Mercedes - Benz Research and Development India Private Limited, Bangalore V. ACIT, Bangalore

ITA 1336/BANG/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8620 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-10-2012
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA CITIIDR
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Services rendered outside India
• Section: 92C; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI NARENDRA KUMAR CHOUDHARY, JUDICIAL MEMBER IT(TP)A NO.1336/BANG/2012 ASSESSMENT YEAR : 2008-09 MERCEDES-BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD., AUGUSTA, 5 TH FLOOR, EMBASSY GOLF LINKS BUSINESS PARKS, OFF INTERMEDIATE RING ROAD, BANGALORE 560 071. PAN: AAACD 6261B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI NAGESHWAR RAO, ADVOCATE RESPONDENT BY : MS. NEERA MALHOTRA, CIT-II(DR) DATE OF HEARING : 09.03.2016 DATE OF PRONOUNCEMENT : 16.03.2016 O R D E R PER B. RAMAKOTAIAH, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER OF THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C( 13) OF THE ACT, CONSEQUENT TO THE DIRECTIONS OF THE DRP UNDER THE T RANSFER PRICING (TP) PROVISIONS. IT(TP)A NO.1336/BANG/2012 PAGE 2 OF 32 2. THE MAIN ISSUES TO BE CONSIDERED IN THIS APPEAL ARE :- (A) THE MOST APPROPRIATE METHOD FOR TP ANALYSIS; AND (B) IF TNMM IS THE MOST APPROPRIATE METHOD, THEN THE COMPARABILITY OF CERTAIN COMPANIES, WORKING OF OPER ATING MARGINS AND RISK ANALYSIS UNDER THE TP PROVISIONS. 2.1 EVEN THOUGH THERE ARE OTHER ISSUES WHICH ASSES SEE HAS RAISED IN THE GROUNDS LIKE (I) MULTIPLE YEAR DATA; (II)POWER OF TPO U/S. 133(6) FOR OBTAINING DATA WHICH IS NOT IN PUBLIC DOMAIN; AND ( III) VARIOUS FILTERS ADOPTED; THESE ARE HELD AGAINST BY DRP ON THE BASI S OF VARIOUS DECISIONS OF COORDINATE BENCHES OF ITAT. ASSESSEE HAS NOT MAD E ANY SUBMISSIONS ON THEM, HENCE THESE ISSUES ARE CONSIDERED ACADEMIC NOW. 3. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN P ROVIDING SOFTWARE RESEARCH AND DEVELOPMENT SERVICES TO DAIMLER AG, IT S AE. THE PARENT COMPANY (AE) IS INVOLVED IN RESEARCH IN AUTOMOBILE AND AIRCRAFT FIELDS ALONG WITH MANUFACTURING AND ASSESSEE SUPPLEMENTS THE RES EARCH WORK AS A CAPTIVE SERVICE PROVIDER. THE UNIQUENESS OF ASSESS EE SERVICE FUNCTION, IT WAS CONTENDED THAT, WAS NOT COMPARABLE TO OTHER SOF TWARE DEVELOPMENT SERVICES BEING PROVIDED BY OTHER COMPANIES. AS PE R TPO, THE BUSINESS PROFILE (PARA 2.2 OF TP ORDER), IS THAT IT CONTRIBU TES TO RESEARCH IN THE AREAS OF COMPUTER SIMULATION AND COMPUTER AIDED DESIGN/EN GINEERING (CAD/CAE), ELECTRICAL, ELECTRONICS AND IT SERVICES. ASSESSEE OPERATES ON COST + 5% (CPM) AND HAS REPORTED NET PROFIT OF 3.20 % ON OPERATING COST OF IT(TP)A NO.1336/BANG/2012 PAGE 3 OF 32 RS.49.81 CRORES WITH REVENUES OF RS.51.41 CRORES. ASSESSEE IN ITS TP STUDY ADOPTED COST PLUS METHOD AS APPROPRIATE METHO D AND GAVE ALTERNATE WORKING UNDER CUP METHOD (EXTERNAL) ON MAN-HOURLY R ATE BASIS OF FIVE COMPARABLE COMPANIES TO SUPPORT THAT ASSESSEES REC EIPTS ARE AT ARMS LENGTH. ASSESSING OFFICER REPORTED THE SAME TO THE TPO FOR ALP ANALYSIS AND TPO VIDE HIS ORDER U/S. 92CA OF THE ACT, REJECT ED THE METHODS RELIED ON BY THE ASSESSEE, MOSTLY ON THE BASIS OF HIS ANAL YSIS IN AY 2007-08, ADOPTED TNMM AS MOST APPROPRIATE METHOD (MAM), SELE CTED COMPARABLES BY USING VARIOUS FILTERS, ADOPTED SINGLE YEAR DATA AND ARRIVED AT AVERAGE PROFIT MARGIN OF COMPARABLE COMPANIES AT 23.65% AND PROPOSED AN ADJUSTMENT OF RS.8,98,28,017. AO HAS ISSUED A DRAF T ORDER ACCORDINGLY AND ASSESSEES OBJECTIONS WERE REJECTED BY THE DRP IN I TS ORDER DATED 18.04.2012. ASSESSEE IS AGGRIEVED. 4. EVEN THOUGH ASSESSEE RAISED MANY GROUNDS, LD COU NSEL RESTRICTED THE ARGUMENTS TO THE ISSUE OF SELECTION OF MAM AND IN TNMM, ISSUES LIKE COMPARABILITY OF CERTAIN COMPANIES AND VARIOUS ADJU STMENTS. WE HAVE HEARD LD. COUNSEL AND LD. CIT-DR IN DETAIL AND PURS UED THE PAPER BOOKS PLACED ON RECORD. ISSUE OF SELECTION OF MAM 5. THE TPO VIDE PARAS 5 AND 6 OF THE ORDER U/S. 92C A RECORDS THE TP STUDY AND MAM AS UNDER:- IT(TP)A NO.1336/BANG/2012 PAGE 4 OF 32 5. TP STUDY FURNISHED BY THE TAXPAYER : THE TAXPAYER FURNISHED THE TP STUDY ALONG WITH THE DOCUMENTS MAINTAINED IN THIS REGARD VIDE ITS LETTER DATED 16. 10.2009. THE SALIENT FEATURES OF THE TP REPORT AND THE ISSUES AR ISING THERE FROM ARE DISCUSSED BELOW: 5.1 THE TAXPAYER COMPANY HAS BEEN SELECTED AS THE TESTED PARTY. 5.2 THE TAXPAYER COMPANY HAS BEEN CHARACTERIZED AS CONTRACT SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE TP STU DY DONE BY THE TAXPAYER. 5.3 COST PLUS METHOD WAS SELECTED AS THE MOST APPR OPRIATE METHOD (ANNEXURE4 OF THE TP REPORT). HOWEVER, THE T AXPAYER HAS GIVEN NEITHER THE SET OF COMPARABLE COMPANIES NOR H AS DONE ANY COMPARISON OF THE MARGINS EARNED BY OTHER COMPANIES . ANNEXURE 4 OF THE TP DOCUMENT IS ABOUT SELECTION OF THE MOST APPROPRIATE METHOD. THE TAXPAYER HAS SELECTED COST PLUS METHOD OVER OTHER METHODS. HOWEVER ANNEXURE VII CONTAINS T HE COMPARABILITY ANALYSIS BASED ON THE RATE PER HOUR CHARGED BY DIFFERENT COMPANIES. 5.4 THE TP REPORT DOES NOT MENTION ANY SEARCH CRIT ERION OR THE DATA BASE USED TO SEARCH THE COMPARABLES. THE TAXPA YER SIMPLY PICKED UP 5 BIG SOFTWARE COMPANIES FOR COMPARING MA N HOUR RATE. 6. MOST APPROPRIATE METHOD THE TAXPAYER CLAIMS TO HAVE APPLIED COST PLUS METHO D AS THE MOST APPROPRIATE METHOD IN ITS DOCUMENTATION U/S. 9 2D. DETAIL REASONS FOR WHICH CPM IS NOT APPLICABLE IN THE FACT S AND CIRCUMSTANCES OF THE CASE OF THE TAXPAYER HAVE BEEN DISCUSSED IN THE SHOW-CAUSE LETTER AND THE ORDER OF THE TPO FOR AY 2007-08. AS THE ARGUMENTS OF THE TAXPAYER ON THIS ISSUE, INC LUDING REFERENCE TO CUP METHOD, REMAIN THE SAME, TO AVOID REPETITION REFERENCE IS MADE TO THOSE DOCUMENTS. IN VIEW OF T HE ABOVE THE INTERNATIONAL TRANSACTIONS OF THE TAXPAYER ARE ANAL YZED UNDER TNMM METHOD. DISCUSSIONS REGARD SEARCH AND FILTERS USED BY THE TPO HAVE ALSO BEEN MADE IN THE SHOW-CAUSE NOTIC E. IT(TP)A NO.1336/BANG/2012 PAGE 5 OF 32 5.1 THUS, TPO BASED HIS OBSERVATIONS ON THE ORDER OF TPO IN AY 2007- 08. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT ASSESSEE PREFERRED AN APPEAL ON THE ISSUE IN AY 2006-07 AND WITHOUT ADJUD ICATING THE ISSUE, THE ITAT HAS SET ASIDE THE MATTER RELATING TO TNMM COMP ARABLES. ASSESSEE PREFERRED A MISC. APPLICATION AND ITAT WHILE ACKNOW LEDGING THE SAME, HOWEVER, RESTORED THE MAM ALSO TO THE TPO. IT WAS THE CONTENTION THAT ASSESSEE CANNOT BE COMPARED TO OTHER COMPANIES AS T HEY ARE ONLY SUPPLEMENTING OR TESTING IN THE SOFTWARE DEVELOPMEN T SERVICES AND SO THE METHOD BEING ADOPTED SINCE INCEPTION SHOULD BE ACCE PTED. LD. COUNSEL REFERRED TO THE RULES AND DATA FURNISHED BY THE ASS ESSEE TO SUBMIT THAT THE CPM/CUP METHOD IS APPROPRIATE. 5.2 ON A SPECIFIC QUERY BY THE BENCH, WHY TWO METH ODS ARE TAKEN AS MAM AND WHICH ONE IS THE PREFERRED METHOD, THE LD. COUNSEL FAIRLY ADMITTED THAT CUP IS PREFERABLE (I.E. EXTERNAL CUP). 5.3 THE LD. CIT(DR), HOWEVER, REFERRED TO THE ORDE RS OF TPO AND DRP AND THE POSITION OF THE DEPARTMENT TO SUBMIT THAT T HE DATA PERTAINING TO CPM OR CUP IS NOT FURNISHED BY THE ASSESSEE AND SO COMPARABILITY ON TNMM IS MOST APPROPRIATE, AS IT DOES NOT EFFECT FUN CTIONAL DIFFERENCES, IF ANY, AS STATED IN OECD GUIDELINES AND RELIED ON BY DRP. LD. CIT(DR) ALSO REFERRED TO RULE 10C TO SUBMIT THAT TNMM IS THE MOS T APPROPRIATE METHOD. 5.4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE DETAILS PLACED ON RECORD. AS STATED BY THE LD. COUNSEL, TH E ISSUE OF SELECTING THE IT(TP)A NO.1336/BANG/2012 PAGE 6 OF 32 MOST APPROPRIATE METHOD IN THE EARLIER TWO YEARS HA S BEEN SET ASIDE TO THE TPO. FOR THE AY 2006-07, THE SAME WAS DONE BY WAY OF MISC. APPLICATION AND IN A.Y. 2007-08, CONSEQUENT TO EARLIER YEARS O RDER, THE BENCH HAS SET ASIDE THE ISSUE AGAIN. WITHOUT PREJUDICE TO THE SA ME, THE BENCH HAS ALSO DECIDED THE SAME UNDER TNMM BY EXCLUDING CERTAIN CO MPARABLES AND GIVEN DIRECTIONS IN CASE TNMM IS ACCEPTED AS MOST A PPROPRIATE METHOD. THE LD. COUNSEL, HOWEVER, SUBMITTED THAT DECIDING M OST APPROPRIATE METHOD IS REQUIRED AS THE CONTENTIONS OF THE ASSESSEE AND DEPARTMENT HAVE ALREADY BEEN ON RECORD. WE HAVE CONSIDERED THIS CO NTENTION AND EXAMINED THE ASSESSEES ORIGINAL AS WELL AS REVISED 3ECB REPORT. IN THE ANALYSIS AND SELECTION OF METHOD FOR DETERMINATION OF ALP VIS--VIS EXPORT OF SERVICES, THE ASSESSEE HAS ADOPTED CUP AND ALSO COST PLUS METHOD AS MOST APPROPRIATE METHOD. 5.5 AGAINST THE COST PLUS METHOD, THE ASSESSEE STA TES THAT OECD GUIDELINES CALLED FOR ADOPTION OF THIS METHOD IN CA SES WHERE SEMI-FINISHED GOODS ARE SOLD BETWEEN ASSOCIATES OR WHERE THERE AR E LONG TERM BUY AND SUPPLY ARRANGEMENTS OR IN THE CASE OR PROVISION OF SERVICES, PARTICULARLY WHERE THESE ARE OF SUBSIDIARY OR PERIPHERAL NATURE. IT WAS STATED THAT APPROPRIATE METHOD FOR ATTRACTING R&D SERVICES IS C OST PLUS METHOD WHICH IS IDEALLY SUITED FOR THE CASE OF THE ASSESSEE. IT WAS SUBMITTED THAT ALL COSTS HAVE BEEN CONSIDERED AND ARRIVED AT THE GROSS PROFIT AND OPERATING PROFIT MARGIN OF AROUND 32% IS QUITE REASONABLE. T HE NET MARGIN OF 5% OF OVERALL COST IS ALSO VERY SIGNIFICANT AND REASONABL E, ESPECIALLY BECAUSE THE IT(TP)A NO.1336/BANG/2012 PAGE 7 OF 32 COMPANY DOES NOT RESUME ANY SIGNIFICANT BUSINESS RI SKS. THEREAFTER, THE ASSESSEE HAS TAKEN 15% OF THE PROFITS OF COMPANIES WHO HAVE R&D ACTIVITIES AS PER DECISION OF ITAT IN ROLLS ROYCE CASE AND ANALYSED THE COST PLUS METHOD. 5.6 HOWEVER, AS THE LD. TPO HAS STATED IN THE REPO RT, THERE IS NO DATA FURNISHED BY THE ASSESSEE WITH REFERENCE TO COST PL US METHOD. EVEN WHEN WE ENQUIRED, THE LD. COUNSEL FAIRLY ADMITTED T HAT ASSESSEE WOULD PREFER CUP METHOD OVER COST PLUS METHOD. IN VIEW O F THIS, IN THE ABSENCE OF ANY DATA, WE ARE NOT IN A POSITION TO APPRECIATE THE COST PLUS METHOD. MORE OVER, MOST OF CAPTIVE SERVICE PROVIDES WORK ON COST PLUS METHOD RANGING FROM 5% MARK-UP TO 25% MARK-UP. ALL THE TR ANSACTIONS ARE RELATED PARTY TRANSACTIONS. THEREFORE, UNCONTROLLED COMPARA BLE PRICES ARE GENERALLY NOT AVAILABLE IN THE COST PLUS METHOD. EVEN THE ASS ESSEES ANALYSIS OF 32% GROSS PROFIT AND 5% NET PROFIT CANNOT BE ACCEPT ED AS THERE CANNOT BE ANY GROSS PROFIT IN THE CASE OF ASSESSEE, WHO IS OP ERATING ON COST PLUS METHOD. MORE OVER, EVEN THOUGH THE ASSESSEE IS STAT ED TO HAVE BEEN OPERATING ON COST PLUS 5% METHOD, OP/COST AS COMPUT ED BY THE ASSESSEE ITSELF IS AT 3.2% AND IF FOREIGN EXCHANGE GAIN WAS ADDED TO THE OPERATING MARGIN, THEN ONLY IT COMES TO 5%. GENERALLY IN A C OST PLUS SITUATION, THE ENTIRE COST SPENT BY THE ASSESSEE WITH A MARK-UP OF 5% WOULD BE BILLED TO THE AE ON A PERIODICAL BASIS. THE CONVERSION GENER ALLY DONE AT THE PREVAILING RATE OF USD OR FOREIGN CURRENCY INVOLVED . THEREFORE, THE BASIC CONCEPT IS THE MARGIN WOULD BE ABOUT 5%. IN CASE OF ANY FOREIGN IT(TP)A NO.1336/BANG/2012 PAGE 8 OF 32 EXCHANGE GAIN, THIS COULD INCREASE THE MARGIN TO TH AT EXTENT. IN CASE OF FOREIGN EXCHANGE LOSS ON THE USD / FOREIGN CURRENCY QUOTED BY THE ASSESSEE, THEN THE MARGIN WOULD COME DOWN TO THAT E XTENT. HOWEVER, AS SEEN IN THIS CASE, THE MARGIN WITHOUT FOREIGN EXCHA NGE GAIN ITSELF IS LESS THAN 5%. THEREFORE, IN THE ABSENCE OF CORRECT COST STRUCTURE AND BILLING PROCEDURE, IT IS VERY DIFFICULT TO ACCEPT THE COST PLUS METHOD AND ANALYSE THE ISSUE. 5.7 THE NEXT CONTENTION OF THE ASSESSEE IS WITH RE FERENCE TO CUP METHOD. THE ASSESSEE STATES IN THE ANNEXURE III TO 3CEB REPORT THAT THERE ARE NO INTERNAL COMPARABLES WITHIN THE GROUP AS ENT IRE SERVICES OF ASSESSEE ARE BOUGHT BACK BY AE. OFFSHORE SOFTWARE DEVELOPME NT WORK BY OTHER COMPANIES MAY REPRESENT EXTERNAL COMPARABLES. HOWE VER, DATA IN RESPECT OF THE SAME WHICH IS AVAILABLE IN TERMS OF EUROS PE R HOUR IS NOT COMPARABLE WITHOUT MAKING SUITABLE ADJUSTMENTS TO THE DIFFEREN CES IN THE NATURE AND TERMS OF CONTRACT/TRANSACTIONS. AS NECESSARY INFO RMATION REQUIRED FOR THESE ADJUSTMENTS IS NOT READILY AVAILABLE IN THE P UBLIC DOMAIN, ASSESSEE SUBMITS THAT THIS CANNOT BE DONE. THEREAFTER, ASSE SSEE PROCEEDED TO ANALYSE AND SUBMIT THAT ON A ROUGH AND READY BASIS, THIS ANALYSIS WAS DONE WITH REFERENCE TO RATES CHARGES BY MAJOR INDIA N COMPANIES ALTHOUGH THE FUNCTIONS PERFORMED OR RISK ASSUMED BY THEM ARE SIGNIFICANTLY HIGHER, AS THIS WILL PROVIDE THE CONNECTION OF UPPER PRICE CHARGE AT WHICH ARMS LENGTH TRANSACTIONS TAKES PLACE. THE ASSESSEE HAS GIVEN ANNEXURE-IV WORKING OUT THE USD RATES AND INR RATES WORKED OUT AT RATE PER HOUR TO IT(TP)A NO.1336/BANG/2012 PAGE 9 OF 32 SUBMIT THAT THIS WAS EXTERNAL CUP AND ASSESSEES MA RGIN AT RS.1333.63 IS HIGHER THAN OTHER COMPARABLE COMPANIES. AFTER EXAM INING ANNEXURE-VIII OF THE REPORT, WE HAVE ASKED THE LD. COUNSEL ABOUT THE WORKING ADOPTED BY THE ASSESSEE IN ARRIVING AT THE RATE PER HOUR EITHE R IN USD TERMS OR INR TERMS. IT WAS SUBMITTED THAT BY TAKING GENERAL ACC OUNTS AND ANNUAL REPOT OF THE RESPECTIVE COMPANIES, ASSESSEE HAS DERIVED O FFSHORE CONSULTANCY AMOUNT AND THEREAFTER ASSUMED THE PERSONS WHO HAVE WORKED OFFSHORE AND THEN THE RATE PER DAY AT 20 DAYS PER MONTH WORK ING AND RATE PER HOUR AT 8 HOURS PER DAY, THUS ON VARIOUS ASSUMPTIONS AND PRESUMPTIONS, THE RATE PER HOUR WAS ARRIVED FROM THE TOTAL PROFITS AS REPORTED IN THE PUBLIC DOMAIN. IT WAS FAIRLY ADMITTED THAT RATE PER HOUR IS NOT AVAILABLE FOR STRICT COMPARISON. IT WAS ALSO SUBMITTED THAT THE ASSESSE E HAS NOT TAKEN NASCOM RATES AS THE BASIS IN COMPARING THE RATE PER HOUR. THIS INDICATES THAT ASSESSEES COMPARABILITY UNDER THE CUP METHOD IS BASED ON VARIOUS ASSUMPTIONS OF (A) ESTIMATING THE OFFSHORE PROFITS, (B) ESTIMATING NUMBER OF EMPLOYEES, (C) ESTIMATING THE WORKING HOURS PER EMP LOYEE PER DAY PER MONTH, AND THEN DIVIDING THE PROFIT BY SO MANY ASSU MPTIONS/ NUMBERS. THIS ANALYSIS OF THE ASSESSEE CANNOT BE RELIED ON A S AN EXTERNAL CUP. AS CAN BE SEEN FROM THE ABOVE, THERE IS NO INTERNAL CU P WHICH CAN BE RELIED ON IN ORDER TO ACCEPT THE CUP METHOD. THEREFORE, I N OUR VIEW, THE ANALYSIS UNDERTAKEN BY THE ASSESSEE IS NOT ONLY FAULTY, BUT DEVOID OF ANY DATA OR PROPER ANALYSIS. IN VIEW OF THIS, WE HAVE NO OPTIO N THAN TO ACCEPT THE TPOS CONTENTION OF TNMM AS THE MOST APPROPRIATE ME THOD. IT(TP)A NO.1336/BANG/2012 PAGE 10 OF 32 5.8 UNDER SECTION 92C OF THE ACT, ALP HAS TO BE EX AMINED ADOPTING THE MOST APPROPRIATE METHOD. SECTION 92C PRESCRIBES FI VE METHODS CUP, RPM, CPM, PSM AND TNMM. RULE 10C PROVIDES THE RELE VANT GUIDELINES FOR ANALYZING THE MOST APPROPRIATE METHOD TO BE SEL ECTED. UNDER THE INDIAN TP REGULATIONS, THERE IS NO PRIORITY OR PREF ERENCE TO ANY OF THE METHODS. THERE ARE ALSO NO REGULATIONS WHICH PRESC RIBE ANY CIRCUMSTANCES UNDER WHICH METHOD IS TO BE ADOPTED, EXCEPT FOR PSM. THE ABOVE 5 METHODS ARE CATEGORISED GENERALLY AS 1.TRAD ITIONAL METHODS I.E., CUP, RPM AND CPM, AND 2. TRANSACTIONAL PROFIT METHO DS OF PSM AND TNMM. IN THE ABSENCE OF RELIABLE DATA TO UNDERTAKE THE EXERCISE UNDER THE TRADITIONAL METHODS, THE ONLY OPTION IS GO FOR THE TRANSACTIONAL PROFIT METHODS, WHEN STANDARD METHODS ARE NOT REASONABLY A PPLIED. IN VIEW OF ABSENCE OF RELIABLE DATA EITHER TO ADOPT COST PLUS METHOD OR TO ANALYSE THE DATA ON THE BASIS OF CUP METHOD, EITHER INTERNAL CU P OR EXTERNAL CUP, WE ARE OF THE OPINION THAT UNDER GIVEN FACTS AND CIRCU MSTANCES OF THE CASE, TNMM IS THE ONLY OPTION AVAILABLE TO THE TPO TO ANA LYSE THE ASSESSEES TRANSACTIONS IN ORDER TO ARRIVE AT THE ALP. THEREF ORE, WE REJECT THE ASSESSEES CONTENTIONS ON CUP/CPM AS MOST APPROPRIA TE METHOD AND APPROVE THE APPROACH TAKEN BY THE TPO FOR ANALYZING TRANSACTIONS UNDER TNMM. 6. HAVING DECIDED THE MOST APPROPRIATE METHOD, THE OTHER CONTENTIONS OF THE ASSESSEE ON COMPARABILITY AND WORKING OF OPE RATING MARGINS AND RISK ADJUSTMENT REQUIRE ADJUDICATION. IT(TP)A NO.1336/BANG/2012 PAGE 11 OF 32 6.1 THE FIRST OBJECTION OF THE ASSESSEE IS ON SELEC TION OF CERTAIN COMPARABLE COMPANIES AND REJECTION OF CERTAIN COMPA RABLES SELECTED BY THE ASSESSEE. TPO IN HIS ANALYSIS HAS FINALLY SEL ECTED THE FOLLOWING 20 COMPANIES WITH OP/COST OF 23.65%. THE LIST OF COMP ARABLES ARE AS UNDER: SL. NO NAME OF COMPANY NET MARGINS AS PER TPO ORDER (BEFORE WCA) 1 AVANI CINCOM TECHNOLOGIES 25.62% 2 CELESTIAL BIOLABS 87.94% 3 KALS INFORMATION SYSTEMS LTD. (SEG) 31.29% 4 LUCID SOFTWARE LTD. 16.50% 5 TATA ELXSI (SEG) 18.97% 6 INFOSYS TECHNOLOGIES LTD. 40.37% 7 WIPRO LTD. (SEG) 28.45% 8 BODHTREE CONSULTING LTD. 18.72% 9 THIRDWARE SOLUTION LTD. 19.35% 10 SOFTSOL INDIA LTD. 17.89% 11 E-ZEST SOLUTIONS LTD. 29.81% 12 FLEXTRONICS (ARICENT) 7.86% 13 IGATE GLOBAL SOLUTIONS LTD. 13.99% 14 LGS GLOBAL LTD. 27.52% 15 MINDTREE LTD. 16.41% 16 PERSISTENT SYSTEMS LTD. 20.31% 17 QUINTEGRA SOLUTIONS LTD. 21.74% 18 R S SOFTWARE (INDIA) LTD. 7.41% 19 R SYSTEMS INTERNATIONAL (SEG) 15.30% 20 SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 7.58% ARITHMETIC MEAN 23.65% 6.2 ASSESSEE IS OBJECTING TO THE COMPANIES LISTE D AT SL.NOS. 1 TO 11. THESE COMPANIES ARE ELABORATELY CONSIDERED BY THE C OORDINATE BENCH IN IT(TP)A NO.1336/BANG/2012 PAGE 12 OF 32 THE CASE OF NXP SEMICONDUCTORS , IT(TP)A NO.1560/BANG/2012 DATED 5.3.2015 AS UNDER:- 9. AVANI CINCOM TECHNOLOGIES LTD. 9.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, IN CLUDING THE JUDICIAL DECISIONS CITED BY THE ASSESSEE. WE F IND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M /S. CURAM SOFTWARE INTERNATIONAL PVT. LTD. IN ITA NO.1280/BAN G/2012 DT.31.7.2013 FOR ASSESSMENT YEAR 2008-09, HAS REMAN DED THE MATTER OF EXAMINATION OF THE COMPARABILITY OF T HIS COMPANY TO THE FILE OF THE ASSESSING OFFICER / TPO AFRESH; HOLDING AS UNDER AT PARA 9.5.1 TO 9.5.2 OF ITS ORDE R :- 9.5.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAIN ED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE I NFORMATION SO GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIO NS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPANY IN ITS FINAL LIST OF COMPARABLES. NON-FURNISHING THE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARA BLE. 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTH ORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE THAT THIS CO MPANY HAS TO BE DELETED FROM THE LIST OF COMPARABLES ONLY BEC AUSE IT HAS BEEN DELETED FROM THE SET OF COMPARABLES IN THE CAS E OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ). NO DOUBT THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS ALONE , HOWEVER, WILL NOT SUFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRIOLOGY CASE ARE E QUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE ALSO . UNLESS THE FACTS AND THE FAR ANALYSIS OF TRIOLOGY CASE IS COMP ARABLE TO IT(TP)A NO.1336/BANG/2012 PAGE 13 OF 32 THAT OF THE ASSESSEE IN THE CASE ON HAND, COMPARISO N BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE CO MPARABILITY BETWEEN THE ASSESSEE AND THE TRIOLOGY CASE, THE ASS ESSEE ALSO NEEDS TO DEMONSTRATE THAT THE FACTS APPLICABLE TO T HE ASSESSMENT YEAR 2007-08, THE YEAR FOR WHICH THE DEC ISION IN CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) WAS RENDERED ARE ALSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE A SSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE APPLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALL Y AND MADE APPLICABLE TO SUBSEQUENT YEARS. TO DO THAT, IT IS NECESSARY TO FIRST ESTABLISH THAT THE FACTS AND ATTENDANT FACTOR S HAVE REMAINED THE SAME SO THAT THE FACTORS OF COMPARABIL ITY ARE THE SAME. VIEWED IN THAT CONTEXT, THE ASSESSEE HAS NOT DISCHARGED THE ONUS UPON IT TO ESTABLISH THAT THE DECISION REN DERED IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TO O OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08. THE AS SESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT THE FACTS OF TR IOLOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE IDEN TICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007-08. IN VIEW OF FACTS AS DISCU SSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARAB ILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERV ATIONS. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESS EE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE AC T AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING H EARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THEREON. IT IS OR DERED ACCORDINGLY. 9.4.2 FOLLOWING THE ABOVE CITED DECISION OF THE CO-ORDINATE BENCH OF ITAT, BANGALORE IN THE CASE OF CURRAM SOFT WARE INTERNATIONAL PVT. LTD. (SUPRA), WE DIRECT THE ASSE SSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH IT(TP)A NO.1336/BANG/2012 PAGE 14 OF 32 BY CONSIDERING THE OBSERVATIONS MADE BY THE TRIBUNA L IN PARAS 9.5.1 TO 9.5.3 OF THE CITED ORDER (REPRODUCED SUPRA). THE ASSESSING OFFICER / TPO IS DIRECTED TO MAKE AVA ILABLE TO THE ASSESSEE INFORMATION OBTAINED UNDER SECTION 133 (6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTU NITY OF BEING HEARD AND MAKE SUBMISSIONS IN THE MATTER, WHI CH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THER EON. IT IS ORDERED ACCORDINGLY. 10. CELESTIAL BIOLABS LTD. 10.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), FOR ASSESSME NT YEAR 2008-09 HAS HELD THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES; HOLDING AS UNDER AT PARAS 9.4. 1 AND 9.4.2 OF ITS ORDER :- 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHIL E IT IS TRUE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSES SEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINU E TO BE APPLICABLE FOR THIS YEAR AS WELL, THE SAME PARITY O F REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A COMPARABLE BASED ON THE REASONING GIVEN IN THE TPOS ORDER FOR THE EARLIER YEAR. IT IS EVI DENTLY CLEAR FROM THIS, THAT THE TPO HAS NOT CARRIED OUT ANY IND EPENDENT FAR ANALYSIS FOR THIS COMPANY FOR THIS YEAR VIZ. AS SESSMENT YEAR 2008-09. TO THAT EXTENT, IN OUR CONSIDERED VI EW, THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIVE AND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICI AL DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS B ROUGHT ON RECORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH TH AT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT C OMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DE CISIONS FOR THE EARLIER YEARS I.E. ASSESSMENT YEAR 2007-08 IS A PPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE IT(TP)A NO.1336/BANG/2012 PAGE 15 OF 32 ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFEREN T FROM THE ASSESSEE. IT HAS ALSO BEEN SO HELD BY CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08 (SUPRA) AS WELL AS IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). IN VIEW OF THE F ACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWI NG THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRIOLOGY E-BUSINESS SOFTWARE I NDIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT TH IS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPAR ABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 10.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS LTD. (SUPRA), WE DIRECT THE ASSESSING OFF ICER / TPO TO OMIT THIS COMPANY FROM THE FINAL SET OF COMPARAB LES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND, WHO IS PURELY A PROVIDER OF SOFTWARE DEVELOPM ENT SERVICES. 11. KALS INFORMATION SYSTEM LTD. 11.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), FOR ASSESSME NT YEAR 2008-09 HAS EXCLUDED THIS COMPANY AS A COMPARABL E, OBSERVING THAT IT WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY A SOFTWARE SERVICE PROVIDER AND AT PARA 10.4 THEREOF IT WAS HELD AS UNDER :- 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM TH E RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPAR ABILITY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATION O BTAINED U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USED BY THE TP O, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT O F THE COMPANY, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF IT(TP)A NO.1336/BANG/2012 PAGE 16 OF 32 THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08 (SUPRA) AND IN THE CASE OF TRIOLOGY E-BUSI NESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THI S COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APART FROM REL YING OF THE ABOVE CITED DECISIONS OF CO-ORDINATE BENCHES OF THE TRIBUNAL (SUPRA), THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANN UAL REPORT TO ESTABLISH THAT THIS COMPANY IS FUNCTIONAL LY DIS- SIMILAR AND DIFFERENT FORM THE ASSESSEE AND THAT SI NCE THE FINDINGS RENDERED IN THE DECISIONS OF THE CO-ORDINA TE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 (CITED SUPRA) ARE APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2 008-09 ALSO, THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LI ST OF COMPARABLES. IN THIS VIEW OF THE MATTER, WE HOLD T HAT THIS COMPANY I.E. KALS INFORMATION SYSTEMS LTD., IS TO B E OMITTED FROM THE LIST OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 11.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS LTD. (SUPRA), WE DIRECT THE ASSESSING OFF ICER / TPO TO OMIT THIS COMPANY FROM THE FINAL SET OF COMPARAB LES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND, WHO IS PURELY A SOFTWARE SERVICE PROVIDER. 18. LUCID SOFTWARE LTD. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; IN CLUDING THE JUDICIAL DECISION CITED AND PLACED RELIANCE UPO N. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR ASSE SSMENT YEAR 2008-09 HAS HELD THAT THIS COMPANY HAS TO BE E XCLUDED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPME NT SERVICE PROVIDERS AS IT IS ENGAGED IN SOFTWARE PRODUCT DEVE LOPMENT AND THE RELEVANT OBSERVATIONS OF THE ORDER AT PARA 16.3 THEREOF IS EXTRACTED HEREUNDER :- 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID S OFTWARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRO DUCTS WHEREAS THE ASSESSEE, IN THE CASE ON HAND, IS IN TH E BUSINESS OF IT(TP)A NO.1336/BANG/2012 PAGE 17 OF 32 PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO F IND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE 'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/20 11), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD . (SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE CASE OF TRANSWITCH INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PROD UCT DEVELOPMENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONALLY DIFFERENT AND DIS-SIMILAR AND IS THERE FORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVIDERS. THE ASSESSEE HAS AL SO BROUGHT ON RECORD DETAILS TO DEMONSTRATE THAT THE F ACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO THIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I.E. ASSES SMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSE SSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL AND OF THE ITAT, MUMBAI AND DELHI BENCHES (SUPRA), WE D IRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPA RABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 18.3.2 FOLLOWING THE DECISION OF THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SO LUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLE S AS IT IS FUNCTIONALLY DIFFERENT; (BEING ENGAGED IN SOFTWARE PRODUCT DEVELOPMENT) FROM THE ASSESSEE IN THE CASE ON HAND WHO IS RENDERING ONLY SOFTWARE DEVELOPMENT SERVICES. IT I S ORDERED ACCORDINGLY. 14. TATA ELXSI LTD. 14.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED. WE FIND THAT A CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SO LUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAS HELD T HAT SINCE THIS COMPANY BEING PREDOMINANTLY ENGAGED IN PRODUC T DESIGN SERVICES, IT CANNOT BE CONSIDERED COMPARABL E TO A PURE SOFTWARE SERVICE PROVIDER AND EXCLUDED IT FROM THE LIST OF COMPARABLES HOLDING AS UNDER AT PARAS 13.4.1 AND 13 .4.2 OF ITS ORDER, WHICH IS EXTRACTED HEREUNDER :- IT(TP)A NO.1336/BANG/2012 PAGE 18 OF 32 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFU LLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FRO M THE DETAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE DEVEL OPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SI MILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. 13.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE O F TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MUM/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE RELEV ANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFEREN T FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE O F PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED I N PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALE S HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FRO M PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETER MINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REP ORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTA INING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 20 07-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD TH AT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN TH E SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACC ORDINGLY. 14.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SO FTWARE SOLUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIS T OF COMPARABLES AS IT IS PREDOMINANTLY ENGAGED IN A VAR IETY OF FUNCTIONS LIKE PRODUCT DESIGNING SERVICES AND NO T PURELY IT(TP)A NO.1336/BANG/2012 PAGE 19 OF 32 SOFTWARE DEVELOPMENT SERVICES LIKE THE ASSESSEE IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 12. INFOSYS TECHNOLOGIES LTD. 12.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), FOR ASSESSME NT YEAR 2008-09 HAD HELD THAT THIS COMPANY BE EXCLUDED FROM THE FINAL SET OF COMPARABLES ON THE GROUND THAT IT IS F UNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM A PURELY SOFTWARE SE RVICE PROVIDER AND AT PARA 11.4 OF THE ORDER HAS HELD AS UNDER :- 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIM ILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPAR ABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-BUSIN ESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEA R 2007-08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED T O CONCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SIN CE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES F ROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAKU P OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPA NY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. I T IS ORDERED ACCORDINGLY. 12.4.2 FOLLOWING THE ABOVE DECISION OF THE CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS LTD. (SUPRA), WE DIRECT THE ASSESSING OFF ICER / TPO TO OMIT THIS COMPANY FROM THE FINAL SET OF COMPARAB LES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND, WHO IS PURELY A SOFTWARE SERVICE PROVIDER. 13. WIPRO LTD. 13.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISIONS CITED. WE FIND THAT A CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SO LUTIONS IT(TP)A NO.1336/BANG/2012 PAGE 20 OF 32 LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAS HELD T HAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPA RABLES HOLDING AS UNDER AT PARAS 12.4.1 AND 12.4.2 OF ITS ORDER, WHICH IS EXTRACTED HEREUNDER :- 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN TH AT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMAT ION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW T HE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER M AJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE T PO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INT ELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVE RAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS H ELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARE D TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DO ES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE C ONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DI RECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YE AR UNDER CONSIDERATION. 13.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL (SUPRA), WE DIRECT THE TPO T O EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPME NT, OWNS IPRS, INTANGIBLES, ETC. AND CANNOT BE HELD AS IT(TP)A NO.1336/BANG/2012 PAGE 21 OF 32 COMPARABLE TO A PURE SOFTWARE SERVICE PROVIDER, AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ORDERED ACCORD INGLY. 15. BODHTREE CONSULTING LTD. 15.3.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL DECISIONS CITED BY THE LD. A.R. WE FIND T HAT THIS COMPANY HAS BEEN EXCLUDED FROM THE SET OF COMPARABL ES FOR SOFTWARE DEVELOPMENT SERVICE COMPANIES IN BOTH THE AFORESAID DECISIONS CITED BY THE ASSESSEE. IN MIND TECH (INDIA) LTD., THE RELEVANT PORTION OF THE ORDER AT PARA 16 THEREOF IT HAS BEEN HELD AS UNDER :- 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TH E SPECIAL BENCH OF THE ITAT IN THE CASE OF MAERSK GLO BAL CENTRES (SUPRA) HAD AN OCCASION TO DEAL WITH THE QU ESTION AS TO WHETHER HIGH PROFIT MARGIN MAKING COMPANIES SHOU LD BE EXCLUDED AS A COMPARABLE. THE SPECIAL BENCH AFTER CONSIDERING SEVERAL ASPECTS HELD IN PARA 88 OF ITS ORDER THAT THE POTENTIAL COMPARABLE COMPANIES CANNOT BE EXCLUD ED MERELY ON THE GROUND THAT THEIR PROFIT IS ABNORMALL Y HIGH. THE SPECIAL BENCH HELD THAT IN SUCH CASES IT WOULD REQUIRE FURTHER INVESTIGATION TO ASCERTAIN THE REASONS FOR UNUSUALLY HIGH PROFIT AND IN ORDER TO ESTABLISH WHETHER THE E NTITIES WITH SUCH HIGH PROFITS CAN BE TAKEN AS COMPARABLE OR NOT . IN THE LIGHT OF THE AFORESAID DECISION OF THE SPECIAL BENC H AND IN VIEW OF THE ADMITTED POSITION THAT THE ASSESSEE FOL LOWS FIXED PRICE PROJECT MODEL WHERE REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOP ED AND BILLED TO CLIENTS, THERE IS A POSSIBILITY OF THE EX PENDITURE IN RELATION TO THE REVENUE BEING BOOKED IN THE EARLIER YEAR. THE RESULTS OF BODHTREE FROM FY 2003 TO 2008 EXCLUDING FY 2007 AS GIVEN BY THE LEARNED COUNSEL FOR THE ASSESSEE WE RE ALSO PERUSED. PERUSAL OF THE SAME SHOWS, THAT THERE HAS BEEN A CONSISTENT CHANGE IN THE OPERATING MARGINS. THE CH ART FILED BY THE ASSESSEE IN THIS REGARD IS GIVEN AS AN ANNEX URE TO THIS ORDER. IT APPEARS TO US THAT THE REVENUE RECOGNITI ON METHOD FOLLOWED BY THE ASSESSEE IS THE REASON FOR THE DRAS TIC VARIATION IN THE PROFIT MARGINS OF THIS COMPANY. IN THE GIVE N CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT WOULD BE SAFE TO EXCLUDE BODHTREE CONSULTING FROM THE FINAL LIST OF COMPARABLES CHOSEN BY THE ASSESSEE. WE HOLD AND DI RECT ACCORDINGLY. IT(TP)A NO.1336/BANG/2012 PAGE 22 OF 32 THE RELEVANT PORTION OF THE ORDER IN THE CASE OF CISCO SYSTEMS (INDIA) PVT. LTD. (SUPRA) AT PARA 26.1 IS E XTRACTED HEREUNDER :- 26.1 BODHTREE CONSULTING LTD.:- AS FAR AS THIS CO MPANY IS CONCERNED, IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES CHOSEN BY THE ASSESSEE, THIS COMPANY WAS ALSO INCLU DED BY THE ASSESSEE. THE ASSESSEE, HOWEVER, SUBMITS BEFORE US THAT LATER ON IT CAME TO THE ASSESSEES NOTICE THAT THIS COMPANY IS NOT BEING CONSIDERED AS A COMPARABLE COMPANY IN THE CASE OF COMPANIES RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE HAS BROUGH T TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. V. ITO, ITA NO.7633/MUM/2012, ORDER DATED 6.11.2013. IN THIS CA SE, THE TRIBUNAL FOLLOWED THE DECISION RENDERED BY THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSI NG SERVICES (I) P. LTD., ITA NO.4547/MUM/2012. IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKEN THE VIEW THAT BOD HTREE CONSULTING LTD. IS IN THE BUSINESS OF SOFTWARE PROD UCTS AND WAS ENGAGED IN PROVIDING OPEN & END TO END WEB SOLU TIONS SOFTWARE CONSULTANCY AND DESIGN & DEVELOPMENT OF SO FTWARE USING LATEST TECHNOLOGY. THE DECISION RENDERED BY T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) IS IN RELATION TO A.Y. 2 008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO RE MAINS IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREV AILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNE D. FOLLOWING THE AFORESAID DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL, WE HOLD THAT BODHTREE CONSULTING LTD. CAN NOT BE REGARDED AS A COMPARABLE. IN THIS REGARDS, THE FACT THAT THE ASSESSEE HAD ITSELF PROPOSED THIS COMPANY AS COMPAR ABLE, IN OUR OPINION, SHOULD NOT BE THE BASIS ON WHICH THE S AID COMPANY SHOULD BE RETAINED AS A COMPARABLE, WHEN FA CTUALLY IT IS SHOWN THAT THE SAID COMPANY IS A SOFTWARE PRO DUCT COMPANY AND NOT A SOFTWARE DEVELOPMENT SERVICES COM PANY. 15.3.2 IT IS ALSO SEEN THAT THE DECISION RE LIED ON BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ABOVE MEN TIONED CASE; CISCO SYSTEMS (INDIA) PVT. LTD. (SUPRA), HAS BEEN IN RELATION TO ASSESSMENT YEAR 2008-09 AND THEREFORE W E FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE FI NDING IT(TP)A NO.1336/BANG/2012 PAGE 23 OF 32 RENDERED IN THE ABOVE CITED DECISION APPLIES TO THE FACTS AND CIRCUMSTANCES OF THE CASE ON HAND, WHICH IS FOR ASS ESSMENT YEAR 2008-09. IN THIS VIEW OF THE MATTER, FOLLOWIN G THE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE DIRECT THE TPO TO INCLUDE THIS COMPANY FORM THE SET OF COM PARABLE COMPANIES TO BE APPLIED TO THE ASSESSEE. IT IS ORD ERED ACCORDINGLY. 17. THIRDWARE SOLUTIONS LTD. 17.3.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT A CO-ORDINATE BENCH OF ITAT, BANGALORE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAS EXCLUDED THIS COMPANY FROM THE SET OF COMPARABL ES TO A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER SINCE TH IS COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. THE RELEVANT PORTION OF THE ABOVE ORD ER AT PARA 15.3 THEREOF IS EXTRACTED HEREUNDER :- 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LO SS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PROD UCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS P VT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DE VELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPA RABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 17.3.2 FOLLOWING THE DECISION OF THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE S OLUTIONS LTD. (SUPRA) FOR 2008-09, WE DIRECT THE TPO TO EXCL UDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT IS FUNCT IONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND WHO IS IT(TP)A NO.1336/BANG/2012 PAGE 24 OF 32 RENDERING PURELY SOFTWARE DEVELOPMENT SERVICES. IT IS ORDERED ACCORDINGLY. 21. SOFTSOL INDIA LTD. 21.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. W E FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS OR DER IN THE CASE OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLES HOLDING AS UNDER AT PARA 19.3 THEREOF :- 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND C AREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 HAS EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES F OR THE REASON THAT RPT IS IN EXCESS OF 15% FOLLOWING THE D ECISION OF ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2011. AS THE FACTS FOR THIS YEAR ARE SIMILAR AND MATERIAL ON REC ORD ALSO INDICATES THAT RPT IS 18.3%, FOLLOWING THE AFORE CI TED DECISIONS OF THE CO-ORDINATE BENCHES (SUPRA), WE HO LD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABL ES TO THE ASSESSEE IN THE CASE ON HAND. 21.4.2 FOLLOWING THE DECISION OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SO LUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09, AND 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2011, WE DIRECT THE A.O / TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT HAS RPT OF 18.30% WHICH IS IN EXC ESS OF 15%. IT IS ORDERED ACCORDINGLY. 16. E-ZEST SOLUTIONS LTD. 16.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED A ND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT A CO-ORDINATE BENCH OF ITAT, BANGALORE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008-09 HAD EXCLUDED THIS COMPANY FROM THE LIST OF COMPARAB LES HOLDING THAT THIS COMPANY IS INTO RENDERING OF PROD UCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S IN THE CATEGORY OF KPO SERVICES AND THEREFORE CANNOT BE CO NSIDERED IT(TP)A NO.1336/BANG/2012 PAGE 25 OF 32 AS COMPARABLE TO AN ASSESSEE RENDERING PURELY SOFTW ARE DEVELOPMENT SERVICES. THE RELEVANT PORTION OF THE ORDER OF THE CO-ORDINATE BENCH AT PARA 14.4 THEREOF IS AS UN DER :- 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY I N THE LIST OF COMPARABLES ONLY ON THE BASIS OF THE STATEMENT M ADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 13 3(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER T HE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO T HE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I. E. E-ZEST SOLUTIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SE RVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CA TEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATIO N SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT C OMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF TH E CO- ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFO RESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUT IONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 16.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWAR E SOLUTIONS LTD. (SUPRA), WE DIRECT THE A.O. / TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CAS E ON HAND WHO IS RENDERING PURELY SOFTWARE DEVELOPMENT SERVIC ES. IT IS ORDERED ACCORDINGLY. 6.3. NOT ONLY IN THE ABOVE CASE, IN OTHER C ASES GIVEN BELOW ALSO THE SAME DECISION WAS TAKEN :- IT(TP)A NO.1336/BANG/2012 PAGE 26 OF 32 (A) 3DPLM SOFTWARE SOLUTIONS LTD. V. DCIT, IT(TP)A NO.1303/BANG/2012 DATED 28.11.2013. (B) CURAM SOFTWARE INTERNATIONAL PVT. LTD. V. ITO, ITA NO.1280/BANG/2012 DATED 31.7.2013. (C) INVENSYS DEVELOPMENT CENTRE INDIA PVT. LTD., IT(TP) A NO.1692/HYD/2012 DTD. 12.11.2014. (D) NET CRACKER TECHNOLOGY SOLUTIONS INDIA PVT. LTD., I T(TP)A NO.86/HYD/2013 DTD. 17.6.2015. THE OBJECTIONS OF ASSESSEE ARE SIMILAR TO THE ABOVE AND FACTS BEING THE SAME, WE DIRECT THE TPO TO EXCLUDE THEM FROM TH E LIST OF COMPARABLES. THE GROUNDS RAISED BY THE ASSESSEE AR E ALLOWED ACCORDINGLY. 7. ASSESSEE REQUESTED FOR INCLUSION OF THE FOLLOWIN G TWO COMPANIES REJECTED BY THE TPO:- (1) ADITYA BIRLA MINACS IT SERVICES LTD. (2) ADITYA BIRLA MINACS TECHNOLOGIES LTD. 7.1 THE REASON FOR REJECTION OF THE ABOVE CO MPANIES WAS THAT THEY FAILED RPT FILTER. THE OBJECTION OF THE ASSESSEE W AS THAT TPO HAS INCLUDED THE REIMBURSEMENT COST IN OPERATING COST. IT IS SU BMITTED THAT THE REIMBURSEMENT COST DOES NOT HAVE ANY EFFECT ON PROF ITABILITY AND IF THEY ARE EXCLUDED, THEN THEY ARE WITHIN THE FILTER RANGE ADO PTED BY THE TPO. DETAILED OBJECTIONS AND WORKING AS PROVIDED IN OBJE CTIONS TO DRP AT PAGE 72 TO 74 ARE REFERRED IN SUPPORT OF THE CONTENTIONS . IT(TP)A NO.1336/BANG/2012 PAGE 27 OF 32 7.2 THE ABOVE COMPANIES WERE CONSIDERED BY T HE COORDINATE BENCH IN THE CASE OF YODLEE INFOTECH PVT. LTD. IN IT(TP)A NO.1538/BANG/2012 DATED 30.8.2013 WHEREIN VIDE PARA 25 AND 26, THE BENCH DIRECTED AS UNDER:- 25.0 ADITYA BIRLA MINACS IT SERVICES 25.1 THIS COMPANY WAS SELECTED BY THE TPO ON THE BASIS OF THE SEARCH CONDUCTED BY HIM AND WAS PROPOSED AS A COMPARABLE COMPANY IN THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE. THE ASSESSEE HAD NO OBJECTION TO THE INCL USION OF THIS COMPANY IN THE SET OF COMPARABLES. THE TPO, HO WEVER, EXCLUDED THIS COMPANY FROM THE FINAL SET OF COMPARA BLES FOR THE REASON THAT THIS COMPANY FAILED THE RELATED PAR TY TRANSACTION (RPT) FILTER, HAVING 33.65% RPT. 25.2 IN THIS APPEAL BEFORE US, THE LEARNED AUTHORI SED REPRESENTATIVE CONTENDED THAT THE REASON FAR WHICH THE TPO HAS REJECTED THIS COMPANY AS A COMPARABLE IS INCORR ECT SINCE HE HAD CALCULATED THE RPT FIGURE AT 33.6% WRONGLY. IT IS SUBMITTED THAT THE RPT FOR THIS COMPANY IS ONLY 5.0 3% AND THAT THE TPO HAS COMPUTED THE SAME WRONGLY BY CONSI DERING REIMBURSEMENTS ALSO AS RPT. IN VIEW OF THIS, THE LE ARNED AUTHORISED REPRESENTATIVE PRAYED THAT THE TPO / A.O . BE DIRECTED TO INCLUDE THIS COMPANY IN THE FINAL SET O F COMPARABLES. 25.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE TPO IN E XCLUDING THIS COMPANY FROM THE FINAL SET OF COMPARABLES ON T HE GROUND THAT IT FAILED THE RPT FILTER APPLIED BY THE TPO. 25.4 WE HAVE HEARD BOTH PARTIES ARID PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS DEAR FROM THE RECORD THAT THE TPQ HAD ACTUALLY PROPOSED THIS COMPANY FOR INCLUSION AS A COMPARABLE BASED ON THE SEARCH P ROCESS CARRIED OUT BY HIM. IN THE SEARCH PROCESS THE TP0 H AD APPLIED THE RPT FILTER AT 25%. IT IS SEEN THAT AFTE R HAVING SELECTED THIS COMPANY AS A COMPARABLE AFTER USING T HE RPT FILTER, THE TPO REJECTED THE CASE ON THE VERY SAME ISSUE OF RPT FILTER. EVIDENTLY, THEREFORE THE COMPUTATION OF RPT IS ERRONEOUS IN EITHER ONE OF THE TWO COMPUTATIONS MAD E BY THE TPO. WE FIND THAT THE TPO HAS NOT EXPLAINED HIS COMPUTATION OF THE RPT FILTER, EITHER IN THE SHOW C AUSE NOTICE IT(TP)A NO.1336/BANG/2012 PAGE 28 OF 32 WHILE SELECTING THE COMPANY AS A COMPARABLE OR IN T HE TP ORDER WHILE REJECTING THE COMPANY AS A COMPARABLE. IN THIS VIEW OF THE MATTER, WE DEEM IT FIT TO REMAND THE IS SUE OF THE COMPARABILITY OF THIS COMPANY TO THE FILE OF THE TP O FOR FRESH CONSIDERATION AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND MAKING SUBMISSIONS T HEREON WHICH SHALL BE CONSIDERED BY THE TPO BEFORE TAKING A DECISION IN THE MATTER. 26. ADITYA BIRLA MINACS TECHNOLOGIES LTD. 26.1 THIS COMPANY WAS SELECTED BY THE TPO ON THE B ASIS OF THE SEARCH CONDUCTED BY HIM AND WAS PROPOSED AS A COMPARABLE COMPANY IN THE SHOW CAUSE NOTICE ISSUED TO THE ASSESSES. THE ASSESSEE HAD NO OBJECTION TO THE INCL USION OF THIS COMPANY IN THE SET OF COMPARABLES. THE TPO, H OWEVER, EXCLUDED THIS COMPANY FROM THE FINAL SET OF COMPARA BLES FOR THE REASON THAT THIS COMPANY FAILED THE RELATED PAR TY TRANSACTION FILTER, HAVING 94.08% RPT. 26.2 IN THIS APPEAL BEFORE US, THE LEARNED AUTHORI SED REPRESENTATIVE CONTENDED THAT THE REASON FOR WHICH THE TPO HAS REJECTED THIS COMPANY AS A COMPARABLE IS INCORR ECT SINCE HE HAD CALCULATED THE RPT FIGURE AT 94.08% WRONGLY. IT IS SUBMITTED THAT THE RPT FOR THIS COMPANY IS ONLY 7.4 3% AND THAT THE TPO HAS COMPUTED THE SOME WRONGLY BY CONSI DERING REIMBURSEMENTS ALSO AS RPT. IN VIEW OF THIS THE LEA RNED AUTHORISED REPRESENTATIVE PRAYED THAT THE TPO/AO BE DIRECTED TO INCLUDE THIS COMPANY IN THE FINAL SET O F COMPARABLES. 26.3 PER CONTRA THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ORDERS OF THE TPO IN EXCLUDING THIS C OMPANY FROM THE FINAL SET OF COMPARABLES ON THE GROUND THA T IT FAILED THE RPT FILTER APPLIED BY THE TPO. 26.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS CLEAR FROM THE RECORD THAT THE TPO HAD ACTUALLY PROPOSED THIS COMPANY FOR INCLUSION AS A COMPARABLE BASED ON THE SEARCH P ROCESS CARRIED OUT BY HIM. IN THE SEARCH PROCESS, THE TPO HAD APPLIED THE RPT FILTER AT 25%. IT IS SEEN THAT AFTE R HAVING SELECTED THIS COMPANY AS A COMPARABLE AFTER USING T HE RPT FILTER, THE TPO REJECTED THE CASE ON THE VERY SAME ISSUE OF RPT FILTER. EVIDENTLY, THEREFORE, THE COMPUTATION O F RPT IS ERRONEOUS IN EITHER ONE OF THE TWO COMPUTATIONS MAD E BY THE IT(TP)A NO.1336/BANG/2012 PAGE 29 OF 32 TPO. WE FIND THAT THE TPO HAS NOT EXPLAINED HIS COMPUTATION EITHER IN THE SHOW CAUSE NOTICE WHILE S ELECTING THE COMPANY AS A COMPARABLE OR IN THE TP ORDER WHIL E REJECTING THE COMPANY AS A COMPARABLE. IN THIS VIEW OF THE MATTER WE DEEM IT FIT TO REMAND THE ISSUE OF THE COMPARABILITY OF THIS COMPANY TO THE FILE OF THE TP O FOR FRESH CONSIDERATION AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND MAKING SUBMISSIONS T HEREON WHICH SHALL BE CONSIDERED BY THE TPO BEFORE TAKING DECISION IN THE MATTER. 7.3 EVEN THOUGH THE ASSESSEE CONTENDED THAT TH E REIMBURSEMENT COSTS ARE INCLUDED IN THE WORKING , THE ACTUAL WORKING OF TPO IS NOT VERIFIABLE. THEREFORE, FOLLOWING THE ABOVE ORDER OF COORDINATE BENCH, WE RESTORE THE ISSUE TO THE FILE OF TPO TO EXAMINE THE COMPUTATION AGAIN BY EXCLUDING THE REIMBURSEMENT COST SINCE IT DO NOT HAVE ANY PROFIT MARGIN AND ALSO TO CONSIDER WHETHER THE COMPANIES FAIL THE RPT FILTER OR NOT. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY AND ITS WORKING SHOULD BE CONSIDERED AFTER DUE EXAMINATION. THE GROUNDS RELATING TO THIS ISSUE AR E ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT OBJECTION IS ABOUT EXCLUSION OF FOREIGN EXCHANGE FLUCTUATION FROM THE WORKING OF OPERATING MARGINS OF THE COMPAN Y. THIS ISSUES WAS ALREADY CONSIDERED IN THE ASSESSEES OWN CASE IN A. Y. 2006-07 AS UNDER:- II) FOREIGN EXCHANGE GAINS/LOSS IMPACT (GROUND NO. 12) 5.8 THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINES S HAD DIRECTED THAT THE FOREIGN EXCHANGE GAIN OR LOSS SHO ULD BE CONSIDERED AS OPERATING REVENUE OR COST WHILE COMPU TING THE OPERATING MARGIN OF THE ASSESSEE AS WELL AS THE COM PARABLE. THE RELEVANT FINDING OF THE TRIBUNAL READ AS FOLLOWS: IT(TP)A NO.1336/BANG/2012 PAGE 30 OF 32 79 (B) AS FAR AS FOREIGN EXCHANGE GAIN/LOSS BEING CONSIDER ED AS NOT FORMING PART OF THE OPERATING COST, THE REASONING O F THE REVENUE IS THAT SUCH LOSS OR GAIN CANNOT BE SAID TO BE ONE REALIZED FROM INTERNATIONAL TRANSACTION THOUGH THEY MAY FORM PART OF THE GAIN/LOSS OF THE ENTERPRISE AND THEREFO RE THEY SHOULD BE EXCLUDED WHILE DETERMINING OPERATING COST . ON THE ABOVE ISSUE WE FIND THAT THE BANGALORE BENCH OF ITA T IN THE CASE OF SAP LABS INDIA (P) LTD. VS. ACIT (2011) 44 SOT 156 (BANG.) HAS TAKEN THE VIEW THAT FOREIGN EXCHANGE FL UCTUATION GAINS ARE REQUIRED TO BE ADDED TO OPERATING REVENUE . FOLLOWING THE SAME, THE AO IS DIRECTED TO ACCEPT TH E CLAIM OF THE ASSESSEE IN THIS REGARD...................... 5.8.1 IN CONFORMITY WITH THE ABOVE FINDING, WE DI RECT THE AO/TPO TO CONSIDER THE FOREIGN EXCHANGE GAIN OR LOS S AS PART OF THE OPERATING COST OR REVENUE, AS THE CASE MAY B E, FOR BOTH THE ASSESSEE AS WELL FOR THE COMPARABLE COMPANIES. 8.1 IN CONFORMITY WITH THE ABOVE FINDING, WE DIRECT THE TPO TO CONSIDER ACCORDINGLY. GROUND IS ALLOWED. 9. THE LAST ISSUE FOR CONSIDERATION IS THE ISSUE OF RISK ADJUSTMENT. THIS ISSUE WAS ALSO CONSIDERED AND HELD IN FAVOUR OF ASS ESSEE IN AY 2007-08 IN ASSESSEES OWN CASE AS UNDER:- 5.11 IT WAS THE CASE OF THE ASSESSEE THAT THE AO/ TPO ERRED IN NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFERENCES IN THE RISK PROFILE OF THE ASSESSEE VIS -A-VIS THE COMPARABLES. AT THIS JUNCTURE, WE WOULD LIKE TO REC ALL THAT A SIMILAR ISSUE RAISED BY THE ASSESSEE IN THE IMMEDIA TELY PRECEDING ASSESSMENT YEAR HAS BEEN REMANDED BACK TO THE FILES OF AO/TPO BY THE EARLIER BENCH TO DECIDE THE ISSUE AFRESH. THE ABOVE DIRECTION WAS IN CONFORMITY WITH THE FINDINGS RECORDED IN THE CASE OF M/S. INSILICA SEMI CONDUCTORS IT(TP)A NO.1336/BANG/2012 PAGE 31 OF 32 INDIA PVT. LTD V. ITO [ITA NO.1399/BANG/2010 FOR TH E AY 2006-07 DATED 29.2.2012]. WE ARE, THEREFORE, OF THE VIEW THAT THE FINDINGS OF THE EARLIER BENCH (SUPRA) HOLD GOOD FOR THIS AY ALSO. IT IS ORDERED ACCORDINGLY. 9.1 IN CONFORMITY WITH THE ABOVE FINDING, WE DIRE CT THE TPO TO CONSIDER ACCORDINGLY. GROUND IS ALLOWED. 10. IN CONCLUSION, THE ASSESSING OFFICER/TPO IS DIR ECTED TO WORK OUT THE ALP OF THE ASSESSEE IN ACCORDANCE WITH THE DIRECTIO NS OF THIS BENCH (SUPRA) AND IF FOUND THAT THE DIFFERENTIAL IN THE M ARGIN OF THE ASSESSEE AND THE COMPARABLES IS BEYOND 5% BANDWIDTH RECOGNIZED I N PROVISO TO SECTION 92C(2) OF THE ACT, THEN ADJUSTMENT IS REQUIRED TO B E MADE TO THE REPORTED VALUE OF THE ASSESSEES TRANSACTION WITH ITS AE. IT IS ORDERED ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF MARCH, 2016. SD/- SD/- (NARENDRA KUMAR CHOUDHURY ) ( B. RAMAKOT AIAH ) JUDICIAL MEMBER ACCOUNTAN T MEMBER BANGALORE, DATED, THE 16 TH MARCH, 2016. /D S/ IT(TP)A NO.1336/BANG/2012 PAGE 32 OF 32 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.