Barclays Technology Centre [ I ] P.Ltd, Pune V. ACIT, Pune

ITA 2279/PUN/2012

• Counselvise Citation: 227924514 RSA 2012
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 19-11-2012

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.2279/PN/2012 (ASSESSMENT YEAR : 2008-09) BARCLAYS TECHNOLOGY CENTRE INDIA PRIVATE LIMITED, 3 RD FLOOR, BLOCK C, PANCHSHIL TECH PARK, OPP: PUNE GOLF COURSE, AIRPORT ROAD, PUNE 411 006. PAN AADCB1173D .. APPELLANT VS. ACIT, CIRCLE-1(1), PUNE .. RESPONDENT ASSESSEE BY : SHRI RAJAN VORA REVENUE BY : SHRI A.K. MODI DATE OF HEARING : 30-10-2014 DATE OF PRONOUNCEMENT : 28-01-2015 ORDER PER G.S.PANNU, AM : THE CAPTIONED APPEAL HAS BEEN PREFERRED BY THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 2008-09, WHICH IS DIRECTED AGAINST THE ORDER OF THE ASSTT. COMMISS IONER OF INCOME TAX, CIRCLE 1(1), PUNE (IN SHORT THE ASSESS ING OFFICER) PASSED U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 24.09.2012 , WHICH IS IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE DISP UTE RESOLUTION PANEL, PUNE (IN SHORT THE DRP) DATED 24.08.2012. 2 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL : BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BARCLAYS TECHNOLOGY CENTRE INDIA PRIVATE LIMITED (HEREINAFTE R REFERRED TO AS 'THE APPELLANT') RESPECTFULLY CRAVES LEAVE TO PR EFER AN APPEAL UNDER SECTION 253(1)(D) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT'), AGAINST THE ORDER DATED 24 S EPTEMBER 2012 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 1(1) (HEREINAFTER REFERRED TO AS 'AO') UNDER SECTION 143 (3) OF THE ACT IN PURSUANCE OF THE DIRECTIONS DATED 24 AUGUST 2012 ISSUED BY THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS 'DRP'), ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT OF A ND WITHOUT PREJUDICE TO ONE ANOTHER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE DRP AND CONSEQUENTLY, THE AO HAVE: I. GROUNDS OF OBJECTIONS IN RESPECT OF TRANSF ER PRICING ADJUSTMENT 1. GENERAL GROUND CHALLENGING THE TRANSFER PRI CING ADJUSTMENT OF INR 61,378,174 CONSEQUENTIAL TO NON CONSIDERATION/ ACCEPTANCE OF COMPARABILITY ANALYSIS AS DOCUMENTED IN THE TRANSFER PRICING STUDY REPORT ERRED IN MAKING TRANSFER PRICING ADJUSTMENT TO APPE LLANT'S INTERNATIONAL TRANSACTIONS IN THE NATURE OF PROVISI ON OF SOFTWARE DEVELOPMENT SERVICES REJECTING THE ANALYSIS UNDERTA KEN BY THE APPELLANT TO DETERMINE ARM'S LENGTH PRICE FOR ITS I NTERNATIONAL TRANSACTIONS PERTAINING TO PROVISION OF SOFTWARE DE VELOPMENT SERVICES TO THE ASSOCIATED ENTERPRISE ('AE') 2. NON CONSIDERATION OF CONTEMPORANEOUS DATA ERRED IN CONDUCTING AN ANALYSIS BASED ON INFORMATIO N SUBSEQUENTLY AVAILABLE FOR DETERMINING ARM'S LENGTH PRICE WHICH WAS NOT AVAILABLE AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING REGULATIONS. 3. NON-CONSIDERATION OF MULTIPLE YEAR DATA ERRED IN NOT CONSIDERING MULTIPLE YEAR DATA (IE FIN ANCIAL YEAR 2007-08 AND PRIOR TWO YEARS) FOR DETERMINING THE AR M'S LENGTH PRICE. 4. REJECTION OF CERTAIN COMPARABLE COMPANIES I DENTIFIED BY THE APPELLANT AS COMPARABLES IN THE TRANSFER PRICING ST UDY ERRED IN REJECTING CERTAIN COMPANIES FROM THE SET O F COMPARABLES IDENTIFIED BY THE APPELLANT FOR DETERMINING THE ARM 'S LENGTH PRICE. 5. CONSIDERING ADDITIONAL COMPANIES AS COMPARA BLE TO THE APPELLANT ERRED IN ACCEPTING ADDITIONAL COMPANIES AS COMPARAB LE TO THE APPELLANT IN RELATION TO PROVISION OF SOFTWARE SERV ICES. 3 6. NON CONSIDERATION OF ADDITIONAL COMPANIES W HICH ARE COMPARABLES BASED ON UPDATED DATA (WHICH WAS NOT AV AILABLE AT THE TIME OF THE STUDY) BUT WHICH WERE OMITTED BY THE LEARNED TPO ERRED IN IGNORING ADDITIONAL COMPANIES WHICH CAN AL SO BE CONSIDERED AS COMPARABLES BASED ON UPDATED DATA (SP ECIFICALLY WHERE THE LEARNED TPO INTENDS TO ADD CERTAIN OTHER COMPANIES TO THE COMPARABLE SET BASED ON UPDATED DATA AS MENT IONED IN GROUND 5 ABOVE). 7. SELECTION OF COMPANIES HAVING SUPER NORMAL PROFITS ERRED IN SELECTING CERTAIN COMPANIES HAVING SUPER N ORMAL PROFITS AS COMPARABLES TO THE APPELLANT (SPECIFICAL LY WHERE THE LEARNED TPO HAS CONTENDED THAT LOSS MAKERS CANNOT B E TAKEN AS COMPARABLE TO THE APPELLANT WHICH IS A COST PLUS EN TITY). 8. ERRED IN COMPUTATION OF RELIEF ON ACCOUNT O F WORKING CAPITAL ADJUSTMENT ERRED IN COMPUTING RELIEF ON ACCOUNT OF WORKING CAP ITAL ADJUSTMENT IGNORING THE WORKINGS SUBMITTED BY THE A PPELLANT FOR THE WORKING CAPITAL ADJUSTMENT. 9. DENIAL OF ADJUSTMENT FOR RISK DIFFERENCES ERRED IN COMPARING FULL-FLEDGED RISK BEARING ENTITI ES WITH THE APPELLANT'S CAPTIVE OPERATIONS WITHOUT MAKING ANY R ISK ADJUSTMENT FOR DIFFERENCES BETWEEN THE FUNCTIONAL A ND RISK PROFILE OF COMPARABLE COMPANIES CONSIDERED AS COMPA RABLE VIS- A-VIS THE RISK PROFILE OF THE APPELLANT. 10. ERRED IN COMPUTING THE WORKING CAPITAL ADJUS TED ARM'S LENGTH MARGIN ERRED IN COMPUTING THE WORKING CAPITAL ADJUSTED ARM 'S LENGTH 5.70% BY ERRONEOUSLY CONSIDERING UNADJUSTED MARGIN OF 29.78% (MENTIONED IN THE SHOW CAUSE NOTICE) INSTEAD OF 27.28% AS PER THE TRANSFER PRICING ORDER. 11. DENIAL OF BENEFIT OF +1-5% RANGE WHILE COMPU TING THE ADJUSTMENT AMOUNT ERRED IN COMPUTING THE ARM'S LENGTH PRICE OF SOFTWA RE DEVELOPMENT SERVICES AS THE MEAN ARM'S LENGTH PRICE DETERMINED, WITHOUT TAKING INTO ACCOUNT THE LOWER 5 % VARIATION FROM THE MEAN ARM'S LENGTH PRICE DETERMIN ED. II OTHER GROUNDS OF APPEAL 12. NON-GRANTING OF CREDIT FOR PAYMENT OF ADVAN CE TAX AND TAXES DEDUCTED AT SOURCE ERRED IN NON-GRANTING CREDIT FOR ADVANCE TAX PAYMEN TS AND TAXES DEDUCTED AT SOURCE AGGREGATING TO RS 32,760,25 1 CLAIMED BY THE APPELLANT IN ITS REVISED RETURN OF INCOME FI LED ON 21 AUGUST 2009. 13. ERRONEOUS RECOVERY OF AN AMOUNT OF RS 3,416, 409 (AND RELATED INTEREST THEREON UNDER SECTION 244A) 4 ERRED IN RECOVERING AN AMOUNT OF RS 3,416,409 (AND RELATED INTEREST THEREON UNDER SECTION 244A) STATING IT TO BE REFUND ALLOWED EARLIER, WHICH WAS NEVER RECEIVED BY THE AP PELLANT. 14. INITIATION OF PENALTY PROCEEDINGS UNDER SECT ION 271(1)(C) OF THE ACT WITHOUT PREJUDICE TO THE ABOVE GROUNDS, EVEN IF THE ADJUSTMENT IS SUSTAINED, THE LEARNED AO HAS ERRED IN INITIATING P ENALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271(1)(C) OF TH E ACT FOR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT, WITHOUT APPRECIATING THE FACT THAT, THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED TPO IS ON ACCOUNT OF DIFFERENCE OF OPINION AS TO SELECTION OF COMPARABLE COMPANIES, IN COHERENT APPROACH OF THE LEARNED TPO, DIFFERENCES IN INTERPRETATION O F THE PROVISIONS, ETC. 15. ERRONEOUS LEVY OF INTEREST UNDER SECTION 234 B OF THE ACT WITHOUT PREJUDICE TO THE ABOVE GROUNDS, EVEN IF THE ADJUSTMENT IS SUSTAINED, THE LEARNED AO HAS ERRED IN LEVYING INTE REST UNDER SECTION 234B OF THE ACT ON ACCOUNT OF UNANTICIPATED ADDITIO NS MADE TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF TRANSFER PRIC ING ADJUSTMENT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFO RE OR AT, THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONOU RABLE INCOME TAX APPELLATE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO LAW. 3. THE APPELLANT IS A COMPANY INCORPORATED UNDER TH E PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER -ALIA, ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE DEVEL OPMENT SERVICES TO ITS GROUP AFFILIATES. THE APPELLANT HA S BEEN SETUP AS AN OFF-SHORE TECHNOLOGY CENTRE IN INDIA AN D IT IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO BARCLAYS GROUP WORLDWIDE. THE ASSESSEE IS REGISTER ED UNDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) IN PUNE AS A 100% EXPORT ORIENTED UNDERTAKING (EOU). THE BARCLAYS BANK PLC AND ITS AFFILIATES REMUNERATE ASS ESSEE ON COST PLUS MARKUP BASIS FOR THE SERVICES RENDERED BY THE ASSESSEE TO THEM. 5 4. NOTABLY, THE OWNERSHIP OF ALL THE INTELLECTUAL P ROPERTY RIGHTS WHETHER REGISTERED OR NOT IN RESPECT OF THE SOFTWARE SOLUTIONS PROVIDED BY THE ASSESSEE REMAIN THE EXCLU SIVE PROPERTY OF BARCLAYS BANK PLC OR ITS RELEVANT AFFIL IATES, WHO OBTAIN SERVICES FROM THE ASSESSEE. FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION, ASSESSEE FILED A RETURN O F INCOME DECLARING TOTAL INCOME AT RS.7,94,35,490 WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAD ENTERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES, NAMEL Y, PROVISION OF SOFTWARE SERVICES, RECOVERY OF PRE-OPE RATIVE EXPENSES, RECEIPT OF INTEREST ON FDR AND PAYMENT OF BANK CHARGES, ETC.. IN ORDER TO DETERMINE THE ARM'S LEN GTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS, THE ASSESSING OFF ICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) IN TERMS OF SECTION 92CA(1) OF THE ACT. THE ONLY ISSUE WHICH IS IN DISPUTE BEFORE US IS WITH REGARD TO THE TRANSACTION OF PROVISION OF SOFTWARE SERVICES TO BA RCLAYS BANK PLC, LONDON FOR A STATED CONSIDERATION OF RS.72,62,70,500/-. THE TPO PASSED AN ORDER U/S.92C A(3) OF THE ACT ON 28-10-2011 ACCEPTING ALL THE INTERNAT IONAL TRANSACTIONS OF THE ASSESSEE TO BE AT AN ARM'S LENG TH PRICE EXCEPT THOSE RELATING TO THE PROVISION OF SOFTWARE SERVICES TO THE BARCLAYS BANK PLC, UK. IN ITS ORDER DATED 28-1 0-2011 THE TPO DETERMINED THE ARM'S LENGTH PRICE RELATING TO THE 6 INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AT A FIGURE HIGHER THAN THEIR STATED VALUE BY A SUM OF RS.7,30,96,801/-. THE ASSESSING OFFICER PASSED A DRAFT ASSESSMENT ORDER U/S.143(3) R.W. 144 C(1) OF THE ACT DATED 02-11-2011 PROPOSING TO MAKE AN ADDIT ION OF RS.7,30,96,801/- TO THE RETURNED INCOME ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT DETERMINED BY THE TPO. THE ASSESSEE CHOSE TO FILE OBJECTIONS TO THE DISPUTE RE SOLUTION PANEL (IN SHORT THE DRP) AGAINST THE DRAFT ASSESS MENT ORDER DATED 02.11.2011. THE DRP, AFTER CONSIDERING THE CONTENTIONS RAISED BY THE ASSESSEE PASSED CERTAIN DIRECTIONS U/S.144C(5) OF THE ACT DATED 24-08-2012 AS A CONSEQUENCE OF WHICH THE ASSESSING OFFICER REFERRED THE MATTER AGAIN TO THE TPO. IN CONFORMITY WITH THE DI RECTIONS OF THE DRP, A REVISED ADJUSTMENT TO THE STATED VALUE O F THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE SERVICES WAS CARRIED OUT WHICH RESULTED IN A TOTAL ADJUSTMEN T OF RS.6,13,78,174/-. THE ASSESSING OFFICER PASSED AN ORDER U/S.143(3) R.W.S. 144C(13) OF THE ACT ON 24-09-2012 , WHEREIN THE STATED VALUE OF THE IMPUGNED INTERNATIO NAL TRANSACTION WAS ENHANCED BY RS.6,13,78,174/-, THUS RESULTING IN AN ADDITION OF SUCH AMOUNT TO THE RETU RNED INCOME. AS A CONSEQUENCE, THE TOTAL INCOME WAS ASS ESSED AT RS.14,08,13,670/- AS AGAINST THE RETURNED INCOME OF RS.7,94,35,490/-. 7 5. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE ALSO POINTED OUT THAT THERE WAS CERTAIN MI STAKES IN THE FINAL ASSESSMENT ORDER AGAINST WHICH ASSESSEE H AD FILED AN APPLICATION U/S.154 OF THE ACT WHICH WAS DISPOSE D OFF BY THE ASSESSING OFFICER VIDE ORDER DATED 19-01-2013 W HEREIN THE TOTAL ADJUSTMENT WAS DETERMINED AT RS.4.56 CROR ES. SUBSEQUENTLY, THE ASSESSING OFFICER PASSED ANOTHER ORDER U/S.154 OF THE ACT ON 18-07-2013 WHEREBY THE ADJUST MENT ON ACCOUNT OF TRANSFER PRICING WAS INCREASED TO RS. 7.28 CRORES. IT WAS ALSO POINTED OUT SUCH ORDER OF THE ASSESSING OFFICER WAS CARRIED IN APPEAL BEFORE THE CIT(A) WHO VIDE ORDER DATED 23-07-2014 ACCEPTED CERTAIN PLEAS OF TH E ASSESSEE AND DIRECTED THE ASSESSING OFFICER/TRANSFE R PRICING OFFICER TO ALLOW CERTAIN RELIEFS, WHICH ORD ER IS STILL AWAITED. BE THAT AS IT MAY, ASSESSEE IS IN APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPEAL. 6. BEFORE WE PROCEED TO ADJUDICATE THE SPECIFIC GRIEVANCES OF THE ASSESSEE, IT WOULD BE APPROPRIATE TO NOTICE THE FOLLOWING BACKGROUND OF THE DISPUTE. TH E ASSESSEE IS ENGAGED IN THE ACTIVITY OF PROVIDING SO FTWARE DEVELOPMENT SERVICES. THE SERVICES OF THE ASSESSEE ARE BEING RENDERED TO ITS AFFILIATES ON A CAPTIVE BASIS AND IT IS REMUNERATED AT COST PLUS MARKUP BASIS. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE RENDERED SOFTWARE 8 DEVELOPMENT SERVICES TO BARCLAYS BANK PLC, UK FOR A STATED CONSIDERATION OF RS.72,62,70,500/-. IN THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE, IT SELECT ED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD IN ORDER TO BENCHMARK THE INTERN ATIONAL TRANSACTION RELATING TO THE PROVISION OF SOFTWARE D EVELOPMENT SERVICES. ASSESSEE USED THE OPERATING PROFIT/OPERA TING COST AS THE PROFIT LEVEL INDICATOR (PLI). BY SELEC TING COMPARABLE CONCERNS USING CERTAIN FILTERS, THE ARIT HMETIC MEAN PLI OF THE COMPARABLE CONCERNS WAS WORKED OUT AT 14.41% AFTER CONSIDERING THE MULTIPLE FINANCIAL YEA R DATA OF THE COMPARABLES. ASSESSEES PLI WAS COMPUTED AT 14 .94% AND AFTER TAKING THE BENEFIT OF +/-5% PROVIDED U/S. 92C(2) OF THE ACT, ASSESSEE CONTENDED THAT ITS INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SE RVICES WAS AT AN ARM'S LENGTH PRICE. THE TPO ACCEPTED THE SELECTION OF TNMM AS THE MOST APPROPRIATE METHOD FO R DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATI ONAL TRANSACTION OF PROVIDING OF SOFTWARE DEVELOPMENT SE RVICES TO THE BARCLAYS BANK PLC, UK. HOWEVER, THE TPO APPLI ED CERTAIN DIFFERENT FILTERS FOR SELECTING THE COMPARA BLE CONCERNS AND IN THIS PROCESS REJECTED CERTAIN CONCERNS SELEC TED BY THE ASSESSEE AS COMPARABLES AND ALSO ADDED SOME OTHER COMPARABLES. NOTABLY, THE TPO USED THE SINGLE FINA NCIAL YEAR DATA OF THE COMPARABLES PERTAINING TO THE FINA NCIAL YEAR 9 UNDER CONSIDERATION. IN NUTSHELL, THE TPO SELECTED THE FOLLOWING SET OF 13 CONCERNS AS COMPARABLES WITH TH EIR RESPECTIVE PLIS AS UNDER : SR.NO. NAME OF THE COMPARABLE OP/OC WORKING CAPITAL ADJUSTED MARGIN 1 BODHTREE CONSULTING LTD 19.14 17.00 2 E-INFOCHIP LTD 30.32 26.61 3 EZEST SOLUTIONS LTD 28.58 28.01 4 GOLDSTONE TECHNOLOGIES LTD (AS SELECTION) 27.06 21.41 5 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD (AS SELECTION) 36.05 31.79 6 INFOSYS (AS SELECTION) 39.84 37.35 7 KALS INFORMATION SYSTEMS 30.21 27.82 8 L G S GLOBAL LTD (AS SELECTION) 26.33 23.43 9 L & T INFOTECH LTD (AS SELECTION) 17.90 15.98 10 MIND TREE LIMITED (AS SELECTION) 17.51 13.36 11 FCS SOFTWARE SOLUTIONS LTD 57.02 52.29 12 PERSISTENT SYSTEMS (AS SELECTION) 27.59 26.73 13 SASKEN COMMUNICATION TECHNOLOGY (AS SELECTION) 17.75 15.59 ARITHMETIC MEAN 27.78 25.94 7. ON THIS BASIS, THE ADJUSTMENT OF RS.7,30,96,801/ - WAS DETERMINED BY THE TPO AS UNDER : DESCRIPTION RS. PRICE CHARGED (OPERATING REVENUE OF THE ASSESSEE (B ) 75,21,70,252 OPERATING COST (OC) 65,52,85,893 ARMS LENGTH MEAN MARGIN (OP/CC ) (D) 25.94 ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTION (A)(ALP =OC*(1+D)) 82,52,67,053 5% RANGE ON LOWER SIDE (THE ASSESSEES TRANSACTION FALLS OUTSIDE THE RANGE) 78,40,03,700 ADJUSTMENT OVER OPERATING INCOME (A-B) (SHORTFALL B EING ADJUSTMENT U/S.92CA) 7,30,96,801 8. AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ON THE ABOVE LINES, ASSESSEE RAIS ED 10 OBJECTIONS BEFORE THE DRP. PURSUANT TO THE DIRECTI ONS OF THE DRP, THE ASSESSING OFFICER PASSED THE FINAL ASSESSM ENT ORDER U/S.143(3) R.W.S. 144C(13) OF THE ACT DETERMI NING THE ADJUSTMENT AT RS.6,13,78,174/-. 9. AT THE TIME OF HEARING THE LD. COUNSEL HAS REFER RED TO THE RELEVANT MATERIAL PLACED IN THE PAPER BOOK AND THE LD. CIT-DR HAS SUPPORTED THE ORDER OF THE ASSESSING OFF ICER BY REFERRING TO THE DISCUSSIONS MADE IN THE RESPECTIVE ORDERS OF THE AUTHORITIES BELOW. 10. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ALTHOUGH ASSESSEE HAS PREFE RRED VARIOUS OBJECTIONS AGAINST THE ASSESSMENT, AS IS EM ERGING FROM THE AFORESAID GROUNDS OF APPEAL, BUT HE HAS CO NFINED HIS OBJECTIONS TO THE INCLUSION OF THE FOLLOWING CO NCERNS :- INFOSYS TECHNOLOGIES LTD., BODHTREE CONSULTING LTD. , E-ZEST SOLUTIONS LTD., FCS SOFTWARE SOLUTIONS LTD., AND KA LS INFORMATION SYSTEMS LTD. IN THE FINAL SET OF COMPAR ABLES. IN DEFERENCE TO THE AFORESAID, THE APPEAL WAS HEARD ON LY ON THE AFORESAID POINTS. 11. THE FIRST POINT MADE BY THE LD. REPRESENTATIVE IS AGAINST INCLUSION OF INFOYS TECHNOLOGIES LTD., AS A COMPARABLE CONCERN. IN THIS CONTEXT, RELEVANT FACT S ARE THAT THE SAID CONCERN WAS INITIALLY CONSIDERED BY THE AS SESSEE IN ITS TRANSFER PRICING STUDY AS A COMPARABLE BY USING MULTIPLE 11 FINANCIAL YEAR DATA OF THE SAID CONCERN. HOWEVER, BEFORE THE LOWER AUTHORITIES, ASSESSEE CONTENDED THAT THE SAID CONCERN WAS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARAB LES. EVEN BEFORE US, IT IS SOUGHT TO BE CONTENDED THAT A SSESSEE WAS NOT COMPARABLE WITH INFOSYS TECHNOLOGIES LTD., AS THE SAID CONCERN WAS LARGE AND MUCH BIGGER COMPANY IN T HE AREA OF DEVELOPMENT OF SOFTWARE AND THEREFORE SUCH A CONCERN CANNOT BE EQUATED WITH ASSESSEES SCALE OF OPERATIONS. IN THIS CONTEXT, THE LD. REPRESENTATIV E HAS FURNISHED A SUMMARY OF KEY FUNCTIONAL DIFFERENCES B ETWEEN ASSESSEE AND INFOSYS TECHNOLOGIES LTD., WHICH READ AS UNDER : SR. NO. PARTICULARS INFOSYS TECHNOLOGIES LIMITED APPELLANT (BTC1) 1 NATURE OF SERVICES CUSTOM APPLICATION DEVELOPMENT, MAINTENANCE AND PRODUCTION SUPPORT, PACKAGE ENABLES CONSULTING AND IMPLEMENTATION, TECHNOLOGY CONSULTING AND OTHER SOLUTIONS, INCLUDING BUSINESS PROCESS MANAGEMENT AND SOLUTIONS, PRODUCT ENGINEERING SOLUTIONS, INFRASTRUCTURE MAINTENANCE SERVICES, OPERATIONS AND BUSINESS PROCESS CONSULTING, TESTING SOLUTIONS, AND SYSTEMS INTEGRATION SERVICES. THESE OFFERINGS ARE PROVIDED TO CLIENTS ACROSS MULTIPLE INDUSTRY VERTICALS INCLUDING BANKING AND CAPITAL MARKETS, COMMUNICATIONS, ENERGY, MANUFACTURING AND RETAIL. THE COMPANY ALSO PROVIDES A CORE BANKING SOFTWARE SOLUTIONS, FINACLE AND PROVIDES CUSTOMIZATION AND IMPLEMENTATION SERVICES AROUND THIS SOLUTION. THE COMPANY ALSO DERIVES REVENUE FROM SALE OF PRODUCTS. SEGMENTAL DETAILS OF ONLY SOFTWARE SERVICES ARE NOT AVAILABLE IN FINANCIALS SOFTWARE SERVICES 2 RISK PROFILE OPERATES AS A FULL - FLEDGED RISK TAKING ENTREPRENEUR OPERATES AT MINIMAL RISK AS IT IS CAPTIVE UNIT PROVIDING SERVICES ONLY TO THE AE AND IS REMUNERATED ON COST PLUS BASIS 12 3 REVENUE FOR F .Y. 2007-08 RS.15,051 CRS RS.75 CRS 4 OWNERSHIP OF INTANGIBLES/PROPRI ETARY PRODUCTS AS PER THE INFORMATION GIVEN IN ANNUAL REPORT FOR FY 2007-08, IN FISCAL 2008 ALONE, THE COMPANY GENERATED OVER 102 INVENTION DISCLOSURES AND FILED 10 PATENTS IN INDIA AND US. TO DATE, THE COMPANY HAD FILED AGGREGATE OF 110 PATENT APPLICATIONS IN BOTH THE COUNTRIES AND TWO PATENTS HAD BEEN GRANTED BY THE US PATENT AND TRADEMARK OFFICE. THE COMPANY ALSO OWNS PROPRIETARY PRODUCT-FINACLE, WHICH ADDRESSES CORE BANKING, TREASURY, WEALTH MANAGEMENT, CONSUMER AND CORPORATE E-BANKING, MOBILE BANKING AND WEB-BASED CASH MANAGEMENT REQUIREMENTS THE APPELLANT DOES NOT OWN ANY INTANGIBLES/PROPRI ETARY PRODUCTS 12. IN THE COURSE OF HEARING, THE LD. COUNSEL ALSO POINTED OUT THAT ALTHOUGH ASSESSEE HAD CONSIDERED THE SAID CONCERN AS A COMPARABLE IN ITS TRANSFER PRICING STUDY, HOWE VER, HAVING REGARD TO THE VARIOUS JUDICIAL PRONOUNCEMENT S THEREAFTER ASSESSEE WISHES TO SUBMIT THAT THE SAID CONCERN IS NOT FUNCTIONALLY COMPARABLE WITH THE ASSESSEE AN D SHOULD BE EXCLUDED. IN THIS CONTEXT, REFERENCE HAS BEEN M ADE TO THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES PVT. LTD. VIDE IT A NO.1204/2011DATED 10-07-2013 :- 6. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THIS IS PARTLY CORRECT AS THE TRIBUNAL HAS STATED T HAT INFOSYS TECHNOLOGIES LTD., SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE REASON LATTER WAS A GIANT COMPANY IN THE AREA O F DEVELOPMENT OF SOFTWARE AND IT ASSUMED ALL RISKS LEADING TO HIGHER PROFITS, WHEREAS THE RESPONDENT-ASSESSEE WAS A CAPTIVE UNIT OF THE P ARENT COMPANY AND ASSUMED ONLY A LIMITED RISK . . . . . . . . . 13. ON THE OTHER HAND, THE ONLY POINT RAISED BY THE LD. CIT-DR IS THAT HAVING SELECTED THE SAID CONCERN AS COMPARABLE IN ITS TRANSFER PRICING STUDY, ASSESSEE IS NOW 13 PRECLUDED FROM SEEKING ITS EXCLUSION FROM THE LIST OF COMPARABLES. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN SO FAR AS THE OBJECTION OF THE REVENUE TO THE EF FECT THAT THE SAID CONCERN WAS INITIALLY INCLUDED BY THE ASSE SSEE IN ITS TRANSFER PRICING STUDY AS A COMPARABLE IS CONCERNED , THE LD. REPRESENTATIVE HAS POINTED OUT THAT IN THE TRAN SFER PRICING STUDY, ASSESSEE CARRIED OUT THE COMPARABILI TY ANALYSIS BY ADOPTING MULTIPLE YEARS DATA OF THE COMPARABLES. HOWEVER, THE TPO HAS DISAGREED WITH T HE ASSESSEE ON THIS ASPECT AND INSTEAD HE HAS CARRIED OUT THE COMPARABILITY ANALYSIS AFTER ADOPTING SINGLE YEAR D ATA OF THE COMPARABLES RELATABLE TO THE PERIOD UNDER CONSIDERA TION. AT THE TIME OF HEARING, RELIANCE WAS ALSO PLACED ON TH E JUDGEMENT OF THE CHANDIGARH SPECIAL BENCH OF THE TR IBUNAL IN THE CASE OF QUARK SYSTEMS PVT. LTD., REPORTED IN 2010- TIOL-31-ITAT-CHD.-SB FOR THE PROPOSITION THAT IF SO ME INCONSISTENCY IN THE COMPARABLE EXISTS, THEN IT SHO ULD BE REMOVED FROM THE FINAL LIST OF COMPARABLES NOTWITHS TANDING THE FACT THAT ASSESSEE HAD INITIALLY CONSIDERED IT AS A COMPARABLE CONCERN. IN OUR VIEW, THE PLEA OF THE A SSESSEE FOR EXCLUSION OF INFOSYS TECHNOLOGIES LTD. CANNOT B E SHUT OUT MERELY BECAUSE THE SAID CONCERN WAS INITIALLY A DOPTED BY THE ASSESSEE AS A COMPARABLE IN ITS TRANSFER PRI CING STUDY. HOWEVER, WE MAY WISH TO POINT OUT THAT THE CAUSE 14 AND JUSTIFICATION FOR ITS EXCLUSION IS LIABLE TO BE DEMONSTRATED BY THE ASSESSEE. IN THE PRESENT CASE, IT HAS BEEN POINTED OUT BY THE ASSESSEE THAT THE SAID CONCERN IS FUNCTI ONALLY DIFFERENT AND THAT IT WAS A GIANT COMPANY IN THE AR EA OF DEVELOPMENT OF SOFTWARE SERVICES AND IT ASSUMED ALL THE RISKS LEADING TO HIGHER PROFITS, WHEREAS THE ASSESS EE WAS A CAPTIVE UNIT SERVICING ONLY ITS OWN AFFILIATES AND ASSUMED ONLY A LIMITED RISK. QUITE CLEARLY, THE TURNOVER O F INFOSYS TECHNOLOGIES LTD. STANDS AT RS.15,051 CRORES (APPRO X) WHEREAS ASSESSEES TURNOVER FROM SOFTWARE DEVELOPME NT SERVICES IS TO THE TUNE OF RS.73 CRORES (APPROX). IT IS ALSO CLEAR FROM THE TABULATION ABOVE, THAT THE SAID CONC ERN IS UNDERTAKING DIVERSIFIED ACTIVITIES WHEREAS ASSESSEE IS PROVIDING SOFTWARE SERVICES, AT MINIMAL RISK AS 100 % ACTIVITIES ARE TO ITS ASSOCIATED ENTERPRISE. IN-FA CT, ASSESSEE HAS RIGHTLY RELIED UPON THE JUDGEMENT OF THE HONBL E DELHI HIGH COURT IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) WHEREIN IN A SOMEWHAT SIMILAR SITUATION THE ACTION OF THE TRIBUNAL IN EXCLUDING INFOSYS TECHNOLOGIES LTD. , FROM THE LIST OF FINAL COMPARABLES WAS AFFIRMED. IN THE CAS E OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA), ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF A USA COMPANY, AND WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES FOR ITS ASS OCIATED ENTERPRISES AS A CAPTIVE SERVICE PROVIDER. THE TRI BUNAL HAD FOUND ON THE BASIS OF THE DIFFERENCES IN RISK PROFI LE, NATURE OF 15 SERVICES, REVENUE EARNED, OWNERSHIP OF BRANDED/PROP RIETARY PRODUCTS, EXPENDITURE ON RESEARCH AND DEVELOPMENT E TC., THAT THE CONCERN M/S. INFOSYS TECHNOLOGIES LTD. WAS NOT COMPARABLE WITH AGNITY INDIA TECHNOLOGIES PVT. LTD. THE HONBLE HIGH COURT OF DELHI AFFIRMED THE AFORESAID FINDING OF THE TRIBUNAL. IN THE PRESENT CASE TOO, THE DIFFERE NCES BETWEEN ASSESSEE AND INFOSYS TECHNOLOGIES LTD. AS TABULATED ABOVE, HAVE NOT BEEN CONTROVERTED BY THE REVENUE AND THEREFORE IN OUR VIEW ASSESSEE HAS JUST IFIABLY DEMONSTRATED THAT M/S. INFOSYS TECHNOLOGIES LTD. WA S LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. WE HOLD ACCORDINGLY. 15. THE SECOND CONCERN WHICH IS LIABLE TO BE EXCLUD ED AS PER THE ASSESSEE IS E-ZEST SOLUTIONS LTD. ON THIS ASPECT, THE CLAIM OF THE ASSESSEE IS THAT THE SAID CONCERN WAS NOT INCLUDIBLE AS A COMPARABLE CONCERN FOR THE REASON T HAT THE SAID CONCERN WAS ALSO IN THE BUSINESS OF PROVIDING E- BUSINESS SERVICES WHICH ARE MORE IN THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESS EE. BEFORE THE TPO, ASSESSEE HAD ALSO POINTED OUT THAT THE SAID CONCERN WAS ALSO UNDERTAKING SALE OF SOFTWARE PRODU CTS WHICH WAS QUITE DISTINCT FROM THE ACTIVITY OF THE A SSESSEE WHICH WAS MERELY PROVIDING SOFTWARE DEVELOPMENT SER VICES TO ITS ASSOCIATED ENTERPRISES. IT WAS ALSO POINTED OUT THAT 16 THERE WAS NO SEGMENTAL DATA RELATING TO THE SEGMENT OF SOFTWARE DEVELOPMENT SERVICE AVAILABLE IN THE CONTE XT OF THE SAID CONCERN. THUS, AS PER ASSESSEE FOR ALL THE AB OVE REASONS, THE SAID CONCERN BE EXCLUDED FROM THE FINA L SET OF COMPARABLES. THE AFORESAID ARGUMENTS OF THE ASSESS EE DID NOT FOUND FAVOUR WITH THE INCOME-TAX AUTHORITIES. AS PER THE REVENUE, A PERUSAL OF THE PROFIT AND LOSS ACCOUNT O F THE SAID CONCERN DID NOT REVEAL THAT IT WAS INVOLVED IN THE ACTIVITY OF DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS ALSO. 16. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE SAID CONCERN WAS FUNCTIONALLY DI SSIMILAR TO THE ASSESSEE AND IN THIS CONTEXT, HE RELIED UPON TH E DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SY MPHONY SERVICES PUNE PVT. LTD. VIDE ITA NO.257/PN/2013 DAT ED 30- 04-2014 FOR A.Y. 2008-09. RELEVANT DISCUSSION IN T HE ORDER OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) WITH RE SPECT TO E-ZEST SOLUTIONS LTD. READS AS UNDER : 19. THE LAST POINT RAISED BY THE ASSESSEE IS TO EX CLUDE E-ZEST SOLUTIONS LIMITED FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF PROV IDING OF SOFTWARE DEVELOPMENT SERVICES TO THE ASSOCIATED ENTERPRISES. ON THIS ASPECT, THE PLEA OF THE ASSESSEE BEFORE THE TPO WAS THAT TH E SAID CONCERN IS FUNCTIONALLY DISSIMILAR BECAUSE IT IS ENGAGED IN PR OVIDING SERVICES WHICH INCLUDE E-BUSINESS SERVICES, WHICH ARE MORE I N THE NATURE OF INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND NOT COMPARABLE TO THE FUNCTIONS PERFORMED BY THE ASSESSEE. IT WAS ALSO POINTED OUT TO THE TPO THAT THE E-BUSINESS CONSULTANCY AND TECHNOL OGY CONSULTANCY SERVICES BEING PROVIDED BY THE SAID CONCERN DO NOT PERTAIN TO SOFTWARE DEVELOPMENT SERVICES BUT ARE ITES SERVICES . ASSESSEE ALSO SUBMITTED BEFORE THE TPO THAT THE SAID CONCERN DOES NOT PROVIDE ANY SEGMENTAL DATA AND BEING A HIGHLY DIVERSIFIED COMPA NY, IT IS NOT POSSIBLE TO SEGREGATE DATA RELATING TO THE SEGMENT OF SOFTWARE DEVELOPMENT SERVICES BEING UNDERTAKEN BY THE SAID C ONCERN. 17 20. THE TPO HAS CONSIDERED THE SUBMISSIONS OF THE A SSESSEE AS PER HIS DISCUSSION IN PARA 16.3 OF THE ORDER. THE TPO REFER RED TO THE PROFIT & LOSS ACCOUNT OF THE CONCERN AND NOTED THAT IT WAS A TYPICAL SOFTWARE DEVELOPING COMPANY AND REJECTED THE PLEA OF THE ASS ESSEE FOR EXCLUDING THE SAME FOR THE LIST OF THE COMPARABLES. 21 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE SAID CONCERN WAS FUNCTIONALLY DISSIMILAR AND IT S SERVICES CAN BE CONSIDERED AS KNOWLEDGE PROCESS OUTSOURCING (KPO), WHICH IS QUITE DISTINCT FROM THAT OF THE ASSESSEE. IT IS FURTHER P OINTED OUT THAT THE SAID DISTINCTION HAS BEEN APPRECIATED BY THE BANGAL ORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LT D. (SUPRA) WHEREBY THE SAID CONCERN HAS BEEN HELD TO BE FUNCTI ONALLY DISSIMILAR TO A CONCERN WHICH WAS UNDERTAKING FUNCTIONS SIMILA R TO THOSE PERFORMED BY THE ASSESSEE. ACCORDINGLY, RELIANCE HA S BEEN PLACED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN ORDER TO JUSTIFY THE EXCLUSION OF THE SAID CONCERN FROM THE LIST OF COMPARABLES. 22. ON THE OTHER HAND, THE LEARNED CIT-DR HAS REFER RED TO THE ARGUMENT SETUP BY THE TPO IN HIS ORDER WHICH WE HAV E ALREADY ADVERTED TO IN THE EARLIER PARAGRAPHS OF THIS ORDER AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THIS CONTEXT, WE FIND THAT BEFORE THE TPO RELIED UPON TH E INFORMATION AVAILABLE ON THE WEBSITE OF THE SAID CONCERN AND SU BMITTED THAT THE SAID CONCERN WAS ENGAGED IN E-BUSINESS CONSULTANCY SERVICES, CONSISTING OF WEB STRATEGY SERVICES, ITES SERVICES, AND IN TECHNOLOGY CONSULTANCY SERVICES INCLUDING PORTAL DEVELOPMENT S ERVICES, ETC.. IT IS SOUGHT TO BE EXPLAINED THAT SUCH KIND OF SERVICES A RE ITES SERVICES WHICH ARE UNDERSTOOD AS KPO SERVICES. IT WAS ALSO P OINTED OUT THAT THE SAID CONCERN HAS NOT PROVIDED ANY SEGMENTAL DAT A IN ITS ANNUAL REPORT. BEFORE US, IT IS SOUGHT TO BE CONTENDED THA T THE KPO SERVICES ARE NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERV ICES BEING RENDERED BY THE ASSESSEE AND THEREFORE CONCERNS WHI CH RENDER KPO SERVICES CANNOT BE CONSIDERED AS FUNCTIONALLY COMPA RABLE TO THE CONCERNS WHO RENDER SOFTWARE DEVELOPMENT SERVICES. FOR THE SAID PROPOSITION, RELIANCE HAS BEEN PLACED ON THE DECISI ON OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPL M SOFTWARE SOLUTIONS LTD. (SUPRA) WHICH HAS INDEED BEEN RENDER ED IN THE CONTEXT OF THE SAME COMPARABLE, WHICH IS THE SUBJECT-MATTER OF CONSIDERATION BEFORE US, I.E. E-ZEST SOLUTIONS LIMITED. 24. WE FIND THAT THE FACTUAL ASSERTIONS MADE BY THE ASSESSEE BEFORE THE TPO AS WELL AS BEFORE US WITH REGARD TO THE FUN CTIONS BEING PERFORMED BY E-ZEST SOLUTIONS LIMITED HAVE NOT BEEN CONTROVERTED BY THE REVENUE. OSTENSIBLY, E-ZEST SOLUTIONS LIMITED I S RENDERING PRODUCT DEVELOPMENT SERVICES AND TECHNOLOGY SERVICES, AND T HE LATTER FALLS IN THE CATEGORY OF KPO SERVICES AND THE SAME HAVE NOT BEEN HELD BY THE BANGALORE BENCH OF THE TRIBUNAL TO BE SIMILAR TO A CONCERN ENGAGED IN RENDERING OF SOFTWARE DEVELOPMENT SERVICES, AS IS T HE ASSESSEE BEFORE US. FOLLOWING THE RATIO OF THE DECISION OF THE BANG ALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LT D. (SUPRA) WE HOLD 18 THAT E-ZEST SOLUTIONS LIMITED IS LIABLE TO BE EXCLU DED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION. WE HOLD SO. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 17. NOTABLY, SYMPHONY SERVICES PUNE PVT. LTD. (SUPR A) WAS ALSO A CONCERN WHICH WAS ENGAGED IN PROVISION O F SOFTWARE DEVELOPMENT AND RELATED SERVICES TO ITS AS SOCIATED ENTERPRISES ON COST PLUS MARKUP BASIS. THE TRIBUNA L VIDE ITS ORDER DATED 30-04-2014 (SUPRA) CONSIDERED THE INCLU SION OF E-ZEST SOLUTIONS LTD. FOR THE PURPOSE OF COMPARABIL ITY ANALYSIS OF THE TRANSACTION OF DEVELOPMENT SERVICES FOR THE VERY SAME ASSESSMENT YEAR, I.E. 2008-09, WHICH IS A LSO THE YEAR BEFORE US. FOLLOWING THE AFORESAID DISCUSSION WHICH SQUARELY COVERS THE CONTROVERSY IN THE PRESENT CASE , WE DIRECT THAT E-ZEST SOLUTIONS BE EXCLUDED FROM THE F INAL SET OF COMPARABLES. 18. THIRDLY, ASSESSEE HAS CONTENDED THAT THE CONCER N M/S. KALS INFORMATION SYSTEMS LTD. BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ON THIS ASPECT ALSO, THE CASE SET UP BY THE ASSESSEE IS THAT THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) FULLY COVERS THE CONTROVERSY. IN THE CASE OF SYMPHONY SERVICES (SUPRA), M/S. KALS INFORMATION SY STEMS LTD. WAS EXCLUDED FROM THE LIST OF COMPARABLES ON T HE GROUND THAT THE SAID CONCERN WAS INVOLVED NOT ONLY IN THE ACTIVITY OF PROVIDING OF SOFTWARE DEVELOPMENT SERVI CES BUT ALSO IN SELLING OF SOFTWARE PRODUCTS. SYMPHONY SER VICES 19 PUNE PVT. LTD. WAS ONLY ENGAGED IN PROVIDING SOFTWA RE SERVICES. IN THE CASE OF SYMPHONY SERVICES PUNE PV T. LTD. (SUPRA) AS WELL AS IN THE PRESENT CASE ALSO, THE TP O DID NOT ACCEPT THE PLEA FOR EXCLUSION OF KALS INFORMATION S YSTEM LTD. PRIMARILY ON THE GROUND THAT THE FINANCIAL STA TEMENTS OF THE SAID CONCERN DID NOT REFLECT ANY SALE OF SOFTWA RE PRODUCTS. QUITE CLEARLY THE STAND OF THE REVENUE I N THE PRESENT CASE AS WELL IN THE CASE OF SYMPHONY SERVIC ES PUNE PVT. LTD. (SUPRA) IS SIMILAR. IT IS ALSO QUIT E CLEAR THAT THE NATURE OF SERVICE BEING RENDERED BY THE ASSESSE E AND SYMPHONY SERVICES PUNE PVT. LTD. (SUPRA) ARE SIMILA R, NAMELY RENDERING OF SOFTWARE DEVELOPMENT SERVICES T O ITS AFFILIATES. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IN CASE OF SYMPHONY SERVICES DATED 30-04-2 014 (SUPRA) BRINGS OUT THE SALIENT FEATURES OF THE CONT ROVERSY : 13. THE SECOND POINT RAISED BY THE ASSESSEE IS WIT H REGARD TO THE ADOPTION OF KALS INFORMATION SYSTEMS LIMITED AS A C OMPARABLE CONCERN WHILE BENCHMARKING THE INTERNATIONAL TRANSA CTIONS OF THE ASSESSEE. BEFORE THE TPO, ASSESSEE SUBMITTED THAT T HE SAID CONCERN BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE RELEVANT DISCUSSION IN THIS RE GARD IS CONTAINED IN PARA 6.1 OF THE ORDER OF THE TPO. THE PLEA OF THE A SSESSEE WAS THAT THE SAID CONCERN WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS, NAMELY, VIRTUAL INSURE, LA. VISION, CMSS, E-DMS AND ERP 'SHINE', ETC., WHICH ARE ALL SPECIALISED SOFTWARE PRODUCTS D EVELOPED FOR THE RESPECTIVE SECTORS. FOR THE INSTANCE, VIRTUAL INSUR E WAS SAID TO BE A WEB BASED SOLUTION THAT WAS USEFUL IN THE INSURANCE SECTOR; LA VISION WAS AN E-COMMERCE BASED APPLICATION IN THE FIELD OF INTRA- ORGANIZATIONAL COMMUNICATIONS, ETC.; AND, CMSS WAS A SOFTWARE FOR CONSULTANTS/AGENTS TO MANAGE THEIR CUSTOMERS PRE AN D POST SALES. ON THIS BASIS, IT WAS SOUGHT TO BE MADE OUT THAT THE A SSESSEE WAS FUNCTIONALLY DIFFERENT INASMUCH IT WAS ENGAGED IN T HE PROVISION OF SOFTWARE DEVELOPMENT AND OTHER RELATED SERVICES TO ITS ASSOCIATED ENTERPRISES AS WELL AS TO THE NON-ASSOCIATED ENTERP RISES AND, WAS NOT INVOLVED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUC TS. THE TPO DID NOT ACCEPT THE PLEA OF THE ASSESSEE FOR THE REASON THAT THE ANNUAL REPORT OF THE SAID CONCERN DID NOT REFLECT ABOUT SA LE OF SOFTWARE 20 PRODUCTS AFTER DEVELOPMENT AND THEREFORE, ACCORDING TO HIM, IT WAS NOT FUNCTIONALLY DIFFERENT. 14. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE PLEA OF THE ASSESSEE HAS BEEN REJECTED BY THE INCOME-TAX AUTHORITIES WITHOUT ANY JUSTIFIABLE REAS ONS, AS EVEN ON THE BASIS OF THE INFORMATION AVAILABLE IN THE PUBLIC DO MAIN IT IS QUITE EVIDENT THAT KALS INFORMATION SYSTEM LIMITED WAS A CONCERN WHICH WAS DEVELOPING AND SELLING SOFTWARE PRODUCTS, WHICH WAS AN ACTIVITY QUITE DISTINCT FROM THE ACTIVITY OF SOFTWARE DEVELO PMENT UNDERTAKEN BY THE ASSESSEE. IN THE COURSE OF HEARING, THE LEAR NED COUNSEL HAS FURNISHED THE PRINTS OUT FROM THE ANNUAL REPORT OF KALS INFORMATION SYSTEMS LTD. WHEREIN VARIOUS SOFTWARE PRODUCTS SOLD BY THE SAID CONCERN HAVE BEEN DETAILED, WHICH ACCORDING TO HIM, SUPPORTS THE PLEA OF THE ASSESSEE THAT THE SAID CONCERN WAS FUNC TIONALLY DIFFERENT. APART THEREFROM, THE LEARNED COUNSEL HAS REFERRED T O THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDV IEW INDIA PVT. LTD. VS. DCIT VIDE ITA NO.1386/PN/2010 DATED 30.11.2011, WHICH WAS ALSO A CONCERN ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES FOR ITS PARENT COMPANY. THE ACTION OF THE TPO OF SELECTING KALS INFORMATION SYSTEMS LIMITED AS A COMPARABLE CONCERN WHILE APPLY ING THE TNM METHOD WAS REJECTED BY THE TRIBUNAL ON THE BASIS TH AT THE SAID CONCERN WAS ENGAGED IN DEVELOPMENT OF SOFTWARE PROD UCTS AND SALE, WHICH WAS FUNCTIONALLY DISSIMILAR TO THE SOFTWARE D EVELOPMENT SERVICES UNDERTAKEN BY THE BINDVIEW INDIA PVT. LTD. (SUPRA). THE LEARNED COUNSEL POINTED OUT THAT THE SAID DECISION IS FULLY APPLICABLE TO THE FACTS OF THE PRESENT CASE INASMUCH AS SIMILA R FUNCTIONS WERE UNDERTAKEN BY BINDVIEW INDIA PVT. LTD. AND THEREFOR E KALS INFORMATION SYSTEMS LIMITED IS LIABLE TO BE EXCLUDED FROM THE L ISTS OF COMPARABLES. 15. A REFERENCE HAS ALSO BEEN MADE TO THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFT WARE SOLUTIONS LTD. VS. DCIT VIDE IT(TP)A NO.1303/BANG/2012 DATED 28.11.2013 WHEREIN ALSO THE SAID CONCERN, NAMELY, KALS INFORMA TION SYSTEMS LIMITED WAS NOT CONSIDERED AS A COMPARABLE ON ACCOU NT OF FUNCTIONAL DISSIMILARITIES. THE LEARNED COUNSEL POINTED OUT TH AT M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WAS ALSO A CONCERN ENGAGED IN THE PROVISION OF SOFTWARE DEVELOPMENT AND OTHER RELATED SERVICES, WHICH IS SIMILAR TO THE FUNCTIONS UNDERTAKEN BY THE ASSES SEE. IT WAS POINTED OUT THAT THE FUNCTIONS OF KALS INFORMATION SYSTEMS LIMITED CONSIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IS FOR THE S AME ASSESSMENT YEAR AS IS IN THE PRESENT CASE AND THEREFORE THE SA ID DECISION ALSO SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. 16. THE LEARNED CIT-DR HAS DEFENDED THE POSITION OF THE TPO BY RELYING ON THE DISCUSSION IN THE ORDER OF THE TPO, WHICH WE HAVE ALREADY ADVERTED TO IN THE EARLIER PART OF THIS ORD ER, AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE FIND THAT THE PRECEDENTS BY WAY OF THE DECISION OF THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (S UPRA) AND THE 21 DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) RELIED UPON B Y THE ASSESSEE SQUARELY COVER THE CONTROVERSY RELATING TO KALS INF ORMATION SYSTEMS LIMITED. IN THE AFORESAID TWO PRECEDENTS, THE SAID CONCERN HAS BEEN SOUGHT TO BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DISSIMILARITIES. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) H AS CONSIDERED THE FUNCTIONS UNDERTAKEN BY THE SAID CONCERN DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US, AND IT HAS BEEN FOUND THAT THE SAID CONCERN WAS ENGAGED IN THE BUSINESS OF DEVELOPING AND SELLING SOFTWARE PRODUCTS AND WAS NO T PURELY OR MAINLY A SOFTWARE SERVICE PROVIDER. THERE IS NO DIS PUTE TO THE FACT POSITION THAT THE APPELLANT BEFORE US HAS UNDERTAKE N MAINLY SOFTWARE DEVELOPMENT SERVICES FOR ITS ASSOCIATED ENTERPRISES AND THE NON- ASSOCIATED ENTERPRISES AND THAT SUCH ACTIVITY IS QU ITE DISTINCT FROM THE DEVELOPING AND SELLING OF SOFTWARE PRODUCTS. THE PU NE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (S UPRA) HAS ALSO FOUND THE SAID CONCERN TO BE FUNCTIONALLY DISSIMILAR FROM A CONCERN WHICH WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES, WHICH IS THE CASE BEFORE US. THOUGH, THE DECISION OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (SUPRA) RELATES TO THE ASSESSMENT YEAR 2006-07 WHEREAS THE PRESENT CASE OF THE ASSESSEE IS FOR ASSESSMENT YEAR 2008-09 YET THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ACTIVITIES CARRIED OUT BY KALS INFORMATION SYSTEMS LIMITED IN THE CURRENT ASSESSMENT YEAR ARE DIFFERENT FROM THOSE NO TED BY THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD. (S UPRA) FOR ASSESSMENT YEAR 2006-07. 18. CONSIDERING THE AFORESAID DISCUSSION, IN OUR VI EW, THE CONCERN I.E. KALS INFORMATION SYSTEMS LIMITED IS LIABLE TO BE EX CLUDED FROM THE LIST OF COMPARABLES FOR THE PURPOSES OF BENCHMARKING INT ERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT S ERVICES. WE HOLD SO. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 19. FOLLOWING AFORESAID PRECEDENT, AS THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE SIMILAR, WE D IRECT THAT M/S. KALS INFORMATION SYSTEMS LTD., BE EXCLUDED FRO M THE FINAL SET OF COMPARABLES. 20. THE NEXT POINT RAISED BY THE ASSESSEE IS FOR EX CLUSION OF BODHTREE CONSULTING LTD., FROM THE FINAL SET OF COMPARABLES. THE MAIN PLEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS AND THEREFORE IT IS NOT FUNCTIONA LLY 22 COMPARABLE TO THE ASSESSEE. IT IS ALSO POINTED OUT THAT THE SAID CONCERN IS ENGAGED IN PRODUCT ENGINEERING AND CONTENT ENGINEERING SERVICES WHICH ARE IN THE NATURE OF ITE S SERVICES, AND ARE NOT COMPARABLE WITH THE ASSESSEE S ACTIVITIES. AT THE TIME OF HEARING, IT WAS ALSO PO INTED OUT THAT THE SAID CONCERN OPERATES UNDER A DIFFERENT PRICING MODEL, I.E. FIXED PRICE PROJECT METHOD, WHEREBY REVENUES F ROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWAR E DEVELOPED AND BILLED TO THE CLIENTS. IT HAS BEEN E XPLAINED THAT IN SUCH A SITUATION, EXPENDITURE FOR DEVELOPIN G SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BUT THE INCOME W OULD BE RECOGNIZED IN A SUBSEQUENT YEAR. THIS BUSINESS MOD EL RESULTS IN FLUCTUATION IN MARGINS OVER THE YEARS. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF QLOGIC (INDIA) PRIVATE LIMI TED VS. DCIT (ITA NO.227/PN/2014) FOR ASSESSMENT YEAR 2009- 10 DATED 21.10.2014 HAS EXCLUDED THE SAID CONCERN FROM THE LIST OF COMPARABLES IN A SIMILAR SITUATION BY FOLLO WING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MINDTECK (INDIA) LTD., VIDE I.T.(TP).A.NO.70/BANG/2014 DATED 21-08-2014. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. VIDE ITA NO.7633/M /2012 DATED 06-11-2013 FOR ASSESSMENT YEAR 2008-09 HAS AL SO 23 BEEN RELIED UPON FOR EXCLUDING THE SAID CONCERN FRO M THE FINAL SET OF COMPARABLES. 21. ON THE OTHER HAND THE LD. CIT-DR APPEARING FOR THE REVENUE HAS DEFENDED THE INCLUSION OF BODHTREE CONS ULTING LTD., BY REFERRING TO THE DISCUSSION IN PARA 14.1 O F THE ORDER OF TPO. AS PER THE TPO, THE MATERIAL ON RECORD DOE S NOT JUSTIFY THE ASSERTIONS OF THE ASSESSEE THAT THE SAI D CONCERN WAS ENGAGED IN DEVELOPMENT AND SALE OF SOFTWARE PRO DUCTS. THE LD. CIT-DR HAS OPPOSED THE PLEA OF THE ASSESSEE BY REFERRING TO THE STAND OF THE TPO AS CONTAINED IN H IS ORDER. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS WITH RESPECT TO BODHTREE CONSULTING LIMITED. THE P LEA OF THE ASSESSEE IS THAT THE SAID CONCERN IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS, APART FROM CONSIDERING SOFTWARE SERVICES, AND THAT NO SEGMENTAL DATA IS AVAILABLE IN THIS CON TEXT; THUS, IT IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE S ACTIVITIES. IN THIS REGARD, WE HAVE PERUSED THE DI SCUSSION MADE BY OUR COORDINATE BENCH IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) WHEREIN THE SAID C ONCERN HAS BEEN FOUND TO BE NOT EXCLUSIVELY ENGAGED IN REN DERING SOFTWARE DEVELOPMENT SERVICES. THE RELEVANT DISCUS SION IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA ) IS AS UNDER : 24 C. BODHTREE CONSULTING LIMITED 21. ON THIS COMPARABLE, CASE OF THE ASSESSEE IS TH AT THE COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SOFTWARE PR ODUCTS PRODUCED BY THE COMPANY. AS SUCH, NO SEGMENTAL DATA IS ADEQ UATELY AVAILABLE TOO. ACCORDINGLY, WE DISMISS THE ARGUMENT OF THE LD. DR IN THIS REGARD. EX CONSEQUENTI, THE AO/TPO IS DIRECTED TO EXCLUDE THE SAME FROM THE LIST OF FINAL COMPARABLES FOR WORKING OUT THE ARITHMETIC MEAN. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE FI NANCIAL STATEMENT AND ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS NOT ENGAGED IN THE SOFTWARE PRODUCTS. IN THIS REGARD, LD DR RELIED ON THE NOTE NO.3, RELATING TO THE RELATING TO THE REVENUE RECOMMENDAT ION IN SCHEDULE 12, NOTE NO.5 RELATING TO THE SEGMENTAL INFORMATION ETC TO MENTION THAT THE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOP MENT ONLY. HOWEVER, THE ASSESSEE ARGUED VEHEMENTLY STATING THA T THIS COMPANY IS ENGAGED IN THE SOFTWARE BASED PRODUCTS. FURTHER, LD COUNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINE D AND WAS HELD AS PRODUCT BASED COMPANY BY THE TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT TAKE DIFFERENT STAND IN THI S CASE. IN THIS REGARD, WE HAVE PERUSED THE PARA 29 OF THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. WILLS PROCESSING SERVICES (I) P LT D (SUPRA) WHEREIN IT WAS MENTIONED THAT THE TPO DESCRIBED THIS COMPANY I S ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS, NOT THE SOFTWARE DEVELOPMENT SERVICES. RELEVANT PORTIONS FROM THE SAID PARA 29 O F THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: '29.1 THE ID SR COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUCTS. HE HAS REFERRED THE TPO ORDER AND SUBMITTED THAT IN THE PROFILE OF THE COMPARABLES SELECTED BY THE TPO ITSELF HAS MENTIONED THE BUSINE SS OF THE ASSESSEE IS IN SOFTWARE PRODUCTS. THE ID AR HAS REFERRED THE OBJECTIONS RAISED BY THE ASSESSEE BEFORE THE TPO AT PAGE 286 OF THE P APER BOOK AND SUBMITTED THAT THE ASSESSEE BROUGHT THIS FACT THAT THIS COMPANY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTI ONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOFTWARE, US ING THE LATEST TECHNOLOGIES. FURTHER, THE COMPANY HAS IDENTIFIED O NLY ONE SEGMENT I.E SOFTWARE DEVELOPMENT. THEREFORE, THE ID AR HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH TH E ASSESSEE AND CONSEQUENTLY SHOULD BE EXCLUDED FROM THE COMPARABLE S. 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INF ORMATION COLLECTED U/S 133(6) OF THE I T ACT AND SUBMITTED THAT AS PER THIS INFORMATION, THIS COMPANY HAS REVENUE FROM ITES ACTIVITY TO THE EXTENT OF RS. 2,94,85,528/-. THEREFORE, THIS COMPANY IS A GOOD CO MPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3......... 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WE LL AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS FILED BY THE ID DR BEFORE US HAS BEEN OBTAINED BY THE TPO AT HYDERABAD AND NOT BY THE TPO OF THE ASSESSEE IN THE PRESENT CASE. IT IS STATED IN THE L ETTER DATED 5.2.2010 WRITTEN BY THE CHARTERED ACCOUNTANT OF BODHTREE CON SULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DAT A CLEANING SERVICES TO CLIENTS FOR WHOM IT HAD DEVELOPED THE S OFTWARE APPLICATION.........' 25 23. CONSIDERING THE ABOVE, WE ARE OF THE OPINION TH AT BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFTWARE D EVELOPMENT SERVICES AND THERE IS NO SEGMENTAL DATA COMPARABLE. THEREFORE, THE FAR ANALYSIS GOES AGAINST THE TPO/AO. 23. THERE IS NO MATERIAL PLACED BEFORE US WHICH WOU LD REQUIRE US TO DEVIATE FROM THE CONCLUSION DRAWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IN THE CONTEXT OF THE EXCLUSION OF BODHTREE CONSULTING LTD. FROM THE FINA L SET OF COMPARABLES. MOREOVER, THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) ALSO CONSIDERED THE EFFICACY OF INCLUSION OF BODHTREE CO NSULTING LTD. ON THE BASIS OF COMPARABILITY ANALYSIS IN THE CASE OF AN ASSESSEE WHICH WAS ENGAGED IN SIMILAR ACTIVITIES AS THE APPELLANT BEFORE US. THE FOLLOWING DISCUSSION IN T HE CASE OF MINDTECK INDIA LTD. (SUPRA) IS WORTHY OF NOTICE : I. BODHTREE CONSULTING LTD. : AS FAR AS THIS COMPANY IS CONCERNED, THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THIS COMPANY MADE EXTRA ORDINARY PROFITS DURING THE PREVIOUS YEAR. OUR ATTENTION WA S DRAWN TO THE FACT THAT THE OPERATING PROFIT/OPERATING COST OF THIS CO MPANY JUMPED FROM 17% FOR F.Y. 2007-08 TO 56% IN F.Y. 2008-09. IT DI PPED IN F.Y.2009-10 TO 40% AND IN F.Y.2010-11 IT BECAME (-) 2% AND 5% I N F.Y.2011-12 AND FINALLY TOUCHED (-) 9% IN F.Y.2012-13. OUR ATT ENTION WAS DRAWN TO THE FACT THAT THE SPECIAL BENCH OF THE TRIBUNAL, MU MBAI, IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) P. LTD., IN ITA NO.74 66/M/2012, DT.07- 03-2014 FOR A.Y. 2008-09 HAD AN OCCASION TO CONSIDE R THE QUESTION AS TO WHETHER COMPANIES HAVING ABNORMAL PROFITS SHOULD BE EXCLUDED AS A COMPARABLE. THE SPECIAL BENCH TOOK THE VIEW THAT IT HAS TO BE SHOWN THAT THE HIGH PROFIT MARGIN DOES NOT REFLECT THE NORMAL BUSINESS CONDITIONS AND ONLY IN SUCH CIRCUMSTANCES, HIGH PROFIT MARGIN COMPANIES CAN BE EXCLUDED. OUR ATTENTION WA S DRAWN TO THE DRPS OBSERVATION IN ITS ORDER ON THE ISSUE WHICH I S AS FOLLOWS : BODHTREE : THE ASSESSEE HAS OBJECTED TO SELECTION OF THIS ENTI TY ON THE BASIS OF THE FOLLOWING OBJECTIONS : 26 THE ENTITY HAS FLUCTUATING MARGINS. THE COMPANY IS MORE OF A PRODUCT COMPANY RATHER THA N SOFTWARE SERVICE COMPANY. THE PANEL HAS CONSIDERED THE OBJECTIONS OF THE ASSE SSEE. INSOFAR AS THE CONTENTION REGARDING THE REJECTION OF THIS ENTI TY ON THE BASIS OF FLUCTUATING MARGIN IS CONCERNED. IN ORDER TO APPRE CIATE THE COMPATIBILITY OR OTHERWISE OF THIS ENTITY, IT IS IM PORTANT TO FIRST NOTE THAT THE INDIAN SOFTWARE INDUSTRY USES TWO DIFFEREN T MODELS FOR REVENUE RECOGNITION. THE FIRST IS THE TIME AND MAT ERIAL (T&M) CONTRACTS MODEL IN WHICH CUSTOMER ARE BILLED ON THE BASIS OF HOURS WORKED BY THE EMPLOYEES OF SUPPLIER SOFTWARE COMPAN IES. HOURLY RATES ARE AGREED ON BY BOTH PARTIES AND ARE APPLIED TO THE TOTAL HOURS WORKED TO ARRIVE AT THE REVENUE THAT IS TO BE RECOG NIZED. THE SECOND IS THE FIXED PRICE PROJECT MODEL, THE TOTAL CONTRAC T PRICE IS AGREED UPON BETWEEN THE PARTIES. BILLING MAY BE DONE EITH ER AT THE END OF THE CONTRACT OR OVER THE PERIOD OF THE CONTRACT ON THE BASIS OF THE AGREED MILESTONE FOR BILLING. IN THIS RESPECT, THE BASIS OF REVENUE RECOGNITION BY THIS ENTITY CAN BE SEEN FROM THE ANN UAL REPORT AS BELOW : 3. REVENUE RECOGNITION : REVENUE FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BAS ED ON SOFTWARE DEVELOPED AND BILLED TO CLIENTS. FROM PERUSAL OF THE ABOVE, IT IS SEEN THAT THIS ENT ITY IS ENGAGED IN BUILDING REVENUES THROUGH FIXED PRICE PRODUCT MODE. AS IS A NATURAL COROLLARY IN SUCH TYPE OF REVENUE RECOGNITION, SOME PART OF THE EXPENDITURE MAY BE BOOKED IN ONE YEAR FOR WHICH THE REVENUE MAY HAVE BEEN RECOGNIZED IN THE EARLIER OR SUBSEQUENT Y EAR. THEREFORE, IT IS BUT NATURAL THAT THERE IS SOME FLUCTUATION IN TH E PROFITABILITY MARGIN OF SUCH ENTITY. MERELY BECAUSE OF SUCH FLUCTUATION , AN ENTITY ENGAGED IN THE DEVELOPMENT OF SOFTWARE, BEING FUNCTIONALLY COMPARABLE TO THE ASSESSEE, CANNOT BE REJECTED ONLY ON THIS GROUND. 14. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR A TTENTION TO THE FACT THAT BODHTREE CONSULTING ADMITTEDLY FOLLOWS A FIXED PRICE PROJECT MODEL WHEREBY REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE AND BILLED TO CLIENTS. IN SUCH B USINESS MODEL EXPENDITURE FOR DEVELOPING SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BUT THE REVENUE WOULD BE RECOGNIZED IN A SUBSEQUENT YEAR. IT WAS HIS SUBMISSION THAT THIS FACT IS RECOGNIZED BY THE DRP IN ITS ORDER. ACCORDING TO HIM THIS CIRCUMSTANCE WOULD BE SUFFICI ENT TO SHOW THAT THE MARGIN REFLECTED OF THIS COMPANY DOES NOT REFLE CT THE NORMAL BUSINESS CONDITION. 15. THE LEARNED DR PLACED RELIANCE ON THE REASON GI VEN BY THE DRP IN ITS ORDER. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MAERSK GLOBAL CENTRES (S UPRA) HAD AN OCCASION TO DEAL WITH THE QUESTION AS TO WHETHER HI GHER PROFIT MARGIN MAKING COMPANIES SHOULD BE EXCLUDED AS A COMPARABLE . THE SPECIAL BENCH AFTER CONSIDERING SEVERAL ASPECTS HELD IN PAR A 88 OF ITS ORDER THAT THE POTENTIAL COMPARABLE COMPANIES CANNOT BE E XCLUDED MERELY ON THE GROUND THAT THEIR PROFIT IS ABNORMALLY HIGH. THE SPECIAL BENCH 27 HELD THAT IN SUCH CASES IT WOULD REQUIRE FURTHER IN VESTIGATION TO ASCERTAIN THE REASON FOR UNUSUALLY HIGH PROFIT AND IN ORDER TO ESTABLISH WHETHER THE ENTITIES WITH SUCH HIGH PROFITS CAN BE TAKEN AS COMPARABLE OR NOT. IN THE LIGHT OF THE AFORESAID D ECISION OF THE SPECIAL BENCH AND IN VIEW OF THE ADMITTED POSITION THAT THE ASSESSEE FOLLOWS FIXED PRICE PROJECT MODEL WHERE REVENUES FR OM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOP ED AND BILLED TO CLIENTS, THERE IS A POSSIBILITY OF THE EXPENDITURE IN RELATION TO THE REVENUE BEING BOOKED IN THE EARLIER YEAR. THE RESU LTS OF BODHTREE FROM F.Y.2003 TO 2008 EXCLUDING F.Y.2007 AS GIVEN B Y THE LEARNED COUNSEL FOR THE ASSESSEE WERE ALSO PERUSED. PERUSA L OF THE SAME SHOWS, THAT THERE HAS BEEN A CONSISTENT CHANGE IN T HE OPERATING MARGINS. THE CHART FILED BY THE ASSESSEE IN THIS R EGARD IS GIVEN AS AN ANNEXURE TO THIS ORDER. IT APPEARS TO US THAT THE REVENUE RECOGNITIONS METHOD FOLLOWED BY THE ASSESSEE IS THE REASON FOR T HE DRASTIC VARIATION IN THE PROFIT MARGINS OF THIS COMPANY. I N THE GIVEN CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT WOULD BE SAFE TO EXCLUDE BODHTREE CONSULTING FROM THE FINAL LIST OF COMPARAB LES CHOSEN BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 24. THOUGH THE AFORESAID DISCUSSION BY THE BANGALOR E BENCH OF THE TRIBUNAL IS IN RELATION TO THE ASSESSM ENT YEAR 2009-10, BUT THE INFERENCES DRAWN WITH REGARD TO TH E VARIATIONS IN THE PROFIT MARGINS OF THE SAID CONCER N FOR DIFFERENT YEARS IS RELEVANT IN THE PRESENT CONTEXT ALSO. FURTHERMORE, THE TRIBUNAL ALSO ANALYSED AND FOUND T HAT THE SAID CONCERN WAS FOLLOWING FIXED PRICE PROJECT METH OD WHEREBY REVENUE FROM SOFTWARE DEVELOPMENT SERVICES WAS BEING RECOGNIZED BASED ON THE SOFTWARE DEVELOPED AN D BILLED TO THE CLIENTS. IN SUCH A BUSINESS MODEL, T HE POSSIBILITY OF THE EXPENDITURE NOT BEING BOOKED ON THE BASIS OF THE MATCHING PRINCIPLE CANNOT BE RULED OUT, WHIC H WOULD IMPART FLUCTUATION IN THE MARGINS OVER THE YEARS. IN CONTRAST, IN THE PRESENT CASE, THE REVENUE IS BEING RECOGNIZE D BASED ON THE COST PLUS MARKUP BASIS. CLEARLY, THE REVENU E 28 RECOGNITION MODEL OF BODHTREE CONSULTING LTD. IS QU ITE DIFFERENT FROM THE MODEL BEING PURSUED BY ASSESSEE AND SUCH DISTINCTION PREVAILED WITH THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF MINDTECK INDIA LTD. (SUPRA) TO EXCLUDE BODHTREE CONSULTING LTD. FROM THE LIST OF COMPARABL ES. CONSIDERING SUCH DIFFERENCE, IN OUR VIEW, ASSESSEE IS JUSTIFIED IN ASSERTING THAT THE SAID CONCERN BE EXC LUDED FROM THE LIST OF COMPARABLES. WE HOLD SO. 25. THE LAST POINT MADE BY THE LD. REPRESENTATIVE W AS FOR EXCLUSION OF M/S. FCS SOFTWARE SOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN IS FUNCT IONALLY DISSIMILAR TO THE ACTIVITIES BEING CARRIED OUT BY T HE ASSESSEE BECAUSE THE SAID CONCERN IS ENGAGED IN THE SALE OF SOFTWARE PRODUCTS AS WELL AS ITES ACTIVITIES AND FURTHER THA T NO SEGMENTAL DETAILS ARE AVAILABLE. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT DURING THE YEAR UNDER CONSIDE RATION THE SAID CONCERN HAS EARNED ABNORMALLY HIGH PROFIT MARGIN OF 57.02% AND FOR THIS REASON ALSO, IT SHOULD BE EX CLUDED FROM THE FINAL SET OF COMPARABLES. IT HAS ALSO BEE N SUBMITTED THAT AFTER PERUSING PROFIT MARGINS FOR VA RIOUS YEARS, IT IS EVIDENCED THAT THE MARGINS HAVE WIDELY FLUCTUATED OVER THE YEARS. THE FOLLOWING TABULATIO N HAS BEEN PLACED BEFORE US :- 29 YEAR UNADJUSTED OPERATING MARGIN (OP/OC) F.Y. 2005-06 14.75 F.Y. 2006-07 19.94% F.Y. 2007-08 57.02% F.Y. 2008-09 37.07% 26. THE LD. COUNSEL POINTED OUT THAT THE OPERATING MARGIN OF THE SAID CONCERN FOR THE YEAR UNDER CONSIDERATIO N IS 57.02%, WHICH IS QUITE ABNORMAL IN THE CONTEXT OF T HE OPERATING MARGINS OF 19.94% TO 14.75% FOR THE PRECE DING FINANCIAL YEARS OF 2006-07 AND 2005-06 RESPECTIVELY , AS ALSO FOR THE SUCCEEDING FINANCIAL YEAR OF 2008-09 WHERE THE OPERATING MARGIN IS 37.09%. IN THIS CONTEXT, RELIA NCE HAS BEEN PLACED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDI A) PVT. LTD., ACIT VIDE ITA NO.7466/MUM/2012 DATED 07-03-20 14. 27. THE LD. CIT DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE DRP HAS REJECTED THE PLEA OF THE ASSESSEE ON THE GROUND THAT THERE WAS NO INDEPENDENT DATA AVAILABLE TO ASSESS WHETHER THE PROFIT MARGIN OF 57.02% PERTAINI NG TO THE SAID CONCERN CAN BE CONSTRUED AS ABNORMALLY HIGH. 28. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ARGUMENT OF THE ASSESSEE IN ORDER TO EXCLUDE FC S SOFTWARE SOLUTIONS LTD. FROM THE FINAL SET OF COMPA RABLES IS BASED ON TWIN GROUNDS. FIRSTLY, IT IS CONTENDED TH AT THE SAID CONCERN HAS DECLARED AN ABNORMALLY HIGH PROFIT MARG IN OF 57.02% FOR THE FINANCIAL YEAR UNDER CONSIDERATION; AND, 30 SECONDLY, THAT THE MARGINS OF THE SAID CONCERN WIDE LY FLUCTUATE IN OVER THE YEARS. IN THE CONTEXT OF THE EXCLUSION OF ABNORMAL PROFIT MAKING CONCERNS, THE FOLLOWING DISC USSION MADE BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF MAERSK GLOBAL CENTREA (INDIA) PVT. LTD. (SUPRA) IS WORTHY OF NOTICE : IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO THIS 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 REFLECTS A NOR MAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNOR MAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PROFIT M ARGIN REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EA RNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FO UND ON SUCH INVESTIGATION THAT THE HIGH MARGIN PROFIT MAKING CO MPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE HIGH 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 MARGIN.' 29. THE AFORESAID DISCUSSION OF THE SPECIAL BENCH R EVEALS THAT A CONCERN WHICH HAS EARNED ABNORMALLY HIGH PRO FIT MARGIN CANNOT BE EXCLUDED FROM THE LIST OF COMPARAB LES STRAIGHTAWAY WITHOUT MAKING APPROPRIATE INVESTIGATI ONS. AS PER THE SPECIAL BENCH, IT WOULD BE APPROPRIATE TO A SCERTAIN AS TO WHETHER THE HIGH PROFIT MARGIN DECLARED BY TH E CONCERN REFLECTS A NORMAL BUSINESS PHENOMENON OR IT HAS RES ULTED BECAUSE OF CERTAIN ABNORMAL CONDITIONS PREVAILING I N A 31 PARTICULAR YEAR. AS PER THE SPECIAL BENCH, IN ORDE R TO CARRY OUT THE AFORESAID ANALYSIS, THE PROFIT MARGINS EARN ED BY SUCH CONCERN IN THE PROXIMATE PRECEDING AND SUCCEEDING Y EARS SHOULD ALSO BE TAKEN INTO CONSIDERATION SO AS TO ES TABLISH WHETHER THE HIGH PROFIT MARGINS REFLECT A NORMAL BU SINESS TREND OR OTHERWISE. IN THIS BACKGROUND OF THE MATT ER, WE FIND THAT IN THE CASE OF FCS SOFTWARE SOLUTIONS LTD., TH E MARGINS FOR THE TWO PRECEDING FINANCIAL YEARS ARE 14.75% AN D 19.94%, WHEREAS IN THE FINANCIAL YEAR SUCCEEDING TO THE YEAR UNDER CONSIDERATION, THE MARGIN IS 37.07%; AND , THE MARGIN DECLARED FOR THE YEAR UNDER CONSIDERATION IS 57.02%. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE POIN TED OUT THAT IN THE FINANCIAL YEAR 2007-08 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE SAID CONCERNS REVENUE S FROM THE SOFTWARE ACTIVITY WAS RS.86.73 CRORES AS AGAINS T RS.143.43 CRORES IN IMMEDIATELY PRECEDING YEAR. ON THE CONTRARY THE EXPENDITURE INCURRED ON DEVELOPMENT OF SOFTWARE FOR THE YEAR UNDER CONSIDERATION STOOD AT RS.30.44 CRORES AS AGAINST RS.104.35 CRORES IN THE IMMEDIATE LY PRECEDING YEAR. IT IS POINTED OUT THAT THE RATIO O F SOFTWARE DEVELOPMENT EXPENDITURE TO TOTAL INCOME HAS FALLEN DRASTICALLY FROM 72.75% TO 35.10%, WHICH SHOWS THAT THE CURRENT YEAR HAS WITNESSED ABNORMAL EVENTS. ALL TH E AFORESAID FACTUAL ASPECTS OF THE MATTER HAVE NOT BE EN DISPUTED BY THE REVENUE BEFORE US. FROM THE AFORES AID 32 ANALYSIS, IT IS CLEAR THAT THE OPERATING MARGINS OF THE SAID CONCERN DO NOT REFLECT A CONSISTENT TREND OVER THE YEARS, AND IN ANY CASE, THE CURRENT YEARS OPERATIONS IN COMPA RISON TO THE EARLIER YEARS ARE QUITE ABNORMAL. CONSIDERING THE ENTIRETY OF CIRCUMSTANCES, IN OUR VIEW, THE FINANCI AL RESULTS DECLARED BY THE SAID CONCERN DO NOT REFLECT A NORMA L BUSINESS TREND AND THEREFORE IN OUR VIEW THE SAID C ONCERN IS LIABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARA BLES. WE HOLD SO. 30. AT THE TIME OF HEARING, IT WAS STATED BY THE LD . REPRESENTATIVE FOR THE APPELLANT THAT IF ASSESSEE W AS TO SUCCEED ON ITS PLEA OF THE EXCLUSION OF (I) INFOSYS TECHNOLOGIES LTD.; (II) E-ZEST SOLUTIONS LTD.; (III ) BODHTREE CONSULTING LTD.; (IV) KALS INFORMATION SYSTEMS LTD. ; AND, (V) FCS SOFTWARE SOLUTIONS LTD. FROM THE FINAL SET OF COMPARABLES, THEN THE VARIATION BETWEEN THE ARMS L ENGTH PRICE SO DETERMINED AND THE STATED VALUE OF THE INT ERNATIONAL TRANSACTIONS WOULD FALL WITHIN THE +/-5% AND THEREF ORE IN TERMS OF SECTION 92C(2) OF THE ACT NO ADJUSTMENT WO ULD BE REQUIRED TO BE MADE. SINCE WE HAVE UPHELD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF (I) INFOSYS TECHNOLOGIES LTD.; (II) E-ZEST SOLUTIONS LTD.; (III) BODHTREE CONSULTING LT D.; (IV) KALS INFORMATION SYSTEMS LTD.; AND, (V) FCS SOFTWARE SO LUTIONS LTD. FROM THE FINAL SET OF COMPARABLES, THE OTHER G ROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ORDER TO ASSAIL TH E ADDITION 33 OF RS.6,13,78,174/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARE RENDERED ACADEMIC AND ARE NOT BEING ADJUDICATED FOR THE PRESENT. 31. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AS ABOVE. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY, 2015. SD/- SD/- (SUSHMA CHOWLA) (G.S. P ANNU) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED: 28 TH JANUARY, 2015 SATISH/SUJEET COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE DRP, PUNE 4. THE DIT (INTERNATIONAL TAXATION), PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE