Tesco Hindustan Service Centre Private Limited, Bangalore V. DCIT, Bangalore

ITA 1285/BANG/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9234 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAMALADHAR
• Assessee Lawyers: SAMPATH RAGHUNATHAN
• Keywords: Related party transaction; Business income; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Non-deduction of tax; Revenue expenditure
• Section: 92C; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER IT(TP)A NO.1285/BANG/2011 ASSESSMENT YEAR : 2007-08 TESCO HINDUSTAN SERVICE CENTRE PVT. LTD., 81 & 82, EPIP AREA, WHITEFIELD, BANGALORE 560 066. PAN: AABCT 8915B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SAMPATH RAGHUNATHAN, ADVOCATE RESPONDENT BY : SHRI KAMALADHAR, STANDING COUNSEL DATE OF HEARING : 19.10.2016 DATE OF PRONOUNCEMENT : 09.12.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER PASSED CONSEQUENT TO THE ORDER OF THE DRP. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEAL WHICH ARE AS UN DER:- IT(TP)A NO.1285/BANG/2011 PAGE 2 OF 62 THE GROUNDS STATED HEREUNDER ARE INDEPENDENT OF, A ND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT SUBMITS AS UNDER: I. TRANSFER PRICING 1 COMPARABILITY ANALYSIS ADOPTED BY THE LEARNED TP 'O ('LD. TPO') FOR DETERMINING THE ARM'S LENGTH PRICE FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT [THIS REFERS TO GROUND NO. 2.2,2.3 AND 7 OF THE ORIGINAL FORM 36B FILED BY THE APPELLANT] 1.1 THE LEARNED AO ('LD. AO') I LD, TPO GROSSLY ER RED ON FACTS IN BENCHMARKING THE TRANSACTIONS OF THE CAPTIVE SERVIC ES OF THE APPELLANT WITH COMPANIES OPERATING AS FULL-FLEDGED ENTREPRENEURS WITHOUT CONSIDERING THE DIFFERENCES IN THE FUNCTION S PERFORMED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY THE APPELLAN T VIS-A-VIS THE COMPARABLE COMPANIES. I. INFOSYS LTD. II. WIPRO LTD. (SEG) 1.2 THE LD. AO/ LD. TPO ALSO ERRED ON FACTS IN ACC EPTING COMPANIES WITHOUT CONSIDERING THE FUNCTIONAL COMPARABILITY. I. ACCEL TRANSMATIC LTD. II. AVANI CIMCON TE CHNOLOGIES LTD. III. CELESTIAL LABS LTD. IV. E- ZEST SOLUTIONS L TD. V. FLEXTRONICS SOFTWARE SYSTEMS LTD. VI. ISHIR L NFOTECH LTD. VII. KALS INFORMATION SYSTEMS LTD. VIII. LUCID SO FTWARE LTD. IX. MEGASOFT LTD. X. PERSISTENT SYSTEMS LTD. XI. TATA ELXSI LTD. XII. THIRDWARE SOLUTION LTD. XIII. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD . 1.3 THE LD. AO/ LD. TPO ERRED IN LAW IN APPLYING AR BITRARY FILTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COMPARABLES T O THE APPELLANT, WITHOUT ESTABLISHING FUNCTIONAL ANALYSIS . I. RPT> 15% I. ISHIR INFOTECH LTD. II. MEGASOFT LTD. III. ACCEL TRANSMATIC LTD. II. EMPLOYEE COST < 25% I. ISHIR INFOTECH LTD. IT(TP)A NO.1285/BANG/2011 PAGE 3 OF 62 1.4 THE LD. AO/ LD. TPO ERRED ON FACTS IN ARBITRARI LY ACCEPTING COMPANIES WITHOUT CONSIDERING THE DIFFERENCES IN TH E TURNOVER AND SIZE OF THE APPELLANT VIS-A-VIS THE COMPARABLES . I. CONSIDERING THE UPPER LIMIT OF 10 TIMES AND LOW ER LIMIT OF 1I10TH TIMES THE TURNOVER OF THE APPELLANT I. ACCEL TRANSMATIC LTD. II. AVANI CIMCON TECHNOL OGIES LTD. III. E-ZEST SOLUTIONS LTD IV. INFOSYS TECHNOLOGIE S LTD V. ISHIR INFOTECH LTD. VI. KALS INFORMATION SYSTE MS LTD. VII. LUCID SOFTWARE LTD. VIII. WIPRO LTD. 1.5 THE LD. AO/ LD. TPO ERRED ON FACTS IN ARBITRARI LY ACCEPTING COMPANIES WHERE SEGMENTAL DATA PERTAINING TO THE PR OVISION OF SERVICES IS NOT AVAILABLE. I. AVANI CIMCON TECHNOLOGIES LTD. II. CELESTIAL L ABS LTD. III. E-ZEST SOLUTIONS LTD IV. KALS INFORMATION SY STEMS LTD. V. PERSISTENT SYSTEMS LTD. VI. THIRDWARE SOLUTION LTD. 1.6 THE LD. AO/ LD. TPO ERRED ON FACTS IN ACCEPTING COMPANIES WITH PECULIAR ECONOMIC CIRCUMSTANCES AND EXTRA ORDINARY EVENTS DURING THE YEAR. I. MEGASOFT LTD. 1.7 THE LD, AO/ LD. TPO ERRED ON FACTS IN ACCEPTING COMPANIES WITH HIGHLY FLUCTUATING PROFITS. 2 COMPARABILITY ANALYSIS ADOPTED BY THE TPO FOR DETER MINING THE ARM'S LENGTH PRICE FOR SOFTWARE DEVELOPMENT SER VICES SEGMENT AND BUSINESS PROCESS SERVICES / ITES SERVIC ES SEGMENT (THIS REFERS TO GROUND NO. 2.2, 2.3 AND 8 OF THE OR IGINAL FORM 36B FILED BY THE APPELLANT) 2.1 THE LD. AO/ LD. TPO GROSSLY ERRED ON FACTS IN B ENCHMARKING THE TRANSACTIONS OF THE CAPTIVE SERVICES OF THE APPELLA NT WITH COMPANIES OPERATING AS FULL-FLEDGED ENTREPRENEURS W ITHOUT IT(TP)A NO.1285/BANG/2011 PAGE 4 OF 62 CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFOR MED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY THE APPELLANT VIS-A -VIS THE COMPARABLE COMPANIES. I. INFOSYS BPO LTD. II. WIPRO LTD. (SEG) 2.2 THE LD. AO/ LD. TPO ALSO ERRED ON FACTS IN ACCE PTING COMPANIES WITHOUT CONSIDERING THE FUNCTIONAL COMPARABILITY. I. BODHTREE CONSULTING LTD. II. ECLERX SERVICES L TD. III. MOLD-TEK TECHNOLOGIES LTD - SEG IV. VISHAL INFORMATION TECHNOLOGIES LTD. V. ASH C MEHTA FINANCIAL SERVICES LTD. 2.3 THE LD. AO/ LD. TPO ERRED IN LAW IN APPLYING AR BITRARY FILTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COMPARABLES T O THE APPELLANT, WITHOUT ESTABLISHING FUNCTIONAL ANALYSIS . I. RPT> 15% I. APOLLO HEALTHSTREET LTD. II. ASIT C MEHTA FINANCIAL SERVICES LTD. III. HCL COMNET SYSTEMS & SERVICES LTD -SEG IV. INFORMED TECHNOLOGIES LTD. II. EMPLOYEE COST < 25% I. ASIT C MEHTA FINANCIAL SERVICES LTD. II. INFORMED TECHNOLOGIES LTD. III. MOLD-TEK TECHNOLOGIES LTD - SEG IV. SPANCO L TD. - SEG V. VISHAL INFORMATION TECHNOLOGIES LTD. VI. ACCURATE DATA CONVERTORS LTD. 2.4 THE LD. AO/LD. TPO ERRED ON FACTS IN ARBITRARIL Y ACCEPTING COMPANIES WITHOUT CONSIDERING THE DIFFERENCES IN TH E TURNOVER AND SIZE OF THE APPELLANT VIS-A-VIS THE COMPARABLES . I. CONSIDERING THE UPPER LIMIT OF 10 TIMES AND LOWER L IMIT OF 1I10TH TIMES THE TURNOVER OF THE APPELLANT I. ASIT C MEHTA FINANCIAL SERVICES LTD. IT(TP)A NO.1285/BANG/2011 PAGE 5 OF 62 II. BODHTREE CONSULTING LTD. III. INFORMED TECHNOLOGIES LTD. IV. ACCURATE DATA CONVERTORS LTD. 2.5 THE LD. AO/ LD. TPO ERRED ON FACTS IN ARBITRARI LY ACCEPTING COMPANIES WHERE SEGMENTAL DATA PERTAINING TO THE PR OVISION OF SERVICES IS NOT AVAILABLE. I. ASIT C MEHTA FINANCIAL SERVICES LTD. II. BODHTREE CONSULTING LTD. III. WIPRO LIMITED - SEG 2.6 THE LD. AO/ LD. TPO ERRED ON FACTS IN ACCEPTING COMPANIES WITH PECULIAR ECONOMIC CIRCUMSTANCES AND EXTRA ORDINARY EVENTS DURING THE YEAR. I. ACCENTIA TECHNOLOGIES LIMITED SEG II. BODHTREE CONSULTING LTD. III. MAPLE ESOLUTION S LTD. IV. TRITON CORP. LTD 2.7 THE LD. AO/ LD. TPO ERRED ON FACTS IN ACCEPTING COMPANIES WITH HIGHLY FLUCTUATING PROFITS AND ABNORMAL GROWTH PATT ERNS. 3 MARK-UP ON EXPENSES RECOVERED FROM ASSOCIATED EN TERPRISES 3.1 THE LD. AO/ LD. TPO ERRED ON FACTS IN INCLUDING RECOVERY OF EXPENSES IN OPERATING REVENUE AND COST FOR DETERMIN ATION OF MARK-UP AND NOT APPRECIATING THE FACT THAT THOSE AR E EXPENSES INCURRED ON BEHALF OF THE ASSOCIATED ENTERPRISES FO R ADMINISTRATIVE CONVENIENCE AND ONLY REPRESENT PASS THROUGH COSTS W HICH WERE NOT RECEIVED AGAINST ANY SPECIFIC SERVICES RENDERED BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES. 4 VARIATION OF 5% FROM THE ARITHMETIC MEAN [THIS REFE RS TO GROUND NO. 6 OF THE ORIGINAL FORM 36B FILED BY THE APPELLANT] 4.1 THE LD. AO/ LD. TPO ERRED IN LAW IN NOT GRANTIN G THE BENEFITS OF PROVISO TO SECTION 92C(2) OF THE INCOME TAX ACT, 19 61 ('ACT') AVAILABLE TO THE APPELLANT. IT(TP)A NO.1285/BANG/2011 PAGE 6 OF 62 II. CORPORATE TAX 5 COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE A CT [THIS REFERS TO GROUND NO. 9 OF THE ORIGINAL FORM 36B FIL ED BY THE APPELLANT] 5.1 THE LD. AO ERRED IN RE-COMPUTING THE DEDUCTION UNDER SECTION 10A OF ACT, BY REDUCING THE AMOUNT OF FREIGHT, TELECOMMUNICATION AND INSURANCE EXPENSES TOTALING T O RS. 24,745,834 FROM THE EXPORT TURNOVER ALONE ALTHOUGH NO PART OF THE SAID EXPENSES WAS ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. 5.2 THE LD. AO ERRED IN RE-COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT BY REDUCING THE AMOUNT OF EXPENSES I NCURRED IN FOREIGN CURRENCY OF RS. 289,404,138 FROM THE EXPORT TURNOVER ALONE ALTHOUGH NO PART OF THE EXPENDITURE INCURRED IN FOREIGN EXCHANGE WAS INCURRED IN DELIVERY OF COMPUTER SOFTW ARE OUTSIDE INDIA OR FOR PROVIDING TECHNICAL SERVICES OUTSIDE I NDIA. 5.3 THE LD. AO HAS FURTHER ERRED IN NOT REDUCING TH E FREIGHT, TELECOMMUNICATION AND INSURANCE EXPENSES AND EXPENS ES INCURRED IN FOREIGN EXCHANGE FROM BOTH EXPORT TURNOVER AND T OTAL TURNOVER. 5.4 THE LD. AO HAS ERRED IN NO RELYING ON THE DECIS ION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DELL INTERNATIONAL SERVICES INDIA PRIVATE LIMITED AND OT HERS . 6 DISALLOWANCE OF EXPENSES FOR NON-DEDUCTION OF TAX A T SOURCE (RS, 945,963) [THIS REFERS TO GROUND NO. 11 OF THE ORIGINAL FORM 36B FILED BY THE APPELLANT) 6.1 THE LD. AO ERRED IN DISALLOWING EXPENSES OF RS. 945,963 ON THE GROUNDS THAT TAXES HAD NOT BEEN DEDUCTED AT SOURCE, WHILE MAKING PAYMENT, THOUGH CHAPTER XVII-B IS NOT APPLICABLE TO THE SAID PAYMENT. 7. INTEREST UNDER SECTION 234B OF THE ACT [THIS REFERS TO GROUND NO. 13 OF THE ORIGINAL FORM 36B FILED BY THE APPELL ANT) 7.1 THE LD. AO ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT AMOUNTING TO RS. 37,926,765. THE LEVY OF INTERE ST UNDER SECTION 234B IS CONSEQUENTIAL IN NATURE. IT(TP)A NO.1285/BANG/2011 PAGE 7 OF 62 8 INTEREST UNDER SECTION 234D OF THE ACT [THIS REFERS TO GROUND NO. 14 OF THE ORIGINAL FORM 36B FILED BY THE APPELL ANT) 8.1 THE LD, AO ERRED IN LEVYING INTEREST UNDER SECT ION 234D OF THE ACT AMOUNTING TO RS. 137,096. THE LEVY OF INTEREST UNDER SECTION 234D IS CONSEQUENTIAL IN NATURE. 9 RELIEF 9.1 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. 3. THROUGH THE AFORESAID GROUNDS, THE ASSESSEE HAS CHALLENGED THE TP ADJUSTMENT IN BOTH SEGMENTS I.E., IT SEGMENT AND ITES SEGMENT. BESIDES, CERTAIN CORPORATE ADDITIONS ARE ALSO CHALL ENGED BY THE ASSESSEE. 4. THE FACTS IN BRIEF CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PRO VIDING SOFTWARE SERVICES, IT AND IT ENABLED SERVICES. HAVING NOTED THE INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ASSOCIATE ENT ERPRISE (AE), A REFERENCE WAS MADE BY THE AO TO THE TPO FOR COMPUTA TION OF ARMS LENGTH PRICE (ALP) U/S. 92C OF THE I.T. ACT, 1961 [THE ACT ] WITH REGARD TO INTERNATIONAL TRANSACTIONS. ON THE BASIS OF THE TP OS ORDER, A DRAFT ASSESSMENT ORDER WAS PREPARED U/S. 144C OF THE ACT AND WAS ISSUED TO THE ASSESSEE. IN RESPONSE THERETO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE DISPUTE RESOLUTION PANEL (DRP) AND ACCORDINGLY THE DRP HAS ADJUDICATED THE OBJECTIONS RAISED BY THE ASSESSEE A ND ISSUED THE DIRECTIONS ON 14.9.2011. PURSUANT TO THE DIRECTIONS OF THE DR P, ASSESSMENT ORDER IT(TP)A NO.1285/BANG/2011 PAGE 8 OF 62 WAS PASSED BY THE AO BY MAKING TP ADJUSTMENT OF RS. 17,13,16,590 AND WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND HAS POINTED OUT THAT IN BOTH THE SEGME NTS WHILE COMPUTING THE ALP, THE TPO AND DRP HAVE INCLUDED CERTAIN COMPARAB LES WHICH DESERVE TO BE EXCLUDED. 6. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A CHART FOR BOTH THE SEGMENT S DETAILING THE TURNOVER, PROFIT MARGINS, PROFILE OF THE COMPARABLES AND ALSO THE REASONS FOR EXCLUSION/INCLUSION. INSTEAD OF ADJUDICATING THE APPEAL ISSUE-WISE, WE PREFER TO ADJUDICATE EACH AND EVERY COMPARABLE IN T HE LIGHT OF CHART FILED BY THE ASSESSEE AND THE JUDGMENTS/ORDERS REFERRED TO B Y THE PARTIES DURING THE COURSE OF HEARING. WE THEREFORE ADJUDICATE THE ISS UE OF TP ADJUSTMENT SEGMENT-WISE. IT SEGMENT 7. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT TPO HAS TAKEN 26 COMPARABLES FOR COMPUTING THE ALP OF ITS INTERNATIONAL TRANSACTIONS. OUT OF THIS 26 COMPARA BLES, THE ASSESSEE HAS NO OBJECTION WITH REGARD TO INCLUSION OF FOLLOWING COMPARABLES:- 1) DATAMATICS LTD. 2) GEOMETRIC LTD. IT(TP)A NO.1285/BANG/2011 PAGE 9 OF 62 3) IGATE GLOBAL SOLUTIONS LTD. 4) L G S GLOBAL LTD. 5) MEDIASOFT SOLUTIONS PVT. LTD. 6) MINDTREE LTD. 7) QUINTEGRA SOLUTIONS LTD. 8) R S SOFTWARE (INDIA) LTD. 9) R SYSTEMS INTERNATIONAL LTD. 10) SASKEN COMMUNICATION TECHNOLOGIES LTD. 11) SIP TECHNOLOGIES & EXPORTS LTD. 8. WITH REGARD TO REMAINING COMPARABLES, THE LD. CO UNSEL FOR THE ASSESSEE HAS RAISED VARIOUS ARGUMENTS AND WE DEAL W ITH THE ARGUMENTS COMPARABLE-WISE. 9. ACCEL TRANSMATICS LTD. : THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT IN THIS CASE, THE RELATED PARTY TRAN SACTIONS WAS 19.29% OF THE TOTAL TRANSACTIONS. SOFTWARE DEVELOPMENT REVE NUE WAS ALSO LESS THAN 75% I.E. 27.56% AND ABNORMAL GROWTH IN SALES AND MA RGINS. IT WAS ALSO CONTENDED THAT THIS COMPANY CANNOT BE TAKEN AS A CO MPARABLE IN THE LIGHT OF TURNOVER FILTER. TURNOVER OF THE ASSESSEE IS 13 8.51 CRORES, WHEREAS THE TURNOVER OF THIS COMPANY IS RS.9.68 CRORES, WHICH I S LESS THAN 1/10 TH . IT WAS FURTHER CONTENDED THAT THIS COMPARABLE WAS ALSO EX AMINED BY THE TRIBUNAL IN THE CASE OF MERITOR LVS INDIA (P) LTD. V. ACIT IN IT(TP)A NO.1231/BANG/2011 FOR AY 2007-08 WITH RESPECT TO IT SEGMENT. IT WAS FURTHER CONTENDED THAT THIS COMPANY IS NOT A PURE S OFTWARE DEVELOPMENT SERVICE COMPANY, IT IS ENGAGED IN ANIMATION SERVICE S FOR 2D AND 3D ANIMATION. IT WAS FURTHER CONTENDED THAT COMPARA BILITY OF THIS COMPANY IT(TP)A NO.1285/BANG/2011 PAGE 10 OF 62 WAS ALSO EXAMINED BY THE TRIBUNAL IN THE CASE OF AOL ONLINE INDIA PVT. LTD. V. DCIT, IT(TP)A NO.1036/BANG/2011 FOR AY 2007 -08 IN WHICH IT HAS BEEN HELD THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY. RELIANCE WAS ALSO PLACED ON OTHER ORDER OF TRIBUNAL IN THE CASE OF LSI TECHNOLOGIES INDIA (P.) LTD. V. ITO IN IT(TP)A NO.1 048/BANG/2011 . COPY OF THE ORDERS OF TRIBUNAL ARE PLACED ON RECORD. 10. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE RS OF THE DRP AND TPO. 11. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THIS REGARD IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND T HAT THIS COMPANY FAILS ALL RPT FILTER AND TURNOVER FILTER BOTH. MOREOVER, ITS EXCLUSION WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF MERITOR LVS INDIA (P) LTD. (SUPRA) . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- (8) ACCEL TRANSMATIC LTD. 48. WITH REGARD TO THIS COMPANY, THE COMPLAINT OF THE ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SER VICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISIO N OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP A CCEPTED THE CONTENTION OF THE ASSESSEE THAT ACCEL TRANSMATIC SH OULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXT RACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. THE ASSESSEE S UBMITTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 2005-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITI ES OF THE COMPANY WERE AS UNDER. IT(TP)A NO.1285/BANG/2011 PAGE 11 OF 62 (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFAC TURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, T ICKET VENDING SYSTEM (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE FO R EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOL OGIES, OUTSOURCED PRODUCT DEVELOPMENT (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS) - TRAINING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYS TEM MANAGEMENT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEV ELOPMENT. 4.3 ON CAREFUL PERUSAL OF THE BUSINESS ACTIVITIES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH THE ASSESSEE THAT T HE COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPAN Y AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2D AND 3D ANIMATION AND THER EFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. DRP THEREFORE DIRECTED THE ASSESSING OFFI CER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST O F COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MAR GIN. 49. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THIS COMPANY HAS RELATED PARTY TRANSACTIONS WHICH IS MORE THAN THE PERMITTED LEVEL AND THEREFORE SHOULD NOT BE TAKEN FOR COMPARABILITY PURPOSES. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE WAS THAT IF THE ABOVE COMPANY SHOULD NOT BE CONSIDERED AS COMPARABLE. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TPO. 50. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT THE PLEA OF THE ASSESSEE THAT THE AFORESAID COMPANY SHO ULD NOT BE TREATED AS COMPARABLES WAS CONSIDERED BY THE TRIBUNAL IN CAPGE MINI INDIA LTD (SUPRA) WHERE THE ASSESSEE WAS SOFTWARE DEVELOPER. THE TRIBUNAL, IN THE SAID DECISION REFERRED TO BY THE LD. COUNSEL FOR TH E ASSESSEE, HAS ACCEPTED THAT THIS COMPANY WAS NOT COMPARABLE IN TH E CASE OF THE ASSESSEES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES BUSINESS. ACCEPTING THE ARGUMENT OF THE LD. COUNSEL FOR THE A SSESSEE, WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED AS COMPARA BLES. IT(TP)A NO.1285/BANG/2011 PAGE 12 OF 62 12. SIMILARLY, THE PROFILE OF THIS COMPANY WAS ALSO EXAMINED BY THE TRIBUNAL IN THE CASE OF AOL ONLINE INDIA PVT. LTD. (SUPRA) IN PARA 4.2 OF THE ORDER AND THE AO/TPO WAS DIRECTED TO EXCLUDE THIS C OMPARABLE. 13. SINCE THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE AFORESAID ORDERS AND HAS BEEN DIRECTED TO BE EXCLUD ED, WE FIND NO JUSTIFICATION TO EXAMINE THIS ISSUE AFRESH IN THIS APPEAL. THEREFORE, FOLLOWING THE SAME, WE DIRECT THE AO/TPO TO EXCLUDE THIS COMP ARABLE FROM THE LIST OF COMPARABLES. 14. (1) AVANI CINCOM TECHNOLOGIES LTD. , (2) CELESTIAL LABS LTD. , (3) E-ZEST SOLUTIONS LTD. , (4) FLEXTRONICS SOFTWARE SYSTEMS LTD , (5) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD . (6) INFOSYS TECHNOLOGIES LTD. , (7) ISHIR INFOTECH LTD. , (8) KALS INFORMATION SYSTEMS LTD. , (9 LUCID SOFTWARE LTD. , (10) MEGASOFT LTD. , (11) PERSISTENT SYSTEMS LTD. , (12) TATA ELXSI LTD. (13) THIRDWARE SOLUTIONS LTD. , AND (14) WIPRO LTD. THESE COMPANIES ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY AND SOME OF THEM CAN ALSO BE EXCLUDED BY APPLYING T HE TURNOVER FILTER. THESE COMPANIES WERE EXAMINED BY THE TRIBUNAL IN TH E CASE OF MERITOR LVS INDIA (P) LTD. (SUPRA) AND AOL ONLINE INDIA PVT. LTD. (SUPRA) AND THE TRIBUNAL HAS CONCLUDED THAT THESE COMPANIES ARE NOT GOOD COMPARABLES AND THEY WERE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE CASE OF MERITOR LVS INDIA (P) LTD. (SUPRA) WITH RESPECT TO THESE COMPANIES ARE EXTRACTED HEREU NDER:- IT(TP)A NO.1285/BANG/2011 PAGE 13 OF 62 (9) AVANI CINCOM TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOUL D HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIFFERENT FROM THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEES CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTW ARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAILS, AVANI CINCOM CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOFTWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ): HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPE RATING INCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE N OT BEEN PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF T HIS COMPANY CAN BE TAKEN INTO CONSIDERATION FOR COMPARING THE CASE THAT OF ASSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDE D BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT A S COMPARABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS ACCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWAR E EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPORT OF PRO DUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COMPARABILI TY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS . THE FOLLOWING FIGURES WERE PLACED BEFORE US: PARTICULARS FYS 05-06 06-07 0 7-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 280398 51 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (306909 8) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% IT(TP)A NO.1285/BANG/2011 PAGE 14 OF 62 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERATING REVE NUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXTRAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDUSTRY FOR T HE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH RATE OF THIS COMPAN Y WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJECTED AS A COMPARABLE . 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXC LUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. T HE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE . WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMP ANY AS A COMPARABLE. (1) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTORS REPORT (PAGE 20 OF PB-IL), IT IS STATED THAT THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR I N-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2A B) OF THE INCOME TAX ACT. AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDE R DEFERRED REVENUE EXPENDITURE (PAGE 31 OF PB-II), IT IS MENT IONED THAT, EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT O F NEW PRODUCTS HAS BEEN TREATED AS DEFERRED REVENUE EXPENDITURE AN D THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALL MENTS FROM THE YEAR IN WHICH IT IS INCURRED. AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS DEFERRED REVENUE EXPENDITURE (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PR IVATE LTD. V. ADDL. IT(TP)A NO.1285/BANG/2011 PAGE 15 OF 62 CIT ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHIC H THE COMPARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RE SEARCH SEGMENT. THE RELEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPA NY IS AS FOLLOWS: THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM THE DIRECTORS REPORT WHICH READS AS FOLLOWS: THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN TO OL CELSUITE TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FO R DRUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC ( OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND T ECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BI O-INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCO DERMA AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS A ND THE RESPONSE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDURES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE , DEPARTMENT OF MICROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOLOGY AREA, THE COMPANY HAS SIGNED THE TECH NOLOGY TRANSFER AGREEMENT WITH IMTECH CHANDIGARH (A VERY REPUTED CS IR ORGANIZATION) TO MANUFACTURE AND MARKET INITIALLY T WO ENZYMES, ALPHA AMYLASE AND ALKALINE PROTEASE IN INDIA AND OVERSEAS . THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANU FACTURE INDUSTRIAL ENZYMES. THIS FACILITY WOULD ALSO INCLUDE THE RESEA RCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NE W CANDIDATES DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROPOSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA PRADESH. ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE C ONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWAR E DISCOVERY OF NEW DRUGS. MOREOVER THE COMPANY ALSO IS OWNER OF THE IP R. THERE IS HOWEVER A REFERENCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOLS FOR WHICH PATENTING PROCESS W AS ALSO BEING PURSUED. AS EXPLAINED EARLIER IT IS A DIVERSIFIED C OMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WIT H THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMPT MADE TO IDENTIF Y AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE D IFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS IT(TP)A NO.1285/BANG/2011 PAGE 16 OF 62 NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCE PT THE PLEA OF THE ASSESSEE IN THIS REGARD. 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE AB OVE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IP R, IT HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECU LE TO TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS COMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASO N THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVE R, FROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJ ECTED AS A COMPARABLE BEING FUNCTIONALLY DIFFERENT. 45. FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANS PIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS CLASS IFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07- 08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEV ELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE ANNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE R ESPONSE FROM THIS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID THAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT S ERVICES. THE ASSESSEE IN REPLY TO THE PROPOSAL OF THE AO TO TREA T THIS AS A COMPARABLE HAS POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEG MENTAL DATA FOR EACH ACTIVITY IS NOT AVAILABLE AND THEREFORE THIS COMPAN Y SHOULD NOT BE TREATED AS COMPARABLE. BESIDES THE ABOVE, THE ASSES SEE HAS POINT OUT TO SEVERAL REFERENCES IN THE ANNUAL REPORT FOR 31.3.20 07 HIGHLIGHTING THE FACT THAT THIS COMPANY WAS DEVELOPS BIOTECHNOLOGY P RODUCTS AND PROVIDES RELATED SOFTWARE DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPAN Y. THE TPO ALSO CALLED FOR DESCRIPTION OF SOFTWARE DEVELOPMENT PROC ESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DA TED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORKING IN SOFTWARE DEVE LOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY SEGMENTAL DATA WAS GIVE N OR NOT. BESIDES THE ABOVE THERE IS NO OTHER DETAIL IN THE TPOS ORD ER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINICAL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS OF THIS COM PANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE ANNUAL REP ORT FOR FY 06-07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS A ND OTHER PRODUCTS AS IT(TP)A NO.1285/BANG/2011 PAGE 17 OF 62 STATED IN THE DRHP. THERE IS NO REFERENCE TO ANY RE PLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TPO. THE TPO WITH OUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTIONED IN TH E DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTED BY UTI LIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY D URING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISS IONS MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICAL LY/ADMITTEDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS A ND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS COMPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DE VELOPMENT SERVICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT T HIS COMPANY OUGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. (2) E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS FUNCTIONALLY D IFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS EN GAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASS ESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COM PANY IS ENGAGED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SE RVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END IT ES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO ) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDE D SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENT ATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CON TAIN DETAILED DESCRIPTIVE INFORMATION ON THE BUSINESS OF THE COMP ANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COM PANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHOR ISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DE VELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERVICES OUGH T NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT CO MPANIES AND IT(TP)A NO.1285/BANG/2011 PAGE 18 OF 62 RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961 (HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., OUGHT TO BE OMI TTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPAR BALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS R EPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT TH E TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GI VE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT H AS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF C APITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES A RE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD T HAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. /TPO IS ACCORDINGLY DIRECTED. (3) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY I N THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND A TTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASP ECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THIS CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPA NY TO THIS EFFECT WHICH IS AS UNDER :- IT(TP)A NO.1285/BANG/2011 PAGE 19 OF 62 (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) C ELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GROWTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DIS CLOSURES AND FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DATE THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT A PPLICATIONS (PENDING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SOF TWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT R EVENUES IS NOT AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CRO RES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT T OWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWAR E PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTUR AL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS :- (A) ITAT, DELHI BENCH DECISION IN THE CASE OF AGNIT Y INDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.3856/DEL/2010) AND (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE A SSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXT RAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATI VE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THI S COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERED 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 FORT H BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPAR ABLE SINCE IT OWNS IT(TP)A NO.1285/BANG/2011 PAGE 20 OF 62 SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM S OFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFT WARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. (4) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTEN TION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOT H SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOV E, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED IN PROVIDI NG TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE ANNUAL REPORT, THE S ALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 45 ,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REV ENUE AND THEREFORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REF ERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DECISION OF THE ITAT IN THE C ASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/ PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON A CCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIE S. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIO NALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DE VELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABL E TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGA GED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INT O DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIAB LE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPE CT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TPO HAS DR AWN CONCLUSIONS ON IT(TP)A NO.1285/BANG/2011 PAGE 21 OF 62 THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTIC E U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PU BLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CON TRARY TO THE ANNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY THE ASSESS EE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECI SION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BE NCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PROD UCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVI DER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE. (5) & (6) M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWAR E LTD : 20. AS FAR AS COMPARABLE COMPANIES LISTED AT SL.NO. 11 & 14 OF THE FINAL LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ. , M/S.ISHIR INFOTECH LTD. AND LUCID SOFTWARE LTD., IS CONCERNED , THIS TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.L TD. VS. DCIT IT (TP) NO.1086/BANG/2011 FOR AY 07-08 HELD THAT THE A FORESAID COMPANIES ARE NOT COMPARABLE COMPANIES IN THE CASE OF SOFTWARE DEVELOPMENT SERVICES PROVIDER. THE NATURE OF SERVIC ES RENDERED BY THE ASSESSEE IN THIS APPEAL AND THE ASSESSEE IN THE CAS E OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA) ARE ONE AND THE S AME. THIS FACT WOULD BE CLEAR FROM THE FACT THAT THE VERY SAME 26 COMPANIES WERE CHOSEN AS COMPARABLE IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA ). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD.(SUPRA): 22. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON THE BASIS OF THE FINDING OF THIS TRIBUNAL IN THE CASE O F MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. DT 22.2.2013 , WHEREIN AT PAGES 17 AND 22 OF ITS ORDER THE DISTINCTIONS AS TO WHY T HESE COMPANIES SHOULD BE EXCLUDED ARE BROUGHT OUT. HE SUBMITTED THAT THE FACTS OF THE CASE BEFORE US ARE SIMILAR AND, THEREFORE, THE SAID DECI SION IS APPLICABLE TO THE ASSESSEE'S CASE ALSO. 23. THE LEARNED DR HOWEVER OBJECTED TO THE EXCLUSIO N OF THESE TWO COMPANIES FROM THE LIST OF COMPARABLES. ON A CAREFU L PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN TH E CASE OF MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (CITED SUPRA) HAS TAKEN A NOTE OF DISSIMILARITIES BETWEEN THE ASSESSEE THEREI N AND LUCID SOFTWARE LTD. AS OBSERVED THEREIN LUCID SOFTWARE LTD. COMPAN Y IS ALSO INVOLVED IN THE DEVELOPMENT OF SOFTWARE AS COMPARED TO THE A SSESSEE, WHICH IS IT(TP)A NO.1285/BANG/2011 PAGE 22 OF 62 ONLY INTO SOFTWARE SERVICES. SIMILARLY, AS REGARDS ISHIR INFOTECH LTD., THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE TRIBUNA L IN THE CASE OF 24/7 CO. PVT. LTD TO HOLD THAT ISHIR INFOTECH IS ALSO OU T-SOURCING ITS WORK AND, THEREFORE, HAS NOT SATISFIED THE 25% EMPLOYEE COST FILTER AND THUS HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AS THE FA CTS OF THE CASE BEFORE US ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THESE TWO COMPANIES ARE ALSO TO BE EXCLUDED. 21. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AFORESAI D COMPANIES FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR THE PURP OSE OF DETERMINING ALP. (7) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES OR SEVERAL GROUNDS LIKE FUN CTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED A SIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SE T OF COMPARABLES. 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEVERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MA RGINS, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTEN TIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPA RABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVEL OPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON TH E SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCT AND SOF TWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPA RABLE WITHOUT IT(TP)A NO.1285/BANG/2011 PAGE 23 OF 62 DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HI M. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY T HE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL ST ATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WH ICH IS NOT AN APPROPRIATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLEC TUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPL ICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/201 0) HAS HELD THAT A COMPANY OWNING INTANGIBLES 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 INTAN GIBLES, FOLLOWING THE AFORESAID DECISION OF THE COORDINATE BENCH OF T HE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS C OMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THE REFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YE AR UNDER CONSIDERATION. (9) AVANI CIMCON TECHNOLOGIES LTD. 39. AS FAR AS THIS COMPANY IS CONCERNED, THE PLEA OF THE ASSESSEE HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. BASED ON THE INFORMATION AVAILABLE IN THE COMPANYS WEBSITE, WHICH REVEALS THAT THIS COMPANY HAS DEVELOPED A SOFTWARE PRODUCT BY NAME DXCHANGE, IT WAS SUBMITTED THAT THIS COMPANY WOUL D HAVE REVENUE FROM SOFTWARE PRODUCT SALES APART FROM RENDERING OF SOFTWARE SERVICES AND THEREFORE IS FUNCTIONALLY DIFFERENT FROM THE AS SESSEE. IT WAS FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL TO THE DECISION IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT ITA NO.7821/ MUM/2011 WHEREIN THE TRIBUNAL ACCEPTED THE ASSESSEE S CONTENTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE PRODUCT AND OBSERVED THAT IN THE ABSENCE OF SEGMENTAL DETAILS, AVANI CINCOM CANN OT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHO WAS RENDERING SOF TWARE DEVELOPMENT SERVICES ONLY AND IT WAS HELD AS FOLLOWS:- 7.8 AVANI CINCOM TECHNOLOGIES LTD. (AVANI CINCOM ): HERE IN THIS CASE ALSO THE SEGMENTAL DETAILS OF OPERATING I NCOME OF IT SERVICES AND SALE OF SOFTWARE PRODUCTS HAVE NOT BEE N PROVIDED SO AS TO SEE WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN IT(TP)A NO.1285/BANG/2011 PAGE 24 OF 62 INTO CONSIDERATION FOR COMPARING THE CASE THAT OF A SSESSEE. IN ABSENCE OF ANY KIND OF DETAILS PROVIDED BY THE TPO, WE ARE UNABLE TO PERSUADE OURSELVES TO INCLUDE IT AS COMPA RABLE PARTY. LEARNED CIT DR HAS PROVIDED A COPY OF PROFIT LOSS A CCOUNT WHICH SHOWS THAT MAINLY ITS EARNING IS FROM SOFTWAR E EXPORTS, HOWEVER, THE DETAILS OF PERCENTAGE OF EXPORT OF PRO DUCTS OR SERVICES HAVE NOT BEEN GIVEN. WE, THEREFORE, REJECT THIS COMPANY ALSO FROM TAKING INTO CONSIDERATION FOR COMPARABILI TY ANALYSIS. IT WAS ALSO HIGHLIGHTED THAT THE MARGIN OF THIS COM PANY AT 52.59% WHICH REPRESENTS ABNORMAL CIRCUMSTANCES AND PROFITS . THE FOLLOWING FIGURES WERE PLACED BEFORE US:- PARTICULARS FYS 05-06 06-07 07-08 08-09 OPERATING REVENUE 21761611 35477523 29342809 280398 51 OPERATING EXPNS. 16417661 23249646 23359186 3110894 9 OPERATING PROFIT 5343950 12227877 5983623 (3069098) OPERATING MARGIN 32.55% 52.59% 25.62% - 9.87% 40. IT WAS SUBMITTED THAT THIS COMPANY HAS MADE UN USUALLY HIGH PROFIT DURING THE FINANCIAL YEAR 06-07. THE OPERATING REVE NUES INCREASED 63.03% WHICH INDICATES THAT IT WAS AN EXTRAORDINARY YEAR FOR THIS COMPANY. EVEN THE GROWTH OF SOFTWARE INDUSTRY FOR T HE PREVIOUS YEAR AS PER NASSCOM WAS 32%. THE GROWTH RATE OF THIS COMPAN Y WAS DOUBLE THE INDUSTRY AVERAGE. IN VIEW OF THE ABOVE, IT WAS ARGUED THAT THIS COMPANY OUGHT TO HAVE BEEN REJECTED AS A COMPARABLE . 41. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSIONS MADE ON BEHALF OF THE ASSESSEE AND ARE OF THE VIEW THAT THE SAME DESERVES TO BE ACCEPTED. THE REASONS GIVEN BY THE ASSESSEE FOR EXC LUDING THIS COMPANY AS COMPARABLE ARE FOUND TO BE ACCEPTABLE. T HE DECISION OF ITAT (MUMBAI) IN THE CASE OF TELCORDIA TECHNOLOGIES IT(TP)A.1231/BANG/2011 PAGE - 22 PVT. LTD. V. ACIT (SUPRA) ALSO SUPPORTS THE PLEA OF THE ASSESSEE. WE THEREFORE ACC EPT THE PLEA OF THE ASSESSEE TO REJECT THIS COMPANY AS A COMPARABLE. (10) FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) : 26. NOW TAKING UP THE QUESTION OF EXCLUSION OF FLE XTRONICS SOFTWARE SYSTEMS LTD (SEG), IT IS TRUE THAT THE DECISION OF MOTOROLA SOLUTIONS IT(TP)A NO.1285/BANG/2011 PAGE 25 OF 62 (INDIA) P. LTD (SUPRA) ALSO WAS FOR THE VERY SAME Y EAR AND ALSO ON SOFTWARE DEVELOPMENT SERVICES SECTOR. THIS TRIBUNAL HELD AS UNDER : 97.2 FOR A COMPANY TO BE INCLUDED IN THE LIST OF C OMPARABLES, IT IS NECESSARY THAT CREDIBLE INFORMATION IS AVAILABLE ABOUT THE COMPANY. UNLESS THIS BASIC REQUIREMENT IS FULFILLED , THE COMPANY CANNOT BE TAKEN AS A COMPARABLE. IT IS TRUE THAT LD . TPO IS ENTITLED TO OBTAIN INFORMATION US/ 133(6), THE OBJECT OF WHI CH IS PRIMARILY ONLY TO SUPPLEMENT THE INFORMATION ALREADY AVAILABL E ON RECORD, BUT NOT, AS RIGHTLY SUBMITTED BY LD. COUNSEL FOR TH E ASSESSEE, TO REPLACE THE INFORMATION. IF THERE IS A COMPLETE CON TRADICTION BETWEEN THE INFORMATION OBTAINED U/S 133(6) AND ANN UAL REPORT THEN THE SAID INFORMATION CANNOT BE SUBSTITUTED FOR THE INFORMATION CONTAINED IN ANNUAL REPORT. WE, THEREFO RE, ARE IN AGREEMENT WITH LD. COUNSEL FOR THE ASSESSEE THAT TH IS COMPANY CANNOT BE INCLUDED AS A COMPARABLE IN THE SET OF CO MPARABLES SELECTED BY LD. TPO ON ACCOUNT OF CLEAR CONTRADICTI ON BETWEEN CONTENTS OF ANNUAL REPORT AND INFORMATION OBTAINED U/S 133(6). 27. RULE 10D(3) SPECIFIES THE INFORMATION AND DOCU MENTS THAT ARE TO BE MAINTAINED BY A PERSON WHO IS ENTERING INTO INTERNA TIONAL TRANSACTIONS. THESE ARE OFFICIAL PUBLICATIONS, PUBLISHED ACCOUNTS OR THOSE WHICH ARE IN PUBLIC DOMAIN EXCEPT FOR AGREEMENTS AND CONTRACT S TO WHICH ASSESSEE IS PRIVY. ONCE THE ANNUAL REPORT OF A COMPANY IS FO R A YEAR DIFFERENT FROM THE FINANCIAL YEAR ENDING 31 ST MARCH, THEN WITHOUT DOUBT, IT WILL CEASE TO BE A GOOD COMPARABLE, UNLESS THE INFORMATI ON RECEIVED IN PURSUANCE TO A NOTICE U/S.133(6) OF THE ACT FROM SU CH COMPANY, IS RECONCILED WITH THE FIGURES AVAILABLE IN SUCH ANNUA L REPORT. 28. IN THE CASE OF FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), NO DOUBT THE ANNUAL REPORT WAS FOR THE YEAR ENDING 31.03.200 7. HOWEVER IT WAS ONLY FOR A NINE MONTHS PERIOD. NO RECONCILIATION WA S ATTEMPTED BY THE LOWER AUTHORITIES BETWEEN THE FIGURES GIVEN IN SUCH ANNUAL REPORT WITH THE FIGURES WHICH WERE MADE AVAILABLE BY THE SAID C OMPANY TO THE TPO PURSUANT TO NOTICE ISSUED TO THEM U/S.133(6) OF THE ACT. NO DOUBT AT PAGE 123 OF TP ORDER, TPO HAS STATED THAT THE SOFTW ARE DEVELOPMENT SERVICE REVENUES WERE MORE THAN 75% BASED ON THE FO LLOWING FIGURES : [ IMAGE NOT REPRODUCED] BUT HOW THIS SEGMENTATION WAS DONE BY THE TPO AND T HE RECONCILIATION OF THE SAID SEGMENTATION WITH THE ANNUAL REPORT OF THE ASSESSEE WAS NEVER ATTEMPTED OR DONE. IN SUCH A SITUATION WE ARE OF THE OPINION THAT IT(TP)A NO.1285/BANG/2011 PAGE 26 OF 62 FLEXTRONICS SOFTWARE SOLUTIONS LTD (SEG) COULD NOT BE CONSIDERED AS A PROPER COMPARABLE. WE DIRECT EXCLUSION THEREOF. (11) HELIOS & MATHESON INFORMATION TECHNOLOGY LTD : 16. THE NEXT POINT MADE OUT BY THE ASSESSEE IS WIT H REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION S OLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO A SSAIL THE INCLUSION OF THE AFORESAID TWO COMPANIES FROM THE LIST OF COMPAR ABLES IS TO BE EFFECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFO RE, ARE LIABLE TO BE EXCLUDED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE ENGAGED IN DEVELOPM ENT AND SALE OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT F ROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT-SERVICES SEGME NT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE OR DER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYST EMS LTD., IS TO THE EFFECT THAT THE SAID CONCERNS APPLICATION SOFT WARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCER N IS ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEGMENT AN D TRAINING. AS PER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FU NCTIONALLY COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS E NGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUS AL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR F.Y. 2006-07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESSEE POINTE D OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PL ACED IN THE PAPER BOOK AT PAGE 420.3 TO 420.4. THE ASSESSEE FURTHER P OINTED OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS O F SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGME NT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEES IT- SERVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THO UGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MA Y BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE DEVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF S OFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROF IT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE F ROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER THE FINANCIAL STA TEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONC ERN WAS SOFTWARE IT(TP)A NO.1285/BANG/2011 PAGE 27 OF 62 DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONAL LY COMPARABLE TO THE ASSESSEES SEGMENT OF IT-SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS R AISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMMEDIATELY PRECEEDING ASSESSMENT YEAR OF 2006-07, THE SAID CON CERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPAR ABLE. FOR THE SAID PURPOSE, OUR REFERENCE HAS BEEN INVITED TO PAGES 42 1 TO 542 OF THE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STU DY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006-07, AND IN PARTICULAR, A TTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAK EN BY THE ASSESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 20 06-07 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO T O CONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE INSTANT A SSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CON CERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COMPARABLE WITH THE ASSESS EE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PR ESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HA S CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVIT Y UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR IS THERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AU THORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONC ERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BROUGHT OUT BY THE AS SESSEE, IT IS CORRECTLY ASSERTED THAT THE APPLICATION SOFTWARE SEGMENT OF T HE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEES SEGMENT OF IT SERVICES . 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHE SON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAISED SIMILAR AR GUMENTS AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG). WE H AVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONC ERN. THE ASSESSEE POINTED OUT THAT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006-07 TH E SAID CONCERN WAS FOUND FUNCTIONALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY TH E TPO. THE RELEVANT IT(TP)A NO.1285/BANG/2011 PAGE 28 OF 62 PORTION OF THE TRANSFER PRICING STUDY, PLACED AT PA GE 432 OF THE PAPER BOOK HAS BEEN POINTED OUT IN SUPPORT. CONSIDERED I N THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO WE F IND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF C OMPARABLES. (12) PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFT WARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO R EJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REP ORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHED IN REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DEVELOPMENT CON STITUTES 96% OF ITS REVENUES. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IN THE LIST O F COMPARABLES AS IT QUALIFIED THE FUNCTIONALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPANY IS FUN CTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FACTORS ON WH ICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, TH E LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY F OR F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAG ED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY IS IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD.(SUPRA) WHILE DISCUSSIN G THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFT WARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGME NTAL IT(TP)A NO.1285/BANG/2011 PAGE 29 OF 62 INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR CO MPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INTO PRODUC T DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHI CH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTE D FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHI LE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND T HAT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVE N SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN TH E DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOG IES INDIA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANAL YSIS, WE HOLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION . IT IS ORDERED ACCORDINGLY. 14) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY TH E TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VAL UE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPA NY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFO RMS A VARIETY OF FUNCTIONS UNDER THE SOFTWARE DEVELOPMENT AND SERVIC ES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND IT(TP)A NO.1285/BANG/2011 PAGE 30 OF 62 (C) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFECT. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COMPANY IN THE LI ST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNI NG SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAI LS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF T ELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOP MENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REP RODUCED BELOW :- .... TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICH E PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FR OM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF T HE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUC T DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. E VEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN P ROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON TH ESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARA BILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSE SSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORT ION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPO RT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO AS SESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. IT(TP)A NO.1285/BANG/2011 PAGE 31 OF 62 (15) THIRDWARE SOLUTIONS LTD. (SEGMENT) : 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN TH E LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSE E OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMP ARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICE S, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFT WARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVIC ES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD . (2008-TII-04- ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVID ERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA) , THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DE VELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTIO N. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEV ELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. F URTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE P UNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCL UDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMP ARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IT(TP)A NO.1285/BANG/2011 PAGE 32 OF 62 IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFT WARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIRECT TH AT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 13. IN SO FAR AS MEGASOFT LTD, IS CONCERNED, FIND INGS OF THE TRIBUNAL IN THE ABOVE CASE WERE AS UNDER : MEGASOFT LTD.: 24. THIS COMPANY WAS CHOSEN AS A COMPARABLE BY THET PO. THE OBJECTION OF THE ASSESSEE IS THAT THERE ARE TWO SEG MENTS IN THIS COMPANY VIZ., (I) SOFTWARE DEVELOPMENT SEGMENT, AND (II) SOFTWARE PRODUCT SEGMENT. THE ASSESSEE IS A PURE SO FTWARE SERVICES PROVIDER AND NOT A SOFTWARE PRODUCT DEVELO PER. ACCORDING TO THE ASSESSEE THERE IS NO BREAK UP OF R EVENUE BETWEEN SOFTWARE PRODUCTS AND SOFTWARE SERVICES BUS INESS ON A STANDALONE BASIS OF THIS COMPARABLE. THE TPO RELIED ON INFORMATION WHICH WAS GIVEN BY THIS COMPANY IN WHIC H THIS COMPANY HAD EXPLAINED THAT IT HAS TWO DIVISIONS VIZ ., BLUEALLY DIVISION AND XIUS-BCGI DIVISION. XIUS- BCGI DIVISION DOES THE BUSINESS OF PRODUCT SOFTWARE . THIS COMPANY DEVELOPS PACKAGED PRODUCTS FOR THE WIRELESS AND CONVERGENT TELECOM INDUSTRY. THESE PRODUCTS ARE SOL D AS PACKAGED PRODUCTS TO CUSTOMERS. WHILE IMPLEMENTING THESE STANDARDIZED PRODUCTS, CUSTOMERS MAY REQUEST THE CO MPANY TO CUSTOMIZE PRODUCTS OR RECONFIGURE PRODUCTS TO FIT I NTO THEIR BUSINESS ENVIRONMENT. THEREUPON THE COMPANY TAKES U P THE JOB OF CUSTOMIZING THE PACKAGED SOFTWARE. THE COMPANY A LSO EXPLAINED THAT 30 TO 40% OF THE PRODUCT SOFTWARE WO ULD CONSTITUTE PACKAGED PRODUCT AND AROUND 50% TO 60% W OULD CONSTITUTE CUSTOMIZED CAPABILITIES AND EXPENSES REL ATED TO TRAVELLING, BOARDING AND LODGING EXPENSE. BASED ON THE ABOVE REPLY, THE TPO PROCEEDED TO HOLD THAT THE COMPARABL E COMPANY WAS MAINLY INTO CUSTOMIZATION OF SOFTWARE PRODUCTS DEVELOPED (WHICH WAS AKIN TO PRODUCT SOFTWARE) INTERNALLY AND THAT THE PORTION OF THE REVENUE FROM DEVELOPMENT OF SOFTWARE SOLD AND USED FOR CUSTOMIZATION WAS LESS THAN 25% OF THE OVE RALL REVENUES. THE TPO THEREFORE HELD THAT LESS THAN 25% OF THE RE VENUES OF THE COMPARABLE ARE FROM SOFTWARE PRODUCTS AND THEREFORE THE COMPARABLE SATISFIED TPOS FILTER OF MORE THAN 75% OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES. THE BASIS ON WH ICH THE TPO IT(TP)A NO.1285/BANG/2011 PAGE 33 OF 62 ARRIVED AT THE PLI OF 60.23% IS GIVEN AT PAGE-115 A ND 116 OF THE ORDER OF THE TPO. IT IS CLEAR FROM THE PERUSAL OF T HE SAME THAT THE TPO HAS PROCEEDED TO DETERMINE THE PLI AT THE ENTIT Y LEVEL AND NOT ON THE BASIS OF SEGMENTAL DATA. 25. IN THE ORDER OF THE TPO, OPERATING MARGIN WAS COMPUTED FOR THIS COMPANY AT 60.23%. IT IS THE COMPLAINT OF THE ASSESSEE THAT THE OPERATING MARGINS HAVE BEEN COMPUTED AT EN TITY LEVEL COMBINING SOFTWARE SERVICES AND SOFTWARE PRODUCT SE GMENTS. IT WAS SUBMITTED THAT THE PRODUCT SEGMENT OF MEGASOFT IS SUBSTANTIALLY DIFFERENT FROM ITS SOFTWARE SERVICE S EGMENT. THE PRODUCT SEGMENT HAS EMPLOYEE COST OF 27.65% WHEREAS THE SOFTWARE SERVICE SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY, THE PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117 .95% AND IN CASE OF SOFTWARE SERVICE SEGMENT IT IS 23.11%. BOTH THE SEGMENTS ARE SUBSTANTIALLY DIFFERENT AND THEREFORE COMPARISO N AT ENTITY LEVEL IS WITHOUT BASIS AND WOULD VITIATE THE COMPARABILIT Y (SUBMISSIONS ON PAGE 381 TO 383 OF THE PB-I). IT WAS FURTHER SUB MITTED THAT MEGASOFT LIMITED HAS PROVIDED SEGMENTAL BREAK-UP BE TWEEN THE SOFTWARE SERVICES SEGMENT AND SOFTWARE PRODUCT SEGM ENT (PAGE 68 OF PB-II), WHICH WAS ALSO ADOPTED BY THE TPO IN HIS SHOW CAUSE NOTICE (PAGE 84 OF PB-I). THE SEGMENTAL RESUL TS I.E., RESULTS PERTAINING TO SOFTWARE SERVICES SEGMENT OF THIS COM PANY WAS: SEGMENTAL OPERATING REVENUES RS.63,71,32,544 SEGMENTAL OPERATING EXPENSES RS.51,75,13,211 OPERATING PROFIT RS.11,96,19,333 OP/TC (PLI) 23.11% 26. IT WAS REITERATED THAT IN THE GIVEN CIRCUMSTANC ES ONLY PLI OF SOFTWARE SERVICE SEGMENT VIZ., 23.11% OUGHT TO HAVE BEEN SELECTED FOR COMPARISON. 27. IT WAS FURTHER SUBMITTED THAT THE LEARNED TPO I N CASE OF OTHER COMPARABLE, SIMILARLY PLACED, HAD ADOPTED THE MARGI NS OF ONLY THE SOFTWARE SERVICE SEGMENT FOR COMPARABILITY PURP OSES. CONSISTENT WITH SUCH STAND, IT WAS SUBMITTED THAT T HE MARGINS OF THE SOFTWARE SEGMENT ONLY SHOULD BE ADOPTED IN THE CASE OF MEGASOFT ALSO, IN CONTRAST TO THE ENTITY LEVEL MARG INS. IT(TP)A NO.1285/BANG/2011 PAGE 34 OF 62 28. COMPUTATION OF THE NET MARGIN FOR MEGA SOFT LTD . IS THEREFORE REMITTED TO THE FILE OF THE TPO TO COMPUTE THE CORR ECT MARGIN BY FOLLOWING THE DIRECTION OF THE TRIBUNAL IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT.LTD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL REFERRED TO ABOVE, WE DIRECT THE AO/TPO TO COMPUTE THE CORRE CT MARGIN OF MEGA SOFT LTD., AS DIRECTED BY THE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT.LTD. (SUPRA). ACCORDINGLY WE HOLD THAT MEGASOFT LTD CAN BE CONSID ERED AS A GOOD COMPARABLE AFTER SEGMENTATION AS DIRECTED IN T HE ABOVE ORDER IS DONE. 14. ACCORDINGLY, FOLLOWING THE ABOVE ORDER WE DIRE CT EXCLUSION OF CELESTIAL LABS LTD, E-ZEST SOLUTIONS LTD, INFOSYS T ECHNOLOGIES LTD, KALS INFORMATION SYSTEMS LTD (SEG), LUCID SOFTWARE LTD, WIPRO LTD (SEG), ACCEL TRANSMATIC LTD (SEG), AVANI CIMCON TEC HNOLOGIES LTD, FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG), HELIOS & MA THESON INFORMATION TECHNOLOGY LTD, ISHIR INFOTECH LTD, PER SISTENT SYSTEMS LTD, SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG), TATA E LXSI LTD (SEG) AND THIRDWARE SOLUTIONS LTD. IN SO FAR AS MEGASOFT SOLUTIONS LTD IS CONCERNED, WE DIRECT THE AO / TPO TO REWORK ITS SEG MENTAL RESULTS AND CONSIDER ITS COMPARABILITY ONLY WITH REGARD TO THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. ORDERED ACCORDINGLY. 15. SINCE THE TRIBUNAL HAS EXAMINED THE AFORESAID C OMPARABLES IN THE LIGHT OF PROFILE OF MERITOR LVS INDIA (P) LTD. (SUPRA) WHICH IS ALMOST SIMILAR TO ASSESSEES PROFILE AND THAT TOO FOR THE SAME ASSESSMENT YEAR, WE FIND NO JUSTIFICATION TO RE-EXAMINE THE JUSTIFICATI ON OF EXCLUSION OF THESE COMPARABLES. WE, THEREFORE FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, DIRECT THE AO/TPO TO EXCLUDE THESE COMPARABLES FROM THE LIST OF COMPARABLES. IT(TP)A NO.1285/BANG/2011 PAGE 35 OF 62 16. AS FAR AS MEGASOFT LTD. IS CONCERNED, IT HAS BE EN CONTENDED THAT IN ASSESSEES OWN CASE FOR THE AY 2006-07, THE MARG IN PERTAINING TO SOFTWARE SERVICES SEGMENT WAS DIRECTED TO BE CONSID ERED BY THE TRIBUNAL. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE FURTHER C ONTENDED THAT THIS COMPARABLE WAS EXAMINED IN THE CASE OF TRIBUNAL IN THE CASE OF MERITOR LVS INDIA (P) LTD. (SUPRA) AND IT WAS HELD THAT THE COMPANY CARRIED OUT PRODUCT DEVELOPMENT. SOFTWARE DEVELOPMENT IS CARRI ED OUT UNDER BLUEALLY DIVISION. THE PRODUCT SEGMENT HAS EMPLOYE E COST OF 27.65%, WHEREAS SOFTWARE SERVICES SEGMENT HAS EMPLOYEE COST OF 50%. SIMILARLY THE PROFIT MARGIN ON COST IN PRODUCT SEGMENT IS 117 .95% AND IN CASE OF SOFTWARE SERVICES SEGMENT IT IS 23.11%. THE TRIBUN AL ACCORDINGLY HELD THAT BOTH SEGMENTS ARE SUBSTANTIALLY DIFFERENT AND ONLY THE SOFTWARE SERVICES SEGMENT MARGIN IS TO BE CONSIDERED. 17. IT WAS FURTHER CONTENDED THAT THIS COMPANY ALSO FAILS ON THE POINT OF RPT FILTER AS RPT IN THIS CASE IS 20.33%, WHEREA S THE TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT IF THE RPT IS MORE THAN 15%, THE COMPARABLE HAS TO BE EXCLUDED. BUT THIS ASPECT WAS NOT EXAMINED BY T HE AO/TPO. 18. THE LD. DR, ON THE OTHER HAND, HAS SUBMITTED TH AT IN THE ASSESSEES OWN CASE IT WAS DIRECTED TO BE RECONSIDE RED BY THE TRIBUNAL, THEREFORE IN THIS CASE ALSO, IT MAY BE RESTORED BAC K TO THE AO/TPO TO BE RE- EXAMINE THE COMPARABILITY OF THIS COMPANY IN THE LI GHT OF THE ORDER OF THE IT(TP)A NO.1285/BANG/2011 PAGE 36 OF 62 TRIBUNAL IN THE CASE OF TRIBUNAL MERITOR LVS INDIA (P) LTD. (SUPRA) AND THE RPT FILTER. 19. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT IN ASSESSE ES OWN CASE IT WAS RESTORED TO THE AO FOR RECONSIDERATION. THE ISSUE OF RPT WAS NOT EXAMINED BY THE TPO. THEREFORE, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THIS COMPARABLE BE RE-EXAMINED BY THE TPO/ AO AGAIN IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF MERITOR LVS INDIA (P) LTD. (SUPRA) AND THE RPT FILTER. ACCORDINGLY, WE DIRECT THE AO/ TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY IN THE TERMS INDICATE D ABOVE. ITES SEGMENT 20. WITH REGARD TO ITES SEGMENT, THE TPO HAS TAKEN 27 COMPARABLES, WHICH ARE AS UNDER;- (1) ACCENTIA TECHNOLOGIES LTD. SEG. (2) ADITYA BIRLA MINACS WORLDWIDE LTD. (3) ALLSEC TECHNOLOGIES LTD. (4) APEX KNOWLEDGE SOLUTIONS LTD. (5) APOLLO HEALTHSTREET LTD. (6) ASIT C MEHTA FINANCIAL SERVICES LTD. (7) BODHTREE CONSULTING LTD. (8) CALIBER BUSINESS SOLUTIONS LTD. (9) COSMIC GLOBAL LTD. (10) DATAMATICS FINANCIAL SERVICES LTD. SEG. (11) ECLERX SERVICES LTD. IT(TP)A NO.1285/BANG/2011 PAGE 37 OF 62 (12) FLEXTRONICS SOFTWARE SYSTEMS LTD. (13) GENESYS INTERNATIONAL CORPORATION (14) HCL COMNET SYSTEMS & SERVICE LTD. (15) ICRA TECHNO ANALYTICS LTD. (16) INFORMED TECHNOLOGIES LTD. (17) INFOSYS BPO LTD. (18) I-SERVICES INDIA PVT. LTD. (19) MAPLE ESOLUTIONS LTD. (20) MOLD-TEK TECHNOLOGIES LTD. SEG (21) R SYSTEMS INTERNATIONAL LTD. SEG (22) SPANCO LTD. SEG (23) TRITON CORP LTD. (24) VISHAL INFORMATION TECHNOLOGIES LTD. (25) WIPRO LTD. SEG (26) NITTANY OUTSOURCING SERVICES PVT LTD (27) ACCURATE DATA CONVERTORS LTD. 21. OUT OF THE AFORESAID COMPARABLES, THE ASSESSEE HAS NO OBJECTION WITH REGARD TO INCLUSION OF FOLLOWING COM PARABLES:- (1) ADITYA BIRLA MINACS WORLDWIDE LTD. (2) ALLSEC TECHNOLOGIES LTD. (3) APEX KNOWLEDGE SOLUTIONS LTD. (4) CALIBER BUSINESS SOLUTIONS LTD. (5) COSMIC GLOBAL LTD. (6) DATAMATICS FINANCIAL SERVICES LTD. SEG. (7) FLEXTRONICS SOFTWARE SYSTEMS LTD. (8) GENESYS INTERNATIONAL CORPORATION (9) ICRA TECHNO ANALYTICS LTD. IT(TP)A NO.1285/BANG/2011 PAGE 38 OF 62 (10) R SYSTEMS INTERNATIONAL LTD. SEG (11) NITTANY OUTSOURCING SERVICES PVT LTD 22. FOR THE REMAINING COMPARABLES, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THESE ARE TO BE EXCLUDED EITHER ON ACCOUNT OF FUNCTIONAL DISSIMILARITY OR BY APPLYING DIFFERENT FILTERS. WE THEREFORE PREFER TO DEAL WITH THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO EXCL USION OF THE COMPARABLES INDEPENDENTLY. 23. ACCENTIA TECHNOLOGIES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THERE WERE EXTRA-OR DINARY EVENTS DURING THE YEAR AS THERE WAS AMALGAMATION OF SUBSIDIARIES RESULTING IN GROWTH OF REVENUES BY 100683%. THEREFORE, THIS COMPANY CANN OT BE CALLED TO BE A GOOD COMPARABLE. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. V. ACIT IN IT(TP)A NO.8290(MUM)/2011 , COPY OF WHICH IS PLACED ON RECORD AT PAGES 44 TO 54 OF THE COMPILATION. 24. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF THE AO. 25. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THIS REGARD, WE FIND THAT THE EXTRA-ORDINARY EVENT OF TH IS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) AND IT WAS HELD THAT ACCENTIA TECHNOLOGIES LTD. CAN NOT BE A GOOD COMPARABLE AND ACCORDINGLY DIRECTED EXCLUSION OF TH IS COMPANY FROM THE IT(TP)A NO.1285/BANG/2011 PAGE 39 OF 62 FINAL LIST OF COMPARABLES. THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- (IV) ACCENTIA TECHNOLOGIES LTD.:- THE OP/TC OF T HIS COMPANY IS 38.26%. THE LD. COUNSEL FOR THE ASSESSEE STATED TH AT THIS COMPANY AMALGAMATED WITH TWO OF ITS SUBSIDIARIES PURSUANT T O THE ORDER OF THE COURT BECAUSE OF WHICH THE IMMEDIATE EFFECT OF THE AMALGAMATION/ MERGER IS REFLECTED ON THE OPERATING INCOME, EXPENS ES AND PBIT. THIS AMOUNTS TO EXTRAORDINARY EVENTS AND THEREFORE THE C OMPANY NEEDS TO BE EXCLUDED. THE CO-ORDINATE HYDERABAD BENCH OF THE TR IBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1964/HYD/2011 AND IN THE CASE OF ZAVATA INDIA PRIVA TE LIMITED IN ITA NO. 1781/HYD/2011 HAS TAKEN A VIEW THAT EXTRAORDINA RY EVENTS LIKE MERGER AND DE-MERGER WILL IMPACT PROFITABILITY OF C OMPANIES AND THEREFORE SHOULD BE EXCLUDED. WE ALSO FIND THAT THE SEGMENTAL DATA IS NOT AVAILABLE AND THEREFORE WHERE THERE IS NO SEGME NTAL DATA, THE OVERALL RESULT DECLARED BY A COMPANY CANNOT PER SE BE APPLI ED FOR PURPOSES OF TAKING COMPARISON. A SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF ROCHE DIAGNOSTICS INDIA PVT. LTD. IN ITA NO . 4127/MUM/2009. WE ALSO FIND THAT THIS COMPANY WAS REJECTED BY THE DRP IN ASSESSEES OWN CASE FOR A.Y. 2009-10 ON ACCOUNT OF NON-AVAILAB ILITY OF SEGMENT- WISE RESULTS. CONSIDERING THE FACTS IN THE LIGHT OF THE JUDICIAL DECISIONS DISCUSSED HEREINABOVE, WE DIRECT THE EXCLUSION OF T HIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 26. SINCE THE TRIBUNAL HAS EXAMINED THE EXTRA-ORDIN ARY EVENT OF THIS COMPANY IN THE AFORESAID CASE, WE FIND NO JUSTIFICA TION TO READJUDICATE IT AGAIN AND THEREFORE WE HOLD THAT ON ACCOUNT OF EXTR A-ORDINARY EVENTS DURING THE YEAR, THIS COMPANY CANNOT BE CALLED TO BE A GOO D COMPARABLE AND ACCORDINGLY WE DIRECT ITS EXCLUSION FROM THE FINAL LIST OF COMPARABLES. 27. APOLLO HEALTHSTREET LTD. IN THIS REGARD, IT WAS CONTENDED THAT THIS COMPANY FAILS ON THE POINT OF RPT FILTER, AS THE RE LATED PARTY TRANSACTIONS (RPT) TRANSACTION IN THIS CASE IS 22.90% OF THE SAL ES. THEREFORE, THIS IT(TP)A NO.1285/BANG/2011 PAGE 40 OF 62 COMPARABLE HAS TO BE EXCLUDED AS IT IS SETTLED POSI TION OF LAW THAT RELATED PARTY TRANSACTIONS MORE THAN 15% ARE TO BE EXCLUDED . IN SUPPORT OF HIS CONTENTION, HE HAS PLACED RELIANCE UPON THE ORDER O F TRIBUNAL IN THE CASE OF ACIT V. MCAFEE SOFTWARE (INDIA) PVT. LTD. IN IT(TP) A NO.04/BANG/2012 AND POLE TO WIN INDIA (P.) LTD. V. DCIDT IN IT(TP)A NO. 1053/BANG/2011 IN WHICH IT HAS BEEN HELD THAT COMPARABLES HAVING RPT MORE THAN 15% OF THE TOTAL REVENUE ARE TO BE EXCLUDED. 28. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF THE AO. 29. HAVING CAREFULLY EXAMINED THE DATA OF THIS COMP ARABLE, WE FIND THAT RPT OF THIS COMPARABLE IS 22.90% OF THE TOTAL SALES AND IN THE CASE OF POLE TO WIN INDIA (P.) LTD. (SUPRA) , THE TRIBUNAL HAS HELD THAT IF THE RPT IS MORE THAN 15%, THE COMPARABLE HAS TO BE EXCLUDED. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD IS EXTR ACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 7.5 WE HAVE HEARD THE LD. A.R. & LD. D.R. AND CON SIDERED CAREFULLY THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P) LTD. (SUPRA) , THE TPO HAS SELECTED THE SAME SET OF 27 COMPARABLE COMPANIES AS IN THE CASE OF THE ASSESSEE BEFORE US. WE FURTHER NOTE THAT IN THE CASE OF THE ASSESSEE, THE TPO HAS ACCEPTED THAT THE ASSESSEE IS IN THE ITES SEGMENT WHICH WAS ALSO ACCEPTED IN THE CASE OF ARIBA TECHNOLOGIES INDIA (P) LTD. (SUPRA) . WE FURTHER FIND THAT MOST OF THE COMPARABLE COMPANIES ARE REQUIRED TO BE EXCLUDE D BY APPLYING THE FILTER OF RPT AT 15%. THEREFORE, TO T HE EXTENT OF THE EXCLUSION OF THE COMPANIES ON THE GROUND OF RPT FIL TER. WE NEED NOT GO INTO THE FUNCTIONAL COMPARABILITY OF THOSE C OMPARABLES. IT(TP)A NO.1285/BANG/2011 PAGE 41 OF 62 30. SINCE IT HAS BEEN REPEATEDLY HELD BY THE TRIBUN AL THAT IF THE RPT FILTER IS MORE THAN 15%, THE COMPARABLE HAS TO BE E XCLUDED FROM THE LIST OF COMPARABLES AND IN THE INSTANT CASE THE RPT WAS 22. 90% WHICH IS MORE THAN 15%, THEREFORE IT DESERVES TO BE EXCLUDED AND WE ACCORDINGLY DIRECT THE AO/TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. 31. ASIT C. MEHTA FINANCIAL SERVICES PVT. LTD. : IN THIS CASE, THE ASSESSEE HAS CONTENDED THAT THIS COMPANY SHOULD BE EXCLUDED BY APPLYING THE RPT FILTER AND EMPLOYEE COST FILTER. ON THE OTH ER HAND, THE LD. DR HAS CONTENDED THAT RPT IS 15.17% OF TOTAL SALES AND EMP LOYEE COST IS ALSO 24% OF SALES, WHEREAS IT HAS BEEN REPEATEDLY HELD B Y THE TRIBUNAL THAT RPT FILTER SHOULD APPLY WHEN IT IS MORE THAN 15% AN D EMPLOYEE COST FILTER WILL APPLY WHEN IT IS LOWER THAN 25%. IN THE INS TANT CASE, SINCE THERE IS MARGINAL DIFFERENCE FROM THE BENCHMARK, THE COMPARA BLE SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. 32. HAVING CAREFULLY EXAMINED THE DATA OF THIS COMP ARABLE, WE FIND THAT UNDISPUTEDLY THE RPT OF THIS COMPANY IS 15.17% WHICH IS MARGINALLY HIGHER THAN THE BENCHMARK OF RPT FILTER OF 15%. SI MILARLY, EMPLOYEE COST IS 24% WHICH IS MARGINALLY LOW TO THE BENCHMARK OF EMPLOYEE COST FILTER I.E., 25%. THIS BENCHMARK WAS SET BY THE TRIBUNAL TO SCR UTINISE OR TO FIND OUT THE BEST COMPARABLES IN ORDER TO COMPUTE THE ALP. WHILE FILTERING THE COMPARABLES, SOME BENCHMARK IS TO BE FIXED BY THE A O/TPO OR THE TRIBUNAL. UNDISPUTEDLY, EMPLOYEE COST FILTER WAS B ENCHMARKED TO BE 25% IT(TP)A NO.1285/BANG/2011 PAGE 42 OF 62 OF SALES AND RPT FILTER WAS BENCHMARKED TO BE 15% O F SALES; BUT THIS IS NOT A WATER-TIGHT COMPARTMENT THAT ONCE IT CROSSES BY 0.1%, THE COMPARABLE IS TO BE EXCLUDED. IT IS ONLY A CRITERI ON ADOPTED FOR SHORTLISTING THE COMPARABLES OUT OF BUNCH OF COMPARABLES. WE TH EREFORE FIND NO JUSTIFICATION IN EXCLUDING THIS COMPARABLE ONLY ON THE GROUND THAT THE RPT HAS EXCEEDED BY 0.17% AND THE EMPLOYEE COST HAS DEC REASED BY ONLY 1%. WE THEREFORE DO NOT FIND FORCE IN THE CONTENTION O F THE ASSESSEE AND ACCORDINGLY WE APPROVE THE INCLUSION OF THIS COMPAR ABLE IN THE LIST OF COMPARABLES. 33. BODHTREE CONSULTING LTD. : WITH REGARD TO THIS COMPANY, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS CO MPANYS FUNCTION IS DIFFERENT, THEREFORE IT SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. IT WAS FURTHER CONTENDED THAT THIS COMPANY PROVIDES OP EN END-TO-END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOP MENT OF SOLUTIONS WHICH CANNOT BE COMPARED TO A BPO COMPANY. IT WAS ALSO CONTENDED THAT DURING THE YEAR THERE WERE PECULIAR CIRCUMSTANCES W HERE THE COMPANY HIVED OFF CERTAIN BUSINESS EXPENSES WITHOUT HIVING OFF THE REVENUE STREAM. THE SEGMENTAL DETAILS ARE NOT AVAILABLE IN THE ANNU AL REPORT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THI S COMPARABLE WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) . COPY OF THE ORDER IS PLACED ON RECORD. 34. THE LD. DR PLACED RELIANCE UPON THE ORDER OF AO . IT(TP)A NO.1285/BANG/2011 PAGE 43 OF 62 35. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R AUTHORITIES IN THE LIGHT OF THE ORDER OF THE TRIBUNAL, WE FIND THA T THIS COMPARABLE WAS EXAMINED BY THE TRIBUNAL IN THE LIGHT OF MATERIAL A VAILABLE ON RECORD. THE TRIBUNAL HAS RESTORED THE MATTER TO THE AO/TPO TO V ERIFY THE CONTENTION OF THE ASSESSEE THAT THE COMPANY IS IN ITES AND WHETHE R SEGMENTAL DATA ARE AVAILABLE OR NOT AND DECIDE AFRESH WHETHER THIS COM PANY NEEDS TO BE COMPARED WITH THE FINAL LIST OF COMPARABLES. SINCE SEGMENTAL DATAS ARE NOT AVAILABLE, THIS COMPANY REQUIRES TO BE RE-EXAMINED BY THE AO/TPO. WE, HOWEVER, FOR THE SAKE OF REFERENCE, EXTRACT THE OBS ERVATIONS OF THE TRIBUNAL WITH REGARD TO THIS COMPARABLE WHILE ADJUDICATING T HE ISSUE IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) :- (IX) BODHTREE CONSULTING LTD.:- THE OP/TC OF THIS COMPANY IS 29.58%. THE LD. COUNSEL FOR THE ASSESSEE STATED THA T THIS COMPANY HAS EXTRAORDINARY PROFIT DUE TO HIVING OFF OF E- PAPER BUSINESS AND WEB BASED ASSESSMENT SERVICES TO SEPARATE COMPANIES. THE LD. COUNSEL FOR THE ASSESSE E FURTHER STATED THAT THIS COMPANY IS FINALLY NOT COM PARABLE AS THE COMPANY IS IN THE SOFTWARE DEVELOPMENT. FURT HER, THIS COMPANY HAS NO SEGMENTAL REPORTING. ON PERUSAL OF THE ACCOUNTS OF THIS COMPANY, WE FIND THAT THE COMP ANY HAS EARNED EXTRAORDINARY PROFIT DURING THE YEAR DUE TO HIVING OFF OF E-PAPER BUSINESS AND WEB BASED ASSESS MENT SERVICES TO SEPARATE COMPANY. IT APPEARS THAT THE C OST HAS BEEN TRANSFER RED TO NEW COMPANIES WHILE INCOME IS RETAINED BY THIS COMPANY. WE FURTHER FIND THAT THI S COMPANY IS ENGAGED IN SINGLE SEGMENT HENCE IT IS FUNCTIONALLY DIFFERENT. AS THE COMPANY HAS HIVED OF F ITS BUSINESS, IT IS A CASE OF DE-MERGER. IN OUR CONSIDE RED OPINION, THIS ISSUE NEEDS TO BE CONSIDERED BY THE A.O./TPO. WE ACCORDINGLY RESTORE THIS COMPANY BACK TO THE FILE OF THE A.O./TPO WITH A DIRECTION TO VERIFY THE CONTENTIONS OF THE ASSESSEE THAT THE COMPANY IS IN ITES IT(TP)A NO.1285/BANG/2011 PAGE 44 OF 62 AND WHETHER SEGMENTAL DATA ARE AVAILABLE OR NOT AND DECIDE AFRESH WHETHER THIS COMPANY NEEDS TO BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. 36. SINCE ON A SIMILAR SET OF FACTS, THE TRIBUNAL HAS R ESTORED THE EXAMINATION OF THIS COMPARABLE TO THE AO/TPO, WE FI ND NO JUSTIFICATION TO DEAL WITH THE ISSUE AND WE ACCORDINGLY RESTORE THE MATTER TO THE AO/TPO WITH A DIRECTION TO RE-EXAMINE THE SEGMENTAL DATA O F THE COMPARABLE AND DECIDE THE ISSUE AFRESH. 37. ECLERX SERVICES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANYS FUNCTION IS DISSIMILAR WITH THE ASSESSEE COMPANY AS IT PROVIDES INDUSTRY SPECIALISE D SERVICES LIKE DATA ANALYTICS, OPERATIONS MANAGEMENT AND AUDITS & RECON CILIATION SERVICES WHICH CANNOT BE COMPARED TO A BPO OR IT OFFSHORING COMPANY. IT WAS FURTHER CONTENDED THAT THIS COMPANY HAS ABNORMAL PR OFITS AND SALES FOR THE YEAR. THE LD. COUNSEL FURTHER CONTENDED THAT THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) AND THE TRIBUNAL HAS HELD THAT EVEN THE COMPANYS F UNCTIONS ARE DIFFERENT, THEREFORE IT CANNOT BE CONSIDERED AS COMPARABLE, FO LLOWING THE ORDER OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. [2014] 147 ITD 83 (SB). THEREFORE, THIS COMPANY MAY BE EXCLUDED FROM THE LIST OF COMPARABLES. 38. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF THE AO. IT(TP)A NO.1285/BANG/2011 PAGE 45 OF 62 39. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF TRIBUNALS FINDING IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) , WE FIND THAT THE PROFILE OF THIS COMPANY WAS EXAM INED BY THE TRIBUNAL IN THIS CASE AND FOLLOWING THE ORDER OF TH E SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. (SUPRA) , THE TRIBUNAL HELD THIS COMPANY TO BE NON-COMPARABLE. F OR THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF THE O RDER OF THE TRIBUNAL:- (XI) ECLERX SERVICES LTD. & MOLD-TEK TECHNOLOGIES LTD.:- FOR BOTH THESE COMPANIES, THE LD. COUNSEL FOR THE ASSES SEE STATED THAT THESE COMPANIES ARE FUNCTIONALLY DIFFERENT, THEREFO RE, CANNOT BE CONSIDERED AS COMPARABLES. WE FIND THAT THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. IN ITA NO. 7466/MUM/2012 HAS REJE CTED ECLERX SERVICES LIMITED BECAUSE SOLUTIONS OFFERED BY THIS COMPANY INCLUDED DATA ANALYTICS, OPERATIONS, MANAGEMENT, AU DITS AND RECONCILIATION, METRICS MANAGEMENT AND REPORTING SE RVICES. THE SPECIAL BENCH OPINED THAT IF THESE FUNCTIONS ACTUAL LY PERFORMED BY THE ASSESSEE COMPANY FOR ITS AES ARE COMPARED WI TH THE FUNCTIONAL PROFILE OF M/S ECLERX SERVICES LIMITED A ND MOLD-TEK TECHNOLOGIES LTD., IT IS DIFFICULT TO FIND OUT ANY RELATIVELY EQUAL DEGREE OF COMPARABILITY AND THE SAID ENTITIES CANNO T BE TAKEN AS COMPARABLE FOR THE PURPOSE OF DETERMINING ALP OF TH E TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AES. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE OBSERVATIONS OF THE SPECIAL BENCH (SUPRA), WE DIRECT THAT THESE TWO ENTITIES BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. 40. SINCE THE TRIBUNAL HAS EXAMINED THIS ISSUE UNDE R SIMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. IT(TP)A NO.1285/BANG/2011 PAGE 46 OF 62 (SUPRA) , WE HOLD THAT THIS COMPANY IS NOT A GOOD COMPARABL E AND DIRECT THE AO/TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES. 41. HCL COMNET SYSTEMS & SERVICES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS CO MPANY HAS RPT MORE THAN 15% I.E. 18.72% OF SALES. BESIDES, THIS COMPA NY HAS DIFFERENT FINANCIAL YEAR ENDING, THEREFORE, IT CANNOT BE HELD TO BE A GOOD COMPARABLE. IT WAS FURTHER CONTENDED THAT THIS COMPANY WAS EXAM INED BY THE TRIBUNAL IN THE CASE OF FLEXTRONICS TECHNOLOGIES (P) LTD. V. DCIT IN IT(TP) A NO.1219/BANG/2011 FOR THE AY 2007-08. RELIANCE WAS ALSO PLACED UPON THE ORDER OF TRIBUNAL IN THE CASE OF AOL ONLINE INDIA PVT. LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT THIS COMPANY HAVING RPT MORE THAN 15% CANNOT BE HELD TO BE A GOOD COMPARABLE. IN THE CAS E OF FLEXTRONICS TECHNOLOGIES (P) LTD. (SUPRA) , THE TRIBUNAL HAS EXAMINED THIS COMPANY ON THE POINT OF DIFFERENT FINANCIAL YEAR ENDING AND HE LD THAT SINCE THIS COMPANY HAS DIFFERENT FINANCIAL YEAR ENDING, IT CANNOT BE A GOOD COMPARABLE. THE RELEVANT PORTION OF THE ORDER OF TRIBUNAL IS EXTRAC TED HEREUNDER:- 8.2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT HCL COMNET SYSTEM & SERVICES LTD.(SEG.) IS FOLLOWING ITS ACCOU NTING YEAR FROM 1ST JULY TO 30TH JUNE. FOR THE YEAR UNDER CONSIDERATION , THE FINANCIAL ACCOUNTS ARE PREPARED FOR THE YEAR ENDED ON 30TH JU NE, 2007. THEREFORE, IT IS CLEAR THAT FOR THE FINANCIAL YEAR UNDER CONSI DERATION, ONLY PARTIAL DATA ARE AVAILABLE FROM 1ST JULY 2006 TO 31ST MARCH 2007. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN A SERIES OF DECISIONS AS RELIED UPON BY THE ASSESSEE AND REFERRED (SUPRA). IN THE CASE OF SANDSTONE CAPITAL ADVISORS PVT. LTD. VS. ACIT (SUPRA), IT(TP)A NO.1285/BANG/2011 PAGE 47 OF 62 THE TRIBUNAL VIDE 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 COMPA RABLE BECAUSE THE FINANCIAL DATA FOR THE FINANCIAL YEAR 2 007-08 WERE NOT AVAILABLE IN THE PUBLIC DOMAIN AND HENCE, IF WA S HELD THAT THIS COMPANY IS NOT A SUITABLE COMPARABLE. THERE IS NO D ISPUTE THAT THE DATA FURNISHED BY THE ASSESSEE ARE REGARDING TH E FINANCIAL RESULTS AS ON 30.6.2007. THEREFORE, AS FAR AS THE F INANCIAL 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 TRAN SACTION THAT THE SAME SHOULD RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. TH E INFORMATION, DATA AND DOCUMENTS 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 TRO HAS MERITS. THE RUNE BENCHES OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD IN ITA NO.4/PN/08 VI DE ORDER DATED 10', 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 A S I T IS EVI DENT FROM THE NOTE ON ACCOUNT AT PAGE 89 OF THE PAPER BOOK. THERE FORE, IN VIEW OF THE TACT THAT THIS COMPANY IS HAVING RELATED PAR TY TRANSACTIONS, THE SAME CANNOT BE CONSIDERED AS A PROPER COMPARABL E. WE FURTHER NOTE THAT A SIMILAR VIEW HAS BEEN TAKEN IN ALL OTHER DECISIONS AS RELIED UPON BY THE TRIBUNAL IN THE CASE OF ACIT VS. 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 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 IT(TP)A NO.1285/BANG/2011 PAGE 48 OF 62 BENCH OF THE TRIBUNAL IN THE CASE 01 CAPITAL ADVISO RS PRIVATE LIMITED V. AC'IT IN ITA NO 2012. VIDE ITS ORDER DAT ED 06.02.2013, THE TRIBUNAL, AFTER CONSIDERING THE PR ESCRIPTION OF RULE 10B(4) AND AN ANOTHER CASE THE TRIBUNAL IN HON EYWELL AUTOMATION INDIA LID, HAS MANDATORY FOR THE PURPOSE S OF COMPARING THE DATA OF M WPM TRANSACTION WITH AN INT ERNATIONAL TRANSACTION THAT THE - TO THE FINANCIAL YEAR ENDING SIMILAR TO THAT OF THE ASSESSEE. THE LD.DR CONTENDED THAT SINCE THE CA SE OF CMC LIMITED FINANCIAL 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 ARGUMENT ADVANCED B Y THIS REGARD WAS NOT SERIOUSLY CHALLENGED BY THE ID. AR. FOLLOWI NG THE PRECEDENT, WE HOLD THAT THIS CASE SHOULD FROM THE L IST 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. 42. SINCE THE TRIBUNAL HAS TAKEN A VIEW WITH RESPEC T TO THIS COMPANY UNDER SIMILAR SET OF FACTS, WE FIND NO JUST IFICATION TO TAKE A CONTRARY VIEW IN THIS APPEAL. ACCORDINGLY, WE HOLD THAT THIS COMPANY CAN BE EXCLUDED BY INVOKING THE RPT FILTER AND ALSO THE DIFFERENT FINANCIAL YEAR ENDING. ACCORDINGLY, WE DIRECT THE AO/TPO TO EXCLU DE THIS COMPANY FROM THE LIST OF COMPARABLES. 43. INFORMED TECHNOLOGIES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANY CAN BE EXCLUDED BY APPLYING THE EMPLOYEE COST FILTER. THE TPO HAS APP LIED THE FILTER OF EMPLOYEE COST TO OPERATING REVENUE LESS THAN 25% FO R THE IT SEGMENT, BUT THE SAME FILTER WAS NOT APPLIED FOR ITES SEGMENT. I N THIS CASE, THE IT(TP)A NO.1285/BANG/2011 PAGE 49 OF 62 EMPLOYEE COST WAS 21.77% OF SALES. SINCE IT IS LES S THAN 25%, THE SAID COMPARABLE SHOULD BE EXCLUDED. BESIDES, IT WAS ALS O CONTENDED THAT RPT WAS 15.72% OF SALES, THEREFORE, IT SHOULD ALSO BE E XCLUDED BY APPLYING THE RPT FILTER. IN SUPPORT OF HIS CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN T HE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) AND AOL ONLINE INDIA PVT. LTD. (SUPRA) . 44. ON THE OTHER HAND, THE LD. DR HAS CONTENDED THA T THE RPT TRANSACTIONS HAVE JUST CROSSED THE BENCHMARK OF 15% , THEREFORE IT CANNOT BE EXCLUDED BY APPLYING THE RPT FILTER. SO FAR AS LOW EMPLOYEE COST IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT STATED HOW MUCH IS THE EMPLOYEE COST OF THE ASSESSEE. IF THERE IS SUBSTAN TIAL DIFFERENCE IN THE EMPLOYEE COST, THEN THE COMPARABLE CAN BE IGNORED. HE ALSO PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) , IN WHICH THE COMPARABLE WAS EXCLUDED ON ACCOUNT OF EMPLOYEE COST OF ASSESSEE AT 49.34%. SI NCE THE COMPLETE DATA OF EMPLOYEE COST IS NOT AVAILABLE WITH REGARD TO AS SESSEE, THE COMPARABLE CANNOT BE EXCLUDED. 45. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTED LY THE RPT IN THE CASE OF THIS COMPANY IS 15.72%. UNDISPUTEDLY THE BENCHMARK TAKEN BY THE TPO AT 15% HAS BEEN APPROVED BY THE TRIBUNAL ALSO. BUT IT IS NOT A WATER-TIGHT IT(TP)A NO.1285/BANG/2011 PAGE 50 OF 62 COMPARTMENT THAT WHERE ONCE IT IS CROSSED BY FEW PO INTS, THE COMPARABLE HAS TO BE INGORED. SINCE RPT IS 15.72%, IT CANNOT BE IGNORED ONLY FOR THE REASON THAT RPT TRANSACTIONS IN THIS CASE HAS EXCEE DED 15% OF THE TOTAL SALES. 46. SO FAR AS THE EMPLOYEE COST OF SALES IS CONCERN ED, WE FIND THAT IN THIS CASE EMPLOYEE COST TO SALES 21.77%, BUT DAT A IN THIS REGARD IN THE CASE IS NOT AVAILABLE. WE ARE THEREFORE OF THE VIE W THAT THIS MATTER BE EXAMINED BY THE AO/TPO IN THE LIGHT OF LOW EMPLOYEE COST FILTER. IF THERE IS SUBSTANTIAL DIFFERENCE BETWEEN EMPLOYEE COST TO SAL ES IN THE CASE OF INFORMED TECHNOLOGIES LTD. AND THE ASSESSEE, THEN I T CAN BE EXCLUDED FROM THE LIST OF COMPARABLES. WITH THESE DIRECTIONS, WE RESTORE THE MATTER TO THE FILE OF THE AO/TPO TO RE-EXAMINE THIS COMPARABLE IN THE TERMS INDICATED ABOVE. 47. INFOSYS BPO LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANY IS FUNCTIO NALLY DISSIMILAR. THEREFORE, THE SAME MAY BE EXCLUDED FROM THE LIST O F COMPARABLES. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) IN WHICH COMPARABILITY OF THIS COMPANY WAS EXAMINED AND IT W AS HELD THAT THIS COMPANY HAS BRAND AND COMMANDS PREMIUM IN THE MARKE T. IT ALSO ASSUMES SIGNIFICANT BUSINESS RISK. FOR THESE REASO NS, THIS COMPARABLE WAS IT(TP)A NO.1285/BANG/2011 PAGE 51 OF 62 EXCLUDED FROM THE LIST OF COMPARABLES. THE RELEVAN T OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF RE FERENCE:- VI) INFOSYS BPO LTD.:- THE LD. COUNSEL FOR THE AS SESSEE STATED THAT THE TURNOVER OF THIS COMPANY IS EXTREMELY HIGH AS COMPA RED TO THAT OF THE ASSESSEE. MOREOVER, INFOSYS IS A BRAND AND COMM ANDS PREMIUM IN THE MARKET, THEREFORE, THIS COMPANY SHOU LD BE EXCLUDED FROM THE LIST OF COMPARABLES. IT IS AN UND ISPUTED FACT THAT INFOSYS IS A BRAND AND COMMANDS PREMIUM IN THE MARK ET. IT IS ALSO A FACT THAT THE TURNOVER FOR THE YEAR OF THIS COMPA NY WAS RS. 649.56 CRORES AS AGAINST THAT OF THE ASSESSEE OF RS . 54.17 CRORES WHICH IS ALMOST 12 TIMES OF THE ASSESSEE. INFOSYS B PO LTD. IS A JOINT COMPANY AND IT ASSUMES SIGNIFICANT BUSINESS R ISKS UNLIKE THE ASSESSEE WHO DOES NOT ASSUME SIGNIFICANT RISKS THER EFORE DESERVES TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. WE DIRECT ACCORDINGLY. A SIMILAR VIEW WAS TAKEN BY THE HYDERA BAD BENCH OF THIS TRIBUNAL IN THE CASE OF C3I SUPPORT SERVICES P VT. LTD. IN ITA NO. 2183/HYD/2011. 48. SINCE THE TRIBUNAL HAS EXAMINED THIS ISSUE UNDE R SIMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY, FOLLOWING THE SAME, WE HOLD THAT THIS COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 49. I-SERVICES INDIA PVT. LTD. : IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE RELEVANT DATA WAS N OT IN PUBLIC DOMAIN AT THE TIME OF ADJUDICATION BY THE TPO. NOW IT IS AVA ILABLE, THEREFORE THE MATTER MAY BE RESTORED TO THE AO/TPO FOR REAJUDICAT ION OF ITS COMPARABILITY IN THE LIGHT OF INFORMATION AVAILABLE IN THE PUBLIC DOMAIN. HE PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN THE CASE OF POLE TO WIN INDIA (P.) LTD. (SUPRA) IT(TP)A NO.1285/BANG/2011 PAGE 52 OF 62 IN WHICH THE TRIBUNAL HAS EXAMINED THE FACTS AND DA TA AVAILABLE AND HAS RESTORED THE MATTER TO TPO/AO FOR DECIDING THE COMP ARABILITY OF THE SAME. 50. THE LD. DR HAS SIMPLY PLACED RELIANCE UPON THE ORDER OF AO/TPO. 51. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THIS COMPA NY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF POLE TO WIN INDIA (P.) LTD. (SUPRA) AND THIS ISSUE WAS RESTORED TO THE FILE OF AO/TPO TO READJUDICATE THE COMPARABILITY OF THIS COMPANY. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- 11.1 I-SERVICES INDIA PVT. LTD. : THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT T HE COMPLETE FINANCIAL DETAILS ARE NOT AVAILABLE IN THE PUBLIC DOMAIN IN R ESPECT OF THIS COMPANY DESPITE THE TPO HAS SELECTED THIS COMPANY FOR THE P URPOSE OF COMPUTING THE ALP. HE HAS POINTED OUT THAT AN IDENT ICAL ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF SISTER CONCERN OF THE ASSESSEE I.E. E4E BUSINESS SOLUTIONS INDIA PVT. LTD. VS. DCIT IN ITA NO.819/BANG/2011 VIDE ORDER DT.26.5.201 5 WHEREIN THE TRIBUNAL HAS REMANDED THE ISSUE TO THE RECORD OF TH E A.O./TPO. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE BE GIVEN THE COMPLETE FINANCIAL INFORMATION OF THIS COMPANY FOR FILING ITS OBJECTIONS AND COMMENTS AGAINST THE COMPARABILI TY OF THIS COMPANY. 11.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL R EPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TPO HAS CALLED THE RELEVANT INFORMATION UNDER S ECTION 133(6) OF THE ACT. THUS THE TPO HAS CONSIDERED THIS COMPANY AFTER EXAMINATION OF THE ENTIRE RELEVANT RECORD. 11.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE TPO IN PARA 33.18 OF THE IMPUGNED ORDER HAS STATED THAT THE ANN UAL REPORT WAS NOT IT(TP)A NO.1285/BANG/2011 PAGE 53 OF 62 AVAILABLE FOR THE YEAR UNDER CONSIDERATION. THUS TH E NOTICE UNDER SECTION 133(6) WAS ISSUED TO THE COMPANY. THE COMPA NY MADE AVAILABLE ITS ANNUAL REPORT TO THE TPO AND ON THE B ASIS OF THE INFORMATION RECEIVED UNDER SECTION 133(6), THE TPO HAS CONCLUDED THAT THIS COMPANY IS COMPARABLE WITH THE ASSESSEE. THE C O-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF E4E BUSINESS SOLUTIONS INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THIS ISSUE IN PARA 30 AS UND ER : 30. THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROU ND ON ADOPTING THIS COMPANY AS A COMPARABLE BEFORE THE DRP. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE TPO DID NOT FURNISH THE INFORMATION OBTAINED FROM THIS COMP ANY IN EXERCISE OF HIS POWERS U/S.133(6) OF THE ACT. IT WA S FURTHER POINTED OUT THAT EVEN AS PER THE TPO, THE ANNUAL RE PORT OF THIS COMPANY FOR F. Y. 2006-07 WAS NOT AVAILABLE. THE TP O HAS GONE BY THE DATA AVAILABLE ON CAPITA LINE DATA BASE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE MADE A PRAYER THAT THE Q UESTION OF CONSIDERING THE AFORESAID COMPANY AS A COMPARABLE S HOULD BE REMANDED BACK TO THE TPO / ASSESSING OFFICER FOR FR ESH CONSIDERATION AND THE ISSUE DECIDED IN THE LIGHT OF THE PUBLISHED ANNUAL REPORT FOR F. Y. 2006-07 AND ALSO ON THE BAS IS OF THE INFORMATION FURNISHED BY THIS COMPANY TO THE ASSESS ING OFFICER IN RESPONSE TO NOTICE U/S.133(6) OF THE ACT. WE HAV E CONSIDERED THE SUBMISSIONS AND ARE OF THE VIEW THAT THE SAME D ESERVES TO BE ACCEPTED. THE TPO / ASSESSING OFFICER WILL OBTAIN T HE ANNUAL REPORT OF THE COMPANY FOR F. Y. 2006-07 AND ALSO FU RNISH THE ASSESSEE COPIES OF THE SAME TOGETHER WITH THE INFOR MATION OBTAINED BY THE TPO PURSUANT TO ISSUE OF NOTICE U/S .133(6) OF THE ACT. THE ASSESSEE WILL THEREAFTER FURNISH ITS REPLY AS TO WHY THIS COMPANY SHOULD NOT BE CONSIDERED AS A COMPARABLE CO MPANY. THE TPO / ASSESSING OFFICER WILL THEREAFTER DECIDE THE QUESTION OF CONSIDERING THIS COMPANY AS A COMPARABLE COMPANY AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THUS THE TRIBUNAL HAS OBSERVED THAT THE TPO/A.O HAS TO FURNISH THE COPIES OF THE INFORMATION TO THE ASSESSEE AND THERE AFTER THE ASSESSEE HAS TO FURNISH ITS REPLY AS TO WHY THIS COMPANY SHOULD NOT BE CONSIDERED AS A COMPARABLE COMPANY. IN VIEW OF THE ORDER OF THE C O-ORDINATE BENCH, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A.O./T PO FOR DECIDING THE COMPARABILITY OF THE SAME AFTER CONSIDERING THE REP LY OF THE ASSESSEE ON FURNISHING OF THE INFORMATION RECEIVED UNDER SECTIO N 133(6) OF THE ACT. IT(TP)A NO.1285/BANG/2011 PAGE 54 OF 62 52. FOLLOWING THE ORDER OF THE TRIBUNAL, WE SET ASI DE THE FINDING OF THE AO AND RESTORE THE MATTER TO HIS FILE WITH A DI RECTION TO READJUDICATE THE COMPARABILITY OF THIS COMPANY IN THE LIGHT OF THE D ATA AVAILABLE IN THE PUBLIC DOMAIN AND ALSO AFTER OBTAINING THE COMMENTS OF THE ASSESSEE. 53. MAPLE ESOLUTIONS LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANY HAS PECULI AR ECONOMIC CIRCUMSTANCES AND IS UNRELIABLE FINANCIAL RESULTS A ND HAD ALSO MERGED WITH TRITON, THEREFORE THIS COMPANY CANNOT BE HELD TO BE A GOOD COMPARABLE. IT WAS FURTHER CONTENDED THAT THIS COMPANY WAS EXAMINE D BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) . THIS COMPANY WAS ALSO REJECTED IN ASSESSEES OWN CASE FOR THE AY 2006-07 WHILE DEALING WITH THE IT SEGMENT. COPIES OF THE ORDERS OF TRIBU NAL ARE PLACED ON RECORD. 54. THE LD. DR PLACED RELIANCE UPON THE ORDER OF A O/TPO. 55. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT FOR AY 200 6-07 THIS COMPANY WAS REJECTED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE WHILE DEALING WITH THE COMPARABLES IN THE IT SEGMENT. IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) , THIS COMPANY WAS EXAMINED BY THE TRIBUNAL FOR THE AY 2007-08 AND THE TRIBUNAL EXCLUDED THE SAME O N THE GROUND THAT THIS COMPANY WAS UNDER SERIOUS INDICTMENT IN FRAUD CASES . THE RELEVANT IT(TP)A NO.1285/BANG/2011 PAGE 55 OF 62 OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDE R FOR THE SAKE OF REFERENCE:- MAPLE ESOLUTIONS LTD.:- THE OP/TC OF THIS COMPANY IS 34.32%. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT TH IS COMPANY WAS UNDER SERIOUS INDICTMENT IN FRAUD CASES. A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 IN ITA NO. 8997/MUM/2010 SHOW THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES. RESPECTF ULLY FOLLOWING THE PRECEDENT, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 56. WE, THEREFORE, FOLLOWING THE SAME, DIRECT THE A O/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 57. MOLD-TEK TECHNOLOGIES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANYS FUNC TION IS DISSIMILAR, THEREFORE IT SHOULD BE EXCLUDED FROM THE LIST OF CO MPARABLES. THE LD. COUNSEL FURTHER CONTENDED THAT IN THIS CASE THE EMP LOYEE COST IS 7.6% OF SALES, THEREFORE THIS COMPANY CAN ALSO BE EXCLUDED BY APPLYING EMPLOYEE COST FILTER AS THE BENCHMARK FIXED BY THE TPO IS AT 25%. MOREOVER, IT HAS ABNORMAL GROWTH OF 204% IN SALES OVER THE PREVIOUS YEAR. THEREFORE, FOR THESE REASONS, THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. HE ALSO PLACED RELIANCE UPON THE ORDE R OF THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) IN WHICH THE TRIBUNAL FOLLOWING THE ORDER OF THE MUMBAI SPECIAL BENCH IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) (P.) LTD. (SUPRA) , DIRECTED THE EXCLUSION OF THIS COMPANY. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL HAVE ALREADY BEEN RECORDED IN THE FOREGOING PARAGRAPHS WHILE DEALING WITH THE COMPARABLE IT(TP)A NO.1285/BANG/2011 PAGE 56 OF 62 ECLERX SERVICES LTD. THEREFORE, WE FIND NO JUSTIFI CATION TO REPRODUCE THE SAME AGAIN. WE, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL, DIRECT THE AO/TPO TO EXCLUDE THIS COMPARA BLE FROM THE LIST OF FINAL COMPARABLES. 58. SPANCO LTD. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT EMPLOYEE COST FILTER WAS INCONSISTEN TLY APPLIED BY THE TPO. THE TPO HAS APPLIED THE FILTER OF EMPLOYEE COST TO OPERATING REVENUE LESS THAN 25% FOR THE IT SEGMENT, BUT SAME FILTER WAS NO T APPLIED FOR ITES SEGMENT. WHEREAS THE EMPLOYEE COST IN THIS CASE IS 7.2% OF SALES. HE FURTHER PLACED RELIANCE UPON THE ORDER OF TRIBUNAL IN THE CASE OF AOL ONLINE INDIA PVT. LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT THIS COMPANY HAS EMPLOYEE COST OF 7.20% OF SALES WHICH INDICATES OUT SOURCING OF SERVICES. BY APPLYING EMPLOYEE COST FILTER, THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES. THE RELEVANT OBSERVATIONS OF THE TRIB UNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- SPANCO LTD (SR. NO. 22): THE OBJECTIONS OF ASSESSEE IS ABOUT FUNCTIONALITY OF THE ABOVE COMPARABLE. IT FAILS EMPLOYEE COST FILTER, ADOPTED BY THE TPO IN IT SEGMENT BUT NOT IN ITES SEGMENT. IT WAS SUBMITTED THAT EMPLOYEE COST OF 7.20% OF SALES WHICH INDICATE OUTSOURCING OF SE RVICES. MOREOVER, THE COMPANIES INVOLVED IN TELECOM BUSINESS, BPO SER VICES. IT WAS SUBMITTED THAT PRINCIPLE OF EMPLOYEE COST FILTER WA S UPHELD IN CO- ORDINATE BENCH DECISION IN THE CASE OF FIRST ADVANT AGE OFFSHORE SERVICES P. LTD., VS. DCIT IN ITA NO. 1086/BANG/201 1. CONSIDERING THAT ASSESSEE IS ALSO HAVING BPO SERVICES AND EMPLO YEE COST IS VERY LESS WHEN COMPARED TO SIMILAR BUSINESSES. WE ARE OF THE OPINION THAT THIS COMPARABLE CAN BE EXCLUDED FROM THE LIST OF COMPARA BLES. IT(TP)A NO.1285/BANG/2011 PAGE 57 OF 62 59. WE, THEREFORE, FOLLOWING THE AFORESAID ORDER OF TRIBUNAL, DIRECT THE AO/TPO TO EXCLUDE THIS COMPARABLE FROM THE FINA L LIST OF COMPARABLES. 60. TRITON CORP LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS COMPANYS FINANCIA LS ARE TOTALLY UNRELIABLE AS THE DIRECTORS OF THE COMPANY WERE INV OLVED IN FRAUD. THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) AND THE TRIBUNAL HAS DIRECTED THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES F OR THE SAME REASONS. 61. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF AO/TPO. 62. HAVING CAREFULLY EXAMINED THE ORDER OF TRIBUNAL , WE FIND THAT THE TRIBUNAL HAS EXAMINED THIS COMPANY AND DIRECTED THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS DIRECT ORS OF THIS COMPANY WERE INVOLVED IN FRAUD AND FINANCIAL RESULTS OF THE COMPANY ARE NOT RELIABLE. HOWEVER, FOR THE SAKE OF REFERENCE, WE EXTRACT HERE UNDER THE RELEVANT OBSERVATIONS OF THE TRIBUNAL :- (II) TRITON CORP. LTD.:- THE OP/TC OF THIS COMPAN Y IS 32.36%. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT TH IS COMPANY ALSO DESERVES TO BE EXCLUDED AS THE DIRECTORS OF THIS CO MPANY WERE INVOLVED IN FRAUD, THEREFORE, FINANCIAL RESULTS OF THE COMPA NY ARE NOT RELIABLE. IN SUPPORT, RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD. IN ITA NO. 1961/HYD/2011, CRM SERVICES INDIA (P) LTD. IN ITA N O. 4068/(DEL)/2009, AVINCON INDIA PVT. LTD. IN ITA NO. 1989/MUM/2011 AND MARKET TOOLS RESEARCH PVT. LTD. ON ITA NO. 2066 /HYD/2011. WE HAVE PERUSED THE DECISIONS RELIED UPON BY THE LD. C OUNSEL FOR THE IT(TP)A NO.1285/BANG/2011 PAGE 58 OF 62 ASSESSEE. WE FIND THAT WHENEVER A COMPANY OR ITS DI RECTORS ARE FOUND TO BE INVOLVED IN FRAUD, THE CO-ORDINATE BENCHES HAVE TAKEN A CONSISTENT VIEW OF EXCLUDING SUCH COMPANY FROM THE FINAL LIST OF COMPARABLES AS THE FINANCIAL RESULTS ARE NOT RELIABLE. RESPECTFULL Y FOLLOWING THIS 7 ITA 8290/M/11 CONSISTENT VIEW TAKEN BY THE TRIBUNAL, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF CO MPARABLES. 63. FOLLOWING THE AFORESAID ORDER OF TRIBUNAL, WE H OLD THAT THE DIRECTORS OF THE COMPANY WERE INVOLVED IN FRAUD AND FINANCIAL RESULTS OF THE COMPANY ARE NOT RELIABLE, THEREFORE WE DIRECT THE A O/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 64. VISHAL INFORMATION TECHNOLOGIES LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS COMPAN Y IS FUNCTIONALLY DISSIMILAR WITH ASSESSEE COMPANY. IT HAS LOW EMPLO YEE COST AT 2.3% OF TOTAL SALES, WHEREAS THE EMPLOYEE COST FILTER OF 25 % WAS APPLIED BY THE TPO FOR IT SEGMENT, BUT THIS FILTER WAS NOT APPLIED IN ITES SEGMENT. THEREFORE IT HAS OUTSOURCED SUBSTANTIAL BUSINESS FR OM OUTSIDE VENDORS. FOR THESE REASONS, THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THIS COMPANY WAS ALSO EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) IN WHICH THE TRIBUNAL DIRECTED THE AO/TPO TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. COPY OF THE ORDER OF TRIBUNAL IS PLAC ED ON RECORD. 65. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF AO/TPO. 66. HAVING CAREFULLY EXAMINED THE ORDER OF TRIBUNAL IN THE LIGHT OF ASSESSEES CONTENTIONS, WE FIND THAT THE TRIBUNAL H AS EXAMINED THIS IT(TP)A NO.1285/BANG/2011 PAGE 59 OF 62 COMPANY AND HELD IT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- (XIII) VISHAL INFORMATION TECHNOLOGIES LTD.:- WE F IND THAT THIS COMPANY WAS EXCLUDED FROM THE FINAL LIST OF COMPARA BLES IN A.Y. 2006- 07 BY THE TRIBUNAL IN ITA NO. 8997/MUM/2010. THE IS SUE HAS BEEN DISCUSSED BY THE TRIBUNAL AT PARA 19, 20 & 21 OF IT S ORDER. AS NO DISTINGUISHING FACT HAS BEEN BROUGHT ON RECORD BEFO RE US, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2006-07, WE DIRECT FOR THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. 67. FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE DIRECT THE TPO/AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COM PARABLES. 68. WIPRO LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSE E HAS FURTHER CONTENDED THAT THIS COMPANY IS ALSO FUNCTIO NALLY DISSIMILAR, AS THE COMPANY IS A GIANT COMPANY WITH DIFFERENT RISK PROF ILE AND NATURE OF SERVICES AND ALSO HAS BRAND VALUE. IT PROVIDES WID E RANGE OF SERVICES. THE ANNUAL REPORT DISCLOSES ONLY CONSOLIDATED SEGMENTAL DATA.. THERE IS NO MENTION OF PROFITS/REVENUES ATTRIBUTABLE TO SEGMENT S ON STAND ALONE BASIS. THEREFORE, THIS COMPANY CANNOT BE HELD TO BE A GOOD COMPARABLE. THIS COMPANY WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF STREAM INTERNATIONAL SERVICES (P) LTD. (SUPRA) AND IN PARA 13 OF THE ORDER FOR SIMILAR REASONS, THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARAB LES. THIS COMPANY WAS ALSO EXAMINED BY THE TRIBUNAL IN THE CASE OF AOL ONLINE INDIA PVT. LTD. (SUPRA) . COPIES OF THE ORDERS OF THE TRIBUNAL ARE PLACED ON RECORD. IT(TP)A NO.1285/BANG/2011 PAGE 60 OF 62 69. THE LD. DR PLACED RELIANCE UPON THE ORDER OF TH E AO/TPO. 70. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTED LY THIS COMPANYS FUNCTION IS DISSIMILAR WITH THE ASSESSEE COMPANY AND ITS PRO FILE WAS EXAMINED BY THE TRIBUNAL IN OTHER CASES ALSO. WE ARE THEREFORE OF THE VIEW THAT THIS COMPANY IS NOT A GOOD COMPARABLE. THEREFORE, WE DI RECT THE AO/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF FINAL COMPARA BLES. 71. ACCURATE DATA CONVERTERS LTD. : IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT EMPLOYEE COST F ILTER WAS INCONSISTENTLY APPLIED. THE TPO HAS APPLIED THE FILTER OF EMPLOYE E COST TO OPERATING REVENUE LESS THAN 25% FOR THE IT SEGMENT, BUT THE S AME FILTER WAS NOT APPLIED FOR ITES SEGMENT. THIS COMPANY HAS EMPLOYE E COST LESS THAN 25%, THEREFORE, IT SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. HE PLACED RELIANCE UPON THE ORDER OF THE TRIBUNAL IN T HE CASE OF AOL ONLINE INDIA PVT. LTD. (SUPRA) , POLE TO WIN INDIA (P.) LTD. (SUPRA) AND SIEMENS INFORMATION PROCESSING SERVICES (P) LTD. IN IT(TP)A NO.1359/BANG/2011. NO DOUBT, WE HAVE ALREADY HELD THAT EMPLOYEE COST F ILTER SHOULD BE UNIFORMLY APPLIED TO ALL TYPES OF SEGMENTS AND TPO SHOULD NOT PICK AND CHOOSE IN THIS REGARD. THEREFORE, EMPLOYEE COST FI LTER SHOULD BE APPLIED IN ITES SEGMENT ALSO. BUT COMPLETE DATA WITH REGARD TO EMPLOYEE COST IS NOT AVAILABLE WITH REGARD TO THE COMPARABLE AND THE ASS ESSEE. WE THEREFORE RESTORE THIS MATTER TO AO/TPO TO RE-EXAMINE THE COM PARABILITY OF THIS IT(TP)A NO.1285/BANG/2011 PAGE 61 OF 62 COMPANY IN THE LIGHT OF EMPLOYEE COST FILTER AND TH E DATA AVAILABLE WITH REGARD TO ASSESSEE AS WELL AS THIS COMPANY. 72. ACCORDINGLY, THE AO/TPO IS DIRECTED TO RECOMPUT E THE ALP IN ACCORDANCE WITH LAW AND IN THE TERMS INDICATED ABOV E. CORPORATE TAX ISSUES 73. THE ASSESSEE HAS RAISED GROUND NO.9 RELATING TO COMPUTATION OF DEDUCTION U/S. 10A OF THE ACT. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) IN WHICH IT HAS BEEN HELD THAT WHATEVER EXPENSES A RE EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TO TAL TURNOVER. WE THEREFORE, FOLLOWING THE SAME, DIRECT THE AO TO COM PUTE DEDUCTION U/S. 10A IN THE LIGHT OF JUDGMENT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT V. TATA ELXSI LTD. (SUPRA) . 74. GROUND NO.7 RELATING TO INTEREST U/S. 234B OF T HE ACT IS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AND ACC ORDINGLY THE SAME IS DISMISSED BEING NOT PRESSED. 75. WITH REGARD TO GROUND NO.6, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS ISSUE SHOULD BE EXAMINED IN THE LIGHT OF CIRCULAR NO.715 DATED 8.8.1998 ISSUED BY THE CBDT. IN THIS REGARD, THE LD. DR DID NOT OPPOSE AND WE ACCORDINGLY SET ASIDE THE ISSUE T O THE FILE OF AO TO IT(TP)A NO.1285/BANG/2011 PAGE 62 OF 62 ADJUDICATE THE DISALLOWANCE OF EXPENSES FOR NON-DED UCTION OF TAX AT SOURCE IN THE LIGHT OF THE AFORESAID CIRCULAR ISSUED BY TH E BOARD. 76. GROUND NO. 8 REGARDING LEVY OF INTEREST U/S. 23 4D IS CONSEQUENTIAL IN NATURE AND NEEDS NO INDEPENDENT AD JUDICATION. 77. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF DECEMBER, 2016. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 09 TH DECEMBER, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.