M/s CIsco Video Technologies India Pvt Ltd , Bangalore V. Deputy Commissioner of Income TAx Circle-2(1)(1), Bangalore

ITA 2503/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2036 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 24-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: H PADAMCHAN D KHINCHA
• Keywords: Transfer pricing; International transaction; Services rendered outside India; Set aside
• Section: 92C; 234B; 133(6); 201; 144C; 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A NO.2503/BANG/2017 ASSESSMENT YEAR : 2013 14 M/S SYNAMEDIA INDIA PVT. LTD., (FORMERLY KNOWN AS CISCO VIDEO TECHNOLOGIES INDIA PVT. LTD.,) BLOCK 9A & 9B, PRITECH PARK, SURVEY NO.51-64/4, SARJAPUR OUTER RING ROAD, BELLANDUR VILLAGE, BENGALURU-560 103. PAN AACCN 1140 K VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI H PADAMCHAND KHINCHA, C.A RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, CIT - DR DATE OF HEARING : 09-01-2020 DATE OF PRONOUNCEMENT : 19-03-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST FINAL ASSESSMENT ORDER DATED 25/09/2017 PASSED UNDER SECT ION 143 (3) READ WITH SECTION 144C (13) OF THE ACT BY LD.DC IT CIRCLE-2 (1) PAGE 2 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 (1), BANGALORE FOR ASSESSMENT YEAR 2013-14 ON FOLLO WING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, SYNAMEDIA INDIA PRIVATE LIMITED (HEREINAFTER REFERR ED TO AS THE 'APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCO ME-TAX - CIRCLE 2(1)(1) ('ASSESSING OFFICER' OR 'AO') DATED SEPTEMBER 25, 2017 IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE D ISPUTE RESOLUTION PANEL ('DRP'), BENGALURU DATED AUGUST 23 , 2017, UNDER SECTION 253 OF THE INCOME- TAX ACT, 1961 ('ACT') ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW AND BASED ON THE DIRECTIONS OF THE DRP: A. GROUNDS OF APPEAL RELATING TO TRANSFER PRICING MATT ERS SPECIFIC TO SOFTWARE DEVELOPMENT SERVICES SEGMENT THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, BY NOT APPRECIATING THE ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES, CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF THE ALP IN CONNECTION WITH THE IMP UGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE APPE LLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH. 2. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN/PRICE USING ONLY FY 2012- 13 DATA, WHICH WAS NOT AVAILABLE TO THE APPELLANT A T THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION R EQUIREMENTS. 3. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY ACCEPTING/REJECTING CERTAIN COMPANIES BASED ON U NREASONABLE COMPARABILITY CRITERIA. 4. THE LEARNED TPO/ AO HAVE ERRED, IN LAW AND IN FA CTS, BY ERRONEOUSLY COMPUTING THE OPERATING MARGINS OF CERT AIN COMPARABLE COMPANIES IDENTIFIED IN THE TRANSFER PRI CING ORDER. 5. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT USING EXPORT SALES LESS THAN 75% OF THE S ALES AS A COMPARABILITY CRITERION. 6. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT USING THE EMPLOYEE COST LESS THAN 25% OF THE TOTAL REVENUES AS A COMPARABILITY CRITERION. 7. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY REJECTING THE FILTER OF RATIO OF RESEARCH AND DE VELOPMENT EXPENSES TO SALES LESS THAN 3% CONSIDERED BY THE AP PELLANT FOR THE PURPOSE OF SELECTING THE COMPANIES WHICH DO NOT OWN INTANGIBLES AND ARE PURE SERVICE PROVIDERS. PAGE 3 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 8. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY REJECTING THE FILTER OF RATIO OF FIXED TO SALES GREATER THAN 200% CONSIDERED BY THE APPELLANT. 9. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY REJECTING THE FILTER ADOPTED BY THE APPELLANT FO R SELECTING COMPANIES HAVING A RATIO OF SUM OF ADVERTISING, MAR KETING AND DISTRIBUTION EXPENSES TO SALES LESS THAN 3%. 10. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, BY APPLYING THE FILTER OF COMPANIES HAVING DIFFEREN T ACCOUNTING YEAR FOR REJECTING THE COMPARABLE COMPANIES (I.E., COMPANIES HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPA NIES WHOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS). 11. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, IN COMPUTING THE ARM'S LENGTH PRICE WITHOUT GIVING THE BENEFIT OF 3 PERCENT UNDER THE PROVISO TO SECTION 92C OF THE ACT . 12. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW AND IN FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUNT FOR D IFFERENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COM PARABLES. 13. THE LEARNED TPO/ AO HAVE ERRED, IN LAW AND IN F ACTS, BY USING THE INFORMATION BY EXERCISING POWERS UNDER SE CTION 133(6) OF THE ACT. B. GROUNDS OF APPEAL RELATING TO OTHER MATTERS 14. THE LEARNED AO HAS ERRED IN LAW AND IN FACTS BY RESTRICTING THE CREDIT FOR MINIMUM ALTERNATE TAX WHILE COMPUTING TH E TOTAL TAX PAYABLE BY THE APPELLANT. 15. THE LEARNED AO HAS ERRED IN LAW BY LEVYING INTE REST OF INR 7,78,07,682 UNDER SECTION 234B OF THE ACT AND INR 2 5,38,505 UNDER SECTION 234C OF THE ACT, WHICH IS ON ACCOUNT OF THE ADJUSTMENTS PROPOSED TO THE RETURNED INCOME MODIFIED GROUNDS OF APPEAL 3. THE LEARNED TPO/ LEARNED AO HAVE ERRED, IN LAW A ND IN FACTS, BY ACCEPTING/REJECTING CERTAIN COMPANIES BASED ON U NREASONABLE COMPARABILITY CRITERIA: 3.1 FOLLOWING COMPANIES SHOULD NOT BE TREATED AS CO MPARABLE COMPANIES: A) LARSEN & TOUBRO INFOTECH LIMITED B) PERSISTENT SYSTEMS LIMITED C) CG - VAK SOFTWARE & EXPORTS LIMITED 3.2 FOLLOWING COMPANIES SHOULD BE TREATED AS COMPAR ABLE COMPANIES: A) AKSHAY SOFTWARE TECHNOLOGIES LIMITED B) IDBI INTECH LIMITED C) SPRY RESOURCES INDIA PRIVATE LIMITED THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. PAGE 4 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HONBLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDAN CE WITH THE LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE FILED ITS RETURN OF INCOME FOR YEAR UND ER CONSIDERATION ON 29/11/2013 DECLARING TOTAL INCOME OF RS.78,67,19,960/-. THE CASE WAS SELECTED FOR SCRUTI NY AND STATUTORY NOTICE UNDER SECTION 143 (2) ALONG WITH 1 42 (1) AND QUESTIONNAIRE WAS ISSUED TO ASSESSEE. IN RESPONSE T O STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND FILED REQUISITE DETAILS AS CALLED FOR. LD.AO OBSERV ED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION EXCEEDING RS.15 CRORE S AND THEREFORE CASE WAS REFERRED TO TRANSFER PRICING OFF ICER FOR DETERMINING ARMS LENGTH PRICE OF INTERNATIONAL TRAN SACTION AS PER SECTION 92CA OF THE ACT. UPON RECEIPT OF REFERENCE, LD.TPO CALLED UPON ASSES SEE TO FILE ECONOMIC DETAILS OF TRANSACTION IN FORM 3 CEB. REPR ESENTATIVE OF ASSESSEE APPEARED BEFORE LD.TPO AND FILED REQUISITE DETAILS AS CALLED FOR. LD.TPO OBSERVED THAT ASSESSEE WAS A COMPANY FORMERL Y KNOWN AS CISCO VIDEO TECHNOLOGIES INDIA LTD., INCORPORATE D UNDER PROVISIONS OF COMPANIES ACT. IT WAS OBSERVED THAT A SSESSEE HAD ITS OPERATIONS AS SOFTWARE RESEARCH AND DEVELOPMENT FACILITY. LD.TPO OBSERVED IN TP DOCUMENTATION THAT, ASSESSEE IS PRIMARILY ENGAGED IN DEVELOPING INTERACTIVE TV APPLICATIONS A ND BROADBAND TECHNOLOGIES THAT SUPPORT COMMUNICATIONS SOLUTIONS OF PARENT COMPANY IN U K. IT ALSO PROVIDES PRE SERVICES TO ITS ASSOCIATED ENTERPRISE IN UK. 3. LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING INTERN ATIONAL TRANSACTION DURING THE YEAR: 4. LD.TPO OBSERVED THAT ASSESSEE USED OP/TC AS PLI FOR DETERMINING MARGIN AT 12.69% FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT AND 13.51% FOR PRE SEGMENT. TNMM WAS USED AS MOST APPROPRIATE METHOD. A SSESSEE USED FOLLOWING SET OF 6 COMPARABLES WITH AVERAGE MA RGIN OF 13.17% FOR SOFTWARE DEV S.NO COMPARABLES 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 2. HELIO AND MATHESON INFORMATION TECHNOLOGY LTD. 3. R S SOFTWARE (INDIA) LTD. 4. SPRY RESOURCES INDIA PVT.LTD. 5. THINK SOFTWARE GLOBAL SERVICES LTD 6. IDBI INTECH LTD AVERAGE MARGIN PAGE 5 OF 17 IT(TP)A NO.2503 /BANG/20 A. Y : 201 K. IT ALSO PROVIDES PRE - SALES AND MARKETING SUPPORT SERVICES TO ITS ASSOCIATED ENTERPRISE IN UK. LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING INTERN ATIONAL TRANSACTION DURING THE YEAR: LD.TPO OBSERVED THAT ASSESSEE USED OP/TC AS PLI FOR MARGIN AT 12.69% FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT AND 13.51% FOR PRE - SALES AND MARKETING SUPPORT SERVICE SEGMENT. TNMM WAS USED AS MOST APPROPRIATE METHOD. ASSESSEE USED FOLLOWING SET OF 6 COMPARABLES WITH AVERAGE MA RGIN OF 13.17% FOR SOFTWARE DEV ELOPMENT SERVICES. COMPARABLES AKSHAY SOFTWARE TECHNOLOGIES LTD. HELIO AND MATHESON INFORMATION TECHNOLOGY LTD. R S SOFTWARE (INDIA) LTD. SPRY RESOURCES INDIA PVT.LTD. SOFTWARE GLOBAL SERVICES LTD AVERAGE MARGIN /BANG/20 17 : 201 3 14 SALES AND MARKETING SUPPORT LD.TPO OBSERVED THAT, ASSESSEE HAD FOLLOWING INTERN ATIONAL LD.TPO OBSERVED THAT ASSESSEE USED OP/TC AS PLI FOR MARGIN AT 12.69% FOR SOFTWARE DEVELOPMENT SERVICE SALES AND MARKETING SUPPORT SERVICE SEGMENT. TNMM WAS USED AS MOST APPROPRIATE METHOD. ASSESSEE USED FOLLOWING SET OF 6 COMPARABLES WITH AVERAGE MA RGIN OF MARGIN 4.45% 15.78% 15.67% 21.01% 6.34% 15.78% 13.17% PAGE 6 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 5. LD.TPO APPLIED VARIOUS SEARCH FILTERS AND REJECT ED THE COMPARABLES SELECTED BY ASSESSEE IN ITS TP STUDY. T HE FINAL COMPARABLES SELECTED BY LD.TPO WAS AS UNDER: S.NO COMPARABLES MARGIN 1. CG-V A CASE SOFTWARE EXPORTS LTD 20.54% 2. ICRA TECHNO ANALYTICS LTD 17.10% 3. LARSEN AND TOUBRO INFOTECH LTD 26.06% 4. MIND TREE LTD (SEG) 18.19% 5. PERSISTENT SYSTEMS LTD 28.27% 6. RS SOFTWARE (INDIA) PRIVATE LIMITED 17.41% 7. TECH MAHINDRA LTD (SEG) 18.72% AVERAGE MARGIN 20.90% 6. LD.TPO THUS PROPOSED ADJUSTMENT BEING SHORTFALL AT RS.25,04,82,139/-. 7. ON THE BASIS OF DRAFT ASSESSMENT ORDER, ASSESSEE RAISED OBJECTION BEFORE DRP, WHEREIN COMPARABLES SELECTED BY LD.TPO WAS CHALLENGED FOR VARIOUS FUNCTIONAL DISSIMILARITI ES. DRP ON CONSIDERING ASSESSEES SUBMISSION, ACCEPTED REJECTI ON OF TECH MAHINDRA LTD., SINCE THIS COMPANY HAD EXPANDED ITS BUSINESS THROUGH VARIOUS ACQUISITIONS WHICH, MATERIALLY AFFE CTED ON ITS PROFITABILITY. IN RESPECT OF OTHER COMPARABLES, OBJECTIONS RAISED BY ASSESSEE WERE DISMISSED. 8. UPON RECEIPT OF DRP DIRECTIONS, LD.AO PASSED FIN AL ASSESSMENT ORDER COMPUTING INCOME IN THE HANDS OF A SSESSEE AT RS.105,99,28,701/-. PAGE 7 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 9. AGGRIEVED BY ORDER OF LD.AO, ASSESSEE IS IN APPE AL BEFORE US NOW. 10. LD.AR AT THE OUTSET, SUBMITTED THAT, ASSESSEE H AS FILED REVISED GROUND OF APPEAL WHEREIN, IN MODIFIED GROUN D OF APPEAL NO.3, ASSESSEE SEEKS EXCLUSION/INCLUSION OF FOLLOWI NG COMPARABLES: SEEKING EXCLUSION OF: LARSEN AND TOUBRO INFOTECH LTD PERSISTENT SYSTEMS LTD CG-VAK SOFTWARE AND EXPORTS LTD SEEKING INCLUSION OF: AKSHAY SOFTWARE TECHNOLOGIES LTD IDBI INTECH LTD SPRY RESOURCES INDIA PVT.LTD., 11. LD.CIT DR AT THIS JUNCTURE, SUBMITTED THAT CG- VAK SOFTWARE AND EXPORTS LTD., WAS NOT RAISED BY ASSESS EE BEFORE DRP. SHE SUBMITTED THAT ASSESSEE HAS NOT FILED APPL ICATION FOR RAISING ADDITIONAL BEFORE THIS TRIBUNAL UNDER RULE 11 AND THEREFORE THIS COMPARABLE CANNOT BE CONSIDERED AT T HIS JUNCTURE. 12. LD.AR AT THE OUTSET FILED APPLICATION UNDER RUL E 11 SEEKING INDULGENCE TO CONSIDER COMPARABLE CG-VAK SOFTWARE A ND EXPORTS PVT. LTD., FOR EXCLUSION FROM FINAL LIST OF COMPARABLES. WE HAVE PERUSED SUBMISSIONS ADVANCED BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 13. AS RIGHTLY SUBMITTED, THIS COMPARABLE WAS NOT B EEN RAISED FOR EXCLUSION BEFORE DRP BY ASSESSEE. HOWEVER, THIS DOES NOT ESTOP ASSESSEE FROM RAISING THIS PLEA BEFORE THIS TRIBUNAL. WE PAGE 8 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 REFER TO DECISION OF SPECIAL BENCH OF CHANDIGARH TR IBUNAL IN CASE OF QUARK SYSTEMS REPORTED IN (2010)132 TTJ 1 (CHANDIGA RH) (SB). 14. ACCORDINGLY WE ARE INCLINED TO ADMIT THIS GROUN D RAISED BY ASSESSEE. 15. LD.AR SUBMITTED THAT GROUNDS 1-13 ARE INTERMINGLED WITH COMPARABLES SOUGHT FOR INCLUSION/EXCLUSION BY ASSES SEE AND THEREFORE NEED NOT BE CONSIDERED SEPARATELY. 16. ON THE BASIS OF ABOVE SUBMISSIONS, WE ADJUDICAT E ONLY GROUND 3 UNDER MODIFIED GROUNDS OF APPEAL RAISED BY ASSESSEE. BEFORE WE UNDERTAKE THE COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND THE FUNCTIONS PERFORMED BY ASSESSEE, ASSETS OWNED AND RISKS ASSUMED UNDER THIS SEGMENT. FUNCTIONS: 17. IN TP STUDY, IT HAS BEEN SUBMITTED THAT, THERE IS A SERVICE AGREEMENT FOR PROVISION OF SOFTWARE RESEARCH AND DE VELOPMENT SERVICES ENTERED INTO BY ASSESSEE, WITH ITS ASSOCIA TED ENTERPRISE IN UK FROM 01/04/2006. AS PER THE AGREEMENT, REMUNE RATION RECEIVED BY ASSESSEE ON IS COST +15% MARK UP. 18. MAIN FUNCTION PERFORMED BY ASSESSEE, IS IN RESP ECT OF R&D FUNCTIONS, WHEREIN ASSESSEE FOCUSES ON DEVELOPING E XISTING TECHNOLOGIES FOR DIRECT CUSTOMER APPLICATION. IT HA S BEEN SUBMITTED IN TP STUDY THAT ASSESSEE HAS A SMALL TEA M WHICH WORKS ON NEW INITIATIVE PROJECTS, WHEREIN ASSESSEE PRIMARILY CARRIES OUT LIMITED DOCUMENTATION OF DESIGNS AND LI MITED INTEGRATION. IN TP STUDY, ENTIRE PROJECT IS CONCEPT UALISED, DESIGNED AND CODIFIED BY UK ASSOCIATED ENTERPRISE. ASSETS OWNED PAGE 9 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 19. ASSESSEE OWNS ROUTINE ASSETS LIKE FURNITURE FIX TURES, OFFICE SPACE ETC. ANY INTANGIBLE DEVELOPED DURING THE PROC ESS OF RESEARCH CARRIED OUT BY ASSESSEE EXCLUSIVELY BELONG S TO THE ASSOCIATED ENTERPRISE. RISKS ASSUMED. 20. AS PER TP STUDY, ASSESSEE HAS BEEN HELD TO BE B EARING LIMITED RISK OF MARKET AND FOREIGN EXCHANGE RISKS T O THE EXTENT THAT, REMUNERATION RECEIVED BY ASSESSEE IS IN FOREI GN EXCHANGE. CHARACTERISATION: 21. BASED ON THE ABOVE DISCUSSIONS, ASSESSEE HAS BE EN CHARACTERISED TO BE WORKING ON A RISK MITIGATED ENV IRONMENT ON A CONTRACT BASIS STRICTLY PROVIDING SERVICES, AS PER NEEDS/REQUIREMENTS OF ASSOCIATED ENTERPRISE. BASED ON THE ABOVE FAR ANALYSIS OF ASSESSEE, WE SHA LL UNDERTAKE THE COMPARABILITY OF ASSESSEE WITH ALLEGED COMPARAB LES FOR INCLUSION/EXCLUSION. A. COMPARABLES SOUGHT FOR EXCLUSION: A) LARSEN AND TOUBRO INFOTECH LTD: 22. LD.AR SUBMITTED THAT THIS COMPARABLE WAS INCLUD ED BY LD.TPO IN FINALIST, AND OBJECTED BY ASSESSEE FOR VA RIOUS REASONS. LD.AR SUBMITTED THAT THIS COMPANY EARNS REVENUE FRO M SOFTWARE SOLUTIONS AND PRODUCTS WITHOUT THERE BEING SEGMENTA L DETAILS AVAILABLE. IT HAS BEEN SUBMITTED THAT LD.TPO ACCEPT ED THAT THIS COMPANY DEALS AND PRODUCTS, BUT STILL INCLUDED IN T HE LIST OF COMPARABLES TO BE COMPARED WITH A CONTRACT SOFTWARE SERVICE PROVIDER LIKE ASSESSEE. THIS COMPARABLE ALSO OWNS H UGE INTANGIBLES AND INCURS EXPENDITURE TO MAINTAIN THE BRAND NAME WHICH HAS EARNED 8 SUPERNORMAL PROFITS DURING THE Y EAR. PAGE 10 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 23. ON THE CONTRARY LD.CIT.DR SUBMITTED THAT IN CAS E OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD VS DCIT REPORTED IN (2019) 101 TAXMAN.COM 294 , THIS TRIBUNAL HAS SET ASIDE THIS COMPARABLE TO THE FILE OF LD.TPO FOR FRESH DECISION. SHE SUBMITTED THAT IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT LTD (SUPRA) THIS TRIBUNAL RELYING UPON THE CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTRE (P) LTD REPORTED IN (2018) 94 TAXMANN.COM 179 AND OBSERVATIONS MADE THEREIN. SHE THUS SUBMITTED THAT THIS COMPARAB LE SHOULD BE SENT BACK TO LD.TPO FOR VERIFICATION. 24. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE ALSO PER USED DECISIONS RELIED UPON BY LD. CIT DR IN ORDER TO UNDERSTAND TH E REASONING BEEN THIS TRIBUNAL FOR SETTING ASIDE THIS COMPARABLE TO LD.TPO. THERE IS NO DOUBT THAT THIS COMPARABLE IS A SOFTWAR E DEVELOPMENT SERVICE PROVIDER. HOWEVER, THIS COMPARABLE OWNS INT ANGIBLES, UNLIKE ASSESSEE WHO IS A CONTRACT SERVICE PROVIDER THAT FUNCTIONS IN ACCORDANCE WITH AND GUIDELINES GIVEN BY ITS ASSO CIATED ENTERPRISES. EVEN THOUGH ASSESSEE IS ALSO INVOLVED IN SOFTWARE DEVELOPMENT LIFE CYCLE, CONTRIBUTION THAT IT MAKES IN THE DEVELOPMENT IS VERY LIMITED TO THE EXTENT OF CERTAI N RESEARCH ACTIVITIES AND SUPPORT SERVICES THAT IT DOES AT THE BEHEST OF ITS ASSOCIATED ENTERPRISES. IN OUR VIEW THIS COMPARABLE UNDERTAKES COMPLETE RESPONSIBILITY OF THE ENTIRE LIFE-CYCLE IN VOLVED IN A SOFTWARE DEVELOPMENT WHEREAS ASSESSEE PARTICIPATES ONLY TO A LIMITED EXTENT ON BEHALF OF ITS ASSOCIATED ENTERPRI SES AT THEIR BEHEST. WHATEVER FUNCTIONS PERFORMED BY ASSESSEE I N PROVIDING IT PAGE 11 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 SERVICES UNDER THIS SEGMENT ARE VERY LIMITED AS COM PARED TO THIS COMPARABLE. 25. IN OUR CONSIDERED OPINION THE LTD FUNCTIONS PER FORMED BY ASSESSEE CANNOT BE COMPARED TO A FULL-FLEDGED SOFTW ARE DEVELOPMENT SERVICE PROVIDER LIKE THIS COMPANY. 26. ON THE BASIS OF ABOVE, WE DIRECT THE LD.AO/TPO TO EXCLUDE THIS COMPANY FROM FINAL LIST. B) PERSISTENT SYSTEMS LTD 27. IT HAS BEEN SUBMITTED THAT THIS COMPARABLE HAS BEEN INCLUDED BY LD.TPO EVEN THOUGH IT WAS OBJECTED BY A SSESSEE FOR FUNCTIONAL DISSIMILARITIES. LD.AR SUBMITTED THAT TH IS COMPANY IS ENGAGED IN BOTH PRODUCT AND DEVELOPMENT OF SOFTWARE DEVELOPMENT SERVICES AND THEREFORE CANNOT BE COMPAR ED TO A CONTRACT SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE ASSESSEE. IT IS ALSO BEEN SUBMITTED THAT THERE ARE SIGNIFICANT RESE ARCH AND DEVELOPMENT EXPENDITURE THAT RESULTED IN GLOBAL PAT ENTS AND COMPANY OWNS SIGNIFICANT INTANGIBLES WHICH HAS EITH ER BEEN DEVELOPED OR HAVE BEEN ACQUIRED FROM 3 RD PARTIES AS A PART OF GROWTH STRATEGY. LD.AR SUBMITTED THAT ON THESE PARA METERS THIS COMPARABLE CANNOT BE COMPARED TO A LIMITED SERVICE PROVIDER LIKE THAT OF ASSESSEE. ON THE CONTRARY, LD.CIT.DR SUBMITTED THAT, IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT. LTD VS DCIT REPORTED IN (2019) 101 TAXMAN.COM 294 , THIS TRIBUNAL SET ASIDE THIS COMPARABLE TO THE FILE OF LD.TPO FOR FRE SH DECISION. SHE SUBMITTED THAT IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PVT.LTD.,(SUPRA) THIS TRIBUNAL RELYING UPON THE CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTRE (P) PAGE 12 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 LTD REPORTED IN (2018) 94 TAXMANN.COM 179 AND OBSERVATIONS MADE THEREIN. SHE THUS SUBMITTED THAT THIS COMPARAB LE SHOULD BE SENT BACK TO LD.TPO FOR VERIFICATION. 28. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. WE HAVE ALSO PER USED DECISIONS RELIED UPON BY LD. CIT.DR IN ORDER TO UNDERSTAND TH E REASONING BEEN THIS TRIBUNAL FOR SETTING ASIDE THIS COMPARABLE TO LD.TPO. ADMITTEDLY THIS COMPARABLE PROVIDES SERVICES ACROSS THE ENTIRE LIFE-CYCLE OF SOFTWARE DEVELOPMENT WHICH ENABLES TH EM TO WORK FOR A WIDE RANGE OF CUSTOMERS. FROM THE ANNUAL REPORT O F THIS COMPANY IS ALSO OBSERVED THAT THIS COMPANY EARNS IN COME FROM ROYALTY FEE AND IS ENGAGED IN DEVELOPMENT OF PRODUC TS WHICH IS NOT AT ALL COMPARABLE WITH THE SERVICES PROVIDED BY ASSESSEE TO ITS ASSOCIATED ENTERPRISE. 29. ACCORDINGLY WE DIRECT THIS COMPARABLE TO BE EXC LUDED FROM FINALIST. B. COMPARABLES SOUGHT FOR INCLUSION A) AKSHAYA SOFTWARE TECHNOLOGIES PVT.LTD 30. IT HAS BEEN SUBMITTED BY LD.AR THAT THIS COMPANY I S FUNCTIONALLY SIMILAR WITH THAT OF ASSESSEE. REFERRI NG TO THE REPLY FILED BY THIS COMPARABLE UNDER SECTION 133(6) FORMI NG PART OF ASSESSMENT PROCEEDINGS BEFORE LD.TPO, LD.AR SUBMITT ED THAT THIS COMPARABLE SHOULD BE CONSIDERED IN FINALIST. L D.AR SUBMITTED THAT OBSERVATIONS OF DRP THAT THIS COMPAR ABLE IS ENGAGED IN PROVIDING PROFESSIONAL SERVICES, PROCURE MENT, INSTALLATION, IMPLEMENTATION, SUPPORT AND MAINTENAN CE, ERP PRODUCTS AND SERVICES IN INDIA AND OVERSEAS. THE LD .AR PAGE 13 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 SUBMITTED THAT, AS THESE WERE NOT IN THE NATURE OF SOFTWARE DEVELOPMENT, THE DRP DIRECTED ITS EXCLUSION. HE SUB MITTED THAT REVENUE EARNED BY THIS COMPARABLE IS SOFTWARE SERVI CES FOR WHICH SEGMENTAL INFORMATION IS ARE AVAILABLE. NOTE 29 AT PAGE 1 TO 10 REVEALS THAT THIS COMPANY EARNS FOREIGN CURRENCY FR OM EXPORT OF SOFTWARE SERVICES. 31. ON THE CONTRARY LD. CIT DR SUBMITTED THAT SUBMIT TED THAT IT IS AN ACCEPTED POSITION THAT THIS COMPANY IS PRO VIDING ERP PRODUCTS AND SERVICES. FURTHER IT IS ALSO AN ADMITT ED POSITION THAT THIS COMPANY IS OPERATING IN VARIANCE SEGMENTS INCLUDING SOFTWARE PRODUCT HOWEVER THE SEGMENTAL INFORMATION AVAILABLE IS ONLY AS INCOME FROM SOFTWARE SERVICES. LD.CIT DR SU BMITTED THAT GOING BY THE PARA METERS APPLIED BY ASSESSEE TO EXC LUDE PERSISTENT SYSTEMS INFOTECH LTD., THIS COMPARABLE A LSO DESERVES TO BE INCLUDED AS THERE IS SALE OF PRODUCTS FOR WHI CH SEGMENTAL INFORMATION IS ARE NOT AVAILABLE. HE ALSO REFER TO THE DECISION OF THIS TRIBUNAL IN CASE OF M/S METRICSTREAM INFOTECH (INDIA) PRIVATE LIMITED VS. DCIT IN ITA (TP) A NO. 1418 AND 273518/ 2017 FOR ASSESSMENT YEAR 2013-14 WHEREIN THIS COMPARABLE HAS BEEN UPHELD FOR EXCLUSION. 32. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. WE ALSO PERUSED DECISION RELIED UPON BY LD.CIT DR IN CASE OF M/S METRICSTREAM INFOT ECH (INDIA) PUT. LTD (SUPRA),. IT IS NOTED THAT THIS TRIBUNAL EXCLUDED THIS COMPAR ABLE FOR THE REASON THAT THE NATURE OF SERVICES ARE DOUBTFUL. BE FORE US LD. A.R. HAS NOT BEEN ABLE TO ESTABLISH THE CORRECT NAT URE OF BUSINESS PAGE 14 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 CARRIED OUT BY THIS COMPANY OR PROVIDE WITH SEGMENT AL INFORMATION IS IN RESPECT OF VARIOUS SERVICES PROVI DED BY THIS COMPANY TO ITS CLIENTELE. UNDER SUCH CIRCUMSTANCES WE ARE UNABLE TO APPRECIATE THE ARGUMENT ADVANCED BY LD. A R FOR INCLUSION OF THIS COMPARABLE. 33. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRI BUNAL IN CASE OF M/S METRICSTREAM INFOTECH (INDIA) PVT.LTD ( SUPRA), WE UPHOLD EXCLUSION OF THIS COMPARABLE. ACCORDINGLY THIS COMPARABLE DESERVES TO BE EXCLUDED FROM FINALIST. B) IDBI INTECH LTD 34. THIS COMPARABLE HAS BEEN EXCLUDED BY LD.TPO AS IT FAILS FOREX FILTER OF 75% OF SALES. LD. AR SUBMITTED THAT THIS COMPANY EARNS REVENUE ONLY FROM EXPORT OF SERVICES AND THER EFORE THE OBSERVATION OF LD.TPO IS ERRONEOUS TO THE FACTS. HE VEHEMENTLY SUBMITTED THAT THIS COMPARABLE SATISFIES ALL RELEVA NT FILTERS ADOPTED BY LD.TPO AND THEREFORE DESERVES TO BE INCL UDED. 35. LD. CIT DR PLACED RELIANCE ON ORDERS PASSED BY AUTHORITIES BELOW. 36. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 37. IT IS OBSERVED THAT THERE IS NO OTHER REASON EX CEPT FOR FAILING FOREX FILTER OF 75% OF SALES FOR REJECTING THIS COM PANY BY LD.TPO. FROM ANNUAL REPORT OF THIS COMPANY PLACED AT PAGE 1 095. IT IS OBSERVED THAT THIS COMPARABLE EARNS REVENUE, ONLY FROM EXPORT OF SERVICES AMOUNTING TO RS.181,82,05,708/- OUT OF TOTAL REVENUE PAGE 15 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 EARNED AMOUNTING TO RS.184,35,26,541/- AND THAT THE REVENUE EARNED FROM EXPORT OF SERVICES AMOUNTS TO MORE THAN 75% OF TOTAL REVENUE. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND AN Y REASON TO EXCLUDE THIS COMPARABLE AS NEITHER LD.TPO NOR HAS R AISED ANY OBJECTION REGARDING ITS FUNCTIONAL SIMILARITY. 38. WE THEREFORE DIRECT LD. AO/TPO TO BE INCLUDED T HIS COMPARABLE IN FINAL LIST. C) SPRY RESOURCES INDIA PVT.LTD., 39. THIS COMPARABLE WAS EXCLUDED BY LD.TPO BY OBSER VING THAT THIS COMPANY HAS REPORTED TRADE RECEIVABLES AT RS.7 .49 CRORES FOR YEAR UNDER CONSIDERATION WHEREAS, IN IMMEDIATELY PR ECEDING YEAR, TOTAL TURNOVER WAS RS.3.45 CRORES ONLY. LD.AR SUBMITTED THAT, THERE IS NO OBJECTION RAISED BY LD.TPO REGARD ING ITS FUNCTIONAL SIMILARITIES. HE FURTHER SUBMITTED THAT MERELY BECAUSE TRADE RECEIVABLES FOR YEAR UNDER CONSIDERATION ARE MORE THAN WHAT WAS IN THE PRECEDING YEAR, EXCLUSION OF THIS COMPARABLE IS NOT APPROPRIATE. 40. LD.CIT DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. 41. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 42. WE ARE OF OPINION THAT THIS COMPARABLE NEEDS TO BE RE- LOOKED INTO BY LD.AO/TPO, AS THIS HAS NOT BEEN RAIS ED BEFORE DRP AND NOTHING HAS BEEN FILED BEFORE DRP IN RESPEC T OF THIS COMPARABLE. LD.CIT DR DID NOT OBJECT FOR CONSIDERIN G THIS COMPARABLE AND THEREFORE IN THE INTEREST OF JUSTICE , WE DIRECT PAGE 16 OF 17 IT(TP)A NO.2503/BANG/2017 A. Y : 2013 14 LD.AO/TPO TO LOOK INTO EXPORT INCOME EARNED BY THIS COMPARABLE. 43. ACCORDINGLY THIS COMPARABLE IS SET ASIDE TO LD. AO/TPO FOR DUE VERIFICATION. 44. WE OBSERVE THAT, ON EXCLUSION OF COMPARABLES AL LEGED BY LD.AR, THE MARGIN OF COMPARABLES IS WITHIN + 5% RANGE. WE THEREFORE DO NOT FIND IT NECESSARY TO ADJUDICATE UP ON COMPARABILITY OF CG-VAK SOFTWARE & EXPORTS LTD., RA ISED IN ADDITIONAL GROUNDS. 45. ACCORDINGLY, MODIFIED GROUND NO.3 RAISED BY AS SESSEE STANDS PARTLY ALLOWED AS INDICATED HEREINABOVE AND ADDITIONAL GROUNDS STANDS DISMISSED AS IT IS ACADEM IC IN NATURE. 46. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 19 TH MARCH, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TR IBUNAL, BANGALORE.