M/s Systech Integrators India Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1283/BANG/2012

• Counselvise Citation: 128321114 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RONMOY DAS
• Assessee Lawyers: CHYTANYA K K
• Keywords: Transfer pricing; Opportunity of being heard; International transaction
• Section: 92C; 143(3); 115JB; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T(T.P.) A. NO. 1283 /BANG/20 1 2 (ASSESSMENT YEAR : 2008-09) SYSTECH INTEGRATORS INDIA PVT. LTD., OZONE MANAY TECH PARK, A BLOCK, 2 ND FLOOR, NO.56/18 & 55/9, HOSUR MAIN ROAD, BENGALURU-560 068 PAN AAICS 1151K VS. INCOME TAX OFFICER, WARD 12(2), BENGALURU. APPELLANT RESPONDENT. APPELLANT BY : SHRI CHYTANYA, K.K., ADVOCATE. RESPONDENT BY : SHRI RONMOY DAS, CIT, DR. DATE OF HEARING : 30.01.2014. DATE OF PRONOUNCEMENT : 14.03.2014. O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE ITO, WARD 11(2), BANGALORE UNDER SECTION 143(3) R.W.S. 144C O F THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT') DT.27.7.2012 IN PUR SUANCE OF THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP IN SHORT) DT.25.6.2 012. THE RELEVANT ASSESSMENT YEAR IS 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, A COMPANY IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND SUPPORT SERVICES TO SYSTECH INC AS PER THE TERMS AND CONDIT IONS OF THE MASTER SERVICES 2 ITA NO. 1283/BANG/2012 AGREEMENT FROM ITS FACILITIES IN BANGALORE AND CHEN NAI. SYSTECH INTEGRATORS INC IS THE HOLDING COMPANY OF THE ASSESSEE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 ON 26.9.2008 DECLARING TAXABLE INCOME OF RS.32,480 AFTER CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.2,66,31,061. THE ASSESSEE DECLARED TAXABLE INCOME OF RS.33,01,431 UNDER SECTI ON 115JB OF THE ACT. IN THE PERIOD UNDER CONSIDERATION, SINCE THE ASSESSEE ENTERED INT O INTERNATIONAL TRANSACTIONS OF THREE TYPES, THE ASSESSING OFFICER MADE A REFERENCE UNDER SECTION 92CA OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING TH E ARMS LENGTH PRICE (ALP) OF THESE INTERNATIONAL TRANSACTIONS AFTER OBTAINING NECESSAR Y APPROVAL FROM THE CIT, BANGALORE-I. THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN THE RELEVANT PERIOD ARE AS UNDER :- S.NO. TYPE OF TRANSACTION AMOUNT PAID (RS.) AMOUNT RECEIVED (RS.) 1. SOFTWARE SERVICES 25,07,61,728 2. REIMBURSEMENT OF EXPENSES. 74,58,039 3. REIMBURSEMENT OF EXPENSES. 21,02,620 THE TPO VIDE ORDER UNDER SECTION 92CA OF THE ACT DT .31.10.2011, PROPOSED A T.P. ADJUSTMENT OF RS.2,34,27,201 TO THE ALP OF INTERNAT IONAL TRANSACTIONS. THE ASSESSING OFFICER THEN ISSUED A DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C OF THE ACT ON 20.12.2011 (I) PROPOSING AN ADDITION ON ACCOUNT OF T.P. ADJUST MENT TO THE ALP OF RS.2,34,27,201 AND (II) RECOMPUTATION OF THE ELIGIBLE DEDUCTION UNDER SECTION 10B OF THE ACT BY REDUCING TELECOMMUNICATION CHARGES OF RS.24,50,957; FOREIGN TRAVEL EXPENSES OF RS.2,17,32,445 3 ITA NO. 1283/BANG/2012 INCURRED IN FOREIGN CURRENCY AND LOSS ON FOREX OF R S.65,656 FROM EXPORT TURNOVER WITHOUT SIMULTANEOUSLY REDUCING THE SAME FROM TOTAL TURNOVER. 2.2 AGGRIEVED BY THE DRAFT ASSESSMENT ORDER FOR ASS ESSMENT YEAR 2008-09 DT.20.12.2011, THE ASSESSEE FILED ITS OBJECTION THE RETO BEFORE THE DRP, BANGALORE. THE DRP VIDE ORDER UNDER SECTION 144C(5) R.W.S. 144C(8) OF THE ACT DT.25.6.2012 AGREED WITH THE VIEWS / FINDINGS OF THE A.O. / T.P.O. AND REJEC TED THE OBJECTIONS / CONTENTIONS RAISED BY THE ASSESSEE. IN CONSEQUENCE OF THE DIRECTIONS THE ORDER OF THE DRP DT.25.6.2012, THE ASSESSING OFFICER PASSED THE ORDER OF ASSESSMENT FO R ASSESSMENT YEAR 2008-09 BY AN ORDER 143(3) R.W.S. 144C OF THE ACT DT.27.7.2012 DETERMINING THE ASSESSEE'S INCOME AT RS.2,93,87,821 UNDER NORMAL PROVISIONS OF THE ACT A ND BOOK PROFITS WERE DETERMINED AT RS.33,01,431. 3. AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2008-09 DT.27.7.2012, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOL LOWING REVISED CONCISE GROUNDS :- 1. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E REFERENCE MADE TO LEARNED TPO UNDER SECTION 92CA OF IT ACT IS INVALID FOR THE REASON THAT THE ASSESSING OFFICER IN THE CASE OF THE APPELLANT BEIN G THE ITO, WARD 12 (2), THE LEARNED TPO HAS RECEIVED REFERENCE UNDER SECTIO N 92CA OF THE IT ACT FROM THE DCIT, CIRCLE 11 (1). 2. THE ORDER OF THE LEARNED ITO HAVING BEEN PASSED WIT HOUT PECUNIARY JURISDICTION OVER THE APPELLANT UNDER SECTION 120 O F THE IT ACT, IS BAD IN LAW. 3. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E LEARNED TPO IS NOT JUSTIFIED IN ISSUING A STEREOTYPED ORDER UNDER SECT ION 92CA FOR REJECTING THE TP STUDY, TP DOCUMENT, TP ANALYSIS, ARMS LENGTH PR ICE DETERMINED BY THE APPELLANT. 4. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E LEARNED TPO IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 92C (3) WITHOUT SATISFYING THE CONDITIONS LAID OUT THEREIN. 4 ITA NO. 1283/BANG/2012 5. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED TPO IN REJECTING THE TRANSFER PRICING STUDY AND THE DOCUMENTATION OF THE APPELLANT WITHOUT SUBSTANTIATING AS TO HOW AND WHY THE APPELLANTS DATA ARE NOT RELIABLE OR CORRECT, PARTICULARLY WHEN HE H AS HIMSELF ACCEPTED THE SEARCH PROCESS OF THE APPELLANT, 6 FILTERS OUT OF 7 FILTERS CHOSEN BY THE APPELLANT AND 4 COMPANIES OUT OF 12 COMPANIES SELEC TED BY THE APPELLANT. 6. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E LEARNED TPO HAVING ACCEPTED FOUR COMPANIES OUT OF THE TWELVE COMPANIES SELECTED BY THE APPELLANT, OUGHT TO HAVE DIRECTED THE LEARNED TPO T O DETERMINE THE ARMS LENGTH PRICE ON THE BASIS OF THOSE ACCEPTED COMPARA BLE COMPANIES. 7. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED TPO IN CARRYING OUT A FRESH TP STUDY AND WHOLLY SUB STITUTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT WITH A NEW SET OF COMPARABLE COMPANIES, WITHOUT SUCCESSFULLY DISREGAR DING THE MANNER OF APPLICATION OF TNM METHOD BY THE APPELLANT. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED DRP HAS FAILED TO APPRECIATE THAT THE LEARNED TPO UNJUSTLY LEFT OUT 5 OUT OF 6 C OMPANIES SELECTED BY THE APPELLANT WHICH ARE TO BE TAKEN AS COMPARABLE COMPA NIES ACCORDING TO HIS OWN REASONING IN THE FINAL LIST OF 20 COMPANIES. 9. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E LEARNED TPO WHILE REJECTING CERTAIN COMPARABLE COMPANIES SELECTED BY THE APPELLANT, HAD INDICATED ONE SET OF REASONS IN THE NOTICE AND ANOT HER SET OF REASONS IN HIS ORDER WHICH RENDERS HIS ORDER BAD. 10. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT THE LEARNED TPO IS NOT JUSTIFIED IN CHOOSING CERTAIN COMPANIES MERELY ON THE INFORMATION COLLECTED UNDER SECTION 133 (6) OF THE IT ACT, WHEN IN FACT SUCH COMPANIES WERE NOT EVEN L ISTED IN PROWESS AND CAPITALINE DATABASES. 11. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT TH E LEARNED TPO IS NOT JUSTIFIED IN SELECTING CERTAIN COMPANIES EXCLUSIVEL Y ON THE BASIS OF THE INFORMATION COLLECTED UNDER SECTION 133 (6) OF THE IT ACT, DISREGARDING THE FACT THAT THE APPELLANT DOES NOT HAVE ACCESS TO SUC H INFORMATION. 12. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT THE LEARNED TPO IS NOT JUSTIFIED IN SELECTING CERTAIN COMPANIES EXCLUSIVELY ON THE BASIS OF THE INFORMATI ON COLLECTED UNDER SECTION 133 (6) OF THE IT ACT, WITHOUT AFFORDING AN OPPORTUNITY TO THE APPELLANT TO CROSS EXAMINE SUCH COMPANIES IN RESPEC T OF SUCH INFORMATION. 13. THE HON'BLE DRP HAS FAILED TO APPRECIATE THAT THE L EARNED TPO IS NOT JUSTIFIED IN CHOOSING CERTAIN COMPANIES, WITHOUT EV EN EXAMINING WHETHER AT ALL THE SAID COMPANIES COULD BE REGARDED AS COMPARA BLES FOR DETERMINING 5 ITA NO. 1283/BANG/2012 THE ARMS LENGTH PRICE TO THE FACTS OF THE APPELLAN TS CASE IN THE LIGHT OF PARAMETERS LAID DOWN IN RULE 10B (2). 14. THE HON'BLE DRP HAS FAILED TO APPRECIATE THAT THE L EARNED TPO IS NOT JUSTIFIED IN CHOOSING CERTAIN COMPANIES WHICH FAILE D THE TEST OF THE PARAMETERS SET BY HIM VIZ., FOREX TO SALES RATIO OF 75% AND EMPLOYEE COST TO SALES RATIO OF 25%. 15. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED TPO IN FAILING TO APPRECIATE THAT WHILE DETERMINING ARMS LENGTH PRICE UNDER TNMM THE APPEL LANT IS ELIGIBLE FOR THE BENEFIT OF SECOND PROVISO TO SECTION 92C(2). 16. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE A CTION OF THE LEARNED ITO IN REDUCING COMMUNICATION EXPENSES OF RS.24,50,957/ , TRAVELLING EXPENSES OF RS. 2,17,32,445/- & LOSS ON FOREX OF RS. 65,656/ - FROM EXPORT TURNOVER. 17. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE EXCLUSION OF SUM OF RS. 2,17,32,445/- FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10B OF THE IT ACT, BASED ON FRIVOLOUS/ EXTRANEOUS REASONS OF THE LEARNED ITO. FURTHER, THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING THE EXCLUSION OF SUM OF RS.2,17,32,445/- FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER S ECTION 10B OF THE IT ACT, FOR THE REASON THAT SAME WAS INCURRED IN FOREI GN CURRENCY BY REJECTING THE CONTENTION OF THE APPELLANT THAT IT IS NOT ENGA GED IN PROVIDING TECHNICAL SERVICES BUT IS ENGAGED IN DEVELOPMENT AND EXPORT O F COMPUTER SOFTWARE. 18. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNED ITO IN REDUCING THE TELECOMMUNICATION CHARGES OF RS .24,50,957/- FROM THE EXPORT TURNOVER WHEN SUCH EXPENDITURE IS INCURRED I N RESPECT OF A STANDARD FACILITY AND THE SAME CANNOT BE WHOLLY ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. 19. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP IS NOT JUSTIFIED IN FAILING TO APPRECIATE THAT THE QUESTION OF DEDUCTIO N OF TELECOMMUNICATION CHARGES OF RS. 24,50,957/- WOULD ARISE ONLY IF THE SAME HAS BEEN INCURRED IN FOREIGN-EXCHANGE AND IF THE SAME HAS BEEN INCURR ED IN INDIAN RUPEE, THE QUESTION OF DEDUCTION THEREOF DOES NOT ARISE. 20. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING ACTIO N OF THE LEARNED ITO IN REDUCING LOSS ON FOREX OF RS. 65,656/- FROM THE EXP ORT TURNOVER WHERE THE SAID LOSS ON FOREX CANNOT BE WHOLLY ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. 21. WITHOUT PREJUDICE TO THE ABOVE, THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ITO IN FAILING TO EXCLUDE IDENTICAL AMOUNT FROM THE TOTAL TURNOVER . 6 ITA NO. 1283/BANG/2012 TRANSFER PRICING (GROUNDS 1 TO 5) 4,0 IN THE COURSE OF APPELLATE HEARINGS, THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN RESPECT OF TRANSFER PRIC ING ISSUES, THE ASSESSEE IS NOT PRESSING THE GROUNDS RAISED AT S.NOS. 1 TO 12. IN THIS VIEW OF THE MATTER, THE GROUNDS 1 TO 12 N OT BEING PRESSED BY THE ASSESSEE ARE RENDERED INFRUCTU OUS AND ARE ACCORDINGLY DISMISSED AS INFRUCTUOUS AS NO SEPARATE ADJUDICATION IS CALLED F OR THEREON. IN VIEW OF THE ABOVE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ON LY THE REMAINING GROUNDS AT S.NOS.13 TO 15 ON TRANSFER PRICING ISSUES ARE BEING URGED IN THIS APPEAL FOR CONSIDERATION BY THE TRIBUNAL, WHICH ARE IN RESPECT OF THE COMPARABILITY OF THE INDIVIDUAL COMPANIES CHOSEN BY THE TPO AS COMPARABLES AND THOSE COMPANIES CHOSEN B Y THE ASSESSEE IN ITS T.P. STUDY WHICH WERE REJECTED AS COMPARABLES BY THE TPO. IT IS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE DRP FAILED TO AP PRECIATE THAT THE TPO WAS NOT JUSTIFIED IN CHOOSING CERTAIN COMPANIES AS COMPARAB LES WITHOUT EVEN EXAMINING WHETHER AT ALL THESE COMPANIES COULD BE REGARDED AS COMPARABLE S AND IN THE LIGHT OF THE PARAMETERS LAID DOWN IN RULE 10B(2) AND HAVE EVEN FAILED THE F ILTERS APPLIED BY THE TPO ITSELF. WE WILL THEREFORE LATER IN THE ORDER DEAL WITH THE ASSESSEE 'S SUBMISSIONS / CONTENTIONS RAISED IN RESPECT OF COMPANIES CHOSEN BY THE TPO AND IN RESPE CT OF COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP STUDY BUT REJECTED BY THE TPO WH ICH FINALISING THE LIST OF COMPARABLE COMPANIES. 5.0 ASSESSEE'S LIST OF COMPARABLE COMPANIES. 7 ITA NO. 1283/BANG/2012 5.1 AS PER THE T.P. STUDY CARRIED OUT BY THE ASSESS EE USING TNMM AS THE MOST APPROPRIATE METHOD (MAM), THE LIST OF 23 COMPARAB LE COMPANIES CHOSEN BY THE ASSESSEE ARE AS UNDER : SL.NO. NAME OF THE COMPANY WEIGHTED AVERAGE OF OPERATING PROFITS ON OPERATING COSTS (%) 1 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 9.21 2 BIRLA TECHNOLOGIES LTD. 3.83 3 BIRLASOFT LTD. 3.62 4 BODHTREE CONSULTING LTD. 21.00 5 E - INFOCHIPS LTD. 35.33 6 ICRA TECHNO ANALYTICS LTD. 7.92 7 PSI DATA SYSTEMS LTD. 5.94 8 QUINNOX CONSULTANCY SERVICES LTD. 9.68 9 QUINTEGRA SOLUTIONS LTD. 19.00 10 R S SOFTWARE ( INDIA ) LTD. 6.30 11 SONATA SOFTWARE LTD. 14.39 12 VGL SOFTWARE LTD. 20.80 ARITHMETIC MEAN 12.50 THE MARGIN EARNED BY THE ASSESSEE, AS PER ITS TP S TUDY, WAS 13.09% AND SINCE THIS WAS IN EXCESS OF THE AVERAGE PROFIT MARGIN OF THE 1 2 COMPARABLE COMPANIES AT 12.50% ON COST, THE ASSESSEE TREATED THE INTERNATIONAL TRANSA CTIONS ENTERED INTO BY IT AS BEING AT ARMS LENGTH. 5.2 THE TPO OBSERVED THAT THE ASSESSEE HAS CHARACTE RIZED ITSELF AS A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENT ERPRISES (AE) AND THAT THE ASSESSEE USED TNMM AS THE MAM. WHILE ACCEPTING THE TNMM AS THE MAM, THE TPO REJECTED THE ASSESSEE'S TP STUDY FOR VARIOUS REASONS SET OUT IN THE SHOW CAUSE NOTICE ISSUED AND EMBARKED ON A FRESH SEARCH USING THE DATA BASES PR OWESS AND CAPITAL. AFTER CONSIDERING 8 ITA NO. 1283/BANG/2012 THE OBJECTIONS OF THE ASSESSEE, THE TPO SELECTED A FINAL SET OF 20 COMPARABLES WHICH ARE AS UNDER : SL.NO. NAME OF THE COMPANY OP/TC % 1 AVANI CINCOM TECHNOLOGIES 25.62 2 BODHTREE CONSULTING LTD 18.72 3 CELESTIAL BIOLABS 87.94 4 E - ZEST SOLUTIONS LTD. 29.81 5 FLEXTRONICS (ARICENT) 7.86 6 IGATE GLOBAL SOLUTION LTD. 13.99 7 INFOSYS 40.37 8 KALS INFORMATION SYSTEMS LTD (SEG) 41.94 9 LGS GLOBAL LTD. 27.52 10 MINDTREE LTD (SEG) 16.41 11 PERSISTENT SYSTEMS LTD. 20.31 12 QUINTEGRA SOLUTION LTD. 21.74 13 R SYSTEMS INTERNATIONAL (SEG) 15.30 14 R S SOFTWARE (INDIA) LTD. 7.41 15 SASKEN COMMUNICATIONTECHNOLOGIES LTD. (SEG) 7.58 16 TATA ELXSI (SEG) 18.97 17 THIRDWARE SOLUTION LTD. 19.35 18 WIPRO LTD. (SEG) 28.45 19 SOFTSOL INDIA LTD. 17.89 20 LUCID SOFTWARE LTD. 16.50 AVERAGE 23.65 THE AVERAGE MEAN MARGIN OF THE 20 COMPARABLE COMPA NIES SELECTED BY THE TPO WAS 23.65% WHEREAS THE AVERAGE MEAN MARGIN OF THE A SSESSEE WAS 13.09%. THE TPO ACCORDINGLY WORKED OUT THE TP ADJUSTMENT OFRS.2,34, 27,401 TO THE ALP OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN THE PE RIOD RELEVANT TO ASSESSMENT YEAR 2008-09. 9 ITA NO. 1283/BANG/2012 6.0 AS MENTIONED IN PRE-PARA 4 OF THIS ORDER, IN TH E COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T HE WOULD MAKE AND PUT FORTH ARGUMENTS / CONTENTIONS ONLY ON THE COMPARABILITY O R OTHERWISE OF INDIVIDUAL COMPANIES, WHICH IN HIS OPINION, ARE INCORRECTLY INCLUDED BY T HE TPO IN THE SET OF COMPARABLE COMPANIES, OR ARE INCORRECTLY EXCLUDED BY THE TPO F ROM OUT OF THE SET OF COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE IN ITS TP STUDY. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED A CHART, SCHEMATICALLY EXPLAINING TH E ASSESSEE'S POSITION REGARDING THE ACCEPTABILITY OR OTHERWISE OF EACH OF THE COMPANIES SELECTED OR REJECTED BY THE TPO AS COMPARABLE COMPANIES TO THE ASSESSEE. WE NOW PROCEED TO EXAMINE AND CONSIDER EACH OF THE COMPARABLE COMPANIES SO HIGHLIGHTED BY THE ASSESSEE IN ITS CHART. A. COMPANIES INCORRECTLY ADOPTED BY THE TPO AS PER TH E CONTENTIONS OF THE ASSESSEE. 7.0 (1) AVANI CINCOM TECHNOLOGIES LTD . 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON TH E GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS IN TO SOFTWARE PRODUCTS WHEREAS THE ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES TO IT S AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT THI S COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, THE TPO HAD RELIED ON INFORMATION SUBMITTED 10 ITA NO. 1283/BANG/2012 BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OU T UNDER SECTION 133(6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUSION OF THIS COMPANY FROM T HE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPAR ABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS WHEREAS THE ASSESSEE IS INTO PROV IDING SOFTWARE DEVELOPMENT SERVICES. IT IS ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO UNDER SECT ION 133(6) OF THE ACT, ON THE BASIS OF WHICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LI ST OF COMPARABLE COMPANIES, HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUD ICIAL DECISIONS : I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DC IT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT ( ITA NO.7821/MUM/2011) III) CURRAM SOFTWARE INTERNATIONAL (PVT.) LTD. (ITA NO.1280/BANG/2012) 7.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THE AFORESAID COMPANY IN THE FINAL LIST OF COMPARABLES BY THE TPO. THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE RULING OF THE CO-ORD INATE BENCH IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) RELIED ON BY THE ASSESSEE WAS RENDERED IN THE FACTUAL CONTEXT OF THE POSITION THAT EXISTED FOR FI NANCIAL YEAR 2006-07 VIS--VIS THIS COMPARABLE COMPANY AND TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. AND THERE CANNOT BE 11 ITA NO. 1283/BANG/2012 AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICAB LE FOR F.Y. 2007-08 THAT TOO VIS--VIS THE ASSESSEE, IN THE CASE ON HAND, WHICH IS A DIFFE RENT ENTITY FROM TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD.. 7.4 THE LEARNED AUTHORISED REPRESENTATIVE, IN REJOI NDER TO THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE, CONTENDED THAT THE FUNCTIONAL PROFILE OF THE COMPARABLE COMPANY CONTINUES TO REMAIN THE SAME FOR THIS YEAR ALSO I.E. SOFTWARE PRODUCTS, WHEREAS THE ASSESSEE IN THE CASE ON HAND PROVIDED SOFTWARE DEVELOPMENT AND SUPPORT SERVICES TO ITS AE AND THEREFORE IT WAS CLE ARLY FUNCTIONALLY DIFFERENT. THE LEARNED AUTHORISED REPRESENTATIVE ALSO REITERATED THE SUBMI SSIONS MADE EARLIER THAT THE ANNUAL REPORT OF THE COMPARABLE COMPANY IN THE PUBLIC DOMA IN WAS NOT COMPLETE AND THAT THE INFORMATION RECEIVED BY THE TPO UNDER SECTION 133(6 ) OF THE ACT HAS NOT BEEN SHARED WITH THE ASSESSEE. 