Deputy Commissioner of Income-tax, V. TIBCO Software India Pvt. Ltd., Pune

ITA 334/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7168 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI; SU HAS KULKARNI JCIT SU HA
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 276 /P U N/201 5 / ASSESSMENT YEAR : 20 1 0 - 11 TIBCO SOFTWARE INDIA PVT. LTD., BINARIUS, FLOOR NO.2 AND 3, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR , YERWADA, PUNE - 411006 . / APPELLANT PAN: AACCT6136F V S. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT . / ITA NO. 334 /P U N/201 5 / ASSESSMENT YEAR : 20 10 - 11 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / APPELLANT VS. TIBCO SOFTWARE INDIA PVT. LTD., BINARIUS, FLOOR NO.2 AND 3, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR , YERWADA, PUNE 411006 . / RESPONDENT PAN: AACCT6136F 2 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. . / CO NO. 0 4 /P U N/201 6 / ASS ESSMENT YEAR : 20 1 0 - 11 (OUT OF ITA NO. 334 /PN/201 5 ) TIBCO SOFTWARE INDIA PVT. LTD., BINARIUS, FLOOR NO.2 AND 3, DEEPAK COMPLEX, NATIONAL GAMES ROAD, SHASTRI NAGAR, YERWADA, PUNE 411006 / CROSS OBJECT OR PAN: AACCT6136F VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT ASSESSEE BY : SHRI RAKESH GUPTA REVENUE BY : S /S HRI S.K. RASTOGI, CIT AND SU HAS KULKARNI , JCIT SU HAS KULKARNI , JCIT / ORDER PER SUSHMA CHOWLA, JM: OUT OF THIS BUNCH OF APPEALS, CROSS APPEAL S FILED BY THE ASSESSEE AND REVENUE ARE AGAINST ORDER OF DCIT, CIRCLE - 7, PUNE, DATED 30 .0 1 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). FURTHER, T HE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE . / DATE OF HEARING : 10 . 11 .201 6 / DATE OF PRONOUNCEMENT: 31 . 0 1 .201 7 3 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 2. BOTH THE CROSS APPEALS AND CROSS OBJECTIONS RELATING TO THE SAME ASSESSEE W ERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE, UNDER WHICH, T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - A. TRANSFER PRICING MA TTERS GROUND NO. 1: TRANSFER PRICING ADJUSTMENT THE LEARNED ASSESSING OFFICER ('LD. AO') PURSUANT TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN REJECTING THE BENCHMARKING APPROACH ADOPTED BY THE APPELLANT AND THEREBY MAKING A TRANSFER PRICING ADJUSTMENT OF RS.84,85,743 TO THE INCOME OF THE APPELLANT BY HOLDING THAT THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING AND SALES SUPPORT SERVICES DOES NOT COMPLY WITH THE ARM'S LENGTH PRINCIPLE AS ENVISAGED UNDER CHAPTER X OF THE INCOME - TAX ACT, 1961 ('THE ACT'). GROUND NO. 2: ERRONEOUS REJECTION OF THE FRESH SEARCH ANALYSIS CONDUCTED BY THE ASSESSEE THE HON'BLE DRP / LD. AO/ LD. TPO ERRED IN DISREGARDING THE FRESH SEARCH ANALYSIS CONDUCTED BY THE ASSESSEE USING THE DATA F OR FINANCIAL YEAR ('FY') ANALYSIS CONDUCTED BY THE ASSESSEE USING THE DATA F OR FINANCIAL YEAR ('FY') 2009 - 10, WHEREAS THE LD. AO/TPO HAD HIMSELF CARRIED OUT A SELECTIVE FRESH SEARCH/ ANALYSIS BY APPLYING CERTAIN ADDITIONAL QUANTITATIVE / QUALITATIVE FILTERS IN ORDER TO ELIMINATE COMPANIES THAT WOULD OTHERWISE BE COMPARABLE RESULTI NG IN CHERRY PICKING OF COMPARABLES WHICH CONTRADICTS WITH THE PRINCIPLES OF CONDUCTING SEARCH (FOR COMPARABLES) IN A SCIENTIFIC MANNER. GROUND NO. 3: ERRONEOUS INCLUSION / EXCLUSION OF CERTAIN COMPARABLES THE HON'BLE DRP / LD. AO/ LD. TPO ERRED IN MOD IFYING THE SET OF COMPARABLE COMPANIES IDENTIFIED BY THE APPELLANT FOR THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING AND SALES SUPPORT SERVICES. IN DOING SO, HON'BLE DRP / LD. AO/ LD. TPO SPECIFICALLY ERRED IN: 3.1. CONSIDERING AND RETAINING T HE FUNCTIONALLY INCOMPARABLE ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. IN THE SET OF COMPARABLES DESPITE THE FACT THAT: IT IS ENGAGED IN PROVISION OF NON - COMPARABLE SERVICES; IT IS ENGAGED IN ACTIVITIES SIMILAR TO SPORTING AND OUTDOOR AD - AGENCY PVT . LTD., A COMPANY REJECTED BY LD. TPO HIMSELF; AND THE YEAR UNDER CONSIDERATION IS AN EXCEPTIONAL YEAR, 3.2. EXCLUDING THE FUNCTIONALLY COMPARABLE COMPANY CYBER MEDIA (INDIA) LTD. BASED ON THE FOLLOWING REASONS: IT WAS REJECTED BY THE ASSESSEE IN ITS TRANSFER PRICING STUDY REPORT; AND THE ANNUAL REPORT OF THE COMPANY WAS NOT FURNISHED BEFORE THE 4 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. HON'BLE DRP / LD. AO/ LD. TPO, DESPITE THE FACT THAT ITS COMPLETE ANNUAL REPORT WAS AVAILABLE IN THE PUBLIC DOMAIN AND WAS FURNISHED BY THE APPLICANT BEFORE THE HON'BLE DRP / LD. AO/ LD. TPO DURING THE COURSE OF ASSESSMENT AND APPELLATE PROCEEDINGS, 3.3. EXCLUDING THE FOLLOWING FUNCTIONALLY COMPARABLE COMPANIES BASED ON ERRONEOUS REASONS THAT THE FINANCIAL DATA FOR FY 2009 - 10, IN RESPECT OF THESE COMPANIES IS NOT AVAILABLE: CRYSTAL HUES LTD.; HANSA VISION PVT. LTD.; DENAVE INDIA PVT. LTD.; SADHNA MEDIA PVT. LTD.; AND ASIAN INDUSTRY & INFORMATION SERVICES PVT. LTD. GROUND NO. 4: NOT ALLOWING THE USE OF MULTIPLE YEAR DATA HON'BLE DRP / LD. AO ERRED IN NOT ALLOWING THE USE OF MULTIPLE YEAR DATA AS PRESCRI BE D UNDER RULE 10B (4) OF THE RULES AND DETERMINING THE ARM'S LENGTH PRICE ON THE BASIS OF FINANCIAL I NFORMA TION OF THE COM PARABLES FOR THE PREVIOUS YEAR 2010 - 11 WHICH WAS AVAILABLE IN THE PUBLIC DOMAI N AT THE TIME OF ASSESSMENT PROCEEDINGS BUT NOT AT THE TIME WHEN THE APPELLANT CONDUCTED ITS ANAL YSIS TO COMPLY WITH THE PROVISIONS OF RULES 10 B(4) AND 10 D(4) OF THE RULES. GROUND NO. 5: IGNORING THE FACT THAT THE APPELLANT IS ENTITLED TO TAX HOLIDAY UND ER SECTION 10 A OF THE ACT HON'BLE DRP / LD. AO ERRED IN IGNORING THE FACT THAT THE APPELLANT IS ENTITLED TO TAX HOLID A Y UNDER SECTION 10 A OF THE ACT ON ITS PROFITS DERIVED FROM THE SOFTWARE TAX HOLID A Y UNDER SECTION 10 A OF THE ACT ON ITS PROFITS DERIVED FROM THE SOFTWARE DEVELOPMENT SERVICES AND THER EFORE WOULD NOT HAVE ANY UNTOWARD M OTIVE OF DERIVING A TAX ADVANTAGE BY MANIPULATING TRANSFER PRICES OF ITS INTERNATIONAL TRANSACTIONS. B. CORPORATE TAX MATTERS GROUND NO. 6: DISALLOWANCE OF INTEREST INCOME WHILE COMPUTING DEDUCTION UNDER SECTION 10 A OF THE ACT THE HON'BLE DRP / LD. AO ERRED IN NOT CONSIDERING THE INTEREST INCOME OF INR 2,844,646 OF THE STP UNIT AS 'PROFITS AND GAINS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE' OF THE STP UNIT AS REQUIRED BY THE SPECIFIC PROVISIONS OF SECTION 10 A(4) OF THE ACT IN COMPUTING THE DEDUCTION AVAILABLE TO THE STP UNIT UNDER SECTION 10 A OF THE ACT. GROUND NO. 7: IN ANY VIEW OF THE MATTER AND IN ANY CASE DISALLOWANCE OF DEDUCTION UNDER SECTION 10 A OF THE ACT ON INTEREST INCOME EARNED BY THE APPELLANT IS BAD IN LAW 4. TH E REVENUE IN ITA NO.334/PN/2015 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER DRP WAS CORRECT IN DIRECTING THE AO TO RE - COMPUTE THE OPERATING MARGINS OF MINDTREE LTD. IN ACCORDANCE WITH THE DIRECTIONS. 5 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 2. WHETHER DRP WAS CORRECT IN DIRECTING THE AO TO EXCLUDE INFOSYS LTD., FCS SOFTWARE LTD. FROM THE SET OF COMPARABLE COMPANIES AND TO INCLUDE E - ZEST SOLUTIONS LTD., EVOKE TECHNOLOGIES LTD., E - INFOCHIPS LTD. IN THE SET OF COMPARABLE COMPANIES. 3. WHETHER DRP WAS CORRECT IN DIRECTING THE TPO TO VERI FY THE WORKING OF RPT IN THE CASE OF CRISIL LTD. AS SUBMITTED BY THE ASSESSEE AND IF IT IS GREATER THAN 25% THEN ONLY HE SHALL EXCLUDE CRISIL LTD. FROM THE LIST OF COMPARABLES. 5. THE GROUNDS OF APPEAL NO.1 TO 5 RAISED BY THE ASSESSEE RELATE TO THE TRANSF ER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER PURSUANT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL (IN SHORT THE DRP) RESULTING IN ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS.84,85,743/ - . 6. THE ASSESSEE IS AGGRIEVED BY THE INCLUSIO N AND EXCLUSION OF CERTAIN COMPARABLE COMPANIES BY WAY OF GROUNDS OF APPEAL NO.2 AND 3. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AGAINST THE SAID ADDITION BEING MADE IN THE HANDS OF ASSESSEE. FURTHER, GROUND OF APPEAL NO.4 RA ISED BY THE ASSESSEE WAS AGAINST THE ORDERS OF AUTHORITIES BELOW IN NOT ALLOWING THE USE OF MULTIPLE YEARS DATA, WHICH IS NOT PRESSED BY THE ASSESSEE AND HENCE, DISMISSED AS NOT PRESSED. THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS AGAINST ITS ENT ITLEMENT OF TAX HOLIDAY UNDER SECTION 10A OF THE ACT IS ALSO NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. FURTHER, BY WAY OF GROUNDS OF APPEAL NO.6 AND 7, THE ASSESSEE HAS RAISED CORPORATE ISSUES I.E. ON ACCOUNT OF DISALLOWANCE OF INTEREST INCOME WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.67,35,608/ - . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE RELATED SERVICES SUCH AS RESEARCH & 6 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. DEVELOPMENT, MARKETING AND TECHNICAL SUPPORT SERVICES TO THE HOLDING COMPANY. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES AT RS. 52,01,06,661/ - . THEREFORE, REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE TO THE TRANSFER PRICING OFFICER , PUNE (IN SHORT THE TPO) , FOR VERIFICATION OF ARM'S LENGTH PRICE OF THE SAID INTERNATIONAL TRANSACTIONS. THE TPO NOTED THA T THE ASSESSEE WAS A SUBSIDIARY OF TIBCO , US AND WAS REGISTERED AS 100% EXPORT ORIENTED UNIT (EOU) UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) SCHEME AND HAD CLAIMED TAX HOLIDAY UNDER SECTION 10A OF THE ACT. THE ASSESSEE HAD ENTERED INTO SOFTWARE R ESEARCH & DEVELOPMENT SERVICES AGREEMENT WITH TIBCO , US WHEREIN THE ASSESSEE WAS PROVIDING SOFTWARE RESEARCH & DEVELOPMENT SERVICES TO TIBCO , US IN ACCORDANCE WITH DESIGN, PRODUCTION ORDERS, PLANS, PROCESS SPECIFICATIONS AND PRODUCTION SCHEDULES PROVIDED T O THE ASSESSEE I.E. TIBCO , INDIA BY TIBCO , US. THE TPO HAS NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO THREE KINDS OF SERVICES TO ITS ASSOCIATE ENTERPRISES I.E. (I) PROVISION OF SOFTWARE RESEARCH, DEVELOPMENT AND SUPPORT SERVICES OF RS.45.02 CRORES, (II) PROVISION OF MARKETING SERVICES TO THE EXTENT OF RS. 6,77,76,671/ - AND (III) EXTERNAL COMMERCIAL BORROWING WAS TO THE EXTENT OF RS. 21,12,725/ - . THE ASSESSEE HAD APPLIED TNMM METHOD IN RESPECT OF FIRST TWO SERVICES AND CUP METHOD IN RESPECT OF EXTERNAL COMMERCIAL BORROWINGS. THE TPO FURTHER NOTED THAT THE ASSESSEE HAD SELECTED 16 COMPANIES IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS AND HAD ADOPTED MULTIPLE YEAR S DATA FOR THE SAME. HOWEVER, DURING THE COURSE OF PR OCEEDINGS BEFORE THE TPO, THE ASSESSEE SUBMITTED SINGLE YEAR DATA OF OP/OC RATIO OF THE COMPARABLES ALONG WITH ITS SUBMISSIONS. THE TPO ANALYZED THE IT SEGMENT OF THE SAID COMPANY AND 7 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. THEREAFTER, REFERRED TO THE PROVISIONS OF FAR ANALYSIS AND ROLE OF TIBC O , US AND TIBCO, INDIA I.E. ASSESSEE IN THE PROCESS. IN ORDER TO SELECT PROPER COMPARABLES WHICH WERE FUNCTIONALLY SIMILAR TO THAT OF ASSESSEE APART FROM FILTERS SELECTED BY THE ASSESSEE, THE TPO APPLIED FRESH FILTERS FOR SELECTION PURPOSES. THE TPO COMP UTED THE PLI OF ASSESSEE BY ADOPTING OP/OC I.E. OPERATING PROFIT / OPERATING COST A S THE BASIS A ND WORKED OUT THE SAME AT 16.12% . FURTHER, THE TPO NOTED THAT THE ASSESSEE HAD NOT OBJECTED ON PLI COMPUTATION AND ALSO FOREIGN EXCHANGE / LOSS WERE CONSIDERED AS NON - OPERATIVE. THE TPO THEREAFTER, DEALT WITH THE OBJECTIONS OF ASSESSEE AND ALSO THE SINGLE YEARS DATA FILED BY THE ASSESSEE AS AGAINST MULTIPLE YEAR DATA APPLIED BY THE ASSESSEE IN ITS TP STUDY REPORT. THE YEAR - WISE DATA I.E. OP/OC RATIO OF COMPAR ABLES TOTALING 16 IS REPORTED UNDER PARA 14 AT PAGES 8 AND 9 OF THE TPOS ORDER. THE ASSESSEE HAS ALSO CARRIED OUT FRESH SEARCH AND SUMMARY OF COMPARABLES IS REPRODUCED UNDER PARA 14.1 IN WHICH THE ASSESSEE SELECTED 17 COMPANIES AS COMPARABLES. THE TPO N OTED THAT CERTAIN COMPANIES WERE OMITTED BY THE ASSESSEE IN FRESH SEARCH TOTALING TO 7 COMPANIES, WHICH WERE SELECTED BY THE ASSESSEE IN FRESH SEARCH TOTALED TO 8 COMPANIES AND ARE REPRODUCED UNDER PARA 14.3. FURTHER, THE TPO ISSUED SHOW CAUSE NOTICE TO T HE ASSESSEE AND IN THE BALANCE, ONLY 11 COMPANIES WERE SELECTED AS COMPARABLES IN THE SAID SHOW CAUSE NOTICE. THE FIRST ASPECT DECIDED BY THE TPO WAS THAT WHERE THE ASSESSEE HAD CARRIED OUT SEARCH OF COMPARABLES AT THE TIME OF SUBMISSIONS OF DOCUMENTS, TH ERE IS NO PROVISION OF FRESH SEARCH DURING THE COURSE OF TP PROCEEDINGS. REFERENCE WAS MADE TO THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN M/S. KODIAK NETWORKS (INDIA) PVT. LTD. IN ITA NO.1413/BANG/2010 FOR THE SAID PROPOSITION. THE TPO FURTHER POINTE D OUT THAT WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE IN THE FRESH SEARCH ALSO HAD NOT 8 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. APPLIED FILTERS PROPERLY. HE FURTHER NOTED THAT THE ASSESSEE HAD PREF ERRED TO SELECT THE COMPARABLES HAVING LOWER OPERATING MARGIN RATHER THAN ITS FUNCTIONAL SIMILARI TY. THE TPO NOTED THAT NONE OF THE COMPANIES SELECTED IN THE FRESH SEARCH WERE TO BE INCLUDED IN FIN ALIZING THE LIST OF COMPARABLES. THE TPO THUS, REFERRED TO THE COMMENTS OF ASSESSEE IN RESPECT OF IN CLUSION OF 8 COMPANIES UNDER PARA 16 AND THEREAFTER, D EALT WITH EACH OF THEM AND HELD THAT THE SAID COMPANIES WERE FUNCTIONALLY DIFFERENT AND HENCE, HAVE TO BE EXCLUDED FROM THE LIST OF COMPARABLES. THE TPO ALSO NOTED THE INCONSISTENT APPROACH OF THE ASSESSEE IN SELECTING THE COMPARABLES, WHEREI N IN THE TP D OCUMENTATION, THE ASSESSEE HAD SUBMITTED THAT IT WAS CAPTIVE SERVICE PROVIDER, HOWEVER, IT WAS CONSISTENTLY SELECTING COMPARABLES IN PRODUCT SEGMENT. IN THIS REGARD, SEVERAL COMPANIES WERE REFERRED TO AND SOME MORE COMPARABLES WERE REJECTED BY THE TPO. T HE ASSESSEE ALSO OBJECTED TO THE COMPANIES SELECTED BY THE TPO IN THE SHOW CAUSE NOTICE WHICH HAVE ALSO BEEN ELABORATELY CONSIDERED BY THE TPO. IN THE FINAL ANALYSIS, THE TPO SELECTED 13 COMPANIES AND EVEN WORKING CAPITAL ADJUSTMENT WAS ALLOWED EXCEPT FOR FEW OF THE COMPANIES WHICH WERE CONSIDERED AT SEGMENTAL LEVEL AND HENCE, NO WORKING CAPITAL ADJUSTMENT COULD BE PROVIDED. THE LIST OF COMPARABLES ARE ENLISTED UNDER PARA 24 AT PAGE 37 OF TPOS ORDER. THE PLI OF ASSESSEE WAS 16.12% BY TAKING OPERATING REV ENUE / OPERATING COST AND THE AVERAGE MARGIN OF COMPARABLES WORKED OUT TO 23.02% AND HENCE, AN ADJUSTMENT OF RS.2,67,41,651/ - WAS PROPOSED BY THE TPO TO THE INTERNATIONAL TRANSACTIONS RELATING TO SOFTWARE DEVELOPMENT SERVICES OF ASSESSEE. 8. SIMILARLY, IN RESPECT OF MARKETING SUPPORT SERVICES AS AGAINST COMPARABLES SELECTED BY THE ASSESSEE, FRESH SEARCH WAS CONDUCTED AND FINAL LIST OF COMPARABLES WERE DRAWN BY THE TPO, WHOSE AVERAGE MARGIN WORKED OUT 9 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. TO 28.37% AS AGAINST 7.98% OF THE ASSESSEE . THE LIST OF COMPARABLES ARE ENLISTED UNDER PARA 35 AT PAGE 43 OF TPOS ORDER. IN VIEW THEREOF, AN ADJUSTMENT OF RS. 1,27,97,865/ - WAS MADE TO THE INTERNATIONAL TRANSACTIONS RELATING TO MARKETING SUPPORT SERVICES OF THE ASSESSEE . I N ALL, AN ADJUSTMENT OF RS. 3,95,39 ,524/ - WAS MADE IN THE HANDS OF ASSESSEE. THE ASSESSEE HAS ASKED FOR RISK ADJUSTMENT WHICH WAS DENIED TO THE ASSESSEE AS THE REQUISITE INFORMATION PERTAINING TO THE CLAIM WAS NOT FILED BY THE ASSESSEE. 