ABB Global Industries & Services Limited, Bangalore V. ACIT, Bangalore

ITA 1612/BANG/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7669 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R REDDY
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Related party transaction; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Earning of tax free income; Scheme of amalgamation; Unabsorbed depreciation
• Section: 143(3); 80HHC; 234B; 14A; 133(6); 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . (T.P) A. NO. 1612 /BANG/20 12 (ASSESSMENT YEAR : 20 08 - 09 ) ABB GLOBAL INDUSTRIES & SERVICES LIMITED, 2 ND FLOOR, KHANIJA BHAVAN, NO.49, RACE COURSE ROAD, BANGALORE - 560 001 . . APPELLANT. VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI T. SURYANARAYANA, ADVOCATE. R E SPONDENT BY : SHRI G.R. REDDY, CIT (DR) (ITAT) - 1, BENGALURU. DATE OF H EARING : 05.07.2017. DATE OF P RONOUNCEMENT : 24 .08 .201 7 . O R D E R PER SHRI VIJAY P AL RAO, J .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DT.17.10.2012 PASSED UNDER SECTION 143(3) R. W.S. 144C OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DIRECTIONS OF THE DISPUTE 2 IT (TP) A NO. 1612 /BANG/201 2 RESOLUTION PANEL (IN SHORT DRP ) DT.26.06.2012 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS ALONG WITH THE MEM O OF APPEAL IN FORM NO.36B. 1 ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICER ARE BAD IN LAW A) THE FINAL ORDER ISSUED BY THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(1) [ ITO OR AO ], IS BAD ON FACTS AND IN LAW AND IS IN VIOLATION OF THE PRINCIP LES OF NATURAL JUSTICE. WITHOUT PREJUDICE TO THE ABOVE, THE ORDER ISSUED BY THE AO IS BAD IN LAW INSOFAR AS THE FACT THAT THE AO DID NOT ISSUE TO ABB GLOBAL INDUSTRIES & SERVICES LIMITED ( THE APPELLANT OR THE COMPANY ), A SHOW CAUSE NOTICE, AS PER PROVI SO TO SECTION 92C(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ]. B) THE AO HAS ERRED IN LAW IN MAKING A REFERENCE TO THE TRANSFER PRICING OFFICER [ TPO ], INTER ALIA, SINCE HE HAS NOT RECORDED AN OPINION THAT ANY OF THE CONDITIONS IN SECTION 92C(3) OF THE ACT, W ERE SATISFIED IN THE INSTANT CASE. THE AOALSO ERRED IN NOT FOLLOWING THE PROVISION CONTAINED IN SECTION 92CA(1) OF THE ACT. 2 THE FRESH COMPARABLE SEARCH UNDERTAKEN BY THE AO/ TPO IS BAD IN LAW A) THE AO/ TPO ERRED ON FACTS AND IN LAW IN CONDUCTING A FRESH BENCH MARKING ANALYSIS USING NON CONTEMPORANEOUS DATA AND SUBSTITUTING THE APPELLANT S ANALYSIS WITH FRESH BENCHMARKING ANALYSIS ON HIS OWN CONJECTURES AND SURMISES. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/ TPO ERRED IN NOT D EMONSTRATING THAT THE MOTIVE OF THE APPELLANT WAS TO SHIFT PROFITS OUTSIDE OF INDIA BY MANIPULATING THE PRICES CHARGED IN ITS INTERNATIONAL TRANSACTIONS, WHICH IS A PRE - REQUISITE CONDITION TO MAKE ANY ADJUSTMENT UNDER THE PROVISION OF CHAPTER X OF THE ACT 3 COMPARABILITY ANALYSIS ADOPTED BY THE AO/ TPO FOR DETERMINATION OF ARM S LENGTH PRICE 3 IT (TP) A NO. 1612 /BANG/201 2 A) THE AO/ TPO GROSSLY ERRED ON FACTS IN BENCHMARKING THE TRANSACTIONS OF THE CAPTIVE SOFTWARE SERVICES OF THE APPELLANT WITH COMPANIES OPERATING AS FULL FLEDGED ENTREPRENEURS WITHOUT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISK UNDERTAKEN BY THE APPELLANT VIS - - VIS COMPARABLE COMPANIES. B) THE AO/ TPO ERRED ON FACTS IN REJECTING THE COMPARABLE COMPANIES ARRIVED AT IN THE TRANSFER PRICING STUDY WI THOUT CONSIDERING THE FUNCTIONAL AND RISK ANALYSIS OF THE APPELLANT . C) THE AO/ TPO ERRED IN LAW IN APPLYING ARBITRARY FILTERS TO ARRIVE AT A FRESH SET OF COMPANIES AS COMPARABLES TO THE APPELLANT , WITHOUT ESTABLISHING FUNCTIONAL COMPARABILITY. D) THE AO/ TPO ALSO ERRED ON FACTS IN ARBITRARILY ACCEPTING COMPANIES WITHOUT CONSIDERING THE TURNOVER AND SIZE OF THE APPELLANT AND COMPARABLES. E) THE AO/ TPO GROSSLY ERRED IN LAW IN DEVIATING FROM THE UNCONTROLLED PARTY TRANSACTION DEFINITION AS PER THE INCOME - TAX RULES AND A RBITRARILY APPLYING A 25% RELATED PARTY CRITERIA IN ACCEPTING/REJECTING COMPARABLES. F) THE AO/ TPO GROSSLY ERRED ON FACTS IN ARBITRARILY REJECTING COMPANIES HAVING SOFTWARE DEVELOPMENT REVENUE LESS THAN 75% OF TOTAL OPERATING REVENUE . G) THE AO/ TPO ERRED ON FACT S IN ARBITRARILY REJECTING COMPANIES HAVING EXPORT REVENUES LESS THAN 25% OF TOTAL SALES. H) THE AO/ TPO ERRED IN REJECTING COMPANIES HAVING EMPLOYEE COST LESS THAN 25% OF TOTAL SALES. I) THE AO/ TPO ERRED ON FACTS IN ARBITRARILY REJECTING COMPANIES HAVING ONSITE REVENUE MORE THAN 75% OF THE EXPORT REVENUE. J) THE AO/ TPO ALSO ERRED ON FACTS AND IN LAW IN ARBITRARILY REJECTING COMPANIES WITH DIFFERENT YEAR ENDING (I.E. OTHER THAN 31 MARCH 2008). K) THE AO/ TPO ERRED IN FACTS IN ARBITRARILY REJECTING COMPANIES BASED ON THEI R FINANCIAL RESULTS WITHOUT CONSIDERING THE FUNCTIONAL COMPARABILITY. L) THE AO/ TPO ERRED ON FACTS AND IN LAW IN CONSIDERING A SET OF SECRET DATA , I.E. DATA WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN, IN ARRIVING AT A FRESH SET OF COMPANIES USING HIS POWER UN DER SECTION 133(6), WHICH IS GROSSLY UNJUSTIFIED 4 IT (TP) A NO. 1612 /BANG/201 2 4 ERRONEOUS DATA USED BY THE AO/TPO A) THE AO/ TPO HAS ERRED IN LAW IN USING DATA, WHICH WAS NOT CONTEMPORANEOUS AND WHICH WAS NOT AVAILABLE IN THE PUBLIC DOMAIN AT THE TIME OF CONDUCTING THE TRANSFER PRICING STUD Y BY THE APPELLANT . B) THE AO/TPO ERRED IN LAW IN NOT APPLYING THE MULTIPLE - YEAR DATA WHILE COMPUTING THE MARGIN OF ALLEGED COMPARABLE COMPANIES . 5 NON - ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE AO/TPO THE AO/ TPO ERRED IN LAW AND O N FACTS IN NOT ALLOWING APPROPRIATE ADJUSTMENTS UNDER RULE 10B TO ACCOUNT FOR, INTER ALIA , DIFFERENCES IN (A) ACCOUNTING PRACTICES, (B) MARKETING EXPENDITURE ADJUSTMENT, (C) RESEARCH AND DEVELOPMENT EXPENDITURE ADJUSTMENT, (D) RISK PROFILE BETWEEN THE APPE LLANT AND THE COMPARABLE COMPANIES, (E) CAPACITY ADJUSTMENT; AND (F) DEPRECIATION ADJUSTMENT. 6 VARIATION OF 5% FROM THE ARITHMETIC MEAN THE AO/TPO ERRED IN LAW IN NOT GRANTING THE BENEFITS OF PROVISO TO SECTION 92C(2) OF THE ACT AVAILABLE TO THE APPELLANT. 7 GRANT OF LOWER DEDUCTION UNDER SECTION 10A OF THE ACT A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN REDUCING THE TELECOMMUNICATION EXPENSES OF RS. 10,993,000 FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. B) THE COMPANY INCURRED TELECOMMUNICATION EXPENSES OF RS. 10,993,000 TOWARDS POSTAGE, COURIER, TELEPHONE & MOBILE EXPENSES AND THE SAME IS NEITHER INCURRED IN FOREIGN CURRENCY NOR IS ATTRIBUTABLE TO THE DELIVERY OF SOFTWARE OUTSIDE INDIA. THUS , THE SAME OUGHT NOT TO BE REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. C) THE TELEPHONE EXPENSES CAN BE EXCLUDED FROM EXPORT TURNOVER ONLY IF SUCH EXPENDITURE IS INCLUDED THEREIN. THE TELECOMMUNI CATION EXPENSES INCURRED ARE NOT FORMING PART OF THE EXPORT TURNOVER. ACCORDINGLY, THE SAME SHOULD NOT BE REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 5 IT (TP) A NO. 1612 /BANG/201 2 D) WITHOUT PREJUDICE TO THE ABOVE, ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN REDUCING THE TELECOMMUNICATION EXPENSES OF RS. 10,993,000 ONLY FROM EXPORT TURNOVER WITHOUT CORRESPONDINGLY REDUCING THE SAID EXPENSES FROM THE TOTAL TURNOVER . 8 SET - OFF OF INTER - UNIT LOSSES (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN SETTING OFF THE BUSINESS LOSS PERTAINING TO NON STPI UNIT AGAINST THE PROFITS OF THE STPI UNIT PRIOR TO ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AO HAS ERRED IN NOT TAKING COGNIZANCE OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LIMITED. 9 TREATMENT OF COMPUTER SOFTWARE EXPENDITURE AS CAPITAL IN NATURE (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN NOT TAKING COGNIZANCE OF THE DIRECTIONS ISSUED BY THE HON BLE DRP AND DISPOSING THE GROUND WITHOUT GIVING THE APPELLANT AN OPPORTUNITY OF BEING HEARD; (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO ERRED IN TREATING THE SOFTWARE EXPENDITURE AS CAPITAL IN NATURE, WITHOUT APPRECIATING THE FACT THAT: I) SUCH EXPENSES ARE INCURRED TOWARDS RENEWAL OF ANNUAL MAINTENANCE CONTRACT FOR SOFTWARE; AND II) SUCH EXPENSES INCLUDE SOFTWARE PURCHASED FOR A SPECIFIC PROJEC T & DELIVERED AS A PART OF THE FINAL PRODUCT TO THE END - USER. 10 DISALLOWANCE UNDER SECTION 14A OF THE ACT (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN DISALLOWING AN AMOUNT OF RS. 29,514,479 UNDER SECTION 14A OF THE ACT IN RELATION TO INVESTMENTS MADE IN THE EQUITY SHARES OF RAMAN BOARDS LIMITED, WITHOUT CONSIDERING THE FACT THAT: I) THE APPELLANT HAS NOT RECEIVED ANY INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME FOR THE AY 2008 - 09; AND II) THE APPELLANT HAS NOT INCURRED A NY EXPENSES GIVEN THE FACT THAT THE SAID INVESTMENT IS NOT MADE OUT OF BORROWED FUNDS. 6 IT (TP) A NO. 1612 /BANG/201 2 11 DISALLOWANCE OF PROVISION CREATED FOR PAYMENT OF ROYALTY (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN DISALLOWING AN AMOUNT OF RS. 4,13 7,000 REPRESENTING PROVISION CREATED FOR PAYMENT OF ROYALTY, WITHOUT CONSIDERING THE FACT THAT T HE SAID PROVISION WAS CREATED AS PER THE AUDITED ACCOUNTS AND PRESCRIBED ACCOUNTING POLICIES. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED A O HAS ERRED IN NOT TAKING COGNIZANCE OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF M/S PRAKASH LEASING LIMITED [208 TAXMAN 464] 12 INTEREST UNDER SECTION 234B OF THE ACT A) THE ASSESSING OFFICER ERRED IN LEVY OF INTEREST UNDER SECTION 234B OF THE AC T AT RS. 8,769,586. 13 INTEREST UNDER SECTION 234D OF THE ACT A) THE ASSESSING OFFICER ERRED IN LEVY OF INTEREST UNDER SECTION 234D OF THE ACT AT RS. 6,247,356. 14 DIRECTIONS ISSUED BY THE HONORABLE DISPUTE RESOLUTION PANEL [ DRP ] A) THE DRP HAS ERRED IN LAW AND FACT S IN NOT TAKING COGNIZANCE OF THE OBJECTIONS FILED BY THE APPELLANT IN RELATION TO THE DRAFT ASSESSMENT ORDER ISSUED BY THE AO IN THE PROCEEDINGS BEFORE THEM. B) THE DRP FURTHER ERRED ON FACTS AND IN LAW CONFIRMING THE DRAFT ORDER OF THE AO. 15 PENALTY UNDER SEC TION 271(1)(C) A) THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 16 RELIEF A) THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE ABOVE GROUNDS AND ALSO ALL RELIEF CONSEQUENTIAL THER ETO. B) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. C) FURTHER, THE APPELLANT PRAYS THAT ALL THE ABOVE ADJUSTMENTS / ADDITION S / DISALLOWANCES MADE BY THE LEARNED ASSESSING OFFICER AND UPHELD BY THE HON,BLE DRP ARE BAD IN LAW AND LIABLE TO BE DELETED. 7 IT (TP) A NO. 1612 /BANG/201 2 THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS VIDE TWO SEPARATE APPLICATIONS DT.7.2.2017 AS WELL AS 5.7.2017. THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 3(N). THAT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, E - ZEST SOLUTIONS LTD., KALS INFORMATION SYSTEMS LTD., QUINTEGRA SOLUTION LTD. AND LUCID SOFTWARE LTD. OUGHT TO STAND REJECTED AS COMPARABLES AS THEY ARE FUNCTIONALLY DISSIMILAR TO THE APPELLANT. 3(O) THAT SOFTSOL INDIA LIMITED OUGHT TO STAND REJECTED IN VIEW OF ITS RELATED PARTY TRANSACTIONS EXCEEDING 15% OF SALES. THUS IT IS CLEAR THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE IN RESPECT THE TRANSFER PRICING ADJUSTMENT AND COMPARABILITY OF THE COMPANIES SELECTED BY THE TRANSFER PRICING OFFICER (TPO). 3. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CAREFULLY PERUSED THE AFFIDAVIT F ILED BY THE ASSESSEE ALONG WITH THE APPLICATION FOR SEEKING LEAVE TO RAISE THE ADDITIONAL GROUND UNDER RULE 11 OF THE INCOME TAX RULES. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT EXCEPT THE COMPANIES NAMELY PERSISTENT SYSTEM S LTD. , TATA ELXSI LTD (SEG.) , E - ZEST SOLUTIONS LTD. AND KALS INFORMATION SYSTEM LIMITED (SEG.) , THE ASSESSEE RAISED THE OBJECTIONS AGAINST ALL OTHER COMPANIES SELECTED 8 IT (TP) A NO. 1612 /BANG/201 2 BY THE TPO THOUGH THE GROUNDS OF SEEKING EXCLUSION OF THESE COMPANIES FROM THE SET OF COMPARABLES WERE DIFFERENT FROM THE GROUNDS NOW RAISED BY THE ASSESSEE. HE HAS FURTHER SUBMITTED TH A T WHEN THESE COMPANIES ARE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE THEN THE ASSESSEE CAN RAISE THE OBJECTIONS AGAINST THE FUNCTIONAL COMPARABILITY OF T HESE COMPANIES EVEN AT THIS STAGE. HE HAS RELIED UPON THE DECISIONS OF THE CHANDIGARH SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. QUARK SYSTEMS PVT. LTD. 38 SOT 207. HE HAS ALSO RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. TATA POWER SOLAR SYSTEMS LTD . 245 TAXMANN 93 AND SUBMITTED THAT THE HON'BLE HIGH COURT HAS UPHELD THE ORDER OF THE TRIBUNAL HOLDING THAT MERELY BECAUSE THE ASSESSEE HAS INCLUDED A COMPANY IN ITS TP STUDY THAT WOULD NOT BY ITSELF STOPPED FROM ESTABLISHING THAT THE SAID COMPANY IS NOT COMPARABLE TO IT AND FURTHER THAT A TAX PAYER IS NOT BARRED ANY LAW FROM WITHDRAWING A COMPANY FROM ITS LIST OF COMPARABLES IF THE SAME IS INCLUDED ON ACCOUNT OF MISTAKE. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS PLEADED THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE MAY BE ADMITTED FOR ADJUDICATION ON MERITS. 9 IT (TP) A NO. 1612 /BANG/201 2 4. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS VEHEMENTLY OBJECTED TO THE ADMISSIBILITY OF THE ADDITIONAL GROUNDS AND SPEC IFICALLY IN RESPECT OF THOSE COMPANIES AGAINST WHICH THE ASSESSEE DID NOT RAISE ANY OBJECTION BEFORE THE AUTHORITIES BELOW AND HAS RAISED THE OBJECTIONS FIRST TIME AT THIS STAGE. THE LEARNED D.R. HAS CONTENDED THAT IN THE ABSENCE OF ANY OBJECTION RAISED BY THE ASSESSEE, THE TPO DID NOT HAVE ANY OCCASION TO EXAMINE THE FACTS ON WHICH THE ASSESSEE IS NOW RAISING THE OBJECTION. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE PERTAINS TO THE FUNCTIONAL COMPARABILITY OF THE COMPANIES SELECTED BY THE TPO HOWEVER THE TRIBUNAL IN A SERIES OF DECISIONS HAVE EXAMINED THE FUNCTIONAL COMPARABILITY OF ALL THE SE COMPANIES WHICH ARE NOW CHALLENGED BY THE ASSESSEE IN THE ADDITIONAL GROUNDS AND THEREFORE IN THE LIGHT OF THE FINDINGS OF THE TRIBUNAL IN VARIOUS DECISIONS, THE OBJECTIONS NOW RAISED BY THE ASSESSEE ARE REQUIRED TO BE CONSIDERED AND ADJUDICATED ON MERITS. THE TECHNICAL OBJECTION AGAINST RAISING OF ADDITION AL GROUND CANNOT ESTOP THE ASSESSEE FROM CLAIMING THE EXCLUSION 10 IT (TP) A NO. 1612 /BANG/201 2 OF CERTAIN COMPANIES EVEN FIRST TIME AT THIS STAGE. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA POWER SOLAR SYSTEM LIMITED (SUPRA) HAS HELD IN PARA 3(D) AS UNDER : 3 ( D ) WE FIND THAT THE IMPUGNED ORDER OF THE TRIBUNAL HOLDING THAT A PARTY IS NOT BARRED IN LAW FROM WITHDRAWING FROM ITS LIST OF COMPARABLES, A COMPANY, IF THE SAME IS FOUND TO HAVE BEEN INCLUDED ON ACCOUNT OF MISTAKE AS ON FACTS, IT IS NOT COMPARABLE. THE TRANSFE R PRICING MECHANISM REQUIRES COMPARABILITY ANALYSIS TO BE DONE BETWEEN LIKE COMPANIES AND CONTROLLED AND UN - CONTROLLED TRANSACTIONS. THIS COMPARISON HAS TO BE DONE BETWEEN LIKE COMPANIES AND REQUIRES CARRYING OUT OF FAR ANALYSIS TO FIND THE SAME. MOREOVER , THE ASSESSEE'S SUBMISSION IN ARRIVING AT THE ALP IS NOT FINAL. IT IS FOR THE TPO TO EXAMINE AND FIND OUT THE COMPANIES LISTED AS COMPARABLES WHICH ARE, IN FACT COMPARABLE. THE IMPUGNED ORDER HAS ON FAR ANALYSIS FOUND THAT M/S. INDOWIND ENERGY LTD. AND B. F. UTILITIES LTD. ARE NOT COMPARABLE. THEY ARE IN A DIFFERENT AREA I.E. WIND ENERGY WHILE THE RESPONDENT - ASSESSEE IS IN THE FIELD OF SOLAR ENERGY. ACCORDINGLY IN VIEW OF THE DECISION OF DCIT VS. QUARK SYSTEMS PVT. LTD. (SUPRA) AS WELL AS THE DECISIO N OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA POWER SOLAR SYSTEM LIMITED (SUPRA), WE ADMIT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE FOR ADJUDICATION ON MERITS. 6. GROUND NOS.1 TO 6 INCLUDING ADDITIONAL GROUNDS ARE REGARDING THE TP A DJUSTMENT CONSEQUENT TO DETERMINATION OF ARM S LENGTH PRICE (ALP) ON THE BASIS OF THE SET OF COMPARABLES SELECTED BY THE TPO. 7. THE ASSESSEE IS A SUBSIDIARY OF ABB HOLDINGS (SOUTH ASIA) LIMITED AND A GROUP COMPANY OF ABB BOVERI GROUP COMPANY WH ERE 99.9% OF 11 IT (TP) A NO. 1612 /BANG/201 2 EQUITY SHARE CAPITAL IS HELD BY ABB HOLDINGS (SOUTH ASIA) LIMITED. THE ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES (AES). THE DISPUTE BEFORE US IS ONLY IN RESPECT OF THE SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE TO THE TUNE OF RS.150,35,94,000. THE O PERATING MARGIN OF THE ASSESSEE FROM SOFTWARE DEVELOPMENT SERVICES SEGMENT IS 8.10%. TO BENCH MARK ITS INTERNATIONAL TRANSACTIONS, THE ASSESSEE SELECTED 17 COMPANIES HAVING MEAN MAR GIN AT 13 . 64%. THE TPO REJECTED 12 COMPANIES FROM THE SET OF COMPARABLES SELECTED BY THE ASSESSEE AND CARRIED OUT A FRESH SEARCH . T HE TPO FINALLY CONSIDERED 20 COMPANIES INCLUDING 5 COMPANIES WHICH ARE COMMON TO THE SET OF ASSESSEE'S COMPARABLES. THE C OMPARABLES SELECTED BY THE TPO IN THE FINAL SET ARE AS UNDER : COMPARABLES SELECTED BY THE APPELLANT AND THEIR ARITHMETIC MEAN: SL. NO. NAME OF THE COMPANY MARK - UP ON TOTAL COSTS (WC UNADJ) (IN %) 1. AVANI CIMCON TECHNOLOGIES 25.62 2. BODHTREE CONSULT ING LTD. 18.72 3. CELESTIAL BIOLABS 87.94 12 IT (TP) A NO. 1612 /BANG/201 2 SL. NO. NAME OF THE COMPANY MARK - UP ON TOTAL COSTS (WC UNADJ) (IN %) 4. E - ZEST SOLUTIONS LTD. 29.81 5. FLEXTRONICS (ARICENT) 7.86 6. IGATE GLOBAL SOLUTION LTD. 13.99 7. INFOSYS TECHNOLOGIES LTD. 40.37 8. KALS INFORMATION SYSTEMS LTD. (SEG) 41.94 9. LGS GLOBAL LTD. 27.52 10. MINDTREE LTD. (SE G) 16.41 11. PERSISTENT SYSTEMS LTD. 20.31 12. QUINTEGRA SOLUTION LTD. 21.74 13. R SYSTEMS INTERNATION AL (SEG) 15.30 14. R S SOFTWARE (INDIA) LTD. 7.41 15. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG) 7.58 16. TATA ELXSI (SEG) 18.97 17. THIRDWARE SOLUTIONS LTD. 19.35 18. WIPRO LTD. (SEG) 28.45 19. SOFTSOL INDIA LTD. 17.89 20. LUCID SOFTWARE LTD. 16.50 MEAN (AVERAGE) 23.65 ACCORDINGLY, THE TPO AFTER ALLOWING THE WORKING CAPITAL ADJUSTMENT OF 3.49% H AS COMPUTED THE ADJUSTED MEAN MARGIN OF AT 20.16% AND 13 IT (TP) A NO. 1612 /BANG/201 2 PROPOSED AN ADJUSTMENT UNDER SECTION 92CA OF RS.16,78,17,180. THE ASSESSEE IS NOW SEEKING EXCLUSION OF 12 COMPANIES FROM THE SET OF 20 SELECTED BY THE TPO AS UNDER : S.NO. NAME OF THE COMPANY 1 AVANICIMCON TECHNOLOGIES LTD 2 CELESTIAL BIOLABS LTD 3 E - ZEST SOLUTIONS LTD 4 INFOSYS TECHNOLOGIES LTD 5 KALS INFORMATION SYSTEMS LTD (SEG.) 6 LUCID SOFTWARE LTD 7 PERSISTENT SYSTEMS LTD 8 QUINTEGRA SOLUTIONS LTD 9 SOFTSOLE INDIA LTD 10 TATA ELXSI LTD (SEG.) 11 THIRDWARE SOLUTIONS LTD (SEG 12 WIPRO LTD (SEG.) 8. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE FUNCTIONAL COMPARABILITY OF ALL THESE 12 COMPANIES HAVE BEEN EXAMINED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA (P) LIMITED VS. DCIT 70 TAXMANN .COM 378. THUS HE HAS SUBMITTED THAT ALL THESE 12 COMPANIES SHOULD BE EXCLUDED FROM THE SET OF COMPARABLES. 14 IT (TP) A NO. 1612 /BANG/201 2 9. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT OUT OF THESE 12 COMPANIES ONE COMPANY VIZ. SOFTSOL INDIA LIMITED IS NOT CHALLENGED ON FUNCTIONAL COMPARABILITY BUT THE ASSESSEE IS SEEKING EXCLUSION ON THE GROUND THAT THE RPT IN THE CASE OF THIS COMPANY IS MORE THAN 15% WHEREAS THE TPO HAS APPLIED THE FILTER OF RPT OF 25% WHICH HAS BEEN UPHELD BY THE VARIOU S DECISIONS OF THIS TRIBUNAL. HE HAS RELIED UPON THE DECISION DT.28.0 3 .2013 OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. SUPPORT SOFT INDIA PVT. LTD. IN IT(TP)A NO.1372/BANG/2011 AND THE DECISION DT.6.8.2014 IN THE CASE OF ACIT VS. ZE E ENTERTAINMENT ENTERPRISES LTD. IN IT(TP)A NO.2414/MUM/2013. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO RELIED UPON THE DECISION OF DELHI BENCH OF THE TRIBUNAL DT.12.10.2012 IN THE CASE OF A CTIS ADVISERS PVT. LTD. VS. DCIT IN IT(TP)A NO.5277/DEL/2 011 AND 958/DEL/2008. THUS THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN THE TPO HAS APPLIED A FILTER OF 25% RPT THEN THERE IS NO NEED OF RE VI SING THE SAME TO 15%. 10. AS REGARDS THE FUNCTIONAL COMPARABILITY OF OTHER COMPANIES, T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE TPO AS WELL 15 IT (TP) A NO. 1612 /BANG/201 2 AS DRP HAS DULY EXAMINED THE FUNCTIONAL COMPARABILITY OF THESE COMPANIES AND FOUND THAT THESE COMPANIES ARE FUNCTIONALLY COMPARABLE AS THE PREDOMINANT BUSINESS ACTIVI TIES OF THESE C OMPANIES ARE SOFTWARE DEVELOPMENT SERVICES . THEREFORE, WHEN THE TNMM IS ADOPTED AS MAM THEN THE MINOR VARIATION BECOMES INSIGNIFICANT IN THE FAR ANALYSIS AND FURTHER THE ALLOWABLE ADJUSTMENT ALSO TAKEN CARE OF SUCH MINOR VARIATION. 11. WE HAVE CONS IDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE OBJECTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT RPT FILTER OF 25% APPLIED BY THE TPO SHOULD NOT BE DISTURBED. WE FIND THAT THERE IS NO QUARREL THAT AS PER THE PROVISIONS OF ACT UNDER CHAPTER X ONLY UNCONTROLLED AND UNRELATED COMPARBLE PRICES HAS TO BE CONSIDERED FOR DETERMINING THE ALP AND THEREFORE THE COMPARABLE ENTITY SHOULD NOT HAVE ANY RPT. HOWEVER IT IS NOT PRACTICALLY POSSIBLE TO FIND OUT THE COMPARA BLE ENTITIES / COMPANIES HAVING 0% RPT. THEREFORE BY CONSIDERING THIS ISSUE OF TOLERANCE RANGE OF RPT FOR SELECTING THE COMPARABLE COMPANIES THIS TRIBUNAL HAS IN DUE COURSE ALLOWED THE RPT FROM 5% TO 25% DEPENDING UPON THE AVAILABILITY OF THE COMPARABLE COMPANIES. THUS IN CASE WHERE THERE IS NO DIFFICULTY IN 16 IT (TP) A NO. 1612 /BANG/201 2 SEARCHING THE COMPARABLE COMPANIES THEN THE RPT SHOULD BE MINIMUM OF 5% AND IN THE EXTREME CASE WHERE THE SUITABLE COMPARABLES ARE NOT FOUND THEN THIS RANGE OF RPT CAN BE RELAXED UPTO 25%. THUS THE TOLERANCE RANGE OF 25% OF RPT IS ALLOWED ONLY IN THE EXCEPTIONAL CASES . THE TRIBUNAL AFTER CONSIDERING THESE FACTS AND VARIOUS DECISIONS WHEREIN THIS ISSUE HAS BEEN EXAMINED HAS TAKEN A CONSISTENT VIEW THAT IN NORMAL CIRCUMSTANCES WHEN THERE IS NO DIFFICU LTY IN SEARCHING THE COMPARABLE COMPANIES THE RPT OF COMPARABLE COMPANIES SHALL NOT BE MORE THAN 15%. IN THE CASE OF ASSESSEE THE TPO HAS SELECTED 20 COMPARABLE COMPANIES IN THE FINAL SET AND THEREFORE THIS FACT ITSELF MANIFEST THAT THERE WAS NO DIFFICUL TY IN SEARCHING THE COMPARABLES IN THIS CASE. ACCORDINGLY WE FIND THAT 15% OF TOLERANCE RANGE OF RPT IS PROPER AND REASONABLE IN THE CASE OF THE ASSESSEE. THOUGH THIS IS NOT A STANDARD PARAMETER AS WE HAVE DISCUSSED IN THE FOREGOING PART OF THIS ORDER AN D IT DEPENDS ON THE FACTS OF THE CASE AND AVAILABILITY OF THE COMPARABLE COMPANIES TO APPLY THE TOLERANCE RANGE FROM 5% TO 25%. THEREFORE 15% IS OTHERWISE THE MEDIUM OF THE TWO EXTREMES OF 5% TO 25% AND HENCE IN 17 IT (TP) A NO. 1612 /BANG/201 2 NORMAL CIRCUMSTANCES IT HAS TO BE TAKEN AS A PROPER TOLERANCE RANGE. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. AT THE OUTSET, WE NOTE THAT AN IDENTICAL SET OF 20 COMPARABLE COMPANIES WAS SELECTED BY THE TPO IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA (P) LIMITED VS. DCIT (SUP RA) FOR THE SAME ASSESSMENT YEAR 2008 - 09 AND THIS TRIBUNAL WHILE PASSING THE ORDER IN THE SAID CASE HAS CONSIDERED FUNCTIONAL COMPARABILITY OF THESE 12 COMPANIES IN PARA 10.5 AS UNDER : 10.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVA NT MATERIAL ON RECORD. IT IS PERTINENT TO NOTE THAT THE TPO IN THE CASE OF KODIAK NETWORK (INDIA) PVT. LTD. (SUPRA) HAS SELECTED AN IDENTICAL SET OF 21 COMPANIES AS SELECTED IN THE CASE OF THE ASSESSEE. THEREFORE, IT IS CLEAR THAT WHILE SELECTING THE COM PARABLE COMPANIES, THE TPO HAS CONSIDERED THE ASSESSEE AS A SOFTWARE DEVELOPMENT SERVICES PROVIDER AS IN THE CASE OF KODIAK NETWORK (INDIA) PVT. LTD. (SUPRA). FURTHER, THE TPO HAS RECORDED THE FUNCTIONAL PROFILE OF THE ASSESSEE IN THE IMPUGNED ORDER WHIC H HAS BEEN REPRODUCED IN THE FOREGOING PARAGRAPHS OF THIS ORDER AND THEREFORE WE DO NOT FIND ANY SUBSTANCE IN THE OBJECTIONS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE BUSINESS PROFILE OF THE ASSESSEE AS FAR AS THE SOFTWARE DEVELOPMENT SE RVICES SEGMENT MAY NOT BE SIMILAR TO THAT OF KODIAK NETWORK (INDIA) PVT. LTD. (SUPRA). THE TRIBUNAL IN THE CASE OF KODIAK NETWORK (INDIA) PVT. LTD. (SUPRA) HAS DEALT WITH THE ISSUE OF FUNCTIONAL COMPARABILITY OF IDENTICAL SET OF COMPARABLES IN PARAS 21 T O 25 AS UNDER : 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL AVAILABLE ON RECORD. AS WE HAVE NARRATED THE FACTS IN THE FOREGOING PARAS THAT THE TPO HAS DETERMINED THE ALP BY TAKING INTO CONSIDERATION THE SET OF 20 COMPARABLES. TH E ASSESSEE HAS RAISED OBJECTION REGARDING 13 COMPARABLES OUT OF 20 SELECTED BY THE TPO. THE COMPANIES AGAINST WHICH THE ASSESSEE RAISED OBJECTIONS ARE AS UNDER: 18 IT (TP) A NO. 1612 /BANG/201 2 S.NO. NAME OF THE COMPANY 1 AVANICIMCON TECHNOLOGIES LTD 2 BODHTREE LTD 3 CELESTIAL BIOLABS LTD 4 E - ZEST SOLUTIONS LTD 5 INFOSYS TECHNOLOGIES LTD 6 KALS INFORMATION SYSTEMS LTD (SEG.) 7 LUCID SOFTWARE LTD 8 PERSISTENT SYSTEMS LTD 9 QUINTEGRA SOLUTIONS LTD 10 SOFTSOLE INDIA LTD 11 TATA ELXSI LTD (SEG.) 12 THIRDWARE SOLUTIONS L TD (SEG 13 WIPRO LTD (SEG.) 22. WE NOTE THAT THE COMPARABILITY OF THESE 13 COMPANIES HAVE BEEN EXAMINED BY THIS TRIBUNAL IN SERIES OF DECISION AS REFERRED BY THE LD. AR. IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA), THE CO - ORDINATE BENCH OF THIS TRIBUNAL HAS CONSIDERED THE COMPARABILITY OF THESE COMPANIES IN PARAS 7 TO 19.3 OF THE ORDER WHICH HAVE BEEN REPRODUCED BELOW: 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. THE ASSESSEE OBJECT S TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS WHEREAS THE ASSESSEE OFFERS SOFTWARE DEVELOPMENT SERVICES TO ITS AES. THE TPO HAD REJECTED THE OBJECTIONS OF THE ASSESSEE ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR THIS PURPOSE, THE TPO HAD RELIED ON INFORMATION SUBMIT TED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133(6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPANY DIRECTLY. 19 IT (TP) A NO. 1612 /BANG/201 2 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6) OF THE ACT, ON THE BASIS OF WHICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMPARABLE COMPANIES, HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS: I) TRILOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. V DCIT (ITA NO.1054/BANG/2011) II) TELECORDIA TECH NOLOGIES INDIA PVT LTD V ACIT (ITA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.845/BANG/2011 DT.22.2.2013. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE FACTSPERTAINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007 - 08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSME NT YEAR 2008 - 09). IN SUPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT : - (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLEARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS COMPANY OFFERS CUS TOMISED SOLUTIONS AND SERVICES IN DIFFERENT AREAS; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT THIS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE, CARMA, ETC. 20 IT (TP) A NO. 1612 /BANG/201 2 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO - ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER IN CURRAM SOFTWARE INTERNATIONAL PVT. LTD., IN ITS ORDER IN ITA NO.1280/BANG/2012 DT.31.7.2013 HAS REMANDED THE MATTER 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 THEREOF : - 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 OF COMPARABLES ONLY BECAU SE IT 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 SOFTWARE INDIA PVT. LTD. (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE ON THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS ALONE, HOWEVER, WILL 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 E QUALLY APPLICABLE 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 COMPARABILITY BETWEEN THE ASSESSEE AND THE TRIOLOGY CASE, THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT THE FACTS APPLICABLE TO THE ASSESSMENT YEAR 2007 - 08, THE YEAR FOR WHICH THE DECISION IN CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUP RA) 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 EACH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CA N 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 FIRST ESTABLISH THAT THE FACTS AND ATTENDANT F ACTORS 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 TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (S UPRA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TOO OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007 - 08. THE ASSESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT 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 THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLIER ASSESSMENT 21 IT (TP) A NO. 1612 /BANG/201 2 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 OF FICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESSEE INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNI TY OF BEING HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDERS THEREON. IT IS ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCESS CONDUCTED BY THE TPO, BUT ONLY AS AN ADDITIONAL COMPARABLE FOR 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 ACT. 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 T HIS YEAR AND CONTENDED THAT THE SELECTION OF THIS COMPANY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED IN CURRAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THAT A COMPANY CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS OF FAR ANALYSIS CONDUCTED FOR TH AT YEAR AND THEREFORE PLEADED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATIVE 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 T HE FINDINGS RENDERED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) AND IN OTHER CASES LIKE TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSIDERATION AS WE LL. 7.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONS IDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAINED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO T O HAVE NECESSARILY FURNISHED THE INFORMATION SO GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIONS THEREON INTO CONSIDERATION BEFORE 22 IT (TP) A NO. 1612 /BANG/201 2 DECIDING TO INCLUDE THIS COMPANY IN ITS FINAL LIST OF COMPARABLES. NONFURNISHING THE INFORMATION OBTAINED UNDER SECTION 133 (6) OF THE ACT TO THE ASSESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARABLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMP ARABLE ONLY ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIER YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY WAS NOT SELECTED IT(TP)A 1380/BANG/2012 PAGE 7 OF 34 ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY THE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SECTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUDICIAL DECISION CITED ABOVE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08, THE ASSESSEE HAS BROUGHT ON RECORD EVIDENCE THAT THIS COMPA NY 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 YEAR ALSO. SINCE THE FUNCTIONAL PRO FILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATED BY THE ASSESSEE, FOLLOWING THE DECISIONS OF THE CO - ORDINATE 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 TRIOLOGY 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 COMPARABLES. 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 THIS COMPANY IN THE LIST OF COMPARABLES, AS CAN BE SEEN FROM THE 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 INCLUSION OF THIS COMPANY AS A COMPARABLE FOR THE FOL LOWING REASONS : (I) THIS COMPANY HAS REPORTED ABNORMALLY FLUCTUATING MARGINS IN THE PERIOD FROM 2005 TO 2011, WHICH INDICATE ABNORMAL BUSINESS FACTORS AND ABNORMAL PROFIT MARGINS AND HENCE SHOULD NOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE. 23 IT (TP) A NO. 1612 /BANG/201 2 (II) THE ABNORMALLY FLUCTUATING MARGINS INDICATE THAT THIS COMPANY BEARS HIGHER RISK IN CONTRAST TO THE ASSESSEE WHO HAS EARNED CONSISTENT MARGINS OVER THE YEARS, INDICATING DIFFERENCE IN THE RISK PROFILE BETWEEN THIS COMPANY AND THE ASSESSEE. (III) THIS COMPANY H AS REGISTERED EXPONENTIAL GROWTH OF 67% IN TERMS OF REVENUE AND 41% IN TERMS OF PROFITS OVER THE IMMEDIATELY PRECEDING YEAR WHICH CAN BE ATTRIBUTED TO THE DEVELOPMENT OF A SOFTWARE APPLICATION, MIDAS (MULTI INDUSTRY DATA ANOMALY) WHICH WAS MADE AVAILABLE F OR CUSTOMERS AS SAAS (SOFTWARE AS A SERVICE). 8.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE 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 TPO S PROPOSAL FOR INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES AND HAD NOT OBJECTED TO ITS INCLUSION EVEN BEFORE THE DRP, THE OBJECTIONS RAISED BY THE ASSESSEE IN THIS REGARD, AT THIS STAGE, OUGHT TO BE REJECTED. 8.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ADMITTEDLY, THERE IS NO DISPUTING THE FACT THAT THE ASSESSEE HAD NEVER OBJECTED 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 OMPANY IN THE LIST OF COMPARBALES. IN FACT IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08, THIS COMPANY WAS SELECTED 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 COMPANY AT THIS STAGE OF PROCEEDINGS. 8.4.2 IT IS ALSO SEEN FRO M THE SUBMISSIONS MADE BEFORE US THAT THE ASSESSEE HAS ONLY POINTED OUT FLUCTUATING MARGINS IN THE RESULTS OF THIS COMPANY OVER THE YEARS. THIS, IN ITSELF, CANNOT BE REASON ENOUGH TO ESTABLISH DIFFERENCES IN FUNCTIONAL PROFILE OR ANY CLINCHING FACTUAL REAS ON WARRANTING THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. IN THIS VIEW OF THE MATTER, THE CONTENTIONS OF THE ASSESSEE ARE REJECTED AND THIS COMPANY IS HELD TO BE COMPARABLE TO THE ASSESSEE AND ITS INCLUSION IN THE LIST OF COMPARABLE COMPAN IES IS UPHELD. 24 IT (TP) A NO. 1612 /BANG/201 2 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INCLUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FILTER. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTIONAL DISSIMILARITY HAS BEEN DEALT WITH IN DETAIL IN TH E T.P. ORDER FOR ASSESSMENT YEAR 2007 - 08. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY OBSERVING THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 9 .2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE, AS THE COMPANY IS INTO BIO - INFORMATICS SOFTWARE PRODUCT /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, ETC. AND THEREFORE IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE; (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY INCOMPARABLE TO SOFTWARE SERVICE PROVI DERS BY THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA); (III) THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF TRIOLOGY EBUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AT P ARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THAT .. AS EXPLAINED EARLIER, IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY, ELIMINATE AND MAKE ADJUST MENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL 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 - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA PVT. LTD. IN ITA NO.112/BANG/2011, CSR INDIA PVT. LTD. IN IT(TP)A NO.1119/BANG/2011 AND BY 25 IT (TP) A NO. 1612 /BANG/201 2 THE ITAT, DELHI BENCH IN THE CASE OF TRANSWITCH INDIA PVT. LTD. IN ITA NO.6083/DEL/2010. (V) THE FACTS PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM ASSESSMENT YEAR 2007 - 08 TO ASSESSMENT YEAR 2008 - 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE INSTANT CASE AND HENCE 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 REPRESENTATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE ARE FOR ASSESSMENT YEAR 2007 - 08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008 - 09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AND CAREF ULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS TRUE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THI S YEAR AS WELL, THE SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A COMPARABLE BASED ON THE REASONING GIVEN IN THE TPO S ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TPO HAS NO T CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY FOR THIS YEAR VIZ. ASSESSMENT YEAR 2008 - 09. TO THAT EXTENT, IN OUR CONSIDERED VIEW, THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIVE A ND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICIAL DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON RECORD IT(TP)A 1380/BANG/2012 PAGE 8 OF 34 SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS F UNCTIONALLY DIS - SIMILAR AND DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND AND IS THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSESSMENT YEAR 2007 - 08 IS APPLICABLE FOR THIS YEAR ALSO. WE A GREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS ALSO BEEN SO HELD BY CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) AS WELL AS IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER PARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER 26 IT (TP) A NO. 1612 /BANG/201 2 CONSIDERATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESSEE, FOLLO WING THE DECISION 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 TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT THIS COMPANY OUGHT TO BE OMI TTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 10. KALS INFORMATION SYSTEMS LTD . 10.1 THIS IS 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 GROUNDS OF FUNCTIONAL DIFFERENCES AND THAT THE SEGMENTAL DETAILS HAVE NOT BEEN PROVIDED IN THE ANNUAL REPORT OF THE COMPANY WITH RESPECT TO SOFTWARE SERVICES REVENUE AND SOFTWARE PRODUCTS REVENUE. THE TPO, HOWEVER, REJECTED THE OBJECTIONS OF THE ASSESS EE OBSERVING THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTES ONLY 4.24% OF TOTAL REVENUES AND THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES CONSTITUTES MORE THAN 75% OF THE TOTAL OPERATING REVENUES FOR THE F.Y. 2007 - 08 AND QUALIFIES AS A COMPARABLE BY THE SERVICE INCOME FILTER. 10.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND OUGHT TO BE REJECTED /EXCLUDED FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS: - (I) TH IS COMPANY IS FUNCTIONALLY DIFFERENT FROM THE SOFTWARE ACTIVITY OF THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE TO SOFTWARE SERVICE PROVIDERS FOR ASSESSMENT YEAR 2007 - 08 BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE. THIS COMPANY HAS BEEN HELD TO BE DIFFERENT FROM A SOFTWARE DEVELOPMENT COMPANY IN THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. V DCIT IN ITA NO.1386/PN/ 2010. (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE HAS BEEN UPHELD BY CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF (A) TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011). (B) LG SOFT INDIA PVT. LTD.IT(TP)A NO.112/BANG/2011) (C) CSR INDIA PVT. LTD. IT(TP)A NO.1119/BANG/2011) AND (D) TRANSWITCH INDIA PVT. LTD.ITA NO.6083/DEL/2010) 27 IT (TP) A NO. 1612 /BANG/201 2 (IV) THE FACTS PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM ASSESSMENT YEAR 2007 - 08 TO ASSESSMENT YEAR 2008 - 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE P URPOSE OF COMPARABILITY IN THE CASE ON HAND AND HENCE 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) THI S COMPANY IS ENGAGED NOT ONLY IN THE DEVELOPMENT OF SOFTWARE PRODUCTS BUT ALSO IN THE PROVISION OF TRAINING SERVICES AS CAN BE SEEN FROM THE WEBSITE AND THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR ENDED 31.3.2008. (VI) THIS COMPANY HAS TWO SEGMENTS; NAME LY, 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 REPRESEN TATIVE CONTENDED THAT THE DECISION OF THE CO - ORDINATE BENCH 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 B E APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. A.Y. 2008 - 09. TO THIS, THE COUNTER ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT THE FUNCTIONAL PROFILE OF THIS COMPANY CONTINUES TO REMAIN THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO AND THE SAME IS EVIDENT FROM THE DETAILS CULLED OUT FROM THE ANNUAL REPORT AND QUOTED ABOVE (SUPRA). 10.4 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND FROM THE RECORD THAT THE TPO HAS DRAWN CONCLUSIONS AS TO THE COMPARABILITY OF THIS COMPANY TO THE ASSESSEE BASED ON INFORMATION OBTAINED U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT IN THE PUBLIC DOMAIN OUGHT NOT TO HAVE BEEN USED BY THE TPO, MORE SO WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THE CO MPANY, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE. WE ALSO FIND THAT THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (SUPRA) AND IN THE CASE OF TRIOLOGY E - BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA ) HAVE HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS 28 IT (TP) A NO. 1612 /BANG/201 2 AND WAS NOT PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. APART FROM RELYING OF THE ABOVE CITED DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL (SUPRA), THE ASSESSEE HAS ALSO BROUGHT ON RECORD EVIDENCE FROM VARIOUS PORTIONS OF THE COMPANY S ANNUAL REPORT TO ESTABLISH THAT THIS COMPANY IS IT(TP)A 1380/BANG/2012 PAGE 9 OF 34 FUNCTIONALLY DIS - SIMILAR AND DIFFERENT FORM THE ASSESSEE AND THAT SINCE THE FINDINGS RENDERED IN THE DECISIONS OF THE COORDI NATE BENCHES OF THE TRIBUNAL FOR ASSESSMENT YEAR 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 VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY I.E . KALS INFORMATION SYSTEMS LTD., IS TO BE OMITTED FORM THE LIST OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJECTED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS THAT TURNOVER IT(TP)A 1380/BANG/2012 PAGE 24 OF 34 AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN THE SOFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTANTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IS MERE LY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE OR OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT : - (I) THE CO - ORDI NATE 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 COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN A DDITIONAL ADVANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS APPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY INTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPARABLE TO THE ASSESSEE ; 29 IT (TP) A NO. 1612 /BANG/201 2 (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING ALL RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS COMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFTWARE PRODUCTS AND THE BREAK UP OF SUCH REV ENUES IS NOT AVAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR RESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQUISITION OF IPRS IN AUTOLAY , A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUC TURAL SYSTEMS. IN VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORISED REPRESENTATIVE PLEADED THAT, THIS COMPANY I.E. INFOSYS TECHNOLOGIES LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE ASSESSEE, TH E LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGINS OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY. IN VIEW OF THIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS BROUGHT ON R ECORD SUFFICIENT EVIDENCE TO ESTABLISH 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 ASSESSMENT YEAR 2007 - 08 IS APPLICABLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGUMENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT INTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALSO SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. 30 IT (TP) A NO. 1612 /BANG/201 2 12. WIPRO LTD. 12.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON SEVERAL GROUNDS LIKE FUNCTIONAL DIS - SIMILARITY, BRAND VALUE, SIZE, ETC. THE TPO, IT(T P)A 1380/BANG/2012 PAGE 26 OF 34 HOWEVER, BRUSHED ASIDE THE OBJECTIONS OF THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 12.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THIS COMPANY I.E. WIPRO LTD., IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE FOR THE FOLLOWING REASONS : - (I) THIS COMPANY OWNS SIGNIFICANT INTANGIBLES IN THE NATURE OF CUSTOMER RELATED INTANGIBLES AND TECHNOLOGY RELATED INTANGIBLES, OWNS IPRS AND HAS BEEN GRANTED 40 REGISTERED PATENT S AND HAS 62 PENDING APPLICATIONS AND ITS ANNUAL REPORT CONFIRMS THAT IT OWNS PATENTS AND INTANGIBLES. (II) THE ITAT, DELHI OBSERVATION IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856(DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNOLOG IES LTD. BEING A GIANT COMPANY AND A MARKET LEADER ASSUMING ALL RISKS LEADING 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 TELECORD IA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) HAS HELD THAT WIPRO LTD. IS NOT FUNCTIONALLY COMPARABLE TO A SOFTWARE SERVICE PROVIDER. (IV) THIS COMPANY HAS ACQUIRED NEW COMPANIES PURSUANT TO A SCHEME OF AMALGAMATION IN THE LAST TWO YEARS. (V) WI PRO LTD. IS ENGAGED IN BOTH SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. NO INFORMATION IS AVAILABLE ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCTS AND SOFTWARE SERVICES. (VI) THE TPO HAS ADOPTED CONSOLIDATED FINANCIAL STATEMENTS FOR COMPARABILITY PURPOSES AND FOR COMPUTING THE MARGINS, WHICH IS IN CONTRADICTION TO THE TPO S OWN FILTER OF REJECTING COMPANIES WITH CONSOLIDATED FINANCIAL STATEMENTS. 12.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 12.4.1 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE FOR 31 IT (TP) A NO. 1612 /BANG/201 2 EXCLUSION OF THIS COMPANY FROM THE SET OF COMPARAB LES. IT IS SEEN THAT THIS COMPANY IS ENGAGED BOTH IN SOFTWARE DEVELOPMENT AND PRODUCT DEVELOPMENT SERVICES. THERE IS NO INFORMATION ON THE SEGMENTAL BIFURCATION OF REVENUE FROM SALE OF PRODUCT AND SOFTWARE SERVICES. THE TPO APPEARS TO HAVE ADOPTED THIS COM PANY AS A COMPARABLE WITHOUT DEMONSTRATING HOW THE COMPANY SATISFIES THE SOFTWARE DEVELOPMENT SALES 75% OF THE TOTAL REVENUE FILTER ADOPTED BY HIM. ANOTHER MAJOR FLAW IN THE COMPARABILITY ANALYSIS CARRIED OUT BY THE TPO IS THAT HE ADOPTED COMPARISON OF THE CONSOLIDATED FINANCIAL 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 INTELLECTUAL PROPERTY IN THE FORM OF REGISTERED PATENTS AND SEVERAL PENDING APPL ICATIONS FOR GRANT OF PATENTS. IN THIS REGARD, THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. (ITA NO.227/BANG/2010) HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARED TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY SUCH INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL ADVANTAGE IN THE MARKET. AS THE ASSESSEE IN THE CASE ON HAND DOES NOT OWN ANY INTANGIBLES, FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL I.E. 24/7 CUSTOMER.C OM PVT. LTD. (SUPRA), 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 CONSIDERA TION. 13. TATA ELXSI LTD . 13.1 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, FUNCTIONAL DIS - SIMILARITY, SIGNIFICANT R&D ACTIV ITY, BRAND VALUE, SIZE, ETC. THE TPO, HOWEVER, REJECTED THE CONTENTION PUT FORTH BY THE ASSESSEE AND INCLUDED THIS COMPANY IN THE SET OF COMPARABLES. 13.2 BEFORE US IT WAS REITERATED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY IS NOT FUNCTIO NALLY COMPARABLE TO THE ASSESSEE AS IT PERFORMS A VARIETY OF FUNCTIONS UNDER SOFTWARE DEVELOPMENT AND SERVICES SEGMENT NAMELY - ( A ) PRODUCT DESIGN, ( B ) INNOVATION DESIGN ENGINEERING AND ( C ) VISUAL COMPUTING LABS AS IS REFLECTED IN THE ANNUAL REPORT OF THE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT, ( I ) THE CO - ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES (P.) LTD. ( SUPRA ) HAS HELD THAT 32 IT (TP) A NO. 1612 /BANG/201 2 TATA ELXSI LTD . IS NOT A FUNCTIONALLY COMPARABLE FOR A SOFTWARE DEVELOPM ENT SERVICE PROVIDER. ( II ) THE FACTS PERTAINING TO TATA ELXSI LTD . HAVE NOT CHANGED FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007 - 08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008 - 09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED AS A CO MPARABLE TO THE ASSESSEE IN THE CASE ON HAND. ( III ) TATA ELXSI LTD . IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND IS NOT PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER. IN THE ANNUAL REPORT OF THIS COMPANY THE DESCRIPTION OF THE SEGMENT ' SOFTWARE DEVELOPMENT SERVICES' RELATES TO DESIGN SERVICES AND ARE NOT TO SOFTWARE SERVICES PROVIDED BY THE ASSESSEE. ( IV ) TATA ELXSI LTD . INVESTS SUBSTANTIAL FUNDS IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS RESULTED IN THE 'EMBEDDED PRODUCT DESIG N 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 CLEARLY F UNCTIONALLY DIFFERENT/DIS - SIMILAR FROM THE ASSESSEE AND THEREFORE OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. 33 IT (TP) A NO. 1612 /BANG/201 2 13.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE STAND OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABL ES. 13.4 WE HAVE HEARD BOTH PARTIES AND CAREFULLY PERUSED AND CONSIDERED THE MATERIAL ON RECORD. FROM THE DETAILS ON RECORD, WE FIND THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN PRODUCT DESIGNING SERVICES AND NOT PURELY SOFTWARE DEVELOPMENT SERVICES. THE DETAILS IN THE ANNUAL REPORT SHOW THAT THE SEGMENT ' SOFTWARE DEVELOPMENT SERVICES' RELATES TO DESIGN SERVICES AND ARE NOT SIMILAR TO SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. 13.5 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TELCORDIA TECHN OLOGIES INDIA (P.) LTD . ( SUPRA ) HAS HELD THAT TATA ELXSI LTD . IS NOT A SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THEREFORE IT IS NOT FUNCTIONALLY COMPARABLE. IN THIS CONTEXT THE RELEVANT PORTION OF THIS ORDER IS EXTRACTED AND REPRODUCED BELOW : ' . TA TA 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 PROV IDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PROD UCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILITY ANALYSIS FOR DETERMINING THE ARM'S LENGTH PRICE FOR THE ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PORTION.' AS CAN BE SEEN FROM THE E XTRACTS OF THE ANNUAL REPORT 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. 14. E - ZEST SOLUTIONS LTD . 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GR OUND THAT IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON 34 IT (TP) A NO. 1612 /BANG/201 2 THE GROUND THAT AS PER THE INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTW ARE DEVELOPMENT SERVICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FROM THE LIST 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', CONSISTING OF WEB STRATEGY SERVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVICES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERVICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIGH END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCING ('KPO') SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPANY HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REP ORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE ANNUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIVE INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANY'S WEBSITE WHICH SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANY'S FUNCTIONAL PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERVICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVELOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P.) LTD . V . DY. CIT (INTERNATIONAL TAXATION) [2013] 32 TAXMANN.COM 21 (HYD. - TRIB.) AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E - ZEST SOFTWARE LTD ., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, TH E LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARBALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVICES RENDERED BY THE COMPANY TO GIV E A FINDING WHETHER THE SERVICES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOPMENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON RECORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY I.E. E - ZE ST SOFTWARE LTD ., IS 35 IT (TP) A NO. 1612 /BANG/201 2 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 CAPITAL I - Q INFORMATION SYSTEMS (INDIA) (P. ) LTD . ( SUPRA ) THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E . E - ZEST SOFTWARE LTD . BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O./TPO IS ACCORDINGLY DIRECTED. 15. THIRDWARE SOLUTIONS LT D . (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST O F COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS. 500 CRORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPA NY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED T HAT : ( I ) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWA RE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT SERVICES. ( II ) IN THE CASE OF E - GAIN COMMUNICATIONS (P.) LTD . V . ITO [2009] 118 ITD 243/[2008] 23 SOT 385 (PUNE) , THE TRIBUNAL HAS DIRECTED THAT THIS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE ABOVE F ACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 36 IT (TP) A NO. 1612 /BANG/201 2 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED 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 AN D SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF E - GAIN COMMUNICATIONS (P.) LTD . ( SUPRA ) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL ( SUPRA ), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAN D. 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONA LLY DIFFERENT FROM 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 PROVIDERS 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 TELCORDIA TECHNOLOGIES INDIA (P.) 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 BENCHES 37 IT (TP) A NO. 1612 /BANG/201 2 OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA (P.) LTD AND CSR INDIA (P.) LTD. ( SUPRA ) AND BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TRANSWITCH INDIA (P.) LTD. ( SUPRA ).(ITA NO.6083/DEL/2010) ( IV ) THE FACTUAL POSITION AND CIRCUMSTANCES PERTAINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSESSMENT YEAR 2007 - 08 TO THE PERIO D 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 PRODUCT DEVELOPMENT. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN 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 ASSESSMENT YEAR 2007 - 08 AND OTHER CASES CIT ED ABOVE, IT IS CLEAR THAT THIS COMPANY 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 COMPANY I.E. LUCID SOFTWARE LTD ., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE 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 PERUSED AND CAREFULLY CONSIDERE D THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTWARE LTD ., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHEREAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SE RVICES. 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/BANG/2011), LG SOFT INDIA (P.) LTD. ( SUPRA ), CSR INDIA (P.) LTD. ( SUPRA ); THE ITAT, MUMBAI BENCH IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD ( SUPRA ) AND THE DELHI ITAT IN THE CASE OF TRANSWITCH INDIA (P.) LTD. ( SUPRA ) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOPMENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONALLY DIFFERENT AND DIS - SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVIDERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMONSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO THIS COMPANY HAVE NOT CHANGED MATERIALLY 38 IT (TP) A NO. 1612 /BANG/201 2 FROM THE EARLIER YEAR I.E. ASSESSMENT YEAR 2007 - 08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008 - 09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO - ORDINATE BENCHES OF THIS TRIBUNAL AND OF THE ITAT, MUMBAI AND DELHI BENCHES ( SUPRA ), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. 17. PERSISTENT SYSTEMS LTD. 17.1 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 COMPANY BEING ENGAGED IN SOFTWARE PRODUCT DESIGNING AND ANALYTIC SERVICES, IT IS FUNCTIONALLY DIFFERENT AND FURTHER THAT SEGMENTAL RESULTS ARE NOT AVAILABLE. THE T PO REJECTED 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 THE DETAILS FURNISHED IN REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE AC T, SOFTWARE DEVELOPMENT CONSTITUTES 96% OF ITS REVENUES. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER INCLUDED THIS COMPANY I.E. PERSISTENT SYSTEMS LTD ., IN THE LIST OF COMPARABLES AS IT QUALIFIED THE FUNCTIONALITY CRITERION. 17.2 BEFORE US, THE ASSES SEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE SUBMITTING THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE SEVERAL 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 PURELY A SOFTWARE DEVELOPMENT SERVICE PROVIDER AS IS THE ASSESSEE IN THE CASE ON HAND. ( II ) PAGE 60 OF THE ANNUAL REPORT OF THE COMPANY FOR F.Y. 2007 - 08 INDICATES THAT THIS COMPANY, IS PREDOMINANTLY ENGAGED IN 'OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT SERVICES' FOR INDEPENDENT SOFTWARE VENDORS AND ENTERPRISES. ( III ) WEBSITE EXTRACTS INDICATE THAT THIS COMPANY IS I N THE BUSINESS OF PRODUCT DESIGN SERVICES. 39 IT (TP) A NO. 1612 /BANG/201 2 ( IV ) THE ITAT, MUMBAI BENCH IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) WHILE DISCUSSING THE COMPARABILITY OF ANOTHER COMPANY, NAMELY LUCID SOFTWARE LTD. HAD RENDERED A FINDING THAT IN THE ABS ENCE 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 S EGMENTAL DATA IS NOT AVAILABLE. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE ABOVE, THIS COMPANY I.E. PERSISTENT SYSTEMS LTD . BE OMITTED FROM THE LIST OF COMPARABLES. 17.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS L TD ., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PROVIDER. WE FIND THAT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL DETAILS ARE NOT GIVEN SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPL E ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD. ( SUPRA ) THAT IN THE ABSENCE OF SEGMENTAL DETAILS/INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD THAT THIS COMP ANY I.E. PERSISTENT SYSTEMS LTD . OUGHT TO BE OMITTED FROM THE SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 18. QUINTEGRA SOLUTIONSLTD. 18.1 THIS CASE WAS SELECTED BY THE TPO AS A COMPARABLE. BEFORE THE TPO, THE ASSESSEE O BJECTED TO THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE WERE PECULIAR ECONOMIC CIRCUMSTANCES IN THE FORM OF ACQUISITIONS MADE DURING THE YEAR. THE TPO REJECTED THE ASS ESSEE'S OBJECTIONS HOLDING THAT THIS COMPANY QUALIFIES ALL THE FILTERS APPLIED BY THE TPO. ON THE ISSUE OF ACQUISITIONS, THE TPO REJECTED THE ASSESSEE'S OBJECTIONS OBSERVING THAT THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE AS TO HOW THIS EVENT HAD AN ANY INF LUENCE ON THE PRICING OR THE MARGIN EARNED. 40 IT (TP) A NO. 1612 /BANG/201 2 18.2 BEFORE US, THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY FOR THE REASON THAT IT IS FUNCTIONALLY DIFFERENT AND ALSO THAT THERE ARE OTHER FACTORS FOR WHICH THIS COMPANY CANNOT BE CONSIDERED AS A COMPA RABLE. 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 COMPANY ALSO STATES THAT IT IS ENGAGED IN P REPARATORY SOFTWARE PRODUCTS AND IS THEREFORE NOT SIMILAR TO THE ASSESSEE IN THE CASE ON HAND. ( II ) IN ITS ANNUAL REPORT, THE SERVICES RENDERED BY THE COMPANY ARE DESCRIBED AS UNDER : 'LEVERAGING ITS PROVEN GLOBAL MODEL, QUINTEGRA PROVIDES A FULL RA NGE OF CUSTOM IT SOLUTION (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, SAP, PRODUCT ENGINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES), PROPRIETARY SOFTWARE PRODUCTS AND CONSULTANCY SERVICES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES.' ( III ) THIS COMPA NY IS ALSO ENGAGED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH RESULTED IN THE CREATION OF INTELLECTUAL PROPRIETARY RIGHTS (IPRS) AS CAN BE EVIDENCED FROM THE STATEMENTS MADE IN THE ANNUAL REPORT OF THE COMPANY FOR THE PERIOD UNDER CONSIDERATION, WHICH IS AS UNDER : 'QUINTEGRA HAS TAKEN VARIOUS MEASURES TO PRESERVE ITS INTELECTUAL 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 FO R 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 EXCLUDING COMPANIES HAVING PECULIAR ECONOMIC CIRCUMSTANCE S. QUINTEGRA FAILS THE TPO'S 41 IT (TP) A NO. 1612 /BANG/201 2 OWN FILTER SINCE THERE HAVE BEEN ACQUISITIONS IN THIS CASE, AS IS EVIDENCED FROM THE COMPANY'S ANNUAL REPORT FOR F.Y. 2007 - 08, THE PERIOD UNDER CONSIDERATION. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE SUB MISSIONS MADE ABOVE, IT IS CLEAR THAT INTER ALIA, THIS COMPANY I.E. QUINTEGRA SOLUTION LTD . BEING FUNCTIONALLY DIFFERENT AND POSSESSING ITS OWN INTANGIBLES/IPRS, IT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND AND THEREFORE OUGH T TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION. 18.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE SET OF COMPARABLES TO THE ASSESSEE FOR THE PERIOD UN DER CONSIDERATION. 18.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED 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 SERVICE S 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 PROPRIETARY SOFTWARE PRODUCTS AND HAS SUBSTANTIAL R&D ACTIVITY WHICH HAS RESULTED IN CREATION OF ITS I PRS. HAVING APPLIED FOR TRADE MARK REGISTRATION OF ITS PRODUCTS, IT EVIDENCES THE FACT THAT THIS COMPANY OWNS INTANGIBLE ASSETS. THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM (P.) LTD . ( SUPRA ) HAS HELD THAT IF A COMPANY POSSESSES OR OWNS INTANGIBLES OR IPRS, THEN IT CANNOT BE CONSIDERED AS A COMPARABLE COMPANY TO ONE THAT DOES NOT OWN INTANGIBLES AND REQUIRES TO BE OMITTED FORM THE LIST OF COMPARABLES, AS IN THE CASE ON HAND. 18.5 WE ALSO FIND FROM THE ANNUAL REPORT OF QUINTEGRA SO LUTION LTD . THAT THERE HAVE BEEN ACQUISITIONS MADE BY IT IN THE PERIOD UNDER CONSIDERATION. IT IS SETTLED PRINCIPLE THAT WHERE EXTRAORDINARY EVENTS HAVE TAKEN PLACE, WHICH HAS AN EFFECT ON THE PERFORMANCE OF THE COMPANY, THEN THAT COMPANY SHALL BE REMOVED FROM THE LIST OF COMPARABLES. 18.6 RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM (P.) LTD. ( SUPRA ), WE DIRECT THAT THIS COMPANY I.E. QUINTEGRA SOLUTION LTD . BE EXCLUDED FROM THE LIST OF COMPAR ABLES IN THE CASE ON HAND SINCE IT IS ENGAGED IN PROPRIETARY SOFTWARE PRODUCTS AND OWNS ITS OWN INTANGIBLES UNLIKE THE ASSESSEE IN THE CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER. 42 IT (TP) A NO. 1612 /BANG/201 2 19. SOFTSOL INDIA LTD. 19.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND DIS - SIMILAR FROM IT. THE TPO REJECTED THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE COMPANY'S REPLY T O THE NOTICE UNDER SECTION 133(6) OF THE ACT, THE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER AND THEREFORE INCLUDED THIS COMPANY AS A COMPARABLE AS THE ASSESSEE WAS ALSO A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES. BEFORE US, IN ADDITION T O THE PLEA THAT THE COMPANY WAS FUNCTIONALLY DIFFERENT, THE ASSESSEE SUBMITTED THAT THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLES BY THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 (ITA NO . 845/BANG./2011) ON THE GROUND THAT THE 'RELATED PARTY TRANSACTIONS ('RPT') IS IN EXCESS OF 15%. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT FOR THE CURRENT PERIOD UNDER CONSIDERATION, THE RPT IS 18.3% AND THEREFORE THIS COMPANY REQUIRES TO BE OM ITTED FROM THE LIST OF COMPARABLES. 19.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES AS THIS COMPANY WAS A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSE SSEE. 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007 - 08 IN ITA NO.845/BANG/2011 HAS EXCLUDED THIS COMPANY FROM THE SET OF COMPARABLES FOR THE REASON THAT RPT IS IN EXCESS OF 15% FOLLOWING THE DECISION OF ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM (P.) LTD. ( SUPRA ). AS THE FACTS FOR THIS YEAR ARE SIMILAR AND MATERIAL ON RECORD ALSO INDICATE S THAT RPT IS 18.3%, FOLLOWING THE AFORE CITED DECISIONS OF THE CO - ORDINATE BENCHES ( SUPRA ), WE HOLD THAT THIS COMPANY IS TO BE OMITTED FROM THE LIST OF COMPARABLES TO THE ASSESSEE IN THE CASE ON HAND. 23. THUS, IT IS CLEAR FROM THE FINDINGS OF THE CO - ORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) THAT EXCEPT BODHTREE LTD ALL OTHER 12 COMPANIES WERE FOUND TO BE NOT GOOD COMPARABLES OF THE SOFTWARE DEVELOPMENT SERVICES AS PROVIDED BY ASSESSEE. 24. AS REGARD THE OBJECTION OF THE LD. DR THAT QUINTEGRA SOLUTION LTD . HAS BEEN SELECTED BY THE ASSESSEE ITSELF, WE NOTICE THAT THE FUNCTIONAL COMPARABILITY OF THIS COMPANY HAS BEEN EXAMINED BY THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE 43 IT (TP) A NO. 1612 /BANG/201 2 SOLUTIONS LTD (SUPRA) A ND IT WAS FOUND THAT THE SAID COMPANY IS ENGAGED IN THE DIFFERENT FIELD OF SERVICES I.E. PRODUCT DESIGNING AND ANALYTIC SERVICES AS WELL AS IN PROPRIETARY OF SOFTWARE PRODUCT AND ARE IN RESEARCH AND DEVELOPMENT ACTIVITY WHICH HAS RESULTED IN CREATION O F ITS INTELLECTUAL PROPERTY RIGHTS. THEREFORE, THE SAID COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH PURE SOFTWARE DEVELOPMENT SERVICE ACTIVITY. ONCE THE COMPANY IS FOUND TO BE A NON - COMPARABLE COMPANY WITH THE ASSESSEE, THE SAME IS REQUIRED TO BE EXCLUDED FROM THE SET OF COMPARABLES EVEN IF THE SAID COMPANY IS SELECTED BY THE ASSESSEE ITSELF. THIS VIEW WAS TAKEN BY THE DECISION OF THE SPECIAL BENCH OF CHANDIGARH TRIBUNAL IN THE CASE QUARK SYSTEMS (P.) LTD (SUPRA). 25. THUS, OUT OF 20 COMPA RABLES 12 COMPANIES ARE REQUIRED TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR DETERMINING THE ALP. ACCORDINGLY, WE DIRECT THE TPO/AO TO EXCLUDE THE FOLLOWING COMPANIES FROM THE SET OF COMPARABLES AND RECOMPUTED THE ALP AFTER CONSIDERING THE CLAIM OF RISK ADJUSTMENT AS WELL AS WORKING CAPITAL ADJUSTMENT: S.NO. NAME OF THE COMPANY 1 AVANICIMCON TECHNOLOGIES LTD 2 CELESTIAL BIOLABS LTD 3 E - ZEST SOLUTIONS LTD 4 INFOSYS TECHNOLOGIES LTD 5 KALS INFORMATION SYSTEMS LTD (SEG.) 6 LUCID SOFTWARE LTD 7 PERSISTENT SYSTEMS LTD 8 QUINTEGRA SOLUTIONS LTD 9 SOFTSOLE INDIA LTD 10 TATA ELXSI LTD (SEG.) 11 THIRDWARE SOLUTIONS LTD (SEG 12 WIPRO LTD (SEG.) THUS IT IS CLEAR FROM THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KODIAK NETWORK (INDIA) PVT. LTD. (SUPRA) THAT OUT OF 13 COMPARABLES SOUGHT TO BE EXCLUDED FROM THE SET OF COMPARABLES THE TRIBUNAL FOUND THAT 12 COMPARABLES AS LISTED ABOVE ARE NOT FUNCTIONALLY NOT COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDER. ACCORDING LY, FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF KODIAK NETWORK (INDIA) 44 IT (TP) A NO. 1612 /BANG/201 2 PVT. LTD. (SUPRA), WE DIRECT THE A.O./TPO TO EXCLUDE 12 COMPARABLE COMPANIES FROM THE SET OF COMPARABLES. ACCORDINGLY, FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE DI RECT THE TPO/A.O. TO EXCLUDE THESE 12 COMPANIES AS MENTIONED IN THE PRECEDING PARAS FROM THE SET OF COMPARABLES. THE TPO IS ALSO DIRECTED TO RECOMPUTE THE ALP ON THE BASIS OF REMAINING 8 COMPANIES AND ALSO CONSIDER THE BENEFIT OF THE PROVISO TO SECTION 92 C(2) OF THE ACT. 13. GROUND NO.7 IS REGARDING REDUCING TELECOMMUNICATION EXPENSES FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 14. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. W E FIND THAT THE ISSUE OF EXPENDITURE INCURRED TOWARDS TELECOMMUNICATION CHARGES IN FOREIGN CURRENCY IS REDUCED FROM EXPORT TURNOVER AN EQUAL AMOUNT SHOULD ALSO B E REDUCED FROM TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI LTD. 349 ITR 98 (KAR). THE DECISION OF HO N'BLE JURISDICTIONAL HIGH COURT HAS BEEN 45 IT (TP) A NO. 1612 /BANG/201 2 FOLLOWED IN A NUMBER OF CASES IN CO - ORDINATE BENCHES OF ITAT. HENCE, THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 10A OF THE ACT BY REDUCING THE TELECOMMUNICATION EXPENSES BOTH FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER. 15. GROUND NO.8 IS REGARDING SETTING OFF OF THE BUSINESS LOSSES PERTAINING TO NON - STPI AGAINST THE PROFITS OF STPI UNITS PRIO R TO ALLOWING THE DEDUCTION UNDER SECTION 10A OF THE ACT. 15.1 WE HAVE HEARD THE LEARNED A .R. AS WELL AS LEARNED D .R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. 341 ITR 385 WHICH HAS BEEN UPHELD BY THE HON'BLE SUPREME COURT VIDE DECISION REPORTED IN 391 ITR 274 WHEREIN THE HON'BLE SUPREME COURT H AS HELD IN PARAS 15 TO 17 AS UNDER : 15. SUB - SECTION 4 OF SECTION 10A WHICH PROVIDES FOR PRO RATA EXEMPTION, NECESSARILY INVOLVING DEDUCTION OF THE PROFITS ARISING OUT OF DOMESTIC SALES, IS ONE INSTANCE OF DEDUCTION PROVIDED BY THE AMENDMENT. PROFITS OF AN ELIGIBLE UNIT PERTAINING TO DOMESTIC SALES WOULD HAVE TO ENTER INTO THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS' IN CHAPTER IV AND DENIED THE BENEFIT OF DEDUCTION. THE PROVISIONS OF SUB - SECTION 6 OF SECTION 10A, AS AMENDED BY THE FINANCE ACT OF 2003, GRANTING THE BENEFIT OF ADJUSTMENT OF LOSSES AND UNABSORBED DEPRECIATION ETC. 46 IT (TP) A NO. 1612 /BANG/201 2 COMMENCING FROM THE YEAR 2001 - 02 ON COMPLETION OF THE PERIOD OF TAX HOLIDAY ALSO VIRTUALLY WORKS AS A DEDUCTION WHICH HAS TO BE WORKED OUT AT A FUTURE POINT OF TIME, NAMELY, AFTER THE EXPIRY OF PERIOD OF TAX HOLIDAY. THE ABSENCE OF ANY REFERENCE TO DEDUCTION UNDER SECTION 10A IN CHAPTER VI OF THE ACT CAN BE UNDERSTAND BY ACKNOWLEDGING THAT ANY SUCH REFERENCE OR MENTION WOULD HAVE BEEN A REPETITION OF WHAT HAS ALREADY BEEN PROVIDED IN SECTION 10A. THE PROVISIONS OF SECTIONS 80HHC AND 80HHE OF THE ACT PROVIDING FOR SOMEWHAT SIMILAR DEDUCTIONS WOULD BE WHOLLY IRRELEVANT AND REDUNDANT IF DEDUCTIONS UNDER SECTION 10A WERE TO BE MADE AT THE STAGE OF OPERATION OF CHAP TER VI OF THE ACT. THE RETENTION OF THE SAID PROVISIONS OF THE ACT I.E. SECTION 80HHC AND 80HHE, DESPITE THE AMENDMENT OF SECTION 10A, IN OUR VIEW, INDICATES THAT SOME ADDITIONAL BENEFITS TO ELIGIBLE SECTION 10A UNITS, NOT CONTEMPLATED BY SECTIONS 80HHC AN D 80HHE, WAS INTENDED BY THE LEGISLATURE. SUCH A BENEFIT CAN ONLY BE UNDERSTOOD BY A LEGISLATIVE MANDATE TO UNDERSTAND THAT THE STAGES FOR WORKING OUT THE DEDUCTIONS UNDER SECTION 10A AND 80HHC AND 80HHE ARE SUBSTANTIALLY DIFFERENT. THIS IS THE NEXT ASPECT OF THE CASE WHICH WE WOULD NOW LIKE TO TURN TO. 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOU T REFERENCE TO THE OTHER ELIGIBLE OR NON - ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, 'THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKINGS, AS THE C ASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION.' 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO. 794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF T HE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE T O BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTION 10A AS 'TOTAL INCOME OF THE UNDERTAKING'. 47 IT (TP) A NO. 1612 /BANG/201 2 FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS HON'BLE SUPREME COURT (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 10A OF THE ACT PRIOR TO SETTING OFF OF LOSSES PERTAINING TO NON - STPI UN ITS AGAINST THE PROFITS OF STPI UNITS. 16. GROUND NO.9 IS REGARDING THE DISALLOWANCE OF COMPUTER SOFTWARE EXPENSES BY TREATING AS CAPITAL IN NATURE. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RAISED NO OBJECTION IF THIS GROUND IS DISMISSED AS NOT PRESSED. ACCORDINGLY, THIS GROUND IS DISMISSED BEING NOT PRESSED. 17 . GROUND NO.10 IS REGARDING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 18. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INVESTMENT IN THE FORM OF SHARES IN THE COMPANIES AMOUNTING TO RS.103,43,87,000 DURING THIS YEAR. ACCORDINGLY, THE ASSE SSING OFFICER PROPOSED TO MAKE THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. THE ASSESSEE 48 IT (TP) A NO. 1612 /BANG/201 2 SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT CLAIMED ANY INTEREST FREE INCOME DURING THE YEAR UNDER CONSIDERATION THEREFORE THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE DISALLOWANCE UNDER SECTION 14A COMPUTED AS PER THE PROVISIONS OF RULE 8D ON ACCOUNT OF INTEREST EXPENDITURE OF RS.2,43,42,544 AND ON ACCOUNT OF CO MMON ADMINISTRATIVE EXPENSES BEING 0.5% OF THE AVERAGE INVESTMENT AMOUNTING TO RS.51,71,935 TOTAL COMES TO RS.2,95,14,471. 19. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE INVESTED AN AMOUNT OF RS.1 03,43,87,000 IN THE EQUITY SHARES OF ROMAN BOARD LIMITED. THE SAID INVESTMENT WAS NOT MADE OUT OF BORROWED FUND BUT WAS MADE FROM THE PROCEEDS OF ISSUE OF PREFERENCE SHARES. THUS HE HAS CONTENDED THAT NO BORROWED FUND WAS USED FOR THE PURPOSE OF INVESTM ENT AND THUS, NO DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT. FURTHER THERE IS NO EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION EARNED BY THE ASSESSEE THEREFORE , THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED . I N SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE DELHI HIGH 49 IT (TP) A NO. 1612 /BANG/201 2 COURT IN THE CASE OF CHEMINVEST LIMITED VS. CIT 378 ITR 33. FURTHER THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO ITS INVESTMEN T WHICH WERE MADE IN THE F.Y. 2007 - 08 THEREFORE THERE WILL NOT BE ANY DISALLOWANCE UNDER SECTION 14A WHEN THE ASSESSING OFFICER HAS NOT GIVEN A FINDING THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT. 20. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE INCOME INCLUDES NEGATIVE INCOME BEING LOSS AND THEREFORE EVEN IF THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME BUT THE INVESTMENT IS CAPABLE OF EARNING THE EXEMPT INCOME THEN THE PROVISIONS OF SECTION 14A ARE APPL ICABLE FOR DISALLOWANCE OF THE EXPENDITURE IN RESPECT OF THE EXEMPT INCOME. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE CLAIM OF THE AS SESSEE THAT THE ASSESSEE HAS NOT USED ANY BORROWED FUND FOR THE PURPOSE OF IN VESTMENT OF RS.103,43,87,000 W E FIND THAT THIS ASPECT OF THE MATTER HAS NOT BEEN PROPERLY EXAMINED BY THE AUTHORITIES BELOW THEREFORE , IN THE ABSENCE OF 50 IT (TP) A NO. 1612 /BANG/201 2 PROPER EXAMINATION OF THE FACT OF AVAILABILITY OF THE NON - INTEREST BEARING FUND WITH THE ASSESSEE, NO CONCLUDING FINDING CAN BE GIVEN AT THIS STAGE. 22. T HE SECOND CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE IS THAT SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOM E DURING THE YEAR UNDER CONSIDERATION THEREFORE THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED. THOUGH THE LANGUAGE OF SECTION 14A DOES NOT CONTEMPLATE ACTUAL EARNING OF INCOME AND EXPENDITURE INCURRED FOR EARNING OF THE INCOME BUT IT PROVIDES THAT NO D EDUCTION CAN BE ALLOWED IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. ON PRINCIPLE, WE DO AGREE WITH THE CONTENTION OF THE CIT (DR) THAT INCOME INCLUDES POSITIVE AS WELL AS NEGATIVE INCOME AND THEREFORE EVEN IN CASE THERE IS LOSS IT WILL BE CONSIDERED AS INCOME FOR THE PURPOSE OF IT ACT . H OWEVER , WHILE INTERPRETING THE PROVISIONS OF SECTION 14A, HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS. CIT (SUPRA) HAS HELD IN PARAS 20 TO 24 AS UNDER : 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE ( SUPRA ), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH T HAT THE ISSUE BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPENDITURE UNDER SECTION 57(III) OF THE ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE 51 IT (TP) A NO. 1612 /BANG/201 2 HEAD 'INCOME FROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRESSION 'INCURRED FOR MAKING OR EARNING SUCH INCOME', DID NOT MEAN THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING THE EXPENDITURE. THE COURT EXPLAINED: 'WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR E ARNING INCOME. IT IS THE PURPOSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57(III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57(III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY TH E EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LANGUAGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BE EN EARNED AS A RESULT OF THE EXPENDITURE.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY'S CASE ( SUPRA ) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECTION 57(III) OF TH E ACT, WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD M OODY'S CASE ( SUPRA ) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE ITAT HAS REFERRED TO THE DECISION IN MAXOPP INVES TMENT LTD'S. CASE ( SUPRA ) AND REMANDED THE MATTER TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN MAXOPP INVESTMENT LTD'S . CASE ( SUPRA ) WAS WHETHER THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN WAS DISALLOWABLE UNDER SECTION 14A OF THE ACT. IN THE SAID CASE ADMITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS THE PRESENT, WHER E NO EXEMPT INCOME WAS EARNED IN THE YEAR IN QUESTION. CONSEQUENTLY, THE SAID DECISION WAS NOT RELEVANT AND DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJECTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS T HE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, 52 IT (TP) A NO. 1612 /BANG/201 2 SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 24. CONSEQUENTLY, THE IMPUGNED ORDER OF THE ITAT IS SET ASIDE AND THE APPEAL IS ALLOWED IN THE ABOVE TERMS. THIS COURT SHOULD NOT BE UNDERSTOOD TO HAVE EXPRESSED ANY OPINION ON THE ISSUE OF WHETHER FOR THE AY IN QUESTION THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE ALLOWABLE AS BUSINESS EX PENDITURE UNDER SECTION 36 (1)(III) OF THE ACT. NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE THEREFORE IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST L T D . VS. CIT (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSES SEE AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A. 23. GROUND NO.11 IS REGARDING DISALLOWANCE OF PROVISION FOR ROYALTY. THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.41,37,000 REPRESENTING THE PROVISION CREA TED FOR ROYALTY TO BE PAID TO ABB TECHNOLOGY LTD. BY APPLYING THE PROVISIONS OF SECTION 40(A ) (IA) OF THE ACT FOR WANT OF TDS. 24. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THERE WAS NO PAYMENT DURING THE YEA R UNDER CONSIDERATION AND THE ASSESSEE HAS SUBSEQUENTLY REVERSED THE PROVISION AND ADDED TO THE INCOME OF THE ASSESSEE FOR THE SUBSEQUENT ASSESSMENT YEAR I.E. 2009 - 10. HENCE THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS AMOUNT HAS BEEN TAX ED BY THE ASSESSING OFFICER 53 IT (TP) A NO. 1612 /BANG/201 2 TWICE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND AGAIN FOR THE ASSESSMENT YEAR 2009 - 10. HE HAS THUS PLEADED THAT IF THIS AMOUNT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED FOR THE YEAR UNDER CONSIDERATION T HEN THE SAID AMOUNT SHOULD NOT BE TAXED FOR THE ASSESSMENT YEAR 2009 - 10. 25. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THIS IS A FACTUAL ASPECT TO BE VERIFIED BY THE ASSESSING OFFICER WHETHER THIS AMOUNT W AS AGAIN TAXED IN THE SUBSEQUENT ASSESSMENT YEAR OR NOT. 2 6 . HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSING OFFICER HAS DISALLOWED THIS AMOUNT OF RS.41,37,000 FOR WANT OF DEDUCTION OF TDS BY THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE ITSELF HAS REVERSED THE PROVISION IN THE SUBSEQUENT YEAR AND OFFERED THE AMOUNT OF TAX FOR THE ASSESSMENT YEAR 2009 - 10. ACCORDINGLY, IN THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE MATTER ON THE POINT AS TO WHETHER THIS AMOUNT HAS BEEN TAXED TWICE FOR THE YEAR UNDER CONSIDERATION AS WELL AS IN THE ASSESSMENT YEAR 54 IT (TP) A NO. 1612 /BANG/201 2 2009 - 10. IN CASE THIS AMOUNT HAS BEEN TAXED AGAIN FOR T HE ASSESSMENT YEAR 2009 - 10, THEN NECESSARY REMEDIAL ACTION TO BE TAKEN BY THE ASSESSING OFFICER TO AVOID DOUBLE TAXATION OF THE SAME AMOUNT. 2 7 . GROUND NOS.12 & 13 ARE REGARDING LEVY OF INTEREST UNDER SECTIONS 234B & 234D WHICH ARE CONSEQUENTIAL IN NA TURE. 2 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH AUG., DAY OF AUG., 201 7 . SD/ - ( JASON P BOAZ ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER BANGALORE, DT. 24 .08.2017. *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SR. PVT. SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.