Sonus Networks India Private Limited, Bangalore V. ACIT, Bangalore

ITA 1567/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89933 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Related party transaction; Transfer pricing; Opportunity of being heard; International transaction; Scheme of amalgamation
• Section: 143(3); 92E; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER IT(TP)A NO.1567/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S. SONUS NETWORKS INDIA PRIVATE LIMITED, CRESCENT-IV, 12 TH FLOOR, PRESTIGE SHANTINIKETAN BUSINESS PRECINCT, WHITEFIELD ROAD, BANGALORE 560 048. PAN : AALCS5706P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 23.04.2015 DATE OF PRONOUNCEMENT : 14.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 28.9.2010 THE ASST. COMMISSIONER OF INCOME TAX , WA RD 12(3), BANGALORE PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME TAX AC T, 1961 (ACT), IN RELATION TO A.Y.2008-09. IT(TP)A NO.1567/BANG/2012 PAGE 2 OF 42 2. GROUND NO.A SUB-GROUND NO.1 TO 7 RAISED BY THE A SSESSEE IN THE ORIGINAL GROUNDS OF APPEAL FILED BEFORE THE TRIBUNA L AND THE ADDITIONAL GROUND NO.8 & 9 IN GROUND NO.A FILED BY THE ASSESSE E BEFORE THE TRIBUNAL PROJECT THE GRIEVANCE OF THE ASSESSEE REGARDING THE ACTION OF THE LEARNED ASSESSING OFFICER AND HONORABLE DISPUTE RESOLUTION PANEL MAKING AN ADDITION TO THE TOTAL INCOME BY WAY OF ADJUSTMENT T O THE ARMS LENGTH PRICE ( ALP ) TO AN INTERNATIONAL TRANSACTION CARRIED OUT BY TH E ASSESSEE U/S. 92CA OF THE ACT. AS FAR AS ADDITIONAL GROUND SOUGH T TO BE RAISED BY THE ASSESSEE IN ITS APPLICATION FOR RAISING ADDITIONAL GROUNDS ARE CONCERNED, THEY PROJECT THE GRIEVANCE OF THE ASSESSEE IN THE A CTION OF THE REVENUE AUTHORITIES IN REGARDING LUCID SOFTWARE LTD., AND B ODHTREE CONSULTING LTD., AS COMPARABLE COMPANIES IN DETERMINING THE ALP. TH ESE TWO COMPANIES HAD BEEN CHOSEN AS COMPARABLE BY THE ASSESSEE IN IT S TP STUDY AND WERE NOT OBJECTED TO BY THE ASSESSEE IN THE PROCEEDINGS BEFORE THE TPO OR THE DRP FROM BEING CHOSEN AS A COMPARABLE COMPANY. THE ASSESSEE HAS NOW RAISED THE ADDITIONAL GROUND SEEKING TO EXCLUDE THE SAID COMPANIES AS COMPARABLE COMPANIES AS THESE TWO COMPANIES HAVE BE EN FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH A COMPANY PROVIDIN G SOFTWARE DEVELOPMENT SERVICES SUCH AS THE ASSESSEE. WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT PRECLUDED FROM RAISING SUCH AN OBJE CTION FOR THE FIRST TIME BEFORE THE TRIBUNAL AND THE ADDITIONAL GROUND SOUGH T TO BE RAISED IS ADMITTED FOR ADJUDICATION. IT(TP)A NO.1567/BANG/2012 PAGE 3 OF 42 3. AT THE TIME OF HEARING OF THE APPEAL IT WAS SUBM ITTED THAT THE COMPARABLE COMPANIES CHOSEN BY THE TPO AND THE ADDI TION MADE BY THE AO IN THE DRAFT ASSESSMENT ORDER WHICH WAS CONFIRME D BY THE DRP ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL IN ITA NO.1054/BANG/2011 FOR AY 07-08 IN M/S.TRILOGY E-BUSINESS SOFTWARE IND IA PVT.LTD. VS. DCIT, CIRCLE 12(4), BANGALORE AND 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT 42 TAXMANN.COM 333 (BANG-TRIB). IT W AS ALSO SUBMITTED THAT THE BUSINESS PROFILE OF THE ASSESSEE AND THAT OF TH E ASSESSEE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND TRILOG Y E-BUSINESS (SUPRA) WERE ALSO IDENTICAL. THIS SUBMISSION WAS FOUND TO BE CORRECT AT THE TIME OF HEARING. WITH THIS BACKGROUND WE WILL NOW CONSIDER THE FACTUAL BASIS OF THE PRESENT CASE AND THE DECISION RENDERED REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. 4. THE ASSESSEE IS A COMPANY. IT RENDERED SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE(AE). THERE I S NO DISPUTE THAT THE SAID TRANSACTION WAS AN INTERNATIONAL TRANSACTION WITH A N AE AND THEREFORE THE PRICE RECEIVE BY THE ASSESSEE FOR RENDERING SUCH SE RVICES HAS TO PASS THE ARMS LENGTH PRICE (ALP) TEST AS LAID DOWN IN SEC.9 2 OF THE ACT. DURING THE FINANCIAL YEAR 2006-07, THE ASSESSEE PROVIDED S OFTWARE DEVELOPMENT SERVICES TO ITS AE AND WAS REMUNERATED ON A COST P LUS BASIS. THE TOTAL VALUE OF INTERNATIONAL TRANSACTION WITH RESPECT TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS AE WAS RS. 34,27,11,543. IT(TP)A NO.1567/BANG/2012 PAGE 4 OF 42 5. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRIC E CHARGED BY IT FOR SERVICES RENDERED TO ITS AE WAS AT ARMS LENGTH, TH E ASSESSEE FILED A REPORT AS REQUIRED BY THE PROVISIONS OF SECTION 92E OF THE ACT IN FORM 3EB TOGETHER WITH DETAILED ANALYSIS. THE ASSESSEE ADOP TED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFITS TO COST WAS ADOPTED AS THE PROFIT LEVEL INDICATOR ( PLI ). THE PLI OF THE ASSESSEE WAS ARRIVED AT 13.79% . THE ASSESSEE IN ITS TRANSFER PRICING ANALYSIS HAD SELECTED 18 CO MPARABLE COMPANIES AND ARRIVED AT ARITHMETIC MEAN OF THE PROFIT MARGIN OF THE SAID COMPARABLE COMPANIES AT 16.00% AND CLAIMED THAT THE PRICE IT C HARGED WAS AT ARMS LENGTH. 6. THE TPO ARRIVED AT A FINAL SET OF 20 COMPARABLE. THE SET OF 20 COMPARABLE AND THEIR PROFIT MARGIN ARE GIVEN AS ANNEXURE-1 TO THIS ORDER . 7. THE ASSESSEE RAISED VARIOUS OBJECTIONS TO THE ME THODOLOGY ADOPTED AND THE REASONS ASSIGNED BY THE TPO FOR REJECTING T HE COMPARABLES CHOSEN BY THE ASSESSEE IN ITS TP STUDY. THE TPO FINALLY PASSED AN ORDER U/S. 92CA OF THE ACT AND ON THE BASIS OF THE COMPAR ABLES SET OUT IN ANNEXURE-1 TO THIS ORDER, ARRIVED AT ARITHMETIC MEAN OF 23.65 %. THE COMPUTATION OF THE ALP BY THE TPO IN THIS REGARD WA S AS FOLLOWS:- 5.4 COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS IT(TP)A NO.1567/BANG/2012 PAGE 5 OF 42 LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 23.65% LESS: WORKING CAPITAL ADJUSTMENT (ANNEXURE-C) --% ADJ.ARITHMETIC MEAN PLU 23.65% OPERATING COST RS.30,11,58,365 ARMS LENGTH MARGIN 23.65% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 123.65% OF OPERATING COST PRICE RECEIVED SHORTFALL BEING ADJUSTMENT U/S.92CA RS.37,23,82,318 RS.34,27,11,543 RS.2,96,70,775 THE ABOVE SHORTFALL OF RS.2,96,70,775/- IS BEING TREATED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAX PAYER IN I TS BOOKS OF ACCOUNT. 8. AGAINST THE SAID ADJUSTMENT PROPOSED BY THE TPO WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE A O, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP REJECTED THOSE O BJECTIONS AND CONFIRMED THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO. THE ADJUSTMENT CONFIRMED BY THE DRP WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE BY THE AO IN THE FAIR ORDER OF ASSESSMENT. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRE D THE PRESENT APPEAL BEFORE THE TRIBUNAL. IT(TP)A NO.1567/BANG/2012 PAGE 6 OF 42 9. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT OUT OF THE 20 COMPARABLE COMPANIES CHOSEN BY THE TPO, 12 COMPANIES AS LISTED BELOW HAVE TO BE EXCLUDED AS NOT COMPARABLE WITH TH E ASSESSEE COMPANY AS LAID DOWN BY THIS TRIBUNAL IN THE CASE OF 3 DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) . 1. AVANI CINCON 2. BODHTREE LTD. 3. CELESTIAL BIOLABS 4. E-ZEST LTD. 5. INFOSYS TECHNOLOGIES LTD. 6. PERSISTENT SYSTEMS LTD. 7. QUINTEGRA SOLUTIONS LTD. 8. TATA ELXSI LTD. 9. THIRDWARE SOLUTIONS 10. WIPRO LIMITED 11. SOFTSOL INDIA LTD. 12. LUCID SOFTWARE LTD. 10. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ON THE 12 COMPARABLE COMPANIES IN THE AFORESAID DECISION:- COMPANIES INCORRECTLY ADOPTED AS COMPARABLES BY TH E TPO AS PER THE CONTENTION OF THE ASSESSEE. 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT THIS COM PANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT I S INTO IT(TP)A NO.1567/BANG/2012 PAGE 7 OF 42 SOFTWARE PRODUCTS WHEREAS THE ASSESSEE OFFERS SOFTW ARE DEVELOPMENT SERVICES TO ITS AES. THE TPO HAD REJEC TED THE OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT THI S COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AND HEN CE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PU RPOSE, THE TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUS ION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPAR ABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT I S ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPAN Y ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN TH E PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED T HAT THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6 ) OF THE ACT, ON THE BASIS OF WHICH THE TPO INCLUDED THIS CO MPANY IN THE FINAL LIST OF COMPARABLE COMPANIES, HAS NOT BEE N SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE O N THE FOLLOWING JUDICIAL DECISIONS : I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DC IT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT ( ITA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HE LD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY A CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013. IT(TP)A NO.1567/BANG/2012 PAGE 8 OF 42 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007- 08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSM ENT YEAR 2008-09). IN SUPPORT OF THIS CONTENTION, IT WAS SU BMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLE ARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPME NT OF SOFTWARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS C OMPANY OFFERS CUSTOMISED SOLUTIONS AND SERVICES IN DIFFERE NT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT TH IS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SO LUTIONS LIKE DX CHANGE, CARMA, ETC. 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORD ER IN CURRAM SOFTWARE INTERNATIONAL PVT. LTD., IN ITS ORD ER IN ITA NO.1280/BANG/2012 DT.31.7.2013 HAS REMANDED THE MAT TER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH, BY MAKING THE FOLLOWING OBSERVATIONS AT PARAS 9.5.2 AND 9.5.3 THE REOF :- 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE THAT THIS COMPANY HAS TO BE DELETED FROM THE LIST O F COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM THE SET OF COMPARABLES IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUB T THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN TH E CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE O N THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS A LONE, HOWEVER, WILL NOT SUFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRILOGY CA SE ARE EQUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE 'S IT(TP)A NO.1567/BANG/2012 PAGE 9 OF 42 CASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS O F TRILOGY CASE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON HAND, COMPARISON BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE COMPARABILITY BETWEEN THE ASSESSEE AND THE TRILOGY CASE, THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT T HE FACTS APPLICABLE TO THE ASSESSMENT YEAR 2007-08, TH E YEAR FOR WHICH THE DECISION IN CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE ALSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE ASSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EA CH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE APPLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEARS. TO DO THAT, IT IS NECESSARY TO F IRST ESTABLISH THAT THE FACTS AND ATTENDANT FACTORS HAVE REMAINED THE SAME SO THAT THE FACTORS OF COMPARABILITY ARE THE SAME. VIEWED IN THAT CONTEXT , THE ASSESSEE HAS NOT DISCHARGED THE ONUS UPON IT TO ESTABLISH THAT THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TO O OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08. THE ASSESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT TH E FACTS OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLI ER ASSESSMENT YEAR 2007-08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTE R BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY IT(TP)A NO.1567/BANG/2012 PAGE 10 OF 42 CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESSEE INFORMAT ION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDER S THEREON. IT IS ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TP O NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCESS CO NDUCTED BY THE TPO, BUT ONLY AS AN ADDITIONAL COMPARABLE FO R THE REASON THAT IT WAS SELECTED AS A COMPARABLE IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE AC T. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE TOOK US THROUGH THE RELEVANT PORTIONS OF THE TP ORDER UNDER SECTION 92CA OF THE ACT AND THE SHOW CAUSE NOTICES FOR BOTH THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 AND FOR THIS YEAR AND CONTENDED THAT THE SELECTION OF THIS COMPANY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED IN CUR RAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THAT A COM PANY CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS OF FA R ANALYSIS CONDUCTED FOR THAT YEAR AND THEREFORE PLEA DED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATI VE ALSO SUBMITTED THAT HE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO SHOW THAT THE FUNCTIONAL PROFILE OF THIS COMPANY REMAINS UNCHANGED FROM THE EARLIER YEAR AND HENCE THE FINDI NGS RENDERED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) AND IN OTHER CASES LIKE TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSIDERATION AS WELL. 7.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. IT(TP)A NO.1567/BANG/2012 PAGE 11 OF 42 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY I N THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFOR MATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE INFORMATION SO GATHERED T O THE ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPA NY IN ITS FINAL LIST OF COMPARABLES. NON-FURNISHING THE INFO RMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COM PARABLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COM PANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPA RABLE ONLY ON THE GROUND THAT THIS COMPANY WAS SELECTED I N THE EARLIER YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY THE TPO BUT ONLY ON THE BASIS OF INF ORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT. APART F ROM PLACING RELIANCE ON THE JUDICIAL DECISION CITED ABO VE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 , THE ASSESSEE HAS BROUGHT ON RECORD EVIDENCE THAT THIS C OMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFORE THE FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES RENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YE AR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS B Y THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YE AR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATE D BY THE ASSESSEE, FOLLOWING THE DECISIONS OF THE CO-ORD INATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013, AND IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011), WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE LIST OF COMP ARABLES. IT(TP)A NO.1567/BANG/2012 PAGE 12 OF 42 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INC LUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMP ANY IN THE LIST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT I T FAILS THE EMPLOYEE COST FILTER. THE TPO, HOWEVER, BRUSHE D ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING TH AT THE OBJECTIONS OF FUNCTIONAL DISSIMILARITY HAS BEEN DEA LT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSMENT YEAR 2007-0 8. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPL OYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY O BSERVING THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE, AS THE COMPANY IS INTO BIO-INFORMATICS SOFTWARE PRO DUCT / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED . IT WAS SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF PRODUCTS IN THE FIELD OF BIO-TECHNOLOGY, PHARMACEUTICALS, ET C. AND THEREFORE IS NOT FUNCTIONALLY COMPARABLE TO THE ASS ESSEE; (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY INCOMPARABLE TO SOFTWARE SERVICE PROVIDERS BY THE D ECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA); (III) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AT PARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THAT .. AS EXPLAINED EARLIER, IT IS A DIVERSIFIED COM PANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE IT(TP)A NO.1567/BANG/2012 PAGE 13 OF 42 FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY, ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTI ONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENTS, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. (IV) THE REJECTION / EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2007-08 FOR SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT IN DIA PVT. LTD. IN ITA NO.112/BANG/2011, CSR INDIA PVT. LTD. I N IT(TP)A NO.1119/BANG/2011 AND BY THE ITAT, DELHI BE NCH IN THE CASE OF TRANSWITCH INDIA PVT. LTD. IN ITA NO.6083/DEL/2010. (V) THE FACTS PERTAINING TO THIS COMPANY HAS NO T CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 200 8- 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE INSTANT CASE AND HE NCE OUGHT TO BE REJECTED. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS ALSO REFERRED TO AND QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF THE COMPANY. 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED A ND RELIED ON BY THE ASSESSEE ARE FOR ASSESSMENT YEAR 2007-08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOU LD CONTINUE TO BE APPLICABLE FOR THE PERIOD UNDER CONS IDERATION I.E. ASSESSMENT YEAR 2008-09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHIL E IT IS TRUE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE IT(TP)A NO.1567/BANG/2012 PAGE 14 OF 42 WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSES SMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOU LD CONTINUE TO BE APPLICABLE FOR THIS YEAR AS WELL, TH E SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WEL L WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A COMPARABLE BASED ON THE REASONING GIVEN IN THE TPOS ORDER FOR THE E ARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TP O HAS NOT CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FOR THIS C OMPANY FOR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THA T EXTENT, IN OUR CONSIDERED VIEW, THE SELECTION PROCE SS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIVE AND SUFFERS FROM SERIOU S INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICIA L DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS B ROUGHT ON RECORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH TH AT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT F ROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN T HE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSESSMENT YEA R 2007- 08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS A LSO BEEN SO HELD BY CO-ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) AS WELL AS IN THE CASE OF TRILOGY E-BUSINESS SOFTWA RE INDIA PVT. LTD. (SUPRA). IN VIEW OF THE FACT THAT THE FU NCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAV E NOT CHANGED IN THIS YEAR UNDER CONSIDERATION, WHICH FAC T HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWING THE DE CISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRILOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT TH IS COMPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPAR ABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. IT(TP)A NO.1567/BANG/2012 PAGE 15 OF 42 10. KALS INFORMATION SYSTEMS LTD. 10.1 THIS IS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON GROUNDS OF FUN CTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH R ESPECT TO SOFTWARE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HOWEVER, REJECTED THE OBJECTIONS OF THE ASSESSEE OBSERVING THAT THE SOFTWARE PRODUCTS AND T RAINING CONSTITUTES ONLY 4.24% OF TOTAL REVENUES AND THE RE VENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR THE F.Y. 20 07-08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INCOME FILTER. 10.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE AND OUGHT TO BE REJECTED / EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS : - (I) THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF THE ASSESSEE AS IT IS INTO SOF TWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONA LLY NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS FOR ASSESS MENT YEAR 2007-08 BY THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE ASSESSEE'S OWN CASE. THIS COMPANY HAS BEEN HEL D TO BE DIFFERENT FROM A SOFTWARE DEVELOPMENT COMPANY IN TH E DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW IN DIA PVT. LTD. V DCIT IN ITA NO.1386/PN/2010. (III) THE REJECTION OF THIS COMPANY AS A COMPAR ABLE HAS BEEN UPHELD BY CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF (A) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011). (B) LG SOFT INDIA PVT. LTD. (IT (TP) A NO.112/BANG/2011 ) IT(TP)A NO.1567/BANG/2012 PAGE 16 OF 42 (C) CSR INDIA PVT. LTD. (IT (TP) A NO.1119/BANG/2011) A ND (D) TRANSWITCH INDIA PVT. LTD. (IA NO.6083/DEL/2010) (IV) THE FACTS PERTAINING TO THIS COMPANY HAS N OT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 200 8- 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE CASE ON HAND AND HE NCE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY. (V) THIS COMPANY IS ENGAGED NOT ONLY IN THE DEVELOP MENT OF SOFTWARE PRODUCTS BUT ALSO IN THE PROVISION OF T RAINING SERVICES AS CAN BE SEEN FROM THE WEBSITE AND THE AN NUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAMELY, A) APPLICATION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES FROM TWO PRODUCTS I.E. VIRTUAL INSURE AND LA-VISION AND B) THE TRAINING SEGMENT WHICH DOES NOT HAVE ANY PRODUCT REVENUES. 10.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE CONTENDED THAT THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT TO F.Y. 2006-07 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE TO THE YEAR UNDER CONSIDE RATION I.E. A.Y. 2008-09. TO THIS, THE COUNTER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCTIONAL PR OFILE OF THIS COMPANY CONTINUES TO REMAIN THE SAME FOR THE Y EAR UNDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FR OM THE DETAILS CULLED OUT FROM THE ANNUAL REPORT AND QUOTE D ABOVE (SUPRA). IT(TP)A NO.1567/BANG/2012 PAGE 17 OF 42 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM TH E RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPAR ABILITY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATIO N OBTAINED U/S.133(6) OF THE ACT. THIS INFORMATION W HICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USE D BY THE TPO, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUA L REPORT OF THE COMPANY, AS POINTED OUT BY THE LEARNE D AUTHORISED REPRESENTATIVE. WE ALSO FIND THAT THE C O- ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AND IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PROD UCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PRO VIDER. APART FROM RELYING OF THE ABOVE CITED DECISIONS OF CO- ORDINATE BENCHES OF THE TRIBUNAL (SUPRA), THE ASSES SEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIO NS OF THE COMPANYS ANNUAL REPORT TO ESTABLISH THAT THIS COMP ANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FORM THE ASS ESSEE AND THAT SINCE THE FINDINGS RENDERED IN THE DECISIONS O F THE CO- ORDINATE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YE AR 2007-08 (CITED SUPRA) ARE APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2008-09 ALSO, THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES. IN THIS VIE W OF THE MATTER, WE HOLD THAT THIS COMPANY I.E. KALS INFORMA TION SYSTEMS LTD., IS TO BE OMITTED FORM THE LIST OF COM PARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. B EFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS O F TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE AS SESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. IT(TP)A NO.1567/BANG/2012 PAGE 18 OF 42 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED A UTHORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS C OMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPME NT ACTIVITIES, WHEREAS THE ASSESSEE IS MERELY A SOFTWA RE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AN D DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIB LE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO S UBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE CO MPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OW N ANY INTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CAN NOT BE COMPARABLE TO THE ASSESSEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNO LOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMI NG ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERE D AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LI MITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTION S AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT A VAILABLE ; IT(TP)A NO.1567/BANG/2012 PAGE 19 OF 42 (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQU ISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PROD UCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORIS ED REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFO SYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COM PARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MAR GINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDE NCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIM ILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPAR ABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E-B USINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEA R 2007- 08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINE D TO CONCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT IN FOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SIN CE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM S OFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REV ENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAI LABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. I T IS ORDERED ACCORDINGLY. IT(TP)A NO.1567/BANG/2012 PAGE 20 OF 42 12. WIPRO LTD. 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE S ON SEVERAL GROUNDS LIKE FUNCTIONAL DIS-SIMILARITY, BRA ND VALUE, SIZE, ETC. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJ ECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SE T OF COMPARABLES. 12.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. W IPRO LTD., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOLLOWING REASONS :- (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN T HE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELA TED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGI STERED PATENTS AND HAS 62 PENDING APPLICATIONS AND ITS ANN UAL REPORT CONFIRMS THAT IT OWNS PATENTS AND INTANGIBLE S. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AG NITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIA NT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEAD ING TO HIGHER PROFITS, CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK; (III) THE CO-ORDINATE BENCH OF THE ITAT, MUMBAI IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT FUNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVI DER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PU RSUANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. (V) WIPRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVEL OPMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION I S IT(TP)A NO.1567/BANG/2012 PAGE 21 OF 42 AVAILABLE ON THE SEGMENTAL BIFURCATION OF REVENUE F ROM SALE OF PRODUCTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPU TING THE MARGINS, WHICH IS IN CONTRADICTION TO THE TPOS OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 12.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PE RUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MER IT IN THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS C OMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON T HE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COMPANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW T HE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHE R MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINA NCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 12.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INT ELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVE RAL PENDING APPLICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS H ELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARE D TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DO ES NOT IT(TP)A NO.1567/BANG/2012 PAGE 22 OF 42 OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECIS ION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOME R.COM PVT. LTD. (SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, TH EREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPA NY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 13. TATA ELXSI LTD. 13.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERA L COUNTS LIKE, FUNCTIONAL DIS-SIMILARITY, SIGNIFICANT R&D AC TIVITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE C ONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUT HORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIONALL Y COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDER SOFTWARE DEVELOPMENT AND SERVICES S EGMENT NAMELY A) PRODUCT DESIGN, (B) INNOVATION DESIGN ENGINEERING AND (C) VISUAL COMPUTING LABS AS IS REFLECTED IN TH E ANNUAL REPORT OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT, (I) THE CO-ORDINATE BENCH OF THE MUMBAI TRIBUNA L IN THE CASE OF TELECORDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS HELD THAT TATA ELXSI LTD. IS NOT A FUNCTIONALLY COMPARAB LE FOR A SOFTWARE DEVELOPMENT SERVICE PROVIDER. (II) THE FACTS PERTAINING TO TATA ELXSI LTD. HA VE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT Y EAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSID ERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND . IT(TP)A NO.1567/BANG/2012 PAGE 23 OF 42 (III) TATA ELXSI LTD. IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEV ELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMP ANY THE DESCRIPTION OF THE SEGMENT SOFTWARE DEVELOPMENT SE RVICES RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. (IV) TATA ELXSI LTD. INVESTS SUBSTANTIAL FUNDS I N RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN TH E EMBEDDED PRODUCT DESIGN SERVICES SEGMENT OF THE COMPANY TO CREATE A PORTFOLIO OF REUSABLE SOFTWARE COMPONENTS, READY TO DEPLOY FRAMEWORKS, LICENSABLE IPS AND PRODUCTS. THE LEARNED AUTHORISED REPRESENTATIVE PLEADS THAT IN VIEW OF THE ABOVE REASONS, TATA ELXSI LTD. IS CLEAR LY FUNCTIONALLY DIFFERENT / DIS-SIMILAR FROM THE ASSES SEE AND THEREFORE OUGHT TO BE OMITTED FORM THE LIST OF COMP ARABLES. 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS CO MPANY IN THE LIST OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULL Y PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DE TAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWA RE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL RE PORT SHOW THAT THE SEGMENT SOFTWARE DEVELOPMENT SERVICE S RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO S OFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 13.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE O F TELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MUM/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE R ELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED B ELOW :- IT(TP)A NO.1567/BANG/2012 PAGE 24 OF 42 . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALE S HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATI O FROM PRODUCT AND SERVICES. THUS, ON THESE FACTS, W E ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REPORT OF THIS COMPANY PRODUCED BEFORE US, THE FACT S PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSE SSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONS IDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. 14. E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJEC TED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON TH E GROUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSE E. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSES SEE ON THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COM PANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISF IES ALL THE FILTERS. IT(TP)A NO.1567/BANG/2012 PAGE 25 OF 42 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTI ONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGA GED IN E-BUSINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CO NSULTING SERVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING S ERVICES. THESE SERVICES, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING (KPO) SERVICES. I T IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDE D SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED A UTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIVE INFOR MATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RE LIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHIC H SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTI ONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHO RISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMPANI ES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED A S COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RE LIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE O F CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIO NS LTD., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY I N THE LIST OF COMPARBALES ONLY ON THE BASIS OF THE STATEM ENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SEC TION IT(TP)A NO.1567/BANG/2012 PAGE 26 OF 42 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GI VE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMP ANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFOR MED BY THE ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PR ODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BE EN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF CAPITAL I-Q INFORMATION SYSTEMS (INDIA) (P) LTD. SU PRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARAB LE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HO LD THAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTE D FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATI ON IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECT ED. 15. THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LI ST OF COMPARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFORE US, THE ASSESSEE HAS OBJE CTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR T HE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT I S IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFT WARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD , THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTIO N. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE CO MPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODU CT DEVELOPMENT SERVICES. IT(TP)A NO.1567/BANG/2012 PAGE 27 OF 42 (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LT D. (2008- TII-04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THA T THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWAR E SERVICE PROVIDERS, AS ITS INCOME INCLUDES INCOME FR OM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COM PANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE A BOVE FACTS AND IN VIEW OF THE AFORECITED DECISION OF THE TRIBUNAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AN D LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PROD UCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE P UNE BENCH OF THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNI CATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOM E OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT O UGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS REN DERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION OF TH E PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OM ITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 16. LUCID SOFTWARE LTD. IT(TP)A NO.1567/BANG/2012 PAGE 28 OF 42 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY DIFFERENT AND THEREFORE NOT COMPARABLE TO SOFTWARE SERVICE PR OVIDERS BY THE ORDER OF A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT (TP)A NO.845/BANG/2011), FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES IND IA PVT. LTD. (ITA NO.7821/MUM/2011). (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE TO SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE C O- ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES OF L G SOFT INDIA PVT. LTD. (ITA NO.1121/BANG/2011) AND CSR IND IA PVT. LTD. [ IT(TP)A NO.1119/BANG/2011 ] AND BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TRANSWITCH INDIA PVT . LTD. (ITA NO.6083/DEL/2010). (IV) THE FACTUAL POSITION AND CIRCUMSTANCES PERT AINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSES SMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 AND THEREFORE ON THIS BASIS , THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE IN THE CASE ON HAND. (V) THE RELEVANT PORTION OF THE ANNUAL REPORT OF THIS COMPANY EVIDENCES THAT IT IS IN THE BUSINESS OF PRO DUCT DEVELOPMENT. IT(TP)A NO.1567/BANG/2012 PAGE 29 OF 42 THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNA L IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 AND OTHER CASES CITED ABOVE, IT IS CLEAR THAT THIS COMP ANY BEING INTO PRODUCT DEVELOPMENT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER AND THEREFORE THIS COMPAN Y I.E. LUCID SOFTWARE LTD., OUGHT TO BE OMITTED FROM THE L IST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCL UDING THIS COMPANY IN THE LIST OF COMPARABLES. 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID S OFTWARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRO DUCTS WHEREAS THE ASSESSEE, IN THE CASE ON HAND, IS IN TH E BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALS O FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. (SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE CASE OF TRANSWITCH INDIA PVT. LTD . (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN T HE SOFTWARE PRODUCT DEVELOPMENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONALLY DIFFERENT AND DIS- SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIS T OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVID ERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMONSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCE S PERTAINING TO THIS COMPANY HAVE NOT CHANGED MATERIA LLY FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08 TO TH E PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. I N THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISI ONS OF THE IT(TP)A NO.1567/BANG/2012 PAGE 30 OF 42 CO-ORDINATE BENCHES OF THIS TRIBUNAL AND OF THE ITA T, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT THAT TH IS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 17. PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS C OMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANA LYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO REJE CTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINLY A SOFTWARE DEVELOPMENT COMPANY AND AS PER TH E DETAILS FURNISHED IN REPLY TO THE NOTICE UNDER SECT ION 133(6) OF THE ACT, SOFTWARE DEVELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF THE MATTER, THE ASSESSIN G OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIONALITY CR ITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS C OMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE S EVERAL OTHER FACTORS ON WHICH THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PUREL Y A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASS ESSEE IN THE CASE ON HAND. (II) PAGE 60 OF THE ANNUAL REPORT OF THE COMPAN Y FOR F.Y. 2007-08 INDICATES THAT THIS COMPANY, IS PREDOMINANT LY ENGAGED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPENDENT SOFTWARE VENDORS AND ENTE RPRISES. IT(TP)A NO.1567/BANG/2012 PAGE 31 OF 42 (III) WEBSITE EXTRACTS INDICATE THAT THIS COMPA NY IS IN THE BUSINESS OF PRODUCT DESIGN SERVICES. (IV) THE ITAT, MUMBAI BENCH IN THE CASE OF TELE CORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) WHILE DISCUSSI NG THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFT WARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INTO PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHICH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYS TEMS LTD. BE OMITTED FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSIS TENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE ASSESSEE IS A SOF TWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THAT, AS SU BMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVE N SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENU NCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THA T IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPAN Y CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, W E HOLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGH T TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UN DER CONSIDERATION. IT IS ORDERED ACCORDINGLY. IT(TP)A NO.1567/BANG/2012 PAGE 32 OF 42 18. QUINTEGRA SOLUTIONS LTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARA BLE. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUS ION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUN D THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THA T THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUA LIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF AC QUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVIN G THAT THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INFLUENCE ON THE PRICING OR THE MA RGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALL Y DIFFERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THI S COMPANY CANNOT BE CONSIDERED AS A COMPARABLE. IT W AS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SE RVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. THE A NNUAL REPORT OF THIS COMPANY ALSO STATES THAT IT IS ENGAG ED IN PREPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE ON HAND. (II) IN ITS ANNUAL REPORT, THE SERVICES RENDERE D BY THE COMPANY ARE DESCRIBED AS UNDER : LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROVIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES) , PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. IT(TP)A NO.1567/BANG/2012 PAGE 33 OF 42 (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATI ON OF INTELLECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EV IDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF TH E COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH I S AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRODUCTS DEVELOPED BY THE COMPANY HAVE BEEN COVERED BY THE PATENT RIGHTS. THE COMPANY HAS ALSO APPLIED FOR TRADE MARK REGISTRATION FOR ONE OF ITS PRODUCTS, VIZ. INVESTOR PROTECTION INDEX FUND (IPIF ). THESE MEASURES WILL HELP THE COMPANY ENHANCE ITS PRODUCTS VALUE AND ALSO MITIGATE RISKS. (IV) THE TPO HAS APPLIED THE FILTER OF EXCLUDIN G COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCES. QUINTEGRA FAILS THE TPOS OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REP ORT FOR F.Y. 2007-08, THE PERIOD UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THA T INTER ALIA, THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE ING FUNCTIONALLY DIFFERENT AND POSSESSING ITS OWN INTAN GIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO TH E ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIO D UNDER CONSIDERATION. 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERI OD UNDER CONSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM IT(TP)A NO.1567/BANG/2012 PAGE 34 OF 42 THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E . QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGI NEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT S ERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. I T IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN PROPRIETA RY SOFTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLI ED FOR TRADE MARK REGISTRATION OF ITS PRODUCTS, IT EVIDENC ES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD THAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED A S A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGI BLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARA BLES, AS IN THE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MA DE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED P RINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, W HICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN T HAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABL ES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTA NGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SO FTWARE SERVICE PROVIDER. 19. SOFTSOL INDIA LTD. 19.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT THIS CO MPANY IS IT(TP)A NO.1567/BANG/2012 PAGE 35 OF 42 FUNCTIONALLY DIFFERENT AND DIS-SIMILAR FROM IT. TH E TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND TH AT AS PER THE COMPANYS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT, THE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER AND THEREFORE INCLUDED THIS COMP ANY AS A COMPARABLE AS THE ASSESSEE WAS ALSO A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES. BEFORE US, IN ADDITI ON TO THE PLEA THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT, T HE ASSESSEE SUBMITTED THAT THIS COMPANY WAS EXCLUDED F ROM THE LIST OF COMPARABLES BY THE ORDER OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 (ITA NO.845/BANG/2011) ON T HE GROUND THAT THE RELATED PARTY TRANSACTIONS (RPT) IS IN EXCESS OF 15%. THE LEARNED AUTHORISED REPRESENTATI VE SUBMITTED THAT FOR THE CURRENT PERIOD UNDER CONSIDE RATION, THE RPT IS 18.3% AND THEREFORE THIS COMPANY REQUIRE S TO BE OMITTED FROM THE LIST OF COMPARABLES. 19.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES AS THIS COMPANY WAS A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE. 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 HAS EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES F OR THE REASON THAT RPT IS IN EXCESS OF 15% FOLLOWING THE D ECISION OF ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2011. AS THE FACTS FOR THIS YEAR ARE SIMILAR AND MATERIAL ON REC ORD ALSO INDICATES THAT RPT IS 18.3%, FOLLOWING THE AFORE CI TED DECISIONS OF THE CO-ORDINATE BENCHES (SUPRA), WE HO LD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMP ARABLES TO THE ASSESSEE IN THE CASE ON HAND. IT(TP)A NO.1567/BANG/2012 PAGE 36 OF 42 11. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , BODHTREE CONSULTING LTD. IS CONCERNED, THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT IN THE CASE OF NETHAWK NETWORKS PVT. LTD. ITA NO.7633/MUM/2012 AND ITAT BANGALORE IN THE CASE OF CISCO SYSTEMS (INDIA) PVT.LTD. ITA NO.271/BANG/2014 , THIS COMPANY WAS REGARDED AS NOT COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROV IDER SUCH AS THE ASSESSEE. THE FOLLOWING WERE THE RELEVANT OBSERVAT IONS OF THE TRIBUNAL IN THE CASE OF CISCO SYSTEMS(INDIA) LTD .: 26.1 BODHTREE CONSULTING LTD. :- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE THAT IN THE LIST OF COMPARABLES CHOSEN BY THE ASSESSEE, THIS COMPANY WAS ALSO INCLUDED BY THE ASSESSEE. THE ASSESSEE, HOWEVER, SUBMITS BEFORE US THAT LATER ON IT CAME TO THE ASSESSEES NOTICE THAT THIS COMPANY IS NOT BEIN G CONSIDERED AS A COMPARABLE COMPANY IN THE CASE OF COMPANIES RENDERI NG SOFTWARE DEVELOPMENT SERVICES. IN THIS REGARD, THE LD. COUN SEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. V. ITO, ITA NO.7633/MUM/2012, ORDER DATED 6.11.2013 . IN THIS CASE, THE TRIBUNAL FOLLOWED THE DECISION RENDE RED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF WILLS PROCESSING SERVICES (I) P. LTD., ITA NO.4547/MUM/2012 . IN THE AFORESAID DECISIONS, THE TRIBUNAL HAS TAKEN THE VIE W THAT BODHTREE CONSULTING LTD. IS IN THE BUSINESS OF SOFTWARE PROD UCTS AND WAS ENGAGED IN PROVIDING OPEN & END TO END WEB SOLUTION S SOFTWARE CONSULTANCY AND DESIGN & DEVELOPMENT OF SOFTWARE US ING LATEST TECHNOLOGY. THE DECISION RENDERED BY THE MUMBAI BE NCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS PVT. LTD. (SUPRA) IS IN RELATION TO A.Y. 2008-09. IT WAS AFFIRMED BY THE L EARNED COUNSEL FOR THE ASSESSEE THAT THE FACTS AND CIRCUMSTANCES IN TH E PRESENT YEAR ALSO REMAINS IDENTICAL TO THE FACTS AND CIRCUMSTANC ES AS IT PREVAILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CO NCERNED. FOLLOWING THE AFORESAID DECISION OF THE MUMBAI BENC H OF THE TRIBUNAL, WE HOLD THAT BODHTREE CONSULTING LTD. CAN NOT BE REGARDED AS A COMPARABLE. IN THIS REGARDS, THE FACT THAT TH E ASSESSEE HAD ITSELF PROPOSED THIS COMPANY AS COMPARABLE, IN OUR OPINION, SHOULD NOT BE THE BASIS ON WHICH THE SAID COMPANY SHOULD B E RETAINED AS A IT(TP)A NO.1567/BANG/2012 PAGE 37 OF 42 COMPARABLE, WHEN FACTUALLY IT IS SHOWN THAT THE SAI D COMPANY IS A SOFTWARE PRODUCT COMPANY AND NOT A SOFTWARE DEVELOP MENT SERVICES COMPANY. 12. THE LEARNED DR HOWEVER POINTED OUT THAT IN THE CASE OF 3 DPLM (SUPRA) THIS TRIBUNAL HAS HELD THAT BODHTREE LTD. I S A COMPARABLE COMPANY IN THE CASE OF SOFTWARE SERVICE PROVIDER. THE FOLL OWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL POINTED OUT BY HIM: 8.0 BODHTREE CONSULTING LTD. 8.1 THIS COMPANY HAS BEEN SELECTED AS A COMPARABLE COMPANY TO THE ASSESSEE BY THE TPO; THE INCLUSION OF WHICH WAS NOT OBJECTED TO BY THE ASSESSEE BEFORE BOTH THE TPO AND THE DRP. THE ASSESSEE HAS NOT OBJECTED TO THE INCLUSION OF T HIS COMPANY IN THE LIST OF COMPARABLES, AS CAN BE SEEN FROM TH E GROUNDS OF APPEAL RAISED IN FORM 36B BEFORE THIS TRIBUNAL. 8.1 HOWEVER IN THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE FOLLOWING REAS ONS : (I) THIS COMPANY HAS REPORTED ABNORMALLY FLUCTUATI NG MARGINS IN THE PERIOD FROM 2005 TO 2011, WHICH INDICATE ABNORM AL BUSINESS FACTORS AND ABNORMAL PROFIT MARGINS AND HENCE SHOUL D NOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE. (II) THE ABNORMALLY FLUCTUATING MARGINS INDICATE T HAT THIS COMPANY BEARS HIGHER RISK IN CONTRAST TO THE ASSESS EE WHO HAS EARNED CONSISTENT MARGINS OVER THE YEARS, INDICATIN G DIFFERENCE IN THE RISK PROFILE BETWEEN THIS COMPANY AND THE AS SESSEE. (III) THIS COMPANY HAS REGISTERED EXPONENTIAL GR OWTH OF 67% IN TERMS OF REVENUE AND 41% IN TERMS OF PROFITS OVER T HE IMMEDIATELY PRECEDING YEAR WHICH CAN BE ATTRIBUTED TO THE DEVELOPMENT OF A SOFTWARE APPLICATION, MIDAS (MULTI INDUSTRY DATA ANOMALY) WHICH WAS MADE AVAILABLE FOR CUSTOMER S AS SAAS (SOFTWARE AS A SERVICE). IT(TP)A NO.1567/BANG/2012 PAGE 38 OF 42 8.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE OPPOSED THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT SINCE THE ASSESSEE HA D ACCEPTED THE TPOS PROPOSAL FOR INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES AND HAD NOT OBJECTED TO ITS INCLUSION E VEN BEFORE THE DRP, THE OBJECTIONS RAISED BY THE ASSESSEE IN T HIS REGARD, AT THIS STAGE, OUGHT TO BE REJECTED. 8.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD. ADMITTEDLY, THE RE IS NO DISPUTING THE FACT THAT THE ASSESSEE HAD NEVER OBJE CTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARBALES IN EARLIER PROCEEDINGS BEFORE THE TPO AND THE DRP. IT IS ALSO SEEN THAT EVEN IN THE GROUNDS OF APPEAL RAISED BEFORE US, THE ASSESSEE HAS NOT RAISED ANY GROUNDS CHALLENGING THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARBALES. IN FACT IN THE ASSESSE E'S OWN CASE FOR ASSESSMENT YEAR 2007-08, THIS COMPANY WAS SELEC TED AS A COMPARABLE BY THE ASSESSEE ITSELF. WE, THEREFORE, FIND NO MERIT IN THE CONTENTIONS RAISED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN RESPECT OF THIS C OMPANY AT THIS STAGE OF PROCEEDINGS. 8.4.2 IT IS ALSO SEEN FROM THE SUBMISSIONS MADE BEF ORE US THAT THE ASSESSEE HAS ONLY POINTED OUT FLUCTUATING MARGI NS IN THE RESULTS OF THIS COMPANY OVER THE YEARS. THIS, IN I TSELF, CANNOT BE REASON ENOUGH TO ESTABLISH DIFFERENCES IN FUNCTIONA L PROFILE OR ANY CLINCHING FACTUAL REASON WARRANTING THE EXCLUSI ON OF THIS COMPANY FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, THE CONTENTIONS OF THE ASSESSEE ARE REJECTE D AND THIS COMPANY IS HELD TO BE COMPARABLE TO THE ASSESSEE AN D ITS INCLUSION IN THE LIST OF COMPARABLE COMPANIES IS UP HELD. 13. THE LEARNED DR FURTHER SUBMITTED THAT WIPRO LTD ., WAS REGARDED AS NOT COMPARABLE ON THE GROUND OF FUNCTIONAL DISSIMIL ARITY IN THE CASE OF IT(TP)A NO.1567/BANG/2012 PAGE 39 OF 42 3DPLM (SUPRA) AS IT WAS NOT ONLY IN RENDERING SOFTW ARE DEVELOPMENT SERVICES BUT ALSO SOFTWARE PRODUCTS. THE LEARNED D R POINTED OUT THAT THE TPO IN THIS CASE HAS APPLIED ONLY THE SEGMENTAL RES ULTS OF WIPRO LTD. AND THEREFORE THE DECISION RELIED UPON BY THE LEARNED C OUNSEL FOR THE ASSESSEE WILL NOT BE APPLICABLE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT IF THE AFORESAID COMPARABLE COMPANIES ARE EXCLUDED FRO M THE LIST OF 20 COMPARABLE COMPANIES CHOSEN BY THE TPO THEN THE PRO FIT MARGIN OF THE ASSESSEE WOULD BE WELL WITHIN THE (+) (-) 5% RANGE OF THE ARITHMETIC MEAN OF THE REMAINING COMPARABLE COMPANIES AND THEREFORE THE PRICE RECEIVED BY THE ASSESSEE WOULD BE CONSIDERED AS AT ARMS LENG TH. HE PRAYED FOR A LIMITED DIRECTION TO THE TPO ON THE LINES SET OUT A BOVE AND DETERMINE THE ALP. IT ALSO SUBMITTED THAT THE OTHER ISSUES RAISE D BY THE ASSESSEE IN THE GROUNDS OF APPEAL NEED NOT BE GONE INTO. 15. WE ARE OF THE VIEW THAT THE PRAYER SOUGHT FOR BY THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCEPTABLE AND ACCORDINGLY, THE TPO IS DIRECTED TO COMPUTE ALP AFTER EXCLUDING THE COMPARABLE COMPANIE S DEALT WITH IN THIS ORDER. 16. GROUND NO.6 RAISED BY THE ASSESSEE IS WITH REGA RD TO METHOD OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. TH E ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S.10A OF THE ACT. WHILE COMPU TING DEDUCTION U/S.10A OF THE ACT, THE AO EXCLUDED CERTAIN EXPENSES FROM EXPORT TURNOVER ON THE IT(TP)A NO.1567/BANG/2012 PAGE 40 OF 42 GROUND THAT THESE EXPENSES ARE INCURRED IN RENDERIN G TECHNICAL SERVICES RENDERED TO CLIENTS OUTSIDE INDIA AND THEREFORE TO BE EXCLUDED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SEC TION 10A. THE ASSESSEE PRAYED THAT THE AFORESAID EXPENDITURE ARE NOT OF THE NATURE SET OUT IN EXPLANATION 2(IV) TO SEC.10A OF THE ACT WHIC H DEFINES EXPORT TURNOVER. THE ASSESSEE ALSO MADE AN ALTERNATE PRA YER THAT EXPENSES THAT ARE REDUCED FROM THE EXPORT TURNOVER SHOULD AL SO BE REDUCED FROM THE TOTAL TURNOVER AND IN THIS REGARD HAS PLACED RELIAN CE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN THE HONBLE COURT HELD THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EX CLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S .10A OF THE ACT. THE MAIN PRAYER AS WELL AS THE ALTERNATE PRAYER WAS REJ ECTED BY THE AO AS WELL AS DRP. 17. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR ON THE ISSUES RAISED IN GROUND NOS.6. TAKING INTO CON SIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSING OFFICER TO EXCLUDE TELECOMMUNICATION CHARGES AND TRAVELING EXPENSES OF RS.6,57,92,778/- INCURRED IN FOREIGN CURRENCY BOTH FROM EXPORT TURNO VER AND TOTAL TURNOVER, AS HAS BEEN PRAYED FOR IN THE ALTERNATIVE BY THE ASSES SEE IN GROUND NO.6. IN VIEW OF THE ACCEPTANCE OF THE ALTERNATIVE PRAYER IN GROUND NO.6, WE ARE OF IT(TP)A NO.1567/BANG/2012 PAGE 41 OF 42 THE VIEW THAT NO ADJUDICATION IS REQUIRED ON OTHER ISSUES RAISED IN GROUND NO.6 AS TO WHETHER THE SUMS IN QUESTION SHOULD BE E XCLUDED FROM THE EXPORT TURNOVER OR NOT. 18. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF MAY, 2015. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL M EMBER ENCL: ANNEXURE-I BANGALORE, DATED, THE 14 TH MAY, 2015. /D S/ IT(TP)A NO.1567/BANG/2012 PAGE 42 OF 42 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.