TELECORDIA TECHNOLOGIES INDIA P.LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 1692/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2707 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 25-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Transfer pricing; Opportunity of being heard

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 1692/MUM/2014 ( / ASSESSMENT YEAR: 2009-10 M/S. TELCORDIA TECHNOLOGIES INDIA PVT. LTD., 5 TH FLOOR, TOWER A, BLDG NO. 9A, DLF CYBERCITY, PHASE III, GURGOAN -122 002 HARYANA, INDIA / VS. THE DCIT, CIRCLE 3(3), MUMBAI ./ ./ PAN/GIR NO. AACCT 3013B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI DHANESH BAFNA / RESPONDENT BY: SHRI N.K. CHAND / DATE OF HEARING :21.04.2016 ! / DATE OF PRONOUNCEMENT :15.07.2016 / O R D E R PER C.N. PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING TH E ORDER OF THE DRP-II, MUMBAI DATED 25.11.2013 IN SUSTAINING THE ADJUSTMENT OF RS. 1,84,22,714/- MADE IN RESPECT OF INTERNATIONAL TRAN SACTIONS OF THE ASSESSEE WITH ITS AE IN PROVIDING FEES FOR SOFTWARE DEVELOPMENT AND RELATED SERVICES. ITA NO. 1692/MUM/2014 2 2. BRIEF FACTS ARE THAT ASSESSEE IS ENGAGED IN PROV IDING SOFTWARE DEVELOPMENT SERVICES AND RELATED SERVICES TO ITS A E. THE ASSESSEE USED TNMM TO BENCH MARK THE INTERNATIONAL TRANSACTI ONS AND ARRIVED AT MARGIN OF 14.5%. THE TPO REJECTED THE S EARCH METHODOLOGY ADOPTED BY THE ASSESSEE AND PROCEEDED WITH FRESH STUDY ON COMPARABLES AND SELECTED FINAL SET OF 23 C OMPARABLES AND ARRIVED AT ARITHMETIC MEAN OF 29.77% OF THESE COMPA RABLES AND IT RESULTED IN TP ADJUSTMENT OF RS. 2,93,92,757/-. TH E DRP DIRECTED THE TPO TO EXCLUDE 15 COMPARABLES AND INCLUDE ONE COMPA RABLE I.E. SYNETARIOS TECHNOLOGIES LTD. BASED ON FUNCTIONALITY . THE DRP FURTHER DIRECTED TO ADOPT MARGIN OF ACROPETAL TECHNOLOGIES LTD AT 21.30% AS AGAINST 39.06%. THE AVERAGE MARGIN OF COMPARABLES AFTER DRPS DIRECTION STOOD AT 24.09% AND THE TRANSFER PRICING ADJUSTMENT CAME DOWN TO RS. 1,84,22,714/- AND THE FINAL SET OF DRP COMPARABLES ARE AS UNDER: S. NO. NAME OF THE COMPANY OP/TC 1. ACCEL TRANSMATIC LTD (SEGMENT) 18.33% 2. LGS GLOBAL LTD. 18.05% 3. MINDTREE LTD (SEG) 5.52% 4. PERSISTENT SYSTEMS LTD. 38.12% 5. R.S. SOFTWARE (INDIA) LTD. 10.09% 6. THIRDWARE SOLUTIONS LTD 37.32% 7. KALS INFORMATION SYSTEMS LTD 41.91% 8. ACROPETAL TECHNOLOGIES LTD(SEG) 21.30% 9. SYNETARIOS TECHNOLOGIES LTD 26.17% ARITHMETIC MEAN 24.09% ITA NO. 1692/MUM/2014 3 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS BEFORE US THAT THE COMPARABLES LISTED AT 4, 6 & 7 VIZ., PERSISTENT SYS TEMS LTD., THIRDWARE SOLUTIONS LTD AND KALS INFORMATION SYSTEMS LTD SHO ULD BE EXCLUDED THE SAME SAID COMPANIES WERE EXCLUDED AND HAVE NOT CONSIDERED THEM AS COMPARABLES IN MANY DECISIONS. THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THE FOLLOWING AS TO WHY THE COMP ARABLES IN SL. NOS. 4, 6 & 7 OF THE FINAL SET OF COMPARABLES SHOU LD BE EXCLUDED FROM COMPARABLES. 1. PERSISTENT SYSTEMS LTD THE COMPANY HAS DERIVED REVENUES FROM PROVISION OF SOFTWARE SERVICES AS WELL AS PRODUCTS. HOWEVER, NO SEGMENTA L DETAILS ARE AVAILABLE IN THE FINANCIALS. NATURE OF OPERATION: THE COMPANY IS ENGAGED IN PR OVIDING OUTSOURCED PRODUCT DEVELOPMENT SERVICES TO INDEPE NDENT SOFTWARE VENDORS AND ENTERPRISES AND OFFERS COMPLET E PRODUCT LIFE CYCLE SERVICES FROM END TO END THE COMPANY ALSO DERIVES REVENUES FROM ROYALTY AND LICENSING OF PRODUCTS WHICH IS CATEGORIZED UNDER SOFTWARE DEV ELOPMENT SERVICES. THE COMPANY DEVELOPED MANY PRODUCTS FOR VARIOUS IND USTRIES LIKE TYRE MANUFACTURERS, PHARMACEUTICALS, TELECOM E TC. FOR TYRE MANUFACTURERS A PRODUCT WHICH HELP THEM IN TAKING MEASUREMENT READINGS, ETC. FOR DRUG MANUFACTURERS A PRODUCT FOR TRACKING CHEMICAL SAMPLES. FOR TELECOM SECTOR PRODUCT LIKE BOSS, NOSS AND OA. THE DRP PANEL HAS EXCLUDED TWO COMPARABLES NAMELY CELESTIAL LABS LTD AND ZENITH INFOTECH LTD AS THESE WERE ENGAGED IN DEVELOPMENT OF PRODUCTS. FURTHER, THE R EVENUE IS NOT INTO APPEAL. THEREFORE, ON THE SAME LINES, PE RSISTENT WHICH IS ALSO A SOFTWARE PRODUCT COMPANY CANNOT BE ACCEPTED AS A COMPARABLE. ITA NO. 1692/MUM/2014 4 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN THE CASE OF CIT VS INTOTO SOFTWARE INDIA PVT. LTD. ITA NO. 233/2 014 (AP HC), PERSISTENT SYSTEMS LTD., WAS REJECTED AS COMPARABL E ON ACCOUNT OF THE FACT THAT NO SEGMENTAL INFORMATION IS AVAILABLE . THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT PERSISTENT SY STEMS LTD., HAS BEEN REJECTED ON THE REASON THAT THIS COMPANY HAS R EVENUES FROM SOFTWARE SERVICES AS WELL AS PRODUCTS AND NO SEGMEN TAL DETAILS ARE AVAILABLE AND THEREFORE WAS NOT CONSIDERED AS COMPA RABLES IN THE FOLLOWING DECISIONS: 1. LIONBRIDGE TECHNOLOGIES PVT. LTD VS ITO ITA NO. 668/M/2014 A.Y. 2010-11 DT. 18.11.2015 2. NXP SEMI CONDUCTORS INDIA PVT. LTD. VS DCIT ITA N O. 1634/BANG/14- A.Y. 2009-10 DT. 22.7.2015 3. PLANET ONLINE PVT. LTD. VS ACIT ITA NO. 464/HYD/2 014 A.Y. 2009-10 DT. 13.1.2015 II. THIRDWARE SOLUTIONS LTD. REVENUE FROM OPERATIONS INCLUDES INCOME FROM SOFTW ARE SERVICES, SALE OF LICENSES, SUBSCRIPTION FEES AND E XPORTS FROM TAX HOLIDAY UNITS. THOUGH SEGMENTAL DETAILS OF REVENUES FROM SOFTWARE DEVELOPMENT SERVICES ARE AVAILABLE, NO BIFURCATION OF EXPENDITURE IS AVAILABLE IN THE FINANCIAL STATEMENT S. FURTHER, NO BIFURCATION IS AVAILABLE AS TO WHETHER THE REVEN UE FROM EXPORTS PERTAINS TO SOFTWARE SERVICES, PRODUCTS OR LICENSES. THE OPERATIONS OF THE COMPANY COMPRISE OF SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES. THE DRP PANEL HAS EXCLUDED ONE COMPARABLES NAMELY ADITYA BIRLA MINACES IT SERVICES LABS LTD, AS IT WAS NOT O NLY ENGAGED IN DEVELOPMENT OF PRODUCTS BUT ALSO EARN LICENSE FE ES ON SALE OF PRODUCTS. FURTHER, THE REVENUE IS NOT INTO APPE AL. THEREFORE, ON THE SAME LINES, THIRDWARE WHICH IS AL SO INTO ITA NO. 1692/MUM/2014 5 DEVELOPMENT OF PRODUCTS AND SALE OF LICENSES, CANNO T BE ACCEPTED AS A COMPARABLE. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT FO R VERY SAME ASSESSMENT YEAR IN THE FOLLOWING DECISIONS THIRDWAR E SOLUTIONS LTD HAS BEEN REJECTED ON THE REASON THAT THIS COMPANY H AS REVENUES FROM SOFTWARE SERVICES, SALE OF LICENCES AND IS ALSO INT O PRODUCT DEVELOPMENT AND HAS INADEQUATE SEGMENTAL DETAILS. 1. PLANET ONLINE PVT. LTD. VS ACIT ITA NO. 464/HYD/2 014 A.Y. 2009-10 DT. 13.1.2015 2. APPROVA SYSTEMS PVT. LTD VS CIT ITA NO. 1788 & 1803/PN/2013 ASSESSMENT YEAR 2009-10 DATED 13.1.2 015 III. KALS INFORMATION SYSTEMS LTD THE COMPANY PRIMARILY DERIVES ITS REVENUES FROM SOF TWARE SERVICES AND SOFTWARE PRODUCTS. THE COMPANY IS ENG AGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THERE ARE ONLY TWO SEGMENTAL NAMELY (1) APPLICATION SOFTWARE (2) TRAINING. THE TPO HAS CHOSEN APPLICATION SOFT WARE SEGMENT AS COMPARABLE TO THE APPELLANT. THERE IS N O FURTHER BREAK OF REVENUE FROM SOFTWARE PRODUCTS AND SERVICE S IN APPLICATION SOFTWARE SEGMENT. THE COMPANY DEVELOPS VARIETY OF SOFTWARE PRODUCTS L IKE SHINE ERP, DOCUFLO, LA VISION, ETC. AND IS AN ESTABLISHED SOFTWARE DEVELOPER. THE DRP PANEL HAS EXCLUDED TWO COMPARABLES NAMELY CELESTIAL LABS LTD AND ZENITH INFOTECH LTD AS THESE WERE ENGAGED IN DEVELOPMENT OF PRODUCTS. FURTHER, THE R EVENUE IS NOT INTO APPEAL. THEREFORE, ON THE SAKE LINES, KAL S WHICH IS ALSO A SOFTWARE PRODUCT COMPANY CANNOT BE ACCEPTED AS A COMPARABLE. ITA NO. 1692/MUM/2014 6 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT M /S. KALS INFORMATION SYSTEM LTD HAS BEEN REJECTED IN THE FOL LOWING CASE FOR THE REASON THAT NO SEGMENTAL INFORMATION IS AVAILAB LE, THEREFORE SHOULD NOT BE CONSIDERED AS COMPARABLE. 1. CIT VS INTOTO SOFTWARE INDIA PVT. LTD. ITA NO. 2 33/2014 (AP HC) 2. ITO VS PRANA STUDIOS PVT. LTD ITA NO. 2077/M/2014 A.Y. 2009-10 3. LIONBRIDGE TECHNOLOGIES PVT. LTD VS ITOITA NO. 668/M/2014 A.Y. 2010-11 DT. 18.11.2015 4. NXP SEMI CONDUCTORS INDIA PVT. LTD. VS DCIT IT A NO. 1634/BANG/14- A.Y. 2009-10 DT. 22.7.2015 5. PLANET ONLINE PVT. LTD. VS ACIT ITA NO. 464/HY D/2014 A.Y. 2009-10 DT. 13.1.2015 6. APPROVA SYSTEMS PVT. LTD VS CIT ITA NO. 1788 & 1803/PN/2013 ASSESSMENT YEAR 2009-10 DATED 13.1.2015 THEREFORE THE LD. COUNSEL FOR THE ASSESSEE STRONGL Y SUBMITS THAT THESE COMPARABLES IN SL. NOS. 4, 6 & 7 SHOULD BE EXCLUDED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THA T IN SO FAR AS PERSISTENT SYSTEMS LTD., AND THIRDWARE SOLUTIONS LT D., ARE CONCERNED, THE ASSESSEE HAS NOT RAISED ANY OBJECTION BEFORE TH E LOWER AUTHORITIES AND THESE COMPANIES WERE ACCEPTED AS COMPARABLES BY THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS NOT EVEN RAISED AN ADDITIONAL GROUND BEFORE THE TRI BUNAL CONTENDING THAT THESE COMPARABLES SHOULD BE EXCLUDED. IN SO F AR AS KALS INFORMATION SYSTEMS LTD IS CONCERNED, THE LD. DEPAR TMENTAL ITA NO. 1692/MUM/2014 7 REPRESENTATIVE SUBMITS THAT THE DRP HAS CONSIDERED THE OBJECTIONS OF THE ASSESSEE IN PARA 9.5 OF ITS ORDER AND HAS RIGHT LY REJECTED THE OBJECTIONS OF THE ASSESSEE AND THE ASSESSEE HAS NOT UPROOTED/DISLODGED THE FINDINGS OF THE DRP IN RESPE CT OF THIS COMPARABLE. IN REPLY, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITS THAT ADDITIONAL GROUND HAS BEEN FILED IN SO FAR AS ITEM NO. 4 & 6 ARE CONCERNED AND IN RESPECT OF KALS INFORMATION SYSTEM S, HE SUBMITS THAT THIS COMPANY IS A PRODUCT COMPANY THEREFORE SH OULD BE EXCLUDED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED ON. THE ONLY DISPUTE BEFORE US IS THE EXCLUSION OF COMPARABLES IN SL. NO S. 4, 6 & 7. THE ASSESSEE SUBMITS THAT THE COMPARABLES REFERRED TO I N SL. NO. 4,6 & 7 HAVE TO BE EXCLUDED FOR THE REASON THAT EITHER THER E ARE NO SEGMENTAL INFORMATION AVAILABLE OR THERE ARE REVENUES FROM S OFTWARE PRODUCTS, SOFTWARE SERVICES AND ALSO RUNNING TRAINING CENTERS OF PROFESSIONALS ETC. THEREFORE, IT WAS THE CONTENTION THAT THESE C OMPANIES ARE FUNCTIONALLY DISSIMILAR AS THAT OF THE ASSESSEE COM PANY, THEREFORE THEY SHOULD BE REJECTED AS COMPARABLES. 9. IN THE CASE OF CIT VS INTOTO SOFTWARE INDIA PVT . LTD. IN ITA NO. 233/2014 IT WAS HELD AS UNDER: HAVING HEARD BOTH THE PARTIES AND HAVING GONE THRO UGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAG E-37 OF HIS ORDER HAS BROUGHT OUT THE DIFFERENCES BETWEEN T HE PRODUCT COMPANY AND A SOFTWARE DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF TH E FUNCTIONAL DISSIMILARITY BETWEEN A PRODUCT COMPANY AND A SOFTW ARE DEVELOPMENT SERVICE PROVIDER. HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTIONS, THE ASSESSING OFFICER ITA NO. 1692/MUM/2014 8 OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INT O BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOP MENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTA L DETAILS ARE AVAILABLE. IN VIEW OF THE AFORESAID FACT FINDING OF THE LEARN ED TRIBUNAL, THIS COURT CANNOT RE-APPRECIATE THE SAME. ACCORDINGLY, THE APPEAL IS DISMISSED. MISCELLANEO US PETITIONS PENDING, IF ANY, SHALL STAND CLOSED. NO ORDER AS TO COSTS. 10. IN THE CASE OF ITO VS PRANA STUDIOS PVT. LTD. ITA NO. 207/M/14 A.Y. 209-10 IT WAS HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING OF THE TPO AS WELL AS THE ORDER OF THE DRP ON THIS SCORE. THE ASSESSEE IS A CAPTIV E SERVICE PROVIDER, PROVIDING PURELY SOFTWARE SERVICES IN THE CONTEXT OF 3D ANIMATION TO ITS AE. THE SOLE DISPUTE BEFORE US IS, WHETHER KALS INFORMATION SYSTEM LTD. SHOULD BE TAKE N AS A COMPARABLE OR NOT FOR THE PURPOSE OF COMPARABILITY ANALYSIS AND BENCH MAKING OF THE MARGIN. FROM THE PERUSAL OF THE OBJECTIONS FILED BY THE ASSESSEE BEF ORE THE DRP, AS WELL AS ANNUAL REPORT OF KALS, IT IS SEEN T HAT THE SAID COMPANY IS ENGAGED INTO DEVELOPMENT OF SOFTWAR E AND SOFTWARE PRODUCTS AND ALSO RUNNING A TRAINING CENTR E FOR TRAINING OF SOFTWARE PROFESSIONALS. THE SAID COMPAN Y OFFERS VARIETY OF SOFTWARE PRODUCTS IN THE AREA OF WEB SOL UTIONS, E- COMMERCE, SOFTWARE CONSULTANTS, CONTENT MANAGEMENT ERP APPLICATIONS ETC. IT'S FUNCTIONAL PROFILE IS QU ITE DIFFERENT FROM THE ASSESSEE COMPANY, WHICH IS PUREL Y PROVIDING SOFTWARE SERVICES IN THE FIELD OF 3D ANIM ATION. THUS, IT CANNOT BE HELD TO BE A COMPARABLE COMPANY FOR THE PURPOSE OF BENCH MARKING THE ASSESSEE'S MARGIN OR CARING OUT ANY COMPARABILITY ANALYSIS. THE ITAT PUN E BENCH IN THE CASE OF PTC SOFTWARE (INDIA) (P.) LTD. (SUPRA), HAS HELD THAT THE KALS, WHICH IS ENGAGED IN THE SAL E OF SOFTWARE PRODUCTS CANNOT BE HELD TO BE A COMPARABLE CASE WITH THE COMPANIES PROVIDING SOFTWARE SERVICES. SIM ILARLY, IN VIEW OF SERIES OF OTHER DECISIONS OF THE TRIBUNA L AS NOTED ITA NO. 1692/MUM/2014 9 BY THE DRP, KALS CANNOT BE HELD TO BE COMPARABLE CO MPANY FOR BENCH MARKING WITH THE COMPANIES PROVIDING SOFT WARE SERVICES. THUS, THE ORDER OF THE DRP AS NOTED ABOVE IS UPHELD. ACCORDINGLY, THE GROUND RAISED BY THE REVEN UE IS DISMISSED. 11. IN THE CASE OF LIONBRIDGE TECHNOLOGIES PVT. LT D. VS. ITO - ITA NO. 668/MUM/2014 - AY 2010-11, IT WAS HELD AS UNDE R: 79. IN THIS REGARD, IT IS SEEN THAT THE AUDITED FI NANCIALS OF KALS FOR AY 2010-11 ARE AT APB 271 - 298. AT APB 291, IS SCHEDULE NO. 14, I.E., 'NOTES TO THE FINANCIAL STATEMENTS'. IN PARA-1 THEREOF IT IS STATED AS FOLLOWS: ---------------------------- 80. THIS CLEARLY SHOWS THAT KALS IS INTO DEVELOPME NT OF SOFTWARE AND SOFTWARE PRODUCTS. 81. THE SEGMENTAL INFORMATION OF KALS IS AVAILABLE AT APB- 293, AS FOLLOWS: --------------------------------- ------------------------------------ 82. FROM THE ABOVE, IT IS EVIDENT THAT SEGMENTAL IN FORMATION OF KALS REGARDING ITS SOFTWARE DEVELOPMENT SEGMENT IS NOT AVAILABLE. THEREFORE, COMPARISON OF THE ASSESSEE, WHO IS INTO SOFTWARE DEVELOPMENT ONLY, WITH THE SOFTWARE DEVELO PMENT SEGMENT OF KALS IS NOT POSSIBLE. THEREFORE, FINDIN G THE FUNCTIONALITY OF KALS INCOMPARABLE WITH THE ASSESSE E, WE REJECT THIS COMPANY AS A COMPARABLE. WE HOLD THAT THE DRP HAS ERRED IN CONFIRMING THE TPOS ACTION INCLUDING KALS AS A COMPARABLE 12. IN THE CASE OF NXP SEMI-CONDUCTORS INDIA PRIVA TE LTD VS. DCIT - ITA NO. 1634/BANG/2014 - AY 2009-10, IT WAS HELD AS UNDER: '9. KALS INFORMATION SYSTEMS LTD. 91 . .. 9.2 . ITA NO. 1692/MUM/2014 10 93 9.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND T HAT A CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. CISCO SYSTEMS SERVICES BE., INDIA BRANCH (SUPRA), FOR ASSESSMENT YEAR 2009-10 HAS EXCLUDED THIS COMPANY AS A COMPARABLE, OBSERVIN G THAT IT WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT COMPAR ABLE TO A PURELY SOFTWARE SERVICE PROVIDER AND AT PARA 20 THE REOF IT WAS HELD AS UNDER :- '20 . . 26.1 .......................................... 26.2 ..... 26.3 KALS INFORMATION SYSTEMS LTD.:- AS FAR AS THIS COMPANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSIDERED AS NOT COMPARABLE TO A PURE SOFTWARE DEVELOPMENT SERVICES COMPANY BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. TRILOGY E-BUSINESS SOF TWARE INDIA PVT. LTD. (SUPRA). THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: '(D) KALS INFORMATION SYSTEMS LTD. 46. 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. 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 BUNAL'S DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. 1386/PN/10 WHEREIN KALS AS COMPARA BLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNC TIONALLY ITA NO. 1692/MUM/2014 11 DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXT RACT ARE AS FOLLOWS: 16. .. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE SU BMISSION MADE ON BEHALF OF ASSESSEE. WE FIND THAT THE TPO HA S DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHIC H WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND N OT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY I S NOT COMPARABLE.' FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, W E HOLD THAT KALS INFORMATION SYSTEMS LTD. SHOULD NOT BE RE GARDED AS A COMPARABLE.' 9.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-ORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF CISCO SYSTEMS SERVICES BE, INDIA BRANCH (SUPRA) FOR ASSESSMENT YEAR 2009-10, WE DIRE CT THE ASSESSING OFFICER / TPO TO OMIT THIS COMPANY FROM T HE FINAL SET OF COMPARABLES AS IT IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CASE ON HAND, WHO IS PURELY A SOFTWARE SERV ICE PROVIDER. 13. IN THE CASE OF PLANET ONLINE PVT. LTD. VS. ACI T - ITA NO. 464/HYD/2014 - AY 2009-10. 10. WE HAVE CONSIDERED . .. 10.1 AS FAR AS COMPARABLES AT SI. NOS. 1 TO 5 ARE C ONCERNED, THE ISSUES ARE MORE OR LESS COVERED BY DECISIONS OF THE COORDINATE BENCHES FOR THE SELF-SAME AY I.E. 2009-10. IN OF M/ S CISCO SYSTEMS (INDIA) PVT. LTD. VS. DCLT, IT(TP) NO. 130/ BANG/14 DATED 14/08/14, THE COORDINATE BENCH AFTER EXAMINING IN D ETAIL, ITA NO. 1692/MUM/2014 12 EXCLUDED BODHTREE CONSULTING LTD., INFOSYS LTD., KA LS INFORMATION SYSTEMS AND TATA ELXSI LTD. (SEG.) THE RELEVANT OBS ERVATIONS OF THE ITAT, BANGALORE BENCH IN RESPECT TO EACH OF THE AFORESAID COMPANIES ARE REPRODUCED HEREUNDER FOR THE SAKE OF CLARITY: .. 263 '(D) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF THE ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT 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 ANNUAL REPORT, THE SALARY COST DEBITED UNDER THE SO FTWARE DEVELOPMENT EXPENDITURE WAS RS. 45,93,351/-. THE S AME WAS LESS THAN 25% OF THE SOFTWARE SERVICES REVENUE AND THERE FORE THE SALARY COST FILTER TEST FAILS IN THIS CASE. REFERE NCE WAS MADE TO THE PUNE BENCH TRIBUNAL'S DECISION OF THE ITATIN THE CA SE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/10 WHEREIN KALS AS COMPARABLE WAS REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERE NT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOL LOWS: .. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSION MADE ON BEHALF OF THE ASSESSEE. WE FIND THAT THE TP O HAS DRAWN CONCLUSIONS ON THE BASIS OF INFORMATION OBTAINED BY ISSUE OF NOTICE U/S.133(6) OF THE ACT. THIS INFORMATION WHIC H WAS NOT AVAILABLE IN PUBLIC DOMAIN COULD NOT HAVE BEEN USED BY THE TPO, WHEN THE SAME IS CONTRARY TO THE ANNUAL REPORT OF T HIS COMPANY AS HIGHLIGHTED BY THE ASSESSEE IN ITS LETTER DATED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFTWARE PRODUCTS AND N OT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ITA NO. 1692/MUM/2014 13 ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY IS NOT COMPARABLE.' FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, W E HOLD THAT KALS INFORMATION SYSTEMS LTD. SHOULD NOT BE RE GARDED AS A COMPARABLE. . . 10.2 ITAT, HYDERABAD BENCH FOLLOWING THE AFORESAID DECISION OF THE ITAT, BANGALORE BENCH ALSO EXCLUDED THESE FOUR COMPANIES IN CASE OF M/S KENEXA TECHNOLOGIES PVT. LTD. VS. DCIT IN ITA NO. 243/HYD/2014 DT. 14/11/2014. RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITAT, WE DIRECT AO/TPO TO EXCLUDE THESE FOUR COMPANIES. 14. IN THE CASE OF APPROVA SYSTEMS PRIVATE LTD VS. CIT - ITA NO. 1788 & 1803/PN/2013 -AY 2009-10, IT WAS HELD AS UND ER: 18. SO FAR AS THE GROUNDS RAISED BY THE REVENUE AR E CONCERNED, WE FIND THE SAME RELATES TO EXCLUSION OF KALS INFORMATION SYSTEM LTD. FROM THE LIST OF COMPARABLE COMPANIES BY THE LD.CIT(A). 19. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA (P) LTD. (SUPRA) FOR A.Y. 2006-07 HAS HELD THAT THE SAID COM PANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. SIMILARLY, THE PUNE BENCH OF THE TRIB UNAL IN THE CASE OF BITWISE SOLUTIONS (P.) LTD. V. ASSTT. CIT [2014J 66 SOT 22/49 TAXMANN.COM 532 HAS ALSO HELD THAT INFORMATION SYST EM LTD., CANNOT BE CONSIDERED AS COMPARABLE. SIMILAR VIEW HA S BEEN TAKEN BY THE VARIOUS OTHER BENCHES OF THE TRIBUNAL, THE DETAILS OF WHICH ARE GIVEN ABOVE BELOW: ITA NO. 1692/MUM/2014 14 19.1 SINCE THE LD.CIT(A) FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL HAS REJECTED KALS INFORMATION SYSTEM LTD. HOLDING THE SAME TO BE FUNCTIONALLY DIFFERENT , THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGL Y, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE AC CORDINGLY DISMISSED. 15. THEREFORE, AS IT COULD BE SEEN FROM THE DECISIO NS REFERRED ABOVE, KALS INFORMATION SYSTEMS LTD. HAS NOT BEEN CONSIDERED AS COMPARABLE FOR THE REASON THAT THERE ARE NO SEGMENT AL RESULTS AND ALSO THIS COMPANY SHOULD BE EXCLUDED AS COMPARABLE, SINCE IT WAS DEVELOPING SOFTWARE PRODUCTS AND WAS NOT COMPARABLE TO BE A PURELY SOFTWARE SERVICES PROVIDED LIKE ASSESSEE. IT WAS A LSO ONE OF THE REASON FOR NOT CONSIDERING KALS INFORMATION SYSTEMS LTD., AS COMPARABLES IS THAT THIS COMPANY IS ENGAGED IN PROV IDING TRAINING THEREFORE THIS COMPANY IS FUNCTIONALLY DIFFERENT FR OM THE ASSESSEE. THEREFORE, IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMEN T REFERRED TO ABOVE, WE DIRECT THE TPO TO EXCLUDE KALS INFORMATIO N SYSTEM LTD., AND NOT TO CONSIDER AS A COMPARABLE COMPANY. IN RE SPECT OF THE COMPANIES MENTIONED IN S. NOS. 4 & 6 I.E. PERSISTE NT SYSTEMS LTD., AND THIRDWARE SYSTEMS LTD., WE FIND IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE TPO WHO SHALL CONSIDER THE CONTENTIONS OF THE ASSESSEE AND PASS NECESSARY ORDER SINCE THE ASSESSE E HAS NOT CONTENDED BEFORE THE LOWER AUTHORITIES THAT THESE T WO COMPANIES ARE FUNCTIONALLY DIFFERENT AND SHOULD BE EXCLUDED FROM COMPARABLES. THUS, WE RESTORE THE ISSUE OF CONSIDERING AS TO W HETHER THESE TWO COMPARABLES SHOULD BE EXCLUDED OR NOT FOR THE PURP OSE OF ARRIVING AT THE ADJUSTMENT, TO THE FILE OF THE TPO WHO SHALL D ECIDE IN ACCORDANCE WITH LAW AFTER CONSIDERING THE SUBMISSIONS AND VARI OUS DECISIONS ITA NO. 1692/MUM/2014 15 RELIED ON BY THE ASSESSEE AND AFTER PROVIDING ADEQ UATE OPPORTUNITY OF BEING HEARD. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 15 TH JULY, 2016 . % . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI