United Online Software Development (India) Limited (Formerly known as Juno Online Developement Services Private Limited), Hyderabad V. ITO, Ward-3(2), Hyderabad

ITA 1658/HYD/2011

• Counselvise Citation: 165822514 RSA 2011
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 22-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MO HARANA
• Keywords: Related party transaction; Transfer pricing; Wholly owned subsidiary; Difference of opinion
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDCIIAL MEMBER AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER - ----- ITA NO.1658/HYD/11 : ASSESSMENT YEAR 2007 -08 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD ( PAN - AAACJ 9549 G ) V/S. INCOME TAX OFFICER WARD 3(2), HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.1239/HYD/13 : ASSESSMENT YEAR 2007 -08 INCOME TAX OFFICER WARD 3(2), HYDERABAD V/S. M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD ( PAN - AAACJ 9549 G ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAVI BHARADWAJ DEPARTMENT BY : SHRI S.MOHARANA DR DATE OF HEARING 24 .0 8 .2015 DATE OF PRONOUNCEMENT 24.09.2015 O R D E R PER B.RAMAKOTAIAH, ACCOUNTANT MEMBER: THERE ARE TWO APPEALS ONE FILED BY ASSESSEE IN QUANT UM PROCEEDINGS AGAINST THE ORDER OF AO AS APPROVED BY DRP AND THE OTHER FILED BY THE REVENUE IN THE PENALTY PROCEEDINGS UNDER S.271(1)(C) CONTESTING THE RELIEF GRANTED BY THE CIT(A). THESE T WO APPEALS ARE HEARD TOGETHER FOR BEING DISPOSED OF WITH HIS COMMON ORDER FO R THE SAKE OF CONVENIENCE. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 2 ASSESSEES APPEAL: ITA NO.1658/HYD/11 : ASSESSMENT YEAR 2007-08 2. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDE R OF ASSESSMENT DATED 25.8.2011 PASSED UNDER S.143(3) READ WIT H S.144C(5) OF THE ACT, IN PURSUANCE OF THE ORDER OF THE DISPUTES RESOLUTION PANEL, HYDERABAD DATED 9.08.2011, FOR THE ASSESSMENT YEAR 2007- 08. 3. ASSESSEE RAISED FOURTEEN GROUNDS IN THIS APPEAL, OUT OF WHICH GROUNDS NO.1 TO 9 RELATE TO TRANSFER PRICING ADJUSTMENT . IN THE COURSE OF ARGUMENTS, THE LEARNED COUNSEL HAS NOT PRESSED THE GROUND S NO.1 TO 6, 9 10 AND 11, WHICH RELATE TO REJECTION OF TRANSFER PRICIN G DOCUMENTATION MAINTAINED BY ASSESSEE; REJECTION OF USE OF CONTEMPORANEO US DATA AND UNDERTAKING FRESH SEARCH OF COMPARABLES; REJECTION OF USE OF MULTIPLE YEAR DATA; INFORMATION OBTAINED UNDER S.133(6); INCENTIVE TO SHIFT PROFITS; USE OF ADDITIONAL FILTERS; AND SELECTION OF COMPANIES EARNI NG ABNORMAL HIGH MARGINS; AND APPLICABILITY OF PROVISO TO S.92C(2). T HESE GROUNDS ARE HENCE REJECTED AS NOT PRESSED. AS FOR THE ISSUE RELATING TO ADJUSTMENT TOWARDS RISK, RAISED IN GROUND NO.10, IT BECOMES ACADEMIC, IF SUITABLE DIRECTIONS ARE GIVEN IN RELATION TO THE GROUNDS CONTEST ED IN THIS APPEAL. BEING ACADEMIC, GROUND NO.10 IS ALSO TREATED AS NOT PRE SSED AND REJECTED ACCORDINGLY, WITH LIBERTY TO THE ASSESSEE TO AGITATE THI S ISSUE IN FURTHER PROCEEDINGS THAT ENSUE IN PURSUANCE OF THIS ORDER, IF WA RRANTED. SO ALSO, GROUND NO.13 RELATING TO LEVY OF INTEREST UNDER S.23 4B AND 234C; AND GROUND NO.14 RELATING TO INITIATION OF PENALTY PROCE EDING UNDER S.271(1)(C) ARE NOT PRESSED. THESE GROUNDS ARE ACCORDINGLY REJECTED. ASSESSEE RAISED ADDITIONAL GROUND FOR EXCLUSION OF SOME MORE COMPARABLE COMPANIES. THESE ARE ALSO DEALT WITH AT APPROPRIATELY. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 3 4. WE MAY NOW TAKE UP FOR CONSIDERATION THE ONLY OT HER GROUNDS THAT SURVIVE FOR CONSIDERATION, BEING GROUND NOS.7 AND 8 INCLUDING ADDITIONAL GROUNDS AND 12. 5. GROUNDS NO.7 AND 8 RELATE TO THE TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIO NS OF THE DISPUTE RESOLUTION PANEL. IN GROUND NOS.7 ASSESSEE INITIALLY DI SPUTES THE INCLUSION OF SEVEN COMPARABLE COMPANIES SELECTED BY THE TRANSFER PRI CING OFFICER, AND GROUND NO.8 DISPUTES THE EXCLUSION OF SEVEN COMPANIES SELECTED BY ASSESSEE AS COMPARABLE, BUT REJECTED BY THE TPO AS WELL AS THE DRP. 6. BRIEFLY STATED, ASSESSEE UNITED ONLINE SOFTWARE DEVE LOPMENT (INDIA) PRIVATE LIMITED, IS A COMPANY INCORPORATED IN NOVEMBER, 1999 AS A WHOLLY OWNED SUBSIDIARY OF JUNO US. ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF FOLLOWING SERVICES- (A) SOFTWARE DEVELOPMENT SERVICES IN THE AREA OF MAIL PLAN T, WEB-MAIL PLATFORM AND INTERNAL RELATED SOFTWARE; (B) OPERATION SUPPORT SERVICES: - WEB-MAIL CUSTOMER RESPONSES ECRM - REMOTE PRODUCTION MONITORING - ONLINE AND OFFLINE ADVERTISEMENTS ASSESSEES SOFTWARE DEVELOPMENT CENTRE IS REGISTERED AS A 100 % EXPORT ORIENTED UNIT REGISTERED WITH THE SOFTWARE TECHNOLOG Y PARK OF INDIA. ASSESSEE COMPANY EMPLOYEES PROFESSIONALS WITH VARIED SKILLS AN D EXPERIENCE, AND IT IS COMPENSATED ON COST PLUS MARK UP BASI S FOR PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS GROUP COMPANY, JU NO ONLINE SERVICES INC. USA(AE). ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 4 7. DURING THE YEAR ASSESSEES OPERATING REVENUE WAS TO T HE TUNE OF RS.18.86 CRORES AND OPERATING COST WAS RS.17.02 CRORES. T HE OPERATING PROFIT TO COST RATIO WAS 10.81%. DURING THE YEAR UND ER CONSIDERATION, ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TR ANSACTIONS- (A) PROVISION OF SOFTWARE DEVELOPMENT SERVICES RS.18,86,04,3 25 (B) PURCHASE OF FIXED ASSETS RS. 58,51,045 ASSESSEE HAS PURCHASED FIXED ASSETS WORTH RS.58,51,045 FROM J UNO US AND WERE USED FOR ITS SOFTWARE DEVELOPMENT SERVICES AND T HE SAME HAVE BEEN INCLUDED IN THE PROFIT & LOSS ACCOUNT FOR MARK UP. AS THE METHOD FOLLOWED BY THE TRANSFER PRICING OFFICER AS WELL AS THE TAXPAYER WAS TNMM, THIS TRANSACTION IS AGGREGATED WITH THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES FOR THE TRANSFER PRICING STUDY. 8. THE TPO AND ASSESSEE ACCEPTED THE TNMM AS THE MOST APPROPRIATE METHOD ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ASSESSEE HAS SELECTED 28 COMPARABLES WITH WEIGHTED PROFIT MARGIN OF 14.53% ON OPERATING COST IN ITS T.P. STUDY, OUT OF WHICH THE TPO , IN THE COURSE OF HIS TP STUDY HAS REJECTED AND THEREBY EXCLUDED THE EIGHT COMPARABLE COMPANIES SELECTED BY ASSESSEE FROM THE SCOPE OF HIS TP STUDY, AND SELECTED ON THE OTHER HAND, CERTAIN OTHER COMPANIES AS COM PARABLES FOR THE PURPOSE OF HIS TP STUDY. THE TPO ULTIMATELY BASED O N THE DATA WORKED OUT IN RESPECT OF 26 COMPANIES, DETERMINED THE ARMS LE NGTH MARGIN AT 24.23% ON COST, AND TRANSFER PRICE ADJUSTMENT TO BE MA DE AT RS.2,28,50,421, VIDE HIS ORDER UNDER S.92CA DATED 31 .8.2010. 9. ON THE OBJECTIONS RAISED BY ASSESSEE AGAINST THE ACTION OF THE TRANSFER PRICING OFFICER IN REJECTING COMPARABLES SELECTED BY ASSESSEE, AND IN SELECTING OTHER COMPANIES AS COMPARABLE, THE DISPUTE RESOLUTION PANEL ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 5 HAS UPHELD THE ORDER OF THE TRANSFER PRICING OFFICER WI TH REGARD TO ALL THE COMPARABLE COMPANIES ULTIMATELY TAKEN BY THE TPO, EXCEP T CELESTIAL LABS LTD. THE DISPUTE RESOLUTION PANEL ALSO REJECTED ALL OT HER OBJECTIONS IN RELATION TO DETERMINATION OF TRANSFER PRICING ADJUSTM ENT AND THE ADJUSTMENTS TO BE MADE IN THE COURSE OF COMPUTATION UND ER S.10B/10A, ETC. RAISED BY ASSESSEE BEFORE IT, VIDE ITS DIRECTIONS UNDE R S.144C(5) OF THE INCOME TAX ACT,1961, DATED 9.8.2011. 10. IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLU TION PANEL, THE ASSESSING OFFICER, PASSED THE ORDER UNDER S.143(3) REA D WITH 144C OF THE ACT, ON 25.8.2011, WHEREBY HE RE-COMPUTED THE TRA NSFER PRICING ADJUSTMENT TO BE MADE AT RS.2,07,22,767; AND ALSO REJ ECTED ASSESSEES PLEA FOR REDUCTION OF COMMUNICATION CHARGES LIKE INTERN ET, POSTAGE AND TELEPHONE CHARGES AND INSURANCE FROM THE TOTAL TURNOVE R, HAVING REDUCED THE SAME FROM THE EXPORT TURNOVER, WHILE COMPUTING TH E DEDUCTION UNDER S.10A OF THE ACT, AND ULTIMATELY COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.2,11,78,390. 11. AGGRIEVED BY THE ASSESSMENT THUS MADE, ASSESSEE H AS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 12. FINAL LIST OF COMPARABLE COMPANIES TAKEN INTO CONS IDERATION, AFTER GIVING EFFECT TO THE ORDER OF THE DISPUTE RESOLU TION PANEL DATED 25.8.2011, ARE AS FOLLOWS- ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 6 SL. NO. COMPANY NAME O P TO TOTAL COST % 1. ACCEL TRANSMATIC LTD. (SEG.) 21.11 2. AVANI CIMCON TECHNOLOGIES LTD. 52.59 3. DATAMATICS LTD. 1.38 4. E-ZEST SOLUTIONS LTD. 36.12 5. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG) 35.31 6. GEOMETRIC LTD. (SEG) 10.71 7. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 36.63 8. IGATE GLOBAL SOLUTIONS LTD. 7.49 9. INFOSYS B P O LTD. 40.30 10. ISHIR INFOTECH LTD. 30.12 11. KALS INFORMATION SYSTEMS LTD.(SEG.) 30.55 12. LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD.) 15.75 13. LUCID SOFTWARE LTD. 19.37 14. MEDISOFT SOLUTIONS LTD. 3.66 15. MEGASOFT LTD. 60.23 16. MINDFREE LTD. 16.90 17. PERSISTENT SYSTEMS 16.90 18. QUINTEGRA SOLUTIONS LTD. 12.56 19. R.S.SOFTWARE (INDIA) LTD. 13.47 20. R. SYSTEMS INTERNATIONAL LTD. (SEG.) 15.07 21. SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) 21.16 22. SIP TECHNOLOGIES & EXPORTS LTD. 13.90 23. TATA ELXSI LTD. (SEG. 26.51 24. THIRDWARE SOLUTIONS LTD. 25.12 25. WIPRO LTD. (SEG.) 33.65 ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 7 13. OUT OF THE ABOVE TWENTY FIVE COMPANIES ULTIMATE LY SELECTED AS COMPARABLE, THE ASSESSEE HAS NO OBJECTION WITH REGARD TO DATAMATICS LTD., E-ZEST SOLUTIONS LTD., GEOMETRIC LTD.(SEG). IGATE GLOB AL SOLUTIONS LTD., LANCO GLOBAL SYSTEMS LTD., MEDIA SOFT SOLUTIONS LTD. M IND TREE CONSULTING LTD. (SEG.), PERSISTENT SYSTEMS LTD., INTEGRA SOLUTIONS LTD., R.S. SOFTWARE (INDIA) LTD. , R. SYSTEMS INTERNATIONAL LTD. (SEG)., S I P TECHNOLOGIES AND EXPORTS LTD., SASKEN COMMUNICATION TECH LTD.(SEG.), TH IRDWARE SOLUTIONS LTD. (SEG.). WE MAY HEREINAFTER DEAL WITH THE OBJE CTIONS RAISED BY THE ASSESSEE IN GROUNDS NO.7 OF THIS APPEAL, WITH REGARD TO T HE OTHER COMPARABLE COMPANIES SELECTED BY THE TPO. 14. AS NOTED ABOVE, THE FIRST EFFECTIVE GRIEVANCE O F ASSESSEE THAT SURVIVES FOR CONSIDERATION, RAISED IN GROUND NO.7, IN TH IS APPEAL RELATES TO THE INCLUSION OF THE FOLLOWING SEVEN COMPARABLE COMPANIE S SELECTED BY THE TPO NOTWITHSTANDING THE OBJECTIONS RAISED BY ASSESSEE. 1. AVANI CIMCON TECHNOLOGIES LTD. 2. INFOSYS TECHNOLOGIES LTD. 3. ISHIR INFOTECH LTD. 4. LUCID SOFTWARE LTD. 5. MEGA SOFT LTD. 6. TATA ELEXSI LTD. (SEG.) 7. WIPRO LTD. (SEG.) 15. THE LEARNED COUNSEL FOR ASSESSEE HAS ALSO RAISED AN ADD ITIONAL GROUND WHEREBY THE INCLUSION OF THE FOLLOWING FOUR COM PANIES SELECTED BY THE TPO AS COMPARABLE, NOTWITHSTANDING THE OBJECTIONS R AISED BY ASSESSEE, HAS BEEN QUESTIONED- ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 8 1. KALLS INFORMATION SYSTEMS LTD. (SEG.) 2. ACCEL TRANSMATIC (SEG) 3. FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) 4. HELIOS & MATHESON INFORMATION TECH. LTD. THE SAID ADDITIONAL GROUND HAS BEEN FILED ALONGWITH A PETITION PRAYING ITS ADMISSION AND ADJUDICATION THEREON. RELIANCE IS ALSO PL ACED ON THE DECISION OF THE APEX COURT IN THE CASE OF NATIONAL THER MAL POWER CO. LTD. V/S. CIT (229 ITR 383), IN SUPPORT OF THE ADMISSION OF THE SAID ADDITIONAL GROUND. SINCE THE ADDITIONAL GROUND DOES NOT REQUIR E ENQUIRY INTO ANY NEW FACTS, WE ADMIT THE SAME, AND PROCEED TO ADJUDICATE UPON THE SAME ALONGWITH THE MAIN GROUND ORIGINALLY RAISED IN THE A PPEAL ON THE ISSUE OF INCLUSION OF CERTAIN COMPANIES BY THE TPO. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD, INCLUDING TH E PAPER-BOOKS AND DETAILED FILED BY ASSESSEE. IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR ASSESSEE, AND NOT DISPUTED BY THE LEAR NED DEPARTMENTAL REPRESENTATIVE, THAT IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2006-07, THE ISSUE RELATING TO COMPARABLE NATURE OF THREE OF THE COMPANIES NAMED IN THE ORIGINAL GROUND, VIZ. MEGASOFT LTD., INFOSYS TECHNOLOGIES LTD. AND TATA ELXSI LTD.(SEG)., AN D TWO OUT OF THE FOUR COMPANIES NAMED IN THE ADDITIONAL GROUND, VIZ. A CCEL TRANSMATIC (SEG) AND KALIS INFORMATION SYSTEMS LTD. (SEG.) HAS CO ME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.1500/HYD/2 010, AND THIS TRIBUNAL. 17. HOWEVER, WE FIND THAT THE ISSUE RELATING TO COMP ARABLE NATURE OF NINE OUT OF ABOVE ELEVEN COMPANIES (COMPANIES IN ORI GINAL GROUNDS AS WELL AS ADDITIONAL GROUNDS TAKEN TOGETHER), VIZ. OTHE R THAN FLEXTRONICS ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 9 SOFTWARE SYSTEMS LTD. (SEG.) AND HELIOS & MATHESON INFOR MATION TECH. LTD. HAS COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ITSELF, IN THE CASE OF SUMTOTAL SYSTEMS IND IA P. LTD., HYDERABAD IN ITA NO.1710/HYD/2011, WHEREIN THE TRIBUN AL VIDE ITS ORDER DATED 9.5.2014 HAS ACCEPTED THE CONTENTIONS FOR EXCLUSION OF THESE NINE COMPANIES UNDER CONSIDERATION BEFORE IT. RELEVANT PORTI ON OF THE SAID ORDER OF THE TRIBUNAL, BEING PARA 7 THEREOF, READS AS UNDER - 7. EACH OF THESE COMPARABLES IN DISPUTE, CHALL ENGED IN GROUND NO 7 WAS CONSIDERED AS UNDER: AVANI CIMCON TECHNOLOGIES LIMITED : 7.1. ASSESSEE HAS BASICALLY SOUGHT EXCLUSION OF ABOVE COMPANY ON TWO GROUNDS, FIRSTLY, THIS COMPANY HAS R EVENUE FROM BOTH PRODUCT AND SOFTWARE SERVICES AND SEGMENT -WISE DATA IS NOT AVAILABLE AND SECONDLY, IT IS CONTENDE D THAT THE COMPANY HAS SHOWN SUPER NORMAL PROFIT OF 52.59% A GAINST AVERAGE MARGIN OF OTHER COMPARABLES. IT IS VERY MU CH EVIDENT FROM THE TP ORDER THAT ASSESSEE HAS BEEN CATEGORISE D AS A SOFTWARE DEVELOPMENT SERVICE PROVIDER. COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF VIRTUSA (INDIA) PVT. L TD. (ITA NO. 1962/HYD/2011 DATED 30/08/2013) AFTER FOLLOWING SOM E OTHER DECISIONS OF THE TRIBUNAL HAS HELD THIS COMPANY CAN NOT BE TREATED AS COMPARABLE AS THIS COMPANY IS ALSO INTO PRODUCT DEVELOPMENT. AS SEGMENTAL DETAILS OF OPERATING INCO ME OF SOFTWARE DEVELOPMENT SERVICES AND SALE OF SOFTWARE PRODUCTS ARE NOT AVAILABLE, IT COULD NOT BE ASCERTAINED WHET HER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONSIDERATI ON FOR COMPARING WITH ASSESSEE. AS THE AFORESAID DECISION OF THE COORDINATE BENCH PERTAINED TO THE SAME ASSESSMENT Y EAR I.E. A.Y. 2007-08, FOLLOWING THE SAME, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE. OTHER CASES CONSIDERED THE SAME COMPARABLE AND REJECTED ARE AS UNDER: A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.1978/H2011 C) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 D) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.7821/MUM/2011 E) TRIOLOGY E - BUSINESS SOLUTIONS ITA.NO.1054/BANG /2011 F) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 G) LG SOFT INDIA PVT. LTD. ITA.NO.1121/BANG/2011 ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 10 H) TRANSWITCH INDIA P. LTD. ITA.NO.948/BANG/2011 I) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 J) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 K) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 L) HCL EAI SERVIC ES LTD. ITA.NO.1348/BANG/2011 WE HEREFORE DIRECT THE ASSESSING OFFICER /TPO TO E XCLUDE THIS WHILE COMPUTING ALP. INFOSYS TECHNOLOGIES LTD., : 7.2 OBJECTING TO THE AFORESAID COMPANY BEING TREAT ED AS COMPARABLE, LEARNED AR SUBMITTED THAT THE COMPANY CANNOT BE CONSIDERED TO BE COMPARABLE TO A CAPTIVE SERVIC E PROVIDER LIKE ASSESSEE, NOT ONLY BECAUSE OF THE QUANTUM OF R EVENUE EARNED BY THEM BUT ALSO ON ACCOUNT OF VARIOUS OTHER FACTORS. IT WAS SUBMITTED THAT THE COMPANY COMMAND A PREMIUM IN THE PRICING OF THEIR PRODUCTS AND SERVICES DUE TO THE G OODWILL, REPUTATION AND BRAND VALUE. IT WAS SUBMITTED THAT D UE TO SCALE OF OPERATION IT NOT ONLY ENJOY ECONOMIES OF SCALE I N THE LOWER COST OF INFRASTRUCTURE FACILITIES AND EMPLOYEES BUT ALSO EARNING PROFIT. IT WAS SUBMITTED THAT THE COMPANY HAS DIVE RSIFIED ACTIVITIES INCLUDING PRODUCTS, CONSULTANCY AND SOLU TIONS. COMPANY OWN INTANGIBLES AND ASSUME CONSIDERABLE RIS K WHICH RESULTS IN EARNING HIGHER PROFITS. IN SUPPORT OF S UCH CONTENTION THE LD. AR RELIED UPON A NUMBER OF DECIS IONS, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK. 7.2.1. THE LEARNED DR STRONGLY CONTESTING THE CONTE NTIONS OF ASSESSEE SUBMITTED THAT SO FAR AS INFOSYS TECHNO LOGIES IS CONCERNED, ASSESSEE ITSELF HAS SELECTED THE SAID C OMPANY IN THE TP DOCUMENTATION. THEREFORE, ASSESSEE CANNOT A GAIN OBJECT TO THE TPO SELECTING THE SAID COMPANY AS COM PARABLE. HE FURTHER SUBMITTED THAT ONLY BECAUSE THE COMPANY HAS BRAND VALUE AND IS BIG IN SIZE, IT CANNOT BE TREATE D AS UNCOMPARABLE TO ASSESSEE. 7.2.2. IN REJOINDER, THE LD. AR SUBMITTED THAT ASSE SSEE SELECTED INFOSYS ON THE BASIS OF THREE YEARS DATA, WHEREAS TPO HAS CONSIDERED ONLY CURRENT YEAR DATA. THE LEARNED AR FURTHER SUBMITTED THAT IF ASSESSEE HAS MISTAKENLY SELECTED A COMPARABLE, IT CANNOT BE ESTOPPED FROM OBJECTING TO THE SELECTION OF THAT COMPARABLE IN PROCEEDINGS BEFORE HIGHER FORUM. IN THIS CONTEXT, THE LEARNED AR RELIED UPON THE INCOME- TAX APPELLATE TRIBUNAL SPECIAL BENCH DECISION IN CA SE OF QUARK SYSTEMS, 4 ITR (TRIB) 606. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 11 7.2.3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PA RTIES AND PERUSED THE MATERIALS ON RECORD. ON CONSIDERI NG THE SAME, WE ARE OF THE VIEW THAT THIS COMPANY CANNOT B E CONSIDERED AS COMPARABLE TO ASSESSEE DUE TO VARIOUS FACTORS SUCH AS ITS SIZE, TURNOVER, BRAND VALUE, SCALE OF O PERATION, DIVERSIFIED ACTIVITIES AND OWNING OF INTANGIBLES. AS CAN BE SEEN FROM THE TP ORDER, THE TURNOVERS OF INFOSYS TE CHNOLOGIES LIMITED DURING THE YEAR UNDER CONSIDERATION ARE RS. 13,149 CRORES AS AGAINST RS. 42 CRORES OF ASSESSEE. THOUGH IT IS A FACT THAT ASSESSEE IN THE TP DOCUMENTATION, HAS SELECTED INFOSYS TECHNOLOGIES LTD. AS COMPARABLE BUT THAT CANNOT PR EVENT ASSESSEE FROM OBJECTING TO THE AFORESAID COMPANY BE ING SELECTED AS COMPARABLE, IF THERE ARE VALID REASONS FOR DOING SO. IN THIS CONTEXT, THE CONTENTION OF THE LEARNED AR T HAT ASSESSEE HAS SELECTED INFOSYS LIMITED ON THE BASIS OF THREE YEARS FINANCIAL DATA, WHEREAS THE TPO CONSIDERED ONLY THE CURRENT YEAR DATA ALSO NEEDS TO BE APPRECIATED. THEREFORE, CONSIDERING THE ENORMITY OF TURNOVER OF THE COMPANY AS WELL AS OTHER RELEVANT FACTORS, THE AFORESAID COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE IN ANY MANNER. THIS VIEW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFERENT B ENCHES OF THIS TRIBUNAL AS STATED BELOW AS WELL AS THAT OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDI A TECHNOLOGIES PVT. LTD.,[2013] 85 CCH 146. A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.1978/H2011 C) M/S. VIRTUSA (I) P. LTD. ITA.NO.196 2/HYD/2011 D) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.7821/MUM/2011 E) TRIOLOGY E - BUSINESS SOLUTIONS ITA.NO.1054/BANG/2011 F) ADAPTEC (INDIA) P. LTD. VS. DCIT ITA.NO.1801/HYD/20 09 G) TRINITY ADVANCED SOFTWARE LABS P. LTD. VS. ACIT ITA.NO.1129/HYD/2005 WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO TO E XCLUDE THIS WHILE COMPUTING ALP. ISHIR INFOTECH LTD 7.3. SO FAR AS THIS COMPANY IS CONCERNED, ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY ON THE G ROUND THAT THIS COMPANY FAILS EMPLOYEE COST FILTER AS ITS EMP LOYEE COST WAS ONLY 3.96%. IN THIS CONTEXT, THE LEARNED AR HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIB UNAL IN CASE ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 12 OF M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON A PER USAL OF THE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LT D.((SUPRA)), WE FIND THAT THE CO-ORDINATE BENCH HAS HELD THAT IS HIR INFOTECH LIMITED CANNOT BE TREATED AS COMPARABLE AS IT DOES NOT QUALIFY THE EMPLOYEE COST FILTER AS WELL AS RPT FILTER. THI S VIEW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFEREN T BENCHES OF THIS TRIBUNAL AS STATED BELOW : A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 D) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 I) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE CO- ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. LUCID SOFTWARE LIMITED : 7.4. THE MAIN OBJECTION OF ASSESSEE WITH REGARD TO THE AFORESAID COMPANY IS THAT IT EARNS REVENUE BOTH FROM PRODUCT DEVELOPMENT AS WELL AS SOFTWARE SERVICES FO R WHICH SEGMENTAL DATA IS NOT AVAILABLE. IN SUPPORT OF S UCH CONTENTION, THE LEARNED AR HAS RELIED UPON THE DECI SION OF CO- ORDINATE BENCH IN THE CASE M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON PERUSAL OF THE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA), IT IS SEEN THAT THE CO-O RDINATE BENCH HAS EXCLUDED THE AFORESAID COMPANY ACCEPTING ASSESS EES CONTENTION THAT SEGMENTAL DATA IN RESPECT OF SALE O F PRODUCTS AND SOFTWARE SERVICES ARE NOT AVAILABLE. FURTHER FO LLOWING CASES ALSO CONSIDERED THE ABOVE COMPANY AND EXCLUDED THE SAME ON SAME REASON. A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 C) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 D) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 13 ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 I) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. FOLLOWING THE AFORESAID DECISIONS OF THE COORDINATE BENCHES, WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM L IST OF COMPARABLES. MEGASOFT LIMITED : 7.5. THE MAIN OBJECTION OF ASSESSEE WITH REGARD TO THE AFORESAID COMPANY IS THAT THIS IS PREDOMINANTLY A P RODUCT DEVELOPMENT COMPANY AND MARGIN FROM SOFTWARE DEVELO PMENT SERVICES IS 23.11%. AS CAN BE SEEN, IN CASE OF M/ S VIRTUSA (INDIA) PVT. LTD. (SUPRA), THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE CONSIDERING ASSESSEES OBJECTION WITH REGARD TO THE AFORESAID COMPANY HAD DIRECTED THE ASSESSING OFFICE R/TPO TO TAKE ONLY SEGMENTAL MARGIN OF THIS COMPANY FOR COMP UTING ALP. SIMILAR VIEW WAS ALSO EXPRESSED IN THE FOLLOWI NG CASES : A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H /2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/2011 C) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 D) TRIOLOGY E - BUSINESS SOLUTIONS ITA.NO.1054/BANG/2011 E) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 F) BEARING POINT BUS INESS ITA.NO.1124/BANG/2011 G) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 H) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 I) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 J) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 K) FIRST ADVANTAGE ITA.NO.10 86/BANG/2012 L) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. RESPECTFULLY FOLLOWING THE AFORESAID ORDERS OF CO-O RDINATE BENCHES, WE DIRECT THE ASSESSING OFFICER /TPO TO CO NSIDER ONLY THE SEGMENTAL MARGIN OF THIS COMPANY FOR THE RELEVA NT ASSESSMENT YEAR FOR COMPUTING ALP. TATA ELXSI LIMITED : 7.6. ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORE SAID COMPANY BY PLACING RELIANCE UPON THE INFORMATION FU RNISHED BY ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 14 SAID COMPANY U/S 133(6) WHEREIN THE SAID COMPANY HA S ADMITTED THAT IT CANNOT BE TREATED AS COMPARABLE WI TH ANY OTHER SOFTWARE SERVICE PROVIDER DUE TO COMPLEX NATU RE OF ITS BUSINESS. HOWEVER, WHILE THE TPO SELECTED THE AFORE SAID COMPANY BY HOLDING THAT THE SERVICES PROVIDED ARE A KIN TO SOFTWARE DEVELOPMENT SERVICES, THE DRP, DID NOT COM MENT ON THE COMPARABILITY OF THIS COMPANY. THE LEARNED AR S UBMITTED THAT COMPARABILITY OF THE AFORESAID COMPANY WAS CON SIDERED AND ANALYSED BY DIFFERENT BENCHES OF THE ITAT AND T HE AFORESAID COMPANY WAS REJECTED AS COMPARABLE TO THE SOFTWARE SERVICES PROVIDER. FOR SUCH CONTENTION, THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 B) TRIOLOGY E BUSINESS SOLUTIONS, ITA NO. 1054/BANG/2011. C) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) D) M/S. VIRTUSA (I) P. LTD. ITA.NO.1962/HYD/2011 E) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/2011. 7.6.1. THE LEARNED DR, ON THE OTHER HAND, SUPPORTE D THE ORDERS OF THE AO/TPO AND DRP IN THIS REGARD AND REFERRED TO THE OBSERVATIONS MADE BY THE TPO IN HIS ORDER. 7.6.2. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN CASE OF TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011, THE ITAT MUMBAI BENCH WHILE CONSIDERING THE COMPARABILITY OF THE AFORESAID COMPANY WITH SOFTWARE SERVICES PROVIDER HELD AS UNDER: 7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUBMISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODU CT AND DEVELOPMENT SERVICES, WHICH IS ENTIRELY DIFFERENT F ROM ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF T HE LEARNED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FRO M ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. E VEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BE EN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPA RABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT A ND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE TO TR EAT THIS COMPANY FIT FOR COMPARABILITY ANALYSIS FOR DETERMIN ING THE ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 15 ARMS LENGTH PRICE FOR ASSESSEE, HENCE, SHOULD BE EX CLUDED FROM THE LIST OF COMPARABLE PARTIES. FOLLOWING THE DECISION OF THE ITAT MUMBAI BENCH AS AFORESAID AND ALSO CONSIDERING THE FACT THAT THE COMPANY ITSELF IN THE INFORMATION PROVIDED IN RESPO NSE TO THE NOTICE ISSUED U/S 133(6) OF THE ACT HAS ADMI TTED THAT IT CANNOT BE CONSIDERED AS COMPARABLE WITH OTH ER ASSESSEES, WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES WHILE DETERMINING ALP. WIPRO LIMITED : 7.7. WHILE OBJECTING TO THE AFORESAID COMPANY BEIN G TREATED AS COMPARABLE, THE LEARNED AR SUBMITTED THA T THE TPO ONLY ON CONSIDERING SEGMENTAL DETAILS SUBMITTED BY THE SAID COMPANY FOR IT SERVICES, IN RESPONSE TO NOTICE ISSU ED U/S 133(6), HAS CONSIDERED IT AS A COMPARABLE. IT WAS S UBMITTED THAT THE AFORESAID COMPANY IS A DIVERSIFIED COMPANY AND DISCLOSES SEGMENTAL INFORMATION FOR IT SERVICES AND PRODUCTS AS ONE SEGMENT IN ITS ANNUAL REPORT. IT WAS SUBMITTED THAT THE TPO HAS NOT PROVIDED ANY OTHER DOCUMENTS EXCEPTING SEGMENTAL INFORMATION OBTAINED FROM TP REPORT OF WI PRO, WHICH IS UNAUDITED, MANUALLY CORRECTED AND UNVERIFIED. IT WAS SUBMITTED THAT WIPRO IS ALSO CONSIDERED TO BE A GIA NT IN ITS FIELD ASSUMING ALL THE RISKS AND CANNOT BE COMPARED TO CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. TO SUPPORT HIS CONT ENTIONS WITH REGARD TO NON-COMPARABILITY OF THE SAID COMPANY, HE RELIED UPON THE FOLLOWING DECISIONS : A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 B) TRINITI ADVANCES SOFTWARE P. LTD., ITA NO. 1129/H/2005. C) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) D) M/S. VIRTUSA (I) P. LTD. ITA.NO.1962/HYD/2011 E) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/2011. F) ADAPTEC (I) P. L.TD. ITA.NO.1801/HYD/2011. 7.7.1. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE DRP AS WELL AS TPO SO FAR AS THE SELECTION O F THE AFORESAID COMPANY AS COMPARABLE WHILE DETERMINING A LP. 7.7.2. WE HAVE HEARD THE SUBMISSIONS OF THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. T HE ITAT MUMBAI BENCH IN ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 16 CASE OF TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011, WHILE CONSIDERING THE OBJECTION OF ASSESSEE FOR TREATING THE AFORESAID COMPANY AS COMPARABLE HELD AS FOLLOWS: 7.5 THIS COMPANY IS ALSO A GLOBAL IT COMPANY HAVIN G VARIETIES OF SERVICE AND PRODUCTS AND LOOKING TO TH E MAGNITUDE OF ITS OPERATIONS, SALES AND EXPENSES, TH E SAME CANNOT BE TAKEN INTO CONSIDERATION FOR COMPARABILIT Y ANALYSIS. MOREOVER, 67% OF ITS SALES RELATES TO ITS PRODUCT WHICH ARE SOLD ON PREMIUM RESULTING INTO HIGHER PROFITABILITY, THEREFORE, CANNOT BE COMPARED WITH A SSESSEE COMPANY AT ALL. THERE ARE SEVERAL JUDGMENTS OF ITAT WHICH HAVE BEEN REFERRED IN PARA 6.5 ABOVE, THAT WIPRO CA NNOT BE TAKEN AS COMPARABLE CASE FOR COMPARABLE CASE WITH T HE COMPANY LIKE ASSESSEE. IN VIEW OF THESE FACTS AND T HE REASONING GIVEN IN THE CASE OF INFOSYS, WE HOLD THA T WIPRO ALSO CANNOT BE CONSIDERED AS A COMPARABILITY ANALYS IS, HENCE, WOULD NOT BE INCLUDED IN THE LIST OF THE COM PARABLE ENTITIES AS IDENTIFIED BY THE TPO. 7.7.3. AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD DURING THE YEAR UNDER CONSIDERATION, THE SEG MENTAL TURNOVER OF THE WIPRO LTD. IS 9616.09 CRORES. THERE FORE, CONSIDERING THE TURNOVER, BRAND VALUE AS WELL AS OT HER DYNAMICS OF WIPRO LTD., IT COMES IN THE SAME CATEGO RY AS INFOSYS AND CERTAINLY CANNOT BE COMPARED WITH ASSES SEE. THEREFORE, FOLLOWING OUR REASONING IN CASE OF INFOS YS TECHNOLOGIES LTD. AND OTHER COORDINATE BENCH DECISI ONS, WE HOLD THAT WIPRO LTD. CANNOT BE TREATED AS COMPARABL E WITH ASSESSEE. ACCEL TRANSMATIC LTD. : 7.8. WITH REGARD TO THIS COMPANY, THE COMPLAIN T OF ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMEN T SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI T RIBUNAL DECISION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONTENTION OF ASSESSEE THAT ACCEL TRAN SMATIC SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS O F DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. ASSESSEE SUBMI TTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 20 05-06 FROM WHICH ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 17 THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE C OMPANY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFAC TURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICK ET VENDING SYSTEM. (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE F OR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OU TSOURCED PRODUCT DEVELOPMENT. (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS)- TRA INING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEME NT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/ CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT. 7.8.1. ON CAREFUL PERUSAL OF THE BUSINESS ACTIVIT IES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH ASSESSEE THAT THE C OMPANY WAS FUNCTIONALLY DIFFERENT FROM ASSESSEE COMPANY AS IT WAS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATIO N SERVICES FOR 2D AND 3D ANIMATION AND THEREFORE ASSESSEES CLAIM THA T THIS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. IT DIRECTE D THE ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE F INAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MAR GIN. A SIMILAR VIEW WAS TAKEN IN THE FOLLOWING CASES : A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/2011. B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 D) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 E) TRANSWITCH INDIA P. LTD. IT A.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATE BENCHES OF THE TRIBUNAL, WE DIRECT THAT THIS COMPANY SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 18 KALS INFORMATION SYSTEM LIMITED : 7.9. AS FAR AS KALS INFORMATION SYSTEM LIMITED IS CONCERNED, LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT IT IS F UNCTIONALLY DIFFERENT FROM ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LE ARNED COUNSEL FOR ASSESSEE RELIED UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMI TED (SUPRA) WHEREIN AT PARAS 46 AND 47 OF ITS ORDER, THE TRIBUNAL HAS D ISCUSSED THE FUNCTIONAL DISSIMILARITY WITH ASSESSEE THEREIN AND HAS DIRECTED THAT THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COM PARABLES. SIMILARLY, THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S. HCL EAI SERVICES LTD. VS. DCIT IT(TP) A. NO. 1348/ BANG/201 1 AT PARA 17 AT PAGES 24 TO 26 OF ITS ORDER HAS DISCUSSED AT LENGTH THE REASONS FOR NOT CONSIDERING THE SAID COMPANY AS COMPARABLE TO SOFTW ARE DEVELOPMENT SERVICES COMPANY. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER : (D) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGE D IN PROVIDING TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE ANN UAL REPORT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS RS.45,93,351. THE SAME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILT ER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRI BUNALS DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT O F IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPAR ABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYST EM LTD. ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY ASSESSEE. THE APPE LLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PA PER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH T HAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND TH AT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUC TS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 19 OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJ ECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSION MADE ON BEHALF OF ASSESSEE. WE FIND THAT THE TPO HA S DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAI NED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMA TION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE B EEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE A NNUAL REPORT OF THIS COMPANY AS HIGHLIGHTED BY ASSESSEE I N ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THA T IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR ASS ESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAIN LY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF ASSESSEE THAT THIS COMPANY IS NOT COMPA RABLE. 7.9.1. WE FIND THAT BOTH M/S. HCL EAI SERVICES LTD . ITA.NO.1348/BANG/2011 AS WELL AS M/S. TRILOGY E-BUS INESS SOLUTIONS ITA.NO.1054/BANG/2011 ARE INTO SOFTWARE DEVELOPMENT SERVICES TO ITS PARENT COMPANIES. ASSESSEE IS ALSO INTO SIMILAR TYP E OF ACTIVITY. THEREFORE, THE DECISION TAKEN IN M/S. TRILOGY E-BUS INESS SOFTWARE INDIA PRIVATE LIMITED AS WELL AS M/S. HCL EAI SERVI CES LTD. TO EXCLUDE KALS INFORMATION SYSTEMS LTD. APPLIES TO THE FACTS OF THE CASE BEFORE US ALSO. SIMILAR VIEW HAS BEEN EXPRESSED BY THE COORDI NATE BENCH OF THE TRIBUNAL IN THE FOLLOWING CASES : A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/2011. B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) B EARING POINT BUSINESS ITA.NO.1124/BANG/2011 D) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 E) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 G) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCHES (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXC LUDE THE COMPANY FROM THE LIST OF COMPARABLES. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 20 18. SIMILARLY, AS CONTENDED BY THE LEARNED COUNSEL FO R ASSESSEE COMPARABLE NATURE OF FLEXTRONICS SOFTWARE SYSTEMS LTD.(S EG) AND HELIO & MATHESON INFORMATION TECH LTD., HAS BEEN REJECTED BY COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. AXSYS HEATHCARE LTD. VIDE ORDER DATED 28.5.2014 IN ITA NO.2076/HYD/2011 FOR THE ASSESSMENT YE AR 2007-08, FOR THE FOLLOWING REASONS- 14. AFTER HEARING RIVAL CONTENTIONS, WE AGREE THAT THE FOLLOWING COMPARABLES WERE EXCLUDED BY THE COORDINATE BENCHES CONSIDERING THE SIMILAR FACTS AND ARGUMENTS RAISED BEFORE US: ........................... 3. HIGH TURNOVER- FUNCTIONALLY DISSIMILAR: 6. FLEXITRONICS SOFTWARE LIMITED : ' AS FAR AS FLEXITRONICS SOFTWARE LIMITED IS CONCER NED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THA T THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRO DUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE P RODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCT IONAL DISSIMILARITY BETWEEN ASSESSEE AND THESE COMPANIES AND WITHOUT MA KING ADJUSTMENT FOR THE DISSIMILARITIES BROUGHT OUT BY T HE TPO HIMSELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPA NIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE P ROPORTIONATELY TO THE SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE P RODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREV ER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUITABLE ADJUSTME NT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH ASSESSEE- COMPANY TO BRING THEM ON PAR WITH ASSESSEE, THESE C OMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THEREF ORE, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE FROM THE LIST OF C OMPARABLES.' . 14. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD THIS COMPARABLE IS OBJECTED ON THE REASON OF LOW EMPLOYE E COST OF 1.36%. THUS IT FAILS THE EMPLOYEE COST FILTER. THER EFORE, NOT COMPARABLE. ASSESSEE RELIED ON THE JUDGMENT OF MENT OR GRAPHICS P. LTD. VS. DCIT 109 ITD 101 (DEL.) WITH REFERENCE TO THIS COMPARABLE. 15. AFTER CONSIDERING THE CONTENTIONS, WE ARE OF THE OPINION THAT THESE 14 COMPARABLES ARE REQUIRED TO BE EXCLUDED BY THE TPO. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIB UNAL, WE DIRECT THAT THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES AS ASSESSEE TURNOVER IS ONLY 2.18 CRORES AND EMPLOYEE COST IS MORE. MANY OF ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 21 THE COMPANIES ARE ALSO FOUND TO BE NOT FUNCTIONALLY SIMILAR. THE VARIOUS FILTERS AND REASONS ACCEPTED IN OTHER CASES DO APPL Y TO ASSESSEE AS TPO SELECTED SAME 26 COMPARABLES IN ALL THE CASES RELIE D ON AND DECIDED EARLIER IN VARIOUS CASES. 19. FURTHER, AS PER THE CHART FURNISHED BEFORE US, SIMI LAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCHES OF THE TRIBUNAL IN SIMILAR MATTERS, WHEREIN COMPARABLE NATURE OF ABOVE ELEVEN COMPANIES HA S COME UP FOR CONSIDERATION, SUCH AS- (A) M/S. AXSYS HEALTHCARE LTD. (ITA NO.2076/HYD/2011) (B) M/S.VIRTUSA (I) P. LTD. (ITA NO.1962/HYD/2011) (C) M/S. CONTEXANT SYSTEM INDIA PVT. LTD.(ITA NOS.1978/HYD/2011) (D) INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO.2102/HYD/201 0) (E) TRIOLOGY E BUSINESS SOLUTIONS (ITA NO.1054/BANG/2011) (F) TELCORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) (G) LG SOFT INDIA PVT. LTD. (ITA NO.1121/BANG/2011) (H) TRANSWITCH INDIA PVT. LTD. (ITA NO.948/BANG/2011) (I) MERCEDES BENZ RESEARCH & DEVELOPMENT (ITA NO.1222/BANG - - /2011) (J) CSR INDIA PVT. LTD. (ITA NO.1119/BANG/2011) (K) FIRST ADVANTAGE (ITA NO.1086/BANG/2012) (L) HCL EAI SERVICES LTD. (ITA NO.1348/BANG/2011) (M) ADAPTEE (INDIA ) PVT. LTD.(ITA NO.1801/HYD/2011) 20. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL WITH REGARD TO COMPARABLE NATURE OF THE ABO VE SEVEN COMPANIES IN SIMILAR MATTERS AND MORE PARTICULARLY, THE DECISION O F THE TRIBUNAL IN THE CASE OF SUMTOTAL SYSTEMS INDIA PRIVATE LTD. CITED SUPRA, INCLUDING THE DECISION RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 06-07, ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 22 WE ALLOW GROUND NO.7 OF ASSESSEE ALONG WITH ADDITIONAL GROUND AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE ABOVE ELEVEN COMPANI ES FROM THE SCOPE OF COMPARABILITY ANALYSIS. 21. THE NEXT EFFECTIVE GRIEVANCE OF ASSESSEE THAT SURVIVE S FOR CONSIDERATION RAISED IN GROUND NO.8 IN THIS APPEAL, AS N OTED ABOVE, RELATES TO THE EXCLUSION OF THE FOLLOWING COMPARABLE COMPANIES SE LECTED BY ASSESSEE, BUT REJECTED BY THE TPO/DRP- (A) AZTECSOFT LIMITED (B) BIRLA TECHNOLOGIES LIMITED (C) GOLDSTONE TECHNOLOGIES LIMITED (D) INDIUM SOFTWARE INDIA LIMITED (E) LARSEN & TOUBRO INFOTECH LIMITED (F) PSI DATA SYSTEMS LIMITED (SEG.) (G) V M F SOFTECH LIMITED ASSESSEE HAS NOT PRESSED THE ISSUE WITH REFERENCE TO M/S GOLDST ONE TECHNOLOGIES LTD. ACCORDINGLY WE EXCLUDE THE SAME FROM CO NSIDERATION. 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD, INCLUDING TH E PAPER-BOOKS AND DETAILED FILED BY ASSESSEE. 23. WE FIND THAT THE ISSUE RELATING TO COMPARABLE NA TURE OF BALANCE SIX COMPANIES, HAS COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ITSELF, IN THE CASE OF SUMTOTAL SY STEMS INDIA P. LTD., HYDERABAD IN ITA NO.1710/HYD/2011, WHEREIN THE TRIBUNAL VIDE ITS ORDER DATED 9.5.2014 HAS REJECTED THE CONTENTIONS OF ASSE SSEE FOR INCLUSION OF ALL THE SIX COMPANIES UNDER CONSIDERATION BEF ORE IT. RELEVANT ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 23 PORTION OF THE SAID ORDER OF THE TRIBUNAL, BEING PAR A 8 THEREOF, READS AS UNDER- 8. IN GROUND NO. 8, ASSESSEE HAS CHALLENGED THE AC TION OF THE TPO IN REJECTING CERTAIN COMPARABLES SELECTED BY ASSESS EE, WHICH ARE AS UNDER: 1. AZTEC SOFT LTD. 2. BIRLA TECHNOLOGIES LTD. 3. INDIUM SOFTWARE INDIA LTD. 4. LARSEN & TOUBRO INFOTECH. 5. PSI DATA SYSTEMS LTD. (SEG) 6. VMF SOFTECH LTD. 8.1. WITH REFERENCE TO INCLUSION OF THESE COMPARABL ES, ASSESSEES CONTENTIONS ARE THAT RELATED PARTY TRANSACTIONS IN THE CASE OF AZTEK AND BIRLA TECHNOLOGIES ARE WITHIN THE FILTERS APPLI ED BY THE TPO AND WITH REFERENCE TO INDIUM SOFTWARE P. LTD. AND L & T INFOTECH, THEY ARE FUNCTIONALLY SIMILAR. IT WAS THE SUBMISSION BY THE LD. COUNSEL THAT THEY ARE NOT FUNCTIONALLY DIFFERENT AND TPO SH OULD HAVE CONSIDERED SEGMENTALS FROM THE DETAILS FURNISHED BY ASSESSEE. IN THE CASE OF L & T INFOTECH., EVEN THOUGH INFORMATIO N WAS NOT RECEIVED UNDER SECTION 133(6), IT WAS THE SUBMISSIO N THAT THIS COMPANY ALSO SHOULD BE CONSIDERED AS THE COMPARABLE . AS FAR AS PSI DATA SYSTEMS LTD. ARE CONCERNED, THE TPO IS REJECTE D THE COMPARISON ON THE RELATED PARTY TRANSACTIONS FILTER . IT WAS THE SUBMISSION THAT RPT WAS WORKED OUT BY INCLUDING REI MBURSEMENT TRANSACTIONS. WITH REFERENCE TO VMF SOFT TECH, THE TPO HAS REJECTED IT AS THERE ARE NO FOREIGN EXCHANGE EARNINGS, WHERE AS, IT WAS THE SUBMISSION THAT ASSESSEE HAS 93% OF FOREIGN EXCHANG E REVENUES. IT WAS THE SUBMISSION THAT ABOVE COMPANIES ARE TO BE S ELECTED AS COMPARABLES. 8.2. AFTER CONSIDERING THE SUBMISSIONS, WE ARE OF T HE OPINION THAT PROPER CASE WAS NOT MADE OUT FOR INCLUSION OF THE A BOVE COMPARABLES. ONCE TPO AND DRP FORMS THAT THESE COMP ARABLES ARE NOT FUNCTIONALLY SIMILAR TO ASSESSEE ON THE BASIS O F VARIOUS FILTERS ADOPTED BY THE TPO, IT WOULD BE BETTER IF THE MATTE R IS LEFT LIKE THAT RATHER THAN ORDERING FRESH ENQUIRY. WE ALSO NOTICED THAT THESE COMPANIES HAVE RELATED PARTY TRANSACTIONS AND THERE FORE, MAY NOT JUSTIFY ON VARIOUS FILTERS ADOPTED. AS FAR AS INDIU M SOFTWARE INDIA LTD. THERE IS A FINDING THAT THIS COMPANY IS FUNCTI ONALLY DIFFERENT. L & T INFOTECH ALSO FOUND TO BE FUNCTIONALLY DIFFERENT. MOREOVER, IT HAS MORE THAN RS.600 CRORES TURNOVER AND MAY FAIL ON TU RNOVER FILTER, EVEN THOUGH TURNOVER FILTER WAS NOT APPLIED IN THIS CASE. WHEN SPECIFIC 133(6) NOTICE WAS ISSUED, THAT ASSESSEE HA S NOT TO RESPONDED AND THEREFORE, TPO WAS NOT IN A POSITION TO INCLUDE THE ABOVE CASE IN THE ABSENCE OF SEGMENTAL DATA. PSI DA TA SYSTEMS ALSO IN OUR VIEW NEED NOT BE CONSIDERED AS IT HAS RELATE D PARTY ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 24 TRANSACTIONS. IT REQUIRES ANALYSIS OF SEGMENTAL DAT A TO NOTICE WHETHER IT HAS RELATED PARTY TRANSACTIONS. EVEN WIT H REFERENCE TO SOFTWARE DEVELOPMENT SERVICES, SINCE THERE IS ALREA DY A FINDING BY THE TPO ON THIS ISSUE, WE ARE OF THE OPINION THAT T HERE IS NO NEED TO CONSIDER THE ABOVE COMPARABLE AT THIS STAGE. SO FAR AS THE VMF SOFTWARE LTD. IS CONCERNED, EVEN THOUGH THIS COMPAN Y MAY BE INCLUDABLE ON THE BASIS OF FOREIGN EXCHANGE EARNING S BEING 93% OF THE REVENUE, IT WAS REJECTED IN THE CASE OF VIRTUSA INDIA P. LTD. ITA.NO.1962/HYD/2011, WHEREIN IT WAS RECORDED THAT T HERE WAS A SPECIFIC FINDING THAT AFTER ENQUIRY BEING CONDUCTED , IT WAS FOUND THAT COMPANY WAS TAKEN UP BY ONE KELTON SECTOR P. LTD. A ND INSPITE OF BEING CALLED, THE COMPANY WAS FAILED TO PRODUCE ITS CASH BOOK LEDGER PARTICULARS OF SALARY PAID ETC. HENCE, GENUINENESS OF THE COMPANY AND ITS ACTIVITIES ARE DOUBTED. THIS FINDING HAS NO T BEEN CONTROVERTED BY ASSESSEE IN THAT CASE. CONSIDERING THE FACTS, TH E COORDINATE BENCH FELT THAT THE AFORESAID COMPANY HAS BEEN RIGH TLY REJECTED AS COMPARABLE. SINCE SAME FACTS EXISTS WE ARE ALSO OF THE OPINION THAT THE AFORESAID COMPANY HAS BEEN RIGHTLY REJECTED, AS COMPARABLE, EVEN THOUGH ON A DIFFERENT FILTER APPLIED BY THE TP O. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT THERE IS NO NEED TO CONSIDER ANY OF THE COMPARABLES, ALREADY REJECTED BY THE TPO/DRO FO R THE REASONS STATED ABOVE. 23.1 RESPECTFULLY FOLLOWING THE ABOVE, WE ARE OF TH E OPINION THAT ASSESSEE HAS NOT MADE OUT A PROPER CASE FOR INCLUSION OF ABO VE COMPARABLES. ACCORDINGLY WE REJECT GROUND NO 8 RAISED BY ASSESSEE. 24. THE OTHER GROUND THAT SURVIVES FOR CONSIDERATION I S GROUND NO.12. IT RELATES TO COMPUTATION OF DEDUCTION UNDER S .10A BY REDUCING THE COMMUNICATION CHARGES OF RS.9,79,218 FROM THE EXPORT T URNOVER CONSIDERING IT AS ATTRIBUTABLE TO THE DELIVERY OF COMP UTER SOFTWARE OUTSIDE INDIA, BUT NOT REDUCING THE SAME FROM THE TOTAL TURN OVER. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED POSITION OF LAW THAT THE COMMUNICATION CHARGES HAVE TO BE EXCLUDED FROM THE EXP ORT TURNOVER, AND THE ISSUE THAT REMAINS TO BE CONSIDERED IS WHETHER IT HAS TO BE REDUCED FROM THE TOTAL TURNOVER AS WELL, IN THE COMPUTATION OF DEDUCTION UNDER S.10A. THIS ISSUE OF DEDUCTIBILITY OF COMMUNICATION CHARGES FROM TOTAL ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 25 TURNOVER AS WELL, IS ALSO COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. GEMPLUS JEWELLERY ( 330 ITR 175) AND SPECIAL BENCH (CHENNAI ) DECISION OF THIS TRIBUNAL IN TH E CASE OF ITO V/S. SAKSOFT LTD. (313 ITR AT 353) (SB). FOLLOWING THESE D ECISIONS OF THE HON'BLE BOMBAY HIGH COURT AND THE SPECIAL BENCH, COORDIN ATE BENCHES OF THIS TRIBUNAL IN SIMILAR CASES, INCLUDING IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.1500/HYD/2010, REFERRE D TO ABOVE, HAVE DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE COMMUNIC ATION CHARGES FROM EXPORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER S.10A OF THE ACT. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GEMPLUS JEWELLERY (SUPRA), WE ALLOW THIS GROUND OF ASSESSEE AND D IRECT THE ASSESSING OFFICER TO REDUCE THE COMMUNICATION CHARGES FROM EX PORT TURNOVER AS WELL AS TOTAL TURNOVER WHILE COMPUTING DED UCTION UNDER S.10A OF THE ACT. 26. IN THE RESULT, ASSESSEES APPEAL, ITA NO.1658/HYD./2 011 FOR ASSESSMENT YEAR 2007-08, IS TREATED AS PARTLY ALLOWED. REVENUES APPEAL : ITA NO.12329/HYD/2013 : ASSESSMENT YEAR 2007-08 27. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 7.6.2013, WH EREBY HE CANCELLED THE PENALTY OF RS.70,43,668 IMPOSED BY THE ASSE SSING OFFICER UNDER S.271(1)(C) FOR THE ASSESSMENT YEAR 2007-08. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES. THE ASSESSI NG OFFICER, OBSERVING THAT BUT FOR THE REFERENCE MADE TO THE TRAN SFER PRICING OFFICER, THE INCOME CORRECTLY ASSESSABLE IN THE HANDS OF ASSESSEE, WOUL D HAVE ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 26 ESCAPED ASSESSMENT, AND TREATING THE TRANSFER PRICING ADJU STMENT OF RS.2,07,22,767 MADE IN THE ASSESSMENT ULTIMATELY MADE B Y THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RE SOLUTION PANEL, FOR THE YEAR UNDER CONSIDERATION, AS THE CONCEALED INCOME OF ASSESSEE, INITIATED THE PROCEEDINGS FOR LEVY OF PENALTY UNDER S.271(1)(C) OF THE ACT. NOT SATISFIED WITH THE EXPLANATION OF ASSESSEE IN RESPONSE TO THE PENALTY NOTICE, ASSESSING OFFICER PROCEEDED TO IMPOSE A MINIMUM PEN ALTY OF RS.70,43,668, VIDE ORDER OF PENALTY DATED 22.3.2012 PASSED UNDER S.271(1)(C) OF THE ACT. THE CIT(A), ON APPEAL, CANCELL ED THE SAID PENALTY, OBSERVING THAT THE DETERMINATION OF THE ARMS LENGTH PRICE IS A RESULT OF AN ESTIMATION ON THE BASIS OF DIFFERENT VARIABLES BY BOTH ASSESSEE AND THE ASSESSING OFFICER, AND THE DIFFERENCE IN THE VALUE OF ARM S LENGTH PRICE ARRIVED AT BY THE ASSESSING OFFICER WAS DUE TO ITS RE-WORK ING BY USING DIFFERENT FILTERS AND CONSEQUENTLY DIFFERENT COMPARABLE S. THIS DIFFERENCE IS MERELY A DIFFERENCE OF OPINION, WHICH CANNOT BE TERME D AS CONCEALMENT OF INCOME ON THE PART OF ASSESSEE. FURTHER OBSERVING THAT THERE IS NO SUGGESTION IN THE TPOS ANALYSIS OR THE ASSESSMENT OR PENAL TY ORDERS THAT THERE WAS ANY INACCURACY OR INCORRECT IN THE INFORMATION SUBMITTED BY ASSESSEE, AND RELYING ON THE DECISION OF THE SUPREME COUR T IN THE CASE OF CIT V/S. RELIANCE PETRO-PRODUCTS PVT. LTD.(322 ITR 158) , THE CIT(A) CANCELLED THE IMPUGNED PENALTY. WE DO NOT FIND ANY IN FIRMITY IN THE REASONING GIVEN BY THE CIT(A) FOR CANCELLING THE IMPU GNED PENALTY LEVIED BY THE ASSESSING OFFICER, THE RATIO LAID DOWN BY THE APE X COURT IN THE CASE OF RELIANCE PETRO-PRODUCTS P. LTD. (SUPRA) SQUARELY APPL IES TO THE FACTS OF THE PRESENT CASE. MORE OVER WE HAVE ADJUDICATED INCLUSIO N OF COMPARABLES IN ASSESSEE APPEAL ABOVE. THEREFORE, WE ARE OF THE OPIN ION THAT FACTS DO NOT CALL FOR LEVY OF PENALTY, LEAVE ALONE CONCEALMENT PENALTY. WE ACCORDINGLY UPHOLD HIS ORDER AND REJECT THE GROUNDS OF T HE REVENUE IN THIS APPEAL. ITA NO.1658/HYD/2011 & 1239/HYD/2013 M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) PVT. LTD., HYDERABAD 27 29. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 30. TO SUM UP, APPEAL OF ASSESSEE IS TREATED AS PARTLY AL LOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24 TH SEPTEMBER 2015. SD/- SD/- (P.MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- 24 TH SEPTEMBER, 2015 COPY FORWARDED TO: 1. M/S. UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) P VT. LTD., 6-3- 1099/1100 1 ST & 6 TH FLOOR, BBUKHANS MILLENNIUM CENTRE, SOMAJIGUDA, HYDERABAD 500 082. 2. INCOME TAX OFFICER WARD 3(2) HYDERABAD 3. DISPUTES RESOLUTION PANEL, HYDERABAD 4. COMMISSIONER OF INCOME-TAX III, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S