Bindview India Pvt. Ltd., Pune V. Dy. Comm. of Income-tax, Pune

ITA 1501/PUN/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79932 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 25-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: RAHUL SAWDADKAR
• Keywords: Related party transaction; Depreciation; Transfer pricing; Rectification of order; International transaction; Rule of consistency; Working capital adjustments; Bad and doubtful debts
• Section: 92C; 234B; 10B; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1501/PN/2011 (ASSESSMENT YEAR : 2005-06) BINDVIEW INDIA PVT. LTD., S.NO.3/8, BANER ROAD, PUNE -411045 PAN NO.AAACQ0339F .. APPELLANT VS. DY.CIT, CIRCLE-1(1), PUNE .. RESPONDENT ASSESSEE BY : MS. KARISHMA R. PHATARPHEKAR SHRI YATIN NAGESHKAR, SHRI KAVIT CHANDAK, SHRI SHEKHAR DHORE & SHRI RAHUL SAWDADKAR REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 03-04-2014 DATE OF PRONOUNCEMENT : 26-06-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 19-09-2011 PASSED BY THE DCIT, CIRCLE-1(1), PUNE U/ S.143(3) R.W.S. 263 R.W.S. 144C(13) OF THE INCOME TAX ACT FOR THE ASSES SMENT YEAR 2005-06. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME ON 29-10-2005 DISCLOSING TOTAL INCOME AT RS. 14,06,984/-. THE AO COMPLETED THE ASSESSMENT U/S.143(3) ON 11-12-2007 D ETERMINING THE TOTAL INCOME AT RS.24,29,550/- BY MAKING THE FOLLOWING 3 ADDITIONS : I. EXCISE DUTY DEBONDING - RS.1,58,310/- II. SECURITY CHARGES - RS.2,32,856/- III. TRAVELLING, LEGAL, PRINTING & OTHER EXPENSES - RS.6,31,400/- 2 SINCE THE AO IN THE INSTANT CASE HAD PASSED THE ORD ER BEFORE OBTAINING THE TP STUDY REPORT THE LD.CIT ASSUMED JURISDICTION U/S .263 OF THE I.T. ACT. AND SET-ASIDE THE ORDER OF THE ASSESSING OFFICER BY DIRECTING HIM TO PASS DENOVO ASSESSMENT. SUBSEQUENTLY, THE AO PROCEEDED T O COMPLETE THE ASSESSMENT. 2.1 THE ASSESSEE COMPANY, BINDVIEW INDIA PVT. LTD. IS A SUBSIDIARY OF BINDVIEW DEVELOPMENT CORPORATION, US (HEREINAFTER R EFERRED TO AS BDC). THE ASSESSEE IS ENGAGED IN THE EXPORT OF NETWORK SE CURITY AND ADMINISTRATION SOFTWARE SOLUTIONS WHICH ARE DEVELOP ED EXCLUSIVELY FOR BDC. THE SOFTWARE IS TRANSMITTED THROUGH DEDICATED SATELLITE LINKS LEASED FROM VSNL. THE ASSESSEE CARRIES OUT SOFTWARE DEVEL OPMENT ACTIVITIES FOR AES OF BDC, USA ON AN EXCLUSIVE BASIS. BIPL HAS EN TERED INTO A CONSULTING AND DEVELOPMENT AGREEMENT WITH BDC WHICH DEFINES THE SCOPE WITHIN WHICH BIPL WILL RENDER THE SOFTWARE DEVELOPM ENT DELIVERABLES TO AES. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAS FILED A REPORT U/S.92E IN FORM NO. 3CEB IN RESPECT OF INTERNATIONAL TRANSACTIONS ENTERED WITH RELATED PAR TIES/AES, THE DETAILS OF WHICH ARE AS UNDER : SR.NO. NAME AND ADDRESS OF AE DESCRIPTION OF TRANSACTION WITH AE AMOUNT RECEIVED/PAID AS PER BOOKS METHOD ADOPTED FOR BENCHMARKING 1 BINDVIEW CORPORATION, HOUSTON, USA SOFTWARE DEVELOPMENT SERVICES 20,03,98,533 TNMM 2 BINDVIEW CORPORATION, HOUSTON, USA EXTERNAL COMMERCIAL BORROWINGS 72,52,350 CUP 3 SINCE THE INTERNATIONAL TRANSACTION WITH THE AES I S MORE THAN RS.15 CRORES A REFERENCE WAS MADE TO THE TPO U/S.92CA(1). DURING THE COURSE OF HEARING BEFORE THE TPO, HE OBSERVED THAT THE ASS ESSEE HAS CHARGED ITS AE ON THE BASIS OF TOTAL COST PLUS MARK UP AND HAS USED THE TNMM METHOD TO COMPUTE THE ARMS LENGTH PRICE FOR INCOME FROM SOFTWARE DEVELOPMENT SERVICES RENDERED TO ITS AE. HE NOTED THAT THE TNMM ANALYSIS DONE BY THE ASSESSEE SHOWS THAT MEAN OPERA TING PROFIT(OP)/TOTAL(TC) COST OF COMPARABLE COMPANIES E NGAGED IN SOFTWARE DEVELOPMENT SERVICES IS AT 10.30% AND THAT BEING 12 .40% FOR THE ASSESSEE IT WAS CONTENDED BY THE ASSESSEE THAT ITS INTERNATI ONAL TRANSACTION RELATING TO SOFTWARE DEVELOPMENT SERVICES IS AT ARMS LENGTH . THE TPO EXAMINED THE BENCH MARKING DONE AND COMPARABLES ADOPTED BY T HE ASSESSEE AND NOTED THAT SOME OF THEM WERE NOT FOUND TO BE PROPER AND CORRECT COMPARABLES. HE NOTED THAT THE ASSESSEE, WHILE BEN CHMARKING THE COMPARABLES, HAD TAKEN THE FOLLOWING 11 COMPANIES A ND HAS DETERMINED THE AVERAGE ARITHMETIC MEAN AT 10.30% : SR.NO. NAME OF THE COMPANY F.Y. 2004-05 1 ABM KNOWLEDGEWARE LTD. (SEG) 3.03% 2 ACE SOFTWARE EXPORTS LTD. 14.55% 3 CALIFORNIA SOFTWARE CO. LTD. 13.32% 4 COMPUCOM SOFTWARE LTD.(SEG) 28.55% 5 CRESSANDA SOLUTIONS LTD. -35.40% 6 GOLDSTONE TECHNOLOGIES LTD. 4.51% 7 LANCO GLOBAL SYSTEMS LTD. 10.49% 8 ONTRACK SYSTEMS LTD. 4.35% 9 SIP TECHNOLOGIES LTD. 31.18% 10 SHREE TULSI ONLINE.COM LTD. 1.78% 11 VMF SOFT TECH. LTD. 36.00% AVERAGE (ARITHMETIC MEAN) 10.30% THE TPO ANALYSED THE ABOVE COMPARABLES TAKEN BY THE ASSESSEE AND OBSERVED THAT THESE ARE NOT COMPARABLES. 4 2.3 AS REGARDS ABM KNOWLEDGEWARE LTD. HE OBSERVED T HAT THE COMPANY HAS BEEN FOCUSSING ON E-GOVERNANCE FOR PAST FEW YEARS AND HAS DEVELOPED SEVERAL PRODUCTS AND SOLUTIONS FOR E-GOVE RNANCE SEGMENT. IT HOLDS INTELLECTUAL PROPERTY RIGHTS FOR SEVERAL PROD UCTS AND SOLUTIONS APART FROM ITS OWN TRADE MARKS. IT IS ALSO ENGAGED IN SE LLING SOFTWARE PRODUCTS SUCH AS ABM MOIS 2000TM, ABM CARETM, ABM MAINETTM. SOLUTIONS FOR MUNICIPAL CORPORATIONS HAVE TURNED OU T TO BE A STRENGTH OF THE COMPANY. HE OBSERVED THAT THIS COMPANY IS CONC ENTRATING LARGELY ON SOLUTIONS FOR MUNICIPAL CORPORATIONS IN THE E-GOVER NANCE SPACE. APART FROM THIS IN E-GOVERNANCE SEGMENT THE COMPANY FOCUS ES ON SERVICES DELIVERY THROUGH VARIOUS CHANNELS LIKE PORTALS, PDA S, MOBILE PHONES, CITIZEN FACILITATION CENTRES ETC. SINCE THIS COMPA NY IS BASICALLY INTO E- GOVERNANCE SECTION AND AS WELL AS A PRODUCT COMPANY HE HELD THAT THIS COMPANY IS NOT COMPARABLE WITH BIPL. 2.4 SO FAR AS ACE SOFTWARE EXPORTS LTD. IS CONCERNE D HE OBSERVED THAT THIS COMPANYS BUSINESS RELATES TO DATABASE CREATIO N PERTAINING TO IT ENABLED SERVICES. IT INCLUDES CREATING LARGE VOLUM E OF FULL TEXT AND IMAGE BASED DATA ETC AND THEREFORE THIS IS NOT COMPARABLE TO BIPL. SO FAR AS CALIFORNIA SOFTWARE CO. LTD. IS CONCERNED HE OBSERV ED THAT THE TRANSACTIONS OF THIS COMPANY ARE WITH RELATED PARTI ES DURING F.Y. 2004-05. IN THE CASE OF CRESSANDA SOLUTIONS LTD. HE OBSERVED THAT THE COMPANY HAS INCURRED HUGE LOSSES DURING THE RELEVANT FINANCIAL YEAR 2004-05 DUE TO EXTRAORDINARY REASONS WHEREAS BIPL IS A COST PROTEC TED COMPANY WHERE ITS SERVICES ARE BILLED ON COST PLUS MARGINS AND HENCE ITS RISK PROFILE CANNOT BE COMPARED WITH A COMPANY WHICH CAN INCUR LOSSES. REGARDING LANCO GLOBAL SYSTEMS LTD. HE OBSERVED THAT THIS COMPANY A S A WHOLE HAS 5 FUNCTIONS MORE AND DIFFERENT FROM THE TESTED PARTY. ITS OFFERINGS INCLUDE CONSULTING SERVICES, MANAGED SERVICES, TESTING SERV ICES AND BUSINESS PROCESS OUTSOURCING. FURTHER, IT HAS ALSO NOT GIVE N SEGMENTAL DATA. REGARDING ONTRACK SYSTEMS LTD. HE OBSERVED THAT THE SEGMENTAL DATA ARE NOT GIVEN AND THE COMPANY AS A WHOLE HAS FUNCTIONS DIFFERENT FROM THE TESTED PARTY. IN CASE OF SHREE TULSI ONLINE.COM LT D. THE TPO NOTED THAT SEGMENTAL DATA IS NOT AVAILABLE. FURTHER, THE COMP ANY ALSO DEALS IN SOFTWARE SYSTEMS SERVICES AND SOFTWARE PACKAGES. T HE COMPANY AS A WHOLE HAS FUNCTIONS DIFFERENT FROM THE TESTED PARTY . THE TPO, THEREFORE, REJECTED THE COMPARABLES ADOPTED BY THE ASSESSEE AN D MADE FURTHER SEARCH TO FIND MORE COMPARABLES TO BROAD BASE THE DATA AND ARRIVE AT PROPER BENCHMARKING OF THE INTERNATIONAL TRANSACTIONS. AC CORDINGLY, THE TPO ADOPTED THE FOLLOWING COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE : SR.NO. NAME OF THE COMPANY (2004-05) NET COST PLUS MARK UP 1 BLUE STAR INFOTECH LT. 18.08 2 COMPUCOM SOFTWATE LTD.(SEG) 28.62 3 COMPUTECH INTERNATIONAL LTD.(SEG) 9.24 4 GEOMETRIC SOFTWARE SOLUTION LTD.(SEG) 29.99 5 GOLDSTONE TECHNOLOGIES LTD. 3.53 6 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 35.11 7 ICSA (INDIA) LTD. 28.69 8 ORIENT INFORMATION TECHNO. LTD. 15.29 9 SAKSOFT LTD. 45.93 10 SIP TECHNOLOGIES LTD. 31.18 11 SONATA SOFTWARE LTD. 17.97 12 VISUALSOFT TECHNOLOGIES LTD. 23.52 13 VMF SOFT TECH LTD. 35.70 14 ZENSAR TECHNOLOGIES (SEG) 14.45 ARITHMETIC MEAN 24.09 2.5 THE TPO, THEREFORE, ASKED THE ASSESSEE TO EXPLA IN AS TO WHY THE AFORESAID SET OF COMPARABLES BE NOT TAKEN FOR THE P URPOSE OF 6 BENCHMARKING THE INTERNATIONAL TRANSACTIONS AND WHY THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO RENDERING OF SOFTWARE DEVELOPMENT SERVICES BE NOT DETERMINED FOLLOWING TH E TRANSACTIONAL NET MARGIN METHOD, I.E. TNMM METHOD. 2.6 THE ASSESSEE SUBMITTED THAT BLUE STAR INFOTECH LTD. DOES HAVE SUBSTANTIAL RELATED PARTY TRANSACTION AND SINCE CAL IFORNIA SOFTWARE HAS BEEN PROPOSED TO BE REJECTED, THEREFORE FOR THE SAM E REASONS IN THE SHOW CAUSE NOTICE, THIS COMPANY ALSO SHOULD BE EXCLUDED. SINCE THE OBJECTION OF THE ASSESSEE WAS ACCEPTED BY THE ASSESSING OFFIC ER HE EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES. 3. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE TPO ALSO EXCLUDED ZENSAR TECHNOLOGIES (SEG) AND SONATA SOFTW ARE LTD. THE ASSESSEE ACCEPTED ORIENT INFORMATION TECHNOLOGIES L TD. AS COMPARABLE. AS REGARDS THE OTHER COMPARABLES ARE CONCERNED THE TPO REJECTED THE VARIOUS CONTENTIONS MADE BY THE ASSESSEE AND HELD T HAT THESE ARE THE COMPARABLES FOR BENCHMARKING THE INTERNATIONAL TRAN SACTION. 3.1 THE ASSESSEE HAD WITHOUT PREJUDICE BASIS MENTIO NED THAT THE RISK ADJUSTMENT SHOULD BE PERFORMED ON THE FINAL SET OF COMPARABLE AND THIS SHOULD INCLUDE WORKING CAPITAL ADJUSTMENTS , INVENT ORY ADJUSTMENTS, FIXED ASSETS ADJUSTMENTS AND ANY OTHER ADJUSTMENT APPROPR IATE TO BRING THE COMPARABLE IN LINE WITH BIPL. THE ASSESSEE SUBMITT ED THE WORKINGS OF THE ADJUSTMENTS FOR THE SET OF COMPARABLES IT HAD C HOSEN IN THE TP REPORT. HOWEVER, THE TPO NOTED THAT THE ASSESSEE COMPANY WA S IN RECEIPT OF INTEREST FREE LOAN OF RS.7,30,87,350/- AND THAT THE COMPANY BEING A CAPTIVE SOFTWARE SUPPLIER HAS LITTLE RISKS. HE FURTHER NOT ED THAT THERE IS DIFFERENCE 7 IN THE CREDIT PERIOD THAT BEING 112 DAYS FOR THE BI PL AND THE INVENTORY CARRYING IS OF 0 DAYS. IN VIEW OF THE ABOVE, THE R EQUEST OF THE ASSESSEE FOR ADJUSTMENT FOR WORKING CAPITAL, INVENTORY, MARKET R ISK ETC. WERE NOT ACCEPTED BY THE TPO. 3.2 THE TPO ANALYSED THE PROVISIONS OF RULE 10B OF THE INCOME TAX RULES, 1962 AND NOTED THAT DATA TO BE USED FOR THE COMPARABILITY SHALL BE THE DATA OF THE FINANCIAL YEAR IN WHICH THE TRANSAC TION HAS TAKEN PLACE AND DATA FOR THE PREVIOUS TWO YEARS COULD BE USED ONLY IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFLUENCE ON DETERMINATIO N OF TRANSFER PRICE IN RELATION TO THE TRANSACTION BEING COMPARED. HE OBS ERVED THAT THE DATA PERTAINING TO TWO YEARS PRIOR TO THE F.Y. 2004-05 D OES NOT HAVE ANY INFLUENCE ON THE DETERMINATION OF TRANSFER PRICES I N RELATION TO THE TRANSACTIONS BEING COMPARED. THE TPO REFERRED TO T HE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RANBAXY LABORATORY LTD. VS. ADDL.CIT VIDE ITA NO. 2146/DELHI/2007 FOR A.Y. 2004 -05 AND MENTOR GRAPHICS (NOIDA) PVT. LTD. VS. DCIT VIDE ITA NO.196 9/DELHI/2007 FOR A.Y. 2003-03 ON THE OBSERVATIONS PERTAINING TO THE USE OF DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANS ACTION HAS BEEN ENTERED INTO. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE TPO CONSIDERED THE FINAL SET OF COMPARABLES AS BELOW FO R THE PURPOSE OF THE T.P. ANALYSIS : SR.NO. NAME OF THE COMPANY (2004-05) NET COST PLUS MARK UP 1 COMPUCOM SOFTWATE LTD.(SEG) 28.62 2 COMPUTECH INTERNATIONAL LTD.(SEG) 9.24 3 GEOMETRIC SOFTWARE SOLUTION LTD.(SEG) 29.99 4 GOLDSTONE TECHNOLOGIES LTD. 3.53 5 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 35.11 6 ICSA (INDIA) LTD. 28.69 8 7 ORIENT INFORMATION TECHNO. LTD. 15.29 8 SAKSOFT LTD. 45.93 9 SIP TECHNOLOGIES LTD. 31.18 10 VISUALSOFT TECHNOLOGIES LTD. 23.52 11 VMF SOFT TECH LTD. 35.70 ARITHMETIC MEAN 26.07 ACCORDINGLY, THE TPO DETERMINED THE MEAN OF MARGINS EARNED BY THE FINAL SET OF COMPARABLES AT 26.07% AS AGAINST THE MARGINS EARNED BY BIPL AT 12.40%. THE TPO ACCORDINGLY DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION AT RS.22,77,93,035/-. AFTER DEDUCTING THE VALUE OF INTERNATIONAL TRANSACTION OF RS.20,03,98,553/- AS P ER BOOKS THE TPO DETERMINED THE ADDITION OF RS.2,73,94,482/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMEN T ORDER ON THE BASIS OF THE ADDITION SUGGESTED BY THE TPO. THE AS SESSEE APPROACHED THE DRP. IT WAS SUBMITTED THAT THE TPO HAS NOT FOLLOWE D ANY SYSTEMATIC SEARCH STRATEGY AND MERELY CHERRY PICKED HIGH PROFI T MAKING COMPARABLES. IT WAS ARGUED THAT THE TPO HAS BEEN PROVIDED WITH A DEQUATE REASONS TO NOT SELECT THE CONCERNED COMPANIES AS COMPARABLES F OR BIPL FOR A.Y. 2004-05. IT WAS ARGUED THAT BIPL HAS FOLLOWED A DE TAILED SEARCH PROCESSES PROVIDING ADEQUATE REASONS FOR SELECTING AND THUS FINALLY ACCEPTING COMPANIES AS FINAL COMPARABLES. IT WAS A RGUED THAT THE REASONS PROVIDED FOR ACCEPTING THESE COMPANIES ARE NOT CORR ECT AND NOT TENABLE UNDER THE LAW. IT WAS ARGUED THAT THE TPO HAS REJE CTED THE COMPARABLES SELECTED BY THE ASSESSEE IN THE TRANSFER PRICING RE PORT WITHOUT ANY VALID REASONS. IT WAS ARGUED THAT SUITABLE ADJUSTMENTS S HOULD BE MADE ON ACCOUNT OF RISK AND FUNCTIONAL DIFFERENCES. FURTHE R, BENEFIT OF 5% RANGE AS 9 PROVIDED BY PROVISO TO SECTION 92C(2) WHICH WAS NOT GRANTED SHOULD BE ALLOWED. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE DRP DIRECTED THE ASSESSING OFFICER TO EXCLUDE M/S.HELIOS & MATHE SON INFORMATION TECHNOLOGY LTD. AND M/S. SAKSOFT LTD. FROM THE SET OF COMPARABLES AND COMPUTE THE ARMS LENGTH PRICE ON INTERNATIONAL TRA NSACTION IN RESPECT OF RENDERING OF SOFTWARE DEVELOPMENT SERVICES. ALL OT HER GROUNDS OF OBJECTIONS OF ASSESSEE WERE REJECTED BY THE DRP. 6. BASED ON THE DIRECTIONS GIVEN BY THE DRP, THE AS SESSING OFFICER CONSIDERING THE FOLLOWING COMPANIES AS COMPARABLES AND DETERMINED THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S BY DETERMINING THE ARITHMETIC MEAN AT 22.86% AS UNDER : SR.NO. NAME OF THE COMPANY (2004-05) NET COST PLUS MARK UP 1 COMPUCOM SOFTWATE LTD.(SEG) 28.62 2 COMPUTECH INTERNATIONAL LTD.(SEG) 9.24 3 GEOMETRIC SOFTWARE SOLUTION LTD.(SEG) 29.99 4 GOLDSTONE TECHNOLOGIES LTD. 3.53 5 ICSA (INDIA) LTD. 28.69 6 ORIENT INFORMATION TECHNO. LTD. 15.29 7 SIP TECHNOLOGIES LTD. 31.18 8 VISUALSOFT TECHNOLOGIES LTD. 23.52 9 VMF SOFT TECH LTD. 35.70 ARITHMETIC MEAN 22.86 6.1 AFTER DEDUCTING ARITHMETIC MEAN OF 12.40% SHOWN BY THE ASSESSEE THE ASSESSING OFFICER CALCULATED THE DIFFERENCE IN ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION AT RS.2,09,68,688/- A ND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6.2 THE ASSESSING OFFICER FURTHER NOTED THAT THE AS SESSEE HAS CLAIMED EXEMPTION U/S.10B AT RS.1,26,90,548/-. HE NOTED TH AT THE ASSESSEE COMPANY HAS INCURRED CERTAIN EXPENDITURE ON TELECOM MUNICATION CHARGES 10 AND EXPENDITURE ON FOREIGN CURRENCY. SINCE THIS IS SUE WAS ALSO NOT EXAMINED IN THE ORIGINAL ASSESSMENT ORDER THE CIT, PUNE HAS DIRECTED THE ASSESSING OFFICER TO DECIDE AFRESH THE ISSUE REGAR DING THE DEDUCTION U/S.10B OF THE ACT, PARTICULARLY WITH REFERENCE TO EXCLUSION OF TELECOMMUNICATION CHARGES AND EXPENSES INCURRED IN FOREIGN CURRENCIES AFTER THOROUGH EXAMINATION OF ALL FACTS AND EVIDENC ES AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE ASSE SSING OFFICER OBSERVED THAT THE DETAILS OF EXPENDITURE ARE AS UNDER : PARTICULARS AMOUNT (IN INR) DATA COMMUNICATION/INTERNET ACCESS CHARGES (IAC) (THESE EXPENSES ARE NOT SEPARATELY RECOVERED FROM BDC) 4,261,829 EXPENSES IN FOREIGN CURRENCY TRAVELLING EMPLOYEE TRAINING MEMBERSHIP & SUBSCRIPTION REPAIRS AND MAINTENANCE TOTAL 1,073,451 2,925,222 2,31,100 2,25,502 34,55,275 GRAND TOTAL 77,17,104 6.3 IT WAS EXPLAINED THAT THE INTERNET ACCESS CHARG ES ARE INCURRED TO HAVE ACCESS TO THE INTERNET SERVICES WHICH IS NOT E XCLUSIVELY USED TOWARDS THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. I T WAS FURTHER EXPLAINED THAT NO EXPENDITURE HAVE BEEN INCURRED IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. AFTER VERIFICATION OF THE DETAILS F URNISHED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT THE EXPENSES AR E INCURRED FOR TRAVELLING, EMPLOYEE TRAINING, MEMBERSHIP AND SUBSC RIPTION AND REPAIRS AND MAINTENANCE. THEREFORE, EXCLUSION OF FOREIGN C URRENCY EXPENDITURE FROM THE EXPORT TURNOVER IS NOT WARRANTED AS ASSESS EE COMPANY HAS NOT RENDERED ANY TECHNICAL SERVICES OUTSIDE INDIA. IT WAS ALTERNATIVELY ARGUED BY THE ASSESSEE THAT IF ABOVE-MENTIONED EXPENSES AR E EXCLUDED FROM THE 11 EXPORT TURNOVER THE SAME SHOULD BE EXCLUDED FROM TH E TOTAL TURNOVER AS WELL. 6.4 HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT T HE ABOVE PROPOSITION OF THE ASSESSEE. HE NOTED THAT CERTAIN EXPENSES SUCH AS FREIGHT, TELECOMMUNICATION CHARGES HAVE BEEN SPECIF ICALLY EXCLUDED FROM THE EXPORT TURNOVER UNDER CLAUSE (III) OF THE EXPLANATION (2) TO SECTION 10B. IF THE LEGISLATURE INTENT WERE TO EFF ECT EXCLUSION OF IDENTICAL AMOUNTS FROM TOTAL TURNOVER THEN THE SAME WOULD H AVE BEEN SPECIFICALLY PROVIDED FOR/MANDATED IN THIS SECTION. HOWEVER, TH IS IS NOT THE CASE. AFTER CONSIDERING THE VARIOUS SUBMISSIONS MADE BY T HE ASSESSEE THE ASSESSING OFFICER HELD THAT THE EXPENSES INCURRED F OR THE TELECOMMUNICATION CHARGES AT RS.42,61,829/- ATTRIBU TABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA IS NOT ALLOW ED TO BE INCLUDED IN THE EXPORT TURNOVER ELIGIBLE FOR COMPUTATION OF EXEMPTI ON U/S.10B. HE ACCORDINGLY RECOMPUTED THE DEDUCTION U/S.10B AND DI SALLOWED THE AMOUNT OF RS.6,50,037/- BEING EXCESS EXEMPTION CLAIMED U/S .10B. 7. AGGRIEVED WITH SUCH ORDER OF THE AO, THE ASSESSE E IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS: 1) ERRED IN NOT CONSIDERING THE RECTIFIED OPERAT ING PROFIT/TOTAL COSTS ('OP/TC') OF THE CONCERNED COMPANIES/SEGMENTS, INCO RRECTLY CALCULATED BY THE LEARNED TRANSFER PRICING OFFICER ('TPO'), IG NORING THE DIRECTIONS ISSUED BY THE OFFICE OF THE DISPUTE RESOLUTION PANE L, PUNE; AND 2) ERRED BY CONSIDERING THE INCORRECT DENOMINATOR FOR CALCULATING THE ADJUSTMENT I.E. INCORRECTLY CONSIDERING THE OPERATIN G REVENUE INSTEAD OF OPERATING COSTS OF THE APPELLANT AND APPLYING THE DIFFEREN TIAL OP/TC PERCENTAGE (DIFFERENCE BETWEEN THE ARM'S LENGTH OP/TC PERCENTAGE DIRECTED BY DRP AND THE OP/TC PERCENTAGE OF BIPL), T HEREBY INCORRECTLY ENHANCING THE VALUE OF ADJUSTMENTS; 12 B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNED AO HAV E: 3) ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION AND MAKING THE ADJUSTMENT OF RS 20,961, 689/-. 4) ERRED BY CHERRY PICKING NEW/ADDITIONAL COMPA RABLES WITH HIGH PROFITS THUS HIGH OP/TC. THE ID. TPO/AO ALSO ERRED IN INCLUDING NEW/ADDITIONAL COMPARABLES, WITHOUT PROVIDING A SOUN D/LOGICAL SEARCH STRATEGY/REASONING. 5) ERRED IN ADDING NEW/ADDITIONAL COMPARABLES W HICH DIFFER IN FUNCTIONS UNDERTAKEN, ASSETS EMPLOYED AND RISK ASSU MED AS COMPARED TO APPELLANT; 6) ERRED IN REJECTING COMPARABLES SELECTED IN TP S TUDY REPORT, FOR FY 04-05 WITHOUT SOUND AND LOGICAL REASONS. 7) ERRED IN REJECTING COMPARABLES SELECTED IN TP ST UDY REPORT, ON ACCOUNT OF LOSS REPORTED BY CONCERNED COMPARABLE IN A SI NGLE YEAR I.E. FOR FY 04-05 AND ALSO ERRED BY NOT EXCLUDING COMPANIES REPORTING VERY HIGH PROFITS AFTER EXCLUDING TP REPORT COMPARABLE REFLEC TING A LOSS FOR A SINGLE YEAR; 8) ERRED IN IGNORING THE FACT THAT BIPL HAS BEEN GI VEN AN INTEREST FREE LOAN BY ITS PARENT COMPANY; 9) ERRED IN IGNORING THE LOSSES INCURRED BY THE PAR ENT COMPANY BINDVIEW DEVELOPMENT CORPORATION ('BDC'); 10) ERRED IN NOT MAKING ANY ADJUSTMENTS FOR DIFFERENCES IN FUNCTIONS UNDERTAKEN, ASSETS EMPLOYED AND RISKS ASSUMED BY COMPARABLE COMPANIES VIS-A-VIS THE APPELLANT THEREBY COMPARING THE O PERATING PROFIT/TOTAL COST ('OP/TC') OF THE COMPARABLE COMPANIES ASSUMING HIGHER BUSINESS RISKS AS COMPARED TO THE APPELLANT'S CAPTIVE , RISK MITIGATED OPERATIONS, WITHOUT MAKING ANY ADJUSTMENT FOR DIFFERENCES IN FUNCTIONS UNDERTAKEN, ASSETS EMPLOYED AND RISK PROFILE; 11) ERRED IN NOT GRANTING THE WORKING CAPITAL ADJUSTMEN TS AS THE SAME ARE NECESSARY FOR ADJUSTING THE DIFFERENCES IN FUNCTIONS (E.G., HOLDING INVENTORY) OR TERMS (E.G., FINANCING TERMS RE CEIVED FROM SUPPLIERS) GIVE RISE TO DIFFERENCES IN CAPITAL INTENSITIES FOR THE COMPARABLE COMPANIES AND THE TESTED PARTY; 12) ERRED IN IGNORING THE QUANTIFICATION OF ADJUSTMENTS FOR THE DIFFERENCES IN RISKS ASSUMED BY THE COMPARABLES AND THE APPE LLANT, AS PROVIDED BY THE APPELLANT AND ALSO INCORRECTLY STATING THAT THE ASSESSEE COULD NOT PRODUCE/SUBMIT THE SAME IN THE DRP DIRECTIO NS; 13) ERRED IN NOT APPLYING THE PROVISO TO SECTION 92C (2) OF THE ACT AND HAVE FAILED TO GRANT THE RELIEF FOR THE DOWNWARD ADJUSTME NT OF 5 PERCENT FROM THE ARITHMETIC MEAN (ARM'S LENGTH OP/TC), WHICH IS P ERMITTED AND FOR WHICH THE OPTION HAS ALSO BEEN EXERCISED BY THE APPE LLANT; 14) ERRED IN REJECTING APPLICATION OF TURNOVER FILTER FOR IDENTIFICATION OF COMPARABLE COMPANIES THEREBY ACCEPTING COMPARABLE COMPAN IES OF ALL SIZES IRRESPECTIVE OF THEIR SCALE OF OPERATIONS; 13 15) ERRED BY ACCEPTING COMPARABLES WITH RELATED PARTY TR ANSACTIONS; 16) ERRED IN NOT FOLLOWING THE RULE OF CONSISTENCY BY REJECTING COMPARABLES WHICH WERE ACCEPTED FOR AY 2004-05; 17) THE DIRECTIONS OF THE HON'BLE DRP AND THUS THE OR DER OF THE ID. AO IS NOT A SPEAKING ORDER AS THE HON'BLE DRP AND THE ID. A O HAVE MERELY RELIED UPON THE ACTION TAKEN BY THE TRANSFER PRICING O FFICER AND HIS PREDECESSORS WITHOUT EXERCISING THEIR OWN JUDGMENT AND SKILL; 18) ERRED BY IGNORING THE FACT, THAT, THERE WAS NO INTENT ION OF BIPL TO EVADE TAXES, AS BIPL, BEING A 100% EXPORT ORIENTED UNIT (' EOU'), REGISTERED WITH THE 'SOFTWARE TECHNOLOGY PARK SCHEME', E NJOYED, AN EXEMPTION FROM TAX, ON ITS PROFITS, IN INDIA; 19) WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE TRAN SFER PRICING ADJUSTMENT IS SUSTAINED THEN THE ID, AO HAS ERRED IN LEVYI NG INTEREST UNDER SECTION 234B OF THE ACT CONSIDERING ONLY PROFI T MAKING COMPANIES; 20) ERRED IN MAKING AN ADJUSTMENT FOR EXCESS DEDUCTION U /S.10B OF RS 6,50,037/-. 21) ERRED IN INCORRECTLY REDUCING THE LAC/TELECOMM UNICATION CHARGES FROM THE EXPORT TURNOVER OF THE COMPANY; 22) ERRED BY IGNORING THE FACT THAT WITHOUT PREJUDICE TO THE ABOVE GROUND, IF THE TELECOMMUNICATION CHARGES ARE REDUCED FRO M THE EXPORT TURNOVER, THE SAME SHOULD BE ALSO REDUCED FROM THE TOTAL TU RNOVER; AND 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT SINCE RECTIFICATION ORDERS U/S.154 WAS PASSED BY THE TPO ON 02-03-2012 AS PER THE DIRECTIONS OF THE DRP, THEREFORE, SHE IS NOT PR ESSING GROUNDS OF APPEAL NOS. 1 AND 2 FOR WHICH THE LD. DEPARTMENTAL REPRESE NTATIVE HAS NO OBJECTION. ACCORDINGLY, THE ABOVE 2 GROUNDS BY THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 9. GROUND OF APPEAL NOS. 3 TO 18 BY THE ASSESSEE RE LATES TO ADDITION OF RS.2,09,61,689/- ON ACCOUNT OF ADJUSTMENT OF ARMS LENGTH PRICE ON INTERNATIONAL TRANSACTION BY THE ASSESSING OFFICER. 9.1 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER CHERRY PICKED NEW/ADDITIONAL COMPARABLES WI TH HIGH PROFITS, THUS, 14 HIGH OP/TC WITHOUT PROVIDING SOUND/LEGAL STRATEGY O R REASONING. SHE SUBMITTED THAT TPO IS INCORRECT AND AT FAULT IN HIS APPROACH OF NOT BEING TRANSPARENT AND NOT PROVIDING REQUIRED DATA/MATERIA L/SEARCH STEPS TO SHOULDER THE RESPONSIBILITY. REFERRING TO THE DECI SION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MENTOR GRAPHICS (NOI DA) PVT. LTD. VS. DCIT VIDE ITA NO.1969/DELHI/2006 ORDER DATED 02-11- 2007 SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT NON APPLICATION OF FILTERS AS ABOVE HAS RESULTED IN FAU LTY SELECTION OF COMPARISON. REFERRING TO THE DECISION OF THE BANGA LORE BENCH OF THE TRIBUNAL IN THE CASE OF PHILLIPS SOFTWARE CENTRE PV T. LTD. VS. ACIT VIDE ORDER DATED 26-09-2008 FOR A.Y. 2003-04 SHE DREW TH E ATTENTION OF THE BENCH TO PAGE 26 OF THE ORDER WHERE IT HAS BEEN STA TED THAT IF THE SELECTION PROCESS IS NOT TRANSPARENT TO THE TAXPAYER, IT CANN OT VERIFY WHETHER OR NOT THE PROCESS IS SUBJECTIVE/OBJECTIVE, RELIABLE/UNREL IABLE, THEREFORE, WHETHER THE RESULT IS RIGHT OR NOT. REFERRING TO THE DECIS ION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOSHIBA INDIA PVT. LTD. VS. ACIT SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT THE CHERRY PICKING OF COMPANIES FROM THE COMPARABLES SELECTED BY THE ASSESSING OFFICER IS AGAINST THE ESTABLISHED PRINCIPLES OF TR ANSFER PRICING REGULATIONS. SHE SUBMITTED THAT NEW/ADDITIONAL COMPARABLES SELEC TED BY THE TPO ARE FUNCTIONALLY NOT COMPARABLE. FURTHER, SOME OF THE COMPARABLES DID NOT QUALIFY CRITERIA OF RPT BEING MORE THAN 25% OF SALE S, TURNOVER CRITERIA AND R&D EXPENSES MORE THAN 3% ON SALES. 9.2 SHE SUBMITTED THAT THE COMPANIES SELECTED BY TH E ASSESSEE IN THE TP STUDY REPORT WERE BASED ON SOUND AND LOGICAL REASON S. HOWEVER, THE TPO 15 REJECTED THOSE COMPANIES WITHOUT ASSIGNING ANY SOUN D AND LOGICAL REASONS. SHE SUBMITTED THAT SINCE THE COMPANIES SE LECTED BY THE ASSESSEE IN THE TP STUDY REPORT ARE FUNCTIONALLY COMPARABLE, THEREFORE, THOSE SHOULD HAVE BEEN ACCEPTED. SHE SUBMITTED THAT BDC HAS PER ENNIALLY BEEN IN LOSSES AND HAS YET BEEN COMPENSATING BIPL (A CAPTI VE SERVICE PROVIDER INSULATED FROM ALL RISKS) AT A MARK UP ON ITS COSTS . ALSO THIS MARK UP IS HIGHER THAN THE OP/TC OF COMPARABLES WHICH IN FACT ARE NORMALLY RISK BEARING ENTITIES AND THUS FULL POTENTIAL TO EARN HI GHER PROFITS AS COMPARED TO BIPL. SHE SUBMITTED THAT IRRESPECTIVE OF BEING IN LOSSES BDC HAD GRANTED AN INTEREST FREE LOAN TO BIPL TO CARRY ON I TS OPERATIONS SMOOTHLY. DURING F.Y. 2004-05 DUE TO THE HUGE AMOUNT OF LOSSE S BDC HAS BEEN TAKEN OVER BY SYMANTEC CORPORATION, US. SHE SUBMIT TED THAT THE TPO DID NOT MAKE ANY ADJUSTMENTS FOR DIFFERENCE IN FUNCTION S UNDERTAKEN, ASSETS EMPLOYED AND RISKS ASSUMED BY COMPARABLE COMPANIES VIS-A-VIS THE ASSESSEE THEREBY COMPARING THE OPERATING PROFIT/TOT AL COST OF THE COMPARABLE COMPANIES ASSUMING HIGHER BUSINESS RISKS AS COMPARED TO THE ASSESSEES CAPTIVE, RISK MITIGATED OPERATIONS, WITH OUT MAKING ANY ADJUSTMENT FOR DIFFERENCES IN FUNCTIONS UNDERTAKEN, ASSETS EMPLOYED AND RISK PROFILE. SHE SUBMITTED THAT THE TPO FURTHER D ID NOT GRANT THE WORKING CAPITAL ADJUSTMENT AS THE SAME ARE NECESSARY FOR AD JUSTING THE DIFFERENCE IN FUNCTIONS OR TERMS WHICH GIVE RISE TO DIFFERENCE IN CAPITAL INTENSITIES FOR THE COMPARABLE COMPANIES AND THE TESTED PARTY. SHE SUBMITTED THAT WORKING CAPITAL ADJUSTMENTS HAVE BEEN ALLOWED BY TH E DRP AND THE CIT(A) IN OTHER CASES. REFERRING TO THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 SHE SUBMITTED THAT WORKIN G CAPITAL ADJUSTMENT 16 HAS BEEN ALLOWED. REFERRING TO THE FOLLOWING DECIS IONS SHE SUBMITTED THAT IN THE SAID DECISIONS ADJUSTMENT FOR WORKING CAPITA L HAVE BEEN ALLOWED : I. MENTOR GRAPHICS (NOIDA) PVT. LTD. ITA NO.1969/D/2 006 II. COWL INDIA PVT. LTD. ITA NO.5052/D/2010 III. DEMAG CRANES & COMPONENTS (INDIA) PVT. LTD. ITA NO.1684/PN/2011 A.Y.2007-08. 9.3 SHE SUBMITTED THAT SINCE THE IMPUGNED ASSESSMEN T YEAR 2005-06 BEING INITIAL YEARS OF INTRODUCTION OF TRANSFER PRI CING, THEREFORE, THE ASSESSEE SHOULD BE GIVEN THE BENEFIT OF DOWNWARD AD JUSTMENT OF 5% FROM THE ARITHMETIC MEAN. 9.4 COMING TO THE VARIOUS COMPARABLES TAKEN BY THE TPO SHE SUBMITTED THAT THOSE COMPARABLES DIFFER IN FUNCTION S UNDERTAKEN AND RISK ASSUMED. REFERRING TO THE COMPARABLE GEOMETRIC SOF TWARE SOLUTIONS LTD. (SEGMENTAL) SHE SUBMITTED THAT THE TPO HAS TAKEN TH E ABOVE COMPANY AS A COMPARABLE ON THE GROUND THAT THE TRANSACTIONS OF T HE MAIN COMPANY WITH ITS SUBSIDIARIES ARE IN THE VICINITY OF 10% OF ITS TOTAL TRANSACTION AND THERE ARE NO KEY PERSONS INVOLVED. HE ACCORDINGLY HELD T HAT THE COMPANY CANNOT BE REJECTED ON GROUND OF RPT. SHE SUBMITTED THAT THE DRP ACCEPTED THE SAME IN FINAL SET OF COMPARABLES BUT D ID NOT COMMENT ON FUNCTIONAL ASPECTS. SHE SUBMITTED THAT GEOMETRIC S OFTWARE SOLUTIONS LTD. IS NOT FUNCTIONALLY COMPARABLE SINCE THE ENGINEERIN G SERVICES DIVISION INCLUDES PRODUCT DESIGN SERVICES, TOOL DESIGN SERVI CES, DATA MIGRATION SERVICES ETC. ITS PROJECT DIVISION IS NOT FUNCTION ALLY COMPARABLE WITH BIPL FUNCTIONS. FURTHER, SEGMENTAL DATA FOR THE CO MPANY IS NOT ON A STAND ALONE BASIS. THEREFORE, SEGMENTAL DATA CANNO T BE RELIABLY USED AS CONSOLIDATED SEGMENTS WOULD HAVE FINANCIALS OF OTHE R SUBSIDIARY 17 COMPANIES. THE TPO IN THE INSTANT CASE HAS CONSIDE RED CONSOLIDATED SEGMENTED RESULTS FOR MARGIN CALCULATION. FURTHER, THE TURNOVER OF THE COMPANY IS APPROXIMATELY RS.95 CRORES WHICH IS MUCH MORE THAN THE TURNOVER OF THE ASSESSEE COMPANY. 9.5 REFERRING TO THE DECISION OF THE BANGALORE BENC H OF THE TRIBUNAL IN THE CASE OF SAPLABS INDIA PVT. LTD. VIDE ITA NO.398 /BANG/20 SHE SUBMITTED THAT GEOMETRIC SOFTWARE SOLUTIONS LTD. WA S REJECTED AS COMPARABLE. SHE SUBMITTED THAT SAPLABS INDIA PVT. LTD. IS ALSO INTO SOFTWARE DEVELOPMENT SERVICES AND RENDERS SERVICES TO PARENT COMPANY ON COST PLUS BASIS WHICH IS SIMILAR TO THAT OF THE ASSESSEE COMPANY. SHE SUBMITTED THAT SOFTWARE PRODUCT COMPANIES CANNOT BE COMPARED WITH SOFTWARE SERVICES COMPANIES. SINCE GEOMETRIC SOFTW ARE SOLUTIONS LTD. WAS REJECTED FOR FUNCTIONAL DIS-SIMILARITY IN THE C ASE OF SAPLABS INDIA PVT. LTD., THEREFORE, THIS COMPARABLE ALSO SHOULD BE EXC LUDED FROM THE COMPARABLES SELECTED BY THE TPO/DRP. 9.6 COMING TO THE ICSA (INDIA) LTD. SHE SUBMITTED T HAT THE ABOVE COMPANY IS ALSO NOT FUNCTIONALLY COMPARABLE. SHE SU BMITTED THAT ICSAS BUSINESS ACTIVITIES ENCOMPASS THE DEVELOPMENT OF EM BEDDED SOLUTIONS SOFTWARE PRODUCTS AND SERVICES. THE TOTAL R&D EXPE NDITURE AS A PERCENTAGE OF TOTAL TURNOVER IS 7.08% WHICH IS MENT IONED TO BE IN EMBEDDED SOLUTIONS. SINCE R&D IS CARRIED OUT FOR P RODUCTS, EMBEDDED SOLUTIONS, WHICH IS A PART OF SOFTWARE SEGMENT, CAN NOT BE CONSIDERED AS COMPARABLE. SHE SUBMITTED THAT THE ABOVE COMPANY H AS DEVELOPED PRODUCTS THAT FIND APPLICATIONS IN ENERGY MANAGEMEN T IN ADDITION TO AUDIT AND CONTROL SOLUTIONS WITH COMPLIANT DATA ACQUISITI ON SYSTEMS FOR POWER 18 UTILITIES USING THE GSM NETWORK. ICSA HAS ALSO DEV ELOPED TECHNOLOGY SOLUTIONS FOR THE POWER SECTOR TO IDENTIFY TRANSMIS SION AND DISTRIBUTION LOSSES AND MAJOR POWER CONSUMPTION VIA GSM. IT HAS ABNORMAL REVENUE GROWTH OF 356% AS COMPARED TO THE PREVIOUS YEAR. F URTHER, IN ASSESSEES OWN CASE FOR A.Y. 2006-07 ICSA WAS REJECTED BECAUSE OF CROSSING THE R&D/SALES THRESHOLD OF 3%. SHE SUBMITTED THAT THE R&D EXPENSES OF THE ABOVE COMPANY FOR A.Y. 2005-06 IS 7%. SHE ACCORDIN GLY SUBMITTED THAT THIS COMPANY BEING NOT FUNCTIONALLY COMPARABLE SHOU LD BE EXCLUDED FROM THE COMPARABLES. 9.7 SO FAR AS THE EXCLUSION OF ABM KNOWELDGEWARE LT D. IS CONCERNED SHE SUBMITTED THAT THE TPO REJECTED THE SAME ON THE GROUND THAT THE COMPANY IS BASICALLY INTO E-GOVERNANCE SECTION AND AS WELL AS PRODUCT COMPANY. IT HOLDS INTELLECTUAL PROPERTY RIGHTS FOR SEVERAL PRODUCTS AND SOLUTIONS, AS SUCH THE FUNCTIONS OF ABM KNOWELDGEWA RE LTD. ARE NOT FOUND COMPARABLE WITH THAT OF BIPL. SHE SUBMITTED THAT THE ASSESSEE HAS CONSIDERED IT SERVICES SEGMENT FOR THE PURPOSE OF I TS TP ANALYSIS. AS PER PAGE 26 OF THE ANNUAL REPORT OF THE COMPANY AMB KNO WLEDGEWARE LTD. (SEG.) HAS DISCONTINUED ITS SALE OF IT PRODUCTS DIV ISION. THIS CLEARLY DEMONSTRATES THAT THE COMPANY IS INTO IT SERVICES. REFERRING TO PAPER BOOK PAGE 1005 SHE SUBMITTED THAT IT WAS VERY CLEAR LY BROUGHT TO THE NOTICE OF THE TPO THAT THE COMPANY IS IN SOFTWARE S ERVICES WHEREAS ACCORDING TO TPO, ASSESSEE IS IN E-GOVERNANCE. SHE SUBMITTED THAT E- GOVERNANCE IS BASICALLY ENABLING GOVT. BODIES TO EN HANCE EFFICIENCY BY PROVIDING IT PLATFORM AND SOLUTIONS. SHE SUBMITTED THAT THE COMPANY IS ENGAGED IN DESIGN, DEVELOPMENT, IMPLEMENTATION, MAI NTENANCE AND 19 SUPPORT OF SOLUTIONS PROVIDED. MERELY BECAUSE END CUSTOMER IS A GOVT. AGENCY, WILL NOT RENDER THE COMPANY AS FUNCTIONALLY NOT COMPARABLE. SHE SUBMITTED THAT THE IT PRODUCTS SEGMENT OF THE COMPA NY DEALS WITH SELLING OF SOFTWARE PRODUCTS. THE SERVICES PROVIDED BY THE IT SERVICES SEGMENT ARE COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES PROVIDED BY BIPL. THEREFORE, THIS COMPANY SHOULD NOT BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. HOWEVER, THE TPO HAS GONE BY THE NOME NCLATURE AND EXCLUDED THE SAME FROM THE COMPARABLES. SHE SUBMIT TED THAT WHEN VMF SOFTTECH LTD. HAS BEEN CONSIDERED BY THE TPO AS COM PARABLE WHICH IS ALSO INTO E-GOVERNANCE, THEREFORE, BY THE SAME LOGI C ABM KNOWELDGEWARE LTD. SHOULD BE ACCEPTED AS COMPARABLE AND SHOULD NOT HAVE BEEN EXCLUDED. 9.8 AS REGARDS THE EXCLUSION OF ACE SOFTWARE EXPORT S LTD. IS CONCERNED SHE SUBMITTED THAT THE TPO EXCLUDED THE SAME FROM THE COMPARABLES ON THE GROUND THAT THE COMPANYS BUSINESS RELATES TO D ATABASE CREATION PERTAINING TO IT ENABLED SERVICES. ACCORDING TO TH E TPO, DATABASE CREATION PERTAINING TO IT ENABLED SERVICES IS NOT A FIELD WHERE BIPL OPERATES. SHE SUBMITTED THAT THE ABOVE COMPANY IS ENGAGED IN PROVIDING SERVICES FOR DATA CONVERSIONS SERVICES, CAD, GIS AN D AM/FM SERVICES. REFERRING TO PAGE 10 AND 11 OF THE ANNUAL REPORT SH E SUBMITTED THAT THE SEGMENTAL INFORMATION PARA MENTIONS THAT THE COMPAN Y IS ENGAGED IN SINGLE SEGMENT NAMELY COMPUTER SOFTWARE AND SERVICE S EXPORTS. THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE. SHE SUBMITTED THAT IF THIS COMPANY IS REJECTED ON THE GROUND THAT IT IS I N THE BUSINESS OF CAD CAM THEN GEOMETRIC SOFTWARE SOLUTIONS LTD. ALSO SHO ULD BE REJECTED 20 SINCE IT IS ON THE SAME LINE OF BUSINESS. SHE SUBM ITTED THAT THIS COMPANY WAS ACCEPTED AS A COMPARABLE IN THE PRECEDING A.Y. 2004-05. THE BUSINESS ACTIVITY OF THE COMPANY HAS NOT CHANGED SI NCE THEN. THEREFORE, THIS COMPANY SHOULD BE ACCEPTED IN THE FINAL SET OF COMPARABLES. 9.9 AS REGARDS THE DELETION OF CRESSANDA SOLUTIONS IS CONCERNED SHE SUBMITTED THAT THE TPO EXCLUDED THE SAME FROM THE C OMPARABLES ON THE GROUND THAT THE COMPANY HAS INCURRED LOSSES IN THE RELEVANT YEAR DUE TO EXTRAORDINARY REASONS LIKE WINDING UP OF RELATIONSH IP WITH CLIENTS, FILING OF BANKRUPTCY BY SOME CLIENTS, HIGHER DEPRECIATION AND FINANCE CHARGES DUE TO INFRASTRUCTURE EXPANSION WHEREAS BIPL IS A C OST PROTECTED COMPANY WHERE ITS SERVICES ARE BILLED ON COST PLUS MARGINS AND HENCE ITS RISK PROFILE CANNOT BE COMPARED WITH A COMPANY WHICH CAN INCUR L OSSES. SHE SUBMITTED THAT IN EVERY INDUSTRY THERE WOULD BE A M IX OF PROFITABLE AND NON-PROFITABLE VENTURES. IT IS THE ENDEAVOUR OF EV ERY COMPANY TO MAXIMISE ON PROFITS BASED ON THE RISKS ASSUMED. HO WEVER, IT IS TOO IDEALISTIC TO PRESUME THAT ALL COMPANIES SHOULD ALW AYS EARN PROFIT. IT IS THE FACTS AND CIRCUMSTANCES SURROUNDING THE COMPANY IN QUESTION THAT SHOULD DETERMINE ITS STATUS AS A COMPARABLE AND NOT ITS FINANCIAL RESULTS. SHE SUBMITTED THAT LOSSES ARE A NORMAL PART OF BUSI NESS. THE COMPANY CRESSANDA SOLUTIONS INCURRED LOSSES IN F.Y. 2004-05 . SHE SUBMITTED THAT THE COMPANY WAS INCLUDED IN THE PREVIOUS ASSESSMENT YEAR 2003-04 BUT THEN IT WAS NOT INTO LOSSES. ACCORDING TO HER EXCL UDING A COMPANY BASED ON ONE YEARS LOSS WOULD NOT BE APPROPRIATE. THE COMPANY WAS IN ACTIVITIES FOR THE F.Y. ENDING MARCH 2004 AND MARCH 2003. ACCORDING TO HER IN THE DISTRIBUTION OF COMPARABLES AS SELECTED BY THE COMPANY IT COULD 21 BE POSSIBLE THAT LOSS MAKING COMPANIES DO GET SELEC TED. THE INCLUSION OF LOSS MAKING COMPANIES IN THE DISTRIBUTION IS JUST A S NORMAL AS THE INCLUSION OF COMPANIES THAT ARE EXTREMELY PROFITABL E. REFERRING TO THE ORDER OF THE DRP SHE SUBMITTED THAT THE DRP HAS ALS O STATED THAT THE COMPANY HAS CLOSED ITS OPERATIONS IN THE SUBSEQUENT YEAR. THIS HAS NO BEARING ON THE RELEVANT YEAR AS THE OPERATIONS WERE CLOSED 5 YEARS AFTER THIS ASSESSMENT YEAR. SHE SUBMITTED THAT IF THE AB NORMAL EXPENSES, I.E. BAD DEBTS AND DEPRECIATION ARE ADDED BACK THE LOSS OF THE COMPANY IS NORMALISED TO 13%. IN THAT SCENARIO THIS SHOULD AT LEAST BE CONSIDERED. 9.10 SO FAR AS THE EXCLUSION OF LANCO GLOBAL SYSTEM S LTD IS CONCERNED SHE SUBMITTED THAT THE TPO EXCLUDED THE SAME FROM T HE COMPARABLES ON THE GROUND THAT THE COMPANY IS OFFERING CONSULTING SERVICES, MANAGED SERVICES, TESTING SERVICES AND BUSINESS PROCESS OUT SOURCING. FURTHER, SEGMENTAL DATA WAS NOT GIVEN. THEREFORE, THIS COMP ANY AS A WHOLE HAS FUNCTIONS MORE THAN AND DIFFERENT FROM THE TESTED P ARTY. SHE SUBMITTED THAT THE COMPANY IS ENGAGED IN PROVIDING TECHNOLOGY STRATEGY CONSULTING, APPLICATION DEVELOPMENT, CONVERSION AND MIGRATION, TECHNOLOGY BASED IMPLEMENTATION SERVICES, BUSINESS INTELLIGENCE SOLUTIONS AND APPLICATION MANAGEMENT SERVICES. THE SOFTWARE DEVELOPMENT SERVICES ARE PROVIDED TO CLIENTS IN FIN ANCIAL SERVICES, LIFE SCIENCES, ENERGY AND MANUFACTURING INDUSTRIES. HEN CE, THE COMPANY IS ENGAGED IN DEVELOPMENT OF COMPUTER SOFTWARE AND SER VICES. REFERRING TO PAGE 17 OF THE ANNUAL REPORT SHE SUBMITTED THAT BUS INESS PROCESS OUTSOURCING HAS BEEN MENTIONED IN THE FUTURE OUTLOO K AND OPPORTUNITIES SEGMENT OF THE MANAGEMENT DISCUSSION & ANALYSIS. FURTHER, IT ALSO 22 STATES THAT THE SOFTWARE DEVELOPMENT WOULD BE MAJOR SOURCE OF BUSINESS. SHE SUBMITTED THAT THE COMPANY PLANS TO SET UP BPO OPERATIONS IN THE DOMAINS OF FINANCE, CUSTOMER SUPPORT, HR AND LEGAL SERVICES, CONSULTING SERVICES, MANAGED SERVICES, TESTING SERV ICES CAN BE CLASSIFIED AS IT SERVICES. FOR THE F.Y. 2004-05 THE COMPANY I S ENGAGED IN PROVIDING ONLY SOFTWARE SERVICES. REFERRING TO PAGE 28 OF TH E ANNUAL REPORT SHE SUBMITTED THAT REVENUE RECOGNITION CONFIRMS THAT IT IS INTO SOFTWARE DEVELOPMENT (PAGE 32 OF THE AR). FURTHER, THIS COM PANY WAS ACCEPTED AS COMPARABLE IN THE PREVIOUS ASSESSMENT YEAR 2004- 05. SHE ACCORDINGLY SUBMITTED THAT THIS COMPANY SHOULD NOT BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 9.11 AS REGARDS THE EXCLUSION OF ONTRACK SYSTEMS LT D IS CONCERNED SHE SUBMITTED THAT THE TPO EXCLUDED THE SAME FROM THE C OMPARABLES ON THE GROUND THAT THE COMPANY IS ENGAGED IN PROVIDING SER VICES FOR THE I.T. AND ITES MARKET. IT IS ENGAGED IN OFFSHORE PRODUCT DEV ELOPMENT, SMS/MMS, COLLABORATIVE SOFTWARE, MOBILE GAMES, SMS PLATFORM, BPO OFFERING IN TECHNICAL HELP DESK USING ITIL MODEL ET C. THE COMPANY ALSO RUNS TENDER PORTAL TENDERTIMES.COM FOR SECURING B ID DOCUMENTS AND ONLINE SUBMISSION OF TENDERS AND INDIAONESTOP.COM FOR MERCHANT EXPLORERS. SHE SUBMITTED THAT THIS ACTION OF THE T PO IS NOT CORRECT. SHE SUBMITTED THAT DURING THE F.Y. 2004-05 THE COMPANY WAS ENGAGED IN PROVIDING IT SOLUTIONS AND SERVICES THROUGH ITS GL OBAL DELIVERY CENTER, ONLINE WEB BASED PORTAL. IT SERVICES, SUPPORT AND TECHNOLOGY SOLUTIONS, MULTIMEDIA AND WEB SERVICES. THE COMPANY OFFERS NE TWORKING SOLUTIONS IN THE LOCAL AREA AND WIDE AREA NETWORKING, INTRANE T/EXTRANET, INTERNET 23 BASED SOLUTIONS, MESSAGING SOLUTIONS, SECURITY SOLU TIONS AND WIRELESS SOLUTIONS. SHE SUBMITTED THAT THE NETWORKING SOLUTI ONS INCLUDE ASSESSMENT, DESIGN, IMPLEMENTATION & LIFE CYCLE MAN AGEMENT. ITS IT MANAGEMENT SERVICES CONSIST OF SERVICE DESK, NETWOR KING SERVICES AND SYSTEM MANAGEMENT. THE COMPANYS CORE SERVICES INCL UDE SOFTWARE DEVELOPMENT. THESE SERVICES ARE IN THE NATURE OF I T SERVICES. FURTHER, THIS COMPANY WAS ACCEPTED AS A COMPARABLE IN THE PR EVIOUS ASSESSMENT YEAR 2004-05. THERE HAS BEEN NO CHANGE IN THE BUSI NESS OF THE COMPANY DURING F.Y. 2004-05 FROM F.Y. 2003-04 AND HENCE THE SAME SHOULD NOT HAVE BEEN EXCLUDED. REFERRING TO PAGE 37 OF THE AN NUAL REPORT OF THE COMPANY SHE SUBMITTED THAT REVENUE HAS BEEN RECOGNI SED FOR SOFTWARE DEVELOPMENT. REFERRING TO PAGE 38 OF THE ANNUAL RE PORT SHE SUBMITTED THAT SEGMENTAL REPORTING HAS BEEN MADE FOR SOFTWARE SERVICES. THEREFORE, IT IS NOT PROPER TO EXCLUDE THIS COMPANY FROM THE C OMPARABLES. 9.12 AS REGARDS THE EXCLUSION OF SHREE TULSI ONLINE .COM LTD IS CONCERNED SHE SUBMITTED THAT THE TPO EXCLUDED THE S AME FROM THE COMPARABLES ON THE GROUND THAT THE COMPANY HAS INCO ME FROM SOFTWARE SOLUTIONS, SOFTWARE CONSULTANCY AND SOFTWARE SYSTEM SERVICES. FURTHER, THE COMPANY ALSO PROVIDES E-BUSINESS SOLUTIONS AND IS INTO KNOWLEDGE MANAGEMENT AND THAT NO SEGMENTAL DATA WAS AVAILABLE . CHALLENGING THE EXCLUSION BY THE TPO OF THE ABOVE COMPANY FROM THE COMPARABLES, THE LD. AR SUBMITTED THAT THE COMPANY IS ENGAGED IN PRO VIDING IT CONSULTING AND SOFTWARE SERVICES WHICH INCLUDES E-BUSINESS SOL UTIONS, KNOWLEDGE MANAGEMENT, SOFTWARE DEVELOPMENT ETC. IT IS ENGAGE D IN PROVIDING SOFTWARE SOLUTIONS LIKE WEBSITE DEVELOPMENT, WEB CO NTENT DEVELOPMENT, CUSTOMISED SOFTWARE DEVELOPMENT, MESSAGING SOLUTION S, BILLING SOFTWARE 24 DEVELOPMENT ETC. IT WAS ACCEPTED AS A COMPARABLE I N THE PRECEDING ASSESSMENT YEAR AND THERE HAS BEEN NO CHANGE IN THE BUSINESS OF THE COMPANY DURING F.Y. 2004-05. REFERRING TO PAGE 31 OF THE ANNUAL REPORT SHE SUBMITTED THAT THE COMPANY RECOGNISES INCOME FR OM SOFTWARE SALE, SOFTWARE CONSULTANCY AND SOFTWARE SYSTEM SERVICES. THE COMPANY IS DEVELOPING SOFTWARE FOR MARKETING IN DOMESTIC AND I NTERNATIONAL MARKETS, THEREFORE, THE SAME SHOULD NOT HAVE BEEN EXCLUDED. 9.13 AS REGARDS THE INCLUSION OF SIP TECHNOLOGIES A ND EXPORTS LTD. IS CONCERNED SHE SUBMITTED THAT ALTHOUGH THE ASSESSEE HAS TAKEN THIS COMPANY AS A COMPARABLE, HOWEVER, IT WAS SUBMITTED BEFORE THE DRP THAT IF CRESSANDA SOLUTIONS IS NOT ACCEPTED THEN SIP TEC HNOLOGIES & EXPORTS LTD. SHOULD ALSO BE DELETED FROM THE LIST OF COMPAR ABLES CONSIDERED. SHE SUBMITTED THAT NO RELEVANT DATA FOR F.Y. 2004-05 OF THE COMPANY IS AVAILABLE. THE COMPANY HAD CLOSED ITS BOOKS OF ACC OUNTS FOR THE YEAR ENDING SEPTEMBER 2004 AND SUBSEQUENTLY CLOSED ITS B OOKS OF ACCOUNTS ONLY FOR THE YEAR ENDED 31-03-2006 WHICH IS FOR A P ERIOD OF 18 MONTHS. SHE SUBMITTED THAT USING DATA FOR THE YEAR ENDED SE PTEMBER 2004 IS NOT CORRECT AND NOT AS PER LAW. THEREFORE, THE COMPANY SHOULD BE REJECTED. FOR THE ABOVE PROPOSITION, SHE RELIED ON THE FOLLOW ING DECISIONS: I. HONEYWELL AUTOMATION LTD. VS. DCIT ITA NO.4/PN/2 008 II. SANDSTONE CAPITAL ADVISORS PVT. LTD. VS. ACIT ITA NO.6315/MUM/2012 III. PTC SOFTWARE (INDIA) PVT. LTD. VS. ACIT ITA NIO.1 605/PN/2011 IV. CUMMINS TURBO TECHNOLOGIES LTD. ITA NO.118/PN/20 11 9.14 AS REGARD EXCLUSION OF THE COMPANY VMF SOFT TE CH LTD. IS CONCERNED SHE SUBMITTED THAT ALTHOUGH ASSESSEE HAD TAKEN THIS AS A COMPARABLE, HOWEVER, THE ANNUAL REPORT OF THE SAID COMPANY WAS NOT 25 AVAILABLE AT THAT TIME. FURTHER, THE ABOVE COMPANY UNDERTAKES E- GOVERNANCE PROJECTS, I.E. GOVERNMENT PROJECTS. THE ACTIVITIES OF THE COMPANY RESULTS IN CREATION AND SALE OF SOFTWARE PR ODUCTS. THE OP/TC FOR 3 CONSECUTIVE YEARS SHOWS EXTRAORDINARY MARGINS. S IGNIFICANT AMOUNT OF SOFTWARE EXPENSES SHOWS THAT IT OUTSOURCES WORK RAT HER THAN DEVELOPING IN-HOUSE. THEREFORE, THE ABOVE COMPANY SHOULD BE E XCLUDED IN CASE CRESSANDA SOLUTIONS LTD. IS EXCLUDED. FOR THE ABOV E PROPOSITION SHE RELIED ON THE FOLLOWING DECISIONS: I. SAPIENT CORPORATION PVT. LTD. ITA NO.5263/DEL/201 0 II. CUMMINS TURBO TECHNOLOGIES LTD. ITA NO.118/PN/201 1 III. QUARK SYSTEM VS. DCIT ITA NO.100/CHD/2009 IV. FROST AND SULLIVAN INDIA PVT. LTD. ITA NO.2073/M UM/2010 9.15 SO FAR AS COMPUCOM SOFTWARE LTD. IS CONCERNED SHE SUBMITTED THAT IN ASSESSEES OWN CASE FOR A.Y. 2006-07 THIS WAS AC CEPTED AS NOT BEING COMPARABLE. THEREFORE, THE SAME SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES ALTHOUGH IT WAS CONSIDERED BY THE ASSES SEE IN ITS TP STUDY REPORT. SHE SUBMITTED THAT IF WORKING CAPITAL ADJUS TMENT IS ALLOWED AND THE COMPANIES SELECTED BY THE ASSESSEE ARE CONSIDERED T HEN NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF ADDITION OF ALP FOR THE INTE RNATIONAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE. SHE ACCORDINGLY SUBMI TTED THAT THE TP ADJUSTMENT MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE S UBMITTED THAT THE ASSESSEE DID NOT FURNISH THE DETAILED ACCEPTANCE-RE JECT MATRIX, I.E. KEY WORDS USED FOR SELECTION OF COMPARABLES FROM PUBLIC DOMAIN, THE NUMBER OF TOTAL COMPANIES FOUND, FILTERS APPLIED TO REJECT COMPANY ON QUALITATIVE 26 AND QUANTITATIVE GROUND ETC. HE SUBMITTED THAT THE RE IS NO INFORMATION ABOUT THE SELECTION OF THE FINAL 90 COMPANIES FOR Q UALITY ANALYSIS. THEREFORE, THE 90 COMPANIES SELECTED BY THE ASSESSE E FOR QUALITY ANALYSIS IS ITSELF A CHERRY PICKING APPROACH. THE NEW COMPA RABLES SELECTED BY THE TPO ARE BASED ON CONTEMPORANEOUS DATA AVAILABLE IN PUBLIC DOMAIN AT THE TIME OF TP AUDIT REPORT. REFERRING TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KODIAK NETWORKS INDI A PVT. LTD. VIDE ITA NO.1413/BANG/2010 ORDER DATED 27-01-2012 HE SUBMITT ED THAT THERE IS NO BAR IN LAW FOR THE TPO TO UTILISE THE UPDATED DATA AT THE TIME OF T.P. PROCEEDINGS. FURTHER, THE TPO HAS GIVEN DETAILED R EASONINGS FOR SELECTION OF THE COMPARABLES. HE SUBMITTED THAT OUT OF THE 1 1 COMPARABLES SELECTED BY THE ASSESSEE FOR BENCHMARKING THE ALP OF SOFTWAR E DEVELOPMENT SERVICE TRANSACTION, THE TPO HAD REJECTED 7 COMPARA BLES GIVING VALID REASONS. ALL THE COMPARABLES ARE REJECTED EITHER D UE TO FUNCTIONAL DIFFERENCE OR CONSEQUENT RELATED PARTY TRANSACTION, I.E. EXCEEDING 25%. THEREFORE, THE SUBMISSION OF THE LD. COUNSEL FOR TH E ASSESSEE THAT COMPARABLES WERE REJECTED WITHOUT SOUND AND LOGICAL REASON CANNOT BE ACCEPTED AS CORRECT. HE SUBMITTED THAT THE TPO HAD REJECTED ONE OF THE COMPARABLES SELECTED BY THE ASSESSEE NAMELY CRESSAN DA SOLUTIONS DUE TO INCURRING OF HUGE LOSSES DURING F.Y. 2004-05 WHICH WAS DUE TO ENDING UP OF RELATIONSHIP WITH CLIENTS AND FILING OF BANKRUPT CY BY SOME CLIENTS, HIGHER DEPRECIATION AND FINANCE CHARGES DUE TO INFR ASTRUCTURE EXPANSION ETC. BECAUSE OF THESE EXTRAORDINARY EVENTS DURING THE YEAR UNDER CONSIDERATION THE COMPANY CANNOT BE TAKEN AS COMPA RABLE DOING BUSINESS IN ORDINARY COURSE. 27 10.1 SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS IGNORED THE LOSSES INCURRED B Y THE PARENT COMPANY BINDVIEW DEVELOPMENT CORPORATION IS CONCERNED, HE S UBMITTED THAT THE SAME IS NOT RELEVANT FOR DETERMINATION OF ALP WHEN THE ASSESSEE IS TAKEN AS A TESTED PARTY AND TNMM METHOD IS SELECTED AS MO ST APPROPRIATE METHOD. AS REGARDS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO ADJUSTMENT HAS BEEN MADE FOR DIFFERENCE IN FUNCT IONS UNDERTAKEN, ASSETS EMPLOYED AND RISK ASSUMED BY COMPARABLE COMP ANIES, VIS-A-VIS THE ASSESSEE, HE SUBMITTED THAT THE ASSESSEE HAD NOT RA ISED THIS GROUND BEFORE THE TPO/ASSESSING OFFICER BUT THE SAME WAS RAISED B EFORE THE DRP. HE SUBMITTED THAT THE DRP HAD ASKED THE ASSESSEE TO SU BMIT PROBABILITY RISK ANALYSIS SO THAT RISK ADJUSTMENT SHOULD BE PROVIDED . HOWEVER, THE ASSESSEE COULD NOT PRODUCE/SUBMIT SUCH ANALYSIS AND COMPLETE SPECTRUM OF RISK FACED BY THE BUSINESS ENTITIES. 10.2 REFERRING TO PROVISIONS OF RULE 10B(3) OF THE I.T. RULES HE SUBMITTED THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO A INTERNATIONAL TRANSACTION, IF NONE OF THE DIFFERENC E, IF ANY, BETWEEN THE TRANSACTIONS BEING COMPARED OR BETWEEN THE ENTERPRI SES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PR ICE OR COST CHARGED OR PAID IN OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET OR REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIM INATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. IN THE INSTANT CASE, OUT OF 11 COMPARABLES FINALLY SELECTED BY THE TPO, 4 CASES ARE SELECTED B Y THE ASSESSEE ITSELF WITHOUT MAKING ANY ADJUSTMENT ON ACCOUNT OF SO-CALL ED DIFFERENCES. FURTHER, EVEN AFTER PROVIDING OPPORTUNITY BY THE DR P, THE ASSESSEE COULD 28 NOT DEMONSTRATE THE DIFFERENCES. THEREFORE, THE AB OVE ARGUMENTS OF THE ASSESSEE CANNOT BE ACCEPTED. 10.3 AS REGARDS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT NET WORKING CAPITAL ADJUSTMENT WAS NOT GRANTED ALTHOUGH SAME WAS NECESSARY FOR ADJUSTING THE DIFFERENCES IN FUNCTIONS OR TERMS WHICH GIVE RISE TO DIFFERENCES IN CAPITAL INTENSITIES FOR THE COMPARAB LE COMPANIES AND THE TESTED PARTY, HE SUBMITTED THAT THIS ISSUE WAS ALSO NOT RAISED BEFORE THE TPO/ASSESSING OFFICER OR DRP. HE SUBMITTED THAT TH E WORKING CAPITAL ADJUSTMENTS CANNOT BE PROVIDED AUTOMATICALLY. THE ASSESSEE IS REQUIRED TO POINT OUT THE DIFFERENCES WHICH ARE LIKELY TO MATER IALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN OR THE PROFIT ARISING FROM SUCH TRANSACTIONS IN THE OPEN MARKET AND THEN THE COMPUTATION OF REASONABLY ACCURATE ADJUSTMENT IS TO BE FURNISHED TO ELIMINATE THE MATERIAL EFFECT S OF SUCH DIFFERENCES. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE NEVER FU RNISHED THE COMPUTATION OF REASONABLY ACCURATE ADJUSTMENT. SINCE THE ASSES SEE WAS ALREADY HAVING SUFFICIENT FUNDS AND NO DEBTORS WERE LOCKED, THEREF ORE, THERE IS NO JUSTIFICATION IN ALLOWING FOR WORKING CAPITAL ADJUS TMENT. AS REGARDS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT T HE DIFFERENCE IN RISK ASSUMED BY THE COMPARABLES AND THE ASSESSEE HAS NOT BEEN CONSIDERED, HE SUBMITTED THAT THERE IS NO UNANIMITY AMONG VARIOUS INSTITUTIONS AS TO HOW TO WORK OUT RISK ADJUSTMENT BECAUSE IT IS NOT POSSI BLE TO QUANTIFY THE RISK AND NUMERICALLY ESTABLISH THE RELATIONSHIP OF RISK WITH THE PROFITS MARGIN. RELYING ON VARIOUS DECISIONS HE SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED RELIABLE WORKING WITH RESPECT TO THE RISK ADJUSTMENT, VIS-A-VIS THE COMPARABLE COMPANIES. HE SUBMITTED THAT BY APP LYING THE QUALITATIVE 29 AND QUANTITATIVE FILTERS THE IMPACT OF RISK FACTORS BETWEEN THE TAXPAYERS AND COMPARABLES CAN BE NEUTRALISED. 10.4 AS REGARDS THE GROUND RELATING TO NON APPLICAT ION OF PROVISO TO SECTION 92C(2A) IS CONCERNED WHICH REFERS TO GRANTI NG RELIEF FOR THE DOWNWARD ADJUSTMENT OF 5% FROM THE ARITHMETIC MEAN HE SUBMITTED THAT THE ISSUE NOW STANDS SETTLED AFTER THE INTRODUCTION OF THE AMENDMENT TO SECTION 92C(2A) BY THE FINANCE ACT, 2012 WITH RETRO SPECTIVE EFFECT FROM 01-04-2002 ACCORDING TO WHICH BENEFIT OF SAFE HAR BOUR OF +/- 5% IS NOT AVAILABLE TO THE ASSESSEE AS A STANDARD DEDUCTION. AS REGARDS THE GROUND RELATING TO APPLICATION OF TURNOVER FILTER FOR IDEN TIFICATION OF COMPARABLE COMPANIES, HE SUBMITTED THAT THE ASSESSEE HAS NOT D EMONSTRATED AS TO HOW THE TURNOVER HAS AFFECTED THE PRICE. 10.5 SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT CERTAIN COMPANIES WERE ACCEPTED AS COMPARABLES DURI NG A.Y. 2004-05 WHEREAS THE SAME WERE REJECTED BY THE TPO DURING TH IS YEAR, HE SUBMITTED THAT SEARCH OF THE COMPARABLES AND THE FAR ANALYSIS HAS TO BE DONE EVERY YEAR AND THE SELECTION OF THE MOST APPROPRIATE METH OD AND THE SELECTION OF COMPARABLES MAY VARY FROM YEAR TO YEAR DEPENDING UP ON THE FACTS OF THE CASE. FOR THIS PROPOSITION, HE REFERRED TO THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ADVANCE POWER DISPLAY SYSTEMS REPORTED IN 35 TAXMANN.COM 145 ORDER DATED 08-05-20 13 ACCORDING TO WHICH COMPARABLES CAN BE DIFFERENT IN DIFFERENT YEA RS AND COMPARABILITY HAS TO BE TESTED VERY YEAR. 10.6 SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE WAS NO INTENTION OF BIPL TO EVADE TAXES AS BIPL IS 100% EXPORT ORIENTED 30 UNIT REGISTERED WITH SOFTWARE TECHNOLOGY PARK SCHEM E AND ENJOYED AN EXEMPTION FROM TAX ON ITS PROFITS IN INDIA HE SUBMI TTED THAT THIS ARGUMENT OF THE ASSESSEE CANNOT BE ACCEPTED AS CORRECT. REF ERRING TO THE DECISION OF THE BANGALORE SPECIAL BENCH OF THE ITAT IN THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY SERVICES LTD. VS. ACIT REPORTED IN 1 07 ITD 141 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S HELD THAT IN VIEW OF THE SPECIFIC PROVISIONS OF FIRST PROVISO TO SECTION 92C(4), DEDUCTION UNDER CHAPTER VIA IS NOT AVAILABLE ON MOST OF THE TRANSFE R PRICING ADJUSTMENT. MOTIVE OF SHIFTING OF PROFITS OR ACTUAL SHIFTING OF PROFITS ARE NOT NECESSARY CRITERIA FOR APPLICATION OF THE TRANSFER PRICING PR OVISIONS. FURTHER, IT IS NOT ONLY THE MATTER OF PROFIT ONLY BUT OF ASSETS ALSO B ECAUSE IF CORRECT AMOUNT OF PROFIT WOULD HAVE COME, IT COULD HAVE INCREASED THE ASSETS. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE TPO/ASS ESSING OFFICER/DRP BEING IN ACCORDANCE WITH LAW SHOULD BE UPHELD. 10.7 SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT RELATED PARTY TRANSACTIONS IN THE CASE OF COMPUCOM SOFTWARE LTD. FOR THE A.Y. 2004-05 ARE 58.40% AND HENCE THIS IS NOT A COM PARABLE CASE HE SUBMITTED THAT THIS COMPARABLE WAS SELECTED BY THE ASSESSEE ITSELF. THE ASSESSEE NEVER RAISED THIS ISSUE BEFORE THE TPO/ASS ESSING OFFICER/DRP. FURTHER, THE ASSESSEE HAS NOT FURNISHED THE COPY OF THE ANNUAL REPORT BEFORE THE DRP. THE SINGLE PAGE PAPER SUBMITTED BE FORE THE TRIBUNAL IN THE PAPER BOOK DOES NOT CONTAIN THE DETAILS OF TOTA L SALES AND TOTAL EXPENSES OF THIS COMPARABLE. SINCE THE ASSESSEE HA S NOT FURNISHED RELIABLE INFORMATION OF THE ABOVE COMPANY THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME SHOULD BE EXCLUDED CANNO T BE ACCEPTED. 31 10.8 AS REGARDS THE SUBMISSION OF THE LD. COUNSEL F OR THE ASSESSEE THAT SIP TECHNOLOGIES AND EXPORTS LTD. SHOULD BE EXCLUDE D ON THE GROUND OF FUNCTIONAL DIFFERENCES HE SUBMITTED THAT THERE IS N O VIOLATION IN SPIRIT OF THE RULE MERELY BECAUSE DATA FOR THE 6 MONTHS HAVE BEEN USED. THE ASSESSEE HAS NEVER OBJECTED TO THE SELECTION OF THE COMPANY AS COMPARABLE IN THE FINAL SET OF COMPARABLES EITHER BEFORE THE T PO OR ASSESSING OFFICER OR DRP. THUS, THE ACT OF THE ASSESSEE IS AGAINST T HE PRINCIPLE OF ESTOPPELS. 10.9 AS REGARDS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT VMF SOFT TECH LTD. SHOULD BE REJECTED HE SUBMITTED THAT THE ASSESSEE HAS PLEADED BEFORE THE DRP THAT THIS COMPANY IS TO BE R EJECTED ON A WITHOUT PREJUDICE BASIS STATING THAT IF CRESSANDA SOLUTIONS WHICH HAS REPORTED LOSS OF 35% IS TO BE REJECTED, THEN THIS COMPANY WHICH H AS PROFIT OF 35.70% ALSO SHOULD BE REJECTED. THE ARGUMENT OF THE LD. C OUNSEL FOR THE ASSESSEE THAT ANNUAL REPORT OF THE COMPANY FOR THE F.Y. 2004 -05 WAS NOT AVAILABLE TILL DATE AND THEREFORE THE SAME SHOULD BE REJECTED CANNOT BE A GROUND SINCE THE ANNUAL REPORT CAN BE SOURCED FROM A PARTI CULAR REPORT DATABASE. HE SUBMITTED THAT THIS COMPANY WAS ACCEPTED BY THE ASSESSEE ITSELF AND THE ASSESSEE HAS NEVER OBJECTED TO THE SELECTION OF THE SAME AS A COMPARABLE IN THE FINAL SET OF COMPARABLES EITHER B EFORE TPO/AO OR DRP. THEREFORE, THE SAME SHOULD NOT BE ACCEPTED. 10.10 AS FAR AS ABM KNOWLEDGEWARE LTD. IS CONCERNED HE SUBMITTED THAT THE SAID COMPANY IS ENGAGED IN DELIVERY THROUGH POR TALS, CONSULTANCY IN E- GOVERNANCE, SUPPORT SERVICES IN E-GOVERNANCE ETC. A ND HOLDS INTELLECTUAL PROPERTY RIGHTS FOR SEVERAL PRODUCTS AND SOLUTIONS APART FROM ITS OWN TRADE MARK. THUS, THE ACTIVITIES OF THIS COMPANY ARE DIF FERENT FROM VMF SOFT 32 TECH LTD. THEREFORE, THE ARGUMENT OF THE LD. COUNSE L FOR THE ASSESSEE THAT ABM KNOWLEDGEWARE LTD. SHOULD BE ACCEPTED AS A COMP ARABLE CANNOT BE ACCEPTED. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER SHOULD BE UPHELD. 11. THE LD. COUNSEL FOR THE ASSESSEE IN HER REJOIND ER SUBMITTED THAT THE ASSESSEE IN ITS TP STUDY REPORT HAD GIVEN THE DETAI LS OF SEARCH PROCEDURE AND THE RESULTS OF COMPARABLE COMPANIES ALONG WITH THE SUMMARY OF SEARCH CRITERIA USED AND THE ANALYSIS OF THE COMPAR ABLE COMPANIES UNDER QUANTITATIVE AND QUALITATIVE CRITERIA. FURTHER, TH E ASSESSEE HAD ALSO FURNISHED THE DETAILED ACCEPT-REJECT MATRIX FOR 90 COMPANIES. HE SUBMITTED THAT IF THE TPO REJECTS COMPANIES ON HIS OWN USING RPT/SALES CRITERIA, HE SHOULD HAVE REJECTED COMPUCOM ALONG WI TH CALIFORNIA SOFTWARE. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FROST AND SULLIVAN INDIA PVT. LTD. V IDE ITA NO.2073/MUM/2010 SHE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THERE IS NO BASIS FOR ONLY EXCLUDING THE LOSS MAKING COMPANIES AND NOT EXCLUDING THE HIGH PROFIT MAKING COMPANIES OR COMPANIES WHICH ARE NOT AT ALL COMPARABLE CONSIDERI NG THEIR SIZE, VOLUME OF TURNOVER AND OTHER FACTORS. SIMILAR VIEW HAS BE EN TAKEN IN THE CASE OF CUMMINS TURBO TECHNOLOGIES LTD. (SUPRA) AND QUARK S YSTEM (SUPRA). 11.1 AS REGARDS THE ARGUMENT OF THE LD. DEPARTMENTA L REPRESENTATIVE THAT THE ASSESSEE HAS NOT RAISED THE GROUND RELATIN G TO RISK ADJUSTMENT BEFORE THE TPO/ASSESSING OFFICER BUT WAS RAISED BEF ORE THE DRP AND THAT THE ASSESSEE HAS NOT PROVIDED THE DETAILS FOR SUCH RISK ANALYSIS SHE SUBMITTED THAT THE ASSESSEE HAS DOCUMENTED THE FILT ERS IN RISK IN THE TP 33 DOCUMENTATION AS WELL AS IN ITS SUBMISSION AFTER QU ANTIFYING THE ADJUSTMENTS BEFORE THE TPO AS WELL AS THE DRP ON VA RIOUS STAGES. SO FAR AS THE ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTAT IVE THAT THE ASSESSEE HAS NOT RAISED THE ISSUE RELATING TO WORKING CAPITA L ADJUSTMENTS EITHER BEFORE THE TPO/AO NOR BEFORE THE DRP SHE SUBMITTED THAT WORKING CAPITAL ADJUSTMENT QUANTIFICATION WAS SUBMITTED BEF ORE THE TPO AND THE DRP. FOR THIS PURPOSE, SHE REFERRED TO PAGE 244 OF THE PAPER BOOK WHEREIN THE BALANCE SHEET OF BIPL HAS BEEN PROVIDED ACCORDING TO WHICH THE AMOUNT OF DEBTORS IS RS.7.69 CRORES AND CASH AN D BANK BALANCES IS RS.2.10 CRORES. REFERRING TO PAGE 241 OF THE PAPER BOOK SHE SUBMITTED THAT THE EMPLOYEE COSTS ARE APPROXIMATELY RS.9.88 C RORES AND THE ADMINISTRATIVE AND OTHER EXPENSES ARE RS.5.37 CRORE S, THUS, TOTALLING TO RS.15.25 CRORES, THUS APPROXIMATELY RS.15.25 CRORES FUND ARE REQUIRED FOR ROUTINE EXPENSES WITH ONLY RS.9.79 CRORES IN COLLEC TIBLE DEBTORS AND CASH HAND BANK BALANCES. THEREFORE, THE OBSERVATION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT DEBTORS ARE NOT BEING LOCKED AN D ASSESSEE IS HAVING SUFFICIENT FUNDS IS INCORRECT. REFERRING TO VARIOU S DECISIONS SHE SUBMITTED THAT WORKING CAPITAL ADJUSTMENT SHOULD BE PROVIDED TO THE ASSESSEE. FURTHER, IN ASSESSEES OWN CASE FOR A.Y. 2006-07 TH E TPO HIMSELF HAD GRANTED WORKING CAPITAL ADJUSTMENTS WHEREIN THE FAC TS ARE SIMILAR, VIS-A- VIS THE INSTANT YEAR. AS REGARDS THE SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE HAS NOT DEMONSTRAT ED AS TO HOW THE TURNOVER HAS EFFECTED THE PRICE SHE SUBMITTED THAT THE ASSESSEE HAS ALWAYS PRESSED UPON TO ACCEPT OR REJECT COMPARABLES ON MUL TIPLE GROUNDS PRIMARILY BASING ON THE CRITERIA FOR ACCEPTING/REJE CTING COMPARABLES ON FUNCTIONAL DIS-SIMILARITY, APPLICATION OF RPT FILTE R, USE OF CONCERNED YEAR 34 RELEVANT DATA ETC. SHE SUBMITTED THAT APPLICATION OF THE TURNOVER FILTER IS ONLY AN ADDITIONAL POINTER TO GET THE OVERALL PICTU RE OF THE COMPARABLE VIS- A-VIS THE ASSESSEE. 11.2 SO FAR AS THE ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTATIVE REGARDING INCLUSION OF CERTAIN COMPANIES AND EXCLUS ION OF THE COMPARABLES SELECTED BY THE ASSESSEE IS CONCERNED S HE SUBMITTED THAT THOSE ARE NOT BASED ON SOUND AND LEGAL PRINCIPLES. THE ASSESSEE HAS CORRECTLY DONE ITS TP ANALYSIS BY TAKING THE COMPAR ABLES. SHE ACCORDINGLY SUBMITTED THAT THE TP ANALYSIS DONE BY THE ASSESSEE BEING IN ACCORDANCE WITH LAW SHOULD BE UPHELD AND THE ADJUSTMENT MADE B Y THE ASSESSING OFFICER TO THE ALP OF THE INTERNATIONAL TRANSACTION SHOULD BE DELETED. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE TPO/AO/DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE A SSESSEE IS ENGAGED IN THE EXPORT OF NETWORK SECURITY AND ADMINISTRATIVE SOFTW ARE SOLUTIONS WHICH ARE DEVELOPED EXCLUSIVELY FOR THE PARENT COMPANY BD C. WE FIND FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE THE A SSESSEE BENCHMARKED 11 COMPARABLES AND DETERMINED THE AVERAGE ARITHMETI C MEAN AT 10.30%. SINCE THE MEAN OPERATING PROFIT/TOTAL COST OF COMPA RABLE COMPANIES WAS LESS THAN THE OP/TC OF 12.90% OF THE ASSESSEE IT WA S CONTENDED THAT ITS INTERNATIONAL TRANSACTION RELATING TO SOFTWARE DEVE LOPMENT SERVICES IS AT ARMS LENGTH PRICE. WE FIND THE TPO DID NOT ACCEPT THE COMPARABLES GIVEN BY THE ASSESSEE AND MADE FURTHER SEARCH TO FI ND MORE COMPARABLES TO BROADBASE THE DATA AND ARRIVE AT PROPER BENCHMAR KING OF THE 35 INTERNATIONAL TRANSACTIONS. FOR THE ABOVE PURPOSE HE CONSIDERED 14 COMPANIES AS COMPARABLES. WHEN THE MATTER WENT TO THE DRP IT DIRECTED THE TPO TO CONSIDER 11 COMPANIES AS COMPARABLES WHI CH INCLUDES 4 COMPANIES ORIGINALLY SELECTED BY THE ASSESSEE. AS PER THE DIRECTION OF THE DRP, THE MEAN OF MARGIN EARNED BY THE FINAL SET OF COMPARABLES COMES TO 26.07% AS AGAINST THE MARGIN EARNED BY THE ASSESSEE AT 12.40%. ACCORDINGLY, THE ADDITION OF RS.2,09,61,689/- WAS M ADE TO THE TOTAL INCOME OF THE ASSESSEE BEING THE DIFFERENCE IN THE ALP. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS CHERRY PICKED NEW/ADDITIONAL COMPARABLES WITH H IGH PROFITS, THUS, WITH HIGH OP/TC AND THE SAME IS NOT TRANSPARENT AND THEREFORE THESE CANNOT BE CONSIDERED AS COMPARABLES. IT IS ALSO TH E CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SOME OF THE COMPANIES TAKEN AS COMPARABLES HAVE BEEN REJECTED BY THE TRIBUNAL IN ASSESSEES OW N CASE IN THE SUBSEQUENT YEARS AND SOME OTHER COMPANIES HAVE BEEN CONSIDERED AS NOT COMPARABLE BY DIFFERENT BENCHES OF THE TRIBUNAL. F URTHER, THERE ARE NO FUNCTIONAL SIMILARITY BETWEEN THE COMPANIES SELECTE D BY THE ASSESSING OFFICER AND THE ASSESSEE COMPANY. 12.1 WE FIND BASED ON THE DIRECTIONS OF THE DRP, TH E ASSESSING OFFICER HAS CONSIDERED 9 COMPANIES AS COMPARABLES, ACCORDIN G TO WHICH THE ARITHMETIC MEAN COMES TO 22.86%. SO FAR AS ICSA (I NDIA) LTD AS TAKEN BY THE TPO AND THE DRP IS CONCERNED WE FIND THE TRI BUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 HAS REJECTED THE SAME AS A COMPARABLE BECAUSE OF CROSSING THE R&D/SALES THRESHOLD OF 3%. DURING A.Y. 2005-06 SUCH RATIO COME TO 7%. 36 12.2 WE FIND THE PUNE BENCH OF THE TRIBUNAL VIDE IT A NO.1386/PN/2010 ORDER DATED 30-11-2011FOR A.Y. 2006 -07 WHILE DIRECTING THE TPO TO EXCLUDE ICSA(INDIA) LTD AS A C OMPARABLE AT PARA 15 OF THE ORDER HAS OBSERVED AS UNDER : 15. ANOTHER ISSUE RAISED IS REGARDING THE INCLUSION OF ICSA (INDIA) LTD. AS A COMPARABLE BY THE TPO. THE INCLUSION OF THE SAID COMPARABLE IS ASSAILED BY THE ASSESSEE ON THE GROUND THAT THE TURN OVER OF THE SAID COMPANY EXCEEDS RS 50 CRORES AND FURTHER THAT THE R ESEARCH AND DEVELOPMENT EXPENSES OF THIS COMPANY IS IN EXCESS OF 3 % OF SALES. THE DETAILED FACTUAL ANALYSIS ON THIS ASPECT IS PLACED AT PAGES 183 TO 184 OF THE PAPER BOOK. THE TPO HAS INCLUDED THE SAID COMPANY ON THE GROUND THAT IT IS IN THE BUSINESS OF SOFTWARE AND EMBEDDED SYSTEM DEV ELOPMENT ACTIVITY AND SUCH TYPE OF SERVICE IS WHAT IS PROVIDED BY THE ASS ESSEE COMPANY ALSO. IN THIS CASE, THE SUMMARY OF SEARCH STRATEGY REVEALS THAT ASSESSEE HAS EXCLUDED COMPARABLES WHEREIN THE SALES ARE LESS THAN RS ONE CRORE AND ALSO WHERE THE SALE ARE IN EXCESS OF RS 50 CRORES. T HE FILTERS SO SET-UP BY THE ASSESSEE ARE SOUGHT TO BE JUSTIFIED N THE GROUND THAT THE TURNOVER OF THE ASSESSEE IS RS 24.48 CRORES FROM SOFTWARE DEVELO PMENT SERVICES. WE HAVE EXAMINED THE CASE SET-UP BY THE ASSESSEE AND FIN D THAT NO REASONS HAVE BEEN ADVANCED BY THE TPO TO DO AWAY WITH THE FIL TER ADOPTED BY THE ASSESSEE ON THE BASIS OF THE TURNOVER OF THE COMPARA BLES. WITHOUT REJECTING THE MERITS OF THE FILTERS SO ADOPTED, THE TP O IS NOT JUSTIFIED, ON A SELECTIVE BASIS, TO IGNORE SUCH FILTER AND ADOPT A COMP ARABLE COMPANY SUCH AS ICSA (INDIA) LTD. FOR THE PURPOSES OF COMPARING INT ERNATIONAL TRANSACTION IN QUESTION WHICH FALLS OUTSIDE THE SEARCH M ATRIX. EVEN WITH REGARD TO THE FILTER APPLIED BY THE ASSESSEE ON THE B ASIS OF THE LEVEL OF R & D EXPENSES THE SITUATION REMAINS THE SAME. THEREFORE, ONCE THE TPO HAS ACCEPTED SUCH FILTERS IN PRINCIPLE, CLEARLY ITS APPLICATIO N IS UNJUSTLY IGNORED BY HIM WHILE INCLUDING ICSA (INDIA) LTD. AS A COMPARABLE COMPANY. WE, THEREFORE, DIRECT THE TPO TO EXCLUDE ICSA (INDIA) LT D. FROM THE FINAL SET OF COMPARABLES. 12.3 SINCE IN THE IMPUGNED ASSESSMENT YEAR R&D/SALE S THRESHOLD COMES TO 7%, THEREFORE, IN VIEW OF THE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE IN THE SUBSEQUENT YEAR ICSA(INDIA) LTD IN OUR OPINION CANNOT BE CONSIDERED AS A COMPARABLE. WE ACCORDINGLY HOLD TH AT THIS CANNOT BE CONSIDERED AS A COMPARABLE FOR DETERMINING THE ARM S LENGTH PRICE. 12.4 SO FAR AS INCLUSION OF SIP TECHNOLOGIES LTD IS CONCERNED WE FIND NO RELEVANT DATA FOR A.Y. 2004-05 IS AVAILABLE SINCE T HE COMPANY HAD CLOSED ITS BOOKS OF ACCOUNTS FOR THE YEAR ENDING 30-09-200 4 AND SUBSEQUENTLY CLOSED ITS BOOKS OF ACCOUNTS ONLY FOR THE YEAR ENDI NG 31-03-2006 WHICH IS 37 FOR A PERIOD OF 18 MONTHS. WE, THEREFORE FIND MERI T IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SIP TECHNOLOG IES AND EXPORTS LTD. SHOULD NOT BE CONSIDERED AS A COMPARABLE AND HAS TO BE REJECTED ALTHOUGH THE SAME WAS CONSIDERED BY THE ASSESSEE ITSELF WHIL E PREPARING THE T.P. REPORT. WHEN THE TPO REJECTED CERTAIN COMPANIES AS NOT COMPARABLE, THEREFORE, WE FIND NO REASON WHY SIP TECHNOLOGIES L TD. SHOULD NOT BE EXCLUDED FROM THE LIST OF COMPARABLES WHEN THE RESU LTS OF THE ENTIRE YEAR IS NOT AVAILABLE. 12.5 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. (SUPRA) AT PARA 9 OF THE ORDE R HAS OBSERVED AS UNDER : 9. WE HAVE GIVEN SERIOUS CONSIDERATION TO RIVAL CONTENT IONS OF THE PARTIES. IN THIS COMPLICATED FIELD OF TRANSFER PRICING, THE TAXPAYER HAS RAISED ONLY A LIMITED ISSUE RELATING TO EXCLUSION OF WELL WIN INDUSTRY LTD. AS A COMPARABLE. ALL OTHER OBJECTIONS RAISED BEFORE RE VENUE AUTHORITIES HAVE BEEN GIVEN UP. NEITHER THE SELECTION OF MOST APPROPRIA TE METHOD (TNMM), NOR ANY PARAMETERS OF SELECTION HAVE BEEN CHALLENGED BEFORE US BY THE LEARNED COUNSEL FOR THE TAXPAYER. AS REGARDS THE Q UESTION OF NOT CONSIDERING PROFIT/LOSSES OF WELLWIN INDUSTRY LTD., FOR THE PERIOD ENDING MARCH 31, 2004, IT IS AN ADMITTED POSITION THAT RESULTS OF THAT ENTERPRISE FOR THE RELEVANT PERIOD ARE NOT AVAILABLE. THE PARTY AFTER SEPTEMBER, 2003 MAINTAINED ACCOUNTS FOR 18 MONTHS AND CLOSED ITS ACCOU NT ONLY ON MARCH 31, 2005. THE COMPANY DID NOT MAINTAIN SEPARATE ACCOU NTS FOR THE PERIOD MARCH 31, 2004. THE TAXPAYER DID TRY TO WORK OUT TH E ALLEGED LOSSES OF THE CONCERN FOR THE PERIOD ENDING MARCH 31, 2004 ON SOME BASIS BY TAKING AVERAGE OF PROFITS BUT WAS UNABLE TO SHOW TO THE REV ENUE AUTHORITIES THAT FIGURES SO ARRIVED AT WERE CORRECT AND RELIABLE FOR CO MPARISON. DURING THE COURSE OF HEARING OF THE APPEAL, WE HAD ALSO ASKED T HE LD. COUNSEL TO GIVE WORKING OF RESULTS OF THE CONCERN FOR THE RELEVANT P ERIOD ON SOME SOUND BASIS, BUT THE LD. COUNSEL SHOWED HIS INABILITY TO DO SO . HE CONCEDED THAT RESULTS OF THE CONCERN ARE NOT AVAILABLE IN THE PUBLIC DOMAIN. IF THAT IS THE POSITION, WE SEE NO FORCE IN THE OBJECTION OF THE TAXPA YER TO NON INCLUSION OF WELLWIN INDUSTRY LTD. IN THE LIST COMPARABLES FOR WORKING MEAN MARGIN OF OPERATING PROFIT UNDER TNM METHOD. 12.6 SIMILAR VIEW HAS BEEN TAKEN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PVT. LTD. VIDE ITA NO.1605/PN/2011 ORDER DATED 30-04-2013AND HAS OBSERVED HAS UNDER : 38 23. THE NEXT POINT MADE BY THE ASSESSEE IS WITH REGAR D TO INCLUSION OF TRANSWORLD INFOTECH LTD., APPEARING AT ITEM (10) IN TH E TABULATION IN PARA 10, AS A COMPARABLE CASE. THE TPO, AS PER HIS DISCUS SION IN PARA 6.3.22 OF THE ORDER, HAS INCLUDED THE SAID CONCERN IN THE LIST O F COMPARABLES ON THE GROUND THAT IT WAS FUNCTIONALLY SIMILAR TO THE ASSESSE ES IT-SERVICES SEGMENT. THE SHORT POINT MADE BY THE ASSESSEE BEFORE US IS TO THE EFFECT THAT THE SAID CONCERN WAS NOT INCLUDIBLE BECAUSE THE A SSESSEES FINANCIAL PERIOD IS FROM 1.4.2006 TO 31.3.2007, WHEREAS THE REL EVANT DATA OF THE SAID CONCERN WHICH HAS BEEN CONSIDERED IS FOR THE PERIOD 1.7 .2006 TO 30.06.2007. IT WAS THEREFORE POINTED OUT THAT SINCE T HE DATA OF THE COMPARABLE CONCERN DOES NOT CORRESPOND TO THE FINANC IAL YEAR OF THE ASSESSEE, THE SAID CONCERN IS INCOMPARABLE. FACTUALLY, THE AFORESAID POSITION IS NOT DISPUTED BY THE REVENUE. IN FACT THE PR OVISIONS OF RULE 10B(4) OF THE INCOME TAX RULES, 1963 (IN SHORT THE RULES) PROVIDE THAT THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. IN THE PRESENT CASE, THE DATA ADOPTED OF TRANS WORLD INFOTECH LTD. DOES NOT RELATE TO THE FINANCIAL YEAR IN WHICH THE INTER NATIONAL TRANSACTION HAS BEEN CARRIED OUT BY THE ASSESSEE. ON THIS POINT TH E SAID CONCERN IS EXCLUDIBLE FROM THE LIST OF COMPARABLES AND WE ALSO F IND THAT THE TPO HAS ADOPTED SUCH AN APPROACH WHILE EXCLUDING POWERSOFT GL OBAL SOLUTIONS LTD. FROM THE LIST OF COMPARABLES AS PER DISCUSSION IN PARA 6.3.7. OF THE IMPUGNED ORDER. 12.7 SO FAR AS VMF SOFT TECH LTD. IS CONCERNED WE F IND IT IS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT I F SUPER LOSS MAKING CONCERNS ARE EXCLUDED THEN IN THAT CASE SUPER PROFI T MAKING CONCERNS ARE ALSO TO BE EXCLUDED. WE FIND MERIT IN THE ABOVE SU BMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THE ASSESSING OF FICER EXCLUDED CRESSANDA SOLUTIONS LTD. AS A COMPARABLE ON THE GRO UND THAT THE COMPANY HAS INCURRED LOSSES IN THE RELEVANT YEAR DUE TO EXT RAORDINARY REASONS LIKE WINDING UP OF RELATIONSHIP WITH CLIENTS, FILING OF BANKRUPTCY BY SOME CLIENTS, HIGHER DEPRECIATION AND FINANCE CHARGES DU E TO INFRASTRUCTURE EXPANSION. IF THIS LOGIC ACCORDING TO ASSESSING OF FICER IS ACCEPTED, THEN WE FIND NO REASON AS TO WHY THE SUPER PROFIT MAKING COMPANY VMF SOFT TECH LTD. SHOULD NOT BE EXCLUDED FROM THE LIST OF C OMPARABLES. SINCE BOTH THESE COMPANIES WERE TAKEN BY THE ASSESSEE AS COMPARABLES, THEREFORE, IN OUR OPINION SIMILAR VIEW SHOULD BE TA KEN FOR BOTH THE COMPARABLES. 39 12.8 WE FIND THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SAPIENT CORPORATION PVT. LTD. (SUPRA) AT PARA 8.1 OF THE OR DER HAS OBSERVED AS UNDER : 8.1 NOW IT IS THE CONTENTION OF THE ASSESSEE THAT WHEN LOSS MAKING COMPANIES WERE TAKEN OUT FROM THE COMPARABLES BY THE TPO, THE SUPER PROFIT EARNING COMPANY, ZENITH INFOTECH LTD. SHOULD ALSO BE REMOVED FROM THE COMPARABLES. LD. COUNSEL OF THE ASSESSEE FURTHER CLAIM ED THAT THIS COMPANY DOES NOT SATISFY TPO'S OWN ADDITIONAL FILTERS. I T HAS BEEN SUBMITTED THAT ZENITH INFOTECH LTD. HAS SHOWN ABNOR MAL HIGH PROFIT MARGIN. IT HAS BEEN SUBMITTED THAT ZENITH INFOTECH LTD. IS PRE DOMINANTLY SOFTWARE PRODUCT COMPANY, WHILE THE ASSESSEE IS ENGAGED IN REN DERING SOFTWARE DEVELOPMENT SERVICES. IT HAS BEEN SUBMITTED THAT SOF TWARE PRODUCT COMPANY ENDS UP EARNING HIGHER MARGIN AS THEY ARE ENGA GED IN THE SELLING OF OF SOFTWARE PRODUCTS OWNED BY THEM. UPO N CAREFUL CONSIDERATION, WE FIND OURSELVES IN AGREEMENT WITH THE A SSESSEES CONTENTION THAT WHEN THE LOSS MAKING COMPANIES HAVE BE EN TAKEN OUT FROM THE LIST OF COMPARABLES BY THE TPO. ZENITH INFO TECH LTD. WHICH SHOWED SUPER PROFITS SHOULD ALSO BE EXCLUDED. 12.9 WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF CUMMINS TURBO LTD. (SUPRA) AT PARA 14 OF THE ORDER HAS HELD THAT AS THE SUPER PROFIT COMPANY SHOULD NOT BE INCLUDED THE SAME WAY SUPER L OSS MAKING COMPANY SHOULD ALSO BE EXCLUDED. 12.10 WE FIND THE CHANDIGARH SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF QUARK SYSTEM LTD. (SUPRA) HAS HELD THAT IF ABNOR MAL LOSS MAKING COMPANIES ARE EXCLUDED THEN ABNORMAL PROFIT MAKING COMPANIES ARE ALSO TO BE EXCLUDED. THE ASSESSEE CANNOT BE ESTOPPED FR OM REJECTING THE COMPARABLES ACCEPTED BY ITSELF IN THE STUDY. THE R ELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 30 OF THE ORDER READS AS UNDER : 30. LEARNED SPECIAL COUNSEL FOR THE REVENUE SHRI KAP ILA HAS VEHEMENTLY ARGUED THAT 'DATAMATICS' WAS TAKEN AS ONE OF THE COM PARABLES BY THE TAXPAYER AND NO OBJECTION TO ITS INCLUSION WAS RAISED BE FORE THE TPO OR BEFORE THE LEARNED CIT (APPEALS) IN APPEAL. THEREFOR E, THE TAXPAYER SHOULD NOT BE PERMITTED TO RAISE ADDITIONAL GROUND AND ASK FO R EXCLUSION OF THE ABOVE ENTERPRISE IN THE DETERMINATION OF THE AVERAGE MA RGINS. WE ARE UNABLE TO ACCEPT ABOVE CONTENTION. IN THE FIRST PLACE , THESE ARE INITIAL YEARS OF IMPLEMENTATION OF TRANSFER PRICING LEGISLATION IN INDIA AND TAXPAYERS AS WELL AS TAX CONSULTANTS WERE NOT FULLY CONVERSAN T, WITH THIS NEW BRANCH OF LAW WHEN PROCEEDINGS WERE INITIATED OR EVEN AT APPEL LATE STAGE. BESIDES, REVENUE AUTHORITIES, INCLUDING TPO WERE REQUIRED TO APPL Y STATUTORY 40 PROVISIONS AND CONSIDER FOR PURPOSES OF COMPARISON FUNC TIONS, ASSETS AND RISKS (TURNOVER), PROFIT AND TECHNOLOGY EMPLOYED BY T HE TESTED PARTY AND OTHER ENTERPRISES TAKEN AS COMPARABLE STATUTORY DUTY IS CAST ON THEM TO UNDERTAKE ABOVE EXERCISE. THIS HAS NOT BEEN DONE IN T HIS CASE. WE WOULD ONLY SAY THAT PRIMA FACIE, AS PER THE MATERIAL, TO WHIC H REFERENCE HAS BEEN DRAWN BY SHRI AGGARWAL. DATAMATICS DOES NOT APPEAR TO BE COMPARABLE. EVEN IF THE TAXPAYER OR ITS COUNSEL HAD TAKEN DATAMAT ICS AS COMPARABLE IN ITS I P AUDIT, THE TAXPAYER IS ENTITLED TO POINT OUT T O THE TRIBUNAL THAT ABOVE ENTERPRISE HAS WRONGLY BEEN TAKEN AS COMPARABLE. IN FACT THERE ARE VAST DIFFERENCES BETWEEN TESTED PARTY AND THE DATAMATICS. THE CASE OF DATAMATICS IS LIKE THAT OF 'IMERCIUS TECHNOLOGIES' REPRE SENTING EXTREME POSITIONS. IF IMERCIUS TECHNOLOGIES HAS SUFFERED HEAVY LOSSES AND, THEREFORE, IT IS NOT TREATED AS COMPARABLE BY THE TAX AUTHORITIES, THEY ALSO HAVE TO CONSIDER THAT THE DATAMATICS HAS EARNED EXTRA ORDINARY PROFIT AND HAS A HUGE TURNOVER. BESIDES DIFFERENCES IN ASSETS AND OTHER CHARACTERISTICS REFERRED TO BY SHRI AGGARWAL. THE INCO ME-TAX APPELLATE TRIBUNAL IS A FACT-FINDING BODY AND, THEREFORE, HAS TO TAKE INTO ACCOUNT ALL THE RELEVANT MATERIAL AND DETERMINE THE QUESTION AS PE R THE STATUTORY REGULATIONS. 12.11 SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BEN CH OF THE TRIBUNAL IN THE CASE OF FROST & SULLIVAN INDIA PVT. LTD. WHE RE IT HAS BEEN HELD THAT IF ABNORMAL LOSS MAKING COMPANIES ARE EXCLUDED ABNO RMAL PROFIT MAKING COMPANIES ARE ALSO TO BE EXCLUDED. 12.12 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IF CRESSANDA SOLUTIONS LTD. IS EXCLUD ED AS A COMPARABLE THEN VMF SOFT TECH LTD. WHICH SHOWS THE PROFIT MARGIN OF 35.70% ALSO SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 12.13 NOW COMING TO THE EXCLUSION OF ABM KNOWLEDGEW ARE LTD. WE FIND IT WAS TAKEN BY THE ASSESSEE AND REJECTED BY T HE TPO/DRP AS A COMPARABLE. WE FIND THE SAME WAS REJECTED BY THE RE VENUE AUTHORITIES ON THE GROUND THAT THE COMPANY IS BASICALLY INTO E-GOV ERNANCE SECTION AND AS WELL AS THE PRODUCT COMPANY. FURTHER, THE COMPANY HOLDS INTELLECTUAL PROPERTY RIGHTS FOR SEVERAL PRODUCTS AND SOLUTIONS AND THEREFORE THE FUNCTIONS OF ABM KNOWELDGEWARE LTD. ARE NOT COMPARA BLE WITH THAT OF 41 BIPL. FROM THE VARIOUS DETAILS FURNISHED BY THE AS SESSEE WE FIND THE ASSESSEE HAD VERY CLEARLY BROUGHT OUT THAT THE COMP ANY IS IN SOFTWARE SERVICES. PAGE 26 OF THE ANNUAL REPORT SHOWS THAT THE COMPANY HAS DISCONTINUED ITS SALE OF IT PRODUCTS DIVISION WHICH CLEARLY DEMONSTRATES THAT THE COMPANY IS INTO IT SERVICES AND NOT SALE O F IT PRODUCTS. WE AGREE WITH THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSE SSEE THAT MERELY BECAUSE END CUSTOMER IS A GOVERNMENT AGENCY IT WILL NOT RENDER THE COMPANY AS FUNCTIONALLY NOT COMPARABLE TO BINDVIEW. FURTHER, WHEN VMF SOFT TECH LTD. WHICH IS ALSO INTO E-GOVERNANCE WAS RETAINED BY THE TPO AS A COMPARABLE, THEN WE FAIL TO UNDERSTAND AS TO WHY BY FOLLOWING THE SAME LOGIC ABM KNOWLEDGEWARE LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT ABM KNOWLEDGEWARE LTD. (SEG.) SHOULD BE RETAIN ED AS A COMPARABLE. 12.14 AS REGARD ONTRACK SYSTEMS LTD. IS CONCERNED, WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE SAME WAS ACCEPTABLE AS A COMPARABLE IN THE A.Y. 2004-05 AND WHEN THERE IS NO CHANGE IN THE BUSINESS ACTIVITY DURING THE A.Y. 200 5-06, THEREFORE, THE SAME SHOULD NOT BE EXCLUDED. WE THEREFORE DIRECT T HE AO TO CONSIDER ONTRACK SYSTEMS LTD. AS A COMPARABLE. 12.15 AFTER CONSIDERING THE ABOVE WE FIND THE FINAL LIST OF COMPARABLES COME AS UNDER: SR.NO. NAME OF THE COMPANY F.Y. 2004-05 1 ABM KNOWLEDGEWARE LTD. (SEG) 3.03% 2 COMPUCOM SOFTWARE LTD.(SEG) 28.62% 3 COMPUTECH INTERNATIONAL 9.24% 4 GEOMETRIC SOFTWARE SOLUTIONS LTD. 29.99% 5 GOLDSTONE TECHNOLOGIES LTD. 3.53% 42 6 ORIENT INFORMATION TECHNO LTD. 15.29% 7 VISUAL SOFT TECHNOLOGY 23.52% 8 ONTRACK SYSTEMS LTD. 4.35 TOTAL 117.57 AVERAGE (ARITHMETIC MEAN) 14.69% 12.16 WE FIND IN THE A.Y. 2006-07 THE TRIBUNAL IN A SSESSEES OWN CASE HAS CONSIDERED +/-5% SAFE HARBOUR PROVIDED UNDER 92 C(2) OF THE I.T. ACT. FURTHER, THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT DURING A.Y. 2006-07 THE AO HIMSELF HAS ALLOWED WORKING CAP ITAL ADJUSTMENT TO THE ASSESSEE COULD NOT BE CONTROVERTED BY THE LD. D EPARTMENTAL REPRESENTATIVE. CONSIDERING THE ABOVE AND CONSIDER ING THE FACT THAT THE ARITHMETIC MEAN OF THE ASSESSEE SHOWN AT 12.40% IS NEAR TO THE ARITHMETIC MEAN DETERMINED AT 14.69% AS PER PARA 12 .15 ABOVE WE ARE OF THE CONSIDERED OPINION THAT NO ADJUSTMENT IS REQUIR ED TO THE INTERNATIONAL TRANSACTION OF THE ASSESSEE AS THE ASSESSEE WOULD B E AT ARMS LENGTH FROM THE INDIAN TRANSFER PRICING PERSPECTIVE. WE, THERE FORE, DO NOT DWELL UPON THE OTHER ASPECTS RAISED BY THE ASSESSEE AS IT GETS NECESSARY RELIEF. 13. SO FAR AS GROUNDS OF APPEAL NO.19 IS CONCERNED THE SAME RELATES TO CHARGING OF INTEREST U/S.234 OF THE I.T. ACT. 13.1 AFTER HEARING BOTH THE SIDES, WE FIND CHARGING OF INTEREST U/S.234B IS MANDATORY AND CONSEQUENTIAL IN NATURE. THEREFOR E, THIS GROUND BY THE ASSESSEE IS DISMISSED. 14. GROUNDS OF APPEAL NO. 20 TO 22 BY THE ASSESSEE RELATES TO ADJUSTMENT OF EXCESS DEDUCTION U/S.10B OF RS.6,50,0 37/- WE FIND THE ASSESSING OFFICER MADE THE ADJUSTMENT ON ACCOUNT OF DEDUCTION U/S.10B BY REDUCING THE IAC/TELECOMMUNICATION CHARGES FROM THE EXPORT TURNOVER OF THE COMPANY. IT IS THE SUBMISSION OF THE LD. CO UNSEL FOR THE ASSESSEE 43 THAT IN VIEW OF THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. REPOR TED IN 330 ITR 175 IF THE TELECOMMUNICATION CHARGES ARE REDUCED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVE R. WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSES SEE. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SYMEN TEX SOFTWARE INDIA PVT. LTD. VIDE ITA NO.787/PN/2009 ORDER DATED 30-11 -2011 FOR A.Y. 2004-05 FOLLOWING THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA) HAS D IRECTED TO EXCLUDE TELECOMMUNICATION CHARGES FROM THE TOTAL INCOME. T HE RELEVANT OBSERVATION OF THE TRIBUNAL READS AS UNDER : 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS AND FIND THAT THE ISSUE IS LIABLE TO BE DECIDED IN THE LIGHT OF THE REASO NING PROPOUNDED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA). IN THE CASE BEFORE THE HONBLE HIGH COU RT, THE ISSUE RELATED TO THE EXCLUSION OF FREIGHT AND INSURANCE CHARGES FROM TH E FIGURE OF TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING DEDUCTION UND ER SECTION 10A OF THE ACT. IN THAT CASE, THE ASSESSING OFFICER WHILE COMP UTING DEDUCTION UNDER SECTION 10A OF THE ACT REDUCED THE ELEMENT OF FREIGHT AND INSURANCE CHARGES FROM THE FIGURE OF EXPORT TURNOVER, BUT DI D NOT MAKE SIMILAR ADJUSTMENT FROM THE FIGURE OF TOTAL TURNOVER. THE REVENUE SOUGHT TO JUSTIFY THIS ACTION ON THE PLEA THAT IN TERMS OF THE D EFINITION OF THE EXPRESSION EXPORT TURNOVER IN EXPLANATION 2 (IV) TO SECTION 10A THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AN D INSURANCE CHARGES, WHEREAS, NO SUCH PRESCRIPTION WAS AVAILABLE IN THE SECTI ON FOR THE PURPOSES OF THE TOTAL TURNOVER. THE HONBLE HIGH C OURT NEGATED THE AFORESAID ARGUMENT AND HELD THAT THE EXPRESSION EXPOR T TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA CONTAINED IN SECTION 10A(4) OF THE ACT. THE FOLLOWING DISCUSSION CO NTAINED IN PARA 7 OF THE JUDGMENT IS WORTHY OF NOTICE: 7. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF O F THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO B E EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PR OVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, M ISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOWEVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDE S FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMEN T AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUEN T PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION TO THE C ONTRARY. HOWEVER, NO 44 SUCH PROVISION HAVING BEEN MADE, THE PRINCIPLE WHIC H HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTO RY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VI Z. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATI ON OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUA TION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN A S PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TUR NOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. 32. APPLYING THE AFORESAID REASONING LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT TO THE PRESENT CASE, WE HOLD THAT THE IMPUGNED TWO ITEMS, NAMELY, TELECOMMUNICATION CHARGES RS 1,50 ,40,083/- AND EXPENSES INCURRED IN FOREIGN CURRENCY RS 1,60,08,51 9/- ARE LIABLE TO BE EXCLUDED FROM THE FIGURE OF TOTAL TURNOVER ALSO FO R THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. AS A RESULT, ASSESSEE SUCCEEDS ON THIS GROUND. 14.1 RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE AO TO EXCLUDE IAC/TELECOMMUNICATION CHARGES FROM THE TOTAL TURNOV ER FOR COMPUTING DEDUCTION U/S.10B. THE GROUNDS RAISED BY THE ASSES SEE ARE ACCORDINGLY ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26-06-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PAND A) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 26 TH JUNE, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. DRP, PUNE 4. THE D.R, B PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE