M/s D.E.Shaw India Software Private Limited, Hyderabad V. DCIT, Hyderabad

ITA 1302/HYD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87275 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-01-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Keywords: Related party transaction; Transfer pricing; International transaction; Retrospective amendment; Wholly owned subsidiary; Revenue expenditure
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1302//HYD/10 ASST. YEAR : 2005-06 DE SHAW INDIA SOFTWARE PVT.LTD., BANJARA HILLS, HYDERABAD (PAN AAACD 7214J) VS. ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIKRAM VIJAYARAGHAVAN REVENUE BY : SHRI RAMAKRISHNA BANDI DATE OF HEARING 05-01-2015 DATE OF PRONOUNCEMENT -01-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28/07/2010 PASSED BY CIT(A)-III, HYDERABAD PERTAINI NG TO AY 2005- 06. 2. BRIEFLY STATED, THE FACTS ARE, THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF D.E. SHAW AND CO., LLP(DESCO) (HEREIN AFTER REFERRED TO AS ASSOCIATED ENTERPRISE, IN SHORT AE) A LIMITED LI ABILITY PARTNERSHIP ESTABLISHED AND EXISTING UNDER THE LAWS OF THE STAT E OF DELAWARE, USA HAVING ITS PRINCIPAL OFFICE AT NEW YORK. THE AE IS ENGAGED IN GLOBAL FINANCIAL SERVICES IN THE INVESTMENT ADVISOR Y ACTIVITIES, BROKER DEALER ACTIVITIES AND COMPUTER BASED QUANTITATIVE M ANAGEMENT. THE ASSESSEE PROVIDES SOFTWARE DEVELOPMENT SERVICES TO ITS AE. THEREFORE, THE ASSESSEE IS PURELY A CAPTIVE SERVICE PROVIDER. THE ASSESSEE HAS BEEN RECOGNISED AS 100% EOU REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) SCHEME. AS PER THE TERMS 2 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. OF THE CONTRACT WITH ITS AE, THE ASSESSEE IS REMUNE RATED AT COST PLUS 12% FOR THE SERVICES RENDERED BY IT TO ITS AE. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE EARNED REVENUE OF RS. 18,59,36,488 FROM INTERNATIONAL TRANSACTION OF PROVIDING SOFTWAR E DEVELOPMENT SERVICES TO ITS AE. THE ASSESSEE FOR THE IMPUGNED A SSESSMENT YEAR FILED ITS RETURN OF INCOME ON 29-10-2005 DECLARING TOTAL INCOME OF RS. 25,94,371/-. ALONG WITH RETURN OF INCOME, THE ASSES SEE ALSO SUBMITTED A TP STUDY REPORT WHEREIN TRANSACTION NET MARGIN ME THOD (TNMM) WAS ADOPTED AS MOST APPROPRIATE METHOD AND OPERATIN G PROFIT/OPERATING COST AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE IN THE TP STUDY, AFTER CONDUCTING A SEARCH IN THE D ATA BASES ON THE BASIS OF FUNCTIONS, ASSETS AND RISK (FAR) ANALYSIS, SELECTED 18 COMPANIES AS COMPARABLES WITH AN AVERAGE PROFIT MAR GIN OF 16.97% ON COST. THOUGH, ASSESSEES OPERATING MARGIN WAS SH OWN AT 8.19%, BUT, THE PRICE CHARGED TO THE AE WAS CONSIDERED TO BE WITHIN ARMS LENGTH. 3. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER NOTICING THAT THE ASSESSEE HAD ENTERED INTO INTERNA TIONAL TRANSACTIONS WITH ITS AE MADE A REFERENCE TO THE TRANSFER PRICIN G OFFICER (TPO IN SHORT) FOR DETERMINING THE ARMS LENGTH PRICE. IN C OURSE OF THE PROCEEDINGS BEFORE THE TPO, THE ASSESSEE IN RESPONS E TO THE QUERY MADE BY THE TPO ALSO BROUGHT SOME MORE COMPANIES AS COMPARABLES. THE TPO HOWEVER DID NOT ACCEPT THE TP STUDY DONE BY THE ASSESSEE BROADLY ON THE GROUND THAT THE ASSESSE E HAS USED MULTIPLE YEAR DATA OF COMPARABLE COMPANIES , IT HAS USED CERTAIN NON COMPARABLE COMPANIES AS COMPARABLES, FILTERS HAVE B EEN SELECTIVELY USED. THE TPO, THOUGH WAS OF THE VIEW THAT TNMM IS THE MOST APPROPRIATE METHOD AND OPERATING PROFIT/OPERATING C OST IS THE PLI BUT HE NEVERTHELESS REJECTED TP STUDY DONE BY THE ASSES SEE. AFTER REJECTING THE TP STUDY SUBMITTED BY THE ASSESSEE TH E TPO HIMSELF UNDERTOOK A SEARCH PROCESS IN THE DATABASES BY CONS IDERING ONLY THE CURRENT YEAR DATA. IN THIS PROCESS, THE TPO SELECTE D 17 COMPARABLES 3 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. (INCLUDING SOME OF ASSESSEES COMPARABLES) WITH AVE RAGE MARGIN OF 26.59% WHICH ARE AS UNDER: 1. BODHTREE CONSULTING LTD. 2. LANCO GLOBAL SYSTEMS LTD. 3. EXENSYS SOFTWARE SOLUTIONS LTD. 4. SANKHYA INFOTECH LTD. 5. SASKEN NETWORK SYSTEMS LTD. 6. FOUR SOFT LTD. 7. THIRDWARE SOLUTION LTD. 8. RS SOFTWARE (INDIA) LTD. 9. GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. 10. TATA ELXSI LTD. (SEG) 11. VISUAL SOFT TECHNOLOGIES LTD. (SEG) 12. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 13. IGATE (SEG.) 14. FLEXTRONICS (SEG) 15. L& T INFOTECH 16. SATYAM 17. INFOSYS 4. AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF 0.9 6%, THE ADJUSTED ARITHMETIC PLI WAS COMPUTED AT 25.63% RESULTING IN DETERMINATION OF ALP AT RS. 21,59,03,831/- AS AGAINST THE PRICE CHAR GED BY THE ASSESSEE AT RS.18,59,36,488/-. THUS, THE SHORTFALL OF RS. 2,99,67,243 WAS TREATED AS THE ADJUSTMENT U/S 92CA OF THE ACT. WHILE DETERMINING THE ALP AS ABOVE, THE TPO ALSO REJECTED THE ASSESSE ES CLAIM TOWARDS RISK ADJUSTMENT. 5. AS A CONSEQUENCE OF THE ORDER PASSED BY THE TPO , THE ASSESSING OFFICER PASSED THE ASSESSMENT ORDER BY AD DING THE ADJUSTMENT OF RS. 21,59,03,831/- . THE ASSESSING OF FICER ALSO RE- COMPUTED THE DEDUCTION CLAIMED U/S 10A OF THE ACT B Y REDUCING THE COMMUNICATION CHARGES FROM THE EXPORT TURNOVER. AGA INST THE ASSESSMENT ORDER SO PASSED, ASSESSEE PREFERRED APP EAL BEFORE LD. CIT(A). LD. CIT(A) REJECTED ALL THE CONTENTIONS OF THE ASSESSEE EXCEPTING IN CASE OF ONE OF THE COMPARABLE COMPANY I.E. SATYAM COMPUTER SERVICES LTD., WHICH LD. CIT(A) EXCLUDED F ROM THE LIST OF COMPARABLES. AS A RESULT, ADJUSTED MEAN PLI WAS WOR KED OUT TO 25.45% AND ALP WAS DETERMINED AT 21,55,94,489. THUS , ADJUSTMENT 4 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. U/S 92CA WAS SCALED DOWN TO RS. 2,96,57,901.. BEING AGGRIEVED OF THE AFORESAID ORDER OF LD. CIT(A), THE ASSESSEE HA S PREFERRED THIS APPEAL RAISING VARIOUS GROUNDS BOTH ON TRANSFER PR ICING ISSUES AS WELL AS CORPORATE TAX ISSUES. AT THE OUTSET, LD. AR EXPR ESSED HIS INTENTION OF NOT PRESSING THE GROUND ON CORPORATE TAX ISSUES I.E. GROUND NO. 3 & 3.1 WITH SUB-GROUNDS ON ACCOUNT OF RELIEF BEING G RANTED BY THE LEARNED CIT(A). HENCE, THESE GROUNDS ARE DISMISSED. EVEN, ON TP ISSUES ALSO LEARNED AR CONFINED HIS ARGUMENT ONLY T O THE ISSUES OF SELECTION OF CERTAIN COMPARABLES AND DISALLOWANCE O F RISK ADJUSTMENT. IN VIEW OF THE AFORESAID, WE SHALL CONFINE OUR FIND ING TO THESE TWO ISSUES ONLY. AT FIRST, WE WILL DEAL WITH ISSUE OF S ELECTION OF COMPARABLES. 6. THE LEARNED AR SPECIFICALLY OBJECTED TO 8 COMPA NIES SELECTED BY THE TPO AS COMPARABLES AND RETAINED BY LEARNED C IT(A). WHICH ARE AS UNDER:- 1) BODHTREE CONSULTING LTD. 2) EXENSYS SOFTWARE SOLUTIONS LTD. 3) SANKHYA INFOTECH LTD. 4) FOURSOFT LTD. 5) THIRDWARE SOLUTIONS LTD. 6) TATA ELXSI LTD. 7) INFOSYS TECHNOLOGIES LTD 8) FLEXITRONICS LTD. 7. THE SUBMISSIONS OF THE LEARNED AR AGAINST SELEC TION OF THESE COMPARABLES, IN BRIEF, ARE AS UNDER: 1. BODHTREE CONSULTING LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED ON THE BASIS OF FILTERS APPLIED BY TPO HIM SELF, WHICH ARE AS UNDER: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDULE 4 OF THE BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIG ON, LIC, USA AND AS PER THE RESPONSE U/S 133(6); THE CO MPANY HAS EXPORT SALES TO PERIGON LIC, USA OF RS. 133.90 LAKHS, BEING 34.68% OF THE TOTAL TURNOVER. 5 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. FUNCTIONALLY DIFFERENT FILTER: THE COMPANY IN ITS RESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E-PAP ER SOLUTIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOP MENT AND OTHER CUSTOMIZED SOFTWARE AND ALSO STATE THAT THE E -PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD COME UN DER THE CATEGORY OF IT ENABLED SERVICES. II) HE SUBMITTED, FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS: 1. INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) 2. INVENSYS DEVELOPMENT CENTRE (INDIA) PVT. LTD. (I TA NO. 1256/H/2010) 3. NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 2. EXENSYS SOFTWARE SOLUTIONS LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED FOR THE FOLLOWING REASONS: A) FUNCTIONALLY DIFFERENT: THE COMPANY IS A SOFTWAR E PRODUCT AND ITES COMPANY. THE COMPANY OWNS SIGNIFICANT BRAN D INTANGIBLES (ALMOST 60% OF ITS NET BLOCK OF ASSETS) , UNLIKE THE APPELLANT, WHICH IS A CONTRACT CAPTIVE SERVICES PRO VIDER. FURTHER, VARIOUS DISCLOSURES ON THE SITE OF THE COM PANY ALSO INDICATE THAT IT IS INTO PRODUCT DEVELOPMENT. B) EXCEPTIONAL YEAR OF OPERATIONS: THERE WAS AMALGA MATION OF THE COMPANY WITH HOLOOL INDIA LTD. WITH RETROSPECTI VE EFFECT FROM APRIL 01, 2004, WHICH HAD A MATERIAL/SIGNIFICA NT IMPACT ON THE RESULTS OF THE COMPANY FOR FINANCIAL YEAR EN DED MARCH 31, 2005 AND CONFIRMED BY THE COMPANY IN ITS RESPON SE TO 133(6) NOTICE. C) ERROR IN MARGIN COMPUTATION: THE LD TPO HAS EXCL UDED THE DEFERRED REVENUE EXPENDITURE WHILE COMPUTING THE NE T MARGIN OF THE COMPANY. IF THE SAME IS INCLUDED, THE NET MARGIN OF THE COMPANY WOULD BE 32.68%. 6 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. II) IT WAS SUBMITTED THAT THE FOLLOWING RULINGS HAV E ANALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUCTS A ND HELD AS NOT COMPARABLE TO A SERVICE PROVIDER: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 3. SANKHYA INFOTECH LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM THE FOLLOWING: VARIOUS DISCLOSURES IN THE ANNUAL REPORT AND RESPO NSE TO 133(6) NOTICE INDICATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS (SERVICES ARE SUPPLEMENTARY TO PR ODUCTS LICENSING) THE TPO HAS IN SUBSEQUENT YEAR REJECTED THIS COMPA NY AS COMPARABLE RELYING ON THE SAME 133(6) RESPONSE. II) THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTE D THIS COMPANY AS IT HAS SOFTWARE PRODUCTS : - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 4. FOURSOFT LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM VARIOUS DISCLOSURES IN TH E ANNUAL REPORT (DIRECTORS REPORT, MANAGEMENT DISCUSSION AND WEBSIT E INFORMATION) INDICATING CLEARLY THAT THE COMPANY IS INTO SOFTWAR E PRODUCTS. THE 7 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS C OMPANY AS IT HAS DERIVED INCOME FROM SOFTWARE LICENSE AND AMCS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) 5. THIRDWARE SOLUTIONS LTD.: I) LD. COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCT IONALLY DIFFERENT FOR THE FOLLOWING REASONS: AS PER REPLY TO NOTICE ISSUED U/S 133(6), THE COMP ANY INFORMED THAT IT IS ENGAGED IN IMPLEMENTATION AND C USTOMER SERVICES WHICH INCLUDE TRAINING, CUSTOMIZED DEVELOP MENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND DISTRIBUTIO N OF PRODUCTS OF QUAD INC. AND HYPERION SOLUTIONS CORPOR ATION. VARIOUS NEWS ARTICLES AVAILABLE ON THE INTERNET HTTP://WWW.HINDUONNET.COM/2001/07/11/STORIES/061100 0H.HTM STATED THAT THE COMPANY IS A DISTRIBUTOR OF PRODUCT S; AS PER THE COMPANYS WEBSITE WWW.THIRDWARE.NET/ OURCAPABILITIES.HTM. HAS STATED THE COMPANY HAS PARTNERED WITH QAD INC TO DELIVER THE E NTIRE BUSINESS CYCLE OF MGF/PRO, A PRODUCT OF QAD INC. FR OM PRE- SALES, SALES, TRAINING, CONSULTING, IMPLEMENTATION AND SUPPORT TO APPLICATION MANAGEMENT SERVICES. HE SUBMITTED, THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS COMPANY AS IT IS INTO TRADING OF SOFT WARE LICENSES: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) 8 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 6. TATA ELXSI LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHALL BE REJECTED AS COMPARABLE SINCE IT IS A SPECIALIZED EM BEDDED SOFTWARE DEVELOPMENT COMPANY AND THIS COMPANY HAS IN FACT CL EARLY STATED IN ITS RESPONSE TO 133(6) NOTICE THAT DUE TO THE COMPL EX SEGMENTS IN WHICH THEY ARE OPERATING, IT IS NOT COMPARABLE TO A NY OTHER SOFTWARE SERVICES COMPANY. II) HE SUBMITTED, THE FOLLOWING RULINGS HAVE ANALYS ED THIS COMPANY AND RELYING ON THE SAME 133(6) RESPONSE, REJECTED I T AS A COMPARABLE TO SOFTWARE SERVICES PROVIDER: - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HY D/2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 7. INFOSYS TECHNOLOGIES LTD. I) THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCTS, CONSULTA NCY & SOLUTIONS AND THIS COMPANY COMMANDS A PREMIUM IN THE PRICING OF I TS PRODUCTS AND SERVICES DUE TO ITS GOODWILL, REPUTATION AND BRAND VALUE. FURTHER DUE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SCALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACILITIES AND OVERHEADS. II) FURTHER, HE SUBMITTED THAT THE ISSUE OF COMPARA BILITY OF INFOSYS TO A SMALL CAPTIVE SERVICE PROVIDER IS NO LONGER RE S-INTEGRA. THE 9 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. FOLLOWING CASES HAVE SPECIFICALLY ANLAYSED IN DETAI L THE COMPARABILITY OF INFOSYS ON VARIOUS PARAMETERS TO A SIMILAR SIZE SOFTWARE SERVICE PROVIDER AND REJECTED IT: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) - PATNI TELECOM SOLUTIONS PVT. LTD. VS. ACIT (ITA N O. 1846/HYD/2012) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 - INTERGRAPH CONSULTING PVT. LTD., (ITA NO. 923/HYD /2010) - NESS INNOVATIVE BUSINESS SERVICES PVT. LTD., (IT A NO. 472/HYD/2011) 8. FLEXITRONICS LTD. I) OBJECTING TO THIS COMPANY, THE LEARNED AR SUBMIT TED THAT THE SAID COMPANY IS NOT ONLY FUNCTIONALLY DIFFERENT BUT IT CANNOT BE TREATED AS A COMPARABLE BECAUSE IT IS INTO DEVELOPMENT OF P RODUCT. IT WAS SUBMITTED THAT THE COMPANY HAS ALSO REPORTED VERY H IGH MARGIN OF PROFIT. THE LEARNED AR SUBMITTED THAT THE TPO HIMSE LF HAVING CLASSIFIED THE ASSESSEE AS PURELY SOFTWARE DEVELOPM ENT SERVICE PROVIDER, HE COULD NOT HAVE TREATED FLEXTRONICS SOF TWARE SYSTEMS LIMITED (SEG) AS A COMPARABLE AS IT IS INTO PRODUCT DEVELOPMENT. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED U PON THE FOLLOWING RULINGS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD /2010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 6 45/HYD/09) 8. THE LEARNED DR, THOUGH, AGREED THAT ISSUE OF SEL ECTION OF COMPARABLES ARE COVERED BY THE DECISIONS OF ITAT RE FERRED TO BY LEARNED AR, BUT, HE NEVERTHELESS SUPPORTED THE REAS ONING OF TPO AND LEARNED CIT(A). 10 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 9. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES AND EXAMINED THE RECORD, WE FIND MERIT IN THE SUBMISSIONS OF LEA RNED AR WITH REGARD TO NON-COMPARABILITY OF VARIOUS COMPARABLE COMPANIE S SELECTED BY THE TPO. ON A PERUSAL OF THE FACTS ON RECORD AS WEL L AS ORDER OF TPO IT IS CLEAR THAT ASSESSEE IS PURELY A SOFTWARE DEVE LOPMENT SERVICE PROVIDER, THAT TOO TO ITS AE ONLY. THUS, ASSESSEE I S A CAPTIVE/CONTRACT SERVICE PROVIDER. AS CAN BE SEEN, COMPARABILITY OF AFORESAID COMPARABLES WERE CONSIDERED IN CASES OF VARIOUS OT HER PURELY SOFTWARE DEVELOPMENT SERVICE PROVIDERS LIKE ASSESSE E FOR THE SAME ASSESSMENT YEAR. COORDINATE BENCHES OF THIS TRIBUNA L IN THE ABOVE REFERRED CASES AFTER EXAMINING DIFFERENT ASPECTS HA VE HELD THESE COMPANIES AS UNCOMPARABLE TO A PURELY SOFTWARE DEVE LOPMENT SERVICE PROVIDER. THE FINDING OF THE COORDINATE BEN CH IN CASE OF NESS INNOVATIVE BUSINESS P. LTD. VS. DCIT IN ITA NO. 472 , 553 & 1775/HYD/2011, DATED 18/06/2014 WITH REGARD TO SOME OF THE COMPARABLES FOR THE SAME ASSESSMENT YEAR IS EXTRACT ED HEREUNDER FOR READY REFERENCE: 9.1 FOR THE SAKE OF RECORD, THE DECISION IN THE CASE OF NESS INNOVATIVE BUSINESS SERVICES P. LTD., VS. DCIT, CIR CLE 16(1), HYDERABAD VIDE ITA.NO.472, 553 & 1775/HYD/2011 DATE D 18.06.2014 ON THE ABOVE 7 COMPARABLES ARE EXTRACTED AS UNDER: 1. BODHTREE CONSULTING LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHO ULD BE REJECTED UNDER THE FOLLOWING TPOS FILTERS: RELATED PARTY TRANSACTIONS FILTER: AS PER SCHEDULE 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 R ESPONSE TO NOTICE U/S 133(6) HAS STATED THAT IT PROVIDES E- PAPER SOLUTIONS, DATA CLEANSING SOFTWARE, WEBSITE DEVELOP MENT AND OTHER CUSTOMIZED SOFTWARE AND ALSO STATE THAT T HE E- PAPER SOLUTIONS AND DATA CLEANSING SERVICES WOULD C OME UNDER THE CATEGORY OF IT ENABLED SERVICES. 11 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 2. EXENSYS SOFTWARE SOLUTIONS LTD., THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHOULD BE REJECTED UNDER THE FOLLOWING TPOS FILTER S: D) FUNCTIONALLY DIFFERENT: THE COMPANY IS A SOFTWARE PRODUCT AND ITES COMPANY. THE COMPANY OWNS SIGNIFICANT BRAND INTANGIBLES (ALMOST 60% OF ITS NE T BLOCK OF ASSETS), UNLIKE THE APPELLANT, WHICH IS A CONTRA CT CAPTIVE SERVICES PROVIDER. FURTHER, VARIOUS DISCLOS URES ON THE SITE OF THE COMPANY ALSO INDICATE THAT IT IS INTO PRODUCT DEVELOPMENT. E) EXCEPTIONAL YEAR OF OPERATIONS: THERE WAS AMALGAMATION OF THE COMPANY WITH HOLOOL INDIA LTD. WITH RETROSPECTIVE EFFECT FROM APRIL 01, 2004, WHIC H HAD A MATERIAL/SIGNIFICANT IMPACT ON THE RESULTS OF THE COMPANY FOR FINANCIAL YEAR ENDED MARCH 31, 2005 AND CONFIRMED BY THE COMPANY IN ITS RESPONSE TO 133(6) NOTICE. F) ERROR IN MARGIN COMPUTATION: THE LD TPO HAS EXCLUDE D THE DEFERRED REVENUE EXPENDITURE WHILE COMPUTING TH E NET MARGIN OF THE COMPANY. IF THE SAME IS INCLUDED, THE NET MARGIN OF THE COMPANY WOULD BE 32.68%. IT WAS SUBMITTED THAT THE FOLLOWING RULINGS HAVE AN ALYSED AND REJECTED THIS COMPANY AS IT HAS SOFTWARE PRODUC TS AND HELD AS NOT COMPARABLE TO A SERVICE PROVIDER: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 12 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 3. SANKHYA INFOTECH LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM THE FOLLOWIN G: VARIOUS DISCLOSURES IN THE ANNUAL REPORT AND RESPON SE TO 133(6) NOTICE INDICATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS (SERVICES ARE SUPPLEMENTARY TO PRODUCTS LICENSING) THE TP OFFICE HAS IN SUBSEQUENT YEAR REJECTED THIS COMPANY AS COMPARABLE RELYING ON THE SAME 133(6) RESPONSE. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED TH IS COMPANY AS IT HAS SOFTWARE PRODUCTS : - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - INTEGRATED DECISIONS & SYSTEMS INDIA (P) LTD. VS. D CIT (ITA NO. 27/JP/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645/HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 4. FOURSOFT LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AS EVIDENT FROM V ARIOUS DISCLOSURES IN THE ANNUAL REPORT (DIRECTORS REPORT, MANAGEMENT DISCUSSION AND WEBSITE INFORMATION) INDI CATES CLEARLY THAT THE COMPANY IS INTO SOFTWARE PRODUCTS. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED THIS C OMPANY AS IT HAS DERIVED INCOME FROM SOFTWARE LICENSE AND AMCS: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) 13 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645/HYD/09) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 5. THIRDWARE SOLUTIONS LTD.: LD. COUNSEL SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FOR THE FOLLOWING REASONS: AS PER REPLY TO NOTICE ISSUED U/S 133(6), THE COMPA NY INFORMED THAT IT IS ENGAGED IN IMPLEMENTATION AND CUSTOMER SERVICES WHICH INCLUDE TRAINING, CUSTOMIZE D DEVELOPMENT AND HELP DESK SERVICES FOR ERP SOFTWARE AND DISTRIBUTION OF PRODUCTS OF QUAD INC. AND HYPER ION SOLUTIONS CORPORATION. VARIOUS NEWS ARTICLES AVAILABLE ON THE INTERNET HTTP://WWW.HINDUONNET.COM/2001/07/11/STORIES/0611 000H.HTMSTATED THAT THE COMPANY IS A DISTRIBUTOR OF PRODUCTS; AS PER THE COMPANYS WEBSITE WWW.THIRDWARE.NET/ OURCAPABILITIES.HTM. HAS STATED THE COMPANY HAS PARTNERED WITH QAD INC TO DELIVER THE ENTIRE BUSINESS CYCLE OF MGF/PRO, A PRODUCT OF QAD INC. FROM PRE-SALES, SALES, TRAINING, CONSULTING, IMPLEMENTATION AND SUPPORT TO APPLICATION MANAGEMEN T SERVICES. THE FOLLOWING RULINGS HAVE ANALYSED AND REJECTED TH IS COMPANY AS IT IS INTO TRADING OF SOFTWARE LICENSES: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (I TA NO. 609/DEL/2011) - ACIT VS. SONATA SOFTWARE (ITA NO. 3514/MUM/2010) - E-GAIN COMMUNICATIONS (P) LTD. VS. ITO, 23 SOT 385. 14 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 6. TATA ELXSI LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY SHALL BE REJECTED AS COMPARABLE SINCE IT IS A SPECI ALIZED EMBEDDED SOFTWARE DEVELOPMENT COMPANY AND THIS COMPANY HAS IN FACT CLEARLY STATED IN ITS RESPONSE TO 133(6) NOTICE THAT DUE TO THE COMPLEX SEGMENTS IN WHICH TH EY ARE OPERATING, IT IS NOT COMPARABLE TO ANY OTHER SOFTWA RE SERVICES COMPANY. THE FOLLOWING RULINGS HAVE ANALYSED THIS COMPANY AND RELYING ON THE SAME 133(6) RESPONSE, REJECTED I T AS A COMPARABLE TO SOFTWARE SERVICES PROVIDER: - CONEXANT SYSTEMS INDIA PVT. LTD. (ITA NO. 1429/HYD/2010 AND 1978/HYD/2011) - TELCORDIA TECHNOLOGIES INDIA P. LTD. (ITA NO. 7821/MUM/2011) - LOGICA PVT. LTD. (IT(TP)A NO. 1129/BANG/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 7. INFOSYS TECHNOLOGIES LTD. THE LEARNED COUNSEL SUBMITTED THAT THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES INCLUDING PRODUCT S, CONSULTANCY & SOLUTIONS AND THIS COMPANY COMMANDS A PREMIUM IN THE PRICING OF ITS PRODUCTS AND SERVICES DUE TO ITS GOODWILL, REPUTATION AND BRAND VALUE. FURTHER D UE TO SCALE OF OPERATIONS, INFOSYS ENJOYS ECONOMIES OF SC ALE, WHICH RESULTS IN LOWER COST OF INFRASTRUCTURAL FACI LITIES AND OVERHEADS. FURTHER, HE SUBMITTED THAT THE ISSUE OF COMPARABILI TY OF INFOSYS TO A SMALL CAPTIVE SERVICE PROVIDER IS N O LONGER RES-INTEGRA. THE FOLLOWING CASES HAVE SPECIFICALLY ANLAYSED IN DETAIL THE COMPARABILITY OF INFOSYS ON VARIOUS P ARAMETERS TO A SIMILAR SIZE SOFTWARE SERVICE PROVIDER AND REJ ECTED IT: - INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO. 1196/HYD/2 010) - VIRTUSA INDIA PVT. LTD. VS. DCIT (ITA NO. 1962/H/20 10) - PATNI TELECOM SOLUTIONS PVT. LTD. VS. ACIT (ITA NO. 1846/HYD/2012) 15 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. - ADAPTEC (INDIA) PVT. LTD. VS. DCIT (ITA NO. 1801/HYD/2009) - DCIT VS. M/S HELLOSOFT INDIA PVT. LTD. (ITA NO. 645/HYD/09) - TRILOGY E BUSINESS SERVICES SOFTWARE LTD. VS. DCIT (ITA NO. 1054/BANG/2011 PARA 20) - TELCORDIA TECHNOLOGIES INDIA P LTD. (ITA NO. 7821/MUM/2011 PARA 7.4) - CORDYS SOFTWARE INDIA PVT. LTD. VS. ACIT (ITA NO. 1972/H/2011) - AGNITY INDIA TECHNOLOGIES VS. ITO (ITA NO. 3856/DEL/2010) - AGNITY INDIA TECHNOLOGIES PVT. LTD. VS. ITO (HIGH C OURT DECISION ITA 1204/2011) - INVENSYS DEVELOPMENT CENTRE INDIA P. LTD. IN ITA NO 1256/HYD/2010 DT.20-02-2014 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECORD INCLUDING PAPER BOOKS PLACED ON RECORD. THER E IS A MERIT IN ASSESSEES CONTENTIONS ABOUT NON-COMPARABI LITY OF VARIOUS COMPARABLE COMPANIES SELECTED BY THE TPO. 7. AS REGARDS THE EXENSYS SOFTWARE SOLUTIONS LTD., AS SEEN FROM THE PAPER BOOK PLACED ON RECORD, THERE IS A MERGER OF HOLOOL INDIA LTD. AND IN THE DIRECTORS R EPORT (PB- 951), THERE IS A CLEAR MENTION THAT THE COMPANYS I NCOME OF RS. 737.79 LAKHS IS POSSIBLE WITH THE AMALGAMATION OF HOLOOL INDIA LTD. IT WAS FURTHER MENTIONED THAT ASS ESSEE COMPANY HAS GOT BENEFIT BY ADVANCED LATEST TECHNICA L EXPERTISE ON VARIOUS TECHNOLOGY DOMAINS OF THE TRAN SFEROR COMPANY. FURTHER, THAT COMPANY HAS CHARGED DEFERRED EXPENDITURE AND THE AMOUNT CLAIMED IN THIS YEAR IS RS. 1.22 CRORES AS AGAINST RS. 30.21 LAKHS IN EARLIER Y EAR. THIS WAS CLEARLY STATED IN NOTES THAT CLAIM WAS WITH REF ERENCE TO THE AS-14 AND ALSO DUE TO AMALGAMATION OF TWO COMPANIES. VIDE PAGE 957 OF PAPER BOOK, IT WAS SEEN THAT OUT OF GROSS ASSETS OF RS. 7.95 CRORES, BRANDS ALON E CONSIST OF RS. 5 CRORES, THEREFORE, INTANGIBLE ASSETS COMPR ISING OF SUBSTANTIAL PART OF THIS COMPANYS ASSETS. NOT ONLY IN THE CORRESPONDENCE WITH THE TPO THAT ASSESSEE EXPRESSED ITS 16 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. INABILITY TO FURNISH SEPARATE ACCOUNTS FOR TWO AMAL GAMATED COMPANIES BUT ALSO FURTHER IT HAS CLEARLY MENTIONE D VIDE LETTER DATED 26-04-2007 TO THE TPO THAT THERE IS A GAP IN THE EXPENDITURE EXPECTED TO INCUR AND ACTUAL EXPEND ITURE INCURRED WHICH MADE THE COMPANY RECORD HIGH OPERATI NG MARGIN ON COST. THESE FACTORS INDEED SUPPORT ASSESS EES CONTENTION THAT THIS EXCEPTIONAL PROFIT WITH THE FA CT OF AMALGAMATION AFFECTED OPERATING PROFIT OF THE COMPA NY AND THIS CANNOT BE TAKEN AS COMPARABLE. OTHER ISSUES WE RE ALSO ANALYSED AND ACCEPTED IN VARIOUS CASES AS RELIED UP ON BY THE LEARNED COUNSEL. IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD.,(SUPRA) THIS COMPARABLE CASE WAS ANALYSED AND HELD AS UNDER: 17. HAVING HEARD BOTH PARTIES AND HAVING CONSIDERE D THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT ASSESSEE HAS ACCEPTED THE EXENSYS SOFT WARE SOLUTIONS LIMITED AS ONE OF THE COMPARABLE COMPANIE S WHEN PROPOSED BY THE TPO. HOWEVER, THE FACT THAT TH ERE IS AN AMALGAMATION OF TWO COMPANIES I.E., EXENSYS SOFT WARE LIMITED AND HOLOOL INDIA LIMITED, THE RESULTS OF WH ICH, HAS RESULTED IN HIGH OPERATING MARGIN CANNOT BE LOST SI GHT FOR. IT HAS BEEN HELD IN MANY CASES BY THIS TRIBUNAL AS WEL L AS THE HIGHER FORUMS THAT TO COMPARE A COMPANY WITH AN OTHER COMPANY, BOTH THE COMPANIES HAVE TO BE BROUGHT ON P AR WITH EACH OTHER AFTER MAKING THE NECESSARY ADJUSTME NTS WHEREVER NECESSARY AND POSSIBLE. HOWEVER, WHERE THE RE ARE EXTRAORDINARY EVENTS SUCH AS THIS, THEN THOSE EVENTS HAVE TO BE TAKEN NOTE OF AND WHERE NO ADJUSTMENT CA N BE MADE ON ACCOUNT OF THIS EXTRAORDINARY EVENT, THEN S UCH COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE OBJECTIONS TO THIS COMPANY BY ASSESSEE ARE MADE FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY IS BOUND TO TAKE NOTE OF THE OBJECTIONS OF ASSESSEE. AS THE MATERIAL RELIED UPON BY THE LEARNED COUNSEL FOR ASSESSEE CLEARLY DENOTES THAT THERE IS AN EXTRAORDINARY EVENT WHICH HAS RESULTED IN THE H IGH OPERATING MARGIN OF THE COMPANY, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO FOR RECONSIDERATION. IF IT IS FOUND TH AT THERE IS AN AMALGAMATION OF EXENSYS SOFTWARE LIMITED AND HOL OOL INDIA LIMITED AND FORMED AS ONE ENTITY VIZ.,EXENSYS SOFTWARE SOLUTIONS LIMITED. DURING THE RELEVANT PRE VIOUS YEAR AND THE FINANCIAL RESULT IS THE COMBINED RESUL T OF THESE TWO COMPANIES, THEN, WE DIRECT THE ASSESSING OFFICE R/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S. 17 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 8. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THA T THERE IS AN EXTRA-ORDINARY EVENT WHICH RESULTED IN HIGH OPERATING MARGIN OF THAT COMPANY AND WE, THEREFORE, DIRECT THE AO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. IN THE ABOVE REFERRED CASE OF INTOTO SOFTWARE INDIA PVT. LTD., COMPLETE DETAILS WERE NOT PLACED O N RECORD, THEREFORE, THE MATTER WAS SENT TO AO FOR VERIFICATI ON WHEREAS IN THIS CASE ASSESSEE HAS OBJECTED EVEN BEF ORE THE AO/ CIT(A), THEREFORE, THERE IS NO NEED TO SET ASID E THE ISSUE TO THE FILE OF THE AO FOR EXAMINATION AS WAS DONE IN THE CASE OF INTOTO SOFTWARE(SUPRA). WE ARE, THEREFO RE, OF THE OPINION THAT ON THE BASIS OF FACTS PLACED ON RECORD , THE CASE OF EXENSYS SOFTWARE SOLUTIONS LTD. CANNOT BE TAKEN AS COMPARABLE. 9. SIMILARLY, THE OTHER CASES, BODHTREE CONSULTING LTD, FOUR SOFT LTD, INFOSYS,., SANKHYA INFOTECH LTD ., THIRDWARE 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 DISCUSSING ABOVE COMPARABLES IN DE TAIL, BUT, SUFFICE TO SAY THAT ASSESSEES SUBMISSIONS ARE VALID. THE AO IS DIRECTED TO EXCLUDE THE ABOVE COMPARABLES AND RE-WORK OUT THE ARMS LENGTH MARGIN ACCORDINGLY. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN OTHER DECIS IONS REFERRED TO HEREINABOVE. THEREFORE, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE ITAT, WE EXCLUDE, BODHTREE CONSULTING LTD., EXE NSYS SOFTWARE SOLUTIONS LTD., SANKHYA INFOTECH LTD., FOUR SOFT LT D., THIRDWARE SOLUTIONS LTD., TATA ELXSI LTD AND INFOSYS TECHNOLO GIES LTD. FROM THE LIST OF COMPARABLES. 10. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONC ERNED, WE FIND THAT IN CASE OF INTOTO SOFTWARE INDIA PVT. LTD., (S UPRA) THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAVING FOUND IT TO BE FUNCTI ONALLY DIFFERENT AS IT IS INTO PRODUCT DEVELOPMENT HAS DIRECTED EXCLUDING IT FOR COMPARABILITY ANALYSIS. RESPECTFULLY FOLLOWING THE DECISION OF TH E COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S INTOTO SOFTWARE IND IA PVT.LTD. (SUPRA) WE ALSO DIRECT THE ASSESSING OFFICER/ TPO TO EXCLUD E THIS COMPANY. 18 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. 11. AS REGARDS RISK ADJUSTMENT/WORKING CAPITAL ADJU STMENT, LD. AR SUBMITTED BEFORE US THAT TPO HIMSELF HAS COMPUTED T HE ADJUSTMENT TO BE MADE TOWARDS RISK AT 0.85%, HOWEVER, IN THE FINA L ANALYSIS, HE DID NOT ALLOW ANY SUCH ADJUSTMENT. HE, THEREFORE, SUBM ITTED THAT RISK ADJUSTMENT AT LEAST TO THE EXTENT OF 0.85% NEEDS TO BE ALLOWED. 12. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUPPORTED THE ORDER OF DRP AND TPO. 13. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF DEPARTMENTAL AUTHORITIES, WE ARE OF T HE VIEW THAT SINCE TPO HIMSELF HAS CONCLUDED THAT RISK ADJUSTMENT TO T HE EXTENT OF 0.85% CAN BE ALLOWED, WE DIRECT HIM TO ALLOW THE RI SK ADJUSTMENT TO THAT EXTENT. IT MAY BE PERTINENT TO MENTION HERE TH AT IN CASE OF ASSESSEE IN THE SUBSEQUENT AY I.E. AY 2007-08, CONS IDERING SIMILAR RISK PROFILE, THE TRIBUNAL HAS ALLOWED RISK ADJUSTM ENT OF 1%. KEEPING IN VIEW THE AFORESAID FACTS, WE DIRECT ASSESSING OF FICER/TPO TO ALLOW RISK ADJUSTMENT AT 0.85% WHILE COMPUTING ALP. IN VI EW OF THE AFORESAID, ASSESSING OFFICER/TPO IS DIRECTED TO COM PUTE ALP AFRESH IN TERMS WITH DIRECTION GIVEN HEREINBEFORE AND THER EAFTER TREAT THE SHORTFALL, IF ANY, AS THE ADJUSTMENT TO BE MADE TO ALP. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21/01/2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 21 ST JANUARY, 2015 KV 19 ITA NO. 1302/HYD/10 M/S DE SHAW INDIA SOFTWARE P. LTD. COPY TO:- 1) M/S DE SHAW INDIA SOFTWARE PVT. LTD., 8-2-120/11 3, SONALI INFO PARK, ROAD NO. 2, BANJARA HILLS, HYDERABAD 500 03 4. 2) DCIT, CIRCLE 1(2), HYDERABAD. 3) CIT(A)-III, HYDERABAD 4) CIT I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.