Aptean India Pvt Ltd, Bengaluru V. Deputy Commissioner of Income Tax, Circle-1(1)(2), Bengaluru

ITA 2679/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3715 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-10-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 08-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: ALIASGAR RAMPREWALA
• Keywords: Related party transaction; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Question of law
• Section: 143(3); 133(6); 37(1); 13; 119; 22; 37

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2679/BANG/2017 ASSESSMENT YEAR : 2013-14 APTEAN INDIA PVT. LTD., LEVEL-5 (8 TH FLOOR), GOLDEN HEIGHTS, NO.1/2, 59 TH C CROSS, 4 TH M BLOCK, RAJAJINAGAR, BENGALURU-560 100. PAN AAACC 5890 M VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI ALIASGAR RAMPREWALA, C.A RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, CIT (DR) DATE OF HEARING : 20-10-2020 DATE OF PRONOUNCEMENT : 06-11-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AG AINST FINAL ASSESSMENT ORDER DATED 10/10/2017 PASSED UNDER SECT ION 143(3) READ WITH SECTION 144C(13) OF THE ACT, BY LD .DCIT CIRCLE 1(1)(2) FOR ASSESSMENT YEAR 2013-14, ON FOLLOWING G ROUNDS OF APPEAL: 1. THAT THE ORDER OF THE LEARNED OF DEPUTY COMMISS IONER OF INCOME-TAX, CIRCLE - 1(1)(2), BANGALORE ('LEARNED ASSESSING OFF ICER' OR 'LEARNED AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE R ESOLUTION PANEL PAGE 2 OF 25 IT(TP)A NO.2679/BANG/2017 ('HON'BLE DRP') TO THE EXTENT PREJUDICIAL TO THE AP PELLANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP ERRED IN UPHOLDING THE APPROACH OF THE DEPUTY COMMI SSIONER OF INCOME- TAX, TRANSFER PRICING -I(I)(I) ('LEARNED TPO') IN N OT ACCEPTING THE TRANSFER PRICING ('TP') STUDY/ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULE, 1962 ('THE RULES'), CONDUCTING A FRESH ECONOM IC ANALYSIS FOR THE DETERMINATION OF THE ARM'S LENGTH PRICE ('ALP') IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTIONS, AND HOLDING TH AT THE APPELLANT'S INTERNATIONAL TRANSACTIONS ARE NOT AT ARM'S LENGTH. 3. THAT THE HON'BLE DRP HAS ERRED IN UPHOLDING THE LEARNED TPO'S APPROACH USING DATA AS AT THE TIME OF ASSESSMENT PR OCEEDINGS, INSTEAD OF THAT AVAILABLE AS ON THE DATE OF PREPARING THE T P DOCUMENTATION FOR COMPARABLE COMPANIES WHILE DETERMINING ALP, IGNORIN G THE FACT THAT THIS DATA WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TP DOCUMENTATION REQUIREMENTS. 4. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APPR OACH OF THE LEARNED TPO, IN REJECTING THE APPELLANT'S CONTENTIONS AGAIN ST THE USE OF INFORMATION UNDER SECTION 133(6) OF THE ACT, AS THA T TANTAMOUNTS TO CHOOSING SECRET COMPARABLE COMPANIES WHOSE INFORMAT ION WERE NOT AVAILABLE IN PUBLIC DOMAIN WHILE UNDERTAKING THE TP STUDY FOR THE RESPECTIVE FINANCIAL YEAR. 5. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APPR OACH OF THE LEARNED TPO, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUS TMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLAN T VIS--VIS THE COMPARABLES. 6. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE REJE CTION OF COMPARABILITY ANALYSIS IN THE TRANSFER PRICING DOCU MENTATION UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES AND IN CONDUCTING A FRESH C OMPARABILITY ANALYSIS AND APPLICATION OF CERTAIN ARBITRARY FILTE RS. SOFTWARE DEVELOPMENT SERVICES 7. THE HON'BLE DRP ERRED IN UPHOLDING THE APPR*OACH OF THE LEARNED TPO , IN LAW AND ON FACTS BY EXCLUDING AKSHAY SOFTWARE TECHNOLOGIES LIMITED, AS A COMPARABLE ON THE GROUND THAT SEGMENT AL INFORMATION WAS NOT AVAILABLE HENCE CONSIDERED IT TO BE FUNCTIO NAL DISSIMILAR, WHEREAS THIS COMPARABLE COMPANY SHOULD HAVE BEEN IN CLUDED ON GROUND OF FUNCTIONAL SIMILARITY. 8. THE HON'BLE DRP ERRED IN UPHOLDING THE APPROACH OF THE LEARNED TPO, IN LAW AND ON FACTS BY EXCLUDING EVOKE TECHNOLOGIES PRIVATE LIMITED, AS A COMPARABLE ON THE GROUND THAT THE FINANCIAL STATE MENTS WERE UNRELIABLE, WHEREAS THIS COMPARABLE COMPANY SHOULD HAVE BEEN INCLUDED ON GROUND OF FUNCTIONAL SIMILARITY. 9. THE HON'BLE DRP ERRED IN UPHOLDING THE APPROACH OF THE LEARNED TPO, IN LAW AND ON FACTS BY EXCLUDING SASKEN COMMUNICATI ON TECHNOLOGIES LIMITED, AS A COMPARABLE ON THE GROUFE OF FUNCTIONA L DISSIMILARITY, PAGE 3 OF 25 IT(TP)A NO.2679/BANG/2017 WHEREAS THIS COMPARABLE COMPANY IS FUNCTIONALLY SIM ILAR HER SHOULD HAVE BEEN INCLUDED. 10. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING CG - VAK SOFTWARE AND EXPORTS LIMITED, AS A COMPARABLE WHEREAS THIS COMPA NY SHOULD HAVE BEEN EXCLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY . ADDITIONALLY, WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LEAR NED TPO HAS EARNED IN MARGIN COMPUTATION OF THE COMPARABLE, HENCE THE CORRECT OPERATING MARGIN IS TO BE CONSIDERED. II. THAT THE L-LON'BLE DRP ERRED IN UPHOLDING THE A PPROACH OF THE LEARNED TPO, IN LAW AND IN FACT BY INCLUDING ICRA TECHNO AN ALYTICS LIMITED, AS A COMPARABLE WHEREAS THIS COMPANY SHOULD HAVE BEEN EXCLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY AND IT FAILS REL ATED PARTY TRANSACTIO] FILTER OF 25% APPLIED BY THE LEARNED TPO. ADDITIONA LLY, WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LEARNED TPO HAS EARNED IN MARGIN COMPUTATION OF THE COMPARABLE, HENCE THE CRFR OPERA TING MARGIN IS TO BE CONSIDERED. 12. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING LARSE N & TOUBRO INFOTECH PRIVATE LIMITED, AS A COMPARABLE WHEREAS THIS COMPA NY SHOULD HAVE BEEN EXCLUDED ON GROUNDS OF FUNCTIONAL DISSIMILARIT Y. ADDITIONALLY, WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LEAR NED TPO HAS EARNED IN MARGIN COMPUTATION OF THE COMPARABLE, HENCE THE CORRECT OPERATING MARGIN IS TO BE CONSIDERED. 13. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING PERSI STENT SYSTEMS LIMITED, AS A COMPARABLE WHEREAS THIS COMPANY SHOUL D HAVE BEEN EXCLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY. ADD ITIONALLY, WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE LEARNED TPO HAS EARNED IN MARGIN COMPUTATION OF THE COMPARABLE, HENCE THE COR RECT OPERATING MARGIN IS TO BE CONSIDERED. INFORMATION TECHNOLOGY ENABLED SERVICES 14. THE HON'BLE DRP ERRED IN UPHOLDING THE APPROACH OF THE LEARNED TPO, IN LAW AND ON FACTS BY EXCLUDING TECH PROCESS SOLUTIONS LIMITED, AS A COMPARABLE BY APPLYING EXPORT INCOME TO SALES FILTER GREATER THAN 75% WHEREAS THIS COMPARAB LE COMPANY SHOULD HAVE BEEN INCLUDED ON GROUND OF FUNCTIONALLY SIMILA RITY. 15. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING CAPGE MINI BUSINESS SERVICES (INDIA) LIMITED, AS A COMPARABLE WHEREAS T HIS COMPANY SHOULD HAVE BEEN EXCLUDED ON GROUND THAT IT FAILS RELATED PARTY TRANSACTION FILTER OF 25% APPLIED BY THE LEARNED TPO. 16. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING INFOS YS BPO LIMITED, AS A COMPARABLE WHEREAS THIS COMPANY SHOULD HAVE BEEN EX CLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY. 17. THAT THE HON'BLE DRP ERRED IN UPHOLDING THE APP ROACH OF THE LEARNED TPO, IN LAW AND IN FACTS BY INCLUDING HARTO N COMMUNICATION PAGE 4 OF 25 IT(TP)A NO.2679/BANG/2017 LIMITED, AS A COMPARABLE WHEREAS THIS COMPANY SHOUL D HAVE BEEN EXCLUDED ON GROUND OF FUNCTIONAL DISSIMILARITY. THE ABOVE GROUNDS ARE INDEPENDENT OF, AND WITHOUT P REJUDICE TO, EACH OTHER AND THAT THE APPELLANT CRAVES LEAVE TO ADD, A LTER, AMEND, MODIFY OR WITHDRAW THE GROUNDS OF APPEAL OR PRODUCE FURTHE R DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. ASSESSEE HAS ALSO RAISED TWO ADDITIONAL GROUNDS, VIDE APPLICATIONS DATED 09/06/2020 AND 13/10/2020 WHICH ARE AS UNDER: GROUND RAISED VIDE APPLICATION DATED 9/06/2020: THE GROUNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO THE GROUNDS MENTIONED IN APPEAL NO.: 2979/BANG/2017 DATED DECEM BER 12, 2017. TRANSFER PRICING RELATED 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED TRANSFER PRICING OFFICER ('TPO') / THE LEARNED DEPU TY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2), BANGALORE ('ASSESSING O FFICER' OR 'AO') / THE DISPUTE RESOLUTION PANEL, ERRED IN NOT APPLYING THE TURNOVER FILTER FOR SELECTION OF COMPARABLE COMPANIES FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES AND IN FORMATION TECHNOLOGY ENABLED SERVICES RENDERED BY THE APPELLA NT TO ITS ASSOCIATED ENTERPRISES. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STA TEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. LD.AR SUBMITTED THAT FAILURE TO RAISE THIS GROUN D AT AN EARLIER STAGE WAS NOT WILLFUL AND THAT NO NEW FACTS NEEDS TO BE INVESTIGATED UPON IN ORDER TO ADJUDICATE THESE GROU NDS. IT HAS BEEN SUBMITTED THAT BY WAY OF ABUNDANT CAUTION ASSE SSEE RAISES EXCLUSION OF CERTAIN COMPARABLES ON TURNOVER FILTER. HE ALSO SUBMITTED THAT IN THE EVENT THESE COMPARABLES ARE EXCLUDED BASED ON TURNOVER FILTER OTHER GROUNDS REL ATING TO EXCLUSION OF THE SAME COMPARABLES ON OTHER DISSIMIL ARITIES NEED NOT BE ADJUDICATED. 4. ON THE CONTRARY LD.DR SUBMITTED THAT TURNOVER FI LTER IS NOT A RELEVANT CRITERIA BASED ON WHICH COMPARABLES COULD BE PAGE 5 OF 25 IT(TP)A NO.2679/BANG/2017 CONSIDERED FOR EXCLUSION. HE THUS OBJECTED FOR ADMI SSION OF ADDITIONAL GROUND. 5. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES AND RECORDS PLACED BEFORE US. 6. THE ADDITIONAL GROUND RAISED VIDE APPLICATION DA TED 09/06/2020 IS FUNDAMENTAL TO THE APPEAL AND THE NON - ADMISSION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF THE MATTER. THE PE TITIONER SUBMITS THAT FAILURE TO RAISE THIS GROUND AT AN EAR LIER STAGE EITHER NEITHER WILFUL OR WANTON. WE THEREFORE ADMIT THE ADDITIONAL GROUND RAISED VID E APPLICATION DATED 09/06/2020 BY ASSESSEE. 7. GROUND RAISED BY APPLICATION DATED 13/10/2020 GROUND RELATING TO OTHER THAN TRANSFER PRICING MATT ERS 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED ASSESSING OF ('AO) AND LEARNED COMMISSI ONER OF INCOME- TAX APPEALS ['CIT(A']) OUGHT TO GRANT DEDUCTION UND ER SECTION 37(1) OF THE INCOME TAX ACT, 1961 FOR EDUCATION CESS AND SECONDA RY AND HIGHER EDUCATION CESS (COLLECTIVELY REFERRED TO AS 'CESS) PAID BY THE APPELLANT ON THE ASSESSED INCOME ALONG WITH INCOME-TAX AND SU RCHARGE FOR THE YEAR UNDER APPEAL. IT IS PRAYED THAT THE DEDUCTION OF EDUCATION CESS A ND SECONDARY AND HIGHER EDUCATION CESS SHOULD BE ALLOWED TO THE APPE LLANT AS BUSINESS EXPENDITURE UNDER THE PROVISIONS OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL AND TO SUBMIT SUCH STATEME NTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 8. LD.AR SUBMITTED THAT THIS ISSUE WAS INADVERTENTL Y MISSED OUT WHILE FILING ORIGINAL GROUND OF APPEAL BEFORE T HIS TRIBUNAL . HE SUBMITTED THAT, THIS ISSUE IS COVERED BY DECISIO N OF HONBLE RAJASTHAN HIGH COURT, PLACED CASH LAW IN PAPER BOO K FILED BY ASSESSEE. IT IS ALSO SUBMITTED THAT NO NEW FACTS NE EDS TO BE INVESTIGATED ON TO ADJUDICATE THIS GROUND. PAGE 6 OF 25 IT(TP)A NO.2679/BANG/2017 9. LD.SR.DR OPPOSED ADMISSION OF THIS GROUND. 10. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES AND RECORDS PLACED BEFORE US. 11. THE ADDITIONAL GROUND RAISED VIDE APPLICATION D ATED 13/010/2020 IS FUNDAMENTAL TO THE APPEAL AND THE NO N- ADMISSION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF THE MATTER. ACCORDINGLY, THE ADDITIONAL GROUND RAISED VIDE APPL ICATION DATED 13/10/2020 STANDS ADMITTED. 12. LD.AR AT THE OUTSET SUBMITTED THAT IN THE EVEN CERTAIN COMPARABLES ARE CONSIDERED FOR EXCLUSION/INCLUSION UNDER BOTH THE SEGMENTS THE OTHER GROUNDS BECOMES ACADEMI C. 13. HE SUBMITTED THAT, GROUND NOS. 1-6, 9, 11 AND 1 4 ARE NOT PRESSED BY ASSESSEE. ACCORDINGLY, THESE GROUND NOS. 1-6, 9, 11 AND 14 AR E DISMISSED AS NOT PRESSED. 14. LD.AR SUBMITTED THAT, UNDER SWD SEGMENT, ASSESS EE WISH TO ARGUE UPON FOLLOWING COMPARABLES FOR INCLUS ION RAISED IN GROUND 7, 8 BEING; AKSHAY SOFTWARE TECHNOLOGIES LTD. EVOKE TECHNOLOGIES PVT. LTD. 15. IN GROUND 10, 12, 13 ASSESSEE ALLEGES FOLLOWING COMPARABLES FOR EXCLUSION BEING: CG-VAK SOFTWARE AND EXPORTS LTD. LARSEN AND TOUBRO INFOTECH PVT LTD. PERSISTENT SYSTEMS LTD. PAGE 7 OF 25 IT(TP)A NO.2679/BANG/2017 16. LD.AR SUBMITTED THAT, IN RESPECT OF ITES SERVIC ES, ASSESSEE WISHES TO ALLEGE FOLLOWING COMPARABLES FOR EXCLUSION RAISED IN GROUND 15-17. HE SUBMITTED THAT THESE COM PARABLES ARE TO BE EXCLUDED ON TURNOVER FILTER WHICH HAS BEE N RAISED BY WAY OF ADDITIONAL GROUND CAPGEMINI BUSINESS SERVICES(INDIA) LTD., INFOSYS BPO LTD., HARTON COMMUNICATIONS LTD., BRIEF FACTS OF THE CASE ARE AS UNDER: 17. ASSESSEE FILED ITS RETURN OF INCOME FOR YEAR UN DER CONSIDERATION ON 30/11/2013 DECLARING TOTAL INCOME OF RS.5,34,58,390/-. IT HAS BEEN SUBMITTED THAT ASSESS EE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND TECHNICA L MAINTENANCE WORK IN CERTAIN INTELLECTUAL PROPERTY A ND KNOW- HOW RELATED TO CERTAIN PRODUCTS AND SYSTEMS. LD.AO NOTED THAT DURING THE YEAR ASSESSEE HAD INTERNATIONAL TRANSACT ION MORE THAN RS.15 CRORES, AND THEREFORE, THE CASE WAS REFE RRED TO LD.TPO TO DETERMINED ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION. 18. UPON RECEIPT OF REFERENCE, LD.TPO CALLED UPON A SSESSEE TO FILE ECONOMIC DETAILS OF INTERNATIONAL TRANSACTION IN FORM 3 CEB. FROM THE DETAILS FILED BY ASSESSEE LD.TPO NOTED THA T ASSESSEE PROVIDED FOLLOWING INTERNATIONAL TRANSACTION TO ITS AE: PARTICULARS AMOUNT PROVISION OF SOFTWARE DEVELOPMENT PAGE 8 OF 25 IT(TP)A NO.2679/BANG/2017 SERVICES 33,31,78,116 PROVISION OF BPO SERVICES 17,59,381 EMPLOYEE SECONDMEANT CHARGES 19,88,588 19. LD.TPO CONSIDERED THE SOFTWARE DEVELOPMENT SERV ICE SEGMENT AND ITES SEGMENT FOR THE PURPOSE OF DETERMI NING IN ALP. LD.TPO NOTED THAT, ASSESSEE IN THE TP STUDY CO MPUTED MARGIN OF ASSESSEE BY USING TNMM AS MOST APPROPRIAT E METHOD AND OP/TC AS PLI. LD.TPO NOTED THAT ASSESSEE COMPUTED 14.18% AND 16.88% AS IS MARGIN UNDER SWD SEGMENT AND ITES SEGMENT RESPECTIVELY. ASSESSEE USE D FOLLOWING 9 COMPARABLES FOR SOFTWARE DEVELOPMENT SE RVICE SEGMENT AND 7 COMPARABLES FOR ITES SEGMENT WITH AN AVERAGE MARGIN OF 13.48% AND 12.01% RESPECTIVELY. ASSESSEE THUS HELD ITS TRANSACTION WITH ASSOCIATED ENTERPRISE TO BE AT ARMS LENGTH, AS IT HAD HIGH MARGINS AS COMPARED TO THE COMPARABL ES SELECTED UNDER BOTH SEGMENTS. SWD SEGMENT S.NO. COMPARABLES MARGIN 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 6.75 2. EVOKE TECHNOLOGIES PVT. LTD. 7.79 3. E-ZEST SOLUTIONS LTD. 19.56 4. GOLDSTONE TECHNOLOGIES LTD. 10.96 5. HELIOS & MATHESON 18.87 PAGE 9 OF 25 IT(TP)A NO.2679/BANG/2017 INFORMATION TECHNOLOGY LTD. 6. MINDTREE LTD. 15.02 7. R S SOFTWARE (INDIA) LTD. 16.40 8. R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) 7.62 9. SASKEN COMMUNICATION TECHNOLOGIES LTD. 18.39 AVERAGE MARGIN 13.48% ITES SEGMENT S.NO. COMPARABLES MARGIN 1. CALIBER POINT BUSINESS SOLUTIONS LTD., 9.82 2. COSMIC GLOBAL LTD. 25.41 3. E4E HEALTHCARE BUSINESS SERVICES PVT. LTD., 13.46 4. ICRA TECHNO ANALYTICS LTD., 19.59 5. INFORMED TECHNOLOGIES INDIA LTD., 10.87 6. JINDAL INTELLICOM LTD., 5.17 7. TECHPROCESS SOLUTIONS LTD., -0.24 AVERAGE MARGIN 12.01% 20. LD.TPO REJECTED THE TP STUDY CARRIED OUT BY ASS ESSEE AND THE FILTERS APPLIED BY ASSESSEE TO SHORTLIST THE CO MPARABLES. LD.TPO INSTEAD CARRIED OUT FRESH SEARCH AND FINALIS ED FOLLOWING SET OF COMPARABLES UNDER BOTH SEGMENTS: SWD SEGMENT S.NO. COMPARABLES MARGIN PAGE 10 OF 25 IT(TP)A NO.2679/BANG/2017 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. RS SOFTWARE (INDIA) LTD. 17.41% 7. TECH MAHINDRA LTD (SEG) 18.72% AVERAGE MARGIN 20.90% ITES SEGMENT S.NO. COMPARABLES MARGIN 1. ACROPETAL TECHNOLOGIES LTD. 24.16 2. MICROGENETIC SYSTEMS LTD. 16.34 3. JINDAL INTELLICOM LTD. -3.00 4. HARTRON COMMUNICATIONS LTD (SEG) 44.07 5. MICROLAND LTD. 8.62 6. CAPGEMINI BUSINESS SERVICES (INDIA) PVT. LTD. 26.78 7. TECH MAHINDRA LTD (SEG) 22.27 8. E4E HEALTHCARE BUSINESS PVT. LTD. 17.26 9. INFOSYS BPO LTD. 29.28 AVERAGE MARGIN 20.64 21. LD.TPO THUS COMPUTED SHORTFALL BEING THE PROPO SED ADJUSTMENT UNDER BOTH SEGMENTS AS UNDER: PAGE 11 OF 25 IT(TP)A NO.2679/BANG/2017 SOFTWARE DEVELOPMENT SERVICES ARM'S LENGTH MEAN MARGIN ON COST 20.90% LESS: WORKING CAPITAL ADJUSTMENT -1,38% (AS PER ANNEX. C) ADJUSTED MARGIN 22.28% OPERATING COST 2943,85,019 ARM'S LENGTH PRICE(ALP) 3599,74,001 122.28% OF OPERATING COST) PRICE RECEIVED 3361,42,260 VARIATION IN PRICE 238,31,741 3% OF PRICE RECEIVED 100,84,268 SHORTFALL BEING ADJUSTMENT 238,31,741 ITES SEGMENT ARM'S LENGTH MEAN MARGIN ON COST 20.64% LESS: WORKING CAPITAL ADJUSTMENT -0.99% (AS PER ANNEX. D) ADJUSTED MARGIN 21.63% OPERATING COST 169,77,390 ARM'S LENGTH PRICE(ALP) 206,49,966 121.46% OF OPERATING COST PRICE RECEIVED 198,43,778 VARIATION IN PRICE 805,821 3% OF PRICE RECEIVED 595,313 SHORTFALL BEING ADJUSTMENT 805,821 22. LD.AO WHILE PASSING THE DRAFT ASSESSMENT ORDER DID NOT GRANT DEDUCTION OF THE EDUCATIONAL CESS AND SECONDA RY HIGHER EDUCATION CESS PAID BY ASSESSEE UNDER SECTION 37 (1 ). AGGRIEVED BY PROPOSED ADJUSTMENT, ASSESSEE RAISED O BJECTION BEFORE DRP. DRP EXCLUDED 1 COMPARABLE FROM SWD SEGM ENT BEING, TECH MAHINDRA LTD., AND 2 COMPARABLES FROM I TES SEGMENT BEING ACROPETAL TECHNOLOGIES LTD AND TECH M AHINDRA LTD. PAGE 12 OF 25 IT(TP)A NO.2679/BANG/2017 23. ON RECEIPT OF DRP DIRECTIONS, LD. AO PASSED THE FINAL ASSESSMENT ORDER BY MAKING TRANSFER PRICING ADDITIO N ADDITION COMPUTED BY LD.TPO, AFTER GIVING EFFECT TO THE DRP DIRECTIONS ENHANCED TO RS.2,51,81,533/-. LD. AO ALSO MADE ADDI TION OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION C ESS ON THE ASSESSED INCOME ALONG WITH INCOME TAX AND SURCH ARGE FOR YEAR UNDER CONSIDERATION. 24. AGGRIEVED BY THE ADDITION MADE BY LD.AO, ASSESS EE IS IN APPEAL BEFORE US NOW. 25. BEFORE DEALING WITH COMPARABILITY ANALYSIS, IT IS SINE QUA NON TO UNDERSTAND FUNCTIONS PERFORMED, ASSETS OWNED AND RISK ASSUMED BY ASSESSEE UNDER BOTH SEGMENTS. 26. WE NOTE THAT IN PAPER BOOK AT PAGE 404 ASSESSEE HAS PLACED THE TRANSFER PRICING STUDY IN RESPECT OF INT ERNATIONAL TRANSACTION UNDERTAKEN BY ASSESSEE WITH ITS ASSOCIA TED ENTERPRISE. PROVISION OF SOFTWARE DEVELOPMENT SERVICES: 27. ASSESSEE IS ENGAGED IN RENDERING SOFTWARE DEVEL OPMENT SERVICE TO ITS AE IN RESPECT OF FORMULATION OF SOFT WARE COURTS, LOW-LEVEL DESIGNING AND RELATED DOCUMENTATION. IT H AS BEEN SUBMITTED THAT ON FINALISATION OF COURTS, IT ALSO U NDERTAKES SYSTEMS TESTING WHICH INCLUDES UNIT LEVEL TESTING A ND INTEGRATION TESTING. FOR RENDERING SUCH SERVICES, A SSESSEE HAS ENTERED INTO AN AGREEMENT WITH CIMNET INC ON 01/07/ 2003 AND WITH CONSONA CORPORATION ON 01/01/2011. FUNCTIONS: 28. FUNCTIONS PERFORMED BY ASSESSEE UNDER THIS SEGM ENT INCLUDES UNIT LEVEL TESTING AND INTEGRATION TESTING ON SPECIFIED PAGE 13 OF 25 IT(TP)A NO.2679/BANG/2017 PARAMETERS. ONCE THE SOFTWARE IS DEVELOPED AND TEST ED, IT IS GIVEN TO AE WHICH THEN UNDERTAKE THE INTEGRATION OF THE SOFTWARE INTO THE SYSTEM. THE SOFTWARE THUS INTEGRA TED AND BUNDLED WITH THE PRODUCTS ARE SOLD IN THE MARKET. I T HAS BEEN SUBMITTED IN THE TP ANALYSIS THAT ASSESSEE UNDERTAK ES LTD FUNCTIONS UNDER THIS SEGMENT AND IS COMPENSATED ON A COST PLUS BASIS. BUSINESS PROCESS OUTSOURCING SERVICES: 29. ASSESSEE PROVIDES BPO SERVICE TO ITS AE, CIMNET LLC PURSUANT TO AGREEMENT DATED 01/11/2004. UNDER THIS SEGMENT SERVICES INCLUDE BACK-OFFICE SUPPORT AND DE SIGNING OF PRINTED CIRCUIT BOARDS. FUNCTIONS: 30. FUNCTIONS PERFORMED BY ASSESSEE UNDER THIS SEGM ENT INCLUDE QUOTE DATA PROCESSING, FRONT-AND ENGINEERI NG , PRE- CAM AND POST-CAM SERVICES. IT HAS BEEN RECORDED IN THE TRANS-APPRISING STUDY AT PAGE 420-421 THAT ASSESSEE IS COMPENSATED AT COST PLUS BASIS. ASSETS OWNED: 31. IT HAS BEEN SUBMITTED THAT ASSESSEE DOES NOT OW N ANY NON-ROUTINE VALUABLE INTANGIBLES. RISKS ASSUMED: 32. IT HAS BEEN SUBMITTED THAT ASSESSEE OWNS LTD CO NTRACT RISK AND FOREIGN EXCHANGE RISK AS THE INVOICES RAIS ED BY ASSESSEE ARE ON ITS AE AND IS REMUNERATED IN FOREIG N CURRENCY. CATEGORISATION: PAGE 14 OF 25 IT(TP)A NO.2679/BANG/2017 33. ASSESSEE HAS THUS BEEN CONCLUDED AS LESS THAN O RDINARY RISKS IN THE COURSE OF PROVIDING SERVICES TO ITS AE BASED UPON THE ABOVE ANALYSIS, WE SHALL CONSIDER TH E COMPARABILITY OF ASSESSEE WITH ALLEGED COMPARABLES FOR EXCLUSION/INCLUSION. 34. GROUND 7- 8 HAS BEEN RAISED FOR INCLUSION OF FOLLOWING COMPARABLES. AKSHAY SOFTWARE TECHNOLOGIES LTD. 35. IT HAS BEEN SUBMITTED THAT LD.TPO REJECTED THIS COMPARABLE ON THE GROUND IT IS FUNCTIONALLY DIFFERE NT FROM THE ACTIVITIES OF THE ASSESSEE. LD.TPO FROM RESPONSE OC TANE AND ON ISSUANCE OF NOTICE UNDER SECTION 133(6) OF OBSERVED THAT THIS COMPANY IS ENGAGED IN PROVIDING PROFESSIONAL SERVIC ES, PROCUREMENT, INSTALLATION, IMPLEMENTATION AND SUPPO RT & MAINTENANCE OF ERP PRODUCTS AND SERVICES. LD.TPO TH US WAS OF THE OPINION THAT THIS COMPARABLE IS FUNCTIONALLY NOT SIMILAR WITH ASSESSEE. LD.AR SUBMITTED THAT COORDINATE BENC H OF THIS TRIBUNAL IN CASE OF AUTODESK INDIA PVT. LTD. VS DCIT REPORTED IN (2020) 119 TAXMANN.COM 265 HAS CONSIDERED A SIMILAR OBJECTION BY LD.TPO FOR ASSESSMENT YEAR 2013-14. IT IS ALSO SUBMITTED THAT THE FUNCTIONS PERFORMED BY PRESENT A SSESSEE AND AUTODESK INDIA PVT.LTD.,(SUPRA) ARE THAT OF CAPTIVE SOFTWARE DEVELOPMENT SERVICE PROVIDER. 36. ON THE CONTRARY, LD.CIT.DR PLACED RELIANCE ON OBSERVATIONS OF LD.TPO/DRP. HE SUBMITTED THAT DRP H AS OBSERVED THAT THIS COMPANY IS INTO PRODUCT DEVELOPM ENT THOUGH THE ENTIRE REVENUE OF RS. 19.94 CRORES HAS B EEN DISCLOSED UNDER THE HEADING INCOME FROM SOFTWARE SE RVICES. IT PAGE 15 OF 25 IT(TP)A NO.2679/BANG/2017 HAS BEEN SUBMITTED THAT THERE IS NO SEGMENTAL INFOR MATION AVAILABLE IN RESPECT OF REVENUE EARNED FROM SERVICE S AND PRODUCT AND IT IS NOT POSSIBLE TO FUNCTIONALLY COMP ARE THIS COMPANY UNDER SUCH CIRCUMSTANCES. 37. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 38. WE NOTE THAT IN CASE OF AUTODESK INDIA PRIVATE LIMITED (SUPRA) THIS TRIBUNAL HAS REMANDED THE COMPARABLE B ACK TO LEARNT TPO/AO BY OBSERVING AS UNDER: 17. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE TPO HAS OBTAINED INFORMA TION U/S 133(6) OF THE ACT FROM M/S AKSHAY SOFTWARE TECHNOLO GIES LTD, AS PER WHICH IT IS ENGAGED IN PROVIDING PROFES SIONAL SERVICES, PROCUREMENT, INSTALLATION, IMPLEMENTATION AND SUPPORT & MAINTENANCE OF ERP PRODUCTS AND SERVICES. IN THE CASE OF MERCEDES-BENZ RESEARCH & DEVELOPMENT INDIA (P.) LTD. (SUPRA), WE NOTICE THAT THE CO-ORDINATE BENCH HAS CONSIDERED THE NOMENCLATURE OF 'INCOME FROM SOFTWAR E SERVICES' GIVEN UNDER THE HEAD 'REVENUE FROM OPERAT IONS' , WHICH MENTIONED THAT THE INCOME FROM SOFTWARE SERVI CES WAS RS. 19.83 CRORES. NOW THE DISPUTE BOILS DOWN TO THE NATURE OF FUNCTIONS PERFORMED BY THIS COMPANY. IT IS THE RESP ONSIBILITY OF THE ASSESSEE TO SHOW THAT BOTH THE ASSESSEE AND THE COMPARABLE COMPANY PERFORM SIMILAR FUNCTIONS. BEFOR E US, THE LD A.R PLACED HER RELIANCE ON THE DECISION REND ERED BY CO-ORDINATE BENCH IN ORDER TO CONTEND THAT THIS COM PANY IS COMPARABLE. HOWEVER, TPO HAS ISSUED NOTICE U/S 133( 6) OF THE ACT TO THE ABOVE SAID COMPANY AND COLLECTED THE DETAILS OF FUNCTIONS PERFORMED BY IT, WHEREIN THE NATURE OF ACTIVITIES PERFORMED BY THIS COMPANY IS STATED AS 'PROVIDING PROFESSIONAL SERVICES, PROCUREMENT, INSTALLATION, IMPLEMENTATION AND SUPPORT & MAINTENANCE OF ERP PRO DUCTS AND SERVICES'. IT IS PERTINENT TO NOTE THAT THE ABO VE SAID INFORMATION WAS GIVEN BY M/S AKSHAY SOFTWARE TECHNO LOGIES LTD. HOWEVER, WE FIND THAT THEY ARE GENERAL DESCRIP TION OF THE FUNCTIONS PERFORMED. SPECIFIC FUNCTIONAL DETAILS HA VE NOT BEEN FURNISHED. WHAT IS REQUIRED TO BE FOUND OUT IS WHET HER THESE PAGE 16 OF 25 IT(TP)A NO.2679/BANG/2017 FUNCTIONS FALL UNDER THE CATEGORY OF 'SOFTWARE DEVE LOPMENT SERVICES', AS IN THE CASE OF THE ASSESSEE COMPANY. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS COMPANY M AY ALSO BE RESTORED TO THE FILE OF AO/TPO, SO THAT THE ASSE SSEE WOULD GET AN OPPORTUNITY TO SHOW THAT THE FUNCTIONS PERFO RMED BY THIS COMPANY AND THE ASSESSEE ARE SIMILAR. ACCORDIN GLY, WE RESTORE THIS COMPANY ALSO TO THE FILE OF THE AO/TPO . 39. AS THERE ARE NO FUNCTIONAL DIFFERENCES BROUGHT OUT BY REVENUE BETWEEN ASSESSEE AND AUTODESK INDIA PVT LTD ., AND THAT, BOTH THESE COMPANIES HAVE BEEN CATEGORISED TO BE A CAPTIVE SERVICE PROVIDER TO ITS RESPECTIVE AES, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE ABOVE MENTIONED VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL . 40. ACCORDINGLY, RESPECTFULLY FOLLOWING THE SAME, W E REMAND THIS COMPARABLE TO LD.AO/TPO TO ANALYSE THE FUNCTIO NS PERFORMED BY THIS COMPANY WITH THAT OF ASSESSEE. IN THE EVENT IT IS FOUND TO BE CARRYING OUT SWD SERVICES AS THAT OF ASSESSEE AND SEGMENTAL DETAILS MAY BE CONSIDERED FOR COMPUTI NG MARGIN OF THE INTERNATIONAL TRANSACTION. EVOKE TECHNOLOGIES PVT. LTD. 41. LD.AR SUBMITTED THAT ASSESSEE SEEKS INCLUSIONS OF THIS COMPARABLE AS IT IS ENGAGED IN SWD SERVICES. IT HA S BEEN SUBMITTED THAT THE COMPARABLE WAS REJECTED BY LD.TP O AS THE COMPANY REPORTED LOSS FROM DISCONTINUED BUSINESS DU RING RELEVANT FINANCIAL YEAR AND NO FURTHER DETAILS WAS AVAILABLE IN THIS RESPECT. LD.AR SUBMITTED THAT DRP REJECTED TH E COMPARABLE AS THE FINANCIALS OF THE COMPANY ARE UNR ELIABLE AND THAT IT OFFERS A END-TO-END IT BUSINESS SOLUTIO NS TO ENABLE CLIENTS TO ENHANCE BUSINESS PERFORMANCE. PAGE 17 OF 25 IT(TP)A NO.2679/BANG/2017 42. LD.AR SUBMITTED THAT THIS COMPANY HAS ONLY ONE SEGMENT I.E, SWD. HE THUS REQUESTED THAT THE COMPA RABLE MAY BE REMANDED FOR VERIFICATION. 43. LD.CIT.DR DID NOT OBJECT FOR THE COMPARABLE TO BE REMANDED. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 44. WE NOTE THAT BOTH LD.AO/TPO DID NOT DISPUTE THA T THIS COMPARABLE IS PROVIDING SWD SERVICES. THIS IS CONT RARY TO WHAT IS OBSERVED BY DRP. 45. UNDER SUCH CIRCUMSTANCES, WE DEEM IT NECESSARY TO REMAND THIS COMPARABLE TO LD.AO/TPO. IT IS ALSO DI RECTED THAT NECESSARY DETAILS MAY BE CALLED FOR TO VERIFY THE F AR WITH ASSESSEE. IN THE EVENT IT IS FOUND TO BE CARRYING SWD SERVICES DURING RELEVANT PERIOD, AND SEGMENTAL DETAILS ARE A VAILABLE, THE SAME MAY BE CONSIDERED FOR PURPOSE OF COMPUTING MARGIN ALP. 46. IN GROUND 10 ASSESSEE ALLEGES EXCLUSION OF CG-VAK SOFTWARE AND EXPORTS LTD. FOR BEING FUNCTIONALLY NO T SIMILAR WITH THAT OF ASSESSEE. CG-VAK SOFTWARE AND EXPORTS LTD. 47. LD.AR SUBMITS THAT ASSESSEE SEEKS EXCLUSION OF THIS COMPARABLE FOR BEING FUNCTIONALLY DIFFERENT WITH TH AT OF ASSESSEE. LD.AR SUBMITTED THAT THERE ARE NO SEGMENT AL INFORMATION IS AVAILABLE IN RESPECT OF THIS COMPANY . IN SUPPORT OF HIS ARGUMENT HE PLACED RELIANCE UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF TAVANT TECHNOLOGIES INDIA PVT.LTD VS DCIT REPORTED IN (2020) 120 TAXMANN.COM 122. PAGE 18 OF 25 IT(TP)A NO.2679/BANG/2017 48. ON THE CONTRARY LD.SR.DR PLACED RELIANCE ON ORD ERS PASSED BY AUTHORITIES BELOW. 49. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 50. WE NOTE THAT THERE IS NOTHING ON RECORD PLACED BY REVENUE TO SHOW THAT TAVENT TECHNOLOGIES INDIA PVT LTD (SUPRA) IS NOT A CAPTIVE SERVICE PROVIDER. ASSESSEE BEFORE US IS ALSO A CAPTIVE SERVICE PROVIDER PROVIDING SERVICES ONLY TO ITS ASSOCIATED ENTERPRISE. WE NOTE THAT UNDER SIMILAR CIRCUMSTANCES TRIBUNAL IN CASE OF TAVENT TECHNOLOGIES INDIA PVT LTD (SUPRA) OBSERVED AS UNDER: 9. GROUND NO. 5.3 RELATES TO THE ASSESSEE'S PLEA FOR EXCLUSION OF CG VAK SOFTWARE EXPORTS LTD. AS A COMPARABLE BY THE TP O WHICH ACTION WAS CONFIRMED BY THE DRP. THE GROUNDS ON WHICH THE ASSESSEE SOUGHT EXCLUSION OF THIS COMPANY AS A COMPARABLE BY THE TPO WAS THAT IT WAS FUNCTIONALLY DIFFERENT IN THE SENSE THA T IT WAS ENGAGED IN SOFTWARE PRODUCT DEVELOPMENT AND ABSENCE OF SEGMENT AL DATA. THE TPO & DRP TOOK THE VIEW THAT PRODUCT DEVELOPMENT WA S PART OF SOFTWARE DEVELOPMENT SERVICES. 10. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NO TICE A DECISION OF ITAT BANGALORE IN THE CASE OF NXP INDIA (P.) LTD . V. DY. CIT [2020] 116 TAXMANN.COM 421 (BANG - TRIB.) WHEREIN IN THE C ASE OF AN ASSESSEE FOR AY 2013-14 ENGAGED IN SOFTWARE DEVELOP MENT SERVICES SUCH AS THE ASSESSEE IT WAS HELD THAT CG VAK SOFTWA RE EXPORTS LTD. WAS NOT A GOOD COMPARABLE. THE FOLLOWING WERE THE R ELEVANT OBSERVATIONS OF THE TRIBUNAL:- 'III. C G VAX SOFTWARE & EXPORTS LIMITED 24. THE LEARNED AR SUBMITTED THAT THIS COMPANY SHOU LD BE EXCLUDED FOR THE REASON THAT C G VAX SOFTWARE & EXP ORTS LIMITED IS ENGAGED IN SOFTWARE DEVELOPMENT AND SALE OF PRODUCTS WHICH INVOLVES HIGH DEGREE OF R & D EXPEND ITURE AND TO DEMONSTRATE THE SAME, HE DREW OUR ATTENTION TO THE PAPER BOOK PAGE NOS.1018 AND 1034 AND SUBMITTED THAT THE NATUR E OF THE BUSINESS OF SOFTWARE DEVELOPMENT INVOLVES INBUILT, CONSTANT RESEARCH AND DEVELOPMENT AS A PART OF ITS PROCESS O F MANUFACTURING (DEVELOPMENT). THE COMPANY IS DEVELOP ING APPLICATIONS ENGINES, RE-USABLE CODES AND LIBRARIES AS A PART OF ITS R & D ACTIVITIES. FURTHER, IT HAS INTANGIBLE AS SETS AS SHOWN IN THE FINANCIAL STATEMENT AS ON 31-3-2013 AT RS. 3,03 ,83,536 AND PAGE 19 OF 25 IT(TP)A NO.2679/BANG/2017 IT IS ALSO ENGAGED IN OUTSOURCE PRODUCT DEVELOPMENT , AS IS EVIDENT FROM THE ATTACHED NOTES FORMING PART OF THE ACCOUNTS. THE LEARNED AR ALSO SUBMITTED THAT C G VAK SOFTWARE & EXPORTS LIMITED WAS NOT CONSIDERED AS A COMPARABLE IN THE C ASE OF M/S. EPAM SYSTEMS INDIA PRIVATE LIMITED (ITA NO. 2122/HY D/2017 FOR ASSESSMENT YEAR 20132014). VIDE ORDER DATED 20- 11-2018, THE TRIBUNAL HELD AS UNDER: '16. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS RAISED ITS OB JECTIONS BEFORE 10 THE TPO BUT HE HELD THAT IT IS FUNCTIONAL LY SIMILAR. WE HAVE GONE THROUGH THE ANNUAL REPORTS OF CGVAK SO FTWARE & EXPORTS LTD AND FIND THAT THE SAID COMPANY IS HAV ING REVENUE FROM BOTH SOFTWARE SERVICES AND BPO SERVICE S BUT THERE IS NO SEGMENTAL DATA WITH REGARD TO EACH OF T HESE TRANSACTIONS. THEREFORE, AS HELD BY THE COORDINATE BENCH OF THE TRIBUNAL IN A NUMBER OF CASES (CITED SUPRA), WE HOLD THAT THIS COMPANY CANNOT BE TAKEN AS A COMPARABLE TO THE ASSESSEE-COMPANY. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FINAL LIST OF COMPARABLES. ' 24.1 SIMILARLY, IN THE CASE OF M/S. ION TRADING IND IA PRIVATE LIMITED V. ITO (ITA NO. 1035/DEL/2015 FOR THE ASSES SMENT YEAR 2010-2011). THE TRIBUNAL VIDE ITS ORDER DATED 7-12- 2015, HELD AS UNDER: '21. WE HAVE CONSIDERED THE SUBMISSION OF THE ID. C OUNSEL FOR THE ASSESSEE AND HAVE CONSIDERED THE ARGUMENT OF TH E LD. DR THAT THE ASSESSEE IS NOT PRODUCING ANY PRODUCT, HOW EVER, WE FIND THAT CG-VAK SOFTWARE AND EXPORTS LIMITED IS NO T ONLY INTO COMPUTER SOFTWARE BUT IT IS A PRODUCT MANUFACTURER TOO. SINCE ASSESSEE IS NOT INTO PRODUCT MANUFACTURING AND THE SEGMENTAL DETAILS CANNOT BE BIFURCATED FROM THE FINANCIAL DET AILS, WE FIND THAT THE ASSESSEE AND THE CG-VAK SOFTWARE AND EXPOR TS LIMITED ARE NOT COMPARABLES. THEREFORE, WE ARE INCL INED TO UPHOLD THE ORDERS OF THE AUTHORITIES BELOW IN REJEC TING THIS COMPANY AS A COMPARABLE. WE DIRECT ACCORDINGLY. ' 24.2 IN OUR OPINION, THERE IS FORCE IN THE ARGUMENT OF THE LEARNED AR. M/S. CG VAK SOFTWARE & EXPORTS LIMITED IS NOT O NLY ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELO PMENT, BUT ALSO ENGAGED IN PRODUCT MANUFACTURING PROCESS, WHER EAS THE PRESENT ASSESSEE IS NOT IN PRODUCT MANUFACTURE ACTI VITY. M/S. CG VAK SOFTWARE & EXPORTS LTD. OWNS HUGE INTANGIBLE ASSETS AND ALSO ENGAGED IN OUTSOURCED PRODUCT DEVELOPMENT. IN VIEW OF THE FOREGOING REASONS, WE HOLD THAT THE SAID COMPAN Y CANNOT BE CONSIDERED FOR INCLUSION IN THE LIST OF COMPARABLES . WE, THEREFORE, DIRECT THE TPO TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES.' 11. FOLLOWING THE AFORESAID DECISION, WE DIRECT THE EX CLUSION OF CG VAK SOFTWARE EXPORTS LTD. FROM THE LIST OF COMPARAB LE COMPANIES. PAGE 20 OF 25 IT(TP)A NO.2679/BANG/2017 RESPECTFULLY FOLLOWING THE SAME, WE DIRECT EXCLUSIO N OF CG VAK SOFTWARE EXPORTS LTD FROM THE FINAL LIST OF COM PANY. 51. FOLLOWING TWO COMPARABLES ALLEGED IN GROUND 12-13 ARE SOUGHT TO BE EXCLUDED ON TURNOVER FILTER UNDER SOFT WARE DEVELOPMENT SERVICE SEGMENT: LARSEN AND TOUBRO INFOTECH PVT LTD. PERSISTENT SYSTEMS LTD. 52. IN GROUND 15-17, ASSESSEE SEEKS TO EXCLUDED FOLLOWING COMPARABLES UNDER ITES TURNOVER FILTER: CAPGEMINI BUSINESS SERVICES(INDIA) LTD., INFOSYS BPO LTD., HARTON COMMUNICATIONS LTD., ASSESSEE SEEKS EXCLUSION OF AFORESAID COMPARABLES B Y APPLYING ON TURNOVER FILTER WHICH HAS BEEN RAISED BY WAY OF ADDITIONAL GROUND. 53. WE HAVE ALREADY ADMITTED ADDITIONAL GROUND RAIS ED BY ASSESSEE VIDE APPLICATION DATED 09/06/2020. THE LD. AR SUBMITTED THAT EXCLUSION OF COMPANIES BASED ON TURN OVER HAS BEEN DISCUSSED BY THIS TRIBUNAL IN CASE OF AUTODESK INDIA (P.) LTD. VS DCIT (2018) 96 TAXMANN.COM 263 . TRIBUNAL IN THIS DECISION AFTER CONSIDERING VARIOUS DECISIONS BY COO RDINATE BENCH, CONSIDERED THE QUESTION, WHETHER COMPANIES H AVING TURNOVER MORE THAN 200 CRORES UPTO 500 CRORES HAS T O BE REGARDED AS ONE CATEGORY AND THOSE COMPANIES CANNOT BE REGARDED AS COMPARABLES WITH COMPANIES HAVING TURNO VER OF LESS THAN 200 CRORES, THE TRIBUNAL OBSERVED AND HELD AS FOLLOWS: PAGE 21 OF 25 IT(TP)A NO.2679/BANG/2017 '17.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SUBSTANTIAL QUESTION OF LAW (QUESTION NO. 1 TO 3) WHICH WAS FRA MED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHRYSCAPITA L INVESTMENT ADVISORS (INDIA) PVT. LTD., (SUPRA) WAS AS TO WHETH ER COMPARABLE CAN BE REJECTED ON THE GROUND THAT THEY HAVE EXCEPT IONALLY HIGH PROFIT MARGINS OR FLUCTUATION PROFIT MARGINS, AS CO MPARED TO THE ASSESSEE IN TRANSFER PRICING ANALYSIS. THEREFORE AS RIGHTLY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HE OBSERVATIONS OF THE HON'BLE HIGH COURT, IN SO FAR A S IT REFERS TO TURNOVER, WERE IN THE NATURE OF OBITER DICTUM. JUDI CIAL DISCIPLINE REQUIRES THAT THE TRIBUNAL SHOULD FOLLOW THE DECISI ON OF A NON- JURISDICTION HIGH COURT, EVEN THOUGH THE SAID DECIS ION IS OF A NON- JURISDICTIONAL HIGH COURT. WE HOWEVER FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PENTAIR WAT ER INDIA PVT. LTD. TAX APPEAL NO. 18 OF 2015 JUDGMENT DATED 16-9- 2015 HAS TAKEN THE VIEW THAT TURNOVER IS A RELEVANT CRITERIO N FOR CHOOSING COMPANIES AS COMPARABLE COMPANIES IN DETERMINATION OF ALP IN TRANSFER PRICING CASES. THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. IN THE CIRCUMSTANCES, FOL LOWING THE PRINCIPLE THAT WHERE TWO VIEWS ARE AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED, WE RESPECTFULLY FOLLOW THE VIEW OF THE HON'BLE BOMBAY HIGH COURT ON THE ISSUE. RESPECTFULLY FOLLOWING THE AFORESAID DEC ISION, WE UPHOLD THE ORDER OF THE DRP EXCLUDING 5 COMPANIES F ROM THE LIST OF COMPARABLE COMPANIES CHOSEN BY THE TPO ON THE BA SIS THAT THE 5 COMPANIES TURNOVER WAS MUCH HIGHER COMPARED TO TH AT THE ASSESSEE. 17.8 IN VIEW OF THE ABOVE CONCLUSION, THERE MAY NOT BE ANY NECESSITY TO EXAMINE AS TO WHETHER THE DECISION REN DERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) BY THE ITAT BAN GALORE BENCH SHOULD CONTINUE TO BE FOLLOWED. SINCE ARGUMENTS WER E ADVANCED ON THE CORRECTNESS OF THE DECISIONS RENDERED BY THE ITAT MUMBAI AND BANGALORE BENCHES TAKING A VIEW CONTRARY TO THA T TAKEN IN THE CASE OF GENISYS INTEGRATING (SUPRA), WE PROCEED TO EXAMINE THE SAID ISSUE ALSO. ON THIS ISSUE, THE FIRST ASPEC T WHICH WE NOTICE IS THAT THE DECISION RENDERED IN THE CASE OF GENISYS INTEGRATING (SUPRA) WAS THE EARLIEST DECISION RENDE RED ON THE ISSUE OF COMPARABILITY OF COMPANIES ON THE BASIS OF TURNOVER IN TRANSFER PRICING CASES. THE DECISION WAS RENDERED A S EARLY AS 5- 8-2011. THE DECISIONS RENDERED BY THE ITAT MUMBAI B ENCHES CITED BY THE LEARNED DR BEFORE US IN THE CASE OF WI LLIS PROCESSING SERVICES (SUPRA) AND CAPEGEMINI INDIA PVT. LTD. (SU PRA) ARE TO BE REGARDED AS PER INCURIUM AS THESE DECISIONS IGNORE A BINDING COORDINATE BENCH DECISION. IN THIS REGARD THE DECIS IONS REFERRED TO PAGE 22 OF 25 IT(TP)A NO.2679/BANG/2017 BY THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS TH E PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE DECISIONS REN DERED IN THE CASE OF M/S.NTT DATA (SUPRA), SOCIETE GENERALE GLOB AL SOLUTIONS (SUPRA) AND LSI TECHNOLOGIES (SUPRA) WERE RENDERED LATER IN POINT OF TIME. THOSE DECISIONS FOLLOW THE RATIO LAID DOWN IN WILLIS PROCESSING SERVICES (SUPRA) AND HAVE TO BE REGARDED AS PER INCURIUM. THESE THREE DECISIONS ALSO PLACE RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CHRISCAPITAL INVESTMENT (SUPRA). WE HAVE ALREADY HE LD THAT THE DECISION RENDERED IN THE CASE OF CHRISCAPITAL INVES TMENT (SUPRA) IS OBITER DICTA AND THAT THE RATIO DECIDENDI LAID D OWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PENTAIR (S UPRA) WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. T HEREFORE, THE DECISIONS CITED BY THE LEARNED DR BEFORE US CANNOT BE THE BASIS TO HOLD THAT HIGH TURNOVER IS NOT RELEVANT CRITERIA FOR DECIDING ON COMPARABILITY OF COMPANIES IN DETERMINATION OF ALP UNDER THE TRANSFER PRICING REGULATIONS UNDER THE ACT. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) ON THE ISS UE OF APPLICATION OF TURNOVER FILTER AND HIS ACTION IN EX CLUDING COMPANIES BY FOLLOWING THE RATIO LAID DOWN IN THE C ASE OF GENISYS INTEGRATING (SUPRA).' 54. RESPECTFULLY FOLLOWING THE SAME, WE ALSO HOLD T HAT TURNOVER IS A RELEVANT CRITERIA FOR CONSIDERING COM PARABLES. ACCORDINGLY ADDITIONAL GROUND RAISED BY ASSESSEE ST ANDS ALLOWED. ASSESSEE HAS ALLEGED COMPARABLES FOR EXCLUSION IN G ROUNDS 12-13 AND 15-17 BY APPLYING TURNOVER FILTER. WE HAV E UPHELD THE TURNOVER FILTER IN THAT AFORESTATED PARAGRAPHS, AND THAT THESE COMPARABLES ARE ADMITTEDLY MORE THAN 200 CROR ES, WE ARE OF THE OPINION THAT THEY CANNOT BE INCLUDED IN THE FINAL LIST FOR COMPUTING THE ARMS LENGTH MARGIN. ACCORDINGLY GROUNDS 12-13 AND 15-17 STANDS ALLOWED. ADDITIONAL GROUND RAISED BY ASSESSEE WIDE LETTER DA TED 13/10/2020 PAGE 23 OF 25 IT(TP)A NO.2679/BANG/2017 55. IN RESPECT OF ADDITIONAL GROUND RAISED BY ASSES SEE VIDE LETTER DATED 13/10/2020, LD.AR SUBMITTED THAT THIS ISSUE STANDS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY DE CISION OF ORDERABLE RAJASTHAN HIGH COURT IN CASE OF CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. JCT IN ITA NO.52/2018 BY ORDER DATED 31/07/2018. HE SUBMITTED THATS EDUCATION SAYS AN D SECONDARY AND HIGHER EDUCATION CESS HAS BEEN DULY DISCHARGED BY ASSESSEE WHILE COMPUTING TAX LIABILIT Y UNDER NORMAL PROVISIONS OF INCOME TAX ACT. PLACING RELIAN CE ON FOLLOWING DECISIONS LD.AR SUBMITTED THAT CESS IS DEDUCTIBLE AS BUSINESS EXPENDITURE UNDER SECTION 37 (1) OF THE AC T FOR DETERMINING THE ASSESSED INCOME FOR YEAR UNDER CONS IDERATION AND THAT THIS VIEW IS UPHELD IN FOLLOWING DECISIONS : SESA GOA LTD. VS. JOINT COMMISSIONER OF INCOME-TAX. 1(2020) 117 TAXMANN.COM 96 (BOMBAY HIGH COURT)] RECKITT BENCKISER (I) PVT. LTD. VS. DEPUTY COMMISSI ONER OF INCOME-TAX [(2020) 117 TAXMANN.COM 519 (KOLKATA TRIBUNAL)] ITC LIMITED VS. ASSISTANT COMMISSIONER OF INCOME-TA X [I.T.A NO. 1267 /KOL/2014(KOLKATA TIRBUNAL)] THE PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX [ITA NO. 1439/KOL/2018 (KOLKATA TRIBUNAL)] TATA STEEL LIMITED VS. ASSISTANT COMMISSIONER OF INCOME-TAX [ITA NO. 5573/MUM/2012 (MUMBAI TRIBUNAL)] 56. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 57. NOTHING IS DISCERNIBLE FROM THE RECORD TO ESTAB LISH THAT ASSESSEE HAS RAISED THE CLAIM BY WAY OF REVISED RET URN BEFORE LD.AO. HOWEVER WE ARE OF CONSIDERED OPINION THAT TH IS IS AN ALLOWABLE EXPENDITURE AND HAS OF ASSESSEES. ACCORD INGLY WE PAGE 24 OF 25 IT(TP)A NO.2679/BANG/2017 REMAND THIS ISSUE BACK TO LD.AO TO CONSIDER THE CLA IM OF ASSESSEE IN ACCORDANCE WITH LAW. NEEDLESS TO SAY TH AT PROPER OPPORTUNITY OF BEING HEARD MUST BE GRANTED TO ASSES SEE. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH NOV, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 6 TH NOV, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE. PAGE 25 OF 25 IT(TP)A NO.2679/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -11-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -11-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -11-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -11-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -11-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -11-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -11-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 1*3. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS