BMC Software India Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 219/PUN/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 8148 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-01-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARISE OUT OF FINAL ASSESSMENT
• Assessee Lawyers: AND OTHER
• Keywords: Related party transaction; Transfer pricing; International transaction; Set aside
• Section: 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.219/PUN/2015 / ASSESSMENT YEAR : 2010-11 BMC SOFTWARE INDIA PRIVATE LIMITED, BUSINESS BAY, WING 1, TOWER B, 9 TH FLOOR, SURVEY NO.103, HISSA NO.2, AIRPORT ROAD, YERWADA, PUNE 411 016 PAN : AABCB6110E VS. DCIT, CIRCLE-1(1), PUNE APPELLANT RESPONDENT . / ITA NO.209/PUN/2015 / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-1(1), PUNE VS. BMC SOFTWARE INDIA PRIVATE LIMITED, BUSINESS BAY, WING 1, TOWER B, 9 TH FLOOR, SURVEY NO.103, HISSA NO.2, AIRPORT ROAD, YERWADA, PUNE 411 016 PAN : AABCB6110E APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THESE TWO CROSS APPEALS - ONE BY THE ASSESSEE AND OTHE R BY THE REVENUE ARISE OUT OF THE FINAL ASSESSMENT ORDER DATED 31-12-2014 PASSED BY THE ASSESSING OFFICER (AO) U/S.143 (3) ASSESSEE BY SHRI MADHUR AGARWAL REVENUE BY SHRI SHIVRAJ MORE AND SHRI MAHADEVAN A.M. KRISHNAN DATE OF HEARING 15-01-2021 DATE OF PRONOUNCEMENT 18-01-2021 ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 2 R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2010-11. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE IS A DOMESTIC COMPANY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AND SALES SUPPORT SERVICES TO BMC, US AND BMC SOFTWARE, INC., WHICH IS A COMPANY BASED IN HOUSTON, TEX AS, US. THE ASSESSEE IS SOLELY ENGAGED IN PROVIDING SUCH SERVICES TO BMC GROUP ENTITIES. RETURN WAS FILED DECLARING TOTAL INCOME OF RS. 3.02 CRORE. CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED IN FO RM NO. 3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PR ICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) O F THE INTERNATIONAL TRANSACTIONS. I. PROVISION OF SOFTWARE DEVELOPMENT SERVICES 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANS FER PRICING ADDITION OF RS.15,11,98,577/- MADE BY THE AO IN THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES. THE FACTS ANENT TO THIS ARE THAT THE ASSESSEE DECLARED VALUE OF THE INTERNATIONAL TRANSACTION OF `PROVISION OF SOFTWARE DEVELOPMENT SERVICES AT RS.2,49,14,47,288/-. THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR SHOWING THE INTERNATIONAL TRANSACTION AT ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 3 ALP. THE ASSESSEE INITIALLY SELECTED 9 COMPARABLES ON THE BA SIS OF THREE YEARS DATA. ON BEING POINTED OUT BY THE TPO FO R CONSIDERING DATA FOR THE CURRENT YEAR ALONE, THE ASSESSEE EXCLUDED 3 COMPANIES FROM THE EXISTING LIST AND ALSO INCLUDED FRESH 3 COMPANIES THEREBY MAKING A LIST OF 9 COMPARABLES ON THE BA SIS OF SINGLE YEAR DATA. THE TPO RETAINED 2 COMPANIES FROM THE ASSESSEES LIST AND INCLUDED 7 FRESH COMPANIES. HE, ACCOR DINGLY, DETERMINED THE ALP OF THE INTERNATIONAL TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVICES AT RS.2,77,77,86,057/- BY TAKING MEAN MARGIN OF COMPARABLES AT 26.51%. THIS RESULTE D INTO PROPOSING A TRANSFER PRICING ADJUSTMENT OF RS.28,46,97,42 5/-. THE ASSESSEE ASSAILED BEFORE THE DISPUTE RESOLUTION PANEL (DRP) VARIOUS ASPECTS OF THE ALP DETERMINATION BY THE TPO AS INCORPORATED BY THE AO IN THE DRAFT ORDER. THE DRP EXCLUDE D ONE COMPANY AND INDUCTED FRESH 3 COMPANIES THEREBY MAKING TA LLY OF COMPARABLES COMPANIES AT 11. THE AO, IN THE FINAL ASSESSM ENT ORDER, RECOMPUTED THE AMOUNT OF TRANSFER PRICING ADJUSTME NT IN SOFTWARE DEVELOPMENT SERVICES SEGMENT AT RS.15,11,98,577/ -. BOTH THE SIDES HAVE COME UP IN APPEAL ON THEIR RESPECTIVE S TANDS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. ADMITTE DLY, THE ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 4 ASSESSEE APPLIED THE TNM METHOD ON TRANSACTIONAL LEVEL WHICH GOT ACCEPTED BY THE TPO. THE DISPUTE IN THE DETERMINATION OF TH E ALP IN SOFTWARE DEVELOPMENT SERVICES SEGMENT IS CONFINED ONLY TO THE COMPARABILITY OR OTHERWISE OF CERTAIN COMPANIES FINALLY INCLUDED OR EXCLUDED BY THE DRP. IN ORDER TO PROPERLY AP PRECIATE THE COMPARABILITY OF A COMPANY, IT IS SIGNIFICANT TO FIRST UNDERSTAND THE FUNCTIONAL PROFILE OF THE ASSESSEE COMPANY UNDER THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. THE ASSESSEE PROVIDES SOFTWARE DEVELOPMENT SERVICES TO ITS AES WHICH INCLUDE NEW PRODUCT DEVELOPMENT; AND UPGRADATION AND MODIFICATION O F EXISTING PRODUCTS. THE ASSESSEE IS REQUIRED TO PROVIDE THE ABOVE SOFTWARE SERVICES IN ACCORDANCE WITH THE SPECIFICATIONS PROV IDED BY BMC OVERSEAS ENTITIES FROM TIME TO TIME. THE IPRS IN ALL TH E DELIVERABLES REMAIN WITH BMC OVERSEAS ENTITIES. CONCEPTUALIZATION OF THE REQUIRED SOFTWARE PRODUCTS IS DONE BY BMC OVERSEAS ENTITY. THE ASSESSEE, ON THE BASIS OF THE REQUIREMENTS OF THE CLIENTS AND MARKET, WORKS ON DESIGNING OF THE PRODUCT IN CONSULTATION WITH BMC OVERSEAS ENTITIES. FUNCTIONAL SPECIFICATION AND REQUIREMENT ANALYSIS FOR THE SOFTWARE DEVELOPMENT IS JOINTLY UNDERTAKEN BY THE ASSESSEE AND BMC OVERSEAS ENTITY. HOWEVER, THE ASSESSEE UNDERTAKES CODING AND ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 5 DEVELOPMENT OF THE SOFTWARE MODULES AS PER THE FUNCTIONAL SPECIFICATIONS AND REQUIREMENT ANALYSIS. THEREAFTER, TESTING IS DONE BY THE ASSESSEE. THE OVERSEAS ENTITIES UNDERTAKE CO DING AND TESTING OF THE SOFTWARE IN RESPECT OF MODULES WHICH ARE NOT DEVELOPED BY THE ASSESSEE. IN CERTAIN CASES, THE ASSESS EE UNDERTAKES MODIFICATIONS OF EXISTING PRODUCTS ON THE BASIS OF CUSTOMIZED REQUIREMENTS. AT TIMES, THE ASSESSEE DIRECTLY LIAISE S WITH THE CUSTOMERS TO UNDERSTAND THEIR EXACT REQUIREMENTS. 5. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH BMC, HOUSTON; BMC, SINGAPORE; AND BMC, NETHERLANDS EFFECTIVE FRO M 01-04-2009 FOR RENDERING ALL THE SERVICES, INCLUDING THE SOF TWARE DEVELOPMENT SERVICES. A COPY OF THE AGREEMENT HAS BEEN PLACED AT PAGE 1812 ONWARDS OF THE PAPER BOOK. NATURE OF SER VICES TO BE PROVIDED BY THE ASSESSEE HAS BEEN SET OUT IN CLAUSE 2.1 O F THE AGREEMENT, WHICH STATES THAT THE ASSESSEE SHALL RENDER SOME OF THE SERVICES TO USERS (I.E. BMC OVERSEAS ENTITIES) AS LISTED IN APPENDIX. APPENDIX-A TO THE AGREEMENT SETS OUT THE SERVICE S TO BE RENDERED BY THE ASSESSEE TO BMC OVERSEAS ENTITIES. IN SOFAR AS THE SOFTWARE DEVELOPMENT SERVICES ARE CONCERNED, THE RELE VANT CLAUSES IN APPENDIX-A ARE (A) AND (F). CLAUSE (A) REFE RS TO PRODUCTION OF COMPUTER SOFTWARE BY WAY OF ARCHITECTURING, ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 6 ENGINEERING, DESIGN, DEVELOPMENT, TESTING AND SUPPORT OF SOFTWARE. CLAUSE (F) TALKS OF `WEBSITE SERVICES. COMP ENSATION HAS BEEN FIXED AT CERTAIN MARK UP. ON GOING THROUGH THE RE LEVANT CLAUSES OF THE AGREEMENT AND OTHER ATTENDING DETAILS, IT BECOME S APPARENT THAT THE NATURE OF SERVICES RENDERED BY THE ASSES SEE UNDER THIS AGREEMENT COMPRISES OF PRODUCT DEVELOPMENT ON THE BA SIS OF SPECIFICATIONS GIVEN BY BMC OVERSEAS ENTITIES AND ALSO UPGRADATION AND MODIFICATION OF EXISTING PRODUCTS. WITH THE ABOVE UNDERSTANDING OF THE NATURE OF SERVICES, WE NOW PROCEED TO DETERMINE THE COMPARABILITY OR OTHERWISE OF CERTAIN COMPANIES CHALLENGED BY BOTH THE SIDES BEFORE THE TRIBUNAL. 6. BEFORE EMBARKING UPON THE COMPARABILITY ANALYSIS, IT WOULD BE APT TO TAKE NOTE OF THE FINAL SET OF COMPARABLES UNDER TH E SOFTWARE DEVELOPMENT SERVICES SEGMENT WHICH HAS RESULTED AF TER GIVING EFFECT TO THE DIRECTIONS OF THE DRP, AS UNDER : SR.NO. NAME OF THE COMPARABLE PLI MARGIN OP/OC (%) 1 PERSISTENT SYSTEMS PRIVATE LTD. 29.51 2 SASKEN COMMUNICATION TECHNOLOGIES LTD. 17.54 3 MINDTREE LTD. 16.69 4 KALS INFORMATION TECHNOLOGY SYSTEM LTD. 24.56 5 ACROPETAL (SEGMENTAL) 40.07 6 THIRDWARE SOLUTION LTD. 32.63 7 GOLDSTONE TECHNOLOGIES LTD. 20.15 8 LGS GLOBAL SYSTEMS LTD. 11.95 9 R.S. SOFTWARE INDIA LTD. 10.21 10 THINKSOFT GLOBAL SERVICES LTD. 14.71 ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 7 11 SILVERLINE TECHNOLOGIES 6.71 ARITHMETICAL MEAN 20.43 7. WHEREAS THE ASSESSEE HAS CHALLENGED INCLUSION OF KA LS INFORMATION TECHNOLOGY SYSTEM LTD; ACROPETAL (SEGMENT); THIRDWARE SOLUTION LTD; AND PERSISTENT SYSTEMS PRIVATE LTD; THE REVENUE HAS CHALLENGED THE INCLUSION OF R.S. SOFTWARE INDIA L TD.; THINKSOFT GLOBAL SERVICES LTD.; AND SILVERLINE TECHNOLOGIES. 8. WE WILL FIRST DEAL WITH THE COMPANIES CHALLENGED BY THE ASSESSEE. (A) KALS INFORMATION TECHNOLOGY SYSTEM LTD.: 9. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES DESPITE THE ASSESSEES OBJECTIONS, INTER ALIA, THAT THE COMPANY WAS ALSO A SOFTWARE COMPANY SINCE ITS INCEPTION. THE ASSESSEE COULD NOT GET ANY SUCCOR FROM THE DRP ON THIS COUNT. 10. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS COMPANY, WHOSE COPY HAS BEEN PLACED AT PAGE 565 ONWARDS OF THE PAPER BOOK. PROFIT AND LOSS ACCOUNT IS AVAILABLE AT PAGE 582 WHICH SHOWS SALES, SERVICING AND TRAINING REVENUE AT RS.2,30,45,144/- BESIDES OTHER INCOME. SCHEDULE-10 GIV ES BREAK UP OF SALES REVENUE. IT COMPRISES OF `INCOME FR OM SOFTWARE DEVELOPMENT EXPORT AT RS.2,16,92,935/-; `TRANSLATION & ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 8 INTERPRETATION AT RS.10,84,248/; AND `TRAINING RECEIPTS AT RS.2,67,961/-. NOTES TO THE FINANCIAL STATEMENTS INDICATE THAT : THE COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE FACT THAT THE COMPA NY IS INTO SOFTWARE PRODUCTS IS FURTHER EVIDENCED FROM THE FIGURE OF INVENTORIES IN ITS BALANCE SHEET. FURTHER, THE LIST OF OPER ATING EXPENSES INCLUDES AN ITEM OF SOFTWARE CONSUMPTION FROM INVENTORY AT RS.11.00 LAKH. THE `SEGMENTAL REVENUE OF THIS COMPANY HAS BIFURCATED TOTAL OPERATIONAL REVENUE INTO TWO PAR TS, NAMELY, `APPLICATION SOFTWARE - RS.2,16,92,935/- AND `T RAINING - RS.13,52,209/-, WHICH MATCHES WITH THE TOTAL REVENUE FR OM OPERATIONS. THUS IT IS MANIFEST THAT INSOFAR AS THE REVENUE FROM SALE OF PRODUCTS AND DEVELOPMENT OF SOFTWARE IS CONCERNED , THE SAME HAS BEEN COMBINED UNDER THE SEGMENT APPLICATION SOFTWARE. THE ABOVE DISCUSSION DECIPHERS THAT THIS COMPA NY IS ENGAGED IN SOFTWARE PRODUCTS AS WELL AS SOFTWARE DEVELOPMEN T SERVICES, INCOME FROM BOTH OF WHICH STREAMS HAS BEEN CLUB BED UNDER THE SEGMENT OF APPLICATION SOFTWARE. SINCE THE ASSES SEE IN THE INSTANT CASE IS INVOLVED ONLY IN RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AES AND IS NOT INTO ANY SOFTWARE PRODUCTS, WE HOLD THAT THIS COMPANY CANNOT BE CONSIDERED A S A ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 9 COMPARABLE. WE, THEREFORE, DIRECT TO EXCLUDE IT FROM THE LIS T OF COMPARABLES. (B) ACROPETAL (SEGMENTAL) : 11. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLE S DESPITE THE ASSESSEES OBJECTIONS OF THE SAME BEING FUNCTIONA LLY DIFFERENT AND ALSO RENDERING ON-SITE SERVICES. THE TPO NE GATED SUCH OBJECTIONS BY HOLDING THAT ON-SITE DEVELOPMENT EXPENSES WERE LESS THAN 50% OF TOTAL EXPENSES AND THEREFORE, ON-SITE EXPENDITURE WAS NOT A SIGNIFICANT FACTOR. THE ASSESSEE R EMAINED UNSUCCESSFUL BEFORE THE DRP. 12. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THE COMPANY, A COPY OF WHICH HAS BEEN PROVIDED AT PAGE 593 ONWARDS OF THE PAPER BOOK, THAT THIS COMPANY IS RENDERING ON-SITE DEVELOPMENT SERVICES TO A GREATER EXTENT. OUT OF TOTAL EXPEN SES OF RS.87.26 CRORE INCLUDING OPERATING AND NON-OPERATING, THIS COMPANY INCURRED EMPLOYEES RELATED ON-SITE DEVELOPMENT EXPENSES TO THE TUNE OF RS.55.85 CRORE, WHICH INCLUDES A SUM OF RS.42.32 CRORE TOWARDS ON-SITE DEVELOPMENT EXPENSES ONLY. THUS, IT EMERGES THAT ROUGHLY 50% OF THE TOTAL EXPENSES INCURRED B Y THIS COMPANY ARE TOWARDS ON-SITE DEVELOPMENT COSTS. AS AGAINS T THAT, ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 10 THE ASSESSEE IS NOT RENDERING ANY ON-SITE DEVELOPMENT SERVIC ES. IT GOES WITHOUT SAYING THAT ON-SITE SERVICES BUSINESS MODEL ENTAILS ITS OWN RISKS AND REWARDS, WHICH ARE INCOMPARABLE TO THE SE RVICES RENDERED FROM THE BUSINESS MODEL OF RENDERING SERVICES F ROM OWN PREMISES. ONE CANNOT CONSTRUE BOTH AS ONE AND THE SAME . THE ASSESSEE UNDER CONSIDERATION IS NOT RENDERING ON-SITE SERV ICES. NOTWITHSTANDING THAT, IT IS FURTHER SEEN THAT THIS COMPANY IS ALSO INTO PRODUCTS, WHICH IS BORNE OUT FROM ITS BALANCE SHEET SHOW ING VALUE OF INVENTORIES AND WORK IN PROGRESS AT RS.3.37 CRORE. IT IS STILL FURTHER NOTED THAT THE COMPANY HAS CLUBBED BOTH THE PRODU CT DEVELOPMENT SERVICES AND ON-SITE SERVICES IN ONE OVERALL SEG MENT OF INFORMATION TECHNOLOGY SERVICES. THUS, IT IS OVERT THA T THE IT SERVICES SEGMENT OF THIS COMPANY, WHICH HAS BEEN CONS TRUED BY THE TPO AS COMPARABLE, CANNOT BE SO HELD AS THE ASSES SEE IS NEITHER RENDERING ON-SITE SERVICES NOR ENGAGED IN SOFTWARE PRODUCTS. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY F ROM THE LIST OF COMPARABLES. (C) THIRDWARE SOLUTION LTD.: 13. THE TPO PROPOSED TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES WHICH WAS OBJECTED TO BY THE ASSESSEE FOR FUN CTIONAL ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 11 DIFFERENCES. THE TPO DID NOT ACCEPT THE ASSESSEES CONTEN TION. NO RELIEF WAS ALLOWED BY THE DRP AS WELL. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY, WHOSE COPY HAS BEEN PLACED FROM PAGE 175 2 ONWARDS OF THE PAPER BOOK, THAT IT HAS SALES REVENUE OF R S.67.56 CRORE. BREAK-UP OF SUCH REVENUE IS AVAILABLE AT SCHEDU LE-12, GIVING FIGURES OF EXPORTS FROM SEZ AND STPI UNITS; REVENUE FROM SUBSCRIPTION; SALE OF LICENSE; AND SOFTWARE SERVICES. THIS INDICATES THAT THIS COMPANY, APART FROM RENDERING SOFTWARE SERVICES, IS ALSO ENGAGED IN SOFTWARE PRODUCTS. SEGMENTAL INFORMATION HAS BEEN GIVEN ON THE BASIS OF GEOGRAPHICAL SEGMENTS. THUS, IT BECOMES CRYSTAL CLEAR THAT NO INFORMATIO N REGARDING REVENUE FROM SOFTWARE SERVICES DISTINCT FROM OTHE R ACTIVITIES IS AVAILABLE ON RECORD. AS THE ASSESSEE IS ENGAGED ONLY IN RENDERING SOFTWARE DEVELOPMENT SERVICES, THIS COMPANY ON THE BASIS OF FIGURES AVAILABLE ON RECORD, CANNOT BE CONSIDERED AS COMPARABLE. WE, THEREFORE, DIRECT TO EXCLUDE IT FROM THE LIS T OF COMPARABLES. ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 12 (D) PERSISTENT SYSTEMS PRIVATE LTD. : 15. THE ASSESSEE INCLUDED THIS COMPANY ON THE BASIS OF THREE YEARS DATA. HOWEVER, ON SINGLE YEAR DATA BASIS, THE A SSESSEE EXCLUDED IT ON THE BASIS OF TURNOVER FILTER, WHICH DID NOT FI ND FAVOUR WITH THE TPO, WHO CONTINUED WITH ITS INCLUSION WITHOUT MAKING ANY SEPARATE DISCUSSION IN HIS ORDER PASSED U/S.92C A(3) OF THE ACT. THE DRP ALSO DID NOT CHANGE THE FORTUNE OF TH E ASSESSEE BY OBSERVING THAT ITS TURNOVER WAS ONLY RS.504 CR ORE WHICH WAS NOT MATERIALLY DIFFERENT FROM THAT OF THE ASSESSEE . 16. THE LD. AR CONTENDED THAT THOUGH THE ASSESSEE INITIALLY DID NOT INCLUDE THIS COMPANY ON THE BASIS OF TURNOVER FILTER, HOW EVER, LATER ON IT WAS REALIZED THAT THIS COMPANY WAS NOT FUNCTIONALLY SIMILAR. HE DID NOT EMPHASIZE ON THE TURNOVER FILTER FOR THE EXCLUSION OF THIS COMPANY BEFORE THE TRIBUNAL BUT SUBMITTED TH AT HIS ENTIRE FOCUS WAS ON FUNCTIONAL DIFFERENCES WARRANTING EXCLUSION FROM THE LIST OF COMPARABLES. 17. WE OBSERVE FROM THE MATERIAL ON RECORD, AS HAS ALS O BEEN ACCEPTED BY THE LD. AR, THAT THE CONTENTION ABOUT THE FUNCTIONA L DISSIMILARITY BETWEEN THE ASSESSEE AND PERSISTENT SYSTEMS PVT. LTD. WAS NEVER RAISED BEFORE THE AUTHORITIES BELOW. AS SUC H, NEITHER THE TPO NOR THE DRP COULD EXAMINE SUCH A CONTENTION. ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 13 SINCE THE ASSESSEE HAS ABANDONED BEFORE THE TRIBUNAL THE BASIS OF TURNOVER FILTER AS WAS ORIGINALLY TAKEN AND HARPED ON A NEW BASE OF FUNCTIONAL DIFFERENCES FOR EXCLUSION OF THIS COMPANY FO R THE FIRST TIME, WE, BEING AN APPELLATE AUTHORITY, CANNOT STRAIGHT AW AY ACCEPT OR REJECT SUCH CONTENTION UNLESS THE AUTHORITIES BELOW AP PLY THEIR MIND TO THE FUNCTIONAL DIFFERENCES AS HAS BEEN SOUGHT BY THE ASSESSEE. WITHOUT GOING INTO THE MERITS, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO WITH A DIRECTION TO EXAMINE THE ASSESSEES CONTENTION ON FUNCTIONAL DISSIMILARITIES AND THEN DECIDE THE QUESTION OF ITS INCLUSION. 18. APART FROM THE ABOVE EXCLUSIONS, THE ASSESSEE HAS ALSO AGITATED THE NON-INCLUSION OF TWO COMPANIES IN THE LIST OF COMPARABLES. THE FIRST IS MAVERIC SYSTEMS LIMITED AND THE SECOND IS QUINTEGRA SOLUTIONS LIMITED. (I) MAVERIC SYSTEMS LTD. : 19. THE TPO REJECTED THIS COMPANY FROM THE LIST OF COMP ARABLES ON THE GROUND THAT ITS ANNUAL REPORT FOR THE RELEVANT FINANCIA L YEAR WAS NOT AVAILABLE IN THE PUBLIC DOMAIN. IN ADDITION, THE TPO A LSO NOTICED THAT FOREIGN EXCHANGE EARNINGS OF THIS COMPANY WE RE LESS THAN 75%. THE ASSESSEE SUBMITTED ANNUAL REPORT OF THE CO MPANY ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 14 FOR THE NEXT YEAR, WHICH ALSO CONTAINED FIGURES FOR THE YEA R UNDER CONSIDERATION. THE DRP ECHOED THE ORDER OF THE AO EXCLUDING MAVERIC SYSTEMS LTD. FROM THE LIST OF COMPARABLES BY NOTICING THAT NOT ONLY THE QUANTITATIVE INFORMATION BUT THE QUALITATIVE INFORMATION FOR THE YEAR WAS ALSO REQUIRED, WHICH COULD DEP ICT BUSINESS ACTIVITIES OF THE COMPANY FOR DECIDING THE FUNCTIONAL PROFILE COMPARABILITY, RELATED PARTY TRANSACTIONS, HAPPENING O F EXTRAORDINARY EVENTS, REASONS FOR HIGH LOSS OR PROFITS AND SEGMENTAL WORKING ETC. IN THE ABSENCE OF THE AVAILABILITY OF THE ANNUAL REPORT OF THIS COMPANY FOR THE YEAR UNDER CONSIDE RATION, THE DRP DID NOT CONSIDER IT APPROPRIATE TO INCLUDE THE SAME IN THE LIST OF COMPARABLES. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THRO UGH THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS PLACED ON RECORD A COPY OF THE ANNUAL REPORT OF THE COMPANY FOR THE YEAR UN DER CONSIDERATION BY CLAIMING THAT THE SAME IS NOW AVAILABLE IN THE PUBLIC DOMAIN. AS REGARDS THE TPOS CONTENTION THAT THE FOR EIGN EXCHANGE EARNINGS OF THIS COMPANY WERE LESS THAN 75%, WE FIND FROM THE SCHEDULE 9 THAT IT EARNED REVENUES FROM OVERSEAS AT RS.34.86 CRORE AS AGAINST DOMESTIC REVENUE AT RS.11.61 C RORE. THUS, IT IS EVIDENT THAT FOREIGN EXCHANGE REVENUE OF THIS C OMPANY ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 15 IS MORE THAN 75%. SINCE THE COMPARABILITY OR OTHERWISE OF TH IS COMPANY HAS NOT BEEN EXAMINED ON MERITS BECAUSE OF THE N ON- AVAILABILITY OF THE ANNUAL REPORT FOR THE YEAR UNDER CONSIDER ATION, WHICH HAS NOW BEEN PLACED ON RECORD, WE DIRECT THE AO/TPO TO EXAMINE WHETHER THIS COMPANY IS COMPARABLE ON MERITS. (II) QUINTEGRA SOLUTIONS LTD.: 21. THE TPO DID NOT INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND THAT IT WAS ENGAGED IN RENDERING ON- SITE ACTIVITIES. THE DRP APPROVED THE EXCLUSION OF THIS COMPA NY BY ALSO NOTICING THAT IT WAS A LOSS MAKING COMPANY AND HENCE, COULD NOT BE INCLUDED IN THE LIST OF COMPARABLES. 22. THE REASON GIVEN BY THE TPO FOR EXCLUDING THIS COM PANY IS ITS ENGAGEMENT IN RENDERING ON-SITE ACTIVITIES. WE ARE UNABLE TO CORROBORATE THIS VERSION FROM THE MATERIAL ON RECORD. WE H AVE EXAMINED THE ANNUAL REPORT OF THIS COMPANY WHICH HAS BEEN PLACED AT 1335 ONWARDS OF THE PAPER BOOK. PAGE 1361 CO NTAINS THE DETAILS OF `EXPENDITURE IN FOREIGN CURRENCY. IT ENLISTS `TRAVEL FOREIGN OF RS.13.31 LAKH AND `EXPENDITURE MET BY BRANCH OFFICES AMOUNTING TO RS.24.38 CRORE. IT IS THIS DETAIL OF THE INCURRING OF EXPENDITURE BY FOREIGN BRANCHES, WHICH SEEM S TO HAVE PROMPTED THE TPO TO INFER THAT THE COMPANY EARNED ON- SITE ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 16 REVENUE. IN OUR VIEW INCURRING OF EXPENSES IN FOREIGN CU RRENCY BY FOREIGN BRANCHES CANNOT BE EQUATED WITH THE RENDERING OF O N-SITE SERVICES. MOREOVER, THE LD. DR ALSO FAILED TO POINT OUT ANY WHERE FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT RENDERED ANY ON- SITE SERVICES. 23. THE DRP ASSIGNED ANOTHER REASON FOR ITS EXCLUSION , BEING, LOSS INCURRED BY THIS COMPANY FOR THE YEAR UNDER CONSID ERATION VIS-A-VIS THE ASSESSEES WORK ON COST PLUS BUSINESS MODEL. IN THIS REGARD, IT IS OVERT THAT NO COMPANY CAN BE EXCLUDED SIMP LY ON THE BASIS OF LOSS OR LOW PROFIT MARGIN REGISTERED IN A YEAR. W HEN AVERAGE OF THE PROFIT MARGINS OF THE OTHERWISE FUNCTIONALLY COMPARABLE COMPANIES IS TAKEN, DIFFERENCES DUE TO A PARTIC ULAR HIGHER OR LOWER PROFIT MARGIN ARE IRONED OUT. THIS PROPOSITION IS BORNE OUT FROM THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) P. LTD. VS. DCIT (2015) 376 ITR 183 (DEL). 24. HOWEVER, A COMPANY MAY CALL FOR EXCLUSION IF IT IS CONSISTENTLY POSTING LOSSES DUE TO EXCEPTIONAL REASONS. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. GOLDMAN SACHS (INDIA) SECURITIES (P) LTD. (2016) 290 CTR 236 (BOM) DID NOT TREAT A COMPANY AS A PERSISTENT LOSS MAKING COMPANY QUALIFYIN G ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 17 FOR EXCLUSION, WHICH DID NOT INCUR LOSS IN THE YEAR OF REVIEW AND IMMEDIATELY TWO EARLIER YEARS IN A ROW. 25. THE LD. AR STATED THAT QUINTEGRA SOLUTIONS LTD. INCURRED LOSSES ONLY IN THIS YEAR AND IN THE IMMEDIATELY PRECEDING YEA R. A YEAR PRIOR TO THAT, IT WAS NOT A LOSS MAKING COMPANY. THIS W AS FORTIFIED BY THE RESPECTIVE ANNUAL REPORTS OF THIS COMPANY. AS THIS COMPANY DID NOT PERSISTENTLY INCUR LOSSES, WE HOLD THAT IT CANNOT BE EXCLUDED ON THIS CRITERION. THIS COMPANY IS, THEREF ORE, DIRECTED TO BE INCLUDED IN THE LIST OF COMPARABLES. 26. THE REVENUE, IN ITS APPEAL, IS AGGRIEVED BY THE EXCLU SION OF THREE COMPANIES FROM THE LIST OF COMPARABLES. 27. THE TPO EXCLUDED RS SOFTWARE INDIA LTD., THINKSOFT GLOBAL SERVICES PVT. LTD. AND SILVERLINE TECHNOLOGIES LTD. BY HOLDING THAT THEY WERE ENGAGED IN RENDERING ON-SITE SERVICES . THE DRP DID NOT FIND ANY MERIT IN THE VIEW POINT OF THE TPO THAT RENDERING ON-SITE SERVICES WAS ANY DIFFERENT FROM RENDERIN G SERVICES FROM ONES OWN FACILITY. ON MERITS ALSO, THE DRP H ELD THAT THESE COMPANIES WERE NOT INVOLVED IN RENDERING ON-SITE SERVICES. 28. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THAT THE VIEW POINT OF THE DRP THAT RENDERING ON-SITE SERVICES DOES NOT AFFE CT ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 18 COMPARABILITY WITH A COMPANY RENDERING SERVICES FROM ITS OW N FACILITY/PREMISES, IS NOT CORRECT. IT HAS BEEN HELD BY THE T RIBUNAL IN UMPTEEN DECISIONS THAT ON-SITE SERVICES BUSINESS MODEL IS ALTOGETHER DIFFERENT, WHICH DISTORTS COMPARABILITY WITH A COMPAN Y RENDERING SERVICES FROM ITS OWN FACILITIES. WE, THEREFORE, DISAPPROVE, IN PRINCIPLE, THE VIEW POINT TAKEN BY THE DRP. 29. THE DRP ALSO FOUND ON MERITS THAT NONE OF THESE THR EE COMPANIES WAS ACTUALLY ENGAGED IN RENDERING ON-SITE SERVICE S. WE HAVE PERUSED THE ANNUAL REPORT OF RS SOFTWARE, WHICH IS AVAILABLE AT PAGE 1062 ONWARDS OF THE PAPER BOOK. IT IS SEEN THAT EXCEPT FOR INCURRING EXPENSES IN FOREIGN CURRENCY, THER E IS NO MENTION OF RENDERING ON-SITE SERVICES. THIS COMPANY HAS A LSO BRANCHES IN CERTAIN COUNTRIES OUTSIDE INDIA AND THE EXPENSE S IN FOREIGN CURRENCY WERE INCURRED BY SUCH BRANCHES. THE LD. DR ALSO COULD NOT POINT OUT FROM THE ANNUAL REPORT OF THIS COMP ANY THAT IT RENDERED ANY ON-SITE SERVICES. IN SUCH CIRCUMSTANCES , WE DIRECT TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES. 30. NOW WE TURN TO SILVERLINE TECHNOLOGIES LTD. THE DRP GAVE THE SAME REASON THAT THIS COMPANY WAS NOT ENGAGED IN RENDERING ON-SITE SERVICES. WE HAVE EXAMINED THE ANNUAL R EPORT OF THIS COMPANY, WHOSE COPY IS AVAILABLE AT PAGE 1270 OF TH E ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 19 PAPER BOOK. PAGE 1295 CONTAINS THE FIGURE OF `EXPENDITUR E IN FOREIGN CURRENCY TO THE TUNE OF RS.26,13,74,026/-. AS AGAINST THAT, TOTAL INCOME FROM SALES AND SERVICE OF THIS COMPANY STA NDS AT RS.30.88 CRORE. THUS, IT IS EVIDENT THAT THE EXPENSES IN FO REIGN CURRENCY HAVE RESULTED IN EARNING INCOME. THIS BEING A COM PANY CHOSEN BY THE ASSESSEE, THE ONUS IS ON IT TO SHOW THE COMPARABILITY AND PROVE THE FACT THAT IT WAS NOT ENGAGED IN RENDERING ON-SITE SERVICES. UNLIKE THE OTHER COMPANY DISCU SSED IMMEDIATELY HEREINABOVE, THE LD. AR COULD NOT POINT OUT FRO M THE ANNUAL REPORT THAT THIS COMPANY HAD ANY BRANCHES OUTSIDE IN DIA AND THE `EXPENDITURE IN FOREIGN CURRENCY RELATED TO SUCH FOREIGN BRANCHES. SINCE THE EXPENSES IN FOREIGN CURRENCY CONSTITUTE A SUBSTANTIAL PERCENTAGE OF ITS REVENUE AND THERE IS NO REFER ENCE TO ANY FOREIGN BRANCH, IT BECOMES EVIDENT THAT THIS COMPANY IS ENGAGED IN RENDERING ON-SITE SERVICES AND THE MAJOR COMPO NENT OF ITS REVENUE IS FROM SUCH ON-SITE SERVICES ONLY. THAT BEING THE POSITION, THIS COMPANY LOSES ITS COMPARABILITY TAG WITH THE ASSESSEE COMPANY. WE, THEREFORE, REVERSE THE VIEW OF THE DRP AND DIRECT TO EXCLUDE IT FROM THE LIST OF COMPARABLES. 31. SOMEWHAT SIMILAR IS THE POSITION REGARDING THINKSOFT GLOB AL SERVICES PVT. LTD. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 20 COMPANY WHICH HAS BEEN PLACED ON RECORD. THE LD. DR IN VITED OUR ATTENTION TOWARDS PAGE 1147 OF THE PAPER BOOK CATEGORICALLY INDICATING THAT THIS COMPANY EARNED REVENUE FROM ON-SITE SERV ICES. THE LD. AR ACCEPTED THIS POSITION. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY ALSO FROM THE LIST OF COMPARABLES AND CONSEQUENTLY REVERSE THE VIEW TAKEN BY THE DRP ON THIS ISSU E. II. PROVISION OF I.T.E.S.: 32. THE ASSESSEE DECLARED AN INTERNATIONAL TRANSACTION OF `PROVISION OF IT ENABLED SERVICES WITH TRANSACTED VALUE OF RS.10,21,67,498/-. IT APPLIED THE TRANSACTIONAL NET MARGIN AL METHOD (TNMM) FOR DEMONSTRATING THAT THE INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH PRICE (ALP). THE TPO MADE CERTAIN ALTERATIONS TO THE LIST OF COMPARABLES DRAWN BY THE ASSESSEE. THE ASSESSEE CHALLENGED CERTAIN COMPANIES BEF ORE THE DRP. AFTER GIVING EFFECT TO THE DIRECTION OF THE DRP, THE TPO DREW A FINAL LIST OF COMPARABLES CONSISTING OF 10 COMPANIES V IDE HIS LETTER DATED 31-12-2014 ADDRESSED TO THE AO FOR PASSING THE ASSESSMENT ORDER. THE ASSESSEE IS AGGRIEVED BY THE INCLU SION OF FOUR COMPANIES IN THE LIST OF COMPARABLES: ACCENTIA TECHNOLOGIE S LTD.; CORAL HUBS LIMITED (EARLIER KNOWN AS VISHAL INFORMATION ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 21 TECHNOLOGIES LTD.); JEEVAN SOFTECH (SEGMENT); AND INFORMED TECHNOLOGIES LTD. 33. IN ORDER TO APPRECIATE THE COMPARABILITY OR OTHERWISE OF THE COMPANIES CHALLENGED BY THE ASSESSEE, IT IS SINE QUA NON TO FIRST ASCERTAIN THE TRUE NATURE OF SERVICES RENDERED BY THE ASSE SSEE UNDER THE SEGMENT OF PROVISION OF IT ENABLED SERVICES. W E HAVE GONE THROUGH THE AGREEMENT ENTERED INTO BY THE ASSESSEE W ITH ITS AE, NAMELY, BMC SOFTWARE INC., UNDER WHICH THE ASSESSEE RENDERED THE SERVICES. IN FACT, IT IS A COMPOSITE AGREEME NT FOR PROVISION OF SOFTWARE DEVELOPMENT SERVICES; ITES; AND SALES SUPPORT SERVICES. WE HAVE REFERRED TO THIS AGREEMENT IN TH E EARLIER PART OF THE ORDER WHILE DISCUSSING THE NATURE OF SOFTWA RE DEVELOPMENT SERVICES. INSOFAR AS THE INSTANT INTERNATIONAL TRANSACTION OF THE PROVISION OF ITES IS CONCERNED, WE FIND FROM APPENDIX-A THAT THE SERVICES RENDERED BY THE ASSESSEE UND ER THIS SEGMENT INCLUDE:- B. CALL CENTRE AND OTHER SUPPORT CENTRE SERVICES, INCLUDING IT SUPPORT, FINANCIAL APPLICATIONS SUPPORT, HUMAN RESOURCE APPLICATIONS SUPPORT, SALES APPLICATIONS SUPPORT AND OTHER INTERNAL IT BUSINESS SUPPORT APPLICATIONS. C. REMOTE MAINTENANCE D. DATA PROCESSING SERVICES ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 22 E. BACK-OFFICE OPERATIONS INCLUDING PAYROLL PROCESSING, RECEIVABLES, ACCOUNTING, TRACKING AND GENERAL ACCOUNTING WORK ETC. G. REVENUE ACCOUNTING I. PROCUREMENT SERVICES J. HUMAN RESOURCE SUPPORT SERVICES K. INFORMATION TECHNOLOGY ENABLED SUPPORT SERVICES 34. HAVING UNDERSCORED THE NATURE OF SERVICES RENDERE D BY THE ASSESSEE UNDER THIS SEGMENT, WE NOW PROCEED TO EXAMINE THE COMPARABILITY OR OTHERWISE OF THESE FOUR COMPANIES AD SERIATIM. (I) ACCENTIA TECHNOLOGIES LTD. : 35. THIS COMPANY WAS CHOSEN BY THE TPO AS COMPARABLE . THE ASSESSEE OBJECTED TO ITS INCLUSION. THE TPO ORDERED TO INCLUD E IT IN THE LIST OF COMPARABLES BY RELYING ON THE DIRECTION GIVEN BY THE DRP FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, 2009-10 . NO RELIEF WAS ALLOWED BY THE DRP. 36. HAVING HEARD THE RIVAL SUBMISSIONS AND GONE THROU GH THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY RELYING ON THE DIRECTION GIVEN BY THE DRP FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE ASSAILED THE FINAL ASSESSMENT ORDER PASSED FOR SUCH ASSE SSMENT YEAR BEFORE THE TRIBUNAL. VIDE ITS ORDER DATED 22-08-201 9, THE ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 23 TRIBUNAL IN ITA NO.189/PUN/2014 HAS DIRECTED TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE DR FAIRLY CONC EDED THAT THE FACTS AND CIRCUMSTANCES OF THIS COMPANY FOR THE EXTA NT YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE PRECEDING YEAR. FOLLOWING THE PRECEDENT, WE DIRECT TO EXCLUDE THIS COMPANY FRO M THE LIST OF COMPARABLES. (II) CORAL HUBS LTD. (VISHAL TECHNOLOGIES LTD.) : 37. THE ASSESSEE DISPUTED THE COMPARABILITY OF THIS COM PANY BEFORE THE TPO BUT WITHOUT SUCCESS. THE DRP ALSO DID NOT APPROVE THE OBJECTIONS OF THE ASSESSEE. 38. THE ANNUAL REPORT OF THIS COMPANY FOR THE RELEVAN T YEAR HAS BEEN PERUSED, A COPY OF WHICH HAS BEEN PACED AT PAGE 1550 ONWARDS OF THE PAPER BOOK. ITS PROFIT AND LOSS ACCOUNT IS AVAILABLE AT PAGE 1614 OF THE PAPER BOOK. AS AGAINST THE SALES AMOU NTING TO RS.88.36 CRORE, THIS COMPANY INCURRED OPERATING EXPENS ES OF RS.54.47 CRORE AND PERSONNEL COST AT RS.1.89 CRORE. DE TAILS OF OPERATING EXPENSES ARE AVAILABLE AT PAGE 1620 OF THE PAPER BOOK. IT CAN BE SEEN FROM SCHEDULE 15 CONTAINING SUCH DETAILS, THA T THIS COMPANY INCURRED DATA ENTRY CHARGES, VENDOR PAYMENTS AN D EXPENSES ON CONVERSION OF BOOKS INTO POD TITLES AMOUNTING TO RS.54.85 CRORE. AFTER THE ADJUSTMENT OF OPENING AND CLOS ING WORK ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 24 IN PROGRESS OF IT ENABLED SERVICES, THE NET FIGURE OF RS. 54.47 HAS BEEN ASCERTAINED AND TAKEN TO THE PROFIT AND LOSS ACCOUNT. TH US, IT IS APPARENT THAT THIS COMPANY IS MAINLY ENGAGED IN OUTSOURCING ITS BUSINESS ACTIVITIES WHICH IS FURTHER PROVED FROM THE FACT THAT TH E PERSONNEL COST IS ONLY RS.1.89 CRORE AS AGAINST OUTSOURCIN G COST OF RS.54.47 CRORE. IT GOES WITHOUT SAYING THAT OUTSOURCING SE RVICES IS AN ALTOGETHER DIFFERENT BUSINESS MODEL VIS--VIS RENDERING SERVICES BY ENGAGING ONES OWN EMPLOYEES AND FACILITIES. IT IS FURTHER NOTICED THAT THE HONBLE BOMBAY HIGH COURT IN PCIT VS. BNY MELLON INTERNATIONAL OPERATIONS (INDIA) (P). LTD. (2018) 2 55 TAXMAN 397 (BOM.) HAS HELD THAT AN ASSESSEE RENDERING BPO SERVICES CANNOT BE COMPARED WITH THE COMPANIES PROVIDING KP O SERVICES. CORAL HUBS LIMITED HAS BEEN CONSIDERED AS NO N- COMPARABLE ON THIS COUNT ALSO. IN VIEW OF THE FOREGOING DISCUSSION, WE DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. (III) JEEVAN SOFTECH (BPO SEGMENT) : 39. THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMP ANY WHICH CAME TO BE JETTISONED BY THE TPO. NO SUCCOR WAS ALLOWE D BY THE DRP, AGAINST WHICH THE ASSESSEE HAS COME UP IN A PPEAL BEFORE THE TRIBUNAL. ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 25 40. WE HAVE EXAMINED THE ANNUAL REPORT OF THIS COMPA NY WHOSE COPY IS AVAILABLE AT PAGE 1643 ONWARDS OF THE PAPER BOOK. IT IS PERTINENT TO MENTION THAT THE TPO HAS CONSIDERED ONLY BPO SEGMENT OF THIS COMPANY FOR THE PURPOSES OF INCLUSION IN THE LIST OF COMPARABLES. THE PROFIT AND LOSS ACCOUNT OF THIS COMPA NY INDICATES INCOME UNDER DIFFERENT SUB-HEADS INCLUDING IT ENAB LED SERVICES TO THE TUNE OF RS.1,74,43,276/-. THE LD. AR INITIALLY CONTENDED THAT ITES SEGMENT CANNOT BE CONSIDERED AS COMP ARABLE AS THE SAME INCLUDES NOT ONLY INCOME FROM BPO OPERATIONS BU T ALSO FROM ERP DIVISION AND LATER ON IT WAS EMPHASIZED THAT IF A T ALL, IT INCLUSION WAS TO BE MADE, THEN ITES SEGMENT AS A WHOLE SHOULD BE INCLUDED. 41. THE FIRST LEG OF THE OBJECTION IS NOT TENABLE. THE BR EAK-UP OF ITES REVENUE HAS BEEN GIVEN BY THE COMPANY UNDER `SEG MENTAL REPORTING AT PAGE 1674 OF THE PAPER BOOK, WHICH HAS TW O PARTS, NAMELY, BPO OPERATIONS - RS.141.10 LAKH AND ERP - RS.3 3.33 LAKH. NOT ONLY THAT, PROFIT HAS ALSO BEEN GIVEN SEPARATELY THE REIN FOR BOTH, WITH THE FIGURE OF PROFIT FROM BPO OPERATIONS AT RS.52.99 LAKH. THE VIEW POINT OF THE ASSESSEE THAT ITES S EGMENT IS NOT COMPARABLE BECAUSE OF THE INCLUSION OF ERP REVENU E IS, THEREFORE, NOT SUSTAINABLE BECAUSE THE FIGURES OF REVENUE AND ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 26 PROFIT FROM THE BPO SEGMENT IS SEPARATELY AVAILABLE AND THE NATURE OF WORK ADMITTEDLY MATCHES WITH THAT OF THE ASSESSEE. 42. THE SECOND LEG OF THE LD. ARS ARGUMENT THAT IF AT A LL THIS COMPANY IS TO BE INCLUDED, THEN ITS FULL ITES SEGMENT SHOULD BE TAKEN. AGAIN, WE DO NOT FIND ANY MERIT IN THIS CONTENTION AS WE LL. THE DIRECTORS REPORT UNEQUIVOCALLY DIVULGES THAT THE NATURE OF WORK UNDER THE ERP DIVISION IS ALL IN ALL DIFFERENT. IT HAS BE EN MENTIONED THAT: `YOUR ERP DIVISION HAS ALSO SUCCESSFULLY COMPLETED THE PROJECT IMPLEMENTATION FOR VARIOUS CLIENTS. FOR TH E CURRENT FINANCIAL YEAR, ERP DIVISION HAS CHALKED OUT NEW MARKETING STRATEGIES WITH A FOCUSED APPROACH DEVELOPING SPECIALIZED VERTICAL SOLUTIONS FOR THE PROSPECTS ACROSS INDIA, STANDARD HORIZONTAL MARKETS AND FORAY INTO THE PROFESSIONAL SERVICES SEGMENT FOR OVERSEAS CLIENTS. THUS, IT IS PALPA BLE THAT THE ERP DIVISION IS NOT ENGAGED IN RENDERING ANY ITES. THE SAME, THEREFORE, CANNOT BE CLUBBED WITH THE BPO REVENUES O F THIS COMPANY, FOR WHICH SEPARATE FIGURES ARE AVAILABLE IN THE `SEGMENTAL REPORTING. WE, THEREFORE, COUNTENANCE THE INC LUSION OF THE BPO SEGMENT OF THIS COMPANY WITH REVENUE OF RS.141. 10 LAKH AND INCOME OF RS.52.99 LAKH. ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 27 (IV) INFORMED TECHNOLOGIES LTD. 43. THE ASSESSEE HAS CHALLENGED THE INCLUSION OF THIS COMPANY WITH THE HELP OF AN ADDITIONAL GROUND. INCLUSION OF THIS COMPA NY WAS NOT CHALLENGED EITHER BEFORE THE TPO OR THE DRP AND THE SAME HAS BEEN ASSAILED BEFORE THE TRIBUNAL FOR THE FIRST TIM E. 44. SEVERAL ORDERS HAVE BEEN PASSED BY VARIOUS BENC HES OF THE TRIBUNAL HOLDING THAT AN ASSESSEE IS ENTITLED TO CHALLENGE A COMPARABLE FOR THE FIRST TIME BEFORE THE TRIBUNAL NOTWITHSTANDIN G THE FACT THAT IT REMAINED UNCONTESTED BEFORE THE TPO OR THE DP O. IN VIEW OF THE FACT THAT THE COMPARABILITY OF THIS COMPANY HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW, WE DIRECT THE AO/TPO TO SCRUTINIZE THE COMPARABILITY OF INFORMED TECHNOLOGY AND THEN DECIDE ON ITS INCLUSION OR OTHERWISE IN THE FINAL TALLY OF COMPARABLES. III SALES SUPPORT SERVICES : 45. THE ASSESSEE REPORTED AN INTERNATIONAL TRANSACTION OF `PROVISION OF SALES SUPPORT SERVICES WITH TRANSACTED VALUE O F RS.12,86,10,541/- IT APPLIED SEPARATE TNMM FOR SHOWING THAT THE INTERNATIONAL TRANSACTION WAS AT THE ALP. THE TPO DID NOT SEPARATELY EXAMINE THE INTERNATIONAL TRANSACTION BUT CONSIDERED IT ALONG WITH THE OTHER SEGMENT. ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 28 46. INSTANTLY, THE ASSESSEE HAS CHALLENGED ONLY THE INCLU SION OF ICRA ONLINE LTD. (SEGMENT). THE ASSESSEES OBJECTION ABOU T FUNCTIONAL DIFFERENCES WAS OVERTURNED BY THE TPO OBSERVING THAT THIS COMPANY WAS CONSIDERED AS COMPARABLE BY THE PUNE BEN CHES OF THE TRIBUNAL IN EATON TECHNOLOGIES PVT. LTD. VS. DCIT (ITA NO.1621/PUN/2011) VIDE ITS ORDER DATED 11-01-2013 FOR THE ASSESSMENT YEAR 2007-08. NO RELIEF WAS ALLOWED BY THE DR P ON THE INCLUSION OF ICRA ONLINE LTD. IN THE LIST OF COMPARABLES. 47. NATURE OF SERVICES UNDER THIS INTERNATIONAL TRANSACTION CAN BE CULLED OUT FROM THE AGREEMENT REFERRED TO HEREINABOVE. IT HAS BEEN STATED AS SALES SUPPORT SERVICES IN RELATION TO USERS PRODUCTS SOLD IN INDIA AND THE ASIA PACIFIC REGION EITHER DIRECT LY OR THROUGH CHANNEL PARTNERS. THUS, PRIMARILY THE ASSES SEE RENDERED SALES SUPPORT SERVICES TO ITS AE. 48. NOW WE TURN TO EXAMINE THE COMPARABILITY OF ICRA ONLINE LTD. ANNUAL REPORT OF THIS COMPANY HAS BEEN PLACED A T PAGE 1732 ONWARDS OF THE PAPER BOOK. THE TPO HAS INCLU DED INFORMATION SERVICES SEGMENT OF THIS COMPANY FOR THE PURPOS E OF COMPARABILITY. NATURE OF OPERATIONS UNDER THIS SEGMENT HAVE BEEN DISCUSSED AT PAGE 1735 BY STATING THAT: THE INFOR MATION SERVICES LOB REPORTED A ROBUST 42% GROWTH IN 2009-10 OVE R THE ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 29 PREVIOUS FISCAL, DRIVEN BY THE INTRODUCTION OF AN UPGRADED VERSION OF ITS FLAGSHIP PRODUCT MFI EXPLORER AND THE LAUNCH OF A NE W PRODUCT MFI IMPACT, BESIDES BY THE SHARPER FOCUS THAT WAS BROUGHT INTO THE DOMAINS OF DATA, CONTENT AND RESEARCH. 49. AT THIS STAGE, IT IS PERTINENT TO NOTE THAT THE INTERNATION AL TRANSACTION UNDER CONSIDERATION IS PROVISION OF SALES SUPPORT SERVICES. AS AGAINST THAT, THE SELECTED SEGMENT OF THE COMP ANY IS INFORMATION SERVICES SEGMENT, WHICH IS DERIVING REVENUE FRO M ITS FLAGSHIP PRODUCT MFI EXPLORER AND MFI IMPACT. AS THE REVEN UE UNDER THIS SEGMENT IS FROM THE SOFTWARE PRODUCTS, THE SAME , IN OUR CONSIDERED OPINION, CANNOT BE COMPARED WITH THE RENDITION OF SALES SUPPORT SERVICES. 50. QUA THE OBSERVATION OF THE TPO THAT THIS COMPANY WAS CONSIDERED AS COMPARABLE BY THE PUNE BENCHES OF THE TRIBU NAL IN EATON TECHNOLOGIES PVT. LTD., WE FIND FROM THE COPY OF SUCH TRIBUNAL ORDER PLACED ON RECORD THAT THE INCLUSION OF THIS CO MPANY ALONG WITH THREE OTHER COMPANIES HAS BEEN RESTORED BY THE TRIBUNAL FOR A FRESH CONSIDERATION BY THE TPO. AS THE DIREC TORS REPORT OF THIS COMPANY CATEGORICALLY DECLARES THAT THE INCOM E FROM THE INFORMATION SERVICES SEGMENT PERTAINS TO THE SOFTWA RE PRODUCTS, THE SAME ERGO DOES NOT QUALIFY FOR INCLUSION. W E, ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 30 THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 51. GROUND NO.12 OF THE ASSESSEES APPEAL IS AGAINS T NOT ALLOWING WORKING CAPITAL ADJUSTMENT. 52. WE FIND FROM PAGE 85 OF THE DIRECTIONS GIVEN BY THE DRP THAT THE AO WAS DIRECTED TO EXAMINE THE COMPUTATION OF WORKING CAPITAL ADJUSTMENT WORKED OUT BY THE ASSESSEE. HOWEVER, W HILE GIVING EFFECT TO THE DIRECTIONS OF THE DRP, THIS DIRECTION REMAIN ED TO BE COMPLIED WITH. WE, THEREFORE, DIRECT THE AO/TPO TO GIVE EFFECT TO THE DIRECTION GIVEN BY THE DRP AS CONTAINED IN PARA 2.14.3. 53. THE ONLY OTHER GROUND IS AGAINST NOT ALLOWING THE RISK ADJUSTMENT. 54. THIS IS A RECURRING ISSUE. THE MATTER CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2008-09. FOLLOWING THE ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07, THE TRIBUNAL RES TORED THE MATTER TO THE FILE OF AO/TPO FOR COMPUTING RISK ADJUSTMENT AFTER GRANTING REASONABLE OPPORTUNITY OF HEARING TO THE ASSE SSEE. THE RELEVANT DISCUSSION HAS BEEN MADE AT PARA 15 OF ITS ORDER FOR THE ASSESSMENT YEAR 2008-09. FOLLOWING THE CONSISTENT VIEW ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 31 TAKEN IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, WE R EMIT THE MATTER TO THE FILE OF AO/TPO FOR COMPUTING THE RISK ADJUSTMENT IN THE LIGHT OF THE DIRECTIONS GIVEN FOR EARLIER YEARS. 55. TO SUM UP, WE SET-ASIDE THE IMPUGNED ORDER ON THE DETERMINATION OF THE ALP IN THE THREE SEGMENTS OF THE ASSESS EE, VIZ., SOFTWARE DEVELOPMENT SERVICES; IT ENABLED SERVICES; AND SALES SUPPORT SERVICES AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR FRESH DETERMINATION OF THE ALP IN THE LIGHT OF OUR OBSERV ATIONS MADE ABOVE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF HEARING BEFORE TAKEN ANY DECISIO N. 56. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY, 2021. SD/- SD/- (S.S.VISWANETHRA RAVI) (R.S. SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 18 TH JANUARY, 2021 ITA NOS.219 & 209/PUN/2015 BMC SOFTWARE INDIA PRIVATE LIMITED 32 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 15-01-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 18-01-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *