Conexant Systems Private Limited, Hyd, Hyderabad V. DCIT, Circle-1(21), Hyderabad, Hyderabad

ITA 264/HYD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2678 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Assessee Lawyers: ABHIROOP BHARGAV
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 234B; 133(6)

Judgement Text

ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.264/HYD/2015 (ASSESSMENT YEAR: 2010-11) M/S. CONEXANT SYSTEMS PRIVATE LIMITED HYDERABAD PAN: AAACF 2723 N VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI DHANESH BAFNA & SHRI ABHIROOP BHARGAV FOR REVENUE : SHRI P. CHANDRA SEKHAR, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. IN TH IS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S 144C OF THE ACT DATED 30.01.2015. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/HON'BLE DISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN MAKING AN ADDITION OF RS. 4,80,48,856 TO THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND HON'BLE DRP HAVE ERRED IN: DATE OF HEARING : 13.06.2017 DATE OF PRONOUNCEMENT : 23.08.2017 ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 2 OF 15 I. REJECTING THE TRANSFER PRICING ('TP') DOCUMENTATION WHICH WAS MAINTAINED IN GOOD FAITH AND WITH DUE DILIGENCE; II. REJECTING THE SEARCH PROCESS FOLLOWED BY THE APPELLANT IN THE TP DOCUMENTATION AND CARRYING OUT A FRESH COMPARABILITY ANALYSIS FOR DETERMINING THE ARM'S LENGTH PRICE; III. USING THE DATA AVAILABLE AT THE TIME OF ASSESSMENT PROCEEDINGS INSTEAD OF THOSE AVAILABLE AS ON THE DATE OF PREPARING THE TP DOCUMENTATION; IV. REJECTING MULTIPLE YEAR DATA AND USING DATA FOR THE FINANCIAL YEAR 2009-10 ALONE; V. INCLUDING COMPANIES IN THE COMPARABILITY ANALYSIS WHICH ARE DIFFERENT FROM THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE; VI. NOT CONSIDERING COMPANIES SIMILAR TO THE APPELLANT IN FUNCTIONS, ASSET BASE AND RISK PROFILE WHILE PERFORMING COMPARABILITY ANALYSIS; VII. SELECTING COMPANIES THAT ARE EARNING SUPER NORMAL PROFITS; AND VIII. NOT GRANTING RISK ADJUSTMENT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/HON'BLE DISPUTE RESOLUTION PANEL ('DRP') HAVE ERRED IN MAKING AN ADDITION OF RS. 20,87,598 TO THE INTEREST PAID ON THE EXTERNAL COMMERCIAL BORROWINGS. 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE' AND IN LAW, THE LEARNED AO ERRED IN LEVYING ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 3 OF 15 INTEREST UNDER SECTION 234B AND 234C OF THE ACT AMOUNTING TO RS. 1,03,88,490 AND RS. 1,21,408 RESPECTIVELY. THE GROUNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 3. GROUND NO.4 IS AGAINST THE LEVY OF INTEREST U/S 234B AND 234C OF THE ACT AND IT BEING CONSEQUENTIAL IN N ATURE, THE AO IS DIRECTED TO GIVE CONSEQUENTIAL EFFECT, IF ANY, T O THE ORDER OF THE TRIBUNAL ON MERITS OF THE OTHER GROUNDS OF APPEAL R AISED BY THE ASSESSEE. 4. AS REGARDS GROUND NO.2, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ADVANCING A RGUMENTS ONLY ON SUB GROUND NO.(V) OF GROUND NO.2 AGAINST TH E FOLLOWING FOUR COMPARABLES WHICH HAVE BEEN SELECTED BY THE TP O AND CONFIRMED BY THE DRP: (A) E-INFOCHIPS BANGALORE LTD (B) E-ZEST SOLUTIONS LTD (D) MINDTREE LTD (E) PERSISTENT SYSTEMS LTD 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVEL OPMENT ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 4 OF 15 SERVICES TO ITS AE. THE AE IN US IS ENGAGED IN PROV IDING SEMICONDUCTOR SOLUTIONS FOR BROADBAND COMMUNICATION S, ENTERPRISE NETWORKS AND DIGITAL HOME, WHILE THE ASS ESSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES I.E. DESIGN, DEVELOPMENT AND MODIFICATION SERVICES RELATED TO SE MICONDUCTORS AND IS ALSO PROVIDING MARKETING & TECHNICAL SUPPORT SERVICES. 6. THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIO NAL TRANSACTIONS WITH ITS AE. THE MAJOR REVENUE IS FROM THE PROVISIONS OF SOFTWARE DEVELOPMENT SERVICES. 7. AFTER GOING THROUGH THE TP STUDY OF THE ASSESSEE , THE TPO REJECTED THE TP DOCUMENTATION OF THE ASSESSEE A ND CONDUCTED AN INDEPENDENT ANALYSIS BY AGGREGATING ALL THE TRAN SACTIONS UNDER TNMM AND PARTICULARLY ON THE PROVISIONS OF SOFTWARE DEVELOPMENT SERVICES, BEING THE PRE-DOMINANT ACTIVITY. THEREAFT ER, THE TPO DISCUSSED ABOUT THE VARIOUS FILTERS ADOPTED BY THE ASSESSEE AND REJECTED THE SOME OF THE FILTERS AND HAS ADOPTED AD DITIONAL FILTERS. THE TPO OBSERVED THAT THE ASSESSEE HAS ADOPTED SIXT EEN COMPANIES AS COMPARABLES OUT OF WHICH THE TPO ACCEP TED ONLY THREE COMPANIES, I.E., MINDTREE LTD, SASKEN COMMUNI CATION TECHNOLOGIES LTD AND THINKSOFT GLOBAL SERVICES LTD. THEREAFTER, INCLUDING THESE THREE COMPANIES, THE TPO SUGGESTED 19 COMPANIES AS FINAL COMPARABLES TO THE ASSESSEE. AFT ER DISCUSSING THE ACCEPTABILITY OF THE OBJECTIONS OF THE ASSESSEE ON THE FILTERS AND THE OTHER FACTORS SUCH AS WORKING CAPITAL ADJUS TMENT, RISK ADJUSTMENT ETC., THE TPO DISCUSSED ON THE ASSESSEE S SPECIFIC OBJECTIONS ON EACH OF THE COMPARABLES. FINALLY, THE TPO ADOPTED ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 5 OF 15 18 COMPANIES AS COMPARABLE TO THE ASSESSEE AND ARRI VED AT THE AVERAGE MARGIN OF THE COMPARABLES AT 22.69% AND AFTE R GIVING THE WORKING CAPITAL ADJUSTMENT OF 2.33%, HE ARRIVED AT T HE ADJUSTMENT TO BE MADE U/S 92CA OF THE ACT AT RS.5,2 8,16,043. 8. IN ADDITION TO THE ABOVE, THE TPO ALSO CONSIDERE D THE INTERNATIONAL TRANSACTION OF INTEREST PAID ON ECB L OAN. HE OBSERVED THAT THE ASSESSEE HAS AVAILED LOAN OF US$ 1,32,00,000 FROM ITS AE IN USA AND RS.2,82,00,000 BY WAY OF FOU R SEPARATE AGREEMENTS DURING FINANCIAL YEAR 2005-06 AND THE RA TE OF INTEREST PAID ON ALL THE LOANS WAS AT 4.59%. HE OBSERVED THAT THE ASSESSEE HAS COMPARED THIS RATE OF INTEREST WITH THE AVERAGE PLR IN INDIA AT 12.08% AND THUS CONSIDERED IT TO BE AT ARMS LENGTH . HOWEVER, THE TPO OBSERVED THAT THE RATE OF INTEREST OF 4.59% IS SUBJECT TO THE CEILING OF 200 BASIS POINT OVER SIX MONTHS LIBO R, WHICH DURING THE FINANCIAL YEAR 2009-10 WAS 0.85%. THUS, A CCORDING TO HIM, THE MAXIMUM RATE OF INTEREST PAYABLE BY THE AS SESSEE WAS 2.85% AGAINST WHICH THE ASSESSEE HAD PAID INTEREST @ 4.59%. THEREFORE, HE SUGGESTED ADJUSTMENT OF THE DIFFERENC E OF INTEREST RATE OF 1.74% U/S 92CA OF THE I.T. ACT. 9. AS FAR AS THE REIMBURSEMENT OF THE EXPENSES AND INTEREST ON RECEIVABLES IS CONCERNED, HE ACCEPTED T HAT THESE TRANSACTIONS ARE AT ALP. 10. IN ACCORDANCE WITH THE FINDINGS OF THE TPO, THE DRAFT ASSESSMENT ORDER WAS PASSED BY THE AO. THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP. THE DRP GRANTED PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE AO TO EXCLUDE CERTAIN COM PANIES AS ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 6 OF 15 COMPARABLES. AGAINST THE ASSESSMENT ORDER PASSED IN ACCORDANCE WITH THE ORDER OF THE DRP CONFIRMING THE T.P ORDER PARTIALLY, THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED A CHART SHOWING THE FINAL 11 COMPANIES WHICH REMAINED AS CO MPARABLES AFTER EXCLUDING CERTAIN COMPANIES IN ACCORDANCE WIT H THE ORDER OF THE DRP. AT THE END OF THE LIST, THE ASSESSEE SUBMI TTED THAT IT DOES NOT WISH TO PRESS THE EXCLUSION OF THE COMPANIES AT S.NO. 1 TO 7 AT THIS STAGE BUT THAT IT SHOULD NOT BE CONSTRUED AS T HE ACCEPTANCE OF THESE COMPANIES. THESE COMPANIES ARE : I) AVANI CIMCOM TECHNOLOGIES LTD II) CAT TECHNOLOGIES LTD III) EVOKE TECHNOLOGIES IV) PERSISTENT SYSTEMS & SOLUTIONS LTD V) RS SOFTWARE (INDIA) LTD VI) THINKSOFT GLOBAL SERVICES LTD VII) KULIZA TECHNOLOGIES LTD 12. TAKING THE ASSESSEES CONTENTION ABOVE INTO CONSIDERATION, WE DO NOT SEE ANY REASON TO ADJUDICA TE ON THE COMPARABILITY OR OTHERWISE OF THESE COMPANIES TO TH E ASSESSEE COMPANIES FOR THE RELEVANT A.Y. 13. AS REGARDS THE COMPANIES, WHOSE COMPARABILITY T O THE ASSESSEE IS UNDER CHALLENGE BEFORE US, WE FIND THAT THE ASSESSEES OBJECTION BEFORE THE TPO AGAINST PERSISTENT SYSTEMS & SOLUTIONS LTD, HAS BEEN THAT THIS COMPANY IS FUNCTIONALLY DIF FERENT AS IT IS ENGAGED IN RENDERING OUTSOURCE PRODUCT SERVICES DE VELOPMENT AS AGAINST SOFTWARE DEVELOPMENT SERVICES AND THAT TH IS COMPANY IS ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 7 OF 15 ALSO HAVING INCOME FROM SALE OF SOFTWARE SERVICES A ND PRODUCTS. IT HAS ALSO BEEN SUBMITTED THAT DURING THE YEARS, THE SAID COMPANY HAD ALSO ACQUIRED THE ASSETS IN PAXONIC INC, AND TH EREFORE, IT SHOULD NOT BE TAKEN AS A COMPARABLE. THE TPO HOWEVE R, REJECTED THE ASSESSEES CONTENTION BY HOLDING THAT THE SAID COMPANY IS PROVIDING SOFTWARE SUPPORT SERVICES TO THE PRODUCT DEVELOPING COMPANIES RATHER THAN DEVELOPING A PRODUCT ON ITS O WN AND THEREFORE, ASSESSEES OBJECTIONS ARE NOT SUSTAINABL E. THE DRP HAS CONFIRMED COMPARABILITY OF THIS COMPANY TO THE ASSE SSEE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW AND HAS DRAWN OUR PARTICULAR ATTENTION TO THE PAGE NOS 523, 524 572 AND 615 OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US TO DEMONSTRATE THAT THE SAID COMPANYS OUTSOURCE SOFT WARE PRODUCT DEVELOPMENT ACTIVITY IS DIFFERENT FROM I.T. SERVI CES. HE HAS DRAWN OUR ATTENTION TO PAGE 524 OF THE PAPER BOOK W HEREIN IT IS STATED BY PERSISTENT SYSTEMS & SOLUTIONS LTD THAT T HERE ARE RELEASES OF 3000 PLUS PRODUCTS AND AROUND 300 CUSTO MERS IN THE LAST 5 YEARS AND HAS ALSO OUTLINED THE DIFFERENCE B ETWEEN THE OUTSOURCE PRODUCT DEVELOPMENT AND OUTSOURCED I.T. S ERVICES. HE HAS ALSO DRAWN OUR ATTENTION TO PAGE NO.606 OF THE PAPER BOOK WHEREIN THE INCOME FROM SALE OF SOFTWARE SERVICES A ND PRODUCTS IS REPORTED. SCHEDULE-11 OF P&L A/C ALSO MENTIONED THE SALE OF SOFTWARE SERVICES AND PRODUCTS. AT PAGE 614 IS SCHE DULE 14 OF THE P&L A/C WHEREIN THE COMMISSION ON SALES TO OTHER TH AN SOLE SELLING AGENTS IS ALSO REFLECTED. AT PAGE 616 IS TH E RECOGNITION OF THE REVENUE AND INCOME FROM SOFTWARE SERVICES WH EREIN REVENUE FROM LICENSING OF PRODUCTS IS MENTIONED AS RECOGNIZ ED ON DELIVERY ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 8 OF 15 OF PRODUCTS AND REVENUE FROM ROYALTY IS STATED TO B E RECOGNIZED ON SALE OF PRODUCTS. AT PAGE 619 IS THE SEGMENT REP ORT POLICY WHEREIN IT IS MENTIONED THAT THE COMPANY HAS MENTIO NED SEGMENT INFORMATION ONLY ON THE BASIS OF THE CONSOLIDATED F INANCIAL STATEMENTS. THUS, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE SAID COMPANY IS INTO PRODUCT DEVELOPM ENT AS WELL AND THEREFORE, SHOULD NOT BE CONSIDERED AS A COMPAR ABLE TO THE ASSESSEE. IN SUPPORT OF THESE CONTENTIONS THAT PERS ISTENT SYSTEMS IS IN TO PRODUCT DEVELOPMENT AND THEREFORE, SHOULD NOT COMPARED WITH SOFTWARE DEVELOPMENT SERVICE PROVIDER LIKE THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UP ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CASH EDGE INDIA PVT. LTD VS. ITO FOR THE VERY SAME A.Y 2010-11 IN ITA NO.64/DEL/2015 AND ALSO PLACED RELIANCE UPON TH E HON'BLE DELHI HIGH COURT IN THE VERY SAME CASE CONFIRMING T HE ORDER OF THE ITAT IN ITA NO.279/2016 (DEL.H.C). 15. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 16. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL AT DELHI, IN T HE CASE OF CASH EDGE INDIA (P) LTD (CITED SUPRA) WAS CONSIDERING TH E CASE OF AN ASSESSEE WHICH RENDERS SOFTWARE DEVELOPMENT AND BUS INESS SUPPORT SERVICES TO ITS AES IN USA. THUS, THE SERVI CES RENDERED BY THE ASSESSEE BEFORE US ARE SIMILAR TO THE SERVICES RENDERED BY THE CASH EDGE INDIA PVT. LTD AT USA AND THEREFORE, THE DECISION IN THE SAID CASE IS APPLICABLE TO THE FACTS BEFORE US. THE TRIBUNAL AT PARA ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 9 OF 15 16 OF ITS ORDER HAS CONSIDERED THE DECISION OF ANOT HER COORDINATE BENCH IN THE CASE OF CIENA INDIA PVT. LTD. V. DCIT IN ITA NOS. 2948, 3324/DEL/2013 TO HOLD THAT PERSISTENT SYSTEMS & SOLUTIONS LTD IS NOT COMPARABLE TO THE ASSESSEE THEREIN AND THIS DEC ISION OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HON'BLE DELHI HI GH COURT IN ITA NO.279/2016. RESPECTFULLY FOLLOWING THE SAID DE CISION, WE DIRECT THAT THIS COMPANY SHOULD BE DELETED FROM THE FINAL LIST OF COMPARABLES. FOR THE SAKE OF READY REFERENCE, THE TR IBUNALS ORDER AT PARA 16 IS REPRODUCED HEREUNDER: 16. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. A CO-ORDINATE BENCH OF THE DELHI TRIBUNAL IN THE CASE OF CIENA INDIA PV T. LTD. V. DCIT IN ITA NOS. 2948, 3324/DEL/2013, HAS HELD AS UNDER: '9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM TH E INFORMATION SUPPLIED BY THIS COMPANY U/S 133(6) OF THE ACT, A PART OF WHICH HAS BEEN REPRODUCED IN THE TPO 'S ORDER, THAT THIS COMPANY 'HAS DEVELOPED A FEW OF IT S OWN PRODUCTS IN THE AREA OF IDENTITY MANAGEMENT CONNECT ORS.' REVENUE FROM PRODUCT LICENCES STANDS AT RS.288.93 M ILLION AS AGAINST THE REVENUE FROM SOFTWARE DEVELOPMENT SE RVICES AT RS.4829.57 MILLIONS. THOUGH THIS COMPANY IS MORE ENGAGED IN SOFTWARE DEVELOPMENT SERVICES, BUT, IS A LSO A SOFTWARE PRODUCT COMPANY, WHICH IS EVIDENT FROM THE INFORMATION SUPPLIED BY IT TO THE TPO. THUS, THE TO TAL PROFITS OF THE COMPANY ON ENTITY LEVEL ALSO, INTER ALIA, INCLUDE REVENUE FROM PRODUCT LICENCES. AS THERE IS NO SEPARATE SEGMENTAL INFORMATION AND IT HAS BEEN CONS IDERED AS COMPARABLE ON ENTITY LEVEL, IT IMPLIES THAT THE TOTAL REVENUE CONSIDERED ALSO CONSIST OF SOME PART FROM P RODUCT LICENCES. IN SUCH CIRCUMSTANCES, IT IS NOT POSSIBLE TO ASCERTAIN THE IMPACT OF SUCH REVENUE ON THE TOTAL R EVENUE OF THIS COMPANY. FURTHER, THERE IS NO INFORMATION A VAILABLE FROM THE ANNUAL REPORT OF THIS COMPANY OR THE DATA COLLECTED BY THE TPO U/S 133(6) OF THE ACT TO DIVUL GE THE AMOUNT OF REVENUE FROM SOFTWARE DEVELOPMENT SERVICE S ALONE TO THE EXCLUSION OF REVENUE FROM PRODUCT LICE NCES. AS THE ASSESSEE IS NOT ENGAGED IN THE SALE OF ANY S OFTWARE ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 10 OF 15 PRODUCTS, THIS COMPANY ON ENTITY LEVEL, CANNOT BE CONSIDERED AS COMPARABLE. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOLUNA INDIA PVT. LTD. VS. ACIT (ITA ITA NO.64/DEL./2015 NO.5645/DEL/2011, VIDE ITS ORDER DATED 26.8.2014 HAS HELD PERSISTENT SYSTEMS L TD. TO BE INCOMPARABLE WITH TOLUNA INDIA PVT. LTD., ALSO A COMPANY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS RELATED PARTIES ALONE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN LEAR AUTOMOTIVE INDIA PVT. LTD. VS. ACIT (ITA NO.5612/DEL/2011) VIDE ITS ORDER DATE D 22.12.2014. THE LD. DR COULD NOT POINT OUT ANY DISTINGUISHING FEATURE IN THE FACTUAL MATRIX OF THE ASSESSEE IN QUESTION AND TOLUNA INDIA PVT. LTD., AND LEAR AUTOMOTIVE INDIA PVT. LTD. SINCE BOTH THESE COMPANI ES ARE ALSO ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS AES, SIMILAR TO THE ACT IVITY DONE BY THE ASSESSEE, RESPECTFULLY FOLLOWING THE PRECEDENTS, WE ORDER FOR THE EXCLUSION OF THIS COMP ANY FROM THE LIST OF COMPARABLES.' SIMILARLY, IN THE CASE OF ASSESSEE'S GROUP COMPANY, VIZ., FISERV INDIA PVT. LTD. FOR AY 2010-11, WHICH COMPANY IS ALSO IN THE BUSINESS OF SOFTWARE DEVELOPMENT SERVICES, A CO-ORDINATE BENCH OF THE DELHI TRIBUNAL IN ITA NO.6737/DEL/2014 DELETED PERSISTENT FROM THE LIST OF COMPARABLES. 17. AS REGARDS THE COMPARABILITY OF E-INFOCHIPS BAN GALORE LTD TO THE ASSESSEE IS CONCERNED, THE ASSESSEES OB JECTION WAS THAT THIS COMPANY IS HAVING TWO DIFFERENT SEGMENTS I.E. SOFTWARE DEVELOPMENT AND I.T. ENABLED SERVICES AND THAT THE SEGMENTAL INFORMATION IS NOT AVAILABLE. THE TPO HOWEVER, REJE CTED THIS CONTENTION AND HELD THAT THE SAID COMPANY HAS REPOR TED ITS INCOME TO BE DERIVED FROM SOFTWARE SERVICES ONLY. 18. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID COMPANY, IN ITS ANNUAL REPORT (AT PARA 16) HAS REPORTED THAT IT IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMEN T AND I.T. ENABLED SERVICES WHICH IS CONSIDERED AS THE ONLY BUSINESS ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 11 OF 15 SEGMENT AS PER A.S. 17. THUS, ACCORDING TO THE LEAR NED COUNSEL FOR THE ASSESSEE, THE SAID COMPANY IS ALSO ENGAGED IN I.T. ENABLED SERVICES AND THE REPORTING IS OF AGGREGATE OF BOTH THE SEGMENTS AND HENCE IT SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE. 19. THE LEARNED DR, HOWEVER, RELIED UPON THE DECISI ON OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CI T VS. ALLSCRIPTS (INDIA) (P) LTD REPORTED IN (2016) 72 TAXMANN.COM 3 05 (GUJ.) WHEREIN FOR THE VERY SAME A.Y, THE HON'BLE GUJARAT H IGH COURT HAS HELD THAT THE QUESTION OF WHETHER E-INFOCHIP BA NGALORE LTD WAS ENGAGED IN ANY SERVICES OTHER THAN SOFTWARE DEV ELOPMENT SERVICES NEEDS VERIFICATION. 20. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT AT PARA 16 OF THE ANNUAL RE PORT, THOUGH THE SAID COMPANY HAS REPORTED THAT IT IS INTO SOFTW ARE DEVELOPMENT SERVICES AS WELL AS I.T. ENABLED SERVIC ES, NO SEPARATE INCOME HAS BEEN REPORTED FROM I.T. ENABLED SERVICES . SCHEDULE-7 GIVES INCOME FROM SOFTWARE SERVICES AND IT IS NOT C LEAR AS TO WHETHER IT INCLUDES INCOME FROM SOFTWARE DEVELOPMEN T SERVICES AND ALSO I.T. ENABLED SERVICES. WE HAVE PERUSED THE PAPER BOOK FILED BY THE ASSESSEE AND FIND THAT THE RELEVANT PA GE ON WHICH SCHEDULE-7 IS REPORTED IS MISSING FROM THE PAPER BO OK AND THEREFORE, WE ARE NOT ABLE TO GIVE ANY FINDING AS T O THE COMPONENTS OF THE INCOME WHICH IS REPORTED AS INCOME FROM SOFT WARE SERVICES. IN VIEW OF THE SAME AND ALSO FOLLOWING THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF ALLSCRIPTS (INDIA ) (P) LTD, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE F ILE OF THE TPO ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 12 OF 15 FOR VERIFICATION AND ONLY IF IT IS FOUND THAT THE S AID COMPANY IS ALSO ENGAGED IN PROVIDING I.T. ENABLED SERVICES AND THE SEGMENTAL DETAILS ARE NOT AVAILABLE, THEN THE SAID COMPANY SH ALL BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES. 21. AS REGARDS THE COMPARABILITY OF E-ZEST SOLUTIONS LTD TO THE ASSESSEE BEFORE US IS CONCERNED, THE ASSESSEE H AD OBJECTED TO THIS COMPANY ON THE GROUND IT IS ENGAGED IN DEVELOP MENT OF SOFTWARE PRODUCTS AND IS PROVIDING RELATED SERVICES . THE TPO HOWEVER, REJECTED THE SAID OBJECTION BY HOLDING THA T THE COMPANY IS PROVIDING SOFTWARE SUPPORT SERVICES TO THE PRODU CT DEVELOPING COMPANIES RATHER THAN DEVELOPING A PRODUCT OF ITS O WN. 22. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE ANNUAL REPORT OF THE SAID COMPANY TO DEMONSTRATE THAT THE SAID COMPANY IS SPECIALIZING I N DEVELOPING VARIOUS PRODUCTS. FURTHER, THE LEARNED COUNSEL ALSO DREW OUR ATTENTION TO THE FACT THAT IN THE ASSESSEES OWN CA SE FOR THE IMMEDIATELY THE FOLLOWING A.Y I.E. A.Y 2011-12, THE D RP HAS DIRECTED EXCLUSION OF THIS COMPANY FROM THE FINAL S ET OF COMPARABLES. HE ALSO PLACED RELIANCE UPON THE FOLLO WING DECISIONS IN WHICH THE SAID COMPANY IS DIRECTED TO BE EXCLUDE D A) UNITED ONLINE SOFTWARE DEVELOPMENT (INDIA) (P) LTD VS. ITO IN ITA NO.1720/HYD/2012. B) INTOTO SOFTWARE INDIA (P) LTD VS. ITO IN ITA NO.1810/HYD/2012. 23. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND SUBMITTED THAT E-ZEST SOLUTION S LTD IS NOT A ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 13 OF 15 PRODUCT DEVELOPING COMPANY BUT IT OUTSOURCES PRODUC T DEVELOPMENT SERVICES AND THE FACT THAT IT DOES NOT HAVE INTANGIBLE ASSETS PROVES THAT IT IS NOT A PRODUCT DEVELOPMENT COMPANY. AS REGARDS THE DECISIONS RELIED UPON BY THE ASSESSEE, THE LEARNED DR SUBMITTED THAT THERE IS NO SPECIFIC CASE FOR THE A. Y 2010-11 WHEREIN E-ZEST SOLUTIONS LTD HAS BEEN DIRECTED TO B E EXCLUDED. 24. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE SAID COMPANY IS OFFERIN G SERVICES IN PRODUCT DEVELOPMENT LIFE CYCLE INCLUDING PRODUCT DE SIGN AND DEVELOPMENT AND PRODUCT FEATURE ENHANCEMENT, PRODUC T PLATFORM MIGRATION, SOFTWARE PRODUCT TESTING PRODUCT MAINTEN ANCE AND SUPPORT, PRODUCT RELEASE AND LICENSE MANAGEMENT, SA AS/SOA SERVICES AND WEB 2.0 SERVICES. THE ASSESSEE HAS NOT FILED ANY DOCUMENT TO SHOW THAT THE SAID COMPANY OWNS INTANGI BLE ASSETS OR THAT IT HAS ANY PRODUCTS IN ITS INVENTORY. THERE FORE, WE ARE UNABLE TO ACCEPT THE ASSESSEES CONTENTION THAT E-ZE ST SOLUTIONS LTD IS A PRODUCT DEVELOPMENT COMPANY. IN THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND TH AT THE TRIBUNAL HAD OBSERVED THAT E-ZEST SOLUTIONS LTD WAS RENDERING PRODUCT DEVELOPMENT SERVICES AND HIGH END TECHNICAL SERVICE S WHICH COME UNDER THE CATEGORY OF KPO WHICH SHOULD NOT BE COMPA RED THAT THE COMPANY WHICH IS RENDERING SOFTWARE DEVELOPMENT SER VICES AND THEREFORE, DIRECTED THE EXCLUSION OF THE SAID COMPA NY FROM THE FINAL LIST OF COMPARABLES. WE ALSO FIND THAT THOSE DECISIONS ARE FOR THE A.Y 2008-09 WHEREAS THE CASE BEFORE US IS FOR TH E A.Y 2010- 11. THEREFORE, WE ARE OF THE OPINION THAT THOSE DEC ISIONS ARE NOT EXACTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND AND E-ZEST ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 14 OF 15 SOLUTIONS IS COMPARABLE TO THE ASSESSEE. THE TPO AN D THE DRPS FINDINGS ON THIS COMPANY ARE, THEREFORE, CONFIRMED. 25. AS REGARDS MINDTREE LTD IS CONCERNED, THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DRP HAS DIRECTED ITS EXCLUSION ON THE GROUND OF CERTAIN EXTRA ORDINARY E VENTS WHICH HAVE OCCURRED DURING THE YEARS. IT IS SUBMITTED THA T THE DEPARTMENT IS NOT IN APPEAL BEFORE THE TRIBUNAL AGA INST SUCH FINDING OF THE DRP BUT THE AO HAS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE DRP IN THE FINAL ASSESSMENT ORDER . WE HAVE GONE THROUGH PARA 5.2 OF THE ORDER OF THE DRP, WHEREIN T HE ARGUMENTS OF THE ASSESSEE AGAINST THE FOUR COMPANIES (COMP-U- LEARN TECH INDIA LTD, MINDTREE LTD, ZYLOG SYSTEMS LTD AND SASK EN COMMUNICATION TECHNOLOGIES LTD) AS NOT COMPARABLE T O THE ASSESSEE ON ACCOUNT OF EXTRA ORDINARY EVENTS LIKE A CQUIRING MAJORITY STOCK IN OTHER COMPANIES, RESTRUCTURING, M ERGER ETC WERE RECORDED. BUT WE FIND THAT WHILE GIVING THE FINAL D IRECTION AT PARA 5.4, THE DRP HAS REPRODUCED ONLY THE NAMES OF THREE COMPANIES I.E. COMP-U-LEARN TECH INDIA LTD, ZYLOG SYSTEMS LTD AND SASKEN COMMUNICATION TECHNOLOGIES LTD FOR EXCLUSION AND TH EREFORE THE AO HAS NOT EXCLUDED MINDTREE LTD FROM THE FINAL L IST OF COMPARABLES. AS THERE IS A SPECIFIC DIRECTION OF TH E DRP THAT THE COMPANIES IN WHICH THERE ARE EXTRA ORDINARY EVENTS SHOULD BE EXCLUDED WE DEEM IT FIT AND PROPER TO DIRECT THE AO TO VERIFY THE EXTRA ORDINARY EVENT IN THE CASE OF MINDTREE LTD AN D TO EXCLUDE THE SAME IF IT IS FOUND THAT THE EXTRA ORDINARY EVE NT HAS OCCURRED IN THE CASE OF THE SAID COMPANY. ITA NO 264 OF 201 5 CONEXANT SYSTEMS P LTD HYDERABAD PAGE 15 OF 15 26. IN THE RESULT, ASSESSEES GROUND OF APPEAL NO.2 .5 IS PARTLY ALLOWED. 27. AS REGARDS GROUND NO.3, WE FIND THAT THE ASSESS EE HAS RAISED A SPECIFIC OBJECTION NO.9 IN THIS REGARD BEF ORE THE DRP, BUT THE DRP HAS FAILED TO ADJUDICATE THE SAME. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMAND THE ISSUE TO THE F ILE OF THE DRP FOR ITS DECISION ON MERITS OF THE SAID OBJECTION NO .9. IN THE RESULT, GROUND OF APPEAL NO.3 IS TREATED AS ALLOWED FOR STA TISTICAL PURPOSES. 28. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 23 RD AUGUST, 2017. VINODAN/SPS COPY TO: 1 M/S. CONEXANT SYSTEMS (P) LTD, 5 TH FLOOR, PIONEER TOWERS, PLOT NO.16 SURVEY NO.64/2, SOFTWARE UNITS LAYOUT, MADHAP UR, HYDERABAD 500033 2 DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), AAYA KAR BHAVAN, BASHEERBAGH, HYDERABAD 3 DRP 2 ND FLOOR, IT TOWERS, 10-2-3 AC GUARDS, HYDERABAD 50000 4 4 TPO/ADDL.CIT (TP) HYDERABAD 500004 5 THE CIT (INTERNATIONAL TAXATION) IT TOWERS, 10-2- 3 AC GUARDS, HYDERABAD 500004 6 CIT-1 HYDERABAD 7 THE DR, ITAT HYDERABAD 8 GUARD FILE BY ORDER