M/s. United Online Software Development (India) P. Ltd (Formerly known as Juno Online Service Development P. Ltd, Hyderabad V. The Income Tax Officer, Ward 3(2), Hyderabad

ITA 1480/HYD/2010

• Counselvise Citation: 148022514 RSA 2010
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR
• Assessee Lawyers: POWAN KUMAR GORTI; RAVI BHARAWAJ
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO1480/HYD/2010 ASSESSMENT YEAR 2005-06. UNITED ONLINE SOFTWARE, -V- T HE INCOME-TAX OFFICER, DEVELOPMENT (INDIA) PVT. LTD. WARD-3(2),T TOWERS, HYDERABAD. HYDERABAD. PAN:AAACJ9549G (APPELLANT) (RESPONDENT) ITA NO.1546/HYD/2010 ASSESSMENT YEAR 2005-06. THE INCOME-TAX OFFICER, -V- UNITED ONLINE SOFTWARE, WARD-3(2),IT TOWERS, HYDERABAD. DEVELO PMENT (INDIA) PVT. LTD. HYDERABAD. PAN:AAACJ9549G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAVI BHARAWAJ & POWAN KUMAR GORTI RESPONDENT BY SHRI D. SUDHAKAR DATE OF HEARING 27 - 11 - 2014 DATE OF PRONOUNCEMENT 24 - 0 1 - 2014 ORDER PER SAKTIJIT DEY, J.M: THESE ARE CROSS APPEALS FILED AGAINST THE ORDER OF CIT (A)-III, HYDERABAD DATED 28-9-2010 PERTAINING TO THE ASSESS MENT YEAR 2005-06. 2. WE WILL FIRST DEAL WITH ASSESSEES APPEAL I.E. I TA NO.1480/HYD/2010. AT THE VERY OUTSET, THE LEARNED AR SUBMITTED THAT H E ONLY WANTS TO PRESS 2 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. GROUND NOS. 8 AND 9 RELATING TO REJECTION/SELECTION OF COMPARABLES BY TPO AND SUSTAINED BY CIT (A). IN VIEW OF SUCH SUBMISSI ONS OF THE LEARNED AR, WE WILL CONFINE OUR FINDING TO THE AFORESAID ISSUES AS RAISED BY THE ASSESSEE IN GROUND NOS. 8 AND 9. THE OTHER GROUNDS RAISED IN THIS APPEAL BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 3. BRIEFLY THE FACTS ARE, THE ASSESSEE COMPANY, FOR MERLY KNOWN AS JUNO ONLINE SERVICES DEVELOPMENT PVT. LTD., IS ENGAGED I N SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE IS A WHOLLY OWN ED SUBSIDIARY OF JUNO ONLINE SERVICES, USA, AN INTERNET SERVICE PROVIDER , WHICH IS ULTIMATELY OWNED BY UNITED ONLINE INC. USA. THE ASSESSEE PROVI DES SOFTWARE DEVELOPMENT SERVICES ONLY TO ITS AE IN USA. THEREFO RE, THE ASSESSEE CAN BE TERMED AS A CAPTIVE SERVICE PROVIDER. FOR THE A SSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME DE CLARING NIL INCOME AFTER CLAIMING DEDUCTION U/S 10A OF THE ACT AT RS.1,23,49 ,246/-. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICING THAT THE ASSESSEE COMPANY HAD EARNED REVENUE EXCEEDING RS.5 CORES FROM INTERNATIONAL TRANSACTION WITH ITS AE MADE A REFERE NCE TO THE TPO FOR DETERMINING THE ALP U/S 92CA OF THE ACT. IN COURSE OF PROCEEDINGS BEFORE THE TPO, THE ASSESSEE SUBMITTED ALL RELEVANT DOCUME NTS AS WERE CALLED FOR BY THE TPO. THE TPO ON EXAMINING THE TP STUDY NOTICED THAT THE ASSESSEE HAS REPORTED A REVENUE OF RS.13,87,06,612/ - FROM INTERNATIONAL TRANSACTION WITH ITS AE. THE ASSESSEE FOR THE PURP OSE OF DETERMINING THE ALP HAS SELECTED TNMM AS THE MOST APPROPRIATE METHO D AND OPERATING PROFIT/OPERATING COST AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE HAS SELECTED 45 COMPANIES AS COMPARABLES WITH AN AVERAG E MARGIN OF 9.97%. THE ASSESSEES MARGIN BEING 9.76% WAS THEREFORE FOU ND TO BE WITHIN ARMS LENGTH REQUIRING NO ADJUSTMENT. THE TPO HOWE VER REJECTED THE TP DOCUMENT OF THE ASSESSEE POINTING OUT VARIOUS DEFEC TS AND DEFICIENCIES. AFTER REJECTING THE TP DOCUMENT, THE TPO APPLYING C ERTAIN ADDITIONAL FILTERS UNDERTOOK A SEARCH IN DATA BASES TO FIND OU T COMPARABLES. THE 3 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. SEARCH PROCESS ULTIMATELY YIELDED IN SELECTION OF 1 7 COMPANIES WHICH WERE TREATED AS COMPARABLES BY THE TPO. THE ARITHMETIC M EAN PLI OF THE COMPARABLE COMPANIES SELECTED BY THE TPO WAS FOUND TO BE 26.59% AND AFTER ALLOWING WORKING CAPITAL ADJUSTMENT OF 2.36%, THE ADJUSTED ARITHMETIC MEAN PLI WAS COMPUTED AT 23.96%. BY APPL YING THE AFORESAID ADJUSTED AMPLI OF 23.96% TO OPERATING COST OF RS.12 ,57,64,646/- THE ALP WAS DETERMINED AT RS.15,58,97,855/-. THE ASSESSEE HAVING SHOWN THE PRICE AT RS.13,87,66,162/-, THE SHORTFALL OF RS.1,7 1,31,693/- WAS TREATED AS THE ADJUSTMENT TO BE MADE U/S 92CA OF THE ACT. AS A CONSEQUENCE OF THE ORDER PASSED BY THE TPO, THE ASSESSING OFFICER ADDED THE AMOUNT OF RS.1,71,31,693/- TO THE INCOME OF THE ASSESSEE WHIL E COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT. THE AO ALSO MADE SOME ADJUSTMENT TO THE DEDUCTION CLAIMED U/S 10A OF THE ACT BY REDUCIN G AN AMOUNT OF RS.7,60,775/- FROM THE EXPORT TURNOVER. AS A RESUL T, THE TOTAL INCOME WAS DETERMINED AT RS.1,72,68,092/-. BEING AGGRIEV ED OF THE AFORESAID ASSESSMENT ORDER, THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT (A) ON VARIOUS GROUNDS. (4). THE CIT (A) HOWEVER REJE CTED ALL THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO THE DETE RMINATION OF ALP, EXCEPT IN CASE OF ONE OF THE COMPARABLE COMPANIES I .E., SATYAM COMPUTER SERVICES LIMITED WHICH THE CIT (A) ACCEPTING THE C ONTENTION OF THE ASSESSEE, EXCLUDED FROM THE LIST OF COMPARABLES. THE AVERAGE PROFIT MARGIN OF THE BALANCE 16 COMPARABLES BEING 26.41%, THE CIT (A) DETERMINED THE ALP AT RS.15,56,71,478/- AFTER ALLOW ING A DEDUCTION OF 2.63% TOWARDS WORKING CAPITAL ADJUSTMENT. IN THIS PROCESS, THE SHORTFALL WAS REDUCED TO RS.1,69,05,316 WHICH THE ASSESSING O FFICER WAS DIRECTED TO ADD TO THE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED OF THE AFORESAID ORDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR SPECIFICALLY OBJECTED TO SELECTIO N OF SEVEN COMPARABLES BY THE TPO (5 IN THE MAIN GROUND AND 2 IN THE ADDITIONAL 4 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. GROUNDS). HEREINAFTER WE WILL DEAL WITH EACH OF TH E COMPANY THAT WAS OBJECTED BY THE ASSESSEE. EXENSYS SOFTWARE SOLUTIONS LTD. EXENSYS SOFTWARE SOLUTIONS LTD. EXENSYS SOFTWARE SOLUTIONS LTD. EXENSYS SOFTWARE SOLUTIONS LTD. : OBJECTING TO THE AFORESAID COMPANY'S SELECTION A S A COMPARABLE, THE LD. AR SUBMITTED THAT IT IS A PRODU CT COMPANY AS IT IS INVOLVED IN DEVELOPMENT OF SOFTWARE PRODUCTS WHICH IS EVIDENT F ROM SIGNIFICANT INTANGIBLES OWNED BY THAT COMPANY. THAT APART IT IS ALSO AN EXCEPTIO NAL YEAR OF OPERATION IN CASE OF THE SAID COMPANY. THERE IS MERGER OF HOLOOL INDIA WITH EFFECT FROM 1.4.2004 WHICH HAD A MATERIAL IMPACT ON THE FINANCIAL RESULTS FOR THE YE AR. HE FURTHER CONTENDED THAT THE TPO HAS ERRONEOUSLY EXCLUDED THE DEFERRED REVENUE EXPEN DITURE WHILE COMPUTING THE NET MARGIN OF THE COMPANY. IN SUPPORT OF SUCH CONTENTI ON, THE LEARNED AR REFERRED TO THE DECISIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN CASE OF INTOTO SOFTWARE INDIA PVT. LTD. ( ITA NOS. 1196, 1197/HYD/ 2010), ITO VS. COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (ITA NO. 609/DEL/2011), INTEGRATED DECISIONS & SYST EMS INDIA (P) LTD. VS. DCIT (TA NO. 27/JP/2011) ,ACIT VS. SONATA SOFTWARE (ITA NO. 3514 /MUM/2010) AND NTT DATA ENTERPRISE APPLICATION SERVICES PVT LTD(ITA NO.1612 /HYD/2010) WHEREIN THE CO- ORDINATE BENCHES OF THE TRIBUNAL HAVE EXCLUDED THE AFORESAID COMPANY FROM BEING TREATED AS COMPARABLE DUE TO THE AFORESAID REASONS . 6. THE LEARNED DR, HOWEVER, SUBMITTED THAT THE TPO HAVING SELECTED THE COMPARABLES AFTER CONSIDERING ALL THE ISSUES, THERE IS NO REASON FOR EXCLUDING THIS COMPANY AS COMPARABLE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. IT IS THE CONTENTION OF THE LEARNED AR THA T NOT ONLY THE AFORESAID COMPANY IS INVOLVED IN DEVELOPMENT OF PRODUCTS BUT THERE IS AL SO AN EXTRAORDINARY EVENT OF MERGER OF HOLOOL INDIA LTD., DURING THE RELEVANT FINANCIAL YEAR. FROM THE MATERIAL ON RECORD, IT 5 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. IS TO BE NOTED THAT IN COURSE OF PROCEEDINGS BEFORE THE TPO, IN RESPONSE TO THE NOTICE ISSUED U/S. 133(6) OF THE ACT BY THE TPO, THE SAID COMPANY HAS ALSO ADMITTED THIS FACT. THE ITAT, HYDERABAD BENCH IN THE CASE OF INTOTO SOF TWARE INDIA PVT. LTD. (SUPRA) IN ITA NO. 1196 & ORS./HYD/2010 DATED 24.5.2013 HAS HELD A S UNDER: '17. HAVING HEARD BOTH PARTIES AND HAVING CONSIDERE D THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS ACCEPTED THE EXENSYS SOFTWARE SOLUTIONS LIMITED AS ONE OF THE COMPARABLE COMPANIE S WHEN PROPOSED BY THE TPO. HOWEVER, THE FACT THAT THERE IS AN AMALGAMATION OF TWO COMPANIES I.E., EXENSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED, THE RESULTS OF WH ICH, HAS RESULTED IN HIGH OPERATING MARGIN CANNOT BE LOST SIGHT FOR. IT HAS BEEN HELD I N MANY CASES BY THIS TRIBUNAL AS WELL AS THE HIGHER FORUMS THAT TO COMPARE A COMPANY WITH AN OTHER COMPANY, BOTH THE COMPANIES HAVE TO BE BROUGHT ON PAR WITH EACH OTHER AFTER MAKING THE NECESSARY ADJUSTMENTS WHEREVER NECESSARY AND POSSIBLE. HOWEVE R, WHERE THERE ARE EXTRAORDINARY EVENTS SUCH AS THIS, THEN THOSE EVENTS HAVE TO BE T AKEN NOTE OF AND WHERE NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF THIS EXTRAORDINARY EVENT, THEN SUCH COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. THE OBJECTIONS TO THIS COMPANY BY THE ASSESSEE ARE MADE FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE TRIBUNAL BE ING THE FINAL FACT FINDING AUTHORITY IS BOUND TO TAKE NOTE OF THE OBJECTIONS OF THE ASSESSE E. AS THE MATERIAL RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY DENOTES TH AT THERE IS AN EXTRAORDINARY EVENT WHICH HAS RESULTED IN THE HIGH OPERATING MARGIN OF THE COMPANY, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE ASSE SSING OFFICER /TPO FOR RECONSIDERATION. IF IT IS FOUND THAT THERE IS AN AMALGAMATION OF EXE NSYS SOFTWARE LIMITED AND HOLOOL INDIA LIMITED AND FORMED AS ONE ENTITY VIZ., EXENSYS SOFT WARE SOLUTIONS LIMITED. DURING THE RELEVANT PREVIOUS YEAR AND THE FINANCIAL RESULT IS THE COMBINED RESULT OF THESE TWO COMPANIES, THEN, WE DIRECT THE ASSESSING OFFICER /T PO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES.' 8. THE OTHER DECISIONS RELIED UPON BY THE LEARNED A R ALSO EXPRESSES THE SAME VIEW. THEREFORE, CONSIDERING THE TOTALITY OF FACTS AND CI RCUMSTANCES AND RESPECTFULLY FOLLOWING THE VIEW EXPRESSED BY THE CO-ORDINATE BEN CH IN CASE OF INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA), WE DIRECT THE AO/TPO TO EXAMINE THE ISSUE AFRESH IN CONFORMITY WITH THE DIRECTION GIVEN IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA). ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE AO. 6 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. SANKHYA INFOTECH LTD. AND FOUR SOFT LTD SANKHYA INFOTECH LTD. AND FOUR SOFT LTD SANKHYA INFOTECH LTD. AND FOUR SOFT LTD SANKHYA INFOTECH LTD. AND FOUR SOFT LTD. : THE LEARNED AR OBJECTING TO THE AFORESAID COMPANIES BEING TREATED AS A COMPARABLE, SUBMITTED THAT THE ANNUAL REPORT AS WELL AS OTHER MATERIAL ON RECORD WOULD CLEARLY SHOW THAT TH E AFORESAID COMPANIES ARE ENGAGED IN DEVELOPMENT OF PRODUCT. THEREFORE, THESE COMPAN IES BEING FUNCTIONALLY DIFFERENT TO THE ASSESSEE-COMPANY, THEY CANNOT BE TREATED AS A C OMPARABLE. IN SUPPORT OF SUCH CONTENTION, THE ASSESSEE RELIED ON THE DECISIONS OF THE TRIBUNAL IN CASES OF COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (SUPRA), DCIT V S. M/S. HELLOSOFT INDIA PVT. LTD. (ITA NO. 645/HYD/09), INTEGRATED DECISIONS & SYSTEMS IND IA (P) LTD. (SUPRA) AND SONATA SOFTWARE (SUPRA). 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE TPO. 10. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PE RUSED MATERIALS ON RECORD. ON A PERUSAL OF THE ORDER PASSED IN THE CASE OF HELLOS OFT INDIA PVT. LTD. (SUPRA), IT IS TO BE SEEN THAT THE TRIBUNAL UPHELD THE CIT(A)'S ORDER IN REJECTING SANKHYA INFOTECH LTD. AND FOUR SOFT LTD. ON THE GROUND THAT THEY WERE HAVING ONSITE INCOME/EXPENSES OF MORE THAN 75%. IN VIEW OF THE AFORESAID DECISION OF THE CO-ORDINATE BENCH, THE AO/TPO IS DIRECTED TO EXAMINE WHETHER ONSITE INCOME/EXPENDITU RE OF AFORESAID COMPANY IS MORE THAN 75%. FURTHER, THE ASSESSING OFFICER/TPO MUST A LSO EXAMINE THE FACT WHETHER BOTH THESE COMPANIES ARE INTO DEVELOPMENT OF SOFTWARE PR ODUCTS. IF IT IS FOUND TO BE SO, THE AFORESAID COMPANY CANNOT BE SELECTED AS A COMPARABL E TO THE ASSESSEE. THIRDWARE SOLUTIONS LTD THIRDWARE SOLUTIONS LTD THIRDWARE SOLUTIONS LTD THIRDWARE SOLUTIONS LTD.: OBJECTING TO THE AFORESAID COMPANY'S SELECTION AS A COMPARABLE, THE LEARNED AR SUBMITTED THAT THIS COMP ANY IS ALSO INTO DEVELOPMENT OF PRODUCT AND INVOLVED IN DISTRIBUTION ACTIVITIES. T HEREFORE, IT CANNOT BE TREATED AS A 7 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. COMPARABLE. IN SUPPORT OF SUCH CONTENTION, THE LEA RNED AR RELIED UPON THE DECISIONS OF THE TRIBUNAL IN CASES OF COLT TECHNOLOGY SERVICE S INDIA PVT. LTD., INTOTO SOFTWARE INDIA PVT. LTD.,NTT DATA ENTERPRISE APPLICATION SER VICES PVT LTD AND SONATA SOFTWARE(SUPRA). 11. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED SE LECTION OF THE AFORESAID COMPANY AS COMPARABLE BY THE TPO. 12. ON A PERUSAL OF THE ORDER PASSED BY THE CO-ORDI NATE BENCH IN CASE OF INTOTO SOFTWARE INDIA PVT. LTD. (SUPRA), IT IS TO BE NOTED THAT THOUGH THE CO-ORDINATE BENCH OBSERVED THAT THERE ARE SOFTWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE FY AND THE FINANCIAL RESULTS ARE IN RESPECT OF SERVICES ON LY BUT STILL IT HELD THAT THOUGH THERE IS NO SALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT TH E SAID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS DEVELOPMENT OF SOFTWARE PRODUCT S. THE CO-ORDINATE BENCH ON THAT BASIS DIRECTED THE AO/TPO TO EXCLUDE THIRDWARE SOLUTIONS LTD. FROM LIST OF COMPARABLES. THE SAME VIEW HAS ALSO BEEN EXPRESSED BY THE DELHI BENCH OF THE ITAT IN THE CASE OF COLT TECHNOLOGY SERVICES INDIA PVT. LTD. (SUPRA) AND IN CASE OF SONATA SOFTWARE (SUPRA). RESPECTFULLY FOLLOWING THE DECIS IONS OF THE CO-ORDINATE BENCHES, AS NOTED ABOVE, WE DIRECT THE AO/TPO TO EXCLUDE THE AF ORESAID COMPANY FROM THE LIST OF COMPARABLES. INFOSYS TECHNOLOGIES LTD. . : THE LEARNED AR OBJECTED TO THE AFORESAID COMPANY BEING TREATED AS A COMPARABLE IN VIEW OF ITS EXTRAO RDINARY HIGH TURNOVER OF ABOUT RS. 6,859 CRORES COMPARED TO THE TOTAL TURNOVER OF ABOUT RS. 13.87 CRORES OF THE ASSESSEE AND IT WAS CONTENDED BY THE LEARNED AR THA T UNDER NO CIRCUMSTANCES INFOSYS TECHNOLOGIES LTD., CAN BE TREATED AS COMPA RABLE TO THE ASSESSEE AS IT IS A GIANT IN THE SECTOR OF SOFTWARE DEVELOPMENT AND ITE S HAVING CONSIDERABLE BRAND 8 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. VALUE, REPUTATION AND GOODWILL IN MARKET. IT NOT O NLY OWNS INTANGIBLES BUT HAS DIVERSIFIED ACTIVITIES. 13. THE LEARNED DR, HOWEVER SUPPORTED THE ORDERS OF THE CIT (A) AND TPO. 14 WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PER USED THE MATERIALS ON RECORD. SO FAR AS INFOSYS TECHNOLOGIES LTD. IS CON CERNED THE ISSUE OF COMPARABILITY OF THE AFORESAID COMPANY HAS BEEN CONSIDERED BY DIF FERENT BENCHES OF THE TRIBUNAL INCLUDING THE HYDERABAD BENCHES. IT IS TO BE NOTED THAT THE CONSISTENT VIEW OF DIFFERENT BENCHES OF THE TRIBUNAL IS TO THE EFFECT THAT INFOSYS TECHNOLOGIES LTD. BEING A BIG COMPANY IN ALL RESPECTS INCLUDING THE R ANGE OF TURNOVER IS NOT A COMPARABLE TO SMALL COMPANIES WHICH ARE CAPTIVE SER VICE PROVIDERS HAVING CONSIDERABLY LOW TURNOVER. IN FACT, THE HONBLE DEL HI HIGH COURT IN A JUDGEMENT DATED 10.7.2013 IN THE CASE OF AGNITY INDIA LTD. UP HELD THE DECISION OF ITAT DELHI BENCH IN EXCLUDING INFOSYS TECHNOLOGIES LTD., AS A COMPARABLE IN VIEW OF ITS SIZE. THEREFORE, KEEPING IN TUNE WITH THE CONSISTENT VIEW OF DIFFERENT BENCHES OF THE TRIBUNAL IN RESPECT OF THE AFORESAID COMPANY, WE DI RECT THE AO/TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES. TATA ELXSI LTD. : THE LEARNED AR OBJECTING TO THE AFORESAID COMPAN Y, SUBMITTED THAT IT CANNOT BE TREATED AS A COMPARABLE. AS PER T HE INFORMATION SUBMITTED BY THE SAID COMPANY IN COURSE OF PROCEEDINGS BEFORE THE TP O IN CASE OF ANOTHER ASSESSEE, THE COMPANY ITSELF HAD ADMITTED THAT IT CANNOT BE T REATED AS A COMPARABLE TO ANY OTHER COMPANY. IN SUPPORT OF SUCH CONTENTION THE L EARNED AR RELIED UPON THE DECISION OF TELCORDIA TECHNOLOGIES INDIA P. LTD. (I TA NO. 7821/MUM/2011), TRIOLOGY E SERVICES, LG SOFT, ETC. 15. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDER OF THE TPO. 16. WE HAVE HEARD CONTENTIONS OF THE PARTIES AND PE RUSED MATERIALS ON RECORD. WE RECORD OUR FINDINGS AS UNDER: 9 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. 17. THE ASSESSEE HAS SOUGHT THE EXCLUSION OF THE AF ORESAID COMPANY BY PLACING RELIANCE UPON A LETTER OF THE SAID COMPANY TO THE A DDITIONAL. CIT (TRANSFER PRICING), HYDERABAD RELATING TO A PROCEEDING IN CASE OF ANOTHE R ASSESSEE WHEREIN THE SAID COMPANY HAS ADMITTED THAT IT CANNOT BE TREATED AS C OMPARABLE WITH ANY OTHER COMPANY SINCE IT IS A SPECIALIZED EMBEDDED SOFTWA RE DEVELOPMENT PROVIDER. IN THIS CONTEXT, IT WOULD BE RELEVANT TO NOTE THE FIND ING OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S. INTOTO SOFTWARE (SUPRA) WH ICH IS AS UNDER:- 22. TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, FILED BEFORE U S THE REPLY OF TATA ELXSI LIMITED TO THE ADDL. CIT (TRANSFER PRICING), HYDERAB AD, WHEREIN THE CONCERNED OFFICER HAS BEEN INFORMED THAT TATA ELXSI LIMITED IS SPECIALIZED EMBEDDED SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE DEVELOPMENT COMPAN Y. IT WAS SUBMITTED THAT BECAUSE OF THE SPECIALIZATION AND ALSO BECAUSE OF DIVERSE NATURE OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCALE-UP THE OPER ATIONS OF TATA ELXSI LIMITED. IN VIEW OF THIS, TATA ELXSI LIMITED HAS INFORMED TH AT IT IS NOT FAIR TO USE ITS FINANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMP ANY. THE COMMUNICATION DATED 25TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS THIS COMMUNICATION WAS NOT BEFORE THE TPO AT THE TIME OF TRANSFER PRICING ADJUSTMENT WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RECONSIDER ADOPTING THIS COMPANY AS THE COMPARABLE IN THE LIGHT OF OBSERVATIONS OF THIS COMPANY TO THE TPO IN THE C ASE OF ANOTHER ASSESSEE. IN THE RESULT, THE ASSESSING OFFICER/TPO IS DIRECTE D TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH AS AFORESAID, WE ALSO REMIT THIS ISSUE TO THE ASSESSING OFFICER/TPO FOR CONSIDERING IT AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. BODHTREE CONSULTING LTD. : THE LEARNED AR OBJECTING TO THE AFORESAID COMPANY BEING TREATED AS A COMPARABLE SUBMITTED THAT AS PER SCHEDULE 4 OF BALANCE SHEET, THE COMPANY HAS INVESTMENTS IN PERIGON, LLC, USA AN D AS PER RESPONSE TO LETTER U/S 133(6), IT HAS EXPORT SALES TO PERIGON LLC, USA OF RS.133.90 LAKHS. THUS, THE RELATED PARTY TRANSACTION OF THE AFORESAID COMPANY BEING MORE THAN 25% OF ITS 10 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. REVENUE I.E., PRECISELY 34.68% , IT FAILS THE RPT FILTER OF MORE THAN 25% ADOPTED BY THE TPO HIMSELF. 19. THE LEARNED AR SUBMITTED THAT SINCE THE AFORESA ID COMPANY FAILS THE RPT FILTER IT CANNOT BE TREATED AS A COMPARABLE. THE LEARNED DR SUPPORTED THE ORDER OF THE TPO. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. THE GROUND ON WHICH THE LEARNED AR SEEK S EXCLUSION OF THE AFORESAID COMPANY IS, ITS RELATED PARTY TRANSACTION AS A PERC ENTAGE TO THE TOTAL REVENUE IS 34.68% WHICH IS MORE THAN THE ACCEPT/REJECT MATRIX OF MORE THAN 25% FIXED BY THE TPO. IT IS TO BE NOTED THAT IN FINAL FILTERS ADOPT ED BY THE TPO IN PARA 9.7 OF HIS ORDER HE HIMSELF HAS EXCLUDED COMPANIES HAVING RPT OF MORE THAN 25%. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO EXAM INE THIS ASPECT AND EXCLUDE IT FROM THE LIST OF COMPARABLES IF THE ASSESSEE'S CONT ENTION IS FOUND TO BE CORRECT. 21. IN COURSE OF HEARING THE LEARNED AR HAS SUBMIT TED BEFORE US THAT IN THE TP ORDER PASSED FOR THE ASSESSMENT YEAR 2006-07, THE T PO HAS HIMSELF EXCLUDED (A) EXENSYS SOFTWARE SOLUTIONS LTD., (B) SANKHYA INFOTE CH LIMITED AND FOUR SOFT LIMITED FINDING THEM TO BE UNCOMPARABLE TO THE ASSE SSEE FOR VARIOUS REASONS CONSIDERING THE AFORESAID SUBMISSIONS OF THE ASSESS EE, WE DIRECT THE ASSESSING OFFICER/TPO TO LOOK INTO THESE ASPECTS ALSO. WHEN T HE AFORESAID COMPANIES WERE FOUND TO BE UNCOMPARABLE TO THE ASSESSEE FOR THE A SST. YEAR 2006-07 THEY CANNOT BE COMPARABLE TO THE ASSESSEE FOR THE IMPUGNED ASSE SSMENT YEAR ALSO IF SIMILAR FACTS AND CIRCUMSTANCES EXIST IN THIS YEAR. APART F ROM OBJECTING TO THE AFORESAID COMPARABLES, THE LEARNED AR ALSO ASSAILED THE ACTI ON OF THE TPO/CIT(A) IN REJECTING TWO OF THE COMPARABLES PROPOSED BY THE ASSESSEE NAM ELY BIRLA TECHNOLOGIES LIMITED AND VJIL CONSULTING LIMITED. 11 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. BIRLA TECHNOLOGIES LTD. IN RESPECT OF THE AFORESAID COMPANY, THE LEARNED A R SUBMITTED THAT THE TPO HAS REJECTED THE AFORESAID COMPANY SOLELY ON T HE GROUND THAT IT IS A PERSISTENT LOSS MAKING COMPANY. THE LEARNED AR SUB MITTED THAT THE AFORESAID COMPANY HAS EARNED AN OPERATING PROFIT FO R THE FINANCIAL YEAR 2004-05 AS PER COMPUTATION MADE IN ACCORDANCE WITH TPOS FORMULAE. 22. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE CIT (A) AS WELL AS TPO. 23. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. AS CAN BE SEEN FROM PAGE-171 OF THE TPOS ORDER THE AF ORESAID COMPANY WAS PROPOSED AS A COMPARABLE BY THE ASSESSEE DURING THE TP PROCEEDINGS. HOWEVER, THE TPO REJECTED IT BY STATING THAT IT IS A PERSISTENT LOSS MAKING COMPANY. AS WOULD BE EVIDENT FROM PARA 11.9 OF THE CIT (A)S ORDER, HE HAS ALSO SUSTAINED THE VIEW OF THE TPO. HOWEVER, I T IS THE SPECIFIC CONTENTION OF THE ASSESSEE BEFORE US THAT THE COMPA NY HAS EARNED OPERATING PROFIT FOR THE FINANCIAL YEAR 2004-05. IN VIEW OF THESE SUBMISSIONS OF THE LEARNED AR, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER/TPO WHO AFTER EXAMINING THE FINAN CIAL POSITION OF THE AFORESAID COMPANY FOR THE FINANCIAL YEAR 2004-05 SH ALL TAKE A DECISION IN THE MATTER. THE ASSESSEE MUST BE GIVEN A REASONABL E OPPORTUNITY OF BEING HEARD. VJIL CONSULTING LTD . 24. WITH REGARD TO THE AFORESAID COMPANY, THE LEARN ED AR SUBMITTED THAT THIS COMPANY WAS SELECTED BY THE ASSESSEE IN I TS TP STUDY. HOWEVER, THE TPO REJECTED IT ON THE GROUND THAT THIS COMPANY IS INTO PRODUCT DEVELOPMENT, SINCE THE BALANCE-SHEET OF THE COMPANY SHOWS THAT IT HAS INCURRED VAT EXPENDITURE OF RS.1.2 CRORES. THE LEA RNED AR SUBMITTED THAT THERE ARE NO PECULIARITY IN PAYMENT OF VAT OF RS.1.2 CRORES ON SALES 12 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. OF RS.16 CRORES. SINCE THE COMPANY IS ENGAGED IN S ALE OF COMPUTER SOFTWARE, IT WOULD HAVE PAID VAT IN INDIA OR OVERSE AS AS PER APPLICABLE RULES. SO FAR AS THE TPOS ALLEGATION THAT THE COM PANY HAD PECULIAR ECONOMIC CIRCUMSTANCES LIKE INTERNAL BUSINESS, REST RUCTURING, CANCELLATION OF CUSTOMER ORDERS ETC., THE LEARNED AR CONTENDED T HAT FOR THE FINANCIAL YEAR 2004-05, THERE ARE NO SPECIAL CIRCUMSTANCES AN D THE COMPANY SATISFIES ALL THE FILTERS ADOPTED. THE SO-CALLED E XCEPTIONAL CIRCUMSTANCES IN SUBSEQUENT YEARS CANNOT BE THE CRITERIA FOR REJE CTING COMPARABLES. 25. THE LEARNED DR HOWEVER SUPPORTED THE ORDERS OF T HE AUTHORITIES BELOW. 26. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD. IT IS THE SPECIFIC CONTENTION OF THE LEARNED AR BEFORE US THAT THE AFORESAID COMPANY SATISFIES ALL THE FILTERS ADOPTED BY THE TP O. HE HAS ALSO CONTENDED THAT THERE ARE NO EXCEPTIONAL CIRCUMSTANC ES IN THE IMPUGNED YEAR AS ALLEGED BY THE TPO. IN OUR VIEW, THE AFORE SAID CONTENTION OF THE LEARNED AR REQUIRES PROPER EXAMINATION BY THE AO/TP O. IN THAT VIEW OF THE MATTER, WE ARE INCLINED TO REMIT THIS ISSUE BAC K TO THE FILE OF THE ASSESSING OFFICER/TPO FOR DECIDING THE SAME AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 27. WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO TO DETERMINE THE ALP KEEPING IN VIEW OUR DIRECTIONS GIVEN HEREINABOVE AN D IF ON SUCH DETERMINATION THE PRICE CHARGED BY THE ASSESSEE FOR ITS INTERNATIONAL TRANSACTION IS FOUND TO BE WITHIN THE ARMS LENGTH T HEN NO ADJUSTMENT IS REQUIRED TO BE MADE. 28. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. ITA NO. 1546/HYD/2010 (DEPARTMENTAL APPEAL) 29. THE ONLY ISSUE RAISED IN THE APPEAL OF THE DEPA RTMENT IS WITH REGARD TO THE DIRECTIONS OF THE CIT (A) TO REDUCE THE COMM UNICATION EXPENSES OF RS.7,69,775/- ATTRIBUTABLE TO DELIVERY OF SOFTWARE OUTSIDE INDIA BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER FOR THE PURP OSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. 30. WE HAVE HEARD THE PARTIES. THE ISSUE RAISED IS NO MORE RES INTEGRA IN VIEW OF THE RATIO LAID DOWN NOT ONLY BY DIFFERE NT HIGH COURTS BUT ALSO DIFFERENT BENCHES OF THE TRIBUNAL INCLUDING THE HYD ERABAD BENCHES. IN CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175), THE HONBLE BOMBAY HIGH COURT HELD THAT COMMUNICATION CHARGES H AVE TO BE EXCLUDED BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S 10A. THE SAME VIEWHAS ALSO BEEN EXP RESSED BY INCOME- TAX APPELLATE TRIBUNAL, CHENNAI SPECIAL BENCH IN CA SE OF ITO VS. SAK SOFT LTD (121 TTJ 865). IN SUCH VIEW OF THE MATTER, THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) IN THIS REG ARD. ACCORDINGLY, GROUND NOS. 2 AND 3 ARE DISMISSED. 31. THE LEARNED DR DID NOT MAKE ANY SUBMISSIONS IN RESPECT OF GROUND NO.4. THAT BESIDES IN VIEW OF OUR DIRECTION WHILE CONSIDERING THE ASSESSEES APPEAL IN ITA NO.1480/HYD/2010 IN THIS O RDER, THIS GROUND HAS BECOME INFRUCTUOUS AND ACCORDINGLY THE SAME IS DISM ISSED. 14 ITA NOS. 1480 & 1546 OF 2010 UNITED ONLINE SOFTWARE DEVEL OPMENT (INDIA) PVT. LTD., HYD. 32. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED B Y THE DEPARTMENT STAND DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24-01-2014. SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 24 TH JANUARY, 2014. JMR* COPY TO:- 1) UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PRIVATE LIMITED,6- 3-1099/1100, 1 ST FLOOR, BABUKHAN MILLENIUM CENTRE, SOMAJIGUDA, HYDERABAD. 2) ITO, WARD-2(1), IT TOWERS, MASAB TANK, HYDERABAD. 3) CIT(A)-III, HYDERABAD. 4) CIT-II, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.