Pegasystems Worldwide India Private Limited, Hyderabad V. ACIT, Circle -16(2), Hyderabad

ITA 1758/HYD/2014

• Counselvise Citation: 175822514 RSA 2014
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: AJIT TOLANI
• Keywords: Transfer pricing; International transaction; Working capital adjustments; Wholly owned subsidiary; Bad and doubtful debts; Notional interest
• Section: 143(3); 10AA; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 1758/HYD/2014 ASSESSMENT YEAR: 2010-11 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., HYDERABAD [PAN: AAECP3453F] VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD (APPELLANT) (RESPONDENT) I.T.A. NO. 1936/HYD/2014 ASSESSMENT YEAR: 2010-11 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD VS M/S. PEGASYST EMS WORLDWIDE INDIA PVT. LTD., HYDERABAD [PAN: AAECP3453F] (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI AJIT TOLANI, AR FOR REVENUE : SHRI V. SRINIVAS, DR DATE OF HEARING : 1 1 - 0 8 - 201 5 DATE OF PRONOUNCEMENT : 16-10-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AG AINST THE ORDER OF THE ASSESSING OFFICER (AO) U/S. 143(3) R.W.S. 144C( 5) OF THE INCOME TAX ACT [ACT] CONSEQUENT TO THE DIRECTIONS ISSUED BY THE DI SPUTE RESOLUTION PANEL [DRP], HYDERABAD DATED 26-09-2014. IN THIS APPEAL, ASSESS EE HAS RAISED AS MANY AS 12 GROUNDS. OUT OF WHICH, GROUND NOS. 1, 2 AND 3 P ERTAIN TO GENERAL OBJECTIONS I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 2 -: ON PROCEDURE ADOPTED BY THE TRANSFER PRICING OFFICE R [TPO] WHICH ARE NOT PRESSED SPECIFICALLY. GROUND NOS. 4 & 5 PERTAIN TO SELECTION AND REJECTION OF COMPARABLES. GROUND NO. 6 PERTAINS TO RISK ADJUSTM ENT. GROUND NOS. 7 & 8 PERTAIN TO INTEREST ON OUTSTANDING RECEIVABLES AND GROUND NO. 9 PERTAINS TO INCORRECT MARGIN COMPUTATION. GROUND NOS. 10, 11 & 12 ARE WITH REFERENCE TO INITIATION OF PENALTIES AND IMPOSING INTEREST U/S. 234B. 2. WE HAVE HEARD LD. COUNSEL FOR ASSESSEE AND LD. DR IN DETAIL AND ALSO PERUSED THE PAPER BOOKS PLACED ON RECORD RUNNI NG TO PAGES 881. ARGUMENTS OF THE COUNSELS AND EVIDENCE PLACED ON RE CORD ARE CONSIDERED AS AND WHEN REQUIRED. 3. BRIEFLY STATED, PEGASYSTEMS WORLDWIDE INDIA PVT . LTD., IS WHOLLY OWNED SUBSIDIARY OF PEGASYSTEMS, USA, AN ASSOCIATED ENTERPRISE (AE). ASSESSEE IS A SOFTWARE SOLUTION PROVIDER TO BUSINESS PROCESS MANAGEMENT SOFTWARE SOLUTIONS AND BUSINESS RULES PLATFORM. ASSESSEE FI LED RETURN OF INCOME ADMITTING NIL INCOME ON 15-10-2010 FOR THE IMPUGNED ASSESSMEN T YEAR. AO HAS REFERRED THE CASE U/S. 92CA(1) OF THE ACT FOR DETERMINATION OF ALP IN RESPECT OF THE INTERNATIONAL TRANSACTIONS REPORTED FOR THE FINANCI AL YEAR RELEVANT TO THE AY. 2010-11. ASSESSEE HAS REPORTED THE FOLLOWING INTERN ATIONAL TRANSACTIONS IN ITS 3CEB REPORT/TP DOCUMENT: A.E. NATURE OF TRANSACTION AMOUNT (RS) PEGASYSTEMS WORLDWIDE INC. PROVISION OF SOFTWARE DEVELOPMENT SERVICES 29,20,96,158 PEGASYSTEMS WORLDWIDE INC. REIMBURSEMENT OF EXPENSES TO AES 3,80,14,925 33,01,11,083 4. IN THE TRANSFER PRICING DOCUMENT, ASSESSEE HAS CARRIED OUT ECONOMIC ANALYSIS AND USED PROWESS AND CAPITALINE P LUS DATA BASE. USING CERTAIN FILTERS, ASSESSEE USED TRANSACTIONAL NET MA RGIN METHOD [TNMM] AS MOST APPROPRIATE METHOD (MAM) AND SHORT LISTED 21 COMPAR ABLES WITH ARITHMETIC MEAN, PLI (OP/OC) WAS COMPUTED AT 11.26% ASSESSEES PLI ON THE REPORTED I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 3 -: TRANSACTIONS WAS AT 14.03%. THE TRANSACTIONS RELAT ING TO REIMBURSEMENT TO AE WHICH ARE CHARGED AT COST WERE NOT CONSIDERED FOR A NY ANALYSIS AND ASSESSEE HELD THE TRANSACTIONS ARE THUS ARMS LENGTH. TPO V IDE PARA 6 OF HIS ORDER ARRIVED AT THE OPERATIONAL REVENUE AT 29.21 CRORES AND OPER ATING COST AT 25.58 CRORES AND HAS TAKEN OPERATING PROFIT AT RS. 3,62,49,720/- . ACCORDINGLY, HE ARRIVED AT OP/OC AT 14.17% AND OP/OR AT 12.41%. TPO ALSO NOTI CED THAT COMPANY HAD RECEIVABLES TO AN EXTENT OF RS. 21,07,53,864/- AND CONSIDERED THAT THESE ARE NOT REPORTED IN FORM 3CEB AND NO BENCH MARKING ANALYSIS HAS BEEN DONE IN THE TP STUDY. BY STATING THAT METHOD OF SEARCH PROCESS AD OPTED BY ASSESSEE SUFFER FROM DEFECTS WHICH RESULTED IN SELECTION OF INAPPRO PRIATE COMPARABLES AND REJECTION OF COMPANIES THAT ARE APPROPRIATE COMPARA BLES, TPO REJECTED ASSESSEES TP DOCUMENT AND HAS UNDERTAKEN AN INDEPE NDENT ANALYSIS. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, TPO SELECT ED 18 COMPARABLES BY USING VARIOUS FILTERS AND ARRIVED AT ARMS LENGTH MARGIN AT 22.69%. BY ADDING NEGATIVE WORKING CAPITAL ADJUSTMENT, THE ALP WAS AR RIVED AT BY TPO AT 25.08% AND ALP OF INTERNATIONAL TRANSACTIONS WAS DETERMINE D AT 32,00,12,725/-, THEREBY MAKING ADJUSTMENT OF RS. 2,79,16,567/- U/S. 92C(3) OF THE ACT. IN ADDITION, TPO ALSO MADE ADJUSTMENT ON RECEIVABLES AT RS. 1,26,40, 592/- THEREBY DETERMINING TOTAL ADJUSTMENT AT RS. 4,05,57,159/-. 5. ASSESSEE RAISED OBJECTIONS BEFORE DRP, HYDERABA D, WHO CONSIDERED 14 OBJECTIONS RAISED BY ASSESSEE AND REJ ECTED MOST OF THEM EXCEPT DELETION OF INFOSYS TECHNOLOGIES LTD., AS A COMPARA BLE OUT OF 18 COMPARABLES SELECTED BY TPO AND ALSO DIRECTING TO DELETE THE NE GATIVE WORKING CAPITAL ADJUSTMENT OF (-) 2.39% MADE BY TPO. THUS, ASSESSE E GOT PARTIAL RELIEF FROM DRP ON THE TP ADJUSTMENT. DRP ALSO DIRECTED AO TO RECALCULATE THE COMPUTATION OF DEDUCTION U/S. 10AA FOLLOWING SPECIAL BENCH DECI SION OF THE ITAT IN THE CASE OF ITO VS. M/S. SAKSOFT LTD REPORTED AS 121 TTJ CHE NNAI (SB): 313 ITR (AT) 353 AND CIT VS. GEM PLUS JEWELLERY INDIA LTD. [233 CTR 248] OF HONBLE BOMBAY HIGH COURT. REVENUE IS AGGRIEVED ON THE RELIEF GRA NTED BY DRP, WHEREAS ASSESSEE IS AGGRIEVED ON THE TP ADJUSTMENTS MADE. I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 4 -: T.P. ADJUSTMENTS : 6. AS BRIEFLY STATED ABOVE, TPO HAS SELECTED 18 CO MPARABLES AND ARRIVED AT THE PLI WHICH WAS REDUCED TO 21.35% AFTE R EXCLUDING (INFOSYS TECHNOLOGIES LTD.,) BY DRP. FINAL SELECTION OF COM PARABLE COMPANIES AFTER DRPS ORDER IS AS UNDER: OP/OC % 1. AVANI CIMCON TECHNOLOGIES LTD., - 3.39 2. CAT TECHNOLOGIES LTD., - 13.04 3. EVOKE TECHNOLOGIES PVT LTD., - 18.61 4. E ZEST SOLUTIONS LTD., - 22.10 5. KULILZA TECHNOLOGIES PVT LTD., - 25.92 6. MINDTREE LTD (SEG) - 20.47 7. PERSISTENT SYSTEMS AND SOLUTIONS LTD., - 11.37 8. RS SOFTWARE INDIA LTD., - 9.88 9. THINKSOFT GLOBAL SERVICES LTD., - 11.22 10. ZYLOG SYSTEMS LTD., - 18.62 11. E INFOCHIPS BANGALORE LTD., - 72.32 12. COMP-U-LEARN TECH INDIA LTD., - 19.96 13. KALS INFORMATION SYSTEMS LTD (SEG) - 22.05 14. PERSISTENT SYSTEMS LTD., - 31.57 15. TATA ELXSI LTD (SEG) - 17.24 16. SASKEN COMMUNICATION TECHNOLOGIES LTD., - 25.23 17. L&T INFOTECH LTD., - 19.97 7. OUT OF THE ABOVE 17 COMPARABLES, ASSESSEE HAS N O OBJECTION IN SELECTING THE COMPARABLES AT ITEM NO. 1 TO 10, ASSE SSEE IS OBJECTING TO THE COMPARABLES FROM 11 TO 17. THE 18 TH COMPARABLE OF INFOSYS TECHNOLOGIES LTD., WHICH WAS EXCLUDED BY DRP IS BEING CONTESTED BY REV ENUE. APART FROM SELECTION OF COMPARABLES, ASSESSEE IS ALSO CONTESTI NG THE COMPARABLE COMPANIES REJECTED BY TPO IN GROUND NO.5. OUT OF THE THREE C OMPANIES, ASSESSEE HAS NOT I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 5 -: PRESSED FOR SATYAM COMPUTER SERVICES LTD., MENTIONE D IN THE GROUND. ASSESSEES REQUEST IS FOR INCLUSION OF TWO COMPANIE S, WHICH WILL BE DEALT WITH AT A LATER POINT OF TIME. ASSESSEES OBJECTIONS ON IN CLUSION OF THE COMPARABLES AND THE DECISIONS ARE AS UNDER: E INFOCHIPS BANGALORE LTD., : 8. THIS COMPANY IS SELECTED BY TPO EVEN THOUGH ASS ESSEE OBJECTED TO THE SAME (VIDE PAGE 34 AND 35 OF THE ORDER OF TP O). ASSESSEE OBJECTED THAT THE INFORMATION FOR FY. 2009-10 WAS NOT AVAILABLE I N PUBLIC DOMAIN. IT WAS FURTHER CONTENDED THAT COMPANY IS FUNCTIONALLY DIFF ERENT AND IS HAVING TWO DIFFERENT SEGMENTS I.E., SOFTWARE DEVELOPMENT SERVI CES AND ITES. COMPANY OFFERS BROAD PORTFOLIO OF SERVICES COMPRISING NEW P RODUCTS, PRODUCT DEVELOPMENT, PRODUCT SUSTENANCE AND MAINTENANCE, PR ODUCT QUALITATIVE ANALYSIS (QA) AND INDEPENDENT TESTING HARDWARE AND SOFTWARE DESIGN ETC. TPO DID NOT ACCEPT ASSESSEES DOCUMENTS BY REFERRING TO THE SCH EDULES LIKE RESEARCH AND DEVELOPMENT, INVENTORIES, SALES AND OTHER INCOMES. HE ALSO REPORTED THAT COMPANY IN THE NOTES TO THE ACCOUNTS HAS STATED THA T IT IS ENGAGED IN THE DEVELOPMENT AND MAINTENANCE OF COMPUTER SOFTWARE. THE PRODUCTION AND SALES OF SOFTWARE CANNOT BE EXPRESSED IN ANY GENERIC UNIT . THUS, TPO REJECTED ASSESSEES OBJECTIONS AND RETAINED IT AS A COMPARAB LE. DRP ALSO AGREED WITH TPO. 8.1. IT WAS CONTENDED THAT AO RELIED ON THE ANNUAL REPORT OF FY. 2010- 11 AND USED THE INFORMATION APPLICABLE TO FY. 2009- 10 FROM THAT REPORT, AS THE INFORMATION FOR FY. 2009-10 WAS NOT AVAILABLE IN PU BLIC DOMAIN. IT IS ALSO SUBMITTED THAT THIS COMPANY WAS NEVER SELECTED EITH ER BY TPO IN EARLIER YEAR OR IN LATER YEAR. IT WAS ALSO SUBMITTED THAT PROFITAB ILITY VARIES FROM YEAR TO YEAR AND IN THIS YEAR, THERE WAS ARBNORMALLY VERY HIGH M ARGIN, THE REASONS OF WHICH COULD NOT BE ANALYSED IN THE ABSENCE OF ANNUAL REPO RT. IT WAS FURTHER CONTENDED THAT SEGMENTAL INFORMATION WAS NOT AVAILABLE. ON TH E ARGUMENT THAT THE SAID COMPANY IS PROVIDING BOTH SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES LD. COUNSEL PLACED THE DISCLOSURES IN ANNUAL REPORT OF FY. 2008-09 AND ANNUAL I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 6 -: REPORT OF FY. 2009-10 TO SUBMIT THAT THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES AND HA S REPORTED BOTH OF THEM AS ONE SEGMENT. THEREFORE, COMPANY IS NOT COMPARABLE WITH ASSESSEES ON FUNCTIONAL ANALYSIS. IT WAS FURTHER SUBMITTED THAT COMPANY HAS MERGED IN 2012 WITH ANOTHER COMPANY AND IT WILL BE DIFFICULT TO OB TAIN FURTHER INFORMATION/SEGMENTAL INFORMATION ABOUT THE COMPANY NOW. IN VIEW OF ITS FLUCTUATING PROFITS OVER THE YEARS, THIS COMPANY WA S NOT SELECTED AS A COMPARABLE EARLIER OR IN LATER YEARS BY REVENUE. SINCE THE DISCLOSURE IN ANNUAL REPORT IS COMMON, ASSESSEE RELIED ON THE DECISION O F AHMADABAD BENCH OF ITAT IN THE CASE OF ALL SCRIPS (INDIA) PRIVATE LTD., IN ITA NO. 771/AHD/2014 FOR AY. 2009-10, WHEREIN THIS COMPARABLE WAS REJECTED ON TH E BASIS OF LACK OF SEGMENTAL INFORMATION. ASSESSEE RELIED ON PARA 10 OF THE CO-ORDINATE BENCH ORDER, WHICH IS AS UNDER: PARA 10 WITH RESPECT TO E-INFOCHIP BANGALORE L TD., WE FIND THAT IN THE ANNUAL ACCOUNTS OF THE COMPANY, WITH RESPECT TO THE SEGMENT INFORMATION IT IS STATED THAT THE COMPANY IS PRIMAR ILY ENGAGED IN SOFTWARE DEVELOPMENT AND I.T ENABLED SERVICES WHICH IS CONSI DERED THE ONLY REPORTABLE BUSINESS SEGMENT AS PER ACCOUNTING STAND ARD AS-17 SEGMENT REPORTING PRESCRIBED IN COMPANIES (ACCOUNTING STAN DARD) RULES, 2006. WE THUS FIND THAT NO SEGMENTAL INFORMATION IS AVAIL ABLE ..CONSIDERING THE AFORESAID FACTS, WE ARE O F THE VIEW THAT THE AFORESAID TWO COMPANIES NEEDS TO BE EXCLUDED WH ILE WORKING OUT THE COMPARABILITY ANALYSIS AND THEREFORE UPHOLD THE PLE A OF THE ASSESSEE IN EXCLUDING THE MARGINS OF THE AFORESAID 2 COMPANIES . 8.2. LD. DR, HOWEVER, REFERRED TO THE EXTRACTS MAD E BY TPO IN THE ORDER TO SUBMIT THAT ASSESSEE IS A COMPARABLE COMPA NY WITH THAT OF ASSESSEE. 8.3. AFTER CONSIDERING THE RIVAL CONTENTIONS AND P ERUSING THE ANNUAL REPORTS PLACED ON RECORD, WE ARE OF THE OPINION THA T THIS COMPANY CANNOT BE SELECTED AS COMPARABLE COMPANY FOR TP ANALYSIS. FI RST OF ALL, THIS COMPANY IS ENGAGED IN BOTH SOFTWARE DEVELOPMENT AS WELL AS ITE S. ASSESSEE BEING ONLY CAPTIVE SERVICE PROVIDER, THE ABOVE COMPANY CANNOT BE CONSIDERED AS COMPARABLE ON FUNCTIONAL BASIS. NOT ONLY THAT, AS POINTED OUT, SEGMENTAL I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 7 -: INFORMATION PERTAINING TO THE ABOVE COMPANY IS NOT AVAILABLE. AS SEEN FROM THE TP ORDERS, DOCUMENTS PLACED ON RECORD, TPO RELIED O N LATER YEARS ANNUAL REPORT IN EXTRACTING THE INFORMATION. VARIATION IN PROFIT ABILITY OVER THE YEARS ALONE CANNOT BE A REASON TO EXCLUDE THE COMPANY FROM COMP ARABILITY ANALYSIS BUT AS RIGHTLY POINTED, THE ABSENCE OF SEGMENTAL INFORMATI ON, HOW MUCH PROFIT EARNED WAS ON THE SOFTWARE DEVELOPMENT OR ITES CANNOT BE EXAMINED. IN THE ABSENCE OF CLARITY ON OPERATIONAL DETAILS AND COMPARABLE CO MPANY HAVING DIVERSIFIED ACTIVITIES, WE ARE OF THE OPINION THAT THIS COMPAN Y CANNOT BE CHOSEN AS A COMPARABLE COMPANY IN ASSESSEES CASE IN THIS ASSES SMENT YEAR. WE ARE ALSO AWARE OF THE DECISION OF THE CO-ORDINATE BENCH GIVE N IN EARLIER ASSESSMENT YEAR ON THE REASON THAT SEGMENTAL REPORTING WAS NOT AVAI LABLE. BE THAT AS IT MAY, SINCE THE SAID COMPANY IS FUNCTIONALLY DIFFERENT FR OM ASSESSEES ACTIVITIES AND IN THE ABSENCE OF SEGMENTAL INFORMATION, WE DIRECT AO/ TPO TO EXCLUDE THE ABOVE WHILE WORKING OUT THE COMPARABILITY ANALYSIS. WE UP HOLD THE PLEA OF ASSESSEE IN THIS REGARD. COMP-U-LEARN TECH INDIA LTD., : 9. THIS COMPANY WAS SELECTED BY TPO AS ONE OF THE COMPARABLE COMPANIES. ASSESSEE OBJECTED STATING THAT THIS COM PANY IS ENGAGED IN TWO SEGMENTS IE. IT ENABLED SERVICES AND SOFTWARE PRODU CTS SOLUTIONS AS PER THE ANNUAL REPORT AND IT HAS EXCEPTIONALLY ABNORMAL GRO WTH OF PROFITS OF 160% AS AGAINST INDUSTRIAL NORM OF 13 TO 15%. IT WAS ALSO OBJECTED STATING THAT THE GROWTH IS MORE THAN 10 TIMES THE INDUSTRIAL GROWTH AND COMPANY IN ITS STANDARD FINANCIAL PERFORMANCE HAS MENTIONED THAT IT HAS SPE NT SIZEABLE AMOUNT TOWARDS R&D IN PHARMACEUTICAL SECTOR FOR THE PURPOSE OF COM ING OUT WITH UNIQUE PRODUCTS AND SOLUTIONS FOR FACILITATING OPERATIONAL EFFICIENCY, EFFECTIVE INVENTORY MANAGEMENT AND COMPLETE FINANCIAL CONTROL FOR THE S ECTOR. TPO HOWEVER, CONSIDERED THE EXCEPTIONAL GROWTH WAS ONLY 1.6 TIME S COMPARED TO LAST YEAR AND NOT AN EXCEPTIONAL INCREASE. FURTHER, HE EXTRACTED SCHEDULE 12, TO COME TO A CONCLUSION THAT AS PER ANNUAL REPORT INCOME FROM SO FTWARE DEVELOPMENT WAS ABOUT RS. 14.11 CRORES AS AGAINST TOTAL INCOME OF R S. 14.31 CRORES. THE SOFT WARE SERVICES WORKED OUT TO 98% OF TOTAL REVENUE. HE CONCLUDED THAT THE I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 8 -: COMPANY IS PREDOMINANTLY SOFTWARE DEVELOPMENT SERVI CES AND ACCORDINGLY COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES PROVID ER FOR THE YEAR. HE ALSO STATED THAT COMPANY CATEGORICALLY STATED THAT IT WA S PURE SOFTWARE DEVELOPMENT SERVICES PROVIDER. HE ALSO REJECTED OBJECTION ON S TRATEGIC ACQUISITIONS STATING THAT THE SAME DOES NOT HAVE ANY IMPACT ON STANDALON E FINANCIALS OF ASSESSEE- COMPANY. WITH REGARD TO OBJECTION ON R&D, HE CONSI DERED THAT IT WAS A GENERAL NOTE AS NO EXPENDITURE APPEARS TO HAVE BEEN BOOKED IN P&L A/C. HE WAS OF THE OPINION THAT IN MOST OF THE CASES, R&D WILL ACTUALL Y BE ACTIVITIES AIMED AT COST CUTTING AND IMPROVING ORGANIZATIONAL SET UP ETC. I N VIEW OF THE ABOVE, THE CONTENTIONS OF ASSESSEE ARE REJECTED AND COMPANY IS RETAINED AS COMPARABLE. 9.1. RELYING ON THE OBJECTIONS RAISED BEFORE DRP W HO REJECTED THE SAME, LD. COUNSEL SUBMITTED THAT THIS YEAR IS AN EX CEPTIONAL PROFIT YEAR FOR THE COMPANY AND REFERRED TO THE REPORT OF THE COMPANY F OR THE YEAR UNDER CONSIDERATION. VIDE PAGE 207 OF THE PAPER BOOK, LD . COUNSEL REFERRED TO THE STRUCTURAL INITIATIVES, WHEREIN IT WAS STATED YOUR COMPANY WAS ORIGINALLY INTO BUSINESS OF SOFTWARE DEVELOPMENT AND EDUCATION TRAI NING. DURING THE PAST TWO YEARS, OUR FOCUS WAS SHIFTED TO E-GOVERNANCE SOLUTI ONS TO GOVERNMENT DEPARTMENTS OF STATE AND CENTRAL GOVERNMENTS . FURTHER, AS EXPLANATORY STATEMENT TO SECTION 173(2) OF THE COMPANIES ACT, A T ITEM NO. 8, IT WAS REPORTED AS UNDER: AS PART OF OVERALL GROWTH STRATEGY, COMPANY HAD EX CEPTIONALLY ITS OPERATIONS IN ITS CORE ACTIVITY, SOFTWARE DEVELOPMENT, E-GOVERNAN CE SOLUTIONS, IT SERVICES, IT ENABLED SERVICES ETC . IN ITEM NO. 9, IT WAS REPORTED THAT THE COMPANY PRESENTLY CARRIES ON BUSINESS OF SOFTWARE DEVELOPME NT, E-GOVERNANCE SOLUTIONS, IT AND IT ENABLED SERVICES. REFERRING TO PAGE 213 OF THE PAPER BOOK, IT WAS STA TED THAT IT HAS SPENT SIZEABLE AMOUNT TOWARDS R&D IN PHARMACEUTICAL SECTOR FOR THE PURPOSE OF COMING OUT WITH UNIQUE PRODUCTS AND SOLUTIONS FOR FACILITATING OPERATIONAL EFFICIENCY, EFFECTIVE I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 9 -: INVENTORY MANAGEMENT AND COMPLETE FINANCIAL CONTROL FOR THE SECTOR. HE LATER REFERRED TO THE STRATEGIC ACQUISITIONS, ALLIANCES AND SUBSIDIARIES REPORTED IN THE ANNUAL REPORT OF THE COMPANY. REFERRING TO PG. 215 , IT WAS SUBMITTED THAT R&D SECTOR WAS ESTABLISHED TO ENHANCE THE QUALITY OF IT S PRODUCTS. FURTHER, REFERRING TO REVENUE RECOGNITION IN SCHEDULE 14 (PAGE 219 OF THE PAPER BOOK), IT WAS SUBMITTED THAT REVENUE IN RESPECT OF BRAND LICENSE FEE IS ACCOUNTE D ON EXECUTION OF AGREEMENT. REVENUE FOR SOFTWARE DEVEL OPMENT IS RECOGNIZED ON THE BASIS OF CHARGEABLE TIME OR ACHIEVEMENT OF PRES CRIBED MILESTONE AS RELEVANT TO EACH CONTRACT. REVENUE FROM SALE OF SOFTWARE PR ODUCTS AND COURSEWARE MATERIALS IS RECOGNIZED WHEN THE SAME HAS BEEN COMP LETED WITH THE PASSING OF TITLE OR LICENSES OR RAISING INVOICES AS THE CASE M AY BE . REFERRING TO THE ABOVE, IT WAS SUBMITTED THAT, THAT COMPANY IS IN DIVERSIFI ED ACTIVITIES AND NOT EXCLUSIVELY AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN WHICH A SSESSEE IS FUNCTIONING. THEREFORE, THE COMPANY IS FUNCTIONALLY DIFFERENT. 9.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A RE OF THE OPINION THAT ON THE BASIS OF INFORMATION AVAILABLE, COMP-U-LEARN TECH INDIA LTD., CANNOT BE SELECTED AS A FUNCTIONALLY COMPARABLE COMPANY AS IT HAS DIVERSIFIED ACTIVITIES. ONLY IF THERE ARE SEGMENTAL REPORTS PERTAINING TO S OFTWARE DEVELOPMENT SERVICES, THEN ONLY THE COMPANY CAN BE TAKEN AS COMPARABLE CO MPANY. IN THE ABSENCE OF SUCH INFORMATION, IT IS VERY DIFFICULT TO HOLD THAT THE SELECTED COMPANY IS COMPARABLE TO ASSESSEE-COMPANY. THERE IS NO INFORM ATION ABOUT THE SEGMENTAL PROFITS. WHAT THAT COMPANY HAS REPORTED IN ITS ANNU AL REPORT IS INCOME FROM SOFTWARE DEVELOPMENT WHICH CANNOT BE EQUATED AS I NCOME FROM SERVICES. THE SOFTWARE DEVELOPMENT MAY INCLUDE SALE OF PRODUCTS. IN THE ABSENCE OF SEGMENTAL INFORMATION, THIS CASE CANNOT BE SELECTED AS COMPARABLE. HOWEVER, WHETHER TPO COULD OBTAIN ANY SEGMENTAL INFORMATION IS NOT KNOWN TO US. WE ARE OF THE OPINION THAT TPO SHOULD EXAMINE WHETHER THERE ARE ANY SEGMENTAL INFORMATION WHICH CAN BE OBTAINED FROM THE COMPANY OR AVAILABLE IN THE PUBLIC DOMAIN SO AS TO COMPARE ASSESSEES SOFTWARE DEVELOP MENT SERVICES WITH THAT OF SOFTWARE DEVELOPMENT SERVICES OF COMP-U-LEARN TECH INDIA LTD. THEREFORE, WE I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 10 - : ARE OF THE OPINION THAT THE ISSUE OF SELECTION OF T HIS COMPANY IS A COMPARABLE SHOULD BE RESTORED TO THE FILE OF AO/TPO TO EXAMINE THE AVAILABLE DATA IN PUBLIC DOMAIN/OR OBTAINING INFORMATION U/S. 133(6) OF THE ACT FOR SEGMENTAL INFORMATION PERTAINING TO SOFTWARE DEVELOPMENT SERV ICES AND THEN DECIDE AFTER GIVING DUE OPPORTUNITY TO ASSESSEE WHETHER THE SAID COMPANY CAN BE SELECTED AS COMPARABLE. FOR THE TIME BEING, ASSESSEES OBJE CTIONS ARE CONSIDERED VALID AND ISSUE IS RESTORED TO THE FILE OF AO FOR UNDERTA KING ANALYSIS AFRESH AS FAR AS THIS COMPANY IS CONCERNED. KALS INFORMATION SYSTEMS LTD : 10. ASSESSEE OBJECTED TO THE ABOVE COMPANY BEFORE TPO STATING THAT THE ABOVE SAID COMPANY IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. IT HAS INVENTORIES EQUIVALENT TO 27% OF THE REVENUE. TPO HOWEVER REJECTED ASSESSEE S CONTENTIONS STATING THAT COMPANY CLASSIFIED ITSELF AS PURE SOFTWARE DEVELOPM ENT SERVICE PROVIDER. FURTHER, EXTRACTING PAGE NO. 22 OF THE ANNUAL REPOR T OF THE COMPANY, TPO OPINED THAT THE SEGMENTAL INFORMATION INDICATES THA T REVENUE IS SHOWN TO HAVE BEEN EARNED FROM APPLICATION SOFTWARE AND TRAINING. ACCORDINGLY, HE REJECTED ASSESSEES OBJECTIONS AND INCLUDED AS THE COMPARABL E COMPANY. DRP CONFIRMED THE SAME. 10.1. ASSESSEES MAIN OBJECTION BEFORE US IS ON FU NCTIONALITY OF THE COMPARABLE COMPANY. AS SEEN FROM THE ANNUAL REPORT OF 2008-09 AND 2009-10 AND COMPARATIVE STATEMENT PLACED BY ASSESSEE, THE C OMPANY CLASSIFIED ITSELF AS THE COMPANY ENGAGED IN DEVELOPMENT OF SOFTWARE AN D SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE COMPANY CONSISTING OF STPI UNI T ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS AND A TRAINING CENTR E ENGAGED IN TRAINING OF SOFTWARE PROFESSIONALS ON ON-LINE PROJECTS. THIS I NDICATES THAT COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND PRODUCTS AND ITS INVENTORY ALSO INDICATES THAT ASSESSEE HAS BEEN USING ITS READYMAD E LIBRARIES FOR SALES. THIS COMPANY WAS REJECTED IN EARLIER YEAR ON FUNCTIONAL ANALYSIS BY ITAT IN THE CASE OF PLANET ONLINE PVT. LTD., IN ITA NO. 464/HYD/2014 WHERE IN IT WAS HELD THAT I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 11 - : COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODU CTS. SINCE ITS ANNUAL REPORT STATES THE SAME FACTS IN THIS ASSESSMENT YEA R ALSO, WE ARE OF THE OPINION THAT THE COMPANY CANNOT BE SELECTED AS A COMPARABLE AS IT WAS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS. ACC ORDINGLY, ASSESSEES OBJECTIONS ARE ACCEPTED AND AO IS DIRECTED TO EXCLU DE THE COMPANY. PERSISTENT SYSTEMS AND SOLUTIONS LTD. : 11. THIS COMPARABLE WAS NOT OBJECTED TO EARLIER BY ASSESSEE, THEREFORE, THERE IS NO DISCUSSION ON ASSESSEES OBJ ECTIONS EITHER IN TPOS ORDER OR IN DRPS ORDER. IT WAS THE SUBMISSION BY ASSESS EE THAT ABOVE SAID EARNED REVENUE FROM SALE OF SOFTWARE SERVICES AND PRODUCTS . LD. COUNSEL REFERRED TO THE SIMILARITY IN INFORMATION DISCLOSED IN ANNUAL R EPORT OF THE EARLIER YEAR AND IN THIS YEAR AND RELIES ON THE DECISION OF THE HON'BLE ITAT IN CASE OF PLANET ONLINE PVT. LTD., IN ITA NO. 464/HYD/2014 AY. 2009-10 (SUP RA), WHEREIN THIS COMPANY WAS REJECTED AS IT IS ENGAGED IN OUTSOURCING SOFTWA RE PRODUCT DEVELOPMENT AND PRODUCT DESIGNING. FURTHER, SEGMENTAL DETAILS WERE NOT AVAILABLE. SINCE THERE IS NO ANALYSIS ON THE OBJECTIONS OF ASSESSEE BY TPO AS ASSESSEE HAS NOT OBJECTED EARLIER, WE ARE OF THE OPINION THAT ASSESSEES OBJE CTIONS REQUIRE RE-EXAMINATION BY TPO. THEREFORE, WITHOUT GIVING ANY OPINION, WHE THER THE COMPANY CAN BE SELECTED AS COMPARABLE OR NOT ISSUE OF SELECTION OF THIS COMPANY AS COMPARABLE IS RESTORED TO THE FILE OF TPO TO RE-EXAMINE AFRESH . THEREFORE, IT IS RESTORED TO THE FILE OF TPO FOR FRESH EXAMINATION. TATA ELXSI LTD (SEG): 12. BEFORE TPO, ASSESSEE CONTENDED THAT THE ABOVE SAID COMPANY IS FUNCTIONALLY DIFFERENT AS IT SPECIALIZED IN EMBEDDE D SOFTWARE DEVELOPMENT TECHNOLOGY. IT WAS ALSO OBJECTED BEFORE TPO THAT I N EARLIER YEAR THIS COMPANY HAS CLEARLY STATED THAT IT CANNOT BE COMPARED TO AN Y OTHER SOFTWARE SERVICES COMPANY DUE TO COMPLEX NATURE OF ITS BUSINESS. ASS ESSEE RELIED ON THE DECISIONS OF ITAT IN THE CASE OF CONEXANT SYSTEMS INDIA PVT. LTD. (ITA NO.1429/HYD/2010 AND 1978/HYD/2011) AND OTHER CASES AS STATED BY TPO IN PAGE 41 OF HIS ORDER. HOWEVER, TPO DID NOT AGREE WITH T HE OBJECTIONS STATING THAT THE I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 12 - : COMPANY HAS TWO SEGMENTS INCLUDING SOFTWARE DEVELOP MENT SERVICES AND REVENUE FROM SOFTWARE DEVELOPMENT SERVICES IS RS. 3 3,649 CRORES OUT OF TOTAL TURNOVER OF RS. 37,637 CRORES, WHICH IS AT 89.52%. THIS SIGNIFIED THE FACT THAT COMPANY IS PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES. TPO REJECTED THE OBJECTIONS OF ASSESSEE SO AS DRP. 12.1. IT WAS THE OBJECTION OF ASSESSEE THAT ABOVE COMPANY IS PREDOMINANTLY INTO PRODUCT DESIGN SERVICES, INNOVATION DESIGN ENGINEER ING AND VISUAL COMPUTING LABS DIVISION WHICH ARE SPECIALIZE D SERVICES. HE REFERRED TO THE ORDER OF ITAT IN AY. 2009-10 IN THE CASE OF PLANET ONLINE PVT. LTD., IN ITA NO. 464/HYD/2014 (SUPRA), WHEREIN THIS COMPANY WAS REJE CTED ON THE REASON THAT IT IS ENGAGED IN MULTIPLE SEGMENTS. THERE IS NO BREAK -UP IN THE ANNUAL REPORT AND DATA ON WHICH MARGIN FROM SOFTWARE SERVICES ACTIVIT Y ONLY CAN BE COMPUTED IS ALSO NOT AVAILABLE. MOREOVER, THE COMPANY ITSELF H AS INDICATED THAT IT CANNOT BE COMPARED WITH ANY OTHER SOFTWARE SERVICE COMPANY BE CAUSE OF ITS COMPLEX NATURE. SIMILAR VIEW WAS TAKEN BY MANY OF THE CO-O RDINATE BENCHES IN EARLIER YEARS THAT TATA ELXSI LTD., CANNOT BE SELECTED AS C OMPARABLE COMPANY. CONSISTENT WITH THE ABOVE VIEW, WE ARE OF THE OPINI ON THAT A COMPANY LIKE TATA ELXSI LTD., WHICH HAS COMPLEX ACTIVITIES AND SEGMEN TAL INFORMATION OF WHICH IS NOT AVAILABLE CANNOT BE SELECTED AS COMPARABLE COMP ANY TO ASSESSEE. MOREOVER, AS SEEN FROM THE TURNOVER AS REPORTED BY TPO ITSELF, IT WAS MANY TIMES ASSESSEES TURNOVER AND THEREFORE CANNOT BE E XACTLY CONSIDERED AS A SIMILAR COMPANY UNLESS THE NATURE OF ACTIVITY, THE INCOMES ARE ANALYSED IN DETAIL. SINCE NO SEGMENTAL DATA IS AVAILABLE, CONSIDERING T HE SOFTWARE DEVELOPMENT SERVICES AS A SEGMENT BY TPO CANNOT BE CONSIDERED A S SEGMENTAL DATA, UNLESS THE SERVICES RENDERED BY THAT COMPANY ARE SIMILAR T O THE SERVICES RENDERED BY ASSESSEE. IN VIEW OF THIS, WE ARE OF THE OPINION T HAT THIS COMPANY CANNOT BE SELECTED AS COMPARABLE. AO IS DIRECTED TO EXCLUDE THE SAME. SASKEN COMMUNICATION TECHNOLOGIES LTD: 13. THIS COMPARABLE WAS NOT OBJECTED TO EITHER BEF ORE TPO OR BEFORE DRP. OBJECTIONS WERE RAISED BEFORE US ON THE COMP ARABILITY OF THIS COMPANY ON I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 13 - : THE REASON THAT THIS COMPANY IS HAVING PRODUCT SALE S AND ALSO A PROVIDER OF TELECOMMUNICATION SOFTWARE SERVICES. SINCE THERE I S NO BREAK-UP OF COST AVAILABLE, ASSESSEE SUBMITS THAT THEY HAVE DIFFICUL TY IN COMPARING THE SAID COMPANY ON FAR ANALYSIS. ASSESSEE ALSO RELIES ON T HE DECISION OF ITAT IN THE CASE OF PLANET ONLINE PVT. LTD., IN ITA NO. 464/HYD /2014 (SUPRA), WHEREIN THE ITAT REMITTED THE ISSUE TO COMPARABILITY OF THIS CO MPANY FOR FRESH ADJUDICATION BY AO/TPO IN AN EARLIER YEAR. CONSIDERING THE VIEW TAKEN EARLIER, SINCE AO/TPO DID NOT HAVE THE OPPORTUNITY TO ANALYSE THE OBJECTI ONS OF ASSESSEE AS THEY HAVE NOT OBJECTED EARLIER, WE ARE OF THE OPINION THAT IN CLUSION OF THIS COMPANY AS COMPARABLE COMPANY IS TO BE ANALYSED AFRESH BY TAKI NG THE OBJECTIONS FROM ASSESSEE AND THEN AFTER DUE ANALYSIS, TPO SHOULD CO NSIDER WHETHER THE SAME CAN BE INCLUDED AS A COMPARABLE COMPANY. THEREFORE , WITHOUT EXPRESSING ANY OPINION OR FINDING IN THIS REGARD, WE REMIT THE ISS UE RELATING COMPARABILITY OF THIS COMPANY FOR FRESH ADJUDICATION BY TPO. L&T INFOTECH LTD: 14. ASSESSEE HAS OBJECTED BEFORE TPO THAT THE DEPA RTMENT IN EARLIER YEARS IS REJECTING THIS COMPARABLE AS IT HAS REVENU E FROM SOFTWARE SERVICES AND PRODUCTS AND SEGMENTAL INFORMATION WAS NOT AVAILABL E. FURTHER, COMPANY DID NOT RESPOND TO THE NOTICE ISSUED U/S. 133(6) AND CH ALLENGED THE SAID NOTICE BEFORE THE HON'BLE BOMBAY HIGH COURT. IT WAS FURTH ER OBJECTED TO ON THE REASON THAT COMPANY HAD LESS MARGIN IN EARLIER YEAR AND TH EREFORE, REJECTED BY THE DEPARTMENT, HOWEVER, MARGIN IS HIGH IN THIS YEAR, T HE DEPARTMENT PROPOSED IT AS A COMPARABLE AND THERE IS NO CONSISTENCY. THESE OB JECTIONS WERE REJECTED BY TPO VIDE HIS ANALYSIS IN PAGE 40 OF THE ORDER AND F ROM THE EARNINGS IN FOREIGN EXCHANGE REPORTED, TPO CONSIDERED THE COMPANY AS IN VOLVED IN SOFTWARE DEVELOPMENT SERVICES. THE SAME OBJECTIONS WERE REI TERATED BEFORE DRP, BUT DRP REJECTED.. 14.1. IT WAS THE SUBMISSION OF THE LD. COUNSEL THA T DRP AT HYDERABAD IN THE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., [PAN: AABCC9379C] FOR THE SAME ASSESSMENT YEAR HAS EXCLUDED THE SAME BY STATI NG AS UNDER: I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 14 - : WE HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSES SEE, INTERNATIONAL TRANSACTIONS INVOLVED, TP DOCUMENTATI ON OF THE ASSESSEE, THE MOST APPROPRIATE METHOD ADOPTED BY TPO AFTER RE JECTING THE TP DOCUMENTATION OF THE ASSESSEE, THE FILTERS USED BY TPO AND ALSO VERIFIED THE FINANCIALS OF THE COMPARABLES WITH REFERENCE TO THE NOTES ON ACCOUNTS & WEBSITE NOTES. WE NOTICED THAT CERTAIN NOTES ON ACCOUNTS MADE IN CERTAIN CASES DO NOT MATCH WITH THAT OF THE FINANCI ALS REPORTED. WE ALSO NOTICED THAT MEANING OF THE WORDS USED IN THE NOTES ON ACCOUNTS ARE NOT DEFINED. BASED ON CERTAIN ITAT DECISION, THE EARLI ER DIRECTIONS OF THIS PANEL AND OTHER PANELS, THE HUGE TURNOVERS INVOLVED , HUGE BRAND VALUE, THEIR PREDOMINANT PRESENCE IN THE MARKET, IN VIEW O F INCOMPLETE DETAILS ETC., THIS PANEL IS OF THE VIEW THAT THE FOLLOWING COMPARABLES SELECTED BY TPO SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPA RABLES CHOSEN BY TPO IN THE ALP COMPUTATION. I) INFOSYS TECHNOLOGIES LTD., II) L&T INFOTECH LTD., WE DIRECT TPO TO EXCLUDE THE ABOVE REFERRED COMPARA BLES FROM THE LIST OF FINAL COMPARABLES CHOSEN BY TPO IN THE ALP COMPUTAT ION AND RE-COMPUTE THE ALP ACCORDINGLY. 14.2. IT WAS THE SUBMISSION THAT ONCE DRP HAS ACCE PTED THE OBJECTIONS OF ASSESSEE WHEREAS IN ASSESSEES CASE DRP DID NOT EXCLUDE L&T INFOTECH WHILE EXCLUDING INFOSYS TECHNOLOGIES LTD., IT WAS THE SUB MISSION THAT SIMILAR FACTS EXIST FOR BOTH THE COMPANIES AND DRP HAS EXCLUDED ONLY IN FOSYS TECHNOLOGIES AND NOT L&T INFOTECH LTD., 14.3. AFTER CONSIDERING THE OBJECTIONS OF ASSESSEE AND PERUSING THE ORDER OF DRP IN THE CASE OF M/S. SUMTOTAL SYSTEMS I NDIA PVT. LTD., (SUPRA), AS EXTRACTED ABOVE, WE ARE OF THE OPINION THAT THIS CO MPANY CANNOT BE SELECTED AS COMPARABLE BY THE SAME REASONS WHICH DRP IN THE ABO VE REFERRED CASE ACCEPTED. MOREOVER, THERE ARE NO SEGMENTAL DETAILS AND AS SEEN FROM THE ANNUAL REPORT, REVENUES ARE REPORTED FROM SOFTWARE DEVELOP MENT SERVICES AND PRODUCTS, HOW MUCH IS FROM SERVICES AND HOW MUCH IS FROM PROD UCTS COULD NOT BE ANALYSED. EVEN THOUGH TPO CONSIDERED THE SOFTWARE EXPORTS REPORTED IN EARNING IN FOREIGN CURRENCY AS THAT OF SOFTWARE DEVELOPMENT SERVICES, WE ARE NOT SURE WHETHER THE SOFTWARE EXPORTS REPORTED THEREIN EXCLU SIVELY PERTAIN TO SERVICES OR PRODUCTS. AS THERE ARE NO SEGMENTAL DETAILS, IT IS VERY DIFFICULT TO ANALYSE I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 15 - : WHETHER THE INCOMES EARNED BY THE SAID COMPANY DO R EALLY PERTAIN TO THE SIMILAR SERVICES RENDERED BY ASSESSEE. AS ALSO SEEN FROM T HE INCOME SCHEDULES, ENGINEERING SERVICES REPORTED IN EARLIER YEAR WERE NOT THERE IN THIS YEAR, THEREFORE, IT IS VERY DIFFICULT TO ANALYSE WHETHER THE COMPANY IS FUNCTIONALLY SIMILAR OR NOT? KEEPING IN VIEW OF THE ABOVE DIFFI CULTIES IN ANALYZING THE DATA AND CONSIDERING THE REASONS GIVEN BY DRP IN THE CAS E OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), WE ARE OF THE OPINION THA T L&T INFOTECH LTD., CANNOT BE SELECTED AS A COMPARABLE COMPANY. AO/TPO IS DIRECT ED TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. GROUND NO.4 IS ALLOW ED FOR STATISTICAL PURPOSES. COMPARABLE SELECTED BY ASSESSEE, BUT REJECTED BY TP O : 15. ASSESSEE IN THE GROUND NO 5 HAS REQUESTED FOR INCLU SION OF THREE COMPARABLES OUT OF WHICH THEY HAVE NOT PRESSED SATY AM COMPUTERS SERVICES LTD. THEREFORE, ONLY TWO COMPANIES ARE LEFT FOR AN ALYSIS. AKSHAY SOFTWARE TECHNOLOGIES LTD : 15.1. ASSESSEE SUBMITTED BEFORE TPO THAT THIS COMP ANY SATISFIES ALL THE FILTERS AND EVEN THOUGH THERE IS LESSER PROFIT, BUT THERE IS NO EXCEPTIONAL VARIATION IN THE TURNOVER OF THE COMPANY AND EFFECT ON THE IN COME WAS DUE TO MARKET CIRCUMSTANCES AND EXTERNAL FACTORS. AS THERE ARE N O EXTERNAL FACTOR THAT AFFECTED THE COMPANY OR ITS CUSTOMERS, THE SAME IS INCLUDABL E AS A COMPARABLE COMPANY. TPO HOWEVER, RELIED ON THE ANNUAL REPORT DISCLOSURE S PARTICULARLY RESULTS OF OPERATIONS NOTED THAT 90% OF THE REVENUES ARE FROM DUBAI AND DUE TO STEEP PRICING PRESSURE AND HUGE DISCOUNTS REQUESTED BY TH E CLIENTS, ITS BUSINESS SEVERELY GOT AFFECTED. HE WAS OF THE OPINION THAT THIS IS AN EXCEPTIONAL YEAR OF OPERATION AND THIS FAILS THE FILTER ADOPTED BY TPO. 15.2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT TPO HAS CORRECTLY REJECTED THE ABOVE COMPANY AS COM PARABLE. EVEN THOUGH ASSESSEE SUBMITS THAT THE COMPANY SATISFIES THE FIL TERS BUT SEEN FROM THE ANNUAL REPORT PLACED ON RECORD AT PAGE 251, THE FINANCIAL RESULTS INDICATE THAT INCOME I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 16 - : FROM SOFTWARE SERVICES AND PRODUCTS TO AN EXTENT OF RS. 1086.58 LAKHS. HOW MUCH IS FROM SERVICES AND HOW MUCH IS FROM PRODUCTS IS NOT AVAILABLE. SINCE ABOVE COMPANY ALSO IS HAVING THE PRODUCTS DIVISION , FOR THE SAME OBJECTIONS RAISED BY ASSESSEE WITH REFERENCE TO OTHER COMPARAB LES ALREADY SELECTED BY TPO DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THIS CO MPANY CANNOT BE SELECTED AS A COMPARABLE FOR THE SAME REASONS ACCEPTED ABOVE WH ILE REJECTING SOME COMPANIES. SINCE, THERE IS NO SEGMENTAL DATA OF SO FTWARE SERVICES AND PRODUCTS AND SINCE THE ABOVE COMPANY IS ALSO INTO PRODUCTS, THE COMPANY CANNOT BE SELECTED AS A COMPARABLE. THEREFORE, WE AGREE WITH THE REJECTION OF THIS COMPARABLE BY TPO AND DRP, EVEN THOUGH FOR OTHER RE ASONS ALSO. ASSESSEES GROUNDS ON THIS IS ACCORDINGLY, REJECTED. CG VAK SOFTWARE AND EXPORTS LTD : 15.3. IT WAS THE SUBMISSION OF ASSESSEE BEFORE TPO THAT T HIS COMPANY SATISFIES THE FILTER OF EMPLOYEE COST WHICH IS ABOU T 76.10% AND NOTES TO THE ACCOUNTS IN ANNUAL REPORT CLEARLY MENTIONED THAT CO ST ON SERVICES IS INCURRED TOWARDS SALARIES TO EMPLOYEES. TPO REJECTED THE AB OVE SAID COMPANY ON THE REASON THAT IT FAILS EMPLOYEE COST FILTER AND WAS A LSO OPINED THAT THERE IS NO CLARIFICATION GIVEN IN THE NOTES TO AMOUNT IN FY. 2 009-10, WHEREAS ASSESSEE IS RELYING ON THE NOTES TO ACCOUNT FOR FY. 2007-08. S INCE ASSESSEE DID NOT SATISFY THE EMPLOYEE COST, NO ANALYSIS CAN BE CARRIED OUT A ND THEREFORE, COMPANY WAS NOT CONSIDERED AS COMPARABLE. IT WAS THE SUBMISSIO N OF ASSESSEE THAT THIS COMPANY WAS ACCEPTED IN LAM RESEARCH (INDIA) PVT. L TD., IN ITA NO. 1437/BANG/2014 AND MINDTECK (INDIA) LTD., IN ITA NO . 70/BANG/2014. SINCE DETAILED INFORMATION IS NOT AVAILABLE, WE CANNOT GI VE ANY FINDING WHETHER THE COMPANY IS COMPARABLE OR NOT? AS SEEN FROM THE ANN UAL REPORT PLACED ON RECORD, IT SHOWS INCOME FROM SOFTWARE DEVELOPMENT S ERVICES AND PRODUCTS BOTH THE OVERSEAS THE DOMESTIC, WHEREAS IN SCHEDULE-XII, THE INCOME IS SHOWN ONLY FROM SOFTWARE SERVICES. WHEREAS THE DIRECTORS REPO RT INDICATE THAT ASSESSEE HAS SOFTWARE SERVICES COMPRISING 84% OF REVENUE, BPO SE RVICES AT 15% AND TRAINING AT 1%. THIS INDICATES THAT ASSESSEE HAS DIFFERENT ACTIVITIES, THEREFORE, IT IS DIFFICULT TO ANALYSE WHETHER THE COMPANY IS STRICTL Y COMPARABLE TO ASSESSEES I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 17 - : SOFTWARE DEVELOPMENT SERVICES. HOWEVER, TO GIVE A FAIR OPPORTUNITY TO ASSESSEE, WE REMIT THE MATTER TO THE FILE OF TPO TO OBTAIN NE CESSARY INFORMATION IF REQUIRED AND TAKE ASSESSEES OBJECTIONS AND ANALYSE WHETHER THE COMPANY CAN BE SELECTED AS COMPARABLE OR NOT? THE GROUND NO 5 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 16. GROUND NO. 6 PERTAINS TO ADJUSTMENT FOR RISK D IFFERENCES WAS NOT PRESSED. ACCORDINGLY, THE SAME IS TREATED AS WITHD RAWN. 17. GROUND NO. 7 PERTAINS TO INTEREST ON OUTSTANDI NG RECEIVABLES AND 8 ON INCORRECT COMPUTATION OF INTEREST. ASSESSEE RAI SED THE ISSUE ON SEPARATE ADJUSTMENT MADE FOR RECEIVABLES. TPO NOTICED THAT ASSESSEE HAS RECEIVABLES OF RS. 21,07,53,864/- AT THE END OF THE YEAR. ASSESSE E WAS ASKED TO SUBMIT THE DETAILS OF RAISING THE INVOICE AND SUBSEQUENT RECEI PTS. TPO PROPOSED TO CHARGE INTEREST AT 12% ON THE OUTSTANDING RECEIVABLES. WH ILE REPLYING THAT ASSESSEE IS A FULLY FUNDED ENTITY OF THE AE AND THE AMOUNTS OUT STANDING ARE ON SERVICES BUT NOT LOAN OR ADVANCES GIVEN. IT ALSO DOES NOT HAVE ANY WORKING CAPITAL RISK AND THERE IS NO INTEREST PAYMENT ALSO. IT RELIED ON TH E ORDER OF THE ITAT IN THE CASE M/S. EVONIK DEGUSSA INDIA PRIVATE LIMITED IN ITA NO . 7653/MUM/2011, WHEREIN IT WAS HELD THAT TP ADJUSTMENT CANNOT BE DONE ON HY POTHETICAL ISSUES. ASSESSEE ALSO FURTHER RELIED ON THE DECISION OF LOGIX MICRO SYSTEMS LTD V. ACIT [42 SOT 525] (BANG) WHEREIN ITAT HELD THAT A REASONABLE PE RIOD SHOULD BE PROVIDED AS INTEREST FREE PERIOD AND NO INTEREST SHOULD BE CALC ULATED FOR SUCH PERIOD. HOWEVER, WHILE CALCULATING THE INTEREST OF 12%, TPO NEITHER CONSIDERED THE ABOVE DECISIONS NOR GAVE ANY INTEREST FREE PERIOD. NOT ONLY THAT EVEN THOUGH ASSESSEE REALIZED THE AMOUNTS IN LATER YEAR, I.E., AFTER 31-03-2010, INTEREST WAS CHARGED FOR WHOLE OF THE PERIOD. AS CAN BE SEEN FR OM THE TABLE IN PAGE 45 OF THE TP ORDER, TPO CHARGED INTEREST FOR THE SUPPOSED DELAY NOT ONLY DURING THE YEAR BUT ALSO FOR THE PERIOD BEYOND THE ASSESSMENT YEAR CONCERNED. THUS, HE MADE A PROPOSAL TO MAKE ADJUSTMENT OF RS. 1,26,40,5 92/- AS AN ADJUSTMENT U/S. 92CA AND TOTAL INCOME WAS ENHANCED ACCORDINGLY. BE FORE THE DRP, ASSESSEE OBJECTED TO THE SAME AND SUBMITTED THAT: I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 18 - : THE OUTSTANDING RECEIVABLES RELATE TO THE PROVISION OF SERVICES AND NOT IN THE NATURE OF ANY ADVANCE/LOANS. THESE ARE CLOSELY LIN KED TO THE PROVISION OF SERVICES AND HENCE HAVE TO BE AGGREGATED FOR THE PU RPOSE OF ECONOMIC ANALYSIS. THE COMPANY HAS BEEN FULLY FUNDED BY ITS AE SINCE I TS INCEPTION FOR ALL ITS WORKING CAPITAL REQUIREMENTS AND RECEIVABLES ARE RU NNING ACCOUNTS. ANY FUND REQUIREMENT BEING MADE GOOD BY THE AES. 17.1. IT IS ALSO SUBMITTED THAT COMPANY DOES NOT B EAR WORKING CAPITAL RISK. IT RELIED ON THE SAME OBJECTIONS AS RELIED B EFORE TPO. DRP HOWEVER, VIDE ITS PARA 17, REJECTED ASSESSEES CONTENTIONS BUT AC CEPTED ALTERNATE PLEA OF CHARGING INTEREST AT LIBOR PLUS 2 POINTS ON THE IN TER-COMPANY RECEIVABLES FROM THE OVERSEAS AE. ASSESSEE IS AGGRIEVED. 17.2. LD. COUNSEL SUBMITTED THAT THE ISSUE OF CHAR GING OF INTEREST BEYOND THE PERIOD WAS NOT ADJUDICATED AND DRP REDUCED THE RATE OF INTEREST FROM 12% LIBOR PLUS 2.5 POINTS. IT WAS SUBMITTED THAT ASSES SEE WAS A DEBT FREE COMPANY, AE TAKES CARE OF FUNDING, NO INTEREST WAS CHARGED AND THERE IS NO LIABILITY OF INTEREST AND THEREFORE, NOTIONAL INTER EST INCOME CANNOT BE BROUGHT TO TAX. ASSESSEE RELIED ON THE PRINCIPLES LAID DOWN B Y CO-ORDINATE BENCH AT MUMBAI IN THE CASE OF LINTAS INDIA PVT. LTD., IN IT A NO. 2024/MUM/2007 DT. 09-11-2012 AND ALSO MASTEK LTD., VS. ACIT IN I TA NO. 3120/AHD/2010 THEN REFERRING TO THE PROVISIONS OF THE ACT THE EXPLANAT ION BROUGHT BY AMENDMENT IN 2012 FINANCE ACT. IT WAS SUBMITTED THAT EVEN THOUG H RETROSPECTIVE, IT DOES NOT COVER ASSESSEES TRANSACTION AS THE WORD CAPITAL F INANCING USED THERE PARTICULARLY REFERS TO LOANS OR ADVANCES GIVEN FOR CAPITAL FINANCING, WHEREAS IN ASSESSEES CASE, THESE ARE OUTSTANDING SERVICES REN DERED BUT NOT CAPITAL FINANCING. THE WORDS ARE TO BE INTERPRETED INVOKIN G THE PRINCIPLES E JUSDEM GENERIS AND SO THE OUTSTANDING RECEIVABLES CANNOT BE EQUATE D TO CAPITAL FINANCING AS AMENDED BY THE PROVISIONS OF THE ACT. IT WAS FURTHER SUBMITTED THAT WORKING CAPITAL ADJUSTMENTS ARE BEING MADE WHI LE ANALYZING THE OPERATIONAL I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 19 - : PERFORMANCE OF THE COMPANIES, THEREFORE, OUTSTANDIN G AMOUNT GETS ADJUSTED IN WORKING CAPITAL ADJUSTMENTS AND ANOTHER SEPARATE AD DITION IS NOT REQUIRED UNDER THE TP PROVISIONS. THUS, IT WAS CONTENDED THAT THE OUTSTANDING AMOUNTS ARE NOT TO BE CONSIDERED FOR ADJUSTMENT. 17.3. WE HAVE CONSIDERED THE ISSUE AND EXAMINED TH E RIVAL CONTENTIONS. IN THE CASE OF EVONIK DEGUSSA INDIA P. LTD., IN ITA NO. 7653/MUM/2011, IT WAS ALREADY HELD THE TP ADJUSTMENT CANNOT BE MADE ON HY POTHETICAL AND NOTIONAL BASIS, UNTIL AND UNLESS THERE IS SOME MATERIAL ON R ECORD THAT THERE HAS BEEN UNDER CHARGING OF REAL INCOME. THUS ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ADDITION ON ACCOUNT OF N OTIONAL INTEREST RELATING TO ALLEGED DELAYED PAYMENT IN COLLECTION OF RECEIVABLE S FROM THE AES IS UNCALLED FOR ON THE FACTS OF THE PRESENT CASE. EVEN THOUGH DRP TRIED TO DISTINGUISH THE ABOVE DECISION ON FACTS, AS SEEN FROM THE FACTS IN BOTH THE CASES, WE ARE OF THE OPINION THAT THE ABOVE DECISION WILL EQUALLY APPLY TO ASSESSEES CASE. ASSESSEE HAS OUTSTANDING SERVICE CHARGES RECEIVABLES AND AS SEEN FROM THE ORDER OF TPO, THE OUTSTANDING IS ONLY FROM 31-07-2009. THERE SEE MS TO BE NO SUCH DELAY IN EARLIER MONTHS. ASSESSEE HAS NO INTEREST LIABILITY AT ALL SO NOTIONAL INTEREST CANNOT BE BROUGHT TO TAX UNDER THE PROVISIONS OF TP . AS RIGHTLY POINTED OUT BY THE LD. COUNSEL, THE OUTSTANDING RECEIVABLES ON ACC OUNT OF SERVICES CANNOT BE EQUATED WITH CAPITAL FINANCING AS PROVIDED FOR IN T HE EXPLANATION BY THE AMENDMENT BY FINANCE ACT, 2012 RETROSPECTIVELY. EV EN OTHERWISE, AS RIGHTLY HELD BY THE LOGIX MICRO SYSTEMS LTD V. ACIT [42 SO T 525] (SUPRA), TPO SHOULD HAVE ALLOWED SOME INTEREST FREE PERIOD FOR RECEIVIN G THE OUTSTANDING SERVICE CHARGES. WHILE ACKNOWLEDGING THE ORDER OF THE ITAT, TPO DID NOT EVEN BOTHER TO EXCLUDE THE REASONABLE PERIOD AND LEVIED INTEREST N OT ONLY FROM THE DATE OF INVOICE TO THE DATE OF REALIZATION DURING THE YEAR BUT ALSO FOR THE PERIOD BEYOND 31-03-2010 IN LATER YEAR. WE WERE INFORMED THAT NO SUCH ADDITION WAS MADE IN THE LATER YEAR ON ASSESSEES RECEIVABLES. WE ARE O F THE OPINION THAT BOTH ON THE FACTS OF THE CASE AND PRINCIPLES OF LAW, THERE IS N O NEED FOR BRINGING TO TAX THE NOTIONAL INTEREST ON THE OUTSTANDING RECEIVABLES. ACCORDINGLY, WE ALLOW THE GROUNDS 7 & 8 OF ASSESSEE AND DIRECT AO/TPO TO DELE TE THE SAID ADDITION MADE. I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 20 - : 18. GROUND NO. 9 IS REGARDING INCORRECT COMPUTATIO N OF MARGINS OF COMPARABLE COMPANIES BY CONSIDERING THE FOLLOWING I TEMS AS NON-OPERATING EXPENSES: A. BAD AND DOUBTFUL DEBTS; B. BANK CHARGES; AND C. UN-ALLOCABLE EXPENSES IN SEGMENTAL FINANCIALS. 18.1. LD. COUNSEL SUBMITTED THAT THESE ARE ALL PAR T OF OPERATIONAL EXPENDITURE, HENCE SHOULD HAVE BEEN CONSIDERED WHIL E COMPUTING THE MARGINS OF COMPARABLE COMPANIES. HOWEVER, IT WAS FAIRLY AD MITTED THAT IF SOME OF THE COMPARABLES OBJECTED TO IN GROUND NO. 4 ARE REJECTE D, THIS GROUND WILL BECOME ACADEMIC. HENCE, WITHOUT ADJUDICATING THE ISSUE, W E DISMISS THE GROUND WITH AN OPTION TO ASSESSEE TO CONTEST AS AND WHEN REQUIRED IF NEED ARISES. HOWEVER, TPO IS DIRECTED TO KEEP THIS IN MIND WHILE COMPLETI NG THE CONSEQUENTIAL ORDERS WITH REFERENCE TO SOME OF THE COMPARABLES RESTORED TO THE TPO. WITH THESE OBSERVATIONS, THIS GROUND IS REJECTED. 19. GROUND NO. 10 PERTAINS TO INTERESTS WHICH ARE CONSEQUENTIAL IN NATURE. ASSESSEE CAN OBJECT THESE ONCE AGAIN IF REQ UIRED, BEFORE TPO AS SELECTION OF SOME COMPARABLES ARE RESTORED TO THE F ILE OF AO FOR FRESH ADJUDICATION. AO/TPO IS DIRECTED TO KEEP IN MIND T HE PRINCIPLES OF LAW AND THE ORDERS OF ITAT/HIGH COURT ON THIS ISSUE BEFORE LEVY ING ANY INTEREST U/S. 234B. GROUND NOS. 11 & 12 PERTAIN TO INITIATION OF PENALT Y PROCEEDINGS WHICH ARE LITTLE PREMATURE TO BE ADJUDICATED AT THIS POINT OF TIME. ACCORDINGLY, GROUNDS ARE REJECTED AS ACADEMIC IN NATURE. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 21 - : REVENUES APPEAL IN ITA NO. 1936/HYD/2014: 21. REVENUE HAS RAISED THREE GROUNDS WHICH AS ARE UNDER: 2. DRP OUGHT TO HAVE RETAINED THE INFOSYS TECHNOL OGIES LTD FROM THE LIST OF COMPARABLES AS THE TRANSFER PRICING RUL ES OR OECD GUIDELINES DO NOT PRESCRIBE ANY SPECIFIC RANGE OF TURNOVER FOR COMPARABILITY CORRESPONDING TO SIZE AND SCALE OF OPERATION. 3. DRP OUGHT TO HAVE RETAINED THE RATE OF DEPRECIAT ION CHARGED BY AO/TPO. 4. DRP ERRED IN DELETING THE ADDITION TOWARDS COMMU NICATION EXPENSES IN VIEW OF THE EXPLANATION 2 TO SECTION 10 A OF THE IT ACT. 21.1. GROUND NO.3 DOES NOT ARISE OUT OF THE ORDER OF AO/TPO, THEREFORE, THE SAME WAS WITHDRAWN IN THE COURSE OF PROCEEDINGS . 22. GROUND NO.2 PERTAINS TO REJECTION OF INFOSYS T ECHNOLOGIES LTD., FROM THE LIST OF COMPARABLES BY DRP. WE HAVE ALREA DY CONSIDERED THE OPINION OF DRP WHICH IS CONSISTENT NOT ONLY IN ASSESSEES CASE BUT ALSO IN THE CASE OF M/S. SUMTOTAL SYSTEMS INDIA PVT. LTD., (SUPRA), EXTRACTE D ABOVE WHILE CONSIDERING THE EXCLUSION OF L&T INFOTECH LTD. SINCE DRPS DECISION IS CONSISTENT WITH THE STAND TAKEN BY THE REVENUE IN OTHER CASES AND ALSO BY THE ITAT IN A NUMBER OF CASES ON REASON OF TURNOVER, BRAND EQUITY, FUNCTIONAL DIS SIMILARITY, WE ARE OF THE OPINION THAT DRP IS CORRECT IN EXCLUDING THE ABOVE COMPANY FROM THE LIST OF COMPARABLES. THEREFORE, THERE IS NO MERIT IN THE R EVENUES GROUND AND THE SAME IS REJECTED. 23. GROUND NO. 4 PERTAINS TO DELETION OF ADDITION TOWARDS COMMUNICATION EXPENSES BY AO INVOKING THE EXPLANATI ON 2 TO SECTION 10A. ISSUE ARISES AS AO REDUCED COMMUNICATION COST FROM EXPORT TURNOVER AND NOT REDUCING THE SAME FROM TOTAL TURNOVER. IT WAS SUBM ITTED BEFORE DRP THAT I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 22 - : ASSESSEE HAS NOT INCURRED ANY EXPENSES TOWARDS DELI VERY OF SOFTWARE OUTSIDE INDIA AND THE EXPENSES ARE FOR INTER OFFICE AND INT RA-OFFICE COMMUNICATION OVER THE WEB AND FOR GENERAL PURPOSES AND THE SAME IS NO T INCURRED FOR DELIVERY OF SERVICES OUTSIDE INDIA. EVEN ASSUMING BUT WITHOUT ADMITTING THAT INTERNET SERVICE CHARGES ARE INCURRED FOR DELIVERY OF SOFTWA RE, THE SAME IS NOT SPECIFICALLY RECEIVED FROM THE CUSTOMER, THE SAME CANNOT BE REDU CED FROM EXPORT TURNOVER. IN THE ALTERNATE IT WAS ALSO SUBMITTED THAT IF THE SAME IS REDUCED FROM THE EXPORT TURNOVER, THE SIMILAR AMOUNT IS TO BE EXCLUD ED FROM TOTAL TURNOVER ALSO AND RELIED ON THE FOLLOWING CASE LAW: I. CIT VS. GEM PLUS JEWELLERY INDIA LTD. [233 CTR 248 ] (BOMBAY) II. ITO VS. M/S. SAKSOFT LTD REPORTED AS 121 TTJ CHENN AI (SB) 313 ITR (AT) 353 23.1. DRP HAS ALLOWED ASSESSEES OBJECTION BY STAT ING AS UNDER: WE HAVE GONE THROUGH THE SUBMISSIONS AND THE DRAF T ORDER OF AO. THIS ISSUE HAS BEEN DECIDED BY VARIOUS JUDICIA L AUTHORITIES AND AS PER THE JURISDICTIONAL ITAT, HYDERABAD, IN THE CASE OF ITO VS. D.E. BLOCK INDIAN SOFTWARE PVT. LTD., WHEREIN THE TRIBUNAL CON SIDERED THE ISSUE OF ADJUSTMENTS OF TOTAL TURNOVER FOR THE PURPOSE OF CO MPUTING ELIGIBLE PROFITS U/S. 10A AND HELD THAT THE COMMUNICATION EXPENSES N EED TO BE EXCLUDED FROM THE EXPORTS AS PER THE CLAUSE-IV OF EXPLANTION -2 TO SECTION 10A. ON THE SAME RATIO, THE COMMUNICATION COST DOES NOT HAV E THE ELEMENT OF PROFIT AND HENCE IT IS NECESSARILY REQUIRED TO BE E XCLUDED BOTH FROM THE TOTAL TURNOVER AND EXPORT TURNOVER. ACCORDINGLY, A O IS DIRECTED TO REDUCE COMMUNICATION COST NOT ONLY FROM EXPORT TURNOVER BU T ALSO FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S. 10AA. 23.2. SINCE THE DIRECTION OF DRP IS CONSISTENT WIT H THE JUDICIAL PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. [233 CTR 248] (BOMBAY) (SUPRA) , AND ALSO BY VARIOUS CO- ORDINATE BENCHES, WE DO NOT SEE ANY REASON TO INTER FERE WITH THE SAID DIRECTION. ON PRINCIPLES OF LAW, THE DIRECTION IS CORRECT. HO WEVER, NEITHER AO NOR DRP HAS GIVEN ANY FINDING WHETHER THE SAID COMMUNICATION CH ARGES ARE INCURRED FOR DELIVERY OUTSIDE INDIA? ASSESSEES CONTENTIONS ON FACTS HAVE NOT BEEN EXAMINED I.T.A. NOS. 1758 & 1936/HYD/14 PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., :- 23 - : BY ANY OF THE AUTHORITIES. HOWEVER, WE ARE OF THE OPINION THAT THIS WILL BECOME ACADEMIC IN VIEW OF THE DIRECTION OF DRP. REVENUE S GROUND IS ACCORDINGLY REJECTED. 24. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2015 SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNT ANT MEMBER HYDERABAD, DATED 16 TH OCTOBER, 2015 TNMM COPY TO : 1. M/S. PEGASYSTEMS WORLDWIDE INDIA PVT. LTD., BUIL DING NO. 12A, 13 TH OFFICE LEVEL, MINDSPACE, CYBERABAD, MADHAPUR, HYDER ABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16( 2), ROOM NO. 611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. THE DIRECTOR OF INCOME TAX, (I.T & T.P), HYDERAB AD. 5. DY. COMMISSIONER OF INCOME TAX (TRANSFER PRICING -II), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.