Appeal details
Counselvise Citation
167721114 RSA 2012
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-05-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2008-2009
Appeal Filed On
27-12-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER IT(TP)A NO.1677/BANG/2012 ASSESSMENT YEAR : 2008-09 M/S.APTEAN SOFTWARE INDIA PVT. LTD. (FORMERLY KNOWN AS CDS SOFTWARE INDIA PVT.LTD.), LEVEL-5 (8 TH FLOOR), GOLDEN HEIGHTS NO.1/2, 59 TH C CROSS ROAD, 4 TH M BLOCK, RAJAJI NAGAR, BANGALORE 560 010. PAN : AACCP7154M VS. THE INCOME TAX OFFICER, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PRASHANTH G.S., CA RESPONDENT BY : SHRI C.H.SUNDAR RAO, CIT-I(DR) DATE OF HEARING : 21.04.2015 DATE OF PRONOUNCEMENT : 08.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER 2. IT(TP)A NO.1277/BANG/2012 IS AN APPEAL BY THE AS SESSEE AGAINST THE ORDER DATED 28.9.2010 THE ITO, WARD 11(1), BANG ALORE PASSED U/S. 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (ACT ), IN RELATION TO A.Y.2008-09. IT(TP)A NO.1677/BANG/2012 PAGE 2 OF 38 3. GROUND NO.1 IS GENERAL IN NATURE AND CALLS FOR N O SPECIFIC ADJUDICATION. 4. GROUNDS NO.2 TO 4 RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL PROJECT THE GRIEVANCE OF THE ASSESSEE REGARDING THE ACTION OF THE LEARNED ASSESSING OFFICER AND HON ORABLE DISPUTE RESOLUTION PANEL MAKING AN ADDITION TO THE TOTAL IN COME BY WAY OF ADJUSTMENT TO THE ARMS LENGTH PRICE ( ALP ) TO AN INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESSEE U/S. 92CA O F THE ACT. AT THE TIME OF HEARING OF THE APPEAL IT WAS SUBMITTED THAT THE COM PARABLE COMPANIES CHOSEN BY THE TPO AND THE ADDITION MADE BY THE AO I N THE DRAFT ASSESSMENT ORDER WHICH WAS CONFIRMED BY THE DRP ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL IN ITA NO.1054/BANG/2011 FOR AY 07- 08 IN M/S.TRIOLOGY E-BUSINESS SOFTWARE INDIA PVT.LT D. VS. DCIT, CIRCLE 12(4), BANGALORE AND 3DPLM SOFTWARE SOLUTIONS LTD. VS. DCIT 42 TAXMANN.COM 333 (BANG-TRIB). IT WAS ALSO SUBMIT TED THAT THE BUSINESS PROFILE OF THE ASSESSEE AND THAT OF THE ASSESSEE IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) AND TRILOGY E-BUSIN ESS (SUPRA) WERE ALSO IDENTICAL. THIS SUBMISSION WAS FOUND TO BE CORRECT AT THE TIME OF HEARING. WITH THIS BACKGROUND WE WILL NOW CONSIDER THE FACTU AL BASIS OF THE PRESENT CASE AND THE DECISION RENDERED REFERRED TO BY THE L EARNED COUNSEL FOR THE ASSESSEE BEFORE US. IT(TP)A NO.1677/BANG/2012 PAGE 3 OF 38 5. THE ASSESSEE IS A COMPANY. IT RENDERED SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISE (AE). THERE IS NO DISPUTE THAT THE SAID TRANSACTION WAS AN INTERNATIONAL TRANSACTION W ITH AN AE AND THEREFORE THE PRICE RECEIVE BY THE ASSESSEE FOR RENDERING SUC H SERVICES HAS TO PASS THE ARMS LENGTH PRICE (ALP) TEST AS LAID DOWN IN S EC.92 OF THE ACT. DURING THE FINANCIAL YEAR 2005-06, THE ASSESSEE PRO VIDED SOFTWARE DEVELOPMENT SERVICES TO ITS AE AND WAS REMUNERATED ON A COST PLUS BASIS. THE TOTAL VALUE OF INTERNATIONAL TRANSACTIO N WITH RESPECT TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES BY THE A SSESSEE TO ITS AE WAS RS. 25,95,25,941. 6. IN SUPPORT OF THE ASSESSEES CLAIM THAT THE PRIC E CHARGED BY IT FOR SERVICES RENDERED TO ITS AE WAS AT ARMS LENGTH, TH E ASSESSEE FILED A REPORT AS REQUIRED BY THE PROVISIONS OF SECTION 92E OF THE ACT IN FORM 3EB TOGETHER WITH DETAILED ANALYSIS. THE ASSESSEE ADOP TED TRANSACTION NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. OPERATING PROFITS TO COST WAS ADOPTED AS THE PROFIT LEVEL INDICATOR ( PLI ). THE PLI OF THE ASSESSEE WAS ARRIVED AT 12.28% . THE ASSESSEE IN ITS TRANSFER PRICING ANALYSIS HAD SELECTED 14 CO MPARABLE COMPANIES AND ARRIVED AT ARITHMETIC MEAN OF THE PROFIT MARGIN OF THE SAID COMPARABLE COMPANIES AT 16.00% AND CLAIMED THAT THE PRICE IT C HARGED WAS AT ARMS LENGTH. IT(TP)A NO.1677/BANG/2012 PAGE 4 OF 38 7. THE TPO ARRIVED AT A FINAL SET OF 20 COMPARABLE. THE SET OF 20 COMPARABLE AND THEIR PROFIT MARGIN ARE GIVEN AS ANNEXURE-1 TO THIS ORDER . 8. THE ASSESSEE RAISED VARIOUS OBJECTIONS TO THE ME THODOLOGY ADOPTED AND THE REASONS ASSIGNED BY THE TPO FOR REJECTING T HE COMPARABLES CHOSEN BY THE ASSESSEE IN ITS TP STUDY. THE TPO FINALLY PASSED AN ORDER U/S. 92CA OF THE ACT AND ON THE BASIS OF THE COMPAR ABLES SET OUT IN ANNEXURE-1 TO THIS ORDER, ARRIVED AT ARITHMETIC MEAN OF 23.65 %. AFTER FACTORING THE WORKING CAPITAL ADJUSTMENT OF 4.59%, THE ADJUSTED ARITHMETIC MEAN WAS DETERMINED AT 19.06%. THE COMPUTATION OF THE ALP BY THE TPO IN THIS REGARD WAS AS FOLLOWS:- 12.5 COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXURE B FOR DETA ILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON TH IS, THE ARMS LENGTH PRICE OF THE SOFTWARE DEVELOPMENT SERVICES R ENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI 23.65% LESS: WORKING CAPITAL ADJUSTMENT (ANNEXURE-C) 4.59% ADJ.ARITHMETIC MEAN PLU 19.06% OPERATING COST RS.23,11,27,739 ARMS LENGTH MARGIN 19.06% OF THE OPERATING COST ARMS LENGTH PRICE (ALP) AT 119.06% OF OPERATING RS.27,51,80,686 IT(TP)A NO.1677/BANG/2012 PAGE 5 OF 38 COST PRICE RECEIVED SHORTFALL BEING ADJUSTMENT U/S.92CA RS.25,95,25,941 RS.1,56,54,745 THE ABOVE SHORTFALL OF RS.1,56,54,745/- IS BEING TREATED AS AN ADJUSTMENT TO THE PRICE SHOWN BY THE TAX PAYER IN I TS BOOKS OF ACCOUNT. 9. AGAINST THE SAID ADJUSTMENT PROPOSED BY THE TPO WHICH WAS INCORPORATED IN THE DRAFT ASSESSMENT ORDER BY THE A O, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. THE DRP REJECTED THOSE O BJECTIONS AND CONFIRMED THE TRANSFER PRICING ADJUSTMENT SUGGESTED BY THE TPO. THE ADJUSTMENT CONFIRMED BY THE DRP WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE BY THE AO IN THE FAIR ORDER OF ASSESSMENT. AGAINST THE SAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRE D THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT OUT OF THE 20 COMPARABLE COMPANIES CHOSEN BY THE TPO, THE FOL LOWING COMPANIES WILL HAVE TO BE EXCLUDED AS THE TURNOVER OF THESE C OMPANIES ARE MORE THAN RS.200 CRORES AS CAN BE SEEN FROM THE CHART GIVEN A S ANNEXURE-1 TO THIS ORDER AND CANNOT BE COMPARED WITH THE ASSESSEE WHOS E TURNOVER IS LESS THAN RS.30 CRORES:- (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. (2) IGATE GLOBAL SOLUTIONS LTD. (3) MINDTREE LTD. IT(TP)A NO.1677/BANG/2012 PAGE 6 OF 38 (4) PERSISTENT SYSTEMS LTD. (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) (6) INFOSYS TECHNOLOGIES LTD. (7) TATA ELXSI OUR ATTENTION WAS DRAWN TO THE OBSERVATIONS OF THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA) ON THE APPLICATION OF TURNOVER FILTER AND IT WAS SUBMITTED THAT THE AFORE SAID COMPARABLE COMPANIES HAVE TO BE EXCLUDED FROM THE FINAL LIST O F COMPARABLES SELECTED BY THE TPO. 11. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D COUNSEL FOR THE ASSESSEE AND THE LEARNED DR. IN THE CASE OF TRILOG Y E-BUSINESS SOFTWARE INDIA (P) LTD. (SUPRA), THIS TRIBUNAL ON APPLICATIO N OF THE TURNOVER FILTER WHILE SELECTING COMPARABLE COMPANIES FOR COMPARABILITY AN ALYSIS HELD AS FOLLOWS:- (1) TURNOVER FILTER 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TPO HAS APPLIED A LOWER TURNOVER FILTER OF RS. 1 CRORE, BUT HAS NOT CHOSEN TO APPLY ANY UPPER TURNOVER LIMIT. IN THIS REGARD, IT WAS SUBMITTED BY HIM THAT UNDER RULE 10B(3) TO THE INCO ME-TAX RULES, IT WAS NECESSARY FOR COMPARING AN UNCONTROLLED TRAN SACTION WITH AN INTERNATIONAL TRANSACTION THAT THERE SHOULD NOT BE ANY DIFFERENCE BETWEEN THE TRANSACTIONS COMPARED OR THE ENTERPRISES ENTERING INTO SUCH TRANSACTION, WHICH ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID OR PROFIT ARISING FROM SUCH TRANSACTION IN THE OPEN MARKET. FURTHER IT IS ALSO NECESSARY TO SEE THAT WHEREVER THERE ARE SOME DIFFERENCES SUCH DIFFE RENCES SHOULD BE CAPABLE OF REASONABLE ACCURATE ADJUSTMENT IN MON ETARY TERMS TO ELIMINATE THE EFFECT OF SUCH DIFFERENCES. IT WA S HIS SUBMISSION THAT SIZE WAS AN IMPORTANT FACET OF THE COMPARABILI TY EXERCISE. IT IT(TP)A NO.1677/BANG/2012 PAGE 7 OF 38 WAS SUBMITTED THAT SIGNIFICANT DIFFERENCES IN SIZE OF THE COMPANIES WOULD IMPACT COMPARABILITY. IN THIS REGA RD OUR ATTENTION WAS DRAWN TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT CHANDIGARH BENCH IN THE CASE OF DCIT V. QUARK SYSTEMS PVT. LTD. 38 SOT 207 , WHEREIN THE SPECIAL BENCH HAD LAID DOWN THAT IT IS IMPROPER TO PROCEED ON THE BASIS OF LOWE R LIMIT OF 1 CRORE TURNOVER WITH NO HIGHER LIMIT ON TURNOVER, AS THE SAME WAS NOT REASONABLE CLASSIFICATION. SEVERAL OTHER DECIS IONS WERE REFERRED TO IN THIS REGARD LAYING DOWN IDENTICAL PR OPOSITION. WE ARE NOT REFERRING TO THOSE DECISIONS AS THE DECISIO N OF THE SPECIAL BENCH ON THIS ASPECT WOULD HOLD THE FIELD. REFEREN CE WAS ALSO MADE TO THE OECD TP GUIDELINES, 2010 WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS:- SIZE CRITERIA IN TERMS OF SALES, ASSETS OR NUMBER OF EMPLOYEES: THE SIZE OF THE TRANSACTION IN ABSOLUTE VALUE OR IN PROPORTION TO THE ACTIVITIES OF THE PARTIES M IGHT AFFECT THE RELATIVE COMPETITIVE POSITIONS OF THE BUYER AND SELLER AND THEREFORE COMPARABILITY. 12. THE ICAI TP GUIDELINES NOTE ON THIS ASPECT LAY DOWN IN PARA 15.4 THAT A TRANSACTION ENTERED INTO BY A RS. 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENT ERED INTO BY A RS. 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASON S ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIE S OF SCALE UNDER WHICH THEY OPERATE. THE FACT THAT THEY OPERA TE IN THE SAME MARKET MAY NOT MAKE THEM COMPARABLE ENTERPRISES. T HE RELEVANT EXTRACT IS AS FOLLOWS [ON RULE 10B(3)]: CLAUSE (I) LAYS DOWN THAT IF THE DIFFERENCES ARE N OT MATERIAL, THE TRANSACTIONS WOULD BE COMPARABLE. THESE DIFFERENCES COULD EITHER BE WITH REFERENCE TO THE TRANSACTION OR WITH REFERENCE TO THE ENTERPRISE . FOR INSTANCE, A TRANSACTION ENTERED INTO BY A RS 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INTO BY A RS 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF THE TWO COMPANIES AND THE RELATIVE ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. 13. IT WAS FURTHER SUBMITTED THAT THE TPOS RANGE ( RS. 1 CRORE TO INFINITY) HAS RESULTED IN SELECTION OF COMPANIES LIKE INFOSYS WHICH IS 277 TIMES BIGGER THAN THE ASSESSEE (TURNOV ER OF RS. 13,149 CRORES AS COMPARED TO RS. 47.47 CRORES OF AS SESSEE). IT IT(TP)A NO.1677/BANG/2012 PAGE 8 OF 38 WAS SUBMITTED THAT AN APPROPRIATE TURNOVER RANGE S HOULD BE APPLIED IN SELECTING COMPARABLE UNCONTROLLED COMPAN IES. 14. REFERENCE WAS MADE TO THE DECISION OF THE ITA T BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010 , WHEREIN RELYING ON DUN AND BRADSTREETS ANALYSIS, THE TURNO VER OF Q 1 CRORE TO Q 200 CRORES WAS HELD TO BE PROPER. THE F OLLOWING RELEVANT OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS AND ALSO THE JUDICIAL PRECEDE NTS ON THE ISSUE, WE FIND THAT THE TPO HIMSELF HAS REJECTE D THE COMPANIES WHICH .IRE (SIC) MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A LIMIT FOR T HE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITU ATION, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER LIMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSIDERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD B E IN A POSITION TO BARGAIN THE PRICE AND ALSO ATTRACT MO RE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILL ED EMPLOYEES WHO ARE ABLE TO GIVE BETTER OUTPUT. A SMA LL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PROFIT MARGI N. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNA L, WHEN COMPANIES WHICH ARC LOSS MAKING ARE EXCLUDED FROM COMPARABLES, THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FOR THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SAL ES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HAS TO BE MADE. DUN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCEN ARIO INTO CONSIDERATION, WE FEEL THAT THE CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE. I N VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPORTANT AND THE COMPANIES HAVING A TURNOVER OF RS.1.00 CRORE TO 200 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RAN GE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO HAVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. IT(TP)A NO.1677/BANG/2012 PAGE 9 OF 38 15. IT WAS BROUGHT TO OUR NOTICE THAT THE ABOVE PRO POSITION HAS ALSO BEEN FOLLOWED BY THE HONOURABLE BANGALORE ITAT IN THE FOLLOWING CASES: 1. M/S KODIAK NETWORKS (INDIA) PRIVATE LIMITED VS. ACIT (ITA NO.1413/BANG/2010) 2. M/S GENESIS MICROCHIP (I) PRIVATE LIMITED VS. D CIT (ITA NO.1254/BANG/20L0). 3. ELECTRONIC FOR IMAGING INDIA PRIVATE LIMITED (I TA NO. 1171/BANG/2010). IT WAS FINALLY SUBMITTED THAT COMPANIES HAVING TURN OVER MORE THAN RS. 200 CRORES OUGHT TO BE REJECTED AS NOT COM PARABLE WITH THE ASSESSEE. 16. THE LD. DR, ON THE OTHER HAND POINTED OUT THAT EVEN THE ASSESSEE IN ITS OWN TP STUDY HAS TAKEN COMPANIES HA VING TURNOVER OF MORE THAN Q 200 CRORES AS COMPARABLES. IN THESE CIRCUMSTANCES, IT WAS SUBMITTED BY HIM THAT THE ASS ESSEE CANNOT HAVE ANY GRIEVANCE IN THIS REGARD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE PROVISIONS OF THE ACT AND THE RULES THAT ARE RELEVANT FOR DECI DING THE ISSUE HAVE TO BE FIRST SEEN. SEC.92. OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SEC.92-B PROVIDES THAT INTERNATIONAL TRANSACTION MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR L ENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTER PRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORT IONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED O R TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERP RISES. SEC.92- A DEFINES WHAT IS AN ASSOCIATED ENTERPRISE. IN THE PRESENT CASE THERE IS NO DISPUTE THAT THE TRANSACTION BETWEEN TH E ASSESSEE AND ITS AE WAS AN INTERNATIONAL TRANSACTION ATTRACTING THE PROVISIONS OF SEC.92 OF THE ACT. SEC.92C PROVIDES THE MANNER OF COMPUTATION OF ARMS LENGTH PRICE IN AN INTERNATION AL TRANSACTION AND IT PROVIDES:- IT(TP)A NO.1677/BANG/2012 PAGE 10 OF 38 (1) THAT THE ARMS LENGTH PRICE IN RELATION TO AN I NTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLO WING METHODS, BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASS OCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHE R RELEVANT FACTORS AS THE BOARD MAY PRESCRIBE, NAMELY : ( A ) COMPARABLE UNCONTROLLED PRICE METHOD; ( B ) RESALE PRICE METHOD; ( C ) COST PLUS METHOD; ( D ) PROFIT SPLIT METHOD; ( E ) TRANSACTIONAL NET MARGIN METHOD; ( F ) SUCH OTHER METHOD AS MAY BE PRESCRIBED BY THE BOA RD. (2) THE MOST APPROPRIATE METHOD REFERRED TO IN SUB- SECTION (1) SHALL BE APPLIED, FOR DETERMINATION OF ARMS LENGTH PRICE, IN THE MANNER AS MAY BE PRESCRIBED: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHA LL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNAT IONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT E XCEED FIVE PER CENT OF THE LATTER, THE PRICE AT WHICH THE INTERNAT IONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. (3) WHERE