NXP India Pvt Ltd, Bengaluru V. Deputy Commissioner of Income Tax, Circle-5(1)(1), Bengaluru

ITA 2861/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2115 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Depreciation; Transfer pricing; Salary income; International transaction; Cost of acquisition; Non-deduction of tax; TDS; Set aside
• Section: 143(3); 234B; 40(a)(ia); 133(6); 144C; 207; 192; 43; 48; 13; 22; 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B , BANGALORE BEFORE SHRI N.V.VASUDEVAN, VICE-PRESIDENT & SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER IT(TP)A NO.692/BANG/2017 : ASST.YEAR 2012-2013 IT(TP)A NO.2861/BANG/2017 : ASST.YEAR 2013-2014 M/S.NXP INDIA PVT.LTD. (SUCCESSOR OF NXP SEMICONDUCTORS INDIA P.LTD.) INFORMATION TECHNOLOGY PARK NAGAWARA VILLAGE KASABA HOBLI BENGALURU 560 045 PAN : AADCP9454H. VS. THE DY.COMMISSIONER OF INCOME-TAX, CIRCLE 5(1)(1) BANGALORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.VIKRAM VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY : SRI.MUZAFFAR HUSSAIN, CIT-DR DATE OF HEARING : 25.02.2020 DATE OF PRONOUNCEMENT : 27.04.2020 O R D E R PER CHANDRA POOJARI, AM : THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST TWO SEPARATE ORDERS OF THE CIT(A), DATED 30.01.2017 AND 24.10.2017 FOR THE ASSESSMENT YEARS 2012-2013 AND 2 013- 2014, RESPECTIVELY. FIRST, WE SHALL TAKE UP IT(TP)A NO.692/BANG/2017 FOR ASSESSMENT YEAR 2012-2013 FOR ADJUDICATION. IT(TP)A NO.692/BANG/2017 : ASST. YEAR 2012-2013 : 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 2 IN LAW, NXP INDIA PRIVATE LIMITED (SUCCESSOR OF NXP SEMICONDUCTORS INDIA PRIVATE LIMITED) (HEREINAFTER REFERRED TO AS 'APPELLANT') RESPECTFULLY CRAVES LEA VE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5(1)(1) ('ASSESSING OFFICER' OR 'AO'), DATED 30 JANUARY 2017 FOR A Y 2012-13, UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 ('THE ACT') PURSUANT TO THE DIRECTIONS ISSUED BY THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP'), BANGALORE DATED 01 DECEMBER 2016 UNDER SECTION 144C(5) OF THE ACT ('THE IMPUGNED ORDER'), INTER-ALIA ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: GENERAL GROUNDS 1. THE IMPUGNED ORDER AND DIRECTIONS OF THE HON'BLE DRP ARE BASED ON INCORRECT APPRECIATION OF FACTS AND WRONG INTERPRETATION OF LAW AND THEREFORE , ARE BAD IN LAW; 2. THE LEARNED AO / TRANSFER PRICING OFFICER ('TPO') HAS ERRED IN ASSESSING THE TOTAL INCOME AT INR 324,935,945 AS AGAINST THE RETURNED INCOME OF INR 244,543,220 COMPUTED BY THE APPELLANT IN ITS RETURN OF INCOME FOR A Y 2012-13; 3. THE LEARNED AO HAS ERRED IN LAW AND IN FACT, IN DETERMINING A SUM OF INR 40,638,140 AS THE BALANCE TAX DEMAND PAYABLE BY THE APPELLANT; TRANSFER PRICING GROUNDS 4. THE HON'BLE DRP HAS ERRED IN, LAW AND FACTS, BY UPHOLDING THE STAND OF LEARNED AO/TPO OF NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 ('THE RULES'), AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 3 DETERMINATION OF THE ALP IN CONNECTION WITH THE IMPUGNED INTERNATIONAL TRANSACTION AND HOLDING THAT THE APPELLANT'S INTERNATIONAL TRANSACTION IS NOT AT ARM'S LENGTH; 5. THE LEARNED AO / TPO ERRED IN MAKING AN ADDITION OF INR 70,609,072 TO THE TOTAL INCOME OF TH E APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE ('ALP') OF THE PROVISION OF SOFTWARE DEVELOPMENT ('SWD') SERVICES TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE; 6. THE LEARNED TPO/AO HAS ERRED, IN LAW AND IN FACTS, BY DETERMINING THE ARM'S LENGTH MARGIN! PRIC E USING ONLY FINANCIAL YEAR ('FY') 2011-12 DATA WHICH WAS NOT AVAILABLE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMENTATION REQUIREMENTS AND THE HON'BLE DRP HAS ERRED IN UPHOLDING THE SAID STAND OF THE LEARNED TPO/AO; 7. THE LEARNED AO/ TPO HAS ERRED IN LAW AND FACTS BY REJECTING CERTAIN COMPARABLE COMPANIES CONSIDERED BY THE APPELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QUANTITATIVE AND QUALITATIVE FILTERS: (A) BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT FOR HAVING DIFFERENT ACCOUNTING YEAR (I.E. COMPANIES HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPANIES WHOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 1 2 MONTHS); (B) BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT USING EXPORT EARNINGS GREATER THAN 75% OF THE SALES AS A COMPARABILITY CRITERION; (C) BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT USING EMPLOYEE COST GREATER THAN 25% OF THE TOTAL REVENUES AS A COMPARABILITY CRITERION; IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 4 8. THE HON'BLE DRP HAS ERRED IN, LAW AND FACTS, BY HOLDING THAT THE FUNCTIONS OF THE APPELLANT ARE HIG HLY COMPLEX AND COMPLICATED IN NATURE; 9. THE LEARNED AO/TPO HAS ERRED IN LAW AND IN FACTS BY ACCEPTING/ REJECTING CERTAIN COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITERIA. 10. THE LEARNED AO/TPO ERRED IN LAW AND IN FACTS BY ERRONEOUSLY COMPUTING THE MARGINS OF CERTAIN COMPARABLE COMPANIES. 11. THE LEARNED AO / TPO HAVE ERRED, IN LAW AND FACTS, BY NOT MAKING SUITABLE ADJUSTMENTS TO ACCOUN T FOR DIFFERENCES IN THE RISK PROFILE OF THE APPELLAN T VIS- A-VIS THE COM PARABLES. CORPORATE TAX GROUNDS 12. THE LEARNED AO HAS ERRED IN LAW AND IN FACTS, I N DISALLOWING THE STOCK COMPENSATION EXPENSE AMOUNTING TO INR 6,523,426 ON THE BASIS THAT, TAX HAS NOT BEEN DEDUCTED AT SOURCE ON THE AMOUNT OF PERQUISITE TAXABLE IN THE HANDS OF THE EMPLOYEES, WITHOUT APPRECIATING THE FACT THAT AS PER THE PROVISIONS OF SECTION 17 OF THE ACT, PERQUISITE TAXA TION WOULD ARISE ONLY AT THE TIME OF EXERCISE OF THE OPT ION. 13. THE LEARNED AO HAS ERRED IN LAW, IN DISALLOWING THE PAYMENT MADE TOWARDS PURCHASE OF SOFTWARE AMOUNTING TO INR 134,700 DUE TO NON-DEDUCTION OF TAXES AT SOURCE, WITHOUT APPRECIATING THE FACT THAT THIS EXPENDITURE DOES NOT PERTAIN TO THE CURRENT ASSESSMENT YEAR. 14. THE LEARNED AO HAS ERRED IN INADVERTENTLY INCREASING THE INCOME BY ADDING DEPRECIATION AMOUNTING TO INR 3,125,527 INSTEAD OF REDUCING THE SAME WHILE COMPUTING THE INCOME. IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 5 OTHER GROUNDS 15. THE LEARNED AO HAS ERRED IN LEVYING INTEREST OF INR 13,759,456 UNDER SECTION2 234B AND INR 797,664 UNDER SECTION 234C OF THE ACT. 16. THE HON'BLE DRP ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO IN LEVYING INTEREST UNDER SECTION 234D OF THE ACT; 17. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. ALL THE ABOVE GROUNDS MAY BE CONSIDERED INDEPENDENT AND WITHOUT PREJUDICE OF EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUN DS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEAR ING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME T AX APPELLATE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS TWICE , I.E. ON 16.01.2018 AND ON 05.03.2018, WHICH READ AS FOLLOWS:- ADDITIONAL GROUND DATED 16.01.2018 IN ADDITION TO THE GROUNDS OF OBJECTIONS RAISED IN FORM 36A BEFORE THE HON'BLE TRIBUNAL AND THE ADDITIONAL GROUNDS FILED EARLIER, AFTER GROUND NUMB ER 15, THE PETITIONER HEREBY WISHES TO INTRODUCE GROUN D NUMBERS 18-20 AS UNDER: 18. 'THE LEARNED AO / TPO AND DRP ERRED IN ACCEPTING GENESYS INTERNATIONAL CORPORATION LIMITE D AND INFOSYS LIMITED AS COMPARABLE COMPANIES APPLYING UNREASONABLE COMPARABILITY CRITERIA.' 19. 'LARSEN & TOUBRO INFOTECH LTD. AND PERSISTENT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 6 SYSTEMS LIMITED WERE CHOSEN AS COMPARABLES IN TRANSFER PRICING STUDY, HOWEVER UPON AVAILABILITY O F MORE DETAILS IN PUBLIC DOMAIN, THESE COMPANIES ARE FOUND TO BE NOT COMPARABLE AND SHOULD BE EXCLUDED FROM THE FINALS SET OF COMPARABLES.' 20.'THE LEARNED AO / TPO AND DRP ERRED IN REJECTING HENOS & MATHESON INFORMATION TECHNOLOGY LIMITED, R SYSTEMS INTERNATIONAL LIMITED, CALIBER POINT BUSINESS SOLUTIONS LIMITED, CIGNITI TECHNOLOGIES LIMITED, EVOKE TECHNOLOGIES PRIVATE LIMITED, MAVERI C SYSTEMS LIMITED AND THINKSOFT GLOBAL SERVICES LIMITED AS COMPARABLE COMPANY.' THE PETITIONER SUBMITS THAT THE ABOVE ADDITIONAL GROUNDS ARE BEING RAISED BY WAY OF ABUNDANT CAUTION. THE ADDITIONAL GROUNDS RAISE ISSUES WHICH ARE FUNDAMENTAL TO THE APPEAL AND THE NON- ADMISSION AND NON-ADJUDICATION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATI ON OF THE MATTER. THE PETITIONER SUBMITS THAT THE FAIL URE TO RAISE THESE GROUNDS AT AN EARLIER STAGE IS NEITH ER WILFUL NOR WANTON BUT DUE TO THE REASONS STATED ABOVE. NO PREJUDICE WOULD BE CAUSED TO THE RESPONDENT BY REASON OF THE ABOVE ADDITIONAL GROUND BEING ADMITTE D AND ADJUDICATED AND ACCORDINGLY THE BALANCE OF CONVENIENCE IS IN FAVOUR OF SUCH AN ORDER BEING PASSED BY THIS HON'BLE TRIBUNAL. THE PETITIONER STA TES AND SUBMITS THAT THE ISSUES RAISED IN THE ADDITIONA L GROUND ABOVE ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES. RELIANCE IS BASED ON THE DECISIONS OF T HE HON'BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA VS. C.I.T. (187 ITR 688) AND NATIONAL THERMAL POWER CORPORATION VS. C.I.T. (229 ITR 383) AS WELL AS THE FULL BENCH OF THE BOMBAY HIGH COURT IN THE CASE OF AHMADABAD ELECTRICITY CO. LTD. (199 ITR 351). IN THE ABOVE CIRCUMSTANCES THE PETITIONER PRAYS THA T THIS HON'BLE TRIBUNAL MAY KINDLY BE PLEASED TO; IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 7 (I) ADMIT AND ADJUDICATE THE ABOVE ADDITIONAL GROUND, (II) PASS ANY OTHER ORDER THAT MAY BE REQUIRED IN THE CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. ADDITIONAL GROUND DATED 05.03.2018 IN ADDITION TO THE GROUNDS OF OBJECTIONS RAISED IN FORM 36A BEFORE THE HON'BLE TRIBUNAL (AFTER GROUND NUMBER 15) AND THE ADDITIONAL GROUNDS FILED EARLIER , AFTER GROUND NUMBER 20, THE PETITIONER HEREBY WISHE S TO INTRODUCE GROUND NUMBER 21 AS UNDER: 21. 'SASKEN COMMUNICATIONS TECHNOLOGIES LIMITED WERE CHOSEN AS COMPARABLE IN TRANSFER PRICING STUDY , HOWEVER UPON AVAILABILITY OF MORE DETAILS IN PUBLIC DOMAIN, THIS COMPANY IS FOUND TO BE NOT COMPARABLE AND SHOULD BE EXCLUDED FROM THE FINALS SET OF COMPARABLES.' THE PETITIONER SUBMITS THAT THE ABOVE ADDITIONAL GROUND IS BEING RAISED BY WAY OF ABUNDANT CAUTION. THE ADDITIONAL GROUNDS RAISE ISSUES WHICH ARE FUNDAMENTAL TO THE APPEAL AND THE NON- ADMISSION AND NON-ADJUDICATION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATI ON OF THE MATTER. THE PETITIONER SUBMITS THAT THE FAIL URE TO RAISE THESE GROUNDS AT AN EARLIER STAGE IS NEITH ER WILFUL NOR WANTON BUT DUE TO THE REASONS STATED ABOVE. NO PREJUDICE WOULD BE CAUSED TO THE RESPONDENT BY REASON OF THE ABOVE ADDITIONAL GROUND BEING ADMITTE D AND ADJUDICATED AND ACCORDINGLY THE BALANCE OF CONVENIENCE IS IN FAVOUR OF SUCH AN ORDER BEING PASSED BY THIS HON'BLE TRIBUNAL. THE PETITIONER STATES AND SUBMITS THAT THE ISSUES RAISED IN THE ADDITIONAL GROUND ABOVE ARISE OUT OF THE ORDER OF THE LOWER AUTHORITIES. RELIANCE IS BASED ON THE DECISIONS OF T HE HON'BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA VS. C.I.T. (187 ITR 688) AND NATIONAL THERMAL IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 8 POWER CORPORATION VS. C.I.T. (229 ITR 383) AS WELL AS THE FULL BENCH OF THE BOMBAY HIGH COURT IN THE CASE OF AHMADABAD ELECTRICITY CO. LTD. (199 ITR 351). IN THE ABOVE CIRCUMSTANCES THE PETITIONER PRAYS THA T THIS HON'BLE TRIBUNAL MAY KINDLY BE PLEASED TO; (I) ADMIT AND ADJUDICATE THE ABOVE ADDITIONAL GROUND, (II) PASS ANY OTHER ORDER THAT MAY BE REQUIRED IN THE CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. TRANSFER PRICING GROUNDS : 4. HOWEVER, AT THE TIME OF HEARING BEFORE US, THE A SSESSEE HAS ONLY PRESSED EXCLUSION OF FOLLOWING COMPARABLES FROM THE LIST OF COMPARABLES CONSIDERED BY THE TRANSFER PRIC ING OFFICER (TPO):- (I) PERSISTENT SYSTEMS LIMITED (II) LARSEN & TOUBRO INFOTECH LIMITED (III) INFOSYS LIMITED (IV) GENESYS INTERNATIONAL CORPORATION LIMITED (V) SASKEN COMMUNICATION TECHNOLOGIES LIMITED 4.1 HENCE, WE LIMIT OUR ADJUDICATION WITH REGARD TO THE EXCLUSION OF THE ABOVE FIVE COMPARABLES. 5. THE FACTS RELATING TO THE TRANSFER PRICING ISSUE ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE ACTIVITIES I N INDIA, WHICH INCLUDES DESIGN AND SALES AGENT SUPPORT SERVI CES NXPS DESIGN COMPETENCE CENTRE IN BANGALORE OFFERS USER SOLUTIONS FOR IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 9 VIBRANT MEDIS TECHNOLOGIES AND FOCUSES ON AUTOMOTIV E, IDENTIFICATION AND SOFTWARE BUSINESSES. THE SEGMENTAL (SWD SEGMENT) FINANCIALS AS GIVEN IN THE TP STUDY IS AS UNDER:- PARTICULARS AMOUNT (SWD SEGMENT) OPERATING INCOME 885470219 OPERATING EXPENSES 820219617 OPERATING PROFIT 65250602 OP/OC 7.96% OP/OR 7.37% THE INTERNATIONAL TRANSACTIONS (AS MENTIONED IN THE 92 CE REPORT) IS AS UNDER:- PARTICULARS AMOUNT SOFTWARE DEVELOPMENT SERVICES 885470219 SALES AGENT SUPPORT SERVICES 102116858 RECEIPT OF SERVICES 54,176895 FIXED ASSETS RECEIVED FREE OF CHARGES 8176309 REIMBURSEMENT OF COSTS 4942058 TOTAL 1054882331 5.1 FOR THE ABOVE DETERMINATION OF ARMS LENGTH PRIC E (ALP), THE ASSESSEE SELECTED 25 COMPARABLES, HOWEVER, THE TPO LIMITED THE COMPARABLES TO THE EXTENT OF 10 OUT OF WHICH 4 SELECTED BY THE ASSESSEE WERE RETAINED BY THE TPO. THE 10 COMPARABLES SELECTED BY THE TPO WERE AS FOLLOW:- IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 10 (I) DATAMATICS GLOBAL SERVICES LIMITED (II) GENESYS INTERNATIONAL CORPORATION LIMITED (III) ICRA TECHNO ANALYTICS LIMITED (IV) INFOSYS LIMITED (V) LARSEN & TOUBRO INFOTECH LIMITED (VI) MINDTREE LIMITED (SEGMENTAL) (VII) PERSISTENT SYSTEMS LIMITED (VIII) R.S.SOFTWARE (INDIA) LIMITED (IX) SASKEN COMMUNICATION TECHNOLOGIES LIMITED (X) SPRY RESOURCES INDIA PRIVATE LIMITED. 5.2 THE TPO MADE TRANSFER PRICING ADJUSTMENT OF RS.8,36,07,533. HOWEVER, THE DISPUTE RESOLUTION PAN EL (DRP) EXCLUDED ICRI TECHNO ANALYTICS LIMITED AND CONFIRME D 9 COMPARABLES OUT OF THE ABOVE 10 COMPARABLES. ACCORD INGLY, HE SUSTAINED TP ADJUSTMENT TO THE TUNE OF RS.7,06,0 9,072. 5.3 NOW THE ASSESSEE HAS CHALLENGED FOR THE EXCLUSI ON OF THE FOLLOWING FIVE COMPARABLES:- (I) PERSYSTENT SYSTEMS LIMITED (II) LARSEN & TOUBRO INFOTECH LIMITED (III) INFOSYS LIMITED (IV) GENESYS INTERNATIONAL CORPORATION LIMITED (V) SASKEN COMMUNICATION TECHNOLOGIES LIMITED. PERSYSTENT SYSTEMS LIMITED IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 11 6. THE ASSESSEE OBJECTED FOR THE EXCLUSION OF THIS COMPANY BY THE LOWER AUTHORITIES IN THE TALLY OF COMPARABLE S BY ARGUING THAT IT IS ENGAGED IN OPD AND THERE IS A DIFFERENCE IN OPD AND IT SERVICES AND THAT THE ASSESSEE IS HAVING REVENUE FROM OTHER SOURCES AND NO SEGMENTAL DATA IS AVAILABLE. IT WAS ALSO SUBMITTED THAT IN THE ASSESSMENT YEAR 2012-2013, IT IS AN ABNORMAL YEAR OF OPERATION AND IT IS OWNING VARIOUS INTANGIBLES. FOR THIS PURPOSE, HE RELIED ON THE ORD ER OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NXP SEMICONDUCTOR INDIA PRIVATE LIMITED IN IT(PA) NO.1634/BANG/ 2014 FOR ASSESSMENT YEAR 2009-2010 ORDER DATED 22 ND JULY, 2015. 6.1 WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE CO- ORDINATE BENCH IN THE CASE OF NXP SEMICONDUCTOR IND IA PVT. LTD. (SUPRA) FOR THE ASSESSMENT YEAR 2009-2010, WHEREIN IT WAS OBSERVED THAT PERSYSTENT SYSTEMS LIMITED WAS ENGAGE D IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN AND ANALYSIS SERVICES IS FUNCTIONALLY DIFFERENT FROM A PURE SOFTWARE SERV ICE PROVIDER AND THEREFORE, EXCLUDED IT FROM THE LIST OF COMPARA BLES FOR SOFTWARE DEVELOPMENT SERVICES. THE SAME VIEW WAS TAKEN IN THE CASE OF SAXO INDIA PVT. LTD. IN ITA NO.6148/DEL/2015 ORDER DATED 05 TH FEBRUARY, 2016, BY OBSERVING THAT PERSYSTENT SYSTEMS LIMITED IS ENGAGED IN RUNNING SOFTWARE DEVE LOPMENT SERVICES AS WELL AS SALE OF SOFTWARE PRODUCTS. ALBE IT THE PERCENTAGE OF SOFTWARE PRODUCTS IN THE TOTAL REVENU E IS LESS, AS HAS BEEN NOTED BY THE TPO, AND ALSO THERE IS NO PRE CISE INFORMATION ABOUT THE CONTRIBUTION MADE BY SUCH SMA LL SALE OF IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 12 SOFTWARE PRODUCTS TO THE TOTAL PROFITS OF THE COMPA NY. AS NO SEGMENTAL INFORMATION IS AVAILABLE IN RESPECT OF TH IS COMPANY AND THE FIGURES HAVE BEEN ADOPTED BY THE TPO AT ENT ITY LEVEL, IT WAS DIRECTED TO EXCLUDE PERSYSTENT SYSTEMS LIMIT ED FROM THE LIST OF COMPARABLES. IN THE PRESENT CASE ALSO, IT IS NOTICED THAT PERSYSTENT SYSTEMS LIMITED IS ENGAGED IN SOFTW ARE PRODUCTS DEVELOPMENT. THERE IS A DIFFERENCE BETWEEN THE OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT AND IT SERV ICES, WHICH IS EVIDENT FROM PAGE NOS. 973 AND 974 OF THE PAPER BOOK, AS UNDER:- OUTSOURCED SOFTWARE PRODUCT DEVELOPMENT (OPD) IS DIFFERENT FROM IT SERVICES. UNLIKE A TYPICAL IT SERVICES PROJECT, WHERE REQUIRE MENTS ARE FIXED WHILE TIME AND MONEY ARE VARIABLE, A SOFT WARE PRODUCT DEVELOPMENT PROJECT STARTS WITH FIXED TIME AND MONEY, THUS LEAVING REQUIREMENTS AS THE ONLY VARIAB LE. ESSENTIALLY, THE PRODUCT DEVELOPMENT TEAMS TASK IS TO PRODUCE THE BEST SET OF REQUIREMENTS WITHIN A FIXED TIME AND BUDGET. PERSISTENT SYSTEMS HAS EMERGED AS A LEA DER IN THE OPD SEGMENT A SEGMENT WHICH IS FAST GROWIN G. OPD AND OUTSOURCED IT SERVICES: THE DIFFERENCE. HOW IS OPD DIFFERENT FROM OUTSOURCED IT SERVICES IS AN OFT ASKED QUESTION. IN IT SERVICES, PROJECTS START WITH WELL- DEFINED REQUIREMENTS, AND VENDORS USE TIME AND MONE Y AS VARIABLES TO ARRIVE AT A REASONABLE COST ESTIMAT E FOR THE PROJECT. AFTER COMPLETION, THE PROJECT GOES INT O MAINTENANCE MODE. IN PRODUCT DEVELOPMENT, REQUIREMENTS ARE LESS CLEAR LY DEFINED. INSTEAD, MOST PRODUCT DEVELOPERS ARE GIVEN SHIP-DATES FOR THE PRODUCT THAT ARE TYPICALLY DETER MINED BY EXTERNAL FACTORS. ONCE THE SHIP-DATES ARE IDENTI FIED, THE BUDGETS FOR THE PRODUCT ARE FROZEN. IN PRODUCT DEVELOPMENT PROJECTS, ALL REQUIREMENTS CAN NEVER BE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 13 COMPLETELY FULFILLED IN A PARTICULAR VERSION. AS A RESULT, MOST PRODUCT COMPANIES PLAN MULTIPLE PRODUCT VERSIO NS FOR THEIR PRODUCT. EVERY TEAM MEMBER MUST CONTRIBUT E NOT ONLY TO BUILDING FEATURES FOR THE CURRENT RELEA SE BUT MUST ALSO CONTRIBUTE ENHANCEMENTS AND PROVIDE FEEDBACK FOR FUTURE RELEASES OF THE PRODUCT. 6.2 PERSYSTENT SYSTEMS LIMITED HAVING REVENUE OF 8 103.64 MILLION FROM SOFTWARE SERVICES AND OTHER INCOME OF 323.76 MILLION FROM INCOME FROM OTHER SOURCES. ASSESSMENT YEAR 2012-2013 IS AN ABNORMAL YEAR OF OPERATION TO PERSY STENT SYSTEMS LIMITED, WHICH IS EVIDENT FROM THE ANNUAL R EPORT PLACED ON RECORD BY THE ASSESSEE IN ITS PAPER BOOK. FURTHER, PERSYSTENT SYSTEMS LIMITED IS HAVING INTANGIBLES TO THE TUNE OF 2402.67 MILLION AS EVIDENT FROM ITS BALANCE SHEE T ENDED ON 31.03.2012. BEING SO, IT IS NOT COMPARABLE TO ASSES SEES CASE. WE, THEREFORE, DIRECT THE TPO TO EXCLUDE PERSYSTENT SYSTEMS LIMITED FROM THE LIST OF COMPARABLES. LARSEN & TOUBRO INFOTECH LIMITED 7. THE LEARNED AR RELIED ON THE ORDER OF THE ITAT B ANGALORE BENCHES IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED IN IT(TP)A NO.586/BANG/2015 ORDER DATED 11.04.2018 AND SUBMI TTED THAT IT WAS EXCLUDED FROM THE LIST OF COMPARABLES F OR THE REASON THAT LARSEN & TOUBRO INFOTECH LIMITED WAS A SOFTWARE PRODUCT COMPANY AND SEGMENTAL INFORMATION ON SWD SE RVICES WAS NOT AVAILABLE. IN THE PRESENT CASE , LARSEN & TOUBRO INFOTECH LIMITED ENGAGED IN DEVELOPMENT OF SOFTWARE ONSITE A ND ITS IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 14 OVERSEAS REVENUE FOR THE FINANCIAL YEAR 2011-2012 W AS RS.27,838,752,995 AND DOMESTIC REVENUE WAS RS.1,756,792,454. FURTHER IN THE CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. IN IT(TP)A NO.1939/BANG/2017 FOR ASSESSMENT YEAR 2012-2013 ORDER DATED 31.10.2018 HAS TAKEN T HE SAME VIEW THAT IT CANNOT BE A COMPARABLE WITH THAT OF TH E ASSESSEE. BEING SO, WE DIRECT THE TPO TO EXCLUDE THE SAME FRO M THE LIST OF COMPARABLES. INFOSYS LIMITED 8. THE ARGUMENT OF THE LEARNED AR IS THAT INFOSYS L IMITED IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. IT OWN S INTANGIBLE AND UNDERTAKES RESEARCH AND DEVELOPMENT. THE LEARNE D AR ALSO SUBMITTED THAT IT HAS HIGH BRAND VALUE AND TUR NOVER. ON THE CONTRARY, THE LEARNED DR SUBMITTED THAT THE NAT URE OF SERVICES REMAINS THE SAME IRRESPECTIVE OF WHETHER I T IS ENGAGED IN PROVIDING ONSITE / OFFSITE SERVICES. 8.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME UP FOR CONSI DERATION BEFORE THE TRIBUNAL IN THE CASE OF NXP SEMI CONDUCTORS INDIA PVT. LTD. V. DCIT IN IT(TP)A NO.1634/BANG/2014 ORDER DATED 27.07.2015, WHEREIN IT WAS HELD AS UNDER:- 10.4.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL DECISIONS CITED AND PLACED RELIANCE UPON. WE FIND T HAT A COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CIS CO SYSTEMS SERVICES B.V., INDIA BRANCH (SUPRA), FOR ASSESSMENT YEAR 2009- 10 HAD HELD THAT THIS COMPANY BE EXCLUDED FROM THE FINAL SET OF IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 15 COMPARABLES ON THE GROUND THAT IT IS FUNCTIONALLY D IS-SIMILAR AND DIFFERENT FROM A PURELY SOFTWARE SERVICE PROVID ER AND AT PARA 20 OF THE ORDER HAS HELD AS UNDER :- 20. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTE NTIONS. THERE IS NO DISPUTE THAT THE M/S. CISCO SYSTEMS IND IA (P) LTD. (SUPRA) IS AN AFFILIATE OF THE ASSESSEE COMPANY AND ENGAGED IN SIMILAR BUSINESS LIKE THAT OF THE ASSESSEE NAMELY R ENDERING SOFTWARE SERVICES DEVELOPMENT ETC. THOUGH THE SAID COMPANY WAS HAVING OTHER BUSINESS ALSO, WITH REGARD TO ITS SOFTWARE DEVELOPMENT SEGMENT, THIS TRIBUNAL HELD BODHTREE CO NSULTING LTD., INFOSYS LTD., KALS INFORMATION SYSTEMS LTD. A ND TATA ELXSI LTD. TO BE NOT PROPER COMPARABLES. RELEVANT P ARAS OF THE ORDER DT.14.8.2014 IS REPRODUCED HEREUNDER :- 26.2 INFOSYS TECHNOLOGIES LTD.:- AS FAR AS THIS COM PANY IS CONCERNED, IT IS NOT IN DISPUTE BEFORE US THAT THIS COMPANY HAS BEEN CONSIDERED TO BE FUNCTIONALLY DIFFERENT FROM A COMPANY PROVIDING SIMPLE SOFTWARE DEVELOPMENT SERVICES, AS THIS COMPANY OWNS SIGNIFICANT INTANGIBLES AND HAS HUGE R EVENUES FROM SOFTWARE PRODUCTS. IN THIS REGARD, WE FIND THA T THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. 3DPLM SOFTWARE SOLUTIONS LTD. V. DCIT, ITA NO.1303/BANG/2 012, BY ORDER DATED 28.11.2013 WITH REGARD TO THIS COMPARAB LE HAS HELD AS FOLLOWS:- 11.0 INFOSYS TECHNOLOGIES LTD. 11.1 THIS WAS A COMPARABLE SELECTED BY THE TPO. BEF ORE THE TPO, THE ASSESSEE OBJECTED TO THE INCLUSION OF THE COMPANY IN THE SET OF COMPARABLES, ON THE GROUNDS OF TURNOVER AND BRAND ATTRIBUTABLE PROFIT MARGIN. THE TPO, HOWEVER, REJEC TED THESE OBJECTIONS RAISED BY THE ASSESSEE ON THE GROUNDS TH AT TURNOVER AND BRAND ASPECTS WERE NOT MATERIALLY RELEVANT IN T HE SOFTWARE DEVELOPMENT SEGMENT. 11.2 BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE CONTENDED THAT THIS COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE ASSESSEE IN THE CASE ON HAND. THE LEARNED AUTHORISED REPRESE NTATIVE DREW OUR ATTENTION TO VARIOUS PARTS OF THE ANNUAL REPORT OF THIS COMPANY TO SUBMIT THAT THIS COMPANY COMMANDS SUBSTA NTIAL BRAND VALUE, OWNS INTELLECTUAL PROPERTY RIGHTS AND IS A MARKET LEADER IN SOFTWARE DEVELOPMENT ACTIVITIES, WHEREAS THE ASSESSEE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 16 IS MERELY A SOFTWARE SERVICE PROVIDER OPERATING ITS BUSINESS IN INDIA AND DOES NOT POSSESS EITHER ANY BRAND VALUE O R OWN ANY INTANGIBLE OR INTELLECTUAL PROPERTY RIGHTS (IPRS). IT WAS ALSO SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT :- (I) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF 24/7 CUSTOMER.COM PVT. LTD. IN ITA NO.227/BANG/2010 HAS HELD THAT A COMPANY OWNING INTANGIBLES CANNOT BE COMPARE D TO A LOW RISK CAPTIVE SERVICE PROVIDER WHO DOES NOT OWN ANY INTANGIBLE AND HENCE DOES NOT HAVE AN ADDITIONAL AD VANTAGE IN THE MARKET. IT IS SUBMITTED THAT THIS DECISION IS A PPLICABLE TO THE ASSESSEE'S CASE, AS THE ASSESSEE DOES NOT OWN ANY I NTANGIBLES AND HENCE INFOSYS TECHNOLOGIES LTD. CANNOT BE COMPA RABLE TO THE ASSESSEE ; (II) THE OBSERVATION OF THE ITAT, DELHI BENCH IN TH E CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD. IN ITA NO.3856 (DEL)/2010 AT PARA 5.2 THEREOF, THAT INFOSYS TECHNO LOGIES LTD. BEING A GIANT COMPANY AND MARKET LEADER ASSUMING AL L RISKS LEADING TO HIGHER PROFITS CANNOT BE CONSIDERED AS C OMPARABLE TO CAPTIVE SERVICE PROVIDERS ASSUMING LIMITED RISK ; (III) THE COMPANY HAS GENERATED SEVERAL INVENTIONS AND FILED FOR MANY PATENTS IN INDIA AND USA ; (IV) THE COMPANY HAS SUBSTANTIAL REVENUES FROM SOFT WARE PRODUCTS AND THE BREAK UP OF SUCH REVENUES IS NOT A VAILABLE ; (V) THE COMPANY HAS INCURRED HUGE EXPENDITURE FOR R ESEARCH AND DEVELOPMENT; (VI) THE COMPANY HAS MADE ARRANGEMENTS TOWARDS ACQU ISITION OF IPRS IN AUTOLAY, A COMMERCIAL APPLICATION PRODUCT USED IN DESIGNING HIGH PERFORMANCE STRUCTURAL SYSTEMS. I N VIEW OF THE ABOVE REASONS, THE LEARNED AUTHORISED REPRESENT ATIVE PLEADED THAT, THIS COMPANY I.E. INFOSYS TECHNOLOGIE S LTD., BE EXCLUDED FORM THE LIST OF COMPARABLE COMPANIES. 11.3 PER CONTRA, OPPOSING THE CONTENTIONS OF THE AS SESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMPARABILITY CANNOT BE DECIDED MERELY ON THE BASIS OF SCALE OF OPERATIONS AND THE BRAND ATTRIBUTABLE PROFIT MARGIN S OF THIS COMPANY HAVE NOT BEEN EXTRAORDINARY . IN VIEW OF THIS, THE LEARNED IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 17 DEPARTMENTAL REPRESENTATIVE SUPPORTED THE DECISION OF THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLE C OMPANIES. 11.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIN D THAT THE ASSESSEE HAS BROUGHT ON RECORD SUFFICIENT EVIDENCE TO ESTABLISH THAT THIS COMPANY IS FUNCTIONALLY DIS-SIMILAR AND D IFFERENT FROM THE ASSESSEE AND HENCE IS NOT COMPARABLE AND THE FI NDING RENDERED IN THE CASE OF TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) FOR ASSESSMENT YEAR 2007-08 IS APPLICA BLE TO THIS YEAR ALSO. WE ARE INCLINED TO CONCUR WITH THE ARGUM ENT PUT FORTH BY THE ASSESSEE THAT INFOSYS TECHNOLOGIES LTD IS NO T FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT IS ALS O SEEN THAT THE BREAK UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCTS IS NOT AVAILABLE. IN THIS VIEW OF THE MATT ER, WE HOLD THAT THIS COMPANY OUGHT TO BE OMITTED FROM THE SET OF COMPARABLE COMPANIES. IT IS ORDERED ACCORDINGLY. T HE DECISION RENDERED AS AFORESAID PERTAINS TO A.Y. 2008-09. IT WAS AFFIRMED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FA CTS AND CIRCUMSTANCES IN THE PRESENT YEAR ALSO REMAINS IDEN TICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN AY 08-09 AS FAR AS THIS COMPARABLE COMPANY IS CONCERNED. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE, WE HOLD THAT INFOSYS LTD. BE EXCLUDED FROM THE LIST OF COMPARABL E COMPANIES. 10.4.2 FOLLOWING THE ABOVE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF CISCO SYSTEMS SERVICES BE, INDIA BRANCH (SUPRA), WE DIRECT THE ASSESSING OFFICER/TPO TO OMIT THIS COMPANY FROM THE FINAL SET OF COMPARABLES AS I T IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE IN THE CAS E ON HAND, WHO IS PURELY A SOFTWARE SERVICE PROVIDER. 8.2 IN THE PRESENT CASE ALSO, INFOSYS LIMITED IS EN GAGED IN A LEADING GLOBAL TECHNOLOGY SERVICES CORPORATION. THE COMPANY PROVIDES BUSINESS CONSULTING, TECHNOLOGY, ENGINEERI NG AND OUTSOURCING SERVICES TO HELP CLIENTS BUILD TOMORROW S ENTERPRISE. IN ADDITION, THE COMPANY OFFERS SOFTWAR E PRODUCTS FOR THE BANKING INDUSTRY. IT OWNS HIGH BRAND VALUE AT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 18 RS.56,286 CRORE IN THE YEAR 2012 AND PERCENTAGE OF BRAND VALUE TO REVENUE IS 1.67% AND BRAND VALUE AS A PERC ENTAGE OF MARKET CAPITALIZATION IS 34.2%, AND ALSO INCUR HUGE AMOUNT FOR RESEARCH AND DEVELOPMENT AT RS.5 CRORE AS A CAP ITAL EXPENDITURE AND RS.655 CRORE AS A REVENUE EXPENDITU RE FOR THE YEAR ENDED 31 ST MARCH, 2012. THEREFORE, IT CANNOT BE SAID TO BE A COMPARABLE. WE, THEREFORE, DIRECT THE TPO T O EXCLUDE INFOSYS LIMITED FROM THE LIST OF COMPARABLES. GENESYS INTERNATIONAL CORPORATION LIMITED 9. THE LEARNED AR SUBMITTED THAT GENESYS INTERNATIO NAL CORPORATION LIMITED WAS NOT CONSIDERED AS A COMPARA BLE IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED IN IT(TP)A NO.586/BANG/2015 ORDER DATED 11.04.2018, BY OBSERVING AS UNDER:- 35. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. IT-IS CLEAR FROM THE MATERIAL BROUGHT TO THE NOTICE OF THE TPO BY THE ASSESSEE THAT THIS. COMPANY RENDE RS MAPPING AND GEOSPATIAL SERVICES. IN RENDERING SUCH SERVICES IT DEVELOPS SOFTWARE. BUT THAT 'DOES NOT MEAN THAT THI S COMPANY IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE BUS INESS PROFILE OF THIS COMPANY AS PER THE ANNUAL REPORT DO ES NOT SHOW THAT THIS COMPANY IS INTO SOFTWARE DEVELOPMENT SERV ICE. THE ONLY LINE OF BUSINESS THAT THIS COMPANY CARRIES ON IS RENDERING-GIS BASED SERVICES AND THIS-IS CLEAR FROM THE ANNUAL REPORT WHICH SPECIFICS L AT SINCE THE COMPANY CARRI ES ON ONLY ONE LINE OF BUSINESS VIZ GIS BASED SERVICES THERE I S NO NEED TO GIVE ANY SEGMENTAL RESULTS. IN THE CIRCUMSTANCES, W E ARE OF THE VIEW THAT THERE IS NO BASIS FOR THE TPO TO CONCLUDE THAT THIS COMPANY IS PREDOMINANTLY INTO SOFTWARE DEVELOPMENT SERVICES, THE PRESENCE OF INTANGIBLE ASSETS IS INDICATIVE OF THE FACT THAT THIS COMPANY IS NOT IN SOFTWARE DEVELOPMENT SERVICE S BUSINESS. THE TPO HAS OVERLOOKED THIS ASPECT AND PROCEEDED ON THE BASIS THAT THE PRESENCE OF INTANGIBLE ASSETS WOULD NOT BE SIGNIFICANT. RULE 108(2) OF THE INCOME TAX RULES, 1962 (RULES) S PECIFICALLY IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 19 PROVIDES THAT FOR THE PURPOSES OF SUB-RULE (1) OF R ULE 10B, THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY:- (A) THE SPECIFIC CHARACTERISTICS OF THE PROPERTY TR ANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT AS SETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, B Y THE RESPECTIVE PARTIES TO THE TRANSACTIONS; IN THE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT GENESYS INTERNATIONAL CORPORATION LTD., CANNOT BE C ONSIDERED AS A COMPARABLE COMPANY AND THE SAID COMPANY SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIE S. WE HOLD ACCORDINGLY. 9.1 IT WAS ALSO SUBMITTED THAT GENESYS INTERNATIONA L CORPORATION LIMITED IS FUNCTIONALLY DIFFERENT FROM ASSESSEES CASE AND NO SEGMENTAL INFORMATION IS AVAILABLE AND IT HAS HIGH RESEARCH AND DEVELOPMENT EXPENDITURE AND INTAN GIBLES. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT GENESYS INTERNATIONAL CORPORATION LIMITED IS NOT A COMPARABLE CASE, BEING SO, THE RATIO LAID DOWN IN T HE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED (SUPRA) CANNOT BE APPLIED TO ASSESSEES CASE. 9.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, CGI INFORM ATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED AND ASSESSEE ARE IN THE BUSINESS OF SOFTWARE DEVELOPMEN T AND IT CANNOT BE SAID THAT THE CASE OF CGI INFORMATION SYS TEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED CANNOT BE CONSIDERED AS A COMPARABLE TO ASSESSEES CASE. THER EFORE, THE RATIO LAID DOWN IN THE CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 20 CONSULTANTS PRIVATE LIMITED (SUPRA) IS SQUARELY APPLICABLE TO THE ASSESSEES CASE. AS RIGHTLY POINTED OUT BY THE LEAR NED AR, GENESYS INTERNATIONAL CORPORATION LIMITED IS ENGAGE D IN PROVIDING GEOGRAPHICAL INFORMATION SERVICES COMPRIS ING OF PHOTOGRAMMETRY, REMOTE SENSING, CARTOGRAPHY, DATA CONVERSION, STATE OF THE ART TERRESTRIAL AND 3D GEO -CONTENT INCLUDING LOCATION BASED AND OTHER COMPUTER BASED R ELATED SERVICES. BEING SO, IT IS FUNCTIONALLY DIFFERENT FR OM ASSESSEES CASE. FURTHER, NO SEGMENTAL INFORMATION IS AVAILABL E. IT HAS GIVEN GROSS REVENUE FROM GIS SERVICES AT RS.95,98,7 2,089 AND THERE IS HIGH RESEARCH AND DEVELOPMENT EXPENDITURE INCURRED AS ON 31.03.2012 AT RS.10,64,10,464. INTANGIBLE IS VERY HIGH AND ALSO HAVE HIGH BRAND VALUE AS EVIDENCE THE FINA NCIAL STATEMENT PAGE 1204 TO 1237. BEING SO, THIS COMPANY CANNOT BE CONSIDERED AS A COMPARABLE COMPANY. WE, THEREFOR E, DIRECT THE TPO TO EXCLUDE IT FROM THE LIST OF COMPARABLES. SASKEN COMMUNICATION TECHNOLOGIES LIMITED 10. THE LEARNED AR SUBMITTED THAT THIS COMPANY IS E NGAGED IN THE DEVELOPMENT OF SOFTWARE PRODUCTS AS IT HAS I NVENTORIES. IT HAS RESEARCH AND DEVELOPMENT EXPENDITURE, HIGH B RAND VALUE AND INTANGIBLES. THEREFORE, THIS COMPANY IS FUNCTIO NALLY NOT COMPARABLE TO THE CASE OF THE ASSESSEE. THE LEARNED AR ALSO REFERRED TO THE FINANCIAL STATEMENT KEPT ON RECORD AT PAPER BOOK PAGE NOS.3011, 3818 AND 3043. IT IS ALSO SUBMITTED THAT NO SEGMENTAL BREAK UP IS AVAILABLE IN ITS FINANCIAL ST ATEMENT. HE RELIED ON THE ORDER OF THE DELHI BENCH OF THE TRIBU NAL IN THE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 21 CASE OF SAXO INDIA PVT. LTD. V. ACIT [ITA NO.6148/DEL/2015 ORDER DATED 05.02.2016] FOR ASSESSMENT YEAR 2011-2012, WHEREIN THE TRIBUNAL HELD AS UNDER:- VI) SASKEN COMMUNICATIONS TECHNOLOGIES LTD. 15.1. THE TPO INCLUDED THIS COMPANY IN THE SET OF C OMPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT WAS FUNCTI ONALLY DIFFERENT AND ALSO HAD PRODUCT PORTFOLIO. 15.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE F IND FROM PAGE 58 OF THE TPOS ORDER THAT HE HAS RECOGNIZED SALE O F SOFTWARE PRODUCTS TO THE TUNE OF RS.37 CRORE AND ODD. THOUGH THE BREAK- UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE P RODUCTS IS AVAILABLE, BUT, THE BREAK-UP OF OPERATING COSTS AND NET OPERATING REVENUES FROM THESE TWO 29 SEGMENTS HAVE NOT BEEN GIVEN. IT IS FURTHER OBSERVED THAT THE TPO HAS TAKE N ENTITY LEVEL FIGURES FOR THE PURPOSES OF MAKING COMPARISON. SINC E SUCH ENTITY LEVEL FIGURES CONTAIN REVENUE FROM BOTH SOFT WARE SERVICES AND SOFTWARE PRODUCTS, AS AGAINST THE ASSESSEE ONLY PROVIDING SOFTWARE SERVICES, WE ARE DISINCLINED TO TREAT THIS COMPANY AS COMPARABLE. THE ASSESSEES CONTENTION IS ACCEPTED O N THIS ISSUE. 10.1 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE PLEADED THAT THE ISSUE MAY BE REMITT ED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 10.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT THIS ISSUE WAS CON SIDERED BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD. V. ACIT [IT(TP)A NO.17/BANG /2016 ORDER DATED 21.09.2016] , WHEREIN THE TRIBUNAL HELD AS UNDER:- 9.3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE CO- IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 22 ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DC IT V. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) HAS CONSIDERED THE COMPARABILITY OF THIS COMPANY IN PAR A 27 TO 29 AS UNDER: (5) SASKEN COMMUNICATION TECHNOLOGIES LTD. 27. THE ASSESSEE RAISED OBJECTION THAT THIS COMPANY HAS REVENUE FROM SOFTWARE SERVICES, SOFTWARE PRODUCTS AND OTHER SERVICES. THE DRP HAS COME TO THE CONCLUSION THAT THIS COMPANY EARNED REVENUE FROM 3 SEGMENTS. HOWEVER, NO SEGMENTAL INFORMATION IS AVAILABLE. ACCORDINGLY, THE DRP DIRECTED THE AO TO EXCLUDE THIS COMPANY FROM THE COMPARABLES. 28. WE HAVE HEARD THE LD.DR AS WELL AS LD.AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DRP HAS REPRODUCED THE BREAK-UP OF REVENUE IN THE IMPUGNED ORDER AS UNDER:- RUPEES IN LAKH. YEAR ENDED ON 31 ST MARCH, 2010 YEAR ENDED ON 31 ST MARCH, 2010 SOFTWARE SERVICES 37,736.22 40,531.20 SOFTWARE PRODUCTS 2,041.00 6,146.4 OTHER SERVICES 372.77 1,297.05 TOTAL REVENUES 40,150.89 47,974.68 29. THUS, THERE IS NO DISPUTE THAT THIS COMPANY EARNS REVENUE FROM 3 SEGMENTS. HOWEVER, THE SEGMENTAL OPERATING MARGINS ARE NOT AVAILABLE. THEREFORE, IN THE ABSENCE OF SEGMENTAL RELEVANT DAT A AND PARTICULARLY OPERATING MARGINS, THIS COMPOSITE DATA CANNOT BE CONSIDERED AS COMPARABLE WITH THE ASSESSEE FOR SOFTWARE DEVELOPMENT SERVICES SEGMENT. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE DRP. WE FURTHER NOTE THAT THE DRP HAS NOT ADJUDICATED TH E OBJECTIONS OF THE ASSESSEE WHEREAS FOR THE ASSESSMENT YEAR 2010-11, THE DRP REJECTED THIS COMPANY AS COMPARABLE. ACCORDINGLY, WE SET ASIDE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 23 THIS ISSUE TO RECORD OF THE AO / TPO TO VERIFY THE RELEVANT FACTS AND COMPARE WITH THE FACTS RECORDED BY THE TRIBUNAL IN THE CASE OF DCIT V. ELECTRONICS FOR IMAGING INDIA PVT. LTD. (SUPRA) FOR THE ASSESSMENT YEAR 2010-11 AND THEN DECIDE THE ISSUE AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 10.3 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF THE TPO WITH THE SIMILAR DIRECTIONS AS GIVEN BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF APPLIED MATERIALS INDIA PVT. LTD.(SUPRA). CORPORATE TAX GROUNDS & OTHER GROUNDS : 11. AT THE TIME OF HEARING BEFORE US, THE LEARNED A R HAS NOT PRESSED GROUND NOS.13 AND 14 RELATING TO CORPORATE TAX AND GROUND NOS.15, 16 AND 17 RELATING TO OTHER GROUNDS. ACCORDINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRE SSED. 12. GROUND NO.12 RAISED BY THE ASSESSEE, RELATING T O CORPORATE TAX ISSUE IS THAT THE AO HAS ERRED IN LAW AND IN FACTS, IN DISALLOWING THE STOCK COMPENSATION EXPENS E AMOUNTING TO INR 6,523,426 ON THE BASIS THAT, TAX H AS NOT BEEN DEDUCTED AT SOURCE ON THE AMOUNT OF PERQUISITE TAXABLE IN THE HANDS OF THE EMPLOYEES, WITHOUT APPRECIATING THE FACT THAT AS PER THE PROVISIONS OF SECTION 17 OF THE ACT , PERQUISITE TAXATION WOULD ARISE ONLY AT THE TIME OF EXERCISE O F THE OPTION. 13. BRIEFLY STATED THE FACTS OF THIS ISSUE ARE THAT THE ARGUMENT OF THE ASSESSEE BEFORE THE DRP IS THAT THE STOCK- BASED COMPENSATION PLANS WERE INTRODUCED BY THE ULT IMATE HOLDING COMPANY NXP SEMICONDUCTORS N.V. IN 2007 WHE REIN CERTAIN IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 24 EMPLOYEES OF NXP INDIA HAVE BEEN GRANTED OPTIONS AN D RESTRICTED STOCK UNITS UNDER THESE PLANS. IN LINE WITH THE GUIDANCE NOTE ON ACCOUNTING FOR EMPLOYEE SHARE BAS ED PAYMENTS ISSUED BY THE ICAI, THE COMPANY MEASURES AND DISCLOSES THE STOCK COMPENSATION COST RELATING TO E MPLOYEE STOCK OPTIONS USING THE FAIR VALUE METHOD. THE COMP ENSATION COST IS AMORTISED OVER THE VESTING PERIOD OF THE OP TIONS. ACCORDINGLY, THE COMPANY HAS RECORDED COMPENSATION COST FOR ALL GRANTS MADE TO ITS EMPLOYEES BY THE ULTIMAT E HOLDING COMPANY USING THE FAIR VALUE BASED METHOD OF ACCOUN TING. THE PROVISION FOR COMPENSATION COST RECOGNIZED FOR THE YEAR ENDED 31 ST MARCH, 2012 IS RS.65,23,426. THE SAID PROVISION, BEING INCURRED DURING THE NORMAL COURSE OF THE BUSI NESS, HAS BEEN CONSIDERED AS AN ALLOWABLE EXPENDITURE FOR THE PURPOSE OF COMPUTATION OF INCOME. THE ASSESSEE FURTHER ARGU ED THAT DURING THE F.Y. 2014-2015, THE ASSESSEE HAS REVERSE D THE SAID PROVISION FOR COMPENSATION COST WHICH HAS BEEN OFFE RED TO TAX IN F.Y.2014-15 (IN THE RETURN OF INCOME) SINCE THE PROVISION CREATED EARLIER WAS CLAIMED BY THE COMPANY. THE ASS ESSEE HAS ALSO RELIED ON THE SPECIAL BENCH DECISION OF THE IT AT BANGALORE BENCHES IN THE CASE OF BIOCON. 14. THE DRP WAS OF THE VIEW THAT THERE ARE FOUR STA GES IN THE GRANT OF THE ESPO, VIZ., (I) GRANTING OF OPTION, (I I) VESTING OF OPTION, (III) EXERCISE OF OPTION, AND (IV) SELLING SHARES. NORMALLY, THE ESOP IS DESIGNED IN SUCH A WAY THAT THERE IS A GAP OF ONE OR MORE YEARS BETWEEN EACH OF THE FIRST THREE STAGE S. THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF BIOCON ALSO IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 25 HOLDS THAT THE EXPENDITURE IS ALLOWABLE AT THE TIME OF VESTING. SINCE THIS IS POSITION AS PER THE BIOCON DECISION, THEN THE SAME BECOMES TAXABLE IN THE HANDS OF THE EMPLOYEES. WHAT HAS NOT BEEN BROUGHT BEFORE AND THEREFORE NOT CONSIDERED BY THE SPECIAL BENCH IN THIS CASE IS THAT WHEN THE SAME AM OUNT BECOMES TAXABLE IN THE HANDS OF THE EMPLOYEE. THE A SSESSEE IS CLAIMING THAT THE PROVISIONS FOR ESOP EXPENSES ARE ASCERTAINED LIABILITY. HOWEVER, IT IS CONTENDED THAT THE TAXABI LITY ARISES IN THE HANDS OF THE EMPLOYEES ON THE DATE OF EXERCISE. THE TDS ON PERQUISITE AMOUNT ARISING OUT OF THE VESTING TRANSA CTION MUST HAVE BEEN DEDUCTED BY THE ASSESSEE. HOWEVER, FROM T HE RECORDS IT IS NOT CLEAR WHEN THE TDS IS MADE. ACCORDING TO THE DRP, THE GAP BETWEEN THE DATE OF VESTING AND THE DATE OF EXE RCISE IS THE PERIOD FOR WHICH THERE IS A TAX LOSS TO THE REVENUE . EACH TRANSACTION HAS TWO SIDES, ONE IS EXPENDITURE SIDE AND THE OTHER IS INCOME SIDE. IN THE HANDS OF THE COMPANY I T IS AN EXPENSE AND IN THE HANDS OF THE EMPLOYEE IT IS INCO ME. THE SECOND QUESTION ARISES IS WHETHER THE INCOME IS TAX ABLE. IN THE HANDS OF THE EMPLOYEE THE TAXABILITY CANNOT BE SEEN ON A DIFFERENT BASIS. THUS, THE SAME TRANSACTION BECOMES ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE BUT DOES N OT BECOME INCOME IN THE HANDS OF THE EMPLOYEE. THIS SITUATION IS NOT PERMISSIBLE AS PER LAW. IF THE LIABILITY IN THE HAN DS OF THE ASSESSEE IS ASCERTAINED THEN THE PERQUISITE/ SALARY IN THE HANDS OF THE EMPLOYEE ALSO BECOMES ASCERTAINED BECAUSE IT IS THE SAME TRANSACTION WHICH IS TRIGGERING BOTH, AND THE SALARY / PERQUISITE IS TAXABLE ON THE DUE BASIS AS PER THE S ECTION 15 OF THE I.T.ACT. THE DRP SUMMARIZED THAT THE DECISION I N THE CASE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 26 OF BIOCON HOLDS THAT THE EXPENDITURE IS ALLOWABLE A T THE TIME OF VESTING. THEREFORE, BY COROLLARY THE INCOME BECO MES TAXABLE AT THE TIME OF VESTING ITSELF. THEREFORE, TWO SITUA TIONS ARISE. (A) FIRST, THE ASSESSEE HAS NOT CONSIDERED THE `PERQU ISITE AMOUNT AT THE TIME OF VESTING AS SALARY INCOME OF THE EMPLOYEE AND HAS NOT DEDUCTED TAX ON THE SAME. IN SUCH A SITUATION THE EXPENDITURE IS TO BE DISALLOWE D BY THE AO U/S 40(A)(IA) OF THE ACT. (B) SECOND, THE ASSESSEE HAS CONSIDERED `PERQUISITE AMOUNT AT THE TIME OF VESTING AS SALARY INCOME OF THE EMPLOYEE AND HAS DEDUCTED TAX ON THE SAME. IN SUCH A SITUATION, THE EXPENDITURE IS TO BE ALLOWED BY TH E AO. 15. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT IN T HE CASE OF CIT V. INFOSYS TECHNOLOGIES LIMITED [(2008) 297 ITR 167 (SC)], WHEREIN IT WAS HELD AS UNDER:- THERE IS ALSO NO MERIT IN THE CONTENTION ADVANCED ON BEHALF OF THE DEPARTMENT THAT S.17(2)(IIIA) INSERTE D BY FINANCE ACT, 1999 W.E.F. 1 ST APRIL, 2000 WAS CLARIFICATORY AND, THEREFORE, RETROSPECTIVE IN NATU RE. UNLESS A BENEFIT / RECEIPT IS MADE TAXABLE, IT CANN OT BE REGARDED AS INCOME. THIS IS AN IMPORTANT PRINCIPLE OF TAXATION UNDER THE 1961 ACT. APPLYING T HE ABOVE PRINCIPLE TO THE INSERTION OF CL.(IIIA) IN S. 17(2) ONE FINDS THAT FOR THE FIRST TIME W.E.F. 1 ST APRIL, 2000 THE WORD COST STOOD EXPLAINED TO MEAN THE AMOUNT ACTU ALLY IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 27 PAID FOR ACQUIRING SPECIFIED SECURITIES AND WHERE N O MONEY HAD BEEN PAID, THE COST WAS REQUIRED TO BE TAKEN AS NIL. THE MECHANISM INTRODUCED FOR THE FIRS T TIME UNDER THE FINANCE ACT, 1999 BY WHICH COST WAS EXPLAINED IN THE MANNER STATED ABOVE WAS NOT THERE PRIOR TO 1 ST APRIL, 2000. THE NEW MECHANISM STOOD INTRODUCED W.E.F. 1 ST APRIL, 2000 ONLY. WITH THE ABOVE DEFINITION OF THE WORD COST INTRODUCED VIDE CL. (IIIA), THE VALUE OF OPTION BECAME ASCERTAINABLE. T HERE IS NOTHING IN THE MEMORANDUM TO THE FINANCE ACT, 1999 TO SAY THAT THIS NEW MECHANISM WOULD OPERATE RETROSPECTIVELY. FURTHER, A MECHANISM WHICH EXPLAIN S COST IN THE MANNER INDICATED ABOVE CANNOT BE READ RETROSPECTIVELY UNLESS THE LEGISLATURE EXPRESSLY SA YS SO. IT WAS NOT CAPABLE OF BEING IMPLEMENTED RETROSPECTIVELY. TILL 1 ST APRIL, 2000, IN THE ABSENCE OF THE DEFINITION OF THE WORD COST, VALUE OF THE OPT ION WAS NOT ASCERTAINABLE. CLAUSE (IIIA) IS NOT CLARIFICATORY. MOREOVER, THE MEANING OF THE WORDS SPECIFIED SECURITIES IN SUB-CL. (IIIA) WAS DEFINE D OR EXPLAINED FOR THE FIRST TIME VIDE FINANCE ACT, 1999 W.E.F. 1 ST APRIL, 2000. MOREOVER, THE WORDS ALLOTTED OR TRANSFERRED IN CL. (IIIA) HAS BEEN SUBSEQUENTLY DEL ETED W.E.F. 1 ST APRIL, 2001.FOR THE AFORESAID REASONS, THE CL. (IIIA) CANNOT BE READ AS RETROSPECTIVE. CIT V. B.C.SRINIVASA SETTY (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) RELIED ON. EVEN ASSUMING THAT THERE WAS BENEFIT, EVERY BENEF IT RECEIVED BY THE PERSON IS NOT TAXABLE AS INCOME. UNLESS THE BENEFIT IS MADE TAXABLE, IT CANNOT BE REGARDED AS INCOME. DURING THE RELEVANT ASSESSMENT YEARS, THERE WAS NO PROVISION IN LAW WHICH MADE SUCH BENEFIT TAXABLE AS INCOME. FURTHER, AS STATED, THE BENEFIT WAS PROSPECTIVE. UNLESS A BENEFIT IS IN THE NATURE OF INCOME OR SPECIFICALLY INCLUDED BY THE LEGISLATURE AS PART OF INCOME, THE SAME IS NOT TAXA BLE. IN THIS CASE, THE SHARES COULD NOT BE OBTAINED BY T HE EMPLOYEES TILL THE LOCK-IN PERIOD WAS OVER. ON FACTS, IN THE ABSENCE OF LEGISLATIVE MANDATE A POTENTIAL BENEFIT COULD NOT B E IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 28 CONSIDERED AS INCOME OF THE EMPLOYEE(S) CHARGEABL E UNDER THE HEAD SALARIES. THE STOCK WAS NON- TRANSFERABLE AND THE STOCK EXCHANGE WAS ALSO ACCORDINGLY NOTIFIED. THIS IS WHERE THE WEIGHTAGE OUGHT TO HAVE BEEN GIVEN BY THE AO TO AN IMPORTANT FACTOR, NAMELY, LOCK-IN PERIOD. THIS HAS NOT BEEN D ONE. IT IS IMPORTANT TO BEAR IN MIND THAT IF THE SHARES ALLOTTED TO THE EMPLOYEE HAD NO REALIZABLE SALE VAL UE ON THE DAY WHEN HE EXERCISED HIS OPTION THEN THERE WAS NO CASH INFLOW TO THE EMPLOYEE. IT WAS NOT POSSIBLE FOR THE EMPLOYEE TO KNOW THE FUTURE VALUE OF THE SHARES ALLOTTED TO HIM ON THE DAY HE EXERCISES HIS OPTION. EVEN THE COST OF ACQUISITION AS NIL CAME TO BE INTRODUCED IN THE 1961 ACT BY THE FINANCE ACT, 1999 ONLY W.E.F. 1 ST APRIL, 2000. IN FACT, THE LATER DELETION OF CL. (IIIA) IS AN INDICATOR OF THE INEFFECTIVE CHARG E. FOR THE AFORESTATED REASONS, THE DEPARTMENT HAD ERRED I N TREATING RS.165 CRORES AS A PERQUISITE VALUE FOR THE ASST. YRS. 1997-98, 1998-99, 1999-2000. DURING THOSE YEARS, THE FIFTH ANNIVERSARY HAD NOT TAKEN PL ACE AND, THEREFORE, IT WAS NOT POSSIBLE FOR THE ASSESSE E COMPANY TO ESTIMATE THE VALUE OF THE PERQUISITE DUR ING THAT PERIOD. IT WAS NOT OPEN TO THE DEPARTMENT TO IGNORE THE LOCK-IN PERIOD. THEREFORE, THE DEPARTMEN T HAD ERRED IN TREATING THE RESPONDENT HEREIN AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTING THE TDS AT 30 PER CENT AS STATED IN THE ORDER OF ASSESSMENT. ESTIMATION OF TDS UNDER S. 192 IN THE ABSENCE OF CLEAR PROVISIONS ON VALUATION OF PERQUISITE IN TH IS CASE WOULD NOT JUSTIFY THE DEPARTMENT IN TREATING T HE RESPONDENT AS ASSESSEE IN DEFAULT. THEREFORE, THE A O AND THE CIT(A) HAD ERRED IN TREATING THE RESPONDENT AS DEFAULTER FOR NOT DEDUCTING TDS UNDER S. 192. CONSEQUENTLY, SS.201(1) AND 201(1A) WERE ALSO NOT APPLICABLE TO THE FACTS OF THIS CASE CIT V. INFOS YS TECHNOLOGIES LTD. (2007) 207 CTR (KAR) 620 AFFIRMED. 16.1 HOWEVER, THEY HAVE NOT PRESSED ANY OPINION ON THE LAW PREVAILING AFTER 1 ST APRIL, 2000. BEING SO, THE ABOVE RATIO LAID DOWN BY THE HONBLE SUPREME COURT CANNOT BE APPLIED FOR THE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 29 ASSESSMENT YEAR 2011-2012. THERE WAS AN AMENDMENT T O SECTION 17(2)(IIIA) WITH EFFECT FROM 01.04.2000, HO WEVER, THE SAME WAS DELETED BY THE FINANCE ACT, 2000 WITH EFFE CT FROM 01.04.2001. BEING SO, THE JUDGMENT OF THE HONBLE S UPREME COURT IN THE CASE OF INFOSYS TECHNOLOGIES LIMITED (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. ACCOR DINGLY, WE HOLD THAT THE ELEMENT OF SHARES TO EMPLOYEES UNDER ESOP COULD NOT BE TREATED AS PERQUISITE AS THERE WAS NO BENEFIT AND VALUE OF BENEFIT, IF ANY, WAS UNASCERTAINABLE AT TH E TIME WHEN THE OPTIONS WERE EXERCISED. ACCORDINGLY, WE ALLOW T HIS GROUND RAISED BY THE ASSESSEE. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN IT(TP)A NO.692/BANG/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. NOW, WE SHALL TAKE UP IT(TP)A NO.2861/BANG/2017 FOR ASSESSMENT YEAR 2013-2014 FOR ADJUDICATION. IT(TP)A NO.2861/BANG/2017 : ASST. YEAR 2013-2014 : 18. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, NXP INDIA PRIVATE LIMITED (HEREINAFTER REFERRED TO AS 'APPELLANT') RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(1 )(1) ('ASSESSING OFFICER' OR 'AO'), DATED 24 OCTOBER 2017 FOR AY 2013-14 ('THE IMPUGNED ORDER '), UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 ('THE ACT') PURSUANT TO THE DIRECTIONS ISSUED BY THE HONOURABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') , BANGALORE DATED 22 SEPTEMBER 2017 UNDER SECTION 144 C(5) OF THE ACT, INTER-ALIA ON THE FOLLOWING GROUNDS: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 30 GENERAL GROUNDS 1. THE IMPUGNED ORDER AND DIRECTIONS OF THE HON'BLE DR P ARE BASED ON INCORRECT APPRECIATION OF FACTS AND WRONG INTERPRETATION OF LAW AND THEREFORE, ARE BAD IN LAW ; 2. THE LEARNED AO I TRANSFER PRICING OFFICER ('TPO') H AS ERRED IN ASSESSING THE TOTAL INCOME AT INR 329,987,557 AS AG AINST THE RETURNED INCOME OF INR 241,671,830 COMPUTED BY THE APPELLANT IN ITS RETURN OF INCOME FOR AY 2013-14; 3. THE LEARNED AO HAS ERRED IN LAW AND IN FACT, IN DET ERMINING A SUM 01 INR 29,337,140 AS THE BALANCE TAX DEMAND P AYABLE BY THE APPELLANT; TRANSFER PRICING GROUNDS 4. REJECTING THE TRANSFER PRICING STUDY UNDERTAKEN BY THE APPELLANT AND MAKING AN ADJUSTMENT BY CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE SOFTWARE DEVELOPMENT TRAN SACTION 4.1 THE LEARNED DRP/AO/TPO ERRED IN MAKING AN ADDI TION OF INR 74,695,457 TO THE TOTAL INCOME OF THE APPELL ANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE ('A LP') OF THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES TRANSACT ION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERP RISE; 4.2 THE LEARNED DRP/AO/TPO HAS ERRED IN LAW AND FA CTS BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME-TAX RULES, 1962 ('RULES') AND CONDU CTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF TH E ARM'S LENGTH PRICE IN CONNECTION WITH THE IMPUGNED INTERN ATIONAL TRANSACTION AND HOLDING THAT THE APPELLANT'S INTER NATIONAL TRANSACTION IS NOT AT ARMS LENGTH; 5.1 THE LEARNED DRP/AO/TPO HAS ERRED IN LAW AND FA CTS BY DETERMINING THE ARM'S LENGTH MARGINAL PRICE USIN G ONLY FY 2012-13 DATA WHICH WAS NOT AVAILABLE TO THE APPELLA NT AT THE TIME OF COMPLYING WITH THE TRANSFER PRICING DOCUMEN TATION REQUIREMENTS; 5.2 THE LEARNED DRP/AO/TPO ERRED, IN LAW AND IN FA CTS, BY ACCEPTING/REJECTING COMPANIES BASED ON UNREASONABLE COMPARABILITY CRITERIA: A) THE LEARNED DRP/AO/TPO ERRED, BY ACCEPTING CERTAIN ADDITIONAL COMPARABLE COMPANIES BY CONDUCTING A FRE SH INDEPENDENT SEARCH DURING TP ASSESSMENT PROCEEDINGS WHICH ARE FUNCTIONALLY DISSIMILAR; IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 31 TECH MAHINDRA LTD (SEGMENTAL) B) THE LEARNED DRP/AO/TPO ERRED, BY ACCEPTING CERTAIN ADDITIONAL COMPARABLE COMPANIES BY CONDUCTING A FRE SH INDEPENDENT SEARCH DURING TP ASSESSMENT PROCEEDING S WHICH ARE FUNCTIONALLY DISSIMILAR; CG VAK SOFTWARE & EXPORTS LIMITED LARSEN & TOUBRO INFOTECH LTD. PERSISTENT SYSTEMS LIMITED (SEG) ALTHOUGH THESE COMPANIES WERE CHOSEN AS COMPARABLES IN TRANSFER PRICING STUDY, UPON CONSIDERATION OF MORE DETAILS, THESE COMPANIES ARE FOUND TO BE NOT COMPARABLE AND SHOULD BE EXCLUDED FROM THE FINALS SET OF COM PARABLES. C) THE LEARNED AOI TPO AND DRP HAS ERRED IN LAW AND FA CTS BY REJECTING CERTAIN COM PARABLES CONSIDERED BY THE AP PELLANT IN THE COMPARABILITY ANALYSIS BY APPLYING DIFFERENT QU ANTITATIVE AND QUALITATIVE FILTERS: D) BY REJECTING CERTAIN COMPARABLE COMPANIES IDENTIFIE D BY THE APPELLANT FOR HAVING DIFFERENT ACCOUNTING YEAR (I.E . COMPANIES HAVING ACCOUNTING YEAR OTHER THAN MARCH 31 OR COMPA NIES WHOSE FINANCIAL STATEMENTS WERE FOR A PERIOD OTHER THAN 12 MONTHS); THIS RESULTED IN DELETION OF: CALIBER POINT BUSINESS SOLUTIONS LIMITED HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED MAVERIC SYSTEMS LIMITED R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) E) BY REJECTING THE FOLLOWING COMPARABLES IDENTIFIED B Y THE APPELLANT USING EXPORT SALES TURNOVER GREATER THAN 75% OF SALES AS A COMPARABILITY CRITERION: GOLDSTONE TECHNOLOGIES LIMITED BY REJECTING THE FOLLOWING COMPARABLE IDENTIFIED BY THE APPELLANT USING NON AVAILABILITY OF FINANCIAL DATA FOR FINANCIAL YEAR 2012-13 AS A COMPARABILITY CRITERION: CALIBER POINT BUSINESS SOLUTIONS LIMITED MAVERIC SYSTEMS LIMITED F) BY REJECTING CERTAIN COMPARABLE COMPANIES, ON THE G ROUND THAT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 32 THERE WERE EXTRAORDINARY CIRCUMSTANCES; SPRY RESOURCES INDIA PRIVATE LIMITED HELLOS & MATHESON INFORMATION TECHNOLOGY LIMITED G) BY REJECTING CERTAIN COMPARABLE COMPANIES SELE CTED BY THE APPELLANT IN ITS TP DOCUMENTATION ON THE GROUND THAT THEY ARE FUNCTIONALLY DISSIMILAR; AKSHAY SOFTWARE TECHNOLOGIES LIMITED CAT TECHNOLOGIES LIMITED CIGNITI TECHNOLOGIES LIMITED LUCID SOFTWARE LIMITED SASKEN COMMUNICATION TECHNOLOGIES LIMITED 5.3 THE LEARNED DRP/AO/TPO HAS ERRED IN LAW AND FA CTS BY ERRONEOUSLY COMPUTING THE MARGINS OF THE COMPARA BLE COMPANIES FOR THE APPELLANT'S INTERNATIONAL TRANSAC TION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES: CG VAK SOFTWARE & EXPORTS LIMITED ICRA TECHNO ANALYTICS LIMITED PERSISTENT SYSTEMS LIMITED LARSEN AND TOUBRO INFOTECH LIMITED MINDTREE LIMITED (SEGMENTAL) 5.4 THE LEARNED DRP/AO/TPO ERRED, IN LAW AND IN FA CTS, BY OBTAINING INFORMATION U/S 133(6) OF THE ACT, WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN AND RELYING ON THE SAME FOR COMPARABILITY PURPOSES; TECH MAHINDRA LTD (SEGMENTAL) 5.5 THE LEARNED DRP/AO/TPO ERRED, IN LAW AND IN FA CTS, BY INCORRECTLY COMPUTING THE WORKING CAPITAL ADJUSTMEN T OF CERTAIN COMPARABLE COMPANIES. 5.6 THE LEARNED DRP/AO/TPO ERRED, IN LAW AND IN FA CTS, BY NOT MAKING SUITABLE ADJUSTMENTS ON ACCOUNT OF DIFFE RENCES IN THE RISK PROFILE OF THE APPELLANT VIS-A-VIS THE COM PARABLES, WHILE CONDUCTING COMPARABILITY ANALYSIS; CORPORATE TAX GROUNDS 6. THE LEARNED AO HAS ERRED IN FACTS DISALLOWING THE STOCK COMPENSATION EXPENSE AMOUNTING TO RS 16,512,330 UND ER SECTION 37 OF THE ACT WITHOUT APPRECIATING THE FACT THAT, THE SAME HAS BEEN SUO MOTO DISALLOWED BY THE ASSESSEE I N THE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 33 COMPUTATION OF INCOME FOR THE CURRENT AY. THE LEARNED AO ERRED IN FACTS, BY INCREASING THE TO TAL INCOME BY INR 2,892,060 BEING THE CONSEQUENTIAL DEPRECIATI ON ALLOWED TO THE APPELLANT, INSTEAD OF REDUCING THE S AME OTHER GROUNDS 8. THE LEARNED AO HAS ERRED IN LEVYING INTEREST OF INR 10,404,900 UNDER SECTION 234B AND INR 14,226 UNDER SECTION 234C OF THE ACT. 9. THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROC EEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. ALL THE ABOVE GROUNDS MAY BE CONSIDERED INDEPENDENT AND WITHOUT PREJUDICE OF EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 18.1 HOWEVER, AT THE TIME OF HEARING BEFORE US, THE ASSESSEE HAS PRESSED FOR THE EXCLUSION OF FOLLOWING FIVE COM PARABLES:- (I) LARSEN & TOUBRO INFOTECH LIMITED (II) PERSISTENT SYSTEMS LIMITED. (III) C.G.VAK SOFTWARE & EXPORTS LIMITED (IV) ICRA TECHNO ANALYTICS LIMITED (V) TECH MAHINDRA LIMITED. 18.2 THE LEARNED AR ALSO PRESSED THE INCLUSION OF T HE FOLLOWING SEVEN COMPARABLES:- (I) CALIBER POINT BUSINESS SOLUTIONS LIMITED (II) HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 34 (III) R SYSTEMS INTERNATIONAL LIMITED (IV) AKSHAY SOFTWARE TECHNOLOGIES LIMITED (V) CAT TECHNOLOGIES LIMITED (VI) CIGNITY TECHNOLOGIES LIMITED (VII) LUCID SOFTWARE LIMITED. 19. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS ENGAGED IN THE FOLLOWING ACTIVITIE S:- STRATEGIC MANAGEMENT FUNCTIONS: NXP NETHERLANDS PLAYS A SIGNIFICANT ROLE IN DETERMI NING THE BUSINESS STRATEGY OF THE GROUP (INCLUDING NXP I NDIA). NXP NETHERLANDS IS RESPONSIBLE FOR ALL TOP MANAGEME NT FUNCTIONS OF CORPORATE STRATEGY, TREASURY, LEGAL AND REGULATORY AFFAIRS AND DESIGNING THE POLICY WITH RESPECT TO ITS GROUP OPERATIONS (INCLUDING NXP INDIA) NO STRATEGIC FUNCTIONS ARE PERFORMED BY NXP INDIA. NXP INDIA PRIMARILY PERFORMS THE TACTICAL MANAGERIAL FUNCTIONS REGARDING DAY TO DAY MANAGEMENT OF BUSINE SS. CORPORATE SERVICES: WITH RESPECT TO HUMAN RESOURCES, FINANCIAL MANAGEME NT, ROUTINE ADMINISTRATION ETC. NXP INDIA IS RESPONSIBL E FOR ARRANGING THE NECESSARY RESOURCES. IT IS RESPONSIBL E FOR MANAGING ITS OWN CASH FLOWS, ACCOUNTS PAYABLE, ACCO UNTS RECEIVABLES, EMPLOYEE MANAGEMENT, MANAGEMENT INFORMATION SYSTEM, AND TRAINING AND HIRING EMPLOYE ES. IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 35 THOUGH NXP INDIA DRAFTS ITS POLICIES WITHIN THE BRO AD FRAMEWORK OF NXP GROUP, IT RECEIVES NIL OR LITTLE S UPPORT FROM ITS OVERSEAS ENTITIES IN TERMS OF IMPLANTATION OF THOSE POLICIES. MARKETING/BUSINESS DEVELOPMENT: NXP NETHERLANDS FORMULATES THE OVERALL MARKETING STRATEGY AND IS RESPONSIBLE FOR MARKETING THE PRODUCTS/SERVICES OFFERED BY NXP NETHERLANDS. AS NX P NETHERLANDS IS THE FRONT END CONTACT FOR THE CUSTOM ERS, IT UNDERTAKES LEAD GENERATION, MARKETING AND SALES ACT IVITY FOR THE PRODUCTS/SERVICES PROVIDE TO THE CUSTOMERS. IT IS RESPONSIBLE FOR MAINTAINING AND DEVELOPING RELATION SHIP WITH ITS CUSTOMERS AND IS THEREFORE RESPONSIBLE FOR EXPANDING THE BUSINESS. NXP INDIA DOES NOT UNDERTAKE ANY MARKETING/BUSINESS DEVELOPMENT ACTIVI TY. FUNCTIONS IN RESPECT OF SALES AGENT SUPPORT SERVICE S: MARKETING STRATEGY DEVELOPING MARKETING AND SALES COLLATERALS ADVERTISING AND SALES PROMOTION ASSISTANCE IN IDENTIFYING CUSTOMERS IN INDIA PRICING DECISION CONTRACTING WITH CUSTOMERS AND INVOICING ANALYSIS OF FINANCIAL RESULTS: FINANCIAL RESULTS FOR THE F.Y.2012-13 AS PER THE PR OFIT & LOSS ACCOUNT:- IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 36 PARTICULARS AMOUNT (RS.) INCOME REVENUE FROM OPE RATIONS INCOME FROM RESEARCH DESIGN & APPLICATION DEVELOPMENT SERVICES 1004090591 INCOME FROM INDENTING ACTIVITY 95537256 1099627847 OTHER INCOME 160257816 TOTAL REVENUE 1259885663 EXPENSES EMPLOYEE BENEFITS 600786517 FINANCE COST ON FINANCE LEASES 1802982 DEPRECIATION & AMORTISATION 23774473 OTHER OPERATING EXPENSES 404939049 TOTAL EXPENSES 1031303021 PROFIT BEFORE TAX 228582642 THE RECONCILED FINANCIALS OF THE TAX PAYER FOR THE A.Y.2013-2014 AS PER PROFIT AND LOSS ACCOUNT ARE AS UNDER:- PAR TICULARS AMOUNT (RS.) TOTAL INCOME 1259885663 LESS : OTHER INCOME 160257816 ADD : FOREIGN EXCHANGE GAIN, NET 6017675 OPERATING INCOME 1105645522 EXPENSES 1031303021 LESS : FINANCE COST 1802982 OPERATING EXPENSES 1029500039 OPERATING PROFIT 76145483 OP/OC 7.40% OP/OR 6.89% THE SEGMENTAL FINANCIAL AS GIVEN IN THE TRANSFER PR ICING STUDY IS AS UNDER:- PARTICULARS SOFTWARE DEVELOPMENT SERVICES (A) ORDER GATHERING SERVICES (B) UNALLOCATED (C) TOTAL = (A+B+C) AS PER P&L (FY 2012- 13) INCOME INCOME FROM SERVICE 1004090591 95537256 -- 1099627847 1099627847 IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 37 FOREIGN EXCHANGE FLUCTUATIONS 6017675 -- -- 6017675 6017675 OTHER OPERATING INCOME 371878 -- -- 371878 371878 NON- OPERATING INCOME -- --- 153868263 153868263 153868263 OPERATING REVENUE 1010480144 95537256 153868263 1259885663 1259885663 EXPENDITURE EMPLOYEE COSTS 558991583 41794934 -- 600786517 600786517 OPERATING AND OTHER EXPENSES 328904402 10048722 65985925 404939049 404939049 DEPRECIATION AND AMORTIZATION 23110659 663814 -- 23774473 23774473 NON- OPERATING EXPENSES -- -- 1802982 1802982 1802982 OPERATING COST 911006644 52507470 67788907 1031303021 1031303021 OPERATING PROFIT 99473500 43029786 86079356 228582642 228582642 OPERATING PROFIT / OPERATING COST 10.92% 81.95% THE SEGMENTAL BREAK UP AS COMPUTED BY THE TPO IS AS UNDER:- PARTICULARS SOFTWARE DEVELOPMENT SERVICES (A) ORDER GATHERING SERVICES (B) INCOME FROM SERVICES 1004090591 95537256 ADD : FOREIGN EXCHANGE FLUCTUATIONS 6017675 -- OPERATING INCOME 1010108266 95537256 EXPENSES 911006644 562507470 OPERATING EXPENSES 911006644 52507470 OPERATING PROFIT 99101622 43029786 OP/OC 10.88% 81.95% OP/OR 9.81% 45.04.% IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 38 20. WHILE MAKING THE TRANSFER PRICING ADJUSTMENT, T HE ASSESSEE SELECTED 25 COMPARABLES. HOWEVER, THE A.O. CONSIDERED ONLY 4 OUT OF IT AND LIMITED THE COMPARA BLES TO THE EXTENT OF 7 AND COMPUTED THE MARGIN AT 19.08% BY CONSIDERING FOLLOWING COMPARABLES:- (I) C G VAK SOFTWARE & EXPORTS LIMITED (II) LARSEN & TOUBRO INFOTECH LIMITED (III) MINDTREE LIMITED (IV) PERSISTENT SYSTEMS LIMITED (V) R S SOFTWARE (INDIA) LIMITED (VI) ICRA TECHNO ANALYTICS LIMITED (VII) TECH MAHINDRA LIMITED. 20.1 THUS, THE TPO MADE TRANSFER PRICING ADJUSTMENT TO THE TUNE OF RS.7,46,95,457 WITHOUT MAKING ANY ADJUSTMEN T ON ACCOUNT OF RISK. THE ASSESSMENT WENT FOR THE DIRECT ION OF THE DISPUTE RESOLUTION PANEL (DRP), WHO CONCURRED WITH THE VIEW TAKEN BY THE TPO ON SELECTION OF THE COMPARABLES AN D ALSO CONCURRED WITH THE VIEW WITH REGARD TO WORKING CAPI TAL ADJUSTMENT AND RISK ADJUSTMENT. THEREFORE, THE ASSE SSEE IS BEFORE US. 21. THE LEARNED AR PLEADED FOR THE EXCLUSION OF THE FOLLOWING COMPARABLES:- (I) LARSEN & TOUBRO INFOTECH LIMITED (II) PERSISTENT SYSTEMS LIMITED. (III) C.G.VAK SOFTWARE & EXPORTS LIMITED (IV) ICRA TECHNO ANALYTICS LIMITED IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 39 (V) TECH MAHINDRA LIMITED. I. LARSEN & TOUBRO INFOTECH LIMITED 22. THE LEARNED AR RELIED ON THE ORDER OF THE CO-OR DINATE BENCH IN THE CASE OF M/S.METRIC STEAM INFOTECH (IND IA) PVT. LTD. V. DCIT IN IT(TP)A NO.1418 & 2735/BANG/2017 FO R THE ASSESSMENT YEAR 2013-2014, ORDER DATED 27.02.2019, WHEREIN THE TRIBUNAL HELD AS UNDER:- 11. AS FAR AS L&T INFOTECH LTD. AND PERSISTENT SYS TEMS LTD. ARE CONCERNED, OUR ATTENTION WAS DRAWN TO THE DECIS ION OF ITAT HYDERABAD BENCH IN THE CASE OF M/S. EPAM SYSTEMS (I ) P. LTD. V. ACIT, ITA NO.2122/HYD/2017 FOR AY 2013-14, ORDER DATED 20.11.2017. VIDE PARA 12 OF THE DECISION, THE TRIBU NAL TOOK THE VIEW THAT PERSISTENT SYSTEMS LTD. WAS INTO SOFTWARE PRODUCTS AND SOFTWARE SOLUTIONS AND NO SEGMENTAL DETAILS WER E AVAILABLE AND THEREFORE THE PROFIT MARGIN IN THE SOFTWARE DEV ELOPMENT SERVICES SEGMENT COULD NOT BE COMPARED WITH THE ASS ESSEES PROFIT MARGIN. AS FAR AS L&T INFOTECH LTD. IS CONCE RNED, THE TRIBUNAL VIDE PARA 17 OF THE AFORESAID ORDER CAME T O A SIMILAR CONCLUSION TO HOLD THAT L&T INFOTECH SHOULD NOT BE REGARDED AS A COMPARABLE COMPANY. IN THE LIGHT OF JUDICIAL PREC EDENTS WHICH REMAIN UNCONTROVERTED, WE ARE OF THE VIEW THA T THE AFORESAID TWO COMPARABLE COMPANIES SHOULD BE EXCLUD ED FROM THE LIST OF COMPARABLE COMPANIES. 22.1 IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN EARL IER YEAR, LARSEN & TOUBRO INFOTECH LIMITED HAS INCURRED EXPEN DITURE ON COST OF BROUGHT OUT ITEMS FOR RESALE AT RS.27,10,8 9,274 FOR WHICH HE DREW OUR ATTENTION TO THE FINANCIAL STATEM ENT OF LARSEN & TOUBRO INFOTECH LIMITED PLACED AT PAPER BO OK PAGE NO.1081, WHICH IS ABSENT IN THE CASE OF PRESENT ASS ESSEE. HE ALSO SUBMITTED THAT IT HAS HUGE INTANGIBLE ASSETS A ND BRAND VALUE IN SOFTWARE AT RS.143,61,95,196 AND IT HAS IN TANGIBLE IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 40 ASSET IN THE FORM OF BUSINESS RIGHTS TO THE TUNE OF RS.153,42,45,196 AS SHOWN IN THE FIXED ASSETS AS ON 31.03.2013 PLACED AT PAPER BOOK PAGE NO.1078. BEING SO, IN OUR OPINION, IT CANNOT BE COMPARED WITH THE ASSESSE ES CASE. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. II. PERSISTENT SYSTEMS LIMITED 23. AS DISCUSSED IN EARLIER YEAR, PERSISTENT SYSTEM S LIMITED IS ENGAGED IN PRODUCT ENGINEERING SERVICES, PLATFOR MS AND SOLUTIONS, IP AND RELATED BUSINESS, WHICH IS FUNCTI ONALLY DIFFERENT FROM ASSESSEES CASE AND IT HAS EARNED RE VENUE FROM R & D ACTIVITIES. PERSISTENT SYSTEMS LIMITED ALSO O WNS INTELLECTUAL PROPERTIES. FURTHER, SEGMENTAL DATA IS NOT AVAILABLE AS SEEN FROM THE NOTES FORMING PART OF FI NANCIAL STATEMENTS UNDER THE HEAD REVENUE FROM OPERATIONS (NET), PLACED AT PAPER BOOK PAGE NO.1260 AND IT HAS NET IN COME FROM SALE OF SOFTWARE SERVICES AS DISCUSSED IN EARL IER YEAR. IT IS ALSO TO BE NOTED THAT PERSISTENT SYSTEMS LIMITED IS CONSIDERED AS A COMPARABLE BY VARIOUS ORDERS OF THE TRIBUNAL I N THE FOLLOWING CASE OF NXP SEMICONDUCTOR PRIVATE LIMITED [IT(TP)A NO.1634/BANG/2014 FOR ASSESSMENT YEAR 2009 -2010. VIDE ORDER DATED 22.07.2015, THE TRIBUNAL OBSERVED A S UNDER:- 13.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUD ING THE JUDICIAL DECISION CITED. WE FIND THAT A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE (SUPRA) FOR ASS ESSMENT YEAR 2008-09 HAS HELD THAT THIS COMPANY BEING ENGAGED IN PRODUCT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 41 DEVELOPMENT AND PRODUCT DESIGN AND ANALYSIS SERVICE IS FUNCTIONALLY DIFFERENT FROM A PURE SOFTWARE SERVICE PROVIDER AND THEREFORE EXCLUDED IT FROM THE LIST OF COMPARABLES FOR SOFTWARE DEVELOPMENT SERVICES; HOLDING AS UNDER AT PARA 17.3 OF ITS ORDER:- 17.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS SEEN FROM THE DETAILS ON RECORD THAT THIS COMPANY I.E. PERSISTENT SYSTEMS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN S ERVICES WHILE THE ASSESSEE IS A SOFTWARE DEVELOPMENT SERVICES PRO VIDER. WE FIND THAT, AS SUBMITTED BY THE ASSESSEE, THE SEGMENTAL D ETAILS ARE NOT GIVEN SEPARATELY. THEREFORE, FOLLOWING THE PRINCIPL E ENUNCIATED IN THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TELECORDIA TECHNOLOGIES INDIA PVT. LTD. (SUPRA) THAT IN THE AB SENCE OF SEGMENTAL DETAILS / INFORMATION A COMPANY CANNOT BE TAKEN INTO ACCOUNT FOR COMPARABILITY ANALYSIS, WE HOLD THAT TH IS COMPANY I.E. PERSISTENT SYSTEMS LTD. OUGHT TO BE OMITTED FROM TH E SET OF COMPARABLES FOR THE YEAR UNDER CONSIDERATION. IT IS ORDERED ACCORDINGLY. 13.4.2 FOLLOWING THE DECISION OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE (SUPRA) FOR ASS ESSMENT YEAR 2008-09, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES AS IT IS FUNCTIONALLY DIFFERENT (VIZ. BEING ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN S ERVICES) FROM THE ASSESSEE IN THE CASE ON HAND WHICH IS REND ERING SOFTWARE DEVELOPMENT SERVICES. IT IS ORDERED ACCORD INGLY. 23.1 THEREFORE, PERSISTENT SYSTEMS LIMITED CANNOT B E COMPARED WITH THE ASSESSEES CASE. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPARABLES, WITH THE SIMILAR DIRECTIONS GIVEN IN T HE ABOVE ORDER OF THE TRIBUNAL (SUPRA). 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 IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 42 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 THA T THE NATURE OF THE BUSINESS OF SOFTWARE DEVELOPMENT INVO LVES INBUILT, CONSTANT RESEARCH AND DEVELOPMENT AS A PAR T OF ITS PROCESS OF MANUFACTURING (DEVELOPMENT). THE COMPANY IS DEVELOPING APPLICATIONS ENGINES, RE-USABLE CODES AN D LIBRARIES AS A PART OF ITS R & D ACTIVITIES. FURTHER, IT HAS INTANGIBLE ASSETS AS SHOWN IN THE FINANCIAL STATEMENT AS ON 31 .03.2013 AT RS.3,03,83,536 AND IT IS ALSO ENGAGED IN OUTSOUR CE 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 CASE OF M/S.EPAM SYSTEMS INDIA PR IVATE LIMITED (ITA NO.2122/HYD/2017 FOR ASSESSMENT YEAR 2 013- 2014). VIDE ORDER DATED 20.11.2018, THE TRIBUNAL HEL D 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 FUNCTIONALLY SIMI LAR. WE HAVE GONE THROUGH THE ANNUAL REPORTS OF CGVAK SOFTWARE & EXPORTS LTD AND FIND THAT THE SAID COMPANY IS HAVING REVENU E FROM BOTH SOFTWARE SERVICES AND BPO SERVICES BUT THERE IS NO SEGMENTAL DATA WITH REGARD TO EACH OF THESE TRANSACTIONS. THE REFORE, AS HELD BY THE COORDINATE BENCH OF THE TRIBUNAL IN A N UMBER OF CASES (CITED SUPRA), WE HOLD THAT THIS COMPANY CANN OT BE TAKEN AS A COMPARABLE TO THE ASSESSEE-COMPANY. ACCORDINGL Y, WE DIRECT THE TPO TO EXCLUDE THIS COMPANY FROM THE FIN AL LIST OF COMPARABLES. 24.1 SIMILARLY, IN THE CASE OF M/S.ION TRADING INDI A PRIVATE LIMITED V. ITO (ITA NO.1035/DEL/2015 FOR THE ASSESS MENT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 43 YEAR 2010-2011). THE TRIBUNAL VIDE ITS ORDER DATED 07.12.2015, HELD AS UNDER:- 21. WE HAVE CONSIDERED THE SUBMISSION OF THE LD. 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 CGVAK SOFTWARE AND EXPORTS LIMITED IS NOT 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 INCLINED TO UPHOLD THE ORDERS OF THE AUTHORITIES BELOW IN REJECTING THIS C OMPANY AS A COMPARABLE. WE DIRECT ACCORDINGLY. 24.2 IN OUR OPINION, THERE IS FORCE IN THE ARGUMENT OF THE LEARNED AR. M/S.C G VAX SOFTWARE & EXPORTS LIMITED I S NOT ONLY ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT, BUT ALSO ENGAGED IN PRODUCT MANUFACTUR ING PROCESS, WHEREAS THE PRESENT ASSESSEE IS NOT IN PRO DUCT MANUFACTURE ACTIVITY. M/S. C G VAX SOFTWARE & EXPOR TS LTD. OWNS HUGE INTANGIBLE ASSETS AND ALSO ENGAGED IN OUT SOURCED PRODUCT DEVELOPMENT. IN VIEW OF THE FOREGOING REASO NS, WE HOLD THAT THE SAID COMPANY CANNOT BE CONSIDERED FOR INCLUSION IN THE LIST OF COMPARABLES. WE, THEREFORE , DIRECT THE TPO TO EXCLUDE THE SAID COMPANY FROM THE LIST OF COMPAR ABLES. IV. ICRA TECHNO ANALYTICS LIMITED 25. THE LEARNED AR SUBMITTED THAT ICRA TECHNO ANALY TICS LIMITED IS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. THE LEARNED AR DREW OUR ATTENTION TO PAPER BOOK PAGE NO S.1317 AND 1318 TO SHOW THAT ITS REVENUE FROM SERVICES IS AT IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 44 RS.1807.37 LAKH FOR THE PERIOD 01.04.2012 TO 31.03. 2013 AND THERE WAS NO SALE OF SOFTWARE. ACCORDING TO THE LEA RNED AR, ICRA TECHNO ANALYTICS LIMITED IS ENGAGED IN SOFTWAR E DEVELOPMENT AND CONSULTANCY, ENGINEERING SERVICES, WEB DEVELOPMENT AND HOSTING AND SUBSEQUENTLY DIVERSIFIE D ITSELF INTO THE DOMAIN OF BUSINESS ANALYTICS AND BUSINESS PROCESS OUTSOURCING. IT WAS ALSO SUBMITTED THAT SINCE THE R EVENUE AS SHOWN IN THE CONSOLIDATED MANNER AND NO SEGMENTAL B REAK UP WAS MADE AVAILABLE IN ITS ANNUAL ACCOUNTS, THE CONSOLIDATED AMOUNT OF RS.1807.37 LAKH WAS DISCLOSE D IN ITS FINANCIAL STATEMENT AS ON ACCOUNT OF SERVICE REVENU E. THE LEARNED AR ALSO DREW OUR ATTENTION TO THE FINANCIAL STATEMENT PLACED AT PAPER BOOK PAGE NO.1322. 25.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON TH E OTHER HAND, SUBMITTED THAT THIS WAS RAISED BY WAY OF ADDI TIONAL GROUND. THE LEARNED DR SUBMITTED THAT THIS COMPARAB LE WAS NOT OBJECTED BY THE ASSESSEE BEFORE THE LOWER AUTHO RITIES, BUT ONLY CHALLENGED THE COMPUTATION OF MARGIN OF THIS COMPARABLE, AND THEREFORE, IT MAY BE REMITTED BACK TO RECOMPUTE THE MARGIN. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, AS RIGHTLY POIN TED OUT BY THE LEARNED DR, THE ASSESSEE HAS NOT OBJECTED FOR C ONSIDERING ICRA TECHNO ANALYTICS LIMITED AS A COMPARABLE BEFOR E US AND THE ONLY CHALLENGE WAS WITH REGARD TO COMPUTATION M ARGIN OF THE COMPARABLE. IN VIEW OF THIS, WE ARE INCLINED TO REMIT THE MATTER IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 45 TO THE FILES OF TPO TO COMPUTE THE CORRECT MARGIN O F THIS COMPARABLE COMPANY. ACCORDINGLY, WE REMIT THE MATTE R TO THE TPO WITH THE ABOVE DIRECTIONS. V. TECH MAHINDRA LIMITED 27. THE CONTENTION OF THE ASSESSEE IS THAT IN CASE OF TECH MAHINDRA LIMITED THE TPO HAS OBTAINED INFORMATION A BOUT ITS COMPARABILITY U/S 133(6) OF THE I.T.ACT, WHICH WAS NOT AVAILABLE IN PUBLIC DOMAIN, AND RELIED ON THE SAME AS COMPARABLE. ACCORDING TO THE LEARNED AR, THE INTANG IBLE AND INVENTORY IS VERY HIGH AND TECH MAHINDRA LIMITED IS FUNCTIONALLY DIFFERENT FROM THAT OF THE ASSESSEE. T HE LEARNED AR FURTHER SUBMITTED THAT TECH MAHINDRA LIMITED PRO VIDES VARIETY OF SERVICES LIKE BUSINESS SUPPORT SYSTEMS, OPERATIONS SUPPORT SYSTEMS, MOBILITY SOLUTIONS, NETWORK DESIGN AND ENGINEERING, INFRASTRUCTURE MANAGED SERVICES, REMOT E INFRASTRUCTURE MANAGEMENT ETC. AND ARE DIVERSIFIED IN NATURE AND ARE HIGH END SERVICES WHICH ARE SIGNIFICANTLY D IFFERENT FROM ROUTINE SOFTWARE DEVELOPMENT. 27.1 THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON TH E OTHER HAND, SUBMITTED THAT THERE IS NO SPECIFIC FINDING B Y THE DRP ON THIS ISSUE, HENCE, THIS SHOULD GO BACK TO THE TP O FOR RECONSIDERATION. 27.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT, AT THE TIME OF TR ANSFER PRICING STUDY, THE DATA OF TECH MAHINDRA LIMITED WERE NOT A VAILABLE TO IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 46 THE PUBLIC DOMAIN. NOW THESE DETAILS ARE AVAILABLE WITH THE ASSESSEE. THESE DETAILS WERE NOT MADE AVAILABLE EIT HER BEFORE THE TPO OR BEFORE THE DRP. IN VIEW OF THE VARIATION BETWEEN THE ACTIVITY OF THE ASSESSEE AND TECH MAHINDRA LIMI TED, WE REMIT THE ISSUE TO THE FILES OF THE TPO FOR RECONSI DERATION. IT IS ORDERED ACCORDINGLY. 28. THE LEARNED AR PLEADED FOR THE INCLUSION OF THE FOLLOWING SEVEN COMPARABLES:- (I) CALIBER POINT BUSINESS SOLUTIONS LIMITED (II) HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED (III) R SYSTEMS INTERNATIONAL LIMITED (IV) AKSHAY SOFTWARE TECHNOLOGIES LIMITED (V) CAT TECHNOLOGIES LIMITED (VI) CIGNITY TECHNOLOGIES LIMITED (VII) LUCID SOFTWARE LIMITED. I. CALIBER POINT BUSINESS SOLUTIONS LIMITED 29. THE ASSESSEE SELECTED THIS AS A COMPARABLE IN H IS TRANSFER PRICING STUDY, WHICH WAS REQUIRED BY TPO FOR THE RE ASON THAT NO DATA WERE AVAILABLE IN PUBLIC DOMAIN, HOWEVER, T HERE IS NO DISPUTE THAT THIS COMPANY IS ENGAGED IN SOFTWARE DE VELOPMENT SERVICES. NOW THE ANNUAL REPORT OF THE COMPANY IS A VAILABLE IN PUBLIC DOMAIN AND MORE SO, THE ASSESSEE HAS ALREADY PRODUCED THE FINANCIAL DATA IN THE PROWESS DATA BEFORE THE T PO, WHICH IS EVIDENT FROM ASSESSEES PAPER BOOK PAGE NO.490. EVE N THIS COMPANY COULD BE CONSIDERED AS A COMPARABLE IF IT H AS DIFFERENT FINANCIAL YEAR AS HELD BY THE CO-ORDINATE BENCH IN THE CASE OF RR DONNELLEY INDIA OUTSOURCES PVT. LTD. [ITA NO.678 /MDS/ IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 47 2015 ORDER DATED 18.08.2016, FOR ASSESSMENT YEAR 2010- 2011]. BEING SO, WE DIRECT THE TPO TO CONSIDER THIS COMPANY AS A COMPARABLE COMPANY TO THE ASSESSEES CASE WHIL E DETERMINING THE TRANSFER PRICING ADJUSTMENT. II. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED 30. THE TPO REJECTED THIS COMPANY FOR THE REASON TH AT THE FINANCIAL REPORT BY SUBMITTED BY THE ASSESSEE IS FO R THE YEAR ENDING ON 31 ST SEPTEMBER, WHICH IS DIFFERENT WHEN COMPARED TO THAT OF THE ASSESSEES CASE. THERE IS NO DISPUTE THAT THIS COMPANY IS ENGAGED IN BUSINESS OF SOFTWARE DEVELOPM ENT SERVICES. THIS COMPANY IS CONSIDERED TO BE COMPARAB LE THOUGH IT HAS DIFFERENT FINANCIAL YEAR, AS HELD IN THE FOLLOWING CASES:- (I) RR DONNELLEY INDIA OUTSOURCES PVT. LTD. [ITA NO.678/MDS/2015] (II) MCKINSEY KNOWLEDGE CENTRE INDIA PRIVATE LIMITED [ITA NO.217/DEL/2014] (III) TECHBOOKS ELECTRONICS SERVICES V. PR.CIT [ITA NO.343/DEL/2017] 30.1 BEING SO, IN OUR OPINION, AN EXTRAPOLATED DATA CAN BE CONSIDERED SO AS TO DETERMINE THE DATA FOR THE RELE VANT FINANCIAL YEAR 2012-2013. ACCORDINGLY, WE REMIT THI S ISSUE TO THE FILE OF THE TPO FOR FRESH CONSIDERATION. III. R.SYSTEMS INTERNATIONAL LIMITED IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 48 31. THIS COMPANY HAS BEEN REJECTED BY THE TPO ON TH E REASON THAT THIS COMPANY HAS DIFFERENT YEAR ENDING AS COMPARED TO THAT OF THE ASSESSEE COMPANY. AS DISCUS SED IN EARLIER PARAGRAPH, THERE IS NO DISPUTE THAT R.SYSTE MS INTERNATIONAL LIMITED IS FUNCTIONALLY COMPARABLE TO THE ASSESSEE. BEING SO, AS HELD IN EARLIER PARAGRAPH, W E DIRECT THE TPO TO CONSIDER THIS COMPANY AS A COMPARABLE. IV. AKSHAY SOFTWARE TECHNOLOGIES LIMITED 32. IT WAS REJECTED BY THE TPO FOR THE REASON THAT THE FUNCTION OF THIS COMPANY APPEARS TO BE MORE IN THE NATURE OF SUPPORT SERVICES AND I.T. ENABLED SERVICES. HOWEVER , THIS COMPANY IS ENGAGED IN PROVIDING PROFESSIONAL SERVIC ES, IMPLEMENTATION, SUPPORT AND MAINTENANCE OF ERP PROD UCTS AND OTHER SERVICES. THESE ARE NOTHING BUT SOFTWARE DEVELOPMENT SERVICES, AS IS EVIDENT FROM NOTES FORM ING PART OF THE FINANCIAL STATEMENT, WHICH IS PLACED AT PAPER B OOK PAGE NO.1825. FURTHER, THE REVENUE FROM SOFTWARE SERVICE S ACCOUNTS FOR 99.45% OF THE TOTAL REVENUE OF THE COM PANY AS EVIDENT FROM THE FINANCIAL STATEMENT PLACED ON RECO RD AT PAPER BOOK PAGE NO.1831. BEING SO, WE DIRECT THE TP O TO CONSIDER THIS COMPANY AS COMPARABLE TO THE ASSESSEE S CASE WHILE SELECTING THE COMPARABLES. V. CAT TECHNOLOGIES LIMITED 33. THIS COMPANY WAS REJECTED BY THE TPO FOR THE RE ASON THAT IT IS ENGAGED IN QUALITY CONSULTANCY SERVICES IN SYSTEM ANALYSIS, SYSTEM DESIGN AND OTHER RELATED SERVICES. ACCORDING TO THE TPO, IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 49 IT WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE, AN D REJECTED THE SAID COMPANY FROM THE COMPARABLES. AS SEEN FROM THE NOTES RELATING TO STATEMENT OF PROFIT AND LOSS ACCO UNT AS ON 31.03.2013, ALONG WITH SALES AND SERVICES AS UNDER: - PARTICULARS AS ON 31.03.2013 (RS.) SALES & SERVICES EXPORT CONSULTANCY FEES RECEIPTS 14,630,808 MEDICAL TRANSCRIPTION RECEIPTS 4,342,700 SOFTWARE DEVELOPMENT RECEIPTS 55,221,160 DOMESTIC COURSE FEES 178,350 LOCAL SOFTWARE DEVELOPMENT RECEIPTS 109,730 TOTAL 74,482,748 33.1 AS SEEN FROM THE ABOVE, THE COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AS PER ITS ANNUAL REP ORT. FURTHER, THE REVENUE FROM THE SOFTWARE DEVELOPMENT SERVICES IS MORE THAN 93.93% OF THE TOTAL REVENUE. BEING SO, THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF COMPARABL ES. ACCORDINGLY, WE DIRECT THE TPO TO INCLUDE CAT TECHN OLOGIES LIMITED IN THE LIST OF COMPARABLES. VI. CIGNITI TECHNOLOGIES LIMITED 34.THIS COMPANY WAS REJECTED BY THE TPO FOR THE REA SON THAT THIS COMPANY WAS ENGAGED IN SOFTWARE TESTING SERVIC E. THIS IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 50 COMPANY IS ALSO INTO COMPUTER PROGRAMMING, CONSULTA NCY AND RELATED ACTIVITIES. ACCORDING TO THE TPO, IT WA S FUNCTIONALLY DIFFERENT FROM ASSESSEE-COMPANY. AS SE EN FROM THE REVENUE FROM OPERATIONS, WHICH IS AS FOLLOWS:- PARTICULARS YEAR ENDING 31.03.2013 REVENUE FROM OPERATIONS SALE OF SERVICES DOMESTIC 4,632,731 EXPORT 231,042,089 TOTAL REVENUE FROM OPERATIONS 235,674,820 34.1 IN OUR OPINION, SOFTWARE TESTING IS A PART OF SOFTWARE DEVELOPMENT LIFE CYCLE AND BEING SO, THIS COMPANY S HOULD BE CONSIDERED AS A COMPARABLE. ACCORDINGLY, WE DIRECT THE TPO TO INCLUDE CIGNITI TECHNOLOGIES LIMITED AS A COMPARABL E TO THE ASSESSEE-COMPANY, WHILE SELECTING THE COMPARABLES. VII. LUCID SOFTWARE LIMITED 35. THIS COMPANY WAS REJECTED BY THE TPO FOR THE RE ASON THAT THERE WAS NO DATA AVAILABLE AND THE ACCOUNTING YEAR OF LUCID SOFTWARE LIMITED IS DIFFERENT FROM THAT OF TH E ASSESSEE. THIS COMPANY PRIMARILY ENGAGED IN SOFTWARE DEVELOPM ENT SERVICES, AS 95.44% OF THE TOTAL REVENUE IS DERIVED FROM RENDERING SOFTWARE SERVICES, WHICH IS EVIDENT FROM THE NOTES FORMING PART OF ACCOUNT, WHICH IS PLACED AT PAGE 23 34 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE SAME IS EXTRA CTED BELOW:- IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 51 NOTE 2.14 REVENUE FROM OPERATIONS REVENUE FROM OPERATIONS CONSISTS OF THE FOLLOWING: PARTICULARS FOR THE YEAR ENDED 31.03.2013 (AMOUNT IN RS.) FOR THE YEAR ENDED 31.03.2012 (AMOUNT IN RS.) INCOME FROM SOFTWARE SERVICES EXP ORTS 24,240,202 29,807,707 INCOME FROM SOFTWARE PRODUCTS SOLD 1,150,000 6,709,892 TOTAL 25,390,202 36,517,599 35.1 AS DISCUSSED IN EARLIER PARAGRAPH, THIS COMPAN Y IS CONSIDERED TO BE COMPARABLE THOUGH IT HAS DIFFERENT FINANCIAL YEAR AS HELD IN THE CASE OF RR DONNELLEY INDIA OUTS OURCES PVT. LTD. [ITA NO.678/MDS/2015]. ACCORDINGLY, WE DI RECT THE TPO TO INCLUDE LUCID SOFTWARE LIMITED AS A COMPARAB LE COMPANY IN THE LIST OF COMPARABLES. CORPORATE TAX 36. THIS GROUND IS SIMILAR TO THAT OF THE GROUND RA ISED IN IT(TP)A NO.692/BANG/2017 FOR THE ASSESSMENT YEAR 20 12- 2013. FOR THE REASONS STATED HEREINABOVE IN PARAGRA PH 16 AND 16.1 OF THIS ORDER, AND ALSO RESPECTFULLY FOLLO WING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V. INFOSYS TECHNOLOGIES LIMITED [(2008) 297 ITR 167 (SC )], WE ALLOW THIS GROUND. 37. GROUND NOS. 7, 8 AND 9 ARE NOT PRESSED BY THE A SSESSEE. HENCE, THEY ARE DISMISSED AS NOT PRESSED. IT(T)A NOS.692 & 2861/BANG/2017 M/S.NXP INDIA PRIVATE LIMITED. 52 38. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2020. SD/- SD/- ( N.V.VASUDEVAN ) ( CHANDRA POOJARI ) VICE-PRESIDENT ACCOUNTANT MEMBER BANGALORE ; DATED : 27 TH APRIL, 2020. DEVADAS G* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE DRP-2, BENGALURU. 4. THE CIT (TP)-2, BENGALURU. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. ASST.REGISTRAR/ITAT, BANGALORE