ITO, V. M/s CDC Software India Pvt. Ltd., Bangalore

ITA 1645/BANG/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3755 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 28-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEERA SRIVASTAVA
• Assessee Lawyers: PRASHANTH G S
• Keywords: Business income; Transfer pricing; Opportunity of being heard; Principle of natural justice; Question of law; Wholly owned subsidiary
• Section: 80HHC; 133(6); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER IT(TP)A NO.1645/BANG/2013 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER, WARD-11(1), BANGALORE. VS. M/S. CDC SOFTWARE INDIA PVT. LTD., 6 TH AND 7 TH FLOOR, CANBERRA BLOCK, UB CITY 24, VITTAL MALLYA ROAD, BANGALORE-560025. PAN:AACCP7154M APPELLANT RESPONDENT C.O. NO.113/B/2015 (IN IT(TP)A NO.1645/BANG/2013) ASSESSMENT YEAR : 2005-06 M/S. CDC SOFTWARE INDIA PVT. LTD., 6 TH AND 7 TH FLOOR, CANBERRA BLOCK, UB CITY 24, VITTAL MALLYA ROAD, BANGALORE-560025. PAN:AACCP7154M VS. INCOME TAX OFFICER, WARD-11(1), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : SMT. MEERA SRIVASTAVA, ADDL. CIT (DR) ASSESSEE BY : SHRI. PRASHANTH G. S, CA DATE OF HEARING : 29.09.2016 DATE OF PRONOUNCEMENT : 14 .10.2016 O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE, AND THE CROSS O BJECTION FILED BY THE ASSESSEE COMPANY DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 2 OF 23 OF INCOME TAX (APPEALS)-IV, BANGALORE DATED 17-9-20 13 FOR THE ASSESSMENT YEAR 2005-06. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 3 OF 23 3. THE BRIEF FACTS OF THE CASE ARE THAT THE RESPOND ENT ASSESSEE IS A COMPANY INCORPORATED UNDER PROVISIONS OF THE COMPAN YS ACT OF 1956. IT IS A WHOLLY OWNED SUBSIDIARY OF PIVOTAL CORPORATION, C ANADA. IT IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 WAS FILED ON 28.10.2005 DECLARING NIL INCOM E. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY T HE INCOME TAX OFFICER, WARD 11(1), BANGALORE, AFTER MAKING TRANSF ER PRICING ADJUSTMENT OF RS.1,60,77,477/- U/S 92CA OF THE ACT. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSMENT, AN APPEAL WAS PREFERRED BEFORE CIT(A), WHO VIDE IMPUGNED ORDER HE LD THAT THE COMPANIES WHICH ARE FUNCTIONALLY DISSIMILAR TO THAT OF THE AS SESSEE COMPANY AND THE COMPANYS WHOSE TURNOVER EXCEEDED RS.200 CRORES ARE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE LEARNED CIT(A), ALSO HELD THAT IN RESPECT OF INTERNET BANDWIDTH CHARGES INCURRED I N CONNECTION WITH THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE INDIA, SH OULD BE EXCLUDED FROM BOTH EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER FOLLOWING THE LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI 349 ITR 98. BEING AGGRIEVED , T HE REVENUE IS AN APPEAL BEFORE US IN THE PRESENT APPEAL. 5. GROUND NOS. 1 AND 6 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 4 OF 23 6. GROUND NOS. 2 AND 3 CHALLENGES DIRECTION OF THE CIT(A) TO EXCLUDE INTERNET CHARGES INCURRED IN CONNECTION WITH DELIV ERY OF SOFTWARE OUTSIDE INDIA BOTH FROM TOTAL TURNOVER AS WELL AS FROM THE EXPORT TURNOVER. THE ISSUE IN THESE GROUNDS APPEAL IS SETTLED IN FAVOUR OF THE ASSESSEE BY JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TATA ELXSI WHEREI N IT WAS HELD AS FOLLOWS: 7. CHAPTER 3 OF THE ACT DEALS WITH INCOMES, WHICH DO NOT FORM PART OF TOTAL INCOME. SECTION 10-A IS A SPECIAL PROVISION IN RESP ECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. THE SAID PROV ISION IS ENACTED AS AN INCENTIVE TO EXPORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE GLOBAL MARKET AND, CONSEQUENTLY, EARN PRECIOUS FOREIGN EXC HANGE FOR THE COUNTRY. THEREFORE, WHILE INTERPRETING THESE PROVISIONS, THI S ASPECT HAS TO BE BORNE IN MIND. SECTION 10-A(1) PROVIDES FOR A DEDUCTION OF P ROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THE SAME IS EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. SUB -SECTION (4) IS THE PROVISION WHICH PROVIDES FOR THE MANNER IN WHICH TH E SAID PROFITS AND GAINS HAVE TO BE ARRIVED AT. IT READS AS UNDER: 8. 'FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTA KING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED EN BY THE UNDERTAKING'. 9. THE WORD 'EXPORT TURNOVER' USED IN SUB-SECTION (4) IS DEFINED IN EXPLANATION 2( IV ) AT THE END OF SECTION 10-A, IT READS AS UNDER: 10. 'EXPORT TURNOVER' MEANS, THE CONSIDERATION IN RESPE CT OF EXPORT BY THE UNDERTAKING OF ARTICLES OR THINGS OR COMPUTER S OFTWARE RECEIVED IN OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN, ACCORDANCE WITH SUB-SECTION (3), BUT DOES NOT INCLU DE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR EXPENSES IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA.' 11. THEREFORE, WHILE COMPUTING THE CONSIDERATION RECEIV ED FROM SUCH EXPORT TURNOVER, THE EXPENSES INCURRED TOWARDS FREI GHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE, IN PROVIDING THE TECHNICAL SERVICES OUTSI DE INDIA SHOULD NOT BE INCLUDED. HOWEVER, THE WORD 'TOTAL TURNOVER' IS NOT DEFINED FOR THE PURPOSE OF THIS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEF INE 'TOTAL TURNOVER', THE WORD 'TOTAL TURNOVER' FALLS FOR INTERPRETATION BY THIS C OURT. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 5 OF 23 12. THE EXPRESSION 'TOTAL TURNOVER' HAS BEEN THE SUBJEC T MATTER OF VARIOUS DECISIONS AS DEFINED UNDER THE ACT UNDER SE CTION 80HHC. HOWEVER, IN THE AFORESAID PROVISION, THE TOTAL TURNOVER IS D EFINED. THE DEFINITIONS OF 'EXPORT TURNOVER' AND 'TOTAL TURNOVER' AS DEFINED I N EXPLANATION TO SECTION 80HHC READ AS UNDER: 13. ( B ) 'EXPORT TURNOVER' MEANS THE SALE PROCEEDS RECEIVE D IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH CLAUSE (A) OF SUB-SECTION (2) OF AN Y GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES AND WHICH ARE EXPORTED O UT OF INDIA, BUT DOES NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TR ANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CUSTOMS STATION AS DEFINED I N THE CUSTOMS ACT, 1962.' 14. ( BA ) 'TOTAL TURNOVER' SHALL NOT INCLUDE FREIGHT OR INS URANCE ATTRIBUTABLE TO THE TRANSPORT OF THE GOODS OR MERCH ANDISE BEYOND THE CUSTOMS STATION AS DEFINED IN THE CUSTOMS ACT, 1962.' 15. IN THE AFORESAID DEFINITIONS, WHAT IS TO BE EXCLUDE D FROM BOTH IS EXPRESSLY MENTIONED. IN SECTION 10-A, NOT ONLY THE WORD 'TOTAL TURNOVER' IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOWEVER, WHILE INTERPRETING THE AFORESAID PROVISIONS OF SECTION 80HHC, THE COURTS HAVE LAID DOWN VARIOUS PR INCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THE QUESTI ON IS, WHETHER THOSE INDEPENDENT PRINCIPLES CAN BE ADOPTED WHILE DEFININ G 'TOTAL TURNOVER' IN THE ABSENCE OF A DEFINITION IN SECTION 10-A. THE APEX C OURT, IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA ) HELD AT PARA. 15 AS UNDER: 16. '15. IT IS IMPORTANT TO NOTE THAT TAX UNDER THE ACT IS UPON INCOME, PROFITS AND GAINS. IT IS NOT A TAX ON GROSS RECEIPT S. UNDER SECTION 2(24) OF THE ACT THE WORD 'INCOME' INCLUDES PROFITS AND GAINS. T HE CHARGE IS NOT ON GROSS RECEIPTS BUT ON PROFITS AND GAINS. THE CHARGE IS NO T ON GROSS RECEIPTS BUT ON PROFITS AND GAINS PROPERLY SO-CALLED. GROSS RECEIPT S OR SALE PROCEEDS, HOWEVER, INCLUDE PROFITS. ACCORDING TO 'THE LAW AND PRACTICE OF INCOME TAX' BY KANGA AND PALKHIVALA, THE WORD 'PROFITS' IN SEC TION 28 SHOULD BE UNDERSTOOD IN NORMAL AND PROPER SENSE. HOWEVER, SUB JECT TO SPECIAL REQUIREMENTS OF THE INCOME-TAX, PROFITS HAVE GOT TO BE ASSESSED PROVIDED THEY ARE REAL PROFITS. SUCH PROFITS HAVE TO BE GOT TO BE ASCERTAINED ON ORDINARY PRINCIPLES OF COMMERCIAL TRADING AND ACCOUNTING. HO WEVER, THE INCOME-TAX HAS LAID DOWN CERTAIN RULES TO BE APPLIED IN DECIDI NG HOW THE TAX SHOULD BE ASSESSED AND EVEN IF THE RESULT IS TO TAX AS PROFIT S WHAT CANNOT BE CONSTRUED AS PROFITS, STILL THE REQUIREMENTS OF THE INCOME-TAX M UST BE COMPLIED WITH. WHERE A DEDUCTION IS NECESSARY IN ORDER TO ASCERTAI N THE PROFITS AND GAINS, SUCH DEDUCTIONS SHOULD BE ALLOWED. PROFITS SHOULD B E COMPUTED AFTER DEDUCTING THE EXPENSES INCURRED FOR BUSINESS THOUGH SUCH EXPENSES MAY NOT BE ADMISSIBLE EXPRESSLY UNDER THE ACT, UNLESS SUCH EXPENSES ARE EXPRESSLY DISALLOWED BY THE ACT [ SEE PAGE 455 OF 'THE LAW AND PRACTICE OF INCOME- TAX BY KANGA AND PALKHIVALAL. THEREFORE, SCHEMATIC INT ERPRETATION FOR MAKING THE FORMULA IN SECTION 80HHC WORKABLE CANNOT BE RUL ED OUT. SIMILARLY, PURPOSEFUL INTERPRETATION OF SECTION 80HHC WHICH HA S UNDERGONE SO MANY CHANGES CANNOT BE RULED OUT, PARTICULARLY, WHEN THO SE LEGISLATIVE CHANGES IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 6 OF 23 INDICATE THAT THE LEGISLATURE INTENDED TO EXCLUDE I TEMS LIKE COMMISSION AND INTEREST FROM DEDUCTION ON THE GROUND THAT, THEN DI D NOT POSSESS ANY ELEMENT OF 'TURNOVER' EVEN THOUGH COMMISSION AND INTEREST E MANATED FROM EXPORTS. WE HAVE TO READ THE WORDS 'TOTAL TURNOVER' IN SECTI ON 80HHC AS PART OF THE FORMULA WHICH SOUGHT TO SEGREGATE THE 'EXPORT PROFI TS' FROM THE 'BUSINESS PROFITS'. THEREFORE, WE HAVE TO READ THE FORMULA IN ENTIRETY. IN THAT FORMULA THE ENTIRE BUSINESS PROFITS IS NOT GIVEN DEDUCTION. IT IS THE BUSINESS PROFIT WHICH IS PROPORTIONATELY REDUCED BY THE ABOVE FRACT ION/RATIO OF EXPORT TURNOVER/TOTAL TURNOVER WHICH CONSTITUTE SECTION 80 HHC CONCESSION (DEDUCTION). INCOME IN THE NATURE OF 'BUSINESS PROF ITS' WAS, THEREFORE, APPORTIONED. THE ABOVE FORMULA FIXED A RATIO IN WHI CH 'BUSINESS PROFITS' UNDER SECTION 28 OF THE ACT HAD TO BE APPORTIONED. THEREFORE, ONE HAS TO GIVE WEIGHTAGE NOT ONLY TO THE WORDS 'TOTAL TURNOVER' BU T ALSO TO THE WORDS 'EXPORT TURNOVER', 'TOTAL EXPORT TURNOVER' AND 'BUS INESS PROFITS'. THAT IS THE REASON WHY WE HAVE QUOTED HEREINABOVE EXTENSIVELY T HE ILLUSTRATION FROM THE DIRECT TAXES (INCOME TAX) READY RECKONER OF THE REL EVANT WORD. IN THE CIRCUMSTANCES, WE CANNOT INTERPRET THE WORDS 'TOTAL TURNOVER' IN. THE ABOVE FORMULA WITH REFERENCE TO THE DEFINITION OF THE WOR D 'TURNOVER' IN OTHER LAWS LIKE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. GOODS FOR EXPORT DO NOT INCUR EXCISE DUTY LIABILITY. AS STATE D, ABOVE, EVEN COMMISSION AND INTEREST FORMED A PART OF THE PROFIT AND LOSS A CCOUNT, HOWEVER, THEY WERE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. THE Y WERE NOT ELIGIBLE EVEN WITHOUT THE CLARIFICATION INTRODUCED BY THE LEGISLA TURE BY VARIOUS AMENDMENTS BECAUSE THEY DID NOT INVOLVE ANY ELEMENT OF TURNOVER. FURTHER, IN ALL OTHER PROVISIONS OF THE INCOME-TAX, PROFITS AND GAINS WERE REQUIRED TO BE COMPUTED WITH REFERENCE TO THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, AS CAN BE SEEN FROM THE INCOME-TAX RULES A ND FROM THE ABOVE FORM NO. 10CCAC IN THE CASE OF DEDUCTION UNDER SECT ION 80HHC A REPORT OF THE AUDITOR CERTIFYING DEDUCTION BASED ON EXPORT TU RNOVER WAS SUFFICIENT. THIS IS BECAUSE THE VERY BASIS FOR COMPUTING SECTION 80H HC DEDUCTION WAS 'BUSINESS PROFITS' AS COMPUTED UNDER SECTION 28, A PORTION OF WHICH HAD TO BE APPORTIONED IN TERMS OF THE ABOVE RATIO OF EXPORT T URNOVER TO TOTAL TURNOVER. SECTION 80HHC(3) WAS A BENEFICIAL SECTION. IT WAS I NTENDED TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE WAS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LEGISLATURE INTE NDED TO HAVE A FORMULA TO ASCERTAIN EXPORT PROFITS BY APPORTIONING THE TOTAL BUSINESS PROFITS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. THIS MET HOD EARLIER EXISTED UNDER EXCESS PROFITS-TAX ACT. IT EXISTED IN THE BUSINESS PROFITS-TAX ACT. THEREFORE, JUST AS COMMISSION RECEIVED BY AN ASSESSEE IS RELAT ABLE TO EXPORTS AND YET IT CANNOT FORM PART OF 'TURNOVER', EXCISE DUTY AND SAL ES TAX ALSO CANNOT FORM PART OF THE 'TURNOVER'. SIMILARLY, 'INTEREST' EMANA TES FROM EXPORTS AND YET 'INTEREST' DOES NOT INVOLVE AN ELEMENT OF TURNOVER. THE OBJECT OF THE LEGISLATURE IN ENACTING SECTION 80HHC OF THE ACT WA S TO CONFER A BENEFIT ON PROFITS ACCRUING WITH REFERENCE TO EXPORT TURNOVER. THEREFORE, 'TURNOVER' WAS THE REQUIREMENT. COMMISSION, RENT, INTEREST ETC. DI D NOT INVOLVE ANY TURNOVER. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 7 OF 23 THEREFORE, 90 PER CENT OF SUCH COMMISSION, INTEREST ETC. WAS EXCLUDED FROM THE PROFITS DERIVED FROM THE EXPORT. THEREFORE, EVE N WITHOUT THE CLARIFICATION SUCH ITEMS DID NOT FORM PART OF THE FORMULA IN SECT ION 80HHC(3) FOR THE SIMPLE REASON THAT IT DID NOT EMANATE FROM THE 'EXP ORT, TURNOVER', MUCH LESS ANY TURNOVER. EVEN IF THE ASSESSEE WAS AN EXCLUSIVE DEALER IN EXPORTS, THE SAID COMMISSION WAS NOT INCLUDIBLE AS IT DID NOT SP RING FROM THE 'TURNOVER'. JUST AS INTEREST, COMMISSION ETC. DID NOT EMANATE F ROM THE 'TURNOVER', SO ALSO EXCISE DUTY AND SALES TAX DID NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVE R, SUCH TAXES HAD TO BE EXCLUDED. COMMISSION, INTEREST, RENT ETC. DO YIELD PROFITS, BUT THEY DO NOT PARTAKE OF THE CHARACTER OF TURNOVER AND, THEREFORE , THEY WERE NOT INCLUDIBLE IN THE 'TOTAL TURNOVER'. THE ABOVE DISCUSSION SHOWS THAT INCOME FROM RENT, COMMISSION ETC. CANNOT BE CONSIDERED AS PART OF BUS INESS PROFITS AND, THEREFORE, THEY CANNOT BE HELD AS PART OF THE TURNO VER ALSO. IN FACT, IN CIVIL APPEAL NO. 4409 OF 2005, THE ABOVE PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER SEE: PAGE NO. 24 OF THE PAPER BOOK, IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE 'TOTAL T URNOVER' UNDER SECTION 80HHC(3), OTHERWISE THE FORMULA BECOMES UNWORKABLE. IN OUR VIEW, SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF 'TURNOVER' WHICH IS THE POSITION EVEN IN THE CASE OF RENT, COMMISSION, INTE REST ETC. IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALES TAX ARE IND IRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNME NT THEREFORE, IF THEY ARE MADE RELATABLE TO EXPORTS, THE FORMULA UNDER SECTIO N 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF AMENDMENTS MADE TO SECTION 80HHC FROM TIME-TO-TIME.' 17. THE SAID JUDGMENT HAS BEEN RE-AFFIRMED BY THE APEX COURT, IN THE EASE OF CIT V. CATAPHARMA (INDIA) (P.) LTD. [2007] 292 ITR 641 / 162 TAXMAN 455 . 18. THE BOMBAY HIGH COURT HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD 'TOTAL TURNOVER' IN THE CONTEXT OF SECT ION 10-A, IN THE CASE OF CIT V. GEM PLUS JEWELLERY INDIA LTD. [2011] 330 ITR 175 [2010] 194 TAXMAN 192 (BOM.). INTERPRETING SUB-SECTION (4) OF SECTION 10- A, IT IS HELD AS UNDER: 19. 'UNDER SUB-SECTION (4) THE PROPORTION BETWEEN THE E XPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS, OR, AS THE CA SE MAY BE, COMPUTER SOFTWARE EXPORTED, TO THE TOTAL TURNOVER OF THE BUSINESS CAR RIED OVER BY THE UNDER- TAKING IS APPLIED TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS OF THE BUSINESS OF THE UNDERT AKING IN COMPUTING THE PROFITS DERIVED FROM EXPORT. IN OTHER WORDS, THE PR OFITS OF THE BUSINESS OF THE UNDERTAKING ARE MULTIPLIED BY THE EXPORT TURNOVER I N RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTER SOFTWARE AN D DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS CARRIED OR BY THE UNDERTAK ING. THE FORMULA WHICH IS PRESCRIBED BY SUB-SECTION (4) OF SECTION 10A IS AS FOLLOWS: PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE = PROFITS OF THE BUSINESS OF THE UNDERTAKING EXPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 8 OF 23 20. THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE T URNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN TH E FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONST ITUENT ELEMENT OF THE DENOMINATOR INASMUCH AS THE EXPORT TURNOVER IS A PA RT OF THE TOTAL TURNOVER. 21. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEME NT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEF INITION OF THE EXPRESSION 'EXPORT TURNOVER' IN EXPLANATION 2 TO SECTION 10A BY WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXP ORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE AT TRIBUTABLE TO THE DELIVERY OF THE ARTICLES THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGISLATURE HAS M ADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURANCE CHARGES. 22. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF TH E REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REV ENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION 'TOTAL TURNOVER' HAS NOT BEEN DEFINDED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWEVER THE EXPRESSION 'EXPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPO RT TURNOVER' EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOVER HAS BE EN DEFINED BE PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FREIGHT AND IN SURANCE, THE EXPRESSION 'EXPORT TURNOVER' CANNOT HAVE A DIFFERENT MEANING W HEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURP OSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PROVISION TO THE CONTRARY. HOWEVER, NO SUCH PROVISION HAVING BEEN MA DE, THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTE R OF CORRECT STATUTORY INTERPRETATION. ANY OTHER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION VIZ. 'EXPORT TURNOVER' WOULD HAVE A DIFFERENT CONNOTATI ON IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE 'EXPORT TURNOVER' WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A C ONSTRUCTION OF A STATUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED.' 23. THE SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF ITO V. SAK SOFT LTD. [2009] 313 ITR (AT) 353/ 30 SOT 55 (CHENNAI) ALSO HAD AN OCCASION TO CONSIDER THE MEANING OF THE WORD 'TOTAL TURNOVER'. AFTER REFERRING TO THE VARIOUS JUDGMENTS OF THE HIGH COURT AS WELL AS THE SUPREME COURT HELD AS UNDER: IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 9 OF 23 24. '53. FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PU RPOSE OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTION 10-B, THE FREIGHT TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TU RNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE F ORMULA..' 25. THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10-A WOULD BE AS UNDER: PROFITS OF THE BUSINESS EXPORT TURNOVER TOTAL TURNOVER 26. FROM THE AFORESAID JUDGMENTS, WHAT EMERGES IS THAT, THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMA LIES OR ABSURD RESULTS. SECTION 10-A IS A BENEFICIAL SECTION. IT IS INTENDE D TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. THE INCENTIVE IS TO EXEMPT PROFITS RELATABLE TO EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVIN G EXPORT BUSINESS AND DOMESTIC BUSINESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TO TAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROF ITS. IN THE EASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSESSEE, WHEREAS IN SECTION 10-A, THE EXPORT P ROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOM ESTIC BUSINESS, IN OTHER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. THE E XPORT TURNOVER WOULD BE A COMPONENT OR PART OF A DENOMINATOR, THE OTHER COM PONENT BEING THE DOMESTIC TURNOVER. IN OTHER WORDS, TO THE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND TH E DENOMINATOR OF THE FORMULA. IN VIEW OF THE COMMONALITY, THE UNDERSTAND ING SHOULD ALSO BE THE SAME. IN OTHER WORDS, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOUL D ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOT AL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER IN CLUDES EXPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE, THOUGH THERE IS NO DEFINITION OF THE TERM 'TOTAL TURNOVER' IN SECTION 10-A, THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR THAT IS E XPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. THOUGH W HEN A PARTICULAR WORD IS NOT DEFINED BY THE LEGISLATURE AND AN ORDINARY MEAN ING IS TO BE ATTRIBUTED TO THE SAME, THE SAID ORDINARY MEANING TO BE ATTRIBUTE D TO SUCH WORD IS TO BE IN CONFORMITY WITH THE CONTEXT IN WHICH IT IS USED. WH EN THE STATUTE PRESCRIBES A FORMULA AND IN THE SAID FORMULA, 'EXPORT TURNOVER' IS DEFINED, AND WHEN THE 'TOTAL TURNOVER' INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 10 OF 23 MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPO RT TURNOVER IS INCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER, WHEN THE EXPO RT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. IF THAT WERE THE INTENTIO N OF THE LEGISLATURE, THEY WOULD HAVE EXPRESSLY STATED SO. IF THEY HAVE NOT CH OSEN TO EXPRESSLY DEFINE WHAT THE TOTAL TURNOVER MEANS, THEN, WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE MEANING ASSIGNED BY THE LEGISLATURE T O THE EXPORT TURNOVER IS TO BE RESPECTED AND GIVEN EFFECT TO, WHILE INTERPRETIN G THE TOTAL TURNOVER WHICH IS INCLUSIVE OF THE EXPORT TURNOVER. THEREFORE, THE FORMULA FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 10-A, WOULD BE AS UNDER : PROFITS OF THE BUSINE SS OF THE UNDERTAKING EXPORT TURN OVER (EXPORT TURNOVER + DOMESTIC TURN OVER) TOTAL TURN OVER 27. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JUDGMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10-A WHEN THE PRINCIP LE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. THEREFORE, WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW FRAM ED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. WE FIND THAT ORDER OF CIT(A) ON THIS ISSUE IS IN CONSONANCE WITH LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE. HENCE WE DISMISS THESE GROUNDS OF APPEAL. 8. GROUND NO. 4 CHALLENGE THE DIRECTION OF THE LEAR NED CIT(A) REMANDING THE MATTER AO/TPO TO EXCLUDE FUNCTIONALLY DISSIMILAR COMPANIES FOLLOWING GUIDELINES LAID DOWN IN THE DIV ISION OF ITAT, DELHI IN THE CASE OF ACTIS ADVERTISERS P. LTD., VS. DY. COMM ISSIONER OF INCOME-TAX (20 ITR (TRIB) 138). THE LEARNED DR CONTENDED THAT CIT(A) OUGHT NOT HAVE RESTORED MATTER TO THE FILE OF TPO AS ENTIRE INFORM ATION IS AVAILABLE ON THE RECORD AND SHOULD HAVE RENDERED FINDING ON MERITS. IT WAS FURTHER CONTENDED THAT THE CIT(A) HAS NO POWER OF REMAND. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 11 OF 23 9. ON THE OTHER HAND THE LEARNED AR HAS SUBMITTED T HAT THE FOLLOWING COMPARABLES ARE HELD TO BE FUNCTIONALLY DISSIMILAR TO THAT OF SOFTWARE COMPANY BY THE COORDINATE BENCH, BANGALORE IN THE C ASE OF ACIT VS. SYMBOL TECHNOLOGIES INDIA PVT. LTD., 56 TAXMANN.COM 410: 1. BODHTREE CONSULTING LTD., 2. EXENSYS SOFTWARE SOLUTIONS LTD., 3. SANKHYA INFOTECH LTD., 4. FOURSOFT LTD., 5. THIRDWARE SOLUTIONS LTD., 6. TATA ELXSI LTD., (SEG.) 10. THUS, IT WAS SUBMITTED THAT IF THE ABOVE COMPAN IES ARE EXCLUDED FROM LIST OF COMPARABLES, AND HE HAS NO SERIOUS OBJ ECTIONS FOR INCLUSION OF THE COMPANIES ITEM NOS. (1) LANCO GLOBAL SYSTEMS LT D., (2) SASKEN NETWORK SYSTEMS LTD., (3) R. S. SOFTWARE (INDIA) L TD., (4) GEOMETRIC SOFTWARE SOLUTIONS CO. LTD., (5) VISUALS SOFT TECHN OLOGIES LTD., (SEG), (6) SASKEN COMMUNICATION TECHNOLOGIES LTD., (SEG). THU S HE SUBMITTED THAT THERE WAS NO NEED OF REMANDING THE MATTER, THESE CO MPANIES CAN BE EXCLUDED ON THE GROUND OF FUNCTIONAL DISSIMILARITY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF SYMBOL TECHNOLO GY P. LTD. 11. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. IN THE CASE OF SYMBOL TECHNOLOGIES LTD., WH ICH IS ALSO A SOFTWARE DEVELOPMENT SERVICE COMPANY, IT WAS HELD BY THAT BO DHTREE CONSULTING LTD., FOURSOFT LTD, THIRDWARE SOLUTIONS LTD., ARE H ELD TO BE INCOMPARABLE ON THE GROUNDS OF FUNCTIONALLY DISSIMILARITY VIDE PARA 22 WHICH READS AS UNDER: IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 12 OF 23 WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT TH E ITAT HYDERABAD BENCH ON IDENTICAL FACTS, HELD THAT THE AFORESAID T WO COMPANIES VIZ., FOUR SOFT LTD., AND THIRDWARE SOLUTIONS LTD., ARE NOT CO MPARABLE COMPANIES IN SOFTWARE DEVELOPMENT SERVICES COMPANIES. THE FOLLOW ING WERE : '15.4. FOURSOFT LIMITED : THIS COMPARABLE IS OBJECT ED ON THE SAME REASON AS THIS COMPANY IS INVOLVED IN PRODUCT DEVEL OPMENT AND OWNS PRODUCTS NAMELY 4S ETRANS AND 4S ELOG. THESE PRODUC TS ARE USED IN SUN MICROSYSTEMS INC, IN AN APPLICATION VERIFICATION KI T CERTIFIED FOR ENTERPRISES AND ASSESSEE HAVE BEEN INVESTING CONTIN UOUSLY ON PRODUCT DEVELOPMENTS. SINCE ASSESSEE IS IN THE PRODUCT DEVE LOPMENT, HAVING I.P. RIGHTS, THE SAME IS NOT COMPARABLE. 15.5. THIRDWARE SOFTWARE SOLUTIONS LIMITED : THIS C OMPANY IS OBJECTED TO BY THE ASSESSEE ON THE REASON THAT T HE SAID THIRDWARE SOFTWARE SOLUTIONS LTD. IS ENGAGED IN SALE OF SOFTWARE LICEN CE AND RELATED SERVICES AND NOT A SERVICE PROVIDER. REFERRING TO THE ANNUAL REP ORT, IT WAS SUBMITTED THAT THIS COMPARABLE WAS REJECTED BY THE ITAT, PUNE IN T HE CASE OF EGAIN COMMUNICATIONS LTD. THIS COMPANY HAVING REVENUE FRO M PRODUCT LICENSE AND EARNING EXTRAORDINARY PROFIT DUE TO INTANGIBLE OWNS. 15.6. THESE THREE COMPARABLE ABOVE FLEXTRONICS SOFT WARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED WER E ANALYSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. ( SUPRA ) WHEREIN IT HAS BEEN HELD AS UNDER : '23. THE OTHER COMPANIES WHICH ARE OBJECTED TO BY T HE ASSESSEE ARE FLEXTRONICS SOFTWARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED. AS FAR AS THESE THREE COMPANIES A RE CONCERNED, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITT ED THAT THEY ARE INTO BOTH SOFTWARE AS WELL AS PRODUCT DEVELOPMENT. HE SUBMITT ED THAT THE TPO HAS TAKEN NOTE OF THE FACT THESE COMPANIES ARE ALSO INT O PRODUCT DEVELOPMENT BUT HAS SELECTED THESE COMPANIES AS COMPARABLES BY APPL YING THE FILTER OF MORE THAN 70% OF ITS REVENUE BEING FROM SOFTWARE DEVELOP MENT SERVICES. THE LEARNED COUNSEL SUBMITTED THAT THE FUNCTIONS OF THE SE COMPANIES ARE DIFFERENT FROM THE ASSESSEE WHO WAS INTO SOLE ACTIVITY OF SOF TWARE DEVELOPMENT FOR ITS ASSOCIATED ENTERPRISE. HE SUBMITTED THAT THE TPO HA S ALLOCATED THE EXPENDITURE IN THE PROPORTION OF THE REVENUE OF THE SE COMPANIES FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND HAS ADO PTED THE FIGURE AS SEGMENTAL MARGIN OF THE COMPANY AND HAS TAKEN THESE COMPANIES AS COMPARABLES. HE SUBMITTED THAT BY TAKING THE PROPOR TIONATE EXPENDITURE, THE CORRECT FINANCIAL RESULTS WOULD NOT EMERGE. HE SUBM ITTED THAT NOTHING PREVENTED THE ASSESSING OFFICER/TPO FROM OBTAINING THE SEGMENTAL DETAILS FROM THE RESPECTIVE COMPARABLE COMPANIES BEFORE ADO PTING THEM AS COMPARABLE COMPANIES AND BEFORE TAKING THE OPERATIN G MARGIN FOR ARRIVING AT THE ARMS LENGTH PRICE. HE SUBMITTED THAT WHEREVER T HE SEGMENTAL DETAILS ARE NOT AVAILABLE, THEN THE SAID COMPANIES SHOULD NOT B E TAKEN AS COMPARABLES. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 13 OF 23 FOR THIS PURPOSE, HE PLACED RELIANCE UPON THE DECIS ION OF THE BANGALORE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. V. DCIT IN ITA.NO.1252/BANG/2010 WHEREIN THESE COMPANIES WE RE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 24. THE LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 25. HAVING HEARD BOTH THE PARTIES AND HAVING GONE T HROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAGE 37 OF HIS ORDE R HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT COMPANY AND A SOFTWAR E DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF THE FUNCTIONAL DISSIMILARITY BETWEEN A PRODUCT COMPANY AND A SOFTWARE DEVELOPMEN T SERVICE PROVIDER. HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTIONS, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INTO BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTAL DETAILS ARE AVAILA BLE. EVEN IF HE HAS ADOPTED THE FILTER OF MORE THAN 75% OF THE REVENUE FROM THE SOFTWARE SERVICES FOR SELECTING A COMPARABLE COMPANY, HE OUG HT TO HAVE TAKEN THE SEGMENTAL RESULTS OF THE SOFTWARE SERVICES ONLY. TH E PERCENTAGE OF EXPENDITURE TOWARDS THE DEVELOPMENT OF SOFTWARE PRO DUCTS MAY DIFFER FROM COMPANY TO COMPANY AND ALSO IT MAY NOT BE PROPORTIO NATE TO THE SALES FROM THE SALE OF SOFTWARE PRODUCTS. UNDER SECTION 133(6) OF THE I.T. ACT, THE TPO HAS THE POWER TO CALL FOR THE NECESSARY DETAILS FRO M THE COMPARABLE COMPANIES. IT IS SEEN THAT THE ASSESSING OFFICER/TP O AS EXERCISED THIS POWER TO CALL FOR DETAILS WITH REGARD TO THE VARIOUS COMP ANIES. AS SEEN FROM THE ANNUAL REPORT OF FOURSOFT LIMITED WHICH IS REPRODUC ED AT PAGE 7 OF THE TPO'S ORDER, THE SAID COMPANY HAS DERIVED INCOME FROM SOF TWARE LICENCE ALSO AND AMCS. 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED I S CONCERNED, WE FIND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELOPMENT, THERE ARE NO SOFTWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINAN CIAL YEAR AND THE FINANCIAL RESULTS ARE IN RESPECT OF SERVICES ONLY. THUS, IT I S CLEAR THAT THERE IS NO SALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMP ANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 27. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONCE RNED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THAT THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRODUCTS AND HA S INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE AB OVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND THESE COMPANIES AND WITHOUT MAKING ADJUSTMENT FOR T HE DISSIMILARITIES BROUGHT OUT BY THE TPO HIMSELF, THESE COMPANIES CAN NOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFTWARE DEVELOP MENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORR ECT AND REASONABLE. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 14 OF 23 WHEREVER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUI TABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH THE ASSESSEE COMPANY TO BRING THEM ON PAR WITH THE ASSESSEE, THESE COMPANIE S ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE A SSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPANIES FROM THE LIST OF COMP ARABLES'. RESPECTFULLY, FOLLOWING THE SAME, WE ACCEPT THE ASS ESSEE'S OBJECTIONS AND DIRECT THE TPO TO EXCLUDE THE ABOVE THREE COMPANIES FROM THE LIST OF COMPARABLES.' 23. IN VIEW OF THE AFORESAID DECISION RENDERED ON IDEN TICAL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT FOURSOFT LTD ., AND THIRDWARE SOLUTIONS LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 24. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEF ORE US THAT TATA ELXSI LTD., A COMPARABLE COMPANY OUT OF THE 12 EXCL UDED BY THE CIT(A) BY APPLYING RPT FILTER AND WHICH GETS INCLUDED IN THE COMPARABLE COMPANIES BECAUSE OF 15% RPT BEING ADOPTED AS THRESHOLD LIMIT FOR EXCLUDING COMPANIES FOR THE PURPOSE OF COMPARABILITY. IT WAS HIS SUBMISSION THAT THIS COMPANY WILL HOWEVER, HAVE TO BE EXCLUDED AS THIS C OMPANY WAS HELD TO BE NOT COMPARABLE WITH AN ASSESSEE SUCH AS THE ASSESSE E IN THE PRESENT CASE PROVIDING SOFTWARE DEVELOPMENT SERVICES BY THE ITAT HYDERABAD BENCH IN THE CASE OF CNO IT SERVICES (INDIA) (P.) LTD. ( SUPRA ). 12. IN RESPECT OF SANKYA INFOTECH LTD., THE COORDIN ATE BENCH IN THE CASE OF SYMBOL TECHNOLOGIES VIDE PARA 18 HELD AS FOLLOWS : 18. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE AS SESSEE THAT SANKHYA IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE COMPANY FOCUSES ON THE DEVELOPMEN T OF NICHE PRODUCTS FOR THE TRANSPORT AND AVIATION INDUSTRY. H OWEVER, SEGMENTAL INFORMATION IN RELATION TO THE ABOVE MENTIONED ACTI VITIES IS NOT AVAILABLE IN PUBLIC DOMAIN. THEREFORE, AS SANKHYA ENGAGES ITS ELF IN PRODUCTS AND SERVICES AS WELL AS SOFTWARE TRAINING, IT CANNOT BE CONSIDERED AS A COMPARABLE OF THE APPELLANT. THE PRODUCTS DEVELOPED AND OWNED BY SANKHYA ARE LISTED BELOW: (1) SILICON TM TRAINING SUITE OF PRODUCTS: THE PRODUCTS ARE A COMP REHENSIVE ENTERPRISE WIDE TRAINING PLATFORM THAT COVERS THE E NTIRE SPECTRUM OF TRAINING IN A PAPERLESS ENVIRONMENT. IT COMPRISES OF FOUR PR ODUCTS: - SILICON TM LMS (TRAINING MANAGEMENT INFORMATION - SILICON TM QT (ONLINE ASSESSMENT SYSTEM) - SILICON TM LCMS (LEARNING CONTENT MANAGEMENT SYSTEM) - IRMAQ TM : THIS IS AN INTEGRATED RESOURCE PLANNING, MANAGEME NT IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 15 OF 23 TRACKING SYSTEM EXCLUSIVELY DEVELOPED FOR AIRLINE O PERATIONS. IT IS AN END-TO-END SOLUTION FOR ALL FLIGHT OPERATIONS. - SAKAI CLE : THIS IS A WIDELY USED AND POPULAR OPEN SOURCE LMS USED IN MANY LEADING EDUCATIONAL INSTITUTIONS AND CORPORATE. THE RELEVANT EXTRACT FROM THE ANNUAL REPORT SUBSTANTIAT ING THAT THE COMPANY ALSO ENGAGES IN DIFFERENT ACTIVITIES IS REP RODUCED BELOW: '2. ACTIVITIES THE COMPANY AS ENGAGED IN THE BUSINESS OF DEVELOPME NT OF SOFTWARE PRODUCTS & SERVICES AND TRAINING. THE PROD UCTION OF SOFTWARE IS NOT CAPABLE OF BEING EXPRESSED IN ANY G ENERIC UNIT AND HENCE 11 IS RIOT POSSIBLE TO GIVE THE INFORMATION A S REQUIRED BY CERTAIN CLAUSES OF PARAGRAPHS 3.4C AND 4 D OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956.' 19. THE DELHI TRIBUNAL IN ITO V. COLT TECHNOLOGY SERVICES INDIA (P.) LTD. [2014] 146 ITD 468/[2013] 34 TAXMANN.COM 182 FOR THE ASSESSMENT YEAR 2005-06 HAS HELD THAT THE SAID COMPANY IS NOT A COMPARABLE TO THE ASSESSEE THEREIN WHICH WAS ALSO IN THE BUSINESS OF SOFTWARE DEVELOPMENT. 20. THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR TH E ASSESSEE ARE CONSIDERED. THE ACTIVITIES SET OUT ABOVE AND THE DE CISION OF THE DELHI ITAT RENDERED IN THE CONTEXT OF A SOFTWARE DEVELOPM ENT COMPANY SUCH AS THE ASSESSEE MAKES IT AMPLY CLEAR THAT THIS COMP ANY SANKHYA CANNOT BE REGARDED AS A COMPARABLE. THE SAME IS DIRECTED T O BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 21. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEF ORE US THAT TWO OF THE COMPARABLE COMPANIES OUT OF THE 12 EXCLUDED BY THE CIT(A) BY APPLYING RPT FILTER AND WHICH GETS INCLUDED IN THE COMPARABLE COMPANIES BECAUSE OF 15% RPT BEING ADOPTED AS THRES HOLD LIMIT FOR EXCLUDING COMPANIES FOR THE PURPOSE OF COMPARABILIT Y, VIZ., FOUR SOFT LTD., AND THIRDWARE SOLUTIONS LTD., WILL HAVE TO BE EXCLUDED AS THESE COMPANIES ARE NOT FUNCTIONALLY COMPARABLE. THESE CO MPANIES ACCORDING TO HIM, WILL HOWEVER, HAVE TO BE EXCLUDED AS THESE TWO COMPANIES WERE HELD TO BE NOT COMPARABLE WITH AN AS SESSEE SUCH AS THE ASSESSEE IN THE PRESENT CASE PROVIDING SOFTWARE DEVELOPMENT SERVICES BY THE ITAT HYDERABAD BENCH IN THE CASE OF CNO IT SERVICES (INDIA) (P.) LTD. V. DY. CIT [2014] 43 TAXMANN.COM 231 . 22. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT TH E ITAT HYDERABAD BENCH ON IDENTICAL FACTS, HELD THAT THE AFORESAID T WO COMPANIES VIZ., FOUR SOFT LTD., AND THIRDWARE SOLUTIONS LTD., ARE N OT COMPARABLE COMPANIES IN SOFTWARE DEVELOPMENT SERVICES COMPANIE S. THE FOLLOWING WERE : IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 16 OF 23 '15.4. FOURSOFT LIMITED : THIS COMPARABLE IS OBJECT ED ON THE SAME REASON AS THIS COMPANY IS INVOLVED IN PROD UCT DEVELOPMENT AND OWNS PRODUCTS NAMELY 4S ETRANS AND 4S ELOG. THESE PRODUCTS ARE USED IN SUN MICROSYSTEMS INC, IN AN APPLICATION VERIFICATION KIT CERTIFIED FOR ENTERPRI SES AND ASSESSEE HAVE BEEN INVESTING CONTINUOUSLY ON PRODUC T DEVELOPMENTS. SINCE ASSESSEE IS IN THE PRODUCT DEVE LOPMENT, HAVING I.P. RIGHTS, THE SAME IS NOT COMPARABLE. 15.5. THIRDWARE SOFTWARE SOLUTIONS LIMITED : THIS COMPANY IS OBJECTED TO BY THE ASSESSEE ON THE REASON THAT THE SAID THIRDWARE SOFTWARE SOLUTIONS LTD. IS ENGAG ED IN SALE OF SOFTWARE LICENCE AND RELATED SERVICES AND NOT A SER VICE PROVIDER. REFERRING TO THE ANNUAL REPORT, IT WAS SUBMITTED TH AT THIS COMPARABLE WAS REJECTED BY THE ITAT, PUNE IN THE CA SE OF EGAIN COMMUNICATIONS LTD. THIS COMPANY HAVING REVENUE FRO M PRODUCT LICENSE AND EARNING EXTRAORDINARY PROFIT DU E TO INTANGIBLE OWNS. 15.6. THESE THREE COMPARABLE ABOVE FLEXTRONICS SOFT WARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SO LUTION LIMITED WERE ANALYSED BY THE COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF INTOTO SOFTWARE SOLUTIONS PVT. LTD. ( SUPRA ) WHEREIN IT HAS BEEN HELD AS UNDER : '23. THE OTHER COMPANIES WHICH ARE OBJECTED TO BY T HE ASSESSEE ARE FLEXTRONICS SOFTWARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SOFTWARE SOLUTION LIMITED. AS FAR AS THES E THREE COMPANIES ARE CONCERNED, THE LEARNED COUNSEL APPEAR ING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THEY ARE INTO BOTH SOFTWARE AS WELL AS PRODUCT DEVELOPMENT. HE SUBMITTED THAT T HE TPO HAS TAKEN NOTE OF THE FACT THESE COMPANIES ARE ALSO INT O PRODUCT DEVELOPMENT BUT HAS SELECTED THESE COMPANIES AS COM PARABLES BY APPLYING THE FILTER OF MORE THAN 70% OF ITS REVENUE BEING FROM SOFTWARE DEVELOPMENT SERVICES. THE LEARNED COUNSEL SUBMITTED THAT THE FUNCTIONS OF THESE COMPANIES ARE DIFFERENT FROM THE ASSESSEE WHO WAS INTO SOLE ACTIVITY OF SOFTWARE DEV ELOPMENT FOR ITS ASSOCIATED ENTERPRISE. HE SUBMITTED THAT THE TP O HAS ALLOCATED THE EXPENDITURE IN THE PROPORTION OF THE REVENUE OF THESE COMPANIES FROM SOFTWARE SERVICES AND SOFTWARE PRODU CTS AND HAS ADOPTED THE FIGURE AS SEGMENTAL MARGIN OF THE COMPA NY AND HAS TAKEN THESE COMPANIES AS COMPARABLES. HE SUBMITTED THAT BY TAKING THE PROPORTIONATE EXPENDITURE, THE CORRECT F INANCIAL RESULTS WOULD NOT EMERGE. HE SUBMITTED THAT NOTHING PREVENT ED THE ASSESSING OFFICER/TPO FROM OBTAINING THE SEGMENTAL DETAILS FROM THE RESPECTIVE COMPARABLE COMPANIES BEFORE ADO PTING THEM IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 17 OF 23 AS COMPARABLE COMPANIES AND BEFORE TAKING THE OPERA TING MARGIN FOR ARRIVING AT THE ARMS LENGTH PRICE. HE SUBMITTED THAT WHEREVER THE SEGMENTAL DETAILS ARE NOT AVAILABLE, THEN THE S AID COMPANIES SHOULD NOT BE TAKEN AS COMPARABLES. FOR THIS PURPOS E, HE PLACED RELIANCE UPON THE DECISION OF THE BANGALORE TRIBUNA L IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. V. DCIT IN ITA.NO.1252/BANG/2010 WHEREIN THESE COMPANIES WERE DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 24. THE LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 25. HAVING HEARD BOTH THE PARTIES AND HAVING GONE T HROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAGE 37 OF HIS ORDER HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT C OMPANY AND A SOFTWARE DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF THE FUNCTIONAL DISSIMILARITY BETWEEN A PRODUCT COMPANY AND A SOFTWARE DEVELOPMENT SERVICE PROVIDER . HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTI ONS, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPA NIES WHICH ARE INTO BOTH THE PRODUCT DEVELOPMENT AS WELL AS SO FTWARE DEVELOPMENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTAL DETAILS ARE AVAILABLE. EVEN IF HE HAS ADO PTED THE FILTER OF MORE THAN 75% OF THE REVENUE FROM THE SOFTWARE S ERVICES FOR SELECTING A COMPARABLE COMPANY, HE OUGHT TO HAVE TA KEN THE SEGMENTAL RESULTS OF THE SOFTWARE SERVICES ONLY. TH E PERCENTAGE OF EXPENDITURE TOWARDS THE DEVELOPMENT OF SOFTWARE PRODUCTS MAY DIFFER FROM COMPANY TO COMPANY AND ALSO IT MAY NOT BE PROPORTIONATE TO THE SALES FROM THE SALE OF SOFTWAR E PRODUCTS. UNDER SECTION 133(6) OF THE I.T. ACT, THE TPO HAS T HE POWER TO CALL FOR THE NECESSARY DETAILS FROM THE COMPARABLE COMPANIES. IT IS SEEN THAT THE ASSESSING OFFICER/TPO AS EXERCISED THIS POWER TO CALL FOR DETAILS WITH REGARD TO THE VARIOUS COMPANI ES. AS SEEN FROM THE ANNUAL REPORT OF FOURSOFT LIMITED WHICH IS REPRODUCED AT PAGE 7 OF THE TPO'S ORDER, THE SAID COMPANY HAS DERIVED INCOME FROM SOFTWARE LICENCE ALSO AND AMCS. 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED I S CONCERNED, WE FIND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELO PMENT, THERE ARE NO SOFTWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINANCIAL YEAR AND THE FINANCIAL RESULTS A RE IN RESPECT OF SERVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO S ALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 18 OF 23 27. AS FAR AS FLEXTRONICS SOFTWARE LIMITED IS CONCE RNED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSE RVED THAT THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING O F PRODUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND T HESE COMPANIES AND WITHOUT MAKING ADJUSTMENT FOR THE DIS SIMILARITIES BROUGHT OUT BY THE TPO HIMSELF, THESE COMPANIES CAN NOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED B Y THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFT WARE DEVELOPMENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREVER, THE AS SESSING OFFICER/TPO CANNOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH THE ASSESS EE COMPANY TO BRING THEM ON PAR WITH THE ASSESSEE, THESE COMPA NIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREFORE, W E DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPAN IES FROM THE LIST OF COMPARABLES'. RESPECTFULLY, FOLLOWING THE SAME, WE ACCEPT THE ASS ESSEE'S OBJECTIONS AND DIRECT THE TPO TO EXCLUDE THE ABOVE THREE COMPANIES FROM THE LIST OF COMPARABLES.' 13. SIMILARLY IN RESPECT OF TATA ELXSI LTD., THE CO ORDINATE BENCH VIDE PARAS 25-27 HELD AS FOLLOWS: 25. WE HAVE CONSIDERED HIS SUBMISSION AND FIND THAT TH E ITAT HYDERABAD BENCH ON IDENTICAL FACTS, HELD ON COMPARA BILITY OF TATA ELXSI LTD. AS FOLLOWS: '15.7. TATA ELXSI LIMITED : THE OBJECTION OF THE AS SESSEE IS THAT TATA ELXSI OPERATING TWO SEGMENTS -SYSTEM COMM UNICATION SERVICES AND SOFTWARE DEVELOPMENT SERVICES. THE TPO ACCEPTED THE SOFTWARE DEVELOPMENT SERVICES SEGMENT IN HIS T.P. A NALYSIS AND ASSESSEE'S OBJECTION IS THAT THE SOFTWARE DEVELOPME NT SERVICES SEGMENT ITSELF COMPRISES OF THREE SUB-SERVICES NAME LY (A) PRODUCT DESIGN SERVICES (B) DESIGN ENGINEERING SERVICES AND (C) VISUAL COMPUTING LABS. IT WAS SUBMITTED THAT THESE SERVICE S ARE NOT AKIN TO ASSESSEE SOFTWARE SERVICES AND SEGMENTAL INFORMATIO N OF ONLY PRODUCT DESIGN SERVICES COULD HAVE BEEN ACCEPTED BY THE TPO AS A COMPARABLE BUT NOT THE ENTIRE SOFTWARE DEVELOPMENT SERVICE. SINCE COMPANY'S OPERATIONS ARE FUNCTIONALLY DIFFERENT AS SUCH, THE SAME IS NOT COMPARABLE. FURTHER, ASSESSEE IS ALSO OBJECT ING ON THE BASIS OF INTANGIBLE SCALE OF OPERATIONS. THE COORDINATE B ENCH IN THE CASE OF INTOTO ( SUPRA ) CONSIDERED THE ISSUE AS UNDER IN PARA 22. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 19 OF 23 '22 TATA ELXSI LIMITED : AS REGARDS THIS COMPANY, T HE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, FILED BEFORE US THE REPLY OF TATA ELXSI LIMITED TO THE ADDL. CIT (TRANS FER PRICING), HYDERABAD, WHEREIN THE CONCERNED OFFICER HAS BEEN I NFORMED THAT TATA ELXSI LIMITED IS SPECIALISED EMBEDDED SOFTWARE DEVELOPMENT SERVICE PROVIDER AND THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE DEVELOPMENT COMPANY. IT WAS SUBM ITTED THAT BECAUSE OF THE SPECIALISATION AND ALSO BECAUSE OF D IVERSE NATURE OF ITS BUSINESS, IT IS VERY DIFFICULT TO SCALE-UP THE OPERATIONS OF TATA ELXSI LIMITED. IN VIEW OF THIS, TATA ELXSI LIMITED HAS INFORMED THAT IT IS NOT FAIR TO USE ITS FINANCIAL NUMBERS TO COMPARE IT WITH ANY OTHER COMPANY. THE COMMUNICATION DATED 25TH AUGUST, 2009 TO THE TPO IS PLACED BEFORE US. AS THIS COMMUNICATION WAS NOT BEFORE THE TPO AT THE TIME OF TRANSFER PRICING ADJU STMENT WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE TPO TO RECONSIDER ADOPTING THIS COMPANY AS THE COMPARABLE IN THE LIGHT OF OBSERVATIONS OF THIS COMPANY TO THE TPO IN THE CASE OF ANOTHER ASSESSEE. IN THE RESULT, THE ASSESSING OFFICER/TPO IS DIRECTED TO RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE.' KEEPING THE ASSESSEE'S OBJECTIONS AND THE DECISIONS OF THE COORDINATE BENCH, PRIMA FACIE, WE ARE OF THE VIEW T HAT TATA ELXSI LIMITED IS FUNCTIONALLY DIFFERENT AND HAS INC OMPARABLE SIZE TO THAT OF THE ASSESSEE. FURTHER, WE ARE UNABLE TO VERIFY WHETHER THE SEGMENTAL PROFITS ADOPTED BY THE TPO PERTAIN TO ENT IRE SOFTWARE DEVELOPMENT SERVICES OR PERTAIN TO LIMITED SERVICE AKIN TO ASSESSEE SERVICES. SINCE, THESE ASPECTS ARE NOT CLEAR FROM T HE DATA FURNISHED BEFORE US, WE DIRECT THE TPO TO EXAMINE AND IN CASE , THE SEGMENTAL PROFITS OF A PARTICULAR SERVICE IS NOT AVAILABLE, T HEN, TO EXCLUDE THE TATA ELXSI LIMITED FROM THE LIST OF COMPARABLES. AC CORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF TPO FOR EXAMI NATION AND TO DECIDE IN ACCORDANCE WITH LAW AND FACTS, AFTER AFFO RDING REASONABLE OPPORTUNITY OF BEING HEARD TO ASSESSEE.' 26. THOUGH THE ISSUE HAS BEEN SET ASIDE TO THE AO IN T HE AFORESAID DECISION, THE ITAT HYDERABAD IN THE CASE OF NTT DATA INDIA ENTERPRISE APPLICATION SERVICES (P.) LTD. V. ASSTT. CIT [2013] 40 TAXMANN.COM 173 AND IN A SUBSEQUENT RULING IN THE CASE OF INVENSYS DEVELOPMENT CENTRE (INDIA) (P.) LTD. V. ADDL CIT [2014] 151 ITD 245/43 TAXMANN.COM 419 (HYD. - TRIB) HELD THAT TATA ELXSI IS NOT FUNCTIONALLY COMPARABLE WITH THAT OF A SOFTWARE DEVELOPMENT SERVICE PROVIDER SUCH AS THE ASSESSEE. 27. IN VIEW OF THE AFORESAID DECISION RENDERED ON IDEN TICAL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT TATA ELX SI LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMP ANIES. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 20 OF 23 14. WE DO NOT FIND ANY REASON TO DIFFER FROM THE DE CISION OF THE COORDINATE BENCH IN THE ABOVE CASE. THEREFORE WE D IRECT THE AO/TPO TO EXCLUDE THE COMPANIES (1) BODHTREE CONSULTING LTD. , (2) EXENSYS SOFTWARE SOLUTIONS LTD., (3) SANKHYA INFOTECH LTD., (4) FOUR SOFT LTD., (5) THIRDWARE SOLUTIONS LTD., (6) TATA ELXSI LTD., (SEG.) FROM TH E LIST OF COMPARABLES. THUS THE GROUND NO. 4 IS DISPOSED OFF. 15. GROUND NO. 5: THE GROUND APPEAL IS FILED BY THE REVENUE AND CONTENDING THAT ONCE A PARTICULAR FILTER/CRITERIA A DOPTED BY TPO OR ASSESSEE IN TP STUDY, IS ACCEPTED OR REJECTED BY APPELLATE A UTHORITY THE MATTER SHOULD GO BACK TO THE TPO/AO FOR APPLICATION OF THE FILTER S APPROVED BY THE APPELLATE AUTHORITIES ON UNIFORM BASIS TO ALL COMPA RABLES FINALLY SELECTED. 16. IN OUR CONSIDERED OPINION THE ISSUE RAISED VIDE THE ABOVE GROUNDS IS ONLY OF ACADEMIC IMPORTANCE AS NONE OF THE COMPARAB LES SELECTED BY THE TPO ARE EITHER APPROVED OR REJECTED APPLYING ANY FI LTER. THEREFORE THIS GROUND OF APPEAL DOES NOT SURVIVE. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 113/B/15 18. THESE CROSS-OBJECTIONS ARE FILED BY THE ASSESSEE CO MPANY. THE GROUNDS OF CROSS OBJECTION ARE AS UNDER: IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 21 OF 23 1. THE ORDERS OF THE TRANSFER PRICING OFFICER (TPO) 1 COMMISSIONER OF INCOME TAX- APPEALS (CIT-A) 1 ASSESSING OFFICER (AO) IN SO FAR AS THEY ARE AGAINST THE CROSS OBJECTOR L RESPONDENT, ARE OPPOSED TO LAW, WEIGHT OF EVIDENCE, NATURAL JUSTICE, PROBABILI TIES, FACTS AND CIRCUMSTANCES OF THE CROSS OBJECTOR L RESPONDENT'S CASE. 2. A) THE ORDER OF THE ASSESSMENT IS BAD IN LAW AS THE MANDATORY CONDITIONS TO INVOKE THE JURISDICTION UNDER SECTION 92CA OF THE ACT DID NOT EXIST, OR HAVING NOT BEEN COMPLIED WITH AND CONSEQUENTLY THE ORDER OF THE ASSESSING OFFICER IS BAD IN LAW FO R WANT OF REQUISITE JURISDICTION. B) THE ASSESSING OFFICER ERRED IN NOT PROVIDING THE COPY OF THE APPROVAL GRANTED BY THE COMMISSIONER WHICH IS IN VI OLATION OF THE SETTLED PRINCIPLES OF NATURAL JUSTICE AND THUS THE ORDER OF ASSESSMENT NEEDS TO BE SET ASIDE. 3. THE TPO, CIT-(A) AND THE AO FAILED TO UNDERSTAND THE SPIRIT AND INTENT OF RULE 10B(1)(E)(II) AS PER WHICH EVEN IF O NE OF THE COMPARABLES SELECTED BY THE CROSS OBJECTOR SATISFIE S THE COMPUTATION MECHANISM FOR DETERMINATION OF THE ALP, THE DETERMINATION OF ALP BY USING ARITHMETIC MEAN OF DI FFERENT COMPARABLES IS NOT WARRANTED. 4. THE TPO, CIT-(A) AND THE AO FAILED TO APPRECIATE THAT THE CROSS OBJECTOR/RESPONDENT RUNS A SINGLE CUSTOMER RISK AND FAILED TO PROVIDE THE RISK ADJUSTMENT WHILE COMPUTING THE COM PARABLE MARGIN. 5. THE CROSS OBJECTOR / RESPONDENT CRAVES LEAVE TO ADD, ALTER, DELETE, AND MODIFY ANY OF THE GROUNDS WHICH ARE URGED ABOVE . IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 22 OF 23 6. FOR THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE U RGED AT THE TIME OF HEARING, THE CROSS OBJECTOR / RESPONDENT PRAYS Y OUR HONOUR TO CONSIDER THE FACTS AND CIRCUMSTANCES OF THE CASE AN D JUSTICE BE RENDERED. 19. ON PERUSAL OF THE ORDERS OF CIT (A), IT IS CRY STAL CLEAR THAT THE ISSUES RAISED VIDE CROSS-OBJECTIONS 1 TO 3 DO NO FORM PART OF THE ORDER OF THE LEARNED CIT(A). A CROSS-OBJECTION IS MAINTAINABLE ONLY WHEN THE CIT(A) RENDERS SOME FINDING ON THE ISSUES RAISED ON THE CR OSS-OBJECTION. THEREFORE, THE CROSS-OBJECTION 1 TO 3 ARE DISMISSED AS SUCH. IN RESPECT OF CROSS-OBJECTION NO. 4 CHALLENGES DENIAL OF RISK ADJ USTMENT BY LEARNED CIT(A). THE CIT(A) HAS DENIED THE RISK ADJUSTMENT ON THE GROUND THAT THE WORKING CAPITAL ADJUSTMENT WAS GRANTED BY THE TPO A ND THEREFORE NO RISK ADJUSTMENT CAN BE GRANTED. 20. THE LEARNED AO CONTENDED THAT THE ASSESSEE COMP ANY IS CATERING TO THE NEEDS OF A SINGLE CUSTOMER AND THEREFORE EXPOSE D TO A SINGLE CUSTOMER RISK AND THESE ADJUSTMENTS SHOULD BE GRANTED IN THE LIGHT OF THE DECISION OF THE COORDINATE BENCH IN THE CASE INTELLINET TECHNOL OGIES INDIA (P.) LTD., VS. INCOME-TAX OFFICER, WARD-11(2) BANGALORE. 21. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED MATE RIAL ON RECORD. WE FIND FROM THE RECORD THAT THE ASSESSEE COMPANY HAD NOT QUANTIFIED THE ADJUSTMENT ON ACCOUNT OF RISK. FURTHER THE ASSESSE E COMPANY HAD NOT DEMONSTRATED BEFORE US AS TO HOW THE RISK DIFFERENC ES RESULTED IN DEFLATION OF FINANCIAL RESULTS OF THE COMPARABLES. IT CANNOT BE GRANTED AS A GENERAL RULE OF STANDARD ADJUSTMENT. THEREFORE THIS CROSS- OBJECTION IS DISMISSED. IT(TP)A NO.1645/BANG/2013 & C.O. NO.113/BANG/2015 PAGE 23 OF 23 PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF OCTOBER, 2016. SD/- SD/- (ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACC OUNTANT MEMBER BANGALORE. DATED:14 TH OCTOBER, 2016. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.