Trianz Holdings Private Limited, Bangalore V. DCIT, Bangalore

ITA 1568/BANG/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8445 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 18-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SRINIVAS K P
• Keywords: Depreciation; Transfer pricing; International transaction; Revenue expenditure
• Section: 133(6)

Judgement Text

IT(TP)A.NO.1568/BANG/2012 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T(TP).A NO1568/BANG/2012 (ASSESSMENT YEAR : 2008-09) TRIANZ HOLDINGS P. LTD, (FORMERLY TRIANZ CONSULTING P. LTD) NO. 165/2, 6 TH FLOOR, KALYANI MAGNUM, DORAISANI PALYA, IIM POST), BANNERUGHATTA ROAD, BENGALURU 560 076 .. APPELL ANT PAN : AABCT6050H V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. SRINIVAS K P, CA REVENUE BY : SMT. NEERA MALHOTRA, CIT HEARD ON : 26.12.2016 PRONOUNCED ON : 21.03.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ASSESSMENT ORDER DT.28.09.2012 PASSED U/S.143(3) R.W.S.144C IN PURS UANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), FOR THE ASSE SSMENT YEAR 2008-09. 02. TRIANZ HOLDINGS P. LTD , THE ASSESSEE, IS REGIST ERED AS A 100 PER CENT EXPORT ORIENTED UNIT UNDER THE STPI REGULA TIONS AND HAS ITS STP UNIT AT BANGALORE . IT UNDERTAKES CORE SOFTWARE SERVICE ACTIVITIES FOR TRIANZ US AND PROVIDES SIMILAR SERVICES TO ITS INDEPENDENT CUSTOMERS. THE SERVICES TO TRIANZ US ARE BEING PROV IDED UNDER A IT(TP)A.NO.1568/BANG/2012 PAGE - 2 CONTRACT. TRIANZ US ENTERS INTO CONTRACT WITH END- CUSTOMERS AND SUB- CONTRACTS A PORTION OF THE SAME TO TRIANZ INDIA. TR IANZ INDIA'S SCOPE IS RESTRICTED TO CARRYING OUT THE WORK BASED ON REQ UESTS AND SPECIFICATIONS PROVIDED BY TRIANZ US. IT FILED ITS RETURN ON 30.9. 2008 WITH A NIL INCOME AND A LOSS OF RS.14,11,62,551/- 03. ON ITS INTERNATIONAL TRANSACTIONS, THE ASSESSEE HAD ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) TO ARRIVE AT THE ARM'S LENGTH PRICE WITH 14 COMPARABLES. ALTHOUGH, THE TPO ACCEPT ED TRANSACTIONAL NET MARGIN METHOD BUT REJECTED THE ASSESSEES TP STUDY , REJECTED 11 COMPARABLES OUT OF 14 CHOSEN BY THE ASSESSEE, INTR ODUCED 17 NEW COMPARABLES, ARRIVED AN ADJUSTED MEAN MARGIN AT 23 .58% AS AGAINST THE ASSESSEES MARGIN OF 27.11% AND MADE AN ADDITI ON AT RS.2,48,34,842/-. THE AO MADE MADE VARIOUS OTHER A DDITIONS/DISALLOWANCES IN RESPECT OF THE DOMESTIC CORPORATE TAX FRONT. ON THE ASSESSEES OBJECTIONS, THE DRP BUT FOR REMITTING ONE ISSUE, DISMISSED AL L OTHER ISSUES UNDER CONSIDERATION OF THIS APPEAL. AGGRIEVED, THE ASSES SEE FILED A LENGTHY GROUNDS OF APPEAL AND LATER ON FILED A CONCISE GROUNDS AS U NDER : IT(TP)A.NO.1568/BANG/2012 PAGE - 3 IT(TP)A.NO.1568/BANG/2012 PAGE - 4 IT(TP)A.NO.1568/BANG/2012 PAGE - 5 04. THE FIRST ISSUE ARGUED IS THAT THE A O HAS ERRED IN DISALLOWING AND THE DRP IN UPHOLDING THE PROVISION FOR MARK-TO- MARKET LOSS ON DERIVATIVES AT RS. 1,000,000 ON THE BASIS THAT SUC H LOSS IS NOTIONAL, CANNOT BE DEBITED TO THE PROFIT AND LOSS ACCOUNT AN D TREATED AS AN ALLOWABLE EXPENDITURE. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE ICAI HAD ISSUED AS 30 - FINANCIAL INSTRUM ENTS: RECOGNITION AND MEASUREMENT, WHICH CONTAINED GUIDAN CE ON ACCOUNTING FOR DERIVATIVES. THIS STANDARD BECAME RE COMMENDATORY FROM APRIL 1, 2009 AND MANDATORY FROM APRIL 1, 2011 . HOWEVER, VIDE AN ANNOUNCEMENT DATED MARCH 29, 2008, THE ICAI COUNCIL HAD EXPRESSED THEIR VIEW THAT SINCE THE AFORESAID STANDARD CONTAI NED APPROPRIATE ACCOUNTING FOR DERIVATIVES, THE SAME COULD BE FOLLO WED BY ENTITIES FROM AN EARLIER DATE, AS THE EARLIER ADOPTION OF A STANDARD WAS ALWAYS ENCOURAGED. FURTHER, IN CASE AN ENTITY DID NOT FOLL OW AS- 30, KEEPING IN VIEW THE PRINCIPLE OF PRUDENCE AS ENUNCIATED IN AS-1: DISCLOSURE OF ACCOUNTING POLICIES, ENTITIES WERE RE QUIRED TO PROVIDE FOR LOSSES IN RESPECT OF ALL OUTSTANDING DERIVATIVE CON TRACTS AT THE BALANCE SHEET DATE BY MARKING THEM TO MARKET. PURSUANT TO T HE ICAI'S ABOVE MENTIONED ANNOUNCEMENT , THE ASSESSEE CREATED A PR OVISION FOR IT(TP)A.NO.1568/BANG/2012 PAGE - 6 MARK-TO -MARKET LOSS ON DERIVATIVES AMOUNTING TO RS . 1,000,000 BASED ON THE PRINCIPLES OF PRUDENCE ENUNCIATED IN A S-1 AND PLACED RELIANCE ON THE RATIOS IN MUMBAI SPECIAL BENCH OF THE INCOME- TAX APPELLATE TRIBUNAL IN THE CASE OF BANK OF BAHRA IN & KUWAIT [2010-TIOL-447-ITAT MUM-SB], THE APEX COURT DECISI ON IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. [2009] 312 ITR 254 AND BHARAT EARTH MOVERS [2000] 245 ITR 428, PARA 11 OF THE MUMBAI TRIBUNAL DECISION IN RELIANCE INDUSTRIES LTD IN ITA NO 7223/ MUM/2011 FOR AY 2008- 09 DT 20.11.2013 ETC. WE HEARD THE RIVAL CONTENTIONS. IT IS SEEN FROM THE DRP ORDER THAT IT HAS NOT CONSIDERED THE ASSESSEES SUBMISSIO NS INDEPENDENTLY BUT HELD THAT THAT THE VIEW TAKEN BY THE A O DO NOT CALL FOR ANY INTERFERENCE. IN VIEW OF THAT THIS ISS UE IS REMITTED BACK TO THE DRP FOR PASSING A REASONED ORDER AFTER GIVING DUE O PPORTUNITY TO THE ASSESSEE. 05. THE NEXT ISSUE ARGUED IS THAT THE A O HAS ERRED IN TAKING A VIEW THAT CUSTOMS DUTY PAID ON IMPORTS AT RS. 38,860 IS TO BE ADDED TO THE COST OF SUCH EQUIPMENTS/ ITEMS AND DISALLOWED T HE REVENUE EXPENDITURE AND THE DRP ERRED IN UPHOLDING THE SAME . IN THIS REGARD, THE ASSESSEE SUBMITTED THAT IT HAD PAID CUSTOMS DUT Y ON IMPORTS PERTAINING TO EQUIPMENTS / ITEMS PROCURED F OR CLIENTS PROJECTS AND IT HAS BEEN SUBSEQUENTLY BILLED TO TH E CLIENT. HENCE , IT(TP)A.NO.1568/BANG/2012 PAGE - 7 THE ASSESSEE HAS TAKEN DEDUCTION OF CUSTOM DUTY PA ID IN COMPUTATION OF TOTAL INCOME FOR A Y 2008-09. THE AMOUNT SUBSEQ UENTLY BILLED TO THE CLIENT HAS ALSO BEEN OFFERED AS INCOME IN THE COMPU TATION OF TOTAL INCOME ETC. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE DRP ORDER. PARA 11.4 OF ORDER MENTIONS THAT THE PANEL AFTER TAKING INTO CONSIDERATION OF THE FACTS DEEMS IT APPROPRIATE TO DIRECT THE AO TO REVISIT THIS ISSUE AND EXAMINE THE CLAIM THAT THE I MPUGNED CUSTOMS DUTY OF RS.38,860 ON IMPORTS PERTAINING TO EQUIPMEN TS / ITEMS PROCURED FOR CLIENTS PROJECTS AND THE SAME WAS SUBS EQUENTLY BILLED TO THE CLIENT. THIS GROUND IS DISPOSED OFF WITH THE DI RECTIONS AS ABOVE. SINCE THIS ISSUE IS REMITTED BACK TO THE AO, WE HOLD THAT THE DRPS DECISION DOES NOT REQUIRE ANY INTERFERENCE. 06. THE NEXT ISSUE ARGUED IS ON THE DISALLOWANCE OF RENT EQUALIZATION AT RS.18,82,944/-. THE ASSESSEE PROVIDED THIS SUM TOWARDS RENT EQUALIZATION IN ACCORDANCE WITH AS 19-LEASES, AS NO TIFIED BY THE MINISTRY OF CORPORATE AFFAIRS UNDER THE COMPANIES (ACCOUNTING S TANDARDS) RULES 2006. THE AO HELD THAT SINCE NO SUCH KNOWN LIABILITY EXIS TS, THE CLAIM IS NOT ALLOWABLE AND HENCE ADDED TO THE TOTAL INCOME. THE ASSESSEE PLEADED THAT THE RENT EQUALIZATION CHARGES ARE DEBITED TO THE P& L ACCOUNT , IT IS IN ACCORDANCE WITH AS-19 AND HENCE IT SHOULD BE ALLOW ED. IT(TP)A.NO.1568/BANG/2012 PAGE - 8 WE HEARD THE RIVAL SUBMISSIONS. AS POINTED OUT BY T HE DR, WE FIND THAT THE ASSESSEE HAS NOT RAISED ANY OBJECTION ON THIS ISSUE BEFORE THE DRP. SINCE, THIS ISSUE HAS ATTAINED FINALITY, WE DO NT ENTERTAIN THIS GROUND. 07. THE NEXT ISSUE ARGUED IS THAT THE ASSESSEE HAS OBJECTED TO CERTAIN COMPARABLES SELECTED BY THE TPO AND UPHELD BY THE D RP. OUT OF THE FINAL SET OF 20 COMPARABLES SUSTAINED BY THE TPO, THE AS SESSEE SOUGHT EXCLUSION OF 13 COMPARABLES , MAINLY ON ACCOUNT OF FUNCTIONAL DISSIMILARITY. IN SUPPORT OF IT, IT RELIED ON 2 OF THIS TRIBUNAL D ECISIONS AND ONE DECISION FROM THE MUMBAI TRIBUNAL. THEY ARE DEALT AS UNDER: 7.1. THE ASSESSEE SUBMITTED THAT THE COMPARABLES, AVANI CINCOM TECHNOLOGIES, CELESTIAL BIOLABS, INFOSYS TECHOLOGIE S LTD, KALS INFORMATION SYSTEMS LTD(SEG) , TATA ELXSI LTD(SEG) & WIPRO LTD (SEG) ARE FUNCTIONALLY DIFFERENT. CELESTIAL BIOLABS, APART FROM FUNCTIONAL LY DIFFERENT, DOES NOT SATISFY EMPLOYEE COST FILTER AND HAD ABNORMAL PROFIT. FOR E XCLUDING THEM, IT RELIED ON THIS TRIBUNAL DECISION IN M/S. CURAM SOFTWARE IN TERNATIONAL P. LTD V. ITO ITA.1280/BANG/2012, DT.31.07.2013 FOR AY 2008-09, W HICH HAS CHARACTERIZED ITSELF AS A PROVIDER OF SOFTWARE DEVE LOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES (AE). THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 9.0 (1) AVANI CIMCON TECHNOLOGIES LTD . 9.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPANY A S A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY CO MPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS WHEREAS TH E ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES TO ITS AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT THI S COMPARABLE IT(TP)A.NO.1568/BANG/2012 PAGE - 9 COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE D EVELOPER, JUST LIKE THE ASSESSEE, AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, THE TPO HAD RELIED ON INFORMATION SUB MITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPAN Y DIRECTLY. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COM PANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS IN TO SOFTWARE PRODUCTS. IT IS ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PU BLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORM ATION OBTAINED BY THE TPO UNDER SECTION 133(6) OF THE ACT, ON THE BAS IS OF WHICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARAB LE COMPANIES, HAS NOT BEEN 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) 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THE AFORESAID COMPANY IN THE FINAL LIST OF COMPARABLES BY THE TPO. THE LEARNED DEPARTMENTAL R EPRESENTATIVE ARGUED THAT THE RULING OF THE CO-ORDINATE BENCH IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) RELIED ON BY THE ASSESSEE WAS RENDERED IN THE FACTUAL CONTEXT OF THE POSITION THA T EXISTED FOR FINANCIAL YEAR 2006-07 VIS--VIS THIS COMPARABLE COMPANY AND TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. AND THERE CANNOT BE AN ASS UMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR F.Y. 2007-08 TH AT TOO VIS--VIS THE ASSESSEE, IN THE CASE ON HAND, WHICH IS A DIFFERENT ENTITY FROM TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD.. 9.4 THE LEARNED AUTHORISED REPRESENTATIVE, IN REJOI NDER TO THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTAT IVE, CONTENDED THAT THE FUNCTIONAL PROFILE OF THE COMPARABLE COMPA NY CONTINUES TO REMAIN THE SAME FOR THIS YEAR ALSO I.E. SOFTWARE PR ODUCTS, WHEREAS THE ASSESSEE IN THE CASE ON HAND PROVIDED SOFTWARE DEVE LOPMENT AND SUPPORT SERVICES TO ITS AE AND THEREFORE IT WAS CLE ARLY FUNCTIONALLY DIFFERENT. THE LEARNED AUTHORISED REPRESENTATIVE A LSO REITERATED THE SUBMISSIONS MADE EARLIER THAT THE ANNUAL REPORT OF THE COMPARABLE COMPANY IN THE PUBLIC DOMAIN WAS NOT COMPLETE AND T HAT THE INFORMATION RECEIVED BY THE TPO UNDER SECTION 133(6 ) OF THE ACT HAS NOT BEEN SHARED WITH THE ASSESSEE. 9.5.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF C OMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133 (6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY IT(TP)A.NO.1568/BANG/2012 PAGE - 10 FURNISHED THE INFORMATION SO GATHERED TO THE ASSESS EE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE DECID ING TO INCLUDE THIS COMPANY IN ITS FINAL LIST OF COMPARABLES. NON-FURN ISHING THE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARABLE. 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTH ORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE THAT THIS CO MPANY HAS TO BE DELETED FROM THE LIST OF COMPARABLES ONLY BECAUSE I T HAS BEEN DELETED FROM THE SET OF COMPARABLES IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUBT THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN THE CASE OF TRIOLOGY E-BUSINESS SOFTW ARE INDIA PVT. LTD. (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE O N THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS ALONE, HOWEVER, WIL L NOT SUFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRIOLOGY CASE ARE EQUALLY APP LICABLE TO THE FACTS OF THE ASSESSEE'S CASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS OF TRIOLOGY 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 CO MPARABILITY BETWEEN THE ASSESSEE AND THE TRIOLOGY CASE, THE ASSESSEE AL SO NEEDS TO DEMONSTRATE THAT THE FACTS APPLICABLE TO THE ASSESS MENT YEAR 2007-08, THE YEAR FOR WHICH THE DECISION IN CASE OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE ALSO APPLI CABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE A SSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. T HAT BEING SO, THE PRINCIPLE APPLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEA RS. TO DO THAT, IT IS NECESSARY TO FIRST ESTABLISH THAT THE FACTS AND ATT ENDANT FACTORS HAVE REMAINED THE SAME SO THAT THE FACTORS OF COMPARABIL ITY ARE THE SAME. VIEWED IN THAT CONTEXT, THE ASSESSEE HAS NOT DISCHA RGED THE ONUS UPON IT TO ESTABLISH THAT THE DECISION RENDERED IN THE C ASE OF TRIOLOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) CAN BE AP PLIED TO THE FACTS OF THE CASE AND THAT TOO OF AN EARLIER YEAR I.E. ASSE SSMENT YEAR 2007-08. THE ASSESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THA T THE FACTS OF TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT YEAR 2007-08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS DIRECTED TO MAKE AVA ILABLE TO THE ASSESSEE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING H EARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONS IDERED BEFORE PASSING ORDERS THEREON. IT IS ORDERED ACCORDINGLY. IT(TP)A.NO.1568/BANG/2012 PAGE - 11 10. (2) CELESTIAL BIOLABS LTD. 10.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR IN CLUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASS ESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPAR ABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FILTER. THE TPO, HOWEVER, BRUSHED AS IDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIO NS OF FUNCTIONAL DISSIMILARITY HAS BEEN DEALT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSMENT YEAR 2007-08. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED TH E OBJECTIONS BY OBSERVING THAT THE EMPLOYEE COST FILTER IS ONLY A T RIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 10.2.1 BEFORE US, THE LEARNED AUTHORISED REPRESENT ATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE TO THE ASSESSEE AS IT IS INTO BIO-INFORMATICS, SOFTWARE PR ODUCT / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED. THE ASSESS EE HAS EXTENSIVELY QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF T HE COMPANY, WHICH STATES AS UNDER : I) MISSION STATEMENT ON PAGE 2 OF THE ANNUAL REP ORT STATES THAT THE COMPANY IS ALSO INTO BIO-INFORMATICS PRODUCTS, ITES , ETC., CELESTIAL IS COMMITTED TO BE A TECHNOLOGY COMPANY RESPECTED GLOBALLY FOR ITS SOFTWARE DEVELOPMENT, PRODUCTS , SERVICES IN THE AREA OF BIO- INFORMATICS, ENTERPRISE RESOURCES PLANNING, INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLES SERVICES (EMPHASIS SUPPLIED). II) THE FUTURE OUTLOOK IN THE DIRECTORS REPORT O F THE ANNUAL REPORT INDICATES THAT THE COMPANY IS INTO LARGE SCALE DEVE LOPMENT OF BIO TECH PRODUCTS. . YOUR COMPANY IS SETTING UP A MANUFACTURING FAC ILITY TO MANUFACTURE INDUSTRIAL ENZYMES, ACTIVE PHARMACEUTICALS INGREDIE NTS AND HERBAL PHARMACEUTICALS. . III) PUBLIC ISSUE IN THE DIRECTORS REPORT ON PA GE 13 OF THE ANNUAL REPORT STATES :- THE COMPANY HAS RAISED RS.30 CRORES FOR PRODUC TION OF ENZYMES, BIO TECH PRODUCTS AND DRUG MOLECULE DEVELOPMENT, ET C., WITH AN ESTIMATED PROJECT COST OF RS.50 CRORES. IV) FINANCIALS IN MANAGEMENT DISCUSSION & ANALY SIS ON PAGE 16 OF THE ANNUAL REPORT STATES :- .. THE COMPANY HAS ACHIEVED A TURNOVER OF RS.2,0 21.12 LAKHS FROM SALES AND SERVICES AGAINST THE TURNOVER OF RS.1,412 .76 LAKHS IN THE PREVIOUS FISCAL YEAR. THE SALES ARE HIGHER BY 608.3 6%. THE GROWTH HAS BEEN ACHIEVED THROUGH SERVICES MADE IN BIO-TECHNOLO GY, IMPLEMENTATIONS, PRODUCT DEVELOPMENT, I T ENABLED S ERVICES AND ALSO THROUGH RATIONAL SPENDING IN COSTS. V) BUSINESS ANALYSIS IN THE MANAGEMENT DISCUSSIO N & ANALYSIS ON PAGE 16 OF THE ANNUAL REPORT STATES :- IT(TP)A.NO.1568/BANG/2012 PAGE - 12 PRODUCTS THE COMPANY HAS DEVELOPED TAXABILITY PREDICTION TO OL CLL-TOX TO PREDICT THE TOXICITY OF A GIVEN MOLECULE. YOUR COM PANY FILED IPR BY FILING UNDER THE COPYRIGHT / PATENT ACT (APPRAISED AND FU NDED BY DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH.) THE COMPANY HAS DEVELOPED AN ERP PRODUCT CELL VIS ION USING MICROSOFT TECHNOLOGIES. CELL VISION IS A CUSTOM IM PLEMENTED PRODUCT WHICH CATERS TO THE NEEDS OF MANY INDUSTRIAL SEGMEN TS. THE COMPANY IS FORESEEING GOOD RESERVES DURING THE YEARS TO COME . YOUR COMPANY ALSO DEVELOPED A PORTAL CALLED SANJEEVANI INDIA.COM . VI) SCHEDULE 7 OF THE FINANCIAL STATEMENTS ON PAG E 25 OF THE ANNUAL REPORT INDICATES THAT THE COMPANY HAS SIGNIFICANT P RODUCT DEVELOPMENT EXPENDITURE PERTAINING TO DRUG MOLECULE AND CELSUIT E. VII) TURNOVER UNDER NOTES ON ACCOUNTS FOR FIN ANCIAL STATEMENTS ON PAGE 35 OF THE ANNUAL REPORT STATES THAT THE TUR NOVER FROM BIO INFORMATICS SERVICES, DATA WAREHOUSING AND MIXING, SOFTWARE DEVELOPMENT, PRODUCTS AND SERVICES FOR F.Y. 2007-0 8 IS 2021.12 LAKHS. 10.2.2 THE ASSESSEE ALSO PLACED RELIANCE IN S UPPORT OF ITS STAND THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMP ARABLE COMPANIES ON THE FOLLOWING DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL :- I) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DCIT (ITA NO.1054/BANG/2011) II) MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (IT (T.P.)A NO.1222/BANG/2011) 10.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE CONTENDED THAT THE RULING IN THE CASE OF TRIOLOGY E -BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED WITH RESPECT T O F.Y.2006-07 AND THERE CANNOT BE AN ASSUMPTION OR PRESUMPTION THAT I T WOULD CONTINUE TO BE APPLICABLE TO F.Y. 2007-08 AS WELL. 10.4 TO THIS, THE LEARNED AUTHORISED REPRESENTATIVE COUNTERED THAT THE FUNCTIONAL PROFILE OF THIS COMPANY CONTINUES TO REMAIN THE SAME FOR F.Y. 2007-08 AS IT WAS IN F.Y. 2006-07 AND THE SAME IS EVIDENT FROM THE ANNUAL REPORT QUOTED EXTENSIVELY ABOVE AT PARA 10.2 .1 (SUPRA). 10.5.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUD ICIAL DECISIONS CITED. AS DISCUSSED EARLIER, THERE IS MERIT IN THE CONTENT ION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RULING OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E-BUSINESS SO FTWARE INDIA PVT. LTD. (SUPRA), WAS WITH RESPECT TO THE FACTS RELEVANT TO AN EARLIER FINANCIAL YEAR AND THERE CANNOT BE AN ASSUMPTION THAT IT WOUL D CONTINUE TO BE APPLICABLE TO ALL OTHER ASSESSEES FOR THIS YEAR AS WELL. AT THE SAME TIME, WE FIND THAT THE TPO ALSO SEEMS TO HAVE SELECTED TH IS COMPANY AS A COMPARABLE, BASED ON THE REASONING GIVEN IN THE TPO S ORDER FOR THE EARLIER YEAR I.E. F.Y. 2006-07. EVIDENTLY, IN THIS VIEW OF THE MATTER, THE TPO HAS NOT CONDUCTED ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY IT(TP)A.NO.1568/BANG/2012 PAGE - 13 FOR THE YEAR UNDER CONSIDERATION AND THEREFORE THE SELECTION PROCESS ADOPTED BY THE TPO IS DEFECTIVE. 10.5.2 FURTHER, BESIDES RELYING ON THE DECISIO N OF THE CO-ORDINATE BENCH IN THE CASE OF TRIOLOGY E-BUSINESS SOFTWARE I NDIA PVT. LTD. (SUPRA), THE ASSESSEE HAS DEMONSTRATED THAT THE FIN DING GIVEN THEREIN FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. FURTHER, THE ASSESSEE HAS ALSO BROUGHT ON RECORD SUBSTANTIAL EVIDENCE BY QUOTING FROM VARIOUS PORTIONS OF THE ANNUAL REPORT THAT THI S COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. WE AGREE WITH TH E SUBMISSIONS MADE BY THE ASSESSEE, THAT AS PER THE DETAILS FROM THE A NNUAL REPORT OF THIS COMPANY, IT IS FUNCTIONALLY DIFFERENT FROM THE ASSE SSEE. IN VIEW OF THE FACT THAT THE FINANCIAL PROFILE AND OTHER PARAMETER S OF THIS COMPANY HAVE NOT CHANGED DURING THE YEAR UNDER CONSIDERATION, WH ICH FACT HAS BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWING THE DECISIO N OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E-BU SINESS SOFTWARE INDIA PVT. LTD. (SUPRA), WE HOLD THAT THE COMPANY OUGHT T O BE EXCLUDED FROM THE LIST OF COMPARABLES. IT IS ORDERED ACCORDINGLY . 11.0 (3) KALS INFORMATION SYSTEMS LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BE FORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUNDS OF FUNCTIONAL DIFFERENCE S AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVIDED IN THE ANN UAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWARE SERVICES REVENUE A ND SOFTWARE PRODUCTS REVENUE. THE TPO, HOWEVER, REJECTED THE O BJECTIONS OF THE ASSESSEE OBSERVING THAT THE SOFTWARE PRODUCTS AND T RAINING CONSTITUTES ONLY 4.24% OF TOTAL REVENUES AND THE REVENUE FROM S OFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF T HE TOTAL OPERATING REVENUES FOR THE F.Y. 2007-08 AND QUALIFIES AS A CO MPARABLE BY THE SERVICE INCOME FILTER. 11.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE, AS IT IS INTO SOFTWARE PRO DUCTS. THE ASSESSEE HAD ALSO SUBMITTED THAT :- (I) THIS COMPANY HAS TWO SEGMENTS NAMELY ; APPLICAT ION SOFTWARE SEGMENT WHICH INCLUDES SOFTWARE PRODUCT REVENUES, W HILE THE TRAINING SEGMENT DOES NOT HAVE ANY PRODUCT REVENUE. (II) FROM THE ANNUAL REPORT OF KALS FOR THE YEAR EN DED 31.3.2008; I.E. THE YEAR UNDER CONSIDERATION, IT IS OBSERVED THAT T HE COMPANY IS INTO PROVISION OF SOFTWARE DEVELOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. INVENTORIES UNDER SCHEDULE TO THE FINANCIAL STATE MENTS ON PAGE 16 OF THE ANNUAL REPORT DISCLOSES SOFTWARE DEVELOPMENT AS INVENTORY AND WORK-IN-PROGRESS. IT IS TO BE NOTED THAT A PURE SO FTWARE DEVELOPMENT SERVICE PROVIDER WOULD NOT BE ABLE TO DISCLOSE SUCH DETAILS AS IT DOES NOT CARRY ANY SUCH INVENTORY OR WORK-IN-PROGRESS. IT(TP)A.NO.1568/BANG/2012 PAGE - 14 BACKGROUND UNDER THE SCHEDULES TO THE FINANCIAL STATEMENTS ON PAGE 18 OF THE ANNUAL REPORT STATES :- THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THIS COMPANY CONSISTING OF STPI UNIT ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTRE ENGAGED IN TRAINING OF SOFTW ARE PROFESSIONALS ON ONLINE PROJECTS (EMPHASIS PROVIDE D). REVENUE RECOGNITION UNDER NOTES TO THE FINANCIA L STATEMENTS ON PAGE 18 OF THE ANNUAL REPORT STATES :- THE COMPANY DERIVES ITS REVENUES PRIMARILY FROM SO FTWARE SERVICES AND SOFTWARE PRODUCTS. (III) AS PER THE WEBSITE OF KALS, THE COMPANY HAS D EVELOPED TWO PRODUCTS, NAMELY; VIRTUAL INSURE AND LA-VISION ESTABLISHING THE FACT THAT KALS EARNS REVENUES FROM THE DEVELOPMENT OF SO FTWARE PRODUCTS. (IV) THE SEGMENTAL INFORMATION PROVIDED UNDER NOT ES ON ACCOUNTS OF THE ANNUAL REPORT PROVIDES THE BREAK-UP OF REVENUES FROM TWO SEGMENTS, NAMELY APPLICATION SOFTWARE AND TRAINI NG WHICH SHOWS THAT REVENUE FROM SOFTWARE PRODUCTS FORMS PART OF APPLIC ATION SOFTWARE AND THERE ARE NO SEGMENTAL DETAILS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDIC IAL DECISIONS RENDERED IN THE FOLLOWING CASES : A) TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (IT A NO.1054/BANG/2011) B) MERCEDES BENZ RESEARCH & DEVELOPMENT INDIA PVT. LTD. (IT(TP)A NO.1222/BANG/2011). 11.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE CONTENDED THAT THE DECISION OF THE CO-ORDINATE BENC H OF THE TRIBUNAL IN THE CASE OF TRIOLOGY 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 CONSIDERATION I.E. A.Y. 2008-09. TO THIS, THE COUN TER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCT IONAL PROFILE OF THIS COMPANY CONTINUES TO REMAIN THE SAME FOR THE YEAR U NDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CALLE D OUT FROM THE ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 11.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUD ICIAL DECISIONS CITED. AS DISCUSSED EARLIER IN THIS ORDER, THERE IS MERIT IN THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RULING RENDERED IN THE CASE OF TRIOLOGY E-BUSINESS INDIA PVT. LTD. (SUPRA) WAS WITH RESPECT TO AN EARLIER PERIOD I.E. F.Y. 2006-07 AND THERE CANNO T BE AN ASSUMPTION OR PRESUMPTION THAT IT IS APPLICABLE FOR THE YEAR UNDE R CONSIDERATION AS WELL. AT THE SAME TIME, WE FIND THAT THE TPO HAS D RAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133 (6) OF THE ACT, WHICH WAS NOT IN THE PUBLIC DOMAIN AND COULD NOT HAVE BEE N USED BY THE TPO, IT(TP)A.NO.1568/BANG/2012 PAGE - 15 WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HE COMPANY AS HAS BEEN HIGHLIGHTED BY THE ASSESSEE IN ITS SUBMISSIONS . WE ALSO FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT PURELY OR MAINLY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. FURTHER, APART FROM RELYING ON THE DECISION OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA), THE ASSESSEE HAS BROUGHT ON RECORD SUBSTANTIAL EVIDENCE QUOTING FROM VARIOUS PORTIONS OF THE ANNUAL REPORT OF THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASS ESSEE AND HENCE IS NOT COMPARABLE AND THEREFORE THE FINDING RENDERED IN RE SPECT OF THIS COMPANY IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. FOR ASSESSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR I.E. ASSESSMENT YEAR 2008-09 ALSO. IN VIEW OF THE FACTS AND CIRCUM STANCES OF THE CASE AS DISCUSSED ABOVE, WE HOLD THAT THIS COMPANY I.E. KALS INFORMATION SYSTEMS LTD., IS TO BE OMITTED FROM THE SET OF COMP ARABLE COMPANIES. 12. (4) INFOSYS TECHNOLOGIES LTD. 12.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPA NY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND A TTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTION S RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER AND BRAND ASP ECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEG MENT. 12.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND IN THI S CONTEXT HAS CITED VARIOUS PORTIONS OF THE ANNUAL REPORT OF THIS COMPA NY TO THIS EFFECT WHICH IS AS UNDER :- (I) THE COMPANY HAS AN INTELLECTUAL PROPERTY (IP) CELL TO GUIDE ITS EMPLOYEES TO LEVERAGE THE POWER OF IP FOR THEIR GRO WTH. IN 2008, THIS COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AN D FILED AN AGGREGATE 10 PATENTS IN INDIA AND THE USA. TILL DA TE THIS COMPANY HAS FILED AN AGGREGATE OF 119 PATENT APPLICATIONS (PEND ING) IN INDIA AND USA OUT OF WHICH 2 HAVE BEEN GRANTED IN THE US. (II) THIS COMPANY HAS SUBSTANTIAL REVENUES FROM SO FTWARE PRODUCTS AND THE BREAK-UP OF THE SOFTWARE PRODUCT REVENUES IS NO T AVAILABLE. (III) THIS COMPANY HAS INCURRED HUGE RESEARCH AND D EVELOPMENT EXPENDITURE TO THE TUNE OF APPROXIMATELY RS.200 CR ORES. (IV) THIS COMPANY HAS A REVENUE SHARING AGREEMENT TOWARDS ACQUISITION OF IPR IN AUTOLAY, A COMMERCIAL SOFTWARE PRODUCT US ED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. (V) THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLO WING JUDICIAL DECISIONS:- (A) ITAT, DELHI BENCH DECISION IN THE CASE O F AGNITY INDIA TECHNOLOGIES INDIA PVT. LTD. - (ITA NO.3856/DEL/2 010) AND IT(TP)A.NO.1568/BANG/2012 PAGE - 16 (B) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011) 12.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF O PERATIONS AND THE OPERATING MARGINS OF THIS COMPANY HAVE NOT BEEN EXT RAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATI VE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 12.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FI ND THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABL ISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND DIFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FINDING RENDERED IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSES SMENT YEAR 2007-08 IS APPLICABLE TO THIS YEAR ALSO. THE ARGUMENT PUT FORTH BY ASSESSEE'S IS THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY C OMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES F ROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REV ENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. I N THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITT ED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 13.0 (5) WIPRO LIMITED 13.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY T HE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES OR SEVERAL GROUN DS LIKE FUNCTIONAL DIS-SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, H OWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS CO MPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US, THE ASSESSEE CONTENDED THAT THIS CO MPANY IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE FOR SEV ERAL REASONS, WHICH ARE AS UNDER : (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN TH E NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIB LES AND QUOTED EXTRACTS FROM THE ANNUAL REPORT OF THIS COMPANY IN THE SUBMISSIONS MADE. (II) THE TPO HAD ADOPTED THE CONSOLIDATED FINANCIA L STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGIN S, WHICH CONTRADICTS THE TPOS OWN FILTER OF REJECTING COMP ANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 13.3. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE SET OF COMPARABLES. 13.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT I N THE CONTENTIONS OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARABLES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOF TWARE DEVELOPMENT IT(TP)A.NO.1568/BANG/2012 PAGE - 17 AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFO RMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODU CT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COM PANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SA TISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL RE VENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY AN ALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOL IDATED FINANCIAL STATEMENTS OF WIPRO WITH THE STAND ALONE FINANCIALS OF THE ASSESSEE; WHICH IS NOT AN APPROPRIATE COMPARISON. 13.4.2 WE ALSO FIND THAT THIS COMPANY OWNS INTELLE CTUAL 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 P VT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING IN TANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDI TIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DO ES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF T HE CO-ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.COM PVT. LTD. (SUPR A), WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE SET OF COMPARABLE COMPANIES IN THE CASE ON HAND FOR THE YEAR UNDER CONSIDERATION. 14.0 (6) TATA ELXSI LTD. 14.1 THIS COMPANY WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON SEVERAL COUNTS LIKE, FUNC TIONAL DIS-SIMILARITY, SIGNIFICANT R&D ACTIVITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE A ND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 14.2 BEFORE US, IT WAS REITERATED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT PERFO RMS A VARIETY OF FUNCTIONS UNDER THE SOFTWARE DEVELOPMENT AND SERVIC ES SEGMENT NAMELY (A) PRODUCT DESIGN SERVICES (B) INNOVATION DESIGN ENGINEERING AND ( C ) VISUAL COMPUTING LABS. IN THE SUBMISSIONS MADE THE ASSESSEE HAD QUOTED REL EVANT PORTIONS FROM THE ANNUAL REPORT OF THE COMPANY TO THIS EFFEC T. IN VIEW OF THIS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT THIS COMPANY BE EXCLUDED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE STAND O THE TPO IN INCLUDING THIS COM PANY IN THE LIST OF COMPARABLES. 14.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PER USED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAIL S ON RECORD, WE FIND IT(TP)A.NO.1568/BANG/2012 PAGE - 18 THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODU CT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVIC ES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT SOFTWARE D EVELOPMENT SERVICES RELATES TO DESIGN SERVICES AND ARE NOT SI MILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 14.4.2 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF T ELECORDIA TECHNOLOGIES INDIA PVT. LTD. V ACIT (ITA NO.7821/MU M/2011) HAS HELD THAT TATA ELXSI LTD. IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN TH IS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED B ELOW :- . TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVICES WHICH IS ENTIRELY DIFFERENT FR OM THE ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARN ED AUTHORISED REPRESENTATIVE THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASS ESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DET AILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CO NSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FRO M PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO T REAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE L IST OF COMPARABLE PORTION. AS CAN BE SEEN FROM THE EXTRACTS OF THE ANNUAL REP ORT OF THIS COMPANY PRODUCED BEFORE US, THE FACTS PERTAINING TO TATA ELXSI HAVE NOT CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09. WE, THEREFORE, HOLD THAT THIS COMPANY IS NOT TO BE CONSIDERED FOR INCLUSION IN THE SET OF COMPARABLES IN THE CASE ON HAND. IT IS ORDERED ACCORDINGLY. SINCE THIS TRIBUNAL HAS FOUND THAT THE COMPARABLES, CELESTIAL BIOLABS, INFOSYS TECHOLOGIES LTD, KALS INFORMATION SYSTEMS L TD (SEG) , TATA ELXSI LTD (SEG) & WIPRO LTD (SEG) ARE FUNCTIONALLY DIFFERENT, FOLLOWING IT , THE TPO/AO IS DIRECTED TO EXCLUDE THEM FROM THE LIST OF COMPAR ABLES. HOWEVER, THE ISSUE RELATED TO THE COMPARABLE , AVANI CINCOM TECHNOLOG IES , WHICH WAS INCLUDED ON THE BASIS OF INFORMATION OBTAINED U/S 1 33(6) BY THE TPO IS REMITTED BACK TO HIM FOR RE-ADJUDICATION IN THE SIM ILAR MANNER, THIS TRIBUNAL HAS DONE IN THE ABOVE CASE. IT(TP)A.NO.1568/BANG/2012 PAGE - 19 7.2. THE ASSESSEE SUBMITTED THAT THE COMPARABLES, E -ZEST SOLUTION LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTION LTD, T HIRDWARE SOLUTION LTD AND LUCID SOFTWARE LTD ARE FUNCTIONALLY DIFFERENT. F OR EXCLUDING THEM, IT RELIED ON THIS TRIBUNAL DECISION IN M/S. 3DPLM SOFTWARE SO LUTIONS LTD V. DCIT IT(TP)A.1303/BANG/2012, DT.28.11.2013- AY 2008-09, WHICH IS ESTABLISHED AS A 100% EXPORT ORIENTED UNIT UNDER STPI SCHEME AN D WAS A PROVIDER OF SOFTWARE DEVELOPMENT AND OTHER RELATED SERVICES TO ITS GROUP COMPANIES. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS U NDER : 14. E-ZEST SOLUTIONS LTD. 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS F UNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT AS PER THE INFOR MATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND SATISF IES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIS T OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN E-BUSINESS CONSULTING SERVICES, CON SISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECH NOLOGY CONSULTING SERVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING S ERVICES. THESE SERVICES, THE LEARNED AUTHORISED REPRESENTATIVE CON TENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTS OURCING (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y HAS NOT PROVIDED 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 INFORMATION O N THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAIL S AVAILABLE ON THE COMPANYS WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMPANI ES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE T O SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEM S (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE IT(TP)A.NO.1568/BANG/2012 PAGE - 20 ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLUTIONS L TD., 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 COMPAR ABLES 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 IN THE LIST OF COMPAR BALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS R EPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT T HE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GI VE A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSE SSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., IS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICES WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF C APITAL I-Q INFORMATIONSYSTEMS (INDIA) (P) LTD. SUPRA) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF TH E CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUTIONS LTD. BE OMITTED FRO M THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 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 LIST OF COMPARABLE S ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CRORES. BEFOR E US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICE S, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFT WARE AND GIVING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD, THE L EARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEE N POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVE LOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LT D. (2008-TII-04-ITAT- PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT THIS COMPA NY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS I NCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED TH E MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE A BOVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA) , THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. IT(TP)A.NO.1568/BANG/2012 PAGE - 21 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY 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 DEVEL OPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HO WEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT S ERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH O F THE TRIBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FR OM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWAR E DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS REN DERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE M ATTER AND FOLLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPR A), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSI ON OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWA RE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT (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 PROVID ERS 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 TELECORD IA TECHNOLOGIES INDIA 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 CO-ORDINATE BENCHE S OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA PVT. LTD. (ITA NO.1121/B ANG/2011) AND CSR INDIA PVT. LTD. [ IT(TP)A NO.1119/BANG/2011 ] AND B Y 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 ASSESSMENT YEAR 20 07-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 200 8-09 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 PRODUCT DEV ELOPMENT. 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 TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSE SSMENT YEAR 2007-08 IT(TP)A.NO.1568/BANG/2012 PAGE - 22 AND OTHER CASES CITED ABOVE, IT IS CLEAR THAT THIS COMPANY BEING INTO PRODUCT DEVELOPMENT CANNOT BE CONSIDERED AS A COMPA RABLE TO THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERV ICE PROVIDER AND THEREFORE THIS COMPANY I.E. LUCID SOFTWARE LTD., OU GHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCLUDING 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 SOFTWARE LTD., IS ENGAG ED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHEREAS THE ASSESS EE, IN THE CASE ON HAND, IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVE LOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BA NG/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 TRANSWITC H INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGA GED IN THE SOFTWARE PRODUCT DEVELOPMENT AND NOT SOFTWARE DEVELOPMENT SE RVICES, IT IS FUNCTIONALLY DIFFERENT AND DIS-SIMILAR AND IS THERE FORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SE RVICE PROVIDERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMO NSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO THIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I.E. ASSES SMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT Y EAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISI ONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL AND OF THE ITAT, MUMBAI AN D DELHI BENCHES (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FRO M THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. 17. PERSISTENT SYSTEMS LTD. 17.1.1 THIS COMPANY WAS SELECTED BY THE TPO AS A CO MPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE REASONS THAT THIS COMPANY BEING ENGAGED IN SOFT WARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE ANNUAL REPORT FOR THE COMPANY FOR FINANCIAL YEAR 2007-08, IT IS MAINL Y A SOFTWARE DEVELOPMENT COMPANY AND AS PER THE DETAILS FURNISHE D IN REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT, SOFTWARE DE VELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF T HE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSIS TENT SYSTEMS LTD., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIO NALITY CRITERION. 17.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE I NCLUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPAN Y IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL OTHER FAC TORS ON WHICH THIS IT(TP)A.NO.1568/BANG/2012 PAGE - 23 COMPANY CANNOT BE TAKEN AS A COMPARABLE. IN THIS R EGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT : (I) THIS COMPANY IS ENGAGED IN SOFTWARE DESIGNING SERVICES AND ANALYTIC SERVICES AND THEREFORE IT IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE 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 PREDOMINANTLY ENGAG ED IN OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES FOR INDEPEND ENT SOFTWARE VENDORS AND ENTERPRISES. (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 DISCUSSING THE COMPAR ABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE ABSENCE OF SEGMENTAL INFORMATION, A COMPANY BE TAKE N INTO ACCOUNT FOR COMPARABILITY ANALYSIS. THIS PRINCIPLE IS SQUARELY APPLICABLE TO THE COMPANY PRESENTLY UNDER CONSIDERATION, WHICH IS INT O PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES AND FOR WHI CH THE SEGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. BE OMITTE D FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY 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. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND TH AT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN S EPARATELY. THEREFORE, FOLLOWING THE PRINCIPLE ENUNCIATED IN TH E DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOG IES INDIA PVT. LTD. (SUPRA) THAT IN THE ABSENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABIL ITY ANALYSIS, WE HOLD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONS IDERATION. IT IS ORDERED ACCORDINGLY. 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 INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNC TIONALLY DIFFERENT AND ALSO THAT THERE WERE PECULIAR ECONOMIC CIRCUMST ANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY IT(TP)A.NO.1568/BANG/2012 PAGE - 24 THE TPO. ON THE ISSUE OF ACQUISITIONS, THE TPO REJ ECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT THE ASSESSEE HAS NOT ADDU CED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INFLUENCE ON THE PRICI NG OR THE MARGIN EARNED. 18.1.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCL USION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIF FERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANN OT BE CONSIDERED AS A COMPARABLE. IT WAS SUBMITTED THAT, (I) QUINTEGRA SOLUTIONS LTD., THE COMPANY UNDER CONSIDERATION, IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND NOT IN PURELY SOFTWARE DEVELOPMENT SERVICES. THE ANNUAL REPORT OF THIS CO MPANY ALSO STATES THAT IT IS ENGAGED 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 PRO VIDES A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT S ERVICES), PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVI CES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. (III) THIS COMPANY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELL ECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF THE COMPANY FOR THE PERIOD UNDER CONSIDER ATION, WHICH IS AS UNDER : QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELLECTUAL PROPERTY. ACCORDINGLY, SOME OF THE PRODUCTS DEVELO PED 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 T HE TPOS OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANYS ANNUAL REPORT FOR F.Y. 2007-08, THE PERIO D UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT I N VIEW OF THE SUBMISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA , THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. BEING FUNCTIONALLY DIFFERE NT AND POSSESSING ITS OWN INTANGIBLES / IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSID ERATION. IT(TP)A.NO.1568/BANG/2012 PAGE - 25 18.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD UNDER CO NSIDERATION. 18.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PE RUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS BROUGHT ON RECORD THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS LTD. IS ENGAGED IN PRODUCT ENGINEERING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. IT IS ALSO SEEN THAT THIS COMPANY IS ALSO ENGAGED IN P ROPRIETARY SOFTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS IPRS. HAVING APPLIED FOR TRADE MARK REGISTR ATION OF ITS PRODUCTS, IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBL E ASSETS. THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THECASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010 DT.9.11.2012) HAS HELD T HAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANN OT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGI BLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARABLES, AS IN T HE CASE ON HAND. 18.3.2 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SOLUTIONS LTD. THAT THERE HAVE BEEN ACQUISITIONS MADE BY IT I N THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFOR MANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM TH E LIST OF COMPARABLES. 18.3.3 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PV T. LTD. (SUPRA), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTIONS L TD. BE EXCLUDED FROM THE LIST OF COMPARABLES IN THE CASE ON HAND SINCE I T IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTA NGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERV ICE PROVIDER. SINCE THIS TRIBUNAL HAS FOUND THAT THE COMPARABLES, E-ZEST SOLUTION LTD, PERSISTENT SYSTEMS LTD, QUINTEGRA SOLUTION LTD , THIRDWARE SOLUTION LTD AND LUCID SOFTWARE LTD ARE FUNCTIONALLY DIFFERENT, FOLLOWING IT, THE TPO/AO IS DIRECTED TO EXCLUDE THEM FROM THE LIST OF COMPAR ABLES. 7.3. ALTHOUGH THE ASSESSEE OBJECTED THE INCLUSION OF LGS GLOBAL LTD, IT COULD NOT FURNISH ANY EVIDENCE AND HENCE ITS PLEA I S REJECTED. 7.4. IN RESPECT OF THE COMPARABLE, BODHTREE CONSULT ING LTD, THE ASSESSEE PLEADED THAT IT IS FUNCTIONALLY DIFFERENT AND RELIE D ON THE DECISION OF THE IT(TP)A.NO.1568/BANG/2012 PAGE - 26 MUMBAI TRIBUNAL IN THE CASE OF M/S NETHAWK NETWORKS INDIA P LTD IN ITA NO 7633/M/2012 FOR AY 2008-09 DT 06.11.2013, WHICH ENG AGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES REQUIRED FOR TELEC OMMUNICATION RELATED PARTS MANUFACTURED BY ITS PARENT COMPANY I.E., M/S. NETHAWK OYJ FINLAND AND IS A 100% CAPTIVE UNIT FOR ITS PARENT AS A SOLITARY CUSTOMER. THE RELEVANT PORTION OF THE ORDER IS EXTR ACTED AS UNDER : C. BODHTREE CONSULTING LTD : 21. ON THIS COMPARABLE, CASE OF THE ASSESSEE IS THA T THE COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SOFTWARE PRODUCTS PR ODUCED BY THE COMPANY. AS SUCH, NO SEGMENTAL DATA IS ADEQUATELY AVAILABLE TOO. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE FI NANCIAL STATEMENT AND ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS NOT ENGAGED IN THE SOFTWARE PRODUCTS. IN THIS REGARD, LD DR RELIED ON THE NOTE NO.3, RELATING TO THE RELATING TO THE REVENUE RECOMMENDATION IN SCHED ULE 12, NOTE NO.5 RELATING TO THE SEGMENTAL INFORMATION ETC TO MENTIO N THAT THE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT ONLY. HOWEVE R, THE ASSESSEE ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS ENGA GED IN THE SOFTWARE BASED PRODUCTS. FURTHER, LD COUNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINED AND WAS HELD AS PRODUCT BASED COMP ANY BY THE TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT TAKE DIFFERENT STAND IN THIS CASE. IN THIS REGARD, WE HAVE PERUSED THE PARA 29 O F THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WILTS PROCESSING SERVI CES (I) P LTD (SUPRA) WHEREIN IT WAS MENTIONED THAT THE TPO DESCRIBED THI S COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS, NOT T HE SOFTWARE DEVELOPMENT SERVICES. RELEVANT PORTIONS FROM THE SA ID PARA 29 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: 29.1 THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUCTS. HE HAS REFERRE D THE TPO ORDER AND SUBMITTED THAT IN THE PROFILE OF THE COMPARABLES SE LECTED BY THE TPO ITSELF HAS MENTIONED THE BUSINESS OF THE ASSESSEE I S IN SOFTWARE PRODUCTS. THE ID AR HAS REFERRED THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE TPO AT PAGE 286 OF THE PAPER BOOK AND SUBMITTED THA T THE ASSESSEE BROUGHT THIS FACT THAT THIS COMPANY IS ENGAGED IN P ROVIDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DES IGN AND IT(TP)A.NO.1568/BANG/2012 PAGE - 27 DEVELOPMENT OF SOFTWARE, USING THE LATEST TECHNOLOG IES. FURTHER, THE COMPANY HAS IDENTIFIED ONLY ONE SEGMENT I.E SOFTWAR E DEVELOPMENT. THEREFORE, THE ID AR HAS SUBMITTED THAT THIS COMPAN Y IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE AND CONSEQUENTLY S HOULD BE EXCLUDED FROM THE COMPARABLES. 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INF ORMATION COLLECTED U/S 133(6) OF THE I T ACT AND SUBMITTED THAT AS PER THIS INFORMATION, THIS COMPANY HAS REVENUE FROM ITES ACTIVITY TO THE EXTENT OF RS. 2 1 94,85 1 5281-. THEREFORE, THIS COMPANY IS A GOOD COMPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3 ......... 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS FILED BY THE ID DR BEFORE US HAS BEEN OBTAINED BY THE TPO AT HYDERABAD AND NOT BY THE TPO OF THE ASSESSEE IN THE PRESENT CASE. IT IS STATED IN THE LETTER DATED 5.2.2010 WRITTEN BY THE CHARTERED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DATA CLEANING SERVICE S TO CLIENTS FOR WHOM IT HAD DEVELOPED THE SOFTWARE APPLICATION..... .... 23.CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFTWARE D EVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FAR ANALYSIS GOES AGAINST THE TPO/AO. ACCORDINGLY, WE DISMISS THE ARGUMENT OF THE LD. DR IN THIS REGARD. EX CONSEQUENTI, THE AO / TPO IS DIRECTED TO EXCLUDE THE SAME FROM THE LIST OF FINAL COMPARABLES FOR WORKING OUT THE ARITHMETIC MEAN. SINCE THE MUMBAI TRIBUNAL HAS FOUND THAT THE COMPAR ABLES, BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE S OFTWARE DEVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FAR ANALYSIS GOES AGAINST THE TPO/AO EX CONSEQUENTI, DIRECTED THE AO / TPO IS DIRECTED TO EXCLUDE IT , F OLLOWING IT , WE DIRECT THE AO / TPO IS DIRECTED TO EXCLUDE IT FROM THE LIST OF FINAL COMPARABLES FOR WORKING OUT THE ARITHMETIC MEAN IT(TP)A.NO.1568/BANG/2012 PAGE - 28 08. THE NEXT ISSUE ARGUED IS THAT THE IDLE COSTS IN CURRED BY THE ASSESSEE ON ACCOUNT OF EXCESS CAPACITY WAS WRONGLY CONSIDERE D BY THE TPO AS OPERATING COSTS FOR ARRIVING THE ALP. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT THE IDL E COSTS INCURRED BY IT ON ACCOUNT OF EXCESS CAPACITY WAS WRONGLY CONSIDERE D BY THE TPO AS PART OF OPERATING COSTS FOR ARRIVING AT THE ARM'S LENGTH PRICE WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE TO FILE ITS OBJECT IONS . THE TPO HAS APPORTIONED UNALLOCABLE EXPENSES TO THE EXTENT OF R S.10,68,65,255/- BASED ON THE PROPORTION OF SALES TO ASSOCIATED ENTE RPRISES AND NON- ASSOCIATED ENTERPRISES. THESE EXPENSES WERE IN THE NATURE OF COSTS RELATING TO IDLE CAPACITY DURING THE YEAR ARISING F ROM UNDERUTILIZING THE PREMISES / EMPLOYEES. HENCE, ALLOCATION OF THE SAM E TO THE AE OR NON AE SEGMENTS IS NOT CORRECT SINCE IT DOES NOT RELATE DI RECTLY OR INDIRECTLY TO THOSE TRANSACTIONS. THESE COSTS REPRESENT COSTS ON EXCESS / IDLE CAPACITY IN RESPECT OF INFRASTRUCTURE AND BENCH COSTS WHICH WERE NOT USED FOR THESE TRANSACTIONS AT ALL. IT WAS VENTURING INTO THE NEWER MARKETS AND HAD SET UP BRANCHES/SALES OFFICES OUTSIDE INDIA IN ORDER TO EX PAND ITS BUSINESS. IN THE IT SERVICES BUSINESS, THE PEOPLE FORM THE BACKB ONE AND AS AN OPERATING MODEL, THE PLAN WAS TO CREATE THE POOL OF RESOURCES IN THE TECHNOLOGY SPACES WHERE THE APPELLANT COMPANY WAS E XPECTING THE POTENTIAL IN RESPECTIVE MARKETS. FROM A MARKETING A ND SALES POINT OF VIEW, IT IS IMPORTANT THAT IT HAS SKILLED RESOURCES POO L AVAILABLE TO TAKE ON IT(TP)A.NO.1568/BANG/2012 PAGE - 29 NEW PROJECTS. THESE IDLE COSTS ARE AN ESSENTIAL PAR T OF ACQUIRING NEW CLIENTS AND ENTERING INTO BUSINESS AND CERTAINLY NO T ATTRIBUTABLE TO EXISTING CLIENTS, WHETHER AE OR NON AE. GIVEN THE S LOW-DOWN IN THE ECONOMY, THE FIRST TO BE EFFECTED WERE SMALLER COMP ANIES AND HENCE THE IDLE COSTS. DURING THE END OF 2007, IT HAD MOVED IN TO THE NEW PREMISES AT INFANTRY ROAD, BANGALORE WITH AN AREA OF 78,456 SQ.FT KEEPING IN MIND BOTH THE ORGANIC AND INORGANIC GROWTH TO INCR EASE THE SCALE AND SIZE OF ITS CAPABILITIES. THE CAPACITY OF THIS NEW PREMISES IN TERMS OF HEAD COUNT IS 785 EMPLOYEES (APPROX.). HOWEVER, THE STRENGTH OF TRIAN Z INDIA WAS AROUND 300 EMPLOYEES AT THAT TIME. UNFORT UNATELY, THE GROWTH PLANS DID NOT TAKE OFF AS DESIRED WITH THE MARKET S LOWDOWN. THE RENTAL CONTRACT FOR THE BUILDING HIRED BY THE ASSESSE FOR CARRYING OUT THE OPERATIONS COULD NOT BE TERMINATED ON ACCOUNT OF TH E LOCK IN PERIOD AND SUCH COSTS WERE INCURRED BY THE APPELLANT AND W ERE NOT RECOVERABLE FROM THE CLIENTS. THIS EXCESS CAPACITY WAS SUBSEQUE NTLY SUBLET FROM FY 2010-11 (W.E.F 19-07-2010) ONWARDS. ACCORDINGLY, T HE RENT PAID TOWARDS VACANT SPACES HAVE BEEN CONSIDERED AS IDLE RESOURCES AND COSTS THEREOF HAVE BEEN EXCLUDED FOR THE PURPOSE OF ARRIV ING AT PLI OF TRANSACTIONS WITH AE. THUS , 50% OF THE RENT EXPENS ES OF THE BANGALORE OFFICE CONSIDERED AS RENT TOWARDS UNUTILIZED SPACE (50% OF RS.7,76,40,996/- = RS.3,88,20,498/-). RENT EXPENSES DEBITED TO P/L ACCOUNT IN RESPECT OF THIS PREMISES WAS RS.7,76,40, 996/-. SIMILARLY, THERE WERE SEVERAL EMPLOYEES WHO WERE NOT WORKING ON ANY BILLABLE PROJECTS DURING CERTAIN PERIODS OF THE YEAR. THE ASSESSEE H AD HIRED NEW IT(TP)A.NO.1568/BANG/2012 PAGE - 30 EMPLOYEES DURING THIS TIME TO RAMP UP ITS CAPABILIT Y AND CAPACITY. HOWEVER, THE PROJECTS DID NOT MATERIALIZE AS PLANNE D. THESE EMPLOYEES WERE ON BENCH DURING THIS TIME. HENCE THE SALARY AND OTHER WELFARE EXPENSES RELATING TO THESE EMPLOYEES HAVE B EEN TREATED AS BENCH COST AND HAVE BEEN EXCLUDED FOR THE PURPOSE OF ARRI VING AT PLI. IN ANY BUSINESS ORGANIZATION, SOME COSTS ARE FIXED AND OTH ERS VARY WITH OUTPUT. FOR EXAMPLE, DEPRECIATION AND MAINTENANCE COSTS ASS OCIATED WITH PLANT AND EQUIPMENT OR FACILITY CONTINUE TO BE INCURRED R EGARDLESS OF THE VOLUME OF REVENUE GENERATING ACTIVITIES. EMPLOYEE C OSTS ARE ALSO FIXED COSTS. IT WAS HELD IN THE CASE OF GENISYS INTEGRATI NG SYSTEMS (INDIA) PVT. LTD. VS DCIT AY 2006-07 (15 (ITR-TRIB)475) THAT ADJ USTMENTS ARE TO BE MADE FOR UNDERUTILIZATION OF INFRASTRUCTURE AND IDL E BENCH STRENGTH. (AS PER ANNEXURE M OF PAPER BOOK I PAGE NO 14). RELIANC E WAS ALSO PLACED ON THE FOLLOWING DECISIONS: A) GLOBAL VANTEDGE PRIVATE LIMITED 2010-TIOL-24-ITAT DELHI B) FIAT INDIA PRIVATE LIMITED VS ACIT 2010-TII-30 ITAT MUM TP C) GOOGLE INDIA (P) LTD. V DCIT V (2013) 29 TAXMANN.COM 412 (BANG.)- (ANNEXURE U OF PAPER BOOK II) HENCE, ADJUSTMENTS HAVE BEEN MADE FOR THE EXPENSES ON IDLE INFRASTRUCTURE AND MANPOWER INCURRED BY THE ASSES SEE WHICH WAS NOT THE CASE WITH THE COMPANIES ADOPTED AS COMPARABLES BY THE ASSESSEE. HENCE, MARGINS OF TRANSACTIONS WITH AES EXCLUDING I DLE COSTS HAVE BEEN CONSIDERED. THE MARGIN ON COST CALCULATED BY THE TP O AFTER APPORTIONMENT OF IDLE COST WAS - 8.95% AS AGAINST THE MARGIN OF 27.11% IT(TP)A.NO.1568/BANG/2012 PAGE - 31 COMPUTED BY THE APPELLANT. IN VIEW OF THAT THE A SSESSEE SOUGHT SUITABLE ADJUSTMENT FOR IDLE COSTS FOR EXCESS CAPACITY. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT T HIS ISSUE IS A PURELY FACTUAL ONE AND MINUTE DETAILS ARE REQUIRED TO BE VERIFIED AND EXAMINED. THEREFORE, THIS ISSUE REQUIRES PROPER VER IFICATION AND EXAMINATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE T O THE RECORD OF THE TPO/AO TO VERIFY ALL THE FACTS AND THEN DECIDE THIS ISSUE AS PER LAW. 09. IN THE RESULT, THE ASSESSEES APPEAL IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF MARCH, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR