EMERSON ELECTRIC COMPANY ( INDIA) P. LTD, MUMBAI V. ASST CIT 9(2)(2), MUMBAI

ITA 1416/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2226 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Question of law
• Section: 143(3); 13

Judgement Text

, ,#$ IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) EMERSION ELECTRIC COMPANY (INDIA) PRIVATE LIMITED, 301, SOLITAIRE CORPORATE PARK, 151, M.V.ROAD, ANDHERI(EAST) MUMBAI 400 093 PAN: AAACE-1260-B ...... - / APPELLANT + VS. ASST.COMMISSIONER OF INCOME TAX-9(2)(2) ROOM NO.665A,AAYKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 ..... .// RESPONDENT ASSESSEE BY : SHRI DHANESH BAFNA WITH MS .CHANDINI SHAH REVENUE BY : SHRI ANAND MOHAN & SHRI SUSHIL KUMAR MISHRA +0/ / DATE OF HEARING : 04/06/2021 123 0/ / DATE OF PRONOUNCEMENT : 29/06/2021 / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST A SSESSMENT ORDER DATED 31/01/2017 PASSED UNDER SECTION 143(3) R.W.S. 144C( 13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) FOR ASSESSMENT YEAR 2012-13 . 2 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE IS INTER-ALIA ENGAGED IN THE BUSINESS OF IT SUPPORT S ERVICES AND SOFTWARE DEVELOPMENT SERVICES. THOUGH, THE ASSESSEE IS CARRYING OUT OT HER BUSINESS ACTIVITIES ALSO, IN THE PRESENT APPEAL SINCE, THE ASSESSEE HAS ASSAILED TRA NSFER PRICING(T.P) ADJUSTMENT IN RESPECT OF AFORESAID TWO ACTIVITIES, WE ARE CONFI NING OUR FOCUS TO THE SAID ACTIVITIES ONLY. THE ASSESSEE IN ORDER TO BENCHMARK ITS INTE RNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES(AE) IN RESPECT OF PROVISION OF IT SUPPORT SERVICES AND SOFTWARE DEVELOPMENT SERVICES APPLIED TRANSACTIO NAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. THE TRANSFER PRICI NG OFFICER(TPO) ACCEPTED TNMM BUT RAISED OBJECTIONS TO THE COMPANIES SELECTED BY THE ASSESSEE AS COMPARABLES TO BENCH MARK ARMS LENGTH PRICE (ALP) OF THE TRANSACT IONS UNDER THE SAID SEGMENT. THE TPO MADE FRESH LIST OF COMPARABLES IN BOTH THE SEGMENTS AND PROPOSED FOLLOWING ADJUSTMENTS: 1. ADJUSTMENT ON ACCOUNT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES RS.2,98,49,466.00 2. ADJUSTMENT ON ACCOUNT OF PROVISIONS IT SUPPORT SERVICES RS.2,74,60,456.00 TOTAL RS.5,73,09,922.00 THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER DATED 29/02/2016 ON THE BASIS OF ADJUSTMENTS PROPOSED BY THE TPO. THE ASSE SSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL(DRP) ASSAILING THE COMPA RABLES SELECTED BY THE TPO. THE DRP PARTLY ACCEPTED THE SUBMISSIONS OF ASSESSEE AND DIRECTED TO EXCLUDE SOME OF THE COMPANIES OBJECTED BY THE ASSESSEE IN THE LIST OF COMPARABLES. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE IS FURTHER SEEKING EXCLUSION OF COMPANIES FROM THE LIST OF COMPARABLES FOR DETERMINING ALP WITH THE AES. 3. SHRI DHANESH BAFNA APPEARING ON BEHALF OF THE AS SESSEE STATED AT THE OUTSET THAT HE WOULD BE PRESSING ONLY GROUND NO.1.2.6 AND 1.2.10 IN RESPECT OF PROVISIONS OF SOFTWARE DEVELOPMENT SERVICES AND GROUND NO.2.2. 6 AND 2.2.9 ASSAILING 3 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) ADJUSTMENT AGAINST PROVISION OF IT SUPPORT RELATED SERVICES. THE OTHER GROUNDS/SUB- GROUNDS RAISED IN THE APPEAL ARE NOT PRESSED. 4. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN RESPECT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, THE ASS ESSEE IS SEEKING EXCLUSION OF THIRDWARE SOLUTIONS LTD.( IN SHORT THIRDWARE) ON ACCOUNT OF FUNCTIONAL DISPARITY. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE EX PLAINED THAT THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES, WHEREAS T HIRDWARE IS A PRODUCT COMPANY. THE TPO HAS ERRED IN INCLUDING THIRDWARE I N THE LIST OF COMPARABLES ON THE PREMISE THAT IT PRODUCT COMPANY AND IT SOFTWARE DE VELOPMENT COMPANY ARE SAME. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSE SSEE SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.344/MUM/2017 FOR A SSESSMENT YEAR 2010-11 IN APPEAL BY THE REVENUE HAS UPHELD EXCLUSION OF THIRD WARE. THEREAFTER, IN A.Y 2011- 12 IN ITA NO.345/MUM/2017 AND IN ASSESSMENT YEAR 20 13-14 IN ITA NO.531/MUM/2018 THE TRIBUNAL HAS UPHELD THE EXCLUSI ON OF THIRDWARE FROM THE LIST OF COMPARABLES BEING FUNCTIONALLY DIFFERENT. 5. ON THE OTHER HAND, SHRI ANAND MOHAN REPRESENTIN G THE DEPARTMENT VEHEMENTLY SUPPORTED THE ASSESSMENT ORDER AND THE D IRECTIONS OF DRP IN UPHOLDING INCLUSION OF THIRDWARE IN THE LIST OF COMPARABLES. THE LD.DEPARTMENTAL REPRESENTATIVE REFERRED TO THE OBSERVATIONS MADE BY DRP AT PAGE 59 OF THE DIRECTIONS TO CONTEND THAT THIRDWARE IS MAINTAINING SEGMENTAL ACCOUNTS. THE REVENUE OF THIRDWARE FROM SOFTWARE DEVELOPMENT SERV ICES IS APPROXIMATELY 95% OF THE TOTAL REVENUE AND ONLY MINISCULE PART OF THE TO TAL REVENUE I.E. APPROXIMATELY 5% OF THE TOTAL REVENUE IS FROM SALE OF LICENCES, S UBSCRIPTION AND WEB TRAINING. THE LD.DEPARTMENTAL REPRESENTATIVE FURTHER REFERRED TO PAGE 546 TO 548 OF THE PAPER BOOK TO CONTEND THAT FROM THE FINANCIALS OF THIRDW ARE FURNISHED BY THE ASSESSEE IT IS EVIDENT THAT REVENUE FROM SALE OF PRODUCTS FOR FIN ANCIAL YEAR 2011-12 IS NIL. WHEREAS 4 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) THE ENTIRE REVENUE DECLARED BY THIRDWARE IS FROM SA LE OF SERVICES. THE LD.DEPARTMENTAL REPRESENTATIVE POINTED THAT ON PAGE 548 OF THE PAPER BOOK IS THE FOOTNOTE , WHEREIN BIFURCATION FROM DIFFERENT SEGME NTS VIZ. REVENUE FROM SALE OF LICENCES, EXPORT OF SOFTWARE DEVELOPMENT SERVICES I S GIVEN. THUS, IT IS EVIDENT FROM THE DOCUMENTS ON RECORD THAT DURING THE PERIOD RELE VANT TO ASSESSMENT YEAR 2012- 13, THIRDWARE IS HAVING NO REVENUE FROM SALE OF PR ODUCTS. THE LD.DEPARTMENTAL REPRESENTATIVE FURTHER PLACED RELIANCE ON THE DECIS ION OF HON'BLE DELHI HIGH COURT IN THE CASE OF STERIA (INDIA) LTD. VS. DCIT REPORTED A S 92 TAXAMANN.COM 120(DEL) TO CONTEND THAT THIRDWARE WAS HELD TO BE COMPARABLE TO A COMPANY ENGAGED IN EXPORT OF SOFTWARE DEVELOPMENT SERVICES. 6. CONTROVERTING THE SUBMISSIONS ADVANCED BY LD.DEP ARTMENTAL REPRESENTATIVE, THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SU BMITTED THAT THE TRIBUNAL IN VARIOUS DECISIONS INCLUDING DECISION IN ASSESS EES OWN CASE HAS HELD THAT THIRDWARE BEING PRODUCT COMPANY IS FUNCTIONALLY INC OMPARABLE TO COMPANY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. THE LD.AUTHORIZE D REPRESENTATIVE OF THE ASSESSEE REFERRED TO PAGE 545 OF THE PAPER BOOK TO CONTEND THAT THE PRODUCT INCLUDES SERVICES. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER POINTED THAT DECISION RENDERED IN THE CASE OF STERIA (INDIA) LTD . (SUPRA) IS DISTINGUISHABLE, AS IN THE SAID CASE THE TPO HAS CONSIDERED THE GEOGRAPHICAL S EGMENT AND NOT THE SEGMENT AT FUNCTIONAL LEVEL. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE TPO IN THE PRESENT CASE HAS CONSIDERED ENTITY L EVEL MARGIN OF THIRDWARE . THE TPO FOLLOWED SIMILAR APPROACH IN ASSESSMENT YEAR 20 10-11, 2011-12 AND 2013-14 FOR INCLUSION OF THIRDWARE AT ENTITY LEVEL. THE TRIBUN AL BY PLACING RELIANCE ON THE DECISION RENDERED IN THE CASE OF CIT VS. PTC SOFTWA RE (I) PVT. LTD. IN INCOME TAX APPEAL NO.732 OF 2014 DECIDED ON 26/09/2016 BY HON' BLE BOMBAY HIGH COURT HELD THAT SALE OF SOFTWARE PRODUCTS AND SOFTWARE DEVEL OPMENT SERVICES ARE SEPARATE AND DISTINCT. 5 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE C ONTENDED THAT WITHOUT PREJUDICE TO THE PRIMARY SUBMISSIONS MADE FOR EXCLU SION OF THIRDWARE, IF ONLY OVERSEAS SEGMENT OF THIRDWARE WITH A MARGIN OF 11. 10% IS ACCEPTED IN THE FINAL SET OF COMPARABLE AND WORKING CAPITAL ADJUSTMENT IS ALL OWED, THE ARITHMETICAL MEAN OF THE FINAL SET OF COMPARABLES WOULD BE 6.38%. SINC E, THE MARGIN WOULD BE WITHIN +/- 5% ARMS LENGTH RANGE, THEREFORE, NO ADJUSTMENT WO ULD BE REQUIRED UNDER SOFTWARE DEVELOPMENT SEGMENT. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S ON EXCLUSION OF THIRDWARE FROM THE FINAL SET OF COMPARABLES FOR THE PURPOSE O F BENCHMARKING SOFTWARE DEVELOPMENT SEGMENT. THE ASSESSEE IS SEEKING EXCLU SION OF THIRDWARE ON THE GROUND THAT THE SAID COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNED REVENUE FROM SALE OF LICENCES, SUBSCRIPTION OF PROD UCTS, SOFTWARE DEVELOPMENT SERVICES, ETC. WHEREAS, THE ASSESSEE IS PURELY SOF TWARE DEVELOPMENT SERVICES PROVIDER. THE REVENUE HAS VEHEMENTLY OPPOSED EXCLU SION OF THIRDWARE. THE LD.DEPARTMENTAL REPRESENTATIVE HAS POINTED THAT T HE COMPANY HAS REPORTED REVENUE FROM SALE OF SERVICES ONLY IN F.Y 2011-12 R ELEVANT TO A.Y.2012-13 AND THERE IS NO REVENUE/ TURNOVER FROM SALE OF PRODUCTS. ALTH OUGH IN STATEMENT OF PROFIT AND LOSS NO REVENUE FROM SALE OF PRODUCTS HAS BEEN REPO RTED DURING F.Y 2011-12 BUT ON PERUSAL OF FOOTNOTE AT THE END OF THE STATEMENT OF PROFIT AND LOSS ACCOUNT AT PAGE 548 OF THE PAPER BOOK IT TRANSPIRES THAT THE REVE NUE FROM OPERATIONS INCLUDE: EXPORT OF SOFTWARE DEVELOPMENT SERVICES, SALE OF LI CENCES, REVENUE FROM SUBSCRIPTION AND TRAINING AND SOFTWARE SERVICES. THUS, THE COMPANY HAS REPORTED REVENUE FROM DIFFERENT ACTIVITIES UNDER THE HEAD REVENUE FROM SALE OF SERVICES. THEREFORE, THE SAID COMPANY NOT ONLY GENERATES REVE NUE FROM SERVICES ALONE BUT FROM OTHER ACTIVITIES AS WELL. WE FURTHER OBSERVE THAT THIRDWARE HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLES IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11, 2011-12 AND 2013-14 ON THE GROUND THAT THE ACTIVITI ES OF THE ASSESSEE AND THAT OF 6 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) THIRDWARE ARE AT VARIANCE. IN OTHER WORDS, THERE I S DIFFERENCE IN FUNCTIONALITY OF BOTH THE COMPANIES. 8. WE OBSERVE THAT ONE OF THE ARGUMENT RAISED BY TH E DEPARTMENT BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2011-12 WAS THAT SOFTWA RE DEVELOPMENT AND SOFTWARE PRODUCTS ARE ONE AND THE SAME AND CANNOT BE CONSTRU ED AS SEPARATE AND DISTINCT ACTIVITY PER SE. THE CO-ORDINATE BENCH REJECTED T HE ARGUMENTS ADVANCED BY THE REVENUE IN SUPPORT OF INCLUSION OF THIRDWARE IN THE LIST OF COMPARABLES BY HOLDING AS UNDER: 9. WITH REGARD TO EXCLUSION OF COMPARABLES I.E. TH IRDWARE SOLUTIONS LTD, PERSISTENT SYSTEMS LTD, TATA ELXSI LTD AND KALS INFORMATION SYSTEMS LT D. FROM THE FINAL SET OF COMPARABLES AS DIRECTED BY THE LD. CIT(A) ON THE GROUND OF FUNCTIO NAL DISSIMILARITIES, THE LD. DR ARGUED THAT ANYTHING RELATED TO AUTOMIZING THE OPERATIONS IN DI GITAL FORMAT TANTAMOUNT TO SOFTWARE DEVELOPMENT AND ACCORDINGLY, NON-AVAILABILITY OF BR EAK-UP OF REVENUE FROM SOFTWARE SERVICES AND SALE OF SOFTWARE PRODUCTS DOES NOT AFFECT COMPA RABILITY. WE FIND THAT MAIN CRUX OF THE ARGUMENT OF THE LD. DR IS THAT SOFTWARE DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS ARE BOTH ONE AND THE SAME AND CANNOT BE CONSTRUED AS SEPARAT E AND DISTINCT ACTIVITY PER SE. WE FIND THAT THE LD DR ARGUED ADMITTED THE FACT THAT THERE IS NO SEGMENTAL BREAK UP OF REVENUE IN RESPECT OF SALE OF SOFTWARE PRODUCTS AND REVENUE DE RIVED FROM SOFTWARE DEVELOPMENT IN RESPECT OF THE AFORESAID COMPARABLES IN THE ANNUAL REPORTS OF THE RESPECTIVE COMPARABLES, BUT NEVERTHELESS, THE SAME WOULD NOT AFFECT THE COM PARABILITY WITH THE ASSESSEE , AS ACCORDING TO HIM, BOTH THE SOFTWARE DEVELOPMENT AN D SALE OF SOFTWARE PRODUCTS ARE ONE AND THE SAME ACTIVITY. WE ARE UNABLE TO PERSUADE OURSEL VES TO ACCEPT THIS ARGUMENT OF THE LD. DR THAT THERE IS NO DIFFERENCE BETWEEN COMPANY ENGAGED IN SOFTWARE DEVELOPMENT AND COMPANY ENGAGED IN SALE OF SOFTWARE PRODUCTS. WE FI ND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PTC SOFTWARE (I) PVT.L TD. IN INCOME TAX APPEAL NO.732 OF 2014 DATED 26/09/2016 HAD ADDRESSED THIS ISSUE IN THE CO NTEXT OF EXCLUSION OF KALS INFORMATION SYSTEMS LTD. AND HELIOS AND MATHESON INFORMATION TE CHNOLOGY LTD. SPECIFIC QUESTION RAISED BEFORE THE HONBLE JURISDICTIONAL HIGH COURT IN THI S REGARD IS AS UNDER:- (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL ERRED IN EXCLUDING KALS INFORMATION SOLUTIONS LTD. AND M/S. HELIOS & MATHERSON INFORMATION TECHNOLOGY LTD. FROM THE LIST OF CMOPARABLES ON THE BASIS OF PREVIOUS YEARS DOCUMENTATIONS OF THE ASSESSEE WITHOUT VERIFYING TH E FUNCTIONS PERFORMED BY THE COMPARABLES IN THE YEAR UNDER CONSIDERATION ? 9.1. THE HONBLE JURISDICTIONAL HIGH COURT ADDRESSE D THE AFORESAID QUESTION BY OBSERVING AS UNDER:- 10. RE. QUESTION (II) : A) M/S. KALS INFORMATION SOLUTIONS LTD. (KALS LTD. ) AND HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. (HELIOS & MATHESON LTD. ) WERE INCLUDED BY THE TPO IN HIS COMPARABILITY ANALYSIS. THE GRIEVANCE OF THE RE SPONDENT ASSESSEE BEFORE THE TRIBUNAL WAS THAT BOTH ARE FUNCTIONALLY DIFFERENT F ROM THE RESPONDENT ASSESSEE AND, THEREFORE, COULD NOT BE USED AS COMPARABLES. THE RE SPONDENT ASSESSEE POINTED OUT 7 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) THAT KALS LTD AND HELIOS & MATHESON LTD. ARE ENGAGE D IN THE BUSINESS OF SELLING OF SOFTWARE PRODUCTS WHILE THE RESPONDENT ASSESSEE REN DERS SOFTWARE SERVICES TO ITS HOLDING COMPANY. (B) THE TRIBUNAL IN THE IMPUGNED ORDER RECORDS THAT FOR THE PRECEDING ASSESSMENT YEAR I.E. A.Y. 2006-07,THE TPO HAD FOUND THAT KALS LTD. AND HELIOS & MATHESON LTD. WERE FUNCTIONALLY NOT COMPARABLE WITH THE RESPONDEN T ASSESSEE. IN THE SUBJECT ASSESSMENT YEAR ALSO, ON THE BASIS OF ANNUAL REPORT , IT WAS NOTED THAT THE KALS WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS WHICH IS DI FFERENT FROM THE ACTIVITY UNDERTAKEN BY THE RESPONDENT ASSESSEE, NAMELY, REND ERING OF SOFTWARE SERVICE TO ITS HOLDING COMPANY. FURTHER, THE IMPUGNED ORDER ALSO R ECORDS THAT NO ATTEMPT WAS EVEN MADE BY THE REVENUE BEFORE IT TO BRING ON RECO RD ANY CHANGE IN THE NATURE OF ACTIVITIES CARRIED OUT BY KALS LTD. AND HELIOS & MA THESON LTD. IN THE SUBJECT ASSESSMENT YEAR, MAKING THEM FUNCTIONALLY COMPARABL E TO THE RESPONDENT ASSESSEE. IN THE AFORESAID FACTS, THE TRIBUNAL RENDERED A FIN DING OF FACT THAT KALS LTD. AND HELIOS & MATHESON LTD. ARE NOT COMPARABLE WITH THE RESPONDENT ASSESSEE. (C) EVEN BEFORE US, NO SUBMISSIONS WERE ADVANCED J USTIFYING THE ORDER OF THE ASSESSING OFFICER THAT THE SERVICES RENDERED BY KAL S LTD. AND HELIOS & MATHESON LTD. ARE COMPARABLE FOR THE SUBJECT ASSESSMENT YEAR WITH THAT OF THE RESPONDENT ASSESSEE. (D) IN THE ABOVE VIEW, AS THE FINDINGS OF THE TRIBU NAL BEING ONE OF THE FACT WHICH HAS NOT BEEN SHOWN TO BE PERVERSE, THE QUESTION AS PROP OSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINED. 9.2. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT SALE OF SOFTWARE PRODUCTS AND SOFTWARE DE VELOPMENT SERVICES ARE SEPARATE AND DISTINCT AND ACCORDINGLY, THE ARGUMENTS ADVANCED BY THE LD. DR ARE REJECTED IN THIS REGARD. ACCORDINGLY, THE AFORESAID COMPARABLES I.E THIRDWAR E SOLUTIONS LTD, PERSISTENT SYSTEMS LTD, AND KALS INFORMATION SYSTEMS LTD. DESERVES TO BE EX CLUDED FROM THE LIST OF COMPARABLES WHICH HAD BEEN RIGHTLY DIRECTED BY THE LD. CIT(A) F OR EXCLUSION. WITH REGARD TO EXCLUSION OF TATA ELXSI LTD, WE FIND FROM 895 TO 898 OF THE PAPE R BOOK, THERE IS NO SEGMENTAL DATA AVAILABLE IN THE ANNUAL REPORT OF THE SAID COMPARAB LE AND WE ALSO FIND THAT THEY HAVE GOT THEIR OWN RESEARCH AND DEVELOPMENT WHICH MAKES IT F UNCTIONALLY UNCOMPARABLE WITH THAT OF THE ASSESSEE, AMONG OTHERS, IN AS MUCH AS THE ASSES SEE HEREIN BEFORE US BELIEVES ON RESEARCH AND DEVELOPMENT SUPPLIED BY AE, WHICH FACT IS NOT I N DISPUTE BEFORE US. 9. THE LD.DEPARTMENTAL REPRESENTATIVE IN SUPPORT OF INCLUSION OF THIRDWARE PLACED RELIANCE ON THE DECISION RENDERED IN THE CAS E OF STERIA (INDIA) LTD.(SUPRA). A CLOSE EXAMINATION OF DECISION IN THE SAID CASE REVEALS THAT THE SAID COMPANY WAS ACCEPTED AS COMPARABLE TO A SOFTWARE DEVELOPMENT SE RVICE PROVIDER ON THE BASIS OF GEOGRAPHICAL SEGMENT REPORTING, I.E. DOMESTIC VIS-A -VIS OVERSEAS. THE ISSUE WAS NOT EXAMINED WITH REGARD TO SEGMENT REPORTING OF THE S ERVICES AND FUNCTIONAL ANALYSIS THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F PTC SOFTWARE (I) PVT. LTD.(SUPRA) 8 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) HAS HELD THAT SOFTWARE PRODUCT AND SOFTWARE DE VELOPMENT SERVICES ARE FUNCTIONALLY DIFFERENT. THEREFORE, THE COMPANY E NGAGED IN SELLING OF SOFTWARE PRODUCT IS INCOMPARABLE TO COMPANY RENDERING SOFT WARE DEVELOPMENT SERVICES. THUS, IN VIEW OF THE ABOVE, WE HOLD THAT THE DECIS ION RENDERED IN THE CASE OF STERIA (INDIA) LTD.(SUPRA) IS DISTINGUISHABLE, HENCE, THE SAME DOES NOT SUPPORT THE CASE OF REVENUE. 10. IN VIEW OF OUR ABOVE FINDINGS, WE HOLD THAT TH IRDWARE BEING A PRODUCT COMPANY IS NOT A GOOD COMPARABLE TO A COMPANY ENGAG ED IN SOFTWARE DEVELOPMENT SERVICES, THEREFORE, THE ASSESSING OFFICER IS DIREC TED TO EXCLUDE THIRDWARE FROM THE FINAL SET OF COMPARABLES. THE GROUND NO.1.2.6 RAISED IN THE APPEAL IS ALLOWED . 11. IN GROUND NO.1.2.10 THE ASSESSEE HAS PRAYED FOR GRANTING WORKING CAPITAL ADJUSTMENT. THE LD.AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS CONTENDED THAT DIFFERENCE IN WORKING CAPITAL OF THE ASSESSEE AND THE COMPARABLE COMPANY OUGHT TO BE ADJUSTED FOR APPROPRIATE COMPARABILITY ANALYSIS. THE ASSESSEE HAS FURNISHED CALCULATIONS FOR ADJUSTED MARGIN BEFORE THE TPO. THE SAME ARE AT PAGE 437 AND 442 OF THE PAPER BOOK. IT HAS BEEN FURTHER POINTED THA T IN ASSESSMENT YEAR 2010-11, 2011-12 AND 2013-14 THE BENEFIT OF WORKING CAPITAL ADJUSTMENT HAS BEEN ALLOWED TO THE ASSESSEE BY THE TRIBUNAL. WE FIND THAT IN ASSE SSMENT YEAR 2010-11 THE CIT(A) HAD ALLOWED WORKING CAPITAL ADJUSTMENT ON FINAL SE T OF COMPARABLES. THE REVENUE CHALLENGED THE SAME BEFORE THE TRIBUNAL IN ITA NO.3 44/MUM/2017(SUPRA). THE CO- ORDINATE BENCH UPHELD THE FINDING OF CIT(A) IN AL LOWING WORKING CAPITAL ADJUSTMENT AND REJECTED THE GROUND RAISED BY THE REVENUE. SIM ILARLY, IN ASSESSMENT YEAR 2011- 12 AND 2013-14 THE TRIBUNAL ALLOWED THE BENEFIT OF WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE FOLLOWING THE ORDER IN ASSESSMENT YEAR 2010-11. NO CONTRARY MATERIAL HAS BEEN PLACED BEFORE US BY THE REVENUE. RESPECTF ULLY FOLLOWING THE DECISION OF CO- ORDINATE BENCH IN ASSESSEES OWN CASE IN THE PR ECEDING ASSESSMENT YEARS AND IMMEDIATELY SUCCEEDING ASSESSMENT YEAR, WE DIRECT T HE ASSESSING OFFICER TO ALLOW 9 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) THE BENEFIT OF WORKING CAPITAL ADJUSTMENT TO THE AS SESSEE. CONSEQUENTLY, GROUND NO.1.2.10 IS ALLOWED. 12. THE OTHER SUB GROUNDS RAISED IN GROUND NO.1 OF THE APPEAL ARE DISMISSED AS NOT PRESSED. 13. IN GROUND NO.2 OF APPEAL, THE ASSESSEE HAS AS SAILED TRANSFER PRICING (TP) ADJUSTMENT MADE ON ACCOUNT OF PROVISION OF IT SUPP ORT AND RELATED SERVICES.THE ASSESSEE IS SEEKING EXCLUSION OF EXCEL INFOWAYS LTD .(SEGMENTAL).(IN SHORT EXCEL) THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMIT TED THAT ASSESSEE IS PROVIDING IT HELP DESK AND DATABASE ADMINISTRATION RELATED SERVI CES(ITES) TO ITS AES. THE APPELLANTS MARGIN IS 15.72%. THE AVERAGE MARGIN O F COMPARABLE COMPANIES AS PER TPOS FINAL SET OF COMPARABLES IS 24.09%. THE INCL USION OF FRESH COMPARABLES BY THE TPO TO BENCHMARK TRANSACTION HAS RESULTED IN TP A DJUSTMENT. THE ASSESSEE IS SEEKING EXCLUSION OF EXCEL ON THE GROUND THAT OPE RATING MARGIN OF SAID COMPANY IN PRECEDING ASSESSMENT YEAR IS ABNORMALLY FLUCTUATIN G. FURTHER, THE SAID COMPANY HAS CLOSED ITS ITES SEGMENT AND DIVERSIFIED INTO REAL E STATE BUSINESS. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE POINTED THAT IN ASSE SSEES OWN CASE IN ITA NO.6098/MUM/2018 FOR ASSESSMENT YEAR 2014-15 THE TR IBUNAL HAS DIRECTED TO EXCLUDE EXCEL FROM THE LIST OF COMPARABLES AS IT F AILS TO QUALIFY TURNOVER FILTER. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTH ER PLACED RELIANCE ON THE DECISION IN THE CASE OF BANC TEC TPS INDIA PVT. LTD VS. ACIT IN ITA NO.2074/MUM/2017 FOR ASSESSMENT YEAR 2012-13 DECIDED ON 12/06/2020, WHER EIN EXCEL WAS EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FLUCTUATING MARGIN AND CLOSURE OF ITES SEGMENT IN FINANCIAL YEAR 2011-12. TO SUPPORT HIS CONTENT ION FURTHER THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE PLACED RELIANCE ON T HE DECISION OF M.MODEL GLOBAL SERVICES PVT. LTD. VS. ACIT IN ITA NO.970/MUM/2017 ASSESSMENT YEAR 2012-13 DECIDED ON 16/10/2019, WHEREIN EXCEL WAS EXCLUDED O N THE GROUND OF FLUCTUATING MARGINS AND DIMINISHING REVENUE. 10 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) 14. ON THE CONTRARY, THE LD.DEPARTMENTAL REPRESENTA TIVE VEHEMENTLY OPPOSED EXCLUSION OF EXCEL. THE LD.DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT ONLY SEGMENTAL RESULTS I.E. BPO/ITES SEGMENT WAS CONSID ERED. SINCE SEGMENTAL DATA OF THE SAID COMPANY IS AVAILABLE NO PREJUDICE IS CAUSE D TO THE ASSESSEE. DIVERSIFICATION INTO REAL ESTATE BUSINESS IS NOT RELEVANT AS SEGMEN TAL RESULTS ARE AVAILABLE. THE LD.DEPARTMENTAL REPRESENTATIVE FURTHER REFERRED TO ANNUAL REPORT OF EXCEL FOR FINANCIAL YEAR 2011-12 AT PAGE 1257 OF THE PAPER BO OK. THE LD.DEPARTMENTAL REPRESENTATIVE POINTED THAT THE SAID COMPANY HAS DE CIDED TO DIVERSIFY INTO REAL ESTATE BUSINESS IN FUTURE AFTER CLOSURE OF IT AND B PO BUSINESS. THE LD.DEPARTMENTAL REPRESENTATIVE FURTHER POINTED THAT IN THE FINANCIA L STATEMENT FOR THE YEAR ENDED 31/03/2012 , AT PAGE 1291 OF THE PAPER BOOK THE SAI D COMPANY HAS SHOWN REVENUE FROM INFORMATION TECHNOLOGY/BPO RELATED SERVICES. THEREFORE, IT IS WRONG TO SAY THAT THE BPO BUSINESS OF THE ASSESSEE HAS SHUT DOWN DURI NG THE FINANCIAL YEAR 2011-12 RELEVANT TO ASSESSMENT YEAR 2012-13. THE LD.DEPART MENTAL REPRESENTATIVE POINTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2013-14 HAS EXCLUDED EXCEL ON THE BASIS OF TURNOVER FILTER AND NOT FOR THE REASONS RAISED BY T HE ASSESSEE IN THE PRESENT ASSESSMENT YEAR. THE LD.DEPARTMENTAL REPRESENTATIV E IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION OF BANGALORE BENC H OF TRIBUNAL IN THE CASE OF ZYME SOLUTIONS PVT. LTD. VS. ACIT IN IT(TP) NO.1661/BANG /2015 FOR ASSESSMENT YEAR 2012-13 DECIDED ON 16/11/2018. THE LD.DEPARTMENTAL REPRESE NTATIVE VEHEMENTLY SUPPORTED THE FINDINGS OF ASSESSING OFFICER /DRP FO R INCLUSION OF EXCEL IN THE FINAL SET OF COMPARABLES. 15. REBUTTING THE SUBMISSIONS MADE ON BEHALF OF THE REVENUE, THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE D ECISION RENDERED IN THE CASE OF ZYME SOLUTIONS PVT. LTD (SUPRA) WITH REGARD TO EX CEL BEING A GOOD COMPARABLE HAS BEEN RECALLED BY THE TRIBUNAL IN M.P.NO.16/BANG/2 019 VIDE ORDER DATED 05/04/2019. 11 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) 16. BOTH SIDES HEARD, ORDERS OF AUTHORITIES BELOW E XAMINED. THE ASSESSEE IS SEEKING EXCLUSION OF EXCEL PRIMARILY FOR THE REASON THAT THE COMPANY HAS FLUCTUATING MARGIN. WE FIND THAT THE CO-ORDINATE BENCH OF T RIBUNAL IN THE CASE OF BANC TEC TPS INDIA PVT. LTD. FOR A.Y.2012-13(SUPRA) HAS HE LD THAT EXCEL IS NOT A GOOD COMPARABLE FOR THE FOLLOWING REASONS: EXCEL INFOWAYS LIMITED (SEGMENTAL) THE ASSESSEE IS SEEKING EXCLUSION OF EXCEL FROM THE FINAL LIST OF COMPARABLES ON THE GROUND THAT THE COMPANY IS HAVING FLUCTUATING M ARGINS AND HENCE, IS NOT A GOOD COMPARABLE FOR ASSESSMENT YEAR 2012-13. WE FIND TH AT PUNE BENCH OF THE TRIBUNAL IN THE CASE OF EMERSION CLIMATE TECHNOLOGIES VS. DCIT (SUP RA) DIRECTED TO EXCLUDE EXCEL FROM THE LIST OF COMPARABLES ON ACCOUNT OF FLUCTUATING MARGI NS. THE RELEVANT EXTRACT OF THE FINDING OF THE TRIBUNAL READ AS UNDER:- 16. COMING TO THE FIRST CONCERN EXCEL INFOWAYS LTD ., WHEREIN THE ASSESSEE POINTS OUT THAT THE SAID CONCERN WAS NOT TO BE SELECTED AS COMPARABLE BECAUSE OF ITS FLUCTUATING MARGINS. THE LEARNED AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE HAS FILED TABULATED DETAILS IN THIS REGARD, WHEREIN THE MARGINS OF SAID CONCERN BEING DRASTICALLY DROPPED FROM 267.31% IN EARLIER YEARS T O 41.48% DURING THE YEAR UNDER CONSIDERATION. THE YEAR-WISE MARGINS OF SAID CONCERN ARE AS UNDER:- FINANCIAL YEAR OP/TC MARGIN 2008 - 09 247.74% 2009 - 10 267.31% 2010 - 11 238.71% 2011 - 12 41.48% 17. FURTHER, THE SAID CONCERN HAD CLOSED DOWN ITS I TES AND BPO SEGMENT IN FINANCIAL YEAR 2011-12 ON ACCOUNT OF GLOBAL RECESSI ON. WE HOLD THAT THE SAID CONCERN WHICH IS IN THE PROCESS OF CLOSING DOWN ITS ITES SEGMENT AND ALSO BECAUSE OF THE FACTUM OF FLUCTUATING MARGINS, COULD NOT BE SELECTED AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. IN THIS REGARD, WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF GU JARAT IN PR. CIT VS. ALLSCRIPTS INDIA PVT. LTD. IN INCOME TAX APPEAL NO.258 OF 2016 AND PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE INDIA PVT. LTD. VS. DCIT IN ITA N OS.276/PUN/2015 & CROSS APPEAL IN ITA NO.334/PUN/2015, RELATING TO ASSESSME NT YEAR 2010-11, ORDER DATED 31.01.2017 AND QLOGIC INDIA PVT. LTD. VS. DCI T IN ITA NO.227/PUN/2014, RELATING TO ASSESSMENT YEAR 2009-10, ORDER DATED 21 .10.2014. [EMPHASISED BY US] IN THE CASE OF BAXTER INDIA PVT. LTD VS. ACIT (SUPR A), THE TRIBUNAL DIRECTED TO EXCLUDE EXCEL FROM THE LIST OF COMPARABLES INTER-ALIA ON ACCOUNT OF, ABNORMAL VOLATILITY IN REVENUE AND 12 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) MARGINS. IT IS SETTLED LEGAL POSITION THAT A COMPA NY HAVING SUPER NORMAL PROFITS OR HIGHLY UNSTABLE MARGINS SHOULD NOT BE IDLY CONSIDERED AS G OOD COMPARABLE. THUS, IN VIEW OF THE DECISIONS REFERRED ABOVE, WE FIND MERIT IN THE CONT ENTIONS OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE EXCEL FROM THE LIST OF COMPARABLES. EXCEL WAS EXCLUDED FROM LIST OF COMPARABLES ON ACCO UNT OF ABNORMALLY FLUCTUATING REVENUE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNA L IN THE CASE OF M. MODEL GLOBAL SERVICES (SUPRA) FOR EXCLUSION OF EXCEL FROM THE FI NAL SET OF COMPARABLES. WE FIND THAT IN THE CASE OF ZYME SOLUTIONS PVT. LTD. (SUPRA ) EXCLUSION OF EXCEL WAS NOT CONSIDERED ON THE GROUND OF ABNORMAL FLUCTUATING MA RGIN OF THE COMPANY. NOR THIS FACT WAS BROUGHT TO THE NOTICE OF BENCH FOR CONSIDE RATION. THEREFORE, THE DECISION IN THE CASE OF ZYME (SUPRA) IS DISTINGUISHABLE ON FACT S. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF BANC T EC TPS INDIA PVT. LTD.(SUPRA) THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE EXCEL FROM THE LIST OF COMPARABLES FOR PARITY OF REASONS. THE ASSESSEE SUCCEEDS ON GROUND NO.2.2.6 OF THE A PPEAL. 17. IN GROUND NO.2.2.9 OF THE APPEAL ASSESSEE HAS P RAYED FOR ALLOWING WORKING CAPITAL ADJUSTMENT. THE LD.AUTHORIZED REPRESENTATI VE OF THE ASSESSEE POINTED THAT WORKING CAPITAL ADJUSTMENT WAS ALLOWED TO THE ASSES SEE BY THE TRIBUNAL IN ITA NO.531/MUM/2018 IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2013-14. THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHE R SUBMITTED THAT IF EXCEL (SUPRA) IS EXCLUDED FROM THE FINAL SET OF COMPARABLES AND W ORKING CAPITAL ADJUSTMENT IS ALLOWED. THE ARITHMETIC MEAN OF COMPARABLES WOULD BE 21.29%, I.E. WITHIN +/- 5% MARGIN, HENCE, NO TP ADJUSTMENT WOULD BE REQUIRED A S THE TRANSACTION UNDER IT SUPPORT AND RELATED SERVICES WOULD BE AT ARMS LENG TH. WHILE ADJUDICATING GROUND NO.1.2.10 ABOVE WE HAVE DIRECTED THE ASSESSING OFF ICER TO ALLOW WORKING CAPITAL ADJUSTMENT ON PROVISION OF SOFTWARE DEVELOPMENT AN D RELATED SERVICES. FOR PARITY OF REASONS THE WORKING CAPITAL ADJUSTMENT BE ALLOWED T O THE ASSESSEE IN RESPECT OF PROVISION OF IT SUPPORT SERVICES. CONSEQUENTLY, GROUND NO.2.2.9 OF THE APPEAL IS ALLOWED. 13 . 1416 / /201 7 (+. .2012-13 ) ITA NO.1416/MUM/2017(A.Y.2012-13) 18. THE OTHER SUB-GROUNDS RAISED IN GROUND NO.2 OF APPEAL ARE DISMISSED AS NOT PRESSED. 19. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALL OWED IN THE TERMS AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY THE 29 TH DAY OF JUNE, 2021. SD/- SD/- ( RAJESH KUMAR ) (VIKAS AWASTHY) # / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 4+/ DATED 29/06/2021 VM , SR. PS(O/S) COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT , 2. ./ / THE RESPONDENT. 3. 5/ ( )/ THE CIT(A)- 4. 5/ CIT 5. 67 ./+ , . . . , / DR, ITAT, MUMBAI 6. 789 :; / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI