M/s. VeriSign Services India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1404/BANG/2010

• Counselvise Citation: 140421114 RSA 2010
• Duration Of Justice: 4 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 08-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: I P S BINDRA I
• Assessee Lawyers: PRAVIN KISHORE PRASAD
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH A, BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.1404(B)/2010 (ASSESSMENT YEAR : 2006-07) M/S VERISIGN SERVICES INDIA PVT.LTD., SUMMIT NO.6/B, 7 TH MAIN, 3 RD BLOCK, 80 FEET ROAD, KORAMANGALA, BANGALORE 560-034 APPELLANT PAN NO.AAACL8712F VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(5), 14/3, 5 TH FLOOR, R.P.BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560 001 RESPONDENT ASSESSEE BY : SHRI PRAVIN KISHORE PRASAD, ADVOCAT E REVENUE BY : SHRI I.P.S.BINDRA, CIT-DR-I DATE OF HEARING : 14-10-2015 DATE OF PRONOUNCEMENT : 30 -10-2015 O R D E R PER SHRI ABRAHAM P GEORGE, AM: IN THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAIN ST AN ASSESSMENT DONE ON IT U/S 143(3) R.W.S 144C OF THE IT ACT, 196 1(THE ACT) IT HAS ALTOGETHER TAKEN NINE GROUNDS OF WHICH GROUNDS 1,2, 3 & 9 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. ITA NO.1404(B)/10 2 2. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT HE WAS PRESSING ONLY GROUND NOS.4.4, 4.5 AND 4.6 OU T OF THE GROUNDS RAISED ON THE TRANSFER PRICING ISSUES ACCORDINGLY, WE DISMISS GROUND NOS.4.1,4.2,4.3 & 4.7 AS NOT PRESSED. GROUND NOS.4 .4 & 4.5 ARE CONCERNED WITH SELECTION OF COMPARABLES TAKEN BY THE LOWER AU THORITIES FOR BENCH MARKING THE PRICING OF THE INTERNATIONAL TRANSACTIO NS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES (AE) DURIN G THE RELEVANT PREVIOUS YEAR. GROUND NO.4.6 IS ON THE BENEFIT OF +/-5% AS STIPULATED U/S 92C(2) OF THE IT ACT. THESE GROUNDS 4.4 TO 4.6 ARE TAKEN UP TOGETHER FOR DISPOSAL. 3. FACTS APROPOS ARE THAT THE ASSESSEE A WHOLLY OWN ED SUBSIDIARY OF M/S LIGHTSURF TECHNOLOGIES INDIA PVT.LTD., USA HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR ON 29-11-2006 DECLARING AN INCOME OF RS.11,61,159/-. SINCE ASSESSEE HAD INTERNATIONAL T RANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) THE ISSUE OF EVALUATING THE PRICING OF SUCH INTERNATIONAL TRANSACTIONS WAS REFERRED TO THE TPO. THE TPO HAS SUMMARIZED THE BUSINESS PROFILE OF THE ASSESSEE AS UNDER; VERISIGN SERVICES INDIA PROVIDES SOFTWARE DESIGN AND DEVELOPMENT SERVICES TO VERISIGN GROUP, WORKING AS AN INDEPENDENT CONTRACTOR. AS PER THE TAXPAYER, THE SO FTWARE DESIGNED, DEVELOPED, AMENDED, TESTED OR MODIFIED IS THE PROPERTY OF VERISIGN GROUP AND AT NO POINT OF TIME, SUCH OWNERSHIP VESTS WITH VERISIGN SERVICES INDIA EITHER WHOLLY OR IN PART. THE COMPANY IS AN OFFSHORE DEVELOPMENT CENTRE ITA NO.1404(B)/10 3 TO AID THE PARENT COMPANY, WHICH IS PRIMARILY A PRO VIDER OF MMS SERVICES, PICTURE-MESSAGE AND PREMIUM CONTENT DELIVERY. VERISIGN SERVICES INDIA RECEIVES A FIXE D MARK-UP ON THE COSTS INCURRED FOR THE SAID SERVICES. VERISIGN SERVICES INDIA ALSO PROVIDES SALES AND CUSTOMER SUPPORT SERVICES, WHICH CONSISTS OF PRESAL ES SERVICES LIKE DATABASE CREATION, CUSTOMER PRESENTAT IONS ETC. AND POST SALES SERVICES LIKE CUSTOMER SUPPORT TO VE RISIGN GROUP. VERISIGN SERVICES INDIA IS REQUIRED TO PROMO TE THE PRODUCTS, PARTICIPATE IN TRADE EXHIBITIONS AND DEVE LOP AND PROTECT THE GOODWILL AND REPUTATION OF THE PRODUCTS . VERISIGN SERVICES INDIA RECEIVES A FIXED MARK-UP ON THE COSTS INCURRED FOR RENDERING SUCH MARKETING SUPPORT SERVI CES. THE OTHER SUPPORT SERVICES PERFORMED INCLUDE PUBLIC REL ATIONS, MARKETING AND CUSTOMER SUPPORT SERVICES. 4. FINANCIAL RESULTS OF THE ASSESSEE FOR THE RELEVA NT FY: 2005-06 READ AS UNDER; DESCRIPTION AMOUNT OPERATING REVENUE RS.31,19,31,742/ - OPERATING COST RS.28,19,42,969/- OPERATING PROFIT(PBIT) RS.2,99,88,773/ - OPERATING PROFIT TO COST RATIO 10.64% 5. ITS SEGMENTAL RESULTS AND OPERATING PROFIT TO CO ST RATIO, REPORTED BY THE LEARNED TPO READ AS UNDER; ITA NO.1404(B)/10 4 DESCRIPTION SOFTWARE DEVELOPMENT SERVICES MARKETING SUPPORT SERVICES OPERATING REVENUE RS.30,34,90,270/- RS.84,41,472/- OPERATING COST RS.27,41,62,659/- RS.76,48,101/- OPERATING PROFIT (PBIT) RS.2,93,27,611/- RS.7,93,37 1/- OPERATING PROFIT TO COST RATIO 10.70% 10.37% 6. INTERNATIONAL TRANSACTIONS WITH AE REPORTED BY T HE ASSESSEE IN ITS AUDIT REPORT WERE AS UNDER; CONTRACT SOFTWARE DESIGN & DEVELOPMENT SERVICES RS .30,34,90,270/- PROVISION OF MARKETING SUPPORT SERVICES RS. 8 4,41,472/- PURCHASE OF FIXED ASSETS RS. 18,05,200/- RECHARGE OF EXPENSES RS. 2,32,879/- INTEREST PAID/PAYABLE ON LOAN FROM AE RS. 82,230/- 7. THE TPO FOUND ADJUSTMENT NECESSARY ONLY WITH REG ARD TO THE CONTRACT SOFTWARE DESIGN AND DEVELOPMENT SERVICES S EGMENT. THEREFORE, THE ISSUES IN THIS APPEAL ARE ALSO CONFINED TO THIS PARTICULAR SEGMENT. 8. ASSESSEE HAD SELECTED TNM METHOD IN ITS TP STUD Y TO JUSTIFY ITS PROFIT LEVEL AND HAD USED PROWESS AND CAPITAL DATA BASE FOR SELECTING 44 COMPARABLES. IT WORKED OUT A MEAN OPERATING MARGIN OF 11% FOR SUCH COMPARABLES WITHOUT MAKING ANY ADJUSTMENT FOR WORKI NG CAPITAL AND 7% AFTER SUCH ADJUSTMENT. AS PER THE ASSESSEE SINCE T HE AVERAGE PLI AND OF ITA NO.1404(B)/10 5 THE COMPARABLES SELECTED BY IT FELL WITHIN +/- 5% O F ITS OWN PLI, THERE WAS NO NECESSITY FOR ANY ADJUSTMENT TOWARDS ALP. 9. HOWEVER, THE TPO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE EITHER WITH REGARD TO THE WORKING OF THE PLI OR WIT H REGARD TO SELECTION OF THE COMPARABLES. AS PER THE TPO COMPARABLES SELECT ED BY THE ASSESSEE DID NOT SATISFY THE TEST OF FAR ANALYSIS AND OTHER FUNCTIONAL CRITERIA. HE THEREFORE, ACCEPTED ONLY THREE COMPARABLES OUT OF T HE LIST PROVIDED BY THE ASSESSEE. HE ALSO ACCEPTED AN ADDITIONAL COMPARABLE SUGGESTED BY THE ASSESSEE DURING THE COURSE OF PROCEEDINGS BEFORE HI M. THE FOUR COMPARABLES ACCEPTED OUT OF ASSESSEES LIST WERE M/ S AZTEC SOFTWARE LTD. M/S ACCEL TRANSMATICS LTD (SEGMENT) M/S MEGA SOFT L TD., AND SIP TECH. & EXPORTS LTD. THEREAFTER THE TPO CONDUCTED HIS OWN STUDY OF THE PUBLIC DATA BASES AND ZEROED IN ON 20 COMPARABLES INCLUDIN G THE FOUR OF THE ASSESSEE. THE COMPARABLES SELECTED BY THE TPO AND THEIR AVERAGE PLI READ AS UNDER; SL. NO. COMPANY NAME SALES (RS.CR.) OP. TO TOTAL COST% 1 AZTEC SOFTWARE LTD 128.61 18.09 2 GEOMETRIC SOFTWARE LTD (SEG.) 98.59 6.70 3 INFOSYS LIMITED 9028.00 40.38 4 KALS INFO SYSTEMS LIMITED 1.97 39.75 5 MINDTREE CONSULTING LTD 448. 79 14.67 6 PERSISTENT SSYSTEMS LTD 209.18 24.67 7 R SYSTEMS INTERNATIONAL LTD (SEG.) 79.42 22.20 8 SASKEN COMMUNICATION LTD (SEG.) 240.03 13.90 ITA NO.1404(B)/10 6 9 TATA ELXSI LTD (SEG.) 188.81 27.65 10 LUCID SOFTWARE LTD 1.02 8.92 11 MEDIASOFT SOLUTIONS P.LTD 1.76 6.2 9 12 R S SOFTWARE (IND.) LTD 91.57 15.69 13 SIP TECHNOLOGIES & EXPORTS LTD 6.53 3.06 14 BODHTREE CONSULTING LTD 5.32 15.99 15 ACCEL TRANSMATICS LTD (SEG.) 8.02 44.07 16 SYNFOSYS BUSINESS SOLUTIONS LTD 4.49 10.61 17 FLEXTRONICS SOFTWARE SYSTEMS LTD 59 5.12 27.24 18 LANCO GLOBAL SOLUTIONS LTD 35.63 5.27 19 MEGASOFT LTD 56.15 52.74 20 IGATE GLOBAL SOLUTIONS LTD (SEG.) 527.91 15.61 AVERAGE PLI 20.68% HE EFFECTED THE MARGIN OF WORKING CAPITAL ADJUSTMEN T OF 2.24% ON THE MEAN PLI AND ARRIVED AT ADJUSTING THE ARITHMETIC ME AN PLI OF 18.44%. ACCORDINGLY, HE RECOMMENDED THE FOLLOWING ADJUSTMEN T BEING SHORTFALL U/S 92CA OF THE IT ACT, 1961. ARMS LENGTH PRICE OPERATING COST RS.27,42,94,867/ - ARMS LENGTH MARGIN 18.44% OF THE OPERATING COST ARMS LENGTH PRICE(ALP) @118.44% OF OPERATING COST RS.32,48,74,840/ - PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS.30,34,90,270/ - SHORTFALL BEING ADJUSTMENT U/S 92CA RS.2,13,84,570/ - ITA NO.1404(B)/10 7 9. WHEN A PROPOSAL ON THE ABOVE LINES WAS MADE TO T HE ASSESSEE, ASSESSEE CHOSE TO MOVE AN APPLICATION BEFORE THE DR P. THE DRP DID NOT ACCEPT ANY OF THE CONTENTION RAISED BY THE ASSESSEE BEFORE IT EXCEPT FOR COMPUTATION OF OPERATING MARGIN OF MS/S MEGASOFT LT D., ON ACCOUNT OF THIS THE FINAL ADDITION MADE BY THE AO IN THE ASSES SMENT CAME TO RS.2,12,19,994/-. 10. NOW BEFORE US LEARNED AR SUBMITTED THAT THE AD DITIONAL GROUNDS NUMBERING FIVE HAVE BEEN FILED BY THE ASSESSEE. AS PER THE LEARNED AR SUCH ADDITIONAL GROUNDS WERE FOR EXCLUSION OF M/S A ZTEC SOFTWARE LTD. M/S GEOMETRIC SOFTWARE LTD (SEG.) INFOSYS LTD, M/S MIND TREE CONSULTING LTD., M/S PERSISTENT SYSTEM LTD., M/S SASKEN COMMUNICATIO N (SEG.) M/S MEGASOFT LTD AND IGATE GLOBAL SOLUTIONS (SEG.). AS PER THE LEARNED AR OUT OF THESE M/S AZTEC SOFTWARE LTD., M/S ACCEL TRA NSMATICS LTD (SEG.) AND M/S MEGASOFT LTD. WERE A PART OF ASSESSEES STU DY, WHEREAS OTHERS THOUGH WERE TPO SELECTION, WERE ASSAILED BEFORE LOW ER AUTHORITIES FOR EXCLUSION ON DIFFERENT CRITERIA ON FILTERS. LEARNE D AR ALSO SUBMITTED THAT TURNOVER OF THE FOLLOWING COMPARABLES EXCEEDED RS.2 00 CRORES, BUT APPLICATION OF TURNOVER FILTER WAS NOT PUT BEFORE T HE LOWER AUTHORITIES. A. IGATE GLOBAL SOLUTIONS LIMITED B. INFOSYS LIMITED ITA NO.1404(B)/10 8 C. MINDTREE LIMITED D. PERSISTENT SYSTEMS LIMITED E. SASKEN COMMUNICATION LIMITED F. FLEXTRONICS SOFTTWARE SYSTEMS LIMITED FOR ADMITTING THE ADDITIONAL GROUNDS LEARNED AR PLA CED RELIANCE ON THE SPECIAL BENCH DECISION IN THE CASE OF DCIT VS M/S Q UARK SYSTEMS PVT. LTD (2010) 42 DTR 0414. 11. PER CONTRA, LEARNED DR STRONGLY OBJECTING ADMIS SION OF ABOVE ADDITIONAL GROUNDS SUBMITTED THAT IN CASE THESE WER E ADMITTED, THE COMPARABILITY OF THE CONCERNED COMPANIES HAD TO BE REFERRED BACK TO THE AO/TPO FOR VERIFICATION FRESH. 12. AFTER CONSIDERING THE AVERMENTS OF THE COUNSELS WITH REGARD TO ADMISSION OF ADDITIONAL GROUNDS, WE FIND FORCE IN T HE CONTENTION OF THE LEARNED AR THAT BY VIRTUE OF SPECIAL BENCH DECISION IN THE CASE OF M/S QUARK SYSTEMS PVT. LTD (SUPRA), ASSESSEE CAN RAISE ADDITIONAL GROUNDS SEEKING EXCLUSION OF COMPARABLES SELECTED BY IT OR NOT OBJECTED BY IT BEFORE THE LOWER AUTHORITIES. HOWEVER, THE HONBLE PUBJAB & HARYANA HIGH COURT IN (2011) 62 DTR 0182 HAD UPHELD THE SPECIAL BENCH DECISION IN THE CASE OF M/S QUARK SYSTEMS PVT.LTD., ( SUPRA) S PECIFICALLY NOTING THAT THE SPECIAL BENCH HAD REMITTED THE ISSUE OF COMPARA BILITY OF SUCH COMPANIES TO THE AO/TPO FOR VERIFICATION AFRESH. H ENCE, WE ARE ADMITTING THE ADDITIONAL GROUNDS. HOWEVER, THE COMPARABILITY OF THE COMPANIES ITA NO.1404(B)/10 9 ASSAILED IN SUCH ADDITIONAL GROUNDS WILL BE DEALT B Y US, CONSIDERING THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT JUDGMENT IN THE CASE OF CIT VS M/S QUARK SYSTEMS INDIA (P) LTD., (2 011) 62 DTR 0182. 13. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US A CHART WHICH ACCORDING TO HIM, SUMMARIZE THE EXCLUSIONS W HICH WERE SOUGHT BY THE ASSESSEE FROM THE LIST OF COMPARABLES SELECTED BY THE TPO AND THE DECISIONS OF THE CO-ORDINATE BENCH WHEREIN SIMILAR COMPANIES WERE CONSIDERED FOR EXCLUSION, ON WHICH HE WAS PLACING R ELIANCE. 14. PER CONTRA, LEARNED DR AFTER GOING THROUGH THE CHART FILED BY THE ASSESSEE, REITERATED HIS CONTENTIONS WITH REGARD TO COMPARABILITY OF COMPANIES FRESHLY SOUGHT FOR EXCLUSION BY THE ASSES SEE. AS PER THE LEARNED DR, THESE HAD TO BE REMITTED BACK TO THE AO /TPO. 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS AND ALSO CAREFULLY GONE THROUGH THE CHART SUBMITTED BY THE ASSESSEE AND THE DECISIONS RELIED UPON BY THE ASSESSEE. THE DECISION MAINLY RELIED ON BY THE ASSESSEE FOR EXCLUSION OF VARIOUS COMPANIES LISTED BY IT IN ITS CHART IS THAT OF CO-ORDINATE BENCH IN THE CASE OF M/S THOUGHTWORK S TECH.(IND.) PVT. LTD., VS DCIT IN IT(TP)A NO.1326(BANG)/2010 DATED 3 0-07-2015. ON THE STRENGTH OF THIS ORDER ASSESSEE IS SEEKING EXCLUSIO N M/S AZTEC SOFTWARE LTD., M/S GEOMETRIC SOFTWARE LTD (SEG.) M/S INFOSYS LTD., AND M/S KALS ITA NO.1404(B)/10 10 INFO SYSTEMS LTD., M/S MINDTREE CONSULTING LTD., M/ S PERSISTENT SYSTEMS LTD., M/S SASKAEN COMMUNICATIONS (SEG.) M/S TATA EL XSI LTD.,(SEG.) M/S ACCEL TRANSMATICS LTD (SEG.), M/S FLEXTRONICS SOFTW ARE SYSTEMS LTD. (SEG.) M/S MEGASOFT LTD AND M/S IGATE GLOBAL SOLUTIONS (SE G.). NO DOUBT, THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M /S THOUGHTWORKS (IND.) PVT. LTD (SUPRA) WAS ALSO FOR THE VERY SAME ASSESSM ENT YEAR AND ALSO IN RELATION TO SOFTWARE SERVICES DEVELOPMENT SEGMENT. THEREFORE, IN OPUR OPINION, ASSESSEE IS JUSTIFIED IN RELYING ON THE AB OVE DECISION FOR SEEKING EXCLUSION. THE CO-ORDINATE BENCH AT PARA-6.3 OF THE ABOVE DECISION HELD M/S AZTEC SOFTWARE LTD.,(SUPRA) AND M/S GEOMETRIC S OFTWARE LTD (SEG.) TO BE NOT GOOD COMPARABLES ON ACCOUNT OF APPLICATION O F RPT FILTER. M/S INFOSYS LTD.(SUPRA) WAS DIRECTED TO BE EXCLUDED ON APPLICATION OF TURNOVER FILTER AT PARA 6.2 OF VERY SAME DECISION. M/S KALS INFO SYSTEMS LTD(SUPRA) WAS HELD TO BE FUNCTIONALLY NOT COMPARABLE TO A SO FTWARE DEVELOPMENT SERVICES PROVIDER AT PARA 6.4 TO 6.5 OF THE VERY SA ME DECISION. M/S MINDTREE CONSULTING LTD AND M/S PERSISTENT SYSTEM L TD. EXCLUDED ON APPLICATION OF UPPER TURNOVER OF RS.200 CRORES AT P ARA-6.2 OF THE VERY SAME DECISION. M/S SASKEN COMMUNICATION LTD.(SEG.) WAS DIRECTED TO BE EXCLUDED FOR THE VERY SAME REASON. M/S TATA ELXSI LTD. WAS FOUND TO BE FUNCTIONALLY NOT COMPARABLE AT 6.4 TO 6.5 OF THE SA ME DECISION. M/S ACCEL TRANSMATICS LTD(SUPRA) WAS ALSO FOUND FUNCTIONALLY NOT COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICES PROVIDER IN THE VERY SAME PARA. M/S FLEXTRONICS SOFTWARE SYSTEM LTD (SUPRA) WAS DIRECTE D TO EXCLUDED APPLYING ITA NO.1404(B)/10 11 THE TURNOVER FILTER AT PARA-6.2 OF THE SAME RULING. M/S MEGASOFT LTD(SUPRA) WAS DIRECTED TO BE EXCLUDED APPLYING THE RPT FILTER OF 15% AT PARA-6.3 OF THE VERY SAME DECISION. M/S IGATE GLOBA L SOLUTIONS LTD(SUPRA) WAS DIRECTED TO BE EXCLUDED BY APPLICATION OF TURNO VER FILTER AGAIN AT PARA- 6.2 OF THE SAME ORDER. THESE PARAS 6.2, 6.3, 6.4 & 6.5 ARE REPRODUCED HEREUNDER; 6.2 THIS TRIBUNAL, IN THE CASE OF GENESIS INTEG RATING SYSTEMS (INDIA) P LTD. VS. DCIT REPORTED IN (2012) 20 TAXMA NN.COM 715(BANG.) HAS HELD THAT TURNOVER IS A REASONABLE F ILTER TO BE ADOPTED AND HAS ALSO PRESCRIBED THE SLABS OF RS.1 T O 200 CRORES, RS.200 TO 500 CRORES AND RS.500 AND ABOVE FOR THE P URPOSE OF ADOPTING THIS FILTER. RESPECTFULLY FOLLOWING THE A BOVE DECISION, WE DIRECT THE TPO TO EXCLUDE THESE COMPANIES FROM T HE FINAL LIST OF COMPARABLES. 6.3 FURTHER, THE ASSESSEE IS ALSO SEEKING APPLI CATION OF RPT OF MORE THAN 15%. WE FIND THAT THIS TRIBUNAL, IN VARI OUS DECISIONS, HAS BEEN HOLDING THAT RPT FILTER OF MORE THAN 15% I S TO BE ADOPTED FOR DETERMINING THE ALP. THE ASSESSEE HAS SOUGHT EXCLUSION OF THE FOLLOWING COMPANIES ON THE GROUND OF RPT OF MORE THAN 15%: ITA NO.1404(B)/10 12 SL. NO. NAME OF THE COMPANY RPT ON SALES 1 AZTEC SOFTWARE LTD. 17.77% 2 GEOMETRIC SOFTWARE LTD. 19.34% 3 MEGASOFT LTD. 17.09% AS OBSERVED ABOVE, THIS TRIBUNAL, IN VARIOUS OTHER CASES PERTAINING TO THE VERY SAME ASSESSMENT YEAR HAS TAK EN A SIMILAR VIEW. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT T HE AO TO EXCLUDE THESE COMPANIES FROM THE FINAL LIST OF COMP ARABLE COMPANIES. 6.4 IN ADDITION TO THE ABOVE, ASSESSEE IS SEEKIN G EXCLUSION OF THE FOLLOWING COMPANIES ON FUNCTIONAL DISSIMILARITY : 1. KALS INFO SYSTEMS LTD. 2. TATA ELXSI LTD. (SEG.) 3. ACCEL TRANSMATICS LTD. (SEG.) IT IS STATED BY THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE ASSESSEE HAD RAISED OBJECTIONS AGAINST THESE COMPAN IES BEFORE THE TPO AS WELL AS THE DRP BUT THE SAME HAS NOT BEE N APPRECIATED BY THE LOWER AUTHORITIES. HE RELIED UP ON VARIOUS CASE-LAWS FOR EXCLUSION OF THESE COMPANIES ON THE G ROUND OF FUNCTIONAL DISSIMILARITY. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWE VER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO.1404(B)/10 13 6.5 HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT WITH REGARD TO KALS INFO SY STEMS LTD., EVEN BEFORE THE TPO, THE ASSESSEE HAS CLAIMED THAT IT WAS FUNCTIONALLY DIFFERENT AS IT WAS ENGAGED IN PRODUCT ION OF SOFTWARE PRODUCTS AND SIMILARLY WITH REGARD TO ACCE L TRANSMATICS LTD., THE ASSESSEE HAS CLAIMED THAT IT WAS INTO SOF TWARE PRODUCT AS WELL AS THAT IT HAS INCOME FROM SALE OF IP RIGHT S AND FURTHER THAT RELATED PARTY TRANSACTION WAS MORE THAN 15%. AS REGARDS TATA ELXSI LTD.(SEG.), IT WAS ARGUED THAT IT FAILS RPT FILTER AND WAS ALSO FUNCTIONALLY DIFFERENT. THE LEARNED COUNS EL FOR THE ASSESSEE HAS RELIED UPON THE FOLLOWING DECISIONS FO R EXCLUSION OF THESE COMPANIES: I. M/S.ARIBA TECHNOLOGIES INDIA PVT.LTD. (ITA NO.1179/ BANG/ 2010) II. AGILE SOFTWARE ENTERPRISE PRIVATE LIMITED (ITA 1172/BANG/ 2010 III. EMC DATA STORAGE SYSTEMS (INDIA) PVT. LTD., (ITA NO.1274/BANG/2010), AND IV. HUAWEI TECHNOLOGIES INDIA PVT. LTD.,(ITA NO.1338/BA NG/ 2010). IN ALL THESE CASES, THE TRIBUNAL HAD CONSIDERED THE FUNCTIONAL DISSIMILARITY OF THESE COMPANIES WITH SOFTWARE DEVE LOPMENT COMPANIES LIKE THE ASSESSEE AND HAS HELD AS UNDER F OR EXCLUSION OF THESE COMPANIES. 15. WE ALSO FIND THAT 15% AS THE THRESHOLD LIMIT F OR APPLYING RPT FILTER WAS LAID DOWN BY THE CO-ORDINATE BENCH DECIS ION IN THE CASE OF 24/7 CUSTOMER.COM PVT.LTD VS DCIT(2013) 140ITD 344. S IMILARLY, CO-ORDINATE ITA NO.1404(B)/10 14 BENCH IN THE CASE OF M/S GENESIS INTEGRATING SYSTEM (IND.) PVT.LTD., VS DCIT (2011) 64 DTR 0225 HAD DIRECTED EXCLUSION OF C OMPANIES, APPLYING THE TURNOVER FILTER OF 1 TO 200 CRORES. 16. HOWEVER, OUT OF THE VERY MANY COMPANIES WHICH PRIMA FACIE HAVE TO BE EXCLUDED ON ACCOUNT OF THE DECISION OF THE CO -ORDINATE BENCHES IN THE CASE OF M/S THOUGHTWORKS TECH.(IND.) PVT. LTD (SUPR A), 24X7 CUSTOMER.COM. PVT. LTD.,(SUPRA) AND M/S GENESYS INT EGRATING SYSTEM INDIA PVT.LTD.,(SUPRA), WE FIND THAT M/S AZTEC SOFTWARE L TD., M/S ACCEL TANSMATICS LTD.(SEG.) M/S MEGASOFT LTD WERE PART OF ASSESSEES OWN TRANSFER PRICING STUDY. FURTHER, VIS--VIS M/S GE OMETRIC SOFTWARE LTD.(SEGMENT) M/S MINDTREE CONSULTING LTD., M/S PER SISTENT SYSTEMS LTD., ASSESEE HAD NOT RAISE ANY OBJECTIONS BEFORE EITHER THE TPO OR DRP AGAINST THEIR EXCLUSION. AT THE SAME TIME, WE NOTE THAT VI S--VIS M/S AZTEC SOFTWARE LTD., AND M/S ACCEL TRANSMATICSLTD., AND M /S MEGASOFT LTD., THOUGH IT FORMED A PART OF ASSESSEES OWN TRANSFER PRICING STUDY, ASSESSEE HAD EXCLUSION EITHER BEFORE THE TPO AND/OR THE DRP SEEKING THEIR EXCLUSION CITING THE APPLICATION OF RPT FILTER AND FUNCTIONAL DISPARITY. THE DRP HAD REJECTED THIS. CONSIDERING ALL THESE, AND THE CO-ORDINATE BENCH DECISION CITED ABOVE, WE DIRECT EXCLUSION OF THE FO LLOWING COMPANIES. A) M/S AZTEC SOFTWARE LTD., B) M/S INFOSYS LTD., C) KALS INFO SYSTEMLTD., ITA NO.1404(B)/10 15 D) M/S SASKEN COMMUNICATIONS(SG.) E) M/S TATA ELXSI LTD., F) ACCEL TRANSMATICS LTD (SEGMENTAL) G)FLEXTRONICS SOFTWARE SYSTEMS LTD.,(SEGMENTAL) H) MEGASOFT LTD., AND I) IGATE GLOBAL SOLUTIONS LTD.,(SEG.) 17. COMPARABILITY OF M/S GEOMETRIC SOFTWARE LTD. ( SEGMENTAL) M/S MINDTREE CONSULTING LTD. AND M/S PERSISTENT SYSTEMS LTD., ARE REMITTED BACK TO THE FILE OF THE AO/TPO FOR CONSIDERATION AF RESH IN ACCORDANCE WITH THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S QUARK SYSTEMS LTD., (SUPRA) SINCE THEIR EXCLUSION WAS NOT SOUGHT BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. ORDERED ACCORDINGLY . 18. VIDE ITS GROUND NO.5 TO 8 ASSESSEE AGGRIEVED O N DATA LINK CHARGES OF RS.16,55,375/- BEING EXCLUDED FROM THE EXPORT TU RNOVER WHILE CALCULATING ITS DEDUCTION U/S 10A OF THE IT ACT, 19 61. 19. WE FIND THAT BY VIRTUE OF DEFINITION OF EXPORT TURNOVER GIVEN EXPLANATION-2(IV) TO SEC.10A OF THE IT ACT, 1961, I NTERPRETATION SOUGHT BY THE ASSESSEE CANNOT BE ACCEPTED. HOWEVER, ITS ALTE RNATIVE CONTENTION FOR EXCLUSION OF SUCH AMOUNT FROM THE TOTAL TURNOVER AL SO, WHILE CALCULATING DEDUCTION U/S 10A OF THE IT ACT, 1961 IS REASONABLE IN VIEW OF THE HONBLE ITA NO.1404(B)/10 16 JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S TATA ELXSI LTD., (2012) 349 ITR 0098. GROUND 5 TO 9 ARE TREATED AS PARTLY A LLOWED. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH OCTOBER, 2015. SD/- SD/- ( ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER P L A C E : BANGALORE D A T E D : 30-10-2015 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE