DCIT, Bangalore V. M/s Applied Materials India Pvt. Ltd., Bangalore

ITA 180/BANG/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9434 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IT (TP) A NO.180(BANG) 2015 (ASSESSMENT YEAR 2010-11) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BANGALORE APPELLANT VS M/S APPLIED MATERIALS INDIA PVT. LTD., UNIT-5, 3 RD FLOOR, EXPLORER BUILDING, INTL. TECH PARK, WHITEFIELD, BANGALORE PAN NO.AAECA2635C RESPONDENT AND C.O.NO.108(B)/2015 (ASSESSMENT YEAR 2010-11) (BY ASSESSEE) REVENUE BY: SHRI G. R. REDDY, CIT ASSESSEE BY: SHRI ARVIND SONDE, ADVOCATE DATE OF HEARING : 14-07-2016 DATE OF PRONOUNCEMENT: : 26-08-201 6 O R D E R PER SHRI A.K.GARODIA, AM THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OB JECTION IS FILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST THE ASS ESSMENT ORDER DATED 22- 02-2014 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE IT ACT, 1961, AS PER THE DIRECTION OF DRP. IT(TP)A NO.180(B)2015 & CO 108/B/2015 2 2. THE GROUNDS RAISED BY THE REVENUE IN THIS APPE AL ARE AS UNDER; L. TH E ORD E R O F THE DISPUTE RESO L UTION PA N E L I S OPPO S ED TO LAW AND T H E FACTS AND C I RCUMS T A N CES OF TH E CA SE . 2. T H E DRP E RR E D IN D I RECTING THE AO TO EXC L UD E M/ S. I CRA TEC H NO A NA LYTI CS L TD. , M / S . K A LS I N FO RM A TION S Y S TEM S LTD . , M /S . PE R S I S T E NT SYSTE M S L TD . , M /S , T A TA E L XS I LTD . , FR O M TH E LI S T OF C O MP A R A B L ES IN SOFTWARE DEVE L OPMEN T SEGME NT AS BEING FU N CT I O N A LLY DIFF EREN T W ITH OUT AP P R EC IATIN G TH E FA C T T H AT THES E C OMPANIE S QUA LI FY A LL THE QUA L ITATIVE AND QUA N TI T ATIVE FIL TERS AP P L I E D BY THE TP O . 3. TH E DRP ERR E D IN HOLD I NG T H AT M/ S . INFOS Y S LTD CANNOT BE TAKEN A S COMPA R AB L E , BEI N G FUN CT I ONA L LY D I F F E R E NT, B I G BR A ND B Y RE L YI N G ON VARIOUS DEC I S I ONS OF T HE 'TAT WI TH OU T APPREC I AT IN G T H E FACT T H AT T H E CO MP A NY QUA L IFY A LL THE QUAL I TAT I VE A ND QUANTITA T I V E FI L TER S APP LI ED B Y T H E TPO . 4. TH E DRP E RR E D IN HO L D I NG T H AT M / S P ERS I STE N T SYSTEM S & SO L UT I ONS LT D C AN N O T B E TAKEN AS C O MP A RAB L E FOR THE REASO N TH AT I T DOES NO T H AVE SEGME N TA L RES UL TS P E RT A INING TO SO FTWA RE D E VE L O PM E NT S E RVI C E WITHOUT APPR EC IAT I NG TH E FA C T THAT THE T AXPA Y E R WAS N OT RA I SED A NY O BJ EC T I ON DURING TP PROCE EDIN G AND T H E COMPANY Q U A LI FY A LL THE Q U A LI TA T IVE A ND Q U A NTI TAT IV E FI L T E RS APP LI E D BY T H E T P O . 5. T H E DRP ERR E D IN DIRECTING TH E TPO T O APPLY O NSI T E F IL TER ON SOFTWARE DEVE L OPME NT SEGMEN T AND T O EX C LUD E M/ S. R . S . SOFTWARE (IN DIA) L TD AS COMPARAB L ES W I THOUT APPRE C IATI N G THA T T H E D I REC T IONS T O TH E AO AMOUNT S TO SETTI N G AS I D E THE ISSU E W HI C H I S OU T S I DE T H E PURVIEW OF THE D R P UN DER TH E P R O VI S I O N OF S EC TION 144C AS TH E D RP I S NOT EMPOWERE D TO SET AS I DE THE I SSUE IN T E RM S O F SECT ION 1 4 4 C( 8 ) O F TH E A C T . IT(TP)A NO.180(B)2015 & CO 108/B/2015 3 6. TH E DR P E RR E D IN DIR EC TI N G TH E A O T O F O LL OW T H E R A TI O L A I D DOWN BY THE H ON' BL E COU R T IN TH E C A SE O F T A T A E L XS I LIMIT E D 349 IT R 98 AND EXC LU DE TE L E COMMUNI CA TI O N EX PEN S ES AND FOREIGN CURRENCY EX P E N SES FR O M TH E EX PORT TURN O VER A L SO W HI LE CO MPUTIN G TH E D E DUCTION U/S 1OA OF THE I . T . ACT , W ITH O UT A P P R E C I A T I N G THE FACT T H A T T H ERE IS NO PROV I S ION I N S E C T I O N 1OA THAT S UCH E X P E N S ES S H OU L D B E RE D U CE D FR OM THE TOTA L T U RNOVER A L SO, AS C L AUS E (IV) O F T HE E X P L ANAT I ON T O SEC TI O N 1OA PRO VI DES T H A T S U C H E X P E N SE S ARE TO B E R E D U C ED O NLY F R OM THE EX P O RT TURN O V E R . 7. T H E D RP E RR E D IN NOT APPRECIAT I NG TH E FACT T HAT TH E JURI S DICTIONAL HI GH C OURT'S D EC I S ION IN TH E CASE O F T AT A E L XS I LIM I TED 349 I TR 98 H AS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A N A PP EA L H AS B E E N F I L E D BEFOR E T H E H O N 'B L E SUPREME COURT . 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE O RDER OF THE DRP BE REVERSED AND THAT OF THE AO BE RESTORED. 9. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. THE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE AS UNDER; THE GROUNDS S TATED HERE UNDER ARE INDEPENDENT OF, AND WITHOUT PREJUDICE TO ONE ANOTHER ; 1 COMPARABILITY ANALYSIS ADOPTED BY THE TPO FOR DETERMINATION OF ARM'S LENGTH PRICE. A) THE LD . AO / LD . TRANSFER PRICING OFFICER ( ' LD. TPO') HAD GROS S LY ERRED ON FACTS AND IN LAW IN BENCHMARKING THE TRAN S ACTIONS OF THE RESPONDENT WITHOUT CONSIDERING THE DIFFERENCES IN THE FUNCTIONS PERFORMED , ASSETS EMPLOYED AND RI S K UNDERTAKEN BY THE RE S PONDENT V IS-A- V IS IT(TP)A NO.180(B)2015 & CO 108/B/2015 4 COMPARABLE COMPANIES. THE LD. DI S PUTE RE S OLUTIONS PANEL (' LD. PANEL ' ) ERRED IN CONFIRM I NG THE S AME . B) THE LD . AO / LD . TPO HAD ERRED ON FACTS AND IN LAW IN NOT ACKNOWLEDGING THAT THE S UB-CONTRACTING CHARGES, INCURRED BY THE RESPONDENT , REPRESENT S ARM ' S LENGTH CON S IDERATION, AND THEREBY WAS REQUIRED TO BE CONSIDERE D A S PA SS -THROUGH COST . THE LD. PANEL ERRED IN CONFIRMING THE S AME. C) THE LD . PANEL ERRED IN LAW IN ARBITRARILY APPLYING THE ONSITE REVENUE FILTER WITHOUT PROVIDING THE RESPOND ENT AN OPPORTUNITY OF BEING HEARD. ACCORDINGLY, THE LD . PANEL ERRED IN REJECTING AKSHAY SOFTWARE TECHNOLOGIES LIM ITED AND R S SOFTWARE (INDIA) LIMITED, AS COMPARABLE UPO N APPLICATION OF THE ONSITE REVENUE FILTER . D) THE LD. AO I LD . TPO HAD ERRED ON FACTS AND IN LAW IN REJECTING POWERSOFT GLOBAL SOLUTIONS LIMITED ( ' POWERSOFT ' ) AS A COMPARABLE ON THE APPLICATION OF THE EMPLOYEE COST FILTER. THE LD . PANEL ERRED IN CONFIRMING THE SAME WITHOUT CON S IDERING THE SUBMISSIONS OF THE RESPONDENT . E) THE LD . PANEL ERRED ON FACTS IN REJECTING LGS GLOBAL LIMITED ( ' LGS' ) UPON APPLICATION OF THE EXPORT EARNINGS FILTER . 2 NON-ALLOWANCE OF APPROPRIATE ADJUSTMENTS TO THE COMPARABLE COMPANIES, BY THE AO/TPO THE LD . PANEL ERRED IN UPHOLDING THE ACTION OF THE LD. AO/THE LD. TPO IN NOT ALLOWING APPROPRIATE ADJUSTMENT S UNDER RULE 1 OB TO ACCOUNT FOR, INTER ALIA, DIFFERENCE S IN DIFFERENCES IN (A) MARKETING EXPENDITURE ADJUSTMENT, ( B) RE S EARCH AND DEVELOPMENT EXPENDITURE ADJUSTMENT; AND (C) RISK PROFILE BETWEEN RESPONDENT AND THE COMPARABLE COMPANIES . 3 REDUCTION OF EXPENSES FROM EXPORT AND TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION UNDER SECTION 1OA OF THE ACT A) THE LD . PANEL ERRED IN UPHOLDING THE ACTION OF THE LD . AO IN REDUCING COMMUNICATION EXPENSES OF RS . 14,863,917, WITHOUT CONSIDERING THE FACT THAT THESE EXPENSES WE RE NOT ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSI DE INDIA: B) THE LD. PANEL ERRED IN UPHOLDING THE ACTION OF THE LD. AO IN REDUCING TRAVEL EXPENSES INCURRED IN FOREIGN CUR RENCY AMOUNTING TO RS . 563,348 , 461 FROM THE EXPORT TURNOVER, WITHOUT CON S IDERING THE FACT THAT THE SAID TRAVEL EXPENSES IT(TP)A NO.180(B)2015 & CO 108/B/2015 5 WERE NOT INCURRED FOR THE PURPOSE OF RENDERING ANY TECHNICAL SERVICES OUTSIDE INDIA. C) 4 RE LI EF A) RESPONDENT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL S UCH RELIEF A RI S ING FROM THE ABOVE GROUNDS AND AL S O ALL RELIEF CON S EQUENTI A L THERETO. B) RE S PONDENT CRA V E S LEA V E TO ADD TO OR ALTER , BY DELETION , S UB S TITUTION OR OTHERWI S E , THE A BOVE GROUND S OF APPEAL , AT ANY TIME BEFORE OR DURING THE HE A RING OF THE A PPE A L . 4. THE LD. DR OF THE REVENUE SUPPORTED THE ORDER OF (DRP) AND THE DRAFT ASSESSMENT ORDER PASSED BY THE AO AND HE ALSO SUBMITTED THAT VARIOUS RELIEF ALLOWED BY THE DRP IS NOT JUSTIFIED. AS AGAINST THIS, IT IS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THE RE VENUE IS DISPUTING ABOUT THE DIRECTION OF THE DRP FOR EXCLUSION OF THE FOLLOWING COMPARABLES. A) ICRA TECHNO ANALYTICS LTD., B)M/S KALS INFORMATION SYSTEMS LTD., (SEG.) C) M/S PERSISTENT SYSTEMS LTD., D)M/S TATA ELXSI LTD., E)M/S INFOSYS LTD., F) M/S PERSISTENT SYSTEMS & SOLUTIONS LTD., G)M/S R.S SOFTWARE (INDIA.) LTD., IN THIS REGARD, HE SUBMITTED THAT SO FAR GROUND N O.5 OF THE REVENUES APPEAL IS CONCERNED IN RESPECT OF DIRECTION OF DRP TO EXCLUDE R. S. SOFTWARE LTD., HE HAS NO OBJECTION IF THIS GROUND OF THE REV ENUE IS ALLOWED AND IT IS HELD THAT M/S R. S. SOFTWARE LTD., IS A GOOD COMPAR ABLE. REGARDING THE REMAINING COMPARABLES FOR WHICH THE EXCLUSION IS BE ING OBJECTED BY THE IT(TP)A NO.180(B)2015 & CO 108/B/2015 6 REVENUE, IT WAS SUBMITTED THAT ALL THESE COMPARABLE S ARE TO BE EXCLUDED AS PER THE TRIBUNALS ORDER RENDERED IN THE CASE OF DC IT VS M/S ELECTRONICS FOR IMAGING INDIA (P) LTD., AS REPORTED IN 70 TAXMA NN.COM 299(BANGALORE)(TRIB.), COPY AVAILABLE ON PAGES 161 5 TO 1636 TO THE CASE LAWS PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WA S DRAWN TO PARA-NOS.13 TO 33 OF THIS ORDER, 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E GONE THROUGH THE MATERIAL AVAILABLE ON RECORD AND THE TRIBUNAL O RDER ON WHICH RELIANCE HAS BEEN PLACED BY THE LD. AR OF THE ASSESSEE. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE PARA-13 TO 33 OF THIS TRIBU NAL ORDER:- 13. WE SHALL DEAL WITH EACH COMPARABLE WHICH HAS B EEN DISPUTED BY THE REVENUE ONE BY ONE AS UNDER:- (1) ICRA TECHNO ANALYTICS LTD. (SEG) 14. AT THE OUTSET, WE NOTE THAT APART FROM HAVING T HE RELATED PARTY REVENUE AT 20.94% OF THE TOTAL REVENUE, THIS COMPAN Y WAS ALSO FOUND TO BE FUNCTIONALLY NOT COMPARABLE WITH SOFTWA RE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE D RP HAS GIVEN ITS FINDING AT PAGES 13 TO 14 AS UNDER:- HAVING HEARD THE CONTENTION, ON PERUSAL OF THE AN NUAL REPORT, IT IS NOTICED BY US THAT THE SEGMENTAL INFORMATION IS AVAILABLE FOR TWO SEGMENTS I.E., SERVICES AND SALES. HOWEVER, IT IS EVIDENT FROM THE ANNUAL REPORT THAT THE SERVICE SEGMENT COMPRISES OF SOFTWARE DEVELOPMENT, SOFTWARE CONSULTANCY, ENGINEERING SERV ICES, WEB DEVELOPMENT, WEB HOSTING, ETC. FOR WHICH NO SEGMENT AL INFORMATION IS AVAILABLE AND THEREFORE, THE OBJECTION OF THE AS SESSEE IS FOUND ACCEPTABLE. ACCORDINGLY, ASSESSING OFFICER IS DIRE CTED TO EXCLUDE THE ABOVE COMPANY FROM THE COMPARABLES. 15. WE FIND THAT THE FACTS RECORDED BY THE DRP IN R ESPECT OF BUSINESS ACTIVITY OF THIS COMPANY ARE NOT IN DISPUT E. THEREFORE, IT(TP)A NO.180(B)2015 & CO 108/B/2015 7 WHEN THIS COMPANY IS ENGAGED IN DIVERSIFIED ACTIVIT IES OF SOFTWARE DEVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT & HOSTING AND SUBSTANTIALLY DIVERSIFIED ITSELF INTO DOMAIN OF BUSINESS ANALYSIS AND BUSINESS PROCESS OU TSOURCING, THEN THE SAME CANNOT BE REGARDED AS FUNCTIONALLY CO MPARABLE WITH THAT OF THE ASSESSEE WHO IS RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE. 16. IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY IS FUN CTIONALLY NOT COMPARABLE WITH THAT OF A PURE SOFTWARE DEVELOPMENT SERVICE PROVIDER. (2) INFOSYS LTD. 17. THE ASSESSEE OBJECTED AGAINST THE SELECTION OF THIS COMPANY ON THE GROUND THAT THIS COMPANY HAS A BIG NAME AND BRAND VALUE AND THEREFORE IT HAS A BARGAINING POWER. IT ALSO C ONTENDED THAT THE TURNOVER OF THIS COMPANY IS RS.21,140 CRORES, W HICH IS 442 TIMES HIGHER THAN THE ASSESSEE. 18. THE DRP ACCEPTED THE OBJECTIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF AGNITY INDIA PVT. LTD. V. ITO [2015] 58 TAX MANN.COM 167 (DELHI TRIB), DIRECTED THE TPO TO EXCLUDE THIS CO MPANY FROM THE LIST OF COMPARABLES. 19. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT IN THE CASE OF AGNITY INDIA PVT. LTD. (SUPRA), THE DELHI BENCH OF THE TRIBUNAL HAS CONSIDERED THE COMPARABILITY OF THIS COMPANY AND TH E FINDINGS OF THE DELHI BENCH OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT. THE HONBLE DELHI HIGH C OURT HAS OBSERVED THAT THIS COMPANY HAVING BRAND VALUE AS WE LL AS INTANGIBLE ASSETS CANNOT BE COMPARED WITH AN ORDINA RY ENTITY PROVIDE CAPTIVE SERVICE. WE FURTHER NOTE THAT THI S COMPANY IT(TP)A NO.180(B)2015 & CO 108/B/2015 8 PROVIDES END TO END BUSINESS SOLUTIONS THAT LEVERAG E CUTTING EDGE TECHNOLOGY THEREBY ENABLING CLIENTS TO ENHANCE BUSI NESS PERFORMANCE. THIS COMPANY ALSO PROVIDES SOLUTIONS THAT SPAN THE ENTIRE SOFTWARE LIFECYCLE ENCOMPASSING TECHNICAL CO NSULTING, DESIGN, DEVELOPMENT, RE-ENGINEERING, MAINTENANCE, S YSTEMS INTEGRATION, PACKAGE EVALUATION AND IMPLEMENTATION, TESTING AND INFRASTRUCTURE MANAGEMENT SERVICE. IN ADDITION, TH E COMPANY OFFERS SOFTWARE PRODUCT FOR BANKING INDUSTRY. THUS , THIS COMPANY IS ENGAGED IN DIVERSIFIED SERVICES INCLUDING DESIGN AS WELL AS TECHNICAL CONSULTANCY, CONSULTING, RE-ENGINEERING, MAINTENANCE, SYSTEMS INTEGRATION AS WELL AS PRODUCTS FOR BANKING INDUSTRY. 20. IN VIEW OF THE ABOVE FACTS THAT INFOSYS LTD. HA VING A HUGE BRAND VALUE AND INTANGIBLES AS WELL AS HAVING BARGA INING POWER, THE SAME CANNOT BE COMPARED WITH THE ASSESSEE WHO I S PROVIDING SERVICES TO ITS AE. (3) KALS INFORMATION SYSTEMS LTD. 21. THE ASSESSEE RAISED OBJECTIONS AGAINST THIS COM PANY ON THE GROUND THAT THIS COMPANY IS ENGAGED IN THE DEVELOPM ENT OF SOFTWARE AND SOFTWARE PRODUCTS. FURTHER, THIS COMP ANY CONSISTS OF STPI UNIT AND ALSO HAVING A TRAINING CENTRE ENGA GED IN TRAINING OF SOFTWARE PROFESSIONALS ON ONLINE PRODUCTS. THUS , WHEN THIS COMPANY IS HAVING REVENUE FROM SOFTWARE SERVICES AS WELL AS SOFTWARE PRODUCT, THE SAME CANNOT BE CONSIDERED AS COMPARABLE WITH SOFTWARE DEVELOPMENT SERVICE PROVIDING COMPANY . 22. THE DRP HAS DIRECTED THE AO TO EXCLUDE THIS COM PANY FROM THE LIST OF COMPARABLES BY TAKING NOTE OF THE FACT THAT THERE WERE INVENTORIES IN THE BOOKS OF ACCOUNTS OF THIS COMPAN Y WHICH SHOWS THAT THIS COMPANY IS IN THE SOFTWARE PRODUCT BUSINE SS. FURTHER, BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA LTD. V. DCIT, ITA NO.1054/B ANG/2011 DATED 23.11.2012, THIS COMPANY WAS FOUND TO BE NOT COMPARABLE WITH THAT OF THE ASSESSEE. IT(TP)A NO.180(B)2015 & CO 108/B/2015 9 23. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. DR HAS NO T DISPUTED THE FACT THAT COMPARABILITY OF THIS COMPANY HAS BEEN EX AMINED BY THIS TRIBUNAL IN A SERIES OF DECISIONS INCLUDING IN THE CASE OF TRILOGY E- BUSINESS SOFTWARE INDIA LTD. (SUPRA). WE FURTHER N OTE THAT IN THE BALANCE SHEET OF THIS COMPANY AS ON 31.3.2010, THER E ARE INVENTORIES OF RS.60,47,977. THEREFORE, WHEN THIS COMPANY IS IN THE BUSINESS OF SOFTWARE PRODUCTS, THE SAME CANNOT BE COMPARED WITH A PURE SOFTWARE DEVELOPMENT SERVICES PROVIDER. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUG NED FINDINGS OF THE DRP. (4) PERSISTENT SYSTEMS LTD. 24. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE RAIS ED OBJECTIONS AGAINST SELECTION OF THIS COMPANY ON THE GROUND THA T THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE AS ENGAGED I N THE PRODUCT DEVELOPMENT. THE SEGMENTAL INFORMATION FOR SERVICES AND PRODUCT IS NOT AVAILABLE. FURTHER, THE ASSESSE E HAS ALSO POINTED OUT THAT THERE WAS AN ACQUISITION AND RESTR UCTURING DURING THE YEAR UNDER CONSIDERATION. 25. THE DRP HAS NOTED THE FACT THAT THIS COMPANY HA S REPORTED THE ENTIRE RECEIPT FROM SALES AND SOFTWARE SERVICES AND PRODUCT. THEREFORE, NO SEGMENTAL INFORMATION WAS FOUND TO BE AVAILABLE FOR SALE OF SOFTWARE SERVICES AND PRODUCT. FURTHER, TH E DRP HAS NOTED THAT AS PER NOTE 1 OF SCHEDULE 15, THIS COMPA NY IS PREDOMINANTLY ENGAGED IN OUTSOURCE SOFTWARE DEVELOP MENT SERVICE. APART FROM THE REVENUE FROM SOFTWARE SERV ICES, IT ALSO EARNS INCOME FROM LICENCE OF PRODUCTS, ROYALTY ON S ALE OF PRODUCTS, INCOME FROM MAINTENANCE CONTRACT, ETC. T HESE FACTS RECORDED BY THE DRP HAS NOT BEEN DISPUTED BEFORE US . 26. THEREFORE, WHEN THIS COMPANY IS ENGAGED IN DIVE RSIFIED ACTIVITIES AND EARNING REVENUE FROM VARIOUS ACTIVIT IES INCLUDING IT(TP)A NO.180(B)2015 & CO 108/B/2015 10 LICENCING OF PRODUCTS, ROYALTY ON SALE OF PRODUCTS AS WELL AS INCOME FROM MAINTENANCE CONTRACT, ETC., THE SAME CA NNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE WITH THE ASSE SSEE. FURTHER, THIS COMPANY ALSO EARNS INCOME FROM OUTSOU RCE PRODUCT DEVELOPMENT. IN THE ABSENCE OF ANY SEGMENTAL DATA OF THIS COMPANY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP THAT THIS COMPANY CANNOT BE COMPARED WITH T HE ASSESSEE AND THE SAME IS DIRECTED TO BE EXCLUDED FR OM THE SET OF COMPARABLES. (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 27. THE ASSESSEE RAISED OBJECTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE SERVICES, SOFTWARE PRODUCTS AND OTHER SERVICES. THE DRP HAS COME TO THE CONCLUSION THAT THIS COMPAN Y EARNED REVENUE FROM 3 SEGMENTS. HOWEVER, NO SEGMENTAL INF ORMATION IS AVAILABLE. ACCORDINGLY, THE DRP DIRECTED THE AO TO EXCLUDE THIS COMPANY FROM THE COMPARABLES. 28. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REPRO DUCED THE BREAK-UP OF REVENUE IN THE IMPUGNED ORDER AS UNDER: - AMOUNT IN RS. LAKHS ___________________________________________________ ___ YEAR ENDED YEAR ENDED MARCH 31, 2010 MARCH 31, 2019 ___________________________________________________ ___ SOFTWARE SERVICES 37,736.22 40,531.20 SOFTWARE PRODUCTS 2,041.00 6,146.43 OTHER SERVICES 372.77 1,297.05 TOTAL REVENUES 40,150.89 47 ,974.68 ___________________________________________________ ___ 29. THUS, THERE IS NO DISPUTE THAT THIS COMPANY EAR NS REVENUE FROM 3 SEGMENTS. HOWEVER, THE SEGMENTAL OPERATING MARGINS ARE NOT AVAILABLE. THEREFORE, IN THE ABSENCE OF SEGMEN TAL RELEVANT DATA AND PARTICULARLY OPERATING MARGINS, THIS COMPO SITE DATA IT(TP)A NO.180(B)2015 & CO 108/B/2015 11 CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSE E FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT. ACCORDINGLY , WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP. (6) TATA ELXSI LTD. 30. THE ASSESSEE HAS RAISED OBJECTIONS AGAINST THIS COMPANY ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DIFFERE NT FROM THE ASSESSEE. THOUGH THE TPO HAS CONSIDERED THE SOFTWA RE DEVELOPMENT AND SERVICES SEGMENT OF THIS COMPANY AS COMPARABLE TO THAT OF ASSESSEE, HOWEVER, THE ASSESS EE CONTENDED THAT EVEN WITHIN THE SOFTWARE SEGMENT, TH IS COMPANY IS ENGAGED IN DIVERSE ACTIVITIES. THE ASSESSEE PLACED RELIANCE ON THE INFORMATION IN THE ANNUAL REPORT UNDER THE DIRE CTORS REPORT AND SUBMITTED BEFORE THE DRP THAT EVEN UNDER THE SO FTWARE DEVELOPMENT SERVICES SEGMENT, THIS COMPANY IS ENGAG ED IN VARIOUS DIVERSIFIED ACTIVITIES INCLUDING PRODUCT DE SIGN SERVICE, INNOVATION DESIGN, ENGINEERING SERVICE, VISUAL COMP UTING LABS, ETC. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECI SION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORD IA TECHNOLOGIES PVT. LTD. V. ACIT, 137 ITD 1 (MUM). 31. THE DRP FOUND THAT THIS COMPANY IS NOT FUNCTION ALLY COMPARABLE WITH ASSESSEE COMPANY AS IT IS ENGAGED I N DIVERSIFIED ACTIVITIES EVEN IN THE SOFTWARE DEVELOPMENT SERVICE S. THE DRP HAS FOLLOWED THE DECISION OF THE MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. (SUPRA ). 32. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS COMPANY EVEN IN THE SOFTWARE DEVELOPMENT SEGMENT IS ENGAGED IN D IVERSIFIED ACTIVITIES OF PRODUCT DESIGN SERVICES, INNOVATION D ESIGN, ENGINEERING SERVICES, VISUAL COMPUTING LABS, ETC. WE FURTHER NOTE THAT IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD . (SUPRA), THE IT(TP)A NO.180(B)2015 & CO 108/B/2015 12 MUMBAI BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 1 1.5.2012 IN PARA 9.7 HAS HELD AS UNDER:- 7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUBM ISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI I S ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVIC ES WHICH IS ENTIRELY DIFFERENT FROM THE ASSESSEE COMPANY. WE A GREE WITH THE CONTENTION OF THE LEARNED AR THAT THE NATURE OF PRO DUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM THE ASSESSEE AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN P ROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON TH ESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY AS FIT FOR COMPARABILI TY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR THE ASSESSEE , HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE PARTIES. 33. NO CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE REGARDING COMPARABILITY OF THIS COMPANY WITH THAT OF A PURE S OFTWARE DEVELOPMENT SERVICE PROVIDER. ACCORDINGLY, IN VIEW OF THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TELCORDIA TECHNOLOGIES PVT. LTD. (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF THE DRP. 6. FROM THE ABOVE PARAS OF THE TRIBUNAL ORDER, IT IS SEEN IS THAT IT WAS HELD BY THE TRIBUNAL IN THAT CASE THAT THE FOLL OWING COMPANIES I.E. A) M/S ICRA TECHNO ANALYTICS LTD (SEG.) B)INFOSYS LTD. , C) M/S KALS INFORMATION SYSTEMS LTD., (SEG.), D) M/S PERSISTENT SYSTEMS & SOLUTIONS LTD., E) M/S PERSISTENT SYSTEMS LTD., AND F) M/S TA TA ELXSI LTD., (SEG.) SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABL ES. AS PER PARA-8 OF THE IT(TP)A NO.180(B)2015 & CO 108/B/2015 13 TRIBUNAL ORDER, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE SERVICES LTD., AS WELL AS R ENDERING SALES AND SUPPORTS SERVICES. IN THE PRESENT CASE, IT IS NOTE D BY THE TPO IN PARA-2 OF HIS ORDER THAT THE ASSESSEE IS RENDERING ENGINEERIN G SERVICES IN THE NATURE OF SOFTWARE DEVELOPMENT SERVICES. HENCE, IT IS SEE N THAT THE BUSINESS PROFILE OF THE PRESENT ASSESSEE AND THE ASSESSEE IN THE CASE OF DCIT VS M/S ELECTRONICS IMAGING INDIA (P) LTD., IS SIMILAR AND THE LD. DR OF THE REVENUE ALSO COULD NOT POINT OUT THAT ANY DIFFERENCE IN FAC TS IN THE PRESENT CASE AND IN THAT CASE. IN VIEW OF THIS, BY RESPECTFULLY FOL LOWING THIS TRIBUNAL ORDER CITED BY THE LD,. AR OF THE ASSESSEE WE HOLD THAT T HE FOLLOWING COMPARABLES I.E. A) M/S ICRA TECHNO ANALYTICS LTD (SEG.) B)INFO SYS LTD., C) M/S KALS INFORMATION SYSTEMS LTD., (SEG.), D) M/S PERSISTENT SYSTEMS & SOLUTIONS LTD., E) M/S PERSISTENT SYSTEMS LTD., AND F) M/S TA TA ELXSI LTD., (SEG.) SHOULD BE EXCLUDED FROM THE LIST OF FINAL COMPARABL ES. ACCORDINGLY, GROUND NO.2 TO 4 OF THE REVENUES APPEAL ARE REJECTED AND GROUND NO.1 OF THE REVENUES APPEAL IS GENERAL IN NATURE WHICH REQUIRE S NO SEPARATE ADJUDICATION. GROUND NO.5 OF THE REVENUES APPEAL IS ALLOWED IN VIEW OF THE CONTENTION OF LD. AR OF THE ASSESSEE THAT THE ASSES SEE HAS NO OBJECTION IF THIS COMPARABLE COMPANY I.E. M/S R. S. SOFTWARE LTD ., IS HELD TO BE A GOOD COMPARABLE. 7. REGARDING GROUND NO.6 & 7 OF THE REVENUES APPE AL, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF M/S TA TA ELXSI LTD., AS REPORTED IN 349 ITR 98 WHEREIN IT WAS HELD THAT THE TOTAL TURNOVER IS SUM IT(TP)A NO.180(B)2015 & CO 108/B/2015 14 TOTAL OF EXPORT TURNOVER AND DOMESTIC TURNOVER AND THEREFORE, IF SOME AMOUNT IS REDUCED FROM THE EXPORT TURNOVER THEN THE TOTAL TURNOVER ALSO GOES DOWN AUTOMATICALLY BY THE SAME AMOUNT. RESPEC TFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT, WE DE CLINE TO INTERFERE WITH THE ORDER OF THE DRP ON THIS ISSUE. ACCORDINGLY, RO UND NO.6 & 7 ARE REJECTED. 8. GROUND NO.8 & 9 ARE GENERAL IN NATURE AND THE S AME DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 9. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED. 10. REGARDING CROSS OBJECTION OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT IF THE ISSUES RAISE D BY THE REVENUE IN ITS APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE EXCEPT GROUND NO.5 OF THE REVENUES APPEAL, THE ISSUE RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION WILL BE OF ACADEMIC INTEREST EXCEPT THE ISSUE REGARDING THE ALLOWABILITY OF DEDUCTION U/S 10A WHICH IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDER ED N THE CASE OF M/S TATA ELXSI LTD., (SUPRA). WHILE DECIDING THE REVENU ES APPEAL AS PER ABOVE PARA, WE HAVE DECIDED ALL THE TP ISSUES AND THE ISS UE REGARDING DEDUCTION U/S 10A IN FAVOUR OF ASSESSEE EXCEPT ALLOWING GROUN D NO.5 OF THE REVENUES APPEAL. THEREFORE, AS PER THE CONTENTION OF THE L D. AR OF THE ASSESSEE, THE ISSUES RAISED BY THE ASSESSEE IN ITS CROSS OBJECTIO N ARE HELD TO BE OF ACADEMIC INTEREST ONLY AND WE MAKE NO ADJUDICATION ON THE SAME. 11. IN THE RESULT, THE CROSS OBJECTION OF THE ASSE SSEE IS DISMISSED. IT(TP)A NO.180(B)2015 & CO 108/B/2015 15 12. IN THE COMBINED RESULT, THE APPEAL OF THE REVE NUE IS PARTLY ALLOWED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ASHA VIJAYARAGHAVAN) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : 26.08.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE IT(TP)A NO.180(B)2015 & CO 108/B/2015 16 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER