Avaya India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 146/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7358 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 19-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARENDRA KUMAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; International transaction
• Section: 133(6); 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1 NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA: JUDICIAL MEMBER ITA NO. 146/DEL/2013 ASSTT. YR: 2008-09 AVAYA INDIA PVT. LTD., VS. DCIT CIRCLE 2(1), DLF SQUARE, 2 ND FLOOR, NEW DELHI. JACARANDA MARG, DLF CITY, PHASE-II, GURGAON. PAN: AAECA 3592 N ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI ROHIT TIWARI CA RESPONDENT BY : SHRI AMARENDRA KUMAR CIT (DR) DATE OF HEARING : 19/05/2016. DATE OF ORDER : 17/06/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS ASSESSEES APPEAL AGAINST THE ASSESSMENT ORDER DATED 22.10.2012, PASSED BY THE ASSESSING OFFICER U/S 143 (3) PURSUANT TO DRPS DIRECTIONS U/S 144C OF THE INCOME-TAX ACT, 1961, RE LATING TO AY 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SUBSIDIARY OF AVAYA INTERNATIONAL LLC, A DELAWARE CORPORATION. THE ASSE SSEE, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES (SDS), IT ENABLED SERVICES (ITES) AND MARKET SUPPOR T SERVICES (MSS) TO ITS AES. THE COMPANY IS PRIMARILY ENGAGED IN THE BUSINE SS OF SOFTWARE DEVELOPMENT FOR EXPORT, MORE SPECIFICALLY, THE ASSE SSEE IS INVOLVED IN DEVELOPMENT OF SWITCHING INTEGRATION AND COMER STO NE MODULES FOR JANUS 2 RELEASE, A NEXT GENERATION MESSAGING PRODUCTS. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING AN INCOME OF RS. 13,53,4 9,060/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD REPORTED FOLLO WING INTERNATIONAL TRANSACTIONS IN FORM 3CEB: NATURE OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION SOFTWARE SERVICES RENDERED (SDS) 1,508,656,740 MARKETING SUPPORT SERVICES PROVIDED (MSS) 16,158,26 4 BACK OFFICE SUPPORT SERVICES FUNCTION (ITES) 71,907 ,052 PURCHASE OF FIXED ASSETS 62,293,945 REIMBURSEMENT OF EXPENSES PAID 26,741,824 MAINTENANCE SERVICES AVAILED 259,688 3. LD. TPO NOTICED THAT TNM METHOD WAS SELECTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THESE TRANSACTI ONS. THE OP/TC WAS TAKEN AS THE PLI FOR ALL THE TRANSACTIONS. 4. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE POINT ED OUT THAT NO ADJUSTMENT HAS BEEN MADE IN REGARD TO PURCHASE OF F IXED ASSETS, MAINTENANCE SERVICES AVAILED AND REIMBURSEMENT OF EXPENSES PAID . HOWEVER, LD. TPO HAS MADE ADJUSTMENT IN REGARD TO PROVISION OF SDS, PROV ISION OF MSS AND PROVISION OF ITES. 5. LD. TPO NOTICED THAT AS PER THE DETAILS SUBMITTE D BY ASSESSEE, THE MEAN MARGIN OF COMPARABLES AND NUMBER OF COMPARABLE S WAS AS UNDER: PARTICULARS SOFTWARE DEVELOPMENT MARKET SUPPORT SERVICES ITES OPERATING REVENUES 1,508,856,740 26,158,264 71,907,052 OP/TC 16% 6.50% 18% METHOD USED TNMM TNMM TNMM PLI OP/TC OP/TC OP/TC NO. OF COMPARABLES 18 6 13 MEAN MARGIN OF COMPARABLES 14.30 9.55 13.65% 3 6. LD. TPO CONDUCTED A FRESH COMPARABILITY ANALYSI S BASED ON APPLICATION OF ADDITIONAL/ REVISED FILTERS IN DETER MINING THE ALP FOR THE ASSESSEES INTERNATIONAL TRANSACTION OF IT, ITES AN D MSS AND ARRIVED AT FOLLOWING RESULTS: PARTICULARS PROVISION OF IT PROVISION OF ITES PROVISION OF MSS NO. OF COMPARABLES 19 20 10 AVERAGE OP/TC 26.20% 29.61% 21.76% ASSESSEES OP/TC 16.00% 18.00% 6.50% TP ADJUSTMENT RS. 13,675,334/0 RS. 6,800,700/- RS. 3,748,122/- 7. LD. TPO, AFTER CONSIDERING VARIOUS OBJECTIONS IN REGARD TO DIFFERENT COMPARABLES, COMPUTED THE ALP IN REGARD TO PROVISIO N OF SOFTWARE DEVELOPMENT SERVICES, AS UNDER: 20.5 COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF PLI OF THE COMPARABLES). BASED ON THIS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES SEGMENT RENDERED BY T HE TAXPAYER TO ITS AE(S) IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI : 26.20% ADJ. ARITHMETIC MEAN PLI : 26.20% ARMS LENGTH PRICE: OPERATING COST RS. 1,300,738,569 ARMS LENGTH MARGIN 26.20% OF THE OPERATING COST ARMS LENGTH PRICE RS. 1,641,532,074 20.6 PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRIC E: 4 THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE @ 126.20% OF OPERATING COST RS. 1 ,641,532,074 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS . 1,508,856,740 SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 132,675,334 8. AS REGARDS PROVISION OF ITES, LD. TPO COMPUTED THE ALP AS UNDER: A. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE E FOR DETA ILS OF PLI OF THE COMPARABLES). BASED ON THIS, THE ARMS LENGTH PRICE OF THE IT ENABLED SERVICES RENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI : 29.16% ARMS LENGTH PRICE : 29.16% OPERATING COST RS. 60,938,179 ARMS LENGTH MARGIN 29.16% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) RS. 78,707,752 B. PRICE RECEIVED VIS--VIS THE ARMS LENGTH PRICE: THE PR ICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATED ENTE RPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE RS. 78,702,752 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS . 71,972,052 SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 6,800,700 9. AS REGARDS THE MARKET SUPPORT SERVICES, ALP WAS COMPUTED AS UNDER: A. COMPUTATION OF ARMS LENGTH PRICE : THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE Y FOR DETAILS O F PLI OF THE COMPARABLES). BASED ON THIS, THE ARMS LENGTH PRICE OF THE IT ENABLED SERVICES RENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI : 21.76% ARMS LENGTH PRICE : 21.76% OPERATING COST RS. 24,561,743 ARMS LENGTH MARGIN 21.76% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) RS. 29,906,378 5 B. 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 RS. 29,906,378 PRICE CHARGED IN THE INTERNATIONAL TRANSACTIONS RS . 26,158,256 SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 3,748,122 10. BEING AGGRIEVED WITH THE DRAFT ORDER OF AO, PAS SED IN PURSUANCE TO DIRECTIONS OF LD. TPO, THE ASSESSEE FILED ITS OBJEC TIONS BEFORE LD. DRP. LD. DRP ISSUED FOLLOWING DIRECTIONS: A. PROVISION OF SOFTWARE DEVELOPMENT SERVICES : DIRECTED FOR EXCLUSION OF CELESTIAL BIOLABS FOR THE FOLLOWIN G REASONS: THE ANNUAL REPORT IN THE CASE OF CELESTIAL BIOLABS HAS BEEN EXAMINED. WE FIND THAT THIS COMPANY FAILS THE EMPLO YEE COST FILTER. BESIDES THAT, THIS COMPANY IS CONSTANTLY RE CEIVING LOANS FROM DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH AND HENCE THE ECONOMIC CIRCUMSTANCES OF THIS COMPANY ARE AT A BSOLUTE DIVERGENCE FROM THE TESTED PARTY. IN VIEW OF THESE REASONS, WE FIND THAT CELESTIAL BIOLABS IS NOT A SUITABLE COMPA RABLE FOR ANALYSIS. TPO IS DIRECTED TO EXCLUDE IT. 11. AS REGARDS SOFTSOL INDIA LTD., LD. DRP DIRECTED AS UNDER: THE COMPANY IS FUNCTIONALLY COMPARABLE. HOWEVER, SE E THAT THE OPERATING MARGIN HAS BEEN CALCULATED BY TAKING THE RENTAL INCOME. THE TPO IS DIRECTED TO EXCLUDE THE RENTAL I NCOME AND EXPENSES RELATED TO THE SAME FOR CALCULATING THE MA RGINS . B. PROVISION OF ITES : 12. AS REGARDS MOLD-TEK TECHNOLOGIES LTD., LD. DRP DIRECTED FOR EXCLUSION OF THIS COMPANY FOR THE FOLLOWING REASONS : IN THIS CASE, THE TPO HAS, WHILE CALCULATING MARGI NS, EXCLUDED PROFITS AND LOSSES ON ACCOUNT OF DERIVATIVES. DERIV ATIVES ARE NORMALLY FORWARD EXCHANGE CONTRACTS AND THE NATURE AND THE REASONS FOR THE PROFITS AND LOSSES ARE NOT ASCERTAI NABLE. HENCE 6 FOR THIS YEAR WE ARE NOT IN A POSITION OF DATA SUFF ICIENCY TO CONCLUDE WHETHER THIS COMPANY CAN BE TAKEN WITH THE MARGINS ACCOUNTING FOR DERIVATIVES OR OTHERWISE. THUS THIS COMPANY IS DIRECTED TO BE KEPT OUT OF COMPARABILITY. TPO DIREC T TO EXCLUDE THIS. C. PROVISION OF MARKETING SUPPORT SERVICES : 13. LD. DRP DIRECTED FOR EXCLUSION OF RITES, VAPTI WASTE & EFFLUENT MANAGEMENT CO. LTD. OBSERVING AS UNDER: THE COMPARABLES OF THIS SEGMENT AS TAKEN BY THE TP HAVE BEEN EXAMINED. THE COMPARABLES NAMELY RITES AND VAPTI W ASTE & EFFLUENT MANAGEMENT CO. LTD. ARE DIRECTED TO BE EXC LUDED FROM THE LIST OF COMPARABLES. IT IS SEEN THAT RITES IS I NTO AN ALTOGETHER DIFFERENT DOMAIN AND VAPI HAS GOT A DIFF ERENT ECONOMIC MODEL SINCE IT IS AKIN TO THAT OF AN NON G OVERNMENT ORGANISATION. 14. IN PURSUANCE TO THE DIRECTIONS OF LD. DRP, AO P ASSED THE ORDER DETERMINING THE TOTAL INCOME AT RS. 21,98,03,222/- AFTER MAKING ADDITION ON ACCOUNT OF TPOS ORDER OF RS. 8,44,55,162/-. 15. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AN D IN LAW; 1. THE ASSESSMENT ORDER PASSED IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') IS A VITIATED ORDER AS THE HON'BLE DRP ERRED BOTH ON FACTS AND IN LAW IN PARTIALLY CONFIRMING TH E ADDITION MADE BY THE LD. ASSESSING OFFICER ('LD. AO') TO THE APPELLANT'S INCOME BY ISSUING AN ORDER WITHOUT APPRECIATION OF FACTS AND LAW; 2. THE HON'BLE DRP ERRED BOTH ON FACTS AND IN LAW IN PARTIALLY CONFIRMING THE TRANSFER PRICING ADJUSTMEN T TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNA TIONAL 7 TRANSACTIONS PERTAINING TO ITS PROVISION OF SOFTWAR E DEVELOPMENT SERVICES ('11'), IT ENABLED SERVICES (' ITES') & MARKETING SUPPORT SERVICES ('MSS') DO NOT SATISFY T HE ARM'S LENGTH PRINCIPLE ENVISAGED UNDER THE ACT IN DOING S O, THE HON'BLE DRP HAS GROSSLY ERRED IN AGREEING WITH THE LEARNED TRANSFER PRICING OFFICER'S ('LD. TPO'S) ACTION OF: 2.1. NOT APPRECIATING THAT NONE OF THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT ARE SATISFIED IN THE PRES ENT CASE; 2.2. DISREGARDING THE ALP AS DETERMINED BY THE APP ELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINE D BY IT IN TERMS OF SECTION 920 OF THE ACT READ WITH RULE 100 OF THE INCOME-TAX RULES, 1962 ('RULES'); AND IN PARTICULAR MODIFYING/ REJECTING THE FILTERS APPLIED BY THE APPELLANT; 2.3. DISREGARDING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING T HAT CURRENT YEAR (I.E. FY 2007-08) DATA FOR COMPARABLE COMPANIE S SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECE SSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; AT 2.4. COLLECTING INFORMATION OF THE COMPANIES BY EX ERCISING POWER GRANTED TO HIM UNDER SECTION 133(6) OF THE AC T THAT WAS NOT AVAILABLE TO THE APPELLANT IN THE PUBLIC DOMAIN AND RELYING ON SELECTIVE INFORMATION FOR COMPARABILITY PURPOSES (AND TO THE EXTENT OF COMPLETELY IGNORING RELIABLE DATA AVAILAB LE IN PUBLIC DOMAIN/ ANNUAL REPORTS IN NUMEROUS CASES), AND IN D OING SO VIOLATING THE FUNDAMENTAL PRINCIPLES OF NATURAL JUS TICE BY RELYING ON THE INFORMATION SOURCED UNDER SECTION 13 3(6); 2.5. REJECTING WITHOUT REASON, THE QUANTITATIVE AN D QUALITATIVE SCREENS/FILTERS APPLIED AND SET OF COMPARABLES ARRI VED AT BY THE APPELLANT FOLLOWING A DETAILED AND ROBUST SEARCH ME THODOLOGY CARRIED OUT IN THE TP REPORT, AND PROCEEDING TO CAR RY OUT FRESH 8 SEARCH BY APPLYING CERTAIN ARBITRARILY SELECTED FIL TERS AND A RIVING AT HIS OWN COMPARABLES SET INSTEAD; 2.6. INCLUDING HIGH-PROFIT MAKING COMPANIES IN THE FINAL COMPARABLES' SET FOR BENCHMARKING A LOW RISK CAPTIV E UNIT SUCH AS THE APPELLANT (DISREGARDING JUDICIAL PRONOUNCEME NTS ON THE ISSUE), THUS DEMONSTRATING AN INTENTION TO ARRIVE A T A PRE- FORMULATED OPINION WITHOUT COMPLETE AND ADEQUATE AP PLICATION OF MIND WITH THE SINGLE-MINDED INTENTION OF MAKING AN ADDITION TO THE RETURNED INCOME OF THE APPELLANT; 2.7. INCLUDING CERTAIN COMPANIES THAT ARE NOT COMP ARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSE TS EMPLOYED AND RISKS ASSUMED; 2.8. RESORTING TO ARBITRARY REJECTION OF LOW-PROFI T/ LOSS MAKING COMPANIES BASED ON ERRONEOUS AND INCONSISTENT REASO NS; 2.9. EXCLUDING CERTAIN COMPANIES ON ARBITRARY/ FRI VOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPE LLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND R ISKS ASSUMED; 2.10. IGNORING THE BUSINESS/ COMMERCIAL REALITY TH AT SINCE THE APPELLANT (VIS-A-VIS ITS IT, ITES & MSS) IS REMUNER ATED ON AN ARM'S LENGTH COST PLUS BASIS, I.E. IT IS COMPENSATE D FOR ALL ITS OPERATING COSTS PLUS A PRE-AGREED MARK-UP BASED ON A BENCHMARKING ANALYSIS, THE APPELLANT UNDERTAKES MIN IMAL BUSINESS RISKS AS AGAINST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKING ENTREPRENEURS, AND BY NOT ALLOW ING A RISK ADJUSTMENT TO THE APPELLANT ON ACCOUNT OF THIS FACT ; 2.11. REJECTING THE APPELLANT'S CLAIM REGARDING WO RKING CAPITAL ADJUSTMENT. 2.12. COMMITTING A NUMBER OF FACTUAL ERRORS IN ACC EPT-REJECT OF COM PARABLES AND/ OR IN THE COMPUTATION OF THE OPER ATING PROFIT MARGINS OF THE COM PARABLES; 9 2.13. GROSSLY ERRED IN NOT PROVIDING THE BENEFIT O F +/-5% RANGE TO THE APPELLANT; 2.14. DISREGARDING JUDICIAL PRONOUNCEMENTS IN INDI A IN UNDERTAKING THE TP ADJUSTMENT; AND 2.15. IGNORING THE FACT THAT THE APPELLANT IS ENTI TLED TO TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PROFITS IN RELATION TO PROVISION OF IT AND ITES, AND THEREFORE WOULD NOT H AVE ANY UNTOWARD MOTIVE OF DERIVING A TAX ADVANTAGE BY MANI PULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS. 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD. AO GROSSLY ERRED, WHILE FOLLOWING THE DIRECTION OF HON 'BLE DRP OF COMPUTING THE OPERATING MARGIN OF SOFTSOL INDIA LIM ITED, IN EXCLUDING DEPRECIATION AND EXPENSES ATTRIBUTABLE TO LET-OUT PROPERTY, WITHOUT ANY BASIS AND RATIONALE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. AO HAS GROSSLY ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT . 16. LD. COUNSEL POINTED OUT THAT AS FAR AS SOFTWARE DEVELOPMENT SERVICES AND IT ENABLED SERVICE SEGMENTS ARE CONCERNED, THE SAME WERE THERE IN AY 2007-08 AND THE TRIBUNAL VIDE ITS ORDER DATED 18.9. 2015 HAS DIRECTED FOR EXCLUSION OF COMPARABLES AS DETAILED BELOW: SOFTWARE DEVELOPMENT SEGMENT: (X) INFOSYS TECHNOLOGIES LTD. LD. AR CONTENDED THAT THIS COMPANY CANNOT BE COMPAR ED WITH THE ASSESSEE COMPANY BECAUSE THE COMPANY OWNS SIGNI FICANT SOFTWARE PRODUCTS AND IS ENGAGED INTO VARIOUS DIVER SIFIED BUSINESS OPERATIONS. ITS HIGH TURNOVER OF RS.13,149 CRORES WHICH IS 157 TIMES THE SIZE OF THE ASSESSEE. HE ALS O SUBMITTED THAT THIS COMPANY HAS SUBSTANTIAL INTANGIBLE ASSETS VALUED AT 10 RS.89,069 CRORES WHICH INCLUDES BRAND VALUE OF RS.3 1,617 CRORES. IT ALSO INVOLVES IN SIGNIFICANT R&D AND HAS OWNERSHIP OF INTANGIBLES. LD. AR SUBMITTED THAT THIS COMPARAB LE WAS EXCLUDED IN TOLUNA (SUPRA). WE FIND FORCE IN THE SA ID CONTENTIONS OF THE AR. IN TOLUNA (SUPRA), THE CO-OR DINATE BENCH WHILE ACCEPTING THE CONTENTIONS OF THE AR, HELD AS UNDER :- '25. FROM THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO ITS AE ON A COST PLUS BASIS WITHOUT HAVING ANY INTANGIBLE ASSETS OR RETAINING ANY INTELLECTUAL PROPERTY IN THE WORK DONE BY IT, WE FI ND THAT INFOSYS TECHNOLOGIES LTD., WHICH IS A GIANT COMPANY IN TERMS OF RISK PROFILE, SCALE, NATURE OF SERVICES, REVENUE OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS, ONSITE AND OFFSHORE SERVICES, ETC., CANNOT BE COMPARED WITH THE ASSESSEE. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. [(2013) 219 TAXMAN 26 (DEL)] IN WHICH INFOSYS LTD. HAS BEEN HELD TO BE NOT COMPARABLE TO A COMPANY THAT WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE FOR PARENT COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS CASE FROM T HE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS.' IN THE LIGHT OF THE CO-ORDINATE BENCH FINDING, AS A FORE-STATED, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LI ST OF COMPARABLES. SO, THE ASSESSEE'S OBJECTION IS UPHELD . 17. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. (XII) KALS INFORMATION SYSTEMS LTD. (SEG.) LD. AR CONTENDED THAT THIS COMPANY CANNOT BE COMPAR ED WITH, THE ASSESSEE COMPANY BECAUSE THE COMPANY FAILS ON S OFTWARE 11 SERVICE REVENUE FILTER AND HAS SIGNIFICANT REVENUE FROM PRODUCT. THIS COMPANY HAS NO SEGMENTAL DETAILS AVAILABLE. LD . AR SUBMITTED THAT THIS COMPARABLE WAS EXCLUDED IN TOLU NA (SUPRA). WE FIND FORCE IN THE SAID CONTENTIONS OF THE AR. IN TOLUNA (SUPRA), THE CO-ORDINATE BENCH WHILE ACCEPTING THE CONTENTIONS OF THE AR, HELD AS UNDER :- '27.1. THE TPO OBSERVED THAT THIS COMPANY WAS ENGAGED IN SOFTWARE DEVELOPMENT AND TRAINING. AS THE SOFTWARE PRODUCTS CONSTITUTED ONLY 3% OF ITS REVENUE AND TRAINING REVENUE CONSTITUTED 8.56%, THE TPO HELD THAT THIS SEGMENT OF KALS INFORMATION SYSTEMS LIMITED WAS RIGHTLY INCLUDIBLE. 27.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, IT IS AN ADMITTED POSITION THAT THE TPO ADOPTED SOFTWARE DEVELOPMENT SEGMENT OF THIS COMPANY BY NOTICING THAT THIS SEGMENT ALSO INCLUDED REVENUES FROM SOFTWARE PRODUCTS AND TRAINING. IN VIEW OF THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN IMPARTING ANY TRAINING ON COMMERCIAL BASIS OR SELLING ITS SOFTWAR E PRODUCTS, WE HOLD THAT THE FINANCIALS OF THIS COMPANY UNDER THIS SEGMENT CANNOT BE COMPARED WITH THE ASSESSEE. THE CONTRIBUTION BY THE SALE OF SOFTWARE PRODUCTS OR TRAINING TO THE OVERALL REVENU E OF THIS SEGMENT CANNOT BE PRECISELY ASCERTAINED TO DETERMINE THE QUESTION OF ITS COMPARABILITY. AS SUCH, THIS CASE IS DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS.' IN THE LIGHT OF THE CO-ORDINATE BENCH FINDING, AS A FORE-STATED, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. SO, THE ASSESSEE'S OBJECTION IS UPHELD . 12 18. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. (XXVI) WIPRO LTD. (SEG.) LD. AR CONTENDED THAT THIS COMPANY CANNOT BE COMPAR ED WITH THE ASSESSEE COMPANY BECAUSE THE COMPANY IS FUNCTIO NALLY DISSIMILAR AND A PERUSAL OF THE SEGMENTAL DETAILS F OR FY 2006- 07 INDICATES THAT WIPRO HAD INCURRED EXPENSES TO TH E EXTENT OF RS.63,13,70,75,351 TOWARDS THE COST OF GOODS SOLD. HE FURTHER SUBMITTED THAT DURING THE FY 2006-07, THIS COMPANY HAD EARNED A MARKUP OF 33.43% ON THE COST INCURRED IN THE IT S ERVICES AND AS SUCH, ON AN APPROXIMATION, THE REVENUE EARNED BY THE COMPANY FROM THE SALE OF PRODUCTS WOULD BE RS.84,24,37,99,640. HE SUBMITTED THAT THIS COMPANY FAILS ON R&D FILTER AND SUBSTANTIAL TURNOVER AND ALSO THERE IS NO STANDALONE FINANCIAL DATA FOR FY 2006-07. LD. AR SU BMITTED THAT THIS COMPARABLE WAS EXCLUDED IN TOLUNA (SUPRA) . WE FIND FORCE IN THE SAID CONTENTIONS OF THE AR. IN TOLUNA (SUPRA), THE CO-ORDINATE BENCH WHILE ACCEPTING THE CONTENTIONS O F THE AR, HELD AS UNDER :- '41. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE HAVE ABSOLUTELY NO DOUBT IN OUR MIND THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE INASMUCH AS IT IS A GIANT COMPANY IN TERMS OF PARAMETERS DISCUSSED ABOVE WHILE DEALING WITH THE CASE OF INFOSYS LTD. THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS UPHELD THE EXCLUSION OF THIS COMPANY ALSO FROM THE LIST OF COMPARABLES ON THE BASIS OF CERTAIN PARAMETERS, WHICH ARE FULLY APPLICABLE TO THE INSTANT ASSESSEE AS WELL. IT IS, THEREFORE, DIRECTED TO EXCLUDE THIS 13 COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS.' IN THE LIGHT OF THE CO-ORDINATE BENCH FINDING, AS A FORE-STATED, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LI ST OF COMPARABLES. SO, THE ASSESSEE'S OBJECTION IS UPHELD . 19. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. ITES SEGMENT (I) ACCENTIA TECHNOLOGIES LTD. THE TPO REPELLED THE OBJECTIONS OF THE ASSESSEE AND PLACED RELIANCE ON THE RESPONSE RECEIVED TO THE NOTICE ISS UED UNDER SECTION 133(6) TO HOLD THAT ACCENTIA IS COMPARABLE, DESPITE THE FACT THAT THE COMPANY ADMITTING IN WRITING THAT IT IS INTO MEDICAL TRANSCRIPTION SERVICE. ACCORDING TO LD. AR, THE TPO ERRED IN COMPARING THE MEDICAL TRANSCRIPTION SEGMENT OF ACCE NTIA TO ITES SEGMENT OF ASSESSEE. THE LD. AR SUBMITTED THA T ACCENTIA PROVIDES HIGH END FUNCTIONS SUCH AS KNOWLEDGE PROCE SS OUTSOURCING, LEGAL PROCESS OUTSOURCING, DATA PROCES S OUTSOURCING, HIGH END SOFTWARE SERVICES DELIVERY BE SIDES OFFERING SOFTWARE AS A SERVICE ('SAAS') MODEL IN TH E HEALTHCARE OUTSOURCING AREA. HE FURTHER SUBMITTED T HAT IT ALSO DEVELOPED SOFTWARE PRODUCTS SUCH AS BUSINESS PROCES S OUTSOURCING MANAGEMENT ('BPOM') SOLUTIONS AND HEALT HDOX (HRCM SOLUTION), APART FROM IT ENABLED SERVICES. OU R ATTENTION WAS ALSO BROUGHT TO THE PERTINENT FACT TH AT TPO HAS HIMSELF ADMITTED THAT ANNUAL REPORT OF THIS COMPAN Y IS NOT AVAILABLE SO ASSUMPTION IS THAT SEGMENTAL INFORMATI ON FOR ACCENTIA WAS UNAVAILABLE BEFORE THE TPO. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND HAVE GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD AND THE CA SE-LAWS CITED BY BOTH THE PARTIES. WE FIND THAT A PERUSAL O F PAGE 279 OF 14 APPEAL SET OF TPO ORDER DEALING WITH ACCENTIA, THE TPO HAS STATED THAT ANNUAL REPORT OF THIS FINANCIAL YEAR IS NOT AVAILABLE. HOWEVER, IN ORDER TO MAKE THIS COMPANY A COMPARABLE , THE TPO HAS RELIED ON THE REPLY OF THIS COMPANY U/S 133 (6) OF THE ACT. PURSUANT TO THE NOTICE OF TPO, ACCENTIA HAD RE PLIED THAT IT IS INTO MEDICAL TRANSCRIPTION AND THE TPO HAS HELD IT TO BE COMPARABLE BY STATING AS BELOW: 'THE COMPANY WAS NOT PART OF THE COMPANIES CONSIDERED BY THE TAXPAYER IN THE ACCEPT/REJECT MATRIX GIVEN BY THE TAXPAYER AS APPENDIX D TO THE TP REPORT. HOWEVER, THE COMPANY'S DATA IS AVAILABLE IN THE CAPITALINE DATABASE. THE ANNUAL REPORT IS NOT AVAILABLE FOR THE FY 2006-07. 133(6) NOTICE WAS ISSUED. AS PER THE REPLY RECEIVED FORM THE COMPANY IT HAS ITES SEGMENT WHICH IS INTO MEDICAL TRANSCRIPTION SERVICES AND QUALIFIES ALL TH E FILTERS APPLIED BY THE TPO. ' WE FIND THAT THE TPO HAS TREATED THE MEDICAL TRANSC RIPTION SEGMENT COMPARABLE TO THAT OF THE ITES BACK OFFICE SUPPORT OF THE ASSESSEE, WHICH IS NOT CORRECT IN VIEW OF THE H ON'BLE JURISDICTIONAL HIGH COURT DECISION IN RAMPGREEN SOL UTIONS PVT. LTD. VS. CIT (ITA 102/2015 ORDER DATED 10.08.2015) WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER: '33. THE SPECIAL BENCH OF THE TRIBUNAL IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA) STRUCK A DIFFERENT CORD. THE SPECIAL BENCH OF THE TRIBUNAL HELD THAT EVEN THOUGH THERE APPEARS TO BE A DIFFERENCE BETWEEN BPO AND KPO SERVICES, THE LINE OF DIFFERENCE IS VERY THIN. THE TRIBUNAL WAS O F THE VIEW THAT THERE COULD BE A SIGNIFICANT OVERLAP IN THEIR ACTIVITIES AND IT MAY BE DIFFICULT TO CLAS SIFY SERVICES STRICTLY AS FALLING UNDER THE CATEGORY OF EITHER A BPO OR A KPO. THE TRIBUNAL ALSO 15 OBSERVED THAT ONE OF THE KEY SUCCESS FACTORS OF THE BPO INDUSTRY IS ITS ABILITY TO MOVE UP THE VALUE CHAIN THROUGH KPO SERVICE OFFERING. FOR THE AFORESAID REASONS, THE SPECIAL BENCH OF THE TRIBUNAL HELD THAT ITES SERVICES COULD NOT BE BIFURCATED AS BPO AND KPO SERVICES FOR THE PURPOSE OF COMPARABILITY ANALYSIS IN THE FIRST INSTANCE. THE TRIBUNAL PROCEEDED TO HOLD THAT A RELATIVELY EQUAL DEGREE OF COMPARABILITY CAN BE ACHIEVED BY SELECTING POTENTIAL COMPARABLES ON A BROAD FUNCTIONAL ANALYSIS AT ITES LEVEL AND THAT TH E COMPARABLES SO SELECTED COULD BE PUT TO FURTHER TEST BY COMPARING SPECIFIC FUNCTIONS PERFORMED IN THE INTERNATIONAL TRANSACTIONS WITH UNCONTROLLED TRANSACTIONS TO ATTAIN RELATIVELY EQUAL DEGREE OF COMPARABILITY. 34. WE HAVE RESERVATIONS AS TO THE TRIBUNAL'S AFORESAID VIEW IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA). AS INDICATED ABOVE, THE EXPRESSION 'BPO' AND 'KPO' ARE, PLAINLY, UNDERSTOOD IN THE SENSE THAT WHEREAS, BPO DOES NOT NECESSARILY INVOLVE ADVANCED SKILLS AND KNOWLEDGE; KPO, ON THE OTHER HAND, WOULD INVOLVE EMPLOYMENT OF ADVANCED SKILLS AND KNOWLEDGE FOR PROVIDING SERVICES. THUS, THE EXPRESSION 'KPO' IN COMMON PARLANCE IS USED TO INDICATE AN ITES PROVIDER PROVIDING A COMPLETELY DIFFERENT NATURE OF SERVICE THAN ANY OTHER BPO SERVICE PROVIDER. A KPO SERVICE PROVIDER WOULD ALSO BE FUNCTIONALLY DIFFERENT FROM OTHER BPO SERVICE PROVIDERS, INASMUCH AS THE RESPONSIBILITIES UNDERTAKEN, THE ACTIVITIES PERFORMED, THE QUALITY OF RESOURCES EMPLOYED WOULD BE MATERIALLY DIFFERENT. IN THE CIRCUMSTANCES, WE ARE UNABLE TO AGREE THAT 16 BROADLY ITES SECTOR CAN BE USED FOR SELECTING COMPARABLES WITHOUT MAKING A CONSCIOUS SELECTION AS TO THE QUALITY AND NATURE OF THE CONTENT OF SERVICES. RULE LOB(2)(A) OF THE INCOME TAX RULES, 1962 MANDATES THAT THE COMPARABILITY OF CONTROLLED AND UNCONTROLLED TRANSACTIONS BE JUDGED WITH REFERENCE TO SERVICE/PRODUCT CHARACTERISTICS. THIS FACTOR CANNOT BE UNDERMINED BY USING A BROAD CLASSIFICATION OF ITES WHICH TAKES WITHIN ITS FOLD VARIOUS TYPES OF SERVICES WITH COMPLETELY DIFFERENT CONTENT AND VALUE. THUS, WHERE THE TESTED PARTY IS NOT A KPO SERVICE PROVIDER, AN ENTITY RENDERING KPO SERVICES CANNOT BE CONSIDERED AS A COMPARABLE FOR THE PURPOSES OF TRANSFER PRICING ANALYSIS. THE PERCEPTION THAT A BPO SERVICE PROVIDER MAY HAVE THE ABILITY TO MOVE UP THE VALUE CHAIN BY OFFERING KPO SERVICES CANNOT BE A GROUND FOR ASSESSING THE TRANSACTIONS RELATING TO SERVICES RENDERED BY THE BPO SERVICE PROVIDER BY BENCHMARKING IT WITH THE TRANSACTIONS OF KPO SERVICES PROVIDERS. THE OBJECT IS TO ASCERTAIN THE ALP OF THE SERVICE RENDERED AND NOT OF A SERVICE (HIGHER IN VALUE CHAIN) THAT MAY POSSIBLY BE RENDERED SUBSEQUENTLY. 35. AS POINTED OUT BY THE SPECIAL BENCH OF THE TRIBUNAL IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THERE MAY BE CASES WHERE AN ENTITY MAY BE RENDERING A MIX OF SERVICES SOME OF WHICH MAY BE FUNCTIONALLY COMPARABLE TO A KPO WHILE OTHER SERVICES MAY NOT. IN SUCH CASES A CLASSIFICATION OF BPO AND KPO MAY NOT BE FEASIBLE. CLEARLY, NO STRAITJACKET FORMULA CAN BE APPLIED. IN CASES WHERE THE CATEGORIZATION OF SERVICES RENDERED CANNOT BE DEFINED WITH CERTAINTY, 17 IT WOULD BE APPOSITE TO EMPLOY THE BROAD FUNCTIONALITY TEST AND THEN EXCLUDE UNCONTROLLED ENTITIES, WHICH ARE FOUND TO BE MATERIALLY DISSIMILAR IN ASPECTS AND FEATURES THAT HAVE A BEARING ON THE PROFITABILITY OF THOSE ENTITIES. HOWEVER, WHERE THE CONTROLLED TRANSACTIONS ARE CLEARLY IN THE NATURE OF LOWER-END ITES SUCH AS CALL CENTERS ETC. FOR RENDERING DATA PROCESSING NOT INVOLVING DOMAIN KNOWLEDGE, INCLUSION OF ANY KPO SERVICE PROVIDER AS A COMPARABLE WOULD NOT BE WARRANTED AND THE TRANSFER PRICING STUDY MUST TAKE THAT INTO ACCOUNT AT THE THRESHOLD. 36. AS POINTED OUT EARLIER, THE TRANSFER PRICING ANALYSIS MUST SERVE THE BROAD OBJECT OF BENCHMARKING AN INTERNATIONAL TRANSACTION FOR DETERMINING AN ALP. THE METHODOLOGY NECESSITATES THAT THE COMPARABLES MUST BE SIMILAR IN MATERIAL ASPECTS. THE COMPARABILITY MUST BE JUDGED ON FACTORS SUCH AS PRODUCT/SERVICE CHARACTERISTICS, FUNCTIONS UNDERTAKEN, ASSETS USED, RISKS ASSUMED. THIS IS ESSENTIAL TO ENSURE THE EFFICACY OF THE EXERCISE. THERE IS SUFFICIENT FLEXIBILITY AVAILABLE WITHIN THE STATUTORY FRAMEWORK TO ENSURE A FAIR ALP.' IN THE LIGHT OF THE ABOVE, WE FIND THAT ACCENTIA IS INTO HIGH END SERVICE (KPO), WHICH CANNOT BE COMPARED WITH THE AS SESSEE. SO, WE DIRECT ITS EXCLUSION FROM THE LIST OF COMPAR ABLES. 20. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. (VIII )CORAL HUB (VISHAL INFORMATION TECHNOLOGIES L TD.) (VII) ECLERX SERVICES LTD. 18 AS REGARDS THE AFORESAID TWO COMPARABLES [MENTIONED AT SL.NOS.(VII) & (VIII)], THE LD. AR AT THE OUTSET IT SELF POINTED OUT THAT ECLERX AND VISHAL ARE INTO KPO SERVICES. ACCOR DING TO HIM, ALTHOUGH KPO SERVICES WERE ITES BUT THE NATURE OF THESE SERVICES WERE MATERIALLY DIFFERENT THAN THE SERVICE S RENDERED BY THE ASSESSEE. IT WAS ASSERTED THAT ECLERX IS ENGAGE D IN FINANCIAL SERVICES IN THE NATURE OF ACCOUNT RECONCILIATION, T RADE ORDER MANAGEMENT SERVICES AND HAS BEEN RATED AS A LEADING KPO BY NELSO HALL. IT WAS CONTENDED THAT SIMILARLY VISHAL WAS ENGAGED IN THE SERVICES OF DATA ANALYTICS AND PROVIDING DAT A PROCESSING SOLUTIONS TO SOME OF THE LARGEST BRANDS IN THE WORL D. VISHAL TOO HAD BEEN RATED AS A LEADING KPO BY NELSO HALL. IN A DDITION, IT WAS POINTED OUT THAT WHILST THE EMPLOYEE COSTS INCU RRED BY VISHAL WAS RELATIVELY LOW AND CONSTITUTED ONLY 2.30 % OF ITS TOTAL COST DURING THE RELEVANT YEAR, THE HIRE CHARGES, VE NDOR PAYMENTS CONSTITUTED ALMOST 87% OF THE TOTAL COSTS. ACCORDING TO THE AR, THIS EVIDENCED THAT VISHAL' S BUSINESS M ODEL WAS DIFFERENT AND VISHAL HAD OUTSOURCED SIGNIFICANT PAR T OF ITS OPERATIONS. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. THE HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. (SUPRA) H AS HELD AS UNDER :- '36. AS POINTED OUT EARLIER, THE TRANSFER PRICING ANALYSIS MUST SERVE THE BROAD OBJECT OF BENCHMARKING AN INTERNATIONAL TRANSACTION FOR DETERMINING AN ALP. THE METHODOLOGY NECESSITATES THAT THE COMPARABLES MUST BE SIMILAR IN MATERIAL ASPECTS. THE COMPARABILITY MUST BE JUDGED ON FACTORS SUCH AS PRODUCT/ SERVICE CHARACTERISTICS, FUNCTIONS UNDERTAKEN, ASSETS USED, RISKS ASSUMED. THIS IS ESSENTIAL TO ENSURE THE EFFICACY OF THE EXERCISE. THERE IS SUFFICIENT FLEXIBILITY AVAILABLE 19 WITHIN THE STATUTORY FRAMEWORK TO ENSURE A FAIR ALP. 37. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF THE PRESENT CASE, IT IS ONCE AGAIN CLEAR THAT BOTH VISHAL AND ECLERX COULD NOT BE TAKEN AS COMPARABLES FOR DETERMINING THE ALP. VISHAL AND ECLERX, BOTH ARE INTO KPO SERVICES. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THAT ECLERX IS ENGAGED IN DATA ANALYTICS, DATA PROCESSING SERVICES, PRICING ANALYTICS, BUNDLING OPTIMIZATION, CONTENT OPERATION, SALES AND MARKETING SUPPORT, PRODUCT DATA MANAGEMENT, REVENUE MANAGEMENT. IN ADDITION, ECLERX ALSO OFFERED FINANCIAL SERVICES SUCH AS REAL-TIME CAPITA L MARKETS, MIDDLE AND BACK-OFFICE SUPPORT, PORTFOLIO RISK MANAGEMENT SERVICES AND VARIOUS CRITICAL DATA MANAGEMENT SERVICES. CLEARLY, THE AFORESAID SERVICES ARE NOT COMPARABLE WITH THE SERVICES RENDERED BY THE ASSESSEE. FURTHER, THE FUNCTIONS UNDERTAKEN (I.E. THE ACTIVITIES PERFORMED) ARE ALSO NOT COMPARABLE WITH THE ASSESSEE. IN OUR VIEW, THE TRIBUNAL ERRED IN HOLDING THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE WERE BROADLY SIMILAR TO THAT OF ECLERX OR VISHAL. THE OPERATING MARGIN OF ECLERX, THUS, COULD NOT BE INCLUDED TO ARRIVE AT AN ALP OF CONTROLLED TRANSACTIONS, WHICH WERE MATERIALLY DIFFERENT IN ITS CONTENT AND VALUE. IN MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAD NOTED THE SAME AND HAD, THUS, EXCLUDED ECLERX AS A COMPARABLE. IT IS FURTHER OBSERVED THAT THE COMPARABILITY OF ECLERX HAD ALSO BEEN EXAMINED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN M/S 20 CAPITAL IQ INFORMATION SYSTEMS(INDIA) (P.) LTD. V. ADDITIONAL COMMISSIONER OF INCOME- TAX (SUPRA), WHEREIN, THE TRIBUNAL DIRECTED THE EXCLUSION OF ECLERX AS A COMPARABLE FOR THE REASON THAT IT WAS ENGAGED IN PROVIDING KPO SERVICES AND FURTHER THAT IT HAD ALSO RETURNED SUPERNORMAL PROFITS. 38. IN OUR VIEW, EVEN VISHAL COULD NOT BE CONSIDERED AS A COMPARABLE, AS ADMITTEDLY, ITS BUSINESS MODEL WAS COMPLETELY DIFFERENT. ADMITTEDLY, VISHAL'S EXPENDITURE ON EMPLOYMENT COST DURING THE RELEVANT PERIOD WAS A SMALL FRACTION OF THE PROPORTIONATE COST INCURRED BY THE ASSESSEE, APPARENTLY, FOR THE REASON THAT MOST OF ITS WORK WAS OUTSOURCED TO OTHER VENDORS/SERVICE PROVIDERS. THE DRP AND THE TRIBUNAL ERRED IN BRUSHING ASIDE THIS VITAL DIFFERENCE BY OBSERVING THAT OUTSOURCING WAS COMMON IN ITES INDUSTRY AND THE SAME WOULD NOT HAVE A BEARING ON PROFITABILITY. PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES AND USING ONE'S OWN INFRASTRUCTURE WOULD HAVE A DIFFERENT COST STRUCTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTSOURCING OF SERVICES BY VISHAL WOULD HAVE NO BEARING ON THE PROFITABILITY OF THE SAID ENTITY.' IN THE LIGHT OF THE AFORESAID DECISION OF THE HONOR ABLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMPGREEN (SUPRA) WHEREIN THE IT WAS HELD THAT BOTH THESE COMPANIES C ANNOT BE COMPARED WITH THE LOW END SERVICE PROVIDER LIKE THE APPELLANT IN THIS CASE. 21. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E EXCLUDE THESE COMPARABLES FROM THE LIST OF COMPARABLES. ASS ESSEE SUCCEEDS. 21 (V) HCL COMNET SYSTEMS & SERVICES LTD. AS REGARDS THE AFORESAID FOUR COMPARABLES [MENTION ED AT SL. NO.(III) TO (VI)], THE LD. AR AT THE OUTSET HAD OBJ ECTION IN THE FILTER USED BY THE TPO OF 25% RELATED PARTY TRANSAC TIONS. ACCORDING TO HIM, THE IDEAL SITUATION IS THAT THERE SHOULD BE ZERO RELATED PARTY TRANSACTIONS, HOWEVER, THE RELAT ED PARTY TRANSACTIONS SHOULD BE TAKEN THE LEAST WHEN THERE A RE REASONABLE COMPARABLES AVAILABLE BEFORE THE TPO. IN ORDER TO BUTTRESS HIS ARGUMENTS, HE CITED THE ORDER OF THE C OORDINATE BENCH IN THE CASE OF MOTOROLA SOLUTIONS INDIA PRIVA TE LIMITED (SUPRA) WHEREIN THE TRIBUNAL HAD ACCEPTED THE SAID CONTENTION OF THE ASSESSEE AND HELD AS UNDER :- '56. WE ARE IN AGREEMENT WITH TPO IN PRINCIPLE THAT THIS FILTER IS APPROPRIATE TO ELIMINATE THE COMPANIES WHICH HAVE CONTROLLED TRANSACTIONS AND THEREBY HAVE A SIGNIFICANT INFLUENCE ON THE MARGINS EARNED. THE TPO IN HIS ORDER HAS OBSERVED THAT IN PRINCIPLE THE TAX PAYER HAS NO OBJECTION FOR APPLYING THIS FILTER. HOWEVER, ITS TWO MAIN CONTENTIONS ARE-ONE-AVAILABILITY OF RPT INFORMATION AND SECOND THE THRESHOLD LIMIT OF 15% IN PLACE OF 25%. AT THE SAME TIME WE ALSO FIND CONSIDERABLE FORCE IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT IDEALLY IF SUFFICIENT NUMBER OF 100% UNCONTROLLED COMPARABLES ARE FOUND, THEN NO COMPARABLE HAVING RELATED PARTY TRANSACTIONS SHOULD BE CONSIDERED. WE ARE IN AGREEMENT WITH LD. COUNSEL THAT ONLY WHEN SUFFICIENT COMPARABLES ARE NOT FOUND, THE RELATED PARTY THRESHOLD SHOULD BE RELAXED AND ITA NO. 5637/D/2011 99 ONLY GRADUALLY TO THE EXTENT THAT SUFFICIENT COMPARABLES ARE FOUND, THE LIMIT SHOULD BE RELAXED. THEREFORE, WE ACCEPT THE ASSESSEE'S PLEA THAT NO SACROSANCT THRESHOLD LIMIT SHOULD BE FIXED FOR THIS FILTER. LD . 22 DRP HAS ALSO NOTED THAT NEITHER THERE IS ANY JUDICIAL CONSENSUS ON THE NUMERICAL LIMIT NOR THE SECTION SO PRESCRIBES. HOWEVER, THERE IS CONSENSUS ON THE EFFECT OF RPT I.E. IT SHOULD NOT MATERIALLY AFFECT THE INTERNATIONAL TRANSACTION. THEREFORE, CONSIDERING THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE OPINION THAT IF BY APPLYING THE THRESHOL D LIMIT OF 15% OF RELATED PARTY TRANSACTION, SUFFICIE NT COMPARABLES ARE AVAILABLE THEN THERE IS NO REASON TO FURTHER EXTEND THE LIMIT TO 25%. THEREFORE, WE DIRECT THE TPO TO TAKE INTO CONSIDERATION ONLY THOSE COMPARABLES WHERE RELATED PARTY TRANSACTIONS ARE TO THE EXTENT OF 15% BECAUSE IT IS NOT THE CASE OF REVENUE THAT BY APPLYING THE THRESHOLD LIMIT OF 15%, IT WILL NOT GET SUFFICIENT NUMBER OF COMPARABLES.' IT WAS POINTED OUT BY THE LD. AR THAT THE AFORESAID COMPANIES RELATED PARTY TRANSACTIONS ARE MORE THAN 15%. WE FI ND FORCE IN THE SAID CONTENTION OF THE LD. AR AND WE FIND THAT IN THIS LIST OF COMPARABLES CONSIDERED BY THE TPO, THE ASSESSEE ITS ELF HAD ACCEPTED ELEVEN (11) COMPARABLES AS COMPARABLE WITH THAT OF THE ASSESSEE. IN SUCH A SCENANO, WE ARE OF THE OPIN ION THAT THE TPO MAY TAKE INTO CONSIDERATION ONLY THOSE COMPARAB LES WHERE RELATED PARTY TRANSACTIONS ARE TO THE EXTENT OF 15% BECAUSE IT IS NOT A CASE OF THE REVENUE THAT BY APP LYING THRESHOLD LIMIT OF 15%, IT WILL NOT GET SUFFICIENT NUMBER OF COMPARABLES. SINCE WE ARE NOT ENTERING INTO ANY OTH ER GROUNDS RAISED BY THE ASSESSEE AGAINST THESE COMPANIES, THE OTHER GROUNDS ARE LEFT OPEN. 22. CONSISTENT WITH THE VIEW TAKEN IN AY 2007-08, W E DIRECT THAT IF THE RELATED PARTY TRANSACTIONS OF THIS COMPARABLE A RE FOUND MORE THAN 15%, THEN THIS COMPARABLE WOULD BE EXCLUDED FROM TH E LIST OF COMPARABLES. 23 23. AS REGARDS MARKET SUPPORT SEGMENT, LD. COUNSEL SUBMITTED THAT OUT OF THE 8 COMPARABLES, FINALLY SELECTED BY AO, THE ASSE SSEE IS PRIMARILY DISPUTING THE INCLUSION OF FOLLOWING THREE COMPARAB LES: - APITCO LTD. - CHOKSI LABORATORIES LTD. - WAPCOS LTD. (SEG.) 24. LD. COUNSEL SUBMITTED THAT THERE IS NO DISPUTE ON FUNCTIONAL PROFILE OF ASSESSEE. HE POINTED OUT THAT LD. TPO ACCEPTED THAT ASSESSEE WAS RENDERING MARKET SUPPORT SERVICES TO ITS AES. HE POINTED OUT THAT AS PER TP STUDY, THERE WERE 6 COMPARABLES WITH AN AVERAGE PROFIT MARGIN OF 9.55% ON COST, WHEREAS THE TAX PAYERS MARGIN WAS 6.5% ON OC AND, THEREFORE, THE TRANSACTION WAS TREATED AT ARMS LENGTH. HE SUBMITT ED THAT BECAUSE OF INCLUSION OF CERTAIN COMPARABLES, AVERAGE MARGIN HA S GONE TO 21.48%. 25. LD. COUNSEL REFERRED TO THE DECISION OF THE ITA T DELHI BENCH IN THE CASE OF M/S CIENA INDIA (P) LTD. VS. DCIT IN ITA NO . 2958 & 3324/DEL/2013 DATED 23.4.2015 FOR EXCLUSION OF THES E COMPANIES FROM LIST OF COMPARABLES. 26. LD. CIT(DR) RELIED ON THE ORDERS OF LOWER REVE NUE AUTHORITIES. 27. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. BEFORE WE DECIDE AN Y INCLUSION/ EXCLUSION OF ANY COMPARABLE FROM THE LIST OF COMPARABLES, SELECT ED BY LD. TPO, WE HAVE TO EXAMINE THE MARKET SUPPORT SERVICES RENDERED BY ASSESSEE TO ITS AES. IN THE TP STUDY, IT IS STATED IN PARA 3.3 THAT ASSESSE E PROVIDES MARKETING SUPPORT SERVICES TO AVAYA IRELAND. ASSESSEES MARKETING SU PPORT ACTIVITIES INCLUDE PROVIDING INFORMATION ABOUT AVAYA PRODUCTS, CUSTOME R AWARENESS ETC. THE ASSESSEE HAD RENEWED ITS MARKET SERVICES AGREEMENT EFFECTIVE FROM 24 1.4.2007, UNDER WHICH AVAYA US COMPENSATES AVAYA IN DIA AT AN INCREASED MARK UP OF COST PLUS SIX POINT FIVE PERCENT FROM TH E PREVIOUS MARK UP OF FIVE PERCENT. IT IS FURTHER STATED IN PARA 4.2 THAT ASS ESSEE IS RESPONSIBLE FOR BRIEFING AND UPDATING THE CUSTOMERS ON VARIOUS PROM OTIONAL INITIATIVES AND NEW PRODUCT LAUNCHES OF THE AVAYA GROUP ENTITIES. A SSESSEE ADVICES AVAYA GROUP ENTITIES OF THE LOCAL LAW AND BUSINESS, POLIT ICAL AND REGULATORY PRACTICES AND POLICIES. 28. LD. COUNSEL HAS RELIED ON THE ORDER OF THE ITAT IN THE CASE OF CIENA INDIA PVT. LTD. (SUPRA) AND, THEREFORE, IT IS NECES SARY TO EXAMINE THE FUNCTIONAL PROFILE OF CIENA INDIA PVT. LTD. (SUPRA) ALSO IN REGARD TO MARKETING SUPPORT SEGMENT. IN THIS REGARD WE FIND THAT THE TR IBUNAL IN PARAS 13 & 14 OF ITS ORDER HAS OBSERVED AS UNDER: 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. BEFORE EXAMINING THE COMPARABILITY OR OTHERWISE OF THE COMPANIES CHALLEN GED BEFORE US, IT IS OF UTMOST IMPORTANCE TO CONSIDER THE NATU RE OF ACTIVITY CARRIED OUT BY THE ASSESSEE IN THE PROVISION OF MAR KETING SUPPORT SERVICES. THERE IS NO ELABORATION OF THE NA TURE OF SERVICES IN THE AGREEMENT BETWEEN THE ASSESSEE AND CIENA CORPORATION, USA, EXCEPT FOR MENTIONING IN SCHEDULE 2: 'PROVISION OF OTHER SUCH SERVICES TO CIENA, USA AS CIENA, USA MAY REASONABLY REQUEST FROM TIME TO TIME.' THE TPO HAS ALSO NOT DISCUSSED THE NATURE OF SERVICES UNDER THIS SEG MENT EXCEPT FOR RECORDING THE DESCRIPTION OF TRANSACTIONS WITH ITS NOMENCLATURE BEING 'PROVISION OF MARKETING SUPPORT SERVICES.' WHEN WE ADVERT TO THE TP STUDY REPORT, IT CAN BE FO UND THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE IN THE PROVISIO N OF MARKETING SUPPORT SERVICES ARE INDICATED AT PAGE 29 OF THE PAPER BOOK, AS UNDER:- 25 - 'MARKETING: MARKETING ACTIVITIES UNDERTAKEN BY CI ENA INDIA INCLUDES IDENTIFYING POTENTIAL CUSTOMER, COLLECTING MARKET RELATED INFORMATION, ATTENDING TRADE EXHIBITIONS AN D INDUSTRY SHOWS, ETC. - SALES SUPPORT: SALES SUPPORT ACTIVITIES COMPRISE GATHERING INFORMATION AND ANALYZING INDUSTRY INFORMATION, MAK ING PRESENTATIONS ON CIENA PRODUCTS AND SERVICES AND PR OVIDING RELEVANT SUPPORT TO CIENA, US. - TECHNICAL SUPPORT: CIENA INDIA ALSO PROVIDES TEC HNICAL SUPPORT SERVICES TO THE CUSTOMERS. DURING FY 2007-0 8, THE COMPANY RENDERED TRAINING AND INSTALLATION SUPPORT TO THE END CUSTOMERS OF CIENA US. ALSO, CIENA INDIA RECEIVED T RAINING ON TECHNICAL MATTER FROM CIENA GROUP.' 14. FROM THE ABOVE DESCRIPTION OF MARKETING SUPPORT SERVICE PERFORMED BY THE ASSESSEE FOR ITS FOREIGN AE, IT IS PATENT THAT THE ASSESSEE'S NATURE OF WORK BASICALLY INCLUDES IDENTI FYING POTENTIAL CUSTOMERS AND PROVIDING TECHNICAL SUPPORT SERVICES TO THE CUSTOMERS OF ITS AE. THE WORK OF IDENTIFYING CU STOMERS IS CARRIED OUT BY COLLECTING MARKET RELATED INFORMATIO N, ATTENDING TRADE EXHIBITIONS, ETC. WITH THIS BACKGROUND IN MIN D ABOUT THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE UNDER T HIS SEGMENT, WE NOW PROCEED TO EXAMINE WHETHER OR NOT THE COMPAN IES UNDER CHALLENGE ARE COMPARABLE . 29. FROM THE ABOVE ANALYSIS OF FUNCTIONS, PERFORMED BY CIENA INDIA PVT. LTD., IT IS EVIDENT THAT BOTH, ASSESSEE AND CIENA I NDIA PVT. LTD., ARE FULLY COMPARABLE TO EACH OTHER, AS REGARDS THE FUNCTIONS PERFORMED BY MARKET SUPPORT SEGMENT OF THESE TWO VIZ. ASSESSEE AND CIEN A INDIA PVT. LTD.. THEREFORE, THE DECISIONS IN THE CASE OF CIENA INDIA PVT. LTD. WILL BE APPLICABLE TO THE FACTS OF THE PRESENT CASE ALSO. 26 30. HE POINTED OUT THAT THE FIRST COMPARABLE WHICH IS DISPUTED IS APITCO LTD. IN THIS REGARD HE SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT. IN THIS REGARD HE REFERRED TO PAGE 275 OF THE PB CO NTAINING THE ANNUAL REPORT OF THIS COMPANY AND POINTED OUT THAT THE COMPANYS MAJOR BUSINESS SEGMENTS WERE AS UNDER: - ASSET RECONSTRUCTION AND MANAGEMENT SERVICES (RS. 2 01.93 LAKHS) - PROJECT RELATED SERVICES (RS. 201.64 LAKHS) - MICRO ENTERPRISES DEVELOPMENT (RS. 150.09 LAKHS) - INFRASTRUCTURE PLANNING & DEVELOPMENT (RS. 136.15 L AKHS) - RESEARCH STUDIES & TOURISM (RS. 126.22 LAKHS) - SPILL DEVELOPMENT (RS. 112.88 LAKHS); - ENVIRONMENT MANAGEMENT (RS. 42.08 LAKHS); - ENTREPRENEURSHIP DEVELOPMENT & TRAINING (RS. 34.79 LAKHS); - CLUSTER DEVELOPMENT (RS. 24.08 LAKHS); - ENERGY RELATED SERVICES (RS./ 16.24 LAKHS); - EMERGING AREAS (RS. 5.30 LAKHS) 31. THUS, HE SUBMITTED THAT THIS COMPANY WAS ENGAGE D IN PROVISION OF HIGH END TECHNICAL CONSULTANCY SERVICES. HE FURTHER POINTED OUT THAT NEW AREAS COVERED BY THIS COMPANY WERE TRUNKEY IMPLEMEN TATION OF WIRE ROPE SUSPENSION FOOT BRIDGE AT LAKHNAVARAM LAKE IN WARAN GAL DISTRICT, ANDHRA PRADESH . 32. LD. COUNSEL REFERRED TO THE TPOS COMMENTS AT P AGE 145 OF HIS ORDER, WHEREIN THE LD. TPO HAS OBSERVED AS UNDER: 8.1. APITCO LTD.: IN RESPECT OF THIS COMPARABLE TH E ASSESSEE HAS OBJECTED ON THE FUNCTIONAL DIFFERENCE GROUND. HOWEV ER, A PERUSAL OF THE ANNUAL REPORT OF THE COMPARABLE IN Q UESTION REVEALS THAT ITS CARRIED OUT FUNCTIONS AKIN TO THAT OF THE ASSESSEE, 27 WHEREIN IT PREPARES PROJECT FEASIBILITY REPORTS, IT CARRIES OUT MARKET/ OTHER SURVEYS, ARRANGES FOR SEMINARS AND TR AININGS, PROVIDES ESCORT SERVICES, ENERGY RELATED SERVICES , SKILL DEVELOPMENT ETC. THESE FUNCTIONS ARE VERY SIMILAR T O THOSE PROVIDED BY THE ASSESSEE TO ITS AES. THESE FUNCTION S ARE SIMILAR TO THOSE CARRIED OUT BY APITCO AND HENCE THE OBJECT IONS OF THE ASSESSEE ARE NOT ACCEPTABLE. APITCO MEETS ALL THE Q UANTITATIVE CRITERIA SET FORTH BY THE TPO FOR THE SELECTION OF COMPARABLES. THE ASSESSEE DID NOT CONSIDER THE VERTICALS WHILE C ARRYING OUT ITS SEARCH PROCESS THEREFORE ITS OBJECTIONS ARE NOT ACCEPTABLE. 33. WITH REFERENCE TO ABOVE OBSERVATIONS OF LD. TPO , LD. COUNSEL POINTED OUT THAT THESE OBSERVATIONS ARE NOT IN CONFORMITY W ITH THE CONTENTS OF ANNUAL REPORT NOTED ABOVE. 34. LD. COUNSEL FURTHER REFERRED TO LD. DRPS ORDER AND REFERRED TO PAGE 13 OF THE DRPS ORDER TO DEMONSTRATE THAT ASSESSEES P LEAS HAVE NOT BEEN CONSIDERED. 35. HAVING CONSIDERED SUBMISSIONS OF BOTH PARTIES, WE FIND THAT LD. TPO HAS NOT CORRECTLY EXAMINED THE FUNCTIONS PERFORMED BY APITCO AND FROM THE CONTENTS OF ANNUAL REPORT, IT IS EVIDENT THAT THIS COMPANY IS PERFORMING VERY DIFFERENT FUNCTIONS WHEN COMPARED WITH THE ASSESSEE S MARKET SUPPORT SEGMENT FUNCTIONS. WE FIND THAT IN THE CASE OF CIEN A INDIA PVT. LTD., TRIBUNAL IN PARA 17.2 HAS OBSERVED AS UNDER:- 17.2 . HAVING HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT IS ENGAGED IN PROVID ING SEVERAL SERVICES, VIZ., MICRO ENTERPRISES DEVELOPMENT, SKIL L DEVELOPMENT, ENTREPRENEURSHIP DEVELOPMENT, RESEARCH STUDIES, PROJECT RELATED SERVICES, INFRASTRUCTURE P LANNING & DEVELOPMENT, ENVIRONMENT MANAGEMENT, ENERGY RELATED SERVICE, CLUSTER DEVELOPMENT, TECHNOLOGY FACILITATI ON, ASSET RECONSTRUCTION & MANAGEMENT SERVICES, EMERGING AREA S. IT 28 CAN BE SEEN FROM THE NATURE OF OPERATIONS CARRIED O UT BY THIS COMPANY THAT THE SAME IS TOWARDS MICRO ENTERPRISES DEVELOPMENT, SKILL DEVELOPMENT AND PROJECT RELATED SERVICES, ETC., ALSO INCLUDING INFRASTRUCTURE PLANNING AND DE VELOPMENT ALONG WITH ENERGY RELATED SERVICE AND CLUSTER DEVEL OPMENT. A PART OF ITS ACTIVITIES HAS GOT SOME RESEMBLANCE WIT H THE NATURE OF SERVICE PROVIDED BY THE ASSESSEE UNDER THIS SEGM ENT. THE LD. CIT(A) HAS RECORDED THAT 'ONLY 12% OF TOTAL INCOME OF THIS COMPANY IS FROM RESEARCH STUDIES WHICH IS AKIN TO T HE NATURE OF SERVICES PROVIDED BY THE ASSESSEE COMPANY. THIS CON TENTION HAS NOT BEEN CONTROVERTED BY THE LD. DR WITH ANY CLINCH ING EVIDENCE. WHEN WE CONSIDER THE OPERATIONS OF THIS COMPANY AS ENUMERATED ABOVE AND THE FACT THAT THIS COMPANY HAS MAINTAINED ACCOUNTS ON ENTITY LEVEL AND THERE IS NO BIFURCATION AVAILABLE IN RESPECT OF THE SERVICES SIMILAR TO THO SE PROVIDED BY THE ASSESSEE UNDER THIS SEGMENT, THIS COMPANY ON EN TITY LEVEL CANNOT BE CONSIDERED AS COMPARABLE. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN CONSIDERING THIS CO MPANY AS NOT COMPARABLE. 36. WE, THEREFORE, FOLLOWING THE DECISION IN THE CA SE OF CIENA INDIA PVT. LTD. (SUPRA), DIRECT FOR EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. 37. CHOKSI LABORATORIES LTD. LD. COUNSEL REFERRED T O PAGE 320 OF THE PB, WHEREIN AS REGARDS SEGMENTAL REPORTING IT IS STATED AS UNDER IN SCHEDULE 14:- 08. SEGMENTAL REPORTING: THE COMPANY TREATS ANALYT ICAL CHARGES & CONSULTANCY RECEIPTS AS A SINGLE SEGMENT AND THEREFORE DETAILS OF SEGMENTS ARE NOT SEPARATELY SH OWN. THE COMPANY IS A COMMERCIAL TESTING HOUSE ENGAGED IN TE STING OF VARIOUS PRODUCTS AND ALSO OFFERS SERVICES IN THE FI ELD OF POLLUTION CONTROL AS ALLIED ACTIVITY. THE COMPANY I S MANAGED ORGANIZATIONALLY AS A UNIFIED ENTITY WITH VARIOUS F UNCTIONAL HEADS REPORTING TO THE TOP MANAGEMENT AND IS NOT OR GANIZED ALONG SEGMENTS. THERE ARE, THEREFORE, NO SEPARATE S EGMENTS 29 WITHIN THE COMPANY AS DEFINED BY AS-17 (SEGMENTAL R EPORTING) ISSUED BY THE ICAI. 38. HE FURTHER POINTED OUT THAT THIS COMPARABLE HAS ALSO BEEN EXCLUDED IN THE CASE OF CIENA INDIA PVT. LTD. (SUPRA). 39. HAVING HEARD BOTH THE PARTIES WE FIND THAT THER E IS NO SEPARATE SEGMENTAL REPORTING AS REGARDS THE MARKET SUPPORT S EGMENT AND THE FUNCTIONS CARRIED OUT BY THIS COMPANY ARE NOT AT ALL COMPARAB LE TO THE ASSESSEE. WE FIND THAT THE TRIBUNAL IN THE CASE OF CIENA INDIA P VT. LTD., SUPRA, HAS INTER ALIA, OBSERVED AS UNDER: WE FAIL TO APPRECIATE AS TO HOW MARKETING SUPPORT SERVICES CAN BE EQUATED WITH TESTING SERVICES. WHEN WE PERUS E SCHEDULE OF FIXED ASSETS OF THIS COMPANY, IT CAN BE SEEN THA T THE MAJOR ASSET IS 'INSTRUMENTS.' IT IS WITH THE HELP OF THES E INSTRUMENTS THAT THE COMPANY IS PROVIDING SERVICES IN THE NATUR E OF TESTING OF VARIOUS PRODUCTS. BY NO STANDARD, THIS COMPANY C AN BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS COMPANY FRO M THE LIST OF COMPARABLES . 40. CONSISTENT WITH THE VIEW TAKEN IN THE CASE OF CIENA INDIA PVT. LTD., SUPRA, WE DIRECT FOR EXCLUSION OF CHOKSI LABORATORI ES LTD. FROM THE LIST OF COMPARABLES. 41. WAPCOS LTD. (SEG.): LD. COUNSEL REFERRED TO PAG E 333 TO 335 OF THE PB, WHEREIN THE ANNUAL REPORT OF THIS COMPANY IS CO NTAINED TO DEMONSTRATE THAT THIS COMPANY WAS PRIMARILY CARRYING ON HIGH EN D TECHNICAL ACTIVITIES BY IMPARTING CONSULTANCY SERVICES FOR ENGINEERING PRO JECTS. THUS, THIS COMPANY IS PRIMARILY A TECHNICAL CONSULTANCY ORGANIZATION. 42. LD. COUNSEL FURTHER REFERRED TO PAGE 381 OF THE ANNUAL REPORT AND POINTED OUT THAT IN THE SEGMENT REPORTING THIS COMP ANY HAS IDENTIFIED TWO 30 BUSINESS SEGMENTS VIZ. CONSULTANCY AND ENGINEERING PROJECTS AND LUMP SUM TRUNKEY. HE, THEREFORE, SUBMITTED THAT THIS COMPANY HAS NOT REPORTED ANY MARKET SUPPORT SERVICES SEGMENT SEPARATELY. THEREFO RE, BOTH ON THE COUNT OF FUNCTIONAL PROFILE AS WELL AS SEGMENTAL REPORTING, THIS COMPANY CANNOT BE TAKEN AS COMPARABLE. HE POINTED OUT THAT THIS COMPA NY HAS BEEN DIRECTED TO BE EXCLUDED IN THE CASE OF CIENA INDIA PVT. LTD., S UPRA. 43. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THI S COMPANY IS MAINLY IMPARTING TECHNICAL CONSULTANCY SERVICES AND THERE IS NO SEPARATE MARKETING SUPPORT SEGMENT. IN THE CASE OF CIENA INDIA PVT. LT D., SUPRA, THE TRIBUNAL HAS OBSERVED IN PARA 16.2 AS UNDER: AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUA L REPORT OF THIS COMPANY THAT IT HAS TWO SEGMENTS, NAMELY, 'CON SULTANCY AND ENGINEERING PROJECTS' AND 'LUMPSUM TURNKEY PROJ ECTS.' THE TPO HAS TAKEN 'CONSULTANCY AND ENGINEERING PROJECT SEGMENT' FOR THE PURPOSES OF COMPARISON WITH THE ASSESSEE CO MPANY. THIS COMPANY IS ENGAGED IN INFRASTRUCTURE DEVELOPMENT PR OJECTS. THIS COMPANY IS ALSO WORKING AS INDEPENDENT REVIEW AND MONITORING AGENCY FOR PROJECTS IN SOME STATES. IT I S ALSO PROVIDING SUPERVISION AND QUALITY CONTROL CONSULTAN CY FOR CONSTRUCTION/ UPGRADATION OF RURAL ROADS UNDER PMGS Y. IT ALSO SECURED PROJECTS FOR DEVELOPMENT AND HYGIENE EDUCAT ION, DEVELOPMENT OF DRY PIT LATRINES, DESIGNS FOR LOCAL CONDITIONS FOR HOUSEHOLD AND SCHOOLS AND SOLID WASTE MANAGEMENT. I T ALSO SECURED PROJECTS FOR TRANSMISSION LINE KIRTI IRTI T O STA, TRENG, CAMBODIA. A REVIEW OF THE ABOVE SERVICES PROVIDED B Y THIS COMPANY, IT CAN BE EASILY ASCERTAINED THAT IT IS NO WHERE CLOSE TO THE RENDERING OF MARKETING SUPPORT SERVICES, WHICH IS BEING DONE BY THE ASSESSEE UNDER THIS SEGMENT. THE NATURE OF ACTIVITY DONE BY THE ASSESSEE IS QUITE DISTINCT FROM THIS CO MPANY. WE, THEREFORE, DIRECT TO EXCLUDE WAPCOS LTD. (SEG.) FRO M THE LIST OF COMPARABLES . 31 44. CONSISTENT WITH THE VIEW TAKEN IN THE CASE OF CIENA INDIA PVT. LTD., SUPRA, WE DIRECT FOR EXCLUSION OF WAPCOS LTD. FROM THE LIST OF COMPARABLES. 45. LD. COUNSEL HAS NOT ADVANCED ANY ARGUMENT APART FROM INCLUSION/ EXCLUSION OF COMPARABLES AND, THEREFORE, WE ARE NOT DEALING WITH OTHER GROUNDS RAISED BY ASSESSEE. 46. IN VIEW OF ABOVE OBSERVATIONS, WE SET ASIDE THE ORDER OF AO AND DIRECT FOR COMPUTING THE ALP IN TERMS OF OUR OBSERVATIONS FOR INCLUSION/ EXCLUSION OF COMPARABLES. 47. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCEMENT IN OPEN COURT ON 17/06/2016. SD/- SD/- (SUDHANSHU SRIVASTAVA ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:17/06/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.