9. THE ASSESSING OFFICER PROPOSED THE SAID ADDITIO N IN THE DRAFT ASSESSMENT ORDER, AGAINST WHICH THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP, WHO IN TURN, DECIDED THE ISSUE IN RESPECT OF BOTH THE SEGMENTS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE FIRST OBJECTION OF THE ASSESSEE IN REJECTION OF FRESH SEARCH ANALYSIS CONDUCTED BY THE ASSESSEE DURING THE COURSE OF TP PROCEEDINGS WAS REJECTED BY THE DRP. THE SECOND OBJECTION RAISED BY THE ASSESSEE WAS AGAINST ERRONEOUS ADDITION / REJECTION OF CERTAIN COMPARABLES IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES SEGMENT WHICH INCLUDED CERTAIN COMPANIES. THE FIRST COMPARABLE WAS INFOSYS TECHNOLOGIES LTD., WHOSE TURNOVER FOR THE YEAR WAS RS.21,140 CRORES AS AGAINST TURNOVER OF RS.45 CRORES OF ASSESSEE. THE DRP DIRECTED THAT THE SAID CONCERN C OULD NOT BE COMPARED WITH THE ASSESSEE ON THE TURNOVER FILTER. THE SECOND CONCERN WAS KALS INFORMATION SYSTEMS LTD. , WHICH WAS SELECTED BY THE TPO AND THE CLAIM OF ASSESSEE WAS THAT IT WAS SOFTWARE PRODUCT COMPANY WHICH COULD NOT BE COMPARED WITH SOFTWARE SERVICES COMPANY I.E. THE ASSESSEE. THE DRP ON EXAMINATION OF FACTS OF THE SAID CONCERN FOUND THAT THE SAID COMPANY HAD WORKED NOT AS THE SOFTWARE PRODUCT COMPANY BUT ALSO AS SOFTWARE SERVICE COMPANY . R EFERRING TO THE NOTES TO ACCOUNTS AND THE SEGMENTAL INFORMATION 10 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. AVAILABLE IN THIS REGARD, KALS INFORMATION SYSTEMS LTD. WAS HELD TO BE FUNCTIONALLY COMPARABLE. THE DRP ADMITTED THE PLEA OF ASSESSEE IN RESPECT OF CERTAIN CONCERNS AND REJECTED THE PLEA OF ASSESSEE IN OTHER CONCERNS. 10 . BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US IN RESPECT OF SELECTION / REJECTION OF COMPARABLES. 11 . THE LIMITED ISSUE WHICH WAS ARGUED BEFORE US IN THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WAS AGAINST THE INCLUSION / EXCLUSION OF CERTAIN COMPA RABLES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS BOTH IN IT SECTOR AND ALSO IN MARKETING SUPPORT SERVICES. ADMITTEDLY, BOTH THESE SERVICES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES WERE INDEPENDENT AND HAD TO BE BENCHMARKED SEPARATELY IN ORDER TO WORK OUT THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US ALSO POINTED OUT THAT THE ISSUE OF SELECTION AND REJECTION OF COMPARABLES WHILE BENCHMARKING THE INTERNATIONAL TRAN SACTIONS IN BOTH THE SEGMENTS HAS B EEN ADJUDICATED BY THE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2536/PN/2012, RELATING TO ASSESSMENT YEAR 2008 - 09 AND IN ITA NO.94/PN/2014, RELATING TO ASSESSMENT YEAR 2009 - 10 HAD ELABORATELY CONSIDERED THE CASE OF ASSESSEE IN RESPECT OF SEVERAL COMPARABLES. THE ASSESSEE POINTS OUT THAT THE FUNCTIONALITY OF SAID COMPARABLES IN THE EARLIER YEARS AND IN THE PRESENT YEAR ARE SIMILAR AND THE PRINCIPLES LAID DOWN BY THE TRIBUNAL IN ASSESSEES OWN CASE ARE TO BE APPLIED IN ORDER TO ADJUDICATE THE ISSUE. HE FURTHER STRESSED THAT IN THE ABSENCE OF ANY CHANGE IN ACTIVITIES IN CASE OF THE ASSESSEE BEFORE US AND THE COMPARABLES 11 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. PICKED UP BY THE TPO IN EARLIER YEARS AND ALSO IN THE CURRENT YEAR, THE RATIO LAID DOWN IN EARLIER YEARS MERITS TO BE ACCEPTED. 1 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, REFERRED TO THE ORDERS OF TPO, ASSESSING OFFICER AND DRP TO PUT FORWARD HIS CASE. 1 3 . WE PROCEED TO DECIDE THE PRESENT CROSS APPEALS BY MAKING REFERENCE TO THE CONTENTIONS / OBJECTIONS RAISED BY BOTH THE LEARNED AUTHORIZED REPRESENTATIVES. 1 4 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BEFORE ADJUDICATING THE SPECIFIC ISSUE RAISED BEFORE US, IT MAY BE OBSERVED THAT THE A SSESSEE IN ITS TRANSFER PRICING STUDY HAD BENCHMARKED ITS INTERNATIONAL TRANSACTIONS RELATING TO PROVISION OF SOFTWARE, DESIGN AND DEVELOPMENT SERVICES ENTERED INTO WITH ITS ASSOCIATE ENTERPRISES BY ADOPTING THE TRANSACTIONAL NET MARGIN I.E. TNM METHOD. T HE ASSESSEE HAD USED OPERATING PROFITS / OPERATING COST I.E. OP/OC AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSESSEE HAD APPLIED MULTIPLE YEAR DATA TO COMPUTE THE ARITHMETIC MEAN OF MARGINS OF COMPARABLE CASES . THE ASSESSEE HAD FURNISHED SEGMENTAL PROFIT S IN RESPECT OF TWO SERVICES PROVIDED BY IT. THE TPO HAD ACCEPTED THE ADOPTION OF TNMM METHOD AS THE MOST APPROPRIATE METHOD AND HE HAD ALSO ACCEPTED THE ADOPTION OF OP/OC AS THE PLI FOR THE PURPOSE OF COMPARABILITY ANALYSIS. SIMILARLY, IN THE IMMEDIATEL Y PRECEDING YEARS I.E. ASSESSMENT YEARS 2008 - 09 AND 2009 - 10, THE ASSESSEE HAD APPLIED TNMM METHOD AND HAD ADOPTED OP/OC AS THE PLI FOR THE PURPOSE OF COMPARISON OF ITS INTERNATIONAL TRANSACTION S. HOWEVER, THE TPO DID NOT AGREE 12 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. WITH THE ADOPTION OF MULTIPL E YEAR DATA FOR WORKING OUT THE PLI OF COMPARABLES. AS PER THE TPO, IT WAS MOST APPROPRIATE TO ADOPT THE FINANCIAL DATA OF COMPARABLE CONCERNS FOR THE CONTEMPORANEOUS PERIOD FOR THE PURPOSE OF COMPARABILITY ANALYSIS. THOUGH THE ASSESSEE HAS OBJECTED TO T HE SAID EXERCISE OF TPO BY WAY OF GROUND OF APPEAL NO.4, BUT DURING THE COURSE OF HEARING, THE SAID GROUND OF APPEAL HAS NOT BEEN PRESSED AND ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. THE TPO AFTER CONSIDERING THE FINANCIAL DATA OF THE COMPARABLE CASES FOR THE YEAR UNDER CONSIDERATION SELECTED THE FINAL SET OF COMPARABLES, WHICH ARE AS UNDER: - SR. NO. NAME OF COMPANY PLI - UNADJUSTED PLI - ADJUSTED 1 F C S SOFTWARE SOLUTIONS LTD. 48.38 40.15 2 GOLDSTONE TECHNOLOGIES LTD. 20.17 14.01 3 L G S GLOBAL LTD. 11.95 7.46 4 LARSEN & TOUBRO INFOTECH LTD. TELECOM SEGMENT 19.24 19.24(*) 5 MINDTREE LTD. 16.17 16.17(*) 6 ACROPETAL TECHNOLOGIES LTD. (SEG) 33.92 33.92(*) 7 KALS INFORMATION SYSTEM LTD. 34.41 34.41(*) 7 KALS INFORMATION SYSTEM LTD. 34.41 34.41(*) 8 THIRD - WARE SOLUTIONS LTD. 34.18 31.73 9 PERSISTENT SYSTEM LTD. 29.51 27.57 10 INFOSYS 45.01 43.86 11 AKSHAY SOFTWARE LTD. ( - )0.01 ( - )0.99 12 THINKSOFT GLOBAL LTD. 17.67 14.84 13 SASKEN COMMUNICATION TECHNOLOGIES LTD. 16.96 16.96(*) AVERAGE 25.12 23.02 (*) SINCE, THESE COMPARABLES ARE CONS IDERED AT SEGMENTAL LEVEL, NO WCA COULD BE PROVIDED. 1 5 . THE AVERAGE PLI OF COMPARABLE COMPANIES WORKED OUT TO 23.02% AS AGAINST 16.12% OF THE ASSESSEE AND AN ADJUSTMENT OF RS.2,67,41,659/ - WAS THUS, WORKED OUT BY THE TPO IN SOFTWARE DEVELOPMENT SEGMENT . THE DRP DELETED THE AFORESAID ADDITION OF RS.2.67 CRORES, AGAINST WHICH THE REVENUE IS IN APPEAL. 16. FURTHER, IN RESPECT OF MARKETING SUPPORT SERVICES, THE TPO MADE FINAL LIST OF COMPARABLES WHICH IS AS UNDER: - 13 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. SR. NO. NAME OF THE COMPANY OP/TC WC A DJUSTED OP/TC 1 ASIAN BUSINESS EXHIBITION & CONFERENCES LTD. 57.83 57.95 2 CYBER MEDIA RESEARCH LTD. 12.88 13.46 3 QUADRANT COMMUNICATION LTD. 13.43 16.04 4 ENTERTAINMENT NETWORK (I) LTD. (SEG) ( - )1.45 ( - )1.45 5 CRISIL LTD. 63.49 55.88 AVERAGE 29.23 28.37 1 7 . THE PLI OF COMPARABLE COMPANIES WORKED OUT TO 28.37% AS AGAINST 7.98% OF THE ASSESSEE AND AN ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTIONS WAS WORKED OUT AT RS. 1,27,97,865/ - . THE ADDITION WAS MADE TO THE STATED VALUE OF INTERNATIONAL T RANSACTIONS IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE. THE DRP REDUCED THE ADDITION TO RS. 84,85,743/ - , AGAINST WHICH BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL. 1 8 . SPECIFIC ARGUMENTS PUT BEFORE US AT THE TIME OF HEARING ARE AS MANIFESTED IN GROUND O F APPEAL NO.3 I.E. AGAINST INCLUSION / EXCLUSION OF THE COMPANIES WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS OF PROVISION OF MARKETING AND SALES SUPPORT SERVICES. AT THE TIME OF HEARING, THE ASSESSEE HAS FURNISHED VOLUMINOUS PAPER BOOK AND REFERRED TO THE MATERIAL RELATING TO VARIOUS CONCERNS WHICH HAS BEEN CONSIDERED WHILE DISPOSING OF THE PRESENT APPEAL. 1 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED UPON THE ORDERS OF LOWER AUTHORITIES. 20 . BY WAY OF GROUND OF APPEAL NO.3.1, THE ASSESSEE OBJECTED TO THE INCLUSION OF CONCERN ASIAN BUSINESS EXHIBITION AND CONFERENCE S LTD. IN THE FINAL SET OF COMPARABLES. THE CASE OF ASSESSEE WAS THAT IT WAS ENGAGED IN THE PROVISI ON OF NON - COMPARABLE SERVICES, WHERE THE ACTIVI TIES OF THE SAID CONCERN 14 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. WERE SIMILAR TO SPORTING AND OUTDOOR AD - AGENCY PVT. LTD., WHICH WAS REJECTED BY THE TPO HIMSELF AND WHERE THE YEAR UNDER CONSIDERATION WAS AN EXCEPTIONAL YEAR, THERE WAS NO MERIT IN RETAINING THE SAID CONCERN IN THE FINAL SET OF CO MPARABLES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CONCERN WAS ADMITTEDLY INCLUDED BY THE ASSESSEE AS BEING FUNCTIONALLY COMPARABLE BUT LOOKING AT THE ACTIVITIES OF SAID CONCERN, THE SAME WAS FOUND TO BE FUNCTIONAL LY NOT SIMILAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WHILE ARGUING THE ISSUE BEFORE THE DRP, THE GLARING PROFIT VOLATILITY OF THE SAID CONCERN WAS REFERRED TO, WHEREIN THE ENTRY CHARGES WERE SHOWN TO BE AT RS.1.27 CRORES AND THERE WAS NO SUCH CHARGES IN EARLIER YEARS. OUR ATTENTION WAS INVITED TO PAGES 2 25 TO 2 2 9 OF THE APPEAL MEMO . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE OBJECTED TO THE FINDINGS OF DRP THAT THE SAID CONCERN WAS FUNCTIONALLY COMPARABLE AN D ALSO THAT IT WAS NOT THE CASE OF SUPER PROFIT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE CLAIM MADE BY THE ASSESSEE WAS ON ACCOUNT OF VOLATILITY IN PROFITS, BEING EXCEPTIONAL YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD PLACED RELIANCE ON THE RATIOS LAID DOWN BY THE SPECIAL BENCH OF TRIBUNAL IN MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT IN ITA NO.7466/MUM/2012, ORDER DATED 07.03.2014, PUNE BENCH OF TRIBUNAL IN CUMMINS TURBO TECHNOLOGIES LTD., UK VS DDIT (IT) IN ITA NOS.161 & 269/PN/2013, RELATING TO ASSESSMENT YEARS 2007 - 08 & 2008 - 09 , ORDER DATED 29.09.2014, IN Q LOGIC (INDIA) PVT. LTD. VS. DCIT IN ITA NO.227/PN/2014, RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 21. 10.2014 AND IN JOHN DEERE INDIA PVT. LTD. VS. ACIT IN ITA NO.1319/PN/2011, RELATING TO ASSESSMENT YEAR 2007 - 08, ORDER DATED 10.10.2014. 15 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 2 1. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT BOTH THE ASSESSEE AND THE TPO HAD SELECTED COMPANIES FROM THE SPECIFIED AREA IN THE PRESENT YEAR AND ALSO IN THE EARLIER YEARS AND LATER YEARS. HE POINTED OUT THAT WHERE THE ASSESSEE WAS ENGAGED IN MARKETING SUPPORT SERVICES AND CLAIMS THAT ASIAN EXHIBITION AND CONFERENCES LTD. HAD SHOWN HIGHER P ROFIT AND HENCE NOT COMPARABLE . HE STRESSED THAT WHERE THERE IS MARKETING SUPPORT SERVICES, THE MARGINS COULD BE HIGHER OR LOWER. RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE DECISIONS OF ENTITIES ENGAGED IN THE S OFTWARE SERVICES WERE HELD TO BE MIS - PLACED AS THE MARGINS WERE COST PLUS MARK - UP. HE FURTHER STRESSED THAT THE PLEA OF ASSESSEE WAS THAT THERE WERE ENTRY FEES CHARGES OF RS.1.27 CRORES CHARGED BY THE SAID CONCERN , BUT IT WA S NOT CLEAR UNDER WHAT NOMENCLA TURE THE SAME IS CHARGED AND IT CANNOT BE SAID TO BE AN ABNORMAL CHARGE. HE STRESSED THAT WHERE THE ASSESSEE HIMSELF HAS SELECTED THE SAID CONCERN TO BE COMPARABLE IN BOTH THE ORIGINAL AND REVISED SEARCH AND NOW THE SAID CONCERN WA S SAID TO BE NOT SUITABL E SINCE IT WA S HARMFUL TO THE PLI OF ASSESSEE AND THE SAID PLEA OF THE ASSESSEE COULD NOT BE ACCEPTED. 22 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAINST EXCLUSION OF ASIAN BUSINESS EXHIBITIO N AND CONFERENCES LTD. FROM THE FINAL LIST OF COMPARABLES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE OBJECTIONS RAISED BEFORE THE DRP AND PLACED RELIANCE ON THE SAME. IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE THAT THE SAID CONCERN WAS FUNCTIONALLY NOT COMPARABLE AS IT WAS ENGAGED IN ACTIVITIES SIMILAR TO SPORTING AND OUTDOOR AD AGENCY PVT. LTD. THE CASE OF THE ASSESSEE BEFORE US AND THE 16 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. AUTHORITIES BELOW WAS THAT 95% OF THE REVENUE EARNED BY ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. WAS IN THE FORM OF EXHIBITION AND EVENTS I.E. SALE / LEASING OUT SMALL SPACES IN EXHIBITION AND EVENTS, WHEREAS THE ASSESSEE WAS ENGAGED IN MARKETING SUPPORT SERVICES SEGMENT AND HENCE, FUNCTIONALLY NOT COMPA RABLE. FURTHER CLAIM WAS THAT THE OTHER SOURCE OF INCOME I.E. SPONSORSHIP INCOME, DELEGATES FEES AND ENTRY FEES CHARGES COULD NOT BE CONSIDERED AS COMPARABLE TO THE ASSESSEES MARKETING SUPPORT SERVICES SEGMENT. 2 3 . THE SECOND PLEA RAISED BY THE ASSESSEE WAS THAT ANOTHER CONCERN ENGAGED IN THE SIMILAR BUSINESS OF SPORTING AND OUTDOOR AD AGENCY PVT. LTD. WAS REJECTED BY THE TPO HIMSELF ON THE GROUND THAT ITS INCOME WAS FROM HOARDING AND MOUNTING CHARGES. THE INCONSISTENT APPROACH OF THE TPO WAS OBJECTED T O BY THE ASSESSEE. ONE MORE FACTOR WAS DRASTIC FLUCTUATIONS IN OPERATING MARGINS WHEREIN AS AGAINST MARGINS OF 15.50% IN FINANCIAL YEAR 2007 - 08 AND 24.55% IN FINANCIAL YEAR 2008 - 09 AND ALSO 19.51% IN FINANCIAL YEAR 2010 - 11, THE MARGINS SHOWN BY THE ASSESS EE IN FINANCIAL YEAR 2009 - 10 WERE 57.48%. THE HUGE VARIATION IN THE OPERATING MARGINS SHOWN BY ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD., AS PER THE ASSESSEE, WAS AN INDICATOR OF THE FACT THAT THERE EX ISTED CERTAIN ABNORMAL FACTORS, WHICH HAD CONTRIB UTED TO SUCH ABNORMAL VARIATIONS. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE SPECIAL BENCH OF TRIBUNAL IN MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT (SUPRA), WHEREIN IT WAS HELD THAT IF THERE EXISTED CERTAIN EXCEPTIONAL CIRCUMS TANCES, THEN THE COMPANY MAKING ABNORMALLY HIGH PROFIT NEEDS TO BE EXCLUDED. 17 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 2 4 . COMING TO THE NEXT OBJECTION OF THE TPO THAT THE ASSESSEE HIMSELF HAS SELECTED THE SAID CONCERN AS COMPARABLE IN ITS TP STUDY , T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED ON THE RATIO LAID DOWN BY THE SPECIAL BENCH OF CHANDIGARH IN QUARKS SYSTEMS INDIA PVT. LTD. VS. CIT IN ITA NO.115/CHD/2009, RELATING TO ASSESSMENT YEAR 2004 - 05, ORDER DATED 22.10.2009 FOR THE PROPOSITION THAT THE TAX PAYER WAS NOT E STOPPED FROM POINTING OUT THAT A CONCERN WAS WRONGLY TAKEN A S COMPARABLE. 2 5 . THE TPO IN ORDER TO BENCHMARK THE SEGMENT OF MARKETING SUPPORT SERVICES UNDERTAKEN BY THE ASSESSEE HAD SELECTED ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. THE ASSESSEE ALSO IN THE TP STUDY REPORT HAD INCLUDED THE SAID CONCERN AS COMPARABLE ON THE BASIS OF AVERAGE MARGINS OF PRECEDING YEARS. HOWEVER, DURING TP PROCEEDINGS, THE TPO DIRECTED THE ASSESSEE TO APPLY THE MARGINS OF INSTANT ASSESSMENT YEAR AND THE ASSESSEE IN THIS REGARD, FURNISHED CURRENT MARGINS OF SELECTED COMPANIES. IN RESPECT OF ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD., IT WAS POINTED OUT BY THE ASSESSEE BEFORE THE TPO AND THE DRP THAT THE SAID CONCERN WAS FUNCTIONALLY NOT SIMILAR IN VIEW OF REVENUE EARNED BY T HE SAID CONCERN DURING THE YEAR. ANOTHER POINT WHICH IS RAISED BY THE ASSESSEE IS THAT SIMILAR CONCERN I.E. SPORTING AND OUTDOOR AD AGENCY PVT. LTD. WAS REJECTED BY THE TPO HIMSELF THAT THE ACTIVITIES OF THE SAID CONCERN WERE NOT COMPARABLE TO THE ASSESSE E. WHILE SELECTING THE COMPARABLE COMPANIES, FUNCTIONAL COMPARABILITY OF THE CONCERNS IS THE FIRST STEP WHICH HAS TO BE TAKEN NOTE OF. IN CASE THE CONCERN IS ENGAGED IN A BUSINESS OTHER THAN THE BUSINESS OF TESTED PARTY, THEN SUCH CONCERN CANNOT BE PICKE D UP AS COMPARABLE. ADMITTEDLY, THE ASSESSEE IN ITS TP STUDY REPORT HAD SELECTED ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. AS COMPARABLE. HOWEVER, WHEN IT 18 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. ANALYZED THE PROFILE OF THE SAID CONCERN FOR THE ACCOUNTING PERIOD, THEN IT HAS FOUND THAT THE REVENUE EARNED BY THE SAID CONCERN WAS FROM EXHIBITION AND EVENTS I.E. FROM SALE / LEASE OF STALLS SPACE IN EXHIBITION AND EVENTS. THE ASSESSEE ON THE OTHER HAND, IS PROVIDING MARKETING SUPPORT SERVICES TO ITS ASSOCIATE ENTERPRISES AND THE CONCERN ENGAGE D IN SALE / LEASING OUT THE STALLS SPACE IN EXHIBITION AND EVENTS IS EARNING INCOME IN THE NATURE OF RENT AND THE SAME COULD NOT BE COMPARED WITH THE SERVICES UNDERTAKEN BY THE ASSESSEE. THE TPO HAD ALSO EXCLUDED ANOTHER CONCERN I.E. SPORTING AND OUTDOOR AD AGENCY PVT. LTD. ON THE GROUND THAT ITS INCOME FROM HOARDING AND MOUNTING CHARGES. ANOTHER ASPECT OF THE COMPARABILITY TO BE CONSIDERED IS THE DRASTIC FLUCTUATIONS IN THE OPERATING MARGINS OF SAID CONCERN. THE SAID CONCERN WAS SHOWING LOWER OPERATING MARGINS IN EARLIER AS WELL AS LATER YEARS AS AGAINST THE OPERATING MARGINS OF 57.48% SHOWN DURING THE YEAR. ON SUCH GROUND, THE SAID CONCERN IS TO BE REJECTED FROM THE FINAL SET OF COMPARABLES ON THE BASIS OF RATIO LAID DOWN BY THE SPECIAL BENCH OF TRIBUN AL IN MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT (SUPRA). ANOTHER ASPECT WAS RAISED BY BOTH THE TPO AND THE DRP WAS THE SELECTION OF SAID CONCERN BY THE ASSESSEE. HOWEVER, SINCE THE ASSESSEE HAS POINTED OUT THAT DIFFERENCES IN THE SAID CONCERN WHIC H ARE MATERIAL ITSELF, THEN EVEN IF THE SAID CONCERN WAS ORIGINALLY PICKED UP AS COMPARABLE BUT THE ASSESSEE COULD NOT BE STOPPED FROM POINTING OUT THAT THE SAID CONCERN WAS WRONGLY TAKEN AS COMPARABLE. ACCORDINGLY, WE DIRECT THE TPO TO EXCLUDE ASIAN BUSI NESS EXHIBITION AND CONFERENCES LTD. FROM THE FINAL SET OF COMPARABLES. 2 6 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THEREAFTER, POINTED OUT THAT IT HAD SELECTED THE CONCERN CYBER MEDIA (INDIA) LTD. AS FUNCTIONALLY COMPARABLE WHICH WAS REJEC TED BY THE TPO AND UPHELD BY THE DRP. 19 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. HE HOWEVER, FAIRLY CONCEDED THAT IF ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. WAS EXCLUDED, THEN THE SAID CONCERN IS ALSO TO BE EXCLUDED. IN VIEW OF THE ADMISSION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WE UPHOLD THE ORDER OF TPO IN EXCLUDING CYBER MEDIA (INDIA) LTD. FROM THE FINAL SET OF COMPARABLES. 2 7 . ANOTHER CONCERN WHICH THE ASSESSEE WAS AGITATING TO BE INCLUDED IN THE FINAL SET OF COMPARABLES WAS ASIAN INDUSTRY & INFORMATION SERVICES PV T. LTD. HOWEVER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT IN CASE ASIAN BUSINESS EXHIBITION AND CONFERENCES LTD. IS EXCLUDED , THE MARGINS OF ASIAN INDUSTRY & INFORMATION SERVICES PVT. LTD. IS ALSO TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. ACCORDINGLY, WE HOLD SO. 2 8 . THE NEXT SET OF CONCERNS WHICH THE ASSESSEE WANTED TO BE INCLUDED IN THE FINAL SET OF COMPARABLES WAS CRYSTAL HUES LTD., HANSA VISION PVT. LTD., DENAVE INDIA PVT. LTD. AND SADHNA MEDIA PVT. LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT DURING THE TP PROCEEDINGS, THE ANNUAL REPORTS OF THE SAID CONCERNS WERE NOT FURNISHED WHICH ARE NOW AVAILABLE. HOWEVER, THE TPO REJECTED THE SAID CONCERNS AS THE FINANCIAL DATA WAS N OT AVAILABLE. THE PLEA OF THE ASSESSEE BEFORE THE DRP WAS THAT THE ASSESSEE HAD FURNISHED THE DIRECTORS REPORTS AND OTHER FINANCIAL SCHEDULES OF THE SAID CONCERNS AND ALSO WEBSITE EXTRACTS TO ESTABLISH THAT THE SAID CONCERNS WERE FUNCTIONALLY COMPARABLE T O ASSESSEES MARKETING SUPPORT SERVICES SEGMENT. THE ASSESSEE HAD FURNISHED FINANCIAL EXTRACTS IN RESPECT OF SAID CONCERN FROM THE PUBLIC DOMAIN BASE I.E. PROWESS AND CAPITALINE. THE PLEA OF THE ASSESSEE HOWEVER, WAS REJECTED BY THE TPO AND ALSO BY THE D RP, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 20 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 2 9 . ON PERUSAL OF RECORD, WE FIND THAT THE TPO HAD CONSIDERED THE INCLUSION OF THE SAID CONCERNS INDIVIDUALLY IN RESPECT OF HANSA VISION PVT. LTD. , DENAVE INDIA PVT. LTD . AND SADHNA MEDIA PVT. LTD., THE PROFIT A ND LOSS ACCOUNTS OF THE COMPANIES WERE NOT AVAILABLE. THE ASSESSEE HAD ONLY FILED BALANCE SHEET AND HAD NOT FURNISHED FURTHER DETAILS IN THIS RESPECT AND HENCE, THE SAID CONCERNS WERE REJECTED. THE DEFECTS POINTED OUT BY THE TPO HAVE NOT BEEN REMOVED BY THE ASSESSEE EVEN IN THE DOCUMENTS SUBMITTED BEFORE US. THE PROFIT AND LOSS ACCOUNT S OF HANSA VISION PVT. LTD., DENAVE INDIA PVT. LTD. AND SADHNA MEDIA PVT. LTD. ARE NOT AVAILABLE ON RECORD AS EVIDENT FROM PAGE S 749 TO 785, 786 TO 807 AND 808 TO 833 OF PA PER BOOK AND THE BREAKUP OF DETAILS IN RESPECT OF CRYSTAL HUES LTD. ARE ALSO NOT AVAILABLE ACCORDINGLY, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE ON THIS ACCOUNT ALSO. 30 . IN RESPECT OF CRYSTAL HUES LTD. , THE ASSESSEE HAD FURNISHED THE BALANCE SHEET A ND PROFIT AND LOSS ACCOUNT BUT NO OTHER DETAILS WERE AVAILABLE. IN THE ABSENCE OF ANY DETAILS, IT IS NOT POSSIBLE TO ESTABLISH THE MARGINS OF CONCERNS AND TO DETERMINE WHETHER THEY ARE FUNCTIONALLY COMPARABLE OR NOT. THE ASSESSEE HAD NOT FURNISHED ANY SU CH DETAILS BEFORE THE TPO OR THE DRP. THOUGH THE ASSESSEE CLAIMS THAT IT HAS NOW FURNISHED THE SAID DETAILS BUT IN THE ABSENCE OF THE DETAILS AVAILABLE WITH THE ASSESSEE DURING TP PROCEEDINGS , THE SAME COULD NOT BE APPLIED BY THE TPO . HENCE, WE FIND NO M ERIT IN THE PLEA OF ASSESSEE AND THE SAME IS REJECTED. 31 . THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS AGAINST THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT ON THE INTEREST INCOME ON FDRS. THE ASSESSING OFFICER HAD EXCLUDED THE SAID INTER EST INCOME FROM THE PROFITS OF 21 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT WHICH WAS UPHELD BY THE DRP HOLDING THAT THESE ARE NOT PROFITS FROM EXPORTS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT T HAT THERE WAS NO DISPUTE ON THE FACTUAL PREMISE. HOWEVER, WHILE ALLOWING THE DEDUCTION UNDER SECTION 10A OF THE ACT, IT IS THE PROFITS DERIVED FROM BUSINESS WHICH ARE TO BE SEEN AND NOT THE PROFITS FROM EXPORT OF THE BUSINESS. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. MOTOROLA INDIA ELECTRONICS (P) LTD. (2014) 265 CTR 94 (KAR) AND UNIVERSAL PRECISION SCREWS VS. ACIT (2015) 168 TTJ 84 (DEL) , WHEREIN THE DEDUCTION UNDER SECTION 10B OF T HE ACT WAS ALLOWED ON FDRS INTEREST. IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE PROVISIONS OF SECTION 10B OF THE ACT ARE PARAMETRIA WITH SECTION 10A OF THE ACT. 3 2. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR TH E REVENUE HAND, STRESSED THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN THOMSON PRESS (INDIA) LTD. VS. CIT (2015) 63 TAXMANN.COM 119 (DELHI), WHEREIN THE DEDUCTION UNDER SECTION 10A OF THE ACT WA S DENIED. 3 3 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT IN ASSESSMENT YEARS 1991 - 92, 1992 - 93, EXEMPTION WAS TO BE ALLOWED AND HENCE DECISION OF HONBLE HIGH COURT OF DELHI IS NOT APPLICABLE. FURTHER, THE HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. MOTOROLA INDIA ELECTRONICS (P) LTD. (SUPRA) IN ASSESSMENT YEAR 2001 - 02 HAS INTERPRETED THE PROVISIONS OF THE ACT. 22 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 3 4 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES BY WAY OF G ROUND OF APPEAL NO.6 IS AGAINST THE DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. THE LIMITED PLEA WHICH IS RAISED IN RESPECT OF AFORESAID DEDUCTION IS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION ON THE FDR INTEREST RECEIVED BY THE ASSESSEE. BOTH THE LEARNED AUTHORIZED REPRESENTATIVES HAVE PLACED RELIANCE ON DIFFERENT DECISIONS. IT MAY BE POINTED OUT THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS RELIED ON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THOMSON PRESS (INDIA ) LTD. VS. CIT (SUPRA), WHICH RELATES TO ASSESSMENT YEARS 1991 - 92, 1992 - 93 I.E. PRE - AMENDED PROVISIONS OF SECTION 10A OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. MOTOROLA INDIA ELECTRONICS (P) LTD. , WHICH RELATES TO ASSESSMENT YEARS 1998 - 99 AND 2001 - 02 AND HAS FURTHER RELIED ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN UNIVERSAL PR ECISION SCREWS VS. ACIT (2015) 168 TTJ 84 FOR ASSESSMEN T YEAR 2009 - 10. THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2010 - 11 I.E. PROVISIONS OF SECTION 10A OF THE ACT AFTER AMENDMENT HAVE TO BE CONSIDERED. THE TRIBUNAL HAD APPLIED THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. MOTOROL A INDIA ELECTRONICS (P) LTD. (SUPRA) THAT WHERE THE INTEREST INCOME HAD CLOSE NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE WHICH WAS ASSESSABLE AS INCOME FROM BUSINESS WAS ELIGIBLE FOR THE BENEFIT OF DEDUCTION UNDER SECTIONS 10A AND 10B OF THE ACT. TH E TRIBUNAL APPLYING THE SAID PRINCIPLE HELD THAT THE INTEREST INCOME EARNED ON FDR , WHICH WERE MADE FOR THE PURPOSE OF KEEPING MARGIN MONEY OR FOR AVAILING CREDIT FACILITIES FROM BANKS , WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. THE PROVISIO NS OF SECTION 10B OF THE ACT ARE PARAMETRIA OF SECTION 10A OF THE ACT. FOLLOWING THE SAID PROPOSITION, WE DIRECT THE ASSESSING 23 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. OFFICER TO ALLOW THE CLAIM OF ASSESSEE IN CASE THE ASSESSEE ESTABLISHES THAT THE FDR WITH THE BANK AR E KEPT FOR MARGIN MONEY OR FOR AVAILING ANY OTHER CREDIT FACILITIES FROM THE BANKS. IN CASE THE SURPLUS FUNDS ARE PARKED IN FDRS AND HAD NO CONNECTION BUSINESS UNDERTAKEN BY THE ASSESSEE, THE ASSESSEE WILL NOT BE ENTITLED TO THE SAID CLAIM OF DEDUCTION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO APPLY THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT & ANR VS. MOTOROLA INDIA ELECTRONICS (P) LTD. (SUPRA) AND THE DELHI BEN CH OF TRIBUNAL IN UNIVERSAL PRECISION SCREWS VS. ACIT (SUPRA) TO DECIDE THE SAID ISSUE. HENCE, THE ISSUE IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER. THE GROUND OF APPEAL NO.6 IS THUS, ALLOWED FOR STATISTICAL PURPOSES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 3 5 . NOW, COMING TO THE APPEAL FILED BY THE REVENUE . 3 6 . THE FIRST ISSUE RAISED BY THE REVENUE IS AGAINST THE DIRECTIONS OF DRP TO RE - COMPUTE THE OPERATING MARGINS OF MINDTREE LTD. THE APPEAL FILED BY THE REVENUE IS IN RESPECT OF SOFTWARE SERVICES SEGMENT PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPR ISES. THE ASSESSING OFFICER / TPO HAD MADE AN ADJUSTMENT OF RS. 2,67,41,659/ - , WHICH WAS DELETED BY THE DRP. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE DECISIO N OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2009 - 10, WHEREIN SIMILAR ACTIVITIES WERE CARRIED ON BOTH BY THE ASSESSEE AND THE COMPANIES WHICH WERE PICKED UP AS COMPARABLES IN THE SOFTWARE SERVICES SEGMENT OF THE ASSESSEE. IN RESPECT OF FIRST GROUND OF APPEAL RAISED BY THE REVENUE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE DIRECTIONS IN PARA 3 OF THE ORDER OF DRP. THE FIRST PLEA 24 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. OF THE ASSESSEE BEFORE THE DRP WAS THAT THE PLI OF MINDTREE LTD. NEEDS TO BE COR RECTED AS ONLY IT SERVICES SEGMENT OF MINDTREE LTD. WAS COMPARABLE TO THE ASSESSEES SOFTWARE DEVELOPMENT SERVICES SEGMENT. THE DRP DIRECTED THE ASSESSING OFFICER TO EXAMINE THE COMPUTATION OF MARGINS FURNISHED BY THE ASSESSEE AND IF NECESSARY, TO RE - COMP UTE THE SAME. 3 7 . THE REVENUE IS IN APPEAL AGAINST THE AFORESAID DIRECTIONS OF DRP AND THE REFERENCE TO THE SAFE HARBOUR RULES BY THE DRP. WE FIND NO MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE AGAINST THE DIRECTIONS OF THE DRP, WHEREIN THE TPO WAS DIRECTED TO APPLY THE MARGINS OF IT SERVICES SEGMENT OF MINDTREE LTD. WHILE BENCHMARKING THE ARM'S LENGTH PRICE OF SOFTWARE DEVELOPMENT SERVICES SEGMENT OF THE ASSESSEE. THE DR P HAS GIVEN SPECIFIC DIRECTIONS, WHICH MAY BE COMPLIED WITH. HOWEVER, REF ERENCE TO OTHER SAFE HARBOUR RULES MAY NOT BE TAKEN INTO CONSIDERATION. ACCORDINGLY, THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS DISMISSED. 3 8 . THE ISSUE RAISED IN GROUND OF APPEAL NO.2 IS AGAINST EXCLUSION OF INFOSYS LTD ., WHEREIN THE TPO HAD APP LIED THE MARGINS OF INFOSYS LTD. , AS THE ASSESSEE ITSELF FOR THREE YEARS WAS SELECTING L & T INFOTECH LTD. BUT WAS CHERRY PICKING IN RESPECT OF INFOSYS LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT FIRST OF ALL, INFOSYS LTD. WAS THE PRODUCT COMPANY , HENCE WAS FUNCTIONALLY NOT COMPARABLE AND IN RESPECT OF L&T INFOTECH LTD., SINCE SEGMENTAL DETAILS WERE AVAILABLE, THE SAME WERE APPLIED TO BENCHMARK THE INTERNATIONAL TRANSACTION. OUR ATTENTION WAS DRAWN TO THE FINAL SET OF COMP ARABLES PREPARED BY THE TPO, WHEREIN ALSO UNDER PARA 24 WHILE ENLISTING THE SAID CONCERNS I.E. L&T INFOTECH LTD., IT HAS BEEN CLARIFIED THAT THE SAID COMPARABLES WERE 25 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. CONSIDERED AT SEGMENTAL LEVEL AND HENCE, NO WORKING CAPITAL ADJUSTMENT IS TO BE PROVIDED. THE DRP IN VIEW THEREOF, DIRECTED THE TPO TO EXCLUDE INFOSYS LTD. BEING PRODUCT COMPANY. WE FIND NO ERROR IN THE ORDER OF ASSESSING OFFICER / DRP THAT A PRODUCT COMPANY IS NOT FUNCTIONALLY COMPARABLE TO THE SEGMENT OF PROVISION OF SOFTWARE SERVICES BY T HE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. THE PUNE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10 HAD DIRECTED EXCLUSION OF THE COMPANIES WHICH WERE PRODUCT COMPANIES . V IDE PARA 14 OF THE ORDER RELATING TO ASSESSMENT YEAR 2009 - 10 , TH E TRIBUNAL HAD DIRECTED EXCLUSION OF FCS SOFTWARE LTD. ON THE PREMISE THAT THE SAID CONCERN WAS A PRODUCT COMPANY. 3 9 . THE REVENUE IS IN APPEAL BEFORE US NOT ONLY AGAINST EXCLUSION OF INFOSYS LTD. BUT ALSO AGAINST EXCLUSION OF FCS SOFTWARE LTD. WE FIND NO MERIT IN THE SAID PLEA OF THE REVENUE AS THE PRODUCT COMPANIES ARE FUNCTIONALLY NOT COMPARABLE TO THE CONCERNS ENGAGED IN PROVIDING SOFTWARE SERVICES TO ITS ASSOCIATE ENTERPRISES. ACCORDINGLY, WE UPHOLD THE ORDER OF DRP FOR EXCLUDING FCS SOFTWARE LTD. AND INFOSYS LTD. 40 . NOW, COMING TO SECOND SET OF CONCERNS I.E. E - ZEST SOLUTIONS LTD., EVOKE TECHNOLOGIES LTD. AND E - INFOCHIPS LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 IN ITA NO.2536/PN/2012, ORDER DATED 11.02.2015 HAD DIRECTED THE INCLUSION OF SAID CONCERNS BEING FUNCTIONALLY COMPARABLE AND IN ASSESSMENT YEAR 2009 - 10 IN ITA NO.94/PN/2014, ORDER DATED 10.04.2015 VIDE PARA 25 HAD DIRECTED INCLUSION OF E - INFOCHIPS LTD. TO BEN CHMARK THE INTERNATIONAL TRANSACTION OF SEGMENT OF SOFTWARE SERVICES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. 26 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 41 . IN RESPECT OF EVOKE TECHNOLOGIES LTD., THE CASE OF TPO WAS THAT IT WAS SOFTWARE PRODUCT COMPANY. HOWEVER, THE LEARNED AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE FINANCIAL STATEMENTS OF THE SAID CONCERN, WHEREIN IN THE PROFIT & LOSS ACCOUNT, THE SAID CONCERN HAD DECLARED INCOME FROM SOFTWARE DEVELOPMENT CHARGES AT RS.10.86 CRORES FOR THE YEAR UNDER APPEAL. THE DRP HAD DIRECTED THE TPO TO INCLUDE THE MARGINS OF THE SAID CONCERN IN THE FINAL SET OF COMPARABLES, IN VIEW OF THE CONCERN BEING FUNCTIONALLY COMPARABLE. SIMILARLY, DRP DIRECTED INCLUSION OF E - ZEST SOLUTIONS LTD. AND E - INFOCHIPS LTD. WE FIND MERIT IN THE D IRECTIONS OF DRP IN THIS REGARD IN RESPECT E - ZEST SOLUTIONS LTD. AS THE SAME WAS HELD TO BE FUNCTIONALLY COMPARABLE IN ASSESSMENT YEAR 2008 - 09 AND E - INFOCHIPS LTD. WAS HELD TO BE FUNCTIONALLY COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10. THERE IS NO CHANGE IN TH EIR FUNCTIONING, HENCE, ARE TO BE INCLUDED AS FUNCTIONALLY COMPARABLE. IN RESPECT OF EVOKE TECHNOLOGIES LTD., THERE IS NO OBSERVATION OF TPO . I N VIEW OF FINANCIAL DECLARATION MADE BY THE SAID CONCERN IN ITS PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION , W E UPHOLD THE DIRECTIONS OF DRP AND DISMISS THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE. 42. THE LAST GROUND OF APPEAL RAISED BY THE REVENUE BY WAY OF GROUND OF APPEAL NO.3 IS AGAINST THE DIRECTIONS OF DRP TO THE TPO TO VERIFY THE WORKING OF RPT IN THE CASE OF CRISIL LTD. THE REVENUE IS IN APPEAL ON THE LIMITED ISSUE OF APPLICATION OF RPT FILTER. THE DRP HAD DIRECTED THE TPO TO VERIFY THE RPT FILTER IN RESPECT OF CRISIL LTD. AND IN CASE IT WAS GREATER THAN 25%, THEN THE SAID CONCERN IS TO BE EXCLUDED FROM THE FINAL SET OF COMPARABLES. WE FIND NO MERIT IN THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IN THIS REGARD SINCE IT IS AN 27 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. ADMITTED FACT THAT THE RPT FILTERS ARE TO BE APPLIED WHILE SELECTING TH E COMPARABLE COMPANIES. THE DRP HAS GIVEN DIRECTIONS TO THE TPO TO VERIFY THE CLAIM MADE BY THE ASSESSEE VIS - - VIS RPT FILTER IN RESPECT OF CRISIL LTD. AND UPHOLDING THE SAME, WE DISMISS THE GROUND OF APPEAL NO.3 RAISED BY THE REVENUE. ACCORDINGLY, THE G ROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 43. THE ASSESSEE IN CO NO.04/PUN/2016 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DISPUTE RESOLUTION PANEL ('LD. DRP') HAS ERRED IN UPHOLDING THE ACTION OF THE TRANSFER PRICING OFFICER ('TPO') / ASSESSING OFFICER ('AO') IN INCLUDING THE COMPANIES THAT ARE FUNCTIONALLY DISSIMILAR TO THAT OF THE RESPONDENT'S INFORMATION TECHNOLOGY SEGMENT NAMELY ACROPETAL TECHNOLOGIES LTD. (IT S EGMENT), KALS INFORMATION SYSTEMS LTD. (APPLICATION SOFTWARE SEGMENT) AND THIRDWARE SOLUTIONS LTD. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP HAS ERRED IN STATING THAT THE RESPONDENT'S CONTENTIONS, WITH RESPECT TO HAS ERRED IN STATING THAT THE RESPONDENT'S CONTENTIONS, WITH RESPECT TO ERRONEOUS REJECTION OF PERSISTENT SYSTEMS & SOLUTIONS LTD. BY THE TPO / AO, ARE FACTUALLY INCORRECT. IN THIS CONNECTION, THE LD. DRP HAS INADVERTENTLY CONSTRUED THE INCLUSION OF PERSISTENT SYSTEMS LTD. IN THE TP ORDER, AS INCLUSION OF PERSISTENT SYSTEMS & SOLUTIONS LTD. 44 . FURTHER, ASSESSEE HAS FILED CROSS OBJECTIONS FOR EXCLUSION OF KALS INFORMATION SYSTEMS LTD., THIRDWARE SOLUTIONS LTD. AND ACROPETAL TECHNOLOGIES LTD. IN THE SOFTWARE DEVELOPMENT SERVICES SEGMENT. 4 5 . WE FIND THAT THE ISSUE OF EXCLUSION OF KALS INFORMATION SYSTEMS LTD. AND THIRDWARE SOLUTIONS LTD. AS BEING NOT COMPARABLE TO A CONCERN WHICH WAS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AROSE BEFORE THE TRIBUNAL IN APPROVA SYSTEMS PVT. LTD. VS. DCIT IN ITA NO.1921/PUN/2014, RELATING TO ASSESSMENT Y EAR 2010 - 11, ORDER DATED 25.01.2017 , WHEREIN THE TRIBUNAL OBSERVED AS UNDER: - 28 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 10. NOW, COMING TO THE SECOND ISSUE RAISED IN THE PRESENT APPEAL I.E. ADJUSTMENT MADE ON ACCOUNT OF TRANSFER PRICING PROVISIONS. THE ASSESSEE WAS CAPTIVE SERVICE PROVIDER TO IT S ASSOCIATE ENTERPRISES APPROVA, US. THE ASSESSEE HAD PROVIDED SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES AND IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS, THE ASSESSEE HAD APPLIED TNMM METHOD WHICH WAS ALSO APPLIED BY THE ASSESSIN G OFFICER. THE LIMITED ISSUE WHICH ARISES BEFORE US IS VIS - - VIS SELECTION / REJECTION OF CERTAIN COMPARABLES. THE ASSESSEE HAD DRAWN LIST OF 14 COMPARABLES IN ITS LIST OF COMPARABLES, SOME OF WHICH WERE REJECTED AND SOME OF WHICH WERE ACCEPTED BY THE AS SESSING OFFICER. THE ASSESSEE IS AGGRIEVED BY THE SELECTION OF KALS INFORMATION SYSTEM LTD. AND THIRDWARE SOLUTION LTD. AND IT IS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT BOTH THE CONCERNS ARE FUNCTIONALLY DIFFERENT I.E. THEY ARE BOTH SERVICE PROVIDERS AND ARE ALSO PRODUCT COMPANIES, HENCE, THE SAME ARE NOT COMPARABLE WITH THE ASSESSEE. HE POINTED OUT THAT THERE WAS NO DISPUTE THAT KALS INFORMATION SYSTEM LTD. WAS ENGAGED IN THE SAME BUSINESS BUT IT ALSO WAS PROVIDING PROD UCTS AND HENCE, NOT TO BE CONSIDERED AS COMPARABLE WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE OF INCLUSION OF SAID COMPANIES AROSE BEFORE THE TRI BUNAL IN EARLIER YEARS AND THE SAME WERE REJECTED. HE ALSO POINTED OUT THAT THE ASSESSING OFFICER WHILE CONDUCTING PROCEEDINGS FOR ASSESSMENT YEAR 2011 - 12 HAD NOT SELECTED THE SAID CONCERNS KALS INFORMATION SYSTEM LTD. AND THIRDWARE SOLUTION LTD. AS BEING COMPARABLE TO THE ASSESSEE. 11. WE FIND THAT THE TRIBUNAL NOTED THAT THE TPO HAD SELECTED KALS INFORMATION SYSTEM LTD. AND THIRDWARE SOLUTION LTD. AS BEING COMPARABLE, WHEREAS THE CASE OF ASSESSEE WAS THAT BOTH THE SAID CONCERNS WERE FUNCTIONALLY DIFFE RENT. WITH REGARD TO KALS INFORMATION SYSTEM LTD., IT WAS POINTED OUT THAT THE SAID COMPANY WAS EARNING INCOME FROM SALE OF APPLICATION SOFTWARE AND THE SAID COMPANY WAS EARNING INCOME FROM SALE OF APPLICATION SOFTWARE AND SEGMENTAL INFORMATION WITH RESPECT TO SOFTWARE SERVICES WERE AVAILABLE. IN RESPECT OF THIRDWARE SOLUTION LTD., IT WAS POINTED OUT THAT THE SAID CONCERN WAS ENGAGED IN SOFTWARE DEVELOPMENT, TRADING OF SOFTWARE LICENCES AND TRAINING IMPLEMENTATION ACTIVITIES APART FROM SOFTWARE DEVELOPMENT. ANOTHER CONTENTION WAS RAISED THAT THIRDWARE SOLUTION LTD. WAS SUPER P ROFIT EARNING COMPANY AND WAS ALSO ENGAGED IN THE BUSINESS OF SOFTWARE LICENCES AND TRADING OF IMPLEMENTATION ACTIVITIES. THE TRIBUNAL TAKING NOTE OF THE SPECIAL BENCH DECISION IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VIDE ITA NO.74 66/M/2012 IN RESPECT OF SUPER PROFITS AND INCLUSION OF CONCERN THIRDWARE SOLUTION LTD. , HELD THAT THE SAID CONCERN WAS NOT COMPARABLE AND OBSERVED AS UNDER: - 29. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAERSK GLOBAL CENTRES (INDIA) PVT. LTD. VS. ACIT VIDE ITA NO.7466/MUM/2012 HAS OBSERVED AS UNDER : 99. THE QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS AS TO WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, COMPANIES EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD BE INCLUDED IN THE LIST OF COMPARABLE CASES FOR THE PURPOSE OF DETERMINING ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. AS ALREADY OBSERVED, THE ISSUE INVOLVED IN THIS QUESTION HAS BECOME INFRUCTUOUS IN S O FAR AS THE CASE OF THE ASSESSEE BEFORE THE SPECIAL BENCH IS CONCERNED AND THE SAME THEREFORE NO MORE SURVIVES FOR CONSIDERATION IN THE PRESENT CASE. IN GENERALITY, WE ARE OF THE VIEW THAT THE ANSWER TO THIS QUESTION WILL DEPEND ON THE FACTS AND 29 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. CIRCUMSTA NCES OF EACH CASE INASMUCH AS POTENTIAL COMPARABLE EARNING ABNORMALLY HIGH PROFIT MARGIN SHOULD TRIGGER FURTHER INVESTIGATION IN ORDER TO ESTABLISH WHETHER IT CAN BE TAKEN AS COMPARABLE OR NOT. SUCH INVESTIGATION SHOULD BE TO ASCERTAIN AS TO WHETHER EARNIN G OF HIGH PROFIT REFLECTS A NORMAL BUSINESS CONDITION OR WHETHER IT IS THE RESULT OF SOME ABNORMAL CONDITIONS PREVAILING IN THE RELEVANT YEAR. THE PROFIT MARGIN EARNED BY SUCH ENTITY IN THE IMMEDIATELY PRECEDING YEAR/S MAY ALSO BE TAKEN INTO CONSIDERATION TO FIND OUT WHETHER THE HIGH PROFIT MARGIN REPRESENTS THE NORMAL BUSINESS TREND. THE FAR ANALYSIS IN SUCH CASE MAY BE REVIEWED TO ENSURE THAT THE POTENTIAL COMPARABLE EARNING HIGH PROFIT SATISFIES THE COMPARABILITY CONDITIONS. IF IT IS FOUND ON SUCH INVEST IGATION THAT THE HIGH MARGIN PROFIT MAKING COMPANY DOES NOT SATISFY THE COMPARABILITY ANALYSIS AND OR THE HIGH PROFIT MARGIN EARNED BY IT DOES NOT REFLECT THE NORMAL BUSINESS CONDITION, WE ARE OF THE VIEW THAT THE HIGH PROFIT MARGIN MAKING ENTITY SHOULD NO T BE INCLUDED IN THE LIST OF COMPARABLE FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE OF AN INTERNATIONAL TRANSACTION. OTHERWISE, THE ENTITY SATISFYING THE COMPARABILITY ANALYSIS WITH ITS HIGH PROFIT MARGIN REFLECTING NORMAL BUSINESS CONDITION SHOU LD NOT BE REJECTED SOLELY ON THE BASIS OF SUCH ABNORMAL HIGH PROFIT MARGIN. QUESTION NO. 2 REFERRED TO THIS SPECIAL BENCH IS ANSWERED ACCORDINGLY. 29.1 WE FIND FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT THE ASSESSEE IS A SOFTWARE DEVELOPER WHEREAS THIRDWARE SOLUTIONS LTD. IS ENGAGED IN THE BUSINESS OF SALE - CUM - LICENCE OF SOFTWARE WHICH IS AVAILABLE FROM THE AUDITED ACCOUNTS, THE DETAILS OF WHICH ARE AS UNDER : SCHEDULE : SALES AS ON AS ON SCHEDULE : SALES AS ON AS ON 31 - 03 - 2009 31 - 03 - 2008 SALE OF LICENCE 22,237,588 3,916,427 SOFTWARE SERVICES 89,177,023 76,724,371 EXPORT FROM SEZ UNIT 478,572,420 263,971,033 EXPORT FROM STPI UNIT 162,900,630 168,863,049 REVEN UE FROM SUBSCRIPTION 16,433,714 9,293,874 770,321,376 522,768,754 APART FROM THE ABOVE THE COMPANY IS ALSO HAVING DIVIDEND INCOME, INTEREST INCOME AND PROFIT ON SALE OF INVESTMENT AS WELL AS PREMIUM OF SOFTWARE CONTRACT TOTALLING TO RS.2,30,48,603/ - W HICH IS AS PER SCHEDULE - 13 OTHER SOURCES. FROM THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE FIND THIRDWARE SOLUTIONS LTD. HAS BEEN REJECTED ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR. THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF INTOTO SOFTWARE INDIA PVT. LTD. VS. ACIT AND VICEVERSA IN CONSOLIDATED ORDER DATED 24 - 05 - 2013 FOR A.Y. 2005 - 06 AND 2007 - 08 AT PARA 26 OF THE ORDER HAS OBSERVED AS UNDER : 26. AS FAR AS THIRDWARE SOFTWARE SOLUTION LIMITED IS CONCERNED, WE FI ND FROM THE INFORMATION FURNISHED BY THE SAID COMPANY THAT THOUGH THE SAID COMPANY IS ALSO INTO PRODUCT DEVELOPMENT, THERE ARE NO SOFTRWARE PRODUCTS THAT THE COMPANY INVOICED DURING THE RELEVANT FINANCIAL 52 YEAR AND THE FINANCIAL RESULTS ARE IN RESPECT OF SERVICES ONLY. THUS, IT IS CLEAR THAT THERE IS NO SALE OF SOFTWARE PRODUCTS DURING THE YEAR BUT THE SAID COMPANY MIGHT HAVE INCURRED EXPENDITURE TOWARDS THE DEVELOPMENT OF THE SOFTWARE PRODUCTS. 30 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. 29.2 IN VARIOUS OTHER DECISIONS ALSO THIRDWARE SOLUTIONS LTD. HAS BEEN REJECTED AS A COMPARABLE ON THE GROUND THAT IT IS FUNCTIONALLY DISSIMILAR. WE THEREFORE FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIRDWARE SOLUTIONS LTD. SHOULD NOT BE INCLUDED AS A COMPARABLE. WE ACCORDINGLY SET - ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE SAME FROM THE LIST OF COMPARABLES. 12. BOTH THE LEARNED AUTHORIZED REPRESENTATIVES HAVE ADMITTED THAT THIRDWARE SOLUTIONS LTD. WAS INVOLVED IN SIMILAR FUNCTIONS AS IN EARLIER YE AR AND IN VIEW THEREOF, WE HOLD THAT THE SAID CONCERN IS FUNCTIONALLY DIFFERENT AND IS TO BE EXCLUDED FROM FINAL LIST OF COMPARABLES. 13. NOW, COMING TO THE SECOND CONCERN I.E. KALS INFORMATION SYSTEM LTD. VIS - - VIS OTHER CONCERN, THE CIT(A) IN ASSESSMENT YEAR 2009 - 10 HAD EXCLUDED THE SAID CONCERN AND THE TRIBUNAL FOLLOWING SERIES OF DECISIONS INCLUDING BINDVIEW INDIA PVT. LTD. VS. DCIT (2013) 34 TAXMANN.COM 164 HELD THAT THE SAID CONCERN WAS FUNCTIONALLY DIFFERENT AS IT WAS ENGAGED IN THE DEVELOPMENT OF S OFTWARE PRODUCTS AND ITS SALE AND WAS NOT COMPARABLE TO THE SOFTWARE DEVELOPMENT SERVICES PROVIDED BY THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. PTC SOFTWARE (I) PVT. LTD. IN INCOME TAX APPEAL NO.732 OF 2014, VIDE JUDGMENT DATED 26.09.2016 HAV E ALSO OBSERVED THAT KALS INFORMATION SYSTEM LTD. IS FUNCTIONALLY NOT COMPARABLE TO THE ASSESSEE WHICH IS RENDERING SOFTWARE SERVICES TO ITS HOLDING COMPANY SINCE KALS INFORMATION SYSTEM LTD. WAS ENGAGED IN SELLING OF SOFTWARE PRODUCTS. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT KALS INFORMATION SYSTEM LTD. IS NOT TO BE INCLUDED IN THE FINAL SET OF COMPARABLES IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. THE ASSESSING OFFICER IS ACCORDINGLY, DIRECTED TO RE - COMPUTE THE MARGINS OF FINAL S ET OF COMPARABLES. THE GROUNDS OF APPEAL NO.7 AND 9 ARE THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY THUS, ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 4 6 . THE ASSESSEE BEFORE US IS ALSO ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERP RISES AS IN THE CASE OF APPROVA SYSTEMS PVT. LTD. VS. DCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE SAID TWO CONCERNS KALS INFORMATION SYSTEMS LTD. AND THIRDWARE SOLUTIONS LTD. ARE TO BE EXCLUDED FROM THE FINAL LIST OF COMPARABL ES. ACCORDINGLY, WE HOLD SO. 4 7 . NOW, COMING TO THE NEXT CONCERN I.E. ACROPETAL TECHNOLOGIES LTD. SIMILAR ISSUE OF EXCLUSION OF ACROPETAL TECHNOLOGIES LTD. BEING ENGAGED IN DESIGN ENGINEERING ACTIVIT I ES , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE POINTED OUT THAT IT WAS ENGAGED IN DESIGN ENGINEERING ACTIVITIES AND VARIOUS 31 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. BENCHES OF TRIBUNAL INCLUDING THE PUNE BENCH OF TRIBUNAL IN VISTCON ENGINEERING CENTRE (INDIA) (P.) LTD. VS. ACIT (2016) 70 TAXMANN.COM 248 (PUNE TRIB.), HAD HELD THAT THE SAID CONCERN IS NOT COMPARABLE TO BPO SERVICES PROVIDED BY THE ASSESSEE. THE TRIBUNAL VIDE PARA 26 HAD HELD AS UNDER: - 26. SO FAR AS ACROPETAL TECHNOLOGIES LTD. IS CONCERNED IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TPO HAS CONS IDERED OVERALL ENTITY LEVEL OPERATING MARGIN IN RESPECT OF COMPARABLE SEGMENTAL MARGIN. HE SUBMITTED THAT ACROPETAL TECHNOLOGIES LTD. GENERATES REVENUE FROM ENGINEERING DESIGN SERVICES AND INFORMATION TECHNOLOGY CONSULTANCY. THEREFORE, ONLY SEGMENTAL PROFI TABILITY OF ENGINEERING DESIGN SERVICES NEEDS TO BE CONSIDERED FOR THE COMPARISON. THE DRP HELD THAT THE IT BASED SERVICES SEGMENT IS ALSO SIMILAR TO THE SEGMENT OF THE ENGINEERING DESIGN SERVICES AND ACCORDINGLY REJECTED THE GROUND RAISED BY THE ASSESSEE. HE SUBMITTED THAT THE OPERATING PROFIT/OPERATING COST OF THE RELEVANT SEGMENT OF THE SAID COMPARABLE COMPANY FOR THE YEAR UNDER CONSIDERATION IS 32.92% BEFORE CONSIDERING THE WORKING CAPITAL ADJUSTMENT. HE SUBMITTED THAT THE ENGINEERING DESIGN SERVICES CA NNOT BE EQUATED WITH IT SERVICES, THEREFORE, ACROPETAL TECHNOLOGIES LTD. SHOULD NOT BE CONSIDERED AS COMPARABLE COMPANY. 4 8 . FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT ACROPETAL TECHNOLOGIES LTD. IS ALSO BEING ENGAGED IN OUTSOURCING, IS TO BE EXCLUDED. 4 9 . THE NEXT ISSUE RAISED BY WAY OF GROUND OF OBJECTION NO.2 IS AGAINST ERRONEOUS REJECTION OF PERSISTENT SYSTEMS & SOLUTIONS LTD. BY THE TPO/ASSESSING OFFICER AND THE DRP. 50 . THE CONTENTION OF THE ASSESSEE BEFORE US IS THAT THE DRP HAD INADVERTENTLY CONSTRUED THE INCLUSION OF PERSISTENT SYSTEMS LTD. IN THE TPO ORDER AS INCLUSION OF PERSISTENT SYSTEMS & SOLUTIONS LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POI NTED OUT THAT THE DRP BECAUSE OF SIMILARITY IN NAME HAD ERRED IN THE SAME. HE FURTHER POINTED OUT THAT THE SAID CONCERN HAS TAKEN AS COMPARABLE IN ASSESSMENT YEAR 2011 - 12. IN THE INTEREST OF JUSTICE, WE DEEM IT FIT TO RESTORE THIS ASPECT OF VERIFICATION, BACK TO THE FILE OF 32 ITA NO. 276 /P U N/201 5 ITA NO.334/P U N/2015 CO NO. 04 /P U N/201 6 TIBCO SOFTWARE IN DIA PVT. LTD. TPO / ASSESSING OFFICER, WHO SHALL CONSIDER THE CLAIM OF ASSESSEE AND AFTER VERIFYING EXACT NAME AND ALSO THE FUNCTIONAL COMPARABILITY OF THE SAID CONCERN, DECIDE THE ISSUE ACCORDINGLY. THE GROUND OF OBJECTION NO.2 IS ALLOWED FOR STAT ISTICAL PURPOSES. THE GROUNDS OF OBJECTIONS RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 51 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED, APPEAL OF REVENUE IS DISMISSED AND CROSS OBJECTIONS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THIS 31 ST D AY OF JANUARY , 201 7 SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 31 ST JANUAR Y , 201 7 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP, PUNE ; 4. THE DIT (TP/IT), PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , //TRUE COPY// ASSISTANT REGISTRAR