7.5.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HA S INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBT AINED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORMATION SO GATHERED TO THE ASSESSEE AND TAKEN I TS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPA NY IN ITS FINAL LIST OF COMPARABLES. NON- FURNISHING THE INFORMATION OBTAINED UNDER SECTION 1 33(6) OF THE ACT TO THE ASSESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARA BLE. 12 ITA NO. 1283/BANG/2012 7.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTH ORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE THAT THIS COMPANY HAS TO BE DELETED FROM T HE LIST OF COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM THE SET OF COMPARABLES IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUBT THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS ALONE, HOWEVER, WILL NOT SUFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRIOLOGY CASE ARE EQUALLY APPLICABLE TO THE FAC TS OF THE ASSESSEE'S CASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS OF TRIOLOGY CASE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON HAND, COMPARISON BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE CO MPARABILITY BETWEEN THE ASSESSEE AND THE TRIOLOGY CASE, THE ASSESSEE ALSO NEEDS TO DEMON STRATE THAT THE FACTS APPLICABLE TO THE ASSESSMENT YEAR 2007-08, THE YEAR FOR WHICH THE DEC ISION IN CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE A LSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 7.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE A SSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THA T THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE AP PLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO S UBSEQUENT YEARS. TO DO THAT, IT IS NECESSARY TO FIRST ESTABLISH THAT THE FACTS AND ATT ENDANT FACTORS HAVE REMAINED THE SAME 13 ITA NO. 1283/BANG/2012 SO THAT THE FACTORS OF COMPARABILITY ARE THE SAME. VIEWED IN THAT CONTEXT, THE ASSESSEE HAS NOT DISCHARGED THE ONUS UPON IT TO ESTABLISH TH AT THE DECISION RENDERED IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TOO OF AN EARLIER YEAR I.E. ASSESSME NT YEAR 2007-08. THE ASSESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT THE FACTS OF TRIOLO GY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007- 08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM I T FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS D IRECTED TO MAKE AVAILABLE TO THE ASSESSEE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THEREON. IT IS ORDERED ACCORDINGLY. 8. (2) CELESTIAL BIOLABS LTD. 8.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INC LUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJE CTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE I.E. IT IS INTO CLINICAL RESEARCH AND MANU FACTURE OF BIO-PRODUCTS AND THAT IT FAILS THE EMPLOYEE COST FILTER. THE TPO, HOWEVER, BRUSHE D ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTION AL DISSIMILARITY HAS BEEN DEALT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSMENT YEAR 2007-0 8. AS REGARDS THE OBJECTION RAISED IN 14 ITA NO. 1283/BANG/2012 RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY OBSERVING THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 8.2.1 BEFORE US, THE LEARNED AUTHORISED REPRESENTA TIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSES SEE AS IT IS INTO BIO-INFORMATICS, SOFTWARE PRODUCT / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED. THE ASSESSEE HAS EXTENSIVELY QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF THE COMPANY, WHICH STATES AS UNDER : I) MISSION STATEMENT ON PAGE 2 OF THE ANNUAL REP ORT STATES THAT THE COMPANY IS ALSO INTO BIO-INFORMATICS PRODUCTS, ITES, ETC., CELESTIAL IS COMMITTED TO BE A TECHNOLOGY COMPANY RESPECTED GLOBALLY FOR ITS SOFTWARE DEVELOPMENT, PRODUCTS , SERVICES IN THE AREA OF BIO-INFORMATICS, ENTERPRI SE RESOURCES PLANNING, INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY E NABLES SERVICES (EMPHASIS SUPPLIED). II) THE FUTURE OUTLOOK IN THE DIRECTORS REPORT O F THE ANNUAL REPORT INDICATES THAT THE COMPANY IS INTO LARGE SCALE DEVELOPMENT OF BIO TECH PRODUCTS. . YOUR COMPANY IS SETTING UP A MANUFACTURING FAC ILITY TO MANUFACTURE INDUSTRIAL ENZYMES, ACTIVE PHARMACEUTICALS INGREDIENTS AND HER BAL PHARMACEUTICALS. . III) PUBLIC ISSUE IN THE DIRECTORS REPORT ON PA GE 13 OF THE ANNUAL REPORT STATES :- THE COMPANY HAS RAISED RS.30 CRORES FOR PRODUC TION OF ENZYMES, BIO TECH PRODUCTS AND DRUG MOLECULE DEVELOPMENT, ETC., WITH AN ESTIMA TED PROJECT COST OF RS.50 CRORES. 15 ITA NO. 1283/BANG/2012 IV) FINANCIALS IN MANAGEMENT DISCUSSION & ANALY SIS ON PAGE 16 OF THE ANNUAL REPORT STATES :- .. THE COMPANY HAS ACHIEVED A TURNOVER OF RS.2,0 21.12 LAKHS FROM SALES AND SERVICES AGAINST THE TURNOVER OF RS.1,412.76 LAKHS IN THE PR EVIOUS FISCAL YEAR. THE SALES ARE HIGHER BY 608.36%. THE GROWTH HAS BEEN ACHIEVED THROUGH S ERVICES MADE IN BIO-TECHNOLOGY, IMPLEMENTATIONS, PRODUCT DEVELOPMENT, I T ENABLED S ERVICES AND ALSO THROUGH RATIONAL SPENDING IN COSTS. V) BUSINESS ANALYSIS IN THE MANAGEMENT DISCUSSIO N & ANALYSIS ON PAGE 16 OF THE ANNUAL REPORT STATES :- PRODUCTS THE COMPANY HAS DEVELOPED TAXABILITY PREDICTION TO OL CLL-TOX TO PREDICT THE TOXICITY OF A GIVEN MOLECULE. YOUR COMPANY FIL ED IPR BY FILING UNDER THE COPYRIGHT / PATENT ACT (APPRAISED AND FUNDED BY DEP ARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH.) THE COMPANY HAS DEVELOPED AN ERP PRODUCT CELL VIS ION USING MICROSOFT TECHNOLOGIES. CELL VISION IS A CUSTOM IMPLEMENTED PRODUCT WHICH CATERS TO THE NEEDS OF MANY INDUSTRIAL SEGMENTS. THE COMPANY IS FORESEEING GOOD RESERVES DURING THE YEARS TO COME. YOUR COMPANY ALSO DEVELO PED A PORTAL CALLED SANJEEVANI INDIA.COM. VI) SCHEDULE 7 OF THE FINANCIAL STATEMENTS ON PAG E 25 OF THE ANNUAL REPORT INDICATES THAT THE COMPANY HAS SIGNIFICANT PRODUCT DEVELOPMENT EXPENDITURE PERTAINING TO DRUG MOLECULE AND CELSUITE. VII) TURNOVER UNDER NOTES ON ACCOUNTS FOR FIN ANCIAL STATEMENTS ON PAGE 35 OF THE ANNUAL REPORT STATES THAT THE TURNOVER FROM BI O INFORMATICS SERVICES, DATA 16 ITA NO. 1283/BANG/2012 WAREHOUSING AND MIXING, SOFTWARE DEVELOPMENT, PRODU CTS AND SERVICES FOR F.Y. 2007-08 IS 2021.12 LAKHS. 8.2.2 THE ASSESSEE ALSO PLACED RELIANCE IN SU PPORT OF ITS STAND THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON T HE FOLLOWING DECISIONS OF THE CO- ORDINATE BENCHES OF THIS TRIBUNAL :- I) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DCIT (ITA NO.1054/BANG/2011) II) MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (IT (T.P.)A NO.1222/BANG/2011) III) CURRAM SOFTWARE INTERNATIONAL (PVT.) LTD. (ITA NO.1280/BANG/2012). 8.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE CONTENDED THAT THE RULING IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y.2006-07 AND THERE CANNOT BE AN ASSUM PTION OR PRESUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE TO F.Y. 2007-08 AS WELL. 8.4 TO THIS, THE LEARNED AUTHORISED REPRESENTATIVE COUNTERED THAT THE FUNCTIONAL PROFILE OF THIS COMPANY CONTINUES TO REMAIN THE SAM E FOR F.Y. 2007-08 AS IT WAS IN F.Y. 2006-07 AND THE SAME IS EVIDENT FROM THE ANNUAL REP ORT QUOTED EXTENSIVELY ABOVE AT PARA 8.2.1 (SUPRA). 8.5.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERU SED AND CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED. AS DISCUSSED EARLIER, THERE IS MERIT IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE THAT THE RULING OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E-BU SINESS SOFTWARE INDIA PVT. LTD. (SUPRA), WAS WITH RESPECT TO THE FACTS RELEVANT TO AN EARLIE R FINANCIAL YEAR AND THERE CANNOT BE AN 17 ITA NO. 1283/BANG/2012 ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE TO ALL OTHER ASSESSEES FOR THIS YEAR AS WELL. AT THE SAME TIME, WE FIND THAT THE TPO ALSO SEEMS TO HAVE SELECTED THIS COMPANY AS A COMPARABLE, BASED ON THE REASONING GIVEN IN THE T POS ORDER FOR THE EARLIER YEAR I.E. F.Y. 2006-07. EVIDENTLY, IN THIS VIEW OF THE MATTER, TH E TPO HAS NOT CONDUCTED ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY FOR THE YEAR UNDER CONSIDERATION AND THEREFORE THE SELECTION PROCESS ADOPTED BY THE TPO IS DEFECTIVE. 8.5.2 FURTHER, BESIDES RELYING ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ), THE ASSESSEE HAS DEMONSTRATED THAT THE FINDING GIVEN THEREIN FOR ASSESSMENT YEAR 2007- 08 IS APPLICABLE FOR THIS YEAR ALSO. FURTHER, THE ASSESSEE HAS ALSO BROUGHT ON RECORD SU BSTANTIAL EVIDENCE BY QUOTING FROM VARIOUS PORTIONS OF THE ANNUAL REPORT THAT THIS COM PANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE TO THE ASSESSE E IN THE CASE ON HAND. WE AGREE WITH THE SUBMISSIONS MADE BY THE ASSESSEE, THAT AS PER T HE DETAILS FROM THE ANNUAL REPORT OF THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IN VIEW OF THE FACT THAT THE FINANCIAL PROFILE AND OTHER PARAMETERS OF THIS COMP ANY HAVE NOT CHANGED DURING THE YEAR UNDER CONSIDERATION, WHICH FACT HAS BEEN DEMONSTRAT ED BY THE ASSESSEE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND CURRAM SOFTWAR E INTERNATIONAL (PVT.) LTD. (SUPRA), WE HOLD THAT THE COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IT IS ORDERED ACCORDINGLY. 9.0 (3) INFOSYS TECHNOLOGIES LTD. 18 ITA NO. 1283/BANG/2012 9.1 THIS WAS A COMPARABLE SELECTED BY THE T PO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 9.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS COM PANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THIS CONTEXT HAS CITED VARIO US PORTIONS OF THE ANNUAL REPORT OF THIS COMPANY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GROWTH. IN 2008, THIS CO MPANY GENERATED OVER 102 INVENTION DISCLOSURES AND FILED AN AGGREGATE 10 PATENTS IN IN DIA AND THE USA. TILL DATE THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT APPLICATIONS ( PENDING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SO FTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NOT AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CRORES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT USED IN DESI GNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS :- 19 ITA NO. 1283/BANG/2012 (A) ITAT, DELHI BENCH DECISION IN THE CASE O F AGNITY INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011) (C ) CURRAM SOFTWARE INTERNATIONAL (PVT.) LT D. (ITA NO.1280/BANG/2012) 9.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE ASS ESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE OPERATING MARGINS OF TH IS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPART MENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 9.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERE D IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEA R 2007-08 IS APPLICABLE TO THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAKU P OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VI EW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARA BLE COMPANIES. IT IS ORDERED ACCORDINGLY. 10.0 (4) KALS INFORMATION SYSTEMS LTD. 20 ITA NO. 1283/BANG/2012 10.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BE FORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SE T OF COMPARABLES ON THE GROUNDS OF FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAI LS HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWARE SERV ICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HOWEVER, REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.2 4% OF TOTAL REVENUES AND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR THE F.Y. 2007-08 AND QUALIFIES AS A CO MPARABLE BY THE SERVICE INCOME FILTER. 10.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE, AS IT IS INTO DEVELOPMENT OF SOFTWARE P RODUCTS. THE ASSESSEE HAD ALSO SUBMITTED THAT :- (I) THIS COMPANY HAS TWO SEGMENTS NAMELY ; APPLICAT ION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES, WHILE THE TRAINING SEGM ENT DOES NOT HAVE ANY PRODUCT REVENUE. (II) FROM THE ANNUAL REPORT OF KALS FOR THE YEAR EN DED 31.3.2008; I.E. THE YEAR UNDER CONSIDERATION, IT IS OBSERVED THAT THE COMPANY IS I NTO PROVISION OF SOFTWARE DEVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. INVENTORIES UNDER SCHEDULE TO THE FINANCIAL STATE MENTS ON PAGE 16 OF THE ANNUAL REPORT DISCLOSES SOFTWARE DEVELOPMENT AS INVENTORY AND W ORK-IN-PROGRESS. IT IS TO BE NOTED THAT A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER W OULD NOT BE ABLE TO DISCLOSE SUCH DETAILS AS IT DOES NOT CARRY ANY SUCH INVENTORY OR WORK-IN-PROGRESS. 21 ITA NO. 1283/BANG/2012 BACKGROUND UNDER THE SCHEDULES TO THE FINANCIAL STATEMENTS ON PAGE 18 OF THE ANNUAL REPORT STATES :- THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THIS COMPANY CONSISTING OF STPI UNIT EN GAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTW ARE PROFESSIONALS ON ONLINE PROJECTS (EMPHASIS PROVIDED) REVENUE RECOGNITION UNDER NOTES TO THE FINANCIA L STATEMENTS ON PAGE 18 OF THE ANNUAL REPORT STATES :- THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM SO FTWARE SERVICES AND SOFTWARE PRODUCTS. (III) AS PER THE WEBSITE OF KALS, THE COMPANY HAS D EVELOPED TWO PRODUCTS, NAMELY; VIRTUAL INSURE AND LA-VISION ESTABLISHING THE F ACT THAT KALS EARNS REVENUES FROM THE DEVELOPMENT OF SOFTWARE PRODUCTS. (IV) THE SEGMENTAL INFORMATION PROVIDED UNDER NOT ES ON ACCOUNTS OF THE ANNUAL REPORT PROVIDES THE BREAK-UP OF REVENUES FROM TWO SEGMENTS , NAMELY APPLICATION SOFTWARE AND TRAINING WHICH SHOWS THAT REVENUE FROM SOFTWARE P RODUCTS FORMS PART OF APPLICATION SOFTWARE AND THERE ARE NO SEGMENTAL DETAILS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDIC IAL DECISIONS RENDERED IN THE FOLLOWING CASES : A) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011) B) MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (IT(TP)A NO.1222/BANG/2011). 22 ITA NO. 1283/BANG/2012 10.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE CONTENDED THAT THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT T O F.Y.2006-07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO B E APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. A.Y. 2008-09. TO THIS, THE COUN TER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF TH IS COMPANY CONTINUES TO REMAIN THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CALLED OUT FROM THE ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED. AS DISCUSSED EARLIER IN THIS ORDER, THERE IS MERIT IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RULING RENDERED IN THE CASE OF TRIOLOGY E-BUSINESS INDIA P VT. LTD. (SUPRA) WAS WITH RESPECT TO AN EARLIER PERIOD I.E. F.Y. 2006-07 AND THERE CANNOT B E AN ASSUMPTION OR PRESUMPTION THAT IT IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS W ELL. AT THE SAME TIME, WE FIND THAT THE TPO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATI ON OBTAINED UNDER SECTION 133(6) OF THE ACT, WHICH WAS NOT IN THE PUBLIC DOMAIN AND COU LD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THE CO MPANY AS HAS BEEN HIGHLIGHTED BY THE ASSESSEE IN ITS SUBMISSIONS. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. FURTHER, APART FROM RELYING ON T HE DECISION OF TRILOGY E-BUSINESS 23 ITA NO. 1283/BANG/2012 SOFTWARE INDIA PVT. LTD. (SUPRA), THE ASSESSEE HAS BROUGHT ON RECORD SUBSTANTIAL EVIDENCE QUOTING FROM VARIOUS PORTIONS OF THE ANNUAL REPORT OF THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HEN CE IS NOT COMPARABLE AND THEREFORE THE FINDING RENDERED IN RESPECT OF THIS COMPANY IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. FOR ASSESSMENT YEAR 2007-0 8 IS APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2008-09 ALSO. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, WE HOLD THAT THIS COMPANY I.E. KAL S INFORMATION SYSTEMS LTD., IS TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. 11. (5) TATA ELXSI LTD. 11.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMP ANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIG NIFICANT R&D ACTIVITY, BRAND VALUE, SIZE, NICHE PRODUCTS, ETC. THE TPO, HOWEVER, REJECTED TH E CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES . 11.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDE R THE SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND ( C ) VISUAL COMPUTING LABS. 24 ITA NO. 1283/BANG/2012 IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFECT. IN SUPPORT OF ITS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS := (I) TELECORDIA TECHNOLOGIES INDIA (P) LTD. (ITA NO.7821 /MUM/2011) (II) CURRAM SOFTWARE INTERNATIONAL (P) LTD. (ITA NO.1280 /BANG/2012) IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTA TIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 11.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPAR ABLES. 11.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD, WE FIND THAT T HIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE D EVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEV ELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 11.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MUM/2011) HAS HELD THAT TATA EL XSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NO T FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRA CTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSES SEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTA TIVE THAT THE NATURE OF 25 ITA NO. 1283/BANG/2012 PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COM PANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOV E. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT R ATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO T REAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LE NGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARA BLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REP ORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABL ES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 12.0 (6) WIPRO LIMITED 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMP ANY IN THE LIST OF COMPARABLES OR SEVERAL GROUNDS LIKE FUNCTIONAL DIS-SIMILARITY, BRA ND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND IN CLUDED THIS COMPANY IN THE SET OF COMPARABLES. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEVERAL REASONS, WHICH ARE AS U NDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES AND QUOTED EXTRA CTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. 26 ITA NO. 1283/BANG/2012 (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIA L STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH CONT RADICTS THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STA TEMENTS. IN SUPPORT OF ITS CONTENTIONS FOR EXCLUSION OF THI S COMPANY AS A COMPARABLE, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNALS :- (I) TELECORDIA TECHNOLOGIES INDIA (P) LTD. (ITA NO.7821 /MUM/2011) (II) CURRAM SOFTWARE INTERNATIONAL (P) LTD. (ITA NO.1280 /BANG/2012) (III) LOGICA PVT. LTD. (2013) 36 TAXMANN.COM 141 (BANGALO RE TRIBUNAL) (IV) 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) 12.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARA BLES. 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 AS SESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THER E IS NO INFORMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCT AND SOF TWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT D EMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% O F THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALY SIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL ST ATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN A PPROPRIATE COMPARISON. 27 ITA NO. 1283/BANG/2012 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLE CTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING IN TANGIBLES 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 CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECIS ION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, TH EREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF CO MPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. B. COMPANIES CHOSEN AS COMPARABLE BY THE ASSESSEE REJE CTED BY THE TPO. 13.0 (1) P.S.I. DATA SYSTEMS 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE ASSESSEE IN ITS TP STUDY. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE TPO AFTER EXAMINING THIS COMPANY, HAS ACCEPTED IT AS COMPARABLE BUT HAS INAD VERTENTLY OMITTED TO INCLUDE IT IN HIS FINAL LIST OF COMPARABLE COMPANIES. IN THIS REGARD , THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO PAGES 4 AND 5 OF THE TPOS OR DER UNDER SECTION 92CA OF THE ACT DT.31.10.2011 WHEREIN THE TPO HAD EXAMINED THE LIST OF 12 COMPARABLES CHOSEN BY THE ASSESSEE. IT IS POINTED OUT THAT S.NO.7, THIS COMP ANY HAS BEEN EXAMINED AND THE TPOS REMARKS / OBSERVATIONS WAS THAT THIS COMPANY QUALIF IES ALL THE FILTERS APPLIED BY THE TPO 28 ITA NO. 1283/BANG/2012 AND THUS IS CONSIDERED AS A COMPARABLE. THE LEARNE D AUTHORISED REPRESENTATIVE PRAYED THAT IN VIEW OF THE CLEAR FINDING OF THE TPO, THIS COMPANY SHOULD BE INCLUDED IN THE FINAL LIST OF COMPARABLES. 13.2 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPR ESENTATIVE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE MATTER AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON A PERUSAL OF THE TPOS ORDE R UNDER SECTION 92CA OF THE ACT DT.31.10.2011, WE CONCUR WITH THE SUBMISSIONS OF TH E LEARNED AUTHORISED REPRESENTATIVE THAT THE TPO HAD IN FACT AFTER EXAMINATION, HELD TH AT THIS COMPANY IS CONSIDERED AS A COMPARABLE COMPANY BUT HAS OMITTED TO INCLUDE THIS COMPANY IN THE FINAL LIST OF COMPARABLES DRAWN UP IN THE T.P. ORDER. AT PARA 3. 3.1 ON PAGE 5 OF THE TPOS ORDER WHEREIN THE TPO HAS MADE AN ANALYSIS OF THE COMPARA BLES SELECTED BY THE ASSESSEE, THE TPOS OBSERVATIONS / FINDING IN RESPECT OF THIS CO MPANY ARE EXTRACTED AS UNDER : 7. PSI DATA SYSTEM LTD. THE COMPANY QUALIFIES ALL THE FILTERS APPLIED BY TH E TPO. THUS THE COMPANY IS CONSIDERED AS A COMPARABL E. IN THIS VIEW OF THE MATTER, WE DIRECT THE TPO/ASSE SSING OFFICER TO INCLUDE THIS COMPANY IN THE FINAL LIST OF COMPARABLES FOR THE PU RPOSE OF COMPUTING THE ARMS LENGTH PRICE (ALP) OF THE ASSESSEE'S INTERNATIONAL TRANS ACTIONS DURING THE PERIOD / YEAR UNDER CONSIDERATION. 29 ITA NO. 1283/BANG/2012 14.0 (2) QUINNOX CONSULTANCY SERVICES LTD. 14.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE ASSESSEE IN ITS T.P. STUDY. IT WAS REJECTED AS A COMPARABLE BY THE TPA ON THE GROU ND THAT THERE WAS NO CURRENT YEAR DATA AVAILABLE. IT IS SUBMITTED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT CURRENT DATA WAS AVAILABLE AND THAT THE TPO HAS WRONGLY REJ ECTED THIS COMPANY AS A COMPARABLE WITHOUT CONSIDERING THE DATA AVAILABLE. SINCE THE A SSESSING OFFICER HAS NOT CONSIDERED THE CURRENT YEARS DATA WHICH WAS ACTUALLY AVAILABLE, W HILE REJECTING THE COMPANY, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THE ISSUE OF THE COMPARABILITY OR OTHERWISE OF THIS COMPANY MAY BE RESTORED TO THE FILE OF THE TPO FOR FRESH EXAMINATION IN THE LIGHT OF THE CURRENT DATA AVAILABLE. 14.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN EXCLUDING THIS COMPANY FROM THE FINAL LIST O F COMPARABLES. 14.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ADMITTEDLY THERE APPEAR TO BE CONTRASTING CLAIMS; OF THE TPO THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE AS CUR RENT YEARS DATA PERTAINING TO IT IS NOT AVAILABLE AND THAT OF THE LEARNED AUTHORISED REPRES ENTATIVE THAT CURRENT YEARS DATA IS AVAILABLE. WE HAVE HAD OCCASION TO PERUSE THE SHOW CAUSE NOTICE DT.27.9.2011 ISSUED BY THE TPO TO THE ASSESSEE LISTING OUT THE REASONS FOR THE REJECTION 10 COMPANIES OF THE 12 COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE AT PAGE S 5 & 6 THEREOF. AT S.NO.8 AT PAGE 6 30 ITA NO. 1283/BANG/2012 OF THE SHOW CAUSE LETTER, THE TPO HAS MADE THE FOLL OWING OBSERVATIONS / FINDINGS IN RESPECT OF THIS COMPANY WHICH IS EXTRACTED HEREUNDE R : 8. QUINNOX CONSULTANCY SERVICES LTD. THE COMPANY DOES NOT QUALIFY ALL THE FILTERS APPLIE D BY THE TPO. THUS THE COMPANY IS NOT CONSIDERED AS A COMPA RABLE. IN THIS FACTUAL MATRIX, IT APPEARS THAT THERE WAS SOME DATA PERTAINING TO THIS COMPANY TO WHICH THE TPO APPLIED FILTERS AND FOUND IT NOT SUITABLE AS A COMPARABLE AS IS EVIDENT FROM THE OBSERVATIONS IN THE SHOW CAUSE NOT ICE (SUPRA). WE, HOWEVER, FIND THAT THE TPO HAS REJECTED THIS COMPANY IN THE ORDER UNDE R SECTION 92CA OF THE ACT STATING THAT CURRENT YEARS DATA IS NOT AVAILABLE. IN THESE CIRCUMSTANCES, THE DIFFERENT OBSERVATIONS OF THE TPO ARE CONFUSING TO SAY THE LE AST. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT IN THE INTEREST OF EQUITY A ND JUSTICE THE SUITABILITY OR OTHERWISE OF THIS COMPANY FOR INCLUSION IN THE FINAL SET OF COMP ARABLES IN THE CASE ON HAND BE EXAMINED AND DECIDED AFRESH BY THE TPO / A.O. AFTER AFFORDI NG THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. IT IS ORDERED ACCORDINGLY. 15.0 CORPORATE TAX (GROUNDS 16 TO 21) DEDUCTION U/SECTION10B OF THE ACT 15.1 IN THE GROUND RAISED AT S.NO.21, THE ISSUE IS OF REDUCING TELECOMMUNICATION EXPENSES, LOSS ON FOREX AND FOREIGN TRAVEL EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPORT TURNOVER WHILE COMPUTING THE ELIGIBLE DEDUCT ION UNDER SECTION 10B OF THE ACT. THE 31 ITA NO. 1283/BANG/2012 ASSESSEE CONTENDS THAT IF THESE EXPENSES ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER, THEN THEY SHOULD BE EXCLUDED FROM THE TOTAL TURNOVE R ALSO. 15.2 WE HAVE HEARD BOTH SIDES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. ON THIS VERY ISSUE, THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LTD AND OTHERS REPORTED IN (2011) 247 CTR 334 (KAR); (2011-TIOL-684-HC-KAR-II), HAS HELD THAT WHILE COMPUTING THE DEDUCTION UNDER S ECTION 10A/10B OF THE ACT, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED A T AFTER EXCLUDING CERTAIN EXPENSES, THEN THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTA L TURNOVER IN THE DENOMINATOR. THE RELEVANT OPERATIVE PORTION OF THE FINDING OF THE HO N'BLE JURISDICTIONAL HIGH COURT IS EXTRACTED AND REPRODUCED AS UNDER : IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER IN THE DENOMINATOR ALSO. THE REASON BEING THAT THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EX PORT TURNOVER IN THE NUMERATOR AND DENOMINATOR CANNOT BE DIFFERENT. THER EFORE, THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10-A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH WHEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISL ATURE AND AN ORDINARY MEANING IS TO BE ATTRIBUTED TO THE SAME, THE SAID O RDINARY MEANING TO BE ATTRIBUTED TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WHEN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMULA, 'EXPORT TURNOVER' IS DEFINED, AND WHEN THE 'TOTAL TURNOVER' INCLUDES 'EXPORT TURNOVER', THE VERY SAME MEANING GIVEN TO THE 'EXPORT TURNOVER ' BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE 'TOT AL TURNOVER', WHEN THE 'TOTAL TURNOVER', INCLUDES 'EXPORT TURNOVER'. IF W HAT IS EXCLUDED IN COMPUTING THE 'EXPORT TURNOVER' IS INCLUDED WHILE ARRIVING AT THE 'TOTAL TURNOVER', WHEN THE 'EXPORT TURNOVER' IS A COMPONENT OF 'TOTAL TURN OVER', SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMP ERMISSIBLE. IF THAT WERE THE INTENTION OF THE LEGISLATURE, THEY WOULD HAVE EXPRE SSLY STATED SO. IF THEY HAVE NOT CHOSEN TO EXPRESSLY DEFINE WHAT THE 'TOTAL TURN OVER' MEANS, THEN, WHEN THE 32 ITA NO. 1283/BANG/2012 'TOTAL TURNOVER' INCLUDES 'EXPORT TURNOVER', THE ME ANING ASSIGNED BY THE LEGISLATURE TO THE 'EXPORT TURNOVER' IS TO BE RESPE CTED AND GIVEN EFFECT TO, WHILE INTERPRETING THE 'TOTAL TURNOVER' WHICH IS I NCLUSIVE OF THE 'EXPORT TURNOVER'. THEREFORE THE FORMULA FOR COMPUTATION O F THE DEDUCTION UNDER SECTION 10A, WOULD BE AS UNDER : PROFITS OF THE BUSINESS X EXPORT TURNOVER OF THE UNDERTAKING (EX PORT TURNOVER + DOMESTIC TURNOVER) TOTAL TURNOVER. IN THE LIGHT OF THE ABOVE FACTS AND RESPECTFULLY FO LLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF TATA ELXSI LTD. & OTHERS (SUPRA), WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE ABOVE MENTIONED EX PENSES ON COMMUNICATION AND TRAVEL INCURRED IN FOREIGN CURRENCY BOTH FROM EXPOR T TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING THE ELIGIBLE DEDU CTION UNDER SECTION 10B OF THE ACT. 16. IN VIEW OF US HOLDING GROUND NO.21 IN FAVOUR O F THE ASSESSEE AND THEREBY ADDRESSING ITS GRIEVANCE, ;THERE IS NO REQUIREMENT FOR US TO ADJUDICATE THE ALTERNATE GROUND RAISED AT S. NOS.16 TO 20. 17. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2014. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP