Kaplan India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1481/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9981 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP KR MISHRA
• Assessee Lawyers: SANDEEP S KARHAIL
• Keywords: Related party transaction; Transfer pricing; International transaction; Set aside
• Section: 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N.S.SAINI, ACCOUNTANT MEM BER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.-1481/DEL/2015 ( ASSESSMENT YEAR: 2010-11) KAPLAN INDIA PVT. LTD. 226, TRIBHUVAN COMPLEX, ISHWAR NAGAR, FRIENDS COLONY (WEST) NEW DELHI PAN : AAICS9919F VS . ITO WARD -14(2) NEW DELHI APPELLANT RESPONDENT ASSESSEE BY : SH. NAGESHWAR RAO & SANDEEP S. KARHAIL, ADV. REVENUE BY: SHRI SANDEEP KR. MISHRA, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, J.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E FINAL ASSESSMENT ORDER DATED 31.12.2014 PASSED BY THE ASS ESSING OFFICER (AO) UNDER SECTION 143 (3) R.W.S. 144 C OF THE INCO ME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AND PERTAINS TO ASSE SSMENT YEAR (AY) 2010-11. 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE KAPLAN INDIA PRIVATE LIMITED (KIPL) WAS INCORPORATED IN AP RIL 2005 AS A DATE OF HEARING 29.01.2019 DATE OF PRONOUNCEMENT 02.04.2019 2 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) SUBSIDIARY OF KAPLAN MEXICO HOLDINGS LLC. KIPL IS E NGAGED IN PROVIDING CAPTIVE SOFTWARE DEVELOPMENT AND MAINTENA NCE SERVICES TO ITS ASSOCIATED ENTERPRISE (AE). THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TAXABLE INCOME OF RS. 5,55,564/- TAXABLE INCOME. DURING THE YEAR UNDER CONSIDERATION, THE INTERNATIONAL TRA NSACTIONS ENTERED INTO BY THE ASSESSEE RELATED TO PROVISION OF SOFTWA RE MAINTENANCE AND SUPPORT SERVICES AMOUNTING TO RS. 15,20,04,973/-. D URING THE PERIOD RELEVANT TO PRESENT APPEAL, THE ASSESSEE RENDERED T HE FOLLOWING SOFTWARE MAINTENANCE AND SUPPORT SERVICES TO ITS GR OUP ENTITIES: SOFTWARE MAINTENANCE AND SUPPORT SERVICES; ENGINEERING ACTIVITIES ENHANCEMENT AND CUSTOMIZAT ION OF SUPPORTING PLATFORMS AND APPLICATIONS, DATABASE CLE ANUP AND MAINTENANCE SERVICES, SUPPORTING APPLICATION PLATFORMS WITHIN KAPLAN BUSINESSES, BUG FIXING AND MAINTENANCE; QUALITY ASSURANCE ACTIVITIES; OTHER IT SERVICES; 2.1 PURSUANT TO A REFERENCE MADE BY THE ASSESSING OFFICER, THE TRANSFER PRICING OFFICER (TPO) PASSED ORDER DATED 2 1.01.2014 UNDER SECTION 92CA OF THE ACT. THE TPO ACCEPTED THE FUNCT IONS ASSETS AND RISK ANALYSIS (FAR) AS DESCRIBED IN THE TRANSFER PR ICING (TP) STUDY 3 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) FILED BY THE ASSESSEE. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE MOST APPROPRIATE METHOD IS TRANSACTIONAL NET MARGIN METHOD (TNMM) AND THE PROFIT LEVEL INDICATOR (PLI) IS OP/TC. THE ASSESSEE HAD SELECTED 18 COMPANIES WITH AN AVERAGE MARGIN OF 10. 04 % AND HAD REPORTED THAT ITS INTERNATIONAL TRANSACTIONS ARE AT ARMS LENGTH PRICE (ALP) CONSIDERING ITS OWN MARGIN AT 11.08%. THE TPO REQUESTED SUBSTITUTION OF MULTIYEAR DATA WITH SINGLE YEAR DAT A, UPON WHICH THE ASSESSEE SELECTED 13 COMPARABLES WITH MEAN MARGIN O F 8.82 % AND, THUS, CLAIMED THAT ITS INTERNATIONAL TRANSACTIONS A RE AT ARMS LENGTH. THE TPO RECORDED THAT THE TP STUDY HAS NOT BEEN REJ ECTED AND THAT IT HAS BEEN ONLY MODIFIED BY USE OF CURRENT YEAR DATA AND SOME APPROPRIATE FILTERS. THE TPO ISSUED SHOW CAUSE NOTI CE MODIFYING SOME OF THE FILTERS APPLIED IN THE TRANSFER PRICING STUD Y AND ACCEPTED 10 OUT OF THE 13 COMPARABLES. THE TPO ALSO ADDED ANOTHER 6 COMPARABLES AS DETAILED IN THE TP ORDER. AFTER A DETAILED DISCUSSI ON, ACCEPTING AND REJECTING SOME COMPARABLES, THE TPO ARRIVED AT THE FINAL SET OF 17 COMPARABLES WITH AVERAGE MARGIN OF 25.78%. FURTHER, THE TPO OPINED THAT WORKING CAPITAL ADJUSTMENT WAS NOT RELEVANT FO R SERVICE INDUSTRY AND HENCE REFUSED TO ALLOW ANY WORKING CAPITAL ADJU STMENT. SIMILARLY, THE TPO REJECTED THE ASSESSEES CLAIM FOR RISK ADJU STMENT POINTING TO ABSENCE OF RELIABLE AND ROBUST DATA. INITIALLY, AN ADJUSTMENT OF RS. 4 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) 2,01,10,731/- WAS DETERMINED, HOWEVER, VIDE RECTIFI CATION ORDER DATED 25.07.2014 THIS ADJUSTMENT WAS REWORKED TO RS. 1,77 ,46,170/-. 2.1 THE DRAFT ASSESSMENT ORDER DATED 14.2.2014 WAS OBJECTED TO BEFORE THE LD. DISPUTE RESOLUTION PANEL (DRP), W HERE THE ASSESSEE WAS NOT SUCCESSFUL IN SECURING ANY MAJOR RELIEF EXC EPT DIRECTION TO GRANT WORKING CAPITAL ADJUSTMENT AS PER THE METHODO LOGY GIVEN IN OECD GUIDELINES. THE TPO RECOMPUTED THE TP ADJUSTM ENT AT RS. 177,16,054/- WHICH IS INCORPORATED AS PART OF IMPU GNED FINAL ORDER PASSED BY AO ON 31.12.2014. 2.2 AGGRIEVED, THE ASSESSEE IS NOW BEFORE THIS TRI BUNAL (ITAT) AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED TPO/AO/DRP HAVE ERRED IN MAKING ADDITIO N OF INR 17716054 TO THE TOTAL INCOME OF APPELLANT IN RE SPECT OF INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF SOFTWARE MAINTENANCE AND SUPPORT SERVICES BY THE APPELLANT T O ITS ASSOCIATED ENTERPRISES (AES). 2. THE LEARNED TPO/AO/DRP HAVE ERRED IN NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN AC CORDANCE WITH PROVISIONS OF THE ACT READ WITH INCOME TAX RUL ES,1962 (THE RULES) IN MODIFYING THE SAME FOR THE DETERMINATION OF ARMS LENGTH PRICE(ALP) OF THE IMPUGNED TRANSACTION TO HO LD THAT THE SAME ARE NOT AT ARMS LENGTH WITHOUT RETURNING A FI NDING ABOUT EXISTENCE OF ANY OF THE CIRCUMSTANCES SPECIFIED IN CLAUSES (A) TO (D) OF SUB-SECTION 92 C OF THE ACT. 3. THE LEARNED TPO/AO/DRP HAVE ERRED IN: 5 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) A. NOT ACCEPTING THE USE OF MULTIYEAR DATA, AS ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING (TP) DOCUMENTATI ON AND B. DETERMINING THE ARMS LENGTH MARGINS/PRICES USING D ATA PERTAINING ONLY TO FINANCIAL YEAR 2009-10 WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE INDIAN TP DOCUMENTATION REQUIREMENTS 4. THE LEARNED TPO/AO/DRP HAVE ERRED IN REJECTING CERT AIN COMPARABLE COMPANIES SELECTED BY THE APPELLANT BY A PPLYING INAPPROPRIATE COMPARABILITY CRITERIA SUCH AS: A. TURNOVER LESS THAN INR 5 CRORES B. EXPORT TURNOVER LESS THAN 75% OF OPERATING REVENUES C. DIFFERENT ACCOUNTING YEAR AND D. EMPLOYEE COST LESS THAN 25% OF TOTAL COST 5. THE LEARNED TPO/AO/DRP HAVE ERRED IN ERRONEOUSLY RE JECTING THE COMPARABLE COMPANIES SELECTED BY THE APPELLANT AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF COMPA RABLE COMPANIES ON AN AD HOC BASIS, THEREBY RESORTING TO CHERRY PICKING OF COMPARABLES TO DETERMINE ALP. 6. THE LEARNED TPO/AO/DRP HAVE ERRED IN SELECTING CERT AIN COMPANIES (WHICH ARE EARNING SUPERNORMAL PROFITS) A S COMPARABLE TO THE APPELLANT. 7. THE LEARNED TPO/AO/DRP HAVE ERRED IN PASSING AN ORD ER WHICH HAS COMPUTATION ERRORS IN THE MARGIN OF COMPA RABLE COMPANIES USED IN DETERMINATION OF ARMS LENGTH MAR GIN. 8. THE LEARNED TPO/AO/DRP HAVE ERRED IN TREATMENT OF O PERATING AND NON OPERATING ITEMS WHILE COMPUTING MARGINS OF THE APPELLANT AND COMPARABLE COMPANIES. 9. THE LEARNED TPO/AO/DRP HAVE ERRED IN NOT ACTING IN CONFORMITY OF DIRECTIONS PASSED BY HONBLE DRP AND THEREBY 6 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) NOT GRANTING BENEFIT OF WORKING CAPITAL ADJUSTMENT TO THE APPELLANT. 10. THE LEARNED TPO/AO/DRP HAVE ERRED IN NOT MAKING SUI TABLE ADJUSTMENT TO ACCOUNT FOR DIFFERENCES IN RISK PROFI LE OF THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 11. THE LEARNED AO IS GROSSLY ERRED IN INITIATING PENAL TY PROCEEDINGS UNDER SECTION 271(1). 12. THE LEARNED AO IS ERRED IN LIVING INTEREST UNDER SE CTION 234 B AND 234 C OF THE ACT WHILE COMPLETELY DISREGARDIN G THE PROVISIONS AFFECTING THE JUDICIAL PRECEDENCE. 3.0 IT IS SEEN THAT ALTHOUGH SEVERAL GROUNDS OF AP PEAL HAVE BEEN RAISED IN THE APPEAL MEMORANDUM, THE ASSESSEE IS MAINLY AGGRIEVED BY TRANSFER PRICING ADJUSTMENT MADE TO SO FTWARE DEVELOPMENT SERVICES SEGMENT AND DENIAL OF WORKING CAPITAL AND RISK ADJUSTMENTS. 3.1 SUBMISSIONS BY THE LEARNED AUTHORISED REPRESEN TATIVE (LD. AR) FOR THE ASSESSEE/APPELLANT CENTRED AROUND GROUN D NOS. 1,2,5,9 AND 10. WHILE APPLICATION OF FILTERS IN THE CONTEXT OF SPECIFIC COMPARABLES WAS RAISED AND IS DISCUSSED IN SUBSEQUE NT PARAGRAPHS GROUND NUMBERS 3 AND 4 WERE NOT SPECIFICALLY ARGUED . SIMILARLY, NO SPECIFIC SUBMISSIONS WERE MADE IN CONNECTION WITH G ROUND NOS. 6,7 AND 8. GROUND NUMBERS 11 AND 12 ARE PREMATURE OR CO NSEQUENTIAL AND HENCE DO NOT REQUIRE ADJUDICATION AT THIS STAGE . 7 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) 4.0 FIRSTLY, GROUND NO. 5 RELATING TO INCLUSION AN D EXCLUSION OF COMPANIES FROM THE FINAL SET OF COMPARABLES IS TAKE N UP FOR CONSIDERATION. BROADLY, THE LD. COUNSEL FOR THE ASS ESSEE REQUESTED FOR EXCLUSION OF SONATA SOFTWARE LIMITED, E INFOCHIPS B ANGALORE LIMITED, INFINITY DATA SYSTEMS PRIVATE LIMITED AND INFOSYS L IMITED FROM THE FINAL SET OF COMPARABLES. THE LD. COUNSEL FILED A D ETAILED CHART CONTAINING ORDERS BY THE COORDINATE BENCHES OF THE TRIBUNAL FOR THE SAME ASSESSMENT YEAR IN THE CONTEXT OF VERY SAME CO MPARABLE COMPANIES. DETAILED SUBMISSIONS BY BOTH THE PARTIES AND FINDINGS ARE DISCUSSED IN FOLLOWING PARAGRAPHS: (I) SONATA SOFTWARE LTD: SEEKING EXCLUSION OF SONATA SOFTWARE LIMITED, THE L EARNED COUNSEL SUBMITTED THAT THE TPO HIMSELF HAD APPLIED THE RELATED PARTY TRANSACTIONS FILTER OF 25%. INVITING OUR ATTE NTION TO PAGES 247 AND 302 OF THE PAPER BOOK IT WAS SUBMITTED THAT THE DETAILS OF THE RELATED PARTY TRANSACTIONS IN CASE OF SONATA AS REPORTED IN THE ANNUAL REPORT WERE BROUGHT TO NOTICE OF BOTH TH E TPO AND THE LD. DRP. AS PER THE SAME, THE RELATED PARTY TRA NSACTIONS, AS A PERCENTAGE OF SALES, IN THE CASE OF SONATA SOFTWA RE LIMITED WAS WORKED OUT AT 55.95%. OUR ATTENTION WAS INVITED TO PARAGRAPH 9.5 OF THE TRANSFER PRICING ORDER AND IT WAS CONTEN DED THAT THE TPO COMMITTED SERIOUS ERROR IN CONSIDERING DATA FOR ONLY ONE OF 8 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) THE RELATED PARTIES AND, PERHAPS INADVERTENTLY, IGN ORING THE RELATED PARTY TRANSACTIONS REPORTED WITH OTHER ENTI TIES APPEARING ON THE VERY SAME PAGE OF THE ANNUAL REPORT FOR THE PURPOSES OF APPLYING THE RELATED PARTY TRANSACTIONS FILTER. DRA WING OUR ATTENTION TO PAGE 173 OF THE PAPER BOOK CONTAINING THE ANNUAL REPORTS OF THE COMPARABLE COMPANIES, IT WAS POINTED OUT THAT SONATA SOFTWARE LIMITED REPORTED RELATED PARTY TRAN SACTIONS WITH SEVERAL ASSOCIATED ENTERPRISES. IT WAS SUBMITTED BY THE LD. AR THAT THE TPO INADVERTENTLY APPEARS TO HAVE CONSIDER ED DATA RELATING TO SOME OF THE ENTITIES BUT FAILED TO CONS IDER THE COMPLETE INFORMATION. THUS, IT WAS SUBMITTED THAT T HE CONCLUSION REACHED BY THE TPO THAT THIS COMPANY HAD RELATED PARTY TRANSACTIONS LESS THAN 25% WAS NOT CORRECT. T HE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE COORDINA TE BENCH OF TRIBUNAL IN CASE OF FREESCALE SEMICONDUCTORS INDIA (P) LTD (ITA NO 1263/DEL/2015), WHEREIN AT PARAGRAPH 18, THE COO RDINATE BENCH SET ASIDE THE MATTER TO THE TPO FOR TESTING R ELATED PARTY TRANSACTION FILTER. THE LD. COUNSEL SUBMITTED THAT IN THE CASE OF FREESCALE SEMICONDUCTORS INDIA (P) LTD A REMAND MAY HAVE BEEN JUSTIFIED AS NO DETAILS OF WHETHER SUCH CONTENTION WAS RAISED BEFORE THE LOWER AUTHORITIES IS FORTHCOMING FROM TH E ORDER. HOWEVER, IN THE PRESENT CASE, THIS VERY INFORMATION WAS 9 ITA N O. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) SUBMITTED BEFORE BOTH THE LOWER AUTHORITIES. THE LE ARNED COUNSEL PRAYED FOR A CLEAR DIRECTION TO EXCLUDE THI S COMPANY FROM THE FINAL SET OF COMPARABLES ON THE GROUND THA T MULTIPLE INNINGS CANNOT BE ALLOWED TO THE TAX AUTHORITIES. H E RELIED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN RAJES H BABHUBHAI DAMANIA REPORTED IN 251 ITR 541 (GUJ) AND ALSO CONTENDED THAT THIS PRINCIPLE WAS APPLIED IN A SERI ES OF DECISIONS BY THIS TRIBUNAL. IN RESPONSE, THE LD. DEPARTMENTAL REPRESENTATIVE (D R) CONTENDED THAT THE BREAKUP OF SOME OF THE FIGURES M ENTIONED IN PAGES 247 AND 302 OF THE PAPER BOOK WERE NOT PROVID ED. AT THIS STAGE, THE LEARNED COUNSEL FOR THE ASSESSEE/APPELLANT EXPLAINED IN DETAIL THE FIGURES WITH REFERENCE TO PAGE 173 OF THE PAPER BOOK CONTAINING ANNUAL REP ORTS VIS-A- VIS THE INFORMATION FILED ON PAGES 247 AND 302 OF PAPE R BOOK I. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND HAVE CONSIDERED THE MATERIAL PLACED ON RECORD. RELATED P ARTY TRANSACTIONS, AS REPORTED IN THE ANNUAL REPORT BY S ONATA SOFTWARE LIMITED, IS INDEED MORE THAN 50% OF SALES AND THEREFORE, THIS COMPANY DOES NOT PASS THE RELATED P ARTY FILTER APPLIED BY THE TPO. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE THE SAME FROM THE FINAL SET OF COMPARABLES. 10 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) (II) E INFOCHIPS BANGALORE LTD: NEXT COMING TO E INFOCHIPS BANGALORE LIMITED, THE L D. SUBMITTED THAT THIS COMPANY ALSO NEEDS TO BE EXCLUDED FROM TH E FINAL SET OF COMPARABLES. OUR ATTENTION WAS INVITED TO THE PROFI T AND LOSS ACCOUNT OF E INFOCHIPS BANGALORE LIMITED WHICH WAS PLACED AT PAGE 8 OF THE PAPER BOOK CONTAINING THE ANNUAL REPO RTS. IT WAS SUBMITTED THAT INCOME FROM SOFTWARE SERVICES WAS SH OWN AT RS. 43,04,66,481/-. FURTHER BREAK UP OF INCOME WAS SHOW N TO BE CONTAINED IN SCHEDULE 7 TO THE BALANCE SHEET ON PAG E 12 OF THE PAPER BOOK CONTAINING THE ANNUAL REPORTS. IT WAS PO INTED OUT BY THE LD. AR THAT INCOME FROM SOFTWARE SERVICES WAS R S. 37,13,88,107/- (86%) AND THE BALANCE INCOME OF RS. 5,90,78,374/- (14%) WAS EARNED FROM CONSULTANCY CHA RGES. OUR ATTENTION WAS FURTHER INVITED TO NOTE 16 ON PAGE 16 OF THE PAPER BOOK CONTAINING ANNUAL REPORTS WHEREIN UNDER THE HE AD SEGMENTAL INFORMATION IT IS STATED THAT THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT EN ABLED SERVICES WHICH IS CONSIDERED THE ONLY REPORTABLE BU SINESS SEGMENT... IT WAS THE CONTENTION OF THE LD. COUNSEL THAT AS THE SEGMENTAL PROFITABILITY DETAILS WERE NOT AVAILA BLE, THIS COMPANY IS NOT COMPARABLE TO KAPLAN INDIA PRIVATE L IMITED. THE LD. COUNSEL FURTHER INVITED OUR ATTENTION TO SCHEDU LE 8 ON PAGE 11 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) 12 OF THE PAPER BOOK CONTAINING ANNUAL REPORTS OF C OMPARABLES, WHEREIN TECHNICAL SUBCONTRACTORS COST IS REPORTED. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT E INFOCHIPS BANGALORE ENGAGES SUB-CONTRACTORS AND, HENCE, THE BUSINESS MO DEL WAS DIFFERENT AS COMPARED TO THE BUSINESS MODEL OF A CA PTIVE SERVICE PROVIDER LIKE THE ASSESSEE/APPELLANT. OUR ATTENTION WAS ALSO DRAWN TO PARAGRAPH 9.1 OF THE TRANSFER PRICING ORDE R AND IT WAS SUBMITTED THAT THOUGH ALL THESE CONTENTIONS WERE RA ISED BEFORE THE TPO, THE SAME WERE REJECTED WITHOUT EVEN OBTAIN ING ANY INFORMATION UNDER SECTION 133 (6)OF THE ACT. BY DRA WING OUR ATTENTION TO PAGE 152 OF PAPER BOOK VOLUME 1, WHERE IN OBJECTIONS FILED BEFORE THE LD. DRP WERE PLACED, IT WAS CONTENTED BY THE LEARNED COUNSEL THAT THOUGH ALL THESE ASPECT S WERE ALSO BROUGHT TO THE NOTICE OF THE LD. DRP, THE SAME WERE REJECTED AS A MATTER OF ROUTINE. LASTLY, THE LEARNED COUNSEL INVI TED OUR ATTENTION TO PARAGRAPHS 13 TO 15 OF THE COORDINATE BENCHS DECISION IN FREESCALE SEMICONDUCTORS INDIA (P) LTD (ITA 1263/ DEL/2015) RELATING TO SAME ASSESSMENT YEAR, AND CON TENDED THAT FOR THESE VERY SAME REASONS, THE COORDINATE BENCH D IRECTED EXCLUSION OF E INFOCHIPS BANGALORE LIMITED FROM THE FINAL SET OF COMPARABLES FOR BENCHMARKING SOFTWARE DEVELOPMENT S ERVICES. 12 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) THE LD DR OBJECTED TO THE EXCLUSION OF COMPANIES RE LYING ON COORDINATE BENCHS DECISIONS. IN THIS CONTEXT, T HE LD DR INVITED OUR ATTENTION TO THE JUDGMENT OF THE HONBL E DELHI HIGH COURT IN ST MICRO (IT 913/2017). IT WAS HIS CONTENT ION THAT THE BUSINESS OF FREESCALE SEMICONDUCTORS INDIA (P) LTD RELATED TO ICS AND, THEREFORE, ACCORDING TO HIM THE COORDINAT E BENCH FOUND E INFOCHIPS AS NOT COMPARABLE IN THAT CASE. HE, ACC ORDINGLY, CONTENDED THAT IN THE PRESENT CASE INVOLVING SOFTWA RE DEVELOPMENT SERVICES, THE DECISION OF THE COORDINAT E BENCH IN THE CASE OF FREESCALE SEMICONDUCTORS INDIA (P) LTD DOES NOT HELP THE CASE OF THE ASSESSEE. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE RELEVANT DETAILS FROM THE ANNUAL REPORT. WE HAVE ALSO TAKEN INTO CONSIDERATION THE REASONS CITED BY THE T PO FOR REJECTING THE CONTENTIONS OF THE ASSESSEE. WE FIND MERIT IN THE CONTENTIONS RAISED BY LEARNED COUNSEL THAT E INFOCH IPS BANGALORE APPEARS TO DERIVE INCOME FROM SOFTWARE SE RVICES AS ALSO FROM CONSULTANCY CHARGES WHICH E INFOCHIPS BAN GALORE ITSELF DESCRIBES AS ITES SEGMENT IN THE AUDITED FIN ANCIALS. WHILE PRIMA FACIE , THE LD. DRS CONTENTION THAT COORDINATE BENCH DECISIONS SHOULD NOT BE BLINDLY FOLLOWED CANNOT BE FAULTED, WELL- REASONED ORDERS OF THE COORDINATE BENCHES OF THE TR IBUNAL FOR 13 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) VERY SAME ASSESSMENT YEAR 10-11, MORE SO DEALING WI TH SOFTWARE DEVELOPMENT SERVICES SEGMENT DESERVE RESPECTFUL CON SIDERATION AND CANNOT BE LIGHTLY IGNORED UNLESS FACTUAL DIFFER ENCES OR DEVELOPMENTS IN LAW WHICH HAVE A BEARING ON THE ISS UE IN DISPUTE ARE POINTED OUT. THIS IS MORE SO WHEN IN TH E PRESENT CASE, BROAD CHARACTERISATION OF INTERNATIONAL TRANS ACTIONS AS SOFTWARE DEVELOPMENT SERVICES AND APPLICATION OF TN MM AS THE MOST APPROPRIATE METHOD IS NOT DISPUTED BY BOTH THE PARTIES. IN SUCH FACTUAL BACKGROUND DECISIONS, EXCLUDING OR INC LUDING COMPANIES ON BASIS OF GENERIC DISQUALIFICATIONS LIK E SOFTWARE PRODUCT REVENUE BEING EARNED IN CASE OF CERTAIN COM PANIES AND SEGMENTAL DATA NOT BEING AVAILABLE OR CONCLUSION TH AT A CERTAIN COMPANY FAILS IDENTICAL FILTER IN SUCH DECIDED CASE , DESERVE TO BE FOLLOWED. WE NOTE THAT PARA 13 TO 15 OF THE ORDER O F THE ITAT IN FREESCALE SEMICONDUCTORS (SUPRA) ALSO SUPPORT THE C ASE OF THE ASSESSEE. THE SAME ARE EXTRACTED HERE IN BELOW FOR A READY REFERENCE: 13. THE LD. AR HAS ALSO OBJECTED AGAINST THE INCLUSION OF THE EINFO CHIPS BANGALORE LTD. ASSESSEE HAS OBJECTE D BEFORE THE LD. TRANSFER PRICING OFFICER THAT THIS C OMPANY IS FUNCTIONALLY NOT COMPARABLE, SEGMENTAL DATA ARE NOT AVAILABLE, IT HAS ABNORMAL SUPERNORMAL PROFITS, IT HAS THE FLUCTUATING TRENDS, IT HAS A SIGNIFICANT INTANGIBLE S AND FAILS 14 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) 10% RPT FILTER, THE LD. TRANSFER PRICING OFFICER RE JECTED THE CLAIM OF THE ASSESSEE STATING THAT ANNUAL REPORT OF THE ABOVE COMPARABLE COMPANY SHOWS THAT IT IS FUNCTIONA LLY COMPARABLE AS IT DEVELOPS SOFTWARE FOR ITS CLIENTS AND DO NOT PERFORM ANY IT ENABLED SERVICES. THE LD. DISPUT E RESOLUTION PANEL ALSO CONFIRMED THE ACTION OF THE L D. TRANSFER PRICING OFFICER. THE LD. AUTHORISED REPRES ENTATIVE REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEF ORE THE LD. LOWER AUTHORITIES. OVER AND ABOVE LD AR REL IED UP ON DECISION OF THE COORDINATE BENCH IN ITA NO. 1051 /KOL /2015 FOR ASSESSMENT YEAR 2009 - 10 DATED 19 - 10 - 2016 WHEREIN IN PARA NO. 8.2 THE ABOVE COMPARABLE COMPAN Y WAS EXCLUDED. 14. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUBMITTED THAT THE LD. TRANSFER PRICING OFFICER AND THE LD. DISPUTE RESOLUTION PANEL HAS GIVEN ENOUGH REASONS F OR INCLUSION OF THE ABOVE COMPARABLE AND THE LD. AUTHO RISED REPRESENTATIVE COULD NOT STATE ANYTHING FURTHER THA T HOW THE ORDER OF THE LD. TRANSFER PRICING OFFICER AND T HE LD. DISPUTE RESOLUTION PANEL IS ERRONEOUS BUT MERELY CI TING A DECISION DOES NOT HELP THE CASE OF THE LD. AUTHORIS ED REPRESENTATIVE AS IT WAS COMPARED WITH THE FUNCTION S OF THE THAT APPELLANT IN THAT CASE. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION. FROM THE BUSINESS PROFILE OF THE ABOVE COMPANY IT I S EVIDENT THAT IT IS ENGAGED IN THE IT AND IT ENABLED SERVICES. FURTHER AS STATED IN THE ORDER OF THE COO RDINATE BENCH AT PARA NO. 8.2 IN ITA NO. 1051/KOL/2015 THAT 15 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) SEGMENTAL INFORMATION IS NOT AVAILABLE IN CASE OF I T AND ITES SERVICES PROVIDED BY THE ABOVE COMPARABLE. THE ASSESSEE HAS FURTHER STATED THAT IT IS PROVIDING TH E WIDE RANGE OF SERVICES SUCH AS SOFTWARE, FIRMWARE, HARDW ARE, FIELD PROGRAMMABLE GATE ARRAY, APPLICATION SPECIFIC INTEGRATED CIRCUITS QUALITY ASSURANCE AND TESTING. THE LD. TRANSFER PRICING OFFICER HIMSELF HAS STATED THAT TH E REFERENCE TO THE WEBSITE OF THE COMPANY IS NOT OF M UCH HELP AS IT MAY NOT HAVE INFORMATION WHICH PERTAIN T O THE ASSESSMENT YEAR 2010 - 11. WE HAVE CAREFULLY PERUSE D THE BALANCE SHEET OF THE E INFO CHIPS BANGALORE LTD PRO VIDED TO US AT PAGE NO. 637 - 654 OF THE PAPER BOOK WHEREIN IT WAS NOTED THAT AT PAGE NO. 651 THE EARNINGS OF THE ASSE SSEE WAS SHOWN TO BE SOFTWARE DEVELOPMENT SERVICES AND CONSULTANCY CHARGES. IN ITEM NO. 9 IT IS STATED THA T THE COMPANY IS ENGAGED IN DEVELOPMENT AND MAINTENANCE O F COMPUTER SOFTWARE, PRODUCTION AND SALE OF SOFTWARE. AT PAGE NO. 652 WHILE GIVING THE SEGMENTAL INFORMATION , IT WAS ALSO MAINTAINED THAT THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERV ICES WHICH IS CONSIDERED AS THE ONLY ONE REPORTABLE SEGM ENTS AND THEREFORE THERE IS NO SEGMENTAL INFORMATION AVA ILABLE WITH RESPECT TO THE SOFTWARE DEVELOPMENT ACTIVITIES AS WELL AS IT ENABLED SERVICES. IN VIEW OF THIS THE ABOVE COMPARABLE IS REQUIRED TO BE EXCLUDED FROM THE COMPARABILITY ANALYSIS OF THE SOFTWARE DEVELOPMENT SERVICE SEGMENT OF THE ASSESSEE. ACCORDINGLY WE DIR ECT THE LD. TRANSFER PRICING OFFICER TO EXCLUDE E INFO CHIP S BANGALORE LTD. 16 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) THEREFORE, IN ABSENCE OF ANY OTHER INFORMATION BEIN G BROUGHT ON RECORD BY THE TPO TO SUPPORT AN ALTERNAT E VIEW AND RESPECTFULLY FOLLOWING DECISION OF THE COORDINATE B ENCH IN THE CASE OF FREESCALE SEMICONDUCTORS INDIA (P) LTD (SUP RA), WE DIRECT THE TPO TO EXCLUDE E INFOCHIPS BANGALORE LTD. FROM THE FINAL SET OF COMPARABLE COMPANIES. (III) INFINITE DATA SYSTEMS PRIVATE LIMITED: THE NEXT COMPARABLE WHICH WAS REQUESTED TO BE EXCLU DED IS INFINITE DATA SYSTEMS PRIVATE LIMITED. THE LEARN ED COUNSEL INVITED OUR ATTENTION TO SCHEDULE 17 ON PAGE 37 OF THE PAPER BOOK CONTAINING ANNUAL REPORTS OF THE COMPARABLE CO MPANIES AND SUBMITTED THAT INFINITE DATA SYSTEMS PRIVATE LI MITED PROVIDES SOLUTIONS THAT ENCOMPASS TECHNICAL CONSULT ING, DESIGN AND DEVELOPMENT OF SOFTWARE, MAINTENANCE, SYSTEM IN TEGRATION, IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEME NT SERVICES. FURTHER, OUR ATTENTION WAS ALSO INVITED T O PARA 17.2.14 ON PAGE 41 OF THE PAPER BOOK CONTAINING ANNUAL REPO RTS, WHEREIN UNDER THE HEADING SEGMENTAL REPORTING IT IS STATE D THAT THE COMPANYS OPERATIONS ARE PREDOMINANTLY RELATED TO P ROVIDING SOFTWARE TECHNICAL CONSULTANCY SERVICES TO ITS SOLE CUSTOMER FUJISTSU SERVICES LIMITED . THE LD. COUNSEL, THEREFORE, CONTENDED THAT THE BUSINESS AND FAR OF INFINITE DAT A SYSTEMS 17 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) PRIVATE LIMITED WERE TOTALLY DIFFERENT FROM FAR OF A CAPTIVE SERVICE PROVIDER LIKE THE ASSESSEE. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO SCHEDULE 13 ON PAGE 34 WHEREIN FOREIGN EXCHANGE GAIN OF RS. 61,61,087/- IS INDICATED AND IN THE VER Y NEXT PAGE UNDER SCHEDULE 15 RELATING TO ADMINISTRATIVE AND OT HER EXPENSES FOREIGN EXCHANGE LOSS OF RS. 2,19,40,908/- IS REPOR TED. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT THE DETAILS TO CLARIFY SUCH APPARENTLY CONTRADICTORY STATEMENTS WERE NOT AVAILA BLE. LASTLY, OUR ATTENTION WAS DRAWN TO PARA 10 TO 12 OF THE DEC ISION OF THE COORDINATE BENCH IN FREESCALE SEMICONDUCTORS INDIA (P) LTD (ITA 1263/DEL/2015), WHEREIN THE COORDINATE BENCH HAS, A FTER A DETAILED DISCUSSION, DIRECTED THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLES. OUR ATTENTION WAS ALS O DRAWN TO THE DETAILED CHART OF COMPARABLES FILED AT THE TIME OF HEARING, WHEREIN DETAILS OF OTHER COORDINATE BENCH DECISIONS ON SIMILAR LINES FOR THE VERY SAME YEAR WERE PROVIDED. THE LD. COUNSEL REQUESTED FOR SIMILAR RELIEF. THE LD DR INVITED OUR ATTENTION TO PARAGRAPH 9.3 OF THE TPOS ORDER. IT WAS CONTENDED THAT THE OBJECTIONS O F THE ASSESSEE WERE DEALT WITH IN DETAIL AND THAT THE TPO HAD RIGH TLY CONCLUDED THAT THIS COMPARABLE WAS PRIMARILY ENGAGED IN IT SE RVICES. THE 18 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) LEARNED DR OBJECTED TO PLACING RELIANCE ON THE COOR DINATE BENCHS DECISION FOR EXCLUDING ANY COMPARABLE. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AS ALSO THE DETAILED ARGUMENTS SUMMARIZED HEREINABOVE. IT I S APPARENT THAT INFINITE DATA SYSTEMS PRIVATE LIMITED IS ENGAG ED IN A WIDE VARIETY OF SERVICES INCLUDING SOFTWARE TECHNICAL CO NSULTANCY SERVICES ETC. IT IS OUR CONSIDERED OPINION THAT THE SE SERVICES CANNOT BE COMPARED WITH SOFTWARE DEVELOPMENT SERVIC ES PROVIDED BY A CAPTIVE SERVICE PROVIDER LIKE THE ASS ESSEE IN THE ABSENCE OF SEGMENTAL INFORMATION. FAR OF INFINITE D ATA SYSTEMS PRIVATE LIMITED IS CLEARLY DIFFERENT FROM THAT OF T HE ASSESSEE. WE ALSO NOTE THAT THE ASSESSEES CASE IS COVERED IN AS SESSEES FAVOUR BY THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN FREESSCALE SEMICONDUCTORS INDIA (P) LTD. (SUPRA). THE RELEVANT OBSERVATIONS OF THE BENCH ARE CONTAINED IN PARA 10 TO 12 OF THE SAID ORDER AND THE SAME ARE BEING REPRODUCED HERE IN UNDER FOR A READY REFERENCE: 10. WITH RESPECT TO INFINITE DATA SYSTEMS PRIVATE LIMI TED ASSESSEE OBJECTING IT ON FUNCTIONAL DISSIMILARITY, SERVICES TO SINGLE CUSTOMER, ABNORMAL SUPERNORMAL PROFITS, FLUC TUATING TRENDS AND SIGNIFICANT INTANGIBLES. THE ABOVE OBJEC TION OF THE ASSESSEE WAS REJECTED BY THE LD. TRANSFER PRICI NG OFFICER STATING THAT ASSESSEE HAS NOT DEMONSTRATED HOW 19 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) THE SERVICES TO A SINGLE CUSTOMER IS NOT COMPARABLE TO IT AS ASSESSEE SERVICES ARE ALSO TO ITS SINGLE ASSOCIATED ENTERPRISE ONLY. WITH RESPECT TO THE FUNCTIONAL DIS SIMILARITY SAME WAS ALSO REJECTED. OTHER ISSUES WITH RESPECT T O ABNORMAL MARGINS, SUPERNORMAL GROWTH HAVE ALSO BEEN REJECTED. HE ALSO REJECTED THE CONTENTION OF THE AS SESSEE THAT COMPANY OWNS SIGNIFICANT INTANGIBLES IN THE FO RM OF SOFTWARE. SIMILAR ARGUMENTS WERE ALSO ADVANCED BEFO RE US BY THE LD. AUTHORISED REPRESENTATIVE STATING THAT T HE INFINITE DATA SYSTEMS PRIVATE LIMITED SHOULD BE EXC LUDED FROM THE COMPARABILITY ANALYSIS. FOR THIS HE RELIED ON THE DECISION OF THE COORDINATE BENCH IN ITA NO. 1051/KOL/2015 FOR ASSESSMENT YEAR 2009-10 DATED 19- 10-2016 WHEREIN AT PARA NO. 8.3 THE ABOVE COMPARABL E WAS EXCLUDED FROM THE COMPARABILITY ANALYSIS IN CAS E OF A LABVANTAGE SOLUTIONS PRIVATE LIMITED. 11. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY OBJECTED TO THE CLAIM OF THE LD. AUTHORISED REPRESE NTATIVE ABOUT EXCLUSION OF THE ABOVE COMPARABLES STATING TH AT LD. TRANSFER PRICING OFFICER AS WELL AS THE LD. DRP HAS GIVEN ADEQUATE REASONS FOR INCLUSION OF THE ABOVE COMPARA BLE. IT WAS FURTHER STATED THAT LD. AUTHORISED REPRESENTATI VE HAS NOT CHALLENGED IT ON THE FUNCTIONAL ANALYSIS WITH O F COMPARABLE AS WELL AS OF THE ASSESSEE AND THEREFORE THE ABOVE COMPARABLE CANNOT BE EXCLUDED. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE FUNCTIONAL PROFILE OF THE ASSESSEE AS WELL AS OF THE COMPARABLE WITH RESPECT TO THE SOFTWARE 20 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) DEVELOPMENT SERVICES WHICH HAS BEEN MENTIONED EARLI ER. ACCORDING TO THE ASSESSEE , COMPARABLE COMPANY IS PROVIDING SERVICES OF TECHNICAL CONSULTING, DESIGN AND DEVELOPMENT OF SOFTWARE, MAINTENANCE SYSTEM INTEGRA TION, IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEME NT SERVICES. THESE SERVICES EXCEPT INFRASTRUCTURE MANA GEMENT SERVICES HAVE ALSO BEEN REFERRED TO A TECHNICAL SUP PORT SERVICES IN REVENUE RECOGNITION PORTION AND HAS A S OFTWARE TECHNICAL CONSULTANCY SERVICES IN SEGMENT REPORTING PORTION OF THE ANNUAL REPORT. ACCORDING TO THE ASSESSEE ALL THE SERVICES ARE IN THE NATURE OF THE SOFTWARE DEVELOPM ENT SERVICES. THE LD. TRANSFER PRICING OFFICER AS WELL AS THE LD. DRP PANEL HAS REJECTED THE OBJECTION OF THE ASSESSE E STATING THAT THIS IS FUNCTIONALLY COMPARABLE WITH T HE ASSESSEE. ASSESSEE NEITHER DESIGN AND DEVELOP A SOF TWARE BUT IS PROVIDING A LOW END CHIP SERVICES WHERE INFRASTRUCTURE AND ARCHITECT EVERYTHING IS PROVIDED BY THE GROUP COMPANY. IT DOES NOT HAVE ANY RESEARCH AND DEVELOPMENT ACTIVITIES WHEREAS IN THE CASE OF THE COMPARABLE COMPANY IT PROVIDES THAT SERVICES TO FUJ ITSU SERVICES LTD AND ALSO MAINTAINS AND DESIGN AND DEVE LOP A SOFTWARE. IN VIEW OF THIS THIS COMPARABLE COMPANY C ANNOT BE SAID TO BE IN THE SAME FUNCTIONS AS IT IS PERFOR MED BY THE ASSESSEE. IN VIEW OF THIS WE DIRECT THE LD. TRA NSFER PRICING OFFICER/AO TO EXCLUDE THE ABOVE COMPARABLE COMPANY AS ITS FUNCTIONS ARE QUITE DIFFERENT WITH T HE FUNCTIONS PERFORMED BY THE ASSESSEE. 21 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE CASE OF FREESCALE SEMICONDUCTORS INDIA (P) L TD (SUPRA), WE DIRECT EXCLUSION OF INFINITE DATA SYSTEMS PRIVATE L IMITED FROM THE FINAL SET OF COMPARABLE COMPANIES. (IV) INFOSYS LTD.: LASTLY, THE LD. COUNSEL FOR THE ASSESSEE CONTENTED THAT INFOSYS LIMITED IS NOT COMPARABLE TO THE ASSESSEE C OMPANY. BY INVITING OUR ATTENTION TO PAGE 73 OF THE PAPER BOOK CONTAINING ANNUAL REPORTS, IT WAS ARGUED THAT INFOSYS LIMITED EARNED RS. 925 CRORES FROM SALE OF SOFTWARE PRODUCTS, WITH RE FERENCE TO PAGE 74 IT WAS SUBMITTED THAT INFOSYS LIMITED INCUR RED HUGE AMOUNT OF SELLING AND MARKETING EXPENDITURE AND OWN ED VALUABLE BRAND WHICH ENABLED IT TO EARN HIGHER MARG INS. IT WAS CONTENDED THAT SEGMENTAL INFORMATION WAS NOT AVAILA BLE IN THE AUDITED FINANCIALS SO AS TO ENABLE DETERMINATION OF MARGINS EARNED FOR SOFTWARE DEVELOPMENT SERVICES AND SALES OF SOFTWARE PRODUCTS. THE LD. COUNSEL, THEREFORE, CONTENDED THA T IN ABSENCE OF SEGMENTAL INFORMATION, INFOSYS CANNOT BE COMPARE D TO A CAPTIVE SERVICE PROVIDER LIKE THE ASSESSEE. OUR ATT ENTION WAS INVITED TO THE DECISION OF THE COORDINATE BENCH IN FREESCALE SEMICONDUCTORS INDIA (P) LTD (ITA 1263/DELHI/2015), WHEREIN AT PARAGRAPHS 16 AND 17, THE COORDINATE BENCH HAS DIRE CTED 22 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) EXCLUSION OF INFOSYS LIMITED FROM THE FINAL SET OF COMPARABLES FOR SIMILAR REASONS. THE LD. DR INVITED OUR ATTENTION TO PARAGRAPH 9.4 O F THE TPOS ORDER. IT WAS HIS CONTENTION THAT THE VERY SA ME OBJECTIONS WERE ALREADY RAISED AND CONSIDERED BY THE TPO. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE NOTICE THAT THE TPO HAS REJECTED THE ASSESSEES CONTENTION ON T HE UNDERSTANDING THAT THE DIFFERENCE BETWEEN THE ASSES SEE-TAXPAYER AND THE SO-CALLED GIANT COMPANIES LIKE INFOSYS WAS THAT THE LATTER HAD MORE NUMBER OF TEAMS THAN THE ASSESSEE-T AXPAYER TO RENDER SOFTWARE DEVELOPMENT SERVICES. WE FIND MERIT IN THE CONTENTION OF THE LD COUNSEL THAT INFOSYS LIMITED I S NOT COMPARABLE TO A CAPTIVE SERVICE PROVIDER LIKE THE A SSESSEE FOR MORE THAN ONE REASON VIZ., INFOSYS LIMITED HAS INCO ME FROM SALE OF SOFTWARE PRODUCTS AND SEGMENTAL INFORMATION TO E NABLE DETERMINATION OF MARGIN EARNED FROM SOFTWARE DEVEL OPMENT SERVICES IS NOT AVAILABLE IN THE FINANCIALS, INFOSY S LIMITED HAS THE BENEFIT OF HUGE BRAND VALUE, WHICH IS A VALUABLE AS SET, CLEARLY IMPACTING ITS MARGINS, THE FUNCTIONAL PROFILE AND S CALE OF INFOSYS LIMITED ARE ALSO DIFFERENT AND NOT COMPARABLE TO AS SESSEE. WE ALSO NOTE THAT THIS COMPANY WAS EXCLUDED BY THE TRI BUNAL IN THE CASE OF FREESCALE SEMICONDUCTORS INDIA (P) LTD (SUP RA). THE 23 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) RELEVANT OBSERVATIONS OF THE BENCH ARE CONTAINED IN PARA 16 AND 17 OF THE TRIBUNALS ORDER AND THE SAME ARE BEING R EPRODUCED HERE IN BELOW FOR A READY REFERENCE: 16. THE 3 RD COMPARABLE IS CONTESTED BY THE LD. AUTHORISED REPRESENTATIVE IS WITH RESPECT TO THE INFOSYS LIMIT ED WHICH HAS ALREADY BEEN EXCLUDED IN THE CASE OF THE ASSESS EE FOR EARLIER YEARS FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT. THE ASSESSEE REITERATED THE SAME SUBMIS SION WITH RESPECT TO EXCLUSION OF THE ABOVE COMPARABLE A S SUBMITTED BEFORE LD TRANSFER PRICING OFFICER. IT WA S THE CONTENTION OF THE ASSESSEE THAT IT HAS A HUGE BRAND VALUE, IT HAS HUGE TURNOVER, AND ITS FINACLE' SOFTWARE IS A LEADING PRODUCT IN BANKING INDUSTRY. THEREFORE, IT WAS SUBM ITTED THAT IT IS FUNCTIONALLY DIFFERENT AND HAS SIGNIFICA NT R&D. THE LD TRANSFER PRICING OFFICER AND THE LD DISPUTE RESOLUTION PANEL REJECTED THE ABOVE CONTENTION. BEF ORE US, THE LD AR SUBMITTED THAT THIS COMPARABLE SHOULD BE EXCLUDED IN VIEW OF THE DECISION OF HON'BLE DELHI H IGH COURT IN CASE OF CIT V. AGNITY INDIA TECHNOLOGIES L TD.262 CTR 291. HE FURTHER STATED THAT THIS COMPARABLE HAS BEEN EXCLUDED IN THE CASE OF THE ASSESSEE FOR AY 2007-08 BY THE COORDINATE BENCH. 17. THE LD DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. THE LD DR COULD NOT POINT OUT THAT WHY WE SHOULD NOT FOLLOW THE DECISION IN THE ASSESSEE'S OW N CASE WITHOUT THERE BEING ANY CHANGE POINTED OUT, HENCE, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH IN 24 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) ASSESSEE'S OWN CASE FOR AY 2007-08 AND DIRECTS THE LD TRANSFER PRICING OFFICER TO EXCLUDE THE ABOVE COMPA RABLE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCH IN FREESCALE SEMICONDUCTORS INDIA (P) LTD (SUPRA) WE DIRECT EXCLUSION OF INFOSYS FROM THE FIN AL SET OF COMPARABLES. 4.1.0 IN RELATION TO GROUND NO 9, OUR ATTENTION W AS INVITED TO PARAGRAPH 12 OF THE TRANSFER PRICING ORDER, WHER EIN THE TPO HAS REJECTED THE CLAIM FOR WORKING CAPITAL ADJUSTMENT O N THE GROUND THAT SUCH ADJUSTMENT WAS NOT RELEVANT TO SERVICE INDUSTR Y. BY DRAWING ATTENTION TO PARAGRAPHS 16.6 AND 16.7 OF THE LD. DR PS DIRECTIONS, IT WAS SUBMITTED THAT ALTHOUGH THE LD. DRP DIRECTED GR ANT OF WORKING CAPITAL ADJUSTMENT, THE SAME WAS NOT ALLOWED TO THE ASSESSEE. ACCORDINGLY, IT WAS PRAYED THAT APPROPRIATE DIRECTI ONS BE GIVEN TO THE AO/TPO TO GRANT BENEFIT OF WORKING CAPITAL ADJUSTME NT AS DIRECTED BY LD. DRP. 4.1.1 WE FIND THAT IT IS NECESSARY TO ALLOW WORKI NG CAPITAL ADJUSTMENT FOR BETTER COMPARABILITY. ACCORDINGLY, WE DIRECT THE AO/TPO TO GRANT WORKING CAPITAL ADJUSTMENT ON THE F INAL SET OF COMPARABLES. THUS, THIS GROUND STANDS ALLOWED FOR S TATISTICAL PURPOSES. 25 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) 4.2.0 IN THE CONTEXT OF GROUNDS OF APPEAL NOS . 1, 2 AND 10, THE LD. COUNSEL DREW OUR ATTENTION TO PAGES 15 AND 16 O F WRITTEN SUBMISSIONS DATED 31.10.2018, FILED ON BEHALF OF TH E DEPARTMENT/RESPONDENT. THE LD. AR DREW OUR ATTENTIO N TO THE OBSERVATIONS MADE IN THIS WRITTEN SUBMISSION IN THE CONTEXT OF RISK ADJUSTMENT THAT IN THE PRESENT CASE EXCEPT GIVING PROPORTION OF VA RIOUS RISKS BORNE, THE TAXPAYER HAS NOT SHOWN WITH EVIDEN CE AS TO WHETHER EACH OF THE RISK WAS ACTUALLY UNDERTAKEN OR NOT BY THE COMPARABLES AND IF SO, HOW THE SERVICE AFFECTED EACH OF THEM AN D WHETHER SUCH ADJUSTMENT WOULD IMPROVE THE COMPARABILITY AND A FURTHER OBSERVATION THAT ALL THIS REQUIRES A ROBUST AND RELIABLE DATA, BOTH FOR THE ASSESSEE AND THE COMPARABLES, IN THE ABSENCE OF WHICH RISK ADJUSTMENT CANNOT BE CONSIDERED FOR ENHANCING COMPA RABILITY. THE LEARNED COUNSEL RELIED ON THE OBSERVATIONS MADE IN THE WRITTEN SUBMISSIONS FILED BY THE DEPARTMENT/RESPONDENT AS E XTRACTED ABOVE, TO CONTEND THAT IN THE ABSENCE OF RELIABLE INFORMAT ION TO MAKE RISK ADJUSTMENT IT IS CLEAR THAT INFORMATION RELATING TO ONE OF THE CRITICAL PARAMETERS VIZ., RISK IN FAR IS NOT AVAILABLE. IT W AS THE CONTENTION OF THE LEARNED COUNSEL THAT ON SUCH FACTS TP ADJUSTMEN T CAN BE MADE IN A GIVEN CASE. IT WAS FURTHER ARGUED THAT PROVISIONS OF CHAPTER X CANNOT BE INTERPRETED TO MEAN THAT IN EVERY CASE IN VOLVING INTERNATIONAL TRANSACTIONS, TRANSFER PRICING ADJUST MENT TO ARMS 26 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) LENGTH PRICE OF WAS COMPULSORILY TO BE MADE IRRESPE CTIVE OF LEVEL AND ROBUSTNESS OF THE COMPARABLE DATA. 4.2.1 IN RESPONSE, THE LEARNED DR INVITED OUR ATT ENTION TO RULE 10B (3) OF THE INCOME TAX RULES, 1962 AND CONT ENDED THAT RISK ADJUSTMENT, IF ANY, CAN ONLY BE ALLOWED IN CASE OF COMPARABLES AND THAT NO SUCH ADJUSTMENT WOULD BE PERMISSIBLE TO THE MARGIN OF THE TESTED PARTY. 4.2.2 RESPONDING TO THIS OBJECTION, THE LEARNED C OUNSEL INVITED OUR ATTENTION TO A RECENT DECISION OF THE C OORDINATE BENCH B, BENGALURU, IN CASE OF IKA INDIA PVT. LTD (IT(TP) A NO 2192/BANG/2017) WHEREIN, AT PARAGRAPH 31, THE COORD INATE BENCH RETURNED A CATEGORICAL FINDING THAT THE REGULATIONS DO NOT RESTRICT OR PROVIDE THAT ADJUSTMENTS CANNOT BE MADE ON THE RESU LTS OF TESTED PARTY. THEREFORE, KEEPING IN MIND THE AFORESAID OBJECTIVE THE NET PROFIT MARGIN OF TESTED PARTY DRAWN FROM ITS FINANCIALS CAN BE SU ITABLY ADJUSTED TO FACILITATE ITS COMPARISON WITH OTHER UNCONTROLLED E NTITIES. 4.2.3 WE HAVE CONSIDERED THE RIVAL CONTENTIONS. T HE LD. AR HAS FAIRLY ACCEPTED THAT IN THE PRESENT CASE IT IS NOT NECESSARY TO GIVE ANY DIRECTIONS ON THE ISSUE OF RISK ADJUSTMENT. WE NOTE THAT THE CONTENTIONS OF THE LD. AR ON RISK ADJUSTMENT IN THE PRESENT CASE HAVE BEEN RENDERED ACADEMIC AS THE ENTIRE TP ADJUSTMENT GETS DELETED CONSEQUENT TO THE EXCLUSION OF THE 4 COMPANIES AS D IRECTED ABOVE AND 27 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) UPON GRANT OF THE WORKING CAPITAL ADJUSTMENT. WE, T HEREFORE, FEEL THAT IT IS NOT NECESSARY TO RETURN ANY FINDINGS ON THE A BOVE ISSUE. 5.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSE E STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.04.2019. -SD- - SD- (N.S.SAINI) (SUDHANSHU SR IVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 02.04.2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 28 ITA NO. 1481/DEL/2015 (KAPLAN INDIA PVT. LTD.) DATE OF DICTATION DICTATED ON DRAGON DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER