M/s Financial Objects Software (India) private Limited, Bangalore V. ITO, Bangalore

ITA 1472/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89941 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 13-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: NARENDRA JAIN
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 234B; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI VIJAYPAL RAO , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. (T.P) A. NO. 1472/ BANG/201 2 (ASSESSMENT YEAR : 200 8 - 0 9 ) M/S. FINANCIAL OBJECTS SOFTWARE (INDIA) PVT. LTD ., NO.412, 2 ND FLOOR, JINDAL BUILDING, 100 ROAD, 4 TH BLOCK, KORAMANGALA, BANGALORE - 560 034 PAN AAACF 9004A VS. INCOME TAX OFFICER, WARD 11(2), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI NARENDRA JAIN, C.A. RESPONDENT BY : DR.P.K. SRI HARI, ADDL. CIT (D.R.) DATE OF H EARING : 16.04.2015. DATE OF P RONOUNCEMENT : 5.6. 201 5 . O R D E R PER SHRI J ASON P. BOAZ, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - I V , BANGALORE DT. 7.9.2012 FOR ASSESSMENT YEAR 200 8 - 09 . 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT, IS A 100% EOU SET UP UNDER THE STPI SCHEME AND IS A SUBSIDIARY OF F I N O SOFTWARE SERVICES LTD. UK. FOR ASSESSMENT YEAR 2008 - 09, THE ASSESSEE FILED THE RETURN OF INCOME DECLARING INCOME 2 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD OF RS.96,7 00 AFTER CLAIMING DEDUCTION OF RS.2,37,43,176 UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT'). THE CASE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE CASE WAS TAKEN UP FOR SCRUTINY. 2.2 IN VIEW OF THE INTE RNATIONAL TRANSACTIONS REPORTEDLY ENTERED INTO BY THE ASSESSEE IN THE PERIOD UNDER CONSIDERATION, THE ASSESSING OFFICER MADE A REFERENCE UNDER SECTION 92CA OF THE ACT TO THE TRANSFER PRICING OFFICER ( TPO ) FOR DETERMINING THE ARM S LENGTH PRICE ( ALP ) TH EREOF, AFTER OBTAINING THE APPROVAL OF THE CIT (APPEALS) I, BANGALORE. THE TPO VIDE ORDER UNDER SECTION 92CA OF THE ACT DT.31.10.2011 PROPOSED A T.P. ADJUSTMENT OF RS.1,23,18,582 TO THE ALP OF INTERNATIONAL TRANSACTIONS IN RESPECT OF SOFTWARE DEVELOPMEN T SERVICES RENDERED BY THE ASSESSEE. THE ASSESSING OFFICER THEN PASSED A DRAFT UNDER ASSESSMENT UNDER SECTION 143( 3 ) RWS 144C OF THE ACT DT.15.12.2011. THE ASSESSEE, ON RECEIPT THEREOF, INFORMED THE ASSESSING OFFICER THAT IT WOULD PREFER TO FILE AN APPEAL BEFORE THE CONCERNED CIT (APPEALS) AND REQUESTED THAT THE FINAL ORDER OF ASSESSMENT BE PASSED. THE ASSESSING OFFICER PASSED THE FINAL ORDER OF ASSESSMENT UNDER SECTION 143(3) RWS 144C OF THE ACT FOR ASSESSMENT YEAR 2008 - 09 ON 2.1.2012 DETERMINING THE ASS ESSEE'S TAXABLE INCOME AT RS.1,24,15,282; WHICH INCLUDED THE T.P. ADJUSTMENT OF RS.1,23,18,582 TO THE ALP OF INTERNATIONAL TRANSACTIONS IN RESPECT OF THE SOFTWARE DEVELOPMENT SERVICES RENDERED BY THE ASSESSEE, AS PROPOSED BY THE TPO IN THE ORDER UNDER SEC TION 92CA OF THE ACT. 3 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD 2.3 AGGRIEVED BY THE FINAL ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2008 - 09, DT.3012.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) IV, BANGALORE. THE LEARNED CIT(A) DISPOSED OFF THE ASSESSEE'S APPEAL VIDE ORDER DT.7.9.2012 ALLOWING THE ASSESSEE PARTIAL RELIEF. 3.0 AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) IV, BANGALORE DT.7.9.2012 FOR ASSESSMENT YEAR 2008 - 09, THE ASSESSEE HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) IV TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING A REFERENCE TO TRANSFER PRICING OFFICER FOR DETERMINING ARM S LENGTH PRICE WITHOUT DEMONSTRATING AS TO WHY IT WAS NECESSARY AND EXPEDIENT TO DO SO. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER. 3. THE LEARNED ASSESSING OFFICER, LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF I NCOME TAX (APPEALS) - IV HAVE ERRED IN A. PASSING THE ORDER WITHOUT DEMONSTRATING THAT APPELLANT HAD MOTIVE OF TAX EVASION. B. NOT APPRECIATING THAT THE CHARGING OR COMPUTATION PROVISION RELATING TO INCOME UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PR OFESSION DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X AND THEREFORE ADDITION MADE UNDER CHAPTER X IS BAD IN LAW. C. ADOPTING A FLAWED PROCESS FOR ISSUING NOTICES U/S 133(6) AND RELYING ON THE SAME WITHOUT PROVIDING COMPLETE INFORMATION OR AN OPPORTUNITY TO CROSS EXAMINE THE COMPANIES CONCERNED. 4. THE LEARNED ASSESSING OFFICER, LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) - IV HAVE ERRED IN A. COMPUTING THE ARM S LENGTH PRICE BASED ON THE DATA FOR THE FINAN CIAL YEAR 2007 - 08 OF THE COMPARABLES, WHICH WAS NOT AVAILABLE WHEN THE APPELLANT UNDERTOOK TRANSFER PRICING DOCUMENTATION AND REPORTING OBLIGATIONS; 4 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD B. REJECTING THE COMPARABLES SELECTED BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS; C. IGNORING THE ADDITIONA L COMPARABLES PROPOSED BY THE APPELLANT WITHOUT GIVING ANY COGENT REASONS AND ON UNJUSTIFIABLE GROUNDS; AND D. REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE APPELLANT ON UNJUSTIFIABLE GROUNDS. 5. THE LEARNED ASSESSING OFFICER, LEARNED TRANSFER PRICING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) - IV HAVE ERRED IN: A. PERFORMING FRESH TRANSFER PRICING ANALYSIS AND ADOPTING INAPPROPRIATE FILTERS IN DOING FRESH TRANSFER PRICING ANALYSIS. B. ADOPTING COMPANIES AS COMPARABLES EVEN THOUGH THEY A RE NOT COMPARABLE TO THE APPELLANT. C. NOT APPRECIATING THAT THE LAW DOES NOT COMPEL ADOPTING MANY (OR ANY MINIMUM) COMPANIES AS COMPARABLES AND THAT THE APPELLANT COULD JUSTIFY THE PRICE PAID/CHARGED ON THE BASIS OF ANY ONE COMPARABLE ONLY. D. NOT MAKING PROPER ADJUSTMENT FOR ENTERPRISE LEVEL AND TRANSACTIONAL LEVEL DIFFERENCES BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. E. TREATING PROVISION FOR BAD DEBT AS NON - OPERATING IN NATURE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - IV HAS ER RED IN A. CHANGING THE FILTERS APPLIED BY THE TPO WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT. B. REJECTING THE COMPANIES HAVING OFFSHORE REVENUES LESS THAN 75% OF THE TOTAL SOFTWARE DEVELOPMENT REVENUES WITHOUT GIVING AN OPPORTUNITY TO THE APPELLANT AND WITHOUT DEMONSTRATING THE APPROPRIATENESS OF THIS FILTER. C. REJECTING COMPANIES HAVING RELATED PARTY TRANSACTIONS WITHOUT APPRECIATING THAT INSIGNIFICANT RELATED PARTY TRANSACTION CANNOT HAVE SIGNIFICANT INFLUENCE ON PROFITABILITY OF COM PARABLE COMPANIES AND THAT SUCH COMPANIES ATLEAST OUGHT TO BE RETAINED AS COMPARABLES. D. CONFIRMING COMPANIES AS COMPARABLES IGNORING THE SUBMISSIONS OF THE APPELLANT. PRAYER 7. ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE, AND THE LAW APPLICABL E, THE ALP AS DETERMINED BY THE TRANSFER PRICING OFFICER, AS ADOPTED BY THE ASSESSING OFFICER AND AS MODIFIED BY THE CIT(A) BEING NOT CORRECT IS TO BE QUASHED AND THE FIGURES AS DETERMINED AND RETURNED BY THE APPELLANT BEING CORRECT ARE TO BE ACCEPTED. 8 . THE LEARNED ASSESSING OFFICER HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B. 5 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD IN THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FILED SUBMISSIONS IN PAPER BOOK IN SUPPORT OF THE GROUNDS AND A COMPENDIUM OF CASE LAWS ON WHICH THE ASSESSEE PLACE D RELIANCE. 4. THE GROUNDS RAISED AT S.NOS.1, 2 & 3 ARE GENERAL IN NATURE AND NOT BEING SPECIFICALLY URGED BEFORE US, ARE DISMISSED AS INFRUCTUOUS. TRANSFER PRICING ISSUE (GROUND NOS.4 TO 7) 5.1 IN THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED A UTHORISED REPRESENTATIVE SUBMITTED A CHART EXPLAINING THE ASSESSEE'S POSITION REGARDING THE ACCEPTABILITY OR OTHERWISE OF EACH OF THE COMPANIES SELECTED BY THE TPO / CIT (APPEALS) AS COMPARABLE TO THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE ALSO SUBMITTED THAT HE WOULD ONLY PRESS THOSE GROUNDS ON THE COMPARABILITY OF INDIVIDUAL COMPANIES SELECTED BY THE TPO AND RETAINED BY THE CIT (APPEALS) IN THE FINAL SET OF COMPARABLES AND COMPANIES, WHICH ACCORDING TO THE ASSESSEE, WERE ERRONEOUSLY REJECTED BY THE CIT (APPEALS). IN SUPPORT OF THE ASSESSEE'S CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE VARIOUS CO - ORDINATE BENCHES OF THE ITAT, BANGALORE IN THE FOLLOWING CASES : - I. TRIOLOGY E - BUSINESS SOFTWARE INDIA (P) LTD. V CIT (ITA NO.1054/BANG/2011) II. 3DPLM SOFTWARE SOLUTIONS LTD. V CIT ( IT(TP)A NO.1303/BANG/2012, DT.28.11.2013) FOR ASSESSMENT YEAR 2008 - 09. III. NXP SEMI - CONDUCTORS INDIA PVT. LTD. (IT(TP)A NO.1560/BANG/2014 DT.5.3.2015) FOR ASSESSMENT YEAR 2008 - 09. 6 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD IT WAS SUBMITTED THAT THE SET OF COMPARABLES CHOSEN BY THE TPO IN THE CITED CASES (SUPRA) ARE THE SAME AS THOSE CHOSEN IN THE CASE ON HAND AND THEREFORE THE ASSESSEE PLACES RELIANCE ON THE DECISIONS IN THE CITED CASES. 5.2 IN THE LIGHT OF THE ABOVE OBSERVATIONS, WE NOW BRIEFLY EXAMINE THE GROUNDS OF APPEAL AT S.NOS.4 TO 7 RAISED ON T.P. ISSUES. 5.2.1 GROUND NO.4 (A TO D) ARE GENERAL IN NATURE AND SINCE THESE GROUNDS HAVE NOT BEEN URGED BEFORE US, THEY ARE DISMISSED AS INFRUCTUOUS. 5.2.2 GROUND NO.5 (A TO E) IS RAISED IN RESPECT OF THE INCLUSION OF CERTAIN COMPANIES AS COMPARABLES BY THE TPO/CIT (APPEALS) AND THE EXCLUSION OF CERTAIN OTHER COMPANIES BY THE LEARNED CIT(A). AS WE WILL BE EXAMINING AND CONSIDERING THE COMPARABILITY OR OTHERWISE OF THE INDIVIDUAL C OMPANIES AS RAISED BY THE ASSESSEE BEFORE US, THERE IS NO REQUIREMENT FOR SPECIFIC ADJUDICATION ON SPECIFIC ISSUES RAISED. 5.2.2 GROUND NO.6 (A TO D) RELATES TO THE UNILATERAL MODIFICATION OF CERTAIN FILTERS AND INCLUSION / EXCLUSION OF CERTAIN COMPARABL ES BY THE LEARNED CIT(A). AS WE WILL BE EXAMINING AND CONSIDERING THE COMPARABILITY OR OTHERWISE OF THE INDIVIDUAL COMPANIES AS RAISED BY THE ASSESSEE BEFORE US, THERE IS NO REQUIREMENT FOR SPECIFIC ADJUDICATION ON SPECIFIC ISSUES RAISED. 5.2.4 GROUND N O.7 IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 7 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD 6.0 ASSESSEE'S T.P. STUDY. 6.1 AS PER THE T.P. STUDY, CARRIED OUT BY THE ASSESSEE FOR SOFTWARE DEVELOPMENT SERVICES, THE ASSESSEE ADOPTED TNMM AS THE MOST APPROPRIATE METHOD ( MAM ) AND TAKING ITSELF TO BE THE TESTED PARTY, THE ASSESSEE SELECTED A SET OF 10 COMPANIES WITH AVERAGE PROFIT MARGIN OF 16.57% ON COST AS COMPARABLES, WHICH ARE AS UNDER : - S.NO. NAME OF THE COMPANY AVERAGE UNADJUSTED MA RGINS (%) 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 6.36 2. GOLDSTONE TECHNOLOGIES LTD. 22.42 3. HELIOS & MATHESON INFORMATIONTECHNOLOGY LTD. 39.86 4. INDIUM SOFTWARE (INDIA) LTD. 1.91 5. LANCO GLOBAL SYSTEMS LTD. 20.01 6. MAARS SOFTWARE INTERNATIONAL LTD . 0.14 7. QUINTEGRA SOLUTIONS LTD. 19.07 8. R S SOFTWARE (INDIA) LTD. 13.41 9. SONATA SOFTWARE LTD. 21.87 10. VISU INTERNATIONAL LTD. 20.66 ARITHMETIC MEAN 16.57 SINCE THE PROFIT MARGIN OF THE ASSESSEE WAS 15.61% ON OPERATING COST, THE ASSESSE E HELD ITS INTERNATIONAL TRANSACTIONS RELATING TO RENDERING OF SOFTWARE DEVELOPMENT SERVICES TO BE AT ARM S LENGTH. 6.2 THE TPO, WHILE ACCEPTING TNMM AS THE MAM, AS ADOPTED BY THE ASSESSEE, REJECTED THE ASSESSEE'S T.P. STUDY FOR VARIOUS REASONS AND E MBARKED ON A FRESH SEARCH FOR COMPARABLES USING THE DATA BASIS PROWESS AND CAPITALINE . AFTER ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO ADOPT A FRESH SET OF COMPARABLES AND CONSIDERING THE 8 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD OBJECTIONS OF THE ASSESSEE THERETO, THE TPO SELECT ED THE FINAL LIST OF 20 COMPARABLES, WHICH ARE AS UNDER : - S.NO. NAME OF THE COMPANY OP/TC (%) 1. AVANI CINCOM TECH NOLOGIES 25.62 2. BODHTREE CONSULTING LTD. 18.72 3. CELESTIAL BIOLABS 87.94 4. E - ZEST SOLUTIONS LTD. 29.81 5. FLEXTRONICS (ARICENT) 7.8 6 6. IGATE GLOBAL SOLUTION LTD. 13.99 7. INFOSYS 40.37 8. KALS INFORMATIONSYSTEMS LTD. (SEG) 41.94 9. LGS GLOBAL LTD. 27.52 10. MINDTREE LTD. (SEG) 16.41 11. PERSISTENT SYSTEMS LTD. 20.31 12. QUINTEGRA SOLUTION LTD. 21.74 13. R SYSTEMS INTERNATIONA L (SEG) 15.30 14. R S SOFTWARE (INDIA) LTD. 7.41 15. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 7.58 16. TATA ELXSI (SEG) 18.97 17. THIRDWARE SOLUTION LTD. 19.35 18. WIPRO LTD. (SEG) 28.45 19. SOFTSOL INDIA LTD. 17.89 20. LUCID SOFTWARE LTD. 16.50 AVERAGE 23.65 THE AVERAGE MEAN MARGIN OF THE 20 COMPARABLE COMPANIES SELECTED BY THE TPO WAS 23.65% WHEREAS THE AVERAGE MEAN MARGIN OF THE SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE WAS COMPUTED BY THE TPO AT 14.07% ON TOTAL COST. AFT ER GRANTING WORKING CAPITAL ADJUSTMENT AT 0.11%, THE TPO COMPUTED THE T.P. ADJUSTMENT OF RS.1,23,18,582 TO 9 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD THE ALP OF INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2008 - 09. 6.3.1 ON APPEAL, BEFORE TH E LEARNED CIT(A), THE ASSESSEE FILED SUBMISSIONS RAISING VARIOUS OBJECTIONS REGARDING THE APPLICATION OF FILTERS BY THE TPO. A SUMMARY OF THE CIT (APPEALS) FINDINGS WHILE DISPOSING OFF THE ASSESSEE'S APPEAL, ARE AS UNDER : - (I) THE LEARNED CIT(A) APPLIE D THE TURNOVER FILTER OF RS.1 CRORE TO RS.200 CRORES AND REJECTED 8 COMPANIES FROM THE FINAL SET OF TPO S COMPARABLES; (II) THE LEARNED CIT(A) APPLIED THE RELATED PARTY TRANSACTIONS (RPT) FILTER AT 0% AND THEREBY REJECTED 11 COMPANIES AS COMPARABLES; (II I) THE LEARNED CIT(A) REJECTED C E LESTIAL BIO LABS LTD. AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT FR O M THE ASSESSEE ; (IV) THE LEARNED CIT(A) APPLIED 95% OFF SHORE REVENUE FILTER AND REJE CTED 8 COMPANIES AS COMPARABLES; (V) THE LEARNE D CIT(A) DID NOT ACCEPT ANY OF THE COMPANIES PROPOSED BY THE ASSESSEE. 6.3.2 FINALLY, THE LEARNED CIT(A) APPRO VED AND ACCEPTED THE FOLLOWING FOUR COMPANIES AS BEING COMPARABLE TO THE ASSESSEE : - S.NO. NAME OF THE COMPANY OP/TC % 1. BODHTREE CONSULTIN G LTD. 20.29 2. E - ZEST SOLUTIONS LTD. 30.78 3. LUCID SOFTWARE LTD. 18.59 4. KALS INFORMATION SYSTEMS LTD. (SEG.) 29.77 AVERAGE MARGIN 24.85 10 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD THE LEARNED CIT(A), HOWEVER, HELD THAT SINCE THE AVERAGE MARGIN OF THESE FOUR COMPANIES AT 24.85% IS HIG HER THAN THE AVERAGE MARGIN OF COMPARABLES ADOPTED BY THE TPO AT 23.55%, HE UPHELD THE MARGIN OF 23.55% ADOPTED BY THE TPO. 6.3.3 IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RENTAL INCOME FROM SUB - LETTING OF PROPERTY AMOUNTING TO RS.21,74,298 AND HAD CLAIMED EXPENDITURE OF RS.20,77,594 RELATING THERETO. ON APPEAL, THE ASSESSEE CONTENDED THAT WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSEE, THE TPO EXCLUDED RENTAL INCOME FROM OPERATING REVENUE BUT AT THE SAME TIME INCLUDED EXPENDITURE RELATIN G TO RENTAL INCOME AS PART OF OPERATING EXPENDITURE. THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT EXPENSES RELATING TO RENTAL INCOME SHOULD ALSO BE EXCLUDED FROM OPERATING COST. THE LEARNED CIT(A) ACCEPTING THE ASSESSEE'S CONTENTIONS DIRECTED TH E ASSESSING OFFICER TO REDUCE THE AMOUNT OF RS.20,77,594 FROM THE OPERATING COST TO DETERMINE THE ARM S LENGTH PRICE UNDER SECTION 92CA OF THE ACT. 6.4.1 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT HE WOULD MAKE AND PUT FORWARD ARG UMENTS / CONTENTIONS ONLY ON THE ISSUE OF COMPARABILITY OR OTHERWISE OF INDIVIDUAL COMPANIES, WHICH IN THE ASSESSEE'S OPINION ARE INCORRECTLY INCLUDED OR EXCLUDED BY THE LEARNED CIT(A) IN THE FINAL SET OF COMPARABLES. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ALL THE FOUR COMPANIES SELECTED BY THE LEARNED CIT(A) DESERVE TO BE REJECTED. 11 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD EXCLUSION OF COMPARABLES SOUGHT FOR BY THE ASSESSEE 7. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE FOLLOWING THREE COMPANIES ARE LIABLE TO BE REJ ECTED AS COMPARABLES AS THEY ARE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE; BASED ON THE JUDICIAL PRONOUNCEMENTS IN THE DECISIONS OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008 - 09 : - (I) E - ZEST SOLUTIONS LTD. (II) LUCID SOFTWARE LTD. AND (III) KALS INFORMATION SYSTEMS LTD. (SEG.) WE SHALL NOW PROCEED TO EXAMINE AND CONSIDER EACH OF THE COMPARABLE COMPANIES SO HIGHLIGHTED BY THE ASSESSEE IN ITS CHART. 8. E - ZE ST SOLUTIONS LTD. 8.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. OVERRULING THE ASSESSEE'S OBJECTIONS THAT IT WAS FUNCTIONALLY DIFFERENT, THE TPO INCLUDED THIS COMPANY AS A COMPARABLE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED UNDE R SECTION 133( 6 ) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISFIES ALL FILTERS. 8.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES AS IT IS FUNCTION ALLY DIFFERENT FROM THE ASSESSEE AS IT IS ENGAGED IN E - BUSINESS CONSULTING SERVICES WHICH ARE HIGH END ITES, CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING ( KPO ) SERVICES WHICH ARE NOT COMPARABLE TO THE PURELY 12 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD SOFTWARE DEVELOPMENT SERVICES RENDERED BY THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) HOLDING THAT THIS COMPANY I S TO BE EXCLUDED FROM THE LIST OF COMPARABLES SINCE IT PROVIDES KPO SERVICES WHICH ARE NOT COMPARABLE TO PURE SOFTWARE DEVELOPMENT SERVICE PROVIDERS. THE LEARNED AUTHORISED REPRESENTATIVE PRAYED THAT IN VIEW OF THIS, THIS COMPANY I.E. E - ZEST SOLUTIONS LT D., OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 8.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 8.4.1 WE HAVE HEARD THE RIVAL CONTENT IONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISION CITED. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR ASSESSMENT YEAR 2008 - 09 HAS EXCLUDED THI S COMPANY FROM THE LIST OF COMPARABLES, HOLDING THAT THIS COMPANY IS INTO RENDERING OF PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES IN THE CATEGORY OF KPO SERVICES AND THEREFORE CANNOT BE CONSIDERED AS A COMPARABLE TO AN ASSESSEE RENDERING PURELY SOFTWARE DEVELOPMENT SERVICES. THE RELEVANT PORTION OF THIS ORDER OF THE CO - ORDINATE BENCH AT PARA 14.4 THEREOF IS EXTRACTED HEREUNDER : - 13 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPAR A BLES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SE RVICES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELO PMENT SERVICES, THIS COMPANY I.E. E - ZEST SOLUTIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAP ITAL I - Q INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESA ID CASE, WE HOLD THAT THIS COMPANY, I.E. E - ZEST SOLUTIONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 8.4.2 FOLLOWING THE AFORESAID DECISION OF THE CO - O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE DIRECT THE A.O./TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE IN THE CASE ON HAND WHO IS RENDERING PURELY S OFTWARE DEVELOPMENT SERVICES. IT IS ORDERED ACCORDINGLY. 9. KALS INFORMATION SYSTEMS LTD. (SEG) 9.1 THIS COMPANY HAS BEEN SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY ON TH E GROUND THAT IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE; BEING INTO PRODUCT DEVELOPMENT AND ALSO BECAUSE THE SEGMENTAL DETAILS, RELIED ON BY THE TPO, HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH REGARD TO SOFTWARE DEVELOPMENT SERV ICES AND SOFTWARE PRODUCTS REVENUE. THE TPO, 14 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD HOWEVER, REJECTED THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AND OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES AS IT IS INTO SOFTWARE PRODUCTS, UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO ONLY A SOFTWARE SERVICE PROVIDER TO ITS AES. IT WAS ALSO SUBMITTED THAT THIS COMPANY WAS REJECT ED AS COMPARABLE TO A SOFTWARE SERVICE PROVIDER BY THE DECISION OF A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA). IT WAS PRAYED, BY THE LEARNED AUTHORISED REPRESENTATIVE, THAT IN VIEW OF THE ABOVE CITED JUDICI AL PRONOUNCEMENT (SUPRA), THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN EXCLUDING THIS COMPANY IN THE FINAL LIST OF COMPARABLES. 9.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENT CITED AND PLACED RELIANCE UPON. WE FIND THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS L TD. (SUP R A) FOR ASSESSMENT YEAR 2008 - 09 HAS EXCLUDED THIS COMPANY AS BEING COMPARABLE TO A SOFTWARE SERVICE PROVIDER AS IT WAS INTO DEVELOPING OF SOFTWARE PRODUCTS HOLDING AS UNDER AT PARA 10.4 OF ITS ORDER : - 10.4 WE HAVE HEARD BOTH PARTIES AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM THE RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILITY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATION OBTAINED 15 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USED BY THE TPO, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THE COMPANY, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE. WE ALSO FIND THAT THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASS ESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) AND IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APART FROM RELYING OF THE ABOVE CITED DECISIONS OF CO - ORDINATE BENCHES OF THE TRIBUNAL (SUPRA), THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANY S ANNUAL REPORT TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS - SIMILAR AND DIFF ERENT FORM THE ASSESSEE AND THAT SINCE THE FINDINGS RENDERED IN THE DECISIONS OF THE CO - ORDINATE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007 - 08 (CITED SUPRA) ARE APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2008 - 09 ALSO, THIS COMPANY OUGHT TO BE EXC LUDED FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY I.E. KALS INFORMATION SYSTEMS LTD., IS TO BE OMITTED FROM THE LIST OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 9.4.2 FOLLOWING THE ABOVE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND, WH O IS ONLY A SOFTWARE SERVICE PROVIDER TO ITS AES. 10. BOTHTREE CONSULTING LTD . AND LUCID SOFTWARE LTD. 10.1 THESE TWO COMPANIES HAVE BEEN SELECTED AS COMPARABLE COMPANIES TO THE ASSESSEE BY THE TPO; THE INCLUSION OF WHICH WAS N EVER OBJECTED TO BY THE ASSESSEE BOTH BEFORE THE TPO AND THE LD. CIT(A) . THE ASSESSEE HAS ALSO NOT OBJECTED TO THE INCLUSION OF THESE COMPANIES IN THE LIST OF COMPARABLES, AS CAN BE SEEN FROM THE GROUNDS OF APPEAL RAISED IN FORM 36B BEFORE THIS TRIBUNAL. HOWEVER IN THE COURSE OF PROCEEDINGS BEFORE US, THE 16 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD LEARNED AUTHORISED REPRESENTATIVE RAISED OBJECTIONS TO THE INCLUSION OF THESE COMPANIES AS COMPARABLES FOR VARIOUS REASONS GIVEN IN ITS SUBMISSIONS. 10.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE O PPOSED THE EXCLUSION OF THESE COMPANIES FROM THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT SINCE THE ASSESSEE HA D ACCEPTED THE TPO S PROPOSAL FOR INCLUSION OF THESE COMPANIES IN THE SET OF COMPARABLES AND HAD NO T OBJECTED TO TH EIR INCLUSION EVEN BEFORE THE CIT(A) OR RAISED ANY ADDITIONAL GROUND OF APPEAL IN THE PRESENT APPEAL IN RESPECT OF THE INCLUSION OF BODHTREE CONSULTING LTD. AND LUCID SOFTWARE LTD. AS A COMPARABLE, THE OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD, AT THIS STAGE, OUGHT TO BE REJECTED AS THEY ARE NOT MAINTAINABLE. 10.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ADMITTEDLY, AS POINTED OUT BY THE LD. D.R., THERE IS NO DISPUTING THE FACT THAT T HE ASSESSEE HAD NEVER OBJECTED TO THE INCLUSION OF THESE COMPANIES IN THE SET OF COMPARABLES IN EARLIER PROCEEDINGS BOTH BEFORE THE TPO AND THE CIT(A) . IT IS ALSO SEEN THAT EVEN IN THE GROUNDS OF APPEAL RAISED BEFORE US, THE ASSESSEE HAS NOT RAISED ANY ADDIT IONAL GROUNDS CHALLENGING THE INCLUSION OF THESE TWO COMPANIES IN THE LIST OF COMPARABLES. IN THIS FACTUAL MATRIX, SINCE NO CAUSE OF GRIEVANCE ARISES TO THE ASSESSEE FROM THE IMPUGNED ORDER, OR ANY OF THE ORDER OF THE AUTHORITIES BELOW, ON THE INCLUSION O F THESE COMPANIES AS COMPARABLES, THIS CLAIM OF THE ASSESSEE IS NOT MAINTAINABLE AS THERE IS NO ADVERSE FINDING IN THE IMPUGNED ORDERS REQUIRING US TO ADJUDICATE THEREON. WE, THEREFORE, FINDING THAT THE 17 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD CONTENTIONS RAISED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN RESPECT OF THESE COMPANIES ARE NOT MAINTAINABLE, REJECT THE SAME. CONSEQUENTLY, THE INCLUSION OF THESE TWO COMPANIES I.E. BODHTREE CONSULTING LTD. AND LUCID SOFTWARE LTD. IN THE FINAL LIST OF COMPARABLES IS UPHELD. INCLUS ION OF COMPANIES AS COMPARABLES SOUGHT FOR BY THE ASSESSEE. 11.1 IN THE COURSE OF APPELLATE PROCEEDINGS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT R SYSTEM INTERNATIONAL LTD. SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. TH E LD. A. R. CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN DIRECTING THE ASSESSING OFFICER / TPO TO EXCLUDE THE FOLLOWING COMPANIES FROM THE LIST OF COMPARABLES BY APPLYING THE RELATED PARTY TRANSACTION ( RPT ) FILTER OF MORE THAN 0%, AS HE WAS OF THE VIEW THAT EVEN A SINGLE INSTANCE OF RPT SHOULD LEAD TO THEIR REJECTION FROM THE LIST OF COMPARABLES : - (I) AVANI CINCO M TECHNOLOGIES LTD. (II) LGS GLOBAL LTD. (III) FLEXTRONICS SOFTWARE SYSTEMS LTD. (IV) I - GATE GLOBAL SOLUTIONS LTD. (V) INFOSYS TECHNOLOGIES LT D. (VI) MINDTREE LTD. (VII) PERSISTENT SYSTEMS LTD. (VIII) R. SYSTEMS INTERNATIONAL LTD. (SEG) (IX) SOFTSOL INDIA LTD. (X) TATA ELXSI LTD. 18 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD (XI) THIRDWARE SOLUTIONS LTD. (XII) WIPRO LTD. 11.2.1 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT RPT FIL TER SHOULD BE APPLIED AT 15% OF THE TOTAL REVENUE AND ONLY THOSE COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVENUES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT OUT OF THE AB OVE 12 COMPANIES, 4 COMPARABLES NAMELY 1) AVANI CINCOMTECHNOLOGIES LTD. 2) R. SYSTEMS INTERNATIONAL LTD. 3) SOFTSOL INDIA LTD. AND 4) THIRDWARE SOLUTIONS ARE REJECTED AS COMPARABLE COMPANIES ONLY ON THE GROUND THAT THEY HAVE RPT IN EXCESS OF 0 %. THE REM AINING 8 COMPANIES (SUPRA) ARE ALSO REJECTED AS COMPARABLES FOR VARIOUS OTHER REASONS SUCH AS TURNOVER FILTER, OFF SHORE REVENUES BEING LESS THAN 75%, ETC. 11.2.2 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER CONTENDED THAT OUT OF THE 4 COMPARABLES NAME D ABOVE, TWO OF THEM NAMELY 1) AVANI CINCOM TECHNOLOGIES LTD. AND 2) THIRDWARE SOLUTIONS LTD. HAVE BEEN REJECTED AS COMPARABLES FROM MERE SOFTWARE SERVICE PROVIDERS, LIKE THE ASSESSEE IN THE CASE ON HAND, AS THEY ARE HELD TO BE FUNCTIONALLY DIFFERENT IN TH E DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA). THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT ANOTHER COMPANY, NAMELY SOFTSOL INDIA LTD. HAS BEEN OMITTED AS A COMPARABLE IN THE DECI SION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) FOR THE REASON THAT ITS RPT IS IN EXCESS OF 15%. THE 19 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD LEARNED AUTHORISED REPRESENTATIVE PRAYED THAT IN VIEW OF THE ABOVE, R SYSTEMS INTERNATIONAL LTD. SHOULD BE INCLUDED IN THE LIST OF COMPARABLES. 11.3.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED AND RELIED ON IN THE CONTEXT OF THE ISSUE OF RPT. IT WAS SUBMITTED BEFORE US THAT, IN THE DECISION OF A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 DT.9.11.2012, IT WAS HELD THAT RPT FILTER SHOULD BE APPLIED AT 15%. IN DOING SO, THE CO - ORDINATE BENCH FOLLOWED THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF SONY INDIA P. LTD. (2008 - TIOL - 439 - ITAT - DEL) WHEREIN IT WAS HELD THAT COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVENUES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE RELEVANT OBSERVATION / FINDING OF THE CO - ORDINATE BENCH IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) AT PARA 13 THEREOF ARE EXTRACTED HEREUNDER : - 13.0 RELATED PARTY TRANSACTIONS IN RESPECT OF THE GROUND RAISED AT S.NO.1 REGARDING ACCEPTANCE OF COMPARABLE COMPANIES HAVING RELATED PARTY TRANSACTIONS AS PROPOSED BY THE TPO, THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE TRANSFER PRICING REGULATIONS DO NOT STIPULATE ANY MINIMUM LIMIT OF RELATED PARTY TRANSACTIONS WHICH FORM THE THRESHOLD FOR EXCLUSION AS A COMPARABLE. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE OBJECTED TO THE TPO S SETTING A LIMIT OF 25% ON RELATED PARTY TRANSACTIONS. HE OBJECTED TO THE INCLUSION OF COMPARABLES BEING RELATED PARTY TRANSACTIONS IN EXCESS OF 15% OF SALES / REVENUE. IN SUPPORT OF THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE BENCH OF THE ITAT, DELHI IN THE CASE OF SONY INDIA (P) LTD. REPORTED IN 2008 - TIOL - 439 - ITAT - DELHI DT.23.12.2008. THE LEARNED COUNSEL FOR THE ASSESSEE D REW OUR ATTENTION TO PARA 115.3 OF THE ORDER WHEREIN THE TRIBUNAL HAS HELD THAT - 20 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD ..WE ARE FURTHER OF THE VIEW THAT AN ENTITY CAN BE TAKEN AS UNCONTROLLED IF ITS RELATED PARTY TRANSACTIONS DO NOT EXCEED 10 TO 15% OF TOTAL REVENUE. WITHIN THE ABOVE LIMIT, TRANSACTIONS CANNOT BE HELD TO BE SIGNIFICANT TO INFLUENCE THE PROFITABILITY OF THE COMPARABLES. FOR THE PURPOSE OF COMPARISON WHAT IS TO BE JUDGED IS THE IMPACT OF THE RELATED PARTY TRANSACTIONS VIS - - VIS SALES AND NOT PROFIT SINCE PROFIT OF AN E NTERPRISE IS INFLUENCED BY LARGE NUMBER OF OTHER FACTORS . RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SONY INDIA (P) LTD (SUPRA), THE ASSESSING OFFICER / TPO ARE DIRECTED TO EXCLUDE AFTER DUE VERIFICATION THOSE COMPARABLES FROM THE LIST WITH RELATED PARTY TRANSACTIONS OR CONTROLLED TRANSACTIONS IN EXCESS OF 15% OF TOTAL REVENUES FOR THE FINANCIAL YEAR 2003 - 04. 11.3.2 THE ABOVE DECISIONS ACKNOWLEDGE THAT RPT UPTO A CERTAIN LIMIT SHOULD NOT LEAD TO THE REJECTION OF A COM PANY AS A COMPARABLE. THE ABOVE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA) WAS FOLLOWED BY ANOTHER CO - ORDINATE BENCH IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) IN HOLDING THAT COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVENUES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. FOLLOWING THE ABOVE DECISIONS, WE HOLD THAT THE RPT FILTER SHOULD BE CONSIDERED AT 15% OF TOTAL REVENUES AND COMPANIES HAVING RPT IN EXCESS OF 15% OF TOTAL REVE NUES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, THE ORDER OF THE LEARNED CIT(A) HOLDING THAT COMPANIES ARE NOT TO BE CONSIDERED AS COMPARABLES EVEN IF THEY HAVE A SINGLE RPT I.E. THAT THE RPT IS IN EXCESS OF 0% IS HEREBY REVERSED. 11.3.3 THE ASSESSEE HAS PLEADED BEFORE US THAT THE LEARNED CIT (APPEALS) HAS WRONGLY REJECTED 12 COMPANIES SELECTED BY THE TPO AS COMPARABLES BY APPLYING 0% RPT FILTER AND 21 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD THEREFORE THESE 12 COMPANIES SHOULD BE INCLUDED IN THE SET OF COMPAR ABLES FOR THE PURPOSE OF DETERMINING THE ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT OUT OF THESE 12 COMPANIES WHICH ARE NOW SOUGHT TO BE INCLUDED IN THE SET OF COMPARABLES, THE ASSESSEE HAS RAISED THE OB JECTIONS AGAINST INCLUSION OF TEN OF THESE COMPANIES BEFORE THE TPO. THE TPO HAS REPRODUCED THE OBJECTIONS RAISED BY THE ASSESSEE IN PARA 3.5.2 OF THE IMPUGNED ORDER PASSED BY THE TPO WHEREIN THE ASSESSEE RAISED THE OBJECTIONS IN RESPECT OF 15 COMPANIES, THIS INCLUDES 10 COMPANIES OF THE SET OF 12 COMPANIES REJECTED BY THE CIT (APPEALS) BY APPLYING THE RPT FILTER AS WELL AS OTHER PARAMETERS. THUS THE GRIEVANCE OF THE ASSESSEE IN THE APPEAL BEFORE THIS TRIBUNAL IS LIMITED ONLY TO THE EXTENT OF EXCLUSION OF 2 COMPAR AB LES NAMELY (I) LGS GLOBAL LIMITED AND (II) MINDTREE LIMITED. T HE ASSESSEE HAS NOT RAISED ANY OBJECTIONS AGAINST THE INCLUSION OF THESE TWO COMPANIES NAMELY (I) LGS GLOBAL LIMITED AND (II) MINDTREE LIMITED BEFORE THE TPO/CIT(A). T HOUGH THE CIT ( APPEALS) HAS CO - TERMINUS POWER WITH THAT OF ASSESSING OFFICER AND CAN ENHANCE THE ASSESSMENT, HOWEVER, SINCE HE HAS NOT ISSUED ANY SHOW CAUSE NOTICE FOR ENHANCEMENT UNDER SECTION 251(2) OF THE ACT, HE CANNOT REJECT THESE TWO COMPANIES FROM THE SET OF COMPA RABLES. THEREFORE TO THE EXTENT OF THE REJECTION OF THESE TWO COMPANIES F RO M THE SET OF COMPARABLES, THE ORDER OF CIT (APPEALS) IS SET ASIDE AND THE TPO IS DIRECTED TO RECOMPUTE THE ALP AFTER GIVING EFFECT TO THE ORDER OF THE TRIBUNAL IN RESPECT OF THE CO MPARABLES WHICH ARE DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES. 22 IT (TP) A NO. 1472 /BANG/ 20 1 2 FINANCIAL OBJECTS SOFTWARE (I) PVT LTD 12. IN GROUND NO.8 , THE ASSESSEE DENIES ITSELF LIABLE TO BE CHARGED INTEREST UND ER SECTION 234B OF THE ACT. THE CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY AND THE ASSES SING OFFICER HAS NO DISCRETION IN THE MATTER. THIS PROPOSITION HAS BEEN UPHELD BY THE HON'BLE APEX COURT IN THE CASE OF ANJUM H GHASWALA (252 ITR 1) AND W E, THEREFORE, UPHOLD THE ACTION OF THE ASSESSING OFFICER IN CHARGING THE SAID INTEREST. THE ASSESSI NG OFFICER IS, HOWEVER, DIRECTED TO RECOMPUTE TH E INTEREST CHARGEABLE U/S. 234B OF THE ACT, IF ANY, WHILE GIVING EFFECT TO THIS ORDER. 13. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JUNE, 201 5 . SD/ - ( VIJAYPAL RAO ) JUDICIAL MEMBER SD/ - (JASON P BOAZ) ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE