Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 0847 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-12-2020
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB-A
Next Hearing Date
10-09-2020
Assessment Year
2014-2015
Appeal Filed On
30-11-2018
Judgement Text
ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 1 OF 44 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO.2233/HYD/2018 ASSESSMENT YEAR:2014-15 M/S. ADP PRIVATE LTD HYDERABAD PAN:AANCA8983A VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI H. SRINIVASULU REVENUE BY : SRI SRINIVAS REDDY, DR DATE OF HEARING: 10/09/2020 DATE OF PRONOUNCEMENT: 18/12/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2014-15 AGAIN ST THE FINAL ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 92CA OF THE ACT DATED 30.10.2018. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ADP (P) LTD, IS A CAPTIVE SERVICE PROVIDER OF ITS A ES, I.E. IT PROVIDES SOFTWARE DEVELOPMENT SERVICES (SDS IN SHORT) AND I. T. ENABLED SERVICES (ITES) TO ITS GROUP COMPANIES. IT FILED IT S RETURN OF INCOME FOR THE A.Y 2014-15 ON 28.11.2014 DECLARING AN INCO ME OF RS.144,21,34,890/- UNDER THE NORMAL PROVISIONS AND BOOK PROFITS OF RS.148,81,42,550/- U/S 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O NOTICED THAT ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 2 OF 44 DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE HA S ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AES). THEREFORE, THE MATTER WAS REFERRED TO THE TPO FOR D ETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL T RANSACTIONS. THE TPO REJECTED THE TP STUDY OF THE ASSESSEE AND CONDU CTED HIS OWN SEARCH FOR THE COMPARABLES FOR BOTH SDS AND ITES AN D PROPOSED ADJUSTMENTS TO THE ALP. FURTHER, HE ALSO PROPOSED A DJUSTMENT TOWARDS INTEREST ON RECEIVABLES. THUS, THE TOTAL OF THE ADJUSTMENT PROPOSED WAS RS.122,56,40,217/- U/S 92CA OF THE ACT . ACCORDINGLY, THE DRAFT ASSESSMENT ORDER WAS PROPOSE D BY THE AO. THE ASSESSEE RAISED ITS OBJECTIONS TO THE SAID PROP OSAL BEFORE THE DRP AND THE DRP VIDE DIRECTIONS DATED 11.9.2018 GAV E CERTAIN DIRECTIONS TO THE TPO WHICH RESULTED IN ENHANCEMENT OF THE ADJUSTMENT U/S 92CA OF THE ACT FROM RS.122,56,40,21 7/- TO RS.128,64,17,966/-. IN COMPLIANCE THEREOF, THE FINA L ASSESSMENT ORDER HAS BEEN PASSED, AGAINST WHICH, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS: CONCISE GROUNDS OF APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED TRANSFER PRICING OFFICER I.E. THE DEPUTY COMMISSIONER OF INCOME-TAX (TRANSFER PRICING OFFICE R)-3, (HEREINAFTER REFERRED TO AS 'THE LD. TPO') AND THE LD. AO UNDER THE DIRECTIONS ISSUED BY HON'BLE DRP, ERRED IN MAKI NG AN ADDITION TO THE APPELLANT'S TOTAL INCOME OF RS. 128 ,64,17,966 (BASED ON THE PROVISIONS OF CHAPTER X OF THE INCOME -TAX ACT, ('THE ACT') AND THE SAID ADDITION BEING WHOLLY UNJU STIFIED ARE LIABLE TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN CONTRARY TO LAW, THE LD. TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN ACCEPTING THE FOLLOWING COMPANIES ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AS COMPARABLES, WITHO UT APPRECIATING THAT THE SAID COMPANIES WERE FUNCTIONA LLY DISSIMILAR TO THE APPELLANT, HAVE HIGH ECONOMIES OF SCALE, FAIL THE PECULIAR ECONOMIC CIRCUMSTANCES FILTER, HAVE PR ESENCE OF BRAND AND INTANGIBLES, ABNORMAL PROFITS, UNDERTAKE RESEARCH AND DEVELOPMENT ACTIVITIES, HAVE ONSITE EXPENSES AN D DO NOT HAVE SEGMENTAL DATA: ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 3 OF 44 E-LNFOCHIPS LIMITED THIRDWARE SOLUTIONS LIMITED INFOBEANS TECHNOLOGIES LIMITED INFOSYS LIMITED PERSISTENT SYSTEMS LIMITED LARSEN & TOUBRO LNFOTECH LIMITED TATA ELXSI LIMITED MINDTREE LIMITED ~ R S SOFTWARE (INDIA) LIMITED 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN CONTRARY TO LAW, THE LD. TPO ERRED AND THE HON'BLE DRP FURTHER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO IN ACCEPTING THE FOLLOWING COMPANIES ENGAGED IN INFORMATION TECHNOLOGY ENABLED SERVICES AS COMPARAB LES, WITHOUT APPRECIATING THAT THE SAID COMPANIES WERE FUNCTIONALLY DISSIMILAR TO THE APPELLANT, HAVE HIGH ECONOMIES OF SCALE, FAIL THE PECULIAR ECONOMIC CIRCUMSTANCES FILTER, HAVE ONSITE EXPENSES, HAVE SIGNIFICANT SUB-CONTRACTING C OSTS AND DO NOT HAVE SEGMENTAL DATA: INFOSYS BPO LIMITED ECLERX SERVICES LIMITED CROSSDOMAIN SOLUTIONS PRIVATE LIMITED ~~ MICROLAND LIMITED +-' MPS LIMITED MICROGENETICS SYSTEMS LIMITED ~ ~ 4/ ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N REJECTING THE FOLLOWING COMPANIES ENGAGED IN SOFTWARE DEVELOP MENT SERVICES AS A COMPARABLES, WITHOUT APPRECIATING THA T THE SAID COMPANIES WERE FUNCTIONALLY COMPARABLE TO THE APPEL LANT: EVOKE TECHNOLOGIES PRIVATE LIMITED E-ZEST SOLUTIONS LIMITED MAVENC SYSTEMS LTD SAGARSOFT (INDIA) LIMITED ISUMMATION TECHNOLOGIES PRIVATE LIMITED AKSHAY SOFTWARE TECHNOLOGIES LIMITED GOLDSTONE TECHNOLOGIES LIMITED SANKHYA INFOTECH LIMITED 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N REJECTING THE FOLLOWING COMPANIES ENGAGED IN INFORMATION TECH NOLOGY ENABLED SERVICES AS A COMPARABLES, WITHOUT APPRECIA TING THAT THE SAID COMPANIES WERE FUNCTIONALLY COMPARABL E TO THE APPELLANT: ALLSEC TECHNOLOGIES LIMITED ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 4 OF 44 INFORMED TECHNOLOGIES LIMITED JINDAL INTELLICOM LIMITED CALIBER POINT BUSINESS SOLUTIONS LIMITED ACE BPO SERVICES PRIVATE LIMITED 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS ON REJECT ION OF FUNCTIONALLY DISSIMILAR COMPARABLE COMPANIES, ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LD. TPO ERRED BY INCORRECTLY COMPUTING THE MARGIN OF FOLLOW ING COMPARABLE COMPANIES: E-INFOCHIPS LTD THIRDWARE PERSISTENT SYSTEMS LIMITED TATA ELXSI LIMITED INFOSYS BPO MICROLAND LIMITED 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE LD. TPO I N REJECTING ~ THE TRANSFER PRICING ANALYSIS / STUDY PREPARED BY THE APPELLANT, WITHOUT APPRECIATING THAT NONE OF THE CO NDITIONS MENTIONED IN CLAUSES (A) TO (D) OF SECTION 92C(3) O F THE ACT WERE SATISFIED. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN CONSIDERING PROVISION FOR BAD AND DOUBTFUL DEBTS AS A NON- OPERATING EXPENDITURE WHILE COMPUTING THE PLI. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. TPO ERRED IN AND THE HON'BLE DRP FURTH ER ERRED IN UPHOLDING / CONFIRMING THE ACTION OF THE LD. TPO IN NOT ALLOWING WORKING CAPITAL ADJUSTMENT IN ACCORDANCE W ITH THE PROVISIONS OF RULE 10B OF THE INCOME-TAX RULES, 196 2 TO ACCOUNT FOR DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE APPELLANT, BEING A C APTIVE UNIT, AND THOSE UNDERTAKEN BY THE ALLEGED. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. AO ERRED IN NOT CONSIDERING THE FACT T HAT THE WORKING CAPITAL ADJUSTMENT EVALUATES THE OUTSTANDIN G RECEIVABLE IN A CONTROLLED SCENARIO VIS-A-VIS UNCON TROLLED SCENARIO AND THAT DIFFERENTIAL IMPACT OF WORKING CA PITAL OF THE APPELLANT VIS-A-VIS ITS COMPARABLES HAS ALREADY BEE N FACTORED IN THE PRICING/ PROFITABILITY OF THE APPEL LANT. AND HENCE, LEVYING INTEREST ON RECEIVABLES AMOUNTS TO D OUBLE ADJUSTMENT. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 5 OF 44 11. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMIT, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPE AL, AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL, SO AS TO ENABLE THE HON'BLE MEMBERS TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. THIS CASE WAS TAKEN UP FOR HEARING THROUGH VIRTU AL HEARING AND BOTH THE PARTIES WERE HEARD. AT THE TIM E OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. GRO UNDS 2 AND 4 RELATE TO THE ALP ADJUSTMENT OF THE INTERNATIONAL T RANSACTION FOR PROVIDING SOFTWARE DEVELOPMENT SERVICES (SDS IN SHO RT) WHILE GROUNDS 3 & 5 RELATES TO ALP ADJUSTMENT OF THE INTE RNATIONAL TRANSACTION FOR PROVIDING ITES SERVICES AND GROUND NO.6 RELATES TO BOTH SOFTWARE DEVELOPMENT SERVICES AND ITES, WHEREI N THE ASSESSEE IS SEEKING CORRECT COMPUTATION OF THE MARG INS OF THE COMPARABLE COMPANIES MENTIONED THEREUNDER. AS REGA RDS GROUND NOS.7 & 8, IT IS SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS THE SAME AND THEY ARE ACCORDINGLY REJECTED . 4. AS REGARDS THE TRANSACTION OF SOFTWARE DEVELOPME NT SERVICES OF RS.8,87,48,15,645/- IS CONCERNED, BRIEF FACTS ARE THAT THE ASSESSEE PROVIDED SOFTWARE DEVELOPMENT SERVICES RELATING TO EMPLOYER SERVICES TO ITS GROUP COMPANIES. IN ITS TP STUDY, THE ASSESSEE SELECTED 22 COMPANIES AS COMPARABLE TO THE ASSESSEE AND ARRIVED AT THE ARITHMETIC MEAN OF SUCH COMPARAB LES AT 9.73% AND SINCE THE MARGIN OF THE ASSESSEE WAS HIGHER AT 18%, IT REPORTED ITS TRANSACTIONS TO BE AT ALP. THE TPO, HO WEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION AND REJECTED ALL T HE COMPARABLES SELECTED BY THE ASSESSEE EXCEPT FOR FOUR COMPANIES I.E. (I) L&T INFOTECH; (II) MINDTREE LTD., (III) PERSISTENT SYST EMS LTD AND (IV) R.S. SOFTWARE (INDIA) LTD. THEREAFTER, HE PROCEEDE D TO SELECT THE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 6 OF 44 COMPARABLES FROM THE PROWERS AND CAPITALINE DATABAS ES AND SELECTED 13 COMPANIES AS COMPARABLE TO THE ASSESSEE WHOSE AVERAGE MARGIN WAS 35.44%. THE ASSESSEE OBJECTED TO THE COMPARABLES SELECTED BY THE TPO. THE ASSESSEE ALSO PROPOSED ADDITIONAL COMPARABLE COMPANIES. HOWEVER, THE TPO D ID NOT ACCEPT THE ASSESSEES CONTENTIONS, AND ARRIVED AT T HE FOLLOWING 12 COMPANIES AS COMPARABLES WHOSE AVERAGE MARGIN WAS 3 4.31%: S.NO COMPANY NAME OR OC OP OP/OC% 1 SQS INDIA BFSI LTD 2,00,60,78,494 1,64,09,33,805 36,51,44,689 22.25 2 T ATA EXISI LTD (SEG) 6,82,70,22,000 5,58,25,94,000 1,24,44,28,000 22.29 3 MINDTREE LTD 30,43,40,00,000 25,01,90,00,000 5,41,50, 00,000 21.64 4 RS SOFTWARE (INDI A) LTD 3,51,88,20,000 2,83,71,11,000 68,17,09,000 24.03 5 TECH MAHINDRA LTD (SEG.) 1,70,13,90,00,000 1,37,39,35,00,000 32,74,55,00,000 23.83 6 E - INFOCHIPS LTD 2,05,61,12,437 1,13,59,89,199 92,01,23,238 81. 00 7 LARSEN & TOUBRO INFOTECH LT D 45,48,03,71,882 36,66,51,02,339 8,81,52,69,543 24.04 8 CIGNITI TECHNOLOGIES LTD 55,62,98,162 43,58,38,603 12,04,59,559 27.64 9 INFOSYS LTD 44,65,00,0 0,000 3,27,41,00,00,000 1,19,04,00,00,000 36.36 10 PERSISTENT SYSTEMS LTD 11,85,11,70,000 8,71,00,90,000 3,14,10,80,000 36.06 11 INFOBEANS TECHNOLOGIES LTD 33,01,56,390 23,23,74,867 9,77,81,523 42.08 12 THIRDWARE SOLUTIONS LTD 2,06,75,74,000 1,37,37,08,000 69,38,66,000 50.51 AVERAGE 34.31 5. THEREAFTER, THE TPO ALSO OBSERVED THAT THERE WER E OUTSTANDING RECEIVABLES OF RS.30,55,85,989/- FROM T HE RELATED PARTIES. HE HELD THAT FOR THE RELEVANT A.Y, THE INT EREST ON THE OUTSTANDING RECEIVABLES IS AN INTERNATIONAL TRANSAC TION AND AFTER ALLOWING CREDIT PERIOD OF 30 DAYS, HE ADOPTED SBI P LR RATE AND PROPOSED AN ADJUSTMENT OF RS.57,71,844/- TOWARDS IN TEREST ON RECEIVABLES. IN ACCORDANCE WITH THE TPO ORDER, THE AO PROPOSED THE DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESS EE PREFERRED ITS OBJECTIONS TO THE DRP. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 7 OF 44 6. (I) IN SO FAR AS SOFTWARE DEVELOPMENT SERVICES I S CONCERNED, THE DRP DIRECTED EXCLUSION OF CERTAIN CO MPANIES I.E. SQS INDIA, BFSI LTD, TECH MAHINDRA AND CIGNTIC TECH NOLOGIES LTD FROM THE FINAL LIST OF COMPARABLES. IT ALSO CONFIRM ED THE DENYING OF THE WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT. (II) IN SO FAR AS THE ITES IS CONCERNED, THE DRP DI RECTED EXCLUSION OF ONLY ONE COMPANY I.E. BNR UDYOG LTD. IT ALSO CONFIRMED THE DENIAL OF WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENTS. (III) AS REGARDS INTEREST ON OUTSTANDING RECEIVABLE S, THE DRP CONFIRMED THE CREDIT PERIOD OF 30 DAYS GRANTED BY T HE TPO AND DIRECTED THE TPO TO ADOPT A REASONABLE RATE THAT CO ULD BE AVAILABLE TO THE ASSESSEE ON SHORT TERM DEPOSITS. 7. THUS, THE TPO PROPOSED THE ADJUSTMENT OF RS.75,36,53,673/-. 8. ON RECEIPT OF THE TP ORDER, THE DRAFT ASSESSMENT ORDER WAS PROPOSED BY THE AO TO BRING THIS AMOUNT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED ITS OBJECTIONS TO THE DRP. T HE DRP DIRECTED EXCLUSION OF 3 COMPANIES I.E. SQS INDIA BFSI LTD, T ECH MAHINDRA LTD, CIGNITI TECHNOLOGIES LTD FROM THE FINAL LIST O F COMPARABLES. AS REGARDS THE ADDITIONAL COMPANIES PROPOSED BY THE ASSESSEE AS COMPARABLE TO THE ASSESSEE, THE DRP ACCEPTED ONLY O NE COMPANY I.E. CG-VAK SOFTWARE & SOFTWARE EXPORTS LTD AS COMP ARABLE TO THE ASSESSEE. IT HOWEVER, DIRECTED THE TPO TO EXAMI NE WHETHER SAGAR SOFT INDIA LTD, SATISFIED THE FILTERS OTHER T HAN FUNCTIONAL ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 8 OF 44 SIMILARITY ADOPTED BY HIM. THUS, THE DRP HAS GRANTE D PARTIAL RELIEF TO THE ASSESSEE. 9. IN GROUNDS OF APPEAL NO.2 AND 4, THE ASSESSEE IS SEEKING EXCLUSION AND INCLUSION OF SOME COMPARABLE COMPANIES. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE ASSESSEE HAS RAISED ITS O BJECTIONS AGAINST 9 COMPANIES, THE ASSESSEE IS NOT OBJECTING TO MINDTREE LTD AND RS SOFTWARE (INDIA) LTD AS BEING COMPARABLE TO THE ASSESSEE. THEREFORE, THEIR COMPARABILITY IS NOT BEING CONSIDE RED AT THIS STAGE. THE OBJECTION OF THE ASSESSEE TO THE FOLLOWI NG COMPANIES ARE DEALT WITH AS UNDER: 10) E-INFOCHIPS LTD ASSESSEES OBJECTIONS: A) THIS COMPANY IS ENGAGED IN IT, ITES AND PRODUCTS (P HYSICAL) AND THE RELEVANT EXTRACT THE RELEVANT EXTRACT FROM PAGE 98 OF PAPER BOOK VOL UME 2 IS GIVEN BELOW: THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELO PMENT AND IT ENABLE SERVICES AND PRODUCTS WHICH IS CONSIDERED THE ONLY REPORTABLE BU SINESS SEGMENT AS PER ACCOUNTING STANDARD AS-17 SEGMENT REPORTING PRESCRIBED IN COMP ANIES ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 21(3C) (WHICH CONTINUES TO B E APPLICABLE IN TERMS OF GENERAL CIRCULAR 15/2013 DATED SEPT.13,2013 OF THE MINISTRY OF CORPORATE AFFAIRS IN RESPECT OF SECTION 133 OF THE COMPANIES ACT, 2013) AND OTHER R ELEVANT PROVISIONS OF THE COMPANIES ACT, 1956. THEREFORE, IT IS NOT FUNCTIONALLY COMPARABLE ON ACC OUNT OF MIXED SERVICES AND PRODUCTS. B) THE ANNUAL REPORT OF THIS COMPANY DOES NOT DISCLOSE THE SEGMENTED DETAILS AS IT IS NOT FUNCTIONALLY COMPARABLE AND THE RELEVANT EXTRACT FR OM PAGE 98 OF PAPER BOOK VOLUME 2 IS GIVEN BELOW: GEOGRAPHICAL SEGMENT 2013-14 2012-13 USA 1,625,751,612 1,64,583,858 INDIA 91,964,693 90,641,655 REST OF THE WORLD 338,396,132 225,872,410 TOTAL 2,056,112,437 1,481,097,923 C) THE COMPANY IMPORTS RAW MATERIAL AND CONVERTS THEM INTO ELECTRONIC BOARDS AND PRINTED CIRCUITS. THUS, THIS COMPANY IS ENGAGED IN PRODUCTION OF PHYSICAL PRODUCTS AND NOT IN SOFTWARE DEVELOPMENT SERVICES, EXCLUSIVELY. THE RELEVANT EXTRACT FROM PAGES 119,122 AND 123 OF PAPER BOOK VOLUME 2 ARE GIVEN BE LOW: REVENUE FROM SALE OF PRODUCTS 5,12,40,116 9,41,39,5 71 REVENUE FROM SALE OF SERVICES 200,48,72,321 138,69, 58,352 ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 9 OF 44 DETAILS OF RAW MATERIALS, SPARE PARTS AND COMPONENT S CONSUMED UNLESS OTHERWISE SPECIFIED ALL MONETARY VALUES ARE IN INR DETAILS OF RAW MATERIALS, SPARES AND COMPONENTS CONSUMED RAW MATERIALS CONSUMED (MEMBER) SUBCLASSIFICATION OF RAW MATERIALS, SPARE PARTS AND COMPONENTS CONSUMED (AXIS) IMPORTED MEMBERS INDIGENOUS MEMBER 1/4/2013 TO 31/03/2014 1/4/2012 TO 31/03/2013 1/4/2013 TO 31/3/2014 1/4/2-12 TO 31/03/2013 ADDITIONAL INFORMATION ON PROFIT AND LOSS A/C DETAILS OF RAW MATERIALS, SPARE PARTS AND COMPONENTS CONSUMED (ABSTRACT) DETAILS OF RAW MATERIALS, SPARE PARTS AND COMPONENTS CONSUMED (LINE ITEMS) VALUE CONSUMED 1,78,21,068 5,06,44,253 15,99,348 8,65,362 PERCENTAGE OF CONSUMPTION 91.76% 98.32% 8.24% 1.68% VALUE OF IMPORTS OF RAW MATERIALS 3,35,87,489 4,31,64,414 D) THIS COMPANY HAS REVENUE FROM INFORMATION CONSULTAN CY INR 29.70 CRORES AND THE RELEVANT EXTRACT FROM PAGE 123 OF PAPER BOOK VOLUME 2 IS GIVEN BELOW: REVENUE INFORMATION TECHNOLOGY CONSULTANCY: 29,70 ,84,153 35,70,87,748 HENCE, IT IS NOT A COMPARABLE. E) THIS COMPANY HAS INCURRED RESEARCH & DEVELOPMENT EX PENDITURE OF INR 2.34 CRORES AND THE RELEVANT EXTRACT PAGE 121 OF PAPER BOOK VOL UME 2 IS GIVEN BELOW: RESEARCH DEVELOPMENT EXPENDITURE: (F) 2,34,16,061 (G) 2,40,48,644 F) THIS COMPANY HAS REFLECTED INVENTORY OF PHYSICAL PR ODUCTS FOR INR 2.78 CRORES IN THE BALANCE SHEET. THE RELEVANT INFORMATION IS PROVIDED IN PAGES 28 AND 77 OF PAPER BOOK VOLUME 2. G) THIS COMPANY HAS INTERNALLY GENERATED INTANGIBLE AS SETS FOR A SUM OF INR 56.65 LAKHS. THE RELEVANT INFORMATION IS PROVIDED IN PAGE 65 OF PAPER BOOK VOLUME 2 H) THIS COMPANY HAS ABNORMAL PROFITS OF 81.91 % I) THE APPELLANT RELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS CONTENTION THAT FOR THE ABOVE REASONS, E-INFOCHIPS IS NOT COMPARABLE TO THE ASSESSEE. CASE LAWS VOLUME 5 AND 6: I.LABVANTAGE SOLUTIONS PVT. LTD. VS ACIT ITA NO. 92 7 & 2400/KO1!2017 II.REDKNEE (INDIA) TECHNOLOGIES PVT. LTD. ITA NO. 4 86/PUNE/20 16 III.METRIC STREAM INFOTECH (INDIA) PVT. LTD. VS AC IT IV. PCIT VS SAXO (INDIA) PVT. LTD. (PG 364 - PARA 1 0 & 10.2) [IT AT ORDER APPROVED BY DELHI HIGH COURT] V. CADENCE DESIGN SYSTEMS (I) (P) LTD. VS ACIT ITA NO. 6315 (DELHI) OF 2015 VI.INFOR INDIA PVT. LTD. VS DCIT IT A NO.2307/HYD/2 018 VII.KONY INDIA (P) LTD ITA NO. 2305/HYD/2018 ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 10 OF 44 VIII. SOFTWARE PARADIGM INFOTECH P LTD. - IT(TP)A N O. 994/BANG/20J6 DATED 15-2-2019 IX. ST -ERICSON INDIA P LTD - ITA 6247/DEL/20 14 11. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E FINDINGS OF THE TPO AND THE DRP ON THIS ISSUE. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SIMILAR OBJECTIONS WERE TAK EN BY OTHER COMPANIES CARRYING ON SIMILAR ACTIVITIES BEFORE THE TRIBUNAL FOR THE A.Y 2011-12 AND ALSO FOR A.Y 2014-15 AND THE TR IBUNAL HAD DIRECTED THE EXCLUSION OF E-INFOCHIPS LTD FOR THE V ERY SAME REASONS. FOR THE PURPOSE OF COMPLETENESS AND READY REFERENCE, THE RELEVANT PARAS OF THE RELEVANT DECISIONS OF THE COO RDINATE BENCHES AND THE DECISION OF THE HON'BLE DELHI HIGH COURT AR E REPRODUCED HEREUNDER: (1) ASSTT.CIT VS. LABVANTAGE SOLUTIONS (P) LTD (2018) 9 3 TAXMANN.COM 440 (KOLKATA-TRIB). PARA-7 REPRODUCED BELOW: 7. WITH REGARD TO ARM'S LENGTH COMPUTATION OF SOFTW ARE SERVICES, WE FIND THAT THE ASSESSEE HAD SOUGHT EXCL USION OF E- 1NFOCHIPS LTD FROM THE LIST OF FINAL CAMPARABLES FO R WHICH GROUND NO. 3 A. IS RAISED BY THE ASSESSEE. WE FIND THAT DURING THE ASST YEAR 2012- I 3, THE COMPANY AMALGAMATED ON E OF ITS WHOLLY OWNED SUBSIDIARY, NAMELY E-LNFOCHIPS BANGALO RE LTD W.E.F. 1.4.2011 WHICH IS EVIDENT FROM THE FACT REPO RTED IN THEIR ANNUAL REPORT FOR THE FINANCIAL YEAR 20 I I _ I 2 E NCLOSED IN PAGE 1 054 OF THE PAPER BOOK. PURSUANT TO THE SAID AMALG AMATION, E-LNFOCHIPS BANGALORE LTD'S FUNCTIONS, ASSETS AS WE LL AS RISKS TOO GOT MERGED WITH THAT OF E-LNFOCHIPS LTD W.E.F. 1.4.2011. WE FIND FROM THE NATURE OF BUSINESS MENTIONED IN THE B USINESS PROFILE OF THE SAID CAM PARABLE ENCLOSED IN PAGE 11 18 OF THE PAPER BOOK, THAT THE SAID COMPARABLE 'S ENGAGED IN IT, 1TES AND SALE OF PRODUCTS FOR WHICH SEGMENTAL INFORMATIO N IS NOT AVAILABLE. THE ASSESSEE HEREIN DOES NOT HAVE ITES. HENCE NO COMPARISON COULD BE MADE FOR WANT OF SEGMENTAL DATA . WE ALSO FIND [HAT THE CO-ORDINATE BENCH DECISION OF DE LHI TRIBUNAL IN THE CASE OF ALCATEL LUCENT INDIA LTD. V. DY. CIT .2016] 74 TAXMANN.COM 105 (DELHI-TRIB) DATED 24.8.2016 FOR TH E ASST YEAR 2011-12 HAD REJECTED THIS COMPARABLE FOR BEING ENGAGED IN DIVERSIFIED SERVICES AND FOR WANT OF INFORMATION OF SEGMENTAL DATA. WE FIND THAT THIS DECISION HAS BEEN APPROVED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF PCIT V. ALC ATEL LUCENT INDIA LTD. IN ITA NO. 515/2017, DATED 18.7.2017. TH E ID AR STATED THAT THE ID DRP IN ASST YEAR 2013-14 (I.E SU CCEEDING ASSESSMENT YEAR) HAD ACCEPTED THAT THE SAID COMPARA BLE IS NOT ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 11 OF 44 FUNCTIONALLY COMPARABLE WITH THE ASSESSEE'S PROFILE . WE FIND THIS FACT TO BE CORRECT FROM THE RECORD OF ASST YEA R 201314 WHICH IS ALSO BEFORE US ALONG WITH THIS APPEAL. HEN CE WE HAVE NO HESITATION IN HOLDING THAT E-INFOCHIPS LTD IS NO T FUNCTIONALLY COMPARABLE TO THE ASSESSEE AND ACCORDINGLY WE DIREC T THE ID TPO TO EXCLUDE THE SAME FROM THE FINAL LIST OF COMP ARABLES. ACCORDINGLY, THE GROUND NO. 3.4 RAISED BY THE ASSES SEE IS ALLOWED. ( 2 ) ITAT PUNE BENCH IN ITA NO.486/PUN/2016 DATED 29.6.2018 IN THE CASE OF REDKNEE (INDIA) TECHNOLOGIE S (P) LTD VS. DY. CIT 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT APPEAL, ASSESSEE IS MAINLY AGGRIEVED BY THE INCLUSION OF E-INFOCHIPS LIMITED A S COMPARABLE. IT IS ASSESSEE'S SUBMISSION THAT IF E-INFOCHIPS LIMITE D IS EXCLUDED, THEN INTERNATIONAL TRANSACTIONS WILL BE WITHIN THE ARMS LENGTH PRICE AND NO ADJUSTMENT TO THE ALP WOULD BE REQUIRE D. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS ENGAGED IN PROVIDI NG SOFTWARE DEVELOPMENT SERVICES ONLY TO IT'S ASSOCIATED ENTERP RISES (A.ES), WHO WERE LOCATED IN UNITED STATES. WE FIND THAT TPO HAS INCLUDED EINFOCHIPS LIMITED AS A COMPARABLE COMPANY TO ASSES SEE COMPANY ON THE DIRECTIONS OF DRP.THE ANNUAL REPORT OF E- INFOCHIPS LIMITED WHICH IS PLACED BY THE ASSESSEE I N THE PAPER BOOK REVEALS THAT EINFOCHIPS LIMITED IS ENGAGED IN DIVERSIFIED ACTIVITIES AND IS HAVING INCOME FROM SOFTWARE DEVEL OPMENT, HARDWARE MAINTENANCE, INFORMATION TECHNOLOGY CONSUL TANCY AND INFORMATION TECHNOLOGY SERVICES AND IS ALSO ENGAGED IN THE MANUFACTURING AND TRADING OF PRINTED ELECTRONIC CIR CUIT BOARDS. THE ANNUAL ACCOUNTS OF EINFOCHIPS LIMITED PLACED IN PAP ER BOOK ALSO REVEALS THAT IT IS ENGAGED IN TRADING AND MANUFACTU RING ACTIVITIES. IT IS ALSO A FACT THAT SEGMENTAL INFORMATION IN REL ATION TO THE VARIOUS ACTIVITIES OF THE E-INFOCHIPS LIMITED ARE N OT AVAILABLE IN THE ANNUAL REPORT. IN VIEW OF THE FACT ABOUT NON-AVAILA BILITY OF SEGMENTAL DATA WITH RESPECT TO THE VARIOUS ACTIVITI ES UNDERTAKEN BY IT, WE ARE OF THE VIEW THAT MARGINS OF E-INFOCHI PS LIMITED CANNOT BE APPLIED TO BENCHMARK THE INTERNATIONAL TR ANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH IT'S A.ES. WE FURTH ER FMD THAT IN CASE OF DCIT VS. M/S. PHILIPS INDIA LIMITED (SUPRA) AND NESS TECHNOLOGIES (INDIA) PRIVATE LINITED (SUPRA), WHICH WERE ALSO ENGAGED IN THE ACTIVITIES SIMILAR TO ASSESSEE (I.E. , PROVIDING SOFTWARE SERVICES TO ITS GROUP CONCERNS BASED ON TH E SPECIFICATIONS PROVIDED) IN A.Y. 2011-12, THE COORDINATE BENCH OF THE TRIBUNAL, WHILE DECIDING THOSE APPEALS DIRECTED THE EXCLUSION OF E-INFOCHIPS LIMITED AS A COMPARABLE COMPANY. IN VIEW OF THE AFO RESAID FACTS, WE ARE OF THE VIEW THAT EINFOCHIPS LIMITED CANNOT B E CONSIDERED AS COMPARABLE TO ARRIVE AT ARMS LENGTH PRICE AND TH EREFORE WE DIRECT ITS EXCLUSION FROM COMPARABLES. BEFORE US, I T IS ASSESSEE'S CONTENTION THAT IF EINFOCHIPS LIMITED IS EXCLUDED F ROM THE FINAL SET OF CORN PARABLES, THE MARGIN OF THE ASSESSEE WOULD FALL WITHIN 2: 5% RANGE VIS-A-VIS MARGIN OF THE RESIDUAL COMPARABL ES AND THUS IN VIEW OF PROVISO TO SEC.92C(2) OF THE ACT, NO ADDITI ON WOULD SURVIVE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 12 OF 44 AND THEREFORE EVEN OTHER GROUNDS RAISED WOULD BE RE NDERED INFRUCTUOUS. WE THEREFORE, DIRECT THE AO TO RE-COMP UTE THE MARGINS OF COMPARABLES BY EXCLUDING E-INFOCHIPS LTD FROM TH E LIST OF COMPARABLES AND THEREAFTER COMPUTE THE TP ADJUSTMEN T, IF ANY, IN THE HANDS OF THE ASSESSEE. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. (3 ) ITAT BANGALORE BENCH IN THE CASE OF METRIC STREAM INFOTECH (INDIA) (P) LTD, VS. ASSTT. CIT IN ITA NO.493/BANG/2016 DATED 10-07-2018 9 . AS FAR AS E-LNFOCHIPS LTD. IS CONCERNED, THIS TRIBU NAL IN THE CASE OF ELECTRONIC IMAGING INDIA PVT. LTD. SUPRA) VIDE PARA 9 OF ITS ORDER HAD HELD THAT THIS COMPANY WAS A SOFTWARE DEVELOPMENT AND IT ES PROVIDING COMPANY AND SOFTWARE DEVELOPMENT PRODUCT COMPANY. T HE TRIBUNAL HELD THAT NO SEGMENTAL DATA OF THIS COMPANY WAS AVAILABL E AND THEREFORE IT IS DIFFICULT TO COMPUTE THE OPERATING MARGIN FROM SOFT WARE DEVELOPMENT SERVICES AND THEREFORE THIS COMPANY SHOULD BE EXCLU DED FROM THE LIST OF COMPARABLE COMPANIES. 10. AS FAR AS ICRA TECHNO ANALYTICS LTD. IS CONCERN ED, THE TRIBUNAL IN THE CASE OF ELECTRONIC IMAGING INDIA (P) LTD. (SUP RA) VIDE PARA 10 OF ITS ORDER HELD THAT THIS COMPANY IS NOT FUNCTIONALLY CO MPARABLE WITH A COMPANY PROVIDING SOFTWARE DEVELOPMENT SERVICE. 11. AS FAR AS PERSISTENT SYSTEMS & SOLUTIONS LTD. I S CONCERNED, THIS TRIBUNAL IN THE CASE OF ELECTRONIC IMAGING INDIA PV T. LTD. (SUPRA) HELD THAT THIS COMPANY WAS NOT FUNCTIONALLY COMPARABLE AND IS ALSO ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS VIDE PARA 8 OF ITS ORDER. 12. IN VIEW OF THE AFORESAID DECISIONS ON THE COMPA RABILITY OF THE AFORESAID 4 COMPANIES, WE HOLD AND DIRECT EXCLUSION OF THE AFORESAID 4 COMPANIES FROM THE LIST OF COMPARABLE COMPANIES. TH E TPO IS DIRECTED TO COMPUTE THE ARITHMETIC MEAN OF COMPARABLE COMPANIES AFTER EXCLUDING THE 4 COMPANIES. (3) SAXO INDIA (P) LTD VS. ASSTT.CIT REPORTED IN (2016) 67 TAXMANN.COM 155. 10.1 THE TRANSFER PRICING OFFICER INCLUDED THIS CO MPANY IN THE LIST OF COMPARABLES. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NOT BE CONSIDERED AS A COMPARABLE, THE ASSES SEE CONTENDED THAT THERE WAS FUNCTIONAL DISSIMILARITY I NASMUCH AS THIS COMPANY WAS ENGAGED IN SOFTWARE DEVELOPMENT AN D IT ENABLED SERVICES AND ALSO PRODUCTS. THE TRANSFER PR ICING OFFICER OBSERVED THAT THE REVENUES OF THIS COMPANY FROM PRO DUCTS WAS ONLY 15% OF TOTAL REVENUE AND AT THE SAME QUALIFIED TO BE ELIGIBLE FOR COMPARISON. THE DRP DID NOT ALLOW ANY RELIEF. 10.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUA L REPORT OF THIS COMPANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PRO FIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTEN ANCE, ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 13 OF 44 INFORMATION TECHNOLOGY, CONSULTANCY ETC. REVENUE FR OM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHICH HAS BEE N CONSIDERED BY THE TRANSFER PRICING OFFICER HIMSELF AS SALE OF PRODUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVE NUE FROM SALE OF PRODUCTS AND REVENUE FROM SOFTWARE DEVELOPMENT S EGMENT. AS THE ASSESSEE IS SIMPLY ENGAGED IN RENDERING SOFTWAR E DEVELOPMENT SERVICES AND THERE IS NO SALE OF ANY SO FTWARE PRODUCTS, THIS COMPANY, IN OUR CONSIDERED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCTS AND SOFT WARE SERVICES, ONE CANNOT DEDUCE THE REVENUE FROM SOFTWARE SERVICE S AND NO ONE KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OV ERALL KITTY OF PROFIT, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTA L DATA OF THIS COMPANY IS AVAILABLE INDICATING OPERATING PROFIT FR OM SOFTWARE DEVELOPMENT SERVICES, WE ORDER TO EXCLUDE THIS COMP ANY FROM THE LIST OF COMPARABLES. (5) DELHI HIGH COURT IN THE CASE OF PR.CIT VS. SAXO INDI A LTD IN ITA NO.682/2016 DATED 28.09.2016. 4. THE ASSESSEE APPEALED TO THE ITAT, WHICH UPON I TS DETAILED CONSIDERATION OF THE MATERIALS, ACCEPTED THE PLEA W ITH RESPECT TO FOUR COMPARABLES AND DIRECTED THAT THEY SHOULD BE E XCLUDED. THE ASSESSEES CONTENTION WITH RESPECT TO E-INFOCHIPS, PERSISTENT SYSTEMS & SOLUTIONS LTD, LARSEN & TOUBRO INFOTECH L TD AND SASKEN COMMUNICATIONS TECHNOLOGIES LTD WERE ACCEPTE D. THE REVENUE IS AGGRIEVED BY THESE AS WELL AS EXCLUSION OF WIPRO TECHNOLOGY SERVICES LIMITED. 5. IT IS ARGUED ON BEHALF OF THE REVENUE THAT THE R ATIONALE ADOPTED BY THE IT AT WITH RESPECT TO LACK OF SEGMENTAL DATA VIS-A-VIS FOUR OF THE COMPARABLES IS CONTRARY TO THE RECORDS. LEAR NED COUNSEL HIGHLIGHTED THAT WITH RESPECT TO EACH OF THE FOUR C OMPANIES, I.E. E- INFOCHIPS, LARSEN AND TOUBRO INFOTECH LTD., PERSIST ENT SYSTEMS & SOLUTIONS LTD. AND SAKEN COMMUNICATIONS TECHNOLOGIE S LTD., THE DOCUMENTARY EVIDENCE PERTAINING TO EACH OF THEM IN THE FORM OF ANNUAL REPORTS AND OTHER MATERIAL COLLECTED FROM IN TERNET RESOURCES WERE ANALYSED ELABORATELY. ON THE BASIS O F THESE, THE TPO WAS ABLE TO ACCURATELY SEGREGATE THE VOLUME OF TRANSACTIONS ALLOCABLE TO SOFTWARE PRODUCT SALES AS OPPOSED TO S OFTWARE TECHNOLOGY SERVICES. IN THESE CIRCUMSTANCES, THE AR GUMENT ABOUT LACK OF SEGMENTAL DATA COULD NOT HAVE BEEN A BROAD BRUSH REASONING BY THE ITAT TO REJECT THE COMPARABLES WHI CH OTHERWISE INDICATED HIGH PROFIT MARGINS. IT WAS ALSO CONTENDE D THAT APART FROM THIS, THERE IS NO REASON WORTHWHILE FOR THE EX CLUSION OF WIPRO TECHNOLOGY SERVICES LIMITED ON THE LIST OF COMPARAB LES. 10. ON A COMPARISON WITH THE DATA AVAILABLE AND MAD E AVAILABLE. UNDOUBTEDLY, THE OBJECT OF THE STATUTE IS TO 'PULL IN TRANSACTIONS WHICH OTHERWISE ESCAPED THE RADAR OF TAX ASSESSMENT UNDER ONE HEAD OR THE OTHER. THE TRANSFER PRICING METHODOLOGY - SHORN OF ITS ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 14 OF 44 DETAILS IS AN ATTEMPT BY EACH NATION TO LOCATE THE INCIDENTS OF INCOME WHICH WOULD BE SUBJECTED TO LEVY WITHIN ITS JURISDICTION WHERE INTERNATIONAL TRANSACTIONS ARE INVOLVED. THIS EXERCISE DOES NOT COMPARE WITH OTHER INCOME ASSESSMENTS WHERE THE METHODOLOGY ADOPTED IN THEIR DOMESTIC JURISDICTION WILL DIFFER'. THE TNMM METHOD DEPENDS ON ACCURATE DATA WITH RESPECT T O ALL THE THREE ELEMENTS - WHEREVER THEY APPLY. IN THE COMPAR ABLE UNCONTROLLED PRICE (CUP) METHOD - WHICH IS PREMISED UPON THE ELEMENTS IN RULE 10B(1)(A), THE METHODOLOGY ADOPTED IS THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER OR SERVICES P ROVIDED IN THE COMPARABLE UNCONTROLLED TRANSACTION. THEREFORE, THE NATURE OF THE TRANSACTION AND THE APPROPRIATE FILTER DETERMINES T HE ELEMENTS THAT ARE TO BE CONSIDERED IN TNMM. THEREFORE, THE C OSTS, SALES AND ASSETS EMPLOYED WHEREVER RELEVANT ARE TO BE APPLIED . FROM THIS PERSPECTIVE, THE REVENUE'S CONTENTION THAT SEGMENTA L DATA WAS AVAILABLE, CANNOT BE ACCEPTED. THE MERE AVAILABILIT Y OF PROPORTION OF THE TURNOVER ALLOCABLE FOR SOFTWARE PRODUCT SALE S PER SE CANNOT LEAD TO AN ASSUMPTION THAT SEGMENTAL DATA FOR RELEV ANT FACTS WAS AVAILABLE TO DETERMINE THE PROFITABILITY OF THE CON CERNED COMPARABLE. (6) ITAT DELHI BENCH IN THE CASE OF CADENCE DESIGN S YSTEMS (I) (P) LTD VS. ASSTT.,CIT (2018) 93 TAXMANN.COM 22 7 (DELHI). PARA 38 . FOR SIMILAR REASONS STATED ABOVE, WE ARE OF THE CON SIDERED OPINION THAT IN SO FAR AS THE ASSESSEE IS A CAPTIVE SOFTWAR E DEVELOPMENT SERVICE PROVIDER, M/S. E-0-INFOCHIPS LTD IS NOT A G OOD COMPARABLE AND WHILE UPHOLDING THE STAND OF THE ASSESSEE, WE D IRECT THE LIBRARY EVER TO DELETE THIS FROM THE LIST OF COMPAR ABLES. (7) ITAT HYDERABAD BENCH IN THE CASE OF M/S. INFOR I NDIA (P) LTD IN ITA NO.161 AND 2307/HYD/2018 DATED 6.8.2019 PARA 85. 85. AS REGARDS E-INFOCHIPS LTD IS CONCERNED, THE CO NTENTION OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DIFFERENT AS IT IS ENGAGED TO SOFTWARE DEVELOPMENT OF SOFTWARE PRODUCTS AND ITES AND THAT THERE IS NO SEGMENTAL DATA. THE TPO & DRP HAVE REJECTED THE OBJ ECTIONS OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO THE DISCLOSURE OF SEGMENTS EXPLANATORY WHEREIN THE COMP ANY HAS DISCLOSED ITSELF AS PRIMARILY ENGAGED IN SOFTWARE D EVELOPMENT AND ITES SERVICES AND PRODUCTS, AS REPORTABLE AS PER AS 17. FURTHER, AT PAGE 897, THERE IS AN INVENTORY IN THE BALANCE SHEE T AND AT PAGE 899 THERE IS CLASSIFICATION OF INVENTORIES. HOWEVER, WE DO NOT FIND ANY REVENUE FROM SALE OF PRODUCTS. THEREFORE, IT CANNOT BE ACCEPTED THAT THIS COMPANY IS INTO PRODUCT DEVELOPMENT. THE OTHER OBJECTION OF THE ASSESSEE IS THAT IT HAS ABNORMAL PROFIT OF 79.76% D URING THE RELEVANT A.Y AND THEREFORE, IT HAS WITNESSED SUPER NORMAL PR OFIT OF 38% ON A ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 15 OF 44 YEAR ON YEAR BASIS. THIS OBJECTION OF THE ASSESSEE IS ACCEPTABLE BECAUSE, IN THE OTHER CASES OF INFOSYS LTD, L&T INF OTECH LTD AND MINDTREE LTD, WE HAVE HELD THAT NOT ONLY HIGH TURNO VER BUT EVEN WHERE THE COMPARABLES HAVE EARNED SUPER NORMAL PROF IT, THEY ALSO HAVE TO BE EXCLUDED. RESPECTFULLY FOLLOWING THE SAM E, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. THUS, THE ASSESSEE'S GROUNDS OF APPEAL ON EXCLUSION OF TH E COMPANIES ARE PARTLY ALLOWED. 13. WE FIND THAT THE ACTIVITIES OF E-INFOCHIPS LTD ARE THE SAME FOR THE A.YS 2011-12 AND 2014-15. THEREFORE, T HE ABOVE DECISIONS ARE CLEARLY APPLICABLE TO THE A.Y BEFORE US. THUS, RESPECTFULLY FOLLOWING THE DECISIONS OF THE COORDIN ATE BENCHES ABOVE, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FR OM THE FINAL LIST OF COMPARABLES. 14. THIRDWARE SOLUTIONS: ASSESSEE MAKES THE FOLLOWING SUBMISSIONS TO DEMONSTRATE THAT THIRDWARE SOLUTION IS NOT A PROPER COMPARABLE TO IT. A) IT IS FUNCTIONALLY DISSIMILAR AS IT IS ENGAGED IN S ALE OF PRODUCTS FOR INR 206.75 CR AND THE RELEVANT EXTRACT FROM PAGE 400 OF PAPER BOOK VOLUME 2 IS GIVEN BELOW: (REVENUE FROM SALE OF PRODUCTS: 20,675.74 13,225 .84) B) THIRDWARE SOLUTION IS ENGAGED IN SOFTWARE DEVELOPME NT SERVICES, CONSULTANCY AND SOFTWARE PRODUCTS, WHEREA S THE ASSESSEE RENDERS ONLY SOFTWARE DEVELOPMENT SERVICES . THE RELEVANT EXTRACT FROM PAGE 320 OF PAPER BOOK VOLUME 2 IS GIVEN BELOW: DETAILS OF MATERIAL CHANGES OCCURRED DURING PERIOD AFFECTING COMPANYS BUSINESS OPERATIONS. 1. CORPORATE INFORMATION THIRD WARE SOLUTIONS LTD (THE COMPANY) IS A PUBLIC COMPANY DOMICILED IN INDI A AND INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. TH IS COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND CONSULTANCY ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 16 OF 44 SERVICES. THE COMPANY CATERS TO BOTH DOMESTIC AND I NTERNATIONAL MARKETS. C) IN THE ANNUAL REPORT, THERE ARE NO SEGMENTAL DETAIL S BETWEEN SOFTWARE SERVICES AND SOFTWARE PRODUCTS AND THE REL EVANT EXTRACT FROM PAGE 382 OF PAPER BOOK VOLUME 2 IS GIV EN BELOW: THE COMPANYS OPERATION COMPRISES OF SOFTWARE DEVE LOPMENT, IMPLEMENTATION AND SUPPORT SERVICES. PRIMARY SEGMENTAL REPORTING IS BASED ON GEOGRAPHICA L AREAS, VIZ., DOMESTIC = INDIA (PRODUCT AND SERVICES) AND INSTITU TIONAL = REST OF THE WORLD EXPORTS -SOFTWARE SERVICES). IN PRIMARY SEGMENT, REVENUE AND ALL EXPENSES, WHICH RELATES TO A PARTICULAR GEOGRAPHICAL SEGMENT, ARE REPORTED. FIXE D ASSETS, CURRENT ASSETS, LOANS AND ADVANCES, CURRENT LIABILITIES AND PROVISIONS ARE CLASSIFIED BASED ON SPECIFIC GEOGRAPHICAL SEGMENTS BUSINESS. THE COMPANY MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR THE REPORTED SEGMENTS. WHEREVER THE COSTS ARE DIRECTLY IDENTIFIABLE WITH T HE REPORTED SEGMENT, IT HAS BEEN BOOKED TO THAT SEGMENT. WHEREVER COMMON EX PENSES ARE INCURRED, THOSE EXPENSES HAVE ALREADY BEEN CONSIDER ED FOR ALLOCATION AND RELEVANT ENTRIES IN THE BOOKS OF ACCOUNT HAVE B EEN PASSED. HENCE THERE ARE NO UNALLOCABLE EXPENSES. FURTHER, CASH, INVESTMENT (NET OF PROVISION) AND BA NK BALANCES ARE REPORTED AT THE ENTERPRISE LEVEL. CURRENT ASSETS AN D CURRENT LIABILITIES RELATING TO THE SPECIFIC BUSINESS SEGMENTS ARE IDEN TIFIED AND REPORTED. THOSE, WHICH ARE NOT IDENTIFIABLE, ARE REPORTED AS COMMON ASSETS/LIABILITIES D) DURING THE YEAR, THIRDWARE HAD NO SALES FROM THE SO FTWARE SERVICES AND THE RELEVANT EXTRACT FROM PAGE 400 OF PAPER BOK VOLUME 2 IS GIVEN BELOW. REVENUE FROM SALE OF SERVICES 0 0 E) DURING THE YEAR, THIS COMPANY WAS ENGAGED IN THE TR ADING OF SOFTWARE PRODUCTS AND PURCHASED PRODUCTS FOR A SUM OF INR 40.21 CR AS GIVEN BELOW: PURCHASE OF STOCK-IN-TRADE 4,021.19 2 ,482.34 F) THIRDWARE SOLUTIONS HAS TRANSFERRED ITS SOFTWARE PR ODUCTS ON LICENSE BASIS AND DURING THE YEAR, IT HAS EARNED REVENUE OF INR 7.98 LAKHS FROM SALE OF LICENSES AND ALSO DE RIVED REVENUE FROM TRAINING AND SUBSCRIPTION FOR INF 59.3 2 LAKHS. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 17 OF 44 G) THIRDWARE COMPANY ALSO DEVELOPS INTANGIBLES AND THE RELEVANT EXTRACT FROM PAGES 375 OF PAPER BOOK VOL.2 IS GIVEN BELOW: INTANGIBLE ASSETS INTERNALLY DEVELOPED BY THE COMP ANY ARE CAPITALIZED AT THE TOTAL COST ATTRIBUTABLE TOWARDS THE DEVELOPM ENT OF THE PRODUCT AND IS AMORTISED ON THE STRAIGHT LINE METHOD OVER ITS E STIMATED USEFUL LIFE OF THREE YEARS, AS PERCEIVED BY THE MANAGEMENT . H) THIRDWARES PROFIT AND LOSS A/C REFLECTS INR 7.58 L AKHS PAID TO SELLING AGENTS WHICH ESTABLISHES THE FACT THAT T HIRDWARE IS SELLING PRODUCTS. I) EXCLUDED IN OWN CASE THIRDWARE SOLUTIONS WAS EXCL UDED IN THE EARLIER YEARS ORDER OF THE TRIBUNAL IN OWN C ASE OF ADP. ITA NO.471/HYD/2011 PAGE 10 AND 17 OF THE ITAT O RDER: 9. AFTER CONSIDERING THE SUBMISSIONS ON EITHER SIDE AND EXAMINING THE MATERIALS ON RECORD, WE FIND THAT THE ISSUE RELATIN G TO COMPARABILITY OF AFORESAID COMPANIES OBJECTED BY ASSESSEE ARE COVERE D BY VARIOUS DECISIONS OF DIFFERENT BENCHES OF THE TRIBUNAL FOR THE VERY SAME AY. IN CASE OF NESS INNOVATIVE BUSINESS PVT. LTD. VS. DY.C IT IN ITA NO. 472 TO 553 AND 1175/HYDL2011, DATED 18/06/14 COORDINATE BENCH REJECTED BODH TREE CONSULTING LTD . EXENSYS SOFTWARE SOLUTIONS LTD., SANKHYA INFOTECH L TD., FOURSOFT LTD.. THIRDWARE SOLUTIONS LTD. TATA ELXSI LTD. AND INFOSYS TECHNOLOGIES LTD. BY OBSERVING AS UNDER: IN VIEW OF THE AFORESAID, ACCEPTING THE SUBMISSION S OF LEARNED AR, WE DIRECT AO/TPO TO EXCLUDE AFORESAID COMPANIES FROM T HE LIST OF COMPARABLES. THIS GROUND OF ASSESSEE IS ALLOWED. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIONS T HAT THIS COMPANY HAS TO BE EXCLUDED: (I) INFOR GLOBAL SOLUTIONS (INDIA) PVT. LTD. (II) CIT VS INTOTO SOFTWARE INDIA (P) LTD. (III) CIT VS DE SHAW INDIA SOFTWARE (P) LTD. (IV) PCIT VS T ERRICSON INDIA (P) LTD. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 18 OF 44 (V) INTOTO SOTWARE INDIA (P) LTD VS ITO (VI) PLANET ONLINE (P) LTD. (VII) DIALOGIC NETWORK (INDIA) (P) LTD. (VIII) PUBMATIC INDIA (P) LTD. (IX) INFOR INDIA PVT. LTD. VS DCIT ITA NO.2307/HYDI 2018 (X) KONY INDIA (P) LTD ITA NO. 2305/HYD/2018 15. THE LEARNED DR, HOWEVER, RELIED UPON THE FINDIN GS OF THE TPO AS WELL AS THE DRP AND PRAYED THAT THIS COM PANY BE HELD AS COMPARABLE TO THE ASSESSEE. 16. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IN THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEES THEREIN HAD ALSO RAISED SIMILAR OBJECTIONS AND THE TRIBUNAL HAS HELD THIRDW ARE SOLUTIONS TO BE NOT COMPARABLE TO THE ASSESSEE. WE FIND THAT THE ASSESSEE BEFORE US IS CARRYING ON SIMILAR ACTIVITIES AS THE COMPANIES IN THOSE CASES AND THEREFORE, THE DECISIONS TAKEN BY T HE TRIBUNAL IN THOSE CASES ARE APPLICABLE TO THE ASSESSEE BEFORE U S. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARAS OF THE TRIBU NAL ORDERS ARE REPRODUCED HEREUNDER: (1) ITA NO.520/MUM/2012 INFOR GLOBAL SOLUTIONS LTD VS. DY.CIT XI) THIRDWARE SOLUTIONS LTD. 36. THIS COMPANY WAS SELECTED BY THE TRANSFER PRIC ING OFFICER AND RETAINED BY THE DRP. OBJECTING TO THE SELECTION OF THE AFORESAID COMPANY AS A COMPARABLE, THE LEARNED AUTH ORISED REPRESENTATIVE SUBMITTED THAT THIS COMPANY IS INVOL VED IN THE ACTIVITIES OF SOFTWARE DEVELOPMENT SERVICES AS WELL AS DEVELOPMENT OF PRODUCT. HOWEVER, NO SEGMENTAL DETAI LS ARE AVAILABLE. THUS, HE SUBMITTED THAT THIS COMPANY CAN NOT BE TREATED AS A COMPARABLE. IN SUPPORT OF SUCH CONTENT ION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE F OLLOWING DECISIONS: - ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 19 OF 44 I) ACIT VS. TECH MAHINDRA LTD., [2018) 91 TAXMANN.C OM 329; II) NESS INNOVATIVE BUSINESS SERVICES PVT. LTD. VIS DCIT, [2014) 151 ITD 190; III) LSI TECHNOLOGIES INDIA PVT. LTD. VIS ITO, [201 5) 60 TAXMANN.COM 405; IV) PCIT VIS S. T. ERICSSON INDIA PVT. LTD. ITA NO. 821/2017, DATED 31.01.2018; V) S. T. ERICSSON INDIA PVT. LTD. VIS ACIT, ITA NO. 1672/DEL./ 2014; VI) DIALOGIC NETWORKS INDIA PVT. LTD. VIS ACIT, ITA NO. 7280/MUM/ 2012, DATED 27.07.2018; AND VII) ACCENTURE SERVICES PVT. LTD. VIS ACIT, [2018) 96 TAXMANN.COM 400 37. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED, BEFORE THE TRANSFER PRICING OFFICER THE ASSESSEE HAS NOT O BJECTED TO THE SELECTION OF THIS COMPANY AS A COMPARABLE. HE SUBMI TTED, ONLY IN SUBSEQUENT STAGES, THE ASSESSEE HAS OBJECTED TO SEL ECTION OF THE AFORESAID COMPANY BY RAISING NEW GROUNDS. HE SUBMIT TED, SINCE THE ISSUE OF DEVELOPMENT OF PRODUCT BY THIS COMPANY AND UNAVAILABILITY OF SEGMENTAL DETAILS, WERE NOT RAISE D BEFORE THE TRANSFER PRICING OFFICER, IT REQUIRES VERIFICATION. 38. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. THOUGH, IT MAY BE A FACT THAT THE ASSESS EE MAY NOT HAVE OBJECTED TO SELECTION OF THIS COMPANY BEFORE T HE TRANSFER PRICING OFFICER, HOWEVER, THE ASSESSEE RAISED OBJEC TIONS AGAINST SELECTION OF INFOR GLOBAL SOLUTIONS INDIA PVT. LTD. THIS COMPANY BEFORE THE DRP AS WELL AS BEFORE US. THE GRIEVANCE OF THE ASSESSEE IS, THE COMPANY BEING INVOLVED IN DEVELOPM ENT OF PRODUCTS AND SINCE NO SEGMENTAL DETAILS ARE AVAILAB LE IN THE ANNUAL REPORT, IT CANNOT BE TREATED AS COMPARABLE. THE CO- ORDINATE BENCH IN TECH MAHINDRA LTD. (SUPRA) HAVING FOUND THIS COMPANY TO BE INVOLVED IN DEVELOPMENT OF SOFTWARE P RODUCT AND TRADING IN SOFTWARE LICENSES HAS HELD THAT IT CANNO T BE A COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVID ER. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OTHER DECISIONS CITE D BEFORE US BY THE LEARNED AUTHORISED REPRESENTATIVE. SINCE, MANY OF THESE DECISIONS RELATE TO VERY SAME ASSESSMENT YEAR, FOLL OWING THE RATIO LAID DOWN IN THESE DECISIONS, WE HOLD THAT TH IS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. (2) ITA NOS.1196 & 1197/HYD/2010 - INTOTO SOFTWARE INDIA PRIVATE LTD. VS. ACIT 23. THE OTHER COMPANIES WHICH ARE OBJECTED TO BY TH E ASSESSEE ARE FLEXTRONICS SOFTWARE LIMITED, FOURSOFT LIMITED AND THIRDWARE SO FTWARE SOLUTION LIMITED. AS FAR AS THESE THREE COMPANIES ARE CONCERNED, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THEY ARE INTO BOTH SOFTWARE AS WELL AS PRODUCT DEVELOPMENT. HE SUBMITTED THAT T HE TPO HAS TAKEN NOTE OF THE FACT THESE COMPANIES ARE ALSO INTO PRODUCT DEVE LOPMENT BUT HAS SELECTED THESE COMPANIES AS COMPARABLES BY APPLYING THE FILT ER OF MORE THAN 70% OF ITS REVENUE BEING FROM SOFTWARE DEVELOPMENT SERVICES. T HE LEARNED COUNSEL ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 20 OF 44 SUBMITTED THAT THE FUNCTIONS OF THESE COMPANIES ARE DIFFERENT FROM THE ASSESSEE WHO WAS INTO SOLE ACTIVITY OF SOFTWARE DEVELOPMENT FOR ITS ASSOCIATED ENTERPRISE. HE SUBMITTED THAT THE TPO HAS ALLOCATED THE EXPENDITURE IN THE PROPORTION OF THE REVENUE OF THESE COMPANIES FROM S OFTWARE SERVICES AND SOFTWARE PRODUCTS AND HAS ADOPTED THE FIGURE AS SEG MENTAL MARGIN OF THE COMPANY AND HAS TAKEN THESE COMPANIES AS COMPARABLE S. HE SUBMITTED THAT BY TAKING THE PROPORTIONATE EXPENDITURE, THE CORREC T FINANCIAL RESULTS WOULD NOT EMERGE. HE SUBMITTED THAT NOTHING PREVENTED THE ASSESSING OFFICER/TPO FROM OBTAINING THE SEGMENTAL DETAILS FROM THE RESPE CTIVE COMPARABLE COMPANIES BEFORE ADOPTING THEM AS COMPARABLE COMPAN IES AND BEFORE TAKING THE OPERATING MARGIN FOR ARRIVING AT THE ARMS LENGT H PRICE. HE SUBMITTED THAT WHEREVER THE SEGMENTAL DETAILS ARE NOT AVAILABLE, T HEN THE SAID COMPANIES SHOULD NOT BE TAKEN AS COMPARABLES. FOR THIS PURPOS E, HE PLACED RELIANCE UPON THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF FIRST ADVANTAGE OFFSHORE SERVICES PVT. LTD. VS. DY. DCIT IN ITA.NO. 1252/BANG/2010 WHEREIN THESE COMPANIES WERE DIRECTED TO BE EXCLUDED FROM T HE LIST OF COMPARABLES. 24. THE LEARNED D.R. HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 25. HAVING HEARD BOTH THE PARTIES AND HAVING GONE T HROUGH THE MATERIAL ON RECORD, WE FIND THAT THE TPO AT PAGE 37 OF HIS ORDE R HAS BROUGHT OUT THE DIFFERENCES BETWEEN A PRODUCT COMPANY AND A SOFTWAR E DEVELOPMENT SERVICES PROVIDER. THUS, IT IS CLEAR THAT HE IS AWARE OF THE FUNCTIONAL DISSIMILARITY BETWEEN A PRODUCT COMPANY AND A SOFTWARE DEVELOPMEN T SERVICE PROVIDER. HAVING TAKEN NOTE OF THE DIFFERENCE BETWEEN THE TWO FUNCTIONS, THE ASSESSING OFFICER OUGHT NOT TO HAVE TAKEN THE COMPANIES WHICH ARE INTO BOTH THE PRODUCT DEVELOPMENT AS WELL AS SOFTWARE DEVELOPMENT SERVICE PROVIDER AS COMPARABLES UNLESS THE SEGMENTAL DETAILS ARE AVAILA BLE. EVEN IF HE HAS ADOPTED THE FILTER OF MORE THAN 75% OF THE REVENUE FROM THE SOFTWARE SERVICES FOR SELECTING A COMPARABLE COMPANY, HE OUGHT TO HAV E TAKEN THE SEGMENTAL RESULTS OF THE SOFTWARE SERVICES ONLY. THE PERCENTA GE OF EXPENDITURE TOWARDS THE DEVELOPMENT OF SOFTWARE PRODUCTS MAY DIFFER FRO M COMPANY TO COMPANY AND ALSO IT MAY NOT BE PROPORTIONATE TO THE SALES F ROM THE SALE OF SOFTWARE PRODUCTS. UNDER SECTION 133(6) OF THE I.T. ACT , THE TPO HAS THE POWER TO CALL FOR THE NECESSARY DETAILS FROM THE COMPARABLE COMPA NIES. IT IS SEEN THAT THE ASSESSING OFFICER/TPO HAS EXERCISED THIS POWER TO C ALL FOR DETAILS WITH REGARD TO THE VARIOUS COMPANIES. AS SEEN FROM THE ANNUAL R EPORT OF FOURSOFT LIMITED WHICH IS REPRODUCED AT PAGE 7 OF THE TPO'S ORDER, T HE SAID COMPANY HAS DERIVED INCOME FROM SOFTWARE LICENCE ALSO AND AMCS. 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED I S CONCERNED, WE FIND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELOPMENT, THERE ARE NO SOFT RWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINANCIAL YEAR AND THE FINANCIAL RESULTS ARE IN RESPECT OF SERVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO SALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMP ANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 27. AS FAR AS FLEXITRONICS SOFTWARE LIMITED IS CONC ERNED, WE FIND THAT AT PAGE 90 OF HIS ORDER, THE TPO HAS ALSO OBSERVED THAT THE SAID COMPANY HAS INCURRED EXPENDITURE FOR SELLING OF PRODUCTS AND HA S INCURRED R & D EXPENDITURE FOR DEVELOPMENT OF THE PRODUCTS. THE AB OVE FACTS CLEARLY DEMONSTRATE THAT THERE IS FUNCTIONAL DISSIMILARITY BETWEEN THE ASSESSEE AND ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 21 OF 44 THESE COMPANIES AND WITHOUT MAKING ADJUSTMENT FOR T HE DISSIMILARITIES BROUGHT OUT BY THE TPO HIMSELF, THESE COMPANIES CAN NOT BE TAKEN AS COMPARABLE COMPANIES. THE METHOD ADOPTED BY THE TPO TO ALLOCATE EXPENDITURE PROPORTIONATELY TO THE SOFTWARE DEVELOP MENT SERVICES AND SOFTWARE PRODUCT ACTIVITY CANNOT BE SAID TO BE CORR ECT AND REASONABLE. WHEREVER, THE ASSESSING OFFICER/TPO CAN NOT MAKE SUITABLE ADJUSTMENT TO THE FINANCIAL RESULTS OF THE COMPARAB LE COMPANIES WITH THE ASSESSEE- COMPANY TO BRING THEM ON PAR WITH THE ASS ESSEE, THESE COMPANIES ARE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. TH EREFORE, WE DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE THESE THREE COMPAN IES FROM THE LIST OF COMPARABLES. (3) ITA NO.2071/HYD/2011 - M/S. CNO IT SERVICES (IN DIA) P) LTD VS. ACIT 27. FLEXTRONICS SOFTWARE LIMITED AND THIRDWARE SOFT WARE SOLUTIONS LIMITED:- THE ASSESSEE HAS OBJECTED TO TH ESE TWO COMPANIES TO BE TREATED AS COMPARABLE MAINLY ON THE GROUND THAT BOTH THESE COMPANIES ARE INTO PRODUCT DEVELOPMENT. WE FIND THAT IN CASE OF INTOTO SOFTWARE INDIA (P) LTD. (<;UPRA) THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAVING FOUND THAT THESE TWO COMPANIES ARE FUNCTIONALLY DIFFERENT AS THEY ARE INTO PRODUCT DEVELOPMENT HAS DIRECTED EXCLUDING THESE COMPANIES TOR COMPARAB ILITY ANALYSIS. RESPECTFULLY FOLLOWING THE DECISION OF TH E COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF INTOTO SOFTWARE I NDIA (P) LTD. (SUPRA) WE ALSO DIRECT THE ASSESSING OFFICER/TPO TO EXCLUDE BOTH THESE COMPANIES. (4) ITAT DELHI BENCH (2017) 79 TAXMANN.COM 207 ST .ERICSSON INDIA (P) LTD VS. ADDL. CIT THIRD WARE SOLUTIONS LIMITED 47. THIS IS AGAIN TPO'S OWN COMPARABLE AND ASSESSEE SOUGHT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES O N THE GROUND OF NON-COMPARABLE SERVICES I.E APPLICATION IMPLEMEN TATION, MANAGEMENT AND DEVELOPMENT SERVICES. TPO REJECTED O BJECTIONS RAISED BY THE ASSESSEE BY OBSERVING THAT SOFTWARE D EVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES ARE VARIOUS SUB SEGMENTS OF SOFTWARE DEVELOPMENT SERVICES ONLY AND REQUIRE EMPL OYMENT OF SOFTWARE ENGINEERS AND RETAINED THIS COMPANY AS A C OMPARABLE FOR BENCHMARKING INTERNATIONAL TRANSACTIONS. 48. HOWEVER, PERUSAL OF THE ANNUAL REPORT OF THIS C OMPANY, AVAILABLE AT PAGE 1735 TO 1782 OF THE PAPER BOOK VO L.IV, GOES TO PROVE THAT THE SUBSTANTIAL REVENUE OF THIS COMPANY IS FROM SALES AND OPERATING SALES OF LICENCE; SOFTWARE SERVICES, EXPORT FROM SEZ UNIT, EXPORT FROM STPI UNIT AND REVENUE FROM SUBSCR IPTION. IT IS ALSO APPARENTLY CLEAR THAT SOFTWARE SERVICES SEGMEN T ACCOUNTS FOR RS 8.91 CRORES OUT OF THE TOTAL SALES OF RS. 77 CRO RES WHEREAS SEGMENTAL RESULTS ARE NOT AVAILABLE. SO, WHEN THIS COMPANY'S SUBSTANTIAL REVENUE IS FROM OTHER VARIOUS BUSINESS SEGMENTS LIKE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 22 OF 44 SALE OF LICENCE, SOFTWARE SERVICES AND SEGMENTAL RE SULTS ARE NOT AVAILABLE, THIS COMPANY CANNOT BE A VALID COMPARABL E FOR BENCHMARKING THE INTERNATIONAL TRANSACTION, HENCE O RDERED TO BE EXCLUDED. (5) ITA NO.1810/HYD/2012- INTOTO SOFTWARE INDIA P.LT D VS. ITO 7. THIRDWARE SOLUTIONS LTD 15.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTIO N. HOWEVER, THE SEGMENTAL PROFIT AND LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT S ERVICES AND PRODUCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS P OINTED OUT BY THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF E- GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES . IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING THE AFORE CITED DECISION O F THE PUNE TRIBUNAL (SUPRA), WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIS T OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND.' 7.4. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIO NS OF THE COORDINATE BENCH OF THE TRIBUNAL (SUPRA), WE DIRECT THAT THESE COMPA NIES BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. (6) ITA NO.464 & 608/HYD/2014- PLANET ONLINE PRIVAT E LIMITED,VS.ACIT 10.6 AS FAR AS THIRDWARE SOLUTIONS IS CONCERNED, AS SESSEE HAS SOUGHT EXCLUSION OF THE AFORESAID COMPANY BECAUSE I T IS INTO PRODUCT DEVELOPMENT AND PURCHASE AND SALE OF LICENCES. IT I S FURTHER CONTENTION OF ASSESSEE THAT THOUGH SEGMENTAL DETAIL S FOR SALES IS AVAILABLE BUT NO EXPENDITURE BIFURCATION IS AVAILAB LE, WHICH MAKES IT IMPOSSIBLE TO CORRECTLY DETERMINE THE OPERATING MAR GIN OF SOFTWARE SERVICES. ON A PERUSAL OF THE BREAK-UP OF SALES OF THIS COMPANY AS ON 31 ST MARCH, 2009, THE CONTENTION OF ASSESSEE APPEA RS TO BE CORRECT. FURTHER, ITAT BANGALORE BENCH IN CASE OF 3DPLM SOFT WARE SOLUTIONS LTD. VS. DCIT (SUPRA), HAS HELD AS UNDER: '15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE PLANET ONLINE PVT. LTD. MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN P RODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. HOWEVER, THE SEGMENTAL PROFIT AND LOS S ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOPME NT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT BY THE LE ARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF E-GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 23 OF 44 OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENS ES, IT OUGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT S ERVICES. IN THE CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DE VELOPMENT SERVICES. IN THIS FACTUAL VIEW OF THE MATTER AND FO LLOWING THE AFORE CITED DECISION OF THE PUNE TRIBUNAL (SUPRA), WE DIR ECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN THE CASE ON HAND.' 10.7 THE LD. DR HAS NOT BROUGHT ANY MATERIAL TO OUR NOTICE TO DEMONSTRATE THAT THE AFORESAID FINDING OF THE COORD INATE BENCH WILL NOT BE APPLICABLE TO AY UNDER CONSIDERATION. THEREF ORE, FOLLOWING THE VIEW EXPRESSED BY THE ITAT BANGALORE BENCH, WE EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. (7) ITA NO.7280/MUM/2012 - DIALOGIC NETWORKS (INDIA) PV T. VS. ACIT 37. THE THIRTEENTH COMPARABLE UNDER DISPUTE IS THIR DWARE SOLUTIONS LTD. THIS COMPANY IS ENGAGED IN APPLICATION IMPLEMENTATION, A PPLICATION MANAGEMENT AND APPLICATION DEVELOPMENT. ACCORDINGLY COMPANY IS NOT A PURE SOFTWARE DEVELOPMENT COMPANY. THIS COMPANY IS ALSO ENGAGED I N TRADING OF SOFTWARE WHICH IS EVIDENT FROM THE FINANCIALS OF THE COMPANY . IT IS ALSO ENGAGED IN THE PURCHASE AND SALE OF LICENSE AS IS APPARENT FROM PA GE 167 OF PAPER BOOK. WE NOTED THAT THIS COMPANY HAS NOT DISCLOSED ANY SEGME NTAL INFORMATION IN THE ANNUAL REPORT. WE THEREFORE AGREE WITH THE CONTENTI ON OF THE ASSESSEE'S COUNSEL THAT THIS COMPANY IS FUNCTIONALLY DIFFERENT AND CANNOT BE TAKEN TO BE COMPARABLE TO ASSESSEE. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF INFOR (BANGALORE) P. LTD VS ACIT (ITA 1550/RANG/2012) (AY 2008-09) WHEREIN IT W AS HELD AS UNDER:- '31 COMING TO THIRDWARE SOLUTIONS LTD (SEG), FINDIN GS OF THE TRIBUNAL IN THE ABOVE MENTIONED CASE OF 3DPLM SOFTWARE SOLUTIONS LT D(SUPRA), APPEAR AT PARA NOS. 15.1 TO 15.3 WHICH IS REPRODUCED HEREUNDE R: 15. 1 THIS COMPANY WAS PROPOSED FOR INCLUSION IN TH E LIST OF COMPARABLES BY THE TPO. BEFORE THE TPO , THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY IN THE LIST OF COMPARABLES ON THE GROUND TH AT ITS TURNOVER WAS IN EXCESS OF PS. 500 CRORES. BEFORE US, ITA NO . 7 2 8 0 / MU M /2 0 12 THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF THIS COMP ANY AS A COMPARABLE FOR THE REASON THAT APART FROM SOFTWARE DEVELOPMENT SERVICE S, IT IS IN THE BUSINESS OF PRODUCT DEVELOPMENT AND TRADING IN SOFTWARE AND GIV ING LICENSES FOR USE OF SOFTWARE. IN THIS REGARD. THE LEARNED AUTHORISED RE PRESENTATIVE SUBMITTED THAT: - (I) THIS COMPANY IS ENGAGED IN PRO DUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENCES AND SUBSCRIPTION. IT HAS BEEN POIN TED OUT FROM THE ANNUAL REPORT THAT THE COMPANY HAS NOT PROVIDED ANY SEPARA TE SEGMENTAL PROFIT AND LOSS ACCOUNT FOR SOFTWARE DEVELOPMENT SERVICES AND PRODUCT DEVELOP MENT SERVICES. IN THE CASE OF E -GAIN COMMUNICATIONS PVT LTD. (2008 - TII- 04-I TA T-PUNE- TP), THE TRIBUNAL HAS DIRECTED THAT THIS CO MPANY BE OMITTED AS A COMPARABLE FOR SOFTWARE SERVICE PROVIDERS, AS ITS I NCOME INCLUDES INCOME FROM SALE OF LICENCES WHICH HAS INCREASED THE MARGI NS OF THE COMPANY THE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 24 OF 44 LEARNED A.R PRAYED THAT IN THE LIGHT OF THE ABOVE F ACTS AND IN VIEW OF THE AFORE CITED DECISION OF THE TRIBUNAL (SUPRA). THIS COMPAN Y OUGHT TO BE OMITTED FROM THE LIST OF COMPARABLES. 15 2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ACTION OF THE TPO IN INCLUDING THIS COMPANY IN THE LIST OF COMPARABLES. 15.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE MATERIAL ON RECORD THAT THE COMPANY IS ENGAGED IN PRODUCT DEVELOPMENT AND E ARNS REVENUE FROM SALE OF LICENSES AND IT(TP)A.1 550/BANG/2012 PAGE-29 SUBSCRIPTION. HOWEVER,THE SEGMENTAL PROFIT AN D LOSS ACCOUNTS FOR SOFTWARE DEVELOPMENT SERVICES AND PROD UCT DEVELOPMENT ARE NOT GIVEN SEPARATELY. FURTHER, AS POINTED OUT B Y THE LEARNED AUTHORISED REPRESENTATIVE, THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF F -GAIN COMMUNICATIONS PVT. LTD. (SUPRA) HAS DIRECTED THAT SINCE THE INCOME OF THIS COMPANY INCLUDES INCOME FROM SALE OF LICENSES, IT O UGHT TO BE REJECTED AS A COMPARABLE FOR SOFTWARE DEVELOPMENT SERVICES. IN TH E CASE ON HAND, THE ASSESSEE IS RENDERING SOFTWARE DEVELOPMENT SERVICES . IN THIS FACTUAL VIEW OF THE MATTER AND FOLLOWING TH E AFORE CITED DECISION OF THE RUNE TRIBUNAL (SUPRA). WE DIRECT THAT THIS COMPANY BE OMITTED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION IN T HE CASE ON HAND. '' NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. WE THEREFORE HOLD THAT THIS COMPANY BE EXCLUDED FROM COMPARABLE AS SELECTED BY TPO AND WE DIRECT THE AO ACCORDINGLY. (8) ITA NO.655/PUN/2017- M/S. PUBMATIC INDIA PRIVATE LI MITED. VS. ACIT 20. NOW, COMING TO THE NEXT CONCERN I.E. THIRDWARE SOLUTIONS LTD., WHICH IS FUNCTIONALLY DISSIMILAR AS IT WAS DERIVING REVENUE FROM SALE OF LICENSE AND SOFTWARE SERVICES EXPORT FROM SEZ UN ITS AND REVENUE FROM SUBSCRIPTION, ETC. OUR ATTENTION WAS DRAWN TO THE FINANCIALS OF SAID CONCERN PLACED AT PAGES 708 ONWARDS OF PAPER B OOK AND IT WAS POINTED OUT THAT THE COMPANY HAD IMPORTED RAW MATER IALS AND WAS ALSO OWNING INTANGIBLES AND HENCE, MADE IT IN-COMPA RABLE TO THE ASSESSEE. IN THE ABSENCE OF ANY SEGMENTAL DETAILS B EING AVAILABLE, WE FIND MERIT IN THE PLEA OF ASSESSEE. 21. THE PUNE BENCH OF TRIBUNAL IN APPROVA SYSTEMS P VT. LTD. VS. DCIT IN ITA NO.1921/PUN/2014, RELATING TO ASSESSMEN T YEAR 2010- 11, ORDER DATED 25.01.2017HAD EXCLUDED THIRDWARE SO LUTIONS LTD. BEING NOT COMPARABLE TO A CONCERN WHICH WAS PROVIDI NG SOFTWARE SERVICES. THE RELEVANT FINDINGS ARE AS UNDER:- '11. WE FIND THAT THE TRIBUNAL NOTED THAT THE TPO H AD SELECTED KALS INFORMATION SYSTEM LTD. AND THIRDWARE SOLUTION LTD. AS BEING COMPARABLE, WHEREAS THE CASE OF ASSESSEE WAS THAT B OTH THE SAID ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 25 OF 44 CONCERNS WERE FUNCTIONALLY DIFFERENT. WITH REGARD T O KALS INFORMATION SYSTEM LTD., IT WAS POINTED OUT THAT TH E SAID COMPANY WAS EARNING INCOME FROM SALE OF APPLICATION SOFTWAR E AND SEGMENTAL INFORMATION WITH RESPECT TO SOFTWARE SERVICES WERE AVAILABLE. IN RESPECT OF THIRDWARE SOLUTION LTD., IT WAS POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN SOFTWARE DEVELOPMENT, TRADIN G OF SOFTWARE LICENCES AND TRAINING IMPLEMENTATION ACTIVITIES APA RT FROM SOFTWARE DEVELOPMENT. ANOTHER CONTENTION WAS RAISED THAT THI RDWARE SOLUTION LTD. WAS SUPER PROFIT EARNING COMPANY AND WAS ALSO ENGAGED IN THE BUSINESS OF SOFTWARE LICENCES AND TRADING OF IMPLEM ENTATION ACTIVITIES. THE TRIBUNAL TAKING NOTE OF THE SPECIAL BENCH DECISION IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VIDE ITA NO.7466/M/2012 IN RESPECT OF SUPER PROFITS AND INCLUSION OF CONCERN THIRDWARE SOLUTION LTD., HELD THAT THE SAID CONCERN WAS NOT COMPARABLE AND OBSERVED AS UNDER:- '29. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VIDE ITA NO.7466/MUM/2012 HAS OBSERVED AS UNDER : SCHEDULE: SALES AS ON 31.3.2019 AS ON 31.3.2018 SALE OF LICENCE 22,237,588 3,916,427 SOFTWARE LICENCE 89,177,023 76,724,371 EXPORT FROM SEZ 478,572,420 263,971,033 EXPORT FROM STPI 162,900,630 168,863,049 REVENUE FROM SUB. 16,433,714 9,293,874 770,321,376 522,768,754 '99. THE QUESTION NO. 2 REFERRED TO THIS SPECIAL BE NCH IS AS TO WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE , COMPANIES EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD BE INC LUDED IN THE LIST OF COMPARABLE CASES FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. AS ALREADY O BSERVED, THE ISSUE INVOLVED IN THIS QUESTION HAS BECOME INFRUCTUOUS IN SO FAR AS THE CASE OF THE ASSESSEE BEFORE THE SPECIAL BENCH IS CONCERN ED AND THE SAME THEREFORE NO MORE SURVIVES FOR CONSIDERATION IN THE PRESENT CASE. IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO T HIS QUESTION WILL DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION SHOU LD BE TO ASCERTAIN AS TO WHETHER EARNING OF HIGH PROFIT REFL ECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF S OME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PRO FIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PRO FIT MARGIN ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 26 OF 44 REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALY SIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPAR ABLE EARNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVESTIGATION THAT THE HIGH MARGIN PROFIT MAKI NG COMPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE H IGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NORMAL BUSINESS C ONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENTITY SHOULD NOT BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH I TS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOULD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MA RGIN. QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS ANSWERED AC CORDINGLY'. 29.1 WE FIND FROM THE DETAILS FURNISHED BY THE ASSE SSEE THAT THE ASSESSEE IS A SOFTWARE DEVELOPER WHEREAS THIRDWARE SOLUTIONS LTD. IS ENGAGED IN THE BUSINESS OF SALE-CUM-LICENCE OF SOFT WARE WHICH IS AVAILABLE FROM THE AUDITED ACCOUNTS, THE DETAILS OF WHICH ARE AS UNDER : APART FROM THE ABOVE THE COMPANY IS ALSO HAVING DIV IDEND INCOME, INTEREST INCOME AND PROFIT ON SALE OF INVESTMENT AS WELL AS PREMIUM OF SOFTWARE CONTRACT TOTALLING TO RS.2,30,48,603/- WHICH IS AS PER SCHEDULE-13 'OTHER SOURCES'. FROM THE VARIOUS DECIS IONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE FIND THIRDWARE SOLUTIONS LTD. HAS BEEN REJECTED ON THE GROUND THAT IT IS FUNCTION ALLY DISSIMILAR. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF INTO TO SOFTWARE INDIA PVT. LTD. VS. ACIT AND VICEVERSA IN CONSOLIDA TED ORDER DATED 24-05-2013 FOR A.Y. 2005-06 AND 2007-08 AT PARA 26 OF THE ORDER HAS OBSERVED AS UNDER : '26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED IS CONCERNED, WE FIND FROM THE INFORMATION FURNISHED BY THE SAID COM PANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELOPMENT, THERE ARE NO SOFTRWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINANCIAL 52 YEAR AND THE FINANCIAL RESULTS ARE IN RESPECT OF SERVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO SALE OF SO FTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMPANY MIGHT HAVE INC URRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS.' 29.2 IN VARIOUS OTHER DECISIONS ALSO THIRDWARE SOLU TIONS LTD. HAS BEEN REJECTED AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR. WE THEREFORE FIND FORCE IN THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIRDWARE SOLUTIONS L TD. SHOULD NOT BE INCLUDED AS A COMPARABLE. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES.' 12. BOTH THE LEARNED AUTHORIZED REPRESENTATIVES HAV E ADMITTED THAT THIRDWARE SOLUTIONS LTD. WAS INVOLVED IN SIMILAR FU NCTIONS AS IN ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 27 OF 44 EARLIER YEAR AND IN VIEW THEREOF, WE HOLD THAT THE SAID CONCERN IS FUNCTIONALLY DIFFERENT AND IS TO BE EXCLUDED FROM F INAL LIST OF COMPARABLES.' (9) ITA NO.2307/HYD/2018- M/S. INFOR (INDIA) P LTD VS. ACIT 77. AS REGARDS TATA ELXSI LTD, THIRDWARE SOLUTIONS LTD AND PERSISTENT SYSTEMS LTD ARE CONCERNED, WE FIND THAT THEIR COMPARABILITY TO THE ASSESSEE HAS BEEN CONSIDERED I N THE ASSESSEE'S OWN CASE FOR THE A.Y 2007-08 AND IT IS SUBMITTED TH AT THERE IS NO CHANGE OF ACTIVITIES OF EITHER THE ASSESSEE OR THE COMPARABLES DURING THE RELEVANT A.Y BEFORE US I.E. A.Y 2014-15. 78. THE LEARNED DR HAS NOT REBUTTED THIS CONTENTION OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCH AT MUMBAI IN ITA NO.520/MUM/2012 DATED 4.12.2 018, IN THE CASE OF INFOR GLOBAL SOLUTIONS INDIA (P.) LTD. V.DE PUTY COMMISSIONER OF INCOME TAX, WE DIRECT THE EXCLUSION OF THESE THREE COMPANIES FROM THE FINAL LIST OF COMPARABLES. FOR T HE SAKE OF READY REFERENCE, THE RELEVANT PARAS ARE REPRODUCED HEREUN DER: '29. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIALS ON RECORD. THE PRIMARY AND FUNDAMENTAL REASON ON THE B ASIS OF WHICH ASSESSEE SEEKS REJECTION OF THE AFORESAID COMPARABL E IS, IT IS ALSO ENGAGED IN THE DEVELOPMENT OF PRODUCT AND SEGMENTAL DETAILS ARE NOT AVAILABLE. NOTABLY, IN CASE OF LSI TECHNOLOGIES IND IA (P.) LTD. (SUPRA), THE CO-ORDINATE BENCH WHILE EXAMINING THE COMPARABILITY OF THE AFORESAID COMPANY TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER, HAS REJECTED THIS COMPANY AS A COMPARABLE CONSIDERING THE FACT THAT IT IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES. THE SAME VIEW HAS BEEN REITERATED BY THE TRIBUNAL IN THE OTHER DECISIONS CITED BY THE LEARNED AUTHORISED REP RESENTATIVE. SINCE, MANY OF THESE DECISIONS PERTAIN TO THE IMPUG NED ASSESSMENT YEAR, RESPECTFULLY ITA NOS 161 AND 2307 OF 2018 INF OR INDIA P LTD HYDERABAD. FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 35. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. ON A PERUSAL OF THE DOCUMENTS PLACED IN THE PAPER BOOK IT APPEARS THAT THIS COMPANY IS ENGAGED IN VARIOUS ACT IVITIES INCLUDING DEVELOPMENT OF NICHE PRODUCT AND DEVELOPMENT SERVIC ES. THUS, THE COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE . CONSIDERING THE AFORESAID ASPECT, THE CO-ORDINATE BENCH IN CASE OF TELCORDIA TECHNOLOGIES INDIA (P.) LTD. (SUPRA), WHICH IS FOR THE VERY SAME ASSESSMENT YEAR, HAS EXCLUDED THIS COMPANY AS A COM PARABLE. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE OTHER D ECISIONS CITED BY ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 28 OF 44 THE LEARNED AUTHORISED REPRESENTATIVE. THUS, KEEPIN G IN VIEW THE DECISIONS OF THE TRIBUNAL REFERRED TO ABOVE, WE HOL D THAT THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE. 38. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. THOUGH, IT MAY BE A FACT THAT THE ASSESSEE MAY NOT HAVE OBJECTED TO SELECTION OF THIS COMPANY BEFORE THE TR ANSFER PRICING OFFICER, HOWEVER, THE ASSESSEE RAISED OBJECTIONS AG AINST SELECTION OF THIS COMPANY BEFORE THE DRP AS WELL AS BEFORE US. T HE GRIEVANCE OF THE ASSESSEE IS, THE COMPANY BEING INVOLVED IN DEVE LOPMENT OF PRODUCTS AND SINCE NO SEGMENTAL DETAILS ARE AVAILAB LE IN THE ANNUAL REPORT, IT CANNOT BE TREATED AS COMPARABLE. THE CO- ORDINATE BENCH IN TECH MAHINDRA LTD. (SUPRA) HAVING FOUND THIS COM PANY TO BE INVOLVED IN DEVELOPMENT OF SOFTWARE PRODUCT AND TRA DING IN SOFTWARE LICENSES HAS HELD THAT IT CANNOT BE A COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER. SIMILAR VIEW HAS BEEN EXPRESSED IN THE OTHER DECISIONS CITED BEFORE US BY THE LEARNED AUTHORISED REPRESENTATIVE. SINCE, MANY OF THESE DECISIONS RELA TE TO VERY SAME ASSESSMENT YEAR, FOLLOWING THE RATIO LAID DOWN IN T HESE DECISIONS, WE HOLD THAT THIS COMPANY CANNOT BE A COMPARABLE TO TH E ASSESSEE'. 17. THUS, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY I.E. THIRDWARE SOLUTIONS FROM THE FINAL LIST OF COMPARAB LES. 18. INFOBEANS TECHNOLOGIES LTD ASSESSEES OBJECTIONS TO THIS COMPANY ARE AS FOLLOW S: A) THIS COMPANY IS NOT TOTALLY ENGAGED IN SOFTWARE DEV ELOPMENT SERVICES BUT IT IS ALSO ENGAGED IN EXPORT OF GOODS. THE RELEVANT EXTRACT FROM PAGE 783 AND 795 OF PAPER BOOK VOLUME 3 IS GIVEN BELOW: EARNINGS IN FOREIGN EXCHANGE A) EXPORT OF GOODS/SERVICES CALCULATED ON FOB BASIS 3 29,659,883 216,854,891 TOTAL 329,659,883 216,854, 891 B) THIS COMPANY IS ALSO ENGAGED IN PROVIDING SERVICE RELATING TO STORAGE AND VIRTUALIZATION, MEDIA AND PUBLISHING AND E-COMMERCE. C) THERE ARE NO SEGMENTAL DETAILS IN THE ANNUAL REPORT BETWEEN SERVICES AND GOODS THEREFORE, IT CANNOT BE COMPARED WITH THE ASSESSEE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 29 OF 44 D) THIS COMPANY IS ENGAGED IN SALE OF GOODS AS CAN BE INFERRED FROM THE MODVAT DEPOSIT INR 25,000 AND SAL ES TAX DEPOSIT INR 10,000. E) THIS COMPANY CANNOT BE COMPARED AS IT HAS EARNED SU PER PROFITS I.E. 42.09% F) WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE CORR ECT MARGIN IS 41.85% AND NOT 42.09%. THIS FACT WAS SUBMITTED TO THE DRP. 19. THE ASSESSEE FURTHER SUBMITTED THAT IN THE COMPUTATION OF MARGINS OF THIS COMPANY PROFIT FROM MUTUAL FUND HAS BEEN CONSIDERED AS OPERATING INCOME FOR THE PUR POSE OF COMPUTING OPERATING PROFIT MARGIN OF COMPARABLES PR OPOSED BY THE TPO. SINCE THE PROFIT DERIVED FROM THE MUTUAL F UNDS ARE NOT RELATED TO THE BUSINESS ACTIVITY, THE SAME NEEDS TO BE TREATED AS NON-OPERATING AND THE CORRECT MARGINS ARE TO BE REC OMPUTED. FURTHER, THE ASSESSEE ALSO PLACED RELIANCE ON THE F OLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIONS FOR THE EXC LUSION OF INFOBEANS TECHNOLOGIES LTD FROM THE FINAL LIST OF C OMPARABLES. I) PUBMATIC INDIA (P) LTD, PUNE, ITAT ITANO.655/PUN/207 II)KONY INDIA (P) LTD ITA NO.2305/HYD/2018 20. THE LEARNED DR, HOWEVER, SUBMITTED THAT THE SER VICES RENDERED BY INFOBEANS ARE ALSO SIMILAR TO THE SERVI CES RENDERED BY THE ASSESSEE AND THERE IS NO SEPARATE INCOME FROM S ALE OF GOODS. ACCORDING TO HIM, THE INCOME FROM SALE OF SERVICES ONLY IS BEING DEPICTED AS INCOME FROM SALE OF GOODS. THEREFORE, ACCORDING TO HIM, THIS COMPANY HAS TO BE RETAINED AS COMPARABLE TO THE ASSESSEE. AS FAR AS COMPUTATION OF THE CORRECT MARG IN OF INFOBEANS ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 30 OF 44 IS CONCERNED, HE SUBMITTED THAT THE ISSUE MAY BE RE MITTED TO THE FILE OF THE TPO FOR ADOPTING THE CORRECT MARGIN OF THE COMPANY. 21. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE FOLLOWING CASE HAS CONSIDERED SIMILAR OBJECTION S OF THE ASSESSEE THEREIN TO DIRECT EXCLUSION OF THIS COMPAN Y FROM THE FINAL LIST OF COMPARABLES. FOR THE PURPOSE OF READY REFER ENCE, THE RELEVANT PARAGRAPH IS REPRODUCED BELOW: ITA NO.655/PUN/207 DATED 19-3-2018 IN THE CASE OF PUBMATIC INDIA (P) LTD VS. ACIT 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ASPECT IS THE FUNCTIONAL COMPARABILITY OF CON CERN WHICH HAS BEEN FINALLY SELECTED TO BE COMPARABLE. IN RESPECT OF IN FOBEANS SYSTEMS PVT. LTD., THE FINANCIALS OF SAID CONCERN CLEARLY R EFLECT THAT IN ADDITION TO PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS A SSOCIATED ENTERPRISES, IT HAD ALSO EARNED FOREIGN EXCHANGE FR OM EXPORT OF GOODS ON FOB BASIS. THE EVENT OF EXPORT OF GOODS WAS ALSO MENTIONED IN NOTES AND ALSO IN THE PROFIT AND LOSS ACCOUNT, WHER E REVENUE FROM SALE OF SOFTWARE WAS DECLARED. THE SEGMENTAL DETAIL S OF TWO ACTIVITIES CARRIED ON BY THE SAID CONCERN WERE NOT AVAILABLE A ND IN THE ABSENCE OF THE SAME, THE CONCERN COULD NOT BE EQUATED AS FU NCTIONALLY COMPARABLE TO A CONCERN WHICH WAS PROVIDING SOFTWAR E DEVELOPMENT SERVICES TO ITS ASSOCIATED ENTERPRISES. APPLYING TH E SAME SET OF REASONING AS IN THE PARAS HEREINABOVE, WE HOLD THAT INFOBEANS SYSTEMS PVT. LTD. IS NOT COMPARABLE TO THE ASSESSEE . 22. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THAT INFOBEANS BE EXCLUDED FROM THE FINAL LIST OF COMPAR ABLES IN THIS CASE ALSO. 23. INFOSYS LTD ASSESSEES OBJECTIONS TO THIS COMPANY ARE AS UNDER: A) THIS COMPANY IS FUNCTIONALLY DIFFERENT AND DURING T HE RELEVANT PREVIOUS YEAR, IT HAD EXTRA-ORDINARY EVENT S. THIS COMPANY IS ENGAGED IN MULTI ACTIVITIES AND THEREFOR E IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE. IT IS SUBMITTED ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 31 OF 44 THAT INFOSYS HAD ACQUIRED A COMPANY, NAMELY, LODEST ONE HOLDING AG ON 22 OCTOBER 2012 AND THE IMPACT ON THE CURRENT YEAR PROFIT WAS INR 220 CR. FURTHER, INFOSY S CONSULTING INDIA WAS MERGED WITH INFOSYS LIMITED W. E.F. 23 AUGUST 2013. THE RELEVANT EXTRACTS FROM ANNUAL REPO RT PAGES 180 AND 205 187 20130FPA ER BOOK VOLUME 2 ARE REPRODUCED UNDER: LODESTONE HOLDING AG ON OCTOBER 22.20 12,LNFOSYS ACQUIRED 100% OF THE OUTSTANDING SHARE CAPITAL OF LODESONE HOLDING AG, A GLOBAL MANAGEMENT CONSULTANCY FIRM HEADQUARTERED IN ZURICH, SWITZERLAND. THE ACQUISITION WAS EXECUTED THROUGH A SHARE PURCHASE AGREEMENT FOR AN UPFRONT CASH CONSIDERATION OF RS.1,187 CRORE AND A DEFERRED CONSIDERATION OF UP TO RS.608 CRORE. B) INFOSYS IS NOT COMPARABLE BECAUSE IT HAS RE-ORGANIZ ED THE SEGMENTS AND CONSEQUENTLY COMPARISON IS NOT POSSIBL E. C) IT HAS HUGE TURNOVER INR 44341 CR WHEREAS THE ASSES SEES TURNOVER IS INR 543.04 CR.ONLY. D) INFOSYS HAS REVENUE FROM SALE OF PRODUCTS FOR A SUM OF INR 1810 CR. E) INFOSYS DEVELOPS INTELLECTUAL PROPERTY RIGHTS AND S PENDS A SUM OF INR 30 CR F) INFOSYS INCURS HUGE SELLING AND MARKETING EXPENDITU RE OF INR2390 CR WHEREAS THE ASSESSEE HAS NO SUCH EXPENDI TURE. G) INFOSYSS BUSINESS MODEL IS DIFFERENT AND ONSITE RE VENUE CONSTITUTES 51.1% WHEREAS THE ENTIRE REVENUE OF THE ASSESSEE IS OFFSHORE . H) INFOSYS HAS INCURRED INR 77 CR ON BRAND BUILDING AN D NO SUCH EXPENDITURE INCURRED BY THE ASSESSEE. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 32 OF 44 I) INFOSYS INCURRED A SUM OF INR 873 CR ON R&D WHICH I S MORE THAN ASSESSEES TURNOVER. J) IN ASSESSEES OWN CASE THE ITAT HAS NOT CONSIDERED INFOSYS LTD AS A COMPARABLE FROM A.Y 2005-06 TO A.Y 2007-08 ALONG WITH TATA ELXSI. 24. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 25. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IN A NUMBER OF DECISIONS IN CLUDING THE ASSESSEES OWN CASE, INFOSYS LTD HAS BEEN HELD TO B E NOT COMPARABLE WITH ANY OTHER SOFTWARE DEVELOPMENT COMP ANY SUCH AS THE ASSESSEE DUE TO ITS HUGE TURNOVER AND HIGH P ROFIT MARGIN AND ALSO AS IT IS INTO SOFTWARE PRODUCTS AND OWNS I NTANGIBLE INTELLECTUAL PROPERTY RIGHTS. IN THE CASE OF AGNITY INDIA TECHNOLOGIES LTD, 36 TAXMANN.COM 289 (DEL), THE HON 'BLE DELHI HIGH COURT HAS HELD THAT INFOSYS LTD IS NOT COMPARA BLE TO OTHER SOFTWARE DEVELOPMENT COMPANY. RELEVANT PARAGRAPHS A RE REPRODUCED HEREUNDER: 8. IT IS A COMMON CASE THAT SATYAM COMPUTER SERVIC ES LTD. SHOULD NOT BE TAKEN INTO CONSIDERATION. THE TRIBUNA L FOR VALID AND GOOD REASONS HAS POINTED OUT THAT INFOSYS TECHN OLOGIES LTD. CANNOT BE TAKEN AS A COMPARABLE IN THE PRESENT CASE. THIS LEAVES L&T INFOTECH LTD. WHICH GIVES US THE FI GURE OF 11.11 %, WHICH IS LESS THAN THE FIGURE OF 17% MARGI N AS DECLARED BY THE RESPONDENT-ASSESSEE. THIS IS THE FI NDING RECORDED BY THE TRIBUNAL. THE TRIBUNAL IN THE IMPUG NED ORDER HAS ALSO OBSERVED THAT THE ASSESSEE HAD FURNISHED D ETAILS OF WORKABLES IN RESPECT OF 23 COMPANIES AND THE MEAN O F THE COMPARABLES WORKED OUT TO 10%, AS AGAINST THE MARGI N OF 17% SHOWN BY THE ASSESSEE. DETAILS OF THESE COMPANI ES ARE MENTIONED IN PARA 5 OF THE IMPUGNED ORDER. 26. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL LIST OF CO MPARABLES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 33 OF 44 27. AS REGARDS PERSISTENT SYSTEMS LTD , THE OBJECTIONS OF THE ASSESSEE ARE AS UNDER: A) THE COMPANY IS FUNCTIONALLY NOT COMPARABLE. IT I S ENGAGED IN SELLING OF THE FOLLOWING: I. SOFTWARE PRODUCTS (IP); II. PLATFORMS (SOLUTIONS & INTEGRATION); AND III.SERVICES (PRODUCT ENGINEERING) B.THERE ARE NO SEGMENTAL DETAILS BETWEEN SOFTWARE PRODUCTS AND SERVICES. 28. IN THE CASE OF TATA ELXSI, THE ASSESSEE HAS TAK EN THE FOLLOWING OBJECTIONS: A) IT IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESS EE. IN THE FINANCIAL STATEMENTS OF THE COMPANY, THE NATURE OF BUSINESS CARRIED OUT BY TATA ELXSI IS GIVEN BELOW: I) CORPOPRATE INFORMATION TATA ELXSI LTD WAS INCORPORATED IN 1989. THE COMPA NY PROVIDES PRODUCT DESIGN AND ENGINEERING SERVICES TO THE CONSUMER ELECTRONICS, COMMUNICATIONS AND TRANSPORTA TION INDUSTRIES AND SYSTEMS INTEGRATION AND SUPPORT SERV ICES FOR ENTERPRISE CUSTOMERS. IT ALSO PROVIDES DIGITAL CONTENT CREATION FOR MEDIA AND ENTERTAINMENT INDUSTRY 29. WE FIND THAT IN THE CASE OF INFOR (INDIA) (P) L TD VS. ACIT IN ITA NO.2307/HYD/2018, THE COORDINATE BENCH OF TH E TRIBUNAL HAS CONSIDERED SIMILAR OBJECTIONS OF THE ASSESSEE T HEREIN AND HAS HELD THAT THESE TWO COMPANIES ALONG WITH THIRDWARE SOLUTIONS LTD IS NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT COMPA NY LIKE THE ASSESSEE BEFORE US. THE RELEVANT PORTIONS HAS BEEN REPRODUCED BY US IN THE ABOVE PARAS. RESPECTFULLY FOLLOWING THE S AME, THESE TWO COMPANIES ARE ALSO DIRECTED TO BE EXCLUDED FROM THE FINAL LIST OF ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 34 OF 44 COMPARABLES. THUS, ASSESSEES GROUND OF APPEAL NO.2 IS PARTLY ALLOWED. 30. AS REGARDS GROUND NO.4 SEEKING INCLUSION OF THE COMPANIES, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT HE IS NOT PRESSING FOR INCLUSION OF E-ZEST SOLUTION S LTD, MARVERIC SYSTEMS LTD, I SUMMATION TECHOLOGIES (P) LTD, AKSHA Y SOFTWARE TECHNOLOGIES LTD, GOLDSTONE TECHNOLOGIES LTD AND SA NKHYA INFOTECH LTD. THUS, IN EFFECT, THE ASSESSEE IS SEEK ING INCLUSION OF ONLY EVOKE TECHNOLOIES (P) LTD AND SAGARSOFT INDIA LTD., 31. AS FAR AS EVOKE TECHNOLOGIES LTD IS CONCERNED, THE TPO HAS REJECTED THE SAID COMPANY AS A COMPARABLE O N THE GROUND THAT FROM THE ANNUAL REPORT OF THE SAID COMP ANY, IT IS NOTICED THAT THE STAND ALONE FINANCIALS REPORTED FR OM 2013-14 INCLUDE REVENUE AND NET PROFIT FIGURES OF ONE BRANC H OUTSIDE INDIA ALSO. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT IN THE CASE OF INFOR (INDIA) (P) LTD, THE COOR DINATE BENCH OF THIS TRIBUNAL IN ITA NO.2307/HYD/2018 HAS HELD AS U NDER: 73. AS REGARDS EVOKE TECHNOLOGIES IS CONCERNED, THE CONTENTIONS OF THE ASSESSEE ARE THAT THIS COMPANY IS FUNCTIONALLY SIMI LAR TO THE ASSESSEE, WHEREAS THE TPO & DRP HAVE HELD THAT THE FINANCIALS OF THIS COMPANY INCLUDE THE REVENUE OF ONE BRANCH OUTSIDE INDIA WHI CH ARE UNAUDITED AND HENCE ARE NOT RELIABLE. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, DREW OUR ATTENTION TO PAGE 963 OF THE PAPER BOOK, W HICH IS PART OF THE ANNUAL REPORT OF EVOKE TECHNOLOGIES LTD WHEREIN THE REVENUE OF INDIAN BRANCH OF ASSESSEE IS SEPARATELY SHOWN. TAKING THE SAME INTO CONSIDERATION, WE DIRECT THE AO/TPO TO RECONSIDER T HE COMPARABILITY OF THIS COMPANY BY TAKING THE REVENUE FROM INDIAN BRAN CH ONLY. THUS, THE GROUND FOR MAVERIC SYSTEMS LTD IS REJECTED AND FOR EVOKE TECHNOLOGIES LTD IS ALLOWED FOR STATISTICAL PURPOSES. 32. SINCE THE ISSUE IS SIMILAR, WE DIRECT THE AO/TP O TO RECONSIDER THE COMPARABILITY OF THIS COMPANY TO THE ASSESSEE BY TAKING THE REVENUE FROM INDIAN BRANCH ONLY. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 35 OF 44 32. AS REGARDS SAGARSOFT LTD IS CONCERNED, IT IS TH E CASE OF THE ASSESSEE THAT THE DRP HAS ALREADY DIRECTED THE AO/TPO TO CONSIDER THE SAME, BUT THE AO/TPO HAS NOT TAKEN IT AS A COMPARABLE WHILE PASSING THE FINAL ASSESSMENT ORDER . SINCE THE REVENUE IS NOT IN APPEAL AGAINST THE DIRECTIONS OF THE DRP, WE DIRECT THE TPO TO GIVE EFFECT TO THE ORDER OF THE D RP. THUS, GROUND OF APPEAL NO. 4 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. 33. AS REGARDS THE TRANSACTION OF I.T. ENABLED SERV ICES, IN ITS TP STUDY, THE ASSESSEE HAD ADOPTED 11 COMPANIES AS COMPARABLES, BUT THE TPO REJECTED ALL THE COMPANIES AND SELECTED 8 COMPANIES AS COMPARABLE WHOSE AVERAGE MARGIN WAS 35.46%. THE ASSESSEE OBJECTED TO THE SELECTION OF THE SAID COMPARABLES, BUT THE TPO REJECTED THE SAME AND ARRIVED AT A FINA L SET OF 7 COMPANIES AS COMPARABLES TO THE ASSESSEE WHOSE AVER AGE MARGIN WAS AT 33.13%.HE REJECTED THE WORKING CAPITAL ADJUS TMENT AS WELL AS THE RISK ADJUSTMENT CLAIMED BY THE ASSESSEE WITH REGARD TO ITES ALSO AND PROPOSED AN ADJUSTMENT OF RS.46,62,14 ,700/-. IN THIS REGARD, THE ASSESSEE IS SEEKING EXCLUSION OF I NFOSYS BPO AND ECLREX FROM THE FINAL LIST OF COMPARABLES. THE OTHE R COMPANIES LISTED IN THE GROUND OF APPEAL NO.4 ARE NOT PRESSED BY THE ASSESSEE. 34. AS REGARDS GROUND NO.3, AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT CHALLENGING THE COMPARABILITIES OF THREE COMPAN IES I.E. CROSS DOMAIN SOLUTIONS (P) LTD, MICROLAND AND MICRO GENET IC SYSTEMS LTD. THEREFORE, IN EFFECT, THE ASSESSEE IS CHALLENG ING THE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 36 OF 44 COMPARABILITY OF ONLY INFOSYS BPO LTD, E-CLEREX SER VICES LTD AND NPS LTD. 35. AS REGARDS INFOSYS BPO LTD IS CONCERNED, THE ASSESSEES OBJECTIONS ARE AS UNDER: A) THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER TO ITS A ES AND IT USES ITS BRAND FOR ITS BUSINESS PURPOSES AND INFOSYS IS A TOP GLOBAL BRAND . B) THIS COMPANY IS NOT FUNCTIONALLY SIMILAR AND IS ENGAGED IN DIFFERENT ACTIVITIES WHICH ARE NOT COMPARABLE TO THE ASSESSEE. C) THIS COMPANY INCURRED HUGE MARKETING AND SELLING EXPENSES OF INR 103 CRORES WHICH CONSTITUTES ABOUT 5% OF THE REVENUE. D) THIS COMPARABLE ALSO INCURRED INR 5 CRORES ON BRAND BUILDING EXERCISE. E) HE FURTHER SUBMITTED THAT IN THE ASSESSEES OWN CAS E FOR THE A.Y 200-11, THIS TRIBUNAL HAS HELD THIS COMPANY TO BE A NON-COMPARABLE TO THE ASSESSEE. 36. THE OBJECTIONS OF THE ASSESSEE WITH REGARD TO E -CLERX SERVICES ARE AS FOLLOWS: A) THIS COMPANY IS ENGAGED IN RENDERING OF ITES SERVIC ES. IT HAS BOTH VOICE AND NON-VOICE BASED SERVICES AND PREDOMINANTLY VOICE-BASED. ECLERX IS A KNOWLEDGE PR OCESS OUTSOURCING COMPANY AND FUNCTIONALLY IT CANNOT BE COMPARED WITH THE ASSESSEE. B) IN ECLEREX THERE ARE 3 SEGMENTS I.E. FINANCIAL SERV ICES, SALES & MARKETING SERVICES AND CABLE AND TELECOM SERVICES . C) THIS COMPANY HAS SUBSTANTIAL OUTSOURCING EXPENSE OF INR 11.10 CRORES WHICH CONSTITUTES 15.71% OF REVENUES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 37 OF 44 D) THE FINANCIALS OF ECLERX ARE UNRELIABLE. E) THIS COMPANY HAS SUPER PROFITS F) IN THE ASSESSEES OWN CASE, THE TRIBUNAL IN A.Y 200 9-10 AND 2010-11 HELD THIS COMPANY TO BE EXCLUDED FROM THE L IST OF COMPARABLES AND THE RELEVANT PORTION FROM THE ORDER S ARE REPRODUCED AS BELOW: A.Y 2009-10 ITA NO.134/HYD/2014 4. ECLERX SERVICES LTD.: 4.1 THE LD. AR OBJECTING TO THE AFORESAID COMPANY B EING TREATED AS COMPARABLE, SUBMITTED THAT THE SAID COMPANY HAS DIV ERSIFIED SERVICES AND KPO SERVICES. HE SUBMITTED THAT IN THE FOLLOWING RULINGS ITAT REJECTED THE SAID COMPANY AS COMPARABL E: 1. HSBC ELECTRONIC DATA PROCESSING INDIA PVT. LTD., ITA NO. 247&295/HYD/14. 2. M/S CAPITAL IQ INFORMATION SYSTEMS (INDIA) PVT. LTD., ITA NO. 124/HYD/14. 3. TNS INDIA PVT. LTD., ITA NO. 604 & 419/HYD/14. 4. EXCELLENCE DATA RESEARCH , ITA NO. 159/HYD/14 5. HYUNDIA MOTOR ENGG. P. LTD., ITA NO. 255/H/14 6. OSI SYSTEMS PVT. LTD., ITA NO. 683&542/H/14 4.2 IN THE CASE OF CAPITAL IQ INFORMATION SYSTEMS INDIA PVT. LTD., (SU PRA), THE COORDINATE BENCH HAS HELD AS UNDER: '18.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ANNUAL REPORT AND THE OBJECTIONS OF THE ASSESSEE. AS SEEN FROM THE ANNUAL REPORT, THE ABOVE COMPANY IS INVOLVED IN DIVERSE NA TURE OF SERVICES AND THERE WAS NO SEGMENTAL DATA FOR DIVERSIFIED SER VICE PORT FOLIO. MOREOVER, THIS COMPANY CAN BE CONSIDERED AS KPO AND WE ARE OF THE OPINION THAT THIS COMPANY IS NOT COMPARABLE TO ASSESSEE'S SERVICES. WE, THEREFORE, DIRECT THE AO/TPO TO EXCLU DE THIS COMPANY.' 4.3 THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DERS OF REVENUE AUTHORITIES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 38 OF 44 4.4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND KEEPING IN TUNE WITH THE CONSISTENT VIEW OF DIFFERENT BENCH ES OF THE TRIBUNAL IN RESPECT OF THE AFORESAID COMPANY, WE DIRECT THE AO/ TPO TO EXCLUDE THE AFORESAID COMPANY FROM THE LIST OF COMPARABLES . 37. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 38. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND WE FIND THAT THE COORDINATE BENC H OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE NOT ONLY FOR TH E A.YS 2009-10 FOR THE A.Y 2010-11 HAS ALSO CONSIDERED THIS ISSUE AT PARAS 6 TO 9 IN ITA NO.221/HYD/2015 WHICH READS AS UNDER: 6. THE TPO HAS SELECTED MANY COMPARABLES AND AMONG THEM M/S. INFOSYS BPO LTD., TCS E-SERVE LTD., AND ECLERX SERV ICES LTD., WERE OBJECTED TO ON THE REASON OF HIGH TURNOVER AND FUNC TIONALLY DIFFERENT. WITH REFERENCE TO INFOSYS BPO, THE OBJECTION WAS TH AT THE SAID COMPANY RENDERS VIDE ARRAY OF SERVICES AND HAS HIGH BRAND V ALUE AND TURNOVER IS ALSO VERY HIGH. WITH REFERENCE TO TCS E-SERVE LTD., THERE WAS EXCEPTIONAL EVENT AS THE COMPANY WAS TAKEN OVER BY TATA CONSULT ANCY SERVICES IN THE YEAR 2008-09 AND HEAVY TURNOVER IS DUE TO ITS TAKEO VER. FURTHER, IT WAS SUBMITTED THAT THE COMPANY WAS FUNCTIONALLY DIFFERE NT AS IT HAS THREE DIFFERENT SERVICES AND SEGMENTAL INFORMATION WAS NO T ARRIVED. AS FAR AS E-CLERX SERVICES LTD., IT WAS SUBMITTED THAT THIS C OMPANY CATERS TO HIGH END KPO SERVICES AND CANNOT BE COMPARED TO ROUTINE BPO SERVICES PROVIDED BY ASSESSEE. THE DRP VIDE PARA 3.10 HAS AC CEPTED THE ASSESSEE'S OBJECTIONS AND ACCORDINGLY, DIRECTED THE TPO TO EXCLUDE THE ABOVE THREE COMPANIES. THERE ARE OTHER DIRECTIONS O F THE DRP ON TP ADJUSTMENTS ON WHICH NEITHER PARTY HAS RAISED GROUN DS, EXCEPT THE REVENUE ON THE ABOVE EXCLUSION OF THREE COMPANIES. 7. REFERRING TO THE ORDER OF THE TPO, IT WAS THE CO NTENTION OF LD.DR THAT DRP WAS NOT CORRECT IN EXCLUDING THEM ON THE BASIS OF THE TURNOVER, WHEREAS LD. COUNSEL SUBMITTED THAT DRP HAS FOLLOWED THE DECISIONS OF THE CO-ORDINATE BENCHES IN EXCLUDING THE ABOVE THRE E COMPARABLES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDER OF THE DRP AND CO-ORDINATE BENCHES. AS FAR AS M/S. TCS E-S ERVE LTD., IS CONCERNED, THE CO-ORDINATE BENCH OF ITAT IN THE CAS E OF M/S HYUNDAI MOTORS INDIA ENGINEERING P. LTD IN ITA NOS. 1743/HY D/2014 (AY.2010- 11) & ITA NO. 1917/HYD/2014 (AY.2010-11) DT. 13-11- 2015, HAS DECIDED THE ISSUE AS UNDER: ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 39 OF 44 'TCS E-SERVE LIMITED 11.2.1. AS REGARDS TCS E-SERVE LIMITED IS CONCERNED, WE FIND THAT IT POSSESSES BRAND VALUE AS IS EVIDENT FROM THE SCHEDULE-N (OPERATION AND OTHER EXPENSES) TO THE P & L A/C OF THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2009-10 OF RS. 46,065 THOUSANDS AND ALSO THAT IT POSSESSES INTANGIBLES IN THE FORM OF S OFTWARE LICENSES WHICH HAVE NOT BEEN TAKEN NOTE OF BY THE AUTHORITIES BELO W WHILE ADOPTING ITS MARGIN. IT IS ALSO THE CASE OF THE ASSESSEE THAT TH IS COMPANY HAS A TURNOVER OF RS.1405.10 CRORES WHICH IS 25 TIMES OF THE TURNOVER OF THE ASSESSEE AND HENCE, IS NOT COMPARABLE TO THE ASSESS EE. THE LD. COUNSEL FOR THE ASSESSEE HAD ALSO PLACED RELIANCE UPON THE TPO'S ORDER IN THE CASE OF M/S. IGS IMAGING SERVICES INDIA LTD., TO HO LD THAT THERE ARE EXCEPTIONAL CIRCUMSTANCES DURING THE RELEVANT FINAN CIAL YEAR DUE TO WHICH THIS COMPANY IS NOT COMPARABLE TO THE ASSESSE E. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE SEGMENTAL DETAILS OF THIS COMPANY ARE NOT AVAILABLE AND HENCE, HAS TO BE EXCLUDED ON THIS COUNT ALSO. 11.2.2. WE FIND THAT THE ASSESSEE'S CONTENTIONS ABO UT THE PRESENCE OF 'BRAND VALUE' AND OWNING OF 'INTANGIBLES' IS SUPPOR TED BY THE EVIDENCE ON RECORD. HOWEVER, AS REGARDS THE EXTRAORDINARY EVENT OR EXCEPTIONAL CIRCUMSTANCE THERE IS NO MATERIAL PLACED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, MERELY BECAUSE THE TPO IN ANOTHER CASE HAS HELD THAT THERE IS AN EXTRAORDINARY EVENT FOR WHICH THIS COMPANY HAS TO BE EXCLUDED FROM THE LIST OF COMPARABLES, IT CANNOT BE EXCLUDED. SUCH CLAIM HAS TO BE SUPPORTED BY EVIDENCE ON RECORD. AS REGARDS THE FUNCTIONAL DISSIMILARITY AND HUGE TURNOVER AND BRAN D VALUE IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE F OR A.Y.2009-10 WHILE CONSIDERING THE COMPARABILITY OF THE ASSESSEE WITH INFOSYS BPO LTD., HAS TAKEN NOTE OF THE POSSESSION OF THE BRAND VALUE AND INTANGIBLES WHICH INFLUENCED THE FINANCIAL RESULTS OF THIS COMPANY. T HE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOG IES P. LTD., (2013) 219 TAXMAN 26 (DEL.), HELD THAT HUGE TURNOVER COMPA NIES LIKE INFOSYS AND WIPRO CANNOT BE CONSIDERED AS COMPARABLE TO SMA LLER COMPANIES LIKE ASSESSEE THEREIN. IN THE CASE BEFORE THE HON'B LE HIGH COURT (SUPRA), THE TURNOVER OF THE ASSESSEE WAS ABOUT RS.15.79 CRO RES AS AGAINST THE TURNOVER OF RS.1016 CRORES OF THE INFOSYS. CONSIDER ING THESE FACTS, THE HON'BLE HIGH COURT HAD DIRECTED FOR EXCLUSION OF IN FOSYS BPO BECAUSE OF ITS BRAND VALUE AND ALSO ON THE GROUNDS OF FUNCTION AL DISSIMILARITY AND HUGE TURNOVER. THOUGH, THE COMPANY BEFORE US IS TCS E-SERVICE LTD., AND NOT INFOSYS BPO, WE FIND THAT THE TURNOVER OF THE A SSESSEE COMPANY FOR THIS ASSESSMENT YEAR IS AROUND RS.50 CRORES AS AGAI NST THE TURNOVER OF TCS E-SERVE LIMITED OF RS.1405.10 CRORES. THEREFORE , FOLLOWING THE TURNOVER FILTER AS WELL AS TAKING NOTE OF THE FACT THAT IT OWNS AND POSSESSES BRAND VALUE AND INTANGIBLES AS COMPARED T O THE ASSESSEE WHICH DOES NOT OWN SUCH ASSETS, WE DIRECT THAT THIS COMPA NY BE EXCLUDED FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, ASSESSE E'S GROUNDS OF APPEAL NO.6 IS PARTLY ALLOWED. 8.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE CO- ORDINATE BENCH, WE CONFIRM THE ORDER OF DRP EXCLUDING THE ABOVE COM PANY FROM THE LIST OF COMPARABLES. 9. AS FAR AS M/S. E-CLERX SERVICES LTD., IS CONCERN ED, THE CO-ORDINATE BENCH OF ITAT IN THE CASE OF M/S HYUNDAI MOTORS IND IA ENGINEERING P. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 40 OF 44 LTD IN ITA NOS. 1743/HYD/2014 (AY.2010-11) & ITA NO . 1917/HYD/2014 (AY.2010-11) DT. 13-11-2015, HAS DECIDED THE ISSUE AS UNDER: ' 16. AS REGARDS M/S. ECLERX SERVICES LTD., IS CONCER NED, WE FIND THAT THIS COMPANY WAS ALSO DIRECTED TO BE EXCLUDED BY FOLLOWI NG THE DECISION OF ITAT IN ASSESSEE'S OWN CASE FOR THE A.Y. 2009-2010 ON THE GROUND THAT IT IS A KPO. THE LD. COUNSEL FOR THE ASSESSEE HAS DRAW N OUR ATTENTION TO THE ANNUAL REPORT OF THE SAID COMPANY TO DEMONSTRATE TH AT THE FACTS AND CIRCUMSTANCES AND THE NATURE OF THE ACTIVITIES CARR IED ON BY THE SAID COMPANY IN THE A.Y. 2010-11 ARE ALSO SAME. 17. LD. D.R. HAS NOT BEEN ABLE TO REBUT THIS FACTUA L ASPECTS OF THE SAID COMPANY WITH ANY EVIDENCE TO THE CONTRARY. THE ONLY GROUND RELIED ON BY THE REVENUE IS THAT IN THE CASE OF AGILENT TECHNOLO GIES INTERNATIONAL P. LTD., THE ITAT, DELHI BENCH HAS UPHELD SELECTION OF M/S. ECLERX SERVICES LTD. A COPY OF THE SAID ORDER IS FILED BEFORE US. A SSESSEE'S CONTENTIONS THEREIN THAT THE KPO SERVICES ARE DISTINCT FROM BPO SERVICES AND ARE NOT COMPARABLE, HAS BEEN REJECTED BY THE TRIBUNAL. HOWE VER, SINCE A UNIFORM AND CONSISTENT STAND HAS TO BE TAKEN IN THE CASE OF THE SAME ASSESSEE ON SIMILAR FACTS AND CIRCUMSTANCES, WE, RESPECTFULLY F OLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEE'S OWN CASE, DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE DRP. GROUND NO.2 IS ACCORDINGLY REJECTED'. 9.1. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE CO- ORDINATE BENCH, WE CONFIRM THE ORDER OF DRP EXCLUDING THE ABOVE COM PANY FROM THE LIST OF COMPARABLES. 39. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE EXCLUSION OF INFOSYS BPO LTD AS WELL AS E-CLERX SER VICES FROM THE FINAL LIST OF COMPARABLES IN RESPECT OF ITES. 40. AS REGARDS GROUND NO.5, THE ASSESSEE IS SEEKING INCLUSION OF ONLY TWO COMPANIES I.E. INFORMED TECHN OLOGIES LTD AND ACE BPO SERVICES (P) LTD. AS REGARDS INFORMED T ECHNOLOGIES LTD, THE TPO DID NOT ACCEPT THIS COMPANY AS A COMPA RABLE ON THE GROUND THAT THIS COMPANY HAS HIGH NON-CURRENT INVES TMENT OF RS.6.05 CRORES AND FURTHER THAT IT IS A KPO. ACCORD ING TO THE ASSESSEE, IT IS ALSO NOT A KPO BUT IS AN ITES COMPA NY AND THAT ITS TOTAL REVENUE IS FROM THE CALL CENTRE SERVICES ONLY . HE THEREFORE, PRAYED THAT THIS COMPANY MAY BE INCLUDED IN THE LIS T OF COMPARABLES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 41 OF 44 41. SIMILARLY, AS REGARDS ACE BPO SERVICES LTD, THE CONTENTIONS OF THE ASSESSEE ARE THAT THIS COMPANY I S FUNCTIONALLY COMPARABLE AND THAT IT SATISFIES ALL THE FILTERS OF THE TPO AND ALSO THAT THERE ARE NO RELATED PARTY TRANSACTIONS OR THE (RPT) OF THIS COMPANY ARE NEGLIGIBLE. IT IS ALSO SUBMITTED THAT T HE FINANCIALS OF THIS COMPANY ARE VERY MUCH AVAILABLE IN THE PUBLIC DOMAIN AND THEREFORE, THE FINDINGS OF THE TPO THAT THE FINANCI AL OF THE COMPANY ARE NOT AVAILABLE IS NOT CORRECT. HE RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE INFOR (INDIA) (P) LTD WHEREIN THE TRIBUNAL DIRECTED THE AO/TPO TO ADOPT THIS COMP ANY AS A COMPARABLE AND PRAYED FOR A SIMILAR DIRECTION IN TH E CASE OF THE ASSESSEE ALSO. 42. THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 43. HAVING REGARD TO THE FACT THAT THE ASSESSEE HAS BROUGHT OUT THAT THESE TWO COMPANIES SATISFIES THE FILTERS ADOPTED BY THE TPO AND THAT THE FINDINGS OF THE TPO WITH RE GARD TO THE DISTINGUISHING FACTORS ARE NOT CORRECT, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE AO/TPO WITH A DIRECTION TO RE- EXAMINE THE ABOVE FACTS/CONTENTIONS OF THE ASSESSEE AND IF THEY ARE FOUND TO BE CORRECT, THE SAID COMPANIES BE ADOP TED IN THE FINAL LIST OF COMPARABLES. 44 IN THE RESULT, GROUND NO.5 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 42 OF 44 45. AS REGARDS GROUND NO.6 WITH REGARD TO THE CORRE CT MARGIN OF THE COMPARABLE COMPANIES, WE FIND THAT TH E ASSESSEE IS SEEKING CORRECT COMPUTATION OF MARGINS OF E-INFOCHI PS LTD, THIRDWARE SOLUTIONS LTD, PERSISTENT SYSTEMS LTD AND TATA ELXSI LTD WITH REGARD TO SOFTWARE DEVELOPMENT SERVICES AN D INFOSYS BPO LTD AND MICROLAND WITH REGARD TO ITES SERVICES ARE CONCERNED. WE THEREFORE, REMIT THE ISSUE TO THE FILE OF THE AO/TP O FOR COMPUTATION OF THE CORRECT MARGINS OF THESE COMPANI ES. 46. GROUND NOS. 7 & 8 WERE NOT PRESSED BY THE ASSES SEE AND THEREFORE, THESE GROUNDS ARE REJECTED. 47. AS REGARDS GROUND NO.9 WITH REGARD TO THE WORKI NG CAPITAL ADJUSTMENT, IT IS THE CASE OF THE ASSESSEE THAT THE PROVISION OF BAD AND DOUBTFUL DEBTS SHOULD BE CONSI DERED AS OPERATING EXPENSES WHILE COMPUTING THE PLI. HE SUBM ITTED THAT THE TRANSACTIONS CAN BE CONSIDERED AS A COMPARABLE ONLY AFTER MAKING ADJUSTMENTS TO ELIMINATE THE DIFFERENCES THA T ARE LIKELY TO AFFECT THE COST AND PROFIT MARGIN ON CONTROLLED AND UNCONTROLLED TRANSACTIONS. IN SUPPORT OF THIS CONTENTION, HE PLA CED RELIANCE UPON THE I.T. RULES 1(10)B(I)(E) OF THE I.T. RULES. HE FURTHER SUBMITTED THAT THE ASSESSEE BEING A CAPITIVE SERVIC E PROVIDER, WORKING CAPITAL ADJUSTMENT SHOULD BE ALLOWED TO THE ASSESSEE AS PER OECD GUIDELINES. WE FIND THAT THE TPO HAS NOT G RANTED WORKING CAPITAL ADJUSTMENT FOR BOTH SDS AND ITES TR ANSACTIONS BY HOLDING THAT THE ASSESSEE HAS FAILED TO SUBSTANT IATE THAT WCA HAS AN IMPACT ON THE PROFIT OF THE ASSESSEE VIS--V IS COMPARABLE COMPANIES. EVEN BEFORE US, THE ASSESSEE HAS NOT SHO WN HOW THE WORKING CAPITAL ADJUSTMENT IS REQUIRED IN THE CASE OF THE ASSESSEE ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 43 OF 44 AS COMPARABLE TO THE COMPARED COMPANIES. THEREFORE, WE DO NOT SEE ANY REASON TO DIRECT THE AO/TPO TO GRANT WORKIN G CAPITAL ADJUSTMENT TO THE ASSESSEE. THUS, GROUND NO.9 IS AC CORDINGLY REJECTED. 48. AS REGARDS GROUND NO.10 WITH REGARD TO INTEREST ON OUTSTANDING RECEIVABLES, IT IS THE CASE OF THE ASSE SSEE THAT THE INTEREST ON RECEIVABLES IS NOT AN INTERNATIONAL TRA NSACTION AS NOTIONAL INTEREST CANNOT BE BROUGHT TO TAX. FURTHER , HE ALSO SUBMITTED THAT AFTER MAKING WORKING CAPITAL ADJUSTM ENT, A SEPARATE ADJUSTMENT OF RECEIVABLES CANNOT BE MADE. HE FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE ARGUM ENTS, SINCE THE RECEIVABLES ARE IN FOREIGN CURRENCY, THE RATE O F INTEREST SHOULD BE AT LIBOR + AND NOT SBIPLR RATE AS APPLIED BY THE TPO. 49. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE A.Y BEFORE US IS 2014-1 5 AND HENCE, THE INTEREST ON RECEIVABLES IS AN INTERNATIONAL TRA NSACTION AS IT IS SUBSEQUENT TO THE AMENDMENT TO SECTION 92B OF THE I .T. ACT. HOWEVER, WE ARE INCLINED TO ACCEPT THE ALTERNATE AR GUMENT OF THE ASSESSEE THAT SINCE THE RECEIVABLES ARE IN FOREIGN CURRENCY, THE RATE OF INTEREST TO BE APPLIED IS AT LIBOR + AND NO R SBIPLR RATE. AO/TPO IS DIRECTED ACCORDINGLY. 50 IN THE RESULT, GROUND OF APPEAL NO.10 IS TREATED AS PARTLY ALLOWED. 51. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO 2233 OF 2018 ADP PRIVATE LTD HYDERABAD PAGE 44 OF 44 ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2020. SD/- SD/- (D.S.SUNDER SINGH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 18 TH DECEMBER, 2020. VINODAN/SPS COPY TO: 1 M/S.ADP PRIVATE LTD, 6-3-1091/C/1, FORTUNE-9, RAJ BHAVAN ROAD, HYDERABAD 500082 2 DY. CIT, CIRCLE 1(1), IT TOWERS, AC GUARDS, HYDER ABAD 3 DRP-1, KENDRIYA SADAN, 4 TH FLOOR, C WINGH BENGALURU 560034 4 DIRECTOR OF INCOME TAX, (INTL. TAXATION), HYDERAB AD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER
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