Appeal Details
Counselvise Citation
[2018] 121 COUNSELVISE.COM (IT) 7713 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 5 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-05-2018
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
13-02-2018
Assessment Year
2008-2009
Appeal Filed On
10-12-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE , , , BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 2428 /P U N/201 2 / ASSESSMENT YEAR : 20 08 - 09 NIHILENT TECHNOLOGIES PVT. LTD., D BLOCK, 4 TH FLOOR, W EI KFIELD IT CITI INFOPARK, NAGAR ROAD, PUNE 411014 PAN : AABCN0867G ....... / APPELLANT / V/S. INCOME TAX OFFICER, WARD 2(3), PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 13 - 02 - 2018 / DATE OF PRONOUNCEMENT : 10 - 0 5 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 17 - 10 - 2012 PASSED U/S. 143(3) R.W.S. 144C(13) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR THE ASSESSMENT YEAR 2008 - 09. 2 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE COMPANY IS ENGAGED IN RENDERING SOFTWARE SERVICES. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES). ACCORDINGLY, REFERENCE U/S . 92CA(2) WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) TO DETERMINE ARMS LENGTH PRICE (ALP) IN RESPECT OF THE INTERNATIONAL TRANSACTIONS. THE ASSESSEE HAD COMPUTED ITS INCOME UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. THE ASSESSING OFFICER DID NOT AGREE WITH THE METHOD OF COMPUTATION OF B OOK P ROFITS U/S. 115JB OF THE ACT. ACCORDINGLY, HE REJECTED ASSESSEES METHOD OF COMPUTATION OF BOOK PROFITS AND RECOMPUTED THE SAME. IN THE PRESENT APPEAL THE ASSESSEE HAS PRIMARILY RAISED TWO ISSUES. THE GROUND NO. 1 ALONG WITH ITS SUB - GROUNDS RELATES TO COMPUTATION OF B OOK P ROFITS U/S. 115JB AND GROUND NO. 2 ALONG WITH SUB - GROUNDS RELATES TO TRANSFER PRICING ISSUES. 3. FIRST WE WILL TAKE UP THE NON - TP ISSUES I.E. THE GROUND NO. 1 RELATING TO COMPUTATION OF BOOK PROFITS UNDER MA T PROVISIONS. THE ASSESSEE HAS FILED ABRIDGED GROUNDS OF APPEAL. THE GROUND NO. 1 RAISED IN THE APPEAL IS AS UNDER : ON FACTS AND IN LAW, 1] THE LEARNED DRP 1 A.O. ERRED IN COMPUTING THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB AT RS. 8,40,79,191/ - AS AGAINST THE BOOK PROFIT SHOWN AT RS.1,00,54,626/ - DECLARED BY THE ASSESSEE COMPANY. 1.1] THE LEARNED DRP / A.O. ERRED IN HOLDING THAT THE AMOUNT OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION TO BE DEDUCTED WHILE COMPUTING TH E BOOK PROFIT WAS RS.44,79,000 / - AS AGAINST RS.7,32,38,000 / - CLAIMED BY THE ASSESSEE. 1.2] THE LEARNED DRP / A.O. ERRED IN HOLDING THAT THE AMOUNT OF MAT CREDIT ENTITLEMENT OF RS.52,65,565/ - WAS TO BE INCLUDED IN BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB . 3 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 4 . SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE REITERATED THE SUBMISSIONS THAT WERE MADE BEFORE THE AUTHORITIES BELOW. IN ADDITION DETAILED WRITTEN SUBMISSIONS WERE FILED BY THE ASSESSEE WHICH ARE REPRODUCED HERE - IN - BELOW : 1 ] GROUND NOS. 1 - 1.1: COMPUTATION OF BOOK PROFIT U/S. 115JB AT RS . 8,40,79,191 / - AS AGAINST RS. 1,00,54,626/ - DECLARED BY THE ASSESSEE: 1.1 ] THE ASSESSEE COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT BUSINESS . FOR THIS YEAR, THE ASSESSEE COMPANY HAD COMPUTED THE BOOK PR OFIT AS PER SECTION 115JB AT RS. 1,00,54,626 / - . IN THE ASST. ORDER, THE LEARNED A.O . HAS COMPUTED THE BOOK PROFIT AT RS. 8,40,79,191 / - . AS PER SECTION 115JB, THE AMOUNT OF BROUGHT FORWARD LOSS OR AN UNABSORBED DEPRECIATION WHICHEVER IS LESS CAN BE REDUCED FOR COMPUTING THE BOOK PROFIT. IN THE CASE OF THE ASSESSEE COMPANY, UPTO 31 ST MARCH 2006, THE TOTAL BROUGHT FORWARD LOSS WAS RS . 18,10,90,000 / - AND THE UNABSORBED DEPRECIATION WAS RS. 7,32,38,000 / - . FOR F.Y. 2006 - 07, THERE WAS POSITIVE INCOME OF RS. 6,87,59,000 / - AND THE ASSESSEE HAD SET OFF THE BROUGHT FORWARD LOSS / DEPRECIATION AGAINST THE SAID AMOUNT. AFTER SETTING OFF THE AMOUNT AGAINST THE INCOME FOR F.Y. 2006 - 07, THE ASSESSEE RECOMPUTED ITS BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION AT RS. 1 1,23,31,000/ - AND RS. 7,32,38,000 / - RESPECTIVELY. IN THIS YEAR, THERE WAS POSITIVE INCOME OF RS. 97,588,084 / - AND THE ASSESSEE COMPANY SET OFF AN AMOUNT OF RS. 7,32,38,0001 - AGAINST THE POSITIVE INCOME. 1.2] ACCORDING TO THE ASSESSEE, AS PER SECTION 115 JB, THE AMOUNT OF BROUGHT FORWARD LOSS I UNABSORBED DEPRECIATION WHICHEVER IS LESS IS TO BE R EDUCED. ONCE, THE AMOUNT IS QUANTIFIED AND REDUCED FROM THE BOOK PROFITS, FOR THE PURPOSE OF DETERMINING THE CARRY FORWARD LOSS I UNABSORBED DEPRECIATION, THE ASSESSEE HAS AN OPTION TO SET OFF THE SAME AGAINST THE BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION. IT IS SUBMITTED THAT THERE IS NO PROVISION WHICH LAYS DOWN ANY PREFERENCE FOR SETTING OF THE LOSSES AND HENCE, THE METHOD ADOPTED BY THE ASSESSEE IS CORRECT. 1. 3] THE LEARNED A.O. HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE. ACCORDING TO HIM, IN F.Y. 2006 - 07, THE ASSESSEE HAD SET OFF AN AMOUNT OF RS. 6,87,59,000 / - AGAINST THE POSITIVE INCOME DETERMINED AND THE SAME SHOULD HAVE BEEN REDUCED FROM THE FIG URE OF UNABSORBED DEPRECIATION AND NOT FROM THE FIGURE OF BROUGHT FORWARD LOSS. ACCORDING TO THE A.O., THE METHOD ADOPTED BY THE ASSESSEE IS NOT CORRECT AND HE HAS RELIED UPON THE DECISION OF AUTHORITY FOR ADVANCE RULING IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. [285 ITR 1]. THE LEARNED A.O. HAS STATED THAT THE ASSESSEE HAS NO OPTION TO DECIDE THE MANNER OF SET OFF. ACCORDINGLY, HE HAS STATED THAT THE AMOUNT WHICH CAN BE REDUCED IS ONLY RS. 44,79,000 / - AND NOT RS. 7,32,38,000 / - AS CLAIMED BY THE ASSESSEE AND H ENCE, THE BOOK PROFIT HAS BEEN INCREASED TO THAT EXTENT. THE ID. DRP HAS ALSO CONFIRMED THE VIEW TAKEN BY THE A.O. 4 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 1.4] THE ASSESSEE SUBMITS THAT THE LEARNED A.O. HAS ERRED IN MAKING THE ABOVE ADDITION. AS CLARIFIED EARLIER, THE BROUGHT FORWARD LOSS AND U NABSORBED DEPRECIATION AS ON 31.03.2006 WAS RS.18,10,90,000 / - AND RS.7,32,38,000 / - RESPECTIVELY. IN A.Y. 2007 - 08, THE ASSESSEE REDUCED AN AMOUNT OF RS.6,87,59,000 / - AND THE SAME WAS ADJUSTED AGAINST THE BROUGHT FORWARD LOSS AND IT WAS REDUCED TO RS.11,23,3 1,000 / - . IT IS SUBMITTED THAT THERE IS NO PROVISION WHICH SPECIFIES THE MANNER AND PRIORITY FOR ADJUSTMENT OF THE AMOUNT SET OFF AGAINST THE BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION. SINCE THERE IS NO PROVISION, IT IS SUBMITTED THAT THE ASSESSEE HA S AN OPTION AND THE INTERPRETATION FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED. IT IS A SETTLED LAW THAT WHEN TWO OPINIONS ARE POSSIBLE, THE ONE IN FAVOUR OF THE ASSESSEE SHOULD BE CONSIDERED. IN THIS CASE, THE A.O. HAS STATED THAT THE AMOUNT SET OFF OF R S.6,87,59,0001 - SHOULD HAVE BEEN REDUCED FROM THE FIGURE OF UN ABSORBED DEPRECIATION AND NOT FROM THE FIGURE OF BROUGHT FORWARD LOSS. IT IS SUBMITTED THAT THE METHOD ADOPTED BY THE A.O. IS ALSO NOT SUPPORTED BY ANY PROVISION AND HENCE, THE SAME HAS TO BE D ISCARDED. THE LEARNED A.O. HAS REFERRED TO THE AAR DECISION IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. WITH DUE RESPECT, THE SAID DECISION IS NOT BINDING AND HENCE, THE A.O. HAS ERRED IN PLACING RELIANCE ON THE SAME. 1.5] THE ASSESSEE SUBMITS THAT THE METH OD ADOPTED BY IT HAS BEEN ACCEPTED BY THE A.O. FOR THE ASST. YEARS 2006 - 07 AND 2007 - 08. THUS, WHEN THE ID. A.O. HAS ACCEPTED THE CLAIM OF THE ASSESSEE COMPANY FOR TWO YEARS THEN IN THAT EVENT, THERE IS NO REASON TO CHANGE THE STAND FOR THE SUBSEQUENT YEAR. THE ASSESSEE PLACES RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG [193 ITR 321] WHEREIN IT HAS BEEN HELD THAT IF A VIEW HAS BEEN TAKEN BY THE A.O. FOR THE EARLIER YEARS, THEN THE SAME SHOULD BE FOLLOWED FOR THE S UBSEQUENT YEARS AS ALSO WHEN THERE IS NO CHANGE IN FACTS. ACCORDINGLY, THE ASSESSEE SUBMITS THAT THE METHOD ADOPTED BY IT FOR DETERMINING THE BOOK PROFIT SHOULD BE ACCEPTED. 1.6] THE ASSESSEE ALSO PLACES RELIANCE ON THE DECISIONS OF ITAT, PUNE IN THE CASE OF KAILASH VAHAN UDYOG LTD. [ITA NOS. 1322/PN / 2011] AND KIRLOSKAR FERROUS INDUSTRIES LTD. [ITA NO. 519 / PN/2009] WHEREIN AFTER CONSIDERING THE DECISION OF AAR IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. HAS HELD THAT THE METHODOLOGY ADOPTED BY THE A.O. IS NOT CORRECT. IN VIEW OF ABOVE, THE ASSESSEE SUBMITS THAT IT S CLAIM MAY KINDLY BE ACCEPTED. IN VIEW OF ABOVE, THE ASSESSEE SUBMITS THAT THE CORRECT AMOUNT OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION WHICHEVER IS LESS IS RS.7,32,38, 000/ - AND THE SAME SH OULD HAVE BEEN ALLOWED WHILE COMPUTING THE BOOK PROFIT. 2] GROUND NO. 1.2: WHETHER MAT CREDIT ENTITLEMENT OF RS . 52,65,565/ - SHOULD BE INCLUDED IN THE BOOK PROFIT: 2.1] IN THIS YEAR, THE ASSESSEE HAD CREDITED AN AMOUNT OF RS.52,65,565/ - IN THE P&L ACCOU NT ON ACCOUNT OF MAT CREDIT ENTITLEMENT. HOWEVER, THIS AMOUNT WAS REDUCED FROM THE BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB. IT WAS CLARIFIED TO THE LEARNED A.O. THAT MAT CREDIT 5 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 ENTITLEMENT REPRESENTS PREPAID INCOME TAX AND THEREFORE, THE SAME SHOULD BE REDUCED FROM THE BOOK PROFIT. THE ASSESSEE FURTHER SUBMITTED THAT FOR THE PURPOSE OF DETERMINING THE BOOK PROFIT, THE AMOUNT OF INCOME TAX PAID / PAYABLE WHICH IS DEBITED TO P&L ACCOUNT IS TO BE ADDED BACK. IN THE SAME MANNER, THE AMOUNT OF INCOME TAX CRE DITED TO THE P&L ACCOUNT HAS TO BE REDUCED SINCE MAT CREDIT ENTITLEMENT IS NOTHING BUT PREPAID INCOME TAX. THE LEARNED A.O. HAS NOT APPRECIATED THE CLAIM OF THE ASSESSEE. ACCORDING TO HIM, THERE IS NO PROVISION IN SECTION 115JB WHICH PROVIDES FOR REDUCTION OF MAT CREDIT ENTITLEMENT WHILE DETERMINING THE BOOK PROFIT AND HENCE, HE HAS CONSIDERED THE SAID AMOUNT IN THE FINAL COMPUTATION OF BOOK PROFIT. 2.2] THE ASSESSEE SUBMITS THAT THE CLAIM MADE BY IT IS CORRECT AND THE A.O. HAS ERRED IN NOT APPRECIATING IT S CLAIM. THE ASSESSEE WOULD LIKE TO CLARIFY THAT MAT CREDIT ENTITLEMENT ARISES BECAUSE OF PAYMENT OF TAXES U /S. 115JB AND SECTION 115JAA PROVIDES FOR MAT CREDIT WHICH CAN BE SET OFF AGAINST THE TAX LIABILITY ARISING UNDER THE NORMAL PROVISION IN THE SUBSEQ UENT YEARS. HENCE, THE MAT CREDIT ENTITLEMENT IS NOTHING BUT PREPAID INCOME TAX AND HENCE, THE SAME HAS TO BE REDUCED FOR DETERMINING THE BOOK PROFIT. IN FACT, HON'BLE SUPREME COURT IN THE CASE OF TULSYAN NEC LTD. [330 ITR 226] HAS HELD THAT MAT CREDIT RE PRESENTS ADVANCE INCOME TAX PAID. ACCORDINGLY, THE BOOK PROFIT SHOULD BE REDUCED BY AN AMOUNT OF RS.52,65,565/ - . 2.3] THE ASSESSEE FURTHER SUBMITS THAT THE AMOUNT OF MAT CREDIT ENTITLEMENT IS ALSO DEDUCTIBLE FROM THE BOOK PROFIT IN TERMS OF CLAUSE (I) OF EXPLANATION L. IT IS SUBMITTED THAT CLAUSE (I) STATES THAT ANY AMOUNT WITHDRAWN FROM RESERVE OR PROVISION AND CREDITED TO PROFIT AND LOSS ACCOUNT SHOULD BE REDUCED WHILE COMPUTING THE BOOK PROFIT. NOW, THE MAT CREDIT ENTITLEMENT IS REVERSAL OF INCOME TA X PROVISION. FURTHER, THE INCOME TAX PROVISION IS NOT CLAIMED AS A DEDUCTION WHILE COMPUTING BOOK PROFIT AND THEREFORE, THE REVERSAL OF THE SAME SHOULD ALSO BE REDUCED WHILE COMPUTING THE BOOK PROFIT . 5. ON THE OTHER HAND SHRI RAJEEV KUMAR REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ASSESSMENT ORDER. THE LD. DR SUBMITTED THAT IDENTICAL ISSUE HAD COME UP BEFORE THE AUTHORITY FOR ADVANCE RULING (AAR) IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. (SUPRA). ONCE, THE AMOUNT OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS IS DEDUCTED IN COMPUTING BOOK PROFIT OF A COMPANY, THE AMOUNT OF SUCH LOSS OR DEPRECIATION, WHICHEVER IS SO DEDUCTED TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS GET REDUCE D TO THE EXTENT OF SUCH SET OFF. THERE CAN BE 6 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 NO OTHER METHOD OF SET OFF AND THE ASSESSEE HAS NO DISCRETION TO DECIDE THE MANNER OF SET OFF. 6. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AU THORITIES BELOW . WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH RIVAL SIDES HAVE PLACED RELIANCE. THE ASSESSEE IN APPEAL HAS ASSAILED THE ACTION OF AUTHORITIES BELOW IN COMPUTING BOOKS PROFITS U/S. 115JB ON TWO COUNTS : I . MANNER OF COMPUTATION OF BROUGHT F ORWARD LOSS OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS TO BE DEDUCTED WHILE COMPUTING BOOKS PROFIT. II . ACCOUNTING TREATMENT OF MAT CREDIT ENTITLEMENT. 7. THE ASSESSEE COMPUTED BOOK PROFIT AS RS. 1,00,54,626/ - AFTER DEDUCTING UNABSORBED DEPRECIATION OF RS.7,32,38,000/ - . ON THE CONTRARY, THE ASSESSING OFFICER COMPUTED BOOK PROFIT AT RS.8,40,79,191/ - AFTER REDUCING UNABSORBED DEPRECIATION OF RS.44,79,000/ - AND ADDING BACK MAT CREDIT ENTITLEMENT CLAI MED BY ASSESSEE RS.52,65,565/ - . THE ASSESSING OFFICER WHILE COMPUTING BOOK PROFIT UNDER MAT PROVISIONS HAS PLACED RELIANCE ON THE DECISION OF AAR IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. (SUPRA). WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. (SUPRA) AFTER CONSIDERING THE RATIO IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. (SUPRA) HAS HELD AS UNDER : 19. IN THIS MANNER, THE ASSESSING OFFICER COMPUTED BOOK PROFITS FOR SECTION 115JB AT RS 20,24,35,238/ - AS AG AINST NIL DETERMINED BY THE ASSESSEE. WE HAVE EXAMINED THE POSITION SET - UP BY THE ASSESSING OFFICER. QUITE CLEARLY, CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB ENVISAGES ADJUSTMENT FOR THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICH EVER IS LESS AS PER BOOKS OF ACCOUNT. IT IS QUITE CLEAR THAT THE LOSS DEPICTED IN THE ACCOUNT BOOKS WHICH COMPRISES OF BUSINESS LOSSES AND DEPRECIATION IS REQUIRED TO BE SPLIT UP FOR THE PURPOSES OF CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB(2). SO, HO WEVER, THE MANNER OF DETERMINING THE INDIVIDUAL 7 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 FIGURES OF LOSS AND DEPRECIATION IS NOT INDICATED IN SECTION 115JB INASMUCH AS THE MANNER IN WHICH THE LOSSES AND DEPRECIATION ARE SET OFF AGAINST THE PROFITS HAS NOT BEEN SPELT OUT. HOWEVER, AN INDICATION WH ICH IS MANIFESTED IN SECTION 115JB ITSELF IS A SAFE PREMISE TO FOLLOW IN SUCH A SITUATION. CLAUSE (III) SPEAKS OF ADJUSTMENT FOR THE LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION. THEREFORE, THE LEGISLATURE ENVISAGED THAT WHILE COMPUTING BOOK PR OFITS FOR 115JB, REDUCTION BE ALLOWED FOR THE LOWER OF CARRIED FORWARD LOSSES OR UNABSORBED DEPRECIATION OF THE PAST YEARS. THEREFORE, THE DETERMINATION OF SUCH LOSSES OR DEPRECIATION IN THE PAST YEARS BE ALSO MADE ON SIMILAR PROPOSITION, IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE STATUTE. EVEN IN THE PAST YEARS, THE LOSSES AND DEPRECIATION TO BE CARRIED FORWARD BE DETERMINED ON THE SIMILAR PRINCIPLES, I.E. AFTER SETTING OFF OF THE LOWER OF DEPRECIATION OR LOSSES. APART FROM THE FACT THAT THERE IS NO S PECIFIC PROVISION IN THE STATUTE, WE ARE ALSO GUIDED BY THE SPIRIT OF SECTION 205(1)(B) OF THE COMPANIES ACT, 1956. IN TERMS OF SECTION 205(1)(B) ALSO, THE SURPLUS IS TO BE DETERMINED AFTER REDUCING LOWER OF THE LOSS OR DEPRECIATION. THOUGH STRICTLY SPEAKI NG THE RULE OF SECTION 205(1)(B) OF THE COMPANIES ACT IS NOT APPLICABLE, INASMUCH AS FOR THE PURPOSES OF THE SAID SECTION THE EXPRESSION LOSS INCLUDES DEPRECIATION, WHEREAS FOR THE PURPOSES OF SECTION 115JB IT IS SPECIFICALLY PROVIDED THAT FOR CLAUSE (II I) OF EXPLANATION 1 THE EXPRESSION LOSS SHALL NOT INCLUDE DEPRECIATION. SO, HOWEVER, WE WANT TO EMPHASIS ON THE BASIC PRINCIPLE ENSHRINED IN SECTION 115JB WHEREBY THE LOWER OF LOSS OR DEPRECIATION IS REDUCIBLE TO ARRIVE AT THE SURPLUS. SECTION 115JB(2) I TSELF REFERS TO A PROFIT & LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956 AND THEREFORE, IN OUR VIEW, THE PROPOSITION IN SECTION 205(1)(B) BECOMES RELEVANT. FOR THE AFORESAID TWIN REASONS, IN OUR VIEW, IN ORDER TO DETERMINE THE LOSSES CARRIED FORWARD AND UNABSORBED DEPRECIATION IN THE PAST YEARS ALSO, IT WOULD BE APPROPRIATE TO REDUCE THE LOWER OF THE TWO AND THEREAFTER, ASCERTAIN THE AMOUNT OF LOSSES BROUGHT FORWARD AND UNABSORBED DEPRECIATION. 20. CONSIDERED IN THE AFORES AID MANNER, IN OUR VIEW, THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER HAS TO FAIL. THIS IS FOR THE REASON THAT HE HAS PROCEEDED TO ADJUST THE UNABSORBED DEPRECIATION AS ON 31.3.2003, WHEREAS THE CORRECT APPROACH WOULD HAVE BEEN TO COMPARE AND DETERMINE THE LOSSES IN EACH OF THE FINANCIAL YEARS STARTING FROM THE FINANCIAL YEAR 1996 - 97 AND DETERMINE THE LOSS OR DEPRECIATION WHICH IS REQUIRED TO BE CARRIED FORWARD IN ACCORDANCE WITH THE AFORESAID DISCUSSION. IN FACT, WE FIND THAT EVEN THE WORKING ADOPTED B Y THE ASSESSEE IN THE RETURN OF INCOME ALSO DOES NOT CORRESPOND TO THE AFORESAID PRINCIPLES. UNDER THESE CIRCUMSTANCES, WE, THEREFORE, DEEM IT FIT AND PROPER TO SET - ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL REVISIT THE WORKING OF BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB IN SO FAR AS IT RELATES TO CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. THE ASSESSING OFFICER SHALL CARRY OUT THE AFORESAID LIMITED EXERCISE IN ACCORDANCE WITH OUR AFORESAID DISCUSSION AND AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AS PER LAW. 8 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 IN PARA 12 OF THE ORDER, THE TRIBUNAL AFTER CONSIDERING THE DECISION IN THE CASE OF RASTRIYA ISPAT NIGAM LT D. (SUPRA) OBSERVED AS UNDER : 12. .IN SO FAR AS THE RELIANCE ON THE JUDGMENT OF THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA) IS CONCERNED, EVEN THAT HAS NOT BEEN APPROPRIATELY APPRECIATED BY THE ASSESSING OFFICER, INASMUCH IN THAT DECISION ALSO, IT HAS BEEN UPHELD THAT THE QUANTIFICATION OF CARRIED FORWARD UNABSORBED LOSS AND DEPRECIATION TO THE NEXT YEAR HAS TO BE DONE AFTER REDUCING FROM THE CURRENT YEARS PROFIT EITHER THE LOSS OR DEPRECIATION, WHICHEVER IS LOWE R. 8. WE FIND THAT THE DECISION RENDERED BY AAR IN THE CASE OF RASTRIYA ISPAT NIGAM LTD. (SUPRA) AND THE ORDER OF TRIBUNAL IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. (SUPRA) ARE UNANIMOUS IN THE MANNER OF COMPUTATION OF BOOK PROFITS , AS PROVIDED IN C LAUSE (III) TO EXPLANATION 1 OF SECTION 115JB OF THE ACT . WE ARE OF CONSIDERED VIEW THAT THE ISSUE RAISED IN GROUND NO. 1.1 OF THE APPEAL NEEDS REVISIT TO THE FILE OF ASSESSING OFFICER FOR FRESH COMPUTATION OF BOOK PROFITS IN LINE WITH THE MANNER EXPLAINED BY THE CO - ORDINATE BENCH IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. (SUPRA). 9. AS REGARDS MAT CREDIT ENTITLEMENT OF RS.52,65,565/ - IS CONCERNED, THE CONTENTION OF THE ASSESSEE IS THAT THE SAME IS ARISING ON ACCOUNT OF PREPAYMENT O F INCOME TAX. THE HONBLE SUPREME COURT OF INDIA IN THE C ASE OF TULSYAN NEC LTD. (SUPRA) HAS HELD AS UNDER : 9. WE HAVE DISCUSSED HEREINABOVE THE SCHEME OF S. 115JA(1) AND S. 115JAA. THE ENTIRE SCHEME OF SS. 115JA(1) AND 115JAA SHOWS THAT IF AN ASSESSEE IS ENTITLED TO A TAX CREDIT AS A CONSEQUENCE OF THE ASSESSEE MAKING PAYMENT OF TAX UNDER S. 115JA(1) IN THE YEAR O NE, THEN, THE SET OFF OF SUCH TAX CREDIT FOLLOWS AS A MATTER OF COURSE ONCE THE CONDITIONS MENTIONED IN S. 115JAA ARE FULFILLED AND THE GRANT OF SUCH CREDIT IS NOT DEPENDENT UPON DETERMINATION BY THE AO SAVE AND EXCEPT THAT THE ULTIMATE AMOUNT OF TAX CREDI T TO BE ALLOWED WILL BE DEPENDENT UPON THE FINAL DETERMINATION OF THE TOTAL INCOME FOR THE FIRST ASSESSMENT YEAR. THERE IS NO PROVISION UNDER S. 115JAA WHICH POSTPONES THE RIGHT OF THE ASSESSEE TO CLAIM SET OFF TO THE DETERMINATION OF THE TOTAL INCOME BY T HE AO IN THE FIRST ASSESSMENT YEAR. 9 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 ENTITLEMENT/RIGHT TO CLAIM SET OFF IS DIFFERENT FROM THE QUANTUM/QUANTIFICATION OF THAT RIGHT. ENTITLEMENT OF MAT CREDIT IS NOT DEPENDENT UPON ANY ACTION TAKEN BY THE DEPARTMENT. HOWEVER, QUANTUM OF TAX CREDIT WILL DEPEN D UPON THE ASSESSMENT FRAMED BY THE AO. THUS, THE RIGHT TO SET OFF ARISES AS A RESULT OF THE PAYMENT OF TAX UNDER S. 115JA(1) ALTHOUGH QUANTIFICATION OF THAT RIGHT DEPENDS UPON THE ULTIMATE DETERMINATION OF TOTAL INCOME FOR THE FIRST ASSESSMENT YEAR. FURTH ER, AN ASSESSEE HAS A RIGHT TO TAKE INTO ACCOUNT THE SET OFF EVEN WHILE ESTIMATING ITS LIABILITY TO PAY ADVANCE TAX ON THE 'CURRENT INCOME' IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII - C. ALTHOUGH S. 209(1)(D) DOES NOT MAKE ANY SPECIFIC PROVISION EITH ER BEFORE OR AFTER THE AMENDMENTS CARRIED OUT BY THE FINANCE ACT, 2006 TO THE EFFECT THAT AN ASSESSEE IS ENTITLED TO SET OFF THE TAX CREDIT THAT WOULD BE AVAILABLE IN TERMS OF S. 115JAA(1) WHILE COMPUTING THE QUANTUM OF ADVANCE TAX THAT IS TO BE PAID IT MU ST FOLLOW THAT AN ASSESSEE WOULD BE ENTITLED TO DO SO OTHERWISE IT RESULTS IN ABSURDITY, VIZ., THAT AN ASSESSEE PAYS ADVANCE TAX ON THE FOOTING THAT IT IS NOT ENTITLED (WHEN IN FACT IT IS SO ENTITLED AS DISCUSSED ABOVE) TO THE CREDIT AND THEREAFTER CLAIMS A REFUND OF SUCH ADVANCE TAX PAID AS A CONSEQUENCE OF THE SET OFF. MOREOVER, WHEN AN AO MAKES AN INTIMATION UNDER S. 143(1) HE ACCEPTS THE RETURN FILED BY THE ASSESSEE TO WHICH THE AO MAY MAKE AN ADJUSTMENT AND CONSEQUENTLY MAKES A DEMAND OR REFUND. SEC. 1 43(1) PROVIDES THAT WHERE A RETURN IS MADE UNDER S. 139 AND IF ANY TAX OR INTEREST IS FOUND DUE ON THE BASIS OF SUCH RETURN AFTER ADJUSTMENT OF ANY TDS, ANY ADVANCE TAX, ANY TAX PAID ON SELF - ASSESSMENT AND ANY AMOUNT PAID OTHERWISE BY WAY OF TAX OR INTERES T, THEN, WITHOUT PREJUDICE TO PROVISIONS OF SUB - S. (2), AN INTIMATION WILL BE SENT TO THE ASSESSEE SPECIFYING THE AMOUNT SO PAYABLE AND SUCH INTIMATION SHALL BE DEEMED TO BE A NOTICE OF DEMAND UNDER S. 156 AND ALL THE PROVISIONS OF THE ACT SHALL APPLY THER ETO. THIS SECTION ITSELF MAKES IT CLEAR THAT WHILST THE AO DETERMINES THE TAX PAYABLE HE HAS TO GIVE CREDIT FOR ALL TAXES PAID EITHER BY WAY OF DEDUCTION AT SOURCE, ADVANCE TAX, SELF - ASSESSMENT TAX OR TAX PAID OTHERWISE WHICH WOULD INCLUDE OR WHICH CANNOT EXCLUDE TAX CREDIT UNDER S. 115JAA(1). HOWEVER, THE QUESTION BEFORE US IS OF PRIORITY OF ADJUSTMENT FOR THE MAT CREDIT. IN THIS CONNECTION, IT IS IMPORTANT TO BEAR IN MIND THAT THE CREDIT ALLOWED IS THE EXCESS OF THE NORMAL TAX LIABILITY OVER MAT LIABILITY IN THE SUBSEQUENT YEARS. IN THIS CONNECTION THE FOLLOWING ILLUSTRATION ON MAT CREDIT BE SEEN : PARTICULARS AMOUNT (RS.) YEAR 1 115JB LIABILITY 1,600 NORMAL TAX LIABILITY 400 CREDIT WHICH CAN BE CARRIED FORWARD - I 1200 YEAR 2 115JB LIABILITY (A) 600 NORMAL TAX LIABILITY (B) 1400 TAX LIABILITY = (B) (SINCE B IS HIGHER THAN A) 1400 MAT CREDIT AVAILABLE FOR SET OFF IN YEAR 2 [(A) - (B)] - II 800 10 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 NET TAX LIABILITY FOR YEAR 2 (B - II) 600 MAT CREDIT TO BE CARRIED FORWARD (I - II) 400 [SEE THE CHARTERED ACCOUNTANT, VOL. 57, NO. 9, MARCH, 2009, P. 1584] 10. THE ISSUE WHICH CROPS UP FOR DECISION IS HOW SHOULD THE ADVANCE TAX BE CALCULATED WHEN THE COMPANY HAS MAT CREDIT ? 11. TO ANSWER, WE NEED TO LOOK AT S. 234B. UNDER THAT SECTION, 'ASSESSED TAX' MEANS TH E TAX ON THE TOTAL INCOME DETERMINED UNDER S. 143(1) OR ON REGULAR ASSESSMENT UNDER S. 143(3) AS REDUCED BY THE AMOUNT OF TAX DEDUCTED OR COLLECTED AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII ON ANY INCOME WHICH IS SUBJECT TO SUCH DEDUCTION OR COLLECTION AND WHICH IS TAKEN INTO ACCOUNT IN COMPUTING SUCH TOTAL INCOME. THE DEFINITION, THUS, AT THE RELEVANT TIME EXCLUDED MAT CREDIT FOR ARRIVING AT ASSESSED TAX. THIS LED TO IMMENSE HARDSHIP. THE POSITION WHICH EMERGED WAS THAT DUE TO OMISSION ON ONE HAND MAT CREDIT WAS AVAILABLE FOR SET OFF FOR FIVE YEARS UNDER S. 115JAA BUT THE SAME WAS NOT AVAILABLE FOR SET OFF WHILE CALCULATING ADVANCE TAX. THIS DICHOTOMY WAS MORE SPELT OUT BECAUSE S. 115JAA DID NOT PROVIDE FOR PAYMENT OF INTEREST ON THE MAT C REDIT. TO AVOID THIS SITUATION, PARLIAMENT AMENDED EXPLN. 1 TO S. 234B BY FINANCE ACT, 2006 W.E.F. 1ST APRIL, 2007 TO PROVIDE ALONG WITH TAX DEDUCTED OR COLLECTED AT SOURCE, MAT CREDIT UNDER S. 115JAA ALSO TO BE EXCLUDED WHILE CALCULATING ASSESSED TAX. 1 0. THUS, IN THE LIGHT OF DECISION OF HONBLE APEX COURT , IN PRINCIPLE WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING MAT CREDIT ENTITLEMENT AS REVERSAL FOR INCOME TAX PROVISIONS. A T THE TIME OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS FAILED T O EXAMINE AS TO WHETHER MAT CREDIT ENTITLEMENT CLAIMED BY THE ASSESSEE IS ON ACCOUNT OF PREPAYMENT OF TAX. THIS FACT REQUIRES VERIFICATION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE SAME AND DECIDE THE ISSUE ACCORDINGLY. 11. IN THE RESULT, THE GROUND NO. 1 AND SUB - GROUND NOS. 1.1 AND 1.2 RAISED IN THE APPEAL BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE IN THE TERMS AFORESAID. 11 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 12. THE NEXT GROUND RAISED IN THE APPEAL IS WITH RESPECT TO TRANSFER PRICING ADJUSTMENT. THE GROUND S RAISED BY THE ASSESSEE IN APPEAL READS AS UNDER : 2] THE LEARNED DRP/A.O. ERRED IN MAKING AN ADDITION OF RS.12,27,18,401/ - BY RECOMPUTING THE TRANSFER PRICE OF THE INTERNATIONAL TRANSACTIONS RELATING TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE APPELLANT TO ITS AES. 2.1] THE LEARNED DRP/A.O. ERRED IN RE JECTING THE CUP METHOD AS THE MOST APPROPRIATE METHOD IN RESPECT OF SOFTWARE SERVICES PROVIDED TO DIMENSION DATA MANAGEMENT SERVICES (PTY) LTD., DATA CRAFT ASIA AND DIMENSION DATA ADVANCED INFRASTRUCTURE LTD. WITHOUT APPRECIATING THAT THE SAID METHOD WAS T HE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. 2.2] THE LEARNED DRP / A.O. ERRED IN REJECTING THE VARIOUS COMPANIES CONSIDERED AS COMPARABLE ENTITIES BY THE ASSESSEE COMPANY WHILE DETERMINING THE ALP IN RESPECT OF THE PROVISION OF SOFTWARE DEVELOPME NT SERVICES WITHOUT APPRECIATING THAT THE COMPANIES SELECTED BY THE ASSESSEE WERE COMPARABLE AS PER THE FAR ANALYSIS AND HENCE, THERE WAS NO REASON TO REJECT THEM. 2.3] THE LEARNED DRP / A.O. ERRED IN INCLUDING VARIOUS COMPANIES AS COMPARABLE WITH THE AP PELLANT WITHOUT APPRECIATING THAT THE SAID COMPANIES WERE NOT COMPARABLE WITH THE APPELLANT COMPANY AND HENCE, THE SAME OUGHT TO BE EXCLUDED WHILE DETERMINING THE FINAL SET OF COMPARABLES. 2.4] THE LEARNED DRP / A.O. ERRED IN REJECTING THE CONTENTION OF THE ASSESSEE TO EXCLUDE THE FOREIGN EXCHANGE GAIN/LOSS WHILE COMPUTING THE OPERATING MARGIN OF THE ASSESSEE COMPANY AND THE COMPARABLE ENTITIES SINCE FOREIGN EXCHANGE GAIN/LOSS WAS NOT AN OPERATING COST AND HENCE, THERE WAS NO REASON TO INCLUDE IT IN THE O PERATING COST. 2.5] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, IF AT ALL, THE ADDITION IS TO BE MADE BY APPLYING THE NET PROFIT RATE, THE SAME SHOULD ONLY BE APPLIE D TO THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY FOR PROVIDI NG SERVICES TO ITS AES AND NOT TO THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY DURING THE YEAR. 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED AT THE OUTSET THAT HE IS NOT PRESSING GROUND NO. 2.1. THE LD. AR HAS FURNISHED WRITTEN SUBMISSIONS IN RESPECT OF REMAINING G ROUNDS. THE SAME ARE REPRODUCED HERE - I N - BELOW : 12 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 3] GROUND NOS. 2 - 2.5: ADDITION ON ACCOUNT OF TRANSFER PRICING: 3.1] THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT BUSINESS. FOR THIS YEAR, THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.108.04 CRS. IN THIS YEAR, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AES. THE ASSESSEE HAD ENTERED INTO VARIOUS TRANSACTIONS WITH ITS AES AND THE RELEVANT DETAILS ARE GIVEN AS UNDER SR. NO. ASSOCIATED ENTERPRISE NATURE OF TRANSACTION VALUE OF T RANSACTIONS (RS.) METHOD USED 1 DIMENSION DATA MANAGEMENT SERVICES (PTY) LTD. SOFTWARE SERVICES 7,78,32,435/ - CUP 2 DATA CRAFT ASIA SOFTWARE SERVICES 9,71,043/ - CUP 3 DIMENSION DATA ADVANCED INFRASTRUCTURE LTD. SOFTWARE SERVICES 1,05,53,369/ - CUP 4 PARACON S A (PTY) LTD. SOFTWARE SERVICES 21,79,67,864/ - TNMM 5 NIHILENT TECHNOLOGIES INC. SOFTWARE SERVICES 1,84,04,890/ - 6 PARACON S A (PTY) LTD. CHANNEL COMMISSION PAID 79,77,206/ - 7 DIMENSION DATA NETWORK SERVICES LTD. REIMBURSEMENT OF RENT 4,85,227/ - CUP TOTAL 33,41,89,034/ - 3.2] THE ASSESSEE FOLLOWED COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR DETERMINING THE ARM'S LENGTH PRICE (ALP) OF THE SOFTWARE SERVICES PROVIDED TO DIMENSION DATA MANAGEMENT SERVICES (PTY) LTD., DATA CRAFT AS IA AND DIMENSION DATA ADVANCED INFRASTRUCTURE LTD. FOR THE SOFTWARE SERVICES PROVIDED PARACON SA (PTY) LTD. AND NIHILENT TECHNOLOGIES INC., THE ASSESSEE FOLLOWED TRANSACTIONAL NET MARGIN METHOD (TNMM) TO DETERMINE THE ALP. 3.3] THE ASSESSEE WHILE APPLYING TNMM IDENTIFIED 26 COMPANIES AS COMPARABLES AND THE LIST OF THE COMPANIES IS GIVEN ON PAGE 11 OF THE TPO'S ORDER. THE ASSESSEE COMPUTED THE OPERATING MARGIN AT 12.61% WHILE THE OPERATING MARGIN OF THE ASSESSEE FOR THIS YEAR WA S 12.90%. ACCORDINGLY, IT WAS CONTENDED THAT THE TRANSACTIONS ENTERED INTO WITH THE AES WERE AT ALP. 3.4] THE LEARNED TPO REJECTED THE CUP METHOD FOR DETERMINING THE ALP IN RESPECT OF THE TRANSACTIONS CARRIED OUT WITH DIMENSION DATA MANAGEMENT SERVICES (PTY) LTD., DATA CRAFT ASIA AND DIMENSION DATA ADVANCED INFRASTRUCTURE LTD. AS REGARDS, THE APPLICABILITY OF TNMM, 13 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 THE TPO ACCEPTED THAT TNMM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP. THE TPO REJECTED VARIOUS COMPARABLES SELECTED BY THE ASSE SSEE AND INTRODUCED SOME NEW COMPARABLES AND THEREBY ARRIVED AT A LIST OF 10 COMPANIES FOR DETERMINING THE ALP. 3.5] THE ASSESSEE BEFORE THE DRP OBJECTED TO THE ACTION OF THE LEARNED TPO IN REJECTING THE COMPARABLES SELECTED BY THE ASSESSEE AND ALSO INCLUSION OF CERTAIN FRESH COMPARABLES. THE LEARNED DRP IN ITS ORDER DIRECTED THE A.O. TO EXCLUDE FCS SOFTWARE SOLUTIONS LTD. AS A COMPARABLE AND TO INCLUDE PSI DATA SYSTEMS LTD. AND ACCEL TRANSMATIC LTD. AS COMPARABLE ENTITIES. THUS, AFTER THE ORDER OF TH E DRP, THE A.O. HAS FINALLY SELECTED 11 COMPANIES WHICH ARE AS UNDER - SR. NO. NAME OF THE NAME OF THE COMPANIES OPERATING MARGIN OPERATING MARGIN AFTER WORKING CAPITAL ADJUSTMENT 1 BODHTREE CONSULTING LTD. 19.14% 20.54% 2 E - INFOCHIP LTD. 30.32% 30.11% 3 EZEST SOLUTIONS LTD. 28.58% 29.42% 4 GOLDSTONE TECHNOLOGIES LTD. 27.06% 21.16% 5 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. 36.05% 33.73% 6 KALS INFORMATION SYSTEMS LTD. (APPLICATION SOFTWARE SEG.) 30.92% 20.02% 7 L G S GLOBAL LTD. 26.33% 25.45% 8 SOFTSOL INDIA LTD. 15.18% 15.18% 9 AKSHAY SOFTWARE TECHNOLOGIES LTD. 7.45% 7.45% 10 PSI DATA SYSTEMS 5.41% 15.07% 11 ACCEL TRANSAMATICS LTD. 15.68% 10.33% ARITHMETIC MEAN 22.01% 20.77% 3.6] THE ASSESSEE SUBMITS THAT THE AVERAGE MARGIN OF THE COMPARABLES IS 20.77% WHILE THE OPERATING MARGIN OF THE ASSESSEE IS 12.90%. ON THE SAID BASIS, THE FINAL ADDITION OF RS.12,27,18,401L - IS MADE BY THE A.O. THE VARIOUS ISSUES ARISING ARE DISCUSSED HEREUN DER 3.7] OBJECTION OF THE ASSESSEE IN THE INCLUSION OF FOREIGN COMPANIES - 1 BODHTREE CONSULTING LTD. A . ITAT, PUNE IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. HAS HELD THAT THE SAID COMPANY IS NOT EXCLUSIVELY ENGAGED IN SOFTWARE DEVELOPMEN T SERVICES AND HENCE, THE SAME CANNOT BE CONSIDERED AS COMPARABLE ENTITY. REFER PARAS 20 - 24 OF THE ORDER. PAGES 126 - 142 OF THE LEGAL COMPILATION. B . SIMILAR VIEW HAS ALSO BEEN TAKEN IN THE CASE OF JOHN DEERE INDIA PVT. [ITA NO. 2236/PN/2012 FOR A.Y. 2008 - 09. THE COPY OF THE SAID DECISION IS GIVEN ON PAGES 143 - 14 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 189 OF LEGAL COMPILATION. THE ISSUE REGARDING EXCLUSION OF BODHTREE IS DISCUSSED IN PARA 20.1 [PAGES 161 - 164 OF THE LEGAL COMPILATION]. C . SIMILAR VIEW HAS BEEN TAKEN BY HON'BLE ITAT , PUNE IN THE CASE OF EMPTORIS TECHNOLOGIES PVT. LTD. WHICH WAS ALSO ENGAGED IN SOFTWARE DEVELOPMENT . THE ASST . YEAR INVOLVED WAS ALSO A.Y. 2008 - 09. (REFER PARAS 13 - 14 OF THE SAID ORDER, PAGES 204 - 208 OF THE LEGAL COMPILATION) 2 E - ZEST SOLUTIONS LTD. A . ITAT, PUNE IN THE CASE OF SYMPHONY SERVICES PUNE (P) LTD. FOR A.Y. 2008 - 09 HAS HELD THAT THE SAID COMPANY IS ENGAGED 10 DIFFERENT ACTIVITIES AND HENCE , CANNOT BE COMPARED WITH A COMPANY ENGAGED 10 SOFTWARE DEVELOPMENT . ACCORDINGLY, THE SAME SH OULD BE REJECTED AS A COMPARABLE ENTITY. REFER PARAS 19 TO 24 OF THE ORDER . THE COPY OF THE SAID DECISION IS GIVEN ON PAGES 95 - 108 OF THE LEGAL COMPILATION. B . SIMILAR, VIEW HAS BEEN TAKEN IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. REFER PARA 15 - 17 OF THE ORDER . REFERS PAGE 126 - 142 THE LEGAL COMPILATION. C . SIMILAR VIEW HAS ALSO BEEN TAKEN IN THE CASE OF JOHN DEERE INDIA PVT . LTD. [ITA NO. 2236 / PN L 2012 FOR A.Y. 2008 - 09. THE COPY OF THE SAID DECISION IS GIVEN ON PAGES 143 - 189 OF LEGAL COMPILATION. THE ISSUE REGARDING EXCLUSION OF E - ZEST IS DISCUSSED IN PARA 20.2 [PAGES 164 - 165 OF THE LEGAL COMPILATION] . D . SIMILAR VIEW HAS BEEN TAKEN BY HON'BLE ITAT, PUNE IN THE CASE OF EMPTORIS TECHNOLOGIES PVT. LTD. WHICH WAS ALSO ENGAGED IN SOFTWARE DEVELOPMENT . THE ASST . YEAR INVOLVED WAS ALSO A.Y . 2008 - 09. (REFER PARA 12 & 14 OF THE SAID ORDER, REFER PAGES 202 - 208 OF THE LEGAL COMPILATION) 3 HELIOS & MATHESON INFORMATION TECH. A . IN THE CASE OF JOHN DEERE INDIA PVT . LTD. [ITA NO. 2236/PN/2012 FOR A.Y. 2008 - 09 IT HAS BEEN HELD THAT 15 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 HELIOS CANNOT BE COMPARED WITH A SOFTWARE DEVELOPMENT COMPANY AND IS FUNCTIONALLY NOT COMPARABLE . THE COPY OF THE SAID DECISION IS GIVEN ON PAGES 143 - 189 OF LEGAL COMPILATION. THE ISSUE REGARDING EXCLUSION OF HELIOS IS DISCUSSED IN PARA 20.3 [PAGES 165 - 166 OF THE LEGAL COMPILATION] . B . SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF PTC SOFTWARE INDIA PVT. LTD. FOR A.Y. 2008 - 09 WHEREIN IT HAS BEEN HELD THAT HE L IO S IS FUNCTIONALLY NOT COMPARABLE. REFER PARAS 15 - 17 OF THE ORDER, PAGES 212 - 224 OF THE LEGAL COMPILATION. C . WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE SUBMITS THAT THE A.O . HAS CONSIDERED THE OPERATING MARGIN OF HELIOS @ 36.05% (BEFORE ALLOWING WORKING CAPITAL ADJUSTMENT) WHICH IS NOT CORRECT. THE TPO HAS INCLUDED INTEREST AS PART OF OPERATING INCOME AND THE SAID FACT HAS BEEN CLARIFIED TO THE TPO AND THE RELEVANT SUBMISSION IS GIVEN ON PAGE 94 - 95 OF THE PAPER BOO K. THE CORRECT MARGIN OF HELIOS AFTER EXCLUDING INCOME IS 33 . 40 % BEFORE ALLOWING WORKING CAPITAL ADJUSTMENT . 4 KALS INFORMATION SYSTEM A . ITAT, PUNE IN THE CASE O F SYMPHONY SERVICES PUNE (P) LTD . FOR A.Y. 2008 - 09 HAS HELD THAT THE SAID COMPANY IS ENGAGED IN DIFFERENT ACTIVITIES AND HENCE , CANNOT BE COMPARED WITH ASSESSE E COMPAN Y . B . ITAT , PUNE IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. HAS HELD THAT THE SAID COMPANY IS NOT EXCLUSIVELY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND HENCE , THE SAME CANNOT BE CONSIDERED AS COMPARABLE ENTITY. C . SIMILAR VIEW HAS BEEN TAKEN B Y HON ' BLE ITAT, PUNE IN THE CASE O F EMPTORIS TECHNOLOGIES PVT. LTD. 16 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 WHICH WAS ALSO ENGAGED IN SOFTWARE DEVELOPMENT . THE ASST . YEAR INVOLVED WAS ALSO A.Y. 2008 - 09. (REFER PARAS 10 , 11 & 14 OF THE SAID ORDER) D . SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF PTC SOFTWARE INDIA PVT . LTD. FOR A.Y. 2008 - 09 WHEREIN IT HAS BEEN HELD THAT HELIOS IS FUNCTIONALLY NOT COMPARABLE. REFER PARAS 5 - 8 OF THE ORDER , PAGES 212 - 224 OF THE LEGAL COMPILATION. 5 GOLDSTONE TECHNOLOGIES LTD. A . THIS COMPANY HAS BEEN REJECTED AS A COMPARABLE ENTITY BY HON'BLE ITAT, PUNE IN THE CASE OF EMPTOR IS TECHNOLOGIES PVT . LTD. WHICH WAS ALSO ENGAGED IN SOFTWARE DEVELOPMENT . THE ASST . YEAR INVOLVED WAS ALSO A.Y. 2008 - 09. (REFER PARAS 16 - 17 OF THE SAID ORDER REFER PAGES 209 - 210 OF THE LEGAL COMPILATION) 3.8] THE ASSESSEE FURTHER SUBMITS T H AT FOLLOWING COMPANIES SHOULD BE INCLUDED IN THE FINAL LIST OF COMPARABLES: SR. NO. COMPARABLE REMARKS 1 AZTEC SOFT LTD. A . THIS COMPANY HAS BEEN REJECTED ON THE FOLLOWING GROUNDS BY A.O. -- 1 . FIRSTLY , IT HAS BEEN HELD THAT THE SAID COMPANY IS III RESTRUCTURING PHASE. 2 . SECOND L Y , IT HAS BEEN HELD THAT THE RELATED PARTY TRANSACTIONS ARE MORE THAN 25% . B . THE DRP HAS HELD THAT THE ACTION OF THE TPO FOR REJECTING THE SAME OF RELATED PARTY TRANSACTION (RPT) FILTER IS CORRECT AND HAS REJECTED THE CONTENTION OF THE ASSESSEE. FURTHER , DRP HAS HELD THAT THE TURNOVER OF THE SAID COMPANY EXCEEDS RS.200 CRS. [REFER PAGE 43 OF THE DRP'S ORDER] C . THE ASSESSEE SUBMITS THAT AZTEC IS NOT III RESTRUCTURING PHASE. THIS POINT IS CLARIFIED IN THE SUBMISSIONS TO DRP ON PAGES 14 - 15. 17 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 D . THE BALANCE SHEET ' OF AZTE IS ENCLOSED ON PAGES 449 - 528 AND THE P&L ACCOUNT IS ON PAGE 503 . THERE IS NO EXTRAORDINARY ITEM AND HENCE, THE REJECTION OF THE SAID COMPANY ON THIS GROUND IS TOTALL Y INCORRECT . E . AS REGARDS , RPT FILTER , THE ASSESSEE SUBMITS THAT WHILE COMPUTI NG THE PERCENTAGE OF RPT , THE TPO AND DRP ARE CONSIDERING THE RELATED PARTY REVENUE AND EXPENDITURE IN CORRECT . THE CORRECT WORKING B Y CONSIDERING THE REVENUE AND EXPENSES IN NUMERATOR AND DENOMINATOR IS ENCLOSED ON PAGE 529 OF THE PAPER BOOK 2. F . ACCORDINGLY , THE RPT OF AZTEC IS LESS THAN 25% AND HENCE , THE REJECTION OF THE SAID COMPANY IS NOT JUSTIFIED. G . THE TURNOVER OF AZTEC IS RS . 225 CRS. WHILE THAT OF THE ASSESSEE IS RS. 108 CRS. HENCE , BOTH THE COMPANIES CAN BE COMPARED ON TURNOVER FILTER . H . ITAT, PUNE IN THE CASE OF JOHN DEERE INDIA PVT. LTD. HAS HELD THAT AZTEC SOFT LTD . IS TO BE INCLUDED AS A COMPARABLE ENTITY. REFER PARA 21 . 1 OF THE ORDER . 2 SIP TECHNOLOGIES AND EXPORTS LTD. A . THIS COMPANY HAS BEEN REJECTED ON THE GROUND THAT IT HAS INCURRED LOSS IN THE CURRENT YEAR. B . THE ASSESSEE SUBMITS THAT SIP TECHNOLOGIES IS NOT A PERSISTENTLY LOSS MAKING ENTITY. C . THE RELEVANT SUBMISSIONS ARE GIVEN ON PAGES 16 - 17 OF THE PAPER BOOK 1 . D . IN THE CASE OF JOHN DEERE INDIA PVT . LTD. , FOR A.Y. 2008 - 09 , SIP TECHNOLOGIES HAS BEEN HELD TO BE COMPARABLE AND THE REASON GIVEN FOR EXCLUDING THAT IT HAS INCURRED LOSS HAS NOT BEEN ACCEPTED BY HON'BLE ITAT. THE RELEVANT ISSUE IS DISCUSSED IN PARA 21.2 OF THE ORDER . ACCORDINGLY, IN VIEW OF THE DECISION OF HON'BLE ITAT, PUNE, SIP TECHNOLOGIES SHOULD BE CONSIDERED AS A COMPARABLE ENTITY. 3 CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) A . DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO , THE ASSESSEE CONTENDED THAT THIS COMPANY IS COMPARABLE AND SHOULD BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. 18 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 THIS WAS AN ADDITIONAL COMPARABLE SUBMITTED BY THE ASSESSEE WHICH WAS NOT SELECTED IN THE ORIGINAL TRANSFER PRICING STUDY. B . THE TPO HAS REJECTED CG V AK ON THE GROU ND THAT IT IS A LOSS - MAKING ENTITY. C . THE ASSESSEE SUBMITS THAT IN THE CASE OF TIBCO SOFTWARE INDIA PVT. LTD . FOR THE SAME ASST . YEAR HAS HELD THAT CG - V AK IS TO BE CONSIDERED AS A COMPARABLE ENTITY. HON ' BLE ITAT HAS DISCUSSED THIS ISSUE IN PARAS 26 - 29, PAGES 16 - 18 OF THE LEGAL COMPILATION. D . IT HAS BEEN HELD BY HON'BLE ITAT THAT CG VAK IS NOT A PERSISTENTLY LOSS - MAKING ENTIT Y AND THEREFORE , THE REJECTION O F THE SAID COMPANY B Y THE TPO IS NOT CORRECT . E . IT IS ALSO TO BE NOTED THAT CG V AK IS ACCEPTED AS A COMPARABLE ENTIT Y BY THE TPO IN A.Y. 2009 - 10 AND THE COP Y OF THE ORDER PASSED IS GIVEN ON PAGES 759 - 808 OF THE PAPER BOOK . 4 THINKSOFT GLOBAL SERVICES LTD. A . DURING THE COURSE OF THE PROCEEDINGS BEFORE THE TPO , THE ASSESSEE CONTENDED THAT THIS COMPANY IS COMPARABLE AND SHOULD BE CONSIDERED IN THE FINAL LIST OF COMPARABLES. THIS WAS AN ADDITIONAL COMPARABLE SUBMITTED BY THE ASSESSEE WHICH WAS NOT SELECTED IN THE ORIGINAL TRANSFER PRICING STUDY. B . THE TPO HAS REJECTED THINKSOFT ON THE GROUND THAT IT IS A FUNCTIONALLY NOT COMPARABLE. C . THE ASSESSEE SUBMITS THAT IN THE CASE OF TIBCO SOFTWARE INDIA PVT. LTD. FOR THE SAME ASST . YEAR HAS HELD THAT THINKSOFT IS TO BE CONSIDERED AS A COMPARABLE ENTITY. HON'BLE ITAT HAS DISCUSSED THIS ISSUE IN PARAS 30 - 33 , PAGES 18 - 21 OF THE LEGAL COMPILATION. D . IT HAS BEEN HELD BY HON'BLE IT AT THAT THINKSOFT IS FUNCTIONALLY COMPARABLE AND THEREFORE , THE REJECTION OF THE SAID COMPANY BY THE TPO IS NOT CORRECT . E . IT IS ALSO TO BE NOTED THAT FOR A.Y. 2010 - 11, THE LEARNED TPO HAS CONSIDERED THINKSOFT AS A COMPARABLE ENTITY. THE ORDER PASSED BY THE TPO IS GIVEN ON PAGES 809 - 831 OF THE PAPER BOOK. 19 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 3.9] WITHOUT PREJUDICE, THE ASSESSEE SUBMITS THAT THE TOTAL SOFTWARE RECEIPTS FROM THE AES ARE TO THE TUNE OF RS. 32.56 CRS. THE ADDITION HAS BEEN MADE BY APPLYING THE OPERATING MARGIN TO THE ENTIRE TURNOVER OF THE ASSESSEE. IT IS SUBMITTED THAT, IF AT ALL, ANY ADDITION IS TO BE MADE, IT SHOULD BE RESTRICTED TO THE TURNOVER OF AES AND NOT TO THE ENTIRE TURNOVER. FOR THIS PROPOS ITION, THE ASSESSEE PLACES RELIANCE ON THE DECISION OF HON'BLE BOMBAY H.C. IN THE CASE OF THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. [381 ITR 4L3]. IN THIS CASE, IT HAS BEEN HELD BY HON'BLE H.C. THAT THE ADJUSTMENT IF AT ALL, IS REQUIRED TO BE MADE, THE SAME SHOULD BE RESTRICTED TO INTERNATIONAL TRANSACTIONS AND NOT TO THE TRANSACTIONS ENTERED INTO WITH INDEPENDENT PARTIES . THE ALSO SUBMITS THAT SIMILAR PROPOSITION HAS BEEN ACCEPTED IN ITS CASE FOR A .YS. 2002 - 03 AND 2003 - 04 BY THE LEARNED CIT(A) AND THE DEPT . HAS ACCEPTED THE DECISION OF THE CIT(A). 14. ON THE OTHER HAND , THE LD. DR VEHEMENTLY DEFENDED THE FINDINGS OF DRP/ASSESSING OFFICER AND PRAYED FOR REJECTING THE GROUNDS RAISED IN THE APPEAL BY THE ASSESSEE . FINDINGS ON TRANSFER PRICING ISSUE 1 5 . THE LD. COUNSEL FOR THE ASSESSEE HAS STATED AT THE BAR THAT HE IS NOT PRESSING GROUND NO. 2.1. THE SAME IS DISMISSED , ACCORDINGLY. 1 6 . IN GROUND NO. 2.2 THE ASSESSEE HAS ASSAILED REJECTION OF VARIOUS COMPANIES CONSIDERED AS COMPARABLE ENTITIES BY THE ASSESSEE COMPANY WHILE DETERMINING THE ALP. THE ASSESSEE IN APPEAL HAS NOW SOUGHT INCLUSION OF : I . AZTEC SOFT LTD. II . SIP TECHNOLOGIES AND EXPORTS LTD. III . CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) . IV . THINKSOFT GLOBAL SERVICES LTD. THE ASSESSEE IN ITS TP STUDY REPORT HAD SELECTED 26 COMPANIES AS COMPARABLES. THE TPO REJECTED SOME OF THE COMPANIES AND INTRODUCED 20 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 SOME FRESH COMPANIES AS COMPARABLES. WE FIND THAT FROM THE ABOVE MENTIONED FOUR COMPANIES AZTEC SOFT LTD. AND SIP TECHNOLOGIES AND EXPORTS LTD. WERE A LREADY PART OF ASSESSEES TP STUDY REPORT. AS FAR AS OTHER TWO COMPANIES ARE CONCERNED THE ASSESSEE DURING PROCEEDINGS BEFORE THE TPO HAD PRAYED FOR INCLUDING THESE COMPANIES IN THE LIST OF COMPARABLES. BEFORE WE PROCEED TO DECIDE THIS ISSUE IT WOULD BE RELEVANT TO POINT THAT DURING TRANSFER PRICING PROCEEDINGS THE TPO HAD APPLIED FOLLOWING FILTERS FOR SELECTING THE COMPARABLES : (I) S INGLE YEAR DATA ; (II) EXPORT TURNOVER OF MINIMUM 75% ; (III) COMPANIES WITH DIFFERENT ACCOUNTING YEAR TO BE REJECTED ; (IV) TURNOVER FILTER RS.1 CRORE TO RS.200 CRORES AND (V) RELATED PARTY TRANSACTION LESS THAN 25% TO BE SELECTED. (I). AZTEC SOFT LTD. THE TPO HAS REJECTED THE COMPANY FROM THE LIST OF COMPARABLES ON ACCOUNT OF EXTRA ORDINARY EVENT I.E. RESTRUCTURING AND RPT MORE THAN 25%. IN THE CASE OF JOHN DEERE VS. ACIT (SUPRA) THE CO - ORDINATE BENCH HAS HELD THE ABOVE SAID COMPANY TO BE A GOOD COMPARABLE AFTER OVERRULING SIMILAR OBJECTIONS RAISED BY TPO/DRP FOR EXCLUDING THE COMPANY FROM THE LIST OF COMPARABLES. HOWEVER, IN THE PRESENT CASE WE FIND THAT THE TURNOVER OF AZTEC SOFT LTD. IS RS.225 CRORES . THE TURNOVER OF SAID COMPANY IS MORE THAN THE TURNOVER FILTER APPLIED BY THE TPO , ACCORDINGLY THE COMPAN Y HAS TO BE REJECTED AS COMPARABLE BEING OUTSIDE THE TOLERANCE OF T URNOVER FILTER . THE FILTERS APPLIED FOR SELECTING THE COMPARABLES HAS TO BE FOLLOWED STRICTLY OTHERWISE THERE WOULD BE NO SANCTITY OF THE FILTERS FOR SELECTING THE COMPARABLES. ACCORDINGLY, AZTEC SOFT LTD. HAS TO BE REJECTED FROM THE LIST OF COMPARABLES. 21 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 (II). SIP TECHNOLOGIES AND EXPORTS LTD. WE FIND THAT THE SAID COMPANY HAS BEEN REJECTED ON THE GROUND THAT THE COMPANY HAS INCURRED LOSS DURING THE FINANCIAL YEAR 2007 - 08. THE COMPANY HAS TO BE REJECTED AS COMPARABLE IF IT IS PERSISTENT LOSS MAKING COMPANY. WE FIND THAT THERE IS NO SUCH OBSER VATION BY THE AUTHORITIES BELOW THAT THE SAID COMPANY IS PERSISTENT LOSS MAKING COMPANY. IF A COMPANY HAS SUFFERED LOSS ONLY IN O NE YEAR IT CANNOT BE TERMED AS PERSISTENT LOSS MAKING COMPANY , HENCE, SHOULD NOT BE REJECTED ON SUCH GROUND . THE SIP TECHNOLO GIES AND EXPORTS LTD. WAS REJECTED AS A COMPARABLE IN THE CASE OF JOHN DEERE INDIA PVT. LTD. FOR THE ASSESSMENT YEAR 2008 - 09 FOR SIMILAR REASONS. THE MATTER TRAVELLED TO THE TRIBUNAL. THE TRIBUNAL IN ITA NO. 2236/PN/2012 DECIDED ON 18 - 11 - 2015 DIRECTED TH E TPO/ASSESSING OFFICER TO INCLUDE THE COMPANY AS COMPARABLE BY OBSERVING AS UNDER : 21.2 SIP TECHNOLOGIES AND EXPORTS LTD. : THE SAID COMPANY HAS BEEN EXCLUDED FROM THE LIST OF COMPARABLE BY THE TPO ON THE GROUND THAT IT IS A LOSS MAKING COMPANY. THE AS SESSEE HAS BROUGHT ON RECORD THE OPERATING MARGIN OF THE THREE PRECEDING ASSESSMENT YEAR OF THE SAID COMPANY. THE SAME ARE AS UNDER: F.Y. 2005 - 06 21.09% F.Y. 2006 - 07 10.12% F.Y. 2007 - 08 - 33.20% THE CONTENTION OF THE ASSESSEE IS THAT THE SAID COMPANY I S NOT A PERSISTENT LOSS MAKING COMPANY. ONLY FOR THE REASON THAT THE COMPARABLE HAS SUFFERED LOSS IN ONE YEAR THE SAME SHOULD NOT BE REJECTED. WE FIND MERIT IN THE SUBMISSION OF THE LD. A.R. IN THE CASE OF BOBST INDIA PVT. LTD. VS. DCIT IN ITA NO.1380/P N/2010 FOR A.Y. 2006 - 07 THE TRIBUNAL HAS OBSERVED THAT ONLY PERSISTENT LOSS MAKING COMPANIES SHOULD BE HELD AS NOT GOOD COMPARABLE. THE TRIBUNAL HELD THAT THE PERSISTENT LOSS MEANS, CONTINUOUS LOSS FOR MORE THAN 3 YEARS. THUS, WHERE THE COMPARABLE ENTI TY IS NOT UNDER PERSISTENT LOSS, THE SAME SHOULD NOT BE REJECTED AS COMPARABLE. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD. VS. ACIT, ITA NO.7724/MUM/2011, AND BRIGADE GLOBAL VS. ITO, ITA NO.1494/HYD/2010. IN THE PRESENT CASE, THE COMPARABLE ENTITY SIP TECHNOLOGIES & EXPORTS LTD. HAS SUFFERED LOSS IN F.Y. 2007 - 08 ONLY. THEREFORE, IT CANNOT BE SAID TO BE A PERSISTENT LOSS MAKING COMPANY. THE AUTHORITIES BELOW HAVE THUS ERRED IN EXCLUDING THE SAME FROM THE LIST OF COMPARABLE ENTITIES. WE DIRECT THE TPO/AO TO INCLUDE THE AFORESAID COMPANY AS COMPARABLE ENTITY. 22 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF CO - ORDINATE BENCH IN SELECTING THE COMPANY AS COMPARABLE WHERE IT HAS SUFFERED LOSS IN ONLY ONE YEAR. IN THE FACTS OF THE CASE AND IN THE LIGHT OF THE DECISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO INCLUDE SIP TECHNOLOGIES AND EXPORTS LTD. IN THE LIST OF COMPARABLES. (III). CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) THE TPO REJECTED THE SAID COMPANY ON THE GROUND THAT IT IS LOSS MAKING ENTITY. THE LD. AR POINTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2009 - 10 THE TPO ACCEPTED CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) AS COMPARABLE. THE LD. AR FURNISHE D A COPY OF ORDER OF TPO DATED 24 - 01 - 2013 FOR ASSESSMENT YEAR 2009 - 10 AT PAGE 759 808 OF THE PAPER BOOK. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TIBCO SOFTWARE INDIA PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX IN ITA NO. 2536/ PN/2012 FOR ASSESSMENT YEAR 2008 - 09 DECIDED ON 11 - 02 - 2015 HAS HELD CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) AS GOOD COMPARABLE AS THE COMPANY HAD SUFFERED LOSS IN ONLY ONE FINANCIAL YEAR. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ON THE ISSUE OF IN CLUSION OF CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) ARE AS UNDER : 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN OUR CONSIDERED OPINION, THE POINT SOUGHT TO BE MADE OUT BY THE TPO IS QUITE MIS - PLACED HAVING REGARD TO THE PURPOSE AND IMPORT O F THE COMPARABILITY ANALYSIS OF THE INTERNATIONAL TRANSACTION BEING UNDERTAKEN FOR DETERMINING ITS ARM'S LENGTH PRICE. OSTENSIBLY, THE WHOLE OBJECTIVE OF THE TRANSFER PRICING PROCEEDING IS THAT THE CONTOURS OF AN UN - CONTROLLED TRANSACTION SHALL REFLECT A MEASURE OF ARM'S LENGTH PRICE OF THE TESTED INTERNATIONAL TRANSACTION. THE UN - CONTROLLED TRANSACTION, IF IT REFLECTS A LOSS, WOULD NOT NORMALLY BE EXCLUDIBLE UNLESS ANY PECULIARITY IN SUCH UN - CONTROLLED TRANSACTION IS BROUGHT OUT. FOR INSTANCE, THE UN - CO NTROLLED TRANSACTION IS OF AN ENTITY WHICH IS CONSISTENTLY LOSS MAKING OR THAT THE LOSS HAS ARISEN IN THE UN - CONTROLLED TRANSACTION ON ACCOUNT OF AN ABNORMAL FACT - SITUATION, ETC. IN SUCH SITUATIONS, OSTENSIBLY, THE UN - CONTROLLED TRANSACTION WOULD NOT REFL ECT A NORMAL BUSINESS SITUATION. IN THE PRESENT CASE, THE COMPARABLE IN QUESTION HAS INCURRED A LOSS; NOTABLY, INCURRENCE OF LOSS IN BUSINESS OPERATIONS IS A NORMAL INCIDENT OF BUSINESS AND THERE IS NOTHING TO SUGGEST IN THE PRESENT CASE THAT IT HAS BEEN INCURRED 23 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 IN ANY ABNORMAL SITUATION. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE SAID CONCERN IS A CONSISTENTLY LOSS MAKING CONCERN. THEREFORE, THE SAID CONCERN CANNOT BE EXCLUDED MERELY BECAUSE OF INCURRENCE OF LOSS IN THIS YEAR, ESPECIALLY WHEN THE SAID LOSS HAS NOT BEEN ESTABLISHED TO BE AN ABNORMAL BUSINESS CONDITION AND MORE SO IN THE CONTEXT THAT THE SAID CONCERN IS NOT DENIED TO BE FUNCTIONALLY COMPARABLE TO THE ASSESSEE. THEREFORE, ON THIS ASPECT, WE UPHOLD THE PLEA OF THE ASSESSEE FOR INCLUD ING THE SAID CONCERN IN THE FINAL SET OF COMPARABLES IN ORDER TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL WE DIRECT THE TPO/ASSESSING OFFICER TO INCLUDE CG - VAK SOFTWARE EXPORTS LTD. (SEGMENTAL) IN THE FINAL LIST OF COMPARABLES. (IV). THINKSOFT GLOBAL SERVICES LTD. THE TPO HAS REJECTED THE COMPANY ON THE GROUND OF FUNCTIONAL DISPARITY. THE LD. AR HAS DRAWN OUR ATTENTION TO THE ORDER OF TRIBUNAL IN THE CASE OF TIBCO SOFTWARE INDIA PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX (SUPRA) WHEREIN THE SAID COMPANY WAS REJE CTED BY THE TPO ON ACCOUNT OF FUNCTIONAL DIFFERENCE. THE TRIBUNAL AFTER ANALYZING THE ACTIVITIES CARRIED OUT BY THE COMPANY HELD AS UNDER : 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE ORDERS OF TPO AS WELL AS THE DRP IN THIS CONTEXT. ALTHOUGH, THE ORDER OF THE TPO IS QUITE SKETCHY ON THIS POINT, BUT THE DRP HAS DISCUSSED THE MATTER IN A SLIGHT DETAIL. ONE OF THE OBSERVATIONS OF THE DRP IS THAT THE PRIMARY ACTIVITY OF THE APPELLANT IS TO CARRY OUT PART OF THE PROCES S OF SOFTWARE DEVELOPMENT FOR ITS PARENT COMPANY AND THEREFORE, THE FINDING OF THE TPO THAT THINKSOFT GLOBAL SERVICE LIMITED, IS A FUNCTIONALLY DIFFERENT COMPANY, APPEARS TO BE CORRECT. IN OUR CONSIDERED OPINION, THE AFORESAID FINDING OF THE DRP GOES TO SHOW, IN THE CONTEXT OF THE FACT SITUATION OF ASSESSEES ACTIVITIES AND THAT OF THINKSFOT GLOBAL SERVICES LIMITED, THAT BOTH ARE ENGAGED IN CARRYING OUT ACTIVITIES WHICH ARE PARTS OF THE PROCESS OF SOFTWARE DEVELOPMENT ACTIVITIES. IT IS QUITE JUSTIFIABLE TO COMPREHEND THAT THE ACTIVITY OF VERIFICATION OF SOFTWARE AND VALIDATION OF SOFTWARE ARE ACTIVITIES WHICH ARE PART AND PARCEL OF THE PROCESS OF SOFTWARE DEVELOPMENT. IN FACT, BEFORE THE DRP, ASSESSEE REFERRED TO THE WIKIPEDIA MEANING OF THE EXPRESSION VERIFICATION AND VALIDATION IN THE CONTEXT OF SOFTWARE. THE EXPRESSION VERIFICATION WAS EXPLAINED TO BE REFERRING TO THE PROCESS OF EVALUATING THE SOFTWARE TO DETERMINE WHETHER THE PRODUCTS OF A GIVEN DEVELOPMENT PHASE SPECIFIED THE CONDITIONS IMPOSE D AT THE START OF THAT PHASE. SIMILARLY, THE EXPRESSION VALIDATION WAS EXPLAINED TO BE THE PROCESS 24 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 OF EVALUATING SOFTWARE DURING OR AT THE END OF THE DEVELOPMENT PROCESS TO DETERMINE WHETHER IT SATISFIES SPECIFIED REQUIREMENTS. IN OUR CONSIDERED OPINIO N, WHERE IT IS ADMITTED THAT THE ACTIVITY BEING PERFORMED BY THE ASSESSEE IS ALSO A PART OF PROCESS OF SOFTWARE DEVELOPMENT FOR ITS ASSOCIATED ENTERPRISE, THEN THE CAPTIONED ACTIVITIES BEING UNDERTAKEN BY THINKSOFT GLOBAL SERVICES LIMITED, WHICH OSTENSIBLY ALSO ARE A PART OF THE WHOLE PROCESS OF SOFTWARE DEVELOPMENT, WOULD DEFINITELY BE CONSIDERED AS COMPARABLE. THE ARGUMENT BEING SET UP BY THE LOWER AUTHORITIES THAT THE VERIFICATION AND VALIDATION ARE STEPS TO TEST THE EFFICIENCY OF THE SOFTWARE, BUT NOT A PART OF SOFTWARE DEVELOPMENT, IN OUR VIEW IS A HAIRSPLITTING ARGUMENT, WHICH IS NOT JUSTIFIED IN THE CONTEXT OF THE PRESENT COMPARABILITY ANALYSIS. OSTENSIBLY, VERIFICATION AND VALIDATION ARE BROADLY SPEAKING, A PART AND PARCEL OF THE PROCESS OF SOFTWARE DEVELOPMENT. THEREFORE, ON THIS ASPECT, WE ARE UNABLE TO UPHOLD THE ACTION OF LOWER AUTHORITIES IN EXCLUDING THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES. WE DIRECT, ACCORDINGLY. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF CO - ORDINATE BENCH ON THIS ISSUE. THUS, TAKING INTO CONSIDERATION THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH , WE DIRECT THE TPO/ASSESSING OFFICER TO INCLUDE THINKSOFT GLOBAL SERVICES LTD. IN THE FINAL LIST OF COMPARABLES. 1 7 . THUS, I N VIEW OF OUR ABOVE FINDINGS WITH RESPECT TO INCLUSION OF VARIOUS COMPANIES IN THE LIST OF COMPARABLES , THE GROUND NO. 2.2 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 1 8 . IN GROUND NO. 2.3 OF THE APPEAL THE ASSESSEE HAS ASSAILED INCLUSION OF F OLLOWING COMPANIES IN THE FINAL LIST OF COMPARABLES : I . BODHTREE CONSULTING LTD. II . E - ZEST SOLUTIONS LTD. III . HELIOS & MATHESON INFORMATION TECH. IV . KALS INFORMATION SYSTEM. V . GOLDSTONE TECHNOLOGIES LTD. 25 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 19 . THE LD. COUNSEL FOR THE ASSESSEE HAS ASSAILED THE INCLUSION OF ABOVE COMPANIES ON THE GROUND OF FUNCTIONAL DISPARITY. I . BODHTREE CONSULTING LTD. THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES , WHEREAS BODHTREE CONSULTING LTD. IS ENGAGED IN PRODUCT ENGINEERING AND ENGINEERING SERVICES WHICH ARE IN THE NATURE OF ITES. THE LD. AR HAS PLACED RELIANCE ON THE DECISION OF JOHN DEERE INDIA PVT. LTD. (SUPRA). WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. (SUPRA) REJECTED BODHTREE CONSULTING LTD. ON THE GROUND OF FUNCTIONAL DISPARITY. THE DETAILED FINDINGS OF THE TRIBUNAL ARE AS UNDER : 20.1 BODHTREE CONSULTING LTD. : THE ASSESSEE HAD INITIALLY SELECTED BODHTREE CONSULTING LTD. IN ITS LIST OF COMPARABLE. SUBSEQUENTLY, THE SAME WAS TAKEN OUT FROM THE LIST OF COMPARABLE AS THE SAID COMPANY IS NOT EXCLUSIVELY ENGAGED IN SOFTWARE DEVELOPMENT SERVICES. THE TPO AGAIN INC LUDED THE COMPANY IN THE LIST OF COMPARABLE ENTITY. THE LD. COUNSEL IN SUPPORT OF HIS SUBMISSIONS THAT, BODHTREE CONSULTING LTD. IS NOT A GOOD COMPARABLE PLACED RELIANCE ON THE DECISION IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. VS. ACIT (SU PRA). THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BARCLAYS TECHNOLOGY CENTRE INDIA (P) LTD. VS. ACIT (SUPRA) REJECTED BODHTREE CONSULTING LTD. AS COMPARABLE BY PLACING RELIANCE ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S . MINDTECK (INDIA) LTD. IN I.T.(TP).A.NO.70/BANG/2014 DECIDED ON 21 - 08 - 2014 IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. IN ITA NO. 7633/M/2012 DECIDED ON 06 - 11 - 2013 FOR THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS U NDER: 20. THE NEXT POINT RAISED BY THE ASSESSEE IS FOR EXCLUSION 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 FUNCTIONALLY 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 ITES SERVICES, AND ARE NOT COMPARABLE WITH THE ASSESSEES ACTIVI TIES. AT THE TIME OF HEARING, IT WAS ALSO POINTED OUT THAT THE SAID CONCERN OPERATES UNDER A DIFFERENT PRICING MODEL, I.E. FIXED PRICE PROJECT METHOD, WHEREBY REVENUES FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO THE C LIENTS. IT HAS BEEN EXPLAINED THAT IN SUCH A SITUATION, EXPENDITURE FOR DEVELOPING SOFTWARE WOULD BE BILLED IN AN EARLIER YEAR BUT THE INCOME WOULD BE RECOGNIZED IN A SUBSEQUENT YEAR. THIS BUSINESS MODEL RESULTS IN FLUCTUATION IN MARGINS OVER THE YEARS. 26 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF QLOGIC (INDIA) PRIVATE LIMITED 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 FOLLOWING 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 NE TWORKS INDIA PVT. LTD. VIDE ITA NO.7633/M/2012 DATED 06 - 11 - 2013 FOR ASSESSMENT YEAR 2008 - 09 HAS ALSO BEEN RELIED UPON FOR EXCLUDING THE SAID CONCERN FROM THE FINAL SET OF COMPARABLES. 21. ON THE OTHER HAND THE LD. CIT - DR APPEARING FOR THE REVENUE HAS DEFE NDED THE INCLUSION OF BODHTREE CONSULTING LTD., BY REFERRING TO THE DISCUSSION IN PARA 14.1 OF THE ORDER OF TPO. AS PER THE TPO, THE MATERIAL ON RECORD DOES NOT JUSTIFY THE ASSERTIONS OF THE ASSESSEE THAT THE SAID CONCERN WAS ENGAGED IN DEVELOPMENT AND SA LE OF SOFTWARE PRODUCTS. THE LD. CIT - DR HAS OPPOSED THE PLEA OF THE ASSESSEE BY REFERRING TO THE STAND OF THE TPO AS CONTAINED IN HIS ORDER. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS WITH RESPECT TO BODHTREE CONSULTING LIMITED. THE PLEA 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 CONTEXT; THUS, IT IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEES ACTIVITIES. I N THIS REGARD, WE HAVE PERUSED THE DISCUSSION MADE BY OUR COORDINATE BENCH IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) WHEREIN THE SAID CONCERN HAS BEEN FOUND TO BE NOT EXCLUSIVELY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES. THE RELEVA NT DISCUSSION IN THE CASE OF NETHAWK NETWORKS INDIA PVT. LTD. (SUPRA) IS AS UNDER : C. BODHTREE CONSULTING LIMITED 21. ON THIS COMPARABLE, CASE OF THE ASSESSEE IS THAT THE COMPANY IS NOT A GOOD COMPARABLE IN VIEW OF THE SOFTWARE PRODUCTS PRODUCED BY THE COMPANY. AS SUCH, NO SEGMENTAL DATA IS ADEQUATELY 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 ARITHME TIC MEAN. 22. ON THE OTHER HAND, LD DR FILED A COPY OF THE FINANCIAL 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 RECOMMENDATION IN SCHEDULE 12, NOTE NO.5 RELATING TO THE SEGMENTAL INFORMATION ETC TO MENTION THAT THE COMPANY IS ENGAGED IN THE SOFTWARE DEVELOPMENT ONLY. HOWEVER, THE ASSESSEE ARGUED VEHEMENTLY STATING THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE BASED P RODUCTS. FURTHER, LD COUNSEL MENTIONED THAT THE SAID COMPANY WAS ALREADY EXAMINED AND WAS HELD AS PRODUCT BASED COMPANY BY THE TPO IN THE TP STUDY OF OTHER CASE AND THE TPO CANNOT 27 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 TAKE DIFFERENT STAND IN THIS 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 LTD (SUPRA) WHEREIN IT WAS MENTIONED THAT THE TPO DESCRIBED THIS COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE PRODUCTS, NOT THE SOFTWARE DEVELOPMENT SERVICES. RELEVANT PO RTIONS FROM THE SAID PARA 29 OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: '29.1 THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS COMPANY IS ENGAGED IN THE SOFTWARE PRODUCTS. HE HAS REFERRED THE TPO ORDER AND SUBMITTED THAT IN THE PROFI LE OF THE COMPARABLES SELECTED BY THE TPO ITSELF HAS MENTIONED THE BUSINESS 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 PAPER BOOK AND SUBMITTED THAT THE ASSESSEE B ROUGHT THIS FACT THAT THIS COMPANY IS ENGAGED IN PROVIDING OPEN AND END TO END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOFTWARE, USING THE LATEST TECHNOLOGIES. FURTHER, THE COMPANY HAS IDENTIFIED ONLY ONE SEGMENT I.E SOFTWARE DEVELOP MENT. THEREFORE, THE ID AR HAS SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE AND CONSEQUENTLY SHOULD BE EXCLUDED FROM THE COMPARABLES. 29.2 ON THE OTHER HAND, THE ID DR HAS FILED THE INFORMATION 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 COMPARABLE HAVING FUNCTIONAL SIMILARITY. 29.3......... 30. WE HAVE CONSIDERED THE RIVAL SU BMISSIONS AS WELL 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 LETTER DATED 5.2.2010 WRITTEN BY THE CHARTE RED ACCOUNTANT OF BODHTREE CONSULTING LTD TO THE TPO HYDERABAD THAT THE COMPANY IS PROVIDING DATA CLEANING SERVICES TO CLIENTS FOR WHOM IT HAD DEVELOPED THE SOFTWARE APPLICATION.........' 23. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT BODHTREE CONSULTING LIMITED IS NOT ENGAGED IN THE SOFTWARE DEVELOPMENT 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 WOULD REQUIRE US TO DEVIATE FROM THE C ONCLUSION 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 FINAL SET OF COMPARABLES. THUS, IN VIEW OF THE DETAILED DISCUSSION IN THE AFO RESAID ORDER, WE ARE OF THE VIEW THAT BODHTREE CONSULTING LTD. IS NOT FUNCTIONALLY COMPARABLE TO THE SERVICES RENDERED BY THE ASSESSEE. THE LD. DR HAS NOT PLACED ON RECORD ANY MATERIAL TO DISTINGUISH THE AFORESAID DECISION. ACCORDINGLY, 28 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 BODHTREE CONSULT ING LTD. HAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES . IN THE LIGHT OF FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE BODHTREE CONSULTING LTD. F ROM THE FINAL LIST OF COMPARABLES. II. E - ZEST SOLUTIONS LTD. THE ASSESSEE HAS ASSAILED THE INCLUSION OF THE COMPANY ON THE GROUND OF FUNCTIONAL DIFFERENCE. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THE COMPANY FROM THE F INAL LIST OF COMPARABLES ON SIMILAR SUBMISSIONS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 20.2 E - ZEST SOLUTIONS LTD. : THE OBJECTION OF THE ASSESSEE IS THAT THE SAID COMPANY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE COMPANY. TH E E - ZEST SOLUTIONS LTD. IS ENGAGED MORE IN INFORMATION TECHNOLOGY ENABLED SERVICES (ITES) AND THAT TOO IN THE NATURE OF KPO SERVICES, WHEREAS, THE ASSESSEE IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND RELATED SERVICES. THE TRIBUNAL IN THE CASE OF SYMPH ONY SERVICES PUNE (P) LTD. VS. ITO IN ITA NO.257/PN/2013 FOR A.Y. 2008 - 09 DECIDED ON 30 - 04 - 2014 HAS HELD AS UNDER : 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CONTEXT, WE FIND THAT BEFORE THE TPO RELIED UPON THE INFORMATION AVAILABLE ON THE WEBSITE OF THE SAID CONCERN AND SUBMITTED 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 SERVICES, ETC.. IT IS SOUGHT TO BE EXPLAINED THAT SUCH KIND OF SERVICES ARE ITES SERVICES WHICH ARE UNDERSTOOD AS KPO SERVICES. IT WAS ALSO POINTED OUT THAT THE SAID CONCERN HAS NOT PROVIDED ANY SEGMENTAL DATA IN ITS ANNUAL REPORT. BEFORE US, IT IS SOUGHT TO BE CONTENDED THAT THE KPO SERVICES ARE NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES BEING RENDERED BY THE ASSESSEE AND THEREFORE CONCERNS WHICH RENDER KPO SERVICES CANNOT BE CONSIDERED AS FUNCTIONALLY COMPARABLE TO THE CONCERNS WHO RENDER SOFTWARE DEVELOPMENT SE RVICES. FOR THE SAID P 1 RO 3 POSITION, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WHICH HAS INDEED BEEN RENDERED IN THE CONTEXT OF THE SAME COMPARABLE, WHICH IS THE SUBJECT - MATTER OF CONSIDERATION BEFORE US, I.E. E - ZEST SOLUTIONS LIMITED. 29 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 24. WE FIND THAT THE FACTUAL ASSERTIONS MADE BY THE ASSESSEE BEFORE THE TPO AS WELL AS BEFORE US WITH REGARD TO THE FUNCTIONS BEING PERFORMED BY EZEST SOLUTIONS LIMITED HAVE NOT BEEN CONTROVERTED BY THE REVENUE. OSTENSIBLY, E - ZEST SOLUTIONS LIMITED IS RENDERING PRODUCT DEVELOPMENT SERVICES AND TECHNOLOGY SERVICES, AND THE LATTER FALLS IN THE CATEGORY OF KPO SERVICES AND THE SAME HAVE NOT BEEN HELD BY THE BANGALORE BENCH OF THE TRI BUNAL TO BE SIMILAR TO A CONCERN ENGAGED IN RENDERING OF SOFTWARE DEVELOPMENT SERVICES, AS IS THE ASSESSEE BEFORE US. FOLLOWING THE RATIO OF THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD. (SUPRA) WE HOLD TH AT E - ZEST SOLUTIONS LIMITED IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES FOR THE PERIOD UNDER CONSIDERATION. WE HOLD SO. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS. THUS, IN VIEW OF AFORESAID FINDINGS OF THE CO - ORDINATE BENCH IN RESPECT OF FUNCTIONA L DIFFERENCE BETWEEN THE ACTIVITIES OF E - ZEST SOLUTIONS LTD. AND THE COMPANIES ENGAGED IN SOFTWARE DEVELOPMENT ACTIVITIES (ASSESSEE BEING ONE OF SUCH SOFTWARE DEVELOPMENT COMPANIES), WE ARE OF THE CONSIDERED VIEW THAT THE SAID COMPANY HAS TO BE EXCLUDED FR OM THE LIST OF COMPARABLES IN THE PRESENT CASE. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE E - ZEST SOLUTIONS LTD. FROM THE FINAL LIST OF COMPARABLES. III. HELIOS & MATHESON INFORMATION TECH. THE ASSESSEE HAS PRAYED FOR EXCLUSION OF SAID COMPANY ON THE GROUND OF FUNCTIONAL DIFFERENCE. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THE COMPANY FROM THE FINAL LIST OF COMPARABLES ON SIMILAR SUBMISSIONS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 20.3 HELIOS & MATHESON INFORMATION TECH .: THE COMPANY WAS SELECTED AS COMPARABLE BY THE ASSESSEE IN THE FIRST INSTANCE IN TP STUDY. A PERUSAL OF THE TPO ORDER SHOWS THAT NO OBJECTION WAS FILED BY THE ASSESSEE AGAINST THIS COMPARABLE. BEFORE US THE LD. COUNSEL SUBMITTED THAT THIS COMPARABLE WAS REJECTED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 ON THE GROUND THAT IT IS FUN CTIONALLY DIFFERENT. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL IN ITA NO. 1319/PN/2011 FOR THE ASSESSMENT YEAR 2007 - 08 DECIDED ON 10 - 10 - 2014 IS REPRODUCED HERE - IN - UNDER: 36. SO FAR AS HELIOS AND MATHERSON INFORMATION TECHNOLOGY LTD., IS CONCERNE D, WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC 30 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 SOFTWARE LTD., HAS EXCLUDED THE SAME FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER : 20. WITH REGARD TO THE INCLUSION OF HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., THE ASSESSEE HAS RAI SED SIMILAR ARGUMENTS AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG). WE HAVE PERUSED THE RELEVANT PARA OF THE ORDER OF THE TPO I.E., 6.3.21, IN TERMS OF WHICH THE SAID CONCERN HAS BEEN INCLUDED AS A COMPARABLE CONCERN. THE ASSESSEE POINTED OUT TH AT AS IN THE CASE OF KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CASE ALSO FOR A.Y. 2006 - 07 THE SAID CONCERN WAS FOUND FUNCTIONALLY INCOMPARABLE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY AND THE SAID POSITION WAS NOT DISTURBED BY THE TPO. THE RELEVANT PORTION OF THE TRANSFER PRICING STUDY, PLACED AT PAGE 432 OF THE PAPER BOOK HAS BEEN POINTED OUT IN SUPPORT. CONSIDERED IN THE AFORESAID LIGHT, ON THE BASIS OF THE DISCUSSION IN RELATION TO KALS INFORMATION SOLUTIONS LTD. (SEG), IN THE INSTANT CA SE ALSO WE FIND THAT THE SAID CONCERN IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 36.1 SINCE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE LTD., (SUPRA) HAS ALREADY TAKEN A VIEW THAT HELIOS AND MATHERSON INFORMATION LTD., IS NOT A COMPARABLE AND IS FUNCTIONALLY DIFFERENT, THEREFORE, WE DIRECT THE TPO/AO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. IN VIEW OF THE FACT THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007 - 08 HAS HELD THAT HELIOS & MATHESON INFORMATION TECH. IS FUNCTIONALLY DIFFERENT AND THERE IS NO MATERIAL CHANGE IN THE ACTIVITIES OF THE ASSESSEE AND THE FUNCTIONS OF THE COMPARABLE ENTITY DURING THE IMPUGNED ASSESSMENT YEAR, THEREFORE, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW. ACCORDINGLY, WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. NO MATERIAL HAS BEEN PLACED BEFORE US BY THE DEPARTMENT TO FORCE US TO TAKE A DIFFERENT VIEW. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DEC ISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE HELIOS & MATHESON INFORMATION TECH. FROM THE FINAL LIST OF COMPARABLES. IV. KALS INFORMATION SYSTEM - IN RESPECT OF THE SAID COMPANY THE ASSESSEE HAS PRAYED FOR EXCLUSION OF SAID COMPANY ON THE GROUND OF FUNCTIONAL DIFFERENCE. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JOHN DEERE INDIA PVT. LTD. (SUPRA) HAS EXCLUDED THE COMPANY 31 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 FROM THE FINAL LIST OF COMPARABLES ON SIMILAR SUBMISSIONS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 20.5 KALS INFORMATION SYSTEM : THE ASSESSEE HAS OBJECTED TO INCLUSION OF THE SAID COMPANY IN THE LIST OF COMPARABLE ON THE GROUND OF DI FFERENCE IN FUNCTIONALITY. THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 EXCLUDED THE SAID COMPANY FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DIFFERENCE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER: 37. SO FAR AS THE FRESH ADDITION OF 2 COMPANIES, NAMELY KALS INFORMATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., ARE CONCERNED, WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BINDVIEW INDIA PVT. LTD., HAS OBSERVED AS UNDER : 16. ANOTHER ISSUE RELATING T O SELECTION OF COMPARABLES BY THE TPO IS REGARDING INCLUSION OF KALS' INFORMATION SYSTEM LTD. THE ASSESSEE HAS OBJECTED TO ITS INCLUSION ON THE BASIS THAT FUNCTIONALLY THE COMPANY IS NOT COMPARABLE. WITH REFERENCE TO PAGES 185 - 186 OF THE PAPER BOOK, IT IS EXPLAINED THAT THE SAID COMPANY IS ENGAGED IN DEVELOPMENT OF SOFTWARE PRODUCTS AND SERVICES AND IS NOT COMPARABLE TO SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE APPELLANT HAS SUBMITTED AN EXTRACT ON PAGES 185 - 186 OF THE PAPER BOOK FROM THE WEBSITE OF THE COMPANY TO ESTABLISH THAT IT IS ENGAGED IN PROVIDING OF I T ENABLED SERVICES AND THAT THE SAID COMPANY IS INTO DEVELOPMENT OF SOFTWARE PRODUCTS, ETC. ALL THESE ASPECTS HAVE NOT BEEN FACTUALLY REBUTTED AND, IN OUR VIEW, THE SAID CONCERN IS LI ABLE TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES, AND THUS ON THIS ASPECT, ASSESSEE SUCCEEDS. 37.1 SIMILARLY, WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PTC SOFTWARE LTD., (SUPRA) HAS OBSERVED AS UNDER : 16. THE NEXT POINT MADE OUT BY T HE ASSESSEE IS WITH REGARD TO THE INCLUSION OF ITEMS AT (9) AND (11) NAMELY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., AND KALS INFORMATION SOLUTIONS LTD. (SEG). THE PRIMARY PLEA RAISED BY THE ASSESSEE TO ASSAIL THE INCLUSION OF THE AFORESAID TWO COMPA NIES FROM THE LIST OF COMPARABLES IS TO BE EFFECT THAT THEY ARE FUNCTIONALLY INCOMPARABLE AND THEREFORE, ARE LIABLE TO BE EXCLUDED. IN SUM AND SUBSTANCE, THE PLEA SET UP BY THE ASSESSEE IS THAT BOTH THE AFORESAID CONCERNS ARE ENGAGED IN DEVELOPMENT AND SAL E OF SOFTWARE PRODUCTS WHICH IS FUNCTIONALLY DIFFERENT FROM THE SERVICES UNDERTAKEN BY THE ASSESSEE IN ITS IT - SERVICES SEGMENT. 17. AS PER THE DISCUSSION IN PARA 6.3.2. OF THE ORDER OF THE TPO, THE REASON ADVANCED FOR INCLUDING KALS INFORMATION SYSTEMS LTD., IS TO THE EFFECT THAT THE SAID CONCERN'S APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE WHICH CAN BE CONSIDERED AS COMPARABLE TO THE ASSESSEE COMPANY. THE SAID CONCERN IS ENGAGED IN TWO SEGMENTS NAMELY APPLICATION SOFTWARE SEG MENT AND TRAINING. AS PER THE TPO, THE APPLICATION SOFTWARE SEGMENT IS FUNCTIONALLY 32 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 COMPARABLE TO THE ASSESSEE AS THE SAID CONCERN IS ENGAGED IN SOFTWARE SERVICES. THE STAND OF THE ASSESSEE IS THAT A PERUSAL OF THE ANNUAL REPORT OF THE SAID CONCERN FOR F. Y. 2006 - 07 REVEALS THAT THE APPLICATION SOFTWARE SEGMENT IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES. THE ASSESSEE POINTED OUT THIS TO THE TPO IN ITS WRITTEN SUBMISSIONS, COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGE 4 20.3 TO 420.4. THE ASSESSEE FURTHER POINTED OUT THAT THERE WAS NO BIFURCATION AVAILABLE BETWEEN THE BUSINESS OF SALE OF SOFTWARE PRODUCTS AND THE BUSINESS OF SOFTWARE SERVICES, AND THEREFORE, IT WAS NOT APPROPRIATE TO ADOPT THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN FOR THE PURPOSES OF COMPARABILITY WITH THE ASSESSEE'S IT - SERVICES SEGMENT. THE TPO HOWEVER, NOTICED THAT THOUGH THE APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN MAY BE ENGAGED IN SELLING OF SOME OF THE SOFTWARE PRODUCTS WHICH ARE D EVELOPED BY IT, HOWEVER, THE SAID CONCERN WAS NOT INTO TRADING OF SOFTWARE PRODUCTS AS THERE WERE NO COST OF PURCHASES DEBITED IN THE PROFIT & LOSS ACCOUNT. THOUGH THE TPO AGREED THAT THE QUANTUM OF REVENUE FROM SALE OF PRODUCTS WAS NOT AVAILABLE AS PER TH E FINANCIAL STATEMENTS OF THE SAID CONCERN, BUT AS THE BASIC FUNCTION OF THE SAID CONCERN WAS SOFTWARE DEVELOPMENT, IT WAS INCLUDIBLE AS IT WAS FUNCTIONALLY COMPARABLE TO THE ASSESSEE'S SEGMENT OF IT - SERVICES. 18. BEFORE US, APART FROM REITERATING THE POINTS RAISED BEFORE THE TPO AND THE DRP, THE LD. COUNSEL SUBMITTED THAT IN THE IMMEDIATELY PRECEEDING ASSESSMENT YEAR OF 2006 - 07, THE SAID CONCERN WAS EVALUATED BY THE ASSESSEE AND WAS FOUND FUNCTIONALLY INCOMPARABLE. FOR THE SAID PURPOSE, OUR REFERENCE H AS BEEN INVITED TO PAGES 421 TO 542 OF THE PAPER BOOK, WHICH IS THE COPY OF THE TRANSFER PRICING STUDY UNDERTAKEN BY THE ASSESSEE FOR THE A.Y. 2006 - 07, AND IN PARTICULAR, ATTENTION WAS INVITED TO PAGE 454 WHERE THE ACCEPT REJECT MATRIX UNDERTAKEN BY THE AS SESSEE REFLECTED KALS INFORMATION SOLUTIONS LTD. (SEG) AS FUNCTIONALLY INCOMPARABLE. THE LD. COUNSEL POINTED OUT THAT THE AFORESAID POSITION HAS BEEN ACCEPTED BY THE TPO IN THE EARLIER A.Y. 2006 - 07 AND THEREFORE, THERE WAS NO JUSTIFICATION FOR THE TPO TO C ONSIDER THE SAID CONCERN AS FUNCTIONALLY COMPARABLE IN THE INSTANT ASSESSMENT YEAR. 19. IN OUR CONSIDERED OPINION, THE POINT RAISED BY THE ASSESSEE IS POTENT IN AS MUCH AS IT IS QUITE EVIDENT THAT THE SAID CONCERN HAS NOT BEEN FOUND TO BE FUNCTIONALLY COM PARABLE WITH THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN THE PRESENT YEAR ALSO, ON THE BASIS OF THE ANNUAL REPORT, REFERRED TO IN THE WRITTEN SUBMISSIONS ADDRESSED TO THE LOWER AUTHORITIES, THE ASSESSEE HAS CORRECTLY ASSERTED OUT THAT THE SAID CONCERN WAS INTER ALIA ENGAGED IN SALE OF SOFTWARE PRODUCTS, WHICH WAS QUITE DISTINCT FROM THE ACTIVITY UNDERTAKEN BY THE ASSESSEE IN THE IT SERVICES SEGMENT. AT THE TIME OF HEARING, NEITHER IS THERE ANY ARGUMENT PUT FORTH BY THE REVENUE AND NOR I S THERE ANY DISCUSSION EMERGING FROM THE ORDERS OF THE LOWER AUTHORITIES AS TO IN WHAT MANNER THE FUNCTIONAL PROFILE OF THE SAID CONCERN HAS UNDERGONE A CHANGE FROM THAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HAVING REGARD TO THE FACTUAL ASPECTS BRO UGHT OUT BY THE ASSESSEE, IT IS CORRECTLY ASSERTED THAT THE 33 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 APPLICATION SOFTWARE SEGMENT OF THE SAID CONCERN IS NOT COMPARABLE TO THE ASSESSEE'S SEGMENT OF IT SERVICES. 37.2 XXXXXXXXXX 37.3 IN VIEW OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL GIVI NG REASONS FOR EXCLUSION OF KALS INFORMATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., FROM THE LIST OF COMPARABLES BECAUSE OF DIFFERENT FUNCTIONS, WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ABOVE TWO COMPANIES CANNOT BE IN CLUDED IN THE LIST OF COMPARABLES. WE ACCORDINGLY DIRECT THE TPO/AO TO EXCLUDE KALS INFORMATION SYSTEM LTD., AND COMPUCOM SOFTWARE LTD., FROM THE LIST OF COMPARABLES. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, NO MATERIAL CHANGE HAS BEEN POINTED OUT BY THE REVENUE IN THE FACTS OR FUNCTIONS/ACTIVITIES OF THE ASSESSEE. THEREFORE, FOR THE SIMILAR REASONS, WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE KALS INFORMATION SYSTEM LTD. FROM THE LIST OF COMPARABLES. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE KALS INFORMATION SYSTEM FROM THE FINAL LIST OF COMPARABLES. V. GOLDSTONE TECHNOLOGIES LTD. - IN RESPECT OF THE SAID COMPANY THE A SSESSEE HAS PRAYED FOR EXCLUSION OF SAID COMPANY ON THE GROUND OF FUNCTIONAL DIFFERENCE. WE FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF EMPTORIS TECHNOLOGIES INDIA PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX (SUPRA) HAS EXCLUDED THE CO MPANY FROM THE FINAL LIST OF COMPARABLES FOR SIMILAR REASONS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE AS UNDER : 16. NOW, COMING TO THE OBJECTIONS RAISED BY THE ASSESSEE WITH REGARD TO INCLUSION OF CONCERN GOLDSTONE TECHNOLOGIES LTD. 17. T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BEFORE THE DRP, IT WAS POINTED OUT THAT THE SAID CONCERN GOLDSTONE TECHNOLOGIES LTD. WAS ENGAGED IN THE ACTIVITIES RELATED TO MEDIA & IP TV AND FURTHER, THE COMPANY HAD CARRIED INVENTOR Y OF SET TOP BOXES AND MOVIE RIGHTS IN ITS BALANCE SHEET FOR THE PREVIOUS YEAR. IN ADDITION, THE SAID COMPANY HAD SOME INCOME FROM SALE OF INDUSTRIAL MATERIAL. LOOKING AT THE SERVICES PROVIDED BY THE SAID CONCERN, IT IS CLEAR THAT THE SAME ARE FUNCTIONALLY DISSIMILAR TO THE SERVICES PROVIDED BY THE ASSESSEE AND THERE IS NO MERIT IN COMPARING THE RESULTS OF THE SAID CONCERN WHILE BENCHMARKING THE 34 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 INTERNATIONAL TRANSACTION OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE GOLDSTONE TECH NOLOGIES LTD. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH WE DIRECT THE TPO/ASSESSING OFFICER TO EXCLUDE GOLDSTONE TECHNOLOGIES LTD. FROM THE FINAL LIST OF COMPARABLES. 2 0 . THUS, IN VIEW OF OUR ABOVE FINDINGS , THE GROUND NO. 2.3 RAISED IN THE APPEAL BY THE ASSESSEE RELATING TO INCLUSION OF VARIOUS COMPANIES IN THE LIST OF COMPARABLES IS ALLOWED. 2 1 . THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE HE IS NOT PRESSING GROUND NO. 2.4 RAISED IN THE APPEAL. THE SAME IS DISMISSED , ACCORDINGLY. 2 2 . IN GROUND NO. 2.5 OF THE APPEAL THE ASSESSEE HAS RAISED AN ALTERNATE PRAYER THAT IF THE ADDITION IS TO BE MADE BY APPLYING NET PROFIT RATE THE SAME SHOULD BE APPLIED TO BE EXPENDITURE INCURRED BY THE ASSESSEE FOR PRO VIDING SERVICES TO ITS AES ONLY. TO SUPPORT HIS CONTENTIONS RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. THYSSEN KRUPP INDUSTRIES INDIA (P.) LTD. REPORTED AS 70 TAXMANN.COM 329. THE H ONBLE HIGH COURT AFFIRMING THE VIEW OF TRIBUNAL ON THIS ISSUE HELD THAT THE ADJUSTMENT WHICH IS MANDATED IN TERMS OF CHAPTER X IS ONLY IN RESPECT OF INTERNATIONAL TRANSACTION AND NOT TRANSACTIONS ENTERED INTO BY ASSESSEE WITH INDEPENDENT UNRELATED THIRD P ARTIES. IN OTHER WORDS THE ADJUSTMENT IN RESPECT OF INTERNATIONAL TRANSACTIONS SHOULD BE RESTRICTED TO INTERNATIONAL TRANSACTIONS AND NOT TO THE TRANSACTIONS ENTERED INTO WITH INDEPENDENT PARTIES. THE LD. AR HAS POINTED THAT THE COMMISSIONER OF INCOME TA X (APPEALS) HAS ACCEPTED THIS PROPOSITION IN ASSESSMENT YEARS 2002 - 03 AND 2003 - 04 AND THE 35 ITA NO . 2428/PUN/2012, A.Y. 2008 - 09 DEPARTMENT DID NOT FILE ANY APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THIS FACT HAS NOT BEEN REBUTTED BY THE LD. DR. THUS, IN VIEW OF THE FACT THAT THIS ISSUE HAS BEEN SETTLED BY THE JURISDICTIONAL HIGH COURT WE FIND MERIT IN THE GROUND RAISED BY THE ASSESSEE. WE FURTHER HOLD THAT THE REVENUE HAS TO MAINTAIN CONSISTENCY. ONCE THE POSITION HAS BEEN ACCEPTED IN EARLIER ASSESSMENT YEARS, THE SAME SHOULD NOT BE DISTURBED. ACCORDINGLY, GROUND NO. 2.5 RAISED IN THE APPEAL IS ALLOWED. 2 3 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON THURSDAY, THE 10 TH DAY OF MAY, 2018 . SD/ - SD/ - ( / ANIL CHATURVEDI ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 10 TH MAY, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL, PUNE 4. THE DIT (TP), PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE
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