Conseco Data Services (India) Private Limited, Hyderabad V. DCIT, Hyderabad

ITA 1280/HYD/2010

• Counselvise Citation: 128022514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARITA
• Assessee Lawyers: ABHIRUP; UTPAL SEN
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1280/HYD/2010 ASSESSMENT YEAR 2005-2006 CNO IT SERVICES (INDIA) PVT. LTD. (FORMERLY KNOWN AS CONSECO DATA SERVICES (INDIA) PVT. LTD.) HYDERABAD PAN AABCC3575G VS. DCIT, CIRCLE 1(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. UTPAL SEN & MR. ABHIRUP FOR REVENUE : MS. HARITA DATE OF HEARING : 31.12.2014 DATE OF PRONOUNCEMENT : 12.02.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE CNO IT SERVICES PVT. LTD (FORMERLY KNOWN AS CONSECO DATA SERVICES (INDIA) PVT. LT D.) IS AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 29.07.2010. 2. ASSESSEE WAS ORIGINALLY KNOWN AS CONSECO DATA SERVICES (INDIA) PVT. LTD. AND THE ORDERS OF THE AUTHO RITIES HAVE BEEN PASSED ON THAT NAME ACCORDINGLY. CONSEQUENT TO THE CHANGE IN NAME OF THE ASSESSEE ON 06-08010 IE., AFTE R THE ORDER OF LD CIT(A), FRESH CERTIFICATE WAS OBTAINED FROM T HE REGISTRAR OF COMPANIES CHANGING NAME TO CNO IT SERVICES INDIA PVT. LTD., AND ASSESSEE HAS PLACED NECESSARY EVIDENCE ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD ON RECORD. THE COMPANY NAME CHANGE HAS BEEN ACCORDINGL Y NOTED IN THE RECORDS. 3. THE ASSESSEE HAS FILED ORIGINAL GROUNDS OF APPEAL AND IN THE COURSE OF PRESENT APPEAL ALSO FILED REVISED G ROUNDS OF APPEAL. HOWEVER, ALL THE GROUNDS PERTAIN TO DETERMIN ATION OF ALP ON THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. 4. BRIEFLY STATED, THE ASSESSEE IS A PRIVATE LIMITE D COMPANY ENGAGED IN SOFTWARE DEVELOPMENT AND MAINTENANCE SERVICES TO ITS AE AND IS 100% SUBSIDIARY OF M/S. CD OC INC., USA. THE ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO M/S. CONSECO SERVICES LLC, USA, WHICH IS ALSO ANOTHER SUBSIDIARY OF THE GROUP. FOR TH E A.Y. 2005-2006 ASSESSEE FILED RETURN OF INCOME ON 22.10.20 05 SHOWING INCOME OF RS.1,81,459/- AFTER CLAIMING DEDUCTION UNDER SECTION 10A FOR RS.1,72,34,991/-. AS THE ASSESSEE HAD INTERNATIONAL TRANSACTIONS, THE MATTER WAS REFERRED TO TH E TPO. THE ASSESSEE HAS DONE SOFTWARE DEVELOPMENT SERVICES TO ITS AE TO AN EXTENT OF RS.13,11,18,072/- IN ADDITION TO REIMBURSEMENT OF EXPENSES TO THE TUNE OF RS.18,07,596/- . ASSESSEE HAS UNDERTAKEN SOFTWARE DEVELOPMENT SERVICES ON COST PLUS METHOD (ACTUAL COST INCURRED PLUS 15% MARK-U P). HOWEVER, IN THE T.P. STUDY UNDERTAKEN BY THE ASSESSEE, ASSESSEE EVEN THOUGH JUSTIFIED THE PRICE ON CUP METHOD , HOWEVER, PREFERRED TNMM AS A METHOD FOR JUSTIFYING THE ALP OF INTERNATIONAL TRANSACTIONS. ASSESSEE HAS SELECTED ABOU T 87 COMPARABLE COMPANIES THAT IT FELT FUNCTIONALLY COMPARAB LE. ON THE BASIS OF THE ARITHMETIC MEAN OF THE MARGINS OF COMP ARABLES I.E., OP/TC, THE ASSESSEE JUSTIFIED THE AMOUNTS REC EIVED FROM ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD ITS AE UNDER T.P. PROVISIONS. IN THE COURSE OF T.P. ASSES SMENT PROCEEDINGS, TPO SELECTED REVISED COMPARABLE COMPANIES. TPO ADOPTED VARIOUS FILTERS WHICH ARE DIFFERENT FROM THE ASSES SEES FILTERS ADOPTED AND CONSIDERED THE MARGIN OF COMPARABLE COMPANIES USING ONLY THE RELEVANT YEAR DATA I.E., F.Y . 2004- 2005. AFTER DUE SEARCH PROCESS AND GIVING OPPORTUNITY TO THE ASSESSEE, THE TPO FINALLY SELECTED 17 COMPANIES AS COMPARABLES WHICH INCLUDE 6 COMPARABLES FROM THE T.P. DOCUMENT OF ASSESSEE ITSELF. TPO ALSO ISSUED TWO SHOW-CA USE NOTICES DURING THE PROCEEDINGS, IN RESPONSE TO WHICH, ASS ESSEE PUT-FORTH ITS ARGUMENTS. AFTER RECEIVING THE OBJECTIO NS OF THE ASSESSEE, TPO COMPUTED THE ARMS LENGTH MARGIN OF COMPARABLES AT 26.59% AND AFTER ALLOWING WORKING CAPITAL ADJUSTMENT, DETERMINED THE ARMS LENGTH MARGIN AT 26.5 4% AS AGAINST ASSESSEES MARGIN OF 15.14%. THE ABOVE RESULTE D IN AN UPWARD T.P. ADJUSTMENT OF RS.1,31,16,086/-. THE A.O. INCORPORATED THE ORDER OF TPO IN THE ASSESSMENT ORDER AND MADE THE ADDITION TO THE INCOME RETURNED, WITHOUT ALLOWI NG ANY DEDUCTION UNDER SECTION 10A ON THE AMOUNT ADJUSTED. 5. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE CIT(A ) AND CONTESTED THE SELECTION OF COMPARABLES AND DETERMIN ATION OF VARIOUS FILTERS AND OTHER ASPECTS WHILE MAKING T.P. ADJUSTMENT. LEARNED CIT(A) IN HIS ORDER RETAINED ALL THE COMPARABLES IDENTIFIED BY THE TPO, EXCEPT ONE OF SAT YAM COMPUTER SERVICES LTD. WITH REFERENCE TO THE GRANTING OF RISK ADJUSTMENT, DEPRECIATION ADJUSTMENT AND ADJUSTMENT F OR UNUTILISED INVESTMENT, THE LEARNED CIT(A) DID NOT AGR EE WITH THE ASSESSEES CONTENTIONS. SINCE, THE CIT(A) DELETED ONE COMPARABLE, THE ARMS LENGTH MARGIN OF THE 16 COMPARABLE S CAME TO 26.41% AND THE ADDITION WAS REDUCED TO ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD RS.1,29,11,111/-. ASSESSEE IS OBJECTING TO THE ABOVE ADJUSTMENT MADE IN THE COURSE OF T.P. PROCEEDINGS IN VARI OUS GROUNDS. 6. IN THE COURSE OF PRESENT PROCEEDINGS, EVEN THOUGH ASSESSEE FILED REVISED GROUNDS OF APPEAL CONTAINING 8 GROUNDS, ASSESSEE DID NOT PRESS GROUNDS NO. 1 TO 3, WHICH WERE OBJECTIONS RAISED BEFORE THE CIT(A) WITH REFERENCE TO REJE CTION OF ASSESSEES T.P. DOCUMENTATION AND UNDERTAKING FRESH COMPARABILITY ANALYSIS BY THE TPO, TO WHICH, THE LEAR NED D.R. HAS NO OBJECTION. SINCE, THESE GROUNDS WERE NOT PRESSED, T HESE WERE TREATED AS WITHDRAWN. 7. GROUND NO. 7 PERTAIN TO USING THE DATA AVAILABLE A T THE TIME OF ASSESSMENT PROCEEDINGS INSTEAD OF THOSE AVA ILABLE AS ON THE DATE OF T.P. DOCUMENTATION, NOT APPLYING MULT IPLE YEAR DATA AND ALSO OBTAINING INFORMATION UNDER SECTION 133(6) WHICH WAS NOT AVAILABLE TO THE ASSESSEE IN PUBLIC DOMA IN. THIS GROUND WAS ALSO NOT PRESSED AND ACCORDINGLY, TREATED AS WITHDRAWN. 8. GROUNDS NO. 4, 5 AND 6 ARE PERTAIN TO SELECTION OF COMPARABLES AND GROUND NO. 8 PERTAIN TO RISK ADJUSTMENT REQUESTED BY ASSESSEE. 9. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED CIT/DR IN DETAIL AND PERUSED THE PAPER BOOK PL ACED ON RECORD. 10. AT THE OUTSET, LEARNED COUNSEL SUBMITTED THAT T HE FACTS IN ASSESSEES CASE ARE EXACTLY SIMILAR TO THE F ACTS IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD. HYDERABAD VS. ACI T DECIDED VIDE ITA.NO. 1196/HYD/2005-2006 ON 24-05-13 AN D ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD SUBMITTED THAT MOST OF THE COMPARABLES WHICH THE ASSESS EE IS OBJECTING HAVE ALREADY BEEN DECIDED IN THE ABOVE ORDE R AND ACCORDINGLY, MOST OF THE ISSUES ARE COVERED. LEARNED COUN SEL SUBMITTED THAT THE FACTS IN M/S INTOTO SOFTWARE IND IA PVT. LTD. ARE EXACTLY SIMILAR TO THE ASSESSEES CASE FOR THE SA ME A.Y. 2005-2006, AS BOTH THE COMPANIES ARE ENGAGED IN PROVID ING SOFTWARE DEVELOPMENT SERVICES TO ITS AES ON A COST PLUS MARK- UP BASIS AND ASSESSEE CAN BE TERMED AS CAPTIVE SERVIC E PROVIDER HAVING LEAST COMPLEX OPERATIONS AND SHARES LESSER RISKS; AND IN BOTH THE CASES, METHOD USED FOR ASCERTAI NING ARMS LENGTH PRICE WAS TNMM. IT WAS SUBMITTED THAT BAS ED ON THE ABOVE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF M/S INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA), TH E LEARNED COUNSEL WANTED THE FOLLOWING COMPARABLES SELECTED BY THE A.O. TO BE DELETED ON THE BASIS OF THE ABOVE ORDER : (A) EXSENSYS SOFTWARE SOLUTIONS LTD. REASON : * COMPANY HAVING EXTRAORDINARY CIRCUMSTANCE I.E., AMALGAMATION OF M/S. HOLOOL INDIA WITH EXENSYS S OFTWARE DURING FY 2004-05 WHICH HAS RESULTED IN PECULIAR CIRCUMSTANCE. *COMPANY HAVING SUPER NORMAL PROFIT (B) INFOSYS TECHNOLOGIES LTD. REASON : *COMPANY IS A GIANT AND MARKET LEADER HAVING SUBSTANTIALLY HIGH TURNOVER. *COMPANY IS ENGAGED IN DEVELOPMENT OF SEVERAL NICHE PRODUCTS. (C) FLEXTRONICS SOFTWARE LIMITED (D) FOUR SOFT LIMITED (E) THIRDWARE SOFTWARE SOLUTIONS LIMITED (F) TATA ELEXY LTD(SEG) ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD (G) GEOMETRIC SOFTWARE SOLUTIONS CO LTD (H) SANKHYA INFOTECH LTD REASON ( C TO H) : * THESE COMPANIES ARE FUNCTIONALLY D IFFERENT AS THEY ARE ENGAGED IN SALE OF PRODUCTS AND ALSO CARRY OU T RESEARCH AND DEVELOPMENT. 11. LEARNED DR, HOWEVER, OBJECTED TO THE ASSESSEES CONTENTION. IT WAS SUBMITTED THAT INFOSYS WAS SELECTE D AS A COMPARABLE AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE. THIS WAS ACCEPTED BY THE ASSESSEE, AS CAN BE SEEN FROM T HE T.P. ORDER. WITH REFERENCE TO FOUR SOFT LIMITED AND THIRDWARE SOFTWARE SOLUTIONS LIMITED WHICH ARE OBJECTED TO BY THE ASSESSEE, IT WAS SUBMITTED THAT THE FUNCTIONS ARE SIMI LAR TO R.S. SOFTWARE (INDIA) LTD., WHICH WAS ACCEPTED BY THE ASSESSEE AS A COMPARABLE AND HAS NOT CONTESTED EARLIER SINCE THE FUNCTIONALITY IS SAME. LEARNED DR OBJECTED TO EXCLUSI ON OF THE ABOVE. 11.1. LIKEWISE, LEARNED D.R. ALSO SUBMITTED THAT FUNCTIONALITY OF IGATE GLOBAL SOLUTIONS LTD ALSO SIMILAR T O THE ABOVE COMPANIES AND THEREFORE, WHEN RS SOFTWARE AND IGATE GLOBAL SOLUTIONS ARE ACCEPTED, WHY THE COMPANIES SUCH A S FOUR SOFT LIMITED, THIRDWARE SOFTWARE SOLUTIONS LIMITED, TATA ELXSI LTD. (SEG) AND GEOMETRIC SOFTWARE SOLUTIONS CO. L TD. WERE OBJECTED NOW. THESE COMPANIES ARE NOT FUNCTIONALLY DISSIMILAR AND TPO HAS DISCUSSED ELABORATELY EACH OF TH E COMPANY. THEREFORE, IT CANNOT BE SAID THAT THESE COMPA NIES ARE FUNCTIONAL DISSIMILAR. MOREOVER, ASSESSEE IS ALSO MAK ING PRODUCTS FOR THE GROUP AND THEREFORE, IF THERE ARE CERTAIN PRODUCT SALES, THAT ALONE DOES NOT MAKE A COMPANY DISSIM ILAR. ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD 12. IN RESPONSE, LEARNED A.R. SUBMITTED THAT A.O. HAS TAKEN THE DATA PERTAINING TO PARTICULAR SEGMENTS ONLY AS FAR AS IGATE GLOBAL SOLUTIONS LTD., (SEG) IS CONCERNED, AS CAN BE SEEN FROM THE ORDER. EVEN THOUGH IGATE GLOBAL SOLUTIONS LTD. MAY BE INVOLVED IN PRODUCT DEVELOPMENT, BUT THE DATA PERTA INING TO SOFTWARE SERVICES ONLY AND THEREFORE, WERE TAKEN ON SEGM ENTAL PROFITS BASIS, ON WHICH, ASSESSEE HAS NO OBJECTION. LIKEW ISE, LEARNED COUNSEL ALSO SUBMITTED REFERRING TO THE PAPER BO OK THAT INCOME FROM SOFTWARE SERVICES IS MORE AND WITHIN THE FILTERS PRESCRIBED BY THE A.O. AND THEREFORE, R.S. SOFT WARE (INDIA) LTD. WAS ACCEPTED AS A COMPARABLE. THE COMPANIE S OBJECTED TO BY THE ASSESSEE WERE DECIDED BY THE COORDINA TE BENCH AFTER DUE ANALYSIS IN VARIOUS OTHER ORDERS ALSO. 13. WE HAVE CONSIDERED THE OBJECTIONS AND RIVAL CONTENTIONS AND EXAMINED THE DATA ON RECORD. IT IS TO BE ADMITTED THAT ASSESSEE IS A CAPTIVE SERVICE PROVIDE R TO THE GROUP COMPANIES AND IS PROVIDING SERVICES ON COST PLUS MARK - UP BASIS LIKE IN THE CASE OF INTOTO SOFTWARE INDIA PVT . LTD. WHICH WAS DECIDED BY THE COORDINATE BENCH IN ITA.NO.1196/HYD/2010 ETC., A.Y. 2005-2006 & 2007-200 8 DATED 24.05.2013. 14. THE FOLLOWING 16 COMPARABLES HAVE BEEN SELECTED BY THE TPO AND APPROVED BY THE CIT(A) IN ARRIVING AT THE AR MS LENGTH MARGIN. S.NO. NAME OF COMPANY OP/TC AS PER TPO 1. LANCO GLOBAL SYSTEMS LTD. 13.65% 2. L & T INFOTECH LTD (SEG) 10.33% 3. R.S. SOFTWARE (INDIA) LTD. 8.07% 4. SASKEN NETWORK SYSTEMS LTD. 16.64% ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD 5. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 14.42% 6. IGATE GLOBAL SOLUTIONS LTD. (SEG) 4.32% 7. BODHTREE CONSULTING LTD. 24.85% 8. VISUAL SOFT TECHNOLOGIES LTD. (SEG) 23.52% 9. EXENSYS SOFTWARE SOLUTION LTD. 70.68% 10. INFOSYS TECHNOLOGY LTD. 42.83% 11. FLEXTRONICS SOFTWARE LTD. (SEG) 32.19% 12. FOUR SOFT LTD. 22.98% 13. THIRDWARE SOLUTIONS LTD. 66.09% 14. TATA ELXSI LTD. (SEG) 24.35% 15. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 20.34% 16. SANKHYA INFOTECH LTD. 27.39% ARITHMETIC MEAN MARGIN OF COMPARABLES 26.41% APPELLANTS MARGIN AS PER TPO 15.14% 15. OUT OF THESE, ASSESSEE IS OBJECTING TO THE COMPARABLES FROM SERIAL NO. 9 TO 16 ON VARIOUS FACTORS. EACH OF THE COMPARABLE HAS BEEN CONSIDERED, NOTING THE OBJE CTIONS OF THE ASSESSEE AND ORDERS OF THE TPO ON THE ISSUE. 15.1. EXENSYS SOFTWARE SOLUTIONS LTD. : THIS COMPARABLE IS SELECTED BY THE TPO IGNORING THE OBJECTIO NS OF THE ASSESSEE ON FUNCTIONAL DISSIMILARITY AND EXTRAORDIN ARY EVENT IN THE NATURE OF AMALGAMATION DURING F.Y. 2004-0 5 WHICH HAD AN IMPACT ON THE FINANCIAL STATEMENTS. LE ARNED COUNSEL SUBMITTED THAT THERE HAVE BEEN EXCEPTIONAL EVEN TS WHICH HAD AN IMPACT ON THE FINANCIAL STATEMENTS AND REFERRED TO THE ANNUAL REPORT FOR A.Y. 2004-05 WHICH REFERS TO SCHEM E OF AMALGAMATION OF THAT COMPANY M/S . HELLOSOFT INDIA W.E.F. 01.04.2004. CONSEQUENT TO THE AMALGAMATION, THE REVEN UE OF EXENSYS SOFTWARE SOLUTIONS LTD., SHOWED A GROWTH TO THE TUN E OF MORE THAN 100% THEREBY, MARK-UP OF EXENSYS SOFTWARE ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD SOLUTIONS PVT. LTD., HAS INCREASED TO 71%. IT WAS SUBMIT TED THAT APART FROM RULING IN THE CASE OF INTOTO SOFTWARE SO LUTIONS PVT. LTD. (SUPRA), THE OTHER CASE OF THE HYDERABAD BE NCHES IN THE CASE OF CAPITAL IQ VIDE ITA.NO.1961/HYD/2011, MARK ET TOOLS RESEARCH PVT. LTD. VIDE ITA.NO.2066/HYD/2011 WHERE IN ALSO IT HAS BEEN HELD THAT COMPANIES WHICH HAVE EXCEP TIONAL CIRCUMSTANCES AND EVENTS LIKE MERGER/DEMERGER, WHICH IM PACT THE FINANCIAL STATEMENTS, HAVE TO BE EXCLUDED. NOT ONLY IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. BUT ALSO IN OT HER CASES LIKE M/S. NTT DATA INDIA ENTERPRISE VIDE ITA.NO.1612/HYD/2010, INTEGRATED DECISIONS & SYSTEMS VIDE ITA.NO.27/JP/2011 AND COLT TECHNOLOGY SERVICES VIDE ITA.NO.609/DEL/2011, EXENSYS SOFTWARE SOLUTIONS LIMIT ED HAVE BEEN EXCLUDED AS A COMPARABLE. THE ORDER IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) IS EXTRACTED FOR THE SAKE OF REFERENCE : '14. EXENSYS SOFTWARE SOLUTIONS LIMITED : AS REGARDS THIS COMPANY, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE OPERATING PROFIT BY OPERATING COST OF TH IS COMPANY IS 70.68%. HE SUBMITTED THAT THOUGH T HE ASSESSEE HAS NOT OBJECTED TO THE ADOPTION OF THIS COMPANY AS COMPARABLE BEFORE THE TPO, IT HAS COME TO ITS KNOWLEDGE SUBSEQUENTLY THAT THERE IS AN EXTRAORDINARY EVENT IN THE COMPANY WHICH HAS EFFECT ED THE MARGINS OF THE COMPANY FOR THE RELEVANT ASSESSMENT YEAR. HE SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE EXENSYS SOFTWARE LIMITED WAS AMALGAMATED WITH ANOTHER COMPANY BY NAME HOLOOL INDIA LIMITED AND THE OPERATING MARGIN OF 70.68% IS THE COMBINED RESULT OF THE AMALGAMATED COMPANY. THUS, ACCORDING TO HIM, TH E DATA COLLECTED BY THE TPO IS NOT RELIABLE AND THERE FORE, THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD 15. FOR THIS PURPOSE, HE HAS DRAWN OUR ATTE NTION TO PAGES 526 TO 529 OF THE PAPER BOOK FILED ALON G WITH THE CHART WHEREIN WHILE GIVING INFORMATION TO THE TPO UNDER SECTION 133(6) OF THE I.T. ACT, EXE NSYS SOFTWARE LIMITED HAS CLEARLY MENTIONED THAT HOLO OL INDIA LIMITED AND EXENSYS SOFTWARE LIMITED GOT AMALGAMATED W.E.F. 1.4.2004 AND ACCORDINGLY THE FINANCIAL STATEMENTS AS ON 31.3.2004 HAD BEEN COMBINED AND ACCOUNTS FOR THE FINANCIAL YEAR 2004- 2005 HAD BEEN MAINTAINED AS ONE ENTITY I.E., EXENSYS SOFTWARE SOLUTIONS LIMITED. IT IS ALSO MENTIONED IN THE SAID COMMUNICATION THAT BY VIRTUE OF THE MERGER, THERE IS A GAP IN EXPENDITURE EXP ECTED TO INCUR AND ACTUAL EXPENDITURE INCURRED, WHICH MAY HAVE RESULTED IN HIGH OPERATING MARGIN ON COST. THUS , ACCORDING TO HIM, THIS COMPANY IS TO BE EXCLUDED FRO M THE LIST OF COMPARABLES. 16. THE LEARNED DR, ON THE OTHER HAND, HAS SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTE D THAT THE ASSESSEE HAD NOT OBJECTED TO THE AD OPTION OF THIS COMPANY VIZ., EXENSYS SOFTWARE SOLUTION S LIMITED BEFORE THE TPO NOR HAS RAISED ANY GROUND OF APPEAL BEFORE THE CIT(A) ON THE ADOPTION OF THIS COMPANY. HE SUBMITTED THAT THE ASSESSEE SHOULD THEREFORE, BE PRECLUDED FROM RAISING SUCH OBJECTION AT THIS STAGE BEFORE US. 17. HAVING HEARD BOTH PARTIES AND HAVING CONSIDERED THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT THE ASSE SSEE HAS ACCEPTED THE EXENSYS SOFTWARE SOLUTIONS LIMITED AS ONE OF THE COMPARABLE COMPANIES WH EN PROPOSED BY THE TPO. HOWEVER, THE FACT THAT THERE IS AN AMALGAMATION OF TWO COMPANIES I.E., EXE NSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED, THE RESULTS OF WHICH, HAS RESULTED IN HIGH OPERAT ING MARGIN CANNOT BE LOST SIGHT FOR. IT HAS BEEN HELD IN MANY CASES BY THIS TRIBUNAL AS WELL AS THE HIGHER FORUMS THAT TO COMPARE A COMPANY WITH ANOTHER COMPANY, BOTH THE COMPANIES HAVE TO BE BROUGH T ON PAR WITH EACH OTHER AFTER MAKING THE NECES SARY ADJUSTMENTS WHEREVER NECESSARY AND POSSIBLE. HOWEVER, WHERE THERE ARE EXTRAORDINARY EVENTS SUCH AS THIS, THEN THOSE EVENTS HAVE TO BE TAKEN NOTE OF AND WHERE NO ADJUSTMENT CAN BE MADE ON ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD ACCOUNT OF THIS EXTRAORDINARY EVENT, THEN SUC H COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE OBJECTIONS TO THIS COMPANY BY THE ASSESSEE ARE MADE FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE TRIBUNAL B EING THE FINAL FACT FINDING AUTHORITY IS BOUND TO TAKE NO TE OF THE OBJECTIONS OF THE ASSESSEE. AS THE MATERIAL R ELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY DENOTES THAT THERE IS AN EXTRAORDINARY EVENT WHICH HAS RESULTED IN THE HIGH OPERATING MARGIN O F THE COMPANY, WE DEEM IT FIT AND PROPER TO RE MAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R/TPO FOR RECONSIDERATION. IF IT IS FOUND THAT THER E IS AN AMALGAMATION OF EXENSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED AND FORMED AS ONE ENTITY VIZ., EXENSYS SOFTWARE SOLUTIONS LIMITED. DURING THE RELEVANT PREVIOUS YEAR AND THE FINANCIAL RESULT IS T HE COMBINED RESULT OF THESE TWO COMPANIES, THEN, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES'. RESPECTFULLY FOLLOWING THE SAME, SINCE THIS COMPARABLE HAS BEEN EXCLUDED IN NUMBER OF OTHER CASES A LSO, AFTER DUE ANALYSIS, THIS COMPANY CANNOT BE SELECTED A S COMPARABLE FOR THIS ASSESSMENT YEAR. ACCORDINGLY, TPO IS DIRECTED TO EXCLUDE THE SAME. 15.2. INFOSYS TECHNOLOGIES LIMITED : THE ASSESSEE IS OBJECTING TO THE INCLUSION OF THIS COMPANY ON THE REASON OF INCOMPARABLE SKILL OF OPERATIONS HAVING HIGH TURNOVER AND BEING A COMPLETE SOFTWARE COMPANY INCLUDING SERVICE PRODUCT DEVELOPMENT, BRANDED PRODUCTS ETC., IT WAS SUBMITTED THAT THE HONBLE HIGH COURT OF DELHI IN THE C ASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. (TS-189-H C-2013 (DEL)-(T.P.) HAS HELD THAT INFOSYS IS NOT COMPARABLE B ASED ON ITS RISK PROFILE, NATURE OF SERVICES, OWNERSHIP OF BRANDED/ PROPRIETARY PRODUCTS, EXPENDITURE OF ADVERTISEMENT/SALES PROMOTION, BRAND BUILDING AND RESEARCH AND HIGH TURNOVER . CONSIDERING THE HONBLE DELHI HIGH COURT JUDGMENT AND ALS O ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD THE DECISIONS IN THE CASE OF HELLOSOFT INDIA PVT. LTD. VIDE ITA.NO.645/HYD/2009 AND C.O.40/HYD/2009 AND DELLOITE CONSULTING VIDE ITA.NO. 1082 & 1084/HYD/2010, WHEREIN T HE COORDINATE BENCH OF THE HYDERABAD TRIBUNAL HAVE EXCLUDED THE HIGH TURNOVER CASES AS NOT COMPARABLE, THIS COMPA NY HAS TO BE EXCLUDED. SINCE, INFOSYS IS HAVING VERY HIGH TURN OVER COMPARED TO ASSESSEE AND THE SCALE OF OPERATIONS BEING ENTIRELY DIFFERENT FROM THAT OF ASSESSEES SERVICES, BEING CAPTIVE SERVICE PROVIDER, INFOSYS IS FUNCTIONALLY DIFFERENT. A CCORDINGLY, THE SAME CANNOT BE INCLUDED AS A COMPARABLE. OBJECTION OF THE ASSESSEE IS ALLOWED. TPO IS DIRECTED TO EXCLUDE THE SA ME. 15.3. FLEXTRONICS SOFTWARE LTD. : THE ASSESSEE OBJECTED TO THIS INCLUSION OF THIS COMPARABLE ON THE REAS ON THAT FLEXTRONICS SOFTWARE LTD. OWNS PRODUCTS AND NOT FULL- FLEDGED SOFTWARE SERVICE PROVIDER, WHEREAS ASSESSEE IS ONLY IN SOFTWARE SERVICE. 15.4. FOURSOFT LIMITED : THIS COMPARABLE IS OBJECTED ON THE SAME REASON AS THIS COMPANY IS INVOLVED IN PRODU CT DEVELOPMENT AND OWNS PRODUCTS NAMELY 4S ETRANS AND 4S ELOG. THESE PRODUCTS ARE USED IN SUN MICROSYSTEMS INC, IN AN APPLICATION VERIFICATION KIT CERTIFIED FOR ENTERPRISES AN D ASSESSEE HAVE BEEN INVESTING CONTINUOUSLY ON PRODUCT DEVELOPMENTS. SINCE ASSESSEE IS IN THE PRODUCT DEVELOPM ENT, HAVING I.P. RIGHTS, THE SAME IS NOT COMPARABLE. 15.5. THIRDWARE SOFTWARE SOLUTIONS LIMITED : THIS COMPANY IS OBJECTED TO BY THE ASSESSEE ON THE REAS ON THAT THE SAID THIRDWARE SOFTWARE SOLUTIONS LTD. IS ENGAGED IN S ALE OF SOFTWARE LICENCE AND RELATED SERVICES AND NOT A SERVICE PROVIDER. REFERRING TO THE ANNUAL REPORT, IT WAS SUBMITTED TH AT ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD THIS COMPARABLE WAS REJECTED BY THE ITAT, PUNE IN TH E CASE OF EGAIN COMMUNICATIONS LTD. THIS COMPANY HAVING REVENUE FROM PRODUCT LICENSE AND EARNING EXTRAORDINARY PROFIT DUE TO INTANGIBLE OWNS. 15.6. THESE THREE COMPARABLE ABOVE FLEXTRONICS SOFTWARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED WERE ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : '23. THE OTHER COMPANIES WHICH ARE OBJECTED TO BY THE ASSESSEE ARE FLEXTRONICS SOFTWARE LIMIT ED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED. AS FAR AS THESE THREE COMPANIES ARE CONCERNED, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THEY ARE INTO BOTH SOFTWARE AS WELL AS PRODUCT DEVELOPMENT. HE SUBMITTED THAT THE TPO HAS TAKEN NOTE OF THE FACT THESE COMPANIES ARE ALSO INTO PRODUCT DEVELOPMENT BUT HAS SELECTED THESE COMPANIES A S COMPARABLES BY APPLYING THE FILTER OF MORE THA N 70% OF ITS REVENUE BEING FROM SOFTWARE DEVELOPMENT SERVICES. THE LEARNED COUNSEL SUBMITTED THAT THE FUNCTIONS OF THESE COMPANIE S ARE DIFFERENT FROM THE ASSESSEE WHO WAS INTO SOLE CTIVITY OF SOFTWARE DEVELOPMENT FOR ITS ASSOCIATED ENTERPRISE. HE SUBMITTED THAT THE TP O HAS ALLOCATED THE EXPENDITURE IN THE PROPORTIONOF T HE REVENUE OF THESE COMPANIES FROM SOFTWARE SERVICE S AND SOFTWARE PRODUCTS AND HAS ADOPTED THE FIGURE AS SEGMENTAL MARGIN OF THE COMPANY AND HAS TAKEN THESE COMPANIES AS COMPARABLES. HE SUBMITTED THAT BY TAKING THE PROPORTIONATE EXPENDITURE, THE CORRECT FINANCIAL RESULTS WOULD NOT EMERGE. HE SUBMITTED THAT NOTHING PREVENTED THE ASSESSING OFFICER/TPO FROM OBTAINING THE ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD SEGMENTAL DETAILS FROM THE RESPECTIVE COMPARABLE COMPANIES BEFORE ADOPTING THEM AS COMPARABLE COMPANIES AND BEFORE TAKING THE OPERATING MARGIN FOR ARRIVING AT THE ARMS LENGTH PRICE. HE SUBMITTED THAT WHEREVER THE SEGMENTAL DETAILS ARE NOT AVAILABLE, THEN THE SAID COMPANIES SHOULD NOT BE TAKEN AS COMPARABLES. FOR THIS PURPOSE, HE PLACED RELIANCE UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. VS. THE DCIT IN ITA.NO.1252/BANG/2010 WHEREIN THESE COMPANIES WERE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 24. THE LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF THE A UTHORITIES BELOW. 25. HAVING HEARD BOTH THE PARTIES AND HAVING GONE THROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAGE 37OF HIS ORDER HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT COMPANY AND ASOFTWARE DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF THE FUNCTIONAL DISSIMILARITY BETWEEN A PRODUCT COMPANY AND A SOFTWARE DEVELOPMENT SERVICE PROVIDER. HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTIONS, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INTO BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTAL DETAILS ARE AVAILABLE. EVEN IF HE HAS ADOPTED THE FILTER OF MORE THAN 75% OF THE REVENUE FROM THE SOFTWARE SERVICES FOR SELECTING A COMPARABLE COMPANY, HE OUGHT TO HAVE TAKEN THE SEGMENTAL RESULTS OF THE SOFTWARE SERVICE S ONLY. THE PERCENTAGE OF EXPENDITURE TOWARDS THE DEVELOPMENT OF SOFTWARE PRODUCTS MAY DIFFER FRO M COMPANY TO COMPANY AND ALSO IT MAY NOT BE PROPORTIONATE TO THE SALES FROM THE SALE OF SOFTWARE PRODUCTS. UNDER SECTION 133(6) OF THE I.T. ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD ACT, THE TPO HAS THE POWER TO CALL FOR THE NECESSARY DETAILS FROM THE COMPARABLE COMPANIES. IT IS SEEN THAT THE ASSESSING OFFICER/TPO AS EXERCISED THIS POWER TO CALL FOR DETAILS WITH REGAR D TO THE VARIOUS COMPANIES. AS SEEN FROM THE ANNUAL REPORT OF FOURSOFT LIMITED WHICH IS REPRODUCE D AT PAGE 7 OF THE TPOS ORDER, THE SAID COMPANY HAS DERIVED INCOME FROM SOFTWARE LICENCE ALSO AND AMCS. 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITE D IS CONCERNED, W E FIND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT D EVELOPMENT, THERE ARE NO SOFTRWARE PRODUCTS THAT THE COMP ANY INVOICED DURING THE RELEVANT FINANCIAL YEAR AN D THE FINANCIAL RESULTS ARE IN RESPECT OF SERV ICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO SALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SA ID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 27. AS FAR AS FLEXITRONICS SOFTWARE LIMITED IS CONCERNED, WE FIND THAT AT PAGE 90 OF HIS O RDER, THE TPO HAS ALSO OBSERVED THAT THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRODUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPANIES AND WITHOUT MAKING ADJUSTMENT FOR THE DISSIMILARITIES BROUGHT OUT BY THE TPO HIM SELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORREC T AND REASONABLE. WHEREVER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIA L RESULTS OF THE COMPARABLE COMPANIES WITH THE ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD ASSESSEE COMPANY TO BRING THEM ON PAR WITH THE ASSESSEE, THESE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPANIES FROM THE LIST OF COMPARABLES'. RESPECTFULLY, FOLLOWING THE SAME, WE ACCEPT THE ASSESSEES OBJECTIONS AND DIRECT THE TPO TO EXCLUDE TH E ABOVE THREE COMPANIES FROM THE LIST OF COMPARABLES. 15.7. TATA ELXSI LIMITED : THE OBJECTION OF THE ASSESSEE IS THAT TATA ELXSI OPERATING TWO SEGMENTS -SY STEM COMMUNICATION SERVICES AND SOFTWARE DEVELOPMENT SERVICE S. THE TPO ACCEPTED THE SOFTWARE DEVELOPMENT SERVICES SEGM ENT IN HIS T.P. ANALYSIS AND ASSESSEES OBJECTION IS THAT T HE SOFTWARE DEVELOPMENT SERVICES SEGMENT ITSELF COMPRISES OF THREE SUB-SERVICES NAMELY (A) PRODUCT DESIGN SERVICES (B) DESIGN ENGINEERING SERVICES AND (C) VISUAL COMPUTIN G LABS. IT WAS SUBMITTED THAT THESE SERVICES ARE NOT AKIN TO ASSES SEE SOFTWARE SERVICES AND SEGMENTAL INFORMATION OF ONLY PRODU CT DESIGN SERVICES COULD HAVE BEEN ACCEPTED BY THE TPO AS A COMPARABLE BUT NOT THE ENTIRE SOFTWARE DEVELOPMENT SERVICE . SINCE COMPANYS OPERATIONS ARE FUNCTIONALLY DIFFERENT AS SUCH, THE SAME IS NOT COMPARABLE. FURTHER, ASSESSEE IS ALSO OBJECTING ON THE BASIS OF INTANGIBLE SCALE OF OPERATIONS. THE CO ORDINATE BENCH IN THE CASE OF INTOTO (SUPRA) CONSIDERED THE ISS UE AS UNDER IN PARA 22. '22 TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, TH E LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, FIL ED BEFORE US THE REPLY OF TATA ELXSI LIMITED TO THE ADDL. C IT (TRANSFER PRICING), HYDERABAD, WHEREIN THE CONCERNED OFFICER HAS BEEN INFORMED THAT TATA ELXSI LIMITED IS SPECIALISED EMBEDDED SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTH ER ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD SOFTWARE DEVELOPMENT COMPANY. IT WAS SUBMITTED THAT BECAUSE OF THE SPECIALISATION AND ALSO BECAUSE OF DIV ERSE NATURE OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCAL E-UP THE OPERATIONS OF TATA ELXSI LIMITED. IN VIEW OF THIS, TA TA ELXSI LIMITED HAS INFORMED THAT IT IS NOT FAIR TO USE ITS F INANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMPANY. THE COMMUNICATION DATED 25 TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS THIS COMMUNICATION WAS NOT BEF ORE THE TPO AT THE TIME OF TRANSFER PRICING ADJUSTMENT W E DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RECONSIDER ADOPTING THIS COMPANY AS TH E COMPARABLE IN THE LIGHT OF OBSERVATIONS OF THIS COMP ANY TO THE TPO IN THE CASE OF ANOTHER ASSESSEE. IN THE RESU LT, THE ASSESSING OFFICER/TPO IS DIRECTED TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. KEEPING THE ASSESSEES OBJECTIONS AND THE DECISIONS OF THE COORDINATE BENCH, PRIMA FACIE, WE ARE OF THE VIEW THAT TATA ELXSI LIMITED IS FUNCTIONALLY DIFFERENT AND HAS INCOMPARABLE SIZE TO THAT OF THE ASSESSEE. FURTHER, WE A RE UNABLE TO VERIFY WHETHER THE SEGMENTAL PROFITS ADOPTED B Y THE TPO PERTAIN TO ENTIRE SOFTWARE DEVELOPMENT SERVICES OR PER TAIN TO LIMITED SERVICE AKIN TO ASSESSEE SERVICES. SINCE, T HESE ASPECTS ARE NOT CLEAR FROM THE DATA FURNISHED BEFORE US, WE DIRECT THE TPO TO EXAMINE AND IN CASE, THE SEGMENTAL PROFITS OF A PARTICULAR SERVICE IS NOT AVAILABLE, THEN, TO EXCLUDE THE TATA ELXSI LIMITED FROM THE LIST OF COMPARABLES. ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF TPO FOR EXAMINATION AND TO DECIDE IN ACCORDANCE WITH LAW AND FACTS, AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE. 15.8. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD.: THE OBJECTION OF THE ASSESSEE IS ON THE REASON THAT TH E SAID COMPANY HAS DIVERSIFIED OPERATIONS CONSISTING OF SOFTWARE PRODUCT AND SERVICES. THOUGH ASSESSEE OBJECTED TO THIS, WE ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD FIND THAT THE COMPANY WAS ACCEPTED AS COMPARABLE IN T HE CASE OF INTOTO (SUPRA) WHICH ASSESSEE ADMITTED AS OF SIMILA R FUNCTIONALITY.. THIS COMPANY WAS ACCEPTED IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) WHEREIN IT WAS STATED AS FOLLOWS : '4. OUT OF THE 17 COMPANIES PROPOSED BY THE TPO, THE ASSESSEE HAS ACCEPTED 10 COMPANIES AS COMPARABLES WHICH ARE AS FOLLOWS : (1) BODHTREE CONSULTING LIMITED (2) EXENSYS SOFTWARE SOLUTIONS LIMITED. (3) GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. (4) LANCO GLOBAL SYSTEMS LIMITED (5) L & T INFOTECH LTD. (6) R S SOFTWARE (INDIA) LIMITED (7) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (8) SASKEN NETWORK SYSTEMS LIMITED (9) TATA ELXSI LIMITED (10) VISUALSOFT TECHNOLOGIES LIMITED 5. AS FAR AS ADDITIONAL COMPARABLES TAKEN BY THE TPO, THE ASSESSEE OBJECTED TO THE ADOPTION OF FOLLOWING COMPANIES ONLY :- (1) FOURSOFT LIMITED (2) SANKHYA INFOTECH LIMITED (3) IGATE TECHNOLGOIES LIMITED (4) INFOSYS TECHNOLOGIES LIMITED (5) SATYAM COMPUTER SERVICES LIMITED (6) FLEXTRONICS SOFTWARE LIMITED (7) THIRDWARE SOFTWARE SOLUTION LIMITED THUS AS CAN BE NOTED THERE WAS NO OBJECTION ABOUT THIS COMPANY AS IT IS FUNCTIONALLY SIMILAR. SINCE THI S COMPANY WAS ACCEPTED AS COMPARABLE IN THE OTHER CASE, WE DO NOT FIND ANY REASON TO DELETE THE SAME. DRS OBJECTION IS ACCEP TED AND ASSESSEE OBJECTIONS ARE REJECTED. ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD 15.9. SANKHYA INFOTECH LTD. : THIS COMPANY IS OBJECTED ON THE REASON THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND NOT SOFTWARE SERVICES. WE DIRECT THE TPO TO EXAMINE THE SAME WHETHER THIS COMPANY IS ENGAGED IN S ALE OF PRODUCTS. TPO IS DIRECTED TO RE-EXAMINE AND INCLUDE ONLY IF THERE IS FUNCTIONAL SIMILARITY. ACCORDINGLY, GROUNDS NO. 4, 5, 6 ARE CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES. 16. GROUND NO. 8 PERTAINS TO RISK ADJUSTMENT RELIEF. IT WAS SUBMITTED THAT ASSESSEE IS A RISK FREE ENTITY AN D IS REMUNERATED ON COST PLUS BASIS IRRESPECTIVE OF SUCCESS O R FAILURE OF THE PRODUCTS UNDERTAKEN AT A GLOBAL LEVEL. A SSESSEE FOLLOWS THE ASSURED RETURN REVENUE MODEL. THE SELECTION OF UNCONTROLLED COMPARABLES BEAR CERTAIN RISKS OF OPERATIONS AND HENCE, THEIR RETURNS ARE VOLATILE, CONSEQUENT ON THEIR ENTREPRENEURIAL RISK PROFILE OF THE COMPARABLES. THEREFORE , ASSESSEE HAS ASKED THE RISK ADJUSTMENT OF ABOUT 7.6% USING CAPITAL ASSET PRICING MODEL(CAPM). THE TPO IN HIS ORDE R ARRIVED AT A RISK ADJUSTMENT OF 0.85%. HOWEVER, EVEN, TH IS RISK ADJUSTMENT WAS NOT GRANTED HOLDING THAT IT WAS INSIGNI FICANT AND NEGLIGIBLE. IT WAS THE CONTENTION THAT ASSESSEE S RISK PREVAILED SHOULD BE ANALYSED AND RISK ADJUSTMENT SHOU LD BE PROVIDED BASED ON THE DECISIONS OF THE COORDINATE BENCH IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. ITA.NO.1196/HYD/2010 ETC., DATED 24.05.2013, DE SHAH INDIA SOFTWARE PVT. LTD. ITA.NO.2071/HYD/2011 AND DCIT VS. HELLOSOFT INDIA PVT. LTD. ITA.NO.645/HYD/2009 DATED 15.01.2013. 16.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, AS SEEN FROM THE ORDERS OF THE TPO, HE HAS ACCEPTED THAT ASSESS EE HAS ITA.NO.1280/HYD/2010 CONSECO DATA SERVICES (INDIA) PVT. LTD. HYD A RISK FREE ENTITY AND RISK ADJUSTMENT IS REQUIRED. HOWE VER, AS AGAINST 7.6% QUANTIFIED BY THE ASSESSEE, THE A.O. A RRIVED AT RISK ADJUSTMENT OF 0.85%. EVEN THIS WAS NOT GRANTED T O THE ASSESSEE. THEREFORE, IN THE INTEREST OF JUSTICE, WE DIREC T THE TPO TO RE-EXAMINE THE ISSUE AND GRANT RISK ADJUSTMENT AFTER ANALYSING THE RISK PREVAILED TO THE ASSESSEE COMPANY VIS-A-VIS THE OTHER COMPANIES. IN CASE OF ARITHMETIC MEAN OF THE MARGINS OF THE SELECTED COMPARABLES AS APPROVED AFTER THIS ORDER IS WITHIN THE PERMISSIBLE RANGE OF ASSESSEES MARG IN PROVIDING RISK ADJUSTMENT MAY BECOME ACADEMIC. HOWEVER, AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE, TPO IS DIRECTED TO DECIDE THE ISSUE. THIS GROUND NO. 8 IS RE STORED TO THE FILE OF TPO FOR FRESH CONSIDERATION. ACCORDINGLY, GROUN D NO. 8 IS ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.02.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMB ER HYDERABAD, DATE 12 TH FEBRUARY, 2014 VBP/- COPY TO : 1. CNO IT SERVICES (INDIA) PVT. LTD. (FORMERLY KNOWN AS CONSECO DATA SERVICES (INDIA) PVT. LTD.), 6TH FLO OR, BLOCK 'B' Q-CITY, SURVEY NO.109, 110 & 112/2, GACHIBOWLI, NANAKRAMGUDA, SERILINGAMPALLY MANDAL, RANGA REDDY , HYDERABAD DISTRICT, HYDERABAD - 500 032. 2. DCIT, CIRCLE 1(2), 4TH FLOOR, AAYAKAR BHAVAN, HY DERABAD. 3. CIT(A) - III, HYDERABAD 4. CIT-I, HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.