DCIT, V. M/s Google India Pvt. Ltd.,

ITA 1298/BANG/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8489 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-11-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 30-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RENUKADEVI
• Assessee Lawyers: UJWAL TIWARI
• Keywords: Related party transaction; Capital asset; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Commercial expediency; Revenue expenditure; Capital expenditure; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 92B; 260A; 133(6); 195; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S JAYARAMAN, ACCOUNTANT MEMBER REVENUES APPEAL IT(TP)A NO.1298/BANG/2013 ASSESSMENT YEARS : 2005-06 DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(3), R. P. BHAVAN, NRUPATHUNGA ROAD, BENGALURU. VS. M/S. GOOGLE INDIA PVT. LTD., PRESTIGE SIGMA, I FLOOR, 3, VITTAL MALLYA ROAD, BENGALURU-560001. PAN : AACCG0527D APPELLANT RESPONDENT ASSESSEES CO CO NO. 13/BANG/2016 ASSESSMENT YEAR : 2005-06 M/S. GOOGLE INDIA PVT. LTD., BENGALURU-560001. PAN : AACCG0527D VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(3), BENGALURU. APPELLANT RESPONDENT REVENUE BY : SMT. RENUKA DEVI, JCIT ASSESSEE BY : SHRI. S. P. SINGH, CA & SHRI. UJWAL TIWARI, CA DATE OF HEARING : 22.12.2016 DATE OF PRONOUNCEMENT : 03.03.2017 IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 2 OF 27 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL AND C.O. WERE HEARD TOGETHER. THEY ARE BEING DISPOSED OFF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFERRED TO ADJUDICATE THEM ONE AFTER THE OTHER. 2. IT(TP)A NO. 1298/BANG/2013 THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A), ON THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPPOSED T O LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN DIRECTING THE AO TO RECO MPUTE THE DEDUCTION UNDER SECTION 10A BY EXCLUDING COMMUNICAT ION EXPENSES AND TRAVEL EXPENSES INCURRED IN FOREIGN CURRENCY FO RM THE TOTAL TURNOVER ALSO WITHOUT APPRECIATING THE FACT THAT TH ERE IS NO PROVISION IN SECTION 10A THAT SUCH EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER ALSO, AS CLAUSE (IV) OF THE EXPLANATION TO SECTION 10A PROVIDES THAT SUCH EXPENSES ARE TO BE REDUCED ONLY FROM THE EXPORT TURNOVER. 3. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THE FAC T THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF' TA TA ELXSI LIMITED IN ITA NO. 70 OF 2009 HAS NOT REACHED ITS FINALITY AS THE DEPARTMENTS APPEAL BEFORE THE SUPREME COURT IS PENDING. 4. THE CIT (APPEALS) ERRED IN HOLDING THAT THE AO HAD NOT BROUGHT ANYTHING ON RECORD TO REPUDIATE THE ASSESSEE'S CONT ENTION THAT THE EXPENSES OF RS. 68,875 INCURRED ON CLUB MEMBERSHIP FEE WAS WHOLLY OR EXCLUSIVELY FOR ITS OWN BUSINESS WITHOUT APPRECIATING THE FACT THAT THE MEMBERSHIP FEE IS A ONETIME PAYMENT W HOSE BENEFIT IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 3 OF 27 ENDURES FOR A PERIOD OF YEARS AND THEREFORE THE EXP ENDITURE IS CAPITAL IN NATURE. 5. THE CIT(A) ERRED IN REJECTING THE DIMINISHING REVEN UE OR PERSISTENT LOSSES FILTER AS AN INAPPROPRIATE FILER FOR THE SEL ECTION OF' COMPARABLES WITHOUT APPRECIATING THAT THE TPO WAS JUSTIFIED IN EXCLUDING SOME CASES AS NOT COMPARABLE, AS PERSISTENT LOSS CASES / DIMINISHING REVENUE CASES ARE EXCEPTIONAL AND NOT COMPARABLES. 6. THE CIT (APPEALS) ERRED IN HOLDING THE DIFFERENT AC COUNTING YEAR FILTER FOR THE PURPOSES OF COMPARABILITY ANALYSIS W ITHOUT APPRECIATING THE FACT THAT THE USE OF THIS FILTER ENSURES THAT T HE TRANSACTIONS WHICH ARE COMPARED TOOK PLACE DURING THE SAME PERIOD / FI NANCIAL YEAR AS HELD BY THE DECISION OF THE PUNE BENCH IN THE CASE OF' HONEYWELL AUTOMATION INDIA LTD. V. DCIT IN ITA NO. 4/PN/08 DA TED 10.02.09 AND REPORTED IN 09-TIOL- 104. 7. THE CIT (APPEALS) ERRED IN DIRECTING THE AO TO EXCL UDE GEOMETRIC SOFTWARE SOLUTIONS LTD., TATA ELXSI LTD., AND BODHT REE CONSULTING LTD., FROM THE LIST OF COMPARABLES AS BEING FUNCTIO NALLY DIFFERENT WITHOUT APPRECIATING THE FACT THAT THE COMPANIES QU ALIFY ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED BY THE TPO. 8. THE CIT (APPEALS) ERRED IN HOLDING THAT VISHAL INFO RMATION TECHNOLOGY LTD. CANNOT BE TAKEN AS A COMPARABLE REL YING ON THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y 2006-07 WITHOUT APPRECIATING THE FACT THAT THE COMPANY QUAL IFIES ALL THE QUALITATIVE AND QUANTITATIVE FILTERS APPLIED AND TH AT THE DECISION OF THE ITAT HAS NOT REACHED A FINALITY AS AN APPEAL UNDER SECTION 260A IS PENDING ON THE SAID ISSUE. 9. THE CIT (APPEALS) ERRED IN DIRECTING THE AO TO EXCL UDE NUCLEUS NET SOFT AND GIS_LTD. FROM THE FINAL SET OF COMPARABLES WITHOUT APPRECIATING THE FACT THAT THE ASSESEE HAD NOT OBJE CTED TO THE ADOPTION OF NUCLEUS NET SOFT AND GIS LTD., AS A COMPARABLE B EFORE THE TPO. 10. THE CIT (APPEALS) ERRED IN DIRECTING THE AO TO COMP UTE THE MARGIN OF BOTH THE ASSESSEE AS WELL AS THE COMPARABLE COMP ANIES BY INCLUDING THE FOREIGN EXCHANGE GAINS OR LOSS WITHOU T APPRECIATING THE FACT THAT THE FOREIGN EXCHANGE LOSS OR GAIN IS NOT DERIVED FROM OPERATING ACTIVITY. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 4 OF 27 11. THE CIT (APPEALS) ERRED IN NOT APPRECIATING THE FAC T THAT ANY FILTER OR CRITERIA APPLIED BY THE ASSESSEE IS ACCEPTED OR IF ANY FILTER OR CRITERIA APPLIED BY THE TPO IS RELAXED, THE ENTIRE ACCEPT / REJECT MATRIX CHANGES RESULTING IN A NEW SET OF COMPARABLES INCLU DING THOSE COMPARABLES WHICH ARE NEITHER TAKEN BY THE ASSESSEE NOR BY THE TPO AND DO NOT FIND A PLACE IN THE ORDER UNDER SECTION 92CA. 12. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT (A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 13. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. GROUND NO. 1 IS GENERAL IN NATURE, HENCE NEEDS N O INDEPENDENT ADJUDICATION. GROUND NOS. 2 AND 3 RELATE TO THE CO MPUTATION OF DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT ( HEREINAFTER CALLED THE ACT). DURING THE COURSE OF HEARING, THE LEAR NED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION THAT THIS ISSUE IS S QUARELY COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF TATA ELXSI 349 ITR 98 IN WHICH IT HAS BEEN HELD THAT ONCE ITEM IS INCLUDED IN THE EXPORT TURNOVER, IT SHOULD ALSO BE INCLUDED IN THE TOTAL TURNOVER. FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT, WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO READJUDICATE THE DEDUCTION UNDER SECTION 10A OF THE ACT IN THE LIGHT OF JUDGMENT IN THE CASE OF TATA ELXSI. 4. WITH REGARD TO GROUND NO. 4, OUR ATTENTION WAS I NVITED THAT THE ASSESSEE HAS MADE THE PAYMENT FOR CLUB MEMBERSHIP F EE OF RS.68,875/- AND CLAIMED TO BE THE REVENUE EXPENDITURE BUT THE A O TREATED IT TO CAPITAL EXPENDITURE AND DISALLOWED THE CLAIM. WHEN THE APPEAL WAS IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 5 OF 27 PREFERRED TO THE CIT(A), HE TREATED IT TO BE THE RE VENUE EXPENDITURE AND DELETED THE ADDITION. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT BY MAKING THE PAYMENT TOWARDS CLUB M EMBERSHIP FEES, THE ASSESSEE DID NOT ACQUIRE ANY ENDURING BENEFIT A S IT WAS OBTAINED ON ACCOUNT OF COMMERCIAL EXPEDIENCY. RELIANCE WAS PLA CED UPON THE JUDGMENT OF THE MUMBAI HIGH COURT IN THE CASE OF OT IS ELEVATORS VS. CIT 195 ITR 682 (BOM) AND OTHER JUDGMENTS OF DIFFER ENT HIGH COURTS. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES, WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE THA T SINCE THE ASSESSEE HAS OBTAINED THE CLUB MEMBERSHIP FOR COMMERCIAL EXP EDIENCY; THE SAME IS TO BE ALLOWED AS BUSINESS EXPENDITURE. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, WE CONFIRM THE SAME. 6. GROUND NO. 10 RELATE TO THE INCLUSION OF FOREIGN EXCHANGE FLUCTUATION IN OPERATING MARGIN. IN THIS REGARD, O UR ATTENTION WAS INVITED THAT IT IS NOT CLEAR WHETHER THE FOREIGN EX CHANGE FLUCTUATION WAS INCLUDED AS OPERATING MARGIN IN THE CASE OF COMPARA BLES. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT SIMILAR TREA TMENT SHOULD BE GIVEN IN THE CASE OF TESTED PARTIES AND THE COMPARA BLES. IF THE FOREIGN EXCHANGE FLUCTUATION IS INCLUDED IN THE CASE OF COM PARABLES, IT SHOULD ALSO BE INCLUDED IN THE CASE OF TESTED PARTIES. TH EREFORE, WE ARE OF THE VIEW THAT THESE FACTS SHOULD BE VERIFIED BY THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE M ATTER TO THE FILE OF THE AO TO VERIFY WHETHER FOREIGN EXCHANGE FLUCTUATI ON WAS INCLUDED IN THE OPERATING MARGIN OF THE COMPARABLES. IF THE AS SESSEE SUCCEEDS IN IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 6 OF 27 ESTABLISHING THAT FOREIGN EXCHANGE FLUCTUATION WAS INCLUDED IN THE OPERATING MARGIN OF THE COMPARABLES, THE SAME MAY B E INCLUDED IN THE CASE OF TESTED PARTIES ALSO. 7. THE REMAINING GROUNDS IN THIS APPEAL RELATE TO T RANSFER PRICING ISSUE FOR WHICH THE ASSESSEE HAS FILED THE CHART DE TAILING THE PROFILE OF THE COMPARABLES TAKEN BY THE TPO AND THE GROUND FOR THEIR INCLUSION/EXCLUSION AND ALSO THE JUDGMENT/ORDERS WH EREBY THE EXCLUSION OF PARTICULAR COMPARABLES ARE COVERED. 8. THE BRIEF FACTS BORNE OUT WITH REGARD TO THE TRA NSFER PRICING ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS INTERNATIO NAL TRANSACTIONS AS PER SECTION 92B OF IT ACT. ACCORDINGLY, THE CASE W AS REFERRED TO THE TPO IN ORDER TO DETERMINE THE ARMS LENGTH PRICE (A LP). THE ORDER UNDER SECTION 92CA WAS PASSED BY THE TPO WHICH WAS RECEIVED BY THE AO ON 03.11.2008 AND CONSEQUENTLY, THE ADJUSTMENT A T ALP TO THE EXTENT OF RS.3,48,72,821/- WAS MADE UNDER SECTION 9 2CA OF THE ACT OF WHICH BREAKUP IS HEREUNDER: DESCRIPTION SOFTWARE DEVELOPMENT SERVICES ITES SERVICES TOTAL ARMS LENGTH PRICE OF OPERATING COST RS.14,46,29,504 RS.16,22,61,474 RS.30,68,90,978 PRICE RECEIVED RS.12,88,92,858 RS.14,31,25,117 RS.27,20,17,975 ADJUSTMENT U/S 92CA RS.1,57,36,464 RS.1,91,36,357 RS.3,48,72,821 IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 7 OF 27 9. AGAINST THIS ADJUSTMENT TO ALP, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) PARTLY ACCEPTED TH E CONTENTIONS OF THE ASSESSEE AND DIRECTED THE AO/TPO TO RECOMPUTE T HE ALP IN TERMS INDICATED IN HIS ORDER. 10. THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPE AL BEFORE THE TRIBUNAL. DURING THE COURSE OF HEARING, THE LEARNE D COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE FACT THAT THE ASSESSEE GOOGLE INDIA PVT. LTD., PROVIDES INFORMATION TECHNOLOGY SERVICES AND IT ENABLED SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). DU RING THE IMPUGNED ASSESSMENT YEAR, INTERNATIONAL TRANSACTIONS WITH IT S AES UNDERTAKEN BY THE ASSESSEE ARE AS UNDER: INTERNATIONAL TRANSACTIONS VALUE (INR) SOFTWARE DEVELOPMENT SERVICE 12,88,92,858 IT ENABLED SERVICE INCOME 14,31,25,166 PURCHASE OF CAPITAL ASSETS 5,29,01,598 ADVANCE RECEIVED INTEREST FREE 1,22,11,929 REIMBURSEMENT OF EXPENSES 7,10,35,365 11. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CO NTENDED THAT ALP ADJUSTMENT WAS MADE IN BOTH THE SEGMENTS I.E., SOFT WARE DEVELOPMENT SERVICES AND IT ENABLED SERVICES. 12. WE THEREFORE ARE OF THE VIEW THAT THE ISSUE OF ALP ADJUSTMENT IN BOTH THE SEGMENTS BE EXAMINED INDEPENDENTLY. WE TH EREFORE FIRST OF ALL TAKE UP THE SEGMENT OF SOFTWARE DEVELOPMENT SER VICES IN WHICH THE TPO HAS TAKEN FOLLOWING 17 COMPARABLES: 1. BODHTREE CONSULTING LIMITED IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 8 OF 27 2. LANCO GLOBAL SYSTEMS LTD., 3. EXENSYS SOFTWARE SOLUTIONS LIMITED 4. SANKHYA INFOTECH LIMITED 5. SASKEN NETWORKS SYSTEMS LIMITED 6. FOUR SOFT LIMITED 7. THIRDWARE SOLUTIONS LIMITED 8. R. S. SOFTWARE (INDIA) LIMITED 9. GEOMETRIC SOFTWARE SOLUTIONS LIMITED 10. TATA ELXSI LIMITED (SEG.) 11.VISUALSOFT TECHNOLOGIES LIMITED (SEG.) 12. SASKEN COMMUNICATIONS LIMITED (SEG.) 13. FLEXTRONICS SOFTWARE SYSTEMS LIMITED (SEG.) 14. LARSEN & TOUBRO INFOTECH LIMITED 15. SATYAM COMPUTER SERVICES LIMITED 16. INFOSYS TECHNOLOGIES LIMITED 17. IGATE GLOBAL SOLUTIONS LIMITED (SEG.) OUT OF THESE 17 COMPARABLES, THE CIT(A) HAS REJECT ED 10 COMPARABLES AND DIRECTED THE TPO TO TAKE ONLY FOLLO WING 7 COMPARABLES TO RECOMPUTE THE ALP IN SOFTWARE DEVELO PMENT SERVICES: 1. LANCO GLOBAL SYSTEMS LTD., 2. SANKHYA INFOTECH LIMITED 3. SASKEN NETWORKS SYSTEMS LIMITED 4. FOUR SOFT LIMITED 5. R. S. SOFTWARE (INDIA) LIMITED 6. VISUALSOFT TECHNOLOGIES LIMITED (SEG.) 7. SASKEN COMMUNICATIONS LIMITED (SEG.) 13. THE REVENUE IS AGGRIEVED WITH THE REJECTION OF BODHTREE CONSULTING LIMITED, GEOMETRIC SOFTWARE SOLUTIONS LI MITED AND TATA ELXSI LIMITED, WHEREAS THE ASSESSEE IS AGGRIEVED FO R THE INCLUSION OF SANKHYA INFOTECH LTD., AND FOUR SOFT LTD. DURING T HE COURSE OF HEARING, THE ASSESSEE HAS FILED A CHART WITH THE SU BMISSIONS THAT REJECTION OF BODHTREE CONSULTING LTD, SANKHYA INFOT ECH LTD., FOUR SOFT IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 9 OF 27 LTD., GEOMETRIC SOFTWARE SOLUTIONS LTD., AND TATA E LXSI LTD., WAS COVERED BY THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF ACIT VS. MCAFREE SOFTWARE (INDIA) PVT. LTD., IN IT(TP)A NO. 04/BANG/2012 AND DCIT VS. KODIAK NETWORKS INDIA LTD., IN IT(TP)A NO. 532/BANG/2013 IN WHICH THE TRIBUNAL HAS HELD THAT T HESE COMPARABLES ARE FUNCTIONALLY DIFFERENT WITH THE PROFILE OF THE ASSESSEE COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTEN DED THAT THE PROFILE OF THE ASSESSEE IS ALMOST SIMILAR TO THE MCAFREE SO FTWARE (INDIA) PVT. LTD., AND KODIAK NETWORKS INDIA LTD., WHERE THE ASS ESSEE IS ALSO ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 14. WITH REGARD TO BODHTREE CONSULTING LIMITED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT BESIDES FUNCTIO NAL DISSIMILARITY, THIS COMPARABLE FAILS ON RPT FILTER AS RELATED PARTY TRA NSACTION IN THIS CASE IS 35%. 15. THE LEARNED DR HOWEVER CONTENDED THAT THE REJEC TION OF THIS COMPARABLE IS NOT PROPER AND THEREFORE CAN BE INCLU DED IN THE LIST OF COMPARABLES. 16. HAVING CAREFULLY EXAMINED THE FUNCTIONAL PROFIL E OF BODHTREE CONSULTING LIMITED AND ITS RELATED PARTY TRANSACTIO NS, IN THE LIGHT OF JUDGMENT OF ACIT VS. MCAFREE SOFTWARE (INDIA) PVT. LTD., AND KODIAK NETWORKS INDIA LTD., WE FIND THAT THE TRIBUNAL HAS CATEGORICALLY HELD IN THE CASE OF MCAFREE SOFTWARE (INDIA) PVT. LTD., WHO SE PROFILE IS SIMILAR TO THE ASSESSEES PROFILE, THAT BODHTREE CONSULTING LIMITED IS FUNCTIONALLY DIFFERENT AND ALSO FAILS ON RPT FILTER AS IT IS MORE THAN IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 10 OF 27 25%. THE RELEVANT OBSERVATION OF THE TRIBUNAL IN T HIS REGARD IS EXTRACTED HEREUNDER: BODHTREE CONSULTING LTD.,: 10.3. THIS COMPANY WAS RETAINED BY LD.CIT(A) BUT AS SESSEE OBJECTS ON THE BASIS OF FUNCTIONALITY. HOWEVER, AS SEEN FRO M THE ORDERS OF CO-ORDINATE BENCHES IN THE CASE OF ITO VS. M/S. SUN QUEST INFORMATION SYSTEMS (INDIA) PRIVATE LIMITED, IN IT( TP)A NO. 1302/BANG/2011 DT. 11-06-2015 (SUPRA) AS WELL AS DC IT VS. TOSHIBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/BANG/2012 DT. 10-05-2013, BODHTREE CONSULTING LTD ., WAS ACCEPTED AS A COMPARABLE. HOWEVER, IN THE CASE OF C ORDYS SOFTWARE INDIA P. LTD., IN ITA NO. 1451/HYD/2010 DT. 13-06-2 014 (WHERE ONE OF US, AM IS THE AUTHOR) HAS CONSIDERED IN DETAIL A ND EXCLUDED THE SAME FOR THE FOLLOWING REASONS: '1. BODHTREE CONSULTING LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHO ULD BE REJECTED UNDER THE FOLLOWING TPO'S FILTERS: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDUL E 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIGON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE COMPANY HAS EXPORT SALES TO PERIGON LIC, USA OF RS. 133.90 LAKHS, BEING 34.68% OF THE TOTAL TURNOVER. FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS RESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAPER SOLU TIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOPMENT AND OTHER C USTOMIZED SOFTWARE AND ALSO STATE THAT THE E-PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UNDER THE CATEGORY OF IT ENABLED SERVICES'. CONSIDERING THE ABOVE, WE DIRECT THAT THE ABOVE COM PANY HAS TO BE EXCLUDED ON THE REASON OF RPT OF MORE THAN 25% AND FUNCTIONALITY. 17. SINCE THE PROFILE OF THE BODHTREE CONSULTING LT D., WAS EXAMINED BY THE TRIBUNAL IN THE CASE OF MCAFEE SOFTWARE (IND IA) PVT. LTD., IN AY 2005-06, WE FIND NO JUSTIFICATION TO TAKE A CONT RARY VIEW IN THE IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 11 OF 27 INSTANT CASE. ACCORDINGLY FOLLOWING THE SAME, WE H OLD THAT BODHTREE CONSULTING LTD., IS NOT A GOOD COMPARABLE. THEREFO RE, WE UPHOLD THE ORDER OF THE CIT(A) WHO HAS RIGHTLY EXCLUDED THIS C OMPARABLE FROM THE LIST OF COMPARABLES. 18. WITH REGARD TO SANKHYA INFOTECH LTD., IT WAS CO NTENDED THAT THIS COMPARABLE IS FUNCTIONALLY DISSIMILAR FROM THE PROF ILE OF THE ASSESSEE AND MORE SO THE SEGMENTAL DATA ARE NOT AVAILABLE AN D THESE ASPECTS WERE EXAMINED BY THE TRIBUNAL IN THE CASE OF MCAFEE SOFTWARE (INDIA) PVT. LTD. SIMILARLY, THE PROFILE OF FOUR SOFT LTD. , GEOMETRIC SOFTWARE SOLUTIONS LIMITED AND TATA ELXSI LTD., WAS ALSO EXA MINED BY THE TRIBUNAL IN THE CASE OF MCAFEE SOFTWARE (INDIA) PVT . LTD. AND KODIAK NETWORKS INDIA LTD., IN WHICH THE TRIBUNAL HAS HELD THAT FOUR SOFT LTD., IS FUNCTIONALLY DISSIMILAR AND RPT IS AT 19%. WITH REGARD TO GEOMETRIC SOFTWARE SOLUTIONS LIMITED, IT WAS ALSO H ELD THAT THIS COMPARABLE IS FUNCTIONALLY DISSIMILAR. SIMILAR IS THE POSITION WITH REGARD TO TATA ELXSI. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE CASE OF MCAFEE SOFTWARE (INDIA) PVT. LTD. ARE EXTRA CTED HEREUNDER: SANKHYA INFOTECH LTD., THIRDWARE SOLUTION LTD., & TATA ELXSI LTD., : 10.5. THESE THREE COMPANIES ARE REJECTED AS COMPARA BLES ON FUNCTIONALITY IN THE CASE OF ITO VS. M/S. SUNQUEST INFORMATION SYSTEMS (INDIA) PRIVATE LIMITED, IN IT(TP)A NO. 130 2/BANG/2011 DT. 11-06-2015 (SUPRA) (PARAS 19- 20, 22-26, 27-30 RESTIVELY) AND IN THE CASE OF CORDYS SOFTWARE INDIA P. LTD., IN IT A NO. 1451/HYD/2010 DT. 13-06-2014 (SUPRA) AT PARA NO. 13 . THE ANALYSIS BY THE CO-ORDINATE BENCHES IS AS UNDER: 'SANKHYA INFOTECH LIMITED ('SANKHYA') IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 12 OF 27 19. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT SANKHYA IS ENGAGED IN THE BUSINESS OF DEVELOPMENT O F SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE COMPANY FOCUS ES ON THE DEVELOPMENT OF NICHE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRY. HOWEVER, SEGMENTAL INFORMATION IN RELATIO N TO THE ABOVE MENTIONED ACTIVITIES IS NOT AVAILABLE IN PUBLIC DOM AIN. THEREFORE, AS SANKHYA ENGAGES ITSELF IN PRODUCTS AND SERVICES AS WELL AS SOFTWARE TRAINING, IT CANNOT BE CONSIDERED AS A COM PARABLE OF THE APPELLANT. THE PRODUCTS DEVELOPED AND OWNED BY SANK HYA ARE LISTED BELOW: (1) SILICONTM TRAINING SUITE OF PRODUCTS: THE PRODU CTS ARE A COMPREHENSIVE ENTERPRISE WIDE TRAINING PLATFORM THA T COVERS THE ENTIRE SPECTRUM OF TRAINING IN A PAPERLESS ENVIRONM ENT. IT COMPRISES OF FOUR PRODUCTS:- - SILICONTM LMS (TRAINING MANAGEMENT INFORMATION - SILICONTM QT (ONLINE ASSESSMENT SYSTEM) - SILICONTM LCMS (LEARNING CONTENT MANAGEMENT SYSTE M) - IRMAQTM : THIS IS AN INTEGRATED RESOURCE PLANNING , MANAGEMENT TRACKING SYSTEM EXCLUSIVELY DEVELOPED FO R AIRLINE OPERATIONS. IT IS AN END-TO-END SOLUTION FOR ALL FL IGHT OPERATIONS. - SAKAI CLE : THIS IS A WIDELY USED AND POPULAR OPE N SOURCE LMS USED IN MANY LEADING EDUCATIONAL INSTITUTIONS AND C ORPORATE. THE RELEVANT EXTRACT FROM THE ANNUAL REPORT SUBSTANTIAT ING THAT THE COMPANY ALSO ENGAGES IN DIFFERENT ACTIVITIES IS REP RODUCED BELOW: '2. ACTIVITIES THE COMPANY AS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE PRODUCTION OF SOFTWARE IS NOT CAPABLE OF BEING EXPRESSED IN ANY GENERIC UNIT AND HENCE 11 IS RIOT POSSIBLE TO GIVE THE INFORMATION AS REQUIRED B Y CERTAIN CLAUSES OF PARAGRAPHS 3.4C AND 4 D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956.' THE DELHI TRIBUNAL IN ITO V. COLT TECHNOLOGY SERVIC ES INDIA PVT. LTD. (JUDGMENT DATED 23.10.2012 IN ITA NO. 609I/DEL /2011 FOR THE ASSESSMENT YEAR 2005-06) HAS HELD THAT THE SAID COM PANY IS NOT A COMPARABLE TO THE ASSESSEE THEREIN WHICH WAS ALSO I N THE BUSINESS OF SOFTWARE DEVELOPMENT. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 13 OF 27 20. THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE CONSIDERED. THE ACTIVITIES SET OUT ABOVE AND TH E DECISION OF THE DELHI ITAT RENDERED IN THE CONTEXT OF A SOFTWARE DE VELOPMENT COMPANY SUCH AS THE ASSESSEE MAKES IT AMPLY CLEAR T HAT THIS COMPANY SANKHYA CANNOT BE REGARDED AS A COMPARABLE. THE SAME IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARA BLE COMPANIES. 22. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT THE ITAT HYDERABAD BENCH ON IDENTICAL FACTS, HELD THAT THE A FORESAID TWO COMPANIES VIZ., FOUR SOFT LTD., AND THIRDWARE SOLUT IONS LTD., ARE NOT COMPARABLE COMPANIES IN SOFTWARE DEVELOPMENT SE RVICES COMPANIES. THE FOLLOWING WERE THE RELEVANT OBSERVAT IONS:- '15.4. FOURSOFT LIMITED : THIS COMPARABLE IS OBJECT ED ON THE SAME REASON AS THIS COMPANY IS INVOLVED IN PRODUCT DEVELOPMENT AND OWNS PRODUCTS NAMELY 4S ETRANS AND 4S ELOG. THE SE PRODUCTS ARE USED IN SUN MICROSYSTEMS INC, IN AN APPLICATION VERIFICATION KIT CERTIFIED FOR ENTERPRISES AND ASSESSEE HAVE BEE N INVESTING CONTINUOUSLY ON PRODUCT DEVELOPMENTS. SINCE ASSESSE E IS IN THE PRODUCT DEVELOPMENT, HAVING I.P. RIGHTS, THE SAME I S NOT COMPARABLE. 15.5. THIRDWARE SOFTWARE SOLUTIONS LIMITED : THIS COMPANY IS OBJECTED TO BY THE ASSESSEE ON THE REASON THAT THE SAID THIRDWARE SOFTWARE SOLUTIONS LTD. IS ENGAGED I N SALE OF SOFTWARE LICENCE AND RELATED SERVICES AND NOT A SER VICE PROVIDER. REFERRING TO THE ANNUAL REPORT, IT WAS SUBMITTED TH AT THIS COMPARABLE WAS REJECTED BY THE ITAT, PUNE IN THE CA SE OF EGAIN COMMUNICATIONS LTD. THIS COMPANY HAVING REVENUE FRO M PRODUCT LICENSE AND EARNING EXTRAORDINARY PROFIT DUE TO INT ANGIBLE OWNS. 15.6. THESE THREE COMPARABLE ABOVE FLEXTRONICS SOFT WARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LI MITED WERE ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : '23. THE OTHER COMPANIES WHICH ARE OBJECTED TO BY T HE ASSESSEE ARE FLEXTRONICS SOFTWARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED. AS FAR AS THESE THREE CO MPANIES ARE CONCERNED, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THEY ARE INTO BOTH SOFTWARE AS WELL AS PRODUCT DEVELOPMENT. HE SUBMITTED THAT THE TPO HAS TAKEN NOTE OF THE FACT THESE COMPANIES ARE ALSO INTO PRODUCT DEVE LOPMENT BUT HAS SELECTED THESE COMPANIES AS COMPARABLES BY APPLYING THE FILTER OF IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 14 OF 27 MORE THAN 70% OF ITS REVENUE BEING FROM SOFTWARE DE VELOPMENT SERVICES. THE LEARNED COUNSEL SUBMITTED THAT THE FU NCTIONS OF THESE COMPANIES ARE DIFFERENT FROM THE ASSESSEE WHO WAS I NTO SOLE ACTIVITY OF SOFTWARE DEVELOPMENT FOR ITS ASSOCIATED ENTERPRISE. HE SUBMITTED THAT THE TPO HAS ALLOCATED THE EXPENDITUR E IN THE PROPORTION OF THE REVENUE OF THESE IT(TP)A NOS. 04/ BANG/2012 & 1388/BANG/2011 COMPANIES FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND HAS ADOPTED THE FIGURE AS SEGMENTAL MA RGIN OF THE COMPANY AND HAS TAKEN THESE COMPANIES AS COMPARABLE S. HE SUBMITTED THAT BY TAKING THE PROPORTIONATE EXPENDIT URE, THE CORRECT FINANCIAL RESULTS WOULD NOT EMERGE. HE SUBMITTED TH AT NOTHING PREVENTED THE ASSESSING OFFICER/TPO FROM OBTAINING THE SEGMENTAL DETAILS FROM THE RESPECTIVE COMPARABLE COMPANIES BE FORE ADOPTING THEM AS COMPARABLE COMPANIES AND BEFORE TAKING THE OPERATING MARGIN FOR ARRIVING AT THE ARMS LENGTH PRICE. HE SU BMITTED THAT WHEREVER THE SEGMENTAL DETAILS ARE NOT AVAILABLE, T HEN THE SAID COMPANIES SHOULD NOT BE TAKEN AS COMPARABLES. FOR T HIS PURPOSE, HE PLACED RELIANCE UPON THE DECISION OF THE BANGALO RE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. VS. THE DCIT IN ITA. NO. 1252 / BANG/2010 WHEREIN THESE COM PANIES WERE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLE S. 23. THE LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 24. HAVING HEARD BOTH THE PARTIES AND HAVING GONE T HROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAGE 37 OF HIS ORDER HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT C OMPANY AND A SOFTWARE DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF THE FUNCTIONAL DISSIMILARITY BETWEEN A PRO DUCT COMPANY AND A SOFTWARE DEVELOPMENT SERVICE PROVIDER. HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTIONS, THE ASSES SING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INT O BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTAL DETAIL S ARE AVAILABLE. EVEN IF HE HAS ADOPTED THE FILTER OF MOR E THAN 75% OF THE REVENUE FROM THE SOFTWARE SERVICES FOR SELECTING A COMPARABLE COMPANY, HE OUGHT TO HAVE TAKEN THE SEGMENTAL RESUL TS OF THE SOFTWARE SERVICES ONLY. THE PERCENTAGE OF EXPENDITU RE TOWARDS THE DEVELOPMENT OF SOFTWARE PRODUCTS MAY DIFFER FROM CO MPANY TO COMPANY AND ALSO IT MAY NOT BE PROPORTIONATE TO THE SALES FROM THE SALE OF SOFTWARE PRODUCTS. UNDER SECTION 133(6) OF THE I.T. ACT, THE TPO HAS THE POWER TO CALL FOR THE NECESSARY DETAILS FROM THE COMPARABLE COMPANIES. IT IS SEEN THAT THE ASSESSING OFFICER/TPO AS EXERCISED THIS POWER TO CALL FOR DETAILS WITH RE GARD TO THE VARIOUS COMPANIES. AS SEEN FROM THE ANNUAL REPORT O F FOURSOFT LIMITED WHICH IS REPRODUCED AT PAGE 7 OF THE TPO'S ORDER, THE IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 15 OF 27 SAID COMPANY HAS DERIVED INCOME FROM SOFTWARE LICEN CE ALSO AND AMCS. 25. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED I S CONCERNED, WE FIND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELO PMENT, THERE ARE NO SOFTWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINANCIAL YEAR AND THE FINANCIAL RESULTS A RE IN RESPECT OF SERVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO S ALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 26. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONCE RNED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSE RVED THAT THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING O F PRODUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF T HE PRODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS F UNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPAN IES AND WITHOUT MAKING ADJUSTMENT FOR THE DISSIMILARITIES B ROUGHT OUT BY THE TPO HIMSELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED BY THE TPO TO ALLOCAT E EXPENDITURE PROPORTIONATELY TO THE SOFTWARE DEVELOP MENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREVER, THE ASSESSING OFFICER/TPO CAN NOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH THE ASSESSEE COMPANY TO BRING THEM O N PAR WITH THE ASSESSEE, THESE COMPANIES ARE TO BE EXCLUDED FR OM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE ASSESSING OFF ICER/TPO TO EXCLUDE THESE THREE COMPANIES FROM THE LIST OF COMP ARABLES. 27. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT TATA ELXSI LTD., A COMPARABLE COMPANY OUT OF THE 10 EXCLUDED BY THE CIT(A) BY APPLYING RPT FILTER AND WHICH GETS IN CLUDED IN THE COMPARABLE COMPANIES BECAUSE OF 15% RPT BEING ADOPT ED AS THRESHOLD LIMIT FOR EXCLUDING COMPANIES FOR THE PUR POSE OF COMPARABILITY. IT WAS HIS SUBMISSION THAT THIS COMP ANY WILL HOWEVER, HAVE TO BE EXCLUDED AS THIS COMPANY WAS HE LD TO BE NOT COMPARABLE WITH AN ASSESSEE SUCH AS THE ASSESSEE IN THE PRESENT CASE PROVIDING SOFTWARE DEVELOPMENT SERVICES BY THE ITAT HYDERABAD BENCH IN THE CASE OF CNO IT SERVICES (IND IA) PVT. LTD. (FORMERLY KNOWN AS CONSECO DATA SERVICES (INDIA) PV T. LTD.) HYDERABAD VS. DCIT, CIRCLE 1(2) HYDERABAD, IN ITA.NO.1280/HYD/2010 ASSESSMENT YEAR 2005- 2006 ORD ER DATED 12.2.2014. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 16 OF 27 28. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT THE ITAT HYDERABAD BENCH ON IDENTICAL FACTS, HELD ON COMPARA BILITY OF TATA ELXSI LTD. AS FOLLOWS: '15.7. TATA ELXSI LIMITED : THE OBJECTION OF THE AS SESSEE IS THAT TATA ELXSI OPERATING TWO SEGMENTS -SYSTEM COMM UNICATION SERVICES AND SOFTWARE DEVELOPMENT SERVICES. THE TPO ACCEPTED THE SOFTWARE DEVELOPMENT SERVICES SEGMENT IN HIS T.P. A NALYSIS AND ASSESSEE'S OBJECTION IS THAT THE SOFTWARE DEVELOPME NT SERVICES SEGMENT ITSELF COMPRISES OF THREE SUBSERVICES NAMEL Y (A) PRODUCT DESIGN SERVICES (B)DESIGN ENGINEERING SERVICES AND (C) VISUAL COMPUTING LABS. IT WAS SUBMITTED THAT THESE SERVICE S ARE NOT AKIN TO ASSESSEE SOFTWARE SERVICES AND SEGMENTAL INFORMATIO N OF ONLY PRODUCT DESIGN SERVICES COULD HAVE BEEN ACCEPTED BY THE TPO AS A COMPARABLE BUT NOT THE ENTIRE SOFTWARE DEVELOPMENT SERVICE. SINCE COMPANY'S OPERATIONS ARE FUNCTIONALLY DIFFERENT AS SUCH, THE SAME IS NOT COMPARABLE. FURTHER, ASSESSEE IS ALSO OBJECT ING ON THE BASIS OF INTANGIBLE SCALE OF OPERATIONS. THE COORDINATE B ENCH IN THE CASE OF INTOTO (SUPRA) CONSIDERED THE ISSUE AS UNDER IN PARA 22: '22 TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, T HE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE , FILED BEFORE US THE REPLY OF TATA ELXSI LIMITED TO THE ADDL. CIT (TRANSFER PRICING), HYDERABAD, WHEREIN THE CONCERNED IT(TP)A NOS. 04/BANG/2012 & 1388/BANG/2011 OFFICER HAS BEEN INFORMED THAT TATA ELXSI LIMITED IS SPECIALISED EMBEDDED SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE DEVELOPMENT COMPAN Y. IT WAS SUBMITTED THAT BECAUSE OF THE SPECIALISATION AND ALSO BECAUSE OF DIVERSE NATURE OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCALE-UP THE OPERATIONS OF TATA ELXSI LIMITED. IN VIEW OF THIS, TATA ELXSI LIMITED HAS INFORMED TH AT IT IS NOT FAIR TO USE ITS FINANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMPANY. THE COMMUNICATION DATED 25TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS THI S COMMUNICATION WAS NOT BEFORE THE TPO AT THE TIME OF TRANSFER PRICING ADJUSTMENT WE DEEM IT FIT AND PROP ER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RE CONSIDER ADOPTING THIS COMPANY AS THE COMPARABLE IN THE LIGH T OF OBSERVATIONS OF THIS COMPANY TO THE TPO IN THE CASE OF ANOTHER ASSESSEE. IN THE RESULT, THE ASSESSING OFFICER/TPO IS DIRECTED TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE.' IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 17 OF 27 KEEPING THE ASSESSEE'S OBJECTIONS AND THE DECISIONS OF THE COORDINATE BENCH, PRIMA FACIE, WE ARE OF THE VIEW T HAT TATA ELXSI LIMITED IS FUNCTIONALLY DIFFERENT AND HAS INCOMPARA BLE SIZE TO THAT OF THE ASSESSEE. FURTHER, WE ARE UNABLE TO VERIFY W HETHER THE SEGMENTAL PROFITS ADOPTED BY THE TPO PERTAIN TO ENT IRE SOFTWARE DEVELOPMENT SERVICES OR PERTAIN TO LIMITED SERVICE AKIN TO ASSESSEE SERVICES. SINCE, THESE ASPECTS ARE NOT CLEAR FROM T HE DATA FURNISHED BEFORE US, WE DIRECT THE TPO TO EXAMINE AND IN CASE , THE SEGMENTAL PROFITS OF A PARTICULAR SERVICE IS NOT AVAILABLE, T HEN, TO EXCLUDE THE TATA ELXSI LIMITED FROM THE LIST OF COMPARABLES. AC CORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF TPO FOR EXAMINATIO N AND TO DECIDE IN ACCORDANCE WITH LAW AND FACTS, AFTER AFFORDING REAS ONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE.' 29. THOUGH THE ISSUE HAS BEEN SET ASIDE TO THE AO I N THE AFORESAID DECISION, THE ITAT HYDERABAD IN THE CASE OF NTT DAT A INDIA ENTERPRISE APPLICATION SERVICES PVT.LTD., ITA NO.16 12/HYD/2010 ORDER DATED 23.10.2013 AND IN A SUBSEQUENT RULING I N THE CASE OF INVENSYS DEVELOPMENT CENTRE (INDIA) PVT.LTD., ITA NO.1256/HYD/2010 ORDER DATED 28.2.2014, HELD THAT T ATA ELXSI IS NOT FUNCTIONALLY COMPARABLE WITH THAT OF A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. 30. IN VIEW OF THE AFORESAID DECISION RENDERED ON I DENTICAL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT TATA ELX SI LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. '13. SIMILARLY, THE OTHER CASES, BODHTREE CONSULTIN G LTD, FOUR SOFT LTD, INFOSYS,., SANKHYA INFOTECH LTD., TH IRDWARE SOLUTIONS LTD, TATA ELEXI (SEG) ETC, ARE ALSO TO BE EXCLUDED AS THEY ARE CONSIDERED AND ANALYSED IN VAR IOUS CASES RELIED ON ABOUT FUNCTIONALITY AND WHY THE SAM E ARE NOT COMPARABLE TO THE COMPANIES LIKE ASSESSEE. BODH TREE CONSULTING LTD ALSO FAILS RPT FILTER AS CONTENDED. IN VIEW OF THIS, WE ARE NOT IT(TP)A NOS. 04/BANG/2012 & 1388/BANG/2011 DISCUSSING ABOVE COMPARABLES IN DETA IL, BUT, SUFFICE TO SAY THAT ASSESSEE'S SUBMISSIONS ARE VALID. THE AO IS DIRECTED TO EXCLUDE THE ABOVE COMPARABLES AND RE- WORK OUT THE ARM'S LENGTH MARGIN ACCORDINGLY. T HE GROUND NO.8 AND ADDITIONAL GROUND RAISED BY ASSESSE E ARE CONSIDERED AS ALLOWED'. IN VIEW OF THE ABOVE, THE ABOVE THREE COMPANIES ARE TO BE EXCLUDED. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 18 OF 27 SASKEN NETWORK SYSTEMS LTD., R S SOFTWARE (INDIA) LTD., VISUALSOFT TECHNOLOGIES LTD., AND SASKEN COMMUNICATION TECHNOLOGIES LTD., 10.6 SINCE THERE IS NO OBJECTION FROM ASSESSEE AND WAS SELECTED BY TPO, THE ABOVE COMPANIES ARE RETAINED. FOUR SOFT LTD., 10.7. THE OBJECTION BY ASSESSEE IS THAT THIS COMPAN Y IS A PRODUCT COMPANY. WAS ANALYSED AND ACCEPTED IN THE CASE OF I TO VS. M/S. SUNQUEST INFORMATION SYSTEMS (INDIA) PRIVATE LIMITE D, IN IT(TP)A NO. 1302/BANG/2011 DT. 11-06-2015 (SUPRA) PARA 22. IT WAS HELD THAT THE SAID COMPANY AHS DERIVED INCOME FROM SOFTW ARE LICENSE AND AMCS. SINCE FUNCTIONALITY WAS ALREADY ANALYSED, RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCHES ALSO, THE SAME WA S TO BE EXCLUDED. I. INTOTO SOFTWARE INDIA PVT. LTD., ITA NO. 1196/HY D/2010; II. CORDYS SOFTWARE INDIA P. LTD., ITA NO. 1451/HYD /2010 GEOMETRIC SOFTWARE SOLUTIONS COMPANY LTD.,: 10.8. EVEN THOUGH THIS COMPANY WAS ACCEPTED AS COMP ARABLE IN ITO VS. M/S. SUNQUEST INFORMATION SYSTEMS (INDIA) P RIVATE LIMITED, IN IT(TP)A NO. 1302/BANG/2011 DT. 11-06-20 15 (SUPRA) AND CORDYS SOFTWARE INDIA P. LTD., IN ITA NO. 1451/ HYD/2010 DT. 13-06-2014 (SUPRA) AND WAS NOT OBJECTED TO, WE FIND THAT THE CO- ORDINATE BENCH AT BANALORE IN THE CASE OF DCIT VS. TOSHIBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/B ANG/2012 DT. 10-05-2013 HAS CONSIDERED THAT THIS IS IN PRODUCT D EVOLOPEMENT. WE HAVE PERUSED THE TPO'S ORDER. IN PAGE 85 AND 86 OF THE ORDER, THIS COMPARABLE WAS ANALYSED. TPO RECORDS THAT THER E ARE PRODUCT SALES TO THE EXTENT OF 18%. SEGMENTAL PROFITS ARE N OT AVAILABLE. ON ASSUMPTIONS, THIS COMPANY WAS RETAINED. WE ARE OF T HE OPINION THAT BEING A PRODUCT BASED COMPANY, THE SAME IS NOT STRICTLY COMPARABLE TO A SERVICE COMPANY LIKE ASSESSEE. IN T HE ABSENCE OF SEGMENTAL PROFIT OF SERVICE INCOME, WE HAVE TO EXCL UDE THE SAME. FOLLOWING THE DECISION IN THE CASE OF DCIT VS. TOSH IBA EMBEDDED SOFTWARE (I) PVT. LTD., IN IT(TP)A NO. 1/BANG/2012 DT. 10-05-2013 (SUPRA), THIS COMPANY IS ACCORDINGLY EXCLUDED. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 19 OF 27 19. SINCE THE TRIBUNAL HAS EXAMINED THE PROFILE OF THESE COMPARABLES IN THE CASE OF MCAFEE SOFTWARE (INDIA) PVT. LTD., IN THE LIGHT OF OTHER ORDERS OF THE TRIBUNAL AND HAS CATEG ORICALLY HELD THAT THESE COMPARABLES ARE NOT GOOD COMPARABLES FOR DETE RMINING THE ALP IN THE CASE OF MCAFEE SOFTWARE (INDIA) PVT. LTD., A ND KODIAK NETWORKS INDIA LTD., WHOSE PROFILE IS SIMILAR TO AS SESSEES PROFILE, WE FIND NO JUSTIFICATION TO RE-EXAMINE THE PROFILE OF THESE COMPARABLES AGAIN. WE THEREFORE HOLD THAT SANKHYA INFOTECH LTD ., FOUR SOFT LTD., GEOMETRIC SOFTWARE SOLUTIONS LTD., AND TATA ELXSI L TD., ARE NOT GOOD COMPARABLES. THEREFORE THEY HAVE TO BE EXCLUDED FR OM THE FINAL LIST OF COMPARABLES. WE ACCORDINGLY CONFIRM THE ORDER OF T HE CIT(A) WITH RESPECT TO EXCLUSION OF BODHTREE CONSULTING LTD., G EOMETRIC SOFTWARE SOLUTIONS LTD., AND TATA ELXSI LTD. SINCE THE CIT( A) HAS TAKEN SANKHYA AND FOURSOFT LTD., IN THE LIST OF COMPARABL ES, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO EXCLUDE TH ESE COMPARABLES FROM THE FINAL LIST OF COMPARABLES. AFTER THE EXCL USION OF THESE COMPARABLES, LEFT OUT COMPARABLES, LANCO GLOBAL SYS TEMS LTD., SASKEN NETWORKS, R. S. SOFTWARE (INDIA) LTD., VISUALSOFT T ECHNOLOGIES AND SASKEN COMMUNICATIONS LTD., BE TAKEN IN THE FINAL L IST OF COMPARABLES IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 20 OF 27 FOR DETERMINATION OF THE ALP FOR THE SOFTWARE DEVEL OPMENT SERVICES PROVIDED BY THE ASSESSEE TO ITS AE. 20. IT ENABLED SERVICES : UNDER THIS SEGMENT, THE TPO HAS TAKEN FOLLOWING 9 COMPARABLES: 1. ALLSEC TECHNOLOGIES LTD., 2. SAFFRON GLOBAL LTD., 3. VISHAL INFORMATION TECH LTD., 4. COSMIC GLOBAL LTD., 5. TRANSWORKS INFORMATION SERVICES LTD., 6. WIPRO BPO SOLUTIONS LTD., 7. ACE SOFTWARE EXPORTS LTD., 8. NUCLEUS NETSOFT & GIS LTD., 9. MAPLE E SOLUTIONS LTD., OUT OF THESE 9 COMPARABLES, THE CIT(A) HAS REJECTE D VISHAL INFORMATION TECH LTD., WIPRO BPO AND NUCLEUS NETSOF T & GIS LTD. THE ASSESSEE IS AGAINST THE INCLUSION OF ALLSEC TEC HNOLOGIES LTD. BUT DURING THE COURSE OF HEARING, HE COULD NOT ESTABLIS H SUFFICIENT REASONS FOR ITS REJECTIONS. WITH REGARD TO VISHAL INFORMAT ION AND NUCLEUS NETSOFT & GIS LTD., OF WHICH EXCLUSION WAS CHALLENG ED BY THE REVENUE, IT WAS SUBMITTED THAT THESE COMPARABLES WERE EXAMIN ED BY THE TRIBUNAL IN THE CASE OF PR. CIT VS. IHG IT SERVICES (INDIA) PVT. LTD., IN ITA 264/2016 AND DCIT VS. GENESIS INTEGRATING SY STEMS INDIA PVT. IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 21 OF 27 LTD., IN IT(TP)A 869/BANG/2013. COPY OF THE ORDER IS PLACED ON RECORD. IT WAS ALSO CONTENDED THAT PROFILE OF THES E COMPARABLES ARE SIMILAR TO THE ASSESSEES PROFILE AS THEY ARE ALSO ENGAGED IN IT ENABLED SERVICES. ON PERUSAL OF THE ORDERS OF THE TRIBUNAL , WE FIND THAT VISHAL INFORMATION TECH LTD., AND NUCLUES NETSOFT & GIS LT D., WERE EXAMINED BY THE HONBLE PUNJAB AND HARYANA HIGH COU RTS AND THEIR EXCLUSION WAS APPROVED. THE RELEVANT DECISION OF T HE HONBLE PUNJAB AND HARYANA HIGH COURT IN THIS REGARD IS EXTRACTED HEREUNDER: 5. AS FAR AS VISHAL INFORMATION TECHNOLOGIES LIMIT ED IS CONCERNED, THERE IS NO DIFFICULTY WHATSOEVER FOR TH E TRIBUNAL HAS COME TO A CLEAR FINDING OF FACT THAT I T OUTSOURCED ABOUT 44.81% OF ITS BUSINESS. FOR INSTA NCE, IT WAS OBSERVED THAT VISHAL INFORMATION TECHNOLOGIES LIMITED HAS A LOW EMPLOYEE COST OF 1.25% OF OPERATI NG REVENUE. THE TRIBUNAL ALSO OBSERVED THAT THE TPO H AD HIMSELF REFERRED TO THE NASSCOM SURVEY THAT THE AVE RAGE WAGES AND SALARIES TO SALES RATIO OF IT/ITES INDUST RY IN INDIA WAS 46.1%. THE ASSESSEES WAGES TO SALES IS 53% WHICH IS NOT COMPARABLE TO VISHAL INFORMATION TECHNOLOGIES LTD., WHOSE WAGES TO SALES IS 1.25%. THIS IS A FINDING OF FACT AND THERE IS NOTHING TO INDICATE THAT THE SAME IS ERRONEOUS MUCH LESS PERVERSE. THE EXCLUSIO N OF VISHAL INFORMATION TECHNOLOGIES LIMITED IS, THEREFO RE, JUSTIFIED. 6. THE ONLY CONTENTION REGARDING THE EXCLUSION OF NUCLEUS NETSOFT AND GIS (INDIA) LIMITED IS THAT THE RE IS NO REASONING. THIS, HOWEVER, IS NOT EVEN A GROUND TAK EN IN THE APPEAL FILED BEFORE US. IN ANY EVENT, WE PERUSED T HE 22 ND ANNUAL REPORT FOR THE YEAR 2005-06 OF NUCLEUS NETSOFT AND GIS (INDIA) LTD. SCHEDULE 12 FURNISHES THE OPERATING & OTHER E XPENSES. THE DATA PROCESSING CHARGES ARE RS.1.04 CRORES OUT OF T HE TOTAL IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 22 OF 27 OPERATING & OTHER EXPENSES OF ABOUT RS.2.41 CRORES. THUS, AN AMOUNT OF OVER 40% IS OUTSOURCED. THE FINDING OF T HE TRIBUNAL, THEREFORE, CANNOT BE HELD TO BE PERVERSE. 21. THESE COMPARABLES WERE ALSO EXAMINED BY THE TRI BUNAL IN THE CASE OF GENESIS INTEGRATING SYSTEMS INDIA PVT. LTD. A COPY OF ORDER IS PLACED ON RECORD AT PAGE NOS. 65 TO 79 OF THE COMPI LATION IN WHICH THE TRIBUNAL HAS EXAMINED THE PROFILE OF VISHAL INFORMA TION TECH LTD., AND NUCLUES NETSOFT & GIS LTD. THE RELEVANT OBSERVATIO NS OF THE TRIBUNAL IN THIS REGARD ARE EXTRACTED HEREUNDER: 20. GROUND NO.3 & 4 CHALLENGES THE DIRECTIONS OF T HE LEARNED CIT(A) DELETING THE COMPARABLE OF M/S VISHAL INFORM ATION TECH. LTD. SELECTED BY THE TPO FROM THE LIST OF COMPARABL ES. WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL THAT THE COMPANY IS FUNCTIONALLY DIFFERENT AS THIS COMPANY IS ENGAGED I N THE BUSINESS OF PROVIDING CALL CENTRE SERVICES. THE HONBLE DELH I HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA ) HAD DISTINGUISHED THE NATURE OF BUSINESS BETWEEN THE KP O AND ITES AS FOLLOWS: 34. WE HAVE RESERVATIONS AS TO THE TRIBUNAL'S AFOR ESAID VIEW IN MAERSK GLOBAL CENTRES (INDIA) (P.) LTD.(SUPRA). AS INDICATED ABOVE, THE EXPRESSION BP0 AND KPO ARE PLAINLY, UNDERSTOOD IN THE SENSE THAT WHEREAS, BPO DOES NOT NECESSARILY INVOLVE ADVA NCED SKILLS AND KNOWLEDGE, KPO, ON THE OTHER HAND, WOULD INVOLVE EM PLOYMENT OF ADVANCED SKILLS AND KNOWLEDGE FOR PROVIDING SERVICE S. THUS, THE EXPRESSION KPO IN COMMON PARLANCE IS USED TO INDICA TE AN ITES PROVIDER PROVIDING A COMPLETELY DIFFERENT NATURE OF SERVICE THAN ANY OTHER BPO SERVICE PROVIDER. A KPO SERVICE PROVIDER WOULD ALSO BE FUNCTIONALLY DIFFERENT FROM OTHER BP0 SERVICE PROVI DERS, IN AS MUCH AS THE RESPONSIBILITIES UNDERTAKEN, THE ACTIVITIES PERFORMED, THE QUALITY OF RESOURCES EMPLOYED WOULD BE MATERIALLY D IFFERENT. IN THE CIRCUMSTANCES, WE ARE UNABLE TO AGREE THAT BROADLY 1TES SECTOR CAN BE USED FOR SELECTING COMPARABLES WITHOUT MAKING A CONSCIOUS SELECTION AS TO THE QUALITY AND NATURE OF THE CONTE NT OF SERVICES. RULE 10B(2)(A) OF THE IT RULES, 1962 MANDATES THAT THE C OMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS BE JUDGED WITH REFERENCE TO IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 23 OF 27 SERVICE PRODUCT CHARACTERISTICS. THIS FACTOR CANNOT BE UNDERMINED BY USING A BROAD CLASSIFICATION OF ITES WHICH TAKES WI THIN ITS FOLD VARIOUS TYPES OF SERVICES WITH COMPLETELY DIFFERENT CONTENT AND VALUE. THUS, WHERE THE TESTED PARTY IS NOT A KPO SERVICE P ROVIDER, AN ENTRY RENDERING KPO SERVICES CANNOT BE CONSIDERED AS A CO MPARABLE FOR THE PURPOSE OF TRANSFER PRICING ANALYSIS. THIS PERC EPTION THAT A BPO SERVICE PROVIDER MAY HAVE THE ABILITY TO MOVE U P THE VALUE CHAIN BY OFFERING KPO SERVICES CANNOT BE A GROUND F OR ASSESSING THE TRANSACTIONS RELATING TO SERVICES RENDERED BY THE B PO SERVICE PROVIDER BY BENCHMARKING IT WITH THE TRANSACTIONS O F KPO SERVICE PROVIDERS. THE OBJECT IS TO ASCERTAIN THE ALP OF TH E SERVICE RENDERED AND NOT OF A SERVICE (HIGHER IN VALUE CHAIN) THAT M AY POSSIBLY BE RENDERED SUBSEQUENTLY. 35. AS POINTED OUT BY THE SPECIAL BENCH OF THE TRIB UNAL IN MAERSK GLOBAL CENTRES (IND.) PVT. LTD (SUPRA), THERE MAY B E CASES WHERE AN ENTITY MAY BE RENDERING A MIX OF SERVICES SOME OF W HICH MAY BE FUNCTIONALLY COMPARABLE TO A KPO WHILE OTHER SERVIC ES MAY NOT. IN SUCH CASES, A CLASSIFICATION OF BP0 AND KPO MAY NOT BE FEASIBLE. CLEARLY, NO STRAITJACKET FORMULA CAN BE APPLIED. IN CASES WHERE THE CATEGORIZATION OF SERVICES RENDERED CANNOT BE DEFIN ED WITH CERTAINTY, IT WOULD BE APPOSITE TO EMPLOY THE BROAD FUNCTIONAL ITY TEST AND THEN EXCLUDE UNCONTROLLED ENTITIES, WHICH ARE FOUND TO B E MATERIALLY DISSIMILAR IN ASPECTS AND FEATURES THAT HAVE A BEAR ING ON THE PROFITABILITY OF THOSE ENTITIES. HOWEVER, WHERE THE CONTROLLED TRANSACTIONS ARE CLEARLY IN THE NATURE OF LOWER- EN D ITES SUCH AS CALL CENTRES ETC. FOR RENDERING DATA PROCESSING NOT INVO LVING DOMAIN KNOWLEDGE, INCLUSION OF ANY KPO SERVICE PROVIDER AS A COMPARABLE WOULD NOT BE WARRANTED AND THE TRANSFER PRICING STU DY MUST TAKE THAT INTO ACCOUNT AT THE THRESHOLD'. FURTHERMORE, THE COMPANY OPERATING MARGIN IS 50.68% WHICH IS CONSIDERED TO BE ABNORMAL, IN THE LINE OF BUSINESS IT IS ENGAGED. THEREFORE, IT CANNOT BE CONSIDERED AS A COMPARABLE IN THE LIGHT OF THE FOLLOWING DECISIONS OF THE CO-ORDINATE BENCHES; 1. GENESIS INTEGRATING SYSTEMS (INDIA) (P) LTD., V. DY . CIT [2012] 53 SOT 159/20 TAXMANN.COM 715 2. GOOGLE INDIA (P) LTD., V. DY. CIT [2013] 55 SOT 489 /29 TAXMANN.COM 412 (BANG TRIB.) 3. CRM SERVICES INDIA (P) LTD. CASE (SUPRA) 4. FIAT INDIA (P) LTD., V. ACIT 2010-TII-30-ITAT-MUM-T P IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 24 OF 27 5. GLOBAL TURBINE SERVICES INC. V. DDIT (INTERNATIONAL TAXATION) [2013] 38 TAXMANN.COM 220 (DELHI TRIB.) 6. DY. CIT V. PANASONIC AVC NETWORKS INDIA CO. LTD. [2 014] 63 SOT 121 (URO)/42 TAXMANN.COM 420 (DELHI TRIB.) 7. DY. CIT V. PETRO ARALDITE (P) LTD., [2013] 145 ITD 182/35 TAXMANN.COM 590 (MUM. TRIB.) 8. ARISTON THERMO INDIA LTD., V. DY. CIT [2014] 147 IT D 388 [2013] 36 TAXMANN.COM 501 (PUNE TRIB.) 9. HONEYWELL TECHNOLOGY SOLUTIONS LAB (P.) LTD. V. DY. CJT [2014] 61 SOT 61 (RO)/[2013] 35 TAXMANN.COM 144 (BA NG. TRIB.) 10.TOYOTA KIRLOSKAR MOTORS (P.) LTD V. ASSTT. CIT [ 2012] 28 TAXMANN.COM 293 (BANG.). THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE REASONING OF THE LEARNED CIT(A). HENCE, THESE GROUNDS OF APPE AL FILED BY THE REVENUE ARE DISMISSED. 21. GROUND NO.5 CHALLENGES THE DIRECTIONS OF THE LE ARNED CIT(A) TO EXCLUDE MS/S NUCLEUS & GIS IND. LTD FROM THE LIST O F COMPARABLES SELECTED BY THE TPO. THE CIT(A) DELETED THIS COMPAN Y ON THE GROUND THAT THE TPO HAD NOT CLARIFIED WHETHER THIS COMPANY SATISFIES THE FILTER OF RELATED PARTY TRANSACTIONS. WE FIND THAT FROM ITS ANNUAL ACCOUNT IT HAD OUTSOURCED A CONSIDERABLE PORTION OF ITS BUSINESS, WHERE AS ASSESSEE COMPANY, IT CARRIED OUT THE ENTIR E OPERATION BY ITSELF. IT CANNOT BE CONSIDERED AS A COMPARABLE ON THE SAME REASONING THE CO-ORDINATE BENCH OF HYDERABAD IN THE CASE OF IVY COINPTECH (P) LTD (SUPRA) DELETED THIS COMPANY FROM THE LIST OF COMPARABLES BY HOLDING AS UNDER: 'WE HAVE HEARD THE PARTIES. THE SOLE CONTENTION OF THE ASSESSEE FOR EXCLUDING THE AFORESAID COMPANY IS THE EMPLOYEE COST AS A PERCENTAGE OF THE OPERATING REVE NUE IS MUCH LOWER COMPARED TO THE ASSESSEE. ON A PERUSAL OF THE ORDER PASSED BY THE CO-ORDINATE BENCH IN THE CASE O F HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD. (SUPRA), IT IS TO BE NOTED THAT THE CO-ORDINATE BENCH WHILE CONSIDERI NG THE OBJECTION OF THE ASSESSEE WITH REGARD TO THE AFORES AID COMPANY IN PARA-13 ACCEPTED ASSESSEE'S CONTENTION T HAT THE COMPANY OUTSOURCED ITS WORK AND HAS HELD THAT THE C OMPANY CANNOT BE SELECTED AS A COMPARABLE ON ACCOUNT OF IT S LOW EMPLOYEE COST. IN VIEW OF SUCH ORDER OF THE CO-ORDI NATE BENCH, WE DIRECT THE AO/TPO TO EXAMINE THIS ASPECT AND IF IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 25 OF 27 THERE IS SUBSTANTIAL DIFFERENCE BETWEEN THE ASSESSE E THE AFORESAID COMPANY, THEN THIS COMPANY CANNOT BE TREA TED AS A COMPARABLE'. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISI ON, WE HOLD THAT THE LEARNED CIT(A) IS JUSTIFIED IN GIVING DIRECTION TO DELETE M/S NUCLEUS NETSOFT & GIS IND. LTD. AS A COMPARABLE . HENCE, THIS GROUND OF APPEAL FILED BY THE REVENUE IS DISMISSED. 22. SINCE THE TRIBUNAL HAS EXAMINED THE PROFILE OF THESE COMPARABLES AND IS OF THE VIEW THAT THESE COMPARABLES ARE NOT G OOD COMPARABLES FOR COMPUTING THE ALP, WE FIND NO JUSTIFICATION TO READ JUDICATE THE PROFILE OF THESE COMPARABLES AGAIN. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) WHO HAS RIGHTLY EXCLUDED THESE COMPARABLES. ACCORD INGLY, THE ORDER OF THE CIT(A) IS CONFIRMED WITH RESPECT TO IT ENABLED SERV ICES SEGMENT. ACCORDINGLY, THE AO/TPO IS DIRECTED TO RECOMPUTE TH E ALP UNDER SOFTWARE DEVELOPMENT SERVICES SEGMENT ONLY. CO NO. 13/BANG/2016: 23. THE ASSESSEE HAS ALSO FILED C.O. ASSAILING THE ORDER OF THE CIT(A) ON THE FOLLOWING GROUNDS: 1. THE COMMISSIONER OF INCOME-TAX APPEALS HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER / THE TRANSFER PRICING OFFICER OF REJECTING 'QUINTEGRA SOLUTIONS LIMITED' AS A COMPAR ABLE COMPANY WHILE BENCHMARKING THE ASSESSEE'S INTERNATIONAL TRA NSACTIONS IN THE SOFTWARE SERVICES SEGMENT. 2. THE COMMISSIONER OF INCOME-TAX APPEALS HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER / THE TRANSFER PRICING OFFICER OF INCLUDING THE FOLLOWING COMPANIES WHILE BENCHMARKIN G THE ASSESEE'S INTERNATIONAL TRANSACTIONS IN THE SOFTWARE SERVICE SEGMENT: IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 26 OF 27 SANKHYA INFOTECH LIMITED; AND FOUR SOFT LIMITED. 3. THE COMMISSIONER OF INCOME-TAX APPEALS HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER / THE TRANSFER PRICING OFFICER OF INCLUDING 'ALLSEC TECHNOLOGIES LIMITED' AS A COMPAR ABLE COMPANY WHILE BENCHMARKING THE ASSESEE'S INTERNATIONAL TRAN SACTIONS IN THE INFORMATION TECHNOLOGY ENABLED SERVICES ('LTES') S EGMENT. 24. DURING THE COURSE OF HEARING, THE ASSESSEE HAS OPTED NOT TO PRESS GROUND NOS. 1 AND 3. THEREFORE, ARE DISMISSED BEIN G NOT PRESSED. AS FAR AS GROUND NO. 2 IS CONCERNED, WE HAVE ALREADY DEALT WITH THESE 2 COMPARABLES WHILE ADJUDICATING THE ISSUE IN THE REV ENUES APPEAL ON THE BASIS OF THE CHART FILED BY THE ASSESSEE AND WE HAV E DIRECTED THAT ONLY SANKHYA INFOTECH AND FOUR SOFT LTD., BE EXCLUDED FR OM THE FINAL LIST OF COMPARABLES. ACCORDINGLY, THE APPEAL OF TH E REVEN UE AND THE C.O. OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S. 25. IN THE RESULT, REVENUES APPEAL AND C.O. OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF MARCH, 2017. SD/- SD/- (SHRI S JAYARAMAN) (SUNIL KUMAR Y ADAV) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE. DATED: 3 RD MARCH, 2017. /NS/ IT(TP)A NO.1298/BANG/2013 & CO NO. 13/BANG/2016 PAGE 27 OF 27 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.