Contata Solutions Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1565/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7367 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP KR MISHRA
• Keywords: Related party transaction; Transfer pricing; International transaction
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I-1, NEW DELHI BEFORE SHRI G.D.AGRAWAL, VICE PRESIDEN T AND SMT. BEENA A PILLAI, JUDICIAL MEMBE R ITA NO. 1565/DEL/2015 AY: 2010-11 CONTATA SO LUTIONS PVT.LTD. A-16/9, VASANT VIHAR NEW DELHI 110 057 PAN:AABCC8222C VS . ITO, WARD 6(3), ROOM NO.376A CENTRAL REVENUE BUILDING I.P.ESTATE NEW DELHI 110 002 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ATUL NINAWAT, C.A. DEPARTMENT BY : SH. SANDEEP KR. MISHRA, SR.D.R. DATE OF HEARING : 18/12/2018 DATE OF PRONOUNCEMENT : 15/01/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST F INAL ASSESSMENT ORDER DATED 31/03/10 PASSED BY LD. ITO W ARD 6 (3), NEW DELHI UNDER SECTION 143 (3) READ WITH 140 4C OF THE ACT, ON FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IS B AD IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. TRANSFER PRICING OFFICER/ LD. ASSESSIN G OFFICER HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DETERMINING THE ARMS LENGTH ADJUSTMENT TO ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 2 THE APPELLANTS INTERNATIONAL TRANSACTION FROM ASSOCIATED ENTERPRISES AND THEREBY RESULTING IN THE ENHANCEMENT OF RETURNED INCOME OF THE APPELLANT COMPANY BY RS. 52,25,570/-. 3. THE LD. ASSESSING OFFICER HAS COMPLETELY IGNOR ED THE FACTS IN THE SUBMISSIONS MADE BEFORE HIM AND PROCEEDED TO MAKE TRANSFER PRICING ADJUSTMENT ON TH E BASIS OF TPOS ORDER. 4. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN FACTS AND IN LAW TO REJECT, BASED ON HIS SUBJECTIVE GROUN DS AND PRESUMPTIONS, THE ECONOMIC ANALYSIS CONDUCTED BY THE APPELLANT FOR DETERMINATION OF THE ARMS LEN GTH PRICE. 5. THE LD. TRANSFER PRICING OFFICER HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE APPROPRIATE FILTERS AS APPLIED BY THE APPELLANT AND FURTHER MODIFYING THE FILTERS ARBITRARILY WITHOUT P ROPER APPRECIATION OF THE FACTS, LAW AND COMMERCIAL REALI TY. 6. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN LAWS AND FACTS OF THE CASE BY REJECTING THE COMPARABLES SUBMITTED IN A FRESH AND COMPREHENSIVE STUDY CONDUCTED BY THE APPELLANT FOR ASCERTAINING ARMS LENGTHS PRICE. 7. THE LD. TRANSFER PRICING OFFICER HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE BY CONSIDERING COMPANIES HAVING VERY HIGH TURNOVER AS COMPARABLES. 8. THE LD. TRANSFER PRICING OFFICER HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE BY ERRONEOUSLY COMPUTING RELATED PARTY TRANSACTIONS OF COMPANIES SELECTED BY HIM 9. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN LAWS AND FACTS OF THE CASE BY IGNORING FUNCTIONS, ASSETS AND RISK PROFILE OF COMPANIES SELECTED BY LD.TPO COMPARABLES AND THAT OF APPELLANT. 10. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN LAWS AND FACTS OF THE CASE BY IGNORING THE DIFFERENCES BETWEEN RISK PROFILE OF APPELLANT AND COMPANIES SELECTED BY HIM AS COMPARABLES AND DENYING ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 3 ADJUSTMENT ON ACCOUNT OF SUCH DIFFERENCES IN RISK PROFILES. 11. THE LD. TRANSFER PRICING OFFICER HAS ERRED IN LAWS AND FACTS OF THE CASE BY IGNORING THE DIFFERENCES BETWE EN WORKING CAPITAL REQUIREMENTS OF APPELLANT AND COMPANIES SELECTED BY HIM AS COMPARABLES AND DENYING ADJUSTMENT ON ACCOUNT OF SUCH DIFFERENCES I N WORKING CAPITAL REQUIREMENTS 12. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EAC H OTHER. 13. THE APPELLANT MAY BE ALLOWED TO ADD/AMEND/WITHDRAW ANY GROUNDS AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED ITS RETURN OF INCOME ON 12/10/10 DEC LARING TOTAL INCOME OF RS.4,57,361/-. CASE WAS SELECTED FOR SCR UTINY AND NOTICE UNDER SECTION 143 (2) WAS ISSUED TO ASSESSEE. IN RE SPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEA RED BEFORE LD.AO IS AND FILED DETAILS AS CALLED FOR. LD.AO DURING AS SESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAD UNDERTAKEN I NTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. A REFE RENCE WAS ACCORDINGLY MADE TO TRANSFER PRICING OFFICER. 2.1 LD.TPO UPON RECEIPT OF REFERENCE, CALLED FOR VARIO US DETAILS FROM ASSESSEE. HE OBSERVED THAT ASSESSEE WAS INCORP ORATED ON 27/05/02 AND WAS ENGAGED IN BUSINESS OF COMPUTER SO FTWARE DEVELOPMENT, DATA PROCESSING, VALUE ADDITION SERVIC ES, CONTENT DEVELOPMENT AND SOLUTION PROVIDER. IT WAS OBSERVED THAT ASSESSEE WAS ENGAGED IN PROVIDING SERVICES EXCLUSIVELY TO IT S SUBSIDIARY COMPANY; INTERTECH FOR SOFTWARE DEVELOPMENT, AND THAT IT WILL NOT ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 4 ACCEPT ANY OTHER ASSIGNMENT FROM ANY OTHER SOURCE W ITHOUT PERMISSION OF INTERTECH. LD.TPO FURTHER OBSERVED TH AT ASSESSEE HAD COMPETENCIES IN FOLLOWING AREAS LIKE MICROSOFT TECH NOLOGIES; OPEN SOURCE AND JAVA TECHNOLOGIES; SOFTWARE QUALITY ASSU RANCE AND TESTING; BUSINESS PROCESS MANAGEMENT TOOLS; MICROSO FT SHAREPOINT. IT WAS ALSO OBSERVED THAT INTERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE WAS SHOWN AS UNDER: S.NO. NATURE OF SERVICE ARMS LENGTH PRICE AS PER ASSESSEE 1. RENDERING OF SOFTWARE DEVELOPMENT SERVICES RS.9,38,16,056/ - . 2.2 LD.TPO OBSERVED THAT ASSESSEE HAS SELECTED TNMM AS MOST APPROPRIATE METHOD TO BENCHMARK INTERNATIONAL TRANS ACTION BY USING OP/OC AS PLI. THE PLI OF ASSESSEE ACCORDINGLY WAS COMPUTED AT 15.82% ON COST. ASSESSEE SELECTED FOLLOWING 4 CO MPARABLES WITH AN AVERAGE MARGIN AT 11.11%, AND THUS, IT WAS CONTE NDED THAT TRANSACTION WAS AT ARMS LENGTH. S.NO. COMPARABLES OP/OC AVERAGE OP/OC 1. KALS INF. SYSTEMS 16.40% 14.19% KALS INF. SYSTEMS 11.98% 2. SPACE COMPUTERS 5.95% 5.95% SPACE COMPUTERS 2.34% 0.02% ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 5 3. ZYLOG SYS - 2.31% 4. LASER SOFT INFOSYSTEMS LTD. 14.56% 24.29% LASER SOFT INFOSYSTEMS LTD. 34.02% AVERAGE 11.11% 2.3 LD. TPO REJECTED 3 COMPARABLES, BY USING VARIOUS F ILTERS AND SELECTED A SET OF FOLLOWING 11 COMPARABLES INCLUDIN G ONE FROM ASSESSEES SET WITH AN AVERAGE MARGIN OF 20.33%. S.NO. COMPARABLES OP/OC (MARGIN) 1. EVOKE TECHNOLOGIES PVT. LTD. 18.56% 2. L & T INFOTECH LTD. 19.06% 3. MINDTREE LTD. (SEGMENT) 13.92% 4. SASKEN COMMUNICATION TECHNOLOGIES LTD. 17.54% 5. PERSISTENT SYSTEMS LIMITED 29.02% 6. SONATA SOFTWARE 35.87% 7. THINKSOFT GLOBAL SESRVICES LTD. 17.35% 8. ZYLOG SYSTEMS LIMITED 25.07% 9. SANKHYA INFOTECH 18.11% 10 . C T I L LTD 18.11% 11. CAT TECHNOLOGIES LTD. 11.07% AVERAGE 20.33% ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 6 2.4 HE THUS COMPUTED ADJUSTMENT OF RS.86,71,096/- TO INTERNATIONAL TRANSACTION. 2.5 AGAINST DRAFT ORDER PASSED BY LD.TPO, ASSESSEE RAI SED OBJECTIONS BEFORE DRP, WHO UPHELD PROPOSED ADJUSTME NT. BASED UPON ORDER PASSED BY DRP, LD.AO PASSED IMPUGNED FIN AL ASSESSMENT ORDER, AGAINST WHICH ASSESSEE IS IN APPE AL BEFORE US. ONLY ISSUE RAISED BY ASSESSEE IS IN RESPECT OF COMP ARABLES AND FILTERS ARBITRARILY USED BY LD.TPO TO ACCEPT/REJECT FINAL LIST OF COMPARABLES SELECTED IN TRANSFER PRICING ORDER. 3. ASSESSEE BEFORE US ALLEGED FOR EXCLUSION OF FOLLOW ING COMPARABLES: 1. EVOKE TECHNOLOGIES PVT. LTD., 2. L&T INFOTECH LTD., 3. SASKEN COMMUNICATION TECHNOLOGIES LTD., 4. PERSISTENT SYSTEMS LTD., 5. THINK SOFT GLOBAL SERVICES LTD., 4. COMPARABLES ALLEGED BY ASSESSEE FOR INCLUSION ARE AS UNDER : 1. CIBERMATE INFOTECH LTD., 2. MELSTAR INFORMATION TECHNOLOGIES LTD., 3. OBJECTONE INFORMATION SYSTEMS LTD., 5. BEFORE ADVERTING TO COMPATIBILITY ANALYSIS, IT IS SINE QUA NON TO ASCERTAIN FUNCTIONS PERFORMED BY ASSESSEE, ASSETS E MPLOYED AND RISKS ASSUMED IN RESPECT OF INTERNATIONAL TRANSACTI ON UNDERTAKEN. FUNCTIONS : ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 7 6. ASSESSEE UNDERTAKES RESEARCH AND DEVELOPMENT IN MANUFACTURE OF PRODUCTS. THE RESEARCH AND DEVELOPME NT ACTIVITIES RELATES TO VARIOUS TECHNOLOGIES, MARKET SCENARIO IS , COMPETITORS ACTIVITIES, RECENT DEVELOPMENTS IN INFORMATION TECH NOLOGY IS, PROSPECTIVE CLIENTS ETC AND FOR ITSELF AND INTERTEC H. 6.1 PRODUCT STRATEGY AND DESIGN CARRIED OUT BY ASSESSEE RELATES TO DEVISING PLAN FOR POSITIONING A PRODUCT IN MARKETPL ACE AND DEVELOPING STRATEGY FOR SELLING THE PRODUCTS. THE D ECISIONS RELATED TO PRODUCT STRATEGY AND DESIGNS ARE TAKEN BY ASSESSEE AND INTERTECH TOGETHER. 6.2 MARKETING AND DISTRIBUTION ACTIVITIES CARRIED OUT B Y ASSESSEE INVOLVES, DECISION-MAKING, REGARDING PROMULGATION O F INFORMATION ABOUT COMPANIES PRODUCTS TO POTENTIAL CUSTOMERS AND DEVELOPMENT OF EFFECTIVE SALES AND DISTRIBUTION CHANNELS FOR DE LIVERING PRODUCTS TO CUSTOMERS. IT ALSO INVOLVES MARKETING AND ADVERT ISING OF PRODUCTS/SERVICES FOR BUSINESS AND PROMOTION OF BRA ND NAME IN MARKET, WHICH IS CARRIED OUT BY INTERTECH ALONE. FU RTHER INTERTECH ALSO TAKES UP MARKETING AND PROMOTION ACTIVITIES OF PRODUCTS DEVELOPED BY ASSESSEE WHEREAS, ASSESSEE IS INVOLVED IN MARKETING SALES AND DISTRIBUTION OF THE SAME ONLY. 6.3 ASSESSEE ALSO CARRIES OUT ACCOUNTING, ADMINISTRATIO N, HUMAN RESOURCE MANAGEMENT TO MANAGE THE OFFICE AND ASSIGN MENTS. ASSETS : ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 8 7. ASSESSEE OWNS NORMAL ROUTINE ASSETS LIKE COMPUTERS OFFICER EXCEPT AT EQUIPMENTS FURNITURE FITTINGS VEHICLES SO FTWARE ETC IT DOES NOT OWN ANY INTANGIBLES AND NON-ROUTINE THAT ASSETS AND DOES NOT OWN ANY TRADE SECRETS OR UNDERTAKE RESEARCH AND DEV ELOPMENT ACTIVITIES ON ITS OWN ACCOUNT, THAT WOULD LEAD TO D EVELOPMENT OF NON-ROUTINE INTANGIBLES. RISKS : 8. ASSESSEE EXPERIENCES MODERATE MARKET RISK LOW PRODU CT LIABILITY RISK LOCUS, CREDIT RISK HIGH FOREIGN EXCH ANGE RISK AND NIL ON INVENTORY RISK. 9. LD. COUNSEL SUBMITTED THAT GROUND NO. 1-3 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATIO N. ACCORDINGLY THE SAME ARE DISMISSED. 10. GROUND NO. 4-5 RELATES TO FILTERS ARBITRARILY APPLIED BY LD.TPO FOR EXCLUSION/INCLUSION OF COMPARABLES. 11. GROUND NO. 6-8 IS IN RESPECT OF COMPARABLES EXCLUSION/INCLUSION BY LD.TPO. 12. GROUND NO. 9-10 IS ON THE BASIS OF FUNCTIONAL DISSIMILARITY OF COMPANIES SELECTED BY LD.TPO; AND 13. GROUND NO. 11 IS IN RESPECT OF DENIAL OF WORKING CAPITAL ADJUSTMENT. 14. LD. COUNSEL SUBMITTED THAT GROUND NO. 4-5 HAS BEEN RAISED FOR USING FOLLOWING FILTERS BY LD.TPO TO REJECT COM PARABLES BASED ON; ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 9 TURNOVER FILTER LESS THAN 5 CRORE EXPORT REVENUES LESS THAN 75% OF TOTAL REVENUES COMPANIES HAVING RPT OF 25% AND MORE WHERE SERVICE INCOME IS LESS THAN 75% OF SALES TURNOVER FILTER/SUPER PROFIT COMPANIES BEING EXCLUD ED COMPANIES WITH DIMINISHING REVENUE/PERSISTENT LOSS MAKING COMPANIES BEING EXCLUDED EMPLOYEE COST FILTER OF 25% OF COST BEING APPLIED. 15. FURTHER IT HAS BEEN ARGUED THAT GROUND NO. 6-10 DEALS WITH COMPARABLES AND ITS FUNCTIONAL SIMILARITIES/DISSIMI LARITIES REJECTED/ACCEPTED BY LD.TPO, WHICH CAN BE TAKEN UP TOGETHER. LD. COUNSEL CONTENDED THAT ASSESSEE IS PROVIDING LOW EN D SERVICES AND THEREFORE CANNOT BE COMPARED WITH COMPANIES WHICH A RE PROVIDING SPECIALISED SOFTWARE SERVICES. IT HAS BEEN SUBMITTE D THAT FILTERS ARE USED BY LD.TPO ARBITRARILY, TO ACCEPT/REJECT COMPAR ABLES. IT HAS BEEN CONTENDED THAT ASSESSEE HAS TURNOVER OF 9.38 C RORES, WHEREAS LD.TPO USED TURNOVER FILTER OF LESS THAN 5 CRORES, WHICH IS INAPPROPRIATE. LD. COUNSEL SUBMITTED THAT COMPANIES HAVING SALES 10 TIMES MORE THAN THAT OF ASSESSEE CANNOT BE COMPA RED TOGETHER. HE SUBMITTED THAT LD.TPO REJECTED COMPANIES HAVING EMPLOYEE COST LESS THAN 20% OF SALES WHICH IS CONTRARY TO TURNOVE R FILTER AND TOTAL REVENUE FILTER APPLIED BY HIM. LD. COUNSEL THUS SUB MITTED THAT MODIFICATIONS BROUGHT BY LD.TPO TO FILTERS HAS REND ERED ECONOMIC ANALYSIS CONDUCTED BY ASSESSEE TO BE INADEQUATE OR DEFECTIVE. FURTHER LD. COUNSEL ARGUED THAT LD.TPO FAILED TO CO NSIDER GROSS ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 10 DISSIMILARITIES BETWEEN ASSESSEE AND COMPARABLES SE LECTED BY HIM, WITHOUT CONDUCTING FAR ANALYSIS. 16. NOW COMING TO FILTERS ADOPTED BY ASSESSEE, WHICH HA S BEEN MODIFIED BY LD. TPO. 17. FROM RECORDS BEFORE US, IT IS OBSERVED THAT ASSESSE E INCLUDED COMPANIES HAVING FINANCIAL DATA OF AT LEAST 2 YEARS PRIOR FOR WHICH LD.TPO OBSERVES THAT AS PER RULE 10 B (4) IT IS MAN DATORY TO USE CURRENT YEAR DATA, UNLESS IT IS SHOWN BY ASSESSEE T HAT SUCH EARLIER YEARS DATA HAS AN INFLUENCE IN DETERMINING TRANSFER PRICE AND THAT, USE OF EARLIER YEAR DATA IS IN ADDITION TO CURRENT YEAR DATA. LD.TPO REJECTED COMPANY, WHERE CURRENT YEAR DATA WAS NOT A VAILABLE AND ASSESSEE HAD SOUGHT TO RELY UPON PRECEDING TWO YEAR S DATA, WHICH IN OUR CONSIDERED OPINION IS APPROPRIATE AS ASSESSE E HAS NOT BEEN ABLE TO ESTABLISH WHAT IS REQUIRED UNDER RULE 10 B (4) OF INCOME TAX RULES 1963. 18. NEXT FILTER THAT HAS BEEN MODIFIED BY LD.TPO IS IN RESPECT OF TURNOVER. ASSESSEE HAD INCLUDED COMPANIES WITH AN A VERAGE SALES OF LESS THAN 1 CRORE DURING THE YEAR AND COMPANIES WIT H MORE THAN 50 CRORES WERE REJECTED. LD.TPO OBSERVED THAT COMPANIE S WHOSE INCOME IS LESS THAN 5 CRORE WOULD BE APPROPRIATE AS OTHERWISE ANALYSIS MAY NOT LEAD TO PROPER COMPATIBILITY. IT I S OBSERVED THAT LD.TPO MODIFIED LOWER LIMIT OF TURNOVER FILTER FROM LESS THAN 1 CRORE TO LESS THAN 5 CRORE. ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 11 19. WE HAVE ALSO OBSERVED THAT LD.TPO REJECTED COMPANIE S WHICH ARE MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT T HERE IS A LIMIT FOR LOWER END FOR IDENTIFYING COMPARABLES. IN SUCH A SITUATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE AN APPROPRIATE UPPER LIM IT IS ANOTHER FACTOR TO BE CONSIDERED. 19.1 IN OUR VIEW, BIG COMPANY WOULD BE IN A POSITION TO BARGAIN PRICE AND ALSO ATTRACT MORE CUSTOMERS. IT WOULD ALS O HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETT ER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGIN. THUS, AS HE LD BY VARIOUS BENCHES OF THIS TRIBUNAL, WHEN COMPANIES WHICH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN SUPER PROFIT MA KING COMPANIES SHOULD ALSO BE EXCLUDED. THUS IN PRESENT CASE, RAGE OF 1 CRORES TO 200 CRORES WOULD BE IDEAL. 19.2 FOR PURPOSES OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SALES OR TURNOVER, WE FIND THAT A REASONABLE CLASSI FICATION HAS TO BE MADE. IN OUR OPINION COMPANIES WITH REVENUES LESS T HAN 75% FROM SOFTWARE DEVELOPMENT SERVICES WOULD BE IDEAL TO BE EXCLUDED, AS ECONOMIC CIRCUMSTANCES OF SUCH COMPANIES WOULD BE D IFFERENT. WE DRAW OUR SUPPORT FROM RULE 10 B (2) IN RESPECT OF T HIS VIEW. 19.3 THUS BASED ON THESE CRITERIA, AS DISCUSSED IN FOREG OING PARAGRAPHS, WE REJECT FOLLOWING COMPANIES AS COMPAR ABLES WHICH ARE UNDER CHALLENGE BY ASSESSEE EITHER FOR EXCLUSIO N OR INCLUSION, AS THE CASE MAY BE. ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 12 L&T INFOTECH LTD., SASKEN COMMUNICATIONS TECHNOLOGIES LTD., PERSISTENT SYSTEMS LTD., SPACE COMPUTERS AND SYSTEMS LTD., MEL STARR INFORMATION TECHNOLOGIES LTD., OBJECTOEN INFORMATION SYSTEM LTD., 20. BEFORE WE PROCEED TO EXAMINE COMPARABLES ON THE BAS IS OF SEVERAL DECISIONS RELIED UPON BY BOTH SIDES FOR INC LUSION/EXCLUSION OF COMPARABLES, WE ARE OF CONSIDERED OPINION THAT E VERY DECISION RENDERED IN RESPECT OF COMPARABLES FOR ITS INCLUSIO N/EXCLUSION IS BASED UPON FACTS OF THAT CASE AS WELL AS FAR OF ASS ESSEE, IN WHOSE CASE THOSE HAVE BEEN EITHER INCLUDED/EXCLUDED. WE A RE ALSO AWARE ABOUT PRECEDENT VALUE OF THESE DECISIONS, WHILE CAR RYING OUT COMPARABILITY ANALYSIS. HOWEVER, WE FEEL THAT PARAM OUNT IMPORTANCE MUST BE GIVEN TO RULE 10B (2). UNLESS, D IFFERENCE ARISING ON COMPATIBILITY ANALYSIS AFFECTS PRIZE OR PROFITAB ILITY OF A COMPARABLE, OR CANNOT BE ADJUSTED REASONABLY, THE S AME SHOULD BE UPHELD. THUS IN OUR OPINION, WHILE DECIDING COMPATI BILITY DECISIONS RELIED UPON BY BOTH SIDES WOULD BE PRODUCED FROM TH IS ANGLE BY US. FROM TP STUDY AS WELL AS TP ORDER, IT IS OBSERVED T HAT COMPARABLES SELECTED BY ASSESSEE HAS BEEN REJECTED AS THESE FAI L REVENUES FILTERS. HOWEVER NO FAR ANALYSIS HAS BEEN CONDUCTED BY LD.TP O IN RESPECT OF COMPARABLES THAT HAS BEEN REJECTED. 21. COMPARABLES ALLEGED FOR EXCLUSION: ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 13 1. EVOKE TECHNOLOGIES PVT. LTD. 21.1 LD. COUNSEL SUBMITTED THAT THIS COMPARABLE SELECTED BY LD.TPO IS FUNCTIONALLY DISSIMILAR WITH THAT OF ASSE SSEE, AS IT PROVIDES SERVICES RELATING TO ITES AND NOT INTO REN DERING OF SOFTWARE DEVELOPMENT SERVICES LIKE THAT OF ASSESSEE. 21.2 ON THE OTHER HAND, LD. DR SUBMITTED THAT THIS COMPA NY HAS REVENUE FROM SOFTWARE DEVELOPMENT CHARGES AND ITS W EBSITE REVEALS COMPANY TO BE PROVIDING QUALITY SOFTWARE SERVICES T O ITS CLIENTS. 21.3 WE HAVE PERUSED SUBMISSIONS OF BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. AUDITED ACCOUNT FOR RELEVANT YEAR OF THIS COMPARABLE IS PLACED AT PAGE 402-416 OF PAPER BOOK VOLUME 2. IT IS OBSERVED THAT REVENUE EARNED BY THIS COMPANY IS FRO M SOFTWARE DEVELOPMENT CHARGES. WE ARE THEREFORE NOT INCLINED TO ACCEPT ARGUMENT ADVANCED BY LD. COUNSEL THAT THIS COMPANY IS PERFORMING IT ENABLED SERVICES. ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY DIFFERENCE IN FUNCTIONS PERFORMED BY THIS COMPANY VIS-A-VIS THAT OF ASSESSEE. 21.4 WE THEREFORE, UPHOLD INCLUSION OF THIS COMPANY INTO FINAL LIST OF COMPARABLES . 2. THINK SOFT GLOBAL SERVICES LTD . 22. FROM ANNUAL ACCOUNTS PLACED IN PAPER BOOK AT PAGE 8 98-1025 OF VOLUME 3, IT IS OBSERVED THAT THIS COMPANY IS GE NERATING REVENUE FROM SOFTWARE TESTING ON TIME AND MATERIAL CONTRACT S AND IS BASED ON SOFTWARE TESTED AND BUILD TO CLIENTS AS PER TERM S OF SPECIFIC ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 14 CONTRACT. IN OUR CONSIDERED OPINION, SOFTWARE TESTI NG IS NOT THE FUNCTION PERFORMED BY ASSESSEE, FOR THIS COMPANY TO BE CONSIDERED AS SUITABLE COMPARABLE. WE ARE THEREFORE INCLINED TO DIRECT LD.TPO TO REMOVE THIS COMPARABLE FROM FINAL LIST . COMPARABLES ALLEGED FOR INCLUSION: 23. REGARDING FOLLOWING COMPARABLES IT IS OBSERVED FROM TP ORDER THAT, FUNCTIONAL COMPATIBILITY, ASSETS OWNED AND RI SK ASSUMED HAS NOT BEEN CARRIED OUT BY LD.TPO VIS-A-VIS THAT OF ASSESSEE: KALAS INFORMATION SYSTEMS LASER INFOSYSTEMS LTD., 23.1 FURTHER IT IS ALLEGED BY LD.COUNSEL THAT IN CASE OF ZYLOG SYS. INDIA, LD.TPO HAS CONSIDERED A DIFFERENT COMPANY (M /S ZYLOG SYSTEMS LTD) AS HAS BEEN SUBMITTED BY ASSESSEE. IT IS OBSERVED FROM FINAL ASSESSMENT ORDER THAT DRP ALSO CONSIDERED M/S ZYLOG SYSTEMS LTD. LD.TPO IS DIRECTED TO ASCERTAIN DIFFERENCE BROUGHT OUT BY LD. COUNSEL, AND TO SELECT CORRECT COMPARABLE AFTER UND ERTAKING EXERCISE OF FAR ANALYSIS WITH THAT OF ASSESSEE AS P ER LAW. 23.2 IT IS OBSERVED THAT DURING TP ASSESSMENT, ASSESSEE PROVIDED FRESH COMPARABLES BEING; CYBERMATE INFOTEK LTD., CTIL LTD., CAT TECHNOLOGY LTD ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 15 23.3 OUT OF THE ABOVE, LD.TPO HAS ACCEPTED CTIL LTD., AN D CAT TECHNOLOGY LTD., AS SUITABLE COMPARABLE. 23.4 IT IS OBSERVED THAT LD.TPO REJECTED CYBERMATE INFOT EK LTD., BY HOLDING THAT EXPORT TURNOVER IS LESS THAN 75%. LD.C OUNSEL BEFORE US HAS PLACED ANNUAL REPORT OF CYBERMATE INFOTEK LT D. IT IS ALSO OBSERVED THAT FUNCTIONAL COMPATIBILITY, ASSETS OWNE D AND RISK ASSUMED BY THIS COMPANY HAS NOT BEEN CARRIED OUT BY LD.TPO VIS- A-VIS THAT OF ASSESSEE. 23.5 WE, THEREFORE DIRECT LD.TPO TO UNDERTAKE COMPATIBIL ITY ANALYSIS AS PER RULE 10 D (2) FOR FINALISING COMPAR ABLES, TO BE APPLIED FOR DETERMINING THE ALP OF INTERNATIONAL TR ANSACTION. WE ALSO DIRECT LD.TPO TO CARRY OUT PROPER FAR ANALYSIS IN RESPECT OF COMPARABLES WHICH HAS BEEN ALLEGED FOR INCLUSION BY ASSESSEE ON THE BASIS FILTERS HEREINABOVE REFERRED TO AND OBSER VATIONS MADE BY US HEREINABOVE. 24. ACCORDINGLY GROUNDS RAISED BY ASSESSEE STANDS A LLOWED AS DISCUSSED ABOVE . 25. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 15/01/2019. SD/- SD/- ( G.D. AGRAWAL) (BEENA A PILLAI) VICE PRESIDENT JUDICIAL MEMBER DT. 15/01/2019 *GMV ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 16 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 1565/DEL/2015 A.Y.2010-11 CONTATA SOLUTIONS PVT.LTD. 17 S.NO. DETAILS DATE 1 DRAFT DICTATED ON DRAGON 11/01/19 2 DRAFT PLACED BEFORE AUTHOR 15/01/19 3 DRAFT P ROPOSED & PLACED BEFORE THE SECOND MEMBER 15/01/19 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 15/01/19 5 APPROVED DRAFT COMES TO THE SR. PS/PS 15/01/19 6 KEPT FOR PRONOUNCEMENT 15/01/19 7. ORDER UPLOADED ON 8 FILE SENT TO BENCH CLERK 9 DATE ON WHICH THE FILE GOES TO HEAD CLERK 10 DATE ON WHICH FILE GOES TO A.R. 11 DATE OF DISPATCH OF ORDER