M/s Bearingpoint Business Consulting Private Limited, Bangalore V. DCIT, Bangalore

ITA 1380/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7010 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QUERESHI
• Assessee Lawyers: PADAM KHINCHA
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Scheme of amalgamation
• Section: 92C; 143(3); 92E; 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER IT(TP)A NO.1380/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S. BEARINGPOINT PROPERTY SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS BEARING POINT BUSINESS CONSULTING PRIVATE LTD.), SECOND FLOOR, EMBASSY ICON ANNEX, NO.2/1, INFANTRY ROAD, BANGALORE 560 001. PAN : AACCB9758R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAM KHINCHA, C.A. RESPONDENT BY : SHRI FARHAT HUSSAIN QUERESHI,CIT(DR) DATE OF HEARING : 7.08.2014 DATE OF PRONOUNCEMENT : 21.08.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 4.10.2012 OF THE DEPUTY COMMISSIONER OF INCOME-TAX, WARD 11(2), BANGALORE PASSED U/S. 143(3) R.W.S. 144C OF THE ACT. IT(TP)A 1380/BANG/2012 PAGE 2 OF 34 2. GROUND NO. 1 TO 15 RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL ARE WITH REGARD TO THE ADDITION TO THE TOTAL INCOME BY WAY OF ADJUSTMENT TO THE ARMS LENGTH PRICE ( ALP ) TO AN INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESSEE U/S. 92CA OF THE ACT. AT THE TIME OF HEARING OF THE APPEAL IT WAS SUBMITTED THAT THE COMPARABLE COMPANIES CHOS EN BY THE TPO AND THE ADDITION MADE BY THE AO IN THE DRAFT ASSESSMENT ORDER WHICH WAS CONFIRMED BY THE DRP ARE IDENTICAL TO THE CASE DECI DED BY THE TRIBUNAL IN ITA NO.1054/BANG/2011 FOR AY 07-08 IN M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. VS. DCIT, CIRCLE 12(4), BAN GALORE AND 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT IT(TP) A.NO.1303/BANG/2012 ORDER DATED 28.11.2013 . IT WAS ALSO SUBMITTED THAT THE BUSINESS PROFILE OF THE ASSESSEE AND THAT OF THE ASSESSEE IN THE CASE OF M/S.TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA) AND 3DPLM SOFTWARE INDIA PVT.LTD. (SUPRA) ARE ALSO IDENTICAL AND THAT THE DECISION RENDERED IN 3DPLM SOFTWARE INDIA PVT. LTD. , (SUPRA) IS ALSO IN RELATION TO AY 08-09. THIS SU BMISSION WAS FOUND TO BE CORRECT AT THE TIME OF HEARING. WITH THIS BACKG ROUND WE WILL NOW CONSIDER THE FACTUAL BASIS OF THE PRESENT CASE AND THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA). 3. THE ASSESSEE IS A COMPANY. IT RENDERS SOFTWARE DEVELOPMENT AND SYSTEM INTEGRATION SERVICES TO BEARING POINT GROUP AND ITS WORLDWIDE CUSTOMERS. IT IS NOT IN DISPUTE BEFORE US THAT TH E TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO IT S GROUP COMPANIES WAS AN INTERNATIONAL TRANSACTION WITH THE ASSOCIATE D ENTERPRISE ( AE ) AND IT(TP)A 1380/BANG/2012 PAGE 3 OF 34 THEREFORE THE PRICE AT WHICH THE ASSESSEE RENDERS S ERVICES TO ITS AE HAS TO PASS THE ARMS LENGTH PRICE (ALP) TEST AS LAID DOWN BY SECTION 92C OF THE ACT. DURING THE FINANCIAL YEAR 2007-08, THE ASSES SEE PROVIDED SOFTWARE DEVELOPMENT SERVICES TO ITS AE. THE TOTAL VALUE OF INTERNATIONAL TRANSACTION WITH RESPECT TO THE PROVISION OF SOFTWARE DEVELOPME NT SERVICES BY THE ASSESSEE TO ITS AE WAS RS. 53,61,98,058. 4. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRI CE CHARGED BY IT FOR SERVICES RENDERED TO ITS AE WAS AT ARMS LENGTH, TH E ASSESSEE FILED A REPORT AS REQUIRED BY THE PROVISIONS OF SECTION 92E OF THE ACT IN FORM 3EB TOGETHER WITH DETAILED ANALYSIS. THE ASSESSEE ADOP TED TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFITS TO COST WAS ADOPTED AS THE PROFIT LEVEL INDICATOR ( PLI ). THE PLI OF THE ASSESSEE WAS ARRIVED AT AFTER SEGMENTAL ANALYSIS AND AFTER DEDUCTING FOREX LOSS FROM THE COST, AS FO LLOWS: OPERATING REVENUE RS.53,61,98,058 OPERATING COST* RS.47,81,73,205 OPERATING PROFIT RS.5,80,24,853 OP.PR/COST% 12.13% EXCLUDING LOSS ON FOREIGN EXCHANGE FLUCTUATION. 5. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESS EE, THE TPO SELECTED THE FINAL LIST OF 20 COMPARABLES WHICH ARE AS UNDER : SL.NO. NAME OF THE COMPANY OP/TC % 1 AVANI CINCOM TECHNOLOGIES 25.62 2 BODHTREE CONSULTING LTD 18.72 3 CELESTIAL BIOLABS 87.94 4 E-ZEST SOLUTIONS LTD. 29.81 5 FLEXTRONICS (ARICENT) 7.86 6 IGATE GLOBAL SOLUTION LTD. 13.99 7 INFOSYS 40.37 IT(TP)A 1380/BANG/2012 PAGE 4 OF 34 8 KALS INFORMATION SYSTEMS LTD (SEG) 41.94 9 LGS GLOBAL LTD. 27.52 10 MINDTREE LTD (SEG) 16.41 11 PERSISTENT SYSTEMS LTD. 20.31 12 QUINTEGRA SOLUTION LTD. 21.74 13 R SYSTEMS INTERNATIONAL (SEG) 15.30 14 R S SOFTWARE (INDIA) LTD. 7.41 15 SASKEN COMMUNICATIONTECHNOLOGIES LTD. (SEG) 7.58 16 TATA ELXSI (SEG) 18.97 17 THIRDWARE SOLUTION LTD. 19.35 18 WIPRO LTD. (SEG) 28.45 19 SOFTSOL INDIA LTD. 17.89 20 LUCID SOFTWARE LTD. 16.50 AVERAGE 23.65 THE TPO PASSED AN ORDER U/S. 92CA OF THE ACT AND ON THE BASIS OF THE COMPARABLES SET OUT ABOVE, ARRIVED AT ARITHMETIC ME AN OF 23.65%. AFTER FACTORING THE WORKING CAPITAL ADJUSTMENT OF -1.70%, THE ADJUSTED ARITHMETIC MEAN WAS DETERMINED AT 25.35%. THE COMPUTATION OF THE ALP BY THE TPO IN THIS REGARD WAS AS FOLLOWS:- COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY THE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 25.14% LESS: WORKING CAPITAL ADJUSTMENT (ANNEXURE-C) -1.70% ADJ.ARITHMETIC MEAN PLU 25.35% IT(TP)A 1380/BANG/2012 PAGE 5 OF 34 ARMS LENGTH PRICE: OPERATING COST (RS.47,81,73,205 + REIMBURSEMENT OF EXPENSES OF RS.50,65,558) RS.48,32,38,763 ARMS LENGTH MARGIN 25.35% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 123.36% OF OPERATING COST RS.60,57,39,789/- PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE (ALP) AT 123.36% OF OPERATING COST RS.60,57,39,789/- PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS.54,12,63,616 SHORTFALL BEING ADJUSTMENT U/S.92CA RS.6,44,76,173/- THE ABOVE SHORTFALL OF RS.6,44,76,173/- IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN THE SOFTWARE DEVELOP MENT AND MAINTENANCE SERVICES 6. AGAINST THE SAID ADJUSTMENT PROPOSED BY THE TPO WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE A O, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP REJECTED THOSE O BJECTIONS AND CONFIRMED THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO. THE ADJUSTMENT CONFIRMED BY THE DRP WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE BY THE AO IN THE FAIR ORDER OF ASSESSMENT. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRE D THE PRESENT APPEAL BEFORE THE TRIBUNAL. IT(TP)A 1380/BANG/2012 PAGE 6 OF 34 7. THE LD. COUNSEL FOR THE ASSESSEE FILED BEFORE A CHART SHOWING THE COMPANIES OUT OF THE 20 COMPARABLE COMPANIES CHOSEN BY THE TPO, THAT HAVE TO BE EXCLUDED AS LAID DOWN IN DECISIONS REFER RED TO IN THE CHART RENDERED BY THE ITAT BANGALORE BENCH. WE WILL DEAL WITH THE SUBMISSIONS AND THE CHART IN THE FOLLOWING PARAGRAPHS. 8. COMPANIES LISTED AT SL.NO.1, 3 AND 8 HAVE BEEN REGARDED AS FUNCTIONALLY NOT COMPARABLE WITH COMPANIES PROVIDIN G SOFTWARE DEVELOPMENT SERVICES IN THE CASE OF M/S.3DPLM SOFTW ARE SOLUTIONS LTD. (SUPRA). THE FOLLOWING WERE THE RELEVANT OBSERVATI ONS OF THE TRIBUNAL IN THIS REGARD. COMPANIES INCORRECTLY ADOPTED AS COMPARABLES BY THE TPO AS PER THE CONTENTION OF THE ASSESSEE. 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 TO 7.6.1. 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND C AREFULLY 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 INFO RMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARA BLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONL Y ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIE R YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY W AS NOT SELECTED IT(TP)A 1380/BANG/2012 PAGE 7 OF 34 ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY T HE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SE CTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUD ICIAL DECISION CITED ABOVE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS BROUGHT ON RECORD EV IDENCE THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFOR E THE FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES R ENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YE AR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATED BY T HE ASSESSEE, FOLLOWING THE DECISIONS OF THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013, AND I N THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011), WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPARABLES. 8. 9. CELESTIAL BIOLABS LTD. 9.1 TO 9.3.. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS TR UE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND TH ERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLI CABLE FOR THIS YEAR AS WELL, THE SAME PARITY OF REASONING IS APPLI CABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A COMPARABLE BASED ON THE REASONING GIVEN IN THE TPO S ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TPO HAS NOT CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FO R THIS COMPANY FOR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THAT EXTENT, IN OUR CONSIDERED VIEW, THE SELECTION PROCE SS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST O F COMPARABLES IS DEFECTIVE AND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICIA L DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON REC ORD IT(TP)A 1380/BANG/2012 PAGE 8 OF 34 SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND AL SO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EA RLIER YEARS I.E. ASSESSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THI S COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS A LSO BEEN SO HELD BY CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AS WEL L AS IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA). IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDERATION, WHICH FACT HAS ALSO BEEN DEMONSTRATE D BY THE ASSESSEE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRIOLOGY E-BUSI NESS SOFTWARE INDIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED . 10. KALS INFORMATION SYSTEMS LTD. 10.1. TO 10.3 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY 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 OF T HE COMPANY, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTA TIVE. WE ALSO FIND THAT THE CO-ORDINATE BENCHES OF THIS TRIB UNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) AND IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SE RVICE PROVIDER. APART FROM RELYING OF THE ABOVE CITED D ECISIONS OF CO- ORDINATE BENCHES OF THE TRIBUNAL (SUPRA), THE ASSES SEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANYS ANNUAL REPORT TO ESTABLISH THAT THIS COMP ANY IS IT(TP)A 1380/BANG/2012 PAGE 9 OF 34 FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FORM THE ASS ESSEE AND THAT SINCE THE FINDINGS RENDERED IN THE DECISIONS O F THE CO- ORDINATE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YE AR 2007-08 (CITED SUPRA) ARE APPLICABLE FOR THIS YEAR I.E. ASS ESSMENT YEAR 2008-09 ALSO, THIS COMPANY OUGHT TO BE EXCLUDED FRO M THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, WE HOL D THAT THIS COMPANY I.E. KALS INFORMATION SYSTEMS LTD., IS TO B E OMITTED FORM THE LIST OF COMPARABLE COMPANIES. IT IS ORDE RED ACCORDINGLY. . 9. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID 3 COMPANIES SHOULD BE EXCLUDED FROM THE L IST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 10. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR TH E ASSESSEE THAT THE COMPANY AT SL.NO.10 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.LUCID SOFTWARE LTD., HAS TO B E EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID COMPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOFTWARE DEVELOP MENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RE NDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3DPLM SOFTWARE SOL UTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSI ON OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIS ED REPRESENTATIVE SUBMITTED THAT IT(TP)A 1380/BANG/2012 PAGE 10 OF 34 (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY DIFFERENT AND THEREFORE NOT COMPARABLE TO SOFTWARE SERVICE PROVID ERS BY THE ORDER OF A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011). (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE TO SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA PVT. LT D. (ITA NO.1121/BANG/2011) AND CSR INDIA PVT. LTD. [ IT(TP) A NO.1119/BANG/2011 ] AND BY THE DELHI BENCH OF THE T RIBUNAL IN THE CASE OF TRANSWITCH INDIA PVT. LTD. (ITA NO.6083 /DEL/2010). (IV) THE FACTUAL POSITION AND CIRCUMSTANCES PERT AINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSE SSMENT YEAR 2008-09 AND THEREFORE ON THIS BASIS, THIS COMPANY C ANNOT BE CONSIDERED AS A COMPARABLE IN THE CASE ON HAND. (V) THE RELEVANT PORTION OF THE ANNUAL REPORT OF THIS COMPANY EVIDENCES THAT IT IS IN THE BUSINESS OF PRODUCT DEV ELOPMENT. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND THE D ECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE 'S OWN CASE FOR ASSESSMENT YEAR 2007-08 AND OTHER CASES CITED A BOVE, IT IS CLEAR THAT THIS COMPANY BEING INTO PRODUCT DEVELOPM ENT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN TH E CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER AND THEREFO RE THIS COMPANY I.E. LUCID SOFTWARE LTD., OUGHT TO BE OMITT ED FROM THE LIST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCL UDING THIS COMPANY IN THE LIST OF COMPARABLES. IT(TP)A 1380/BANG/2012 PAGE 11 OF 34 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTW ARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHE REAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. ( SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNO LOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE C ASE OF TRANSWITCH INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOP MENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONAL LY DIFFERENT AND DIS-SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVID ERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMO NSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO T HIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDE RATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHE S OF THIS TRIBUNAL AND OF THE ITAT, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST O F COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. 11. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 12. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY AT SL.NO.19 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN IT(TP)A 1380/BANG/2012 PAGE 12 OF 34 BY THE TPO VIZ., M/S.THIRDWARE SOLUTIONS LTD. , HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID COMPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOF TWARE DEVELOPMENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RENDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD . (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: 15. THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LI ST OF COMPARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSESSEE HAS OBJECTE D TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE R EASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACC OUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LT D. (2008-TII- 04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT TH IS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SER VICE PROVIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE AB OVE FACTS AND IN VIEW OF THE AFORECITED DECISION OF THE TRIBUNAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPAR ABLES. IT(TP)A 1380/BANG/2012 PAGE 13 OF 34 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LO SS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVEL OPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY T HE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCO ME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABL E FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASS ESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FA CTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OM ITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSID ERATION IN THE CASE ON HAND. 13. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 14. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY AT SL.NO.12 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.PERSISTENT SYSTEMS LTD., HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID COMPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOF TWARE DEVELOPMENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RENDERED IT(TP)A 1380/BANG/2012 PAGE 14 OF 34 BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3 DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLO WS: 17. PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A CO MPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, I T IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL R ESULTS ARE NOT AVAILABLE. THE TPO REJECTED THE ASSESSEE'S OB JECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE CO MPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEV ELOPMENT COMPANY AND AS PER THE DETAILS FURNISHED IN REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DEVELOPME NT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF T HE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSIS TENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED TH E FUNCTIONALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPAN Y IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVE RAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATI VE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPAN Y FOR F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANT LY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICE S FOR INDEPENDENT SOFTWARE VENDORS AND ENTERPRISES. (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPA NY IS IN THE BUSINESS OF PRODUCT DESIGN SERVICES. IT(TP)A 1380/BANG/2012 PAGE 15 OF 34 (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELE CORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) WHILE DISCUSSI NG THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFT WARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGME NTAL INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR CO MPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INTO PRODUC T DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHICH THE SEGME NTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTED FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIG N SERVICES WHILE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVIC ES PROVIDER. WE FIND THAT, AS SUBMITTED BY THE ASSESSEE, THE SEG MENTAL DETAILS ARE NOT GIVEN SEPARATELY. THEREFORE, FOLLO WING THE PRINCIPLE ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANAL YSIS, WE HOLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGH T TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UN DER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 15. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. IT(TP)A 1380/BANG/2012 PAGE 16 OF 34 16. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY AT SL.NO.13 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.QUINTEGRA SOLUTIONS LTD., HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID COMPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOF TWARE DEVELOPMENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RENDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3 DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLO WS: 18. QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THA T THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THE RE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQU ISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE 'S OBJECTIONS HOLDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF ACQUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT T HE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT H AD AN ANY INFLUENCE ON THE PRICING OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIF FERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. THE ANNUAL REPORT O F THIS COMPANY ALSO STATES THAT IT IS ENGAGED IN PREPARATO RY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESS EE IN THE CASE ON HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERE D BY THE COMPANY ARE DESCRIBED AS UNDER : IT(TP)A 1380/BANG/2012 PAGE 17 OF 34 LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROVIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES), PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVICES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELL ECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF THE COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH IS AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PR ODUCTS DEVELOPED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FO R TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VIZ. INV ESTOR PROTECTION INDEX FUND (IPIF). THESE MEASURES WILL HELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AND ALSO MIT IGATE RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDIN G COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS THE TPOS OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F .Y. 2007-08, THE PERIOD UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA , THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIONALLY DI FFERENT AND POSSESSING ITS OWN INTANGIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES F OR THE PERIOD UNDER CONSIDERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE IT(TP)A 1380/BANG/2012 PAGE 18 OF 34 SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD U NDER CONSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E. QU INTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGINEERING SE RVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND H AS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FOR TRADE MARK REGISTRATION OF ITS PRODUCTS , IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS H ELD THAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FORM THE LIS T OF COMPARABLES, AS IN THE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MA DE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPL E THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER. COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CAS E ON HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCT S AND OWNS ITS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER. 17. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD . (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE IT(TP)A 1380/BANG/2012 PAGE 19 OF 34 COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 18. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY AT SL.NO.17 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.SOFT SOL INDIA LTD., HAS TO B E EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID CO MPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOFTWARE DEVELOP MENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RE NDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: 19. SOFTSOL INDIA LTD. 19.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE ON THE GROUNDS THAT THIS COMPANY IS FUNC TIONALLY DIFFERENT AND DIS-SIMILAR FROM IT. THE TPO REJECTE D THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE COMPANYS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT , THE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER AND THEREFORE INCLUDED THIS COMPANY AS A COMPARABLE AS THE ASSESSEE WAS ALSO A PROVIDER OF SOFTWARE DEVELOPMENT SERVICE S. BEFORE US, IN ADDITION TO THE PLEA THAT THE COMPANY WAS FUNCTI ONALLY DIFFERENT, THE ASSESSEE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE ORDER OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2007-08 (ITA NO.845/BANG/2011) ON T HE GROUND THAT THE RELATED PARTY TRANSACTIONS (RPT) IS IN EXCESS OF 15%. THE LEARNED AUTHORISED REPRESENTATIVE SUBM ITTED THAT FOR THE CURRENT PERIOD UNDER CONSIDERATION, THE RP T IS 18.3% AND THEREFORE THIS COMPANY REQUIRES TO BE OMITTED F ROM THE LIST OF COMPARABLES. 19.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE IT(TP)A 1380/BANG/2012 PAGE 20 OF 34 LIST OF COMPARABLES AS THIS COMPANY WAS A PURE SOFT WARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE. 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY 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 RECORD AL SO INDICATES THAT RPT IS 18.3%, FOLLOWING THE AFORE CITED DECISI ONS OF THE CO- ORDINATE BENCHES (SUPRA), WE HOLD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABLES TO THE ASSESSE E IN THE CASE ON HAND. 19. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 20. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY AT SL.NO.18 OF THE LIST OF FINAL COMPAR ABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.TATA ELXSI LTD., HAS TO BE EX CLUDED FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE SAID CO MPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SOFTWARE DEVELOP MENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RE NDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S.3DPLM SOFTWARE SOL UTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: IT(TP)A 1380/BANG/2012 PAGE 21 OF 34 13. TATA ELXSI LTD. 13.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL C OUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY , BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTI ON PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SE T OF COMPARABLES. 13.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIO NS UNDER SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) V ISUAL COMPUTING LABS AS IS REFLECTED IN THE ANNUAL REPORT OF THE CO MPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT, (I) THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNA L IN THE CASE OF TELECORDIATECHNOLOGIES PVT. LTD. (SUPRA) HAS HE LD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARABLE FOR A S OFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HA VE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 200 8-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A CO MPARABLE TO THE ASSESSEE IN THE CASE ON HAND. (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEV ELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMP ANY THE DESCRIPTION OF THE SEGMENT SOFTWARE DEVELOPMENT SE RVICES RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS I N RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN THE E MBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. IT(TP)A 1380/BANG/2012 PAGE 22 OF 34 THE LEARNED AUTHORISED REPRESENTATIVE PLEADS THAT IN VIEW OF THE ABOVE REASONS, TATA ELXSI LTD. IS CLEAR LY FUNCTIONALLY DIFFERENT / DIS-SIMILAR FROM THE ASSESSEE AND THERE FORE OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS CO MPANY IN THE LIST OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULL Y PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPM ENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGM ENT SOFTWARE DEVELOPMENT SERVICES RELATES TO DESIGN S ERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PE RFORMED BY THE ASSESSEE. 13.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE O F TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEV ELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONAL LY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN 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 RATI O FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, W E ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. IT(TP)A 1380/BANG/2012 PAGE 23 OF 34 AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REP ORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINI NG TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT 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. 21. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE AFORESAID COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 22. IT WAS NEXT SUBMITTED BY THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE COMPANY AT SL.NO.7 AND 20 OF THE LIST OF FINAL COMP ARABLE COMPANIES CHOSEN BY THE TPO VIZ., M/S.INFOSYS LTD. AND M/S.W IPRO LTD., HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES ON T HE GROUND THAT THE SAID COMPANY FUNCTIONALLY DIFFERENT FROM A COMPANY PROVI DING SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD OUR ATTENTION WAS INVITED TO THE DECISION RENDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. B EFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJE CTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER IT(TP)A 1380/BANG/2012 PAGE 24 OF 34 AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN T HE SOFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTH ORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, W HEREAS THE ASSESSEE IS MERELY A SOFTWARE SERVICE PROVIDER OPER ATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTA TIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTAN GIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE A SSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HE NCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSES SEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADIN G TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTI VE SERVICE PROVIDERS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTION S AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT A VAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; IT(TP)A 1380/BANG/2012 PAGE 25 OF 34 (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQU ISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORIS ED REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COM PARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGIN S OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF TH IS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE D ECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMP ARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED 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-SIMILAR AND D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FI NDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICA BLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGU MENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS AL SO SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MAT TER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 12. WIPRO LTD. 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON SEVERAL GROUNDS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, IT(TP)A 1380/BANG/2012 PAGE 26 OF 34 HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESS EE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 12.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. WIPRO LTD ., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOL LOWING REASONS :- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN T HE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENT S AND HAS 62 PENDING APPLICATIONS AND ITS ANNUAL REPORT CONFI RMS THAT IT OWNS PATENTS AND INTANGIBLES. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AG NITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIA NT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING TO H IGHER PROFITS, CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVI CE PROVIDERS ASSUMING LIMITED RISK; (III) THE CO-ORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT F UNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PU RSUANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. (V) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVEL OPMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION IS AV AILABLE ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MA RGINS, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJE CTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. IT(TP)A 1380/BANG/2012 PAGE 27 OF 34 12.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN I NCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY P ERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MER IT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPA NY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMEN T SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATIO N OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TP O APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWAR E DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FIL TER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALY SIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF TH E CONSOLIDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPR IATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS IN TELLECTUAL 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 COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DOES NOT OWN AN Y INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF T HE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. L TD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSI NG OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF CO MPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CO NSIDERATION. 23. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE HOLD THAT THE IT(TP)A 1380/BANG/2012 PAGE 28 OF 34 AFORESAID COMPANIES SHOULD BE EXCLUDED FROM THE LIS T OF COMPARABLE COMPANIES. THE AO IS DIRECTED TO COMPUTE THE ARITH METIC MEAN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 24. THE NEXT ASPECT HIGHLIGHTED BY THE LEARNED COU NSEL FOR THE ASSESSEE WAS THE IMPROPER COMPUTATION OF WORKING CAPITAL ADJ USTMENT BY THE TPO WHICH WAS CONFIRMED BY THE DRP. IN THIS REGARD THE TPO COMPUTED THE WORKING CAPITAL ADJUSTMENT OF -1.70% AS PER ANNEXUR E-C TO THE ORDER OF THE TPO U/S.92CA OF THE ACT. BEFORE THE DRP, THE ASSES SEE SUBMITTED AS FOLLOWS:- 5.12. WORKING CAPITAL ADJUSTMENT THE LEARNED TPO PROVIDED FOR THE WORKING CAPITAL AD JUSTMENT OF -1.70 PERCENT IN THE SHOW CAUSE NOTICE ISSUED. PURS UANT TO WHICH, THE ASSESSEE SUBMITTED AS FOLLOWS: 5.12.1. PLR ADOPTED IS ERRONEOUS THE LEARNED TPO PROPOSED TO ADOPT A PLR OF 12.75 PE RCENT FOR THE PURPOSE OF COMPUTATION OF THE WORKING CAPITAL A DJUSTMENT. IN THIS REGARD, THE ASSESSEE STATED THAT THE RATE OF 1 2.75 PERCENT ADOPTED BY THE LEARNED AO/TPO IS NOT THE PLR FOR TH E FY 2007- 08. THE ASSESSEE PROVIDED ITS COMPUTATION OF WORKING CA PITAL ADJUSTMENT, IN WHICH IT CONSIDERED THE BENCHMARK PR IME LENDING RATE FOR PUBLIC SECTOR BANKS AS PROVIDED IN THE RBI ANNUAL REPORT FOR FY 2007-08. THE ASSESSEE SUBMITTED THE R ELEVANT PORTION OF THE ANNUAL REPORT AS AN ANNEXURE TO OUR SUBMISSIONS DATED OCTOBER 13, 2011. FROM THE TABLE IT WAS EVIDE NT THAT THE BPLR RATE FOR THE SUBJECT FY 2007-08 IS 12.875 PERC ENT (AVERAGE OF 12.25 PERCENT AND 13.50 PERCENT). HENCE IT WAS R EQUESTED TO THE LEARNED TPO TO ADOPT THE COMPUTATION PROVIDED B Y THE ASSESSEE FOR THE WORKING CAPITAL ADJUSTMENT. THE TP O, HOWEVER, PASSED THE TP ORDER BY APPLYING A PLR OF 12.68 PERC ENT AS AGAINST 12.875 PERCENT. IT(TP)A 1380/BANG/2012 PAGE 29 OF 34 5.12.2. COMPUTATION OF WORKING CAPITAL ADJUSTMENT THE LEARNED TPO COMPUTED THE WORKING CAPITAL ADJUST MENT OF -1.70 PERCENT. IN COMPUTING THE WORKING CAPITAL ADJ USTMENT THE LEARNED TPO CONSIDERED THE ERRONEOUS FIGURES FOR CO MPUTING THE AVERAGE WORKING CAPITAL OF BEARINGPOINT. PARTICULARS AMOUNT AS PER YOUR NOTICE AMOUNT IN ANNEXURE TO OUR SUBMISSIONS DATED OCTOBER 13, 2011 WORKING CAPITAL ADJUSTMENT SALES 53,61,98,058 58,87,69,951 OPERATING COST 47,81,73,205 47,82,83,113 OPERATING PROFIT 5,80,24,853 6,04,86,838 THE WORKING CAPITAL ADJUSTMENT WORKS OUT TO BE (+) 1.45 PERCENT. THE ASSESSEE PROVIDED ITS DETAILED WORKINGS OF THE WORKING CAPITAL ADJUSTMENT IN ANNEXURE TO OUR SUBMISSIONS DATED OCT OBER 13, 2011, WHICH IS ENCLOSED AS ATTACHMENT 5 WITH THIS APPLICA TION FOR YOUR PERUSAL. SEGMENT WC ADJUSTMENT AS PER YOUR COMPUTATION WC ADJUSTMENT AS PER OUR COMPUTATION SOFTWARE DEVELOPMENT (-) 1.70 PER CENT (+) 1.45 PE R CENT 25. THE DRP HOWEVER CONFIRMED THE ORDER OF TPO OBS ERVING AS FOLLOWS:- 14.2 THE WORKING CAPITAL ADJUSTMENT HAS BEEN COMP UTED AT (-) 1.7 PERCENT AS PER ANNEXURE-C TO THE ORDER. THE ERROR IN COMPUTATION HAS NOT BEEN POINTED OUT BY THE ASSESSE E. THE WORKING CAPITAL ADJUSTMENT HAS BEEN MADE ON THE BAS IS OF FORMULA AVAILABLE IN ANNEXURE TO THE OECD GUIDELINE S 2010. IN THIS CASE, THE PLR ADOPTED BY SBI, THE LARGEST SCHE DULED BANK FOR SHORT TERM WORKING LOANS RELEVANT FOR THE FY I.E. 1 2.68% P.A. UNDER CONSIDERATION IS CONSIDERED. THIS GROUND IS T HEREFORE REJECTED. 26. BEFORE US IT WAS POINTED OUT BY THE LEARNED CO UNSEL FOR THE ASSESSEE THAT THE DRP HAS NOT APPLIED ITS MIND TO THE SUBMIS SIONS MADE BY THE ASSESSEE REGARDING THE RATE OF PLR. THE ASSESSEE H AS GIVEN A CALCULATION IT(TP)A 1380/BANG/2012 PAGE 30 OF 34 OF WORKING CAPITAL ADJUSTMENT ON THAT BASIS IN RESP ECT OF THE COMPARABLE THAT REMAIN AFTER EXCLUDING COMPANIES REFERRED TO I N THE EARLIER PARAGRAPHS. THE SAME IS GIVEN AS ANNEXURE-I TO THIS ORDER . 27. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO GIVEN A MARGIN TABULATION AND COMPUTATION OF ALP AFTER WORKING CAP ITAL ADJUSTMENT WHICH IS GIVEN AS ANNEXURES II AND III TO THIS ORDER . 28. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTI ES, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE AO/TPO TO CONSIDER THE ISSUE OF WORKING CAPITAL ADJUSTMENT IN THE LIGHT OF ANNEXURE-1 TO THIS ORDER AND SUBMISSIONS MADE BEFORE DRP. THE TPO/AO WILL T HEREAFTER VERIFY THE CHARTS GIVEN AS ANNEXURE-2 AND 3 TO THIS ORDER TO FIND OUT WHETHER THE CLAIM OF THE ASSESSEE IS CORRECT. THE AO/TPO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE CARRYING OUT THE AFORE SAID DIRECTIONS. EXCEPT THE ABOVE SUBMISSIONS, NO OTHER SUBMISSIONS WERE MA DE ON GR.NO.1 TO 15. GROUNDS NO.1 TO 15 ARE DECIDED AS SET OUT IN THE EA RLIER PARAGRAPHS. 29. IN GROUND NO. 16, THE ASSESSEE HAS PROJECTED ITS GRIEVANCE WITH REGARD TO THE ACTION OF THE LEARNED ASSESSING OFFIC ER AND HONORABLE DISPUTE RESOLUTION PANEL EXCLUDING A SUM OF RS. 1,2 6,19,649/- INCURRED ON TELECOMMUNICATION CHARGES, INSURANCE EXPENSES AND T RAVELLING EXPENSES FROM EXPORT TURNOVER ON THE GROUND THAT THESE EXPEN SES ARE INCURRED IN RENDERING TECHNICAL SERVICES RENDERED TO CLIENTS OU TSIDE INDIA WHILE COMPUTING DEDUCTION UNDER SECTION 10A. IT IS THE P LEA OF THE ASSESSEE THAT AT ALL TIMES DURING THE RELEVANT PREVIOUS YEAR, IT WAS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND NOT IN RENDERI NG ANY TECHNICAL SERVICES. WITHOUT PREJUDICE TO ITS CONTENTION THAT THE AFORESAID SUMS SHOULD IT(TP)A 1380/BANG/2012 PAGE 31 OF 34 NOT BE EXCLUDED FROM THE EXPORT TURNOVER WHILE COMP UTING DEDUCTION U/S.10A OF THE ACT, THE ASSESSEE HAS ALSO MADE AN A LTERNATE PRAYER THAT EXPENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER AND IN THIS REGARD HAS PLAC ED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) . THE PLEA OF THE ASSESSEE WAS REJECTED BY THE AO AS WELL AS DRP. 30. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSE E AND THE LD. DR ON THE ISSUE RAISED IN GROUND NO.15. TAKING INTO CONS IDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSI NG OFFICER TO EXCLUDE A SUM OF RS. 1,26,19,649/- INCURRED ON TELECOMMUNICAT ION CHARGES, INSURANCE EXPENSES AND TRAVELLING EXPENSES FROM EXP ORT TURNOVER AND TOTAL TURNOVER, AS HAS BEEN PRAYED FOR BY THE ASSESSEE IN GROUND NO.16. 31. IN GROUND NO.17, THE ASSESSEE HAS PROJECTED T HE FOLLOWING GRIEVANCE:- THE LEARNED ASSESSING OFFICER ALONG WITH THE HON BLE DISPUTE RESOLUTION PANEL HAVE ERRED IN: 17. DISALLOWING AN AMOUNT OF RS.4,74,991/- ON THE G ROUND THAT IT IS PRIOR PERIOD EXPENSES WITHOUT APPRECIATING TH AT SAME REPRESENTED SHORT PROVISION, EXCESS PROVISION OR NO PROVISION OF EARLIER YEARS. 32. THE AO NOTICED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.4,74,991 BEING PRIOR PERIOD EXPENSES. THE AO CALLED UPON TH E ASSESSEE TO EXPLAIN IT(TP)A 1380/BANG/2012 PAGE 32 OF 34 AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. THE A SSESSEE SUBMITTED BEFORE THE AO THAT PRIOR PERIOD EXPENSES CONSISTED OF EXPENSES RELATING TO F.Y. 2006-07 RELEVANT TO A.Y. 2007-08, WHEREIN PROV ISION FOR EXPENSES WERE MADE SHORT OF THE ACTUALS DURING THE PREVIOUS YEAR. WHEN THE ASSESSEE REALIZED THAT THE ACTUAL EXPENSES WERE MUC H MORE THAN WHAT WERE PROVIDED IN THE BOOKS IN THE EARLIER FINANCIAL YEAR, THE SAME WAS DEBITED TO PROFIT & LOSS ACCOUNT. THE ASSESSEE SUB MITTED THAT THE SAME HAS TO BE ALLOWED AS A DEDUCTION. 33. THE AO, HOWEVER, REJECTED THE CLAIM OF THE ASSE SSEE BY OBSERVING THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCO UNTING UNDER WHICH IT WAS REQUIRED TO MAKE PROVISION FOR SUCH CONTINGENCI ES IN THE RELEVANT FINANCIAL YEAR ITSELF. THE ASSESSEE NOT HAVING MAD E THE PROVISION PROPERLY, CANNOT CLAIM THE SAME IN THE SUBSEQUENT ASSESSMENT YEAR. THE AO ULTIMATELY HELD THAT THE EXPENDITURE DEBITED DOES N OT RELATE TO PREVIOUS YEAR AND ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSE E FOR DEDUCTION. 34. ON OBJECTIONS BEING RAISED BY THE ASSESSEE TO T HE DRAFT ASSESSMENT ORDER OF THE AO IN WHICH HE PROPOSED TO MAKE THE DI SALLOWANCE OF PRIOR PERIOD EXPENSES BEFORE THE DRP, THE DRP CONFIRMED T HE ORDER OF THE AO. 35. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ADDITIONAL LIABILITY WAS RECOGNIZED ONLY DURING THE PREVIOUS YEAR AND THE AO DID NOT DISPUTE THE FACT THAT THESE WERE GENUINE BU SINESS EXPENSES, THEREFORE, THE CLAIM OF THE ASSESSEE OUGHT TO HAVE BEEN ALLOWED. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF THE TRIBUN AL:- (1) NATIONAL ALUMINUM CO. LTD. V. DCIT, 101 TTJ 94 8 (CUTTACK) IT(TP)A 1380/BANG/2012 PAGE 33 OF 34 (2) GOETZ INDIA LTD. V. DCIT, 115 ITD 119. IN BOTH THESE DECISIONS, CRYSTALLIZATION OF LIABILI TY DURING THE PREVIOUS YEAR THOUGH THE LIABILITY RELATES TO AN EARLIER PERIOD W AS ALLOWED AS A DEDUCTION. 36. THE LD. DR RELIED ON THE ORDER OF THE AO. 37. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AR E OF THE VIEW THAT IN THE LIGHT OF THE ADMITTED POSITION THAT THE EXPENDI TURE IN QUESTION WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT THE SAME WAS GENUINE, THE FACT THAT THE EXPENDITURE RELATES TO A N EARLIER PERIOD CANNOT BE A GROUND TO DENY THE DEDUCTION, ESPECIALLY WHEN FAC TUALLY CRYSTALLIZATION OF LIABILITY DURING THE PREVIOUS YEAR HAS NOT BEEN DIS PUTED. WE THEREFORE DIRECT THAT THE EXPENSES CLAIMED BY THE ASSESSEE BE ALLOWED. 38. THE OTHER GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL REGARDING THE LEVY OF INTEREST U/S. 234B AND 234C ARE PURELY CONSEQUENTIAL. THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF. 39. NO SUBMISSIONS WERE MADE ON SOME OF THE GROUNDS RAISED IN THE GROUNDS OF APPEAL, AS SUCH THE SAME ARE DISMISSED. 40. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF AUGUST, 2014. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUD EVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 21 ST AUGUST, 2014. / DS / IT(TP)A 1380/BANG/2012 PAGE 34 OF 34 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.