M/s Advice America Software Development Centre Pvt Ltd, Bangalore V. Income TAx Officer Ward-1(1)(1), Bangalore

ITA 2531/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4811 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 29-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARINDER KUMAR
• Assessee Lawyers: SACHIN JOLLY
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 2531/BANG/2017 ASSESSMENT YEAR : 2013 - 14 M/S. ADVICE AMERICA SOFTWARE DEVELOPMENT CENTER PVT. LTD., # 23 & 24, 3 RD FLOOR, AMR TECH-PARK, BESIDE OXFORD COLLEGE, HOSUR MAIN ROAD, BENGALURU 560 068. PAN: AAECA 2942E VS. THE INCOME TAX OFFICER, WARD 1(1)(1), BENGALURU. APP ELLANT RESPONDENT A PPELLANT BY : SHRI SACHIN JOLLY, ADVO CATE RE SPONDENT BY : SHRI HARINDER KUMAR, CIT DATE OF HEARING : 07 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 23 . 0 5 .201 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER IT(TP) A.NO.2531/BANG/2017 IS AN APPEAL BY THE AS SESSEE AGAINST THE ORDER DATED 28/09/2017 OF INCOME TAX OFFICER, W ARD-1(1)(1), BENGALURU IN RESPECT OF AN ORDER PASSED U/S 143(3) R.W.S 144 C(13) OF THE INCOME TAX ACT, 1961 (ACT) RELATING TO ASSESSMENT YEAR 2012- 13 RESPECTIVELY. 2. THE ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO THE CORRECTNESS OF DETERMINATION OF ARMS LENGTH PR ICE IN RESPECT OF INTERNATIONAL TRANSACTION OF RENDERING OF SOFTWARE DEVELOPMENT SERVICES AND INFORMATION TECHNOLOGY ENABLED SERVICES BY THE ASSESSEE TO ITS IT(TP)A NO.2531/BANG/2017 PAGE 2 OF 15 ASSOCIATED ENTERPRISE(A.E). THE ASSESSEE IS A COMP ANY ENGAGED IN THE BUSINESS OF PROVIDING CONTRACT SOFTWARE DEVELOPMENT SERVICES (SWD SERVICES) TO ITS AE. THE TRANSACTION OF RENDERING SOFTWARE DEVELOPMENT SERVICES TO ITS AE WAS AN INTERNATIONAL TRANSACTION . AS PER THE PROVISIONS OF SEC.92 OF THE ACT, INCOME FROM INTERNATIONAL TRANSA CTION HAS TO BE COMPUTED HAVING REGARD TO ARMS LENGTH PRICE (ALP). 3. THE DETAILS OF THE INTERNATIONAL TRANSACTION BET WEEN THE ASSESSEE AND ITS AE IN AY 2012-13 WAS AS FOLLOWS: PARTICULARS AMOUNT IN RS. PROVISION OF SWD SERVICES 357,68,61,693/- PROVISION OF ITES 104,03,22,271/- 4. IN THIS APPEAL, WE ARE CONCERNED ONLY WITH THE I NTERNATIONAL TRANSACTION OF PROVIDING SWD SERVICES BY THE ASSESS EE TO ITS AE. IT IS NOT IN DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE THA T THE TRANSACTION NET MARGIN METHOD (TNMM) WAS THE MOST APPROPRIATE METHO D (MAM) FOR DETERMINATION OF ALP AND THAT THE PROFIT LEVEL INDI CATOR TO BE ADOPTED FOR COMPARISON OF THE ASSESEES PROFIT WITH THAT OF COM PARABLE COMPANIES WAS OPERATING PROFIT/TOTAL COST (OP/TC). THE OP/TC OF THE ASSESSEE WAS 13.09%. THE ASSESSEE IN ITS TP STUDY SELECTED 11 C OMPARABLE COMPANIES WHOSE ARITHMETIC MEAN OF OP/TC WAS ARRIVED AT LESS THAN THE OP/TC OF THE ASSESSEE. SINCE THE PROFIT MARGIN OF THE ASSESSEE W AS MORE THAN THE ARITHMETIC MEAN OF OP/TC OF THE 11 COMPARABLES SELE CTED BY THE ASSESSEE, IT WAS CLAIMED BY THE ASSESSEE THAT THE P RICE CHARGED BY IT IN THE INTERNATIONAL TRANSACTION WAS AT ARMS LENGTH. THE TRANSFER PRICING OFFICER (TPO) TO WHOM THE DETERMINATION OF ALP WAS REFERRED BY THE AO, ACCEPTED 2 OUT OF THE 11 COMPARABLE COMPANIES SUGGE STED IN THE TP STUDY BY THE ASSESSEE AS COMPARABLE WITH THE ASSESSEE. T HE TPO ON HIS OWN IT(TP)A NO.2531/BANG/2017 PAGE 3 OF 15 SELECTED 5 OTHER COMPANIES AS COMPARABLE COMPANIES WITH THE ASSESSEE. THUS A FINAL SET OF 7 COMPARABLE COMPANIES WAS CHOS EN BY THE TPO AS COMPARABLE COMPANIES. THE ARITHMETIC MEAN OF PROFI T MARGIN OF THESE COMPANIES AFTER AND BEFORE ADJUSTMENT TOWARDS WORKI NG CAPITAL ADJUSTMENT WAS AS FOLLOWS:- COMPARABLES SELECTED BY THE TPO AND THEIR ARITHMETI C MEAN: SL. NO. NAME OF THE COMPANY NCP MARGINS AS PER TPO ORDER (%) 1 CG-VAK SOFTWARE EXPORTS LTD. 20.54% 2 ICRA TECHNO ANALYTICS LTD. 17.10% 3 LARSEN & TOUBRO INFOTECH LTD. 26.06% 4 MINDTREE LTD. (SEG) 18.19% 5 PERSISTENT SYSTEMS LTD. 28.27% 6 R.S.SOFTWARE (INDIA) PVT.LTD. 17.41% 7 TECH MAHINDRA LTD. (SEG.) 18.72% AVERAGE MARGIN 20.90% 5. BASED ON THE ABOVE AVERAGE ARITHMETIC MEAN OF PR OFIT MARGIN OF THE COMPARABLE COMPANIES, THE TPO COMPUTED THE ALP OF T HE INTERNATIONAL TRANSACTION OF RENDERING OF SWD SERVICES BY THE ASS ESSEE TO ITS HOLDING COMPANY AS FOLLOWS: COMPUTATION OF ARMS LENGTH PRICE BY THE TPO AND TH E ADJUSTMENT MADE: ARMS LENGTH MEAN MARGIN 20.90% LESS: WORKING CAPITAL ADJUSTMENT 0.33% ADJUSTED MEAN MARGIN OF THE COMPARABL ES 20.57% OPERATING COST RS. 14,60,40,932/ - ARMS LENGTH PRICE (ALP) 121.71% OF OPERATING COST RS. 17,60,81,552/- PRICE RECEIVED RS. 16,51,55,972/ - IT(TP)A NO.2531/BANG/2017 PAGE 4 OF 15 VARIATION IN PRICE 3% OF PRICE RECEIVED 1,09,25,580/- 49,54,679/- SHORT FALL BEING ADJUSTMENT U/S. 92CA RS. 1,09,25,5 80/- 6. THE DIFFERENCE BETWEEN THE PRICE CHARGED BY THE ASSESSEE AND THE ALP DETERMINED BY THE TPO VIZ., RS.1,09,25,580/- WA S ADDED TO THE TOTAL INCOME BY THE AO IN HIS DRAT ASSESSMENT ORDER DATED 5.12.2016 AS ADDITION ON ACCOUNT OF SHORTFALL BEING ADJUSTMENT U/S.92CA O F THE ACT. 7. THE ASSESSEE FILED OBJECTIONS TO THE DRAFT AS SESSMENT ORDER BY THE AO BEFORE THE DISPUTES RESOLUTION PANEL (DRP). THE DRP IN ITS DIRECTIONS DATED 1.9.2014 REJECTED THE OBJECTIONS OF THE ASSES SEE AND CONFIRMED THE ADDITION ON ACCOUNT OF SHORTFALL BEING ADJUSTMENT U /S.92CA OF THE ACT. THE AO PASSED A FAIR ORDER OF ASSESSMENT MAKING THE ADD ITION ON ACCOUNT OF DETERMINATION OF ALP BY THE TPO. AGGRIEVED BY THE ADDITION MADE IN THE FAIR ORDER OF ASSESSMENT, THE ASSESSEE HAS RAISED S EVERAL GROUNDS OF APPEAL CHALLENGING THE ADDITION ON SEVERAL COUNTS. HOWEVER, AT THE TIME OF HEARING OF THE APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF 3 OUT OF THE 7 COMPARABLES CHOSEN BY THE TPO VI Z., (I) CG VAK SOFTWARE EXPORTS LTD., (II) LARSEN & TOUBRO INFOTECH LTD., ( III) PERSISTENT SYSTEMS LTD., ARE EXCLUDED AND IF TWO COMPARABLE SUGGESTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY VIZ., (I) CIGNITI TECH LTD. AND (II) HELIOS & MATHESONS LTD.,ARE ACCEPTED AND IF THE ARITHMETIC MEAN OF THE PROFIT MARGIN OF THE REMAINING 6 COMPANIES WHEN COMPARED WITH THE PRICE CHARGED BY THE ASSESSEE, THEN THE PRICE CHARGE BY THE ASSESSEE WOU LD BE AT ARMS LENGTH. THE GRIEVANCE OF THE ASSESSSEE IN THIS REGARD IS PR OJECTED BY THE ASSESSEE IN GROUNDS NO. 6 TO 8 OF ITS APPEAL. THE GRIEVANCE OF THE ASSESSEE THAT THE CORRECT MARGINS OF SOME OF THE COMPARABLE COMPANIES WERE NOT COMPUTED IT(TP)A NO.2531/BANG/2017 PAGE 5 OF 15 BY THE TPO WILL GET ADDRESSED BY DIRECTING THE TPO TO CONSIDER THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD. 8. BEFORE WE DEAL WITH THE ARGUMENTS FOR EXCLUSION AND INCLUSION OF COMPANIES FROM THE LIST OF COMPARABLE COMPANIES, WE SHALL BRIEFLY RECAPITULATE THE STATUTORY PROVISIONS THAT ARE APPL ICABLE FOR EXCLUSION OF INCLUSION OF COMPARABLE COMPANIES. SECTION 92(L) O F THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN 'INTERNATIONAL TRANSACTI ON' SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THERE IS N O DISPUTE IN THE PRESENT CASE THAT THE PROVISIONS OF SEC.92(1) OF THE ACT AR E APPLICABLE TO THE TRANSACTION OF RENDERING SWD SERVICES BY THE ASSESS EE TO ITS AE. THE TERM 'ARM'S LENGTH PRICE' HAS BEEN DEFINED IN CLAUS E (II) OF SECTION 92F OF THE ACT, TO MEAN A PRICE WHICH IS APPLIED OR PROPOS ED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER THAN ASSOCIATED E NTERPRISES IN UNCONTROLLED CONDITIONS. SECTION 92C( 1) OF THE ACT PROVIDES THAT THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANS ACTION SHALL BE DETERMINED BY ANY OF THE SEVERAL METHODS, SPECIFIED THEREIN, H AVING REGARD TO THE NATURE OF THE TRANSACTION OR CLASS OF TRANSACTION O R CLASS OF ASSOCIATED PERSON OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SU CH OTHER RELEVANT FACTORS AS THE CENTRAL BOARD OF DIRECT TAXES (HEREI NAFTER REFERRED TO AS 'BOARD') MAY PRESCRIBE. RULE 10B(1) OF THE INCOME TAX RULES, 1962 (RULES) PROVIDES THAT FOR THE PURPOSES OF SUB-SECTI ON (2) OF SECTION 92C, THE ARMS LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE METHODS, BEING THE MOST AP PROPRIATE METHOD(MAM) PRESCRIBED THEREIN. TNMM IS THE MAM IN THE PRESENT CASE. RULE 10B(1) (E) OF THE RULES LAYS DOWN THE FOLLOWIN G CRITERIA FOR COMPARISON VIZ., ( I ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FR OM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPR ISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFFECTED OR ASS ETS EMPLOYED OR TO IT(TP)A NO.2531/BANG/2017 PAGE 6 OF 15 BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO A NY OTHER RELEVANT BASE; ( II ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; ( III ) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE ( II ) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BE TWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; ( IV ) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND REFERRED TO IN SUB-CLAUSE ( I ) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT M ARGIN REFERRED TO IN SUB-CLAUSE ( III ); ( V ) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TA KEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. RULE 10B(2) SPECIFICALLY PROVIDES THAT FOR THE PURP OSES OF SUB-RULE (1), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE F OLLOWING, NAMELY: ( A ) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TRAN SFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; ( B ) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSE TS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIV E PARTIES TO THE TRANSACTIONS; ( C ) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; ( D ) CONDITIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPH ICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONO MIC DEVELOPMENT IT(TP)A NO.2531/BANG/2017 PAGE 7 OF 15 AND LEVEL OF COMPETITION AND WHETHER THE MARKETS AR E WHOLESALE OR RETAIL. RULE 10B(3) OF THE RULES LAYS DOWN WHEN UNCONTROLLE D TRANSACTION CAN BE COMPARED WITH AN INTERNATIONAL TRANSACTION AND IT LAYS DOWN THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF ( I ) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE TRAN SACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PR ICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSA CTIONS IN THE OPEN MARKET; OR ( II ) REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO EL IMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. KEEPING IN MIND THE ABOVE LEGAL PROVISIONS, WE WILL NOW DEAL WITH THE PLEA OF THE ASSESSEE FOR EXCLUSION OF THREE OF THE COMPA RABLE COMPANIES SELECTED BY THE TPO VIZ., (I) CG VAK SOFTWARE EXPOR TS LTD., (II) LARSEN & TOUBRO INFOTECH LTD., (III) PERSISTENT SYSTEMS LTD. AND FOR INCLUSION OF TWO COMPANIES VIZ., (I) CIGNITI TECH LTD. AND (II) HEL IOS & MATHESONS LTD., IN THE LIST OF COMPARABLE COMPANIES. 9. CG VAK SOFTWARE EXPORTS LTD.: THE FOLLOWING ARE THE ARGUMENTS OF THE ASSESSEE FOR EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES VIZ., (I) THIS COMPANY OWNS INTANGIBLES WHICH CONSTITUTES ABOUT 5.60% OF ITS TOTAL REVENUE WHEREAS THE ASSESSEE DOE S NOT OWN ANY INTANGIBLES. (II) THIS COMPANY PROVIDES ARRAY OF S ERVICES SUCH AS SWD SERVICES, SOFTWARE PRODUCTS AND BPO SERVICES WHEREA S THE ASSESSEE IS ENGAGED ONLY IN PROVIDING SWD SERVICES. THIS COMPA NY ALSO DOES RESEARCH & DEVELOPMENT ACTIVITIES WHEREAS THE ASSES SEE DOES NOT DO ANY SUCH ACTIVITY. (III) THE SEGMENTAL DETAILS OF THE VARIOUS SEGMENTS OF THIS COMPANY ARE NOT AVAILABLE IN THE PUBLIC DOMAIN AND ONLY GEOGRAPHICAL IT(TP)A NO.2531/BANG/2017 PAGE 8 OF 15 SEGMENT DETAILS ARE AVAILABLE. THE TPO HAS ALSO NO T BROUGHT ANY MATERIAL ON RECORD TO COMPARE THE SWD SERVICES SEGMENT OF TH IS COMPANY WITH THAT OF THE ASSESSEE BUT HAS COMPARED THE OVERALL PROFIT ABILITY OF THIS COMPANY. (IV) IN AY 2012-13 THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES BY THE TPO HIMSELF IN ASSESSEES OWN CASE ON THE GROUND THAT THIS COMPANY IS INTO PRODUCT DEVELOPMENT, PRODUCT M AINTENANCE, PRODUCT TESTING AND BPO SERVICES HENCE FUNCTIONALLY DIFFERE NT. THE DRP IN AY 2012-13 HAD ALSO UPHELD SUCH EXCLUSION. 10. A COPY OF THE ANNUAL REPORT OF THIS COMPANY FOR THE YEAR 2013 IS PLACED AT PAGE-222 OF THE PAPER BOOK VOLUME-II. TH E SIGNIFICANT ACCOUNTING POLICIES GIVEN AS ANNEXURE TO NOTES FORM ING PART OF THE ACCOUNT, GIVES THE REVENUE RECOGNITION POLICY FOLLOWED BY TH IS COMPANY. REVENUE FROM SWD SERVICES, PRODUCTS ARE RECOGNIZED WHEN SER VICES ARE RECOGNIZED ON COMPLETION OF CONTRACT OR STAGE OF COMPLETION AS PER APPLICABLE TERMS AND CONDITIONS AGREED WITH CUSTOMERS. IT IS THIS S IGNIFICANT ACCOUNTING POLICY THAT IS THE BASIS FOR THE ASSESSEE TO CONTEN D THAT THIS COMPANY ALSO DEVELOPS SOFTWARE PRODUCTS AND IS NOT ONLY IN THE B USINESS OF RENDERING SWD SERVICES AND HENCE NOT COMPARABLE. IN A REPLY TO THE NOTICE U/S.133(6) OF THE ACT ISSUED BY THE TPO, THIS COMPA NY HAS RESPONDED BY POINTING OUT THAT IT DEVELOPS CUSTOM APPLICATION DE VELOPMENT SERVICES TO CLIENT. THE TPO HAS RELIED ON THE REPLY BY THIS CO MPANY TO COME TO A CONCLUSION THAT THE SOFTWARE PRODUCTS REFERRED TO I N THE ACCOUNTING POLICY IS PRODUCTS DEVELOPED FOR THE CLIENT. DEVELOPING SOFT WARE PRODUCTS FOR CLIENTS WOULD ALSO BE IN THE NATURE OF RENDERING SOFTWARE D EVELOPING SERVICES. WE AGREE WITH THIS REASONING OF THE TPO WHICH WAS CONF IRMED BY THE DRP. 11. AS FAR AS THE OBJECTION BY THE ASSESSEE THAT TH IS COMPANY OWNS INTANGIBLES, IT IS SEEN FROM THE ORDER OF THE TPO T HAT THE INTANGIBLES ARE NOTHING BUT OPERATING SYSTEMS, OFFICE TOOLS, DEVELO PMENT TOOLS, TESTING TOOLS ETC., THAT ARE USED IN THE PROCESS OF RENDERI NG SWD SERVICES BY THE IT(TP)A NO.2531/BANG/2017 PAGE 9 OF 15 ASSESSEE AND THEREFORE CANNOT BE THE BASIS TO HOLD THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE. WE AGREE WITH THIS REASONING OF THE TPO WHICH WAS CONFIRMED BY THE DRP . 12. AS FAR AS THE OBJECTION THAT THIS COMPANY IS IN TO R & D ACTIVITIES, WE FIND THAT THIS HAS ALSO BEEN EXPLAINED BY THE TPO A S PRE-DEFINED OR RE- USABLE CODES, WHICH WOULD SIMPLIFY AND STANDARDIZE THE PROCESS OF SOFTWARE DEVELOPMENT. WE ARE OF THE VIEW THAT TH IS OBJECTION OF THE ASSESSEE IS THEREFORE CANNOT BE THE BASIS TO HOLD T HAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THE ASSESSEE. 13. REGARDING NON AVAILABILITY OF SEGMENTAL RESULTS , THE TPO HAS BROUGHT ON RECORD MATERIAL TO SHOW THAT THE SEGMENT AL DETAILS OF THE TWO SEGMENTS VIZ., SWD SERVICES AND BPO ARE AVAILABLE I N THE ANNUAL REPORT AND THAT BPO SEGMENT IS ONLY 1.6% OF THE TOTAL REVE NUE FROM BOTH THE AFORESAID SEGMENTS. THE OTHER ARGUMENT OF THE ASSES SEE THAT THE TPO HAS HIMSELF REJECTED THIS COMPANY AS A COMPARABLE COMPA NY IN ASSESSEES CASE FOR EARLIER AY IS NOT SUBSTANTIATED WITH ANY S UPPORTING DOCUMENT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS C OMPANY HAS TO BE RETAINED AS COMPARABLE COMPANY. 14. LARSEN & TOUBRO INFOTECH LTD. AS FAR AS THIS COMPANY IS CONCERNED, THIS COMPANY ALSO RENDERS SWD SERVICES. IN PAGE-15 OF THE TPOS ORDER, THE FUNCTIONAL SIMILARITY OF THIS COMP ANY WITH THAT OF THE ASSESSEE HAS BEEN TABULATED BY THE TPO. THE OBJECT IONS OF THE ASSESSEE FOR REJECTING SUCH OBJECTIONS HAS BEEN SET OUT AT PAGE-21 TO 23 OF THE TPOS ORDER. THE DRP UPHELD THE ORDER OF THE T PO INCLUDING THIS COMPANY AS A COMPARABLE COMPANY. 15. THE GROUNDS ON WHICH THE ASSESSEE SEEKS EXCLUSI ON OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES IS ON THE GROUND THAT (I) THIS COMPANY IS FUNCTIONALLY DISSIMILAR TO THAT OF SWD SERVICE PROVIDER IT(TP)A NO.2531/BANG/2017 PAGE 10 OF 15 AND THAT IT DEVELOPS SOFTWARE PRODUCTS ; (II) SEGME NTAL INFORMATION OF VARIOUS SEGMENTS ARE NOT AVAILABLE; (III) SCALE OF OPERATION AND PRESENCE OF INTANGIBLES, BRAND ETC. 16. AS FAR AS FUNCTIONAL DISSIMILARITY OF THIS COMP ANY IS CONCERNED, THIS COMPANY ALSO RENDERS SWD SERVICES IN THREE CLUSTERS , IN THE FORM OF SERVICE CLUSTER FOR BANKING, FINANCIAL SERVICES, IN SURANCE, MEDIA & ENTERTAINMENT AND TRAVEL & LOGISTICS), INDUSTRIAL C LUSTER COMPRISING OF ALL MANUFACTURING SECTORS, TELECOM CLUSTER RELATING TO PRODUCT ENGINEERING SERVICES. AS RIGHTLY HELD BY THE DRP ALL THE ABOVE ACTIVITIES ARE SWD SERVICES. THE FACT THAT THE ASSESSEE MAINLY CATERS TO SWD SERVICES IN BANKING INDUSTRY CANNOT BE THE BASIS TO HOLD THAT T HIS COMPANY AND THE ASSESSEE ARE NOT FUNCTIONALLY COMPARABLE. THE DIFF ERENCE POINTED OUT BY THE ASSESSEE ARE NOT MATERIAL DIFFERENCES IN TERMS OF RULE 10B(2) OF THE RULES. 17. AS FAR AS THE OBJECTION THAT THIS COMPANY APA RT FROM RENDERING SWD SERVICES IS ALSO ENGAGED IN DEVELOPING ITS OWN SOFTWARE PRODUCTS, THE TPO HAS BROUGHT OUT IN HIS ORDER THAT THE PRODU CTS DEVELOPED BY THE ASSESSEE ARE PLATFORMS USED BY THIS COMPANY TO ENAB LE DESIGN AND DEVELOPING SOFTWARE FOR USE BY A CUSTOMER IN PARTIC ULAR INDUSTRY. FOR E.G., THE PRODUCT UNITRAX IS A SOFTWARE THAT ENABLES RECO RDING KEEPING ENABLING FUND AND INSURANCE COMPANIES TO MANAGE THE ADMINISTRATION OF THEIR WEALTH MANAGEMENT. BASED ON THIS SOFTWARE TH E ASSESSEE DESIGNS SOFTWARE FOR SPECIFIC NEEDS OF A CUSTOMER. NO PROD UCT IS SOLD OFF THE SHELF BY THE COMPANY. HENCE THE OBJECTION OF THE ASSESSE E THAT THIS COMPANY IS A SOFTWARE PRODUCT COMPANY WAS RIGHTLY HELD BY THE TPO/DRP TO BE NOT VALID. IT(TP)A NO.2531/BANG/2017 PAGE 11 OF 15 18. THE OBJECTION WITH REGARD TO ABSENCE OF SEGMENT AL INFORMATION HAS BEEN MET BY THE TPO BY POINTING OUT THAT THE WHOLE SEGMENT OF SWD SERVICES WAS CONSIDERED FOR COMPARABILITY. THE OBJ ECTION OF THE ASSESSEE IN THIS REGARD IS NOT SPECIFIC AND IS VAGUE AND IS ON AN ASSUMPTION THAT THIS COMPANY OPERATES IN THREE SEGMENTS. THE TPO HAS PO INTED OUT THAT THERE IS ONLY ONE SEGMENT AND HENCE THIS OBJECTION IN OUR VIEW WAS RIGHTLY DISREGARDED BY THE REVENUE AUTHORITIES. 19. AS FAR AS THE OBJECTIONS REGARDING PRESENCE OF INTANGIBLES, IT IS SEEN FROM THE ORDER OF THE TPO THAT THE INTANGIBLES ARE NOTHING BUT OPERATING SYSTEMS, OFFICE TOOLS, DEVELOPMENT TOOLS, TESTING T OOLS ETC., THAT ARE USED IN THE PROCESS OF RENDERING SWD SERVICES BY THE ASSESS EE AND THEREFORE CANNOT BE THE BASIS TO HOLD THAT THIS COMPANY IS FU NCTIONALLY NOT COMPARABLE WITH THE ASSESSEE. AS FAR AS THE OBJECT ION REGARDING PRESENCE OF BRAND VALUE IS CONCERNED, IT HAS BEEN HELD BY TH E TPO THAT THERE IS NO INTANGIBLE IN THE FORM OF BRAND OWNED BY THIS COMPA NY. THE SCALE OF OPERATIONS OF THIS COMPANY CANNOT BE THE BASIS TO H OLD THAT THIS COMPANY IS NOT COMPARABLE WHEN FUNCTIONALLY IT IS FOUND TO BE COMPARABLE. 20. NONE OF THE OBJECTIONS RAISED BY THE ASSESSEE M EET THE CRITERIA FOR EXCLUDING THIS COMPANY IN TERMS OF COMPARABILITY CR ITERIA LAID DOWN IN RULE 10B(2) OF THE RULES. WE THEREFORE UPHOLD THE INCLU SION OF THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 21. PERSISTENT SYSTEMS LTD.: THE OBJECTION OF THE ASSESSEE FOR EXCLUDING THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES IS ON THE GROUND THAT THIS COMPANY IS ALSO ENGAGED IN MAKING SOFTWARE PRODUCTS AND IS NOT ONLY IN PROVIDING SWD SERVICES AND THAT THE SEGMENTAL DETAILS OF REVENUE FROM SALE OF SOFTWARE PRODUCTS AND REVENUE FROM RENDERING SWD SERVICES ARE NOT AVAILABLE. THIS OBJECTION IS EXAM INED IN THE LIGHT OF THE ANNUAL REPORT OF THIS COMPANY FOR 2013 WHICH IS AT PAGES 648 TO 841 OF IT(TP)A NO.2531/BANG/2017 PAGE 12 OF 15 VOLUME-III PAPER BOOK FILED BY THE ASSESSEE. THE L EARNED AR POINTED OUT THAT EVEN IN THE ANNUAL REPORT THIS COMPANY IS STAT ED TO BE IN THE BUSINESS OF DEVELOPING SOFTWARE PRODUCTS. THE REFERENCE BY THE LEARNED AR IS TO THE CONSOLIDATED ACCOUNTS, I.E., INCLUSIVE OF THE ACTIV ITIES OF THE GROUP (AE COMPANIES). THE UNCONSOLIDATED ACCOUNTS OF THIS C OMPANY IS AT PAGE 787 OF VOLUME-III PAPER BOOK FILED BY THE ASSESSEE. TH E PROFIT & LOSS ACCOUNT IS AT PAGE-793 OF VOLUME-III PAPER BOOK FILED BY TH E ASSESSEE. INCOME FROM OPERATION IS RS.9967.53 MILLION. NOTE 21 TO T HE NOTE ON ACCOUNTS GIVES THE BREAK OF THIS REVENUE WHICH IS AT PAGE- 8 14 AND IT IS FULLY FROM PROVIDING SOFTWARE DEVELOPMENT SERVICES. THIS REVE NUE HAS BEEN COMPARED WITH COSTS AND THE OP/TC OF THIS COMPANY A RRIVED AT BY THE TPO. NOTE 26 TO THE NOTES ON ACCOUNTS GIVES THE SEGMENTA L BREAK-UP AND THE SEGMENTS ARE ALL SOFTWARE SERVICES SEGMENT AND THER E IS NO PRODUCT SEGMENT AT ALL. THE LEARNED AR PLACED RELIANCE ON DECISIONS WHERE THIS COMPANY WAS EXCLUDED FROM THE LIST OF COMPARABLE CO MPANIES. THESE DECISIONS DO NOT RELATE TO AY 13-14. WE CAN THEREF ORE SAFELY PROCEED ON THE BASIS THAT THOSE DECISIONS ARE RENDERED ON THEI R FACTS PREVAILING IN THE RELEVANT AY. AS FAR AS THE PRESENT AY 13-14 IS CON CERNED, THE PLEA OF THE ASSESSEE FOR EXCLUSION OF THIS COMPANY ON THE GROUN D THAT IT IS A SOFTWARE PRODUCT COMPANY IS HELD TO BE WITHOUT ANY BASIS AND IS REJECTED. NO OTHER ARGUMENTS WERE ADVANCED FOR EXCLUSION OF THIS COMPA NY. HENCE, WE UPHOLD THE ORDERS OF THE REVENUE AUTHORITIES INCLUD ING THIS COMPANY IN THE LIST OF COMPARABLE COMPANIES. 22. CIGNITI TECHNOLOGIES LTD. :- THIS COMPANY WAS EXCLUDED BY THE TPO FROM THE LIST OF COMPARABLE COMPANIES FOR THE R EASON THAT THIS COMPANY ONLY PERFORMS TESTING OF SOFTWARE ALREADY D EVELOPED AND CANNOT BE SAID TO BE ENGAGED IN PROVIDING SWD SERVICES. T HE PLEA OF THE ASSESSEE IS THAT EVEN THE ASSESSEE DOES TESTING OF SOFTWARE IT DEVELOPS AND THEREFORE THE BASIS ON WHICH THE TPO REJECTED T HIS COMPANY AS A IT(TP)A NO.2531/BANG/2017 PAGE 13 OF 15 COMPARABLE COMPANY IS NOT CORRECT. IT IS THE PLEA O F THE ASSESSEE THAT SOFTWARE TESTING IS AN INTEGRAL PART OF SOFTWARE DE VELOPMENT CYCLE. THIS CONTENTION OF THE ASSESSEE IS NOT CORRECT. THE QUE STION THEREFORE WOULD BE AS TO WHETHER SOFTWARE TESTING SERVICES WOULD BE EQ UIVALENT TO SOFTWARE DEVELOPMENT SERVICES. SOFTWARE TESTING IS ONLY PAR T OF SOFTWARE DEVELOPMENT LIFE CYCLE. IT CANNOT BE EQUATED WITH SOFTWARE DEVELOPMENT SERVICES. THE TPO IN OUR VIEW RIGHTLY EXCLUDED THI S COMPANY FOR COMPARABILITY PURPOSES. THE LEARNED DR ALSO BROUGH T TO OUR NOTICE A DECISION OF THE ITAT BANGALORE BENCH RENDERED IN TH E CASE OF TRIOLOGY E- BUSINESS SOFTWARE LTD. VS. DCIT (2013) 29 TAXMANN.C OM 310(BANG-TRIB) WHEREIN IDENTICAL VIEW HAS BEEN TAKEN ON AN IDENTIC AL ISSUE. WE THEREFORE UPHOLD EXCLUSION OF THIS COMPANY AS A COMPARABLE CO MPANY. 23. HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD.:- THE REVENUE AUTHORITIES EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT THE FINANCIAL RESULTS OF THIS COMPANY AVAILABLE ARE FOR DIFFERENCE ACCOUNTING YEAR. THE PLEA OF THE LEARNED AR IS THAT IF THE FINANCIALS OF THIS COMPANY IS AVAILABLE FOR THE RELEVANT ACCOUNTING YEAR THEN THE SAME SHOULD BE CONSIDERED BY THE TPO. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD PLACED RELI ANCE ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MERCER CONSULTING (INDIA) PVT.LTD. WHEREIN IT WAS HELD THA T IF IT IS POSSIBLE TO DETERMINE THE VALUE OF THE TRANSACTIONS DURING THE CORRESPONDING PERIODS, THE PURPOSE OF COMPARABILITY WOULD BE SERVED. THE QUESTION IN EACH CASE WAS WHETHER DESPITE THE FINANCIAL YEARS OF THE ASSE SSEE AND OF THE OTHER ENTERPRISE BEING DIFFERENT, THE FINANCIALS OF THE C ORRESPONDING PERIOD OF EACH OF THEM WAS AVAILABLE. IF THEY WERE, THE TPO M UST REFER TO THE CORRESPONDING PERIOD OF BOTH THE ENTITIES IN DETERM INING WHETHER OR NOT THE TWO WERE COMPARABLE FOR THE PURPOSE OF DETERMINING THE ALP. THE LEARNED AR REFERRED TO PAGE-221 OF PAPER BOOK VOLUME-I WHER EIN THE REQUIRED IT(TP)A NO.2531/BANG/2017 PAGE 14 OF 15 DETAILS WERE AVAILABLE. HIS PLEA WAS FOR A REMAND TO THE TPO TO COMPARE THE FINANCIALS OF THIS COMPANY FOR THE CORRESPONDIN G FY AS THAT OF THE ASSESSEE AND INCLUDE THIS COMPANY IN THE LIST OF CO MPARABLE COMPANIES. 24. THE LEARNED DR HOWEVER SUBMITTED THAT DATA TO B E USED FOR COMPARABILITY SHOULD BE THE SAME FINANCIAL YEAR AND IN THIS REGARD PLACED RELIANCE ON DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. PTC SOFTWARE (I) PVT.LTD. 395 ITR 176 (BOM.) & MUMB AI ITAT IN THE CASE OF TEVAPHARM INDIA PVT.LTD. VS. DCIT (2017) 81 TAXM ANN.COM 416(MUM- TRIB) WHEREIN IT WAS HELD THAT DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD BE THE SAME FINANCIAL YEAR IN WHICH THE INTE RNATIONAL TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE. HE ALSO SUBMITTE D THAT THE QUESTION WHETHER THIS COMPANY PASSES THE OTHER FILTERS APPLI ED BY THE TPO HAS NOT BEEN EXAMINED AND IN THE EVENT OF A REMAND BY THE T RIBUNAL, THE TPO SHOULD BE PERMITTED TO LOOK INTO APPLICABILITY OF O THER FILTERS ALSO. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSION. IT IS NO DOUBT TRUE THAT DATA TO BE USED FOR COMPARABILITY ANALYSIS SHOULD B E THE SAME FINANCIAL YEAR OF THE ASSESSEE AND THE COMPARABLE COMPANY. I F A COMPANY IS OTHERWISE COMPARABLE, THOUGH THAT COMPANY FOLLOWS A DIFFERENT FINANCIAL YEAR AS ITS ACCOUNTING YEAR BUT IF THE RESULTS OF S UCH COMPANY FOR THE FINANCIAL YEAR FOLLOWED BY THE ASSESSEE IS AVAILABL E THEN SUCH COMPANY SHOULD ALSO BE CONSIDERED FOR COMPARABILITY ANALYSI S. THE ASSESSEE HAS GIVEN THE FINANCIAL RESULTS OF THE COMPARABLE COMPA NY FOR THE SAME FINANCIAL YEAR AS THAT OF THE ASSESSEE AND THE SAME IS AT PAGE-221 OF VOL.- I PAPER BOOK. IN THE DECISIONS CITED BY THE LEARNE D DR THE AVAILABILITY OF THE DATA FOR THE SAME FINANCIAL YEAR OF THE COMPARA BLE COMPANY HAS NOT BEEN CONSIDERED. WE THEREFORE REMAND THE QUESTION OF COMPARABILITY OF THIS COMPANY TO THE TPO FOR A FRESH CONSIDERATION. THE TPO IS FREE TO APPLY THE OTHER FILTERS AND IF HE STILL COMES TO TH E CONCLUSION THAT THIS IT(TP)A NO.2531/BANG/2017 PAGE 15 OF 15 COMPANY IS COMPARABLE, THEN HE IS DIRECTED THE CONS IDER THE FINANCIALS OF THE COMPARABLE COMPANY FOR THE FINANCIAL YEAR AS TH AT OF THE ASSESSEE. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF MAY, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 23 RD MAY, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.