DURING THE COURSE OF ANY PROCEEDING FOR T HE ASSESSMENT OF INCOME, THE ASSESSING OFFICER IS, ON THE BASIS O F MATERIAL OR INFORMATION OR DOCUMENT IN HIS POSSESSION, OF THE O PINION THAT ( A ) THE PRICE CHARGED OR PAID IN AN INTERNATIONAL TRA NSACTION HAS NOT BEEN DETERMINED IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2); OR ( B ) ANY INFORMATION AND DOCUMENT RELATING TO AN INTER NATIONAL TRANSACTION HAVE NOT BEEN KEPT AND MAINTAINED BY TH E ASSESSEE IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-SEC TION (1) OF SECTION 92D AND THE RULES MADE IN THIS BEHALF; OR ( C ) THE INFORMATION OR DATA USED IN COMPUTATION OF TH E ARMS LENGTH PRICE IS NOT RELIABLE OR CORRECT; OR IT(TP)A NO.1677/BANG/2012 PAGE 11 OF 38 ( D ) THE ASSESSEE HAS FAILED TO FURNISH, WITHIN THE SP ECIFIED TIME, ANY INFORMATION OR DOCUMENT WHICH HE WAS REQUIRED T O FURNISH BY A NOTICE ISSUED UNDER SUB-SECTION (3) OF SECTION 92D, THE ASSESSING OFFICER MAY PROCEED TO DETERMINE THE ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSAC TION IN ACCORDANCE WITH SUB-SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM: 18. RULE 10B OF THE IT RULES, 1962 PRESCRIBES RULES FOR DETERMINATION OF ARMS LENGTH PRICE UNDER SECTION 9 2C:- 10B. (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SE CTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIO NAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLO WING METHODS, BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNER, NAMELY : (A). TO (D).. ( E ) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO CO STS INCURRED OR SALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF A NY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN TH E ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MA RGIN IN THE OPEN MARKET; IT(TP)A NO.1677/BANG/2012 PAGE 12 OF 38 ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB- CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TA KEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. (2) FOR THE PURPOSES OF SUB-RULE (1), THE COMPARABI LITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACT ION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILIT IES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. (3) AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRA NSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT T HE PRICE OR IT(TP)A NO.1677/BANG/2012 PAGE 13 OF 38 COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM , SUCH TRANSACTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. (4) THE DATA TO BE USED IN ANALYSING THE COMPARABIL ITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRAN SACTION SHALL BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO : PROVIDED THAT DATA RELATING TO A PERIOD NOT BEING MORE THAN TWO YEARS PRIOR TO SUCH FINANCIAL YEAR MAY ALSO BE CONSIDERED IF SUCH DATA REVEALS FACTS WHICH COULD HAVE AN INFL UENCE ON THE DETERMINATION OF TRANSFER PRICES IN RELATION TO THE TRANSACTIONS BEING COMPARED. 19. A READING OF THE PROVISIONS OF RULE 10B(2) OF T HE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPA RED WITH INTERNATIONAL TRANSACTION HAVING REGARD TO THE FACT ORS SET OUT THEREIN. BEFORE US THERE IS NO DISPUTE THAT THE TN MM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE I NTERNATIONAL TRANSACTION. THE DISPUTES ARE WITH REGARD TO THE C OMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO. 20. IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CLE ARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSING THE COMPARABLES. THE ASSESSEES TURNOVER I S Q 47,46,66,638. IT WOULD THEREFORE FALL WITHIN THE C ATEGORY OF COMPANIES IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CRORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.1231/BANG/2010) . THUS, COMPANIES HAVING TURNOVER OF MORE THAN 200 CRORES H AVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOW N IN SEVERAL DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE AS SESSEE. APPLYING THOSE TESTS, THE FOLLOWING COMPANIES WILL HAVE TO BE EXCLUDED FROM THE LIST OF 26 COMPARABLES DRAWN BY T HE TPO VIZ., TURNOVER RS. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. 848.66 CRO RES (2) IGATE GLOBAL SOLUTIONS LTD. 747.27 CRORES IT(TP)A NO.1677/BANG/2012 PAGE 14 OF 38 (3) MINDTREE LTD. 590.39 CRORES (4) PERSISTENT SYSTEMS LTD. 293.74 CRORES (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 343.57 C RORES (6) TATA ELXSI LTD. 262.58 CRORES (7) WIPRO LTD. 961.09 CRORES. (8) INFOSYS TECHNOLOGIES LTD. 13149 CRORES. 12. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE TRIBUNAL IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA), WE HOLD THAT THE FOLLOWING COMPANIES SHOULD BE EXCLUDED FROM THE LIS T OF COMPARABLE COMPANIES. (1) FLEXTRONICS SOFTWARE SYSTEMS LTD. (2) IGATE GLOBAL SOLUTIONS LTD. (3) MINDTREE LTD. (4) PERSISTENT SYSTEMS LTD. (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. (SEG.) (6) INFOSYS TECHNOLOGIES LTD. (7) TATA ELXSI LTD. 13. THE AO IS DIRECTED TO COMPUTE THE ARITHMETIC ME AN BY EXCLUDING THE AFORESAID COMPANIES FROM THE LIST OF COMPARABLE. 14. IT WAS NEXT SUBMITTED BY HIM THAT KALS INFORMAT ION SYSTEMS LTD. CHOSEN AS A COMPARABLE COMPANY BY THE TPO IS NOT FU NCTIONALLY COMPARABLE WITH THAT OF THE ASSESSEE. IN THIS REGAR D OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE ITAT BANGALORE BENCH IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA) WHEREIN THESE IT(TP)A NO.1677/BANG/2012 PAGE 15 OF 38 COMPANIES WERE HELD TO BE NOT FUNCTIONALLY COMPARAB LE WITH THAT OF A PURE SOFTWARE DEVELOPER LIKE THE ASSESSEE. 15. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ON THE AFORESAID COMPARABLE COMPANIES IN THE CASE OF TRILO GY E-BUSINESS SOFTWARE INDIA PVT.LTD.(SUPRA): 16. (D) KALS INFORMATION SYSTEMS LTD. 21. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTEN TION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDE S THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED I N PROVIDING TRAINING. IT WAS ALSO SUBMITTED THAT AS PER THE AN NUAL REPOT, THE SALARY COST DEBITED UNDER THE SOFTWARE DEVELOPMENT EXPENDITURE WAS Q 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 TRIBUNA LS 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 OF IT BEING FUNC TIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE A S FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPARA BLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUS ION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY I S ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HA S SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH T HAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACT UALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIAB LE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THU S ON THIS ASPECT, ASSESSEE SUCCEEDS. IT(TP)A NO.1677/BANG/2012 PAGE 16 OF 38 BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJ ECTED AS A COMPARABLE. 22. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE T PO HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF THIS COMPA NY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO TH E TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNE D COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT TH IS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE. 17. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFO RESAID COMPANIES WERE CONSIDERED AS COMPARABLE IS IDENTICAL IN THE C ASE OF THE ASSESSEE AS WELL AS IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD. (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT.LTD.( SUPRA), WE DIRECT THAT KALS INFORMATION SYSTEMS LTD., BE EXCLUDED FROM THE LIST OF 14 COMPARABLE ARRIVED AT BY THE TPO. 18. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , M/S.LUCID SOFTWARE LIMITED A COMPARABLE CHOSEN BY TPO IS CON CERNED, THIS TRIBUNAL IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD.,( SUPRA) HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH A SOFTW ARE DEVELOPMENT SERVICE PROVIDER. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD. IT(TP)A NO.1677/BANG/2012 PAGE 17 OF 38 16. LUCID SOFTWARE LTD. 16.1 THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSI ON OF THIS COMPANY AS A COMPARABLE ON THE GROUNDS THAT IT IS INTO SOFTWARE PRODUCT DEVELOPMENT AND THEREFORE FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE. IN THIS REGARD, THE LEARNED AUTHORIS ED REPRESENTATIVE SUBMITTED THAT (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS. (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY DIFFERENT AND THEREFORE NOT COMPARABLE TO SOFTWARE SERVICE PROVID ERS BY THE ORDER OF A CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), FOLLOWING THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011). (III) THE REJECTION OF THIS COMPANY AS A COMPARABLE TO SOFTWARE SERVICE PROVIDERS HAS BEEN UPHELD BY THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE CASES OF LG SOFT INDIA PVT. LT D. (ITA NO.1121/BANG/2011) AND CSR INDIA PVT. LTD. [ IT(TP) A NO.1119/BANG/2011 ] AND BY THE DELHI BENCH OF THE T RIBUNAL IN THE CASE OF TRANSWITCH INDIA PVT. LTD. (ITA NO.6083 /DEL/2010). (IV) THE FACTUAL POSITION AND CIRCUMSTANCES PERT AINING TO THIS COMPANY HAS NOT CHANGED FROM THE EARLIER ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDERATION I.E. ASSE SSMENT YEAR 2008-09 AND THEREFORE ON THIS BASIS, THIS COMPANY C ANNOT BE CONSIDERED AS A COMPARABLE IN THE CASE ON HAND. (V) THE RELEVANT PORTION OF THE ANNUAL REPORT OF THIS COMPANY EVIDENCES THAT IT IS IN THE BUSINESS OF PRODUCT DEV ELOPMENT. THE LEARNED AUTHORISED REPRESENTATIVE PRAYS THAT IN VIEW OF THE FACTUAL POSITION AS LAID OUT ABOVE AND THE DECISION S OF THE CO- ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 AND OTHER CASES CITED ABOVE , IT IS IT(TP)A NO.1677/BANG/2012 PAGE 18 OF 38 CLEAR THAT THIS COMPANY BEING INTO PRODUCT DEVELOPM ENT CANNOT BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE IN TH E CASE ON HAND WHO IS A SOFTWARE SERVICE PROVIDER AND THEREFO RE THIS COMPANY I.E. LUCID SOFTWARE LTD., OUGHT TO BE OMITT ED FROM THE LIST OF COMPARABLES. 16.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION AND FINDING OF THE TPO IN INCL UDING THIS COMPANY IN THE LIST OF COMPARABLES. 16.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THE COMPANY I.E. LUCID SOFTW ARE LTD., IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS WHE REAS THE ASSESSEE, IN THE CASE ON HAND, IS IN THE BUSINESS O F PROVIDING SOFTWARE DEVELOPMENT SERVICES. WE ALSO FIND THAT, CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (IT(TP)A NO.845/BANG/2011), LG SOFT INDIA PVT. LTD. (SUPRA), CSR INDIA PVT. LTD. ( SUPRA); THE ITAT, MUMBAI BENCH IN THE CASE OF TELECORDIA TECHNO LOGIES INDIA PVT. LTD. (SUPRA) AND THE DELHI ITAT IN THE C ASE OF TRANSWITCH INDIA PVT. LTD. (SUPRA) HAVE HELD, THAT SINCE THIS COMPANY, IS ENGAGED IN THE SOFTWARE PRODUCT DEVELOP MENT AND NOT SOFTWARE DEVELOPMENT SERVICES, IT IS FUNCTIONAL LY DIFFERENT AND DIS-SIMILAR AND IS THEREFORE TO BE OMITTED FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICE PROVID ERS. THE ASSESSEE HAS ALSO BROUGHT ON RECORD DETAILS TO DEMO NSTRATE THAT THE FACTUAL AND OTHER CIRCUMSTANCES PERTAINING TO T HIS COMPANY HAVE NOT CHANGED MATERIALLY FROM THE EARLIER YEAR I .E. ASSESSMENT YEAR 2007-08 TO THE PERIOD UNDER CONSIDE RATION I.E. ASSESSMENT YEAR 2008-09. IN THIS FACTUAL MATRIX AND FOLLOWING THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHE S OF THIS TRIBUNAL AND OF THE ITAT, MUMBAI AND DELHI BENCHES (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST O F COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. IT(TP)A NO.1677/BANG/2012 PAGE 19 OF 38 19. IN VIEW OF THE ABOVE, THE AFORESAID COMPANY SHO ULD ALSO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERM INING THE ALP OF THE INTERNATIONAL TRANSACTION IN QUESTION. 20. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , M/S.AVANI CINCOM TECHNOLOGIES LTD., COMPARABLE CHOSEN BY TPO IS CONCERNED, THIS TRIBUNAL IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIO NS LTD., (SUPRA) HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WI TH A SOFTWARE DEVELOPMENT SERVICE PROVIDER. THE FOLLOWING WERE T HE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD. 7.0 AVANI CINCOM TECHNOLOGIES LTD. 7.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMPA RABLE. THE ASSESSEE OBJECTS TO THE INCLUSION OF THIS COMPA NY AS A COMPARABLE ON THE GROUND THAT THIS COMPANY IS NOT F UNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE P RODUCTS WHEREAS THE ASSESSEE OFFERS SOFTWARE DEVELOPMENT SE RVICES TO ITS AES. THE TPO HAD REJECTED THE OBJECTIONS OF T HE ASSESSEE ON THE GROUND THAT THIS COMPARABLE COMPANY HAS CAT EGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER, JUST LIKE THE ASSESSEE, AND HENCE SELECTED THIS COMPANY AS A COMPARABLE. FOR T HIS PURPOSE, THE TPO HAD RELIED ON INFORMATION SUBMITTED BY THIS COMPANY IN RESPONSE TO ENQUIRIES CARRIED OUT UNDER SECTION 133 (6) OF THE ACT FOR COLLECTING INFORMATION ABOUT THE COMPANY DI RECTLY. 7.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E REITERATED THE ASSESSEE'S OBJECTIONS FOR THE INCLUS ION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES ON TH E GROUND THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE AS IT IS INTO SOFTWARE PRODUCTS. IT IS ALSO SUBMIT TED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND THE IT(TP)A NO.1677/BANG/2012 PAGE 20 OF 38 ANNUAL REPORT AVAILABLE IN THE PUBLIC DOMAIN IS NOT COMPLETE. IT WAS FURTHER CONTENDED THAT THE INFORMATION OBTAINED BY THE TPO UNDER SECTION 133(6) OF THE ACT, ON THE BASIS O F WHICH THE TPO INCLUDED THIS COMPANY IN THE FINAL LIST OF COMP ARABLE COMPANIES, HAS NOT BEEN SHARED WITH THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED AUTHORISED REPRESENTAT IVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISIONS : I) TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. V DC IT (ITA NO.1054/BANG/2011) II) TELECORDIA TECHNOLOGIES INDIA PVT LTD V ACIT ( ITA NO.7821/MUM/2011) IT WAS ALSO SUBMITTED THAT THIS COMPANY HAS BEEN HE LD TO BE FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE BY A CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013. 7.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER S UBMITTED THAT THE FACTS PERTAINING TO THIS COMPANY HAS NOT C HANGED FROM THE EARLIER YEAR (I.E. ASSESSMENT YEAR 2007-08) TO THE PERIOD UNDER CONSIDERATION (I.E. ASSESSMENT YEAR 2008-09). IN SUPPORT OF THIS CONTENTION, IT WAS SUBMITTED THAT :- (I) THE EXTRACT FROM THE WEBSITE OF THE COMPANY CLE ARLY INDICATES THAT IT IS PRIMARILY ENGAGED IN DEVELOPME NT OF SOFTWARE PRODUCTS. THE EXTRACT MENTIONS THAT THIS COMPANY OF FERS CUSTOMISED SOLUTIONS AND SERVICES IN DIFFERENT AREA S; (II) THE WEBSITE OF THIS COMPANY EVIDENCES THAT TH IS COMPANY DEVELOPS AND SELLS CUSTOMIZABLE SOFTWARE SOLUTIONS LIKE DX CHANGE, CARMA, ETC. 7.4 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT A CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER IN C URRAM SOFTWARE INTERNATIONAL PVT. LTD., IN ITS ORDER IN I TA NO.1280/BANG/2012 DT.31.7.2013 HAS REMANDED THE MAT TER BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMI NE THE IT(TP)A NO.1677/BANG/2012 PAGE 21 OF 38 COMPARABILITY OF THIS COMPANY AFRESH, BY MAKING THE FOLLOWING OBSERVATIONS AT PARAS 9.5.2 AND 9.5.3 THEREOF :- 9.5.2 AS REGARDS THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE, WE ARE UNABLE TO AGREE THAT THIS COMPANY HAS TO BE DELETED FROM THE LIST O F COMPARABLES ONLY BECAUSE IT HAS BEEN DELETED FROM THE SET OF COMPARABLES IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA). NO DOUB T THIS COMPANY HAS BEEN DELETED AS A COMPARABLE IN TH E CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AND THIS CAN BE A GOOD GUIDANCE TO DECIDE O N THE COMPARABILITY IN THE CASE ON HAND ALSO. THIS A LONE, HOWEVER, WILL NOT SUFFICE FOR THE FOLLOWING REASONS :- (I) THE ASSESSEE NEEDS TO DEMONSTRATE THAT THE FAR ANALYSIS AND OTHER RELEVANT FACTS OF THE TRILOGY CA SE ARE EQUALLY APPLICABLE TO THE FACTS OF THE ASSESSEE 'S CASE ALSO. UNLESS THE FACTS AND THE FAR ANALYSIS O F TRILOGY CASE IS COMPARABLE TO THAT OF THE ASSESSEE IN THE CASE ON HAND, COMPARISON BETWEEN THE TWO IS NOT TENABLE. (II) AFTER DEMONSTRATING THE SIMILARITY AND THE COMPARABILITY BETWEEN THE ASSESSEE AND THE TRILOGY CASE, THE ASSESSEE ALSO NEEDS TO DEMONSTRATE THAT T HE FACTS APPLICABLE TO THE ASSESSMENT YEAR 2007-08, TH E YEAR FOR WHICH THE DECISION IN CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) WAS RENDERED ARE ALSO APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.5.3 IT IS A WELL SETTLED PRINCIPLE THAT THE ASSESSEE IS REQUIRED TO PERFORM FAR ANALYSIS FOR EA CH YEAR AND IT IS QUITE POSSIBLE THAT THE FAR ANALYSIS CAN BE DIFFERENT FOR EACH OF THE YEARS. THAT BEING SO, THE PRINCIPLE APPLICABLE TO ONE PARTICULAR YEAR CANNOT BE EXTRAPOLATED AUTOMATICALLY AND MADE APPLICABLE TO SUBSEQUENT YEARS. TO DO THAT, IT IS NECESSARY TO F IRST IT(TP)A NO.1677/BANG/2012 PAGE 22 OF 38 ESTABLISH THAT THE FACTS AND ATTENDANT FACTORS HAVE REMAINED THE SAME SO THAT THE FACTORS OF COMPARABILITY ARE THE SAME. VIEWED IN THAT CONTEXT , THE ASSESSEE HAS NOT DISCHARGED THE ONUS UPON IT TO ESTABLISH THAT THE DECISION RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) CAN BE APPLIED TO THE FACTS OF THE CASE AND THAT TO O OF AN EARLIER YEAR I.E. ASSESSMENT YEAR 2007-08. THE ASSESSEE, IN OUR VIEW, HAS NOT DEMONSTRATED THAT TH E FACTS OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD . (SUPRA) ARE IDENTICAL TO THE FACTS OF THE CASE ON HAND AND THAT THE PROFILE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF THE EARLI ER ASSESSMENT YEAR 2007-08. IN VIEW OF FACTS AS DISCUSSED ABOVE, WE DEEM IT FIT TO REMAND THE MATTE R BACK TO THE FILE OF THE ASSESSING OFFICER / TPO TO EXAMINE THE COMPARABILITY OF THIS COMPANY AFRESH BY CONSIDERING THE ABOVE OBSERVATIONS. THE TPO IS DIRECTED TO MAKE AVAILABLE TO THE ASSESSEE INFORMAT ION OBTAINED UNDER SECTION 133(6) OF THE ACT AND TO AFFORD THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO MAKE ITS SUBMISSIONS IN THE MATTER, WHICH SHALL BE DULY CONSIDERED BEFORE PASSING ORDER S THEREON. IT IS ORDERED ACCORDINGLY. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS TH AT THIS COMPANY WAS SELECTED AS A COMPARABLE BY THE TPO NOT BY ANY FAR ANALYSIS OR AS PER THE SEARCH PROCESS CONDUCTED BY THE TPO, BUT ONLY AS AN ADDITIONAL COMPARABLE FOR THE R EASON THAT IT WAS SELECTED AS A COMPARABLE IN THE EARLIER YEAR I. E. ASSESSMENT YEAR 2007-08 ON THE BASIS OF INFORMATION OBTAINED U NDER SECTION 133(6) OF THE ACT. IN THIS REGARD, THE LEA RNED AUTHORISED REPRESENTATIVE TOOK US THROUGH THE RELEV ANT PORTIONS OF THE TP ORDER UNDER SECTION 92CA OF THE ACT AND T HE SHOW CAUSE NOTICES FOR BOTH THE EARLIER YEAR I.E. ASSESS MENT YEAR 2007-08 AND FOR THIS YEAR AND CONTENDED THAT THE SE LECTION OF THIS COMPANY AS A COMPARABLE VIOLATES THE PRINCIPLE ENUNCIATED IN CURRAM SOFTWARE INTERNATIONAL PVT. LTD. (SUPRA) THA T A COMPANY IT(TP)A NO.1677/BANG/2012 PAGE 23 OF 38 CAN BE SELECTED AS A COMPARABLE ONLY ON THE BASIS O F FAR ANALYSIS CONDUCTED FOR THAT YEAR AND THEREFORE PLEA DED FOR ITS EXCLUSION. THE LEARNED AUTHORISED REPRESENTATIVE A LSO SUBMITTED THAT HE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO SHOW THAT THE FUNCTIONAL PROFILE OF THIS COMPANY RE MAINS UNCHANGED FROM THE EARLIER YEAR AND HENCE THE FINDI NGS RENDERED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SU PRA) AND IN OTHER CASES LIKE TRILOGY E-BUSINESS SOFTWARE IND IA PVT. LTD. (SUPRA) ARE APPLICABLE TO THE YEAR UNDER CONSIDERAT ION AS WELL. 7.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ORDER OF THE TPO / DRP FOR INCLUSION OF THIS COMPANY AVANI CINCOM TECHNOLOGIES LTD. IN THE FINAL SET OF COMPARABLES. 7.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULL Y CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN THE FINAL SET OF COMPARABLES ONLY ON THE BASIS OF INFORMATION OBTAIN ED UNDER SECTION 133(6) OF THE ACT. IN THESE CIRCUMSTANCES, IT WAS THE DUTY OF THE TPO TO HAVE NECESSARILY FURNISHED THE I NFORMATION SO GATHERED TO THE ASSESSEE AND TAKEN ITS SUBMISSIO NS THEREON INTO CONSIDERATION BEFORE DECIDING TO INCLUDE THIS COMPANY IN ITS FINAL LIST OF COMPARABLES. NON-FURNISHING THE INFO RMATION OBTAINED UNDER SECTION 133(6) OF THE ACT TO THE ASS ESSEE HAS VITIATED THE SELECTION OF THIS COMPANY AS A COMPARA BLE. 7.6.2 WE ALSO FIND SUBSTANTIAL MERIT IN THE CONTENT ION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THIS COMPANY HAS BEEN SELECTED BY THE TPO AS AN ADDITIONAL COMPARABLE ONL Y ON THE GROUND THAT THIS COMPANY WAS SELECTED IN THE EARLIE R YEAR. EVEN IN THE EARLIER YEAR, IT IS SEEN THAT THIS COMPANY W AS NOT SELECTED ON THE BASIS ON ANY SEARCH PROCESS CARRIED OUT BY T HE TPO BUT ONLY ON THE BASIS OF INFORMATION COLLECTED UNDER SE CTION 133(6) OF THE ACT. APART FROM PLACING RELIANCE ON THE JUD ICIAL DECISION CITED ABOVE, INCLUDING THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS BROUGHT ON RECORD EV IDENCE IT(TP)A NO.1677/BANG/2012 PAGE 24 OF 38 THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE. THEREFOR E THE FINDING EXCLUDING IT FROM THE LIST OF COMPARABLES R ENDERED IN THE IMMEDIATELY PRECEDING YEAR IS APPLICABLE IN THIS YE AR ALSO. SINCE THE FUNCTIONAL PROFILE AND OTHER PARAMETERS BY THIS COMPANY HAVE NOT UNDERGONE ANY CHANGE DURING THE YEAR UNDER CONSIDERATION WHICH FACT HAS BEEN DEMONSTRATED BY T HE ASSESSEE, FOLLOWING THE DECISIONS OF THE CO-ORDINAT E BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESS MENT YEAR 2007-08 IN ITA NO.845/BANG/2011 DT.22.2.2013, AND I N THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (ITA NO.1054/BANG/2011), WE DIRECT THE A.O./TPO TO OMIT THIS COMPANY FROM THE LIST OF COMPARABLES. 21. IN VIEW OF THE ABOVE, THE AFORESAID COMPANY SHO ULD ALSO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERM INING THE ALP OF THE INTERNATIONAL TRANSACTION IN QUESTION. 22. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , M/S. CELESTIAL BIOLABS LTD., COMPARABLE CHOSEN BY TPO IS CONCERNE D, THIS TRIBUNAL IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD.(SUPRA) HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE WITH A SOFTW ARE DEVELOPMENT SERVICE PROVIDER. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD:- 9. CELESTIAL BIOLABS LTD. 9.1 THIS COMPARABLE WAS SELECTED BY THE TPO FOR INC LUSION IN THE FINAL LIST OF COMPARABLES. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LI ST OF IT(TP)A NO.1677/BANG/2012 PAGE 25 OF 38 COMPARABLES FOR THE REASONS THAT IT IS FUNCTIONALLY DIFFERENT FORM THE ASSESSEE AND THAT IT FAILS THE EMPLOYEE COST FI LTER. THE TPO, HOWEVER, BRUSHED ASIDE THE OBJECTIONS RAISED BY THE ASSESSEE BY STATING THAT THE OBJECTIONS OF FUNCTIONAL DISSIMILA RITY HAS BEEN DEALT WITH IN DETAIL IN THE T.P. ORDER FOR ASSESSME NT YEAR 2007- 08. AS REGARDS THE OBJECTION RAISED IN RESPECT OF THE EMPLOYEE COST FILTER ISSUE, THE TPO REJECTED THE OBJECTIONS BY OBSERVING THAT THE EMPLOYEE COST FILTER IS ONLY A TRIGGER TO KNOW THE FUNCTIONALITY OF THE COMPANY. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATIV E CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COM PARABLE, AS THE COMPANY IS INTO BIO-INFORMATICS SOFTWARE PRODUC T / SERVICES AND THE SEGMENTAL BREAK UP IS NOT PROVIDED. IT WAS SUBMITTED THAT:- (I) THIS COMPANY IS ENGAGED IN THE DEVELOPMENT OF PRODUCTS IN THE FIELD OF BIO-TECHNOLOGY, PHARMACEUTICALS, ETC. AND THEREFORE IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE; (II) THIS COMPANY HAS BEEN HELD TO BE FUNCTIONALLY INCOMPARABLE TO SOFTWARE SERVICE PROVIDERS BY THE DECISION OF TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 (SUPRA); (III) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITS ORDER IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) AT PARA 43 THEREOF HAD OBSERVED ABOUT THIS COMPANY THA T .. AS EXPLAINED EARLIER, IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPARABLE FUNCTIONALLY WITH THE ASSESSEE. THERE HAS BEEN NO ATTEMPT TO IDENTIFY, ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY NOT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENTS, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE IN THIS REGARD. IT(TP)A NO.1677/BANG/2012 PAGE 26 OF 38 (IV) THE REJECTION / EXCLUSION OF THIS COMPANY AS A COMPARABLE FOR ASSESSMENT YEAR 2007-08 FOR SOFTWARE SERVICE PR OVIDERS HAS BEEN UPHELD BY THE CO-ORDINATE BENCHES OF THIS TRIB UNAL IN THE CASES OF LG SOFT INDIA PVT. LTD. IN ITA NO.112/BANG /2011, CSR INDIA PVT. LTD. IN IT(TP)A NO.1119/BANG/2011 AND BY THE ITAT, DELHI BENCH IN THE CASE OF TRANSWITCH INDIA PVT. LT D. IN ITA NO.6083/DEL/2010. (V) THE FACTS PERTAINING TO THIS COMPANY HAS NO T CHANGED FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2008-09 AND THEREFORE THIS COMPANY CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPARABILITY IN THE INSTANT CASE AND HENCE OUGHT T O BE REJECTED. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS ALS O REFERRED TO AND QUOTED FROM VARIOUS PARTS OF THE ANNUAL REPORT OF T HE COMPANY. 9.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISIONS CITED AND RELIED ON BY THE ASSES SEE ARE FOR ASSESSMENT YEAR 2007-08 AND THEREFORE THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09. 9.4.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED AN D CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS TR UE THAT THE DECISIONS CITED AND RELIED ON BY THE ASSESSEE WERE WITH RESPECT TO THE IMMEDIATELY PREVIOUS ASSESSMENT YEAR, AND THERE CANNOT BE AN ASSUMPTION THAT IT WOULD CONTINUE TO BE APPLICABLE FOR THIS YEAR AS WELL, THE SAME PARITY OF REASONING IS APPLICABLE TO THE TPO AS WELL WHO SEEMS TO HAVE SELECTED THIS COMPANY AS A C OMPARABLE BASED ON THE REASONING GIVEN IN THE TPOS ORDER FOR THE EARLIER YEAR. IT IS EVIDENTLY CLEAR FROM THIS, THAT THE TP O HAS NOT CARRIED OUT ANY INDEPENDENT FAR ANALYSIS FOR THIS COMPANY F OR THIS YEAR VIZ. ASSESSMENT YEAR 2008-09. TO THAT EXTENT, IN O UR CONSIDERED VIEW, THE SELECTION PROCESS ADOPTED BY THE TPO FOR INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES IS DEFECTIV E AND SUFFERS FROM SERIOUS INFIRMITY. 9.4.2 APART FROM RELYING ON THE AFORE CITED JUDICIA L DECISIONS IN THE MATTER (SUPRA), THE ASSESSEE HAS BROUGHT ON REC ORD SUBSTANTIAL FACTUAL EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS- SIMILAR AND DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND AND IS IT(TP)A NO.1677/BANG/2012 PAGE 27 OF 38 THEREFORE NOT COMPARABLE AND ALSO THAT THE FINDINGS RENDERED IN THE CITED DECISIONS FOR THE EARLIER YEARS I.E. ASSE SSMENT YEAR 2007-08 IS APPLICABLE FOR THIS YEAR ALSO. WE AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT THIS COMPANY IS FU NCTIONALLY DIFFERENT FROM THE ASSESSEE. IT HAS ALSO BEEN SO H ELD BY CO- ORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (SUPRA) AS WELL AS IN THE C ASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) . IN VIEW OF THE FACT THAT THE FUNCTIONAL PROFILE OF AND OTHER P ARAMETERS OF THIS COMPANY HAVE NOT CHANGED IN THIS YEAR UNDER CONSIDE RATION, WHICH FACT HAS ALSO BEEN DEMONSTRATED BY THE ASSESS EE, FOLLOWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIB UNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 AND TRILOGY E-BUSINESS SOFTWARE IN DIA PVT. LTD. IN ITA NO.1054/BANG/2011, WE HOLD THAT THIS CO MPANY OUGHT TO BE OMITTED FORM THE LIST OF COMPARABLES. THE A.O./TPO ARE ACCORDINGLY DIRECTED. 23. IN VIEW OF THE ABOVE, THE AFORESAID COMPANY SHO ULD ALSO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERM INING THE ALP OF THE INTERNATIONAL TRANSACTION IN QUESTION. 24. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , M/S.E-ZEST SOLUTION LTD., AND THIRDWARE SOLUTIONS LTD., COMPA RABLE CHOSEN BY TPO IS CONCERNED, THIS TRIBUNAL IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD. HELD THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARAB LE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER. THE FOLLOWING WERE T HE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD:- 14. E-ZEST SOLUTIONS LTD. IT(TP)A NO.1677/BANG/2012 PAGE 28 OF 38 14.1 THIS COMPANY WAS SELECTED BY THE TPO AS A COMP ARABLE. BEFORE THE TPO, THE ASSESSEE HAD OBJECTED TO THE IN CLUSION OF THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT WAS F UNCTIONALLY DIFFERENT FROM THE ASSESSEE. THE TPO HAD REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUND THAT AS PER TH E INFORMATION RECEIVED IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT, THIS COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SER VICES AND SATISFIES ALL THE FILTERS. 14.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY OUGHT TO BE EXCLUDED FR OM THE LIST OF COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY D IFFERENT TO THE ASSESSEE. IT IS SUBMITTED BY THE LEARNED AUTHORISE D REPRESENTATIVE THAT THIS COMPANY IS ENGAGED IN E-B USINESS CONSULTING SERVICES, CONSISTING OF WEB STRATEGY SE RVICES, I T DESIGN SERVICES AND IN TECHNOLOGY CONSULTING SERVIC ES INCLUDING PRODUCT DEVELOPMENT CONSULTING SERVICES. THESE SERV ICES, THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS, ARE HIG H END ITES NORMALLY CATEGORISED AS KNOWLEDGE PROCESS OUTSOURCI NG (KPO) SERVICES. IT IS FURTHER SUBMITTED THAT THIS COMPAN Y HAS NOT PROVIDED SEGMENTAL DATA IN ITS ANNUAL REPORT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT SINCE THE AN NUAL REPORT OF THE COMPANY DOES NOT CONTAIN DETAILED DESCRIPTIV E INFORMATION ON THE BUSINESS OF THE COMPANY, THE ASSESSEE PLACES RELIANCE ON THE DETAILS AVAILABLE ON THE COMPANYS WEBSITE WHIC H SHOULD BE CONSIDERED WHILE EVALUATING THE COMPANYS FUNCTIONA L PROFILE. IT IS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESE NTATIVE THAT KPO SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOP MENT SERVICES AND THEREFORE COMPANIES RENDERING KPO SERV ICES OUGHT NOT TO BE CONSIDERED AS COMPARABLE TO SOFTWARE DEVE LOPMENT COMPANIES AND RELIED ON THE DECISION OF THE CO-ORDI NATE BENCH IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS (INDIA) (P) LTD. IN ITA NO.1961(HYD)/2011 DT.23.11.2012 AND PRAYED THAT IN VIEW OF THE ABOVE REASONS, THIS COMPANY I.E. E-ZEST SOLU TIONS LTD., OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 14.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES BY THE TPO. 14.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE RECORD THAT THE TPO HAS INCLUDED THIS COMPANY IN TH E LIST OF IT(TP)A NO.1677/BANG/2012 PAGE 29 OF 38 COMPARBALES ONLY ON THE BASIS OF THE STATEMENT MADE BY THE COMPANY IN ITS REPLY TO THE NOTICE UNDER SECTION 13 3(6) OF THE ACT. IT APPEARS THAT THE TPO HAS NOT EXAMINED THE SERVIC ES RENDERED BY THE COMPANY TO GIVE A FINDING WHETHER THE SERVIC ES PERFORMED BY THIS COMPANY ARE SIMILAR TO THE SOFTWARE DEVELOP MENT SERVICES PERFORMED BY THE ASSESSEE. FROM THE DETAILS ON REC ORD, WE FIND THAT WHILE THE ASSESSEE IS INTO SOFTWARE DEVELOPMEN T SERVICES, THIS COMPANY I.E. E-ZEST SOLUTIONS LTD., IS RENDERING PR ODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO SERVICES. IT HAS BE EN HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CAPITAL I-Q INFORMATION SYSTEMS (INDIA) (P) LTD. SUPRA) THAT KP O SERVICES ARE NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES AND ARE THEREFORE NOT COMPARABLE. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINATE BENCH OF THE HYDERABAD TRIBUNAL IN THE AFORESAID CASE, WE HOLD THAT THIS COMPANY, I.E. E-ZEST SOLUT IONS LTD. BE OMITTED FROM THE SET OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND. THE A.O. / TPO IS ACCORDINGLY DIRECTED. 15. THIRDWARE SOLUTIONS LTD. (SEGMENT) 15.1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN THE LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO, THE ASSESS EE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COM PARABLES ON THE GROUND THAT ITS TURNOVER WAS IN EXCESS OF RS.500 CR ORES. BEFORE US, THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICES, IT IS IN THE BUSINESS OF PRODUCT DEVELOPM ENT AND TRADING IN SOFTWARE AND GIVING LICENSES FOR USE OF SOFTWARE . IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T :- (I) THIS COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POINTED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARATE SEGMENTAL PROFIT AND LOSS ACC OUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT SERVICES. (II) IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LT D. (2008-TII- 04-ITAT-PUNE-TP), THE TRIBUNAL HAS DIRECTED THAT TH IS COMPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PRO VIDERS, AS ITS IT(TP)A NO.1677/BANG/2012 PAGE 30 OF 38 INCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGINS OF THE COMPANY. THE LEARNED A.R. PRAYED THAT IN THE LIGHT OF THE A BOVE FACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIB UNAL (SUPRA), THIS COMPANY OUGHT TO BE OMITTED FROM THE LIST OF C OMPARABLES. 15.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LO SS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVEL OPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY T HE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCO ME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABL E FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASS ESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES. IN THIS FA CTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OM ITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERAT ION IN THE CASE ON HAND. 25. IN VIEW OF THE ABOVE, THE AFORESAID COMPANY SHO ULD ALSO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERM INING THE ALP OF THE INTERNATIONAL TRANSACTION IN QUESTION. 26. AS FAR AS THE COMPARABLE CHOSEN BY THE TPO VIZ. , M/S.SOFTSOL INDIA LTD., COMPARABLE CHOSEN BY TPO IS CONCERNED, THIS TRIBUNAL IN THE CASE OF M/S.3DPLM SOFTWARE SOLUTIONS LTD. HELD THAT THIS C OMPANY IS NOT IT(TP)A NO.1677/BANG/2012 PAGE 31 OF 38 FUNCTIONALLY COMPARABLE WITH A SOFTWARE DEVELOPMENT SERVICE PROVIDER. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRI BUNAL IN THIS REGARD. 19. SOFTSOL INDIA LTD. 19.1 THIS COMPANY WAS SELECTED BY THE TPO AS A C OMPARABLE. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE ON THE GROUNDS THAT THIS COMPANY IS FUNC TIONALLY DIFFERENT AND DIS-SIMILAR FROM IT. THE TPO REJECTE D THE ASSESSEE'S OBJECTIONS ON THE GROUND THAT AS PER THE COMPANYS REPLY TO THE NOTICE UNDER SECTION 133(6) OF THE ACT, THE COMPANY HAS CATEGORIZED ITSELF AS A PURE SOFTWARE DEVELOPER AND THEREFORE INCLUDED THIS COMPANY AS A COMPARABLE AS THE ASSESS EE WAS ALSO A PROVIDER OF SOFTWARE DEVELOPMENT SERVICES. BEFORE U S, IN ADDITION TO THE PLEA THAT THE COMPANY WAS FUNCTIONALLY DIFFE RENT, THE ASSESSEE SUBMITTED THAT THIS COMPANY WAS EXCLUDED F ROM THE LIST OF COMPARABLES BY THE ORDER OF THE CO-ORDINATE BENC H OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2007-08 (ITA NO.845/BANG/2011) ON THE GROUND THAT THE RELA TED PARTY TRANSACTIONS (RPT) IS IN EXCESS OF 15%. THE LEAR NED AUTHORISED REPRESENTATIVE SUBMITTED THAT FOR THE CU RRENT PERIOD UNDER CONSIDERATION, THE RPT IS 18.3% AND THEREFOR E THIS COMPANY REQUIRES TO BE OMITTED FROM THE LIST OF COM PARABLES. 19.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS C OMPANY IN THE LIST OF COMPARABLES AS THIS COMPANY WAS A PURE SOFT WARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE. 19.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAR EFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE F OR ASSESSMENT YEAR 2007-08 IN ITA NO.845/BANG/2011 HAS EXCLUDED T HIS COMPANY FROM THE SET OF COMPARABLES FOR THE REASON THAT RPT IS IN EXCESS OF 15% FOLLOWING THE DECISION OF ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2011. AS THE FACTS FOR THIS YEAR ARE S IMILAR AND MATERIAL ON RECORD ALSO INDICATES THAT RPT IS 18.3% , FOLLOWING IT(TP)A NO.1677/BANG/2012 PAGE 32 OF 38 THE AFORE CITED DECISIONS OF THE CO-ORDINATE BENCHE S (SUPRA), WE HOLD THAT THIS COMPANY IS TO BE OMITTED FROM THE LI ST OF COMPARABLES TO THE ASSESSEE IN THE CASE ON HAND. 27. IN VIEW OF THE ABOVE, THE AFORESAID COMPANY SHO ULD ALSO BE EXCLUDED FOR THE PURPOSE OF COMPARISON WHILE DETERM INING THE ALP OF THE INTERNATIONAL TRANSACTION IN QUESTION. 28. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT IF THE AFORESAID COMPARABLE COMPANIES ARE EXCLUDED FROM TH E LIST OF 20 COMPARABLE COMPANIES CHOSEN BY THE TPO THEN THE PRO FIT MARGIN OF THE ASSESSEE WOULD BE WELL WITHIN THE (+) (-) 5% RANGE OF THE ARITHMETIC MEAN OF THE REMAINING COMPARABLE COMPANIES AND THEREFORE THE PRICE RECEIVED BY THE ASSESSEE WOULD BE CONSIDERED AS AT ARMS LENG TH. HE PRAYED FOR A LIMITED DIRECTION TO THE TPO ON THE LINES SET OUT A BOVE AND DETERMINE THE ALP. IT ALSO SUBMITTED THAT THE OTHER ISSUES RAISE D BY THE ASSESSEE IN THE GROUNDS OF APPEAL NEED NOT BE GONE INTO. 29. WE ARE OF THE VIEW THAT THE PRAYER SOUGHT FOR B Y THE LEARNED COUNSEL FOR THE ASSESSEE IS ACCEPTABLE AND ACCORDINGLY, THE TPO IS DIRECTED TO COMPUTE ALP AFTER EXCLUDING THE COMPARABLE COMPANIE S DEALT WITH IN THIS ORDER. 30. GROUND NO.6 RAISED BY THE ASSESSEE IS WITH REGA RD TO METHOD OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. TH E ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S.10A OF THE ACT. WHILE COMPU TING DEDUCTION U/S.10A IT(TP)A NO.1677/BANG/2012 PAGE 33 OF 38 OF THE ACT, THE AO EXCLUDED SOFTLINK & INTERNET CH ARGES AMOUNTING TO RS.49,69,407 BEING TELECOMMUNICATION EXPENSES AND A NOTHER SUM OF RS.29,13,578 BEING EXPENDITURE INCURRED IN FOREIGN CURRENCY TOWARDS TRAVELLING TOTALING IN ALL RS.78,82,985/- FROM EXPO RT TURNOVER ON THE GROUND THAT THESE EXPENSES ARE INCURRED IN RENDERING TECHN ICAL SERVICES RENDERED TO CLIENTS OUTSIDE INDIA AND THEREFORE TO BE EXCLUD ED FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 1 0A. THE ASSESSEE PRAYED THAT THE AFORESAID EXPENDITURE ARE NOT OF TH E NATURE SET OUT IN EXPLN. 2(IV) TO SEC.10A OF THE ACT WHICH DEFINES EXPORT T URNOVER. THE ASSESSEE ALSO MADE AN ALTERNATE PRAYER THAT EXPENSES THAT AR E REDUCED FROM THE EXPORT TURNOVER SHOULD ALSO BE REDUCED FROM THE TOT AL TURNOVER AND IN THIS REGARD HAS PLACED RELIANCE ON THE DECISION OF THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) WHEREIN THE HONBLE COURT HELD THAT WHATEVER IS EXCLUDED FR OM THE EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.10A OF THE ACT. THE MAIN P RAYER AS WELL AS THE ALTERNATE PRAYER WAS REJECTED BY THE AO AS WELL AS DRP. 31. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR ON THE ISSUES RAISED IN GROUND NOS.6. TAKING INTO CON SIDERATION THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD [2012] 349 ITR 98 (KARN) , WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE ASSESSING OFFICER TO EXCLUDE TELECOMMUNICATION CHARGES AND TRAVELING EXPENSES OF RS.6,57,92,778/- IT(TP)A NO.1677/BANG/2012 PAGE 34 OF 38 INCURRED IN FOREIGN CURRENCY BOTH FROM EXPORT TURNO VER AND TOTAL TURNOVER, AS HAS BEEN PRAYED FOR IN THE ALTERNATIVE BY THE ASSES SEE IN GROUND NO.6. IN VIEW OF THE ACCEPTANCE OF THE ALTERNATIVE PRAYER IN GROUND NO.6, WE ARE OF THE VIEW THAT NO ADJUDICATION IS REQUIRED ON OTHER ISSUES RAISED IN GROUND NO.6 AS TO WHETHER THE SUMS IN QUESTION SHOULD BE E XCLUDED FROM THE EXPORT TURNOVER OR NOT. 32. IN THE DRAFT ASSESSMENT ORDER DATED 17.2.2011 P ASSED BY THE AO, THE AO DISALLOWED A SUM OF RS.23,47,709 WHICH WAS A PAYMENT MADE BY THE ASSESSEE TO M/S.PIVOTAL CORPORATION, A NON-RESI DENT, WITHOUT DEDUCTION OF TAX AT SOURCE. ACCORDING TO THE ASSESSEE THE PA YMENT IN QUESTION WAS REIMBURSEMENT OF EXPENSES INCURRED BY THE NON-RESID ENT ON BEHALF OF THE ASSESSEE AND THEREFORE THERE WAS NO OBLIGATION TO D EDUCT TAX AT SOURCE AS THE PAYMENT DOES NOT CONSTITUTE INCOME OF THE NON-R ESIDENT. THE AO HOWEVER HELD THAT THE ASSESSEE DID NOT SUBSTANTIATE THAT THE PAYMENT IN QUESTION WAS REIMBURSEMENT. ACCORDINGLY ADDITION W AS MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE INVOKING PROVISION S OF SEC.40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TDS. THE ASSESSEE DID NOT RAISE ANY OBJECTION ON THE PROPOSED ADDITION IN THE DRAFT ASSESSMENT ORDER BEFORE THE DRP. 33. BEFORE THE TRIBUNAL THE ASSESSEE HAS RAISED GRO UND NO. 5 IN WHICH THE ASSESSEE SEEKS TO CHALLENGED THE AFORESAID. THE FIRST QUESTION IS WHETHER THE ASSESSEE IS ENTITLED TO DO SO. IT(TP)A NO.1677/BANG/2012 PAGE 35 OF 38 34. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D COUNSEL FOR THE ASSESSEE ON GROUND NO.5 WHO REITERATED THAT THE PAY MENT IN QUESTION WAS A REIMBURSEMENT AND THEREFORE THERE WAS NO OBLIGATI ON TO DEDUCT TAX AT SOURCE. WE FIND THAT THE AO IN THE DRAFT ASSESSMEN T ORDER DATED 17.2.2011 THE AO HAS REFERRED TO THE FACT THAT THE PROPOSAL T O DISALLOW THE SUM FOR NON DEDUCTION OF TAX AT SOURCE. THE ASSESSEE DID NOT PREFER ANY OBJECTION ON THIS PROPOSED ADDITION BEFORE THE DRP. SEC. 144C R EADS AS UNDER : REFERENCE TO DISPUTE RESOLUTION PANEL-(1) THE ASSE SSING OFFICER SHALL, NOTWITHSTANDING ANYTHING TO THE CONT RARY CONTAINED IN THIS ACT, IN THE FIRST INSTANCE, FORWARD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT (HEREAFTER IN THIS SECTION REFE RRED TO AS THE DRAFT ORDER) TO THE ELIGIBLE ASSESSEE IF HE PROPOSE S TO MAKE, ON OR AFTER THE 1ST DAY OF OCTOBER, 2009, ANY VARIATION I N THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESSEE. (2) ON RECEIPT OF THE DRAFT ORDER, THE ELIGIBLE AS SESSEE SHALL, WITHIN THIRTY DAYS OF THE RECEIPT BY HIM OF THE DRA FT ORDER,- (A) FILE HIS ACCEPTANCE OF THE VARIATIONS TO THE A SSESSING OFFICER; OR (B) FILE HIS OBJECTIONS, IF ANY, TO SUCH VARIATION WITH,- (I) THE DISPUTE RESOLUTION PANEL; AND (II) THE ASSESSING OFFICER. (3) THE ASSESSING OFFICER SHALL COMPLETE THE ASSESS MENT ON THE BASIS OF THE DRAFT ORDER, IF- (A) THE ASSESSEE INTIMATES TO THE ASSESSING OFFICER THE ACCEPTANCE OF THE VARIATION; OR (B) NO OBJECTIONS ARE RECEIVED WITHIN THE PERIOD SP ECIFIED IN SUB- SECTION (2). IT(TP)A NO.1677/BANG/2012 PAGE 36 OF 38 (4) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING CONTAINED IN SECTION 153 OR SECTION 153B, PASS THE ASSESSMENT ORDER UNDER SUB-SECTION (3) WITHIN ONE MONTH FROM T HE END OF THE MONTH IN WHICH,- (A) THE ACCEPTANCE IS RECEIVED; OR (B) THE PERIOD OF FILING OF OBJECTIONS UNDER SUB-SE CTION (2) EXPIRES. (5) THE DISPUTE RESOLUTION PANEL SHALL, IN A CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), ISSUE SUCH DIRECTIONS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESSMENT. (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DI RECTIONS REFERRED TO IN SUB-SECTION (5), AFTER CONSIDERING T HE FOLLOWING, NAMELY:- (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALUA TION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECTE D BY, IT; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) . (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUC E OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT THE POWER OF THE DISPUTE RESOLUTION PANEL TO ENHANC E THE VARIATION SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE IT(TP)A NO.1677/BANG/2012 PAGE 37 OF 38 INCLUDED THE POWER TO CONSIDER ANY MATTER ARISING O UT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS RAISED OR NOT BY THE ELIGIBLE ASSESSEE. (9) .. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUTI ON PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. 35. A PERUSAL OF THE ABOVE PROVISIONS OF SEC.144C O F THE ACT MAKES IT CLEAR THAT THE DRAFT ASSESSMENT ORDER OF THE AO WIL L ATTAIN FINALITY TO THE EXTENT THAT THE ASSESSEE DOES NOT OBJECT TO THE PRO POSALS IN THE DRAFT ASSESSMENT ORDER. THE DRP IS AT LIBERTY TO CONSIDE R ANY ISSUE AFTER DUE OPPORTUNITY TO THE AO AND THE ASSESSEE. THE DIRECT IONS ISSUED BY THE DRP ARE BINDING ON THE ASSESSING OFFICER. THE ABOVE PR OVISIONS OF SEC.144C OF THE ACT WHICH ARE APPLICABLE TO THE ASSESSEE FOR TH E PRESENT ASSESSMENT YEAR, ARE APPLICABLE NOTWITHSTANDING ANYTHING TO TH E CONTRARY UNDER ANY OTHER PROVISIONS OF THIS ACT. 36. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE ABO VE STATUTORY PROVISIONS, THE ASSESSEE CANNOT SEEK TO RAISE AN ISSUE BEFORE T HE TRIBUNAL IN RESPECT OF WHICH HE HAS NOT FILED ANY OBJECTION BEFORE THE DRP NOR HAS THE DRP CONSIDERED THE ISSUE IN EXERCISE OF THEIR POWERS UN DER SEC.144C (8) OF THE ACT. WE THEREFORE DISMISS GROUND NO.5 RAISED BY TH E ASSESSEE. 37. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. IT(TP)A NO.1677/BANG/2012 PAGE 38 OF 38 ORDER PRONOUNCED IN THE OPEN COURT ON THE 8 TH OF MAY, 2015. SD/- SD/- ( ABRAHAM P.GEORGE ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBER ENCL: ANNEXURE-I BANGALORE, DATED, THE 8 TH MAY, 2015. / DS / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.
