M/s Citrix R & D I P Ltd, Bangalore V. Deputy Commissioner of Income tax, Bangalore

ITA 1289/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8630 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 20-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Assessee Lawyers: P K PRASAD
• Keywords: Transfer pricing; International transaction; Working capital adjustments

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER IT(TP)A NO.1289(BNG.)/2014 (ASSESSMENT YEAR : 2009-10) M/S CITRIX R&D INDIA PVT. LTD. PRESTIGE DYNASTY NO.33, ULSOOR ROAD, BANGALORE-560 042 PAN NO.AABCN3639C APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(2), BANGALORE RESPONDENT ASSESSEE BY : SHRI P.K.PRASAD, CA REVENUE BY : SMT. S.PRAVEENA, ADDL.CIT DATE OF HEARING : 11-02-2016 DATE OF PRONOUNCEMENT : 19-02-2016 O R D E R PER SHRI ABRAHAM P GEORGE, AM; IN THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAIN ST AN ORDER DATED 19-08- 2014 OF CIT(A)-IV, BANGALORE, IT HAS ALTOGETHER RAI SED FOUR GROUNDS OF WHICH GROUND 1 & 2 ARE GENERAL IN NATURE NEEDING NO ADJUD ICATION. GROUND NO.3 IS ON A CREDIT FOR TDS BEING WRONGLY GIVEN FOR RS.2,23,69 9/-. AS PER THE ASSESSEE CREDIT HAS BEEN ONLY FOR RS.2,23,699/-, WHEREAS AS ACTUAL CREDIT AVAILABLE WAS RS.2,27,406/-. THE LEARNED AO/TPO IS DIRECTED TO L OOK INTO THIS CLAIM OF THE ASSESSEE AND IF FOUND TO BE CORRECT, ALLOW IT. 2 IT(TP)A NO.1289(B)/14 2. GROUND NO.4 WHICH ASSAILS THE TRANSFER PRICING A DJUSTMENT OF RS.4,89,61,089/- DONE ON THE ASSESSEE WHICH WAS CON FIRMED BY THE CIT(A), HAS IN ITS NINE SUB-GROUNDS NUMBERED AS (A) TO (I) LEAR NED COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED IF THE GROUNDS REJECTING EXCLU SION OF CERTAIN COMPANIES FROM THE LIST OF COMPARABLES CONSIDERED BY THE LEARNED T PO WAS CONSIDERED, OTHER GROUNDS COULD BE TAKEN AS NOT PRESSED. ACCORDINGLY , WE ARE CONFINING OURSELVES TO THE EXCLUSION SOUGHT BY THE ASSESSEE FROM THE LI ST OF COMPARABLES CONSIDERED BY THE TPO, WHILE TESTING THE ALP OF THE INTERNATIO NAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. 3. FACTS APROPOS ARE THAT THE ASSESSEE ENGAGED IN T HE BUSINESS OF PROVIDING SOFTWARE RESEARCH AND SERVICES DEVELOPMENT TO ITS A SSOCIATED ENTERPRISE (AE) CALLED M/S CITRIX US AND CITRIX ONLINE LLC HAD A RE VENUE OF RS.96,36,03,696/- FROM SUCH ACTIVITIES. IN THE TP STUDY FILED ALONGW ITH THE RETURN, ASSESSEE HAD SELECTED 21 COMPARABLE COMPANIES AND APPLIED TNM ME THOD FOR JUSTIFYING THE PRICING OF ITS INTERNATIONAL TRANSACTIONS. ASSESSE E USED PROWESS AND CAPITAL LINE PLUS DATABASES FOR SUCH RESEARCH. LEARNED TPO, WHE N THE MATTER REGARDING THE ALP WAS REFERRED TO HIM BY THE AO NOTED THAT THE AS SESSEE HAD SELECTED COMPARABLE COMPANIES ENGAGED IN THE SOFTWARE DEVELO PMENT SERVICES WITHOUT LOOKING INTO THE VERTICALS/HORIZONTALS. LEARNED TP O, THEREAFTER, FOR VARIOUS 3 IT(TP)A NO.1289(B)/14 REASONS CITED BY HIM IN THE SHOW CAUSE NOTICE ISSUE D TO THE ASSESSEE, REJECTED ALL BUT 8 OF THE COMPARABLES CHOSEN BY THE ASSESSEE AND ADDED THREE OF HIS OWN WHICH HE SELECTED FROM THE VERY SAME DATABASE. THE NEW COMPANIES ADDED BY HIM WERE M/S KALS INFORMATION SYSTEMS LTD, M/S BODH TREE CONSULTING LTD AND M/S TATA ELXSI LTD (SEGMENTAL). THE FINAL LIST OF COMPARABLE CONSIDERED BY THE TPO AND THEIR MARGIN AS A PERCENTAGE OF PROFIT OF C OST READ AS UNDER; SL.NO. NAME OF THE COMPARABLE SALES (IN RS.) COST (IN RS) MARGIN 1 KALS INFORMATION SYSTEMS LTD. 2,14,04.68 6 1,87,93,813 13.89% 2 AKSHAY SOFTWARE TECHNOLOGIES LTD. 12,23,21,483 11,31,49,350 8.11% 3 BODHTREE CONSULTING LTD. 16,05,75,212 9,89,56,821 62.27% 4 R.S.SOFTWARE (INDIA)LTD. 1,49,57,12,634 1,36,01,02,589 9.97% 5 TATA ELXSI LTD (SEGMENTAL) 3,78,43,03,000 3,14,63,15,000 20.28% 6 SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG.) 4,05,31,20,000 3,18,69,97,000 27.91% 7 PERSISTENT SYSTEMS LTD 5,19,69,10,000 3,67,52,70,000 41.40% 8 ZYLOG SYSTEMS LIMITED 7,34,93,51,475 6,81,69,98,160 8.81% 9 MINDTREE LTD (SEG.) 7.93,22,79,326 5,74,06,73,058 5.52% 10 LARSEN AND TOUBRO INFOTECH 19,50,83,81,374 15,64,12,76,626 24.72% 11 INFOSYS LTD 2,02,64,00,00.000 1,39,17,00,00.000 45.61% AVERAGE 24.32% AT THIS JUNCTURE, IT IS TO BE NOTED THAT THE ASSESS EE WAS CONSIDERED AS SOFTWARE DEVELOPMENT SERVICES COMPANY BY THE TPO ALSO FOR T HE PURPOSES OF TP ANALYSIS. 4 IT(TP)A NO.1289(B)/14 AGAINST THE AVERAGE OPERATING MARGIN OF 14.13% WORK ED OUT BY THE ASSESSEE FROM THE COMPARABLES CONSIDERED BY IT. THE LIST ABOVE MENTIONED CONSIDERED BY THE TPO RESULTED IN A MARGIN OF 24.32%. ASSESSEES OW N PLI AS A PERCENTAGE OF THE COST CAME TO 16.68%, SINCE THE AVERAGE MEAN OF PLI OF THE COMPARABLES WORKED OUT BY THE TPO CAME TO 24.32% WHICH WAS MUCH HIGHER THAN THE PLI OF THE ASSESSEE, LEARNED TPO CHOSE TO MAKE A RECOMMENDATIO N FOR ADJUSTMENT OF RS.4,89,61,089/- ON THE PRICING OF THE INTERNATIONA L TRANSACTION UNDERTAKEN BY THE ASSESSEE WITH ITS AE. THE WORKOUT OF THE ABOVE SUM WAS GIVEN AS UNDER; ARMS LENGTH MEAN MARGIN ON COST 24.32% LESS: WORKING CAPITAL ADJUSTMENT (ANNEX C) 1,71% ADJUSTED MARGIN 22.61% OPERATING COST 825,841,926 ARMS LENGTH PRICE (ALP)122.61% OF OPERATING COST 1,012,564,785 PRICE RECEIVED 963,603,696 SHORTFALL BEING ADJUSTMENT U/S 92CA 48,961,089 THE ASSESSMENT WAS COMPLETED THEREAFTER BY MAKING A N ADDITION OF THE ABOVE AMOUNT. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE LEARNED CIT(A). APART FROM ASSAILING THE COMPARABLES CONSIDERED BY THE TP O, ASSESSEE ALSO ARGUED 5 IT(TP)A NO.1289(B)/14 BEFORE THE CIT(A) THAT THE WORKING CAPITAL ADJUSTME NT THOUGH IT WAS COMPUTED BY THE TPO AT 3.26% WAS UNJUSTLY RESTRICTED TO 1.71%. LEARNED CIT(A) DID NOT ACCEPT ANY OF THESE CONTENTIONS, BUT CONFIRMED THE ADDITION MADE BY THE AO. 5. NOW BEFORE US LEARNED AR SUBMITTED THAT APART F ROM WORKING CAPITAL ADJUSTMENT WHICH WAS REQUIRED TO BE GIVEN HE WAS AS SAILING INCLUSION OF THREE COMPARABLE COMPANIES NAMELY M/S BODHTREE CONSULTING LTD., M/S TATA ELXSI LTD (SEGMENTAL) AND M/S INFOSYS LTD. ACCORDING TO THE LEARNED AR, EVEN THOUGH, INFOSYS LTD. WAS ONE AMONG THE COMPARABLES IN THE L IST CONSIDERED BY THE ASSESSEE IN ITS TP STUDY, IT HAD SPECIFICALLY SOUGH T EXCLUSION OF THE SAID COMPANY BEFORE THE TPO ITSELF, RELYING ON THE JUDGMENT OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF M/S AGNITY INDIA TECHNOLOGIES PVT. LTD VS ITO(2013) 93 DTR 0375). RELIANCE WAS PLACED ON THE COPY OF THE SUBMISSIONS DATED 15-11-2012 FILED WITH THE TPO, PLACED AT PAPER BOOK PAGE NO.527 633 SPE CIFICALLY PAGE NO.591. FURTHER, AS PER THE LEARNED AR, ASSESSEE HAD BEFORE THE CIT(A), ALSO ASSAILED THE COMPARABILITY OF M/S INFOSYS TECHNOLOGIES LTD. VIDE SUBMISSIONS DATED 07-08- 2014 PLACED AT PAPER BOOK PAGE NOS.253 TO 323 SPECI FICALLY PAGE NOS.294 & 295. LEARNED AR ALSO POINTED OUT THAT THE ASSESSEE HAD O BJECTED TO INCLUSION OF M/S BODHTRE CONSULTING LTD. AND M/S TATA ELXSI LTD(SEG. ) FROM THE LIST OF COMPARABLES BEFORE THE TPO AS WELL AS BEFORE THE CI T(A), SINCE THESE COMPANIES 6 IT(TP)A NO.1289(B)/14 WERE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. ACC ORDING TO HIM LEARNED CIT(A) BRUSHED ASIDE THESE OBJECTIONS. 6. AS PER THE LEARNED AR, M/S BODHTREE CONSULTING LTD, M/S TATA ELXSI LTD AND M/S INFOSYS TECH. LTD WERE HAVING ACTIVITIES WH ICH WERE NOT COMPARABLE TO THAT OF THE ASSESSEE WHO WAS SOLELY DOING SOFTWARE DEVELOPMENT SERVICES. ACCORDING TO HIM, THE CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF M/S CISCO SYSTEMS (IND.) PVT. LTD VS DCIT (IN IT(TP)A NO.271( B)/2014 DATED 14-08-2014 HAD HELD THAT THESE COMPANIES COULD NOT BE CONSIDER ED AS COMPARABLE IN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. AS PER THE LEARNED AR M/S BODHTREE CONSULTING LTD WAS A SOFTWARE PRODUCT COMPANY WHERE AS M/S TATA ELXSI LTD WAS ENGAGED IN SPECIALIZED PROJECTS LIKE EMBEDDED PRODU CT DESIGN, INDUSTRIAL SERVICES AND ENGINEERING SERVICES. IN SOFARAS M/S INFOSYS TECH.LTD IS CONCERNED, LEARNED AR SUBMITTED THAT IT WAS A VERY HUGE COMPANY WITH S IGNIFICANT INTANGIBLES AND PRODUCT DOMINANCE. RELIANCE WAS ALSO PLACED ONCE AGAIN ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S AGNITY INDIA TECHNOLOGIES PVT. LTD.(SUPRA). 7 IT(TP)A NO.1289(B)/14 7. IN SOFARAS THE WORKING CAPITAL ADJUSTMENT WAS CO NCERNED, LEARNED AR SUBMITTED THAT LEARNED TPO HAVING WORKED OUT THE WO RKING CAPITAL ADJUSTMENT OF THE COMPARABLES AT A PARTICULAR PERCENTAGE OUGHT NO T HAVE RESTRICTED IT TO 1.71%. 8. PER CONTRA, LEARNED DR SUBMITTED THAT ASSESSEE ITSELF HAD NOT CONSIDERED THE VERTICAL AND HORIZONTALS, WHILE SELECTING THE C OMPARABLES AGAINST SOFTWARE DEVELOPMENT SERVICES WHICH WAS BEING RENDERED BY IT . HOWEVER, NOW IT WAS RELYING ON THE VERTICALS FOR SEEKING EXCLUSION OF M /S BODHTREE CONSULTING LTD AND M/S TATA ELXSI LTD. AS PER THE LEARNED DR THE OBJ ECTIONS NOW BEING RAISED WERE ALREADY CONSIDERED BY THE TPO AND REJECTED. IN SOF ARAS THE WORKING CAPITAL WAS CONCERNED LEARNED DR SUBMITTED THAT EXCESSIVE WORKI NG CAPITAL ADJUSTMENT IF GIVEN WOULD NEGATE THE PURPOSE OF A TP STUDY. 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. PROFILE OF THE ASSESSEE AS MENTIONED BY THE TPO HIMSELF AT PAG E NO.2 STATES AS UNDER; CITRIX R & D INDIA IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE RESEARCH AND DEVELOPMENT SERVICE S TO CITRIX US AND CITRIX ONLINE LL.C.. ASSESSEE HAD CONSIDERED ITSELF TO BE SOFTWARE DEVEL OPMENT SERVICES PROVIDER AND THE TPO HAD ALSO ACCEPTED THIS. THE MOST APPROPRIA TE METHOD SELECTED BOTH BY 8 IT(TP)A NO.1289(B)/14 ASSESSEE AND TPO WERE TNM METHOD. THIS METHOD OBVIA TES NECESSITY FOR COMPLETE PRODUCT IDENTITY OR SERVICES IDENTITY BETWEEN THE T ESTED PARTY AND THE COMPARABLES. BROAD FUNCTIONAL SIMILARITIES WOULD SU FFICE. HOWEVER, WHERE THE FUNCTIONAL PROFILE SHOW THAT THE DISSIMILARITY, EVE N WITHIN THE VERY SAME SEGMENT WAS SO SIGNIFICANT SO AS TO ERODE THE COMPARABILITY , THEN THERE IS A GOOD CASE FOR EXCLUSION. ASSESSEE HAS MAINLY RELIED ON THE DECI SION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S CISCO SYSTEMS (IND.) PVT.LTD (SU PRA). THE SAID COMPANY WAS ALSO ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVELOPMENT SERVICES. NOTHING HAS BEEN BROUGHT BEFORE US BY THE REVENUE TO SHOW T HAT THE FUNCTIONAL PROFILE OF M/S CISCO SYSTEMS (IND) PVT.LTD(SUPRA) WAS SO DIFFE RENT FROM THAT OF THE ASSESSEE SO AS TO ERODE THE COMPARABILITY OF THE COMPARABLE COMPANIES CONSIDERED IN THE SAID CASE WITH THAT OF THE ASSESSEE. IN OUR OPINIO N, ASSESSEE IS JUSTIFIED IN RELYING ON THE SAID DECISION WHICH WAS ALSO FOR THE VERY SA ME ASSESSMENT YEAR. 10. VIS--VIS M/S BODHTRE CONSULTING LTD, THE OBSE RVATION OF THIS TRIBUNAL AS IT APPEARED AT PAGE NO.26.1 OF THE ORDER IN THE CASE OF M/S CISCO SYSTEMS (IND.) PVT.LTD. READ AS UNDER; 26. COMPANIES INCLUDED IN THE FINAL LIST OF COMPARABLES WHICH THE ASSESSEE WANTS TO BE EXCLUDED:- 9 IT(TP)A NO.1289(B)/14 26.1 BODHTREE CONSULTING LTD. :- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES CHOSEN BY THE ASSESSEE, THIS COMPANY WAS ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE, HOWEVER, SUBMITS BEFORE US THAT LATER ON IT CAME TO THE ASSESSEES NOTICE THAT THIS COMPANY IS NOT BEIN G CONSIDERED AS A COMPARABLE COMPANY IN THE CASE OF COMPANIES RENDERI NG SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD, THE LD. COUN SEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. V. ITO, ITA NO.7633/MUM/2012, ORDER DATED 6.11.2013 . IN THIS CASE, THE TRIBUNAL FOLLOWED THE DECISION RENDE RED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSING SERVICES (I) P. LTD., ITA NO.4547/MUM/2012 . IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKEN THE VIEW THAT BODHTREE CONSU LTING LTD. IS IN THE BUSINESS OF SOFTWARE PRODUCTS AND WAS ENGAGED I N PROVIDING OPEN & END TO END WEB SOLUTIONS SOFTWARE CONSULTANC Y AND DESIGN & DEVELOPMENT OF SOFTWARE USING LATEST TECHNOLOGY. T HE DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) IS IN RELATION TO A.Y. 2008- 09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO RE MAINS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 0 8-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. FOLLOWING THE AFO RESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HOLD THAT B ODHTREE CONSULTING LTD. CANNOT BE REGARDED AS A COMPARABLE. IN THIS REGARDS, THE FACT THAT THE ASSESSEE HAD ITSELF PROPOSED THIS COMPANY AS COMPARABLE, IN OUR OPINION, SHOULD NOT BE THE BASIS ON WHICH THE SAID 10 IT(TP)A NO.1289(B)/14 COMPANY SHOULD BE RETAINED AS A COMPARABLE, WHEN FA CTUALLY IT IS SHOWN THAT THE SAID COMPANY IS A SOFTWARE PRODUCT C OMPANY AND NOT A SOFTWARE DEVELOPMENT SERVICES COMPANY. 11. OBSERVATIONS OF THE CO-ORDINATE BENCH WITH REGA RD TO M/S TATA ELXSI LTD. AS IT APPEARS AT PARA-26.4 OF THE VERY SAME OR DER IS RE-PRODUCED HEREUNDER; 26.4 TATA ELXSI LTD. :- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT IN A SSESSEES OWN CASE FOR THE A.Y. 2007-08, THIS COMPANY WAS NOT REGARDED AS A COMPARABLE IN ITS SOFTWARE DEVELOPMENT SERVICES SEG MENT IN ITA NO.1076/BANG/2011, ORDER DATED 29.3.2013 . FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. THE LEARNED CHARTERED ACCOUNTANT PLEADED THAT O UT OF THE SIX COMPARABLES SHORTLISTED ABOVE AS COMPARABLES BASED ON THE TURNOVER FILTER, THE FOLLOWING TWO COMPANIES, NAMELY (I) TAT A ELXSI LTD; AND (II) M/S. FLEXTRONICS SOFTWARE SYSTEMS LTD., DESERVE TO BE ELIMINATED FOR THE FOLLOWING REASONS : (I) TATA ELXSI LTD., : THE COMPANY OPERATES IN THE SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES WHICH COMPRISES OF EM BEDDED PRODUCT DESIGN SERVICES, INDUSTRIAL DESIGN AND ENGINEERING SERVICES AND VISUAL COMPUTING LABS AND SYSTEM INTEGRATION SERVICES SEGM ENT. THERE IS NO 11 IT(TP)A NO.1289(B)/14 SUB-SERVICES BREAK UP/INFORMATION PROVIDED IN THE A NNUAL REPORT OR THE DATABASES BASED ON WHICH THE MARGIN FROM SOFTWA RE SERVICES ACTIVITY ONLY COULD BE COMPUTED. THE COMPANY HAS AL SO IN ITS RESPONSE TO THE NOTICE U/S.133(6) STATED THAT IT CANNOT BE C ONSIDERED AS COMPARABLE TO ANY OTHER SOFTWARE SERVICES COMPANY B ECAUSE OF ITS COMPLEX NATURE. HENCE, TATA ELXSI LTD., IS TO BE EX CLUDED FROM THE LIST OF COMPARABLES. 20. ON THE OTHER HAND, THE LEARNED DR SUPPORTED TH E ORDER OF THE LOWER AUTHORITIES REGARDING THE INCLUSION OF TATA E LXSI AND FLEXTRONICS SOFTWARE SYSTEMS LTD., IN THE LIST OF C OMPARABLES. HE REITERATED THE CONTENTS OF PARA 14.2.25 OF THE TPO' S ORDER. HE ALSO READ OUT THE FOLLOWING PORTION FROM THE TPO'S ORDER : 'THUS AS STATED ABOVE BY THE COMPANY, THE FOLLOWING FACTS EMERGE : 1. THE COMPANY'S SOFTWARE DEVELOPMENT AND SERVICES SEGMENT CONSTITUTES THREE SUB-SEGMENTS I) PRODUCT DESIGN SE RVICES; II) ENGINEERING DESIGN SERVICES AND III) VISUAL COMPUTI NG LABS. 2. THE PRODUCT DESIGN SERVICES SUB-SEGMENT IS INTO EMBEDDED SOFTWARE DEVELOPMENT. THUS THIS SEGMENT IS INTO SOF TWARE DEVELOPMENT SERVICES. 3. THE CONTRIBUTION OF THE EMBEDDED SERVICES SEGMEN T IS TO THE TUNE OF RS.230 CRORES IN THE TOTAL SEGMENT REVENUE OF RS.263 CRORES. EVEN IF WE CONSIDER THE OTHER TWO SUB-SEGMENTS PERT AIN TO IT ENABLED SERVICES, THE 87.45% (75%) OF THE SEGMENT' S REVENUES IS FROM SOFTWARE DEVELOPMENT SERVICES. 12 IT(TP)A NO.1289(B)/14 4. THIS SEGMENT QUALIFIES ALL THE FILTERS APPLIED B Y THE TPO.' REGARDING FLEXTRONICS SOFTWARE SYSTEMS, THE FOLLOWI NG EXTRACT FROM PAGE 143 OF TPO'S ORDER WAS READ OUT BY HIM AS HIS SUBMISSIONS : 'IT IS VERY PERTINENT TO MENTION HERE THAT THE COMP ANY WAS CONSIDERED BY THE TAXPAYER AS A COMPARABLE FOR THE PRECEDING ASSESSMENT YEAR I.E., AY 2006-07. WHEN THE SAME WAS ACCEPTED BY THE TPO AS A COMPARABLE, THE SAME WAS NOT OBJECTED TO IT BY THE TAXPAYER. AS THE FACTS MENTIONED BY THE TAXPAYER AR E THE SAME AND THESE WERE THERE IN THE EARLIER FY 2005-06, THERE I S NO REASON WHY THE TAXPAYER IS OBJECTING TO IT. HOW THE COMPANY IS FUNCTIONALLY SIMILAR IN THE EARLIER FY 2005-06 BUT THE SAME IS N OT FUNCTIONALLY SIMILAR FOR THE SUBSEQUENT FY 2006-07 EVEN WHEN NO FACTS HAVE BEEN CHANGED FROM THE PRECEDING YEAR. THUS THE TAXPAYER IS ARGUING AGAINST THIS COMPARABLE AS THE COMPANY WAS NOT CONS IDERED AS A COMPARABLE BY THE TAXPAYER FOR THE PRESENT FY 2006- 07.' 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE FACTS AND MATERIALS ON RECORD. AFTER CONSIDERING THE SUBM ISSIONS, WE FIND THAT TATA ELXSI AND FLEXTRONICS ARE FUNCTIONALLY DI FFERENT FROM THAT OF THE ASSESSEE AND HENCE THEY DESERVE TO BE DELETED F ROM THE LIST OF SIX COMPARABLES AND HENCE THERE REMAINS ONLY FOUR COMPA NIES AS COMPARABLES, AS LISTED BELOW: 26.5. FOLLOWING THE AFORESAID DECISION OF THE TRIB UNAL, WE HOLD THAT M/S.TATA ELXSI LTD. SHOULD NOT BE REGARDED AS A COM PARABLE. 13 IT(TP)A NO.1289(B)/14 12. OBSERVATION OF THE CO-ORDINATE BENCH IN THE VE RY SAME ORDER WITH REGARD TO THE COMPARABILITY OF M/S INFOSYS LTD APPE ARS AT PARA-26.2 OF THE ORDER WHICH IS RE-PRODUCED HERE UNDER; 26.2 INFOSYS LTD. :- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSIDERED TO BE FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SIM PLE SOFTWARE DEVELOPMENT SERVICES, AS THIS COMPANY OWNS SIGNIFIC ANT INTANGIBLES AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IN T HIS REGARD, WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. TDPLM SOFTWARE SOLUTIONS LTD. V. DCIT, ITA NO.1303/BANG/2 012, BY ORDER DATED 28.11.2013 WITH REGARD TO THIS COMPARABLE HAS HELD AS FOLLOWS:- 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BE FORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY I N THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE P ROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE AS SESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTAT IVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSES SEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTE NTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT TH IS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES NOT 14 IT(TP)A NO.1289(B)/14 POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIB LE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY I NTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO T HE ASSESSEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN T HE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LI MITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOF TWARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQ UISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. 15 IT(TP)A NO.1289(B)/14 IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORI SED REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFOSYS TECHNOLOGIE S LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE A SSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARAB ILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY . IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE D ECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMP ANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS C OMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE I S NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE T O THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGUMENT PUT FORTH BY T HE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SIN CE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PROD UCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE 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. THE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y. 2008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE TH AT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO REMAINS IDEN TICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS FA R AS THIS COMPARABLE COMPANY IS CONCERNED. RESPECTFULLY FOLL OWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT INFOSYS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 16 IT(TP)A NO.1289(B)/14 13. NO DOUBT, IN SO FAR IN THE CASE OF M/S INFOSYS TECH.LTD. IS CONCERNED, IT WAS ONE AMONG THE MANY COMPANIES CHOSEN BY THE ASSE SSEE ITSELF. HOWEVER, IN VIEW OF THE SPECIAL BENCH DECISION IN THE CASE OF C IT VS M/S QUARK SYSTEMS PVT.LTD.,(2010) 38 SOT 0307, WHICH WAS AFFIRMED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN (2011) 62 DTR 0182, ASSESSEE CANNOT BE STOPPED FROM RAISING A PLEA FOR EXCLUSION, ESPECIALLY WHEN IT HA D OBJECTED TO THE INCLUSION BEFORE THE TPO AND DRP. AS MENTIONED AT PARA- FIVE ABOVE, ASSESSEE HAD OBJECTED TO THE INCLUSION OF M/S INFOSYS TECH.LTD. BOTH BEFORE THE TPO AND DRP. IN THE NORMAL COURSE, IN VIEW OF THE JUDGMENT OF TH E HONBLE PUNJAB & HARYANA HIGH COURT MENTIONED SUPRA, THE ISSUE HAS TO BE REM ITTED BACK TO THE TPO FOR CONSIDERING ITS COMPARABILITY. HOWEVER, HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS M/S AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUP RA) HAD AFFIRMED AN ORDER OF THIS TRIBUNAL WERE M/S INFOSYS TECHNOLOGIES LTD WAS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES CONSIDERING THE PECULIAR FE ATURES OF THE SAID COMPANY. HENCE, NO PURPOSE WILL BE SERVED IN REMITTING THE Q UESTION OF COMPARABILITY OF M/S INFOSYS TECH.LTD BACK TO THE TPO/AO. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT EXCLUSION OF M/S BODHTREE CONSULTING LTD., M /S TATA ELXSI LTD.(SEG.) AND M/S INFOSYS TECH.LTD FROM THE LIST OF COMPARABLES. ORDERED ACCORDINGLY. 17 IT(TP)A NO.1289(B)/14 14. INSOFAR ADJUSTMENT OF WORKING CAPITAL IS CONCE RNED, WE ARE OF THE OPINION, THAT THE AO CANNOT FORCE AN ARTIFICIAL LIM ITATION TO THE ACTUAL WORKING CAPITAL ADJUSTMENT RATIO DERIVED FROM THE COMPARABL E COMPANIES CONSIDERED FOR THE ARMS LENGTH STUDY. THE RESTRICTION OF WORKIN G CAPITAL ADJUSTMENT BASED ON PLR OF SBI WILL BE APPROPRIATE SINCE IT IS BASED ON A PRESUMPTION WITH ALL LENDING OR CREDIT ARE HAVING UNIFORM INTEREST RATES AS DEC IDED BY THE SBI. WE THEREFORE, DIRECT THE AO TO GIVE WORKING CAPITAL ADJUSTMENT CO NSIDERING THE COMPARABLE COMPANIES AFTER EXCLUSION OF THE THREE COMPANIES ME NTIONED BY US AT PARA THIRTEEN (SUPRA). 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS T REATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 19 TH FEBRUARY, 2016. SD/- SD/- (VIJAYPAL RAO) (ABRAHAM P GEORGE) JUDICIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 19-02-2016 AM COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER AR, ITAT, BANGALORE