DST Worldwide Services India Private Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-17(1), Hyderabad

ITA 2234/Hyd/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5406 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 02-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 30-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANJALA SAHU
• Assessee Lawyers: ALIASGER RAMPURWALA
• Keywords: Depreciation; Transfer pricing; Share purchase agreement; International transaction; Cost of acquisition; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 201; 13; 119; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING ) BEFORE SMT. P. M ADHAVI DEVI , JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ITA NO. 2234 /HYD/201 8 ASSESSMENT YEAR: 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA PRIVATE LIMITED 5 TH FLOOR, BLOCK B Q CITY SURVEY # 109, 110, 111/2 NANAKRAMGUDA VILLAGE SERILINGAMPALLY MANDAL GACHIBOWLI RR DIST. HYDERABAD 500 032 PAN: A A A C 17097 L VS. DCIT, CIRCLE 1 7 ( 1 ) HYDERABAD (APPELLANT) (RESPONDENT) ASESSEE BY: SH. ALI ASGER RAMPURWALA , AR REVENUE BY : SMT. ANJALA SAHU, D.R. DATE OF HEARING: 0 2 /09/2020 DATE OF PRONOUNCEMENT: 30 /09/2020 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES AP PEAL FOR THE A.Y. 201 4 - 15 AGAINST THE FINAL ASSESSMENT ORDER DATED 31. 10 .201 8 PASSED U/S 143(3) R.W.S. 92CA(3) A N D 144C(13) OF THE I.T. ACT, 1961. THIS APPEAL WAS TAKEN UP FOR HEARING ON 02.09.2020 THROUGH VIDEO CONFERENCING AND BOTH THE PARTIES WERE HEARD. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS A SUBSIDIARY OF DST HEALTHCARE HOLDINGS INC. AND PACIFIC VENTURES, MAURITIUS , WHICH ARE INDIRECT SUBSIDIARIES OF DST SYSTEMS INC. AD IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES AND I.T. ENABLED SERVICES TO DST GROUP AS A CONTRACT SERVICE PROVIDER. FOR THE RELEVANT A.Y. THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.11.201 4 DECLARING AN INCOME OF RS.30,3826,180/ - UNDER NORMAL PROVISIONS OF I.T.ACT, 1961 AND A BOOK PROFIT OF RS.25,7732,716/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), AO OBSERVED THAT D URING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD ENTERED INTO INTE RNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE (AE) AND WITH REGARD TO SOFTWARE DEVELOPMENT SERVICES IT HAD ENTERED INTO A TRANSACTION OF RS.104,14,41,828/ - . THEREFORE, AO REFERRED THE DETERMINATION OF THE ALP OF THE TRANSACTION TO THE TPO U/S 92C A OF THE ACT. THE TPO EXAMINED THE TP REPORT OF THE ASSESSEE AND AS PER THE AUDIT STATEMENT OF ACCOUNTS FOR THE FY 2013 - 14, THE OP/OC OF SOFTWARE DEVELOPMENT SERVICES WAS REPORTED AT 18.67% AS AGAINST THE MARGIN OF COMPARABLES SELECTED BY ASSESSEE AT 13. 63%. HOWEVER, THE TPO WAS NOT SATISFIED WITH THE T.P. STUDY OF THE ASSESSEE . A CCORDINGLY , HE REJECTED THE TP STUDY OF THE ASSESSEE AND CONDUCTED FRESH SEARCH AND SELECTED 12 COMPANIES AS COMPARABLE TO ASSESSEE AND ARRIVED AT THE OP/OC OF THE COMPANIES A T 34.32%. THEREAFTER THE TPO DID NOT ALLOW THE WORKING CAPITAL ADJUSTMENT CLAIMED BY ASSESSEE AND PROPOSED THE ADJUSTMENT OF RS.13,73,77,352/ - U/S 92CA OF THE ACT . ACCORDINGLY , DRAFT ASSESSMENT ORDER WAS PROPOSED BY THE AO AGAINST WHICH THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP DIRECTED EXCLUSION OF T HREE COMPANIES AND IN CONSONANCE THEREWITH, THE ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 3 FINAL ASSESSMENT ORDER WAS PASSED BY TAKING ONLY 10 COMPANIES AS COMPARABLE TO THE ASSESSEE AND MAKING TP ADJUSTMENT OF RS.13,54,46,587/ - . 3. AGGRIEVED BY THE FINAL ASSESSMENT ORDER DATED 31.10.2018, THE ASSESSEE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL. THE GROUNDS MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') ERRED IN UPHOLDING THE ACTION OF THE LD. ASSESSING OFFICER ('LD. AO') / TRANSFER PRICING OFFICER ('LD.TPO') IN MAKING AN ADJUSTMENT OF RS. 13 ,54,46,587 TO THE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO / LD. TPO/ HON'BLE DRP ERRED IN: A. REJECTING THE TRANSFER PRICING STUDY WHIC H WAS MAINTAINED IN GOOD FAITH AND WITH DUE DILIGENCE ; B. REJECTING THE SEARCH PROCESS FOLLOWED BY THE APPELLANT AND CARRYING OUT FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARM'S LENGTH PRICE; C. REJECTING THE USE OF MULTIPLE YEAR DATA AND APPLYING ONLY SINGLE YEAR DATA FOR COMPARABILITY ANALYSIS WHICH WERE NOT AVAILABLE AT THE TIME OF PREPARATION OF TRANSFER PRICING STUDY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO/LD.TPO / HON'BLE DRP ERRED IN: A. REJECTING CERTAIN FILTERS AS APPLIED BY THE APPELLANT IN SELECTION OF THE COMPARABLE COMPANIES AT THE TIME OF TRANSFER PRICING DOCUMENTATION; B. A PPLYING/MODIFYING CERTAIN FILTERS WHILE UNDERTAKING COMPARABILITY ANALYSIS; 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO / LD. TPO/ HON'BLE DRP ERRED IN INCLUDING FOLLOWING COMPANIES ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 4 IN THE COMPARABLE SET WHICH ARE NOT COMPARABLE TO THE APPELLANT'S FUNCTIONS, ASSET BASE AND RISK PROFILE: INFOSYS LIMITED; LARSEN AND TOUBRO I NFOTECH LIMITED; MINDTREE LIMITED; PERSISTENT SYSTEMS LIMITED; THIRDWARE SOLUTIONS LIMITED; TATA ELXSI (SEG); E - INFOCHIPS LIMITED; AND INFOBEANS TECHNOLOGIES LIMITED; 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO / LD.TPO/HON'BLE D RP ERRED IN EXCLUDING FOLLOWING COMPANIES IN THE COMPARABLE SET WHICH ARE COMPARABLE TO THE APPELLANT'S FUNCTIONS, ASSET BASE AND RISK PROFILE: AKSHAY SOFTWARE TECHNOLOGIES LIMITED; BELLS SOFT E CH LIMITED; LOCUZ ENTERPR ISES SOLUTIONS LIMITED; CSS CORP PRIVATE LIMITED; SASKEN COMMUNICATIONS TECHNOLOGIES LIMITED - (SOFTWARE SERVICE SEGMENT); MAVERIC SYSTEMS LIMITED; SAGARSOFT (INDIA) LIMITED; SANKHYA INFOTECH LIMITED; TRIANZ I T & CLOUD SOLUTIONS PRIVAT E LIMITED; NUCLEUS SOFTWARE EXPORTS LIMITED; FCS SOFTWARE SOLUTIONS LIMITED; EVOKE TECHNOLOGIES PRIVATE LIMITED; AND COVIDH TECHNOLOGIES LIMITED; 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. D RP / TPO/LD. AO HAS ERRED IN NOT CONSIDERING CERTAIN COST COMPONENTS AS OPERATING/NON - OPERATING FOR COMPARABLE COMPANIES AND CONSIDERING MISCELLANEOUS INCOME AS OPERATING IN NATURE; 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO / LD. TPO/ HON'BLE D RP ERRED IN: A. NOT GRANTING WORKING CAPITAL ADJUSTMENT; AND B. NOT GRANTING RISK ADJUSTMENT. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 5 8. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, OMIT OR SUBSTITUTE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL OR PRODUCE FURTHER DOCUMENTS AT ANY TIME BEFORE OR AT THE TIME OF THE APPEAL. 4 . AT THE TIME OF HEARING THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT GROUND NO.1 IS GENERAL IN NATURE AND HENCE IT NEEDS NO SPECIFIC ADJUDICATION. HE ALSO SUBMITTED THAT THE ASSESSEE IS ALSO NO T PRESSING GROUND NOS. 2 , 3 AND 6. HENCE GROUND NOS. 2, 3 AND 6 ARE DISMISSED AS NOT PRESSED. 4.1 . HE FURTHER SUBMITTED THAT IN GROUND NO.4 , THE ASSESSEE IS SEEKING EXCLUSION OF COMPANIES FROM THE FINAL LIST OF COMPARABLES BUT AT THIS TIME OF HEARING THE ASSESSEE IS NOT PRESSING FOR THE EXCLUSION OF 4 COMPANIES I.E. LARSEN & TOUBRO INFOTECH LTD., MIN D TREE LTD., TATA ELXSI LTD. , AND THEREFORE THE GROUND IN RESPECT OF THESE COMPANIES IS REJECTED. 4.2 . AS REGARD GROUND NO.5 , LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS SEEKING IN CLUSION OF ONLY ONE COMPANY I.E. SAGAR SOFT (INDIA) LTD. AND ALL OTHER COMPANIES MENTIONED IN THE GROUND ARE NOT PRESSED. THEREFORE ALL OTHER COMPANIES INCLUDED IN THE GROUND ARE REJECTED AS NOT PRESSED. 4.3 . AS REGARDS GROUND NO.7, T HE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE IS ONLY SEEKING WORKING CAPITAL ADJUSTMENT WHICH IS GROUND NO.7(A) AND IS NOT PRESSING RISK ADJUSTMENT I.E. GROUND NO.7(B). T HEREFORE, GROUND NO.7(B) IS REJECTED. 4.4. COMING TO GROUND NO.4, THE COMPANIES WHICH THE ASSESSEE IS SEEKING EXCLUSION ARE: ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 6 I. INFOSYS LTD. II. PERSISTENT SYSTEMS LTD. III. E - INFOCHIPS LTD. IV. INFOBEANS TECHNOLOGIES LTD. V. THIRDWARE SOLUTIONS LIMITED THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF KONY INDIA P LTD. VS. DCIT FOR THE VERY SAME AY 2014 - 15, THE ABOVE COMPANIES HAVE BEEN HELD TO BE FUNCTIONALLY NOT COMPARABLE TO THE KONY INDIA PVT.LTD. WHICH IS ALSO ENGAGED IN THE BUSINESS OF PROVIDING SOFT WARE D EVELOPME NT S ERVICES TO ITS A.E. LIKE ASSESSEE COMPANY. HE , THEREFORE , PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF : I. M/S KONY INDIA PRIVATE LTD. VS. DCIT ( ITA NO. 2305/H/18 AY 2014 - 15) ; AD II. KONY IT SERVICES P LTD. VS. DCIT (ITA 2304/H/2018 - AY 2014 - 15) AND PRAYED FOR EXCLUSION OF THE ABOVE 5 COMPANIES FROM THE FINAL LIST OF COMPARABLES. 5 . LD.DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW . 6 . HAVING REGARD TO RIVAL CONTENTIONS AND MATERIAL PLACED ON RECORD, WE FIND THAT THE ASSESSEE IS INTO PROVIDING S OFTWARE D EVELOPMENT S ERVICES AND M/S KONY INDIA PRIVATE LTD. WAS ALSO INTO SIMILAR BUSINESS OF PROVIDING S OFTWARE D EVELOPMENT S ERVICES TO ITS AE , WE ALSO FIND THAT THE TPO HAS TAKEN THE VERY SAME 12 COMPANIES AS COMPARABLES IN THE CASE OF KONY INDIA LTD. SINCE THE RELEVANT AY IS ALSO 2014 - 15, THE FACTS AND CIRCUMSTANCES ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 7 UNDER WHICH THOSE COMPANIES HAVE BEEN HELD TO BE NOT COMPARABLE TO M/S . KONY INDIA P RIVATE LIMITED ARE ALSO THE SAME, THE SAID DECISION IS ALSO APPLICABLE TO THE CASE BEFORE US. 6 .1. IN VIEW OF THE SAME, RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH OF TH IS TRIBUNAL TO WHICH ONE OF US (I.E. J.M.) IS A SIGNATORY, WE DIRECT THE EXCLUSION OF ABOVE MENTIONED COMPANIES FROM THE FINAL LIST OF COMPARABLES . FOR THE SAKE OF READY REFERENCE , THE RELEVANT PARAGRAPHS FROM THE ORDER OF THIS TRIBUNAL ARE REPRODUCED HEREUNDER: - 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE PAPER BOOK FURNISHED BY THE ASSESSEE AS WELL AS THE ARGUMENTS ADVANCED B Y THE LD.AR, WE FIND MERIT IN HIS CONTENTION BECAUSE OF THE FOLLOWING REASONS: - (I) E - INFOCHIPS LIMITED: - (A) AS PER THE ANNUAL REPORT OF M/S. E - INFOCHIPS LIMITED FOR THE PERIOD 1/4/2013 TO 31/3/2014 (PAGE NO.98 OF THE PAPER BOOK - VOLUME - II) IT IS EVIDENT THAT THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT, IT ENABLES SERVICES AND PRODUCT - BASED COMPANY. FURTHER, NO SEGMENTAL DETAILS ARE AVAILABLE IN THE ANNUAL REPORT. WHILE AS THE ASSESSEES COMPANYS ONLY ACTIVITY IS CAPTIVE SOFTWARE DEVELOPMENT SER VICES. EXTRACTION FROM PAGE - 98 OF PB - II THE COMPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLE SERVICES AND PRODUCTS WHICH IS CONSIDERED THE ONLY REPORTABLE BUSINESS SEGMENT AS PER ACCOUNTING STANDARD - AS 17 SEGMENT REPORTING PRESCRIBED IN COMPANIES ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 211(3C) (WHICH CONTINUES TO BE APPLICABLE IN TERMS OF GENERAL CIRCULAR 15/2013 DATED SEPTEMBER 13, 2013 OF THE MINISTRY OF CORPORATE AFFAIRS IN RESPECT OF SECTION 133 OF THE COMPANIES ACT, 1961. (B) THE COMPANY ALSO MANUFACTURES PRODUCTS SUCH AS ELECTRONIC BOARDS AND PRINTER CIRCUITS BY IMPORTING RAW MATERIALS AND HOLDING INVENTORY, A S APPARENT FROM PAGE NO. 119 OF THE PB - II. THE ASSESSEE COMPANY IS NOT ENGAGED INTO ANY ACTIVITY OF PRODUCING PHYSICAL GOODS. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 8 PAGE NO. 119 OF THE PB - II (C) THE COMPANY HAS ALSO INCURRED EXPENSES IN R & D AND THEREFORE GENERATED INTANGIBLE ASSETS AS APP ARENT FROM PAGE NO. 65 & 121 OF PB - II, WHILE AS THE ASSESSEE COMPANY IS NOT INVOLVED IN ANY R & D ACTIVITY. IN THE CASE OF THE ASSESSEE COMPANY NEITHER SUCH EXPENSES ARE INCURRED, OR ANY INTANGIBLES ARE ACQUIRED DURING THE RELEVANT PERIOD. EXTRACTION FROM PAGE NO. 65 OF PB - II ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 9 EXTRACTION FROM PAGE NO.121, PB - II: (D) THE COMPANY HAS ALSO EARNED REVENUE FROM INFORMATION TECHNOLOGY CONSULTANCY OF RS. 29.07 CRS AS APPARENT FROM PAGE NO.123 OF PB - II. HOWEVER, THE ASSESSEE COMPANY HAVE NOT EARNED ANY INCOME FROM INFORMATION TECHNOLOGY CONSULTANCY ACTIVITIES. EXTRACTION FROM PAGE NO.123 OF PB - II: 10. CONSIDERING THE NATURE OF ACTIVITIES CARRIED OUT BY M/S. E - INFOCHIPS LIMITED DISCUSSED HEREINABOVE AND SINCE THE ASSESSEE COMPANY IS PRIMARILY ENGAGED IN CUSTOM - BUILT MOBILE PLATFORM, APPLICATIONS AND SOFTWARE SUPPORT AND MAINTENANCE RELATED SERVICES TO M/ S. KONY GROUP OF COMPANIES, WE ARE OF ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 10 THE VIEW THAT M/S. E - INFOCHIPS LIMITED CANNOT BE CONSIDERED AS A COMPARABLE COMPANY BECAUSE OF THE REASONS STATED HEREINABOVE. (II) THIRDWARE SOLUTIONS LIMITED: (A) AS ARGUED BY THE LD. AR IT IS EVIDENT FROM THE ANNUAL R EPORT (PAGE NO.235 OF PB - II) THAT THE COMPANY HAS DERIVED REVENUE FROM SALE OF PRODUCTS AMOUNTING TO RS. 206.75 CRS. FURTHER, THERE IS NO REVENUE FROM SALE OF SERVICES DURING THE PREVIOUS YEAR. THE ASSESSEE HAS ALSO PURCHASED STOCK AMOUNTING TO RS. 40.21 CRS. WHILE AS THE ASSESSEE COMPANY IS NOT ENGAGED INTO ANY ACTIVITY OF PRODUCING PHYSICAL GOODS. PAGE NO.235 OF PB - II (B) IT IS ALSO APPARENT THAT THE COMPANY IS RECEIVING REVENUE FROM VARIOUS STREAMS AND NONE OF THEM WERE PERTAINING TO SOFTWARE DEVELOPMENT SERVICES. AS APPARENT FROM PAGE 237 OF PB - II, THE COMPANY HAS RECEIVED REVENUE FROM TRAINING AND SUBSCRIPTION AMOUNTING TO RS. 59.32 LAKHS AND SALE OF LICENSES RS. 7.98 LAKHS. THE ASSESSEE COMPANY IS ONLY ENGAGED IN ITES. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 11 EXTRACTION FROM PAGE NO.237 OF PB - II: (C) IT IS ALSO APPARENT FROM PAGE NO. 217 OF PB - II THAT THE COMPANY HAS NOT DISCLOSED SEGMENTAL DETAILS BETWEEN SOFTWARE DEVELOPMENT SERVICES AND PRODUCTS. THE RELEVANT PORTION IS EXTRACTED HEREINBELOW FOR REFERENCE: - 34) SEGMENT REPO RTING THE COMPANYS COOPERATION COMPRISES OF SOFTWARE DEVELOPMENT, IMPLEMENTATION AND SUPPORT SERVICES. PRIMARY SEGMENTAL REPORTING IS BASED ON GEOGRAPHICAL AREAS VIZ., DOMESTIC = INDIA (PRODUCTS & SERVICES) AND INTERNATIONAL = REST OF THE WORLD (EXPORTS - SOFTWARE SERVICES). IN PRIMARY SEGMENT, REVENUE AND ALL EXPENSES, WHICH RELATES TO A PARTICULAR GEOGRAPHICAL SEGMENT, ARE REPORTED. FIXED ASSETS, CURRENT ASSETS, LOANS AND ADVANCES, CURRENT LIABILITIES AND PROVISIONS ARE CLASSIFIED BASED ON SPECIFIC GEO GRAPHICAL SEGMENTS BUSINESS. THE COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR THE REPORTED SEGMENTS. WHEREVER THE COSTS ARE DIRECTLY IDENTIFIABLE WITH THE REPORTED SEGMENT, IT HAS BEEN BOOKED TO THAT SEGMENT. WHEREVER COMMON EXPENSES ARE INCURRED, THOSE EXPENSES HAVE ALREADY BEEN CONSIDE3RED FOR ALLOCATION AND RELEVANT ENTRIES IN THE BOOKS OF ACCOUNT HAVE BEEN PASSED. HENCE THERE ARE NO UN - ALLOCABLE EXPENSES. FURTHER, CASH, INVESTMENT (NET OF PROVISION) AND BANK BALANCES ARE REPORTED AT THE ENTERPRISE LEVEL. CURRENT ASSETS AND CURRENT LIABILITIES RELATING TO THE SPECIFIC BUSINESS SEGMENTS ARE IDENTIFIED AND REPORTED. THOSE, WHICH ARE NOT IDENTIFIABLE, ARE REPORTED AS COMMON ASSETS / LIABILITIES. (D) AS DISCLOSED IN THE ANNUAL ACCOUNT IT IS ALSO APPARENT THAT THE COMPANY HAS ACQUIRED INTANGIBLES DURING THE YEAR. RELEVANT PORTION OF PAGE 210 OF PB - II IS EXTRACTED HEREINBELOW FOR REFERENCE: - D) INTANGIBLE ASSETS AND AMORTIZATION ACQUIRED INTANGIBLE ASSETS RELATING TO SOFTWARE P URCHASED FOR COMPANYS INTERNAL USE ARE CAPITALISED AT THE COST OF ACQUISITION AND ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 12 IS AMORTISED ON THE STRAIGHT LINE METHOD OVER ITS ESTIMATED USEFUL LIFE OF THREE YEARS, AS PERCEIVED BY THE MANAGEMENT OR USEFUL LIFE OF ASSET AS PER CONTRACT WHICHEVER IS E ARLIER. DEPRECIATION ON INTANGIBLE ASSETS IS CALCULATED ON PRO - RATA BASIS WITH REFERENCE TO DATE OF ADDITION OVER ITS USEFUL LIFE OF THREE YEARS, AS PERCEIVED BY THE MANAGEMENT OR USEFUL LIFE OF ASSET AS PER CONTRACT, WHICHEVER IS EARLIER. THE INTANGIBLE A SSETS ACQUIRED B THE RESPECTIVE UNITS OF THIRDWARE SOLUTION LIMITED ARE USED IN RELATION TO THE OPERATION / SERVICES BY THE RESPECTIVE UNITS ONLY. INTANGIBLE ASSETS INTERNALLY DEVELOPED BY THE COMPANY ARE CAPITALISED AT THE TOTAL COST ATTRIBUTABLE TOWARDS THE DEVELOPMENT OF THE PRODUCT AND IS AMORTISED ON THE STRAIGHT - LINE METHOD OVER ITS ESTIMATED USEFUL LIFE OF THREE YEARS, AS PERCEIVED BY THE MANAGEMENT. 10.1. IN THE CASE OF THE ASSESSEE COMPANY NEITHER SUCH EXPENSES ARE INCURRED, OR ANY INTAN GIBLES ARE ACQUIRED DURING THE RELEVANT PERIOD. 11. SINCE THE ASSESSEE COMPANY IS PRIMARILY ENGAGED IN CUSTOM - BUILT MOBILE APPLICATIONS AND SOFTWARE SUPPORT AND MAINTENANCE RELATED SERVICES TO M/S. KONY GROUP OF COMPANIES, WE ARE OF THE CONSIDERED VIEW THA T M/S. THIRD - WARE SOLUTIONS LIMITED CANNOT BE CONSIDERED AS A COMPARABLE COMPANY BECAUSE OF THE REASONS STATED HEREINABOVE . (I) M/S. INFOBEANS TECHNOLOGIES LIMITED : - (A) FROM THE ANNUAL REPORT PAGE NO.276 OF THE PB - II IT IS APPARENT THAT THE ASSESSEE HAS ALSO BEEN ENGAGED IN SALE OF GOODS ALONG WITH RENDERING OF SERVICES BECAUSE THE TURNOVER IS REPORTED ON EXPORT OF GOODS / SERVICES CALCULATED ON FOB BASIS. (B) THE COMPANY ALSO HAS MODVAT DEPOSITS AND SALES TAX DEPOSIT. (C) THEREFORE, THE COMPANY IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY. (D) FOR REFERENCE THE RELEVANT PORTION OF THE ANNUAL REPORT ENCLOSED IN PAPER BOOK - II, PAGE NO.276 IS EXTRACTED HEREINBELOW: NOT E - 27 EARNINGS IN FOREIGN EXCHANGE A. EXPORT OF GOODS / SERVICES CALCULATED ON F.O.B BASIS 329,659883 216,854,891 TOTAL 329,659883 216,854,891 ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 13 LONG TERM LOANS & ADVANCES SECURITY DEPOSIT SECURED CONSIDERED GOOD TELEPHONE DEPOSIT OTHER DEPOSIT CUSTOM DEPOSIT DEPOSIT WITH MPPKVVCL SALES TAX DEPOSIT (KOTAK FDR) DEPOSIT (M - VAT) M.P.S.E.D.C. LTD 9,400 9,153 10,000 140,850 10,000 25,000 10,121,460 9,400 3,500 10,000 73,150 - 25,000 - TOTAL 10,325,863 121,050 11.1. SINCE, THE COMPANY IS FUNCTIONALLY DISSIMILAR IT CANNOT BE COMPARED WITH THE ASSESSEE COMPANY FOR THE PURPOSE OF TP ADJUSTMENT . ( IV) M/S. INFOSYS LIMITED : (A) FROM THE PROFITABILITY REPORTED IN THE P & L ACCOUNT (PAGE NO. 324, 349 AND 357 OF PB - II) IT IS EVIDENT THAT THE COMPANY HAD UNDERGONE EXTRAORDINARY EVENTS AS STATED BY THE LD. AR AND THIS ACQUISITION HAD SUBSTANTIAL IMPACT ON THE PROFITABILITY OF THE COM PANY DURING THE PREVIOUS YEAR. EXTRACTION FROM PAGE 324 LODESTONE HOLDING AG ON OCTOBER 22,2012. INFOSYS ACQUIRED 100%OF THE OUTSTANDING SHARE CAPITAL OF LODESTONE HOLDING AG, A GLOBAL MANAGEMENT CONSULTANCY FIRM HEADQUARTERED IN ZURICH, SWITZERLAND. T HE ACQUISITION WAS EXECUTED THROUGH A SHARE PURCHASE AGREEMENT FOR AN UPFRONT CASH CONSIDERATION OF 1,187 CRORE AND A DEFERRED CONSIDERATION OF UP TO RS. 608 CRORE. DURING THE YEAR, WE INVESTED IN OUR SUBSIDIARIES, FOR THE PURPOSE OF OPERATIONS AND EXPANSI ON, AS FOLLOWS: SUBSIDIARY IN FOREIGN CURRENCY CRORE INFOSYS AMERICAS,INC. USD O.1 MILLION 1 LODESTONE HOLDING AG CHF 20 MILLION 136 INFOSYS PUBLIC SERVICES,INC. USD 12.5 MILLION 75 EDGEVERVE SYSTEMS LIMITED 1 ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 14 (1) ON APRIL 15,2014,THE BOARD OF DIRECTORS OF INFOSYS AUTHORIZED THE COMPANY TO EXECUTE A BUSINESS TRANSFER AGREEMENT AND RELATED DOCUMENTS WITH EDGEVERVE (REFER TO NOTE 2.10.2 OF THE STANDALONE FINANCIALS). REFER TO STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT,1956 FOR THE SUM MARY FINANCIAL PERFORMANCE OF OUR SUBSIDIARIES. THE AUDITED FINANCIAL STATEMENTS AND RELATED INFORMATION OF SUBSIDIARIES WILL BE AVAILABLE ON OUR WEBSITE,WWW.INFOSYS.COM. EXTRACTION FROM PAGE 349 OF PB - II 2.10.1 INVESTMENT IN LODESTONE HOLDING AG ON OCTOBER 22, 2012, INFOSYS ACQUIRED 100% OF THE OUTSTANDING SHARE CAPITAL OF LODESTONE 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. 1,87 CRORE AND A DEFERRED CONSIDERATION OF UP TO RS. 608 CR. THE DEFERRED CONSIDERATION IS PAYABLE TO THE SELLING SHAREHOLDERS OF LODESTONE ON THE THIRD ANNIVERSARY OF THE ACQUISITION DATE AND IS CONTINGENT UPON THEIR CONTINUED EMPLOYMENT FOR A PERIOD OF THREE YEARS. THE INVESTMENT IN LODESTONE HAS BEEN RECORDED AT THE ACQUISITION COST AND THE DEFERRED CONSIDERATION IS BEING RECOGNIZED ON A PROPORTIONATE BASIS OVER A PERIOD OF THREE YEARS FROM THE DATE OF ACQUISITION. AN AMOUNT OF RS. 228 CRORE AND RS. 85 CR REPRESENTING THE PROPORTIONATE CHARGE OF THE DEFERRED CONSIDERATION HAS BEEN RECOGNIZED AS AN EXPENSE DURING THE YEARS ENDED MARCH 31, 2014 AND MARCH 31, 2013 RESPECTIVELY. EXTRACTION FROM PAGE 357 OF PB - II 2.26 MERGER OF INFOSYS CONSULTING INDIA LIMITED THE HONORABLE HIGH COURT OF KARNATAKA SANCTIONED THE SCHEME OF AMALGAMATION OF INFOSYS CONSULTING INDIA LIMITED (ICIL) WITH INFOSYS LIMITED WITH AN EFFECTIVE DATE OF AUGUST 23, 2013 AND AN APPOINTED DATE OF J ANUARY 12, 2012 ICIL WAS A WHOLLY - OWNED SUBSIDIARY OF INFOSYS LIMITED AND WAS ENGAGED IN SOFTWARE - RELATED CONSULTANCY SERVICES. THE MERGER OF ICIL INTO INFOSYS LIMITED HAS BEEN ACCOUNTED FOR UNDER POOLING OF INTEREST ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 15 METHOD REFERRED TO IN ACCOUNTING STAND ARD 14. ACCOUNTING FOR AMALGAMATION (AS - 14). ALL THE ASSETS AND LIABILITIES OF ICIL ON AN AFTER THE APPOINTED DATE AND PRIOR TO THE EFFECTIVE DATE HAVE BEEN TRANSFERRED TO INFOSYS LIMITED ON A GOING CONCERN BASIS. AS ICIL WAS A WHOLLY - OWNED SUBSIDIARY OF INFOSYS LIMITED, NO SHARES HAVE BEEN ALLOTTED TO THE SHAREHOLDERS UPON THE SCHEME BECOMING EFFECTIVE. 11.2. HOWEVER, IN THE CASE OF THE ASSESSEE COMPANY THERE ARE NO SUCH EVENTS LEADING TO SUPER PROFITS. (B) THE COMPANY HAS A BUMPER TURNOVER OF RS. 42,531 CR S WHICH CANNOT BE COMPARED WITH THE TURNOVER OF THE ASSESSEE COMPANY WHICH IS ONLY RS. 163 CRS. (C) THE COMPANY HAS RECOGNISED INTELLECTUAL PROPERTY RIGHTS (IPRS) FOR RS. 59 CRS AS EVIDENT FROM PAGE 348 OF PB - II. EXTRACTION FROM PAGE 348 OF PB - II 2.8 FIXED ASSETS IN ` CRORE, EXCEPT AS OTHERWISE STATED PARTICULARS ORIGINAL COST DEPRECIATION AND AMORTIZATION NET BOOK VALUE AS AT APRIL 1, 2013 ADDITIONS / ADJUSTMENTS DURING THE YEAR DEDUCTIONS / RETIREMENT DURING THE YEAR AS AT MARCH 31, 2014 AS AT APRIL 1, 2013 FOR THE YEAR DEDUCTIONS / ADJUSTMENTS DURING THE YEAR AS AT MARCH 31, 2014 AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 TANGIBLE ASSETS : LAND : FREEHOLD 492 290 1 781 781 492 LEASEHOLD 348 1 349 4,878 1,754 349 3,124 348 BUILDINGS (1)(2) 4,053 825 1,467 287 2,586 PLANT AND EQUIPMENT (2) 779 312 1 1,090 547 125 1 671 419 232 OFFICE EQUIPMENT (2) 276 117 393 159 56 215 178 117 COMPUTER EQUIPMENT (2)(3) 1,525 672 19 2,178 1,053 520 19 1,554 624 472 FURNITURE AND FIXTURES (2) 518 161 679 345 96 441 238 173 VEHICLES 10 3 13 5 2 7 6 5 8,001 2,381 21 10,361 3,576 1,086 20 4,642 5,719 4,425 INTANGIBLE ASSETS : INTELLECTUAL PROPERTY RIGHTS 59 59 31 15 46 13 28 59 59 31 15 46 13 28 TOTAL 8,060 2,381 21 10,420 3,607 1,101 20 4,688 5,732 4,453 PREVIOUS YEAR (4) 7,173 1,422 535 8,060 3,112 956 461 3,607 4,453 (1) BUILDINGS INCLUDE ` 250/ - BEING THE VALUE OF 5 SHARES OF ` 50/ - EACH IN MITTAL TOWERS PREMISES CO - OPERATIVE SOCIETY LIMITED. (2) INCLUDES CERTAIN ASSETS PROVIDED ON CANCELLABLE OPERATING LEASE TO INFOSYS BPO, A SUBSIDIARY. (3) INCLUDES COMPUTER EQUIPMENT HAVING GROSS BOOK VALUE OF ` 1 CRORE (NET BOOK VALUE NIL) TRANSFERRED FROM INFOSYS CONSULTING INDIA LIMITED (REFER NOTE 2.26). (4) DURING THE YEARS ENDED MARCH 31, 2014 AND MARCH 31, 2013, CERTAIN ASSETS WHICH WERE OLD AND NOT IN US E HAVING GROSS BOOK VALUE OF NIL AND ` 521 CRORE RESPECTIVELY ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 16 IN THE CASE OF ASSESSEE COMPANY THERE IS NO ACCRETION OF SUCH KIND OF ASSETS. (D) THE COMPANY HAS SPENT HUGE AMOUNT ON R & D ACTIVITIES AMOUNTING TO RS. 261 CRS DURING THE PREVIOUS YEAR AND ALSO H AVE FILED 79 PATTERNS IN ITS NAME AS POINTED BY THE LD. AR AND APPARENT FROM THE PB - II, PAGE NO.304 AND 311. EX TRACTION FROM PAGE 304 OF PB - II OUR RESEARCH AND DEVELOPMENT EFFORTS FOCUS ON THE TWIN GOALS OF IMPROVING PRODUCTIVITY AND QUALITY OF OUR SERVICES, ALONGSIDE WORKING TOWARDS TECHNOLOGY DRIVEN INNOVATION AND DIFFERENTIATION THAT WILL DELIVER GREATER VALUE TO OUR CLIENTS. AT INFOSYS LABS, SERVICE INNOVATION IS BEING ACHIEVED THROUGH ENHANCED AUTOMATION, OPTIMIZATION, PREVENTION AND EFFECTIVE C OLLABORATION AMONG DESCRIBED TEAMS. INFOSYS LABS HAS ESTABLISHED A SET OF SERVICE INNOVATION GROUPS FOCUSED ON ENHANCING QUALITY AND PRODUCTIVITY OF SIX DOMINANT INFOSYS SERVICES - BUSINESS PROCESS OUTSOURCING; INFRASTRUCTURE MANAGEMENT SERVICES; INDEPENDENT VALIDATION SERVICES; APPLICATION DEVELOPMENT AND MAINTENANCE INCLUDING LARGE DEALS; CONSULTING AND SYSTEMS INTEGRATION; AND MODERNIZATION. THESE GROUPS WORK ON SERVICE PLATFORMS WITH A FOCUS ON AUTOMATION, OPTIMIZATION, CONSOLIDATION, AND ON ENHANCING THE EFFECTIVENESS OF CONTEXTUAL COLLABORATION FOR DISTRIBUTED TEAMS. UNDER ITS CLIENT INNOVATION UMBRELLA, INFOSYS LABS HAS ESTABLISHED SIX CENTRES OF EXCELLENCE (COE), NAMELY MODERNIZATION, ADVANCED ANALYTICS, SECURITY AND DEPENDABILITY, ADVANCED MOBILITY, E XPERIENCE, AND INNOVATION CO - CREATION. THE COES WORK TOWARDS ESTABLISHING TECHNOLOGY - BASED CLIENT INNOVATION AND DIFFERENTIATION THROUGH THE ESTABLISHMENT OF CLIENT INNOVATION CENTRES, PUBLISHING FOCUSED TECHNOLOGY POINTS OF VIEW, IMPLEMENTING PROOFS OF CO NCEPTS DRIVEN BY OUR FOCUS ON CLIENT VALUE, AND CONDUCTING CLIENT WORKSHOPS. ADDITIONALLY, WE HAVE SET UP INNOVATION CENTRES WITH A NUMBER OF OUR CLIENTS, UNIVERSITY PARTNERS, AND INDUSTRY RESEARCH CONSORTIA TO DRIVE CO - CREATION. INFOSYS LABS FOCUSES ON D EVELOPING SIGNIFICANT NEW INTELLECTUAL PROPERTY TO ENHANCE THE PRODUCTIVITY AND QUALITY OF OUR SERVICES WHILE ENABLING DIFFERENTIATION IN CLIENT OFFERINGS. DURING FISCAL YEAR 2014, INLOSYS LABS FILED 79 UNIQUE PATENT APPLICATIONS IN THE UNITED STATES PATE NT AND TRADEMARK OFFICE(USPTO),THE INDIAN PATENT OFFICE AND OTHER JURISDICTIONS. ON A STANDALONE BASIS, OUR RESEARCH AND DEVELOPMENT EXPENSES FOR FISCAL YEARS 2014, 2013 AND 2012 WERE RS. 873 CRORE, RS. 907 CRORE AND RS. 655 CRORE, RESPECTIVELY. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 17 EXTRACTION FROM PAGE 311 OF PB - II RESEARCH AND DEVELOPMENT EXPENDITURE THE R&D CENTERS OF THE COMPANY (FINACLE AND INFOSYS LABS) LOCATED AT BANGALORE, BHUBANESWAR, CHANDIGARH, CHENNAI, PUNE, HYDERABAD, MYSORE AND THIRUVANANTHAPURAM HAVE BEEN ACCORDED APPR OVAL FOR WEIGHTED DEDUCTION BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) EFFECTIVE NOVEMBER 23, 2011. THE ELIGIBLE R&D REVENUE AND CAPITAL EXPENDITURE ON A STANDALONE BASIS ARE RS 261 CRORE AND NIL RESPECTIVELY FOR THE YEAR ENDED MARCH 3 1, 2014 AND RS. 247 CRORE AND RS. 3 CRORE RESPECTIVELY FOR THE YEAR ENDED MARCH 31, 2013. ON A STANDALONE BASIS, THE TOTAL R&D EXPENDITURE, INCLUDING ELIGIBLE R&D EXPENDITURE DISCUSSED ABOVE FOR FISCAL YEARS 2014 AND 2013 IS AS FOLLOWS: I N ` CRORE 2014 2013 REVENUE EXPENDITURE 873 873 2.0% 907 CAPITAL EXPENDITURE 6 TOTAL 913 R&D EXPENDITURE / TOTAL REVENUE (%) 2.5% (E) IT IS ALSO APPARENT FROM PAGE NO.326 OF PB - II THAT THE COMPANY HAS INCURRED HUGE SELLING AND MARKETING EXPENSES OF RS. 2,390 CRS. EXTRACTION FROM PAGE 326 OF PB - II III RESULTS OF OPERATIONS THE FUNCTION - WISE CLASSIFICATION OF THE STANDALONE STATEMENT OF PROFIT AND LOSS IS AS FOLLOWS: IN ` CRORE YEAR ENDED MARCH 31 2014 % 2013 % INCOME FROM SOFTWARE SERVICES AND PRODUCTS 44,341 100.0 36,765 100.0 SOFTWARE DEVELOPMENT EXPENSES 26,738 60.3 21,662 58.9 GROSS PROFIT 17,603 39.7 15,103 41.1 ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 18 SELLING AND MARKETING EXPENSES 2,390 5.4 1,870 5.1 GENERAL AND ADMINISTRATION EXPENSES 2,686 6.0 2,218 6.0 5.076 11.4 4,088 11.1 OPERATING PROFIT BEFORE DEPRECIATION 12,527 28.3 11,015 30.0 WHILE AS IN THE CASE OF THE ASSESSEE COMPANY NO SUCH EXPENSES HAVE BEEN INCURRED AS IT IS CATERING ONLY TO ITS PARENT COMPANY. 12. CONSIDERING THE ABOVE - MENTIONED FACTORS, WE ARE OF THE CONSIDERED VIEW THAT M/S. INFOSYS LIMITED IS NOT A COMPARABLE COMPANY WITH RESPECT TO THE ASSESSEE COMPANY FOR TP ADJUSTMENTS. (V) M/S. PERSISTENT SYSTEMS LTD: - (A) IT IS EVIDENT FROM PAGE NO. 533 OF PB - II THAT THE COMPANY IS MAINLY ENGAGED IN THREE AREAS SUCH AS PRODUCTS (IP BUSINESS), PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING) AND IS ALSO SELLING ITS BRANDED PRODUCTS. EXTRACTION FROM PAGE 533 OF PB - II BUSINESS OVERVIEW YOUR COMPANY SPECIALIZES IN BUILDING COMPUTER SOFTWARE PRODUCTS. YOUR COMPANYS BUSINESS IS ORGANIZED WITH A FOC US ON THE FOLLOWING THREE AREAS: PRODUCTS (IP BUSINESS), PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING). YOUR COMPANY HAS DECIDED TO BRAND THE PRODUCT BUSINESS SEPARATELY FROM THE PERSISTENT BRAND AND HAS NAMED IT ACCELERITE ( WWW.ACCELERITE.COM ). ACCELERITE WILL BE HEADQUARTERED IN THE SILICON VALLY AND WILL HELP YOUR COMPANY PROVIDE CLARITY THE PERSISTENT BRAND IS FOR PRODUCT DEVELOPMENT AND THE ACCELERITE BRAND IS FOR PRODUCTS. YOUR C OMPANY HAS ORGANIZED THE DEVELOPMENT AND ENGINEERING TEAMS AROUND THREE STRATEGIES. ACCOUNT - LED, PLATFORM - LED AND PRODUCT - LED. FURTHER, ACCOUNT - LED TEAMS ARE ORGANIZED AS NAMED ACCOUNTS AND GROWTH ACCOUNTS. DRIVEN BY GROWTH IN THE PLATFORM BASED SOLUTIO NS AND IP LED BUSINESS, THE CONSOLIDATED REVENUE OF YOUR COMPANY RECORDED AN INCREASE OF 15.2% IN THE US DOLLAR TERMS AND 28.9% IN THE RUPEE TERM DURING THE YEAR UNDER REVIEW. THE CONSOLIDATED EBIDTA INCREASED BY 28.4% AND THE NET PROFIT AFTER TAX WENT UP BY 32.9% DURING THE SAME PERIOD. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 19 (B) IT IS ALSO EVIDENT FROM PAGE NO.701 OF PB - II THAT THE COMPANY IS ALSO ENGAGED IN R & D ACTIVITIES AND HAS INCURRED REVENUE AND CAPITAL EXPENDITURE TOWARDS THE SAME FOR RS. 3.96 CRS. EXTRACTION FROM PAGE 701 OF PB - II 35. RESEARCH AND DEVELOPMENT EXPENDITURE. THE PARTICULARS OF EXPENDITURE INCURRED ON IN - HOUSE RESEARCH AND DEVELOPMENT CENTRE APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) ARE AS FOLLOWS: FOR THE YEAR ENDED MARCH 31, 2014 MARCH 31, 2013 CAPITAL 2.43 - REVENUE 37.18 27.87 39.61 27.87 (A) THOUGH THE COMPANYS REVENUE FLOWS FROM THE THREE STREAMS VIZ., PRODUCTS (IP BUSINESS), PLATFORMS (SOLUTIONS INTEGRATION) AND SERVICES (PRODUCT ENGINEERING), THE MAIN SEGMENTS DISCLOSED IN THE ANNUAL REPORT ARE TELECOM & WIRELESS, LIFE - SCIENCES & HEALTH CARE, AND INFRASTRUCTURE & SYSTEMS. THUS, THE SEGMENTAL DETAILS IN THE ANNUAL REPORT IS ABSENT. EXTRACTION FROM PAGE 675 OF PB - II (M) SEGMENT REPORTING (I) IDENTIFICATION OF SEGMENT THE COMPANYS OPERATIONS PREDOMINANTLY RELATE TO PROVIDING SOFTWARE PRODUCTS, SERVICES AND TECHNOLOGY INNOVATION COVERING FULL LIFE CYCLE OF PRODUCT TO ITS CUSTOMERS. (II) ALLOCATION OF INCOME AND DIRECT EXPENSES INCOME AND DIRECT EXPENSES ALLOCABLE TO SEGMENTS ARE CLASSIFIED BAS ED ON ITEMS THAT WE INDIVIDUALLY IDENTIFIABLE TO THAT SEGMENT SUCH AS SALARIES AND PROJECT RELATED TRAVEL EXPENSES. THE REMAINDER IS CONSIDERED AS UN - ALLOCABLE EXPENSE AND IS CHARGED AGAINST THE TOTAL INCOME. (I) UN ALLOCATED ITEM UN ALLOCATED ITEMS INCLUDE GENERAL CORPORATE INCOME AND EXPENSE ITEMS WHICH ARE NOT ALLOCATED TO ANY BUSINESS SEGMENT. ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 20 SEGREGATION OF ASSETS, LIABILITIES, DEPRECIATION AND OTHER NON - CASH EXPENSES INTO VARIOUS REPORTABLE SEGMENTS HAVE NOT BEEN PRESENTED EXCEPT FOR TRADE RECEIVABLES AS THESE ITEMS ARE USED INTERCHANGEABLY BETWEEN SEGMENTS AND THE COMPANY IS OF THE VIEW THAT IT IS NOT PRACTICAL TO REASONABLE ALLOCATE THESE ITEMS TO INDIVIDUAL SEGMENTS AND AN ADHOC ALLOCATION WILL NOT BE MEANINGFUL. 13. FROM THE ABOVE, IT IS EVIDENT T HAT M/S. PERSISTENT SYSTEMS LTD IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE COMPANY, IT ALSO HAS INTANGIBLES UNLIKE THE ASSESSEE COMPANY AND FURTHER SEGMENTAL DATA ARE NOT AVAILABLE. HENCE, M/S. PERSISTENT SYSTEMS LTD CANNOT BE TREATED AS A COMPARABLE COMP ANY WITH THE ASSESSEE COMPANY FOR THE PURPOSE OF TP ADJUSTMENTS. 14. THUS, THE FINAL LIST OF COMPARABLE COMPANIES AFTER EXCLUDING FUNCTIONALLY DISSIMILAR COMPANIES WOULD BE AS FOLLOWS: - SL NO. NAME OF THE COMPANY OP / OC 1 TATA ELXSI LTD (SEG) 22.29% 2 MINDTREE LTD 21.64% 3 R S SOFTWARE (INDIA) LTD 24.03% 4 LARSEN & TURBO INFOTECH LTD 24.04% 5 CG - VAK SOFTWARE & EXPORTS LTD 9.55% ARITHMETIC MEAN 20.31% 15. SINCE, THE ASSESSEE HAD DECLARED PROFIT MARGIN ON COST @ 21.45% WHICH IS ABOVE THE ARMS LENGTH PRICE OF 20.31% AS PER THE SECOND PROVISO TO SECTION 92C(2) OF THE ACT, WE ARE OF THE CONSIDERED VIEW THAT TP ADJUSTMENT IS NOT REQUIRED IN THE CASE OF THE ASSESSEE TOWARDS ASSESSEES INTERNATIONAL TRANSACTION WITH RESPECT TO SOFTWARE DEVE LOPMENT SERVICES. 7 . FURTHER, THE LD.COUNSEL FOR THE ASSESSEE STRONGLY ARGUED GROUND NO.5 FOR INCLUSION OF SAGAR SOFT (INDIA) LTD. IN THE FINAL LIST OF COMPARABLES. HE SUBMITTED THAT THE TPO HAS HELD THIS COMPANY TO BE A PERSISTENTLY LOSS MAKING COMPANY AND HENCE HAS NOT TAKEN IT AS COMPARABLE, EVEN THOUGH IT WAS FUNCTIONALLY SIMILAR . T HE LD.COUNSEL SUBMITTED THAT THIS FINDING OF THE TPO IS NOT CORRECT AS THE SAID COMPANY HAS INCURRED LOSSES ONLY IN THE 2 AYS PRIOR TO THE RELEVANT AY AND IN THE SUBSEQUENT AY , THE SAID COMPANY HAS MADE PROFITS AND THIS FACT HAS NOT BEEN CONSIDERED ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 21 BY THE TPO. HE, THEREFORE, PRAYED FOR ITS INCLUSION IN THE FINAL LIST OF COMPARABLES. 7.1 . HOWEVER, SINCE THE LD.COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT BY EXCLUSION OF ABOVE 5 COMPANIES , THE AVERAGE MARGIN OF THE REMAINING COMPARABLES WOULD BE WITHIN (+) OR ( - ) 3% OF ASSESSEES MARGIN , WE DO NOT SEE ANY REASON TO ADJUDICATE THIS GROUND AS IT WOULD ONLY BE AN ACADEMIC EXERCISE AT THIS STAGE. 7.2 . FURTHER AS REGARDS GRANT OF WORKING CAPITAL ADJUSTMENT , THE LD.COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE DECISIONS OF THE COORDINATE BENCH IN - (A) HYNDAI MOTOR INDIA ENGINEERING P LTD. VS. ACIT (ITA NO.2303/HYD/2018) AND (B) BA CONTINUUM INDIA P LTD. VS. DCIT IN ITA 221 & 301/HYD./2014 . HOWEVER, SINCE WE FIND THAT THE AVERAGE M ARGIN OF THE COMPARABLES WITHOUT WORKING CAPITAL ADJUSTMENT ITSEL F IS WITHIN 3% OF THE MARGIN OF THE ASSESSEE, WE DO NOT SEE ANY REASON TO ADJUDICATE THIS ISSUE ALSO AS IT WOULD ONLY RESULT IN AN ACADEMIC EXERCISE AT THIS STAGE. 8 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED ON 30 TH SEPTEMBER 2020. SD/ - SD/ - (D.S. SUNDER SINGH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 T H S EPTEMBER, 2020. *GMV ITA NO. 2234 /HYD/201 8 AY 201 4 - 15 M/S DST WORLDWIDE SERVICES INDIA P LTD. HYD. 22 COPY TO: 1 . M/S. DST WORLDWIDE SERVICES INDIA PVT. LTD, 5TH FLOOR, BLOCK B, Q CITY, SURVEY # 109, 110, 111 \ 2, NANAKRAMGUDA VILLAGE, SERILINGAMPALLY MANDAL, GACHIBOWLI, R.R. DISTRICT, HYDERABAD 500 0 32 2. DCIT, CIRCLE 1 7(1 ) ROOM NO.914, 9 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 500 0 8 4 3. PR. CIT 5, HYDERABAD 4 THE DR, ITAT HYDERABAD 5 GUARD FILE