CES Private Limited, Hyderabad V. DCIT, Hyderabad

ITA 1445/HYD/2010

• Counselvise Citation: 144522514 RSA 2010
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: P MURALI MOHAN
• Keywords: Transfer pricing; Share purchase agreement; International transaction; Date of conversion; Initiation of penalty proceedings
• Section: 92C; 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1445/HYD/2010 ASSESSMENT YEAR : 2006-07 CES PVT. LTD., HYDERABAD. PAN: AABCC8337L VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN REVENUE BY : SHRI P. SOMA SEKHAR REDDY DATE OF HEARING : 31-10-2013 DATE OF PRONOUNCEMENT : 29-11-2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THIS IS AN APPEAL BY ASSESSEE DIRECTED AGAINST THE ORDERS OF AO U/S 143(3) OF THE ACT, READ WITH DIRECTIONS OF D RP U/S 144C OF THE ACT DATED 25-10-2011. THE APPEAL IS WITH REFERENCE TO THE ISSUES ON TRANSFER PRICING ADJUSTMENTS MADE BY THE AO TO THE INCOMES UNDER SOFTWARE SEGMENT, ITES SEGMENT AND CAPITAL ADVANCE TO AES AND ALSO ADJUSTMENTS MADE TO CLAIM U/S 10A. 2. ASSESSEE RAISED DETAILED GROUNDS RUNNING TO 26 I N APPEAL AND ALSO FILED ADDITIONAL GROUNDS RUNNING FROM 27 TO 37 . WHEN ASKED TO FILE CONCISE GROUNDS, THE LEARNED COUNSEL SUBMITTED THAT COORDINATE BENCHES ARE INSISTING UPON DETAILED GROUNDS ON EACH ISSUE, ACCORDINGLY, ASSESSEE RAISED SO MANY GROUNDS. THE S UM AND SUBSTANCE OF THESE GROUNDS PERTAINS TO FOUR ISSUES, ON WHICH, ASSESSEE WAS AGGRIEVED AND WENT ON TO EXPLAIN ISSUE S. ASSESSEE PLACED ON RECORD VARIOUS PAPER BOOKS CONTAINING SUB MISSIONS BEFORE 2 ITA NO. 1445/HYD/2010 CE S PVT. LTD. DRP IN ONE PAPER BOOK, SUBMISSIONS BEFORE TPO IN ON E PAPER BOOK, DRAFT ASSESSMENT ORDER IN ONE PAPER BOOK, ANNUAL RE PORTS OF COMPANIES, WHICH ARE BEING OBJECTED TO IN TWO PAPER BOOKS AND LIST OF CASE LAW RELIED UPON IN ONE PAPER BOOK, IN ALL, SIX VOLUMES MENTIONING AS ANNEXURES, BUT, WITH NO PAGE NUMBERS. THE LEARNE D COUNSEL ALSO IN THE COURSE OF ARGUMENTS PLACED VARIOUS ORDERS RE LIED UPON SEPARATELY. 3. WE FIND THAT ADDITIONAL GROUNDS ARE IN CONTINUAT ION OF EXISTING GROUNDS ABOUT COMPARABLES AND VARIOUS OBJECTIONS RA ISED BY ASSESSEE. THEREFORE, WE ARE OF THE OPINION THAT NEI THER THE GROUNDS NOR THE ADDITIONAL GROUNDS NEED TO BE EXTRACTED IN THIS ORDER. 4. WE HAVE HEARD THE LEARNED COUNSEL AND LEARNED DR IN DETAIL. 5. ASSESSEE IS A COMPANY INCORPORATED IN INDIA AND PROVIDES WIDE RANGE OF BUSINESS SOLUTIONS IN INFORMATION TECHNOLO GY, PRIMARILY, TO ITS AES, NAMELY CES USA AND ITS GROUP CONCERNS. ASSESSE E COMPANY IS IN TWO BUSINESS SEGMENTS, VIZ.,INFORMATION TECHNOLO GY SERVICES AND SOFTWARE DEVELOPMENT SERVICES. ASSESSEE REPORTED TH E FOLLOWING TRANSACTIONS AS PER ITS 3CEB REPORT: 1) INFORMATION AND ITES 1,92,39,937/- 2) INFORMATION TECHNOLOGY SERVICES 3,30,73,708/- 3) INTEREST RECEIVED ON LOAN FROM AE 15,56,83 3/- CONSEQUENT TO THE REFERENCE TO TPO BY THE AO, THE TPO UNDERTOOK THE EXERCISE OF ANALYZING ASSESSEES INTERNATIONAL TRANSACTIONS AS PER THE PROVISIONS. THERE IS NO DISPUTE WITH REFERENCE TO THE TNMM METHOD AS MOST APPROPRIATE METHOD BOTH BY ASSESSEE AND THE DEPARTMENT. THE DATA BASE SEARCHED ARE THE SAME IE . PROWESS DATA BASE/ CAPITAL LINE. THE TPO REJECTED ASSESSEES TP DOCUMENTATION AS WELL AS ALLOCATION OF COST AND WENT ON TO EXAMINE V ARIOUS COMPARABLES IN BOTH THE SEGMENTS DIFFERENTLY BY USI NG VARIOUS FILTERS. 5.2 IN ITES SEGMENT, TPO AFTER ELABORATE EXERCISE AND GIVING OPPORTUNITY TO ASSESSEE ADOPTED 13 COMPARABLES, WHI CH INCLUDE 3 ITA NO. 1445/HYD/2010 CE S PVT. LTD. SOME OF THE COMPARABLES SELECTED BY ASSESSEE AND AC CEPTED BY IT, WHICH ARE AS UNDER: 1. MAPLE ESOLUTIONS LTD. 2. ALISEC TECHNOLOGIES LTD. 3. DATAMATICS FINANCIAL SERVICES LTD. 4. TRANSWORKS INFORMATION SERVICES LTD. 5. COSMIC GLOBAL LTD. 6. VISHAL INFORMATION TECHNOLOGIES LTD. 7. ASIT C MEHTA FINANCIAL SERVICES LTD. 8. GOLDSTONE INFRATECH LTD. 9. SPANCO LTD. 10. ACE SOFTWARE EXPORTS LTD. 11. APEX KNOWLEDGE SOLUTIONS P. LTD. 12. R SYSTEMS INTERNATIONAL LTD. 13. FLEXTRONICS SOFTWARE SYSTEMS LTD. ARITHMETIC MEAN OF THE ABOVE COMPANIES WAS ARRIVED AT 24% (OP/OC) AND AS OPERATING REVENUE DECLARED BY ASSESSEE IS AT 9.58%. THE TPO RECOMMENDED THE ADDITION OF RS. 27,32,841/- BEI NG SHORTFALL U/S 92C OF THE ACT. 5.3 WITH REFERENCE TO THE SOFTWARE DEVELOPMENT SE RVICES IN THE SOFTWARE DEVELOPMENT SEGMENT, THE TPO SELECTED 20 C OMPARABLES, WHICH ARE AS UNDER: 1. AZTEC SOFTWARE LTD. 2. GEOMETRIC SOFTWARE LTD. 3. INFOSYS LTD. 4. KALS INFO SYSTEMS LTD. 5. MINDTREE CONSULTING LTD. 6. PERSISTENT SYSTEMS LTD. 7. R SYSTEMS INTERNATIONAL LTD. 8. SASKEN COMMUNICATIONS LTD. 9. TATA ELXSI LTD. 10. LUCID SOFTWARE LTD. 11. MEDIA SOFT SOLUTIONS LTD. 12. RS SOFTWARE INDIA LTD. 13. SIP TECHNOLOGIES & EXPORTS LTD. 14. BODH TREE CONSULTING LTD. 15. ACCEL TRANSMATICS LTD. 4 ITA NO. 1445/HYD/2010 CE S PVT. LTD. 16. SYNSOYS BUSINESS SOLUTIONS LTD. 17. FLEXTRONICS SOFTWARE SYSTEMS LTD. 18. LANCO GLOBAL SYSTEMS LTD. 19. MEGASOFT LTD. 20. GATE GLOBAL SOLUTIONS LTD. THE OP/OC ARRIVED AT 20.68% AND APPLYING THE OPERAT ING COST OF RS. 30,04,60,885/- DETERMINED THE ALP AT RS. 3,69,00,31 6/- AND MADE ADJUSTMENT OF RS. 38,26,608/-. 5.4 THE THIRD ISSUE IS RELATING TO DETERMINATION O F ALP PERTAINING TO INTEREST RECEIVED ON LOAN ADVANCED BY ASSESSEE. ASS ESSEE HAS RECEIVED LIBOR PLUS INTEREST WHEREAS THE TP WAS OF THE OPINION THAT INTEREST RECEIVABLE SHOULD BE BENCHMARKED AT 14% ON JUNK BOND RATE AND, ACCORDINGLY, HE MADE AN ADJUSTMENT OF RS. 20,7 5,645/-. 5.5. FOURTH ISSUE FOR CONSIDERATION IS WITH REFER ENCE TO NON-TP MATTER OF EXCLUDING COMMUNICATION EXPENSES FROM EXP ORT TURNOVER. THE AO DETERMINED COMMUNICATION EXPENSES AND EXCLU DED THE SAME FROM EXPORT TURNOVER. ASSESSEES OBJECTION WAS THAT THE SAID EXPENSES SHOULD BE EXCLUDED FROM TOTAL TURNOVER ALS O IN THE CONTEXT OF CALCULATION U/S 10A OF THE ACT. 6. ASSESSEE RAISED VARIOUS OBJECTIONS BEFORE THE DR P AND THE DRP REJECTED MOST OF THE OBJECTIONS. HOWEVER ON INTERE ST ONE MEMBER HAS REJECTED THE OBJECTIONS WHERE AS TWO OF THE MEMBERS DID NOT AGREE WITH REFERENCE TO DETERMINATION OF ALP PERTAINING T O INTEREST. EVENTHOUGH, THE MAJORITY DECISION OF DRP WAS THAT R ATE OF INTEREST IN INTERNATIONAL TRANSACTION HAS TO BE BENCHMARKED AGA INST LIBOR PLUS CERTAIN BASE POINTS, AO, HOWEVER, DID NOT IMPLEME NT THE DIRECTION OF THE DRP, BUT, MENTIONED IN PAGE 2 OF HIS ORDER THAT DRP REJECTED ALL THE ISSUES, WHICH IS NOT SO. ASSESSEE IS AGGRIEVED ON THE ABOVE ORDERS OF THE AUTHORITIES. 7. AS REGARDS THE ISSUE OF ADDITION ON INTEREST, AS STATED BRIEFLY ABOVE, MAJORITY OF THE MEMBERS OF THE DRP THEMSELVE S DID NOT AGREE 5 ITA NO. 1445/HYD/2010 CE S PVT. LTD. WITH THE TPO BENCHMARKING OF INTEREST AT JUNKBOND R ATE AND OPINED THAT LIBOR PLUS CERTAIN BASIS POINTS SHOULD BE ADOP TED. THIS FINDING WAS CLEARLY GIVEN IN PARA 2 OF THE DRPS ORDER, WHI CH IS AS UNDER: 1. IN SEVERAL CASES, THE ISSUE RELATING TO DETERMI NATION OF ALP ON INTEREST ON LOAN TRANSACTIONS WAS CONSIDERED BY THE TPO. IN ALL THESE CASES, THE TPO APPLIED 14% PER ANNUM AS THE RATE OF INTEREST ON THE LOANS ADVANCED TO AES AND DETERMINED THE INTEREST F OR ADJUSTMENT. IN THIS PARTICULAR CASE, INSTEAD OF 14% INTEREST CHARG ED BY THE TPO, WE AGREE FOR LIBOR + CERTAIN % POINTS, I.E. LIBOR + 3% FOR THE FOLLOWING REASONS. 2. WE HAVE GONE THROUGH THE ORDER OF THE TPO AND FO UND SEVERE MATERIAL DEFICIENCIES AND INCONSISTENCIES IN THE S AND TAKEN BY THE TPO. ACCORDINGLY, WE DID NOT ACCEPT THE DECISION OF THE TPO AND HELD THAT THE ALP ON INTEREST SHOULD BE IN THE RANGE OF LIBOR + C ERTAIN BASIS POINTS, DEPENDING ON SOME INTERNAL CUP AVAILABLE IN THE TAX PAYERS CASES OR THE EXTERNAL CUP ADOPTED FROM OTHER CASES. 3. SRI F.M. MOHANTY, ONE OF THE MEMBERS OF THE DRP, HYDERABAD, HAD EXPRESSED HIS DISAGREEMENT WITH THE DECISION TA KEN. HE IS OF THE OPINION THAT IT IS IN APPROPRIATE TO ISSUE ANY DIRE CTIONS ON THIS MATTER REGARDING DETERMINATION OF ALP ON LOAN TRANSACTIONS . 4. SECTION 144C(5) OF IT ACT READ WITH SUB-SECTION [8] DOES NOT MANDATE THE DRP TO HAVE ANY DISCRETION NOT TO ISSUE DIRECTIONS ON ANY PARTICULAR ISSUE REFERRED TO IT MEANING THEREBY THA T ANY ISSUE REFERRED TO IT MEANING THEREBY THAT ANY ISSUE REFERRED TO THE DRP HAS TO BE DISPOSED OFF AS PER THE PROVISIONS CONTAINED IN SECTION 144C OF THE IT ACT. WHILE GIVING HIS DISSENT NOTE, SRI F.M. MOHANTY HA RAISED CERTAIN ISSUES WHICH NEED TO BE CLARIFIED FOR THE PURPOSE OF RECORD. THE SAME ARE AS UNDER: I) IT IS MENTIONED THAT DRP, BANGALORE, HAS APPROVE D THE INTEREST RATE OF 14% PER ANNUM AS DETERMINED BY THE TPO IN A PARTICU LAR CASE. HE REFERRED TO CERTAIN DECISIONS OF ITAT AND HIGH COUR T ACCORDING TO WHICH THE DECISION GIVEN BY THE COORDINATE BENCH NEEDS TO BE FOLLOWED BY THE OTHER BENCHES. THE CBDT DID NOT PRESCRIBE ANY GUIDELINES TO FOLLOW THE DECISIONS OF OTHER COORDINATE BENCHES OF DRP. IT IS SEEN FROM TH E ORDERS THAT THE TPOS THEMSELVES ARE NOT FOLLOWING UNIFORM DECISION IN RESPECT OF ANY PARTICULAR ISSUE. ESPECIALLY IN THE CASE OF INTERES T PAYMENT OR INTEREST RATES, TPOS IN DELHI AND MUMBAI FOLLOWED THE PRINCI PLE OF CHARGING LIBOR + CERTAIN PERCENTAGE POINTS. IN THE CASE OF PEROT SYSTEMS TSI INDIA LTD. VS. DCIT, CIRCLE 4(1), DELHI [2010] 37 SOT 358 (DELHI), AND VVF LTD. VS. DCIT [2010] TIOL-55-ITAT-MUMBAI, THE H ONBLE ITAT HAVE APPROVED THEM. WHEN TPOS THEMSELVES ARE NOT FOLLOWI NG UNIFORMLY THROUGHOUT THE COUNTRY, ASKING THE DRP MEMBERS WHO ARE DECIDING ON THE TPOS ORDERS IS A FARFETCHED IDEA. EACH CASE OF THE TPO WILL DIFFER BASED ON THE FACTS OF THE CASE. SIMILAR IS THE CASE WITH THE 9 DRPS LOCATED AT VARIOUS CITIES IN THE COUNTRY. THE TPO H YDERABAD HIMSELF IS ACCEPTING IN RESPECT OF PAYMENT BY TAXPAYER TO AES IN RESPECT OF THE LOAN OBTAINED BY THEM E.G., A) IN THE CASE OF M/S ADP PVT. LTD., THE TPO HAS OB SERVED AS UNDER: 6 ITA NO. 1445/HYD/2010 CE S PVT. LTD. THE TAXPAYER HAS AVAILED EXTERNAL COMMERCIAL BORRO WINGS FROM ITS AE, ADP NETHERLANDS BV. THE LOAN AGREEMENT WAS ENTERED INTO ON APRIL 12, 2005 FOR A TENOR OF THREE YEARS FOR AN AMOUNT OF EU RO 3,800,000 AND ANOTHER LOAN AGREEMENT WAS ENTERED INTO ON JULY 25, 2005 FOR AN AMOUNT OF USD $2,400,000. THE INTEREST PAYABLE TO THE AE I S AT 2.85% & 4.15%. THE TAXPAYER PAID INTEREST AT THE SAME RATE. AS THE INTEREST CHARGED IS BELOW LIBOR + 200 BASIS POINTS, THE INTEREST CHARGE D IS TREATED AS AT ARMS LENGTH. B) IN THE CASE OF KIRBY BUILDING SYSTEMS INDIA LTD ., THE TPO FOUND THAT THE TAXPAYER PAID INTEREST ON ITS BORROWINGS F ROM AES AT LIBOR + 1.5% (5.29% TO 5.65% AT DIFFERENT POINTS OF TIME). HE FOUND COMPARABLES AS UNDER: S.NO . NAME OF THE COMPANY AMOUNT BORROWED (MILLIONS) RATE OF INTEREST (% OVER LIBOR) 1. RADICO KAHITAN US $10 1.50 2. SHIVA CEMENT US $ 7 2.50 3. TATA CHEMICAL US S 20 1.00 ARITHMETIC 1.67 IN THE FIRST CASE, THE TPO ACCEPTS THAT INTEREST RA TE AT LIBOR + 200 BASIS POINTS IS TREATED AS ARMS LENGTH IN A CASE WHERE L OAN IS GIVEN TO AN INDIAN ENTITY EVEN THOUGH INTEREST RATES PREVAILING IN INDIA DURING THE RELEVANT TIME WERE OF THE ORDER OF 10 TO 14% PER AN NUM. IN THE SECOND CASE, CONSIDERING THAT THERE IS NO SI GNIFICANT DIFFERENCE BETWEEN THE RATE OF INTEREST PAID BY THE TAX PAYER AND THE COMPARABLES, NO ADJUSTMENT WAS PROPOSED. IN BOTH THE ABOVE INSTANCES THE TPO HAS RIGHTLY REC OGNIZED THE PRINCIPLE INVOLVED I.E. RATE OF INTEREST IN INTERNATIONAL TRA NSACTIONS IS BENCHMARKED AGAINST LIBOR + CERTAIN BASIS POINTS (I.E. INTEREST RATES PREVAILING IN INTERNATIONAL MONEY MARKETS) AND NOT AGAINST INTERE ST RATES PREVAILING IN INDIA. ANOTHER MOST QUESTION IS WHETHER THE TPO WOU LD HAVE ALLOWED INTEREST @ 14% P.A. IN CASE IT WAS CLAIMED BY THE T AX PAYERS IN THE ABOVE CASES, HAVING HELD ALP OF INTEREST ON LOAN AT SUCH RATE. DEFINITELY NOT. IN THE ABOVE CASES HE ACCEPTED LIBOR + CERTAIN BAS IS POINTS, WHEREAS FOR PAYMENTS HE DID NOT ACCEPT. THIS KIND OF ONE SI DED ACTION DEFIES EQUITY AND LOGIC. THERE IS NO MECHANISM CREATED BY THE CBDT TO COMMUNICATE THE DECISIONS OF ALL THE BENCHES OF THE DRP AMONG ALL THE DRPS ACROSS THE COUNTRY. IN THE ABSENCE OF SUCH AN ORGANIZED MECHANISM, GUIDELINES TO FOLLOW THE SAME, IT CANNO T BE EXPECTED TO FOLLOW THE DECISION GIVEN IN AN ISOLATED CASE BY AN ISOLATED BENCH OF THE DRP. IT IS NOTICED THAT THERE ARE SEVERAL INSTANCES WHERE DIFFERENT BENCHES OF THE ITAT GAVE DIFFERENT DECISIONS ON THE SAME ISSUE. THE TPO UNIFORMLY APPLIED THE INTEREST RATE PERCENTAGE OF 14% TO THE MONEYS LENT BY THE TAXPAYER TO ITS SUBSIDIARIES LOC ATED IN CHINA, USA, SWITZERLAND AND BRAZIL. NORMALLY, IN RESPECT OF CAL CULATING ALP IN RESPECT OF INTEREST PAYABLE OR RECEIVABLE IN INTERNATIONAL TRANSACTIONS, IT IS TO GO BY LIBOR + %. AGAIN IN CALCULATION OF ALP IN RESPE CT OF INTEREST 7 ITA NO. 1445/HYD/2010 CE S PVT. LTD. PAYMENTS/RECEIVABLES ONE HAS TO TAKE INTO ACCOUNT T HE PREVAILING LIBOR, THE COST OF THE FUND TO THE TAXPAYER, THE OPPORTUNI TY COST, THE COUNTRY TO WHICH IT IS LENT AND BORROWED, THE PLR RATES PREVAI LING IN THOSE COUNTRIES AND THE RATINGS OF THE TDS APPLYING UNIFORM INTERES T RATE OF 14%. WE ARE OF THE VIEW THAT HERE THE TPO HAS ERRED AND HENCE T HE ARMS LENGTH PRICE HAS BEEN CALCULATED TAKING THE ABOVE INTO CRI TERIA. WITH DUE RESPECT TO OUR FELLOW MEMBER, ON THIS POINT, WE DO NOT AGRE E WITH HIM IN APPROVING TPOS ACTION. II) IN THE CASE OF M/S REDDY LABORATORIES LTD., THE RE IS AN ISSUE REGARDING DETERMINATION OF ALP OF INTEREST ON LOANS GIVEN TO AES LOCATED IN DIFFERENT COUNTRIES. THE TPO DETERMINED THE ALP AT 14% PER ANNUM UNIFORMLY ON ALL SUCH LOANS. CONSIDERING THAT AN AP PEAL IS PENDING BEFORE THE ITAT AGAINST THE DECISION OF THE CIT(A) WHO HAD CONFIRMED THE INTEREST RATE AT 7% PER ANNUM, THE DECISION OF THE TPO HAS BEEN UPHELD. III) IT IS MENTIONED THAT ANY DIRECTION/DECISION BY DRP OTHER THAN UPHOLDING 14% IS LIKELY TO PREJUDICE THE DEPARTMENT AL APPEAL PENDING BEFORE THE ITAT IN THE CASE OF M/S REDDY LABORATORI ES LTD. IT IS SEEN THAT THE ISSUES RELATING TO TRANSFER PRICING HAVE BEEN I N VOGUE FOR OVER SEVERAL YEARS. VARIOUS APPEALS WERE DECIDED BY THE CIT(A) A ND IN MANY CASES, MANY ISSUES WERE APPEALED AGAINST BY THE DEPARTMENT BEFORE THE ITAT. THERE IS NO CONSOLIDATED OFFICIAL RECORD OF SUCH DE CISIONS WHICH ARE BEFORE THE ITAT. BEFORE DRP, WE HAVE COME ACROSS AB OUT 12 TO 15 ISSUES IN ALL THE CASES PUT TOGETHER. ON ALL THESE ISSUES, THERE ARE SEVERAL DEPARTMENTAL APPEALS PENDING BEFORE THE ITA T FOR ADJUDICATION. IF THE ORDER OF TPO IS TO BE ACCEPTED ON ALL THOSE ISSUES DRP CANNOT TAKE ANY DECISION OTHERWISE THAN UPHOLDING ALL THE DECISIONS OF THE TPO EVEN THOUGH THEY ARE FOUND TO BE PATENTLY WRONG. TH ERE ARE NO SUCH GUIDELINES ISSUED BY THE CBDT FOR THE FUNCTIONING O F THE DRPS. IN ANY CASE, IF WHAT IS SUGGESTED BY SRI F.M. MOHANTY IS T O BE FOLLOWED, THE WHOLE FUNCTIONING OF THE DRP WOULD BE PARALYZED AND UNWORKABLE AND THE INSTITUTION ITSELF BECOMES REDUNDANT. IV) THERE IS NO APPEAL BY THE DEPARTMENT AGAINST TH E ORDERS OF THE DRP. IT IS A CONSCIOUS DECISION TAKEN BY THE GOVERNMENT OF INDIA NOT TO APPEAL THE DECISIONS TAKEN BY A PANEL CONSISTING OF 3 SENI OR COMMISSIONERS. THEY ARE EXPECTED TO DECIDE THE ISSUES JUDICIOUSLY AND OBJECTIVELY TO THE BEST OF THEIR KNOWLEDGE AND ABILITY. WHETHER THERE IS AN APPEAL AGAINST SUCH ORDERS OR NOT IS ONLY A CONSEQUENCE AND A CONS EQUENCE SHOULD NOT BE AT THE BACK OF THE MIND WHILE DECIDING THE ISSUE S, OTHERWISE THE DECISION ITSELF WILL BE BIASED. V) IN ALMOST ALL THE CASES WHERE THE TPO DETERMINED ALP OF INTEREST AT 14%, THE INDIAN ENTITY IS THE PARENT AND THEY HAVE EXTENDED LOANS TO THEIR AES LOCATED OUTSIDE THE COUNTRY FOR THE PURPO SE OF EXPANDING THEIR BUSINESS AND/OR FOR MEETING WORKING CAPITAL REQUIRE MENTS ETC. THERE IS NO QUESTION OF SHIFTING OF PROFIT OUT OF THE COUNTR Y AND ON THE CONTRARY ONCE THE AES ESTABLISH THEMSELVES IN THOSE COUNTRIE S IT WILL BE A CASE OF SHIFTING OF PROFITS TO THE COUNTRY. IN ANY CASE, A COMPARISON HAS TO BE BETWEEN COMPARABLES AND NOT BETWEEN NON-COMPARABLES . IN ALL THESE CASE, THE TRANSACTIONS ARE BETWEEN AN INDIAN ENTITY AND AES LOCATED OUTSIDE THE COUNTRY. A COMPARISON COULD BE MADE TO A TRANSACTION TAKING PLACE BETWEEN TWO UNCONTROLLED ENTITIES ONE LOCATED IN THE COUNTRY AND 8 ITA NO. 1445/HYD/2010 CE S PVT. LTD. THE OTHER LOCATED OUTSIDE THE COUNTRY WHERE THE TAX PAYERS TRANSACTIONS ARE BEING COMPARED WITH. VI) AS MENTIONED ABOVE, THE PROVISIONS OF SECTION 1 44C OF THE IT ACT DOES NOT GIVE ANY MANDATE TO THE DRP TO REFRAIN FRO M DECIDING ANY ISSUE ON MERIT AND TO AVOID GIVING NECESSARY DIRECT IONS TO THE AO. 8. WE AGREE WITH THE OPINION OF THE MAJORITY MEM BERS OF DRP. JUNK BOND RATE CAN NOT ACCEPTED WHILE ANALYZING LOANS AD VANCED INTERNATIONALLY. MOREOVER, THIS ISSUE IS ALSO COVER ED IN FAVOUR OF ASSESSEE BY VARIOUS ORDERS OF THE COORDINATE BENCHE S OF ITAT. IN THE CASE OF SIVA INDUSTRIES HOLDINGS LTD., ITA NO. 2148 /MDS/2010, DATED 20-05-2011, THE COORDINATE BENCH HELD AS FOLLOWS: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE ORDER OF THE TPO CLEARLY SHOWS THAT THE ASSESSE E HAD RAISED THE FUNDS BY WAY OF ISSUANCE OF 0% OPTIONAL CONVERTIBLE PREFERENTIAL SHARES. THUS IT IS NOTICED THAT THE F UNDS RAISED BY THE ASSESSEE COMPANY FOR GIVING THE LOAN TO INDIA TELECOM HOLDINGS LTD., MAURITIUS, WHICH IS ITS ASSOCIATED E NTERPRISES AND WHICH IS THE SUBSIDIARY COMPANY, IS OUT OF THE FUNDS OF THE ASSESSEE COMPANY. IT IS NOT BORROWED FUNDS. THE ASS ESSEE HAS GIVEN THE LOAN TO THE ASSOCIATED ENTERPRISES IN US DOLLARS. THE ASSESSEE IS ALSO RECEIVING INTEREST FROM THE ASSOCI ATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES IS IN FORE IGN CURRENCY AND THE TRANSACTION IS AN INTERNATIONAL TRANSACTION , THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYI NG THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TR ANSACTION. IF THIS IS SO, THEN THE DOMESTIC PRIME LENDING RATE WO ULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEIN G LIBOR WOULD COME INTO PLAY. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT LIBOR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMI NING THE ARMS LENGTH INTEREST RATE IN RESPECT OF THE TRANSA CTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES. AS IT IS NOTICED THAT THE AVERAGE OF THE LIBOR RATE FOR 1.4./2005 TO 31.3.2006 IS 4.42% AND THE ASSESSEE HAS CHARGED INTEREST AT 6% W HICH IS HIGHER THAN THE LIBOR RATE, WE ARE OF THE VIEW THAT NO ADDITION ON THIS COUNT IS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADDITION AS MADE BY THE A SSESSING OFFICER ON THIS COUNT IS DELETED. 9. FURTHER, IN THE CASE OF FOUR SOFT LTD., IN ITA NO. 1495/HYD/2010, DATED 09-09-2011, THE COORDINATE BENCH HELD AS FOLL OWS: 19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE DO NOT FIND ANY M ERIT IN THE ARGUMENTS 9 ITA NO. 1445/HYD/2010 CE S PVT. LTD. OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WE FI ND THAT HE ALP IS TO BE DETERMINED FOR THE INTERNATIONAL TRANSACTION, TH AT IS, ON INTERNATIONAL LOAN AND NOT FOR THE DOMESTIC LOAN. HENCE, THE COMP ARABLE, IN RESPECT OF FOREIGN CURRENCY LOAN IN THE INTERNATIONAL MARKET, IS TO BE LIBOR BASED WHICH IS INTERNATIONALLY RECOGNISED AND ADOPTED. IN OUR CONSIDERED VIEW, THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO A DOPT THE LIBOR PLUS FOR THE PURPOSE OF TP ADJUSTMENT. OUR VIEW IS FORTI FIED BY THE DECISION OF THE MADRAS BENCH IN THE CASE OF SIVA INDUSTRIES [SU PRA]. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE DRP SHOULD HAVE ADOPTED THE EURIBOR FOR THE PUR POSE OF THE TP ADJUSTMENTS, AS WE FIND THAT THE MOSTLY USED AND RE COGNISED BENCHMARK RATE FOR INTERNATIONAL LOAN IS LIBOR BASED. HENCE, THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR R ATES. WE CONFIRM THE DIRECTIONS OF THE DRP. HOWEVER, BY CONSIDERING THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ACTUAL LI BOR WAS 4.42% AS AGAINST THE 5.78% APPROVED BY THE DRP, WE FIND IT P ROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER, TO VERI FY THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE COMPANY. IN VIEW OF THIS MATTER, WE REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE ACTUAL AVERAGE LIBOR PREVAILED IN THE FINANCIAL YEAR RELEVANT TO T HE ASSESSMENT YEAR UNDER CONSIDERATION AND ADOPT THE INTEREST RATE 4.4 2% IF THE CLAIM OF THE ASSESSEE IS FOUND CORRECT. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. ACCORDING TO ASSESSEE, IT HAS ADVANCED A L OAN OF USD$150,000 TO CES, USA @ 6% INTEREST PER ANNUM. AN OTHER LOAN OF USD$ 6,80,000 WAS CONVERTED INTO EQUITY SHARE CAPIT AL ON 28-02-2006 AND THE VALUE OF INTEREST RECEIVED UPTO THE DATE OF CONVERSION WAS AT RS. 15,56,833/-, FOR WHICH RATE OF INTEREST CALCULA TED AT LIBOR PLUS 157 BASIS POINTS. SINCE, ASSESSEE HAS ADOPTED LIBOR + 1 .57% BASE POINTS, WE DO NOT SEE ANY REASON TO RESTORE THE MAT TER TO THE TPO AS THE SAID RATE OF LIBOR + CAN BE CONSIDERED AS ALP. ACCORDINGLY, FOLLOWING THE OBSERVATIONS OF DRP AND ALSO FINDINGS OF THE COORDINATE BENCHES IN THE ABOVE CASES, WE ALLOW ASSESSEES CON TENTIONS ON THIS ISSUE RAISED IN GROUND NOS. 18,19 & 20. 11. AS REGARDS EXCLUSION OF COMMUNICATION EXPENSE S, AS BRIEFLY STATED ABOVE, WHILE WORKING OUT DEDUCTION U/S 10A, THE AO EXCLUDED COMMUNICATION EXPENSES FROM THE EXPORT TURNOVER. IT WAS THE CONTENTION THAT THE SAID EXPENSES SHOULD ALSO BE EX CLUDED FROM THE TOTAL TURNOVER. ASSESSEE RAISED THIS ISSUE IN GROUN D NOS. 23 & 24. 10 ITA NO. 1445/HYD/2010 CE S PVT. LTD. THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SAKSOFT AND ALSO THE DECIS IONS OF OTHER COORDINATE BENCHES IN THE CASE OF PRITHVI INFORMATI ON SOLUTIONS LTD. IN ITA NO. 225/HYD/2005, DATED 12-10-2007 AND ALSO IN THE CASE OF ITO VS D.E. BLOCK INDIA SOFTWARE (PVT.) LTD. IN ITA NO. 983 & 984/HYD/2006, DATED 31-012-007. IN FACT, THE AO DID MENTION THAT THE ISSUE IS PENDING BY WAY OF REFERENCE TO HONBLE HIG H COURT. SINCE THE ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE BY THE SPEC IAL BENCH AS WELL AS COORDINATE BENCHES, WE DIRECT THE AO TO EXCLUDE THE SAID COMMUNICATION EXPENSES FROM THE TOTAL TURNOVER ALSO AND WORKOUT THE DEDUCTION ACCORDINGLY. ACCORDINGLY, GROUND NOS. 23 & 24 ARE ALLOWED. 12. GROUND NOS. 25 & 26 PERTAINING TO LEVY OF INTEREST U/S 234B AND INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, WHICH DO NOT REQUIRE ANY ADJUDICATION. 13. GROUND NO. 22 IS WITH REFERENCE TO DISALLO WANCE OF UNUTILIZED BALANCE OF CENVAT CREDIT WRITTEN OFF IN THE BOOKS O F ACCOUNT AND THIS ISSUE WAS NOT ARGUED AT THE TIME OF HEARING NOR PRE SSED, THEREFORE, THE SAME IS TREATED AS WITHDRAWN. SOFTWARE SEGMENT AND ITES: DETERMINATION OF ALP U/S 92C OF THE ACT. 14. WITH REFERENCE TO ITES, ASSESSEE IS OBJECTI NG TO COMPARABLES ONLY BEFORE US. EVEN THOUGH, ASSESSEE HAS RAISED MA NY GROUNDS ON VARIOUS OBJECTIONS TAKEN BEFORE THE DRP ON VARIOUS FILTERS. ASSESSEES OBJECTIONS ON ITES IS WITH REFERENCE TO FOLLOWING COMPANIES: 1. MAPLE ESOLUTIONS LTD.: THE CONTENTION IS TO EXCLUDE THE SAID COMPANY FRO M THE LIST OF COMPARABLES ON THE GROUND THAT DIRECTORS OF THIS CO MPANY INVOLVED IN FRAUD AND HENCE FINANCIALS ARE UNRELIABLE. LD. AR R ELIED ON THE FOLLOWING CASE LAW: 11 ITA NO. 1445/HYD/2010 CE S PVT. LTD. 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 19. 2. DELHI ITAT ORDER IN THE CASE OF ITO VS. CRM SERV ICES INDIA PVT. LTD. DATED 30-06-2011 AT PARA 17.2 HOLDING THA T FINANCIALS OF THESE COMPANIES ARE UNRELIABLE. 2. VISHAL INFORMATION TECHNOLOGIES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT IT HAS DIFFERENT FUNCTIONALITY AND COMPANY OUTSOURCES ITS ACTIVITIES. HE RELIED ON THE FOLLOWING CASE LAW: 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 17. 2. MUMBAI ITAT ORDER IN THE CASE OF ACIT VS. MAERSK GLOBAL SERVICE CENTRAL INDIA PVT. LTD. WHERE THIS COMPANY IS REJECTED AS COMPARABLES TO ITES. 3. ASIT C. MEHTA FINANCIAL SERVICES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY MERGED WITH NUCLEUS & GIS INDIA LTD IN FEB. 2006 AND ALSO A SUPER NORMAL PROFIT MAKING COMPANY. HE RELIED ON THE FOLLOWING CASE LAW: 1. BANGALORE ITAT ORDER IN THE CASE OF GOOGLE INDIA PVT. LTD. VIDE 1368/BANG/2010 WHERE THIS COMPANY IS REJECTED AS COMPARABLE TO ITES. 2. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 11 AND 15. 3. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 4. SPANCO LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY ACQUIRED INTELENET BPO SERVICES PVT. LTD. I N NOV. 2005 AND ALSO A SUPER NORMAL PROFIT MAKING COMPANY. HE RELIE D ON THE FOLLOWING CASE LAW: 1. BANGALORE ITAT ORDER IN THE CASE OF GOOGLE INDIA PVT. LTD. VIDE 1368/BANG/2010 WHERE THIS COMPANY IS REJECTED AS COMPARABLE TO ITES. 12 ITA NO. 1445/HYD/2010 CE S PVT. LTD. 2. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 11 AND 15. 3. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 5. GOLDSTONE INFRATECH LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY IS ENGAGED IN COMPLETELY DIFFERENT LINE OF BUSINESS AND ALSO HAVING SUPER NORMAL PROFITS. HE RELIED ON THE FOLLO WING CASE LAW: 1. BANGALORE ITAT ORDER IN THE CASE OF GOOGLE INDIA PVT. LTD. VIDE 1368/BANG/2010 WHERE THIS COMPANY IS REJECTED AS COMPARABLE TO ITES. 2. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 15. 3. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 6. ALLSEC TECHNOLOGIES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY IS HAVING SUPER NORMAL PROFITS. FURTHER IT HAS BEEN EXPERIENCING EXTRAORDINARY EVENTS. DURING THE FY 20 05-06, THIS COMPANY HAD GONE FOR A IPO DURING THE RELEVANT PREV IOUS YEAR AND ALSO THE COMPANY HAD ENTERED INTO A SHARE PURCHASE AGREEMENT WITH SHAREHOLDER OF B2K CORPORATION PVT. LTD., WHICH IS ENGAGED IN THE BUSINESS OF INBOUND AND OUTBOUND VOICE, EMAIL CHAT SERVICES AND INFORMATION TECHNOLOGY SERVICES. HE RELIED ON THE F OLLOWING CASE LAW: 1. BANGALORE ITAT ORDER IN THE CASE OF GOOGLE INDIA PVT. LTD. VIDE 1368/BANG/2010 WHERE THIS COMPANY IS REJECTED AS COMPARABLE TO ITES. 2. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 11 AND 15. 3. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 7. DATAMICS FINANCIAL SERVICES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY DOES NOT QUALIFY AS COMPARABLE AS IT ENABLE D SERVICE REVENUE IS LESS THAN 75% OF THE TOTAL OPERATING REV ENUES. THE 13 ITA NO. 1445/HYD/2010 CE S PVT. LTD. COMPANYS REVENUE FROM IT ENABLED SERVICES IS ONLY 71.9%. HE RELIED ON THE DECISION OF DELHI ITAT IN THE CASE OF DCIT V S. AMERICAN EXPRESS (INDIA) (P) LTD., [2012] 135 ITD 211 (DELHI )(TRIB.) 8. APEX KNOWLEDGE SOLUTIONS P. LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY IS ENGAGED IN DIFFERENT LINE OF BUSINESS OF E-PUBLISHING WHICH IS COMPLETELY DIFFERENT FROM ASSESSEE COMPANY S BUSINESS OF ITES. HE RELIED ON THE DECISION BANGALORE ITAT ORDE R IN THE CASE OF GOOGLE INDIA PVT. LTD. VIDE 1368/BANG/2010 WHERE TH IS COMPANY IS REJECTED AS COMPARABLE TO ITES. 9. TRANSWORKS INFORMATION SERVICES LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY PROVIDES CRM SERVICES AND ALSO OPERATES IN THE AREA OF RENDERING BUSINESS PROCESSING OUTSOURCING SERVICES. IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD, VI SHAL INFORMATION TECHNOLOGIES HAVE BEEN EXCLUDED AS IT WAS ENGAGED I N SIMILAR SERVICES OF BPO. HE RELIED ON THE FOLLOWING CASE LA W: 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 21. 2. HYDERABAD ITAT ORDER IN THE CASE OF TRINITY ADVA NCED SOFTWARE LABS. LTD. 3. BANGALORE ITAT ORDER IN THE CASE OF GENISYS INTE GRATING SYSTEMS (INDIA) PVT. LTD. 4. DELHI ITAT ORDER IN THE CASE OF AGNITY INDIA TEC HNOLOGIES PVT. LTD. 5. HYDERABAD ITAT ORDER IN THE CASE OF DELOITTE CON SULTING INDIA PVT. LTD. 15. WE HAVE CONSIDERED THE ABOVE OBJECTIONS AND AS COORDINATE BENCHES HAVE ALREADY DECIDED THAT THESE COMPANIES A RE NOT TO BE SELECTED ON VARIOUS REASONS, WE UPHOLD THE OBJECTIO NS OF ASSESSEE AND DIRECT THE TPO/AO TO WORK OUT THE ARITHMETIC ME AN OF PLI ON THE 14 ITA NO. 1445/HYD/2010 CE S PVT. LTD. BALANCE OF COMPANIES. GROUNDS RAISED BY ASSESSEE ON THIS ISSUE ARE ALLOWED. 16. WITH REFERENCE TO SOFTWARE SEGMENT, ASSES SEE OBJECTIONS ARE AS UNDER: 1. INFOSYS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY IS A GIANT COMPANY AND IS ENGAGED IN THE DE VELOPMENT OF NICHE PRODUCTS. HE RELIED ON THE DECISION OF HYDER ABAD ITAT IN THE CASE OF INTOTO SOFTWARE PVT. LTD. IN ITA NO. 1196/H YD/2010 (32 TAXMANN.COM 21). 2. FLEXTRONICS SOFTWARE SYSTEMS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT IN THIS COMPANY SUBSTANTIAL ACQUISITION OF FLEXTRONCIS INTERNATIONAL TOOK PLACE ON 05-05-2005 AND HENCE CANNOT BE TAKEN AS CO MPARABLE. HE RELIED ON HYDERABAD ITAT ORDER IN THE CASE OF CAPIT AL IQ INFORMATION SYSTEMS (INDIA) LTD. 32 TAXMANN.COM 21. 3. PERSISTENT SYSTEMS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT IN THIS COMPANY SUBSTANTIAL ACQUISITION OF NORWEST CAP ITAL PARTNERS TOOK PLACED ON 22-11-2005 AND HENCE CANNOT BE TAKEN AS C OMPARABLE. HE RELIED ON HYDERABAD ITAT ORDER IN THE CASE OF CAPIT AL IQ INFORMATION SYSTEMS (INDIA) LTD. 32 TAXMANN.COM 21. 4. KALS INFO SYSTEMS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND IT HAS DIFFERENCE IN FUNCTIONALITY AND BUSINESS MODEL. THI S COMPANYS CORE AREA OF BUSINESS INCLUDES THE DEVELOPMENT, MANUFACT URE AND SALES & MARKETING OF PRINTERS, COMPUTERS, LCD PROJECTORS AN D COLOR TVS. ADDITIONALLY IT MANUFACTURES SEMICONDUCTORS AND PR ECISION ASSEMBLY 15 ITA NO. 1445/HYD/2010 CE S PVT. LTD. ROBOTS WHERE AS THE ASSESSEE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT SERVICES. SINCE IT IS A SUPER PROFIT MA KING COMPANY, CANNOT BE CONSIDERED AS COMPARABLE. HE RELIED ON TH E FOLLOWING CASE LAW: 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 15 & 16- 32 TAXMANN. COM 21. 2. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 5. ACCEL TRANSMATICS LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS IS A SUPER PROFIT MAKING COMPANY OF 44.07% OPERATIN G PROFIT AND DIFFERENCE IN FUNCTIONALITY AND BUSINESS MODEL AND MAJOR REVENUE FOR THE YEAR UNDER CONSIDERATION IS DUE TO AN EXTRAORDI NARY EVENT I.E. SALE OF IP RIGHTS IN PRODIGY, A SCHOOL MANAGEMENT SYST EM. FOR AY 2004- 05 HAS A NEGATIVE OPERATIVE MARGIN OF (-18.73%.). H E RELIED ON THE FOLLOWING CASE LAW: 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 15 & 16- 32 TAXMANN. COM 21. 2. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 6. MEGASOFT LTD. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMISSION IS TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES ON TH E GROUND THAT THIS COMPANY IS A SUPER PROFIT MAKING COMPANY AND DIFFER ENCE IN FUNCTIONALITY AND BUSINESS MODEL. FURTHER, TPO PLAC ED A FILTER OF SIMILAR YEAR FINANCIAL ENDING I.E., MARCH YEAR ENDI NG. HOWEVER, MEGASOFT LTD HAS A DIFFERENT FINANCIAL YEAR ENDING COMPARED TO ASSESSEE COMPANY I.E., DECEMBER YEAR ENDING AND OUG HT NOT TO HAVE CONSIDERED IT AS A COMPARABLE. HE RELIED ON THE FOL LOWING CASE LAW: 1. HYDERABAD ITAT ORDER IN THE CASE OF CAPITAL IQ I NFORMATION SYSTEMS (INDIA) LTD. VIDE PARA 15 - 32 TAXMANN.COM 21. 2. MUMBAI ITAT ORDER IN TEVA INDIA PVT. LTD. VS. DC IT MUMBAI. 3. DY. CIT VS. AMERICAL EXPRESS (INDIA)(P) LTD. [20 12] 135 ITD 211 (DELHI)(TRIB) 16 ITA NO. 1445/HYD/2010 CE S PVT. LTD. 17. WE HAVE CONSIDERED VARIOUS OBJECTION IN THE L IGHT OF MATERIAL PLACED BEFORE US. VARIOUS COORDINATE BENCHES HAVE A LREADY CONSIDERED THE ABOVE OBJECTIONS ON SIMILARLY PLACED SOFTWARE DEVELOPMENT COMPANIES. ACCORDINGLY, THESE OBJECTION S OF ASSESSEE ARE ACCEPTED AND THE TPO DIRECTED TO EXCLUDE THE AB OVE COMPANIES AND REWORK OUT ARITHMETIC MEAN OF PLI. 18. AFTER WORKING OUT AT THE ARITHMETIC MEAN OF PL I, IF THE RANGE IS WITHIN + OR 5% AS PER THE PROVISO TO SECTION 92C( 2), THE AO/TPO IS ALSO DIRECTED TO CONSIDER THE SAME. ACCORDINGLY, VA RIOUS GROUNDS RAISED ON THESE TWO ISSUES ARE CONSIDERED ALLOWED. 19. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY AL LOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMA KOTAIAH) JUDICIAL MEMBER ACCOU NTANT MEMBER HYDERABAD, DATED: 29 TH NOVEMBER, 2013. KV COPY TO:- 1) M/S CES PVT. LTD., C/O P. MURALI & CO., CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYD 82. 2) DCIT CIRCLE 1(2), HYDERABAD. 3) DRP, HYDERABAD 4) ADDL.CIT(TP) HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A .T., HYDERABAD.