M/s Nebulae Technologies Private Limited, Hyderabad V. DCIT, Circle-16(1), Hyderabad

ITA 2114/HYD/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4400 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 22-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 22-12-2011
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Transfer pricing; International transaction; Revenue expenditure
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 2114/HYD/2011 ASSESSMENT YEAR: 2007-08 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED, HYDERABAD [PAN: AAACY1181B] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A. SRINIVAS, AR FOR REVENUE : SHRI J. SIRI KUMAR, CIT-DR DATE OF HEARING : 22-08-2016 DATE OF PRONOUNCEMENT : 31-08-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD, DATED 15-11-2011 ON THE ISSUE OF TRANSFER PRICING ADJUSTME NTS MADE U/S. 92CA(3) OF THE INCOME TAX ACT [ACT] OF RS. 1,66, 75,628/-. ASSESSEE IS IN SOFTWARE DEVELOPMENT SERVICES AND HAD NUMBER OF INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE [AE], M/S. YASU TECHNOLOGIES INC, USA. THE TRANSFER PRICING O FFICER [TPO] I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 2 -: PROPOSED ADJUSTMENTS U/S. 92CA OF THE ACT AMOUNTING TO RS. 3,65,79,234/-. HOWEVER, THIS ORDER WAS REVISED BY TH E ADDL. DIT (TP) U/S. 92CA(5), WHEREIN THEY HAVE DETERMINED THE R EVISED ASSESSMENT AT RS. 1,66,75,628/-. THE ASSESSING OFFIC ER (AO) ACCORDINGLY COMPLETED THE ASSESSMENT ORDER. 2. BEFORE THE LD. CIT(A), ASSESSEE HAS CONTESTED VARIO US FILTERS, PARAMETERS AND SELECTION OF COMPARABLE COMPANIES. L D. CIT(A) AFTER CONSIDERING THEM IN DETAIL, HOWEVER, FOUND THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE ADDL. DIT(TP) AND ACCORDINGLY, HE REJECTED THE CONTENTIONS AND TP ADJUSTM ENTS. 3. ASSESSEE HAD RAISED THE FOLLOWING TWO GROUNDS IN ITS APPEAL: 2. THE A.O. ERRED IN ADDING AN AMOUNT OF RS. 1,66, 75,628/- AS ADJUSTMENT U/S. 92CA(3) OF THE INCOME TAX ACT. 3. THE TPO ERRED IN DETERMINING THE ADJUSTMENT U/S. 92CA(3) AT RS. 1,66,75,628/- WHEN IN REALITY THERE WAS NO SUCH VAR IANCE IN THE CROSS BORDER TRANSACTIONS BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. 4. LD. COUNSEL AT THE OUTSET SUBMITTED THAT TPO HAS SELECTE D 26 COMPANIES AS COMPARABLES AND OUT OF THEM ASSESSEE HAS NO OBJECTION FOR THE FIRST TWELVE COMPANIES. WITH REGARD TO THE BALANCE 14 COMPANIES, THE COMPARABLES SELECTED BY THE TPO AND OBJECTED TO BY ASSESSEE ARE IN FACT ADJUDICATED BY MANY OF THE C O-ORDINATE BENCHES. THE DETAILS SUBMITTED WERE AS UNDER: I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 3 -: S. NO COMPANY NAME SALE (RS. CR.) OP TO TOTAL COST % CONSIDERED IN CASE CITATION 1. DATAMATICS LTD 54.51 1.38% NO OBJECTION NA 2. E-ZEST SOLUTIONS LTD 6.26 36.12% ,, ,, 3. GEOMETRIC LTD (SEG) 158.36 10.71% ,, ,, 4. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 178.63 36.63% ,, ,, 5. IGATE GLOBAL SOLUTIONS LTD 747.27 7.49% ,, ,, 6. MEDIASOFT SOLUTIONS LTD 1.85 3.66% ,, ,, 7. MINDTREE LTD 590.35 16.90% ,, ,, 8. QUINTEGRA SOLUTIONS LTD 62.72 12.56% ,, ,, 9. R S SOFTWARE (INDIA) LTD 101.04 13.47% ,, ,, 10 R SYSTEMS INTERNATIONAL LTD (SEG) 112.01 15.07% ,, ,, 11 SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) 343.57 22.16% ,, ,, 12 SIP TECHNOLOGIES & EXPORTS LTD 3.80 13.90% ,, ,, 13 ACCEL TRANSMATIC LTD (SEG) 9.68 21.11% TATA MC-GRAW INTOTO NTT DATA 154 ITD 109 146 ITD 360 157 ITD 897 14 AVANI CIMCON TECHNOLOGIES LTD 3.55 52.59% TATA MC-GRAW FOUR SOFT TRIOLOGY NTT DATA 154 ITD 109 149 ITD 732 140 ITD 540 157 ITD 897 15 CELESTIAL LABS LTD 14.13 58.35% CURRAM TRIOLOGY 149 ITD 458 140 ITD 540 16 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) 848.66 25.31% INTOTO NTT DATA 146 ITD 360 157 ITD 897 17 INFOSYS TECHNOLOGIES LTD 13,149.0 40.30% TATA MC-GRAW FOUR SOFT CURRAM 154 ITD 109 149 ITD 732 149 ITD 458 18 ISHIR INFOTECH LTD 7.42 30.12% FOUR SOFT NTT DATA 149 ITD 732 157 ITD 897 19 KALS INFORMATION SYSTEMS LTD (SEG) 2.00 30.55% TATA MC-GRAW APP LABS NTT DATA 154 ITD 109 149 ITD 99 157 ITD 897 20 LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 45.39 15.75% NTT DATA 157 ITD 897 21 LUCID SOFTWARE LTD 1.70 19.37% FOURT SOFT NTT DATA 149 ITD 732 157 ITD 897 22 MEGASOFT LTD 139.33 60.23% TATA MC- GRAW NTT DATA 154 ITD 109 157 ITD 897 23 PERSISTENT SYSTEMS LTD 293.75 24.52% TATA MC-GRAW 154 ITD 109 24 TATA ELXSI LTD (SEG) 262.58 26.51% TATA MC- GRAW NTT DATA 154 ITD 109 157 ITD 897 25 THIRDWARE SOLUTIONS LTD 36.08 25.12% INTOTO 146 ITD 360 26 WIPRO LTD (SEG) 9,616.09 33.65% CURRAM NTT DATA 149 ITD 458 157 ITD 897 I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 4 -: * TATA MCGRAW HILL EDUCATION PVT. LTD., VS. ACIT [1 54 ITD 109] * INTOTO SOFTWARE INDIA PRIVATE LTD., VS. ACIT [146 ITD 360] * NTT DATA INDIA ENTERPRISES APPLICATION SERVICES ( P) LTD., VS. ACIT [157 ITD 897] * FOUR SOFT PVT. LIMITED VS. DCIT [149 ITD 732] * M/S. TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE L TD., VS. DCIT [140 ITD 540] * CURAM SOFTWARE INTERNATIONAL (P) LTD., VS. ITO [1 49 ITD 458] * APP LABS TECHNOLOGIES PVT. LTD., VS. DCIT [149 IT D 99] 5. LD. DR WHILE REITERATING THE CONTENTIONS OF THE TPO, FAIRLY ADMITTED THAT MANY OF THE COMPARABLES ARE EXAMINED IN THE ABOVE SAID CASES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES. AS CAN BE SEEN FROM THE ORD ERS THE TPO HAS SELECTED AS MANY AS 26 COMPARABLES IN HIS STUDY AND PROPOSED THE ADJUSTMENT. EVEN THOUGH ASSESSEE HAS RAISED MANY CONTENTIONS BEFORE THE LD. CIT(A) ABOUT VARIOUS FILTERS ETC., BEFORE US, LD. COUNSEL RESTRICTED HIS OBJECTIONS TO ONLY SELEC TION OF CERTAIN COMPARABLES WHICH ARE ALREADY ADJUDICATED AS NOT COMP ARABLE COMPANIES IN SIMILAR CASES. ASSESSEE HAS NO OBJECTI ON FOR THE FOLLOWING COMPARABLES OUT OF THE 26 COMPANIES SELECTE D BY THE TPO. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 5 -: S. NO COMPANY NAME SALE (RS. CR.) OP TO TOTAL COST % 1. DATAMATICS LTD 54.51 1.38% 2. E-ZEST SOLUTIONS LTD 6.26 36.12% 3. GEOMETRIC LTD (SEG) 158.36 10.71% 4. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD 178.63 36.63% 5. IGATE GLOBAL SOLUTIONS LTD 747.27 7.49% 6. MEDIASOFT SOLUTIONS LTD 1.85 3.66% 7. MINDTREE LTD 590.35 16.90% 8. QUINTEGRA SOLUTIONS LTD 62.72 12.56% 9. R S SOFTWARE (INDIA) LTD 101.04 13.47% 10 R SYSTEMS INTERNATIONAL LTD (SEG) 112.01 15.07% 11 SASKEN COMMUNICATION TECHNOLOGIES LTD (SEG) 343.57 22.16% 12 SIP TECHNOLOGIES & EXPORTS LTD 3.80 13.90% 6.1. ASSESSEE HAS OBJECTION FOR THE FOLLOWING COMPARA BLES SELECTED BY THE TPO. S. NO COMPANY NAME SALE (RS. CR.) OP TO TOTAL COST % 13 ACCEL TRANSMATIC LTD (SEG) 9.68 21.11% 14 AVANI CIMCON TECHNOLOGIES LTD 3.55 52.59% 15 CELESTIAL LABS LTD 14.13 58.35% 16 FLEXTRONICS SOFTWARE SYSTEMS LTD (SEG) 848.66 25.31% 17 INFOSYS TECHNOLOGIES LTD 13,149.0 40.30% 18 ISHIR INFOTECH LTD 7.42 30.12% 19 KALS INFORMATION SYSTEMS LTD (SEG) 2.00 30.55% 20 LGS GLOBAL LTD (LANCO GLOBAL SOLUTIONS LTD) 45.39 15.75% 21 LUCID SOFTWARE LTD 1.70 19.37% 22 MEGASOFT LTD 139.33 60.23% 23 PERSISTENT SYSTEMS LTD 293.75 24.52% 24 TATA ELXSI LTD (SEG) 262.58 26.51% 25 THIRDWARE SOLUTIONS LTD 36.08 25.12% 26 WIPRO LTD (SEG) 9,616.09 33.65% I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 6 -: 7. IT IS A FACT THAT MANY OF THE COMPARABLES SELECTED BY THE TPO WERE ALREADY ADJUDICATED IN VARIOUS CASES OF THE SIMI LAR NATURE LIKE THAT OF ASSESSEE. THEREFORE, ACCEPTING THE ASSESSEES CONTENTIONS, WE EXCLUDE THE FOLLOWING COMPARABLES WHICH ARE DISCU SSED IN VARIOUS CASES AS REPORTED ABOVE. 7.1. FOR THE SAKE OF RECORD, THE ORDER OF NTT DATA IN DIA ENTERPRISES APPLICATION SERVICES (P.) LTD., VS. ACIT [ 157 ITD 897/67] IN ITA NO. 2190/HYD/2011 HAS BEEN EXTRACTED W HICH HAS EXCLUDED THE FOLLOWING COMPARABLES: 1. AVANI CIMCON TECHNOLOGIES LTD; 2. INFOSYS TECHNOLOGIES LTD; 3. ISHIR INFOTECH LTD; 4. LUDIC SOFTWARE LIMITED; 5. MEGASOFT LTD; 6. TATA ELXSI LIMITED; 7. WIPRO LIMITED; 8. ACCEL TRANSMATIC LTD; 9. KALS INFORMATION SYSTEMS LIMITED; 10. FLEXTRONICS SOFTWARE LIMITED; 11. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD THE RELEVANT ORDER PERTAINING TO THE ABOVE COMPARABLE S IS AS UNDER: 5. WE HAVE HEARD THE LEARNED COUNSEL AND THE LE ARNED DEPARTMENTAL REPRESENTATIVE. LEARNED DEPARTMENTAL R EPRESENTATIVE ALSO PLACED ON RECORD WRITTEN OBJECTIONS ON THE CONTENTI ONS RAISED BY THE ASSESSEE AND WE ALSO PERUSED THE PAPER-BOOK PLACED ON RECORD RUNNING TO 809 PAGES. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 7 -: 6. AT THE OUTSET, IT HAS BEEN FAIRLY ADMITTED THAT THE COMPARABLES OBJECTED TO IN THE LIST FROM SL. NOS. 14 TO 24 WERE ALREADY CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF UN ITED ONLINE SOFTWARE DEVELOPMENT INDIA PVT. LTD. IN ITA NO.1658/HYD/2011 VIDE ITS ORDER DATED 24.9.,2015 FOR ASSESSMENT YEAR 2007-08. LEARNED CO UNSEL SUBMITTED THAT THE ASSESSEE HAS RAISED THE SAME OBJECTIONS WITH RE FERENCE TO THE ABOVE COMPARABLES AND REQUESTED FOR EXCLUSION OF THE SAID COMPANIES TAKEN AS COMPARABLES RELEVANT PORTION OF THE ORDER OF THIS TRIBUNAL DATED 24.9.2015 IN THE CASE OF UNITED ONLINE SOFTWARE DEVELOPMENT I NDIA PVT. LTD., IS AS UNDER- 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDE S AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD, INCLUDING THE PAPER-BOOKS AND DETAILED FILED BY ASSESSEE. IT HAS BEEN BROUG HT TO OUR NOTICE BY THE LEARNED COUNSEL FOR ASSESSEE, AND NOT DISPUTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07, THE ISSUE RELATING TO COMP ARABLE NATURE OF THREE OF THE COMPANIES NAMED IN THE ORIGINAL GROUND , VIZ. MEGASOFT LTD., INFOSYS TECHNOLOGIES LTD. AND TATA ELXSI LTD. (SEG)., AND TWO OUT OF THE FOUR COMPANIES NAMED IN THE ADDITIONAL GROUN D, VIZ. ACCEL TRANSMATIC (SEG) AND KALIS INFORMATION SYSTEMS LTD. (SEG.) HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO. 1500/HYD/2010, AND THIS TRIBUNAL. 17. HOWEVER, WE FIND THAT THE ISSUE RELATING TO C OMPARABLE NATURE OF NINE OUT OF ABOVE ELEVEN COMPANIES (COMPA NIES IN ORIGINAL GROUNDS AS WELL AS ADDITIONAL GROUNDS TAKEN TOGETHE R), VIZ. OTHER THAN FLEXTRONICS SOFTWARE SYSTEMS LTD. (SEG.) AND HELIOS & MATHESON INFORMATION TECH. LTD. HAS COME UP FOR CONSIDERATIO N BEFORE THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ITSELF, IN THE CASE OF SUMTOTAL SYSTEMS INDIA P. LTD., HYDERABAD IN ITA NO.1710/HYD /2011, WHEREIN THE TRIBUNAL VIDE ITS ORDER DATED 9.5.2014 HAS ACCE PTED THE CONTENTIONS FOR EXCLUSION OF THESE NINE COMPANIES U NDER CONSIDERATION BEFORE IT. RELEVANT PORTION OF THE SAID ORDER OF TH E TRIBUNAL, BEING PARA 7 THEREOF, READS AS UNDER- 7. EACH OF THESE COMPARABLES IN DISPUTE, CHALL ENGED IN GROUND NO 7 WAS CONSIDERED AS UNDER: AVANI CIMCON TECHNOLOGIES LIMITED : 7.1. ASSESSEE HAS BASICALLY SOUGHT EXCLUSION OF ABOVE COMPANY ON TWO GROUNDS, FIRSTLY, THIS COMPANY HAS REVENUE F ROM BOTH PRODUCT AND SOFTWARE SERVICES AND SEGMENT-WISE DATA IS NOT AVAILABLE AND SECONDLY, IT IS CONTENDED THAT THE COMPANY HAS SHOWN SUPER NORMAL PROFIT OF 52.59% AGAINST AVERAG E MARGIN OF OTHER COMPARABLES. IT IS VERY MUCH EVIDENT FROM TH E TP ORDER THAT ASSESSEE HAS BEEN CATEGORISED AS A SOFTWARE DEVELOP MENT SERVICE PROVIDER. COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VIRTUSA (INDIA) PVT. LTD. (ITA NO. 1962/HYD/2011 DATED 30/0 8/2013) AFTER FOLLOWING SOME OTHER DECISIONS OF THE TRIBUNAL HAS HELD THIS COMPANY CANNOT BE TREATED AS COMPARABLE AS THIS COM PANY IS ALSO I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 8 -: INTO PRODUCT DEVELOPMENT. AS SEGMENTAL DETAILS OF O PERATING INCOME OF SOFTWARE DEVELOPMENT SERVICES AND SALE OF SOFTWARE PRODUCTS ARE NOT AVAILABLE, IT COULD NOT BE ASCERTA INED WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAKEN INTO CONS IDERATION FOR COMPARING WITH ASSESSEE. AS THE AFORESAID DECISION OF THE COORDINATE BENCH PERTAINED TO THE SAME ASSESSMENT Y EAR I.E. A.Y. 2007-08, FOLLOWING THE SAME, WE HOLD THAT THIS COMP ANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE. OTHER CASES CONS IDERED THE SAME COMPARABLE AND REJECTED ARE AS UNDER: A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.1978/H2011 C) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 D) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.7821/MUM/2 011 E) TRIOLOGY E-BUSINESS SOLUTIONS ITA.NO.1054/BANG /201 1 F) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 G) LG SOFT INDIA PVT. LTD. ITA.NO.1121/BANG/2011 H) TRANSWITCH INDIA P. LTD. ITA.NO.948/BANG/2011 I) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 J) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 K) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 L) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011 WE HEREFORE DIRECT THE ASSESSING OFFICER /TPO TO E XCLUDE THIS WHILE COMPUTING ALP. INFOSYS TECHNOLOGIES LTD., : 7.2 OBJECTING TO THE AFORESAID COMPANY BEING TREAT ED AS COMPARABLE, LEARNED AR SUBMITTED THAT THE COMPANY CANNOT BE CONSIDERED TO BE COMPARABLE TO A CAPTIVE SERVICE P ROVIDER LIKE ASSESSEE, NOT ONLY BECAUSE OF THE QUANTUM OF REVENU E EARNED BY THEM BUT ALSO ON ACCOUNT OF VARIOUS OTHER FACTORS. IT WAS SUBMITTED THAT THE COMPANY COMMAND A PREMIUM IN THE PRICING O F THEIR PRODUCTS AND SERVICES DUE TO THE GOODWILL, REPUTATI ON AND BRAND VALUE. IT WAS SUBMITTED THAT DUE TO SCALE OF OPERAT ION IT NOT ONLY ENJOY ECONOMIES OF SCALE IN THE LOWER COST OF INFRA STRUCTURE FACILITIES AND EMPLOYEES BUT ALSO EARNING PROFIT. IT WAS SUBMITTED THAT THE COMPANY HAS DIVERSIFIED ACTIVITIES INCLUDI NG PRODUCTS, CONSULTANCY AND SOLUTIONS. COMPANY OWN INTANGIBLES AND ASSUME CONSIDERABLE RISK WHICH RESULTS IN EARNING HIGHER P ROFITS. IN SUPPORT OF SUCH CONTENTION THE LD. AR RELIED UPON A NUMBER OF DECISIONS, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK. 7.2.1. THE LEARNED DR STRONGLY CONTESTING THE CONTE NTIONS OF ASSESSEE SUBMITTED THAT SO FAR AS INFOSYS TECHNOLOG IES IS CONCERNED, ASSESSEE ITSELF HAS SELECTED THE SAID C OMPANY IN THE TP DOCUMENTATION. THEREFORE, ASSESSEE CANNOT AGAIN OB JECT TO THE TPO SELECTING THE SAID COMPANY AS COMPARABLE. HE FU RTHER SUBMITTED THAT ONLY BECAUSE THE COMPANY HAS BRAND V ALUE AND IS BIG IN SIZE, IT CANNOT BE TREATED AS UNCOMPARABLE T O ASSESSEE. 7.2.2. IN REJOINDER, THE LD. AR SUBMITTED THAT ASSE SSEE SELECTED INFOSYS ON THE BASIS OF THREE YEARS DATA, WHEREAS T PO HAS CONSIDERED ONLY CURRENT YEAR DATA. THE LEARNED AR F URTHER SUBMITTED THAT IF ASSESSEE HAS MISTAKENLY SELECTED A COMPARABLE, IT CANNOT BE ESTOPPED FROM OBJECTING TO THE SELECTION OF THAT COMPARABLE IN PROCEEDINGS BEFORE HIGHER FORUM. IN THIS CONTEXT, THE LEARNED AR RELIED UPON THE INCOME-TAX APPELLATE TRIBUNAL SPECIAL BENCH DECISION IN CASE OF QUARK SYSTEMS, 4 ITR (TRIB) 606. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 9 -: 7.2.3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PA RTIES AND PERUSED THE MATERIALS ON RECORD. ON CONSIDERING T HE SAME, WE ARE OF THE VIEW THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE TO ASSESSEE DUE TO VARIOUS FACTORS SUCH AS ITS SIZE , TURNOVER, BRAND VALUE, SCALE OF OPERATION, DIVERSIFIED ACTIVITIES A ND OWNING OF INTANGIBLES. AS CAN BE SEEN FROM THE TP ORDER, TH E TURNOVERS OF INFOSYS TECHNOLOGIES LIMITED DURING THE YEAR UNDER CONSIDERATION ARE RS.13,149 CRORES AS AGAINST RS. 42 CRORES OF AS SESSEE. THOUGH IT IS A FACT THAT ASSESSEE IN THE TP DOCUMENTATION, HAS SELECTED INFOSYS TECHNOLOGIES LTD. AS COMPARABLE BUT THAT C ANNOT PREVENT ASSESSEE FROM OBJECTING TO THE AFORESAID COMPANY BE ING SELECTED AS COMPARABLE, IF THERE ARE VALID REASONS FOR DOING SO. IN THIS CONTEXT, THE CONTENTION OF THE LEARNED AR THAT ASSE SSEE HAS SELECTED INFOSYS LIMITED ON THE BASIS OF THREE YEAR S FINANCIAL DATA, WHEREAS THE TPO CONSIDERED ONLY THE CURRENT YEAR DA TA ALSO NEEDS TO BE APPRECIATED. THEREFORE, CONSIDERING THE ENOR MITY OF TURNOVER OF THE COMPANY AS WELL AS OTHER RELEVANT FACTORS, T HE AFORESAID COMPANY CANNOT BE TREATED AS COMPARABLE TO ASSESSEE IN ANY MANNER. THIS VIEW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFERENT BENCHES OF THIS TRIBUNAL AS STATED BEL OW AS WELL AS THAT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD.,[2013] 85 CCH 146. A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.1978/H2011 C) M/S. VIRTUSA (I) P. LTD. ITA.NO.1962/HYD/2011 D) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.7821/MUM/2 011 E) TRIOLOGY E-BUSINESS SOLUTIONS ITA.NO.1054/BANG/2011 F) ADAPTEC (INDIA) P. LTD. VS. DCIT ITA.NO.1801/HYD /2009 G) TRINITY ADVANCED SOFTWARE LABS P. LTD. VS. ACIT ITA.NO.1129/HYD/2005 WE THEREFORE DIRECT THE ASSESSING OFFICER /TPO TO E XCLUDE THIS WHILE COMPUTING ALP. ISHIR INFOTECH LTD 7.3. SO FAR AS THIS COMPANY IS CONCERNED, ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY ON THE G ROUND THAT THIS COMPANY FAILS EMPLOYEE COST FILTER AS ITS EMP LOYEE COST WAS ONLY 3.96%. IN THIS CONTEXT, THE LEARNED AR HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN C ASE OF M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON A PERUSAL OF THE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD.((SUPRA)), WE FIND THAT THE CO-ORDINATE BENCH HAS HELD THAT ISHIR INFOTECH LIMI TED CANNOT BE TREATED AS COMPARABLE AS IT DOES NOT QUALIFY THE EM PLOYEE COST FILTER AS WELL AS RPT FILTER. THIS VIEW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFERENT BENCHES OF THIS TRIBUNA L AS STATED BELOW : A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 D) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 I) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 10 -: RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE CO-ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLU DE THIS COMPANY FROM THE LIST OF COMPARABLES. LUCID SOFTWARE LIMITED : 7.4. THE MAIN OBJECTION OF ASSESSEE WITH REGARD TO THE AFORESAID COMPANY IS THAT IT EARNS REVENUE BOTH FROM PRODUCT DEVELOPMENT AS WELL AS SOFTWARE SERVICES FOR WHICH SEGMENTAL DATA IS NOT AVAILABLE. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR HAS RELIED UPON THE DECISION OF CO-ORDINATE BENCH I N THE CASE M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON PERUSAL OF T HE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA), IT I S SEEN THAT THE CO- ORDINATE BENCH HAS EXCLUDED THE AFORESAID COMPANY A CCEPTING ASSESSEES CONTENTION THAT SEGMENTAL DATA IN RESPEC T OF SALE OF PRODUCTS AND SOFTWARE SERVICES ARE NOT AVAILABLE. F URTHER FOLLOWING CASES ALSO CONSIDERED THE ABOVE COMPANY AND EXCLUDE D THE SAME ON SAME REASON. A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MU M/2011 C) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 D) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 I) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. FOLLOWING THE AFORESAID DECISIONS OF THE COORDINATE BENCHES, WE DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM LIST OF COMPARABLES. MEGASOFT LIMITED : 7.5. THE MAIN OBJECTION OF ASSESSEE WITH REGARD TO THE AFORESAID COMPANY IS THAT THIS IS PREDOMINANTLY A P RODUCT DEVELOPMENT COMPANY AND MARGIN FROM SOFTWARE DEVELO PMENT SERVICES IS 23.11%. AS CAN BE SEEN, IN CASE OF M/ S VIRTUSA (INDIA) PVT. LTD. (SUPRA), THE CO-ORDINATE BENCH OF THE TRI BUNAL WHILE CONSIDERING ASSESSEES OBJECTION WITH REGARD TO THE AFORESAID COMPANY HAD DIRECTED THE ASSESSING OFFICER/TPO TO T AKE ONLY SEGMENTAL MARGIN OF THIS COMPANY FOR COMPUTING ALP. SIMILAR VIEW WAS ALSO EXPRESSED IN THE FOLLOWING CASES : A) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) B) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/ 2011 C) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 D) TRIOLOGY E-BUSINESS SOLUTIONS ITA.NO.1054/BANG/2011 E) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 F) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 G) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 H) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 I) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 J) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 K) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 L) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 11 -: RESPECTFULLY FOLLOWING THE AFORESAID ORDERS OF CO-O RDINATE BENCHES, WE DIRECT THE ASSESSING OFFICER /TPO TO CONSIDER ON LY THE SEGMENTAL MARGIN OF THIS COMPANY FOR THE RELEVANT A SSESSMENT YEAR FOR COMPUTING ALP. TATA ELXSI LIMITED : 7.6. ASSESSEE HAS SOUGHT EXCLUSION OF THE AFORE SAID COMPANY BY PLACING RELIANCE UPON THE INFORMATION FU RNISHED BY SAID COMPANY U/S 133(6) WHEREIN THE SAID COMPANY HA S ADMITTED THAT IT CANNOT BE TREATED AS COMPARABLE WITH ANY OT HER SOFTWARE SERVICE PROVIDER DUE TO COMPLEX NATURE OF ITS BUSIN ESS. HOWEVER, WHILE THE TPO SELECTED THE AFORESAID COMPANY BY HOL DING THAT THE SERVICES PROVIDED ARE AKIN TO SOFTWARE DEVELOPMENT SERVICES, THE DRP, DID NOT COMMENT ON THE COMPARABILITY OF THIS C OMPANY. THE LEARNED AR SUBMITTED THAT COMPARABILITY OF THE AFOR ESAID COMPANY WAS CONSIDERED AND ANALYSED BY DIFFERENT BENCHES OF THE ITAT AND THE AFORESAID COMPANY WAS REJECTED AS COMPARABLE TO THE SOFTWARE SERVICES PROVIDER. FOR SUCH CONTENTION, THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MU M/2011 B) TRIOLOGY E BUSINESS SOLUTIONS, ITA NO. 1054/BANG/2011. C) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) D) M/S. VIRTUSA (I) P. LTD. ITA.NO.1962/HYD/2011 E) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/ 2011. 7.6.1. THE LEARNED DR, ON THE OTHER HAND, SUPPORTE D THE ORDERS OF THE AO/TPO AND DRP IN THIS REGARD AND REF ERRED TO THE OBSERVATIONS MADE BY THE TPO IN HIS ORDER. 7.6.2. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. IN CASE OF TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011 , THE ITAT MUMBAI BENCH WHILE CONSIDERING THE COMPARABILI TY OF THE AFORESAID COMPANY WITH SOFTWARE SERVICES PROVID ER 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 EL XSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AND DEVELOP MENT SERVICES, WHICH IS ENTIRELY DIFFERENT FROM ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF THE LEARNED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED B Y THIS COMPANY ARE DIFFERENT FROM ASSESSEE AS HAVE BEEN NA RRATED IN PARA 6.6 ABOVE. EVEN THE SEGMENTAL DETAILS FOR REVE NUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMPARING THE PROFIT RATIO FRO M PRODUCT AND SERVICES. THUS, ON THESE FACTS, WE ARE UNABLE T O TREAT THIS COMPANY FIT FOR COMPARABILITY ANALYSIS FOR DETERMIN ING THE ARMS LENGTH PRICE FOR ASSESSEE, HENCE, SHOULD BE EX CLUDED FROM THE LIST OF COMPARABLE PARTIES. FOLLOWING THE DECISION OF THE ITAT MUMBAI BENCH AS AFORESAID AND ALSO CONSIDERING THE FACT THAT THE CO MPANY ITSELF IN THE INFORMATION PROVIDED IN RESPONSE TO T HE NOTICE ISSUED U/S 133(6) OF THE ACT HAS ADMITTED THAT IT C ANNOT BE CONSIDERED AS COMPARABLE WITH OTHER ASSESSEES, W E I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 12 -: DIRECT EXCLUSION OF THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES WHILE DETERMINING ALP. WIPRO LIMITED : 7.7. WHILE OBJECTING TO THE AFORESAID COMPANY BEIN G TREATED AS COMPARABLE, THE LEARNED AR SUBMITTED THA T THE TPO ONLY ON CONSIDERING SEGMENTAL DETAILS SUBMITTED BY THE S AID COMPANY FOR IT SERVICES, IN RESPONSE TO NOTICE ISSUED U/S 1 33(6), HAS CONSIDERED IT AS A COMPARABLE. IT WAS SUBMITTED THA T THE AFORESAID COMPANY IS A DIVERSIFIED COMPANY AND DISCLOSES SEGM ENTAL INFORMATION FOR IT SERVICES AND PRODUCTS AS ONE SEG MENT IN ITS ANNUAL REPORT. IT WAS SUBMITTED THAT THE TPO HAS NO T PROVIDED ANY OTHER DOCUMENTS EXCEPTING SEGMENTAL INFORMATION OBT AINED FROM TP REPORT OF WIPRO, WHICH IS UNAUDITED, MANUALLY CO RRECTED AND UNVERIFIED. IT WAS SUBMITTED THAT WIPRO IS ALSO CON SIDERED TO BE A GIANT IN ITS FIELD ASSUMING ALL THE RISKS AND CANNO T BE COMPARED TO CAPTIVE SERVICE PROVIDER LIKE ASSESSEE. TO SUPPORT HIS CONTENTIONS WITH REGARD TO NON-COMPARABILITY OF THE SAID COMPAN Y, HE RELIED UPON THE FOLLOWING DECISIONS : A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MU M/2011 B) TRINITI ADVANCES SOFTWARE P. LTD., ITA NO. 1129/H/2005. C) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) D) M/S. VIRTUSA (I) P. LTD. ITA.NO.1962/HYD/2011 E) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/ 2011. F) ADAPTEC (I) P. L.TD. ITA.NO.1801/HYD/2011. 7.7.1. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE DRP AS WELL AS TPO SO FAR AS THE SELECTION OF T HE AFORESAID COMPANY AS COMPARABLE WHILE DETERMINING ALP. 7.7.2. WE HAVE HEARD THE SUBMISSIONS OF THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. T HE ITAT MUMBAI BENCH IN CASE OF TELCORDIA TECHNOLOGIES INDIA PVT. LTD., ITA NO. 7821/MUM/2011, WHILE CONSIDERING THE OBJECTION OF ASSESSEE FOR TREATING THE AFORESAID COMPANY AS COMPARABLE HELD AS FOLLOWS: 7.5 THIS COMPANY IS ALSO A GLOBAL IT COMPANY HAVIN G VARIETIES OF SERVICE AND PRODUCTS AND LOOKING TO TH E MAGNITUDE OF ITS OPERATIONS, SALES AND EXPENSES, TH E SAME CANNOT BE TAKEN INTO CONSIDERATION FOR COMPARABILIT Y ANALYSIS. MOREOVER, 67% OF ITS SALES RELATES TO ITS PRODUCT WHICH ARE SOLD ON PREMIUM RESULTING INTO HIGHER PRO FITABILITY, THEREFORE, CANNOT BE COMPARED WITH ASSESSEE COMPANY AT ALL. THERE ARE SEVERAL JUDGMENTS OF ITAT WHICH HAVE BEEN REFERRED IN PARA 6.5 ABOVE, THAT WIPRO CANNOT BE TA KEN AS COMPARABLE CASE FOR COMPARABLE CASE WITH THE COMPAN Y LIKE ASSESSEE. IN VIEW OF THESE FACTS AND THE REASONING GIVEN IN THE CASE OF INFOSYS, WE HOLD THAT WIPRO ALSO CANNOT BE CONSIDERED AS A COMPARABILITY ANALYSIS, HENCE, WOUL D NOT BE INCLUDED IN THE LIST OF THE COMPARABLE ENTITIES AS IDENTIFIED BY THE TPO. 7.7.3. AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD DURING THE YEAR UNDER CONSIDERATION, THE SEGMENTAL TURNOVER OF THE WIPRO LTD. IS 9616.09 CRORES. THEREFORE, CONSIDERIN G THE TURNOVER, BRAND VALUE AS WELL AS OTHER DYNAMICS OF WIPRO LTD. , IT COMES IN I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 13 -: THE SAME CATEGORY AS INFOSYS AND CERTAINLY CANNOT B E COMPARED WITH ASSESSEE. THEREFORE, FOLLOWING OUR REASONING I N CASE OF INFOSYS TECHNOLOGIES LTD. AND OTHER COORDINATE BENC H DECISIONS, WE HOLD THAT WIPRO LTD. CANNOT BE TREATED AS COMPAR ABLE WITH ASSESSEE. ACCEL TRANSMATIC LTD. : 7.8. WITH REGARD TO THIS COMPANY, THE COMPLAIN T OF ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECISION OF CAP GEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP ACCEPTED THE CONT ENTION OF ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARA BLE. THE RELEVANT OBSERVATIONS OF DRP AS EXTRACTED BY THE ITAT IN ITS ORDER ARE AS FOLLOWS: IN REGARD TO ACCEL TRANSMATICS LTD. ASSESSEE SUBMI TTED THE COMPANY PROFILE AND ITS ANNUAL REPORT FOR FINANCIAL YEAR 20 05-06 FROM WHICH THE DRP NOTED THAT THE BUSINESS ACTIVITIES OF THE COMPA NY WERE AS UNDER. (I) TRANSMATIC SYSTEM - DESIGN, DEVELOPMENT AND MANUFAC TURE OF MULTI FUNCTION KIOSKS QUEUE MANAGEMENT SYSTEM, TICKET VEN DING SYSTEM. (II) USHUS TECHNOLOGIES - OFFSHORE DEVELOPMENT CENTRE F OR EMBEDDED SOFTWARE, NET WORK SYSTEM, IMAGING TECHNOLOGIES, OU TSOURCED PRODUCT DEVELOPMENT. (III) ACCEL IT ACADEMY (THE NET STOP FOR ENGINEERS)- TRA INING SERVICES IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEM MANAGEME NT, EMBEDDED SYSTEM, VLSI DESIGNS, CAD/ CAM/BPO (IV) ACCEL ANIMATION STUDIES SOFTWARE SERVICES FOR 2D/3D ANIMATION, SPECIAL EFFECT, ERECTION, GAME ASSET DEVELOPMENT. 7.8.1. ON CAREFUL PERUSAL OF THE BUSINESS ACTIVIT IES OF ACCEL TRANSMATIC LTD. DRP AGREED WITH ASSESSEE THAT THE C OMPANY WAS FUNCTIONALLY DIFFERENT FROM ASSESSEE COMPANY AS IT WAS ENGAGED I N THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATION SERVICES FOR 2 D AND 3D ANIMATION AND THEREFORE ASSESSEES CLAIM THAT THIS COMPANY WAS FU NCTIONALLY DIFFERENT WAS ACCEPTED. IT DIRECTED THE ASSESSING OFFICER TO EXCL UDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST OF COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. A SIMILAR VIEW WAS TAKEN IN THE FOLLOWING C ASES : A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/ 2011. B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 D) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 E) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) MERCEDES BENZ RESEARCH & DEVELOPMENT ITA.NO.1222/BANG/2011 G) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 H) HCL EAI SERVICES LTD. ITA.NO.1348/BANG/2011. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATE BENCHES OF THE TRIBUNAL, WE DIRECT THAT THIS COMPANY SHOULD BE EXC LUDED FROM THE LIST OF COMPARABLES. KALS INFORMATION SYSTEM LIMITED : I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 14 -: 7.9. AS FAR AS KALS INFORMATION SYSTEM LIMITED IS CONCERNED, LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT IT IS F UNCTIONALLY DIFFERENT FROM ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL FOR ASSESSEE RELIED UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE M/S. TRILOGY E- BUSINESS SOFTWARE INDIA PRIVATE LIMITED (SUPRA) WHE REIN AT PARAS 46 AND 47 OF ITS ORDER, THE TRIBUNAL HAS DISCUSSED THE FUNCTI ONAL DISSIMILARITY WITH ASSESSEE THEREIN AND HAS DIRECTED THAT THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. SIMILARLY, THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S. HCL EAI SERVICES LTD. VS. DCIT IT(TP) A. NO. 1 348/ BANG/2011 AT PARA 17 AT PAGES 24 TO 26 OF ITS ORDER HAS DISCUSSED AT LENGTH THE REASONS FOR NOT CONSIDERING THE SAID COMPANY AS COMPARABLE TO SOFTW ARE DEVELOPMENT SERVICES COMPANY. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER : (D) KALS INFORMATION SYSTEMS LTD. 46. AS FAR AS THIS COMPANY IS CONCERNED, THE CONTE NTION OF ASSESSEE IS THAT THE AFORESAID COMPANY HAS REVENUES FROM BOTH SOFTWARE DEVELOPMENT AND SOFTWARE PRODUCTS. BESIDES THE ABOVE, IT WAS ALSO POINTED OUT THAT THIS COMPANY IS ENGAGED I N 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 SOF TWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILTER TEST F AILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNALS DEC ISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMITED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WAS RE JECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERE NT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOLLOWS: 16. ANOTHER ISSUE RELATING TO SELECTION OF COMPAR ABLES BY THE TPO IS REGARDING INCLUSION OF KALS INFORMATION SYSTEM L TD. ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH RE FERENCE TO PAGES 185-186 OF THE PAPER BOOK, IT IS EXPLAINED TH AT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODU CTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPM ENT SERVICES PROVIDED BY ASSESSEE. THE APPELLANT HAS SU BMITTED AN EXTRACT ON PAGES 185-186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN P ROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INT O DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE AS PECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE S AID CONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMP ARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. BASED ON ALL THE ABOVE, IT WAS SUBMITTED ON BEHALF OF ASSESSEE THAT KALS INFORMATION SYSTEMS LIMITED SHOULD BE REJECTED AS A COMPARABLE. 47. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE S UBMISSION MADE ON BEHALF OF ASSESSEE. WE FIND THAT THE TPO HAS DRA WN 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 THIS COMPANY AS HIGHLIGHTED BY ASSESSEE IN ITS LETTER DA TED 21.6.2010 TO THE TPO. WE ALSO FIND THAT IN THE DECI SION REFERRED TO BY THE LEARNED COUNSEL FOR ASSESSEE, THE MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELOPING SOFT WARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPM ENT I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 15 -: SERVICE PROVIDER. WE THEREFORE ACCEPT THE PLEA OF A SSESSEE THAT THIS COMPANY IS NOT COMPARABLE. 7.9.1. WE FIND THAT BOTH M/S. HCL EAI SERVICES LTD . ITA.NO.1348/BANG/2011 AS WELL AS M/S. TRILOGY E-BUS INESS SOLUTIONS ITA.NO.1054/BANG/2011 ARE INTO SOFTWARE DEVELOPMENT SERVICES TO ITS PARENT COMPANIES. ASSESSEE IS ALSO INTO SIMILAR TYP E OF ACTIVITY. THEREFORE, THE DECISION TAKEN IN M/S. TRILOGY E-BUSINESS SOFTW ARE INDIA PRIVATE LIMITED AS WELL AS M/S. HCL EAI SERVICES LTD. TO EXCLUDE K ALS INFORMATION SYSTEMS LTD. APPLIES TO THE FACTS OF THE CASE BEFORE US ALS O. SIMILAR VIEW HAS BEEN EXPRESSED BY THE COORDINATE BENCH OF THE TRIBUNAL I N THE FOLLOWING CASES : A) M/S. CONEXANT SYSTEM INDIA P. LTD. ITA.NO.1978/HYD/ 2011. B) INTOTO SOFTWARE INDIA P. LTD. ITA.2102/H/2010 C) BEARING POINT BUSINESS ITA.NO.1124/BANG/2011 D) LG SOFT INDIA P. LTD. ITA.1121/BANG/2011 E) TRANSWITCH INDIA P. LTD. ITA.948/BANG/2011 F) CSR INDIA P. LTD. ITA.NO.1119/BANG/2011 G) FIRST ADVANTAGE ITA.NO.1086/BANG/2012 THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCHES (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO EXC LUDE THE COMPANY FROM THE LIST OF COMPARABLES. 18. SIMILARLY, AS CONTENDED BY THE LEARNED COUNSE L FOR ASSESSEE COMPARABLE NATURE OF FLEXTRONICS SOFTWARE SYSTEMS LTD.(SEG) AND HELIO & MATHESON INFORMATION TECH LT D., HAS BEEN REJECTED BY COORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF M/S. AXSYS HEATHCARE LTD. VIDE ORDER DATED 28.5.2014 IN ITA N O.2076/HYD/2011 FOR THE ASSESSMENT YEAR 2007-08, FOR THE FOLLOWING REASONS- 14. AFTER HEARING RIVAL CONTENTIONS, WE AGREE THAT THE FOLLOWING COMPARABLES WERE EXCLUDED BY THE COORDINATE BENCHES CONSIDERING THE SIMILAR FACTS AND ARGUMENTS RAISED BEFORE US: ........................... 3. HIGH TURNOVER- FUNCTIONALLY DISSIMILAR: 6. FLEXITRONICS SOFTWARE LIMITED : ' AS FAR AS FLEXITRONICS SOFTWARE LIMITED IS CONCER NED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THA T THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRO DUCTS AND HAS INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE P RODUCTS. THE ABOVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCT IONAL DISSIMILARITY BETWEEN ASSESSEE AND THESE COMPANIES AND WITHOUT MA KING ADJUSTMENT FOR THE DISSIMILARITIES BROUGHT OUT BY T HE TPO HIMSELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARABLE COMPA NIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE P ROPORTIONATELY TO THE SOFTWARE DEVELOPMENT SERVICES AND SOFTWARE PROD UCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND REASONABLE. WHEREV ER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARABLE COMPANIES WITH ASSESSEE-COMPANY T O BRING THEM ON PAR WITH ASSESSEE, THESE COMPANIES ARE TO BE EXC LUDED FROM THE LIST OF COMPARABLES. THEREFORE, WE DIRECT THE ASSES SING OFFICER/TPO TO EXCLUDE FROM THE LIST OF COMPARABLES.' . I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 16 -: 14. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD TH IS COMPARABLE IS OBJECTED ON THE REASON OF LOW EMPLOYEE COST OF 1 .36%. THUS IT FAILS THE EMPLOYEE COST FILTER. THEREFORE, NOT COMPARABLE . ASSESSEE RELIED ON THE JUDGMENT OF MENTOR GRAPHICS P. LTD. VS. DCIT 109 ITD 101 (DEL.) WITH REFERENCE TO THIS COMPARABLE. 15. AFTER CONSIDERING THE CONTENTIONS, WE ARE OF THE OPINION THAT THESE 14 COMPARABLES ARE REQUIRED TO BE EXCLUDED BY THE TPO. RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIB UNAL, WE DIRECT THAT THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPA RABLES AS ASSESSEE TURNOVER IS ONLY 2.18 CRORES AND EMPLOYEE COST IS M ORE. MANY OF THE COMPANIES ARE ALSO FOUND TO BE NOT FUNCTIONALLY SIM ILAR. THE VARIOUS FILTERS AND REASONS ACCEPTED IN OTHER CASES DO APPLY TO ASS ESSEE AS TPO SELECTED SAME 26 COMPARABLES IN ALL THE CASES RELIED ON AND DECIDED EARLIER IN VARIOUS CASES. 19. FURTHER, AS PER THE CHART FURNISHED BEFORE US, SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCHES OF THE TRI BUNAL IN SIMILAR MATTERS, WHEREIN COMPARABLE NATURE OF ABOVE ELEVEN COMPANIES HAS COME UP FOR CONSIDERATION, SUCH AS- (A) M/S. AXSYS HEALTHCARE LTD. (ITA NO.2076/HYD/2011) (B) M/S.VIRTUSA (I) P. LTD. (ITA NO.1962/HYD/2011) (C) M/S. CONTEXANT SYSTEM INDIA PVT. LTD.(ITA NOS.1978/HYD/2011) (D) INTOTO SOFTWARE INDIA PVT. LTD. (ITA NO.2102/HYD/20 10) (E) TRIOLOGY E BUSINESS SOLUTIONS (ITA NO.1054/BANG/201 1) (F) TELCORDIA TECHNOLOGIES INDIA PVT. LTD. (ITA NO.7821/MUM/2011) (G) LG SOFT INDIA PVT. LTD. (ITA NO.1121/BANG/2011) (H) TRANSWITCH INDIA PVT. LTD. (ITA NO.948/BANG/2011) (I) MERCEDES BENZ RESEARCH & DEVELOPMENT (ITA NO.1222/BANG- -/2011) (J) CSR INDIA PVT. LTD. (ITA NO.1119/BANG/2011) (K) FIRST ADVANTAGE (ITA NO.1086/BANG/2012) (L) HCL EAI SERVICES LTD. (ITA NO.1348/BANG/2011) (M) ADAPTEE (INDIA ) PVT. LTD.(ITA NO.1801/HYD/2011) 20. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW T AKEN BY THE TRIBUNAL WITH REGARD TO COMPARABLE NATURE OF THE AB OVE SEVEN COMPANIES IN SIMILAR MATTERS AND MORE PARTICULARLY, THE DECISION OF THE TRIBUNAL IN THE CASE OF SUMTOTAL SYSTEMS INDIA PRIV ATE LTD. CITED SUPRA, INCLUDING THE DECISION RENDERED IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2006-07, WE ALLOW GROUND NO.7 OF AS SESSEE ALONG WITH ADDITIONAL GROUND AND DIRECT THE ASSESSING OFF ICER TO EXCLUDE THE ABOVE ELEVEN COMPANIES FROM THE SCOPE OF COMPARABIL ITY ANALYSIS. 6.1 RESPECTFULLY FOLLOWING THE SAME, THE ASSES SING OFFICER/TRANSFER PRICING OFFICER IS DIRECTED TO EXCLUDE THE ABOVE CO MPANIES FORM THE LIST OF COMPARABLE COMPANIES. ASSESSING OFFICER IS DIRECTE D TO MODIFY AND RE- I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 17 -: DETERMINE THE ARMS LENGTH PRICE ACCORDINGLY. GROUN D NO.3(G) IS ACCORDINGLY ALLOWED. 7.2. WITH REFERENCE TO THE CELESTIAL LABS LTD., THE CO-OR DINATE BENCH IN ITA NO. 1054/BANG/2011 (AY. 2007-08) IN TH E CASE OF M/S. TRIOLOGY E-BUSINESS SOFTWARE INDIA PRIVATE LTD., VS. DICT DT. 23-11-2012 HAS CONSIDERED AS UNDER: (C) CELESTIAL LABS LTD. 42. AS FAR AS THIS COMPANY IS CONCERNED, THE STAND OF THE ASSESSEE IS THAT IT IS ABSOLUTELY A RESEARCH & DEVELOPMENT COMPANY. IN THIS REGARD, THE FOLLOWING SUBMISSIONS WERE MADE:- IN THE DIRECTOR'S REPORT (PAGE 20 OF PB-IL), IT I S STATED THAT 'THE COMPANY HAS APPLIED FOR INCOME TAX CONCESSION FOR IN-HOUSE R&D CENTRE EXPENDITURE AT HYDERABAD UNDER SECTION 35(2AB) OF T HE INCOME TAX ACT.' AS PER THE NOTES TO ACCOUNTS - SCHEDULE 15, UNDER 'DEFERRED REVENUE EXPENDITURE' (PAGE 31 OF PB-II), IT IS MENTIONED TH AT, 'EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT OF NEW PRODUCTS HAS BEE N TREATED AS DEFERRED REVENUE EXPENDITURE AND THE SAME HAS BEEN WRITTEN OFF IN 10 YEARS EQUALLY YEARLY INSTALLMENTS FROM THE YEAR IN WHICH IT IS INCURRED.' AN AMOUNT OF RS. 11,692,020/- HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AS 'DEFERRED REVENUE EXPENDITURE' (PAGE 30 OF PB-II). THIS AMOUNTS TO NEARLY 8.28 PERCENT OF THE SALES OF THIS COMPANY. IT WAS THEREFORE SUBMITTED THAT THE ACCEPTANCE OF T HIS COMPANY AS A COMPARABLE FOR THE REASON THAT IT IS INTO PURE SOFT WARE DEVELOPMENT ACTIVITIES AND IS NOT ENGAGED IN R&D ACTIVITIES IS BAD IN LAW. 43. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TEVA PHARMA PRIVATE LTD. V. ADDL. CIT - ITA NO.6623/MUM/2011 (FOR AY 2007-08) IN WHICH THE COMP ARABILITY OF THIS COMPANY FOR CLINICAL TRIAL RESEARCH SEGMENT. THE RE LEVANT EXTRACT OF DISCUSSION REGARDING THIS COMPANY IS AS FOLLOWS: 'THE LEARNED D.R. HOWEVER DREW OUR ATTENTION TO PAG E-389 OF THE PAPER BOOK WHICH IS AN EXTRACT FROM TH E DIRECTORS REPORT WHICH READS AS FOLLOWS: I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 18 -: 'THE COMPANY HAS DEVELOPED A DE NOVO DRUG DESIGN T OOL 'CELSUITE' TO DRUG DISCOVERY IN, FINDING THE LEAD MOLECULES FOR D RUG DISCOVERY AND PROTECTED THE IPR BY FILING UNDER THE COPY IF SIC ( OF) RIGHT/PATENT ACT. (APPRISED AND FUNDED BY DEPARTMENT OF SCIENCE AND T ECHNOLOGY NEW DELHI) BASED ON OUR INSILICO EXPERTISE (APPLYING BI O- INFORMATICS TOOLS). THE COMPANY HAS DEVELOPED A MOLECULE TO TREAT LEUCODERM A AND MULTIPLE CANCER AND PROTECTED THE IPR BY FILING THE PATENT. THE PATENT DETAILS HAVE BEEN DISCUSSED WITH PATENT OFFICIALS AND THE RESPON SE IS VERY FAVORABLE. THE CLONING AND PURIFICATION UNDER WET LAB PROCEDUR ES ARE UNDER PROGRESS WITH OUR COLLABORATIVE INSTITUTE, DEPARTMENT OF MIC ROBIOLOGY, OSMANIA UNIVERSITY, HYDERABAD. IN THE INDUSTRIAL BIOTECHNOL OGY AREA, THE COMPANY HAS SIGNED THE TECHNOLOGY TRANSFER AGREEMENT WITH I MTECH CHANDIGARH (A VERY REPUTED CSIR ORGANIZATION) TO MA NUFACTURE AND MARKET INITIALLY TWO ENZYMES, ALPHA AMYLASE AND ALK ALINE PROTEASE IN INDIA AND OVERSEAS. THE COMPANY IS PLANNING TO SET UP A BIOTECHNOLOGY FACILITY TO MANUFACTURE INDUSTRIAL ENZYMES. THIS FA CILITY WOULD ALSO INCLUDE THE RESEARCH LABORATORIES FOR CARRYING OUT FURTHER R & D ACTIVITIES TO DEVELOP NEW CANDIDATES' DRUG MOLECULES AND LICENSE THEM TO INTERESTED PHARMA AND BIO COMPANIES ACROSS THE GLOBE. THE PROP OSED FACILITY WILL BE SET UP IN GENOME VALLEY AT HYDERABAD IN ANDHRA P RADESH.' ACCORDING TO THE LEARNED D.R. CELESTIAL LABS IS ALS O IN THE FIELD OF RESEARCH IN PHARMACEUTICAL PRODUCTS AND SHOULD BE CONSIDERED AS COMPARABLE. AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE AS SESSEE, THE DISCOVERY IS IN RELATION TO A SOFTWARE DISCOVERY OF NEW DRUGS. M OREOVER THE COMPANY ALSO IS OWNER OF THE IPR. THERE IS HOWEVER A REFERE NCE TO DEVELOPMENT OF A MOLECULE TO TREAT CANCER USING BIO-INFORMATICS TOOL S FOR WHICH PATENTING PROCESS WAS ALSO BEING PURSUED. AS EXPLAINED EARLIE R IT IS A DIVERSIFIED COMPANY AND THEREFORE CANNOT BE CONSIDERED AS COMPA RABLE FUNCTIONALLY WITH THAT OF THE ASSESSEE. THERE HAS BEEN NO ATTEMP T MADE TO IDENTIFY AND ELIMINATE AND MAKE ADJUSTMENT OF THE PROFIT MARGINS SO THAT THE DIFFERENCE IN FUNCTIONAL COMPARABILITY CAN BE ELIMINATED. BY N OT RESORTING TO SUCH A PROCESS OF MAKING ADJUSTMENT, THE TPO HAS RENDERED THIS COMPANY AS NOT QUALIFYING FOR COMPARABILITY. WE THEREFORE ACCEPT T HE PLEA OF THE ASSESSEE IN THIS REGARD.' ' 44. IT WAS SUBMITTED THAT THE LEARNED DR IN THE ABO VE CASE VEHEMENTLY ARGUED THAT THIS COMPANY IS INTO RESEARCH IN PHARMA CEUTICAL PRODUCTS. THE ITAT CONCLUDED THAT THIS COMPANY IS OWNER OF IPR, I T HAS SOFTWARE FOR DISCOVERY OF NEW DRUGS AND HAS DEVELOPED MOLECULE T O TREAT CANCER. IN THE ULTIMATE ANALYSIS, THE ITAT DID NOT CONSIDER THIS C OMPANY AS A COMPARABLE IN CLINICAL TRIAL SEGMENT, FOR THE REASO N THAT THIS COMPANY HAS DIVERSE BUSINESS. IT WAS SUBMITTED THAT, HOWEVER, F ROM THE ABOVE EXTRACTS IT IS CLEAR THAT THIS COMPANY IS NOT INTO SOFTWARE DEVELOPMENT ACTIVITIES, ACCORDINGLY, THIS COMPANY SHOULD BE REJECTED AS A C OMPARABLE BEING FUNCTIONALLY DIFFERENT. I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 19 -: 45. FROM THE MATERIAL AVAILABLE ON RECORD, IT TRANS PIRES THAT THE TPO HAS ACCEPTED THAT UP TO AY 06-07 THIS COMPANY WAS CLASS IFIED AS A RESEARCH AND DEVELOPMENT COMPANY. ACCORDING TO THE TPO IN AY 07-08 THIS COMPANY HAS BEEN CLASSIFIED AS SOFTWARE DEVELOPMENT SERVICE PROVIDER IN THE CAPITALINE/PROWESS DATABASE AS WELL AS IN THE A NNUAL REPORT OF THIS COMPANY. THE TPO HAS RELIED ON THE RESPONSE FROM TH IS COMPANY TO A NOTICE U/S.133(6) OF THE ACT IN WHICH IT HAS SAID T HAT IT IS IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES. THE ASSESS EE IN REPLY TO THE PROPOSAL OF THE AO TO TREAT THIS AS A COMPARABLE HA S POINTED OUT THAT THIS COMPANY PROVIDES SOFTWARE PRODUCTS/SERVICES AS WELL AS BIOINFORMATICS SERVICES AND THAT THE SEGMENTAL DATA FOR EACH ACTIV ITY IS NOT AVAILABLE AND THEREFORE THIS COMPANY SHOULD NOT BE TREATED AS COM PARABLE. BESIDES THE ABOVE, THE ASSESSEE HAS POINT OUT TO SEVERAL REFERE NCES IN THE ANNUAL REPORT FOR 31.3.2007 HIGHLIGHTING THE FACT THAT THI S COMPANY WAS DEVELOPS BIOTECHNOLOGY PRODUCTS AND PROVIDES RELATED SOFTWAR E DEVELOPMENT SERVICES. THE TPO CALLED FOR SEGMENTAL DATA AT THE ENTITY LEVEL FROM THIS COMPANY. THE TPO ALSO CALLED FOR DESCRIPTION OF SOF TWARE DEVELOPMENT PROCESS. IN RESPONSE TO THE REQUEST OF THE TPO THIS COMPANY IN ITS REPLY DATED 29.3.2010 HAS GIVEN DETAILS OF EMPLOYEES WORK ING IN SOFTWARE DEVELOPMENT BUT IT IS NOT CLEAR AS TO WHETHER ANY S EGMENTAL DATA WAS GIVEN OR NOT. BESIDES THE ABOVE THERE IS NO OTHER D ETAIL IN THE TPO'S ORDER AS TO THE NATURE OF SOFTWARE DEVELOPMENT SERVICES P ERFORMED BY THE ASSESSEE. CELESTIAL LABS HAD COME OUT WITH A PUBLIC ISSUE OF SHARES AND IN THAT CONNECTION ISSUED DRAFT RED HERRING PROSPECTUS (DRHP) IN WHICH THE BUSINESS OF THIS COMPANY WAS EXPLAINED AS TO CLINIC AL RESEARCH. THE TPO WANTED TO KNOW AS TO WHETHER THE PRIMARY BUSINESS O F THIS COMPANY IS SOFTWARE DEVELOPMENT SERVICES AS INDICATED IN THE A NNUAL REPORT FOR FY 06- 07 OR CLINICAL RESEARCH AND MANUFACTURE OF BIO PROD UCTS AND OTHER PRODUCTS AS STATED IN THE DRHP. THERE IS NO REFEREN CE TO ANY REPLY BY CELESTIAL LABS TO THE ABOVE CLARIFICATION OF THE TP O. THE TPO WITHOUT ANY BASIS HAS HOWEVER CONCLUDED THAT THE BUSINESS MENTI ONED IN THE DRHP ARE THE SERVICES OR BUSINESSES THAT WOULD BE STARTE D BY UTILIZING THE FUNDS GARNERED THOUGH THE INITIAL PUBLIC OFFER (IPO) AND THUS IN NO WAY CONNECTED WITH BUSINESS OPERATIONS OF THE COMPANY D URING FY 06-07. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBMISSION S MADE BY THE ASSESSEE AND THE FACT THAT THIS COMPANY WAS BASICALLY/ADMITT EDLY IN CLINICAL RESEARCH AND MANUFACTURE OF BIO PRODUCTS AND OTHER PRODUCTS, THERE IS NO CLEAR BASIS ON WHICH THE TPO CONCLUDED THAT THIS CO MPANY WAS MAINLY IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERV ICES. WE THEREFORE ACCEPT THE PLEA OF THE ASSESSEE THAT THIS COMPANY O UGHT NOT TO HAVE BEEN CONSIDERED AS COMPARABLE. 7.3. WITH REFERENCE TO THE PERSISTENT SYSTEMS LTD., THIS COMPARABLE IS CONSIDERED IN ITA NO. 5857/DEL/2011 ( AY. 2007-08) I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 20 -: IN THE CASE OF TATA MCGRAW HILL EDUCATION PVT. LTD., VS . ACIT DT. 20-02-2015, WHEREIN IT WAS HELD THAT: (X) PERSISTENT SYSTEMS. 16.1. HERE AGAIN, WE FIND THAT THERE HAVE BEEN CERT AIN ACQUISITIONS WHICH IS EVIDENT FROM THE ANNUAL REPORT OF THIS COMPANY, THAT IS AVAILABLE ON PAGE 781 OF THE PAPER BOOK. NOTE NO. 6 STATES THAT: 'THE COMPANY RECEIVED SANCTION FROM THE BOMBAY HIGH COURT, MUMBAI AND BOM BAY HIGH COURT, GOA BENCH FOR AMALGAMATION OF CONTROLNET (INDIA) PV T. LTD. (CONTROLNET) EFFECTIVE FROM APRIL 1, 2006. PURSUANT TO THIS, ALL ASSETS, 'LIABILITIES AND LOSSES OF CONTROLNET ARE MERGED WITH THE ASSETS, LI ABILITIES AND RESERVES OF THE COMPANY WITH EFFECT FROM APRIL 1, 2006 BY FOLLO WING 'POOLING OF INTEREST METHOD' AS PRESCRIBED IN ACCOUNTING STANDA RD 14 (AS-14) AS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA.' THUS, THE ACQUISITION TOOK PLACE IN THIS COMPANY DURING THE R ELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. FOLLOWING THE REASONS GIVEN ABOVE WHILE DISCUSSING THE CASE OF MEGASOFT LTD., WE ORDE R FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. 7.4. WITH REFERENCE TO THIRDWARE SOFTWARE SOLUTIONS L IMITED, THIS COMPARABLE IS DISCUSSED BY THE CO-ORDINATE BENCH OF I TAT IN THE CASE OF INTOTO SOFTWARE INDIA PRIVATE LIMITED, HYDERAB AD IN ITA NO. 2102/HYD/2011 (AY. 2007-08), WHEREIN IT WAS HELD THAT: 31. .THE FOLLOWING COMPANIES ARE OBJE CTED TO BY THE ASSESSEE FOR SELECTION AS COMPARABLES: 1. FLEXTRONICS SOFTWARE LIMITED 2. THIRDWARE SOFTWARE SOLUTIONS LIMITED 3. TATA ELXSI LIMITED 4. MEGASOFT LIMITED 5. LUCID SOFTWARE LIMITED 6. KALS INFORMATION SYSTEMS LIMITED 7. INFOSYS TECHNOLOGIES LIMITED 8. ISHIR INFOTECH LIMITED 9. WIPRO LIMITED 10. ACCEL TRANSMATIC LIMITED 11. AVANI SYNCOM TECHNOLOGIES LIMITED 32. AS FAR AS FIRST TWO COMPANIES ARE CONCERNED, TH ESE TWO COMPANIES WERE ALSO ADOPTED AS COMPARABLES IN THE A SSESSEES OWN CASE I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 21 -: FOR THE AY. 2005-2006 AND FOR THE A.Y. 2005-2006 WE HAVE ALREADY HELD THAT THESE COMPANIES ARE FUNCTIONALLY DIFFERENT AND THE ASSESSING OFFICER/TPO COULD NOT HAVE TAKEN THESE COMPANIES AS COMPARABLE COMPANIES WITHOUT MAKING THE SUITABLE ADJUSTMENTS F OR THE DIFFERENCES. RESPECTFULLY FOLLOWING OUR OWN DECISION, EVEN DATED , THESE TWO COMPARABLES ARE DIRECTED TO BE EXCLUDED FROM THE LI ST OF COMPARABLES.. 8. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENCH, WE DIRECT THE TPO TO EXCLUDE THE ABOV E COMPARABLES AND TO RE-WORK OUT THE ALP AS PER THE PROV ISIONS OF THE ACT. 9. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PUR POSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT ME MBER HYDERABAD, DATED 31 ST AUGUST, 2016 TNMM I.T.A. NO. 2114/HYD/2011 M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED :- 22 -: COPY TO : 1. M/S. NEBULAE TECHNOLOGIES PRIVATE LIMITED, C/O. MR. RAJAN GUPTA, 13-6-463/A/6, ASHOK VIHAR COLONY, TALAGADDA ROAD, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD. 3. CIT(APPEALS)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.