M/s AMD India Private Ltd., Bangalore V. Asst.C.I.T., Bangalore

ITA 1487/BANG/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5564 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Transfer pricing; International transaction; Question of law
• Section: 133(6)

Judgement Text

IT(TP)A.1487 & 1496/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND S. JAYARAMAN, ACCOUNTANT MEMBER I.T (TP).A NO.1487/BANG/2015 (ASSESSMENT YEAR : 2011-12) M/S. AMD INDIA P. LTD, NO.102 & 103, EXPORT PROMOTIONAL INDUSTRIAL PARK, WHITEFIELD ROAD, BENGALURU 560 066 .. APPELLAN T PAN : AAECA6756C V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(1), BENGALURU .. RESPONDENT I.T(TP).A NO.1496/BANG/2015 (ASSESSMENT YEAR : 2011-12) (BY THE REVENUE) ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -1(1)(1), BENGALURU .. APPELLANT V M/S. AMD INDIA P. LTD, NO.102 & 103, EXPORT PROMOTIONAL INDUSTRIAL PARK, WHITEFIELD ROAD, BENGALURU 560 066 .. RESPONDE NT PAN : AAECA6756C ASSESSEE BY : SHRI. PADAMCHAND KHINCHA, CA REVENUE BY : SMT. NEERA MALHOTRA, CIT-DR HEARD ON : 10.01.2017 PRONOUNCED ON : 06.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE CROSS APPEALS ARE FILED BY THE ASSESSEE A ND THE REVENUE, RESPECTIVELY, AGAINST THE ORDER PASSED BY THE ACIT, CIRCLE -1(1)(1), BENGALURU, U/S.143(3) R.W.S.144C DATED.26.10.2015, FOR THE ASSESSMENT YEAR 2011-12. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 2 02. M/S. AMD INDIA P. LTD, THE ASSESSEE , A PRIVA TE LIMITED COMPANY AND A SUBSIDIARY OF ADVANCE MICRO DEVICES INC. US A , IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE. IT ALSO RENDERS SOFTWARE DEVELOPMENT S ERVICES AND SALES AND MARKETING SUPPORT SERVICES TO ITS ASSOCIATED ENTERP RISE. THE SERVICES ARE PROVIDED ON COST PLUS BASIS. FOR THIS A Y , THE ASSESSEE FILED ITS RETURN ON 28.11.2011 DECLARING AN INCOME OF RS.2,05,58,112/- UNDER NORMAL TAX COMPUTATION AND RS.15,59,07,737/- AS BOOK-PROFITS U /S.115JB. THE ASSESSEE CLAIMED DEDUCTION OF RS.18,62,45,826/- U /S.10A UNDER THE NORMAL COMPUTATION. WHILE COMPLETING THE ASSESSMENT , WHEN COMPUTING THE DEDUCTION UNDER SECTION I0A, THE AO HAS REDUCED RS. 32,54,872/- BEING TELECOMMUNICATION CHARGES AND RS. 9,88,27,170/- BEING EXPENSES INCURRED IN FOREIGN CURRENCY FROM TH E EXPORT TURNOVER. HOWEVER, HE HAS NOT REDUCED THEM FROM THE TOTAL TU RNOVER. ACCORDINGLY, THE DEDUCTION CLAIM U/S 10A HAS BEEN R EDUCED BY RS.1,64,75,929/-. ON THE INTERNATIONAL TRANSACTIONS , THE ASSESSEE HAD TWO SEGMENTS AS UNDER: DESCRIPTION AMOUNT (RS) SOFTW ARE DEVELOPMENT SERVICES 1,153,947,360 SALES AND MARKETING SERVICES 250,464,151 IT(TP)A.1487 & 1496/BANG/2015 PAGE - 3 03. IN ITS TP STUDY , THE ASSESSEE ADOPTED TR ANSACTIONAL NET MARGIN METHOD ( 'TNMM' ) AS THE MOST APPROPRIATE METHOD FOR SOFTWARE DEVELOPMENT SERVICES AND SALES AND MARKETING SERVIC ES. WITH RESPECT OF SOFTWARE DEVELOPMENT SERVICES SEGMENT, THE ASSE SSEE SELECTED 14 COMPANIES AS COMPARABLES. ADOPTING OPERATING PROFIT S TO COST AS THE PROFIT LEVEL INDICATOR (PL), THE ARITHMETIC MEAN (WEIGHTED AVERAGE) OF THE COMPARABLES WAS COMPUTED AT 13.01% AND THE PLI OF THE ASSESSEE WAS AT 13.67%. SINCE THE MARGIN OF THE ASSESSEE WAS HIGHER THAN THE MEAN MARGIN OF THE COMPARABLE COMPANIES, THE TRANSACTION IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES PROVIDED TO THE AE WA S CONSIDERED BY THE ASSESSEE TO BE AT ARM'S LENGTH. THE TPO DID NOT CO NCUR WITH THE ANALYSIS UNDERTAKEN BY THE ASSESSEE. IN HIS TP ORDER , HE RETAINED 6 COMPARABLES CHOSEN BY THE ASSESSEE , INTRODUCED 7 NEW COMPARABL ES AND COMPUTED THE ADJUSTED MARGIN OF THE COMPARABLES AT 23.92 % (AFT ER UNDERTAKING A WORKING CAPITAL ADJUSTMENT OF 0.90%) . ACCORDINGLY, THE TPO MADE AN ADDITION OF RS.100,889,071/- TO THE TOTAL INCOME I N CONNECTION WITH ITS INTERNATIONAL TRANSACTION. 04. IN RESPECT OF MARKETING SUPPORT SEGMENT, THE AS SESSEE SELECTED 6 COMPANIES AS COMPARABLES. ADOPTING OPERATING PROFIT S TO COST AS THE PLI, THE ARITHMETIC MEAN (WEIGHTED AVERAGE) OF THE COMPA RABLES WAS COMPUTED AT 9.71%. THE PLI OF THE ASSESSEE WAS AT 7.26%. SINCE THE MARGIN OF THE ASSESSEE WAS WITHIN THE FIVE PERCENT RANGE OF THE ARITHMETIC MEAN MARGIN OF THE COMPARABLE COMPANIES, THE TRANSA CTIONS IN RESPECT OF IT(TP)A.1487 & 1496/BANG/2015 PAGE - 4 SALES AND MARKETING SERVICES WERE CONSIDERED BY THE ASSESSEE TO BE AT ARM'S LENGTH. THE TPO DID NOT CONCUR WITH THE ANAL YSIS UNDERTAKEN BY THE ASSESSEE. IN HIS TP ORDER , HE RETAINED ONLY ONE COMPARABLE CHOSEN BY THE ASSESSEE , INTRODUCED 2 NEW COMPARABLES AND COMPUT ED THE AVERAGE MARGIN OF THE COMPARABLES AT 18.25 % AND ACCORDING LY, THE TPO MADE AN ADDITION OF RS. 24,959,672/- TO THE TOTAL INCOME I N CONNECTION WITH ITS INTERNATIONAL TRANSACTION. AGGRIEVED, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP ACCEPTED SOME OF THE PLEAS AND REJ ECTED SOME OTHERS. WHEN THE AO GAVE EFFECT TO THE ABOVE DIRECTIONS, AG GRIEVED ON THEM, THE ASSESSEE AS WELL AS THE REVENUE FILED THESE APPEAL S. THE ASSESSEES GROUNDS ARE EXTRACTED AS UNDER: IT(TP)A.1487 & 1496/BANG/2015 PAGE - 5 IT(TP)A.1487 & 1496/BANG/2015 PAGE - 6 IT(TP)A.1487 & 1496/BANG/2015 PAGE - 7 IT(TP)A.1487 & 1496/BANG/2015 PAGE - 8 05. THE REVENUES GROUNDS ARE EXTRACTED AS UNDER : IT(TP)A.1487 & 1496/BANG/2015 PAGE - 9 06. WITH RESPECT OF SOFTWARE DEVELOPMENT SERVICES S EGMENT, THE GIST OF THE ARS SUBMISSIONS ARE EXTRACTED AS UNDER : 1. ACROPETAL TECHNOLOGIES LTD (SEG) : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT : 1. IT IS FUNCTIONALLY DISSIMILAR SINCE IT IS ENGAGE D INTO IT SERVICES AND PRODUCTS COMPANY & SEGMENTAL INFORMATION BETWEEN S OFTWARE SERVICES & SOFTWARE PRODUCTS IS NOT AVAILABLE. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 10 2. AS PER ANNUAL REPORT, IT HAS SUBSTANTIAL R&D ACT IVITY. 3. IT FAILS EMPLOYEE COST FILTER (I.E, 9.8% ON SALE S) HOWEVER, THE DRP REJECTED THIS COMPANY FOR THE REAS ON THAT THIS IS AN ONSITE SOFTWARE COMPANY, LOW EMPLOYEE COST & FUNCTI ONALLY DIFFERENT. BEFORE US , THE ASSESSEE SUBMITTED THAT THIS COMPA NY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND FAILS EMPLOYEE COST FILTER BASED ON APPLIED MATERIALS INDIA P. LTD V. A CIT [TS-815-ITAT- 2016(BANG) AY 2011-12] & ON EMPLOYEE COST FILTER : ZAVATA INDIA P. LTD [TS-156-ITAT-2013(HYD)] FIRST ADVANTAGE OFFSHORE SERVICES P. LTD [IT(TP)A.1086/BANG/2011] 2. E-ZEST SOLUTIONS LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS CO MPANY IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY AS IT IS ENGAGED IN RE NDERING BOTH SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE PRODUCTS. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT THIS COMPANY IS FUNCTIO NALLY DIFFERENT. BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COMPA NY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND FAILS LOWE R TURNOVER FILTER OF 10 TIMES BASED ON APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12] AMD INDIA P. LTD [IT(TP)A.417 & 457/BANG/2013-AY 20 08-09] IT(TP)A.1487 & 1496/BANG/2015 PAGE - 11 ON TURNOVER FILTER ON MCAFEE SOFTWARE INDIA P. LTD V. ACIT [TS-136-ITAT-2 016(BANG) AY 2005-06] 3. E INFOCHIPS LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY AS IT IS ENGAGED IN TH E BUSINESS OF SOFTWARE DEVELOPMENT SERVICES, ITES, CONSULTANCY AND SALE OF HARDWARE PRODUCTS. FURTHER NO SEGMENTAL INFORMATION IS AVAILABLE. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT NO SEGMENTAL DETAILS AR E AVAILABLE AND FAILS 75% SERVICE REVENUE INCOME FILTER. BEFORE US , THE ASSESSEE SUBMITTED THAT THIS COMP ANY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND HAS ABNORM AL PROFITS BASED ON : SAXO INDIA P. LTD V. ACIT [TS-41-ITAT-2016(BANG)-CO NFIRMED BY HC ITA.682/2016] ALCATEL-LUCENT INDIA P. LTD [74 TAXMANN.COM-105-DEL HI-AY 2010-11] 4. ICRA TECHNO ANALYTICS LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP AS FOLLOWS : 1. IT HAS SUBSTANTIAL RPT I.E. 22.37% ON SALES. 2. IT IS FUNCTIONALLY DISSIMILAR SINCE IT IS ENGAGE D INTO SOFTWARE DEVELOPMENT, ENGINEERING SERVICES, WEB DEVELOPMENT & HOSTING, BU SINESS ANALYTICS & BPO AS PER ANNUAL REPORT. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT T HIS IS COMPANY IS FUNCTIONALLY DIFFERENT. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 12 BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COMPANY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND FAILS RPT FILTER BASED ON APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2010-11] ON 15% RPT FILTER : 24/7 CUSTOMER.COM [ITA.227/BANG/201028.TAXMANN.COM 258] DCIT V. ELECTRONICS FOR IMAGING INDIA P. LTD [IT(TP)A.NO.212/BANG/2015 AY.2010-11] 5. INFOSYS TECHNOLOGIES LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP AS FOLLOWS : 1. IT HAS A HIGH TURNOVER OF 25,385 CRORES. 2. IT COMMANDS PREMIUM PRICING DUE TO ITS BRAND VAL UE. IT HAS HIGHLY EVOLVED GLOBAL DELIVERY MODEL WHICH GIVES A COMPETI TIVE ADVANTAGE OVER OTHERS. 3. IT ALSO DIFFERS WITH REGARD TO RISK PROFILE, NAT URE OF SERVICES PROVIDED, NUMBER OF EMPLOYEES, ASSET BASE, DEVELOPMENT CENTRE , INTANGIBLE ASSETS AND RESEARCH AND DEVELOPMENT EXPENDITURE. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT T HIS COMPANY IS FUNCTIONALLY DIFFERENT. BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COMPANY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE, HAS BRAND, IN TANGIBLES AND PRODUCTS AND FAILS RPT FILTER BASED ON : APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12] IT(TP)A.1487 & 1496/BANG/2015 PAGE - 13 ORANGE BUSINESS SERVICES INDIA SOLUTIONS P. LTD [TS -355-ITAT-2016 (DEL) AY 2011-12] ALCATEL-LUCENT INDIA P. LTD [74 TAXMANN.COM-105-DEL HI-AY 2010-11] ON TURNOVER FILTER : MCAFEE SOFTWARE INDIA P. LTD V. ACIT [TS-136-ITAT-2 016(BANG) AY 2005-06] 6. LARSEN & TOUBRO INFOTECH LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY HAS THE FOLLOWING FEATURES : 1. IT HAS A HIGH TURNOVER OF RS.2331.81 CRORES 2. IT IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY AS IT IS ENGAGED IN RENDERING BOTH SOFTWARE DEVELOPMENT SERVICES AND SO FTWARE PRODUCTS AND SEGMENTAL INFORMATION IS NOT AVAILABLE. 3. TPO HAS COMPUTED INCORRECT MARGIN. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT T HIS COMPANY IS AN ONSITE SOFTWARE COMPANY. BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COMPANY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND F AILS LOWER TURNOVER FILTER OF 10 TIMES BASED ON : APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12] ALCATEL-LUCENT INDIA P. LTD [74 TAXMANN.COM-105-DEL HI-AY 2010-11] SAXO INDIA P. LTD V. ACIT [TS-41-ITAT-2016(BANG)-CO NFIRMED BY HC ITA.682/2016] ON TURNOVER FILTER : MCAFEE SOFTWARE INDIA P. LTD V. ACIT [TS-136-ITAT-2 016(BANG) AY 2005-06] IT(TP)A.1487 & 1496/BANG/2015 PAGE - 14 7. PERSISTENT SYSTEMS & SOLUTIONS LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY HAS THE FOLLOWING FEATURES : 1. IT IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY AN D IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES & SALE OF PRODUCTS AND SEGMENTAL INFORMATION BETWEEN SOFTWARE SERVICES & P RODUCTS IS NOT AVAILABLE. 2. TURNOVER HAS INCREASED TO 181.86%, WHICH IS ABNO RMALLY HIGH. THE DRP HELD THAT THIS COMPANY AS A COMPARABLE. BEFORE US , THE ASSESSEE SUBMITTED BEFORE US THA T THIS COMPANY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE BA SED ON : APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12.] 8. PERSISTENT SYSTEMS LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY HAS THE FOLLOWING FEATURES : 1. IT HAS A HIGH TURNOVER OF RS.610.13 CRORES. 2. IT HAS SUBSTANTIAL RPT I.E, 15.41% ON SALES. 3. AS PER COMPANYS WEBSITE, IT IS ENGAGED IN SOFTW ARE PRODUCT DEVELOPMENT. IT IS NOT A PURE SOFTWARE DEVELOPMEN T COMPANY AS IT IS ENGAGED IN BOTH RENDERING SOFTWARE DEVELOPMENT SER VICES & HAS SOFTWARE PRODUCTS. 4. IT POSSESS UNIQUE SOFTWARE INTANGIBLES. THE DRP HELD THAT THIS COMPANY AS A COMPARABLE . IT(TP)A.1487 & 1496/BANG/2015 PAGE - 15 BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COMPAN Y NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE AND FAILS RPT FILTER BASED ON APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12] ALCATEL-LUCENT INDIA P. LTD [74 TAXMANN.COM-105-DEL HI-AY 2010-11] SAXO INDIA P. LTD V. ACIT [TS-41-ITAT-2016(BANG)-CO NFIRMED BY HC ITA.682/2016] ORANGE BUSINESS SERVICES INDIA SOLUTIONS P. LTD [T S-355-ITAT- 2016 (DEL) AY 2011-12] AMD INDIA P. LTD [IT(TP)A.417 & 457/BANG/2013-AY 20 08-09] ON 15% RPT FILTER : 24/7 CUSTOMER.COM [ITA.227/BANG/201028.TAXMANN.COM 258] DCIT V. ELECTRONICS FOR IMAGING INDIA P. LTD [IT(TP)A.NO.212/BANG/2015 AY.2010-11] 9. SASKEN COMMUNICATION TECHNOLOGIES : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS CO MPANY HAS THE FOLLOWING FEATURES : 1. IT HAS A HIGH TURNOVER OF RS. 394.19 CRORES. 2. SEGMENTAL INFORMATION BETWEEN SOFTWARE SERVICES & SOFTWARE PRODUCTS IS NOT AVAILABLE- THE COMPANY EARNS REVENUE FROM BOTH SOFTWARE SERVICES & PRODUCTS. THE DRP HELD THAT THIS COMPANY AS A COMPARAB LE. BEFORE US , THE ASSESSEE SUBMITTED THAT THIS COMPA NY NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE BASED ON : SAXO INDIA P. LTD V. ACIT [TS-41-ITAT-2016(BANG)-CO NFIRMED BY HC ITA.682/2016] IT(TP)A.1487 & 1496/BANG/2015 PAGE - 16 10. TATA ELXSI (SEG) : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS CO MPANY HAS THE FOLLOWING FEATURES : 1. IT HAS A HIGH TURNOVER OF RS.358.19 CRORES 2.1T IS FUNCTIONALLY DISSIMILAR SINCE IT IS ENGAGED INTO SOFTWARE DEVELOPMENT AND SERVICES AS WELL AS SYSTEMS INTEGRATION & SUPPO RT AS PER ANNUAL REPORT. 3. THE TPO HAS COMPUTED INCORRECT MARGIN. THE DRP REJECTED THIS COMPANY FOR THE REASON THAT I T IS FUNCTIONALLY DIFFERENT COMPANY. BEFORE US , THE ASSESSEE SUBMITTED THAT THIS COMPAN Y NEEDS TO BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE BASED ON : APPLIED MATERIALS INDIA P. LTD V. ACIT [TS-815-ITAT -2016(BANG) AY 2011-12] ALCATEL-LUCENT INDIA P. LTD [74 TAXMANN.COM-105-DEL HI-AY 2010-11] 07. THUS, THE AR PLEADED FOR EXCLUSION OF 3 COM PARABLES , VIZ PERSISTENT SYSTEMS & SOLUTIONS LTD , PERSISTENT SYS TEMS LTD & SASKEN COMMUNICATION TECHNOLOGIES , MAINLY ON DISSIMILAR F UNCTIONALITY, WHICH WERE HELD AS COMPARABLES BY THE DRP . THE ASSESSE E ACCEPTED EXCLUSION OF 3 COMPARABLES VIZ EVOKE TECHNOLOGIES , MINDTREE LTD (SEG) & RS SOFTWARE (INDIA) LTD, WHICH WERE REJECTED BY THE DRP ON WH ICH REVENUE IS ON APPEAL AND THUS SUPPORTED REVENUES APPEAL GROUNDS . THE ASSESSEE IS ALSO SUPPORTING EXCLUSION OF 7 COMPARABLES VIZ ACRO PETAL TECHNOLOGIES LTD (SEG), E-ZEST SOLUTIONS LTD, E INFOCHIPS LTD, ICRA TECHNO ANALYTICS LTD, INFOSYS TECHNOLOGIES LTD, LARSEN & TOUBRO INFOTECH LTD & TATA ELXSI (SEG) IT(TP)A.1487 & 1496/BANG/2015 PAGE - 17 MADE BY THE DRP ON WHICH THE REVENUE IS AGGRIEVED. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. LET US EXAMINE THEM, BY EXTRACTING THE RELEVANT PORTION OF THE ORDER OF THI S TRIBUNAL AND OTHERS AS UNDER: 08. THE RELEVANT PORTION FROM APPLIED MATERIALS IND IA P. LTD V. ACIT [TS- 815-ITAT-2016(BANG) AY 2011-12] IS EXTRACTED AS UND ER : 9. THE NEXT GROUND IN THE ASSESSEE'S APPEAL IS REG ARDING SEEKING EXCLUSION OF 4 COMPARABLE COMPANIES RETAINED BY THE DRP. WE WILL DEAL WITH THE COMPARABILITY OF THESE 4 COMPANIES AS UNDER : (I) E-JEST SOLUTION LTD. : 9.1.1 THE LEARNED AUTHORISED REPRESENTATIVE HAS SUB MITTED THAT THE ASSESSEE RAISED THE OBJECTION BEFORE THE DRP FOR EXCLUSION O F THIS COMPANY FROM THE SET OF COMPARABLES BUT THE DRP HAS NOT ADJUDICATED THE OBJECTIONS OF THE ASSESSEE. HE HAS REFERRED THE OBJECTIONS RAISED BEF ORE THE DRP AT PAGE NO. 1373 OF THE PAPER BOOK AS WELL AS REFERRED THE RELE VANT PART OF THE ANNUAL REPORT OF THIS COMPANY AT PAGE NOS.39, 42 & 50 OF T HE ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THA T THIS COMPANY IS ENGAGED IN THE DIVERSIFIED ACTIVITY AND REPORTED TH E INCOME UNDER ONLY ONE SEGMENT. THEREFORE IT CANNOT BE CONSIDERED AS A COM PARABLE OF THE ASSESSEE'S SOFTWARE DEVELOPMENT SERVICES SEGMENT. HE HAS RELIE D UPON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL DT.22.4.2016 IN THE CASE OF ELECTRONICS FOR IMAGING INDIA PVT. LTD. VS. DCIT IN IT(TP)A NOS .227 & 285/DEL/2013. 9.1.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL R EPRESENTATIVE HAS SUBMITTED THAT THE MAIN ACTIVITY OF THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES. THEREFORE THE INSIGNIFICANT VARIATION IN ACTIVITY IF ANY CANNOT BE A DETERMINATIVE FACTOR WHILE COMPUTING THE ALP UNDER TRANSACTIONAL NET MARGIN METHOD (TNMM). HE HAS RELIED UPON THE DECISION OF T HE DELHI BENCH OF ITAT IN THE CASE OF TOLUNA INDIA PVT. LTD. VS. ACIT (2014) 151 ITD 177. 9.1.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS R AISED OBJECTIONS AGAINST THIS COMPANY BEFORE THE DRP. HOWEVER THE DRP DID NO T ADJUDICATE THE IT(TP)A.1487 & 1496/BANG/2015 PAGE - 18 OBJECTIONS RAISED BY THE ASSESSEE. THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S. ELECTRONICS FOR IMAGING INDIA PVT. LTD. VS. DC IT (SUPRA) RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE IS BASED ON T WO ASPECTS. (I) THE INFORMATION RECEIVED UNDER SECTION 133(6) OF THE AC T WAS CONSIDERED BY THE TPO WITHOUT SHARING WITH THE ASSESSEE AND (II) NATU RE OF THE ACTIVITY IS KPO. IT IS PERTINENT TO NOTE THAT THE QUESTION OF BPO AND K PO IS RELEVANT ONLY IN ITES SEGMENT AND NOT FOR SOFTWARE DEVELOPMENT SERVICES S EGMENT. ON THE CONTRARY, THE DECISION IN THE CASE OF TOLUNA INDIA PVT. LTD. VS. ACIT (SUPRA), PERTAINS TO THE ASSESSMENT YEAR 2007-08, THEREFORE THE FACTS OF THE DIFFERENT YEAR CANNOT BE APPLIED WITHOUT VERIFICATION. ACCORD INGLY, WE SET ASIDE THIS ISSUE OF COMPARABILITY OF E-JUST SOLUTION LTD. TO T HE RECORD OF THE ASSESSING OFFICER / TPO FOR DECIDING THE SAME AFTER VERIFICAT ION OF THE RELEVANT FACTS AS WELL AS CONSIDERING THE OBJECTIONS OF THE ASSESSEE. (II) PERSISTENT SYSTEMS AND SOLUTIONS LTD. (III PERSISTENT SYSTEMS LTD. 9.2.1 T HESE TWO COMPANIES WERE PART OF THE TP STUDY ANALYSIS HOWEVER THE ASSESSEE RAISED OBJECTIONS AGAINST THESE COMPANIES BEFORE THE TPO AS WELL AS DRP. 9.2.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE HAS SUBMITTED THAT THESE COMPANIES ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE AS THESE ARE ENGAGED IN DIVERSIFIED ACTIVI TY I.E. RENDERING OF SOFTWARE DEVELOPMENT SERVICES AND LICENSING, ROYALTY OF SOFT WARE PRODUCTS. THUS WITHOUT HAVING THE SEPARATE SEGMENTAL DETAILS AND D ATA THESE DIVERSIFIED ACTIVITIES CANNOT BE COMPARED WITH THE ASSESSEE. HE HAS FURTHER POINTED OUT THAT THE COMPANY PERSISTENT SYSTEMS LTD. ALSO ENGAG ED IN DEVELOPING PRODUCTS AND THEREFORE THE ACTIVITIES ARE NOT COMPA RABLE WITH THAT OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELI ED UPON THE DECISION OF THIS TRIBUNAL DT.24.2.2016 IN THE CASE OF DCIT VS. ELECT RONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) AND SUBMITTED THAT THIS COMPANY W AS FOUND TO BE NOT COMPARABLE WITH THE SOFTWARE DEVELOPMENT SERVICES P ROVIDER. HE HAS FURTHER POINTED OUT THAT IN ASSESSEE'S OWN CASE FOR THE ASS ESSMENT YEAR 2010-11, THE DRP VIDE ITS ORDER DT.24.11.2014 HAS EXCLUDED PERSI STENT SYSTEMS AND SOLUTIONS LTD. FROM THE LIST OF COMPARABLES BY HOLD ING THAT THIS COMPANY IS NOT COMPARABLE TO THE ASSESSEE. 9.2.3 ON THE OTHER HAND, THE LD. DR HAS SUBMITTED T HAT THE TPO AS WELL AS DRP HAS EXAMINED THE FUNCTIONAL COMPARABILITY OF TH ESE COMPANIES AND FOUND IT(TP)A.1487 & 1496/BANG/2015 PAGE - 19 THAT THESE COMPANIES ARE COMPARABLE WITH THE ASSESS EE. THESE TWO COMPANIES HAVE SATISFIED ALL THE FILTERS APPLIED BY THE TPO AND DRP THEREFORE THE MINOR VARIATION IN THE ACTIVITY WOULD NOT RENDE R THESE COMPANIES NON- COMPARABLE WHEN A COMPARABLE PRICE IS CONSIDERED UN DER TNMM. 9.2.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS W ELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE FUNCTIONAL COMPARABILITY OF THESE TWO COMPANIES HAVE EXAMINED BY THE CO-ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING IND IA PVT. LTD. (SUPRA) IN PARA 60 AND 61 & PARAS 24 TO 26 AS UNDER : PERSISTENT SYSTEMS & SOLUTIONS LTD. 60. THE ASSESSEE HAS THE GRIEVANCE AGAINST REJECTIO N OF THIS COMPANY BY THE DRP. THE LD. AR HAS SUBMITTED THAT ASSESSEE DID NOT RAISE ANY OBJECTION AGAINST THIS COMPANY, HOWEVER, THE DRP HAS REJECTED THE SAID COMPANY. THEREFORE, THE SAID COMPANY SHOULD BE RETAINED IN T HE LIST OF COMPARABLES. 61. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET, WE NOTE THAT THE DRP HAS EXA MINED THE FUNCTIONAL COMPARABILITY OF THIS COMPANY BY CONSIDERING THE RE LEVANT DETAILS AS GIVEN IN THE ANNUAL REPORT OF THIS COMPANY. THE DRP HAS GIVE N THE FINDING THAT THE ENTIRE REVENUE HAS BEEN EARNED BY THIS COMPANY FROM THE SALE OF SOFTWARE SERVICES AND PRODUCTS AND IN THE ABSENCE OF SEGMENT AL DETAILS, IT CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE SERVICES SEG MENT. WE FIND THAT THIS COMPANY HAS SHOWN THE INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS TO THE TUNE OF RS.6.67 CRORES. WE FURTHER NOTE THAT AS PER SCHEDULE 11, THE ENTIRE REVENUE HAS BEEN SHOWN UNDER ONE SEGMENT I.E ., SALE OF SOFTWARE SERVICES AND PRODUCTS. THEREFORE, NO SEPARATE SEGME NT HAS BEEN GIVEN IN RESPECT OF SOFTWARE SERVICES. ACCORDINGLY, THE COMP OSITE DATA OF REVENUE AS WELL AS MARGINS OF THIS COMPANY PERTAINING TO THE S ALE OF SOFTWARE SERVICES AND PRODUCTS CANNOT BE CONSIDERED AS COMPARABLE WIT H THE SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. IN VI EW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR OR ILLE GALITY IN THE DIRECTIONS OF THE DRP IN EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLES. THIS GROUND OF CO IS DISMISSED. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 20 (4) PERSISTENT SYSTEMS LTD. 24. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAISED OBJECTIONS AGAINST SELECTION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY IS FUNCTION ALLY NOT COMPARABLE AS ENGAGED IN THE PRODUCT DEVELOPMENT. THE SEGMENTAL I NFORMATION FOR SERVICES AND PRODUCT IS NOT AVAILABLE. FURTHER, THE ASSESSEE HAS ALSO POINTED OUT THAT THERE WAS AN ACQUISITION AND RESTRUCTURING DURING T HE YEAR UNDER CONSIDERATION. 25. THE DRP HAS NOTED THE FACT THAT THIS COMPANY HA S REPORTED THE ENTIRE RECEIPT FROM SALES AND SOFTWARE SERVICES AND PRODUC T. THEREFORE, NO SEGMENTAL INFORMATION WAS FOUND TO BE AVAILABLE FOR SALE OF SOFTWARE SERVICES AND PRODUCT. FURTHER, THE DRP HAS NOTED THAT AS PER NOTE 1 OF SCHEDULE 15, THIS COMPANY IS PREDOMINANTLY ENGAGED IN OUTSOURCE SOFTWARE DEVELOPMENT SERVICE. APART FROM THE REVENUE FROM SOFTWARE SERVI CES, IT ALSO EARNS INCOME FROM LICENCE OF PRODUCTS, ROYALTY ON SALE OF PRODUC TS, INCOME FROM MAINTENANCE CONTRACT, ETC. THESE FACTS RECORDED BY THE DRP HAS NOT BEEN DISPUTED BEFORE US. 26. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVE RSIFIED ACTIVITIES AND EARNING REVENUE FROM VARIOUS ACTIVITIES INCLUDING L ICENCING OF PRODUCTS, ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENA NCE CONTRACT, ETC., THE SAME CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABL E WITH THE ASSESSEE. FURTHER, THIS COMPANY ALSO EARNS INCOME FROM OUTSOU RCE PRODUCT DEVELOPMENT. IN THE ABSENCE OF ANY SEGMENTAL DATA O F THIS COMPANY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY CANNOT BE COMPARED WITH THE ASSESSEE AND THE SAME I S DIRECTED TO BE EXCLUDED FROM THE SET OF COMPARABLES. WE FURTHER FIND FROM THE ANNUAL REPORT THAT THERE I S NO CHANGE IN THE ACTIVITY AND FUNCTIONS OF THESE COMPANIES DURING THE YEAR UN DER CONSIDERATION IN COMPARISON TO THE ASSESSMENT YEAR 2010-11. ACCORDIN GLY, FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS 22 IT( T.P)A NOS.17 & 39/BANG/2016 TRIBUNAL (SUPRA), WE DIRECT THE A.O./T PO TO EXCLUDE THESE TWO COMPANIES FROM THE SET OF COMPARABLES. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 21 . 15. THE REVENUE IS ALSO SEEKING INCLUSION OF SOME OF THE COMPANIES IN THE LIST OF COMPARABLES WHICH WERE REFLECTED BY THE DRP. WE WILL DEAL WITH THE ISSUES ONE BY ONE AS UNDER : (I) ACROPETAL TECHNOLOGIES LTD.(SEG.) 16.1 THE DRP REJECTED THIS COMPANY ON THE GROUND OF EMPLOYEE COST FILTER. THE LD. DR HAS SUBMITTED THAT THE TPO HAS APPLIED T HE EMPLOYEE COST FILTER AND THIS COMPANY SATISFIES THE SAME. 16.2 ON THE OTHER HAND, THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE TOTAL EMPLOYEE COST OF THIS COMPANY IS 11.51 OF THE TOTAL OPERATING REVENUE THEREFORE IT FAILS T HE EMPLOYEE COST FILTER OF 25%. FURTHER HE HAS POINTED OUT THAT THIS COMPANY A LSO FAILS THE SOFTWARE DEVELOPMENT SERVICES REVENUE FILTER OF 75%. HE HAS REFERRED THE DETAILS AT PAGE NOS.39 AND 53 OF THE ANNUAL REPORT AND SUBMITT ED THAT THE INCOME FROM SOFTWARE DEVELOPMENT IS RS.81.40 CRORES OUT OF TOTA L REVENUE OF RS.141 CRORES. THEREFORE THIS COMPANY FAILS THIS FILTER. 16.3 IN A REJOINDER THE LD. DR HAS SUBMITTED THAT T HE TPO HAS CONSIDERED ONLY INFORMATION TECHNOLOGY TRANSACTIONS SEGMENT AND THE REFORE IT SATISFIES SOFTWARE DEVELOPMENT SERVICES INCOME FILTER AS WELL AS EMPLOYEE COST FILTER. 16.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. AS PER THE SEGMENTAL REPORTING AT PAGE 53 OF THE ANNUAL REPORT THE INCOME FROM INFORMATION TECHNOLOGY SERVI CES IS RS.81.40 CRORES OUT OF THE TOTAL INCOME OF RS.141 CRORES. THEREFORE THE REVENUE FROM INFORMATION TECHNOLOGY TRANSACTIONS SERVICES IS LES S THAN 75% AND CONSEQUENTLY THIS COMPANY DOES NOT SATISFY THE FILT ER OF INFORMATION TECHNOLOGY REVENUE APPLIED BY THE TPO ITSELF. ACCOR DINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP FOR T HIS ISSUE. (II) ICRA TECHNO ANALYTIC LTD. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 22 17.1 WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEAR NED A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REJECT ED THIS COMPANY BY RECORDING THE FACT AS UNDER : WE EXAMINED THE ANNUAL REPORT FROM WHICH IT IS EVI DENT THAT THE ENTIRE REVENUE HAS BEEN SHOWN UNDER SERVICE SEGMENT WHICH INDICATES THAT THE REVENUE FROM SOFTWARE DEVELOPMENT, CONSULTANCY, LIC ENSING AND SUBLICENSING, ANNUAL MAINTENANCE CHARGES FOR SOFTWARE SUPPORT. WE B DEVELOPMENT AND HOSTING HAS BEEN REPORTED IN ONE SEGMENT, THUS IN A BSENCE OF SEGMENTAL INFORMATION, WE CONCUR WITH THE VIEW OF THE DRP IN PRECEDING YEAR AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM COMPARABLES. 17.2 WE FURTHER NOTE THAT THE TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THE COMPARABILITY OF THIS COMPANY IN PARAS 14 TO 16 AS UNDER : (1) ICRA TECHNO ANALYTICS LTD. (SEG) 14. AT THE OUTSET, WE NOTE THAT APART FROM HAVING T HE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENUE, THIS COMPANY WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICES S EGMENT OF THE ASSESSEE. THE DRP HAS GIVEN ITS FINDING AT PAGES 13 TO 14 AS UNDER:- HAVING HEARD THE CONTENTION, ON PERUSAL OF THE ANN UAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SALES. HOWEVER, IT IS EVIDENT FROM THE ANNUAL R EPORT THAT THE SERVICE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WHICH NO SEGMENTAL INFORMATION IS AVAILABLE AND THEREFORE, T HE OBJECTION OF THE ASSESSEE IS FOUND ACCEPTABLE. ACCORDINGLY, ASSESSIN G OFFICER IS DIRECTED TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES. 15. WE FIND THAT THE FACTS RECORDED BY THE DRP IN R ESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DISPUTE. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVITIES OF SOFTWARE DEVELOPMENT A ND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT & HOSTING AND SUBSTANTIAL LY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OU TSOURCING, THEN THE SAME IT(TP)A.1487 & 1496/BANG/2015 PAGE - 23 CANNOT BE REGARDED AS FUNCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS A E. 16. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUNCTIONAL LY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. NOTHING HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE FACTS RECORDED BY THE DRP AS WELL AS BY THE CO-ORDINATE BENCH OF THIS TRI BUNAL ARE NOT CORRECT. ACCORDINGLY, IN VIEW OF THE DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE DR P ON THIS ISSUE. (III) INFOSYS LTD. 18. WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEARN ED A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ELEC TRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THIS ISSUE IN PARA 17 AS UNDER : (2) INFOSYS LTD. 17. THE ASSESSEE OBJECTED AGAINST THE SELECTION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY HAS A BIG N AME AND BRAND VALUE AND THEREFORE IT HAS A BARGAINING POWER. IT ALSO CO NTENDED THAT THE TURNOVER OF THIS COMPANY IS RS.21,140 CRORES, WHICH IS 442 T IMES HIGHER THAN THE ASSESSEE. FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) , WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE DIRECTIONS OF THE DRP ON THIS ISSUE. (IV) L&T INFOTECH LTD. 19. WE HAVE HEARD THE LEARNED D.R. AS WELL AS LEARN ED D.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP REJECTED T HIS COMPANY BY RECORDING THE FACTS AT PAGE 15 AS UNDER : ON PERUSAL OF SCHEDULE TO THE NOTES OF THE ACCOUNT S, IT IS NOTICED BY US THAT EXPENSES INCURRED IN FOREIGN CURRENCY ARE 938.94 CR ORE (48.84%) OUT OF THE TOTAL EXPENSES OF RS.1920.46 CRORE DEBITED IN PROFI T AND LOSS ACCOUNT, THESE IT(TP)A.1487 & 1496/BANG/2015 PAGE - 24 EXPENSES INCLUDE THE SUB CONTRACTING EXPENSES TO TH E EXTENT OF RS.118.01 CRORE, WHICH INDICATES THAT THE COMPANY HAS THE ON- SITE REVENUE OF ABOUT 50%. IT IS ALSO NOTICED BY US THAT IN THE PROFIT AN D LOSS ACCOUNT, THE REVENUE HAS BEEN SHOWN FROM SOFTWARE DEVELOPMENT SERVICES A ND PRODUCTS. IN THE SEGMENTING ACCOUNT IT IS MENTIONED THAT THE SEGMENT REVENUE INCLUDE SALES DIRECTLY IDENTIFIABLE WITH / ALLOCABLE TO THE SEGME NT. IN SCHEDULE 18, THE REVENUE HAVE BEEN SHOWN FROM 3 SEGMENTS I.E., FINAN CIAL SERVICES, MANUFACTURING AND TELECOM. HOWEVER, IN PARAGRAPH 23, IT IS MENTIONED THAT THE COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF SO FTWARE DEVELOPMENT. THE AO HAS CONSIDERED ENTIRE REVENUE FROM 3 SEGMENTS FR OM THE SOFTWARE DEVELOPMENT SERVICES. OUT OF THE SOFTWARE DEVELOPM ENT EXPENSES OF RS.1,488.30 CRORE DEBITED IN PROFIT AND LOSS ACCOUN T, SALARY TO OVERSEAS STAFF IS RS.1200.28 CRORE WHICH ALSO INDICATES THAT THE C OMPANY IS PREDOMINANTLY ENGAGED IN DEVELOPMENT OF SOFTWARE ON-SITE. IN VIE W OF THE ABOVE DIFFERENCES, IN OUR VIEW, THE ABOVE COMPANY CANNOT BE RETAINED AS COMPARABLE. THE AO IS ACCORDINGLY DIRECTED TO EXCL UDE THE ABOVE COMPANY FROM COMPARABLE. WE FURTHER FIND THAT THE COMPARABILITY OF THIS COMP ANY HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) IN PARAS 62 TO 65 AS UNDER : 62. THE ASSESSEE HAS RAISED OBJECTION AGAINST THI S COMPANY ON THE BASIS OF HIGH TURNOVER IN COMPARISON TO THE ASSESSEE. IT WAS ALSO CONTENDED THAT RELATED PARTY TRANSACTION (RPT) OF THIS COMPANY IS 18.66%. THE DRP REJECTED OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT TPO H AS APPLIED 25% FILTER OF RPT AND ANNUAL REPORT OF THE COMPANY DOES NOT SHOW ANY OTHER SERVICES RENDERED OTHER THAN SOFTWARE DEVELOPMENT SERVICES P ROVIDED BY THIS COMPANY. THUS THE DRP HELD THAT SOFTWARE DEVELOPMEN T SEGMENT IS COMPARABLE TO THE ASSESSEE AND THEREFORE THIS COMPA NY HAS TO BE RETAINED AS COMPARABLE. 63. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AR HAS SUBMITTED THAT T HIS COMPANY IS HAVING 18.66% RPT AND FURTHER THIS COMPANY EARNS REVENUE F ROM BOTH SERVICES AND IT(TP)A.1487 & 1496/BANG/2015 PAGE - 25 PRODUCTS. THUS, THE LD. AR SUBMITTED THIS COMPANY I S ALSO IN THE SOFTWARE PRODUCTS AND THEREFORE CANNOT BE CONSIDERED AS GOOD COMPARABLE. HE HAS FURTHER CONTENDED THAT IN A SERIES OF DECISIONS, TH E TRIBUNAL HAS APPLIED 15% RPT FILTER AND SINCE THIS COMPANY IS HAVING MORE TH AN 15% RPT, THE SAME CANNOT BE CONSIDERED AS A GOOD COMPARABLE. 64. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THA T TPO HAS APPLIED RPT FILTER OF 25% AND THEREFORE ONLY FOR THIS COMPANY, THE RPT CANNOT BE REDUCED TO 15%. FURTHER, THE DRP HAS EXAMINED ANNUAL REPORT OF THIS COMPANY AND FOUND THAT THIS COMPANY EARNS REVENUE FROM SOFTWARE DEVELOPMENT SERVICES AND ACCORDINGLY IS COMPARABLE. 65. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL ON RECORD. WE FIND THAT IN THE NORMAL CIRCUMSTANCES TH E TOLERANCE RANGE OF RPT SHOULD NOT BE MORE THAN 15%. IN THE CASE OF THE ASS ESSEE, THE AVAILABILITY OF THE COMPARABLE IS NOT AN ISSUE AND THEREFORE WE DO AGREE WITH THE VIEW TAKEN BY THE COORDINATE BENCHES OF THE TRIBUNAL THAT THE THRESHOLD LIMIT OF TOLERANCE RANGE SHOULD NOT EXCEED 15% AS FAR AS RPT REVENUE I S CONCERNED. THEREFORE, WE DIRECT THE AO/TPO TO APPLY 15% RPT FILTER IN RES PECT OF ALL THE COMPARABLES. IN VIEW OF THE FACTS RECORDED BY THE DRP AS WELL AS THE DECISION OF THE COORDINATE BENCH, WE DO NOT FIND ANY REASON TO INTE RFERE WITH THE DIRECTIONS OF THE DRP. (V) TATA ELXSI LTD. (SEG.) : 20. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AS WELL AS LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED TH E RELEVANT MATERIAL ON RECORD. THE DRP HAS REJECTED THIS COMPANY BY DISCUS SING THE FACT AT PAGE 16 AS UNDER : DIRECTED TO EXCLUDE AS PER PARAGRAPH 2.7 OF THE OR DER. FURTHER ON PERUSAL OF ANNUAL REPORT, IT IS NOTICED BY US FROM PAGE 14 THA T SOFTWARE DEVELOPMENT AND SERVICES CONSIST OF EMBEDDED PRODUCT DESIGN, INDUST RIAL DESIGN AND VISUAL COMPUTING LABS WHICH ARE NOT COMPARABLE TO THE SOFT WARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE AND THEREFORE, WE DIRECT THE AO TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 26 WE FURTHER NOTE THAT THE DRP HAS ALSO RECORDED THE FACT THAT EXPORT REVENUE OF THIS COMPANY IS 73.30% WHICH IS LESS THAN 75% AP PLIED BY THE TPO. THEREFORE THIS COMPANY DOES NOT QUALIFY THE EXPORT EARNING FILTER APPLIED BY THE TPO. FURTHER THE CO-ORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THIS ISSUE IN PARAS 30 TO 33 AS UNDER : 30. THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THOUGH THE TPO HAS CONSIDERED THE SOFTWARE DEVELOPMENT AND SERVICE S SEGMENT OF THIS COMPANY AS COMPARABLE TO THAT OF ASSESSEE, HOWEVER, THE ASSESSEE CONTENDED THAT EVEN WITHIN THE SOFTWARE SEGMENT, TH IS COMPANY IS ENGAGED IN DIVERSE ACTIVITIES. THE ASSESSEE PLACED RELIANCE ON THE INFORMATION IN THE ANNUAL REPORT UNDER THE DIRECTORS REPORT AND SUBMIT TED BEFORE THE DRP THAT EVEN UNDER THE SOFTWARE DEVELOPMENT SERVICES SEGMEN T, THIS COMPANY IS ENGAGED IN VARIOUS DIVERSIFIED ACTIVITIES INCLUDING PRODUCT DESIGN SERVICE, INNOVATION DESIGN, ENGINEERING SERVICE, VISUAL COMP UTING LABS, ETC. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF MU MBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. V. ACIT, 137 ITD 1 (MUM). 31. THE DRP FOUND THAT THIS COMPANY IS NOT FUNCTION ALLY COMPARABLE WITH ASSESSEE COMPANY AS IT IS ENGAGED IN DIVERSIFIED AC TIVITIES EVEN IN THE SOFTWARE DEVELOPMENT SERVICES. THE DRP HAS FOLLOWED THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORD IA TECHNOLOGIES PVT. LTD. (SUPRA). 32. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS COMPANY EVEN IN THE SOFTWARE DEVELOPMENT SEGMENT IS ENGAGED IN DIVERSIFIED ACTIV ITIES OF PRODUCT DESIGN SERVICES, INNOVATION DESIGN, ENGINEERING SERVICES, VISUAL COMPUTING LABS, ETC. WE FURTHER NOTE THAT IN THE CASE OF TELCORDIA TECHN OLOGIES PVT. LTD. (SUPRA), THE MUMBAI BENCH OF THE TRIBUNAL VIDE ITS ORDER DAT ED 11.5.2012 IN PARA 9.7 HAS HELD AS UNDER:- 7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUBM ISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGAG ED IN DEVELOPMENT OF NICHE IT(TP)A.1487 & 1496/BANG/2015 PAGE - 27 PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF T HE LEARNED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED B Y THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED I N PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BE EN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARI NG THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETER MINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED F ROM THE LIST OF COMPARABLE PARTIES. 33. NO CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE REGARDING COMPARABILITY OF THIS COMPANY WITH THAT OF A PURE SOFTWARE DEVELO PMENT SERVICE PROVIDER. ACCORDINGLY, IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. (SUPRA), W E DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE DRP. IN VIEW OF THE FACTS RECORDED BY THE DRP AS WELL AS THEDECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. ELECTRONICS FOR IMAGING IND IA PVT. LTD. (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE DIRECTIONS OF THE DRP TO EXCLUDE THIS COMPANY FORM THE SET OF COMPARABLES. 21. THE REVENUE IS ALSO SEEKING INCLUSION OF THE FO LLOWING COMPANIES WHICH WERE REJECTED BY THE DRP. (I) EVOKE TECHNOLOGY PVT. LTD. (II) MINDTREE LIMITED (SEG.) (III) R S SOFTWARE INDIA PVT. LTD. 21.1 AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NO OBJ ECTIONS IF THESE THREE COMPANIES ARE RESTORED TO THE SET OF COMPARABLES AS THE ASSESSEE DID NOT RAISE ANY OBJECTION BEFORE THE DRP BUT THE DRP REJE CTED THIS COMPANY SUO MOTO. 21.2 IN VIEW OF THE FACT THAT BOTH THE REVENUE AS W ELL AS THE ASSESSEE ARE SEEKING INCLUSION OF THESE COMPANIES IN THE SET OF COMPARABLES, WE SET ASIDE IT(TP)A.1487 & 1496/BANG/2015 PAGE - 28 THE DIRECTIONS OF THE DRP QUA THESE COMPARABLES AN D RESTORE THESE THREE COMPANIES TO THE SET OF COMPARABLES. 21.3 AS WE HAVE DIRECTED TO EXCLUDE CERTAIN COMPANI ES AS WELL AS INCLUDE SOME OF THE COMPANIES IN THE SET OF COMPARABLES THE REFORE THE TPO/A.O IS REQUIRED TO RECOMPUTE THE ALP ON THE BASIS OF THE F INAL SET OF COMPARABLES AFTER GIVING EFFECT TO THIS ORDER. NEEDLESS TO SAY THE BENEFIT OF TOLERANCE RANGE OF +/- 5% AS PER THE PROVISO TO SECTION 92C(2) BE A LSO CONSIDERED. 09. THE RELEVANT PORTION OF THE ORDER FROM SAXO I NDIA P. LTD V. ACIT [TS-41 ITAT-2016(DEL)-CONFIRMED BY THE DELHI HIGH C OURT IN ITA.682 (DELHI) OF 2016 DT 28.9.2016 IS EXTRACTED AS UNDER : (I) E-INFOCHIPS LIMITED: 10.1. THE TRANSFER PRICING OFFICER INCLUDED THIS CO MPANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NOT BE CONSIDERED AS A COMPARABLE, THE ASSESSEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIMILARITY INASMUCH AS THIS COMPANY W AS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES AND ALSO PRODUC TS. THE TRANSFER PRICING OFFICER OBSERVED THAT THE REVENUES OF THIS COMPANY FROM PRODUCTS WAS ONLY 15% OF TOTAL REVENUE AND HENCE THE SAME QUALIFIED T O BE ELIGIBLE FOR COMPARISON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUAL REPORT OF THIS COMPANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PROFIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWAR E DEVELOPMENT, HARDWARE MAINTENANCE, INFORMATION TECHNOLOGY, CONSULTANCY ET C. REVENUE FROM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHIC H HAS BEEN CONSIDERED BY THE TRANSFER PRICING OFFICER HIMSELF AS SALE OF PRODUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVENUE FROM SALE OF PRODU CTS AND REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. AS THE ASSESSEE IS SI MPLY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AND THERE I S NO SALE OF ANY SOFTWARE IT(TP)A.1487 & 1496/BANG/2015 PAGE - 29 PRODUCTS, THIS COMPANY, IN OUR CONSIDERED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME F ROM BOTH THE STREAMS OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES, ONE CANNOT DEDUCE THE REVENUE FROM SOFTWARE SERVICES AND NO ONE KNOWS THE IMPACT OF RE VENUE FROM PRODUCTS ON THE OVERALL KITTY OF PROFIT, WHICH MAY BE SIGNIFICA NT. SINCE NO SEGMENTAL DATA OF THIS COMPANY IS AVAILABLE INDICATING OPERATING P ROFIT FROM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXCLUDE THIS COMP ANY FROM THE LIST OF COMPARABLES. (II) E-ZEST SOLUTIONS 11.1. THE TRANSFER PRICING OFFICER CONSIDERED THIS COMPANY AS COMPARABLE BY OBSERVING THAT IT PROVIDED SIMILAR SERVICES AS WERE BEING PROVIDED BY THE ASSESSEE. HE REPRODUCED THE RELEVANT PORTION FROM T HE ANNUAL REPORT OF THIS COMPANY INDICATING THAT IT WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP. 11.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE ONLY BASIS WHICH HAS BEEN CHALLENGED BY THE LEARNED AUTHORIZED REPRESENTATIVE SEEKING EXCLUSION OF THIS COMPANY IS ITS FUNCTIONAL DISSIMILARITY. WE HAVE GONE THROUGH THE ANNUAL REPO RT OF THIS COMPANY WHICH IS AVAILABLE IN THE PAPER BOOK. ITS PROFIT AND LOSS ACCOUNT SPECIFIES `INCOME FROM OPERATIONS. IT IS FURTHER BORNE OUT THAT IT I S PROVIDING END-TO-END DEVELOPMENT, SOFTWARE PROJECT DEVELOPMENT SERVICES. AS THE ASSESSEE IS ALSO ENGAGED IN THE CUSTOMISED SOFTWARE DEVELOPMENT, WE FIND THIS COMPANY TO BE FUNCTIONALLY SIMILAR. THE SAME IS, THEREFORE, RETAI NED IN THE LIST OF COMPARABLES. (III) L&T INFOTECH LTD. 12.1. THE ASSESSEE ARGUED AGAINST THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BEFORE THE TRANSFER PRICING OFFICER BY CONTENDING THAT IT WAS FUNCTIONALLY DIFFERENT AND THERE WAS INSUFFICIENT S EGMENTAL INFORMATION. APART FROM THAT, IT WAS ALSO ARGUED THAT IT WAS EXCEPTION AL YEAR OF ITS OPERATIONS AND THERE WERE SIGNIFICANT INTANGIBLE ASSETS POSSESSED BY IT. THE TRANSFER PRICING OFFICER DID NOT ACCEPT THIS CONTENTION AND INCLUDED THE SAME IN THE LIST OF COMPARABLES. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 30 12.2. HAVING REGARD TO THE RIVAL SUBMISSIONS AND PE RUSAL OF THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY, WHICH IS AVAILABLE IN THE THIRD PAPER BOOK THAT ITS PROFIT A ND LOSS ACCOUNT SHOWS REVENUE REVENUE SOFTWARE DEVELOPMENT SERVICES AN D PRODUCTS. PROFIT AND LOSS ACCOUNT OF THIS COMPANY HAVING A LIST OF SOFTW ARE DEVELOPMENT EXPENSES CONTAINS AN ITEM `COST OF BOUGHT-OUT ITEMS FOR RE-S ALE WITH A VALUE OF RS. 25.55 CRORE. APART FROM THAT, THE BALANCE-SHEET OF THIS COMPANY SHOWS CERTAIN `SOFTWARE IN ITS SCHEDULE OF FIXED ASSETS UNDER THE HEAD `INTANGIBLE ASSETS. THE ABOVE FACTS CONCLUSIVELY PROVE THAT TH IS COMPANY IS ALSO ENGAGED IN THE SALE OF PRODUCTS APART FROM RENDERING SOFTWA RE DEVELOPMENT SERVICES. ADOPTING THE SAME REASONS AS GIVEN FOR THE EXCLUSIO N OF E-INFOCHIPS LTD., WE ORDER FOR THE EXCLUSION OF THIS COMPANY AS WELL. IV) PERSISTENT SYSTEMS AND SOLUTIONS LTD. 13.1. THE ASSESSEE CONTENDED THAT THIS COMPANY WAS DEALING IN SOFTWARE PRODUCTS ALONG WITH SOFTWARE DEVELOPMENT SERVICES A ND ITS REVENUE FROM LICENSING OF SOFTWARE PRODUCTS WAS INCLUDED IN TOTA L REVENUE. THE TPO OBSERVED FROM THE ANNUAL REPORT OF THIS COMPANY THA T IT WAS PROVIDING SUPPORT IN SOFTWARE DEVELOPMENT, CONSULTANCY AND SY STEM INTEGRATION SERVICES. HE, THEREFORE, CONSIDERED IT AS COMPARABL E. THE ASSESSEE IS AGGRIEVED. 13.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. THE ANNUAL REPORT OF THIS COMPANY HAS BE EN PLACED IN THE SECOND PAPER BOOK, FROM WHICH IT IS LUCID THAT THIS COMPAN Y IS ENGAGED ONLY IN PROVIDING SOFTWARE DEVELOPMENT AND CONSULTANCY SERV ICES, WHICH IS SIMILAR TO THOSE RENDERED BY THE ASSESSEE. WHEN CONFRONTED, TH E LD. AR DID NOT RAISE ANY OBJECTION TO THE INCLUSION OF THIS COMPANY IN T HE FINAL SET OF COMPARABLES. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER IN TREATIN G THIS COMPANY AS COMPARABLE. V) PERSISTENT SYSTEMS LTD. 14.1. THE ASSESSEE OBJECTED TO THE INCLUSION OF THI S COMPANY IN THE TALLY OF COMPARABLES BY ARGUING THAT IT WAS FUNCTIONALLY DIF FERENT AND THERE WAS INSUFFICIENT SEGMENTAL INFORMATION. THE TPO NEGATIV ED THIS CONTENTION AND INCLUDED THE SAME IN THE FINAL SET OF COMPARABLES. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 31 14.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM PROFIT & LOSS ACCO UNT OF THIS COMPANY, A COPY OF WHICH IS PLACED AT PAGE 1534 OF THE PAPER B OOK, THAT ITS INCOME FROM SALE OF SOFTWARE SERVICES AND PRODUCTS IS AMOUNTI NG TO RS.6101.27 MILLIONS. THE TPO HAS HIMSELF OBSERVED THAT THIS COMPANY DOES HAVE SOME PRODUCTS, BUT, PRODUCT REVENUE IS ONLY 7.2% AND, HENCE, THIS COMPANY IS PREDOMINANTLY A SOFTWARE SERVICE PROVIDER. THIS DISCUSSION IS CON TAINED IN PARA 21.67 OF THE TPOS ORDER. EVEN SCHEDULE-11 TO THE PROFIT & LOSS ACCOUNT ALSO SHOWS SALE OF SOFTWARE SERVICES AND PRODUCTS. THIS SHOWS THAT THIS COMPANY IS ENGAGED IN BOTH RENDERING SOFTWARE DEVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. ALBEIT THE PERCENTAGE OF SOFTWARE PRODUCT S IN THE TOTAL REVENUE IS LESS, AS HAS BEEN NOTED BY THE TPO, YET, WE ARE INC LINED TO TAKE IT AS NON- COMPARABLE BECAUSE THERE IS NO PRECISE INFORMATION ABOUT THE CONTRIBUTION MADE BY SUCH SMALL SALE OF SOFTWARE PRODUCTS TO THE TOTAL PROFIT OF THE COMPANY. AS NO SEGMENTAL INFORMATION IS AVAILABLE I N RESPECT OF THIS COMPANY AND THE FIGURES HAVE BEEN ADOPTED BY THE TPO AT ENT ITY LEVEL, WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LI ST OF COMPARABLES. VI) SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 15.1. THE TPO INCLUDED THIS COMPANY IN THE SET OF C OMPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT WAS FUNCTIONALLY DIFFE RENT AND ALSO HAD PRODUCT PORTFOLIO. 15.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE F IND FROM PAGE 58 OF THE TPOS ORDER THAT HE HAS RECOGNIZED SALE OF SOFTWARE PRODUCTS TO THE TUNE OF RS.37 CRORE AND ODD. THOUGH THE BREAK-UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS AVAILABLE, BUT, THE BREAK- UP OF OPERATING COSTS AND NET OPERATING REVENUES FROM THESE TWO SEGMENTS HAVE NOT BEEN GIVEN. IT IS FURTHER OBSERVED THAT THE TPO HAS TAKEN ENTITY LEVE L FIGURES FOR THE PURPOSES OF MAKING COMPARISON. SINCE SUCH ENTITY LEVEL FIGUR ES CONTAIN REVENUE FROM BOTH SOFTWARE SERVICES AND SOFTWARE PRODUCTS, AS AG AINST THE ASSESSEE ONLY PROVIDING SOFTWARE SERVICES, WE ARE DISINCLINED TO TREAT THIS COMPANY AS COMPARABLE. THE ASSESSEES CONTENTION IS ACCEPTED O N THIS ISSUE. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 32 10. ON AN APPEAL AGAINST THE ABOVE TRIBUNAL ORDER, THE DELHI HIGH COURT IN PRINCIPAL CIT V. SAXO INDIA (P) LTD IN [(2016] 7 4 TAXMANN.COM 88 (DELHI), HELD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES AN D CONFIRMED THE DECISION OF THE DELHI TRIBUNAL. 11. THUS, IT IS CLEAR FROM THE ABOVE THAT THE A SSESSEE HAS MADE OUT A CLEAR CASE IN ITS FAVOUR . FOLLOWING THEM, WE DIREC T THE AO/TPO TO EXCLUDE 3 COMPARABLES , VIZ PERSISTENT SYSTEMS & SOLUTIONS LTD , PERSISTENT SYSTEMS LTD & SASKEN COMMUNICATION TECHNOLOGIES. SINCE THE ASSESSEE ACCEPTED THE EXCLUSION OF 3 COMPARABLES VIZ EVOKE TECHNOLOGI ES, MINDTREE LTD (SEG) & RS SOFTWARE (INDIA) LTD, WHICH WERE REJECTED BY THE DRP ON WHICH REVENUE IS ON APPEAL AND THUS SUPPORTED REVENUES APPEAL GROUNDS, THESE THREE COMPANIES ARE RESTORED TO THE SET OF COMPARAB LES. WE UPHOLD THE DRPS DIRECTIONS TO EXCLUDE THE 7 COMPARABLES VI Z ACROPETAL TECHNOLOGIES LTD (SEG), E-ZEST SOLUTIONS LTD, E INFOCHIPS LTD, I CRA TECHNO ANALYTICS LTD, INFOSYS TECHNOLOGIES LTD, LARSEN & TOUBRO INFOTECH LTD & TATA ELXSI (SEG) ALSO . TO THAT EXTENT, THE ASSESSEES GROUNDS A ND THE REVENUES GROUNDS ARE ALLOWED. 12. IN RESPECT OF MARKETING SUPPORT SEGMENT, THE GI ST OF THE ARS SUBMISSIONS ARE EXTRACTED AS UNDER : 1. ASIAN BUSINESS EXHIBITION & CONFERENCES LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COM PANY IS FUNCTIONALLY NOT COMPARABLE SINCE IT EARNS INCOME FROM EXHIBITIO NS AND EVENTS, IT(TP)A.1487 & 1496/BANG/2015 PAGE - 33 SPONSORSHIP INCOME, INCOME AND DELEGATE FEE AND ENT RY CHARGES AS PER ANNUAL REPORT. FURTHER , THE COMPANY OPERATES IN A SINGLE SEGMENT I.E., INCOME FROM EXHIBITIONS AND EVENTS. THE DRP DID NOT ACCEPT THE ASSESSEES PLEA. BEFORE US, THE ASSESSEE SUBMITTED THAT THIS COM PANY BE REJECTED AS IT IS FUNCTIONALLY NOT COMPARABLE BASED ON : DCIT V. ELECTRONICS FOR IMAGING INDIA P. LTD [IT(TP)A.NO.212/BANG/2015 AY.2010-11] DCIT V. ARUBA NETWORKS INDIA P. LTD [TS-820-ITAT-20 16(BANG)-TP AY 2010-11] ACIT V. RGA SERVICES INDIA P. LTD [TS-580-ITAT-2015 (MUM)-TP- AY.2010-11] 13. THE RELEVANT PORTION OF THE ORDER FROM DCIT V. ELECTRONICS FOR IMAGING INDIA P. LTD [IT(TP)A.NO.212/BANG/2015 AY. 2010-11 IS EXTRACTED AS UNDER : 53. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. AS IT IS CLEAR THAT THE ASSESSE E IS PROVIDING SALES AND MARKETING SERVICES TO ITS AE WHICH INCLUDES IDENTIF YING POTENTIAL CUSTOMERS BY CONDUCTING ROAD SHOWS, PRESENTATION AND THE LIKE , THE WORKING ALSO INCLUDES EDUCATING POTENTIAL USERS OF THE BENEFIT A ND FEATURES OF THE AES RANGE OF PRODUCTS. HOWEVER, PRODUCTS FOR WHICH THE ,SSESSEE IS PROVIDING SALES AND MARKETING SERVICES IS ONLY SOFTWARE/INFOR MATION TECHNOLOGY PRODUCTS. THEREFORE ASIAN BUSINESSEXHIBITION & CON FERENCE LTD. WHICH IS MAINLY ENGAGED IN THE ORGA NIZ ATION OF EXHIBITIONS AND EVENTS AS WELL AS CONDUCTING CONFERENCES ON BEHALF OF THE VARIOUS CLI ENTS FOR THEIR VARIOUS PRODUCTS AND BUSINESSES. THE FUNCTIONS OF THIS COMP ANY ARE ENTIRELY DIFFERENT FROM THE ASSESSEE WHO IS PROVIDING SALES AND MARKET ING SUPPORT SERVICES TO ITS AE FOR SOFTWARE/IT PRODUCTS. THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF RGA SERVICES INDIA (P.) LTD. (SUPRA) WHILE CONSIDERING THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS HELD A T PARAS 11 AND 12 AS IT(TP)A.1487 & 1496/BANG/2015 PAGE - 34 UNDER: '11. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTI ES AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON PERUSAL OF THE ORDE R PASSED BY THE TPO IT IS NOTICED THAT THE TPO WHILE DEALING WITH ASSESSEE'S OBJECTION WITH REGARD TO SELECTION OF ASIAN BUSINESS EXHIBITION AND CONFEREN CES LIMITED AS A COMPARABLE HAS ADMITTED THAT THE NATURE OF FUNCTION PERFORMED BY THIS COMPANY IS EVENT MANAGEMENT. IT IS FURTHER REL EVANT TO OBSERVE, ON PERUSAL OF ANNUAL REPORT OF THIS COMPANY IT IS SEEN THAT AS PER DIRECTORS REPORT, THE MAIN OPERATION IS ORGANIZING EXHIBITION AND EVENTS. FURTHER, SCHEDULE 12 OF THE PROFIT AND LOSS ACCOUNT AS WELL AS NOTES TO THE ACCOUNTS REVEALS, REVENUE EARNED BY THE COMPANY IS FROM SPON SORSHIP, DELEGATES ATTENDING CONFERENCES, EVENTS AND ENTRY FEES CHARGE D FROM VISITORS FOR VISITING EXHIBITION, SALE OF STALL PLACE ETC. 12. THUS, ON OVERALL ANALYSIS OF FACTS AND MATERIAL S PLACED ON RECORD IT IS VERY MUCH CLEAR THAT THE BUSINESS MODEL OF THE ASSESSEE AND ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED ARE TOTALLY DIFF ERENT. WHILE ASSESSEE UNDOUBTEDLY IS PROVIDING SUPPORT SERVICES TO ITS OV ERSEAS AE'S, ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED IS PRIM ARILY AND FUNDAMENTALLY ENGAGED IN EVENT MANAGEMENT. THUS, UNDER NO CIRCUMS TANCES IT CAN BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. THEREFO RE, FOR THE AFORESTATED REASONS THE DRP, IN OUR VIEW, WAS JUSTIFIED IN EXCL UDING THIS COMPANY AS A COMPARABLE. AS FAR AS THE CONTENTION OF LEARNED DR THAT REASONS ON WHICH THIS COMPANY WAS EXCLUDED EQUALLY APPLIES TO OTHER COMPA RABLES RETAINED BY THE DRP, WE MAY OBSERVE, SUCH ARGUMENT OF LEARNED DR IS NOT AT ALL RELEVANT AS THE ISSUE RAISED BY THE DEPARTMENT IN THE PRESENT A PPEAL IS CONFINED TO EXCLUSION OF ASIAN BUSINESS EXHIBITION AND CONFEREN CES LIMITED AS A COMPARABLE. AS FAR AS OBJECTION OF LEARNED DEPARTME NTAL REPRESENTATIVE THAT ASSESSEE ITSELF HAS SELECTED THIS COMPANY AS A COMP ARABLE, WE MAY OBSERVE, THAT CANNOT BE THE SOLE CRITERIA TO REJECT ASSESSEE 'S OBJECTION WITH REGARD TO SELECTION OF A COMPARABLE. AT THE TIME OF PREPARING T.P. STUDY REPORT ASSESSEE HAD SELECTED SOME COMPARABLES BY CONSIDERING MULTIP LE YEAR DATA AND INFORMATION AVAILABLE AT THE RELEVANT TIME. HOWEVER , IF SUBSEQUENTLY ON THE BASIS OF INFORMATION AVAILABLE IN PUBLIC DOMAIN IT IS FOUND ON THE BASIS OF IT(TP)A.1487 & 1496/BANG/2015 PAGE - 35 FUNCTIONALITY OR SOME OTHER REASON A COMPANY IS NOT AT ALL COMPARABLE, ASSESSEE CANNOT BE PRECLUDED FROM OBJECTING TO SELE CTION OF THE COMPANY AS A COMPARABLE. THIS LEGAL PROPOSITION IS FAIRLY WELL S ETTLED BY THE DECISION IN CASE OF DCITV. QUARK SYSTEMS (P.) LTD. (2010) 132 TTJ (CHD) (SB) 1 AS WELL AS DECISIONS RELIED UPON BY THE COUNSEL FOR THE ASSESS EE. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE DIRE CTIONS OF DRP IN EXCLUDING ASIAN BUSINESS EXHIBITION AND CONFERENCES LIMITED A S A COMPARABLE. THE GROUND RAISED IS THEREFORE DISMISSED.' 54. IN VIEW OF THE ABOVE FACTS AS WELL AS DECISION OF T HE MUMBAI BENCH OF THE TRIBUNAL, THIS COMPANY CANNOT BE CONSIDERED AS A GOOD COMPARABLE WITH THE ASSESSEE. 55. ACCORDINGLY, WE DIRECT THE AO/TPO TO RECOMPUTE THE ALP IN MARKETING SUPPORT SERVICES SEGMENT BY EXCLUDING ASIAN BUSINES S EXHIBITION & CONFERENCE LTD. FROM THE COMPARABLES. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH REL EVANT MATERIAL. FOLLOWING THE ABOVE DECISION, THE ASSESSEES PLE A IS ALLOWED. THE AO/TPO IS DIRECTED TO EXCLUDE THIS COMPARABLE . 2. ICC INTERNATIONAL AGENCIES LTD : THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE SINCE IT IS ENGAGED IN TRADING ACTIVITY AND THEREBY FUNCTIONALLY DIFFERENT. THE DRP REJECTED T HIS COMPANY FOR THE REASON THAT THIS COMPANY IS FUNCTIONALLY DISSIMILAR AND FOR INCORRECT MARGIN COMPUTATION MADE BY THE TPO. THE REVENUE IS ON APPEAL . THE ASSESSEE PLEADED THAT THIS IS FUNCTIONALLY DIFF ERENT AND RELIES ON THIS TRIBUNAL DECISION IN ITO V INTERWOVEN SOFTWARE SERV ICES(INDIA) P LTD [TS - 723-ITAT -2016 BANG-TP AY 2010-11. THE RELEVANT PO RTION OF THE ORDER IT(TP)A.1487 & 1496/BANG/2015 PAGE - 36 FROM ITO V INTERWOVEN SOFTWARE SERVICES (INDIA) P L TD [IT(TP)A.NO.461/BANG/2015 DT 26.8.2016 FOR A Y 2010 -11 IS EXTRACTED AS UNDER : 28. FOR THIS SEGMENT, THE ASSESSEE IS SEEKING EXCL USION OF TWO COMPARABLES I.E. M/S ACENTIA TECHNOLOGIES LTD., AND M/S ICC INTERNAT IONAL AGENCIES LTD., THE CLAIM OF ASSESSEE REGARDING EXCLUSION OF M/S ACENTI A TECHNOLOGIES LTD. IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBU NAL ORDER RENDERED IN THE CASE OF M/S ELECTRONICS FOR IMAGING INDIA (P)LTD.,( SUPRA) AND RESPECTFULLY FOLLOWING THE SAME TRIBUNAL ORDER, WE DIRECT THE AO /TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF FINAL COMPARABLE BECAUSE T HE LD. DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS. 29. REGARDING EXCLUSION OF SECOND COMPANY, IT WAS S UBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT I.E. M/S ICC INTERNATIONAL AGE NCIES LTD., (SUPRA) THIS IS THE CLAIM OF THE ASSESSEE THAT ANNUAL REPORT OF THI S COMPANY AVAILABLE ON PAGE-1100 & 1104 OF THE PAPER BOOK. AS PER THE SAME , WE FIND THAT THIS COMPANY IS DERIVING INCOME FROM TRADING ACTIVITY AN D ALSO MAINTAINING INVENTORIES. BOTH THESE ARGUMENTS ARE SUPPORTED BY ANNUAL REPORT OF THIS COMPANY AVAILABLE ON PAGE-1100 & 1104 OF THE PAPER BOOK. SINCE THE ASSESSEE IS NOT ENGAGED IN TRADING ACTIVITY, IN OUR CONSIDERED OPINION, THIS COMPANY CANNOT BE CONSIDERED AS GOOD COMPARABLE IN THE PRESENT CASE AND HENCE, WE DIRECT THE AO/TPO TO EXCLUDE HIS COMPANY FROM THE LIST OF FINAL COMPARABLE. 30. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE AND REVENUE ARE PARTLY ALLOWED. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH REL EVANT MATERIAL. FOLLOWING THE ABOVE DECISION, THE ASSESSEES PLEA AND THE DRPS DIRECTIONS ARE UPHELD AND THE REVENUES APPEAL IS DISMISSED. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 37 13. THE REVENUE IS ON APPEAL AGAINST THE DRPS DIRE CTION FOR ALLOWING WORKING CAPITAL ADJUSTMENT FOR MARKETING SUPPORT SE RVICES. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND UPHOLD THE DIR ECTIONS OF THE DRP TO ALLOW WORKING CAPITAL ADJUSTMENT ON SIMILAR PRINCIP LES/ METHOD AS IT WAS COMPUTED FOR SOFTWARE DEVELOPMENT SERVICES. 14. THE REVENUE IS ALSO ON APPEAL AGAINST THE DRPS DIRECTION FOR TREATING THE FOREIGN EXCHANGE LOSS AS AN OPERA TING IN NATURE. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND UPHOLD THE DIRECTIONS OF THE DRP TO THE EXTENT OF FOREIGN EXCHANGE LOSS WHICH AROSE OUT OF THE CURRENT YEARS TRANSACTIONS ALONE AS AN OPERATING IN NATURE . THUS, WE DIRECT THE AO/TPO TO EXAMINE AND ALLOW FOREIGN EXCHANGE LOSS WHICH AROSE OUT OF THE CURRENT YEAR TRANSACTIONS ONLY. TO THIS EXTENT , THE REVENUES APPEAL IS ALLOWED. 15. ON CORPORATE TAX FRONT , WHEN COMPUTING THE D EDUCTION UNDER SECTION I0A, THE AO HAS REDUCED RS. 32,54,872/- BE ING TELECOMMUNICATION CHARGES AND RS. 9,88,27,170/- BEI NG EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOV ER. HOWEVER, HE HAS NOT REDUCED THEM FROM THE TOTAL TURNOVER WHICH REDUCED THE DEDUCTION CLAIM BY RS.1,64,75,929/-. ON ASSESSEES OBJECTIONS, THE DRP FOLLOWING THE JURISDICTIONAL HIGH COURT ORDER I N CIT V TATA ELXSI LTD AND OTHERS 349 ITR 98 , DIRECTED THE AO TO EXCLUDE THE ABOVE EXPENSES FROM TOTAL TURNOVER ALSO FOR COMPUTING THE DEDUCT ION U/S 10 A ON WHICH THE REVENUE IS ON APPEAL. WE HEARD THE RIVAL SUBMI SSIONS. SINCE THE DRP IT(TP)A.1487 & 1496/BANG/2015 PAGE - 38 APPLIED THE JURISDICTIONAL HIGH COURTS DECISION WHICH IS ON OPERATION AS ON DATE, WE UPHOLD THE ORDER OF THE DRP. 16. IN THE RESULT, THE ASSESSEES APPEAL IS ALL OWED AND THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH DAY OF APRIL, 2017. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (S. JA YARAMAN) JUDICIAL MEMBER ACCOU NTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR. IT(TP)A.1487 & 1496/BANG/2015 PAGE - 39 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. . / DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. . / . . DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. , IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. / DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. DATE OF DESPATCH OF ORDER . IT(TP)A.1487 & 1496/BANG/2015 PAGE - 40