THE TRIBUNAL IN HONEYWELL AUTOMATION INDIA LTD ., HAS MANDATORY FOR THE PURPOSES OF COMPARING THE DATA OF M WPM TRANSACTION WITH AN INTERNATIONAL TRANSACTION THAT THE TO THE FINANCIAL YEAR ENDING SIMILAR TO THAT OF THE ASSESS EE. THE LD. DR CONTENDED THAT SINCE THE CASE OF CMC LIMITED FINANC IAL YEAR ENDING VIS-A-VIS THAT OF THE ASSESSEE, HAVE BEEN EXCLUDED. NO CONTRARY PRECEDENT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AR. IN FACT, THE ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 21 ARGUMENT ADVANCED BY THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE LD. AR, FOLLOWING THE PRECEDENT, WE HOLD THAT T HIS CASE SHOULD FROM THE LIST OF COMPARABLES.' ACCORDINGLY, BY FOLLOWING SERIES OF DECISIONS OF TH E TRIBUNAL ON THE POINT, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS A GOOD COMPARABLE FOR THE PURPOSE OF DETERMINING THE ALP. HENCE, THE AO/TPO IS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINATION OF ALP. 8.3 INFOSYS TECHNOLOGIES LTD. THE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE ANNUAL REPORT OF THIS COMPANY AT PAGE 57 OF THE PAPER BOOK AND SUBMI TTED THAT THOUGH THIS COMPANY WAS INITIALLY SELECTED BY THE A SSESSEE, HOWEVER, THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COM PANY EVEN BEFORE THE TPO AND FURTHER BEFORE THE DRP. THEREFORE, THIS COMPANY FUNCTIONALLY DIFFERENT AND HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE LEARNED AR OF THE ASSESSEE HAS POI NTED BUT THAT HIS COMPANY IS HAVING MORE THAN 17000 EMPLOYEES IN COMPARISON TO ONLY 6 EMPLOYEES OF THE ASSESSEE. THEREFORE, EVEN O N THE PARAMETER OF THE SCALE AND STRENGTH OF EMPLOYEES, THIS COMPAN Y CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. FURTHER, HE HAS REFERRED TO THE ANNUAL REPORT OF TH E COMPANY AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THERE IS AMALGAMATION OF PAN FINANCIAL SERVICES INDIA PVT. L TD. W.E.F. 1/4/2008. THE SCHEME OF AMALGAMATION HAS BEEN APPRO VED BY THE HON'BLE HIGH COURT ON 6/4/2009 AND 10/3/2009. THERE FORE, THERE IS AN EXTRAORDINARY EVENT OF AMALGAMATION DURING THE Y EAR UNDER CONSIDERATION AND HENCE THIS COMPANY CANNOT BE CONS IDERED AS A GOOD COMPARABLE FOR THE PURPOSE OF DETERMINING THE ALP. APART FROM THE ABOVE OBJECTIONS, LEARNED AR OF THE ASSESS EE HAS FURTHER SUBMITTED THAT THIS COMPANY IS ENGAGED IN PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES TO ORGANIZATIONS WHICH ARE PROVIDING ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 22 SERVICE OF OUTSOURCING BUSINESS PROCESS. THEREFORE, THIS COMPANY IS IN A DIFFERENT KIND OF BUSINESS ACTIVITY IN PROVIDI NG THE MANAGEMENT SERVICE OF BUSINESS PROCESSES AND IS NOT DIRECTLY P ROVIDING ANY BUSINESS PROCESS OUTSOURCE SERVICES. THUS, THIS COM PANY CANNOT BE CONSIDERED AS A FUNCTIONALLY COMPARABLE. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS SUBMITTED THAT THIS COMPANY IS IN THE BUSINESS ACTI VITY OF PROVIDING ITES AND THEREFORE, IT SATISFIES ALL THE TESTS AND FILTERS APPLIED BY THE TPO. THE FUNCTIONAL COMPARABILITY HAS BEEN EXAMINED BY THE DRP AND IT WAS FOUND THAT THIS COMPANY IS IN THE SAME L INE OF ACTIVITY UNDER THE CATEGORY OF ITES. HE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 8.3.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN PARA 16.2.15 OF THE ANNUAL REPORT OF THIS COMPANY, IT HAS BEEN REPORTED THAT T HERE WAS AMALGAMATION W.E.F 1/4/2008. THE RELEVANT PART OF T HE INFORMATION PROVIDED IN THE ANNUAL REPORT READS AS UNDER: 'AMALGAMATION OF PAN FINANCIAL SERVICES INDIA PRIVA TE LIMITED THE BOARD OF DIRECTORS IN THEIR MEETING HELD ON OCT OBER 6, 2008. APPROVED, SUBJECT TO THE APPROVAL OF THE HONORABLE HIGH COURTS OF KARNATAKA AND CHENNAI, A SCHEME' OF AMALGAMATION (' THE SCHEME') TO AMALGAMATE PAN FINANCIAL SERVICES INDIA PRIVATE LIMITED ('PAN FINANCIAL'), A WHOLLY OWNED SUBSIDIARY OF THE COMPA NY ENGAGED IN PROVIDING BUSINESS PROCESS MANAGEMENT OF SERVICES, WITH THE COMPANY WITH EFFECT FROM APRIL 1, 2008 ('EFFECTIVE DATE'). THE APPROVAL OF THE HIGH COURT WAS RECEIVED ON APRIL 6, 2009 AND FILED WITH THE RESPECTIVE REGISTRAR OF COMPANIES OF KARNA TAKA AND TAMILNADU ON APRIL 6, 2009 AND MARCH 10, 2009 RESPE CTIVELY. ACCORDINGLY ON THE SCHEME BECOMING EFFECTIVE, THE F INANCIAL STATEMENT OF PAN FINANCIAL HAS BEEN MERGED WITH THE COMPANY.' ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 23 IT IS CLEAR THAT THERE WAS EXTRAORDINARY EVENT OF A MALGAMATION DURING THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE EXTRAORDINARY DEVELOPMENT OF AMALGAMATION OF ANOTHE R COMPANY, THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARA BLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, APART FROM THI S, WE FURTHER NOTE THAT AS PER THE SEGMENT REPORTING IN PARA. 16. 2.21 OF ANNUAL REPORT THIS COMPANY IS PROVIDING BUSINESS PROCESS M ANAGEMENT SERVICES AS UNDER: 'SEGMENT REPORTING THE COMPANY'S OPERATIONS PRIMARILY RELATE TO PROVID ING BUSINESS PROCESS MANAGEMENT SERVICES TO ORGANIZATIONS THAT O UTSOURCE THEIR BUSINESS PROCESSES. ACCORDINGLY, REVENUES REPRESENT ED ALONG INDUSTRY CLASSES COMPRISE THE PRIMARY BASIS OF SEGM ENTAL INFORMATION SET OUT IN THESE FINANCIAL STATEMENTS. SECONDARY SEGMENTAL REPORTING IS PERFORMED ON THE BASIS OF TH E GEOGRAPHICAL LOCATION OF CUSTOMERS. THE ACCOUNTING PRINCIPLES CONSISTENTLY USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS ARE ALSO CONSISTENTLY APPLIED TO RECORD INCOME IN INDIVIDUAL SEGMENTS. THESE ARE SET OUT IN THE NO TE ON SIGNIFICANT ACCOUNTING POLICIES.' THUS IT IS CLEAR THAT THE REVENUE EARNED BY THIS CO MPANY IS FROM THE ACTIVITY INCLUSIVE OF OPERATION PRIMARILY RELATES T O PROVIDING BUSINESS PROCESS MANAGEMENT SERVICES TO OTHER ORGAN IZATION ENGAGED IN OUTSOURCING BUSINESS PROCESS. THIS COMPA NY IS NOT ENGAGED IN DIRECT ACTIVITY OF BPO BUT IT PROVIDES S ERVICE TO BPOS AND THAT TOO MANAGEMENT SERVICE TO BPO. THEREFORE, IN OUR CONSIDERED VIEW, THIS COMPANY IS ENGAGED IN A DIFFE RENT NATURE OF ACTIVITY TO THAT OF THE ASSESSEE PROVIDED TO ITS AE . ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 24 8.4 MAPPLE E SOLUTIONS LTD: THE LEARNED AR OF THE ASSE SSEE HAS SUBMITTED THAT THE FINANCIAL STATEMENTS OF THIS COM PANY CANNOT BE RELIED UPON OWING TO THE DIRECTORS OF THIS COMPANY INVOLVED IN THE FRAUD. HE HAS RELIED UPON THE FOLLOWING DECISIONS: I. FIRST ADVANTAGE OFFSHORE SERVICES (P.) LTD. V. C IT (ITA NO. L086/BANG/2011, DATED 30-4-2013) II. GOLDMAN SACHS SERVICES (P.) LTD. V. DY. CIT [2015] 60 TAXMANN.COM 310 (BANG. - TRIB.) III. STREAM INTERNATIONAL SERVICES (P.) LTD. V. ASS TT. CIT [2015] 152 ITD 664/53 TAXMANN.COM 19 (MUM. - TRIB.) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTAT IVE HAS OBJECTED TO THE EXCLUSION OF THIS COMPANY AND SUBMI TTED THAT WHEN THIS COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSE E, THEN INVOLVEMENT OF A DIRECTOR IN SOME ACTIVITY OF FRAUD CANNOT BE RELATED TO THE BUSINESS OF THE COMPANY, UNTIL AND UNLESS TH E FRAUD IS COMMITTED IN RESPECT OF THE BUSINESS ACTIVITY OF TH E SAID COMPANY. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW . 8.4.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S THE RELEVANT MATERIAL ON RECORD. WE FIND FORCE AND SUBS TANCE IN THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT IN THE ABSENCE OF ANY SPECIFIC ALLEGATION THAT THE ALLEGED FRAUD BY THE DIRECTOR IS IN RESPECTS OF BUSINESS ACTIVITY OF THE COMPANY, THE SAID ACTIVITY OF FRAUD BY THE DIRECTOR IN OTHER BUSINESS ACTIVITY NOT RELATED TO THE BUSINESS OF THE ASSESSEE-COMPANY CANNOT BE T AKEN AS A GROUND FOR DOUBTING THE FINANCIAL STATEMENT OF THE ASSESSE E AND THEREBY EXCLUDING THE SAID COMPANY FROM A LIST OF COMPARABL ES. HOWEVER, WE FIND THAT THIS TRIBUNAL IN A NUMBER OF CASES AS RELIED UPON BY THE ASSESSEE, HAS HELD THAT THIS COMPANY CANNOT BE TAKE N AS A GOOD COMPARABLE BECAUSE OF THE REASON THAT THE DIRECTORS OF THE COMPANY WERE INVOLVED IN FRAUD ACTIVITY AND THEREFORE, FINA NCIAL STATEMENTS OF THIS COMPANY CANNOT BE RELIED UPON. IN THE CASE OF FIRST ADVANTAGE ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 25 OFFSHORE SERVICES (P.) LTD. (SUPRA) THE TRIBUNAL HA S HELD IN PARA. 41 AS UNDER: '41. AS FAR AS THE COMPANIES MAPEL ESOLUTION LTD AN D TRITON CORP LTD., THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THESE TWO COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPA RABLES, AS FOR THE RELEVANT ASSESSMENT YEAR, THEY WERE ALLEGEDLY I NVOLVED IN FINANCIAL FRAUD AND RESULTS OF THESE TWO COMPANIES CANNOT BE RELIED UPON. FOR THIS PURPOSE, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION OF HYDERABAD BENCH OF TH E TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION (CITED SUPRA). O N GOING THROUGH THE SAID ORDER, WE FIND THAT THE HYDERABAD BENCH OF THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNAL AT DELH I IN THE CASE OF ITO V. CRM SERVICES INDIA PVT. LTD. IN ITA NO. 4068 OF DEL 2009 DATED 30.06.2011 WHEREIN IT WAS HELD THAT THE FINAN CIAL RESULTS OF THESE TWO COMPANIES CANNOT BE ACCEPTED AS THEY WERE UNDER SERIOUS INDICTMENT. THUS IT IS SEEN THAT THE DECISION OF TH E TRIBUNAL IN THE CASE OF CRM SERVICES RELATES TO ASSESSMENT YEAR 200 7-08 AND THE DECISION OF THE HYDERABAD BENCH ALSO IS FOR THE ASS ESSMENT YEAR 2007-08. THEREFORE, IF THE RESULTS OF THESE TWO COM PANIES CANNOT BE ACCEPTED FOR THE SAME ASSESSMENT YEAR IN THE CASE O F ANOTHER COMPANY, WE ARE UNABLE TO SEE HOW THEY CAN BE TAKEN AS COMPARABLES IN THE CASE OF THE ASSESSEE HEREIN FOR THE VERY SAME ASSESSMENT YEAR. THEREFORE, WE DIRECT THE TPO TO EX CLUDE THESE TWO COMPANIES ALSO FROM THE LIST OF COMPARABLES. AS FAR THE ISSUE OF CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION AS OPE RATING REVENUE IS CONCERNED, WE HOLD THAT THIS AMOUNT ALSO IS TO BE C ONSIDERED AS PART OF OPERATING REVENUE IN VIEW OF THE DECISION OF THI S BENCH OF THE TRIBUNAL IN THE CASE TRILOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. THEREFORE, THE AO SHALL RECOMPUTE THE ALP BY TAKING INTO ACCOUNT THE FOREIGN EXCHANGE FLUCTUATION ALSO AS OPERATING REVENUE. AS FAR AS THE RESULT OF MEGA SOFT IS CONCERNED, WE HAVE AL READY DIRECTED THAT THE ALP SHALL BE COMPUTED IN THE CASE OF THE S OFTWARE SEGMENT ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 26 AFTER MAKING CORRECTION TO THE NET MARGIN OF MEGA S OFT LTD., ON THE BASIS OF THE ORDER OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. ' SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN OTH ER DECISIONS RELIED UPON BY THE ASSESSEE ACCORDINGLY, FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 8.5 MOLD-TEK TECHNOLOGIES LTD. THE LEARNED AR OF THE ASSESSEE HAS REFERRED TO THE DIRECTOR'S REPORT OF M/S MOLD-TEX TECHNOLOGIES LTD. AND SUBMITTED THA T THIS CO. WAS HAVING AN EXTRAORDINARY EVENT OF DEMERGER OF ITS SU BSIDIARY M/S MOLD TEK TECH. LTD. AND AMALGAMATED WITH TEKMEN TOO L (P.) LTD. THE SCHEME OF AMALGAMATION WAS APPROVED BY THE HON' BLE ANDHRA PRADESH HIGH COURT VIDE ORDER DATED 15/07/2008 THER EFORE, THERE WAS AMALGAMATION AND DEMERGER IN RESPECT OF THIS CO . DURING THE YEAR UNDER CONSIDERATION. HE HAS REFERRED TO THE BU SINESS ACTIVITY OF THE SAID CO. AS INVOLVED IN THE STRUCTURAL ENGINEER ING KPO. THUS, THE LEARNED AR HAS SUBMITTED THAT THIS CO. IS ENTIR ELY IN THE DIFFERENT NATURE OF ACTIVITY AND FUNCTIONS WHICH IS NOT COMPA RABLE WITH THE ASSESSEE. IN SUPPORT OF HIS CONTENTION HE HAS RELIE D UPON THE DECISIONS OF THE SPECIAL BENCH OF MUMBAI (SUPRA). T HE LEARNED AR HAS POINTED OUT THAT THIS CO. IS DECLARING ONLY ONE SEGMENT OPERATING REVENUE THEREFORE, THIS CANNOT BE COMPARE D WITH THE ASSESSEE. 8.5.1-2 ON THE OTHER HAND, LEARNED DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS CO. I S IN THE FIELD OF ITES AND THEREFORE, FUNCTIONALLY COMPARABLE WITH TH E ASSESSEE. 8.5.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S THE MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT FUN CTIONAL ANALYSIS OF THE CO. HAS BEEN EXAMINED BY THE SPECIAL BENCH IN T HE CASE OF ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 27 MAERSK GLOBAL CENTERS INDIA (P.) LTD (SUPRA) IN PAR AS 81 & 83 AS UNDER: '81. INSOFAR AS THE CASE OF M/S MOLD TEK TECHNOLOGI ES LTD IS CONCERNED, IT IS OBSERVED FROM THE ANNUAL REPORT OF THE SAID COMPANY FOR THE FY 2007-08 PLACED AT PP. 139 TO 151 OF THE PAPER BOOK THAT THE SAID COMPANY WAS PIONEER IN STRUCTURA L ENGINEERING KPO SERVICES AND ITS ENTIRE BUSINESS COMPRISED OF P ROVIDING ONLY STRUCTURAL ENGINEERING SERVICES TO VARIOUS CLIENTS. FURTHER, INFORMATION OF M/S MOLD TEK TECHNOLOGIES LTD AVAILA BLE ON THEIR WEBSITE IS FURNISHED IN THE FORM OF PRINTOUT AT PP. 158 TO 165 OF THE PAPER BOOK AND A PERUSAL OF THE SAME SHOWN THAT IT IS A LEADING PROVIDER OF ENGINEERING AND DESIGN SERVICES WITH SP ECIALIZATION IN CIVIL, STRUCTURAL AND MECHANICAL ENGINEERING SERVIC ES. IT IS STATED TO HAVE A STRONG TEAM OF SKILLED RESOURCES WITH WORLD CLASS RESOURCES AND SKILL SETS. IT IS ALSO STATED TO HAVE CONSISTEN TLY HELPED THE CLIENTS TO CUT DOWN DESIGN AND DEVELOPMENT COST OF CIVIL, S TRUCTURAL, MECHANICAL AND PLANT DESIGN BY 30-40 PER CENT AND D ELIVERED TECHNOLOGICALLY SUPERIOR OUTPUTS TO MATCH AND EXCEE D EXPECTATIONS. IT IS CLAIMED TO HAVE IN-HOUSE SOFTWARE DEVELOPMENT TEAM, QUALITY CONTROL TRAINING AND TROUBLE SHOOTING FACILITIES. M /S MOLD TEK IS ALSO RENDERING WEB DESIGN AND DEVELOPMENT SERVICES WITH EXPERIENCE IN TURNING THEM INTO AN EFFECTIVE GRAPHIC DESIGN REPRE SENTATION AND CREATING DYNAMIC AND GRAPHIC RICH WEB APPLICATIONS FROM IT SPECS, DESIGN PRINTS ETC. KEEPING IN VIEW THIS INFORMATION AVAILABLE IN THE ANNUAL REPORT OF M/S MOLD TEK AS WELL AS ON ITS WEB SITE, WE ARE OF THE VIEW THAT THE SAID COMPANY IS MAINLY INVOLVED I N PROVIDING HIGH- END SERVICES TO ITS CLIENTS INVOLVING HIGHER SPECIA L KNOWLEDGE AND DOMAIN EXPERTISE IN THE FIELD AND THE SAME CANNOT B E TAKEN AS COMPARABLE TO THE ASSESSEE COMPANY WHICH IS MAINLY INVOLVED IN PROVIDING LOW-END SERVICES. IT MAY BE PERTINENT TO NOTE HERE THAT THE FINANCIAL YEAR 2007-08 WAS A UNIQUE YEAR FOR MOLD T EK TECH. LTD. AS THE SCHEME OF ARRANGEMENT INVOLVING AMALGAMATION BE TWEEN ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 28 TEKMEN TOOL (P.) LTD AND MOLD TEK TECH. LTD. AND DE MERGER BETWEEN MOLD TEK TECHNOLOGIES LTD., SIMULTANEOUSLY, WAS SANCTIONED BY THE HON'BLE ANDHRA PRADESH HIGH COURT BY 15TH JULY, 2008 WITH THE APPOINTED DATE FOR AMALGAMATION AND D EMERGER BEING AS OCTOBER, 2007 AND APRIL 2007 RESPECTIVELY. IT IS ALSO PERTINENT TO NOTE THAT WHILE WORKING OUT THE OPERATING MARGIN OF THE SAID COMPANY PROVISION FOR DERIVATIVE LOSS OF RS. 6.43 C RORES MADE BY MOLD TEK TECH. LTD. WAS EXCLUDED BY THE AO TREATING THE SAME AS NON-OPERATING EXPENSES WHEREAS IN THE CASE OF RUSAB H DIAMONDS V. ASSTT. CIT [REPORTED AT (2013) 155 TTJ (MUM.) 386 (2013) 89 DTR (MUM.) (TRIB.) 57 ED ] IT WAS HELD BY THE DIVISION BENCH OF THIS TRIBUNAL THAT THE GAIN OR LOSS ARISING FROM THE FOR WARD CONTRACT ENTERED FOR THE PURPOSE OF FOREIGN CURRENCY EXPOSUR E ON THE EXPORT AND IMPORT HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE OPERATING PROFIT. 83. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THAT IF THE FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE COMPAN Y FOR ITS AE ARE COMPARED WITH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES (P) LTD AND MOLD-TEK TECHNOLOGIES LTD. IT IS DIFFICULT TO F IND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SA ID ENTITIES CANNOT BE TAKEN AS COMPARABLES FOR THE PURPOSE OF DETERMIN ING ALP OF THE TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. WE, THEREFORE, DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF 10 COMPARABLES FINALLY TAKEN BY THE AO/TPO AS PER THE DIRECTIONS OF THE DRP.' 8.5.4 THE SPECIAL BENCH HAS EXAMINED THE FUNCTIONAL COMP ARABILITY OF THIS CO. WITH THAT OF ITES LOW-END SERVICE PROVI DING ASSESSEE AND FOUND THAT THIS CO. IS RENDERING WEB DESIGNING AND DEVELOPMENT OF SERVICES WITH EXPERTISE IN TURNING THEM IN TO EFFEC TIVE GRAPHICS, DESIGN REPRESENTATIVE AND CREATING DYNAMICS AND GRA PHIC RICH WEB APPLICATION FROM IT SPECES, DESIGN, PRINTS ETC. FUR THER, THIS CO. WAS ALREADY FOUND TO BE INVOLVED IN PROVIDING STRUCTURA L ENGINEERING ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 29 SERVICES COUPLED WITH EXTRAORDINARY EVENT OF AMALGA MATION AND DEMERGER. FOLLOWING THE DECISION OF THIS SPECIAL BE NCH IN THE CASE OF MAERSK GLOBAL CENTRES INDIA (P.) LTD. (SUPRA), M UMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF LIONBRIDGE TECHNOLOG IES (P.) LTD. V. ITO [2014] 151 ITD 553/48 TAXMANN.COM 46 ALSO TOOK A SIMILAR VIEW IN PARA-7 AS UNDER: '7. BY APPLYING THE ARITHMETIC MEAN OF 30.10% AN AD JUSTMENT OF RS. 10,39,54,664/- WAS SUSTAINED BY DRP. OUT OF THE COM PARABLES TAKEN BY THE DRP, LEARNED AR HAS CONTENDED AGAINST THREE COMPANIES NAMELY; MOLD TEK TECH. LTD., EXCLERX SERVICE LTD AN D ACROPETAL TECH. LTD WHICH WERE ALLEGED TO BE FUNCTIONALLY DIF FERENT FROM THE ASSESSEE COMPANY BEING A LOW-END BACK OFFICE SUPPOR T SERVICE PROVIDER. WE FOUND THAT MOLD TEK TECH. LTD PROVIDES KPO SERVICES IN THE FIELD OF ENGINEERING. WE ALSO FOUND THAT MOL D TEK HAS DEMERGED ITS SUBSIDIARY MOLD TEK PLASTICS LTD W.E.F . APRIL, 2007 WHICH IS AN EXTRA-ORDINARY EVENT. FURTHERMORE, SINC E THE MOLD TEK IS INTO PROVIDING KPO ENGINEERING SERVICES, HENCE, CANNOT BE FUNCTIONALLY COMPARED WITH THE ASSESSEE COMPANY WHI CH IS ENGAGED IN THE PROVISION OF BACK OFFICE OPERATIONS. FOR THI S PURPOSE, RELIANCE MAY BE PLACED ON THE DECISION OF SPECIAL BENCH IN T HE CASE OF MAERSK GLOBAL CENTRES INDIA (P.) LTD. ITA NO. 7466/ MUM/2012. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN TH E ORDER OF DRP FOR NOT EXCLUDING MOLD TEK AS COMPARABLE WHICH IS A KNO WLEDGE PROCESSING COMPANY. THUS, THE DRP WAS NOT JUSTIFIED IN THE COMPARING THE SAME WITH THE ASSESSEE WHICH IS FUNCT IONALLY DIFFERENT INSOFAR AS ASSESSEE IS ENGAGED IN PROVIDING LOW-END BACK OFFICE SUPPORT SERVICES'. 8.5.5 IN VIEW OF THE ABOVE FACTS AND NATURE OF THE FUNCT IONS PERFORMED BY THE MOLD TEK WHICH HAVE BEEN EXAMINED BY THE SPECIAL BENCH AND FOUND IS NOT COMPARED WITH THE LO W-END ITES SERVICE PROVIDER CO. WE HOLD THAT THIS CO. IS FUNCT IONALLY NOT ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 30 COMPARABLE WITH THAT OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLUDE MOLD TEK FROM THE LIST OF COMPARA BLES. 8.6 TRICOM CORPORATION LTD. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT T HE FINANCIAL STATEMENTS OF THIS COMPANY CANNOT BE RELIED UPON FO R THE PURPOSE OF DETERMINING ALP BECAUSE OF THE DIRECTORS OF THIS CO MPANY INVOLVED IN THE FRAUD. HE FURTHER SUBMITTED THAT THERE WAS M ERGER DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THIS COMPANY C ANNOT BE CONSIDERED AS A GOOD COMPARABLE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DECISIONS: I. FIRST ADVANTAGE OFFSHORE SERVICES (P.) LTD.'S CA SE (SUPRA) II. STREAM INTERNATIONAL SERVICES (P.) LTD.'S CASE (SUPRA) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTAT IVE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 8.6.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE TRIBUNAL IN THE CASE OF FI RST ADVANTAGE OFFSHORE SERVICES (P.) LTD. (SUPRA) WHICH HAS ALREA DY BEEN REPRODUCED IN THE FOREGOING PARAGRAPHS. THIS COMPAN Y HAS MERGED WITH MOLD-TEK TECHNOLOGIES LTD. DURING THE YEAR UND ER CONSIDERATION. IN VIEW OF THE FINDINGS IN RESPECT O F MOLD-TEK TECHNOLOGIES LTD., WE ARE OF THE OPINION THAT THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE COMPANY. 8.7 VISHAL INFORMATION TECHNOLOGIES LTD. (CORAL HUB LT D.) THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT T HIS COMPANY DOES NOT QUALIFY THE EMPLOYEES FILTER OF 25% ADOPTE D BY THE TPO. HE HAS POINTED OUT THAT THIS COMPANY HAS OUTSOURCED IT S ACTIVITIES AND THEREFORE, BEING A DIFFERENT BUSINESS MODEL TO A RO UTINE ITES PROVIDER, CANNOT BE CONSIDERED AS A GOOD COMPARABLE . IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE FOLLOWING DE CISIONS: ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 31 I. RAMPGREEN SOLUTIONS (P.) LTD. V. CIT [2015] 234 TAXMAN 573/60 TAXMANN.COM 355 (DELHI) II. FIRST ADVANTAGE OFFSHORE SERVICES (P.) LTD.'S C ASE (SUPRA) III. STREAM INTERNATIONAL (P.) LTD.'S CASE (SUPRA) IV. GOLDMAN SACHS SERVICES (P.) LTD. V. DY. CIT [2015] 63 TAXMANN.COM 9 (BANG. - TRIB.) V. C3I SUPPORT SERVICES (P.) LTD. V. ASSTT. CIT [2014] 151 ITD 348/46 TAXMANN.COM 453 (HYD. - TRIB.) ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTAT IVE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 8.7.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE COMPARABILITY OF THIS COMPANY WITH ITES SERVICE PROVIDER HAS BEEN EXAMINED BY THE TRIBUNAL IN VARIOUS CASES AS RELIED UPON BY THE LEARNED AR OF T HE ASSESSEE. IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES (P.) LTD. (SUPRA) IT HAS BEEN HELD IN PARA. 35 AS UNDER: '35. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THA T THIS ISSUE HAD ARISEN IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMEN T YEAR 2006-07. THIS TRIBUNAL HAS HELD THAT EMPLOYEE COST FILTER IS TO BE THE SAME EVEN FOR ITES SEGMENT ALSO. THE LEARNED DRS ARGUMEN T THAT THE EMPLOYEE COST FILTER IS APPLICABLE ONLY TO SOFTWARE DEVELOPMENT SEGMENT AND NOT TO ITES SEGMENT IS NOT ACCEPTABLE. THOUGH IT IS WITHOUT ANY DISPUTE THAT THE SOFTWARE DEVELOPMENT W OULD REQUIRE SKILLED EMPLOYEES AND, THEREFORE, THE EMPLOYEE COST WOULD DEFINITELY BE MORE THAN 25% OF THE TOTAL EXPENSES, IT CANNOT H E SAID THAT THE SAID FILTER IS NOT APPLICABLE TO ITES SEGMENT, WHER E COMPARABLY LESS EMPLOYEES ARE EMPLOYED. IN THE ITES SEGMENT, THE EN TIRE WORK IS TO BE DONE BY THE EMPLOYEES AND, THEREFORE, EVEN THOUG H THEY MAY BE LESS SKILLED COMPARED TO SOFTWARE DEVELOPMENT SEGME NT, THE NUMBER ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 32 OF EMPLOYEES WOULD DEFINITELY BE MORE AND THUS THE EMPLOYEE COST WOULD BE HIGH AND THUS APPLICATION OF EMPLOYEE COST FILTER TO THE ITES SECTOR IS ALSO JUSTIFIED. IN VIEW OF THE SAME, WE DIRECT THE TPO TO APPLY THE EMPLOYEE COST FILTER TO EXCLUDE COMPAN IES WITH EMPLOYEE COST OF LESS THAN 25% FROM THE LIST OF COM PARABLES FOR THE COMPUTATION OF ALP. ' SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE OTHER DECISIONS. WE FURTHER NOTE THAT THE HON'BLE HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS (P.) LTD. (SUPRA) HAS ALSO DECI DED THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE. 8.8 WIPRO LTD. (SEG.) THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS COMPANY IS AN INDUSTRY LEADER AND ALSO OWNS TANGIBLES. HE HAS FUR THER SUBMITTED THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND SERVICES. HOWEVER, THE SEGMENTAL INFORMATION IS NOT AVAILABLE . HE HAS POINTED OUT THAT THERE IS A AMALGAMATION DURING THE YEAR. H E HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIB UNAL IN CASE OF 3DPLM SOFTWARE SOLUTION LTD. V. DY. CIT [2014] 42 TAXMANN.COM 333 . ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS COMPANY W AS FOUND TO BE FUNCTIONALLY SIMILAR TO THE ITES SERVICE PROVIDED B Y THE ASSESSEE. 8.8.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEV ANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE OF COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THIS TRIBUNAL IN THE CASE OF GXS INDIA TECHNOLOGY CENTRE (P.) LTD . V. ITO [2015] 62 TAXMANN.COM 276 (BANG. - TRIB.) WHEREIN IT HAS BEEN HELD IN PARAS 17.2 AND 17.3 AS UNDER: ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 33 '17.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN CASE OF 3DPLM S OFTWARE SOLUTIONS LTD. (SUPRA), THIS TRIBUNAL HAS CONSIDERE D THE FUNCTIONAL COMPARABILITY OF THIS COMPANY IN PARAS 12.4.1 AND 1 2.4.2 AS UNDER: 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGE D BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVIC ES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATION OF REVE NUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TPO APPEARS TO H AVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75 % OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW I N THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS TH AT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH I S NOT AN APPROPRIATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLEC TUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO. 227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTAN GIBLES CANNOT BE COMPARED TO A LOW-RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CAS E ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DE CISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSID ERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT T HE ASSESSING OFFICER (TPO) TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CO NSIDERATION. ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 34 17.3 AS IT WAS FOUND THAT THIS COMPANY OWNS INTELLE CTUAL PROPERTY RIGHTS IN THE FORM OF REGISTERED PATENTS AND SEVERA L PENDING APPLICATIONS FOR GRANT OF PATENTS. THEREFORE, THE S AID COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO LOW-RISK C APTIVE SERVICES PROVIDER. FOLLOWING THE FINDING OF THE CO-ORDINATE BENCH OF T HIS TRIBUNAL, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES.' ACCORDINGLY, WE DIRECT THE AO/TPO TO RE-COMPUTE THE ALP AFTER EXCLUSION OF THE ABOVE COMPANIES FROM THE LIST OF C OMPARABLES. THE ASSESSEE CLAIMS THAT MEAN MARGIN OF THE COMPARABLE AFTER EXCLUSION OF THE ABOVE COMES TO AROUND 17.85% WHICH IS WITHIN TOLERANCE RANGE OF +/-5%. WE DIRECT THE TPO TO CONSIDER THE C LAIM OF THE ASSESSEE OF GRANTING THE BENEFIT OF TOLERANCE RANGE +/-5% AS RAISED IN GROUND NO. 3 OF THE CONCISE GROUNDS. 24. FROM THE ABOVE PARAS OF THIS ORDER RENDERED IN THE CASE OF M/S FLEXTRONICS TECH. INDIA(P)LTD. (SUPRA), IT IS SEEN THAT THESE EIGHT COMPARABLES ARE NOT GOOD COMPARABLES IN CASE OF BPO COMPANY I.E . M/S FLEXTRONICS TECH. INDIA(P)LTD.,(SUPRA) AND IN THE PRESENT CASE ALSO, AS PER THE ASSESSEES PROFILE NOTED BY THE TPO ON PAGE-2 OF HIS ORDER, THE ASSESS EE COMPANY IS ENGAGED IN PROVIDING ITES AND THEREFORE, IT APPEARS TO BE A BP O COMPANY AND THE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN F ACTS AS COMPARED TO FACTS IN THE CASE OF M/S FLEXTRONICS TECH. INDIA (P) LTD., ( SUPRA). HENCE RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER WE, HOLD THAT THESE E IGHT COMPARABLES SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES AND THE TP ADJUSTMENT, IF ANY, HAS TO ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 35 BE MADE ON THE BASIS OF REMAINING COMPARABLES AS PE R LAW. WE DIRECT AO/TPO ACCORDINGLY. 25. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. 26. IN THE COMBINED RESULT, THE APPEAL OF THE ASSE SSEE AND REVENUE FOR AY: 2005-06 ARE PARTLY ALLOWED WHEREAS THE APPEAL O F THE ASSESSEE FOR AY: 2007- 08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) (VIJAY PAL RAO) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 11/08/2016 PLACE: BANGALORE AM* COPY : TO 1.THE APPELLANT .THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., BANGALORE ASSTT. REGISTRAR, ITAT, BANGALORE ITA NOS. 1274(B)/11, 172(B)/12 & 111(B)/12 36 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 ASSISTANT 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