AVL India Software Private Ltd., New Delhi V. ACIT, New Delhi

ITA 279/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7479 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 17-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 15-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA: JUDICIAL MEMBER ITA NOS. 6454/DEL/2012 & 279/DEL/2013 ASSTT. YRS: 2007-08 & 2008-09 AVL INDIA SOFTWARE PVT. LTD., VS. DCIT CIRCLE 2(1) , CSC. C-9, (VASANT KUNJ), NEW DELHI. NEW DELHI. PAN: AAACA 0042 R ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI S.P. SINGH AR SHRI MANONEET DALAL ADV. SHRI GAURAV BHUTANI CA RESPONDENT BY : SHRI SANJAY KUMAR SR. DR DATE OF HEARING : 17/05/2016. DATE OF ORDER : 10/06/2016. O R D E R PER S.V. MEHROTRA, A.M: THESE ARE ASSESSEES APPEALS AGAINST SEPARATE ORDE RS OF LD. CIT(A) RELATING TO AYS 2007-08 AND 2008-09. BOTH THE APPEA LS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6454/DEL/2012 (A.Y. 2007-08):- 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS INCORPORATED ON 10.7.1990. 60% OF THE EQUITY OF THE ASSESSEE WAS HELD BY AVL LIST GMBH, AUSTRIA AND 40% WAS HELD BY AN INDIAN COMPANY , NAMED, SOWAN PVT. LTD. THE ASSESSEE HAD FILED RETURN OF INCOME D ECLARING INCOME OF RS. 2 2,18,690/-. THE ASSESSEE HAD ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE: - PROVISION OF SOFTWARE DEVELOPMENT SERVICES : RS. 37 961871 - REIMBURSEMENT OF EXPENSES RS. 3,09,403 3. LD. TPO DID NOT DISPUTE THE ALP OF REIMBURSEMENT OF EXPENSES. LD. TPO ANALYSED THE TRANSACTIONS PERTAINING TO SOFTWA RE DEVELOPMENT SERVICES. THERE IS NO DISPUTE BETWEEN ASSESSEE AND TPO ON THE METHOD EMPLOYED FOR BENCH MARKING VIZ. TNM METHOD. LD. TPO NOTED THAT ASSESSEE HAD APPLIED FOLLOWING FILTERS TO IDENTIFY THE COMPARABLES. 1. COMPANIES FOR WHICH SUFFICIENT FINANCIAL DATA IS NO T AVAILABLE TO UNDERTAKE ANALYSIS WERE EXCLUDED 2. COMPANIES THAT HAVE FOREIGN SHAREHOLDING MORE THAN 26% WERE EXCLUDED. 3. COMPANIES WHICH HAVE TRADING SALES, MFG. SALES AN D SCRAP SALES MORE THAN 5% OF TOTAL SALES WERE EXCLUDED. 4. COMPANIES THAT HAVE NET WORTH AND NET PBT LESS THAN 10% WERE EXCLUDED. 4. ASSESSEE IDENTIFIED 19 COMPARABLES. THE AVERAGE PROFIT MARGIN OF COMPARABLES WAS 11.48% ON COST AND THE ASSESSEES O PERATING MARGIN WAS 15% OF OPERATING COST AND, THEREFORE, ASSESSEE HAD TREATED THE TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES AT ARMS LENGTH. LD. TPO APPLIED THE ADDITIONAL FILTERS AND ALSO OBTAINED INFORMATION U/ S 133(6) AND ON THAT BASIS SELECTED FOLLOWING 26 COMPARABLES, WHICH INCLUDED O NLY 4 COMPARABLES FROM THE LIST OF COMPARABLES SELECTED BY ASSESSEE:- SL. NO. NAME OF THE COMPANY DATE OF ANNUAL REPORT 1 ACCEL TRANSMATIC LTD. 29.05.2007 2 AVANI CIMCON TECHNOLOGIES LTD. 03.09.2007 3 CELESTIAL LABS LTD 12.04.2007 4 DATAMATICS LTD. 24.10.2007 3 5 E-ZEST SOLUTIONS LTD. 31.08.2007 6 FLEXTRONICS SOFTWARE SYSTEMS LTD. 04.07.2007 7 GEOMETRIC LTD 30.04.2007 8 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. AUGUST, 2007 9 IGATE GLOBAL SOLUTIONS LTD. 11.04.2007 12 KALS INFORMATION SYSTEMS LTD. 17.08.2007 13 LGS GLOBAL LTD. (LANCO GLOBAL SOLUTIONS LTD) 01.12.2007 14 LUCID SOFTWARE LTD. 29.08.2007 15 MEDIASOFT SOLUTIONS LTD 13.09.2007 16 MEGASOFT LTD. 29.10.2007 17 MINDTREE LTD. 12.06.2007 18 PERSISTENT SYSTEMS LTD. 30.04.2007 19 QUINTEGRA SOLUTIONS LTD. 30.08.2007 20 R.S. SOFTWARE (INDIA) LTD. 12.07.2007 21 R SYSTEMS INTERNATIONAL LTD. 26.10.2007 22 SASKEN COMMUNICATION TECHNOLOGIES LTD. 20.04.20 07 23 SIP TECHNOLOGIES & EXPORS LTD. 24.08.2007 24 TATA ELXSI LTD 20.04.2007 25 THIRDWARE SOLUTIONS LTD. MAY, 2007 26 WIPRO LTD. 20.06.2007 5. LD. CIT(A) REJECTED MEGASOFT LTD. OUT OF 26 COMP ARABLES SELECTED BY LD. TPO. 6. LD. COUNSEL SUBMITTED THAT THE ASSESSEE WAS INCO RPORATED IN 1990 AND IS A PART OF INTERNATIONAL SOFTWARE DEVELOPMENT TE AM OF AVL GROUP, PARTICIPATING IN VARIOUS DEVELOPMENT PROJECTS FOR P REMIER CLIENTS OF AVL WORLD-WIDE. THE ASSESSEE PROVIDES SERVICES TO ITS AES FOR DEVELOPING SOFTWARES FOR VARIOUS EQUIPMENT / MACHINE TESTING E QUIPMENT (AUTOMOBILE INDUSTRY) AS PER THE SPECIFICATION PRESCRIBED BY TH E CONTRACTOR AES. THE SOFTWARE IS USED FOR THE TESTING EQUIPMENT, UPON AS SEMBLING OF ALL REQUIRED COMPONENTS, WHETHER HARDWARE OR SOFTWARE, WHETHER P URCHASED OR DEVELOPED 4 IN-HOUSE BY AES. FOR EACH OF THE PROJECTS, FOR WHIC H A TASK IS SUB-CONTRACTED TO THE ASSESSEE, SPECIFICATIONS AND DETAILS ARE PRO VIDED BY THE AES, WHICH DEFINES THE SCOPE OF WORK, EXECUTION PLAN, QUANTUM OF DELIVERABLES, TIME ETC. THE ASSESSEE, THUS, WORKS CLOSELY WITH ITS AES TO DEVELOP CUSTOMIZED SOFTWARE. THE TASKS ARE PERFORMED THROUGH THE USE O F SPECIFIC TOOLS FOR LAYOUT, DESIGN CALCULATIONS, CODING LANGUAGES, SPEC IFICATION AND DATASHEET GENERATION, ETC. 7. AS THE ASSESSEE PROVIDES SOFTWARE DEVELOPMENT S UPPORT SERVICES TO ITS AES ONLY, IT IS NOT RESPONSIBLE FOR ENTERING INTO C ONTRACT WITH FINAL CUSTOMERS AND NEGOTIATING THE PRICES. IT IS THE AE ONLY, WHIC H IS RESPONSIBLE FOR THE SAME. 8. LD. COUNSEL SUBMITTED THAT THE MAIN DISPUTE IN T HE PRESENT APPEAL IS REGARDING SELECTION OF COMPARABLES. 9. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS GROUND NOS. 2, 3B, D AND E. LD. COUNSEL SUBMITTED T HAT PRIMARILY ASSESSEE IS PLEADING FOR EXCLUSION OF FOLLOWING COMPARABLES: - ACCEL TRANSMATIC LTD. - CELESTIAL LABS LTD - HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. - INFOSYS TECHNOLOGIES LTD. - KALS INFORMATION SYSTEMS LTD. - PERSISTENT SYSTEMS LTD. - TATA ELXSI LTD. - WIPRO LTD. 10. LD. COUNSEL FOR THE ASSESSEE HAS PRIMARILY REL IED ON FOLLOWING DECISIONS RELATING TO A.Y. 2007-08 IN SUPPORT OF IT S CONTENTION THAT SINCE THE AFOREMENTIONED COMPANIES WERE IN THE SAME LINE OF BUSINESS VIZ. 5 SOFTWARE DEVELOPMENT SERVICES, THEREFORE, THE COMPA RABLES ACCEPTED/ REJECTED IN THE CASES SHOULD GET THE SAME TREATMENT IN THE PRESENT CASE ALSO. - TOLUNA INDIA PVT. LTD. (ITA NO. 5645/DEL/2011 FOR A Y 2007-08) - AVAYA INDIA (P) LTD. (ITA NO. 5528/DEL/2011 FOR AY 2007-08) - ELEMENT K INDIA PVT. LTD. (ITA NO. 431/DEL/2012 FOR AY 2007-08) - LEAR AUTOMOTIVE INDIA P. LTD. (ITA NO. 5612/DEL/201 1 FOR AY 2007- 08) 11. LD. DR SUBMITTED THAT THE LD. TPO HAS ACCEPTED 4 COMPARABLES OUT OF 19 SELECTED BY ASSESSEE. HE REFERRED TO PAGES 297 A ND 298 OF PB AND POINTED OUT THAT THE SEARCH PROCESS INVOLVED KEY WORDS FOR CLASSIFICATION OF COMPANY AND THERE WAS NO MANUAL SELECTION DONE BY TPO. THER EFORE, IF THE COMPARABLE PASSED ALL THE FILTERS ADOPTED BY TPO TH EN THE SAME CANNOT BE REJECTED MERELY ON THE GROUND OF HIGHER OR LOW MARG IN. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. FIRST WE WILL EXAMI NE THE APPLICABILITY OF DECISIONS RELIED BY LD. AUTHORIZED REPRESENTATIVE T O THE FACTS OF THE PRESENT CASE. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT . LTD. (SUPRA), THE TRIBUNAL IN PARA 3 OF ITS ORDER HAS OBSERVED AS UNDER: 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE WAS INCORPORATED IN INDIA IN THE YEAR 2003 AS A WHO LLY OWNED@ SUBSIDIARY OF GREENFIELD ONLINE INC., USA (G REENFIELD US), THE ULTIMATE PARENT ENTITY OF THE GREENFIELD G ROUP. THE ASSESSEE IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVICES TO THE GREENFIELD GROUP. CERTAIN INTERNATIONAL TRANSACTIONS WERE REPORTED IN THE REQ UISITE FORM. THE ASSESSEE IS COMPENSATED ON A TIME COST OR FIXED PRICE BASIS FOR THE PROJECTS ASSIGNED. GREENFIELD US IS PROVIDI NG END TO END 6 INFORMATION TECHNOLOGY SERVICES WHICH INCLUDE THE P ROVISION OF CONSULTING AND SYSTEMS INTEGRATION SERVICES TO MANA GING IT AND BUSINESS FUNCTIONS ON BEHALF OF ITS CUSTOMERS. 13. THUS IT IS EVIDENT THAT THE FUNCTIONS CARRIED O UT BY ASSESSEE ARE SIMILAR TO THAT OF TOLUNA INDIA PVT. LTD. (SUPRA) AND, THER EFORE, BOTH ARE FUNCTIONALLY COMPARABLE. 14. IN THE CASE OF AVAYA INDIA (P) LTD. (SUPRA), TH E TRIBUNAL IN PARA 2 OF ITS ORDER HAS OBSERVED AS UNDER: THE ASSESSEE, AVAYA INDIA PRIVATE LIMITED IS A SUB SIDIARY IN INDIA OF AVAYA INTERNATIONAL LLC. DURING THE FINANC IAL YEAR (FY) 2006-07, THE ASSESSEE HAS PROVIDED SOFTWARE DEVELOPMENT AND BACK OFFICE SUPPORT SERVICES TO THE ASSOCIATED ENTERPRISES (AES) UNDER THE COST PLUS MODEL. THE AS SESSEE HAS ALSO PROVIDED MARKETING SUPPORT SERVICES TO AVAYA INTERNATIONAL SALES LTD. THE ASSESSEES MARKETING A CTIVITIES INCLUDE PROVIDING INFORMATION ABOUT AVAYA PRODUCTS, CUSTOMER AWARENESS ETC. 15. THUS, IT IS EVIDENT THAT THIS COMPANY IS ALSO P ERFORMING SIMILAR FUNCTIONS AS ASSESSEE. 16. IN THE CASE OF LEAR AUTOMOTIVE INDIA P. LTD.( SUPRA), THE TRIBUNAL IN PARA 2.2 OF ITS ORDER HAS OBSERVED AS UNDER: BRIEF STATED THE FACTS OF THE CASE ARE THAT THE AS SESSEE IS A SUBSIDIARY OF LEAR CORPORATION USA, WHICH HOLDS THE ENTIRE SHARE CAPITAL OF THE ASSESSEE-COMPANY THROUGH ITS A FFILIATE VIZ. LEAR CORPORATION (MAURITIUS) LTD. THE ASSESSEE IS P RIMARILY ENGAGED IN THE MANUFACTURE/ ASSEMBLY OF AUTOMOTIVE SEATING SYSTEMS (I.E. SEATS AND SEAT TRIMS) AND INTERIOR PA RTS. THE 7 ASSESSEE PROVIDES DESIGN AND ENGINEERING SUPPORT SE RVICES ALONG WITH EMBEDDED SOFTWARE DEVELOPMENT SUPPORT SE RVICES TO GROUP COMPANIES, AND DESIGN AND ENGINEERING SERVICE S TO AUTOMOTIVE INDUSTRY CUSTOMERS, LIKE GENERAL MOTORS LTD. AND MAHINDRA& MAHINDRA (M&M) . 17. FURTHER WE FIND THAT IN PARA 4.5 THE TRIBUNAL H AS OBSERVED AS UNDER: 4.5. THE ASSESSEE IS INVOLVED IN STAGES C) AND D) A LONE. OTHER WORDS, THE OTHER STAGES IN THE PROVISION OF DESIGN AND ENGINEERING SERVICES BY THE LEAR GROUP TO ITS CUSTO MERS ARE PERFORMED BY THE AES INDEPENDENT OF THE ASSESSEE'S HELP. TO PUT IT SIMPLY, WHEREAS THE GROUP COMPANIES UNDERSTAND T HE TOTAL REQUIREMENTS/SPECIFICATIONS OF THE CUSTOMER AND CON CEPTUALISE THE DESIGNS, THE ASSESSEE, BASED ON SUCH SPECIFICAT IONS, PREPARES THE DESIGNS, TESTS AND SIMULATES TO ENSURE THE PROPER FUNCTIONING OF THE PRODUCT WHEN ALL ITS COMPONENTS WOULD BE ASSEMBLED. THE WORK DONE BY THE ASSESSEE GOES BACK TO THE AE, WHO THEN GETS SUCH DESIGNS APPROVED FROM THE FINAL CUSTOMERS AND, THEREAFTER, PROTOTYPES ARE MADE AS PER THE DES IGNS WHICH ARE TESTED FOR FUNCTIONALITY AND THEN APPROVED BY T HE CUSTOMER. ONCE THE PROTOTYPES ARE APPROVED, THE AES GET MANUF ACTURED TOOLS AND MOULDS FOR THE PURPOSES OF MANUFACTURING COMPONENTS AS PER THE DESIGNS FINALLY APPROVED BY T HE CUSTOMER. SUCH TOOLS AND MOULDS ARE THEN APPROVED B Y THE CUSTOMERS AND, THEREAFTER, THE ACTUAL CV MANUFACTUR ING STARTS. THUS, IT CAN BE SEEN THAT IN THE OVERALL FRAMEWORK OF DESIGNS AND ENGINEERING OF COMPONENTS, THE ASSESSEE'S ROLE IS LIMITED TO PREPARING SOFTWARE FOR DESIGNS AS PER THE SPECIFICA TIONS GIVEN BY ITS AE AND THEN TESTING AND SIMULATING THE WORK DONE BY IT BEFORE HANDING OVER SUCH SOFTWARE TO ITS AES. TO PU T IT SIMPLY, THE ASSESSEE IS SIMPLY ENGAGED IN PROVIDING SOFTWAR E DEVELOPMENT SERVICES TO ITS AE, WHICH WORK ENDS BEF ORE THE APPROVAL OF DESIGNS BY THE FINAL CUSTOMERS FOR MANU FACTURING AT A LATER STAGE . 8 18. FROM THE ABOVE IT IS EVIDENT THAT BUSINESS PRO FILE OF LEAR AUTOMOTIVE INDIA P. LTD.( SUPRA) IS VERY SIMILAR TO ASSESSEE. AS A MATTER OF FACT ASSESSEES FUNCTIONAL PROFILE IS NOT THAT EXTENSIVE AS THAT OF LEAR AUTOMOTIVE INDIA P. LTD.( SUPRA). 19. IN THE CASE OF ELEMENT K. INDIA PVT. LTD. THE TRIBUNAL IN PARA 8 OF ITS ORDER, INTER ALIA, HAS OBSERVED AS UNDER: 8. AFTER HEARING BOTH THE SIDES AND HAVING GONE TH ROUGH THE MATERIAL PLACED ON RECORD, WE HOLD THAT ASSESSEE IS AB WHOLLY OWNED SUBSIDIARY OF ELEMENT K CORPORATION, USA. IT PROVIDES CONTENT DESIGN AND DEVELOPMENT SUPPORT SERVICES FOR ONLINE COURSEWARE UNDER A SERVICE AGREEMENT WITH ITS PAREN T COMPANY. ASSESSEE IS REMUNERATED ON COST PLUS 15% MARKUP FOR THE SERVICES RENDERED. THUS, ASSESSEE IS A LOW RISK CAP TIVE SERVICE PROVIDER. ACCORDING TO TPO ALSO, THE ASSESSEE WAS I T SERVICE PROVIDER IN THE FIELD OF SOFTWARE DEVELOPMENT SERVI CES TO ITS PARENT COMPANY. 20. THUS, ALL THE ABOVE FOUR DECISIONS, WHEN CONSID ERED FROM THE PERSPECTIVE OF FUNCTIONS PERFORMED BY ASSESSEE, ARE APPLICABLE TO THE FACTS OF PRESENT CASE. 21. NOW, WE PROCEED TO CONSIDER VARIOUS COMPARABLES , THE INCLUSION OF WHICH HAS BEEN IMPUGNED BY ASSESSEE. ACCEL TRANSMATIC LTD .: 22. LD. TPO NOTED THAT THIS COMPANY DID NOT FIGURE IN THE ACCEPT/ REJECT MATRIX OF THE TAXPAYERS TP STUDY. HE POINTED OUT THAT AS SOFTWARE SEGMENT OF THIS COMPANY QUALIFIED ALL THE FILTERS APPLIED B Y HIM, THEREFORE, THE SAME IS TO BE CONSIDERED AS COMPARABLE. AFTER CONSIDERING T HE ASSESSEES 9 SUBMISSIONS HE POINTED OUT THAT THE COMPANYS SOFTW ARE SEGMENT DID NOT HAVE ANY PRODUCT REVENUE AS IS EVIDENT FROM THE ANN UAL REPORT AS WELL AS THE REPLY RECEIVED FROM THE COMPANY. HE FURTHER POI NTED OUT THAT THE FILTER OF SOFTWARE DEVELOPMENT SERVICE REVENUES BEING MORE TH AN 75% WAS APPLIED AT ENTERPRISE LEVEL AS WELL AS SEGMENT LEVEL. HE, ACCO RDINGLY, REJECTED THE ASSESSEES CONTENTION THAT ACCEL TRANSMATIC LTD DER IVED MORE THAN 45% OF THE TOTAL OPERATING REVENUE FROM HARDWARE PRODUCTS/ SERVICES. 23. LD. CIT(A) HAD UPHELD THE LD. TPOS CONTENTION. 24. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 7 72 OF THE PB, WHEREIN THE ANNUAL REPORT OF ACCEL TRANSMATIC LTD IS CONTAI NED, WHEREIN WHILE GIVING THE SEGMENTAL REPORT, THE DETAILS, INTER ALI A, ARE PROVIDED AS UNDER: - HARDWARE PRODUCTS/ SERVICES 1585.37 - SOFTWARE SERVICES 967.67 25. HE FURTHER POINTED OUT THAT ACCEL TRANSMATIC LT D IS ENGAGED IN THE SERVICES IN THE FORM OF ACCEL IT AND ACCEL ANIMA TION SERVICES FOR 2D AND 3D ANIMATION. IN THIS REGARD HE REFERRED TO FOLLOWING EXTRACTS FROM ANNUAL REPORT: CHANGE IN BUSINESS: THE COMPANY HAS SET UP A SUBSIDIARY COMPANY, BY NAM E ACCEL ACADEMY LIMITED AND AHS HIVED OFF ITS TRAINING DIVI SION, ACCEL IT ACADEMY TO THIS SUBSIDIARY. HENCEFORTH ALL THE T RAINING ACTIVITIES WILL BE CARRIED OUT FROM THIS SUBSIDIARY COMPANY. ACCEL IT ACADEMY ACCEL IT ACADEMY NOW PART OF ACCEL ACADEMY LIMITED CONTINUES TO FOCUS ON NICHE AREAS OF IT TRAINING IN HARDWARE AND NETWORKING, ENTERPRISE SYSTEMS MANAGEMENT, EMBEDDED 10 SYSTEMS, VLSI DESIGNS AND BPO. THE DIVISION COULD N OT SCALE UP ITS OPERATIONS DURING THE YEAR DUE TO INCREASED COMPETITION AND OUR INABILITY TO OPEN NEW CENTRES. EFFORTS ARE ON TO OVERCOME THE LIMITATIONS AND CURRENT YEAR IS EXPECT ED TO BE A GROWTH YEAR FOR ACCEL IT ACADEMY. 26. LD. COUNSEL FURTHER POINTED OUT THAT THIS COMPA NY HAS A RPT OF 19.29%, WHICH IS SIGNIFICANT ENOUGH FOR ACCEL TO B E REJECTED ON RPT FILTER. FURTHER, HE POINTED OUT THAT THIS COMPANY FAILS SOF TWARE SERVICE REVENUE FILTER. IN THIS REGARD HE SUBMITTED THAT REVENUE FR OM THE SOFTWARE SERVICE IS 27.60% OF THE TOTAL REVENUE WHICH IS MUCH LESS THAN THE 75% THRESHOLD. 27. IN THE CASE OF TOLUNA INDIA PVT. LTD. (SUPRA), THE TRIBUNAL HAS REJECTED THE ASSESSEES CONTENTION FOR EXCLUSION OF THIS COM PARABLE. FURTHER IN OTHER DECISIONS, LD. COUNSEL VERY FAIRLY CONCEDED THAT THIS COMPARABLE HAS BEEN ACCEPTED SINCE THE TESTED PARTY WAS ALSO IN THE B USINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVICES TO ITS A E. LD. COUNSEL, HOWEVER, SUBMITTED THAT IN THE DECISION OF TOLUNA INDIA PVT. LTD. (SUPRA), THE APPLICATION OF FILTER OF REVENUE FROM SOFTWARE SERV ICES WAS NOT CONSIDERED AND, THEREFORE, MATTER MAY BE RESTORED BACK TO LD. TPO FOR VERIFICATION. AFTER HEARING BOTH THE PARTIES, WE RESTORE THIS MATTER TO THE FILE OF LD. TPO TO EXAMINE ASSESSEES PLEA AND IF THE SAME IS FOUND TO BE CORRECT THEN THIS COMPARABLE CANNOT BE INCLUDED IN THE LIST OF COMPAR ABLES ON THE BASIS OF FILTERS APPLIED BY LD. TPO. WE ORDER ACCORDINGLY. CELESTIAL LABS LTD. : 28. IN REGARD TO THIS COMPARABLE ALSO LD. COUNSEL H AS RELIED ON AFOREMENTIONED 4 DECISIONS OF THE TRIBUNAL AND PO INTED OUT THAT THIS COMPARABLE HAS BEEN REJECTED IN ALL THE CASES. 11 29. HAVING HEARD BOTH THE PARTIES WE FIND THAT IN T HE CASE OF TOLUNA INDIA PVT. LTD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS C OMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER: 18.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY OBSERVING THAT IT WAS RENDERING MAIN LY SOFTWARE DEVELOPMENT SERVICES. 18.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUA L ACCOUNTS OF THIS COMPANY, A COPY OF WHICH IS AVAILABLE ON P AGE 41 OF THE PAPER BOOK, THAT IT IS ENGAGED MAINLY IN THE DEVELO PING THE SOFTWARE PRODUCTS IN THE SHAPE OF TOOLS ETC., WHICH ARE PROTECTED USING THE PATENT. THIS COMPANY DEVELOPED A TOOL, 'C ELSUITE' TO DRUG DISCOVERY IN FINDING THE LEAD MOLECULES FOR DRUG DISCOVERY. AS THIS COMPANY IS ENGAGED IN DEVELOPING SOFTWARE TOOLS AFTER ENOUGH RESEARCH AND DEVELOPMENT ACTIVIT Y AND THE TOOLS SO PRODUCED BY IT ARE ITS INTELLECTUAL PROPER TY, IT CANNOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEE WHICH IS, ALSO ALBEIT IN SOFTWARE DEVELOPMENT, BUT IS DOING IT ON CONTRAC T BASIS WITHOUT HAVING ANY LP. RIGHTS IN THE SOFTWARE DEVEL OPED BY IT. IT IS FURTHER RELEVANT TO NOTE THAT THIS COMPANY HAS B EEN HELD TO BE NOT COMPARABLE BY THE DISPUTE RESOLUTION PANEL (DRP ) IN ITS DIRECTIONS FOR A SUBSEQUENT YEAR, A COPY OF WHICH I S AVAILABLE ON RECORD. THUS THIS COMPANY CAN'T BE CONSIDERED AS FUNCTIONALLY SIMILAR TO THAT OF THE ASSESSEE. WE, T HEREFORE, DIRECT TO EXCLUDE - IS COMPANY FROM THE LIST OF COMPARABLE S. THE ASSESSEE SUCCEEDS. 30. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF CO- ORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE E XCLUDED FROM THE LIST OF COMPARABLES. 12 HELIOS & MATHESON INFORMATION TECHNOLOGY LTD . 31. HAVING HEARD BOTH THE PARTIES WE FIND THAT IN T HE CASE OF TOLUNA INDIA PVT. LTD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS C OMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER: 23.1. THE TPO NOTICED FROM THE ANNUAL ACCOUNTS OF T HIS COMPANY THAT IT WAS ENGAGED IN THE SOFTWARE DEVELOP MENT SERVICES AND ALSO QUALIFIED EMPLOYEE COST FILTER. T HE ASSESSEE OBJECTED TO ITS INCLUSION BY, INTER ALIA, CONTENDIN G THAT THE PLI OF THIS COMPANY WAS INCORRECTLY WORKED OUT BY THE T PO. CORRECTING THIS MISTAKE IN CALCULATION PART, THE TP O HELD THIS COMPANY TO BE COMPARABLE AND DETERMINED ITS REVISED PLI AT 36.630/0. THE DRP UPHELD THE INCLUSION OF THIS COMP ANY IN THE LIST OF COMPARABLES. 23.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUA L ACCOUNTS OF THIS COMPANY THAT IT IS ENGAGED IN RENDERING ITE S BPO- SERVICES, APPLICATION MANAGEMENT SERVICES, OFFSHORE DELIVERY, PROJECT MANAGEMENT SERVICES, PUBLIC SECTOR SERVICES , MARITIME PRACTICE AND EXECUTIVE EDUCATION INFORMATION SYSTEM S, ETC. FROM THE ABOVE NARRATION OF THE NATURE OF SERVICES RENDERED BY THIS COMPANY, IT CAN BE SEEN THAT THE SAME IS NOT A T ALL COMPARABLE TO THAT OF THE ASSESSEE. IT CAN FURTHER BE NOTICED THAT THE TPO HAS TAKEN THE FIGURES OF THIS COMPANY WHICH REPRESENT INCOME FROM SOFTWARE SALES AND SERVICES'. OBVIOUSLY, THE ASSESSEE IS NOT ENGAGED IN SOFTWARE SALES. IN V IEW OF OUR ABOVE DISCUSSION WHILE DEALING WITH THE COMPARABILI TY OF FLEXTRONICS SOFTWARE SYSTEMS LIMITED, WE ARE SATISF IED THAT THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE AND IS, HENCE, DIRECTED TO BE EXCLUDED FROM THE LIST F COMPARABLES . THE ASSESSEE SUCCEEDS. 32. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF 13 COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO B E EXCLUDED FROM THE LIST OF COMPARABLES. INFOSYS TECHNOLOGIES LTD . 33. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER: 25. FROM THE NATURE OF SERVICES RENDERED BY THE ASS ESSEE TO ITS AE ON A COST PLUS BASIS WITHOUT HAVING ANY INTANGIB LE ASSETS OR RETAINING ANY INTELLECTUAL PROPERTY IN THE WORK DON E BY IT, WE FIND THAT INFOSYS TECHNOLOGIES LTD., WHICH IS A GIA NT COMPANY IN TERMS OF RISK PROFILE, SCALE, NATURE OF SERVICES, R EVENUE OWNERSHIP OF BRANDED/PROPRIETARY PRODUCTS, ONSITE A ND OFFSHORE SERVICES, ETC., CANNOT BE COMPARED WITH THE ASSESS EE. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOG IES PVT. LTD. [(2013) 219 TAXMAN 26 (DEL)] IN WHICH INFOSYS LTD. HAS BEEN HELD TO BE NOT COMPARABLE TO A COMPANY THAT WAS ENG AGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE FOR PARENT COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS CASE FR OM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS . 34. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. CALS INFORMATION SYSTEMS LTD . 35. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER: 14 27.1. THE TPO OBSERVED THAT THIS COMPANY WAS ENGAGE D IN SOFTWARE DEVELOPMENT AND TRAINING. AS THE SOFTWARE PRODUCTS CONSTITUTED ONLY 3% OF ITS REVENUE AND TRAINING REV ENUE CONSTITUTED 8.56%, THE TPO HELD THAT THIS SEGMENT O F KALS INFORMATION SYSTEMS LIMITED WAS RIGHTLY INCLUDIBLE. 27.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, IT IS AN ADMITTED POSI TION THAT THE TPO ADOPTED SOFTWARE DEVELOPMENT SEGMENT OF THIS CO MPANY BY NOTICING THAT THIS SEGMENT ALSO INCLUDED REVENUE S FROM SOFTWARE PRODUCTS AND TRAINING. IN VIEW OF THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN IMPARTING ANY TRAINING O N COMMERCIAL BASIS OR SELLING ITS SOFTWARE PRODUCTS, WE HOLD THAT THE FINANCIALS OF THIS COMPANY UNDER THIS SEGMENT C ANNOT BE COMPARED WITH THE ASSESSEE. THE CONTRIBUTION BY THE SALE OF SOFTWARE PRODUCTS OR TRAINING TO THE OVERALL REVENU E OF THIS SEGMENT CANNOT BE PRECISELY ASCERTAINED TO DETERMIN E THE QUESTION OF ITS COMPARABILITY. AS SUCH, THIS CASE I S DIRECTED TO BE EXCLUDED. THE ASSESSEE SUCCEEDS . 36. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. PERSISTENT SYSTEMS LTD . 37. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER: 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE HOLD THAT THIS COMP ANY ALSO CANNOT BE CONSIDERED AS COMPARABLE BECAUSE OF MERGE R OF ANOTHER COMPANY INTO IT, WHICH FACT IS EVIDENT FROM PAGE 196, OF 15 @ THE PAPER BOOK. IT CAN BE SEEN THAT A SUBSIDIARY COMPANY WAS MERGED INTO THIS COMPANY PURSUANT TO JUDGMENT O F HON'BLE BOMBAY HIGH COURT W.E.F. 1.4.06. BECAUSE OF THE MER GER OF SUBSIDIARY INTO THIS COMPANY, WE HOLD THAT THE FINA NCIAL POSITION OF THIS COMPANY CANNOT BE CONSTRUED AS NOR MAL CAPABLE OF A GOOD COMPARISON. FOLLOWING THE MUMBA I BENCH DECISION IN PETRO ARALDITE (P) LTD. (SUPRA), WE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARAB LES. THE ASSESSEE SUCCEEDS . 38. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. TATA ELXSI LTD. 39. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER: 39.1. THE TPO INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY NOTICING THAT ITS 'SOFTWARE DEVELOPM ENT AND SERVICES SEGMENT' MATCHED WITH THE ASSESSEE. ON BEI NG CALLED UPON TO EXPLAIN AS TO WHY THIS COMPANY BE NOT INCLU DED IN THE LIST OF COMPARABLES, THE ASSESSEE STATED THAT THE N ATURE OF ACTIVITY DONE BY THIS COMPANY WAS DIFFERENT INASMUC H AS IT WAS ENGAGED IN R&D ACTIVITIES ALSO WHICH RESULTED IN CR EATION OF INTELLECTUAL PROPERTY. NOT CONVINCED WITH THE ASSES SEE'S SUBMISSIONS, THE TPO INCLUDED THIS SEGMENT OF THE C OMPANY IN THE LIST OF COMPARABLES. 39.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE MATERIAL ON RECORD, WE FIND FROM PAGE NO.206 OF THE PAPER BOOK, WHICH IS ANNEXURE TO THE DIRECTOR'S REPORT OF THIS 16 COMPANY, THAT THE NATURE OF ITS ACTIVITY IS QUITE D ISTINCT FROM THAT OF THE ASSESSEE. IT CAN BE SEEN THAT THIS COMP ANY IS INTO DEVELOPMENT OF HARDWARE AND SOFTWARE FOR EMBEDDED P RODUCTS SUCH AS MULTI- MEDIA AND SOME OTHER ELECTRONICS, ET C. APART FROM THAT, THIS COMPANY IS ALSO ENGAGED IN MAKING S OME PROGRAMMES DEVELOPING TECHNOLOGY INTELLECTUAL PROPE RTY. AS THE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE IN QUESTION IS NOWHERE CLOSE TO THAT OF TATA ELXSI LTD., WE HOLD T HAT THIS COMPANY CANNOT BE INCLUDED IN THE LIST OF COMPARABL ES. ACCORDINGLY, THIS COMPANY IS DIRECTED TO BE EXCLUDE D. THE ASSESSEE SUCCEEDS . 40. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. WIPRO LIMITED : 41. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER: 41. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD, WE HAVE ABSOLUTELY NO DOUBT IN OUR MIND THAT THIS COMPANY CANNOT BE CONSIDERED AS COMP ARABLE TO THE ASSESSEE INASMUCH AS IT IS A GIANT COMPANY IN T ERMS OF PARAMETERS DISCUSSED ABOVE WHILE DEALING WITH THE C ASE OF INFOSYS LTD. THE HON'BLE DELHI HIGH COURT IN THE CA SE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. (SUPRA) HAS UPHELD THE EXCLUSION OF THIS COMPANY ALSO FROM THE LIST OF COMPARABLES ON T HE BASIS OF CERTAIN PARAMETERS, WHICH ARE FULLY APPLICABLE TO T HE INSTANT ASSESSEE AS WELL. IT IS, THEREFORE, DIRECTED TO EXC LUDE THIS COMPANY FROM THE LIST OF COMPARABLES. THE ASSESSEE SUCCEEDS. 17 42. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. AVANI CIMCON TECHNOLOGIES LIMITED : 43. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS EXCLUDED THIS COMPARABLE FROM THE LIST OF COMPA RABLES BY OBSERVING AS UNDER 17.1. THE TPO FOUND THIS COMPANY TO BE ENGAGED IN S OFTWARE DEVELOPMENT. NOTICE U/S 133(6) WAS ISSUED TO THE CO MPANY TO TET COMPLETE INFORMATION. ACCORDING TO THE TPO, THIS CO MPANY QUALIFIED ALL THE FILTERS. THE ASSESSEE ARGUED BEFO RE THE TPO THAT THIS COMPANY WAS INTO SOFTWARE PRODUCTS AND TH E SEGMENTAL RESULTS WERE NOT AVAILABLE. THE TPO REJECTED SUCH C ONTENTION BY RELYING ON THE SPECIFIC INFORMATION COLLECTED FR OM THE COMPANY U/S 133(6) WHICH DIVULGED THAT THIS COMPANY WAS A PURELY SOFTWARE DEVELOPMENT COMPANY ENGAGED IN PROV IDING SOFTWARE DEVELOPMENT AND CONSULTING IT SERVICES TO ITS CLIENTS. THIS COMPANY WAS CONCENTRATING ON INTERNET ENABLED BUSINESS FORMATION SYSTEMS IN A WIDE RANGE OF INDUSTRIES. RE SULTANTLY, THIS COMPANY WAS INCLUDED IN THE LIST OF COMPARABLE S. 1 7.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE DESCR IPTION OF BUSINESS ACTIVITY OF THIS COMPANY AS REPRODUCED ON INTERNAL PAGE 9O OF THE TPO'S ORDER, THAT IT IS A PURE SOFTW ARE DEVELOPMENT SERVICE PROVIDER. IN THE ABSENCE OF ANY OTHER SPECIFIC OBJECTION AGAINST THIS COMPANY, WE ARE OF THE CONSIDERED OPINION THAT THIS COMPANY HAS BEEN RIGHT LY INCLUDED BY THE TPO IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. 18 44. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. E-ZEST SOLUTIONS LTD. : 45. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS FOR EXCLUSION OF THIS COMPARABLE. ISHIR INFOTECH LIMITED : 46. WE FIND THAT IN THE CASE OF TOLUNA INDIA PVT. L TD. (SUPRA), THE TRIBUNAL HAS REJECTED THE ASSESSEES CLAIM FOR EXCLUSION OF THIS COMPARABLE FROM THE LIST OF COMPARABLES BY OBSERVING AS UNDER 26.1. THE AO INCLUDED THIS COMPANY IN THE LIST OF C OMPARABLES BY OBSERVING THAT IT QUALIFIED 25% EMPLOYEE COST FI LTER AND ALL OTHER FILTERS ON THE BASIS OF INFORMATION RECEIVED U/S 133(6). THE ASSESSEE OBJECTED TO THE INCLUSION OF THIS COMPANY BY CONTENDING THAT ITS RELATED PARTY TRANSACTIONS WERE MORE THAN 15% AND EMPLOYEES COST WAS ONLY 4%. THE TPO REJECTE D_ BOTH THE CONTENTIONS BY NOTICING THAT THE EMPLOYEES COST WAS, IN FACT, MORE THAN 25% AS WAS APPARENT FROM THE INFORMATION RECEIVED U/S 133(6) AND, FURTHER, THE RPTS ALSO DID NOT EXCE ED 25%. 26.2. HAVING HEARD BOTH THE SIDES AND PERUSED THE R ELEVANT MATERIAL ON RECORD, WE FIND THIS COMPANY TO BE COMP ARABLE TO THAT OF THE ASSESSEE. THE ASSESSEE'S OBJECTION THAT EMPLOYEE COST OF THIS COMPANY WAS 4% ONLY, IS NOT CORRECT BECAUSE OF THE EXERCISE CARRIED OUT BY THE TPO INDICATING THAT THE EMPLOYEES COST WAS MORE THAN 25%). THE ID. DR HAS TAKEN US TH ROUGH THE ANNUAL ACCOUNTS OF THIS COMPANY WHICH SHOW THAT SOM E PART OF THE EMPLOYEES COST WAS ALSO INCLUDED IN 'ADMINISTRA TIVE EXPENSES' APART FROM DIRECT ESTABLISHMENT EXPENSES. IT CAN BE 19 SEEN THAT THE COMPANY HAS INCLUDED PROFESSIONAL FEE S OF RS. 3.41 CRORE ALONG WITH DIRECTOR'S SALARY, ETC., UNDE R THE HEAD 'ADMINISTRATIVE EXPENSES'. WHEN THIS OBJECTION WAS TAKEN BY THE ASSESSEE BEFORE THE TPO THAT THE EMPLOYEE COST WAS ONLY 4% VIEWING ONLY THE 'ESTABLISHMENT EXPENSES' IN ISOLAT ION WITHOUT CONSIDERING THE EMPLOYEE COST INCLUDED UNDER THE HE AD ADMINISTRATIVE EXPENSES', THE TPO CORRECTED THE PO SITION BY OBSERVING THAT THE EMPLOYEE COST WAS MORE THAN 25% BY IMPLIEDLY INCLUDING THE PERSONNEL COST INCLUDED UND ER THE HEAD ADMINISTRATIVE EXPENSES'. THE ASSESSEE DID NOT CHA LLENGE THE TPO'S CALCULATION BEFORE THE DRP ON THIS ISSUE. AS SUCH, IT BECOMES APPARENT THAT THERE IS NO MERIT IN THIS OBJ ECTION AGAIN TAKEN UP BEFORE US WHICH HAS ALREADY BEEN SUCCESSFU LLY DEALT WITH BY THE TPO. INSOFAR AS THE ASSESSEE'S OBJECTIO N ABOUT THE RELATED PARTY TRANSACTIONS IS CONCERNED, WE HAVE DI SCUSSED THIS ISSUE THOROUGHLY WHILE DEALING WITH THE COMPARABLE CASE OF ACCEL TRANSMATICS LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT FILTER OF 25 OF RPT IS GOOD ENOUGH TO MAKE A CONTRO LLED TRANSACTION AND THUS EXPUNGING IT FROM THE LIST OF COMPARABLES, WHICH CAN ONLY BE UNCONTROLLED TRANSACTIONS. THE ID . AR FAILED TO POINT OUT ANY FUNCTIONAL DIFFERENCE OF THIS COMP ANY VIS-A-VIS THE ASSESSEE. AS SUCH, WE APPROVE THE VIEW TAKEN BY THE TPO IN INCLUDING THIS CASE IN THE LIST OF COMPARABLES. THE ASSESSEE FAILS. 47. KEEPING IN VIEW THE FUNCTIONAL PROFILE OF TOLUN A INDIA PVT. LTD. (SUPRA) VIS-A-VIS THE ASSESSEE, RESPECTFULLY FOLLOW ING THE DECISION OF COORDINATE BENCH, THIS COMPARABLE IS DIRECTED NOT T O BE EXCLUDED FROM THE LIST OF COMPARABLES. 48. AS REGARDS INCLUSION/ EXCLUSION OUT OF 25 COMPA RABLE COMPANIES TAKEN BY AO SUBSEQUENT TO DRPS DIRECTION, LD. COUN SEL HAS NOT ADVANCED ANY OTHER SUBMISSION AS REGARDS OTHER COMPARABLES. 20 49. IN VIEW OF ABOVE DISCUSSION, WE SET ASIDE THE I MPUGNED ORDER AND REMIT THE MATTER BACK TO THE FILE OF LD. TPO/ AO F OR FRESH DETERMINATION OF ALP OF THE ASSESSEES INTERNATIONAL TRANSACTION IN TERMS OF OUR OBSERVATIONS. 50. GROUND NO. 4 RAISED BY ASSESSEE IS IN REGARD TO RATE OF DEPRECIATION APPLICABLE TO COMPUTER AND COMPUTER SOFTWARE. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSEE COMPANY HAD CLAIMED CERTAIN ADDIT IONS TO THE APPLICABLE COMPUTER AND DEPRECIATION @ 60% WAS CLAIMED AS DEDU CTION. THE AO OBSERVED THAT THE ADDITION WAS OF MINI POWER BACKUP WHICH WAS UPS. HE POINTED OUT THAT THIS DOES NOT COME WITHIN THE AMBI T OF COMPUTER AND COMPUTER SOFTWARE. HE, ACCORDINGLY, ALLOWED DEPRECI ATION @ 15% TREATING THE SAME AS PLANT AND MACHINERY. IN APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 51. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE FIND THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CERA MICS & INDUSTRIES LTD. (2011) 56 DTR 397, HOLDING THAT UPS WOULD FORM PART OF COMPUTER PERIPHERALS AND ACCESSORIES AND, ACCORDINGLY, DEPRE CIATION IS TO BE ALLOWED AT 60% RATE. RESPECTFULLY FOLLOWING THE DECISION OF HO NBLE JURISDICTIONAL DELHI HIGH COURT, ORDER OF AUTHORITIES BELOW ON THE ISSUE IN QUESTION IS SET ASIDE AND THE ASSESSEES CLAIM FOR DEPRECIATION @ 6 0% IS DIRECTED TO BE ALLOWED. ITA NO. 279/DEL/2013 (AY 2008-09) : 52. IN AY 2008-09, UNDER CONSIDERATION, THE ASSESSE E CONTINUED TO CARRY ON THE SAME ACTIVITY AS BIN AY 2007-08 AND THE FUNC TIONAL PROFILE REMAINED THE SAME. 21 53. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 4 6 F THE PB, WHEREIN THE TP STUDY IS CONTAINED IN WHICH ASSESSEE HAD SELECTE D 25 COMPARABLES. THE AVERAGE OP/TC WAS 9.79% AS AGAINST THE ASSESSEES O P/TC OF 7.20% AND, THEREFORE, THE INTERNATIONAL TRANSACTION RELATING T O SOFTWARE DEVELOPMENT SERVICES WAS AT ARMS LENGTH. 54. LD. COUNSEL FURTHER REFERRED TO PAGES 308 AND 3 09 OF THE PB WHEREIN THE TPOS ORDER IS CONTAINED AND POINTED OUT THAT T HE FINAL SET OF COMPARABLES CONSIDERED BY THE TPO WAS AS UNDER: 1. AVANI CIMCON TECHNOLOGIES LTD. 2. BODHTREE CONSULTING LTD. 3. CELESTIAL LABS LTD 4. E-ZEST SOLUTIONS LTD. 5. FLEXTRONICS SOFTWARE SYSTEMS LTD. 6. IGATE GLOBAL SOLUTIONS LTD. 7. INFOSYS 8. KALS INFORMATION SYSTEMS LTD. 9. LGS GLOBAL LTD. 10. MINDTREE LTD. 11. PERSISTENT SYSTEMS LTD. 12. QUINTEGRA SOLUTIONS LTD. 13. R SYSTEMS INTERNATIONAL LTD. 14. SASKEN COMMUNICATION TECHNOLOGIES LTD. 15. TATA ELXSI (SEG.) 16. THIRDWARE SOLUTIONS LTD. 17. WIPRO LTD (SEG) 18. SOFTSOL INDIA LTD. 55. LD. COUNSEL REFERRED TO PAGE 341 OF PB AND POIN TED OUT THAT ARMS LENGTH MARGIN WAS TAKEN AT 21.51% OF THE OPERATING COST BY LD. TPO AND ADJUSTMENT OF RS. 1,03,81,787/- WAS DIRECTED TO BE MADE. LD. COUNSEL FURTHER POINTED OUT THAT LD. CIT(A) EXCLUDED CELESTIAL BIO LABS FROM THE LIST OF COMPARABLES AS IS EVIDENT FROM CIT(A)S ORDER. 22 56. IN THE PRESENT ASSESSMENT YEAR LD. COUNSEL HAS RELIED ON FOLLOWING DECISIONS RELATING TO A.Y. 2008-09:- - SUN LIFE INDIA SERVICE CENTRE PVT. LTD. (ITA NO. 5799/DEL/2012 AY 2008-09) - CIENA INDIA PVT. LTD. (ITA NO. 3324/DEL/2013 AY 2 008-09). - PYRAMID IT CONSULTING PVT. LTD. (ITA NO. 5401/DEL/2 012 AY 2008- 09) - 3DPLM SOFTWARE SOLUTIONS LTD.(IT (TP)A NO. 1303/BAN G/2012 AY 2008-09). 57. NOW WE WILL CONSIDER EACH COMPARABLE SEPARATELY ABOUT ITS INCLUSION/ EXCLUSION. AVNI CINCOM TECHNOLOGIES LTD . 58. LD. COUNSEL POINTED OUT THAT IN AY 2008-09 THIS COMPARABLE HAS BEEN REJECTED IN ALL THE ABOVE CASES EXCEPT CIENA INDIA PVT. LTD. (SUPRA), WHERE IT DID NOT FORM PART OF THE ITAT ORDER. HE SUBMITTED T HAT M/S 3DPL SOFTWARE SOLUTIONS LTD. PERFORMING SAME FUNCTIONS AS ASSESS EE, AS IS EVIDENT FROM TRIBUNALS ORDER DATED 28.11.2013, WHEREIN PARA 2.1 IT HAS BEEN, INTER ALIA, OBSERVED AS UNDER: THE ASSESSEE, M/S 3DPL SOFTWARE SOLUTIONS LTD. (FOR MERLY KNOWN AS DELMIA SOLUTIONS PVT. LTD.) IS A PRIVATE L IMITED COMPANY REGISTERED IN INDIA. THE ASSESSEE IS ESTABL ISHED AS A 100% EXPORT ORIENTED UNIT (EOU) UNDER THE STPI SC HEME AND IS ENGAGED IN THE PROVISION OF SOFTWARE DEVELOP MENT AND OTHER RELATED SERVICE TO ITS GROUP COMPANIES . 59. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. AS REGARDS SUN LIFE INDIA SERVICE CENTRE PVT. LTD. (SUPRA), WE FIND THAT TRIBUNAL IN PARA 3 HAS, INTER ALIA, OBSERVED AS UNDER: 23 BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIAN COMPANY, A PART OF SUN LIFE GROUP, WHICH HAS DIVERSIFIED FINANCIAL SERVICES ORGANIZATION PROVIDI NG SAVINGS, RETIREMENT AND PENSION PRODUCTS AND LIFE AND HEALTH INSURANCE IN CANADA, UK AND ASIA. THIS GROUP ALSO OPERATES MU TUAL FUNDS AND INVESTMENT MANAGEMENT BUSINESS. THE ASSES SEE PROVIDED SOFTWARE DEVELOPMENT AND MAINTENANCE SUPPO RT SERVICES AND ALSO BACK OFFICE SUPPORT SERVICES TO I TS ASSOCIATED ENTERPRISES (AES) FOR ASSISTANCE IN THEIR PROJECTS. 60. THE FUNCTIONAL PROFILE OF THIS COMPANY, IN OUR OPINION, IS THOUGH BROADLY IN LINE WITH ASSESSEE, BUT THE FUNCTIONAL P ROFILE OF TOLUNA INDIA PVT. LTD. (SUPRA) IS MORE IN CONFORMITY WITH THE ASSESSE S FUNCTIONAL PROFILE. THEREFORE, WE ARE NOT INCLINED TO DEVIATE FROM THE VIEW WHICH WERE HAVE TAKEN IN AY 2007-08 AND, THEREFORE, WE ARE NOT INCL INED TO EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE F AILS. E-ZEST SOLUTIONS LTD .: 61. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSE SSEE DID NOT PRESS FOR EXCLUSION OF THIS COMPARABLE FROM THE LIST OF COMPA RABLES. ACCORDINGLY, WE REJECT THE ASSESSEES GROUND ON THIS ISSUE BEING NO T PRESSED. KALS INFORMATION SYSTEMS LTD . 62. FOR THE VERY SAME REASONS AS IN AY 2007-08, W E EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. PERSISTENT SYSTEMS LTD . 63. FOR THE VERY SAME REASONS AS IN AY 2007-08, WE EXCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. SOFTSOL INDIA : 24 64. LD. COUNSEL REFERRED TO ANNUAL REPORT OF THIS C OMPARABLE AND POINTED OUT THAT NOT MUCH DETAILS ARE AVAILABLE. HE REFERRE D TO FOLLOWING OBSERVATIONS FROM THE CHAIRMANS ADDRESS: I AM PROUD TO SHARE WITH YOU THAT NOT ONLY OUR TEA M DELIVERED EXCELLENT QUALITY WORK FOR OUR CLIENTS, BUT ALSO DE VELOPED IMPROVED AND PERFECTED CERTAIN PROCESS, SPECIALIZED TOOLS, METHODOLOGIES AND BEST PRACTICES THAT ARE RELEVANT FOR THE AREA OF OUR SPECIALIZATION, NAMELY, ENTERPRISE TECHNOLOG Y MODERNIZATION. WE ARE ALSO CREATING INTELLECTUAL PR OPERTY AS WE PERFORM OUR NORMAL WORK. ONCE AGAIN THIS WILL IM PROVE PROFITABILITY AND INTRINSIC VALUE OF OUR COMPANY. 65. WITH REFERENCE TO ABOVE, LD. COUNSEL POINTED OU T THAT ASSESSEE IS NOT DEVELOPING ANY INTANGIBLE, THEREFORE, IT IS NOT THE RIGHT COMPARABLE. LD. COUNSEL FURTHER REFERRED TO PAGE 318 OF PB, WHEREIN TP REPORT IS CONTAINED AND POINTED OUT THAT CAPACITY UTILIZATION ADJUSTMEN T HAS NOT BEEN ALLOWED TO ASSESSEE. HE POINTED OUT THAT LD. TPO PROCEEDED ON THE PREMISE THAT ASSESSEE WAS COMPENSATED ON COST BASIS THOUGH ASSESSEE WAS C OMPENSATED ON HOURLY BASIS. LD. COUNSEL REFERRED TO PAGE 32 OF THE PB, W HEREIN TP STUDY IS CONTAINED, WHEREIN ASSESSEE HAD SPECIFICALLY REFERR ED TO THE CAPACITY UTILIZATION RISK. LD. COUNSEL REFERRED TO PAGE 487 OF PB AND POINTED OUT THAT WHILE DEALING WITH GROUND NO. 4.7 OF ASSESSEE REGAR DING DENYING THE IMPACT OF ADJUSTMENT FOR THE DIFFERENCE IN PROFILE OF ASS ESSEE VIS-A-VIS THE COMPARABLE, LD. CIT(A) DID NOT DEAL WITH THIS ISSUE AND HAS NOT RECORDED ANY FINDING ON THIS ISSUE. HE, THEREFORE, SUBMITTED THA T THE MATTER MAY BE RESTORED BACK TO THE FILE OF LD. CIT(A) TO PROVIDE OPPORTUNITY TO ASSESSEE. 66. LD. DR SUBMITTED THAT DIRECTORS STATEMENT IS G ENERAL IN NATURE. HE SUBMITTED THAT BEFORE LD. CIT(A), NO GROUND OF APPE AL WAS TAKEN REGARDING CAPACITY UTILIZATION AS IS EVIDENT FROM GROUND NO. 4.7. 25 67. HAVING HEARD BOTH THE PARTIES, WE FIND THAT ASS ESSEE HAD TAKEN SPECIFIC OBJECTION ON THIS COUNT BEFORE LD. CIT(A) AND, THER EFORE, WE RESTORE THIS MATTER TO THE FILE OF LD. CIT(A) TO PROVIDE OPPORTU NITY TO ASSESSEE IN REGARD TO THIS COMPARABLE AND SPECIFICALLY CONSIDER THE AD JUSTMENT CLAIMED BY ASSESSEE REGARDING CAPACITY UTILIZATION SO THAT THE COMPARABLE IS BROUGHT ON THE LEVEL PLAYING FIELD WITH THE ASSESSEE. WE ORDER ACCORDINGLY. TATA ELXSI LTD. : 68. FOR THE VERY SAME REASONS AS IN AY 2007-08 WE E XCLUDE THIS COMPARABLE FROM THE LIST OF COMPARABLES. ASSESSEE S UCCEEDS. 69. NO OTHER ARGUMENT WAS ADVANCED ON BEHALF OF THE ASSESSEE IN REGARD TO OTHER COMPARABLES. 70. IN VIEW OF ABOVE DISCUSSION, WE SET ASIDE THE I MPUGNED ORDER AND REMIT THE MATTER BACK TO THE FILE OF LD. TPO/ AO F OR FRESH DETERMINATION OF ALP OF THE ASSESSEES INTERNATIONAL TRANSACTION IN TERMS OF OUR OBSERVATIONS. 71. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLOW ED. ORDER PRONOUNCEMENT IN OPEN COURT ON 10/06/2016. SD/- SD/- (SUDHANSHU SRIVASTAVA ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:10/06/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.