Intelligroup Asia Private Limited, Hyderabad V. ACIT, Circle 2(1), Hyderabad

ITA 2190/HYD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6157 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MYTHLI RANI
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMEBR AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.2190/HYD/11 : ASSESSMENT YEAR 2007 -08 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED. HYDERABAD. (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD. MERGED WITH NTT DATA GLOBAL DELIVERY SERVICES LIMITED), ( PAN - AAACI 7064 D) V/S. ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 2(1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SUVIBHA NOLKHA RESPONDENT BY : SMT. MYTHLI RANI CIT - DR DATE OF HEARING 07.01.2016 DATE OF PRONOUNCEMENT 22 .01 . 2016 O R D E R PER B.RAMAKOTAIAH, ACCOUNTANT MEMBER: THIS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE ASSESSING OFFICER UNDER S.143(3) READ WITH S.92CA A ND 144C OF THE ACT DATED 27.10.2011. THE COMPANY, M/S. INTELLIGROUP AS IA PVT. LTD HAS MERGED WITH NTT DATA GLOBAL DELIVERY SERVICES LIMIT ED, WHICH HAS CHANGED ITS NAME TO NTT DATA INDIA ENTERPRISES APPL ICATION SERVICES PVT. LTD. IT HAS FILED FORM 36B REVISING THE EARLIER FO RM IN THE ABOVE NAME AND HAS FILED REVISED GROUNDS ALSO WITH ADDITIONAL GROU NDS. 2. THE INTELLI GROUP ASIA PVT. LTD., THE ERSTWHIL E COMPANY IS A SUBSIDIARY OF INTELLI INC. USA AND WAS SET UP TO PR OVIDE SOFTWARE DEVELOPMENT SERVICES IN THE AREAS OF ERP, SALES DES IGN IMPLEMENTATION, MAINTENANCE AND PROVIDING INTERNET TECHNOLOGY SALES TO ITS CUSTOMERS. IT ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 2 IS REQUIRED TO CUSTOMISE SOFTWARE BASED ON SOFTWARE DESIGN SPECIFICATIONS, DETERMINED BY INTELLI GROUP OR OTHER RELATED ASSOCI ATED ENTERPRISES. ASSESSEE PROVIDES SOFTWARE DEVELOPMENT SERVICES TO THE GROUP AND IS STATED TO HAVE BEEN COMPENSATED AT COST PLUS 15% MA RK UP ON SUCH COST. IT ALSO PROVIDES SOFTWARE DEVELOPMENTS SERVICES TO THIRD PARTIES. ON A REFERENCE MADE BY THE DCIT, CIRCLE 21, HYDERABAD UN DER S.92CA, THE TPO UNDERTOOK THE EXERCISE OF TRANSFER PRICING ANALYSIS , AND HAS DETERMINED THE TRANSFER PRICING ADJUSTMENTS IN AN ORDER UNDER S.92 CA(3) DATED 29.10.2010. THE TPO ANALYSED THE FINANCIAL RESULTS VIDE PARA 2.3 AND DETERMINED THE OPERATING PROFIT TO COST RATIO AT 10 .21%(EXCLUDING INTEREST, LOSS ON INVESTMENT, FOREIGN EXCHANGE LOSS AS PART OF COST). THE TPO DETERMINED INTERNATIONAL TRANSACTIONS ON SOFTWA RE DEVELOPMENT SERVICES AT RS.103.35 CRORES. THE ASSESSEE HAS REPO RTED TOTAL OPERATING REVENUE AT RS.149.89 CRORES. IN THE TRANSFER PRICI NG STUDY BY THE ASSESSEE, IT HAS SELECTED SEVENTEEN COMPARABLES WIT H AVERAGE PROFIT MARGIN OF 10.86% OF COST. ASSESSEE DETERMINED THE PROFIT MARGIN AT 11.71% AND TREATED THE MARGIN SO ARRIVED AT AS WITH IN THE ARMS LENGTH RANGE. THE TPO HOWEVER, REJECTED THE TP STUDY ON T HE REASON THAT THE ASSESSEE DID NOT USE COMPARABLE DATA OF THE YEAR UN DER CONSIDERATION AND HAS USED EARLIER YEARS FINANCIALS ALSO. FURTHER, H E OBJECTED TO CERTAIN FILTERS USED. HE RE-DETERMINED THE FILTERS AND MAD E FRESH SEARCH AND ARRIVED AT 26 COMPARABLES WHOSE ARITHMETIC MEAN PLI WAS ARRIVED AT 24.11%. AFTER MAKING NEGATIVE WORKING CAPITAL ADJUS TMENT AT (-)3.33%, THE ARITHMETIC MEAN PLI WAS DETERMINED AT 28.47%. C ONSIDERING THE ASSESSEES OPERATING COST OF TRANSACTIONS AT RS . 136.00 CRORES, THE ARMS LENGTH PRICE WAS DETERMINED AT RS.174.73 CORES AND AFTER REDUCING SALES WITH NON-AES, THE SHORT FALL WAS ARRIVED AT RS.24.8 3 CRORES AND SUGGESTED FOR TRANSFER PRICING ADJUSTMENT OF THE ABOVE AMOUNT . ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 3 3. ASSESSEE OBJECTED BEFORE THE DISPUTE RESOLUTIO N PANEL. AFTER CONSIDERING VARIOUS CONTENTIONS OF THE ASSESSEE, TH E DISPUTE RESOLUTION PANEL ACCEPTED ONLY THAT TWO COMPANIES, VIZ. CELEST IAL LABS LTD. AND M/S. GEOMETRIC LTD. CANNOT BE CONSIDERED AS COMPARABLES AND ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO COMPUTE THE ALP A FTER EXCLUDING THE ABOVE TWO COMPANIES. THE FINAL LIST OF 24 COMPANIES TAKEN AS COMPARABLE BY THE ASSESSING OFFICER/TPO ARE AS UNDER- SL. NO. COMPANY NAME O P TO TOTAL COST % 1. DATAMATICS LTD. 1.38 2. E-ZEST SOLUTIONS LTD. 36.12 3. IGATE GLOBAL SOLUTIONS LTD. 7.49 4. LANCO GLOBAL SYSTEMS LTD. 15.75 5. MEDIA SOFT SOLUTIONS LTD. 3.66 6. MINDTREE CONSULTING LTD.(SEG.) 16.90 7. PERSISTENT SYSTEMS LTD. 24.52 8. QUINTEGRA SOLUTIOSN LTD. 12.56 9. R.S.SOFTWARE (INDIA ) TD. 13.47 10. T.SYSTEMS INTERNATIONAL LTD.(SEG.) 15.07 11. SIP TECHNOLOGIES AND EXPORTS LTD. 13.90 12. SASKEN COMMUNICATION TECH LTD. (SEG) 22.17 13. THIRDWARE SOLUTIONS LTD. (SEG) 25.12 14. ACCEL TRANSMATIC (SEG) 21.11 15. AVANI CIMCON TECHNOLOGIES LTD. 52.59 16. FLEXTRONICS SOFTWARE SYSTEMS LTD.(SEG) 25.31 17. HELIOS & MATHESON INFORMATION TECH LTD. 36.63 18. INFOSYS TECHNOLOGIES LTD. 40.30 19. ISHIR INFOTECH LTD. 30.12 20. KALS INFORMATION SYSTEMS LTD.(SEG) 30 . 55 21. LUCID SOFTWARE LTD. 19.37 22. MEGA SOFT LTD. 60.23 23. TATA ELXSI LTD. (S E G. ) 2 6.51 24. WIPRO LTD. (SEG.) 33.66 4. OBJECTING TO THE ABOVE ACTION OF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER, CONSEQUENT TO THE ORDERS OF THE DI SPUTE RESOLUTION PANEL, ASSESSEE HAS RAISED VARIOUS GROUNDS, INCLUDING SUB GROUNDS BEFORE US. ASSESSEE HAS NOT PRESSED GROUNDS NO.1, 2, PART OF G ROUND NO.3 FROM (A) TO ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 4 (F), PART OF 3(G) AND (H) TO (K) AND (M). THEREFORE , THESE GROUNDS ARE TREATED AS WITHDRAWN AND CONSEQUENTLY, REJECTED. T HE SURVIVING GROUNDS, INCLUDING AN ADDITIONAL GROUND- BEING 3(N), ARE AS UNDER- 1. 2. . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE DRP ERRED IN UPHOLDING/CONFIRMING THE FR ESH BENCH MARKING ANALYSIS UNDERTAKEN BY THE LEARNED TP O, WHICH IS DEFECTIVE IN NATURE DUE TO FOLLOWING REASO NS AND IS LIABLE TO BE QUASHED: (G) I. THE LD TPO/DRP ERRED IN NOT UNDERTAKING AN OBJECTI VE COMPARATIVE ANALYSIS AND INTER-ALIA SELECTING THE F OLLOWING COMPANIES AS COMPARABLES TO THE APPELLANT FOR DETERMINATION OF ALP UNDER TNMM I. ACCEL TRANSMATIC LTD. (SEG) II. AVANI CIMCON TECHNOLOGIES LTD. III. FLEXTRONICS SOFTWARE SYSTEMS LTD.(SEG) IV. HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD. V. INFOSYS TECHNOLOGIES LTD. VI. ISHIR INFOTECH LTD. VII. KALS INFOSYSTEMS LTD. VIII. LUCID SOFTWARE LTD. IX. MEGASOFT LLTD. X. TATA ELXSI LTD.(SEG) XI. WIPRO LTD.(SEG) II. ( L) THE LD. AO/TPO/DRP ERRED IN CONSIDERING BAD DEBTS WRITTEN BACK, MISCELLANEOUS INCOME AND REVERSAL OF PROVISION NO LONGER REQUIRED, AS NON-OPERATING WHIL E COMPUTING THE OPERATING MARGIN OF THE APPELLANT AND DETERMINED THE TP ADJUSTMENT (N) ON THE FACTS AND IN THE CIRCUMSTANCES, THE LD. CIT(A) TPO/DRP ERRED IN MAKING/CONFIRMING NEGATIVE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN OF THE CO MPARABLE ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 5 COMPANIES IN DETERMINING THE ARMS LENGTH PRICE REL ATING TO INTERNATIONAL TRANSACTIONS OF THE APPELLANT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED TPO ERRED AND THE HON'BLE DRP FURTHER ER RED IN UPHOLDING/CONFIRMING THE ACTION OF THE TPO, TO CONS IDER THE COST INCURRED FOR RENDERING SERVICES TO THIRD PARTI ES ALSO, TO ASCERTAIN THE ARMS LENGTH PRICE OF THE INTERNATION AL TRANSACTION OF THE APPELLANT UNDER TRANSACTION NET MARGIN METHOD. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED TPO ERRED AND THE HON'BLE DRP FURTHER ER RED IN UPHOLDING/CONFIRMING THE ACTION OF THE TPO IN 5.1 DENYING THE BENEFIT/REDUCTION OF 5 PERCENT FROM THE ARITHMETIC MEAN AS PROVIDED IN PROVISO TO SECTION 9 2C(2)OF THE ACT. 5.2 DENYING ADJUSTMENT RELATING TO DIFFERENT FUNCTI ONS AND RISK OF THE ASSESSEE VIS--VIS THE COMPARABLE COMPA NIES. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED ASSESSING OFFICER/HON'BLE DRP ERRED IN NOT GRANTING FULL TAX DEDUCTED AT SOURCE(TDS) CREDIT OF RS.55,70,9 91 AS CLAIMED IN THE RETURN OF INCOME AND THE TDS CERTIFIC ATES PRODUCED BEFORE THE LEARNED AO, THUS RESULTING IN S HORT CREDIT OF TDS AMOUNTING TO RS.31,81,369 TO THE APPELLANT. .. 5. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEAR NED 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. 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 O F UNITED 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 COUNSEL SUBMITTED THAT THE ASSESSEE HAS RAISED THE SAME OBJ ECTIONS WITH REFERENCE ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 6 TO THE ABOVE COMPARABLES AND REQUESTED FOR EXCLUSIO N OF THE SAID COMPANIES TAKEN AS COMPARABLES RELEVANT PORTION OF THE ORDER OF THIS TRIBUNAL DATED 24.9.2015 IN THE CASE OF UNITED ONLI NE SOFTWARE DEVELOPMENT INDIA 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 G ROUND, VIZ. ACCEL TRANSMATIC (SEG) AND KALIS INFORMATION SYSTEMS LTD. (SEG.) HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN IT A 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 H ELIOS & MATHESON INFORMATION TECH. LTD. HAS COME UP FOR CON SIDERATION BEFORE THIS TRIBUNAL FOR ASSESSMENT YEAR 2007-08 IT SELF, IN THE CASE OF SUMTOTAL SYSTEMS INDIA P. LTD., HYDERABAD IN ITA NO.1710/HYD/2011, WHEREIN THE TRIBUNAL VIDE ITS ORD ER DATED 9.5.2014 HAS ACCEPTED THE CONTENTIONS FOR EXCLUSION OF THESE NINE COMPANIES UNDER CONSIDERATION BEFORE IT. RELEVANT P ORTION OF THE SAID ORDER OF THE 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 R EVENUE FROM 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 DE VELOPMENT SERVICE PROVIDER. COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VIRTUSA (INDIA) PVT. LTD. (ITA NO. 1962/HYD/2011 DA TED 30/08/2013) AFTER FOLLOWING SOME OTHER DECISIONS OF THE TRIBUNAL HAS HELD THIS COMPANY CANNOT BE TREATED AS COMPARAB LE AS THIS ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 7 COMPANY IS ALSO INTO PRODUCT DEVELOPMENT. AS SEGMEN TAL DETAILS OF OPERATING INCOME OF SOFTWARE DEVELOPMENT SERVICE S AND SALE OF SOFTWARE PRODUCTS ARE NOT AVAILABLE, IT COULD NOT B E ASCERTAINED WHETHER THE PROFIT RATIO OF THIS COMPANY CAN BE TAK EN INTO CONSIDERATION FOR COMPARING WITH ASSESSEE. AS THE A FORESAID DECISION OF THE COORDINATE BENCH PERTAINED TO THE S AME ASSESSMENT YEAR I.E. A.Y. 2007-08, FOLLOWING THE SA ME, WE HOLD THAT THIS COMPANY CANNOT BE TREATED AS COMPARABLE T O ASSESSEE. OTHER CASES CONSIDERED THE SAME COMPARABLE AND REJE CTED 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 /2011 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 OF THEIR PRODUCTS AND SERVICES DUE TO THE GOODWILL, RE PUTATION AND BRAND VALUE. IT WAS SUBMITTED THAT DUE TO SCALE OF OPERATION IT NOT ONLY ENJOY ECONOMIES OF SCALE IN THE LOWER COST OF INFRASTRUCTURE FACILITIES AND EMPLOYEES BUT ALSO EA RNING PROFIT. IT WAS SUBMITTED THAT THE COMPANY HAS DIVERSIFIED ACTI VITIES INCLUDING PRODUCTS, CONSULTANCY AND SOLUTIONS. COMP ANY OWN INTANGIBLES AND ASSUME CONSIDERABLE RISK WHICH RESU LTS IN EARNING HIGHER PROFITS. IN SUPPORT OF SUCH CONTENT ION 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 OBJECT TO THE TPO SELECTING THE SAID COMPANY AS COMPARABLE. H E FURTHER SUBMITTED THAT ONLY BECAUSE THE COMPANY HAS BRAND V ALUE AND IS BIG IN SIZE, IT CANNOT BE TREATED AS UNCOMPARABLE T O ASSESSEE. ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 8 7.2.2. IN REJOINDER, THE LD. AR SUBMITTED THAT ASSE SSEE SELECTED INFOSYS ON THE BASIS OF THREE YEARS DATA, WHEREAS TPO HAS CONSIDERED ONLY CURRENT YEAR DATA. THE LEARNED AR FURTHER SUBMITTED THAT IF ASSESSEE HAS MISTAKENLY SELECTED A COMPARABLE, IT CANNOT BE ESTOPPED FROM OBJECTING TO THE SELECTI ON 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. 7.2.3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PA RTIES AND PERUSED THE MATERIALS ON RECORD. ON CONSIDERI NG THE SAME, WE ARE OF THE VIEW THAT THIS COMPANY CANNOT BE CONS IDERED AS COMPARABLE TO ASSESSEE DUE TO VARIOUS FACTORS SUCH AS ITS SIZE, TURNOVER, BRAND VALUE, SCALE OF OPERATION, DIVERSIF IED ACTIVITIES AND OWNING OF INTANGIBLES. AS CAN BE SEEN FROM TH E TP ORDER, THE TURNOVERS OF INFOSYS TECHNOLOGIES LIMITED DURIN G THE YEAR UNDER CONSIDERATION ARE RS.13,149 CRORES AS AGAINST RS. 42 CRORES OF ASSESSEE. THOUGH IT IS A FACT THAT ASSESSEE IN T HE TP DOCUMENTATION, HAS SELECTED INFOSYS TECHNOLOGIES LT D. AS COMPARABLE BUT THAT CANNOT PREVENT ASSESSEE FROM O BJECTING TO THE AFORESAID COMPANY BEING SELECTED AS COMPARABLE, IF THERE ARE VALID REASONS FOR DOING SO. IN THIS CONTEXT, THE C ONTENTION OF THE LEARNED AR THAT ASSESSEE HAS SELECTED INFOSYS LIMIT ED ON THE BASIS OF THREE YEARS FINANCIAL DATA, WHEREAS THE TP O CONSIDERED ONLY THE CURRENT YEAR DATA ALSO NEEDS TO BE APPRECI ATED. THEREFORE, CONSIDERING THE ENORMITY OF TURNOVER OF THE COMPANY AS WELL AS OTHER RELEVANT FACTORS, THE AFORESAID C OMPANY 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 BELOW AS WELL AS THAT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGN ITY 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 ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 9 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.((SU PRA)), WE FIND THAT THE CO-ORDINATE BENCH HAS HELD THAT ISHIR INFO TECH LIMITED CANNOT BE TREATED AS COMPARABLE AS IT DOES NOT QUAL IFY THE EMPLOYEE COST FILTER AS WELL AS RPT FILTER. THIS VI EW OF OURS IS ALSO IN TUNE WITH THE VIEW EXPRESSED BY DIFFERENT B ENCHES OF THIS TRIBUNAL 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. 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 CONTEN TION, THE LEARNED AR HAS RELIED UPON THE DECISION OF CO-ORDINATE BENC H IN THE CASE M/S VIRTUSA (INDIA) PVT. LTD. (SUPRA). ON PERUSAL OF THE ORDER PASSED IN CASE OF M/S VIRTUSA (INDIA) PVT. LTD. (SU PRA), IT IS SEEN THAT THE CO-ORDINATE BENCH HAS EXCLUDED THE AFORESA ID COMPANY ACCEPTING ASSESSEES CONTENTION THAT SEGMENTAL DATA IN RESPECT OF SALE OF PRODUCTS AND SOFTWARE SERVICES ARE NOT AVAI LABLE. FURTHER FOLLOWING CASES ALSO CONSIDERED THE ABOVE COMPANY A ND EXCLUDED 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/MUM/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. ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 10 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 TRIBUNAL WHILE CONSIDERING ASSESSEES OBJECTION WITH REGARD TO THE AFORESAID COMPANY HAD DIRECTED THE ASSESSING OFFICE R/TPO TO TAKE ONLY SEGMENTAL MARGIN OF THIS COMPANY FOR COMP UTING ALP. SIMILAR VIEW WAS ALSO EXPRESSED IN THE FOLLOWING CA SES : 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. RESPECTFULLY FOLLOWING THE AFORESAID ORDERS OF CO-O RDINATE BENCHES, WE DIRECT THE ASSESSING OFFICER /TPO TO CO NSIDER ONLY THE SEGMENTAL MARGIN OF THIS COMPANY FOR THE RELEVA NT ASSESSMENT 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 BE NCHES OF THE ITAT AND THE AFORESAID COMPANY WAS REJECTED AS COMPARABLE TO THE SOFTWARE SERVICES PROVIDER. FOR SUCH CONTENT ION, THE LEARNED AR RELIED UPON THE FOLLOWING DECISIONS: A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/2011 B) TRIOLOGY E BUSINESS SOLUTIONS, ITA NO. 1054/BANG/2011. C) M/S. FOURSOFT LIMITED (ITA.NO.1903/H/2011) ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 11 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 REFERRED TO THE OBSERVATIONS MADE BY THE TPO IN HIS ORDER. 7.6.2. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES 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 COMPARABILITY OF THE AFORESAID COMPANY WITH SOFTWAR E SERVICES PROVIDER HELD AS UNDER: 7.7 FROM THE FACTS AND MATERIAL ON RECORD AND SUBMISSIONS MADE BY THE LEARNED AR, IT IS SEEN THAT THE TATA ELXSI IS ENGAGED IN DEVELOPMENT OF NICHE PRODUCT AN D DEVELOPMENT SERVICES, WHICH IS ENTIRELY DIFFERENT F ROM ASSESSEE COMPANY. WE AGREE WITH THE CONTENTION OF T HE LEARNED AR THAT THE NATURE OF PRODUCT DEVELOPED AND SERVICES PROVIDED BY THIS COMPANY ARE DIFFERENT FROM ASSESSE E AS HAVE BEEN NARRATED IN PARA 6.6 ABOVE. EVEN THE SEGM ENTAL DETAILS FOR REVENUE SALES HAVE NOT BEEN PROVIDED BY THE TPO SO AS TO CONSIDER IT AS A COMPARABLE PARTY FOR COMP ARING THE PROFIT RATIO FROM PRODUCT AND SERVICES. THUS, ON TH ESE FACTS, WE ARE UNABLE TO TREAT THIS COMPANY FIT FOR COMPARA BILITY ANALYSIS FOR DETERMINING THE ARMS LENGTH PRICE FOR ASSESSEE, HENCE, SHOULD BE EXCLUDED FROM THE LIST OF COMPARAB LE 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 TH AT IT CANNOT BE CONSIDERED AS COMPARABLE WITH OTHER ASSESSEES, WE DIRECT EXCLUSION OF THE AFORESAID COM PANY 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 SAID COMPANY FOR IT SERVICES, IN RESPONSE TO NOTICE ISSU ED U/S 133(6), HAS CONSIDERED IT AS A COMPARABLE. IT WAS SUBMITTED THAT THE AFORESAID COMPANY IS A DIVERSIFIED COMPANY AND DISC LOSES SEGMENTAL INFORMATION FOR IT SERVICES AND PRODUCTS AS ONE SEGMENT IN ITS ANNUAL REPORT. IT WAS SUBMITTED THAT THE TPO HAS NOT PROVIDED ANY OTHER DOCUMENTS EXCEPTING SEGMENTA L INFORMATION OBTAINED FROM TP REPORT OF WIPRO, WHICH IS UNAUDITED, MANUALLY CORRECTED AND UNVERIFIED. IT WA S SUBMITTED THAT WIPRO IS ALSO CONSIDERED TO BE A GIANT IN ITS FIELD ASSUMING ALL THE RISKS AND CANNOT BE COMPARED TO CAPTIVE SER VICE PROVIDER ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 12 LIKE ASSESSEE. TO SUPPORT HIS CONTENTIONS WITH REGA RD TO NON- COMPARABILITY OF THE SAID COMPANY, HE RELIED UPON T HE FOLLOWING DECISIONS : A) TELCORDIA TECHNOLOGIES INDIA P. LTD. ITA.NO.7821/MUM/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 PROFITABILITY, THEREFORE, CANNOT BE COMPARED WITH A SSESSEE COMPANY AT ALL. THERE ARE SEVERAL JUDGMENTS OF ITAT WHICH HAVE BEEN REFERRED IN PARA 6.5 ABOVE, THAT WIPRO CA NNOT BE TAKEN AS COMPARABLE CASE FOR COMPARABLE CASE WITH T HE COMPANY LIKE ASSESSEE. IN VIEW OF THESE FACTS AND T HE REASONING GIVEN IN THE CASE OF INFOSYS, WE HOLD THA T WIPRO ALSO CANNOT BE CONSIDERED AS A COMPARABILITY ANALYS IS, HENCE, WOULD NOT BE INCLUDED IN THE LIST OF THE COM PARABLE 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, CONSID ERING THE TURNOVER, BRAND VALUE AS WELL AS OTHER DYNAMICS OF WIPRO LTD., IT COMES IN THE SAME CATEGORY AS INFOSYS AND CERTAINLY CANNOT BE COMPARED WITH ASSESSEE. THEREFORE, FOLLOWING OUR RE ASONING IN CASE OF INFOSYS TECHNOLOGIES LTD. AND OTHER COORDIN ATE BENCH DECISIONS, WE HOLD THAT WIPRO LTD. CANNOT BE TREATE D AS COMPARABLE WITH ASSESSEE. ACCEL TRANSMATIC LTD. : ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 13 7.8. WITH REGARD TO THIS COMPANY, THE COMPLAIN T OF ASSESSEE IS THAT THIS COMPANY IS NOT A PURE SOFTWARE DEVELOPMEN T SERVICE COMPANY. IT IS FURTHER SUBMITTED THAT IN A MUMBAI TRIBUNAL DECI SION OF CAPGEMINI INDIA (F) LTD V AD. CIT 12 TAXMAN.COM 51, THE DRP A CCEPTED THE CONTENTION OF ASSESSEE THAT ACCEL TRANSMATIC SHOULD BE REJECTED AS COMPARABLE. THE RELEVANT OBSERVATIONS OF DRP AS EXT RACTED 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, TICK ET VENDING 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 IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMATIO N SERVICES FOR 2D AND 3D ANIMATION AND THEREFORE ASSESSEES CLAIM THAT TH IS COMPANY WAS FUNCTIONALLY DIFFERENT WAS ACCEPTED. IT DIRECTED TH E ASSESSING OFFICER TO EXCLUDE ACCEL TRANSMATIC LTD. FROM THE FINAL LIST O F COMPARABLES FOR THE PURPOSE OF DETERMINING TNMM MARGIN. A SIMILAR VIEW WAS TAKEN IN 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) 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. ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 14 KALS INFORMATION SYSTEM LIMITED : 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 LE ARNED COUNSEL FOR ASSESSEE RELIED UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE M/S. TRILOGY E-BUSINESS SOFTWARE INDIA PRIVATE LIMI TED (SUPRA) WHEREIN AT PARAS 46 AND 47 OF ITS ORDER, THE TRIBUNAL HAS DISC USSED THE FUNCTIONAL DISSIMILARITY WITH ASSESSEE THEREIN AND HAS DIRECT ED THAT THE COMPANY SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. SI MILARLY, THE TRIBUNAL AT BANGALORE IN THE CASE OF M/S. HCL EAI SERVICES LTD. VS. DCIT IT(TP) A. NO. 1348/ 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 SOFTWARE DEVELOPMENT SERVICES COMPANY. THE RELEV ANT 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 SOFTWARE SERVICES REVENUE AND THEREFORE THE SALARY COST FILT ER TEST FAILS IN THIS CASE. REFERENCE WAS MADE TO THE PUNE BENCH TRIBUNAL S DECISION OF THE ITAT IN THE CASE OF BINDVIEW INDIA PRIVATE LIMI TED VS. DCI, ITA NO. ITA NO 1386/PN/1O WHEREIN KALS AS COMPARABLE WA S REJECTED FOR AY 2006-07 ON ACCOUNT OF IT BEING FUNCTIONALLY DIFFERENT FROM SOFTWARE COMPANIES. THE RELEVANT EXTRACT ARE AS FOL LOWS: 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 THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFT WARE DEVELOPMENT SERVICES PROVIDED BY ASSESSEE. THE APPE LLANT HAS SUBMITTED AN EXTRACT ON PAGES 185-186 OF THE PA PER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH T HAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND TH AT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUC TS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LIABLE TO BE EXCLUDED FRO M THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESS EE 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 HA S DRAWN ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 15 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, TH E MUMBAI BENCH OF ITAT HAS HELD THAT THIS COMPANY WAS DEVELO PING SOFTWARE PRODUCTS AND NOT PURELY OR MAINLY SOFTWARE DEVELOPMENT SERVICE PROVIDER. WE THEREFORE ACCEPT T HE PLEA OF ASSESSEE 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 EX CLUDE KALS INFORMATION SYSTEMS LTD. APPLIES TO THE FACTS OF THE CASE BEFOR E US ALSO. SIMILAR VIEW HAS BEEN EXPRESSED BY THE COORDINATE BENCH OF THE T RIBUNAL IN 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 NO.2076/HYD/2011 FOR THE ASSESSMENT YEAR 2007-08, F OR 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: ........................... ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 16 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 THAT 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 MAKING ADJUSTMENT FOR THE DISSIMILARITIES BROUGHT O UT BY THE TPO HIMSELF, THESE COMPANIES CANNOT BE TAKEN AS COMPARA BLE COMPANIES. THE METHOD ADOPTED BY THE TPO TO ALLOCAT E EXPENDITURE PROPORTIONATELY TO THE SOFTWARE DEVELOPMENT SERVICE S AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORRECT AND R EASONABLE. WHEREVER, THE ASSESSING OFFICER/TPO CANNOT MAKE SUI TABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARAB LE COMPANIES WITH ASSESSEE-COMPANY TO BRING THEM ON PAR WITH ASS ESSEE, THESE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPA RABLES. THEREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO E XCLUDE FROM THE LIST OF COMPARABLES.' . 14. HELIOS & MATHESON INFORMATION TECHNOLOGY LTD TH IS COMPARABLE IS OBJECTED ON THE REASON OF LOW EMPLOYE E COST OF 1.36%. THUS IT FAILS THE EMPLOYEE COST FILTER. THER EFORE, NOT COMPARABLE. ASSESSEE RELIED ON THE JUDGMENT OF MENT OR 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 O F THE TRIBUNAL, WE DIRECT THAT THESE COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES AS ASSESSEE TURNOVER IS ONLY 2.18 CRORE S AND EMPLOYEE COST IS MORE. MANY OF THE COMPANIES ARE ALSO FOUND TO BE NOT FUNCTIONALLY SIMILAR. THE VARIOUS FILTERS AND REASONS ACCEPTED I N OTHER CASES DO APPLY TO ASSESSEE 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 TH E TRIBUNAL 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) ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 17 (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 PRIVATE 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 COMPAR ABILITY 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- DETERMINE THE ARMS LENGTH PRICE ACCORDINGLY. GROUN D NO.3(G) IS ACCORDINGLY ALLOWED. 7. THE NEXT GROUND TO BE CONSIDERED IS GROUND NO.3 (L), WHICH ALLEGES ERRONEOUS ADOPTION OF OPERATING MARGIN AND ARITHMETIC MEAN OF COMPARABLE COMPANIES BY THE LEARNED TRANSFER PRICIN G OFFICER. IT WAS SUBMITTED THAT THE TPO DID NOT CALCULATE THE PLI OF THE ASSESSEE PROPERLY AND EXCLUDED CERTAIN COSTS FROM THE OPERATING COST. THEREBY AS AGAINST THE ASSESSEES MARGIN AT 11.72%, TPO DETERMINED THE MAR GIN AT 10.21%. EVEN THOUGH LEARNED COUNSEL RELIED ON VARIOUS CASE- LAW, IT WAS FAIRLY ADMITTED THAT THIS ISSUE BECOMES ACADEMIC, IF GROUN D NO.4 IS CONSIDERED FAVOURABLY. CONSEQUENTLY, WE DIRECT THE TPO TO KEE P IN MIND THE ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 18 OBJECTIONS OF THE ASSESSEE, WHILE WORKING OUT THE P LI OF THE ASSESSEE COMPANY IN THE RE-ASSESSMENT PROCEEDINGS. 8. NEXT GROUND FOR CONSIDERATION IS GROUND NO.3(N) , WHICH IS RAISED AS AN ADDITIONAL GROUND. AFTER CONSIDERING T HE OBJECTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE, ADDITIONAL GRO UND, BEING LEGAL IN NATURE, IS ADMITTED. IT IS SUBMITTED THAT THE ASSE SSEE DOES NOT HAVE ANY INTEREST LIABILITY NOR HAS ANY BORROWALS AND THERE IS NO INVENTORY MAINTAINED AND THERE IS NO WORKING CAPITAL RISK. FO LLOWING THE PRINCIPLES LAID DOWN BY THE COORDINATE BENCH IN THE CASE OF AD APTEC (INDIA) P. LTD. (ITA NO.206/HYD/2014 DATED 25.3.2015), NEGATIVE WOR KING CAPITAL ADJUSTMENT SHOULD NOT HAVE BEEN MADE BY THE TPO. I T WAS FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2008-09, THE ASSESSING OFFICER WAS DIRECTED TO RE-WORK OUT T HE WORKING CAPITAL ADJUSTMENT, VIDE PARA 14 OF THE ORDER DATED 2.1.201 5. 9. WE HAVE CONSIDERED THE CONTENTIONS. IT IS TRUE THAT IN THE CASE OF ADAPTEC INDIA P. LTD. (SUPRA), IT WAS DECIDED AS UNDER 10. GROUND NO.8 PERTAINS TO THE ISSUE OF NEGATIVE WORKING CAPITAL. AS BRIEFLY STATED ABOVE, AFTER ARRIVING AT THE ARITHMETIC MEAN OF ALL COMPARABLES AT 22.03%, THE A.O. WORKED OUT NEGATIVE WORKING CAPITAL ADJUSTMENT OF 3.22% THEREBY, MAKING ARMS LENGTH PRICE AT 25.25%. EVEN THOUGH, DRP REFUSED TO INTERF ERE WITH THE OBJECTIONS OF THE ASSESSEE IN ITS ORDER, WE WERE IN FORMED THAT DRP HAS DIRECTED THE TPO/A.O. NOT TO MAKE ANY NEGATIVE WORKING CAPITAL ADJUSTMENT IN SOME OF THE CASES IN THE NEXT ASSESSMENT YEAR, IN THE CASES OF MARKET TOOLS RESEARCH P. LTD. , AND MEGA SYSTEMS WORLDWIDE INDIA P. LTD., ASSESSEE PLACED ON RECORD COPIES OF ORDERS OF DRP. IN THAT DRP CONSIDERED THE ISSUE AND DIRECTED THE TPO AS UNDER : 14. GROUND NO.11 : NEGATIVE WORKING CAPITAL ADJUST MENT MAKING A NEGATIVE WORKING CAPITAL ADJUSTMENT WITHOU T APPRECIATING THE FACT THAT THE COMPANY DOES NOT BEA R ANY WORKING CAPITAL RISKS. ON THIS ISSUE, THE ASSESSEE SUBMITTED AS UNDER : THE LEARNED TPO DETERMINED THE ALP FOR THE INTERNA TIONAL TRANSACTIONS WITH A.ES BY MAKING A NEGATIVE WORKING CAPITAL ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 19 ADJUSTMENT FOR THE DIFFERENCES IN WORKING CAPITAL B ETWEEN THE ASSESSEE AND THE COMPANIES CONSIDERED AS COMPAR ABLES. THE ASSESSEE DOES NOT AGREE WITH THE LEARNED TPO AS : THE COMPANY DOES NOT BEAR ANY WORKING CAPITAL RISK SINCE IT IS BEEN FULLY FUNDED BY ITS A.E. FROM ITS INCEP TION AND HAS NO WORKING CAPITAL CONTINGENCIES. THE COMPANY HAS NEVER TAKEN ANY LOANS TILL DATE FRO M THE DATE OF INCORPORATION NOR HAS INCURRED ANY EXPENSE FOR MEETING THE WORKING CAPITAL REQUIREMENT. WE HAVE GONE THROUGH THE SUBMISSIONS AND THE ORDER OF THE TPO. THE ASSESSEE PLEADED THAT THE DRP HAS ACCE DED SUCH A PLEA IN SOME OTHER CASE. ON EXAMINATION, WE FIND THAT THE DRP, HYDERABAD IN THE CASE OF CORDYS SOFTW ARE INDIA P. LTD., FOR A.Y. 2008-09 IN ITS DIRECTIONS D ATED 03.08.2012 HAS GIVEN A FINDING AS UNDER : 7.7. 4 THUS, WORKING CAPITAL ADJUSTMENT IS MADE FO R THE TIME VALUE OF MONEY LOST WHEN CREDIT TIME IS PROVID ED TO THE CUSTOMERS. THE APPLICANT IS NOT AN ENTREPRENEUR BUT A CAPTIVE SERVICE PROVIDER. ITS ENTIRE FUNDING NEEDS ARE PROVIDED BY THE A.E. THIS BEING SO, THE APPLICANT D OES NOT STAND TO LOSE ANYTHING AS IT IS COMPENSATED ON A TO TAL COST PLUS BASIS. THE TPO PROBABLY WAS CARRIED AWAY BY TH E LARGE AMOUNT OF RECEIVABLES APPEARING IN THE BOOKS OF THE APPLICANT. BUT THE APPLICANT IS RUNNING ITS BUSINES S WITHOUT ANY WORKING CAPITAL RISK WHILE COMPARABLE COMPANIES HAVE SUCH A RISK FOR THEM. IF AT ALL ANY WORKING CAPITAL ADJUSTMENT IS TO BE MADE TO T HIS SITUATION , ONLY A POSITIVE ADJUSTMENT HAS TO BE MADE TO THE COMPARABL ES SO THAT THEY ARE BROUGHT ON PAR WITH THE APPLICANT. IN VIEW OF THE SAME, THE PANEL DIRECTS THAT NEGATIVE WORKING C APITAL ADJUSTMENT TO THE ARITHMETIC MEAN MARGIN OF THE COMPARABLES SHALL NOT BE MADE. IN VIEW OF THE ABOVE, THE PANEL DIRECTS THAT NEGATI VE WORKING CAPITAL ADJUSTMENT TO THE ARITHMETIC MEAN M ARGIN OF THE COMPARABLES SHALL NOT BE MADE. 11. IN VIEW OF THE ABOVE, WE ARE OF THE OPINION TH AT ASSESSEES CASE BEING SIMILAR, THERE IS NO NEED FOR MAKING ANY NEGATIVE WORKING CAPITAL ADJUSTMENT WHEN ASSESSEE D OES NOT CARRY ANY WORKING CAPITAL RISK. IN FACT, TPO SHOULD HAVE DONE NECESSARY WORKING CAPITAL ADJUSTMENT TO THE PROFITS OF THE SE LECTED COMPARABLES SO AS TO MAKE THEM COMPARABLE TO THE AS SESSEE. IN VIEW OF THIS, WE DIRECT THE TPO NOT TO MAKE NEGATIV E WORKING CAPITAL ADJUSTMENT. ON PRINCIPLE, WE AGREE WITH THE ASSESSEES CONTENTI ON THAT TRANSFER PRICING OFFICER SHOULD NOT HAVE MADE NEGATIVE WORKING CAPIT AL ADJUSTMENT. HOWEVER, FOR ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE, THE ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 20 COORDINATE BENCH OF THIS TRIBUNAL HAS GIVEN THE FOL LOWING DIRECTIONS TO THE ASSESSING OFFICER- 14. IT WAS THE OBJECTION OF ASSESSEE THAT TPO HAS ARRIVED AT NEGATIVE WORKING CAPITAL ADJUSTMENT WHEREIN ASSE SSEE DOES NOT HAVE ANY RISK AND IS A CAPTIVE SERVICES PROVIDER. T HEREFORE, FOLLOWING THE DECISION OF COORDINATE BENCH IN THE CASE OF COR DYS SOFTWARE INDIA P. LTD., IN ITA.NO.1972/H/2011 DATED 15.03.20 13 FOR A.Y. 2007-08, ASSESSEE REQUESTS FOR POSITIVE WORKING CAP ITAL ADJUSTMENTS. AS FAR AS THE WORKING CAPITAL ADJUSTME NT IS CONCERNED, THESE ARE ACADEMIC IN NATURE AND REQUIRE TO BE ANAL YSED ON THE BASIS OF ASSESSEES WORK PROFILE AND COMPARABLE COMPANIES WORKING RESULTS. NO CLEAR CUT DIRECTIONS CAN BE GIVEN IN TH IS AS IT REQUIRES EXAMINATION OF VARIOUS DOCUMENTS. IN FACT, DRP ITSE LF HAS DIRECTED THE TPO TO RE-WORKOUT THE WORKING CAPITAL ADJUSTMEN T AFTER EXCLUDING CERTAIN COMPARABLE COMPANIES. WE ALSO DIR ECTED THE TPO TO EXCLUDE CERTAIN COMPARABLES ABOVE. CONSEQUENTLY WE DIRECT THE A.O. / TPO TO RE-WORKOUT THE WORKING CAPITAL ADJUST MENT AFTER GIVING DUE OPPORTUNITY TO ASSESSEE, KEEPING IN MIND THE PRINCIPLES LAID DOWN ON THIS ISSUE. 14.1. WITH REFERENCE TO OBJECTION OF ASSESSEE THAT IT IS A CAPTIVE SERVICE PROVIDER FULLY FUNDED BY A.E. ASSES SEE ALSO UNDERTAKES WORKS FOR THIRD PARTIES. IT WAS ONE OF T HE OBJECTION THAT INTERNAL TNMM IS AVAILABLE AS ASSESSEE UNDERTAKES W ITH THIRD PARTIES ALSO. THIS ASPECT NEED TO BE KEPT IN MIND BY A.O. W HILE CONSIDERING THE WORKING CAPITAL RISK IN ASSESSEES FUNCTIONAL A NALYSIS. WITH THESE DIRECTIONS, THE GROUND IS RESTORED TO THE FILE OF T PO/A.O. TO DO ACCORDINGLY IN THE CONSEQUENTIAL ORDER. IN VIEW OF THE ABOVE, TRANSFER PRICING OFFICER IS DIRECTED TO KEEP IN MIND THE ABOVE DIRECTIONS /FINDINGS AND WORK OUT THE WOR KING CAPITAL ADJUSTMENT, IF ANY, REQUIRED TO BE DONE, AFTER GIVI NG DUE OPPORTUNITY TO THE ASSESSEE, WHILE MAKING COMPARABILITY ANALYSIS C ONSEQUENT TO THIS ORDER. THIS GROUND IS ACCORDINGLY CONSIDERED AS ALL OWED. 10. GROUND NO.4 PERTAINS TO THE ACTION OF THE TRAN SFER PRICING OFFICER IN CONSIDERING THE COSTS INCURRED FOR RENDE RING SERVICES TO THIRD PARTIES ALSO WHILE ARRIVING AT THE ARMS LENGTH PRI CE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE UNDER TNMM. IT WAS SUB MITTED THAT EVEN THOUGH ASSESSEE HAS SUBMITTED SEGMENTAL PROFITS, TH E TRANSFER PRICING OFFICER HAS CONSIDERED THE TOTAL COST INCURRED BY T HE ASSESSEE AND ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 21 ENHANCED THE ARMS LENGTH PRICE DETERMINED. WHEN T HE TRANSACTIONS PERTAINED TO AE, COSTS PERTAINING TO AE ONLY SHOULD HAVE BEEN CONSIDERED BY HIM. IN THE GUISE OF REDUCING THE SALES AFTER R EVISING THE VALUE OF AE TRANSACTIONS, THE TPO IN FACT MADE ADJUSTMENT ON TH E TOTAL COST ON THE SERVICES RENDERED TO NON-AES AS WELL. LEARNED COU NSEL SUBMITTED THAT THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, VIDE PARA 15 AND 16 OF ITS ORDER DATED 2 ND JANUARY, 2015, CITED SUPRA, AS UNDER- 15. A.O. WHILE MAKING THE T.P. ADJUSTMENT HAS CON SIDERED THE ENTIRE TURNOVER INCLUDING THE NON-A.E. TRANSACTIONS . ASSESSEE OBJECTED BEFORE DRP AND DRP CONSIDERED VIDE PARA 57 AS UNDER : 57. THE ASSESSEE SUBMITTED THAT THE TPO ERRED IN CONSIDERING ENTIRE COST BASE OF THE COMPANY WITHOUT DIFFERENTIATING BETWEEN COST INCURRED IN A.ES TRANSACTIONS AND NON-A.E. TRANSACTIONS AND IGNORING THE A.E. AND NON-A.E. SEGMENTAL RESULTS SUBMITTED BY TH E ASSESSEE IN THIS REGARD FOR THE PURPOSE OF MAKING TRANSFER PRICING ADJUSTMENT. THE ASSESSEE ALSO INFO RMED THAT THIS CONTENTION HAS BEEN UPHELD BY HONBLE DRP IN THE CASE OF THE ASSESSEE FOR A.Y. 2006-07. EVEN FOR THE A.Y. 2005-06, IN RESPECT OF THE ASSESSEE ITSELF, TH E TPO HIMSELF HAD RESTRICTED THE TRANSFER PRICING ADJUSTM ENT TO THE OPERATING COST BASE PERTAINING TO A.E. TRANSACT IONS ONLY. THE PANEL AGREES WITH THE ASSESSEE AND DIRECT THAT THE REIMBURSEMENT OF RS.12,56,96,824/- BE NOT TAKEN FOR ALP CALCULATION. 16. LD. COUNSEL SUBMITTED THAT DRP GOT ITS FINDING S MIXED-UP WITH REFERENCE TO ANALYSIS OF NON-A.E. TRANSACTION TO THAT OF REIMBURSEMENTS. WHILE DIRECTION OF REIMBURSEMENT IS CORRECT, THE DIRECTION WITH REFERENCE TO ADJUSTMENT OF NON-A.E. TRANSACTIO NS HAS NOT BEEN GIVEN. CONSIDERING THE OBSERVATIONS OF DRP AND ALSO VARIOU S CASE LAW ON THE ISSUE RELIED UPON BY ASSESSEE IN M/S. SAVEN TECHNOL OGIES LTD., VS. ACIT ITA.NO.1456/HYD/2010, WE DIRECT THE A.O. TO EXCLUDE THE T.P. ADJUSTMENT ON THE NON-A.E. TRANSACTIONS AND RESTRICT THE ADJUS TMENT ONLY TO THE A.E. TRANSACTIONS, IN CASE ALP DETERMINED AFTER COMPARAB ILITY ANALYSIS REQUIRE ANY ADJUSTMENT UNDER THE PROVISIONS OF THE ACT. WIT H THESE DIRECTIONS, GROUND IS CONSIDERED AS ALLOWED. 11. CONSIDERING THE ORDER OF THE TRANSFER PR ICING OFFICER AND THE OBJECTIONS OF THE ASSESSEE, WE ARE OF THE OPINION T HAT THE ENTIRE COST WAS TAKEN BY THE TPO FOR MAKING ADJUSTMENT, THEREBY INV OKING THE TP PROCEEDINGS ON NON-AE TRANSACTIONS AS WELL. THEREFO RE, WE DIRECT THE ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 22 ASSESSING OFFICER/TRANSFER PRICING OFFICER TO EXCLU DE THE TP ADJUSTMENT ON THE NON-AE TRANSACTIONS AND RE-WORK OUT THE COSTS P ERTAINING TO THE AE TRANSACTIONS AND RESTRICT THE ADJUSTMENT IF ANY, ON LY TO THE AE TRANSACTIONS. WITH THESE DIRECTIONS, THIS GROUND IS CONSIDERED AS ALLOWED. 12. GROUND NO5 PERTAINS TO THE APPLICATION OF PROV ISOS TO S.92C(2) OF THE ACT. THIS DOES NOT REQUIRE ANY DIRECTION BY US, AS THE PROVISIONS ARE VERY CLEAR. THE TPO IS DIRECTED TO KEEP IT IN MIND WHILE MAKING THE TP ADJUSTMENT IF ANY, CONSEQUENT TO THIS ORDER. 13. GROUND NO.6 PERTAINS TO NON-GRANTING FULL TDS CREDIT AS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME, RE SULTING IN SHORT DEDUCTION OF TDS AMOUNTING TO RS.31,81,369. IT WAS SUBMITTED THAT THE DISPUTE RESOLUTION PANEL DIRECTED THE ASSESSING OFF ICER TO EXAMINE AND GIVE FULL CREDIT OR TAKE SUITABLE ACTION. IT WAS S UBMITTED THAT THE ASSESSING OFFICER DID NOT GIVE FULL CREDIT. THE LEARNED COUN SEL ONLY WANTED A DIRECTION TO BE GIVEN TO THE ASSESSING OFFICER FOR GIVING CRE DIT. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED COUNSEL AND THE DIRECTI ON GIVEN BY THE DISPUTE RESOLUTION PANEL, WE ARE OF THE OPINION THAT THE AS SESSING OFFICER DID NOT FOLLOW THE DIRECTIONS OF THE DISPUTE RESOLUTION PAN EL WHILE GIVING CREDIT, AS CLAIMED BY THE ASSESSEE AT RS.55,70,991. WE THEREFO RE, REITERATE THE DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL TO EXAMINE THE ISSUE AND GIVE CREDIT OF TDS TO THE ASSESSEE. 14. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY WHIL E PASSING THE CONSEQUENTIAL ORDER AND THE OBJECTIONS, IF ANY RAIS ED, SHOULD BE DEALT WITH APPROPRIATELY. ITA NO.2190/HYD/2011 M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICES PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. LTD.), HYDERABAD 23 15. WITH THE ABOVE OBSERVATIONS, APPEAL OF THE AS SESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 22 ND JANUARY, 2016 SD/- SD/- (P.MADHAVI DEVI) (B.RAMAKOTAIAH) JUDICI AL MEMBER ACCOUNTANT MEMBER DT/- 16 TH JANUARY, 2016 COPY FORWARDED TO: 1. M/S. NTT DATA INDIA ENTERPRISES APPLICATION SERVICE S PRIVATE LIMITED (FORMERLY KNOWN AS INTELLIGROUP ASIA PVT. L TD.(MERGED WITH NTT DATA GLOBAL DELIVERY SERVICES LIMITED), 5 TH FLOOR, I LABS CENTER, PLOT NO.18,SOLFTWARE UNITS LAYOUT, M ADHAPUR, HYDERABAD 560061 2. 3. ASST. COMMISSIONER OF INCOME-TAX CIRCLE 2(1), HYDER ABAD DISPUTE RESOLUTION PANEL II, HYDERABAD 4. ADDL. COMMISSIONER OF INCOME - TAX TRANSFER PRICING, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S