M/s. Nokia Siemens Networks Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 333/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3519 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 24-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Additional evidence; Permanent establishment; Question of law; Working capital adjustments; Wholly owned subsidiary; Non-deduction of tax; Bad and doubtful debts; Bonafide mistake
• Section: 143(3); 10AA; 234B; 133(6); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCHES: I 1 NEW DELHI ] BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER A N D SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER. I. T. APPEAL NO. 333/DEL/2013 ASSESSMENT YEAR : 2008-09 M/S NOKIA SIEMENS NETWORKS INDIA, ASSTT. COMMI SSIONER OF INCOME-TAX 7 TH FLOOR BUILDING NO.9A, VS CIRCLE 13(1), N EW DELHI. CYBER CITY, SECTOR 25A, GURGAON. PAN : AABCS9839H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK CHOPRA, SMT. RASHMI CHOPRA S/SH. AMIT SRIVASTAVA, HARPREET AJMANI, A NKUR GOYAL DEPARTMENT BY : SHRI KUMAR PRANAV, SR. DR DATE OF HEARING : 01.02.2018 DATE OF PRONOUNCEMENT : .02.2018 O R D E R PER K. NARASIMHA CHARY, J. M. : AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.11.2012 R EAD WITH THE DIRECTIONS DATED 27.9.2012 ISSUED BY THE DISPUTE RES OLUTION PANEL II, NEW DELHI (FOR SHORT CALLED LEARNED DRP), ASSESSEE PREFERRED THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF TELECOMMUNICATION NETW ORK EQUIPMENT AND 2 NETWORK DESIGN, INSTALLATION AND COMMISSIONING. TH E ASSESSEE IS ALSO PROVIDING SUPPORT SERVICES TO MAJOR TELECOM AND IT SERVICE PR OVIDERS BESIDES DEVELOPING TELECOM SOFTWARE. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED THEIR RETURN OF INCOME ON 30.9.2008 DECLARING A TOTAL INC OME OF RS.47,08,17,570/-. THE CASE WAS SELECTED FOR SCRUTINY. MATTER WAS REFERRE D TO THE LD. TPO FOR DETERMINATION OF THE ARMED LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION, AND THE LEARNED TPO BY ORDER DATED 31.10.2011 DETERMINED A SUM OF RS.38,36,90,639/- AS THE TRANSFER PRICING ADJUSTMEN T U/S 92CA BASING ON WHICH THE LEARNED AO MADE AN ADDITION TO THAT EFFECT. BESIDE S THIS, LEARNED AO MADE THE FOLLOWING ADDITIONS ALSO: DISALLOWANCE OF CLAIM OF EXEMPTION U/S 10AA TO THE EXTENT OF RS.15,93,92,715/- DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED ON UPS RS.1,44,75,008 DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND RS.19,25,243/- DISALLOWANCE OF TDS RECOVERABLE WRITTEN OFF RS.2,83,8 6,834/- DISALLOWANCE OF PENALTY EXPENSES RS.4000/- DISALLOWANCE U/S 40(A)(I) RS.6,91,99,702/- 3. ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED D RP. IN RESPECT OF TRANSFER PRICING ADJUSTMENT, LEARNED DRP EXCLUDED ONE M/S CYB ERMET INFOTECH LTD. FROM THE SET OF COMPARABLES DUE TO WHICH THE TRANSFER PR ICING ADJUSTMENT HAD COME DOWN TO RS.31,77,69,775/-. IN RESPECT OF ADDITIONS ON ACCOUNT OF CORPORATE ISSUES, LEARNED DRP SUSTAINED THE ADDITION TO THE T UNE OF RS.13,06,80,262/-. LEARNED AO COMPLETED THE ASSESSMENT BY MAKING AN ADD ITION OF RS.31,77,79,775/- ON ACCOUNT OF TRANSFER PRICING AD JUSTMENT AND A SUM OF RS.13,06,82,262/- ON ACCOUNT OF CORPORATE TAX DISAL LOWANCE AND CONCLUDED THE ASSESSMENT AT RS.91,92,67,610/-. CHALLENGING THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 3 4. GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.2 T O 2.1 RELATE TO THE DEPRECIATION ON COMPUTER PERIPHERALS. GROUND NO.3 AND 3.1 RELATE TO THE DISALLOWANCE OF TDS RECEIVABLES WRITTEN OFF, GROUND NO.4 TO 4.2 RELATE TO THE APPORTIONMENT OF COMMON EXPENSES TO UNIT CLAIMING B ENEFIT UNDER SECTION 10A OF THE ACT. GROUND NO.5 TO 5.4 RELATE TO THE DISALLOW ANCE UNDER SECTION 40(A)(I) WHEREAS GROUND NOS. 6 TO 7.6 RELATE TO THE TRANSFER PRICING ISSUES. GROUND NO.7.7 AND 7.8 ARE NOT PRESSED, GROUND NO.8 IN RELATION OF THE INITIATING PENALTY PROCEEDINGS UNDER SECTION271(1)(C) OF THE ACT IS PR EMATURE AND GROUND NO.9 ON THE ASPECT OF LEVY OF INTEREST UNDER SECTION 234B A ND 234D OF THE ACT AND WITHDRAWING INTEREST UNDER SECTION 244A(3) OF THE A CT IS CONSEQUENTIAL IN NATURE. NOW WE SHALL PROCEED TO ADJUDICATE THESE ASPECTS. 5. COMING TO GROUND NO 2 AND 2.1, RELATING TO THE D EPRECIATION ON COMPUTER PERIPHERALS, ASSESSEE CLAIMED DEPRECIATION ON THE E QUIPMENT LIKE UPS, STABILIZER, LAN/WAN, CATALYST SWITCHES, NETWORK SWITCHES ETC. A T 60%. HOWEVER, LEARNED AO DISALLOWED SUCH A CLAIM TO AN EXTENT OF RS.1,44,75, 008/- ON THE GROUND THAT THEY FORM PART OF THE BLOCK OF ASSETS UNDER PLANT AND MA CHINERY, IN RESPECT OF WHICH DEPRECIATION IS ALLOWED ONLY AT 15%. BASING ON TH E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. BSES YAMUNA PO WER LTD. (2013) 358 ITR 47 (DEL), ASSESSEE ARGUED BEFORE THE LEARNED DRP THAT THESE PERIPHERALS FORM AN INTEGRAL PART OF COMPUTER SYSTEM, AND THEREFORE, 60% DEPRECIATION MUST BE ALLOWED. LEARNED CIT(A), HOWEVER, OBSERVED THAT TH E ISSUE OF ALLOWABILITY OF DEPRECIATION ON COMPUTER PERIPHERALS IS PENDING BEF ORE THE HONBLE SUPREME COURT, AND SINCE IT DID NOT ATTAIN FINALITY, THE PLE A OF THE ASSESSEE CANNOT BE ENTERTAINED. 4 6. IT IS THE ARGUMENT OF THE LEARNED AR THAT THE EQ UIPMENT IN RESPECT OF WHICH THE DEPRECIATION AT 60% IS CLAIMED DOES NOT FUNCTIO N ON THEIR OWN AND FOR DERIVING ANY FUNCTIONALITY THEY MUST BE CONNECTED TO T HE COMPUTER EQUIPMENT, AS SUCH, THEY ARE PART AND PARCEL OF THE COMPUTER SYSTE MS IN RESPECT OF WHICH DEPRECIATION AT 60% HAS TO BE ALLOWED. HE PLACED R ELIANCE ON THE DECISIONS REPORTED IN BSES YAMUNA [2013] 358 ITR 47 (DELHI); NOKIA INDIA (P.) LTD. VS. ACIT [2012] 22 TAXMANN.COM 109 (DELHI - TRIB.) & [2012] 20 TAXMANN.COM 810 (DELHI); ACIT VS. TIMEX WATCHES LTD [2016] 71 TAXMANN.COM 17 7 (DELHI - TRIB.); GE CAPITAL BUSINESS PROCESS MANAGEMENT SERVICES (P.) LTD. VS. ACIT [2015] 64 TAXMANN.COM 156 (DELHI - TRIB.) IN SUPPORT OF HIS CONTENTIONS. 7. IN BSES YAMUNA (SUPRA) THE HONBLE JURISDICTIONA L HIGH COURT HAS HELD AS UNDER:- 6. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUN AL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTERS, SCANNERS AND SER VER, ETC., FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCES SORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60 PER CENT. 8. IN THE CASE OF NOKIA INDIA (P.) LTD. (SUPRA), WH EREIN A CO-ORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS UNDER: - 13.1 THIS ISSUE PERTAINS TO CLAIM OF DEPRECIATION @ 60% ON UPS, LAN/WAN EQUIPMENT, SWITCHES, NETWORK EQUIPMENT AND VISUAL S TUDIO ETC.13.2 WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF T HE HON'BLE JURISDICTIONAL HIGH COURT IN IT APPEAL NO. 1266 (DELHI) OF 2010 IN THE CASE OF C.I.T. V. BSES RAJDHANI POWERS LTD. VIDE ORDER DATED 31.8.2010 WHEREIN IT W AS HELD THAT THE COURT WAS IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE CO MPUTER PERIPHERALS SUCH AS PRINTER, SCANNER ETC. FORM AN INTEGRAL PART OF COMP UTER SYSTEM. IN FACT THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. 5 CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION @ 60%. RESPECTFULLY FOLLOWING THE ABOV E PRECEDENT, WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 9. IT IS THE FURTHER ARGUMENT OF THE LEARNED AR THA T BY ORDER DATED 14.2.2014 IN CIT VS BIRLASOFT LTD. (SLP NO.20645 OF 2012), TH E HONBLE SUPREME COURT DISMISSED THE DEPARTMENTAL APPEAL AGAINST THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IN ITA NO.71 OF 2010 WHEREIN THE DELHI H IGH COURT HELD THAT THE DEPRECIATION ON COMPUTER ACCESSORIES AND PERIPHERAL S WOULD BE ADMISSIBLE AT THE RATE OF 60%. LASTLY, HE BROUGHT TO OUR NOTICE THAT THE LEARNED DRP WHILE DEALING WITH THIS ASPECT IN ASSESSEES OWN CASE FOR THE AY 2009-10 AND 2010-11 FOLLOWED THIS LEGAL POSITION AND THE DEPARTMENT ALSO ACCEPTE D THE SAME. 10. IN VIEW OF THE ABOVE LEGAL POSITION, WE FIND TH AT THE EQUIPMENT FORMS INTEGRAL PART OF THE COMPUTER SYSTEMS AND THE ASSESS EE IS ENTITLED TO THE CLAIM OF DEPRECIATION AT 60% BY TREATING THE PERIPHERALS AS P ART OF BLOCK OF COMPUTERS. GROUNDS NO.2 AND 2.1 ARE ALLOWED ACCORDINGLY. 11. COMING TO THE DISALLOWANCE OF TDS RECEIVABLES W RITTEN OFF, IT IS THE SUBMISSION OF THE LEARNED AR THAT THE MOMENT THE SE RVICES ARE RENDERED OR GOODS ARE DISPATCHED, REVENUE IS RECOGNIZED AND AS AND WH EN THE PAYMENT IS RECEIVED, ANY SHORTFALL THEREOF IS DEBITED TO TDS RECEIVABLES WRITTEN OFF ACCOUNT. IN RESPECT OF THIS AMOUNT, NEITHER THE TDS CERTIFICATE IS RECE IVED NOR WERE THE REASONS FOR SUCH SHORTFALL LIKE ANY DEFICIENCY OF SERVICE KNOWN A T THAT TIME. WHEN THE TDS CERTIFICATE WAS ISSUED TO THE ASSESSEE IN RESPECT O F THE SAME FOR TDS CREDIT CLAIM, THEN THE ASSESSEE IS TREATING THE DIFFERENCE OF THE TDS RECEIVABLES AND THE TDS CERTIFICATE ISSUED, AS BAD DEBTS AND WRITING OFF SU CH BAD DEBTS IN THEIR ACCOUNTS 6 UNDER THE PROVISIONS OF 36(1)(VII) AND CLAIMING THE EXPENSE UNDER SECTION 36(2) OF THE ACT. 12. RECORD REVEALS THAT THE ASSESSEE CLAIMED BEFORE THE LEARNED AO THAT THE EXPENSE ON ACCOUNT OF THIS WRITTEN OFF BAD DEBTS HA S TO BE ALLOWED OR IN THE ALTERNATIVE, THE SAME MAY BE ALLOWED TO THE ASSESSEE AS A BUSINESS LOSS. HOWEVER, LEARNED AO WAS OF THE VIEW THAT THE UNCLAI MED TDS DOES NOT FORM PART OF THE P&L ACCOUNT AND THE ASSESSEE HAS THE RIGHT T O RECOVER THE SAME. IN FIRST APPELLATE PROCEEDINGS, ASSESSEE CLAIMED TO HAVE PRO DUCED THE PARTY WISE AND YEAR-WISE BREAK UP OF TDS RECOVERABLE WRITTEN OFF SU PPORTED BY THE UNDERTAKINGS OF ONE OF THE DIRECTORS OF THE COMPANY STATING THAT THE INCOME CORRESPONDING TO THE TDS WRITTEN OFF WAS DULY OFFERED TO TAX. LEARNE D DRP STATED THAT THERE WAS NO EVIDENCE OF THE FACT THAT ORIGINALLY THE INCOME WAS OFFERED TO TAX BY WAY OF ENTRIES IN THE BOOKS OF ACCOUNTS. 13. LEARNED AR PLACED RELIANCE ON THE DECISION OF T HE HONBLE APEX COURT IN TRF LTD. VS CIT IN CIVIL APPEAL NO.5293 & 5294 OF 2003 AND ALSO A CIRCULAR NO.12 OF 2016 ISSUED BY THE CBDT PURSUANT TO THE ORDER IN M/ S TRF LTD., CLARIFYING THAT THE CLAIM FOR BAD DEBTS SHALL BE ADMISSIBLE FOR TAXES, IF THE SAID SUM IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS AND THE COMP ANY SHOULD NOT BE REQUIRED TO ESTABLISH BEFORE THE TAX AUTHORITIES THAT THE DE BT HAD BECOME IRRECOVERABLE. IN SUPPORT OF HIS CONTENTION THAT THE CLAIM FOR TDS RE COVERABLE IS ALLOWABLE, ASSESSEE PLACED RELIANCE ON THE FOLLOWING OBSERVATIONS OF TH E COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF VERTEX CUSTOMER SERVICES IN DIA (P.) LTD. VS. DCIT [2017] 88 TAXMANN.COM 286 (DELHI - TRIB.),- 7 51. AO/DRP HAVE DISALLOWED AN AMOUNT OF RS. 5,57,3 58/- BEING WRITTEN OFF ADVANCE BY THE TAXPAYER ON ACCOUNT OF TDS RECOV ERABLE FROM THE VENDORS AND AMOUNT RECOVERABLE IN RESPECT OF PROVID ENT FUNDS PAID BY THE TAXPAYER FOR ITS VENDORS. THE LD. AR FOR THE TAXPAY ER CHALLENGING THE IMPUGNED DISALLOWANCE CONTENDED THAT EXCESS DEDUCTI ON OF TDS AND AMOUNT RECOVERABLE IN RESPECT OF PROVIDENT FUND BY THE TAXPAYER FROM ITS VENDORS WAS DUE TO MISTAKE COMMITTED IN THE REGULAR COURSE OF BUSINESS AND CLAIMED THE SAME AS TRADING LOSS. AO/DRP DISALL OWED THE SAME THAT THE AMOUNT IS ACTUALLY RECOVERABLE FROM THE VENDORS BUT ENOUGH EFFORTS WERE NOT MADE BY THE TAXPAYER AND AS SUCH, IT CANNO T BE TREATED AS BUSINESS LOSSES. 52. WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOW ANCE MADE BY THE AO/DRP IS ALLOWABLE ON TWO GROUNDS : (I) WHEN THE S AME HAS BECOME BAD DEBTS AND WRITTEN OFF BY THE TAXPAYER AND BOOKS OF ACCOUNT HAVE NOT BEEN CHALLENGED; AND (II) EVEN OTHERWISE, IT IS TRADING LOSSES SUFFERED BY THE TAXPAYER DUE TO BONAFIDE MISTAKE COMMITTED DURING T HE REGULAR COURSE OF BUSINESS AND AS SUCH IS ALLOWABLE BUSINESS EXPENDIT URE. SO, GROUNDS NO.5, 6 & 7 ARE DETERMINED IN FAVOUR OF THE TAXPAYER AND DI SALLOWANCE MADE BY THE AO/DRP STANDS DELETED. 14. IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION , IT HAS BECOME NECESSARY TO VERIFY WHETHER THE ASSESSEE HAD RECOGNIZED THE INCOM E AS AND WHEN THE SERVICES ARE RENDERED OR GOODS ARE DISPATCHED AND S UBSEQUENTLY, WHETHER THE ASSESSEE WRITTEN OFF THE DIFFERENCE AMOUNT OF DEFIC IT PAYMENT AND THE AMOUNT UNDER THE TDS CERTIFICATE ISSUED, IN THEIR BOOKS OF ACCOUNTS. IT WOULD BE CONVENIENTLY VERIFIED BY THE LEARNED AO AND IF HE FIN DS THAT INITIALLY THE ASSESSEE RECOGNIZED THE TOTAL INVOICE AMOUNT AND SUBSEQUENTL Y, IDENTIFIED THE BAD DEBT WITH REFERENCE TO THE DEFICIT PAYMENT BY THE PARTY AND THE AMOUNT UNDER TDS CERTIFICATE ISSUED. ON VERIFICATION OF COMPLIANCE WITH THESE TWO CONDITIONS, LEARNED AO WILL ALLOW THIS EXPENSE. GROUND NOS.3 A ND 3.1 ARE ALLOWED FOR STATISTICAL PURPOSES. 8 15. GROUNDS NO. 4 TO 4.2 ARE IN RESPECT OF THE ALLO CATION OF COMMON EXPENSES TO THE UNIT CLAIMING BENEFIT U/S 10A. IT IS THE AR GUMENT OF THE LEARNED AR THAT VIDE PARA 5.2, LEARNED AO OBSERVED THAT IN THE ABSE NCE OF DETAILS PROVIDED BY THE ASSESSEE, TRAVELLING EXPENSES OF THE DIRECTORS AND LEGAL AND PROFESSIONAL EXPENSES INCURRED BY THE COMPANY, 5% OF THE TOTAL TRAVELLING E XPENSES WHICH MAY BE RELATABLE TO THE DIRECTORS TRAVELLING NEEDS TO BE APPORTIONED AMONGST 10A AND NON 10A UNITS IN THE PROPORTION OF THEIR TURNOVER. IT IS THE ARGUMENT OF THE ASSESSEE BEFORE THE LEARNED DRP THAT THE SUPPORT FU NCTIONS WERE SEPARATELY MAINTAINED FOR STP UNIT, AS SUCH, ALL DIRECT COSTS PERTAINING TO STP UNITS WERE DIRECTLY CHARGED TO THE P&L ACCOUNT OF THE STP UNIT. IT WAS FURTHER STATED THAT THE COMMON COST HAVE ALREADY BEEN APPORTIONED ON THE BAS IS OF TURNOVER AND THE MANAGERIAL REMUNERATION WAS INCURRED ON DIRECTORS O F TELECOM DIVISION AND THE SAID DIRECTORS HAVE NOTHING TO DO WITH THE STP UNIT , AS SUCH, THE QUESTION OF ALLOCATION DOES NOT ARISE. THE DRP DID NOT AGREE W ITH THE ASSESSEE. 16. IT IS ARGUED BY THE LEARNED AR THAT DIRECT COST INCURRED IN RESPECT OF STP UNIT WAS CHARGED TO STP UNIT ITSELF AND IT DOES NOT CALL FOR ANY FURTHER ALLOCATION, INASMUCH AS THE DIRECTORS OF THE TELECOM DIVISION N EVER PERFORMED ANY FUNCTIONS FOR STP UNIT. 17. IT IS FURTHER BROUGHT TO OUR NOTICE THAT IN THE ORDER OF THE LEARNED AO VIDE PARAGRAPH NO.5.3, LEARNED AO COMMITTED A MISTAKE BY DEDUCTING THE AMOUNT ALLOCATED TO THE STP UNIT FROM ITS NET PROFIT AND I NSTEAD OF DOING SO, THE LEARNED AO SHOULD HAVE DEDUCTED THE SAME FROM THE ASSESSEE S OPERATING INCOME, BECAUSE OF WHICH INSTEAD OF GOING, THE PROFIT EARNE D BY THE STP UNIT HAS COME DOWN. HE DEMONSTRATED TO US THAT WHILE RECOMPUTING THE DEDUCTION AVAILABLE TO 9 THE 10A UNIT, THE AO MADE THE PROFIT OF THE 10A UNI T AT RS.15,93,92,715/- AS THE STARTING POINT AND INSTEAD OF DOING SO THE AO SHOUL D HAVE TAKEN THE REVENUE OF THE UNIT AT RS.85,80,77,527/- AND START REDUCING IT FROM OPERATING EXPENSES, IN WHICH CASE THE NET PROFIT WOULD HAVE BEEN RS.18,90, 37,206/- INSTEAD OF RS.14,07,77,997/- AS REACHED BY THE LEARNED AO. 18. HAVING GONE THROUGH THE RECORD, WE ARE CONVINCE D THAT THE FACTS OF THE CASE REQUIRE THE AO TO VERIFY WHETHER THE RECOMPUTA TION OF THE DEDUCTIBLE AMOUNT IS PROPERLY DONE, IN THE LIGHT OF THE SUBMISS ION THAT THE DEDUCTION OF THE AMOUNT ALLOCATED TO THE STP UNITS NET PROFIT IS IN CORRECT AND INSTEAD OF THE SAME THE LEARNED AO SHOULD HAVE DEDUCTED THE SAME FROM T HE ASSESSEES OPERATING INCOME. FOR THIS PURPOSE, WE REMAND ISSUE NO.4 TO 4.2 TO THE LEARNED AO FOR VERIFICATION. GROUNDS NOS. 4 TO 4.2 ARE ALLOWED FO R STATISTICAL PURPOSES. 19. NOW COMING TO GROUND NO.5 TO 5.4, I.E. IN RESPE CT OF THE DISALLOWANCE U/S 40A(I) OF THE ACT, THE LEARNED AO FOUND FROM PARA 1 3.8 TO THE NOTES OF ACCOUNTS THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN FOREI GN CURRENCY UNDER THE HEAD ROYALTY TO THE TUNE OF RS.4.25 CRORES AND OTHER T O THE TUNE OF RS.16.55 CRORES. THERE IS NO DISPUTE IN RESPECT OF THE ROYALTY EXPEN DITURE. THE BREAK UP FIGURE RELATING TO THE OTHER EXPENDITURE OF RS.16.55 CRORE SHOWS THAT OUT OF SUCH AMOUNT, AN AMOUNT OF RS.4,35,81,838/- WAS IN RESPEC T OF THE UNIT CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT, WHICH THE L D. AO DISALLOWED, AND RS.12,19,74,482/- WAS IN RESPECT OF OTHER BUSINESS NOT ENTITLED TO ANY TAX HOLIDAY BENEFIT. AGAIN, OUT OF THIS RS.12,19,74,482/-, LE ARNED AO SATISFIED WITH THE EXPLANATION OF THE ASSESSEE EXCEPT IN RELATION TO T WO EXPENSES. ONE IS RS.72,74,728/- CLASSIFIED UNDER THE HEAD REPAIRS AND RS.1,83,43,136/- UNDER THE 10 HEAD ACCRUALS IN RESPECT OF PROJECTS. THEREFORE, THE DISPUTE UNDER THIS GROUND REVOLVES AROUND THE DEDUCTION OF RS.4,35,81,838/- CLAIMED IN RESPECT OF 10A OF THE ACT, RS.72,74,728/- IN RESPECT OF REPAIRS AND R S.1,83,43,136/- IN RESPECT OF ACCRUALS IN RESPECT OF PROJECTS. 20. IN RESPECT OF THE DEDUCTION OF RS.4,35,81,838/- CLAIMED IN RESPECT OF 10A OF THE ACT, IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE TDS IN RESPECT OF THE EXPENDITURE INCURRED BY 10A UNITS OF THE ASSESSEE WA S DULY COMPLIED AND EVEN OTHERWISE INASMUCH AS 10A UNIT IS ENTITLED TO 100% DEDUCTION U/S 10A OF THE ACT, ANY DISALLOWANCE U/S 40(A) OF THE ACT WILL NOT IMPAC T THE TAX LIABILITY OF SUCH UNIT. THE PRAYER OF THE LEARNED AR IS THAT IF THE DISALLOW ANCE IS NOT DELETED, THE LEARNED AO MAY BE DIRECTED TO INCREASE THE CORRESPONDING DED UCTION ALSO. 21. IN THIS REGARD RELIANCE IS PLACED ON THE ORDER PASSED BY THE GUJARAT HIGH COURT IN CASE OF ITO VS. KEVAL CONSTRUCTIONS 354 IT R 013 (GUJ.) WHEREIN WHILE DEALING WITH A SIMILAR ISSUE, THE COURT HELD AS UND ER:- 5. HAVING HEARD COUNSEL ON BOTH THE QUESTIONS TOD AY IN THIS APPEAL, WE FIND NO ERROR IN THE TRIBUNAL'S ULTIMATE CONCLUSION. EVEN I F A CERTAIN EXPENDITURE WHICH WAS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF DEV ELOPING HOUSING PROJECT WAS NOT ALLOWABLE BY VIRTUE OF SECTION 40(A)(IA) OF THE ACT, SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOURCE AS REQUIRED UNDER LAW, I T CANNOT BE DENIED THAT SUCH DISALLOWANCE WOULD ULTIMATELY GO TO INCREASE THE AS SESSEE'S PROFIT FROM THE BUSINESS OF DEVELOPING HOUSING PROJECT. WHATEVER BE THE ULTIMATE PROFIT OF THE ASSESSEE AS COMPUTED EVEN AFTER MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, WOULD QUALIFY FOR DEDUCTION AS PROVIDED UN DER THE LAW. NO QUESTION OF LAW, THEREFORE, ARISES. THE TAX APPEAL IS DISMISSED . 22. RELIANCE IS ALSO PLACED ON THE ORDER OF THE AHM ADABAD INCOME TAX APPELLATE TRIBUNAL (TRIBUNAL) IN THE CASE OF DCIT VS. ASCENDUM SOLUTIONS INDIA 11 (P.) LTD. [2017] 86 TAXMANN.COM 114 (AHMADABAD - TR IB.) WHEREIN WHILE DEALING WITH AN IDENTICAL ISSUE IT HAS BEEN HELD AS UNDER:- 6. WHAT HAS BEEN ACCEPTED BY THE CBDT, AS LEARNED COUNSEL RIGHTLY POINTS OUT, IS THE PRINCIPLE THAT WHEN A DISALLOWANCE RESULTS IN A N ENHANCEMENT OF BUSINESS PROFITS BUT SUCH AN ENHANCEMENT IS REVENUE NEUTRAL INASMUCH AS RELATED BUSINESS PROFITS, IN TOTALITY, ARE ELIGIBLE FOR DEDUCTION UN DER CHAPTER VI, SUCH APPEALS NEED NOT BE PURSUED. THE REFERENCE TO SECTION 40(A)(IA) IS NO MORE THAN ILLUSTRATIVE IN NATURE, AND WHAT HOLDS GOOD FOR DISALLOWANCE UNDER SECTION 40(A)(IA) APPLIES, IN PRINCIPLE, EQUALLY TO DISALLOWANCE UNDER SECTION 40 (A)(I) AS WELL. IN THIS VIEW OF THE MATTER, IN TERMS OF THE CBDT CIRCULAR (SUPRA), THE APPEAL FILED BY THE ASSESSING OFFICER, ON THIS POINT, IS INDEED NOT MAINTAINABLE. AS REGARDS THE POINT MADE BY THE LEARNED COUNSEL THAT THE NON-DEDUCTION OF TAX A T SOURCE FROM PAYMENTS MADE TO THE NON-RESIDENTS MUST BE DEALT WITH AT A DIFFER ENT LEVEL, AND BEARING IN MIND THE NEED TO PROTECT OUR TAX BASE, WE CAN ONLY POINT OUT THAT LAPSES WITH RESPECT TO TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS MADE TO N ON-RESIDENTS IS VISITED WITH SEVERAL TYPE OF CONSEQUENCES- DISALLOWANCE UNDER SE CTION 40(A)(I), RECOVERY UNDER SECTION 201, PENALTY UNDER SECTION 271C AND, IN CER TAIN SITUATIONS, EVEN PROSECUTION UNDER SECTION 276B. WHAT WE ARE DEALING WITH RIGHT NOW IS A LIMITED ASPECT OF THE MATTER HAVING IMPACT ON COMPUTATION O F TAXABLE INCOME, AND WHILE DEALING WITH THIS LIMITED ASPECT OF THE MATTER, WE MUST NOT BOTHER ABOUT THE CONSIDERATIONS WHICH ARE NOT GERMANE TO THIS CONTEX T. AS FOR THE PRESENT CONTEXT, THE ISSUE RAISED IN THE APPEAL, GIVEN THE SETTLED L EGAL POSITION, IS WHOLLY ACADEMIC AND REVENUE NEUTRAL, AND, IN THE LIGHT OF THE CBDT INSTRUCTIONS WHICH BIND ALL THE FIELD AUTHORITIES UNDER SECTION 119 OF THE ACT, CAN NOT BE PURSUED BY THE APPELLANT. WE, THEREFORE, SEE NO NEED TO EVEN DEAL WITH THE MA TTER ON MERITS IN THE CONTEXT OF THE PRESENT PROCEEDINGS, EVEN AS WE TAKE ON RECO RD LEARNED COUNSEL'S SUBMISSION THAT, EVEN ON MERITS, THE ISSUE IS NOW C OVERED IN FAVOUR OF THE ASSESSEE AND THAT THE ASSESSEE DID NOT HAVE ANY OBL IGATIONS TO DEDUCT TAX AT SOURCE AT ALL. THAT ASPECT OF THE MATTER IS WHOLLY ACADEMIC. IN VIEW OF THESE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CA SE, WE UPHOLD THE PRELIMINARY OBJECTION OF THE ASSESSEE AND DISMISS THIS GROUND O F APPEAL AS NOT MAINTAINABLE. 23. IN THIS SET OF FACTS AND CIRCUMSTANCES, WE ARE SATISFIED THAT THE DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT IS REVENUE NEUTRA L AND THE LEARNED AO IS DIRECTED TO ALLOW THE CORRESPONDING DEDUCTION TO THE ASSES SEE U/S 10A OF THE ACT. 12 24. COMING TO THE DISALLOWANCE OF RS.72,74,728/-, A CCORDING TO THE ASSESSEE, THIS EXPENDITURE REPRESENTS THE PURCHASE OF SPARES FROM FOREIGN AFFILIATES AND INASMUCH AS IT CONSTITUTES BUSINESS INCOME TO THE F OREIGN ENTITY AND SINCE THERE IS NO PERMANENT ESTABLISHMENT IN INDIA SUCH INCOME CAN NOT BE BROUGHT TO TAX IN INDIA. HOWEVER, ACCORDING TO THE LEARNED AO, THIS EXPENSE REPRESENT THE PAYMENTS IN THE NATURE OF FTS ATTRACTING TDS. 25. IT IS SUBMITTED BY THE LEARNED AR THAT THE ASSES SEE FILED THE COPIES OF INVOICES RAISED BY THE AFORESAID ENTITIES BUT THE LE ARNED DRP DID NOT GRANT ANY RELIEF TO THE ASSESSEE. ACCORDING TO THE ASSESSEE , THESE PAYMENTS WERE MADE TO THE NONRESIDENT ON ACCOUNT OF PURCHASE OF SPARE PAR TS. THE ASSESSEE ALSO FILED AN APPLICATION FOR ADMITTING THE ADDITIONAL EVIDENCE I N THE FORM OF SAMPLE INVOICES EVIDENCING THE NATURE OF PURCHASE OF SPARES FOR REP AIR. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE CO NTENTION OF THE ASSESSEE THAT NO SERVICES BEING RECEIVED BY THE ASSESSEE EXCEPT TH E SPARE PARTS UNDER THE INVOICES SUBMITTED, WE ARE OF THE CONSIDERED OPINIO N THAT THE MATERIAL NEEDS TO BE RECEIVED IN EVIDENCE HAS TO BE SENT TO THE LEARN ED AO FOR VERIFICATION TO DECIDE WHETHER IT IS THE PURCHASE OF THE SPARE PARTS OR TH E PAYMENTS REPRESENT FTS. WITH THIS VIEW OF THE MATTER, WE ALLOW THE ADDITION AL EVIDENCE TO BE FILED AND SEND IT TO THE AO FOR VERIFICATION. 26. IN SO FAR AS THE ACCRUALS IN RESPECT OF PROJECT S IS CONCERNED, THE CASE OF THE ASSESSEE IS THAT THE SAID AMOUNT REPRESENTS PROVISI ONS CREATED IN THE BOOKS OF ACCOUNTS IN RESPECT OF ACCRUALS MADE FOR VARIOUS ON GOING PROJECTS, AS THE INVOICES IN RESPECT OF CONCERNED SUPPLIES/EXPENSES ARE NOT R ECEIVED AT THE END OF THE YEAR, THE SAME WERE PROVIDED AS ACCRUED IN THE BOOKS OF A CCOUNTS, IMMEDIATELY UPON 13 RECEIPT OF THE INVOICE FROM IDENTIFIABLE PARTIES, T AX WITHHOLDING IN RESPECT OF THE SAID AMOUNT IS MADE AND CREDITED THE SAME IN THE BO OKS OF ACCOUNTS. IT IS SUBMITTED THAT IMMEDIATELY UPON DEDUCTION OF TAX, OT HER COMPLIANCES LIKE ISSUANCE OF CERTIFICATE, FURNISHING OF PRESCRIBED Q UARTERLY STATEMENTS ARE MADE. 27. LEARNED AO REJECTED THE CONTENTIONS OF THE ASSE SSEE STATING THAT THE DETAILS OF NATURE OF SERVICES OF ACCRUALS IN RESPECT OF PRO JECTS HAVE NOT BEEN FURNISHED AND THEREFORE, IT CANNOT BE CLAIMED THAT THESE ARE NOT FOR TECHNICAL SERVICES. IT IS THE ARGUMENT OF THE LEARNED AR THAT THESE ARE THE A MOUNTS ON AN ESTIMATE BASIS WHERE THE PARTIES IN RESPECT OF VARIOUS ONGOING PRO JECTS WERE NOT IDENTIFIED AND THE INVOICES IN RESPECT OF CONCERNED SUPPLIES/EXPEN SES WERE NOT RECEIVED. HE FURTHER SUBMITS THAT WHEREVER REQUIRED TAX WITHHOLD ING MADE IMMEDIATELY ON RECEIPT OF INVOICE FROM IDENTIFIABLE PARTIES AND TH E CREDIT OF THE SAME WAS MADE IN THE BOOKS OF ACCOUNTS. 28. IN THIS REGARD, RELIANCE WAS PLACED BY THE ASSES SEE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF APOLLO TYRES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (78 TAXMANN.COM 195) WHEREIN IT HAS BEEN HELD AS UN DER:- 12. AT THE TIME OF HEARING BEFORE US, LEARNED DR H AS REFERRED TO THE ABOVE SECTION SO AS TO BUTTRESS HIS ARGUMENT THAT TAX IS TO BE DEDUCTED EVEN IF THERE IS PROVISION OF THE AMOUNT PAYABLE. THE ITAT, COCHIN B ENCH IN THE CASE OF ABAD BUILDERS (P) LTD. (SUPRA), AFTER CONSIDERING THE AB OVE PROVISION, HAS HELD THAT TAX IS TO BE DEDUCTED EVEN IN RESPECT OF PROVISION FOR EXP ENSES. HOWEVER, THE ITAT, CHENNAI BENCH IN THE CASE OF DISHNET WIRELESS LTD. (SUPRA) HAS HELD THAT IN THE CASE OF THE YEAR END PROVISION WHERE THE PARTY/PAYE E IS IDENTIFIABLE, THE TDS IS TO BE DEDUCTED AND WHERE THE PARTY IS NOT IDENTIFIABLE , NO TDS IS DEDUCTIBLE. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT MUMBAI BENCH IN THE CASE OF INDUSTRIAL DEVELOPMENT BANK OF INDIA (SUPRA). AFTER CONSIDERIN G THE SCHEME OF CHAPTER XVII- B WITH REGARD TO TAX DEDUCTION AT SOURCE, WE AGREE WITH THE VIEWS EXPRESSED BY ITAT MUMBAI BENCH AND ITAT CHENNAI BENCH. AS PER TH E SCHEME OF TDS UNDER 14 CHAPTER XVII-B SECTION 199, THE CREDIT FOR THE TDS I S TO BE GIVEN TO THE DEDUCTEE. THUS, THE IDENTIFICATION OF THE PERSON FROM WHOSE A CCOUNT INCOME TAX WAS DEDUCTED AT SOURCE IS A PRE-REQUISITE CONDITION SO AS TO MAKE THE PROVISION FOR CHAPTER XVII-B WORKABLE. TAX DEDUCTED AT SOURCE IS C ONSIDERED TO BE TAX PAID ON BEHALF OF THE PERSON FROM WHOSE INCOME THE DEDUCTIO N WAS MADE AND, THEREFORE, THE CREDIT FOR THE SAME IS TO BE GIVEN TO SUCH PERS ON. WHEN THE PAYEE IS NOT IDENTIFIABLE, TO WHOSE ACCOUNT THE CREDIT FOR SUCH TDS IS TO BE GIVEN. SECTION 203(1) LAYS DOWN THAT FOR ALL TAX DEDUCTIONS AT SOU RCE, THE TAX DEDUCTOR HAS TO FURNISH A CERTIFICATE TO THE PERSON TO WHOSE ACCOUN T SUCH CREDIT IS TO BE GIVEN. THEREFORE, WHEN THE TAX DEDUCTOR CANNOT ASCERTAIN T HE PAYEE WHO IS THE BENEFICIARY OF A CREDIT OF TAX DEDUCTION AT SOURCE, THE MECHANISM OF CHAPTER XVII- B CANNOT BE PUT INTO SERVICE. 29. IT IS SUBMITTED BY THE LEARNED AR THAT BY WAY OF ADDITIONAL EVIDENCE THE SCREEN SHOT OF SAP ENTRIES FOR CREATION OF PROVISIO N FOR PROJECT ACCRUALS ARE PRODUCED AND THIS EVIDENCE CLEARLY ESTABLISH THAT YEA R END PROVISIONS WERE REVERSED IN SUBSEQUENT YEARS. IT IS FURTHER SUBMITT ED THAT THE PROVISION WAS CREATED TO FOLLOW THE MATCHING CONCEPT OF ACCOUNTIN G ENTRIES IN ACCORDANCE WITH ACCOUNTING STANDARDS, WITHOUT ACTUAL IDENTITY OF PAYE ES BEING KNOWN. HE FURTHER SUBMITTED THAT THERE IS NO DISPUTE FROM THE REVENUE THAT THE SAID EXPENSES ARE OTHERWISE ALLOWABLE FOR TAX PURPOSES. BASING ON TH IS, HE SUBMITTED THAT IN THE ABSENCE OF REQUIREMENT OF WITHHOLDING TAX AT SOURCE , NO DISALLOWANCE IS WARRANTED UNDER SECTION 40(A)(I) OF THE ACT. 30. ON A CAREFUL CONSIDERATION OF THE CONTENTIONS, WE ARE OF THE CONSIDERED OPINION THAT INASMUCH AS THE PAYEES ARE NOT IDENTIFI ABLE, IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO DEPOSIT ANY TDS EVEN IN CASE OF ITS DEDUCTION. WE ARE, THEREFORE, DEEM IT JUST AND PROPER TO DIRECT THE LE ARNED AO HAS TO VERIFY FROM THE EVIDENCE TO BE PRODUCED BY THE ASSESSEE RELATING TO THE CREATION OF PROVISIONS FOR PROJECT ACCRUALS AND THE YEAR END REVERSAL OF SUCH P ROVISIONS, AND ACCORDINGLY TO 15 DELETE THE DISALLOWANCE. THIS GROUND IS SET ASIDE TO THE FILE OF LEARNED AO FOR VERIFICATION. 31. INSOFAR AS THE TRANSFER PRICING ISSUES ARE CONC ERNED, DURING THE SCRUTINY, LEARNED AO OBSERVED THAT THE ASSESSEE ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS: S. NO. INTERNATIONAL TRANSACTIONS SEGMENT AMOUNT (INR) 1 PURCHASE OF RAW-MATERIALS AND COMPONENTS TELECOMMUNICAT ION SEGMENT 428,172,674 2 EXPORT OF FINISHED GOODS 18,711,838 3 PAYMENT OF ROYALTY 42,506,831 4 AVAILING OF SERVICES 70,176,029 5 COMMISSION INCOME 7,212,421 6 REIMBURSEMENT OF EXPENSES TO AES 8,402,472 7 REIMBURSEMENT OF EXPENSES BY AES 23,807,212 8 PROVISION OF SOFTWARE SERVICES SOFTWARE SEGMENT 1,673,082,480 9 AVAILING OF SERVICES 12,363,736 10 PURCHASE OF SOFTWARE 14,567,640 11 REIMBURSEMENT OF EXPENSES BY AES 112,102,011 32. HENCE, THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (FOR SHORT CALLED TPO) FOR DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL 16 TRANSACTION. THE DISPUTE BEFORE THE TPO RELATES ONL Y TO THE SOFTWARE SEGMENT OF THE ASSESSEE. 33. ASSESSEE AS A TESTED PARTY HAS BEEN CHARACTERIZE D AS PROVIDER OF SOFTWARE DEVELOPMENT SERVICES TO ITS AES WHICH HAD USED TRAN SACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD FOR ITS BENCH MARKING OF INTERNATIONAL TRANSACTION. SEARCH FOR UNCONTROLLED COMPARABLES WA S MADE USING PROWESS AND CAPITOLINE DATABASE BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY. ASSESSEE HAD TAKEN 16 COMPARABLES IN ITS TP STUDY WITH AN ARITHME TIC MEAN OF 9.71%. ASSESSEE COMPUTED ITS PROFIT LEVEL INDICATOR (PLI) AT 4.26% ON COST WHICH WAS FALLING WITHIN THE ARMS LENGTH RANGE OF +/-5%. 34. LEARNED TPO ACCEPTED TNMM AS THE MOST APPROPRIA TE METHOD AND ALSO THE PLI. THE LIMITED DIFFERENCE IN APPROACH ADOPTED BY T HE TPO AND THE ASSESSEE WAS WITH RESPECT TO SELECTION OF COMPARABLES. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED UPDATED MARGINS OF 14 COMPARABLE COMPANIES. 35. HOWEVER, LEARNED TPO REJECTED 4 COMPARABLES SEL ECTED BY THE ASSESSEE AND SELECTED REMAINING 10 COMPARABLES. FURTHER, LEA RNED TPO PERFORMED A DETAILED ANALYSIS AND INTRODUCED ADDITIONAL 15 COMPA RABLES, THEREBY SELECTED A FINAL SET OF 25 COMPARABLES WITH A PLI OF 28.16%. A CCORDINGLY, TRANSFER PRICING ADJUSTMENT OF RS. 38,36,90,639 WAS MADE. HOWEVER, S UBSEQUENTLY, AS STATED ABOVE, LEARNED TPO IN COMPLIANCE TO THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) PASSED SUPPLEMENTARY ORDER WH EREIN CYBERMATE INFOTEK LIMITED WAS EXCLUDED FROM THE FINAL SET OF COMPARAB LES AND MADE FINAL TP 17 ADJUSTMENT AT INR 31,77,69,775 IN RESPECT OF INTERN ATIONAL TRANSACTION RELATED TO PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 36. ASSESSING OFFICER (LEARNED AO) FRAMED ASSESSM ENT AND PASSED FINAL ASSESSMENT ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ON 30.11.2011. ASSESSEE IS AGGRIEVED BY THE INCLUSION OF 18 COMPANIES WHICH THE ASSESSEE OBJECTED, EXCLUSION OF THREE COMPANIES WHI CH ARE DESIRED BY THE ASSESSEE TO BE INCLUDED AND NON GRANT OF THE WORKIN G CAPITAL ADJUSTMENT. COMPARABLE COMPANIES SOUGHT TO BE EXCLUDED BY THE ASSE SSEE FOR BENCHMARKING OF ITS INTERNATIONAL TRANSACTION 37. ASSESSEE IS DISPUTING THE INCLUSION OF THE FOLL OWING 18 OUT OF 24 COMPARABLES FINALLY SELECTED BY THE LD. TPO. 1. BODHTREE CONSULTING LIMITED 2. CAT TECHNOLOGIES LIMITED 3. E-INFOCHIPS BANGALORE LIMITED 4. E-INFOCHIPS LIMITED 5. FCS SOFTWARE SOLUTIONS LIMITED 6. GOLDSTONE TECHNOLOGIES LIMITED 7. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED 8. I GATE GLOBAL SOLUTIONS LIMITED 9. INFOSYS LIMITED 10. KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL) 11. LGS GLOBAL LIMITED 12. LARSEN & TOUBRO INFOTECH LIMITED 13. MINDTREE LIMITED 14. PERSISTENT SYSTEMS LIMITED 15. QUINTEGRA SOLUTIONS LIMITED 16. R SYSTEMS INTERNATIONAL LIMITED (SEGMENTAL) 17. SOFTSOL INDIA LIMITED 18. TATA ELXSI LIMITED (SEGMENTAL) 18 38. WE FIND FROM THE ORDER OF THE TPO, THAT THE ASS ESSEE IS A WHOLLY OWNED SUBSIDIARY OF NSNPL, WHICH IN TURN IS A WHOLLY OWNED SUBSIDIARY OF NOKIA SIEMENS NETWORKS B.V. THE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND TRADING OF TELECOMMUNICATION NETWORK EQUIPMENTS AND NETWORK DESIGN, INSTALLATION AND COMMISSIONING. THE COMPANY ALSO PR OVIDES SUPPORT SERVICES TO MAJOR TELECOM AND IP SERVICE PROVIDERS. NSNIPL ALSO DEVELOPS TELECOM SOFTWARE FOR ITS AES. THE COMPANYS PRODUCT AND SOLUTION POR TFOLIO COMPRISES SWITCHING, TRANSMISSION, VOIP. NEXT GENERATION NETWORKS LIKE SURPASS, INTELLIGENT NETWORK, MICROWAVE SOLUTIONS, MOBILE DATA SOLUTIONS, 2.5G AN D 3G NETWORKS INCLUDING GPRS, EDGE AND UMTS, RADIO, BROADBAND, ACCESS PRODU CTS APART FROM SERVICES ENCOMPASSING RELATED PRODUCTS AND SYSTEMS. WE SHALL NOW PROCEED TO DEAL WITH THE CONTENTIONS ON EITHER SIDE IN DETAIL ON THE ASP ECT OF COMPARABILITY OF THE DISPUTED ENTITIES WITH THE ASSESSEE. 39. AT THE OUTSET LEARNED DR BROUGHT TO OUR NOTICE THAT OUT OF THE 18 DISPUTED COMPARABLES, THE ASSESSEE HAD ACCEPTED 4 COMPARABLE S, NAMELY, HELIOS & MATHESON INFORMATION TECHNOLOGY LTD., I GATE GLOBAL SOLUTIONS LTD, MINDTREE LIMITED, QUINTEGRA SOLUTIONS LIMITED FOR THE ASSESS MENT YEAR 2007-08 AND, THEREFORE, IT IS NOT OPEN FOR THE ASSESSEE TO DISPU TE SUCH COMPARABLES FOR THIS ASSESSMENT YEAR. 40. LEARNED AR PLACED RELIANCE ON THE DECISION REPO RTED IN RAMPGREEN SOLUTIONS (P.) LTD. VS. CIT [2015] 377 ITR 533 (DEL HI), CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P.)LTD. VS. DCIT [2015] 376 ITR 1 83 (DELHI) AND SUBMITTED THAT THE FUNCTIONALITY OF AN ENTITY IS THE KEY DETERMINATIVE F ACTOR FOR ITS INCLUSION OR EXCLUSION FROM THE LIST OF COMPARABLES AND THERE IS NO SUCH THING AS ESTOPPEL ON 19 THE GROUND OF ASSESSEE ACCEPTING THE ENTITY AS FUNC TIONALLY COMPARABLE IN A PREVIOUS ASSESSMENT YEAR. 41. ON A CAREFUL PERUSAL OF THE DECISIONS RELIED UP ON BY THE ASSESSEE, WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSION THAT IN ORDER TO DECIDE THE COMPARABILITY OF AN ENTITY, THE KEY DETERMINATIVE FACT OR IS ITS FUNCTIONALITY BUT NOT THE ACCEPTANCE OR REJECTION BY ANY OF THE PARTIES. C ONSENT DOES NOT MAKE AN OTHERWISE FUNCTIONALLY DISSIMILAR ENTITY, A BETTER C OMPARABLE. WE, THEREFORE, FIND IT DIFFICULT TO REJECT THE OBJECTIONS OF THE ASSESS EE IN RESPECT OF THESE COMPARABLES. BODHTREE CONSULTING LIMITED: 42. ASSESSEE OBJECTS THIS COMPANY ON THE GROUND OF F UNCTIONAL DIFFERENCE AND NON-AVAILABILITY OF SEGMENTAL INFORMATION. ACCORDING TO THE ASSESSEE THE COMPANY IS ENGAGED IN DIVERSIFIED SET OF SERVICES AND SEGME NTAL DATA IS NOT AVAILABLE. LD. TPO REJECTED ASSESSEES CONTENTION ON THE GROUND TH AT IT IS ENGAGED IN SOFTWARE DEVELOPMENT SEGMENT AND THAT THIS COMPANY WAS ACCEPT ED BY THE TPO FOR AY 2007-08, BUT AS A MATTER OF FACT THIS COMPARABLE WA S NEVER CONSIDERED BY THE TPO IN THE PREVIOUS YEAR. LD. DRP DISMISSED THE OBJECTI ONS OF THE ASSESSEE. 43. FROM PAGE NO 12 OF THE PAPER BOOK CONTAINING AN NEXURE II TO THE DIRECTORS' REPORT, A PART OF THE ANNUAL REPORT OF THE COMPANY, WE FIND THAT THIS COMPANY IS ENGAGED IN ONLY ONE SEGMENT WHICH COMPRISES OF INCOM E FROM SOFTWARE DEVELOPMENT, OPEN AND END TO END WEB SOLUTIONS, SOF TWARE CONSULTANCY DESIGNS AND SOFTWARE PRODUCTS; WHEREAS THE ASSESSEE IS ENGA GED IN RENDERING SOFTWARE DEVELOPMENT SERVICES. UNDER NOTE 5 'SEGMENTAL INFO RMATION', IT IS STATED THAT 20 THE COMPANY HAS ONLY ONE IDENTIFIABLE REPORTING SEGME NT THAT IS SOFTWARE DEVELOPMENT SERVICE, SHOWING THAT NO SEPARATE SEGME NTAL FINANCES RELATING TO THE SOFTWARE DEVELOPMENT OPEN AND END-TO-END WEB SOLUTI ONS, SOFTWARE CONSULTANCY DESIGNS AND SOFTWARE PRODUCTS ARE AVAILABLE. 44. IT IS ARGUED ON BEHALF OF THE ASSESSEE THAT THI S COMPANY IS FOLLOWING A DIFFERENT PRICING MODEL, AS IS EVIDENT FROM THE ANN UAL REPORT TO BE FOUND AT PAPER BOOK PAGE NO. 24 THAT THE REVENUES FROM SOFTWARE DE VELOPMENT IS RECOGNIZED BASED ON SOFTWARE DEVELOPED AND BILLED TO THE CLIEN T WHEREAS THE ASSESSEE IS A CAPTIVE SOFTWARE DEVELOPER FOR ITS AES. 45. LD. AR PLACED RELIANCE ON A DECISION OF THIS TR IBUNAL IN ITA NO. 6402/DEL/2012 (AY 2008-09) IN THE CASE OF AIRCOM IN TERNATIONAL (INDIA) PVT LTD V DCIT, (2017) 50 CCH 0280 (HEREINAFTER AIRCOM) IN SUPPORT OF HIS PLEA THAT BODHTREE IS ENGAGED IN PROVIDING OPEN AND END-TO-EN D WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS, US ING THE LATEST TECHNOLOGIES AND NOT COMPARABLE WITH THE COMPANY WHICH IS INTO TH E BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVICES TO ITS A E. THE COORDINATE BENCH IN THE JUDGMENT OF AIRCOM (SUPRA) HAS EXCLUDED THIS COMPAR ABLE COMPANY BY MAKING FOLLOWING OBSERVATIONS : 15.2. WE FIND FROM THE ANNUAL REPORT OF THIS COMPA NY THAT IT: HAS ONLY ONE SEGMENT, NAMELY, SOFTWARE DEVELOPMENT. BEING A SOFT WARE SOLUTIONS COMPANY, WHICH IS ENGAGED IN PROVIDING OPEN AND END -TO-END WEB SOLUTIONS, SOFTWARE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOL UTIONS, USING THE LATEST TECHNOLOGIES. THUS, IT CAN BE SEEN THAT THIS COMPA NY IS PROVIDING END-TO-END SOLUTIONS AND ALSO CONSULTANCY WHICH IS NOT THE CAS E WITH THE ASSESSEE COMPANY. ANOTHER RELEVANT FACTOR TO BE NOTICED IS P AGE 1254 OF THE PAPER BOOK, WHICH DIVULGES THE SIGNIFICANT ACCOUNTING POL ICIES OF THIS COMPANY. UNDER THE HEAD REVENUE RECOGNITION, IT HAS BEEN ME NTIONED THAT: REVENUE 21 FROM SOFTWARE DEVELOPMENT IS RECOGNIZED BASED ON SO FTWARE DEVELOPED AND BILLED TO CLIENTS. AS AGAINST THIS, THE SCHEDULE F ORMING PART OF THE ACCOUNTS OF THE ASSESSEE COMPANY PROVIDES FOR REVENUE RECOGNITI ON IN THE TERMS: REVENUE FROM SOFTWARE DEVELOPED IS RECOGNIZED OVER THE CONT RACTED PERIOD OF DEVELOPMENT ON COST PLUS BASIS. IT CAN BE SEEN THA T THERE IS A LOT OF DIFFERENCE IN THE REVENUE AND RECOGNITION MODELS OF THE ASSESS EE WAS WELL AS BODHTREE CONSULTING LTD. THIS FACTOR, IN ADDITION TO THE FUN CTIONAL DISSIMILARITY AS DISCUSSED ABOVE, MAKES THIS COMPANY NONCOMPARABLE W ITH THE ASSESSEE COMPANY. WE, THEREFORE, ORDER TO EXCLUDE IT FROM TH E LIST OF COMPARABLES. 46. THERE IS NO DISPUTE THAT THE AIRCOM IS ALSO INT O THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING RELATED SERVICES TO ITS A E. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT BEING A SOFTWARE SOLUTIONS COMPANY WHICH IS ENGAGED IN PROVIDING OPEN AND END-TO-END WEB SOLUTIONS, SOFTWA RE CONSULTANCY, DESIGN AND DEVELOPMENT OF SOLUTIONS, USING THE LATEST TECHNOLO GIES, BODHTREE COMPANY CANNOT BE COMPARED TO THE ASSESSEE WHICH IS A CAPTI VE SOFTWARE DEVELOPER FOR ITS AES. CAT TECHNOLOGIES LIMITED: 47. THIS COMPANY WAS OBJECTED BY THE ASSESSEE ON THE GROUND THAT IT IS ENGAGED IN DIVERSIFIED SET OF SERVICES AND ALSO THA T THE SEGMENTAL DATA IS NOT AVAILABLE, BUT THE LD. THAT TPO INCLUDED THIS COMPA NY IN THE SET OF COMPARABLES. 48. FROM PAGE NO. 94 OF THE PAPER BOOK WHERE THE SE GMENTAL REPORTING IS MENTIONED, WE FOUND THAT THE COMPANY IS DEALING IN M EDICAL TRANSCRIPTION, TRAINING SOFTWARE DEVELOPMENT AND CONSULTANCY SERVI CES. FURTHER VIDE NOTE NO. 7 TO THE NOTES ON ACCOUNTS IT IS STATED THAT THE COMP ANY CONSIDERED WHOLE OF INDIA AS A SINGLE GEOGRAPHICAL SEGMENT. VIDE PAGE NO. 94 AT SCHEDULE NO. 9, THE SOFTWARE DEVELOPMENT AND CONSULTING SERVICES ARE CL UBBED TOGETHER. NO SEPARATE 22 CREDENTIALS ARE AVAILABLE. ITS ALSO ARGUED THAT TH E ANNUAL REPORT OF THE COMPARABLE ALSO DOES NOT DISCLOSE SUFFICIENT RELAT ED PARTY DISCLOSURES. 49. INASMUCH AS THE COMPANY IS DEALING WITH SOFTWARE DEVELOPMENT AND CONSULTING SERVICES AS WELL AS MEDICAL TRANSCRIPTIO N AND NO SEPARATE FINANCIALS IN RESPECT OF THE SOFTWARE DEVELOPMENT FROM CONSULTING SERVICES ARE AVAILABLE, WE ARE OF THE CONSIDERED OPINION THAT THIS COMPANY IS N OT A GOOD COMPARABLE WITH THE ASSESSEE. E INFOCHIPS BANGALORE LIMITED: 50. ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY ON THE GROUND THAT THE COMPANY WAS ENGAGED IN DIVERSIFIED SET OF SERVICES A ND SEGMENTAL DATA WAS NOT AVAILABLE. LD. TPO REJECTED THE SAID OBJECTION STAT ING THAT THERE WAS NOTHING IN THE ANNUAL REPORT TO SUGGEST THAT THE COMPANY WAS IN THE BUSINESS OF PRODUCT ENGINEERING AND SEMICONDUCTOR DESIGN SERVICES. 51. FROM PAGE NO. 116 OF THE PAPER BOOK UNDER THE C APTION SEGMENT INFORMATION, WE FIND THAT THE COMPANY IS ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES, BUT FROM SCHEDULE 8 IT IS FOUN D THAT BOTH THE SEGMENTS ARE CLUBBED UNDER THE HEADING INCOME FROM SOFTWARE SER VICES. THIS CLEARLY SHOWS THAT NO SEPARATE SEGMENTAL INFORMATION IS AVAILABLE IN RESPECT OF SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES. FURTHER, IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE LD. DRP REJECTED THIS COMPARABLE IN RESPECT OF THE YEAR 2010-11 IN ASSESSEES OWN CASE ON THE GROUND OF FUNCTIONAL DISSIMILARITY, AND HELD THAT THE COMPANY IS ENGAGED IN HIGH-END TECHNOLOGY DRIVEN SERV ICES AND PRODUCT DEVELOPMENT. WE ALSO FOUND FROM PAGE NUMBERS 111 AN D 116 OF THE PAPER BOOK 23 THAT THE ENTITY LEVEL PROFITABILITY WAS TAKEN INTO CO NSIDERATION AND NO SEGMENTAL BIFURCATION OF COST IS AVAILABLE. 52. IT IS NOT IN DISPUTE ON BEHALF OF THE REVENUE T HAT THE LD. DRP REJECTED THIS COMPANY AS A COMPARABLE IN RESPECT OF THE ASSESSMENT YEAR 2010-11 ON THE GROUND OF FUNCTIONAL DISSIMILARITY HOLDING THAT THE COMPANY IS ENGAGED IN HIGH- END TECHNOLOGY DRIVEN SERVICES AND PRODUCT DEVELOPME NT. HAVING REGARD TO THIS FACT COUPLED WITH THE SITUATION THAT NO SEGMENTAL D ATA IS AVAILABLE IN RESPECT OF THE SOFTWARE DEVELOPMENT AND THE IT ENABLED SERVICE S SEPARATELY, WE DO NOT CONSIDER THIS COMPANY AS A RIGHT COMPARABLE. E INFOCHIPS LIMITED: 53. ASSESSEES OBJECTION FOR AN INCLUSION OF THIS C OMPANY IN THE SET OF COMPARABLES ON THE GROUND OF DIVERSIFIED SET OF SER VICES AND NON-AVAILABILITY OF THE SEGMENTAL DATA WAS REJECTED BY THE LD. TPO ON TH E GROUND THAT AS PER THE ANNUAL REPORT THE COMPANY WAS ONLY DERIVING INCOME FR OM SOFTWARE DEVELOPMENT SERVICES. 54. HOWEVER FROM A READING OF THE NOTE 13 OF THE NO TES ON ACCOUNT FOUND AT PAGE NO. 146 OF THE PAPER BOOK, WE FIND THAT THE CO MPANY IS PRIMARILY ENGAGED IN SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES BUT PR OFIT AND LOSS ACCOUNT OF THIS COMPANY INCORPORATED AT PAGE NO. 134 OF THE PAPER BO OK WITH A SCHEDULE 7 FORMING PART OF PROFIT AND LOSS ACCOUNT AT PAGE NO. 141 THEREOF DO NOT SHOW ANY SEPARATE SEGMENTAL DATA IN RESPECT OF THESE TWO SEG MENTS. 55. IT IS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT THIS COMPANY IS ALSO ENGAGED IN PRODUCT ENGINEERING SERVICES AND SEMICON DUCTOR DESIGN SERVICES AS 24 EVIDENT FROM THE FINANCIAL STATEMENTS. NOTE NO. 16 OF THE NOTE ON ACCOUNT SHOWS THAT THIS COMPANY IS ENGAGED IN THE DEVELOPMENT AND MAINTENANCE OF COMPUTER SOFTWARE AND ALSO MANUFACTURING EVM AND VDB ELECTRO NIC BOARD. 56. THE ASSESSEE IS RELYING ON THE ORDER PASSED BY TH IS TRIBUNAL IN THE CASE OF SAXO INDIA LTD V ACIT [2017] 397 ITR 160 (DELHI) IN SUPPORT OF HIS CONTENTION THAT A COMPANY DERIVING ITS INCOME FROM SOFTWARE DEVELOPMEN T, HARDWARE MAINTENANCE, INFORMATION TECHNOLOGY, CONSULTANCY ETC. IS NOT A GOOD COMPARABLE WITH THE ASSESSEE AND FOR EXCLUDING THIS COMPARABLE FROM THE FINAL SET OF COMPARABLE. IT WAS HELD AS FOLLOWS:- 10.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ANNUA L REPORT OF THIS COMPANY IS AVAILABLE IN THE PAPER BOOK WITH ITS PRO FIT AND LOSS ACCOUNT AT PAGE 1025. SCHEDULE OF INCOME INDICATES ITS OPERATING REVENUE FROM SOFTWARE DEVELOPMENT, HARDWARE MAINTEN ANCE, INFORMATION TECHNOLOGY, CONSULTANCY ETC. REVENUE FR OM HARDWARE MAINTENANCE STANDS AT RS. 3.92 CRORE, WHICH HAS BEE N CONSIDERED BY THE TRANSFER PRICING OFFICER HIMSELF AS SALE OF PRO DUCTS. SUCH SALE OF PRODUCTS CONSTITUTES 15% OF TOTAL REVENUE. THERE IS NO SEGMENTAL INFORMATION AVAILABLE AS REGARDS THE REVENUE FROM S ALE OF PRODUCTS AND REVENUE FROM SOFTWARE DEVELOPMENT SEGMENT. AS T HE ASSESSEE IS SIMPLY ENGAGED IN RENDERING SOFTWARE DEVELOPMENT SERVICES AND THERE IS NO SALE OF ANY SOFTWARE PRODUCTS, THIS COM PANY, IN OUR CONSIDERED OPINION, CEASES TO BE COMPARABLE. IT IS OBVIOUS THAT FROM THE COMMON POOL OF INCOME FROM BOTH THE STREAMS OF SOFTWARE PRODUCTS AND SOFTWARE SERVICES, ONE CANNOT DEDUCE T HE REVENUE FROM SOFTWARE SERVICES AND NO ONE KNOWS THE IMPACT OF REVENUE FROM PRODUCTS ON THE OVERALL KITTY OF PROFIT, WHICH MAY BE SIGNIFICANT. SINCE NO SEGMENTAL DATA OF THIS COMPAN Y IS AVAILABLE INDICATING OPERATING PROFIT FROM SOFTWARE DEVELOPME NT SERVICES, WE ORDER TO EXCLUDE THIS COMPANY FROM THE LIST OF COMP ARABLES. 57. IT IS FURTHER SUBMITTED ON BEHALF OF THE ASSESS EE THAT LD. TPO HAS ERRED IN TAKING THE ENTITY LEVEL PROFITABILITY. THE SALES FIG URE TAKEN BY THE TPO IS 25 RS.24.03CRORES, WHICH INCLUDES THE REVENUE FROM SOF TWARE SERVICES AS WELL AS INCOME FROM SALE OF SOFTWARE PRODUCTS. IN THE LIGH T OF SAME, IT IS APPARENT THAT THE PLI ARRIVED AT BY THE TPO IS INCORRECT AS SAME D OES NOT REPRESENT THE MARGIN OF THE SOFTWARE SEGMENT, AS NO SEGMENTAL DATA IS A VAILABLE. 58. IN THE LIGHT OF ABOVE, WE ARE SATISFIED THAT E- INFOCHIPS LIMITED IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AND ACCORDINGLY IT IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTION RELATED TO SOFTWARE SEGMENT. FCS SOFTWARE SOLUTIONS LIMITED: 59. MUCH AGAINST THE OBJECTIONS OF THE ASSESSEE, LD . TPO SELECTED THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT PASSED ALL TH E FILTERS. LD. DRP CONFIRMED THE SAME. 60. HOWEVER FROM PAGE NO. 222 OF THE PAPER BOOK, WE FIND THAT THIS COMPANY IS DEALING IN IT CONSULTING SERVICES, E-LEARNING AN D DIGITAL CONSULTING, APPLICATION SUPPORT 24/7, AND INFRASTRUCTURE MANAGEMENT SERVICE S. HOWEVER, THE PROFIT AND LOSS ACCOUNT INCORPORATED AT PAGE NOS. 236 AND 253 OF THE PAPER BOOK SHOW THAT THE REVENUES FROM ALL THE SERVICES ARE BUNDLED INTO SOFTWARE DEVELOPMENT AND OTHER SERVICES. P.1.20 OF THE NOTES ON ACCOUNT AT P AGE NO. 266 OF THE PAPER BOOK SHOWS THAT THE FINANCIALS ARE ON THE LINES OF GEOGR APHICAL SEGMENTS LIKE INDIA AND THE USA, BUT NOT ON THE LINES OF THE FUNCTIONAL SEG MENTS. FURTHER, P.2.4 AT PAGE NO. 268 OF THE PAPER BOOK READS THAT THE COMPANY IS ENGAGED IN THE SOFTWARE CONSULTANCY, TECHNICAL SUPPORT SERVICES, E-LEARNING AND OTHER RELATED ALLIED 26 SERVICES AND THESE SERVICES CANNOT BE EXPRESSED IN ANY GENERIC UNIT AND IT IS NOT POSSIBLE TO GIVE THE QUANTITATIVE DETAILS OF SALES. 61. ASSESSEE SUBMITTED THAT A COMPANY WHICH IS IN E -LEARNING AND DIGITAL CONSULTANCY CANNOT BE COMPARED TO A CAPTIVE SOFTWAR E DEVELOPER LIKE ASSESSEE, AND RELIED ON THE ORDER PASSED BY THIS TRIBUNAL, IN CASE OF TIBCO SOFTWARE INDIA PVT. LTD. V DCIT, [2015] 56 TAXMANN.COM 91 (PUNE-TR IB), (AY 2008-09) TO EXCLUDE THIS COMPANY FROM THE FINAL SET OF COMPARABLE. THIS TRIBUNAL, IN THE CASE OF TIBCO(SUPRA), ORDERED TO EXCLUDE THIS COMPARABLE CO MPANY BY MAKING FOLLOWING OBSERVATIONS:- 24. MOREOVER, THE ASSESSEE HAD REFERRED TO THE FOL LOWING EXTRACT FROM THE ANNUAL REPORT OF THE SAID CONCERN IN RELATION TO TH E E-LEARNING AND DIGITAL CONSULTING BEFORE THE TPO TO SAY THAT IT IS IN THE NATURE OF IT ENABLED SERVICES:- E-LEARNING AND DIGITAL CONSULTING SERVICES: US COR PORATIONS LOOK AT E-LEARNING OF WEB / CD BASED TRAINING PROGRAMS AS ONE OF THE WAYS TO ACHIEVE ORGANIZATIONAL GROWTH AND IMPROVED BUSINESS PERFORMANCE. E-LEARNING HELPS EMPLOYEES, VENDORS, AND DEALERS O F A COMPANY TO BETTER THEIR PERFORMANCE AND DEAL WITH FAST-CHANGING ENVIRONMENT S. E-LEARNING MAKES TRAINING HIGHLY EFFICIENT, BY MAKING IT AVAILABLE A NYTIME, ANYWHERE AND REDUCES TOTAL COST OF TRAINING. E-LEARNING IS USED TO TRAIN EMPLOYEES, CUSTOMERS AND SERVICE TECHNICIANS ON PRODUCT KNOWLEDGE, CONCEPTS, STRATEGIES, RISK AND FINANCE, COMPLIANCE AND TECHNOLOGY. 25. OSTENSIBLY, THE AFORESAID SERVICES INVOLVE SETT ING UP OF SUPPORT CENTRES AND REMOTE MAINTENANCE, WHICH HAVE BEEN DULY CATEGORIZE D AS ITES BY THE CBDTS CIRCULAR DATED 26.09.2000 ITSELF, WHICH HAS BEEN RE PRODUCED BY THE TPO IN THE IMPUGNED ORDER. THEREFORE, EVEN THE SAID SEGMENT IS NOT TO BE INCLUDED AS PART OF THE SOFTWARE DEVELOPMENT SERVICES, AS ASSERTED BY T HE ASSESSEE. ONCE THE SEGMENT OF APPLICATION SUPPORT AND INFRASTRUCTURE M ANAGEMENT SERVICES ARE REMOVED ALONG WITH THE EXCLUSION OF E-LEARNING AND DIGITAL CONSULTING SEGMENT, THEN THE INCOME OF THE SAID CONCERN FROM SOFTWARE D EVELOPMENT SERVICES FALLS BELOW 75% OF ITS TOTAL INCOME AND THEREFORE, IT DES ERVES TO BE EXCLUDED EVEN ON THE BASIS OF THE FILTER APPLIED BY THE TPO. THUS, O N THIS ASPECT, ASSESSEE SUCCEEDS. 62. SINCE THIS COMPANY IS ENGAGED IN A DIVERSIFIED F IELDS AND DERIVING REVENUES FROM DIFFERENT SOURCES, THE FUNCTIONAL SEGMENTAL IN FORMATION IN RESPECT OF 27 REVENUE AND COST IS NOT AVAILABLE, AND THE INFORMAT ION RELATING TO THE GEOGRAPHICAL SEGMENTATION IS NOT AT ALL HELPFUL FOR COMPARISON O F THIS COMPANY WITH THE ASSESSEE, WE FIND THAT FCS SOFTWARE SOLUTIONS LIMIT ED IS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE AND ACCORDINGLY IT IS TO BE EXCLUDED FR OM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTIO N RELATED TO SOFTWARE SEGMENT. GOLDSTONE TECHNOLOGIES LIMITED: 63. ACCORDING TO THE ASSESSEE THIS COMPANY IS FUNCTI ONALLY DISSIMILAR TO THAT OF THE ASSESSEE AS IT IS ENGAGED INTO APPLICATION SERV ICES, PRODUCT ENHANCEMENT AND SUPPORT SERVICES, ENTERPRISE APPLICATION INTEGRATIO N, JAVA MIGRATION AND INFRASTRUCTURE MANAGEMENT SERVICES WHICH NOWHERE CA N BE SAID TO BE COMPARABLE TO THE SOFTWARE SERVICES RENDERED BY THE ASSESSEE TO ITS AE. FURTHER, THE FINANCIAL STATEMENTS LACK IN PROVIDING THE SEGMENTAL RESULTS AS WELL. ON A PERUSAL OF THE ANNUAL REPORT OF THIS COMPANY FROM PAGE NUMBERS 89 AND 290 OF THE PAPER BOOK, WE FIND THIS STATEMENT TO BE TRUE. FURTHER THE BUSI NESS SEGMENT INFORMATION PROVIDED AT 9.1 AT PAGE NUMBER P22 OF THE PAPER BOO K SHOWS THAT GOLDSTONE TECHNOLOGIES LTD., DURING THE YEAR HAD INTRODUCED TW O ADDITIONAL DIVISIONS NAMELY, MEDIA AND IP TV. FURTHER, AS IS EVIDENT FROM PAGE NO. 303 OF THE PAPER BOOK, THE COMPANY HAD CARRIED INVENTORY OF SET TOP BO XES AND MOVIE RIGHTS IN ITS BALANCE SHEET FOR THE PREVIOUS YEAR. 64. SCHEDULE 5-FORMING PART OF BALANCE SHEET UNDER THE HEAD INVESTMENTS- COST AT PAGE NO. 314 OF THE PAPER BOOK COUPLED WIT H NOTE NO. 3 OF THE NOTES ON ACCOUNTS AT PAGE NO. 320 OF THE PAPER BOOK, SHOWS T HAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS UNDERGONE EXCEPTIONAL CIRCUMSTANCES AS IT HAS 28 ACQUIRED ITS WHOLLY OWNED SUBSIDIARY NAMELY, STAYTOP S YSTEMS INC, USA AND ACQUIRED 51% STAKE IN 4G INFORMATICS PRIVATE LIMITE D. 65. LASTLY IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THIS COMPARABLE WAS REJECTED AS A COMPARABLE BY THE LEARNED TPO IN ASSES SEES OWN CASE FOR AY 2010- 11 OWING TO FUNCTIONAL DISSIMILARITY SINCE THE COMPA NY IS ENGAGED IN RENDERING ITES SERVICES. THIS ASSERTION ON BEHALF OF THE ASSE SSEE IS NOT CONTROVERTED BY THE REVENUE. 66. RELIANCE HAS BEEN PLACED ON ORDER PASSED BY THIS TRIBUNAL IN CASE OF EMPTORIS TECHNOLOGIES INDIA PVT. LTD. V DCIT [2016] 67 TAXMANN.COM 279 (PUNE - TRIB.) (AY 2008-09) TO THE EFFECT THAT GOLDSTONE TE CHNOLOGIES LTD. WAS ENGAGED IN THE ACTIVITIES RELATED TO MEDIA & IP TV AND FURTHER , THE COMPANY HAD CARRIED INVENTORY OF SET TOP BOXES AND MOVIE RIGHTS IN ITS B ALANCE SHEET FOR THE PREVIOUS YEAR, AND IT HAS TO BE EXCLUDED FROM THE FINAL SET O F COMPARABLE. THE COORDINATE BENCH IN THE JUDGMENT OF EMPTORIS (SUPRA), ORDERED TO EXCLUDE THIS COMPARABLE COMPANY BY MAKING FOLLOWING OBSERVATIONS:- 17. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BEFORE THE DRP, IT WAS POINTED OUT THAT TH E SAID CONCERN GOLDSTONE TECHNOLOGIES LTD. WAS ENGAGED IN THE ACTI VITIES RELATED TO MEDIA & IP TV AND FURTHER, THE COMPANY HAD CARRIED INVENTORY OF SET TOP BOXES AND MOVIE RIGHTS IN ITS BALANCE SHEET FOR THE PREVIOUS YEAR. IN ADDITION, THE SAID COMPANY HAD SOME INCOME FROM SALE OF INDUSTRIAL MATERIAL. LOOKING AT THE SERVICES PROVID ED BY THE SAID CONCERN, IT IS CLEAR THAT THE SAME ARE FUNCTIONALLY DISSIMILAR TO THE SERVICES PROVIDED BY THE ASSESSEE AND THERE IS NO M ERIT IN COMPARING THE RESULTS OF THE SAID CONCERN WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE GOLDSTONE TECHNOLOGIES LTD. 29 67. IN VIEW OF THE FUNCTIONAL DISSIMILARITY COUPLED WITH THE FACT THAT THERE WERE EXTRAORDINARY EVENTS DURING THE YEAR, WE FIND THAT TH IS COMPANY HAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTION RELATED TO SOFTWARE SEGME NT. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED: 68. ASSESSEE OBJECTED THE INCLUSION OF THIS COMPANY ON THE GROUND THAT IT IS FUNCTIONALLY DIFFERENT. HOWEVER, LD. TPO INCLUDED IT ON THE GROUND THAT THE DIVERSIFIED SERVICES POINTED OUT BY THE ASSESSEE WER E PART OF THE SOFTWARE DEVELOPMENT SEGMENT AND IT COULD NOT BE SAID THAT T HIS COMPANY WAS FUNCTIONALLY DISSIMILAR TO THE ASSESSEE. 69. THE 'BUSINESS AND RESULTS OF OPERATIONS' TO BE FOUND ON PAGE NUMBERS 376 AND 377 OF THE PAPER BOOK CLEARLY SHOW THAT THIS COM PANY IS ENGAGED INTO PROVIDING END-TO-END SERVICES IN THE HEALTHCARE SEC TOR AND ALSO INTO THE SALE OF SOFTWARE WHICH IS QUITE DIFFERENT FROM THE SOFTWARE SERVICES RENDERED BY THE ASSESSEE TO ITS AES. 70. REVENUE FROM OPERATIONS SHOWN UNDER SCHEDULE 1 AT PAGE NO. 415 OF THE PAPER BOOK SHOW THAT THE INCOME FROM SOFTWARE SALES AND SERVICES IS BUNDLED UP AND THE SEGMENT REPORTING AT PAGE NO. 419 READS THA T THE COMPANY IS OPERATING IN A SINGLE SEGMENT AND THE RISK AND REWARD IS THE SAME FOR THE SEGMENT IN ALL THE LOCATIONS AND HENCE SEGMENT REPORTING IS NOT APPLIC ABLE TO THE COMPANY. IT IS FURTHER SUBMITTED ON BEHALF OF THE ASSESSEE THAT, T HE EMPLOYEE COST FILTER CANNOT BE ASCERTAINED FROM THE FINANCIALS. 30 71. THE ASSESSEE ALSO SUBMITTED THAT THE REVENUE RE COGNITION MODEL OF THIS COMPARABLE IS ALSO DIFFERENT FROM THE REVENUE RECOG NITION MODEL OF THE ASSESSEE. ACCORDING TO THE REVENUE RECOGNITION POLICY OF THE C OMPANY TO BE FOUND ON PAGE 416 OF THE PAPER BOOK ANNUAL REPORTS PAPER BOOK VOL II, - REVENUE FROM SOFTWARE SERVICES AND PROJECTS COMPRI SE INCOME FROM TIME AND MATERIAL AND FIXED PRICE CONTRACTS. REVENU E FROM TIME AND MATERIAL CONTRACTS IS RECOGNIZED USING PERCENTAGE O F COMPLETION METHOD CALCULATED AS A PERCENTAGE OF THE COST OF EF FORTS INCURRED UP TO THE REPORTING DATE TO ESTIMATED TOTAL COST OF EF FORTS. MAINTENANCE REVENUE IS RECOGNIZED OVER THE PERIOD OF UNDERLYING MAINTENANCE CONTRACTS, INTEREST RECEIPT IS RECOGNIZED ON ACCRUA L BASIS. DIVIDEND IS RECOGNIZED ON RECEIPT BASIS. UNBILLED REVENUE PRIMARILY COMPRISES THE REVENUE RE COGNIZED IN RELATION TO EFFORTS INCURRED UP ON FIXED PRICE, FIX ED TIME FRAME CONTRACTS UNTIL THE BALANCE SHEET DATE. 72. RELIANCE HAS BEEN PLACED ON ORDER PASSED BY THIS TRIBUNAL IN THE CASE OF PTC SOFTWARE (INDIA) PRIVATE LIMITED [2017] 86 TAXM ANN.COM 122 (PUNE - TRIB.) (AY 2008-09), WHEREIN, IT WAS FOUND THAT HELIOS & MATHE SON INFORMATION TECHNOLOGY LTD. IS ENGAGED IN RENDERING ITES INCLUDING BPO SER VICES, OFFSHORE DELIVERY, PROJECT MANAGEMENT SERVICES, ETC. AND THAT THIS COMPANY WAS FUNCTIONALLY INCOMPARABLE TO SOFTWARE DEVELOPMENT FIRMS BY MAKING FOLLOWING OB SERVATIONS:- 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE THIRD COMPANY THAT SHOULD BE EXCLUDED FROM THE FINAL LIST OF COMPARABLES IS HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. TH E SAID COMPANY SHOULD BE EXCLUDED ON THE GROUND OF FUNCTIO NAL DISPARITY. THE LD. COUNSEL CONTENDED THAT HELIOS & MATHESON IN FORMATION TECHNOLOGY LTD. IS ENGAGED IN RENDERING ITES INCLUD ING BPO SERVICES, OFFSHORE DELIVERY, PROJECT MANAGEMENT SERVICES, ETC . THEREFORE, THE SERVICES RENDERED BY HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. ARE NOT COMPARABLE TO ITS RENDERED BY THE ASSE SSEE. THE LD. COUNSEL SUBMITTED THAT IN ASSESSEE'S OWN CASE IN AS SESSMENT YEAR 31 2007-08 THE TRIBUNAL HAS EXCLUDED HELIOS & MATHESON INFORMATION TECHNOLOGY LTD. FROM THE LIST OF COMPARABLES. 16. ON THE OTHER HAND THE LD. DR VEHEMENTLY DEFENDE D THE FINDINGS OF TPO IN INCLUDING HELIOS & MATHESON INFORMATION T ECHNOLOGY LTD. IN THE FINAL SET OF COMPARABLES. 17. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BEL OW PERUSED. WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2007-08 HAVE EXCLUDED HELIO S & MATHESON INFORMATION TECHNOLOGY LTD. FROM THE FINAL LIST OF COMPARABLES FOR THE REASONS SIMILAR TO EXCLUDE KALS INFORMATION SYS TEMS LTD. THE RELEVANT EXTRACT OF THE FINDINGS OF THE ORDER OF TR IBUNAL HAS ALREADY BEEN REPRODUCED IN PARA 7 HERE-IN- ABOVE. FOR THE S AKE OF BREVITY AND TO AVOID REPETITIVENESS WE ARE NOT EXTRACTING T HE SAME REASONS HERE AGAIN. THE HON'BLE HIGH COURT HAS CONFIRMED TH E FINDINGS OF TRIBUNAL IN HOLD HELIOS & MATHESON INFORMATION TECH NOLOGY LTD. AS NOT COMPARABLE ON ACCOUNT OF FUNCTIONAL DIFFERENCES . THE LD. DR HAS NOT BEEN ABLE TO PLACE ON RECORD ANY MATERIAL TO SH OW ANY CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE ASSESSMENT YE AR UNDER APPEAL. THEREFORE, FOLLOWING THE DECISION OF CO-ORDINATE BE NCH IN ASSESSMENT YEAR 2007-08 WE DIRECT THE ASSESSING OFF ICER/TPO TO EXCLUDE HELIOS & MATHESON INFORMATION TECHNOLOGY LT D. FROM THE FINAL SET OF COMPARABLES. 73. FURTHER, ASSESSEE ALSO PLACED RELIANCE ON THE J UDGMENT OF BANGALORE TRIBUNAL IN THE CASE OF NMS COMMUNICATION PRIVATE L TD. V DCIT, [2016] 68 TAXMANN.COM 72 (BANGALORE-TRIB) IN SUPPORT OF THEI R CONTENTION THAT HELIOS IS NOT A GOOD COMPARABLE FOR THE ASSESSEE WHICH RENDERS CA PTIVE SOFTWARE DEVELOPMENT SERVICE AS ITS MAIN REVENUE IS FROM SALE OF SOFTWA RE. 74. IN VIEW OF THE FACT THAT THIS COMPANY WAS FOUND TO HAVE BEEN ENGAGED IN RENDERING IT HAS INCLUDING BPO SERVICES, OFFSHORE D ELIVERY, PROJECT MANAGEMENT SERVICES ETC AND NO SEGMENTAL INFORMATION IS AVAILA BLE, WE FIND IT DIFFICULT TO HOLD THAT THIS COMPANY COULD BE CONTINUED AS A GOOD COMPA RABLE. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTION RELATED TO SOFTWARE SEGMENT. 32 IGATE GLOBAL SOLUTION LIMITED: 75. ON THE GROUND OF FUNCTIONAL DISSIMILARITY THE AS SESSEE OBJECTED THE INCLUSION OF THIS COMPANY IN THE SET OF COMPARABLES, BUT THE LD. TPO PROCEEDED TO INCLUDE THE SAME ON THE GROUND THAT IT PASSED ALL T HE FILTERS. 76. A READING OF THE SEGMENTAL REPORTING TO BE FOUN D AT PAGE NO. 531 OF THE PAPER BOOK SHOWS THAT THE COMPANY IS ENGAGED IN PRO VIDING INFORMATION TECHNOLOGY SERVICES, CONTACT CENTRE SERVICES AND IT ENABLED SERVICES, DELIVERED TO CUSTOMERS GLOBALLY ACROSS THE GEOGRAPHIES, THEY WERE TO BEING PERFORMED ON-SITE AND OFFSHORE. A READING OF THE FINANCIALS TO BE FOU ND AT PAGE NUMBER 498, 509 AND 511 SHOWS THAT THE FINANCIAL STATEMENTS LACK IN PROVIDING THE SEGMENTAL RESULTS. FURTHER, THE HEADING SUBSIDIARIES AND JOI NT VENTURES AT PAGE NO. 499 AND THE HEADING MERGER OF IGATE TECHNOLOGY SERVICES PR IVATE LIMITED AT PAGE NO. 507 SHOW THAT IN ADDITION TO THE SAME, IT IS PERTIN ENT TO NOTE THAT THERE HAS BEEN AN EXCEPTIONAL EVENT DURING THE YEAR, I.E. THE COMPA NY IS WHOLLY OWNED SUBSIDIARY IGATE TECHNOLOGY SERVICES PRIVATE LIMITED HAS BEEN A MALGAMATED AND ACCORDINGLY, THE FINANCIALS INCLUDE THE EFFECT OF TH E SAME. 77. CONSIDERING THE NON-AVAILABILITY OF THE SEGMENTA L INFORMATION COUPLED WITH THE FACT THAT THAT THE COMPANY HAS AN EXCEPTIONAL EV ENT OF OPERATIONS, MAKES THIS COMPANY EXCLUDABLE FROM THE FINAL SET OF COMPARABLE COMPANIES FOR THE PRESENT YEAR UNDER CONSIDERATION. INFOSYS TECHNOLOGIES LIMITED: 78. THIS COMPANY IS UNDOUBTEDLY A CORPORATE GIANT WIT H ITS LARGE SCALE OF OPERATIONS VIS--VIS THE ASSESSEE COMPANY; THAT IT H AD A BRAND IMPACT TO 33 DETERMINE THE PREMIUM PRICING; THAT IT HAS A DIFFER ENT MODEL OF REVENUE RECOGNITION. IT IS SUBMITTED ON BEHALF OF THE ASSES SEE THAT THIS COMPARABLE HAS BEEN REJECTED IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING YEAR, I.E. AY 2007- 08 BY THE TRIBUNAL ON ACCOUNT OF DIFFERENT RISK PROF ILE, SCALE, NATURE OF SERVICES, REVENUE OWNERSHIP OF BRANDED/ PROPRIETARY PRODUCTS, ONSITE AND OFFSHORE SERVICES ETC. THIS FACT IS NOT CONTRADICTED BY THE REVENUE. 79. FURTHER, THE ASSESSEE HAS PLACED RELIANCE ON AI RCOM (SUPRA), IN ORDER TO EXCLUDE THIS COMPARABLE COMPANY ON THE BASIS OF ITS MAGNITUDE. THE COORDINATE BENCH HAS REJECTED THIS COMPARABLE BY MAKING FOLLOWI NG OBSERVATIONS:- 17.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN THAT TH E TPO HAS INCLUDED THIS COMPANY IN THE LIST OF COMPARABLES BY REJECTING THE ASSESSEES CONTENTIONS. THE ASSESSEE IS PROVIDING AN D ASSIGNING SOFTWARE SERVICES TO ITS AE ALONE WITHOUT ACQUIRING ANY INTELLECTUAL PROPERTY RIGHTS IN THE WORK DONE BY IT IN THE DEVEL OPMENT OF SOFTWARE. THE HONBLE DELHI HIGH COURT IN CIT VS. AG NITY INDIA TECHNOLOGIES (P) LTD. (2013) 219 TAXMANN 26 (DEL) C ONSIDERED THE GIANTNESS OF INFOSYS LTD., IN TERMS OF RISK PROFILE , NATURE OF SERVICES, NUMBER OF EMPLOYEES, OWNERSHIP OF BRANDED PRODUCTS AND BRAND RELATED PROFITS, ETC. IN COMPARISON WITH SUCH FACTO RS PREVAILING IN THE CASE OF AGNITY INDIA TECHNOLOGIES PVT. LTD., BEING, A CAPTIVE UNIT PROVIDING SOFTWARE DEVELOPMENT SERVICES WITHOUT HAV ING ANY IP RIGHTS IN THE WORK DONE BY IT. AFTER MAKING COMPARI SON OF VARIOUS FACTORS AS ENUMERATED ABOVE, THE HONBLE DELHI HIGH COURT HELD INFOSYS LTD. TO BE NON-COMPARABLE WITH AGNITY INDIA TECHNOLOGIES PVT. LTD. THE FACTS OF THE INSTANT CASE ARE SIMILAR TO THE EXTENT THAT THE EXTANT ASSESSEE IS ALSO NOT OWNING ANY BRANDED PRODUCTS AND HAVING NO EXPENDITURE ON R&D ETC. WHEN WE CONSIDER ALL THE ABOVE FACTORS IN A HOLISTIC MANNER, THERE REMAINS ABSOLUT ELY NO DOUBT THAT INFOSYS TECHNOLOGIES LTD. IS NOT COMPARABLE WITH TH E ASSESSEE COMPANY. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN AGNITY INDIA (SUPRA), WE HOLD THAT INFOSYS TECHNOLOGIES LTD., CANNOT BE TREATED AS COMPARABLE WITH THE 34 ASSESSEE COMPANY. THIS COMPANY IS, THEREFORE, DIREC TED TO BE EXCLUDED FROM THE LIST OF COMPARABLES. 80. THE DIVERSIFIED ACTIVITIES OF BUSINESS, ITS DEP LOYMENT OF CAPITAL, RESOURCES AND THE BRAND NAME MAKE THIS COMPANY NOT COMPARABLE WITH THE ASSESSEE AND, THEREFORE, THIS COMPANY HAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTIO N RELATED TO SOFTWARE SEGMENT. KALS INFORMATION SYSTEMS LIMITED (SEGMENTAL) 81. AT THE OUTSET IT IS BROUGHT TO OUR NOTICE THAT THIS COMPANY WAS CONSIDERED BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE IMMEDI ATELY PRECEDING YEAR THAT IS ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN CASE AND T HIS TRIBUNAL REJECTED THIS COMPANY TO BE INCLUDED AS A COMPARABLE TO THE ASSESS EE. 82. ON A PERUSAL OF THE ORDER DATED 18.5.2016 IN IT A NO. 5837/DELHI/2011 IN ASSESSEES OWN CASE, WE FIND THAT THIS COMPANY WAS C ONSIDERED BY THIS TRIBUNAL VIDE PARAGRAPH NUMBERS 37 TO 39 AND FOUND THAT THE SOFTWARE SEGMENT OF THIS COMPANY ALSO INCLUDES REVENUES FROM SOFTWARE AND TRA INING, WHEREAS THE ASSESSEE COMPANY IS NOT ENGAGED IN IMPARTING ANY TRAI NING OR SELLING ITS SOFTWARE PRODUCTS TO ATTRACT REVENUE. ON THIS PREMISE, THIS TRIBUNAL HELD THAT THE FINANCES OF THIS COMPANY ARE NOT COMPARABLE WITH THE ASSESSEE COMPANY AND ON THAT GROUND THIS COMPANY IS NOT A VALID COMPARABLE. 83. FURTHER, THE ASSESSEE HAS PLACED RELIANCE ON AI RCOM (SUPRA), IN ORDER TO EXCLUDE THIS COMPARABLE COMPANY ON THE GROUND THAT T HIS COMPANY CONSISTING OF STP UNIT IS ENGAGED IN SOFTWARE PRODUCTS AND DEVELO PMENT OF SOFTWARE AND IS ALSO UNDERTAKING TRAINING ACTIVITY OF SOFTWARE PROFESSION ALS ON ONLINE PROJECTS AND NOT 35 A GOOD COMPARABLE. THE COORDINATE BENCH HAS REJECTE D THIS COMPARABLE BY MAKING FOLLOWING OBSERVATIONS:- 18.3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ENTIR E PREMISE OF THE TPOS INCLUSION OF THIS COMPANY IN THE LIST OF COMPA RABLES IS THAT THE SOFTWARE PRODUCTS AND TRAINING CONSTITUTE ONLY 4.24 % OF ITS REVENUE. THIS INFERENCE HAS BEEN DRAWN ON THE BASIS OF THE I NFORMATION SUPPLIED BY THIS COMPANY STATING: THE USE OF READY MADE OBJECT LABORATORIES IS ONLY TO THE TUNE OF ABOUT (3.4 TO 6 .96) % IN THE YEAR 2007-08 TO 2008-09 . WE FAIL TO COMPREHEND AS TO H OW THE ABOVE LINE CONVEYS THAT THE SOFTWARE PRODUCTS REVENUE STA NDS AT 4.24%. WHAT HAS BEEN WRITTEN IS THAT THE COMPANYS USE OF T HE READYMADE OBJECT LABORATORIES IS ONLY TO THE TUNE OF MAXIMUM 4.24%. BY NO IMAGINATION THIS CAN BE CONSTRUED AS REVENUES FROM SOFTWARE PRODUCTS. WHEN WE PERUSE THE ANNUAL REPORT OF THIS COMPANY, WHICH IS AVAILABLE IN THE PAPER BOOK, IT CAN BE SEE N THAT THERE IS NO SUCH MENTION OF SOFTWARE PRODUCTS REVENUE LIMITED T O 4.24%. ON THE CONTRARY, IT HAS BEEN MENTIONED IN THE NOTES TO THE FINANCIAL STATEMENT THAT: THE COMPANY IS ENGAGED IN DEVELOPM ENT OF SOFTWARE AND SOFTWARE PRODUCTS SINCE ITS INCEPTION. THE COMPANY CONSISTING OF STPI UNIT IS ENGAGED IN SOFTWARE PROD UCTS AND DEVELOPMENT OF SOFTWARE AND IS ALSO UNDERTAKING TRA INING ACTIVITY OF SOFTWARE PROFESSIONALS ON ONLINE PROJECTS. NOT ONLY THE REVENUES OF THE SEGMENT CONSIDERED BY THE TPO ALSO INCLUDE THE REVENUE FROM SOFTWARE PRODUCTS, BUT ALSO FROM TRAINING IMPARTED ON COMMERCIAL BASIS. IT IS CLEAR THAT THE ASSESSEE IS NOT PROVIDI NG ANY TRAINING UNDER THIS SEGMENT, WHICH HAS BEEN RATHER INCLUDED BY THE ASSESSEE IN THE SECOND CATEGORY OF THE ASSESSEES BUSINESS, NAMELY, SOFTWARE DEPLOYMENT, TRAINING, CONSULTANCY AND EQUIPMENT REN TAL. SINCE THE ASSESSEES ACTIVITY UNDER THIS SEGMENT DOES NOT INCLUDE ANY REVENUE FROM TRAINING, BUT THE REVENUE OF KALS INFO RMATION SYSTEMS LTD., FOR THE PURPOSE OF COMPARISON INCLUDES INCOME FROM TRAINING, THIS COMPANY CEASES TO BE COMPARABLE WITH THE ASSES SEES SEGMENT OF `SOFTWARE DEVELOPMENT SERVICES. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMME DIATELY PRECEDING ASSESSMENT YEARS 2006-07 AND 2007-08. RES PECTFULLY FOLLOWING THE PRECEDENTS, WE HOLD THAT KALS INFORMA TION SYSTEMS LTD. (SEG.) SHOULD BE EXPUNGED FROM THE SET OF COMP ARABLES. 36 84. NO CHANGE OF CIRCUMSTANCES IS BROUGHT TO OUR NO TICE EITHER BY THE ASSESSEE OT THE REVENUE, AS SUCH WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW FROM THE VIEW TAKEN BY THIS TRIBUNAL FOR THE EARLIER YEAR. WE, THEREFORE, CONSEQUENTLY HOLD THAT THIS COMPANY IS NOT A VALID COMPARABLE TO THAT OF THE ASSESSEE AND HAS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLE COM PANIES FOR BENCHMARKING INTERNATIONAL TRANSACTION RELATED TO SOFTWARE SEGME NT. LGS GLOBAL LIMITED: 85. INITIALLY THE ASSESSEE OFFERED THIS COMPANY AS A COMPARABLE, BUT THE ASSESSEE CLAIMS TO HAVE FOUND THAT THIS COMPANY IS N OT A COMPARABLE AND WRONGLY INCLUDED IN THE FINAL LIST OF COMPARABLE COMPANIES. INASMUCH AS THE KEY DETERMINATIVE FACTOR AS FAR AS THE INCLUSION/EXCLUS ION OF ANY COMPANY FROM THE LIST OF COMPARABLES IS THE FUNCTIONALITY OF AN ENTI TY, WE ARE OF THE CONSIDERED OPINION THAT THIS COMPANY HAS TO BE CONSIDERED ON TH E PARAMETERS OF FUNCTIONALITY AND ASSESSEE CANNOT BE PREVENTED FROM CHALLENGING THE SAME. 86. PAGE NO. 26 OF THE 9 TH ANNUAL REPORT 2007-08 OF THIS COMPANY CAN BE FOUND AT PAGE NO. 935 OF THE PAPER BOOK CLEARLY ESTABLISHE S THAT THIS COMPANY IS ENGAGED IN A MULTIFARIOUS ACTIVITIES INCLUDING AN E ND TO END SERVICE PROVIDER AND OFFERS VARIETY OF SERVICES. IT IS INVOLVED IN PRODUC T EVALUATION, DESIGN & DEVELOPMENT ETC. OF THE PRODUCTS. FURTHER, IT ALSO RENDERS BPO SERVICES IN THE FIELD OF HUMAN RESOURCES, LIFE SCIENCES, LEGAL SERVICES, SUPPLY CHAIN MANAGEMENT, SALES, AND CUSTOMER SUPPORT ETC. FURTHER, THE FINAN CIAL STATEMENTS LACKS IN PROVIDING THE SEGMENTAL RESULTS AS WELL. 37 87. FURTHER READING OF THE NOTES FORMING PART OF TH E ACCOUNTS VIDE SCHEDULE 14 INCORPORATED AT PAGE NO. 971 OF THE PAPER BOOK COUP LED WITH ENTRIES IN SCHEDULED 5 AT PAGE NO. 966 THEREOF SHOW THAT THERE IS AN EXC EPTIONAL CIRCUMSTANCES DURING THE YEAR, I.E. THE COMPANY HAS WRITTEN OFF GOODWILL, WHICH AROSE ON ACCOUNT OF MERGER OF LANCO GLOBAL SYSTEMS INC. 88. IN VIEW OF THE VAST FUNCTIONAL DIVERSITY OF THI S COMPANY AS IS EVIDENT FROM THE 'OFFERINGS OF THE LGS SERVICE AND SOLUTION' TO BE FOUND AT PAGE NO. 935 OF ITS ANNUAL REPORT COUPLED WITH THE FACT OF THE EXCEPTIO NAL CIRCUMSTANCE OCCURRED DURING THE YEAR, WE ARE OF THE CONSIDERED OPINION TH AT THIS COMPANY IS NOT A GOOD COMPARABLE WITH THE ASSESSEE AND ON THAT SCORE IT H AS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLE COMPANIES FOR THE PRESENT YE AR UNDER CONSIDERATION. LARSEN & TOUBRO INFOTECH LIMITED 89. THIS COMPANY ALSO WAS ORIGINALLY OFFERED AS A COM PARABLE BY THE ASSESSEE ITSELF BUT NOW THE ASSESSEE IS CHALLENGING THE SAID COMPANY BEFORE US. UNDOUBTEDLY THIS COMPANY IS ALSO A CORPORATE GIANT AN D A READING OF THE ANNUAL REPORT OF THIS COMPANY INCORPORATED FROM PAGE NO. 82 4 OF THE PAPER BOOK SHOWS THAT THIS COMPANY IS INTO THE MANUFACTURING AND PROD UCT ENGINEERING SERVICES, BESIDES WHICH DEALING WITH BANKING, FINANCIAL SERVI CES, INSURANCE, ENERGY AND PETROCHEMICALS ETC. NOTE NO. 18 OF THE NOTES ON ACC OUNT UNDER THE HEADING SEGMENTAL REPORTING SHOWS THAT SEGMENTAL REPORTING OF REVENUES OF THIS COMPANY ARE ON THE BASIS OF GEOGRAPHICAL LOCATION OF THE CU STOMERS, BUT NOT ON THE FUNCTIONAL SEGMENTAL. PROFIT AND LOSS ACCOUNT AT PA GE NO. 838 OF THE PAPER BOOK SHOWS THAT THE REVENUE IS BIFURCATED UNDER THE HEAD SOFTWARE DEVELOPMENT SERVICES AND PRODUCTS ON GEOGRAPHICAL BASIS LIKE OV ERSEAS AND DOMESTIC. 38 90. IN VIEW OF THE HUGE CAPITAL BASE, RESOURCES AND OTHER FACTORS THIS COMPANY CANNOT BE A COMPARABLE TO THE ASSESSEE AND HAS TO B E EXCLUDED FROM THE FINAL LIST OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIO NAL TRANSACTION RELATED TO SOFTWARE SEGMENT. MINDTREE LIMITED 91. ASSESSEE SOUGHT THE EXCLUSION OF THIS COMPANY ON THE GROUND OF FUNCTIONAL DISSIMILARITY. HOWEVER LD. TPO INCLUDED IT ON THE GR OUND THAT THIS COMPANY IS DERIVING REVENUE FROM BOTH SOFTWARE AS WELL AS ITES AND SUFFICIENT SEGMENTAL INFORMATION IS NOT AVAILABLE IN THE FINANCIAL STATE MENTS. UNDER THE HEAD 'THE BUSINESS PERFORMANCE', AT PAGE NO. 1010 OF THE PAPE R BOOK IT IS REVEALED THAT THIS COMPANY IS STRUCTURED INTO TWO BUSINESS UNITS THAT F OCUS ON SOFTWARE DEVELOPMENT R&D SERVICES, AND IT SERVICES. IT ALSO OFFERS IT STRATEGIC CONSULTING, APPLICATION DEVELOPMENT, DATA WAREHOUSING AND BUSIN ESS INTELLIGENCE, APPLICATION MAINTENANCE, PACKAGE IMPLEMENTATION, PR ODUCT ARCHITECTURE, DESIGN AND ENGINEERING, EMBEDDED SOFTWARE, TECHNICAL SUPPO RT, TESTING AND INFRASTRUCTURE MANAGEMENT SERVICE. 92. FURTHER AT PAGE NO. 27 OF THE ANNUAL REPORT INC ORPORATED AT PAGE NO. 1027 OF THE PAPER BOOK IT IS MENTIONED THAT ON 17/12/200 7 THE COMPANY ACQUIRED HUNDRED PERCENT OF THE OUTSTANDING EQUITY SHARES OF TES PV AND PROJECTS SOLUTIONS PRIVATE LIMITED WHICH WAS SUBSEQUENTLY REN AMED AS MINDTREE TECHNOLOGIES PRIVATE LIMITED AT A TOTAL CONSIDERATI ON OF RS. 259.7 MILLION EQUIVALENT TO USD 6.55 MILLION. IT IS FURTHER STATE D THAT AS A CONSEQUENCE OF THIS, THE REVENUES OF THIS COMPANY AS ON 31 ST MARCH 2008 OF RS. 64.80 MILLIONS HAS BEEN INCLUDED IN THE ABOVE REVENUES FOR THAT YEAR. 39 93. NEEDLESS TO SAY THE VAST FUNCTIONAL DISSIMILARIT Y COUPLED WITH THE EXTRAORDINARY EVENT OF ACQUISITION OF EQUITY SHARES S TATED ABOVE SUGGESTS THAT THIS COMPANY IS NOT A GOOD COMPARABLE WITH THE ASSESSEE A ND CONSEQUENTLY IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. PERSISTENT SYSTEMS LIMITED: 94. THE ASSESSEE CLAIMS TO HAVE EXCLUDED THIS COMPA NY FROM THE LIST OF COMPARABLES WHILE PREPARING ITS TP STUDY ON THE GROU ND THAT THIS COMPANY WAS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE. HOWEVER, THIS COMPANY WAS SELECTED AS COMPARABLE BY THE TPO AND THE ASSESSEE, DURING THE C OURSE OF TP PROCEEDINGS, OPPOSED THE INCLUSION OF THIS COMPARABLE ON GROUND OF FUNCTIONAL DISSIMILARITY BUT THE TPO SELECTED IT AS THE FINAL COMPARABLE BY REJEC TING THE ARGUMENT OF THE ASSESSEE AND HOLDING THAT THIS COMPANY IS DERIVING R EVENUE FROM BOTH SOFTWARE AS WELL AS PRODUCTS AND INSUFFICIENT SEGMENTAL INFORMA TION IS AVAILABLE IN THE FINANCIAL STATEMENTS. 95. IT IS EVIDENT FROM A READING OF PAGE NUMBERS 10 85, 1090, 1136, 1140, 1154, 1162 & 1183 OF THE PAPER BOOK CONTAINING THE ANNUAL REPORT OF THIS COMPANY, THAT THE COMPANY IS ENGAGED INTO SOFTWARE PRODUCT DE VELOPMENT WITH COMPLETE LIFE CYCLE AND IS FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE. FURTHER THE PROFIT AND LOSS ACCOUNT AT PAGE NO. 1154 OF THE PAPER BOOK SHOWS THAT THE INCOME FROM THE SALE OF SOFTWARE SERVICES AND PRODUCTS IS BUNDL ED UP, THE SCHEDULE NO. 11 FORMING PART OF PROFIT AND LOSS ACCOUNT AT PAGE NO. 1160 SHOWS THE SEGMENTATION ON THE BASIS OF OVERSEAS AND DOMESTIC. ITEM NUMBER 'L' AT PAGE NO. 1166 UNDER THE HEADING SEGMENT REPORTING POLICIES READS THAT THE COMPANY HAS DISCLOSED THE SEGMENT INFORMATION ONLY ON THE BASIS OF THE CO NSOLIDATED FINANCIAL 40 STATEMENTS WHICH SHALL BE PRESENTED TOGETHER WITH T HE UNCONSOLIDATED INERTIAL STATEMENTS. 96. FURTHER, IN SUPPORT OF THEIR PLEA THAT A COMPAN Y WHICH IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES, BUT, AT THE SAME TIM E IS ALSO A SOFTWARE PRODUCT COMPANY, IS NOT A GOOD COMPARABLE WITH THE ASSESSEE, ASSESSEE PLACED RELIANCE ON AIRCOM (SUPRA), IN ORDER TO EXCLUDE THIS COMPARA BLE COMPANY. THE COORDINATE BENCH HAS REJECTED THIS COMPARABLE BY MAKING FOLLOWI NG OBSERVATIONS:- 19.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. IT CAN BE SEEN FROM THE INFORMA TION SUPPLIED BY THIS COMPANY U/S 133(6) OF THE ACT, A PART OF WHICH HAS BEEN REPRODUCED IN THE TPOS ORDER, THAT THIS COMPANY HAS DEVELOPED A FEW O F ITS OWN PRODUCTS IN THE AREA OF IDENTITY MANAGEMENT CONNECTORS. REVENU E FROM PRODUCT LICENCES STANDS AT RS.288.93 MILLION AS AGAINST THE REVENUE FROM SOFTWARE DEVELOPMENT SERVICES AT RS.4829.57 MILLIONS. THOUGH THIS COMPANY IS MORE ENGAGED IN SOFTWARE DEVELOPMENT SERVICES, BUT, AT T HE SAME TIME IS ALSO A SOFTWARE PRODUCT COMPANY, WHICH IS EVIDENT FROM THE INFORMATION SUPPLIED BY IT TO THE TPO. THUS, THE TOTAL REVENUE OF THE CO MPANY ON ENTITY LEVEL ALSO, INTER ALIA, INCLUDES REVENUE FROM PRODUCT LIC ENCES. THERE IS NO INFORMATION AVAILABLE FROM THE ANNUAL REPORT OF THI S COMPANY OR THE DATA COLLECTED BY THE TPO U/S 133(6) OF THE ACT TO DIVUL GE THE AMOUNT OF REVENUE FROM SOFTWARE DEVELOPMENT SERVICES ALONE TO THE EXCLUSION OF REVENUE FROM PRODUCT LICENCES. IN SUCH CIRCUMSTANCE S, IT IS NOT POSSIBLE TO ASCERTAIN THE IMPACT OF SUCH REVENUE ON THE TOTAL R EVENUE OF THIS COMPANY. AS THE ASSESSEE IS NOT ENGAGED IN THE SALE OF ANY S OFTWARE PRODUCTS, THIS COMPANY ON ENTITY LEVEL, CANNOT BE CONSIDERED AS CO MPARABLE. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOLUNA INDIA P VT. LTD. VS. ACIT (ITA NO.5645/DEL/2011, VIDE ITS ORDER DATED 26.8.2014 HA S HELD PERSISTENT SYSTEMS LTD. TO BE INCOMPARABLE WITH TOLUNA INDIA P VT. LTD., ALSO A COMPANY ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT S ERVICES TO ITS RELATED PARTIES ALONE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN LEAR AUTOMOTIVE INDIA PVT. LTD. VS. ACIT (ITA NO.5612/DE L/2011) VIDE ITS ORDER DATED 22.12.2014. THE LD. DR COULD NOT POINT OUT AN Y DISTINGUISHING FEATURE IN THE FACTUAL MATRIX OF THE ASSESSEE IN QUESTION A ND TOLUNA INDIA PVT. LTD., AND LEAR AUTOMOTIVE INDIA PVT. LTD. RESPECTFULLY FO LLOWING THE PRECEDENTS, WE ORDER FOR THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. 41 97. IN VIEW OF THE FUNCTIONAL DISSIMILARITY COUPLED WITH THE FACT OF NONAVAILABILITY OF THE SEGMENTAL INFORMATION, WHILE RESPECTFULLY FOLLOWING THE DECISION IN AIRCOM (SUPRA), WE HOLD THAT THIS COMPA NY IS LIABLE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. QUINTEGRA SOLUTIONS LIMITED: 98. THIS COMPANY WAS OFFERED AS COMPARABLE BY THE ASS ESSEE ITSELF, AND THERE WAS NO OCCASION FOR THE LEARNED TPO TO CONTROVERT I TS FUNCTIONAL SIMILARITY. HOWEVER, THE ASSESSEE NOW CONTENDS THAT QUINTEGRA S OLUTIONS LIMITED IS NOT COMPARABLE AND WAS WRONGLY INCLUDED IN THE FINAL LIS T OF COMPARABLE COMPANIES, ON THE GROUND THAT THE COMPANY IS FUNCTIONALLY DISSIM ILAR TO THAT OF THE ASSESSEE AS THE COMPANY IS ENGAGED IN PROVIDING END TO END SO LUTIONS AND ALSO DEALS IN SOFTWARE PRODUCTS AS WELL. 99. THE OVERVIEW OF THE COMPANY AT PAGE NO. 1238 OF THE PAPER BOOK CLEARLY SHOWS THAT THIS COMPANY IS PROVIDING A FULL RANGE OF CUSTOM IT SOLUTIONS (SUCH AS DEVELOPMENT, TESTING, MAINTENANCE, ACAP, PRODUCT EN GINEERING AND INFRASTRUCTURE MANAGEMENT SERVICES), PROPRIETARY SOF TWARE PRODUCTS AND CONSULTANCY SERVICES IN IT ON VARIOUS PLATFORMS AND TECHNOLOGIES. IT ALSO SHOWS THAT THIS COMPANY COMBINES HORIZONTAL EXPERTISE IN I T WITH ITS VERTICAL EXPERIENCE DEVELOPED BY WORKING IN A WIDE RANGE OF INDUSTRIES. 100. FURTHER, FROM THE TABLE OF FIXED ASSETS AT SCH EDULE 5 INCORPORATED AT PAGE NO. 1260 IT IS CLEAR THAT THERE HAS BEEN AN EXCEPTI ONAL CIRCUMSTANCE DURING THE YEAR, I.E. THE COMPANY HAS ACQUIRED INTELLECTUAL PROP ERTY RIGHTS IN THE NATURE OF COPYRIGHTS. 42 101. THE ASSESSEE HAS PLACED RELIANCE ON AIRCOM (SU PRA) WHEREIN, THIS COMPARABLE HAS BEEN EXCLUDED ON ACCOUNT OF HOLDING COPYRIGHTS FOR THE YEAR UNDER CONSIDERATION. RELEVANT EXTRACTS FROM THE ORD ER HAS BEEN REPRODUCED HEREUNDER: 20.1. THE ASSESSEE INITIALLY TREATED THIS COMPANY AS COMPARABLE IN ITS TP DOCUMENTATION. THE TPO OBTAINED INFORMATION FROM THIS COMPANY WHICH TRANSPIRED THAT IT WAS INTO SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE OBJECTED TO THE SAME BY CONT ENDING THAT IT HAD CERTAIN PECULIAR ECONOMIC CIRCUMSTANCES. NOT CO NVINCED WITH THE ASSESSEES SUBMISSIONS AND CONSIDERING THE INFOR MATION OBTAINED FROM THIS COMPANY U/S 133(6) OF THE ACT, T HE TPO TREATED IT AS COMPARABLE. THE ASSESSEE IS AGGRIEVED. 20.2. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT HAS COPYRIGHTS INCLUDED IN ITS SCHEDULE OF FIXED ASSETS WITH THE CLOSING WRITTEN DOWN VALUE AT RS.2.71 CRORE. TH IS COMPANY HAS ITS OWN SOFTWARE WITH THE CLOSING BALANCE OF RS.2.7 0 CRORE. SUCH SOFTWARE ARE ALSO APPEARING IN THE SCHEDULE OF FIXE D ASSETS OF THIS COMPANY ON STANDALONE BASIS. THIS SHOWS THAT THIS C OMPANY IS UTILIZING ITS SOFTWARE FOR RENDERING SOFTWARE DEVEL OPMENT SERVICES. IN CONTRAST, THE ASSESSEE IN QUESTION IS NOT HAVING ANY SOFTWARE TO BE USED IN RENDERING SOFTWARE DEVELOPMENT SERVICES. IT IS, THEREFORE, HELD THAT THIS COMPANY CANNOT BE CONSIDERED AS COMP ARABLE NOT ONLY BECAUSE OF USING ITS OWN SOFTWARE, BUT ALSO HA VING COPYRIGHTS WORTH RS.2.71 CRORE TO BE USED IN ITS BUSINESS. THE SE CRUCIAL FACTORS ARE ABSENT IN THE ASSESSEES CASE. WE, THEREFORE, OR DER FOR THE EXCLUSION OF THIS COMPANY. 102. PRECISELY FOR THE SAME REASON AS STATED IN THE ABOVE DECISION, WE ARE OF THE CONSIDERED OPINION THAT THIS COMPANY IS FIT TO BE EX CLUDED FROM THE LIST OF COMPARABLES. R SYSTEMS INTERNATIONAL (SEG.) 43 103. ASSESSEE OBJECTED THE INCLUSION OF THIS COMPAN Y IN THE SET OF COMPARABLES ON THE GROUND THAT THIS COMPANY WAS FUNCTIONALLY DIFF ERENT FROM THE ASSESSEE. HOWEVER, THIS COMPANY WAS SELECTED AS A COMPARABLE B Y THE TPO AND THE ASSESSEE HAS ARGUED FOR ITS EXCLUSION ON THE GROUND THAT IT FUNCTIONALLY DISSIMILAR TO THAT OF THE ASSESSEE AS THIS COMPANY IS ENGAGED I N THE OUTSOURCED PRODUCT DEVELOPMENT AND CUSTOMER SUPPORT SERVICES. FURTHER, IT ALSO OFFERS LOW END BPO SERVICES. PAGE NO. 9 OF THE ANNUAL REPORT OF THIS C OMPANY ESTABLISHES THIS FACT. 104. HAVING REGARD TO THE INFORMATION FURNISHED IN THE ANNUAL REPORT OF THIS COMPANY VIDE PAGE NUMBERS 1356, 1362, 1366, 1371, 1 378 AND 1380 OF THE PAPER BOOK, WE ARE CONVINCED THAT THAT THIS COMPANY IS NOT A PURE SOFTWARE SERVICE PROVIDER BUT IS ENGAGED IN DEVELOPMENT AND SALE OF PRODUCTS AND ON THE GROUND EXCLUDABLE FROM THE FINAL SET OF COMPARABLE COMPANI ES FOR BENCHMARKING INTERNATIONAL TRANSACTION RELATED TO SOFTWARE SEGME NT. SOFTSOL INDIA LIMITED (VERIFIABLE) 105. THE ASSESSEE OBJECTED THIS COMPANY FROM THE LIS T OF COMPARABLE WHILE PREPARING ITS TP STUDY ON THE GROUND OF RELATED PART Y TRANSACTIONS AND ALSO BASING ON THE STATEMENT IN THE ANNUAL REPORT TO THE EFFECT THAT THIS COMPANY IS A PROVIDER OF E-COMMERCE, NETWORK TECHNOLOGY, INTERNET INFRASTRUCTURE AND OTHER SPECIAL TECHNOLOGY AREAS AND HAS DIVERSE CLIENT BASE RANGING FROM LARGE CUSTOMERS TO SMALL HIGH-TECH START-UP COMPANIES. 106. LD. TPO OBSERVED THAT THE COMPANY AT PRESENT IS IN VARIOUS AREAS OF SOFTWARE DEVELOPMENT INDUSTRY AND WHAT IS STATED ABO VE IN THE ANNUAL REPORT IS A FUTURISTIC STATEMENT. LD. TPO REFERRED TO PARA 2.1 TO BE FOUND ON PAGE NO. 1533 OF THE PAPER BOOK TO THE EFFECT THAT NO INVENTORY IS HE LD, SINCE THE COMPANY IS 44 ENGAGED IN DEVELOPING SOFTWARE AND PROVIDING IT SOL UTIONS. THIS FACT EVIDENCES THAT THIS COMPANY IS CONFINED ONLY TO SOFTWARE DEVELO PMENT AND NO YET INTO NET WORK OR INTERNET INFRASTRUCTURE. EVEN THE PROFIT A ND LOSS ACCOUNT TO BE FOUND AT PAGE NO. 1536 ALSO SHOWS THAT OTHER THAN THE OTHER INCOME, THE COMPANY IS A DERIVING INCOME ONLY FROM SOFTWARE EXPORTS. EVEN TH E NOTE 15 OF THE NOTES ON ACCOUNT READS THAT THERE ARE NO SEPARATE REPORTABLE SEGMENTS. WE DO NOT FIND ANY MATERIAL FROM THE RECORD THAT THIS COMPANY HAS AC TUALLY BEEN ENGAGED IN THE ACTIVITIES LIKE A) BUSINESS OF SOFTWARE PRODUCTS B) SOFTWARE DEVELOPMENT C) TRAINING SERVICES; AND D) MANUFACTURE OF VIDE RANGE OF PRODUCTS OR THAT IT PROVIDES END TO END BUSINESS SOLUTIONS. 107. WE THEREFORE FIND IT DIFFICULT THAT THIS COMPA NY IS FUNCTIONALLY DIFFERENT FROM THE ASSESSEE OR THAT IT IS NOT A GOOD COMPARAB LE FOR WANT OF ANY SEGMENTAL INFORMATION OR RELATED PARTY INFORMATION. WE, THEREF ORE, FIND THAT THIS COMPANY HAS TO BE RETAINED AS A GOOD COMPARABLE IN THE FINA L LIST OF COMPARABLES. TATA ELXSI LIMITED (SEGMENTAL) 108. AT THE OUTSET IT IS BROUGHT TO OUR NOTICE THAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08, A COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED THE FUNCTIONAL SIMILARITY OF THIS COMPARABLE WITH THE AS SESSEE AND FOUND THAT THIS COMPANY IS NOT A SUITABLE COMPARABLE IN VIEW OF ITS DIFFERENT FUNCTIONS. 109. ON A PERUSAL OF THE ORDER DATED 18/05/2016 IN ITA NO. 5837/DELHI/2011 IN ASSESSEES OWN CASE, WE FOUND THAT THIS ASPECT OF S UITABILITY OF THIS COMPANY AND ITS FUNCTIONAL SIMILARITY WAS CONSIDERED BY THIS TRI BUNAL. VIDE PARAGRAPH NO. 51 TO 53 THIS TRIBUNAL REACHED A CONCLUSION THAT THIS COM PARABLE COMPANY IS DEVELOPING 45 HARDWARE AND SOFTWARE FOR EMBEDDED PRODUCTS, SUCH A S, MULTIMEDIA AND OTHER ELECTRONICS ETC AND IS ALSO MAKING SOME PROGRAMS DE VELOPING TECHNOLOGY IN THE FORM OF INTELLECTUAL PROPERTY, AS SUCH THE FUNCTIONA L PROFILE OF THE ASSESSEE COMPANY IS NOT COMPARABLE TO THIS COMPANY. 110. FURTHER, THE APPELLANT HAS PLACED RELIANCE ON AIRCOM (SUPRA), IN ORDER TO EXCLUDE THIS COMPARABLE COMPANY. THE COORDINATE BENC H HAS REJECTED THIS COMPARABLE BY MAKING FOLLOWING OBSERVATIONS:- 22.2. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE TPO H AS ADOPTED SOFTWARE DEVELOPMENT AND SERVICES SEGMENT WHICH, IN TURN, CONSISTS OF THREE SUB-SEGMENTS, NAMELY, PRODUCT DES IGN SERVICES (DESIGN AND DEVELOPMENT OF HARDWARE AND SOFTWARE), INNOVATION DESIGN AND ENGINEERING (MECHANICAL DESIGN WITH A FO CUS ON INDUSTRIAL DESIGN) AND VISUAL COMPUTING LABS (ANIMA TION AND VISUAL EFFECTS). SINCE THIS COMPANY OFFERS INTEGRATED HARD WARE AND PACKAGED SOFTWARE SOLUTIONS, THE SAME CANNOT BE CON SIDERED AS COMPARABLE WITH THE ASSESSEE COMPANY, WHICH IS SIMP LY PROVIDING SOFTWARE RELATED SERVICES. THE TRIBUNAL IN TOLUNA I NDIA PVT. LTD. VS. ACIT (2014) 151 ITD 177 (DELHI) AND MOTOROLA SOLUTI ONS INDIA PVT. LTD. (SUPRA), BOTH OF WHICH WERE RENDERING SOFTWARE DEVELOPMENT SERVICES, HAS TREATED THIS COMPANY AS FUNCTIONALLY NOT COMPARABLE. WE, THEREFORE, ORDER FOR THE EXCLUSION OF THIS COMP ANY FROM THE LIST OF COMPARABLES. 111. NO CHANGE OF CIRCUMSTANCES IS BROUGHT TO OUR N OTICE EITHER BY THE ASSESSEE OR BY THE REVENUE, AS SUCH, BY RESPECTFULLY FOLLOWING THE REASONING OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR, WE CONCLUDE THAT THIS COMPANY IS NOT A SUITABLE ONE TO BE CONTINUED IN THE SET OF COMPARABLES. WE THEREFORE DIRECT THE EXCLUSION OF THIS COMPANY FROM THE FINAL SET OF COMPARABLE COMPANIES FOR BENCHMARKING INTERNATIONAL TRANSACTIO N RELATED TO SOFTWARE SEGMENT. 46 COMPARABLE COMPANIES SOUGHT TO BE INCLUDED BY THE A PPELLANT FOR BENCHMARKING OF ITS INTERNATIONAL TRANSACTION CG VAK SOFTWARE EXPORTS LIMITED 112. ASSESSEE SELECTED THIS COMPANY AS A COMPARABLE. THOUGH THE LD. TPO DID NOT DISPUTE THE FUNCTIONAL SIMILARITY OF THIS COMPA NY WITH THE ASSESSEE, REJECTED THE SAME ON THE GROUND THAT THIS COMPANY DID NOT SAT ISFY THE EMPLOYEE COST FILTER OF 25% AND THAT ITS EXPENDITURE ON EMPLOYEES WAS ONL Y 4.41% OF THE TOTAL COST. LD. DRP DID NOT ENTERTAIN THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THAT THE LD. TPO HAS ERRED IN NOT INCLUDING THE COST OF SERVICES WHICH REPRESENTED THE EXPENDITURE ON SALARY AND OWING TO THIS ERROR THE EM PLOYEE COST HAS COME DOWN TO 4.41%. 113. ON THIS ASPECT, ASSESSEE PLACED RELIANCE ON TH E ORDER OF A CO-ORDINATE BENCH PASSED IN THE CASE OF SAIC INDIA (P.) LTD. VS . DCIT [2016] 71 TAXMANN.COM 237 (DELHI - TRIB.) WHEREIN WHILE DEALING WITH THE SAID COMPARABLE FOR AY 2008-09 IT HAS BEEN HELD AS UNDER:- 49. LD. TPO REJECTED THIS COMPANY AS A COMPARABLE ON THE GROUND THAT IT FAILS EMPLOYEE COST FILTER; THAT EMPLOYEES COST SHO ULD BE MORE THAT 25% OF THE TOTAL COST WHEREAS ASSESSEE FOR BENCHMARKING IN TERNATIONAL TRANSACTION APPLIED THE FILTER OF EMPLOYEES COST MO RE THAN 25% OF THE TOTAL SALES. HOWEVER, ASSESSEE COMPANY PROVED ON RECORD T HAT EMPLOYEES COST (COST OF SERVICE) AS PERCENTAGE OF THE TOTAL REVENU E OF THE COMPANY IS 75.55%. DURING THE COURSE OF ARGUMENT, LD. AR FOR T HE ASSESSEE HAS FAIRLY CONCEDED THAT FILTER OF EMPLOYEES COST MORE THAN 25 % OF TOTAL COST IS TO BE APPLIED IN THIS CASE. 50. ASSESSEE BROUGHT ON RECORD PROFIT AND LOSS ACCO UNT FOR THE YEAR ENDING 31.03.2008 LYING AT PAGES 771 TO 775 WHEREIN IN COL UMN NO.15 COST OF SERVICES HAS BEEN DULY DESCRIBED. WHEN THE FILTER O F EMPLOYEES COST MORE THAN 25% OF TOTAL COST IS TO BE APPLIED OF COST OF SERVICES DESCRIBED IN COLUMN NO.15 AT PAGE 774 OF VOLUME IV OF PAPER BOOK , ALL THE COST OF 47 SERVICES ARE TO BE TREATED AS SALARY AND THIS COMPA RABLE COMPANY QUALIFIES FOR INCLUSION IN THE FINAL LIST O COMPARABLES. SO, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE IS AGAIN REQUIRED TO BE RECONS IDERED BY THE TPO BY TAKING INTO ACCOUNT THE COST OF SERVICES WHILE APPL YING THE FILTER OF EMPLOYEES COST OF MORE THAN 25% OF TOTAL COST. SO, WE HEREBY RESTORE THE ISSUE TO THE TPO TO DECIDE AFRESH BY PROVIDING OPPO RTUNITY OF BEING HEARD IN THE LIGHT OF THE OBSERVATION MADE HEREIN BEFORE. 114. RELIANCE IN THIS REGARD IS PLACED ON ANOTHER O RDER OF THE CO-ORDINATE BENCH IN THE CASE OF TATA MCGRAW HILL EDUCATION (P.) LTD. VS. ACIT [2016] 69 TAXMANN.COM 418 (DELHI - TRIB.) WHEREIN IT HAS BEEN HELD AS UNDER:- 22. AS REGARDS CG VAK SOFTWARE & EXPORTS LTD., THE OBJECTIONS OF LD. TPO WERE THAT THIS COMPARABLE WAS FUNCTIONALLY NOT COMP ARABLE TO THE TESTED PARTY AS IT HAD EMPLOYEE COMPENSATION LESS THAN 25% AND HENCE IT FAILED EMPLOYEE COST FILTER. 23. BEFORE LD. DRP THE ASSESSEE POINTED OUT THAT TH E EMPLOYEE COST (COST OF SERVICES) AS PERCENTAGE OF TOTAL REVENUE OF THE COM PANY WAS 75.55%. LD. DRP DID NOT ACCEPT THE ASSESSEE'S CONTENTION THAT C OST OF SERVICES SHOULD BE TAKEN AS REMUNERATION TO EMPLOYEES BY OBSERVING THAT IN THE ANNUAL REPORT OF THE COMPANY THERE WAS NO EXPENSE SUCH AS 'SALARY COST' OR 'REMUNERATION TO EMPLOYEES' IN ITS P&L A/C. LD. DRP OBSERVED THAT ASSESSEE WAS DRAWING CONCLUSIONS ON THE BASIS OF UNSUBSTANTI ATED PRESUMPTIONS AND WHENEVER THERE IS DOUBT ABOUT THE FUNCTIONAL CO MPARABILITY, IT IS BETTER TO DROP SUCH COMPARABLE RATHER THAN INDULGING IN PR ESUMPTIONS. LD. DRP DID NOT ACCEPT THE ASSESSEE'S CONTENTION THAT SOME COMPANIES MAY INCLUDE EMPLOYEE COST AS A SEPARATE ITEM IN THEIR FINANCIAL STATEMENTS WHILE OTHERS MAY AGGREGATE IT UNDER THE EXPENSES SUCH AS ADMINIS TRATIVE EXPENSES, SALES AND MARKETING EXPENSES ETC. LD. DRP OBSERVED THAT EMPLOYEE COST IS ALWAYS SHOWN AS A DIFFERENT LINE ITEM IN THE PROFIT AND LOSS ACCOUNT. 24. LD. COUNSEL SUBMITTED THAT THIS COMPARABLE HAS BEEN ACCEPTED IN THE CASE OF KENEXA TECHNOLOGIES PVT. LTD. (PAGE 254 OF THE PB). LD. COUNSEL SUBMITTED THAT THIS COMPARABLE PASSES THE EMPLOYEE COST FILTER OF MORE THAN 25% AS ADOPTED BY LD. TPO. HE SUBMITTED THAT T HE EMPLOYEE COST IS 46% OF THE TOTAL COST. IN THIS REGARD LD. COUNSEL R EFERRED TO PAGES 56 & 57 OF THE PB, WHEREIN THE OBJECTIONS RAISED BEFORE LD. DRP ARE CONTAINED IN WHICH IT WAS POINTED OUT THAT LD. TPO NOWHERE CITED ANY INSTANCES OF FUNCTIONAL DISSIMILARITY OF THIS COMPANY VIS-A-VIS THE ASSESSEE. FURTHER, AT 48 PER PAGE 21 OF THE ANNUAL REPORT OF THIS COMPANY, S CHEDULE 15 TO ACCOUNTS, COST OF SERVICES HAS BEEN SHOWN AS UNDER: COST OF SERVICES AMOUNT (RS.) COST OF SERVICES- OVERSEAS 2,46,69,456 COST OF SERVICES- DOMESTIC 1,78,34,926 TRANSCRIPTION CHARGES 11,63,991 WEB DESIGNING CHARGES 97,333 STAFF WELFARE 8,29,092 STAFF TRAINING 3,74,302 CONTRIBUTION TO PF & ESI 12,04,280 GRATUITY 38,270 EX GRATIA 1,28,951 HRD EXPENSES 8,66,766 TOTAL 4,72,07,367 FURTHER, IN THE ANNUAL REPORT OF THE COMPANY, THERE WAS NO EXPENSE, SUCH AS SALARY COST OR REMUNERATION TO EMPLOYEES. 25. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES. WE ARE IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THA T SINCE THERE WAS NO SEPARATE EXPENDITURE SHOWN UNDER THE HEAD 'SALARY/ REMUNERATION', THE SUB-HEAD 'COST OF SERVICE', PRIMARILY REFERS TO EMP LOYEES COST. THE ITEMS UNDER THIS SUB-HEAD SUCH AS CONTRIBUTION TO PF, ESI , GRATUITY AND EX GRATIA PAYMENT CLEARLY SHOWS THAT ALL THESE EXPENSES WERE TOWARDS EMPLOYEES REMUNERATION. WE, THEREFORE, RESTORE THIS MATTER TO THE FILE OF TPO TO APPLY THE EMPLOYEE FILTER CORRECTLY AND IF IT IS FOUND TH AT THE EMPLOYEE COST IS MORE THAN 25% THEN THIS COMPARABLE IS TO BE INCLUDE D IN THE LIST OF COMPARABLES SELECTED BY TPO. 115. WE HAVE GONE THROUGH THE ANNUAL REPORT OF THE ASSESSEE COMPANY FOR THE YEAR 2008. IN SCHEDULE 15 THEREOF INCORPORAT ED AT PG. 21 OF THE HAND OUT 49 UNDER THE HEAD COST OF SERVICES THERE IS A MENTIO NING OF THE AMOUNTS OF RS. 2,46,69,456/- & 1,78,34,926/-. SINCE THERE IS NO SE PARATE EXPENDITURE SHOWN UNDER THE HEADING SALARY/REMUNERATION, THE SUBHEAD COST OF SERVICE INVARIABLY REFERS TO EMPLOYEES COST. IN VIEW OF THE FINDINGS OF A COORDINATE BENCH OF THIS TRIBUNAL IN SAIC (SUPRA), WE FIND THAT THIS COST OF SERVICE WAS TOWARDS EMPLOYEES REMUNERATION. WITH THIS VIEW OF THE MATTE R, WE SET ASIDE THIS ISSUE TO THE FILE OF THE LD. TPO/AO TO APPLY THE EMPLOYEE COS T FILTER CORRECTLY AND IF IT IS FOUND THAT THE EMPLOYEE COST IS MORE THAN 25% THEN T HIS COMPARABLE IS TO BE INCLUDED IN THE LIST OF COMPARABLES SELECTED BY THE LD. TPO. SIP TECHNOLOGIES LIMITED: 116. THIS COMPANY SELECTED BY THE ASSESSEE WAS REJECT ED BY THE TPO ON THE GROUND OF DIMINISHING REVENUES. LD. DRP ALSO HELD T HAT THE COMPANIES HAVING DIMINISHING REVENUES/PERSISTENT LOSSES FOR THE PREV IOUS 3 YEARS WERE EXCEPTIONS AND REFUSED TO INTERFERE WITH THE FINDINGS OF THE L D. TPO. 117. IT IS SUBMITTED BY THE LD. AR THAT THIS COMPANY WAS ACCEPTED AS FUNCTIONALLY COMPARABLE TO THE ASSESSEE BY THE DEPARTMENT AS WEL L AS BY A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE PRE VIOUS ASSESSMENT YEAR OF 2007 08. IT IS ARGUED BY THE LD. AR THAT THE DIMINISHING REVENUE FILTER IS INVALID FOR THE SIMPLE REASON THAT REVENUE IS NOT A TRUE INDICATOR OF THE PERFORMANCE OF COMPANY AS DURING ITS BUSINESS LIFE CYCLE OWING TO CHANGING ECONOMIC CONDITIONS, A COMPANY COULD HAVE VARIATION IN ITS REVENUE PATTERN OVER A PERIOD OF TIME. FOR EXAMPLE A COMPANY WITH INCREASING REVENUES OVER A PE RIOD OF TIME DOES NOT NECESSARILY REFLECT THAT IT IS PERFORMING BETTER AS THE CORRESPONDING INCREASE IN EXPENSES COULD BE HIGHER THAN REVENUES AND THE COMP ANY MIGHT STILL INCUR LOSSES. 50 SIMILARLY, A COMPANY WITH DIMINISHING REVENUES OVER A PERIOD OF TIME NEED NOT IMPLY THAT THE PERFORMANCE OF THE COMPANY IS DETERIOR ATING AS IT MIGHT STILL HAVE GOOD PROFIT MARGIN ON ACCOUNT OF COST EFFICIENCY I.E . MINIMIZING/ REDUCING ITS EXPENSES. THEREFORE, THE NET OPERATING MARGIN OF TH E COMPANY WITH INCREASING REVENUES OVER A PERIOD OF TIME IS A BETTER INDICAT OR OF THE PERFORMANCE OF THE COMPANY. THUS IT IS SUBMITTED THAT EXCLUDING COMPAN IES HAVING PERSISTENT LOSSES IS A MORE APPROPRIATE FILTER AND ON THIS BASIS, ASS ESSEE HIMSELF HAS EXCLUDED COMPANIES WHICH HAVE SHOWN PERSISTENT LOSSES. IT IS FURTHER SUBMITTED BY THE LD. AR THAT THE LD. DRP AS WELL AS TPO HAS TAKEN A STA ND THAT SUCH DIMINISHING REVENUE GOES AGAINST THE INDUSTRY TREND, THAT THERE CAN BE NOTHING FARTHER FROM THE TRUTH AS VARIANCE IN PROFITABILITY IS THE VERY ES SENCE OF BUSINESS AND WHICH MORE THAN DEMONSTRATES THE ARMS LENGTH CHARACTER P REVALENT IN A FREE MARKET ECONOMY, AND IT WOULD DEFY COMMERCIAL LOGIC AND RATIO NALE, AND ECONOMIC BUSINESS CYCLE IF EVERY COMPANY WERE TO ONLY MAKE PROFI TS AND INCREASE PROFITS YEAR AFTER YEAR. LOW PROFITS IN SOME YEARS AND LOSSES IN SOME YEARS IS A BUSINESS REALITY. IF ONE WERE TO GO WITH THE LOGIC ASSUMED BY THE LEARNED TPO, EVERY COMPANY SHOULD HAVE INCREASING REVENUES AND THE COMP ANY WHICH HAS LOWER PROFITS OR RETURNS LOSSES SHOULD DISCONTINUE BUSINE SS OPERATIONS BECAUSE IT WOULD NOT REPRESENT AN ARMS LENGTH NATURE OF BUSINESS. 118. LD. AR SUBMITS THAT THIS POSITION HAS NOW BEEN ACCEPTED BY THE DELHI HIGH COURT AND VARIOUS BENCHES OF THIS TRIBUNAL. IN A R ECENT ORDER PASSED BY THE CO- ORDINATE BENCH IN CASE OF AITHENT TECHNOLOGIES (P.) LTD. VS. DCIT [2016] 74 TAXMANN.COM 214 (DELHI-TRIB.) ON THE ADOPTION OF DI MINISHING REVENUE FILTER IT HAS BEEN HELD AS UNDER:- 51 14.3 A CAREFUL PERUSAL OF THE PATTERN OF PROFIT/LO SS EARNED BY THE ASSESSEE AS PER ITS AUDITED ACCOUNTS DIVULGES THAT AS AGAINS T THE CURRENT YEAR'S PROFIT OF RS. 62.39 LAC, THE EARLIER YEARS' PROFIT WAS RS. 92.74 LAC. THIS MANIFESTS THAT THE PROFIT FOR THIS YEAR HAS DIMINISHED FROM T HE EARLIER YEAR. WHEN WE CONSIDER THE FIGURES OF LOSSES FOR THE FINANCIAL YE ARS 2005-06 AND EARLIER YEARS, IT COMES TO LIGHT THAT THERE WERE LOSSES RIG HT FROM FINANCIAL YEAR 2002-03 UP TO 2005-06. ON AN OVERVIEW OF THE ABOVE EXTRACTED TABLE, IT CAN BE SEEN THAT THE ASSESSEE'S PROFIT IS NOT STEAD Y, BUT, HAS DIMINISHED DURING THE INSTANT YEAR FROM THE PRECEDING YEAR. IN SUCH A SITUATION, IF WE EXCLUDE THE COMPANIES HAVING DIMINISHING PROFITS, I T WOULD MEAN THAT THE COMPANIES WHOSE PROFIT PATTERN IS ALSO SIMILAR TO T HAT OF THE ASSESSEE WOULD FACE THE AXE. DOING SO WOULD MEAN EXCLUDING T HE COMPARABLE COMPANIES FROM THE FINAL TALLY, WHICH IS NOT APPROP RIATE. HOWEVER, THE COMPANIES HAVING PERSISTENT LOSSES, OBVIOUSLY, CANN OT BE COMPARED WITH THE ASSESSEE BECAUSE IT HAS EARNED POSITIVE INCOME NOT ONLY IN THIS YEAR, BUT, IN THE PRECEDING YEAR AS WELL. WE, THEREFORE, HOLD THAT THE COMPANIES HAVING DIMINISHING REVENUE SHOULD NOT BE EXCLUDED, BUT, ONLY THE COMPANIES HAVING PERSISTENT LOSSES SHOULD BE EXPELL ED FROM THE FINAL TALLY OF COMPARABLES. 119. WHILE FOLLOWING THE DECISION OF THE HON'BLE DE LHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P.) LTD. T HIS VIEW HAS FURTHER BEEN AFFIRMED BY ANOTHER CO-ORDINATE BENCH OF THIS ITAT I N CASE OF VESTERGAARD ASIA (P.) LTD. VS. DCIT [2017] 88 TAXMANN.COM 313 (DELHI-TRIB .) WHEREIN THE COURT HAS OBSERVED THAT :- 28. THIS COMPARABLE SOUGHT TO BE INCLUDED BY THE A SSESSEE WAS REJECTED BY THE TPO ON THE GROUND THAT ITS REVENUE IS CONTIN UOUSLY DIMINISHING OVER THE YEARS. 30. THE LD. DR ON THE OTHER HAND ARGUED THAT THE RE VENUE OF THE COMPANY HAS BEEN REDUCING OVER A NUMBER OF YEARS. THIS FACT INDICATES THAT THE COMPANY IS UNDERGOING ABNORMAL/EXCEPTIONAL CIRCUMST ANCES AND THEREFORE ITS MARGINS CANNOT BE TAKEN AS REFLECTING THOSE OF THE INDUSTRY. HE VEHEMENTLY ARGUED THAT THIS COMPANY SHOULD BE EXCLU DED FROM THE COMPARABILITY ANALYSIS. . 52 33. AS REGARDS THE ARGUMENT OF DIMINISHING REVENUE, WE NOTE THAT THE REDUCTION OF REVENUE FROM FY 2009-10 (3.99 CRORE) T O FY 2010-11 (3.98 CRORE) IS APPROXIMATELY RS. 1 LAC. IN OUR VIEW, SUC H A MINOR DIFFERENCE IN REVENUE CANNOT BE TAKEN TO MEAN THAT THE COMPANY IS UNDERGOING ABNORMAL CIRCUMSTANCES AND SHOULD BE REJECTED. EVEN OTHERWISE, IF THE FUNCTIONAL SIMILARITY OF THE COMPANY WITH THE ASSES SEE IS ACCEPTED, THE SAME SHOULD NOT BE REJECTED SIMPLY BECAUSE OF DIFFE RENCE IN REVENUE. OUR VIEW IS SUPPORTED BY THE DECISION OF THE HON'BLE DE LHI HIGH COURT IN THE CASE OF CHRYSCAPITAL INVESTMENT ADVISORS (INDIA) (P .) LTD. (SUPRA), IN WHICH IT WAS OBSERVED: '33. SUCH BEING THE CASE, IT IS CLEAR THAT EXCLUSI ON OF SOME COMPANIES WHOSE FUNCTIONS ARE BROADLY SIMILAR AND WHOSE PROFI LE - IN RESPECT OF THE ACTIVITY IN QUESTION CAN BE VIEWED INDEPENDENTLY FR OM OTHER ACTIVITIES- CANNOT BE SUBJECT TO A PER SE STANDARD OF LOSS MAKI NG COMPANY OR AN 'ABNORMAL' PROFIT MAKING CONCERN OR HUGE OR 'MEGA' TURNOVER COMPANY. AS EXPLAINED EARLIER, RULE JOB (2) GUIDES THE SIX M ETHODS OUTLINED IN CLAUSES (A) TO (F) OF RIDE 10B(1), -WHILE JUDGING COMPARABI LITY. RULE JOB (3J ON THE OTHER HAND INDICATES THE APPROACH TO BE ADOPTED WHE RE DIFFERENCES AND DISSIMILARITIES ARE APPARENT. THEREFORE, THE MERE C IRCUMSTANCE OF A COMPANY - OTHERWISE CONFORMING TO THE STIPULATIONS IN RULE 10B (2) IN ALL DETAILS, PRESENTING A PECULIAR FEATURE - SUCH AS A HUGE PROFIT OR A HUGE TURNOVER, IPSO FACTO DOES NOT LEAD TO ITS EXCLUSION . THE TPO, FIRST, HAS TO BE SATISFIED THAT SUCH DIFFERENCES DO NOT 'MATERIALLY AFFECT THE PRICE...OR COST'; SECONDLY, AN ATTEMPT TO MAKE REASONABLE ADJUSTMENT TO ELIMINATE THE MATERIAL EFFECT OF SUCH DIFFERENCES HAS TO BE MADE. ' IN LIGHT OF THE ABOVE, WE DIRECT THE TPO TO INCLUDE THIS COMPANY IN THE LIST OF COMPARABLES. 120. WITH REGARDS TO REVENUES STAND THAT SIP TECHN OLOGIES NEED TO BE REJECTED ON THE GROUND THAT IT SUFFERED LOSSES, IT IS SUBMIT TED ON BEHALF OF THE ASSESSEE THAT FOR THE FILTER OF PERSISTENT LOSSES TO COME INTO PL AY IT SHOULD BE SHOWN THAT THE COMPARABLE UNDER DISPUTE HAS INCURRED LOSSES FOR TH REE PRECEDING YEARS INCLUDING THE ASSESSMENT YEAR IN QUESTION. RELIANCE IN THIS R EGARD IS PLACED ON THE PUNE ITAT ORDER IN CASE OF BOBST INDIA (P.) LTD. VS. DCI T [2015] 63 TAXMANN.COM 339 (PUNE-TRIB.) WHEREIN THE BENCH OBSERVED THAT A COMP ANY CAN BE REJECTED AS PERSISTENT LOSS MAKER ONLY IF IT HAS INCURRED LOSSE S FOR MORE THAN 3 YEARS. IN THE 53 PRESENT CASE IN THE IMMEDIATE PRECEDING YEAR THE COM PARABLE COMPANY HAS SHOWED OPERATING PROFIT OF 13.90%, THUS, AS THE COM PANY HAS NOT SUFFERED LOSSES AND ITS FUNCTIONALITY HAS NOT BEEN CHALLENGED BY THE TPO, IT BECOMES CLEAR THAT THERE IS NO VALID GROUND TO EXCLUDE THIS COMPANY AS COMPARABLE. 121. ON A CAREFUL CONSIDERATION OF THE FACTUAL AND LEGAL POSITION, WE FIND THAT THIS COMPANY IS A VALID COMPARABLE TO THE ASSESSEE A ND, THEREFORE, HAS TO BE INCLUDED IN THE FINAL SET OF COMPARABLES. INDIUM SOFTWARE INDIA LTD. 122. THIS COMPANY WAS SELECTED AS COMPARABLE BY THE A SSESSEE IN ITS TP STUDY, BUT THIS COMPANY WAS REJECTED BY THE LD. TPO ON THE G ROUND THAT THIS COMPANY WAS ENGAGED IN SOFTWARE TESTING AND THUS WAS NOT FU NCTIONALLY COMPARABLE TO ASSESSEE. 123. LD. AR ARGUED FOR THE INCLUSION OF THIS COMPAN Y ON THE GROUND THAT INDIUM SOFTWARE (INDIA) LIMITED IS AN STPI UNIT REGISTERED UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA, AND IS PROVEN LEADER IN OFFERING TES TING SERVICES ACROSS A WIDE RANGE OF TECHNOLOGIES.. FURTHER THE ASSESSEE RELIED ON S CHEDULE 13 OF THE P&L WHICH SHOWS THAT INDIUM SOFTWARE IS GENERATING REVENUE TH ROUGH SOFTWARE SERVICES. IT CAN BE SEEN THAT ONE OF THE ACTIVITIES UNDERTAKEN B Y THE ASSESSEE IS TESTING SERVICES FOR ITS AES, WHICH FURTHER, CORROBORATES T HE SELECTION OF INDIUM AS A COMPARABLE. 124. WE HAVE GONE THROUGH THE ORDER OF THE LD. TPO AND VIDE PARAGRAPH NUMBER 10.5.1 IT IS RECORDED THAT THE INDIUM SOFTWARE HAS BEEN A LEADING SOFTWARE TESTING/QA SERVICES COMPANY FOCUSING ON INDEPENDENT OBJECTIVE AND HIGHLY 54 SPECIALIZED IN SOFTWARE TESTING. THE PROFIT AND LOS S ACCOUNT OF THIS COMPANY UNDER THE HEAD INCOME SHOWS THAT THE REVENUE IS BUNDLED U P FOR BOTH SOFTWARE SERVICES AND TRAINING, BESIDES SALES OF SOFTWARE AND OTHER I NCOME. IN SCHEDULE 12 OF THE PROFIT AND LOSS ACCOUNT, SOFTWARE SERVICES AND TRAI NING BIFURCATED THE INCOME FROM SOFTWARE SERVICES IN EXPORT AND DOMESTIC SEGME NTS. NO SEPARATE FINANCIALS IN THE LINES OF FUNCTIONAL SEGMENTS OF SOFTWARE SER VICES AND TRAINING ARE AVAILABLE. FURTHER, SOFTWARE TESTING IS ONLY A PART OF SOFTWARE DEVELOPMENT IN WHICH THE ASSESSEE IS, AND SOFTWARE TESTING CANNOT BE COMPARE D TO THE WHOLE SEGMENT OF DEVELOPMENT OF SOFTWARE. 125. WITH THIS VIEW OF THE MATTER WE DO NOT FIND TH IS COMPANY TO BE A GOOD COMPARABLE TO THE ASSESSEE AND ON THIS PREMISE WE R EJECT THE CONTENTION OF THE ASSESSEE. FINDINGS OF THE LD. TPO AND THE LD. DRP A RE CONFIRMED. WORKING CAPITAL ADJUSTMENT: 126. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE TPO HAS NOT GIVEN WORKING CAPITAL ADJUSTMENT TO ACCOUNT FOR DIFFERENCE IN WOR KING CAPITAL EMPLOYED BY THE ASSESSEE. WHILE REJECTING THE OBJECTIONS RAISED BY T HE ASSESSEE, LD. DRP OBSERVED THAT . TO CARRY OUT THE ADJUSTMENT, THE AVAILABILITY O F RELEVANT INFORMATION TO ACCURATELY IDENTIFY THE DIFFERENCE AND THEN QUANTIF Y IMPACT OF SUCH DIFFERENCE IS A PRE-REQUISITE. IN THIS CASE, WE ONL Y KNOW THE AMOUNT OF WORKING CAPITAL DEPLOYED BY THE COMPARABLES ON THE FIRST AND LAST DAY OF THE ACCOUNTING PERIOD. WE HAVE NO MEANS TO ASCERTAI N THE WORKING CAPITAL DEPLOYED BY THE COMPARABLES THROUGH THE YEAR. IN FA CT, THE WORKING CAPITAL ADJUSTMENT SHOULD BE COMPUTED ON THE BASIS DAILY AV ERAGE OF WORKING CAPITAL DEPLOYED BY THE TESTED PARTY AND EACH OF CO MPARABLES, RESPECTIVELY. THE ASSESSEE HAS TAKEN THE AVERAGE OF THE AMOUNT OF WORKING CAPITAL DEPLOYED BY THE COMPARABLES ON THE FIRST AND LAST D AY OF THE ACCOUNTING 55 PERIOD TO COMPUTE THE WORKING CAPITAL ADJUSTMENT. I T IS QUITE PROBABLE THAT DAILY AVERAGE IS SUBSTANTIALLY DIFFERENCE FROM THE AVERAGE OF THE AMOUNT OF WORKING CAPITAL DEPLOYED BY THE COMPARABLES ON THE FIRST AND LAST DAY OF THE ACCOUNTING PERIOD. THE ADJUSTMENT FOR FUNCTIONA L DIFFERENCES ETC. IS TO BE ALLOWED ONLY IF IT CAN BE ASCERTAINED WITH REASO NABLE ACCURACY WHICH IS IMPOSSIBLE IN THIS CASE BECAUSE OF UNAVAILABILITY O F RELEVANT DATA. THEREFORE, THIS PANEL ENDORSES THE PROPOSAL OF THE AO TO DISALLOW THE WORKING CAPITAL ADJUSTMENT CLAIMED BY THE ASSESSEE . 127. REVENUE DOES NOT DISPUTE THE SUBMISSION ON BEH ALF OF THE ASSESSEE THAT THE WORKING CAPITAL ADJUSTMENT WAS GIVEN BY THE TPO IN PREVIOUS ASSESSMENT YEAR (AY 2007-08). 128. ASSESSEE ALSO RELIED UPON THE ORDER OF THIS TR IBUNAL IN SAIC INDIA (P.) LTD. V.DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 7(1), NE W DELHI - [2016] 71 TAXMANN.COM 237 (DELHI - TRIB.)/[2016] 181 TTJ 145 (DELHI - TRIB.) DEALING WITH THE SIMILAR ISSUE. IT WAS HELD AS FOLLOWS: 53. HOWEVER, LD. AR CONTENDED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN CASE CITED AS QUALCOM INDIA (P.) LT D. V. ASSTT. CIT [2014] 147 ITD 17/[2013] 37 TAXMANN.COM 306 (DELHI - TRIB.). 54. COORDINATE BENCH IN THE JUDGMENT CITED AS QUALC OM INDIA PVT. LTD. (SUPRA) DETERMINED THE ISSUE OF WORKING CAPITAL ADJ USTMENT TO ACCOUNT FOR DIFFERENCE IN WORKING CAPITAL EMPLOYED BY ASSESSEE VIS--VIS COMPARABLE COMPANIES IN FAVOUR OF THE ASSESSEE BY MAKING FOLLO WING OBSERVATIONS : '41. CONSIDERING THE ABOVE SUBMISSIONS WE CONCUR WI TH THE SUBMISSION OF THE LD. DR THAT THE ISSUE RAISED IN G ROUND NO. 6 & 7 ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT AND RISK ADJU STMENT DEPEND UPON THE FACT AND CIRCUMSTANCES OF EACH CASE. BUT A T THE SAME TIME WE ARE OF THE VIEW THAT THESE FACTORS ARE EQUALLY I MPORTANT TO CONSIDER WHILE SELECTING COMPARABLE COMPANIES. IN T HE PRESENT CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND PROVIDING MARKETING SERVICES, HENCE THERE IS NO DISPUTE THAT APPROPRIATE ADJUSTMENT TO ACCOUNT FOR DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE ASSESSEE VIS-A-VIS THE COMPARABLE C OMPANIES FOR SOFTWARE DEVELOPMENT SERVICES IS REQUIRED TO BE CON SIDERED. 56 SIMILARLY MAKING OF SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE RISK PROFILE OF THE ASSESSEE VIS. A VIS. THE COMPARABLE COMPANIES FOR SOFTWARE DEVELOPMENT SERVICES IS ALSO REQUIRED TO BE CONSIDERED. OF COURSE THESE ADJUSTMENTS ON ACCOUNT OF WORKING CAPITAL AND RISK IS TO BE MADE AFTER ANALYZING THE CASE OF THE ASSESSEE SINCE IT DEPENDS UPON THE FACTS OF THE CAS E OF THE ASSESSEE. THE REQUEST FOR SUCH ADJUSTMENTS CANNOT BE SUMMARIL Y REJECTED UNLESS SOME ANALYSIS OF THE CASE OF THE ASSESSEE IS MADE VIS-A-VIS COMPARABLES COMPANIES. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE LD. TPO/AO TO CONSIDER THESE ASPECT OF ADJUSTME NT WHILE DECIDING THE ISSUE AFRESH VIS-A-VIS THE COMPARABLE COMPANIES IN THE BUSINESS OF SOFTWARE DEVELOPMENT AS DISCUSSED HEREI NABOVE IN THE PRESENT ORDER OF THE TRIBUNAL. IT IS NEEDLESS TO ME NTION OVER HERE THAT WHILE CONSIDERING THESE ASPECTS OPPORTUNITY WO ULD BE GIVEN TO THE ASSESSEE TO PRESENT ITS CASE IN THIS REGARD. TH E ASSESSEE IS REQUIRED TO COOPERATE WITH THE LD. TPO IN FURNISHIN G THE DETAILS, BREAK UP, DATAS, ETC. OR ANY OTHER NECESSARY INFORM ATION TO THE SATISFACTION OF THE TPO SO THAT REASONABLY ACCURATE ADJUSTMENT, IF ANY, CAN BE MADE AS PER INDIAN TRANSFER PRICING LAW (I.E. RULE 10B (3)(III)) ON ACCOUNT OF RISK AND WORKING CAPITAL. G ROUND NO.6 & 7 ARE THUS ALLOWED FOR STATISTICAL PURPOSES.' 55. IDENTICAL ISSUE HAS ALSO BEEN DEALT WITH BY THE ITAT, DELHI BENCH 'E', NEW DELHI IN CASE CITED AS NOKIA INDIA (P.) LTD. V. ADDL. CIT [2012] 51 SOT 286/20 TAXMANN.COM 810 AND DETERMINED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RETURNING THE FOLLOWING FINDINGS : '5.1 THUS IT IS THE CONTENTION OF THE LD. COUNSEL O F THE ASSESSEE THAT THE TPO WHILE DETERMINING THE ARM'S LENGTH PRICE OF THE SUBJECT INTERNATIONAL TRANSACTION DURING ASSESSMENT YEAR 20 06-07 IGNORED THE FACT THE ASSESSEE HAS BEEN GRANTED THE BENEFIT OF THE WORKING CAPITAL ADJUSTMENT DURING A.Y. 2005-06 BY HIMSELF A ND THE FACT THE SAME HAS ALSO BEEN ALLOWED BY HIS PREDECESSORS DURI NG THE TRANSFER PRICING ASSESSMENT PROCEEDING FOR A.Y. 2002-03 TILL A.Y. 2004-05 DESPITE THE CONSTRAINTS MENTIONED IN THE TRANSFER P RICING ORDER. THUS, IT IS THE CONTENTION OF THE ASSESSEE THAT THE RE IS NO CHANGE IN THE BUSINESS MODEL OF THE ASSESSEE WITH RESPECT TO THE PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SERVICES OF THE ASSES SEE VIS-A-VIS A.Y. 2005-06, THE BENEFIT OF WORKING CAPITAL ADJUST MENT SHOULD BE ALLOWED TO THE ASSESSEE IN THE SUBJECT YEAR UNDER A PPEAL AS WELL. 57 5.2 LD. COUNSEL OF THE ASSESSEE HAS FURTHER SUBMITT ED THAT RULES 10B(1)(E) OF THE RULES PRESCRIBE THAT AT THE TIME O F APPLICATION OF TRANSACTIONAL NET MARGIN METHOD, THE NET PROFIT MAR GIN NEEDS TO BE ADJUSTED TO ACCOUNT FOR THE DIFFERENCE IF ANY BETWE EN THE INTERNATIONAL TRANSACTION AND COMPARABLE UNCONTROLL ED TRANSACTIONS. THE RELEVANT TEXT OF THE PROVISIONS I S REPRODUCED BELOW FOR REFERENCE: '10B DETERMINATION OF ARM'S LENGTH PRICE UNDER SECT ION 92C- (1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTION 92C, THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS , BEING THE MOST APPROPRIATE METHOD, IN THE FOLLOWING MANNE R, NAMELY :- (A) TO (D)** ** ** (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, '(III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLA USE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING I NTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET;' ' THE LD. COUNSEL HAS FURTHER SUBMITTED THAT THE HON' BLE DELHI, ITAT HAS ALSO UPHELD THE NEED OF MAKING WORKING CAP ITAL ADJUSTMENT IN FOLLOWING JUDGMENTS. MENTOR GRAPHICS (NOIDA)(P.) LTD. V. DY. CIT [2007] 109 ITD 101/18 SOT 76 (DELHI) SONY INDIA (P.) LTD. V. DY. CIT [2008] 114 ITD 448 (DELHI) THUS IN LIGHT OF THE PROVISIONS OF RULE 10B(1)(E) A ND THE HON'BLE ITAT JUDGMENTS, IT HAS BEEN PLEADED TO GRANT THE APPELLA NT THE BENEFIT OF WORKING CAPITAL ADJUSTMENT. 5.3 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND RELIED UPON THE ORDER OF THE TPO. 5.4 THE DRP IN ITS ORDER HAS NOT DEALT WITH THE ISS UE PROPERLY AND HAS HELD THAT FOR THE SAKE OF CONSISTENCY AND TO PR OTECT THE INTEREST OF THE REVENUE, THE ADJUSTMENT MADE BY THE TPO HAS TO BE UPHELD. 58 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IT IS AN UNDISPUTED FACT THAT ON THE SAME SET OF FACTS AND IN THE SAME BUSINESS MODEL THE ASSESSEE HAS BEEN PROVIDED THE WORKING CAPITAL ADJUSTMENTS IN THE PRECEDING ASSESSMENT YEARS. UNDER THE CIRCUMSTA NCES, IN OUR CONSIDERED OPINION, IT WAS INCUMBENT UPON THE TPO T O CONSIDER THE SAME IN THE CURRENT YEAR.' 56. KEEPING IN VIEW THE FACT THAT THE ISSUE IN QUES TION HAS BEEN SETTLED IN THE CASES CITED AS QUALCOM INDIA (P.) LTD. (SUPRA) AND NOKIA INDIA (P.) LTD. (SUPRA) AND THE FACT THAT ASSESSEE IN THIS CASE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS GROUP COMPANIE S AND TO ARRIVE AT ALP OF THE INTERNATIONAL TRANSACTIONS, THE LD. TPO / DR P RESORTED TO COMPARABILITY BY SELECTING DIFFERENT SETS OF COMPAR ABLE COMPANIES AND AFTER APPLYING THE VARIOUS FILTERS, THE LD. TPO SEL ECTED 10 COMPARABLE COMPANIES AS MENTIONED IN PARA 8.7 OF HIS ORDER, TH E APPROPRIATE TRANSFER PRICING ADJUSTMENT CAN ONLY TO BE MADE QUA THE INTE RNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE COMPANY DURING THE YEAR UNDER ASSESSMENT ON THE BASIS OF ITS COMPARABILITY VIS--VIS COMPARABLE COMPANIES, BY PROVIDING WORKING CAPITAL ADJUSTMENT TO THE ASSESSEE IN VIEW OF THE PROVISIONS CONTAINED UNDER RULE 10B(1)(E) ALSO. SO, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS REQUIRED TO BE RESTORED TO THE TPO TO PROVIDE THE ASSESSEE COMPANY THE BENEFIT OF WORKING CAPITAL ADJUSTMENT F OR TRANSFER PRICING ADJUSTMENT. 129. IN VIEW OF THIS LEGAL AND FACTUAL POSITION , W E CONSIDER IT JUST AND PROPER TO DIRECT THE LD. TPO TO GRANT WORKING CAPITAL ADJUSTM ENT TO ACCOUNT FOR DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE ASSESSEE AND THE COMP ARABLE COMPANIES. 130. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED IN PART AND FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY, 2018. SD/- SD/- ( N.K. SAINI ) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : THE 16 TH FEBRUARY , 2018/ VJ 59 COPY OF THE ORDER FORWARDED TO :- 1. APPELLANT; 2. RESPONDENT; 3. CIT; 4. CIT (APPEALS); 5. DR, ITAT, ND. BY ORDER ASSISTANT REG ISTRAR 60 DATE DRAFT DICTATED ON 137.02.2018 DRAFT PLACED BEFORE AUTHOR .02.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.